RAMESH KUMAR & CO., MUMBAI V. ACIT 12(3), MUMBAI

ITA 2130/MUM/2013

• Counselvise Citation: 213019914 RSA 2013
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 18-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts
• Section: 37(1); 37; 2

Judgement Text

1 I.T.A. NO.2130/MUM/2013 , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM) . . , , ./I.T.A. NO.2130/MUM/2013 ( / ASSESSMENT YEAR : 2007-08) M/S RAMESH KUMAR AND CO. 92A/93A, MITTAL COURT, NARIMAN POINT, MUMBAI-400021. / VS. THE ASSTT. COMMISSIONER OF INCOME TAX, 12(3), 1 ST FLOOR, ROOM NO.137, AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 ( !' / APPELLANT) .. ( #$!' / RESPONDENT) ! ./ % ./PAN/GIR NO. : AAAFR4371F !' & / APPELLANT BY : SHRI HIRO RAI #$!' ' & /RESPONDENT BY : SHRI DURGA DUTT ( ) ' *+ / DATE OF HEARING : 18.6.2014 ,- ' *+ /DATE OF PRONOUNCEMENT : 25.6.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 21-12-2012 PASSED BY LD CIT(A)-10, MUMBAI AND IT RELATES TO TH E ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE DISALLOWANCE OF BAD DEBTS CLAIM TO THE EXTENT OF RS .4,23,602/-. 3. THE FACTS RELATING TO THE ISSUE CITED ABOVE ARE DISCUSSED IN BRIEF. THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF BUYING AND SELLI NG OF CHEMICALS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED DEDUCTION OF RS.10,25,758/- TOWARDS BAD 2 I.T.A. NO.2130/MUM/2013 DEBTS. EVEN THOUGH THE ASSESSEE HAD WRITTEN OFF TH E DEBTS AS BAD IN ITS BOOKS OF ACCOUNT, IT COULD NOT FILE ANY DETAILS IN RESPECT O F FOLLOWING TEN PARTIES: S.NO. NAME OF PARTIES AMOUNT (RS.) OUTSTANDING SINCE 01 RINKU DYE CHEM P LTD 60,000 1997 - 98 02 HARDEEP LIFTERS (ACETONE) 25,000 1997 - 98 03 PEFCO IND. LTD 10,000 1997 - 98 04 ROYALCHEM PRODUCTS 20,000 1997 - 98 05 SEARCH CHEM INDUSTRIES LTD 8,602 2002 - 03 06 THE MYSORE PAPER MILLS LTD 10,000 1997 - 98 07 HINDUSTAN ORGANIC CHEMICALS 5,000 1997 - 98 08 WAK BROS 10,000 1997 - 98 0 9 HINDUSTAN ANTIBIOTICS LTD 25,000 1997 - 98 10 SMOOTH SKY TOURS PVT LTD 2,50,000 2002 - 03 TOTAL 4,23,602 HENCE THE AO DISALLOWED THE CLAIM OF BAD DEBTS TO T HE TUNE OF RS.4,23,602/-. BEFORE LD CIT(A), THE ASSESSEE PLACED RELIANCE ON THE DECISIO N RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF DIT (INTL. TAXATION) VS. OMAN INTERNATIONAL BANK SA OG (313 ITR 218) AND SUBMITTED THAT THERE IS NO ONUS ON THE ASS ESSEE TO SHOW THAT THE DEBT HAS BECOME BAD AND MERE WRITING OFF THE DEBT IN THE BOO KS IS SUFFICIENT TO CLAIM DEDUCTION OF BAD DEBTS U/S 36(1)(VII) OF THE ACT. 4. THE LD CIT(A) NOTICED THAT THE ASSESSEE IS RE QUIRED TO SHOW THAT THE ABOVE SAID AMOUNTS HAVE BEEN OFFERED AS INCOME IN THE YEAR UND ER CONSIDERATION OR IN ANY OF THE EARLIER YEARS. IT WAS NOTICED BY LD CIT(A) THAT TH E ASSESSEE COULD NOT PROVE THE ABOVE SAID CONDITION. THE ASSESSEE SUBMITTED THAT ITS BU SINESS PREMISES MET WITH MAJOR FIRE ACCIDENT AND ALL THE RECORDS GOT GUTTED IN FIRE AND ACCORDINGLY PLEADED ITS INABILITY TO PROVE THE ABOVE SAID CONDITION. ALTERNATIVELY, IT WAS CONTENDED THAT THE ABOVE SAID CLAIM IS ALLOWABLE U/S 37(1) OF THE ACT AS TRADING LOSS. 5. THE LD CIT(A) WAS NOT CONVINCED WITH THE EXP LANATIONS OF THE ASSESSEE AND HENCE CONFIRMED THE DISALLOWANCE ON THE REASONING THAT TH E ASSESSEE HAS FAILED TO SHOW THE NATURE OF TRANSACTIONS ENTERED WITH THE ABOVE SAID PARTIES AND FURTHER FAILED TO PROVE THAT THEY WERE OFFERED TO TAX IN EARLIER YEARS. TH E LD CIT(A) REJECTED THE ALTERNATIVE CONTENTION OF THE ASSESSEE FOR ALLOWING THE CLAIM U /S 37(1) OF THE ACT ON THE REASONING 3 I.T.A. NO.2130/MUM/2013 THAT THE ASSESSEE IS REQUIRED TO PRODUCE PARTICULAR S TO SHOW THAT THE LOSS WAS INCURRED DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE LD CIT(A) DISMISSED THE APPEAL FILED BY THE ASSESSEE. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 6. THE LD A.R DREW OUR ATTENTION TO THE PAPER B OOK FILED BY THE ASSESSEE, WHEREIN THE ASSESSEE HAS PLACED EVIDENCES RELATING TO FIRE ACCIDENT AND SUBMITTED THAT THE ASSESSEE WAS NOT IN A POSITION TO FURNISH THE DETAI LS THAT WERE CALLED FOR BY THE AO, SINCE ALL THE RECORDS WERE DESTROYED IN FIRE ACCIDENT. H E SUBMITTED THAT THE ASSESSEE HAS STOPPED TRANSACTIONS WITH THE ABOVE SAID PARTIES LO NG BACK AND HENCE THE AMOUNT DUE FROM THEM WAS OUTSTANDING SINCE 1997-98. HE FURTHE R SUBMITTED THAT THE ASSESSEE COULD NOT OBTAIN THE DETAILS FROM THE DEBTORS ALSO IN VIEW OF THE STRAINED RELATIONSHIP WITH THEM. HE FURTHER SUBMITTED THAT THE NAME OF T HE PARTIES WOULD CLEARLY SHOW THAT THEY ARE ALL DEALING IN CHEMICALS AND ACCORDINGLY C ONTENDED THAT THE BAD DEBT CLAIM MADE BY THE ASSESSEE SHOULD BE ALLOWED. ALTERNATIV ELY, HE SUBMITTED THAT THESE CLAIMS MAY BE ALLOWED AS TRADING LOSS U/S 37 OF THE ACT. 7. ON THE CONTRARY, THE LD D.R PLACED STRONG RE LIANCE ON THE ORDER PASSED BY LD CIT(A) AND SUBMITTED THAT THE ASSESSEE HAS FAILED T O SHOW THAT THESE AMOUNTS WERE SUBJECTED TO TAX. HE FURTHER SUBMITTED THAT THE AL TERNATIVE CLAIM FOR ALLOWING DEDUCTION U/S 37(1) IS NOT ADMISSIBLE AS THE ASSESSEE HAS FAI LED TO SHOW THAT THIS LOSS WAS INCURRED DURING THE YEAR UNDER CONSIDERATION. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PER USED THE RECORD. AGAINST THE CLAIM FOR DEDUCTION OF BAD DEBTS AMOUNT OF RS.10,25,758/- , THE AO HAS DISALLOWED THE CLAIM TO THE TUNE OF RS.4,23,602/-. WITH REGARD TO THE M ANDATORY CONDITION PRESCRIBED U/S 36(2), VIZ., THE AMOUNT CLAIMED AS BAD DEBTS SHOULD HAVE BEEN ASSESSED TO INCOME TAX EITHER IN THE CURRENT YEAR OR IN ANY OF THE PREVIOU S YEARS, THE SUBMISSION OF THE ASSESSEE WAS THAT IT COULD NOT PROVE THE SAME SINCE ALL THE RECORDS WERE DESTROYED IN THE FIRE ACCIDENT. THERE IS NO DISPUTE BETWEEN THE PARTIES THAT THERE WAS FIRE ACCIDENT IN THE BUSINESS PREMISES OF THE ASSESSEE. UNDER THESE CIR CUMSTANCES, IN OUR VIEW, ONE SHOULD DULY TAKE INTO ACCOUNT THE INABILITY OF THE ASSESSE E TO PRODUCE THE NECESSARY DETAILS DUE TO THE REASONS BEYOND ITS CONTROL. AS SUBMITTED BY THE LD A.R, THE NAMES OF ALL THE PARTIES, EXCEPT SMOOTH SKY TOURS PVT LTD SHOWS T HAT THEY ARE ALSO IN CHEMICAL 4 I.T.A. NO.2130/MUM/2013 BUSINESS. UNDER THESE CIRCUMSTANCES, IN OUR VIEW, THERE IS SOME MERIT IN THE CONTENTION OF THE ASSESSEE THAT THEY ARE TRADE DEBTORS. THE V ERY FACT THAT THESE AMOUNTS ARE OUTSTANDING SINCE 1997-98 (ALMOST 10 YEARS OLD) WOU LD SHOW THAT THE ASSESSEE HAD CUT OFF THE RELATIONSHIP WITH THEM AND IN THIS PECULIAR CIRCUMSTANCE, ONE CANNOT EXPECT THAT THE ABOVE SAID PARTIES WOULD CO-OPERATE WITH THE AS SESSEE. IN THE CASE OF SMOOTH SKY TOURS PVT LTD, THE SUBMISSION OF THE ASSESSEE IS HA RD TO ACCEPT, SINCE THE NAME OF THE ABOVE SAID PARTY SHOWS THE NATURE OF BUSINESS CARRI ED ON BY IT AND HENCE HE COULD NOT HAVE BEEN IN THE CHEMICAL BUSINESS. 9. UNDER THESE PECULIAR FACTS, WE ARE OF THE VIE W THAT THE SUBMISSION MADE BY THE ASSESSEE NEEDS TO BE ACCEPTED, VIZ., THAT THE ABOVE SAID PARTIES EXCEPTING SMOOTH SKY TOURS PVT LTD ARE TRADE DEBTORS OF THE ASSESSEE. A CCORDINGLY, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN CONFIRMING THE DISAL LOWANCE OF THE CLAIM OF RS.2,50,000/- RELATING TO M/S SMOOTH SKY TOURS PVT LTD. IN RESPE CT OF THE CLAIM RELATING TO REMAINING PARTIES, WE ARE OF THE VIEW THAT THERE IS NO JUSTIF ICATION IN DISBELIEVING THE CLAIM UNDER THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE AN D ACCORDINGLY THE SAME NEEDS TO BE ALLOWED U/S 36(1)(VII) OF THE ACT AS BAD DEBTS. AC CORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) IN RESPECT OF THE REMAINING AMOUNT OF RS.1,7 3,602/- AND DIRECT THE AO TO ALLOW THE SAME. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 25TH JUNE, 2014. ,- ( ./ 0 1 25TH JUNE, 2014 - ' ) 2 SD SD ( /SANJAY GARG) ( . . / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER . ( ) MUMBAI: 25TH JUNE,2014. . . ./ SRL , SR. PS 5 I.T.A. NO.2130/MUM/2013 ! '#$%& '&($ / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT 2. #$!' / THE RESPONDENT. 3. ( 4* ( ) / THE CIT(A)- CONCERNED 4. ( 4* / CIT CONCERNED 5. 5 #* 6 , + 6 , . ( ) / DR, ITAT, MUMBAI CONCERNED 6. 7) / GUARD FILE. 8 ( / BY ORDER, TRUE COPY 9 (ASSTT. REGISTRAR) + 6 , . ( ) /ITAT, MUMBAI