M/s. Prashant India Ltd.,, Surat v. The Income tax Officer, Ward-1(4),, Surat

ITA 960/AHD/2007 | 2003-2004
Pronouncement Date: 05-02-2010 | Result: Allowed

Appeal Details

RSA Number 96020514 RSA 2007
Assessee PAN AABCP3785F
Bench Ahmedabad
Appeal Number ITA 960/AHD/2007
Duration Of Justice 2 year(s) 11 month(s)
Appellant M/s. Prashant India Ltd.,, Surat
Respondent The Income tax Officer, Ward-1(4),, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 05-02-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 05-02-2010
Date Of Final Hearing 02-02-2010
Next Hearing Date 02-02-2010
Assessment Year 2003-2004
Appeal Filed On 05-03-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI JM AND A. N. PAHUJA AM) ITA NO.960/AHD/2007 A. Y.: 2003-04 PRASHANT INDIA LTD. BLOCK NO.546 PALSANA CHAR RASTA PALSANA SURAT PA NO. AABCP 3785F VS THE INCOME TAX OFFICER WARD 1 (4) SURAT (APPELLANT) (RESPONDENT) APPELLANT BY NONE(WRITTEN SUBMISSION) RESPONDENT BY SHRI SANJEEV KASHYAP DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-I SURAT DATED 19-1 2-2006 FOR ASSESSMENT YEAR 2003-04 ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS W ELL AS LAW ON THE SUBJECT THE LEARNED CIT(APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING DEPRECIATION OF RS.9 22 128/- ON AGRO DIVISION MEAN 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT THE LEARNED CIT(APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING BAD DEBTS OF RS.8 33 067/- ON AGRO DIVISION. 3. IT IS THEREFORE PRAYED THAT ABOVE DISALLOWANCES MADE BY ASSESSING OFFICER AND CONFIRMED BY THE CIT(APPEALS) MAY PLEASE BE DELETED. ITA NOS.960/AHD/2007 PRASHANT INDIA LTD. 2 2. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE. HOWEVER THE ASSESSEE HAS FILED WRITTEN SUBMISSION WHICH IS TAKEN INTO CONSIDERATION. WE HAVE HEARD THE LEARNED DR AND PER USED THE FINDINGS OF AUTHORITIES BELOW AND CONSIDERED THE MATERIAL AVAIL ABLE ON RECORD. 3. ON GROUND NO.1 THE FACTS OF THE CASE ARE THAT TH E ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE O F SIZED YARN TEXTURISED YARN AND TWISTED YARN. THE ASSESSEE COMP ANY IS HAVING THREE DIVISIONS VIZ TEXTILE DIVISION WIND DIVISION AND A GRO DIVISION. DURING THE YEAR THE TEXTILE DIVISION HAS UTILIZED THE POWE R GENERATED BY WIND DIVISION. THE AGRO DIVISION HAS BEEN CLOSED SINCE 1 998. THE AO NOTED THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE SUBMITTED THAT ITS AGRO DIVISION WAS CLOSED SINCE 1998. THE AO THEREF ORE NOTED THAT THE MACHINERIES OF AGRO DIVISION HAVE NOT BEEN USED ENT IRELY DURING THE CURRENT YEAR. THE AO THEREFORE ISSUED SHOW CAUSE AS TO WHY THE DEPRECIATION ON AGRO DIVISION AMOUNTING TO RS.9 22 128/- BE NOT DISALLOWED OUT OF THE TOTAL CLAIM OF RS.57 72 459/- BECAUSE THIS UNIT WAS CLOSED FOR A LONG TIME. THE ASSESSEE SUBMITTED THAT DEPRECIATION IS A MEASURE OF WEARING OUT AND IT IS CHARGE OF DIMINUTI ON OF THE VALUE OF THE ASSET. IT WAS SUBMITTED THAT WITH EFFECT FROM 1988- 89 THE INCOME TAX ACT HAD ADOPTED THE CONCEPT OF BLOCK ASSETS FOR DEP RECIATION ALLOWANCE. THEREFORE DEPRECIATION SHOULD BE ALLOWED ON BLOCK OF ASSETS AND NOT ON INDIVIDUAL ASSET. THE AO DID NOT ACCEPT THE CONTENT ION OF THE ASSESSEE AND STATED THAT THE ASSESSEE HAD BEEN CLAIMING SEPA RATELY FOR EACH UNIT AND EACH UNIT WAS CONSIDERED BY THE ASSESSEE AS SEP ARATE BLOCK OF ASSETS. THE AO FURTHER STATED THAT AS THE MACHINERY AND PLANT ARE NOT USED FOR THE PURPOSE OF BUSINESS THEREFORE DEPREC IATION CANNOT BE ALLOWED. THE AO THEREFORE NOTED THAT SINCE PLANT AND MACHINERY OF AGRO DIVISION HAS NOT BEEN USED SINCE 1998 THEREFORE B Y RELYING UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F LIQUIDATORS OF PURSA LTD. VS CIT 25 ITR 265 (SC) HELD THAT SINCE PLANT A ND MACHINERY ARE NOT ITA NOS.960/AHD/2007 PRASHANT INDIA LTD. 3 USED FOR THE PURPOSE OF BUSINESS THEREFORE THE AO DISALLOWED THE DEPRECIATION CLAIMED BY THE ASSESSEE IN RESPECT OF AGRO DIVISION. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE AO HAS NOT FOLLOWED THE CONCEPT OF BLOCK OF ASSETS AND THEREFORE DISALLOW ANCE IS UNJUSTIFIED. THE ASSESSEE RELIED UPON THE ORDER OF THE TRIBUNAL IN T HE CASE OF INDUCTOTHERM (INDIA) LTD. 73 ITD 329 (AHD) AS WELL AS PACK WELL PRINTERS VS ACIT 59 ITD 340 (JAB) AND SOUTH EASTERN COAL FIE LDS 77 TTJ 401 (NAG). THE LEARNED CIT(A) CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE IN THE LIGHT OF THE DECISION OF THE HONBLE BOMBAY HIG H COURT IN THE CASE OF HINDUSTAN CHEMICAL WORKS PVT. LTD. VS CIT 124 ITR 5 61 (BOM) DECIDED THE ISSUE AGAINST THE ASSESSEE AND DISMISSED THE AP PEAL OF THE ASSESSEE. THE FINDINGS OF THE LEARNED CIT(A) IN PARA 2.4 ARE REPRODUCED AS UNDER: 2.4 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND OBSERVATION OF THE AO. THE ARGUMENT O F THE APPELLANT THAT CONCEPT OF BLOCK OF ASSETS IS NOT FO LLOWED IS NOT CORRECT. THE APPELLANT HIMSELF HAS BEEN CLAIMING TH E DEPRECIATION IN RESPECT OF THE THREE DIVISIONS SEPA RATELY AS IT WAS IN THE INTEREST OF THE ASSESSEE TO CLAIM SEPARA TE DIVISION IN RESPECT OF SEPARATE PROFITS FOR VARIOUS BENEFITS . ADMITTEDLY THE APPELLANT HAS CLAIMED DEPRECIATION IN RESPECT O F SEPARATE UNITS. THE APPELLANT HAS ADMITTED THAT THE AGRO DIV ISION HAS BEEN CLOSED SINCE 1998 AND EVEN LAPSE OF MORE THAN 5 YEARS THE DIVISION HAS NOT STARTED FUNCTIONING. THE APPEL LANT HAS HIMSELF ADMITTED THAT THE COMPANY HAS BECOME SICK A S DECLARED BY BIFR. IN VIEW OF THIS IT IS CLEAR THAT THERE IS NO SCOPE OF THE AGRO DIVISION FUNCTIONING IN THE NEAR FUTURE ALSO. HENCE IT IS NOT A CASE OF LULL IN THE BUSINESS. IT IS NOT A CASE THAT THE BUSINESS HAS NOT FUNCTIONED FOR A SHORT TI ME DURING THE YEAR. FURTHER THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN CHEMICAL WORKS PVT. LTD. [124 ITR 561] HAS DECIDED THAT IF BUSINESS IS CLOSED THEN NO EXPENSES CAN BE ALLOWED EXCEPT THOSE WHICH ARE REQUIRED FOR KEEPING THE FACTORY GOING. THE HONBLE BOMBAY HIGH COURT OBSERV ED THAT THE INFERENCE DRAWN BY THE TRIBUNAL THAT THE COMPAN Y HAD COMPLETELY STOPPED ITS BUSINESS AND HAD GONE OU T OF BUSINESS AND THAT THE ONLY SOURCE OF INCOME FOR THE COMPANY WAS INCOME FROM PROPERTY WAS JUSTIFIED. TH E COMPANY HAD NOT DURING THE YEARS IN QUESTION CARRIE D ON ANY BUSINESS SO AS TO ENABLE IT TO CLAIM EITHER ITA NOS.960/AHD/2007 PRASHANT INDIA LTD. 4 DEPRECIATION OR A RIGHT TO SET OFF UNABSORBED DEPRECIATION CARRIED FORWARD . IN VIEW OF THIS DECISION ALSO THE DISALLOWANCE OF THE DEPRECIATION BY THE A O IS CORRECT. THE AGRO DIVISION IS PRACTICALLY CLOSED AND THEREFO RE IN VIEW OF THE VARIOUS CITATIONS GIVEN BY THE AO AND THE DECIS ION OF BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN CHEMICAL S (SUPRA) THE DEPRECIATION IS CONFIRMED. THEREFORE T HESE GROUNDS OF APPEAL ARE DISMISSED. 4. THE ASSESSEE IN THE WRITTEN SUBMISSION REITERATE D THE SAME SUBMISSION MADE BEFORE THE AUTHORITIES BELOW AND SU BMITTED THAT SINCE 01-04-1988 THE CONCEPT OF BLOCK OF ASSETS HAS BEEN INTRODUCED IN THE IT ACT FOR THE PURPOSE OF ALLOWING DEPRECIATION REPLA CING THE AGE-OLD CONCEPT OF INDIVIDUAL ASSET. THE BLOCK REPRESENTS T HE TOTAL SUM OF ALL THE ASSETS WITHIN THE BLOCK ONLY. ONCE THE ASSETS GET M ERGED INTO THE BLOCK IT LOOSES ITS IDENTITY COMPLETELY. IT IS THEREFORE SUBMITTED THAT THE LEARNED CIT(A) AND THE AO HAVE COMPLETELY ERRED IN EXAMINING THE CASE FROM THE AFORESAID ANGLE. IT IS SUBMITTED THAT THE CONCEPT OF BLOCK OF ASSETS SHOULD BE CONSIDERED QUA THE ASSESSEE AND NO T UNIT/DIVISION WISE FOR THE PURPOSE OF GRANT OF DEPRECIATION. IT IS STA TED THAT SEPARATE RECORDS ARE MAINTAINED BY THE ASSESSEE FOR DIFFERENT DIVISI ONS FOR THEIR PURPOSE. JUST BECAUSE ASSESSEE MAINTAINS SEPARATE ACCOUNTS O F EACH UNIT WOULD NOT DENY THE DEPRECIATION TO THE ASSESSEE ON THE CO NCEPT OF BLOCK OF ASSETS. IT IS ALSO STATED THAT THE AUTHORITIES BELO W HAVE RELIED UPON IRRELEVANT CITATIONS WHOSE FACTS ARE ALL TOGETHER D IFFERENT. IT IS SUBMITTED THAT IT IS BY NOW ESTABLISHED PRINCIPLE OF LAW THAT THE USER OF THE INDIVIDUAL ASSET HAS TO BE LOOKED INTO ONLY IN THE YEAR THE ASSET IS ACQUIRED AND PUT TO USE AND THAT THE USER SHOULD B E JUDGED VIZ-A-VIZ THE BLOCK. THE ASSESSEE RELIED UPON THE FOLLOWING DECIS IONS: (I) CIT VS RHODOEN SILK MILLS PVT. LTD. (2009) 222 CTR (P&H) 661 IN THIS CASE MACHINERIES OF UNIT NO.1 WERE SOLD AN D THE AO SOUGHT TO TAX THE GAIN AS BALANCING CHARGE U/S 41(2 ) OF THE IT ACT. THIS ITA NOS.960/AHD/2007 PRASHANT INDIA LTD. 5 HAS BEEN NEGATED ON THE GROUND THAT IN SPITE OF SAL E OF MACHINERIES OF UNIT NO.1 THE BLOCK OF ASSETS STILL CONTINUED. THU S BLOCK IS HELD TO BE QUA THE ASSESSEE AND NOT THE UNIT. (II) INDOCTOTHERM (INDIA) 73 ITD 329 (AHD) IN THIS CASE SOME OF THE ASSETS WERE DISCARDED AN D THEREFORE THE AO DISALLOWED THE DEPRECIATION THEREOF. THE HONBLE TRIBUNAL HELD THAT BECAUSE OF THE CONCEPT OF BLOCK OF ASSETS NO PART OF THE DEPRECIATION CAN BE ALLOWED. (III) PACK WELL PRINTERS VS ACIT (1997) 59 ITD 340 (JAB) IN THIS CASE ALSO ONE TRUCK OUT OF THREE TRUCKS W AS NOT PLIED DURING THE YEAR AND THEREFORE DEPRECIATION WAS DIS ALLOWED FOR THE SAME. HONBLE TRIBUNAL APPLYING THE CONCEPT OF BLOCK OF ASSETS DIRECTED THE AO TO GRANT DEPRECIATION EVEN ON THE TRUCK NOT PLI ED DURING THAT YEAR. (IV) SOUTH EASTERN COALFIELDS LTD. VS JCIT (2003) 85 ITD 688 (NAG) 2002) 260 ITR (AT) 1 (NAG) IN THIS CASE THE COMPANY HAD PURCHASED ONE SPECIA L EQUIPMENT PSLE WHICH GOT DAMAGED AFTER A COUPLE OF YEARS AND COULD NOT BE USED. THE COMPANY DID NOT CLAIM DEPRECIATION IN THE RETUR N OF INCOME FILED. HOWEVER DURING ASSESSMENT PROCEEDINGS CLAIM OF DE PRECIATION WAS LODGED EVEN ON THIS EQUIPMENT ON THE GROUND OF CONC EPT OF BLOCK OF ASSETS WHICH WAS REJECTED BY AO. HONBLE TRIBUNAL HAS UPHELD THE CLAIM OF DEPRECIATION ON THE PRINCIPLE OF BLOCK OF ASSETS . 5. ON THE OTHER HAND THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT SINCE AGRO UNI T OF THE ASSESSEE IS ADMITTEDLY CLOSED DURING THE ASSESSMENT YEAR IN QUE STION THEREFORE AUTHORITIES BELOW WERE JUSTIFIED IN NOT ALLOWING DE PRECIATION. THE LEARNED ITA NOS.960/AHD/2007 PRASHANT INDIA LTD. 6 DR SUBMITTED THAT THE EXPENDITURE COULD BE ALLOWED AS DEDUCTION IF IT IS LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IT IS NOT IN DISPUTE THAT THE A SSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURE OF DIFFERENT YARN. THE ASSESSEE COMPANY IS HAVING THREE DIVISIONS NAMELY TEXTILE DIVISION WIN D DIVISION AND AGRO DIVISION. IT IS ALSO ADMITTED FACT THAT TWO DIVISIO NS OF THE ASSESSEE COMPANY NAMELY TEXTILE DIVISION AND WIND DIVISION W ERE WORKING DURING THE ASSESSMENT YEAR IN QUESTION. ONLY THE AGRO DIVI SION HAS BEEN CLOSED SINCE 1998. THE AO MADE THE ASSESSMENT OF THE ASSES SEE FOR ALL THE DIVISIONS ON THE BASIS OF THE RETURN FILED SUPPORT ED BY AUDITED ACCOUNTS. THE ASSESSEE TIME AND AGAIN REQUESTED THE AUTHORITI ES BELOW THAT ITS CASE MAY BE CONSIDERED ACCORDING TO CONCEPT OF BLOCK OF ASSETS FOR THE PURPOSE OF GRANT OF DEPRECIATION. THE CASE LAWS REL IED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE PRIMA FACIE SUPPO RT THE CLAIM OF THE ASSESSEE. HOWEVER THE AUTHORITIES BELOW HAVE NOT E XAMINED THIS ISSUE IN PROPER PERSPECTIVE AND HAVE GONE BY THE FACT THAT O NCE A PARTICULAR UNIT IS CLOSED NO DEPRECIATION IS ALLOWABLE TO THE ASSE SSEE. THE LEARNED CIT(A) HEAVILY RELIED UPON THE DECISION OF THE HONBLE BOM BAY HIGH COURT IN THE CASE OF HINDUSTAN CHEMICAL WORKS PVT. LTD. (SUPRA) IN WHICH THE ASSESSEE COMPANY ORIGINALLY CARRIED ON THE BUSINESS OF MANUFACTURE OF CERTAIN CHEMICALS AND ITS BYE-PRODUCTS AND COMMENC ED ITS BUSINESS FROM OCTOBER 1946. THE COMPANY STOPPED MANUFACTURIN G CHEMICALS IN 1955 DUE TO ACUTE FINANCIAL STRINGENCY. THE ASSETS OF THE COMPANY WERE MORTGAGED AND THE PREMISE OF THE COMPANY WAS GIVEN ON LEASE. IN THAT PREMISE THE HONBLE BOMBAY HIGH COURT HELD AS UNDE R: HELD (I) THAT INFERENCE DRAWN BY THE TRIBUNAL THAT THE COMPANY HAD COMPLETELY STOPPED ITS BUSINESS AND HAD GONE OUT OF BUSINESS AND THAT THE ONLY SOURCE OF INCOME FOR THE COMPANY WAS INCOME FROM PROPERTY WAS JUSTIFIED. THE COMPANY HAD NOT DURING THE YEARS IN QUESTION CARRIE D ON ANY ITA NOS.960/AHD/2007 PRASHANT INDIA LTD. 7 BUSINESS SO AS TO ENABLE IT TO CLAIM EITHER DEPRECI ATION OR A RIGHT TO SET OFF UNABSORBED DEPRECIATION CARRIED FO RWARD. (II) THAT THE PROPERTIES USED FOR PURPOSES OF EARN ING INCOME BY LETTING THEM OUT AND THE INCOME EARNED BY THE COMPANY ON ACCOUNT OF RENTS COULD BE TREATED AS INC OME FROM PROPERTY AND NOT AS INCOME FROM BUSINESS OR OTHER S OURCES. (III) THAT THE EXPENDITURE INCURRED BY THE ASSESSEE SUCH AS OFFICE SALARIES MACHINERY DISMANTLING CHAR GES RENTS RATES TAXES AND INSURANCES POSTAGE TELEGRAMS TE LEPHONES ETC. WHICH WERE REFERABLE TO THE ASSESSEES HOLDIN G ON TO THE ASSETS WERE ALLOWABLE. 6.1 IT MAY BE NOTED HERE THAT THE ASSESSMENTS IN RE SPECT OF WHICH REFERENCE IN THE ABOVE CASE HAS BEEN MADE ARE 1959- 60 TO 1962-63 AND THE HONBLE BOMBAY HIGH COURT DELIVERED ITS JUDGMEN T ON 09-02-1979. AS NOTED ABOVE FACTS OF THIS CASE ARE CLEARLY DIST INGUISHABLE FROM THE FACTS OF THE PRESENT CASE. MOREOVER THE ASSESSEE M ADE A CLAIM BEFORE THE AUTHORITIES BELOW THAT CONCEPT OF BLOCK OF ASSETS H AS BEEN INTRODUCED IN THE INCOME TAX ACT SINCE 1 ST APRIL 1998. THEREFORE THE CASE OF THE ASSESSEE SHOULD HAVE BEEN CONSIDERED BY CONSIDERING THE CONCEPT OF BLOCK OF ASSETS WHICH WAS NO MORE THERE IN THE STAT UTE WHEN THE HONBLE BOMBAY HIGH COURT DELIVERED THE JUDGMENT IN THE MAT TER. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE NOTED ABOVE WE ARE OF THE VIEW THAT THE LEARNED CIT(A) HAS FAILED TO CONSIDER THE ISSUE IN PROPER PERSPECTIVE AND HAS NOT DEALT WITH THE ISSUE AS PE R THE DECISIONS REFERRED TO ABOVE. THE LEARNED CIT(A) PLACED RELIAN CE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT WHICH IS NOT APPLICAB LE TO THE CONCEPT OF BLOCK OF ASSETS FOR THE PURPOSE OF GRANT OF DEPRECI ATION. IN THIS VIEW OF THE MATTER WE ARE OF THE VIEW THAT THE LEARNED CIT(A) HAS NOT EXAMINED THE ISSUE IN ACCORDANCE WITH LAW APPLICABLE TO THE ASSE SSMENT YEAR UNDER APPEAL. THEREFORE IT WOULD BE PROPER AND REASONABL E TO DIRECT THE LEARNED CIT(A) TO RE-DECIDE THE ISSUE IN ACCORDANCE WITH LAW. WE ACCORDINGLY SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND ITA NOS.960/AHD/2007 PRASHANT INDIA LTD. 8 RESTORE THE ISSUE TO HIS FILE WITH DIRECTION TO RE- DECIDE THIS ISSUE ACCORDING TO THE CONCEPT OF BLOCK OF ASSETS IN THE LIGHT OF THE DECISIONS RELIED UPON BY THE ASSESSEE IN THE WRITTEN SUBMISSI ONS AND QUOTED IN THIS ORDER. THE LEARNED CIT(A) SHALL GIVE REASONABL E OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. AS A RESULT GROUND NO.1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. ON