SHRI MOHAN JAIN,INDORE vs. INCOME TAX OFFICER- 1(2), UJJAIN

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ITA 605/IND/2017Status: DisposedITAT Indore05 February 2019AY 2014-156 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that after April 1, 1989, it is sufficient if the bad debt is written off in the assessee's accounts. Following the Supreme Court's decision in M/s. TRF Limited, the AO was directed to allow the claim.

What were the facts?

The assessee claimed a bad debt of Rs. 1,63,43,622/- on goods sold to NSEL, which was disallowed by the Assessing Officer as premature. The CIT(A) confirmed this disallowance.

What were the issues?

Whether the disallowance of bad debt claimed by the assessee was justified, considering the debt was written off in the accounts due to fraud at NSEL.

Which sections of the Income-tax Act were involved?

Section 36(1)(vii)

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Income Tax Appellate Tribunal, INDORE BENCH, INDORE

Before: SHRI KUL BHARAT & SHRI MANISH BORAD

For Appellant: Shri Pavan Ved, A.R
For Respondent: Shri V.J. Boricha, D.R
Hearing: 24.01.2019Pronounced: 05.02.2019

आदेश / O R D E R

PER KUL BHARAT, J.M: This appeal by the assessee is directed against order of the CIT(A), Ujjain dated 16.6.2017 pertaining to the

[ Mohan Jain, Indore] assessment year 2014-15. The assessee has raised following grounds of appeal:

1. The CIT(A) erred in confirming disallowance of bad debts of Rs.1,63,43,622/-.

2.

The Ld. CIT(A) erred in not allowing the deduction u/s 80C in respect of PPF contribution. 3. The order of Ld. CIT(A) is obviously incorrect and perverse hence cost of this appeal be allowed exercising your discretion u/s 254(2B). 4. The appellant reserves right to add amend or alter any of the grounds of appeal

1.

as above. Prayer for Interim relief: a. The order of Ld. CIT(A) appeal is prima facie perverse hence an interim order be passed granting total stay of recovery of demand. b. In view of the above reason, the appeal be heard out of turn.

2. The facts giving rise to the present appeal are that case of the assessee was picked up for scrutiny assessment and the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter called as ‘the Act’) was framed vide order dated 16.12.2016. The Assessing Officer (in short ‘A.O.’) while framing the assessment, disallowed claim of bad debt amounting to Rs.1,63,43,622/- as claimed on the basis that such claim is premature.

[ Mohan Jain, Indore] 3. Aggrieved by this, the assessee preferred an appeal before the Ld. CIT(A), who after considering the submissions confirmed the disallowance of bad debt. Now assessee is in further appeal.

4.

Ground No.1 is against disallowance of bad debt claimed. Ld. Counsel for the assessee reiterated the submissions as made in the written submissions. Ld. Counsel for the assessee submitted that the assessee had sold goods to NSEL on various dates. He drew our attention to paper book where the contract notes are enclosed. A fraud came to the notice of the assessee in National Spot Exchange Limited (NSEL). Therefore, the amount was written off and claimed as bad debt. Ld. Counsel submitted that both the authorities below have disallowed the claim overlooking the ratio laid down by the Hon'ble Supreme Court in the case of M/s. TRF Limited Vs.

[ Mohan Jain, Indore] CIT (2010) 323 ITR 397 (SC) and also circular No.12 of 2016 issued by the Central Board of Direct Taxes (CBDT).

5.

Ld. D.R. opposed the submissions and supported the order of the A.O. In the rejoinder, the Ld. Counsel for the assessee submitted that the recovery proceedings of part of sum is made through the court, which has been duly offered for tax, therefore, it cannot be said that the amount has not become bad.

6.

We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. the Hon’ble Supreme Court in the case of M/s. TRF Limited Vs. CIT (supra) has held as under:

“For the sake of clarify, we reproduce herein below the provisions of section 36(1)(vii) of the Act, both prior to April 1, 1989 and post April 1, 1989. “Pre-April 1, 1989: 36. Other deductions – (1) the deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28--… [ Mohan Jain, Indore] (vii) subject to the provisions of sub-section (2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year. Post-April 1,1989: 36. Other deductions—(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28--… This position in law is well settled. After April 1, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in the accounts of the customer’s account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from Sunday debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the above mentioned aspect only and that too only to the extent of the write-off.”

7.

There is no dispute with regard to the fact that the assessee has written off the debt and it is also not in dispute that proceedings against the NSEL is pending before the courts. Therefore, following the ratio laid down by the Hon'ble Supreme Court in the case of M/s. TRF Limited Vs. CIT(supra), we direct the A.O. to allow the claim of bad debt.

8.

Apropos to Ground No.2, no argument is made by the Ld. Counsel for the assessee and he has not pointed out as [ Mohan Jain, Indore] what was the claim before the authorities below, therefore, in the absence of the same, this ground of the assessee’s appeal is rejected.

9.

Ground No.3 is general in nature and needs no separate adjudication.

10.

In the result, appeal filed by the assessee is partly allowed.

Order was pronounced in the open court on 05.02.2019.

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