D.C.I.T.-8(1)(2), MUMBAI V. CLARAZIA MULTI-MODAL CARRIERS PVT LTD., MUMBAI

ITA 1798/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2471 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 15-04-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 04-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S BISTDR
• Assessee Lawyers: MITESH N SHAH
• Keywords: Business expenditure; Search and seizure; Bad and doubtful debts; Difference of opinion; Assessment record; Change of opinion
• Section: 143(3); 147; 148; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBE R AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER I.T.A. NO.1798/MUM/2011 (ASSESSMENT YEAR: 2003-04) ITO-8(1)(2),R.NO.205, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020 V. CLARAZIA MULTI-MODAL CARRIERS PRIVATE LIMITED, LOK DARSHAN, ROW HOUSE NO.3, MILITARY ROAD, MAROL, ANDHERI(E), MUMBAI-400059 PAN/GIR NO. AAACC1622P ( A PPELLANT ) : ( RESPONDENT ) APPELLANT REVENUE BY : SHRI B.S. BIST,DR RESPONDENT BY : SHRI MITESH N. SHAH DATE OF HEARING : 12.10.2015 DATE OF PRONOUNCEMENT : 18.11.2015 O R D E R PER RAMIT KOCHAR ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGA INST THE ORDERS BY THE COMMISSIONER OF INCOME TAX (APPEALS)-16, MUMBAI (HE REINAFTER CALLED THE CIT(A)) DATED 16.12.2010 ADJUDICATED AGAINST THE A SSESSEES COMPANY APPEAL CONTESTING ITS ASSESSMENT U/S.143(3) READ WITH SECT ION 147 OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) FOR THE ASSESSM ENT YEAR 2003-04. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN T HE MEMO OF APPEAL FILED ARE: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE A.O. HAD WRONGLY A SSUMED JURISDICTION U/S.147 STATING THAT THERE WAS NO NEW MATERIAL IN T HE A.O.S POSSESSION AND IT IS A CASE OF MERE CHANGE OF OPINION, WITHOUT APP RECIATING THAT THE 2 I.T.A. NO.1798/MUM/2011 (ASSESSMENT YEAR: 2003-04) IMPUGNED FACT CAME TO THE KNOWLEDGE OF THE A.O. SUB SEQUENT TO PASSING THE ORIGINAL ASSESSMENT ORDER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.12,32,7 69/- BEING BAD DEBTS, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS A DEBTOR FOR RS.15,00,000/- OF THE DEBTOR WHOSE DEBIT BALANCE OF RS.12,32,769/- HAD BEEN WRITTEN OFF BY THE ASSESSEE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT INSP ITE OF THE BUSINESS TRANSACTIONS BETWEEN THE ASSESSEE AND ORIENT SHIPPI NG AGENCY PVT. LTD.(OSA), THE ASSESSEE UNILATERALLY WROTE OFF THE AMOUNT OF RS.12,32,769/- DUE FROM OSA AS A BAD DEBT WHILE SIMULTANEOUSLY P ROFESSING IGNORANCE THAT IN THE BALANCE SHEET OF OSA, ITS OWN DEBIT BAL ANCE OF RS.15,00,000/- WAS CORRESPONDINGLY NOT APPEARING AS AN ASSET AS ON 31.03.2003. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION, WITHOUT APPR ECIATING THAT THESE FACTS HAVE NOT BEEN DISPUTED BY THE ASSESSEE. 5. THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT(A) O N THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED. 6. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF CARRIERS OF GOODS . THE ASSESSEE COMPAN YS CASE WAS SELECTED UNDER SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S.143(3 ) OF THE ACT ON 13 TH MARCH, 2006. IN THE ASSESSMENT ORDER IT WAS STATED THAT NO BUSIN ESS WAS CARRIED OUT DURING THE YEAR , HENCE EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT WAS NOT ALLOWED AND THE INCOME WAS ASSESSED AT NIL. IT WAS OBSERVED BY THE ASSESSI NG OFFICER(HEREINAFTER CALLED THE AO) THAT SINCE THE RETURN OF INCOME WAS FILED LATE BY THE ASSESSEE COMPANY, HENCE 3 I.T.A. NO.1798/MUM/2011 (ASSESSMENT YEAR: 2003-04) THE LOSS WAS NOT ALLOWED TO BE CARRIED FORWARD. SUB SEQUENTLY, THE CASE WAS REOPENED U/S 147 OF THE ACT AND NOTICE DATED 20.07.2007 U/S 148 OF THE ACT WAS ISSUED AND SERVED UPON THE ASSESSEE COMPANY PROPOSING TO RE-AS SESS THE INCOME OF THE ASSESSEE COMPANY. THE ASSESSEE COMPANY STATED THAT THE ORIGI NAL RETURN FILED BE TREATED AS RETURN OF INCOME HAVING BEEN FILED IN RESPONSE TO T HE NOTICE U/S.148 OF THE ACT. THE ASSESSEE COMPANY WAS GIVEN REASONS FOR REOPENING TH E ASSESSMENT WHICH ARE REPRODUCED AS UNDER:- AFTER THE VERIFICATION OF THE RECORDS, IT IS OBSER VED THAT THE ASSESSEE HAS RECEIVED UNSECURED LOANS OF RS.15 LACS FROM ORIENT SHIP AGENCY PVT. LTD. WHICH WAS OUTSTANDING AS ON 31.3.2007. HOWEVER, TH ERE IS NO CORRESPONDING ENTRY IN THE BOOKS OF ORIENT SHIP AGENCY P. LTD. THE ASSESSEE IN TURN HAS EXTENDED CREDIT OF RS.12,32,769/- WHICH IS SHOWN A S SUNDRY CREDITORS IN THE ACCOUNTS. THE ASSESSEE HAS CLAIMED BAD DEBTS AMOUNTING TO RS .12,32,769/- ON ACCOUNT OF M/S. ORIENT SHIP AGENCY P. LTD. THE ASSESSEE HAD T HE FUNDS OF RS.15 LACS AT ITS DISPOSAL TO ADJUST THE AMOUNT OF RS.12.32 LACS EXT ENDED TO M/S. ORIENT SHIP AGENCY P. LTD. THE ASSESSEE HOWEVER INSTEAD OF ADJ USTING THE AMOUNT AGAINST THE AMOUNT LYING WITH IT, BOUGHT OFF THE AMOUNT AS BAD DEBTS IN THE PROFIT & LOSS ACCOUNT. FROM THE FACTS OF THE CASE, IT IS QU ITE CLEAR THAT THE AMOUNT CLAIMED AS BAD DEBTS WAS RECOVERABLE BY THE ADJUST MENT IN THE BOOKS OF ACCOUNTS AND THEREFORE, IT CANNOT BE A BAD DEBTS. THEREFORE, I HAVE REASONS TO BELIEVE THAT THE INCOME OF THE ASSESSEE TO THE TUN E OF RS.12.32 LACS HAS BEEN ESCAPED FROM THE ASSESSMENT AND THE CASE IS REQUIR ED TO BE REOPENED U/S. 147(C) OF THE INCOME-TAX ACT. 4. THE ASSESSEE COMPANY OBJECTED TO THE REOPENING O F THE ASSESSMENT AS BAD IN LAW BECAUSE IN THE OPINION OF THE ASSESSEE COMPANY IT WAS BASED UPON CHANGE OF OPINION. THE AO MADE AN ADDITION REJECTING THE CONT ENTIONS OF THE ASSESSEE COMPANY BY DISALLOWING BAD DEBTS OF RS.12,32,769/- CLAIMED BY THE ASSESSEE COMPANY ON ACCOUNT OF WRITE OFF OF BALANCE OF ORIENT SHIP AGEN CY P. LTD.(HEREINAFTER CALLED THE 4 I.T.A. NO.1798/MUM/2011 (ASSESSMENT YEAR: 2003-04) OSA) AMOUNTING TO RS.12,32,769/- BECAUSE IN THE OP INION OF THE AO, THE ASSESSEE COMPANY HAS ALSO OUTSTANDING IN BOOKS OF ACCOUNT O F UNSECURED LOAN PAYABLE OF RS.15 LACS, RAISED BY THE ASSESSEE COMPANY FROM OSA AND THE ASSESSEE COMPANY HAS NOT SHOWN ANY INCOME ON ACCOUNT OF THE CESSATION OF ASSESSEES LIABILITY OF RS.15,00,000/- ON ACCOUNT OF THESE UNSECURED LOAN A ND ALSO IN THE BALANCE SHEET OF OSA UNDER THE HEADING LOANS AND ADVANCES THIS AMO UNT OF RS.15,00,000/- RECEIVABLE FROM THE ASSESSEE COMPANY HAS NOT BEEN R EFLECTED AS OUTSTANDING FROM THE ASSESSEE COMPANY. THE AO ALSO REJECTED THE CHALLENG E BY THE ASSESSEE COMPANY TO RE- OPENING BY STATING THAT THE REASONS TO BELIEVE FOR RE-OPENING WOULD MEAN , CAUSE OR JUSTIFICATION AND CANNOT BE READ TO MEAN THAT AO SH OULD HAVE FINALLY ASCERTAINED THE FACT BY LEGAL EVIDENCE OR CONCLUSION BY RELYING ON DECISION OF ACIT V. RAJESH JHAVERI STOCK BROKERS PRIVATE LIMITED 291 ITR 500. THE ASSE SSEE COMPANY ALSO SUBMITTED BEFORE AO AS UNDER: (2) SIR, TILL THE TIME OF RECEIPT OF NOTICE WE WER E UNDER BONAFIDE IMPRESSION THAT UNSECURED LOAN IS PAYABLE BY US TO ORIENT SHI P AGENCY PVT. LTD. (3)SIR, WE HAVE NOT RECEIVED ANY LETTER/ CONFIRMA TION FROM ORIENT SHIP AGENCY PVT. LTD. STATING THAT THE SAID UNSECURED LOAN IS NOT REPAYABLE TO THEM. THUS , THE ASSESSEE COMPANY SUBMITTED THAT THE UNSE CURED LOAN LIABILITY OF RS.15,00,000/- PAYABLE TO OSA IS OUTSTANDING FOR PA YMENT AS ON 31-03-2003 AND THEREFORE COULD NOT BE SHOWN AS INCOME OF THE ASSES SEE COMPANY AND THE ASSESSEE COMPANY WROTE OFF RS 12,32,769/- RECEIVABLE BY IT A S TRADE DEBT FROM OSA IN ITS BOOKS OF ACCOUNTS AS THE AMOUNT BEING IRRECOVERABLE . THE AO HELD THAT ON THE ONE HAND THE ASSESSEE COMPANY SUBMITTED THAT THEY THEMS ELVES WAS NOT KNOWING AS TO THE LIABILITY OF UNSECURED LOAN OF RS.15 LACS HAS CEASE D AND THEY WERE UNDER BONAFIDE 5 I.T.A. NO.1798/MUM/2011 (ASSESSMENT YEAR: 2003-04) BELIEF THAT THIS LIABILITY OF RS.15,00,000/- WAS P AYABLE TO OSA AS ON 31.03.2003, THEREFORE, THEY COULD NOT SHOW AS AN INCOME AND ON THE OTHER HAND THE ASSESSEE COMPANY WROTE OFF RS.12,32,769/- IN ITS BOOKS OF AC COUNTS RECEIVABLE FROM ITS DEBTOR OSA WHILE THE ASSESSEE COMPANY COULD HAVE EASILY AD JUSTED RS.12,32,769/- AGAINST RS.15,00,000/- PAYABLE TO OSA AND RECOVERED THE AFO RE-STATED TRADE DEBT , HENCE BAD DEBTS OF RS.12,32,769/- WAS DISALLOWED AND ORDER OF ASSESSMENT DATED 31.12.2008 WAS PASSED U/S 143(3) READ WITH SECTION 147 OF THE ACT 5. AGGRIEVED BY THE AFORE-STATED ASSESSEMENT ORDER, THE ASSESSEE COMPANY FILED FIRST APPEAL CHALLENGING THE RE-OPENING AS WELL AS AN ADDITION MADE ON MERITS AND REITERATED ITS SUBMISSIONS AS MADE BEFORE THE AO. T HE ASSESSEE COMPANY SUBMITTED THAT A DISPUTE AROSE BETWEEN DIRECTORS WHICH IS STI LL UNRESOLVED THAT THE BUSINESS OPERATIONS HAS COME TO STAND STILL SINCE JULY 1995 ONWARDS. AT THE TIME OF FINALIZATION OF ACCOUNTS, THE ASSESSEE COMPANY WROTE OFF SUNDRY DEBTORS OF RS.22,83,218/- RELATED TO THE BUSINESS WHICH INCLUDED A SUM OF RS.12,32,76 9/- RECEIVABLE FROM OSA AND ALSO SUNDRY CREDITORS OF RS.22.94,584/- WAS WRITTEN OFF , THE DETAILS OF WHICH WERE GIVEN BEFORE THE AO THE DEBT OF RS.12,32,769/- WAS RECEI VABLE FROM OSA IN RESPECT OF SERVICES PROVIDED BY THE ASSESSEE COMPANY TO OSA AN D THERE WAS ALSO LOAN OUTSTANDING TO BE PAYABLE TO OSA OF RS. 15,00,000/- IN ITS BOOKS OF ACCOUNTS. THE NATURE OF TRANSACTIONS IN BOTH THESE ACCOUNTS IS DI FFERENT WHILE SUNDRY DEBTOR IS TAKEN INTO ACCOUNT WHILE COMPUTING INCOME OF THE ASSESSEE COMPANY WHILE UNSECURED LOAN RAISED BY THE ASSESSEE COMPANY IS IN THE NATURE OF CAPITAL OR BORROWING. THE SET OFF OF THESE TWO TRANSACTIONS ARE NOT PERMISSIBLE MORE SO WHEN OSA HAS NOT GIVEN ITS CONSENT. THE CLAIM OF BAD DEBT CANNOT BE DENIED TO THE ASSESSEE COMPANY WHEN THE ASSESSEE COMPANY HAS WRITTEN OFF RS.12,32,769/- AS IRREVOCABLE IN ITS BOOKS OF ACCOUNTS AND ALL THE CONDITIONS OF SECTION 36(1)(VI I) OF THE ACT ARE FULLY MET AND DEDUCTION CANNOT BE DENIED TO THE ASSESSEE COMPANY 6 I.T.A. NO.1798/MUM/2011 (ASSESSMENT YEAR: 2003-04) THE CIT(A) HELD THAT THERE IS NO NEW MATERIAL BEFO RE THE ASSESSING OFFICER AND IT IS MERELY A CASE OF CHANGE OF OPINION AND ALL THE DET AILS AND INFORMATION WERE ALREADY BEFORE THE AO WHILE FRAMING THE ORIGINAL ASSESSMENT U/S.143(3) OF THE ACT. THE ASSESSEE COMPANY CONTENDED BEFORE THE CIT(A) THAT REASONS WAS NOT PROVIDED TO THE ASSESSEE COMPANY DURING THE ASSESSMENT PROCEEDINGS WHICH THE CIT(A) DULY PROVIDED TO THE ASSESSEE COMPANY. THE CIT(A) HELD THAT THE L D. AO HAS NOT COME TO ANY CONCLUSION THAT THE INFORMATION PROVIDED BY THE ASS ESSEE IN THE ORIGINAL ASSESSMENT WAS NOT CORRECT RATHER THE FINDINGS IS THAT THE INF ORMATION RECORDED ARE CORRECT BUT THE TRANSACTIONS SHOULD HAVE BEEN WRITTEN IN A PARTICUL AR MANNER WHICH IS NOT A PURPOSE FOR WHICH THE PROVISIONS OF SECTION 147/148 OF THE ACT CAN BE RESORTED TO NOR THE AO HAS SHOWN THAT ANY INCOME HAS ESCAPED ASSESSMENT. T HE AO HAS NO NEW MATERIAL IN HIS POSSESSION EXCEPT THE NEW OPINION THAT THE ASSE SSEE COMPANY SHOULD HAVE ADJUSTED THE BAD DEBTS OF RS.12,32,769/- AGAINST THE LOAN O F RS.15,00,000/- OUTSTANDING AGAINST THE SAME PARTY IN THE ASSESSEES COMPANY BOOKS OF A CCOUNT WHICH IS NOTHING BUT THE CHANGE OF OPINION . ON MERITS, THE CIT(A) HELD THAT THE INALIENABLE FA CTS ARE THAT DEBT HAS BECOME BAD AND THERE IS NO DISPUTE ON THIS ISSUE BOTH BY THE A O AS WELL AS BY THE ASSESSEE COMPANY . THE ONLY DISPUTE IS THAT CAN THE BAD DEB T OF OSA BE ADJUSTED AGAINST THE LOAN OUTSTANDING FOR PAYMENT IN FAVOR OF THE OSA IN THE BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY WHICH IN THE OPINION OF CIT(A) HAS ERRONEOUSLY BEEN REJECTED BY THE ASSESSING OFFICER WITHOUT APPRECIATING THE LAW POSITION IN THIS REGARD AND ALSO THE NATURE OF TRANSACTIONS INVOLVED. THE CIT(A) HELD TH AT THE FIRST TRANSACTION IS TRADE TRANSACTIONS WHEREBY THE DEBT OF RS.12,32,769/- AR OSE OUT OF THE TRADE TRANSACTIONS AND HAVING BECOME BAD AND IRRECOVERABLE , THE ASSES SEE COMPANY WAS JUSTIFIED IN WRITING OFF THE SAME AS BAD DEBTS AND THE AMOUNT IS DEDUCTIBLE U/S.36(1)(VII) OF THE 7 I.T.A. NO.1798/MUM/2011 (ASSESSMENT YEAR: 2003-04) ACT READ WITH SECTION 36(2) OF THE INCOME-TAX ACT W HILE COMPUTING INCOME UNDER THE HEAD PROFITS AND GAINS OF PROFESSION FOR WHICH TH E REQUIREMENT IS AS UNDER:- 1.THERE HAS TO BE A DEBT WHICH HAS BECOME BAD IN R ESPECT OF THE BUSINESS CARRIED ON BY ASSESSEE OR THE LOAN IS GRA NTED BY THE ASSESSEE IN THE COURSE OF THE BUSINESS OF BANKING OR MONEY LENDING. 2.IT HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE I NCOME OF THE ASSESSEE IN THE YEAR IN WHICH SUCH DEBTS IS WRITTEN OFF OR IN THE EARLIER YEARS. 3.IT IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE IN THE YEAR IN WHICH DEDUCTION IS CLAIMED. THE SECOND TRANSACTION OF UNSECURED LOAN OF RS.15,0 0,000/- IS A SEPARATE TRANSACTION RELATES TO THE LOAN TRANSACTIONS IN WHICH THE ASSES SEE COMPANY HAS RECEIVED THE UNSECURED LOAN FROM OSA OF RS.15,00,000/- AND THIS IS NOT A TRADE TRANSACTION AND FALLS IN THE NATURE OF THE CAPITAL TRANSACTIONS. TH E CIT(A) HELD THAT THE FINDINGS OF THE ASSESSING OFFICER THAT THIS LIABILITY CEASES TO EXI ST AS IN THE BALANCE SHEET OF OSA , THE SAID LOAN IS NOT APPEARING AS LOAN AND ADVANCE I S NOT CORRECT. THE LIABILITY DOES NOT CEASE TO EXIST UNTIL AND UNLESS THE OTHER PARTY THR OUGH ITS EXPLICIT CONSENT CEASES THE SAME OR IT CEASES BY OPERATION OF LAW. THE CIT(A) R EFERS TO THE PROVISION OF SECTION 41(1) AND RELIED UPON CCIT V. KESARIA TEA COMPANY ( 2002) 252 ITR 434 WHEREBY IT IS HELD THAT THE FOLLOWING POINTS ARE TO BE KEPT IN VIEW:- (1)IN THE COURSE OF THE ASSESSMENT FOR AN EARLIER YEAR, ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT OF TRADING LIABILITY INCU RRED BY THE ASSESSEE; (2) SUBSEQUENTLY, A BENEFIT IS OBTAINED IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF DURING THE YE AR IN WHICH SUCH EVENT OCCURRED; 8 I.T.A. NO.1798/MUM/2011 (ASSESSMENT YEAR: 2003-04) (3) IN THAT SITUATION THE VALUE OF BENEFIT ACCRUING TO THE ASSESSEE IS DEEMED TO BE THE PROFIT AND GAINS OF BUSINESS WHICH OTHERWISE WOULD NOT BE HIS INCOME; AND (4)SUCH VALUE OF BENEFIT IS MADE CHARGEABLE TO INC OME-TAX AS THE INCOME OF THE PREVIOUS YEAR WHEREIN SUCH BENEFIT WAS OBTAINED. THE CIT(A) FURTHER HELD THAT SECTION 41 OF THE ACT WILL BE ATTRACTED ONLY WHEN TRADING LIABILITY THEMSELVES CEASES OR ARE REMITTED. THE CI T(A) ALSO REFERS TO PROVISION OF SECTION 41(4) OF THE ACT AND HELD THAT THE LOAN AM OUNT OF RS.15,00,000/- WILL BE CHARGEABLE TO TAX WHEN THE ASSESSEE COMPANY WRITE O FF THE LIABILITY AGAINST OSA OR WHEN THIS COMPANY OSA ABANDON ITS RIGHT IN RESPECT OF DEBT IN LIEU OF TRADE DEBTS AND IN THE CASE THE AMOUNT WRITTEN OFF AS DEBT IS R ECOVERED SUBSEQUENTLY, THE SAME SHALL BE DEEMED TO BE PROFIT ON ACCOUNT OF BUSINESS AND CHARGEABLE TO TAX AS PER SECTION 41(4) OF THE ACT. THE CIT(A) ALSO HELD THAT MERELY BECAUSE LOAN IS OUTSTANDING FOR MORE THAN THREE YEARS DOES NOT MEAN THAT THE LIABILITY TO PAY THE SAME HAS CEASED UNLESS OSA REMITS OR ABANDONS ITS RIGHT TO RECOVER THE DEBT. THUS, THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE COMPANY A ND ALLOWED THE DEDUCTION OF RS.12,32,769/- AS BAD DEBTS OF THE ASSESSEE COMPANY WRITTEN OFF IN THE BOOKS OF ACCOUNTS BY THE ASSESSEE COMPANY. 6.AGGRIEVED BY THE ORDERS OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE US AND LD. DR SUBMITTED BEFORE US THAT THE AO HAS RIGHTLY INVO KED SECTION 147/ 148 OF THE ACT AS THE RE-OPENING IS WITHIN FOUR YEARS FROM THE END O F THE ASSESSMENT YEAR. THE LD. DR SUBMITTED THAT THE AO HAS REASONS TO BELIEVE THAT I NCOME HAS ESCAPED ASSESSMENT BECAUSE INSTEAD OF WRITING OFF TRADE DEBT , THE ASS ESSEE COMPANY COULD HAVE EASILY ADJUSTED THE SAID TRADE DEBT AGAINST THE UNSECURED LOAN OF RS.15,00,000/- PAYABLE TO THE SAME PARTY I.E. OSA AND HENCE THE INCOME HAS ES CAPED ASSESSMENT . THE LD DR RELIED ON THE CASE OF ACIT V RAJESH JHAVERI STOCK B ROKERS PRIVATE LIMITED (2007) 291 9 I.T.A. NO.1798/MUM/2011 (ASSESSMENT YEAR: 2003-04) ITR 500(SC) TO CONTEND THAT THE INVOCATION OF SECTI ON 147/148 OF THE ACT TO RE-OPEN THE ASSESSMENT WAS RIGHTLY DONE AND THE COURTS CANN OT GO INTO SUFFICIENCY OF MATERIAL SO LONG THE AO HAS REASONS TO BELIEVE THAT THE INCO ME HAS ESCAPED ASSESSMENT AND THE AO HAS NOT TO PROVE THE FACTUM OF INCOME ESCAPING A SSESSMENT CONCLUSIVELY BY LEGAL EVIDENCE OR CONCLUSION AT THE TIME OF RE-OPENING . THE LD. DR RELIED UPON THE ORDERS OF THE AO. THE LD DR SUBMITTED THAT THE ASSESSEE CO MPANY HAS WRITTEN OFF RS.12,32,769/- RECEIVABLE AS TRADE DEBT FROM OSA IN ITS BOOKS OF ACCOUNTS WHILE THE ASSESSEE COMPANY COULD HAVE RECOVERED THIS AMOUNT E ASILY BY ADJUSTING THE LOAN AMOUNT PAYABLE TO OSA OF RS.15,00,000/- AGAINST THE AMOUNT OF TRADE DEBT OF RS.12,32,769/- RECEIVABLE FROM THE SAID COMPANY . T HE LD DR SUBMITTED THAT THE SAID COMPANY OSA IS NOT SHOWING THIS LOAN RECOVERABLE OF RS.15,00,000.00 FROM THE ASSESSEE COMPANY IN ITS BOOKS OF ACCOUNTS WHICH SHO WS THAT THE LIABILITY OF THE ASSESSEE COMPANY TO PAY THIS LOAN HAS CEASED . THE LD. DR SUBMITTED THAT IT IS THE ATTEMPT BY THE ASSESSEE COMPANY TO REDUCE THE PROFI TS WHILE THE ASSESSEE COMPANY COULD HAVE EASILY RECOVERED THIS DEBT OF RS. 12,32 ,769/- BY ADJUSTING AGAINST THE LIABILITY OF LOAN OUTSTANDING OF RS.15,00,000/- PAY ABLE TO OSA IN ITS BOOKS OF ACCOUNTS. WHILE ON THE OTHER HAND , THE ASSESSEE COMPANY REIT ERATED ITS SUBMISSIONS AS MADE BEFORE THE AUTHORITIES BELOW. THE ASSESSEE COMPANY SUBMITTED THAT THE AO DOES NOT HAVE ANY MATERIAL TO COME TO CONCLUSION THAT ANY IN COME HAS ESCAPED ASSESSMENT RATHER ALL THE FACTS WERE BEFORE THE AO AND IT IS A CASE OF CHANGE OF OPINION. THE ASSESSEE COMPANY SUBMITTED THAT THE ASSESSING OFFIC ER HAD SUFFICIENT MATERIAL ON RECORD WHICH SHOWS THAT THE ASSESSEE COMPANY HAS TA KEN UNSECURED LOAN OF RS.15,00,000.00 FROM OSA AND WRITTEN OFF RS.12,32,7 69/- RECEIVABLE FROM THE SAME PARTY. THE ASSESSEE COMPANY SUBMITTED THAT THE ORIG INAL ASSESSMENT WAS DONE BY THE REVENUE U/S 143(3) OF THE ACT AND NOW BY RE-OPENING , THE REVENUE IS REVIEWING ITS 10 I.T.A. NO.1798/MUM/2011 (ASSESSMENT YEAR: 2003-04) OWN DECISION OF ACCEPTING AND ALLOWING THE DEDUCTIO N OF BAD DEBT U/S 36(1)(VII) OF THE ACT AMOUNTING TO RS.12,32,769/- ALLOWED BY THE REVE NUE IN THE ORIGINAL ASSESSMENT FRAMED U/S 143(3) OF THE ACT VIDE ORDERS DATED 13/0 3/2006 WHEREIN ALL THE RELEVANT FACTS RELATED TO ABOVE TRANSACTIONS WERE BEFORE THE REVENUE AND IT IS A CASE OF ATTEMPT TO REVIEW BASED UPON CHANGE OF OPINION AND IT IS NO T A CASE OF REASONS TO BELIEVE BUT IT IS A CASE OF REASON TO SUSPECT WHICH IS NOT ALLOWED . ON MERITS THE ASSESSEE COMPANY SUBMITTED THAT IT RE NDERED SERVICES TO OSA IN THE PRECEDING YEARS FOR WHICH THERE WAS A TRADE DEBT O F RS.12,32,769/- EXISTING IN ITS BOOKS OF ACCOUNTS AS RECOVERABLE FROM OSA. THE ASSE SSEE COMPANY SUBMITTED THAT A DISPUTE AROSE BETWEEN DIRECTORS WHICH IS STILL UNRE SOLVED THAT THE BUSINESS OPERATIONS HAS COME TO STAND STILL SINCE JULY 1995 ONWARDS. AT THE TIME OF FINALIZATION OF ACCOUNTS, THE ASSESSEE COMPANY WROTE OFF SUNDRY DEB TORS OF RS.22,83,218/- RELATED TO THE BUSINESS WHICH INCLUDED A SUM OF RS.12,32,769/- RECEIVABLE FROM OSA AND ALSO SUNDRY CREDITORS OF RS.22.94,584/- WAS WRITTEN OFF , THE DETAILS OF WHICH WERE GIVEN BEFORE THE AO THIS AMOUNT OF RS.12,32,769/- WAS T AKEN INTO ACCOUNT AS INCOME WHILE COMPUTING TAXABLE INCOME OF THE ASSESSEE COMP ANY IN THE RELEVANT ASSESSMENT YEARS AND DUE TAXES PAID TO THE REVENUE. THE ASSESS EE COMPANY ALSO SUBMITTED THAT IT HAS RAISED A LOAN OF RS.15,00,000/- FROM OSA WHICH IS PAYABLE BY THE ASSESSEE COMPANY TO OSA AND IS DULY REFLECTED IN ITS BOOKS O F ACCOUNTS AS OUTSTANDING LIABILITY. THE ASSESSEE COMPANY SUBMITTED THAT IT WAS NOT AWAR E THAT THE OSA IS NOT REFLECTING THE SAID AMOUNT OF RS.15,00,000/- AS RECEIVABLE IN ITS BOOKS OF ACCOUNTS AND NOR ANY INTIMATION / CONFIRMATION IS SENT BY OSA TO THE ASS ESSEE COMPANY THAT THIS LIABILITY OF RS.15,00,000 PAYABLE TO OSA HAS CEASED TO EXIST. ME RELY BECAUSE THE LOAN IS PAYABLE FOR MORE THAN THREE YEARS WILL NOT LEAD TO THE CESS ATION OF THE LIABILITY ALTHOUGH RIGHT TO ENFORCE THROUGH LEGAL ACTION MAY HAVE BEEN IMPAIRED . THE ASSESSEE COMPANY SUBMITTED THAT THE TRADE DEBT OF RS.12,32,769/- HAS BECOME BAD AND IN ITS OPINION THE 11 I.T.A. NO.1798/MUM/2011 (ASSESSMENT YEAR: 2003-04) SAME IS IRRECOVERABLE AND THE DECISION HAS BEEN TAK EN BY ASSESSEE COMPANY TO WRITE OFF THE DEBTS IN ITS BOOKS OF ACCOUNT OF RS.12,32,7 69/- AS BAD AS IN THE OPINION OF THE ASSESSEE COMPANY THE SAME IS NOT RECOVERABLE WHICH SHOULD BE ALLOWED AS DEDUCTION AS BAD DEBT U/S 36(1)(VII) OF THE ACT AS ALL THE CO NDITIONS STIPULATED U/S 36(1)(VII) OF THE ACT ARE MET. THE ASSESSEE COMPANY SUBMITTED THA T IT HAS DULY COMPLIED WITH ALL THE INGREDIENTS OF THE SECTION 36(1)(VII) OF THE AC T READ WITH SECTION 36(2) OF THE ACT AND HENCE THE DEDUCTIONS HAS BEEN RIGHTLY ALLOWED B Y THE CIT(A). THE ASSESSEE COMPANY SUBMITTED THAT THE REVENUE CANNOT SUPER-IMP OSE ON IT TO ADJUST TRADE DEBT AGAINST THE LOAN OUTSTANDING AS THESE ARE BUSINESS DECISIONS . THE ASSESSEE COMPANY SUBMITTED THAT IN ANY CASE THERE WILL BE NO PREJUDI CE TO THE REVENUE AS FIRSTLY THE TRADE DEBT OF RS.12,32,769/- WAS TAKEN INTO ACCOUNT WHILE COMPUTING THE INCOME OF THE RELEVANT ASSESSMENT YEARS IN WHICH THE SAID TRADE DEBT AROSE AND DUE TAXES PAID TO REVENUE IN THAT ASSESSMENT YEARS AND SECONDLY IF A T ANY POINT OF TIME IN FUTURE THERE IS A RECOVERY OF THIS AMOUNT OF RS.12,32,769/- FROM O SA WHICH IS NOW WRITTEN OFF , IT SHALL BE CHARGED TO TAX BY REVENUE U/S 41 OF THE AC T. THUS, IT WAS SUBMITTED THAT THE ORDERS OF THE CIT(A) BE UPHELD AND THE DEDUCTION OF RS.12,32,769/- AS BAD DEBT U/S 36(1)(VII) OF THE ACT BE ALLOWED TO THE ASSESSEE CO MPANY. 7.WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE MATERIAL ON RECORD INCLUDING CASE LAWS RELIED UPON. WE HAVE OBSERVED THAT THE MA IN REASON RECORDED BY THE AO WHILE RE-OPENING THE ASSESSMENT U/S 147/148 OF THE ACT WAS THAT THE AO OBSERVED THAT THE ASSESSEE COMPANY HAS WRITTEN OFF BAD DEBTS OF T RADE DEBTS RS.12,32,769/- RECEIVABLE FROM OSA IN ITS BOOKS OF ACCOUNTS WHILE THE ASSESSEE COMPANY HAS PAYABLE OF UNSECURED LOAN OF RS.15,00,000/- TO OSA WHICH IN THE OPINION OF AO THE ASSESSEE COMPANY SHOULD HAVE ADJUSTED ITS TRADE DEBTS RECEIV ABLE FROM OSA AGAINST THE UNSECURED LOAN OF RS.15,00,000/- PAYABLE TO OSA . T HE CASE FOR THE ASSESSMENT YEAR WAS ORIGINAL PROCESSED UNDER SCRUTINY U/S 143(3) OF THE ACT WHEREBY ORDERS U/S 143(3) 12 I.T.A. NO.1798/MUM/2011 (ASSESSMENT YEAR: 2003-04) OF THE ACT WAS PASSED VIDE ORDERS DATED 13/03/2006 BY THE AO. ALL THE INFORMATION REGARDING THIS WRITE OFF OF BAD DEBTS AND THE EXIST ENCE OF UNSECURED LOAN WAS BEFORE THE AO DURING ORIGINAL ASSESSMENT PROCEEDINGS AND I T IS NOT A CASE THAT NEW MATERIAL HAS COME TO THE NOTICE OF THE AO WHICH HAS LED TO F ORMATION OF REASONS TO BELIEVE THE INCOME HAS ESCAPED ASSESSMENT RATHER THIS IS A CASE OF CHANGE OF OPINION BASED ON THE SAME FACTS AVAILABLE FROM THE ASSESSMENT RECORDS WH EN THE ORIGINAL ASSESSMENT WAS FRAMED WHEREBY NOW THE AO IS TRYING TO REVIEW HIS O WN DECISION TAKEN EARLIER BY REQUIRING ASSESSEE COMPANY TO ADJUST THE TRADE DEBT S RECEIVABLE FROM OSA AGAINST UNSECURED LOAN PAYABLE TO OSA INSTEAD OF WRITING OF F THE BAD DEBTS U/S 36(1)(VII) OF THE ACT WHICH IS NOT PERMISSIBLE UNDER PROVISIONS O F SECTION 147/148 OF THE ACT. THUS, IN OUR OPINION REVENUE FAILS ON THIS GROUND. WE HOLD ACCORDINGLY. ON MERITS, WE HAVE OBSERVED THAT THE ASSESSEE COMP ANY HAS TRADE DEBT OF RS.12,32,769/- OUTSTANDING IN ITS BOOKS OF ACCOUNTS AS RECOVERABLE FROM OSA AS ON 31-03-2003. THE ASSESSEE COMPANY HAS ALSO LOAN LIAB ILITY TOWARDS UNSECURED LOAN OF RS.15,00,000/- PAYABLE TO THE OSA EXISTING IN ITS B OOKS OF ACCOUNTS AS ON 31-03-2003. IT IS STATED BY THE LD. COUNSEL OF THE ASSESSEE COM PANY BEFORE US AND ALSO BEFORE AUTHORITIES BELOW THAT THE SAID TRADE DEBT HAS BEE N INCLUDED IN THE INCOME OF THE ASSESSEE COMPANY FOR RELEVANT ASSESSMENT YEAR IN WH ICH DEBT AROSE AND DUE TAXES PAID TO REVENUE FOR WHICH REVENUE HAS ALSO NOT BROUGHT A NY ADVERSE MATERIAL ON RECORD. NOW, IN THE OPINION OF THE ASSESSEE COMPANY, SAID T RADE DEBT OF RS.12,32,769/- HAS BECOME BAD AS IRRECOVERABLE AND THE SAID AMOUNT HAS BEEN DULY WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY AND ALL T HE INGREDIENTS OF SECTION 36(1)(VII) OF THE ACT READ WITH SECTION 36(2) OF TH E ACT ARE DULY FULFILLED BY THE ASSESSEE COMPANY. THE REVENUE IS NOT DISPUTING THE WRITE OFF OF RS.12,32,769/- AS BAD DEBT BUT IS CONTEMPLATING THAT INSTEAD OF WRITE OFF THE ASSESSEE COMPANY SHOULD HAVE ADJUSTED THIS TRADE DEBT AGAINST THE UNSECURED LOAN OF RS.15,00,000/- PAYABLE TO OSA 13 I.T.A. NO.1798/MUM/2011 (ASSESSMENT YEAR: 2003-04) BY ITS UNILATERAL ACTION AND RECOVERED THE AMOUNT O F TRADE DEBT DUE TO IT . IN OUR CONSIDERED VIEW, WE ARE NOT IN AGREEMENT WITH REVEN UE BECAUSE WHETHER THE TRADE DEBT HAS BECOME BAD AND IRRECOVERABLE HAS TO BE DEC IDED BY THE BUSINESSMAN AS THIS IS A BUSINESS DECISION AND THE REVENUE CANNOT STEP INT O SHOES OF BUSINESS MAN TO MAKE BUSINESS DECISION AS PER THE LAW EXISTING DURING T HE ASSESSMENT YEAR. NO DOUBT, TO CLAIM DEDUCTION AS BUSINESS EXPENSES FROM THE INCOM E FROM BUSINESS , THE ASSESSSEE COMPANY HAS TO COMPLY WITH PROVISIONS AND INGREDIEN TS OF SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT WHICH ARE AS UNDER: 1.THERE HAS TO BE A DEBT WHICH HAS BECOME BAD IN R ESPECT OF THE BUSINESS CARRIED ON BY ASSESSEE OR THE LOAN IS GRA NTED BY THE ASSESSEE IN THE COURSE OF THE BUSINESS OF BANKING OR MONEY LENDING. 2.IT HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE I NCOME OF THE ASSESSEE IN THE YEAR IN WHICH SUCH DEBTS IS WRITTEN OFF OR IN THE EARLIER YEARS. 3.IT IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE IN THE YEAR IN WHICH DEDUCTION IS CLAIMED. IN OUR OPINION , THE ASSESSEE COMPANY HAS DULY FULF ILLED ALL THE CONDITIONS AS STIPULATED U/S 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT A S THE DEBT OF RS.12,32,769/- IS A TRADE DEBT WHICH WAS INCLUDED IN COMPUTING INCOME O F THE RELEVANT ASSESSMENT YEARS IN WHICH THE TRADE DEBT AROSE AND SECONDLY THE SAID AMOUNT HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY IN THIS A SSESSMENT YEAR AS IN THE OPINION OF THE ASSESSEE COMPANY THE SAME HAS BECOME BAD AND IR RECOVERABLE. SECONDLY, THE CONTENTION OF THE REVENUE IS THAT THE ASSESSEE COMP ANY SHOULD HAVE ADJUSTED THE UNSECURED LOAN OF RS.15,00,000/- PAYABLE TO OSA AGA INST THE TRADE DEBT OF RS.12,32,769/- RECOVERABLE FROM OSA BY UNILATERAL ACTION WHICH WE ARE AFRAID THAT THIS CONTENTION OF THE REVENUE IS AGAIN FALLACIOUS AS FIRSTLY BOTH THE TRANSACTIONS ARE 14 I.T.A. NO.1798/MUM/2011 (ASSESSMENT YEAR: 2003-04) DIFFERENT TRANSACTIONS ONE IS TRADE RELATED DEBT WH EREBY SERVICES ARE RENDERED BY THE ASSESSEE COMPANY TO OSA WHILE THE OTHER TRANSACTION IS A LOAN TRANSACTION WHICH IS ON CAPITAL ACCOUNT AND IN TRADE PARLANCE TO ENSURE CON TINUITY OF BUSINESS , SUCH TYPE OF UNILATERAL ACTION ARE NOT NORMALLY TAKEN AND IN ANY CASE THESE ARE BUSINESS DECISIONS WHICH ARE TO BE TAKEN BY THE BUSINESS MEN AND REVEN UE CANNOT STEP INTO SHOES OF THE BUSINESSMAN TO TAKE BUSINESS DECISION AND SECONDLY , THERE COULD BE SEVERAL REASONS FOR DEBT BECOMING BAD AND ONE OF THE REASONS COULD BE THE DEFICIENCY/DEFECTS IN RENDERING SERVICES ETC BUT THAT DOES NOT MEAN THE L OAN LIABILITY AS A DIFFERENT TRANSACTION HAS CEASED TO EXIST UNLESS IT CEASES TO EXIST DUE TO AN ACTION BY THE LENDER OR BY OPERATION OF LAW, THUS THE LAW AS IT EXISTS T ODAY MANDATES THAT IT IS FOR THE TAXPAYER TO DECIDE THAT THE DEBT HAS BECOME BAD AND IRRECOVERABLE AND THE ONLY THING IS THAT THE ALL THE INGREDIENTS OF SECTION 36(1)(VI I) OF THE ACT READ WITH SECTION 36(2) OF THE ACT ARE MET WHICH IN THIS CASE ARE DULY MET AS OBSERVED BY US EARLIER, UNLESS THE ACT OF THE TAX PAYER IS TAINTED WITH MALICE WIT H AN INTENT TO DEFRAUD REVENUE FOR WHICH IN THE INSTANT CASE WE ARE AFRAID THAT THE RE VENUE HAS NOT BROUGHT ON RECORD ANY COGENT MATERIAL TO PROVE THAT THE ACTION OF THE ASS SESSEE COMPANY IS MALAFIDE. MERELY BECAUSE THE SAID AMOUNT OF UNSECURED LOAN OF RS.15 ,00,000/- IS NOT REFLECTED BY OSA UNDER THE HEAD LOANS AND ADVANCES IN ITS BOOKS OF ACCOUNTS WILL NOT LEAD TO THE CONCLUSION THAT THE LIABILITY OF THE ASSESSEE COMPA NY TOWARDS OSA HAS CEASED TO EXIST UNLESS THERE IS A POSITIVE ACT ON THE PART OF OSA T O WAIVE THE CLAIM OF RECOVERY FROM THE ASSESSEE COMPANY OR BY OPERATION OF LAW , DEBT HAS CEASED TO EXIST. WE, THEREFORE, BASED ON REASONS AS STATED ABOVE HOLD THAT THE ASSE SSEE COMPANY HAS RIGHTLY CLAIMED DEDUCTION OF RS.12,32,769/- AS BAD DEBT BY WRITING OFF THE SAME IN BOOKS OF ACCOUNTS AS BAD DEBT AS IN THE OPINION OF THE ASSESSSEE COMP ANY THE SAME HAS BECOME BAD AND IRRECOVERABLE AND AS CONTENDED BY THE ASSESSEE COMP ANY THE SAME WAS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE RELEVANT ASS ESSMENT YEARS IN WHICH TRADE DEBT AROSE AND IN ANY CASE NO PREJUDICE WILL BE CAU SED TO REVENUE BECAUSE 15 I.T.A. NO.1798/MUM/2011 (ASSESSMENT YEAR: 2003-04) SUBSEQUENTLY IF THE AMOUNT IS RECOVERED BY THE ASSE SSEE COMPANY WITH RESPECT TO THIS TRADE DEBT RECEIVABLE FROM OSA OF RS.12,32,769/- W HICH IS NOW WRITTEN OFF AS BAD DEBTS IN BOOKS OF ACCOUNTS , THE SAME SHALL BE INCL UDED IN THE INCOME OF THE ASSESSEE COMPANY IN THE ASSESSMENT YEAR IN WHICH THE AMOUNT IS SO RECOVERED. WE THEREFORE, UPHOLD THE ORDERS OF THE CIT(A) AND HOLD THAT THE C IT(A) HAS RIGHTLY DELETED THE ADDITION OF RS.12,32,769/- MADE BY THE AO, BY ALLOW ING THE DEDUCTION OF RS.12,32,769/- AS BAD DEBTS U/S 36(1)(VII) READ WI TH SECTION 36(2) OF THE ACT. WE HOLD ACCORDINGLY. 8. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON NOVEMBER 18 TH , 2015 SD/- SD/- (SHAILENDRA KUMAR YADAV) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 18.11.2015 PS:- POOJA K. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD FILE BY ORDER, (DY./ASSTT. REGISTRAR) I TAT, MUMBAI