ACIT, Gurgaon V. M/s. Texsa India Ltd, Gurgaon

ITA 962/DEL/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2301 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 25-11-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 16-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: N K CHAND
• Keywords: Principle of natural justice; Additional evidence; Bad and doubtful debts; TDS; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : H : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO. 962/DEL/2009 ASSESSMENT YEAR : 2003-04 ASSTT. COMMISSIONER OF INCOME TAX, GURGAON CIRCLE, GURGAON. VS. M/S TEXSA INDIA LTD., (FORMERLY STP TEXSA LTD.), A-4/8, FIRST FLOOR, DLF CITY, PHASE I, GURGAON. PAN : AAECS 3408 B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI N.K. CHAND, SR. DR REVENUE BY : SHRI SUMANT CHADHA, CA ORDER PER I.P. BANSAL, JUDICIAL MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DIR ECTED AGAINST THE CIT (A) DATED 16 TH DECEMBER, 2008 FOR ASSESSMENT YEAR 2003-04. THE G ROUNDS OF APPEAL READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 53,46,646/- MADE BY THE ASSESSING OFFICER ON AC COUNT OF BAD DEBTS WRITTEN OFF DISREGARDING THE FACT THAT THE AS SESSEE HAD FAILED TO FURNISH ANY CORROBORATIVE EVIDENCE IN SUPPORT OF ITS CLAIM AND IN CONTRADICTION WITH THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF MC DOWELLS AND CO. LTD. VS. CTO [154 ITR 1 48 (SC)J. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDIT ION OF RS. 29,32,801/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF RETENTION ITA NO.962/DEL/2009 2 MONEY DISREGARDING THE FACT THAT THIS WAS NOT A GEN UINE WRITE OFF OF THE SAID CREDIT. 3. THAT THE APPELLANT CRAVES FOR THE PERMISSION TO ADD, DELETE OR AMEND THE GROUNDS OF APPEAL BEFORE OR AT THE TIME O F HEARING OF APPEAL. 2. THE ASSESSEE WAS CARRYING OUT THE WATER PROOFING WORK OF BUILDING BELONGING TO INDIAN SCHOOL OF BUSINESS, HYDERABAD ( ISB) IN RESPECT OF WHICH THE ASSESSEE HAD WRITTEN OFF AN AMOUNT OF RS.53,46,646/ - BEING AMOUNT OF BAD DEBT. THE DETAILS OF WHICH DEBT IS AS UNDER:- AMOUNT DEBITED TO P & L ACCOUNT DURING THE A.Y. 200 3-04 RS.23,46,646/- AMOUNT DEBITED TO P & L ACCOUNT DURING THE A.Y. 200 2-03 RS.30,00,000/- TOTAL RS.53,46,646/- 3. ACCORDING TO THE ASSESSING OFFICER, THERE WERE S OME DIFFERENCES IN THE ACCOUNT OBTAINED BY HIM FROM ISB AND THE COPY OF AC COUNT FURNISHED BY THE ASSESSEE IN RESPECT OF ISB. HOWEVER, THOSE HAVE BE EN RECONCILED AS THE ASSESSEE HAD FILED SOME ADDITIONAL EVIDENCE BEFORE THE CIT (A) WHICH WAS ADMITTED BY HIM AND RELEVANT DOCUMENTS WERE ALSO SE NT TO THE A.O. AS THE DEPARTMENT IN ITS GROUNDS OF APPEAL HAS NOT AGITATE D THE ADMISSION OF ADDITIONAL EVIDENCE BY CIT (A), IT HAS TO BE TAKEN THAT THE DI FFERENCES WERE RECONCILED BY THE ASSESSEE. ACCORDING TO THE ASSESSMENT ORDER, I N THE REPLY GIVEN BY THE ASSESSEE DATED 18.11.2005 IT HAS BEEN MENTIONED THA T A COPY OF STATEMENT OF UNDERSTANDING DATED 9 TH MAY, 2003 WAS ENTERED INTO BETWEEN THE ASSESSEE AN D THE ISB AND IT WAS MUTUALLY AGREED THAT ISB SHALL P AY TO THE ASSESSEE A SUM OF RS.22 LAC AS PER MUTUAL AGREEMENT SUBJECT TO DEDUCT ION OF TAX TOWARDS THE FULL AND FINAL SETTLEMENT OF ALL OUTSTANDING PAYMENTS IN CLUDING RETENTION HELD BY STPTL WITH ISB. IT WAS FURTHER AGREED THAT ISB WIL L PAY AN AMOUNT OF RS.11 LAC BEING 50% OF THE AGREED AMOUNT OF RS.22 LAC LATEST BY 14 TH MAY, 2003 AFTER SIGNING OF THE STATEMENT OF UNDERSTANDING AND BALAN CE PAYMENT WOULD BE MADE WITHIN MAXIMUM PERIOD OF 10 WORKING DAYS FROM THE DATE OF SIGNING OF THE ITA NO.962/DEL/2009 3 STATEMENT OF UNDERSTANDING. HOWEVER, THE ASSESSING OFFICER IS OF THE OPINION THAT STATEMENT OF UNDERSTANDING WAS EXECUTED ONLY O N 19 TH MAY, 2003 WHICH DOES NOT FALL WITHIN THE RELEVANT ACCOUNTING PERIOD AND AFTER REPRODUCING THE LEDGER ACCOUNT OF ISB IN THE BOOKS OF THE ASSESSEE FOR THE IMMEDIATE SUCCEEDING YEAR THE ASSESSING OFFICER OBSERVED THAT ASSESSEE W AS REFUNDING AN AMOUNT OF RS.45,591/- TO THE ISB. THE SAID COPY OF ACCOUNT R EPRODUCED BY THE A.O. AT PAGE 7 OF THE ASSESSMENT ORDER IS ALSO REPRODUCED B ELOW FOR THE SAKE OF CONVENIENCE:- PARTICULARS AMOUNT PARTICULARS AMOUNT BALANCE B/F 21,54,409.00 RECEIPT 22,00,000.00 PAYMENT MADE 45,591.00 BALANCE C/F 0.00 22,00,000.00 22,00,000.00 4. OBSERVING FROM THE ABOVE FACTS, THE ASSESSING OF FICER HAS HELD THAT THE ASSESSEE WAS TO RECEIVE A LARGE SUM FROM A PARTY WI TH WHOM AN AGREEMENT HAS BEEN EXECUTED BY WHICH THE ASSESSEE HAS WRITTEN OFF HUGE AMOUNT IN ITS BOOKS OF ACCOUNT, BUT PAYING BACK TO THE SAME PARTY A PALTRY SUM WHICH HE OWES TO THAT PARTY AFTER THE EXECUTION OF AN AGREEMENT AND SUCH FACT CAST SHADOW ON THE VERY VERACITY OF THE SAID TRANSACTION. THE A.O. OBSERVE D THAT THIS STORY OF THE ASSESSEE APPEARS TO BE CONCOCTED ONE AND DOES NOT S TAND THE TEST OF REASONABLE PRUDENCE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. SINCE NO PERSON WITH A SOUND BUSINESS ACUMEN WOULD EVER ENT ER INTO SUCH A DEAL BY WAY OF AGREEMENT OF UNDERSTANDING WHEN SUCH A HUGE AMOU NT RUNNING INTO LACS OF RUPEES HAS TO BE WRITTEN OFF AS BAD DEBT ON ACCOUNT OF IT BEING ABSOLUTELY IRRECOVERABLE FROM THE OPPOSITE PARTY AND, THUS, TH E A.O. OBSERVED THAT IT IS ESTABLISHED BEYOND DOUBT THAT THE ASSESSEE HAS CLEV ERLY TRIED TO USE COLOULRABLE DEVICE TO HOODWINK THE INCOME-TAX DEPARTMENT BY NOT PAYING EVEN THE LEGITIMATE TAXES AND FOR HOLDING SO, THE A.O. RELIED ON THE DE CISION OF HONBLE SUPREME COURT IN THE CASE OF MC DOWELLS & COMPANY VS. CTO 154 ITR 148. ITA NO.962/DEL/2009 4 5. FURTHER, FINDING THAT THERE WAS A CREDIT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE OF A SUM OF RS.29,32,801/- ON ACCOUNT OF RETENTION MONEY IN THE NAME OF ISB, THE SAME FORMED DEDUCTION OF 10% OF ISB OUT OF THE AMOUNT PAID TO THE ASSESSEE BY ISB AND THE SAID SUM WAS ACCUMULATED BA LANCE IN THAT ACCOUNT AND THAT AMOUNT WAS CREDITED AFTER THE SETTLEMENT AND W AS WRITTEN OFF. THE SAID AMOUNT WAS ALSO ADDED TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF RETENTION MONEY. 6. FOR THE SAKE OF CONVENIENCE THE RELEVANT PORTION OF ORDER OF THE CIT (A) VIDE WHICH HE HAS HELD THAT THE ASSESSEE HAS RECONC ILED THE DIFFERENCES AND THERE WAS NO DIFFERENCE IN THE AMOUNT ACCOUNTED FOR BY THE ASSESSEE VIS--VIS ISB AND ALSO THAT ADDITION COULD NOT BE MADE BY THE A.O. IN RESPECT OF BAD DEBT WHEN THEY ARE WRITTEN OFF BY THE ASSESSEE IN ITS BO OKS OF ACCOUNT, IS REPRODUCE BELOW:- 3.6 I HAVE PERUSED THE FACTS AND CAREFULLY CONSIDER ED THE SUBMISSIONS. THE PRINCIPLES OF NATURAL JUSTICE REQU IRE THAT THE ASSESSEE SHOULD BE GIVEN AN OPPORTUNITY BEFORE ANY MATERIAL COLLECTED BY THE AD DIRECTLY, IS PROPOSED TO BE USE D AGAINST HIM. IN THE PRESENT CASE, THE A.O. HAS FAILED TO COMPLY WIT H THE PRINCIPLES OF NATURAL JUSTICE AS HE HAS NOT PROVIDED THE COPY OF ACCOUNT OBTAINED DIRECTLY BY HIM FROM ISB AND USED THE SAME AGAINST THE APPELLANT. THE APPELLANT HAS COLLECTED THE COPY OF ACCOUNT AS PER BOOKS OF THE ISB AND HAS ALSO FURNISHED THE RECONCI LIATION STATEMENT. AFTER RECONCILIATION OF BOTH THE ACCOUNT S, IT IS OBSERVED THAT THE TOTAL EXPENDITURE BOOKED BY ISB IS EQUAL T O THE AMOUNT OF REVENUE RECOGNISED BY THE APPELLANT. AS REGARDS THE OBSERVATION MADE BY THE AO IN HIS REPORT THAT THE RECONCILIATI ON GIVEN BY THE ASSESSEE AT PAGE NO. 7 OF ITS SUBMISSIONS CANNOT BE CONSIDERED CORRECT IN VIEW OF THE FACT THAT NO DOCUMENTARY EVI DENCE HAVE BEEN PROVIDED BY THE ASSESSEE IN SUPPORT OF ITS CLAIMS, IT IS NOTICED THAT THE APPELLANT HAS GIVEN EXPLANATION FOR ALL THE ENT RIES IN THE ACCOUNT AND NO FURTHER DOCUMENTARY EVIDENCES WERE ASKED TO BE PRODUCED. THE ASSESSING OFFICER HAS ALSO MADE FOLLOWING OBSER VATIONS:- EG. NEITHER HAS IT SHOWN ANY EVIDENCE W.R.T. ITS CLAIM THAT RS.23,866/- WAS AMOUNT PERTAINING TO OTHER PARTIES DEBITED IN THE ACCOUNT OF TEXSA INDIA LTD. NOR HAS IT SHOWN ANY EVIDENCE REGARDING THE CLAIM THAT ITA NO.962/DEL/2009 5 RS. 11,40,415/- VALUE OF WORK WAS RECOGNISED BY ISB IN THE PREVIOUS YEAR 2001-02 BEING RECOGNISED AS INCOME BY THE APPELLANT IN 2002-03. IN THIS REGARD, APPELLANT HAS REFERRED TO VARIOUS E NTRIES IN THE LEDGER ACCOUNT WHICH ARE AS UNDER :- DATE PARTICULARS VCH TYPE VCH NO. DEBIT CREDIT ENTRY NO. 1: 17-05-2002 TO RAMA MOHAN CONSTRUCTIONS BEING PMT MADE AGAINST IC NO. 726,27.04.2002 CONTRACT NO. 97.5 DEBITED TO STP TOWARDS THE CONTRA CHARGES HYD-JV 633 18,428 ENTRY NO. 4 1-12-2002 TO TDS OTHERS HYD-JV 3480 5,438 THE TOTAL OF BOTH ENTRIES AMOUNTS TO RS.23,866/- IT IS STATED THAT THE ENTRY NO. 1 PERTAINS TO SOME M/S RAMA MOHAN CONSTRUCTIONS AND EVEN THE CONTRACT NO. MENTIONED I N THE ENTRY DOES NOT RELATE TO CONTRACT WITH THE APPELLANT. ALS O, FROM THE ENTRIES PASSED BY ISB IN THIS ACCOUNT, IT IS EVIDENT THAT W HENEVER ISB PASSES ENTRY REGARDING TDS FROM THE APPELLANT, THE ENTRY HAS BEEN PASSED THROUGH THE ACCOUNT TDS-CONTRACTOR 2002-03 , HOWEVER IN ENTRY NO. 4 IT HAS DEBITED TDS OTHERS WHICH CLEAR LY SHOWS THAT THESE ENTRIES DO NOT BELONG TO THE APPELLANT. THE I SB HAS ITSELF REVERSED THE AGGREGATE OF BOTH THE ENTRIES I.E., RS .23,866 FROM THE APPELLANTS ACCOUNT ON 31-03-2003 (REFER PG. NO. 46 OF THE SUBMISSION). IN ADDITION TO ABOVE, THE TDS CERTIFIC ATES ISSUED BY ISB DOES NOT CONTAIN THE ABOVE-MENTIONED ENTRIES. AS REGARDS, THE OBSERVATION OF THE LD. A.O. THAT TH E APPELLANT HAS NOT PROVIDED ANY EVIDENCE REGARDING THE CLAIM THAT RS. 11,40,415/- VALUE OF WORK WAS RECOGNISED BY ISB IN THE PREVIOUS YEAR 2001-02 BEING RECOGNIZED AS INCOME BY THE APPELLANT IN 2002 -03, THE LD. AR HAS SUBMITTED COPY OF ITS LEDGER IN THE BOOKS OF IS B AND COPY OF ISBS LEDGER IN ITS BOOKS WHICH SHOWS THAT THE ISB HAS BOOKED THE AMOUNT OF RS.11,40,415/- IN ITS BOOKS ON 3 1-03-200 2 I.E., IN F.Y. ITA NO.962/DEL/2009 6 2001-02 WHEREAS THE APPELLANT BOOKED THE SAME ON 01 -06-2002 I.E., IN F.Y. 2002-03. IT IS STATED THAT THE DISPUTE IN REGARD TO DEBTS WI TH ISB WAS GOING ON DURING THE YEAR UNDER CONSIDERATION AND THOUGH THE AMOUNT HAS NOT BEEN SETTLED AS ON THE BALANCE SHEET DATE THERE WER E STRONG POSSIBILITIES OF SETTLING DOWN OF THE DISPUTE AS ON THAT DATE. ACCORDING TO AS 4: CONTINGENCIES AND EVENT OCCURRIN G AFTER THE BALANCE SHEET DATE, ASSETS AND LIABILITIES SHOULD BE ADJUSTED FOR EVENTS OCCURRING AFTER THE BALANCE SHEET DATE THAT PROVIDE ADDITIONAL EVIDENCE TO ASSIST THE ESTIMATION OF AMO UNTS RELATING TO CONDITIONS EXISTING AT THE BALANCE SHEET DATE OR TH AT INDICATE THAT THE FUNDAMENTAL ACCOUNTING ASSUMPTION OF GOING CONC ERN (I.E., THE CONTINUANCE OF EXISTENCE OR SUBSTRATUM OF THE ENTER PRISE) IS NOT APPROPRIATE IN THE APPELLANTS CASE, THE CONDITION I.E., THE DISPUTE EXISTED ON THE BALANCE SHEET DATE. AFTER RECONCILIA TION OF BOOKS WITH LEDGER OF THE APPELLANT OBTAINED FROM ISB (AS PER T HE RECONCILIATION PROVIDED ON PAGE NO. 7 AND 37 TO 39 OF THE SUBMISSI ON), IT BECOMES CLEAR THAT THE TOTAL INCOME RECOGNISED BY THE APPEL LANT IS EQUAL TO THE TOTAL EXPENSE BOOKED BY ISB IN REGARD TO THE CO NTRACT WITH THE APPELLANT. WITHOUT PREJUDICE TO FOREGOING, IT IS AR GUED THAT EVEN IF THE APPELLANT HAS NOT WRITTEN OFF THE BAD DEBT IN I TS BOOKS, THE TOTAL INCOME WOULD STILL BE A LOSS BECAUSE AS PER THE RET URN THE APPELLANT HAS DECLARED TOTAL LOSS OF RS.1,06,85,800 AND THE A MOUNT O BAD DEBT WRITTEN OFF WAS ONLY RS.53,46,646. THUS, BAD D EBT WRITTEN OFF BY THE APPELLANT WAS NOT TO CONVERT THE TAXABLE INC OME INTO LOSS AND SAVE EITHER REGULAR TAX OR TAX UNDER PROVISION OF MAT RATHER IT WAS A JUSTIFIED WRITE-OFF AND TO GIVE TRUE AND FAIR VIEW OF STATEMENT OF AFFAIRS OF THE COMPANY. THEREFORE, THE CONTENTIO N OF LD. A.O. AS GIVEN BY HIM IN THE COUNTER-COMMENT THAT THE APPELL ANT HAS USED A COLORABLE DEVICE TO HOODWINK THE DEPARTMENT BY NOT PAYING EVEN THE LEGITIMATE TAXES IS NOT SUSTAINABLE. 3.7 I HAVE GONE THROUGH THE RECONCILIATION STATEMEN T AND THE ACCOUNTS FLIED BY THE APPELLANT AND FIND THAT THE T WO ACCOUNTS HAVE BEEN RECONCILED. MOREOVER, THE AO HAS ALSO NOT DISP UTED ABOUT ANY SPECIFIC ENTRY IN THE ACCOUNTS. THE NEXT ISSUE IS R EGARDING ALLOWABILITY OF BAD DEBTS WRITTEN OFF. AS PER PROVI SIONS OF SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE INCOME TA X ACT, 1961, AS AMENDED W,E.F. 1.4.89, THE CONDITIONS REQUISITE FOR ALLOWANCE OF A DEBT AS BAD DEBT ARE I) IT MUST BE PROPER DEBT, OR A PART THEREOF. II) OF A REVENUE NATURE CONTRADISTINGUISHED IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR, ITA NO.962/DEL/2009 7 III) WHICH HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR, IV) A) WHICH HAS BEEN TAKEN INTO ACCOUNT IN COMPUTI NG THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHIC H THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR, OR B) WHICH REPRESENTS MONEY LENT IN THE ORDINARY COUR SE OF THE BUSINESS OR BANKING OR MONEY LENDING WHICH IS CARRI ED ON BY THE ASSESSEE. IN CIT VS. GIRISH BHAGWAT PRASHAD (SUPRA) THE HONB LE GUJRAT HIGH COURT HAVE HELD THAT UNDER THE PROVISIO NS OF SECTION 36(1)(VII), AS IT STANDS W.E.F. 1.4.89, ALL THAT THE ASSESSEE HAS TO SHOW IS THAT THE BE DEBT IS WRITTEN OFF AS IRRECOVERABLE. THE ASSESSEE IS NOT REQUIRED TO ESTA BLISH THAT THE DEBT HAS BECOME BAD IN THE PREVIOUS YEAR CONCER NED AND MERE WRITING OFF OF THE AMOUNT AS BAD DEBT AS S UFFICIENT. THE VARIOUS CASE LAWS ON THE ISSUE HAVE ALSO BEEN DISCUSSED IN THE SUBMISSIONS MADE BY THE APPELLANT AND REPRODUCED IN PARA 3.2 ABOVE. IN THE PRESENT CASE, THERE IS NO DISPUTE THAT THE AMOUNT HAS BEEN WRITTEN OFF DUR ING THE YEAR UNDER CONSIDERATION AND THUS, THE CONDITIONS L AID DOWN U/S 36(1)(VII) ARE SATISFIED. IN THE LIGHT OF SETTL ED LEGAL POSITION, THE AO IS NOT JUSTIFIED IN MAKING THE DIS ALLOWANCE. HE IS DIRECTED TO ALLOW THE DEDUCTION. THE GROUND I S ACCORDINGLY ALLOWED. 7. SO AS IT RELATES TO RETENTION MONEY, AFTER OBTAI NING THE REPORT FROM THE A.O., THE FINDINGS OF CIT (A) ARE AS UNDER:- 4.4 IT IS SUBMITTED THAT THE APPELLANT FOLLOWS MER CANTILE SYSTEM OF ACCOUNTING AND RECOGNIZES THE INCOME AT THE TIME OF ACCRUAL. THE RETENTION MONEY WAS A PART OF INCOME ACCRUED AND, W HICH AS PER AGREEMENT, SCHEDULED TO DUE AT THE COMPLETION OF CO NTRACT OR PART THEREOF AS AGREED UPON. BEING RECOGNIZED AS INCOME AT THE TIME OF ITS ACCRUAL THE SAME HAS ALREADY BEEN OFFERED FOR T AX. AN ILLUSTRATION OF ENTRY REGARDING RETENTION MONEY IS AS UNDER:- I) ISB A/C DR. TO WCT PAYABLE TO JOB WORK (BEING INCOME RECOGNIZED ON CONTRACT) II) RETENTION MONEY ISB A/C DR. ITA NO.962/DEL/2009 8 TO ISB A/C (BEING AMOUNT OF RETENTION MONEY TO BE RECEIVED AT END OF CONTRACT TRANSFERRED TO RETENTION MONEY ISB A/C) THE AMOUNT WRITTEN OFF IS OUT OF THE RECOVERABLE AM OUNT OF RETENTION MONEY WHICH WAS DUE FROM ISB. IT IS EVIDENT FROM T HE ENTRIES ILLUSTRATED ABOVE THAT THE APPELLANT HAS RECOGNIZED ITS TOTAL INCOME UNDER THE HEAD JOB WORK WHICH ALREADY INCLUDES AM OUNT OF RETENTION MONEY AS WELL. BY DISALLOWING THE SAME, IT HAS BEEN ADDED TWICE IN THE INCOME WHICH IS INCONSISTENT WIT H THE PROVISIONS OF INCOME TAX ACT, 1961. FURTHER, WITHOUT PREJUDIC E TO FOREGOING, BEFORE WRITING OFF RETENTION MONEY THE APPELLANT AH S TRANSFERRED THE AMOUNT FROM RETENTION MONEY ISB A/C TO ISB A/C (REFER PG. NO.53 OF SUBMISSION DATED 23.11.2007) AND THE LD. A .O. HAS ALREADY DISALLOWED THE BAD DEBT WRITTEN OFF WHICH I S SUBJECT MATTER OF OUR GROUND NO.1. ALSO, RETENTION MONEY WRITTEN OFF HAS NOWHERE SEPARATELY BEEN CLAIMED IN PROFIT & LOSS ACCOUNT. THEREFORE, DISALLOWING THE RETENTION MONEY AGAIN, WHICH WAS AL READY OFFERED TO TAX BY THE APPELLANT IN RESPECTIVE YEARS IS WRONG A ND AGAINST THE FACTS OF THE CASE. IN THE LIGHT OF THESE FACTS, TH E ADDITION IN RESPECT OF RETENTION MONEY IS NOT JUSTIFIED. THE AO IS DIR ECTED TO DELETE THE ADDITION. 8. AFTER NARRATING THE FACTS, IT WAS VEHEMENTLY PLE ADED BY LD. DR THAT THE ASSESSEE COULD NOT SUPPORT ITS CLAIM REGARDING BAD DEBT. IT WAS SUBMITTED THAT THE SO-CALLED STATEMENT OF UNDERSTANDING WAS NOT EN TERED INTO DURING THE YEAR UNDER CONSIDERATION, THEREFORE, THE ASSESSEE COULD NOT CLAIM ANY BAD DEBT DURING THE YEAR UNDER CONSIDERATION. IT WAS SUBMITTED THA T EVEN AFTER CLAIMING THE BAD DEBT THE ASSESSEE REFUNDED THE AMOUNT OF RS.45.591/ - TO ISB WHICH ITSELF SHOWS THAT ALL WAS ARRANGED AFFAIRS AND, THEREFORE, THE R ATIO OF DECISION OF MCDOWELL (SUPRA) IS CLEARLY APPLICABLE AND THE CIT (A) WAS W RONG IN DELETING THE SAME. WITH RESPECT TO RETENTION MONEY ALSO LD. DR SUBMITT ED THAT ADDITION HAS WRONGLY BEEN DELETED BY THE CIT (A). HE SUBMITTED THAT ORD ER OF THE CIT (A) SHOULD BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED . 9. ON THE OTHER HAND, RELYING ON THE SUBMISSIONS MA DE BEFORE THE CIT (A) AND THE REMAND REPORT OF THE ASSESSING OFFICER AND DOCUMENTS SUBMITTED BEFORE THE CIT (A), IT WAS PLEADED BY LD. AR THAT BOTH THE ADDITIONS HAVE RIGHTLY BEEN ITA NO.962/DEL/2009 9 DELETED BY THE CIT (A). IT WAS SUBMITTED THAT ACCO RDING TO STATEMENT OF UNDERSTANDING BETWEEN THE ASSESSEE AND ISB WHAT WAS RECOVERABLE WAS ONLY AN AMOUNT OF RS.22 LAC AND, THEREFORE, THE ASSESSEE WA S RIGHT IN CLAIMING THE OTHER AMOUNT AS ABD DEBT. HE SUBMITTED THAT ALL THE COND ITIONS LAID DOWN IN SECTION 36(1)(VII) READ WITH SECTION 36(2) AS HELD BY THE C IT (A), WERE FULFILLED. HE, IN THIS REGARD, REFERRED TO PARA 3.6 AND 3.7 OF THE CIT (A) WHICH HAVE ALREADY BEEN REPRODUCED IN THE ABOVE PART OF THIS ORDER. THUS, IT WAS PLEADED BY LD. AR THAT THE ORDER OF THE CIT (A) SHOULD BE UPHELD AND DEPAR TMENTAL APPEAL SHOULD BE DISMISSED. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. RIGHT FROM THE BEGINNIN G, THE ASSESSEE HAS SUBMITTED BEFORE THE ASSESSING OFFICER THE STATEMENT OF UNDER STANDING AND THE REPLY OF THE ASSESSEE HAS BEEN REPRODUCED AT PAGE 3 OF THE ASSES SMENT ORDER. IN THE REPLY IT HAS CLEARLY BEEN STATED THAT UNSETTLED ISSUES CONNE CTED WITH THE CONTRACT OF WATERPROOFING AND INSULATION SYSTEM PROVIDED BY THE ASSESSEE AND MUTUALLY AGREED THAT ISB WOULD PAY RS.22 LAC SUBJECT TO DEDU CTION OF TAX TOWARDS FULL AND FINAL SETTLEMENT OF ALL OUTSTANDING PAYMENTS INCLUD ING RETENTION HELD BY ISB FROM ASSESSEE. THE EXISTENCE OF THE SAID STATEMENT OF U NDERSTANDING HAS NOT BEEN CONTROVERTED BY BRINGING ANY MATERIAL ON RECORD. I T ALSO CANNOT BE DISPUTED THAT THE ASSESSEE HAD ACCOUNTED FOR ALL THE RECEIPTS REC EIVED BY IT FROM ISB AS RECONCILIATION IN THIS RESPECT WAS SUBMITTED BEFORE THE CIT (A) AND THE CIT (A) HAS GIVEN A FINDING THAT THE ASSESSEE HAS BEEN ABLE TO RECONCILE ALL THE DIFFERENCES. THE CONDITIONS FOR ALLOWABILITY OF BA D DEBT HAS BEEN DESCRIBED IN PARA 3.7 OF THE ORDER OF CIT (A) WHICH ARE STATED T O BE FULFILLED. IF IT IS SO, ACCORDING TO THE DECISION OF HONBLE DELHI HIGH COU RT IN THE CASE OF CIT VS. AUTOMETERS LTD. 292 ITR 345 (DEL) THE REQUIREMENT O F THE ASSESSEE TO PROVE THAT A BAD DEBT HAS BECOME BAD DEBT IS DISPENSED WITH BY 1989 AMENDMENT IN SECTION 36(1)(VII) AND, THEREAFTER, ALL THAT ASSESS EE HAS TO DO IS TO WRITE OFF A BAD DEBT AS IRRECOVERABLE IN ITS ACCOUNT. THE CIT (A) WHILE DELETING THE ADDITION HAS RELIED ON THE DECISION OF HONBLE GUJARAT HIGH COUR T IN THE CASE OF GIRISH BHAGWAT PRASAD AND THERE IS NO INFIRMITY IN THE ORD ER OF THE CIT (A) VIDE WHICH IT ITA NO.962/DEL/2009 10 HAS BEEN HELD THAT AS ASSESEE HAS FULFILLED ALL THE CONDITIONS LAID DOWN IN SECTION 3(1)(VII) READ WITH SECTION 36 (2) OF IT ACT, 1961, NO ADDITION WAS CALLED FOR. WE CONFIRM HIS ORDER IN THIS RESPECT. 11. SO AS IT RELATES TO ADDITION MADE ON ACCOUNT OF RETENTION MONEY, IT HAS BEEN FOUND BY CIT (A) THAT THE SAME WAS ALREADY SHO WN AS INCOME BY THE ASSESSEE IN RESPECT OF WHICH THE REVENUE WAS ALREAD Y RECOGNIZED. IT IS ALSO OBSERVED THAT THE MEMORANDUM OF UNDERSTANDING INCLU DED THE RETENTION MONEY ALSO. THEREFORE, WE FIND NO INFIRMITY IN THE FINDI NGS GIVEN BY THE CIT (A) THAT NO ADDITION WAS CALLED FOR IN RESPECT OF RETENTION MON EY. WE CONFIRM HIS FINDINGS ON THIS ISSUE WHICH HAVE ALREADY BEEN REPRODUCED AND T HIS GROUND OF REVENUE IS ALSO DISMISSED. 12. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS DISMISSED. 13. THE ORDER PRONOUNCED IN THE OPEN COURT ON 04.12 .2009. [SHAMIM YAHYA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 04.12.2009. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES