This appeal of the assessee is directed against order dated 24-3-1995 recorded by the learned Commissioner (Appeals)-II, Kanpur, by which appeal of the assessee for assessment year 1991-92 stands disposed of.
The relevant facts are that the assessee firm was found to be an exporter of leather goods. For assessment year 1991-92, the assessee firm filed return on 30-10-1991 at an income of Rs. 74,260. During the assessment proceedings for assessment year 1992-93, the assessing officer noted that sale proceeds in respect of export sales worth Rs. 58,91,672 made by the firm to M/s. J.V. Finn, U.K. in the previous year relevant to assessment year 1991-92 were not brought into India in convertible foreign exchange within the period stipulated under the clause (a) of sub-section (2) of section 80HHC of the Income Tax Act, 1961 (hereinafter referred to as the Act). The assessing officer was of the view that assessee firm was entitled to deduction under section 80HHC of the Act only on the turnover, foreign exchange in respect of which was brought into India within a period of 6 months from the end of the previous year. The assessee firm had claimed deduction under section 80HHC of the Act on total export sales made during the previous year relevant to assessment year 1991-92 in spite of the fact that sale proceeds in respect of goods worth Rs. 58,91,672 sold to M/s. J.V.Finn, U.K. in the previous year were not brought into India in convertible foreign exchange within the stipulated time. He concluded that deduction claimed by the assessee firm under section 80HHC of the Act in assessment year 1991-92 was excessive. He accordingly issued a notice under section 148 of the Act, as the income chargeable to tax had escaped in assessment year 1991-92. The assessee filed return of income on 28-11-1993 showing total income of Rs. 74,260 and deduction of Rs. 57,69,725 was claimed under section 80HHC of the Act as in the original return filed on 30-10-1991. The assessing officer noted that total sale in the year under consideration was Rs. 7,75,23,343 and deduction under section 80HHC was Rs. 57,69,725. The assessing officer issued a letter to State bank of India, Kanpur on 26-11-1993 to furnish date-wise details of sales made by the assessee to various foreign buyers during the previous year relevant to assessment year 1991-92 and assessing officer received information from State Bank of India, Kanpur that foreign exchange in respect of export sales worth Rs. 58,91,672 was not received till that date. It appears that assessee was called upon to show as to why the amount of Rs. 58,91,672 be not excluded from the figure of export sales, as convertible foreign exchange was not received in the stipulated time while computing deduction under section 80HHC and why that amount should not be excluded from the export sales for the purpose of computing deduction under section 80HHC of the Act.
It appears that assessee, after seeking several adjournments, filed a alleged revised return, in which net profit was shown at Rs. 9,36,991 only as against net profit of Rs. 57,69,725 shown in the original return and the return filed in response to notice under section 148 of the Act. The explanation given by the assessee as showing lesser amount of profit was that assessee had claimed bad debt of Rs. 48,32,734, the details of which had been reproduced by the assessee in its letter dated 21-2-1994 accompanied with revised return. The assessing officer noted that return of income filed on 21-2-1994 was not a valid return as it was filed beyond the time prescribed under section 139(5) of the Act. He also noted that alleged revised return was not filed voluntarily. In the original return, the assessee had claimed deduction under section 80HHC at an excessive figure and when cornered from all side, the assessee has revised the return. He treated the revised return as not a valid return because it was furnished after expiry of one year from the end of assessment year and sub-section (5) of section 139 of the Act does not permit any assessee to revise the return filed in pursuance of notice under section 148. Thirdly, it was said to be not filed voluntarily and it was not a bona fide act.
Further, the assessing officer proceeded to examine the claim of assessee's bad debt. The assessing officer noted that certain goods were sold to M/s. J.V. Finn, U.K. during the previous year relevant to assessment year 1990-91 and the amount of sale proceeds was not received during the year under consideration. M/s. J.V. Finn, U.K. went into liquidation and assessee was able to recover goods worth Rs. 11,45,390 which he supplied to M/s. Shoe International, U.K. The balance amount of Rs. 47,46,282 along with interest of Rs. 1,26,727 and loss on exchange rate difference of Rs. 10,00,230 was claimed as bad debt in the assessment year 1992-93, but in spite of these facts of position, the assessee had now claimed Rs. 47,46,282 as bad debt along with interest of Rs. 86,452. The assessing officer was of the view that allowability of bad debt can only be considered in assessment year 1992-93 ' and assessee's subsequent action of writing off of bad debt in the account books of assessment year 1990-91 was to reflect lower net profit in assessment year 1991-92 after the department had given a notice in this year to disallow deduction under section 80HHC on the turnover of Rs. 58,91,672 because the assessee could not receive foreign exchange of that amount within the stipulated time. He also noted that assessee knew well that it would be advantageous to it if lower net profit is reflected in assessment year 1991-92 as the deduction under section 80HHC was proportionate to the profit of the business. The assessee itself admitted in written reply dated 4-3-1994 that fact of amount became bad debt during previous year relevant to assessment year 1992-93. Not only this, the assessee had filed correspondence made with M/s. J.V. Finn, U.K. and with Indian High Commission, London and those correspondence also revealed that assessee came to know about the fact that amount was not recoverable in the previous year relevant to assessment year 1992-93. Accordingly, the claim of bad debt in assessment year 1991-92 was found not legally correct and was rejected.
The assessee preferred an appeal and raised so many grounds. The first plea was that the action of the assessing officer in not justified in considering the revised return filed on 21-2-1994 as the valid return, as it was the valid return. The contention was that a return filed under section 148 can be revised because in terms of section 148(1) of the Act, a return is filed under that section, is to be treated as return furnished under section 139. This plea of the assessee could not find favour with the learned Commissioner (Appeals) who noted that mention of section 139 in section 148(1) is only to enable the assessing officer to complete the assessment by issuance of notices under section 142(1)/143(2) of the Act. The view taken by the learned Commissioner (Appeals) was that the assessing officer wasjustified in holding that a return filed under section 148 is not capable of being revised in terms of section 139(5). However, the learned Commissioner (Appeals) was of the view that claim of bad debt made by the assessee cannot be ignored and that can be looked into. The learned Commissioner (Appeals) then considered the claim of the assessee for bad debt and was of the view that claim of bad debt relate of assessment year 1992-93 and not in the year under consideration. He rejected the plea of the learned counsel for the assessee that the accounting standard prescribed by the Institute of Chartered Accountants permit to reopen closed accounts for making such claim. The learned Commissioner (Appeals) was of the view that accounting standard may be binding upon the members of the Institute, but not on the assessing officer, as in case this practice is allowed to be followed, then there will be no end to assessment proceedings and any assessee can come even after 5 years and can seek reopening of the assessment. He accordingly, rejected the claim of the assessee for bad debt. The assessee is in appeal before us.
The grounds 1 to 5 of the assessee's appeal relate to these issues and argument of the learned counsel for the assessee are the same as were taken before the assessing officer and learned Commissioner (Appeals).
The learned counsel at the very beginning relied upon the decision of the I.T.A.T., Ahmedabad 'C' Bench in the case of Dinesh Chandra ChandulalShah v. ITO (1992) 40 ITD 483 and submitted that facts of that case are identical and I.T.A.T., Ahmedabad had allowed the claim of bad debt. Referring to the factual position of that case, the learned counsel for the assessee pointed out that in that case the assessment was completed under section 143(1) on 24-3-1986 and later on Income Tax Officer found that sales tax of Rs. 9,07,435 was not paid during the year. The assessing officer, after obtaining the approval of the Inspecting Assistant Commissioner, proceeded to take the case under scrutiny and after getting necessary instruction under section 144A from Inspecting Assistant Commissioner, the assessing officer proposed to make an addition of Rs. 9,07,435. On 19-3-1987, the assessee submitted a revised return of income, in which he added the unpaid sales tax amount as per section 43B to the total income, but claimed a trading loss in respect of irrecoverable amount of outstanding against M/s. Ushan Spinning & Weaving Mills Pvt. Ltd. to the extent of Rs. 8,95,277 and return total income of Rs. 38,391. The assessee claimed for trading loss and bad debt was not entertained by the assessing officer who noted that revised return so submitted by the assessee was to be ignored. The learned Commissioner (Appeals), in appeal, directed the assessing officer to entertain the revised return and then the assessing officer considered the claim of the assessee for trading loss, but did not allow the claim of the assessec in respect of trading loss/bad debt. The learned Commissioner (Appeals) also confirmed the action of the assessing officer and the Bench ultimately allowed the claim of the assessee after noting that various events in the relevant year, inter alia like lock-out in the factory of debtor followed by its liquidation proved irrecoverability of debt and assessee having written it off through supplementary adjustment entries, write off was allowable. The contention of the learned counsel for the assessee is that assessee's case is on identical facts and view taken by the Tribunal covers both the points. The learned counsel also relied on the decision of Hon'ble Gujarat High Court in the case of CIT v. Girish Bhagwatprasad (2002) 256 ITR 772 (Guj), in which assessee was held as free to write off the bad debt and is not required to establish that they had become bad in the previous year. The contention is that it is not the case of the department that the amount of bad debt claimed by the assessee had riot become bad and in case assessee had claimed the same in the year under consideration which was being processed by the assessing officer, the claim of the assessee cannot be disallowed as the assessment proceedings was still open. The learned counsel also submitted that if any assessee is not able to create reserve required by the specific provision of the Act, then still assessee can be permitted by the authorities to create such reserve so that he can claim the benefit and same reasoning is applicable for claiming the amount of bad debt if the proceedings of assessment are not over.
The alternative plea of the assessee was that in case claim of the assessee of bad debt is not entertained in the year under consideration, then the amount of bad debt is to be deducted out of total turn over for working out deduction undersection 80HHC as laid down in the case of CIT v. Abad Fisheries (2003) 31 DTC 310 (Ker-HC) : (2002) 258 ITR 641 (Ker) in which the Lordships confirmed the view of the Tribunal that Rs. 11,10,377 was claimed by the assessee for deduction under section 80HHC but could not be deducted as the amount was not brought to India within 6 months. This amount was not deducted from the profits. At the same time this amount was included in the total turnover as the denominator. The Tribunal concluded that since this does not form part of profit, it cannot be formed part of turnover also. Their Lordships concluded that since this amount could not be included in the profit, the same cannot also be included in the total turnover. The contention is that the same direction may be given to the assessing officer so that amount of deduction under section 80HHC may be claimed at a right way. As against this, the learned Departmental Representative placed reliance on the decisions of the assessing officer and the learned Commissioner (Appeals) and submitted that return filed in pursuance to the notice under section 148 cannot be revised. There is no provision under section 139(5) that return filed in pursuance to notice under section 148 can be revised. Further, the learned Departmental Representative submitted that claim of bad debt was not entertainable as the amount become bad in the previous year relevant to assessment year 1992-93 and assessee can claim that amount in the said year and not in the year under consideration by making the entries in the closed accounts.
We have considered the rival submissions and case laws relied upon by the assessee. At the very beginning, it is pertinent to point out that the learned Commissioner (Appeals) in the impugned order had observed that assessing officer was not justified to ignore the claim of the assessee for bad debt and assessing officer was supposed to decide as to whether assessee was entitled to claim bad debt or not. The department has not challenged this observation of the learned Commissioner (Appeals) and we are of the view that this observation of the learned Commissioner (Appeal) is acceptable to the department.
Accordingly we proceed to decide the allowability of the claim of the assessce for bad debt on merits.
It is an admitted fact that assessee had revised the revised return for the first time on 21-2-1994 and copy of letter dated 21-2-1994 accompanying revised return is appearing on pages 12 and 13 of the paper book. It reveals that assessee came to know about the irrecoverability of the amount in the month of February 1994. Not only this, the assessing officer had also noted in the assessment order that assessee had correspondence with Indian High Commission, London and came to know from letter dated 28-1-1993 issued by Indian High Commission that M/s. J.V. Finn, U.K. is not in a position to repay the amount. It indicate that assessee came to know about the irrecoverability of the amount in question in the previous year relevant to assessment year 1992-93. Further, the Reserve Bank of India, Kanpur and State Bank of India, Kanpur had also informed the assessee and assessee itself written off the amount in its books of account maintained for the previous year relevant to the assessment year 1992-93. So far as factual position is concerned, it remains that nothing happened during the accounting year relevant to assessment year 1991-92, from which it can be said that the amount of that became bad.
The reliance of the learned counsel was on the decision of Income Tax Appellate Tribunal Ahmedabad in the case of Dinesh Chandra Chandulal Shah (supra). The Bench had given out the following condition which are to be fulfilled for grant of deduction in respect of bad debt under section 36 and the same are as under: "(i) the debt or loan should be in respect of business, which should be carried on by the assessee in the relevant year under consideration; (ii) the debt should have been taken into account in computing the income of the assessee of the accounting year or of an earlier accounting year; (iii) the amount of debt should have really become bad in the year under consideration; (iv) the amount should have been written off as irrecoverable in the accounts of the assessee for the accounting year in which such a claim for deduction is made." Although these conditions were in respect of the provisions of section 36(i))(vii) which stood prior to 1-4-1989 and the relevant amended provisions are as under:- "(vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year : Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause." A perusal of the amended provision also show that it should be bad in the previous year relevant to assessment year under consideration.
The admitted facts are that in the year under consideration, transaction alone had taken place and at the end of the accounting year it was not shown as bad by the assessee, but claimed deduction under section 80HHC on the said amount also. Once it is not shown as bad, question of claiming it as bad debt in the year under consideration taking into consideration the subsequent event which happened in 1993 cannot give a right to the assessee to claim the amount as bad debt in the year under consideration. It is to be kept in mind that in the case in hand, assessee had included this amount in alleged bad debt for claiming deduction under section 80HHC, as sub-section (4) of section 80HHC gives 6 months time to the assessee to bring convertible foreign exchange of that amount and also further time at the option of the Commissioner concerned. Till the end of accounting year, the amount had not been shown as that but was included in the profits of the business for claiming deduction under section 80HHC. The assessee came to know in 1993 that the said amount was not recoverable and he treated that the amount has become bad debt, then necessary year for claiming such deduction as bad debt will be previous year in which the assessee came to know that amount is not recoverable, then only assessee was in a position to take a view that the said amount is not recoverable. In the case in hand where convertible foreign exchange of the amount of transaction with M/s. J.V. Finn, U.K. was not received by the assessee within 6 months of the end of previous year relevant to year under consideration, the assessee at his own should have revised the return claiming lesser deduction, but instead of revising the amount of deduction under section 80HHC, the assessee kept mum and even claimed that amount as bad debt in the assessment year 1992-93 as observed by assessing officer and not rebutted by the assessee. Not only this, in return filed by the assessee in pursuance to notice under section 148 of the Act, the assessee had not reduced this amount of bad debt but claimed deduction under section 80HHC as shown in the original return.
It shows the mala fide intention of the assessee and later on the assessee when cornered, tried to wriggle out from this situation and claimed the amount in question as bad debt, but the year under consideration was not a proper year for claiming the amount as bad debt nor the accounts which were already closed can be reopened to allow the assessee to claim any amount not shown as bad in the original accounts as bad debt.
Accordingly, on the basis of our observation, we are of the considered view that the view taken by the assessing officer and the learned Commissioner (Appeals) in rejecting the claim of the assessee as bad debt in the year under consideration in the revised return of return filed in pursuance to notice under section 148 was not sustainable and the claim of the assessee was rightly rejected by the assessing officer and the learned Commissioner (Appeals).
So far as the alternative plea of the assessee is concerned, this was not raised by the assessee either before the assessing officer or before the learned Commissioner (Appeals). No doubt, the view relied upon by the assessee is there, but let assessee move to proper authority for getting relief, as the matter has not been dealt upon by the assessing officer or by the learned Commissioner (Appeals), nor the assessee had raised this ground before us specifically. Had he raised additional ground, it would have been entertained and if was entertained by the Bench, the issue could have been decided on merit but in the absence of any specific ground in respect of alternative plea, we are afraid, we cannot entertain the same and assessee can seek redressal at proper forum.
The next ground in ground Nos. 6 & 7 relates to amount of Rs. 1, 19,300 claimed by the assessee as training expenses incurred on Mr. Afaq Husain who was sent by the assessee firm to foreign country to get training in respect of leather business, shoe garments, leather garments, shoe and other leather items, but assessing officer and learned Commissioner (Appeals) disallowed the claim of the assessee by noting that Mr. Afaq Husain was neither partner of the assessee firm nor its employee and it is not proved that expenses incurred by the assessee on training expenses of Mr. Afaq Husain were exclusively and wholly meant for business purposes. The query was raised by the Bench to the learned counsel for the assessee to this effect and learned counsel was not in a position to specify us, as it has not been brought on record that Mr. Afaq Husain was sent by the firm to get training so that after his return from foreign country, he may be helpful to the business activities of the assessee firm. No evidence has come on record that after getting training Mr. Afaq Husain rendered any services to the business of the assessee firm. In the absence of any such evidence, the claim of the a*ssessee was rightly rejected. Both the grounds are rejected.