M/s. Asopalav Silk Museum, Ahmedabad V. The Jt.CIT.,Range-10, Ahmedabad

ITA 3040/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6190 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 11-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 12-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MATHIVANAN M
• Assessee Lawyers: S N DIVETIA
• Keywords: Business income; Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A. K. GARODIA , AM) ITA NO.3040/AHD/2009 A. Y.: 2006-07 M/S. ASOPALAV SILK MUSEUM, SHALIN, NR. NEHRU BRIDGE CORNER, ASHRAM ROAD, AHMEDABAD VS THE J. C. I. T., RANGE -10 AHMEDABAD PA NO. AACFA 7064 Q (APPELLANT) (RESPONDENT) APPELLANT BY SHRI S. N. DIVETIA, AR RESPONDENT BY SHRI MATHIVANAN M., SR. DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XV I, AHMEDABAD DATED 02-0-9-2009 FOR ASSESSMENT YEAR 2006-07, CHAL LENGING THE DISALLOWANCE OF BAD DEBT OF RS.3,00,000/-. 2. IN THE APPEAL ASSESSEE MADE CLAIM OF BAD DEBT OF RS.3,00,000/- IN THE CASE OF M/S. GAUTAM IMPEX. THE AO HAS OBSERV ED THAT THE DEBT IS IN THE NATURE OF ADVANCE. IT WAS CONTENDED BEFORE THE AO THAT THE ASSESSEE IS IN THE BUSINESS OF SARAFI ALSO. THE AO HELD THAT THE MAIN BUSINESS OF THE ASSESSEE IS IN TRADING IN SARE ES AND NOT IN SARAFI AS IS EVIDENT FROM THE PROFIT & LOSS ACCOUNTS. ACCO RDING TO THE AO, SURPLUS MONEY ADVANCED DURING THE COURSE OF BUSINES S CANNOT BE TREATED AS SARAFI BUSINESS. HE, THEREFORE, HELD THA T THE AMOUNT OF RS.3,00,000/- CANNOT BE ALLOWED AS BAD DEBT AND ADD ITION WAS ACCORDINGLY MADE. IT WAS SUBMITTED BEFORE THE LEARN ED CIT(A) THAT THE ITA NO.3040/AHD/2009 M/S. ASOPALAV SILK MUSEUM VS JCIT, RANGE-1, AHMEDAB AD 2 AMOUNT OF RS.3,00,000/- PAID TO M/S. GAUTAM IMPEX W AS PART AND PARCEL OF SARAFI ACTIVITY, THEREFORE, THE ASSESSEE WAS ASKED TO PROVE THE SAME AMOUNT HAS BECOME BAD. THE ASSESSEE PRODU CED AUDIT REPORT FOR THE LAST 3 YEARS BEFORE THE LEARNED CIT( A) AS PER WHICH ONE OF THE BUSINESS ACTIVITIES OF THE ASSESSEE IS SHOWN AS SARAFI BUSINESS. FURTHER, CLAUSE - 4 OF THE PARTNERSHIP DEED ALSO SH OWS THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF CLOTHS, COMMISSION AGENT AND SARAFI FUNDS GIVEN FOR SARAFI BUSINESS. THE LEARNED CIT(A) ON THE BASIS OF THE AUDIT REPORT PRO DUCED FOR THE LAST 3 YEARS WAS CONVINCED THAT SARAFI BUSINESS IS ONE OF THE BUSINESS ACTIVITIES OF THE ASSESSEE EVEN THOUGH IT IS NOT TH E PRINCIPAL ACTIVITY. THE LEARNED CIT(A) FURTHER NOTED THAT DESPITE GIVIN G OPPORTUNITIES, THE ASSESSEE HAS NOT PROVED THAT THE AMOUNT OF RS.3,00, 000/- PAID TO M/S. GAUTAM IMPEX, TOWARDS SARAFI BUSINESS AND THAT THE AMOUNT HAS BECOME BAD. NOT A SINGLE EVIDENCE OR A PIECE OF PAP ER SHOWING ANY COMMUNICATION BETWEEN THE PARTIES WAS FILED TO PROV E THAT THE ASSESSEE HAS TAKEN ANY ACTION FOR RECOVERY OF THE D EBT. IN THE ABSENCE OF ANY EVIDENCE FOR MAKING EFFORTS FOR RECO VERY OF THE AMOUNT, THE LEARNED CIT(A) IN VIEW OF THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DHALL ENTERPRISES , 207 CTR 729 CONFIRMED THE ADDITION AND DISMISSED THE APPEAL OF THE ASSESSEE. 4. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED CIT(A) AND REFE RRED TO THE BAD DEBT ACCOUNT (PB-5) AND ALSO REFERRED TO THE PARTY S ACCOUNT (PB-6 TO 8) TO SHOW THAT THE AMOUNT WAS OPENING BALANCE COMI NG FROM EARLIER YEARS FOR WHICH BAD DEBT WAS CLAIMED AND ALSO REFER RED TO PB-86 TO ITA NO.3040/AHD/2009 M/S. ASOPALAV SILK MUSEUM VS JCIT, RANGE-1, AHMEDAB AD 3 103 TO SHOW THAT THE AMOUNT WAS GIVEN TO M/S. GAUTA M IMPEX FOR SARAFI BUSINESS ON WHICH INTEREST WAS ALSO EARNED A ND WAS SHOWN AS BUSINESS INCOME. HE HAS HOWEVER, SUBMITTED THAT THE SE PAPERS FILED AT PB-86 TO 103 WERE NOT FILED BEFORE THE AUTHORITI ES BELOW AND AS PER THE CERTIFICATE GIVEN IN THE PAPER BOOK; SAME WERE PRODUCED BEFORE THE TRIBUNAL AS WAS DIRECTED. ON THE OTHER HAND, TH E LEARNED DR SUBMITTED THAT SINCE THESE PAPERS WERE NOT FILED BE FORE THE AUTHORITIES BELOW, THEREFORE, THE MATTER MAY BE RESTORED TO THE FILE OF THE AO FOR RECONSIDERATION OF THE ISSUE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND WE ARE OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT TH E LEVEL OF THE AO. THE AO NOTED THAT THE ADVANCES WRITTEN OFF ARE IN T HE NATURE OF CAPITAL THUS THE SAME CANNOT BE ALLOWED AS REVENUE EXPENDIT URE. THE AO ALSO NOTED THAT SURPLUS MONEY ADVANCED DURING THE C OURSE OF BUSINESS CANNOT BE TREATED AS SARAFI BUSINESS. THE LEARNED CIT(A) WAS HOWEVER, CONVINCED ON THE BASIS OF THE EVIDENCE S ON RECORD PARTICULARLY THE AUDIT REPORT FILED FOR SEVERAL YEA RS THAT THE ASSESSEE IS ALSO DOING THE BUSINESS OF SARAFI. SUCH FINDINGS OF THE LEARNED CIT(A) HAVE NOT BEEN CHALLENGED BY THE REVENUE EITHER IN T HE CROSS APPEAL OR IN THE CROSS OBJECTION. THE LEARNED CIT(A) HOWEV ER, REJECTED THE CLAIM OF THE ASSESSEE BECAUSE IT WAS NOT PROVED THA T THE AMOUNT OF RS.3,00,000/- WAS PAID TO M/S. GAUTAM IMPEX TOWARDS SARAFI BUSINESS OR THAT IT HAS BECOME BAD. THE LEARNED COU NSEL FOR THE ASSESSEE HOWEVER, DEMONSTRATED ON THE DOCUMENTS PRO DUCED THAT THE AMOUNT OF RS.3,00,000/- WAS COMING UP FROM EARL IER YEARS ON WHICH THE ASSESSEE ALSO EARNED INTEREST AND HAS SHO WN INTEREST ITA NO.3040/AHD/2009 M/S. ASOPALAV SILK MUSEUM VS JCIT, RANGE-1, AHMEDAB AD 4 INCOME IN THE PROFIT AND LOSS ACCOUNT IN THE EARLIE R YEARS. HOWEVER, THESE PAPERS FILED IN THE PAPER BOOK FROM PB-86 TO 103 WERE ADMITTEDLY NOT FILED BEFORE THE AUTHORITIES BELOW. THE HONBLE SUPREME COURT IN THE CASE OF T. R. F. LTD. 323 ITR 397 IN WHICH IT WAS HELD AS UNDER: THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1 ST APRIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTAB LISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. I T IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERA BLE IN THE ACCOUNTS OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINE D WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMERS ACCOUNT IS CREDITED, THUS, CLOSING THE ACCOUNT OF T HE CUSTOMER. IN THE CASE OF COMPANIES, THE PROVISION I S DEDUCTED FROM SUNDRY DEBTORS. AS STATED ABOVE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER, IN FACT , THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEE N UNDERTAKEN BY THE ASSESSING OFFICER. HENCE, THE MATTER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE-MENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE O FF. 6. IN VIEW OF THE ABOVE DECISIONS, THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DHALL ENTERPRISES (SUPRA) WOULD NOT BE RELEVANT. SINCE, THE ASSESSEE FILED THE RELEVANT EVIDENCES AND MATERIALS BEFORE THE TRIBUNAL FOR THE FIRST TIME, T HEREFORE, WE ARE OF THE VIEW THE MATTER REQUIRES RECONSIDERATION AT THE LEV EL OF THE AO IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T. R. F. LTD. (SUPRA). WE ACCORDINGLY, SET ASIDE TH E ORDERS OF THE AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FIL E OF THE AO WITH ITA NO.3040/AHD/2009 M/S. ASOPALAV SILK MUSEUM VS JCIT, RANGE-1, AHMEDAB AD 5 DIRECTION TO RE-DECIDE THIS ISSUE ON EXAMINING THE DOCUMENTS FILED BY THE ASSESSEE BEFORE THE TRIBUNAL IN THE LIGHT OF TH E DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T. R. F. LTD. (SUPRA). THE ASSESSEE IS DIRECTED TO FILE THE SAME DOCUMENTS BEF ORE THE AO FOR HIS CONSIDERATION AND THE AO SHALL GIVE REASONABLE SUFF ICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 15-07-2011 SD/- SD/- (A. K. GARODIA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 15-07-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD