M/s. Mitcon Consultancy & Engineering Services Ltd., Pune V. Joint Commissioner of Income-tax,

ITA 58/PUN/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 85305 (ITAT-PUNE)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 07-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Recovery proceedings; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE BEFORE SHRI R.S. PADVEKAR , JUDICIAL MEMBER AND SHRI R.K. PANDA , ACCOUNTANT MEMBER I TA NO. 58 /PN / 2014 ( ASSESSMENT YEAR : 2 0 10 - 11 ) MITCON CONSULTANCY & ENGINEERING SERVICES LTD., KUBERA CHAMBERS, 1 ST FLOOR, J.M. ROAD SHIVAJI NAGAR, PUNE 411 005 .. APPELLANT V/S JT. COMMISSIONER OF INCOME TAX RANGE - 11 / ACIT CIRCLE - 11(2), PUNE .... RESPONDENT PERMANENT ACCOUNT NUMBER AABCM2681H ASSESSEE BY : SHRI S.N. PURANIK REVENUE BY : SHRI B.C. MALAKAR DATE OF HEARING : 0 4 .12 .2014 DATE OF PRONOUNCEMENT : .1 2 .2014 O R D E R PER R.S. PADVEKAR, J.M. IN THIS APPEAL, THE ASSESSEE HAD CHALLENGED THE IMPUGNED ORDER OF THE L D. CIT(A) I, PUNE, DATED 30 TH SEPTEMBER 2013, FOR THE ASSESSMENT YEAR 20010 11. THE ASSESSEE HAS TAKEN THE FOLLOWING EFFECTIVE GROUND S : 1 THE CIT(A) H A S ERRED BOTH ON FACTS AS WELL AS IN LAW IN RESTRICTING THE DEDUCTION OF BAD DEBTS TO RS.5,10,763 OUT OF RS.9,22,596 AND CONFIRMING THE DISALLOWANCE OF RS.4,11,833. APPELLANT PRAYS TO ALLOW THE BALANCE CLAIM OF RS.4,11,833. 2 . T HE SHORT ISSUE IN CONTROVERSY IS IN RESPECT OF THE DISALLOWANCE OF THE BAD DEBT WHICH WAS PARTLY SUSTAINED BY THE LD. CIT(A) . 3 . THE FACTS, WHICH ARE REVEALED FROM THE RECORD THAT THE ASSESSEE COMPANY IS PROMOTED BY LEADING FINANCIAL INSTITUTIONS SUCH AS ICICI, CIDBI AND IFCI, STATE DEVELOPMENT CORPORATIONS SUCH AS S ICOM, MIDC & MSSIDC, ETC. THE ASSESSEE COMPANY IS AN INDUSTRIAL AND ENGINEERING CONSULTANT WHICH 2 MITCON CONSULTANCY & ENGINEERING SERVICES LTD. IS ALSO ENGAGED IN THE ENTREPRENEURSHIP TRAINING PROGRAMS. THE ASSESSEE IS ALSO GIVING CONSULTANCY IN THE FIELD OF POWER PLANT. IT IS STATED THAT MOST OF THE PROJECTS EXECUTED BY THE ASSESSEE ARE SPONSORED BY THE STATE AND CEN TRAL GOVERNMENT. THE ASSESSEE FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010 11, WHICH WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT H AS BEEN COMPLETED UNDER SECTION 143(3). IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS DEBITED THE BAD DEBT WRITTEN OFF TO THE EXTENT OF ` 28,97,389. THE ASSESSING OFFICER HAD RESERVATION TO THE EXTENT OF ` 9,22,596 OUT OF THE ABOVE BAD DEBT WHICH PERTAINED TO THE FOLLOWING NINE PARTIES: 1 . GTL LTD. RS.30,000 2 . BHARAT CONSTRUCTIONS RS.60,000 3 . VIVEKANAND FORGING INDIA LTD. RS.60,000 4 . AMRUTRUNWAL GROUP RS.12,000 5 . AMRUTRUNWAL MULTI HOUSING PVT. LTD. RS.18,150 6 . AMRUTRUNWAL MULTI HOUSING PVT. LTD. RS.4,835 7 . AMRUTRUNWAL MULTI HOUSING PVT. LTD. RS.4,835 8 . ASHOKA PROPERTIES PVT. LTD. RS.90,000 9 . B.U. BHANDARI SCHEMES RS.3,21,833 10 . KUMAR BUILDERS CONSORTIUM RS.45,000 11 . KUMAR BUILDERS TOWNSHIP VENTURES PVT. LTD. RS.4,743 12 . KUMAR BUILDERS TOWNSHIP VENTURES PVT. LTD. RS.91,200 13 . NIRMAL LIFE STYLE, PUNE RS.1,80,000 RS.9,22,596 4 . IN THE OPINION OF THE ASSESSING OFFICER, THE ABOVE BAD DEBTS WERE RELATED TO REPUTED COMPAN IES AND THE ASSESSEE COULD HAVE CERTAINLY PURSUED RECOVERY PROCEEDINGS AGAINST THEM. THE DEBTS WERE VERY PRE MATURE TOO AS NOTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER SOUGHT EXPLANATION O F THE ASSESSEE AS TO WHY THE ABOVE BAD DEBT SHOULD NOT BE DISALLOWED. THE ASSESSEE FILED REPLY JUSTIFYING THE RIGHT OFF OF THE ABOVE BAD DEBTS. BUT THE REPLY OF THE ASSESSEE DID NOT FIND ANY FAVOUR. THE ASSESSING OFFICER DISALLOWED BAD DEBT TO THE EXTENT O F ` 9,22,596 / AND MADE THE ADDITION TO THE INCOME OF THE ASSESSEE. 3 MITCON CONSULTANCY & ENGINEERING SERVICES LTD. 5 . THE ASSESSEE CHALLENGED THE SAID ADDITION BEFORE THE LEARNED CIT(A) WHEREIN THE ASSESSEE CONTENDED THAT IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. , 323 I TR 397 (SC), THE ASSESSING OFFICER CANNOT QUESTION AS TO WHY THE RECOVERY PROCEEDINGS WERE NOT INITIATED BY THE ASSESSEE. THE ASSESSEE ASSERTED THAT AFTER THE AMENDMENT W.E.F. 1.4.1989, TO SECTION 36(1)(VII) R/W SECTION 36(2) OF THE ACT, IT IS NOT NECESSAR Y TO ESTABLISH THAT THE DEBT HAS BECOME IRRECOVERABLE DURING THE YEAR AND IT IS SUFFICIENT COMPLIANCE IF THE DEBTS HAVE BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT. IT IS FURTHER CONTENDED THAT THE LAW DOES NOT LAY DOWN ANY TIME LIMIT FOR DEBTS BECOMING BAD. IT WAS PLEADED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE. THE LD. CIT(A) MADE THE BIFURCATION OF THE BAD DEBT S WRITTEN OFF IN TWO CATEGORIES. AS OBSERVED BY HIM, THE FIRST CATEGORY IS THE DEBTORS WHERE THE DEBTS WRITTEN OFF REPRESENT OPENING BROUGHT FORWARD BALANCE S AND THERE WERE NO TRANSACTION AT ALL WITH THE DEBTORS DURING THE YEAR AND THE SECOND CATEGORY IS IN RESPECT OF THOSE DEBTORS WITH WHOM THE ASSESSEE CONTINUE D TO HAVE TRANSACTIONS WITH THE DEBTORS DURIN G THE YEAR. IN THE FIRST CATEGORY, IN THE OPINION OF THE LD . CIT(A) TO THE EXTENT OF ` 5,10,763 / , THE CLAIM OF BAD DEBT WRITTEN OFF WAS ALLOWABLE. HE, ACCORDINGLY, ALLOWED THE SAME BUT IN RESPECT OF THE SECOND CATEGORY, IN HIS OPINION, TO THE EXTENT OF ` 4,11,833, THE CLAIM WAS NOT ALLOWABLE. THE SECOND CATEGORY WAS IN RESPECT OF THE FOLLOWING THREE DEBTORS: I ) GTL LIMITED ` 30,000 II ) BHARAT CONSTRUCTION ` 60,300 III ) BU BHANDARI SCHEME ` 3,61,612 6 . THE ASSESSEE EXPLAINED THE REASONS FOR W RITING OFF T HE BAD DEBTS BEFORE THE LD . CIT(A). IN RESPECT OF THE GTL LTD., IT WAS STATED BY THE ASSESSEE THAT THE BILL WAS RAISED FOR ` 4.80 LAKHS FOR CER FUNDS SYNDICATION SERVICE AND THE ASSESSEE HAS RECEIVED ` 4.50 LAKHS AS A FINAL PAYMENT FROM 4 MITCON CONSULTANCY & ENGINEERING SERVICES LTD. THE SAID PARTY AND, HENCE, THE BALANCE AMOUNT OF ` 30,000, WAS WRITTEN OFF. IN RESPECT OF BHARAT CONSTRUCTION, THE ASSESSEE STATED THAT THE ASSIGNMENT VALUE WAS ` 1 LAKH FOR TEV STUDY W IND E LECTRIC G ENERATOR AND THE CLIENT SHORT LY CLOSED THE ASSIGNMENT BY MAKING THE PAYMENT O F ` 40,000 AND, HENCE, THE OUTSTANDING AMOUNT OF ` 60,300 WAS WRITTEN OFF AS IRRECOVERABLE. IN THE THIRD CASE I.E., B.U. BHANDARI SCHEME, THE ASSESSEE STATED THAT THE BILL WAS RAISED FOR OBTAINING ENVIRONMENTAL CLEARANCE FROM THE MINISTRY OF ENVIRONMENT & FORESTS (MOEF) , FOR THEIR PROPOSED RESIDENTIAL PROJECT AT KARADI. IT WAS STATED THAT THE TOTAL BILL FOR ` 9.43 LAKHS W AS RAISED AND OUT OF THE SAID BILL, PAYMENT OF ` 5.82 LAKHS WAS RECEIVED AS A PART PAYMENT THE WORK BUT DUE TO RECESSION FURTHER SERVICES WERE NOT RENDERED. THE CIT(A) REJECTED THE REASONS GIVEN BY THE ASSESSEE FOR WRITING OFF OF THE BAD DEBT OF THE ABOVE THREE PARTIES AND FINALLY SUSTAINED THE ADDITION TO THE EXTENT OF ` 4,11,833 / . NOW THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE PART S USTAINING OF THE ADDITION BY THE CIT(A). 7 . WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE PLACE D RELIANCE ON THE DECISION OF THE HON'BLE SUPREME COURT IN TRF (SUPRA) AS WELL AS CIT V/S STAR CHEMICALS PVT. LTD., 313 ITR 126 (BOM) . HE SUBMITTED THAT THE DECISION RELIED UPON BY THE LD . C IT (A) IN SOUTH INDIA SURGICAL CO. LTD. , 287 ITR 62 (MAD.) IS MUCH MORE PRIOR TO THE DECISION OF THE HON'BLE SUPREME COURT IN TRF LTD. (SUPRA). HE SUBMITTED THAT CONSIDERI NG THE NATURE OF BUSINESS AND THE REASONS GIVEN BY THE ASSESSEE THE BONAFIDES FOR WRITING OFF OF THE BAD DEBTS CANNOT BE DISPUTED. HE PLEADED FOR DELETING THE ADDITION SUSTAINED BY THE CIT(A). PER CONTRA, THE L D. D.R. PLACES RELIANCE ON THE DECISION IN THE CASE OF SOUTH INDIA SURGICAL CO. LTD. (SUPRA). 8 . IN THIS CASE, ISSUE IN CONTROVERSY IS IN A NARROW COMPASS. THERE IS NO QUARREL ON THE LEGAL PRINCIPLE AS LAID DOWN IN TRF LTD. (SUPRA) THAT AFTER 1 ST APRIL 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTA BLISH THAT THE DEBT, IN 5 MITCON CONSULTANCY & ENGINEERING SERVICES LTD. FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. THE ONLY LIMITED ISSUE REMAIN IS THE BONAFIDES OF THE ASSESSEE TO WRITE OFF THE SAID DEBTS. FROM THE REASO NS GIVEN BY THE ASSESSEE IN RESPECT OF THESE THREE COMPANIES, IN OUR OPINION, THE BONAFIDES CANNOT BE DISPUTED. IT IS NOT THE CASE THAT THE ASSESSEE HAS WRITTEN OFF THE ENTIRE AMOUNT AS A BAD DEBT I N RESPECT OF THE BILLS RAISED ON THE ABOVE THREE PARTIES, EVEN THOUGH THE TRANSACTIONS ARE IN THE SAME FINANCIAL YEAR I.E., F.Y. 2009 10, IN THE CASE OF STAR CHEMICALS PVT. LTD. (SUPRA), WHICH DECISION IS PRIOR TO THE DECISION OF THE HON'BLE SUPREME COURT IN TRF LTD. (SUPRA), THE HON'BLE JURISDICTIONAL HIGH COURT HAS HELD THAT ONCE THE ASSESSEE HAS WRITTEN OFF THE DEBT AS BAD DEBT THAT WOULD SATISFY THE PURPOSE OF SECTION 36(1)(VII) OF THE ACT. IN OUR OPINION, THE ASSESSEE HAS TO SUCCEED ON THIS ISSUE. WE, ACCORDINGLY, ALLOW THE GROUND TAKEN BY THE ASSESSEE AND DE LETE THE ADDITION. 9 . IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH DECEMBER 2014. SD/ - ( R.K. PANDA ) ACCOUNTANT MEMBER SD/ - ( R.S. PADVEKAR ) JUDICIAL MEMBER PUNE, DATED: 16 TH DECEMBER 2014 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, PUNE CITY CONCERNED; ( 5 ) THE DR, ITAT, PUNE; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (ASSTT. REGISTRAR) ITAT, PUNE