ACIT 13(2), MUMBAI V. J . HARKISANDAS & CO., MUMBAI

ITA 8590/MUM/2010

• Counselvise Citation: 859019914 RSA 2010
• Duration Of Justice: 2 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 13-08-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 09-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: K GOPAL
• Keywords: Recovery proceedings; Reasonable cause; Bad and doubtful debts
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI . , , , BEFORE SHRI B. RAMAKOTAIAH , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBER . / ITA NO. 8590 /MUM./20 10 ( / ASSESSMENT YEAR : 200 6 07 ) ASSTT . COMMISSIONER OF INCOME TAX CIRCLE 1 3 ( 2 ), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. / APPELLANT V/S M/S . J. HARKISANDAS & CO. M 1, GORADIA HSE 104, KAZI SAYEED STREET MUMBAI 400 003 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAAFJ4768L / REVENUE BY : MR. O.P. SINGH / ASSESSEE BY : MR. K. GOPAL / DATE OF HEARING 13 .08.2013 / DATE OF ORDER 23.10.2013 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HA S BEEN PREFERRED BY T HE REVENUE , CHALLENGING THE IMPUGNED ORDER DATED 15 TH SEPTEMBER 2010 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) XXIV , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE M/S. J. HARKISANDAS & CO. 2 ACT) FOR THE ASSESSMENT YEAR 20 0 6 07 , VIDE WHICH, THE SOLE GROUND RAISED BY THE REVENUE IS THAT THE LEARNED COMMISSIONER (APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE OF ` 2,90,68,996 ON ACCOUNT OF BAD DEBT. 2 . FACTS IN BRIEF : THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF TRADING IN SPICES , EXPORT AND COMM ISSION AGENCY. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF ` 2,90,68,996 IN THE PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH 2006 , WHICH HAS BEEN CLAIMED AS BAD DEBT AND, HENCE , ALLOWABLE EXPENDITURE. HE FURTHER OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED ANY DETAILS AS TO WHICH ACCOUNT HAVE BECOME IRRECOVERABLE AND HAS BECOME BAD. HE HELD THAT FOR TREATING ANY DEBT AS A BAD DEBT, IT IS NOT ONLY THE REQUIREMENT TO WRITE OFF THE AMOUNTS IN THE BOOKS OF ACCOUNT BUT THE ASSESSEE ALSO HAS TO ESTABLISH THAT THE DEBT HAS BECOME BAD WHICH HAS NOT BEEN DONE BY THE ASSESSEE . ACCORDINGLY, HE DISALLOWED THE CLAIM OF BAD DEBT OF ` 2,90,68,996. 3 . BEFORE THE LEARNED COMMISSIONER (APPEALS), IT WAS POINTED OUT THAT IN THE NOTES TO ACCOUNT, THE ASSESSEE HAS GIVEN FOLLOWING NARRATION IN NOTE NO.4, WHICH READS AS UNDER: 4) ON THE SAME LINES AS STATED AS ABOVE IN NOTE NO 3, CERTAIN OLD DUES FROM CUSTOMERS HAVE NOW BEEN WRITTEN OFF AS BAD DEBTS T O THE PROFIT & LOSS A/C DUE TO ITS NON - RECOVERY FOR PAST NUMBER OF YEARS OWING TO SHIPMENTS DEFAULTS BY THE FIRM ON SUBSEQUENT CONTRACTS ARISING OUT OF NATURAL CALAMITY IN THE FORM OF CYCLONE AT KANDLA IN 1998 IN WHICH THE FIRM SUFFERED A HUGE LOSS OF G OODS LYING IN THE DOCKS & ADJACENT STORES, CONSTRAINING IT TO FULFILL ITS COMMITMENTS TO THE BUYERS FOR OUTSTANDING CONTRACTS. IN THE PAST SEVERAL YEARS, THE MARKET HAS UNDERGONE A SEA - CHANGE & WITH LIQUIDITY PROBLEMS FACED BY THE FIRM, THE PARTNERS NO LO NGER EXPECT TO FULFILL THE FIRM'S COMMITMENTS WITH RESPECT TO VARIOUS PARTIES. ALSO; WITH PASSAGE OF TIME OF 617 YEARS, THE OUTSTANDING CONTRACTS CAN BE TREATED AS INFRUCTUOUS & HENCE OLD OUTSTANDING IN RESPECT OF SHIPMENTS ALREADY EXECUTED IS WRITTE N OFF AS FULLY BAD & NOT RECOVERABLE. IN TERMS OF RECOVERY PROCEEDINGS AS REFERRED TO IN NOTE 2 ABOVE, THE FIRM WAS RESTRAINED FROM ALTERING ITS ASSETS BY THE DRT & AS SUCH THE ADJUSTMENTS AS EXPLAINED IN ABOVE PARAGRAPHS ARE NOW PASSED THROUGH IN THE A CCOUNTS FOR THE YEAR AFTER THE PASSAGE OF FINAL ORDER BY THE SAID DRT DURING THE YEAR UNDER REVIEW. M/S. J. HARKISANDAS & CO. 3 4 . BESIDES THIS, COPY OF ACCOUNTS OF THE DEBTORS WAS ALSO PLACED TO SHOW THAT THEY WERE VERY OLD AND IRRECOVERABLE AND, HENCE, WAS WRITTEN OFF IN THE BOOK S OF ACCOUNT. THE RELEVANT EXTRACTS OF BALANCE SHEET AS AT 31 ST MARCH 2000, AND ALSO FOR THE EARLIER YEARS WHICH ARE PART OF THE INCOME TAX RECORDS WERE ALSO FILED. THE REASONS AS TO HOW THE AMOUNTS IN THE ACCOUNT OF THE DEBTORS HAVE BECOME BAD WERE ALSO N ARRATED IN DETAIL WHICH HAD BEEN INCORPORATED BY THE LEARNED COMMISSIONER (APPEALS) FROM PAGE 2 TO 5 OF THE APPELLATE ORDER. THE ASSESSEES SUBMISSIONS AND THE RECORDS WERE ALSO SENT TO THE ASSESSING OFFICER FOR VERIFICATION AND THE REMAND REPORT WAS CALLE D FOR. AFTER THE REMAND REPORT, THE ASSESSEE FILED REJOINDER SUBMISSIONS IN REBUTTAL , WHICH HAD BEEN INCORPORATED AT PAGE 5 AND 6 OF THE APPELLATE ORDER . THE LEARNED COMMISSIONER (APPEALS) , AFTER TAKING NOTE OF THE ASSESSING OFFICERS OBJECTION THAT THE DE TAILS FOR VERIFICATION OF THE BAD DEBT NOW FILED BY THE ASSESSEE SHOULD NOT BE ACCEPTED AS THERE WAS NO REASONABLE CAUSE , HE REJECTED THE ASSESSING OFFICERS OBJECTION AND ADMITTED THE EVIDENCE RELATING TO THE WRITE OFF ON THE GROUND THAT THE ASSESSEE WAS PREVENTED BY SUFFICIENT AND REASONABLE CAUSE , BECAUSE THE MAIN PARTNER WAS AN AGED PERSON WITH ILL HEALTH. FURTHER, HE HELD THAT AN OPPORTUNITY WAS GIVEN TO THE ASSESSING OFFICER TO EXAMINE THESE DETAILS, HOWEVER, HE FAILED TO DO SO. THEREAFTER, THE LEARNE D COMMISSIONER (APPEALS) EXAMINED THE ISSUES ON MERITS HIMSELF AND HELD THAT THE AMOUNT IN QUESTION REPRESENTED THE TRANSACTION MADE IN THE YEAR 1998 99 AND HAVE REMAINED UNRECOVERABLE IN THE ACCOUNTS . ALL THE CONDITIONS OF SECTION 36(1)(VII) R/W SECTION 3 6(2) STAND FULFILLED AND ACCORDINGLY, FOLLOWING THE DECISION OF HON'BLE SUPREME COURT IN TRF LIMITED V/S CIT, [ 2010 ] 323 ITR 395 (SC), HE ALLOWED THE ASSESSEES CLAIM AFTER OBSERVING AND HOLDING AS UNDER: 2 . 3 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. COUNS EL AND IN THIS CASE THE FOLLOWING FACTS ARE VERY CLEAR THAT THE AMOUNTS IN QUESTION REPRESENTED TRANSACTIONS MADE IN F.Y. 1998 - 99 AND SUBSEQUENTLY WERE WRITTEN OFF BY THE APPELLANT IN THE BOOKS OF ACCOUNT ON ACCOUNT OF NON RECOVERY AND THEREFORE BOTH THE C ONDITIONS OF SEC. 36(1)(VII) R/W SECTION 36(2) ARE SATISFIED AND THE CLAIM OF THE APPELLANT AS A BAD DEBT DESERVES TO BE ALLOWED. THE DETAILS OF THE PARTIES AND THE AMOUNTS, DETAILS OF THE PORT FROM WHERE THEY WERE BOOKED AND THEIR BEING PART OF SUNDRY DE BTORS IS AS FOLLOWS: - M/S. J. HARKISANDAS & CO. 4 S.NO. NAME OF THE PARTY BOOKED IN AMOUNT ( ` ) PART OF S. DRS. AS ON 31.3.2000 A/CS 1 . MCCORMICK COCHIN BR. 1,13,60,000 YES 2 . HAMAMA BROS MUMBAI HO 30,00,000 YES 3 . ANDRE & CIE SA KANDLA BR. 7,80,000 YES 4 . HAMAMA MIER KANDLA BR. 74,10 ,000 YES 5 . ARASCO TDG. BV KANDLA BR. 30,00,000 YES 6 . EKTA TARIM URUNLERI SANAYI KANDLA BR. 4,78,996 YES 7 . PETERS COMMODITIES LTD. KANDLA BR. 11,00,000 YES 8 . TEMCO LTD. KANDLA BR. 19,40,000 YES TOTAL AMOUNT KANDLA BR. 2,90,68,996 YES FURTHER, TH E EXAMINA TION OF NOTES OF THE ACCOUNTS IN SCHEDULE IX FOR 1998 - 99 CLEARLY SHOWS THAT THE AUDITORS HAD GIVEN THE DETAILS OF ALL THE INVOICES AND THE HAPPENINGS OF CYCLONE AT KANDA ON 9/6/1998 DESTROYING THE GOODS ON THE BASIS OF WHICH THE APPELLANT THEN CLAIMED A WR ITE OFF OF THE BAD DEBTS AND THE FACT THAT THE PROCEEDINGS WERE PENDING IN THE DEBTS RE~ TRIBUNAL WHICH PREVENTED THE APPELLANT FROM MAKING ANY ALTERNATION IN THE BALANCE SHEET AS PER THE RULE OF DEBT RECOVERY TRIBUNAL AND FURTHER THE FACT THAT THE ABOVE G OODS WERE TOTALLY DAMAGED/DESTROYED RUNNING THEM UNFIT FOR EXPORT IS VERY CLEARLY STATED IN THE NOTES TO THE ACCOUNTS SCHEDULE - IX FOR 1998 - 99 AND THE SUBSEQUENT WRITE OFF DURING THE CURRENT YEAR 2006 - 07 IS FULLY JUSTIFIED ESPECIALLY IN VIEW OF THE FOLLOWI N G 3 : - I) TRF LTD. V/S (2010) 32 3 I TR 395 (SC) II) DIT VS OMAN INTERNATIONAL BANK (2009) 313 ITR 128 (BORN) III) CIT VS STAR CHEMICALS (BOM) P. LTD. (2009) 313 ITR 126 (BOM) THUS, THE OBJECTION OF THE AO IN THE REMAND REPORT DT. 22./3/ 2010 THAT THE APPELLANT FAILED TO PROVE THE PREVIOUS YEAR IN WHICH THE AMOUNT OF RS. 2,90,68,996/ - WAS OFFERED AS INCOME IS NOT TENABLE IN LAW BECAUSE OF THE FACT THAT THE APPELLANT'S BALANCE SHEET IN 1998 - 99 IN SCHEDULE - IX CONTAINS ALL THE RELEVANT DETAIL S RELATING TO THE DAMAGED OF G OODS CAUSED BY CYCLON AT KANDLA ON 9/6/1998 AND SUBSEQUENT BALANCE SHEET IN 1999 - 2000 UNDER THE COLUMN CURRENT ASSETS SHOWING 'FOR GOODS' THE DETAILS OF THE TRANSACTION AND 'RECEIVABLE FOR GOODS' AND THEN THE SUBSEQUENT WRITE OFF IN A.Y. 2006 - 07 IS CLEARLY W ITHIN THE PROVISIONS OF SECTION 36(1)(VII) R.W.S. 36(2) AND THEREFORE DISALLOWANCE MADE BY THE AO IS HEREBY DELETED. THIS GROUND OF APPEAL IS ALLOWED. M/S. J. HARKISANDAS & CO. 5 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER PASSED BY THE ASSESSING OFFICER WHEREAS THE LEARNED COUNSEL FOR THE ASSESSEE, FURNISHED A DETAIL PAPER BOOK TO SHOW THAT THESE AMOUNTS PERTAIN TO THE FINANCIAL YEAR 1998 99 AND HOW IT HAS BECOME BAD. HE ALSO STRONGLY RELIED UPON THE FINDING OF THE LEARNED COMMISS IONER (APPEALS). 6 . WE HAVE HEARD T HE RIVAL CONTENTION AND ALSO PERUSED THE MATERIAL PLACED ON RECORD. I T IS SEEN FROM THE RECORDS THAT THE ASSESSEE HAD CONTINUOUSLY SHOWN IN ITS ACCOUNT THAT THERE W ERE NON RECOVERIES OF THE DUES FROM THE CUSTOMERS , WHICH WE RE EARLIER SHOWN AS SALES IN THE BOOKS OF ACCOUNT , OWING TO SHIPMENT DEFAULTS BY THE ASSESSEE ON ACCOUNT OF NATURAL CALAMITY IN THE FORM OF CYCLONE AT KANDLA IN THE YEAR 1998 IN WHICH THE ASSESSEE SUFFERED A HUGE LOSS OF GOODS LYING AT DOC K S AND THE ADJACE NT STORES. OWING TO THIS NON FULFILLMENT OF OUTSTANDING CONTRACTS , THE ASSESSEE IN THE PASSAGE OF TIME DECIDED TO WRITE OFF THESE DUES IN THE BOOKS OF ACCOUNT , WHICH WERE EARLIER OFFERED AS SALES. THE LEARNED COMMISSIONER (APPEALS) HAS RECORDED A VERY CATE GORICAL FINDING THAT IN THE AUDIT ED ACCOUNT S FOR THE FINANCIAL YEAR 1998 99, THE AUDITORS HAVE GIVEN DETAILS OF THE INVOICES AND ALSO ABOUT THE NATURAL CALAMITY THAT HAD HAPPEN ED IN KANDLA , WHICH DESTROYED THE GOODS. IT WAS ON ACCOUNT OF THIS REASON AND ON THESE AMOUNTS, THE ASSESSEE HAS TREATED THEM AS BAD DEBT WHICH HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT IN THIS YEAR. IT HAS ALSO BEEN NOTED BY HIM THAT PROCEEDINGS IN THIS REGARD WERE ALSO PENDING BEFORE THE DEBT RECOVERY TRIBUNAL AND, THEREFORE, THE ASSESSEE COULD NOT WRITE OFF IN THE EARLIER YEARS. ONCE THESE FACTS HAVE NOT BEEN REBUTTED OR DISPUTED BEFORE US THE , THE FINDINGS RECORDED BY THE LEARNED COMMISSIONER (APPEALS) AS ABOVE , IS WHOLLY IN ACCORDANCE WITH THE LAW AS LAID DOWN BY THE HON'BLE SU PREME COURT IN TRF LIMITED (SUPRA) AND THE SAME IS CONFIRMED . THUS, WE DO NOT FIND ANY SUBSTANCE IN THE GROUND RAISED BY THE REVENUE AND, A CCORDINGLY, THE SAME IS TREATED AS DISMISSED. M/S. J. HARKISANDAS & CO. 6 7 . 7. IN THE RESULT, REVENUE S APPEAL IS TREATED AS DISMISSED. 23 RD OCTOBER 2013 ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD OCTOBER 2013 SD/ - . B. RAMAKOTAIAH ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDI CIAL MEMBER MUMBAI, DATED : 23 RD OCTOBER 2013 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI