Shri Jahar Motilal, Kolkata V. Addl. CIT, Range - 53, Kolkata, Kolkata

ITA 531/KOL/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83170 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-08-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 15-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PINAKI MUKHERJEE
• Assessee Lawyers: MALA DHAR
• Keywords: Bad and doubtful debts
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA , ACCOUNTANT MEMBER ITA NO. 531 /KOL/ 2010 ASSESSMENT YEAR: 2005 - 06 SHRI JAHAR MOTILAL ANNAPURNA FED MILL , ROM 2 & 3, SASKHER BAZAR, SUPER MARKET, BARISHA, KOLKATA 700 008 [ PAN NO.AFAPM 9697 J ] / V/S . ADDL. C.I.T. RANGE 53, 2, GARIAHAT ROAD (SOUTH), AAYAKAR BHAWAN DAKSHIN KOLKATA 700 068 / APPELLANT .. / RESPONDENT / BY APPELLANT MALA DHAR, ADVOCATE / BY RESPONDENT SHRI PINAKI MUKHERJEE, JCIT / DATE OF HEARING 12 - 11 - 2014 / DATE OF PRONOUNCEMENT 18 - 11 - 2014 / O R D E R PER SHAMIM YAHYA , ACCOUNTANT M EMBER : - THIS A PPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME - TAX (APPEALS) - XXXII, KOLKATA (CIT(A) FOR SHORT) DATED 31 - 12 - 2009 AND PERTAINS TO AY 2005 - 06. 2. FIRST ISSUE PERTAINS TO CONFIRMATION OF DISALLOWANCE OF RS.2,06,100/ - MADE BY THE ASSESSING OFFICER APPLYING THE PROVISION OF SECTION 40(A)(IA) AND 194C OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). THE BRIEF FACTS OF THE CASE ARE AS UNDER: - ITA NO.531/KOL/2010 A.Y. 2005 - 06 SH JAHAR MOTILAL V. ACIT RNG - 53 KOL. PAGE 2 I T WAS OBSERVED BY THE ASSESSING OFFICER THAT SERVICE CHARGES HAD BEEN PAID TO FOLLOWING PERSONS: - SL. NO. NAME AMOUNT 1 SRI RANJU MOTILAL 145000 2 SRI ASHIM BAKSHI 47500 3 SRI AUROBINIDU HALDER 32800 4 SRI BALARAM MAITY 28000 5 SRI RANJIT ROY 72000 6 SRI TAPAN ROY 25800 THE ASSESSEE DEDUCTED TAX AT SOURCE FROM PAYMENT MADE TO RANJU MOTILAL. NO DEDUCTION WAS MADE FROM REMAINING PAYMENTS. IT WAS CONTENDED BY THE ASSESSEE THAT THESE PERSONNEL CARRIED ON SPECIFIC JOB AND THE PAYMENTS WERE IN THE NATURE OF SALARY BUT TO AVOID CERTAIN TECHNICAL PROBLEM THE ASSESSEE HAD BEEN VOUCHING THE TRANSACTION AND BOOKING THEM UNDER SERVICE CHARGES AND NOT SALARY. THE ASSESSING OFFICER CONCLUDED THAT THE AMOUNTS WERE NOT PAID AS SALARY AND THEREFORE ATTRACTED PROVISION OF SEC. 40(A)(IA). HE THEREFORE DISALLOWED THE PAYMENT OF RS.2,06,100/ - . AGAINST THE ABOVE ORDER, ASSESSEE APPEALED BEFORE LD. CIT(A) DURING THE COURSE OF APPEAL PROCEEDINGS IT WAS SUBMITTED THAT THE PAYMENT MADE WAS IN THE CHARACTER OF SALARY AND SINCE THIS WAS BELOW TAXABLE NO DEDUCTION OF TAX WAS DONE AT SOURCE. IT WAS FURTHER ARGUED THAT SINCE PAYMENTS WERE NOT MADE TO THESE PERSONS ON ACCOUNT OF ANY PROFESSIONAL SERVICE OR FEES FOR TECHNICAL SERVICE NOR HAS THERE BEEN AN Y CONTRACT FOR THEIR SERVICES, SEC. 