Edge Steels Pvt. Ltd. v. Income-tax Officer-WD-12(2)(2), Mumbai
[Citation -2019-LL-0920-103]

Citation 2019-LL-0920-103
Appellant Name Edge Steels Pvt. Ltd.
Respondent Name Income-tax Officer-WD-12(2)(2), Mumbai
Court ITAT-Mumbai
Relevant Act Income-tax
Date of Order 20/09/2019
Assessment Year 2012-13
Judgment View Judgment
Keyword Tags material available on record • provision for bad debt • outstanding amount • claim of deduction • written off
Bot Summary: The A.O while framing the assessment observed that the assessee had debited an amount of Rs.43,61,237/- in its profit and loss account on account of provision for doubtful trade receivables. Apart there from, the A.O also held a conviction that the claim of the P a g e 3 ITA No. 3332/Mum/2018 AY. 2012-13 M/s Edge Steels Pvt. Ltd. Vs. Income Tax Officer, WD-12(2)(2) assessee that only one-half of the outstanding debt had been written off during the year also did not merit acceptance. Accordingly, the amount of Rs.43,61,237/- debited by the assessee against Provision for doubtful trade receivable , that was debited in its profit and loss account was disallowed by the A.O. 3. The CIT(A) after deliberating on the contentions advanced by the assessee observed, that the assessee had not written off the debt of Rs.43,61,237/- and had merely made a Provision for doubtful trade receivable. Authorized Representative for the assessee submitted, that the assessee on account of an inadvertent mistake had used the word Provision for doubtful trade receivable , while writing off one-half of the outstanding debt due from M/s Tag Engineering Pvt. ltd. In case, the amount of Rs.43,61,237/- is written off by the assessee as irrecoverable in its accounts the assessee would be entitled for claim of deduction to the said extent under Sec. We may herein observe, that the view taken by the lower authorities, that as the assessee had written off only one-half of the outstanding debt i.e Rs.43,61,237/- out of the total outstanding of Rs.87,22,474/- of M/s Tag Engineers Pvt. Ltd. the said claim was also not to be accepted on the said count, we are afraid does not find favour with us.


IN INCOME TAX APPELLATE TRIBUNAL E Bench, Mumbai Before Shri M. Balaganesh, Accountant Member and Shri Ravish Sood, Judicial Member ITA No.3332/Mum/2018 (Assessment Year: 2012-13) M/s Edge Steels Pvt. Ltd. Income Tax Officer-WD-12(2)(2) 404, Ram Krishna Chambers, Room No. 146(1), 1st Floor, 5, Linking Road, Khar (West) Vs. Aayakar Bhawan, M.K. Road, Mumbai 400 052 Mumbai 400020 PAN AAACE3532C (Appellant) (Respondent) Appellant by: Shri M. Balasubramanian, A.R Respondent by: Shri Amit Pratap Singh, D.R Date of Hearing: 18.09.2019 Date of Pronouncement: 20.09.2019 ORDER PER RAVISH SOOD, JM present appeal filed by assessee is directed against order passed by CIT(A)-20, Mumbai, dated 16.03.2018, which in turn arises from order passed by A.O under Sec. 143(3) of Income Tax Act, 1961 (for short Act ) for A.Y. 2012-13, dated 23.03.2015. assessee has assailed impugned order on following grounds of appeal before us: 1. FIRST GROUND OF APPEAL: 1.1 Learned Commissioner of Income Tax (Appeals) -20 Mumbai (CIT-Appeal) has erred in confirming order of Assessing Officer (AO) by dismissing appeal filed, by confirming addition of Rs.43,61,237/- without considering fact and without understanding accounting entries passed by Appellant. 1.2. Learned CIT- Appeal failed to consider that additions made by AO are only on basis of word 'provision' used in head of account debited to Profit and Loss account whereas accounting entries passed in books of account are properly passe d as required to be done for writing off bad debts. P g e |2 ITA No. 3332/Mum/2018 AY. 2012-13 M/s Edge Steels Pvt. Ltd. Vs. Income Tax Officer, WD-12(2)(2) 1.3. Learned CIT - Appeals has failed to consider and understand documents submitted by Appellant during hearing proceedings and assessment proceedings. 2. SECOND GROUNDS OF APPEAL: 2.1 Appellant craves to leave to add, amend and/or alter all or any of above Ground of Appeal before or at any time of hearing of this Appeal. 2. Briefly stated, assessee company which is engaged in business of trading of alloy steel bars and rods had e-filed its return of income for A.Y. 2012-13 on 30.09.2012, declaring its total income at Rs.50,22,980/-. Subsequently, return of income was revised by assessee on 08.02.2013, declaring its total income at Rs.6,61,740/-. return of income filed by assessee was processed as such under Sec.143(1) of Act. Thereafter, case of assessee was selected for scrutiny assessment under Sec.143(2) of Act. A.O while framing assessment observed that assessee had debited amount of Rs.43,61,237/- in its profit and loss account on account of provision for doubtful trade receivables. As assessee had not added back provision while computing its income, therefore, A.O called upon it to explain as to why said amount may not be disallowed, as it was not actually incurred. In reply, it was submitted by assessee, that as there was no hope for recovery of outstanding dues from M/s Tag Engineering Pvt. Ltd., therefore, management had decided to write off one-half of outstanding amount of Rs.87,22,474/- during year under consideration. Accordingly, it was submitted, that amount of Rs.43,61,237/- was written off during year, and was thus debited by assessee to its profit and loss account for year under consideration. Also, it was submitted by assessee, that inadvertently words Provision for doubtful trade receivable were used in profit and loss account, while fact was that same was not provision but actually write off of outstanding dues from aforementioned party. In order to drive home his aforesaid claim, it was submitted by assessee that balance receivable from debtor viz. M/s Tag Engineers Pvt. Ltd. pursuant to aforesaid writing off one-half of outstanding debt, was thus reduced to amount of Rs.43,61,237/-. However, A.O was not persuaded to subscribe to aforesaid claim of assessee. In fact, A.O was of view that though as per accounting principal, if any expenses are contemplated or likely to be accrued, assessee is vested with right to make provision for same, but at time of computing total income, expenses which had not actually been incurred were required to be added back to total income. Apart there from, A.O also held conviction that claim of P g e |3 ITA No. 3332/Mum/2018 AY. 2012-13 M/s Edge Steels Pvt. Ltd. Vs. Income Tax Officer, WD-12(2)(2) assessee that only one-half of outstanding debt had been written off during year also did not merit acceptance. A.O was of view that debt would turn bad either wholly or, it will not. Accordingly, amount of Rs.43,61,237/- debited by assessee against Provision for doubtful trade receivable , that was debited in its profit and loss account was disallowed by A.O. 3. Aggrieved, assessee carried matter in appeal before CIT(A). CIT(A) after deliberating on contentions advanced by assessee observed, that assessee had not written off debt of Rs.43,61,237/- and had merely made Provision for doubtful trade receivable . As such, CIT(A) not find favour with claim of assessee and dismissed appeal. 4. assessee being aggrieved with order of CIT(A) has carried matter in appeal before us. ld. Authorized Representative (for short A.R ) for assessee submitted, that assessee on account of inadvertent mistake had used word Provision for doubtful trade receivable , while writing off one-half of outstanding debt due from M/s Tag Engineering Pvt. ltd. In order to fortify his aforesaid claim ld. A.R had drawn our attention to copy of ledger account of M/s Tag Engineering Pvt. ltd. appearing in its books of accounts for year under consideration viz. A.Y. 2012-13, and also for immediately succeeding year i.e A.Y. 2013-14. It was submitted by ld. A.R, that amount of bad debt was clearly written off in account of aforesaid debtor . It was claim of ld. A.R that lower authorities loosing sight of fact that usage of word Provision for doubtful trade receivable was merely backed by inadvertent mistake, had however, disallowed its aforesaid claim which was duly as per mandate of law. In order to support his entitlement towards claim of aforesaid deduction for bad debt , ld. A.R relied on judgment of Hon ble Supreme Court in case of TRF Ld. Vs. CIT (2010) 323 ITR 397 (SC). 5. Per contra, ld. Departmental Representative (for short D.R ) relied on orders of lower authorities. It was submitted by ld. D.R, that as assessee had not written off bad debt, but had merely made provision for doubtful trade receivable , therefore, lower authorities had rightly declined its claim for deduction under Sec. 36(1)(vii) of Act. Apart there from, it was submitted by ld. D.R that writing off part of debt was also P g e |4 ITA No. 3332/Mum/2018 AY. 2012-13 M/s Edge Steels Pvt. Ltd. Vs. Income Tax Officer, WD-12(2)(2) beyond comprehension. It was thus submitted by ld. D.R, that as appeal filed by assessee was devoid and bereft of any force, therefore, same did not merit acceptance and was liable to be dismissed. 6. We have heard authorized representatives for both parties, perused orders of lower authorities and material available on record, and also judicial pronouncements relied upon by them. As observed by us hereinabove, it is claim of assessee that though it had written off one-half of outstanding debt of Rs.43,61,237/- against amount that was receivable from its debtor viz. M/s Tag Engineers Pvt. Ltd, however, on account of inadvertent mistake wordings Provision for bad debt was used while posting entry in books of accounts. ld. A.R by drawing our attention to ledger account of aforesaid party viz. M/s Tag Engineers Pvt. Ltd, as appearing in its books of accounts, had therein fortified its claim that aforesaid amount of bad debt was duly written off in account of said party. 7. We have given thoughtful consideration to issue under consideration in backdrop of facts available on record. Admittedly, as per judgment of Hon ble Supreme Court in case of T.R.F. Ltd, Vs. CIT (2010) 323 ITR 397 (SC), after 01.04.1989, it is not necessary for assessee to establish that debt, in fact, had become irrecoverable. It was observed that if bad debt is written off as irrecoverable in accounts of assessee, same would duly suffice for entitling it to claim deduction of same under Sec.36(1)(vii) of Act. In our considered view, there is substantial force in claim of ld. A.R that though bad debt was written of irrecoverable in accounts of assessee, however, inadvertently wordings Provision of bad debt were wrongly used. We thus are of considered view, that in all fairness matter requires to be restored to file of A.O for verifying aforesaid claim of assessee. In case, amount of Rs.43,61,237/- is written off by assessee as irrecoverable in its accounts, then, assessee would be entitled for claim of deduction to said extent under Sec. 36(1)(vii) of Act. Also, we may herein observe, that view taken by lower authorities, that as assessee had written off only one-half of outstanding debt i.e Rs.43,61,237/- out of total outstanding of Rs.87,22,474/- of M/s Tag Engineers Pvt. Ltd., therefore, said claim was also not to be accepted on said count, we are afraid does not find favour with us. In fact, we are P g e |5 ITA No. 3332/Mum/2018 AY. 2012-13 M/s Edge Steels Pvt. Ltd. Vs. Income Tax Officer, WD-12(2)(2) unable to comprehend that in absence of any embargo in statute that part of outstanding debt due from debtor cannot be written off by assessee, we are unable to subscribe to said view taken by lower authorities. Accordingly, in terms of our aforesaid observations matter is restored to file of A.O for fresh adjudication in terms of our aforesaid observations. Ground of appeal No.1 is allowed for statistical purposes. 8. Ground of appeal No. 2 being general is dismissed as not pressed. 9. appeal of assessee is allowed for statistical purpose in terms of our aforesaid observations. Order pronounced in open court on 20.09.2019 Sd/- Sd/- (M.Balaganesh) (Ravish Sood) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; 20.09.2019 PS. Rohit /Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. True Copy BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai ITA No. 3332/Mum/2018 AY. 2012-13 M/s Edge Steels Pvt. Ltd. Vs. Income Tax Officer, WD-12(2)(2) Edge Steels Pvt. Ltd. v. Income-tax Officer-WD-12(2)(2), Mumbai
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