VANTAGE ADVERTISING PRIVATE LIMITED,CHENNAI vs. DCIT, CIR-12(2), KOLKATA, KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “C” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA (सम� �ी ए.ट�. वक�, �या�यक सद�य एवं डॉ ए.एल. सैनी, लेखा सद�य) [Before Shri A. T. Varkey, JM & Dr. A.L. Saini, AM]

I.T.A. No. 23/Kol/2017 Assessment Year: 2010-11

Vantage Advertising Pvt. Ltd. Vs. Deputy Commissioner of Income-tax, (PAN: AABCV1202B) Circle-12(2), Kolkata. Appellant Respondent

For the Appellant S/Shri J. P. Khaitan, Sr. Advocate & Pratyush Jhunjhunwala, Advocate For the Respondent Dr. P. K. Srihari, CIT, DR

Date of Hearing 09.12.2019 Date of Pronouncement 26.02.2020

ORDER Per Shri A.T.Varkey, JM: This is an appeal preferred by the assessee against the order of Ld. CIT(A)-4, Kolkata dated 07.10.2016 for AY 2010-11.

2 I.T.A. No. 23/Kol/2017 Vantage Advertising Pvt. Ltd. Assessment Year: 2010-11 4. So, in the reassessment proceedings pursuant to Ld. Pr. CIT’s order the AO noted that the assessee had claimed “provision for doubtful debts written back” amounting to Rs.71,25,039/-. The AO observed from a perusal of the schedule 15 of Audited Accounts that the assessee had credited Rs.30,46,666/- as provision for doubtful debts returned back. So, according to AO, the balance of Rs.71,25,039 – Rs.30,46,666 i.e. Rs.40,78,373/- still remains unexamined and, therefore, the AO asked the assessee to furnish the details of addresses of the sundry creditors and detail statement in respect of whom the assessee claimed bad debts/doubtful debts to the tune of Rs.40,78,373/-. The AO acknowledges that the assessee furnished the addresses of the alleged creditors dated 04.08.2015. However, according to him, in most of the cases, the full addresses were not given like the Postal Index Numbers (PINs). Accordingly, the AO had to collect the complete PINs from the system and thereafter notices u/s. 133(6) of the Act were issued to the six (6) parties named in the reassessment order at pages 1& 2.

“4.3. I have considered the submission of the ARs of the appellant in the disputed matter in the backdrop of the assessment order. I find that the issue relates to claim of bad debt written off amounting to Rs.40,78,373/-. The appellant has explained that it has fulfilled the conditions specified in section 36(1)(vii) of the Act and therefore its claim should have been allowed by the AO. It has relied upon several decisions more particularly the Apex court's decision in the case of TRF Limited v. CIT (2010) 323 ITR 397 (SC) wherein it has been held that it is not necessary for the assessee to

3 I.T.A. No. 23/Kol/2017 Vantage Advertising Pvt. Ltd. Assessment Year: 2010-11 establish that the debt, in fact, has become irrecoverable and the accounting entry for write off is sufficient to claim the deduction for bad debts. The AR has also relied upon the recent circular of CBDT on 30.05.2016 in relation to the litigation on the issue of allowability of bad debt that is written off as irrecoverable in the accounts of the assessee. I find that the AO has considered all these submissions and made enquiries to verify the genuineness of debtors which were written off by the appellant during the year, as either they had left or they were not known at the specified address. Thus the genuineness of these debtors itself was not established by the appellant. The decision of Apex Court in the case of TRF Ltd mentioned herein above as well as circular of the CBDT are in respect of genuine debtors which are just required to be written off in the accounts and are to be allowed as deduction. In the instant case the existence of debtors itself is in serious doubt so the disallowance made by AO is held to be justified. Moreover, the AR has also failed to explain with corroborative evidence as to when these bad debts were offered as income of the appellant in any of the previous years. In absence of these necessary evidences it cannot be said that the appellant has fulfilled all the conditions laid down in section 36(1)(vii) of the Act. These grounds are dismissed.” Aggrieved, assessee is before us.

4 I.T.A. No. 23/Kol/2017 Vantage Advertising Pvt. Ltd. Assessment Year: 2010-11 and page 126 gives the address of forty one debtors which were given to both AO & Ld. CIT(A). Thus, we note that the amount actually written off in this year from the forty one debtors have been recognized as income by the assessee in the earlier years and accepted by the department in the earlier years and tax was computed accordingly. Thereafter, when six out of forty one debtor were randomly selected by the AO to issue notices which were returned/elicited no reply, does not mean that they are bogus; and adverse inference against assessee could not have been drawn against assessee on the reply of M/s. Kinetic Advertising without allowing the assessee to cross examine them. So, when the assessee had offered the income in the earlier years from these debtors, and the department had accepted the same (page 125 paper book) then, merely because the notice could not be served upon the randomly selected six debtors cannot be a ground to disbelieve the existence of all the forty one debtors, when the fact remains the debtors can change their addresses. And moreover, when the debtors could not be found in the address which the assessee had with it, it goes on to show that those debtors could not be traced for enforcing recovery of debts. Be that as it may be, let us look into the law governing the claim made by the assessee.

“subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year.” From the plain reading of the provisions of section 36(1)(vii) of the Act, it is abundantly clear that from AY 1989-90 onwards, the preconditions for allowability of a debt is that the Assessee should have bona fide believe that the debts are not recoverable and that they are written off in the books of accounts. Hence, it is not necessary for the Assessee to establish that the debts become bad in the previous year under consideration for claiming the same as deduction.

5 I.T.A. No. 23/Kol/2017 Vantage Advertising Pvt. Ltd. Assessment Year: 2010-11 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 years. In this connection, we note that the Assessee has already provided the details of the year in which the revenue pertaining to bad debts were offered to tax before the authorities below. We also note that the Central Board of Direct Taxes ('the CBDT') vide Circular No. 551 dated 23 January 1990 has provided that bad debt written off is allowed as deduction in the year in which it is written off as irrecoverable in the account. The relevant extracts of the circular is produced below for your ease of reference:

"6.6 The old provisions of clause (vii) of sub-section (1) read with sub-section (2) of the section laid down conditions necessary for allowability of bad debts. It was provided that the debt must be established to have become bad in the previous year. This led to enormous litigation on the question of allowability of bad debt in a particular year, because the bad debt was not necessarily allowed by the Assessing Officer in the year in which the same had been written off on the ground that the debt was not established to have become bad in that year. In order to eliminate the disputes in the matter of determining the year in which a bad debt can be allowed and also to rationalize the provisions, the Amending Act, 1987, has amended clause (vii) of sub- section (1) and clause (i) of sub-section (2) of the section to provide that the claim for bad debt will be allowed in the year in which such a bad debt has been written off as irrecoverable in the accounts of the assessee. 6.7 Clauses (iii) and (iv) of sub-section (2) of the section provided for allowing deduction for a bad debt in an earlier or later previous year. if the Income-tax Officer was satisfied that the debt did not become bad in the year in which it was written off by the assessee. These clauses have become redundant, as the bad debts are now being straightaway allowed in the year of write off. The Amending Act, 1987 has, therefore, amended these clauses to withdraw them after the assessment year 1988- 89.”. 10. Therefore, we note that it has fulfilled the two conditions for claiming the debts written off during the year under consideration as bad debt under section 36(1)(vii) of the Act i.e. the amount was shown as income in earlier years and the amount has been written off in the accounts for the year under consideration. Hence, in view of the above circular, the Assessee would be entitled to deduction of the impugned dad debt written off during the year under consideration. Further, we note that the issue as to whether the assessee is required to justify the writing off the debts in the books of accounts as bad in the year has now been settled and decided by the decision of the Supreme Court in the case of TRF limited v. CIT (2010) 323 ITR 397 (SC) wherein it has been held that it is not necessary for the assessee to establish that the debt, in fact,

6 I.T.A. No. 23/Kol/2017 Vantage Advertising Pvt. Ltd. Assessment Year: 2010-11 has become irrecoverable and the accounting entry for write off is sufficient to claim the deduction for bad debts. The Hon’ble Supreme Court held as under:

“In these appeals, we are concerned with Assessment year 1990-1991 and Assessment Year 1993-1994. Prior to 1st April, 1989, every assessee had to establish, as a matter of fact, that the debt advanced by the assessee had, in fact, become irrecoverable. That position got altered by deletion of the word “established”, which earlier existed in Section 36(1)(vii) of the Income Tax Act, 1961.” For the sake of clarity, we reproduce herein below provisions of section 36(1)(vii) of the Act, both prior to 1st April, 1989 and post 1st April, 1989: "Pre-1st April, 1989: Other deductions. 36.(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- (i) to (vi) xxxx xxxx xxxx (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-1st April, 1989: Other deductions. 36.(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- (i) to (vi) xxxx xxxx xxxx (vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year ." "This position in law is well settled. After 1st April 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the debt is written off as irrecoverable in the books of account of the assessee." 11. Therefore, in the light of the facts and the law and the Hon’ble Supreme Court decision in TRF Ltd. (supra), we are of the considered opinion that the claim of bad debt actually written off in the books of the assessee should be allowed as deduction and, therefore, we allow the appeal of the assessee.

7 I.T.A. No. 23/Kol/2017 Vantage Advertising Pvt. Ltd. Assessment Year: 2010-11 12. Ground no. 5 is against the action of the Ld. CIT(A) in not allowing the credit of TDS amounting to Rs.2,12,475/- short granted by the AO. After hearing both the sides, we are of the considered opinion that this factual issue needs to be verified by AO and if the credit of TDS has not been given to the assessee for Rs.2,12,475/-, then it should be given in accordance to law. With this direction to AO, this ground of appeal of assessee is disposed off.

Order is pronounced in the open court on 26th February, 2020.

Sd/ (A.L. Saini) Sd/-(A. T. Varkey) Accountant Member Judicial Member Dated: 26th February, 2020 Jd. Sr. PS Copy of the order forwarded to: 1. Appellant – M/s. Vantage Advertising Pvt. Ltd., C-56, First Avenue, Anna Nagar East, Chennai-600102. 2. Respondent – DCIT, Circle-12(2), Kolkata. 3. CIT(A)-4, Kolkata. (sent through e-mail) 4. CIT, Kolkata. 5. DR, Kolkata Benches, Kolkata. (sent through e-mail)