Shri Mohanlal Khayarilal Jain, JAMNAGAR V. The Income Tax Officer, Ward-1(3), JAMNAGAR

ITA 564/RJT/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2984 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 03-11-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S L MEENA
• Assessee Lawyers: KAMLESH RATHOD
• Keywords: Business income; Opportunity of being heard; Bad and doubtful debts
• Section: 234B; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI D.T. GARASIA (JM) I.T.A. NO. 564/RJT/2008 (ASSESSMENT YEAR 2005-06) SHRI MOHANLAL KHAYARILAL JAIN VS ITO, WD.1(3) PROP OF ILESH EXPORTS & REENA JAMNAGAR METAL SYNDICATE, GIDC SHANKER TEKRI, UDYOGNAGAR JAMNAGAR PAN : ABRPJ8614G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI KAMLESH RATHOD RESPONDENT BY: SHRI SL MEENA O R D E R A.L. GEHLOT : THIS IS AN APPEAL FILED BY THE ASSESS EE AND IS DIRECTED AGAINST THE ORDER OF THE CIT(A), JAMNAGAR DATED 25-08-2008 FOR THE ASSESSMENT YEAR 2005- 06. THE FOLLOWING ARE THE EFFECTIVE GROUNDS OF APP EAL TAKEN BY THE REVENUE: 1. THE ORDER OF THE ASSESSING OFFICER AS WELL AS T HE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) IS BAD IN LAW A S WELL AS FACTS. 2. THE LEARNED ASSESSING OFFICER AS WELL AS THE LEA RNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN L AW AS WELL A ON FACTS DEALING WITH RETURNED INCOME AND TR EATING IT NIL INSTEAD OF RETURNED LOSS OF RS.9,19,930/-. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) AS WELL AS THE LEARNED ASSESSING OFFICER HAS ERRED ON FACTS AS WEL L AS IN LAW WHILE ADDING AND CONFIRMING THE CLAIM OF BAD DE BTS OF RS.1,40,99,624/-. 4. THE COMMISSIONER OF INCOME TAX (APPEALS) AS WELL AS THE LEARNED ASSESSING OFFICER HAS ERRED ON FACTS AS WEL L AS IN LAW WHILE ADDING AND CONFIRMING THE ADDITION UNDER SECTION 40(A)(IA) OF THE ACT AMOUNTING TO RS.6,37,168. ITA NO.564/RJT/2008 2 5. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERR ED ON FACTS AS WELL AS IN LAW IN ESTIMATING THE GROSS PRO FIT @3% THEN WHAT HAS BEEN DISCLOSED AND THEREBY ADDING RS.74036/- TO THE TOTAL INCOME OF THE ASSESSEE. 6. THE ADDITION ON OFFICE EXPENSES, TELEPHONE EXPEN SES & VEHICLE EXPENSES ALTOGETHER AMOUNTING TO RS.37821/- ARE NOT JUSTIFIED IN LAW OR IN THE FACTS AND CIRCUMSTAN CES OF THE CASE. 7. THE COMMISSIONER OF INCOME TAX (APPEALS) AS WELL AS LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS IN FACTS WHILE LEVYING INTEREST UNDER SECTION 234B OF THE IN COME TAX ACT. 2. GROUND NO.1 IS GENERAL, REQUIRES NO FINDING. 3. GROUND NO.7 IS CONSEQUENTIAL TO OTHER GROUNDS. 4. GROUNDS NO.5 & 6 ARE NOT PRESSED BY THE LEARNED REPRESENTATIVE OF THE PARTY AND THEREFORE, THE SAME ARE DISMISSED AS NOT PRESSED. 5. THE LEARNED AR SUBMITTED THAT IN FACT GROUND NO. 2 IS ADDITIONAL GROUND. HE REQUESTED THAT THE SAME MAY BE ADMITTED IN THE I NTEREST OF JUSTICE. AFTER HEARING LEARNED REPRESENTATIVES OF THE PARTIES WE A DMIT GROUND NO.2 AS ADDITIONAL GROUND. 