Income Tax Appellate Tribunal - Delhi
Puri Industries , Muzaffarnagar vs Department Of Income Tax on 20 June, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: F: NEW DELHI
BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER
AND SHRI B.C. MEENA, ACCOUNTANT MEMBER
ITA No. 4995/Del/2012
Assessment Year 2009-10
ACIT, vs. Puri Industries,
Circle-1, Railway Crossing
Muzzaffarnagar. New Mandi, Jansath Road,
Muzaffarnagar
(PAN AABFP9669D)
(Appellant) (Respondent)
Appellant by : Shri Satpal Singh, Sr. DR
Respondent by : Shri Sandeep Kumar Garg, Advocate
ORDER
PER GEORGE GEORGE K, JUDICIAL MEMBER
This appeal at the instance of revenue is directed against the CIT (A) order dated 4.6.2012. The relevant assessment year is A.Y 2009-10.
2. The solitary issue that arises for our consideration is whether the CIT(A) is justified in deleting the addition made by the AO amounting to Rs. 10,83,639/-.
3. Briefly stated the facts of the case are as follows :
The assessee is a company engaged in the business of manufacture and sale of valves for sugar and paper machinery. The return of income was filed on 30.9.2009 declaring an income of Rs. 81,01,250/-. The assessment was taken up for scrutiny by issuance of notice u/s 143(2) of the Act. In the course of scrutiny assessment proceedings, it was noticed that assesseee had debited a sum of Rs.2 ITA No. 4995/Del/12
10,83,639/- to the P & L account under the head "LD deducted by Mawana Group". The AO showcaused the assessee to explain, the said debit in the profit and loss account. In response, it was submitted that there was an outstanding amount of Rs. 39,75,639/- due to the assessee from Mawana Sugar Mill Group against the supply of valves during the asstt. year 2007-08. It was submitted that the aforesaid company was not paying the amount which had affected the financial position of the assessee. Further to avoid litigation and to have a cordial relationship with Mawana group which is in the interest of business, assessee entered into agreement with the aforesaid concern on the basis of which, out of the total claim of Rs. 39,75,639/- the assesee received the amount of Rs. 28,92,000/- through bank draft and balance of Rs. 10,83,639/-, was written off as LD discount (bad debts discount) and debited to the P & L account. 3.1) The AO however rejected the contention of the assessee and held a sum of Rs. 10,83,639/- cannot be allowed as a deduction and added the same back to the total income of the assessee.
4. Aggrieved by the asstt. order in making an addition of Rs. 10,83,639/- the assessee filed an appeal before the Ld. CIT(A). The detailed submissions made before the Ld. CIT(A) by the assessee is reproduced below for ready reference :-
".......In the assessment order under appeal, addition of RS.10,83,639!- made by way of disallowance of the said amount debited to P&L a/c as LD discount, in the account of M/s Mawana Group, is not only contrary to the bare facts of the case, but also against the settled legal position on the issue. As stated in the course of assessment, the appellant firm, being manufacturers and suppliers of industrial valves and cocks mainly for Sugar and Paper mills, had made supplies of the same to three units 3 ITA No. 4995/Del/12 owned by said M/s Mawana Group, pursuant to firm purchase orders placed by them, under the cover of followi'1g sales bills:
Name Amount
Mawana Sugar Works 2820771.00
Nagla Mal Sugar complex 4435613.00
Titawai Sugar Complex 4822416.00
12078800.00
.
Thus the above sale of Rs 12078800.00 formed part of the total turnover shown by assessee in its return filed for A Y 2007-08. The sale bills, however, were debited individually to the concerned units of M/s Mawana Group and the payment as and when received was credited to the respective accounts. Despite lots of persuasion, the bills remained unsettledtil/31.3.2008, showing a total outstanding of Rs 3975639.00 in their account. The blocked funds were causing financial loss to assessee and efforts were afoot to get the payments released at the earliest. Therefore, a onetime settlement was made by way of a written agreement executed on 15.04.2008, whereupon a lump sum amount of- Rs.'"28,92000/-was agreed to be taken in full and final settlement of all the dues, thus resulting into a , loss of Rs.10,83,639/-, which had to be finally debited to P&L account as LD discount. Relevantly, on page of settlement agreement, the following recital supports the assessee's anxiety to go for such settlement:
AND 'WHEREAS due to certain circumstances beyond the control of the Company, the payments by the company to the suppliers/contractor are getting delayed and are likely to take much longer time than expected"
Detail of bill issued, copy of agreement for supply of books copy of accounts for the year ending 31-03-2007, 31-03-2008 and 31-03-2009 and copy settlement deed are being filed for kind perusal.
2. The material had been supplied as per agreement and there is no dispute regarding the Quantity and quality of material supplied. The Mawana group had not instituted any suit or refer the matter for arbitration for breach or specific performance of contract.
3. The above facts amply show that the above debt, naving become irrecoverable, fell within the ambit of section36(1)(vii), which provided a deduction to be claimed for such a debt having become bad in the previous 4 ITA No. 4995/Del/12 year. This debt as narrated above, having become part of the trading account for the year ending 31.03.2007, also qualified the hurdle as created by sub-section (2) of section 36. , Since its recoverability crystallized only on 15.04.2008, i.e relevant to previous J year 2008-09, it was rightly claimed as bad debt in A Y 2009-10. Thus, all the ingredients on section 36(1)(vii) r.w. sub-sec (2) of 36 were fulfilled. Though is self evident that the above debt had become bad, as held by Hon'ble Supreme Court in the case of TRF Lid v CIT (2010) 230 CTR (SC) 14, it is not necessary, after amendment of section 36(1)(vii) w.e.f. 1.4.1989, to establish that a debt has become bad.
4. Alternatively, the said loss is also allowable u/s.28 or the residual section 37, . not be1ng a capital expenditure, having been incurred in the normal course . business.
5. The income of the appellant of previous years and succeeding years as under
A. Y. Income Shown, 2007-2008 18,46,680.00 2008-2009 9,46.094.00 2009-2010 81,01,000.00 2010-2011 3,27, 150.00 The addition of only s.15,05,360.00(10,83,639+4, 16,090+5631) was made for which the appellant has surrender of Rs 81 Lakh before any detection by department. So any addition upto.Rs. 81 Lac should be deemed to be adjusted from surrendered amount, Kindly Consider:
Sanjay Associates Vs ITO 145 TT J In this matter the Hon'ble I. T.A. T. has held that no fresh addition should be made where the addition is lower than surrendered amount In the light of above submissions, the appeal of the assessee deserves to be allowed ..... ""
5. The Ld. CIT(A) held that a sum of Rs. 10,83,639/- debited to the P & L account was actually a bad debt which has arisen in the course of business transaction and same is to be allowed as a deduction. The relevant finding of the Ld. CIT(A) is as follows :-5 ITA No. 4995/Del/12
" The facts of the case as well as submissions made by the appel1ant have been carefully considered. It is observed that the AO had made addition of Rs. 1 0,83,639/- on the ground that the appellant had failed to furnish the details regarding the year in the aforesaid sale took place and also the fact that it was not verifiable whether the income derived from such sales was included by the assessee to the income of that year. On the other hand, it has been contended by the appellant that it had made sales of industrial valves and cock to three units own by M/s Mawana Group pursuant to purchase orders placed by them under the cover of following sale bills:-
S.No . Name of Unit Amount at of sales
(i) Mawana Sugar Works . Rs. 28,20,771/-
(ii) Nagla Mal Sugar Complex Rs. 44,35,613/-
(iii) Titawi Sugar Complex Rs. 48,22,416/-
______________
Rs..l ,20,78,800/-
______________
As per the appellant the above sale of Rs.l,20,78,800/- formed part of total turnover shown by the appellant in its return of income filed for A.Y.2007-
08. The bills amounting to Rs.39,75,639/- remained unsettled till 31-03- 2008. Since the blocked funds were causing financial hardship to the appellant, therefore, a onetime settlement was made by way of a written agreement executed on 15-04-2008 on the basis of which a lump amount of Rs.28,92,000/- was agreed to be taken in full and final settlement of all the dues thus resulting in loss of Rs. 10,83,639/-( Rs..39,75,639 - Rs.28,92,000) ,which was debited by the appellant to the profit & loss account. The appellant has furnished details of bills issued, copy for agreement for supply of goods. copy of .accounts .for. the years ending 31- 03-2007, 31-03-2008 and 31-03-2009 along with copy of the aforesaid agreement in support of its contention. The material had been supplied by the appellant as per terms of agreement and there was no dispute regarding the quantity and quality of material supplied. Further, Mawana Group had not instituted any suit or refer the matter for arbitration for breach or specific performance of contract so that it could be inferred that the amount of Rs.l0,83,639/- represented liquidated :damages. The appellant has furnished details and evidences to' establish that the amount of Rs. 10,83,639/- was not liquidated damages but actually a bad debt. The above facts amply suggest that the debt at Rs.10,83,639/- after 6 ITA No. 4995/Del/12 settlement agreement had become irrecoverable as per provisions of section 36(l)(vii) of the Act.
Further, after amendment to provisions of section 36(1)(vii) of the Act with effect from 01-04-l989 it is enough for the appellant to establish that the bad debt was written off as irrecoverable in the accounts of the assessee so as to claim deduction u/s 28 of the Act. "
6. The revenue being aggrieved is in appeal before us. The Ld. DR supported the order of the AO. On the other hand, the Ld. AR reiterated the submissions made before the Income Tax authorities and placed reliance on the finding of the Ld. CIT(A).
7. We have heard the rival submissions and perused the material on record. The assessee had made sale of valves to Mawana Sugar Mill group of concerns amounting to Rs. 1,20,78,800/- by three sales invoices during the financial year relevant to A.Y. 2007-08. Thus sale of Rs. 1,20,78,800/- was part of the total turnover for A.Y. 2007-08. Payments as and when received from Mawana group was credited to the assessee's account. However, as on 31.3.2008, despite lot of persuasion, out of the above bill, an amount of Rs. 39,75,639/- was outstanding. Due to the financial position of the assessee company and to avoid a constrained relationship with Mawana group of concerns, the assessee entered into a one time settlement on 15.4.2008, whereby, the outstanding amount of Rs. 39,75,639/- was settled for a sum of Rs. 28,92,000/- and balance of Rs. 10,83,639/- was written off in the books of accounts. The assessee had filed the contract entered by it with Mawana group before the AO. The assessee had also filed before the AO the account copies of both the assessee and Mawana group, 7 ITA No. 4995/Del/12 wherein, the details of sales of valves during the A.Y. 2007-08 and the amounts outstanding from Mawana group as on 31.3.2008 are clearly depicted. The revenue has not disputed the one time settlement entered between the assessee and Mawana group of concern as a sham agreement. It is clear, that the write off of Rs. 10,83,639/- has arisen in the course of assessee's business transaction and necessarily, the same is to be to allowed as bad debt or business loss. Therefore, the CIT(A) order is correct and in accordance with law and we find no infirmity with the same, warranting our interference. Hence the grounds raised by the revenue are rejected.
8. In the result appeal filed by the revenue is dismissed.
Order is pronounced in the open court on 20th June, 2014.
sd/- sd/-
(B.C. MEENA) ( GEORGE GEORGE K)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date 20th June, 2014
*Veena
Copy of order forwarded to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR
By Order
Asstt. Registrar, ITAT