Income Tax Appellate Tribunal - Ahmedabad
Alchemie Pvt.Ltd.,, Ahmedabad vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " A "
Before Shri H.L. KARWA, JUDICIAL MEMBER and
Shri D.C. AGRAWAL, ACCOUNTANT MEMBER
Date of hearing : 05/08/09 Drafted on: 05/08/09
ITA No.1862/AHD/2009
Assessment Year : 2005-06
Alchemie Pvt.Ltd. Vs. The Dy.CIT
705/706, Aditya Circle-1
Mithakhali Six Road Ahmedabad
Ellisbridge, Ahmedabad
PAN/GIR No. : AABCA 7874 Q
(APPELLANT) .. (RESPONDENT)
Appellant by : Shri D.K. Parikh, AR
Respondent by: Ms. Nita Shah, DR
ORDER
PER D.C.AGRAWAL , ACCOUNTANT MEMBER :-
This appeal filed by the Assessee is directed against the order of the Ld.CIT(Appeals)-VI, Ahmedabad dated 16/02/2009 passed for Assessment Year 2005-06, wherein he has confirmed the levy of penalty of Rs.16,500/- u/s.271(1)(c) of the I.T. Act, 1961.
2. The brief facts of the case are that the Assessing Officer, during the course of assessment proceedings, noted that the assessee has claimed bad debts of Rs.43,021/- which were written ITA No.1862/Ahd/2009 Alchemie Pvt.Ltd. vs. DCIT Asst.Year - 2005-06 -2- off by the assessee in its books of account. The Assessing Officer was of the view that the assessee has simply written off the debts without proving that they have become bad. Following the decision of Hon'ble Gujarat High Court in the case of Dhall Enterprises Engineering Pvt.Ltd. vs. CIT 207 CTR (Guj.) 729, dated 14/11/2006, he made the addition and also initiated proceedings u/s.271(1)(c) of the I.T. Act, 1961. The Assessing Officer issued a show-cause notice for levy of penalty. In response to this, the assessee claimed that it has submitted a reply/explanation vide its letter dated 17/01/2008, a photocopy of which is enclosed by the assessee in the paper-book filed before us. Out of the sum of Rs.43,021/-, a sum of Rs.32,766/- pertained to a company, viz. M/s.Hindoostan Spg. & Wvg. Co.Ltd. which went into BIFR. The other sum of Rs.7,104/- related to M/s.Morarjee Goculdas Spg. & Wvg. Co.Ltd. which had also closed its business. The assessee considered that there is no chance of recovery and, accordingly, they were written off in the books of account of the current year and claimed deduction. This amounts were offered as income in the earlier years. The Assessing Officer, however, did not agree. In addition, he noted that the assessee did not attend any hearing ITA No.1862/Ahd/2009 Alchemie Pvt.Ltd. vs. DCIT Asst.Year - 2005-06 -3- or furnished any reply or sought adjournment. Thus, according to Assessing Officer, there was no reply to show-cause notice. He, therefore, held that the case of the assessee is covered within the meaning of Explanation(1A) to section 271(1)(c) of the I.T. Act, 1961.
3. Before us, the Ld. Authorised Representative of the assessee submitted that claim of amount of bad debt was made on the basis of decision(s) of Hon'ble High Courts, such as, - CIT vs. Star Chemicals (Bombay) (P) Ltd. (2008) 220 CTR (Bom) 319, and in the case of CIT vs. Autometers Ltd. (2007) 292 ITR 345 (Delhi) for the proposition that if debt is written off, then requirement of section 36(1)(vii) of the I.T. Act, 1961 is satisfied which is also clarified by Circular No.551 dated 23/01/1990. The Hon'ble Delhi High Court in the case of Autometers Ltd.(supra) has also held that the assessee has only to write it off the bad debts as irrecoverable in its books of account and that he is not required to prove that debts have become bad. He also submitted that the Assessing Officer has not taken into account the explanation furnished by it and, therefore, it is a violation of principles of natural justice as held by ITA No.1862/Ahd/2009 Alchemie Pvt.Ltd. vs. DCIT Asst.Year - 2005-06 -4- the Hon'ble Gujarat High Court in the case of CIT vs. Scientific Chemicals 198 CTR (Guj.) 665.
4. The Ld. Authorised Representative of the assessee also submitted that the assessee had made the claim of bad debts on the basis of above decisions, but addition was sustained on the basis of decision of Hon'ble High Court in Dhall Enterprises Engineering Pvt.Ltd.(supra). Thus, it is not a case where claim of the assessee is false or assessee has furnished any inaccurate particulars. There were two views available which were based on the judgements of High Courts. The assessee has followed one, which is favourable to it.
5. Against this, the ld.Departmental Representative submitted that the decision of Hon'ble Gujarat High Court in the case of Dhall Enterprises Engineers Pvt.Ltd.(supra) is binding and assessee could not make a claim of bad debt without proving that debt has become bad. Further, the assessee has not furnished any explanation in response to show-cause notice issued by the Assessing Officer before levy of penalty. Whatever letter the assessee is pointed it out, as per page Nos.5 to 7 of his paper- ITA No.1862/Ahd/2009
Alchemie Pvt.Ltd. vs. DCIT Asst.Year - 2005-06 -5- book, and purported to have been filed with the Assessing Officer on 21/01/2008 could not have been filed because it does not carry any receipt number. Therefore, no cognizance of this reply can be taken.
6. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. There is no doubt that the assessee has made the claim of bad debt on the basis of one of the judicial opinions available at the relevant time that assessee is required only to write it off in the books of account and not to prove that debts have become bad. It was only after the decision of Hon'ble Gujarat High Court that it become necessary for the assessee to prove that debt have become bad in addition to writing it off the same in the books. The judgement of Hon'ble Gujarat High Court in the case of Dhall Enterprises and Engineers Pvt.Ltd.(supra) was pronounced on 14/11/2006, therefore, it could not be available to the assessee during the Financial Year 2004-05 relevant to assessment year 2005-06. Hence, no fault can be found with the assessee as to why the claim has been made without proving that debt has ITA No.1862/Ahd/2009 Alchemie Pvt.Ltd. vs. DCIT Asst.Year - 2005-06 -6- become bad. Further, the case of the assessee will not fall within the meaning of Explanation (1A) to section 271(1)(c) of the I.T. Act, 1961, because the assessee has furnished an explanation which has not been found false. Explanation (1B) to section 271(1)(c) of the I.T. Act, 1961 also cannot be invoked because explanation of the assessee is bona fide as the material relating to the claim have been furnished. There is nothing on record to suggest that the assessee has not substantiated his explanation and that income of the assessee could not have been computed on the basis of material disclosed by him.
7. The ld.Departmental Representative has pointed out that furnishing of explanation by the assessee on 21/01/2008 is doubtful because it does not bear the receipt number on the stamp affixed. Firstly, the Ld.CIT(Appeals) has not doubted the receipt of explanation by the Assessing Officer and secondly, the ld.Departmental Representative has not pointed out any material, such as, receipt register to show that this letter was not at all received by the Assessing Officer. Notwithstanding and to be fair to the Revenue, if there is an evidence to show that letter dated ITA No.1862/Ahd/2009 Alchemie Pvt.Ltd. vs. DCIT Asst.Year - 2005-06 -7- 17/01/2008 which is an explanation in response to show-cause notice for levy of penalty issued by the Assessing Officer on 03/12/2007 was not filed, then the Assessing Officer can come before us with a rectification application. For the time being, as the letter of assessee dated 17/01/2008 bears the stamp of Department and the Ld. Authorised Representative of the assessee has stated at bar that assessee has filed this letter, though Assessing Officer has not taken any cognizance thereof, we treat this letter as having been filed and, accordingly, take cognizance thereof and hold that there is no case for levy of penalty.
8. As a result, levy of penalty is cancelled and appeal of the assessee is allowed.
Order signed, dated and pronounced in the Court on 07/08/2009.
Sd/- Sd/- (H.L. KARWA) ( D.C.AGRAWAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 07/08/2009 T.C. NAIR ITA No.1862/Ahd/2009 Alchemie Pvt.Ltd. vs. DCIT Asst.Year - 2005-06 -8- Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT Concerned 4. The ld. CIT(Appeals)-VI, Ahmedabad 5. The DR, Ahmedabad Bench 6. The Guard File. BY ORDER, स×याǒपत ूित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad