Income Tax Appellate Tribunal - Ahmedabad
Riddhi Siddhi Gluco Biols Ltd, ... vs Department Of Income Tax on 25 June, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " B "
Before Shri MUKUL SHRAWAT, JUDICIAL MEMBER and
Shri N.S. SAINI, ACCOUNTANT MEMBER
Date of hearing : 18/06/2010 drafted on: 25/06/2010
1. ITA No.1047/AHD/2010 for A.Y. 2005-06
2. ITA No.1048/AHD/2010 for A.Y. 2006-07
The Dy.CIT Vs. M/s.Riddhi Siddhi Gluco
Circle-5 Biols Ltd.
Ahmedabad 701, Sakar - I
Opp.Gandhigram Railway
Station
Ashram Road, Ahmedabad
PAN/GIR No. : AABCR 3417 Q
(APPELLANT) .. (RESPONDENT)
Appellant by : Shri K.Madhusudan, Sr. D.R.
Respondent by: Shri S.N.Soparkar, Sr.Adv. &
Ms. Urvashi Shodhan
ORDER
PER SHRI MUKUL SHRAWAT, JUDICIAL MEMBER :
Both these appeals have been filed by the Revenue arising from the orders of the Learned CIT(Appeals)-XI, Ahmedabad dated 21/01/2010 & 22/01/2010 passed for Assessment Years 2005-06 & 2006- 07 respectively.
2. The Revenue's first ground for both the years is in respect of sales tax liability, reads as follows:-
1. The Ld. Commissioner of Income tax (A)-XI, Ahmedabad has erred in law and on facts in deleting the addition made on account ITA Nos.1047 & 1048/Ahd/2010 Dy.CIT vs. M/s.Riddhi Siddhi Gluco Biols Ltd.
Asst.Years - 2005-06 & 2006-07 respectively -2- of deferment of Sales Tax Liability u/s.43B amounting to Rs.87,34,303/-(A.Y.2005-06) and Rs.1,24,85,236/- (for A.Y 2006-
07).
2. Facts in brief as emerged from the lead Assessment Year i.e. 2005- 06 were that the assessee is in the business of manufacturing of Maize Starch and other chemicals. It was found that under the head "Sales-tax Deferment", the assessee has shown sales-tax liability as outstanding during the year. The Assessing Officer has made the addition which was affirmed by the Learned CIT(Appeals).
3. At the outset, it was informed that in assessee's own case on identical facts the Respected Co-ordinate Bench "B" ITAT Ahmedabad in Assessment Year 2003-04 in ITA No.1500/Ahd/2009 dated 07/08/2009 vide paragraph No.6 has decided this issue in assessee's favour as under:-
"6. The facts undisputed are that the assessee is having manufacturing unit in Karnataka. Karnataka Government had amended the Sales Tax Act for providing deferment of the Sales Tax liability and to treat the said sales tax collected as loan for use of the assessee Company. In this connection, we may refer to Section 19C of the Karnataka Sales Tax Act,1957, which is reproduced as under :
"19C- POWER OF GOVERNMENT TO NOTIFY EXEMPTION OF TAX OR DEFERRED PAYMENT OF TAX FOR NEWINDUSTRIES.
ITA Nos.1047 & 1048/Ahd/2010 Dy.CIT vs. M/s.Riddhi Siddhi Gluco Biols Ltd. Asst.Years - 2005-06 & 2006-07 respectively -3- (1) The government may, in such circumstances and subject such conditions as may be prescribed, by notification defer payment by any new industrial unit of the whole or any part of the tax payable in respect of any period or exempt the whole or any part of the tax payable by a new industrial unit in respect of any period:
PROVIDED that notwithstanding anything contained in the Act or in the rules made thereunder but subject to such conditions as the State Government may, by general or special order specify, where a dealer to whom incentives by way of deferment offered by the State Government in its orders issued from time to time has been granted by virtue of eligibility certificate and where liability equal to the amount of any such tax payable by such dealer has been created as loan by the Department of Industries and Commerce, Government of Karnataka, then such tax shall be deemed, in public interest, to have been paid.
(2) Notwithstanding anything contained in this Act, the deferred payment of tax under sub-section (1) shall not attract penalty under clause (ii) of subsection (2) of section 13, provided the conditions laid down for payment of the tax deferred are satisfied."
Based on the above amendment, vide letter No.8.7.2003 issued by the Joint Director, District Industries Centre, Belgaum issued a certificate (copy placed on record), wherein inter alia mentioning in paragraph 13 as follows :
"13. That the unit is eligible to avail sales tax deferment (both KST & CST) as an unit undertaking expansion on the sale of finished goods as per F.D.Notificaton cited at reference 2 above, for a period of 8 years with effect from 14.12.2001 i.e., the date of the commencement of commercial production as evidenced by the first sale invoice bearing NO.3447 dated 14.12.2001 and limited to 80% of investment made on fixed assets which works out to Rs.39,62,40,000 (Rupees Thirty Nine Crores Sixty Two Lakhs Forty Thousand only)."
Accordingly, the Joint Commissioner of Commercial Taxes, vide letter dt.5.11.2003 (copy placed on record) issued certificate of entitlement stating therein that the tax which is entitled for deferment shall be payable by the assessee's unit over a period of 5 years in ten equal half yearly instalments commencing from the date of expiry of the period of ITA Nos.1047 & 1048/Ahd/2010 Dy.CIT vs. M/s.Riddhi Siddhi Gluco Biols Ltd. Asst.Years - 2005-06 & 2006-07 respectively -4- deferment i.e., with effect from 14.12.2009. In view of the above factual matrix, we are of the considered view that the assessee having fulfilled all the conditions, the learned CIT(A) is perfectly justified in deleting the addition of Rs.42,21,000 on account of deferment of sales tax. Accordingly, we dismiss ground No.1 of the Revenue."
3.1. Since in the past as well, the Respected Co-ordinate Bench has affirmed the view of the Learned CIT(Appeals), therefore, we have no reason to take any other view to follow the same records. Identically for this year as well he hereby uphold the order of the Learned CIT(Appeals) and dismiss this ground of the Revenue.
4. Second ground of the Revenue is in respect of claim of bad debt; reproduced below:-
2. The Ld. Commissioner of Income tax (A)-XI, Ahmedabad has erred in law and on facts in deleting the addition made on account of Bad Debts amounting to Rs.36,57,405/-.
4.1 It was noticed by the Assessing Officer that as per Profit & Loss account the appellant has written-off of bad debts. In this regard, the explanation of the assessee was that there were certain outstanding sales of earlier years and balance amount was not recoverable, therefore, written-off in the books of account. About certain petty and small amounts the explanation of the assessee was that it was not worth to follow the recovery hence decided to write-off in the books. The Assessing Officer was not convinced and held that the assessee has not placed on record the capacity of the debtors and the adequate recovery ITA Nos.1047 & 1048/Ahd/2010 Dy.CIT vs. M/s.Riddhi Siddhi Gluco Biols Ltd.
Asst.Years - 2005-06 & 2006-07 respectively -5- measures taken for the recovery, therefore, failed to fulfill the requirements of section 36(1)(vii) of the I.T. Act, 1961. When the matter reached to the first appellate authority, the CIT(A) has followed assessee's own case in the past years vide paragraph No.6.2 and allowed the claim. For ready reference, the findings of the Learned CIT(Appeals) contained in paragraph No.6.2 is reproduced below:-
"6.2. I have considered the submissions made by the A.R. of the appellant and the observations of the assessing officer in the assessment order. Similar issue arose in the appellant's own case in earlier assessment years. It has been decided in favour of the appellant by the Hon'ble ITAT, Ahmedabad "B" Bench, Ahmedabad vide its order ITA No.404, 16689, 2654/Ahd/2002 and No.3726/Ahd/2003 dated 02/12/2009 for A.Ys. 1997-98, 1998-99, 1999-2000 and 2000-01. In the said order, the Hon'ble ITAT held as under:-
"8. The Special bench of the ITAT, Mumbai in the case of DCIT vs. Oman International Bank SAOG 286 ITR (AT) 8 (Mum) has held that the bad debts if written off in, the books of accounts has to be allowed as a deduction in the assessment year relevant tot eh year in which the debts have been written off by the assessee as irrecoverable. The above Special Bench decision has been upheld by the Hon'ble Bombay High Court in the case of Director of Income-Tax (International Taxation), 313 ITR 128 (Bom.). The Hon'ble Court has held that once the assessee records the debts as a bad debt in his books of account that would prima facie establish that it was a bad debt unless the Assessing Officer for good reasons holds otherwise. Once that be the case, the assessee was not called upon to discharge any further burden. After the amendment it was neither obligatory nor was the burden on the assessee to prove that the debt written off by him was indeed a bad debt as long as it was bona fide ITA Nos.1047 & 1048/Ahd/2010 Dy.CIT vs. M/s.Riddhi Siddhi Gluco Biols Ltd.
Asst.Years - 2005-06 & 2006-07 respectively -6- and based on commercial wisdom or expediency. The revenue has challenged the above judgment of the Hon'ble Bombay High Court before the Hon'ble Suprmee Court through S.L.P. (C) No.8364 of 2009. The SLP was filed against the name of Rajendra Y.Shah who was an intervener before the ITAT, Special Bench in the case of Oman International Bank SAOG (supra). Their Lordships S.H. KAPADIA AND AFT5AB ALAM JJ. Dismissed the department's S.L.P. against the judgment of the Hon'ble Bombay High Court whereby the Hon'ble Court has confirmed the order of the Tribunal holding that the issue was covered by 286 ITR (AT) 8 wherein it was held that the assessee was entitled to claim deduction if the debt had been written off as irrecoverable in the books of account and there was no obligation on the assessee to establish that the debt had become bad (313 (ST) 03). Now it is clear that the decision of the Special Bench of ITAT, Mumbai in the case of Oman International Bank SAOG (supra) in fact has been upheld by the Hon'ble Supreme Court and the law on the subject of deduction of bad debt written off stands explained. In this context, I have to refer to the arguments of the learned Commissioner of Income-Tax that the jurisdictional High Court in the case of Dhall Enterprise and Engineers Pvt.Ltd. vs. CIT, 295 ITR 481 has held that the assessee should prove that the debt has become bad in a particular year and it is not sufficient to write off debts as bad in the books of account as irrecoverable. But as pointed out by the learned counsel appearing for the assessee, the same High Court has taken a view in the case of CIT vs. Girish Bhagwatprasad, 256 ITR 772 in favour of the assessee where it has held that mere writing off of an amount of bad debt in the books of account as irrecoverable, is sufficient for claiming deduction. First of all, I have to state that the judgement of the Hon'ble Jurisdictional High Court in the case of Dhall Enterprise & Engineers Pvt. Ltd. (supra) may not be relied upon in view of the order of the Hon'ble Supreme Court dismissing the S.L.P. filed against the judgment of Hon'ble Bombay High Court delivered in the ITA Nos.1047 & 1048/Ahd/2010 Dy.CIT vs. M/s.Riddhi Siddhi Gluco Biols Ltd. Asst.Years - 2005-06 & 2006-07 respectively -7- case of Oman International Bank SAGO where it has been held that it is enough to write off the bad debt irrecoverable in the accounts of the assessee for claiming the deduction. Once the matter is settled by the Hon'ble Supreme Court, one has to follow the judgement / order of the Hon'ble Supreme Court and in such circumstances the argument of the learned Commissioner of Income-tax is not sustainable. Moreover, as already been decisions are available as rendered by the Hon'ble Jurisdictional High Court hold in favour of the assessee and in favour of the Revenue on this specific issue. The Hon'ble Supreme Court in the case of CIT vs. Vegetable Products 86 ITR 192 has held that when an issue is capable for more than one view, the view favourable to the assessee should be adopted. This principle applies to the opposite judgements as well."
Therefore, having considered the facts and circumstances of the case and following the above decision, I am inclined to direct the assessing officer to delete the addition made him on account of bad-debts. This ground of appeal is allowed."
5. From the side of the Revenue ld.CIT-Learned Departmental Representative Shri K.Madhusudan appeared. At the outset, it was vehemently argued that for the claim of bad debt, the assessee has to establish his bona fide for writing-off the same as irrecoverable. Placing reliance on the decision of Hon'ble Gujarat High Court in the case of Dhall Enterprises & Engineers Pvt.Ltd.(supra), it was argued that the Hon'ble High Court has held that requirement for claiming deduction on account of bad debt is that the debt should be written-off as irrecoverable and the assessee should prove that the debt has become bad in that year. Mere debiting the amount was not sufficient, the Learned Departmental Representative has pleaded.
ITA Nos.1047 & 1048/Ahd/2010 Dy.CIT vs. M/s.Riddhi Siddhi Gluco Biols Ltd. Asst.Years - 2005-06 & 2006-07 respectively -8- 5.1. Further, the Learned Departmental Representative has placed reliance on the decision of the Special Bench of ITAT Mumbai in the case of Oman International Bank reported as 102 TTJ 207(Mum.) for the proposition that the burden is on the assessee to establish that, in fact, he had bona fide reason for claiming a particular debt as a bad debt. The argument before us is that the assessee has to establish the reasons on the basis of which the commercial decision of claiming bad debt was made and such a decision was not a whimsical or fanciful decision. He has stressed that the decision for claiming bad debt must be based upon some material that the debt in fact was not recoverable. Earlier this case was cited as 286 ITR(AT) 08 [SB] when the issue was decided by the Tribunal. The interpretation of the said decision of the Tribunal by the Ld. CIT-DR was that, once the claim of bad debt is within the personal knowledge of the business-man whether a debt had become bad or not, then he has to place on record the basis of his decision, as well as, he has to establish his bona fide to be demonstrated through cogent evidence so as to establish that the debt had actually become bad. It has also been informed that the order of the Special Bench "H" of ITAT Mumbai in the case of Dy.CIT vs. Oman International Bank reported as (2006)100 ITD 285(Mumbai)[SB] was affirmed by the Hon'ble Mumbai High Court reported as Director of Income Tax (International Taxation) vs. Oman International Bank SAOG reported as (2009) 313 ITR 128(Mum.) by rejecting the Revenue's appeal, thereafter, the Revenue has preferred SLP before the Hon'ble Supreme Court which was stated to be stood dismissed.
ITA Nos.1047 & 1048/Ahd/2010 Dy.CIT vs. M/s.Riddhi Siddhi Gluco Biols Ltd. Asst.Years - 2005-06 & 2006-07 respectively -9-
6. We have heard both the parties and perused the material placed before us as well as the evidences placed in the form of compilation consisting copy of ledger accounts of the parties and the reasons assigned for claiming the bad debt. It was demonstrated that the sales had taken place few years back and the balance remained unrecoverable since then, therefore, due to the said reason, also considering the overall circumstances under which the recovery of the outstanding balances could not be made, it was resolved to treat the outstanding balance as bad debt for the accounting period under consideration. Be that as it was about the evidences, the latest legal position is that the Hon'ble Supreme Court in the case of T.R. F. Ltd. vs. CIT reported as (2010) 323 ITR 397 (SC) has taken into consideration the position of law, after 01/04/1989 and held as under:-
"This position in law is well-settled. After April 1, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in the accounts of the assessee. When a bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the abovementioned aspect only and that too only to the extent of the write-off."
ITA Nos.1047 & 1048/Ahd/2010 Dy.CIT vs. M/s.Riddhi Siddhi Gluco Biols Ltd. Asst.Years - 2005-06 & 2006-07 respectively
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6.1. Once the Hon'ble Court has held that it is enough if the bad debt is written-off as irrecoverable in the accounts of the assessee, then it is not necessary for the assessee to establish that the debt, in fact, had become irrecoverable.
6.2. We are governed by the view taken by the Hon'ble Supreme Court and, therefore, all the arguments as raised from the side of the Revenue have thus, rendered futile. In the result, view taken by the Assessing Officer is hereby reversed, and the view taken by the Learned CIT(Appeals) is upheld, resultantly it was directed to allow the claim. This ground is, therefore, dismissed.
7. In the result, both the appeals of the Revenue are dismissed.
Order signed, dated and pronounced in the Court on 30/ 06 /2010.
Sd/- Sd/- ( N.S. SAINI ) ( MUKUL SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 30 / 06 /2010 T.C. NAIR, Sr. PS Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent 3. The CIT Concerned. 4. The ld. CIT(Appeals)-XI, Ahmedabad
5. The DR, Ahmedabad Bench.6. The Guard File.
BY ORDER, स×याǒपत ूित //True Copy// (Dy./Asstt.Registrar), ITAT, Ahmedabad