THE DCIT CEN CIR-24, MUMBAI V. SHRI GANGESLINES (INDIA) P. LTD, MUMBAI

ITA 3878/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2604 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 18-11-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 03-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI P.M.JAGTAP, AM & SMT. P.MADHAVI DEVI, JM I.T.A.NO.3878/MUM/2008 - A.Y 2004-05 DY. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE 24 MUMBAI VS. M/S GANGES LINES [INDIA] PVT.LTD. 2 ND FLOOR, MACKINNON MACKENZIE BLDG.4 S.V.MARG, BALLARD ESTATE, MUMBAI 400 001 PAN NO.AAACG 1254 F (APPELLANT) (RESPONDENT) REVENUE BY : MR.MOHD. USMAN. ASSESSEE BY : NONE O R D E R PER P.MADHAVI DEVI, JM: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST CIT (A)S ORDER DATED 28-3-2008. 2. IN THIS APPEAL, THE REVENUE IS AGGRIEVED BY THE ORDER OF THE CIT[A] IN ALLOWING THE CLAIM OF BAD DEBTS OF THE A SSESSEE AMOUNTING TO RS.16,49,865/- WITHOUT APPRECIATING THE FACT THA T THE ASSESSEE FAILED TO FULFILL THE CONDITIONS PRESCRIBED FOR ALLOWING B AD DEBTS I.E. THE PROVISIONS OF SEC.36[1][VII] R.W.S. 36[2][II] OF TH E ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS ENGAGED IN THE BUSINESS OF SHIPPING AND TRANSPORT. IT FILED ITS RETURN OF INCOME ON 29-10-2004 DECLARING TOTAL LOSS OF RS.1,3 8,765/-. DURING THE 2 ASSESSMENT PROCEEDINGS U/S.143[3] OF THE ACT, AO OB SERVED THAT DURING THE RELEVANT ASSESSMENT YEAR NO BUSINESS ACT IVITY WAS CARRIED OUT BY THE ASSESSEE. FROM THE PROFIT & LOSS ACCOUNT , HE OBSERVED THAT THE ASSESSEE HAS CLAIMED ADMINISTRATIVE AND OTHER E XPENDITURE OF RS.49,47,153/- WHICH INCLUDED AN AMOUNT OF RS.44,54 ,334/- ON ACCOUNT OF BAD DEBTS/SUNDRY BALANCES WRITTEN OFF. T HE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF SUCH AMOUNTS WRITTE N OFF. VIDE LETTER DATED 18-8-2006, THE ASSESSEE FURNISHED DETAILS OF THE BAD DEBTS/SUNDRY BALANCES WRITTEN OFF AND CLAIMED THAT DUE TO DRASTIC DOWNFALL IN THE BUSINESS IT WAS UNVIABLE TO CONTINU E THE BUSINESS TILL SUITABLE OPPORTUNITY FOR BUSINESS ARISES AND TO RES HUFFLE THE BUSINESS OPPORTUNITY MANAGEMENT DECIDED TO SUSPEND THE SAME TEMPORARILY AND IN SUCH CIRCUMSTANCES THE MANAGEMENT DECIDED TO WRITE OFF THE BAD DEBTS/SUNDRY BALANCES. FROM THE DETAILS FURNISH ED BY THE ASSESSEE, HE OBSERVED THAT SUNDRY BALANCES WRITTEN OFF INCLUDED MPT CONTAINER DEPOSIT OF RS.28,04,469/-. HE OBSERVED TH AT BAD DEBTS CAN BE ALLOWED ONLY IF THE SAME HAS BEEN OFFERED FOR TA XATION IN ANY OF THE EARLIER YEARS. THE ASSESSEES EXPLANATION WAS CALLE D FOR AS TO WHY THE SAME SHOULD NOT BE DISALLOWED. THE ASSESSEE VIDE LE TTER DATED 20-9- 2006 SUBMITTED THAT HE HAD CLAIMED BAD DEBTS REPRES ENTING ITEMS WHICH WERE TAXED EARLIER AND HENCE THE SAID SUMS AR E ALLOWABLE AS DEDUCTION U/S.36[1]. AO OBSERVED THAT THE ASSESSEE DID NOT FURNISH THE 3 EXACT DETAILS OF THE SUMS WHICH WERE CREDITED TO TH E PROFIT & LOSS ACCOUNT. HE THEREFORE DISALLOWED THE ASSESSEES CLA IM OF DEDUCTION OF RS.44,54,334/- U/S.36[1][VII] OF THE ACT. 4. AGGRIEVED, ASSESSEE FILED AN APPEAL BEFORE THE C IT[A] STATING THAT IF THE SAID AMOUNT CANNOT BE ALLOWED AS DEDUCT ION U/S.36[1][VII] THEN IT HAS TO BE ALLOWED AS A TRADING LOSS U/S.28[ 1] OF THE ACT. THE CIT[A] CONSIDERED THE BREAK UP OF THE CLAIM OF BAD DEBTS MADE BY THE ASSESSEE AS BEING (I) RS.16,49,865/- BEING THE TOTA L OF SEVERAL DEBTS WRITTEN OFF BY THE ASSESSEE AND (II) RS.28,04,469/ - BEING THE AMOUNT RECEIVABLE FROM MPT WRITTEN OFF. SHE OBSERVED THAT THE ASSESSEE HAS NOT FILED ANY DETAILS BEFORE THE AO OR BEFORE HER T O SHOW THAT THESE AMOUNTS WERE OFFERED AS INCOME IN ANY OF THE EARLIE R YEARS. SHE, THEREFORE, UPHELD THE FINDING OF THE AO THAT IT IS NOT ALLOWABLE U/S.36(1)(VII) OF THE ACT. SHE, HOWEVER, CONSIDERED THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT IT SHOULD BE ALLOWED AS A BUSINESS LOSS U/S.28(1) OF THE ACT. WITH REGARD TO RS.16,49,865/- , THE ASSESSEE SUBMITTED THAT IT REPRESENTS THE AMOUNT WRITTEN OFF FROM 32 DIFFERENT PARTIES. SHE CALLED FOR A REMAND REPORT FROM THE AO FOR THE SUBMISSIONS MADE BY THE ASSESSEE. AO FILED HIS REPO RT DATED 19 TH SEPTEMBER, 2007 STATING THAT THE SUIT PAPERS NOT FO RMING A SUBJECT MATTER OF DELIBERATION BEFORE HIM, WERE NOT RELEVAN T TO THE PROCEEDINGS. THE CIT[A] AFTER CONSIDERING THE ASSE SSEES SUBMISSIONS 4 ON THE IRRECOVERABILITY OF THE SAID AMOUNTS, HAS HE LD THAT EXPLANATION AND BUSINESS EXIGENCIES IN WHICH THE ASSESSEE HAS W RITTEN OFF THESE AMOUNTS IS SATISFACTORY. 5. AS REGARDS THE DEPOSIT OF RS.28,04,459/- GIVEN T O THE MUMBAI PORT TRUST, THE CIT[A] HELD THAT THERE WAS A SUIT PENDING BETWEEN THE ASSESSEE AND THE MPT AND IT WAS NO LONGER A DEPOSIT WITH MPT AND THAT IT IS A SOUND REASON TO WRITE OFF THE SAME. AG GRIEVED BY THE RELIEF GIVEN BY THE CIT[A] , THE REVENUE IS IN APPEAL BEFO RE US ONLY AGAINST THE DELETION OF THE ADDITION OF RS.16,49,865/-. 6. AT THE TIME OF HEARING, NONE APPEARED FOR THE AS SESSEE AND AFTER HEARING THE LD. DR, WE FIND THAT THE ASSESSEE HAD GIVEN DETAILED EXPLANATION WITH REGARD TO THE WRITE OFF OF THE SAI D AMOUNT WHICH IS REPRODUCED BY THE CIT[A] AT PARA13 OF HIS ORDER, W HICH IS AS UNDER- 13. AS REGARDS RS.16,49,865/- BEING THE TOTAL OF SE VERAL DEBTORS WRITTEN OFF THE APPELLANT HAS SUBMITTED AS FOLLOWS: A) THIS REPRESENTS THE AMOUNTS WRITTEN OFF FROM 32 DIF FERENT PARTIES INCLUDING PAREKH MARINE AGENCIES PVT. LTD. IN WHOSE CASE THE AMOUNT WRITTEN OFF IS KRS.8,99,500/-. THE AMOUNTS D UE FROM THE REMAINING 31 PARTIES VARY FROM RS.360/- AND RS.1400 /- TO RS.95000/-. B) THE APPELLANT WAS THE AGENT OF MERZARIO MARITIMA AN D GANGES LINES, MAURITIUS. THE APPELLANT USED TO BOOK CARGO ON THE SHIPS BELONGING TO THE PRINCIPALS FROM VARIOUS PART IES IN INDIA. THE APPELLANT WOULD REMIT THE FREIGHT [LESS ITS COM MISSION AND OTHER EXPENDITURE INCURRED ON BEHALF OF THE PRINCIP ALS] REGULARLY [SOMETIMES EVEN WITHOUT WAITING FOR THE FREIGHT TO BE PAID BY THE LOCAL SHIPPERS]. THIS WAS DONE TO MAINTAIN GOOD BUSINESS RELATIONSHIP WITH THE PRINCIPALS AND IN THE HOPE OF GETTING EXTRA BUSINESS. SOME OF THE SHIPPERS/EXPORTERS DID NOT MA KE PAYMENT TO THE APPELLANT. FURTHER, THE APPELLANTS AGENCY WORK WITH MERZARIO MARITIMA AND GANGES LINES, MAURITIUS WAS DISCONTINUED, SOMETIME IN THE YEAR 2000 AND THE APP ELLANTS 5 BUSINESS ACTIVITIES WERE TEMPORARILY SUSPENDED. THE REAFTER, THERE HAS BEEN NO MOVEMENT IN THE ACCOUNTS WHATSOEV ER. C) THE APPELLANT WROTE OFF THESE AMOUNTS AGGREGATING T O RS.16,49,865/- AS A BUSINESS LOSS FOR TWO REASONS, VIZ. THE AMOUNT OF EXPENDITURE LIKELY TO BE INCURRED ON THE PAYMENT OF COURT FEES, AND ADVOCATES FEES TO RECOVER THE OUTS TANDING DUES FROM 31 PARTIES [EXCEPT PAREKH MARINE AGENCIES PVT. LTD.] WOULD BE MORE THAN WHAT THE APPELLANT COULD H AVE HOPED TO RECOVER, IF IT HAD SUCCEEDED IN THE LITIGATIONS; AND, [B] THE CLAIMS WERE TIME BARRED. D) THE APPELLANT STATES THAT BEING A COMMISSION AGENT AND SINCE THE FREIGHT WAS DUE TO ITS PRINCIPALS, THE APPELLAN T WOULD NOT CREDIT THE FREIGHT TO ITS PROFIT & LOSS ACCOUNT AND WOULD ONLY CREDIT THE COMMISSION. E) THE APPELLANT HAS RELIED UPON THE DECISION OF GUJAR AT HIGH COURT IN CIT VS. ABDUL RAZAK & CO. [136 ITR PAGE 82 5] & THE BOMBAY HIGH COURT IN CIT VS. R.B.RUNGTA & CO. [50 I TR PAGE 233]. 7. WE FIND THAT THE CIT[A] HAS COME TO A REASONABL E CONCLUSION THAT THE AMOUNTS HAVE BEEN WRITTEN OFF DUE TO BUSIN ESS EXIGENCIES AS EXCEPT FOR ONE, ALL OTHER AMOUNTS WERE PALTRY AND M OST OF THEM WERE TIME BARRED AND IT WOULD NOT HAVE BEEN FINANCIALLY WORTHWHILE TO PURSUE THE LEGAL REMEDIES FOR THEIR RECOVERY. IN VI EW OF THE SAME, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER O F THE CIT[A] AND THE REVENUES GROUND OF APPEAL IS REJECTED. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS 8 TH DAY OF DECEMBER, 2009. SD/- SD/- (P.M.JAGTAP) (P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 8 TH DECEMBER, 2009. 6 P/-* COPY TO- 1) APPELLANT 2) RESPONDENT 3) CITA MUMBAI. 4) CIT CITY MUMBAI 5) DR BENCH MUMBAI TRUE COPY BY ORDER DY /ASST.REGISTRAR,ITAT MUMBAI. SR.NO. PARTICULARS DATE INITIALS 1 DRAFT DICTATED ON 18-11-09 P 2 DRAFT PLACED BEFORE AUTHOR 19-11-09 P 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5 APPROVED DRAFT COMES TO SR.PS/PS 6 ORDER KEPT FOR PRONOUNCEMENT 7 FILE SENT TO BENCH CLERK 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER