2014 (5) TMI 998 - AT - Income Tax

Addition u/s 41(1) - Remission / cessation of liability - Book adjustment of advance received from customers Held that - CIT(A) was of the view that JGW actually received the money due to it by the assessee from L &T, and L &T in turn, owed money to the assessee - The balance standing credit to the a/c of JGW in the books of assessee in no way can be treated as income of the assessee in view of the fact that JGW has actually received this amount on a/c of the assessee from L&T - the amount of Rs.76,90,367/- has already been received by JGW from L &T on a/c of the assessee to give effect to this transaction in books of assessee all that is needed to be done is that the amount will be debited to the a/c of JGW and credited to the a/c of L &T in the books of the assessee - It will have the effect of reducing the debit balance of rs.11,65,00,000/- of L &T by Rs.76,90,367/- and balance of JGW to NIL. Rs.76,90,367/- will not be written back and treated as income u/s 41 of the Act but will be adjusted to the account of L &T in the books of assessee - Section 41(1) will not be attracted as there has been no remission or cessation of such liability there is no reason to interfere in the order of the CIT(A) Decided against Revenue. Deletion of bad debts Held that - There is no infirmity arrived at in the impugned order as the assessee has shown the amount as sales in the previous years which has formed part of its income - when the bad debts claimed have formed part of sales of the assessee in the previous year the occasion for it not forming part of its income does not arise - claim of bad debts cannot be disallowed and added to its income as it fully meets the requirement of Section 36(2) (i) of the Act - The CIT(A) has rightly allowed the assessee s claim Decided against Revenue.

Summary

Issues Involved:
1. Deletion of addition on account of advance received from customers.
2. Deletion of addition on account of bad debts.

Issue-wise Detailed Analysis:

1. Deletion of addition on account of advance received from customers:

The first issue concerns the deletion of an addition of Rs. 76,90,367/- made by the Assessing Officer (AO) on account of an advance received from M/s Jai Glass Works. The assessee had received an advance of Rs. 1,00,00,000/- for the supply of goods, out of which goods worth Rs. 23,09,633/- were supplied, leaving a balance of Rs. 76,90,367/-. The AO added this amount to the income of the assessee, reasoning that the liability did not exist as on the date of the assessment.

The CIT(A) considered fresh evidence and obtained a remand report. It was noted that the amount of Rs. 76,90,367/- was confirmed by JGW and had been received by JGW from Larson & Turbo Ltd. (L&T) on behalf of the assessee. The CIT(A) concluded that the balance standing credit to the account of JGW in the books of the assessee could not be treated as income since JGW had already received the amount from L&T on behalf of the assessee. Therefore, Section 41(1) of the Act was not attracted as there was no remission or cessation of liability. The CIT(A) deleted the addition.

Upon appeal, the Tribunal upheld the CIT(A)'s decision, finding no good reason to interfere with the findings. The Tribunal noted the absence of any argument or rebuttal on facts from the revenue and dismissed the revenue's ground of appeal.

2. Deletion of addition on account of bad debts:

The second issue pertains to the deletion of an addition of Rs. 24,20,229/- made by the AO on account of bad debts. The AO disallowed the bad debts claimed by the assessee, stating that the assessee did not establish that the conditions mentioned under Section 36(2) of the Act were fulfilled, specifically that the bad debts were included in the income of earlier years.

The CIT(A) reviewed the fresh evidence and remand report, noting that the amount of Rs. 24,20,229/- was receivable from M/s Jai Drinks Pvt. Ltd. and had been written off as bad debts. The CIT(A) found that the amount was included in the sales of the assessee for the financial years 2004-05 and 2005-06, thus satisfying the conditions of Section 36(2)(i) of the Act. The CIT(A) concluded that the bad debts were rightly written off and deleted the addition.

The Tribunal, upon appeal, upheld the CIT(A)'s decision, noting that the assessee had shown the amount as sales in previous years, which formed part of its income. Therefore, the claim of bad debts met the requirements of Section 36(2)(i) of the Act. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the revenue's ground of appeal.

Conclusion:

The Tribunal dismissed the appeal of the Revenue, upholding the CIT(A)'s deletion of additions on account of advance received from customers and bad debts. The order was pronounced in the open court on 29th April 2014.