40(A)(IA) WAS NOT APPLICABLE. IT WAS SUBMITTED THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANYTHING ON RECORD TO SHOW THAT THESE PERSONS WERE QUALIFIED PROFESSIONAL PERSONS OR TECHNICAL PERSONS. IT WAS FURTHER SUBMITTED T HAT ANY WORK MENTIONED IN SEC. 194C DOES NOT INCLUDE SERVICE CONTRACT. IT WAS THEREFORE SUBMITTED THAT SINCE SEC. 194C WAS NOT APPLICABLE, THERE WAS NO REQUIREMENT FOR DEDUCTION OF TAX AT SOURCE AND CONSEQUENTLY SEC. 40(A)(IA) WAS NOT APPLICABLE. 3. CONSI DERING THE ABOVE, LD. CIT(A) HELD AS UNDER: - ITA NO.531/KOL/2010 A.Y. 2005 - 06 SH JAHAR MOTILAL V. ACIT RNG - 53 KOL. PAGE 3 7. I HAVE GONE THROUGH THE FACTS OF THE CAS.ESS THERE IS NO DISPUTE THAT THE PAYMENTS TO THESE PERSONS WERE NOT SALARY. WHETHER THEY WERE IN THE NATURE OF SALARY I S IMMATERIAL FOR SIMILAR SERVICE REND ERED, THE ASSESSEE HAS MADE TDS IN THE CASE O F RANJU MOTILA L . ONCE QUERIED BY THE ASSESSING OFFICER, IT WAS FOR THE ASSESSEE TO SHOW THAT TDS WAS NOT REQUIRED TO BE MADE FOR SERVICES RENDERED BY THESE PERSONS. THEREFORE IT WAS FOR THE ASSESSEE TO SHOW THE NATURE OF SERVICE RENDERED BY THESE PERSONS AND NOT FOR THE ASSESSING OFFICER TO BRING EVIDENCES ON RECORD. APPELLANT HAS NOT GIVEN THE NATURE OF SERVICE RENDERED EITHER BEFORE THE ASSESSING OFFICER OR BEFORE ME, DURING THE COURSE OF APPELLATE PROCEEDINGS TO SHOW TH AT SERVICE RENDERED BY THESE PERSONS WERE NOT COVE RE A D U/S. 194C OR SEC. 194J. SIMPLY MAKING STATEMENTS THAT SERVICE CONTRACT IS NOT COVERED U/S. 194C WITHOUT TELLING THE NATURE OF THE SERVICE RENDERED WILL NOT HELP THE ASSESSEE. IN ABSENCE OF ANY EXPLANA TION REGARDING SERVICE RENDERED BY THESE PERSONS AND THE FACT THAT TAX HAS BEEN DEDUCTED FROM PAYMENTS MADE TO ANOTHER SERVICE CONTRACTOR NAMELY RANJU MOTILA L , I AM OF THE OPINION THAT ASSESSEE HAS FAILED TO SHOW THAT THE TAX WAS NOT REQUIRED TO BE DEDUCTE D AT SOURCE FROM PAYMENTS MADE TO THE REMAINING PERSONS FOR SERVICE RENDERED. THE ADDITION IS THEREFORE CONFIRMED. AGAINST THE ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT THE AMOU NT PAID BY THE ASSESSEE HAVE BEEN DISALLOWED UNDER THE PROVISION OF SECTION 40(A)(IA) OF THE ACT ON THE GROUND THAT TDS HAS NOT BEEN COLLECTED. AS AGAINST THE ABOVE, IT IS THE ASSESSEE S PLEA THAT THESE PAYMENTS WERE ACTUALLY PAYMENT OF SALARY BUT FOR CERT AIN OTHER TECHNICAL REASONS THEY WERE NOT SHOWN SALARY . IN THIS REGARD, ASSESSEE IN THE PAPER BOOK BEFORE US IN PAGES 18 - 19 HAS GIVEN THE DETAILS OF THESE PAYMENTS. NOW, LD. CIT(A) HAS REJECTED ASSESSEE S PLEA ON THE GROUND THAT ASSESSEE HAS NOT GIVEN NE CESSARY EVIDENCE BEFORE THE AO THAT THESE PAYMENTS DID NOT ATTRACT TDS BUT WERE ACTUALLY IN THE NATURE OF SALARY . W E FIND THAT ASSESSEE HAS STATED THIS ASPECT BEFORE THE AO ALSO. IN