L/H OF LATE SHRI VINOD DOSHI, MUMBAI V. ASST CIT 11(1), MUMBAI

ITA 6323/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9434 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 23-10-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 13-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: OM PRAKASH MEENA SR
• Assessee Lawyers: H N MOTIWALLA; M P CHHAJED
• Keywords: Unexplained cash credit; Wrong claim; Bad and doubtful debts; Tax effect
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT (MZ) AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A. NO.6323/M/2011 ASSESSMENT YEAR:2004-2005 SMT. MADHU V. DOSHI, (L.H. OF LATE SHRI VINOD DOSHI), 1 ST FLOOR, MEHTA BUILDING, JAIN SOCIETY, SION (W), MUMBAI. PAN:AABPD5666J VS. ASST. COMMISSIONER OF INCOME TAX, 11 (1), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI H.N. MOTIWALLA & M.P. CHHAJED RESPONDENT BY : SHRI OM PRAKASH MEENA, SR . AR DATE OF HEARING: 23.10.2012 D ATE OF ORDER: 21.11.2012 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 13.9.2011, IN THE CAPACITY OF LEGAL HEIR OF LATE SHRI VINOD DOSHI, IS DIRECTED AGAINST THE ORDE R OF CIT (A)-3, MUMBAI DATED 10.6.2011 FOR THE ASSESSMENT YEAR 2004-2005. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GR OUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LD CIT (A)-3, MUMBAI ERRED IN CONFIRMING THE PENALTY OF RS. 1,22,78,094/- U/S 271(1)(C) ON THE FOLLOWING DISALLOWANCES / ADDITIONS. I) RS. 3,50,73,880/- BEING THE DISALLOWANCE OF PROVISI ON FOR DOUBTFUL DEBTS. II) RS. 21,00,000/- ON ACCOUNT OF NON-CONFIRMATION OF B ALANCES OF LOANS. III) RS. 32,467/- INADVERTENT CLAIM OF LOSS ON SALE OF A SSETS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD CIT (A)-3, MUMBAI ERRED IN CONFIRMING THE ORDER OF THE ASSISTANT COMM ISSIONER OF INCOME TAX-11(1) U/S 271(1)(C) OF THE ACT FOR RS. 1,22,78,094/- PARTICUL ARLY WHEN NO PERMISSION WAS SOUGHT OF THE JOINT COMMISSIONER OF INCOME TAX AS R EQUIRED BY SECTION 274(2) OF THE INCOME TAX ACT AND HENCE, THE ORDER PASSED IS B AD IN LAW, ILLEGAL AND AB-INITIO VOID. 2 SMT. MADHU V. DOSHI , 3. BRIEFLY STATED THE RELEVANT FACTS OF THE CASE AR E THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF PROMOTION OF MOTION PICTURES AND FINANC ING, FILED THE RETURN OF INCOME DECLARING TOTAL LOSS OF RS. 3.91 CRORES (ROUNDED OFF) AND THE ASSESSMEN T WAS COMPLETED ARRIVING THE TOTAL INCOME OF RS. 40,22,58 0/-. AO MADE CERTAIN ADDITIONS IN THE SCRUTINY ASSESSMENT WHICH INCLUDES THE PROVISIO NS OF DOUBTFUL DEBTS OF RS. 3,50,73,880/-, UNEXPLAINED CREDITS OF RS. 60.5 LAKH S ETC. LOSS ON SALE OF ASSET OF RS. 32,467/-. AGGRIEVED WITH THE SAME, ASSESSEE FILED AN APPEAL BEFORE THE CIT (A) WHO CONFIRMED THE ABOVE ADDITIONS IN PRINCIPLE. HOWEVE R, ASSESSEE SUSTAINED THE ADDITION ON ACCOUNT OF UNEXPLAINED CASH CREDITS TO THE TUNE OF ONLY RS. 21 LAKHS INSTEAD OF RS 60.5 LAKHS. AGGRIEVED WITH THE SAME, ASSESSEE APPR OACHED THE ITAT VIDE APPEAL ITA NO.6907/M/2008 WITH THE GROUNDS RELATING TO UNEXPLA INED LOANS. NO GROUNDS WERE RAISED WITH REGARD TO OTHER TWO ADDITIONS. THE TRI BUNAL CONFIRMED UNEXPLAINED LOANS OF RS. 21 LAKHS WHICH INCLUDES THE LOAN OF RS. 20 LAKH S FROM MR. BALDEV BHALLA AND RS. 1 LAKH FROM M/S. NARASIMHA ENTERPRISES. ITAT CONFIRMED THE SAID SUM OF RS. 21 LAKHS U/S 68 OF THE ACT, ESSENTIALLY FOR THE REASONS THAT ASS ESSEE ADMITTED THAT HE WAS NOT IN A POSITION TO OBTAIN SUCH CONFIRMATION LETTERS FROM T HE SAID CREDITORS. ITAT UNDERLINED THE CLEAR FAILURE OF THE ASSESSEE IN DISCHARGING THE ON US IN TERMS OF SECTION 68. TRIBUNAL DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE THAT THE SAID TWO CREDITORS LEFT THE COUNTRY AT THE RELEVANT POINT OF TIME AS A RESULT OF WHICH IT BECAME IMPOSSIBLE FOR THE ASSESSEE TO OBTAIN THE CONFIRMATION LETTERS. THUS, ADDITIONS O N ACCOUNT OF PROVISION FOR BAD DEBTS OF RS. 3,50,73,880/- AND LOSS ON SALE OF ASSETS AMOUNT ING TO RS. 32,467/- AND ADDITION OF RS. 21 LAKHS ON ACCOUNT OF UNEXPLAINED LOANS HAVE B ECOME FINALITY SO FAR AS THE MERITS ARE CONCERNED AT THE LEVEL OF ITAT. UNDER THESE CI RCUMSTANCES, AO LEVIED PENALTY U/S 271(1)(C) OF THE ACT VIDE ORDER DATED 29.3.2010 AMO UNTING TO RS. 1,22,78,094/- I.E. 100% OF THE TAX ON THE INCOME OF RS. 3,72,06,347/-. IN THE SAID ORDER, AO DISCUSSED THE ASSESSEES SUBMISSION THAT THE PROVISION FOR BA D DEBTS IS NOT ONLY DEBITED TO THE PROFIT & LOSS ACCOUNT BUT ALSO CREDITED TO THE SUND RY DEBTORS ACCOUNT BY REDUCING THE EQUALENT AMOUNT, THEREFORE, FOLLOWING THE ACTUAL MA NNER OF WRITE OFF OF BAD DEBTS AND HOWEVER REJECTED THE ASSESSEES SUBMISSIONS. AO ME NTIONED THAT THE TREATMENT OF THE 3 SMT. MADHU V. DOSHI , ASSESSEE ON THIS ISSUE IN THE BOOKS OF ACCOUNT IS N OT CONCLUSIVE AND IMPORTANT. AO IS OF THE OPINION THAT ASSESSEE HAS TO MEET THE RIGORS OF SECTION 36(1)(VII) AND EVIDENCED THAT THE AMOUNT IS RECOVERABLE AND WRITE OFF IS NOT BONAFIDE . REGARDING THE UNEXPLAINED CREDIT OF RS. 21 LAKHS, THE AO IS OF TH E OPINION THAT THE PENALTY IS LEVIABLE U/S 271(1)(C) SINCE, THE SUM OF RS. 21 LAKHS IS CON FIRMED BY THE ITAT MUMBAI. HE HAS ALSO MENTIONED ABOUT THE ASSESSEES FAILURE TO FURN ISH ANY EXPLANATION DURING THE PENALTY PROCEEDINGS IN THIS REGARD. REGARDING THE OTHER ISSUE ABOUT THE CLAIM OF CAPITAL LOSS ON SALE OF ASSETS AMOUNTING TO RS. 32,467/-, A SSESSEE MENTIONED THAT IT WAS AN INADVERTENT DEBIT IN THE PROFIT & LOSS ACCOUNT AND WHEN THE SAME WAS POINTED OUT BY THE AO IN THE ASSESSMENT PROCEEDINGS, ASSESSEE RIGH TLY AND PROMPTLY ACCEPTED THE SAME AND THEREFORE, IT CONSTITUTES AN INADVERTENT M ISTAKE. IN THAT CASE THE PROVISIONS OF SECTION 271(1)(C) ARE NOT ATTRACTED. AS PER THE ASS ESSEE, THERE WAS NO INTENTION OF THE ASSESSEE AT ANY TIME TO CONCEAL THE PARTICULARS OF INCOME. AO REJECTED THE SAID EXPLANATIONS OF THE ASSESSEE AND LEVIED THE PENALTY . 