ITO 6(3)(2), MUMBAI V. LLOYDS METAL S& ENGINEERS LTD, MUMBAI

ITA 4207/MUM/2010

• Counselvise Citation: 420719914 RSA 2010
• Duration Of Justice: 1 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 24-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS USHA NAIR
• Assessee Lawyers: D V LAKHANI
• Keywords: Wrong claim; Bad and doubtful debts; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 142(1); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: MUMBAI BEFORE SHRI G.E. VEERABHADRAPPA, PRESIDENT AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.4207/MUM/2010 (ASSESSMENT YEAR: 2003-04) ACIT CIRCLE-8(1), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI -400 020 ...... APPELLANT VS M/S. LLOYDS METALS & ENERGY LTD., (FORMERLY: LLOYDS METALS & ENGINEERS LTD.) C-WING, 16TH FLOOR, TRADE WORLD, KAMLA CITY, LOWER PAREL, MUMBAI -400 013 ..... RESPONDENT PAN: AAACL 0830 E APPELLANT BY: MRS. USHA NAIR RESPONDENT BY: SHRI D.V. LAKHANI DATE OF HEARING: 28.11.2011 DATE OF PRONOUNCEMENT: 28.12.2011 O R D E R PER R.S. PADVEKAR, JM IN THIS THE REVENUE HAS CHALLENGED THE IMPUGNED ORD ER OF THE LD. CIT (A) -12, MUMBAI DATED 12.01.2010 FOR THE A. Y. 2003-04. THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) HAS ERRED IN TREATING THE REAS SESSMENT BY ISSUE OF NOTICE U/S.148 OF THE I.T. ACT WITHOUT APPRECIATING THAT- (A) INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT IN VIEW OF FAILURE ON THE PART OF THE ASSESSEE TO DISC LOSE FULLY ITA 4207/MUM/2010 M/S. LLOYDS METALS & ENERGY LTD. 2 AND TRULY ALL MATERIAL FACT ESPECIALLY RELATING TO BAD DEBTS NECESSARY FOR THE ASSESSMENT. (B) THE EVIDENCE RELIED UPON IN APPELLATE ORDER DOE S NOT ESTABLISH THE FACT ABOUT FURNISHING OF DOCUMENTARY PROOF FOR RENDERING THE BAD DEBTS AS ALLOWABLE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF BAD DEBTS AMOUNTING TO ` 2,33,24,091/- WITHOUT APPRECIATING THAT: (A) SPECIFIC QUERY WITH REFERENCE TO BAD DEBTS AND EFFORTS MADE TO RECOVER THE DEBTS RAISED BY THE ASSESSING O FFICER VIDE QUESTIONNAIRE DATED 02.12.2005 WAS NOT COMPLIE D WITH. (B) MERE PRODUCTION OF BALANCE SHEET, PROFIT & LOSS ACCOUNT ETC. WOULD NOT NECESSARILY AMOUNT TO FULL AND TRUE DISCLOSURE WITHIN THE MEANING OF PROVISO TO SECTION 147. 2. THE FIRST ISSUE IS IN RESPECT OF VALIDITY OF THE NOTICE U/S.148 OF THE ACT. 3. BRIEFLY STATED THE FACTS, WHICH REVEALED FROM TH E RECORD ARE AS UNDER. THE ASSESSEE IS IN THE MANUFACTURING OF STE EL JOBS AND PIPES. IN THIS CASE, THE ORIGINAL ASSESSMENT ORDER WAS PAS SED U/S.143(3) ON 12.12.2005 DETERMINING TOTAL LOSS OF ` 31,56,66,472/-. SUBSEQUENTLY, REASSESSMENT PROCEEDINGS WERE INITIATED U/S.147 OF THE ACT AND NOTICE U/S.148 WAS ISSUED ON THE REASON THAT THE ASSESSEE HAS WRITTEN OFF THE BAD DEBTS IN RESPECT OF SOME PARTIES LIKE M/S. RAGINI TRADING & INVESTMENTS AND SHREE GLOBAL TRADE PVT. LTD. INSPI TE OF THE FACT THAT THE BALANCE CONFIRMATIONS WERE OBTAINED AND THOSE W ERE CONSIDERED AS GOOD DEBTORS. THE ASSESSEE RESISTED THE ACTION OF THE A.O. FOR ISSUING ITA 4207/MUM/2010 M/S. LLOYDS METALS & ENERGY LTD. 3 NOTICE U/S.148 BY STATING THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY & TRULY ALL FACTS NECESS ARY FOR THE ASSESSMENT. THE ASSESSEE ALSO CONTENDED THAT ISSUE OF NOTICE U/S.148 IS MERELY ON THE CHANGE OF THE OPINION. THE A.O. R EJECTED THE PLEA OF THE ASSESSEE AND COMPLETED THE ASSESSMENT U/S.143(3 ) R.W.S. 147 OF THE ACT VIDE ORDER DATED 31.10.2008. THE A.O. DISA LLOWED THE CLAIM OF BAD DEBT OF ` 2,33,24,091/- AND TO THAT EXTENT THE LOSS WAS REDUC ED. THE OPERATIVE PART OF THE FINDINGS OF THE A.O. ARE AS UNDER:- 4.3 BAD DEBT IS CLAIMED AS AN ALLOWANCE BY THE A SSESSEE AND THE BURDEN IS ON THEM TO SHOW THAT THEY HAD NO REAS ONABLE EXPECTATIONS OF RECOVERING IT AT THE TIME THEY WROT E IT OFF OR THAT THERE WAS NO WAY OF HOPE AT ALL ON WHICH THEY COULD RELY FOR RECOVERING THE AMOUNT FROM THEIR DEBTOR AT THE TIME THEY WROTE OFF THE DEBT. FURTHER, THE PARAMETERS LA ID DOWN THAT CAN ENABLE FORMING OF THE VIEW THAT THERE IS N O REASONABLE LIKELIHOOD THAT THE DEBT WILL BE PAID AR E, THE LENGTH OF TIME THE DEBT IS OUTSTANDING, SECONDLY TH E EFFORTS THAT A CREDITOR HAS TAKEN TO COLLECT THE DEBT (THE GREATER THE EXTENT TO WHICH A PERSON HAS UNSUCCESSFULLY TRIED T O COLLECT THE DEBT, THE MORE LIKELY WILL IT BE CONSIDERED TO BE BAD BY A PRUDENT BUSINESS PERSON) AND THIRDLY OBTAINING RE LIABLE INFORMATION ABOUT THE DEBTOR SUCH AS FINANCIAL DIFF ICULTIES OF THE ASSESSEE AND DEFAULTS OF THE DEBTOR TOWARDS OTH ER CUSTOMERS OR INSOLVENCY, THAT WOULD LEAD TO CONCLUD E THAT THE DEBT IS BAD. UNFORTUNATELY, FROM THE SUBMISSION S OFFERED BY THE ASSESSEE COMPANY THERE IS NO SUCH EV IDENCE OF HAVING EVEN MADE ANY EFFORT TOWARDS REALISING TH E DEBT OR GAINING INFORMATION TOWARDS THE FAULTS OF THE DE BTOR TOWARDS OTHER CUSTOMERS. THE ASSESSEE COULD NOT AND HAS NOT ADVANCED ANY REASON FOR WRITING OFF THESE AMOUN TS AS BAD DEBTS. HENCE, I HAVE NO OTHER OPTION BUT TO DI SALLOW THE AFORESAID CLAIM OF BAD DEBTS. ACCORDINGLY, THE CLAIM OF ITA 4207/MUM/2010 M/S. LLOYDS METALS & ENERGY LTD. 4 BAD DEBTS OF ` 2,33,24,091 IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. 4. THE ASSESSEE CHALLENGED NOTICE ISSUED UNDER SEC. 148 BEFORE THE LD. CIT (A). THE ASSESSEE RAISED THE QUESTION OF V ALIDITY OF THE REASSESSMENT PROCEEDINGS INITIATED BY THE A.O. BY I SSUING NOTICE U/S.148. THE ASSESSEE CONTENDED BEFORE THE LD. CIT (A) THAT THE REASSESSMENT PROCEEDINGS ARE INITIATED BY GIVING TH E REASON THAT THE BAD DEBTS CLAIM OF THE ASSESSEE ARE NOT ALLOWABLE. HE PLEADED THAT THE SAID ISSUE IS SUBJECT MATTER OF DISCUSSION WHILE PA SSING ORIGINAL ASSESSMENT ORDER U/S.143(3). HE FURTHER PLEADED TH AT THE A.O. HAS ISSUED NOTICE U/S.148 MERELY ON THE CHANGE OF THE O PINION. THE LD. CIT (A) ACCEPTED THE PLEA OF THE ASSESSEE THAT REAS SESSMENT PROCEEDINGS ARE INITIATED ON MERE CHANGE OF OPINION . THE FINDINGS OF THE LD. CIT (A) ARE AS UNDER:- 6. I HAVE EXAMINED THE CASE RECORD OF THE A.O. TH E FIRST NOTICE U/S.142(1) WAS ISSUED TO THE APPELLANT ON 5/2/2005. THERE WAS NO SPECIFIC QUERY IN RELATION TO BAD DEBT WRITTEN OFF. DETAILS OF SUNDRY DEBTORS AND CREDITORS WERE H OWEVER, ASKED TO BE FURNISHED. A LETTER WAS THEN ISSUED ON 2/12/2005 UNDER THE SIGNATURE OF DCIT RANGE- 6(3). THIS LETTER WAS IN CONTINUATION TO THE EARLIER NOTICE. C ERTAIN ADDITIONAL DETAILS AND INFORMATION WERE ASKED AMONG WHICH THERE WAS A QUERY RELATING TO BAD DEBT. THE APPELLANT WAS ASKED VIDE PARA 4 (XVIII) TO STATE TH E GROSS AMOUNT OF PROVISIONS FOR DEBTS WRITTEN OFF. THE AP PELLANT WAS ALSO ASKED TO SUBMIT AGE-WISE ANALYSIS OF DEBTS WRITTEN OFF, EFFORTS MADE TO RECOVER THEM AND TO JU STIFY THE DEBTORS INABILITY TO REPAY. THIS LETTER ACCOMPANIE D FORMAL NOTICE U/S. 142(1) DT. 2/12/2005. THE APPELLANT FAM ISHED DETAILS OF BAD DEBTS AND PROVISIONS MADE, ALONG WIT H ITS LETTER DT. 9/12/2005. THE STATEMENT SHOWED THAT THE DEBIT ITA 4207/MUM/2010 M/S. LLOYDS METALS & ENERGY LTD. 5 BALANCE WRITTEN OFF AMOUNTED TO ` 2,78,87,859/- WHICH WAS ADJUSTED AGAINST CREDIT BALANCE WRITTEN BACK AMOUNTING TO ` 74,49,643/- LEAVING A NET DEBIT BALANCE WRITTEN OFF OF ` . 2,04,38,416!-. THE ORIGINAL ASSESSMENT ORDER WAS PASSED SHORTLY THEREAFTER ON 12/L2/20O5. IN THIS ORDER THERE WAS NO ADDITION MADE WITH REGARD TO BAD DEBT. IT COULD HE PRESUMED THAT THE A.O WAS SATISFIED WIT H THE INFORMATION FURNISHED BY THE APPELLANT WITH REGARD TO BAD DEBT AND CONSIDERED THAT THE CLAIM OF WRITE OFF VAS ALLOWABLE. SUBSEQUENTLY, THE CASE WAS REOPENED WHEN IT WAS SEEN THAT OUT OF ` 2301.76 LAKHS WHEREIN BALANCE CONFIRMATION HAD BEEN RECEIVED CONSIDERED AS GOOD, AN AMOUNT OF ` 233.24 LAKHS HAD BEEN WRITTEN OFF DURING THE YEAR. 7. THE GROUND ON WHICH THE REOPENING WAS DONE WAS A CTUALLY ON A NOTE ACCOMPANYING THE ACCOUNTS FILED BY THE AP PELLANT WITH ITS RETURN OF INCOME. SUBSEQUENTLY, FURTHER DE TAILS WERE ASKED REGARDING BAD DEBTS WHICH HAD ALSO BEEN SUBMITTED AND WHICH HAD BEEN EXAMINED. AFTER EXAMINATION THE A.O DECIDED THAT THE CLAIM WAS AN ALLOWABLE DEDUCTION. THUS NO DISALLOWANCE WAS MADE . THE REOPENING OF THE ASSESSMENT ON THE SAME GROUND THEREFORE AMOUNTS TO A CHANGE OF OPINION. IT IS A SETTLED ISSUE THAT REASSESSMENT CANNOT BE DONE ON A MERE CH ANGE OF OPINION. THERE HAS TO BE SOME INFORMATION IN THE POSSESSION OF THE A.O, SUBSEQUENT TO THE ASSESSMENT PROCEEDINGS TO REOPEN AN ASSESSMENT COMPLETED U/S. 143(3). THE CONTENTION OF THE APPELLANT THEREFORE, IS ACCEPTABLE. THE ABOVE VIEW IS SUPPORTED BY THE FOLLOWING DECISIONS:- I) KALYANJI MAVJI & CO. VS. CIT -(102 ITR 287) (S C) ITA 4207/MUM/2010 M/S. LLOYDS METALS & ENERGY LTD. 6 II) ANDHRA BANK VS. CIT 225 -(ITR 447,450) (SC) III) SUNVOLLING MILLS P. LTD. VS. ITO -(160 ITR 41 2) IV) CIT VS. MADRAS RUBBER FACTORY LTD. -(39 CTR 296)(MA D) 8. IN THE FACTS AND CIRCUMSTANCES DISCUSSED ABOVE, THE REOPENING OF THE CASE BY ISSUE OF NOTICE U/S. 148 C ANNOT BE TREATED AS VALID. CONSEQUENTLY, THE REASSESSMENT C ARRIED OUT ON THE BASIS OF ABOVE NOTICE COULD ALSO BE TREA TED AS INVALID. 5. THE LD. CIT (A) HAS NOT ADJUDICATED THE ISSUE ON ALLOWABILITY OF THE BAD DEBTS CLAIM ON MERIT AND HELD THAT THE SAID ISSUE BECOME INFRUCTUOUS AS APPEAL WAS ALLOWED ON LEGALITY & VAL IDITY OF RE- ASSESSMENT PROCEEDINGS. NOW, THE REVENUE IS IN APP EAL BEFORE US. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORDS. IN THIS CASE, THERE IS NOT DEBATE ON THE ISSUE THAT NOTICE U/S.148 IS ISSUED WITHIN 4 YEARS. WE FIND THAT IN THE ORIGINAL ASSESSMENT ORDER PASSED U/S.143, THE DISCUSSION ON THE ISSUE OF BAD DEBT IS IN PARA 3.1, 3.2, 3.3 & 3.4. WE FIND THAT THE IN THE ASSESSMENT YEAR 2005-06, THE ISSUE OF THE BAD DEBT HAS BEEN DI SCUSSED BY THE A.O. AND THE A.O. MADE THE ADDITION IN RESPECT OF T HE SAID DEBTORS REJECTING THE CLAIM. THE A.O. HAS REFERRED THE ADD ITION MADE IN THE A.Y. 2005-06 IN HIS REASONS ON PAGE NO.14 OF THE AS SESSMENT ORDER. THE A.O. HAS GIVEN REFERENCE TO SOME WEBSITES AND A CCORDINGLY CAME TO THE CONCLUSION THAT BOTH THE PARTIES M/S. RAGINI TRADING & INVESTMENTS AND SHREE GLOBAL TRADE PVT. LTD. ARE TH E GROUP CONCERNS OF THE ASSESSEE. THE LD. COUNSEL VEHEMENTLY SUBMIT S THAT ADDITION MADE IN THE A.Y. 2005-06 IN RESPECT OF THE BAD DEBT S WAS DELETED BY THE LD. CIT (A) AND DEPARTMENT HAS NOT CHALLENGED T HE ORDER OF THE LD. CIT (A). THIS FACT HAS NOT BEEN CONTROVERTED B Y THE LD. D.R. ALSO. 7. ON THE PERUSAL OF THE COPY OF THE ORDER OF THE L D. CIT (A) FOR THE A.Y. 2005-06 (PAGE NOS. 56 TO 69) WE FIND THAT THE LD. CIT (A) HAS ITA 4207/MUM/2010 M/S. LLOYDS METALS & ENERGY LTD. 7 DELETED THE ADDITION AND ITS DELETION ALSO INCLUDES THE BAD DEBTS IN RESPECT OF M/S. RAGINI TRADING & INVESTMENTS AND SH REE GLOBAL TRADE PVT. LTD. SO FAR AS THE PLEA OF THE CHANGE OF THE OPINION IS CONCERNED, THE DETAILED DISCUSSION IS MADE BY THE LD. CIT (A) IN THE REASONING AND THAT IS NOT CONTROVERTED BY THE REVENUE. THE A .O. HAS ASKED FOR THE DETAILS OF THE BAD DEBTS WRITTEN OFF AND THE AS SESSEE FURNISHED ALL THE DETAILS OF THE BAD DEBTS ALONG WITH LETTER DATE D 9.12.2005. THE A.O. HAS ALSO OBSERVED THAT AS PER THE STATEMENT FI LED BY THE ASSESSEE THE DEBIT BALANCE WRITTEN OFF IS ` . 2,78,87,859/- WHICH WAS ADJUSTED AGAINST THE CREDIT BALANCE WRITTEN BACK AMOUNTING T O ` . 74,41,649/- AND MET BAD BALANCE WRITTEN OFF WAS ` .2,04,34,416/-. ADMITTEDLY IN THE ORIGINAL ASSESSMENT ORDER, NO ADDITION IS MADE BY THE A.O. WHICH WAS PASSED ON 12.12.2005. IN THE CASE OF KALVINATO R INDIA LTD.(320 ITR 561(S.C.), THE HONBLE SUPREME COURT HAS HELD T HAT THE A.O. CANNOT RESORT TO THE REOPENING PROCEEDINGS MERELY O N THE CHANGE OF THE OPINION. AS PER THE FACTS ON RECORD, WE FIND T HAT ALL THE DETAILS WERE FILED BY THE ASSESSEE AS REQUIRED BY THE A.O. AND NO ADDITION WAS MADE IN THE ORIGINAL ASSESSMENT PROCEEDING. MOREOV ER, THE A.O. MADE THE ADDITIONS IN THE A.Y. 2005-06 IN RESPECT OF THE SAME PARTIES, IN ADDITION TO THE OTHER PARTIES AND IN OUR OPINION WH ICH IS A BASIS FOR INITIATING THE RE-ASSESSMENT PROCEEDINGS IN THE ASS ESSEES CASE. IN OUR OPINION, THE ASSESSEES CASE IS SQUARELY COVERE D BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF KALVINATOR INDIA LTD.(SUPRA) AS A.O. ISSUED NOTICE UNDER SEC. 148 ON THE ISSUE O F WRONG CLAIM OF BAD DEBTS OF THE TWO PARTIES WHICH IS MERELY ON THE CHANGE O F THE OPINION. WE, THEREFORE, FIND NO REASON TO INTERFER E WITH FINDINGS OF LD. CIT(A) ON THE ISSUE OF LEGALITY & VALIDITY OF THE N OTICE ISSUED U/S.148 OF THE I.T. ACT. ACCORDINGLY, GROUND NO.1 IS DISMISSE D. 8. SO FAR AS GROUND NO.2 IS CONCERNED, WE FIND THAT THE LD. CIT (A) HAS NOT ADJUDICATED THE ISSUE ON MERIT WHO ALLOWED THE APPEAL FILED BY THE ASSESSEE ON THE ISSUE OF THE LEGALITY AND VALID ITY OF THE NOTICE U/S.148. HENCE, GROUND NO.2, IN OUR OPINION, IS NO T ARRIVING OUT OF ITA 4207/MUM/2010 M/S. LLOYDS METALS & ENERGY LTD. 8 THE ORDER OF THE LD. CIT (A) AND SAME IS DISMISSED. MOREOVER, AS WE HAVE CONFIRMED THE ORDER OF THE LD. CIT (A) ON THE ISSUE OF THE NOTICE U/S.148 AND THE BAD DEBT IS ONLY ADDITION, THE ENTI RE PROCEEDINGS HAS BEEN QUASHED AND HENCE, GROUND NO.2 BECOMES INFRUCT UOUS. 9. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 8TH DECEMBER, 2011. SD/- SD/- ( G.E. VEERABHADRAPPA ) PRESIDENT ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE : 28TH DECEMBER, 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) -12, MUMBAI. 4) THE CIT, CITY-6, MUMBAI. 5) THE D.R. A BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI ORDER PRONOUNCED IN THE OPEN COURT ON 28.12.2011. SD/- SD/- (JSR) (RSP) *CHAVAN