DCIT, CHENNAI V. ISoft Healthy Management (India) Private Limited, CHENNAI

ITA 620/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9284 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 16-03-2016
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Bad and doubtful debts

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , ! ' ! # . $% , & '( BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NO. 620/MDS/2016 / ASSESSMENT YEAR : 2007-08 THE DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-2(2), CHENNAI 600 034. APPELLANT) V. M/S. ISOFT HEALTHY MANAGEMENT (INDIA) PVT. LTD., 4 TH FLOOR, CAPITAL TOWER, KODAMBAKKAM HIGH ROAD, NUNGAMBAKKAM, CHENNAI 600 034. PAN AAACO2465N RESPONDENT) / APPELLANT BY : SHRI A.B.KOLI, JCIT / RESPONDENT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE ! / DATE OF HEARING : 26.05.2016 '# ! / DATE OF PRONOUNCEMENT: 03.06.2016 ) / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 29 .1.2016 FOR - - ITA 620/16 2 THE ASSESSMENT YEAR 2007-08. 2. THE ONLY GRIEVANCE IN THIS APPEAL BY THE REVENUE IS WITH REGARD TO ALLOWABILITY OF BAD AND DOUBTFUL DEBTS AS DEDUCTION UNDER SEC.37(1) OF THE I.T.ACT. 3. THE ASSESSEE CLAIMED AN AMOUNT OF ` 69,35,718/- AS PROVISION FOR DOUBTFUL DEBTS UNDER ADMINISTRATIVE A ND SELLING EXPENSES IN THE PROFIT AND LOSS ACCOUNT FOR THE YEA R ENDED 31.3.2007. BUT IN THE STATEMENT OF INCOME, THE A SSESSEE ADDED BACK ONLY ` 26,25,869/-. THEREFORE, THE ASSESSING OFFICER WAS OF THE OPINION THAT AN AMOUNT OF ` 43,09,849/- BEING A PROVISION OF DOUBTFUL DEBTS CANNOT BE ALLOWED AS BA D DEBTS WHILE COMPUTING THE INCOME OF THE ASSESSEE. ON APPEAL, T HE COMMISSIONER OF INCOME-TAX(APPEALS) ALLOWED THE CLA IM OF THE ASSESSEE BY PLACING RELIANCE ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF TRF LTD. V. CIT (323 ITR 397) . AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS REDUCED DOUBTFUL DEBTS FROM THE TOTAL CURRENT ASSETS IN THE BALANCE SHEET AND THAT ITSELF AMOUNTS TO WRITTEN OFF OF BAD DEBTS IN TERMS OF - - ITA 620/16 3 SEC.36(1)(VII) OF THE ACT AND THERE CANNOT BE ANY D ISALLOWANCE ON THIS. ON THE OTHER HAND, THE LD. DR RELIED ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. V. JCIT (320 ITR 577), WHEREIN, IT WAS HELD THAT SEC .37 APPLIES ONLY TO ITEMS WHICH DO NOT FALL UNDER SECTIONS 30 T O 36. SINCE PROVISION FOR DOUBTFUL DEBTS IS EXPRESSLY EXCLUDED FROM SECTION 36(1)(VII), IT CANNOT BE CLAIMED AS DEDUCTION U/S.3 7 EVEN ON THE BASIS OF REAL INCOME. IN THE CASE OF VIJAYA BANK V . CIT 323 ITR 166, THE SUPREME COURT HELD THAT AFTER INSERTION OF EXPLANATION TO S.36(1)(VII), ASSESSEE IS REQUIRED NOT ONLY TO D EBIT THE P & L A/C BUT SIMULTANEOUSLY ALSO REDUCE LOANS AND ADVANC ES OR THE DEBTORS FROM THE ASSETS SIDE OF THE BALANCE SHEET TO THE EXTENT OF THE CORRESPONDING AMOUNT SO THAT AT THE END OF T HE YEAR THE AMOUNT OF LOANS AND ADVANCES/DEBTORS IS SHOWN AS NE T OF PROVISION FOR IMPUGNED BAD DEBT; ASSESSEE-BANK HAVI NG, BESIDES DEBITING THE P&L A/C AND CREATING A PROVISI ON FOR BAD AND DOUBTFUL