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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-2, Thane [in short CIT(A)], in appeal No. 127/15-16 dated 29.09.2016. The Assessment was framed by the Asst. Commissioner of Income Tax, Circle-3, Mumbai (in short ‘ACIT') for the A.Y. 2012-13 vide order dated 13.03.2015 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first issue in this appeal of assessee is against the order of CIT(A) confirming the addition made by the AO being difference as per form No. 26AS and the books of accounts in respect of receipts from Oil and Natural Gas Corporation (ONGC). For this assessee has raised the following ground No. 1: -
“1. On the facts and in the circumstances of case and in law, the Ld. CIT(A) has erred in confirming the disallowance of the addition of ₹ 15,925/- on account of difference in 26AS and books of accounts in respect of Oil and Natural Gas Corporation Ltd. (ONGC)."
We have heard the rival contentions on this issue and gone through the assessment order and the order of CIT(A). We find that the assessee has filed re-conciliation of the figure of receipts from ONGC as per Form No. 26AS and as per books of accounts of the assessee. It was claimed that the difference has already been offered to tax in AY 2008-09 and he has filed reconciliation before CIT(A). We find from the facts that the CIT(A) has not given any finding on the reconciliation whether the amount of ₹ 15,925/- is already taxed in AY 2008-09 or not? Hence, to verify this fact, the matter is restored back to the file of the Assessing Officer. This issue of assessee’s appeal is allowed for statistical purposes.
The next issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of bad debts. For this assessee has raised the following ground No. 2 : -
“2. On the facts and in the circumstances of case and in law, the Ld. CIT(A) has erred in confirming the disallowance of an amount of ₹ 35,10,993/- on account of Bad Debts.”
Briefly stated facts are that the AO during the course of assessment proceedings noticed that the assessee has claimed bad debt of ₹ 35,10,993/- in respect of outstanding amount from ED processed technologies Pvt. Ltd. The AO require the assessee to explain how these are allowable. The assessee filed a reply claiming that the assessee has rendered professional services to ED process technologies Pvt. Ltd and due to dispute between the directors of ED processed technologies Pvt. Ltd i.e. Mr. Ashsh Bajpai, who is also the directors of the assessee company and Mr. Manoj Panwar, the dues were not recovered and the same was written off as bad debts. The assessee vide letter dated 11.02.2015 submitted as under: -
“Bad Debts written off of M/s ED Process Technologies Put. Ltd. (ED) Rs. 35,10,993/-
ED was formed by Pyramid E&C Project Pvt. Ltd (E&C) and Mr. Manoj Panwer having 51% and 49% shareholding respectively. Shareholding of E&C is owned by Directors of assessee company. Mr. Ashish Bajpai and Mr. Manoj Pan war are the directors of ED. There was some dispute between the directors and ED has filed criminal complaint against its director Mr. Manoj Panwar and Mr. Hrishikesh Pujari, Project Manager in Thane Court.
In view of these facts, as It is not possible to recover the dues out of the professional services rendered to M/s ED process, the same has been written off as bad debts.
Copy of Detailed ledger is enclosed along with copies of invoices raised on M/s Ed Process. Also, enclosed statement showing the year in which fees are offered as Income."
The AO has not believed the explanation of the assessee and also observed that the assessee did not furnish what steps it had taken to recover the debts. Accordingly, he disallowed the claim of bad debts and added to the returned income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who also confirmed the action of the AO vide Para 9, 9.1 and 9.2 as under: -
“9.1 As per provisions of section 36(1)(vii) of the Act if any debt has been written off as irrecoverable in the books of the assessee then it will be sufficient to claim it as bad debts, subject to the condition that the said amount, so written off, had been accounted for as income of the year or earlier year. For claiming bad debt, one has to satisfy two main conditions: 1) debt is written off as bad debt, in P&L Account by making corresponding entry in the party accounts and 2) debt is taken into account in computing the income of the previous year or earlier previous year, for which the debt has been written off. During appellate proceedings, the ledger account of M/s ED Process Technology Ltd, in the books of the appellant, filed by the Ltd AR reveals that M/s Pyramid Consulting Engineers Pvt. Ltd had raised various bills, totaling to ₹ 4,32,50,579/-, against professional charges as well as against reimbursement of miscellaneous expenses, incurred on behalf of ED Process and out of above amount the payment of ₹ 3,81,64,561/- claimed to had been received till 30.12.2010. The credit notes for ₹ 4,58,300/- were also issued. For balance amount of ₹ 46,29,718/-, it is stated that ₹ 10,43,195/- was adjusted against TDS deduction, ₹ 75,530/- claimed to have been received subsequently and remaining amount of ₹ 35,86,523/- was written off, for non- recovery of the said amount.
9.2 As per the details available on record, it is noticed that the directors of the appellant company held 51% controlling interest in ED Process, through one of its subsidiaries. In support of claim of dispute between directors of the appellant company and Mr. Manoj Panwar (One of the directors of the M/s ED Process), a copy of Criminal complaint, lodged against Mr. Manoj Panwar and Mr. Hrishikesh Pujari in Thane Court, was filed. Accordingly, it is claimed that due to dispute, business was discontinued between the appellant company and M/s ED Process. As there was no possibility of recovery of the said amount, the appellant company had written off Bad Debts ₹ 35,10,993/- in the books and claimed deductible u/ 36(1)(vii). The content of the said complaint does not talk about the dispute about the above amounts and is totally on account of further business arrangement. The contention of the Ld. AR has been considered and found to be devoid of any merit with the fact that the appellant company, through its directors, had major stake of 51%, therefore, the income earned by ED Process was also in the control of appellant company. The Ld AR could not substantiate by come the same could not be set off against recovery of above expenses, which were actually incurred by the directors of the appellant company, to earn the said income. It is seen that the directors are common in both the entities and non-recovery of ₹ 35,10,993/-, without giving valid reasons and writing of the same, on account of dispute is nothing but an arrangement to avoid the payments of taxes, for the reasons best known to the applicant. In view of these facts, in my considered view, the above contention of the appellant is not tenable, therefore, rejected. Accordingly, the disallowance of ₹ 35,10,993/- made by the AO, on account of bad debt is hereby, sustained and this ground of appeal is dismissed."
Aggrieved, assessee came in second appeal before Tribunal.
Before us, the learned Counsel for the assessee stated that admittedly these are professional charges of earlier years relevant to FY 2008-09 to 2010-11. It was also admitted by the lower authorities, according to the learned Counsel, that these professional charges were offered as income in earlier years and substantially payments have been received amounting to ₹ 4,32,50,579/- except this amount of ₹ 35,10,993/-. The assessee has also filed the details of professional charges i.e. ledger account copy of ED processed technologies in the books of the assessee which revealed that Pyramid Consulting Engineers Pvt. Ltd has raised various bills amounting to ₹ 4,32,50,579/- against the professional charges as well as against the reimbursement of Misc. expenses. Out of the above amount of ₹ 4,32,50,579/-, a sum of ₹ 3,81,64,561/- was recovered during the FY 2008-09 to 2010-11. For the balance, credit notes for a sum of ₹ 4,58,300/- were issued and further a sum of ₹ 10,43,195/- was adjusted against TDS deductions. However, the remaining amount of ₹ 35,86,523/- was written off as non-recoverable out of the said amount. Now before us, the learned Counsel for the assessee relied on the decision of Hon’ble Supreme Court in the case of TRF Limited vs. CIT (2010) 323 ITR 397. On the other hand, the learned SR, Departmental Representative retreated the observations made by the AO and CIT(A) and strongly supported the order of the AO and CIT(A).
We have considered the submissions of both the parties and gone through the facts and circumstances available on record. In the present case, it is admitted facts that this amount has been written off in the books of accounts as bad debt and claimed the same as deductions. Further, it is also a fact that these are professional receipts and reimbursement of expenses from Pyramid Consulting Engineers Pvt. Ltd and part of the amount was not paid due to dispute. These amounts were accounted for and subject to tax during the period FY 2008-09 to 2010- 11. Once the amounts are written off and claimed same as bad debt, the issue is covered by the by the Hon’ble Supreme Court in the case of TRF Limited (supra), wherein Hon’ble Supreme Court held as under: -
“4. This position in law is well-settled. After 1-4- 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the above-mentioned aspect only and that too only to the extent of the write off."
In view of the above facts and circumstances, we delete the disallowance and allow the claim of the assessee in regard to bad debts. This issue of assessee’s appeal is allowed.
In the result, the appeal assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 31-05-2018. AadoSa kI GaaoYaNaa Kulao mao idnaMk 31.05.2018 kao kI ga[- .