ACIT, New Delhi V. M/s. Mount Everest Mineral Water Limited, New Delhi

ITA 6536/DEL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7029 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 29-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 06-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPAK GARG SENIOR
• Assessee Lawyers: RISHABH MALHOTR A S
• Keywords: Earning of tax free income; Bad and doubtful debts; Assessment record
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.6536/DEL./2013 (ASSESSMENT YEAR : 2009-10) ACIT, CIRCLE 5 (1), VS. M/S. MOUNT EVEREST MINERAL NEW DELHI. WATER LIMITED, I 3, BLOCK B 1, CO-OPERATIVE INDUSTRIAL ESTATE, MAIN MATHURA ROAD, NEW DELHI 110 004. (PAN : AAACM1274F) CO NO.212/DEL./2014 (IN ITA NO.6536/DEL./2013) (ASSESSMENT YEAR : 2009-10) M/S. MOUNT EVEREST MINERAL VS. ACIT, CIRCLE 5 (1) , WATER LIMITED, NEW DELHI. I 3, BLOCK B 1, CO-OPERATIVE INDUSTRIAL ESTATE, MAIN MATHURA ROAD, NEW DELHI 110 004. (PAN : AAACM1274F) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI RAVI SHARMA & RISHABH MALHOTR A, ADVOCATES REVENUE BY : SHRI DEEPAK GARG, SENIOR DR DATE OF HEARING : 29.06.2016 DATE OF ORDER : 12.07.2016 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : ITA NO.6536/DEL./2013 CO NO.212/DEL/2014 2 SINCE COMMON QUESTIONS OF FACTS AND LAW HAVE BEEN R AISED IN BOTH THE AFORESAID APPEAL AND CROSS OBJECTION, T HE SAME ARE BEING DISPOSED OFF BY WAY OF CONSOLIDATED ORDER TO AVOID REPETITION OF DISCUSSION. 2. APPELLANT, ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 5 (1), NEW DELHI (HEREINAFTER REFERRED TO AS THE REV ENUE) BY FILING THE PRESENT APPEAL, SOUGHT TO SET ASIDE THE IMPUGNE D ORDER DATED 30.09.2013 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)- VIII, NEW DELHI QUA THE ASSESSMENT YEAR 2009-10 ON THE GROUNDS INTER ALIA THAT :- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE & IN LAW, THE LD. CIT(A) IS JUSTIFIED IN MAKING DISALLOWANCE OF CLAIM OF EXPENSES TO THE EXTENT OF RS.11,49,335/- ON ESTIMATE BASIS AND NOT AS PER RUL E 8D R.W.S. 14A WAS MADE BY THE AO? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT(A) IS JUSTIFIED IN ALLOWING C LAIM OF RS.4,21,087/- PROVISION FOR SUPPLYING FREE GOODS? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT(A) IS JUSTIFIED IN ALLOWING C LAIM OF RS.70,000/- AS PROVISIONAL COMMISSION EXPENSE? 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT(A) IS JUSTIFIED IN ALLOWING C LAIM OF ITA NO.6536/DEL./2013 CO NO.212/DEL/2014 3 RS.3,07,88,306/- AS BAD DEBT UNDER THE HEAD REBATE AND DISCOUNTS? 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT(A) IS JUSTIFIED IN ALLOWING C LAIM OF RS.19,01,217/- AS BAD DEBT IN ABSENCE OF SUPPORTING DOCUMENTS? 3. THE OBJECTOR, BY FILING THE PRESENT CROSS OBJECT ION, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 30.09.2013 PASSE D BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-VIII, NEW DELH I QUA THE ASSESSMENT YEAR 2009-10 ON THE GROUND THAT :- THAT, ON THE FACTS AND IN CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN SUSTAINING THE DISALLOWANCE U/S 14A TO THE EXTENT O F RS.500,000/- WITHOUT ANY JUSTIFIABLE REASONS AND WI THOUT APPRECIATING THAT THE APPELLANT HAD ALREADY IDENTIF IED AND SUO MOTTU OFFERED AN AMOUNT OF RS.260,564/- BEING EXPENSE ATTRIBUTABLE IN EARNING EXEMPT INCOME. 4. BRIEFLY STATED THE FACTS OF THIS CASE ARE : PURS UANT TO THE NOTICE UNDER SECTION 143(2) AND 142 (1) OF THE INCO ME TAX ACT, 1961 (FOR SHORT THE ACT) ISSUED DURING SCRUTINY P ROCEEDINGS, SHRI RAJ PAL, ASSISTANT MANAGER (ACCOUNTS) OF THE ASSESS EE COMPANY PUT IN APPEARANCE, FILED REQUISITE DETAILS/INFORMAT ION, BOOKS OF ACCOUNTS WHICH HAVE BEEN EXAMINED ON TEST CHECK BAS IS. ASSESSEE COMPANY IS INTO THE BUSINESS OF MANUFACTURING AND S ELLING OF NATURAL MINERAL WATER UNDER THE BRAND NAME, HIMALYA N, SOLD TO THE FIVE STAR CATEGORY HOTELS, AIRLINES, EMBASSIES ETC. DURING THE YEAR UNDER ASSESSMENT, ASSESSEE EARNED DIVIDEND INC OME OF ITA NO.6536/DEL./2013 CO NO.212/DEL/2014 4 RS.4,31,81,095/- AND CLAIMED THE SAME AS EXEMPT INC OME U/S 10(34) OF THE ACT. ASSESSEE WAS CALLED UPON TO FIL E THE WORKING OF DISALLOWANCE IN TERMS OF PROVISIONS OF RULE 8D ON T HE BASIS OF WHICH RS.2,60,564/- WAS DISALLOWED AND ADDED BACK U /S 14A IN THE COMPUTATION OF INCOME. FINDING THE EXPLANATION FUR NISHED BY THE ASSESSEE NOT TENABLE, ASSESSING OFFICER INVOKED PRO VISIONS CONTAINED UNDER RULE 8D FOR DETERMINING THE EXPENDI TURE INCURRED FOR MAKING INVESTMENT AT RS.19,09,899/- AND FURTHER AN AMOUNT OF RS.16,49,335/- U/S 14A TO THE INCOME OF THE ASSESSE E. 5. FROM THE DETAILS OF BOTTLES SUPPLIED FREE OF COS T (FOC) AND COMPLIMENTARY, AO NOTICED THAT THE ASSESSEE HAS MAD E PROVISIONS OF RS.4,21,087/-, RS.4,90,982/-, RS.26,16,839/- AND RS.25,69,000/- ON 31.07.2008, 31.08.2008, 28.02.2009 AND 31.03.200 9 RESPECTIVELY. FINDING THE EXPLANATION FURNISHED BY THE ASSESSEE NOT TENABLE, AO FOUND THE SAME AS UNASCERTAINABLE LIABI LITY AND DISALLOWED THE PROVISION OF RS.4,21,087/- AND ADDED THE SAME BACK TO THE INCOME OF THE ASSESSEE. 6. AO ALSO NOTICED FROM THE DETAILS OF COMMISSION S ALES THAT THE ASSESSEE MADE DEBITS OF THE PROVISIONS OF RS.7, 95,912/-, RS.7,95,912/-, RS.12,73,355/- RS.16,97,855/-, RS.19 ,75,355/- RS.17,56,573/-, RS.14,38,899/-, RS.14,27,946/-, RS. 1,46,695/- AND RS.70,000/- ON 31.07.2008, 31.08.2008, 30.09.2008, 31.10.2008, ITA NO.6536/DEL./2013 CO NO.212/DEL/2014 5 AND AGAIN ON 31.03.2009. ASSESSEE HAS REVERSED ALL OTHER PROVISIONS BUT RS.70,000/- PROVIDED FOR COMMISSION WAS NEITHER REVERSED NOR ADDED BACK BY THE ASSESSEE AND DISALLO WED THE SAME AS UNASCERTAINED LIABILITY AND THEREBY MADE AN ADDI TION OF RS.70,000/-. 7. AS PER ANNEXURE 6 OF FORM 3CD, THE ASSESSEE SHOW N THE AMOUNTS OF PROFIT CHARGEABLE TO TAX U/S 41 OF THE A CT AT RS.14,49,165/- AS ON 31.03.2004 ON ACCOUNT OF SUNDR Y BALANCE WRITTEN BACK AND RS.3,07,88,306/- AS ON 31.03.2004 ON ACCOUNT OF PROVISION FOR DISCOUNT AND REBATE WRITTEN BACK AND OUT OF THE SAID AMOUNT, THE ASSESSEE HAS DECLARED RS.14,49,165/- BE ING SUNDRY BALANCES WRITTEN BACK AS ITS INCOME UNDER OTHER INC OME BUT NOT SHOWN THE PROVISIONS FOR DISCOUNT AND REBATE WRITTE N BACK AS ITS INCOME FOR THE YEAR UNDER CONSIDERATION. FINDING T HE EXPLANATION FURNISHED BY THE ASSESSEE NOT TENABLE, THE AO CAME TO THE CONCLUSION THAT ASSESSEE COMPANY HAD RECOVERED RS.5 ,00,00,000/- IN FY 2007-08 RELEVANT TO AY 2008-09 FROM PROMOTERS AGAINST DISPUTABLE CLAIMS BY DEBTORS FOR DISCOUNT AND REBA TE AND THUS RS.5,00,00,000/- WERE KEPT BY THE ASSESSEE FOR PROV ISION IN ITS BOOKS OF ACCOUNT FOR DISCOUNT AND REBATE AND HAS NO T CLAIMED ANY EXPENSES, DISCOUNT AND REBATE DURING FY 2007-08 REL EVANT TO AY 2008-09 EXCEPT EXPENSES INCURRED AFTER TAKEOVER. S O, THE PROVISION ITA NO.6536/DEL./2013 CO NO.212/DEL/2014 6 FOR DISCOUNT AND REBATE WRITTEN BACK OUT OF RS.5,00 ,00,000/- WHICH WAS RECEIVED IN THE HANDS OF ASSESSEE IN FY 2007-08 AND KEPT AS PROVISION, IS THE PROFIT OF PREVIOUS YEAR RELEVANT TO AY UNDER CONSIDERATION CHARGEABLE TO TAX U/S 41 OF THE ACT A ND THEREBY MADE AN ADDITION OF RS.3,07,88,306/-. 8. AO FURTHER NOTICED FORM PROFIT & LOSS ACCOUNT TH AT ASSESSEE HAS DEBITED A SUM OF RS.19,01,217/- AS BAD DEBTS WR ITTEN OFF. ASSESSEE WAS CALLED UPON TO FILE THE DETAILS AND JU STIFICATION OF BAD DEBTS WRITTEN OFF WHICH HE HAS FILED BUT FINDING TH E EXPLANATION NOT TENABLE, THE CLAIM OF THE ASSESSEE OF BAD DEBTS HAS BEEN DISALLOWED AND THEREBY MADE AN ADDITION OF RS.19,01,217/-. 9. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) WHO HAS PARTLY ALLOWED THE APPEAL. FEELING AGGRIEVED, THE REVENUE AS WELL AS ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY CHAL LENGING THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) BY WAY OF FILING THE PRESENT APPEAL AND CROSS OBJECTION RESPECTIVELY. 10. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE S OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUND NO.1 OF ITA NO.6536/DEL./2013 & GROUND NO.1 OF CROSS OBJECTION ITA NO.6536/DEL./2013 CO NO.212/DEL/2014 7 11. THE LD. DR CHALLENGING THE IMPUGNED ORDER CONTE NDED THAT THE LD. CIT (A) HAS ARBITRARILY MADE DISALLOWANCE O F CLAIM OF EXPENSES TO THE EXTENT OF RS.11,49,335/- ON ESTIMAT ED BASIS AND NOT AS PER RULE 8D READ WITH SECTION 14A AND RELIED UPO N THE ORDER PASSED BY THE AO. HOWEVER, ON THE OTHER HAND, LD. AR TO REPEL THIS ARGUMENT CONTENDED THAT THE AO HAS ILLEGALLY I NVOKED THE RULE 8D(2)(III) FOR DISALLOWANCE OF THE INDIRECT EXPENDI TURE WITHOUT RECORDING HIS DIS-SATISFACTION OF THE CLAIM AND CIT (A) HAS ALSO ERRED IN SUSTAINING THE DISALLOWANCE U/S 14A TO THE EXTENT OF RS.5,00,000/- WITHOUT ANY JUSTIFICATION AND RELIED UPON THE JUDGMENTS CITED AS MAXOPP INVESTMENTS LIMITED VS. CIT (2012) 347 ITR 272 (DELHI) AND ORDER PASSED BY THE ITAT, B ANGALORE BENCH B IN DCIT VS. M/S. SUBRAMANYA CONSTRUCTIONS & DEVELOPMENT CO. LTD. IN ITA NO.404/BANG/2013 ORDER DATED 20.02.2015 . 12. THE RATIO OF THE JUDGMENT CITED AS MAXOPP INVESTMENTS LIMITED (SUPRA) PASSED BY THE HONBLE JURISDICTIONAL HIGH COURT IS THAT UNDER SECTION 14A(2,) IT IS A CONDITION PRECEDENT FOR ASSESSING OFFICER TO DETERMINE AMOUNT OF EXPENDITUR E INCURRED IN RELATION TO EXEMPT INCOME; THAT HE MUST RECORD H IS DIS- SATISFACTION WITH CORRECTNESS OF CLAIM OF EXPENDITU RE MADE BY THE ITA NO.6536/DEL./2013 CO NO.212/DEL/2014 8 ASSESSEE OR WITH CORRECTNESS OF THE CLAIM MADE BY T HE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED AND THAT DETE RMINATION OF AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 8D ONLY COME INTO PLAY WHEN AO REJECTS CLAIM OF ASS ESSEE IN THIS REGARD. 13. UNDISPUTEDLY, ASSESSEE COMPANY EARNED DIVIDEND INCOME TO THE TUNE OF RS.4,31,81,095/- AND CLAIMED THE SAME A S EXEMPT INCOME U/S 10(35) OF THE ACT AND SUO MOTU DISALLOWE D THE AMOUNT OF RS.2,60,564/- U/S 14A BEING THE EXPENSES INCURRE D FOR EARNING EXEMPT DIVIDEND INCOME. 12. BEFORE INVOKING PROVISIONS CONTAINED UNDER RULE 8D(2)(III), THE AO HAS NOT RECORDED HIS DIS-SATISFACTION OF THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE NOR A O CAME TO THE CONCLUSIONS THAT, THE CLAIM OF THE ASSESSEE THAT N O EXPENDITURE HAS BEEN INCURRED IS INCORRECT. ASSESSEE HAS COME UP WITH A CATEGORIC PLEA THAT EXCEPT FOR INCURRING EXPENDITURE OF RS.2, 60,564/- ON ACCOUNT OF SALARY PAID TO EXECUTIVE (FINANCE), NO O THER EXPENDITURE HAS BEEN INCURRED FOR EARNING OF THE SAID DIVIDEND INCOME. AO HAS NOT DISPUTED THE AUDITED BOOKS OF ACCOUNT MAINTAINE D BY THE ASSESSEE IN RESPECT OF INVESTING AND EARNING DIVIDE ND INCOME ALONG WITH EXPENDITURE INCURRED THEREON, LYING AT PAGE 65 OF THE PAPER ITA NO.6536/DEL./2013 CO NO.212/DEL/2014 9 BOOK. FROM THE BOOKS OF ACCOUNT, THE AO HAS NOT ID ENTIFIED ANY OTHER EXPENDITURE INCURRED BY THE ASSESSEE FOR EARN ING THE AFORESAID DIVIDEND INCOME BUT PROCEEDED TO INVOKE THE PROVISI ONS CONTAINED UNDER RULE 8D (2)(III) MERELY ON THE BASIS OF GUESS WORK, THAT TOO WITHOUT RECORDING HIS DIS-SATISFACTION AS TO HOW TH E CLAIM OF THE ASSESSEE, THAT NO OTHER EXPENDITURE HAS BEEN INCUR RED, IN EARNING THE DIVIDEND INCOME. AT THE SAME TIME, CIT (A) HAS ALSO PROCEEDED ON THE BASIS OF GUESSWORK IN SUSTAINING T HE DISALLOWANCE U/S 14A TO THE EXTENT OF RS.5,00,000/-. 14. WHEN THE AO HAS NOT RECORDED HIS DIS-SATISFACTI ON NOR DISPUTED THE AUDITED BOOKS OF ACCOUNT, HE WAS NOT J USTIFIED IN INVOKING THE PROVISIONS CONTAINED UNDER RULE 8D. S O, IN THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT C IT (A) HAS ERRED IN SUSTAINING THE DISALLOWANCE U/S 14A TO THE EXTENT OF RS.5,00,000/- IN FACE OF THE FACT THAT THE ASSESSE E HAS SUO MOTU MADE A DISALLOWANCE U/S 14A TO THE EXTENT OF RS.2,6 0,564/- BEING THE SALARY PAID TO THE EXECUTIVE (FINANCE) EMPLOYED FOR MANAGING THE INVESTMENT FOR MUTUAL FUNDS AND DIVIDEND INCOME , NO DISALLOWANCE CAN BE MADE. CONSEQUENTLY, GROUND NO.1 OF ITA NO.6536/DEL/2013 IS DETERMINED AGAINST THE REVENUE AND GROUND NO.1 OF CROSS OBJECTION IS DETERMINED IN FAVOUR OF THE ASSESSEE. ITA NO.6536/DEL./2013 CO NO.212/DEL/2014 10 GROUND NO.2 OF ITA NO.6536/DEL./2013 15. LD. CIT (A) DELETED THE ADDITION OF RS.4,21,087 /- MADE BY THE AO, BY MAKING FOLLOWING OBSERVATIONS :- THE COMPANY BOTTLES MINERAL WATER AND DISTRIBUTED IT TO VARIOUS PLACE IN THE INDIA IN THE BRAND NAME OF HIMALAYAN MINERAL WATER. THE COMPANY HAS TO GIVE COMPLIMENTARY BOTTLES FREE OF COST. THE TURNO VER OF THE COMPANY IS RS.21.99 CRORES I.E. 22 CRORES IN THIS FINANCIAL YEAR. ON SUCH A TURN OVER, THE FREE OF C OST COMPLIMENTARY BOTTLES GIVEN IN THE MARKET AS SAMPLE S ALL OVER INDIA IS NOT A VERY BIG FIGURE. CONSIDERIN G THE SUBMISSIONS OF THE AR AND THE LEDGER ACCOUNT, I FIN D IT A REASONABLE EXPENDITURE FOR MARKETING OF THE MINERAL WATER BOTTLES. HENCE, THIS EXPENDITURE OF RS.4,21,087 IS ALLOWED IN FULL. THE ADDITIONS OF RS.4,21,0071- IS DELETED. IN THE RESULT THIS GROUND OF APPEAL IS ALLOWED. 16. FROM THE COPY OF LEDGER ACCOUNT AVAILABLE AT PA GE 104 OF THE PAPER BOOK, IT IS APPARENTLY CLEAR THAT THE AMOUNT OF RS.4,21,087/- TREATED AS UNASCERTAINED LIABILITY BY THE AO INCLUD ES AN AMOUNT OF RS.3,64,453/- ON ACCOUNT OF EXPENSES ACTUALLY INCUR RED IN RESPECT OF COST OF RAW MATERIAL, PACKING MATERIAL, ELECTRIC ITY, POWER & FUEL, WAGES, REPAIR AND MAINTENANCE EXPENSES AND AMOUNT T RANSFERRED FROM GENERAL EXPENSE LEDGER TO SPECIFIC LEDGER FOR FOC AND COMPLIMENTARY AND AS SUCH, AN AMOUNT OF RS.4,21,087 /- IS ACTUALLY INCURRED AS EXPENSES ON ACCOUNT OF FOC AND COMPLIME NTARY BOTTLES GIVEN IN THE MARKET AS SAMPLES ALL OVER INDIA. LD. CIT (A), AFTER ITA NO.6536/DEL./2013 CO NO.212/DEL/2014 11 NOTICING THE FACTUAL MISTAKE COMMITTED BY THE AO IN TREATING THE AMOUNT OF RS.4,21,087/- AS UNASCERTAINED LIABILITY, HAS RIGHTLY DELETED THE SAME. SO, FINDING NO ILLEGALITY OR PER VERSITY IN THE ORDER PASSED BY THE LD. CIT (A), WE HEREBY DECIDE G ROUND NO.2 AGAINST THE REVENUE. GROUND NO.3 OF ITA NO.6536/DEL./2013 17. THE CIT (A) DELETED THE ADDITION OF RS.70,000/- MADE BY THE AO ON THE GROUND THAT THE ASSESSEE HAS PAID THE COM MISSION TO M/S. PARAS COMMERCIAL CORPORATION, CUTTACK, A CONSI GNMENT AGENT ON 02.09.2008 ON A MONTHLY COMMISSION OF RS.10,000/ - PER MONTH AND THE ASSESSEE COMPANY HAS RAISED THE BILL AND PA ID IT AFTER DEDUCTING TDS. FROM THE PERUSAL OF AGREEMENT AND F ORM 16A AVAILABLE AT PAGE 77 OF THE PAPER BOOK, IT IS APPAR ENTLY CLEAR THAT SINCE THE AGENT HAS NOT RAISED ANY BILL SINCE MARCH 2009, THE ASSESSEE ON THE BASIS OF AGREEMENT PROVIDED AN AMOU NT OF RS.70,000/- FROM SEPTEMBER, 2008 TO MARCH, 2009 AFT ER DEDUCTING THE TAX AT SOURCE I.E DURING THE RELEVANT FINANCIAL YEAR. SO, THE MISTAKE COMMITTED BY THE AO HAS BEEN RECTIFIED BY T HE CIT (A) AND THE FINDINGS RETURNED BY CIT (A) NEED NO INTERF ERENCE. HENCE, GROUND NO.3 IS DETERMINED AGAINST THE REVENUE. GROUND NO.4 OF ITA NO.6536/DEL./2013 ITA NO.6536/DEL./2013 CO NO.212/DEL/2014 12 18. LD. CIT (A) DELETED THE ADDITION OF RS.3,07,88, 306/- MADE BY THE AO BY INVOKING THE PROVISIONS CONTAINED UNDE R SECTION 41 OF THE ACT BY MAKING FOLLOWING OBSERVATIONS :- THE APPELLANT HAD CLAIMED PROVISION FOR DISCOUNT AND REBATE RETURN BACK OF RS.3,07,88,306/-. THIS RETURN BACK OF BAD DEBTS IS DISCLOSED IN SCHEDULE 1 8 OF THE TAX AUDIT REPORT OF RS.5,24,10,339/-. THE PROVI SION OF DISCOUNT AND REBATE RETURN BACK IS RS.5,05,09,12 2/- AND NET BAD DEBTS OF RETURN WAS RS. 19,01,217/- IN THE P&L ACCOUNT. AS PER THE SECTION 36(I)(VII) THE COMPANY CAN WRITE OFF ANY AMOUNT OF BAD DEBTS AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE IN AN Y YEAR INCLUDING FIRST YEAR OF BUSINESS WITHOUT ANY P ROOF THAT THE DEBTS HAS ACTUALLY GONE BAD. THIS IS THE FREEDOM GIVEN TO THE BUSINESSMAN TODAY TO ACCOUNT A S PER HIS WISH. WHENEVER THE BAD DEBTS ARE RECOVERED FROM THE PARTIES, HE HAS TO TAKE INTO ACCOUNT THE RECEIVABLE IN THE P&L ACCOUNT ON THE CREDIT SIDE. THUS THE AD SHOULD MAKE .A WATCH OF THIS FIGURE IN HIS ORDER OR ASSESSMENT RECORD SO THAT HE CAN KEEP A WATCH ON THE ACTIVITIES OF THE APPELLANT IN FUTURE. HENCE, IN THE PRESENT CASE THE CLAIM OF DISCOUNT AN D RETURN BACK OF RS. 3,07,88,306/- PROVISION AS BAD DEBTS RETURN OFF OF RS. 5,24,10,339/- IS ALLOWED. I N THE RESULT, THIS GROUND OF APPEAL IS ALLOWED. THE ADDIT ION OF RS.3,07,88,306/- IS DELETED. 19. IT IS SETTLED PRINCIPLE OF LAW THAT A COMPANY C AN WRITE OFF ANY BAD DEBTS IN ITS ACCOUNT IN ANY YEAR INCLUDING THE FIRST YEAR OF BUSINESS WITHOUT PROVING THE FACT THAT THE DEBT HAS ACTUALLY BECOME BAD. ASSESSEE HAS RIGHTLY CLAIMED PROVISION FOR DI SCOUNT AND REBATE WRITTEN BACK OF RS.3,07,88,306/- DULY DISCLO SED IN SCHEDULE 18 OF THE TAX AUDIT REPORT OF THE COMPOSITE AMOUNT OF ITA NO.6536/DEL./2013 CO NO.212/DEL/2014 13 RS.5,24,10,339/-. WHEN THE WRITE BACK OF RS.5,05,0 9,122/-, WHICH INCLUDES THE AMOUNT OF RS.3,07,88,306/-, WAS DULY C REDITED IN PROFIT & LOSS ACCOUNT IN THE FORM OF ADJUSTMENT OF BAD DEBT EXPENSES IN SCHEDULE 18, QUESTION DOES NOT ARISE TO INVOKE THE PROVISIONS OF SECTION 41 OF THE ACT. SO, FINDING N O ILLEGALITY OR PERVERSITY IN THE FINDINGS RETURNED BY THE CIT (A), WE HEREBY DETERMINE GROUND NO.4 AGAINST THE REVENUE. GROUND NO.5 OF ITA NO.6536/DEL./2013 20. AO BY DISALLOWING THE BAD DEBT WRITTEN OFF TO T HE TUNE OF RS.19,01,217/- MADE AN ADDITION THEREOF TO THE INCO ME OF THE ASSESSEE WHICH HAS BEEN DELETED BY THE CIT (A) BY M AKING FOLLOWING OBSERVATIONS :- GROUND NO. 5 IS PART OF GROUND NO 4 THE CASE OF DE BTS RETURN OFF RS.19,01,217/- WAS SHOWN IN THE SCHEDUL E 18 OF TAX AUDIT REPORT. THIS IS AGAIN MINIMUM OF TH E PAYMENT TO WRITE OFF OF BAD DEBTS AS MUCH AS HE SELECTS U/S 36(I)(VII) READ WITH SECTION 36(II) AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. THE AO SHOULD MAKE A WATCH OF THESE FIGURES IN SUBSEQUENT YEARS TO KNOW BUSINESS ACTIVITIES OF THE APPELLANT AND TAX IT PROPERLY IN DUE COURSE. HENCE, THIS ADDITION OF RS.19,01,217/- IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 21. FOR THE SAKE OF REPETITION, IT IS REITERATED TH AT THE ASSESSEE NEEDS NOT TO BRING ON RECORD ANY MATERIAL OR EVIDEN CE TO WRITE OFF ITA NO.6536/DEL./2013 CO NO.212/DEL/2014 14 ANY AMOUNT OF BAD DEBT AS IRRECOVERABLE TO PROVE TH E FACT THAT THE DEBT HAS ACTUALLY BECOME BAD. WHEN THE AO HAS NOT DISPUTED THE BOOKS OF ACCOUNT AND THE ASSESSEE HAS DULY RECORDED THE WRITTEN OFF AMOUNT OF DEBT OF RS.19,01,217/- IN THE PROFIT & LO SS ACCOUNT AND AFTER COMPLYING WITH THE CONDITIONS CONTAINED U/S 3 6(1)(VII) READ WITH SECTION 36(2), THE ADDITION MADE BY THE AO HAS BEEN RIGHTLY DELETED BY THE LD. CIT (A). SO, THIS GROUND IS ALS O DETERMINED AGAINST THE REVENUE. 22. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, APPEA RING BEARING ITA NO.6536/DEL/2013 FILED BY THE REVENUE IS HEREBY DISMISSED AND CROSS OBJECTIONS FILED BY THE ASSESSEE ARE HERE BY ALLOWED AND DISALLOWANCE OF RS.5,00,000/- MADE BY THE LD. CIT ( A) IS NOT SUSTAINABLE. ORDER PRONOUNCED IN OPEN COURT ON THIS 12 TH DAY OF JULY, 2016. SD/- SD/- (N.K. SAINI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 12 TH DAY OF JULY, 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-VIII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.