GROUND NO.2 THE AO DISALLOWED BAD DEBTS IN A SUM OF RS.8 33 067/-. IN THE ASSESSMENT ORDER THE AO HAS S TATED THAT THE ASSESSEE WAS ASKED TO SUBMIT PARTY WISE DETAILS OF THE AMOUNT IN RESPECT OF THE BAD DEBTS WRITTEN OFF BUT THE ASSESSEE DID N OT FILE ANY SATISFACTORY REPLY. ACCORDINGLY CLAIM OF BAD DEBTS IS DISALLOWED . THE LEARNED CIT(A) CONSIDERING SUBMISSIONS OF THE ASSESSEE CONFIRMED T HE ORDER OF THE AO AND DISMISSED THE APPEAL OF THE ASSESSEE. THE FIND INGS OF THE LEARNED CIT(A) IN PARA 3.4 TO 3.7 ARE REPRODUCED AS UNDER: 3.4 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND OBSERVATIONS OF THE A. O. FIRST OF AL L THE COPIES OF LEDGER ACCOUNT OF THE PARTIES IN RESPECT OF WHI CH BAD DEBTS HAVE BEEN CLAIMED ARE ADDITIONAL EVIDENCE DURING TH E YEAR AND THEREFORE THESE ADDITIONAL EVIDENCES ARE NOT AD MISSIBLE AT THIS STAGE AS THEY WERE NOT GIVEN TO THE A. O. THE APPELLANT HAS NOT GIVEN ANY REASON AS TO WHY HE WAS PREVENTED FROM GIVING THESE EVIDENCES BEFORE THE A. O. HENCE THESE ARE LIABLE TO BE REJECTED ON THIS GROUND ALSO. FURTHER THE APP ELLANT HAS STATED THAT LEDGER ACCOUNTS FROM F. Y. 1995-96 ARE GIVEN AND THE LEDGER ACCOUNTS OF YEARS PRIOR TO F. Y. 1995-96 ARE NOT AVAILABLE BECAUSE THE RECORDS PRIOR TO F. Y. 1995-9 6 ARE NOT REQUIRED TO BE KEPT LEGALLY. PERUSAL OF THE ACCOUNT OF DEEPAK TRADERS SHOWS THAT THE BALANCE IS BEING BROUGHT FOR WARD AS ON 1.4.95. THE BALANCE BROUGHT IS RS.10 17 235/-. T HE NARRATION MENTIONED IN THE ACCOUNT DOES NOT MAKE IT CLEAR THAT THIS WAS PART OF THE SALES ONLY. IN RESPECT OF CITI ZEN TRADERS ALSO THE BALANCE OF RS.15 16 000/- IS BEING BROUGHT FORWARD FROM F. Y. 1994-95 AND THE NARRATION IN THE ACCOUNT OF F. Y. 1995-96 DOES NOT CLEARLY SHOW THAT THE AMOUNT REMAI NING IS PART OF SALES ONLY. THE ACCOUNT OF VIJAY SOLVEX IS COMPLETELY BROUGHT FORWARD FROM F. Y. 1994-95 TO THE EXTENT OF RS.2 00 836/- AND HENCE NOTHING CAN BE SAID AS TO W HETHER ITA NOS.960/AHD/2007 PRASHANT INDIA LTD. 9 THIS AMOUNT PERTAINS TO ANY INCOME OFFERED IN THE E ARLIER YEARS. THE ACCOUNT OF BHOGILAL V. SHAH IS COMPLETEL Y BROUGHT FORWARD FROM F. Y. 1994-95 TO THE EXTENT OF RS.2 04 519/- AND HENCE NOTHING CAN BE SAID AS TO WHETHER THIS AMOUNT PERTAINS TO ANY INCOME OFFERED IN THE EARLIER YEARS. THE ACC OUNT OF BINOD TRADING CO. FOR THE F. Y. 1995-96 DOES NOT IN ANY MANNER SHOW THAT THE AMOUNT IS CONCERNED WITH ONLY SALES AND NOTHING ELSE. SIMILARLY THE ACCOUNT OF H. K. M ARKETING FOR F. Y. 1995-96 DOES NOT SHOW THAT THE BALANCE IS IN RESPECT OF SALES ONLY. THE ACCOUNT OF JETMAL SATYANARAYAN AGAI N DOES NOT SHOW THAT THE AMOUNT OUTSTANDING IN RESPECT OF SALES ONLY. INTERESTINGLY ALL THESE LEDGER ACCOUNT SHOW THAT T HE DEALINGS WITH ALL THE ABOVE MENTIONED SEVEN PARTIES IN RESPE CT OF RAPE EXP. RAW OIL CONSIGNMENT SALES OR SE.RAVE REF. OI L CONSIGNMENT SALES AND SIMILAR SUCH ENTRIES ARE THE RE. THERE ARE MANY OTHER ENTRIES AND HENCE NOTHING CAN BE SAI D AS TO WHETHER THE BALANCE IS IN RESPECT OF SALES ONLY. FU RTHER IT IS CLEAR THAT THE ENTIRE BAD DEBTS IS IN RESPECT OF A GRO DIVISION WHICH HAS ALREADY BEEN CLOSED LONG BACK AND THEREFO RE ITS BAD DEBTS CANNOT BE ALLOWED EVEN IF IT IS ELIGIBL E UNDER SECTION 36(2) BECAUSE THE DIVISION HAS SINCE CLOSE D. THEREFORE THE BAD DEBTS ARE NOT ALLOWABLE EITHER BECAUSE THE CONDITIONS MENTIONED IN SECTION 36(1)(VII) R. W. S. 36(2) ARE NOT FULFILLED AS DISCUSSED BELOW OR THESE DEBTS PERTAIN TO AGRO DIVI SION WHICH HAS BEEN CLOSED AND THIS EXPENDITURE CANNOT BE ALLO WED AS DISCUSSED BELOW. 3.5 AS PER THE PROVISIONS OF SECTION 36(1)(VII) R. W. S. 36(2) BAD DEBTS ARE ALLOWABLE ONLY IF THE FOLLOWING THREE CONDITIONS ARE SATISFIED- I) THE DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR OR OF AN EARLIER PREVIOUS YEAR (II) THE DEBT SHOULD HAVE BECOME BAD (III) THE DEBT SHOULD BE WRITTEN OFF IN THE BOOKS O F ACCOUNTS. 3.6 THE ASSESSEE HAS NOT PROVED THAT THE DEBTS WHIC H ARE CLAIMED AS BAD DEBTS WERE PART OF ITS INCOME OF EIT HER THE CURRENT OR OF AN EARLIER YEAR. EVEN THOUGH IT IS TR UE THAT THE ASSESSEE IS NOT REQUIRED TO PROVE THAT THE DEBT HAS BECOME BAD DEBTS BUT STILL THE DEBTS HAVE TO BE WRITTEN OF F IN THE BOOKS OF ACCOUNTS IN THE CURRENT YEAR. THE ASSESSEE HAS NOT ITA NOS.960/AHD/2007 PRASHANT INDIA LTD. 10 DONE THIS ALSO. THE ASSESSEE HAS NOT PROVED THAT TH ESE DEBTS WERE OFFERED AS INCOME EITHER IN THE CURRENT YEAR O R IN THE EARLIER YEAR. THEREFORE THE CLAIM OF BAD DEBTS IS N OT ALLOWED AT ALL. 3.7 FURTHER THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF HINDUSTAN CHEMICALS WORKS PVT. LTD. (124 ITR 561) H AS DECIDED THAT IF BUSINESS IS CLOSED THEN NO EXPENSES CAN BE ALLOWED EXCEPT THOSE WHICH ARE REQUIRED FOR KEEPING THE FACTORY GOING. THE HONBLE BOMBAY HIGH COURT OBSERV ED THAT THAT INFERENCE DRAWN BY THE TRIBUNAL THAT THE COMPA NY HAD COMPLETELY STOPPED ITS BUSINESS AND HAD GONE OU T OF BUSINESS AND THAT THE ONLY SOURCE OF INCOME FOR THE COMPANY WAS INCOME FROM PROPERTY WAS JUSTIFIED. THE COMPANY HAD NOT DURING THE YEARS IN QUESTION CARRIE D ON ANY BUSINESS SO AS TO ENABLE IT TO CLAIM EITHER DEPRECIATION OR A RIGHT TO SET OFF UNABSORBED DEPRECIATION CARRIED FORWARD . IN VIEW OF THIS DECISION ALSO THE DISALLOWANCE OF ANY EXPENDITURE INCLUDING BAD DEBTS OF THE AGRO DIVISION BY THE AO IS CORRECT. THE AGRO DIVISION IS PRACTICALLY CLOSED AND THEREFORE IN VIEW OF THE DEC ISION OF THE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN CHEMICAL S (SUPRA) THE BAD DEBTS HAVE BEEN DISALLOWED CORRECT LY. THEREFORE THE DISALLOWANCE OF BAD DEBTS IS CONFIRME D. IN VIEW OF THE ABOVE REASONS THE DISALLOWANCE MADE BY THE A O OF BAD DEBTS IS CORRECT AND THESE GROUNDS OF APPEAL ARE DI SMISSED. 8. IT IS STATED IN THE WRITTEN SUBMISSIONS THAT THE SAID DEBTS HAVE BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT AS PER REQ UIREMENT OF LAW AND THAT THE LEARNED CIT(A) ABSOLUTELY ERRED IN CONFIRM ING THE DISALLOWANCE ON CONJECTURE AND SURMISES. NO OTHER MATERIAL IS FI LED IN THE PAPER BOOK TO SUPPORT THE CONTENTION OF THE ASSESSEE. ON THE O THER HAND THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE REQUIREMENTS OF SECTION 36(1) (VII) OF THE IT A CT ARE NOT PROVED IN THIS CASE BY THE ASSESSEE. THEREFORE ADDITION MAY BE CO NFIRMED. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. THE AO SPECIFICALLY A SKED THE ASSESSEE TO PROVIDE PARTY WISE DETAILS AND THE AMOUNT DETAILS I N RESPECT OF THE BAD ITA NOS.960/AHD/2007 PRASHANT INDIA LTD. 11 DEBTS WRITTEN OFF. HOWEVER THE ASSESSEE DID NOT FI LE ANY SATISFACTORY REPLY BEFORE THE AO. THE AO ACCORDINGLY DISALLOWED THE CL AIM OF THE ASSESSEE. THE LEARNED CIT(A) CONSIDERING THE REQUIREMENTS OF SECTION 36(1) (VII) OF THE IT ACT NOTED THAT THOUGH IT IS TRUE THAT THE AS SESSEE IS NOT REQUIRED TO PROVE THAT THE DEBTS HAVE BECOME BAD DEBTS BUT STIL L THE DEBTS HAVE TO BE WRITTEN OFF IN THE BOOKS OF ACCOUNT IN THE CURRENT YEAR WHICH HAS NOT BEEN DONE BY THE ASSESSEE. THE LEARNED CIT(A) ALSO NOTED THAT THE ASSESSEE HAS FAILED TO PROVIDE THAT THESE DEBTS WER E OFFERED IN INCOME IN THE EARLIER YEAR OR IN THE CURRENT YEAR. THE ABOVE FINDINGS OF THE LEARNED CIT(A) HAVE NOT BEEN REBUTTED BY THE ASSESSEE THROU GH ANY MATERIAL IN THE PAPER BOOK. NO MATERIAL OR EVIDENCE IS FILED IN THE PAPER BOOK OR WRITTEN SUBMISSIONS TO CONTRADICT THE FINDINGS OF T HE AUTHORITIES BELOW. ACCORDING TO SECTION 36(1) (VII) OF THE IT ACT DEDU CTION COULD BE ALLOWED IF THE BAD DEBTS OR PART THEREOF IS WRITTEN OFF AS IRR ECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. THE ASSESSEE NEITHER BEFORE THE AUTHORITIES BELOW NOR BEFORE THE TRIBUNA L HAS FILED ANY EVIDENCE OR MATERIAL TO SHOW THAT THE DEBTS OR PART THEREOF HAVE BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT OF THE ASSESSEE FOR THE PREVIOUS YEAR. THEREFORE THE AUTHORITIES BELOW IN THE ABSEN CE OF ANY MATERIAL ON RECORD WERE JUSTIFIED IN DECIDING THE ISSUE AGAINST THE ASSESSEE. HOWEVER WE MAY NOTE THAT THE LEARNED CIT(A) WAS NOT JUSTIFI ED IN PLACING RELIANCE UPON THE DECISION IN THE CASE OF HINDUSTAN CHEMICAL WORKS PVT. LTD. (SUPRA) AS NOTED ABOVE. CONSIDERING THE ABOVE DISCU SSIONS AND THAT IN THE ABSENCE OF ANY MATERIAL OR EVIDENCE ON RECORD T O CONTRADICT THE FINDINGS OF THE AUTHORITIES BELOW WE DO NOT FIND A NY JUSTIFICATION TO INTERFERE WITH THE FINDINGS OF THE AUTHORITIES BELO W. WE CONFIRM THE SAME AND DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE. 10. GROUND NO.3 OF THE APPEAL OF THE ASSESSEE IS GE NERAL IN NATURE AND CALLS FOR NO FINDINGS. ITA NOS.960/AHD/2007 PRASHANT INDIA LTD. 12 11. AS A RESULT APPEAL OF THE ASSESSEE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 05-02-2010 SD/- SD/- (A. N. PAHUJA) ACOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 05-02-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD