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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आदेश /O R D E R
PER MAHAVIR SINGH, VICE PRESIDENT:
This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-3, Chennai in dated 27.10.2017. The assessment was framed by the DCIT, Corporate Circle 5(2), Chennai for the assessment year 2014-15 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 10.10.2016.
2 2. The only issue in this appeal of Revenue is as regards to the order of CIT(A) allowing the claim of assessee without verifying bad debts disallowed by AO in earlier years and without verifying the nexus between the overseas debtors and the bad debts written off. For this, Revenue has raised following ground Nos.2 to 7:-
2. The ld CIT(A) has erred in holding that that the recovery by the SBI included the written off amounts which was disallowed by AO in the assessment years 2011-12 and 2012-13.
3. The ld CIT(A) failed to consider that assessee would have various debtors and no proof has been given that the EPC default amount is directly attributable to the bad debts written off and disallowed in earlier years.
4. The ld CIT(A) failed to consider that no direct nexus between the bad debts and the default in repayment of loan to SBI had been established by the assessee.
Ld.CIT(A) failed to consider that assessee had not produced any documentary evidence to establish that default in repayment of loan availed is directly attributable to the collection of dues from the overseas debtors, either before AO or the Ld.CIT(A).
6. The ld CITA) has erred in allowing the claim of assessee when the submissions regarding adjustment of bad debts were not made before the AO during the assessment proceedings. The said submission was made during the appellate proceedings for the first time, only as written submission without any evidence/proof.
7. Ld.CIT(A) has considered and allowed the submissions of assessee without providing any opportunity to the Assessing Officer under Rule 46A.
Briefly stated facts are that the AO on perusal of books of accounts of the assessee noted that an amount of Rs.8,58,46,998/-
3 was recovered by SBI from Export Credit Guarantee Corporation of India (in short ‘ECGC’) on account of default committed towards EPC facility sanctioned to the assessee company. Consequently the same was adjusted towards loan due to SBI. The assessee in its accounts showed this amount of Rs.8,58,46,998/- as loan recovered by SBI from ECGC in schedule 21 as exceptional item in the profit & loss account for the financial year 2013-14 relevant to the assessment year 2014-15. But the assessee while filing return of income in the computation of income of total taxable income, this amount of Rs.8,58,46,998/- was debited / reduced from the total income. It means that the assessee has not considered this amount as income. The AO added this amount as revenue receipt to the returned income of the assessee. Aggrieved, assessee preferred appeal before CIT(A).
The assessee before CIT(A) for the first time filed the details of earlier years written off debtors including overseas customers as under:- FY 2008-09 Rs.14.49 lakhs FY 2009-10 Rs.157.81 lakhs FY 2010-11 Rs.1615.85 lakhs FY 2011-12 Rs.1879.81 lakhs
4 The CIT(A) considering the bad debts written off in earlier years pertaining to overseas customers, as per above chart, considered the claim of ECGC adjusted amount towards SBI loan and bad debts written off and allowed the claim of assessee by observing in para 4.5 as under:- 4.5. Appellant has taken a EPC (Export Packing Credit) facility from the State Bank of India. If any default on the part of the appellant to recover overseas balances, SBI can make a claim on the ECGC as ECGC stood as guarantor. In the appellant's case, there has been a default to collect the overseas balances which is why SBI has made a claim on ECGC and same was adjusted towards its loan account of the appellant. Further, sale proceeds have been offered to tax and claim of bad debts written off have been added back by the AO. It is further argued by the Ld.AR that since AO has already made an addition on account of bad debts written off, then to the extent of addition made on account of bad debts may be given set off against the claim made on the amounting to Rs.8,58,46,998/-. It is the stand of the Ld.AR that the net balance out of Rs.8,58,46,998/- after adjusting, addition made on account of bad debts written off may be considered for taxation. This submission of the Ld.AR seems to be reasonable and genuine. Therefore, AO is directed to adjust additions already made on account of bad debts written off against the said amount of Rs.8,58,46,998/- and balance may be brought to tax. The grounds taken by the appellant are partly allowed.
Aggrieved, now Revenue is in appeal before us.
5. Before us, ld. Senior DR stated that the details of bad debts written off, allowed by AO and CIT(A) directing to AO to set-off of bad debts disallowed by AO in earlier years without verifying the defaulter ledger accounts and proving the nexus between the 5 overseas debtors and the bad debts written off will lead to double deduction. Hence, these two aspects should be verified. The ld. Senior DR tabulated the following details S.No. FY AY Bad debts Bad debts Balance claimed by disallowed claim the assessee by the AO allowed 1 2008-09 2009-10 14.49L -- 14.49L 2 2009-10 2010-11 157.81L -- 157.81L 3 2010-11 2011-12 1615.85L 133.29L 1482.56L 4 2011-12 2012-13 1879.81L 357.44L 1522.37L TOTAL 3667.96L 490.73L 3177.23L He argued that as seen from the table of bad debts claimed by the assessee and allowed by the AO it may be noticed that the total bad debts written off allowed by the AO is Rs.31.77 Cr which is more than the amount received from ECGC i.e., Rs.8.58 Cr. Therefore, the ld CIT(A) is wrong in directing the AO to give set off to the bad debts disallowed by the AO in the earlier years without verifying the defaulter ledger accounts and proving the nexus between the overseas debtors and the bad debts written off. Further, if allowed without verification, it may lead to double deduction. It may also be noticed from the letter of SBI dated 8-8-2014 that out of Rs.8,58,46,998/- a sum of Rs.8,49,97,239/- only has been adjusted towards loan account and the balance of Rs.8,49,759/- has been credited to the assessee's Account no.10983148398 on 14-10-2011.
6 Therefore, in the event of giving relief to the assessee, the relief must be calculated with reference to Rs.8,49,97,239/- only and not Rs.8,58,46,998/- as claimed by the assessee. In view of the above, the ld.Senior DR stated that the issue may be set aside to the file of the AO for necessary verification.
On the other hand, the ld. Counsel for the assessee has not opposed the plea of Revenue as regards to necessary verification and in case of verification, according to ld.counsel, if the earlier years bad debts are disallowed by the AO and the nexus between the overseas debtors and the bad debt written off is proved, the claim of the assessee should be allowed after verification.
After hearing both the sides and going through the case records we noticed that the reasons given by the ld. Senior DR seems reasonable and we noted that the CIT(A) is wrong in directing the AO to give set off to the bad debts disallowed by the AO in the earlier years without verifying the defaulter ledger accounts and without proving the nexus between overseas debtors and the bad debts written off. Hence, we set aside the issue back to the file of the AO to verify the above plea and accordingly allow the claim of assessee in case of verification offered is find right. In 7 term of the above, the appeal of the Revenue is allowed for statistical purposes.
In the result, the appeal filed by the Revenue is partly-allowed for statistical purposes.
Order pronounced in the open court on 20th June, 2023 at Chennai.