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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI VIKAS AWASTHYShri Hanuman International Corporation,
आदेश/ ORDER This appeal by the assessee is against the order of Commissioner of Income Tax Appeals-37, Mumbai [in short ‘the CIT(A)’], dated 14/06/2019 for the assessment year 2012-13.
Shri Shreeram Bajaj appearing on behalf of the assessee narrating the facts of case submitted that the assessee is engaged in the business of supply of chemicals. The business model of the assessee is that the assessee procures
2 आअसं. 4450/मुं/2019 (�न.व 2012-13) (A.Y 2012-13) chemicals from M/s. Standard Mills Ltd. (in short ‘SML’) and supply the same to Ganesh Benzoplast Ltd. (in short ‘GBL’) and others on commission basis. The goods are directly supplied by SML to GBL. The transport of goods is organized by the assessee. The payment of goods is directly made by GBL to SML and the transporter. This mode of business is going on for many years. In one of the transactions in FY 2002-03, an amount of Rs.1,66,806/- due from GBL for supplies made by SML was outstanding on account of some dispute. GBL did not pay the said amount to SML. SML adjusted the said amount due from GBL against the commission payable to the assessee. The assessee in its books debited the said amount to GBL’s account as recoverable and reflected the same under the schedule ‘Sundry Debtors’ since financial year 2003-04. During the period relevant to assessment year under appeal, the assessee write off said amount as bad debt irrecoverable. 2.1. The ld.Authorized Representative of the assessee further submitted that during the period relevant to the assessment year under appeal the assessee had further written off a sum of Rs.3,658/- receivable from H. Esmail & Co. on account of transportation charges of material supplied by SML to GBL. The assessee was forced to pay transportation charges as H. Esmail & Co. failed to pay transport charges to the transporter. The said amount is also outstanding since FY 2003-04. The ld. Authorized Representative of the assessee submitted that the assessee has written off irrecoverable dues as bad debts during the period relevant to the assessment year under appeal in accordance with the law laid down by Hon'ble Supreme Court of India in TRF Ltd. vs CIT, 323 ITR 397. 2.2. The Assessing Officer without examining the documents furnished by the assessee rejected assessee’s claim of bad debts written of under section 3 आअसं. 4450/मुं/2019 (�न.व 2012-13) (A.Y 2012-13)
36(1)(vii) of the Income Tax Act, 1961 (in short ‘the Act’). Aggrieved by the assessment order dated 27/10/2014, the assessee filed appeal before the CIT(A). In First Appellate proceedings, the assessee made alternate prayer that the amount may be allowed as Business Loss under section 28 of the Act. The CIT(A) rejected both the contentions of the assessee and confirmed the addition. The ld.Authorized Representative of the assessee pointed that the amounts written off as bad debt were outstanding from the respective parties since financial year 2003-04 and were duly reflected in the books. Since, the amount had become irrecoverable, the assessee has written off the same in its books. As per the amended provisions of section 36(1)(vii), the assessee is not under obligation to show that the debt has in fact become irrecoverable.
Per contra, Shri Sanjay J. Sethi representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee. The ld. Departmental Representative submitted that the assessee has failed to produce invoices raised on the said parties to show that the amount was outstanding.
Both sides heard, order of authorities below examined. The short issue raised in appeal by the assessee is disallowance of assessee‘s claim of bad debts written off amounting to Rs.1,70,464/-. The assessee supply chemicals on commission basis. The modus operandi of the assessee’s business is, the assessee procures chemicals from SML, arrange for the transportation and supply the same to various parties. The payment for goods supplied and transportation charges are directly made by the parties to SML and the transporters, respectively. In the impugned assessment year, the assessee has written off a sum of Rs.1,70,464/- as bad debts irrecoverable, as the assessee
4 आअसं. 4450/मुं/2019 (�न.व 2012-13) (A.Y 2012-13) failed to recover the amount from the parties to whom goods were supplied by SML through the assessee in the financial year 2003-04. One of the company to whom goods were supplied i.e. GBL failed to make payment to SML. SML recovered the amount i.e. Rs.1,66,806/- from the commission payable to the assessee. The assessee debited the said amount to GBL’s account as recoverable, however the assessee failed to recover the same over the period of time. Similarly, in the case of H. Esmail & Co. to whom the assessee had supplied goods failed to pay transportation charges Rs.3,658/-, the assessee had to pay transportation charges, thereafter, the assessee failed to recover the said amount from H. Esmail & Co. Since, the debts had become irrecoverable, the assessee write off the debts in the impugned assessment year. The Hon'ble Supreme Court of India in the case of TRF Ltd. (supra) has held that post amendment to clause (vii) of section 36(1) w.e.f. 1-4-1989, the only requirement is that the debt should be written off in the books. The assessee in its books had shown the amount as irrecoverable from GBL and H. Esmail & Co. and has written of the same in accordance with the provisions of section 36(1)(vii) of the Act. This amount is reflected in the books of the assessee since financial year 2003-04. This fact has not been disputed by the Revenue. In light of the facts of the case, provisions of section 36(1)(vii) of the Act and the judgement of Hon’ble Apex Court, I find merit in the primary contention raised by the assessee. Accordingly, ground No.1 of the appeal is allowed.
5 आअसं. 4450/मुं/2019 (�न.व 2012-13) (A.Y 2012-13)
Since, the primary contention of the assessee has been accepted, the alternate claim to treat the amount as business loss has become academic, hence, the same is not deliberated upon.
In the result, appeal of the assessee is allowed in the terms aforesaid.
Order pronounced in the open Court on Monday, the 05th day of April, 2021.
Sd./- (VIKAS AWASTHY) �या�यक सद�य/JUDICIAL MEMBER मुंबई/ Mumbai, �दनांक/Dated: 05/04/2021 Vm, Sr. PS (O/S)