M/s. U.P. State Bridge Corporation Limited, Lucknow V. ACIT, Lucknow

ITA 510/LKW/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9068 (ITAT-LUCKNOW)
• Duration Of Justice: 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2011
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 09-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 04-08-2010
• Court: TRIBUNAL
• Assessee Lawyers: PRAKASH NARAYAN
• Keywords: Opportunity of being heard; Bad and doubtful debts; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A , LUCKNOW IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A , LUCKNOW IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A , LUCKNOW IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A , LUCKNOW BEFORE HONBLE SHRI H.L. KARWA BEFORE HONBLE SHRI H.L. KARWA BEFORE HONBLE SHRI H.L. KARWA BEFORE HONBLE SHRI H.L. KARWA AND HONBLE SHRI N.K. SAINI AND HONBLE SHRI N.K. SAINI AND HONBLE SHRI N.K. SAINI AND HONBLE SHRI N.K. SAINI ITA NO.510/LKW/2010 ASSESSMENT YEAR:2005-06 M/S U.P. STATE BRIDGE CORPORATION LIMITED SETU BHAWAN, 16, M.M.M. MARG LUCKNOW 226 001 V. ACIT RANGE II, LUCKNOW PAN:AAACU3258K (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PRAKASH NARAYAN, ADVOCATE RESPONDENT BY: SHRI PRAVIN KUMAR, CIT (DR) O OO O R RR R D DD D E EE E R RR R PER N.K. SAINI: PER N.K. SAINI: PER N.K. SAINI: PER N.K. SAINI: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 21.4.2010 OF THE CIT(A)-III, LUCKNOW FOR ASSESSMENT YEAR 2005-06. T HE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL:- 1. THE ORDER PASSED BY THE LD. CIT(A) IS AGAINST THE F ACTS OF THE CASE AND NOT IN ACCORDANCE WITH THE LAW. 2. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOW ANCE OF RS.18060464/- CLAIMED AS BAD DEBIT, WRONGLY PRESUMING THAT IT HAD NOT BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT. HE FAILED TO APPRECIATE THAT IT HAD BEEN PROPERLY WRITTEN OFF IN THE BOOKS OF ACCOUNT, AS REQUIRED BY LAW. 3. THE LD. CIT(A) HAS FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1305925/- BEING PRIOR PERIOD ADJUSTMENTS ON THE GROUND THAT THE MERCANTILE SYSTEM OF ACCOUNTS DOES NOT PERMIT SUCH DEDUCTION. HE FAILED TO APPRECIATE THAT SUCH ADJUSTMENTS ARE MADE YEAR TO YEAR AND THU S CONSTITUTE A PART OF MERCANTILE SYSTEM OF ACCOUNTS. THE CLAIM, THEREFOR E, OUGHT TO HAVE BEEN ALLOWED. 4. THE APPELLANT SEEKS PERMISSION TO MODIFY AND /OR AD D ANY OTHER GROUND /GROUNDS OF APPEAL AS THE CIRCUMSTANCES OF THE CASE MIGHT REQUIRED OR JUSTIFY. :-2-: 2. GROUNDS NO.1 AND 4 ARE GENERAL IN NATURE, SO DO NOT REQUIRE ANY SPECIFIC COMMENTS ON OUR PART. 3. VIDE GROUND NO.2, THE GRIEVANCE OF THE ASSESSEE R ELATES THE CONFIRMATION OF DISALLOWANCE OF $ 1,80,60,464 MADE BY THE ASSESSING OFFICER ON ACCOUN T OF BAD DEBTS. 4. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT T HE ASSESSEE FILED RETURN OF INCOME ON 31.10.2005 DECLARING A LOSS OF $ 4,21,21,425. THE CASE WAS SELECTED FOR SCRUTINY. SUBSEQUENTLY, THE ASSESSEE FILED REVISED RETURN ON 30.3.2007 DECLARING INCOME OF $ 66,26,028. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED BAD DEBTS AMOUNTING TO $ 1,80,60,464 IN SCHEDULE K APPENDED TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER DISALLOWED THE SAID CLAIM IN THE ABSENCE OF ANY PROOF ON RECORD THAT THE BAD DEBTS H AD OCCURRED AND WERE WRITTEN OFF. 5. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) A ND SUBMITTED THAT IN THE DRAFT COMMENTS OF AGUP, LUCKNOW, IN PARA 3 IT IS MENTIONE D THAT THE AMOUNT OF $ 3.54 CRORES REPRESENTED THE EXPENDITURE INCURRED BY THE ASSESSE E-COMPANY IN EXCESS OF THE SANCTIONED ESTIMATE AND IN THOSE CIRCUMSTANCES IT H AD BEEN SUGGESTED THAT THE AMOUNT MAY BE WRITTEN OFF AS BAD DEBTS. IT WAS ALSO SUBMI TTED THAT FINAL AMOUNT TO BE WRITTEN OFF WORKED OUT TO ONLY $ 1,54,59,446 AGAINST THE ORIGINAL CLAIM OF $ 1,80,60,464. 6. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE COMPTROLLER AND AUDITOR GENERAL OF INDIA IN THE DRAFT COMMENTS VIDE PARA 3 COMMENTED AS UNDER:- 3. SUNDRY DEBTORS $ 38.97 CRORE. THIS INCLUDES $ 3.54 CRORE AGAINST 17 DEPOSITS WORKS (ANNEXURE) OUTSTANDING FOR THE LAST 8 TO 20 YEARS FROM VARIOUS GOVERNMENT DEPARTMENTS. THE AMOUNT REPRESENTS EXPENDITURE INC URRED BY THE COMPANY IN EXCESS OF THE SANCTIONED ESTIMATE. AS N O REALIZATION HAS BEEN MADE AND THEREFORE THERE IS NO COMMITMENT FROM THE CLIENTS FOR THE PAYMENT, THIS SHOULD HAVE BEEN TREATED AS DOUBTFUL AND SUITABLE PROVISION SHOULD HAVE BEEN MADE IN THE ACCOUNTS. THE NON-PRO VISION HAS RESULTED IN OVERSTATEMENT OF SUNDRY DEBTORS AND UNDERSTATEMENT OF LOSS BY $ 3.54 CRORE. :-3-: 7. ON THE BASIS OF THE ABOVE COMMENTS, THE LD. CIT(A) WAS OF THE VIEW THAT THE ASSESSEE INCURRED EXPENDITURE IN EXCESS OF THE SANC TIONED ESTIMATE. THEREFORE, THE EXPENDITURE SHOULD NOT HAVE BEEN ALLOWED AS BUSINES S EXPENDITURE AND THAT THE COMPTROLLER AND AUDITOR GENERAL OF INDIA ADVISED TO TREAT IT AS DOUBTFUL BY CATEGORICALLY OBSERVING THAT THE NON-PROVISION HAS RESULTED IN O VERSTATEMENT OF SUNDRY DEBTORS AND UNDERSTATEMENT OF LOSS BY $ 3.5 CRORES. THE LD. CIT(A) FURTHER OBSERVED THAT THE AMOUNT HAD NOT BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT BE CAUSE IT WAS INCLUDED IN THE SUNDRY DEBTORS AND REFLECTED IN THE BALANCE SHEET OF THE A SSESSEE. THEREFORE, THE AMOUNT COULD NOT BE ALLOWED AS BAD DEBTS. ACCORDINGLY DISALLOWA NCE MADE BY THE ASSESSING OFFICER WAS CONFIRMED BY THE LD. CIT(A). 8. NOW THE ASSESSEE IS IN APPEAL. 9. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE BA D DEBTS WERE WRITTEN OFF IN THE BOOKS OF ACCOUNT AND THIS FACT WAS EVIDENT FROM THE PROFIT A ND LOSS ACCOUNT WHEREIN IN SCHEDULE K, WHICH IS THE PART OF PROFIT AND LOSS ACCOUNT, TH E AMOUNT OF $ 1,80,60,464 HAS BEEN DEBITED AS BAD DEBTS. THEREFORE, THE AMOUNT WAS WR ITTEN OFF IN THE BOOKS OF ACCOUNT ON THE BASIS OF WHICH THE PROFIT AND LOSS ACCOUNT WAS PREPARED BY THE ASSESSEE WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. 10. THE LD. CIT (DR) IN HIS RIVAL SUBMISSIONS STRONGLY SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). 11. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTI ES AND THE MATERIALS AVAILABLE ON RECORD, IT APPEARS THAT THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER FOR DISALLOWING THE CLAIM OF BAD DEBTS BY CONSIDERING T HAT THE SAID BAD DEBTS WERE NOT WRITTEN OFF IN THE BOOKS OF ACCOUNT. ON THE CONTRARY, THE CLAIM OF THE ASSESSEE IS THAT THE BAD DEBTS WERE WRITTEN OFF IN THE BOOKS OF ACCOUNT AND THIS FACT WAS REFLECTED IN SCHEDULE K OF THE PROFIT AND LOSS ACCOUNT, COPY OF WHICH IS AV AILABLE AT PAGES 8 AND 9 OF THE ASSESSEES COMPILATION. IT WAS ALSO CLAIMED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE PROFIT AND LOSS ACCOUNT WAS EXTRACTED ON THE BASIS OF THE ENTRIES IN THE BOOKS OF ACCOUNT. THEREFORE, AS REGARDS TO THE FACTS RELATING TO BAD DEBTS WRITTEN OF IN THE BOOKS OF ACCOUNT IS CONCERNED, THERE IS A CONTRADICTION IN THE STAND OF THE LD. CIT(A) AND THE ASSESSEE. IT IS WELL SETTLED THAT THE AMOUNT ON ACCOUNT OF BAD D EBTS CAN ONLY BE ALLOWED IF IT IS WRITTEN OFF IN THE BOOKS OF ACCOUNT WHICH IS THE PRIMARY CO NDITION. IN THE INSTANT CASE, :-4-: CONSIDERING THE CONTRADICTORY STAND OF THE LD. CIT( A) AND THE ASSESSEE, THE FACTS ARE NOT CLEAR WHICH REQUIRE VERIFICATION ON THE PART OF THE ASSESSING OFFICER. WE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS, DEEM IT PROP ER TO SET ASIDE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION AFT ER PROPER VERIFICATION FROM THE BOOKS OF ACCOUNT AND IN ACCORDANCE WITH LAW. THE ASSESSING OFFICER SHALL PROVIDE A DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 12. VIDE GROUND NO.3, THE GRIEVANCE OF THE ASSESSEE REL ATES TO CONFIRMATION OF THE DISALLOWANCE OF $ 13,05,925 CLAIMED BY THE ASSESSEE ON ACCOUNT OF PRI OR PERIOD ADJUSTMENTS. 13. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT T HE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS ASKED THE ASSESSEE TO JUSTIF Y THE PRIOR YEAR ADJUSTMENTS CLAIMED IN SCHEDULE L OF THE PROFIT AND LOSS ACCOUN T. HOWEVER, THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE/JUSTIFICATION. THE ASSESSING OFFICER, THEREFORE, DISALLOWED A SUM OF $ 13,05,925. 14. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE HAD TO COLLECT DETAILS FROM A LAR GE NUMBER OF UNITS ALL OVER INDIA. THEREFORE, THERE WAS NO MOTIVE IN NOT PRODUCING THE RELEVANT EVIDENCE AND IT WAS REQUESTED THAT THIS ISSUE MAY BE RESTORED TO THE AS SESSING OFFICER FOR A FRESH CONSIDERATION. 15. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACC OUNTING AND THE ASSESSING OFFICER IN THE REMAND REPORT DATED 4.1.2010 STATED THAT THE CO MPANY LAW HAD BEEN AMENDED SINCE 1.4.1989 TO MAKE IT INCUMBENT UPON THE ASSESS EE-COMPANIES TO FOLLOW THE MERCANTILE SYSTEM OF ACCOUNTING. ACCORDING TO THE LD. CIT(A), IN THE MERCANTILE SYSTEM OF ACCOUNTING, EXPENDITURE RELATED TO ANY OTHER YEAR I S NOT TO BE CONSIDERED AND NOT TO BE ALLOWED. HE, THEREFORE, CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 16. NOW THE ASSESSEE IS IN APPEAL. 17. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT EVEN I F THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, PRIOR PERIOD EXPE NSES WERE ALLOWABLE. RELIANCE WAS :-5-: PLACED ON THE JUDGMENT OF THE HON'BLE DELHI HIGH CO URT IN THE CASE OF CIT V. JAGATJIT INDUSTRIES LTD. [2010] 194 TAXMAN 158 (DELHI). 18. IN HIS RIVAL SUBMISSIONS, THE LD. CIT (DR) STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 19. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PART IES AND CAREFULLY GONE THROUGH THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANCE CASE, IT APPEARS THAT THE ASSESSEE DID NOT BRING ANY MATERIAL ON RECORD TO SU BSTANTIATE THAT THE LIABILITY IN RESPECT OF PRIOR PERIOD ADJUSTMENTS AROSE AND CRYSTALLIZE D DURING THE YEAR UNDER CONSIDERATION, FOR THAT REASON ONLY, THE CLAIM OF THE ASSESSEE WAS DISALLOWED BY THE ASSESSING OFFICER WHICH WAS CONFIRMED BY THE LD. CIT(A). DURING THE COURSE OF HEARING ALSO NOTHING NEW WAS BROUGHT ON RECORD TO SUBSTANTIATE THAT THE LIAB ILITY RELATING TO PRIOR PERIOD ADJUSTMENT WAS CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. WE, THEREFORE, DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). AS REGARDS TO THE CASE RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE IS CONCERNED, IN THE S AID CASE THE EXPLANATION OF THE ASSESSEE WAS THAT PRIOR PERIOD EXPENSES PERTAINING TO EARLIER YEARS LIKE SECURITY EXPENSES, LTA, RENT, PAYMENTS TO STAFF MEMBERS, MAN AGERIAL REMUNERATION, LEGAL AND PROFESSIONAL EXPENSES, SALES PROMOTION EXPENSES, MI SCELLANEOUS EXPENSES AND REPAIR AND MAINTENANCE EXPENSES WERE TO BE ALLOWED AS THE EXPENDITURE WAS CRYSTALLIZED DURING THE CURRENT YEAR. HOWEVER, IN THE PRESENT C ASE NOTHING IS BROUGHT ON RECORD THAT THE PRIOR PERIOD ADJUSTMENTS CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. THEREFORE, THE CASE RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE IS OF NO HELP TO THE ASSESSEE. ACCORDINGLY, GROUND NO.3 OF THE APPEAL I S DISMISSED. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED FOR STATISTICAL PURPOSES. (ORDER PRONOUNCED IN THE OPEN COURT ON 14.3.2011) SD/- SD/- [H. L. KARWA] [ N. K. SAINI] VICE PRESIDENT ACCOUNTANT MEMBER DATED:14.3.2011 JJ:0903 :-6-: COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR