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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI A.MOHAN ALANKAMONY, & SHRI G. PAVAN KUMAR
आदेश / O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER:
This appeal is filed by the Revenue aggrieved by the order of the Ld. Commissioner of Income Tax (Appeals) in dated 18.07.2016 passed u/s. 250(6) r.w.s. 143(3) of the Act.
The Revenue has raised several grounds, however the crux of the issue is that the Ld. CIT(A) has erred in allowing the claim of bad debts and thereby deleted the disallowance of Rs.66,43,419/- made by the Ld. AO.
The brief facts of the case are that the assessee is an individual engaged in the business of freight forwarding and associated logistics services, filed his return of income for the assessment year 2009-10 on 26.09.2009, declaring income of Rs.9,23,96,780/-. Subsequently the assessee filed several revised returns and the final revised return was filed on 21.02.2011 declaring income of Rs.12,00,02,320/- Thereafter the return was processed u/s.143(3) of the Act and assessment was completed on 30.11.2011, however the case was reopened by issuance of notice u/s.148 of the Act and finally the assessment was completed on 31.03.2015 wherein the Ld. AO disallowed the claim of bad debts written off to the extent of Rs.66,43,419/- on the ground that income-tax refund cannot be considered as debt to be written off.
It was explained by the Ld. AR before the Ld. AO that the assessee carries on the business of handling air cargo and sea cargo (both inward and outward) and often receives freight charges in advance or receives them subsequently after the services being carried out. In compliance of Section 194H of the Act, the carriers of the freight deduct tax at source on the commission paid / payable to the assessee. Similarly the customers of the assessee also deduct tax at source on the gross amount paid / payable to the assessee towards freight handling charges in compliance with Section 194C of the Act. The taxes deducted from the amount receivable by the assessee are also booked as income in the hands of the assessee while declaring the return of income. However, in many instances the assessee’s customers do not remit the tax deducted at source and also fail to issue the relevant TDS certificates to the assessee and accordingly the credit was not available in the records maintained by the Income Tax Department in their computers. On such occasions the Revenue authorities do not treat the tax deducted at source as tax paid, though they were treated as revenue receipts during the relevant respective assessment years. For these reasons the assessee had claimed it as bad debts in its books of accounts.
However, the Ld. AO rejected the claim of bad debts of the assessee by observing as under:- “The submission of the AR is considered and the same is not acceptable. In the reply, the AR stated that the amount of Rs.66,43,419/- was inadvertently classified as “Income Tax Refund Written Off” in the statement of bad debts written off
submitted to the I.T. Department, during the original assessment proceedings for the A.Y. 2009-10. The assessee cannot write off the income tax refund as bad debts since the TDS certificates were not received by it. The view is supported by the decision of the ITAT, Mumbai in the case of Ricoh India Ltd (2013-TIOL- 937-ITAT-MUM) dated 13.09.2013 where the assessee receives certain payments after TDS, the assessee cannot write off such sum as short receipt merely because it did not receive TDS certificates from the deductors. This amount is therefore added back to the total income.”
On appeal, the Ld. CIT(A) relied on the decision of the following cases and held the issue in favour of the assessee. i. Indian Products Trading Company Pvt. Ltd. decided by the Mumbai Tribunal in ITA No.4509/MUM/2009
ii. Kelly Services India (P) Ltd. decided by the Delhi Tribunal in ITA
No.5435/Del/2011 dated 16.09.2011 iii. CIT v Shreyans Industries Ltd. decided by the Hon’ble Punjab &
Haryana High Court dated 08.11.2006 reported in 303 ITR 393 iv. TRF Limited by the Hon’ble Apex Court reported in 323 ITR 297
While doing so, the Ld. CIT(A) observed as under :- “6.4 The AO in his order has placed reliance on the decision of Ld. Mumbai Tribunal in the case of M/s. Ricoh India Ltd. (supra). On careful reading of the order, I find that the facts emerging in the case before the ld. Mumbai Tribunal are distinct from the appellant’s case. In the matter before the ld. Tribunal in the Ricoh case, the parties after deduction of tax at source, made the payment to the assessee for the remaining amount and duly deposited tax at source in the Government Account. Once the assessee received the net amount and further amount of TDS certificates also stood deposited in the Government exchequer, the Tribunal held that the position of the assessee vis-à-vis the parties stood neutralized as nothing remained due from them. In stark distinction, in the appellant’s case, it is undisputed that the impugned TDS claimed as write off were never deposited in the Government Account. Hence the reliance of AO on Ricoh’s ratio is not valid. The AO seems to have been influenced by the nomenclature to the write off mentioned in the details submitted during the assessment proceedings as “Income-tax Refund Written Off’. Regardless of the nomenclature, the real nature of the transaction needs to be analysed and appreciated in order to arrive at a finding. In my considered view, the appellant company is at a clear monetary loss due to the non-payment of withheld tax in the Government Account. IT is not a matter of debate that the appellant received the net amount from the deductors after deduction of tax from the total payment due to him. It is also undisputed that the appellant company had disclosed the gross receipts in its return of income for the respective years. Hence, applying the ratio of judicial decisions as discussed above, I am of the view that the write off claimed by the appellant deserves to be allowed. The disallowance of Rs.66,43,419/- made in this regard by this AO stands deleted. The grounds of appeal succeed.”
The Ld. DR reiterated the reasoning advanced by the Ld. AO
in his order and argued in support of the same, whiles the Ld. AR argued in support of the Ld. CIT(A) and pleaded that the same may be sustained.
We heard the rival submissions and carefully perused the materials on record. From the facts of the case it is apparent that the tax deducted by the customers of the assessee from the amount due to the assessee has not been finally remitted in the Government treasury and also the requisite TDS certificates were not issued to the assessee. But since the customers of the assessee had intimated the assessee that tax had been deducted
at source from the amount paid/payable to the assessee, the assessee had treated the tax deducted at source also as its income for that relevant assessment year. Subsequently it was revealed that the assessee is not entitled to claim the credit on account of tax deducted at source because the same was not remitted in the Government treasury. Now since the scope of recovering this amount from the customers of the assessee is bleak the assessee decided to write off in its books of accounts due to commercial prudence. Since the customer’s of the assessee had failed to remit the TDS in the Government Treasury this amount is should be treated as the amount receivable from the customers of the assessee as debtors if there were any prospects of recovering the amount from them. Since the debt was not recoverable from the customers of the assessee the Ld. CIT(A) had rightly held that “writing off the TDS amount which was not remitted in the Government treasury would amount to writing off of debts considering it to be bad and accordingly the assessee will be entitled to get deduction U/s. of Section 36(1)(vii) of the Act.” Therefore we do not find it necessary to interfere with the orders of the Ld. CIT(A) who has rightly arrived at the decision on the issue by following the decisions of the Tribunal and the Hon’ble Apex court cited supra.
In the result the appeal of the Revenue is dismissed.
Order pronounced on 20th March, 2017 at Chennai.