2018 (7) TMI 2312 - AT - Income Tax

Attimari Coolie Expenses - As per AO since the said expenditure have not been incurred under any statutory judicial commercial or administrative obligation and therefore not permissible as deduction the same is required to be disallowed in full - CIT(A) restricted the disallowance at 25% of the expenses - HELD THAT - As the assessee filed ledger account of Attimari Coolie Expenses and also vouchers for payment of such charges on sample basis. We find that similar disallowance in earlier years have not been challenged by Revenue deleted by CIT(A). Going by the decision of G.G. Joshi 1993 (9) TMI 39 - GUJARAT HIGH COURT and findings of CIT(A) we find no infirmity in the order of CIT(A). Hence this issue of Revenue s appeal is dismissed. Disallowance of bad debts claimed - CIT(A) allowed the claim - HELD THAT - As the assessee is actually write off the bad debts and that fact is not under dispute. This fact is clear from schedule k of general and administrative expenses of P L account wherein the assessee has debited the amount on account of sundry debtors written off. This fact is acknowledged by the AO in his assessment order. Once this is a fact the debts claimed by assessee are allowable. The CIT(A) has rightly allow the claim of the assessee and we confirm the same. This issue of Revenue s appeal is dismissed.

Summary

Issues Involved:
1. Allowance of Attimari Coolie Expenses.
2. Disallowance of bad debts claimed by the assessee.

Issue-wise Detailed Analysis:

1. Allowance of Attimari Coolie Expenses:

The first issue concerns the CIT(A)'s decision to allow ?21,35,504 out of the total ?28,47,339 claimed by the assessee as Attimari Coolie Expenses. The Revenue contended that these expenses were not incurred under any statutory, judicial, commercial, or administrative obligation and thus should be disallowed in full.

Facts:
- The assessee, engaged in mechanical engineering and construction contracts, claimed Attimari Coolie Expenses of ?28,47,339.
- The AO disallowed the entire amount due to lack of evidence and business connection.
- The CIT(A) restricted the disallowance to 25% of the expenses, citing the decision of the Hon’ble Gujarat High Court in G.G. Joshi vs CIT (209 ITR 324).

CIT(A) Observations:
- The appellant provided date-wise details of payments and photocopies of bills and vouchers.
- Payments were made to workers' unions without verifiable addresses or phone numbers, and all payments were in cash.
- Based on the Gujarat High Court's judgment, the CIT(A) concluded that the practice was established, but the payments were not fully substantiated. Thus, a 25% disallowance was deemed reasonable.

Tribunal's Findings:
- The Tribunal noted that similar disallowances in previous years were not challenged by the Revenue.
- The assessee provided ledger accounts and vouchers for the expenses.
- The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal on this issue.

2. Disallowance of Bad Debts Claimed by the Assessee:

The second issue pertains to the CIT(A)'s decision to allow the claim of bad debts amounting to ?1,25,68,662, which the AO had disallowed.

Facts:
- The AO noted that the assessee had debited ?1,25,68,662 as Sundry Debtors written off in the profit and loss account.
- The AO required details and reasons for the write-off but was not convinced by the assessee's explanations and disallowed the claim.

CIT(A) Observations:
- The CIT(A) noted that the amounts were taken to the profit and loss account and were written off as irrecoverable.
- The CIT(A) referenced the Hon’ble Supreme Court's decision in TRF Ltd. vs CIT (323 ITR 397) which established that post-01.04.1989, it is sufficient for the bad debt to be written off in the accounts.
- The CIT(A) concluded that the write-off was not mala fide and allowed the claim.

Tribunal's Findings:
- The Tribunal confirmed that in the construction business, retention amounts are sometimes not released due to technical reasons and must be written off.
- The Tribunal reiterated the Supreme Court’s stance that post-01.04.1989, it is not necessary to establish that the debt has become irrecoverable, only that it is written off in the accounts.
- The Tribunal confirmed that the bad debts were written off in the books and acknowledged by the AO.
- The Tribunal upheld the CIT(A)'s decision to allow the claim of bad debts and dismissed the Revenue's appeal on this issue.

Conclusion:
The appeal by the Revenue was dismissed in its entirety. The Tribunal upheld the CIT(A)'s decisions on both the allowance of Attimari Coolie Expenses and the disallowance of bad debts claimed by the assessee. The order was pronounced in the open court on 04-07-2018.