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Facts
The assessee, a construction contractor, filed its return for AY 2012-13 declaring a loss. During assessment, the AO disallowed Rs. 1,41,59,848/- for bad debts under section 36(1)(vii) and Rs. 1,88,54,804/- for excess material consumed. The Ld. CIT(A) deleted these disallowances, leading the Revenue to appeal to the Income Tax Appellate Tribunal.
Held
The Tribunal dismissed the Revenue's appeal. It upheld the CIT(A)'s deletion of bad debt disallowance, noting the AO's 'cut & paste job' and reaffirming that writing off bad debts in books is sufficient, citing TRF Ltd. vs. CIT. For excess material consumed, the Tribunal found the CIT(A)'s decision plausible as the assessee had provided sufficient evidence and explanations, including reasons for material degradation and theft complaints, during the assessment itself.
Key Issues
1. Whether the CIT(A) was justified in deleting the disallowance of bad debts. 2. Whether the CIT(A) was justified in deleting the disallowance for excess material consumed. 3. Whether the CIT(A) erred in admitting additional evidence under Rule 46A.
Sections Cited
Section 36(1)(vii), Section 36(2), Section 37(1), Section 143(3), Rule 46A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘E’: NEW DELHI
Before: SHRI N.K.BILLAIYA & SHRI YOGESH KUMAR U.S.
PER YOGESH KUMAR U.S., JM:
This appeal is filed by the Revenue against the order of Learned
Commissioner of Income Tax (Appeals)-39, New Delhi [“Ld. CIT(A)”, for
short], dated 14/02/2017 for the Assessment Year 2012-13.
The Grounds of the Revenue is as under :-
“i. Whether on facts and in circumstances of the case, the Ld.CIT(A) is legally justified in deleting the addition of Rs. 1,41,59,848/- made by the Assessing Officer (the AO) under section 36(1)(vii) of the Income Tax Act, 1961 (the Act) when the assessee had failed to prove that amount was
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actually trading liability and the corresponding amount was actually offered as income in earlier years and without considering the provisions of Section 36(1)(vii) and Section 36(2) of the Act? ii. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting the addition of Rs. 1,41,59,843/- on account of bad –debts written off without appreciating the fact that the assessee failed to discharge the burden cast upon it to provide evidence to prove that bad debts are written off in the accounts of the assessee? iii. Whether on facts and in circumstances of the case, the Ld.CIT(A) is legally justified in deleting the addition of Rs. 1,41,59,848/- u/s 36(1) (vii) of the Act by ignoring the procedure prescribed by Hon'ble Apex Court for write off an amount as irrecoverable in the case of TRF Ltd. vs. CIT (2010) 190 Taxman391 (SC)? iv. Whether on facts and in circumstances of the case, the Ld.CIT(A) is legally justified in deleting the addition of Rs. 1,88,54,804/- on account of excess material consumed during the year by holding that the assessee had furnished necessary details during appellate proceedings but without considering the facts recorded by the AO in assessment order that the assessee could not substantiate its claim before the AO in this regard during assessment proceedings? v. Whether on facts and in circumstances of the case, the Ld.CIT(A) is legally justified in admitting additional evidence under Rule 46 A of the Income Tax Rules 1962 (the Rule) even when the case of the assessee did not fall in Page 2 of 11
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clause (a) to (d) of Rule 46 A of the Rule and no opportunity was provided to the AO of being heard? vi. The appellant craves to be allowed to add any fresh ground(s) of appeal and /or delete or amend any of the ground(s) of appeal.”
Brief facts of the case are that, the assessee engaged in construction of housing complexes, apartments, farm houses, industrial buildings, multistoried buildings etc. including civil, plumping & electrical jobs, both on 'turn-key' basis and on item rate/ lump sum rate basis. The assessee being a registered class-I Contractor in Government Organizations as well as holds membership of Overseas Construction Council of India (OCCI), an organization sponsored by the Ministry of Commerce, Govt. of India. The assessee filed its return of income for AY 2012-13 declaring a loss of Rs.3,90,53,335/-. In the assessment u/s 143(3) of the Act vide Assessment order the following disallowances were made -
• Disallowance of claim of Write Off Rs. 1,41,59,848/-
• Disallowance of excess material consumed Rs. 1,88,54,804/-
Aggrieved by the above disallowances, the assessee preferred an Appeal before the CIT(A), the Ld. CIT(A) vide order dated 14/02/2017 allowed the Appeal filed by the assessee by deleting the disallowances made by the A.O. Aggrieved by the order of the Ld. CIT(A) dated 14/02/2017, the Department of Revenue preferred the present Appeal on the grounds mentioned above.
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The Ld. Departmental Representative addressing on Ground No. i, ii & iii which are in respect of deletion of disallowance of bad debts claimed by the assessee, submitted that the Ld. CIT(A) has committed error in deleting the disallowances even though the assessee failed to discharge the burden cast upon the assessee to prove that the bad debts are written off in the account of the assessee.
Per contra, the Assessee's Representative relied on the order of the Ld. CIT(A) and sought for dismissal of the Ground No. i, ii and iii of the Revenue.
We have heard both the parties and perused the material available on record. The assessee claimed bad debts to an extent of Rs. 1,56,39,164/- u/s 36(1)(vii) read with Section 36(2) of the Act and deduction u/s 37 of the Act to an extent of Rs. 39,77,243/- of amounts return of during the year. It is found from the assessment order that the A.O. made disallowance of Rs. 1,41,59,848/- by copying the assessment order for Assessment Year 2011-12 and pasted to the assessment order under consideration at paragraph No. 2.3 to 2.6. The Ld. CIT(A) while deleting the said addition specifically gone into the said matter and also decided the issue on merit as under:-
“However from the copy of the assessment order u/s 143(3) for AY 2011-12 filed by the appellant at the appellate stage revealed that the same disallowance of Rs.1,41,59,848/- has been made with the same discussion thereby making it clear that even a "cut & paste job" requires alertness. This casual, or rather callous Page 4 of 11
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approach has led to a 'ghost' disallowance of Rs. 1,41,59,848/- instead of examining the appeltant's claim of bad debts written off in the relevant PY (AY 2012-13) amounting to Rs. 1,96, 16,407/- despite there being evidences and submissions regarding details of the claim of bad debts written off and acknowledged in the impugned order (as already mentioned). Be that as may be, it is gathered from submission of the appellant and the copies of the evidences filed along with both at the assessment stage and at the appellate stage that the appellants submissions are borne out from records. Further that the assessment of bad debts written off can be allowed u/s 35(1)(vi) rw 38(2) has been clarified by CBDT Circular No. 12/ 2018 dated 30 May 2016 in pursuance of and accepting the decision of Hon’ble Supreme Court in TRF Limited vs. CIT 2010 TIOL 15 SC wherein it is held, inter alia After 1.4.1989, for allowing deduction for the amount of any bad debt or part thereof under section 36(1) (vi) of the Act, it is not necessary for assessee to establish that the debt, in fact has become irrecoverable, it is enough if bad debt is written off as irrecoverable in the books of accounts of assessee. Further, the appellant's contention that even advances against supplies can be written off and claimed similarly appears plausible on the basis of being legally held such by courts some of whose decisions have been relied upon by the appellant. Further, under Section 37 (1), any expenditure (not being an expenditure of the nature described in sections 30 to 36 and not being in the nature of a capital expenditure or personal expenses of the
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assessee), laid out or expended wholly and exclusively for the purposes of business or profession. The appellant's contention that it is a well laid out principle that trade advances that are unrecoverable shall be allowed as deduction under Section 37 of the Act, in my opinion, is plausible. It has relied on the decision of the jurisdictional High Court (Delhi HC) in this regard in Mohan Meakin Ltd. vs. C.L.T. 348 ITR 109 (Del).
5.2 In the present case, the appellant is engaged in the business of construction and hence advance against land that is not recoverable (of course, so is the supply of land) will at par with trade debt eligible for deduction on being written off in the appellant's books of accounts. Further loss due to fire is also allowable as deduction under the Act. From the available records, it is observed that the debit balances of the following parties, written off by the appellant in its books of accounts in the relevant PY, amounting to Rs.1,96,16,407/- as per the details given below, are allowable:-
� Raj Real Tech Rs. 31,39,164/ � Advance against purchase of land at Gurgaon Rs.37,71,300/- � Jaintex Interior PVC doors Rs.1,96,16,407/- � Human Care Medical Charitable Trust Rs.2,05,943/- Rs. 1,25,00,000/-
for reasons mentioned against each that are supported by appropriate evidences (copies of relevant. documents/accounts) along with the submissions mentioned at para 4 above. However, Page 6 of 11
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it is observed from the impugned order that despite a claim of bad debts written off in the return of income, in the assessment u/s 143(3) vide the impugned order, the amount disallowed in this regard is Rs.1,41,59,848/-. Accordingly, the disallowance of the appellant's claim of deduction for bad debts written off in the impugned order (Rs. 1,41,59,848/-), is deleted. This ground of appeal is allowed.
Considering the fact that the Ld. A.O. while making the above addition, has not applied his mind and copy-pasted the portion of the order of the previous year in the year under consideration, which has been rightly deleted by the CIT(A) after examining the issues on merit as well. Thus, we find no error or infirmity of the approach of the CIT(A), accordingly the Ground No. i, ii & iii of the Revenue are dismissed.
Ground No. iv is regarding deletion of addition of Rs. 1,88,54,804/- made on account of excess material consumed and Ground No. v is regarding admitting additional evidence without affording opportunity to the Department of Revenue.
Facts in brief are that, during the course of the assessment proceedings it has been observed by the A.O. from Note 19, 20 and of the profit and loss account for the previous year that the assessee company had booked income/revenue from the operation at Rs. 31,44,026/- only and shown consumption of the material at Rs. 2,19,98.830/- against the operational income of Rs. 31,44,026/-. Accordingly the AR of the assessee company, vide order sheet entry dated 09.01.2015, was asked to explain Page 7 of 11
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that as per note 21 of profit and loss account, cost of material consumed is reflected at Rs. 2.26 crore as against declared at Rs. 4.96 crore last year, but the work executed is shown at Rs. 31.44 lacs only as against Rs. 4.36 crore declared last year. In response to query raised, the AR of the assessee company filed the reply on 04.03.2015 stating therein that the during assessment proceedings for A.Y 2011-12, the assessee had submitted compete closing stock value as per annexure IV of the submission dated 19.11.2013.
The reply filed by the assessee was not found to be acceptable by the A.O. and as per the A.O., since assessee never filed bank statement in respect of its claim and also not produced the opening stock item vise with value, the addition of Rs. 1,88,54,804/- was made on account of excess material consumed. The Ld. CIT(A) while deleting the said addition held as under:-
“Coming to the ground at (b) that relates to the disallowance of excess materials consumed. It is observed from the impugned order that upon observing the following from the financials of the appellant submitted in connection with its return of income- F.Y Revenue from Consumption of materials operations 2010-11 Rs. 2.26 crore Rs. 4.99 Crore 2011-12 Rs. 31.44 lakhs Rs. 4.36 crore
However, it is observed that the appellant's contention was rejected as it had furnished copie the bills but never filed bank statements in respect of its claims as well as the opening stock Page 8 of 11
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item wise with value. Accordingly, the difference between the material consumed and the revenues disclosed (Rs.2,19,98,830/- minus Rs. 31,44,026/-) amounting to Rs. 1,88,54,804/- was added to the income returned by the appellant.
It is observed from the submissions as well as copies of the appellant's communication at the assessment stage that vide its letter dated 4/03/2015 / 13/03/2015 the appellant had communicated not only the information that was already given but also provided copies of relevant documents in its support with regard to the comparatively lower revenues generated despite similar materials consumed. The appellant's stand that its project of Kabul Lines ran into trouble with the Army authorities was supported by necessary documents - copies of invoices disclosing amount claimed and that passed finally. Its receipts where TDS was made is available in Form 26AS. Also details of materials purchased and closing stock in FY 2010-11 including its valuation in the audited books of accounts of the appellant were furnished at the assessment stage as argued by the AR of the appellant and which is borne out from records. This included the communication dated 23/2/2015 wherein the reasons for high consumption because of degradation of the raw materials at the work site along with evidences of complaints filed by the appellant to Police authorities against theft of materials.
We have heard both the parties and perused the material. It is found that during the assessment proceedings the assessee vide letter dated 04/03/2015 and 13/03/2015 given all the information and also provided
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copies of relevant documents in support of the claim of comparatively lower revenues generated despite similar materials consumed. It is the case of the assessee that its project of Kabul Lines ran into trouble with the Army authorities was substantiated by certain documents i.e. copies of invoices disclosing amount claimed and that passed finally, its receipts were TDS was made in Form 26AS details of material purchased and closing stock in Financial Year 2010-11 including its valuation in the audited books of accounts of the assessee. As per the assessee, the reason for high consumption is because of degradation of the raw materials at the work site. The assessee has also provided the evidences of complaint filed by the assessee to Police authorities against theft of materials. Considering the fact that the Ld. CIT(A) being the fact finding authority found that the contention of the assessee that the consumption of material vis-à-vis the Revenue earned appeared to be plausible, we find no reason to interfere with the finding of the Ld. CIT(A), accordingly, the Ground No. iv of the Revenue is dismissed.
The Department of Revenue has raised Ground No. iv against admission of additional evidence by the CIT(A). During the argument before us, the Ld. DR has not pointed out any such particular additional evidence considered by the CIT(A) during the First Appellate Proceedings, therefore, we dismiss the Ground No. v of the Revenue.
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In the result, Appeal filed by the Revenue is dismissed.
Order pronounced in open Court on 17th January, 2024
Sd/- Sd/- (N.K.BILLAIYA) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 17/01/2024 Binita/R.N Sr. PS