OUR CONSIDERED OPINION, THE INTEREST OF JUSTICE ON THIS ISSUE WILL SERVE IF THE ISSUE REMIT TO THE FILE OF AO. ACCORDINGLY, THIS ISSUE IS REMITTED TO THE FILE OF AO AND ASSESSEE IS DIRECTED TO LEAD PROPER EVIDENCES THAT THESE PAYMENTS DID NOT ATTRACT TDS. 4 . THE SECOND ISSUE RAISED IS THAT LD. CIT(A) ERRED IN CONFIRMING THE D ISALLOWANCE OF RS.8,97,676/ - AS BAD DEBT. ITA NO.531/KOL/2010 A.Y. 2005 - 06 SH JAHAR MOTILAL V. ACIT RNG - 53 KOL. PAGE 4 5. ON THIS ISSUE ASSESSEE HAS CLAIMED A SUM OF RS. 8,97,677.72 AS BAD DEBT ON ACCOUNT OF M/S UNIQUE AGENCIES. AO OBSERVED THAT THE ENTRY PASS IN THE BOOK WAS BAD DEBT ACCOUNT WAS DEBITED AND BAD DEBT RESERVE ACCOU NT WAS CREDITED. HENCE, A O OPINED THAT BAD DEBT OF RS.8,97,676/ - WHICH WAS WRITTEN OFF AS CLAIMED OF DEDUCTION HAS NOT BEEN WRITTEN OFF IN REALITY, BUT TRANSFERRED TO RESERVE FOR BAD DEBTS ACCOUNT. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE TRANSFER TO RESERVE ACCOUNT TANTAMOUNT TO CREATION OF PROVISION OF BAD AND DOUBTFUL DEBT AND THAT AMOUNT HAD NOT BEEN WRITTEN OFF IN REALITY. THE ASSESSING OFFICER WAS OF THE OPINION THAT WITH THE AMENDMENT TO SEC. 36(1)(VII) WITH EFFECT FROM 01 - 04 - 1989 THE DEBT S HOULD BE WRITTEN OFF IN THE ACCOUNT OF THE ASSESSEE TO BE ADMITTED AS DEDUCTIBLE EXPENDITURE. IT IS MENTIONED BY THE ASSESSING OFFICER THAT THOUGH THE NARRATION USED BY THE APPELLANT IN THE PROFIT & LOSS ACCOUNT IS BAD DEBT WRITTEN OFF TREATMENT GIVEN IN THE BALANCE SHEET AS WELL AS IN THE LEDGER ACCOUNT OF THE DEBT SHOW THAT AMOUNT HAD BEEN TRANSFERRED TO THE RESERVE FOR BAD DEBT. THE ASSESSING OFFICER WAS OF THE OPINION THAT IN VIEW OF THE DECISION OF THE HON BLE MADRAS HIGH COURT IN THE C A SE OF MICRO M AX SYSTEM PVT. LTD. 277 ITR 409, THE CLAIM OF BAD DEBT WAS NOT ADMISSIBLE . IN THE ALTERNATIVE IT WAS POINTED OUT BY THE ASSESSING OFFICER THAT THOUGH THE ASSESSEE HAD CHEQUES IN HAND FROM M/S. UNIQUE AGENCY OUTSTANDING AT THE END OF THE YEAR WITH THIS PART Y (RS.8,97,676/ - ) WAS CLAIMED AS BAD DEBT W R ITTEN OFF BY TRANSFER TO THE RESERVE A/C. THE PROPRIETOR OF THE SAID M/S. UNIQUE AGENCY HAD STATED ON OATH THAT NO AMOUNTS WERE OUTSTANDING FOR PAYMENT. TOTAL AMOUNT TRANSFERRED TO THE RESERVE WAS ON ACCOUNT OF T HIS PARTY ALONE. IN VIEW OF THE ABOVE FACT ALSO THE ASSESSING OFFICER DISALLOWED THE CLAIM OF BAD DEBT WRITTEN OFF. AGAINST THE ABOVE ORDER, ASSESSEE FILED APPEAL BEFORE LD. CIT(A). 