DCIT 14(1), MUMBAI v. RAMESH L. KHIANI, MUMBAI

ITA 3401/MUM/2009 | 2005-2006
Pronouncement Date: 24-02-2010 | Result: Dismissed

Appeal Details

RSA Number 340119914 RSA 2009
Assessee PAN AACPK8679H
Bench Mumbai
Appeal Number ITA 3401/MUM/2009
Duration Of Justice 9 month(s) 2 day(s)
Appellant DCIT 14(1), MUMBAI
Respondent RAMESH L. KHIANI, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 24-02-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 24-02-2010
Assessment Year 2005-2006
Appeal Filed On 22-05-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI A.L.GEHLOT AM & SMT. P.MADHAVI DEVI JM I.T.A.NO.3401/MUM/2009 - A.Y 2005-06 DY. COMMISSIONER OF I.T. 14(1) MUMBAI. SHRI RAMESH L. KHIANI SHIRIN MANSION 1 ST FLOOR 74 TRINITY STREET DHOBI TALAO MUMBAI 400 002 PAN NO.AACPK8679H (APPELLANT) (RESPONDENT) REVENUE BY : SHRI DURGESH SUMROTT SR. DR ASSESSEE BY : SHRI DEEPAK TRALSHAWALA. O R D E R PER P.MADHAVI DEVI JM: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST CIT (A)S ORDER DATED3-3-2009. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT[A] ERRED IN ALLOWING THE BAD DEBTS OF RS.13 28 255/- BEING PURCHASE ADVANCES WRITTEN OFF AND BEING CAPITAL EXP ENDITURE DISALLOWED BY THE AO U/S.37(1) OF THE INCOME TAX AC T. THE LD. CIT[A] HAS RELIED ON THE DECISION OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS. S.K.BHAGAT 275 ITR 465. THE DECISIO N QUOTED BY THE CIT[A] IS NOT JURISDICTIONAL HIGH COURT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT[A] ERRED IN DELETING THE BAD DEBTS SINCE AS PER SECTI ON 36(2) OF THE INCOME TAX ACT NO DEDUCTION IS ALLOWA BLE UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOU NT IN COMPUTING TOTAL INCOME OF THE ASSESSEE IN EARLIER YEAR IN WHICH THE AMOUNT OF SUCH BAD DEBT IS WRITTEN OFF. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S AN INDIVIDUAL AND FILED HIS RETURN OF INCOME DECLARING A LOSS OF RS.1 8 91 992/-. THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT AND LATER IT WA S PICKED UP FOR SCRUTINY AFTER ISSUANCE AND SERVICE OF STATUTORY NO TICE U/S.143[2] DATED 27/12/2006. AS THE ASSESSEE DID NOT FURNISH THE DET AILS CALLED FOR THE 2 ASSESSMENT WAS COMPLETED U/S.144 OF THE ACT. AO OBS ERVED THAT THE ASSESSEE HAS WRITTEN OFF AN AMOUNT OF RS.13 28 255/ - ON ACCOUNT OF PURCHASE ADVANCE. HE OBSERVED THAT THE SAME CANNOT BE ALLOWED AS BAD DEBT AS THE SAME IS NOT COVERED U/S.36(1)(VII) DUE TO THE RESTRICTED PROVISIONS OF SEC.36(2) OF THE ACT. FURTHER AS REGA RDS ASSESSEES CLAIM OF BUSINESS LOSS U/S.37(1) OF THE ACT HE HELD THAT THE REASONS FOR NOT WRITING OFF THE SAID AMOUNT FOR THE PAST 10 YEARS I S NOT UNDERSTANDABLE AND THAT THE ASSESSEE HAS MADE AN ATTEMPT TO MAXIMI ZE HIS BUSINESS LOSS IN ORDER TO SET IT OFF AGAINST THE CAPITAL GAI NS CLAIMED BY THE ASSESSEE. HE THEREFORE REJECTED THE ASSESSEES CL AIM AND MADE THE ADDITION TO THE INCOME OF THE ASSESSEE. 4. AGGRIEVED ASSESSEE FILED AN APPEAL BEFORE THE C IT[A] STATING THAT IT HAD ADVANCED A SUM OF RS.11 35 344/- TP M/S MONTEX SYNTHETICS AND A SUM OF RS.1 92 911/- TO M/S RADHIKA PRINTS DU RING THE YEAR 1995-96 FOR WEAVING AND TEXTURISING OF YARNS INTO F ABRICS AND AS THE ASSESSEE NOTICED THAT THE PARTIES WERE NOT SUPPLYIN G QUALITY PRODUCT HE HAD REJECTED THE GOODS SUPPLIED BY THEM WHICH HAS RESULTED INTO DISPUTE AND THE PARTIES REFUSED TO RETURN THE ADVAN CE. IT WAS ALSO CONTENDED THAT THE ASSESSEE MADE MANY EFFORTS FOR T HE LAST 10 YEARS TO REACH THESE PARTIES BUT AS THEY WERE NOT REACHAB LE THE ASSESSEE HAD TO WRITE OFF THESE ADVANCES AND AS THESE ADVANCES W ERE GIVEN IN THE COURSE OF BUSINESS THEY WERE CLAIMED AS BUSINESS L OSS AND AS SUCH ALLOWABLE U/S.37(1) OF THE INCOME TAX ACT. THE CIT[ A] AFTER DETAILED CONSIDERATION OF FACTUAL MATRIX HAS HELD AT PARA-11 OF HIS ORDER AS UNDER- 3 11. ON CAREFULLY CONSIDERING THE ABOVE FACTS AND S UBMISSIONS OF THE APPELLANT AND ALSO PERUSING THE ORDER OF THE AO I FIND THAT THE AO HAS DISALLOWED THE AMOUNT OF RS.13 28 255/- ON THE GROUND THAT THIS AMOUNT IS NEITHER ELIGIBLE TO BE ALLOWED AS DEDUCTI ON U/S.36(2) AS BAD DEBTS WRITTEN OFF AS THE SAME HAS NOT BEEN ROUTED T HROUGH PROFIT AND LOSS ACCOUNT NOR ALLOWABLE U/S.37(1) AS ADVANCES WE RE GIVEN IN THE YEAR 1995-96 AND BEING IN THE NATURE OF ADVANCES WE RE CAPITAL IN NATURE. THE AO ALSO OBSERVED THAT IT WAS NOT UNDERS TANDABLE WHY THE ASSESSEE KEPT THE CLAIM PENDING FOR THE PAST 10 YEA RS AND HOW THE SAME HAD BECOME BAD AND IRRECOVERABLE ONLY IN THE A SSESSMENT YEAR UNDER CONSIDERATION. THE APPELLANT HOWEVER IN THE A BOVE SUBMISSIONS HAS VEHEMENTLY CONTENDED THAT THE ADVANCE MADE TO M /S. MONTEX SYNTHETICS AND M/S. RADHIKA PRINTS DURING THE YEAR 1995-96 WAS FOR WEAVING AND CONVERTING TEXTILES YARN INTO FABRICS THESE ADVANCES WERE GIVEN IN THE COURSE OF BUSINESS AND THEY PARTA KE THE NATURE OF GENUINE BUSINESS LOSS AND ALLOWABLE U/S.37(1). THE AO TREATED THE SAME AS CAPITAL EXPENDITURE AND DISALLOWED ON SUSPI CION THAT THE APPELLANT KEPT THE CLAIM PENDING FOR 10 YEARS. THIS IS NOT A REASON FOR MAKING A DISALLOWANCE. SINCE THE AMOUNTS WERE NOT R ECOVERABLE THE APPELLANT DECIDED DURING THE YEAR UNDER APPEAL TO W RITE IT OFF AND CLAIMED IT AS BUSINESS LOSS U/S.37(1). SINCE THE AD VANCES WERE MADE FOR BUSINESS EXPEDIENCY THE SAME ARE ALLOWABLE. I FIND CONSIDERABLE FORCE IN THE CONTENTIONS OF THE APPELLANT. THE ADVA NCE MADE TO THESE TWO PARTIES DURING THE YEAR 1995-96 HAS NOT BEEN DI SPUTED BY THE AO NOR HAS THE SAME BEEN CONTROVERTED. THE CLAIM OF TH E APPELLANT THAT ADVANCES MADE WERE FOR WEARING AND TEXTURISING OF Y ARNS INTO FABRICS AND WITH WHOM THE APPELLANT WAS HAVING BUSINESS TRA NSACTION OF THE NATURE OF JOB WORKERS AND ON FINDING THAT THESE PAR TIES WERE NOT SUPPLYING QUALITY PRODUCT STOPPED MANUFACTURING FR OM THEM AND REJECTED THE GOODS SUPPLIED BY THEM AND AS A RESULT DISPUTE AROSE AND THE PARTIES REFUSED TO RETURN THE ADVANCES HAS NOT BEEN CONTROVERTED BY THE AO NEITHER HAS HE PROVED THE SAME TO BE INCO RRECT AND WRONG. IN THE ABSENCE OF WHICH THE DISALLOWANCE MADE BY SU MMARILY REJECTING THE CONTENTION OF THE APPELLANT IS NOT AT ALL JUSTI FIED ON THE PART OF THE AO. FROM THE FACT OF IT THE TRANSACTIONS ENTERED I NTO WITH THESE PARTIES ARE IN NATURE OF BUSINESS AND COMMERCIAL EXPEDIENCY AND NOT OF CAPITAL IN NATURE AS OBSERVED BY THE AO. IT HAS BEE N HELD BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. S.K. BHAGAT & CO. 4 275 ITR 465 THAT WHERE A CLAIM IS GIVEN UP IN A MA TTER OF COMMERCIAL EXPEDIENCY IT WOULD EVEN OTHERWISE BE ALLOWABLE AS A BUSINESS LOSS. THEREFORE THE AO IS DIRECTED TO DELETE THIS DISALL OWANCE. ACCORDINGLY THIS GROUND IS DECIDED IN FAVOUR OF THE APPELLANT. AGAINST THE RELIEF GIVEN BY THE CIT[A] THE REVENU E IS IN APPEAL BEFORE US. 5. AFTER HEARING BOTH THE PARTIES AND AFTER CONSIDE RING THE MATERIAL ON RECORD WE FIND THAT THE FACT THAT ADVANCES GIVE N BY THE ASSESSEE WERE FOR BUSINESS PURPOSES IS NOT DISPUTED BY THE R EVENUE AUTHORITIES AND IT IS ALSO NOT DISPUTED THAT THE ASSESSEE HAS N OT RECOVERED THE SAID ADVANCES FROM THESE TWO PARTIES. AS RIGHTLY HELD BY THE CIT[A] IT IS A BUSINESS AND COMMERCIAL EXPEDIENCY OF THE EXPENDITU RE THAT HAS TO BE SEEN WHILE MAKING THE DISALLOWANCE. THE FACT THAT T HE ASSESSEE HAS NOT BEEN ABLE TO RECOVER THE SAID AMOUNT FROM THESE TWO PARTIES ITSELF PROVES THAT THE ASSESSEE HAS INCURRED THE LOSS. IN SIMILAR SET OF FACTS AS RELIED ON BY THE LD. COUNSEL IN THE CASE OF ASST . CIT VS. WHIRLPOOL OF INDIA LTD. REPORTED IN 22 SOT 103 [DEL] THE LOSS WA S HELD TO BE ALLOWABLE. IN VIEW OF THE SAME WE DO NOT SEE ANY R EASON TO INTERFERE WITH THE ORDER OF THE CIT[A] AND ACCORDINGLY THE R EVENUES GROUNDS OF APPEAL ARE REJECTED. 6. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS 24 TH DAY OF FEBRUARY 2010. SD/- SD/- (A.L.GEHLOT) (P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 24 TH FEBRUARY 2010. P/-* 5