CONCORDE AIR LOGISITICS LTD, MUMBAI V. JCIT RG 8(1), MUMBAI

ITA 5860/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56304 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 21-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 22-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Keywords: Unexplained cash credit; Bad and doubtful debts
• Section: 68

Judgement Text

ITA NO.5680 OF 2010 CONCORD AIR LOGISTICS LTD MUMBAI PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO. 5860/MUM/2010 (ASSESSMENT YEAR: 2005-06) CONCORD AIR LOGISTICS LTD., J.C.I.T. (RG)-8(1) 17 ADARSH INDL. ESTATE AAYAKAR BHAVAN SAHAR ROAD, CHAKALA MUMBAI 400 020 ANDHERI (E) MUMBAI 400 099 VS PAN AACCC 3706 E APPELLANT RESPONDENT APPELLANT BY: SHRI DHANESH BATRA WITH SHRI MADHAV KHANDELWAL RESPONDENT BY: SHRI C.G.K. NAIR, SR.DR DATE OF HEARING: 20/12/2011 DATE OF PRONOUNCEMENT:30/12/2011 O R D E R PER B. RAMAKOTAIAH, A.M. THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE CIT (A)-16 MUMBAI DATED 31/05/2010. THE ASSESSEE HAS RA ISED THE FOLLOWING TWO GROUNDS: 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) (C IT(A) ERRED IN CONFIRMING THE ADDITION UNDER SECTION 68 O F INCOME-TAX ACT, 1961 AGGREGATING TO RS..16,02,788. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN CONFIRMING THE DISALLOWANCE OF BAD DEBTS WRITTEN OF F AMOUNTING TO RS..12,261/-. 2. WE HAVE HEARD THE LEARNED COUNSEL AND THE LEARNED S R.DR. GROUND NO.1 IS WITH REFERENCE TO THE ADDITION UNDER SECTION 68 OF THE I.T. ACT OF RS. 16,02,788/-. ITA NO.5680 OF 2010 CONCORD AIR LOGISTICS LTD MUMBAI PAGE 2 OF 7 3. BRIEFLY STATED THE ASSESSEE IS AN INTERNATIONAL AIR CARGO AGENT AND IS ENGAGED IN THE BUSINESS OF CUSTOM HOUSE AND CLEARING AND FORWARDING AGENCY. THE ASSESSING OFFICER NOTICED TH AT THE ASSESSEE HAS SHOWN SUNDRY CREDIT OF RS. 56,50,907/- AND ASKE D FOR PRODUCTION OF CONFIRMATIONS. THE ASSESSEE SUBMITTED THAT THE CONFIRMATION OF SUNDRY CREDITORS IS NOT IMMEDIATELY FEASIBLE AS ALL THE CREDITORS ARE BEING MAJOR INTERNATIONAL AND DOM ESTIC AIRLINES. THE ASSESSEE SUBMITTED ONLY AN EMAIL FROM ONE CONCE RN, BUT THE ASSESSING OFFICER REJECTED THE SAME AS AN EMAIL CON FIRMATION WHICH IS NOT IN PROPER FORMAT. HE MADE THE ENTIRE ADDITIO N OF 56,50,907/-. 4. IT WAS CONTENDED BEFORE THE CIT (A) THAT THE ASSES SEES BUSINESS PRACTICE WAS THAT A CUSTOMER APPROACHES TH E ASSESSEE FOR SHIPMENT OF CARGO THROUGH THE CUSTOMERS PREFERRED INTERNATIONAL AIRLINE, AS THE CUSTOMER CANNOT DIRECTLY APPROACH T HE AIRLINE BUT HAS TO GO TO AN AGENT. THE ASSESSEE IS REGISTERED AS AG ENT WITH THE IATA AND AS PER THE CARGO AGENCY AGREEMENT, THE ASSESSEE ARRANGES FOR THE SHIPMENT OF CUSTOMERS CARGO AND RECEIVES FULL AMOUNT AS PER THE AGREED TARIFF OF THE AIRLINES. AS PER THE TERMS OF THE AGREEMENT ASSESSEE AFTER RETAINING ITS COMMISSION GENERALLY UP TO MAXIMUM 5% MAKES BALANCE PAYMENT TO THE AIRLINE. THE COMMI SSION INCOME WAS ACCOUNTED UNDER THE HEAD SERVICE CHARGES IN T HE PROFIT & LOSS ACCOUNT AND THE AMOUNT PAYABLE TO INTERNATIONAL AIR LINES IS SHOWN AS SUNDRY CREDITORS. IN CASE THERE IS AN OUTSTANDIN G RECOVERY FROM THE CUSTOMERS, THEY ARE SHOWN AS SUNDRY DEBTORS IN THE BALANCE SHEET. THE ILLUSTRATED ACCOUNTING ENTRY WAS EXPLAIN ED AS UNDER: SUNDRY DEBTORS. DR 100/- TO SERVICE CHARGES RS.5/- TO SUNDRY CREDITORS RS. 95/- IT WAS SUBMITTED THAT THE AMOUNT PAYABLE TO THE AIR LINE (SUNDRY CREDITORS) AS ON 31.3.2005 WAS RS. 56,50,907/- AND THESE SUNDRY CREDITORS ARE 11 MAJOR INTERNATIONAL AND DOMESTIC A IRLINES, THE DETAILS ARE AS UNDER: ITA NO.5680 OF 2010 CONCORD AIR LOGISTICS LTD MUMBAI PAGE 3 OF 7 S.NO PARTICULARS AMOUNT STANDING AS ON MARCH 31, 2005 1 SINGAPORE AIRLINES 44,587 2 BRITISH AIRWAYS 47,521 3 AIR FRANCE 1,52,069 4 KENYA AIRWAYS LTD 19,772 5 AIR INDIA LTD 23,992 6 ALITALIA 23,449 7 INDIAN AIRLINES 2,26,459 8 QATAR AIRWAYS 17,609 9 ALLIED AVIATION (P) LTD 45,144 10 JET AIRWAYS 42,05,685 11 AIR SEA FORWARDERS 8,44,619 TOTAL 56,50,907 . 5. THE ASSESSEE NOT ONLY SUBMITTED THE PARTY-WISE BREA K-UP OF SUNDRY CREDITORS, LEDGER COPIES OF THE OUTSTANDING BALANCE, CONFIRMATION OF PAYMENTS IN THE NEXT YEAR AND FURTH ER FILED CONFIRMATION FROM JET AIRWAYS CONFIRMING THE BALANC E OF RS. 40,48,120/-. IT WAS FURTHER SUBMITTED THAT ALL THES E ARE NOT CREDITS FROM CASH CREDITORS THEREFORE, PROVISIONS OF SECTIO N 68 ARE NOT APPLICABLE. THE CIT (A) AFTER ADMITTING THE ADDITIO NAL EVIDENCE REFERRED THE MATTER TO THE ASSESSING OFFICER AND AF TER OBTAINING REMAND REPORT CONFIRMED THE DISCREPANCY WITH REFERE NCE TO JET AIRWAYS ACCOUNT OF RS. 1,57,565/- AND BALANCE OF TH E AMOUNTS TREATING THEM AS CASH CREDITS. ACCORDINGLY THE GROU ND WAS RAISED. 6. THE LEARNED COUNSEL DRAWING OUR ATTENTION TO THE DE TAILS PLACED IN THE PAPER BOOK OF VARIOUS LEDGER ACCOUNTS AND HOW THE TRANSACTIONS RESULTED IN AMOUNTS TO BE PAID TO FORE IGN AIRLINES SUBMITTED THAT THE ASSESSEE HAS NOT OBTAINED ANY LO ANS OR ANY CASH CREDITS FROM ANY OF THE PARTIES. THESE ARE THE OUTS TANDING AMOUNTS PAYABLE TO VARIOUS FOREIGN AIRLINES IN THE BUSINESS AND BOTH THE ASSESSING OFFICER AND THE CIT (A) HAVE CONSIDERED O UTSTANDING ITA NO.5680 OF 2010 CONCORD AIR LOGISTICS LTD MUMBAI PAGE 4 OF 7 AMOUNTS AS UNEXPLAINED CASH CREDIT UNDER SECTION 68 . IT WAS FURTHER SUBMITTED THAT ALL THE MAJOR AIRLINES ARE R EPUTED ONES AND THE ASSESSEE HAS CONTINUOUS TRANSACTIONS WITH THEM AND THEREFORE, THE AMOUNTS PAYABLE BY THE AGENT TO THE AIRLINES IN THE BUSINESS OF AIR CARGO SHIPMENT CANNOT BE CONSIDERED AS UNEXPLAI NED CASH CREDIT. FURTHER IT WAS SUBMITTED THAT OUTSTANDING A MOUNTS WERE PAID/DISCHARGED IN THE SUBSEQUENT YEAR. LD.COUNSEL RELIED ON THE DECISION OF THE CIT VS. PANCHAMDAS JAIN 156 TAXMAN 507 (ALL.) FOR THE PROPOSITION THAT PROVISIONS OF SECTION 68 ARE N OT ATTRACTED TO THE TRADE TRANSACTIONS. 7. LEARNED DEPARTMENTAL REPRESENTATIVE HOWEVER RELIED ON THE ORDERS OF THE ASSESSING OFFICER AND THE CIT (A) TO SUBMIT THAT THE ASSESSEE HAS NOT DISCHARGED ITS PRIMARY ONUS OF PRO VING THE CASH CREDITS AS GENUINE ONE. 8. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RECOR D. WE ARE UNABLE TO SUSTAIN THE ADDITION SO MADE BY THE A SSESSING OFFICER AND CONFIRMED BY THE CIT (A). AS ASSESSEE EXPLAINED THESE ARE AMOUNTS PAYABLE BY THE ASSESSEE TO VARIOUS FOREIGN AIRLINES WHICH AROSE IN THE COURSE OF ITS DAY-TO-DAY BUSINESS ACTI VITY. THE ASSESSEE HAS NOT RECEIVED ANY AMOUNTS FROM THEM BUT IS PAYAB LE TO THEM IN THE COURSE OF ITS BUSINESS ACTIVITY. THE AMOUNTS WE RE RECEIVED FROM VARIOUS CUSTOMERS TO BE PAYABLE TO AIRLINES. NOT O NLY THE ACCOUNTING ENTRIES EXPLAINED BY THE ASSESSEE BUT AL SO THE LEDGER COPIES PLACED ON RECORD INDICATE THAT THESE ARE THE AMOUNTS PAYABLE BY THE ASSESSEE IN THE COURSE OF ITS DAY TO DAY BUS INESS ACTIVITY AND OUTSTANDING BALANCE ON THE LAST DAY OF 31.3.2005 HA PPENED TO BE THE AMOUNTS NOT PAID BY THEN AND SHOWN IN THE BALA NCE SHEET. 9. THE PROVISIONS OF SECTION 68 ARE NOT ATTRACTED TO T HE TRANSACTIONS OF BUSINESS NATURE IN WHICH DEBIT AND CREDITS ARISE. THIS ISSUE WAS DECIDED BY THE HON'BLE ALLAHABAD HIG H COURT IN THE CASE OF CIT VS. PANCHAMDAS JAIN 156 TAXMAN 507 (ALL .). IN THE ABOVE REFERRED CASE THE ASSESSEE PURCHASED CERTAIN AMOUNTS ON CREDIT AND THE ASSESSING OFFICER TREATED THE SAME A S UNEXPLAINED ITA NO.5680 OF 2010 CONCORD AIR LOGISTICS LTD MUMBAI PAGE 5 OF 7 CREDIT UNDER SECTION 68. IT WAS HELD BY THE TRIBUNA L THAT THE TRADING RESULT DISCLOSED BY THE ASSESSEE WERE ACCEPTED BY T HE ASSESSING OFFICER AND THE TWO AMOUNTS IN QUESTION REPRESENTED THE PURCHASE MADE BY THE ASSESSEE ON CREDIT. THEREFORE, THE ADDI TION OF THE AMOUNT COULD NOT BE MADE UNDER SECTION 68. THE HON' BLE ALLAHABAD HIGH COURT HELD THAT THE PROVISIONS OF SECTION 68 A RE NOT ATTRACTED TO AMOUNTS REPRESENTING PURCHASES MADE ON CREDIT. T HE PRINCIPLES ESTABLISHED BY THE ABOVE DECISION EQUALLY APPLY TO THE FACTS OF THE CASE. 10. THE ASSESSEE IN FACT HAS NOT RECEIVED ANY CREDIT FR OM THE MAJOR AIRLINES BUT THESE ARE THE AMOUNTS COLLECTED BY THE ASSESSEE FROM VARIOUS CUSTOMERS TO BE PAID TO VARIOUS AIRLIN ES IN THE COURSE OF BUSINESS. WE ARE UNABLE TO UNDERSTAND HOW THE AM OUNTS CAN BE CONSIDERED AS UNEXPLAINED CASH CREDITS BY THE ASSES SING OFFICER INVOKING THE PROVISIONS OF SECTION 68. WE ARE ALSO UNABLE TO UNDERSTAND HOW THE CIT (A) COULD CONFIRM THE AMOUNT S RELYING ON THE PRINCIPLES ESTABLISHED IN THE CASE OF CASH CRED ITS TO THE TRADE RECEIPT OF THE ASSESSEES BUSINESS. SINCE THE PROVI SIONS OF SECTION 68 ARE NOT ATTRACTED, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF THE BALANCE AMOUNT OF RS. 16,02,788/-. GROUND IS ALLOWED. 11. GROUND NO.2 PERTAINS TO CLAIM OF BAD DEBT OF RS. 12 ,261/-. THE ASSESSEE UNDERTOOK DELIVERY OF SHIPMENT OF M/S REELS EXPRESS INC AND RAISED A BILL OF RS. 12,261/-. DUE TO THE DELAY IN DELIVERY OF THE SHIPMENT M/S REELS EXPRESS INC DID NOT PAY THE AMOUNT AND ACCORDINGLY THE SAME WAS WRITTEN OFF BY THE ASSESSE E IN ITS BOOKS OF ACCOUNT BY DEBITING THE PROFIT & LOSS A/C . THE ASS ESSING OFFICER WAS OF THE OPINION THAT SINCE THIS AMOUNT DID NOT C OME THROUGH PROFIT & LOSS A/C THE SAME CANNOT BE ALLOWED AS BAD DEBT. CIT (A) CONFIRMED THE SAME. 12. AFTER HEARING THE RIVAL ARGUMENTS AND EXAMINING THE DETAILS ON RECORD, WE ARE OF THE OPINION THAT THIS AMOUNT I S AN ALLOWABLE BAD DEBT. IN THE COURSE OF ASSESSEES BUSINESS, THE ASSESSEE ITA NO.5680 OF 2010 CONCORD AIR LOGISTICS LTD MUMBAI PAGE 6 OF 7 UNDERTOOK DELIVERY OF SHIPMENT AND RAISED BILL ACCO RDINGLY FOR RS. 12,261/-. IN THE NORMAL COURSE THE ASSESSEE WOULD H AVE RECEIVED 5% COMMISSION ON THIS, HAD THE DELIVERY BEEN MADE O N TIME. BUT SINCE THE DELIVERY WAS DELAYED, THE AMOUNT WAS NOT PAID. THEREFORE, THE AMOUNT RAISED CANNOT BE RECOVERED ONCE CUSTOMER DISPUTES AND HAS TO BE WRITTEN OFF IN THE BOOKS OF ACCOUNT. SINC E THESE TRANSACTIONS ARE IN THE COURSE OF NORMAL BUSINESS A CTIVITY, IT SATISFIES THE CONDITIONS OF SECTION 36(2) R.W.S 36( 1)(VII). THERE IS NO NEED TO EXAMINE VARIOUS LEGAL ASPECTS ON THIS ISSUE AS THE ASSESSEE SATISFIES THE CONDITIONS FOR ALLOWING CLAIM OF BAD DEBT. WE DIRECT THE ASSESSING OFFICER TO ALLOW THE AMOUNT AS CLAIMED. G ROUND 2 IS ALLOWED. 13. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DECEMBER, 2011. SD/- SD/- (V.DURGA RAO) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 30 TH DECEMBER, 2011. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI ITA NO.5680 OF 2010 CONCORD AIR LOGISTICS LTD MUMBAI PAGE 7 OF 7 BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 27.12.11 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 28.12.11 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 29.12.11 JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 29.12.11 AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 29.12.11 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 30.12.11 SR. PS/PS 7 FILE SENT TO BENCH CLERK 30.12.11 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER