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TMI Blog2023 (9) TMI 670X X X X Extracts X X X X X X X X Extracts X X X X ..... count in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off. The said condition is duly fulfilled in the case of the assessee as the amount of bad debts claimed has already been taken into account while computing the income by way of showing it as gross receipts and the outstanding amount was standing as sundry debtors. It clearly shows that the assessee has made justified claim under section 36(1)(vii) of the Act and the same should have been allowed as an expenditure during the year. Respectfully following the ratio laid down in the case of TRF Ltd. [ 2010 (2) TMI 211 - SUPREME COURT] finding of the ld. CIT(A) is set aside and bad debt claim is allowed. Ground No. 2 raised by the assessee stands allowed. Addition u/s 41(1) r.w.s. 28(iv) - HELD THAT:- As undoubtedly, as on 31/03/2012, there was an outstanding liability of sundry creditors in the name of SAMPL towards the services rendered by it to the assessee. The assessee has nowhere stated that the said liability is not payable. All documentary evidence have been placed before us to prove that the liability is active and the action is from both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DICIAL MEMBER For the Assessee by : Shri Manish Tiwary, A/R For the Revenue by : Shri G. Hukugha Sema, CIT O R D E R PER DR. MANISH BORAD, ACCOUNTANT MEMBER : This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the ld. CIT(A) ], passed u/s 250 of the Income-tax Act, 1961 (hereinafter the Act ), dated 31/01/2023 for the Assessment Year 2012-13. 2. The assessee has raised the following grounds of appeal:- 1.) That on the facts and in the circumstances of the case, order u/s 250 of the Act dated 31.01.2023 passed by Ld. CIT (A), NFAC is arbitrary, unjustified and bad in law. 2.) That on the facts and in the circumstances of the case, Ld. CIT(A), NFAC erred in confirming the addition made by AO amounting to Rs. 6,85,53,691/- towards provision for bad and doubtful debts under provisions of Income Tax Act, 1961 without considering the fact that the same was actually written off from the accounts of the appellant in previous year. 3.) That on the facts and in the circumstances of the case, Ld. CIT(A), NFAC erred in confirming the addition of Rs. 3,12,27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to make addition of Rs. 6,85,53,691/- (wrongly mentioned the figure of Rs. 6,77,62,048/- in the assessment order). 3.1. The ld. Assessing Officer further noticed that the assessee has shown amount payable to Sampark Advertisement and Media Pvt. Ltd. (SAMPL), in the balance sheet as a sundry creditors at Rs. 3,12,26,294/-. The ld. Assessing Officer called for the information from the Assessing Officer of SAMPL and found that SAMPL has already written off the said sum in its books and thus ld. Assessing Officer came to a conclusion that since the liability is not existing it falls under the provision of Section 41(1) r.w.s. 28(iv) of the Act and is liable to be taxed in the hands of the assessee and made an addition of Rs. 3,12,26,294/-. The ld. Assessing Officer also noticed that the assessee has claimed pandel decoration expenditure at Rs. 3,13,010/- and the said sum was payable to M/s. Amit Agencies, Kolkata, and the notice u/s 133(6) of the Act was returned unserved and this brought the AO to the conclusion that the assessee has claimed bogus expenditure and proceeded to disallow the sum of ₹ 313,010/-. The ld. Assessing Officer also observed that the assessee has cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered during the period March, 2011 to 3rd August, 2011. For the outstanding amount of ₹ 6,85,53,691/-, various reminders were given by the assessee followed by legal notice to Mahuaa Media Pvt. Ltd. Thereafter, assessee filed a winding up petition u/s 439 r.w.s. 433 and 434 under the Companies Act, 1956, and Hon ble Delhi High Court admitted the winding up petition on 31/10/2012. Based on these facts, it is contended that the chances of recovery of the alleged sum was getting doubtful day by day and, therefore, the assessee decided to claim it as bad debts in its books. However, while preparing the financial statements, the said sum was reflected as provision for bad and doubtful debts, however, the nature of the said sum was bad debts u/s 36(1)(vii) of the Act. In support of this contention, reliance was placed on the decision of the Special Bench in the case of DCIT vs. Shri Shreyas S. Morakhia 40 SOT 432 (T-Bom) (Special Bench) and the judgement of the Hon ble Supreme Court in the case of TRF Limited vs. CIT reported in 323 ITR 397. 5.1. It was also submitted that the nomenclature is of no consequence, rather the substance of the matter should be looked into w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in the case of Andaman Timber Industries vs. CCE reported in 281 CTR 214 (SC) and CIT vs. Eastern Commercial Enterprises 210 ITR 103 (Cal). 7. As regards the disallowance of repairs and maintenance charges of ₹ 999,856/-, it was submitted that the said expenditure was revenue in nature incurred for interior decoration of office premises and in case the Honourable Tribunal does not hold it to be a revenue expenditure, then necessary directions may be given to allow depreciation under section 32 of the Act of the said sum. 8. On the other hand, the ld. D/R vehmently argued supporting the order of the lower authorities and further submitted that the expenses claimed under the provisions of bad and doubtful debts are not allowable under the Act. The sum payable to the concern SAMPL, deserves to be added in the hands of the assessee since the said sum has already been written off in the books of SAMPL. So far as the Pandel decoration expenses of ₹ 3,13,010/-, it was submitted that it is a bogus expenditure as the sundry creditors is untraceable. Regarding repairs and maintenance expenses amounting to ₹ 999,856/-, the ld. D/R submitted that these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it as a provision for bad and doubtful debts. We, however, on perusal of the financial statements as well as the statement filed by the assessee find merit in the contention of the ld. Counsel for the assessee that it was an inadvertent mistake resulting into showing the bad debts claim as provision for bad and doubtful debts. Both the lower authorities ought to have considered this argument and considering the facts should have come to a conclusion that it was a bad debts claim and not provision for bad and doubtful debts. It has been rightly submitted by the ld. Counsel for the assessee that, nomenclature is of no consequences rather the substance of the matter should be looked into while deciding the liability of the expenditure. For this contention we find support from the judgement of the Hon ble Supreme Court in the case of KCP Ltd. vs. CIT 245 ITR 421 (SC) and M/s. Super Poly Fabriks Ltd. vs. CIT 217 CTR 107 (SC). 10.2. Now whether the assessee has rightly claimed the bad debts at ₹ 6,85,53,691/-, we notice that the total sale bill raised by the assessee to MMPL has been duly accounted for in the books as the sale. The alleged sum was not paid by MMPL even wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year; (iv) where any such debt or part of debt is written off as irrecoverable in the accounts of the previous year 26[(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)] and the 25 [Assessing] Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of sub-section (6) of section 155 shall apply; 27 [(v) where such debt or part of debt relates to advances made by an assessee to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the assessee has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debts account made under that clause.] 10.4. Now going through the Section 36(2)(i) of the Act, one of the condition 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . One of these sundry creditors was SAMPL. Assessee has shown it as sundry creditors in its balance sheet for the year under consideration. The ld. Assessing Officer during the course of assessment proceedings issued notice to SAMPL u/s 133(6) of the Act, asking to submit Ledger account of the assessee in their books. In the said Ledger account SAMPL has stated to have written of the said sum of Rs. 3,12,27,393/-, in other words SAMPL has claimed it as bad debts in the books. Ld. Assessing Officer based on this reply came to a conclusion that since SAMPL has already written off the said sum, no liability remains to be paid at the end of the assessee and, therefore, provisions of Section 41(1) of the Act, are attracted on account of cessation of liability for the amount shown as payable to SAMPL to be treated as income. 13. We notice that ld. Counsel for the assessee during the course of hearing has referred to various correspondences/reminder letters and legal notice received by it from SAMPL for collection of outstanding dues. Our attention is also drawn to the fact that SAMPL has filed a suit before the Hon ble Calcutta High Court and vide order dt. 08/01/2016, the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it has lost its hope of recovering the outstanding sum. Only in case SAMPL has not made any efforts to recover the amounts and has voluntarily stated that no sum is receivable from assessee, then the provision of Section 41(1) of the Act may have come into play. But in this case, the situation is totally different. SAMPL except claiming it as bad debt in its books has tried all the above methods including approaching before the Hon ble Jurisdictional High Court to recover its amount and Hon ble Court has also directed the assessee to pay Rs. 10,00,000/- per month against the outstanding dues. Therefore, undoubtedly, as on 31/03/2012, there was an outstanding liability of sundry creditors in the name of SAMPL towards the services rendered by it to the assessee. The assessee has nowhere stated that the said liability is not payable. All documentary evidence have been placed before us to prove that the liability is active and the action is from both the sides i.e., the sundry creditor is trying hard to recover its amount and the assessee is trying hard to collect the sum from sundry debtors and repay the sundry creditors. 15. Under these facts and circumstances, we do not find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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