Paras Pharmaceuticals Ltd., Ahmedabad V. The ACIT., Circle-5, Ahmedabad

MA 120/AHD/2010

• Counselvise Citation: [2012] 123 COUNSELVISE.COM (IT) 7906 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 3 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 20-04-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2003-2004
• Appeal Filed On: 17-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAHUL KR
• Assessee Lawyers: A C SHAH
• Keywords: Business income; Bad and doubtful debts
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, AHMEDABAD BEFORE SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER M.A.120/AHD/2010 IN I.T.A. NO.1996 / AHD/2006 (ASSESSMENT YEAR 2003-04) PARAS PHARMACEUTICALS LTD., 3 RD FLOOR, HERITAGE BUILDING, OPP. HOTAL GRAND BHAGWATI, BODAKDEV, AHMEDABAD- 380054 VS. ACIT, CIRCLE 5, AHMEDABAD PAN/GIR NO. : AAACP9268J (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI A C SHAH, A.R. RESPONDENT BY: SHRI RAHUL KR. SR. DR DATE OF HEARING: 13.04.2012 DATE OF PRONOUNCEMENT: 20.04.2012 O R D E R PER SHRI A. K. GARODIA, AM:- THIS MISCELLANEOUS APPLICATION IS FILED BY THE ASS ESSEE. IT IS SUBMITTED BY THE ASSESSEE IN THE MISCELLANEOUS APPL ICATION THAT THERE IS A APPARENT MISTAKE IN THE TRIBUNAL ORDER BECAUSE IT I S HELD BY THE TRIBUNAL THAT THE BUSINESS LOSS ALLOWED BY THE LD. CIT(A) OF RS.48,07,140/- IS NOT ALLOWABLE BECAUSE THE ASSESSEE HAS MADE PROVISION O NLY REGARDING THE LOSS AND DID NOT ACTUALLY WRITTEN OFF THE LOSS. 2. IN THE COURSE OF HEARING OF MISCELLANEOUS APPLIC ATION, IT WAS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT FOR ALLOWING LOSS U/S 28, THERE IS NO SUCH STIPULATION AS IN SECTION 36(1 )(VII) FOR ACTUAL WRITE M.A.NO.120 /AHD/2010 2 OFF. HE ALSO SUBMITTED THAT AS PER THE RECENT JUDG MENT OF HONBLE APEX COURT RENDERED IN VIJAYA BANK AS REPORTED IN 323 IT R 166, IF THE ASSESSEE DEBITED AN AMOUNT OF DOUBTFUL DEBT TO THE PROFIT AND LOSS ACCOUNT AND CREDITED THE ASSESSEES ACCOUNT LIKE SUNDRY DEB TORS ACCOUNT THERE WAS CONCLUSIVE WRITE OFF OF ACTUAL DEBT. BUT IF INSTEA D OF CREDITING THE SUNDRY DEBTORS ACCOUNT, CREDIT IS GIVEN UNDER THE HEAD CU RRENT LIABILITIES OR THE PROVISION IS SHOWN ON THE LIABILITY SIDE OF THE BAL ANCE SHEET, IT WOULD REMAIN THE PROVISION FOR DOUBTFUL DEBT AND IN THE L ATER CASE, THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTION U/S 36(1)(VII) A FTER 1.4.1989. HE SUBMITTED THAT IN THE PRESENT CASE, THE ASSESSEE HA S NOT SHOWN THE AMOUNT IN THE CURRENT LIABILITY IN THE BALANCE SHEET BUT H AS REDUCED THE AMOUNT OF LOSS FROM THE ASSETS SIDE OF THE BALANCE SHEET