Income Tax Appeal No. 81 of 2007 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 81 of 2007 Date of decision: 7.12.2010 The Commissioner of Income Tax Karnal --- Appellant Versus M/s. Mittal Wine Traders, Karnal --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. Yogesh Putney, Senior Standing Counsel for the appellant. Mr. D.K. Goyal, Advocate for the respondent. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the Revenue against the orders dated 13.4.2006, 1.2.2006, 26.3.2004 and 24.9.2004 passed by the Income Tax Appellate Tribunal Delhi Bench ‘B’ New Delhi (in short “the Tribunal”) in ITA No. 66/Del/2001, relating to the assessment year 1997-98. The appeal was admitted for determination of the following substantial questions of law by this Court: Income Tax Appeal No. 81 of 2007 -2- “1- Whether on the facts and circumstances of the case Hon’ble ITAT was right in law in confirming the order of CIT(A) deleting the addition of Rs. 18,40,549/- made by the AO on account of bad debts when the partners of the firm failed to produce the books of account? 2- Whether on the facts and circumstances of the case Hon’ble ITAT was right in law in confirming the order of CIT(A) deleting the addition of Rs. 1,86,565/- when the assessee failed to furnish the confirmatory account? The facts, in brief, necessary for adjudication and as narrated in the appeal, are that the respondent-assessee, at the relevant time, was a wholesale wine contractor and was carrying on the business under L-1 licence, at Karnal. The assessee filed return for the assessment year in question declaring an income of Rs. 3,120/-. The return was selected for scrutiny and, accordingly, notices under Sections 143(2) and 142(1) were issued to it. During those proceedings it came to the notice of the assessing officer that total sale as per the account maintained by the assessee, up to the period 30.6.1996, was of Rs. 1,08,70,358/-. But in the trading account appended along with the return, the assessee had shown the sales at Rs. 86,69,564/- as against the amount of Rs. 1,08,70,358/-. The assessing officer, thus, found that there was a suppression of Rs. 22,00,794/- though on other hand the assessee claimed that it had allowed rebate to the tune of Rs. 1,73,580/- to M/s. Shiva Agency and Rs. 1,86,565/- to M/s. Attar Singh and Co. on 30.4.1996 and an amount of Rs. 18,40,549/- was a bad debt Income Tax Appeal No. 81 of 2007 -3- unrecoverable from the people who made purchases from it but ran away leaving no whereabouts. The assessing officer required the assessee to reconcile the above amounts and afforded opportunities to it in that behalf, but the replies furnished by the assessee did not find favour with the assessing officer who ultimately, vide order dated 8.3.2000, rejected the books of account of the assessee and disallowed the amount of Rs. 1,86,565/- claimed as rebate and Rs. 18,40,549/- as bad debts. Consequently, the assessing officer made additions of the said amounts in the income of the assessee. The Commissioner of Income Tax (Appeals) [for short “the CIT(A)”], on an appeal carried by the assessee, vide order dated 13.10.2000, observed that the assessee was right in writing off the outstanding balance standing in the names of certain parties under the provisions of Section 36(1)(vii) of the Act. As regards the amount of Rs. 1,86,565/- claimed as rebate, the CIT(A) found that the said amount stood included in the balance outstanding which had been written off and accordingly deleted the addition made on that count as well. The CIT(A) while partly allowing the appeal sustained the addition of Rs. 2,73,264/-. The Revenue preferred appeal before the Tribunal against the order of the CIT(A). The Tribunal did not feel satisfied on the reconciliation of the difference on the ground that the same was not correct inasmuch as the assessing officer had not noticed any difference in its order as observed by the CIT(A). The Tribunal, thus, vide order dated 26.3.2004, directed the matter to be sent back to the CIT(A) for factual verification and decision on the questions Income Tax Appeal No. 81 of 2007 -4- afresh after considering the evidence and affording an opportunity of being heard to the assessee. One of the members of the Tribunal, however, came to a different view. There being a difference of opinion, the appeal was heard by the Vice-President as a Third Member. The Third Member concurred with the view of the Accountant Member (AM) and ordered for placing the matter for disposal before the regular Bench. We have heard learned counsel for the parties and perused the record. The appeal raises the question regarding addition of Rs. 18,49,549/- made by the assessing officer on account of disallowance of bad debts claimed by the assessee, and deletion of Rs. 1,86,565/- in regard to which the assessee had failed to furnish confirmatory account. There being a difference of opinion between both the members of the Tribunal, the matter was referred to the Vice-President, i.e. the Third Member. The Third Member while agreeing with the AM with regard to first addition of Rs. 18,49,549/- on account of bad debts had recorded the following: “I have considered the rival contentions and the material on record. The foremost fact which needs to be appreciated in its right perspective is that when the business of the assessee had just started picking up and when just three months had passed, the Haryana Government imposed prohibition in the State. It is not difficult to imagine what could be the state of affairs of the whole lot of liquor vendors, be it a wholesaler or a retailer. It is not a case of the business going awry but it is a case Income Tax Appeal No. 81 of 2007 -5- where there is complete derailment of the business. The assessee was in the wholesale trade. He supplied goods to the retailers. Needless to say, when there is total prohibition, the retailers have to effect distress sales to recoup whatever they have invested, particularly, by paying heavy license fees and in the purchases. It can send any businessman into a dizzy and cripple him for a long time. It is in this background that the assessee, despite all his efforts could not recover the sum of Rs. 18,49,549/- from nine parties. I fail to understand what more is required to prove that the debts had really become bad. Not only that, three out of nine parties appeared before the Assessing Officer and admitted their liability but categorically stated about their inability to make the payment. The debts from these three parties alone account for nearly Rs. 14 lacs which covers the major portion of the total debts written off by the assessee. I also fail to understand as to what purpose would be served by restoring the matter back to the file of the Assessing Officer. More over the parties have vanished which even the Assessing Officer could not trace, then what to talk of the assessee itself. It is also not in dispute that quantum of sales declared by the assessee has been accepted by the Assessing Officer. The purchases are verifiable from excise record. Under these circumstances, I do not see anything wrong on the part of the assessee to write off the debts. Therefore, I Income Tax Appeal No. 81 of 2007 -6- agree with the view taken by the learned AM and uphold the deleting of the addition of Rs. 18,49,549/-.” The Tribunal, thus, per majority on appreciation of material had concluded that the assessee had written off bad debts amounting to Rs. 18,49,549/- which had become irrecoverable from nine parties out of which the debts from three parties was to the tune of Rs.14 lacs. The prohibition imposed in the State of Haryana had created difficulties for the assessee which had resulted in debts becoming bad. It was further observed that parties had vanished due to prohibition. The said finding has not been shown to be perverse or erroneous by the counsel for the revenue. Now adverting to the second addition of Rs. 1,86,565/- on account of rebate allowed to M/s. Attar Singh and Co., the Vice President in para 7, has noticed as under: “7. The second question pertains to the deletion of the addition of Rs. 1,86,565/- made on account of rebate allowed to M/s. Attar Singh & Co. In fact, the assessee had allowed rebate also to M/s. Shiva Agency. The Assessing Officer allowed the rebate in the case of M/s. Shiva Agency on the grounds that a confirmation in this regard was filed by the assessee. However, since there was no confirmation from M/s. Attar Singh & Co., the Assessing Officer did not allow the claim for rebate. One can not lose sight of the fact that M/s. Attar Singh & Co. appeared before the Assessing Officer. Therefore, at least the identity is proved. When the party itself Income Tax Appeal No. 81 of 2007 -7- appeared before the Assessing Officer, I fail to understand as to what prevented the Assessing Officer from making the specific inquiry with M/s. Attar Singh & Co. Mere absence of a written confirmation does not render the claim to be non-genuine, particularly, in the broader perspective of the fact narrated while disposing of the first question. Here also, I do not see that any useful purpose would be served by restoring the matter back to the file of the Assessing Officer. Thus, the deletion of this addition is also confirmed.” The Tribunal on appreciation of the evidence had arrived at the finding that the identity of M/s. Attar Singh and Company was proved as the party had appeared before the assessing officer. The rebate allowed had been held to be genuine. No illegality or perversity could be pointed out by the counsel for the appellant in the said finding as well and, thus, the Tribunal was justified in deleting both the additions. Accordingly, the substantial questions of law are answered in favour of the assessee and against the revenue and finding no merit in the appeal the same is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) December 7, 2010 JUDGE *rkmalik*