M/s Sagarika Sea Crafts Ltd., Visakhapatnam V. The DCIT, Cent Cir-1., Visakhapatnam

ITA 108/VIZ/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0682 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-05-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 12-04-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBRATA SARKAR
• Assessee Lawyers: C V S MURTHY
• Keywords: Unexplained cash credit; Business expenditure; Opportunity of being heard; Principle of natural justice; Bad and doubtful debts; Set aside
• Section: 37(1); 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SRI B.R. BASKARAN, ACCOUNTANT MEMBER I.T.A. NO.107 TO 110/VIZAG/2007 ASSESSMENT YEARS : 2000-01, 2001-02, 2002-03 & 20 04-05 SAGARIKA SEA CRAFTS LTD VISAKHAPATNAM VS. DCIT, CENTRAL CIRCLE-1 VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.AABCS 1493H APPELLANT BY : SHRI C.V.S. MURTHY, CA RESPONDENT BY : SHRI SUBRATA SARKAR, DR O R D E R PER SHRI B.R. BASKARAN, ACCOUNTANT MEMBER : THESE FOUR APPEALS, FILED BY THE ASSESSEE, ARE DIR ECTED AGAINST THE ORDERS PASSED BY LD CIT(A)-I, HYDERABAD AND THEY RELATE TO THE ASSESSMENT YEARS 2000- 01 TO 2002-03 AND 2004-05. SINCE THESE APPEALS WER E HEARD TOGETHER, THEY ARE DISPOSED OF BY THIS COMMON ORDER. 2. SINCE IDENTICAL ISSUES ARE AGITATED IN APPEA LS NUMBERED AS ITA 107/VIZ/07 AND 108/VIZ/07 RELATING TO THE ASSESSMENT YEARS 200 0-01 AND 2001-02, THEY ARE TAKEN UP FIRST FOR CONSIDERATION. DURING THE COURS E OF ASSESSMENT PROCEEDINGS RELATING TO THESE TWO YEARS, IT WAS NOTICED THAT TH E ASSESSEE HAD CREDITED FOLLOWING AMOUNTS AS REALIZATION IN THE ACCOUNTS OF THE CONCERNED DEBTOR. 2 ASSESSMENT YEAR 2000-01:- M/S KANCHANAGANGA SEA FOODS LTD. - RS.1,64,25 0/- ASSESSMENT YEAR 2001-02:- M/S KANCHANAGANGA SEA FOODS LTD - RS.15,62,0 00/- M/S PRIYA FISHERIES - RS. 5,74,000/- THE AO CROSS VERIFIED THESE TRANSACTIONS WITH THE B OOKS OF THE CONCERNED DEBTORS CITED ABOVE AND FOUND THAT AS PER THEIR BOOKS, THE SAID PARTIES HAVE NOT MADE THE PAYMENTS ON THOSE DATES AS NO ENTRY WAS FOUND I N THEIR BOOKS. HENCE THE AO TREATED THESE AMOUNTS AS UNEXPLAINED CASH CREDIT S AND ADDED THEM U/S 68 OF THE ACT. THE LD CIT(A) CONFIRMED THESE ADDITIONS A S HE WAS OF THE VIEW THAT THE ASSESSEE HAS FAILED TO FILE CONFIRMATION LETTERS FR OM ITS CUSTOMERS. HENCE THE ASSESSEE IS IN APPEAL BEFORE US CONTESTING THE DECI SION OF LD CIT(A). 2.1 WE HAVE HEARD THE PARTIES AND CAREFULLY PER USED THE RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE IMPUGNED A MOUNTS WERE RECEIVED FROM THE DEBTORS OF THE ASSESSEE. FROM THE PAPER BOOK F ILED BY THE ASSESSEE, WE NOTICE THAT THE AMOUNTS ARE DUE FROM THESE DEBTORS AS ON THE OPENING DAY OF THE RESPECTIVE YEARS AND THE AMOUNT CLAIMED TO HAVE BEE N COLLECTED FROM THEM WAS LESSER THAN THE OPENING BALANCES. THESE CREDITS HA VE BEEN SUSPECTED BY FULLY PLACING RELIANCE ON THE BOOKS OF ACCOUNTS OF THE CO NCERNED PARTIES. NOW THE QUESTION THAT ARISES IS WHETHER THE AO SHOULD RELY UPON THE BOOKS OF THE ASSESSEE OR THE BOOKS OF THE DEBTORS FOR DECIDING T HE ISSUE. IF WE LOOK THE ISSUE FROM THE POINT OF VIEW OF THE ASSESSEE, ONE MAY ACC EPT THAT NO BUSINESS MAN SHALL REDUCE THE AMOUNT DUE FROM HIS CUSTOMERS BY M AKING BOGUS CREDITS FOR THE REASON THAT IF HE DOES SO, HE IS LEGALLY LOSING HIS RIGHT TO ENFORCE PAYMENTS FROM HIS CUSTOMERS. ON THE OTHER HAND, IF WE LOOK THE I SSUE FROM THE POINT OF VIEW OF THE DEBTORS, BY NOT MAKING THE ENTRIES OF ACTUAL PA YMENT IN THE BOOKS OF ACCOUNT, THE DEBTORS ARE NOT GOING TO LOOSE ANY THI NG, AS IN ANY CASE, THE SUPPLIER COULD NOT ENFORCE IN EXCESS OF WHAT IS ACT UALLY DUE TO HIM. HENCE LOOKING FROM THE POINT OF VIEW OF HUMAN PROBABILITI ES, UNLESS THE AO HAS GOT ANY 3 OTHER MATERIAL TO PROVE THAT THE AMOUNT SHOWN AS CO LLECTION FROM THE DEBTORS TO BE BOGUS, IN OUR OPINION, THE BOOKS OF ACCOUNT OF T HE ASSESSEE SHALL HAVE MORE EVIDENTIARY VALUE IN THIS REGARD THAN THE BOOKS OF ACCOUNTS OF THE CONCERNED DEBTOR. IT IS ALSO CAN BE INFERRED THAT IT IS NOT POSSIBLE TO GET CONFIRMATION LETTERS FROM THEM IN THIS KIND OF SITUATION. HENCE WE ARE OF THE VIEW THAT NO ADDITION IS CALLED FOR U/S 68 OF THE ACT IN THE FAC TS AND CIRCUMSTANCES OF THE CASE IN RESPECT OF THE COLLECTIONS RECEIVED FROM THE DEB TORS AND ACCORDINGLY WE REVERSE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DI RECT THE AO TO DELETE THE ABOVE SAID ADDITIONS MADE IN BOTH THE YEARS. 3. NEXT, WE SHALL TAKE UP NOW THE APPEAL NUMBERE D AS 109/VIZ/2007 RELATING TO THE ASSESSMENT YEAR 2002-03. THE ASSESSEE IS CONTE STING THE ADDITION OF RS.4,77,250/- RELATING TO THE SUPPRESSION OF SALE. 3.1 THE FACTS RELATING TO THE SAID ISSUE ARE ST ATED IN BRIEF. THE ASSESSEE IS IN THE BUSINESS OF SUPPLYING MARINE GAS OIL (MGO) TO T HE FISHING TRAWLERS IN THE MID SEAS. THE OIL IMPORTED FROM FOREIGN COUNTRIES IS SU PPLIED DIRECTLY TO THE TRAWLERS IN THE HIGH SEAS ITSELF WITHOUT BRINGING THE SAME T O THE SHORE. ON SUPPLY OF OIL TO THE FISHING TRAWLERS, A DOCUMENT CALLED BUNKER D ELIVERY RECEIPTS (BDRS) ARE PREPARED WHICH IS SIGNED BY THE MASTER OF VESSEL CA RRYING THE MGO, THE SKIPPER OF FISHING VESSEL AND THE BARGE CLERK OF THE ASSESS EE. ON THE BASIS OF THESE BDRS, INVOICES ARE RAISED UPON THE CUSTOMERS AND AL SO FOREIGN REMITTANCES ARE MADE BY SUBMITTING COPIES OF BDRS TO THE BANK. THE AO NOTICED FROM THE COPIES OF BDRS SUBMITTED TO THE BANK THAT THE BDR DATED 10 .12.2001 WHICH DEPICTED SUPPLY OF MGO 41.5 KILO LITRES TO M/S CHANDRIKA MAR INES WAS NOT FOUND RECORDED IN THE BOOKS OF THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE AGREED TO THE ADDITION OF THE SALES VALUE OF 41.5 LITRES, I.E. RS.4,77,250/-. HOWEVER BEFORE LD CIT(A), THE ASSES SEE CONTESTED THE SAID ADDITION ON THE GROUND THAT THE SUPPLIES MADE THROU GH THE ABOVE CITED BDR HAS 4 ALSO BEEN RECORDED IN THE BOOKS OF ACCOUNT AND HENC E THERE IS NO SUPPRESSION OF SALES. HOWEVER, LD CIT(A) DECLINED TO ACCEPT THE S UBMISSIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAD VOLUNTARILY ACCEPT ED THE SAID ADDITION DURING THE ASSESSMENT PROCEEDINGS AND FURTHER THERE IS MIS MATCH OF THE DATES BETWEEN THE BDR NOTICED BY THE AO AND THE BDR WHICH IS CLAI MED TO HAVE BEEN RECORDED IN THE BOOKS OF ACCOUNT. AGGRIEVED, THE ASSESSEE I S IN APPEAL BEFORE US. 3.2 BEFORE US, THE ASSESSEE HAS FILED AN AFFIDA VIT SUBMITTED BY M/S CHANDRIKA MARINES, WHEREIN THE PROPRIETOR OF M/S CHANDRIKA MA RINES HAS EXPLAINED THE DETAILS OF IMPUGNED TRANSACTION. ACCORDING TO THE SAID AFFIDAVIT THOUGH THE SUPPLY WAS MADE FOR 41.50 KL, THE ASSESSEE HAS RAIS ED INVOICE ONLY FOR 36.5 KL IN VIEW OF SUPPLY OF INFERIOR QUALITY OF OIL. HE H AS ALSO STATED THAT THE DIFFERENCE IN DATES IS A MISTAKE. BY PLACING RELIANCE ON THE SAID AFFIDAVIT, THE LD AR SUBMITTED BEFORE US THAT THE ASSESSEE COULD NOT GET CLARIFICATIONS FROM THE CONCERNED CUSTOMER AT THE TIME WHEN THE ASSESSMENT PROCEEDINGS WERE TAKEN UP. ACCORDINGLY THE LD AR PRAYED FOR RELIEF ON THE BASIS OF THE AFFIDAVIT FILED BEFORE THE BENCH. 3.3 IT IS A FACT THAT THE ASSESSEE HAD AGREED T O THE ADDITION OF RS.4,77,250/- PERTAINING TO 41.5 KL OF MGO AS FACTS RELATING TO T HAT TRANSACTION WERE NOT CLEAR AND THE ASSESSEE WAS NOT IN A POSITION TO RECONCILE THE SAID QUANTITY FROM THE ENTRIES MADE IN ITS BOOKS OF ACCOUNT. IT WAS ALSO STATED THAT THE CONCERNED CUSTOMER COULD NOT BE CONTACTED IMMEDIATELY AT THAT TIME FOR SEEKING CLARIFICATION. NOW THE CONCERNED CUSTOMER HAS FILE D AN AFFIDAVIT ALONG WITH A COPY OF CREDIT NOTE ISSUED BY HIM TO THE ASSESSEE, WHEREIN HE HAS EXPLAINED THE DETAILS OF SAID TRANSACTION. HENCE, IN THE INTERES T OF NATURAL JUSTICE, WE ARE OF THE VIEW THAT THE INSTANT ISSUE NEEDS REEXAMINATION AND ACCORDINGLY WE REVERSE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE MA TTER BACK TO THE FILE OF AO WITH 5 A DIRECTION TO EXAMINE THE ISSUE AFRESH BY CONSIDER ING THE AFFIDAVIT AND OTHER RECORD SUBMITTED BY THE CONCERNED CUSTOMER. NEEDLE SS TO MENTION, THE ASSESSEE SHOULD BE GIVEN PROPER OPPORTUNITY OF BEING HEARD. 4. NOW, WE SHALL TAKE UP THE APPEAL NUMBERED AS ITA 110/VIZ/2007 RELATING TO THE ASSESSMENT YEAR 2004-05. IN THIS YEAR, THE ASS ESSEE HAD CLAIMED FOLLOWING AMOUNTS AS BAD DEBTS. A. AMOUNT PAID TO MT MARIO - RS.1,77,2 67/- B. DEPOSITS WITH JOINT COLLECTOR - RS.1,34 ,000/- THE AO DISALLOWED THE SAID CLAIMS, AS THE ASSESSEE HAD NOT OFFERED THE SAID AMOUNTS AS ITS INCOME IN ANY OF THE YEARS, WHICH IS A MANDATORY CONDITION FOR ALLOWING DEDUCTION OF BAD DEBTS U/S 36(1)(VII) OF T HE ACT. THE LD CIT(A) ALSO CONFIRMED THE SAID ADDITION. THE LD CIT(A) DID NOT ACCEPT THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT THEY REPRESENT BUSINESS EXPEND ITURE, AS THE LD CIT(A) FELT THAT THE ASSESSEE COULD NOT MAKE ALTERNATIVE CLAIM IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT (284 ITR 323). HENCE THE ASSESSEE IS IN APPEAL BEFORE US. 4.1 THE ASSESSEE INCURRED A SUM OF RS.1,77,267/ - DURING THE FINANCIAL YEAR 2002-03, WHEN A VESSEL NAMED MT MARIO SUNK ON HIGH SEAS. THE VESSEL NAMED MT MARIO WAS OWNED BY ONE OF THE SUPPLIERS OF MGO T O THE ASSESSEE. IN VIEW OF THE BUSINESS CONNECTIONS, THE ASSESSEE INCURRED EXP ENDITURE OF RS.1,77,267/- TOWARDS TRAVEL AND IMMIGRATION EXPENSES OF THE CREW . THE ASSESSEE ORIGINALLY DEBITED SAID AMOUNT TO THE ACCOUNT OF THE SUPPLIER IN THE FINANCIAL YEAR 2002-03 WITH THE HOPE THAT IT WILL BE REIMBURSED BY HIM. HOWEVER, IT WAS WRITTEN OFF IN THE SUCCEEDING FINANCIAL YEAR 2003-04 RELEVANT TO T HE ASSESSMENT YEAR 2004-05 AND THE SAME WAS CLAIMED AS A DEDUCTION TOWARDS BAD DEBTS. IN THIS REGARD, THE OBSERVATIONS OF THE AO ARE CORRECT IN VIEW OF THE EXPRESS PROVISIONS CONTAINED IN SECTION 36(1)(VII) OF THE ACT. SINCE T HE ASSESSEE HAD NOT OFFERED THE 6 SAID AMOUNT AS ITS INCOME IN ANY OF THE YEARS, IT I S NOT ENTITLED TO CLAIM THE SAME AS BAD DEBT. ACCORDING TO THE ASSESSEE, IT HAD INC URRED THE SAID EXPENDITURE IN ORDER TO MAINTAIN GOOD BUSINESS RELATIONSHIP AND AS A GOOD WILL GESTURE AND ACCORDINGLY IT WAS PRAYED THAT IT SHOULD BE ALLOWED AS A BUSINESS EXPENDITURE U/S 37(1) OF THE ACT. 4.2 THE NEXT CLAIM RELATES TO THE AMOUNT OF RS. 1,34,000/- RELATING THE DEPOSIT MADE WITH JOINT COLLECTOR, KAKINADA, WHICH WAS WRIT TEN OFF AS IRRECOVERABLE. ACCORDING TO THE ASSESSEE, THE SAID PAYMENT WAS MAD E TO THE JOINT COLLECTOR, KAKINADA IN APRIL, 2002 IN CONNECTION WITH THE SUPP LY OF OIL AT THE KAKINADA PORT. THE SAID PAYMENT WAS DEBITED TO THE ACCOUNT OF JOIN T COLLECTOR, KAKINADA WITH THE IMPRESSION THAT THE SAME WOULD BE RECEIVED BACK . WHEN IT CAME TO LIGHT THAT THE SAME WILL NOT BE RECOVERABLE, THE ASSESSEE HAS WRITTEN IT OFF IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2004-05. ACCO RDING TO LD AR, THE AMOUNT SO WRITTEN OFF IS ALLOWABLE AS BUSINESS EXPENDITURE SINCE THE IMPUGNED DEPOSITS WERE MADE DURING THE COURSE OF NORMAL BUSINESS AND FURTHER IT IS RELATED TO THE TRADING TRANSACTIONS. 4.3 THE LD. CIT(A) HAS RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD, SUPRA TO DECLINE THE ABOVE SAID CLAIMS OF THE ASSESSEE. HOWEVER, IN OUR VIEW, THE SAID DECISION IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CLAIMS, SINCE IT IS NOT A CASE OF FRESH CLAIM FOR DEDUCTION THAT TOO AFTER FILING THE RETURN OF INCOME. IN THE INSTANT CASE, THE ASSESSEE IS ONLY SEEKING DEDUCTIONS UNDER AN ALTERNATIVE SECTION OF THE ACT. FROM THE ASSESSMENT ORDER, WE NOTICE THAT THE AO HAS NOT CONSIDERED THE ALTERN ATIVE CLAIM OF THE ASSESSEE THAT THE AMOUNTS SO WRITTEN OFF ARE ALLOWABLE AS BU SINESS EXPENDITURE. HENCE, IN THE INTEREST OF NATURAL JUSTICE, WE ARE OF THE VIEW THAT THE ALTERNATIVE CLAIM OF THE ASSESSEE NEEDS TO BE EXAMINED BY THE AO. ACCORDIN GLY WE SET ASIDE THE ORDER OF LD CTI(A) ON THIS ISSUE AND RESTORE THE MATTER T O THE FILE OF AO WITH A DIRECTION 7 TO CONSIDER THE ALTERNATIVE CLAIM OF THE ASSESSEE I N ACCORDANCE WITH LAW, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD. 5. IN THE RESULT, THE APPEALS OF THE ASSESSEE F OR THE (A) ASSESSMENT YEARS 2000-01 AND 2001-02 ARE ALLOWED (B) ASSESSMENT YEAR 2002-03 AND 2004-05 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 25 TH JUNE, 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE : 25-06-2010 A COPY OF THIS ORDER IS FORWARDED TO : 01 M/S. SAGARIKA SEA CRAFTS LIMITED, 3A, BLOCK `A SEA DOLL APARTMENTS, MAHARANIPETA, BEACH ROAD, VISAKHAPATNAM-530 002 02 DCIT, CENTRAL CIRCLE-1, VISAKHAPATNAM 03 THE CIT, HYDERABAD 04 THE CIT (A)-I, HYDERABAD 05 THE DR, ITAT, VISAKHAPATNAM 06 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT, VISAKHAPATNAM BENCH