The ACIT, Baroda Circle-4(2), Baroda V. M/s. TDW India Limited, Baroda

ITA 605/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8851 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 08-02-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V C MODI
• Assessee Lawyers: VIPUL K SHAH
• Keywords: Bad and doubtful debts

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI MAHAVIR SINGH, JM AND D.C.AGRAWAL, AM ASSTT. CIT, BARODA CIR.4(2), BARODA. V/S . M/S TDW INDIA LTD., 401-402, SAMPATI PREMISES, BOMBAY SHOPPING CENTRE LANE, R.C.DUTT ROAD, BARODA. PAN NO.AABCT 3531D (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI V.C. MODI, ADDL.CIT,DR RESPONDENT BY:- SHRI VIPUL K. SHAH, AR O R D E R PER D.C.AGRAWAL, ACCOUNTANT MEMBER. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 29.11.2006. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS DELETION OF DISALLOWANCE OF CLAIM OF BAD DEBTS OF R S.10,11,966/-. THE GROUND RAISED BY THE REVENUE IS AS UNDER :- 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF CL AIM OF BAD DEBTS OF RS.10,11,966/- PERTAINING TO PARTIES WITH WHOM T HE ASSESSEE HAD NORMAL BUSINESS TRANSACTIONS, SO THE DEBTS WERE NOT ACTUALLY FOUND TO BE BAD DEBTS AS PER FINDING OF THE AO. EVEN AFTE R AMENDMENT U/S 36(1)(VII) DEBTS OF PARTIES HAVING NORMAL BUSINESS TRANSACTIONS WITH THE ASSESSEE CANNOT BE TREATED AS BAD DEBT IN VIEW OF MADRAS HIGH ITA NO.605/AHD/2007 ASST. YEAR : 2003-04 2 COURTS DECISION IN THE CASE OF SOUTH INDIA SURGICA L COMPANY LTD. 287 ITR 62. ONLY DEBTS WHICH ARE ACTUALLY BAD HAVE TO BE ALLOWED AND WHETHER DEBT IS BAD OR NOT IS A QUESTION OF FAC T TO BE DECIDED ON THE BASIS OF INFORMATION FURNISHED BEFORE THE AO. 2. THE FACTS ARE THAT THE ASSESSEE COMPANY IS ENGAG ED IN TRADING AND JOB WORK OF PIPE LINE MAINTENANCE AND PROVIDING SER VICES TO OIL AND GAS INDUSTRIES. THE AO NOTICED THAT ASSESSEE HAS CLAIM ED BAD DEBT AMOUNTING TO RS.10,11,966/- BY WRITING IT OFF IN THE BOOKS OF ACCOUNT. THE AO HELD THAT ASSESSEE HAS NOT ESTABLISHED THAT THE DEBTS HA VE ACTUALLY BECOME BAD DURING THE YEAR. HE HAS BEEN CONTINUING TO DO BUSIN ESS WITH THE SAME PARTIES. LD. CIT(A) DELETED THE ADDITION BY OBSERVI NG AS UNDER :- 5.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE ID. A,R AND THE FACTS OF THE CASE. THE RULE OF EVIDENCE REGARDING THE WRITING OF F OF BAD DEBTS U/S 36(1)(VII) HAS UNDERGONE CHANGE WITH THE AMENDMENT OF THE SECTION WITH EFFECT FROM 1-4-1989. IN THE PRE-AMENDED SECTION, T HE EXPRESSION USED WAS 'ANY DEBT OR PART THEREOF, WHICH IS ESTABLISHED TO HAVE BECOME A HAD DEBT IN THE PREVIOUS YEAR'. THIS HAS BEEN OMITTED B Y THE AMENDMENT AND SUBSTITUTED BY THE EXPRESSION 'WRITTEN OFF AS IRREC OVERABLE'. THUS, THE INTENTION OF THE LEGISLATURE APPEARS TO BE THAT, WH EREAS EARLIER IT WAS INCUMBENT UPON THE ASSESSEE TO ESTABLISH THAT THE D EBT HAD BECOME BAD DURING THE PREVIOUS YEAR, AFTER THE SAID AMENDMENT, IT WAS SUFFICIENT THAT THE ASSESSEE HAD MERELY WRITTEN OFF THE DEBT AS IRR ECOVERABLE. HOWEVER, THERE CONTINUED TO PREVAIL AN OPINION THAT SINCE TH E WORD 'DEBT' WAS PRECEDED BY THE WORD 'BAD', NOT EVERY DEBT WRITTEN OFF WAS ALLOWABLE BUT ONLY A DEBT WHICH WAS 'BAD*' WAS ALLOWED TO HE WRIT TEN OFF. IN THIS VIEW, THERE STILL REMAINED A DUTY CAST UPON THE ASSESSEE TO ESTABLISH THAT THE DEBT HAD BECOME BAD DURING THE PREVIOUS YEAR. 5,2.1 IN ORDER TO RESOLVE THE CLEAVAGE OF JUDICIAL OPINION ON THE ISSUE, SPECIAL BENCH OF THE ITAT WAS CONSTITUTED TO LOOK I NTO THE ISSUE. THE SPECIAL BENCH HAS HELD IN THE CASE OF DCIT VS.. OMA N INTERNATIONAL BANK, 100 ITD 285 (MUM.SB) THAT PRIOR TO THE , THE ASSESSEE HAD TO ESTABLISH THAT THE DEBT HAD BECOME BAD DURING THE P REVIOUS YEAR AND THE A,O COULD ALLOW OR DISALLOW THE CLAIM ON THE BASIS OF HIS WHETHER THE DEBT HAD BECOME BAD DURING (HE SAID PREVIOUS YEAR OR NOT . IN OTHER WORDS, IRRESPECTIVE OF THE WRITE-OFF CLAIMED BY THE ASSESS EE, THE DEDUCTION WAS 3 STILL DEPENDENT ON THE FINDING OF THE A.O REGARDING THE PREVIOUS YEAR IN WHICH THE DEBT HAS BECOME BAD, BASED ON WHICH, THE A.O WOULD ALLOW THE DEDUCTION CITHER IN AN EARLIER ASSESSMENT YEAR OR I N A LATER ASSESSMENT YEAR, WHICH WAS DIFFERENT FROM THE ASSESSMENT YEAR IN WHICH THE ASSESSEE HAD WRITTEN OFF THE DEBT AS BAD. REFERRING TO THE C BDT CIRCULAR NO, 551 DATED 23-1-1990, THE SPECIAL BENCH OBSERVED THAT TH E AMENDMENT WAS BROUGHT TO DO AWAY WITH ALL THE COMPLICATIONS INVOL VED IN DETERMINING THE ISSUE OF DEDUCIBILITY OF BAD DEBTS AS WELL AS THE Y EAR IN WHICH THE DEDUCTION WAS TO BE ALLOWED. THE DISPUTE REGARDING THE YEAR IN WHICH THE DEBT HAS TO BE ALLOWED AS DEDUCTION WAS HELD TO BE RESOLVED BY THE CLEAR STATEMENT OF THE AMENDED LAW THAT THE DEDUCTION WAS ALLOWABLE IN THE YEAR IN WHICH THE DEBT HAS BEEN WRITTEN OFF AS IRRE COVERABLE. THUS, THE WORDING OF THE LAW AND THE LEGISLATIVE INTENT WERE CLEAR INASMUCH AS [LIE EARLIER RULE OF ESTABLISHING THAT THE DEBT HAD BECO ME BAD WAS OMITTED FROM THE PROVISIONS OF LAW. IT WAS FURTHER HELD THA T 'THE ACT OF WRITING OFF A DEBT AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSE SSEE, IS DEEMED TO BE DISCHARGING THE ONUS OF THE ASSESSEE IN HOLDING A D EBT AS HAD. WHEN THE STATUTE HAS PROVIDED THE MODE OF DISCHARGING THE ON US OF PROOF BY WRITING OFF THE DEBT AS BAD, IT IS NOT INCUMBENT ON THE REV ENUE TO CALL FOR FURTHER EVIDENCE. THE RULE REGARDING THE DEDUCIBILITY OF HA D DEBT PROVIDED IN SECTION 36(!)(VII) AFTER THE AMENDMENT IS A STATUTO RY RULE BY ITSELF AND, THEREFORE, THERE IS NO NEED FOR INSISTING ON ANY OT HER PROOF. THE STATUTORY RULE ITSELF DECLARES THE RULE OF DEDUCTION OF BAD D EBT. IF IT IS AGAIN NECESSARY TO PROVE BY DEMONSTRATIVE PROOF THAT THE DEBT HAS BECOME BAD, THEN THERE WAS NO NECESSITY TO INSERT A STATUTORY R ULE. THE ONUS OF PROVING THE DEBT AS BAD DEBT HAS BEEN PRESCRIBED BY THE STA TUTORY RULE. ONCE (HAT STATUTORY RULE IS SATISFIED BY FOLLOWING THE PRESCR IBED METHOD, NO FURTHER OBLIGATIONS REMAIN ON THE ASSESSEE TO BE DISCHARGED ?' IN VIEW OF THE DECISION OF THE SPECIAL BENCH, WHICH IS SQUARELY APPLICABLE E FACTS OF THE PRESENT CASE, I AM OF THE OPINION TH AT THE A.O WAS NOT JUSTIFIED IN G ON DEMONSTRATIVE PROOF REGARDING THE IRRECOVERABILITY OF THE DEBTS. THE ABOVE VIEW IS REINFORCED BY THE DECISIO N OF THE GUJARAT HIGH COURT IN CIT VS. GIRISH BHAGWAT PRASAD 256 ITR 772. FOLLOWING THE ABOVE CITED DECISIONS, THE DISALLOWANCE OF BAD DEBT S AMOUNTING TO RS.10,11,966/- IS DIRECTED TO BE DELETED. 3. WE HAVE HEARD THE PARTIES. IN OUR CONSIDERED VIE W ONCE THE ASSESSEE HAS WRITTEN OFF THE DEBTS IN THE BOOKS OF ACCOUNT, THE CLAIM HAS TO BE ALLOWED IN VIEW OF THE DECISION OF HON. SUPREME COURT IN T.R.F. LTD. 4 VS. CIT IN CIVIL APPEAL NOS.5292 & 5293 OF 2003 PRO NOUNCED ON FEBRUARY 9, 2010. HON. SUPREME COURT IN THIS REGARD HAS HELD AS UNDER :- IN THESE APPEALS, WE ARE CONCERNED WITH ASSESSMENT YEAR 1990-1991 AND ASSESSMENT YEAR 1993-1994. PRIOR TO 1 ST APRIL, 1989, EVERY ASSESSEE HAD TO ESTABLISH, AS A MATTER OF FACT, THA T THE DEBT ADVANCED BY THE ASSESSEE HAD, IN FACT, BECOME IRRECOVERABLE. THAT POSITION GOT ALTERED BY DELETION OF THE WORD 'ESTABLISHED', WHIC H EARLIER EXISTED IN SECTION 36(1)(VII) OF THE INCOME TAX ACT, 1961 [`AC T', FOR SHORT]. FOR THE SAKE OF CLARITY, WE RE-PRODUCE HEREINBELOW PROVISIONS OF SECTION 36(1)(VII) OF THE ACT, BOTH PRIOR TO 1ST APRIL, 198 9 AND POST-1ST APRIL, 1989: 'PRE-1ST APRIL, 1989: OTHER DEDUCTIONS. 36.(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION28-- (I) TO (VI) XXXX XXXX XXXX (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF ANY DEBT, OR PART THEREOF, WHICH IS ESTABLISHED TO HAVE BECOME A BAD DEBT IN THE PREVIOUS YEAR. POST-1ST APRIL, 1989: OTHER DEDUCTIONS. 36.(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WIT H THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28-- (I) TO (VI) XXXX XXXX XXXX (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) , THE AMOUNT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS I RRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. ' THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1 ST APRIL, 1989, IT IS NOT NECESSARY OR THE ASSESSEE TON ESTABLISH THA T THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSES SEE. THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1 ST APRIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. 5 HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOU NT IS DEBITED AND THE CUSTOMER'S ACCOUNT IS CREDITED, THUS, CLOSING T HE ACCOUNT OF THE CUSTOMER. IN THE CASE OF COMPANIES, THE PROVISION I S DEDUCTED FROM SUNDRY DEBTORS. AS STATED ABOVE, THE ASSESSING OFF ICER AS NOT EXAMINED WHETHER, IN FACT, THE BAD DEBT OR PART THE REOF IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESSING OFFICER. HENCE, THE MATTER IS REMIT TED TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE-MENT IONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE OFF. SUBJECT TO ABOVE, THE CIVIL APPEALS FILED BY THE ASSESSEE ARE DISPOSED OF WITH NO ORDER AS TO COSTS. 4. IN VIEW OF ABOVE JUDGMENT OF HON. SUPREME COURT, WE ARE OF THE VIEW THAT WHERE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMERS ACCOUNT IS CREDITED, THUS CLOSING THE ACCOUNT OF THE CUSTOMER, THEN CLAIM HAS TO BE ALLOWED UNDER SECTION 36(1)(VII) AND THERE IS NO RE QUIREMENT THAT ASSESSEE HAS TO ESTABLISH THAT DEBT HAS INCOME BECOME IRRECO VERABLE. 5. AS A RESULT, WE DECLINE TO INTERFERE IN THE ORDE R OF LD. CIT(A) AND DISMISS THE APPEAL OF REVENUE. SD/- SD/- (MAHAVIR SINGH) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 5/3/2010 MAHATA/- ORDER PRONOUNCED IN OPEN COURT ON 5/3/2010 6 COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD