UDAYAKUMAR SANGEETHA,COIMBATORE vs. ACIT CIRCLE-1, OOTY

2 - Sr. DR, on the other hand, submitted that the assessee could not prove genuineness of the transactions. Having heard rival submissions and after due consideration of relevant material on record, our adjudication would be as under. 3.1 The assessee being resident individual is stated to be engaged as a clearing and forwarding agent for M/s Intas Pharmaceuticals Ltd. (IPL). The assessee receives commission for its services. The assessee receives the stocks sent by IPL and forwards it to the customers / pharma retailers. The sales collection are collected by the assessee and remitted to IPL. 3.2 During the year, the assessee claimed bad debts written off for Rs.59.97 Lacs. The assessee submitted that to perform the business, the assessee was assisted by the staff. The clearing and forwarding operations include the responsibilities of sales collection and remittance thereof to IPL. This work as entrusted to a senior staff by name Smt. Chitra. However, in financial year 2015-16, it transpired that IPL did not receive full payment for the sales affected during financial years 2012-13 onwards. Upon reconciliation, it transpired that the part of collections made during the aforesaid period was not remitted to the company’s account but the same was diverted to another account opened by her staff. Accordingly, the loss thus suffered was partly paid and partly settled against commission account. The loss thus arising was claimed as bad-debts. 3.3 However, the assessee could not furnish documentary evidences including ledger account to support the same. The Ld. AO held that the bad-debts written off do not pertain to this year but pertains to transactions of earlier years. The assessee did not initiate suitable action to recover amount from the accused even after finding out the identity of the person so involved in the fraudulent activity and no FIR was lodged. Therefore, the assessee’s claim was contradictory and inconsistent. The assessee had no valid explanation towards her claim. Accordingly, the claim was disallowed. 3.4 During appellate proceedings, the assessee’s submissions were subjected to remand proceedings. Upon perusal of accounts / information supplied by IPL, it transpired that the amount due from the assessee to IPL was written off in the books of that company also. Accordingly, there was no debt for the assessee and there was no question of bad debts to be written off. 3.5 Accordingly, the disallowance was confirmed by Ld. CIT(A) as under 4.1 For the following reasons the expenditure claimed as bad debts cannot be allowed. The reasons are enumerated below:- (a) As rightly mentioned by the AO in the Remand Report since the company has claimed this as an expense in its books of accounts and the same has been written off by the company in its books of accounts, the assessee cannot claim it as an expense in its books of accounts. That will amount to double deduction which is not allowable under the income-tax Act. (b) The assessee's argument that it has directly paid 12,41,578/- to the company towards this bad debt and Rs.47,00,964/- was adjusted by the company M/s Intas Pharmaceuticals Ltd. during this FY cannot be accepted. It is true that assessee has paid Rs.12,41,578/- towards clearing of debts during this year. But the adjusted amount of Rs.47,00,564/- cannot be accepted since the Assessing Officer has given a report stating that the bad debt was already claimed by the company in its books of accounts. Apart from that the most important aspect is that the so called adjusted amount i.e Rs.47,00,564/- is only a book adjustment, because the company M/s. Intas Pharmaceuticals Ltd., has not deducted this amount from the income earned by the assessee. It has actually paid the entire commission receipt during the year to the assessee without deducting from it the funds which are due to the company as claimed by the assessee. It is only book adjustment in the books of M/s. Intas Pharmaceuticals Ltd. (c) No FIR was lodged with police authorities nor was any judicial proceedings initiated against the alleged employee. Without any proper documentary evidence it is difficult to accept the claim of the assessee. (d) No Bank statement evidencing payment by the assessee to the company except Rs.12,41,578/- which is seen paid towards certain dues.

From the findings given by Ld. CIT(A), it appear the M/s IPL has undertaken this liability and wrote-off the amount against the assessee. If this so, no further deduction either u/s 36(1)(vii) or u/s 37(1) could be granted to the assessee. However, it also appears that the assessee has made part payment towards settlement of loss and recover certain amount from its employees, the fate / treatment of which is not available on record. In our opinion, the assessee has miserably failed to substantiate its claim. However, keeping in view the principle of natural justice, we deem it fit to grant another opportunity to the assessee to substantiate its claim before Ld. CIT(A). Only if the said loss has been made good by the assessee and the assessee is able to provide documentary evidences in support of the claim, the deduction could be granted to the assessee. The onus would be on assessee to establish these facts. The Ld. CIT(A) is directed to re-adjudicate the issue after affording reasonable opportunity of hearing to the assessee.

The appeal stand partly allowed for statistical purposes.