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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SHRI P.M. JAGTAP, VICE- & MS. SUCHITRA R. KAMBLE
आदेश/O R D E R PER P.M. JAGTAP, VICE-PRESIDENT :
This appeal is preferred by the Revenue against the order of the learned Commissioner of Income-tax (Appeals)-I, Surat (“CIT(A)” in short) dated 23.06.2014.
In Ground No.1, the Revenue has challenged the action of learned CIT(A) in restricting the addition of Rs.2,87,24,679/- made by the Assessing Officer on account of sundry debtors written off to Rs.6,14,213/-.
The assessee, in the present case, is a company which is engaged in the business of mechanical engineering and construction & erection of plant. The return of income for the year under consideration was filed by it on 10.09.2010 declaring a total income of Rs.38,88,48,000/-. The said return was selected for scrutiny and a notice under Section 143(2) of the Act was issued by the Assessing Officer to the assessee on 25.08.2011. In the Profit
ACIT Vs. Neo Structo Construction Ltd AY : 2010-11 2 and Loss Account filed along with its return of income, a sum of Rs.3,00,82,304/- was debited by the assessee-company on account of sundry debtors written off. During the course of assessment proceedings, the assessee-company was called upon by the Assessing Officer to furnish the details regarding the sundry debtors written off. From the details furnished by the assessee, it was noted by the Assessing Officer that actual bills raised by the assessee-company were not entertained as well as certified by the debtor companies. He also noted that the reasons for rejection of the bills raised by the assessee on the debtors as given by the assessee in a tabular form were as under:-
Name of the Company Amount Reason for rejection of bill IPCL, Baroda 4,93,279 The said amount is deducted from the bill & not passed for payment. The said amount is not credited by debtor co. in its books of accounts IOCL 9,50,000 Amount deducted from the bill as free material was issued and the same was adjusted against the Bill. The said amount is not credited by debtor co. in its books of accounts. Hindalco Industries 12,64,272 Amount deducted for wastage of plates Limited provided by the debtor company and the excess claim disallow. Amount not credited by debtor co. in its books of account. Afcons Infrastructure 2,97,979 Consumable items supplied free and Limited amount adjusted against bills raised. No amount has been credited by debtor in the books of accounts. Larsen & Toubro 6,50,831 Bill raised by assessee was reduced as the Limited claim was excess made. The amount is not booked and certified by the debtor co. in its accounts M/s. Reliance 5,34,960 Store items and PPE issued by debtor co. Petroleum Ltd The same was adjusted against the bill. The amount is not booked and certified by the debtor co. in its accounts.
ACIT Vs. Neo Structo Construction Ltd AY : 2010-11 3 M/s. Heuerty 2,27,50,000 The claim of the assessee was not Petrochem India Pvt entertained by the debtor co. The amount Ltd is not booked and certified by the debtor co. in its accounts. M/s. Siemens India Ltd 17,83,358 The claim of the assessee was not entertained by the debtor co. The amount is not booked and certified by the debtor co. in its accounts.
In order to verify the claim of the assessee, the Assessing Officer required the assessee to produce the copies of its accounts from the books of the debtor companies showing that the relevant debts had been credited and shown as payable. The assessee-company, however, failed to comply with this requirement of the Assessing Officer. Keeping in view the same as well as all the facts of the case, the Assessing Officer disallowed the claim of the assessee for deduction on account of bad debts written off to the extent of Rs.2,87,24,679/-.
The disallowance made by the Assessing Officer on account of its claim of deduction on account of bad debts written off was challenged by the assessee in an appeal filed before the learned CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the learned CIT(A) restricted the disallowance of Rs.2,87,24,679/- made by the Assessing Officer on account of bad debts written off to Rs.Rs.6,14,213/- for the following reasons given in paragraph No. 2.3 of his impugned order:-
“2.3 I have considered the facts of the case, basis of disallowance made by AO and submissions of appellant. As is clear that now the issue of bad debt is settled by Hon’ble Supreme Court in view of their various decisions including in the case of TRF Ltd vs. CIT, as mentioned by appellant in its submissions. As per Hon’ble Court only two conditions are required to be satisfied by assessee to claim bad debts as per provisions of section 36(1)(vii) of the Act. Firstly, the amount should be written off as recoverable in the accounts of assessee for the previous year and secondly, the amount, which is ACIT Vs. Neo Structo Construction Ltd AY : 2010-11 4 sought to be written off should have be taken into account as income of the assessee in the previous year relevant to the assessment year or in the earlier previous years. In the case of appellant, while explaining each and every debt, it has shown that the debts have been written off in its books of account during the year and were shown as income in the earlier year/s. The objections raised by AO that debtor companies have not claimed these amounts in their books of account or they have rejected the claims of appellant or TDS is not made on these amounts or these amounts have been claimed excessively or otherwise, do not make any relevance in the light of decision of Hon'ble Supreme Court in the aforesaid case. Since these debts have been written off in the books of appellant in the year under consideration and have already been credited as income in the preceding year/s, same are allowable as expenditure u/s. 36(1)(vii) of the Act. 2.3.1 However, during the appellate proceedings, appellant was asked to furnish the party wise details of these debts supported with documentary evidence to verity whether these amounts have been shown/credited as income in the books of account of preceding year or not. The appellant has been able to furnish most of the details except in the cases of following debtors:-
Sr Name of the Debtor Total amount claimed Details not furnished 1. IPCL Baroda Rs. 4,93,279/- Rs. 2,10,279/- 2. Hindalco Industries Ltd. Rs. 12,64,272/- Rs. 87,639/- 3. Afcons Infrastructure Ltd. Rs. 2,97,979/- RS. 2,97,979/- 4. Reliance Petroleum Ltd. Rs. 5,34,960/- Rs. 18,316/ Total Rs. 6,14,213/- Thus, the appellant could not give any details or any documentary evidence in respect of aforesaid amounts totaling to Rs.6,14,213/- which has been claimed as bad debt but failed to show that these amounts were credited as income in the preceding year/s in its books of account. Thus, the second condition of section 36(1)(vii) of the Act, as held by Hon'ble Supreme Court, has not been fulfilled by appellant to claim the bad debt as expenditure. In view of this, I hold that the amount of Rs. 6,14,213/- is not allowable as an expenditure to appellant u/s. 36(1)(vii) of the Act. The AO is directed to disallow the expenditure of Rs. 6,14,213/- in place of Rs. 2,87,24,679/- disallowed by him. This ground is partly allowed.”
The learned Departmental Representative submitted that there was nothing brought on record by the assessee during the course of assessment proceedings before the Assessing Officer to show that the amount in question written off as bad debt was already offered by the assessee-
ACIT Vs. Neo Structo Construction Ltd AY : 2010-11 5 company as its income in the year under consideration or in the earlier years. He contended that this condition for claiming deduction on account of bad debts written off thus was not satisfied by the assessee and this aspect was completely ignored by the learned CIT(A) while allowing the claim of the assessee for deduction on account of bad debts. He contended that this matter may, therefore, be sent back to the Assessing Officer for verifying as to whether this condition was duly satisfied by the assessee or not.
The learned Counsel for the assessee, on the other hand, submitted that bills were duly raised by the assessee on the concerned debtors and when the amounts of the said bills became irrecoverable for the reasons clearly stated before the Assessing Officer, the same were written off as bad debts in the books of account and deduction was claimed. He contended that the fact that these amounts were reflected as sundry debtors in the books of account of the assessee was sufficient to show that the corresponding bills were raised and accounted for in the earlier years.
We have considered the rival submissions and also perused the relevant material available on record. The only contention raised by the learned DR in support of the Revenue’s case on this issue is that one of the conditions for allowing claim of the assessee for bad debt written off was not satisfied inasmuch as the fact that the amount of bad debts written off having already been offered by the assessee-company as its income in the year under consideration or in the earlier years was not established. As rightly submitted by the learned Counsel for the assessee in this regard, the claim of having raised the bills on the concerned creditors was duly made by the assessee while explaining the reasons before the Assessing Officer for non-acceptance of the said bills by the concerned debtors. We also find
ACIT Vs. Neo Structo Construction Ltd AY : 2010-11 6 merit in the contention of the learned Counsel for the assessee that the fact that these amounts were appearing as sundry debtors in the books of account of the assessee shows that the corresponding bills were duly accounted for by the assessee in its books of account and the income was duly recognized. Moreover, the learned CIT(A) in paragraph No. 2.3 of his impugned order has clearly stated that these debts having been written off in the books of account of the assessee-company in the year under consideration and having already been credited as income in the preceding year(s), the same are allowable as expenditure under Section 36(1)(vii) of the Act. Keeping in view this finding of fact recorded by the learned CIT(A) in his impugned order as well as all other facts of the case, we find no justifiable reason to interfere with the impugned order of the learned CIT(A) giving relief to the assessee on this issue and upholding the same, we dismiss Ground No.1 of the Revenue’s appeal.
In Ground No.2, the Revenue has challenged the action of the learned CIT(A) in restricting the disallowance made by the Assessing Officer on account of Attimari Coolie expenses to 25% of total expenses.
In the Profit and Loss Account filed along with return of income, a sum of Rs.20,95,705/- was debited by the assessee on account of Attimari Coolie expenses. In this regard, it was explained by the assessee that this is a specific feature of the State of Kerala and it has been associated with head load workers and construction workers from the unorganized sector for a long time. It was also explained that since the Attimari has government patronage in the union controlled State of Kerala, the assessee-company has no alternative but to comply with the well-established system. However, in the absence of any evidence filed by the assessee to support and ACIT Vs. Neo Structo Construction Ltd AY : 2010-11 7 substantiate this claim, the entire Attimari Coolie expenses of Rs.20,95,705/- claimed by the assessee were disallowed by the Assessing Officer.
The disallowance of Rs.20,95,705/- made by the Assessing Officer on account of Attimari Coolie expenses was challenged by the assessee in the appeal filed before the learned CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the learned CIT(A) restricted the disallowance made by the Assessing Officer on this issue to the extent of 25% for the following reasons given in paragraph No. 3.2 of his impugned order:- “3.2 I have considered the facts of the case and submissions of appellant. Since my predecessor has already dealt with this issue on identical facts in the preceding year in the case of appellant only and restricted the disallowance to 25% of total expenses, respectfully following the same, I also restrict the disallowance to 25% of total expenses which works out to Rs.5,23,926/-. AO is, therefore, directed to disallow the expenses of Rs.5,23,926/- against the disallowance of Rs.20,95,705/- made by him. This ground is partly allowed.”
We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that the entire amount of Attimari Coolie expenses claimed by the assessee was disallowed by the Assessing Officer for want of supporting evidence without disputing or doubting that the said expenses were fully and exclusively incurred by the assessee for the purpose of business. The disallowance on this issue thus was mainly made by the Assessing Officer on account of unverifiable element involved in Attimari Coolie expenses claimed by the assessee and keeping in view the same, we find no infirmity in the order of the learned CIT(A) on this issue restricting the same to 25% which is quite fair and reasonable. Moreover, the learned CIT(A) has followed the order of his predecessor on a similar issue in assessee’s case for AY 2009-10 where a similar disallowance made by the Assessing Officer
ACIT Vs. Neo Structo Construction Ltd AY : 2010-11 8 was restricted to 25%. At the time of hearing before us, the learned DR has not brought on record anything to show that the said order of the learned CIT(A) giving relief to the assessee on this issue in the immediately preceding year i.e. AY 2009-10 was challenged by the Revenue and the same has been disturbed by the Tribunal. We, therefore, find no justifiable reason to interfere with the order of the learned CIT(A) giving relief to the assessee on this issue and upholding the same, we dismiss Ground No.2 of the Revenue’s appeal.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open Court on 3rd August, 2022 at Ahmedabad.