MERCHANT SHIPPING SERVICES P. LTD, MUMBAI V. DCIT 5(2), MUMBAI

ITA 3526/MUM/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7286 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 28-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 05-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Section: 5(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE SHRI R.S.SYAL, AM AN D SHRI N.V.VASUDEVAN, JM ITA NO.3526/MUM/2010 : ASST.YEAR 2006-2007 M/S.MERCHANT SHIPPING SERVICES PVT.LTD. UNIT NO.101/102 TECHNOPOLIS KNOWLEDGE PARK, MAHAKALI CAVES ROAD, CHAKALA, ANDHERI (EAST), MUMBAI 400 093. PAN : AABCM6541J. VS. THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 5(2) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBHASH S.SHETTY RESPONDENT BY : SHRI A.K.NAYAK DATE OF HEARING : 28.07.2011 DATE OF PRONOUNCEMENT :05.08.2011 O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE ASS ESSEE ARISES OUT OF TH E ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 22.03.2010 IN RELATION TO THE ASSESSMENT YEAR 2006-2007. 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE ACTION OF THE LEARNED CIT(A) IN NOT ALLOWING DEDUCTION ON ACCOUNT OF SUNDRY BALANCES WRITTEN OFF AMOUNTING TO RS.28,64,729. BRIE FLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE AT THE MATERIAL TIME WAS ACTING AS SH IPPING AGENT. A SUM OF RS.28.64 LAKH WAS DEBITED TO THE PROFIT AND LO SS ACCOUNT ON ACCOUNT OF BALA NCES WRITTEN OFF. IN THE ABSENCE OF THE ASSESSEE SUBMITTING ANY DETAIL IN RESPECT OF SUCH WRITE OFF, THE ASSESSING OFFICER MADE TH E ADDITION. IT WAS ARGUED BEFORE THE LEARNED FIRST APPELLATE AUTHORITY THAT THE A.O. DID NOT CALL FOR SUCH DETAILS DURING THE COURSE OF ASSESSMENT PROCEEDINGS. ON THE MERITS IT WAS EXPLAINED THAT THE ASSESSEE BEING A SHIPPING AGENT WAS REQUIRED TO INCUR EXPE NSES ON BEHALF OF PR INCIPALS WHICH WERE REIMBURSABLE. IT WAS FURTHER STATED THAT SU CH CLAIM WAS REQUIRED TO BE MADE WITHIN 90 TO 120 DAYS FROM THE SAILING OF VESSELS AND BEYOND THAT PERIOD THE EXPENSES FELL ITA NO.3526/MUM/2010 M/S.MERCHANT SHIPPING SERVICES PVT.LTD. 2 ON THE ASSESSEE AS NON RECOVERABLE. IT WAS CLAIMED THAT SUCH EXPENSES AMOUNTED TO RS.28.64 LAKH IN THE INSTANT YEAR. THE A SSESSEE CLAIMED DEDUCTION FOR THE SUCH AMOUNT U/S.36(1)(VII) OR ALTERNATIVELY U/ S.37(1) BY CLAIMING IT TO BE BUSINESS LOSS. THE LEARNED CIT(A) NOTED IN PARA 1.7 OF THE IMPUGNED ORDER TH AT THE ASSESSEE WAS NOT IN POSITION TO EXPLAIN AS TO WHY THE EXPENSES COULD NOT BE RECOVERED FROM THE PRINCIPALS. FURTHER IN THE ABSENCE OF THE AS SESSEE FURNISHING COMP LETE DETAILS IN THE SHAPE OF AGREEMENT WITH THE PRINCIPALS DEBARRING THE ASSESSEE FROM CLAIMING AFTER 90 TO 120 DAYS, THE LEARNED CIT(A) HELD THAT THE DEDUCTION WAS NOT PERMISSIBLE. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT HAS BEEN CLAIMED THAT THE SAID AMOUNT OF RS.28.64 LAKH REPRESENTED THE EXPENSES INCURRED BY THE ASSESSEE DURING TH E COURSE OF BUSINESS ON BEHALF OF THE PRINCIPALS WHICH COULD NOT BE RECOVERED WITHIN THE STIPUL ATED PERIOD OF 90 TO 120 DAYS FROM THE DATE OF SAILING OF THE VESSELS. OBVIOUSLY THE CLAIM CANNOT BE CONSIDERED U/S.36(1)(VII) AS THE CONDITION CONTAINED IN SEC TION 36(2) IS NOT SATISFIED. IN ORDER TO CLAIM ANY DEDUCTION IN RESPECT OF BAD DEBT IT IS NECESSARY THAT SUCH DEBT OR PART THEREOF MUST HAVE BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH TH E AMOUNT IS WRITTEN OFF OR IN AN EARLIER PREVIOUS YEAR. ADMITTEDLY THESE AMOUNTS WR ITTEN OFF BY THE ASSESSEE IN ITS ACCOUNTS CANNOT BE CONSIDERED AS RESULTING INTO A NY INCOME IN THE HANDS OF THE ASSESSEE IN THIS YEAR OR EARLIER YEAR. THIS AMOUNT IS DE HORS ANY INCOME EARNED BY THE ASSESSEE IN THIS REGARD. AS SUCH WE REFUSE TO ADMI T THE CLAIM OF THE ASSESSEE U/S.36(1)(VII). COMING TO THE SECOND ASPECT OF THE ASSESSE ES CLAIM AS `BUSIN ESS LOSS, IT IS OBSERVED THAT IN ORDER TO CLAI M DEDUCTION FOR SUCH LOSS IT IS NECESSARY THAT THE FACT OF HAVING INCURRED LOSS MUST BE PROVED BY THE ASSESSEE. HERE IS A CASE IN WHICH THE ASSESSEE IS MAKING A DEDUCTION IN RESPECT OF RS.28.64 LAKH. TW O PAGES HAVE BEEN PLACED ON RECORD INDICATING MORE THAN 55 ENTRIES WHICH HAVE BEEN CLAIMED AS THE EXPENSES INCURRED BY THE ASSESSEE ON BEHALF OF THE PRINCIPALS, WH ICH COULD NOT BE RECOVERED. ALL THE PARTIES ARE DIFFERENT FROM EACH OTHER. IT IS NOT ASCERTAINED AS TO ITA NO.3526/MUM/2010 M/S.MERCHANT SHIPPING SERVICES PVT.LTD. 3 HOW THE ASSESSEE INCURRED SUCH EXPENDITURE AND FAILED TO MAKE TH E CLAIM WITHIN THE PERIOD OF 90 TO 120 DAYS WH EN IT WAS KNOWN THAT AFTER TH IS PERIOD THE CLAIM WILL NOT BE ALLOWED. BE THAT AS IT MAY THE ASSESSEE HAS NOT PLACED ON RECORD ANY COPY OF SUCH AGREEMENT WITH THE PARTIES DISENTITL ING THE ASSESSEE FROM REIMBURSEMENT OF EXPENSES INCURRED BY IT AFTER THE SP ECIFIED PERIOD. THE ASSESSEE HAS TAKEN A PARTICULAR STAND THAT THE ASSESSING OFFICE R DID NOT CALL FOR SUCH DETAILS. IN SUCH CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE ENDS OF JUSTICE WOULD MEET ADEQUATELY IF THE IMPUG NED ORDER ON THIS ISSUE IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF A.O. WE ORDER ACCORDINGLY AND DIRECT HIM TO DECIDE THIS ISSUE AFRESH IN THE LIGHT OF MATERIAL TO BE PLACED BY THE ASSESSEE IN SUPPORT OF ITS CLAIM. NEEDLESS TO SAY, IF THE ASSESS EE FAILS TO PLACE REQUIRED DETA ILS IN THIS REGARD, THE AO WILL BE AT LIBERTY TO DRAW ADVERS E INFERENCE AGAINS T THE ASSESSEE. 4. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN TH E OPEN COURT ON THIS 05 TH DAY OF AUGUST, 2011. SD/- SD/- (N.V.VASUDEVAN) (R.S.SYAL) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI : 05 TH AUGUST, 2011. DEVDAS*` COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - IX, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.