PEGG CONSULTANTS AND ENGINEERS P. LTD, MUMBAI V. ITO 8(2)(4), MUMBAI

ITA 5980/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3628 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 02-12-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 10-11-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUM EET KUMAR
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Opportunity of being heard; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, C , MUMBAI BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 5980/MUM/2009 (ASSESSMENT YEAR -2004-5) PEGG CONSULTANTS AND ENGINEERING P LTD, 230, LAXMI PLAZA, LAXMI INDUSTIAL ESTATE, NEW LINK ROAD, ANDHERI (W), MUMBAI-400053 PAN:AAACP4761G APPELLANT VS INCOME TAX OFFICER WARD 8(2)(4), MUMBAI .RESPONDENT ASSESSEE BY : SHRI M SUBRAMANIAN REVENUE BY : SHRI SUMEET KUMAR O R D E R PER VIJAY PAL RAO,JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 3.8.2009 OF LEARNED CIT(A)VIII, MUMBAI FOR THE ASSESSMENT YEAR 2003-04. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN THI S APPEAL: 1. THE LD. CIT(A) HAS ERRED IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE IN DISALLOWING BAD DEBTS OF RS.20,96,047/- IN ANY CASE AND WITHOUT PREJUDICE, THE SAID DISALLOWANCE IS FAR TOO EXCESSI VE AND BAD IN LAW; ITA NO. 5980/MUM/2009 (ASSESSMENT YEAR -2004-5) 2 2. THE LD. CIT(A) HAS ALSO ERRED IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE IN DISALLOWING EXPENSES REFERRED TO AS PRIOR PERIOD EXPENSES O F RS.7,77,311/-. IN ANY CASE AND WITHOUT PREJUDICE, THE SAID DISALLOWANCE IS FAR TOO EXCESSIVE. 3. GROUND NO.1, REGARDING DISALLOWANCE OF BAD DEBT S OF RS.20,96,047/- BEING THE WRITTEN OFF DURING THE YE AR. THE AO HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GRO UND THAT THE ASSESSEE HAS NOT SUBSTANTIATED THE CLAIM WITH P ROOF WITH SUPPORTING DOCUMENTS SUCH AS EXACT ASSESSMENT YEAR S IN WHICH THE ITEMS OF BAD DEBTS WERE OFFERED TO TAX AN D SUPPORTING DOCUMENTS TO PROVE THE SUFFICIENT EFFORT S MADE TO RECOVER THE BAD DEBTS. 4. ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANC E MADE BY THE AO. 5. WE HAVE HEARD THE LEARNED AR AS WELL AS THE LEAR NED DR AND CONSIDERED THE RELEVANT RECORDS. THE LEARNE D AR OF THE ASSESSEE HAS SUBMITTED THAT THESE BAD DEBTS WE RE STANDING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IN THE EARLIER YEARS AND THEREFORE IT IS CLEAR THAT THESE BAD DEBTS WERE OFFERED FOR TAXATION BY THE ASSESSEE IN THE EA RLIER YEARS HE HAS RELIED UPON THE DECISION OF THE HON. SUPREME COURT IN THE CASE OF T.R.F. LTD. V. CIT REPORTED IN (2010 ) 323 ITR 397 (SC) AND SUBMITTED THAT WHEN THE ASSESSEE HAS WRITTEN OFF THE BAD DEBTS DURING THE YEAR THEREFORE THE CL AIM IS LIABLE TO BE ALLOWED. ITA NO. 5980/MUM/2009 (ASSESSMENT YEAR -2004-5) 3 6. ON THE OTHER HAND, THE LEARNED DR HAS RELIED UP ON THE ORDERS OF THE LOWER AUTHORITIES. 7. AFTER CONSIDERING THE RIVAL CONTENTIONS AND RELE VANT RECORD, WE NOTE THAT THE ASSESSEE HAS NOT PRODUCED RELEVANT AND SUFFICIENT DOCUMENTARY EVIDENCE TO PROVE THAT T HE BAD DEBTS WERE OFFERED TO TAX IN THE EARLIER PREVIOUS Y EAR. THEREFORE, IN THE ABSENCE OF RELEVANT RECORD MERELY BECAUSE THE ASSESSEE HAS WRITTEN OFF THE BAD DEBTS DURING T HE YEAR IS NOT A SUFFICIENT FOR ALLOWING THE CLAIM OF BAD DEB TS. ACCORDINGLY, WE REMIT THIS ISSUE TO THE RECORD OF T HE AO TO VERIFY AND EXAMINE THE RECORD TO BE .PRODUCED BY TH E ASSESSEE IN SUPPORT OF ITS CLAIM AND TO SHOW THAT T HESE BAD DEBTS WERE OFFERED TO TAX IN THE EARLIER YEARS. THE AO IS DIRECTED TO DECIDE THE ISSUE IN VIEW OF THE DECISI ON OF THE HON.SUPREME COURT IN THE CASE OF TRF V/S CIT (SUPR A) AS WELL AS THE ASSESSEE BE GIVEN FAIR AND REASONABLE OPPORTUNITY OF BEING HEARD. 8. GROUND NO.2, REGARDING PRIOR PERIOD EXPENSES. TH E AO NOTICED THAT THE EXPENDITURE TO THE TUNE OF RS.7,77 ,311/- DEBITED TO THE PROFIT AND LOSS ACCOUNT PERTAINS TO THE PRIOR PERIOD. SINCE THE ASSESSEE IS FOLLOWING THE MERCANT ILE SYSTEM OF ACCOUNTING, IN THE OPINION OF THE AO, THE SAME ARE ITA NO. 5980/MUM/2009 (ASSESSMENT YEAR -2004-5) 4 NOT ALLOWABLE. ACCORDINGLY, THE SAME WERE ADDED T O THE TOTAL INCOME OF THE ASSESSEE. 9. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF TH E AO. 10. THE LEARNED AR HAS SUBMITTED THAT THESE EXPENSE S WERE RELATING TO THE PRIOR PERIOD BUT WERE CRYSTAL LISED IN THIS ACCOUNTING YEAR ONLY, WHEN THE ASSESSEE RECEIVED TH E DEBIT NOTE FROM THE PARTIES WHO HAD INCURRED THESE EXPENS ES ON BEHALF OF THE ASSESSEE. THE LEARNED AR SUBMITTED T HAT THERE IS A TIME GAP BETWEEN THE EXPENSES INCURRED BY THE PARTIES AND DEBIT NOTE RECEIVED BY THE ASSESSEE AND SUBSEQU ENTLY THE PAYMENT MADE BY THE ASSESSEE TO THE PARTIES. THEREFORE, THE ASSESSEE MADE ALL THESE EXPENSES ONL Y DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND ACCORDINGLY, THESE ARE ALLOWABLE. HE FURTHER POINTED OUT THAT WHEN THE ASSESSEE HAS NO T CLAIMED THESE EXPENSES IN THE EARLIER YEAR THEN IN VIEW O F THE VARIOUS DECISIONS OF THIS TRIBUNAL AS WELL AS THE DECISIONS OF THE HON.HIGH COURTS, THE EXPENDITURES THOUGH PERTAI NS TO THE PRIOR PERIOD ARE ALLOWABLE. HE HAS RELIED UPON TH E FOLLOWING DECISIONS : 1 PKS P.LTD V/S ACIT 61 ITD 477 (CAL) 2 SAURASHTRA CEMENT AND CHEMICAL VS CIT 213 ITR 523 (GUJ) 3 CIT V. NAGRI MILLS CO. LTD., 33 ITR 681 (BOM.) ITA NO. 5980/MUM/2009 (ASSESSMENT YEAR -2004-5) 5 11. ON THE OTHER HAND, THE LEARNED DR HAS SUBMITTED THAT IT IS NOT A CASE OF EXPENSES CRYSTALLISED DURING THE Y EAR BUT THE EXPENSES WERE INCURRED AND DEBIT NOTE BY THE PA RTIES WERE ALSO ISSUED DURING THE EARLIER YEARS PERTAINI NG TO THE ASSESSMENT YEARS 2003-04 AND THEREFORE THE SAME ARE NOT ALLOWABLE FOR THE YEAR UNDER CONSIDERATION. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 12. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND R ELEVANT RECORD. AS PER THE DETAILS FILED BY THE ASSESSEE RE GARDING THE DEBIT NOTE ISSUED BY THE PARTIES IN RESPECT OF THE EXPENSES INCURRED, MAJORITY OF THE DEBITS NOTES WERE ISSUED IN THE YEAR 2002 AND THEREFORE CANNOT BE SAID TO BE CRYSTALLISE D IN DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE UNDISPUT EDLY FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND B EING THE PRIVATE LIMITED COMPANY THE ACCOUNTS OF THE ASSESSE E ARE REQUIRED TO BE AUDITED. THEREFORE, ONLY THOSE EXPE NSES REGARDING WHICH THE DEBIT NOTE WERE ISSUED BY THE O THER PARTIES AT THE END OF THE FINANCIAL YEAR 2002-03, THE SAME MAY BE TREATED AS THE EXPENSES CRYSTALLISED DURING THE PERIOD UNDER CONSIDERATION DUE TO TIME LAG BETWEEN THE DEBIT NOTE ISSUED AND RECEIVED THE SAME BY THE ASSESSEE AS WELL AS IN FINALISING THE CLAIM OF THE OTHER PART IES. ACCORDINGLY, WE DIRECT THE AO TO ALLOW THOSE EXPENSES FOR WHICH THE DEBIT NOTE WERE ISSUED IN THE MONTH ITA NO. 5980/MUM/2009 (ASSESSMENT YEAR -2004-5) 6 OF FEBRUARY AND MARCH 2003. THE ADDITION IN RESPEC T OF THE REST IS CONFIRMED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE PARTL Y ALLOWED. PRONOUNCED IN THE OPEN COURT ON 15.12.2010 SD SD (R.K.PANDA) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, ON THIS 15 TH DAY OF DEC 2010 SRL:81210 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI