EASTERN GENERAL INDUSTRIES LIMITED.,KOLKATA vs. D.C.I.T CIR - 10,KOLKATA., KOLKATA

This appeal by the assessee is arising out of order of Commissioner of Income Tax (Appeals)-XII, Kolkata in appeal No.582/CIT(A)-XII/Cir-10/08-09 dated 29.11.2011. Assessment was framed by DCIT, Circle-10, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 28.11.2008 for assessment year 2006-07.

Issue raised by assessee in this appeal is that Ld. CIT(A) has erred in confirming the order of Assessing Officer by not allowing the claim of bad debt/business assets/inventory etc.,

Briefly stated facts are that assessee is a Limited Company and engaged in the business of manufacturing of leather goods, marble block and Eastern General Inds. Ltd. v. DCIT Cir-10 Kol. Page 2 luffer and trading of tea. During the year under consideration, assessee has written off certain items as bad debts in the audited financial statements as detailed under : 1) Trading Debts Rs. 4,69,381.00 2) Loss of business assets Rs. 1,22,354.00 3) Obsolete Inventories Rs. 3,91,111.00 Total Rs. 9,82,846.00 The AO called upon the assessee to submit the detail breakup of the business assets, obsolete inventories and the name and addresses of the trading debtors. The assessee submitted that the loss of the business assets includes advances for expenses, sales tax deposit, equipments, stores, cash, balance in UCO bank, united bank etc. As regards the obsolete inventories, it was submitted that it represents the old trading stocks of dry flowers which has been carried over in the financial statements since many years. The AO also sought the clarification from the assessee regarding the loss of business assets, obsolete inventories stating that how and why the above items will be bad as these amounts have never been shown as income in earlier years. According to the AO, the assessee failed to substantiate with necessary details regarding the fact that it was taken as income in the earlier years. Therefore, the AO has disregarded the claim of the assessee and added the aforesaid bad debts to the total income of the assessee.

Aggrieved, assessee preferred appeal before Ld. CIT(A) who confirmed the order of the AO by observing in para-5 as under:- “5...The A.O in his assessment order has given the finding that the assessee has written off total Rs.11,80,212/- under the head bad debt. But when the AO has asked for the details of bad debt the assessee submitted the details which includes cash in accounts in UCO Bank, United bank of India, cheques and drafts in transit of various parties. It also includes packing materials of Rs.391111/- equipment of Rs.8021/-, stores of Rs.10870/- and cash in different banks. During the appellate proceeding the AR could not justify the inclusion of cash in different bank accounts in bad debt. Further, for declaring bad debt the item so claimed must have in included as income in previous years. But eh AR could not bring anything on record showing in which previous years such items as discussed above were shown included as income. Therefore, assessee’s appeal on ground no. 2 is dismissed. ”

We have heard rival parties and perused the materials available on record. Before us Ld. AR submitted paper book containing pages 1 to 49. We observe from the order of Assessing Officer that items which were written off as bad debt were disallowed on the ground that assessee failed to furnish the relevant details for the year in which such bad debts were shown as income of assessee and same was confirmed by Ld. CIT(A). However at the time of hearing Ld. AR drew our attention at pages 43 to 46 of the paper book, wherein sale ledger of the parties to whom the sales were made in the financial year 2004-05 & 2005-06 respectively for an amount of ₹ 4,69,381/-. The Ld. AR submitted that these details were filed before the authorities below. It is also evident from page 18 of the paper book where a detailed chart of party-wise sale along with the relevant previous years in which they were accounted was placed. As regards the loss of business asset, the assessee submitted the details of those assets at page 18 of the paper book and claimed that none of the assets was recoverable. We find that all the business assets are on revenue account. As regards the obsolete inventory for an Eastern General Inds. Ltd. v. DCIT Cir-10 Kol. Page 4 amount of Rs.3,91,111/-, it was submitted that assessee has purchased dry flowers for more than five years back and purpose of these dry flower was to sale to the parties. However, no party came to buy that product and condition of the dry flower has been deteriorated over a period of time. Therefore, these are written off as obsolete material. The quantitative of details of the dry flower is placed on pages 19 of the paper book. From the aforesaid discussion, we infer that the bad debt written off has been treated as income of the earlier year and were written off as per the provision of Sec. 36(1)(vii) of the Act. Now as far as writing off the business assets and obsolete inventories are concerned we find that these items are on revenue account as shown by the assessee and nothing was recoverable out of those assets. All the above items were duly written off in the books of accounts and certified by a qualified auditor of the company. There was no adverse comment in the audit report of the auditor. In view of above and considering the facts and circumstances of the case, we allow this ground of assessee’s appeal.