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Income Tax Appellate Tribunal, “C”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R PER R.C.SHARMA (A.M):
These are the appeals filed by assessee against the order of CIT(A)-22, Mumbai dated 30/11/2010 for A.Y.2002-03 & 2003-04 in the matter of order passed u/s.143(3) of the IT Act. 2. The following grounds have been taken by the assessee:- Based on the facts and circumstances of the case and in law, Carol Info Services Limited (hereinafter referred to as the 'Appellant'), respectfully craves leave to prefer an appeal against the order passed by the Commissioner of Income-tax (Appeals) - 22 [hereinafter referred to as the 'learned CIT(A)'] dated
30. November 2010 (received by Carol Info on 14. December 2010) under section 250 of the Income-tax Act, 1961 (hereinafter referred to as the 'Act') on the 257/Mum/2011 M/s. Carol Info Services Ltd., following grounds. The following grounds of appeal are independent and without prejudice to each other. On the facts and in the circumstances of the case and in law, the learned CIT(A): Disallowance of provision for doubtful debts 1. erred in upholding the disallowance of provision for doubtful debts of Rs 0.89 crores debited to Profit & Loss account (written off as bad debts) and reduced from debtors under section 36(1 )(vii) of the Act. Disallowance of provision for doubtful advances 2. erred in upholding the disallowance of provision for doubtful advances of Rs 11.87 crores debited to Profit & Loss account on the ground that that such provisions do not constitute effective write-off of debts under section 36(1 )(vii) of the Act. 2. without prejudice to the above, the write off of the same business advances should be allowed as business loss under section 28 read with section 37(1) of the Act. Disallowance of interest expenditure 3. erred in upholding the disallowance of interest expenditure to the extent of Rs 8.76 crores under section 36(1)(iii) of the Act on the ground that such interest expenditure pertained to advancement of borrowed funds for grant of interest free advances. The Appellant craves leave to add, alter, omit or substitute any or all of the above grounds of appeal, at any time before or at the time of the appeal hearing. The above grounds are independent and without prejudice to each other.
3. Rival contentions have been heard and record perused. Facts in brief are that assessee is engaged in the business of manufacturing of hospital products and biologically derived agri products. During the course of assessment, AO made disallowance in respect of provision for doubtful debts debited to the P & L Account. AO has also disallowed provision in respect of doubtful advances. AO has also invoked provisions of Section 257/Mum/2011 M/s. Carol Info Services Ltd., 41(1) in respect of creditors for more than three years. Assessee’s claim of interest u/s.36(1)(vii) was also disallowed. Grievance of assessee in both the years pertains to the above additions / disallowance.
We have heard the rival contentions and carefully gone through the orders of the authorities below. From the record, we found that in the A.Y2002-03, AO has disallowed assessee’s claim of Rs.0.89 Crores in respect of debit to profit and loss account under the head “provision for doubtful debt’. AO disallowed the claim on the plea that it was the provision and not actual bad debts. From the record, we found that there was old outstanding of debtors and the assessee has made specific write off in respect of specific debtors. These are claimed to be in respect of old non-receivable customers’ balances. However, AO has treated that it’s a capital loss if there is no payment by the debtors. 5. Learned AR drawn our attention to the list of debtors written off bad debts, list of which is given at page 17 to 22 of the Paperbook. We found that assessee has given full details of year in which sales were booked and the amount outstanding in respect of each of the parties. We found that the amount of bad debts range from Rs.800 to Rs. 4 lakhs. Since the assessee was unable to recover the old dues, assessee was justified in claiming the same as bad debts. The issue is covered by the decision of Hon’ble Supreme Court in case of T.R.F. Ltd., 323 ITR 397 wherein Hon’ble Supreme Court held that bad debts is allowable in the 257/Mum/2011 M/s. Carol Info Services Ltd., year of written off and assessee is not required to prove that bad debts has occurred in the year under consideration.
We further observe that it is not necessary for the assessee to establish that the debt infact has become irrecoverable and it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. We found that treatment of assessee is inaccordance with the law in so far as assessee has written off the debt as debtors are reduced and P & L account is also debited. The assessee’s claim of bad debts is also supported by the decision of the Supreme Court in case of Vijaya Bank 323 ITR 166, Bombay High Court in case of Essar Teleholdings Ltd., 51 Taxmann.com 499.
In view of the above, we direct the AO to allow assessee’s claim of Bad debts of Rs.89,70,000/-.
AO has also disallowed provision of doubtful advances of Rs.11.87 Crores. AO has dealt with the issue at para 2 page 1 to 5 and CIT(A) on page 3 to 4 para 4.1. From the record we found that during the year assessee has claimed provisional for doubtful advances in the case of following parties. M/s.Tahseel Hire Purchase Co. Ltd., Rs.65,00,000/- M/s. Tridoss Laboratories Ltd., Rs.10,16,00,000/- M/s. Enron India Ltd., Rs.1,06,00,000/- Rs.11.87 Crores 257/Mum/2011 M/s. Carol Info Services Ltd., 9. During the course of assessment proceedings A.O. observed that assessee has debited Rs.11.87 as provision for doubtful advances. A.O noted that assessee has made provision for doubtful advances in case of M/s. Tahseel Hire Purchase Co. Pvt. Ltd. and M/s. Tridoss Laboratories Ltd. and both the companies are under the same management as the assessee. A.O. asked the assessee as to why the claim of provision for doubtful advances debts should not be disallowed, in response to which the assessee did not file any explanation. A.O. referred to Accountancy by William Pickle, 3r" Edition and Clause 7(1)(a) of Part HI of Schedule VI to Companies Act, 1956. A.O. also referred to section 36(l)(vii) and 36(2) of the I.T. Act. A.O. also relied on the several case laws. In view of these facts, A.O. disallowed assessee's claim of provision for doubtful advances amounting to Rs. 1.87 crores.
By the impugned order, CIT(A) confirmed the addition after observing as under:- “I have gone through the assessment order, perused the submissions made by the appellant and also discussed the case with the A/R of the appellant. A.O, noted that the appellant had made provision of doubtful advances of Rs.11.87 crores which relates M/s. Tahseel Hire Purchase Co. Pvt. Ltd. and M/s. Tridoss Laboratories Ltd. which are under the same management as assessee. As mentioned in Ground "No.2, the A..O. made disallowance of these expenses on the same ground, Before me, it was submitted that these represents effective write off of should be allowed. However, I do not agree with the contention of the appellant since the appellant failed to furnish details that the income relating to these advances was taken into account in earlier years. The addition made by the A.O. is therefore upheld”.
257/Mum/2011 M/s. Carol Info Services Ltd.,
It was argued by learned AR that M/s. Tridoss has subsequently repaid in AY 2013-14. Same was not offered to tax in view of addition in this year. Hence, claim in case of Tridoss is not pressed.
With respect to other two advances it was submitted that same was for business purposes. Reliance was placed on the decision of Bombay High Court in case of Wockhardt International Ltd., 314 ITR 11 wherein it was held that business loss has to be allowed in the year in which assessee has debited as its bad debts in its books of accounts. 13. We have considered rival contentions and carefully gone through the orders of the authorities below and found that claim was declined by both the lower authorities on the plea that no documents / material was adduced to demonstrate that advance was made in the normal course of business. Assessee has also not shown that assessee was in the business of lending money during the relevant period. We also observe that loss is claimed in respect of advances given to the associated concern wherein it is required to examined whether said loss was genuine? and alternative claim of assessee to allow the same as business loss is also required to be examined with respect to the documents placed on record. Keeping in view the totality of facts and circumstances of the case, we restore the matter back to the file of the AO with respect to advances given to M/s. Tahseel Hire Purchase Co. Ltd., for deciding afresh and assessee is directed to produce evidence 257/Mum/2011 M/s. Carol Info Services Ltd., in support of its claim that advances were given in the normal course of business and same was Revenue in nature. Since the Tridoss has subsequently repaid the amount to assessee, same was not pressed. Accordingly, we dismiss the same. No justification was filed with regard to provision made in respect of advance given to Enron India Ltd., same is therefore, dismissed. We direct accordingly. 14. AO has also disallowed the interest expenditure to the tune of Rs.8.76 Crores by holding that the same pertain to the deployment of interest bearing trade funds for grant of non-trade interest free advances. In this respect, during the course of assessment proceedings A.O. observed that assessee has given interest free loans to various persons and it has also taken loans from various person. The A.O. further noted that assessee has given loans / advances to M/s. Tahseel Hire Purchase Co. Pvt. Ltd. and M/s. Tridoss Laboratories Ltd. The A.O. has given the complete details in respect of loans and advances in assessment order in Para 4.1 on Page 6. Accordingly, A.O. asked the assessee as to why interest @ 12.5% should not be disallowed. In response to the query, assessee did not file any explanation, therefore A.O. stated that assessee has not been able to establish that these loans were given out of interest free funds. Accordingly, A.O. worked out interest amounting to R.s.8,76,48,310/- and added to the returned income of the assessee.
257/Mum/2011 M/s. Carol Info Services Ltd., 15. By the impugned order, CIT(A) confirmed the disallowance against which assessee is in further appeal before us.
We have considered rival contentions. We had carefully gone through the orders of the authorities below. From the record we found that during the year AO has disallowed interest paid to the extent Rs 8.76 crores on the ground that assessee has given interest free advances to the following parties. NAME OF LOAN AS ON INTEREST BASIS OF PARTY 31/3/2002 DISALLOWED DISALLOWANCE Tridoss Lab 4.84 cr 6.72 cr Day to day Ltd . balance [12.5%] Tahseel hire 16.23 cr 2.03 cr Year end purchase co ltd balance. [12.5%] 0.16 cr 0.02 cr Employees Year end balance.
It was argued by learned AR that assessee had sufficient interest free funds, hence, presumption is that interest free funds are used for advancing interest free loans. For this purpose reliance was placed on the jurisdictional High Court in the case of Reliance Utility & Power Ltd., 313 ITR 340. Before us, assessee has filed additional advances as placed at page 34-37 of the Paperbook to show that assessee had not charged interest during the year as per the request of the companies.