×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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Both these cross appeals preferred by the assessee and the Revenue are against the order of Ld. CIT(A)-15, Kolkata dated 22.12.2015 for AY 2006-07.
2. First of all we will deal with the appeal preferred by the assessee. The assessee’s ground no. 1 is against the action of the Ld. CIT(A) in upholding the addition of Rs.79,45,426/- on account of bad debt written off.
3. Brief facts of the case are that the assessee is in the business of manufacture and sale of industrial gas and it had claimed debit balance written off of Rs.79,45,426/-. The AO asked the assessee to explain as to its claim for the debit balance written off for which the assessee replied vide letter dated 09.12.2008 that these are pertaining to old accounts and existing for more than eight years. When the AO asked for proof, the assessee replied that since these amounts were given to the parties over a long period of time and which were mostly in the form of advance made in the ordinary course of business for supply of materials, which the parties could not implement or failed to fulfill, no sale bill is available with it. Further, it was explained by the assessee, the material was not supplied; and the amount was lying in the name of the respective parties which were subsequently written off as bad during the year under review. The AO did not agree with the contention of the assessee for the following reasons:
“3.2 The reply of assessee is considered but it is not found acceptable for following ` reasons:-
(i) The basic condition that the amount in question should have passed through Profit & Loss account, should be satisfied before allowing any claim of Debit balance written off.
(ii) The assessee has not given copy of any sale bill, copy of communication with parties which can even indirectly prove that amount in question is revenue in nature in nature. This isimportant because any debit balance for example an advance unrelated with business, cannot be allowed as deduction.
(iii) The assessee has stated in general sense that the amount in question is given in the form of advance for supply of materials. Without copies of bills & other related document, the claim of assessee remains unverif able
For above reasons claim of debit balance written off of Rs.79,45,426/- in not allowed and added to the total income of the assessee.” And, therefore, added the aforesaid amount to the income of the assessee. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who was pleased to dismiss the same. Aggrieved, the assessee is before us.
4. We have heard rival submissions and gone through the facts and circumstances of the case. The facts aforesaid noted by the AO are not repeated for the sake of brevity. We note that the assessee is in the business of manufacture and sale of industrial gases and it had to buy raw materials and consumables from different suppliers. According to the assessee, in the normal course of business it had paid advance to few of the suppliers and since neither they supplied the materials nor they returned the money, even though the assessee tried its level best to realize it could not materialize, so in this year, the assessee wrote off the same.
The details of the amount advanced to the parties are given below:
5. During appeal, it was pleaded before the Ld. CIT(A) that the assessee had complied with the provisions of writing off of the outstanding amount and that the Ld AR of assessee had infact drew the attention of Ld. CIT(A) to the P&L Account under the head ‘Administrative & other expenses’ in Schedule 15 of the audited accounts for the year ended 31.03.2006. However the Ld. CIT(A) was not convinced with the submissions of the assessee that the said claim is allowable u/s. 36(1)(vii) read with section 36(2) of the Act or as a deduction as a trading loss u/s. 28 of the Act. Even though the assessee relied on several judgments of the Hon’ble Apex Court as well as the Hon’ble High Court the Ld. CIT(A) did not allow the claim of the assessee by observing as under:
“5.1.14 Decision: I have carefully perused the reply of the assessee and the contents of the assessment order. One thing is very clear from the assessment order that the assessee never proved before the AO or during the appellate proceedings as to what is the nature of the “advances” given to these parties by submitting any documentary evidence. What are these parties actually supposed to give to the assessee in lieu of these advances has also not been revealed by the assessee. It is clear from the submission of the assessee that these parties had not supplied any material to the assessee as they could not produce any bills issued by those parties. Even the addresses have not been given. What was the need for giving such advances to unknown parties is also not clear. In general commercial world it is quite common to give advances. It can also happen that those parties can supply part of the material as agreed upon and subsequently they are not in a position to honour their commitment and part of the advances could not be recovered from those parties. However, the facts in the present case is