Kalpit Realty & Services Ltd., Ahmedabad V. The Income tax Officer,Ward-4(2), Ahmedabad

ITA 12/AHD/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67916 (ITAT-AHMEDABAD)
• Duration Of Justice: 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 01-10-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 03-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J P JHANGID SR D R
• Keywords: Business expenditure
• Section: 37(1); 28

Judgement Text

, , , , C, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, C BENCH . .. . . .. . , !' !' !' !', , , , #$ %&'( #$ %&'( #$ %&'( #$ %&'(, , , , )* + ) ' )* + ) ' )* + ) ' )* + ) ' BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND ANIL CHATURVEDI, ACCOUNTANT MEMBER) ITA NO.12/AHD/2013 [ASSTT. YEAR : 2008-2009] KALPIT REALITY & SERVICES LTD. 53,SHRIMALI SOCIETY VADILAL HOUSE, NAVRANGPURA AHMEDABAD 380 009. PAN : AACCK 4443 N /VS. ITO, WARD-4(2) AHMEDABAD. ( (( (-. -. -. -. / APPELLANT) ( (( (/0-. /0-. /0-. /0-. / RESPONDENT) 1& 2 3 )/ ASSESSEE BY : MS.URVASHI SHODHAN + 2 3 )/ REVENUE BY : SHRI J.P. JHANGID, SR.DR 5 2 &(*/ DATE OF HEARING : 1 ST OCTOBER, 2013 678 2 &(*/ DATE OF PRONOUNCEMENT : 13/11/2013 )9 / O R D E R PER G.C. GUPTA, VICE-PRESIDENT : THIS APPEAL BY THE ASSESSEE FOR THE ASSTT.YEAR : 2008-2009 IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-VIII DATED 18.9.2012. 2. THE GROUNDS OF THE APPEAL OF THE ASSESSEE ARE AS UNDER: ITA NO.12/AHD/2013 -2- 1. THE LD.CIT(A) FAILED TO UNDERSTAND THE FACTS AN D CIRCUMSTANCES OF THE CASE. 2. THE LD.CIT(A) ERRED IN CONFIRMING THE DISALLOWAN CE OF RS.19,45,159/- BEING BAD ADVANCES WRITTEN OFF IN PROFIT & LOSS ACCOUNT ON INVALID GROUND THAT IT IS NOT INCID ENTAL TO BUSINESS. 3. THE LD.CIT(A) ERRED IN CONFIRMING THE FINDINGS O F THE AO THAT THE BAD ADVANCES WRITTEN OFF IS NOT ALLOWAB LE AS THE CONDITIONS PRESCRIBED U/S.36(2) ARE NOT FULFILLED. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE HAD CLAIMED DEDUCTION OF RS.19,45,159/- AS DEDUCTION UNDER SECTION 28 OF THE ACT, AS A BUSINESS LOSS OR UNDER SECTION 37(1) AS BUSINESS EXPENDITURE OF THE ASSESSEE. SHE SUBMITTED THAT THE ASSESSEE IS A TRANSPORTER, AND HAS GIVEN SUB-CO NTRACT OF TRANSPORTATION OF GOODS TO TWO PARTIES VIZ. ASIAN PERISHABLE FOOD CARRIERS, NEW DELHI AND KAUSAR INDIA LTD., DELHI. SHE SUBMITTED THAT AT THE DESTINATION, IF THE GOODS ARE NOT RECEI VED AS PER THE REQUIREMENT OF THE BUYER, AND ANY LOSS/SHORTAGE IS FOUND, THE SUB- CONTRACTOR SHALL BE RESPONSIBLE FOR THE LOSS/DAMAGE S. HOWEVER, THERE WAS A DISPUTE BETWEEN THE ASSESSEE AND THE TW O TRANSPORTERS, AND AFTER CONSTANT FOLLOW-UP FOR RECO VERY, THESE PARTIES DISAGREE TO PAY AND FINALLY THE SAID AMOUNT WAS WRITTEN OFF AS IRRECOVERABLE IN BOOKS OF ACCOUNT, AND IS A LOSS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. SHE SUBMITTED THA T THE ASSESSEE ENGAGED CONTRACT DRIVERS FOR USE OF ASSESSEES OWN VEHICLES, WHO WERE NOT ON THE PAY-ROLL OF THE ASSESSEE AS DRIVERS FOR RUNNING ITS TRANSPORTATION BUSINESS, AND WERE BEING PAID ON PER KILOMETER ITA NO.12/AHD/2013 -3- BASIS. SHE SUBMITTED THAT DURING THE COURSE OF BUS INESS, THE ASSESSEE HAS PAID ADVANCES TO THESE CONTRACT DRIVER S AT THE BEGINNING OF THE TRIP FOR DIESEL AND OTHER ON THE W AY EXPENSES OF TRANSPORT AND ON EACH TRIP, AS PER THE NORMAL PRACT ICE IN THE TRANSPORT BUSINESS, SUCH TYPE OF ADVANCE WAS GIVEN TO THE DRIVER, AND AFTER COMPLETION OF THE TRIP, THE CONCERNED PER SON SUBMIT THEIR BILL AND ADVANCES GIVEN WERE ADJUSTED AGAINST THE SUM PAYABLE. DURING THE YEAR, THREE SUCH CONTRACT DRIV ERS, VIZ. RAM SINGH, SHIV SINGH AND KARAN SINGH LEFT WORK, AND HA D NOT SUBMITTED THEIR BILLS AGAINST THE ADVANCES PAID TO THEM, AND THEREFORE, THE ADVANCES REMAINED UNADJUSTED IN THE BOOKS OF ACCOUNTS, AND WERE NOT RECOVERABLE, AND THEREFORE, THE ASSESSEE DECIDED TO WRITE OFF THE ABOVE ADVANCE IN THE BOOKS OF ACCOUNTS, AND IS VERY MUCH A BUSINESS LOSS INCURRED DURING TH E NORMAL COURSE OF TRANSPORTATION. SHE SUBMITTED THAT ALL THREE CONTRACT DRIVERS WERE ASSESSED TO INCOME TAX AND THEIR PAN H AVE BEEN GIVEN TO THE AO. SHE REFERRED TO THE COPY OF THE A CCOUNT IN THE LEDGER OF THE ASSESSEE IN SUPPORT OF THE CASE OF TH E ASSESSEE. SHE RELIED ON THE DECISION IN COMMISSIONER OF INCOME-TA X VS ABDUL RAZAK & CO., 136 ITR 825 (GUJ) AND ITAT, AHMEDABAD DECISION IN VADILAL INDUSTRIES LTD. VS. ACIT, ITA NO.3307/AHD/2011 DATED 25.5.2012. 4. THE LEARNED DR HAS OPPOSED THE SUBMISSIONS OF TH E LEARNED COUNSEL FOR THE ASSESSEE. HE SUBMITTED THAT THE AS SESSEE COULD NOT ESTABLISH BUSINESS PURPOSE REGARDING THE ADVANC ING THE AMOUNTS IN QUESTION TO TWO PARTIES AS WELL AS THREE CONTRACT ITA NO.12/AHD/2013 -4- DRIVERS. HE SUBMITTED THAT THESE AMOUNTS WERE NEVE R OFFERED FOR TAXATION IN THE EARLIER YEARS, AND THEREFORE, THE C LAIM OF THE ASSESSEE WAS NOT ADMISSIBLE. THE LEARNED DR SUBMIT TED THAT CONTRACT DRIVERS WERE PAID ON TRIP-TO-TRIP BASIS, A ND THEREFORE, THESE ARE IN THE NATURE OF PERSONAL ADVANCES/DEPOSI TS AND COULD NOT BE ALLOWED AS DEDUCTION TO THE ASSESSEE. HE RE FERRED TO THE RELEVANT PARAS OF THE ASSESSMENT ORDER AND THE ORDE R OF THE LEARNED CIT(A) IN SUPPORT OF THE CASE OF THE REVENU E. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS CAREFULLY, AND HAVE PERUSED THE ORDERS OF THE AO AND THE CIT(A), AND AL SO COPIES OF VARIOUS ACCOUNTS AND DOCUMENTS FILED IN THE COMPILA TION BY THE ASSESSEE. WE FIND THAT THE DURING THE COURSE OF TR ANSPORTATION BUSINESS OF THE ASSESSEE, THE ASSESSEE HAS ENGAGED TWO PARTIES VIZ. ASIAN PERISHABLE FOOD CARRIERS, NEW DELHI AND KAUSA R INDIA LTD., DELHI, WHO ARE TRANSPORT CONTRACTORS AND HAVE SUPPLIED THE VEHICLES TO THE ASSESSEE FOR TRANSPORTATION OF GOOD S. AS PER THE TERMS AND CONDITIONS, IT WAS THE RESPONSIBILITY OF THE SUB- TRANSPORTERS TO DELIVER THE GOODS AT THE DESTINATIO N AS PER THE REQUIREMENT OF THE BUYER, AND ANY LOSS/SHORTAGE FOU ND, TRANSPORTER WILL BE RESPONSIBLE FOR THAT ACCORDINGL Y. THE ASSESSEE IS DEALING IN THE TRANSPORTATION OF PERISHABLE GOOD S I.E. DIFFERENT FLAVOURS OF ICE-CREAM, MANUFACTURED BY VADILAL INDU STRIES LTD. DUE TO SOME SHORTAGE/LOSS IN QUALITY FOUND AT THE T IME OF HANDING OVER THE GOODS, AT THE DESTINATION OF THE BUYER, TH E ASSESSEE DEBITED SOME AMOUNT OF LOSS/DAMAGES TO THE ACCOUNTS OF THESE TWO DELHI BASED TRANSPORTERS. HOWEVER, DUE TO DISP UTE AND ITA NO.12/AHD/2013 -5- LITIGATION, AND EVEN AFTER CONSTANT FOLLOW UP FOR R ECOVERY, THESE TWO SUB-TRANSPORTERS DID NOT AGREE TO PAY AND FINAL LY THE SAID AMOUNT WAS WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. WE FIND THAT THE ACTION OF THE ASSESSEE IN DEBITING THE AMOUNT OF SUB-TRANSPORTER PARTIES, ON ACCOUNT OF LOSS/DAMAGES DURING THE TRANSPORT BUSINESS, WAS VERY MUCH IN THE NORMAL COU RSE OF BUSINESS OF THE ASSESSEE, AND SINCE THE AMOUNT HAS BECOME IRRECOVERABLE, THE SAID AMOUNT WAS RIGHTLY WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, AND IS ALLOWABLE AS BUSINESS LOSS TO THE ASSESSEE UNDER SECTION 28 OF THE ACT. BOTH THESE SUB- CONTRACTORS ARE ASSESSED TO TAX, AND THEIR PANS WER E GIVEN BY THE ASSESSEE TO THE AO. THE CASE LAWS RELIED UPON BY T HE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTS THE CASE OF THE A SSESSEE. IN THESE FACTS, WE HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF THE BUSINESS LOSS OF RS.8,27,129/- OF ASIAN PERISHA BLE FOOD CARRIER, DELHI AND RS.1,17,655/- OF KAUSAR INDIA LT D., DELHI, AND WE DIRECT ACCORDINGLY. 6. WITH REGARD TO THE CLAIM OF THE ASSESSEE FOR DED UCTION WITH REGARD TO THREE CONTRACT DRIVERS, WE FIND THAT THEY WERE NOT ON THE PAY ROLL OF THE ASSESSEE, AND THE ASSESSEE USED TO PAY THEM ON PER KILOMETER BASIS. THE CIT(A) HAS RECORDED A FINDING THAT THE ASSESSEE HAS PAID THEM ON CONTRACT FOR TRIP-TO-TRIP BASIS, AND THEIR ONLY ADDRESS WAS MENTIONED AS BRANCH OFFICE OF THE ASSESSEES BUSINESS CONCERN. WE FIND THAT THE CIT(A) HAS RECO RDED THAT THE REASONS FOR ADVANCING HUGE MONEY TO UNKNOWN PERSONS AND THAT TOO WHEN THE OPENING DEBIT BALANCE OF ALL THE ABOVE NAMED ITA NO.12/AHD/2013 -6- PERSONS IS RUNNING IN LAKHS, IS NOT A PRUDENT BUSIN ESS PRACTICE AND THE WRITTEN OFF OF THE SO-CALLED DEBT WAS NOT INCID ENTAL TO THE BUSINESS OF THE ASSESSEE. THE CIT(A) HAS FURTHER R ECORDED THAT IT WAS SEEN THAT THE AMOUNTS OF SO-CALLED DEBT WAS NOT TAKEN INTO ACCOUNT IN COMPUTING THE TOTAL INCOME OF THE ASSESS EE OF THE PREVIOUS YEAR IN WHICH IT WAS WRITTEN OFF OR AN EAR LIER YEARS. THE CIT(A) HAS CITED DECISION OF THE HONBLE SUPREME CO URT WHEREIN HELD THAT DEBT IS ALLOWABLE WHEN IT IS A DEBT AND I S INCIDENTAL TO THE BUSINESS, IT IS OF OTHER CHARACTER, IT WILL BE A CAPITAL LOSS. WE FIND THAT THERE WAS AN OPENING DEBIT BALANCE OF RS. 4,08,988/- IN THE ACCOUNT OF RAM SINGH, CONTRACT DRIVER AND LIKEW ISE, THERE WAS HUGE OPENING BALANCE IN THE CASE OF OTHER CONTRACT DRIVERS ALSO. THE ASSESSEE COULD NOT EXPLAIN THE REASON FOR SUCH HUGE OPENING DEBIT BALANCE IN THE NAME OF CONTRACT DRIVERS, WHO WERE NOT ON THE PAY ROLL OF THE ASSESSEE, EXCEPT THE GENERAL ST ATEMENT THAT THE AMOUNT WAS SETTLED AND THE BILLS WERE SUBMITTED BY THE CONTRACT DRIVERS AFTER COMPLETION OF THE TRIPS. WE FIND THA T THE BUSINESS PURPOSE OF SUCH HUGE ADVANCE/DEBIT BALANCE IN THE A CCOUNT OF CONTRACT DRIVERS COULD NOT BE ESTABLISHED BY THE AS SESSEE. THE ASSESSEE COULD NOT EXPLAIN IN WHICH YEAR THESE HUGE DEBIT BALANCE ON ACCOUNT OF THE CONTRACT DRIVERS HAS ACCUMULATED. IN THESE FACTS OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE DEBIT BALANCE IN THE ACCOUNT OF THREE CONTRACT DRIVERS WERE NOT F OR THE BUSINESS PURPOSE OF THE ASSESSEE, AND ARE MORE IN THE NATURE OF PERSONAL DEPOSITS OR ADVANCES, AND THEREFORE, IS NOT ALLOWAB LE TO THE ASSESSEE, AS DEDUCTION. ACCORDINGLY, THE ORDER OF THE CIT(A) IN ITA NO.12/AHD/2013 -7- CONFIRMING THE DISALLOWANCE OF RS.4,80,707/- OF RAM SINGH, AND RS.1,49,453/- OF SHIV SINGH AND RS.3,70,215/- KARAN SINGH, FOR CONTRACT DRIVERS, IS CONFIRMED, AND THE GROUND OF T HE APPEAL OF THE ASSESSEE TO THAT EXTENT IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( %&' %&' %&' %&'( (( ( / ANIL CHATURVEDI) )* + )* + )* + )* + /ACCOUNTANT MEMBER ( . .. . . .. . /G.C. GUPTA) !' !' !' !' /VICE-PRESIDENT C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD