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TMI Blog2013 (10) TMI 1399X X X X Extracts X X X X X X X X Extracts X X X X ..... amounting to ₹ 40,89,838/- was justified and the CIT(A) ought to have allowed it, instead of restricting it to ₹ 22,56,998/- only. Disallowance of prior period expenses - Held that:- Ostensibly, the expenditure in question does not pertain to the period under consideration, which is evident from the invoice raised by M/s. Safire Hotels Ltd.. There is also no material on record to show that the liability represented by the invoice of M/s. Safire Hotels Ltd. dated 20.01.2006 crystallized during the year so as to be deductible in computing assessee’s income for the year under consideration following the mercantile system of accounting. In the course of hearing, it was specifically put to the learned counsel for the assessee to show as to in what manner the liability crystallized during the year and not in the preceding assessment year as sought to be canvassed by the Revenue based on the date of the invoice raised by M/s. Safire Hotels Ltd.. No satisfactory explanation has been rendered before us and therefore we deem it fit and proper to sustain the action of the lower authorities in disallowing the impugned claim being a prior period expenditure. Disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee, Assessing Officer disallowed the claim of the assessee. In appeal before the CIT(A), claim of the assessee to the extent of ₹ 22,56,998/- was allowed by the CIT(A) and the balance of ₹ 18,32,840/- was denied. The assessee, by way of Ground of Appeal No. 1 has challenged the sustenance of disallowance of ₹ 18,32,840/- whereas the Revenue in its cross-appeal in ITA No.1639/PN/2012 has challenged the partial relief allowed by the CIT(A) amounting to ₹ 22,56,998/-. Since the cross-Grounds relate to the same issue, they are being adjudicated together. 5. The Assessing Officer noted that the claim of bad debts pertained to established business concerns, with sound financial background and with certain parties, assessee was also transacting in future. Therefore, he did not find any justification for assessee having written-off the debts due from the said concerns as bad debts u/s. 36(1)(vii) of the Act. Accordingly, the Assessing Officer, considering the decision of the Hon ble Madras High Court in the case of South India Surgical Co. Ltd. vs. ACIT (2006) 287 ITR 62 (Mad) held that the judgment of the assessee to write-off the debts was not hone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iance was placed on the judgment of the Hon ble Supreme Court in the case of T.R.F. Ltd. vs. CIT, (2010) 323 ITR 397 (SC). It was also contended that assessee satisfies all the conditions prescribed in section 36(1)(vii) r.w.s. 36(2) of the Act and in view of the judgment of the Hon ble Supreme Court in the case of T.R.F. Ltd. (supra), the claim has been wrongly disallowed by the CIT(A). 8. On the other hand, the learned Departmental Representative appearingfor the Revenue contended that the CIT(A) erred in allowing partial relief inasmuch as for both the category of debtors identified by the CIT(A), assessee had not established that the debts had become irrecoverable following the ratio of the judgment of the Hon ble Madras High Court in the case of South India Surgical Co. Ltd. (supra). 9. We have carefully considered the rival submissions. Section 36(1)(vii) of the Act provides that subject to the provisions of sub-section (2) of section 36 of the Act, the amount of any bad debt or part thereof which is written-off as irrecoverable in the accounts of the assessee shall be allowed as deduction in computing the income of the relevant previous year. Further, sub-section (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter of fact, that the debt advanced by the assessee had, in fact, become irrecoverable. That position got altered by deletion of the word established , which earlier existed in section 36(1)(vii) of the Income-tax Act, 1961 ( the Act , for short). 3. For the sake of clarity, we reproduce hereinbelow the provisions of section 36(1)(vii) of the Act, both prior to April 1, 1989 and post- April 1, 1989 : Pre-April 1, 1989 : 36. Other deductions.-(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- . . . (vii) subject to the provisions of sub-section (2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year. Post-April 1, 1989 : 36. Other deductions.-(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- . . . (vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue in the case of South India Surgical Co. Ltd. (supra) is concerned, the same, in our view, does not help the Revenue. The Hon ble Supreme Court in the case of T.R.F. Ltd. (supra) has opined that post 01.04.1989, it is no longer necessary for the assessee to establish that the debt, in-fact has become irrecoverable before claiming deduction u/s.36(1)(vii) of the Act. Thus, canvassing to the contrary, based on the judgment of the Hon ble Madras High Court in the case of South India Surgical Co. Ltd. (supra), in our view, does not help the Revenue. 14. In conclusion, we hold that on facts and also in law, the entire claim of the assessee for write-off of bad debts u/s. 36(1)(vii) of the Act amounting to ₹ 40,89,838/- was justified and the CIT(A) ought to have allowed it, instead of restricting it to ₹ 22,56,998/- only. Therefore, we set-aside the order of the CIT(A) and direct the Assessing Officer to delete the entire disallowance of ₹ 40,89,838/-. 15. Thus, Ground of Appeal No. 1 in the appeal of the assessee is allowed and the Cross-Ground raised in the appeal of the Revenue is dismissed. 16. The second Ground raised by the assessee is with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore we deem it fit and proper to sustain the action of the lower authorities in disallowing the impugned claim of ₹ 7,34,265/- being a prior period expenditure. Thus, on this Ground assessee fails. 19. The last Ground in the appeal of the assessee is with regard to the disallowance of ₹ 7,42,435/- made out of legal and professional charges. The relevant facts are that out of the total legal and professional charges amounting to ₹ 32,90,757/-, Assessing Officer disallowed a sum of ₹ 8,52,435/- as per the details in para 5.1 of the order of the CIT(A) for the reason that no supporting details/vouchers were furnished by the assessee in respect of such expenditure. The learned counsel for the assessee explained that out of the total disallowance of ₹ 8,52,435/-, the CIT(A) has allowed relief with regard to an amount of ₹ 1,10,000/- representing payments to S. Sudhir Kumar and Vijay Damle and the assessee is in appeal with respect to the balance disallowance of ₹ 7,42,435/- sustained by the CIT(A). 20. At the outset, the learned counsel pointed out that the disallowance has been made by the lower authorities without appreciating the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas the appeal of the assessee for assessment year 2007-08 is partly allowed that of the Revenue is dismissed. 24. Now, we take-up ITA No.1624/PN/2012 and ITA No.1640/PN/2012 which are also cross-appeals preferred by the assessee and the Revenue respectively against the order of the Commissioner of Income Tax (Appeals)- III, Pune dated 31.10.2011 which, in turn, has arisen from the assessment order dated 30.12.2010 passed by the Assessing Officer, under Section 143(3) of the Income Tax Act, 1961 (in short the Act ), for the assessment year 2008-09. 25. In the appeal of the assessee, the first issue relates to the action of the CIT(A) in upholding the action of the Assessing Officer denying the assessee s claim for bad debts written-off u/s. 36(1)(vii) of the Act amounting to ₹ 27,94,728/-. 26. Briefly put, the relevant facts are that the Assessing Officer noticed that for the assessment year 2008-09, assessee had claimed deduction on account of bad debts written-off u/s. 36(1)(vii) of the Act amounting to ₹ 92,50,953/-, which was disallowed by the Assessing Officer. In appeal before the CIT(A), claim of the assessee to the extent of ₹ 64,55,225/-/- was a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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