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Facts
The assessee, engaged in processing meat, fish, fruits, and vegetables oil, claimed bad debts of Rs. 9,43,47,085/-. The Assessing Officer (AO) disallowed this claim as the assessee failed to provide sufficient supporting documents and confirmation from the debtor, Prakash Vanijya Pvt. Ltd.
Held
The Tribunal found that the CBDT circular No.12/2016, which supports the assessee's case, is applicable. The Tribunal noted that the CIT(A)'s findings were cryptic and not based on critical analysis of the documents submitted by the assessee.
Key Issues
Whether the assessee had provided sufficient evidence to substantiate the claim of bad debts written off as per Section 36(1)(vii) read with Section 36(2)(i) of the Income Tax Act.
Sections Cited
36(1)(vii), 36(2)(i)
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MANU KUMAR GIRI
1. The captioned appeal filed by the assessee is directed against order of the Ld. Commissioner of Income Tax (Appeals)(NFAC), Delhi [CIT(A)] dated 18.01.2024 for Assessment Year 2016-17.
The assessee has raised following grounds of appeal:-
1. The Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.9,43,47,085 on account of bad debts written off by the appellant.
2. The Commissioner of Income Tax (Appeals) erred in stating that the appellant did not full fill the requirements of Section 36(1) (vil) read with Section 36 (2) (1) and Para 9.4 of Circular No. 12 dated 30/05/2016.
3. The Appellant submits that the conclusion of the Commissioner of Income Tax was not based on facts and it is submitted that the appellant had fulfilled all the requirements of Section 36(1)(vii) read with Section 36(2)(i) of the Income Tax Act 1961.
4. The Appellant submits that a sum of Rs. 9,43,47.085/- was due from M/s Prakash Vanijya Pvt ltd on account of sale of Mango pulp during the year ended 31/03/2012 for a total revenue of Rs. 12,45.99,414/-. 5. The Appellant submits for the above sum of Rs. 12.45,99,414/- was taken into account as sales during the year ended 31/03/2012.
6. The Appellant during the course of appeal proceedings and during the course of remand proceedings before the Assessing Officer the appellant had filed complete details of transaction including the ledger copies and the financial statements of the appellant for various Assessment Years from AY 2012-13.
7. The Commissioner of Income Tax (Appeals) did not take into account the details filed and in Para 9.4 of the Order concluded in the absence of documents specified in Para 9.4 the appellant had not fulfilled the conditions specified in.
8. The Appellant submits that following documents were submitted during the appeal proceedings before Hon'ble Commissioner of Income Tax (Appeals) in support of the contention of satisfaction of requirements stated in Section 36(2) (i) of the Income Tax Act, 1961.
a. Prakash Vanijya Pvt. Ltd A/c in the Appellant books of account for the FY 2011-12,2012-13,2013-14,2014-15,2015-16 b. Purchase orders and Sales Invoice Copies with M/s Prakash Vanijya Pvt. Ltd c. ITR Acknowledgement for AY 2012-13 d. Balance sheet for FY 2011-12, FY 2012-13, FY 2013-14 and FY 2014-15 e. Schedule of sundry debtors for the year ended 2012,2013,2014,2015 and 2016
The Appellant therefore submits that the act of the Commissioner of the Income Tax (Appeal) in confirming the addition with respect to the bad debts written off amounting to Rs. 9,43,47,085/- was biased and based on incorrect appreciation of facts and provisions of law ignoring and not taking into account the documents filed during the course of appeal proceedings.”
Brief facts are as under:
The assessee company is engaged in the business of production, processing and preservation of meat, fish, fruits, vegetables oil and fats, filed its return of income admitting los of Rs.(-) 6,75,594/-. The case was selected for complete scrutiny and notices were issued calling for details. The AO noticed that assessee had claimed bad debts to the tune of Rs.9,43,47,085/- in respect of M/s. Prakash Vanijya Pvt. Ltd for sale of goods and a sum of Rs.12,45,99,414/- was debited for sale of mango pulp during the year ended 31.03.2010. The AO required the assessee to furnish return of income, profit & loss account and assets & liabilities starting from the year transactions took place to the current year relating to evidence in respect of Rs.3,02,52,329/- out of total sum of Rs.12,45,99,414/-. Accordingly, the assessee furnished the requisite details as under:-
Year Opening Sum of Sum of Balance ended Balance debits credits 31.03.2012 0 14,19,32,883 1,73,33,469 12,45,99,414 31.03.2013 12,45,99,414 0 0 12,45,99,414 31.03.2014 12,45,99,414 7,31,930 3,02,52,329 9,50,79,015 31.03.2015 9,50,79,015 0 0 9,50,79,015 31.03.2016 9,50,79,015 0 7,31,874 9,43,47,085 However, the assessee has not provided requisite details / confirmation letters from concerned parties with reference to sale made by the assessee. Even, for the notice issued by the AO u/s.133(6) to M/s. Prakash Vanijya Pvt. Ltd, there was no response received. Further, for the summons issued by the AO on 07.12.2018 to the five directors of the assessee company also there was no compliance. Therefore, the AO has disallowed the claim of bad debts written off by the assessee amounting to Rs.9,43,47,085/- and added the same to the income of the assessee.
Aggrieved, the assessee has challenged order of assessment before the Ld.CIT(A). The Ld.CIT(A) after analysing the facts of the assessee has observed in para 9.3 to 9.5 as under:- “9.3 Thus, contrary to appellant's claim that only one condition has been prescribed, there are actually two conditions prescribed in the Circular, viz., (a) if it is written off as irrecoverable in the books of accounts of the assessee for that previous year (which is fulfilled) and (b) it fulfils the conditions stipulated in the sub section (2) of sub-section 36(2) of the Act. These two are connected by the word "and" which means that both the conditions must be simultaneously fulfilled and not in isolation.
9.4. As mentioned briefly above, the place where sale of 14,19,32,883/-, claimed to have been made in FY 2011-12 should have been shown, was Trading and Profit & Loss Account of that year which formed part of Income tax return for AY 2012-13. So, assessee should have produced the following:
(i) Copy of Trading and Profit & Loss Account of that year FY 2011-12 which formed part of Income tax return for AY 2012-13 (ii) Schedule showing party-wise break-up of total sale (showing the name and amount of Rs. 14,19,32,883/- of Prakash Vanijya Pvt Ltd in it) for FY 2011-12 (iii) Copy of sale account in ledger (showing the sale of Rs. 14,19,32,883/- to Prakash Vanijya Pvt Ltd in it) for FY 2011-12 (iv) Copy of account of Prakash Vanijya in the ledger of assessee company for FY 2011-12 showing the amount of Rs. 14, 19,32,883/- as sale during the year (v) Copies of invoices of sale to Prakash Vanijya in FY 2011-12 (vi) Confirmation of account from Prakash Vanijya or copy of account of assessee in the ledger of Prakash Vanijya (vii) Copy of balance sheet along with Schedules for all years since AY 2012-13 up to AY 2016-17 showing M/s Prakash Vanijya Pvt Ltd in it with outstanding balance of Rs. 12,45,99,414/-, Rs. 12,45,99,414/-, Rs. 9,50,79,015/-, Rs. 9,50,79,015/- and Ra 9,43,47,085/-as on 31.3.2012, 31.3.2013, 31.3.2014, 31.3.2015 and 31.3.2016 (vii) Audit reports in respect of such Trading and Profit & Loss account and Balance Sheets.
Then only it could have been proved that "such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year" as required in section 36(2)(1) of the Act.
In fact, as mentioned in Para 3 and 3.1 supra, AO wanted many such things but assessee did not comply fully to the same. Instead, the assessee produced ledger extracts of the said parties for different years, details of sundry debtors for different years, details of Custom duty paid, copies of invoices, purchase orders to evidence the sale of goods to the subject parties. It is obvious that for verification of whether 'such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year or not, details of customs duty, purchase orders of assessee, standalone or sample invoices are not relevant.
9.5. On the basis of above discussion, I feel that the appellant has failed to fulfill the requirements of section 36(1)(vii) read with 36(2)(i) and Para 4 of Circular no. 12 cited supra.” The CIT(A) also sought support to the guidelines laid down by the Hon'ble Supreme Court in the case of PCIT Vs. Khyati Realtors Pvt.Ltd. (SLP (Civil) No.672 of 2020) (2022) 141 taxmann.com 461, by observed as under:
“it is evident that condition of section 36(2) must be fulfilled and it is the onus of assessee to prove. In the present appeal, as discussed thread bare in para 9.4 supra, the appellant failed to prove that it fulfilled the requirement of section 36(2)(i) of the Act.”
Aggrieved by the order of the CIT(A), now assessee is in present appeal before us.
The learned counsel for the assessee has referred to para 6 of the Ld.CIT(A) order and contended that the AO in his remand report has accepted that assessee has filed all documents except confirmation letters from the said parties. The observation of the CIT(A) in para 6 of the impugned order is reproduced as under:- “6. The submissions made during the appeal proceedings were sent to AO and Remand Report was called by the CIT(A). AO has submitted Remand Report dated 30.10.2019 and has made following observation:
"Before the Ld.CIT(A), the assessee had furnished details such as.
Ledger extracts of the said parties for different years 2. The nature of transaction is explained 3. Details of Sundry debtors for different years is furnished 4. Details of Custom duty paid 5. Copies of invoices, purchase orders to evidence the sale of goods to the subject parties.
However, neither during the course of assessment proceedings nor in the submission made before the Ld.CIT(A), the assessee has not established the genuineness of the transaction under reference, namely a. No confirmation letters from the said parties were filed.”
The learned DR has relied upon the impugned order and pleaded for dismissal of the appeal filed by the assessee.
We have heard rival submissions and perused the paper book filed by the assessee. Before us, the assessee has filed the following papers as per index below:
9. We find that the CBDT circular No.12/2016 dated 30.05.2016 heavily supports the case of the assessee. Even the aforesaid circular has taken into the judgment of the Hon’ble Supreme Court in the case of the TRF Ltd. The present AY is 2016-17 on which this circular is squarely applicable. We also note that the findings of the ld.CIT(A) in para 9.7 of the CIT(A) order which reads as ‘In the present appeal, as discussed thread bare in Para 9.4 supra, appellant failed to prove that it fulfilled the requirement of section 36(2)(i)’ is cryptic and not based upon the critical analysis of the documents filed by the assessee. We further note that the findings of the ld.CIT(A) in para 9.7 is contrary to the documents on record (Pages 7-130 of paper book). Even the past Income Tax Returns specifically show that the assessee satisfies the requirements of section 36(2). We furthermore notice that in remand proceedings, the AO has not raised any objection regarding the non- fulfilling the conditions of section 36(2). Hence, reference to the case Khyati Realtors Pvt Ltd [2022] 289 Taxman 60 SC dehors the facts of this is not justified. Therefore, we delete the addition made by the AO.
In result, the appeal of the assessee is allowed.
Order pronounced in the open court on 09th April, 2025