The ITO, Ward-4(4),, Ahmedabad v. Shri Rameshchandra S.Patel, Ahmedabad

ITA 2825/AHD/2006 | 2003-2004
Pronouncement Date: 13-08-2010 | Result: Dismissed

Appeal Details

RSA Number 282520514 RSA 2006
Assessee PAN AEHPP6335A
Bench Ahmedabad
Appeal Number ITA 2825/AHD/2006
Duration Of Justice 3 year(s) 7 month(s) 30 day(s)
Appellant The ITO, Ward-4(4),, Ahmedabad
Respondent Shri Rameshchandra S.Patel, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 13-08-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 13-08-2010
Date Of Final Hearing 05-08-2010
Next Hearing Date 05-08-2010
Assessment Year 2003-2004
Appeal Filed On 14-12-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH C CC C BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI T.K.SHARMA T.K.SHARMA T.K.SHARMA T.K.SHARMA JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER AND AND AND AND SHRI N.S. SAINI ACCOUNTANT MEMBER SHRI N.S. SAINI ACCOUNTANT MEMBER SHRI N.S. SAINI ACCOUNTANT MEMBER SHRI N.S. SAINI ACCOUNTANT MEMBER DATE OF HEARING:2-8-2010 DRAFTED ON: 2-8-2010 ITA NO. 2825/ AHD/ 2006 ASSESSMENT YEAR :2003-04 THE INCOME TAX OFFICER WARD 4(4) 1 ST FLOOR NAVJIVAN TRUST BUILDING OFF ASHRAM ROAD AHMEDABAD. VS. SHRI RAMESHCHANDRA S.PATEL PROP. MANISH CHEMICALS 380381A PHASE-II GIDC VATVA AHMEDABAD. PAN/GIR NO. : AEHPP 6335A (A PPELLANT ) .. ( RESPONDENT ) AP PELLANT BY : SHRI SHELLY JINDAL CIT( D.R.) RESPONDENT BY: SHRI S.N.SOPARKAR SR.ADV. O R D E R O R D E R O R D E R O R D E R PER N.S.SAINI ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST LE ARNED COMMISSIONER OF INCOME TAX (APPEALS) XII AHMEDABAD DATED 18-9- 2006. 2. THE SOLE GROUND OF APPEAL OF THE REVENUE IS THAT LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN L AW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF ` .2 71 22 278/- BEING CLAIM OF BAD DEBTS WRITTEN OFF IGNORING THE FACT TH AT THE ASSESSEE HAD NO BUSINESS CONNECTION WHATSOEVER WITH M/S. RITE IN DUSTRIES INC. WHICH HAD FILED BANKRUPTCY PAPERS IN THE USA. AS THE ASS ESSEE HAD SUPPLIED GOODS TO M/S. DELRAY COLOUR INC. AND NOT TO RITE IN DUSTRIES INC. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS THE PROPRIETOR OF M/S. MANISH CHEMICALS WHICH WAS ENGAGED IN MANU FACTURE AND EXPORT OF DYES AND MONEY LENDING BUSINESS. FOR THE ASSESSMENT YEAR - 2 - UNDER CONSIDERATION THE ASSESSEE HAS WRITTEN OFF B AD DEBTS OF `. 2 71 22 278/- UNDER THE HEAD ADMINISTRATIVE SELLING AND GENERAL EXPENSES. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THI S AMOUNT SHOULD BE TREATED AS BAD IN NATURE. THE ASSESSEE STATED TH AT THE ASSESSEE HAS DIRECTLY MADE EXPORTS TO DELRAY COLOUR INC. U.S.A. IN FINANCIAL YEAR 1999-00. THE ASSESSEE HAS FURTHER STATED THAT HE HA S A LONG ESTABLISHED RELATION AND EXPORT TO THE PARTY BEING MADE SINCE MORE THAN 7 YEARS. HE FURTHER STATED THAT DELRAY COLOUR INC. HAD NEGOTIATED FOR THE ORDER OF RITE INDUSTRIES INC. AND SUPPLIES WERE MADE TO RITE THROUGH DELRAY COLOUR INC. HOWEVER RITE INDUSTRIES INC. WAS IN FINANCIAL DIFFICULTIES AND ULTIMATELY FILED BANKRUP TCY UNDER CHAPTER 11 UNDER THE LOCAL LAWS OF USA AND THE RELEVANT ORDER WAS PASSED BY THE USA COURT IN DECEMBER 1999. ACCORDINGLY THE ASSES SEE STATED THAT NO LEGAL ACTION FOR RECOVERY OF DUES CAN BE TAKEN AS P ER THE LAWS OF USA. AFTER CONSIDERING SUBMISSION MADE BY THE ASSESSEE THE ASSESSING OFFICER CONTENDED THAT THE ASSESSEE PRODUCED COPY O F ACCOUNTS OF DELRAY COLOUR INC. USA FOR THE PERIOD FROM 1.4.199 9 TO 31-3-2000 AND ON VERIFICATION OF THIS ACCOUNT NO TRANSACTION OF SALES MADE TO RITE INDUSTRIES INC. WAS FOUND BY THE LEARNED ASSESSING OFFICER. HE FURTHER STATED THAT ASSESSEE HAS NO DIRECT CONNECTION WITH RITE INDUSTRIES INC. THE A.O. FURTHER STATED THAT THE ASSESSEE WAS NOT A BLE TO PROVE THE NEXUS BETWEEN THE APPELLANT AND RITE INDUSTRIES INC . HE FURTHER STATED THAT THE ASSESSEE HAD AFFECTED SALES TO DELRAY COLO UR INC. AND DELRAY COLOUR INC. HAD AFFECTED SALES TO RITE INDUSTRIES I NC. HE CONTENDED THAT THE ASSESSEE WAS NO WAY IN THE PICTURE OR INVOLVED IN THE TRANSACTION. THE LEARNED ASSESSING OFFICER ALSO VERIFIED THE ACC OUNT EXTRACT FOR DELRAY COLOUR INC. USA FOR THE PERIOD 1.4.1999 ONW ARDS AND FOUND THAT THE SALES WERE AFFECTED TO DELRAY COLOUR INC. AND T HE PAYMENTS WERE ALSO RECEIVED FROM COMPANY FROM TIME TO TIME. THE L EARNED ASSESSING OFFICER FURTHER STATED THAT THE BILLING WAS MADE I N THE NAME OF DELRAY COLOUR INC. AND THERE IS NO DIRECT NEXUS BETWEEN TH E ASSESSEE AND THE RITE INDUSTRIES AND THEREFORE THIS COMPANY GOING I NTO LIQUIDATION HAS NO IMPLICATION ON THE ASSESSEE. HENCE THE ASSESSIN G OFFICER DISALLOWED THE CLAIM OF BAD DEBTS OF `. 2 71 22 278 /-. - 3 - 4. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE SALES BY WAY OF EXPORTS WAS MADE TO DELRAY COLOUR INC. U.S.A. IN FINANCIAL YEAR 1999-00 AND OUT OF S ALES MADE IN FINANCIAL YEAR 1999-00 `. 2 71 22 278/- REMAINS UN REALIZED IN SPITE OF EFFORTS FOR RECOVERIES MADE. HE FURTHER STATED THA T IN ACCORDANCE WITH THE REGULATIONS OF RESERVE BANK OF INDIA APPLICATI ON WAS MADE TO STATE BANK OF INDIA FOR WRITE-OFF OF THE BAD DEBT WHICH WAS NOT RECOVERABLE AND APPELLANT HAS OBTAINED APPROVAL OF STATE BANK OF INDIA DURING THE PREVIOUS YEAR. THE LD. COUNSEL CONTENDED THAT THE AMOUNT WAS ACTUALLY WRITTEN OFF AS BAD DEBT IN THE BOOKS O F ACCOUNTS OF THE ASSESSEE IN THE PREVIOUS YEAR BEING NOT REALIZABLE/ RECOVERABLE. HE ALSO CONTENDED THAT AS PER THE PROVISIONS OF SECTION 36( 1) (VII) THE BAD DEBT IS ALLOWABLE AS THE SAME HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR AND STATED THAT THE CONDITIONS SPECIFIED IN SECTION 36(2) HAVE ALSO BEE N FULFILLED BY THE ASSESSEE AS INCOME IN RESPECT OF THE SALES TO THE P ARTY WAS ALREADY TAXED IN THE EARLIER YEARS. HE FURTHER STATED THAT AFTER THE AMENDMENT IN SECTION 36(1) (VII) EFFECTIVE FROM APRIL 1989 THE ACTUAL WRITE OFF OF IRRECOVERABLE AMOUNT IS SUFFICIENT FOR ALLOWABILITY OF DEDUCTION. THE LD. COUNSEL RELIED UPON THE FOLLOWING JUDGMENTS IN SUPP ORT OF HIS CONTENTION. A) ITAT SPECIAL BENCH MUMBAI IN THE CASE OF OMAN INTERNATIONAL BANK VS. DCIT HELD THAT AS PER THE AM ENDED PROVISIONS BAD DEBT WOULD BE ALLOWED IN THE YEAR I N WHICH THE ASSESSEE HAS WRITTEN OFF THE DEBT AS BAD DEBT I N THE BOOKS OF ACCOUNTS. THE JUDGMENT WAS DELIVERED AFTER CONSIDERING VARIOUS JUDGMENTS OF THE HON'BLE SUPREM E COURT VARIOUS HIGH COURTS AND TRIBUNALS. - 4 - B) WIPRO INFORMATION TECHNOLOGY LTD. VS. DCIT(2004) 88 TTJ 778 (BANGALORE) C) ESSAR STEELS LTD. VS. DCIT (2005) 99 TTJ 985 (AHD.) D) CIT VS. GIRISH BHAGWATPRASAD (2002) 256 ITR 722(GUJ .) 5. HENCE THE LD. COUNSEL STATED THAT IN VIEW OF TH E AMENDMENTS TO PROVISIONS OF SECTION 36(1)(VII) R.W.S. 36(2) AND T HE FACTS OF THE CASE AS WELL AS THE DECISIONS REFERRED TO ABOVE THE DISALL OWANCE MADE FOR BAD DEBT WRITTEN OFF OF `. 2 71 22 278/- IS WRONG IN LA W AND THEREFORE SHOULD BE DELETED. 6. AFTER CONSIDERING THE SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE THE LEARNED COMMISS IONER OF INCOME TAX(APPEALS) DELETED THE DISALLOWANCE BY OBSERVING AS UNDER :- I HAVE CONSIDERED THE FACTS OF THE CASE FINDINGS OF THE A.O. AND CASE LAW RELIED ON BY THE ASSESSEE ON THE ISSUE. FA CTS ARE CLEAR IN THIS CASE THAT EXPORTS WERE MADE BY THE ASSESSEE IN FINANCIAL YEAR 1999-00 TO THE U.S.A. PARTY WHICH BECAME BANKR UPT AND THE EXPORT BILLS COULD NOT BE REALIZED EVEN AFTER EFFORTS MADE BY THE ASSESSEE. THE ASSESSEE HAS ALSO OBTAINED THE CE RTIFICATE DATED 06-09-2002 GRANTING SANCTION FOR WRITE OFF TH ESE BILLS FROM COMPETENT AUTHORITY OF OVERSEAS BRANCH OF STATE BAN K OF INDIA. SO FAR AS REQUIREMENT OF SECTION 36(1)(VII) IS CONC ERNED THE WRITTEN OFF HAS BEEN MADE IN THE BOOKS OF THE ASSES SEE IN THE PREVIOUS YEAR UNDER CONSIDERATION. CONSIDERING THE DECISION MADE BY THE JURISDICTIONAL HIGH COURT IN THE CASE O F GIRISH BHAGWATPRASAD (SUPRA) I HOLD THAT THE A.O. IS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF BAD DEBTS WRITTEN OFF. ACC ORDINGLY THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 3 6(1)(VII) ON ACCOUNT OF BAD DEBTS OF `. 2 71 22 278/- IS ALLOWED . 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESS EE HAS CLAIMED BAD DEBT OF `.2 71 22 278/- WHICH WAS DISALLOWED BY THE LEARNED ASSESSING OFFICER ON THE GROUND THAT THE PARTY THROUGH WHICH THE ASSESSEE HAS MADE EXPORT HAS NOT BECOME INSOLVENT AND THEREFORE THE ASSESSEES DEBT HAS NOT BECOME BAD AND THEREFORE THE SAME IS NOT DEDUCTIBLE. - 5 - 8. ON APPEAL THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS OBSERVED THAT THE ASSESSEE HAS WRITTEN OFF THE DEBTS IN ITS BOOKS OF ACCOUNTS AS BAD DEBT AND THEREFORE FOLLOWING THE D ECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF C.I.T. VS . GIRISH BHAGWATPRASAD (2002) 256 ITR 722 (GUJ) ALLOWED THE CLAIM OF THE ASSESSEE. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE BEFORE U S RELIED UPON THE ORDER OF THE LEARNED ASSESSING OFFICER AND THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE RELIED UPON THE ORDE R OF THE CIT (A) AND ON THE DECISION OF HON'BLE SUPREME COURT IN THE CAS E OF T.R.F. LTD. VS. C.I.T. (2010) 323 ITR 397 (SC). 10. WE FIND THAT IT IS NOT IN DISPUTE THAT THE RELE VANT EXPORT SALE WAS MADE IN THE FINANCIAL YEAR 1999-00 AND THE ASSESSEE HAD NOT RECEIVED PAYMENT UPTO THE END OF THE RELEVANT PREVIOUS YEAR I.E. F.Y. 2002-03. FURTHER VIDE STATE BANK OF INDIA LETTER NO.OBIB/56 DATED AUGUST 9 2002 THE STATE BANK OF INDIA HAS CONFIRMED THAT TH E COMPETENT AUTHORITY HAS GIVEN PERMISSION TO WRITE OFF THE REL EVANT DEBT FROM ITS BOOKS OF ACCOUNTS. FURTHER IT IS ALSO NOT IN DISPU TE THAT THE ASSESSEE HAS ACTUALLY WRITTEN OFF THE SAID AMOUNT OF `.2 71 22 278/- AS BAD DEBT IN ITS BOOKS OF ACCOUNT OF THE YEAR UNDER CONSIDERA TION. THUS WE FIND THAT THE CONDITION SPECIFIED UNDER SECTION 36(1)(VI I) HAS BEEN DULY COMPLIED WITH IN THE INSTANT CASE. THE LEARNED DEP ARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY DEFECT IN TH E SAME. THE REVENUE COULD NOT BRING ANY MATERIAL ON RECORD TO S HOW THAT THE ASSESSEE HAS ACTUALLY RECEIVED ANY MONEY IN RESPECT OF THE DEBT IN QUESTION. IN THE ABOVE CIRCUMSTANCES THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'B LE SUPREME COURT IN THE CASE OF TRF LTD. VS. C.I.T. 323 ITR 397 (S.C.) . WHEREIN IT WAS HELD THAT AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF T HE INCOME-TAX ACT 1961 WITH EFFECT FROM APRIL 1 1989 IN ORDER TO O BTAIN A DEDUCTION IN RELATION TO BAD DEBTS IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BECOME IRRECOVERABLE. I T IS ENOUGH IF THE BAD - 6 - DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT S OF THE ASSESSEE. WE THEREFORE DO NOT FIND ANY MERIT IN THIS APPEAL OF THE REVENUE AND ACCORDINGLY THE SAME IS DISMISSED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON THIS 13 TH DAY OF AUGUST 2010. SD/- SD/- ( T.K. SHARMA ) ( T.K. SHARMA ) ( T.K. SHARMA ) ( T.K. SHARMA ) ( N.S. SAINI ) ( N.S. SAINI ) ( N.S. SAINI ) ( N.S. SAINI ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER AHMEDABAD: ON THIS 13 TH DAY OF AUGUST 2010 PATKI COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-XII AHMEDABAD. 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 2-8-2010 ------------ ------- 2. DRAFT PLACED BEFORE AUTHORITY 9-8-2010 --- ---------------- 3. DRAFT PROPOSED & PLACED 9-8-2010 --------- ---------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED --------------- ------------------- JM/AM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S ---------------- -------------------- 6. KEPT FOR PRONOUNCEMENT ON ---------------- -------------------- 7. FILE SENT TO THE BENCH CLERK ---------------- -------------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- ---------------------