PRINCIPAL COMMISSIONER OF I T JAIPUR 2 vs. M/S S N KAPOOR EXPORT

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR. D.B. Income Tax Appeal No.173/2016 APPELLANT Commissioner of Income Tax, Jaipur-II, Jaipur. VERSUS RESPONDENT M/s. S.N. Kapoor Exports, Khawasji Ka Bagh, Ajmer Road, Jaipur. DATE OF ORDER ::: 28.09.2016 HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE BANWARI LAL SHARMA Mr. Kushal Dutt Mathur for Mr. R.B. Mathur for the appellant. 1. By way of this appeal, the department has assailed the judgment and order of Tribunal whereby the order of CIT(A) was confirmed and appeal of the Department was dismissed and that of assessee was partly allowed. 2. Brief facts of the case are that the Assessing Officer had made an addition of Rs. 1,47,87,930/- on account of disallowance of bad debts relating to two parties namely M/s. Saraswati Exports and Shri Mohinuddin. It is not clear whether any income in any earlier previous year was shown by the appellant with respect to the advance given to Shri Mohiuddin, neither it is clear when the advance was given, therefore, disallowance of bad debt amount of Rs. 2,87,930/- was upheld. 3. The Tribunal after considering the evidence on record in para 6 & 7 has observed as under:- “6. At the outset, the ld AR of the assessee has argued that these advances were given for business

2 purposes. The assessee has shown commission income received from the export business, which was exported through M/s Saraswati Exports. The ld CIT(A) had examined thoroughly this issue and he has drawn our attention on page No. 9 of the ld CIT(A)'s order wherein both the partners of the firm had shown commission income on this business made through M/s Saraswati

Exports

Rs. 3,31,26,906/- for A.Y. 2002-2003 to 2004-2005. There was dispute between the parties, the assessee has received post dated cheques but same had been dishonored. The assessee filed case under the Negotiable Instrument Act, (in short N.I. Act), which has been decided against the assessee. Thereafter, he filed police complaint and also sought remedy from the court and assessee received back this amount in A.Y. 2011-2012, which has been shown as income of that year. Therefore, he prayed to allow the bad debt in A.Y. 2009-10, otherwise it is business loss of the assessee U/s 28 of the Act. He further argued that if this loss/bad debt is not allowed by the Hon'ble Bench, it tantamounts to double taxation of same amount. The Id CIT(A) has also not allowed bad debt/business loss claimed in the name of Shri Mohiuddin at Rs. 2,87,930/-,which was also advanced for business purposes. Therefore, he prayed to allow further loss of Rs. 2,87,930/-. 7. We have heard the rival contentions of both the parties and perused the materials available on record. It is undisputed fact that the assessee had made advances of Rs. 1.45 crores to M/s Saraswati Exports. The post dated cheques were obtained by the assessee as a security of the advance. There was a formal agreement between the assessee and M/s Saraswati Exports. M/s Saraswati Exports has also in the carpet business, it has expertise in design and technology and knows how in the carpet line of business. The business between both the parties was going smoothly as the partners of the firm has

shown

commission

income substantially from this business as mentioned by the id CIT(A), which has not been controverted by the id DR. The response to M/s Saraswati Exports was not according to business terms

3 and conditions, thereafter the assessee firm deposited the cheque in the bank account, which dishonoured. Thereafter

the

assessee

filed criminal suit U/s 138 of the N.I. Act.or recovery of amount. It also filed a civil suit for recovery of Rs. 1.45 crores. Thereafter, he filed complaint before the Additional Director General of Police (Crime), Rajasthan, therefore, when the assessee's efforts went in vain he had written off this amount as bad debt U/s 36(1)(vii) of the Act. During the assessment proceedings, it also claimed that if this amount is not allowable U/s 36(1)(vii) of the Act, it may be allowed as a business loss in the hands of assessee. Both the grounds also taken before the id CIT(A). However, the id CID(A) has decided this case on bad debt written off itself. No opinion has been expressed by the id CIT(A) on business loss. We find that the assessee has advanced this money for the business purposes but this amount has not been accounted for in previous year as income. Therefore, order of the id CIT(A) is not justified allowing the bad debt U/s 36(1)(vii) of the Act, but it is business loss as amounts were advanced for business purposes.” 4. Counsel for the appellant contended that the following substantial question of law are framed by the appellant;- “(i) Whether in the facts and circumstances of the case, the ITAT has acted illegally and perversely in allowing the relief on account of bad debts despite of the fact that the amount in question cannot be held bad debt u/s 36(1) (vii) of the Act as the same was not accounted/credited in the previous year's income. (ii) Whether in the facts and circumstances of the case, the ITAT has erred allowing the relief of Rs. 14500000/- on account of debts relates to M/s Saraswati Export. The ITAT has rightly held that amount given to M/s Saraswati Export amounting to Rs. 14500000/- cananot be held bad debts u/s 36(i)(vii) as amount was not

4 accounted/credited

for

the previous years income but ITAT erred in treating same as business loss whereas assessee himself treated it as capital advance which cannot be deducted from income of assessee as business loss.” 5. However, in our view, the view taken by the Tribunal after judgment of Supreme Court in TRF Ltd. Vs. CIT passed on 9.2.2010 in appeal No. 5295/2003 is just and proper and the bad debts can be allowed to be written off from books of accounts. 6. He failed to show any illegality in the view taken by the Tribunal. In that view of the matter, view taken by the Tribunal, no interference is required. 7. The appeal is dismissed. (Banwari Lal Sharma), J. (K.S. Jhaveri), J. A.Sharma/23