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Mulye Engineering and Consultancy Pvt. Ltd. Versus The Income Tax Officer, Ward 11 (1) , Pune

2016 (5) TMI 706 - ITAT PUNE

Disallowance of written off as bad debts under section 36(1)(vii) - AO had denied the claim on the ground that the debt had not become bad and also that the assessee was otherwise dealing with the said concern - Held that:- The assessee has placed copy of the ledger account of the said party in its books at page 6 of the Paper Book. The Assessing Officer had denied the claim on the ground that the debt had not become bad and also that the assessee was otherwise dealing with the said concern. The .....

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preceding year. However, the payment against the said machinery could not be realized by the assessee in full and only sum of ₹ 1 lakh after negotiations was paid by the said concern that too in assessment year 2008-09. At the close of the year, the assessee had written off of ₹ 68,750/- i.e. amount in question by treating it as irrecoverable and such act of write off of irrecoverable amount cannot be faulted with and the claim of assessee against writing off of such amount is to be .....

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ar and is brought forward from the preceding year. In the earlier years, no disallowance under section 14A of the Act was made in the hands of assessee. The assessee admittedly, has not received any income on the said investment which is exempt from tax. The year under appeal before us is assessment year 2007- 08 and the provisions of Rule 8D of the Income Tax Rules, 1962 were not on Statute in the said assessment year. In view thereof, we find no merit in the aforesaid disallowance made under s .....

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s raised the following grounds of appeal:- 1. The learned C.I.T(A) erred on facts and in law in upholding disallowance of ₹ 68,750 being bad debts from M/s Goodwill Engineering Services, especially when the conditions as required by sec. 36(1)(vii) r.w.s. 36(2) were duly complied with. 2. The learned C.I.T(A) erred on facts and in law in upholding disallowance of ₹ 1,67,295 u/s 14A of the Act. He failed to appreciate the contentions and arguments advanced by the assessee in this beha .....

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ther Sources. He failed to appreciate that the entire disallowance made by the A.O. was based on surmises and conjectures. He also failed to appreciate the facts in its proper perspective, as also the arguments and contentions advanced by the assessee in this behalf. 4. The appellant craves leave to add, alter, delete or substitute all or any of the above grounds of appeal. 3. The issue in ground of appeal No.1 is against disallowance of ₹ 68,750/- written off as bad debts under section 36 .....

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explain as to how these debts had become bad during the year. In respect of M/s. S.S. Deisel, the contention of assessee that the party had refused to make the payment because chemical solution supplied to it was found to be inferior quality, was not accepted by the Assessing Officer. The second contention of the assessee that the payment for machinery sold to M/s. Goodwill Engineering Services was not received from the said party was not accepted, since the assessee was maintaining the busines .....

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be ignored and the debt written off has to be bad debt, which was the prior condition for admissibility of deduction under section 36(1)(vii) of the Act. The CIT(A) allowed the claim of assessee in respect of writing off of bad debt of ₹ 14,997/-. However, in respect of second debt outstanding for only one year, the CIT(A) observed that there was no negation of claim nor had the debtor written that they would not pay the said amount to the assessee. Hence, it could not be said that the wri .....

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of assessee as to the debt becoming bad and same cannot be overturned by the authorities. Where such a debt has been written off as irrecoverable, then the claim of assessee being fair and proper, is to be allowed as deduction under section 36(1)(vii) of the Act. Reliance in this regard was placed on the ratio laid down by Pune Bench of Tribunal in cross appeals in DCIT Vs. Nichrom India Ltd. and Nichrom India Ltd. Vs. Addl.CIT in ITA Nos.870/PN/2014 and 919/PN/2014, relating to assessment year .....

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ne of ₹ 68,750/-. The claim of the assessee before the authorities below was that it had supplied machinery to M/s. Goodwill Engineering Services which was not up to the mark and hence, the total amount was not paid by the said concern. The cost of machinery was ₹ 1,68,750/-, out of which ₹ 1 lakh was received by the assessee in the next year i.e. assessment year 2008-09 and the balance sum of ₹ 68,750/- was written off as bad debts by the assessee while closing the books .....

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assessee had written part of the specific bill which was due from M/s. Goodwill Engineering Services. The assessee was otherwise engaged in the business of manufacturing, hiring and trading activities and had only sold one machinery to M/s. Goodwill Engineering Services on 30.11.2005 i.e. during the preceding year. However, the payment against the said machinery could not be realized by the assessee in full and only sum of ₹ 1 lakh after negotiations was paid by the said concern that too .....

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nal in turn, had relied on its earlier decision in assessment year 2007-08. The relevant findings of the Tribunal are as under:- 7. We find that the issue raised by the Department in present appeal is similar to the issue that was raised in cross appeals in the case of Nichrome India Ltd. Vs. DCIT in ITA No.1623/PN/2012 and ITA No.1639/PN/2012 for the assessment year 2007-08. The Tribunal vide order dated 31-10-2013 adjudicated the matter as follows: 9. We have carefully considered the rival sub .....

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applicable is to the effect that such debt ought to have been taken into account in computing the income either in the previous year in which the amount of such debt or part thereof written-off or of an earlier previous year. 10. With respect to the aforesaid statutory requirement there is no dispute in the present case. Firstly, the debts in question have been written-off as irrecoverable in the accounts of the assessee; and, secondly it is also not in dispute that the same have already been t .....

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/s. 36(1)(vii) of the Act. In our considered opinion, the controversy on this point has been answered by the Hon ble Supreme Court in the case of T.R.F. Ltd. (supra). The Hon ble Supreme Court compared the provisions of section 36(1)(vii) of the Act which existed prior to 01.04.1989 with that which are on statute post- 01.04.1989. Assessment years before the Hon ble Supreme Court were 1990-91 and 1993-94, i.e. both post- 01.04.1989. As per the Hon ble Supreme Court, prior to 01.04.1989, every as .....

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ize the point sought to be made out, we reproduce hereunder the relevant portion of the judgment of the Hon ble Supreme Court in the case of T.R.F. Ltd. (supra) : - 2. ……….. Prior to April 1, 1989, every assessee had to establish, as a matter of fact, that the debt advanced by the assessee had, in fact, become irrecoverable. That position got altered by deletion of the word established , which earlier existed in section 36(1)(vii) of the Income-tax Act, 1961 ( the Act , for .....

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e become a bad debt in the previous year. Post-April 1, 1989 : 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- . . (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. 4. The position in law is well-settled. After April .....

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-fact, had become irrecoverable in order to allow the claim u/s. 36(1)(vii) of the Act, is quite misplaced. 12. Nevertheless, even on facts also, we find that in so far as the irrecoverability of the impugned debts is concerned, there cannot be any doubt. In this context, we have perused the details of amounts due from different debtors which has been written-off as bad debts amounting to ₹ 40,89,838/-, the relevant details are at pages 4 to 9 of the Paper Book. Against each and every entr .....

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, are specific bills or part of specific bills raised by the assessee, which have not been collected from such parties. Therefore, merely because assessee had dealing with that particular concern or that the concerns are otherwise financially viable does not distract from the fact that the amounts in question, which are individually of small values, were specific bills of the assessee or part thereof, which were outstanding for a long period of time and therefore considering the aforesaid aspect .....

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R.F. Ltd. (supra) has opined that post-01.04.1989, it is no longer necessary for the assessee to establish that the debt, in-fact has become irrecoverable before claiming deduction u/s.36(1)(vii) of the Act. Thus, canvassing to the contrary, based on the judgment of the Hon ble Madras High Court in the case of South India Surgical Co. Ltd. (supra), in our view, does not help the Revenue. 14. In conclusion, we hold that on facts and also in law, the entire claim of the assessee for write-off of b .....

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ssue. Respectfully following the order of Coordinate Bench in assessee s own case, we uphold the findings of the Commissioner of Income Tax (Appeals) on this issue and dismiss the appeal of the Revenue. 10. Following the same parity of reasoning, we find no merit in the orders of authorities below and reversing the order of CIT(A), we allow the claim of assessee in entirety. The ground of appeal No.1 raised by the assessee is thus, allowed. 11. The second issue raised by the assessee is against .....

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