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Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI JOGINDER SINGH & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2006-07. The appeal is directed against the order of the Commissioner (Appeals) – 7, Mumbai and arises out of the order u/s 143(3) of the Income Tax Act, 1961 ( the ‘Act’).
2. The grounds of appeal filed by the assessee read as under:-
i. The learned CIT(A) erred in disallowing Rs. 67,74,915/- out of the total advances/deposits written off on the basis that the same was not offered to tax as income by the appellant and therefore is not allowable as bad debts. ii. The learned CIT(A) erred in not appreciating that fact that the advances/deposits were written off due to certain disputes and default of the company in meeting commercial/trade obligations. Accordingly the same had been claimed as a revenue loss arising during the normal course of the running of the business of the appellant in accordance with the provisions of section 37(1) and 28/29 of the Act. iii. The learned CIT(A) erred in relying on the observation of the learned DCIT that the appellant company failed to establish the fact that the advance/deposits had become bad without appreciating the fact that the appellant had filed the details of advances written off giving the names of the parties, the period for which the amount is outstanding and the reason thereof before the learned DCIT.
The assessee debited bad debts claim of Rs.1,70,22,375/- in its accounts. The details are as under:-
Sr No. Particulars Amount (in Remarks Rs.) Bad debts w/off 1. Debts balance of debtors 47,60,185/- Due to the dispute arising written off as irrecoverable subsequent to sale for the amount charged towards freight, transportation, delay in delivering the goods, rates charged etc. the parties did not pay the outstanding amount. The said amount was outstanding since financial year 1999-2000. Therefore, the said amount was written off as bad and irrecoverable in the financial statements.
Short receipt of refund on 8,87,275 Refund not granted by account of set off not the Sales Tax Department admitted by the Sales Tax written off. Department for the Assessment Year 2001-02 Total bad debts w/off (A) 56,47,460 Advance w/off 1. Debit balances of sundry 57,00,572 Advances given for creditors materials and services written off as the work was not completed. The said amount is outstanding since financial year 1999-2000. 2. Deposits placed for the 10,31,709 In view of the disputes business of the company with regard to rates charged, freight charged, delay in delivery or non- delivery of the goods the parties did not refund the deposits kept. 5. Advances given to 46,00,000 Advances given to retrenched workmen workmen w/off as irrecoverable 6. Others 42,634 Miscellaneous amount w/off Total Advances w/off (B) 1,13,74,915 Total amount w/off (A) and 1,70,22,375 (B) above 3.1 The Assessing Officer (AO), during the course of assessment proceedings asked the assessee to furnish name and address of the debtors, efforts taken to recover the debts and other details in respect of write off of bad debts. In response to it, the assessee filed a reply dated 18.11.2008 before the AO stating that the bad debts is on account of write off of disputed receivables not finally received and advances written off. Apart from this, the assessee did not file before the AO ‘any evidence to show that the amount was treated as income in any of the previous years, there was dispute and it was actually written off in the books (except for sales tax refund and advances to the workman)’. As the assessee failed to file the basic details, the AO made an addition of bad debts amounting to Rs.47,60,185/-.
3.1 In respect of advances written off, the assessee could file before the AO evidence to the extent of Rs.46,00,000/- given to workmen as advances and sale tax refund.
3.2. Therefore, the AO made an addition of Rs.1,15,35,100/- (Rs.47,60,185 /-+ Rs.67,74,915/-) to the total income of the assessee.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) relied on the judgment of the Hon'ble Supreme Court in TRF Ltd. vs. CIT 323 ITR 397 (SC) and deleted the addition of Rs.47,60,185/- made by the AO towards bad debts. However, as the assessee failed to file the details before the AO, the Ld. CIT(A) confirmed the disallowance of Rs.67,74,915/- made by the AO towards advances written off.
Before us, the Ld. Counsel of the assessee submits that ‘the said advances / deposits had been given to various parties during the course of carrying on business and due to disputes and defaults of the company in meeting the commercial / trade obligations, the parties refused to pay back to advances / deposits resulting into the same becoming bad and having written off during the aforesaid financial year’. Thus it stated that the irrecoverable advances / deposits constituted revenue loss to the company during the course of running of business and the same is claimed as deduction u/s 37(1) of the Act.
The Ld. D.R. supports the order passed by the Ld. CIT(A).
We have heard the rival submissions and perused the material on record. We find that the assessee failed to file before the AO (i) the evidence to show that the advances were made in due course of business, (ii) whether the advances were for purchase of any revenue item or capital item, (iii) names and address of the parties and (iv) whether the advances are actually written off in the books of accounts.
7.1. In CIT vs. Calcutta Agency Ltd. (1951) I9 ITR 191 (SC), it was held that the burden of proving the necessary fact in order to entitle the assessee the claim exemption was on the assessee. In Nund and Samont Co. (P) Ltd. vs. CIT (1970) 78 ITR 268 (SC), it is held that it is for the tax payer to establish by evidence that the particular amount is deductible.
In view of the above, we set aside the order of the Ld. CIT(A) on the above issue and restore the same to the file of the AO to make an assessment afresh as per the provisions of the Act after giving a reasonable opportunity of being heard to the assessee. The assessee is directed to file the relevant details before the AO.
In the result, the appeal is allowed for statistical purposes.
Order pronounced in the open Court on 24/04/2017