AND, THEREFORE, AS PER THIS JUDGMENT OF HONBLE APEX COURT, THERE IS ACTUAL WRI TE OFF OF LOAN AND IT IS NOT A PROVISION AND THEREFORE, THE TRIBUNAL WAS NOT JUSTIFIED IN REVERSING THE ORDER OF LD. CIT(A). RELIANCE WAS PLACED ON TH E FOLLOWING JUDGMENTS IN SUPPORT OF THIS CONTENTION THAT IN THE APPELLATE JURISDICTION, THE APPELLATE COURT HAS TO CONSIDER WHETHER THERE I S JUSTIFICATION FOR REVERSING THE ORDER AGAINST WHICH THE APPEAL IS FIL ED. IT IS SUBMITTED THAT IN THE PRESENT CASE, THE TRIBUNAL HAS NOT GIVEN REA SON FOR REVERSING THE ORDER OF LD. CIT(A) AND, THEREFORE, THERE IS APPARE NT MISTAKE IN THE TRIBUNAL ORDER: (A) RAJESH BABUBHAI DAMANIA VS CIT 251 ITR 541 (GUJ .) (B) S J & SP FAMILY TRUST VS DCIT 277 ITR 557 RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF HONBL E GUJARAT HIGH COURT RENDERED IN THE CASE OF SARANGPUR COTTON MAN UFACTURING CO. LTD. VS CIT AS REPORTED IN 143 ITR 166 IN SUPPORT OF THI S CONTENTION THAT M.A.NO.120 /AHD/2010 3 ACTUAL WRITE OF IS NOT NECESSARY AND THE PROVISION IS EQUIVALENT TO WRITE OFF. 3. AS AGAINST THIS, IT WAS SUBMITTED BY THE LD. D.R . THAT THERE IS NO APPARENT MISTAKE IN THE TRIBUNAL ORDER. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E GONE THROUGH THE IMPUGNED TRIBUNAL ORDER AND THE JUDGMENTS CITED BY THE LD. A.R. FIRST, WE REPRODUCE THE RELEVANT PARA OF THE IMPUGN ED TRIBUNAL ORDER AS PER WHICH THE ISSUE IN DISPUTE WAS DECIDED BY THE T RIBUNAL I.E. PARA 5 OF THE IMPUGNED TRIBUNAL DECISION WHICH IS AS UNDER: 5. WE, THUS FIND THAT IN THE APPEAL BEFORE THE TRI BUNAL FOR THE ASSESSMENT YEAR 2001-02 THE FACTS WERE THAT THE ASS ESSEE TREATED THE AMOUNT ADJUSTED BY THE RIL AGAINST THE SECURITY DEPOSIT AS DEBT / LOSS. THE TRIBUNAL HAS HELD SUCH BAD DEBT / LOSS IS ALLOWABLE. HOWEVER, WE FIND THAT IN THE INSTANT CASE, THE ASSE SSEE IN ITS BOOKS OF ACCOUNT HAS NOT TREATED RS.48,07,140/- AS BAD DE BT OR LOSS BUT IT HAS MADE MERELY A PROVISION AGAINST THE SA ID AMOUNT AS PROVISION FOR DOUBTFUL DEBTS. THUS, IT IS NOT IN DI SPUTE THAT THE ASSESSEE WHILE PREPARING ITS ACCOUNTS FOR THE YEAR UNDER CONSIDERATION HAS TREATED THE AMOUNT RECEIVABLE FRO M RIL AS DOUBTFUL AND NOT AS BAD DEBT / LOSS. IN THESE CIRCU MSTANCES, IN OUR CONSIDERED VIEW, THE EARLIER DECISION OF THE TRIBUN AL RELIED UPON BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE A SSESSEE IS DISTINGUISHABLE ON FACTS. THE LEARNED AUTHORISED RE PRESENTATIVE OF THE ASSESSEE COULD NOT BRING ANY MATERIAL BEFORE US TO SHOW THAT THE FACTS OF THE ASSESSMENT YEAR WERE EXACTLY THE S AME AS FACTS INVOLVED IN THE YEAR UNDER APPEAL. THE LEARNED ASSE SSING OFFICER HAS CATEGORICALLY STATED THE ABOVE FACTS THAT THE D EPOSIT WAS TREATED AS MERELY DOUBTFUL AND NOT AS A LOSS ASSET BY THE A SSESSEE DURING THE YEAR UNDER APPEAL IN THE ORDER OF ASSESSMENT. W E FIND THAT THE 1 ASSESSEE COULD NOT BRING ANY MATERIAL BEFORE THE LE ARNED COMMISSIONER OF INCOME TAX(APPEALS) OR BEFORE US TO SHOW THAT THE AMOUNT RECEIVABLE FROM RIL WERE IN FACT BECOME LOSS OR BAD AND IT WAS SO TREATED BY THE ASSESSEE ALSO. THE LEA RNED COMMISSIONER OF INCOME TAX (APPEALS) HAS HELD THAT LOSS OF SECURITY DEPOSIT EVEN DURING THE COURSE OF BUSINESS AND FOR THE PURPOSE OF BUSINESS AND NOT FOR ACQUIRING ANY CAPIT AL ASSET IS M.A.NO.120 /AHD/2010 4 ALLOWABLE AS BUSINESS LOSS. HOWEVER, THE: 'TEAMED COMMISSIONER OF INCOME TAX (APPEALS) COULD NOT BRING ANY MATERIA L ON RECORD TO SHOW THAT RS.48,07,140/- RECEIVABLE BY THE ASSESSEE IN FACT BECAME BAD OR LOSS ASSET. MOREOVER, THE TREATMENT GIVEN BY THE ASSESSEE IN THE ACCOUNTS ITSELF SHOWS THAT THE ASSESSEE HAS ALS O NOT TREATED THE SAME AS BAD / LOSS ASSET DURING THE YEAR UNDER CONS IDERATION BUT MERELY TREATED THE SAME AS DOUBTFUL OF RECOVERY. IN OUR CONSIDERED OPINION, ACTUAL BUSINESS LOSS IS ONLY ALLOWABLE AS DEDUCTION TO THE ASSESSEE AND NOT THE PROBABLE LOSS WHICH IS DOUBTFU L. IN OUR CONSIDERED OPINION, I DEDUCTION FOR LOSS OF MONEY A DVANCED DURING THE COURSE OF BUSINESS AND FOR CARRYING ON OF THE B USINESS CAN BE ALLOWED AS DEDUCTION IN THE YEAR IN WHICH THE ASSES SEE BONA-FIDELY TREATS THE SAME AS ACTUAL LOSS OF THE BUSINESS. THE REFORE, IN OUR CONSIDERED VIEW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT JUSTIFIED IN DELETING THE DISALLO WANCE OF RS.48,07,140/- MADE BY THE LEARNED ASSESSING OFFICE R BECAUSE THE ASSESSEE HAD TREATED THE SAME AS DOUBTFUL ASSET DUR ING THE YEAR AND NOT AS LOSS WE, THEREFORE, SET ASIDE THE ORDER OF T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE AND RESTORE THE LEARNED ASSESSING OFFICER. THUS, THIS GROUND OF F THE REVENUE IS ALLOWED. 5. FROM THE ABOVE PARA OF THE TRIBUNAL ORDER IT IS SEEN THAT THE CLAIM OF THE ASSESSEE WAS REJECTED AND THE ORDER OF LD. CIT( A) WAS REVERSED ON THIS BASIS THAT THE DEDUCTION FOR LOSS OF MONEY ADV ANCED DURING THE COURSE OF BUSINESS AND FOR CARRYING OUT THE BUSINESS, CAN BE ALLOWED AS DEDUCTION IN THE YEAR IN WHICH THE ASSESSEE BONA FIDELY TREAT ED THE SAME AS ACTUAL LOSS OF BUSINESS AND, THEREFORE, THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.48,07,140/- MADE BY THE A.O. BECAUSE THE ASSESSEE HAD TREATED THE SAME AS DOUBTFUL ASSET DUR ING THE YEAR AND NOT AS LOSS ASSET. NOW, IN THE LIGHT OF THESE FACTS, WE E XAMINE THE VARIOUS CONTENTIONS RAISED BY THE ASSESSEE IN THE MISCELLAN EOUS APPLICATION AND VARIOUS JUDGMENTS CITED BY THE LD. A.R. 6. THE CONTENTION OF THE ASSESSEE IN THE MISCELLANE OUS APPLICATION IS THIS THAT THE LOSS WAS ALLOWED BY LD CIT(A) AS BUS INESS LOSS AND M.A.NO.120 /AHD/2010 5 THEREFORE, DEBIT IN P & L ACCOUNT BY CREDITING DOUB TFUL DEBT RESERVE AMOUNT TO WRITE OFF AND THEREFORE, THERE IS AN APPA RENT MISTAKE IN THE TRIBUNAL ORDER. FROM THE JUDGMENT OF HONBLE GUJAR AT HIGH COURT RENDERED IN THE CASE OF SARANGPUR COTTON MANUFACTUR ING CO. LTD., AS REPORTED IN 143 ITR 166 WE FIND THAT THIS JUDGMENT IS FOR THE ASSESSMENT YEAR 1971-72 AND THERE IS AMENDMENTS IN THE ACT W.E .F. 1.4.1989 AND THEREFORE, THIS JUDGEMENT IS NOT APPLICABLE IN THE PRESENT CASE. REGARDING THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF VIJAYA BANK (SUPRA), WE FIND THAT THIS JUDGEMENT IS IN RELATION TO THE CLAIM OF THE ASSESSEE U/S 36(1(VII) WHEREAS IN THE PRESENT CASE, THE CLAIM OF THE ASSESSEE IS FOR BUSINESS LOSS TO BE ALLOWED U/S 28. IT WAS THE CONTENTION OF THE LD. A.R. BEFORE US THAT THERE IS NO STIPULATION IN SECTION 28 FOR ACTUAL WRITE OFF. WE HAVE GONE THROUGH THE DECISION OF LD . CIT(A). AS PER PARA 3.2.13 OF HIS ORDER, IT IS HELD BY HIM THAT HE ASSE SSEE HAS MADE DEPOSIT WITH RIL AND DUE TO LOSS ARISING IN THE AGENCY BUSI NESS, THE ASSESSEE HAD TO LOSE SECURITY DEPOSIT ALONG WITH SOME INTEREST A ND, THEREFORE, THE ASSESSEE HAS INCURRED TRADING LOSS WHICH HAS TO BE ALLOWED WHILE COMPUTING BUSINESS INCOME. THIS GOES TO SHOW THAT THE ORDER OF LD. CIT(A) IS NOT THIS THAT THE DEDUCTION IS ALLOWABLE U/S 36(1)(VII). HE IS HOLDING THIS THAT THE DEDUCTION IS ALLOWABLE AS BUS INESS LOSS U/S 28. IF THIS BE SO, DEDUCTION IS ALLOWABLE IN THE YEAR IN WHICH THERE IS ACTUAL LOSS AND IT DOES NOT DEPEND ON THE ENTRY PASSED BY THE ASSES SEE IN THE BOOKS OF ACCOUNT AND HENCE, WHETHER THE ASSESSEE HAS MADE A PROVISION OR HAS WRITTEN OFF ADVANCE, IN THE PRESENT YEAR, IS NOT RE LEVANT BECAUSE FOR THE PURPOSE OF ALLOWING BUSINESS LOSS, IT HAS TO BE SEE N THAT WHETHER THERE IS ANY ACTUAL LOSS OR NOT AND WHEN THIS LOSS HAS OCCUR RED. THERE IS NO FINDING OF CIT(A) THAT THERE IS ACTUAL BUSINESS LOS S AND THE SAME HAS M.A.NO.120 /AHD/2010 6 OCCURRED IN THE PRESENT YEAR. BY SAYING THAT DUE T O THE LOSS ARISING IN AGENCY BUSINESS, THE ASSESSEE HAD TO LOSE SECURITY DEPOSIT ALONG WITH SOME INTEREST BUT WITHOUT INDICATING ANY BASIS ON W HICH HE IS SAYING SO, SIMPLY BECAUSE THE ASSESSEE HAS PASSED SOME ENTRY I N THE BOOKS, IT CANNOT BE SAID THAT THE ASSESSEE HAS SUFFERED A LOSS AND T HAT TOO IN THE PRESENT YEAR. IN OUR CONSIDERED OPINION, THE BURDEN IS MOR E ON THE ASSESSEE IN RESPECT OF CLAIM OF BUSINESS LOSS AS COMPARED TO TH E CLAIM OF WRITE OFF OF BAD DEBTS U/S 36(1)(VII). FOR THE LATER, MERE PASS ING OF ENTRY IN THE BOOKS OF ACCOUNT FOR WRITE OFF IS SUFFICIENT AND THE ASSE SSEE IS NOT REQUIRED TO ESTABLISH THAT THE DEBT HAS BECOME ACTUALLY BAD. F OR THE PURPOSE OF BUSINESS LOSS, IT HAS TO BE SHOWN AND ESTABLISHED B Y THE ASSESSEE THAT THERE IS ACTUAL BUSINESS LOS S AND IT HAS OCCURRED IN THE PRESENT YEAR. SINCE, THERE IS NO BASIS INDICATED BY LD. CIT(A) IN HIS OR DER ON BOTH THESE ASPECTS, IN OUR CONSIDERED OPINION, THIS TRIBUNAL O RDER IS NOT CONTAINING ANY APPARENT MISTAKE. IN VIEW OF OUR ABOVE DISCUSS ION, WE FEEL THAT NONE OF THE JUDGEMENTS CITED BY LD. COUNSEL FOR THE ASSE SSEE IS RENDERING ANY HELP TO THE ASSESSEE IN THE PRESENT CASE BECAUSE TH E ASSESSEE HAS NOT BROUGHT ON RECORD ANY MATERIAL TO ESTABLISH THAT TH ERE IS ACTUAL LOSS AND THAT TOO IN THE PRESENT YEAR. THE ENTIRE CLAIM OF THE ASSESSEE WAS BASED ON BOOK ENTRY PASSED BY THE ASSESSEE IN THE PRESENT YE AR BUT WE HAVE ALREADY DISCUSSED THAT BOOK ENTRY FOR WRITE OFF OF BAD DEBT IS SUFFICIENT FOR CLAIMING DEDUCTION FOR BAD DEBTS U/S 36(1)(VII) BUT FOR THE PURPOSE OF CLAIMING BUSINESS LOSS U/S 28, IT HAS TO BE ESTABLI SHED BY THE ASSESSEE THAT THERE IS ACTUAL BUSINESS LOSS AND THAT TOO IN THE P RESENT YEAR AND THEN ONLY DEDUCTION CAN BE ALLOWED. SINCE, THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY SUCH EVIDENCE BEFORE THE AUTHORITIES BELOW OR B EFORE THE TRIBUNAL, THERE IS NO APPARENT MISTAKE IN THE TRIBUNAL ORDER BECAUSE THE TRIBUNAL M.A.NO.120 /AHD/2010 7 ORDER IS ALSO ON THIS BASIS THAT BUSINESS LOSS CAN BE ALLOWED AS DEDUCTION IN THE YEAR IN WHICH THE ASSESSEE BONA-FIDELY TREAT ED THE SAME AS ACTUAL LOSS OF BUSINESS. SINCE THE ASSESSEE HAD TREATED T HE SAME AS DOUBTFUL ASSET DURING THE PRESENT YEAR AND NOT AS LOSS ASSET, LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE A.O. 6. IN THE RESULT, MISCELLANEOUS APPLICATION OF THE ASSESSEE IS DISMISSED. 7. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE M ENTIONED HEREINABOVE. SD./- SD./- (MUKUL KUMAR SHRAWAT) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 16/4 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 18/4.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 20/4 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.20/4 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 20/4/12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. .