UDAYAKUMAR SANGEETHA, COIMBATORE V. ACIT CIRCLE-1, OOTY

ITA 527/CHNY/2020

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0322 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-10-2022
• Assessment Year: 2016-2017
• Appeal Filed On: 05-03-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts
• Section: 37(1)

Judgement Text

आयकर अपीलीय अिधकरण ‘ए’ ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI माननीय +ी महावीर िसंह, उपा12 एवं माननीय +ी मनोज कु मार अ6वाल ,लेखा सद9 के सम2। BEFORE HON’BLE SHRI MAHAVIR SINGH, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ ITA No.527/Chny/2020 (िनधाBरण वषB / Assessment Year: 2016-17) Udayakumar Sangeetha 96, 11 th Street, Tatabad, Coimbatore – 641 012. बनाम / V s. ACIT Circle-1, Ootacamund. थायी लेखा सं./जीआइ आर सं./P AN /GI R No . AQ YP S -2 1 7 6 - B (अपीलाथ /Appellant) : ( थ / Respondent) अपीलाथ की ओरसे/ Appellant by : Shri K.R. Prasanna Bhaskaran (CA)-Ld. AR थ की ओरसे/Respondent by : Shri AR. V Sreenivasan (Addl. CIT) –Ld. DR सुनवाई की तारीख/Date of Hearing : 19-10-2022 घोषणा की तारीख /Date of Pronouncement : 19-10-2022 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2016-17 arises out of the order of learned Commissioner of Income Tax (Appeals), Coimbatore-3 [CIT(A)] dated 10-01-2020 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s.143 of the Act on 19-12-2018. The sole grievance of the assessee is confirmation of disallowance of bad debts for Rs. 59.97 Lacs. 2. The Ld. AR submitted that the assessee fulfilled the conditions of Sec. 36(1)(vii) and wrote-off bad-debts in the books and the therefore, the deduction of the same would be available to the assessee. The Ld. ITA No.527/Chny/2020 - 2 - Sr. DR, on the other hand, submitted that the assessee could not prove genuineness of the transactions. Having heard rival submissions and after due consideration of relevant material on record, our adjudication would be as under. 3.1 The assessee being resident individual is stated to be engaged as a clearing and forwarding agent for M/s Intas Pharmaceuticals Ltd. (IPL). The assessee receives commission for its services. The assessee receives the stocks sent by IPL and forwards it to the customers / pharma retailers. The sales collection are collected by the assessee and remitted to IPL. 3.2 During the year, the assessee claimed bad debts written off for Rs.59.97 Lacs. The assessee submitted that to perform the business, the assessee was assisted by the staff. The clearing and forwarding operations include the responsibilities of sales collection and remittance thereof to IPL. This work as entrusted to a senior staff by name Smt. Chitra. However, in financial year 2015-16, it transpired that IPL did not receive full payment for the sales affected during financial years 2012-13 onwards. Upon reconciliation, it transpired that the part of collections made during the aforesaid period was not remitted to the company’s account but the same was diverted to another account opened by her staff. Accordingly, the loss thus suffered was partly paid and partly settled against commission account. The loss thus arising was claimed as bad-debts. 3.3 However, the assessee could not furnish documentary evidences including ledger account to support the same. The Ld. AO held that the bad-debts written off do not pertain to this year but pertains to transactions of earlier years. The assessee did not initiate suitable ITA No.527/Chny/2020 - 3 - action to recover amount from the accused even after finding out the identity of the person so involved in the fraudulent activity and no FIR was lodged. Therefore, the assessee’s claim was contradictory and inconsistent. The assessee had no valid explanation towards her claim. Accordingly, the claim was disallowed. 3.4 During appellate proceedings, the assessee’s submissions were subjected to remand proceedings. Upon perusal of accounts / information supplied by IPL, it transpired that the amount due from the assessee to IPL was written off in the books of that company also. Accordingly, there was no debt for the assessee and there was no question of bad debts to be written off. 3.5 Accordingly, the disallowance was confirmed by Ld. CIT(A) as under 4.1 For the following reasons the expenditure claimed as bad debts cannot be allowed. The reasons are enumerated below:- (a) As rightly mentioned by the AO in the Remand Report since the company has claimed this as an expense in its books of accounts and the same has been written off by the company in its books of accounts, the assessee cannot claim it as an expense in its books of accounts. That will amount to double deduction which is not allowable under the income-tax Act. (b) The assessee's argument that it has directly paid 12,41,578/- to the company towards this bad debt and Rs.47,00,964/- was adjusted by the company M/s Intas Pharmaceuticals Ltd. during this FY cannot be accepted. It is true that assessee has paid Rs.12,41,578/- towards clearing of debts during this year. But the adjusted amount of Rs.47,00,564/- cannot be accepted since the Assessing Officer has given a report stating that the bad debt was already claimed by the company in its books of accounts. Apart from that the most important aspect is that the so called adjusted amount i.e Rs.47,00,564/- is only a book adjustment, because the company M/s. Intas Pharmaceuticals Ltd., has not deducted this amount from the income earned by the assessee. It has actually paid the entire commission receipt during the year to the assessee without deducting from it the funds which are due to the company as claimed by the assessee. It is only book adjustment in the books of M/s. Intas Pharmaceuticals Ltd. (c) No FIR was lodged with police authorities nor was any judicial proceedings initiated against the alleged employee. Without any proper documentary evidence it is difficult to accept the claim of the assessee. (d) No Bank statement evidencing payment by the assessee to the company except Rs.12,41,578/- which is seen paid towards certain dues. ITA No.527/Chny/2020 - 4 - (e) The alleged person Ms. Chitra has paid only a paltry amount Rs.40,000/- towards the dues, despite having given in writing through notarized affidavit that she will clear the liabilities immediately and within the time frame. This has proven false and she has made no effort to pay the amount to the assessee. (f) The bank statement of Ms. Chithra during this period as produced by the assessee was also perused. It does not show any cheque credited by any of the customers/retailers, barring a few thousands whose identity is not clear. The Plf statement produced by the assessee do not give many instances of cheques collected towards sale of stock through alleged misappropriation of funds. 4.2 Based on the above discussion it is held that assessee’s claim of Rs.59,97,038/- as bad debt cannot be allowed since genuineness of the debt is itself doubtful. Whether it is allowable as the business loss U/s.37(1) 4.3 This amount cannot be allowed as an expenditure U/s.37 of the Act, since the company has already claimed it as an expenditure in its books of accounts. The same expenditure cannot be allowed twice both in the company's books as well as in the assessee's books. Hence rejecting the claim of the assessee the addition made by the AO U/s 36(vii) amounting to Rs 59,97,038 is upheld. 5. The appeal filed by the assessee is DISMISSED. Aggrieved as aforesaid, the assessee is in further appeal before us. 4. From the findings given by Ld. CIT(A), it appear the M/s IPL has undertaken this liability and wrote-off the amount against the assessee. If this so, no further deduction either u/s 36(1)(vii) or u/s 37(1) could be granted to the assessee. However, it also appears that the assessee has made part payment towards settlement of loss and recover certain amount from its employees, the fate / treatment of which is not available on record. In our opinion, the assessee has miserably failed to substantiate its claim. However, keeping in view the principle of natural justice, we deem it fit to grant another opportunity to the assessee to substantiate its claim before Ld. CIT(A). Only if the said loss has been made good by the assessee and the assessee is able to provide documentary evidences in support of the claim, the deduction could be granted to the assessee. The onus would be on assessee to ITA No.527/Chny/2020 - 5 - establish these facts. The Ld. CIT(A) is directed to re-adjudicate the issue after affording reasonable opportunity of hearing to the assessee. 5. The appeal stand partly allowed for statistical purposes. Order pronounced on 19 th October, 2022. Sd/- (MAHAVIR SINGH) उपा12 /VICE PRESIDENT Sd/- (MANOJ KUMAR AGGARWAL) लेखा सद9 / ACCOUNTANT MEMBER चे*ई / Chennai; िदनांक / Dated : 19-10-2022 EDN/- आदेश की Vितिलिप अ 6ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Appellant 2. यथ /Respondent 3. आयकर आयु (अपील)/CIT(A) 4. आयकर आयु /CIT 5. िवभागीय ितिनिध/DR 6. गाड फाईल/GF