NANDGOPAL BANG, MUMBAI V. ITO WD 14(1)(4), MUMBAI

ITA 6652/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88583 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 16-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V K BORD
• Keywords: Bad and doubtful debts

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI , BEFORE SHRI D. MANMOHAN, VICE PRESIDENT (M.Z.) AN D SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.6652/MUM/2010 (A.Y.2007-08) SHRI NANDGOPAL BANG (PROP.) M/S. ADITHYA IMPEX) 58, BHULESHWAR ROAD MUMBAI-400 002. GIR NO./PAN : AAVPB 9854 E (APPELLANT ) VS. INCOME TAX OFFICER , WARD 14(1)(4) ROOM NO.203, 2 ND FLOOR EARNEST HOUSE, NARIMAN POINT MUMBAI- 400 020. (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SHRI V.K. BORD DATE OF HEARING : 03 /0 3 /2015 DATE OF PRONOUNCEMENT : 03 /0 3 /2015 ORDER PER CHANDRA POOJARI, A.M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) DATED 25/6/2010 FOR THE ASSESSMENT YEAR 2007-08. 2. NONE APPEARED FOR THE ASSESSEE. WE HAVE HEARD TH E LD. DR. 3. THE GROUND IN THIS APPEAL IS WITH REGARD TO ADDI TION OF RS.6,28,093/- AS BAD DEBTS MADE BY THE AO AND SUSTAINED BY CIT(A) . 3.1 FACTS OF THE CASE ARE THAT DURING THE ASSESSMEN T PROCEEDINGS THE AO ASKED THE ASSESSEE TO PROVIDE DETAILS OF BAD DEBTS WRITTEN OFF ALONG WITH 2 ITA NO.6652/M UM/10 LEDGER COPIES OF RESPECTIVE PARTIES. THE DETAILS AS KED FOR WERE SUBMITTED WITH LEDGER COPIES. FROM THE DETAILS PROVIDED FOR B AD DEBTS WRITTEN OFF AMOUNTING TO RS.9,71,479/-, THE AO DISALLOWED BAD D EBTS OF RS.6,28,093/- BEING DEBT TAKEN INTO ACCOUNT IN COMPUTING THE INCO ME OF THE ASSESSEE IN SAME FINANCIAL YEAR IN WHICH SUCH DEBT WAS WRITTEN OFF. THE DETAILS OF PARTIES IN RESPECT OF WHICH DISALLOWANCE HAD BEEN M ADE ARE AS UNDER :- S.NO. NAME OF PARTY AMOUNT(RS.) LEDGER COPIES ATTACHED 1. GAMMI ENTERPRISES 9,000 PAGE NO.1 OF ENCLOSURE 2. MANNAN FABRICS 43,448 PAGE NO.2 OF ENCLOSURE 3. SHREE ANIRUDH ENTERPRISES 56,092 PAGE NO.3 OF ENCLOSURE 4. POONAM ENTERPRISES 5,18,554 PAGE NO.4 OF ENCLOSURE 3.2 FROM THE ABOVE MENTIONED PARTIES THE AO ASKED C OPY OF INVOICES RAISED IN THE CASES AS PER SL.NO.1 AND 2 AND THE ASSESSEE SUBMITTED THE REQUIRED COPIES OF INVOICES ALONG WITH REASONS FOR WRITING OFF THE BAD DEBTS. THE ASSESSEE ALSO SUBMITTED PARTY-WISE REASONS FOR WRITING OFF BAD DEBTS AND ALSO CLAIMED THAT REQUIREMENT OF SECTION 36(2) THAT BAD DEBTS SHOULD BE TAKEN INTO ACCOUNT FOR COMPUTING THE INCOME OF T HE ASSESSEE IN THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBTS IS WRITTEN OFF OR THE INCOME OF SUCH DEBT SHOULD HAVE BEEN OFFERED IN ANY EARLIER YEAR. HENCE, THE REQUIREMENT IS SATISFIED. THE AO WAS NOT SATISF IED WITH THE EXPLANATION PROVIDED BY THE ASSESSEE AND DISALLOWED RS.6,28,093 /. AS PER THE AMENDED PROVISIONS OF SECTION 36(1)(VII) AND 36(2) OF THE INCOME TAX ACT THE ASSESSEE IS NOT REQUIRED TO ESTABLISH THE BAD DEBT HAVING BECOME IRRECOVERABLE BUT IT REQUIRES ONLY TO BE WRITTEN OF F IN THE ACCOUNTS, WHICH 3 ITA NO.6652/M UM/10 THE ASSESSEE HAD ALREADY DONE. THE ASSESSEE HAD PRO DUCED ALL THE LEDGER COPIES AS WELL AS INVOICES AS PROOF FOR OFFERING TH E INCOME IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE ON THE B ASIS OF COMMERCIAL BUSINESS DECISION TAKEN BY IT THOUGHT IT BEST AND F IT TO WRITE OFF THE BAD DEBT IN ITS BOOKS AS THE ASSESSEE WAS NOT LIABLE TO DISCHARGE ANY FURTHER LIABILITY. RELIANCE WAS PLACED ON THE DECISION IN T HE CASE OF CIT VS. RAJENDRA Y. SHAH, OMAN INTL. BANK AND CBDT CIR. NO. 551 DATED 23.1.1990 AND CIT VS. STAR CHEMICALS BOMBAY PVT. LTD. (313 IT R 126). 4. ON APPEAL, CIT(A) OBSERVED THAT THE AO HAD DISC USSED THIS ISSUE VIDE PARA 5 OF HIS ORDER BY STATING THAT OUT OF THE BAD DEBTS CLAIM WRITTEN OFF AMOUNTING TO RS.9,71,479/-, THE BAD DEBTS IN RE SPECT OF FOUR PARTIES AMOUNTING TO RS.6,28,093/- WERE THE DEBTS INCURRED DURING THE FINANCIAL YEAR ONLY AND CLAIMED AS BAD DEBT AND WRITTEN OFF. SINCE THE AO FOUND THAT THE ASSESSEE HAS NOT MADE ANY ATTEMPT FOR RECOVERY AND ALSO NOT MADE ANY HONEST JUDGMENT TO WRITE OFF THE DEBT, THE CLAI M OF BAD DEBT RELYING UPON VARIOUS DECISIONS OF THE HON'BLE COURTS WERE D ISALLOWED. IN THE ABOVE SUBMISSION THE ASSESSEE CONTENDED THAT WITH THE AME NDED PROVISIONS THE ASSESSEE WAS NOT TO ESTABLISH THE DEBTS HAVING BECO ME BAD AND ANY ATTEMPT FOR RECOVERY MADE. WHAT WAS REQUIRED NOW W AS THAT THE AMOUNT BE BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS, WHICH THE ASSESSEE HAD DONE. BUT THIS CONTENTION OF THE ASSESSEE WAS HAVI NG NO FORCE IN VIEW OF THE FACT THAT FROM LEDGER ACCOUNTS OF THE FOUR DE BTORS IT WAS EVIDENT THAT THE SAME WERE PERTAINING TO THE SALES MADE DURING T HE CURRENT FINANCIAL YEAR ONLY AND IN THE CASE OF THE DEBTOR NAMELY POON AM ENTERPRISES THE ASSESSEE HAD ADMITTED TO HAVE RECEIVED PAYMENT BY C HEQUES TILL THE MONTH 4 ITA NO.6652/M UM/10 OF OCTOBER 2007, I.E. EVEN DURING THE SUBSEQUENT FI NANCIAL YEAR. THIS BEING AN ADMITTED FACT, AS ON THE CLOSE OF THE FY ENDING MARCH 2007, THE DEBT, RELATING TO THIS PARTY WAS NOT AT ALL WRITTEN OFF I N THE ASSESSEES BOOKS OF ACCOUNT. ON THE CONTRARY, THE DEBT WAS BEING CARRIE D OVER IN THE SUBSEQUENT FY TILL OCTOBER 2007. THEREFORE, SUBSEQU ENT WRITING OFF OF THIS DEBT IN A SUBSEQUENT FINANCIAL YEAR DOES NOT JUSTIF Y THE CLAIM OF WRITE OFF DURING THE YEAR UNDER APPEAL. THEREFORE, THE DEBTS CLAIMED TO BE WRITTEN OFF ARE NOT FOUND TO HAVE BECOME BAD DURING THE YEA R UNDER APPEAL, HENCE, ARE NOT ELIGIBLE FOR DEDUCTION U/S. 36(1)(VI I) AND SECTION 36(2) OF THE I.T. ACT. IN VIEW OF THESE ADMITTED FACTS THE JUDIC IAL DECISIONS RELIED UPON IN THE SUBMISSIONS BY THE ASSESSEE ARE ALSO NOT APPLIC ABLE TO THE FACTS OF THE ASSESSEES CASE. THEREFORE, THE CLAIM OF THE ASSESS EE WAS LIABLE TO BE REJECTED. UNDER SUCH CIRCUMSTANCES AND ON THE ADMIT TED FACTS OF HAVING CARRIED OVER THE DEBTS IN THE SUBSEQUENT FINANCIAL YEAR AND MAKING AN ATTEMPT OF WRITING OFF THESE DEBTS BY RESORTING TO PASS BACK DATED ENTRIES IN THE ACCOUNTS COULD NOT BE HELD TO HAVE PROPERLY WRITTEN OFF IN THE BOOKS OF ACCOUNTS. THEREFORE, THE CIT(A) COULD NOT FIND A NY INFIRMITY IN THE ACTION OF THE AO IN MAKING DISALLOWANCE OF THE CLAIM OF BA D DEBT WRITTEN OFF AMOUNTING TO RS.6,28,093/-. THE ACTION OF AO WAS, T HEREFORE, UPHELD BY CIT(A). AGAINST THIS, THE ASSESSEE IS IN APPEAL BEF ORE US. 5. WE HAVE HEARD THE LD. DR. AS SEEN FROM THE PROVI SIONS OF SECTION 36(1)(VII) OF THE I.T. ACT, SUBJECT TO PROVISIONS O F SECTION 36(2), THE AMOUNT OF ANY BAD DEBT OR PART THEREOF WHICH HAS BECOME BA D AND WRITTEN OFF IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IN THE PREVIOU S YEAR IS TO BE ALLOWED AS DEDUCTION. THE DEBT SHOULD BE IN RESPECT OF BUSI NESS WHICH WAS CARRIED 5 ITA NO.6652/M UM/10 ON BY THE ASSESSEE IN THE RELEVANT ACCOUNTING YEAR AND THE AMOUNT HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF T HE ASSESSEE IN THE ACCOUNTING YEAR FOR WHICH THE DEDUCTION IS CLAIMED. THE DISPUTE IS WITH REGARD TO THE FACT AS TO WHETHER THE DEBT WAS ACTUA LLY WRITTEN OFF AS BAD DEBT IN ASSESSEES BOOKS OF ACCOUNT. THE FINDINGS O F WHICH HAVE BEEN RECORDED BY THE CIT(A) IS THAT THE ASSESSEE HAS NOT WRITTEN OFF THE IMPUGNED DEBTS IN ITS BOOKS AS BAD DEBT. HOWEVER, O N PERUSAL OF THE ORDER OF THE AO IT WAS NOTED THAT THE ASSESSEE IS NOT ABL E TO EXPLAIN WHETHER THE DEBT WAS OFFERED AS INCOME FOR TAXATION DURING THE FINANCIAL YEAR 2006-07 RELEVANT TO ASSESSMENT YEAR 2007-08. THE FINDING OF THE CIT(A) WHICH HAS BEEN RECORDED ON THE BASIS OF THE SUBMISSION OF THE ASSESSEE IS CONTRARY TO THE ASSESSMENT ORDER. HENCE, IN OUR OPINION, AND IN THE INTEREST OF JUSTICE WE ARE INCLINED TO REMIT THE ISSUE TO THE FILE OF T HE AO FOR FRESH CONSIDERATION. 6. IN THE RESULT, ASSESSEES APPEAL IN ITA NO.6652/ MUM/10 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 03/03/2015 ! ' # $%& 03/03/2015 ' SD/- SD/- ( / D. MANMOHAN ) ( / CHANDRA POOJARI ) / VICE PRESIDENT / ACCOUNTANT MEMBER MUMBAI; $% DATED 03/03/2015 . % . ./JV, SR. PS 6 ITA NO.6652/M UM/10 ()* ()* ()* ()* +*!) +*!) +*!) +*!) / COPY OF THE ORDER FORWARDED TO : 1. ,- / THE APPELLANT 2. (.,- / THE RESPONDENT. 3. / ( ) / THE CIT(A)- 4. / / CIT 5. *0' ()% , , / DR, ITAT, MUMBAI 6. '12 3 / GUARD FILE. % % % % / BY ORDER, .*) () //TRUE COPY// 4 44 4 / 5 5 5 5 6 6 6 6 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI