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2015 (5) TMI 860 - ITAT CHENNAI

2015 (5) TMI 860 - ITAT CHENNAI - [2015] 40 ITR (Trib) 648 (ITAT [Chen]) - Revision u/s 263 - assessee has made only provision for doubtful debt and has not made a write off - Held that:- The details called for by the Assessing Officer were furnished by the assessee and such details were accepted by the Assessing Officer and in such circumstances, it cannot be said that there is a lack of enquiry. There was an enquiry, though it is inadequate and in such circumstances, in view of the above decis .....

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are finally adopted. Hence, in the case of the assessee when the books are closed and adopted by the Board of Directors and shareholders on 18.08.2009 by which time the entries were passed writing off the irrecoverable claims to the profit and loss account and party accounts. Thus, even on merits, the claims have to be allowed in view of the above Hon’ble Allahabad High Court decision. - Decided in favour of assesse. - I .T.A.No.508/Mds/2014 - Dated:- 15-4-2015 - SHRI A.MOHAN ALANKAMONY AND SHR .....

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ly provision for doubtful debt and has not made a write off and in assuming jurisdiction to hold that assessment order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue. 2. Brief facts are that assessee filed its return of income for the assessment year 2009-10 on 21.09.2009 declaring income of Rs. 4,12,58,280/-. The assessment was completed under section 143(3) on 26.12.2011 assessing income of the assessee at Rs. 4,16,44,133/-. Later, show cause notice .....

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unt instead only a provision for writing off the amount was made. Therefore, Assessing Officer s order prima-facie appears to be erroneous and prejudicial to the interests of the revenue. 3. In response to the show cause notice issued by the Commissioner of Income Tax, the assessee filed a detailed reply stating that in the course of assessment proceedings, the Assessing Officer called for details in respect of the amounts written off as irrecoverable and assessee filed ledger copy and also deta .....

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r the year ended 31st March 2009 i.e., Assessment Year 2009-10 the assessee company offered gross consultancy income of ₹ 18,24,14,496/- which included income from BILT group ₹ 5,11 ,96,237/-. In the profit and loss account the assessee has written off ₹ 62,00,468/- towards irrecoverable and claims which included compensation of Rs. 50 lakhs due to BILT Power Ltd. BILT Power Ltd by their letter dated 10th July 2009 claimed that while pouring the concrete on the top of the roof, .....

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d debts in the profit and loss account and also reduced it from the amount receivable from the party. The assessee had rightly claimed the same as bad debt under Section 36(2) of the Income Tax Act as the income has been included in the Financial Year ended 31-03-2008 and 2009 and the amount though became irrevocable after March 2009 was an evidence available to the assessee that the amount is not recoverable. The assessee had written off the amount in compliance with Accounting Standard AS-9 Re .....

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. Modi Telecommunications Ltd.( 325 ITR 291) ii) TRF Ltd. Vs. CIT ( 323 ITR 397) iii) Lawlys Enterprises P.Ltd. Vs. CIT (314 ITR 297) iv) CIT Vs. Star Chemicals (292 ITR 339) v) CIT Vs. Girish Bhagwat Prasad (256 ITR 772) 4. The assessee further contended that narration given in the journal entry is being compensation claim amount by the BILT Power Ltd. for non-performance of the contract and damages suffered by them now provided. The narration provided is given in the entry and is not a provisi .....

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oner of Income Tax not satisfied with the explanation given by the assessee passed order under section 263 of the Act holding that assessee s claim of Rs. 50 lakhs as bad debts in relation to M/s. BILT Power Ltd. cannot be allowed for the assessment year 2009-10 and directed the Assessing Officer to examine the debt and allow the same in the subsequent assessment years, if the assessee satisfies the conditions stipulated in the Act, against which the assessee is in appeal before us. 6. Counsel f .....

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roof collapse happened and IIT concluded that pattern of failure is due to design defects. Counsel for the assessee submits that in the course of assessment proceedings it was submitted that amounts written off have been offered either income in the previous year or earlier years and the amounts having been written in the books of accounts of the assessee by debiting to the profit and loss account and crediting to parties account shall be allowable as bad debts under section 36(2) of the Act. C .....

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the decisions of the Hon ble Andhra Pradesh High Court in the case of CIT Vs. Anand Food Products [39 Taxmann.com187 (AP)] and the Hon ble Gujarat High Court in the case of CIT Vs. Amit Corporation [21 Taxmann.com 64 (Guj)] submits that if the Assessing Officer while framing original assessment had access of all the records and after perusing such records framed the assessment, such assessment cannot be revised under section 263 of the Act. Counsel for the assessee placing reliance on the decisi .....

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unt instead has made only a provision for writing off the amount. Counsel submits that Commissioner of Income Tax came to such a conclusion on the basis that BILT Power Ltd. has sent claim letter only during August, 2009 and the assessee company s accounts were closed by 31.03.2009. In this regard, counsel for the assessee submits that the engineering drawings relating to the civil construction were delivered prior to the March 2009, invoices were raised on the customer and accounted as income. .....

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ned on quality complaints. In such case even though the quality complaints are made known after the end of the financial year, credit note is given as of 31st March. Therefore the conclusion of the CIT that claim was received only in August 2009 and accounts of the company were closed by 31-03-2009 is not correct. The accounts were open when the drawings were declared defective and claim was determined. The fact remains that the income recognized in respect of defective drawings are not receivab .....

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e Assessing Officer has verified that income relating to bad debts have been accounted in the previous years and the CIT has not controverted this fact. The CIT has assumed that the bad debt will have to be written off "in the previous year", while section 36(1)(vii) requires that bad debt should be written off in the accounts of the assesse "for the previous year". There is no condition that the write off should be done in the previous year i.e., 'before the end of the F .....

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of this Tribunal in the case of Alliance Fin Stock Ltd. Vs. ACIT (40 Taxmann.com 176). 10. Counsel for the assessee further submits that post 01- 04-1989, write off of bad debt is determined by commercial considerations and there is no need to establish that the debt has become bad. In accordance with sections 36(1)(vii) and 36(2) the income relating to the bad debt should have been included as income in one or more previous years and further, written off as irrecoverable in the accounts of the .....

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fore, counsel for the assessee submits that Assessing Officer has allowed the claim for bad debts based on the details, evidence gathered during the assessment proceedings and the submissions made and also taking into account the correct position of law. In the circumstances, the assessment order cannot be held as erroneous or prejudicial to the interests of the Revenue just because the Commissioner of Income Tax has a different view or opinion on the matter. Therefore, he prays for setting asid .....

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assessee claimed ₹ 62,00,468/- as irrecoverable and debited to profit and loss account during the assessment year 2009-10. In the course of assessment proceedings under section 143(3) of the Act, the Assessing Officer called for various details on irrecoverable / claims. The assessee filed various details including ledger account copies, claim letter from the party, the report given by IIT., Delhi showing that designs and drawings supplied by the assessee are defective and that was the cau .....

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ure (Ledger extract) against the amount written off. All the irrevocables have been debited to Profit & Loss account and credited to respective party's account. All the amounts written off have been either offered as income in the previous year ended March 2009 and earlier years. In respect of BIL T Power Ltd., the company has written off ₹ 50 lakhs being the claim for non-performance of the contract and damages suffered by the client. The income relatable to the contract has been .....

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fered by them. While the amount of claim was intimated to the assessee company during all the meetings, the same was adjusted by them in their accounts and followed up by letter dated 24th Aug.2009. Under section 36(2) of the I.T Act, claim for deduction of bad debt is allowable provided the debt has been included as income of the assessee in any previous year and is actually written off in the books. In all the cases of claims made by the assessee, the income has been accounted in the year ende .....

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full and then written off to profit & loss account the claim of ₹ 50 lakhs. Thus, it may be seen the amount claimed as irrecoverable are allowable in accordance with the provisions of the I.T. Act. We also invite your attention to the following decisions of the High Court and Supreme Court. 1) CIT vs Modi Telecommunications Ltd 325 ITR 291 2) TR.F. Ltd. vs. C.I.T 323 ITR 397 (SC) 3) Lawlys Enterprises P Ltd. vs CIT 314 ITR 297 4) CIT vs Star Chemical (Bombay) 292 ITR 339 6) CIT vs Giri .....

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t proposing to revise the assessment stating that assessment order passed under section 143(3) of the Act on 26.12.2011 is erroneous and prejudicial to the interest of the revenue and also the Assessing Officer has not looked into the facts that assessee has received claim letter from M/s. BILT Power Ltd. only during August, 2009 and the assessee company s accounts were closed by 31.03.2009. Section 263 was invoked for one more reason that the assessee has not actually written off the amount ins .....

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ance on the decision of Hon ble Allahabad High Court in the case of CIT Vs. U.P. Rajkiya Nirman Nigam Ltd. (supra) and submitted that where books of accounts are not closed and not signed by Board of Directors and not adopted by shareholders as per Companies Act, it is legally permissible to make adjustments before they are finally adopted. Therefore bad debts could be written off even after closure of accounting year. However, the Commissioner of Income Tax passed order under section 263 of the .....

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are of the opinion that the Tribunal committed no error. When during the course of framing of the assessment, the Assessing Officer had access to all the records of the assessee, after pursuing such record the Assessing Officer framed the assessment, such assessment could not have been reopened in exercise of revision power under section 263 of the Act for making further inquiries. In the facts of the case, in our opinion, Tribunal rightly interfered with such order. No question of law arises. T .....

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enue expenditure. However, that by itself would not be indicative of the fact that the AO had not applied his mind on the issue. The AO in the assessing order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. The counsel for the assessee is right in his submission that one has to keep in mind the. dist .....

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. This fact is even taken note of by the CIT himself in para 3 of his order. This clearly shows that the AO had undertaken the exercise of examining as to whether the expenditure incurred by the assessee in the replacement of dyes arid tools is to be treated as revenue expenditure or not. It appears that since the AO was satisfied-with the aforesaid explanation, he accepted the same. The CIT in his impugned order even accepts this. Thus, even the CIT conceded the. position that the AO made the i .....

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T would show that the principal objection which the revisional authority expressed against the order of the AO was an alleged failure of the AO to examine; firstly whether the capital gain of ₹ 1.26 crores has been earned by the assessee on transactions relating to investments 'held to maturity', and secondly whether the depreciation of ₹ 622.39 lakhs was claimed on investments which were held as stock-in-trade. Now from the , material on record before the Court it is evident .....

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tments in response to the query of the AO. In addition, it would also have to be noted that, in pursuance of, the order passed by the CIT under s. 263, an assessment order came to be passed on 28th Dec., 2007. During the course of the assessment order, the AO noted that the assessee has explained depreciation claimed against the investments held and classified as stock-in-trade. The explanation of the assessee in this connection was accepted and the AO came to the conclusion that depreciation of .....

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made by the assessee. In these circumstances, the Tribunal was justified In coming to the conclusion that recourse to the powers under s. 263 was not warranted in the facts and circumstances of the case. In conclusion, the Hon ble High court held that since an enquiry was specifically held with reference to which a disclosure of details was called for by the Assessing Officer and made by the assessee, the observation of the Commissioner of Income Tax that Assessing Officer had arrived at his fi .....

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of Income Tax lacks jurisdiction under section 263 of the Act to revise the assessment order. 18. In the case of CIT Vs. U.P.Rajkiya Nirman Nigam Ltd. (supra), the Hon ble Allahabad High Court held as under:- 6. On perusal of the provisions here-in-above, it reveals that the only requirement for allowing the bad debt under Section 36 (1) (vii) of the Income-tax Act, is that any bad debt or part thereof is written off as irrecoverable and secondly, they should be written off in the accounts of t .....

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he assessee' are qualified with further words 'for the previous year'. Thus, it only means that the accounts in which the Act of writing off is to be done by the assessee should be for the previous year. Therefore, the law requires to write off the bad debt in the accounts ofthe assessee in the relevant accounting year. There is neither any condition nor any provision that the writing off should be done in the previous year, i.e. before end of the financial year. 8. In the present ca .....

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