ACIT RG 10(1), MUMBAI V. LINFOX LOGISTICS (I) P. LTD, MUMBAI

ITA 864/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3099 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 09-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRAM BATRA
• Keywords: Unexplained cash credit; Business expenditure; Bad and doubtful debts; Revised return
• Section: 143(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO. 864/MUM/2012 (ASSESSMENT YEAR : 2008-09) THE ACIT-10(1), 455, 4THFLOOR, AAYKAR BHAVAN, MUMBAI 400 020 ... APPELLANT VS. M/S. LINFOX LOGISTICS (I) PVT. LTD. LEVEL NO.2, RAHEJA CENTER POINT, 294, CST ROAD, SANTACRUZ (E) MUMBAI 400 098 PAN: AABCL 1515H .... RESPONDENT APPELLANT BY : SHRI VIKRAM BATRA RESPONDENT BY : SHRI RAJAN VORA DATE OF HEARING : 21/07/2015 DATE OF PRONOUNCEMENT : 30/09/2015 ORDER PER G.S. PANNU,AM: THE CAPTIONED APPEAL BY THE REVENUE IS DIREC TED AGAINST THE ORDER OF THE CIT(A)-21, MUMBAI DATED 29/11/2011 PERTAINING TO THE ASSESSMENT YEAR 2008-09, WHICH IN-TURN HAS ARISEN FROM AN ORDER PASSED BY THE ASSESSING OFFICER DATED 22/11/2010 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( IN SHORT T HE ACT). 2. GROUNDS OF APPEAL RAISED BY THE REVENUE READ A S UNDER: 2 ITA 864/MUM/2012 (ASSESSMENT YEAR : 2008-09) 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LA THE LEARNED CIT (A) WAS CORRECT IN DELETING THE DISALLOWANCE OF SHARE APPLICATION MONEY U/S.68 OF THE ACT AMOUNTING TO RS .1.03 CRORES WITHOUT APPRECIATING THE FACT THAT AS PER THE PROVISIONS OF THE COMPANY'S ACT,1956, THE ASSESSEE CAN ACCEPT SHARE APPLICATION MONEY TO THE EXTENT OF AUTHORIZED SHARE CAPITAL AND NOT BEYOND THAT?' 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A)WAS CORRECT IN DELETING THE DISAL LOWANCES ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS AT RS.65,40,000/- WITH OUT APPRECIATING THE FOLLOWING FACTS THAT THE CONDITIONS LAID DOWN IN SE CTION 36(1)(VII)R.W.S.36(2) OF THE ACT WAS NOT DULY COMPLIED WITH ,WHICH THE AS SESSEE HIMSELF HAS ADMITTED THAT THE SAME WAS WRONGLY CLAIMED AS PROVI SION FOR DOUBTFUL DEBT?' 3. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND LAW, THE LEARNED CIT(A)WAS CORRECT IN ALLOWING THE DEDUCTION CLAIMED OTHERWISE THAN THROUGH REVISED RETURN OF INCOME ?' 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED. 3. THE RESPONDENT ASSESSEE IS A PRIVATE LIMITED COM PANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS INTER-ALIA, ENGAGED IN THE BUSINESS OF PROVIDING TR ANSPORTATION, WAREHOUSING AND RELATED SUPPORT SERVICES. THE RETU RN OF INCOME FILED BY THE ASSESSEE DECLARING A LOSS OF RS.5,16,27,723/ - WAS SUBJECT TO SCRUTINY ASSESSMENT WHEREBY THE TOTAL INCOME WAS AS SESSED AT RS.13,44,21,091/-. THE SAID ASSESSMENT WAS CHALLEN GED IN APPEAL BEFORE THE CIT(A) ON VARIOUS GROUNDS, WHO HAS ALLOW ED PART RELIEF TO THE ASSESSEE. AGAINST THE RELIEFS ALLOWED BY THE CIT(A ), REVENUE IS IN APPEAL BEFORE US ON THE STATED GROUNDS OF APPEAL. 4. THE FIRST GROUND OF APPEAL RAISED BY THE REVENUE IS WITH REGARD TO THE ACTION OF CIT(A) IN DELETING THE ADDITION MA DE BY THE ASSESSING OFFICER OF RS.1,02,78,800/- BY INVOKING SECTION 68 OF THE ACT. 3 ITA 864/MUM/2012 (ASSESSMENT YEAR : 2008-09) 4.1 IN THIS CONTEXT, THE BRIEF FACTS ARE THAT ASSE SSEE HAD RECEIVED SHARE APPLICATION MONEY OF RS.1,02,78,800/- FROM M/ S.LINFOX INTERNATIONAL GROUP PTY. LTD., AUSTRALIA, THE HOLDI NG COMPANY OF THE ASSESSEE. THE ASSESSING OFFICER NOTICED THAT THE T OTAL AUTHORIZED CAPITAL OF THE ASSESSEE WAS RS.50.00 LACS AND THE SHARES OF RS.33,88,290/- WERE ALREADY ISSUED TO THE HOLDING COMPANY AND, THEREFOR E, THERE WAS A SCOPE FOR ALLOTMENT OF FURTHER SHARES ONLY TO THE E XTENT OF RS.16,11,710/-. THUS, AS PER THE ASSESSING OFFICER THE RECEIPT OF SHARE APPLICATION MONEY OF RS.1,02,78,800/- WAS NOT WITHI N THE LIMITS OF AUTHORIZED SHARE CAPITAL. BEFORE THE ASSESSING OF FICER,IT WAS EXPLAINED THAT BEING THE INITIAL SET-UP PHASE, ASSESSEE COMP ANY WAS IN NEED OF FUNDS AND ACCORDINGLY THE HOLDING COMPANY HAS INFUS ED EQUITY FUNDS INTO THE COMPANY FROM TIME TO TIME. IT WAS POINTED OUT THAT AS ON 31.03.2008, RS.1,02,78,800/- WAS RECEIVED FROM THE HOLDING COMPANY IN THE FORM OF EQUITY FUNDS AND WAS REFLECTED AS S HARE APPLICATION MONEY PENDING COMPLIANCE/FORMALITIES WITH THE REGIS TRAR OF COMPANIES FOR ALLOTMENT OF SHARES. THE ASSESSEE ALSO PRODUCE D BEFORE THE ASSESSING OFFICER A COPY OF FOREIGN INWARD REMITT ANCE CERTIFICATE(FIRC) ISSUED BY THE BANK TO SUBSTANTIATE ITS CLAIM THAT T HE SAID SUM OF RS.1,02,78,800/- WAS RECEIVED IN THE NATURE OF SHAR E APPLICATION MONEY. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE E XPLANATION FURNISHED BY THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICE R, THE NATURE OF THE RECEIPT WAS NOT APPROPRIATELY EXPLAINED BY THE ASSE SSEE AND, THEREFORE, HE TREATED A SUM OF RS.1,02,78,800/- AS UNEXPLAINED CASH CREDIT UNDER SECTION 68 OF THE ACT. 4 ITA 864/MUM/2012 (ASSESSMENT YEAR : 2008-09) 4.2 BEFORE CIT(A), ASSESSEE EXPLAINED THAT THE NATU RE AND SOURCE OF THE AMOUNT STOOD EXPLAINED ON THE BASIS OF THE REQU ISITE FOREIGN INWARD REMITTANCE CERTIFICATE ISSUED BY THE BANK, AND THUS, THERE WAS NO JUSTIFICATION FOR INVOKING SECTION 68 OF THE A CT. THE CIT(A) HAS SINCE DISAGREED WITH THE ASSESSING OFFICER AND HELD THAT THE NATURE AND SOURCE OF THE CREDIT WAS SATISFACTORILY EXPLAINED AND THUS HE DELETED THE ADDITION OF RS.1,02,78,800/-. 5. BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE APPE ARING FOR THE REVENUE HAS REITERATED THAT THE AMOUNT WAS RECEIVED BY THE ASSESSEE OVER AND ABOVE THE LEVEL OF AUTHORIZED SHARE CAPIT AL AND THEREFORE, THE NATURE OF THE CREDIT CLAIMED AS SHARE APPLICATION M ONEY REMAINED UNSUBSTANTIATED. 6. ON THE OTHER HAND, LD. REPRESENTATIVE FOR THE AS SESSEE HAS DEFENDED THE ORDER OF CIT(A) AND POINTED OUT THAT I N ASSESSMENT YEAR 2007-08 ALSO A SIMILAR ADDITION WAS MADE, WHICH HAS BEEN DELETED BY THE CIT(A). IT WAS SUBMITTED THAT THE DECISION OF THE CIT(A) IN THE ASSESSMENT YEAR 2007-08, HAS BEEN ACCEPTED BY THE D EPARTMENT AS NO APPEAL HAS BEEN PREFERRED TO THE TRIBUNAL AND, THER EFORE, IN THE INSTANT YEAR, THE IMPUGNED ORDER OF THE CIT(A) BE AFFIRMED IN AS MUCH AS IT HAS FOLLOWED THE EARLIER DECISION OF THE CIT(A) FOR ASS ESSMENT YEAR 2007-08. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY RECEI VED A SUM OF RS.1,02,78,800/-, WHICH WAS CLAIMED TO BE RECEIVED FROM ITS PARENT COMPANY I.E. M/S.LINFOX INTERNATIONAL GROUP PTY. LT D., AUSTRALIA. IN SUPPORT OF SUCH CREDIT, ASSESSEE FURNISHED BEFORE THE LOWER AUTHORITIES A COPY OF THE FIRC ISSUED BY THE BANK. THE CIT(A) HAS NOTICED THAT THE 5 ITA 864/MUM/2012 (ASSESSMENT YEAR : 2008-09) COPY OF FIRC FURNISHED BY THE ASSESSEE REFLECTS THE NAME OF THE ASSESSEE AS THE BENEFICIARY AND THE NAME OF THE SE NDER/REMITTER - M/S.LINFOX INTERNATIONAL GROUP PTY. LTD., AUSTRALIA WAS ALSO MENTIONED. IT IS ALSO NOTICED BY THE CIT(A) THAT FIRC SHOWS PU RPOSE OF THE REMITTANCE AS TOWARDS SHARE APPLICATION. QUITE C LEARLY, THE IMPUGNED SUM HAS BEEN RECEIVED BY THE ASSESSEE THROUGH BANKI NG CHANNELS, AND THE MATERIAL ON RECORD CLEARLY BRINGS OUT SOURCE AS WELL AS THE NATURE OF THE AMOUNT RECEIVED. UNDER THESE CIRCUMSTANCES, IN OUR VIEW, THE CIT(A) MADE NO MISTAKE IN HOLDING THAT THE IDENTITY AND CREDITWORTHINESS OF THE CREDITOR AND GENUINENESS OF THE TRANSACTION STOOD SATISFACTORILY EXPLAINED. IN THE ABSENCE OF ANY CREDIBLE MATERIAL WITH THE REVENUE TO DISPROVE THE FINDINGS OF THE CI T(A), WE HEREBY AFFIRM THE SAME. THUS, ON THIS ASPECT THE REVENUE FAILS. 8. THE SECOND ISSUE IN THIS APPEAL RELATES TO A DIS ALLOWANCE OF RS.65,40,000/-, WHICH WAS MADE BY THE ASSESSING OFF ICER ON THE GROUND THAT THE SAME WAS ON ACCOUNT OF A MERE PROVISION FOR DOUBTFUL DEBTS. THE CIT(A) HAS SINCE DELETED THE ADDITION ON THE GR OUND THAT IN SUM AND SUBSTANCE THE IMPUGNED SUM OF RS.65,40,000/- WAS AC TUALLY A BAD DEBT WRITTEN-OFF AND NOT MERELY A PROVISION FOR BAD AND DOUBTFUL DEBTS. AS PER THE CIT(A), THE IMPUGNED SUM WAS DEDUCTIBLE UND ER SECTION 36(1)(VII) R.W.S. 36(2) OF THE ACT. AGAINST SUCH A DECISION, REVENUE IS IN APPEAL BEFORE US. IN THE COURSE OF ASSESSMENT PROC EEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAD DEBITED PROVISION FOR BAD AND DOUBTFUL DEBTS OF RS.65,40,000/- TO THE P&L ACC OUNT. ON BEING ASKED TO EXPLAIN, ASSESSEE CONTENDED THAT THE IMPUG NED SUM WAS IN THE NATURE OF NON-RECOVERIES FROM THE CUSTOMERS. IT WA S EXPLAINED THAT THE 6 ITA 864/MUM/2012 (ASSESSMENT YEAR : 2008-09) NATURE OF THE TRANSACTION WAS WRITE OFF OF NON-REC OVERABLE AMOUNTS FROM THE CUSTOMERS AND, THEREFORE, IT WAS IN THE NA TURE OF A BAD DEBT WRITTEN-OFF, WHICH WAS ALLOWABLE UNDER SECTION 36(1 )(VII) R.W.S.36(2) OF THE ACT. THE ASSESSING OFFICER HOWEVER, DISALLOWED THE CLAIM ON THE GROUND THAT IT WAS STATED AS A PROVISION FOR DOUBTF UL DEBTS. 9. WE FIND THAT BEFORE THE CIT(A) ASSESSEE EXPLAINE D THAT IN THE TRANSPORTATION AND WAREHOUSING BUSINESS LOSSES OCCU R ON ACCOUNT OF DETENTION, LOSS OF STOCK AND DAMAGE TO THE STOCKS. WHEREVER LOSSES OCCUR TO THE CONSIGNEE/CONSIGNOR OF THE CONSIGNMENT , THEY RECOVER THE SAME FROM THE BILLS OF THE TRANSPORTER. THE MODE O F RECOVERY WAS DEDUCTION IN THE PAYMENT TO THE TRANSPORTER. SUCH LIKE CLAIMS STOOD AT RS.65,40,000/- AND ASSESSEE EXPLAINED THAT THERE WA S NO LIKELIHOOD OF RECOVERY OF SUCH AMOUNTS FROM THE CUSTOMERS IN ANY TIME IN FUTURE. THEREFORE, ASSESSEE HAD WRITTEN-OFF SUCH AMOUNT AS NON-RECOVERABLE. THE ASSESSEE ALSO EXPLAINED THAT THERE WAS AN ERROR IN REFLECTING THE SAME AS A PROVISION FOR DOUBTFUL DEBTS AND NOT AS ACTUAL BAD DEBTS. THE CIT(A) HAS CONSIDERED THE SUBMISSIONS PUT FORTH BY THE ASSESSEE AND DELETED THE ADDITION BY MAKING THE FOLLOWING D ISCUSSION:- 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE. IN THE P&L ACCOUNT THE APPELLANT CLAIMED PROVISION FOR DOUBTFUL DEBTS OF RS.65,40,0 00/-. THE ASSESSING OFFICER DISALLOWED THE SAME ON THE GROUND THAT FIRSTLY THE PROVISIONS WERE NOT ALLOWABLE AS BUSINESS EXPENSES AND SECONDLY THE DETAILS THEREOF WERE NOT FURNISHED BY APPELLANT. ON THE OTHER HAND THE APPELLANT HAS EXPLAINED THAT THE ASSESSING OFFICER HAD MADE ADDITION WITHOUT ASKING FOR DETAILS OF SUCH PROVISI ON ACTUALLY NOT A PROVISION. THE APPELLANT HAS EXPLAINED THAT THE AMOUNT OF RS.65,40 ,000/- WAS ACTUALLY NOT A PROVISION BUT REPRESENTED THE ACTUAL AMOUNTS RECEIV ABLE FROM THE CLIENTS WHICH COULD NOT BE RECOVERED AND HENCE CONSTITUTED A BAD DEBT. THE AMOUNT REPRESENTED SHORT RECOVERY OF TRANSPORTATION CHARGES FROM THE C LIENTS ON ACCOUNT OF LOSSES OCCURRED ON ACCOUNT OF RETENTION, LOSS OF STOCK AND DAMAGE TO STOCK WHEREAS THE TRANSPORT INVOICES WERE ACCOUNTED IN THE BOOKS OF A CCOUNTS FOR THE WHOLE AMOUNTS REFLECTED IN THE TRANSPORTATION INVOICES. IN THE F ACTS AND CIRCUMSTANCES, THE AMOUNT WRONGLY CLAIMED AS PROVISION OF RS.65,40,000/- WAS ACTUALLY A BAD DEBT WHICH WAS ALREADY INCLUDED IN THE SALE TURNOVER OF THE APPELL ANT. IN THE FACTS AND 7 ITA 864/MUM/2012 (ASSESSMENT YEAR : 2008-09) CIRCUMSTANCES THE CONDITIONS LAID DOWN IN SEC. 36(1 )(VII) R.W. 36(2) OF THE ACT WERE DULY COMPLIED WITH. AS PER SUPREME COURT DECISION ON THIS ISSUE THERE WAS NO REQUIREMENT OF ESTABLISHING THAT SUCH RECEIVABLE HA VE ACTUALLY BECOME BAD. IN THE FACTS AND CIRCUMSTANCES THE APPELLANTS CLAIM OF RS .65,00,000/- WAS ALLOWABLE AS BAD DEBT. THE DISALLOWANCE MADE BY ASSESSING OFFIC ER IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 10. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE HAS NOT ADVANCED ANY ARGUMENTS WHICH WOULD NEGATE THE FACTUAL FINDIN G ARRIVED AT BY THE CIT(A). QUITE CLEARLY, THE ASSESSEE COMPANY IS IN THE BUSINESS OF TRANSPORTATION AND THE IMPUGNED SUM HAS BEEN FOUND TO BE ...... SHORT RECOVERY OF TRANSPORTATION CHARGES FROM THE CLIENTS ON ACCOUNT OF LOSSES OCCURRED ON ACCOUNT OF RETENTION, LOSS OF STOCK AND DAMAGE TO STOCK .. FURTHERMORE, THE CIT(A) HAS ALSO RECORDED A FINDING THAT THE INVOICES RAISED BY THE ASSESSEE WHICH HAVE BEEN CREDITED IN THE BOOKS OF ACCOUNT AS INCOME COVER THE IMPUGNED SUMS ALSO. TH EREFORE, THE CIT(A) HAS FOUND THAT THE CONDITIONS LAID DOWN IN SECTION 36(1)(VII) R.W.S. 36(2) OF THE ACT HAVE BEEN COMPLIED WITH. W E HEREBY AFFIRM THE AFORESAID FINDING OF THE CIT(A) IN THE ABSENCE OF ANY CREDIBLE MATERIAL OR REASONING BROUGHT OUT BY WITH THE REVENUE BEFORE US. THUS, ON THIS ASPECT ALSO REVENUE FAILS. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/09/2015 . SD/- SD/- (SANJAY GARG) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI, DATED 30/09/2015 8 ITA 864/MUM/2012 (ASSESSMENT YEAR : 2008-09) COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBA I VM , SR. PS