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TMI Blog2013 (2) TMI 551X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiry could have been conducted for finding out the credit-worthiness of the creditors and the genuineness of the claim made by the assessee with regard to the unsecured loans shown against these persons. - no enquiry has been made to find out as to whether the creditors whose details were furnished actually had advanced the monies to the assessee - matter remanded back to AO. - ITA No.549/Hyd/2011 - - - Dated:- 29-10-2012 - Chandra Poojari And Saktijit Dey, JJ. Appellant Rep by: Shri P.Murali Mohan Rao Respondent Rep by: Shri V.Srinivas ORDER Per: Saktijit Dey: This appeal by the assessee is directed against the order of the CIT(A) IV, Hyderabad dated 13.1.2011, for the assessment year 2007-08. 2. The first effective grievance of the assessee in this appeal relates to disallowance of bad debts of Rs.7,24,82,000. 3. Facts of the case in brief, relating to this issue, are that the assessing officer noted that the assessee claimed write off of bad debts of Rs.7,24,82,000 as deduction in the computation of income filed with the revised return. The assessing officer required the assessee to produce the account copies of the bad debts so written off, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee s claim for bad debts was not acceptable. 5. Though the CIT(A) provided a copy of the said remand report to the assessee, it appears from the impugned order of the CIT(A) that there was no response from the assessee and no further information could be filed by the assessee. The CIT(A) noted that the claim for bad debts was not made in the original return of income, and it was claimed only in the computation of income filed with the revise return. The CIT(A) agreed with the assessing officer that the bad debts were not written of in the books of account of the assessee, inasmuch as the total debtors shown in the balance sheet does not reflect the bad debts claimed as written of had actually been written off during the year, so as to bring down the total of the debtors in the balance sheet. From this, the CIT(A) concluded that the claim of write off was made only subsequent to the closing of the books of account. The CIT(A) also referred to the ratio of the decision of the Apex Court in the case of TRF Limited Vs.. CIT in Civil Appeal No.5293 of 2003 dated 9.2.2010, wherein it was opined that after 1.4.1989, it is not necessary for the assessee to establish that the debt, in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .36(1)(vii) and 36(2)(i) of the Act. S.36(1)(vii) provides that in computing the income under the head business and profession deduction shall be allowed for the amount of any bad debt, which is written off as irrecoverable in the accounts of the assessee for the previous year. The aforesaid provision is subject to sub-section (2) of S.36, which provides that no such deduction shall be allowed, unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof, is written off, or of an earlier previous year or represents money lent in the ordinary course of business of banking or money lending which is carried on by the assessee. A conjoint reading of the aforesaid two provisions makes it clear that two conditions have to be satisfied for allowing write off of a bad debt. The first condition being that the debt is written off in the books of account. Even the mere writing off of the debt will not ipso facto result in deducting the said sum while computing the taxable income of the assessee. The requirement of sub-section (2) of S.36 is to be established even in a case where a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h has been made by the assessing officer disbelieving the assessee s claim with regard to increase in unsecured creditors. 11. Facts in brief, relating to this issue are that, the assessing officer noted that there had been an increase of Rs.2,18,80,000 under the head unsecured loans during the relevant financial year. The assessing officer accordingly required the assessee to furnish the following evidence/details:- (a) Confirmatory statements to verify the identity (b) Copy of the bank statement to verify the genuineness of the transactions; (c) Explanation regarding the source and copy of IT returns to verify their creditworthiness. In response, the assessee filed only a list of unsecured loan creditors and their confirmation statements, but failed to produce copies of their bank statements, details regarding sources, and so also copies of their IT Returns or any other evidence to substantiate their creditworthiness and also the genuineness of the transactions. Since the assessee could not furnish any of those details despite enough time and opportunity given in that behalf, the assessing officer taking note of the assessee s failure to prove the creditwo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven though some of the loan creditors did not have PAN numbers, the assessee had furnished details of their addresses and sources of income in the confirmations furnished before the assessing officer, and averred that the burden of proving the genuineness of the unsecured loans had already been discharged by the assessee company. 14. A copy of the reply of the assessee was again forwarded to the assessing officer fur a further report. The assessing officer, vide his report dated 15.11.2010 submitted that it was the responsibility of the assessee company to prove the genuineness of the transactions and also the creditworthiness of the loan creditors. However, it was submitted that even during the appellate proceedings, the assessee could not file any evidence to justify its claim and hence the claim of the assessee is not acceptable. 15. The CIT(A), on considering the submissions of the assessing officer as well as the assessee, noted that initially the assessee had only furnished a list containing details of additions to unsecured loans. The said list contained only the names of the 21 creditors and PAN numbers in respect of twelve of them. Though the assessing officer thereaft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. The learned Authorised Representative for the assessee submitted before us that the CIT(A) was not justified in sustaining the addition, without considering the confirmations of the creditors produced before him. In this regard, the learned Authorized Representative for the assessee invited our attention to the confirmation letters submitted in the paper-book. The learned Authorized Representative for the assessee submitted that the confirmation letters contained all the details like identity of the creditors, their addresses and PAN numbers etc., and the Revenue authorities are not correct in straight away treating the amounts as representing unexplained credits without making proper enquiry with the concerned persons, to find out the genuineness of the claim of the assessee. 19. The Learned Departmental Representative submitted that since the assessee has failed to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions, the assessing officer was justified in making the impugned addition. The Learned Departmental Representative relying upon the decision of the Hon ble Andhra Pradesh High Court in the case of R.B.Mittal V/s. CIT(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions. However, such finding of the CIT(A) without making proper enquiry is not sustainable in law. When the assessee has come forward with an explanation with regard to the unsecured loans and has also submitted the confirmation letters from the concerned persons, giving out their names and addresses as well as Permanent Account numbers, the Revenue authorities should have caused proper enquiries in respect of each of the alleged creditor, before making a huge addition of Rs.2,18,80,000, treating en-masse all the amounts of unsecured loans claimed as unexplained and bogus. In this view of the matter, we consider it fit and proper to set aside the impugned orders of the lower authorities and to remit the matter to the file of the assessing officer with a direction to examine each of the unsecured loans allegedly obtained by the assessee independently, and after causing necessary enquiries wherever relevant particulars are furnished, may decide the correctness or otherwise of the claim of the assessee with regard to each of the unsecured loans. The assessing officer shall accordingly re-examine the matter in accordance with law and after giving due opportunity of hearing to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e date of balance sheet would fall within the purview of S.40(a)(ia) of the Act. The CIT(A) confirmed the disallowance made by the assessing officer, preferring to follow the later decision of the Tribunal, wherein similar contention of the assessee was rejected. We find that the issue in dispute is squarely covered by the recent decision of the Special Bench(Visakhapatnam) of the Tribunal in the case of Merylin Shipping and Transports V/s. ACIT(136 ITD 23), wherein it has been held that provisions of S.40(a)(ia) are applicable only where the amounts in question remain payable as at the end of the previous year. Since, in the instant case, the payments in the question are claimed to have been made during the previous year itself, we set aside the impugned orders of the lower authorities on this issue, and remit the matter to the file of the Assessing Officer, with a direction to verify whether the payments were made during the relevant previous year, and the disallowance under S.40(a)(ia) may be restricted only to the amounts remaining payable on the date of the Balance Sheet. The Assessing Officer shall redecide this issue accordingly, in accordance with law and after giving reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X
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