Judgment:
A.D. Jain, Judicial Member:
1. This is Assessee's appeal for Assessment Year 2008-09 against the order dated 11.05.2012, passed by the Ld. CIT(A)-VIII, New Delhi, taking the following grounds:-
"1. That the order u/s 250(6) passed by the Hon'ble CIT(A) is bad in Law, wrong on facts and against the principles of natural justice .
2. (a) The Hon'ble CIT(A) has erred in confirming the disallowance of a sum of Rs.2,16,17,150/- claimed by the appellant company under the head 'Bad Debts Written Off' on the ground that the aforesaid claim for bad debts remained unsubstantiated.
(b) The Hon'ble CIT(A) has confirmed the disallowance out of bad debts on the grounds that bad debts remain unsubstantiated whereas the necessary documents in support of the claim were duly filed during appellate proceedings alongwith application under Rule 46A and the additional evidence was not accepted by the Hon'ble CIT( A) on the grounds that there was no sufficient cause for not filing the additional evidence. The Hon'ble CIT(A) has failed to consider the decision of the Hon'ble Delhi High Court in the case of CIT vs. Virgin Securities and Credits Pvt. Ltd. reported in 332 ITR 396 wherein the Hon'ble Delhi High Court has held that where the additional evidence is crucial to the disposal of the appeal and has a direct bearing on the quantum of the claim of the assessee, then the same needs to be accepted after obtaining remand report from the A.O.
(c) The Hon'ble CIT(A) has erred in concluding that appellant has not been able to file any evidence regarding genuiness of the transaction and failed to appreciate the various evidences in the form of ledger account of the parties whose accounts have been written off which were filed during the course of assessment proceedings and appellate proceedings which evidenced the fact that the debit balance written off was in respect of sales made by the appellant company to the aforesaid parties and as full payments were not received from the aforesaid parties therefore part of the debts still outstanding and being irrecoverable were written off in the books of accounts and accordingly were allowable as a deduction as per provisions of section 36(2) of the Income Tax Act.
(d) The Hon'ble CIT(A) has concluded that some of the parties whose balance have been written off during the year under appeal have stated in the reply to notices u/s 133(6) that there is no transaction with the appellant company without appreciating the fact that the transactions with the aforesaid parties were carried out during the years 1996-1998 and hence the transactions were more than 10 years old and the aforesaid parties must have written off the balance of the appellant company in their books in earlier years and therefore there was no account of the appellant company in their books in F.Y 2007-08 which testifies the fact that the debts were irrecoverable and correctly written off by the appellant company.
(e) The Hon'ble CIT(A) while confirming the disallowance of the deduction for bad debts written off had concluded that in the case of some parties notices u/s 133(6) were received back unserved and therefore the bad debts remain unsubstantiated. The Hon'ble CIT(A) has failed to appreciate that the transaction with the aforesaid parties is more than 10-12 years old and during such period of time the parties may have closed down their business or shifted their address and therefore the parties would not have received the notice u/s 133(6) which testifies the fact that the parties are not willing to confirm any amount payable to the appellant company and therefore there was no occasion to disallow the deduction of bad debts claimed by the appellant company."
(f) The Hon'ble CIT(A) has confirmed the disallowance of the bad debts by concluding that no evidence whatsoever as required with regard to efforts made for recovery has been furnished or the write off was bonafide. There is no such precondition stipulated in section 36(2) of Income Tax Act and thus the disallowance has been confirmed on mere conjectures and surmises.
2. Ground No.1 is general.
3. Apropos Ground No.2, the Assessing Officer made disallowance of ` 2,16,17,150/-, claimed as bad debts written off by the assessee company. While doing so, the Assessing Officer observed that notices had been issued to thirteen parties on a test check basis, u/s 133 (6) of the IT Act; that in the case of ten parties, replies had been received, whereas one party did not reply and two of the notices had returned unserved. On the basis of the inquiries made the Assessing Officer observed that in the cases of Farmat India Ltd., Himani Alloys, Raipur Alloys, S.K. Carbon and Hi-tech Trade, they had denied any business transaction with the assessee company; that Hi- tech Traders and Consultants (P) Ltd. had gone to the extent saying that they had not had any business transaction with the assessee company for the preceding ten years; that similarly, Jindal Steel and Power had also denied any business transaction with the assessee company; that when confronted with these facts, the assessee could not give any convincing reply; that Allmet Alloys India (P) Ltd. and M/s Om Prakash Rakesh Kumar had admitted the transaction with the assessee company and had sent copy of account of the assessee company as per their books, thereby confirming the balance due to the assessee company; that it was surprising that when these parties were admitting their liabilities towards the assessee and they had not denied their obligation to discharge the liabilities, how the assessee, without any reason, proceeded to write off the amounts standing in the names of these parties; that no plausible explanation have been given by the assessee in this respect; that no explanation had been offered with respect to the denial of any transaction with the assessee company by the parties; when there were no transactions between the parties during the last so many years, no question of writing off any debt arose; that the assessee have not been able to identify the transactions stated to be accounted for in its Profit and Loss Account and written off as bad debts during the year; and that therefore, the claim of the assessee for deduction u/s 36 (2) of the Act, on account of amount of ` 2,16,17,150/-, written off as bad debts could not be allowed.
4. Before the Ld. CIT (A), the assessee filed an application for admission of additional evidence, which was rejected by the Ld. CIT (A) on the Assessing Officer's report that sufficient opportunity had been afforded to the assessee during the assessment proceedings. The Ld. CIT (A), while dismissing the assessee's appeal on this issue, observed as follows:-
" ....... It is observed that the following parties denied having any business transaction with the appellant ..
i) Format India Ltd.
ii) Himani Fero Alloys
iii) Raipur Alloys
iv) S.K. Carbar
v) High Tech Trade
vi) Jindal Steel and Power
It is also seen that M/s Allmet Alloys India (P) Ltd and M/s Om Prakash Rakesh Kumar had admitted that they had transactions with the appellant company. No reply was received from M/s Venkey Steel (P) Ltd. and letters sent to Shri Abid Ali Emran Ali and M/s Haryana Steel were return back unserved. In the case of M/s Om Prakash Rakesh Kumar who vide their reply had stated that they had transactions with the appellant, summons U/S 131 were sent by the AO to examine the nature of the transactions. No compliance was made to the above summons. In view of the above facts, the AO disallowed bad debts claimed by the appellant, since the provisions of section 36(2) were not fulfilled. During the course of appellate proceedings also the appellant has not been able to file any evidences regarding the genuiness of the transactions with the above mentioned parties. As per section 36(2) no deduction on account of bad debts shall be allowed unless such debt or part there of 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 there of is written off or of an earlier previous year or represents money lent in the ordinary course of business of banking or money landing which is carried on by the assessee. The above provisions clearly show that unless a debt which has been written off has been taken into account for computing the income in any previous year it can not be claimed as bad debt. The Hon'ble Mumbai High Court in the case of Oman International Bank 313 ITR 128 (Bom.) has held that the write off of a bad debt has to be bonafide. The Hon'ble Mumbai IT AT in the case of Aakash Stone Industries Ltd. has also held that to be written off as bad debt it has to be proved that it was a bonafide. The above judicial precedents show that the appellant to claim a bad debt has to filed relevant documents to prove the bonafide of the write off. In the instant case, it is seen that many of the parties have denied having any business transactions with the appellant. This shows that the bonafide of the write off has not been established by the appellant. The appellant has also not submitted any evidences before the A.O. to show whether the amount claimed as bad debts were taken as income in the earlier years. In view of the findings above, it is held that since the appellant has not fulfilled the conditions prescribed in section 36(i)(vii) read with section 36(2) of the I.T. Act, the disallowance made by the A.O on account of bad debts is as per law. This ground of appeal is dismissed."
5. Challenging the impugned order, the ld. Counsel for the assessee has placed reliance on 'TRF Ltd. vs. CIT', 323 ITR 397 (SC) which holds that after the amendment to Section 36 (1) (vii) of the IT Act, 1961 w.e.f. 01.04.1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable; and that it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. The Hon'ble Supreme Court remanded the matter to the Assessing Officer to examine solely to the extent of write off, whether the debt or part thereof was written off in the accounts of the assessee.
6. No decision contrary to 'TRF Ltd.' (supra) has been brought by the department. Accordingly, we deem it appropriate to remit this matter to the file of the Assessing Officer to be decided afresh in accordance with law, particularly in the light of 'TRF Ltd.' (supra) on affording adequate opportunity of hearing to the assessee. The assessee, no doubt, shall cooperate in the remand proceedings before the Assessing Officer.
7. In the result, for statistical purposes, the assessee's appeal is treated as allowed.
The order pronounced in the open court on 31.01.2014.