TaxTMI 
TaxTMI 
TaxTMI 
2023 (9) TMI 670
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....l debts under provisions of Income Tax Act, 1961 without considering the fact that the same was actually written off from the accounts of the appellant in previous year. 3.) That on the facts and in the circumstances of the case, Ld. CIT(A), NFAC erred in confirming the addition of Rs. 3,12,27,393/- u/s 41(1) read with section 28(iv) of the Income Tax Act, 1961 on the presumption that liability ceased to exist even when the liability existed in the accounts of the appellant. 4.) That on the facts and in the circumstances of the case, Ld. CIT(A), NFAC erred in confirming the disallowance of expenses of Rs. 3,13,010/- made by AO under the head Pandel decoration. 5.) (a) That on the facts and in the circumstances of the case, Ld. CIT(A), NFAC erred in confirming the action of AO who disallowed expenses under the head Repairs & Maintenance amounting to Rs. 9,99,856/- treating the same as capital expenditure. (b) Without prejudice to ground No. 5(a) above and on the facts and in the circumstances of the case, Ld. CIT(A), NFAC erred in confirming the action of AO in not allowing the depreciation u/s 32 of the Act despite treating the expenses under the Repairs & Maintenance a....
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....olkata, and the notice u/s 133(6) of the Act was returned unserved and this brought the AO to the conclusion that the assessee has claimed bogus expenditure and proceeded to disallow the sum of Rs. 313,010/-. The ld. Assessing Officer also observed that the assessee has claimed an amount of Rs. 999,856/-on account of interior decoration of office premises paid to Unique Technicon India Pvt. Ltd.. The assessee claimed it as revenue expenditure but as per the ld. Assessing Officer it was in the nature of capital expenditure and thus not deductible as expenses during the year and disallowed the repairs and maintenance charges at Rs. 999,856/-. Thus, after making the additions the income of the assessee assessed at Rs. 6,51,90,620/-. 3.2. Aggrieved, the assessee preferred an appeal before the ld. CIT(A) but failed to succeed on any of the grounds. Though the assessee filed detailed written submissions, the ld. CIT(A) was not satisfied and dismissed the appeal of the assessee giving general finding, observing as follows:- "7.DECISION:- I have considered the submission of the appellant and the assessment order of the AO passed u/s 147 r.w.s. 143(3) of the I.T. Act 1961. On considerati....
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....ement of the Hon'ble Supreme Court in the case of TRF Limited vs. CIT reported in 323 ITR 397. 5.1. It was also submitted that the nomenclature is of no consequence, rather the substance of the matter should be looked into while deciding the allowability of expenditure and, therefore just for the reason that in place of bad debts, mentioning the said amount under the head "provision for bad and doubtful debts" should not have been taken as the basis to reject the claim of the assessee. 5.2. As regards the addition of Rs. 3,12,27,393/-, it was submitted that the said addition was made based on the observation that the sundry creditors, namely, SAMPL has written off the said sum in their books of account and the said liability was not live. To controvert this fact, the ld. Counsel for the assessee referred to the judgement of the Hon'ble Calcutta High Court vide order dt. 08/01/2016, as per which the assessee has been directed to make payment of Rs. 10 lakh per month in lieu of the aforesaid debts. Based on this, it was further submitted that the alleged liability is active and the assessee is required to repay the said sum and in case liabilities exist in the books of the assesse....
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....s a bogus expenditure as the sundry creditors is untraceable. Regarding repairs and maintenance expenses amounting to Rs. 999,856/-, the ld. D/R submitted that these are purely capital in nature and thus cannot be allowed as revenue expenditure. 9. We have heard rival contentions, perused the material placed before us and carefully gone through the decisions relied upon by the ld. Counsel for the assessee. 10. The first issue for our consideration raised in Ground No. 2, is regarding the addition of Rs. 6,85,53,691/-. We observe that the assessee is engaged in the business of event management and provided services to Mahua Media Pvt. Ltd. (MMPL), during the period March, 2011 to 3rd August, 2011 and raised a total bill of Rs. 10,22,52,783/-. The said sum has been duly reflected under the gross revenue of the assessee company and there is no dispute to this fact that the total amount of invoice raised to MMPL, has been booked as gross revenue/gross turnover. We further notice that out of the said sum, Rs. 3,38,00,568/-was received from time to time and tax at source was deducted. The sum of Rs. 6,85,53,691/-was receivable from the said company. The assessee gave several reminders ....
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.... raised by the assessee to MMPL has been duly accounted for in the books as the sale. The alleged sum was not paid by MMPL even when various reminders and legal notice was sent. The assessee claimed it as bad debts in the books for the financial year 2011-12 and kept its legal battle going on. Had the assessee recovered any sum it might have been offered to tax in the year of receipt. However, claiming bad debts in the books is a right available with the assessee under the provisions of the Income tax Act, provided u/s 36(1)(vii) of the Act, which reads as follows:- "(vii) subject to the provisions of sub- section (2), the amount of 4 any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year]: Provided that in the case of a bank to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause;]" 10.3. In the above provisions reference made to sub-Section (2) of Section 36 and subject to Section 36(2) of the Act ....
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....ng the income of the assessee of the previous year in which the amount of such debt or part thereof is written off. The said condition is duly fulfilled in the case of the assessee as the amount of bad debts claimed has already been taken into account while computing the income by way of showing it as gross receipts and the outstanding amount was standing as sundry debtors. It clearly shows that the assessee has made justified claim under section 36(1)(vii) of the Act and the same should have been allowed as an expenditure during the year. We find support from the judgement of the Honourable Supreme Court in the case of TRF Limited (supra), wherein the Hon'ble Court, has held as follows:- "4. This position in law is well-settled. After 1-4-1989, 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. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's account is credited, thus....
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.... the Hon'ble Calcutta High Court and vide order dt. 08/01/2016, the Hon'ble Court has directed the assessee to make payment of Rs. 10 lakh per month in lieu of the aforesaid debts. A copy of the said order is placed at page 126 to 129 of the paper book and the relevant part of this order is reproduced below:- "On the persuasion of the Court, the appellant company has agreed to pay the petitioning creditor instalments of Rs.10,00,000/- per month until such time as the proceedings in Delhi High Court against the principal, Mahua Media Pvt. Ltd., are adjudicated and the decretal dues are realized in which case the respondent/petitioning creditor shall be paid off from out of the decretal dues of Mahua Media Pvt. Ltd. The first instalment of Rs. 10,00,000/- shall be paid within 1 March, 2016 and the subsequent instalments shall be paid within the first week of each succeeding month. The instalments shall be paid until such time as the principal admitted amount along with interest, as directed by the learned Company Court, is liquidated in full or until the claims of the company from Mahua Media Pvt. Ltd. or any part thereof are realised pursuant to orders in the proceedings at Delhi.....
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....Under these facts and circumstances, we do not find any justification at the end of both the lower authorities of having invoked the provisions of Section 41(1) of the Act pertaining to cessation of liability and treating it as income in the hands of the assessee. Accordingly, the finding of the ld. CIT(A) is set aside, addition of Rs. 3,12,27,393/- is deleted and Ground No. 3 raised by the assessee is allowed. 16. Apropos Ground No. 4, regarding disallowance of Rs. 3,13,010/- , we note that the assessee has incurred the said sum towards pandel decoration and the same is payable to Amit Agencies. The assessee has not been able to place any documentary evidence to prove that the said sum has been repaid subsequently. Confirmation of account of Amit Agencies has also not been filed. It thus adds to the suspicion created in the instant case that the said expenditure was bogus in nature and even the Inspector deputed to verify the address of the sundry creditor was not able to trace any whereabouts of the entity. Under these circumstances, as the assessee has miserably failed to prove the genuineness of the transactions of Rs. 3,13,010/- incurred towards pandel decoration expenses, we....