DEBTS, SIMULTANEOUSLY OBLITERATED THE SAID PROVISION FROM ITS ACCOUNTS BY REDUCING THE CORRESPONDING AMO UNT FROM LOANS AND ADVANCES/DEBTORS ON THE ASSETS SIDE OF TH E BALANCE SHEET, IT WAS ENTITLED TO BENEFIT OF DEDUCTION UNDE R S.36(1)(VII); IT - - ITA 620/16 4 WAS NOT NECESSARY TO CLOSE THE INDIVIDUAL ACCOUNT O F EACH DEBTOR IN THE BOOKS. THE JURISDICTIONAL HIGH COURT IN THE CASE OF SOUTH INDIA SURGICAL CO. LTD. V. ACIT (287 ITR 62), WHERE IN IT WAS HELD AS UNDER : IT IS NOT SUFFICIENT FOR THE ASSESSEE TO SAY THA T HE BECAME PESSIMISTIC ABOUT THE PROSPECT OF RECOVERY O F THE DEBT IN QUESTION. HE MUST FEEL HONESTLY CONVINC ED THAT THE FINANCIAL POSITION OF THE DEBTOR WAS SO PRECARIOUS AND SHAKY AND THAT IT WOULD BE IMPOSSIBL E TO COLLECT ANY MONEY FROM HIM. THE QUESTION IS REAL LY ONE OF FACT DEPENDING UPON THE VARIOUS FACTS AND DIVERSE CIRCUMSTANCES BEARING ON THE DEBTORS PECUNIARY POSITION, HIS COMMITMENTS AND OBLIGATIONS . THE JUDGMENT OF THE ASSESSEE IN REGARDING THE DEBT AS A BAD DEBT MUST BE AN HONEST JUDGMENT AND NOT A CONVENIENT JUDGMENT. THE JUDGMENT OF THE ASSESSEE MUST BE ESTABLISHED TO HAVE BEEN TAKEN ON RELEVANT FACTS AND CIRCUMSTANCES WHICH SHOULD SHOW THAT THE DEBT IS NOT REALIZABLE FOR SOME FAULT ON THE PART O F THE DEBTOR OR SOME SUPERVENING IMPOSSIBILITY ON THE PAR T OF THE DEBTOR TO PAY, BUT NOT POSSIBLE DIFFICULTIES OR HURDLES THE ASSESSEE MAY HAVE TO INCUR TO COMPEL TH E RECALCITRANT DEBTOR TO PAY. THE ASSESSEE FOR HIS CONVENIENCE MAY DECIDE THAT THE DEBT IS TOO SMALL A ND IT IS NOT WORTHWHILE TO PURSUE THE DEBTOR BUT THAT JUDGMENT WOULD NOT BE AN HONEST JUDGMENT, WHICH WOULD ESTABLISH THAT THE DEBT HAS BECOME A BAD DEBT . A TIME-BARRED DEBT CAN BE ASSUMED TO BE BAD, BUT IS NOT NECESSARILY BAD BECAUSE OF EXPIRY OF LIMITATION FOR RECOVERY OF THE SAME. WE AFTER CONSIDERING THE ACCOUNTING METHODOLOGY OF ASSESSEE COMPANY AND PROVISIONS OF LAW ON BAD DEBTS AND JUDICIAL DECISIO NS DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS GROUND AND SAME IS UPHELD. HENCE GROUND OF THE ASSESSEE IS DISMISSED. - - ITA 620/16 5 5. ON PERUSAL OF THE RECORD, IT IS NOT CLEAR WHETHE R THE ASSESSEE HAS ACTUALLY WRITTEN OFF THE BAD DEBTS IN THE BOOKS OF ACCOUNT IN TERMS OF SEC.36(1)(VII) OF THE ACT. I T IS ALSO NOT CLEAR WHEN THE ASSESSEE IS REDUCED THE DOUBTFUL DEBTS FRO M THE TOTAL CURRENT ASSET, THE SAME DEBT WAS CARRIED FORWARD TO THE SUBSEQUENT YEAR AS OPENING DEBTS. IF IT IS CARRIED FORWARD AS OPENING DEBTS IN THE NEXT ASSESSMENT YEAR, THEN THE ASSESSEE IS NOT ENTITLED FOR CLAIM OF BAD DEBTS. WITH THIS OBS ERVATION, WE REMIT THIS ISSUE TO THE FILE OF THE AO FOR FRESH CO NSIDERATION. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON FRIDAY, THE 3 RD OF JUNE, 2016 AT CHENNAI. SD/- SD/- ( $ % . & '( ) ( ) * + , ) DUVVURU RL REDDY - ./012304556037- 8 9: /JUDICIAL MEMBER ! 9:;<<5=1>01>?@AB@3 )8 /CHENNAI, C9 /DATED, THE 3 RD JUNE, 2016. MPO* - - ITA 620/16 6 9D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H- /CIT(A) 4. H /CIT 5. FIJ K /DR 6. J(L /GF.