1 ITA NO. 1608.DEL.12
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `G' NEW DELHI
BEFORE SHRI G. D. AGRAWAL, VICE PRESIDENT
AND
SMT DIVA SINGH, JUDICIAL MEMBER
I.T.A .No.-1608/Del/2012
(ASSESSMENT YEAR-2008-09)
DCIT vs Shree Glass Containers Pvt.
Circle-8(1), Room No. 163, Ltd.
C. R. Building Bharat Bulding,
New Delhi First Floor, 10, Darya Ganj
(APPELLANT) New Delhi
AAGCS9461A
(RESPONDENT)
Appellant by: Sh. Gagan Sood, Sr.
DR
Respondent by: Sh. Rajeev Mahajan,
F.C.A
ORDER
PER DIVA SINGH, JM
This is an appeal filed by the Revenue against the order dated 2/1/2012 of
CIT(A) XI, New Delhi pertaining to 2008-09 assessment order on the following
grounds:-
"1. The Ld. CIT(A) erred in law and on facts of the case in deleting the
addition of Rs.76,90,367/- made by the AO on account of advance received from
the customers."
2. The Ld. CIT(A) erred in law and on facts of the case in deleting the
addition of Rs.24,20,229/- made by the AO on account of bad debts."
2. A perusal of the record shows that the assessee company stated to be
engaged in the business of trading of glass bottles returned a loss of
2 ITA NO. 1608.DEL.12
Rs.28,58,717/- which was converted to a positive income of Rs.74,54,971/- by
the Assessing Officer vide his order dated 18/11/2010 passed u/s 143(3).
2. The issue qua the first ground is found discussed in para 3 of the
assessment order as a result of which addition of Rs.76,90,367/- was made by the
AO on the following reasoning.
"3. From the records, it is seen that the assessee has claimed a liability of
Rs.76,90,367/- on account of advance received by the customer namely M/s Jai
Glass Works. In compliance to the specific query raised in this regard the
assesssee has submitted as under:-
" In respect of Jai Glass Works- Credit balance of Rs.76,90,367/- of Jai
Glass Works in our books. In F. Y 2003-04 advance of Rs.1,00.00.000/- was
received from the party against supply of goods. In all goods worth
Rs.23,09,633/- were supplied and balance of Rs.76,90,367/- remained
outstanding in our accounts. However, under circumstances beyond the control
of assessee the said party taken an amount of rs.1,65,00,000/- from a third party
(Larson & Turbo Ltd.) on our behalf on 29/3/2006. Later on, the assessee has
filed criminal complaint against both the parties with Delhi Police, Crime
Branch (EOW) and the assessee has not adjusted the payment of
Rs.1,65,00,000/- in its books. Copy of letter from the party and its account in
our books are enclosed at Annexures-2. There is no transaction in this account
during the year under consideration."
3. The said issue was agitated in appeal before the CIT(A) before whom fresh
evidence was raised on behalf of the assessee and a remand report was obtained.
The said fact is found recorded in page 2 unnumbered para 1 of the impugned
order. It is seen that on behalf of the assessee the following explanation was
offered before the CIT(A) the same is reproduced from page 3 to page 4, of the
impugned order and reads as under:-
" The assessee was running, glass container manufacturing unit at Neemrana,
Distt. Alwar, Rajasthan which was closed in August 2005. After that, the
assessee has not carried out any business activity. The transactions which are
subject matter of S. No. 1 to 3 of Grounds of Appeal owe their origin to period
prior to August 2005.
On 26/2/2004, assesssee received an advance of Rs.1,00,00,000/- for
supply of Glass bottles from M/s. Jai Glass Works, Mumbai and supplied goods
worth Rs.23,09,633/- and the balance Rs.76,90,367/- remained outstanding in
the books of assessee. The assessee and the said M/s. Jai Glass Works (JGW)
never denied/contradicted this position. JGW further raised factitious bills of
Rs.88,07,240/- on a/c supply of moulds, the consignee being Haryana Sheet
3 ITA NO. 1608.DEL.12
Glass Ltd, 14, RIIOO Indl. Area, Neemrana, Rajasthand ( the assessee was
running lass container manufacturing at Neemrana, Rajasthan owned by
Haryana Sheet Glass Ltd.). In fact, the period to which the said supply and the
corresponding bills pertain, the Neemrana unit remained through out closed.
As a result of raising this factitious bill by JGW, the books of JGW shown
Rs.1,64,97,607/- (76,90,367+ 88,07,240) as due from the assessee. The said
bills was never accounted for in its books by the assessee. JGW received
Rs.1,65,00,000/- on behalf of the assessee from Larson & Tourbo Ltd. (L&T) on
29/3/2006 through collusion and unfair means, as payment of liability by
assessee.
In so far as L &T is concerned, assessee paid Rs.22.50 crore to L &T for
tkaing voer its glass container manufacturing unit at Nasik known as Nasik
Glass Works (NGW) in terms of MOU dated 24/12/2003 confirmatioin. The
deal failed. The assessee approached L &T for refund of money given by the
assessee to L &T. The assessee was compelled to settle at Rs.12.50 crore only,
against the outstanding of rS.22.50 crore. Of the said Rs.12.50 corre, Rs.4.50
crore was paid to Indian Overseas Bank by the L &T as repayment of Loan
taken by the assessee from the said Bank, Rs.6.35 crore was paid to the assessee
and the remaining Rs.1.65 crore of JGW. In its books of account, the assessee
adjusted the amount of Rs.4.50 crore and Rs.6.35 crore to the a/c of L&T. But
due to an impending dispute over the amount payable to JGW (assessee claims
amount due at Rs.76,90,367/-) while JGW claim it to be Rs.1,64,97,607/-) the
assessee has not adjsuted in its books of account, the amount of rs.1.65 crore
paid by L&T directly to JGW on account of the assessee, neither to the a/c of L
&T nor to the a/c of JGW. As such, in the books of assessee, balance receivable
from L &T nor to as on 31/3/2006 Rs.11,65,00,000/- (22,50,000-
6,35,00004,50,000) was still shown receivable as on 31/3/2008 and balance
payable to JGW as on 31/3/2006 Rs.76,90,367/- was still shown payable as on
31/3/2008 pending adjustment of Rs.1,65,00,000/-. The circumstances under
which the assessee was forced to move out of the prospective purchase of Nasik
Glass Works unit by L &T, compelled to arrive at settlement with L &T and
diversion of funds by L &T to JGW was complained by the assessee to
Economic Offence Wing of Crime Branch, Delhi Police."
3.1 Considering these arguments the CIT(A) came to the following
conclusions:-
" I have perused all the documents. No comments have been given by the AO on
this issue in the remand report. It is seen that Rs.76,90,367/- payable by the
assessee to JGW was never denied by the assessee and JGW has also confirmed
it vide its letter dated 30/3/2006. JGW further confirmed having received the
payment of Rs.76,90,367/- from L & T on account of assessee.
Due to impending dispute over the amount payable to JGW (assessee
claims amount due at Rs.76,90,367/- while JGW claims it to be Rs.1,64,97,607/-
) payment of Rs.1,65,00,000/- was made by L & T to JGW on a/c of the assessee
4 ITA NO. 1608.DEL.12
and was neither adjusted o the a/c of L& T nor to the account of JGW in the
books of assessee.
JGW actually received the money due to it by the assessee from L &T,
and L &T in turn, owed money to the assessee.
The balance standing credit to the a/c of JGW in the books of assessee in
no way can be treated as income of the assessee in view of the fact that JGW
has actually received this amount on a/c of the assessee from L &T.
Since, the amount of Rs.76,90,367/- has already been received by JGW
from L &T on a/c of the assessee to give effect to this transaction in books of
assessee all that is needed to be done is that the said amount will be debited to
the a/c of JGW and credited to the a/c of L &T in the books of the assessee. It
will have the effect of reducing the debit balance of rs.11,65,00,000/- of L &T
by Rs.76,90,367/- and balance of JGW to NIL. Rs.76,90,367/- will not be
written back and treated as income u/s 41 of the Act but will be adjusted to the
account of L &T in the books of assessee.
The observation made by the A.O that no such liability exist as on date
is true only to the extent of literal meaning but in this case the non existence of
liability will not have the effect of increasing the income of the assessee in view
of the fact that the amount in question has already been received by the creditor
from third party on a/c of the assessee. Appellant filed criminal complaint with
Delhi Police, Crime Branch, EOW and therefore did not adjust amount.
In view thereof Section 41(1) will not be attracted in this case as there
has been no remission or cessation of such liability. The explanation of the
appellant is accepted and addition is deleted. Ground NO. 1 in favour of the
appellant."
4. Aggrieved by this the revenue is in appeal before the Tribunal. The Ld. Sr.
DR Mr. Gagan Sood relied upon the assessment order. The authorized
representative of the assessee placed heavy reliance upon the submissions made
before the CIT(A) on the basis of which it was his contention that the assessee
was running glass container unit at Neemrana which was closed in August 2005.
However, the assessee had received on advance of Rs.1 crore for supply of Glass
Bottles from M/s Jai Glass Works, (SGW)Mumbai and had supplied goods worth
Rs.23,09,633/- and the balance Rs.76,90,367/- remained outstanding. On the
other hand Larson and Tourbo owed money to the assessee which was paid
directly to JGW. It was submitted that JGW have confirmed the receipt of
5 ITA NO. 1608.DEL.12
payment of rS.76,90,367/-. Accordingly reliance was placed on the impugned
order.
5. We have heard the rival submission and perused the material available on
record, in the absence of any argument or rebuttal on facts as considered by the
CIT(A), we find no good reason to interfere with the finding arrived at in the
impugned order. Being satisfied with the reasoning and finding Ground No. 1 of
the Revenue is dismissed.
6. The next issue agitated by the Revenue, it is seen is found discussed at
page 2 & 3 of the assessment order in Para 5. The same is reproduced hereunder
for ready reference:-
"5. Vide order sheet entry dated 19/10/2010 the assessee was asked to provide
details of bad debts of Rs.24,20,229/- along with documentary evidences. It was
also requested to establish that conditions mentioned u/s 36(2) of the Act have been
fulfilled and bad debts so claimed have been shown as trading/business receipts in
earlier years and were accounted for. In this regard the assessee furnished its reply
vide letter dated 29/10/2010 which reds as below:-
" Bad debts of Rs.24,20,229/- in Profit and Loss Account represent
amount due from M/s Jai Drinks Pvt. Ltd Copy of account of the party
for F.Y 2005-06 and 2007-08 an Copy of bad debt account for F.Y
2007-08 in the books of assessee is at Annexure-4. Please note that
the amount which has been written off as bad debts during the year
was included in its income by the assessee in F. Y 2005-06
Rs.23,91,016/- and in F.Y 2004-05 Rs.29,2133/-.
5.1 It is noticed from the annexure attached to the said reply that the assessee
has enclosed only copy of ledger account of the party Jai Drinks Pvt. Ltd. for the
period 1/4/2005 to 31/3/2006 and 1/4/2007 to 31/3/2008. However, the
submissions filed by the assessee did not establish he fact that he account of
rs.24,20,229/- claimed as bad debts written off was ever included in its income
and accordingly was offered for taxation. In its reply it has stated that eh bad
debts so written off has been included in income by the assessee in F.Y 2005-06
Rs.23,91,016/- and in F.Y 2004-05 Rs.29,213/-. But no evidence has been filed.
It can be seen that onus to prove that the pre requisite conditions laid down u/s
36(2) of the Act remain un-discharged, therefore, bad debts of Rs.24,20,229/- is
disallowed and added back to the total income of the assessee."
7. Aggrieved by this, in appeal before the CIT(A) fresh evidences were filed
by the assessee and remand report was obtained wherein again the Assessing
officer reiterated the position taken in the assessment order which is found
6 ITA NO. 1608.DEL.12
discussed at page 3 of the impugned order. The assessee on the other hand in
support of its claim made the following submissions which are extracted from the
impugned order at page 6 & 7 and read as under:-
"Amount of Rs.24,20,229/- was receivable from M/s. Jai Drinks Pvt. Ltd. on account of
glass bottles supplied by the assessee till August 2005 to Jai Drinks Pvt. Ltd. In A.Y
2008-09 relevant to F.Y 2007-08, the said amount of Rs.24,20,229/- was written off as
bad debts as the assessee formed confirmed opinion by then that the amount will not be
recovered at all in future. The assessee on its part, followed the provisions of Section
36(2) of the Income Tax Act, 1961 to claim the debts of Rs.24,20,229/- as bad. It has
actually written off the debt as bad debts in its accounts. The account which was
written ff as bad debt was taken into account in computing the income of the assessee
for A.Y 2006-07 (F.Y 2005-06) Rs.23,91,016/- and for A.Y 2005-06(F.Y 2004-05)
Rs.29,213/-. Total Rs.24,20,229/-. Copy of account of the party M/s. Jail Drinks Pvt.
Ltd. For F.Y 2005-06 & F.Y 2007-08 and copy of Bad debts a/c for F.Y 2007-08 were
submitted to A.O during assessment proceedings and explained. The facts and
documents placed before the Ld. A.O were not properly interpreted/appreciated.
Sufficient opportunity was not provided to the assessee as the case was abruptly closed
without completing the discussion.
The ledger account of Jai Drinks Pvt. Ltd for the period from 1/4/2005 to 31/3/2006 in
the books of assessee clearly indicates without any saying, that out of Rs.24,20,229/-
written off as bad debts, Rs23,91,016/- was included in and was part of the Sales of the
assessee for the period 1/4/2005 to 31/3/2006 and the balance Rs.29,213/- for the
period prior to 1/4/2005. it is a well known fact in the double entry system of
accountancy, for every debit there will be an equal credit and for every credit there will
be an equal debit. So, when in the ledger a/c is credited with the same amount. This
fact is very much clear form the ledger a/c submitted. Moreover, the relevant bill no
and quantity supplied to Jai Drinks Pvt. Ltd. have been clearly stated in the enclosed
ledger a/c. Since the amount written off as bad debts was included in sales made to jai
Drinks Ltd. in the F.Y 2005-06 Rs.23,91,016/- and in F.Y 2004-05 Rs.29,213/- as a
natural corollary it was included in its income for those years and offered for taxation
accordingly. It is important to note here that the assessment for A.Y 2006-07 (F.Y
2005-06) and A.Y 2005-06 (F.Y 2004-05) were completed u/s 143(3) and copy of the
assessment orders for these years were submitted to the A.O vide letter dated
19/10/2010.
In appeal before your honor it is submitted that the said amount of Rs.24,20,229/- was
written off as Bad debts as the assessee formed confirmed opinion by then that the
amount will not be recovered at all in future. The assessee on its part, followed the
provisions of Section 36(2) of the Income Tax Act, 1961 to claim the debts of
Rs.24,20,229/- as bad. It has actually written off the debt as bad debts in its accounts.
The account which w as written off as bad debt was taken into account in computing
the income of the assessee for A.Y 2006-07 (F.Y 2005-06) Rs.23,91,016/- and for A.Y
2005-06 (F.Y 2004-05) Rs.29,213/- Total Rs.24,20,229/-. Copy of the account of the
party M/s. Jai Drinks Pvt. Ltd. for F.Y 2005-06 and f.Y 2007-08 along with copy of bad
debt account for F.Y 2007-08 were submitted to othe A.O and explaiend. However the
7 ITA NO. 1608.DEL.12
facts and documents placed before the Ld. A.O were not properly
interpreted/appreciated. The ledger account of Jai Drinks Pvt. Ltd for the period from
1/4/2005 to 31/3/2006 in the books of assessee placed at page no. 4 of paper book
dated 21/10/2010 clearly indicates without any saying, that out of Rs.24,20,229/-
written off as bad debts, Rs.23,91,016/- was included in and was part of the Sales of
the assessee for the period 1/4/2005 to 31/3/2006 and the balance Rs.29,213/- for the
period prior to 1/4/2005. It is a well known fact in the double entry system of
accountancy, for every debit there will be an equal credit and for every credit there will
be an equal debit. So, when in the ledger a/c party Jai Drinks Pvt. Ltd is debited by an
amount, simultaneously Sale a/c submitted. Moreover, the relevant bill no and quantity
supplied to jai Drinks Pvt. Ltd have been clearly stated in the enclosed ledger a/c.
Since the amount written off as bad debts was included in sales made to Jai Drinks Ltd.
in the F.Y 2005-06 Rs.23,91,016/- and in F.Y 2004-05 Rs.29,213/- as a natural
corollary it was included in its income for those years and offered for taxation
accordingly."
7.1 Considering the same, the CIT(A) came to the following conclusion at
page 7 & 8 para C reproduced as under:-
"I have perused all the documents produced by the appellant. The documents were
produced by the appellant at the time of remand proceeding also.
Section 36(2)(i) states
"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 the business of banking or money-lending which
is carried on by the assessee."
The AO stated in the remand report that the amount of Rs.24,20,229/-
claimed as bad debt was part of the sales of the appellant in the previous years.
However the AO further states that the prerequisites of Section 36(2) are not
satisfied. I am unable to agree with the contentions of the AO. If the appellant
has shown an amount as sales in the previous year, the amount would naturally
form part of its income. To claim it as bad debt thereof would be in compliance
with 36(2)(i) complied with.
In this case the amount of Rs.24,20,229/- has been claimed as bad debt
and has been shown by the appellant as sales/income in the previous years.
Section 36(2)(i) is therefore clearly applicable and the addition made is deleted.
Ground No. 3 is upheld."
8. Aggrieved by this the Revenue is in appeal before the Tribunal. The Ld.
Sr. DR placed reliance on the assessment order, however, no argument assailing
the finding arrived at in the impugned order on the submissions advanced by the
assessee were brought to the notice to the Bench. The Ld. AR on the other hand
8 ITA NO. 1608.DEL.12
relying upon the impugned order and the detailed submissions advanced before
the CIT(A) submitted that the departmental ground has no merit.
9. We have heard the rival submissions and perused the material available on
record. Considering the arguments advanced and the material available on record
we find no infirmity arrived at in the impugned order as admittedly the assessee
has shown the amount as sales in the previous years which has formed part of its
income. Thus when the bad debts claimed have formed part of sales of the
assessee in the previous year the occasion for it not forming part of its income
does not arise. In these circumstances its claim of bad debts cannot be
disallowed and added to its income as it fully meets the requirement of Section
36(2) (i) of the Act. The CIT(A) has rightly allowed the assessee's claim. Being
satisfied by the reasoning and finding on facts which are not under dispute the
Departmental Ground is rejected.
11. In result, the appeal of the Revenue is dismissed.
The order is pronounced in the open court on 29th of April, 2014.
Sd/- Sd/-
(G. D. AGRAWAL) (DIVA SINGH)
VICE PRESIDENT JUDICIAL MEMBER
Dated: 29/04/2014
*R. Naheed*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
9 ITA NO. 1608.DEL.12
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