JIK INDUSTRIES LTD., MUMBAI V. DCIT CENT. CIR. 44, MUMBAI

ITA 6176/MUM/2016

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 4705 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2004-2005
• Appeal Filed On: 19-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SRINIWAS
• Keywords: Bad and doubtful debts; Set aside
• Section: 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE S/ SHRI B.R.BASKARAN (AM) & AMARJIT SINGH (JM) I.T.A. NO. 6176 /MUM /20 1 6 (ASSESSMENT YEAR 20 0 4 - 0 5 ) I.T.A. NO. 6177/MUM/2016 (ASSESSMENT YEAR 2005 - 06) I.T.A. NO. 6178/MUM/2016 (ASSESSMENT YEAR 2006 - 07) JIK INDUSTRIES LTD. 16, GUNDECHA CHAMBERS NM ROAD, FORT MUMBAI - 400 023. PAN : AABCJ2982J VS. DCIT CC - 44 MUMBAI ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI RAJIV KHANDELWAL DEPARTMENT BY SHRI B. SRINIWAS & SHRI MANOJ KUMAR SINGH DA TE OF HEARING 30 .1 0 . 201 8 DATE OF PRONOUNCEMENT 30 . 11 . 201 8 O R D E R PER B.R. BASKARAN (A M) : - ALL THESE THREE APPEALS HAVE BEEN FILED BY THE ASSESSEE CHALLENGING THE ORDERS PASSED BY LD CIT(A) - 50 AND THEY RELATE TO THE ASSESSMENT YEARS 200 4 - 05 TO 2006 - 07. IN ALL THESE THREE APPEALS, THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE DISALLOWANCE OF CLAIM OF BAD DEBTS. 2. THIS IS SECOND ROUND OF PROCEEDINGS. THE ASSESSEE CLAIMED DEDUCTION TOWARDS BAD DEBTS IN ALL THE THREE YEARS AS DETAILED BELOW: - ASSESSMENT YEAR 2004 - 05 - RS.632.41 LAKHS ASSESSMENT YEAR 2005 - 06 - RS.2399.64 LAKHS ASSESSMENT YEAR 2006 - 07 - RS.768.10 LAKHS. THE AO DISALLOWED THE ABOVE SAID CLAIM IN ALL THE THREE YEARS AND HENCE THE ASSESSEE CHALLENGED THE SAME UPTO THE LEVEL OF TRIBUNAL. THE ITAT NOTICED THAT THE ASSESSEE HAS FAILED TO SHOW THAT THE CONDITIONS PRESCRIBED U/S 36(2) OF THE ACT HAVE BEEN FULFILLED, VIZ., THE AMOUNT CLAIMED AS BAD DEBTS HAS BEEN OFFERED AS INCOME IN ANY OF THE YEARS. HENCE THE TRIBUNAL RESTORED THE MATTER TO THE JIK INDUSTRIES LTD. 2 FILE OF THE AO IN ALL THE THREE YEARS ALLOWING AN OPPORTUNITY TO THE ASSESSEE TO SHOW THAT THE CONDITIONS PRESCRIBED U/S 36(2) HAVE BEEN COMPLIED WITH. 3. IN THE SET ASIDE PROCEEDINGS, THE ASSESSEE S UBMITTED THAT ITS BOOKS OF ACCOUNTS HAVE BEEN DESTROYED DUE TO FLOODS IN THE CITY OF MUMBAI THAT OCCURRED ON 26 - 07 - 2005. THE ASSESSEE FURNISHED A CERTIFICATE OBTAINED FROM LOCAL TALATI TO SUPPORT ITS CONTENTIONS. ACCORDINGLY IT EXPRESSED ITS INABILITY TO PRODUCE THE BOOKS OF ACCOUNTS TO SHOW THAT THE AMOUNT WRITTEN OFF HAS BEEN OFFERED AS INCOME IN ANY OF THE YEARS. THE AO TOOK THE VIEW THAT THE TAX AUDITORS DID NOT MENTION ABOUT THE DAMAGE OF BOOKS IN THEIR AUDIT REPORT GIVEN FOR AY 2004 - 05 AND 2005 - 06. THE AO ALSO NOTICED THAT THE ASSESSEE DID NOT TAKE THIS PLEA BEFORE APPELLATE AUTHORITIES IN THE FIRST ROUND OF PROCEEDINGS. HENCE THE AO DID NOT ACCEPT THE EXPLANATIONS OF THE ASSESSEE AND ACCORDINGLY DISALLOWED THE CLAIM OF BAD DEBTS AGAIN IN ALL THE T HREE YEARS. THE LD CIT(A) ALSO CONFIRMED THE SAME IN ALL THE THREE YEARS. 4. THE LD A.R SUBMITTED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF CHEMICALS. IT WAS ALSO DOING MONEY CHANGERS BUSINESS. DUE TO HEAVY LOSSES, TH E COMPANY WAS REFERRED TO BIFR IN THE YEAR 2004. THE ASSESSEE HAS FURNISHED THE BREAK - UP DETAILS OF AMOUNT WRITTEN OFF BY IT. HOWEVER, DUE TO THE HEAVY FLOODS IN THE CITY OF MUMBAI IN JULY 2005, ALL ITS RECORDS WERE DESTROYED. HENCE THE ASSESSEE COULD N OT PROVE THAT THE AMOUNTS SO WRITTEN OFF WERE OFFERED TO TAX IN ANY OF THE YEARS IN TERMS OF SEC. 36(2) OF THE ACT. HE SUBMITTED THAT SOME OF THE AMOUNTS WRITTEN OFF WERE RELATED TO ITS BUSINESS OF MONEY CHANGERS AND IN RESPECT OF THE SAME, THERE WAS NO NECESSITY TO SHOW THAT THE RELEVANT AMOUNT WAS OFFERRED AS INCOME. THE LD A.R PLACED HIS RELIANCE ON THE DECISION RENDERED BY AHMEDABAD BENCH OF TRIBUNAL IN THE CASE OF EAGLE SYNTHETICS (P) LTD VS. ITO (2011) (16 TAXMANN.COM 255), WHEREIN IT WAS HELD THA T THE AUDITED FINANCIAL STATEMENTS COULD BE RELIED UPON WHEN THE BOOKS OF ACCOUNTS WERE DESTROYED IN FLOODS. ACCORDINGLY IT WAS HELD THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF JIK INDUSTRIES LTD. 3 ACCOUNTS. THE LD A.R SUBMITTED THAT, IN THE INSTANT CASE ALSO, TH E BOOKS WERE DESTROYED BY FLOODS AND HENCE THE AO SHOULD HAVE ACCEPTED THE AVAILABLE DETAILS FURNISHED BY THE ASSESSEE AND ALSO CONSIDERED THE AUDIT REPORTS. 5. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE MANDATE OF THE ORDER PASSED BY ITAT IN THE FIRST ROUND OF PROCEEDINGS WAS THAT THE ASSESSEE SHOULD PROVE THAT IT HAS COMPLIED WITH THE PROVISIONS OF SEC.36(2) OF THE ACT IN RESPECT OF BAD DEBTS CLAIMED BY THE ASSESSEE. HE SUBMITTED THAT THE ASSESSEE HAS NOT COMPLIED WITH THE DIRECTIONS OF ITAT AND HENCE THE TAX AUTHORITIES HAVE RIGHTLY DISALLOWED THE CLAIM OF BAD DEBTS. 6. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. WE NOTICE THAT THE ITAT, IN THE FIRST ROUND OF PROCEEDINGS, HAS RESTORED THE ISSUES TO THE FILE OF THE AO IN ORDER TO ENABLE THE ASSESSEE TO PROVE THAT IT HAS COMPLIED WITH THE CONDITIONS PRESCRIBED U/S 36(2) OF THE ACT, I.E., THE ASSESSEE WAS REQUIRED TO SHOW THAT THE AMOUNT CLAIMED AS BAD DEBT WAS OFFERED AS INCOME IN ANY OF THE YEARS. THE ASSESSEE HAS EXPRESSED ITS INABILITY TO PROVE THE SAME ON THE REASONING THAT ITS BOOKS OF ACCOUNTS HAVE BEEN DESTROYED IN FLOODS THAT OCCURRED IN MUMBAI IN JUNE, 2005. THE LD A.R SUBMITTED THAT THE DETAILS OF BAD DEBT CLAIMED BY THE ASSESSEE HAS BEEN FURNISHED TO THE AO AND THE CL AIM IS ALSO SUPPORTED BY AUDITED ACCOUNTS. ACCORDINGLY IT WAS CONTENDED THAT THE AO SHOULD HAVE ALLOWED THE CLAIM OF THE ASSESSEE BASED ON THE AVAILABLE DOCUMENTS. 7. THE CLAIM OF BAD DEBTS MADE U/S 36(1)(VII) OF THE ACT CAN BE FOUND IN THE AUDITED FI NANCIAL STATEMENTS. HOWEVER, THE BAD DEBTS CLAIMED U/S 36(1)(VII) OF THE ACT CAN BE ALLOWED ONLY IF THE CONDITIONS PRESCRIBED U/S 36(2) OF THE ACT ARE FULFILLED. THERE SHOULD NOT BE ANY DISPUTE THAT IT IS THE RESPONSIBILITY OF THE ASSESSEE TO SHOW THAT T HE CONDITIONS PRESCRIBED U/S 36(2) OF THE ACT HAS BEEN FULFILLED. THE AUDITED FINANCIAL STATEMENTS WOULD NOT SHOW ABOUT THE COMPLIANCE OF CONDITIONS PRESCRIBED U/S 36(2) OF THE ACT. IN THE FIRST ROUND OF PROCEEDINGS, THE ASSESSEE HAS FAILED TO PROVE THE SA ME. BEFORE LD CIT(A) AS JIK INDUSTRIES LTD. 4 WELL AS BEFORE ITAT, THE ASSESSEE HAS NEVER TAKEN THE PLEA THAT THE BOOKS OF ACCOUNTS HAVE BEEN DESTROYED. THIS PLEA WAS TAKEN FOR THE FIRST TIME BEFORE THE AO IN THE SET ASIDE PROCEEDINGS. HENCE THERE IS SOME MERIT IN THE VIEW O F THE ASSESSING OFFICER IN NOT ACCEPTING THIS EXPLANATION. 8. AT THE SAME TIME, WE NOTICE THAT THE ABOVE SAID EXPLANATIONS OF THE ASSESSEE WERE NOT FOUND TO BE FALSE BY THE AO. THERE IS ALSO POSSIBILITY THAT THE CLAIM OF BAD DEBTS MAY ACTUALLY RELATE TO TRADE DEBTORS. THE ASSESSEE COULD NOT FURNISH THE DETAILS, SINCE THE BOOKS WERE CLAIMED TO HAVE BEEN DESTROYED IN FLOODS. ACCORDINGLY, WE ARE OF THE VIEW THAT A PORTION OF BAD DEBTS MAY BE ALLOWED BY TREATING THE SAME AS RELATED TO TRADE DEBTORS. ACC ORDINGLY WE ARE OF THE VIEW THAT, IN THE ABSENCE OF COMPLETE DETAILS, A SUM OF 20% OF THE CLAIM MAY BE CONSIDERED AS RELATED TO TRADE DEBTORS WITHIN THE MEANING OF SEC.36(2) OF THE ACT AND ACCORDINGLY THE SAME MAY BE ALLOWED AS DEDUCTION U/S 36(1)(VII) OF THE ACT AS BAD DEBTS. ACCORDINGLY WE MODIFY THE ORDER PASSED BY LD CIT(A) IN ALL THE THREE YEARS AND DIRECT THE AO TO TREAT 20% OF AMOUNT CLAIMED BY THE ASSESSEE AS HAVING BEEN COMPLIED WITH THE CONDITIONS PRESCRIBED U/S 36(2) OF THE ACT AND ACCORDINGLY A LLOW TO THAT EXTENT U/S 36(1)(VII) OF THE ACT. WE ORDER ACCORDINGLY. 9. IN THE RESULT, ALL THE THREE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER HAS BE E N PRONOUNCED IN THE COURT ON 30 . 1 1 .201 8 . SD/ - SD/ - (AMARJIT SINGH ) ( B.R. BASKAR AN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 30 / 11 / 20 1 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A ) 4. CIT 5. DR, ITAT, MUMBAI JIK INDUSTRIES LTD. 5 6. GUARD FILE. BY ORDER, //TRUE COPY// ( SENIOR PRIVATE SECRETARY ) PS ITAT, MUMBAI