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2017 (5) TMI 478 - AT - Income TaxDenial of claim of bad debts - assessee had claimed bad debts for the sums outstanding from seven foreign parties as well as for freight charges paid on behalf of Rokko Sarees and Fabrics Ltd. - Held that - Writing off of bad debts and claiming deduction for it are two different steps and have different consequences. In first situation only assessee is involved. But,in second situation State also has stakes.Legislature in its wisdom has laid down certain conditions u/s.36 of the Act and those provisions govern the writing off of bad debts and not the sweet will of the assessees. The provisions of the impugned section stipulate that for claiming deduction the assessee should establish that amount in question was not received.It was claimed that it did not possess documents prior to AY.2001-02. In our opinion, nothing prevented it to claim deduction in the year 2001-02. Genuineness of the claim made by the assessee has not been proved by it. As far as bad debts of Rokko Sarees and Fabrics Ltd.are concerned it is found that the disputed sum was not a part of the P&L account.Therefore,none of the claims made by the assessee can be allowed. - Decided against assessee. Denying claim on account of export incentives written off - Held that - We find that the FAA had specifically asked the assessee to furnish evidence in its support.But,it had failed to produce any evidence in that regard.As discussed in earlier paragraphs,it is the duty of the assessee to furnish documentary or other evidence to claim any deduction.In the case before us, except making a claim it has not done nothing to support its claim.Therefore,we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity.Confirming the same,we decide second ground of appeal against the assessee. Disallowance of 20% of service charges paid by the assessee to its sister concern - Held that - We find that while deciding the similar issue for the earlier assessment year,the Tribunal had upheld the disallowance at the rate of 20%, that the administrative expenses incurred during the year were on higher side as compared to expenses of previous assessment year.The rule of consistency is applicable to AO as well as to the assessee. Nothing was brought on record before us to distinguish as to how the facts of the AY.2006-07 were not similar to the facts for the year under appeal. In absence of dissimilarity of the facts, we are of the opinion that order of the Tribunal for the earlier years should not be disturbed.Therefore,confirming the order of the FAA, we dismiss the last ground of appeal raised by the assessee. Disallowance of cash expenses @15% - Held that - We find that the AO had disallowed an amount of ₹ 1,00,909/- out of the various expenses,as the assessee had incurred the expenses in cash and had produced self made vouchers.In our opinion,without rejecting the books of accounts and pointing out the defects in method of accounting audited accounts should not be rejected on ad hoc basis.It is not known as to what had happened on 12.10.2011,when the matter was discussed with the AR of the assessee. Considering the peculiar facts and circumstances of the case,we are of the opinion that ad hoc disallowance made by the AO and confirmed by the FAA was not on sound footing. So,reversing the order of the FAA, we decide second ground in favour of the assessee.
Issues Involved:
1. Denial of bad debts claim. 2. Disallowance of export incentives written off. 3. Disallowance of 20% of service charges paid to a sister concern. 4. Disallowance of 15% of certain expenses incurred in cash on an ad hoc basis. 5. Levy of interest under section 234 of the Act. Issue-wise Detailed Analysis: 1. Denial of Bad Debts Claim: The assessee claimed bad debts for sums outstanding from seven foreign parties and freight charges paid on behalf of Rokko Sarees and Fabrics Ltd. The bad debts pertained to AY 1994-95 to 1999-2000. The AO disallowed the claim due to lack of evidence that the amounts were taken into account in computing income for the relevant years, as required under section 36 of the Act. The assessee argued that it was entitled to claim bad debts at any time. However, the FAA upheld the AO’s decision, noting the absence of documentary evidence to support the claim and the long delay in claiming the bad debts. The Tribunal affirmed this decision, emphasizing the need for documentary evidence to support the claim and the requirement to establish that the amounts were not received. 2. Disallowance of Export Incentives Written Off: The assessee claimed a deduction of ?24.77 lakhs for writing off balances of DEPB/drawback/DFRC receivables related to AY 1995-96 and 1996-97. The AO disallowed the claim, noting that the receivables had been lying in the balance sheet for over 10 years and that the assessee had not paid tax on them in the respective years. The FAA upheld the disallowance, as the assessee failed to produce evidence of entitlement or communication from the government refusing the benefits. The Tribunal confirmed the FAA’s decision, stating that the assessee did not furnish any evidence to support its claim. 3. Disallowance of 20% of Service Charges Paid to a Sister Concern: The AO disallowed 20% of the service charges paid to Sky Industries Ltd. (SIL), following a similar disallowance in the earlier year. The FAA upheld the disallowance, and the Tribunal affirmed this decision, noting the rule of consistency and the lack of evidence to distinguish the facts of the current year from the previous year. 4. Disallowance of 15% of Certain Expenses Incurred in Cash on an Ad Hoc Basis: For AY 2008-09, the AO disallowed 15% of certain expenses incurred in cash based on self-made cash vouchers, which were difficult to verify. The FAA did not adjudicate the additional ground of appeal filed by the assessee regarding this disallowance. The Tribunal restored the matter to the FAA for fresh hearing, directing the FAA to decide the issue after hearing the assessee. For AY 2009-10, the AO disallowed 15% of cash expenses due to self-made vouchers. The FAA upheld the disallowance, noting the lack of authenticity of the vouchers. The Tribunal reversed the FAA’s decision, stating that without rejecting the books of accounts and pointing out defects in the method of accounting, audited accounts should not be rejected on an ad hoc basis. 5. Levy of Interest under Section 234 of the Act: The issue of levy of interest under section 234 was deemed consequential and was not adjudicated by the Tribunal. Conclusion: The appeals for AY 2007-08 were disallowed, while the appeals for AY 2008-09 and AY 2009-10 were partly allowed. The Tribunal upheld the disallowance of bad debts and service charges but reversed the ad hoc disallowance of cash expenses for AY 2009-10 and restored the matter to the FAA for AY 2008-09.
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