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Income Tax Appellate Tribunal, DELHI BENCH ‘G’, NEW DELHI
ORDER PER C.M.Garg, J.M.
This appeal by the revenue has been filed against the order of the Commissioner of Income Tax (Appeals)-X, New Delhi dated 21.06.2010 in appeal no. 151/06-07 for Assessment Year 2004-05. The sole ground raised by the revenue read as under -:
“ 1. Ld. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs. 6,52,13,606/- made by the AO on account of bad debt.”
Apropos sole ground of the revenue, we have heard arguments of both sides and carefully perused the relevant material placed on record before us, inter alia, assessment order, impugned order of the CIT(A) and other documents placed on record before us. The ld. Departmental Representative (DR) supporting action of the AO drawn our attention towards relevant paragraph 2 to 2.5 and submitted that the assessee could not prove that the amounts written of was offered as income in earlier financial year. Therefore it was clear that in order to claim a deduction on account of bad debts, it was to be established that the debt had become bad and at the same time it should also be written off in the books of accounts. The ld. DR vehemently pointed out that when the debts had not become bad at all then there was no question of allowability of the same as bad debts written off specially, when the assessee fail to prove that the amount sought to be written off was offered as revenue and income theirfrom was offered to tax during the relevant earlier financial period. The ld. DR, further, drawn our attention towards relevant paragraph 4.7 of the impugned order and submitted that the CIT(A) granted relief to the assessee without any justified reason and basis, therefore, impugned order may be set aside by restoring that of the AO.
On the above contentions and submissions of the revenue, the Ld. Assessee’s Representative (AR) placing reliance on the decision of Hon’ble Supreme Court in the case of TRF Ltd. vs. CIT reported as (2010) 1 Taxman.Com106 (SC) and submitted that the assessee company did claim in its profit & loss account a sum of Rs. 46,95,289/- and Rs. 3,80,80,437/- under the head “ Rebate & Discounts” and “ Miscellaneous Expenses” respectively and details of which were filed during the course of assessment proceedings.
Further, elaborating the facts of the case, the Ld. AR submitted that amount claim under the head “ Rebate & Discount” is on account of cash discount, quantity discount in respect of sales made during the relevant financial period to various parties and in no way connected with the amount which is gone bad on account of reasons initiated in respect of sales made in the previous year as well as in the current year. The Ld. AR, further pointed out that in order to prove genuineness of the bad debts, the assessee company filed the copies of the E- Mails exchanged between it and its debtors from which it is abundantly clear that the appellant company did not receive the payments from its debtors due to well founded reasons. The Ld. AR vehemently contended that the assessing officer made contradictory observations while making the addition and the legal position on this issue is very clear that write off of bad debts is allowable in the year in which the assessee has written off the debts as above. The ld. AR also reiterated its written submissions dated 10.6.2010 placed before the first appellate authority and submitted that in the para 2.4 the AO observe that in order to claim deduction on account of bad debts it was still to be established that debts has become bad and at the same time it should also be written off in the books of accounts. The Ld. AR in this regard submitted that the AO misconstrued provisions of the law as its stand today which state that as per section 36(i)(vii) with effect from 01.04.89, the claim for bad debts will be allowed in the year in which such bad debts has been written off as irrecoverable in the accounts of the assessee. The Ld. AR finally prayed that the revenue’s appeal being devoid of merits made kindly be dismissed.
The Ld. DR also placed rejoinder to the above submissions of the AR and submitted that the onus was on the assessee to prove that the amount of impugned bad debts was shown / offered as income in the earlier financial year and the amount was actually become bad debt and written off during the financial year relevant to the assessment year under consideration.
On carefully considered on above rival submissions from the first appellate order, we observe that the CIT(A) granted relief to the assessee with following observations and conclusion -: “4.7 The submissions of the appellant, the assessment order, and the facts and circumstances of the case have been carefully considered. It has been observed that in the assessment order the Ld. A.O. has pointed out that the assessee company submitted the party-wise details of the amount written off alongwith reasons for the same and also submitted the correspondence with the various parties to prove the genuineness of the bad debts. She also stated that as the assessee is separately claiming rebate and discount amounting to Rs. 46,95,289/- and misc. other expenses amounting to Rs. 3,80,80,437/- and as the nature of the expenses is same, its claim for bad debts is not justified. During the course of the appellant proceedings, it has been stated that the appellant filed complete details of rebate and discount and misc. expenses and the perusal of the same showed that the expenses claimed under those heads are totally different and relate to the assessment year in question. The AO has also stated that the appellant company also filed the copies of the emails exchange between it and its debtors alongwith details showing the amount of debt which they are not able to recover from their debtors. They also filed invoices/date-wise with copies of invoices to prove the genuineness of the bad debts also to prove that this amount was offered as income in the earlier financial year. It has been stated that all these details were also filed during the course of assessment proceedings but it seems somehow the A.O. did not take cognizance of the same. It has been argued by the appellant that the A.O.’s observation in para 2.3 of her order that as that the assessee is having regular dealing with the parties, its claim of bad debts in the year under review is not qualified. It has been stated that the record produced showed that the amount which has gone bad relates to the different sales made during the previous year(s). Further, it is argued that regular dealing with the parties does not debar the appellant to claim the amount which has gone bad in respect of earlier sales. It has been stated that Section 36(1)(vii), as it stands with effect from 1-4-1989, reads as follows :- “36. Other deductions – (1) the deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- to (vi) (vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year : Prior to 1-4-1989, the above position reads as follows :- “Subject to the provisions of sub-section (2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year.” The appellant has argued that there is significance difference between the provisions as it stood prior to 01.04.1989, and the provisions stands today. Prior to 01.04.1989, it was necessary for the assessee to establish that the debt had become bad, whereas now for the debt to be classified as bad, the assessee has only to write it off as irrecoverable in its accounts. The appellant relied on the position of law as it stands today and on CBDT’s Circular No. 551 dated 23.01.1990 and also on various judgments of Hon’ble Apex Court and jurisdictional Hon’ble High Court and various other courts which are as under :- T.R.F. Ltd. v. CIT (2010)1 Taxmann.com 106(S.C.) CIT v. Autometers Ltd. (2008) 167 Taxman 286 (Delhi) CIT v. DCM Ltd. (2008) 167 Taxman 160 (Delhi) CIT v. Nai Duniya (2006) 154 Taxman 493 (M.P.) CIT v. Morgan Securities and Credits (P) Ltd. (2007) 162 Taxman 124 (Del.) CIT. v. Girish Bhagwat Prasad (2002) 256 ITR 772,774 (Guj.) A.W. Figgis & Company Pvt. Ltd. v. CIT (2002) 254 ITR 63, 65-66 (Cal.) While going through the judgments of the Hon’ble Supreme Court, Hon’ble Delhi High Court and the various other court and also the provision of the law its stands today and also going through the material on record, I am left with no option but to allow the appellant’s contention of bad debts and allow the claim of bad debts amounting to a sum of Rs. 6,52,13,606/- and delete the additions made on this score. Held accordingly.”
In view of the above undisputedly in the assessment order, the AO himself in the assessment order has pointed out that the assessee company submitted party wise detail of the amount written off alongwith reasons for the same and also submitted the copies of the relevant correspondence with the relevant various parties to prove the genuineness of the bad debts. The Ld. CIT have also note that the assessee filed complete details regarding rebate and discount and miscellaneous expenses which showed that the expenses claim under those heads are totally different and pertaining to the assessment year under consideration in this appeal i.e. 2004-05. These fact has not been controverted by the ld. DR during the arguments before us. The Ld. CIT(A) also noted that the AO also observe that the assessee company has also filed the copies of the e- mail exchange between it and its debtors alongwith details showing the amount of that which the assessee was not able to recover from the respective debtors and the assessee also filed invoices / date-wise details of the invoices to prove that this amount was offered as income in the earlier financial year relevant to the bad debts showed to be claimed during the AY 2004-05. In this situation in the light of provision of Section 36(1)(vii) of the Act as it its stands with effect from 01.04.1989 and in the light of dicta laid down by Hon’ble Apex Court in the case of T.R.F. Ltd. v. CIT (2010) 1 Taxmann.com 106 (S.C.) (Supra) and other relevant judgments of Hon’ble Jurisdictional High Court of Delhi including recent judgement in the case of CIT vs. Autometers Ltd. (2008) 167 Taxman 286 (Delhi) (Supra). We are inclined to hold that the interpretation of Section 36(1)(vii) of the Act was considered by Hon’ble High Court of Delhi in the case of CIT vs. Morgan Securities and Credits Pvt. Ltd. (2007) 162 Taxman 124 (Del.) (Supra) and in this case their lordship referred to the Circular no. 551 dated 23.01.1990 of the CBDT and held that the amendment made to Section 36(1)(vii) of the act was a decision taken to eliminate litigation with regard to establishing their lordship what is bad debt further observed if the assessee writes off a debt as to bad debt without giving any reason he will not get any benefit from this as by virtue of Section 41(1) of the Act where a deduction has been allowed in respect of a bad debt which is irrecoverable but the amount or a part thereof is subsequently recovered then that amount shall be deemed to be profit and gains of business or profession of the relevant year.
However, we may point out that the amendment of year, 1989 incorporates only the year of allowability but does not dispenses with the requirement of the assessee to prove that the debts has become a bad debt. In the present case, the assessee submitted party-wise detail, copies of the invoices/ bills raised against the debtors and other relevant documentary evidence to prove that the amounts was incorporated as revenue receipts and offered as income in the earlier financial year. The assessee also submitted copies of the e-mails and other correspondence with the debtors showing that the conscious and sincere efforts made by the assessee company towards recovery of impugned amounts and the assessee also submitted relevant copies of the ledger accounts and other evidence to show that the claimed debts has become bad and the same was properly submitted before the assessing officer during assessment proceedings.
On the basis for foregoing discussion, we reach to a conclusion that the claim of the assessee supported by the required documentary proof about the offering the same income in the earlier financial year and efforts of the assessee for recovery as well as the intention of the assessee to treat the amounts of debts as bad debts. Thus, the issues is squarely covered in favour of the assessee by the ratio laid down by Hon’ble Apex Court in the case of TRF Ltd. v. CIT and hence we hold that the CIT(A) rightly granted to relief to the assessee. We are unable to see any valid reason to interfere with the impugned order and thus we confirm the same. Accordingly, sole ground of the revenue being devoid of merits is dismissed.
In the result, appeal of the revenue is dismissed. Order Pronounced in the Court on 18/01/2016.