6 . THE ASSESSEE REITERATED THAT BAD DEBT HAS WRITTEN OFF. IT WAS FURTHER SUBMITTED THAT SAME ISSUE WAS INVOLVED IN AY 2003 - 04 AND THE ASSESSEE FAILED TO GET RELIEF IN FIRST APPEAL. HOWEVER, HON BLE TRIBUNAL ALLOWED RELIEF WITH THE OBSERVATIONS THAT IT IS SUFFICIENT FOR THE ASSESSEE TO WRITE OFF THE BAD DEBT IN THE ACCOUNT IN O RDER TO HAVE THE SAME ALLOWED AS DEDUCTION AND IT IS NO LONGER MANDATORY ON THE PART OF THE ASSESSEE TO SHOW THAT THE DEBT HAS BECOME PRACTICALLY BAD. IT WAS FURTHER SUBMITTED THAT RELIANCE ITA NO.531/KOL/2010 A.Y. 2005 - 06 SH JAHAR MOTILAL V. ACIT RNG - 53 KOL. PAGE 5 OF THE ASSESSING OFFICER ON THE DECISION IN THE CASE OF KERALA IND USTRIAL DEVELOPMENT CORPORATION LTD, 281ITR 413 AND MICRO MAX SYSTEM PVT. LTD. 277 ITR 409 (MAD) WERE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. 6 . CONSIDERING THE ASSESSEE S SUBMISSION, LD. CIT(A) OPINED THAT ASSESSEE HAS NOT WRITTEN OFF THE DEBTS IN IT S BOOK THAT THE ASSESSEE HAS CREDITED THE RESERVE OF BAD DEBT ONLY THE AMOUNT HAS BEEN TRANSFERRED FROM THE INDIVIDUAL LEDGER ACCOUNT. THIS RESERVE FOR BAD DEBT ACCOUNTS IS SHOWN IN THE BALANCE - SHEET. THEREFORE, LD. CIT(A) OBSERVED THAT THE BAD DEBT HAS NO T BEEN WRITTEN OFF FROM THE BOOKS OF THE ASSESSEE. AS REGARDS ASSESSEE S RELIANCE UPON THE TRIBUNAL DECISION LD. CIT(A) OBSERVED THAT TRIBUNAL S DECISION WAS NOT WITH REGARD TO CREATION OF RESERVE ACCOUNT HENCE LD. CIT(A) FOUND THAT THE TRIBUNAL S DECISION WAS NOT APPLICABLE. AS AGAINST THE ABOVE, LD. CIT(A) OBSERVED THAT THE DECISION OF HON BLE MADRAS HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX V. MICROMAX SYSTEMS P. LTD. (2005) 277 ITR 409 (MAD) WAS APPLICABLE ON THE FACTS OF THE CASE. ACCORDINGL Y, LD. CIT(A) CONFIRMED THE ADDITION. 7 . AGAINST THE ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE US. 8 . WE HAVE HEARD BOTH COUNSELS AND PERUSED THE RECORDS. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). HE SUBMITTED THA T ASSESSEE HAS ACTUALLY WRITTEN OFF THE BAD DEBT. HE FURTHER CLAIMED THAT IN EARLIER YEAR BAD DEBT HAS BEEN ALLOWED BY ITAT ON SIMILAR CLAIM OF THE ASSESSEE. HE SUBMITTED THAT LD. CIT(A) WAS NOT CORRECT IN DISTINGUISHING THE TRIBUNAL S DECISIONS. LD. DR O N THE OTHER HAND, RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 9 . WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT SECTION 36(1)(VII) PROVIDES FOR DEDUCTION ON ACCOUNT OF BAD DEBT . I N EXPLANATION THERETO IT HAS BEEN MENTIONED THAT FOR THE PURPOSE OF THIS CLAUSE ANY BAD DEBT OR PART THEREOF WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE SHALL NOT INCLUDE ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE ACCOUNTS OF THE ASSESSEE. ITA NO.531/KOL/2010 A.Y. 2005 - 06 SH JAHAR MOTILAL V. ACIT RNG - 53 KOL. PAGE 6 1 0 . FROM THE ABOVE, IT IS AMPLE CLEAR THAT TO QUANTI FY FOR DEDUCTION AS BAD DEBT THE AMOUNT HAS TO BE WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS AND THIS SHALL NOT INCLUDE ANY PROVISION MADE FOR BAD AND DOUBTFUL DEBTS MADE IN THE ACCOUNTS OF THE ASSESSEE. WE FURTHER FIND THAT SIMILAR ISSUE WAS UNDER CONSIDERATION BY THE HON BLE MADRAS HIGH COURT IN THE CASE OF MICROMAX SYSTEMS P. LTD. (SUPRA). IN THE SAID CASE, HON BLE MADRAS HIGH COURT HAS HELD AS UNDER: - THUS PRIOR TO APRIL 1, 1989, EVEN IF THE DEBT HAS NO T BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE, IT COULD STILL BE ALLOWED AS A BAD DEBT IF THE ASSESSEE COULD ESTABLISH THAT IN FACT IT HAD BECOME A DEBT IN THE PREVIOUS YEAR. AFTER THE AMENDMENT BY ACT 4 OF 88 WITH EFFECT FROM APRIL 1 , 1989, THE ESSENTIAL REQUIREMENT FOR A CLAIM OF BAD DEBT TO BE ALLOWED IS THAT IT SHOULD HAVE BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. THUS FOR AND FROM THE AY 1989 - 90, THE REQUIREMENT AS TO THE WRITING OF F OF THE DEBT AS IRRECOVERABLE HAS BECOME ESSENTIAL FOR A CLAIM OF BAD DEB T TO BE ALLOWED. THUS, IT IS NOW A MANDATORY CONDITION THAT DEDUCTIONS CAN BE ALLOWED AS BAD DEBTS ONLY WHEN IT IS ACTUALLY WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS AND NOT ON THE BASIS OF A MERE PROVISION. FROM THE ABOVE, IT IS CLEAR THAT BY MERELY MAKING PROVISION FOR BAD AND DOUBTFUL DEBT CLAIM FOR DEDUCTION AS BAD DEBT CANNOT BE ALLOWED. IN THE PRESENT CASE, BOTH AUTHORITIES BELOW HAVE CLEARLY GIVEN A FINDING THAT ASSESSE E HAS IN ITS BOOKS DEBITED THE BAD DEBT ACCOUNT AND CREDITED THE BAD DEBT AND RESERVE ACCOUNTS. THE ABOVE CLEAR LY SIGNIFIES THAT IN TERMS OF ACCOUNTING BAD DEBT WAS NOT WRITTEN OFF AS ENVISAGED IN THE ACT BUT A PROVISION OF BAD AND DOUBTFUL DEBT WAS MADE. IN THIS VIEW OF THE MATTER, AS PER THE SANGUINE PROVISION OF THE ACT AND THE EXPOSITION BY THE HON BLE MADRAS HIGH COURT IN THE CASE OF MICROMAX SYSTEMS P. LTD. (SUPRA) ASSESSEE S CLAIM OF BAD DEBT IS NOT TO BE ALLOWED INASMUCH AS THE SAME WAS NOT WRITTEN OFF. 1 1 . AS REGARDS THE DECISION OF THE TRIBUNAL REFERRED ABOVE BY THE LD. COUNSEL FOR THE ASSESSEE WE NOTE THAT ISSUE OF ALLOWABILITY OF CLAIM OF BAD DEBT WITH REGARD TO PROVISION MADE WAS NOT CONSIDERED . M OREOVER, THE DECISION OF HON BLE MADRAS HIGH COU RT IN THE CASE OF MICROMAX SYSTEMS P. LTD. (SUPRA) CLEARLY TAKES PRECEDENTS OVER A ITA NO.531/KOL/2010 A.Y. 2005 - 06 SH JAHAR MOTILAL V. ACIT RNG - 53 KOL. PAGE 7 TRIBUNAL S DECISION. ACCORDINGLY, WE UPHOLD THE ORDER OF LD. CIT(A). THIS GROUND OF ASSESSEE S APPEAL IS DISMISSED. 1 2 . IN THE RESULT, THIS APPEAL BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 18 / 1 1 /2014 SD/ - SD/ - ( MAHAVIR SINGH ) ( SHAMIM YAHYA ) JUDICIAL MEMBER ACCOUNTANT MEM BER KOLKATA, *DKP - 18 / 1 1 /2014 / COPY OF ORDER FORWARDED TO: - 1 . / APPELLANT SH JAHAR MOTILAL, ANAPURNA FEED MILL ROOM 2 & 3, SAKHER BAZAR, SUPER MARKET BARISHA, KOLKATA - 08 2 . / RESPONDENT ADDL.CIT, RANGE - 53 , 2 GARIHAT RD (S), KOLKATA - 68 3 . / CONCERNED CIT 4 . - / CIT (A) 5 . , / DR, ITAT, KOLKATA 6 . / GUARD FILE. BY ORDER/ , /TRUE COPY/ / ,