Smt. V. Padmavathi, V. DCIT,

ITA 52/BANG/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7589 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 13-01-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Retrospective amendment
• Section: 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, B ENGALURU BEFORE S HRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER I TA NO. 52 / BANG/2 0 1 4 (ASSESSMENT YEAR: 2011 - 12 ) SMT. V.PADMAVATHI, PROP. M/S.MINERAL EMBASSY, ASHWATHI APARTMENTS JOLDARASHI GUDDA, BEHIND RTO OFFICE, HOSPET - 583 201. PAN: APFPP 2962 J VS. APPELLANT DEPUTY COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE 1(1), BENGALURU. RESPONDENT APPELLANT BY : SHRI G.S.PRASHANTH, CA. RESPONDENT B Y : SHRI C.H.SUNDAR RAO, CIT(DR) DATE OF HEARING : 28/05/2018 DATE OF PRONOUNCEMENT : 20 /07 /2018 O R D E R PER I NTURI RAMA RAO, AM : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (A PPEALS) - VI, [CIT(A)] BENGALURU DATED 1 3 / 12 /201 3 FOR THE ASSESSMENT YEAR 2011 - 12. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL: ITA NO . 52 /BANG/20 14 PAGE 2 OF 10 ITA NO . 52 /BANG/20 14 PAGE 3 OF 10 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND PROPRIETOR OF M/S. MINERAL EMBASSY, WHICH IS ENGAGED IN THE BUSINESS OF PROCUREMENT AND EXPORT OF IRON ORE. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011 - 12 WAS FILED ON 30/09/2012 DECLARING INCOME OF RS.1,71,315/ - . THE RETURN OF INCOME WAS REVISED ON 19/02/2013 DECLARING LOSS OF RS.1,03,78,300/ - AND INCOME FROM OTHER SOURCES OF RS.35,30,856/ - . AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE DEPUTY COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE 1(1), BENGALURU, (AO) VIDE ORDER DATED 12/3/2013 PASSED U/S 14 3(3) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT]. AT TOTAL INCOME OF RS.10,34,10,490/ - VIDE ORDER DATED 12/03/2013. WHILE DOING SO, THE AO HAD MADE ADDITION ON ACCOUNT OF ADVANCES WRITTEN OFF OF RS.13,05,75,854/ - . THE FAC TS LEADING TO THE ABOVE ADDITIONS ARE SET OUT BY THE AO VIDE PARA. 4.2 TO 4.7 OF THE ASSESSMENT ORDER AS UNDER: ITA NO . 52 /BANG/20 14 PAGE 4 OF 10 ITA NO . 52 /BANG/20 14 PAGE 5 OF 10 4. I N SHORT, THE CASE OF THE ASSESSEE IS THAT IT MADE ADVANCE OF RS.35 CRORES TO ONE CONCERN BY NAME ASSOCIATED MINING COMPANY [AMC] AGAINST SUPPLY OF RAW MATERIAL I.E. IRON ORE. OUT OF THIS, A SUM OF ITA NO . 52 /BANG/20 14 PAGE 6 OF 10 RS.10,32,39,139/ - WAS DUE FROM AND TO BE RECOVERED FROM SAID COMPANY AS ON 31/03/2011. THIS AMOUNT CANNOT BE ADJUSTED AGAINST SUPPLY OF RAW MATERIAL AS THE KARNATAKA STATE GOVERNME NT BANNED EXPORT OF IRON ORE AND BECAUSE OF IR - RECOVERY OF THIS AMOUNT, THE SAME IS WRITTEN OFF AS BAD DEBT IN THE BOOKS OF ACCOUNT AND CLAIMED IT AS BAD DEBT . AN ALTERNATIVE PLEA WAS ALSO MADE BEFORE THE AO THAT IF NOT AS BAD DEBT , SAME SHOULD BE ALLOWED AS A TRADE LOSS. THE AO DISBELIEVED THE VERSION OF THE ASSESSEE FOR THE REASON THAT THE AMOUNT ADVANCED CANNOT BE COME IRRECOVERABLE IN THE VERY SAME YEAR OF MAKING ADVANCE AND THERE WAS NO DENIAL BY THE SAID COMPANY AMC TO REFUND THE MONEY TO THE ASSESSEE . FURTHER, IT IS OBSERVED BY THE AO THAT THE CONDITIONS REQUIRED TO BE SATISFIED FOR ALLOWANCE OF BAD DEBT ARE NOT MET , AS THE SAME WERE NOT OFFERED TO TAX IN THE EARLIER YEAR AS MANDATED BY THE PROVISIONS OF SECTION 36(2) OF THE ACT. AS REGARDS THE CLAI M FOR DEDUCTION AS BUSINESS LOSS, THE AO DENIED THE CLAIM AS THE GENUINENESS OF THE CLAIM WAS N EITHER PROVED BEYOND DOUBT NOR WAS IT ES TABLISHED THAT THE LIABILITY HAD CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. 5 . BEING AGGRIEVED BY THE ABOVE ADDITI ON, AN APPEAL WAS PREFERRED BEFORE THE LD.CIT(A) WHO , VIDE IMPUGNED ORDER, CONFIRMED THE ACTION OF THE AO VIDE PARA 5.4 OF THE ORDER. 6 . BEING AGGRIEVED, THE ASSESSEE IS BEFORE US IN THE PRESENT APPEAL. IT IS SUBMITTED THAT DURING THE COURSE OF BUSINESS O PERATIONS BY THE ASSESSEE, IT MADE ADVANCE TO THE TUNE OF RS.35 CRORES TO AMC FOR SUPPLY OF IRON ORE AND FOR TRANSPORTATION CHARGES THROUGH BANKING CHANNEL ON THE FOLLOWING DATES: SL.NO. DATE OF PAYMENT AMOUNT (RS.) 1. 10.05.2010 10,00,00,000/ - 2. 10.05 .2010 10,00,00,000/ - 3. 10.05.2010 5,00,00,000/ - 4. 13.05.2010 10,00,000/ - TOTAL 35,00,00,000/ - ITA NO . 52 /BANG/20 14 PAGE 7 OF 10 AFTER PAYMENT OF RS.35 CRORES I.E. ADJUSTMENT OF DUES PAYABLE TO AMC, A SUM OF RS.15,25,35,134/ - IS THE BALANCE MONEY LAYING WITH AMC OUT OF WHICH A SUM OF RS.4,92,96,000/ - WAS ADJUSTED TOWARDS TRANSPORTATION CHARGES BY AMC PAYABLE BY THE ASSESSEE. THUS, BALANCE MONEY IS LYING WITH AMC. FOLLOWING BAN OF MINING OF IRON ORE BY THE GOVERNMENT OF KARNATAKA, THIS MONEY BECAME IRRECOVERABLE AND ACCORDIN GLY THE SAME WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT. IT IS FURTHER STATED THAT THE ASSESSEE HAS INITIATED LEGAL PROCEEDINGS FOR RECOVERY OF THE SAID SUM FROM AMC. THEREFORE, THE SAME SHOULD BE ALLOWED AS A BUSINESS LOSS, IF NOT ALLOWED AS BAD DEBT. RELI ANCE IN THIS REGARD WAS PLACED ON THE FOLLOWING DECISIONS: 7 . ON THE OTHER HAND, LEARNED CIT(DR) SUBMITTED THAT THE SUBJECT CLAIM CANNOT BE ALLOWED AS A DEDUCTION AS BAD DEBT , AS THE NECESSARY INGREDIENTS STIPULATED U/S 36(2) ARE NOT SATISFIED. SIM ILARLY, IT IS ARGUED THAT THE QUESTION OF ALLOWING THE SAME AS BUSINESS LOSS DOES NOT ARISE FOR THE REASON THAT THE ASSESSEE HAD FAILED TO PROVE THAT ADVANCE PAYMENTS WERE MADE WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE AND THIS MONEY SO ADVANCED HAD BECO ME IRRECOVERABLE DURING THE YEAR UNDER CONSIDERATION. 8 . WE HEARD RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. AT THE OUTSET, WE SHALL DEAL WITH THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE CHALLENGING THE VALIDITY OF THE SEARCH (GROUND NO.10) . THIS ISSUE IS NO LONGER RES INTEGRA AS THE JURISDICTIONAL HIGH COURT, IN THE CASE OF PRATIBHA JEWELLERY HOUSE VS. CIT (404 ITR 91)(KARN.), AFTER ITA NO . 52 /BANG/20 14 PAGE 8 OF 10 TAKING INTO ACCOUNT THE AMENDMENT MADE BY THE FINANCE ACT 2017 WITH RETROSPECTIVE EFFECT FROM 01/04/1962 BY IN SERTING AN EXPLANATION TO SECTION 132 OF THE ACT, HELD THAT THE APPELLATE AUTHORITIES INCLUDING THE TRIBUNAL CANNOT GO INTO THE QUESTION OF VALIDITY OF SEARCH PROCEEDINGS U/S 132. THE RELEVANT PARAGRAPH OF THE JUDGMENT IS AS UNDER: 10. HAVING HEARD THE LEARNED COUNSELS FOR THE PARTIES, THIS COURT IS SATISFIED THAT THE PRESENT WRIT DATE OF ORDER 07 - 11 - 2017 W.P.NOS.24646 - 24651/2015 PRATHIBA JEWELLERY HOUSE VS. THE COMMISSIONER OF INCOME - TAX (APPEALS) & ORS., PETITIONS DESERVE TO BE DISMISSED FOR THE FOLLOW ING REASONS: - (I) THAT THE DECISION OF THIS COURT IN THE CASE OF C.RAMAIAH REDDY, WHICH ALLOWED THE APPELLATE AUTHORITY TO GO INTO THE QUESTION OF VALIDITY OF SEARCH IS A SUBJECT - MATTER OF PENDING APPEAL BEFORE THE HON'BLE SUPREME COURT AND THEREFORE, NOT ONLY THE AUTHORITIES OF THE DEPARTMENT, BUT EVEN THIS COURT SHOULD AWAIT THE DECISION OF HON'BLE SUPREME COURT ON THE SAID ISSUE AND CANNOT DIRECT THE APPELLATE AUTHORITIES LIKE (CTC APPEAL) BELOW BY WAY OF A WRIT OF MANDAMUS TO GO INTO THE QUESTION OF VA LIDITY OF SEARCH UNDER SECTION 132 OF THE ACT AND IT WOULD BE INCONGRUOUS AND NOT IN DEFERENCE TO THE PENDENCY OF AFORESAID CIVIL APPEAL NO.2734/2013 BEFORE THE HON'BLE SUPREME COURT. (II) THAT EVEN THE LAW HAS BEEN AMENDED BY INSERTION OF THE AFORESAID E XPLANATION BY PARLIAMENT IN SECTION 132 OF THE ACT BY THE FINANCE ACT , 2017 WITH RETROSPECTIVE EFFECT FROM 1.4.1962. THAT EXPLANATION ALSO PROHIBITS THE APPELLATE AUTHORITIES TO GO INTO THE REASONS RECORDED BY THE CONCERNED INCOME TAX AUTHORITY FOR DIRECTING SEARCH AGAINST THE ASSESSEE OR TAX PAYER. (III) THAT THIS AMENDMENT CAME AFTER BOTH, ITAT PASSED THE ORDER IN THE PRESENT CASE ON 21.11.2014 AS A LSO THE LEARNED CIT(A) PASSED THE IMPUGNED ORDER ON 11.2.2015. NONETHELESS, RETROSPECTIVE EFFECT OF THE SAID AMENDMENT, WILL HAVE ITS EFFECT ON THE PRESENT CASE AS WELL SO LONG THAT THE SAID AMENDMENT HOLDS THE FIELD. THEREFORE, THE APPELLATE AUTHORITIES O F THE DEPARTMENT DATE OF ORDER 07 - 11 - 2017 W.P.NOS.24646 - 24651/2015 PRATHIBA JEWELLERY HOUSE VS. THE COMMISSIONER OF INCOME - TAX (APPEALS) & ORS., CANNOT BE EXPECTED TO GO INTO THE SAID QUESTION. IT IS ONLY FOR THE CONSTITUTIONAL COURTS TO EXAMINE THE VIRES AND VALIDITY OF SUCH AMENDMENT AND FOR THAT, A SEPARATE WRIT PETITION IS ALREADY SAID TO BE PENDING. HOWEVER, NO SUCH CHALLENGE TO THE AMENDMENT HAS BEEN MADE IN THE PRESENT CASE. ITA NO . 52 /BANG/20 14 PAGE 9 OF 10 11. IN THESE CIRCUMSTANCES, THE IMPUGNED ORDER ANNEXURE - A DATED 11.2. 2015 PASSED BY THE LEARNED CIT(A) CANNOT BE FAULTED AND IT STANDS TO THE REASON FOR THE LEARNED CIT(A) TO HAVE FOLLOWED THE CHATTISGARH HIGH COURT'S DECISION AND REFUSED TO DO SO. RESPECTFULLY FOLLOWING THE RATIO OF THE DECISION OF THE JURISDICTIONAL HIG H COURT IN THE CASE OF PRATIBHA JEWELLERY HOUSE (SUPRA) AND CONSIDERING THE AMENDMENT CARRIED OUT BY THE FINANCE ACT, 2017, THE GROUNDS OF APPEAL RAISED CHALLENGING THE VALIDITY OF SEARCH ARE HEREBY DISMISSED. 9. T HE ONLY ISSUE INVOLVED IS THE ALLOWANC E OF CLAIM OF RS .10,34,10,490/ - AS BAD DEBT OR BUSINESS LOSS. IT IS STATED THAT THE AMOUNTS WERE ADVANCED BY THE ASSESSEE TO AMC TOWARDS ADVANCE FOR SUPPLY OF RAW MATERIAL I.E. IRON ORE. HOWEVER, THERE IS NOTHING ON RECORD TO SHOW THAT ADVANCES WERE MAD E TO THIS COMPANY ONLY , AS THE ASSESSEE HAD NOT BROUGHT ANY MATERIAL ACKNOWLEDGING RECEIPT OF THIS SUM OF MONEY BY CHEQUE BY SAID AMC NOR WAS THERE ANYTHING ON RECORD SUGGESTING DENIAL OF REFUND OF THIS MONEY BY AMC. IN THESE CIRCUMSTANCES, IT CANNOT BE B ELIEVED THAT MONEY WAS PAID TO AMC ONLY. FURTHERMORE, EXCEPT MAKING A BALD ASSERTION THAT THIS MONEY WAS ADVANCED AGAINST SUPPLY OF RAW MATERIALS OF IRON ORE, THERE IS NOTHING ON RECORD EVIDENCING THAT THE PAYMENT WAS MADE WHOLLY AND EXCLUSIVELY FOR THE P URPOSE OF BUSINESS. THUS, THE REAL PURPOSE OF MAKING OF PAYMENT IS NOT PROVED BEYOND DOUBT . NO MATERIAL WAS BROUGHT ON RECORD TO SHOW AS TO HOW THIS MONEY HA D BECOME IRRECOVERABLE , WHICH ALSO GOES TO SHOW THAT CRYSTALLIZATION OF LIABILITY DURING THE YEAR U NDER CONSIDERATION IS NOT ESTABLISHED. THE SUBMISSION MADE BY THE LEARNED AR OF THE ASSESSEE THAT THE ASSESSEE HAD INITIATED LEGAL PROCEEDINGS AGAINST AMC , CANNOT BE BELIEVED FOR THE SIMPLE REASON THAT IT HAS NOT FILED ANY COPIES OF COURT PROCEEDINGS EXCE PT FILING COPY OF PLA I NT FILED BY AN ADVOCATE . THESE CIRCUMSTANCES RAISE SERIOUS DOUBTS AS TO SERVICES / THE TRANSACTIONS AND T HE SUBSTANCE OF THE TRANSACTION . THEREFORE, THE ASSESSEE HAD MISERABLY FAILED TO DISCHARGE ONUS LYING UPON HER TO PROVE THAT THE P AYMENT WAS MADE WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE. THEREFORE, IT CAN BE SAFELY INFERRED THAT ADVANCES ARE MADE PURELY FOR PERSONAL REASONS AND THEREFORE, THE ITA NO . 52 /BANG/20 14 PAGE 10 OF 10 PAYMENTS CANNOT BE ALLOWED AS A DEDUCTION. IN THIS REGARD RELIANCE IS PLACED ON THE DE CISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. S IR HOMI M. MEHTA ( 11 ITR 442) (BOM). AS REGARDS THE CLAIM FOR DEDUCTION AS BAD DEBT UNDER THE PROVISIONS OF SECTION 36(1)(VII) THE ACT, THE CONDITIONS STIPULATED FOR ALLOWANCE AS BAD DEBT ARE (I) DEBT SHOULD HAVE BEEN TAKEN INTO ACCOUNT IN COMPUTING PROFITS IN THAT EARLIER PREVIOUS YEAR, (II) IT SHOULD HAVE BEEN SO TAKEN INTO ACCOUNT IN COMPUTING INCOME OF THE ASSESSEE FOR SUCH YEAR AND (III) THE CONDITIONS SET OUT IN CLAUSE (B) IS THAT DEBT M UST HAVE BEEN WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE FOR THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. IN THE PRESENT CASE, AS HELD BY US SUPRA, NO CASE WAS MADE OUT BY THE ASSESSEE. UNDISPUTEDLY THIS ADV ANCE AMOUNT WAS NOT TAKEN INTO ACCOUNT IN COMPUTING THE PROFITS OF EARLIER PREVIOUS YEAR OR THIS ASSESSMENT YEAR. THEREFORE, THE CONDITIONS STIPULATED IN SECTION 36(1)(II) ARE NOT MET BY THE ASSESSEE. THEREFORE, THIS CANNOT BE ALLOWED AS A DEDUCTION OF B AD DEBT . TH US GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE DISMISSED. 10 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JULY, 2018 SD/ - SD/ - (SUNIL KUMAR YADAV) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : BENGALURU. D A T E D : 20 / 07 /201 8 SRINIVASULU, SPS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME - TAX APPELLATE TRIBUNAL BANGALORE