Spinning King (India) Ltd., Ahmedabad V. The Income tax Officer, Ward-8(2), Ahmedabad

ITA 2390/AHD/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67685 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 19-09-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 21-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: M K PATEL
• Keywords: Business expenditure; Commercial expediency; Capital expenditure
• Section: 37; 28

Judgement Text

, , , , , , , , , , , , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD .., BEFORE SHRI B.P.JAIN, ACCOUNTANT MEMBER !./ I.T.A.NO.2390/AHD/2011 ( # $%# # $%# # $%# # $%# / / / / ASSESSMENT YEAR : 2007-08) SPINNING KING (INDIA)LTD. NO.B-66, PARISEEMA COMPLEX CG ROAD, NAVRANGPURA AHMEDABAD / VS. THE INCOME TAX OFFICER WARD-8(2) AHMEDABAD & !./' !./ PAN/GIR NO. : AAFCS 5986 B ( &( / // / APPELLANT ) .. ( )*&( / RESPONDENT ) &( + / APPELLANT BY : SHRI M.K.PATEL, AR )*&( , + / RESPONDENT BY : SHRI B.L.YADAV, SR.D.R. -$. , /0 / / / / DATE OF HEARING : 19/09/2013 12% , /0 / DATE OF PRONOUNCEMENT : 19/09/2013 3 / O R D E R THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE LD.CIT(APPEALS)-XIV, AHMEDABAD DATED 12/07/2011 FOR THE ASSTT.YEAR 2007-08. THE ASSESSEE HAS RAISED THE FOLLOWING GRO UNDS OF APPEAL:- THE APPELLANT, BEING AGGRIEVED AGAINST THE ORDER DA TED 12 TH JULY, 2011 PASSED BY THE LEARNED CIT(A)XIV, AHMEDABAD, PR ESENTS THIS APPEAL ON FOLLOWING AMONGST OTHER GROUNDS: 1.1. THE LEARNED CIT(A) ERRED BOTH IN LAW AND ON FACTS I N CONFIRMING DISALLOWANCE OF THE CLAIM OF DEDUCTION O F RS.585,775 AS BAD DEBT WRITTEN OFF UNDER SECTION 37 (1)(VII) R.W.S.36(2) OR ALTERNATIVELY AS TRADING LOSS UNDER SECTION 28 R.W.S. 29 AND 37. ITA NO.2390/AHD /2011 SPINNING KING (INDIA) LTD. VS. ITO ASST.YEAR 2007-08 - 2 - 1.2. THE LEARNED CIT(A) ERRED IN LAW AND ON FACT IN HOLD ING THAT THE MONEY HAS BEEN PAID BY THE APPELLANT IN ORDER T O BUY BUSINESS RELATIONS WITH THE PRINCIPAL, IS IN NATURE OF BUYING LONG TERM BUSINESS INTEREST, THEREFORE OF CAPITAL N ATURE AND NOT BEING FOR ANY BUSINESS CONSIDERATION. 1.3. IT IS SUBMITTED THAT THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THE CIRCUMSTANCES AND FACTS OF THE CASE, COMMERCIAL EXPEDIENCY FROM THE VIEW POINT OF A BUSINESSMAN AND UPHELD THE DISALLOWANCE ON SOME IRRELEVANT CONSIDERATIONS PARTICULARLY WHEN THERE H AS BEEN NO DISPUTE AS TO GENUINENESS OF WRITE OFF OF RS.585 ,775, THE TRADING LOSS SO INCURRED BY THE APPELLANT AND THERE WAS NO PERSONAL CONSIDERATION INVOLVED AS ALLEGED BY THE L EARNED ASSESSING OFFICER. IT IS, THEREFORE, SUBMITTED THAT THE ADDITION OF RS .585,775 BE CANCELLED. THE APPELLANT CRAVES, LEAVE TO ADD, TO ALTER AND/OR TO AMEND AND/OR ANY OF THE GROUNDS OF APPEAL. 2. THE BRIEF FACTS OF THE CASE AS PER ASSESSING OFF ICERS OBSERVATION WHICH IS REPRODUCED, FOR THE SAKE OF CONVENIENCE, AS UNDER: THE ASSESSEE COMPANY HAS DEBITED RS.5,85,776/- ON ACCOUNT OF SUNDRY DEBTORS WRITTEN OFF. THE ASSESSEE COMPANY W AS ASKED TO SHOW AS TO WHEN THE INCOME IN RESPECT OF BAD DEBT C LAIM WAS SHOWN AND WHETHER ANY LEGAL ACTION HAVE BEEN TAKEN FOR THE RECOVERY OF THE OUTSTANDING DEBTS AND TO SHOW AS TO HOW THERE WAS NO CHANCE HOWEVER REMOTE IT MAY BE FOR RECOVERY OF THE OUTSTANDING DEBT. ON VERIFICATION OF DETAILS FILED BY THE ASSESSEE COMPANY IT IS NOTICED THAT THE BAD DEBT IS DUE TO D EPOSITION OF CHEQUES ISSUED BY THE ASSESSEE COMPANY TOWARDS SECU RITY DEPOSIT WITH GOTERMANN PEIPER (INDIA) LTD. THE ASSESSEE HA D ISSUED CHEQUES ON BEHALF OF THE SAID COMPANY. THE DEBT WR ITTEN OFF WAS NOT SHOWN AS INCOME IN ANY OF THE YEAR. THE PRE-RE QUISITE FOR ALLOWANCE BAD DEBT IS THAT THE SAME SHOULD BE OFFER ED AS INCOME. SINCE THIS OFFICER WAS NOT OFFERED AS INCOME ANY TI ME, THE BAD DEBT ITA NO.2390/AHD /2011 SPINNING KING (INDIA) LTD. VS. ITO ASST.YEAR 2007-08 - 3 - CLAIMED IS NOT ALLOWABLE U/S.36(1)(VII) OF THE I.T. ACT. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE CLAIM OF BAD DEBT SHOULD NOT BE DISALLOWED. THE SUBMISSION OF THE ASSESSEE IS CONSIDERED. HOWE VER, THE SAME IS NOT ACCEPTABLE FOR THE REASON THAT THE ASSESSEE HAS NEVER OFFERED THE DEBT AS AN INCOME HENCE THE QUESTION OF ALLOWAB ILITY DOES NOT ARISE. MOREOVER, THE ASSESSEE HAS SUBMITTED THE AG REEMENT MADE BY GOTERMANN PEIPER (INDIA) LTD. WITH CFLTEX WEAVIN G MILLS EC, BEHRAIN FOR THE SALE OF GOODS WHEREIN IT IS MENTION ED THAT THE GOODS WERE SOLD THROUGH SPINNING KIND INDIA LTD. T HE PAYMENT OF SALE OR THE SECURITY FOR SALE WAS SUPPOSED TO BE PA ID BY THE SO- CALLED SELLER WITH WHOM THE BUYER HAD MADE THE CONT RACT SALE. IF AT ALL, ANY PAYMENT WAS MADE, THAT WAS ON BEHALF OF THE SELLER AND NOWHERE IN THE CONTRACT IT WAS MENTIONED THAT THE A SSESSEE COMPANY WAS DUTY BOUND TO SUBMIT ANY CHEQUES FOR SE CURITY. THE PAYMENT MADE BY THE COMPANY OR THE DIRECTOR WAS NOT IN CONNECTION OF SALE OF THE ASSESSEE COMPANY AND NO I NCOME WHATSOEVER WAS SHOWN IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. IF THE PAYMENT WAS MADE TO THE BUYER, IT MUST BE NOTHI NG BUT THE TRANSACTION OF PERSONAL NATURE AND THERE WAS NOTHIN G TO DO WITH THE BUSINESS TRANSACTION OF THE ASSESSEE COMPANY. NO PRUDENT BUSINESS MAN WILL ISSUE THE CHEQUES FOR THE SALE OF OTHER PARTIES WITHOUT ACCEPTING THE CHEQUES FROM THE SELLERS AS S ECURITY. THE ASSESSEE COMPANY HAS NOT GIVEN ANY REASON FOR NOT C HARGING THE AMOUNT FROM THE SELLER FOR THE DEFAULT MADE BY IT. THE ASSESSEE HAS NOT SUBMITTED ANY DETAIL WHEREBY IT CAN PROVE THAT IT HAD ATTEMPTED FOR THE RECOVERY OF THE AMOUNT PAID TO THE BUYER FO R THE DEFAULT OF SELLER. SINCE THE DEBT CLAIM IS NOT DURING THE COURSE OF BU SINESS AND NO INCOME WAS SHOWN, THE QUESTION OF ALLOWING BAD DEBT DOES NOT ARISE. THE CLAIM OF BAD DEBT OF RS.5,85,775/- IS D ISALLOWED AND THE AMOUNT IS ADDED TO THE ASSESSEES TOTAL INCOME,. THE LD.CIT(A) CONFIRMED THE ACTION OF THE ASSESSIN G OFFICER. ITA NO.2390/AHD /2011 SPINNING KING (INDIA) LTD. VS. ITO ASST.YEAR 2007-08 - 4 - 3. THE LD.COUNSEL FOR THE ASSESSEE ARGUED THAT THE ISSUE UNDER CONSIDERATION HAS ARISEN PURSUANT TO ONE EXPORT SAL ES CONTRACT WHERE THE YARN WERE TO BE SHIPPED IN TWO PARTS. THERE WAS A FAILURE TO SUPPLY THE YARN TO THE OVERSEAS IMPORTER AND THE OVERSEAS IMPO RTER FACED TWIN PROBLEMS, NAMELY ALTERNATIVE PROCUREMENT OF YARN AT HIGHER COST AND SECONDLY THE LOSS SUFFERED, IN THE MEANTIME, DUE T O NON-SUPPLY OF YARN FOR MANUFACTURING FABRICS ITS WORKS AT BEHRAIN. TH E OVERSEAS IMPORTER ENTERED INTO SERIOUS CORRESPONDENCE AND MADE STRENU OUS FOLLOWS-UP WITH THE ASSESSEE THROUGH WHOM THE SALES CONTRACT WAS EN TERED INTO. A LEGAL ACTION WAS ANTICIPATED. AS PART OF THE TRADING PRA CTICE, THE ASSESSEE HAD KEPT UNDATED SIGNED CHEQUES BY WAY OF UNFORESEEN IN DEMNITY WHICH WERE ENCASHED. IT WAS ARGUED THAT DUE TO COMMERCIA L EXPEDIENCY, PARTICULARLY CRIMINAL PROCEEDINGS FILED AT HIMACHAL PRADESH, JUDICIAL REQUIREMENT OF PERSONAL PRESENCE AT EVERY HEARING T O BE HELD AT HIMACHAL PRADESH WAS LEFT WITH FEASIBLE OPTION OF SETTLING T HE ISSUE AND PAID THE ENTIRE CONSIDERATION OF THE CHEQUES WHICH WERE EARL IER BOUNCED WHEN PRESENTED. ACCORDINGLY, THE CLAIM OF THE ASSESSEE IS ALLOWABLE. 3.1. ON THE OTHER HAND, LD.DR OF THE REVENUE RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 4. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE FACTS OF THE CASE. THERE IS NO DISPUTE THE FACT THAT THE ASSESSEE HAS INCURRED THE EXPENDITURE FOR BUSINESS PURPOSES, I.E. THIS IS A BUSINESS TRAN SACTION AND THE EXPENSES INCURRED HAS TO BE TREATED AS BUSINESS EXPENDITURE. THE QUESTION ARISES WHETHER IT IS A CAPITAL EXPENDITURE OR A REVENUE EX PENDITURE. IN THIS REGARD, THE ASSESSEE HAS CONDUCTED THE TRADING OPER ATIONS TO ENABLE THE ITA NO.2390/AHD /2011 SPINNING KING (INDIA) LTD. VS. ITO ASST.YEAR 2007-08 - 5 - MANAGEMENT TO CONDUCT THE ASSESSEES BUSINESS MORE PROFITABLY, THEREFORE ESSENTIALLY EXPENDITURE HAS TO BE REVENUE IN NATURE IN VIEW OF THE DECISION OF HONBLE SUPREME COURT RENDERED IN T HE CASE OF EMPIRE JUTE CO.LTD. VS. CIT REPORTED AT 124 ITR 01(SC). THE TEST OF ENDURING BENEFITS CANNOT BE CONCLUSIVE TEST AND CANNOT BE AP PLIED BLINDLY AND MECHANICALLY AS HAS BEEN DONE BY THE LD.CIT(A) IN T HE PRESENT CASE. IN THE CIRCUMSTANCES AND FACTS OF THE CASE, THE EXPEND ITURE CLAIMED BY THE ASSESSEE IS AN ALLOWABLE EXPENDITURE. ACCORDINGLY, ALL THE GROUNDS RASIED BY THE ASSESSEE ARE ALLOWED. 5. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWE D. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE SD/- ( .. ) ( B.P. JAIN ) ACCOUNTANT MEMBER AHMEDABAD; DATED 19/ 09 /2013 60.., $.../ T.C. NAIR, SR. PS 3 , )/7 87%/ 3 , )/7 87%/ 3 , )/7 87%/ 3 , )/7 87%// COPY OF THE ORDER FORWARDED TO : 1. &( / THE APPELLANT 2. )*&( / THE RESPONDENT. 3. !! / -9 / CONCERNED CIT 4. -9() / THE CIT(A)-XIV, AHMEDABAD 5. 7$:; )/ , , / DR, ITAT, AHMEDABAD 6. ;<# =. / GUARD FILE. 3- 3- 3- 3- / BY ORDER, *7/ )/ //TRUE COPY// > >> >/ // / ! ! ! ! ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD