DCIT, Cir-4, Kolkata, Kolkata V. M/s Asiatic Oxygen Limited, Kolkata

ITA 64/KOL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4784 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2002-2003
• Appeal Filed On: 13-01-2014
• Court: TRIBUNAL
• Department Lawyers: A K SINHA
• Assessee Lawyers: S M SURANA
• Keywords: Bad and doubtful debts
• Section: 143(3); 6; 28

Judgement Text

1 ITA NO. 64/KOL/2014 ASIATIC OXYGEN LTD. AY 2002-03 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI M. BALAGANESH, AM & SHRI S. S. VISWAN ETHRA RAVI, JM] I.T.A NO. 64/KOL/2014 ASSESSMENT YEAR: 2002-03 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. ASIAT IC OXYGEN LTD. CIRCLE-4, KOLKATA. (PAN: AACCA6748G) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 22.07.2016 DATE OF PRONOUNCEMENT: 03.08.2016 FOR THE APPELLANT: SHRI A. K. SINHA, ADDL. CIT . DR FOR THE RESPONDENT: SHRI S. M. SURANA, ADVOCAT E ORDER PER SHRI M. BALAGANESH, AM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-XII, KOLKATA VIDE APPEAL NO. 638/XII/08-09 DATED 30.10.2013. ASSESSMENT WAS FRAMED BY ACIT, CIRCLE-4, KOLKATA U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTE R REFERRED TO AS THE ACT) FOR AY 2002- 03 VIDE HIS ORDER DATED 21.03.2005. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA IS JUSTIFIED IN ALLOWING THE CLAIM OF BAD DEBTS AND ADVANCES WRITTE N OFF IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSES SEE IS AN INDIAN PUBLIC LIMITED COMPANY LISTED ON STOCK EXCHANGE ENGAGED IN THE BUSINESS OF MANUFACTURE AND SUPPLY OF INDUSTRIAL GASES. IT WAS SUBMITTED THAT THE ASSESSEE IS THE ONLY COMPANY IN INDIA WHICH IS MANUFACTURING AND SUPPLYING FUEL IN THE FORM OF LIQ UID HYDROGEN TO INDIAN SPACE RESEARCH ORGANISATION (ISRO) AT MAHENDRAGIRI. IT IS A SENSI TIVE NATIONAL IMPORTANCE PROJECT AND LIQUID HYDROGEN IS USED AS A FUEL IN THE SPACE CRAF TS / SATELLITES WHICH ISRO SENDS IN THE SPACE. THE ASSESSEE IN ITS USUAL COURSE OF BUSINES S MADE ADVANCE PAYMENTS TO CERTAIN SUPPLIERS / CONTRACTORS AGAINST THE ORDER. OUT OF SUCH ADVANCES OR PAYMENTS HELD IN THE CURRENT ACCOUNT CONSIDERING BUSINESS TRANSACTIONS, THE AMOUNTS WHICH COULD NOT BE RECOVERED IN SPITE OF BEST EFFORTS MADE BY THE ASSE SSEE COMPANY WERE WRITTEN OFF IN RESPECT OF FOLLOWING PARTIES:- 2 ITA NO. 64/KOL/2014 ASIATIC OXYGEN LTD. AY 2002-03 AMERI GAS PRIVATE LTD - 10,14,051.51 PENNZOL INVESTMENT & TRADING CO PVT LTD - 16,90,92 0.44 M/S DEEPAK JHUNJHUNWALA - 46,39,780.00 M./S C.K.TIBREWALA & CO - 10,15,493.00 EARNEST MONEY - 6,874.28 ------------------------ TOTAL 83,67,119.23 ------------------------ THE ASSESSEE EXPLAINED THE REASONS FOR WRITING OFF THE AFORESAID AMOUNTS IN ITS BOOKS AS UNDER:- AMERI GAS PRIVATE LTD. -RS. 10,14,051.51 THE AMOUNT IS DUE TO ASSESSEE FROM 1996 FROM THE AM ERI GAS PRIVATE LIMITED IN RESPECT OF WORK DONE BY THE ASSESSEE COMPANY FOR PREPARATION A ND SUPPLY OF VOTERS IDENTITY CARDS ON BEHALF OF AMERI GAS PRIVATE LIMITED AGAINST THE ORD ER RECEIVED BY THEM FROM THE GOVERNMENT OF INDIA. IN FACT, IN THE PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED MARCH, 1996, THE ASSESSEE HAD OFFERED THE AMOUNT OF RS. 1,54,09, 751.55 AS INCOME BILLED ON AMERI GAS PVT. LTD FOR MANUFACTURING & SUPPLY OF VOTERS CARDS JOB. THE ASSESSEE COULD NOT RECOVER THE AFORESAID AMOUNT OF RS. 10,14,051.51 FROM AMERI GAS PRIVATE LIMITED, AS ASSESSEE COMPANY COULD NOT FINISH THE JOB IN TIME AND THE RE SULT WAS THAT THE GOVERNMENT PENALIZED AMERI GAS PRIVATE LIMITED AND DID NOT PAY THE AMOUN T FOR THIS PORTION OF THE JOB BECAUSE THE CONTRACT WAS INCOMPLETE. FURTHER, SINCE THE DEB T WAS TIME BARRED, ASSESSEE HAD NO OPTION BUT TO WRITE OFF THE SAME. BUT OUT OF RS. 1 ,54,09,751.55 ONLY RS. 10,14,051.51 WAS NOT RECOVERABLE. PENNZOL INVESTMENT & TRADING CO. PVT. LTD. : RS. 16 ,90,920.44 THE ASSESSEE COMPANY BOUGHT INDUSTRIAL GASES FROM P ENNZOL INVESTMENT & TRADING COMPANY PRIVATE LIMITED AND MARKETED THE SAME IN HY DERABAD. SUCH SALE WAS SHOWN AS INCOME IN THE RELEVANT YEARS PROFIT & LOSS ACCOUNT . DURING THE COURSE OF BUSINESS, ASSESSEE HAD TO GIVE TO THE SAID COMPANY AN ADVANCE IN THE CURRENT ACCOUNT/RUNNING ACCOUNT FOR BUYING INDUSTRIAL GASES. THE SAID ADVANCE WAS L IABLE TO BE REFUNDED/ADJUSTED BY PENNZOL INVESTMENT & TRADING COMPANY PRIVATE LIMITED FROM T HE BILLS. THE BALANCE ADVANCE OF RS.16,90,920.44 WHICH REMAINED UNADJUSTED IN THE RU NNING/CURRENT ACCOUNT DURING THE REGULAR BUSINESS, ULTIMATELY BECAME A BAD ADVANCE A FTER PENNZOL INVESTMENT & TRADING COMPANY PRIVATE LIMITED SOLD ITS BUSINESS AND CLOSE D THE WHOLE SHOW ON 15TH APRIL, 1998. SINCE THE AMOUNT IN SPITE OF ASSESSEES BEST EFFORT S, BECAME TIME BARRED, IT HAD NO CHOICE, 3 ITA NO. 64/KOL/2014 ASIATIC OXYGEN LTD. AY 2002-03 BUT TO WRITE OFF. IT IS ALSO STATED THAT THIS AMOUN T IS ALSO ADVANCED DURING THE COURSE OF BUSINESS AND SALE AGAINST THE PURCHASE OF INDUSTRIA L GASES AS SHOWN IN THE PROFIT & LOSS ACCOUNT IN NUMBER OF YEARS. M/S. DEEPAK JHUNJHUNWALA - RS. 46,39,780/- & M/S. C.K.TIBREWALA & CO. - RS.10,15,493/- THE AMOUNTS OF RS. 46,39,780/- AND RS. 10,15,493/- FROM M/S. DEEPAK JHUNJHUNWALA & COMPANY AND M/S. C.K TIBREWALA & COMPANY WERE DUE F ROM 03.11.2000 AND 03.04.2000 I.E. ALMOST OVER A YEAR BEFORE WRITING IT OFF. AFTE R MAKING ALL EFFORTS TO RECOVER THE SAID AMOUNTS, ASSESSEE FILED CASES AGAINST BOTH THE PART IES FOR WHICH THE SUITS ARE STILL PENDING IN THE COURTS. THERE WAS NO POSSIBILITY OF GETTING MON EY BACK FROM THESE TWO PARTIES SINCE AS PER ASSESSEES INVESTIGATIONS THERE ARE NO ASSETS/P ROPERTY IN THEIR NAMES. THEREFORE, THE AMOUNTS HAVE BEEN WRITTEN OFF AS BAD DEBTS. HOWEVE R, AS AND WHEN THE AMOUNTS ARE RECEIVED FROM THE PARTIES, THE SAME WOULD BE CREDIT ED TO THE PROFIT & LOSS A/C AS BAD DEBTS RECOVERED. HOWEVER, THE CHANCES OF RECOVERING THES E AMOUNTS APPEAR TO BE EXTREMELY REMOTE. THERE IS NO ELEMENT OF INTEREST IN THE CAS E OF DEEPAK JHUNJHUNWALA ACCOUNTS AND IN THE CASE OF C. K. TIBREWALA & CO. THE PRINCIPAL AMOUNT IS RS.10,00,000/- AND THE INTEREST IS RS.15,493/- WRITTEN OFF AS BAD DEBTS. EARNEST MONEY RS.6874.28 THE AMOUNT WAS REQUIRED TO BE PAID AS EARNEST MONEY AGAINST A TENDER FOR SECURING COMPANYS BUSINESS, BUT THE TENDER ULTIMATELY WAS N OT FINALIZED IN FAVOUR OF THE COMPANY. THE ASSESSEE WROTE OFF THE AFORESAID AMOUNTS AS BAD ADVANCES WRITTEN OFF IN ITS BOOKS AS IRRECOVERABLE AND CLAIMED THE SAME AS DEDUCTION WHI CH WAS DISALLOWED BY THE LD AO. THE LD CITA APPRECIATED THE CONTENTIONS OF THE ASSESSEE AND DELETED THE DISALLOWANCE. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON TH E FOLLOWING GROUNDS :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THE FACT THAT IN ORDER FOR A DEBT TO BE CONSIDERED BAD OR IRRECOVERABLE, THE CONDITIONS A) THE AMOUNT BEING WRITTEN OFF SHOULD HAVE BEEN OFFER ED TO TAX AS AN INCOME IN EARLIER YEAR. B) THE FIRST CONDITION BEING FULFILLED, THE DEBT MUST HAVE GONE BAD. WHICH ARE MUTUALLY EXCLUSIVE, MUST BE FULFILLED SEP ARATELY. 2. THAT THE BUSINESS OF THE ASSESSEE CO. NOT BEING MONEY LENDING, ALLOWING BAD DEBT AS TRADING LIABILITY IS BAD IN LAW. 3. THAT THE DEBT TOTALING 73,37,547/- OUT OF A TOTA L CLAIM OF 83,57,119/- BY THE ASSESSEE CO., HAVE NEVER BEEN OFFERED TO TAX. 4 ITA NO. 64/KOL/2014 ASIATIC OXYGEN LTD. AY 2002-03 4. THE LD DR VEHEMENTLY RELIED ON THE ORDER OF THE LD AO . IN RESPONSE TO THIS, THE LD AR CLAIMED THAT THE ADVANCES GIVEN TO M/S DEEPAK JH UNJHUNWALA AND M/S C.K.TIBREWALA & CO WERE IN THE NORMAL COURSE OF BUSINESS OF THE A SSESSEE AND INTEREST INCOME DERIVED FROM M/S DEEPAK JHUNJHUNWALA AND M/S C.K.TIBREWALA & CO WERE OFFERED TO TAX BY THE ASSESSEE AS INCOME FROM BUSINESS WHICH HAS BEEN ACC EPTED BY THE LD AO IN SCRUTINY ASSESSMENT PROCEEDINGS COMPLETED U/S 143(3) OF THE ACT DATED 18.3.2004 FOR THE ASST YEAR 2001-02. THE AMOUNTS WERE ADVANCED TO THEM IN THE NORMAL COURSE OF BUSINESS WITH A VIEW TO EARN HIGHER RATE OF INTEREST AND HENCE IT WAS PU RELY A BUSINESS CALL TAKEN BY THE ASSESSEE TO LEND THE SAME WITH PARTIAL AND NIL SECURITY. IT W AS ARGUED THAT THE DECISION TO WRITE OFF THE SAID ADVANCES WERE TAKEN BY THE ASSESSEE DURING THE YEAR UNDER APPEAL AFTER TAKING ALL THE NECESSARY EFFORTS FOR RECOVERY OF THE DUES AND AFTE R TAKING COGNIZANCE OF THE FACT THAT THOSE TWO SHARE BROKERS HAD LITERALLY BECOME BANKRUPT DUE TO HUGE SHARE MARKET SCAM THAT HAPPENED IN THE YEAR 2000 / 2001 WHICH IS POPULARLY KNOWN AS KETAN PAREKH SCAM. WITH REGARD TO LOAN DUES RECOVERABLE FROM M/S DEEPAK JHU NJHUNWALA , THE ASSESSEE HAD EVEN SOLD THE SECURITIES IN THE FORM OF SHARES AND SALE PROCE EDS THEREON AMOUNTING TO RS. 23,60,220/- WAS APPROPRIATED TOWARDS THE LOAN ACCOUNT. HENCE THE ONLY SECURITY AVAILABLE WITH THAT PARTY WAS SOLD AND APPROPRIATED TOWARDS THE LOAN AC COUNT. PARALLELY THE ASSESSEE HAD PREFERRED A CIVIL SUIT AGAINST THOSE TWO PARTIES WH ICH ARE STILL PENDING IN THE COURTS. THE ASSESSEE HAD TAKEN A CONSCIOUS DECISION TO WRITE OF F THE BALANCES OUTSTANDING IN THEIR ACCOUNTS AS THERE ARE NO ASSETS / PROPERTY IN THEIR NAMES FOR CONFISCATION. HENCE THE ASSESSEE HAD PROVED THE IRRECOVERABILITY STATUS IN ORDER TO CLAIM THE SAME AS A TRADING LOSS U/S 28 OF THE ACT. WITH REGARD TO AMOUNTS DUE FROM AMERI GAS PVT LTD F ROM 1996 ONWARDS IN THE SUM OF RS. 10,14,051/-, THE SAME IS ONLY A TRADE DEBT AGAINST SUPPLIES MADE BY THE ASSESSEE AND INCOME HAS BEEN OFFERED IN THE EARLIER YEARS AND SINCE THE DUES WERE OUTSTANDING FROM 1996 ONWARDS, THE ASSESSEE TOOK A CONSCIOUS DECISION TO WRITE OFF THE SAME AS IRRECOVERABLE IN ITS BOOKS AND CLAIMED THE SAME AS DEDUCTION U/S 36(1)(V III) OF THE ACT AFTER SATISFYING THE CONDITIONS PRESCRIBED U/S 36(2) OF THE ACT. WITH REGARD TO AMOUNTS DUE FROM PENNZOL INVESTMENT & TRADING PVT LTD IN THE SUM OF RS. 16,92,920/- FROM 1996 ONWARDS, THE ASSESSEE USED TO BUY INDUSTRIAL GASES FROM THE SAID 5 ITA NO. 64/KOL/2014 ASIATIC OXYGEN LTD. AY 2002-03 PARTY AND FOR THAT PARTY THIS AMOUNT WAS PAID ON AC COUNT. SINCE THE PARTY CLOSES THEIR BUSINESS IN 1998 , THE ABOVE AMOUNT COULD NOT BE RE COVERED FROM THEM EITHER IN GOODS OR IN PHYSICAL PAYMENT. SINCE THE DEBTS WERE TIME BARRED, THE ASSESSEE HAD NO OTHER OPTION BUT TO WRITE OFF THE SAME. HE ARGUED THAT ADMITTEDLY THIS ADVANCE WAS PAID IN THE NORMAL COURSE OF BUSINESS OF THE ASSESSEE AS A TRADE ADVANCE AND LOS S ARISING ON ACCOUNT OF WRITE OFF OF THE SAME IS ALLOWABLE AS A TRADING LOSS U/S 28 OF THE ACT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE COPY OF ASSESSMENT ORDER U/S 143(3) F OR ASST YEAR 2001-02 , COPIES OF VARIOUS BOARD MINUTES SUBMITTED BY THE ASSESSEE FOR ADVANCI NG MONIES TO M/S DEEPAK JHUNJHUNWALA AND M/S C.K.TIBREWALA & CO. AND THE LEDGER COPIES O F ALL THE PARTIES WHOSE ACCOUNTS ARE WRITTEN OFF . THE FACTS STATED HEREINABOVE REMAIN UNDISPUTED AND HENCE THE SAME ARE NOT REITERATED FOR THE SAKE OF BREVITY. WE FIND THAT T HE ASSESSEE HAD TAKEN SUFFICIENT STEPS FOR RECOVERY OF THE ADVANCES GIVEN TO M/S DEEPAK JHUNJH UNWALA AND M/S C.K.TIBREWALA & CO AND ALL THE EFFORTS TO RECOVER THE DUES FROM THE SA ID PARTIES GOT JEOPARDIZED AND EVEN THE SHARES THAT WERE HELD AS SECURITIES WERE SOLD AND A PPROPRIATED TOWARDS THE LOAN ACCOUNT (IN THE CASE OF DEEPAK JHUNJHUNWALA) BY THE ASSESSEE AN D THE BALANCE REMAINING IN THEIR LOAN ACCOUNTS WERE WRITTEN OFF AS IRRECOVERABLE AS THERE IS NO OTHER ASSETS / PROPERTY LEFT WITH THEM OR WITH THE ASSESSEE TO RECOVER THE DUES. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD ADVANCED THE MONIES TO THEM IN THE NORMAL COURSE OF BUSINESS AND HAD OFFERED INTEREST INCOME IN THE EARLIER YEARS AS INCOME FROM BUSINESS WHICH HAS ALSO BEEN ACCEPTED AS SUCH BY THE LD AO IN THE ASSESSMENT PROCEEDINGS U/S 143( 3) OF THE ACT FOR THE ASST YEAR 2001-02. WE FIND THAT THE ASSESSEE HAD PREFERRED CIVIL SUITS AGAINST THESE TWO PARTIES WHICH ARE PENDING IN THE COURTS. IN CASE ANY AMOUNT THAT COU LD BE RECOVERED OUT OF THE OUTCOME OF THE CIVIL SUITS, THE SAME WOULD GET TAXED AS BAD ADVANC ES RECOVERED AS INCOME IN THE YEAR OF RECEIPT. WE FIND THAT THE ASSESSEE HAD DISCHARGED ITS ONUS FROM ALL ASPECTS AND HENCE THE WRITE OFF OF THESE ADVANCES WHICH WERE GIVEN IN THE NORMAL COURSE OF BUSINESS AND ACCEPTED AS SUCH BY THE REVENUE IS ALLOWABLE AS A TRADING LO SS U/S 28 OF THE ACT. WITH REGARD TO DEBTS DUE FROM AMERI GAS PVT LTD, WE FIND THAT THE ASSESSEE HAD OFFERED THE SALES IN THE YEAR OF SUPPLIES MADE TO THAT PARTY AN D HAD WRITTEN OFF AS IRRECOVERABLE IN THE YEAR UNDER APPEAL. THE ASSESSEE HAD DULY COMPLIED WITH THE PROVISIONS OF SECTION 6 ITA NO. 64/KOL/2014 ASIATIC OXYGEN LTD. AY 2002-03 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT AND A CCORDINGLY WE HOLD THAT THE LD CITA HAD RIGHTLY DELETED THE DISALLOWANCE MADE ON THAT COUNT . WITH REGARD TO AMOUNTS DUE FROM PENNZOL INVESTMENT & TRADING CO PVT LTD, WE FIND THAT THE TRADE ADVANCES AGAINST SUPPLIES GIVEN BY THE ASSESS EE TO SUCH PARTY COULD NOT BE RECOVERED AND REMAINING OUTSTANDING FOR QUITE A LONG PERIOD O F TIME AND HENCE THE ASSESSEE DECIDED TO WRITE OFF THE SAME AS IRRECOVERABLE. WE FIND THAT T HE ADVANCE WAS GIVEN IN THE NATURE OF TRADE AND IN THE NORMAL COURSE OF BUSINESS OF THE A SSESSEE FOR SUPPLY OF INDUSTRIAL GASES AND LOSS ARISING ON ACCOUNT OF IRRECOVERABILTY OF THE S AME IS A TRADING LOSS ALLOWABLE U/S 28 OF THE ACT. WITH REGARD TO WRITE OFF THE EARNEST MONEY DEPOSITS , THE SAME WAS PAID IN THE NORMAL COURSE OF BUSINESS AND WRITE OFF OF THE SAME IS AN ALLOWABLE TRADING LOSS U/S 28 OF THE ACT. IN VIEW OF THE AFORESAID FACTS AND FINDINGS GIVEN T HEREON, WE FIND NO INFIRMITY IN THE ORDER OF THE LD CITA AND ACCORDINGLY WE DISMISS THE GROUN DS RAISED BY THE REVENUE. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.08.2016 SD/- SD/- (S. S. VISWANETHRA RAVI) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED :3 RD AUG, 2016 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT DCIT, CIRCLE-4, KOLKATA. 2 RESPONDENT M/S. ASIATIC OXYGEN LTD., 8, B. B. D. B AG (EAST), KOLKATA- 700001. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .