The ITO, Ward-4(2), Ahmedabad V. Kemi Impex Pvt. Ltd., Ahmedabad

ITA 2368/AHD/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5329 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 04-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 21-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Assessee Lawyers: ANIL N SHAH
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTAN T MEMBER THE ITO, WARD 4(2), AHMEDABAD (APPELLANT) VS KEMI IMPEX PVT LTD. 7, 1 ST ELLORA COMMERCIAL CENTRE, SALAPASE ROAD, AHMEDABAD PAN: AAACK8608H (RESPONDENT) REVENUE BY: SRI K.C.MATHEWS, SR.D.R. ASSESSEE BY: SRI ANIL N. SHAH, A.R. DATE OF HEARING : 04-02-2014 DATE OF PRONOUNCEMENT : 07-02-20 14 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- THIS IS THE REVENUES APPEAL AGAINST THE ORDER OF LD. CIT(A)-XX AHMEDABAD DATED 01-04-2010. ITA NO. 2368/AHD/2010 ASSESSMENT YEAR 2007-08 I.T.A NO. 2368/AHD/2010 A.Y. 2007-08 PAGE NO ITO VS. KEMI IMPEX PVT. LTD 2 2. REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL:- 1. THE LD. CIT(A) HAS ERRED IN LAW ON FACTS IN DEL ETING THE DISALLOWANCE OF BAD DEBTS OF RS. 10,61,736/- MADE B Y THE ASSESSING OFFICER, RELYING ON THE DECISION OF KHODAY INDIA LT D. -ITA 282/BANG/2009 (33 SOT 178) 1.1 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT THE FACTS IN THE CASE KHODAY INDI A LTD ARE CONSIDERABLY DIFFERENT THAT THE FACTS INVOLVED IN T HE PRESENT CASE AS IN THE CASE OF KHODAY INDIA, THE ASSESSEE WAS FORCED T O WRITE OFF THE ADVANCES ON ACCOUNT OF DROUGHT AND GOVERNMENT PRESS URE. 3. BRIEF FACTS OF THE CASE ARE THAT DURING ASSESSME NT PROCEEDINGS AO NOTICED THAT ASSESSEE-COMPANY HAS DEBITED THE BAD D EBT OF RS. 10,61,736/-. WHEN ASSESSEE WAS ASKED TO EXPLAIN THIS ENTRY, ASSE SSEE-COMPANY SUBMITTED AS UNDER:- 4. IT CAN BE OBSERVED THAT THE AMOUNT OF BAD DEBT IS WRITTEN OFF TO PARTIES ACCOUNT. 5 WE HAVE MADE ADVANCES TO THE SAID PARTIES FOR PUR CHASE OF GOODS THROUGH MEYER INDUSTRIES ELECTRONICS GMBH OF GERMANY. THIS IS VERY WELL APPARENT FROM OUR LETTE R DATED 24 11.2006. 6. AS WE NOT GET MATERIAL FROM THE SAID PARTY, WE H AD TAKEN UP MATTER WITH MEYER INDUSTRY &. ELECTRONICS GMBH, WHI CH IS APPARENT FROM OUR LETTER DATED 24.11.2006 ADDRESSED TO THE SAID PARTY. LETTER DATED 20.01.2007 FORM MEYER, WHICH IN DICATE THAT THE MATTER IS TAKEN UP BY US WITH THAT PARTY AND TH ERE APPEAR TO BE NO SCOPE FOR SUPPLY OF GOODS. EVEN AFTER OUR EFF ORTS, WE HAVE FAILED TO GET MATERIAL OR MONEY BACK AND OUR INTERM EDIATES MEYER HAS VIDE THEIR LETTER DATED 30.03.2007 HAS AD VISED US TO TREAT ALL THESE AMOUNT AS BAD DEBT, AND HE HAS APOL OGISED FOR THE SAME. I.T.A NO. 2368/AHD/2010 A.Y. 2007-08 PAGE NO ITO VS. KEMI IMPEX PVT. LTD 3 7. THUS AS THE PAYMENT FOR PURCHASES WERE MADE TO FOREIGN SUPPLIERS AND THERE BEING NO HOPE OF RECOVERY, WE H AD NO ALTERNATIVE, BUT TO WRITE OFF THE SAME AS BAD DEBT IN OUR ACCOUNTS AND ACCORDINGLY THE CLAIM OF BAD DEBT WAS MADE IN PROFIT & LOSS A/C. 8. IN VIEW OF THIS FACTUAL POSITION, WE REQUEST YOU TO PLEASE ACCEPT OUR CLAIM OF BAD DEBT. 9. ALTERNATIVELY, THIS CAN BE TAKEN AS A CASE OF TR ADING LOSS, SINCE IT WAS FOR PURCHASE AND HENCE IT IS ALLOWABLE AS TR ADING LOSS AND WE REQUEST TO PLEASE ALLOW THE SAME ALTERNATIVE LY ON THIS GROUND. AO HOWEVER REJECTED THE CLAIM OF THE ASSESSEE BY HO LDING THAT ADVANCES CLAIMED AS BAD DEBTS WERE NEVER BEEN A PART OF INCO ME IN ANY PREVIOUS YEAR. BY REFERRING TO THE PROVISIONS OF SECTION 36(2)(I) OF THE ACT, AO HELD THAT IN ORDER TO ENABLE THE ASSESSEE TO CLAIM DEDUCTION OF AMOUNT WHICH HE CLAIMED TO BE THE BAD DEBT IT IS NECESSARY FOR HIM TO SHOW THAT SUCH DEBTS OR PART THEREOF IS TAKEN INTO ACCOUNT IN COMPUTING THE INCO ME OF THE ASSESSEE OF THE PREVIOUS YEAR AND IT IS WRITTEN OFF. IT WAS ALSO O BSERVED BY AO THAT ASSESSEE HAS NOT ADDUCED ANY EVIDENCE TO SHOW THAT THE DEBT HAD BECOME IRRECOVERABLE. HE HOWEVER DID NOT ADJUDICATE THE A LTERNATE GROUND TAKEN BY THE ASSESSEE AT ITEM NO. 9 OF HIS SUBMISSION WHICH HAS BEEN REPRODUCED ABOVE. ASSESSEE-COMPANY POINTED OUT THIS TO LD. CI T(A) AND MADE SUBMISSION ON THIS ALTERNATE GROUND. LD. CIT(A) AF TER TAKING INTO CONSIDERATION THIS SUBMISSION OF THE ASSESSEE WHICH HAVE BEEN REPRODUCED BY HIM IN HIS ORDER DELETED THIS ADDITION BY DIRECT ING THE AO TO ALLOW THE CLAIM OF THE ASSESSEE OF RS. 10,61,736/- AS TRADING /BUSINESS LOSSES BY OBSERVING AS UNDER:- I.T.A NO. 2368/AHD/2010 A.Y. 2007-08 PAGE NO ITO VS. KEMI IMPEX PVT. LTD 4 5.5 I HAVE GONE THROUGH THE ASSESSMENT ORDER, PER USED THE MATERIAL ON RECORD SUBMITTED BEFORE AO AND DURING T HE COURSE OF HEARING OF APPEAL AND FIND THAT, THE ASSESSING OFFI CER HAS CONSIDERED THE CLAIM OF THE APPELLANT AS BAD DEBTS ONLY AND HA S NOT AT ALL CONSIDERED ITS ALTERNATE CLAIM TO CONSIDER THE SAID AMOUNT OF RS. 10,61,736 AS TRADING/ BUSINESS LOSS. I ALSO FIND TH AT, THE ASSESSING OFFICER DISCUSSED THE CASE LAW CITED BEFORE HIM ONL Y IN THE CONTEXT OF BAD DEBTS WITHOUT CONSIDERING THE CLAIM OF THE ASSE SSE COMPANY AS TRADING / BUSINESS LOSS. I FIND THAT, THE APPELLANT WAS IN THE COURSE OF ITS NORMAL BUSINESS OPERATIONS USED TO ADVANCE FOR IMPORT OF TRADING MATERIALS AND IMPART THE SAME DURING THE YEAR UNDER APPEAL AS WELL AS IN EARLIER YEARS AND SUBSEQUENT YEARS. IT HAD A BUSINESS RELATIONS WITH MEYER (MEYLE) FROM WHOM IT WAS USED TO IMPORT ITS TRADING MATERIAL AND WAS ALSO USING ITS REFERENCES OF FOREI GN SUPPLIERS FOR ITS IMPORT. THE MOST OF SUPPLIERS TO WHOM ADVANCES WERE GIVEN BELONGED TO MAINLY FROM GERMANY WHERE THE MEVER BELONGS AND NABOURING EUROPEAN COUNTRIES. FROM THE COPIES OF COMMERCIAL/ PROFORMA INVOICES, IT IS OBSERVED THAT, THE COMPANY ORDERED FOR THE IMPORT OF TRADING MATERIAL IN WHICH IT TRADED IN ITS NORMAL C OURSE OF BUSINESS WHICH IN FACT IS INTIMATELY CONNECTED WITH ITS BUSI NESS AND IS ON REVENUE ACCOUNT ONLY. THE AMOUNTS HAD BEEN REMITTED / ADVANCED THROUGH THE NORMAL BANKING CHANNELS AND BY OBSERVIN G THE RELEVANT REGULATIONS FOR REMITTANCE OF FOREX. 5.6 I ALSO FIND THAT, AFTER DUE EFFORTS, THE APPEL LANT COMPANY HAS WRITTEN OFF THE SAID AMOUNTS AS BAD DEBTS AND AS NO N RECOVERABLE APPEARING IN THE ACCOUNTS OF VARIOUS PARTIES FOR WH ICH CLAIM IS MADE. I HAVE ALSO CONSIDERED THE CASE LAW ON THE SUBJECT CITED BEFORE THE AO AND ALSO BEFORE ME. I FIND THAT, THE FACTS OF THE A PPELLANT'S CASE BEFORE ME AND THAT WAS BEFORE THE HON'BLE ITAT BANGLORE IN THE CASE OF ACIT VS KHODAY INDIA LIMITED IN ITA NOS 89 7 282/ BANG/2008 (2009) 33 SOT 178 (BANG.) ARE VERY MUCH IDENTICAL A S IN BOTH THE CASES THE ADVANCES WRITTEN OFF AND CLAIMED AS TRADI NG LOSS WERE FOR PROCURING THE MATERIAL TRADED BY THE RESPECTIVE APP ELLANTS. EVEN IN THE SAID ORDER, THE OBSERVATIONS REFERRED OF HON'B LE SUPREME COURT OF INDIA IN THE CASE OF CIT V. MYSORE SUGAR CO LTD. ( 1962) 46 ITR 649 (SC) IS FOUND RELEVANT AND ADVANCING THE CLAIM OF T HE APPELLANT. IN VIEW OF THE FACTS AND REASONING MENTIONED HEREIN, I HOLD THAT, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN RE JECTING THE CLAIM OF THE APPELLANT OF RS. 10,61,736 AND DIRECT HIM T O ALLOW THE SAME AS I.T.A NO. 2368/AHD/2010 A.Y. 2007-08 PAGE NO ITO VS. KEMI IMPEX PVT. LTD 5 TRADING/BUSINESS LOSS AND DELETE THE ADDITION OF RS . 10,61,736 MADE BY HIM ON ACCOUNT OF BAD DEBTS. SINCE LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE B Y FOLLOWING THE DECISION OF HONBLE ITAT BANGLORE IN THE CASE OF ACIT VS. KH ODAY INDIA LTD WHICH WAS PASSED BY THE HONBLE ITAT BY FOLLOWING THE DEC ISIONS OF HONBLE SUPREME COURT IN THE CASE OF CIT V. MYSORE SUGAR C O LTD. (1962) 46 ITR 649, SOME OBSERVATIONS OF WHICH WERE ALSO FOUND BY LD. CIT(A) APPLICABLE TO THE FACTS OF THIS CASE ALSO AND SINCE NO CONTRAR Y BINDING DECISION WAS BROUGHT ON RECORD BY THE REVENUE, WE ARE NOT INCLIN ED TO INTERFERE WITH THE ORDER PASSED BY LD. CIT(A) AND THE SAME IS HEREBY U PHELD. 4. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (ANIL CHATURVEDI) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 07/02/2014 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,