6. WITH REGARD TO THIS ADDITIONAL GROUND, THE LD.AR SUBMITTED THAT THE ASSESSEE HAS PREPARED THE RETURN OF INCOME ON THE B ASIS OF COMPUTER. IN FORM NO.2D SARAL, AT COLUMN NO.17(1) THERE IS A LOSS A MOUNT SHOWN OF RS.9,64,920 AND AT COLUMN NO.19 INCOME OF RS.44,990 IS REFLECTE D, BUT WHILE TAKING THE GROSS TOTAL INCOME AT COLUMN NO.21 OF SAID COMPUTERIZED F ORM, THE COMPUTER HAS TAKEN THIS AMOUNT AS NIL WHEREAS THE COMPUTATION OF INCOM E ATTACHED WITH THE RETURN OF INCOME THE ASSESSEE CLAIMED CARRY FORWARD LOSS OF R S.9,19,930. THE LD.AR SUBMITTED THAT THIS APPARENT MISTAKE WAS ON ACCOUNT OF SOFTWARE FITTED IN THE COMPUTER. THE LD.AR IN SUPPORT OF HIS CONTENTION RE FERRED TO PAGES 15 & 17 OF THE PAPER BOOK WHEREAT COPY OF RETURN OF INCOME FORM 2 D AND COMPUTATION OF TOTAL ITA NO.564/RJT/2008 3 INCOME HAS BEEN PLACED AT PAGE 17. THE LD.AR FURTH ER SUBMITTED THAT THE ASSESSING OFFICER WHILE COMPUTING TOTAL INCOME, HAS TAKEN NIL INCOME. THE COMPUTATION MADE BY THE ASSESSING OFFICER AS POINTE D OUT BY THE LD.AR NOTED IN ASSESSING OFFICERS ORDER PAGE 9 IS REPRODUCED BELO W: TOTAL INCOME A PER STATEMENT OF INCOME RS. NIL ADD : CLAIM OF BAD DEBT DISALLOWED AS PER PARA 3.5 RS.14099624 ADD : ADISALLOWANCE OF EXPENSES U/S 40A(IA) AS PER PARA 3.6 RS. 6,37178 ADD: ADDITION ON ACCOUNT OF LOW G.P. AS PER PARA 3. 7 RS. 2,16347 ADD: DISALLOWANCE OF EXPENSES AS PER PARA-4 RS. 37,821 TOTAL INCOME RS.14990970 (ONE CRORE FORTY NINE LACS NINTY THOUSAND NINE HUND RED SEVENTY) 7. THE LD.DR, ON THE OTHER HAND, SUBMITTED THAT THE ASSESSING OFFICER HAS TAKEN THE FIGURE AS PER THE RETURN FILED BY THE ASS ESSEE. 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES, RECORD PERUSED. ON THE BASIS OF FACTS POINTED OUT BY THE LD.AR WE F IND THAT THERE IS AN APPARENT MISTAKE DUE TO SOFTWARE ERROR. HOWEVER, WHILE COMP UTING THE TOTAL INCOME, CORRECT INCOME IS REQUIRED TO CALCULATED IN ACCORDA NCE WITH LAW. WE, THEREFORE, FIND SUBSTANCE IN THE SUBMISSION OF THE LD.AR AND S UCH APPARENT MISTAKE IS REQUIRED TO BE RECTIFIED. THE FACTS POINTED OUT BY THE LD.AR ARE SUBJECT TO VERIFICATION. WE, THEREFORE, SEND BACK THIS GROUND TO THE ASSESSING OFFICER FOR THE LIMITED PURPOSE OF VERIFYING THE CONTENTIONS MADE B Y THE ASSESSEE AND IF IT IS FOUND THAT THERE IS A SOFTWARE ERROR OR ERROR IN CO MPUTATION FILED BY THE ASSESSEE, THE SAME IS REQUIRED TO BE RECTIFIED AND RECALCULAT E THE TOTAL INCOME IN ACCORDANCE WITH LAW. THE ASSESSING OFFICER IS DIRE CTED TO PROVIDE OPPORTUNITY TO THE ASSESSEE BEFORE DECIDING THE ISSUE. 9. THE BRIEF FACTS OF GROUND NO.3 ARE THAT DURING T HE ASSESSING PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED BAD DEBTS OF ITA NO.564/RJT/2008 4 RS.1,40,99,624. ON VERIFICATION THE ASSESSING OFFI CER NOTICED FROM THE BOOKS OF ACCOUNT AND LEDGER ACCOUNT OF THE PARTIES, VIZ. ALE ESH STEEL FZC AND GREENLAND (UAE) TRADING SHARJAH IT WAS NOTICED THAT THERE WER E NO OPENING BALANCES EITHER DEBIT OR CREDIT. THE ENTIRE TRANSACTION TOOK PLACE DURING THE RELEVANT YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER WAS OF THE VI EW THAT THERE IS A CONDITION PRECEDENT TO ALLOW DEDUCTION U/S 36(1)(VII) THAT TH E ASSESSEE HA TO ESTABLISH THAT THE DEBT HAS BECOME BAD. THE ASSESSING OFFICER FUR THER NOTICED THAT THE TRANSACTION OCCURRED IN THE MONTH OF MARCH, 2005 WH ICH ESTABLISHED THAT THE CLAIM OF THE ASSESSEE HAS NOT BECOME BAD AS THE BUY ER HAS MADE THE PAYMENT TILL THE END OF THE FINANCIAL YEAR 2005. THE ASSES SING OFFICER ACCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE. THE CIT(A) C ONFIRMED THE ORDER OF THE ASSESSING OFFICER BY OBSERVING THAT FOR ALLOWING BA D DEBTS CLAIM U/S 36(1)(VII), THE ASSESSEE HAS NOT ONLY TO JUSTIFY THE OUTSTANDING DE BT BUT ALSO ESTABLISH THAT IT HAS BECOME BAD. HE FURTHER OBSERVED THAT THE ASSESSEE HAS WRITTEN OFF ONLY 50% OF THE AMOUNT RECOVERABLE FROM THE PARTIES. THE ASSES SEE DID NOT EXPLAIN WHY 50% OF THE AMOUNT HAS BEEN WRITTEN OFF. IN SUCH A SITU ATION IT CANNOT BE TERMED THAT 50% OF THE AMOUNT WRITTEN OFF BY THE ASSESSEE IS IN THE NATURE OF BAD DEBTS. 10. THE LD.AR SUBMITTED THAT THE ASSESSEE HAS MADE EXPORT SALES WORTH RS. 8,69,76,547. OUT OF THE TOTAL SALES MADE BY THE AS SESSEE THE ASSESSEE HAS WRITTEN OFF AMOUNT OF RS.1,40,99,625 IN RESPECT OF ALEESH STEEL FZC AND GREENLAND (UAE) TRADING SHARJAH. HE FURTHER SUBMIT TED THAT EXPORT CONSIGNMENTS HAVE BEEN SHIPPED TO BOTH THE PARTIES. BILLS WERE PREPARED. ALL EXPORT DOCUMENTS EXCEPT INVOICE NO.019 AND INVOICE NO.02 HAVE BEEN SENT FOR COLLECTION OF EXPORT PROCEEDS THROUGH CORPORATION B ANK. THE LD.AR SUBMITTED THAT THE ASSESSEE HAS DRAWN THE BILLS OF EXCHANGE W ITH PAYMENT TERMS OF 30 DAYS DS / 45 DAYS DA WHICH HAVE BEEN ACCEPTED BY THE PAR TIES BANKERS. THE LD.AR SUBMITTED THAT THE BILLS WERE NOT REALIZED. THE AB OVE CONTENTION OF THE LD.AR ARE SUPPORTED BY THE RELEVANT DOCUMENTS AND MATERIALS P LACED IN THE PAPER BOOK. THE LD.AR HAS ALSO FILED A CHART SHOWING DUE DATE F OR PAYMENT WHICH FALLS WITHIN THE FINANCIAL YEAR UNDER CONSIDERATION. THE LD.AR SUBMITTED THAT THE TOTAL AMOUNT ITA NO.564/RJT/2008 5 WAS IRRECOVERABLE. HOWEVER, THE ASSESSEE HAS CLAIM ED ONLY 50% OF THAT AMOUNT AS BAD DEBTS. THE LD.AR SUBMITTED THAT THE AMOUNT HAS BEEN WRITTEN OFF ACCORDING TO SECTION 36(1)(VII) OF THE ACT. THEREF ORE, IN THE LIGHT OF THE LATEST JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF T RF LTD VS CIT 323 ITR 397 (SC), THE DEDUCTION CLAIMED MAY BE ALLOWED. 11. THE LD.DR, ON THE OTHER HAND, RELIED UPON THE O RDER OF REVENUE AUTHORITIES AND SUBMITTED THAT THE ASSESSEE DID NOT EXPLAIN THE REASON WHY HE HAS WRITTEN OFF ONLY 50% OF THE DEBTS. THE ASSESSEE FAILED TO EXPLAIN THE REASON OF 50% WRITTEN OFF AS BAD DEBTS. 12. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES, RECORD PERUSED. THE ADMITTED FACTS AS STATED BY THE LD.AR THAT THE ASSESSEE DID NOT RECEIVE ANY AMOUNT FROM THOSE PARTIES AGAINST THE BILLS RAISED TILL DATE. HOWEVER, THE ASSESSEE HAS WRITTEN OFF 50% OF THE AMOUNT AS BAD D EBTS WHICH SATISFY THE CONDITIONS IN SECTION 36(1)(VII). IN THE LIGHT OF THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF TRF LTD VS CIT 323 ITR 397 (SC ) WE ALLOW THE CLAIM OF THE ASSESSEE. 13. THE BRIEF FACTS OF GROUND NO.4 ARE THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE. THEREFORE, THERE IS A VIOLATION OF PROVISIONS OF SE CTION 40A(IA) OF THE ACT. THE DETAILS NOTED BY THE ASSESSING OFFICER ARE AS UNDER :- RS. 74,268 TOWARDS CLEARING AND FORWARDING RS.5,12,900 TOWARDS EXPORT FREIGHT & HANDLING CHAR GES RS. 50,000 ACCOUNTING CHARGES RS.6,37,168 THE DISALLOWANCE MADE BY THE ASSESSING OFFICER HAS BEEN CONFIRMED BY THE LD.CIT(A). ITA NO.564/RJT/2008 6 14. THE LD.AR DID NOT PRESS THE ISSUE OF RS.74,268 TOWARDS CLEARING AND FORWARDING EXPENSES. WE, THEREFORE, CONFIRM THE OR DERS OF REVENUE AUTHORITIES ON THIS DISALLOWANCE OF RS.74,268. THE LD.AR FURTH ER SUBMITTED THAT THE ASSESSEE IS NOT LIABLE TO MAKE DEDUCTION OF TAX AT SOURCE ON RS.5,12,900 TOWARDS EXPORT FREIGHT AND HANDLING CHARGES. THE LD.AR SUB MITTED THAT THERE IS EXCEPTION FOR NOT MAKING TAX DEDUCTION AT SOURCE. THERE IS A CBDT CIRCULAR NO.723 DATED 19-09-1995 FOR THIS PURPOSE. AS REGARDS RS.5 0,000, THE LD.AR SUBMITTED THAT THE TAX WAS DEDUCTED AT SOURCE AND ACCORDINGLY PAID IN MAY, 2005. 15. THE LD.DR, ON THE OTHER HAND, RELIED UPON THE O RDER OF CIT(A) AND SUBMITTED THAT THE DATE OF PAYMENT OF RS.50,000 AND FACTS OF THE CASE IN THE LIGHT OF CBNDT CIRCULAR HAS NOT BEEN EXAMINED EITHER BY T HE ASSESSING OFFICER OR BY THE CIT(A). THEREFORE, HE REQUESTED THAT THE ISSUE MAY BE SENT BACK TO THE FILE OF THE ASSESSING OFFICER FOR NECESSARY VERIFICATION. 16. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES, RECORD PERUSED. WE FIND THAT THE REVENUE AUTHORITIES DID NOT CONSID ER THE CBDT CIRCULAR NO.723 DATED 19-09-1995 AS POINTED OUT BY THE LD.AR WHERE IT HAS BEEN STATED THAT IN CASES WHERE PAYMENTS ARE MADE TO SHIPPING AGENTS OF NON RESIDENT SHIP OWNERS OR CHARTERS FOR CARRYING PASSENGERS, ETC, SHIPPED A T PORT IN INDIA. SINCE THE AGENT ACTS ON BEHALF OF THE NON RESIDENT SHIP OWNERS OR T HE CHARTER, HE STEPS INTO THE SHOES OF THE PRINCIPAL. ACCORDINGLY, PROVISIONS OF SECTION 172 SHALL APPLY AND THOSE OF SECTIONS 194C AND 195 WILL NOT APPLY. WE FIND FORCE IN THE SUBMISSION OF THE LD.DR THAT FACTS OF THE CASE ARE REQUIRED TO BE VERIFIED IN THE LIGHT OF CBDT CIRCULAR AND THE PAYMENT OF RS.50,000 MADE BY THE A SSESSEE STATED TO BE IN MAY, 2005. WE, THEREFORE, SEND BACK THIS MATTER AL SO TO THE FILE OF THE ASSESSING OFFICER FOR LIMITED PURPOSE TO VERIFY THE CONTENTIO NS OF THE ASSESSEE AND THE FACTS IN THE LIGHT OF CBDT CIRCULAR AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER PROVIDING OPPORTUNITY OF BEING HEARD TO THE A SSESSEE. ITA NO.564/RJT/2008 7 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 10-12-2010 . SD/- SD/- (D.T. GARASIA) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT, DT : 10 TH DECEMBER, 2010 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), JAMNAGAR 4. THE CIT, JAMNAGAR 5. THE DR (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT