IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH
BEFORE: SHRI. N.K.SAINI, VP & SHRI , SANJAY GARG, JM / ITA NO. 1000/Chd/2019 / Assessment Year : 2016-17
M/s Steel Strips Wheels Ltd. Vs The DCIT /Date of Pronouncement: 29/01/2020
Order
PER N.K. SAINI, VICE PRESIDENT
This is an appeal by the Assessee against the order dt. 31/05/2019 of Ld. CIT(A)-3, Gurgaon.
2. Following grounds have been raised in this appeal:
1. That the Ld. CIT(A) has grossly erred in law as well as facts in confirming the
disallowance of the deduction of bad debts written off being in the nature of
irrecoverable advance as business loss u/s 37(1) read with section 28 of the
Act. The addition made on this account amounting to Rs. 541233/- may
please be deleted.
2. That the Ld. CIT(A) has grossly erred in law as well as on facts in confirming the
disallowance of deduction of Rs. 3,88,392/- on account of prior period
expenses, whereas, the same is allowable as per law. Therefore, addition of
Rs. 3,88,392/- may please be deleted.
3. The assessee craves leave to add, alter and amend any of the above
grounds of appeal before the same is heard or disposed off.
3. Vide Ground No. 1 the grievance of the assessee relates to the addition of
Rs. 5,41,233/- made by the A.O. on account of bad debts written off.
4. The facts related to this issue in brief are that the assessee e-filed its return
of income on 17/10/2016 declaring an income of Rs. 32,84,17,625/- which was
subsequently revised of Rs. 33,25,99,414/- on 22/07/2017. Later on the case was
selected for scrutiny.
5. During the course of assessment proceedings the A.O. noticed that the
assessee had balances written back (net) under the head other expenses,
administrative and selling expenses amounting to Rs. 5,41,233/-. The A.O. asked
the assessee to furnish the details of the aforesaid expenses which were
furnished on 29/11/2018 stating therein that the balance written off included
amount on account of very old irrecoverable balances lying in stores and spares
suppliers and other short / excess and rounding off differences, written off. The
A.O. however did not find merit in the submissions of the assessee and made the
impugned addition.
6. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and
reiterated the submissions made before the A.O. It was further submitted that
the observation of the A.O. was not true as the assessee had merely produced
the statement of account of balances written off containing the dates on which
the balances were written off which had been misunderstood to the date of
transaction by the Ld. A.O., therefore, the bad debts written off being in the
nature of irrecoverable advance claimed as business loss under section 37(1)
r.w.s 28 of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’)may
be allowed to the assessee. The reliance was placed on the following case laws:
• CIT Vs. Mysore Sugar Co. Ltd. reported at [1962] 46 ITR 649 (SC)
• Harshad J Choksi Vs. CIT in ITA No. 43/1997 dt. 14/08/2012 (Bom)
• Khyati Realtors Pvt. Ltd. Vs. ACIT in ITA No. 129/Mum/2014 dt. 04/03/2016
(Mum Trib)
• T.R. F Ltd. Vs. CIT in CA No. 5293 / 2003 (SC)
6.1 However the Ld. CIT(A) did not find merits in the submissions of the
assessee confirmed the addition made by the A.O. by observing as under:
“ The A.O. has made this disallowance on the ground that the amounts written off
by the appellant pertain to the year under consideration and no valid
explanation for writing off the amount of Rs. 5,41,233/- has been given by the
appellant.
During the appellate proceedings also, the appellant has not furnished any
explanation to counter the specific findings of the A.O. In view of the same, I
agree with the contentions of the A.O. and hence this addition is confirmed.”
Now the assessee is in appeal.
7. Ld. Counsel for the assessee reiterated the submissions made before the
authorities below and further submitted that the bad debts written off were
pertaining to the earlier years which were irrecoverable, therefore, the Ld. CIT(A)
was not justified in sustaining the addition made by the A.O. Reliance was
placed on the judgment of the Hon’ble Supreme Court in the case of T.R.F. Ltd.
Vs. CIT reported at [2010] 323 ITR 397.
8. In his rival submissions the Ld. DR strongly supported the orders of the
authorities below.
9. We have considered the submissions of both the parties and perused the
material available on the record. In the present case it is not in dispute that the
debts were written off in the books of accounts of the assessee, during the year
under consideration.
9.1 On a similar issue the Hon’ble Apex Court in the case of T.R.F. Ltd. Vs. CIT
(supra) held as under:
“ After the amendment of section 36(1)(vii) of the Income Tax Act, 1961 with
effect from April 1, 1989, in order to obtain a deduction in relation to bad debts, it
is not necessary for the assessee to establish that the debt, in fact, has become
irrecoverable; it is enough if the bad debt is written off as irrecoverable in the
accounts of the assessee.”
We therefore by keeping in view the ratio laid down by the Hon’ble Apex
Court in the aforesaid referred to case delete the impugned addition made by
the A.O. and sustained by the Ld. CIT(A).
10. Vide Ground No. 2 the grievance of the assessee relates to the
confirmation of addition of Rs. 3,88,392/- made by the A.O. on account of prior
period expenses.
11. As regards to this issue the Ld. Counsel for the Assessee at the very outset
stated that this issue is covered vide order dt. 27/05/2019 in assessee’s own case
in ITA No. 756/Chd/2018 for the A.Y. 2011-12 wherein the Departmental appeal
on the same issue was dismissed, copy of the said order was furnished which is
placed on record.
12. Ld. DR in his rival submissions supported the orders of the authorities below.
13. After considering the submissions of both the parties and the material
available on the record, it is noticed that an identical issue having similar facts
was agitated by the Department for the A.Y. 2011-12 in ITA No. 756/Chd/2018,
which has been decided in favour of the assessee and against the Department,
the relevant findings have been given in para 15 and 16 of the aforesaid
referred to order dt. 27/05/2019 in assessee’s own case which read as under:
15. We have heard the rival contentions and perused the orders of the
authorities below. The factual submissions made by the assessee that the
prior period expenses were booked on account of late receipt of bills of
units of the assessee located at faraway places and that even prior
period incomes were also so booked by the assessee, has not been
controverted by the Revenue. The assessee has contended that it was
consistently booking such prior period expenses and income from year to
year, and this has also not been controverted by the Revenue.
16. In view of the aforesaid facts, we do not find any reason to interfere in
the order of the Ld.CIT(A), deleting the disallowance made of prior period
expenses, since we find that the said expenses had been booked as per
the established and consistent policy followed by the assessee .Further
considering the fact that even prior period incomes have been booked,
no purpose would be served, we find, by disallowing only prior period
expenses since in that case, even prior period income would have to be
reduced from the taxable profits of the assessee.
In view of the above, ground of appeal No.vi raised by the Revenue is
dismissed.
So by respectfully following the aforesaid referred to order the addition
made by the A.O. and sustained by the Ld. CIT(A) is deleted.
14. In the result, appeal of the assessee is allowed.
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