The ACIT, Circle-8, Ahmedabad V. M/s. Unique Mercantile India Pvt.Ltd., Ahmedabad

ITA 3347/AHD/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5338 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 03-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 16-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P JHANGID
• Assessee Lawyers: P M MEHTA
• Keywords: Bad and doubtful debts
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 3347 /AHD/2010 (ASSESSMENT YEAR: 2007-08) ACIT, CIRCLE-8, AHMEDABAD V/S UNIQUE MERCANTILE SERVICES PVT. LTD., F-7, VISHAL COMM. CENTRE, NR. DINESH HALL, OFF ASHRAM ROAD, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACU1981B APPELLANT BY : SHRI J.P. JHANGID, SR. D.R . RESPONDENT BY : SHRI P.M. MEHTA ( )/ ORDER DATE OF HEARING : 03-02-201 4 DATE OF PRONOUNCEMENT : 07-02-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A)-XIV, AHMEDABAD DATED 14.09.2010 FOR A.Y. 2007-08. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI AL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF ISSUE OF FACILITY CARDS, PROVIDING SERVICES TO IT CLIENTS, DEALING IN CONSUM ER GOODS, MARKETING OF INSURANCE PRODUCTS ETC. ASSESSEE FILED ITS RETURN O F INCOME FOR A.Y. 07-08 ON 31.10.2007 DECLARING TOTAL INCOME OF RS. 58,18,289/ -. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAM ED 143(3) VIDE ORDER ITA NO 3347/AHD/2010 . A.Y. 2007- 08 2 DATED 20.12.2009 AND THE TOTAL INCOME WAS ASSESSED AT RS. 1,04,93,289/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED TH E MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 14.09.2010 GRANTED SUBSTANT IAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), THE REV ENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING EFFECTIVE GR OUND:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 46,75,000/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF UNADJUSTED BALANCE OF ADVANCES WRITTEN OFF AS BUSINESS LOSS. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON PERUSING THE ACCOUNTS, A.O. NOTICED THAT ASSESSEE HAD WRITTEN OF AN AMOUNT OF RS. 46.75 LAKHS AS UNADJUSTED BALANCE OF ADVANCE AGAINST BUSINESS DEVE LOPMENT EXPENDITURE. THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM IN RESP ONSE TO WHICH ASSESSEE INTERALIA SUBMITTED THAT ITS BUSINESS ENTIRELY DEPE NDS ON THE AGENTS AND THE EFFORTS PUT BY THEM. FOR THE PURPOSE OF BUSINESS, ASSESSEE USUALLY GIVES ADVANCE TO AGENTS TO MEET/COMPENSATE EXPENSES INCUR RED BY THEM TO DEVELOP AND ENHANCED THE BUSINESS. THE AMOUNT IS A DJUSTED AGAINST THE COMMISSION DUE ON THE BUSINESS BROUGHT BY THEM. IT WAS FURTHER SUBMITTED THAT THERE ARE OCCASIONS WHERE THE ADVANCES GIVEN T O SUCH PERSONS MAY NOT RESULT INTO EQUIVALENT BUSINESS PROPORTIONATE TO TH E COMMISSION RESULTING INTO WRITING OF SUCH ADVANCES AFTER A PERIOD OF 3 YEARS. IT WAS THEREFORE SUBMITTED THAT THE LOSS ON ACCOUNT OF NON RECOVERY OF TRADING BUSINESS WAS IN THE NATURE TRADING LOSS. THE SUBMISSION OF THE ASSESSEE WAS NO T FOUND ACCEPTABLE TO THE A.O, FOR THE REASON THAT THE AMOUNTS WHICH WERE WRI TTEN OFF WERE IN THE NATURE OF ADVANCES THAT WERE GIVEN TO COMMISSION AGENTS AN D ACCORDING TO THE A.O. THE AMOUNT COULD NOT BE ALLOWED AS BAD DEBTS BECAUS E THEY WERE NEVER OFFERED TO TAX IN ANY OF THE EARLIER YEARS AND THER EFORE THE CONDITION LAID DOWN UNDER SECTION 36(1)(VII) R.W.S. 36(2) WERE NOT FULF ILLED. A.O. FURTHER HELD THAT EVEN THE ADVANCES CANNOT BE CLAIMED AS A TRADING LO SS UNDER SECTION 28 OF THE ACT. HE ACCORDINGLY DISALLOWED THE ADVANCE WRIT TEN OFF BY THE ASSESSEE. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED TH E MATTER BEFORE CIT(A). ITA NO 3347/AHD/2010 . A.Y. 2007- 08 3 CIT(A) FOLLOWING THE DECISION OF TRIBUNAL IN THE AS SESSEES OWN CASE FOR A.Y. 05-06 DELETED THE ADDITION. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US, THE REVENUE RELIED ON THE ORDER OF A.O. ON THE OTHER HAND, THE LD. A.R. SUBMITTED THAT THE FACTS OF THE CASE UNDER APP EAL ARE IDENTICAL TO THAT OF EARLIER YEARS AND FURTHER THE ISSUE IN THE PRESENT APPEAL IS COVERED BY THE DECISION OF TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y. 05-06 AND 06-07. HE ALSO PLACED ON RECORD THE COPY OF THE AFORESAID ORDERS. HE FURTHER SUBMITTED THAT SINCE THE FACTS OF THE CASE IN THE Y EAR UNDER APPEAL ARE IDENTICAL TO THAT OF EARLIER YEARS, THE APPEAL OF THE REVENUE BE DISMISSED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE AMOUNT OF RS. 46.75 LAC S BEING THE BALANCE OF ADVANCE AGAINST BUSINESS DEVELOPMENT EXPENDITURE WA S WRITTEN OFF. WE FIND THAT WHILE ADJUDICATING SIMILAR ISSUE IN THE PRECED ING YEAR IN ASSESSEES OWN CASE IN ITA NO. 1879/AHD/2009 ORDER DATED 06.08.200 9 FOR A.Y. 06-07, THE CO-ORDINATE BENCH DISMISSED THE APPEAL OF THE REVEN UE BY HOLDING AS UNDER:- 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WHILE ADJUDICATING A SIMILAR ISSUE IN THE PRECEDING YEAR, THE ITAT VIDE THEIR AFORESAID ORDER DATED 29.05.2009 CONCLUDED AS UNDER: 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON. UNDISPUTEDLY, AN AMOUNT OF RS. 21.69 LACS DEBITED UNDER THE HEAD OF DEVELOPMENT EXPENDITURE, HAD BEEN WRITTEN OFF. ACCORDING TO THE ASSESSEE, THE BUSINESS OF THE ASSESSEE ENTIRELY DEP ENDED ON THE AGENTS AND EFFORTS PUT FORTH BY THEM AND THEREFORE, FOR DEVELOPING THE BUSINESS, THE ASSESSEE COMPANY ADVANCED TO VARIOUS PERSONS/AGENTS. SINCE T HESE ADVANCES COULD NOT BE RECOVERED THE ASSESSEE WROTE OFF THESE ADVANCES AFT ER THREE YEARS. THE ASSESSEE FURNISHED DETAILS OF SUCH ADVANCES ALONG WITH NAME ADDRESS AND AMOUNT OF ADVANCE BEFORE THE LD. CIT(A). CONSIDERING THE FACT S AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IN THE IMPUGNED ORDER CONCLUDE D THAT AS THE ASSESSEE ADVANCED THE MONEY TO THE AGENTS WHO WERE ENHANCING THE BUSINESS OF THE APPELLANT COMPANY, THE NEXUS OF ADVANCES WITH THE B USINESS OF THE ASSESSEE HAS BEEN ESTABLISHED BEYOND DOUBT AND AS THE ADVANCE AM OUNT COULD NOT BE ADJUSTED AGAINST THE COMMISSION DUE, THE ASSESSEE HAD WRITTE N OFF THE SAME AFTER A PERIOD OF 3 YEARS. THE REVENUE HAVE NOT PLACED BEFORE US A NY MATERIAL CONTRARY TO THESE ITA NO 3347/AHD/2010 . A.Y. 2007- 08 4 FACTUAL FINDINGS OF THE LD. CIT(A). REGARDING PLEA THAT THERE IS NO EVIDENCE THAT ADVANCES HAVE BECOME IRRECOVERABLE DURING THE YEAR, IN LORDS DIARY FARM LIMITED VS. COMMISSIONER OF INCOME TAX, BOMBAY NORT H, KUTCH AND SAURASHTRA, BARODA, 27 ITR 700 (BOM.), HONBLE HIGH COURT HELD. WHEN A BUSINESSMAN WRITES OFF AN AMOUNT, THERE IS P RIMA FACIE EVIDENCE THAT AMOUNT IS IRRECOVERABLE. UNDOUBTEDLY THE DEPARTMENT CAN BUT THE PRIMA FACIE INFERENCE BY DRAWING ATTENTION TO CIRCUMSTANCES OR BY LEADING SOME EVIDENCE TO SUGGEST THAT THE POSITION TAKEN UP OF THE ASSESSEE WAS NOT CORRECT. IN THIS CASE THERE IS NO EVIDENCE WHATSOEVER ON THE RECORD EXCEP T THE FACT THAT THE ASSESSEE WROTE OFF THIS AMOUNT IN THE YEAR OF ACCOUNT. IN T HE ABSENCE OF ANY EVIDENCE WE ARE ENTITLED TO PRESUME THAT THE AMOUNT BECAME IRRE COVERABLE WHEN THE ASSESSEE WROTE IF OFF IN ITS BOOKS OF ACCOUNT. 6. IN THE CASE UNDER CONSIDERATION, THE FACTS OF TH E CASE REVEAL THAT THE ASSESSEE HAD WRITTEN OFF THE AMOUNT. THERE IS NO EVIDENCE ON RECORD TO SUGGEST THAT THE AMOUNTS WERE RECOVERABLE EVEN WHEN RELEVANT DETAILS WERE AVAILABLE BEFORE THE LD. CIT(A). IN THE ABSENCE OF ANY CONTRARY EVIDENCE WE HAVE NO ALTERNATIVE BUT TO PRESUME THAT THE AMOUNT BECAME IRRECOVERABLE WHEN T HE ASSESSEE WROTE IT OFF IN ITS BOOKS OF ACCOUNT, AS CONCLUDED BY THE HONBLE B OMBAY HIGH COURT IN THE AFORESAID DECISION.. 7. IN THE CASE OF MASTEK LTD., (SUPRA), RELIED UPON ON BEHALF OF THE ASSESSEE, A SIMILAR ISSUE WAS CONSIDERED BY THE ITAT IN THE LIG HT OF DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. AB DUL RAZAK AND CO. (136 ITR 825). IN ABDUL RAZAK AND CO. FACTS WERE THAT THE A SSESSEE, M/S. ABDUL RAZAK AND COMPANY OF DHORAJI, CARRIED ON BUSINESS AS COMMISSI ON AGENTS AS WELL AS DEALERS IN GROCERY ARTICLES HAVING THEIR HEAD OFFICE AT DHO RAJI AND BRANCHES AT BOMBAY, MANGALORE, VERVAL AND CHORVAD. IN THE COURSE OF AS SESSMENT FOR THE ASSESSMENT YEAR 1967-68, THE ASSESSEE INTERALIA MADE A CLAIM B EFORE THE ITO FOR BAD DEBT OF RS. 78,824/- IN RESPECT OF THE AMOUNT DUE FROM M/S. MOHMAD PEER MOHMAD OF NASIK. THE ITO DISALLOWED THE CLAIM ON THE GROUND T HAT THE IMPUGNED DEBT WAS NEITHER INCURRED IN THE COURSE OF MONEY LENDING NOR IN THE COURSE OF COMMISSION AGENCY. THE ITO NOTED THAT THE BAD DEBT WAS WRITTEN OFF FROM THE BOMBAY BOOKS OF THE ASSESSEE FIRM. THE MAIN SOURCE OF THE INCOM E AT BOMBAY AROSE FROM THE COMMISSION AGENCY AND DEALINGS IN GROCERY ARTICLES. ON FURTHER APPEAL, AAC UPHELD THE ORDER OF A.O. ON FURTHER APPEAL THE TRIB UNAL ADDRESSED ITSELF TO THE ALTERNATIVE QUESTION WHETHER THE AMOUNT OF LOSS COU LD BE ALLOWED AS INCIDENTAL TO THE BUSINESS UNDER SECTION 28 OF THE I.T. ACT, 1961 . THE TRIBUNAL HAVING REGARD TO THE FACT THAT THE ASSESSEE HAD ADMITTEDLY DEALINGS WITH M/S. MOHMAD PEER MOHMAD OF NASIK, AND SINCE THERE WAS NO EVIDENCE TO SUGGEST THAT ANY PARTNER OF THE SAID DEBTOR FIRM WAS RELATED TO THE PARTNER OF THE ASSESSEE FIRM HELD THAT THE IMPUGNED LOSS SHOULD BE ALLOWED AS DEDUCTION U/S. 2 8 OF THE SAID ACT BECAUSE THE SAID M/S. MOHMAD PEER MOHMAD OF NASIK HAD APPROACHE D THE ASSESSEE FIRM, TO PAY THE AMOUNT TO M/S. GOKALDAS VIRJIBHAI OF SANGLI . ON REFERENCE HONBLE HIGH COURT CONCLUDED THAT AS HELD IN CIT VS. EQUITORIAL PVT. LTD. (1974) TAXATION 37(3)-82, THE DEBT OWED BY M/S. MOHMAD PEER MOHMAD OF NASIK WAS ONE WHICH SPRANG DIRECTLY FROM THE BUSINESS, OF THE ASSESSEE AND WAS ALLOWABLE AS A BAD DEBT, AND, CONSEQUENTLY THEREFORE, A TRADING LOSS U NDER SECTION 28(1). IT IS NO ITA NO 3347/AHD/2010 . A.Y. 2007- 08 5 DOUBT TRUE THAT EVERY LOSS IS NOT SO DEDUCTIBLE UNL ESS IT IS INCURRED IN CARRYING OUT THE OPERATION OF THE BUSINESS. (VIDE CIT VS. NAINIT AL BANK LTD. (1965) 55 ITR 707 (SC). IN THAT VIEW OF THE MATTER, THEREFORE, FOR TH E REASONS STATED HONBLE HIGH COURT HELD THAT THE SAID LOSS BEING A BAD DEBT IS ALLOWABLE AS TRADING LOSS UNDER SECTION 28 OF THE ACT, 1961. 8.IN THE LIGHT OF AFORESAID DECISION OF HONBLE JUR ISDICTIONAL HIGH COURT AND THE FINDINGS OF THE LD. CIT(A), SUGGESTING THAT THE AMO UNTS WRITTEN OFF WERE ADVANCED DURING THE COURSE OF CARRYING ON OF BUSINESS AND SP RANG DIRECTLY FROM THE BUSINESS, THESE AMOUNTS FORGONE ARE BUSINESS LOSS A ND ARE ALLOWABLE. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF LD. CIT(A). ACCORDINGLY GROUND NO. 1 IN THE APPEAL OF THE REVENUE IS REJECTED. 6. UNDISPUTEDLY FACTS AND CIRCUMSTANCES IN THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS AND CIRCUMSTANCES IN THE PRECE DING YEAR. THEREFORE FOLLOWING THE REASONING GIVEN IN THE AFORESAID DECISION DATED 29.05.2009 OF THE ITAT, GROUND NO. 1 IN IS REJECTED. 7. SINCE THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE YEAR UNDER APPEAL ARE UNDISPUTEDLY SIMILAR TO THE FACTS AND CIRCUMSTANCES OF THE PRECEDING YEAR, WE FOLLOWING THE SAME REASONING GIVEN IN THE AFORESAID DECISION FOR A.Y. 06-07 DISMISS THIS GROUND OF REVENUE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN OPEN COURT ON 07 - 02 - 2014. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR