BASF INDIA LTD ( ON ACCOUNT OF AMALGAMATION OF BASF CONSTRUCTION CHEMICALS (I) P.LTD) WITH BASF INDIA LTD, MUMBAI V. ASST CIT CIR 10(3), MUMBAI

ITA 5784/MUM/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 2098 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 31-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 18-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR SANTOSH MANKOSKAR
• Assessee Lawyers: HEENA DOSHI
• Keywords: Bad and doubtful debts

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI B BENCH , ,, , , ,, , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & SAKTIJIT DEY,JUDICIAL MEMBER /.ITA NO.5784 /MUM/2012, /ASSESSMENT YEAR-2007-08 BASF INDIA LTD. (ON ACCOUNT OF AMALGAMATION OF BASF CONSTRUCTION CEHMICALS (INDIA) PVT. LTD. WITH BASF INDIA LIMITED) VIBGOYR TOWERS, 1 ST FLOOR PLOT NO.C-62, G-BLOCK BANDRA KURLA COMPLEX,MUMBAI-400 020. PAN:AAACM 4701 B VS. THE ACIT CIRCLE-10(3), AAYAKAR BHAVAN MAHARSHI KARVE MARG, CHURCHGATE, MUMBAI-400 020. ( / APPELLANT) ( / RESPONDENT) /ASSESSEE BY : MS. HEENA DOSHI / REVENUE BY : DR. SANTOSH MANKOSKAR / DATE OF HEARING : 28-09 -2015 / DATE OF PRONOUNCEMENT : 07 - 1 0-2015 , 1961 1961 1961 1961 254 254 254 254( (( (1 11 1) )) ) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT.26.5.2011OF CIT(A)-22,MUMB AI THE ASSESSEE,HAS FILED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS)HAS ERRED IN DISALLOWING THE DE DUCTION OF BAD DEBTS WRITTEN OFF OF RS.8,62,242. HE OUGHT NOT TO HAVE DONE SO. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE D ISALLOWANCE OF INTEREST OF RS.30,682. HE OUGHT NOT TO HAVE DONE SO. 3. YOUR APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO MODIFY ANY OF THE FOREGOING GROUP OF APPEALS AND ALSO BEG LEAVE TO TAKE AN ADDITIONAL GROUND IF NEED BE. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING AND TRADING OF CONSTRUCTION CHEMICALS,FILED ITS RETURN ON 31.10.2007,DECLARING TOTAL INCOME OF RS.9.47 CRORES.THE ASSESSING OFFICER(AO),COMPLETED THE ASSESSMENT U/S.143(3)OF T HE ACT ON 15.3.2010 DETERMINING ITS INCOME AT RS.10.65 CRORES. 2. FIRST GROUND OF APPEAL IS ABOUT DISALLOWANCE OF DED UCTION OF BAD DEBTS WRITTEN OFF BY IT AMOUNTING TO RS.8.26 LACS.DURING THE ASSESSMENT PRO CEEDINGS,THE AO FOUND THAT THE ASSESSEE DEBITED AN AMOUNT OF RS.8,62,242/-UNDER THE HEAD BA D DEBTS WRITTEN OFF UNDER SCHEDULE -15.VIDE HIS LETTER,DT.1.10.2010,HE ASKED THE ASSESSEE TO FU RNISH DETAILS OF LEDGER ACCOUNT AND TO EXPLAIN AS TO WHEN THE INCOME OF SUCH TRANSACTION WAS OFFERED FOR TAX ALONGWITH THE EVIDENCES REGARDING THE EFFORTS MADE BY IT TO RECOVER THE BAD DEBTS AS PER THE AO THE ASSESSEE DID NOT FILE ANY EXPLANATION IN THAT REGARD.THEREFORE,HE MADE THE DISALLOWANCE O F RS.8.62 LACS AND ADDED TO THE INCOME OF THE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF AO ,THE ASSESSEE PREFERR ED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM, IT WAS SUBMITTED THAT A S PER PROVISIONS OF SECTION 36(1)(VII) THE ITA/5784/M/12BASF,AY.07-08 2 AMOUNT OF BAD DEBT WRITTEN OFF BY AN ASSESSEE WAS A LLOWABLE DEDUCTION, THAT IT WAS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT DEBT HAD BECOME IRRECOVERABLE,THAT IT WAS ENOUGH IF THE DEBT WAS WRITTEN OFF. AFTER CONSIDERING THE SUBMISSION OF TH E ASSESSEE THE FAA HELD THAT THE ASSESSEE WAS NOT REQUIRED TO ESTABLISH THAT BAD DEBT HAD BECOME IRRECOVERABLE,THAT THE ASSESSEE HAD FAILED TO PRODUCE LEDGER ACCOUNT BEFORE THE AO AS WELL AS DUR ING THE APPELLATE PROCEEDINGS TO PROVE THAT AMOUNTS WERE ACTUALLY WRITTEN OFF,THAT IT HAD ALSO NOT SATISFIED THE CONDITIONS AS STIPULATED BY SECTION 36(2) OF THE ACT TO PROVE THAT THE DISPUTED DEBT HAD BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE FOR THE PREVIOUS YEAR IN WHICH THE AMOUNT OF DEBT WAS WRITTEN OFF,THAT IT HAD NOT GIVEN ANY JUSTIFICATION FOR NOT FURNISHI NG THE DETAILS ASKED BY THE AO,THAT HE HAD RIGHTLY MADE THE DISALLOWANCE. 4. BEFORE US,AUTHORISED REPRESENTATIVE (AR) STATED TH AT ASSESSEE HAD WRITTEN OFF THE BAD DEBTS. SHE RELIED UPON THE CASE OF TRF LTD.323 ITR(397) AN D STATED THAT FACTS OF THE CASE WERE ALMOST SIMILAR TO THAT OF TRF LTD.(SUPRA).DEPARTMENTAL REP RESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 5 .WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL.THERE IS NO DOUBT FOR WRITING OFF A BAD DEBT AN ASSESSEE HAS NOT TO PROVE ITS IRRECOV ERABILITY.BUT,FIRST IT HAS TO BE PROVED THAT IT WAS A DEBT AND HAD TURNED BAD.WITHOUT PROVING THE BASIC INGREDIENTS SECOND STAGE OF THE PROCESS I.E. WRITING OFF CANNOT BE ENVISAGED.THE ASSESSEE HAS CL AIMED THAT IT HAD WRITTEN OFF THE AMOUNT,BUT MERE WRITING OFF IS NOT SUFFICIENT.THE AR STATED TH AT THE ASSESSEE HAD NECESSARY EVIDENCE THAT WERE NOT PROPERLY APPRECIATED.IN THESE CIRCUMSTANCE S,WE ARE OF THE OPINION THAT IN THE INTEREST OF JUSTICE,THE MATTER SHOULD BE RESTORED BACK TO THE F ILE OF THE AO WHO WILL DECIDE THE ISSUE AFRESH AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE.THE ASSESSEE IS DIRECTED TO PRODUCE ALL THE NECESSARY EVIDENCE IN ITS SUPPORT.G ROUND NO.1 IS DECIDED IN ITS FAVOUR,IN PART. 6.NEXT GROUND DEALS WITH DISALLOWANCE OF INTEREST O F RS.30,682/-.DURING THE COURSE OF ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESS EE HAD TAKEN LOAN AMOUNTING TO RS.83.43 LAKHS,THAT IT HAD INCURRED EXPENDITURE ON CAPITAL O F WIP AMOUNTING TO RS.1.92 CRORES,THAT IN THE P & L A/C. IT HAD DEBITED RS.30,682/- AS INTEREST,T HAT THERE WAS NO INTEREST PAYMENT IN PRECEDING YEAR.HE HELD THAT THE INTEREST PAID WAS DIRECTLY AT TRIBUTABLE TO THE INCREASED LOAN THAT WAS UTILIZED FOR CAPITAL WIP.ACCORDINGLY,HE MADE DISALLOWANCE OF RS.30,682/-. 7. IN THE APPELLATE PROCEEDING, BEFORE THE FAA,THE ASS ESSEE ARGUED THAT THE INTEREST PAYMENT HAD BEEN MADE FOR WORKING CAPITAL PAYMENT LOAN/OVER DRA FT FACILITY/LETTER OF CREDIT,THAT SUCH FACILITIES WERE NOT AVAILED BY IT DURING THE YEAR.THE FAA HELD THAT THE ASSESSEE HAD NOT BEEN RECONCILE THE SOURCES OF INVESTMENT IN CAPITAL WIP,THAT THE AO HA D FOUND THAT IT WAS OUT OF THE LOAN TAKEN DURING THE YEAR. HE UPHELD THE ORDER OF THE AO. 8. BEFORE US,THE AR MADE THE SAME SUBMISSION THAT WERE MADE BEFORE THE FAA.WE FIND THAT THE ASSESSEE HAS NOT BEEN ABLE TO CONTROVERT THE FINDIN G OF FACT GIVEN BY THE AO AND CONFIRMED BY THE FAA THAT SOURCE OF CAPITAL WIP WAS LOAN TAKEN DURIN G THE YEAR.THEREFORE,WE ARE OF THE OPINION ITA/5784/M/12BASF,AY.07-08 3 THAT THE ORDER OF THE FAA DOES NOT NEED ANY INTERFE RENCE FROM OUR SIDE.CONFIRMING HIS ORDER,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE A SSESSEE. AS A RESULT,APPEAL FILE D BY THE ASSESSEE STANDS PARTLY ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH OCTOBER,2015. 7. ,2015 SD/- SD/- ( / SAKTIJIT DEY) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE: 07. 1 0.2015 . . . .. . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.