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Madhav Marbles & Granites v/s Income Tax Appellate Tribunal & Another

    Civil Writ Petition No. 8428 of 2010

    Decided On, 19 December 2011

    At, High Court of Rajasthan

    By, THE HONOURABLE DR. JUSTICE VINEET KOTHARI

    For the Petitioner: Anurag Kalavatiya on behalf of Sanjay Jhanwar & Arun Bhansali, Advocates. For the Respondents: K.K. Bissa, Advocate.



Judgment Text

Vineet Kothari, J.

1. The petitioner - assessee has filed this writ petition before this Court aggrieved by the order Annex - 1 dated 27.04.2010 passed by Income Tax Appellate Tribunal, Jodhpur rejecting its Misc. Application No.22/JU/2009 in ITA No.929/JU/07 for assessment year 1999 - 2000 filed by the assessee under Section 254 (2) of the Income Tax Act, 1961 (for short, hereinafter referred to as 'Act').

2. For the assessment year 1999-2000, the assessee claimed deduction of Rs. 2,29,70,959/- on account of bad advances written off to the extent of 1,82,89,333/- and bad debts written off to the extent of 46,81,625.88. The Assessing Authority vide his assessment order Annex-3 dated 26.12.2006 disallowed the said deduction under Section 36(1)(vii) of the Act. However, the first appellate authority, namely, C.I.T. (Appeals) on an appeal filed by the assessee, allowed the said deduction vide his order Annex - 4 dated 16.05.2007. The revenue went up in second appeal before the earned I.T.A.T., which allowed the Revenue's appeal vide its order Annex - 2 dated 30.05.2008, the relevant paras 12 to 14 of the Tribunal's order are reproduced herein below for ready reference:

"12. Briefly staled the facts of the case are that the assessee company :is engaged in the export of marble tiles and granite slabs and tiles. It had claimed an income of Rs. 1, 75,31,353/- exempt u/s 10B in respect of granite division. Return of income showing total loss of Rs. 1,87 13,205/- was filed on 31.12.1999 accompanied by by Tax Audit Report in Form (sic).3CD. The return was processed u/s 143(1) on 16.2.2000. Later on the case was (sic) issuing (sic) 148 of the Act. 'The assessee reduced a sum of Rs. 2,29,70,959/- as doubtful advances/debts written off during the year in the P&L account This list of doubtful debts with S. No. name of part(sic) purpose and amount is given at pages 6 to 9 of the impugned order from which the AO found that three parties, namely, M/s Jalkanta Technical and Financial Services P. Ltd. M/s Aun Construction and M/s Jain Industries belonged 'to Ganjendra Porwal Group, which was found to be an entry provider in the search conducted by the Inv. Wing, Udaipur on 11.3.2005. For this purpose, he was running a number of concerns through which these accommodation entries have been provided to various parties at different places. Shri Gajendra Porwal admitted that the accommodation entries were provided by hiking cash equivalent to the amount of accommodation entries and the same were deposited in their bank account

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Thereafter, the cheques for accommodations were issued to the concerned parties. Thereafter the cheques for accommodations were issued to the concerned parties. He further admitted that normally the commission ranged between 0.5% to 2% of the accommodation entry amount charged by him and such commission was received in cash, which remained undisclosed and offered for tax. Taking into consideration all these facts and circumstances, the AO concluded that the assessee has failed to furnish any documentary evidence in respect of efforts/steps taken for the recovery of alleged advances Advances to the tune of Rs. 60,12,292 show in respect of concerns belonging to Rajendra Porwal Group has beet; proved as entry provider and advances to the tune of Rs. 67,20,000/- have been shown in respect of (sic) which are not traceable. Reiterating the same facts and reasoning in the case of advance for raw material, the AO disallowed Rs. 2,29,70,959/- and added to total income of the assessee.

13. The ld CIT (A), by considering the appeal of the assessee found that the advance for raw material has been given in accounting year 1993 - 94. 1994 - 95, 1996 - 97 and 1997 - 98, advances tor consumable in accounting year 1996 - 97 advance for professional fees paid in the accounting year 1997 - 98. cancellation, visa and misc. in account year 1993 - 94. advance against energy consumption to Tamil Nadu Electricity Board in 1993 - 94, advances in cases of sundry debtors persons to accounting wars 1993 - 94, 1994 - 95, 1996 - 97 and 1997 - 98. Hire charges received in account year 1995 - 96, sale of advance licences in 1995 - 96. Advance to M/s Jalkanta Technical and Financial Services P. Ltd., M/s Aun Construction and M/s Jain Industries were given for purchases of raw material in accounting year 1994 - 95 and 1995 - 96. In case of employees they have left the organization. In case of three concerns of Gajendra Porwal Group, the advances were given in accounting year 1994 - 95 and 1995 - 96 for purchase of raw material. There was a search in the place of Porwal group on 11.3.2005. Therefore, the transaction was found to be 10 years old. Apart from that. Shri Gajendra Porwal admitted that the accommodation entries were provided by taking cash equivalent to the amount of accommodation entries and the (sic) were (sic) in their bank account Thereafter the cheques for accommodations were issued to the concerned parties. He further admitted that normally the commission ranged between 0.5% to 2% of the accommodation entry amount charged by him and such commission was received in cash But in the case of the assessee, the issue is just reverse, The appellant has given the advance for purchase of row material und not taken any loan/share application money, gift or share capital subscription. The ld. CIT (A), therefore, concluded that there was no question of taking accommodation entry from the above three concerns of Gajendra Porwal Group. These are real transactions taking place long back in A. Y. 1994 - 95 and 1995 - 96. It was further noticed by the ld CIT (A) that Shri Porwal has not specified the accounting year from which he has started this business of providing income modation entries to the needy parties. The ld. CIT (A) farther observed that as per the amended provisions of see. 30 (1) (vii) it is sufficient for the assessee to write off the had debt or part thereof as irrecoverable in the accounts of the assessed for the previous year for claiming bad debt deduction. Bad debt written off by the assessee was approved by the Board of Directors by resolution held on 1.7.1999 as per the comments of the Statutory Auditors, It was also observed by the ld. CIT (A) that the percentage of bad debts written off comes to 1.91% of the turnover of the assessee. Thereby the rate of bad debts will not have any impact on the profit/tax liability of the assessee more so for the period under consideration the assessee is entitled for 100% relief u/s 80HHC. It is further noted that the assessee has not claimed deduction u/s 80IA or 80IG while computing tax on income in the hands of the assessee. Thus concluding, he found that the disallowance made by the At) is not sustainable and accordingly he allowed the claim of the assessee directing the AO to delete the same. Aggrieved by that, this appeal is filed by the department contending inter alia that the observation of the Id. CIT (A) that all these are pertaining to advances made by the assessee and that too for a very very long time back to (sic) of 10 years when the department has not objected to the period in which they were made or till the present period under consideration cannot be taken into account for the simple reason that when the advances were made the department need not examine the same us the assessee will not claim an Allowable expenditure during these periods. But at the same time, during the period under consideration as the department can examine the sustainability of advance sought by the assessee and at the same time the department has also to see whether the assessee has proved that all these are related to the business activities carried on by the assessee. If the AO is satisfied with the above ingredients, then only he can allow deduction claimed by the assessee. But in the ld. CIT (A)'s order nowhere this aspect of the issue was found satisfied by the assessee during the course of assessment proceedings or before the ld CIT (A). The id. CIT (A) also has not considered this issue in this line even though this is an important aspect for sustaining the claim of the assessee of bad debts or part thereof is written off or of any previous year. This part of the ingredient having not been satisfied by the assessee, the claim of the assessee cannot be allowed. Therefore, under these facts and circumstances, he sought for setting aside the order of the ld. CIT (A) and restoring that of the AO by allowing the ground raised by the department.

14. On careful analysis of the material made available before the Tribunal and in the light of rival submissions of both the parties, it is found that undisputedly the bad debts represent advances made by the assessee as long back as 10 years prior to the period under consideration and they were not required to be examined in those periods as the assessee (sic) of the business. Since, the assessee is claiming them as allowable as they became irrecoverable, he has to establish primarily that all are related and having nexus to the business curried on by the assessee and also while computing the income of the period when they were given that these transactions were taken into account while arriving at profit chargeable to tax. (This is when Tribunal has given fallacious reasoning). Both the ingredients were not satisfied by the assessee before the departmental authorities. Therefore the AO disallowed the claim of the assessee where (sic) the ld. CIT (A) while deleting the disallowance make by the AO has observed that, they there are only old (sic) and were not considered and objected by the AO during those periods when they were advanced cannot he a ground for allowing claim of the assessee as the assessee has so first prove that the transactions made are related and having nexus to the business carried on by the assessee and also that they were considered while returning the profit for the concerned period in which advances were made while arriving at profit chargeable to tax during those periods. Therefore, we are of the considered opinion that since the assessee has not satisfied the ingredients required for claiming the deduction in question, is not entitled for the same. (Amendment in law w.e.f. 1.4.1989 not even considered by Tribunal even though the same was taken into account by CIT (Appeals)). Therefore, in this view of the matter as the ld. CIT (A) rested his decision on the basis of unreasonable findings we find that the ld. CIT (A) 's order in directing the deletion of disallowance made by the AO is not sustainable for legal scrutiny. Hence we set aside the same by holding that the assessee having not proved the chain made by it as required under law, is not entitled for the same. Accordingly, the issue is answered in favour of the department by accenting the ground in appeal raised by it.

3. The learned Tribunal held that such bad advances or bad debts could not be claimed as deduction since the assessee has failed to establish primarily that such advances are related and having a nexus to the business carried out by it and also while computing the income for the period when they were given and that these transaction were taken into account while computing the profit chargeable to the tax. Both the ingredients were not satisfied by the assessee before the departmental authorities. Accordingly, the Tribunal disallowed this deduction for the assessment year 1999-2000.

4. The assessee filed misc. application under Section 254(2) the Act seeking (sic)edification of the order passed by the learned Tribunal on 30.05.2008 but the said misc. application also came to be rejected by the learned Tribunal by its impugned order Annex-1 dated 27.04.2010.

5. Being aggrieved by the same, the assessee preferred this writ petition before this Court for quashing of order dated 27.04.2010 Annex I of learned Tribunal and said writ petition was filed on 06.09.2010.

6. The Revenue has not filed any reply to the writ petition and only oral arguments were made by learned counsel for the Revenue.

7. Learned counsel for the petitioner, Mr. Anurag Kalavatiya urged that learned Tribunal, with respects, has erred in not appreciating that after the amendment of Section 36 (1)(vii) of the Act, which was amended by Direct Tax Laws (Amendment) Act, 1987, w.e.f. 01.04.1989, mere writing off as irrecoverable of bad debts in the Books of Accounts of the assessee for the previous year was enough to allow such deduction from the profit and gains of the business under Section 36 (1) (vii) of the Act, since the word prior to amendment any debt, or part thereof, which is established to have become a bad debt in toe previous year" were substituted by the words "any bad debt or part thereof, which is written off as irrecoverable amounts of the assessee for the previous year" w.e.f., 01.04.1989; and consequently, for the assessment year 1999 - 2000 involved in the present case, such a deduction deserved to be allowed in AY 1999 - 2000 since in the account books relating to previous year such a write off was admittedly made in pursuance of Board of Directors Resolution dated 01.07.1999 in respect of aforesaid amount of bad advances and bad debts claimed by the assessee as deduction. He, therefore, submitted that the learned Tribunal had grossly erred in the first instance in rejecting the said deduction under Section 36 (1) (vii) on the basis of alleged failure of assessee to establish the nexus in the bad advances and profits shown in that period. He further urged this was a mistake apparent on the face of record and, therefore, Section 254(2) of the Act clearly permitted a rectification of such a mistake by the learned Tribunal and the Tribunal again erred in rejecting said misc. application by the impugned order Annex 1 dated 27.04.2010. He, therefore, submitted that the writ petition deserves to be allowed and the impugned order Annex - 1 dated 27.04.2010 deserves to be quashed.

8. Further elaborating the submissions, learned counsel for the petitioner submitted that even the Assessing Authority was not justified in rejecting the said claim of bad advances and bad debts on the ground that the said advances were partly made to concerns of one Rajendra Porwal Group against whom upon search operation carried out under Section 132 of the Act, the said assessee purportedly admitted before the revenue authorities that he was merely a name lender and gave accommodation entries in various names in his Books of Accounts. Learned counsel for the assessee urged that even if one goes by assessing authority's premise, though he denied that such a course was permissible in law, the assessee's case in the present, was absolutely reverse and the assessee had not taken any advances from any such alleged name lender of the said Rajendra Porwal Group but on the contrary had made business advances for purchase of marble and partly from such concerns, as the assessee was an exporter of marble, Since, during the contemporary period, the goods purportedly supplied by the supplier of the said group were of inferior quality, the assessee naturally could not accept such goods for export outside the India; and at the same time since the said debtors failed to refund the business advances made by the assessee, during the said period after waiting for about ten years, the assessee had written off the said advances as having turned bad and irrecoverable and, therefore, claimed deduction of the same in AY 1999 - 2000 in the present year. He, therefore, submitted that the premise of the Assessing Authority as well as learned Income Tax Appellate Tribunal on appeal filed by the Revenue was absolutely wrong for disallowing the said deduction and such a mistake being apparent on the face of record was a rectifiable error under Section 254 (2) of the Act; and the learned Tribunal was not justified in rejecting such application under Section 254 (2) of the Act.

9. On the other hand, Mr. K.K. Bissa, learned counsel for the Revenue submitted that firstly the present writ petition is not even maintainable, since the assessee has alternative remedy by way of appeal under Section 260A of the Act before this Court on substantial question of law arising in the matter. Learned counsel for the Revenue further submitted that it is upon a legal debate only it is possible to contend that there is any mistake in the original order of ITAT deciding the appeal of the assessee and, therefore, it cannot be said to be a mistake apparent on the face of record; and secondly it would not fall within the ambit and scope of Section 254 (2) of the Act, which permits (sic) edification of the mistake of fact apparent on the face of record. Such mistake of law, if at all, it can be said to be one, which he contends otherwise, cannot be rectified under Section 254 (2) of the Act. He also brought to the notice of the Court that against the order of learned ITAT deciding the main appeal on 30.05.2008, the assessee has already preferred an appeal under Section 260-A of the Act before this Court, namely, DB IT Appeal No.99/2010 Madhav Marbles & Granites v. Income Tax Appellate Tribunal, Jodhpur & Anr. He, therefore, urged that if the assessee is aggrieved by the order passed on the misc. application vide order Annex-1 dated 27.04.2010 also, the assessee can file an appeal under Section 260A of The Act against the said order and in view of such availability of alternative remedy to the petitioner - assessee, the present writ petition cannot be maintained. He also relied upon para 36 and 37 of the judgment rendered by coordinate bench of this Court in the case of Apex Methchem (P) Ltd. v. income Tax Appellate Tribunal & Ors. reported in, (2009) 318 ITR 48 : (2009) 224 CTR (Raj.) 488,

10. I have heard learned counsels for the parties at length and given my thoughtful consideration to the submissions made at the bar and judgments relied upon by the learned counsel for the assessee.

11. 'The last contention of the learned counsel for the Revenue may be dealt with first. The contention that appeal would have lied before this Court under Section 260A of the Act against the order passed under Section 254 (2) of the Act, by which the misc. application for rectification was rejected by the Tribunal, is not correct in law. The said order does not decide the rights of the parties finally at the hand:, of the ITAI, and it is only for substantial questions of law arising out of the any order of the Tribunal under Section 254 (1) of the Act that an appeal on substantial question of law, could be filed before the Division Bench of the High Court. A coordinate Bench of this Court in the case of Apex Methchem (P) Ltd. (supra) has held that where final order under Section 254 (1) of the Tribunal is recalled and matter is directed to be decided afresh by the learned ITAT, it cannot be said to be an order appealable under Section 260A of the Act; and therefore, a writ petition against such a recall order of learned ITAT would be maintainable under Article 226 of the Constitution of India before the High Court.

12. The Division Bench of Bombay High Court in the case of Chem Amit v. Ass