ITO,, Ludhiana v. Smt. Indra Rani,, Ludhiana

IN THE INCOME TAX APPELLATE TRIBUNAL: B BENCH: CH ANDIGARH BEFORE HONBLE SHRI D K SRIVASTAVA AM AND HONBLE MS. SUSHMA CHOWLA JM ITA NO. 398/CHANDI/2009 ASSESSMENT YEAR: 2005-06 INCOME-TAX OFFICER V SMT.INDRA RANI WARD V(2) M/S DAULAT RAM AGGARWAL LUDHIANA. VISHAWKARMA CHOWK LUDHIANA. PAN: AAMPR7656R (APPELLANT) (RESPONDENT) APPELLANT BY: SMT.JAISHREE SHARMA RESPONDENT BY: SHRI SUDHIR SEHGAL ORDER D K SRIVASTAVA: THE APPEAL FILED BY THE DEPARTMEN T IS DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (A) ON 10.2.2009. THE APPEAL RELATES TO ASSESSMENT YEAR 2005-06. GROUND NO.1 TAKEN BY THE REVENUE READS AS UNDER : 1. THAT THE LD. CIT(A)-II LUDHIANA HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITIONS MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE U/S 36(1)(VII) AMOUNTING TO RS.14 30 300/- AND RS.2 20 000/- IN RESPECT OF M/S NEEPAZ METALIKS LTD. AND M/S MEGHA ALLOYS LTD. RESP ECTIVELY. 2. THE ASSESSEE IS A COMMISSION AGENT AND TRADER OF SPONGE IRON. SHE FILED HER RETURN OF INCOME ON 31.10.2005 RETURNING HER IN COME AT RS.4 78 552/-. THE RETURN WAS TAKEN UP FOR SCRUTINY. DURING THE COURS E OF SCRUTINY THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD CLAIMED DEDUCTI ON FOR A SUM OF RS.19 50 052/- AS BAD DEBTS UNDER SECTION 36(1)(VII ). THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO SUBSTANTIATE HER CLAIM THAT THE IMPUGNED SUMS WERE BAD DEBTS AND ELIGIBLE FOR DEDUCTION UNDER SECTION 36(1)(VII). ON CONSIDERATION OF THE ASSESSEES REPLY THE ASSESSING OFFICER DISALLOW ED THE CLAIM. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (A). THE LEARNED COMMISSIONER OF INCOME -TAX (A) HOWEVER ALLOWED THE CLAIM WITH THE FOLLOWING OBSERVATIONS : I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE LEARNED COUNSEL FOR THE APPELLANT AND PERUSED THE RELEVANT RECORD. THE ASSESSING OFFICER HAS DISCUSSED IN DETAIL AS TO WHY THE CLAIM OF BAD DEBTS MADE BY THE I.T.O. VS. SMT.INDRA RANI I.T.A.NO. 398/CHANDI/2009 2 APPELLANT IN RESPECT OF THESE TWO PARTIES WAS NOT T O BE ALLOWED. HOWEVER SOME OF THE REASONS GIVEN BY THE ASSESSING OFFICER FOR DISALLOWING THE CLAIM CANNOT BE SAID TO BE JUSTIFIED. AS PER THE A SSESSING OFFICER THE CLAIM OF BAD DEBT CANNOT BE ALLOWED TO THE APPELLANT UNLE SS THE FACT THAT SHE HAS WRITTEN OFF THESE DEBTS AS BAD DEBTS IN HER BOOKS O F ACCOUNT IS COMMUNICATED TO THE DEBTORS. IN MY OPINION THE AS SESSING OFFICER CANNOT BE HELD TO BE JUSTIFIED IN TAKING THIS STAND. IT I S NOT THE REQUIREMENT OF LAW FOR ALLOWING SUCH CLAIM OF BAD DEBTS. THE DEBTOR M IGHT HAVE ITS OWN REASONS NOT TO MAKE CORRESPONDING ENTRIES IN ITS BO OKS OF ACCOUNT BUT THAT IN ITSELF COULD NOT BE A VALID GROUND FOR DISALLOWI NG THE CLAIM IN THE HANDS OF THE CREDITOR IF OTHER CONDITIONS ARE SATISFIED. FURTHER THE ASSESSING OFFICER HAS ALSO MENTIONED THAT THE DEBTORS HAVE SH OWN THE RESPECTIVE AMOUNTS AS OUTSTANDING IN THEIR BOOKS OF ACCOUNT AN D THAT THEREFORE THE APPELLANT COULD NOT CLAIM BAD DEBTS IN RESPECT OF T HE SAME. HOWEVER HERE AGAIN THIS CANNOT BE MADE THE BASIS FOR DISALLOWIN G OTHERWISE GENUINE CLAIM OF AN ASSESSEE. THE FACT THAT THESE AMOUNTS HAVE BEEN SHOWN AS OUTSTANDING IN THE BOOKS OF THE RESPECTIVE PARTIES EVEN AS ON 31.3.2007 WOULD RATHER CONFIRM THE STAND OF THE APPELLANT THA T THE PAYMENTS WERE NOT BEING MADE BY THE SAID PARTIES. FURTHER RATHER GOING INTO OTHER FACTS AND ARGUMENTS ON THE ISSUE IN HAND AS BROUGHT OUT B Y THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND BY THE LEARNED COUNSEL FOR THE APPELLANT IN THE WRITTEN SUBMISSIONS REPRODUCED ABO VE I WOULD FIRST TAKE UP THE LEGAL POSITION WITH REGARD TO THE ALLOWABILI TY OF BAD DEBTS. AFTER THE AMENDMENT BROUGHT OUT IN THE PROVISIONS OF SECTION 36(1)(VII) BY THE DIRECT TAXES LAWS (AMENDMENT) ACT 1987 W.E.F. 1.4. 1989 WHAT IS ALLOWABLE AS DEDUCTION TO AN ASSESSEE IS THE AMOUN T OF ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. AS PER THE LEARNE D COUNSEL IN VIEW OF THE AMENDED PROVISIONS AS ABOVE ONCE AN ASSESSEE WRITE S OFF A DEBT IN ITS BOOKS OF ACCOUNTS DEDUCTION U/S 36(1)(VII) IS ALLO WABLE. THE LEARNED COUNSEL HAS CONTENDED THAT WHETHER THE DEBT IN QUES TION HAD BECOME IRRECOVERABLE OR NOT IS NOT RELEVANT AS PER THE AME NDED PROVISIONS OF LAW FOR CLAIMING SUCH DEDUCTION. THIS VIEW OF THE LEAR NED COUNSEL IS SUPPORTED BY THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V STAR I.T.O. VS. SMT.INDRA RANI I.T.A.NO. 398/CHANDI/2009 3 CHEMICALS (BOMBAY) (P) LTD. 220 CTR 319. FOR THIS DECISION THE HON'BLE HIGH COURT HAS CONCURRED WITH DECISIONS OF A NUMBER OF HIGH COURTS INCLUDING THE DECISION OF THE DCIT V PATIDAR GINNIN G & PRESSING CO. 157 CTR (GUJ.) 177. AS PER THESE DECISIONS ONCE AN ASS ESSEE HAS WRITTEN OFF THE DEBT AS BAD DEBT REQUIREMENT OF SECTION 36(1)( VII) IS SATISFIED AND THE CLAIM OF DEDUCTION OF BAD DEBT IS ALLOWABLE. WHILE DECIDING AS ABOVE IT HAS BEEN OBSERVED IN THESE DECISIONS AS ALSO MENTIONED BY THE LEARNED COUNSEL THAT NO PRUDENT BUSINESS MEN WERE TO DO SO IT CANNOT BE FOR A COLLATERAL REASON. ON THE OTHER HAND THE DECISION S RELIED UPON BY THE ASSESSING OFFICER AND WHICH HAVE BEEN MENTIONED ABO VE ARE LAYING DOWN THAT AS PER THE AMENDED PROVISIONS OF SECTION 36(1) (VII) OF THE ACT YEAR OF ALLOWABILITY FOR DEBT IS TO BE DETERMINED WITH RESP ECT TO YEAR IN WHICH AN ASSESSEE WRITES OFF SUCH DEBT AND THAT HOWEVER PRE- CONDITIONS FOR ALLOWING SUCH BAD DEBT IS THAT SUCH DEBT SHOULD BE SHOWN TO BE IRRECOVERABLE. THOUGH I WOULD HAVE GONE BY THE DECISION OF THE HON 'BLE RAJASTHAN HIGH COURT IN THE CASE OF KASHMIR TRADING CO. (SUPRA) A ND OTHER DECISIONS RELIED UPON BY THE A.O. IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LT D. 88 ITR 192 (S.C) THE DECISIONS CITED BY SHRI GUPTA THE LEARNED COUNSEL GIVING INTERPRETATION FAVOURABLE TO THE APPELLANT ARE TO BE FOLLOWED. TH EREFORE FROM THIS LEGAL POINT OF VIEW THE CLAIM OF BAD DEBT AS MENTIONED BY THE APPELLANT IS HELD TO BE ALLOWABLE. FOR COMING TO THIS DECISION IT H AS ALSO BEEN TAKEN INTO ACCOUNT THAT EVEN OTHERWISE IN THE INDEPENDENT INQU IRIES MADE BY THE ASSESSING OFFICER AMOUNTS HAVE BEEN SHOWN TO BE OUT STANDING IN THE BOOKS OF THE RESPECTIVE PARTIES TILL THE DATE THESE ENQUIRIES WERE MADE. FURTHER IT IS NOT A CASE WHERE SOME COLLATERAL REA SONS HAVE BEEN SHOWN WITH REGARD TO THIS ISSUE. BESIDES DURING THE APPEAL PROCEEDINGS THE APPELLANT HAS CLAIMED BY FILING EVEN AN AFFIDAVIT THAT NO PART OF THE AMOUNT S SHOWN OUTSTANDING AGAINST THESE PARTIES HAD BEEN RECOVERED EVEN TILL DATE. THEREFORE TAKING AN OVERALL VIEW THE CLAIM OF BAD DEBTS OF RS.16 50 300/- MADE BY THE APPELLANT IS THEREFORE HELD TO BE ALLOWABLE U/S 36 (1)(VII) OF THE ACT. ADDITION MADE BY THE ASSESSING OFFICER BY DISALLOWI NG THE CLAIM IS ACCORDINGLY DELETED. THIS GROUND OF APPEAL IS ALLO WED. I.T.O. VS. SMT.INDRA RANI I.T.A.NO. 398/CHANDI/2009 4 4. AGGRIEVED BY THE ORDER PASSED BY THE COMMISSIONE R OF INCOME-TAX (A) THE DEPARTMENT IS NOW IN APPEAL BEFORE THIS TRIBUNAL. IN SUPPORT OF THE APPEAL THE LEARNED D.R. RELIED UPON THE ORDER PASSED BY THE AS SESSING OFFICER. 5. IN REPLY THE LEARNED COUNSEL FOR THE ASSESSEE SU PPORTED THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (A). HE SUBMITTE D THAT THE ASSESSEE WAS NO LONGER REQUIRED TO ADDUCE THE MASSIVE PROOF THAT TH E AMOUNT CLAIMED AS DEBTS HAS REALLY BECOME BAD. ACCORDING TO HIM THE MERE FACT OF WRITING OFF DEBT IS SUFFICIENT FOR THE CLAIM UNDER SECTION 36(1)(VII). IN SUPPORT OF HIS SUBMISSIONS HE RELIED UPON SEVERAL JUDGMENTS NAMELY CIT VS. STA R CHEMICALS PVT. LTD. 313 ITR 126; DIT VS. OMAN INTERNATIONAL BANK 313 ITR 128 ( BOM); CIT VS. MORGAN SECURITIES & CREDITS (P) LTD.292 ITR 339 (DEL); CIT VS. STAR CHEMICALS PVT. LTD. 220 CTR 319 AND CIT VS. BONANZA PORTFOLIO LTD. 226 ITR 468 (DEL). AT THIS STAGE THE ATTENTION OF LEARNED COUNSEL FOR THE ASS ESSEE WAS DRAWN TO THE PROVISIONS OF SECTION 36(2)(I) OF THE INCOME-TAX A CT. HE WAS REQUESTED TO EXPLAIN AS TO WHETHER THE IMPUGNED SUM CLAIMED AS D EDUCTION UNDER SECTION 36(2)(I) HAS AT ALL BEEN TAKEN INTO ACCOUNT IN COMP UTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT O N SUCH DEBT OR PART THEREOF WAS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR. T HE LEARNED COUNSEL FOR THE ASSESSEE COULD NOT SATISFACTORILY EXPLAINED AS TO H OW THE ASSESSEE HAS FULFILLED THE CONDITIONS LAID DOWN IN SECTION 36(2)(I). 6. WE HAVE HEARD BOTH THE PARTIES. THE CLAIM OF DE DUCTION UNDER SECTION 36(1)(VII) IS SUBJECT TO THE PROVISIONS OF SECTION 36(2) SPECIFICALLY PROVIDES THAT NO DEDUCTION FOR A BAD DEBT OR PART THEREOF WOULD BE A LLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTI NG THE CLAIM OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DE BT OR PART THEREOF IS WRITTEN OFF OR AN EARLIER PREVIOUS YEAR. ON BEING SPECIFI CALLY ASKED AS TO HOW THE AFORESAID CONDITIONS ARE SATISFIED BY THE ASSESSEE THE LEARNED COUNSEL FOR THE ASSESSEE COULD NOT GIVE ANY SATISFACTORY EXPLANATIO N. IN THIS VIEW OF THE MATTER THE ASSESSEE IS NOT ENTITLED TO SUCCEEDS IN ITS UND ER SECTION 36(1)(VII) OF THE ACT. THE JUDGMENTS/DECISIONS RELIED UPON BY THE LEARNED COMMISSIONER OF INCOME-TAX (A) ARE DISTINGUISHABLE ON FACTS. GROUND NO. TAKEN BY THE DEPARTMENT IS ALLOWED. 7. GROUND NO.2 TAKEN BY THE DEPARTMENT READS AS UND ER : I.T.O. VS. SMT.INDRA RANI I.T.A.NO. 398/CHANDI/2009 5 2. THAT THE LD. CIT(A)-II HAS ERRED IN LAW AND ON F ACTS IN DELETING THE ADDITION OF RS.1 75 643/- MADE BY THE A.O. ON ACCOU NT OF DISALLOWANCE OF REBATE ALLOWED BY NEEPAZ METALIKS LTD. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER CALLED FOR COPY OF ACCOUNT OF THE ASSESSEE AS APPEARING IN THE BOOKS OF M/S NEEPAZ METALIKS LTD. UNDER SECTION 133(6). THE ASSESSING OFFICER COMPARED THE ASSESSEES COPY OF ACCOUNT AS APPEARING IN THE BOOK S OF M/S NEEPAZ METALIKS LTD. AND NOTED THAT THE AFORESAID COMPANY HAD ALLOWED CR EDIT OF RS.1 75 643/- TO THE ASSESSEE ON 31.3.2005 ON ACCOUNT OF CREDIT NOTE GIV EN TO THE PARTY ON ACCOUNT OF ANY SHORTAGE QUOTA GIVEN TO THE PARTY. THE ASSESS ING OFFICER FOUND THAT THE AFORESAID CREDIT NOTE WAS NOT ACCOUNTED FOR BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. THE ASSESSING OFFICER THEREFORE CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY THE IMPUGNED SUM SHOULD NOT BE ADDED TO THE INCOME OF THE ASSESSEE. IN REPLY THE ASSESSEE EXPLAINED BEFORE THE ASSESSING O FFICER THAT NO SUCH REBATE OF RS.1 75 000/- WAS EVER RECEIVED BY THE ASSESSEE FRO M THE SAID COMPANY AND THAT THE AFORESAID ENTRY WAS UNILATERALLY MADE BY THE SA ID COMPANY INFORMING THE ASSESSEE SO AS TO REDUCE ITS OWN TAX LIABILITIES. THE ASSESSING OFFICER DID NOT ACCEPT THE AFORESAID EXPLANATION AND CONSEQUENTLY A DDED THE IMPUGNED SUM. 9. ON APPEAL THE LEARNED COMMISSIONER OF INCOME-TAX (A) HAS DELETED THE IMPUGNED ADDITION WITH THE