KHIMJI POONJA & CO., MUMBAI V. DCIT CEN CIR-45, MUMBAI

ITA 1054/MUM/2009

• Counselvise Citation: 105419914 RSA 2009
• Duration Of Justice: 2 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 30-12-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 16-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN KUMAR
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, A, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI R K PANDA, ACCOUNTANT MEMBER I T A NO: 1054/MUM/2009 (ASSESSMENT YEAR: 2004-05) M/S KHIMJI POONJA & CO., MUMBAI APPELLANT (PAN: AAAFK8581G) VS DEPUTY COMMISSIONER OF INCOME TAX RESPONDENT CENTRAL CIRCLE 45, MUMBAI APPELLANT BY: MR HITEN VASANT RESPONDENT BY: MR SHRAVAN KUMAR O R D E R R V EASWAR, PRESIDENT: THIS APPEAL BY THE ASSESSEE PERTAINS TO THE ASSESS MENT YEAR 2004-05. THE ASSESSEE IS A PARTNERSHIP FIRM E NGAGED IN COTTON BUSINESS. THE APPEAL ARISES OUT OF THE ASSE SSMENT ORDER PASSED ON 24.11.2006 UNDER SECTION 143(3) OF THE IN COME TAX ACT, 1961. 2. THE FIRST ISSUE IS WHETHER THE DEPARTMENTAL AUTH ORITIES WERE JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF THE CLA IM OF BAD DEBTS OF ` 96,95,232/-. IN THE COURSE OF THE ASSESSMENT PROCE EDINGS THE ASSESSEE WAS ASKED BY THE ASSESSING OFFICER AS TO W HY THE CLAIM SHOULD NOT BE DISALLOWED ON THE GROUND THAT NO EVID ENCE WAS ADDUCED TO SHOW THAT THE DEBTS HAD REALLY BECOME BA D. THE ASSESSEE SUBMITTED THAT THERE WAS NO RECOVERY FROM THE DEBTORS AND FURTHER THAT OUT OF THE TOTAL AMOUNT OF BAD DEB TS, THE MAJOR ITA NO: 1054/MUM/2009 2 AMOUNT OF ` 93,00,902/- PERTAINED TO M/S COTTEX, WHICH WAS BASE D IN GREECE. IT WAS ALSO POINTED OUT THAT NO LEGAL A CTION WAS TAKEN AGAINST THE ABOVE FIRM. THE ASSESSING OFFICER WAS NOT SATISFIED THAT THE DEBTS HAD BECOME BAD IN THE RELEVANT PREVIOUS Y EAR. HE THEREFORE DISALLOWED THE CLAIM. 3. BEFORE THE CIT(A) THE ASSESSEE WOULD APPEAR TO H AVE MADE DETAILED SUBMISSIONS IN RESPECT OF THE DEBT DUE FRO M M/S COTTEX. IT WAS POINTED OUT THAT M/S COTTEX WAS DECLARED AS INT ERNATIONAL DEFAULTER AND THERE WAS NO HOPE OF RECOVERY, WHICH LED TO THE WRITE OFF. IT WAS ALSO POINTED OUT THAT THE DEBT AMOUNT FROM M/S COTTEX HAD BEEN INCLUDED EARLIER AS THE INCOME OF THE ASSE SSEE FIRM. THE ASSESSEE FILED COPIES OF THE LEDGER ACCOUNT OF M/S COTTEX FOR THE PERIOD FROM 01.04.2001 TO 31.03.2004 IN SUPPORT OF THE CLAIM OF BAD DEBTS. WITH REGARD TO THE OTHER THREE DEBTS, NAMEL Y, ` 59,149/- FROM SHRI LAXMI SARASWATI TEXTILES LTD., ` 2,56,084/- FROM SHRI UMAYIMBIYGI TEXTILES AND ` 18,250/- FROM ASHWIN TEXTILES, THE ASSESSEE SUBMITTED THAT THEY WERE ALSO WRITTEN OFF FOR THE SAME REASON. THE ASSESSEE ALSO CONTENDED THAT AFTER THE AMENDMENT OF THE LAW WITH EFFECT FROM 01.04.1989, IT WAS NO LONG ER REQUIRED OF THE ASSESSEE TO ESTABLISH THAT THE DEBTS BECAME BAD DUR ING THE RELEVANT PREVIOUS YEAR. ON THIS BASIS IT WAS PLEAD ED THAT THE ENTIRE CLAIM OF BAD DEBTS OUGHT TO BE ALLOWED. 4. THE CIT(A) DISMISSED THE ASSESSEES CLAIM IN THE FOLLOWING WORDS: - 3.4 I HAVE CAREFULLY CONSIDERED THE FACTS AND SUBMISSIONS. IN ORDER TO CLAIM DEDUCTION OF BAD DEBT, IT IS REQUIRED THAT THE ASSESSEE SHOULD PROVE THE EXISTENCE OF DEBT WHICH AROSE ITA NO: 1054/MUM/2009 3 IN THE COURSE OF BUSINESS OF THE ASSESSEE. IN THE PRESENT CASE, THE AR WAS ASKED TO FURNISH THE CONFIRMATION FROM THE DEBTORS WITH FULL PARTICULARS INCLUDING THE COPIES OF P & L ACCOUNT OF THE DEFAULTERS. THE AR FAILED TO FURNISH THE COPY OF THE CONFIRMATION FROM THE M/S COTTEX AND ALSO FAILED TO PROVE THAT THERE WAS A DEBT OF RS.96,95,232/- OUTSTANDING AGAINST M/S COTTEX. SIMILARLY DEBTS WITH REGARD TO OTHER DEBTORS HAVE NOT BEEN CONFIRMED. IN MY OPINION, THE FIRST CONDITION THAT THERE MUST BE A DEBT HAS NOT BEEN PROVED. UNLESS THE CONFIRMATION IS FILED FROM THE DEBTORS, THE EXTENT AND EXISTENCE OF THE DEBTS REMAIN UNPROVED. THEREFORE, IN VIEW OF THE FAILURE OF THE APPELLANT TO PROVE THAT THERE WAS DEBTS OF RS.96,95,232/-, THE CLAIM OF BAD DEBT WAS RIGHTLY DISALLOWED BY THE AO. ACCORDINGLY DISALLOWANCE AT RS.96,95,232/- IS HEREBY CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. 5. THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. IN A LETTER WRITTEN TO THE ASSESSING OFFICER ON 22.11.2006, A C OPY OF WHICH IS PLACED AT PAGES 20 21 OF THE PAPER BOOK, THE ASSE SSEE SUBMITTED THAT M/S COTTEX INITIALLY AGREED TO PAY 2% COMMISSI ON ON ALL THE IMPORTS MADE BUT LATER DENIED ANY SUCH ARRANGEMENT AND PAID ONLY 0.2% COMMISSION. THE ASSESSEE RAISED DEBIT NOTES O N THE BASIS OF THE AGREEMENT THAT 2% COMMISSION WAS PAYABLE AND WA S OFFERING THE IMPORT COMMISSION FOR ASSESSMENT ON THAT BASIS. HOWEVER, M/S COTTEX PAID COMMISSION ONLY ON THE BASIS THAT IT WA S PAYABLE AT THE RATE OF 0.2%. THE ASSESSEE FURTHER ENCLOSED TO THE LETTER THE COPY OF THE PROFIT AND LOSS ACCOUNT AND ALL THE RELEVANT PAPERS. FOR THE FINANCIAL YEAR 2002-03 THE ASSESSEE RECEIVED ONLY ` 23,65,684/- AS AGAINST THE DEBIT NOTE RAISED BY THE ASSESSEE FOR ` 1,09,60,170/-. IN THE FINANCIAL YEAR 2002-03 THE ASSESSEE DEBITED IMP ORT COMMISSION OF ` 20,38,291/- BUT M/S COTTEX PAID ONLY ` 5,64,826/-. IN THE ITA NO: 1054/MUM/2009 4 FINANCIAL YEAR 2003-04 THE ASSESSEE RECEIVED ` 7,19,471/- ONLY AS COMMISSION. AT THE END OF THE YEAR (31.03.2004), T HE BALANCE OUTSTANDING WAS ` 93,00,902/- WHICH WAS WRITTEN OFF AS BAD. THE ASSESSEE ALSO FILED COPIES OF THE LEDGER ACCOUNT OF M/S COTTEX FOR THE PAST THREE YEARS. WE ALSO FIND FROM THE IMPORT COMMISSION ACCOUNT (PAGE 44 ONWARDS OF THE PAPER BOOK), THAT D EBIT NOTES HAVE BEEN RAISED BY THE ASSESSEE AGAINST M/S COTTEX FOR IMPORT COMMISSION RIGHT FROM 31.05.001. AT PAGES 57 TO 62 OF THE PAPER BOOK, THE ASSESSEE HAS ENCLOSED A DEFAULT LIST PUBL ISHED BY THE INTERNATIONAL COTTON ASSOCIATION LIMITED IN THE WEB SITE, WHICH SHOWS COTTEX LIMITED OF GREECE AS ONE OF THE DEFAUL TERS (PAGE 59). THE ACCOUNT COPY OF M/S COTTEX IS PLACED AT PAGES 3 6 TO 43 OF THE PAPER BOOK, FOR THE PERIOD 31.05.2001 TO 31.03.2004 , WHICH SHOWS THAT THE BALANCE OF ` 93,00,902/- IN THE ACCOUNT HAS BEEN WRITTEN OFF TO BAD DEBTS ACCOUNT ON 30.12.2003. 6. THE AFORESAID DETAILS SHOW THAT THE IMPORT COMMI SSION ARISING FROM THE TRANSACTION WITH M/S COTTEX HAS BE EN ACCOUNTED AS THE ASSESSEES INCOME, ABOUT WHICH THERE IS NO DISP UTE RAISED BY THE DEPARTMENTAL AUTHORITIES. THERE IS ALSO NO DIS PUTE THAT THE DEBT WAS ACTUALLY WRITTEN OFF IN THE ACCOUNTS OF THE ASS ESSEE. THE ONLY OBJECTION IS THAT THE ASSESSEE WAS NOT ABLE TO PROV E THAT THE DEBT BECAME BAD IN THE RELEVANT YEAR OF ACCOUNT. AFTER THE CHANGE IN LAW WITH EFFECT FROM 01.04.1989, IT IS NOT INCUMBEN T UPON THE ASSESSEE TO PROVE THAT THE DEBT BECAME BAD IN THE R ELEVANT ACCOUNTING YEAR AND ALL IT HAS TO PROVE IS THAT THE DEBT WAS ACTUALLY WRITTEN OFF IN ITS ACCOUNT BOOKS. THIS POSITION HA S BEEN ADUMBRATED ITA NO: 1054/MUM/2009 5 BY THE SUPREME COURT IN TRF LIMITED VS. CIT (2010) 323 ITR 397 (SC). RESPECTFULLY FOLLOWING THE JUDGMENT WE UPHOL D THE ASSESSEES CLAIM WITH REGARD TO THE BAD DEBT RELATI NG TO M/S COTTEX. 7. AS REGARDS THE OTHER THREE DEBTS ALSO, THERE IS NO DISPUTE THAT THEY WERE ALSO WRITTEN OFF IN THE ASSESSEES B OOKS OF ACCOUNT, THE ONLY DISPUTE BEING THAT THE ASSESSEE WAS NOT AB LE TO ADDUCE EVIDENCE TO SHOW THAT THEY BECAME BAD DURING THE RE LEVANT ACCOUNTING YEAR. THE JUDGMENT OF THE SUPREME COURT CITED ABOVE APPLIES TO THESE DEBTS ALSO. THEREFORE, RESPECTFUL LY FOLLOWING THE JUDGMENT OF THE SUPREME COURT (SUPRA), WE ALLOW THE BAD DEBTS CLAIM OF ` 96,95,232/-. 8. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF TH E PRIOR PERIOD EXPENSES OF ` 19,62,122/-. THE OBJECTION OF THE ASSESSING OFFICE R WAS THAT THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND THEREFORE EXPENSES RELATING TO A PRI OR PERIOD CANNOT BE ALLOWED AS A DEDUCTION. THE ONLY CONTENTION ADV ANCED BEFORE THE CIT(A) WAS THAT THE EXPENSES WERE INCURRED DURI NG THE YEAR UNDER CONSIDERATION AND THEREFORE SHOULD BE ALLOWED AS A DEDUCTION. BEFORE US THE ASSESSEE DREW OUR ATTENTI ON TO PAGE 63 OF THE PAPER BOOK, WHICH CONTAINS THE BREAK-UP OF THE CLAIM. WE FIND THEREFROM THAT ALL THE 10 ITEMS OF EXPENSES ARE REV ENUE EXPENSES. HOWEVER, THE ASSESSEE WAS UNABLE TO ADDUCE ANY EVID ENCE TO SHOW THAT THE LIABILITY FOR THESE EXPENSES WAS INCU RRED BY THE ASSESSEE IN THE RELEVANT ACCOUNTING YEAR, THOUGH TH E EXPENSES RELATED TO A PRIOR PERIOD. IN THE ABSENCE OF ANY E VIDENCE, WE ARE ITA NO: 1054/MUM/2009 6 UNABLE TO FIND FAULT WITH THE DECISION OF THE DEPAR TMENTAL AUTHORITIES. THE DISALLOWANCE IS ACCORDINGLY CONFIRMED. 9. THE LAST ISSUE RELATING TO DISALLOWANCE OF ` 12,03,869/- ON ACCOUNT OF EXCESS PAYMENT MADE TO SUPPLIERS IS DISM ISSED AS NOT PRESSED. 10. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH APRIL 2011. SD/- SD/- (R K PANDA) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI, DATED 27 TH APRIL 2011 SALDANHA COPY TO: 1. M/S KHIMJI POONJA & CO. 19-21, 1 ST FLOOR, WADIA BUILDING DALAL STREET, FORT, MUMBAI 400 023 2. DCIT, CENTRAL CIRCLE 45 3. CIT-CENTRAL 4, MUMBAI 4. CIT(A)-CENTRAL III, MUMBAI 5. DR A BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI