EASUN REYROLLE LTD.,CHENNAI vs. DCIT, CHENNAI

This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 6, Chennai dated 03.02.2016 relevant to the assessment year 2006-07. The only effective ground raised in the appeal of the assessee is that the ld. CIT(A) has erred in confirming the disallowance of advances paid to creditors written off of ₹.49,44,488/-.

Brief facts of the case are that the assessee has filed its return of income on 21.11.2006 for the assessment year 2006-07 declaring total income of ₹.20,92,90,012/-. The return filed by the assessee was processed under section 143(1) of the Act. The case of the assessee was selected for scrutiny by issue of notice under section 143(2) of the Act dated 16.10.2007. After considering the submissions of the assessee, the assessment was completed under section 143(3) of the Act assessing total income of the assessee at ₹.21,94,74,391/- after making various additions.

The assessee carried the matter in appeal before the ld. CIT(A). After considering the submissions of the assessee, the ld. CIT(A) partly allowed the appeal filed by the assessee.

On being aggrieved, the assessee is in appeal before the Tribunal and challenged the addition towards advances paid to creditors, which was written off. The ld. Counsel for the assessee has submitted that the assessee has paid advances to the creditors for supplying goods and since the goods have not been supplied and the advances given to the creditors have not been realized for long time, the said advances were written off in the books of account and pleaded that the same is allowable under section 36(1)(vii) of the Act. Alternatively, the ld. Counsel for the assessee has submitted that the same is allowable under section 37(1) of the Act as business expenditure since the amount paid could not be recovered and prayed that the addition made on this account should be deleted.

On the other hand, the ld. DR strongly supported the orders of authorities below.

We have heard both sides, perused the materials available on record and gone through the orders of authorities below. During the course of assessment proceedings, the assessee was asked to furnish specific details regarding bad debt, with reason for write off, documentary evidences showing the nature of the debts and efforts made for its recovery in respect of the above amount in order to examine the claim in accordance with the provisions of section 36(1)(vii) r.w. section 36(2) of the Act. However, the assessee has not filed any evidence about the bonafide of the assessee to claim these debts as having gone bad within a short period of raising the demand. Further, the assessee has not proved its honest efforts to write off these debts. In the absence of any details furnished by the assessee, the Assessing Officer disallowed the same and brought to tax. Even before the ld. CIT(A), the assessee has not furnished any details about the creditors and therefore, he confirmed the addition made on this account. Before us, it was the submission of the ld. Counsel for the assessee that the assessee has paid advances to the creditors for supplying goods and since the goods have not been supplied and the advances given to the creditors have not been realized for long time, the said advances were written off in the books of account and contended that the same is allowable under section 36(1)(vii) of the Act or the same is allowable under section 37(1) of the Act as a business expenditure since the amount paid could not be recovered. To substantiate the claim of the assessee, we find that the initial onus cast upon the assessee by furnishing details with regard to the creditors, such as, genuineness of the transaction, mode of transaction, identity of the creditors or any other details as may be required by the authorities below for verification and to admit the claim of the assessee. In this case, admittedly, the assessee has not filed any details before any authority evidencing that the assessee has actually made advances for supply of goods to the creditors. Under these facts and circumstances, we are of the considered opinion that the claim of the assessee cannot be entertained under section 36(1)(vii) of the Act since the assessee has not filed any details/evidence for the debts, which have become bad. Thus, we sustain the addition made by the Assessing Officer and confirmed by the ld. CIT(A) and accordingly, the ground raised by the assessee is dismissed.

In the result, the appeal filed by the assessee is dismissed.