SUMEREU LABELS P. LTD, MUMBAI V. DCIT CIR 7(2), MUMBAI

ITA 6647/MUM/2009

• Counselvise Citation: 664719914 RSA 2009
• Duration Of Justice: 1 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 07-07-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 31-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T T JACOB
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.6647/MUM/2009 (ASSESSMENT YEAR: 2005-06) M/S. SUMERU LABELS PRIVATE LTD. 228/A-2, SHAH NAHAR INDL. ESTATE, DHANRAJ MILLS COMPOUND, LOWER PAREL, MUMBAI-400 013 PAN NO: AAACS 0777 R VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-7(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NITESH JOSHI RESPONDENT BY : SHRI T. T. JACOB DATE OF HEARING : 07.07.2011 DATE OF PRONOUNCEMENT : 26 .08.2011 ORDER PER R. S. PADVEKAR, J.M.: IN THIS APPEAL THE ASSESSEE HAS CHALLENGED THE IMP UGNED ORDER OF THE LD. CIT (APPEALS)VII, MUMBAI DATED 27.08.2009 FOR THE ASSESSMENT YEAR 2005-06. THE FIRST ISSUE IS IN RESPECT OF DISALLOWA NCE OF THE CLAIM OF BAD DEBTS OF ` 35,95,900/-. THE FACTS PERTAINING TO THE ISSUE ARE AS UNDER:- 2. THE ASSESSEE IS A MANUFACTURER OF WOVEN LABELS A ND EXPORTER OF READYMADE GARMENTS. THE ASSESSEE HAS CLAIMED THE BA D DEBTS OF ` 35,95,900/-, THE DETAILS OF WHICH ARE GIVEN BY THE AO IN THE ASSESSMENT ORDER AT PAGE 2 WHICH ARE AS UNDER :- ITA NO.6647/MUM/2009 M/S. SUMERU LABELS PRIVATE LTD. 2 SR. NO. NAME OF THE PARTY AMOUNT 1 AVIRAL TEXTILES PRINTERS PVT. LTD. 331,KEWAL INDUSTRIAL ESTATE, LOWER PAREL, MUMBAI-400 013 1,40,591 2 AAGAM DESIGN BROD PVT. LTD. 331,KEWAL INDUSTRIAL ESTATE, LOWER PAREL, MUMBAI-400 013 31,438 3 WEST COAST IND. EXPORTS PVT. LTD. 331,KEWAL INDUSTRIAL ESTATE, LOWER PAREL, MUMBAI-400 013 1,26,209 4 SARVANGI INTERNATIONAL 331,KEWAL INDUSTRIAL ESTATE, LOWER PAREL, MUMBAI-400 013 6,544 5 WEST COAST INDUSTRIES 331,KEWAL INDUSTRIAL ESTATE, LOWER PAREL, MUMBAI-400 013 27,00,438 6 WEST COAST INDUSTRIES 331,KEWAL INDUSTRIAL ESTATE, LOWER PAREL, MUMBAI-400 013 5,57,007 7 JAKOB MULLER AG FRICK BASEL, SWITZERLAND 31,490 8 OTHER MISC. PARTIES 2,183 TOTAL.. 35,95,900 3. IT WAS NOTICED BY THE AO THAT ALL THE ABOVE PART IES WERE OPERATING FROM THE SAME ADDRESS AND HENCE, HE SOUGHT THE REPLY OF THE ASSESSEE HOW THE SAID DEBTS ARE CONSIDERED AS BAD DEBTS. THE ASSESSEE FIL ED THE REPLY STATING THAT DURING THE PREVIOUS YEARS I.E. A.YS. 2002-03 AND 20 03-04 CERTAIN GOODS WERE SUPPLIED TO THE PARTIES. HOWEVER GOODS SENT TO THEM WERE NOT UP TO THEIR EXPECTATION AND THERE WAS DISPUTE ON QUALITY AND DE LIVERY OF THE LABELS GIVING BEYOND TIME SCHEDULE AND HENCE, THE ABOVE PARTIES D ECLINED TO MAKE THE PAYMENTS. THE ASSESSEE TRIED TO PURSUE THE MATTER FOR ONE YEAR WITH THE ITA NO.6647/MUM/2009 M/S. SUMERU LABELS PRIVATE LTD. 3 ABOVE PARTIES BUT THE ABOVE PARTIES REFUSED TO MAKE PAYMENTS. AS THERE WAS NO POSSIBILITY OF RECOVERY HENCE THE SAID AMOUNTS W ERE WRITTEN OFF IN THE BOOKS OF ACCOUNTS AND CLAIMED AS BAD DEBTS. THE A.O . WAS NOT IMPRESSED WITH THE EXPLANATION OF THE ASSESSEE. HE ASKED THE ASSESSEE TO PRODUCE THE DETAILS OF THE PARTIES IN THE YEAR IN WHICH THE SAI D DEBTS AROSE ALONG WITH THE EVIDENCE OF SALES MADE TO THOSE PARTIES AND CORRESP ONDENCE, IF ANY, WITH SUPPORTING DOCUMENTARY EVIDENCE TO SHOW THAT THE DE BTS ARE BECOME BAD. AS NOTED BY THE AO, THE ASSESSEE DID NOT PRODUCE THE D ETAILS. THE AO, THEREFORE, CAME TO THE CONCLUSION THAT THE CLAIM OF THE BAD DE BTS COULD NOT BE ALLOWED AND HE ACCORDINGLY DISALLOWED THE SAME AND MADE AN ADDITION TO THE TOTAL INCOME OF THE ASSESSEE. 4. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. C IT (A) BUT WITHOUT SUCCESS. THE LD. CIT (A) CONFIRMED THE ADDITION. 5. THE ASSESSEE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . THE LD. COUNSEL SUBMITS THAT THE DEBTS ARE RELATING TO THE BONA FIDE TRANSACTIONS AND ONCE THE DEBTS ARE WRITTEN OFF IN THE BOOKS OF ACCOUNTS IT I S SUFFICIENT TO CLAIM THE SAME AS BAD DEBTS. HE ARGUES THAT A.O. HAS NO FURTHER A UTHORITY TO ASK THE ASSESSEE TO PROVE HOW THE DEBTS HAVE BECOME BAD. WE HAVE ALSO HEARD THE LD. DR. 7. ADMITTEDLY, AS PER THE FACTS ON RECORD, THE AD DRESSES OF ALL THE PARTIES ARE THE SAME. THE AO ASKED FOR CERTAIN DETAILS IN RESPECT OF THE TRANSACTIONS OUT OF WHICH THE SAID BAD DEBTS ARE CLAIMED, BUT NO DETAILS WERE FILED. NOW IT IS WELL SETTLED LAW BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. 323 ITR 397 (SC) THAT ONCE THE DEBT IS WRI TTEN OFF IN THE BOOKS OF ACCOUNTS IT IS SUFFICIENT TO CLAIM THE SAME AS THE DEDUCTION. AT THE SAME TIME, WE FIND THAT ASSESSEE HAS TO MAKE COMPLIANCE OF THE CONDITIONS AS PER SUB- ITA NO.6647/MUM/2009 M/S. SUMERU LABELS PRIVATE LTD. 4 SEC. (2) OF SEC. 36 OF THE ACT. THOUGH THE AO HAS A SKED TO FILE THE DETAILS OF THE TRANSACTIONS BUT THE ASSESSEE DID NOT FILE THE SAME . WE, THEREFORE, CONSIDER IT FIT TO RESTORE THE MATTER TO THE FILE OF AO FOR VER IFICATION OF TRANSACTION, WHETHER THOSE ARE GENUINE TRANSACTIONS WHICH ARE CL AIMED AS BAD DEBTS AND WHETHER THE ASSESSEE HAS DECLARED THE INCOME/ SALES IN THE YEARS 2002-03 AND 2003-04 IN ITS TOTAL TURNOVER. THE ASSESSEE IS DIRECTED TO PRODUCE THE BOOKS OF ACCOUNT FOR THE ABOVE YEARS BEFORE THE A.O . AND TO PROVE THE SALES AS A GENUINE ONE TO COMPLY WITH THE CONDITION OF SECTI ON 36(2). ACCORDINGLY, THE ORDER OF THE LD. CIT (A) IS SET ASIDE ON THIS ISSUE AND GROUND NO.1 IS ALLOWED FOR THE STATISTICAL PURPOSES. 8. THE NEXT ISSUE IS DISALLOWANCE MADE BY THE AO TO WARDS CONTRIBUTION TO PROVIDENT FUND & E.S.I.C OF `. 52,142/- AND `. 16,065/- RESPECTIVELY. 9. WE HAVE HEARD THE PARTIES. NOW THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD. [2009] 319 ITR 306 AS WELL AS BY THE DECISION OF THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. AIMIL LTD. AND OTHERS 321 ITR 508. WE FIND THAT AS PER THE DETAILS GIVEN IN T HE ASSESSMENT ORDER SOME PAYMENTS ARE MADE WITHIN THE GRACE PERIOD I.E. FOR THE MONTHS OF APRIL, MAY AND AUGUST ETC. IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ALOM EXTRUSIONS LTD. (SUPRA) IF THE ASSESSEE MAK ES THE PAYMENT BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME THEN THE DEDUCTION CANNOT BE REFUSED INVOKING SECTION 43B. WE, THEREFORE, DIRECT THE A.O. TO ALLOW THE DEDUCTIONS IN RESPECT OF THE PROVIDENT FUND AND E.S .I.C CONTRIBUTIONS PAID BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME. ACCORDINGLY GROUND NO.2 IS ALLOWED. ITA NO.6647/MUM/2009 M/S. SUMERU LABELS PRIVATE LTD. 5 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED ON THIS 26 TH DAY OF AUGUST, 2011. SD/- SD/- ( P.M. JAGTAP ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 26 TH AUGUST, 2011 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. CITY-III, MUMBAI 4. CIT (A)-XVII, MUMBAI. 5. THE DR, H- BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI