S.H.A..K. INTERNATIONAL P.LTD, MUMBAI V. DCIT 9(3), MUMBAI

ITA 6388/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8071 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 07-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 11-12-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R S SRIVASTAV
• Assessee Lawyers: G L PURSNANY
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, H, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER I T A NO: 6388/MUM/2009 (ASSESSMENT YEAR: 2006-07) M/S SHAMK INTERNATIONAL PVT. LTD., MUMBAI APPELLA NT (PAN: AABCM9688A) VS DEPUTY COMMISSIONER OF INCOME TAX 9(3) RESPONDENT MUMBAI APPELLANT BY: SHRI G L PURSNANY RESPONDENT BY: SHRI R S SRIVASTAV O R D E R R V EASWAR, PRESIDENT: THIS IS AN APPEAL BY THE ASSESSEE AND IT RELATES T O THE ASSESSMENT YEAR 2006-07. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF IMPORTING AND DI STRIBUTING PERFUMES. THE APPEAL ARISES OUT OF THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, O N 31.10.2008. 2. THE FIRST GROUND IS AGAINST THE DISALLOWANCE OF THE CLAIM OF BAD DEBTS OF ` 1,37,69,989/-. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS IT WAS EXPLAINED BY THE ASSESSEE THAT T O CREATE AWARENESS OF THE IMPORTED PERFUMES IN THE INDIAN MA RKET, THE EXPORTER OF THE PERFUMES IN UAE, SHARJAH, WHICH IS A COMPANY BY NAME MIRAGE PTE LIMITED, REQUESTED THE ASSESSEE TO CARRY OUT AN ADVERTISEMENT CAMPAIGN IN INDIA AT THEIR COST AND T HE ASSESSEE ALSO ACCEPTED THE PROPOSAL IN THE LARGER INTEREST OF THE BUSINESS AND ON GROUNDS OF BUSINESS PRUDENCE. THIS ARRANGEMENT CON TINUED TILL 31.03.2004. AT THE REQUEST OF ONE OF THE DIRECTORS OF THE SHARJAH ITA NO: 6388/MUM/2009 2 COMPANY, THE ARRANGEMENT CONTINUED FURTHER AND THE ASSESSEE INCURRED EXPENDITURE OF ` 1,37,69,989/- TILL THE YEAR ENDED 31.03.2005. IT WAS FURTHER EXPLAINED BY THE ASSESS EE THAT FROM 08.10.2005 THERE WERE NO BUSINESS DEALINGS WITH THE SHARJAH COMPANY. THE AUDITED ACCOUNTS FOR THE YEAR ENDED 3 1.03.2005 WHICH INCLUDED THE DETAILS OF THE EXPENSES IN SCHED ULE 3 THERETO WERE ALSO FURNISHED TO THE ASSESSING OFFICER. IT W AS SUBMITTED THAT DESPITE THE ASSESSEES BEST EFFORTS THE AMOUNT COUL D NOT BE RECOVERED FROM THE SHARJAH COMPANY AND WAS BEING WR ITTEN OFF IN THE YEAR UNDER APPEAL AS BAD DEBT. IT WAS FURTHER POINTED OUT THAT THE ASSESSMENT FOR THE ASSESSMENT YEAR 2005-06 WAS COMPLETED UNDER SECTION 143(3) AND OUT OF THE EXPENSES ON THE ADVERTISEMENT CAMPAIGN, THE ASSESSING OFFICER DISALLOWED ` 50,000/- FROM THE BUSINESS PROMOTION EXPENSES AND ANOTHER ` 5,92,239/- BEING DONATION AND THUS A TOTAL ADDITION OF ` 6,42,239/- WAS MADE TO THE TOTAL INCOME. ON FURTHER EXAMINATION THE ASSESSEE SUBMITTED THAT THE DEBT APPEARED IN THE ASSETS SIDE OF THE BALANCE SHEET AS ON 31.03.2005 AND SINCE THE DEBTOR (THE SHARJAH COMPAN Y) BY THEIR LETTER DATED 27.03.2006 DECLINED TO MAKE ANY PAYMEN T, THE DEBT WAS WRITTEN OFF IN THE ACCOUNT BOOKS OF THE ASSESSE E FOR THE YEAR UNDER APPEAL. 3. ON THE ABOVE FACTS THE ASSESSEE CLAIMED THAT THE AMOUNT SHOULD BE ALLOWED AS BAD DEBTS UNDER SECTION 36(1)( VII) OF THE ACT. THE ASSESSING OFFICER REFERRED TO THE PROVISIONS OF SECTION 36(2)(I) AND OBSERVED THAT IT IS A PRECONDITION FOR ALLOWING A DEBT AS BAD DEBT THAT IT SHOULD HAVE BEEN TAKEN INTO ACCOUNT IN COMPUTING THE ASSESSEES INCOME FOR THE RELEVANT PREVIOUS YEAR OR ANY OF THE ITA NO: 6388/MUM/2009 3 EARLIER PREVIOUS YEARS AND THAT IN THE PRESENT CASE THE CONDITION WAS NOT SATISFIED. HE NOTED THAT THE BAD DEBT CLAI M REPRESENTED EXPENDITURE INCURRED BY THE ASSESSEE IN THE FINANCI AL YEAR 2004-05 ON BEHALF OF THE SHARJAH COMPANY AND THEREFORE THE CONDITION THAT IT SHOULD HAVE BEEN TAKEN INTO ACCOUNT IN COMPUTING TH E ASSESSEES INCOME DID NOT STAND SATISFIED. IN THIS VIEW OF TH E MATTER HE DISALLOWED THE CLAIM. THE CIT(A) HAVING ENDORSED T HE DECISION OF THE ASSESSING OFFICER, THE ASSESSEE IS IN FURTHER A PPEAL BEFORE THE TRIBUNAL. 4. WE HAVE CONSIDERED THE FACTS AND THE RIVAL CONTE NTIONS. THE ONLY ARGUMENT ON BEHALF OF THE ASSESSEE IS THAT BY INCURRING THE EXPENDITURE THE ASSESSEES SALES HAD INCREASED MANY FOLD. WHEN WE POINTED OUT THAT THE CONDITION LAID DOWN IN SECT ION 36(2)(I) DOES NOT APPEAR TO HAVE BEEN SATISFIED, AS POINTED OUT B Y THE INCOME TAX AUTHORITIES, THE SAME CONTENTION WAS REPEATED BEFOR E US AND THERE WAS NO ATTEMPT TO SHOW THAT THE CONDITION WAS SATIS FIED. WE ALSO FIND THAT THE CONDITION CANNOT BE SAID TO HAVE BEEN SATISFIED BECAUSE THE DEBT REPRESENTED EXPENDITURE INCURRED B Y THE ASSESSEE FOR THE SHARJAH COMPANY AND IT WAS NOT, IN THE VERY NATURE OF THINGS, TAKEN INTO ACCOUNT IN COMPUTING T HE ASSESSEES INCOME FOR THE RELEVANT PREVIOUS YEAR OR ANY OF THE EARLIER PREVIOUS YEARS. SINCE ONE OF THE BASIC CONDITIONS FOR ALLOW ANCE OF THE CLAIM AS BAD DEBTS HAS NOT BEEN COMPLIED WITH, WE HAVE NO OPTION BUT TO CONFIRM THE DECISION OF THE INCOME TAX AUTHORITIES. WE DO SO AND DISMISS THE GROUND. 5. THE SECOND GROUND RELATES TO THE DISALLOWANCE OF THE PRELIMINARY EXPENSES OF ` 87,970/- AND PRE-OPERATIVE EXPENSES OF ITA NO: 6388/MUM/2009 4 ` 16,503/- UNDER SECTION 35D OF THE ACT. A PERUSAL O F PARAGRAPH 6 OF THE ORDER OF THE CIT(A) SHOWS THAT HE HAS ACCEPTED THE ASSESSEES CONTENTION IN PRINCIPLE BUT HAS REMITTED THE MATTER TO THE ASSESSING OFFICER FOR VERIFICATION OF THE RECORDS AND ALLOW T HE CLAIM TO THE EXTENT OF THE PERMISSIBLE LIMITS, WITH THE CONDITIO N THAT THE ASSESSEE SHALL FURNISH ALL THE NECESSARY DETAILS WITHIN A PE RIOD OF THREE MONTHS IN ORDER TO ENABLE THE ASSESSING OFFICER TO CARRY OUT THE NECESSARY VERIFICATION. WE DO NOT SEE HOW THE ASSE SSEE IS AGGRIEVED BY THE AFORESAID DIRECTION. WE ACCORDING LY DISMISS THE SECOND GROUND AS MISCONCEIVED. 6. IN THE RESULT, THE APPEAL IS DISMISSED WITH NO O RDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND MARCH 2011. SD/- SD/- (PRAMOD KUMAR) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 22 ND MARCH 2011 SALDANHA COPY TO: 1. M/S SHAMK INTERNATIONAL PVT. LTD. SUITE 101, GOLDEN WALLS, PLOT NO.581 18 TH ROAD, KHAR (WEST), MUMBAI 400 052 2. DCIT 9(3), MUMBAI 3. CIT-9, MUMBAI 4. CIT(A)-20, MUMBAI 5. DR H BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI