M/s. Hotel Sri Lakshmi, CHENNAI V. ACIT, Coimbatore

ITA 1314/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61393 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 12-07-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 14-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA; VI KRAMADITYA
• Assessee Lawyers: S SRIDHAR
• Keywords: Bad and doubtful debts; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NO. 1314/MDS/2011 (ASSESSMENT YEAR : 2006-07) M/S HOTEL SRI LAKSHMI, NO.292, BIG BAZAAR STREET, COIMBATORE 641 001. PAN : AACFH0357H (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE III, COIMBATORE. (RESPONDENT) APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE RESPONDENT BY : SHRI VIKRAMADITYA, JCIT & DR. S. MOHARANA, CIT-DR DATE OF HEARING : 12.07.2012 DATE OF PRONOUNCEMENT : 26.07.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE, THROUGH ITS GROUNDS NOS.1 TO 14, TWO GRIEVANCES HAVE BEEN RAISED. FIRST IS REGA RDING DISALLOWANCE OF CLAIM OF BAD DEBT/BUSINESS LOSS ` 22,94,000/- CONFIRMED BY THE CIT(APPEALS). SECOND IS REGARDING ADDITION OF ` 2,50,000/- MADE FOR CREDITS APPEARING IN CURRENT ACCOUNT OF THE PARTNER OF THE ASSESSEE-FIRM AGAIN CONFIRMED BY THE CIT(APPEALS). 2 I.T.A. NO. 1314/MDS/11 2. SHORT FACTS APROPOS ARE THAT ASSESSEE RUNNING A HOTEL CALLED HOTEL SRI LAKSHMI, FILED ITS RETURN OF INCOME DECLARING T OTAL INCOME OF ` 37,31,370/-. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, IT WAS NOTED BY THE A.O. THAT ASSESSEE HAD CHARGED A SUM OF ` 22,94,000/- AS BAD DEBTS IN THE PROFIT & LOSS ACCOUNT. CLARIFICATIONS WERE SOUGHT. REPLY OF THE ASSESSEE WAS THAT THE SAID SUM WAS PAID TO A PE RSON WHO HAD PROMISED TO GET A LOAN OF ` 8 CRORES AT A LOW RATE OF INTEREST. SINCE THE DEAL DID NOT MATERIALIZE AND THE CONCERNED PERSON D UPED THE ASSESSEE, THE AMOUNT WAS CLAIMED AS BAD DEBT. ASSESSING OFFI CER, BASED ON MATERIAL PRODUCED BY THE ASSESSEE, NOTED THAT A SUM OF ` 8 CRORES WAS NEEDED BY ONE OF ITS PARTNERS SHRI K.P.S. PRAKASH F OR PURCHASE OF LAND IN COIMBATORE. ONE SHRI RAMU ALIAS RAMAR HAD PROMI SED TO ARRANGE A LOAN IF 4% STAMP FEES AND ` 5 LAKHS PAID AS SERVICE CHARGES. ACCORDINGLY, IT SEEMS THE PARTNER CONCERNED HAD PAI D ` 25 LAKHS AND ALSO GIVEN TWO BLANK CHEQUES TO SHRI RAMAR. HOWEVE R, AS PER THE ASSESSEE, THE PERSONS INVOLVED HAD DISAPPEARED THER EAFTER. ASSESSEE GAVE A COMPLAINT TO DEPUTY COMMISSIONER OF POLICE ( CRIME, LAW & ORDER), MADURAI, ON JANUARY, 2002 AND A COPY OF THE SAID COMPLAINT WAS FILED BEFORE THE ASSESSING OFFICER. ASSESSING OFFICER CAME TO A CONCLUSION THAT THE CLAIM WAS NEITHER REVENUE IN NA TURE NOR WAS IT A LOAN 3 I.T.A. NO. 1314/MDS/11 OR DEBT INCURRED IN RESPECT OF THE BUSINESS CARRIED ON BY THE ASSESSEE. HE, THEREFORE, DISALLOWED THE CLAIM. 3. BEFORE THE CIT(APPEALS), ARGUMENT OF THE ASSESSE E WAS THAT THERE WAS A PROPOSAL BY ITS NEIGHBOURING BUILDING OWNERS, OFFERING THEIR BUSINESS COMPLEX TO THE ASSESSEE. AS PER THE ASSES SEE, IT WAS PLANNING TO EXPAND ITS BUSINESS BY INCREASING THE C APACITY OF THE LODGE AND IT WAS FOR THIS PURPOSE, THE LOAN WAS BEING RAI SED. THE AMOUNT GIVEN TO THE MIDDLEMAN WAS ONLY FOR RAISING LOAN FO R THE PURPOSE OF EXPANSION OF BUSINESS. THEREFORE, ACCORDING TO ASS ESSEE, IT SHOULD BE ALLOWED EITHER AS A BAD DEBT OR AS BUSINESS LOSS. HOWEVER, CIT(APPEALS) WAS NOT IMPRESSED. ACCORDING TO HIM, THE FACTS MENTIONED BEFORE HIM WERE ENTIRELY DIFFERENT FROM WHAT WERE G IVEN IN THE COMPLAINT FILED BY THE ASSESSEE BEFORE THE POLICE. ASSESSEE COULD NOT ESTABLISH ANY BUSINESS LINK OR COMMERCIAL EXPEDIENCY FOR THE COMMISSION OF ` 25 LAKHS PAID TO SHRI RAMAR. ASSESSEE ALSO COULD NOT PRODUCE ANY AGREEMENT OR CORRESPONDENCE WHICH COULD SHOW THAT T HERE WAS ANY BUSINESS PURPOSE BEHIND THE SUM BEING GIVEN. THERE FORE, HE HELD THAT THE CLAIM WAS NOT ALLOWABLE AND SUSTAINED THE DISAL LOWANCE MADE BY THE A.O. 4. NOW BEFORE US, LEARNED A.R., STRONGLY ASSAILING THE ORDERS OF LOWER AUTHORITIES, SUBMITTED THAT ASSESSEE WAS INTENDING TO ACQUIRE NEXT DOOR 4 I.T.A. NO. 1314/MDS/11 BUILDING FOR EXTENDING ITS LODGING BUSINESS. IT HA D PLANNED EXPANSION OF EXISTING BUSINESS AND THE LOAN WAS ONLY FOR ACQUIRI NG THE SAID BUILDING. THE PAYMENT MADE TO SHRI RAMAR WAS ONLY COMMISSION FOR ARRANGING THE LOAN AND WAS NOT A PART OF LOAN AS SUCH. IT WA S PURELY AN EXPENDITURE WHICH WAS REVENUE IN NATURE. THE PROPO SAL HAD NOT MATERIALIZED, AND THERE WAS NO ASSET WHATSOEVER ACQ UIRED. HENCE THE CLAIM HAD TO BE ALLOWED AS BUSINESS LOSS OR BAD DEB T. RELIANCE WAS PLACED ON THE DECISIONS OF HONBLE APEX COURT IN TH E CASE OF BADRIDOS DEGA V. CIT (34 ITR 10) AND CIT V. NATIONAL BANK LT D. (55 ITR 707) FOR ITS CONTENTION THAT THE BUSINESS LOSS HAD TO BE ALL OWED. IF IT WAS CONSIDERED AS BAD DEBT, IT HAD TO BE ALLOWED IN VIE W OF THE DECISION OF HONBLE APEX COURT IN THE CASE OF TRF LTD. V. CIT ( 323 ITR 397). 5. PER CONTRA, LEARNED D.R. SUPPORTED THE ORDER OF CIT(APPEALS). 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. ASSESSING OFFICER HAD COME TO A CONCLUSION THAT A L OAN WAS BEING RAISED BY ONE OF THE PARTNERS, NAMELY, SHRI K.P.S. PRAKASH FOR PURCHASE OF A LAND AT COIMBATORE AND THE SAID SHRI K.P.S. PRAKASH HAD PAID TO SHRI RAMAR THE IMPUGNED SUM FOR ARRANGING SUCH LOAN. TH IS CONCLUSION WAS ARRIVED FROM THE COMPLAINT GIVEN BY SHRI K.P.S. PRA KASH TO POLICE IN JANUARY, 2002. IN THE FACE OF THE COMPLAINT GIVEN BY SHRI K.P.S. PRAKASH THAT THE SUM PAID TO SHRI RAMAR WAS FOR ARR ANGING A LOAN FOR 5 I.T.A. NO. 1314/MDS/11 ACQUIRING LAND AT COIMBATORE, THE SUBSEQUENT VERSIO N OF THE ASSESSEE THAT THE PROPOSAL WAS ONLY FOR EXPANSION OF ITS LOD GING BUSINESS, BY ACQUIRING ADJACENT PROPERTY, CANNOT BE BELIEVED AT ALL. IF THAT WAS SO, SHRI K.P.S. PRAKASH WOULD NOT HAVE STATED IN THE FI RST INSTANCE THAT THE AMOUNT WAS SOUGHT FOR PURCHASE OF LAND AT COIMBATOR E. HE COULD HAVE VERY WELL STATED THAT IT WAS FOR THE PURPOSE OF ACQ UIRING THE ADJACENT LAND. IN THE COMPLAINT FILED BEFORE THE POLICE, T HERE WAS NOT EVEN A WHISPER THAT THE PROPOSAL WAS FOR EXPANSION OF THE ASSESSEE-FIRMS BUSINESS. IT IS CLEAR THAT THE AMOUNTS WERE PAID F OR THE PARTNERS PERSONAL PURPOSE ONLY. NOTHING WAS PRODUCED BEFORE THE CIT(APPEALS) TO SHOW THAT ASSESSEE HAD ANY INTENTION TO PURCHASE ANY ADJACENT PROPERTY FOR EXPANSION OF THE BUSINESS. IT WOULD A LSO BE NAVE TO BELIEVE THAT ASSESSEE WOULD HAVE PAID A SUM OF ` 25 LAKHS JUST LIKE THAT WITHOUT ANY AGREEMENT. WITHOUT HAVING PRODUCED ANY RECORDS TO SHOW THAT THE SUM PAID WAS FOR BUSINESS PURPOSE OR FOR COMMERCIAL EXPEDIENCY, THE CLAIM, IN OUR OPINION, WAS RIGHTLY DISALLOWED. ASS ESSEE MIGHT HAVE ACCOUNTED THE PAYMENT MADE BY SHRI K.P.S. PRAKASH I N ITS BOOKS. RECORDING OF SUCH TRANSACTION BY ITSELF WOULD NOT R ENDER IT AN ALLOWABLE EXPENSE EITHER AS BAD DEBT OR AS A BUSINESS LOSS. IF IT WAS ONLY A FEE PAID FOR ARRANGING LOAN FOR THE ASSESSEES BUSINESS , THE AMOUNT NEED NOT HAVE BEEN SHOWN AS DEBT DUE FROM SHRI RAMAR. H AVING SUFFERED A PERSONAL LOSS, SHRI K.P.S. PRAKASH WAS ONLY TRYING TO CHARGE SUCH LOSS IN 6 I.T.A. NO. 1314/MDS/11 THE ACCOUNTS OF THE ASSESSEE BY CLAIMING IT AS BAD DEBT. NEITHER IT WAS ALLOWABLE AS BAD DEBT NOR AS A BUSINESS LOSS. NO B USINESS PURPOSE WAS DEMONSTRATED BY THE ASSESSEE AT ALL. AS FOR THE DE CISIONS OF HONBLE APEX COURT IN THE CASE OF BADRIDOS DEGA (SUPRA) AND NATIONAL BANK LIMITED (SUPRA) RELIED ON BY THE LEARNED A.R., BOTH ARE NOT APPLICABLE ON FACTS HERE. IN THE CASE OF BADRIDOS DAGA, THE LOSS WAS BY AN AGENT HOLDING POWER OF ATTORNEY TO OPERATE CONCERNED ASSE SSEES BANK ACCOUNT. IN THE CASE OF NATIONAL BANK LIMITED, CAS H, WHICH WAS THE STOCK-IN-TRADE OF THE CONCERNED ASSESSEE WAS LOOTED AND HENCE LOSS WAS ON ACCOUNT OF DECOITY. AS FOR THE CASE OF TRF LTD., RELIED ON BY THE LEARNED A.R., NO DOUBT IT WAS HELD THAT A CLAIM OF BAD DEBT WAS ALLOWABLE IF IT WAS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOU NTS OF THE ASSESSEE. BUT, THE SAID DECISION DOES NOT ABSOLVE AN ASSESSEE FROM PROVING THAT THE DEBT WAS INCURRED DURING THE COURSE OF BUSINESS , FOR THE PURPOSE OF ITS BUSINESS. WE ARE, THEREFORE, OF THE OPINION TH AT THE AUTHORITIES BELOW WERE JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSE SSEE. 7. THE FACTS REGARDING NEXT ISSUE RAISED BY THE ASS ESSEE ARE THAT ONE OF THE PARTNERS NAMED SHRI K.P. SUBBAIN HAD INTRODU CED THE FOLLOWING SUMS THROUGH HIS CURRENT ACCOUNT INTO THE BUSINESS: - 7 I.T.A. NO. 1314/MDS/11 01.09.2005 BY CHEQUE ` 25,000 - DO - BY CHEQUE ` 5,25,000 01.10.2005 BY CASH ` 2,00,000 14.02.2006 BY CASH ` 1,00,000 19.03.2006 BY CASH ` 1,00,000 24.03.2006 BY CASH ` 1,00,000 28.03.2006 BY CASH ` 1,00,000 30.03.2006 BY CASH ` 1,00,000 8. EXPLANATION OF THE ASSESSEE WAS THAT THE SAID SU MS WERE REFLECTED IN SHRI SUBBAINS INDIVIDUAL ACCOUNT AND BOOKS OF A CCOUNTS WERE ALSO PRODUCED. HOWEVER, THE ASSESSING OFFICER WAS OF TH E OPINION THAT FOR ` 2 LAKHS INTRODUCED ON 1.10.12005 AND ` 1 LAKHS INTRODUCED ON 28.3.2006, SHRI SUBBAIN COULD NOT GIVE ANY EXPLANAT ION. THEREFORE, THE SAID SUMS WERE ADDED IN THE HANDS OF THE ASSESSEE A S UNEXPLAINED CASH. 9. ASSESSEES APPEAL ON THIS ISSUE BEFORE CIT(APPEA LS), DID NOT MEET WITH ANY SUCCESS. 10. NOW BEFORE US, LEARNED A.R. SUBMITTED THAT ADDI TIONS WERE MADE IN THE HANDS OF THE ASSESSEE, WHEREAS, INTRODUCTION OF THE SUMS WERE DONE IN THE CAPITAL ACCOUNT OF THE PARTNER. SHRI S UBBAIN WAS A KNOWN PERSON AND HAD PRODUCED HIS BOOKS IN SUPPORT. IF A T ALL AN ADDITION SHOULD HAVE BEEN MADE, IT SHOULD HAVE BEEN MADE IN THE HANDS OF SHRI SUBBAIN AND NOT IN THE HANDS OF THE FIRM. 8 I.T.A. NO. 1314/MDS/11 11. PER CONTRA, LEARNED D.R. SUPPORTED THE ORDER OF CIT(APPEALS). HE RELIED ON THE DECISIONS OF HONBLE APEX COURT IN TH E CASE OF KALE KHAN MOHAMMAD HANIF. V. CIT (50 ITR 1) AND HONBLE CALCU TTA HIGH COURT IN THE CASE OF CIT V ASHOK TIMBER INDUSTRIES (125 ITR 336). 12. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. IT IS NOT DISPUTED THAT THE ADDITION MADE WAS FOR INTRODU CTION MADE BY ONE OF THE PARTNERS SHRI K.P. SUBBAIN INTO THE ASSESSEE-FI RM THROUGH HIS CAPITAL ACCOUNT. IT IS ALSO CLEAR FROM THE ASSESSMENT ORDE R THAT IN THE BOOKS OF ACCOUNTS OF SHRI SUBBAIN, THE RELEVANT TRANSACTIONS WERE AVAILABLE. MAY BE IT IS TRUE THAT SHRI SUBBAIN WAS NOT ABLE TO EXP LAIN THE INTRODUCTION TO THE EXTENT OF ` 2-1/2 LAKHS. NO DOUBT, THE BURDEN OF PROVING SOUR CE OF MONEY FOUND, TO HAVE BEEN CREDITED BY AN ASSESSEE, IS ON THE ASSESSEE AS RULED BY HONBLE APEX COURT IN THE CASE OF KALE KHAN MOHAMMAD HANIF (SUPRA). IN THAT CASE, HONBLE APEX COURT WA S SEIZED OF CREDITS ENTERED IN ASSESSEES BOOKS, WHICH WERE NOT APPEARI NG IN ASSESSEES NAME, BUT, IN SOME OTHER NAME. HERE, ON THE OTHER HAND, CAPITAL INTRODUCED WAS BY THE PARTNER AND HENCE IT WOULD NO T COME WITHIN THE DEFINITION OF CASH CREDIT AUTOMATICALLY. IF THE PARTNER WAS UNABLE TO GIVE EXPLANATION WHICH WAS SATISFACTORY, AN ADDITION NO DOUBT COULD HAVE BEEN MADE IN THE HANDS OF SAID PARTNER. THE AMOUNT S WERE NOT DEPOSITS MADE BY THE PARTNER. RELIANCE PLACED BY THE LEARNE D D.R. IN THE CASE OF 9 I.T.A. NO. 1314/MDS/11 CIT V ASHOK TIMBER INDUSTRIES (SUPRA) DECIDED BY HO NBLE CALCUTTA HIGH COURT ALSO WOULD NOT HELP, IN OUR OPINION. THE REA SON IS THAT THERE THE INTRODUCTION IN THE CAPITAL ACCOUNT WAS COMING IN A RECONSTITUTION OF THE FIRM. HERE, ON THE OTHER HAND, THERE IS NO SUCH RE CONSTITUTION AND THE IDENTITY OF THE PARTNER WAS KNOWN. THUS, IN OUR OP INION, ADDITION MADE IN THE HANDS OF THE ASSESSEE CANNOT BE JUSTIFIED. SUC H ADDITION OF ` 2,50,000/- IS DELETED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 26 TH OF JULY, 2012, AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 26 TH JULY, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-I, COIMBATORE (4) CIT-I, COIMBATORE (5) D.R. (6) GUARD FILE