4. AGGRIEVED WITH THE SAID DECISION OF THE AO, ASSE SSEE FILED AN APPEAL BEFORE THE CIT (A) AND SUBMITTED THAT THE PENALTY IS NOT LEVYA BLE IN ALL THESE THREE ACCOUNTS NAMELY LOSS ON SALE OF ASSETS, PROVISION FOR DOUBT FUL DEBTS AND ADDITIONS UNDER SECTION 68 (OF RS. 21 LAKHS) EITHER ON THE GROUND OF JUDIC IAL PRONOUNCEMENTS OR ON THE GROUNDS OF INADVERTENCE. REGARDING LOSS ON SALE OF ASSETS, ASSESSEE SUBMITTED THAT IT WAS AN INADVERTENT MISTAKE AND ON OBSERVATION OF THE AO, A SSESSEE RIGHTLY ACCEPTED TO THE CORRECTIONS THEREFORE, ASSESSEE WAS NOT A DEFAULTER . SO FAR AS THE DISCLOSURE IS CONCERNED, IT IS A CASE OF INADVERTENT MISTAKE WHIC H MUST BE PARDONED AND PENALTY SHOULD NOT BE LEVIED. CIT (A) CONSIDERED THE ABOVE SUBMISSIONS AND REJECTED THE SAME. HE IS OF THE OPINION THAT ASSESSEE BEING AN OLD TAX PAYER ADVISED BY THE LD COUNSEL, WHO KNEW THAT THE SAID AMOUNT IS NOT A LEVIABLE EXP ENDITURE SHOULD NOT HAVE BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT. THEREFORE, C ONFIRMED THE LEVY OF PENALTY OF RS. 10,714/-. HE RELIED ON THE JUDGMENT OF HONBLE SUP REME COURT IN THE CASE OF UOI VS. DHARMENDRA TEXTILE PROCESSORS (2007) 295 ITR 244 ( SC). REGARDING OTHER ADDITION OF 4 SMT. MADHU V. DOSHI , RS.3,50,73,880/-, THE PROVISION FOR BAD DEBTS, LD C OUNSEL SUBMITTED BEFORE THE CIT (A) THAT THE SAID AMOUNT WAS DEBITED TO THE PROFIT & LO SS ACCOUNT AS PROVISION FOR BAD DEBTS AND THE SAME WAS CREDITED TO THE SUNDRY DEBTO RS ACCOUNT BY REDUCING THE EQUALENT AMOUNT AS EVIDENT FROM THE SCHEDULES 7 & 8 OF THE BALANCE SHEET. IT WAS ALSO MENTIONED THAT THE SAID AMOUNT WAS NEVER RECOVERED TILL DATE THOUGH THE ASSESSEE EXPIRED ON 31.10.2006. CIT (A) AS PER THE DISCUSSI ON GIVEN IN PARA 1.3.1 OF HIS ORDER MENTIONED THAT THE ASSESSEE DESCRIBED THE SAID DEBT AS A PROVISION FOR BAD DEBT IS NOT A BAD DEBT AND ASSESSEES FAILURE TO PROVE THAT THE S AME IS A BONA FIDE CLAIM, THE CLAIM REMAINS FALSE DESPITE THE ENTRIES PASSED IN THE BOO KS OF ACCOUNT. HE HAS ALSO DISCUSSED THE AOS ASSERTION THAT ASSESSEE FAILED TO PASS RIG ORS OF SECTION 36(1)(VII) OF THE ACT. ACCORDINGLY, CIT (A) CONFIRMED THE PENALTY LEVIED B Y THE AO. REGARDING THE OTHER ADDITION OF RS. 21 LAKHS, CONFIRMED THE BY THE ITAT , ASSESSEE MENTIONED THAT HE HAD FURNISHED THE EXPLANATION TO THE AO ONLY THROUGH T APALS AND, THEREFORE, HE CANNOT BE HELD RESPONSIBLE FOR NON-FURNISHING OF EXPLANATION. REGARDING THE FAILURE TO FURNISH CONFIRMATION LETTERS FROM THE TWO PARTIES NAMELY MR . BALDEV BHALLA AND M/S. NARASIMHA ENTERPRISES, ASSESSEE SUBMITTED THAT THE PARTIES IN QUESTION WERE NOT RECEIVABLE AND WITH THE DEATH OF SHRI VINOD DOSHI, WHO EXPIRED ON 31.10.2006, NOBODY WAS THERE TO HANDLE THE MATTER OF THE CONFIRMATION LETTERS BEFOR E THE IT AUTHORITIES. IT IS A CASE THAT ASSESSEE REPAID THE SUM TO MR. BALDEV BHALLA ALONG WITH AN INTEREST DEBITED TO THE PROFIT & LOSS ACCOUNT. 5. AGGRIEVED WITH THE SAME, ASSESSEE FILED THE PRES ENT APPEAL BEFORE US. 6. LD COUNSEL FOR THE ASSESSEE EXPLAINED THE ABOVE FACTS OF EACH OF THE ADDITION IN RESPECT OF WHICH PENALTY WAS LEVIED. REGARDING THE LOSS ON SALE OF ASSETS DEBITED TO THE PROFIT & LOSS ACCOUNT, LD COUNSEL MENTIONED THAT IT IS A CASE OF INADVERTENT MISTAKE AND THE ASSESSEE HAS DISPLAYED HIS INADVERTENCE IN THE FORM OF THE CLAIM IN THE RETURN OF INCOME AND IN THAT CASE, THE CLAIM OUGHT NOT TO ATT RACT THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT. 5 SMT. MADHU V. DOSHI , 7. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE AO AS WELL AS CIT (A). 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES AND THE PAPERS FILED BEFORE US ON THIS ISSUE. FROM THE FACTS MENTIONED ABOVE, WE FIND THAT THERE IS NO DISPUTE THAT THE AS SESSEE DEBITED OF THE LOSS ON SALE OF ASSETS IN THE P & L ACCOUNT AS THE SAID LOSS IS NOT A BUSINESS LOSS. THEREFORE, IT IS ADMITTEDLY A WRONG DEBIT TO THE PROFIT & LOSS ACCOU NT INSTEAD OF TREATING THE SAME AS CAPITAL LOSS. REGARDING THE ASSESSEES DEFENSE OF I NADVERTENCE, WE HAVE EXAMINED IF THE SAID INACCURATE PARTICULARS WOULD HAVE BEEN FURNISH ED IN THE RETURN CONSCIOUSLY. IN OUR OPINION, CONSIDERING THE DISCLOSURE OF FACTS IN THE RETURN AS WELL AS THE SMALLNESS OF THE TAX EFFECT, THE ANSWER IS NOT AFFIRMATIVE AND IN FA VOUR OF THE ASSESSEE. IT IS A CASE OF WRONG CLAIM BY THE ASSESSEE AND IT IS THE DUTY OF T HE AO TO ASSESS THE INCOME OF THE ASSESSEE. CONSIDERING THE JUDGMENT OF THE HONBLE S UPREME COURT IN THE CASE OF RELIANCE UTILITIES, EVERY WRONG CLAIM DOES NOT ATTR ACT THE PENAL PROVISIONS. ASSESSEE HAS EXPLAINED THE SAME AS AN INADVERTENT MISTAKE AND WR ONG CLAIM AND THE SAID EXPLANATION HAS NOT BEEN CONTROVERTED BY THE REVENU E AUTHORITIES. THEREFORE, IN OUR OPINION, THE SAID WRONG CLAIM DOES NOT ATTRACT PROV ISIONS UNDER SECTION 271(1)(C) OF THE ACT. ACCORDINGLY, THIS PART OF THE GROUND IS DECID ED IN FAVOUR OF THE ASSESSEE. 9. THE CLAIM OF PROVISION OF DOUBTFUL DEBTS/ADVANC ES IS ANOTHER ISSUE IN RESPECT OF WHICH THE ASSESSING OFFICER LEVIED PENALTY. IN THI S REGARD, LD COUNSEL MENTIONED UNDISPUTED FACTS THAT THE PROVISION FOR BAD DEBTS W AS DEBITED TO THE PROFIT & LOSS ACCOUNT AND CORRESPONDINGLY, THE SAME AMOUNT WAS CR EDITED TO THE SUNDRY DEBTORS ACCOUNT, THEREBY REDUCING THE DEBTORS TO THAT EXTEN T IN THE BOOKS OF ACCOUNT AND THIS IS A MANNER THE BAD DEBTS SHOULD BE WRITTEN OFF AS EXP LAINED BY THE HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK VS. CIT (2010) 323 ITR 166. THAT BEING THE LEGAL POSITION ON THE SUBJECT, ASSESSEE IS WITHIN THE PAR AMETERS OF LAW WHEN HE MADE A CLAIM IN THE PROFIT & LOSS ACCOUNT. THE EXPRESSION PROVISION SHOULD NOT MISGUIDE THE REVENUE AUTHORITIES CONSIDERING THE SAID LEGAL POSI TION AT THE LEVEL OF THE SUPREME 6 SMT. MADHU V. DOSHI , COURT ON THE SUBJECT. THE FAILURE TO AGITATE THE I SSUE BEFORE THE CIT (A) OR THE ITAT SHOULD NOT BE DISTINGUISHED FROM THE LEVIABILITY OF PENALTIES ON THE ISSUES UNDER CONSIDERATION. 10. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS O F THE AO AS WELL AS CIT (A). HE ALSO MENTIONED THAT THE ASSESSEE ACCEPTED THE ADDIT ION AND THE MATTER DID NOT COME UP BEFORE THE TRIBUNAL. UNDER THESE CIRCUMSTANCES, AS SESSEE CANNOT TAKE-UP THESE CLAIMS / ARGUMENTS AT THIS STAGE. 11. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. W E HAVE ALSO PERUSED THE SAID JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F VIJAYA BANK (SUPRA). THE AO EXPLAINED THE WRITE OFF PROVISIONS AND ENTITLED PRO VISIONS U/S 36(1) OF THE ACT AND THE RELEVANT PARAS 5, 6 AND 7 OF THE JUDGMENT READ AS U NDER: 5 . AT THE OUTSET, WE MAY STATE THAT, IN THESE CIVIL A PPEALS, BROADLY, TWO QUESTIONS ARISE FOR DETERMINATION. THE FIRST QUESTI ON WHICH ARISES FOR DETERMINATION CONCERNS THE MANNER IN WHICH ACTUAL W RITE OFF TAKES PLACE UNDER THE ACCOUNTING PRINCIPLES. THE SECOND QUESTION WHIC H ARISES FOR DETERMINATION IN THESE CIVIL APPEALS IS, WHETHER IT IS IMPERATIVE FO R THE ASSESSEE-BANK TO CLOSE THE INDIVIDUAL ACCOUNT OF EACH DEBTOR IN ITS BOOKS OR A MERE REDUCTION IN THE 'LOANS AND ADVANCES ACCOUNT' OR DEBTORS TO THE EXTENT OF T HE PROVISION FOR BAD AND DOUBTFUL DEBT IS SUFFICIENT ? 6 . THE FIRST QUESTION IS NO MORE RES INTEGRA. RECENTL Y, A DIVISION BENCH OF THIS COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JT. CIT (2010) 228 CTR (SC) 440 : (2010) 34 DTR (SC) 11 : (2010) 320 ITR 577 (SC) [IN WHICH ONE OF US (S.H. KAPADIA, J.) WAS A PARTY] HAD AN OCCASION TO DEAL WITH THE FIRST QUESTION AND IT HAS BEEN ANSWERED, ACCORDINGLY, IN FAVOUR OF THE ASSESSEE VIDE PARA (25), WHICH READS AS UNDER : 'PRIOR TO 1ST APRIL, 1989, THE LAW, AS IT THEN STOO D, TOOK THE VIEW THAT EVEN IN CASES IN WHICH THE ASSESSEE(S) MAKES ONLY A PROVISI ON IN ITS ACCOUNTS FOR BAD DEBTS AND INTEREST THEREON AND EVEN THOUGH THE AMOU NT IS NOT ACTUALLY WRITTEN OFF BY DEBITING THE P&L A/C OF THE ASSESSEE AND CRE DITING THE AMOUNT TO THE ACCOUNT OF THE DEBTOR, THE ASSESSEE WAS STILL ENTIT LED TO DEDUCTION UNDER S. 36(1)(VII). [SEE CIT VS. JWALA PRASAD TIWARI (1953) 24 ITR 537 (BOM) AND VITHALDAS H. DHANJIBHAI BARDANWALA VS. CIT (1981) 2 1 CTR (GUJ) 190 : (1981) 130 ITR 95 (GUJ)]. SUCH STATE OF LAW PREVAILED UPTO AND IN CLUDING THE ASST. YR. 1988-89. HOWEVER, BY INSERTION (W.E.F. 1ST APRIL, 1 989) OF A NEW EXPLANATION IN S. 36(1)(VII), IT HAS BEEN CLARIFIED THAT ANY BAD DEBT WRITTEN OFF AS IRRECOVERABLE IN 7 SMT. MADHU V. DOSHI , THE ACCOUNT OF THE ASSESSEE WILL NOT INCLUDE ANY PR OVISION FOR BAD AND DOUBTFUL DEBT MADE IN THE ACCOUNTS OF THE ASSESSEE. THE SAID AMENDMENT INDICATES THAT BEFORE 1ST APRIL, 1989, EVEN A PROVISION COULD BE T REATED AS A WRITE OFF. HOWEVER, AFTER 1ST APRIL, 1989, A DISTINCT DICHOTOMY IS BROU GHT IN BY WAY OF THE SAID EXPLANATION TO S. 36(1)(VII). CONSEQUENTLY, AFTER 1 ST APRIL, 1989, A MERE PROVISION FOR BAD DEBT WOULD NOT BE ENTITLED TO DEDUCTION UND ER S. 36(1)(VII). TO UNDERSTAND THE ABOVE DICHOTOMY, ONE MUST UNDERSTAND HOW TO WRITE OFF. IF AN ASSESSEE DEBITS AN AMOUNT OF DOUBTFUL DEBT TO THE P &L A/C AND CREDITS THE ASSET ACCOUNT LIKE SUNDRY DEBTORS ACCOUNT, IT WOULD CONS TITUTE A WRITE OFF OF AN ACTUAL DEBT. HOWEVER, IF AN ASSESSEE DEBITS PROVISION FO R DOUBTFUL DEBT TO THE P&L A/C AND MAKES A CORRESPONDING CREDIT TO THE CURRENT L IABILITIES AND PROVISIONS ON THE LIABILITIES SIDE OF THE BALANCE SHEET, THEN IT WOUL D CONSTITUTE A PROVISION FOR DOUBTFUL DEBT. IN THE LATTER CASE, THE ASSESSEE WOU LD NOT BE ENTITLED TO DEDUCTION AFTER 1ST APRIL, 1989.' 7 . ONE POINT NEEDS TO BE CLARIFIED. ACCORDING TO SHRI BISHWAJIT BHATTACHARYA, LEARNED ADDL. SOLICITOR GENERAL APPEARING FOR THE D EPARTMENT, THE VIEW EXPRESSED BY THE GUJARAT HIGH COURT IN THE CASE OF VITHALDAS H. DHANJIBHAI BARDANWALA (SUPRA) WAS PRIOR TO THE INSERTION OF THE EXPLANATI ON VIDE FINANCE ACT, 2001, W.E.F. 1ST APRIL, 1989, HENCE, THAT LAW IS NO MORE A GOOD LAW. ACCORDING TO THE LEARNED COUNSEL, IN VIEW OF THE INSERTION OF THE SA ID EXPLANATION IN S. 36(1)(VII) W.E.F. 1ST APRIL, 1989, A MERE DEBIT OF THE IMPUGNE D AMOUNT OF BAD DEBT TO THE P&L A/C WOULD NOT AMOUNT TO ACTUAL WRITE OFF. ACCOR DING TO HIM, THE EXPLANATION MAKES IT VERY CLEAR THAT THERE IS A DICHOTOMY BETWE EN ACTUAL WRITE OFF ON THE ONE HAND AND A PROVISION FOR BAD AND DOUBTFUL DEBT ON T HE OTHER. HE SUBMITTED THAT A MERE DEBIT TO THE P&L A/C WOULD CONSTITUTE A PROV ISION FOR BAD AND DOUBTFUL DEBT, IT WOULD NOT CONSTITUTE ACTUAL WRITE OFF AND THAT WAS THE VERY REASON WHY THE EXPLANATION STOOD INSERTED. ACCORDING TO HIM, P RIOR TO FINANCE ACT, 2001, MANY ASSESSEES USED TO TAKE THE BENEFIT OF DEDUCTIO N UNDER S. 36(1)(VII) OF 1961 ACT BY MERELY DEBITING THE IMPUGNED BAD DEBT TO THE P&L A/C AND, THEREFORE, THE PARLIAMENT STEPPED IN BY WAY OF EXPLANATION TO SAY THAT MERE REDUCTION OF PROFITS BY DEBITING THE AMOUNT TO THE P&L A/C PER SE WOULD NOT CONSTITUTE ACTUAL WRITE OFF. TO THIS EXTENT, WE AGREE WITH THE CONTENTIONS OF SHRI BHATTACHARYA. HOWEVER, AS STATED BY THE TRIBUNAL, IN THE PRESENT CASE, BES IDES DEBITING THE P&L A/C AND CREATING A PROVISION FOR BAD AND DOUBTFUL DEBT, THE ASSESSEE-BANK HAD CORRESPONDINGLY/SIMULTANEOUSLY OBLITERATED THE SAID PROVISION FROM ITS ACCOUNTS BY REDUCING THE CORRESPONDING AMOUNT FROM LOANS AND ADVANCES/DEBTORS ON THE ASSET SIDE OF THE BALANCE SHEET AND, CONSEQUENTLY, AT THE END OF THE YEAR, THE FIGURE IN THE LOANS AND ADVANCES OR THE DEBTORS ON THE ASSET SIDE OF THE BALANCE SHEET WAS SHOWN AS NET OF THE PROVISION 'FOR IMPUGN ED BAD DEBT'. IN THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF V ITHALDAS H. DHANJIBHAI BARDANWALA (SUPRA), A MERE DEBIT TO THE P&L A/C WAS SUFFICIENT TO CONSTITUTE ACTUAL WRITE OFF WHEREAS, AFTER THE EXPLANATION, TH E ASSESSEE(S) IS NOW REQUIRED NOT ONLY TO DEBIT THE P&L A/C BUT SIMULTANEOUSLY AL SO REDUCE LOANS AND ADVANCES OR THE DEBTORS FROM THE ASSET SIDE OF THE BALANCE S HEET TO THE EXTENT OF THE CORRESPONDING AMOUNT SO THAT, AT THE END OF THE YEA R, THE AMOUNT OF LOANS AND ADVANCES/ DEBTORS IS SHOWN AS NET OF PROVISIONS FOR IMPUGNED BAD DEBT. THIS 8 SMT. MADHU V. DOSHI , ASPECT IS LOST SIGHT OF BY THE HIGH COURT IN ITS IM PUGNED JUDGMENT. IN THE CIRCUMSTANCES, WE HOLD, ON THE FIRST QUESTION, THAT THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF DEDUCTION UNDER S. 36(1)(VII) OF 196 1 ACT AS THERE WAS AN ACTUAL WRITE OFF BY THE ASSESSEE IN ITS BOOKS, AS INDICATE D ABOVE. 12. FROM THE ABOVE, THE HONBLE SUPREME COURT EXPLA INED THAT WHEN THE ASSESSEE DEBITS PROVISION FOR DOUBTFUL DEBT TO THE PROFIT & LOSS ACCOUNT AND MAKES A CORRESPONDING CREDIT TO THE CURRENT LIABILITIES AND PROVISIONS ON THE LIABILITIES SIDE OF THE BALANCE SHEET, IT WOULD CONSTITUTE A PROVISION FOR DOUBTFUL DEBT AND IF NECESSARY AN AMOUNT OF DOUBTFUL DEBT TO THE PROFIT & LOSS ACCOUN T AND CREDITS THE ASSET ACCOUNT LIKE SUNDRY DEBTORS ACCOUNT, IT WOULD CONSTITUTE A WRIT E OFF OF AN ACTUAL DEBT. SUPREME COURT UPHELD THE SAME BY THE DECISION OF THE DIVISI ON BENCH IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JCIT (2010) 320 ITR 577 (SC). 13. WE HAVE PERUSED THE BALANCE SHEET BEFORE US WHI CH WAS ALSO AVAILABLE BEFORE THE REVENUE AUTHORITIES. SEHEDULE-7 SHOWS THAT ASSE SSEE REDUCED THE PROVISION FOR DOUBTFUL DEBTS FROM THE SAID SUNDRY DEBTORS ACCOUN T WHICH IS AVAILABLE ON PAGE 3 OF THE PAPER BOOK. SIMILAR IS THE CASE WITH SCHEDULE- 8, ASSESSEE REDUCED THE PROVISION FROM THE LOANS AND ADVANCES ON THE CURRENT ASSET SI DE. SCHEDULE-7 SUNDRY DEBTORS: AMOUNT RS. CONSIDERED DOUBTFUL: V.R. PICTURES PRIVATE LIMITED -RS. 24,546,917/- V.R. PICTURES INTER UNTI BALANCES - -0- LESS: PROVISION FOR DOUBTFUL DEBTS - RS. 24,546,917/- -0- OTHERS: 1,309/- INTER BR BAL -0-_ _ TOTAL RS. 1,309/- SCHEDULE-8 CURRENT ASSETS & LOANS & ADVANCES: AMOUNT RS. LOANS & ADVANCES: CONSIDERED DOUBTFUL RS.10,526,963/- LESS: PROVISION FOR DOUBTFUL ADVANCES RS.10,526,963/- -0- OTHERS CONSIDERED GOOD 2,656,582/- 9 SMT. MADHU V. DOSHI , 14. THE TREATMENT GIVEN BY THE ASSESSEE AS DETAILED ABOVE, HAS THE SUPPORT OF THE RATIO OF THE SAID JUDGMENT OF HONBLE SUPREME COURT . THEREFORE, THE CLAIM OF THE ASSESSEE IS LEGALLY SUSTAINABLE AND ASSESSEES FAIL URE TO AGITATE AGAINST THE DECISION OF THE AO ON MERITS HAS NO BEARING IN THESE PENALTY PR OCEEDINGS. CONSIDERING THE SAME, WE ARE OF THE OPINION THAT MERE EXISTENCE OF THE WO RD PROVISION SHOULD NOT DECIDE THE LEVIABILITY OF THE PENALTY IN THIS CASE. IT I S A TRITE LAW THAT THE PENALTY PROVISIONS ARE DIFFERENT FROM THAT OF THE ASSESSMENT PROCEEDINGS. THEREFORE, WE ARE OF THE OPINION THAT ASSESSEES FAILURE TO AGITATE THIS ISSUE BEFOR E THE CIT (A) / ITAT SHOULD NOT COME ON THE WAY OF GRANTING OF RELIEF TO THE ASSESSEE NO W. THEREFORE, PENALTY LEVIED ON THIS ISSUE SHOULD BE DELETED. ACCORDINGLY, THIS PART OF THE GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE. 15. REGARDING THE LEVY OF PENALTY OF RS. 21 LAKHS, THE CLAIMS OF TWO LOAN CREDITORS NAMELY MR. BALDEV BHALLA AND M/S. NARASIMHA ENTERPRI SES, IT IS AN ADMITTED FACT THAT ASSESSEE COULD NOT FURNISH THE CONFIRMATION LETTERS IN RESPECT OF THE TWO PARTIES AS THESE PARTIES WERE KNOWN ONLY TO THE ASSESSEE, WHO EXPIR ED ON 31.10.2006. BEING THE LEGAL HEIRS, THEY COULD NOT OBTAIN THE CONFIRMATION LETTE RS FROM THESE TWO PARTIES, IN VIEW OF THE LIMITATION ATTACHED TO THE LEGAL HEIRS. IN THE QUANTUM PROCEEDINGS, THE TRIBUNAL CONFIRMED THE SAID ADDITIONS ON ACCOUNT OF UNSECURE D LOAN CREDITORS FOR THE REASONS (I) FAILURE TO FURNISH THE CONFIRMATION LETTERS AND (II ) FAILURE TO DISCHARGE THE ONUS WHICH RESTS ON THE ASSESSEE. DURING THE PROCEEDINGS BEFO RE US, LD COUNSEL MENTIONED THAT THE PENALTY SHOULD NOT BE CONFIRMED IN RESPECT OF M R. BALDEV BHALLA FOR THE REASON THAT THE SAID AMOUNT WAS REPAID TO THE LOAN CREDITOR BEF ORE THE SCRUTINY NOTICE IN THIS CASE WAS ISSUED. HOWEVER, THERE ARE NO DETAILS ABOUT TH E MODE OF PAYMENT WHETHER THEY WERE PAID THROUGH BANKING CHANNEL ETC. IT WAS THE A LLEGATION OF THE AO THAT ASSESSEE FAILED TO FURNISH ANY EXPLANATION ON THIS ISSUE DUR ING THE PENALTY PROCEEDINGS. CIT (A) CONFIRMED THE SAME ONLY ON THE REASONING THAT ASSES SEE SHOULD HAVE FURNISHED THE EXPLANATION TO HIM DIRECTLY INSTEAD OF FILING THE S AME THROUGH TAPALS. THE FACT OF REPAYMENT OF RS. 20 LAKHS TO MR. BALDEV BHALLA WAS NOT DISCUSSED IN THE ORDER OF THE 10 SMT. MADHU V. DOSHI , CIT (A). HOWEVER, CIT (A) CONFIRMED THE PENALTY MEN TIONING THAT THE TRIBUNAL CONFIRMED THE SAID ADDITION OF RS. 21 LAKHS. REGARD ING THE OTHER SUM OF RS 1 LAKH, THERE IS NO INFORMATION FORTHCOMING FROM THE ASSESSEE IN SUPPORT OF THE CLAIM. 16. ON THE OTHER HAND, LD DR MENTIONED THAT THIS IS A FALSE CLAIM AND THERE ARE NO PARTICULARS ABOUT THE REPAYMENT OF RS. 20 LAKHS PAI D TO MR. BALDEV BHALLA, CONSIDERING THE ABSENCE OF ANY ENQUIRY INTO THIS ISSUE BY THE A O AS WELL AS ASSESSEE FAILED TO EXPLAIN THE SAME. 17. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. T HERE ARE TWO LOAN CREDITS UNDER CONSIDERATION. ASSESSEE BROUGHT NEW FACTS ABOUT THE REPAYMENT TO MR. BALDEV BHALLA WHICH ARE NOT AVAILABLE ON RECORD. ASSESSEE COULD NOT DEMONSTRATE THE SAME EVEN BEFORE US. IN CASE OF THE REPAYMENT OF RS. 20 LAKHS TO MR. BALDEV BHALLA IS CORRECT, IT IS NOT PROPER TO CONCLUDE THAT THE SAID AMOUNT IS BOGU S CASH CREDIT. WHY SHOULD ASSESSEE REPAY THE AMOUNT TO HIM WHEN THE SAID CREDIT IS BOG US? IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE SAID AMOUNT WAS NOT REPA ID. IN OUR OPINION, WHEN THE AMOUNT WAS REPAID, THE ADDITION MADE BY THE AO AND CONFIRMED BY THE TRIBUNAL SHOULD NOT ATTRACT THE PENAL PROVISIONS. ACCORDINGLY, THE PENALTY LEVIED ON RS. 20 LAKHS SHOULD BE DELETED . 18. REGARDING THE SUM OF ADDITION RS. 1 LAKH THE LO AN CREDIT INVOLVING M/S. NARASIMHA ENTERPRISES, WE FIND THAT THE ASSESSEE HAS NOT SUCCESSFULLY DISCHARGED THE PRIMARY ONUS IMPLIED IN THE PROVISIONS OF SECTION 6 8 OF THE ACT RELATING TO THE IDENTITY, CREDITWORTHINESS AND THE GENUINENESS OF THE TRANSAC TION. IT IS THE CASE; AO IS NOT SATISFIED WITH THE REGARD TO THE FULFILLMENT OF THE CONDITIONS SPECIFIED IN THE SAID SECTION. ASSESSEE COULD NOT EVEN FILE CONFORMATION LETTERS A ND LEAVE ALONE THE GENUINENESS OF THE TRANSACTION. THERE ARE NO INDICATIONS THAT THE IMPUGNED LOAN CREDIT OF RS 1 LAKH WAS REPAID BY THE ASSESSEE IN LATER TIMES AT LEAST UNLI KE IN THE CASE OF MR. BALDEV BHALLA, ANOTHER LOAN CREDITOR. CONSIDERING THE ABSENCE ANY SUPPORT WHATSOEVER IN FAVOUR OF THE 11 SMT. MADHU V. DOSHI , CLAIM OF THE ASSESSEE, WE ARE OF THE OPINION THAT T HE PENALTY WAS CORRECTLY LEVIED IN RESPECT OF THE SUM OF RS 1 LAKH BY THE AO AND CONFI RMED BY THE CIT (A). ACCORDINGLY, PENALTY LEVIED ON RS. 1 LAKH IS SUSTAINED. ACCORDIN GLY, THIS PART OF THE GROUND IS DISMISSED . 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF NOVEMBER, 2012. SD/- SD/- (D. MANMOHAN) (D . KARUNAKARA RAO) VICE PRESIDENT ACCOUNTANT MEMBER DATE : 21.11.2012 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR F, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI