DCIT 13(1), MUMBAI V. PARVEZ ABDUKADER KHATRI, MUMBAI

ITA 6021/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9389 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 07-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 04-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARTHSARTHI NAIK
• Assessee Lawyers: DHIRENDRA M SHAH
• Keywords: Opportunity of being heard; Bad and doubtful debts
• Section: 143(3); 37(1); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER I.T.A. NO. 6021/M/2010 ASSESSMENT YEAR: 2007-2008 THE ACIT-13(1), R.NO. 418, 4 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020. VS. SHRI PARVEZ ABDULKADER KHATRI, PROP. M/S. NIMEX TRADING CORPN., 17, 2 ND FLOOR, TOPIWALA MANSION, 93-97, MOHD. ALI ROAD, MUMBAI 400 003. PAN:AAGPK6484J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PARTHSARTHI NAIK, SR. DR RES PONDENT BY : SHRI DHIRENDRA M. SHAH DATE OF HEARING: 7.11.2012 DATE OF ORDER: 21.11.2012 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 4.8.2010 AGAINS T THE ORDER OF CIT (A)-24, MUMBAI DATED 5.5.2010 FOR THE ASSESSMENT YEAR 2007- 2008. 2. IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD CIT (A) HAS ERRED IN ALLOWING HR CLAIM OF THE ASSES SEE OF BAD DEBTS WRITTEN OFF OF RS. 6,91,613/- WITHOUT APPRECIATING THE FACT THAT SAME ARE NOT ALLOWABLE U/S 36(1)(VII) AND THE CLAIM WAS LATER ALLOWED BY LD CIT (A) U/S 37(1) AS BUSINESS LOSS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD CIT (A) HAS ERRED IN ALLOWING THE CLAIM OF BAD DEBTS WRITTEN OFF OF RS. 65,79,761/- BY THE ASSESSEE WITHOUT APPRECIATING THE FACT THAT BAD DEBTS HAS NOT BEEN PROVED BONA FIDE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE U/S 40(A)(IA) OF RS. 80,800/- BEING REIMBURSEMENT OF THE EXPENSES TO THE CLEARIN G AND FORWARDING AGENT ON BEHALF OF THE ASSESSEE, MADE BY THE AO ON ACCOUNT OF NON-DEDUCTION OF TDS WITHOUT APPRECIATIN G THE FACT THAT THE SAID PAYMENTS FALLS WITHIN THE AMBIT OF SECTION 194 C(3) OF THE IT ACT. 2 SHRI PARVEZ ABDULKADER KHATRI 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE U/S 40(A)(IA) OF RS. 1,24,601/- BEING A LABOUR CHARGES INCURRED FOR LOAD ING AND UNLOADING AND RS. 2,24,103/- LABOUR CHARGES FOR PAC KING GOODS OF EXPORTS MADE BY THE AO ON ACCOUNT OF NON-DEDUCTION OF TDS WITHOUT APPRECIATING THE FACT THAT THESE PAYMENTS A RE IN THE NATURE OF CONTRACT PAYMENTS U/S 194C OF THE IT ACT. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE TH AT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADIN G GOODS AND FILED RETURN DECLARING THE INCOME OF RS. 39.19 LAKHS. ASSESSMEN T WAS COMPLETED U/S 143(3) OF THE ACT DETERMINING THE INCOME AT RS. 1,29,89,994/- AFTER DEDUCTION UNDER DEDUCTION UNDER CHAPTER VI-A OF THE ACT. AO MADE DISALLOWANC E OF BAD DEBTS ON ACCOUNT OF TRADE ADVANCES WRITTEN OFF RS. 6,91,613/- AND ANOTH ER BAD DEBT OF RS. 65,79,761/- AND INVOKED THE PROVISIONS OF SECTION 40(A)(IA) IN RESPECT OF SUMS OF RS. 80,800/-, RS. 1,24,601/- AND RS. 2,24,103/-. ON APPEAL, CIT (A) GAVE RELIEF TO THE ASSESSEE IN RESPECT OF THE ABOVE ADDITIONS AND THEREFORE, THE R EVENUE IS IN APPEAL BEFORE US. GROUND-WISE ADJUDICATION OF THE APPEAL IS GIVEN AS UNDER. 4. GROUND NO.1 RELATES TO WRITE OFF OF BAD DEBTS AM OUNTING TO RS. 6,91,613/-. IN THIS REGARD, THE FACT IS THAT THE ASSESSEE GAVE ADV ANCES IN THE YEAR 2004 TO FOUR PARTIES CLAIMED TO BE FOR THE PURCHASE OF GOODS. A O DISALLOWED THE SAME STATING THAT THE SAME ARE IN THE CAPITAL FIELD. AS PER THE AO, THE ASSESSEE GAVE ADVANCES AND NEVER BROUGHT THE GOODS AND HE IS OF THE OPINIO N THAT THE ADVANCES ARE NOT MEANT FOR TRADING ACTIVITY. SINCE THE VALUE OF GOOD S WAS NOT INCLUDED IN THE PROFIT & LOSS ACCOUNT, THIS SHOULD BE TREATED AS LOANS GIVEN BY THE ASSESSEE WHICH ARE INELIGIBLE FOR WRITE OFF IN THE P AND L ACCOUNT. 5. DURING THE PROCEEDINGS BEFORE THE CIT (A), ASSES SEE RELIED ON THE HONBLE SUPREME COURT JUDGMENT IN THE CASE OF CIT VS. ABDUL LABHAI ABDUL KADAR (41 ITR 545) FOR THE PROPOSITION THAT IN SUCH MATTERS THE TEST IS TO SEE THAT DEBT IS INCIDENT TO THE BUSINESS. FURTHER, THE HONBLE SUPREME COURT JUDGMENT IN TH E CASE OF INDIAN ALUMINIUM CO. LTD. VS. CIT (79 ITR 514) WAS CITED F OR THE PROPOSITION THAT TRADING 3 SHRI PARVEZ ABDULKADER KHATRI DEBT SHOULD SPRING DIRECTLY FROM CARRYING ON OF A B USINESS OR TRADE AND IT SHOULD BE INCIDENTAL TO SUCH BUSINESS. AFTER HEARING THE ASSESSEE, CIT (A) APPRECIATED THE SUBMISSIONS AND GRANTED RELIEF TO THE ASSESSEE HOLD ING THAT THE SAME IS ALLOWABLE AS BUSINESS LOSS U/S 37(1) OF THE I.T. ACT. 6. DURING THE PROCEEDINGS BEFORE US, LD DR ARGUED S TATING THAT THERE IS NO EVIDENCE TO DEMONSTRATE THAT THE SAID DEBT IS INCID ENTAL TO THE BUSINESS OF THE ASSESSEE. THE CLAIM BECOMES ELIGIBLE FOR DEBITING O NCE THE ASSESSEE DISCHARGE THE ONUS AND THE SAME IS ON THE ASSESSEE AS HE MADE THE CLAIM OF DEDUCTION. 7. PER CONTRA , LD AR FOR THE ASSESSEE BROUGHT OUR ATTENTION TO T HE LEDGER EXTRACTS PLACED AT PAGE 1-7 OF THE ASSESSEES PAPER BOOK TO DEMONSTRATE THAT THESE ARE OUTSTANDING BALANCES AND THEY ARE BORNE IN THE TRADE ADVANCE ACCOUNTS OF THE LEDGER. HE ALSO MENTIONED THAT THESE ADVANCES RELA TE TO THE YEAR 2004. THE ENTRIES IN THE BOOKS OF ACCOUNT WERE NOT APPRECIATED BY THE AO AS THEY RELATE TO THE YEAR 2004. HE ALSO BROUGHT OUR ATTENTION TO THE ORDER O F THE AO IN PARA 4.3 AND MENTIONED THAT THE ASSESSEES CLAIM OF TRADE ADVANC ES WAS NEVER DISPUTED BY THE AO. THE DISPUTE IS ONLY WITH REGARD TO NON-PURCHASE OF GOODS AS CLAIMED BY THE ASSESSEE. FURTHER, HE ARGUED THAT THESE ADVANCES A RE INCIDENTAL TO THE BUSINESS OF THE ASSESSEE, THEREFORE, FAILURE TO RECOVER THE SAI D ADVANCES RESULTS IN CREATION OF BUSINESS LOSS WHICH IS ALLOWABLE U/S 37(1) OF THE A CT. THIS SO HELD BY THE CIT (A), THEREFORE, ORDER OF THE CIT (A) MUST BE SUSTAINED O N THE ISSUE. 8. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND PERUSED THE ORDER OF THE REVENUE AUTHORITIES AS WELL AS PAPERS FILED BEFORE US IN THIS REGARD. THERE IS NO DISPUTE ON THE FACT THAT ASSESSEE GAVE ADVANCES TO THESE FOUR PARTIES. IT IS ALSO A FACT THAT THE SAME WERE NEVER RECOVERED. FURTHER, IT IS SEEN THAT THE AMOUNTS BELONG TO THE YEAR 2004 AND THERE IS NO EXAMINATION INTO THE BASIC FACTS RELATING TO WHETHER ADVANCES WERE GIVEN FOR PURCHASE OF GOODS A ND THE DETAILS OF GOODS ARE NOT AVAILABLE ON RECORD. THE DISPUTE REVOLVES AROUND TH E PURPOSE FOR WHICH THE IMPUGNED ADVANCES ARE GIVEN TO THE DEBTORS AND IF T HE DEBTS RELATES TO THE ADVANCES OF TRADE OR OTHERWISE. THE PERUSAL OF THE RECORDS D O NOT PROVIDE RELEVANT INFORMATION 4 SHRI PARVEZ ABDULKADER KHATRI ON WHAT ARE GOODS THE ASSESSEE INTENDED TO PURCHASE FROM THE DEBTORS AND IF THE SAID DEBTORS DEAL WITH SUCH GOODS OR NOT. NOBODY HA S GONE INTO THIS ISSUE. IT IS NOT KNOWN WHETHER FIRST OF ALL IF THE ASSESSEE DEALS IN SUCH GOODS WHICH WERE TO BE SUPPLIED BY THE IMPUGNED FOUR PARTIES. THESE BECOM ES RELEVANT FOR CONCLUDING THAT THE DEBTS IN QUESTION FALLS IN TRADING ZONE AND IN THE CAPITAL FIELD. THE CONTENTS OF PARA 4.3 RELIED UPON BY THE LD COUNSEL DOES NOT IND ICATE THAT ASSESSEE HAS GIVEN ADVANCES AND NOT BROUGHT GOODS. IT IS NOT IPSO FACTO INDICATES THAT THE ADVANCES GIVEN ARE FOR PURCHASE OF STOCK IN TRADE TO FALL IN TO THE CATEGORY OF TRADE ADVANCES OR OTHER INCIDENTAL ADVANCES OF THE BUSINESS AS ANNUNC IATED BY THE AO IN THE CASES CITED AND RELIED UPON BY THE ASSESSEE. IT IS A SETT LED LAW THAT THE TRADING ADVANCES WHEN WRITTEN OFF IS AN ALLOWABLE BUSINESS LOSS BUT THE CORE ISSUE IS YET TO BE DECIDED FOR WHICH THERE IS NEED FOR RELEVANT FACTS. IN OUR OPINION, THIS ISSUE HAS TO BE SET ASIDE TO THE FILES OF THE AO FOR EXAMINING THE ISSU E AFRESH AFTER GARNERING THE BASIC FACTS RELATING TO THE TERMS AND CONDITIONS BETWEEN THE ASSESSEE AND THE SAID FOUR PARTIES AND THE IF THE IMPUGNED ADVANCES GIVEN IN T HE YEAR 2004 ARE TRADE ADVANCES AND THAT THE SAME IS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. IT GOES WITHOUT MENTIONED THAT THE AO SHALL GRANT A REASONABLE OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO.1 IS SET ASIDE . 9. GROUND NO.2 RELATES TO WRITE OFF OF THE BAD DEBT S AMOUNTING TO RS. 65,79,761/- INVOLVING THREE PARTIES AND THEIR DETAI LS ARE AS UNDER: (I) ABDUL AZIZ MOHD TAHIR TEX TRADERS -- RS. 22,18, 705/- (II) AHMED KAID AL HABADE -- RS. 7,52,284/- (III) ABU TAHIR GENERAL TRADING CO. -- RS. 36,08,7 72/- TOTAL -- RS. 65,79,76 1 /- 9.1. IN THIS REGARD, LD. COUNSEL MENTIONED THAT THE ISSUE OF BAD DEBTS IS COVERED BY THE SERIES OF BINDING JUDGMENT IN THE CASE OF TR F LTD. VS. CIT RANCHI, CIVIL APPEAL NO.5294 OF 2003 DATED 9.2.2010 FOR THE PROPOSITION THAT THE BAD DEB TS WRITTEN OFF IN THE BOOKS OF ACCOUNT SHOULD BE ALLOWED AS AN ALLOWA BLE EXPENDITURE AND THE ASSESSEE DOES NOT HAVE TO ESTABLISH THAT WRITTEN OF F DEBTS HAVE BECOME BAD AND IRRECOVERABLE. CONSIDERING THE ABOVE SETTLED NATUR E OF THE ISSUE, AT THE LEVEL OF 5 SHRI PARVEZ ABDULKADER KHATRI HONBLE SUPREME COURT, WE ARE OF THE OPINION THAT T HE ORDER OF CIT (A) DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.2 RAI SED BY THE REVENUE IS DISMISSED. 10. GROUND NO.3 RELATES TO INVOKING OF THE PROVISIO NS OF SECTION 40(A)(IA) OF THE ACT IN RESPECT OF RS. 80,800/- BEING REIMBURSEMENT OF EXPENSES TO THE CLEARING AND FORWARDING AGENT ON BEHALF OF THE ASSESSEE. AO DIS ALLOWED THE CLAIM SAYING THAT THE ASSESSEE FAILED TO MAKE TDS AND FURNISH RELEVANT TD S CERTIFICATES. CIT (A) GAVE RELIEF BY HOLDING THAT THE SAID AMOUNT DOES NOT ATT RACT TDS PROVISIONS. FURTHER, REGARDING OTHER ADDITIONS OF RS. 2,24,103/- AND RS . 1,24,601/-, LD COUNSEL MENTIONED THAT THE AO MADE ADDITIONS AGAIN FOR THE SAME REASONS HOLDING THE AMOUNTS HAVE NOT SUFFERED TDS AND FAILURE TO FURNIS H THE RELEVANT CERTIFICATES. HOWEVER, CIT (A) GAVE RELIEF HOLDING THAT THE SAID AMOUNTS ARE NOT LIABLE TO TDS CONSIDERING THE SUMS ARE BELOW RS. 50,000/-. 11. DURING THE PROCEEDINGS BEFORE US, LD DR RELIED ON THE ORDER OF CIT (A) AND MENTIONED THAT THE PROVISIONS OF SECTION 40(A)(IA) ARE RIGHTLY INVOKED CONSIDERING THE FACT THAT ASSESSEE HAS NOT DEMONSTRATED THAT THE AM OUNTS ARE NOT LIABLE TO SUFFER TDS PROVISIONS. 12. ON THE OTHER HAND, LD COUNSEL INFORMED THAT SO FAR AS THE SUM OF RS. 80,800/- IS CONCERNED, THE AMOUNT WAS PAID AND, THEREFORE, THE PROVISIONS OF SECTION 40(A)(IA) HAVE NO APPLICATION CONSIDERING T HE SPECIAL BENCH DECISION IN THE CASE OF MARYLINE SHIPPING AND TRANSPORTS LTD VIDE ITA 277/V ISAKH/2008 DATED 29 TH MARCH, 2012 FOR THE PROPOSITION THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT HAVE NO APPLICATION TO THE AMOUNTS ALREADY PAID B Y THE ASSESSEE DURING THE FINANCIAL YEAR AND THEY ARE APPLICABLE TO THE AMOUN TS PAYABLE AS APPEARING IN THE BALANCE SHEET AS ON 31 ST MARCH OF THE RELEVANT FINANCIAL YEAR. 13. FURTHER, REGARDING THE AMOUNTS IE RS. 2,24,103/ - AND RS. 1,24,601/- MENTIONED IN GROUND NO.4, THE LD COUNSEL MENTIONED THAT PART OF THESE AMOUNTS WERE PAID AND PART OF IT IS PAYABLE BY THE ASSESSEE AT THE END OF THE FINANCIAL YEAR. MENTIONING THE LACK OF RELEVANT DISCUSSION IN THE O RDERS OF THE LOWER AUTHORITIES AND FOR WANT OF FACT, LD COUNSEL MENTIONED THAT THE GRO UND NO.3 AND 4 MAY BE SET ASIDE 6 SHRI PARVEZ ABDULKADER KHATRI TO THE FILES OF THE AO FOR DECIDING THE ISSUE AFRES H IN ACCORDANCE WITH THE SPECIAL BENCH DECISION IN THE CASE OF MARYLINE SHIPPING AND TRANSPORTS LTD (SUPRA). 14. WE FIND MERIT IN THE ARGUMENT OF THE COUNSEL, T HEREFORE, WE ARE OF THE OPINION THAT GROUND NO.3 AND 4 SHOULD BE SET ASIDE TO THE FILES OF AO FOR LIMITED PURPOSE OF THE EXAMINING THE FACTS ABOUT THE PAYMEN TS AND IN CASE THE AMOUNTS ARE PAID BY THE ASSESSEE IN THE FINANCIAL YEAR 2006-200 7, THE ASSESSEE IS ENTITLED TO RELIEF IN VIEW OF THE SAID SB DECISION IN THE CASE OF MARYLINE SHIPPING AND TRANSPORTS LTD (SUPRA). IN RESPECT OF THE REST OF THE CLAIM, T HE PROVISIONS OF SECTION 40(A)(IA) BECOME APPLICABLE. AS PRAYED BY THE ASSESSEES COUN SEL, FOR THE LIMITED PURPOSE OF QUANTIFICATION OF THE CORRECT ADDITIONS, THE GROUND S 3 AND 4 ARE SET ASIDE. AO GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSE SSEE BEFORE DECIDING THE ISSUE. ACCORDINGLY, GROUND NO.3 AND 4 ARE SET ASIDE FOR THE LIMITED PURPOSE. 15. IN THE RESULT, APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF NOVEMBER, 2012. SD/- SD/- (VIVEK VARMA) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCO UNTANT MEMBER DATE : 21.11.2012 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR C, BENCH, ITAT, MUMBAI. 6. GUARD FILE. 7 SHRI PARVEZ ABDULKADER KHATRI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI.