Devendra Exports Pvt. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 849/CHNY/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86301 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 02-02-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 03-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Bad and doubtful debts
• Section: 145

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' $ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NOS. 849 & 850/MDS/2013 ( / ASSESSMENT YEARS:2004-05 & 2008-09) M/S. DEVENDRA EXPORTS PVT.LTD. 35/B-2, SECOND MAIN ROAD, AMBATTUR INDUSTRIAL ESTATE, CHENNAI-58. VS ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(4), 121, M.G.ROAD, CHENNAI-34. PAN: AAACD1193N ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. R.VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : MR. S. DAS GUPTA, JCIT /DATE OF HEARING : 2 ND FEBRUARY, 2015 /DATE OF PRONOUNCEMENT : 20 TH FEBRUARY, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINS T THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEA LS)-IX, CHENNAI DATED 22.02.2013 FOR THE ASSESSMENT YEARS 2004- 05 AND 2008-09. SINCE THE ISSUES INVOLVED IN THESE APPEALS ARE COMMON, THEY ARE HEARD TOGETHER AND DISPOSED OF F BY THIS COMMON ORDER. 2. THE FIRST ISSUE IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05 IS THAT COMMISSIONER OF INC OME 2 ITA NOS.849 & 850/MDS/2013 TAX (APPEALS) FAILED TO APPRECIATE THAT LIABILITY I S A REAL LIABILITY BUT IT IS DISPUTED FOR QUANTUM BY THE ASSESSEE AND HENCE CANNOT BE TREATED AS CONTINGENT LIABILITY TO BE DIS ALLOWED. 3. BRIEF FACTS ARE THAT ASSESSING OFFICER WHILE COM PLETING THE ASSESSMENT DISALLOWED ` 9,14,750/- REPRESENTING ELECTRICITY CHARGES PAYABLE BY THE ASSESSEE ON THE GROUND THAT ASSESSEE IS CONTESTING THE DEMAND RAISED BY TH E ELECTRICITY BOARD AND THEREFORE THE LIABILITY IS YE T TO BE CRYSTALLIZED. THE ASSESSING OFFICER HELD THAT THE L IABILITY IS UNCERTAIN AND CONTINGENT LIABILITY TILL THE EXACT L IABILITY IS QUANTIFIED BY THE BOARD. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) AFFIRMED THE ORDER OF THE ASSESSING O FFICER ACCEPTING THE CONTENTION OF THE ASSESSING OFFICER T HAT THIS EXPENDITURE IS ONLY A CONTINGENT LIABILITY. 4. COUNSEL FOR THE ASSESSEE SUBMITS THAT INCURRING OF LIABILITY IS CERTAIN BUT ONLY THE QUANTUM IS DISPUT ED BY THE ASSESSEE. COUNSEL FOR THE ASSESSEE SUBMITS THAT LI ABILITY IS NOT A CONTINGENT LIABILITY BUT IT IS AN ASCERTAINE D LIABILITY ONLY. COUNSEL FURTHER REFERS TO THE NOTIFICATION ISSUED B Y THE CENTRAL GOVERNMENT UNDER SECTION 145(2) OF THE ACT AND SU BMITS 3 ITA NOS.849 & 850/MDS/2013 THAT ALL ASSESSEES SHOULD FOLLOW ACCOUNTING POLICIE S FOR THE PURPOSE OF SECTION 145(2) OF THE ACT AND TO FOLLOW ACCOUNTING STANDARDS REFERRED TO THEREIN. REFERRING TO PRUDENC E UNDER SUB-CLAUSE (4) OF THE SAID NOTIFICATION, HE SUBMITS THAT PROVISION SHOULD BE MADE FOR ALL KNOWN LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT CANNOT BE DETERMINED WITH C ERTAINTY AND REPRESENTS ONLY A BEST ESTIMATE IN THE LIGHT OF AVAILABLE INFORMATION. THEREFORE, IN VIEW OF THE NOTIFICATIO N HE SUBMITS THAT SINCE IT IS ONLY QUANTIFICATION IS DISPUTED T HE EXPENDITURE HAS TO BE ALLOWED. 5. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDERS OF LOWER AUTHORITIES IN DISALLOWING ELECTRICITY CHARGE S TREATING IT AS CONTINGENT LIABILITY. 6. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES. WE HAVE ALSO GONE THROUGH THE NOTIFICATION NO. S.O 69(E) DATED 25 TH JANUARY, 1996 ISSUED BY CENTRAL GOVERNMENT. THIS NOTIFICATION IS ISSUED IN EXERCISE OF POWERS CONFER RED BY SUB- SECTION (2) OF SECTION 145 OF THE INCOME TAX ACT B Y THE CENTRAL GOVERNMENT NOTIFYING THE ACCOUNTING STANDAR DS TO BE FOLLOWED BY ALL ASSESSEES FOLLOWING MERCANTILE SYST EM OF ACCOUNTING. SUB-CLAUSE (4) OF THE SAID NOTIFICATION IN RESPECT 4 ITA NOS.849 & 850/MDS/2013 OF ACCOUNTING STANDARD 1 RELATING TO DISCLOSURE OF ACCOUNTING POLICIES READS AS UNDER:- (4) ACCOUNTING POLICIES ADOPTED BY AN ASSESSEE SHOULD BE SUCH SO AS TO REPRESENT A TRUE AND FAIR VIEW OF THE STATE OF AFFAIRS OF THE BUSINESS, PROFESSION OR VOCATION IN THE FINANCIAL STATEMENTS PREPARED AND PRESENTED ON THE BASIS OF SUCH ACCOUNTING POLICIES. FOR THIS PURPOSE, THE MAJOR CONSIDERATIONS GOVERNING THE SELECTION AND APPLICATION OF ACCOUNTING POLICIES ARE THE FOLLOWING, NAMELY:- I) PRUDENCE:- PROVISIONS SHOULD BE MADE FOR ALL KNOWN LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT CANNOT BE DETERMINED WITH CERTAINTY AND REPRESENTS ONLY A BEST ESTIMATE IN THE LIGHT OF AVAILABLE INFORMATION. 7. AS COULD BE SEEN FROM THE ABOVE, PROVISION SHOUL D BE MADE FOR ALL KNOWN LIABILITIES AND LOSSES EVEN THO UGH THE AMOUNT CANNOT BE DETERMINED WITH CERTAINTY. IN THIS CASE, THE ASSESSEE IS NOT DISPUTING THE LIABILITY AT ALL. THE ASSESSEE IS DISPUTING ONLY QUANTIFICATION OF DEMAND RAISED BY T HE ELECTRICITY BOARD. THEREFORE, IN OUR VIEW INCURRING OF LIABILITY IS CERTAIN AND IT IS NOT CONTINGENT. ONLY QUANTIFICATI ON IS TO BE MADE AS TO HOW MUCH EXPENDITURE TO BE INCURRED ON ELECTRICITY CHARGES. IN THE CIRCUMSTANCES, WE HOLD THAT EXPENDITURE IS ALLOWABLE EXPENDITURE. THE GROUNDS RAISED BY 5 ITA NOS.849 & 850/MDS/2013 THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05 ON TH IS ISSUE ARE ALLOWED. 8. THE NEXT COMMON ISSUE IN THE APPEALS OF THE ASS ESSEE FOR BOTH THE ASSESSMENT YEARS 2004-05 AND 2008-09 IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT CONSIDERING REIMBURSEMENT OF EXPENSES AS ITEM WHERE PROVISION OF TAX DEDUCTED AT SOURCE DOES NOT APPLY. 9. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENTS DISALLOWED ` 7,21,160/- AND ` 11,36,452/- FOR THE ASSESSMENT YEARS 2004-05 AND 2008-09 RESPECTIVE LY REPRESENTING THE AMOUNTS PAID BY THE ASSESSEE TO M. /S. BBEEKEYAR FREIGHT FORWARDERS ENGAGED IN FREIGHT TRANSPORTATION ON THE GROUND THAT ASSESSEE HAS NOT DEDUCTED TDS AND THUS INVOKED THE PROVISIONS OF SECTION 40( A)(IA) OF THE ACT . IT WAS THE CONTENTION OF THE ASSESSEE TH AT THESE EXPENSES ARE ONLY REIMBURSEMENT AND THEREFORE PROVI SIONS OF TDS ARE NOT APPLICABLE. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE DISALLOWANCE. NO W THE ASSESSEE IS IN APPEAL BEFORE US FOR BOTH ASSESSMENT YEARS. 6 ITA NOS.849 & 850/MDS/2013 10. COUNSEL FOR THE ASSESSEE SUBMITS THAT ALL THESE EXPENSES WERE REIMBURSEMENT AND THEREFORE, PROVISI ONS OF SECTION 40(A)(IA) HAVE NO APPLICATION. HE PLACES R ELIANCE ON THE DECISION OF JAIPUR BENCH OF THIS TRIBUNAL IN TH E CASE ACIT VS. SEAWARD EXPORTS P.LTD., 17 ITR (TRIB) 353 (JAIP UR). IN THE ALTERNATIVE, COUNSEL FOR THE ASSESSEE SUBMITS T HAT ALL THESE EXPENSES WERE ALL PAID WITHIN THE ACCOUNTING YEAR AND THEREFORE, FOLLOWING THE DECISION OF THE HONBLE AL LAHABAD HIGH COURT IN THE CASE OF CIT VS. M/S. VECTOR SHIP PING SERVICES PVT. LTD., DATED 9.7.2013 IN ITA NO.122 OF 2013, NO DISALLOWANCE IS WARRANTED. 11. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDERS OF LOWER AUTHORITIES. 12. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES AND THE DECISION RELIED ON. ON GOING THROUGH THE ASSESSMENT ORDER AND THE APPELLATE ORDER, WE FIND THAT THERE IS NO CATEGORICAL FINDING THAT EXPENSES WERE ALL ON LY REIMBURSEMENTS MADE BY THE ASSESSEE. NO SUCH CATEGO RICAL FINDING IS COMING OUT FROM THE ORDERS OF LOWER AUT HORITIES. THE ALTERNATIVE SUBMISSION OF THE ASSESSEE THAT PRO VISIONS OF SECTION 40(A)(IA) HAVE NO APPLICATION FOR THE PAY MENTS MADE 7 ITA NOS.849 & 850/MDS/2013 WITHIN THE ACCOUNTING YEAR IN VIEW OF THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS . VECTOR SHIPPING SERVICES PVT. LTD. (SUPRA) IS ACCEPTED, A S THIS TRIBUNAL IS CONSISTENTLY HOLDING SUCH VIEW. THEREFO RE, FOR LIMITED PURPOSE OF EXAMINING AS TO WHETHER ALL THES E PAYMENTS WERE MADE WITHIN THE ACCOUNTING YEAR, THIS ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL EXAMINE THE DETAILS OF PAYM ENTS AND IN CASE ALL THESE PAYMENTS WERE MADE WITHIN THE ACC OUNTING YEAR, SUCH PAYMENTS CANNOT BE DISALLOWED UNDER SECT ION 40(A)(IA) OF THE ACT. THE ASSESSING OFFICER SHALL C ARRY OUT THE DIRECTIONS ACCORDINGLY, AFTER GIVING ADEQUATE OPPOR TUNITY TO THE ASSESSEE. 13. THE NEXT ISSUE IN THE APPEAL OF THE ASSESSEE FO R THE ASSESSMENT YEAR 2008-09 IS THAT COMMISSIONER OF INC OME TAX (APPEALS) IS NOT JUSTIFIED IN SUSTAINING THE OR DER OF THE ASSESSING OFFICER IN DISALLOWING THE BAD DEBTS WRIT TEN OFF. 14. BRIEF FACTS ARE THAT ASSESSING OFFICER WHILE CO MPLETING THE ASSESSMENT DISALLOWED ` 1,87,940/- WHICH WAS DEBITED UNDER THE HEAD BAD DEBTS STATING THAT OUT OF ` 1,87,940/- AN AMOUNT OF ` 18,440/- REPRESENTS DEBTS DUE FROM MINISTRY OF 8 ITA NOS.849 & 850/MDS/2013 DEFENCE AND THE REMAINING AMOUNT OF ` 1,69,500/- IS LOSS ON ACCOUNT OF IRRECOVERABLE ADVANCES WHICH WAS MADE FO R DEVELOPMENT OF MOULDS AND THIS IS CAPITAL LOSS. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 15. COUNSEL FOR THE ASSESSEE SUBMITS THAT BAD DEBTS WRITTEN OFF OF ` 18,440/- HAS TO BE ALLOWED AS DEDUCTION AS THE SAID AMOUNT WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F TRF LIMITED VS. CIT REPORTED IN 323 ITR 397(SC). COUNSE L SUBMITS THAT AFTER AMENDMENT A SIMPLE WRITE OFF IN THE BOOKS OF ACCOUNT IS SUFFICIENT FOR CLAIMING BAD DEBTS AN D THE DEBT NEED NOT BE PROVED AS BAD. 16. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDERS OF LOWER AUTHORITIES. 17. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES AND THE DECISION RELIED ON. FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPR A), WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOW ANCE OF BAD 9 ITA NOS.849 & 850/MDS/2013 DEBTS OF ` 18,440/- WHICH WAS WRITTEN OFF BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. 18. BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, THE 20 TH DAY OF FEBRUARY, 2015 AT CHENNAI. SD/- SD/- ( . ) ( ( *+ ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) - / ACCOUNTANT MEMBER * - / JUDICIAL MEMBER * /CHENNAI, / /DATED 20 TH FEBRUARY, 2015 SOMU 12 32 / COPY TO: 1. APPELLANT 2. RESPONDENT 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .