GENRE EXPORTS P. LTD, MUMBAI V. ITO 2(1)(4), MUMBAI

ITA 1763/MUM/2012

• Counselvise Citation: 176319914 RSA 2012
• Duration Of Justice: 2 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 10-02-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 14-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PAVAN KUMAR BIRLA
• Assessee Lawyers: DR K SHIVRAM
• Keywords: Bad and doubtful debts

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND VIVEK VARMA, (JM) .. , , ./ I.T.A. NO.1763/MUM/2012 ( / ASSESSMENT YEAR : 2003-04 ) M/S GENRE EXPORTS PRIVATE LIMITED, 11, ORIENT INSURANCE BLDG, 31, DR.V.B.GANDHI MARG, MUMBAI-400023 / VS. INCOME TAX OFFICER 2(1)(4), AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 ( ! / APPELLANT) .. ( '# ! / RESPONDENT) ./ $ ./PAN/GIR NO. :AAACG5395H ! % /APPELLANT BY : DR.K SHIVRAM '# ! & % /RESPONDENT BY: SHRI PAVAN KUMAR BIRLA ' ( & )* / DATE OF HEARING : 10.2.2015 +, & )* /DATE OF PRONOUNCEMENT :18.2.2015 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 15.12.2011 PASSED BY LD CIT(A)-4, MUMBAI CONFIRMING THE ASSESSMENT OF RS.1.00 CRORE MADE BY THE AO U/S 41(1) OF THE INCO ME TAX ACT, 1961 (THE ACT. 2. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . THE FACTS THAT ARE RELEVANT ARE THAT THE ASSESSEE HAD TAKEN AN ADV ANCE OF RS.1.00 CRORE FROM M/S UNITED BREWERIES LTD FOR SUPPLYING A PRODU CT NAMED HOP EXTRACT OVER A PERIOD OF TIME. HOWEVER, THE ASSES SEE FAILED TO SUPPLY THE I.T.A. NO.1763/MUM/2012 2 HOP EXTRACT AND ALSO FAILED TO REPAY THE ADVANCE. THE AO MADE INQUIRIES FROM M/S UNITED BREWERIES LTD AND FOUND THAT THE SA ID COMPANY HAS WRITTEN OFF THE ADVANCE PAID BY IT TO THE ASSESSEE AS IRRECOVERABLE. ACCORDINGLY THE AO, BY PLACING RELIANCE ON THE DECI SION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF CIT VS. T.V. SUNDAR AM IYENGAR AND SONS (222 ITR 344), ASSESSED THE ABOVE SAID ADVANCE OF R S.1.00 CRORE AS INCOME OF THE ASSESSEE BY WAY OF REMISSION OF LIABI LITY BY INVOKING THE PROVISIONS OF SEC. 41(1) OF THE ACT. THE LD. CIT(A ) ALSO CONFIRMED THE SAME AND HENCE THE ASSESSEE HAS FILED THIS APPEAL B EFORE US. 3. DURING THE COURSE OF HEARING BEFORE US, THE LD. AR CONTENDED THAT THE ASSESSEE IS STILL SHOWING THE AMOUNT OF RS.1.00 CRORE AS ITS LIABILITY AND HENCE IT CANNOT BE SAID THAT THERE WAS CESSATION OF LIABILITY. THE LD. AR FURTHER SUBMITTED THAT THE PROVISIONS OF SEC. 41(1) SHALL APPLY ONE IF ANY ALLOWANCE OR DEDUCTION IS CLAIMED IN RESPECT OF RS. 1.00 CRORES. HOWEVER, THE ASSESSEE HAS NOT CLAIMED ANY ALLOWANCE OR DEDUC TION IN RESPECT OF THE AMOUNT OF RS.1.00 CRORE AND HENCE THE TAX AUTHORITI ES HAVE ERRED IN LAW IN APPLYING THE PROVISIONS OF SEC. 41(1) OF THE ACT. 4. ON THE CONTRARY, THE LD. DR STRONGLY DEFENDED TH E ORDERS OF LD. CIT(A). 5. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS R ECEIVED THE AMOUNT OF RS.1.00 CRORE FOR SUPPLY OF MATERIALS TO M/S UNI TED BREWERIES LIMITED. THOUGH THE LD A.R CONTENDED THAT IT WAS A CAPITAL R ECEIPT, YET IT IS SEEN I.T.A. NO.1763/MUM/2012 3 THAT THE AMOUNT RECEIVED BY THE ASSESSEE, BEING FOR SUPPLY OF MATERIALS, WOULD CONSTITUTE A TRADING RECEIPT ONLY, SINCE THE SAME WOULD GET ADJUSTED AGAINST THE SUPPLY OF MATERIALS TO M/S UNITED BREWE RIES LTD. WE NOTICE THAT THE TAX AUTHORITIES HAS FOLLOWED THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT V/S T V SUNDARAM IYENGAR AND SONS LTD (SUPRA). THE PRINCIPLE LAID DOWN BY THE HONBLE SU PREME COURT IN THE ABOVE SAID CASE ARE EXTRACTED BELOW : . THE PRINCIPLE LAID DOWN BY ATKINSON, J., APPLIES I N FULL FORCE TO THE FACTS OF THIS CASE. IF A COMMONSENSE VIEW OF THE MA TTER IS TAKEN, THE ASSESSEE, BECAUSE OF THE TRADING OPERATION, HAD BEC OME RICHER BY THE AMOUNT WHICH IT TRANSFERRED TO ITS PROFIT AND L OSS ACCOUNT. THE MONEYS HAD ARISEN OUT OF ORDINARY TRADING TRANSACTI ONS. ALTHOUGH THE AMOUNTS RECEIVED ORIGINALLY WAS NOT OF INCOME N ATURE, THE AMOUNTS REMAINED WITH THE ASSESSEE FOR A LONG PERIO D UNCLAIMED BY THE TRADE PARTIES. BY LAPSE OF TIME, THE CLAIM OF T HE DEPOSIT BECAME TIME BARRED AND THE AMOUNT ATTAINED A TOTALLY DIFFE RENT QUALITY. IT BECAME A DEFINITE TRADE SURPLUS, ATKINSON, J. POINT ED OUT THAT IN TATTERSALLS CASE (1939) 7 ITR 316 (CA) NO TRADING ASSET WAS CREATED. MERE CHANGE OF METHOD OF BOOK-KEEPING HAD TAKEN PLACE. BUT, WHERE A NEW ASSET CAME INTO BEING AUTOMATICALL Y BY OPERATION OF LAW, COMMON SENSE DEMANDED THAT THE AMOUNT SHOUL D BE ENTERED IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR AND BE TREATED AS TAXABLE INCOME. IN OTHER WORDS, THE PRINCIPLE APPEARS TO BE THAT IF AN AMOUNT IS RECEIVED IN COURSE OF TRADING TRANSACTION, EVEN THOUGH IT IS NOT TAXABLE IN THE Y EAR OF RECEIPT AS BEING OF REVENUE CHARACTER, THE AMOUNT C HANGES ITS CHARACTER WHEN THE AMOUNT BECOMES THE ASSESSEE' S OWN MONEY BECAUSE OF LIMITATION OR BY ANY OTHER STATUTO RY OR CONTRACTUAL RIGHT. WHEN SUCH A THING HAPPENS, COMMONSENSE DEMANDS THAT THE AMOUNT SHOULD BE TREAT ED AS INCOME OF THE ASSESSEE. THUS, IT CAN BE SEEN THAT THE HONBLE SUPREME COUR T HAS HELD THAT IF THE AMOUNT RECEIVED IN THE COURSE OF TRADING TRANSACTIO N EVEN THOUGH IT IS NOT TAXABLE IN THE YEAR OF RECEIPT AS BEING REVENUE CHA RACTER, THE AMOUNT I.T.A. NO.1763/MUM/2012 4 CHANGES IS CHARACTER WHEN IT BECOME ASSESSEES OWN MONEY BECAUSE OF LIMITATION OR BY ANY OTHER STATUTORY OF CONTRACTUAL RIGHT. IT IS FURTHER HELD THAT WHEN SUCH THING HAPPENS, COMMONSENSE DEMANDS T HAT THE AMOUNT SHOULD BE TREATED AS INCOME OF THE ASSESSEE. 6. BEFORE US, THE LD A.R TRIED TO DISTINGUISH THE D ECISION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF T.V. SUNDARAM IYENGAR AND SONS (SUPRA) BY SUBMITTING THAT THE ASSESSEE THEREIN HAD CREDITED ITS PROFIT AND LOSS ACCOUNT WITH THE UNCLAIMED LIABILITIES AND THE ASSESSEE HEREIN DID NOT DO SO, BUT CONTINUE TO SHOW THE AMOUNT OF RS.1.00 C RORE AS LIABILITY ONLY. IN OUR VIEW, THE ENTRIES PASSED IN THE BOOKS OF ACC OUNT IS ONLY ONE OF THE CRITERIA TO DETERMINE THE NATURE OF TRADING LIABILI TY, I.E., WHETHER THE CHARACTER OF THE SAME HAS UNDERGONE A CHANGE OR NOT AND THE SAME CANNOT BE CONSIDERED TO BE THE SOLE CRITERIA OR THE RATIO OF THE DECISION OF HONBLE SUPREME COURT. 7. IN THE INSTANT CASE, THE ASSESSEE HAS FURNIS HED A COPY OF THE JOURNAL VOUCHER DATED 31.3.2003 BEARING NO.KF/JV/244 PREPA RED BY M/S UNITED BREWERIES LTD (HOLDING) LIMITED, BANGALORE AT PAGE NO. 34 OF THE PAPER BOOK. A PERUSAL OF THE SAID DOCUMENTS WOULD SHOW T HAT M/S UNITED BREWARIES (HOLDINGS) LIMITED HAD INITIALLY CREATED A PROVISION FOR WRITING OFF THE ADVANCE AMOUNT OF RS.1.00 CRORE GIVEN TO THE AS SESSEE IN AN EARLIER YEAR. HOWEVER, AS ON 31.3.2003, M/S UNITED BREWERI ES (HOLDINGS) LIMITED HAS ULTIMATELY WRITTEN OFF THE AMOUNT OF RS.1.00 CR ORE AS BAD DEBTS, I.T.A. NO.1763/MUM/2012 5 MEANING THEREBY THE IMPUGNED AMOUNT OF RS. ONE CRO RE HAS BEEN WAIVED OFF BY M/S UNITED BREWERIES LIMITED. THUS, BY VIR TUE OF WRITING OFF OF THE ADVANCE BY THE PAYER, THE ASSESSEE HAS BECOME RICHE R BY THAT AMOUNT, MEANING THEREBY, THE CHARACTER OF THE TRADING LIABI LITY HAS UNDERGONE A CHANGE AND IT HAS BECOME INCOME IN THE HANDS OF THE ASSESSEE. HENCE, WE ARE OF THE VIEW THAT THE TAX AUTHORITIES ARE JUS TIFIED IN ASSESSING THE AMOUNT OF RS.1.00 CRORE BY APPLYING THE PRINCIPLE L AID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF T V SUNDARAM IYENGAR A ND SONS LTD (SUPRA). 8. EVEN THOUGH THE AO HAS MADE A REFERENCE TO THE P ROVISIONS OF SECTION 41(1) OF THE ACT, IN OUR VIEW, IT MAY NOT B E RELEVANT FOR BRINGING THE AMOUNT OF RS.1.00 CRORE AS INCOME OF THE ASSESS EE, SINCE UNDER GENERAL PRINCIPLES, I.E., BY APPLYING THE PRINCIPLE LAID DOWN IN THE CASE OF T V SUNDARAM IYENGAR AND SONS LTD (SUPRA), THE SAME H AS BECOME THE INCOME OF THE ASSESSEE. ACCORDINGLY, WE UPHOLD THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 18TH FEB,2015. +, ' - . / 18TH FEB,2015 , & 0( 1 SD SD ( / VIVEK VARMA) ( . . / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ' ( MUMBAI: 18TH FEB,2015. . . ./ SRL , SR. PS I.T.A. NO.1763/MUM/2012 6 !'#$ %$&' / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT. 3. ' 3) ( ) / THE CIT(A)- CONCERNED 4. ' 3) / CIT CONCERNED 5. 40 ') 5 , * 5 , ' ( / DR, ITAT, MUMBAI CONCERNED 6. 06 7( / GUARD FILE. 8 ' / BY ORDER, TRUE COPY 9 (ASSTT. REGISTRAR) * 5 , ' ( /ITAT, MUMBAI