DCIT, Sonepat V. Shri Pala Ram, Sonepat

ITA 9/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52550 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 18-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 03-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA
• Keywords: Depreciation; Bad and doubtful debts
• Section: 37

Judgement Text

ITA NO. 9/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 9/DEL/2011 A.Y. : 2007-08 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE, SONEPAT VS. SH. PALA RAM, H.NO. 1776, SECTOR-23, SONEPAT (PAN/GIR NO. : ADFPR6579M) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. RAKESH GARG, CA DEPARTMENT BY : S MT. ANUSHA KHURANA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 22.10. 2010 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE FIRST ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE ADDITION OF ` 58,06,076/ - BECAUSE ACTUALLY THESE WERE NOT BAD DEBTS AS CLAIMED BY THE ASSESSE E BUT THIS AMOUNT REPRESENTS THE SHORT PAYMENT MADE BY THE PARTIES FO R VIOLATION OF TERMS AND CONDITIONS OF THE CONTRACT/AGREEMENT. 3. THE ASSESSING OFFICER IN THIS CASE NOTED THAT A SSESSEE HAD WRITTEN OFF A SUM OF ` 5806076/- AS BAD DEBT. ASSES SING OFFICER PROCEEDED TO DISALLOW THE CLAIM OF BAD DEBT BY HOLD ING THAT THE SAME WERE ACTUALLY NOT BAD DEBT. THERE WERE SHORT PAYME NT MADE BY THE ITA NO. 9/DEL/2011 2 PARTIES. ASSESSING OFFICER HELD THAT ASSESSEE HA S NOT SUBSTANTIATED ITS CLAIM OF EXPENSES WRITTEN OFF. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE ISSUE AND HELD AS UNDER:- I HAVE CONSIDERED THE ISSUE, THE ASSESSMENT ORDER, THE REMAND REPORT OF THE ASSESSING OFFICER AND THE SUBMISSIONS MADE BY THE A.R. IT IS NOT IN DISPUTE THAT ` 58,06,076/- WAS BO OKED AS SALES AND THEREFORE OFFERED AS INCOME IN THE EARLIER YEA RS. DUE TO VARIOUS REASONS LIKE SHORT SUPPLY OF MATERIAL, THEFT AT SITES, POOR QUALITY OF ERECTION BY CONTRACTORS, TECHNICAL DEFIC IENCY POINTED OUT BY THE CLIENTS ENGINEERS, DELAY IN START OF TOW ERS ETC. THE CLIENTS HAVE DEDUCTED CERTAIN AMOUNTS FROM THE BILL S SUBMITTED BY THE ASSESSEE. THE ASSESSING OFFICER HAS NOT D ISPUTED THAT THE ASSESSEE HAD NOT MADE ANY EFFORTS TO RECOVER TH E OUTSTANDING DUES. AFTER THE EFFORTS, THE ASSESSEE FELT THAT THE AMOUNT OF ` 58,06,076/- IS NOT RECOVERABLE (SMALL AMOU NTS PER BILL FROM 3 PARTIES) AND THEREFORE WROTE OFF IN THE BOOKS OF ACCOUNTS AS BAD DEBTS. FURTHER, THE ASSESSEE STATE D THAT IN CASE THE WRITTEN OFF AMOUNTS ARE RECEIVED IN FUTURE DATE S, THEY WILL BE OFFERED AS INCOME IN THAT YEAR. IN FACT, THE ASS ESSEE HAS OFFERED AN AMOUNT OF ` 25,17,743/-, WHICH HAS BEEN WRITTEN O FF EARLIER, AS INCOME IN THE CURRENT YEAR, AS THE AMOUNTS WERE RECE IVED. THE AMENDED SECTION 36(1)(VII) OF THE IT ACT SPECIFIES THAT ANY AMOUNT OF BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR T HE PREVIOUS YEAR SHALL BE ALLOWED AS DEDUCTION SUBJECT TO THE PROVISIONS OF SUB-SECTION (2). THE CONTROVERSY REGARDING THE SUF FICIENCY OF THE ITA NO. 9/DEL/2011 3 EFFORTS MADE BY THE ASSESSEE FOR RECOVERING THE DEBT S AND THE SATISFACTION OF THE ASSESSING OFFICER HAVE BEEN SE T TO REST BY THE DECISION OF APEX COURT (SUPRA). THE CBDT CIRCULAR N O. 551 ALSO CLARIFIES THE ABOVE POSITION. THE ASSESSING OFFI CER HAS NOT CONTENDED THAT THE CLAIM OF WRITE OFF OF BAD DEBTS B Y THE ASSESSEE IS NOT IN ACCORDANCE WITH SECTION 36(2) OF THE IT ACT. FURTHER, IT IS NOT CLEAR AS TO HOW THE ASSESSING OFF ICER CONCLUDED THAT AMOUNT OF ` 58,06,076/- REPRESENTS SHORT RECOVE RY OF THE SALE PROCEEDS AND NOT BAD DEBT. EVEN IF IT REPRES ENTS SHORT RECOVERY, THE ASSESSING OFFICER SHOULD HAVE ALLOWE D THE AMOUNT AS DEDUCTION SINCE IT HAS BEEN OFFERED AS INCOME IN THE EARLIER YEARS. FURTHER, THE BASIS FOR NOT SETTING OFF OF ` 25,17,743/- AGAINST THE BAD DEBT CLAIMED HAS NOT BEEN EXPLAINED BY THE ASSESSING OFFICER. IN VIEW OF THE ABOVE, THE DIS ALLOWANCE MADE BY THE ASSESSING OFFICER OF ` 58,06,076 IS DIRECT ED TO BE DELETED AND THEREFORE THE GROUND OF APPEAL IS ALLOWED. 5. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEA L BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HA S GIVEN A FINDING THAT BAD DEBT WAS DULY WRITTEN OFF. THEY WERE DULY BOOKED AS SALES AND OFFERED AS INCOME IN EARLIER YEARS. LD. COMMISS IONER OF INCOME TAX (APPEALS) FURTHER NOTED THAT ASSESSING OFFICER HAS NOT CONTENDED THAT THE CLAIM OF WRITE OFF OF BAD DEBTS BY THE ASSE SSEE IS NOT IN ACCORDANCE WITH SECTION 36(2) OF THE IT ACT. WE FUR THER AGREE THAT EVEN IF IT REPRESENTS SHORT RECOVERY, THE ASSESSING OFFI CER SHOULD HAVE ALLOWED THE AMOUNT AS DEDUCTION U/S 37 OF THE IT ACT . ASSESSEE AS PRUDENT BUSINESSMAN HAS COME TO A CONCLUSION THAT TH ESE AMOUNTS ARE ITA NO. 9/DEL/2011 4 NO LONGER RECOVERABLE. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS ), HENCE, WE UPHOLD THE SAME. 7. THE NEXT ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE DISALLOWANCE MADE ON ACCO UNT OF PERSONAL USE OF TELEPHONE AND FOR NOT FURNISHING RELEVANT V OUCHERS IN RESPECT OF EXPENSES CLAIMED BY THE ASSESSEE UNDER HEADS REPAIR AND MAINTENANCE, INTEREST, DEPRECIATION, TRAVELLING, STA FF WELFARE AND MISC. EXPENSES. 8. IN THIS CASE ASSESSING OFFICER NOTED THAT IN THE PROFIT AND LOSS ACCOUNT ASSESSEE HAS CLAIMED EXPENSES ON TELEPHONES AND MOBILES AMOUNTING TO ` 1,85,087/-. CONSIDERING THE PERSONAL USE OF THE TELEPHONES AND MOBILES EXPENSES, ASSESSING OFFICER DISALLOWED 1/6 TH THEREOF I.E. ` 30,848/-. 9. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITION. 10. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPE AL BEFORE US. 11. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DISALLOWANCE 1/10 TH IN THIS REGARD WILL SERVE THE END OF JUSTICE. AC CORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO DISALLOW 1/10 TH OF THE TELEPHONES AND MOBILES EXPENSE. 12. ASSESSING OFFICER FURTHER NOTED THAT ASSESSEE HAS SPENT A SUM OF ` 690001/- ON REPAIR, RUNNING AND MAINTENANCE, INTE REST ON VEHICLE, VEHICLE INSURANCE AND DEPRECIATION ON VEHICLES, ASS ESSING OFFICER MADE DISALLOWANCE @ 1/10 TH IN THIS REGARD I.E. ` 69000/-. ITA NO. 9/DEL/2011 5 13. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITION. 14. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPE AL BEFORE US. 15. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT IN OUR CONSIDERED OPINION, THE DISALLOWA NCE @ 1/10 TH MADE BY THE ASSESSING OFFICER WAS JUSTIFIED AND HENCE, W E SET ASIDE THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND RESTORE THE ORDER OF ASSESSING OFFICER IN THIS REGARD. 16. THE LAST ISSUE RAISED IS THAT LD. COMMISSIONER O F INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION OF ` 50,00 0/- WITHOUT OBTAINING COMPLETE DETAILS OF HOUSEHOLD EXPENSES. 17. ON THIS ISSUE ASSESSING OFFICER NOTED THAT AS SESSEE WAS ASKED TO FURNISH THE DETAILS OF HOUSEHOLD EXPENSES OF ` 1,20,000/-. ASSESSING OFFICER OPINED THAT OVERALL FACTS AND CI RCUMSTANCES OF THE CASE AN ADDITION OF ` 50,000/- WAS TO BE MADE TO COV ER UP THE HOUSE HOLD EXPENSES AND OTHER MISC. EXPENSES. 18. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) NOTED THAT ASSESSEES WIFE HAS DECLARED WITHDRAWAL OF ` 1,20,000/- TOWARDS HOUSEHOLD EXPENSES, HENCE, THEIR BOTH WITHDRAWAL IS ` 2.4 LACS AND LD. COMMISSIONER OF INCOME TAX (APP EALS) NOTED THAT ADDITION MADE BY THE ASSESSING OFFICER IS ON MERE SU SPICION BASIS, HENCE HE DELETED THE DISALLOWANCE MADE OF ` 50,000/ - IN THIS REGARD. 19. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 20. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT NO BASIS HAS BEEN MADE BY THE ASSESSING OF FICER FOR MAKING ITA NO. 9/DEL/2011 6 THE SAID DISALLOWANCE WHICH IS PURELY BASED ON GUE SS WORK. MOREOVER, IT IS NOTED THAT APART FROM OWN DRAWINGS OF ` 1,20, 000/-, THE ASSESSEES WIFE HAS ALSO WITHDRAWN ` 1,20,000/- AND THE TOTAL COMES TO ` 2,40,000/-. HENCE, IN OUR CONSIDERED OPINION, NO DISALLOWANCE/ ADDITION ON ESTIMATE BASIS IS CALLED FOR, HENCE, WE UPHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND DEC IDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 21. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18/8/2011 UPO N CONCLUSION OF HEARING. SD/- SD/- [ [[ [C.L. SETHI C.L. SETHI C.L. SETHI C.L. SETHI] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 18/8/2011 SRB COPY COPY COPY COPY FORWARDED TO: FORWARDED TO: FORWARDED TO: FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES