JAVED IQBAL SHAH,KOLKATA vs. THE INCOME TAX OFFICER, WARD-35(2), KOLKATA, KOLKATA

The assessee is an individual. He filed his return of income on 22/03/2010, declaring income of Rs.8,18,802/-. The assessee carries on business in the name and style of M/s. Pioneer Power Products, which is engaged in the trading of electrical goods. During the assessment proceedings, the Assessing Officer observed that the assessee had an undisclosed HDFC Savings Bank Account No. 00081000062930. He made an addition of Rs.12,70,000/- being deposit made in cash and an amount of Rs.7,92,298/-, being amount deposited through cheque or by way of transfer of funds, on the ground that the sources for making these deposits were not explained by the assessee. Further undisclosed interest income of Rs.3193.44/- was added.

Further aggrieved, the assessee is in appeal before us.

Ms. Parnashree Banerjee, the ld. Counsel for the assessee, submitted that the assessee had filed an application before the Settlement Commission for the Assessment Years 2006-07, 2007-08, 2008-09, 2010-11 & 2011-12 and along with this application, the assessee had filed a revised balance sheet considering all the income of the assessee disclosed before the Settlement Commission. Copy of this balance sheet was placed at page 1 of the paper book. She submitted that the cash balance of the assessee as on 31/03/2008 as disclosed in the balance sheet was Rs.30,22,746/- and hence this was the opening cash balance for the impugned Assessment Year. She further filed copy of the assessment order for the Assessment Year 2008-09 passed u/s 147 r.w.s. 143(3) on 29/03/2017 and submitted that no adverse view had been taken by the Assessing Officer on this closing cash balance of Rs.30,23,746/- disclosed in the balance sheet. She submitted that this cash balance is available for telescoping and explain the source of the aggregate deposits of money in cash as well as cheques/transfer of funds and hence the addition of an amount of Rs.20,62,298/-, is bad in law. She relied on the decision of the Kolkata Bench of the ITAT in the case of Shri Kalidas Ghosh vs. Income Tax Officer, in ITA No. 2053/Kol/2016, Assessment Year 2007-08, order dt. 28th April, 2017, for the proposition that the closing balance as accepted by the authorities for the Assessment Year 2007-08, is available for explaining the source of deposits for the Assessment Year 2008-09. She pointed out that though the Settlement Commission had not accepted the settlement application filed by the assessee in the Assessment Year 2005-06 to the Assessment Year 2009-10, by separate orders at different points of time, application for the Assessment Year 2010-11 and 2011-12 was accepted and for the earlier years the Assessing Officer in his assessment order passed u/s 143(3) of the Act, has not disturbed the closing cash balance reflected by the assessee. She drew a comparison between the facts 3 Assessment Year: 2009-10 Javed Iqbal Shah of the case of the assessee and that of the case of Shri Kalidas Ghosh (supra), and submitted that the issue is covered in favour of the assessee. On the issue of provision for bad debts, she submitted that it was a case where the amount was not recoverable from two parties to whom the assessee had supplied goods and the assessee had shown the provisions of bad debts on the debit side of its profit and loss account and on the liability side of the balance sheet. She relied on the judgment of the Hon’ble Supreme Court in the case of Vijaya Bank V. CIT 323 ITR 166. She submitted that the provision is made in case where a particular percentage of the total debtors and other receivables is taken as a provision for bad debts it is not allowable and whereas when specific identified debts are not recoverable and hence provided for it should be allowed and that the nomenclature “provision” should not influence the decision. She submitted that the substance is to be seen. She prayed for relief.

The ld. D/R, on the other hand submitted that no re-casted balance sheet was filed for this year and that no application was filed before the Settlement Commission for the impugned Assessment Year. He relied on the order of the Assessing Officer as well as the ld. CIT(A) and submitted that the assessee was not able to explain the cash deposit as well as the cheque deposits and transfer of funds in the undisclosed bank account in question. On the issue of liability of provision for bad debts, he submitted that there was no write off of the bad debts in the books of accounts and hence the Assessing Officer as well as the ld. CIT(A) were right in this regard. He relied on the order of the ld. CIT(A) and prayed that the same be upheld.

Rival contentions heard. After perusing the papers on record, orders of the authorities below as well as the case-law cited, I hold as follows:- The assessee submitted a copy of the assessment order passed by the Assessing Officer for the Assessment Year 2008-09. This was passed u/s 147 r.w.s. 143(3) of the Act on 29/03/2017. The balance sheet of the assessee has been recast by including income disclosed while filing an application before Hon’ble Income Tax Settlement Commission, Kolkata Bench for the Assessment Year 2006- 07, 2007-08, 2008-09, 2010-11 and 2011-12. It is true that the application for the 4 Assessment Year: 2009-10 Javed Iqbal Shah Assessment Year 2006-07, 2007-08 and 2008-09, was not admitted by the Settlement Commission but the additional income disclosed in the application filed before the Settlement Commission formed the basis of assessment for the Assessment Year 2007-08. It is clear from the computation of income by the Assessing Officer, where he had taken total income as per the return and thereafter made an addition of the additional income disclosed by the assessee before the Settlement Commission. While arriving at the additional income disclosed before the Settlement Commission, the peak balances in various undisclosed bank accounts were worked out by the assessee and the revised balance sheets in question were prepared. Thus, the claim of the assessee made before the Settlement Commission was accepted by the Assessing Officer. Copy of the cash flow statements and the balance sheets for the various Assessment Year, where the closing cash balance in the earlier year has been shown as the opening cash balance of the subsequent year is at page 1 of the paper book. For the financial year ending 31/03/2008, the closing cash balance is Rs.30,23,746/-. This figure was not disturbed by the Assessing Officer and the additional income declared by the assessee before the Settlement Commission was taken as income. Hence in my opinion the submission of the ld. Counsel for the assessee has force. Hence I accept the same and consider that the source of funds for deposits aggregating to Rs.20,62,298/-, made during the year, as explained by the opening cash balance of the year. While doing so, I find similarity in facts between the case of the assessee and the case of Shri Kalidash Ghosh (supra) and apply the proposition of law laid down therein. 6.1. In the result, this addition of Rs.20,62,298/-, made u/s 68 of the Act is deleted.

The second issue is the provision for bad debts. 7.1. The assesse submits that thought the terminology used is “provision for doubtful debts”, but in fact it is, “write off of a debt”. The facts are that the assessee has sold goods worth Rs.18,39,205/- to M/s. Jaipuria Electricals (P) Ltd., out of which Rs.5,39,205/- remained unrecovered. Similarly, the assessee sold goods worth Rs.55,318/- to M/s D.N. Enterprises during the Financial Year 2008-09 in addition to the goods sold in the earlier years, for which amount was due. There 5 Assessment Year: 2009-10 Javed Iqbal Shah was a balance in that account showing total dues from M/s D.N. Enterprises. The closing balance at the end of the year was Rs.5,29,295/- and as per the assessee, this amount was not recoverable. Provision for bad doubtful debts was debited in the profit and loss account for these two outstanding debts. The provision was disclosed on the liability side of the balance sheet. The Assessing Officer disallowed the claim on the ground that no proof whatsoever was filed before the Assessing Officer to prove that these debts are not recoverable and have become irrecoverable during the year. He held that provision cannot be held as an allowable deduction. The contention of the ld. Counsel for the assessee that the nomenclature “provision” should not lead to ignoring the substance of the transactions is legally correct. But in the case on hand what was created was a provision for doubtful debts. It is not a case where the bad debts were written off in the accounts. On the contrary, the provision for doubtful debts continues to be in the accounts and is reflected in the balance sheet. The decision of the Hon’ble Supreme Court in the case of Vijaya Bank V. CIT 323 ITR 166 as a case where the loans and advances, which was provisioned for, were actually written off and this figure of loans and advances were reduced from the asset side of the balance sheet. No such netting off is done in the case on hand. Though the provision is made for an identified debt, these debts were not written off and do appear in the balance sheet of the assessee. In view of the above circumstances, I uphold the order of the ld. First Appellate Authority and dismiss this ground of the assessee.

In the result, appeal of the assessee is allowed in part.