FOLLOWING OBSERVATIONS : I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE LEARNED COUNSEL FOR THE APPELLANT AND PERUSED THE RELEVANT RECORD. IT IS CONTENDED BY THE LEARNED COUNSEL THAT IN VIEW OF THE NATURE OF BUSIN ESS OF THE APPELLANT WITH THE SAID COMPANY THERE WAS NO OCCASION OR REASON TO GIVE ANY REBATE TO THE APPELLANT ON ACCOUNT OF ANY SHORTAGE QUOTA DIFF ERENCE. IT IS FURTHER STATED THAT THE APPELLANT DID NOT RECEIVE ANY INTIM ATION IN THIS REGARD. THERE APPEARS TO BE CONSIDERABLE FORCE IN THE CONTE NTION OF THE APPELLANT. THE APPELLANT WAS THE CONSIGNEE OF THE SAID COMPANY . THE GOODS IN QUESTION ARE NOT PURCHASED BY THE CONSIGNEE FOR THE CONSIGNOR AND THEREFORE THERE IS NO REASON WHY THERE WOULD BE AN Y NEED FOR ISSUING A CREDIT NOTE FOR ALLEGED SHORTAGE ETC. IN SUCH TYPE OF BUSINESS THE CONSIGNEE IS GETTING SOME COMMISSION ON SALES AND O THERWISE SALES AND PURCHASE AMOUNT DO NOT EFFECT THE INCOME OF A CONSI GNEE AS IN THE CASE OF I.T.O. VS. SMT.INDRA RANI I.T.A.NO. 398/CHANDI/2009 6 A NORMAL TRADER. EVEN OTHERWISE WHEN THE APPELLANT HAD MADE THIS SPECIFIC CLAIM THE POSITION COULD HAVE BEEN FURTHER VERIFIE D FROM THE SAID COMPANY. IN THE ABSENCE OF ANY FURTHER CLARIFICATION IN THIS REGARD AND FURTHER TAKING INTO ACCOUNT THAT EVEN OTHERWISE THE AMOUNT HAD NOT BEEN RECEIVED BY THE APPELLANT TILL DATE AND THAT THE CLAIM OF THE APPEL LANT THAT NO SUCH CREDIT NOTE WAS EVER RECEIVED BY THE APPELLANT HAVING NOT BEEN SHOWN TO BE FALSE THERE IS NO JUSTIFICATION FOR MAKING THE ADD ITION IN QUESTION. ADDITION OF RS.1 75 643/- IS THEREFORE DELETED. THIS GROUN D OF APPEAL IS THEREFORE ALLOWED. 10. IN SUPPORT OF THE APPEAL THE LEARNED D.R. RELIE D UPON THE ORDER PASSED BY THE ASSESSING OFFICER. WHILE THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER PASSED BY THE COMMIS SIONER OF INCOME-TAX (A). 11. WE HAVE HEARD BOTH THE PARTIES. THE LEARNED CO MMISSIONER OF INCOME-TAX (A) HAS GIVEN COGENT REASONS IN DELETING THE IMPUGNED ADDITION. THE DEPARTMENT HAS NOT BEEN ABLE TO REBU T THE FINDINGS RECORDED BY THE COMMISSIONER OF INCOME-TAX (A). IN THIS VIE W OF THE MATTER THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (A) DELETING THE IMPUGNED ADDITION IS CONFIRMED. GROUND NO.2 IS DIS MISSED. 12. GROUND NO.3 IS GENERAL IN NATURE AND DOES NOT R EQUIRE ANY ADJUDICATION. 13. THE APPEAL FILED BY THE DEPARTMENT IS PARTLY AL LOWED. ORDER PRONOUNCED ON 28 FEBRUARY 2011 SD/- SD/- (SUSHMA CHOWLA) (D K SRIVASTAVA) JUDICIAL MEMBER ACCOUNTANT MEMBER CHANDIGARH: THE 28 FEBRUARY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 4. THE D.R. TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT CHANDIGARH I.T.O. VS. SMT.INDRA RANI I.T.A.NO. 398/CHANDI/2009 7