TaxTMI 
TaxTMI 
2010 (12) TMI 431
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee to prove the allowability of the claim. The assessee vide letters dated 25.1.2006 and 30.1.2006 submitted as under: "Letter dated 25.1.2006 Para 7(a) As regards bad debts of Rs.13,91,725 debited in profit and loss account during the previous year relevant to Assessment Year 2003-04, it is submitted this in respect of the export sales made to M/s.Pizzi Marco and CSPA during F.Y. 1995-96 as follows: Bill No. and Date Amounts in Rs. 5A/10.10.1995 10,53,125 6A/6.11.1995 3,38,600 Total 13,91,725 Copy of a/c of Party from F.Y. 1995-96 to F.Y.2002-03 is enclosed for your kind perusal. Copy of bad debt a/c is also enclosed for your kind perusal." Letter dated 30.1.2006 Para 8(e) "........ export incentives accrued in previous year 1995-96 were considered for computing eligible profit for calculating deduction u/s 80HHC thereby increasing the amount of deduction available u/s 80HHC." 4. The AO did not allow the claim of the assessee by observing as under: "a) Assessee's contention do not find support from provisions of law as well as principles of accounting. b) The amounts written ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....; Since the claim of bad debt fulfills the condition as laid down in section 36(1)(vii) read with section 36(2) your kindself is requested to kindly allow the same." Copy of reply dated 25th January is annexed hereto and marked as Annexure-1. 1.2 "Your honour will appreciate that provisions as contained in section 36(1)(vi) read with section 36(2) of the I.Tax Act 1961 provide for the following conditions for admitting the claim of Bad Debt: a) That the debt is written off as irrecoverable in the accounts of the assessee. b) That the debt should have been taken into account in computing the income of the assesee. Your honour will further appreciate that the assessee satisfies both the above conditions as is apparent from the ledger account of the party from the previous year 1995-96 to 2002-03 and Bad debt account submitted before the AO vide reply dated 251h January 2006. The assessee finds support from a recent judgment delivered on 9th February 2010 by the Hon'ble Supreme Court in the case of T.R.F. Limited vs. CIT, Ranchi (Civil Appeal no. 5294 of 2003) wherein the Hon'ble Supreme Court has held:- "This position in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Section 80HHC deals with deduction of the element of profit from export from taxable income. Therefore, the claim of bad debt could not be disallowed." It is also relevant to mention here that even in the year under appeal the assessee firm has been granted deduction in respect of the export sale (the assessee had exported its entire sales) u/s 80HHC of the Act and therefore by write off of the impugned debt the appellant firm has in fact reduced its profits eligible for deduction u/s 80HHC." 6. The ld. CIT(A), after considering the submissions of the assessee, deleted the addition by observing in para 7 of the impugned order,which reads as under: "7. I have considered the facts and circumstances of the case, submissions, arguments and the material relied upon by the Assessing Officer. I, therefore, hold as follows: a) The assessee in support of his contention regarding Bad debt has relied on the ground that the claim of Bad debt fulfills the condition laid down in Section 36(1)(vii) read with Section 36(2)and therefore the claim of Bad debt is allowable in view of the decision of the Apex Court in T.R.F. Limited vs CIT, Ranchi (Civil Appeal....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... were allowable deduction @ 100% under section 80HHC of the I.T. Act. He, however, nowhere stated that the assessee had not written off the debts as bad in its books of accounts. In other words, the AO had accepted that the assessee had, in fact, written off the debts in the books of accounts, those debts related to the sale made by the assessee. Since the assessee had written off the debts in the books of accounts, therefore, the claim of bad debts was allowable. In our opinion, the ld. CIT(A) was fully justified in directing the AO to allow the claim of the assessee by following the judgment of the Hon'ble Apex Court delivered on 9.2.2010 in the case of T.R.F. Ltd. vs. CIT (2010)323 ITR 397 (S.C.),wherein it has been 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". 10. The next issue vide ground no.2 relates to the deletion of addition of Rs.2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nds support from the decision of Hon'ble Delhi High Court in the case of CIT vs. Gowar Sons Publication Pvt. Ltd. 250 ITR 461. Further it is settled law that mercantile system of accounting can not be stretched to embrace all provisional, notional or contingent payments as has been held by Hon'ble Allahabad High Court in the case New Victoria Mills Co. Ltd. vs. CIT 61 ITR 395, 398." 12. The ld. CIT(A), after considering the submissions of the assessee, deleted the addition by observing that the AO had not questioned the transaction and from the facts; it was clear that commission had become due in the current year as per terms and practice of the business. 13. Now the department is in appeal. 14. The ld. D.R. supported the order of the AO and further submitted that the assessee was maintaining the books of accounts on the basis of mercantile system of accounting and since the sales were made in the financial year 2001-02 relevant to the assessment year 2002-03, therefore, the commission was not allowable in the assessment year 2003-04. 15. In his rival submissions, the ld. Counsel for the assessee strongly supported the order of the....