Kanoria Plaschem Ltd.,, Bangalore v. ACIT, Bangalore

ITA 95/BANG/2010 | 2003-2004
Pronouncement Date: 21-05-2010 | Result: Allowed

Appeal Details

RSA Number 9521114 RSA 2010
Bench Bangalore
Appeal Number ITA 95/BANG/2010
Duration Of Justice 3 month(s) 23 day(s)
Appellant Kanoria Plaschem Ltd.,, Bangalore
Respondent ACIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 21-05-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 21-05-2010
Assessment Year 2003-2004
Appeal Filed On 29-01-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SMT. P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER ITA NO.95/BANG/2010 ASSESSMENT YEAR : 2003-04 M/S. KANARIA PLASCHEM LTD. NO.12/A BOMMASANDRA INDUSTRIAL AREA HEBBAGODI VILLAGE ANEKAL TALUK BANGALORE 562 158. : APPELLANT VS. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 11(3) BANGALORE. : RESPONDENT APPELLANT BY : SHRI H.V. GOWTHAMA C.A. RESPONDENT BY : SMT. V.S. SREELEKHA ADDL.CIT(DR) O R D E R PER A. MOHAN ALANKAMONY ACCOUNTANT MEMBER THE APPEAL OF THE ASSESSEE ARISES OUT OF THE ORDE R PASSED BY THE CIT(A) IN ITA 141/AC-11(3)/CIT(A)-I/07-08 DATED 30. 11.2009 FOR THE ASSESSMENT YEAR 2003-04. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF PLASTIC INJECTION MOLDED COMPONENTS. ASSESSEE H AD FILED ITS RETURN OF INCOME ON 28.11.2003 DECLARING A LOSS OF RS.21 69 4 34. THE RETURN WAS ITA NO.95/BANG/2010 PAGE 2 OF 7 PROCESSED U/S. 143(1) ON 10.3.2004 RESULTING IN A R EFUND OF RS.4 83 709. ON 27.11.2004 NOTICE U/S. 143(2) OF THE ACT WAS IS SUED TO THE ASSESSEE. THE AO OBSERVED THAT AN AMOUNT OF RS.76 25 089 WAS WRITTEN OFF AS BAD DEBT IN THE BOOKS OF ACCOUNTS BY DEBITING P&L ACCO UNT. ON VERIFYING THE RECORDS LD. AO CAME TO A CONCLUSION THAT OUT OF R S.76 25 089/- CLAIMED AS BAD DEBTS BY THE ASSESSEE RS.30 26 214 IS STILL RE COVERABLE. AO CAME TO SUCH A CONCLUSION BECAUSE THE ASSESSEE COMPANY HAD WRITTEN OFF BAD DEBTS IN RESPECT OF ONLY SPECIFIC TRANSACTIONS THOU GH THERE ARE OTHER BALANCES DUE FROM THE SAME DEBTORS CONSIDERED TO BE GOOD. FURTHER THE ASSESSEE COMPANY COULD NOT GET ANY CONFIRMATION OR PRODUCE ANY CORRESPONDENCE BETWEEN THE DEBTORS AND THE ASSESSEE . 3. THE ASSESSEE COMPANY APPEALED BEFORE THE CIT(APP EALS). AFTER DELIBERATIONS ON VARIOUS CASE LAWS CITED BY THE LD. AR AND BY HIS ASSESSMENT ON THE ISSUE LD. CIT(A) ARRIVED AT THE FOLLOWING CONCLUSION : 3.4 I HAVE MADE A DETAILED DISCUSSION ON BAD DEBT IN THE CASE OF M/S. ABB INSTRUMENTATION LTD. IN ITA NO. 188/AC-11(1)/CIT(A)/06-07 DT. 23-11-09 WHICH IS REPRODUCED BELOW FOR READY REFERENCE. 21.1 THE CITED CASE LAWS AS WELL AS THE DETAILS FI LED WERE EXAMINED IN THE LIGHT OF THE WRITTEN SUBMISSION RE MAND REPORT AND REJOINDER THEREON. I HAVE ELABORATED TH E ISSUES INVOLVED IN THE MATTER OF BAD DEBT IN THE CASE OF M /S. IBM GLOBAL SERVICES INDIA PVT. LTD. VIDE ITA NO.42/DC- 11(4)/A-1/07-08 DATED 05-10-2009 AND FIND THAT FACTS BEING SIMILAR THE DECISION IS ALSO BOUND TO BE SIM ILAR. IN THAT CASE DETAILS OF BAD DEBTS WRITTEN OFF WERE FI LED WHICH SHOWED SEVERAL GOVERNMENT COMPANIES AS IN THIS CASE . THE DETAILS FILED BY THE APPELLANT IS ENCLOSED HERE WITH AS ANNEXURE-3 . THE RELEVANT PORTION OF IBM DECISION VIDE SUPRA IS QUOTED BELOW:- ITA NO.95/BANG/2010 PAGE 3 OF 7 2 THE JURISDICTIONAL TRIBUNAL FOLLOWING THE RATIO OF SEVERAL CASES VIZ. (I) SHOBHAN LAL JAIN VS. ACIT (2003) 79 TTJ (DELHI) 446 (II) ITO VS. ANIL H RASTOGI (2003) 86 ITD 193 (MUMBAI) (III) SOUTH EASTERN COAL FIELDS LTD. VS. JCIT (2002) 77 TTJ (NAGPUR) 401 (IV) DCIT VS. OMAN INT. BANK (2006) 286 ITR (AT) 8 (MUM) SPECIAL BENCH HELD THAT IF THE ASSESSEE WRITES OFF ANY DEBT AS IRRECOVERABLE IN THE ACCOUNTS OF THE PREVIOUS YEAR THE SAME HAS TO BE ALLOWED U/S. 36(1)(VII) R.W.S. 36(2) OF IT ACT I HAVE SHOWN MY DISAGREEMENT WITH THE ABOVE PRONOUNCEMENTS OF THE JURISDICTIONAL ITAT WITH REAS ONS. NEVERTHELESS I HAVE UPHOLD THE ADDITION ON ANOTHER REASON I.E. THE MODE OF WRITING OFF . RECORD SHOWS THAT THE ASSESSEE FOLLOWS DOUBLE ENTRY METHOD OF BOOK KEEPIN G. IN OTHER WORDS THE DEBTS WRITTEN OFF MUST BE CREDITED TO THE ACCOUNTS OF THE BORROWERS/TRADE DEBTORS THAT THERE IS NO NECESSITY NOW TO PAY SUCH AMOUNT TO THE APPELLANT. NO SUCH LETTERS HAVE BEEN WRITTEN BY THE APPELLANT. T HUS THE ACTION IS UNILATERAL AND MALAFIDE ONLY TO REDUCE IT S PROFIT AND EVADE TAX THEREON. PROBABLY SUCH LETTERS CANNO T BE PRACTICALLY WRITTEN BECAUSE MOST OF THE DEBTORS OUT OF THE LIST OF 353 ARE REPUTED CONCERNS AND ALSO GOVERNMEN T OR SEMI-GOVERNMENT OR PUBLIC SECTOR ORGANIZATION WHO M AY FEEL OFFENDED BY SUCH UNILATERAL ACTION OF THE APPE LLANT AND MAY TAKE RETALIATORY ACTION. THUS WHAT IS SUGGESTE D IN THE ACT BY INTRODUCING THE CONCEPT OF WRITING OFF IS NOT UNILATERAL BUT BILATERAL. UPON SUCH INTERPRETATION IS BASED THE UNFAVORABLE DECISION AGAINST THE ASSESSEE IN TH E CASE OF (I) SOUTH INDIA SURGICAL CO. LTD. VS. ACIT (2006) 287 ITR 62 (MAD) (II) DHALL ENTERPRISES & ENGINEERS (P) LTD. VS. CIT (2007) 162 TAXMAN 114 (GUJ.) FOLLOWING THE SAME PRINCIPLE ENUNCIATED BY MADRAS A ND GUJRAT HIGH COURTS BUT NOT TROD UPON BY JURISDICTIO NAL ITAT THE ADDITION IS SUSTAINED. 21.2 SUCCINCTLY THE PROCESS OF WRITING OFF A BAD DE BT GETS INITIATED WHEN A DECISION IS TAKEN BY THE ITA NO.95/BANG/2010 PAGE 4 OF 7 PARTNERS/DIRECTORS/PROPRIETORS THAT THE DEBT HAS BE COME BAD AND THEREFORE NECESSARY DEBIT BE MADE IN THE BA D DEBT OR P/L A/C AND CREDIT ENTRY IS PASSED IN FAVOUR OF THE BORROWERS LEDGER ACCOUNT AND GETS COMPLETED WHEN A COMMUNICATION IS SENT TO THE BORROWER THAT THERE IS NO NECESSITY OF REPAYMENT OF THE DEBT BECAUSE THE SAME HAS BEEN TREATED AS IRRECOVERABLE IN THE ACCOUNTS. ONL Y THE ACT OF SUCH COMMUNICATION RENDERS THE BAD DEBT WRITTEN OFF AS IRRECOVERABLE IN THE EYE OF I.T. LAW OR OTHERWISE T HERE IS ALWAYS A POSSIBILITY THAT THE AMOUNT OF DEBT WILL B E REFUNDED BACK ESPECIALLY WHEN THE BORROWERS ARE GOVERNMENT AGENCIES OR REPUTED CONCERNS. IN FACT A FTER RECEIPT OF SUCH CORRESPONDENCE OF UNILATERAL WRITE OFF SOME OF THE CONCERNS MAY FEEL OFFENDED AND MIGHT REFUND THE DEBT FORTHWITH. THUS PRACTICAL APPROACH OF A PRUDE NT BUSINESSMAN ALSO MAKES SUCH CORRESPONDENCE A FINAL STEP OF INFERRING THAT THE BAD DEBT BE TREATED AS IRRECO VERABLE. 21.3 ADMITTEDLY NO SUCH CORRESPONDENCE HAS BEEN MA DE WITH THE BORROWERS OF ANY SORT IN THIS CASE. THERE FORE THOUGH THE PROCESS OF WRITING OFF OF THE BAD DEBT H AS BEEN STARTED IT IS YET TO BE COMPLETED AS IRRECOVERABLE AND HENCE THE DISALLOWANCE OF CLAIM MADE BY THE AO IS HELD JUSTIFIED. THE DECISIONS CITED BY THE AR VIZ. (I) D.I.T (I.T.) VS. OMAN INTERNATIONAL BANK (2009) 313 ITR 128 (BOM). (II) C.I.T. VS. AUTOMETERS LTD. (2007) 292 ITR 345 (DEL) (III) C.I.T. VS. MORGAN SECURITIES AND CREDITS LTD. (2006) 292 ITR 339 (DEL) ARE NOT AT ALL RELEVANT. THESE CASE LAWS LAY DOWN THAT AFTER THE AMENDMENT IN S.36(1)(VII) W.E.F. 01-04-1989 AS SESSEE IS ONLY TO WRITE THE BAD DEBT AS IRRECOVERABLE IN I TS ACCOUNTS AND THERE IS NO OBLIGATION TO PROVE THAT T HE DEBT IS GENUINE OR HAS BECOME BAD. IN FACT I HAVE ONLY ELAB ORATED THE PROCEDURE OF WRITE OFF AND FOUND THE PROCEDURE DEFICIENT SO AS TO MAKE THE BAD DEBTS ELIGIBLE FOR ALLOWANCE IN THE EYE OF LAW. THUS ON INTERPRETATIO N OF LAW POINT AND ANALYSIS OF FACTS INVOLVED I CONSIDER THE DISALLOWANCE MADE BY AO JUSTIFIED. 3.5 IN THIS CASE TOO SUCH FORMALITIES NOT BEING UND ERTAKEN ADMITTEDLY I UPHOLD THE ADDITION AND DISMISS THE GR OUND OF APPEAL. ITA NO.95/BANG/2010 PAGE 5 OF 7 4. LD. AR SUBMITTED BEFORE US THAT THE AMOUNT WHAT HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS AS BAD DEBTS REFERS TO THE TOTAL COST OF REJECTED MATERIALS BY VARIOUS CUSTOMERS DURING THE PAST. W HENEVER THERE IS ANY REJECTION NO MATERIALS ARE RETURNED SINCE THE BIL L RELATES TO ONLY JOB WORK. THE APPELLANT COMPANY BEING IN GREAT FINANCIAL STRE SS VENTURES TO GET BUSINESS FROM ITS CUSTOMERS EVEN WHEN FULL PAYMENTS ARE NOT MADE BY THEM ON THE PRETEXT OF REJECTION. LD. AR FORCEFULL Y ARGUED THAT THE PROVISIONS OF SECTION 36(1)(VII) W.E.F. 1.4.1989 RE QUIRES THE AMOUNT OF BAD DEBTS TO BE ALLOWED WHEN BAD DEBTS ARE WRITTEN OFF IN THE BOOKS OF ACCOUNTS BY THE ASSESSEE AND THE SAME WAS TAKEN INT O ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE IN ANY OTHER P REVIOUS YEAR. LD. AR FURTHER POINTED OUT THAT THE ACT SPECIFICALLY PROVI DES THAT IF THE AMOUNT SO WRITTEN AMOUNT IS RECOVERED DURING ANY OF THE SUCCE EDING ASSESSMENT YEARS THE SAME SHALL BE TREATED AS INCOME FOR THAT PREVIOUS YEAR IN WHICH THE AMOUNT IS SO RECOVERED. 5. LD. DR RELIED ON THE ORDER OF THE LD. CIT(A) AND THE AO. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. SECTION 36(1)(VII) AND 36(2)(I) AS IT STOO D DURING THE RELEVANT PERIOD IS REPRODUCED HEREWITH: 36(1)(VII) SUBJECT TO THE PROVISIONS OF SUB-SECTI ON (2) THE AMOUNT OF [ANY BAD DEBT OR PART THEREOF WHICH IS WR ITTEN AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR T HE PREVIOUS YEAR]: PROVIDED THAT IN THE CASE OF AN ASSESSEE TO WHICH CLAUSE (VI IIA) APPLIES THE AMOUNT OF THE DEDUCTION RELATING TO AN Y SUCH DEBT OR PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHIC H SUCH DEBT OR ITA NO.95/BANG/2010 PAGE 6 OF 7 PART THEREOF EXCEEDS THE CREDIT BALANCE IN THE PROV ISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THE CLAUSE. EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE ANY BAD DEBT OR PART THEREOF WRITTEN OFF AS IRRECOVERABLE IN THE AC COUNTS OF THE ASSESSEE SHALL NOT INCLUDE ANY PROVISION FOR BAD AN D DOUBTFUL DEBTS MADE IN THE ACCOUNTS OF THE ASSESSEE; 36(2)(I) IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PART THEREOF THE FOLLOWING PROVISIONS SHALL APPLY (I) NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTI NG THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHIC H THE AMOUNT OF SUCH BAD DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONEY - LENDING WHICH IS CARRIED ON BY THE ASSESSEE; FROM THE PLAIN READING OF THE SECTION AFTER ITS AME NDMENT W.E.F. 1.4.1989 IT IS VERY CLEAR THAT ONCE THE ASSESSEE WRITES OFF AN AMOUNT AS BAD DEBT IT IS AN ALLOWABLE ALLOWANCE CHARGEABLE TO THE PROFITS OF THE COMPANY. IT IS NOT NECESSARY FOR THE ASSESSEE TO PROVE THAT THE DEBT I S BAD. HOWEVER IF SUCH BAD DEBTS ARE RECOVERED IN ANY SUBSEQUENT YEAR THE SAME IS TREATED AS INCOME FOR THAT YEAR AND CHARGED TO TAX. THUS AS PER LAW WHEN THE ASSESSEE CLAIMS THAT A DEBT HAS GONE BAD PRIMA FAC IE THE REVENUE HAS TO ACCEPT THE DEBT TO BE BAD. THE LD. AR ALSO RELIED UPON THE CASE LAW T.R.F. LTD. V. CIT 230 CTR (SC) 14 [ORDER DATED 9.2.2010 PERTAINING TO ASSESSMENT YEARS 1990-91 1993-94 1994-95] WHEREI N IT WAS HELD THAT AFTER 1 ST APRIL 1989 IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BECOME IRRECOVERABLE. IT IS ENO UGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HOWEVER IN THE PRESENT CASE THE AO HAS NOT EXAMINED WHETHER THE D EBT HAS IN FACT BEEN ITA NO.95/BANG/2010 PAGE 7 OF 7 WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE . THIS EXER CISE HAS NOT BEEN UNDERTAKEN BY THE AO. HENCE THE MATTER IS REMITTE D TO THE AO FOR DE NOVO CONSIDERATION OF THE ABOVE-MENTIONED ASPECT ONLY AN D THAT TOO ONLY TO THE EXTENT OF THE WRITE OFF. 7. FOLLOWING THE DECISION OF THE HONBLE APEX COURT WE ARE OF THE VIEW THAT AO HAS ERRED IN DISALLOWING THE SUM OF RS.30 2 6 214 AS BAD DEBT. WE HEREBY DIRECT THE AO TO ACCEPT THE CLAIM OF THE ASS ESSEE AND ALLOW THE BAD DEBTS TO BE WRITTEN OFF AND COMPUTE TAX ACCORDINGLY . 8. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF MAY 2010. SD/- SD/- ( SMT. P. MADHAVI DEVI ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE DATED THE 21 ST MAY 2010. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. C IT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE.