M/S SANKESHWAR MINERALS PVT LTD ,HUBLI vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-1(1), HUBLI

This appeal is filed by the assessee which is directed against the order of ld. CIT (A), Hubli dated 03.07.2017 for Assessment Year 2010-11.

The grounds raised

The learned CIT(A) has erred in confirming the action of the Assessing Officer (`A0') in disallowing a sum of Rs 1,46,088 being bad debts written off in the books of the company in respect of dues from Omkar Marketing without appreciating that same is allowable as per the provisions of section 36(1)(vii) of the Income Tax Act, 1961.

I have considered the rival submissions. I find that as per the judgment of Hon’ble Delhi High Court rendered in the case of CIT Vs. Ansal Land Mark Township (P) Ltd. (supra), it was held that second proviso to section 40(a)(ia) of the Act is declaratory and curative in nature and it has retrospective effect from 01.04.2005 and therefore, the said proviso is applicable in the present case. As per the second proviso to section 40(a)(ia), it is provided that any person including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of IT Act, being Chapter XVII on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if three conditions are satisfied. These three conditions are that i) has furnished his return of income under section 139; ii) has taken into account such sum for computing income in such return of income; and iii) has paid the tax due on the income declared by him in such return of income;

In Para no. 7 of his order, it is noted by CIT(A) that the assessee has not furnished anything to show that, the payees have paid tax on such income / interest / royalty. Before the Tribunal, the assessee has brought on record certain additional evidences along with the affidavit of Shri Ravindra D Sankeshwar, Managing Director of the assessee company and the additional evidences includes the form no. 26A, along with the certificate from the CA in respect of payment of interest to Sundaram Finance Ltd. Another form no. 26A is enclosed in respect of payment of royalty of Rs. 55,150/- to M/s. VRL Logistics Pvt. Ltd. and another form no. 26A is enclosed in respect of payment of Rs. 43,400/- to M/s. Mohan Printing Press and CA certificate in this regard is also enclosed that such payee has duly considered amount received by it from present assessee during the Financial Year 2009-10. In my considered opinion, this additional evidence deserves to be admitted and the matter should be restored back to the file of AO for fresh decision in the light of these evidences and in the light of this judgment of Hon’ble Delhi High Court rendered in the case of CIT Vs. Ansal Land Mark Township (P) Ltd. (supra). Accordingly, I set aside the order of CIT(A) on this issue and restore the matter back to the file of AO for fresh decision in the light of above discussion after providing adequate opportunity of being heard to assessee. Accordingly ground nos. 2 and 3 are allowed for statistical purposes.

Regarding ground no. 4, it was submitted by ld. AR of assessee that this is not the case of the AO or CIT(A) that the assessee has not written off bad debts in the books of account and therefore, as per the judgment of Hon’ble Apex Court rendered in the case of T.R.F. Ltd. Vs. CIT as reported in 190 Taxman 391 (SC), no disallowance should be made in this connection. The ld. DR of revenue supported the orders of authorities below.

I have considered the rival submissions. I find that as per the assessment order, the AO says that it is observed that an amount of Rs. 1,46,088/- due from its sister concern M/s. Omkar Marketing has been written off as bad debts. It is further noted by the AO that it was a stand before him that the said sister concern did not receive the amount due from its customers and therefore, the said amount has been written off. The disallowance was made by the AO on this basis that since the debt is recoverable from the sister concern, it cannot be accepted that the debt has become bad. This is not the objection of the AO that bad debts had not been written off in the books of accounts. As per the judgment of Hon’ble Apex Court rendered in the case of T.R.F. Ltd. Vs. CIT (supra), after 01.04.1989, it is not necessary for assessee to establish that debt, in fact, has become irrecoverable and it is enough if bad debt is written off as irrecoverable in accounts of assessee. Hence in the facts of the present case, in my considered opinion, the disallowance made by the AO and confirmed by CIT(A) is not justified. Hence I delete the same. Ground no. 4 is allowed.

In the result, the appeal filed by the assessee is partly allowed in the terms indicated above.