TMI Blog2008 (12) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... for scrutiny and notice under s. 143(2) was issued on 18th Oct., 2006. Thereafter, the assessee participated in the assessment proceedings and assessment was concluded under s. 143(3). During the course of assessment, it was noticed that the assessee has debited an amount of Rs. 20,46,640 as bad debts in the P L a/c. The AO asked the assessee to prove the genuineness of the claim of bad debts. The assessee furnished the names of 51 customers, which have been claimed as bad debts. It is observed by the AO that the assessee has not provided complete addresses like shop number, area where situated etc. Even in respect of 21 parties, no address has been given. However, to verify the genuineness of the claims of the assessee, summons were issued to various parties. The 51 parties to whom summons are issued, the fate of these summons is as follows: ------------------------------------------------------------------ Sl. Name and address of the parties Amount Postal remarks No. ------------------------------------------------------------------ 1. Guru Nanak Property Dealer, near 5,230 No such property Transport Nagar Jalandhar dealer at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rora Builders, Jalandhar 2,790 5. Ashutosh Build Co., Jalandhar 45,900 6. Black Jack Tools (P) Ltd., Jalandhar 4,125 7. Lashkar Singh, Jalandhar 960 8. Naranjan Dass, Jalandhar 28,800 9. Rajesh Uppal, Jalandhar 8,334 10. Rana Sugar Mills, Vill. Buttar Kalan, Amritsar 1,650 11. Rajinder Kaur, Vill. Nangar 73,900 ------------------------------------------------------------------ Names of the parties confirming no dealings with the assessee: ------------------------------------------------------------------ Sr. Name and complete addresses of party Amount No. ------------------------------------------------------------------ 1. KEW Industries Ltd., Focal Point, Jalandhar 3,775 2. Mukesh Industries, Ladowali Road, Jalandhar 22,220 3. P.K. Marble Traders, Nakodar Road, Jalandhar 1,66,240 4. Pandit Ravi Prakash, Sodal Road, Jalandhar 24,932 5. Arora Metal. Focal Point, Jalandhar 7,825 6. Ashwani Verma, Moh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntative submitted that the assessee cannot be optimistic in writing off debts. The assessee himself feels honestly that debtor is not in a position to pay debts and his financial position is very weak and he should be given benefit in writing off the debts and the judgment of writing off bad debts should be honest and cannot be according to his convenience. Only after making proper efforts to recover and failed to recover, the same bad debts can be written off and if it is not realizable the assessee can claim as bad/debts. He submitted that there was no correspondence between the assessee and the impugned debtors for recovery of the debts. There was no negotiation transacted between the parties and the assessee has not produced any evidence to support the stand that the debt has become bad. There was nothing on record to say debts are bad and unilateral action of the assessee to write off debt cannot make debt as bad. The assessee has not brought on record anything to show that the amounts are irrecoverable and for this purpose, he relied on the judgment of Hon'ble Madras High Court in the case of South India Surgical Co. Ltd. vs. Asstt. CIT (2006) 201 CTR (Mad) 289 : (2006) 153 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, he submitted that if the parties are not responding to the notice under s. 131 that itself shows that the parties are irregular and not co-operating with the assessee and that itself proves that the debtors are bad. Further, he submitted that s. 36(1)(vii) is clearly applicable to the facts of the case on the reason that these amounts have been taken into consideration while determining the income of the assessee. These amounts have been shown as sales in the earlier years and it has been written off in the assessee's books of account in the year under consideration. He relied on the CBDT Circular No. 551, dt. 23rd Jan., 1990 [(1990) 82 CTR (St) 325] and stated that if the assessee has complied with the conditions, the debts are to be allowed. Further, he relied on the following judgments: (i) Dy. CIT vs. Oman International Bank SAOG (2006) 102 TTJ (Mumbai)(SB) 207 : (2006) 100 ITD 285 (Mumbai)(SB); (ii) CIT vs. Star Chemicals (Bombay) (P) Ltd. (2008) 11 DTR (Bom) 311. 8. Further, the assessee has filed paper book as follows: Before the Income-tax Appellate Tribunal, Amritsar. ITO, Ward-II, Jalandhar vs. M/s Jindal Sons, Jalandhar ITA No. 375/Asr/2008 and asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation to s. 36(1)(vii) was added w.e.f. 1st April, 1989, it obviously applies to the present case in which the assessment year is 2004-05. 10. The assessee had written off bad debts by debiting the P L a/c but no credit in the debtor's account was correspondingly made. Since this had to be done simultaneously, but was not, in our opinion, the provisions of s. 36 as amended were not complied with. In this case, the contention of the assessee is that debt has become bad and it has been written off as bad debt to the P L a/c. We have carefully gone through the paper book submitted by the assessee. For clarity, we reproduce few customers' accounts as submitted by the assessee in Part B from serial Nos. 1 to 51 (but serial No. 38 has not been found) of the paper book. 1. KEW Industries Ltd., Focal Point 3,775 2. Guru Teg Bahadur Sugar Ltd. 832.70 3. Gum Nanak Property Dealer 9,230 4. Sondhi Agencies, Kot Kishan Chand 96,467 5. Speedways Tyre Service 7,530 6. Builtech 29,400 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18,930 42. Rajesh Uppal, Jalandhar 8,334 43. Malkiat Singh, Ajit Nagar 9,425 44. Roshan Singh, Balmiki Gate, Jalandhar. 13,480 45. Rana Sugar Mills, Vill. Buttar Kalan, Amritsar 1,650 46. S.K. Singh Co., Site at 8,250 47. Shree Baba Budha Nath, Sikandarpur 9,490 48. Snowshine Marbles, Nakodar Road, Jalandhar 33,700 49. Sunshine Eng. Fabricator, Jalandhar 93,080 50. Rajinder Kaur, Vill. Nangar 73,900 --------- Total: 20,46,640 --------- For more clarity we reproduce some of the accounts in details as under: Name of party 1. K.E.W. Industries ------------------------------------------------------------------ Date Particulars Debit (Rs.) Credit (Rs.) Balance (Rs.) ------------------------------------------ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lal 25-05-2000 Bill No. 220 24,800 - 24,800 ----------------------------------- Total 24,800 - 24,800 ----------------------------------- 8. Jain Sons, Dayalpur 22-05-2001 Bill No. 187 20,250 - 20,250 ----------------------------------- Total 20,250 - 20,250 ----------------------------------- As seen from the above accounts, the assessee though carried the bad debt to the P L a/c at Rs. 20,46,640, no corresponding credit entry in the accounts of debtors has been made by the assessee in their respective debtors' account except in the case of Tejindra Distributors. Only in the case of Shri Tejindra Distributors, Jalandhar, corresponding written off entry was passed in this account. In other cases, the assessee has not passed corresponding entry in each debtors' account. Actually, the assessee is required to pass following entries in respect of each bad debt. Entr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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