YOGENDRA KHANDELWAL, Jaipur V. ACIT, Jaipur

ITA 627/JPR/2013

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2041 (ITAT-JAIPUR)
• Duration Of Justice: 4 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 13-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAN SINGH
• Assessee Lawyers: P C JAIN
• Keywords: Bad and doubtful debts; Notional interest; Onus to prove
• Section: 68

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH FOT; IKWY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA -@ ITA NO.627/JP/2013 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2008-09 YOGENDRA KHANDELWAL, JAIPUR CUKE VS. ACIT, CIRCLE-3, JAIPUR LFKK;H YS[KK LA - @THVKBZVKJ LA - @ PAN/GIR NO.: AACPK0822B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA -@ ITA NO.736/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13 YOGENDRA KHANDELWAL, JAIPUR CUKE VS. JCIT RANGE 3 JAIPUR LFKK;H YS[KK LA - @THVKBZVKJ LA - @ PAN/GIR NO.: AACPK0822B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI P. C. JAIN (ADV.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI RAN SINGH (ADDL.CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 22/02/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 28/02/2018 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THESE ARE TWO APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-1, JAIPUR DATED 09.04.2013 FOR AY 2008-09 AND DATED 14.06.2016 FOR AY 2012-13. BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OFF BY THIS COMMON ORDER. ITA NO. 627/JP/2013 & 736/JP/2016 SHRI YOGENDRA KHANDELWAL, JAIPUR VS ACIT, CIRCLE-3, JAIPUR 2 2. IN ITA NO. 627/JP/2013 FOR AY 2008-09, THE ASSESSEE HAS TAKEN THE FOLLOWING TWO GROUNDS OF APPEAL: 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN MAINTAINING THE ADDITION OF RS. 680,520/- ON ACCOUNT OF INTEREST ON INTEREST FREE LOAN AND ADVANCES. 2. THAT THE LEARNED CIT (A) HAS ERRED IN MAINTAINING THE ADDITION OF RS. 110,000/- ON ACCOUNT OF UNSECURED LOAN OF ANANT KUMAR VYAS. 3. REGARDING GROUND NO. 1 OF THE ASSESSEES APPEAL, BRIEFLY STATED, FACTS OF THE CASE ARE THAT THE ASSESSEE HAS TAKEN UNSECURED LOANS OF RS. 14,57,66,381/- AND HAS PAID INTEREST THEREON TO TUNE OF RS. 1,59,78,283/-. THE ASSESSEE HAS ALSO ADVANCED LOANS TO THE FOLLOWING PARTIES AS UNDER:- A) M/S ARPAN INFIN PVT. LTD. RS. 42,21,000/- B) SHRI SHIV BHAGWAN RAWAT RS. 14,50,000/- TOTAL RS. 56,71,000/- HOWEVER, THESE LOANS HAVE BEEN ADVANCED INTEREST FREE. AS PER AO, THE AR OF THE ASSESSEE COULD NOT GIVE ANY SATISFACTORY EXPLANATION AS TO WHY INTEREST HAS NOT BEEN CHARGED ON THESE LOANS WHEN INTEREST HAS BEEN PAID ON UNSECURED LOANS TAKEN. THE AO STATED THAT THE INTEREST @ 12% SHOULD BE CHARGED ON LOANS ADVANCED INTEREST FREE AMOUNTING TO RS. 56,71,000/- AND INTEREST INCOME AT RS. 6,80,520/- WAS ACCORDINGLY DETERMINED AND ADDED TO THE INCOME IN THE HANDS OF THE ASSESSEE. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD CIT(A) WHO HAS CONFIRMED THE SAID ADDITION. THE RELEVANT FINDING OF THE CIT(A) IS REPRODUCED AS UNDER:- 4.3 I HAVE CAREFULLY PERUSED THE ORDER OF THE AO AND THE SUBMISSIONS OF THE AR AND DO NOT CONCUR WITH THE SUBMISSIONS OF THE AR ON THE FOLLOWING GROUNDS: ITA NO. 627/JP/2013 & 736/JP/2016 SHRI YOGENDRA KHANDELWAL, JAIPUR VS ACIT, CIRCLE-3, JAIPUR 3 1) THE STAND THAT THE ONUS OF PROVING THE NEXUS OF FUNDS AVAILABLE WITH THE ASSESSEE WITH THE FUNDS ADVANCED TO THE SISTER CONCERN, WITHOUT INTEREST IS ON THE REVENUE, IS NOT CORRECT. SECTION 36(1)(III) PROVIDES FOR DEDUCTION OF INTEREST ON THE LOANS RAISED FOR BUSINESS PURPOSES. ONCE THE ASSESSEE CLAIMS ANY SUCH DEDUCTION IN THE BOOKS OF ACCOUNTS, THE ONUS WILL BE ON THE ASSESSEE TO SATISFY THE AO THAT WHATEVER LOANS WERE RAISED BY THE ASSESSEE, THE SAME WERE USED FOR THE BUSINESS PURPOSES. IF IN THE PROCESS OF EXAMINATION OF GENUINENESS OF SUCH A DEDUCTION, IT TRANSPIRES THAT THE ASSESSEE HAD ADVANCED CERTAIN FUNDS TO SISTER CONCERNS OR ANY OTHER PERSON WITHOUT ANY INTEREST, THERE WOULD BE A VERY HEAVY ONUS ON THE ASSESSEE TO BE DISCHARGED BEFORE THE AO TO THE EFFECT THAT IN SPITE OF PENDING TERM LOANS AND WORKING CAPITAL LOANS ON WHICH THE ASSESSEE IS INCURRING LIABILITY TO PAY INTEREST, THERE WAS JUSTIFICATION TO ADVANCE LOANS TO SISTER CONCERNS FOR NON BUSINESS PURPOSE WITHOUT ANY INTEREST (CIT VS. ABHISHEK INDUSTRIES LTD. (2006) 156 TAXMAN 257 (P & H). 2) ON PERUSAL OF THE SUBMISSIONS OF THE AR, IT IS SEEN THAT THE ASSESSEE HAS CONSISTENTLY FAILED TO DISCHARGE THIS ONUS OF PROVING THE NEXUS BETWEEN INTEREST FREE LOANS/ CASH AVAILABLE IN HIS BOOKS AND THE INTEREST FREE LOANS AND ADVANCES GIVEN TO THESE PARTIES OF RS. 56,71,000/-. IT IS NOT SUFFICIENT TO SAY THAT THE ASSESSEE HAD A PROFIT OR INTEREST FREE LOAN DURING THIS ASSESSMENT YEAR, ACTUAL NEXUS IS REQUIRED TO BE ESTABLISHED BY IT AS PER THE ABOVE FINDING OF THE HONBLE (P & H H.C) WHICH THE APPELLANT HAS FAILED TO DO AND HAS NOT DISCHARGED ITS ONUS OF ESTABLISHING THIS NEXUS NOR HAS HE ESTABLISHED THAT THE INTEREST FREE LOANS WERE ADVANCED FOR ANY BUSINESS PURPOSE OF ITA NO. 627/JP/2013 & 736/JP/2016 SHRI YOGENDRA KHANDELWAL, JAIPUR VS ACIT, CIRCLE-3, JAIPUR 4 THE ASSESSEE. THEREFORE, THE DISALLOWANCE OF RS. 6,80,520/- MADE BY THE ACIT ON ACCOUNT OF INTEREST U/S 36(1)(III) IS CONFIRMED. 5. DURING THE COURSE OF HEARING, THE LD. AR SUBMITTED THAT THE LEARNED CIT(A) HAS ERRED IN MAINTAINING ADDITION OF RS. 680,520/- AS NOTIONAL INTEREST ON INTEREST FREE LOANS & ADVANCES TO SISTER CONCERN. IN THIS RESPECT, WE SUBMIT THAT WE HAVE INTEREST FREE UNSECURED LOAN OF RS. 50,89,596/- AND CAPITAL IS OF RS. 1,76,37,823/-. TOTAL INTEREST FREE FUNDS WERE OF RS. 2,27,27,419/- AND INTEREST FREE LOANS & ADVANCES TO OUR SISTER CONCERN WAS RS. 56,71,000/- THUS INTEREST FREE FUNDS WERE 4 TIMES MORE THAN INTEREST FREE LOAN GIVEN BY US TO OUR SISTER CONCERN. THE ASSESSING OFFICER HAS REJECTED OUR SUBMISSION JUST BY SAYING THAT REPLY IS NOT SATISFACTORY WITHOUT MENTIONING ANY LOGICAL REASON WHY OUR SUBMISSION IS NOT SATISFACTORY. ASSESSING OFFICER HAS NOT ESTABLISHED ANY NEXUS THAT WE HAVE GIVEN ADVANCE TO SISTER CONCERN OUT OF INTEREST BEARING LOAN TAKEN BY US. THE ASSESSING OFFICER WAS NOT JUSTIFIED IN CALCULATING NOTIONAL INTEREST ON ADVANCE MADE TO SISTER CONCERN. NOTIONAL INTEREST IS NOT TAXABLE AS PER IT ACT. AS REGARDS DECISION OF CIT V/S ABHISHEK INDUSTRIES LTD. (2006) 156 TAXMAN 257 (P&H), WE SUBMIT THAT OUR CASE IS DIFFERENT FROM THAT BECAUSE WE HAVE INTEREST FREE LOANS ALSO AND PROPRIETOR CAPITAL IS DIFFERENT FROM SHARE CAPITAL, OUR PROFIT DURING THE YEAR WAS OF RS. 52,12,170/- WHILE ABHISHEK INDUSTRIES WAS NEW UNIT AND THEY HAVE GIVEN LOAN BEFORE START OF PRODUCTION AND IN MANY CASES, IT HAS BEEN HELD THAT IF INTEREST FREE FUNDS ARE MORE THAN INTEREST FREE LOANS, NO INTEREST CAN BE DISALLOWED. INTEREST BEARING FUNDS WERE FULLY UTILIZED FOR BUSINESS PURPOSES THEREFORE PROVISIONS OF SECTION 36 (1)(III) FULLY SATISFIED AND QUESTION OF DISALLOWANCE OF INTEREST DOES NOT ARISE. IN VIEW OF ABOVE, WE SUBMIT THAT INTEREST FREE FUNDS ARE 4 TIMES MORE THAN INTEREST FREE LOAN & ADVANCES. IN THESE CIRCUMSTANCES WE REQUEST YOU TO DELETE THE ADDITION OF RS. 680,520/- MADE BY LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX ON ACCOUNT OF DISALLOWANCE OF INTEREST. ITA NO. 627/JP/2013 & 736/JP/2016 SHRI YOGENDRA KHANDELWAL, JAIPUR VS ACIT, CIRCLE-3, JAIPUR 5 6. THE LD. AR FURTHER DRAWN OUR REFERENCE TO THE DECISION OF CO-ORDINATE BENCH IN CASE OF KUSHALBAGH MARBLES PVT. LTD. VS. JCIT, AND THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN CASE OF CIT, KOTA VS. RAMKISHAN VERMA (2015) 54 TAXWORLD 98 RAJ WHEREIN IT WAS HELD THAT WHERE CAPITAL OF THE ASSESSEE WAS MORE THAN INTEREST FREE AND ADVANCES MADE TO FRIENDS/ RELATIVES AND ASSESSING OFFICER WAS NOT ABLE TO PROVE NEXUS BETWEEN INTEREST BEARING LOAN HAVING BEEN DIVERTED TOWARDS INTEREST FREE LOAN AND ADVANCES, NO PART OF THE INTEREST PAID ON LOANS COULD BE DISALLOWED. 7. IN THIS REGARD, LD. AR DRAWN OUR REFERENCE TO THE BALANCE-SHEET OF THE ASSESSEE AS ON 31 ST MARCH, 2008 WHEREIN THE CAPITAL IS OF RS. 1,76,37,823/- AS AGAINST INTEREST FREE LOANS AND ADVANCES GIVEN TO SISTER CONCERN AMOUNTING TO RS. 56,71,000/-. IT WAS ACCORDINGLY SUBMITTED THAT SINCE THE INTEREST FREE FUND ARE IN EXCESS OF THE LOANS AND ADVANCES GIVEN TO THE SISTER CONCERN, THERE CANNOT BE ANY DISALLOWANCE ON ACCOUNT OF NOTIONAL INTEREST AS COMPUTED BY THE ASSESSING OFFICER. 8. THE LD DR IS HEARD WHO HAS RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURUSED THE MATERIAL AVAILABLE ON RECORD. AN AMOUNT OF RS 56,71,000 HAS BEEN ADVANCED INTEREST FREE BY THE ASSESSEE TO ITS SISTER CONCERNS DURING THE YEAR UNDER CONSIDERATION. THE CASE OF THE REVENUE IS THAT INTEREST BEARING LOAN FUNDS HAVE BEEN DIVERTED BY THE ASSESSEE. HOWEVER, WE DONOT FIND ANY NEXUS WHICH HAS BEEN ESTABLISHED BY THE REVENUE BETWEEN THE INTEREST BEARING FUNDS AND ADVANCEMENT THEREOF TO THE SISTER CONCERNS. THE REVENUE TO DEMONSTRATE EITHER THROUGH ENTRIES IN THE ASSESSEES BOOKS OF ACCOUNTS, BANK ACCOUNT OR THE FUND FLOW STATEMENT THAT WHAT HAS BEEN ADVANCED TO THE SISTER CONCERNS IS OUT OF INTEREST BEARING FUNDS OBTAINED BY THE ASSESSEE. FURTHER, THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEES CAPITAL AS ON 31.3.2008 STOOD AT RS 1,76,37,823 AS AGAINST INTEREST ITA NO. 627/JP/2013 & 736/JP/2016 SHRI YOGENDRA KHANDELWAL, JAIPUR VS ACIT, CIRCLE-3, JAIPUR 6 FREE ADVANCE OF RS 56,71,000. IN LIGHT OF THE SAME, IN ABSENCE OF NECESSARY NEXUS BEING ESTABLISHED BY THE REVENUE BETWEEN THE INTEREST BEARING FUNDS AND ADVANCES TO THE SISTER CONCERNS AND SINCE THE INTEREST FREE FUNDS ARE IN EXCESS OF THE ADVANCES GIVEN TO THE SISTER CONCERNS, THERE CANNOT BE ANY DISALLOWANCE ON ACCOUNT OF NOTIONAL INTEREST AS COMPUTED BY THE ASSESSING OFFICER. IN THE RESULT, GROUND NO.1 OF THE ASSESSEES APPEAL IS ALLOWED. 10. REGARDING GROUND NO. 2 OF THE ASSESSEES APPEAL, BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS TAKEN UNSECURED LOAN FROM SHRI ANANT KUMAR VYAS AMOUNTING TO RS. 1,10,000/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH CONFIRMATION FROM SHRI ANANT KUMAR VYAS AND THE SAME WAS FURNISHED BUT NO PAN NUMBER WAS MENTIONED ON THE CONFIRMATION. THE AR WAS ASKED TO FURNISH THE PAN VIDE ORDER SHEET ENTRY DATED 25/11/2010. HOWEVER, THE AR EXPRESSED HIS INABILITY TO FURNISH THE SAME. HENCE, THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE CREDITOR REMAINED UNVERIFIED AND RS. 1,10,000/- WAS ADDED U/S 68 OF THE IT ACT IN THE INCOME OF THE ASSESSEE. 11. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL WHO HAS CONFIRMED THE SAID ADDITION. THE RELEVANT FINDING OF THE CIT(A) IS REPRODUCED AS UNDER: 5.3 I HAVE CAREFULLY PERUSED THE ORDER OF THE AO AND THE SUBMISSIONS OF THE AR AND THE REMAND REPORT OF THE AO AND DO NOT CONCUR WITH THE SUBMISSIONS OF THE AR GIVEN THE FACTS OF THE CASE. MERELY, FURNISHING OF PAN IS NOT SUFFICIENT CRITERIA FOR ESTABLISHING THE FINANCIAL CAPACITY. IT IS NOT KNOWN WHAT WAS THE SOURCE OF INCOME OF SHRI ANANT KUMAR VYAS. MOREOVER, THE AR HAS SUBMITTED A COPY OF BANK ACCOUNT BUT IT DOES NOT PROVE THAT SHRI ANANT KUMAR VYAS WAS WORKING IN CHENNAI. THE BANK ACCOUNT OF SHRI ANANT KUMAR VYAS WAS OPENED AT AMBABARI, JAIPUR AND ON PERUSAL OF THE DETAILS, IT IS SEEN THAT THERE WERE VERY SMALL DEPOSITS ITA NO. 627/JP/2013 & 736/JP/2016 SHRI YOGENDRA KHANDELWAL, JAIPUR VS ACIT, CIRCLE-3, JAIPUR 7 AND CASH BALANCE. THE AMOUNT OF RS. 1,09,867/- HAD BEEN RECEIVED IN THIS BANK ACCOUNT ON 3.3.08 WHICH WAS GIVEN AS LOAN TO THE APPELLANT ON 6.3.08. IT IS NOT KNOWN FROM WHERE THIS AMOUNT WAS OBTAINED BY THE CREDITOR, PARTICULARLY AS NO SUCH RECEIPTS HAVE BEEN SHOWN IN THE SUBSEQUENT ENTRIES. THE FACT THAT THE APPELLANT WAS ABLE TO OBTAIN A COPY OF THE BANK PASS BOOK OF THE ALLEGED CREDITOR OF THE LOAN PROVES HE WAS IN TOUCH WITH HIM IN WHICH CASE IT IS NOT UNDERSTOOD WHY HE FAILED TO PRODUCE HIM. GIVEN THE ABOVE FACTS, IT IS HELD THAT THE ASSESSEE WAS NOT ABLE TO DISCHARGE HIS ONUS TO PROVE THE FINANCIAL CAPACITY AND, THEREFORE, THE GENUINENESS OF LOAN IN THE CASE OF SHRI ANANT KUMAR VYAS. THEREFORE, THE ADDITION OF RS. 1,10,000/- U/S 68 TO THE INCOME OF THE ASSESSEE IS CONFIRMED. 12. DURING THE COURSE OF HEARING, THE LD AR SUBMITTED THAT THE LD. CIT(A) HAS ERRED IN MAINTAINING THE ADDITION OF RS. 110,000/- ON ACCOUNT OF CASH CREDIT OF ANANT KUMAR VYAS. WE HAVE SUBMITTED CONFIRMATION AT THE TIME OF HEARING AND REQUESTED SOME TIME FOR SUBMISSION OF PAN BECAUSE AT THAT TIME, WE HAVE NOT RECEIVED PAN OF ANANT KUMAR VYAS. AFTERWARDS, WE HAVE SUBMITTED COPY OF PAN CARD AND BANK ACCOUNT. HIS BANK ACCOUNT WAS WITH BANK OF MAHARASTRA MALVIYA NAGAR, BRANCH JAIPUR AND WE HAVE SUBMITTED HIS COPY OF BANK ACCOUNT WHICH SHOWS THAT ON 03.03.08, CHEQUE OF RS. 109,867/- WAS DEPOSITED IN BANK AND ON 06.03.2008, LOAN OF RS. 110,000/- WAS GIVEN TO US AS LOAN. HE WAS IN CHENNAI THEREFORE WE WERE UNABLE TO PRODUCE HIM FOR VERIFICATION. ONCE WE HAVE PROVED IDENTIFY OF CREDITOR BY EITHER FURNISHING PERMANENT ACCOUNT NUMBER OR COPY OF BANK ACCOUNT, CONFIRMATION OF LOAN AND SHOWS GENUINENESS OF TRANSACTION BY SHOWING MONEY IN BANK IS BY ACCOUNT PAYEE CHEQUE, THEN THE ONUS TO PROVE SHIFT TO THE REVENUE. AS WE HAVE PROVED IDENTIFY, CREDIT WORTHINESS AND GENUINENESS OF TRANSACTION, IF THE AO WAS NOT SATISFIED WITH REGARD TO THE SOURCE OF THE DEPOSITS THAN THE SAME WOULD HAVE BEEN ASSESSED IN THE HANDS OF THE CREDITOR. THE CASH CREDITS COULD ITA NO. 627/JP/2013 & 736/JP/2016 SHRI YOGENDRA KHANDELWAL, JAIPUR VS ACIT, CIRCLE-3, JAIPUR 8 NOT BE TREATED AS BOGUS BECAUSE IT WAS OUTSTANDING FOR LONG PERIOD. THE ASSESSING OFFICER HAS TREATED THE LOAN AS BOGUS BECAUSE IT WAS REMAINED OUTSTANDING FOR A CONSIDERABLE LONG PERIOD AND PAID DURING THE CURRENT YEAR. IN VIEW OF ABOVE WE SUBMIT THAT CASH CREDIT WAS GENUINE, WE THEREFORE REQUEST PLEASE TO DELETE THE ADDITION OF RS. 110,000/- MADE BY LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX. 13. THE LD DR IS HEARD WHO HAS RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURUSED THE MATERIAL AVAILABLE ON RECORD. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS TAKEN UNSECURED LOAN FROM SHRI ANANT KUMAR VYAS AMOUNTING TO RS. 1,10,000/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH CONFIRMATION FROM SHRI ANANT KUMAR VYAS AND THE SAME WAS FURNISHED BUT NO PAN NUMBER WAS MENTIONED ON THE CONFIRMATION. THE AO THEREFORE MADE AN ADDITION U/S 68 OF THE IT ACT. BEFORE THE LD CIT(A), PAN DETAILS WERE FURNISHED BUT HE WAS OF THE VIEW THAT MERELY FURNISHING OF PAN IS NOT SUFFICIENT CRITERIA FOR ESTABLISHING THE FINANCIAL CAPACITY. FURTHER, LD CIT(A) PURSUED THE BANK ACCOUNT OF SHRI ANANT KUMAR VYAS AND OBSERVED THAT AN AMOUNT OF RS. 1,09,867/- HAD BEEN RECEIVED IN HIS BANK ACCOUNT ON 3.3.08 WHICH WAS GIVEN AS LOAN TO THE APPELLANT ON 6.3.08. IT IS NOT KNOWN FROM WHERE THIS AMOUNT WAS OBTAINED BY THE CREDITOR, PARTICULARLY AS NO SUCH RECEIPTS HAVE BEEN SHOWN IN THE SUBSEQUENT ENTRIES. FURTHER, THE LD CIT(A) HELD THAT THE FACT THAT THE APPELLANT WAS ABLE TO OBTAIN A COPY OF THE BANK PASS BOOK OF THE ALLEGED CREDITOR OF THE LOAN PROVES HE WAS IN TOUCH WITH HIM IN WHICH CASE IT IS NOT UNDERSTOOD WHY HE FAILED TO PRODUCE HIM. GIVEN THE ABOVE FACTS, IT WAS HELD THAT THE ASSESSEE WAS NOT ABLE TO DISCHARGE HIS ONUS TO PROVE THE FINANCIAL CAPACITY AND THE ADDITION OF RS. 1,10,000/- U/S 68 TO THE INCOME OF THE ASSESSEE WAS CONFIRMED. IN THE INSTANT CASE, WE THEREFORE FIND THAT THE AUTHORITIES BELOW HAVE CHALLENGED THE FINANCIAL CAPACITY AND NON- ITA NO. 627/JP/2013 & 736/JP/2016 SHRI YOGENDRA KHANDELWAL, JAIPUR VS ACIT, CIRCLE-3, JAIPUR 9 PRODUCTION OF THE PERSON WHO HAS ADVANCED THE MONEY TO THE ASSESSEE. REGARDING THE FINANCIAL CAPACITY, THE ASSESSEE HAS PRODUCED THE BANK STATEMENT OF THE PERSON WHICH SHOWS SUFFICIENT BALANCE AT THE TIME THE MONEY WAS ADVANCED TO THE ASSESSEE. FURTHER, NON-PRODUCTION OF THE PERSON CANNOT BE A GROUND FOR MAKING THE ADDITION U/S 68 OF THE ACT MORE SO WHERE THE ASSESSEE HAS SUBMITTED THAT SAID PERSON DOESNT RESIDE IN JAIPUR AND HE HAS ALREADY SUBMITTED HIS CONFIRMATION. IN ABSENCE OF ANY OTHER CORROBORATIVE EVIDENCE WHICH HAS BEEN BROUGHT ON RECORD BY THE REVENUE, THE ADDITION OF RS 110,000 SO MADE U/S 68 IS HEREBY DELETED. IN THE RESULT, GROUND NO. 2 OF THE ASSESSEES APPEAL IS ALLOWED. 15. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. ITA NO. 736/JP/2016 16. IN ITA NO. 736/JP/2016 FOR AY 2012-13, THE ASSESSEE IN HIS SOLE GROUND OF APPEAL HAS CHALLENGED THE ACTION OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF BAD DEBTS AMOUNTING TO RS. 545,946/. 17. BRIEFLY STATED, FACTS OF THE CASE ARE THAT IN THE P&L ACCOUNT, ASSESSEE DEBITED BAD WRITTEN OFF AT RS. 12,16,543/-. ON VERIFICATION OF THE LEDGER ACCOUNT FURNISHED, IT IS FOUND OUT BY AO THAT ASSESSEE HAS WRITTEN OFF DEBTS FROM 20 PARTIES. ON FURTHER EXAMINATION OF THE COPY OF ACCOUNT OF THESE PARTIES, IT HAS BEEN GATHERED THAT ASSESSEE IS HAVING REGULAR BUSINESS DEALINGS WITH MOST OF THESE PARTIES. FURTHER, MOST OF THESE PARTIES ARE REGULARLY REMITTING PAYMENTS TO THE ASSESSEE AGAINST REGULAR SALES MADE. AT ANY POINT OF TIME, IT DOES NOT APPEAR TO BE A BAD DEBT WHICH IS TOTALLY IRRECOVERABLE AS SOME OF THE BAD DEBTS WRITTEN OFF ARE NOT FOUND TO BE OLD DEBTS. IT IS ALSO NOTICED THAT IN SOME OF THE CASES, EVEN AFTER WRITE OFF, THE ACCOUNTS SHOWS THAT THOSE PARTIES STILL OWES MONEY TO THE ASSESSEE. SINCE, THE WAY IN WHICH ITA NO. 627/JP/2013 & 736/JP/2016 SHRI YOGENDRA KHANDELWAL, JAIPUR VS ACIT, CIRCLE-3, JAIPUR 10 ASSESSEE WRITES OFF BAD DEBTS IN HIS BOOKS OF ACCOUNTS IS NOT FOUND JUSTIFIED, VIDE SHOW CAUSE LETTER DATED 20/3/2014, ASSESSEE WAS ASKED TO EXPLAIN WHY THE BAD DEBTS WRITTEN OFF IN FOLLOWING CASES WHICH ARE NOT FOUND TO BE JUSTIFIED SHOULD NOT BE DISALLOWED:- 1) M/S HINDUSTAN ZINC LTD, BHILWARSA RS. 1,79,272/- 2) M/S HINDUSTAN ZINC LTD, UDAIPUR RS. 1,33,348/- 3) M/S KANCHAN INDIA PVT. LTD. RS. 33,326/- 4) M/S SHIV ENGINEERING WORKS RS. 2,00,000/- TOTAL RS. 5,45,946/- 18. IN RESPONSE TO THE SPECIFIC QUERY RAISED BY THE AO, NO EXPLANATION HAS BEEN FILED BY THE ASSESSEE. IT HAS BEEN HELD BY HONBLE KERALA HIGH COURT IN THE CASE OF KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. VS. CIT [2006] 151 TAXMAN 127 (KER.) THAT THE WORD IRRECOVERABLE MEANS THE AMOUNT THAT IS NOT RECOVERABLE. FURTHER, THE DOCUMENTS FURNISHED DO NOT ESTABLISH ON RECORD THAT THESE ARE DEBTS WHICH ARE NOT RECOVERABLE AT ALL. THEREFORE, IT CANNOT BE SAID THAT THESE TRADE DEBTS ARE IRRECOVERABLE BAD DEBTS. THE COPY OF ACCOUNT OF THESE PARTIES ALSO SHOWS THAT MOST OF THE TRADE DUES WRITTEN OFF RELATES TO THE SALES MADE DURING THE YEAR ONLY. THEREFORE, THESE BAD DEBTS WRITTEN OFF ARE IN THE NATURE OF DOUBTFUL DEBTS ONLY WHICH ARE RECOVERABLE AS WAS DONE BY THE ASSESSEE IN EARLIER YEARS. THUS THE PRACTICE ADOPTED BY THE ASSESSEE IN WRITING OFF THE BAD DEBTS IS NOT FOUND JUSTIFIED. IN VIEW OF THE AFORESAID FACTS AND POSITION OF THE LAW IN THIS REGARD, THE BAD DEBTS WRITTEN OFF AND DEBITED TO THE P&L IN THE CASES OF FIVE PARTIES MENTIONED IN SHOW CAUSE LETTER AMOUNTING TO RS. 5,45,946/- WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 19. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD. CIT(A) WHO HAS CONFIRMED THE SAID ADDITION AND HIS RELEVANT FINDINGS ARE REPRODUCED AS UNDER:- ITA NO. 627/JP/2013 & 736/JP/2016 SHRI YOGENDRA KHANDELWAL, JAIPUR VS ACIT, CIRCLE-3, JAIPUR 11 (III) I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPELLANT, ASSESSMENT ORDER AND THE MATERIAL PLACED ON RECORD. IT IS NOTED FROM THE ASSESSMENT ORDER THAT DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAS CLAIMED BAD DEBTS WRITTEN OFF AT RS. 12,16,543/-, OUT OF WHICH THE AO DISALLOWED A SUM OF RS. 5,45,946/- FOR ABOVE STATED REASONS. THE APPELLANT HAS ACCEPTED THAT IT WAS HAVING REGULAR DEALING WITH THE PARTIES FOR WHICH IT CLAIMED BAD DEBTS DURING THE YEAR UNDER CONSIDERATION AND THE BAD DEBTS RELATES TO THE SALE MADE TO THEM DURING THE YEAR UNDER CONSIDERATION ITSELF. ALL THESE FACTS INDICATE THAT THE APPELLANT IS CLAIMING THE AMOUNT OF BAD DEBTS AT ITS OWN CONVENIENCE WITHOUT EXAMINING WHETHER THESE DEBTS HAVE BECOME IRRECOVERABLE OR NOT. FURTHER, THE APPELLANT HAS NOT BROUGHT ON RECORD ANY MATERIAL WHICH SUPPORT ITS CONTENTION THAT THERE WAS DISPUTE WITH THESE PARTIES REGARDING RATE AND QUALITY. IT APPEARS THAT THROUGH WRITING OFF BAD DEBTS AND WRITING BACK BAD DEBTS CLAIMED IN EARLIER YEARS, THE APPELLANT IS POSTPONING ITS TAX LIABILITIES, WHICH CANNOT BE PERMITTED. IT MAY BE MENTIONED THAT IN THE CASE OF CIT VS. KOHLI BROS. COLOR LAB (P.) LTD. [2010] 186 TAXMAN 62 (ALL.), IT HAS BEEN HELD BY THE HONBLE ALLAHABAD HIGH COURT THAT QUA THE ENTRIES OF BAD DEBTS WRITTEN OFF SEMBLANCE OF GENUINENESS HAS TO BE THERE AND THE SAME SHOULD NOT BE MERE PAPER WORK. FURTHER, THE HONBLE APEX COURT IN THE CASE OF TRAVANCORE TEA ESTATES CO. LTD V. CIT [1998] 233 ITR 203, HAS TAKEN THE VIEW THAT THOUGH STANDARD PROOF OF PROVING THE SAME AS BAD DEBT IS NOT REQUIRED TO BE ADOPTED AND IS TO BE DECIDED ON THE WISDOM OF THE ASSESSEE AND NOT ON THE WISDOM OF THE ASSESSING OFFICER, BUT TO SHOW THAT THE ENTRY HAD BEEN MADE AS BAD DEBT, THERE HAS TO BE SOME MATERIAL IN SUPPORT OF THE SAME, GIVING SOME SEMBLANCE OF GENUINENESS AND TRUTHFULNESS TO THE SAME IN DIRECTION OF FORMING AN OPINION THAT SAID DEBT WAS ARISING OUT OF TRADING ACTIVITY, THERE WAS RELATIONSHIP OF DEBTOR OR CREDITOR AND SAME WAS IRRECOVERABLE. IN VIEW OF THE ABOVE ITA NO. 627/JP/2013 & 736/JP/2016 SHRI YOGENDRA KHANDELWAL, JAIPUR VS ACIT, CIRCLE-3, JAIPUR 12 DISCUSSIONS, IT IS, THEREFORE, HELD THAT THE AO WAS JUSTIFIED IN MAKING ADDITION OF RS. 5,45,946/- ON ACCOUNT OF BAD DEBTS WRITTEN OFF BY IT DURING THE YEAR UNDER CONSIDERATION. HENCE THIS GROUND OF APPEAL IS HEREBY REJECTED. 20. DURING THE COURSE OF HEARING, THE LD. AR SUBMITTED THAT LEARNED CIT HAS ERRED IN CONFIRMING THE ADDITION OF RS. 545,946/- ON ACCOUNT OF BAD DEBTS. IN THIS RESPECT, WE SUBMIT THAT PAYMENTS WERE DISPUTED DUE TO RATE DIFFERENCE, QUALITY AND OTHER REASONS THEREFORE THEY WERE NOT MAKING THE PAYMENTS ALTHOUGH WE WERE HAVING REGULAR DEALING WITH PARTIES BUT IT DOES NOT MEAN THAT SAID PAYMENT WAS RECOVERABLE. IT WAS NOT POSSIBLE TO RECOVER THE SAID AMOUNT FROM PARTIES THEREFORE IT WAS CLAIMED AS BAD DEBTS. THERE IS NO CONDITION FOR CLAIMING BAD DEBTS THAT PARTIES ACCOUNT SHOULD BE CLOSED. WE COULD NOT CLOSE OUR DEALING WITH PARTIES BECAUSE OF DISPUTED AMOUNT EVEN AFTER THAT WE FEEL BENEFICIAL IN DEALING WITH PARTIES. REMITTANCE WERE MADE BY PARTIES ON ACCOUNT OF OTHER BILL DUE IN ACCOUNT. IN NEXT ACCOUNTING YEAR 2012- 13, ACCOUNT OF HINDUSTAN ZINC LTD, BHILWARA & SHIVA ENGINEERING HAVE BEEN CLOSED. WE HAVE NOT RECEIVED PAYMENT FROM THE PARTIES AS YET. AS REGARDS HINDUSTAN ZINC LTD. & KANCHAN INDIA LTD.BHILWARA WE SUBMIT THAT IN AY 2012- 13 THERE ACCOUNT HAVE BEEN FINALLY SETTLED AND DUE AMOUNT AS PER LAST BILL. IT IS TOTALLY WRONG THAT ALL THE BAD DEBTS CLAIMED ARE FROM CURRENT YEAR SALE BECAUSE WE ARE HAVE OPENING BALANCE WITH THE SAME PARTIES AND ONE IN THE CASE OF HINDUSTAN ZINC LTD. BAD DEBTS ARE FROM CURRENT SALE. WE FEEL THAT AMOUNT IS DISPUTED AND NO CHANCE TO RECOVER THE SAME THEREFORE IT WAS CLAIMED AS BAD DEBTS. IT IS WRONG OPINION OF LEARNED CIT AND ASSESSING OFFICER THAT WE ARE CLAIMING BAD DEBTS AS PER OUR CONVENIENCE. IN OUR OPINION IT WAS CLEARLY BAD THEREFORE WE HAVE CLAIMED AS BAD DEBTS. AFTER THE AMENDMENT OF SEC 36 (1)(VII) W.E.F 1989 IT WAS NOT OBLIGATORY ON THE PART OF THE ASSESSEE TO PROVE THAT THE DEBTS WRITTEN OFF WAS INDEED A BAD DEBTS. THE STATUTORY RULE ITSELF DECLARE THE RULE OF DEDUCTION OF BAD DEBTS. IF IT WERE AGAIN NECESSARY TO ITA NO. 627/JP/2013 & 736/JP/2016 SHRI YOGENDRA KHANDELWAL, JAIPUR VS ACIT, CIRCLE-3, JAIPUR 13 PROVE BY DEMONSTRATIVE PROOF THAT THE DEBT HAS BECOME BAD THAN THERE WOULD BE NO NECESSITY TO INSERT A STATUTORY RULE. THE AMENDMENT TO LAW HAS DISPENSED WITH THE NEED FOR SUCH PROOF. ALL THE DECISIONS CITED BY CIT(A) AND INCOME TAX ASSESSING OFFICER IS WRONG AND NOT APPLICABLE AFTER AMENDMENT OF SEC 36(1)(VII). IN VIEW OF ABOVE WE SUBMIT THAT LEARNED CIT(A) AND ASSESSING AUTHORITY IS TOTALLY WRONG IN NOT ALLOWING BAD DEBTS OF RS. 545946/-. 21. THE LD. AR FURTHER DRAWN OUR REFERENCE TO THE DECISION OF LD. CIT(A) JAIPUR FOR AY 2010-11 WHEREIN BAD DEBTS AMOUNTING TO RS. 956,380/- WHICH WAS DISALLOWED BY THE AO WAS DELETED BY THE LD. CIT(A). IT WAS SUBMITTED THAT THE REVENUE HAS NOT FILED ANY FURTHER APPEAL AGAINST THE SAID ORDER. 22. THE LD DR IS HEARD WHO HAS RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 23. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS PER THE AO, COPY OF ACCOUNT OF THESE PARTIES SHOWS THAT MOST OF THE TRADE DUES WRITTEN OFF RELATES TO THE SALES MADE DURING THE YEAR ONLY AND THESE BAD DEBTS WRITTEN OFF ARE IN THE NATURE OF DOUBTFUL DEBTS ONLY WHICH ARE RECOVERABLE AS WAS DONE BY THE ASSESSEE IN EARLIER YEARS. AS PER THE LD CIT(A), THE ASSESSEE HAS ACCEPTED THAT IT WAS HAVING REGULAR DEALING WITH THE PARTIES FOR WHICH IT CLAIMED BAD DEBTS DURING THE YEAR UNDER CONSIDERATION AND THE BAD DEBTS RELATES TO THE SALE MADE TO THEM DURING THE YEAR UNDER CONSIDERATION ITSELF AND ALL THESE FACTS INDICATE THAT THE APPELLANT IS CLAIMING THE AMOUNT OF BAD DEBTS AT ITS OWN CONVENIENCE WITHOUT EXAMINING WHETHER THESE DEBTS HAVE BECOME IRRECOVERABLE OR NOT. FURTHER, AS PER THE LD CIT(A), THE APPELLANT HAS NOT BROUGHT ON RECORD ANY MATERIAL WHICH SUPPORT ITS CONTENTION THAT THERE WAS DISPUTE WITH THESE PARTIES REGARDING RATE AND QUALITY. FURTHER, HE HAS REFERRED TO THE DECISION OF THE ALLAHABAD HIGH COURT IN CASE OF CIT VS KOHLI BROS. COLOR LAB (P) LTD 186 TAXMANN 62 WHERE IT WAS HELD THAT QUA THE ENTRIES OF BAD DEBTS WRITTEN OFF, SEMBLANCE OF ITA NO. 627/JP/2013 & 736/JP/2016 SHRI YOGENDRA KHANDELWAL, JAIPUR VS ACIT, CIRCLE-3, JAIPUR 14 GENUINENESS HAS TO BE THERE AND THE SAME SHOULD NOT BE MERE PAPER WORK. FURTHER, LD CIT(A) ALSO REFERRED TO THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF TRANVANCORE TEA ESTATES LTD VS CIT 233 ITR 203 WHEREIN IT WAS HELD THAT TO SHOW THAT THE ENTRY IN THE BOOKS OF ACCOUNTS HAD BEEN MADE AS BAD DEBT, THERE HAS TO BE SOME MATERIAL IN SUPPORT OF THE SAME GIVING SEMBLANCE OF GENUINENESS AND TRUSTFULNESS TO THE SAME IN DIRECTION OF FORMING AN OPINION THAT THAT SAID DEBT WAS ARISING OUT OF TRADING ACTIVITY, THERE WAS RELATIONSHIP OF DEBTOR OR CREDITOR AND THE SAME WAS IRRECOVERABLE. 24. FURTHER, USEFUL REFERENCE CAN ALSO BE DRAWN TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN CASE OF DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) VS OMAN INTERNATIONAL BANK SAOG REPORTED IN 184 TAXMAN 314 WHEREIN IT WAS HELD AS UNDER: 10. LET US REFER TO SOME DICTIONARY MEANINGS OF THE WORD 'BAD DEBT'. CHAMBERS 20TH CENTURY DICTIONARY REFERS TO BAD DEBT AS 'A DEBT THAT CANNOT BE RECOVERED'. MITRA'S LEGAL & COMMERCIAL DICTIONARY REFERS TO BAD DEBT AS A DEBT BECOMES BAD DEBT WHEN THE CREDITOR HAS NO REASONABLE CHANCE OF RECOVERING IT FROM THE DEBTOR AS HELD IN DEONITI PRASAD SINGH V. CIT AIR 1953 PAT. 360. THE LAW LEXICON REFERS TO BAD DEBT AS 'DEBT WHICH CANNOT REASONABLY BE COLLECTED. A DEBT ABOUT WHICH THERE IS NO REASONABLE EXPECTATION OF RECOVERY; A DEBT BELIEVED TO BE UNRECOVERABLE.' REFERENCE MAY ALSO BE MADE TO P. 878 OF THE LAW AND PRACTICE OF INCOME-TAX BY KANGA, PALKHIWALA & VYAS, 9TH EDN. WHERE THE LEARNED JURIST OPINED AS UNDER : 'UNDER THE AMENDED CLAUSE, THE REQUIREMENT OF 'ESTABLISHING' THAT THE DEBT HAD BECOME BAD IN THE RELEVANT ACCOUNTING YEAR IS DISPENSED WITH; ALL THAT THE ASSESSEE HAS TO SHOW IS THAT THE BAD DEBT HAS BEEN WRITTEN OFF AS IRRECOVERABLE. BUT, THE SUBJECT-MATTER OF THE CLAUSE IS STILL 'ANY BAD DEBT' AND 'NOT ANY DEBT'. THE CONSEQUENCES OF THE AMENDMENT ARE MAINLY THREE : ITA NO. 627/JP/2013 & 736/JP/2016 SHRI YOGENDRA KHANDELWAL, JAIPUR VS ACIT, CIRCLE-3, JAIPUR 15 (I) THE ASSESSEE CANNOT ARBITRARILY, IRRATIONALLY OR MALA FIDE TREAT A GOOD DEBT AS BAD, WRITE IT OFF IN HIS ACCOUNTS. (II) WHERE THE ASSESSEE HAS ACTED BONA FIDE AND REASONABLE, THE ASSESSING OFFICER CANNOT SUBSTITUTE HIS OWN SUBJECTIVE JUDGMENT, BUT MUST ACCEPT THE ASSESSEE'S DECISION, AS TO THE QUALITY OF THE DEBT. (III) THE ASSESSEE IS NOT OBLIGED TO WRITE OFF AND CLAIM THE DEBT IN THE VERY YEAR IN WHICH IT BECOMES BAD. HE CAN WRITE IT OFF AND CLAIM IT IN A SUBSEQUENT YEAR IN WHICH THE DEBT CONTINUES TO REMAIN BAD.' 11. ALL THIS WOULD INDICATE THAT WHEN THE ASSESSEE TREATS THE DEBT AS A BAD DEBT IN HIS BOOKS THE DECISION HAS TO BE A BUSINESS OR COMMERCIAL DECISION AND NOT WHIMSICAL OR FANCIFUL. THE DECISION MUST BE BASED ON MATERIAL THAT THE DEBT IS NOT RECOVERABLE. THE DECISION MUST BE BONA FIDE. THE DIFFERENCE BETWEEN THE POSITION, PRE-AMENDMENT AND POST-AMENDMENT WOULD BE THAT THE BURDEN IS NO LONGER ON THE ASSESSEE AND CAN BE CLAIMED IN THE YEAR IT IS WRITTEN OFF IN THE BOOKS OF ACCOUNT AS IRRECOVERABLE. THE ASSESSING OFFICER IF HE IS TO DISALLOW THE DEBT AS A BAD DEBT MUST ARRIVE AT A CONCLUSION THAT THE DECISION WAS NOT BONA FIDE. THE ASSESSING OFFICER ONLY IN THOSE CIRCUMSTANCES AND TO THAT EXTENT MAY INTERFERE. ALL THAT THE ASSESSEE MUST DO IS TO BE PRIMA FACIE SATISFIED BASED ON THE INFORMATION AVAILABLE THAT THE DEBT IS BAD AND THAT WOULD BE SUFFICIENT REQUIREMENT OF THE AMENDED PROVISIONS. 12. OUR ATTENTION WAS INVITED TO THE JUDGMENT OF THE MADRAS HIGH COURT IN SOUTH INDIA SURGICAL CO. LTD. V. ASSTT. CIT [2006] 287 ITR 62 . IN CASE THE AMOUNT WAS PAYABLE BY A GOVERNMENT DEPARTMENT (HOSPITAL). THE TRIBUNAL THERE HAD TAKEN THE VIEW THAT THE DEBT COULD NOT BE CLAIMED AS BAD ON THE MERE GROUND THAT THE HOSPITAL AND THE DEPARTMENTS MIGHT MAKE PAYMENTS AS AND WHEN FUNDS ARE PROVIDED. THE MADRAS HIGH COURT AFTER ITA NO. 627/JP/2013 & 736/JP/2016 SHRI YOGENDRA KHANDELWAL, JAIPUR VS ACIT, CIRCLE-3, JAIPUR 16 CONSIDERING THE VARIOUS JUDGMENTS WAS PLEASED TO OBSERVE THAT IT IS NOT SUFFICIENT FOR THE ASSESSEE TO SAY THAT HE HAS BECOME PESSIMISTIC ABOUT THE PROSPECT OF RECOVERY OF DEBT IN QUESTION. THE ASSESSEE MUST HONESTLY FEEL CONVINCED THAT THE FINANCIAL POSITION OF THE DEBTOR WAS SO PRECARIOUS AND SHAKY THAT IT WOULD BE IMPOSSIBLE TO COLLECT ANY MONEY FROM HIM. THE QUESTION IS REALLY ONE OF FACT DEPENDING UPON THE VARIOUS FACTS AND DIVERSE CIRCUMSTANCES BEARING ON THE DEBTOR'S PECUNIARY POSITION, HIS COMMITMENTS AND OBLIGATIONS. FURTHER, THAT THE JUDGMENT OF THE ASSESSEE IN REGARD OF THE DEBT AS A BAD DEBT MUST BE A HONEST JUDGMENT AND NOT A CONVENIENT JUDGMENT. REFERENCE WAS ALSO MADE TO THE JUDGMENT OF THE DELHI HIGH COURT IN CIT V. GLOBAL CAPITAL LTD. [2008] 306 ITR 332 . THE DELHI HIGH COURT HAS TAKEN THE VIEW THAT POST THE AMENDMENT THE ASSESSEE IS NOT REQUIRED TO ESTABLISH THAT THE CONCERNED DEBT HAS ACTUALLY BECOME BAD IN THE RELEVANT YEAR FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER THIS SECTION AND THE ONLY REQUIREMENT FOR CLAIMING DEDUCTION IS THAT THE ASSESSEE HAS TO WRITE OFF THE RELEVANT DEBT IN HIS BOOK TREATING IT AS BAD. THIS COURT IN CIT V. STAR CHEMICALS (BOMBAY) (P.) LTD. [2008] 220 CTR (BOM.) 319 HAD ALSO TAKEN A VIEW THAT POST-AMENDMENT ON A READING OF THE SECTION AND THE CIRCULAR, WHAT WAS REQUIRED WAS TO WRITE OFF THE DEBT AS A BAD DEBT BASED ON THE ASSESSEE'S COMMERCIAL WISDOM AND THAT WILL SATISFY THE PURPOSE OF THE SECTION. 13. CONSIDERING THE ABOVE DISCUSSION, IN OUR OPINION TO TREAT THE DEBT AS BAD DEBT HAS TO BE COMMERCIAL OR BUSINESS DECISION OF THE ASSESSEE BASED ON THE RELEVANT MATERIAL IN POSSESSION OF THE ASSESSEE. ONCE THE ASSESSEE RECORDS THE DEBT AS BAD DEBT IN HIS BOOKS OF ACCOUNT THAT WOULD PRIMA FACIE ESTABLISH THAT IT IS A BAD DEBT UNLESS THE ASSESSING OFFICER FOR GOOD REASONS HOLDS ITA NO. 627/JP/2013 & 736/JP/2016 SHRI YOGENDRA KHANDELWAL, JAIPUR VS ACIT, CIRCLE-3, JAIPUR 17 OTHERWISE. THE WRITING IN THE ACCOUNTS NO DOUBT, HAS TO BE BONA FIDE. ONCE THAT BE THE CASE, THE ASSESSEE IS NOT CALLED UPON TO DISCHARGE ANY FURTHER BURDEN. IN OUR OPINION, THEREFORE, WE ARE IN AGREEMENT WITH THE VIEW TAKEN BY THE MAJORITY CONSTITUTING THE BENCH OF THE LEARNED TRIBUNAL. 14. THE QUESTION AS FRAMED WILL HAVE TO BE ANSWERED BY HOLDING THAT AFTER THE AMENDMENT IT IS NEITHER OBLIGATORY NOR IS THE BURDEN ON THE ASSESSEE TO PROVE THAT THE DEBT WRITTEN OFF BY HIM IS INDEED A BAD DEBT AS LONG AS IT IS BONA FIDE AND BASED ON COMMERCIAL WISDOM OR EXPEDIENCY. APPEAL DISPOSED OF ACCORDINGLY. 25. IN THE INSTANT CASE, ALL THAT THE ASSESSEE HAS SUBMITTED IS THAT CERTAIN AMOUNTS WERE DISPUTED WITH ITS DEBTORS AND THERE WAS NO CHANCE TO RECOVER THE SAME THEREFORE IT WAS CLAIMED AS BAD DEBTS. IT WAS FURTHER SUBMITTED THAT ONCE AN ENTRY HAS BEEN MADE IN THE BOOKS OF ACCOUNTS WRITING OFF THE BAD DEBTS, THERE IS NO NECESSITY TO DEMONSTRATE THAT DEBTS WRITTEN OFF WERE INDEED BAD DEBTS AND NOT RECOVERABLE. IN THE INSTANCE CASE, WE FIND THAT THERE ARE REGULAR FINANCIAL DEALING WITH THESE PARTIES AND IN RESPECT OF CERTAIN TRANSACTIONS, THERE SEEMS TO BE SOME DISPUTE WHICH THE ASSESSEE IS CLAIMING AND WHICH HAS BEEN WRITTEN OFF DURING THE YEAR. IN SUCH A SITUATION, TO CLAIM THESE AS BAD DEBT, THE ASSESSEE HAS TO DEMONSTRATE THROUGH CERTAIN VERIFIABLE MATERIAL IN ITS POSSESSION TO SHOW GENUINENESS AND TRUSTFULNESS IN ITS DECISION MAKING PROCESS THAT DEBT HAS ACTUALLY BECOME BAD AND IRRECOVERABLE. DURING THE COURSE OF HEARING, THE LD AR SUBMITTED THAT IF GIVEN AN OPPORTUNITY, THE ASSESSEE WOULD BE ABLE TO PROVE THE BONAFIDE OF ITS DECISION OF TREATING THESE AMOUNTS AS BAD DEBTS. IN LIGHT OF THE SAME, THE MATTER IS SET-ASIDE TO THE FILE OF AO TO EXAMINE THE SAME AFRESH TAKING INTO CONSIDERATION THE ABOVE DISCUSSIONS. ITA NO. 627/JP/2013 & 736/JP/2016 SHRI YOGENDRA KHANDELWAL, JAIPUR VS ACIT, CIRCLE-3, JAIPUR 18 25. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. BOTH THE APPEALS ARE DISPOSED OFF WITH ABOVE DIRECTIONS. ORDER PRONOUNCED IN THE OPEN COURT ON 28/02/2018. SD/- SD/- FOT; IKWY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 28/02/2018 *GANESH KR VKNS'K DH IZFRFYFI VXZSF'KR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT - SHRI YOGENDRA KHANDELWAL, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT - ACIT, CIRCLE-03, JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDRVIHY@ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE ( ITA NO. 627/JP/2013 & 736/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR.