M/S K. MANIBHAI & CO.,KOLKATA vs. ACIT, CIR-35, KOLKATA, KOLKATA

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ITA 1343/KOL/2015Status: DisposedITAT Kolkata21 October 2016AY 2012-20134 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that for bad debts written off after April 1, 1989, it is sufficient if the debts were taken into account in computing income and written off as irrecoverable, citing the TRF Limited case. The disallowance of business promotion expenses was upheld as fair and reasonable due to insufficient documentation.

What were the facts?

The assessee, a partnership firm, claimed a deduction for bad debts written off. The Assessing Officer and CIT(Appeals) disallowed this claim, stating the assessee failed to prove the debts became bad during the year or show recovery efforts. The assessee also claimed business promotion expenses, of which a portion was disallowed due to lack of documentary evidence.

What were the issues?

Whether the assessee is entitled to a deduction for bad debts written off without proving they became irrecoverable during the year. Whether a disallowance of business promotion expenses due to lack of documentary evidence is justified.

Which sections of the Income-tax Act were involved?

Section 36(1)(vii)

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Income Tax Appellate Tribunal, KOLKATA ‘B(SMC

Before: Shri P.M. Jagtap

This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)-10, Kolkata dated 24.08.2015.

2.

The issue raised in Ground No. 1 relates to the disallowance of Rs.37,70,033/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of bad debts written off.

3.

The assessee in the present case is a partnership firm, which is engaged in the business of trading and export of tea. The return of income for the year under consideration was filed by it on 31.10.2012 declaring total income of Rs.4,70,569/-. In the Profit & Loss Account filed along with the said return, a sum of Rs.37,70,003/- was debited by the assessee on account of bad debts written off. During the course of assessment ./2015 Assessment year: 2012-2013 Page 2 of 4 proceedings, the claim of the assessee for deduction on account of bad debts written off was examined by the Assessing Officer. In this regard, it was explained by the assessee before the Assessing Officer that all the debts written off by it as bad were very old debts and the same had become irrecoverable. Reliance was also placed by the assessee on the decision of the Hon’ble Supreme Court in the case of TRF Limited –vs.- CIT [323 ITR 397] to contend that the relevant debts having been written off from the books of account for the year under consideration, it was entitled to claim deduction under section 36(1)(vii). This stand of the assessee was not found acceptable by the Assessing Officer. According to him, there was nothing brought on record by the assessee to establish that the relevant debts had actually become bad during the year under consideration. He also held that there was nothing brought on record by the assessee to show the efforts taken by it to recover the relevant debts. Accordingly, the claim of the assessee for deduction on account of bad debts written off was disallowed by the Assessing Officer. On appeal, the ld. CIT(Appeals) confirmed the said disallowance made by the Assessing Officer by observing that there was failure on the part of the assessee to show the efforts taken by it to recover the relevant debts or to establish on evidence that the said debts had become actually bad.

4.

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As submitted by the ld. counsel for the assessee, all the debts in question written off by the assessee as bad represented its trade debtors and there is no dispute raised about this fact either by the Assessing Officer or by the ld. CIT(Appeals). There is also no dispute that the said debts have been written off by the assessee from its books of account as irrecoverable during the year under consideration. The Assessing Officer as well as the ld. CIT(Appeals), however, have disallowed the claim of the assessee for deduction on account of bad debts written off mainly on the ground that the assessee has failed to establish on evidence that the said debts had actually become bad during the year under consideration. The relevant ./2015 Assessment year: 2012-2013 Page 3 of 4 provisions governing the issue relating to the deduction on account of bad debts written off as contained in section 36(1)(vii) have undergone the change with effect from 1st April, 1989 and as held by the Hon’ble Supreme Court in the case of TRF Limited (supra), it is not necessary for the assessee after the said Amendment made with effect from 1st April, 1989 to establish that the relevant debts, in fact, have become irrecoverable. As further held by the Hon’ble Supreme Court, it is enough if the relevant debts or part thereof have been taken into account in computing the income of the assessee of the relevant previous year or of an earlier previous year and the same have been written off as irrecoverable in the accounts of the assessee. As both these conditions have undisputedly been satisfied in the present case, I am of the view that the assessee is entitled to claim deduction on account of bad debts written off and the authorities below were not justified in disallowing the said claim. I, therefore, delete the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on this issue and allow Ground No. 1 of the assessee’s appeal.

5.

The issue raised in Ground No. 2 relates to the disallowance of Rs.37,271/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) out of business promotion expenses.

6.

In the Profit & Loss Account filed along with its return of income, a sum of Rs.3,72,709/- was debited by the assessee on account of business promotion expenses. On verification, it was found by the Assessing Officer that some of the expenses claimed by the assessee on account of business promotion were supported only by self-made vouchers. He, therefore, made a disallowance of Rs.37,271/- being 10% of the total business promotion expenses claimed by the assessee. On appeal, the ld. CIT(Appeals) confirmed the said disallowance made by the Assessing Officer after having found that some of the expenses claimed by the assessee as business promotion were not duly supported by the relevant documentary evidence. ./2015 Assessment year: 2012-2013 Page 4 of 4

7.

I have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As rightly noted by the ld. CIT(Appeals) in his impugned order by pointing out to some specific instances, some of the expenses claimed by the assessee as business promotion were not duly supported by the relevant documentary evidence. The expenses claimed by the assessee under the head “business promotion” thus were not fully verifiable and keeping in view this position as well as all the facts of the case, I am of the view that the disallowance of 10% made by the Assessing Officer and confirmed by the ld. CIT(Appeals) out of business promotion expenses is fair and reasonable. I, therefore, uphold the impugned order of the ld. CIT(Appeals) on this issue and dismiss Ground No. 2 of the assessee’s appeal.

8.

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on October 21, 2016. Sd/- (P.M. Jagtap) Accountant Member Kolkata, the 21st day of October, 2016 Copies to : (1) M/s. K. Manibhai & Co., 21, R.N. Mukherjee Road, Kolkata-700 001 (2) Assistant Commissioner of Income Tax, Circle-35, Kolkata, Aayakar Bhawan, Poorva, 110, Shanti Palli, E.M. By-Pass, Kolkata-700 107

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