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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’ NEW DELHI
Before: SH. H.S. SIDHU & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 27/12/2012 passed by learned Commissioner of Income-tax (Appeals)- XXVI, Laxmi Nagar, Delhi-92, for assessment year 2008-09 raising following grounds: “
1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has in law and on facts in not deleting the disallowance of Rs. 9,51,280/- fully as made by Ld. AO u/s 36(i)(iv) on account of bed debts and the impugned addition has been made without appreciating the facts and circumstances of the case and by recording incorrect facts and findings.
2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making adhoc disallowance of Rs.32,340/- on account of advertising expenses.
3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not deleting the disallowance of Rs.3,25,851/- fully as made by Ld. AO on account of foreign traveling expenses and the impugned addition has been made without appreciating the facts and circumstances of the case and by recording incorrect facts and findings.
4. That in any case and in any view of the matter action of Ld. CIT(A) in not reversing the action of Ld. AO in making the impugned disallowances and framing the impugned assessment order, as the same is not sustainable on various legal and factual grounds and more so as the same has been passed by recording incorrect facts and finding and without giving adequate opportunity of hearing to the assessee. 5.That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
The facts in brief of the case are that in the relevant assessment year, the assessee was having dealership of Bharat Petroleum Corporation Limited (BPCL) and was engaged in trading of petroleum products etc. The assessee filed return of income for the assessment year in consideration on 29/09/2008, declaring total income of Rs.36,38,930/- the case of the assessee was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (for short “the Act”) was issued and complied with. In the assessment completed under section 143(3) of the Act on 10/12/2010, total income was assessed at Rs.53,31,561/- after making certain disallowances. On appeal, the learned Commissioner of Income-tax (Appeals) allowed part relief to the assessee. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.
In ground No. 1, the assessee has challenged sustaining by the learned Commissioner of Income-tax (Appeals) of amount of Rs.9,51,280/-disallowed by the Assessing Officer under section 36(1)(vii) of the Act on account of bad debts. 3.1 The facts in respect of issue in dispute are that the Assessing Officer observed claim of bad debt in respect of M/s. Poorti Rental Car and Logistics Private Limited, amounting to Rs.9,51,280/-. On behalf of the assessee, it was explained that the assessee supplied petroleum products to the said party and received two posts dated cheques amounting to Rs.3,87,398/- dated 26/04/2008 and Rs.2,30,978/- dated 08/05/2008. It was further explained that said cheques were dishonoured and the assessee initiated legal proceeding against the said party which was pending trial in courts, and accordingly, the amount was written off as bad debt in the year under consideration. However, the Assessing Officer observed that in the balance sheet for the year ending 2008 the said party was appearing as sundry debtor as on 31/03/2008. Further, he observed that the cheques issued were for the period relevant to financial year 2008-09 i.e. assessment year 2009-10 (succeeding assessment year) and, therefore, cheque got dishonoured in financial year corresponding to subsequent assessment year and thus assessee would be entitled for claim of bad debt in assessment year 2009-10. In view of the observations, the learned Assessing Officer disallowed the claim of bad debt of the assessee. 3.2 Before the learned Commissioner of Income-tax (Appeals), the assessee submitted that debt from the party was due from the month of February, 2007 and after making local enquiries that there was no expectation of recovering the debt, the assessee wrote off the debt in its books of accounts during the financial year 2007-08 and the debtor closes business activities and the whereabouts were not known at the time of writing off debt. Further, it was submitted that at the time of writing off the debt during financial year 2007-08, the assessee was fully aware that post dated cheques had bounced after the close of the financial year and it was a standard practice to book the known liabilities of the financial year before signing of the balance sheet. After considering the submission of the assessee, the learned Commissioner of Income Tax (Appeals) held that the amount in question was alive till the end of financial year relevant to assessment year under consideration as the appellant had shown this amount in books as its sundry debtor as on 31/03/2008, thus the amount in question did not become bad in assessment year under consideration and the assessee could write off an amount in the concerned assessment year, in which it is found as irrecoverable. 3.3 Before us, the learned Authorized Representative of the assessee submitted that the debt in question was written off in the financial year relevant to the assessment year under consideration and therefore relying on the decision of the Hon’ble Supreme Court in the case of TRF limited versus CIT (2010) 190 Taxman 391 (SC), it was contended that deduction under section 36(1)(vii) is allowable in the year of write off of amount in the books of accounts of the assessee irrespective of the recoverability of the debt. 3.4 The learned Senior Departmental Representative, on the other hand, relied on the finding of the lower authorities and prayed that order of the learned Commissioner of Income-tax (Appeals) on the issue in dispute might be sustained. 3.5 We have heard the rival submissions of the parties and perused the relevant material on record. The fact that the assessee supplied petroleum products worth Rs.9,51,280/- to M/s. Poorti Rent Car and Logistics Private Limited, is not disputed. The fact that cheques issued by the said party were dishonoured is also not in dispute between the parties. The only dispute is whether the amount should be written off in the assessment year under consideration or in subsequent assessment year when the cheques were dishonoured. 3.6 For the purpose of deduction under section 36(1)(vii) the requirement is that the bad debt or part thereof should be written off as irrecoverable in the accounts of the assessee for the previous year. Further, the Hon’ble Supreme Court in the case of TRF Ltd. (supra) held as under:
This position in law is well-settled. After 1st April, 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.
3.7 In the instant case, the assessee, on one hand, is claiming that the debt of the said party has been written off in its books of accounts, however, the Assessing Officer has stated that the said party was appearing as debtor in the balance sheet as on 31/3/2008. Thus, in the case, it needs verification whether the debt in question was written off in the year under consideration. In view of the above, we feel it appropriate to restore the matter to the file of the Assessing Officer, who is directed to ascertain from the books of accounts of the assessee, whether the bad debt in question has been written off by the assessee in its accounts for the year under consideration and then decide the issue in dispute in accordance with law. The assessee shall be afforded sufficient opportunity of hearing. Accordingly, the ground of the appeal is allowed for statistical purpose.
The remaining grounds of the appeal were not pressed by the learned Authorized Representative of the assessee and accordingly dismissed as infructuous.
In the result, appeal of the assessee is allowed partly for statistical purpose. The decision is pronounced in the open court on 18th Nov., 2016.