NIKHIL GORWANI, MUMBAI V. ACIT 19(3), MUMBAI

ITA 1173/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3912 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 23-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 11-02-2013
• Court: TRIBUNAL
• Department Lawyers: T A KHAN
• Keywords: Principle of natural justice; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE S/SHRI B.R. BASKARAN (AM) & AMIT SHUKLA (JM) I.T.A. NO. 1173 /MUM/ 2013 (ASSESSMENT YEAR 2009 - 10 ) SHRI NIKHIL GORWANI FLAT NO. 601 PALATIAL, 21 ST ROAD BANDRA WEST MUMBAI - 400 050. VS. ACIT C IRCLE - 19(3) MUMBAI. ( APPELLANT ) ( RESPONDENT ) PAN NO. ADJPG0967A ASSESSEE BY SHRI K. GOPAL & MS. NEHA PARANJPE DEPARTMENT BY SHRI T.A. KHAN DATE OF HEARING 3 .5 . 201 6 DATE OF PRONOUNCEMENT 3 . 5 . 201 6 O R D E R PER B.R. BASKARAN, A M : - THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 19.11.2012 PASSED BY LEARNED CIT(A) - 30, MUMBAI FOR A.Y. 2009 - 10. THE ISSUE URGED IN THIS APPEAL RELATES TO THE SUNDRY CREDITORS BALANCE U/S. 41(1) OF THE I.T. ACT. 2. LEARNED COUNSEL AP PEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS ASSESSED OUTSTANDING SUNDRY CREDITORS BALANCE AS INCOME OF THE ASSESSEE U/S. 41(1) OF THE ACT ON THE REASONING THAT THE NOTICES ISSUED BY HIM WERE RETURNED UN - SERVED. LEARNED COUN SEL SUBMITTED THAT THE LIABILITY TOWARDS THESE CREDITORS DID NOT CEASE TO EXIST AND HENCE THE TAX AUTHORITIES ARE NOT JUSTIFIED IN ASSESSING THE OUTSTANDING CREDIT BALANCE AS INCOME OF THE ASSESSEE U/S. 41(1) OF THE ACT. 3. LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAD PURCHASED GOODS FROM THESE CREDITORS FOR EXPORTING THEM TO SINGAPORE /S OUTH AFRICAN COUNTRIES. SHRI NIKHIL G. GORWANI 2 THERE WAS SPECIFIC UNDERSTANDING THAT PAYMENT TO CREDITORS S HALL BE MADE ONLY UPON REALISATION OF EXPORT SALE PROCEED S . HOWEVER, THE IMPORTERS OF THE GOODS FAILED TO MAKE THE PAYMENT AND HENCE THE ASSESSEE WAS ALSO NOT IN A POSITION IN SETT L ING THE AMOUNT DUE TO THE CREDITORS. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS WRITTEN A LETTER TO THE RBI ON 25.10.2011 SEEKING PERMISSION TO WRITE OFF THE AMOUNT DUE FROM ITS FOREIGN CUSTOMERS. ACCORDINGLY THE ASSESSEE PUT A CLAIM BEFORE THE ASSESSING OFFICER TO ALLOW DEDUCTION OF AMOUNT DUE FROM THE CUSTOMERS AS BAD DEBTS AND IF THAT IS ALLOWED, THE SUNDRY CREDITORS BALANCE MAY BE ASSESSED . HOWEVER, THE AS SESSING OFFICER DID NOT ADMIT SAID CLAIM AND HAS ASSESSED OUTSTANDING CREDIT BALANCE U/S. 41(1) OF THE ACT. 4. ON THE CONTRARY, LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT VARIOUS CONTENTIONS PUT FORTH BY LEARNED AR HAVE NOT BEEN SUBSTANTIATED WITH EVIDENCES. 5. IN THE REJOINDER, LEARNED AR SUBMITTED THAT THE ASSESSEE MAY BE GIVEN AN OPPORTUNITY TO PROVE HIS CONTENTIONS. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. NORMALLY THE PROVISIONS OF SECTION 41(1) OF THE ACT SHALL APPLY O NLY UPON CESSATION OF A TRADING LIABILITY EITHER UNILATERALLY OR UPON AGREEMENT BETWEEN THE PARTIES. ACCORDING TO THE ASSESSEE LIABILITY TOWARDS CREDITORS HAS NOT CEASED TO EXIST AND ACCORDINGLY , IT WAS CONTENDED THAT THE PROVISIONS OF SECTION 41(1) OF THE ACT ARE NOT APPLICABLE. HOWEVER, WE ARE OF THE VIEW THAT IT IS RESPONSIBILITY OF THE ASSESSEE TO SHOW THAT THE LIABILITY T OWARDS SUNDRY CREDITORS IS ALIVE, I.E., IT DID NOT CEASE TO EXIST . WE NOTICED THAT THE ASSESSING OFFICER WAS CONSTRAIN ED TO TAKE ADVE RSE VIEW IN THIS MATTER, SINCE THE LETTERS ISSUED BY HIM TO THE SUNDRY CREDITORS HAVE BEEN RETURNED BACK UN - SERVED. WHEN THE ASSESSEE IS NOT AWARE OF WHEREABOUTS OF ITS CREDITORS, THEN IT IS DIFFICULT TO BELIEVE THAT THE LIABILITIES STILL EXIST. FURTHER TH E ASSESSEE HAS SUBMITTED THAT THERE WAS SPECIFIC UNDERSTANDING FOR MAKING PAYMENT TO SUNDRY CREDITORS OUT OF EXPORT REALIZATION ONLY . SINCE THE ASSESSEE HAS SOUGHT AN OPPORTUNITY TO SUBSTANTIATE SHRI NIKHIL G. GORWANI 3 HIS CONTENTIONS, WE ARE OF THE VIEW THAT THE ASSESSEE SHOULD BE PROVIDED WITH AN OPPORTUNITY , IN THE INTEREST OF NATURAL JUSTICE . ACCORDINGLY WE SET ASIDE THE ORDER OF LEARNED CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THE SAME AFRESH AFTER CONSIDERI NG THE INFORMATION AND EXPLANATION S THAT MAY BE FURNISHED BY THE ASSESSEE. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER HAS BEEN PRONOU NCED IN THE OPEN COURT ON 3 .5 .2016 . SD/ - SD/ - (A MIT SHUKLA ) (B.R.BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 3 / 5 /20 1 6 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS