Western India Shipyard Ltd., New Delhi vs Department Of Income Tax

ITO, Vs. Western India Shipyard Ltd., Ward 18(3), Prakhakar Mormugao Harbour, New Delhi. Mormugao, Vasco, Goa. PAN: AAACW0117B

(Appellant) (Respondent)

Assessee By : Shri Vijay V. Kale, CA Department By : Shri Vivek Wadekar, CIT, DR & Shri J.P. Chandrakar, Sr. DR

Date of Hearing : 23.02.2015. Date of Pronouncement : 25.02.2015.

ORDER PER R.S. SYAL, AM:

These three appeals by the Revenue relate to the assessment years

2006-07, 2007-08 and 2008-09. For the sake of convenience, we have

clubbed these appeals for disposal.

ITA Nos.2615 to 2617/Del/2012

Assessment Year 2006-07.

2. The only issue raised by the Revenue in its appeal is against the

allowing of deduction of Rs.1,84,40,253/- on account of bad debts

written off.

3. Briefly stated, the facts of the case are that the assessee, during the

course of assessment proceedings, made out a claim, vide letter dated

23.12.2008 that deduction for bad debts written off amounting to

Rs.1,84,40,253/- be allowed. The AO rejected such claim on the

premise that such a new claim could have been made only by means of

the revised return within the time permissible u/s 139(5). Since such

time had elapsed, the AO refused to grant any such deduction. The ld.

CIT(A) accepted the assessee's claim and granted deduction.

4. We have heard the rival submissions and perused the relevant

material on record. At the outset, we do not find any difficulty in the ld.

first appellate authority taking up claim of the assessee for consideration

in respect of deduction made during the course of assessment

proceedings otherwise than by way of revised return. Albeit, the AO

2 ITA Nos.2615 to 2617/Del/2012

cannot consider such a claim, but the same can be considered or directed

to be considered by the appellate authorities.

5. Coming to the merits, we find from the impugned order that the ld.

CIT(A) has not discussed anything about the eligibility of such claim for

bad debts written off. Section 36(1)(vii) provides that any amount of

bad debts or part thereof written off as recoverable in the books of

account of the previous year is allowable as deduction subject to the

provisions of sub-section (2) of section 36. The Hon'ble Supreme Court

in TRF Ltd. Vs. CIT (2010) 323 ITR 397 (SC) has held that a simple

write off of a bad debt is sufficient for claiming deduction and there is

no requirement to establish that the debt became bad in the previous

year. However, it is pertinent to mention that the admissibility of

deduction u/s 36(1)(vii) is coupled with the fulfillment of the condition

as given in section 36(2). The later provision provides that no such

deduction shall be allowed unless such debt or part thereof has been

taken into account in computing the income of the assessee of the

previous year in which the amount of such debt or part thereof is written

3 ITA Nos.2615 to 2617/Del/2012

off or of an earlier previous year, etc. A conjoint reading of section

36(1)(vii) and section 36(2) makes it abundantly clear that any amount

of bad debt written off during the year can be allowed as deduction

provided such debt or part thereof was taken into account in computing

the income of the assessee for this year or an earlier year. Unless such

debt is taken into consideration in the computation of total income, there

can be no question of allowing deduction on its becoming irrecoverable

or on a mere write off. As necessary facts of this issue are not available

and the ld. CIT(A) has simply accepted the assessee's claim without

going into the deductibility of this amount as per law in terms of above

discussion, we set aside the impugned order and remit the matter to the

file of AO for deciding this issue afresh in conformity with our above

observations. Needless to say, the assessee will extend full co-operation

to the AO by submitting the details called for and will be entitled to a

reasonable opportunity of being heard in such fresh proceedings.

6. In the result, the appeal is allowed for statistical purposes.

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ITA Nos.2615 to 2617/Del/2012

Assessment Year 2007-08

7. The only issue raised in this appeal is against the deletion of

addition of Rs.4,31,72,978/- on account of provision for contractor

(Rs.2,65,61,162/-) and provision for suppliers (Rs.1,66,11,816/-). The

facts apropos this issue are that the assessee included the above two

provisions in its list of sundry creditors. On being called upon to explain

as to how the assessee was eligible for deduction towards such

provisions, the assessee did not tender any explanation. This led to the

making of addition of Rs.4.31 crore, which the ld.CIT(A) deleted in the

first appeal.

8. After considering the rival submissions and perusing the relevant

material on record, here again, we find that the ld. CIT(A) deleted the

addition without going into the merits of its deductibility in the first

instance. He simply mentioned in the impugned order that the assessee

had shown that the provisional balances were specifically adjusted

against the bills of sub-contractors. In contrast to that, we observe from

the assessment order that the assessee did not furnish any details and

5 ITA Nos.2615 to 2617/Del/2012

anything about the otherwise deductibility of such provisions. Further,

there is no elaborate discussion about these vital aspects in the impugned

order. We, therefore, set aside the impugned order on this issue and

remit the matter to the file of AO for a fresh determination of the same

as per law, after allowing a reasonable opportunity of being heard to the

assessee.

9. In the result, the appeal is allowed for statistical purposes.

Assessment Year 2008-09

10. The only issue raised in this appeal is against the deletion of

addition of Rs.10,69,25,323/- on account of bad debts written off.

11. Briefly stated, the facts of this ground are that the assessee claimed

deduction for Rs.10.69 crore by mentioning that `such bad debts were

earlier disallowed and now claimed as deduction on write off'. The AO

sought certain details as to when the bad debt were written off; when and

how these were disallowed earlier; circumstances under which these

were claimed as allowance this year; and the earlier year(s) in which

these were shown as income along with copy of relevant ledger accounts 6 ITA Nos.2615 to 2617/Del/2012

of such years. No such details were made available. This resulted into

the making of addition of Rs.10.69 crore. The ld. CIT(A) allowed the

deduction by observing that a mere write off in the books of account was

sufficient.

12. After considering the rival submissions and perusing the relevant

material on record, here again, we observe that the assessee failed to

furnish any details before the AO as were called for, which have been

mentioned above. The ld. CIT(A) merely accepted the assessee's

contention by noticing that such amount was written off in the books of

account. He failed to carry out any investigation about the fulfillment of

the pre-requisite condition as per section 36(2) as discussed above.

Under such circumstances, we cannot uphold the impugned order on this

score. As such, the impugned order on this issue is overturned and the

matter is sent back to the AO for deciding it afresh as per law, after

allowing a reasonable opportunity of being heard to the assessee. The

AO is directed to verify the deductibility of this amount as per section

36(1)(vii) along with section 36(2). If the amount is found to be

7 ITA Nos.2615 to 2617/Del/2012

deductible, then the AO should verify that the amount has not been

allowed as deduction in earlier years, either by him or due to the orders

passed by the appellate authorities.

13. In the result, the appeal is allowed for statistical purposes.

The order pronounced in the open court on 25.02.2015.

Sd/- Sd/- [I.C. SUDHIR] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated, 25th February, 2015. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT

AR, ITAT, NEW DELHI.

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