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TMI Blog2013 (12) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... Decided against Revenue. - ITA No.472/Bang/2012 - - - Dated:- 11-1-2013 - Order The order of the Bench was delivered by N. V. Vasudevan (Judicial Member).-This is an appeal by the Revenue against the order dated January 13, 2012 of the Commissioner of Income-tax (Appeals)-III, Bangalore, relating to the assessment year 2008-09. Ground No. 1 raised by the Revenue is general in nature. Ground No. 2 raised by the Revenue reads as follows : "2. The Commissioner of Income-tax (Appeals) erred in allowing the bad debts written off to the profit and loss account, amounting to Rs. 26,58,077 which represented amount outstanding from debtors against designing and brand consultancy services rendered, even though the assessee-company had not taken any effective steps to recover the amount and the genuineness of the bad debts written off was not proved by the assessee-company." The assessee is a company. It derives income from carrying out the activity of designing advertisements. In the profit and loss account, the assessee had debited a sum of Rs. 32,50,530 as bad debts written off. The sum was claimed as deduction while computing its total income. The Assessing Officer disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s) on a consideration of the submissions of the assessee, held as follows : "3.4. I have carefully considered the issue on appeal before me. At the outset, I must mention that the premise on which the Assessing Officer declared the debts to be 'not genuine' is insufficient. Recovery efforts not having been made to an externally expected extent does not automatically render a debt to be recoverable. The law allows this judgment to be exercised by the prudent management of a business. In the present case, the details of the debts are provided both at the assessment and appellate stages. The management have made efforts to the extent deemed commercially prudent and expedient to recover the debts, which are owed by two reputed companies. While it is nodoubt open to argument as to at which stage of the recovery process a debt should normatively be designated as bad, the case law on the subject is very clear. The hon'ble Supreme Court in the case of T. R. F. Ltd. v. CIT [2010] 323 ITR 397 (SC), after noticing the change in law with effect from April 1, 1989 has held that from April 1, 1989 it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of bad debts on the ground that the debts in question have not been established to have become bad. Apart from the above, it is clear that the assessee had given all the details and it is not the case of the Assessing Officer that any other condition for grant of deduction under section 36(1)(vii) of the Act, have not been satisfied. In the circumstances, we are of the view that the order of the Commissioner of Income-tax (Appeals) does not call for interference. Consequently, ground No. 2 raised by the Revenue is dismissed. Ground No. 3 raised by the assessee reads as follows : "The Commissioner of Income-tax (Appeals) erred in allowing the legal and professional charges of Rs. 46,00,000 on the ground that section 192 of the Income-tax Act, 1961 is outside the purview of section 40(a)(ia) of the Income-tax Act, 1961." The assessee made a payment of Rs. 46 lakhs as professional charges to Ms. Meeta Malhotra, director of the assessee-company. In respect of the aforesaid payment, the assessee had deducted tax at source under section 194J of the Act treating the payment as a payment for professional services rendered. According to the Assessing Officer, the payment was bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces but was under direct supervision control of the assessee. It was also submitted that though the Assessing Officer has not spelt out the reason for making the disallowance, the apparent reason was that the assessee ought to have deducted tax at source under section 192 of the Act, treating the payment in question as a salary. If it is construed as salary, then Ms. Meeta Malhotra could not have claimed expenses, except standard deduction. The assessee further submitted that the question whether it is salary or professional income in the hands of Ms. Meeta Malhotra, will have no bearing on the allowability of deduction in the hands of the assessee. It was submitted that the Assessing Officer has not disputed the fact that the expenditure in question has been incurred wholly and exclusively for the purpose of business of the assessee and therefore deduction ought to have been allowed. It was also pointed out that even if a higher rate of tax ought to have been deducted treating the same as salary (under section 192 of the Act), even then a disallowance of the expenses under section 40(a)(ia) of the Act could not have been made as those provisions do not apply to payment of salari ..... X X X X Extracts X X X X X X X X Extracts X X X X
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