TMI Blog2017 (5) TMI 478X X X X Extracts X X X X X X X X Extracts X X X X ..... f the claims made by the assessee can be allowed. - Decided against assessee. Denying claim on account of export incentives written off - Held that:- We find that the FAA had specifically asked the assessee to furnish evidence in its support.But,it had failed to produce any evidence in that regard.As discussed in earlier paragraphs,it is the duty of the assessee to furnish documentary or other evidence to claim any deduction.In the case before us, except making a claim it has not done nothing to support its claim.Therefore,we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity.Confirming the same,we decide second ground of appeal against the assessee. Disallowance of 20% of service charges paid by the assessee to its sister concern - Held that:- We find that while deciding the similar issue for the earlier assessment year,the Tribunal had upheld the disallowance at the rate of 20%, that the administrative expenses incurred during the year were on higher side as compared to expenses of previous assessment year.The rule of consistency is applicable to AO as well as to the assessee. Nothing was brought on record before us to distingui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are adjudicating them together. ITA/3615/Mum/2013,AY. 2007-08: 2.First ground of appeal is about denying claim of bad debts.During the assessment proceedings, the AO found that the assessee had claimed bad debts,including the bad debts pertaining to seven overseas parties, that it had claimed bad debts in respect AY.s 1994-95 to 1999-2000.He directed the assessee to furnish evidence to prove that these amounts were taken into account in computing its income in the relevant years.He observed that it was a legal requirement for claiming a deduction of some a bad debt u/s. 36 of the Act.The assessee showed its inability to prove the fact by stating that records and accounts prior to the period of 01/04/2001 were no longer available with it.However,it furnished a copy of letter, dated 28/09/1999, written to the CIT,Bombay City-II,seeking therein an extension for a period of six months a payment on account of certain export bills was not received till 28/09/1999. The AO opined that on the basis of extension applications the assessee had claimed deduction u/s. 80HHC at the rate of 100%, that normally in export business a consignment was exported to of overseas party against o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot fulfilled,that the claim made by it was based on facts and had to be allowed in full.On a pointed query by the FAA,as to reason for claiming bad debts after 10 years and more, it stated that it was the discretion of the assessee to claim bad debts in the year in which it found them irrecoverable. After considering the, submissions of the assessee and the assessment order,he held that seven parties for which bad debt claims had been made were foreign parties, that the claim related to AY.s 1994-95 to AY.s 1999-2000, that in those years export profits were totally tax exempt, that the export profits were taxable fully in the instant year, that the assessee had claimed that sales were disclosed in relevant years prior to 10-14 years back,that there was no evidence for the same for want of records,that it was not able to establish, with necessary documentary evidences, that the said amounts were shown as sale proceed in a relevant years and that same were not received in reality,that that if records were not available the assessee was not entitled to claim bad debts,that assessee had not filed any plausible explanation in that regard, that assessee had not claimed bad debts for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.3.We have heard the rival submissions and perused the material before us.As per the mandate of provisions of chapter IV income,under the head profits and gains of business or profession , is chargeable to income-tax.Expression profits and gains of business or profession is to be understood in its ordinary commercial meaning as it does not mean total receipts. What has to brought to tax is the net amount earned by carrying on a profession or a business.For that purpose,one must necessarily have regard to the accepted commercial practice that deduction of such expenses and losses has to be allowed, if it arises in carrying on business and is incidental to it.Sections 29-37 provide deductions for various expenses.There is no bar in claiming a loss as a business loss, if it is incidental to carrying on of a business.Similarly,while carrying on the business if an assessee writes off a irrecoverable debt,he would be entitled to a corresponding deduction under clause(vii)of sub-section(1)of section 36 subject to the fulfilment of the conditions set forth in sub-section(2)of the said section. 2.3.1.Before proceeding further,we would like to refer to the provisions of the section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... damages claimed by customers ₹ 49,527/-being the aggregate of other bad debts and ₹ 73, 996/-being the interest payable to the financier on account of purchases of motor vehicles.It had claimed deduction of an amount of ₹ 1,06,978/-as cost of goods damaged in transit.The assessee,while computing the income, had claimed the deduction of the above -mentioned amount as the amount payable to Kerala State Detergents and Chemicals Ltd. (KSDCL),for the damage caused to their goods transported by the assessee.Before the AO,it was stated that KSDCL had dispatched 725 cartons of soaps to their Indore depot and that the cartons were damaged due to seepage of water. KSDCL refused to take delivery of the damaged goods. The assessee sold 172 cartons to M/s. P. V. S. Hospital. The remaining 578 cartons were taken by KSDCL and they disposed of 200 cartons. The remaining 378 cartons were taken by the assessee in January, 1986. In the audit report, the auditors observed that it was not known as to how the quantity of 378 cartons were disposed of and why no value had been credited in the accounts. Further, the assessee had also claimed that the deduction could be allowed as a bad d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered as bad debt due to the assessee within the meaning of section 36(2) of the Act. We would also like to refer to the case of Kanchanjunga Advertising P Ltd.(340ITR 595)of the Hon ble Delhi High Court.Facts of the case were that in its return for the AY. 2000-01 the assessee-company claimed deduction by way of bad debts. In respect of the assessee s claim for deduction of ₹ 50 lakhs as bad debts in the account of D, the assessee explained that it had deposited the sum with D as share application money but since no shares were allotted to the assessee,the assessee by a letter to D, exercised the option of converting the share application money into loan bearing interest at 22%compounded quarterly, that since the assessee received no response it wrote off the amount as D had not even acknowledged the amount as a debt and the assessee was left with no chance of recovery. The AO rejected the claim. On appeal, the FAA directed the AO to allow the claim of bad debts.The Department filed an appeal to the Tribunal which allowed the appeal finding, inter alia, that the loan had not been taken into account in computing the income of the assessee for any earlier year, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction,though such claim as bad debt was, as a matter of fact, not in dispute. v.Under sub-section (2) of section 36, merely writing off any amount as a bad debt in the books of account would not ipso facto result in deducting the said sum while computing the taxable income in accordance with the provisions of the Act. The requirement of sub-section (2) is to be established even in a case where a sum is written off in the books of account. The enquiry into the condition required under sub-section (2) is still to be made but such inquiry is to be made only when the debt is written off in the books of account. It is a condition precedent before any claim for deduction on account of debt becoming bad is inquired into. In the absence of such entries made in the books of account, the process of examining the claim with reference to subsection (2) of section 36 would not commence. vi.There is a distinction between giving up a claim or waiver of a claim and a failure to recover the claim. In this case, an attempt was made to recover the same but failure to recover it would not amount to waiver or forgoing of the claim itself in view of the provisions contained in the Arbitration Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim for deduction/rebate/exemption is made.Onus is always on assessee to prove its claim. In the case before us,both the revenue authorities have given a categorical finding of facts that no reliable evidence was produced before them to prove that disputed amounts have turned in to bad debts.There is a long gap between the alleged sums becoming bad debts and their writing off. For more than a decade the assessee sat quietly and suddenly,in the year under appeal,claimed that certain sums should be treated as bad debts.It was argued that sweet-will of the assessee decides the issue of time of writing off of bad debts.We are of the opinion that will of the Sovereign will prevail over the will of its subjects.Writing off of bad debts and claiming deduction for it are two different steps and have different consequences.In firs situation only assessee is involved. But,in second situation State also has stakes.Legislature in its wisdom has laid down certain conditions u/s.36 of the Act and those provisions govern the writing off of bad debts and not the sweet will of the assessees.The provisions of the impugned section stipulate that for claiming deduction the assessee should establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the balances lying in its balance sheet over a period of 10 years, that when the deduction u/s. 80HHC was no more available to it amounts were written off and were claimed as deduction against the income liable to be taxed, that no tax was paid on the receivables in the respective years,that it was not entitled for any deduction for the receivables in question,that it had not fulfilled the conditions,that it had attempted to reduce tax taxable income of the year under consideration by making unsustainable claim after a period of 10 years.Finally,he disallowed the claim made by the assessee. 3.1.During the appellate proceedings,the FAA directed the assesee to submit necessary details about crystallisation and entitlements of DEPB/drawback/DFRC receivables and to produce documentary evidences in that regard.He directed it to furnish the communication from the government refusing the entitlements.As per the FAA, the assessee did not produce any evidence in its support.He held that the assessee had written of outstanding balances on account of DEPB/ drawback/DFRC receivables, that the claims related to AY.s 1995/96 and 1996/97, that there was no evidence that the assessee was entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue for the earlier assessment year,the Tribunal had upheld the disallowance at the rate of 20%, that the administrative expenses incurred during the year were on higher side as compared to expenses of previous assessment year.The rule of consistency is applicable to AO as well as to the assessee. Nothing was brought on record before us to distinguish as to how the facts of the AY.2006-07 were not similar to the facts for the year under appeal. In absence of dissimilarity of the facts, we are of the opinion that order of the Tribunal for the earlier years should not be disturbed.Therefore,confirming the order of the FAA, we dismiss the last ground of appeal raised by the assessee. ITA/3616/Mum/2013,AY.2008-09: 5.GOA-1 and 2 for the year are about rejecting claim of bad debts(Rs.11.11 lakhs,u/s.36 of the Act)and confirming the disallowance of 20%of service charges.While adjudicating the appeals for the earlier year,we have dismissed both the grounds,raised by the assessee.Following the same,Grounds no.1 and 2 are decided against it. 6.Third ground deals with disallowance of 15% of certain expenses incurred in cash on ad hoc basis.During the assessment proceedings, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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