The Tax PublishersITA No. 432 of 2016
2020 TaxPub(DT) 5561 (Karn-HC) : (2021) 430 ITR 0434INCOME TAX ACT, 1961
Section 36(1)(vii)
Where assessee exported bags to foreign customers in the past and had incurred unforeseen additional costs on certain imported raw material, and in order to recover the additional costs incurred, assessee raised debit notes on the foreign customers and credited the amount due from them, raised by way of debit notes as income in its books of account and had offered the same to tax in earlier years but customers of assessee refused to make payment and therefore, the assessee had written off the amount as not recoverable, then it was not justified on revenue's part to deny benefit of deduction towards bad debts under section 36(1)(vii).
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Business deduction under section 36(1)(vii) - Bad debts written of assessee exported bags to foreign customers - Addition costs incurred by assessee were not recovered from foreign customers -
Assessee challenged order of Tribunal denying the benefit of claim of bad debts, claimed by the assessee. Assessee contended that claim was wrongly denied even though conditions as envisaged under the provisions of section 36(1)(vii) read with section 36(2) were fulfilled. Assessee further contended that Tribunal was not justified in holding that there existed no debt in the books and thus the provisions of section 36(1)(vii) were not applicable when admittedly amount written off as debt was offered as income and accepted by department in the earlier years. Held: Assessee exported bags to foreign customers in the past and had incurred unforeseen additional costs on certain imported raw material. In order to recover the additional costs incurred, assessee had raised debit notes on the foreign customers and credited the amount due from them, raised by way of debit notes as income in its books of account and had offered the same to tax in earlier years. The customers of the assessee refused to make payment and therefore, the assessee had written off the amount as not recoverable. Section 36(1)(vii) mandates that in order to claim bad debts, the assessee has to write-off the same in its books of account and assessee is not required to prove that the debt as irrecoverable. Supreme Court in Radhasoami Satsang held that even though principles of res judicata do not apply to income tax proceedings, but where a fundamental aspect permeating through the different assessment years has been found as the fact one way or the other and the parties have allowed the position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in subsequent year.
Followed:Vijaya Bank v. CIT & Anr. (2010) 323 ITR 166 (SC) : 2010 TaxPub(DT) 1825 (SC) and Radhasoami Satsang v. CIT (1992) 60 Taxman 248 (SC) : 1992 TaxPub(DT) 858 (SC).
REFERRED : TRF Ltd. v. CIT (2010) 323 ITR 397 (SC) : 2010 TaxPub(DT) 1481 (SC), CIT v. Millennia Developers (P) Ltd. (2018) 260 Taxman 142 (Kar) : 2018 TaxPub(DT) 7797 (Karn-HC), CIT v. K. Raheja Development Corpn. (2011) 195 Taxman 412 (Karn-HC) : 2011 TaxPub(DT) 1364 (Karn-HC), CIT v. Krone Communication Ltd. (2011) 333 ITR 497 (Karn-HC) : 2011 TaxPub(DT) 334 (Karn-HC), CIT v. Nilofer I. Singh (2009) 176 Taxman 252 (Del) : 2009 TaxPub(DT) 785 (Del-HC), CIT v. Sawhney Exports (2008) 303 ITR 93 (Del) : 2008 TaxPub(DT) 661 (Del-HC), Dy. CIT v. Big Bags International Pvt. Ltd. [ITA No.1041/Bang/2014, dt. 6-5-2016] and CIT & Anr. v. Millennia Developers (P) Ltd. (2019) 266 Taxman 186 (SC) : 2019 TaxPub(DT) 6286 (SC).
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