Shri. Arjun Moraes, Mangalore V. JCIT, Mangalore

ITA 605/BANG/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8668 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 29-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JACINTA ZIMIK VASHAI
• Assessee Lawyers: P C CHADAGA
• Keywords: Business expenditure; Cost of acquisition; Bad and doubtful debts
• Section: 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO.605(BANG)/2010 (ASSESSMENT YEAR: 2007-08) SHRI ARJUN MORAES, PROP. M/S. SONAR IMPEX, M/S.MANGALORE OVERSEAS TRADERS, 6 VGS BUILDING, LADY HILL, MANGALORE/575006. VS. APPELLANT JOINT COMMISSIONER OF INCOME-TAX RANGE-1, MANGALORE. RESPONDENT APPELLANT BY: SHRI P.C. CHADAGA. RESPONDENT BY : SMT.JACINTA ZIMIK VASHAI. O R D E R PER SMT. P. MADHAVI DEVI, JM : THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE ORDER OF THE CIT(A), MANGALORE, DATED 22-3-2010 FOR THE ASSE SSMENT YEAR 2007-08. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL: 1) THE ORDER OF THE CIT(APPEALS) IS OPPOSED TO LAW AN D FACTS OF THE APPELLANTS CASE IN SO FAR AS IT IS AG AINST THE APPELLANTS INTEREST. 2) THE CIT(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF BAD DEBTS MADE BY THE AO BY REJECTI NG THE APPELLANTS CONTENTION THAT, EVEN THOUGH THE AM OUNT CLAIMED MAY NOT BE ALLOWABLE U/S 36(1)(VII) AS BAD DEBT, THE SAME IS ALLOWABLE U/S 28 ITSELF. 3) THE CIT(APPEALS) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO UNDER THE HEAD SHORT-TERM CAPITAL GA IN, ITA 605(BANG)/2010 PAGE 2 OF 4 DISREGARDING THE APPELLANTS CONTENTION THAT THE AC TUAL PURCHASE PRICE WAS MORE THAN WHAT WAS INDICATED IN THE REGISTERED DOCUMENT AND SUPPORTED THE SAME BY PROPE R EVIDENCES. 4) FOR THESE AND OTHER GROUNDS OF APPEAL THAT MAY BE RAISED EITHER BEFORE OR AT THE TIME OF HEARING OF T HE APPEAL, IT IS PRAYED THAT THE APPEAL FILED BY THE APPELLANT BE ALLOWED IN THE INTEREST OF EQUITY AND JUSTICE. 3. GROUND NOS.1 AND 4 ARE GENERAL IN NATURE AND DO NOT REQUIRE ADJUDICATION. AS REGARDS GROUND NO.2, BRIE F FACTS ARE THAT THE ASSESSEE HAD ADVANCED AN AMOUNT OF RS.11 L AKHS TO ONE M/S.JAIN CONTINENTAL IMPEX FOR SUPPLY OF GOODS AND IT NEITHER RECEIVED THE GOODS NOR RECOVERED THE MONEY ADVANCED. THEREFORE, THE ASSESSEE WROTE OFF THE SAME AS BAD D EBT AND CLAIMED IT U/S 36(1)(VII) OF THE INCOME-TAX ACT, 19 61 [HEREINAFTER REFERRED TO AS 'THE ACT']. THIS CONTEN TION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO AS IT DID NOT P ASS THROUGH THE PROFIT & LOSS ACCOUNT AND DID NOT SATISFY THE C ONDITIONS LAID DOWN UNDER SUB-SECTION (2) OF SEC.36 OF THE ACT. T HE ASSESSEE, THEREAFTER, CONTENDED THAT IT MAY BE ALLOWED EITHER U/S 28 OR 37 OF THE ACT AS THE ADVANCE WAS IN RELATION TO ITS BU SINESS. THIS CONTENTION ALSO WAS NEGATIVED BY THE AO AS WELL AS THE CIT(A) AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 4. AFTER HEARING BOTH THE PARTIES, WE AGREE WITH T HE FINDING OF THE AO THAT THIS AMOUNT CANNOT BE ALLOWE D AS A BAD DEBT AS IT HAS NOT PASSED THROUGH THE PROFIT & LOSS ACCOUNT. HOWEVER, WE ARE UNABLE TO AGREE WITH HIS FINDING TH AT IT IS NOT ALLOWABLE U/S 28 OR 37 OF THE ACT. AS THE AMOUNT H AS BEEN ITA 605(BANG)/2010 PAGE 3 OF 4 ADVANCED FOR THE PURPOSE OF PROCURING GOODS FOR THE ASSESSEES BUSINESS, IT IS NOTHING BUT BUSINESS EXPENDITURE AN D AS THE ASSESSEE WAS NOT ABLE TO RECOVER EITHER THE GOODS O R THE SAID MONEY, IT IS UNDENIABLY A BUSINESS LOSS. THEREFORE , EVEN IF IT IS NOT ALLOWABLE AS A BAD DEBT, IT IS ALLOWABLE AS A B USINESS LOSS EITHER U/S 28 OR AS EXPENDITURE U/S 37 OF THE ACT. THE ASSESSEE SHALL FILE ALL THE RELEVANT EVIDENCE BEFORE THE AO FOR VERIFICATION AS TO WHETHER THE AMOUNT HAS REALLY BEEN ADVANCED I N THE COURSE OF ITS BUSINESS AND HAS NOT BEEN RECOVERED A ND IF IT IS FOUND TO BE SO, THE AO IS DIRECTED TO ALLOW THE SAM E IN ACCORDANCE WITH LAW. IN VIEW OF THE SAME, THIS ISS UE IS REMANDED TO THE FILE OF THE AO WITH THE ABOVE DIREC TIONS. 5. AS REGARDS GROUND NO.3, BRIEF FACTS ARE THAT TH E ASSESSEE HAD PURCHASED FOUR SITES BEING NON-AGRICUL TURAL LAND IN KADRI VILLAGE OF MANGALORE TALUK IN OCTOBER 2005 AN D SOLD THE SAME FOR A SUM OF RS.75 LAKHS ON 30-4-2006. THE BO NE OF CONTENTION BETWEEN THE ASSESSEE AND THE REVENUE AUT HORITIES IS THE COST OF ACQUISITION OF THE SAID PROPERTIES. TH E AO DECLINED TO ACCEPT THE COST OF ACQUISITION DECLARED BY THE A SSESSEE AND INCREASED THE SHORT TERM CAPITAL GAIN MAKING AN ADD ITION OF RS.17,00,005/- WHICH WAS CONFIRMED BY THE CIT(A) ON THE GROUND THAT HE HAS COME ACROSS THREE SETS OF FIGURE S SUCH AS (I) PURCHASE PRICE AS PER REGISTERED SALE DEED OF RS.37 ,90,000/-, (II) PURCHASE PRICE FOR THE PURPOSE OF STAMP DUTY O F RS.44,39,000/- AND (III) PURCHASE PRICE CLAIMED BY THE ASSESSEE OF RS.54,90,005/- AND THAT THE ASSESSEE IS NOT ABLE TO EXPLAIN ITA 605(BANG)/2010 PAGE 4 OF 4 THE VARIATION IN THEM AND WHICH OF THESE THREE IS T HE ACTUAL PRICE. HAVING HEARD BOTH THE PARTIES, WE ARE OF THE OPINI ON THAT THIS ISSUE ALSO NEEDS TO BE RE-CONSIDERED BY THE AO IN ACCORDANCE WITH LAW AS THE ASSESSEE HAS FILED CONFI RMATION LETTERS OF TWO PARTIES IN WHICH IT IS STATED THAT T HE PAYMENT IS MADE BY CHEQUES/DDS WHICH CAN BEEN VERIFIED AND THE SE PARTIES HAVE NOT BEEN EXAMINED BY THE AUTHORITIES B ELOW. AS WE HAVE ALREADY REMANDED THE ISSUE OF BAD DEBTS TO THE FILE OF THE AO, WE REMIT THIS ISSUE ALSO TO THE FILE OF THE AO FOR RE- CONSIDERATION IN ACCORDANCE WITH LAW. 6. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH NOVEMBER, 2010 SD/- SD/- (DR. O.K. NARAYANAN) VICE PRESIDENT (SMT. P.MADHAVI DEVI) JUDICIAL MEMBER PLACE : BANGALORE DATED: 10 TH NOVEMBER, 2010 EKS COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) CONCERNED 4. CIT 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE