The ITO, Ward-5(2), Ahmedabad V. Orient Fabritex Limited, Ahmedabad

ITA 802/AHD/2006

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89273 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 25-03-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 31-03-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: G C PIPARA
• Keywords: Bad and doubtful debts; Tax effect
• Section: 5(2)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD 00 , ! ' #$, % & BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER !./ ITA NO. 802/AHD/2006 % ) *)/ ASSESSMENT YEAR: 2002-2003 ITO, WARD - 5(2) AHMEDABAD. VS ORIENT FABRITEX LTD. OPP: JAIN TEMPLE GANDHI ROAD AHMEDABAD. +, / (APPELLANT) -. +, / (RESPONDENT) REVENUE BY : SHRI NIMESH YADAV, SR.DR ASSESSEE(S) BY : SHRI G.C. PIPARA / DATE OF HEARING : 25/03/2015 / DATE OF PRONOUNCEMENT: 10/04/2015 // O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER O F INCOME-TAX (APPEALS)-XI, AHMEDABAD DATED 24.1.2006. 2. THIS APPEAL WAS DISMISSED BY THE TRIBUNAL DUE TO LOW TAX EFFECT VIDE ORDER DATED 3.7.2009 IN ITA NO.802/AHD/2006 FO R THE ASSTT.YEAR 2002-03. THE REVENUE CARRIED THE MATTER BEFORE THE HONBLE GUJARAT HIGH COURT. THE HONBLE HIGH COURT VIDE ITS ORDER DATED 30.9.2013 PASSED IN TAX APPEAL NO.208 OF 2010 QUASHED AND SET ASIDE THE ORDER OF THE TRIBUNAL, AND REMANDED THE MATTER BACK TO IT S FILE TO DECIDE THE SAME ON MERITS AND ISSUE ARISING IN THE APPEAL. 3. THE SOLE GROUND OF APPEAL TAKEN BY THE REVENUE R EADS AS UNDER: ITA NO.802/AHD/2006 2 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS WHI LE DELETING THE DISALLOWANCE OF RS.34,64,718/- ON ACCOUNT OF BA D DEBTS. 4. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED BAD DEBTS OF RS.34,64,718/-. HE REQUIR ED THE ASSESSEE TO FILE ACCOUNT COPY OF EACH PARTY WITH DETAILS OF DEB ITS AND CREDITS, STEPS TAKEN FOR RECOVERY WITH PROOF, COMPLETE NAME AND PO STAL ADDRESS AND ALSO PAN OF EACH PARTY. THE ASSESSEE VIDE ITS LETT ER DATED 25.8.2004 SUBMITTED THAT IT WAS NOT IN TOUCH WITH THE DEBTORS AS THEY WERE VERY OLD. THE ASSESSEE SUBMITTED THAT THE COMPANY HAS C LOSED ITS BUSINESS SINCE OCTOBER, 1996 I.E. PRIOR TO ALMOST NINE YEARS . THE RELATION AND MUTUAL FAITH BETWEEN THE COMPANY AND ITS DEBTORS AN D CREDITORS DETERIORATED EACH DAY. THE COMPANY HAS WRITTEN OFF LIABILITIES NO LONGER REQUIRED TO BE PAID TO THE CREDITORS AMOUNTING TO R S.36,90,095/- AND HAS OFFERED THE SAME AS INCOME AS EVIDENT FROM SCHE DULE-8 FORMING PART OF BALANCE SHEET. SIMILARLY, THE ASSESSEE-COMP ANY HAS ALSO WRITTEN OFF BAD DEBTS AMOUNTING TO RS.34,64,718/- IN CASE O F DEBTS WHERE THE COMPANY HAS LOST HOPE OF ANY RECOVERY WHATSOEVER. THUS, IT CAN BE SEEN THAT THE COMPANY HAS OFFERED INCOME ON ACCOUNT OF WRITING OFF OF THE CREDITORS, THE SAID FIGURE BEING MORE THAN THE FIGURE OF BAD DEBTS WRITTEN OFF DURING THE YEAR UNDER CONSIDERATION, TH EREFORE, NO ADVERSE VIEW WAS WARRANTED, AND THE DEGREE OF EVIDENCE BEIN G THE SAME IN THE CASE OF BOTH THE DEBTORS AND CREDITORS. 5. THE AO OBSERVED THAT INCOME TAX ACT DOES NOT PRO VIDE ANY SCHEME FOR ADJUSTMENT OF INCOME GENERATED BY WAY OF WRITING OFF OF VERY OLD LIABILITIES AGAINST THE DEBTS OF AN ASSESS EE. THERE WAS NO EXPLANATION TO SECTION 36(1)(VII) OF THE ACT. THE C ONTENTION RAISED BY THE ASSESSEE WAS NOT ACCEPTABLE, AND WAS ALSO NOT I N ACCORDANCE WITH LAW. THE AO OBSERVED THAT VIDE ITS NOTICE DATED 1 0.2.2005, THE ASSESSEE WAS REQUIRED TO JUSTIFY THE BAD DEBT CLAIM IN THE LIGHT OF DECISION OF DELHI BENCH OF THE TRIBUNAL REPORTED IN 56 ITD 307 (BENCH- B) WHEREIN IT WAS CLARIFIED THAT EVEN AS PER AMENDE D PROVISION OF ITA NO.802/AHD/2006 3 SECTION 36(1)(VII) OF THE ACT W.E.F. 1.4.1989 THE A SSESSEE HAS TO ESTABLISH THAT THE DEBTS WERE BAD DEBTS. HE ALSO R ELIED ON THE DECISION OF MADRAS BENCH OF THE TRIBUNAL IN THE CASE OF BHAW ARLAL C. BAFNA VS. ACIT, (2004) 25 SITC 440 (MAD). HE ALSO OBSERVED T HAT THE AHMEDABAD BENCH OF THE TRIBUNAL HAD ALSO FOLLOWED T HE DECISION AND HELD THAT WRITING OFF IS TO BE OF A BAD DEBT AND NO T OF ANY DEBT WHICH IS NOT BAD, AND THEREFORE, HE DISALLOWED DEDUCTION OF RS.34,64,718/-. 6. ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE A SSESSEE. THE CIT(A) OBSERVED THAT THE ASSESSEE-COMPANY HAD WRITT EN OFF THE LIABILITIES TO EXTENT OF RS.36,91,095/- AND HAS CLA IMED BAD DEBTS OF RS.34,64,718/-. THUS, THE ASSESSEE HAS OFFERED INC OME ON ACCOUNT OF WRITING OFF OF THE CREDITORS, ON WHICH IT HAS PAID TAX, AND HAS CLAIMED RS.34,64,718/- AS BAD DEBTS AS IN SOME CASES, THE A SSESSEE HAS NO CHANCE OF RECOVERY. THE ASSESSEE HAS DULY COMPLIED WITH ALL THE CONDITIONS AS LAID DOWN IN SECTION 36(1)(VII) OF TH E ACT FOR CLAIMING SUCH BAD DEBTS. HE ALSO OBSERVED THAT THE SALES MADE B Y THE ASSESSEE IN THE EARLIER YEARS IN RESPECT OF WHICH THE ASSESSEE HAS CLAIMED BAD DEBTS HAVE DULY BEEN ACCEPTED AS GENUINE BY THE AO. HE OBSERVED THAT AS PER LAW, IT WAS NOT NECESSARY TO ESTABLISH THAT THE DEBT HAS REALLY BECOME BAD. HE PLACED RELIANCE ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CI VS. AHMEDABAD ELECTRIC ITY CO. LTD. 262 ITR 97 (GUJ). 7. BEFORE US, THE DR SUPPORTED THE ORDER OF THE AO, WHEREAS AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE ISSUE WAS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD. VS . CIT, 323 ITR 397 (SC) WHEREIN IT WAS HELD THAT AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE INCOME TAX ACT, W.E.F. 1.4.1989 I N ORDER TO OBTAIN DEDUCTION IN RELATION TO BAD DEBT, IT IS NOT NECESS ARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECO VERABLE, AND IT IS ITA NO.802/AHD/2006 4 ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERA BLE IN THE ACCOUNTS OF THE ASSESSEE. THE HONBLE SUPREME COURT ACCORDINGL Y REMANDED THE MATTER TO THE AO TO EXAMINE SOLELY TO THE EXTENT OF WRITTEN OFF, WHETHER THE DEBT OR PART THEREOF WAS WRITTEN OFF IN THE ACC OUNTS OF THE ASSESSEE. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE HAS DISCLOS ED WRITE OFF OF LIABILITIES NO LONGER REQUIRED OF RS.36,91,095/- AN D OFFERED THE SAME AS INCOME. SIMULTANEOUSLY, THE ASSESSEE CLAIMED WRITE OFF OF BAD DEBTS OF RS.34,64,718/- AND CLAIMED THE SAME AS DEDUCTION FR OM THE INCOME. THE AO THOUGH TAXED THE LIABILITY NO LONGER REQUIRE D WRITTEN OFF AS INCOME OF THE ASSESSEE, BUT DID NOT ALLOW DEDUCTION FOR BAD DEBTS CLAIMED BY THE ASSESSEE ON THE GROUND THAT THE ASSE SSEE FAILED TO SUBMIT THE DETAILS AND ALSO COULD NOT SHOW THAT THE DEBT HAD IN FACT BECOME BAD. THE AO WAS OF THE VIEW THAT EVEN AFTER THE AMENDMENT MADE IN SECTION 36(1)(VII) OF THE ACT AFTER 1.4.198 9, THE ASSESSEE WAS REQUIRED TO SHOW THAT THE DEBTS INFACT HAVE BECOME BAD. 9. ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE A SSESSEE ON THE GROUND THAT THE ASSESSEE HAD SHOWN INCOME BY WAY OF WRITING OFF OF THE LIABILITIES OF EARLIER YEARS OF RS.36,91,095/-, AND THEREBY THE ASSESSEE HAS SHOWN NET INCOME, AND THEREFORE, NO DISALLOWANC E WAS WARRANTED. HE FURTHER OBSERVED THAT THE HONBLE GUJARAT HIGH C OURT IN THE CASE OF AHMEDABAD ELECTRICITY COMPANY (SUPRA) HAS HELD THAT IT WAS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT HAD IN FACT BECOME BAD. 10. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFOR E US. 11. THE DR HAS SIMPLY RELIED ON THE ORDER OF THE AO . HE COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ORDER OF THE CI T(A). ITA NO.802/AHD/2006 5 12. WE FIND THAT ON THE ONE HAND, THE AO IS TAXING THE INCOME SHOWN BY THE ASSESSEE BY WAY OF LIABILITIES NO LONGER REQ UIRED WRITTEN OFF OF RS.36,91,095/-, BUT, ON THE OTHER HAND, THE AO WAS NOT ALLOWING DEDUCTION FOR BAD DEBTS OF RS.34,64,718/- CLAIMED B Y THE ASSESSEE. FURTHER, THE DR HAS NOT CONTROVERTED THE FINDINGS O F THE CIT(A) THAT BAD DEBT OF RS.34,64,718/- CLAIMED BY THE ASSESSEE WAS SHOWN AS SALES BY THE ASSESSEE IN THE EARLIER YEARS, WHICH WAS ACCEPT ED BY THE AO AS GENUINE. FURTHER, THE HONBLE SUPREME COURT IN THE CASE OF T.R.F.LTD. (SUPRA) HAS HELD THAT IT WAS NOT NECESSARY FOR THE ASSESSEE TO SHOW AFTER 1.4.1989 AS PER AMENDED SECTION 36(1)(VII) OF THE ACT THAT THE DEBTS HAVE IN FACT BECOME IRRECOVERABLE, BUT ONLY W RITING OFF OF THE SAME IN THE ACCOUNTS BY THE ASSESSEE WAS ENOUGH. I T IS NOT IN DISPUTE THAT THE ASSESSEE HAS WRITTEN OFF DEBTS OF RS.34,64 ,718/- AS BAD IN ITS BOOKS OF ACCOUNTS. IT HAS NOT BEEN DISPUTED THAT T HE DEBT WHICH HAS BEEN WRITTEN OFF BY THE ASSESSEE AROSE OUT OF SALES MADE ON CREDIT IN EARLIER YEARS AND THE SAME WAS SHOWN AS RECEIVABLE BY THE ASSESSEE IN LAST SEVERAL YEARS. THE SAME BALANCE WAS BROUGHT F ORWARDED FROM EARLIER SEVERAL YEARS AND NO RECOVERY THEREIN WAS M ADE IN LAST FEW YEARS. THE WRITE OFF OF THE DEBTS IN THE BOOKS OF ACCOUNTS BY THE ASSESSEE IS PRIMA FACIE EVIDENCE OF ITS BECOMING BAD. THE REVENUE COULD NOT BRING ANY MATERIAL ON RECORD TO SHOW THAT THE DEBT HAD NOT BECOME BAD OR ANY RECOVERY WAS MADE BY THE ASSESSEE . THEREFORE, WE FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A), WHICH IS HEREBY CONFIRMED AND THE GROUND OF APPEAL OF THE RE VENUE IS DISMISSED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 10 TH APRIL, 2015 AT AHMEDABAD. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 10 /04/2015