M/S VRL LOGISTICS LTD,HUBLI vs. JOINT COMMISSIONER OF INCOME TAX, RANGE-1, HUBLI

The facts relating to the above said issues are stated in brief. The assessee is engaged in the business of transportation of goods, providing courier services, passenger travels and wind power

The first issue relates to disallowance of bad debts claimed by the assessee. During the year under consideration, the assessee claimed following amounts as bad debts.

The A.O. noticed that the above said amounts represented writing of “advance amounts” except one items of writing off of debtors account in one case. The A.O. referred to the condition prescribed u/s 36(2) of the Act, wherein it is stated that the amount written off as bad debt shall be allowed as deduction only when such debt or part thereof has been taken into account in computing the income of the assessee, etc. Since the advance amounts written off by the assessee were not declared as income in any of the years, the A.O. allowed deduction to the extent of Rs.2,56,082/- only, being the amount relating to writing off of debtors balance and accordingly, disallowed the balance amount of Rs.72,76,130/-. The Ld. CIT(A) also confirmed the same.

The Ld. A.R. submitted that the above said advances have been given during the course of carrying on of business on revenue account. Accordingly, he submitted that the writing off of M/s. VRL Logistics Limited, Varur

The Ld. D.R. on the contrary submitted that the assessee is making a new claim and the same requires examination at the end of the A.O.

Having considered the rival submissions, we are of the view that alternative claim of the assessee requires examination at the end of the A.O, since the alternative claims were not raised before the tax authorities. Accordingly, while confirming the order passed by Ld. CIT(A) on the issue of bad debts, we remit this issue to the file of the A.O. for examining the alternative contentions of the assessee i.e. whether this claim can be allowed as deduction either u/s 28 or u/s 37(1) of the Act. The A.O. may take appropriate decision in accordance with the law on this issue, after affording adequate opportunity of being heard to the assessee.

The next issue relates to disallowance of part of aircraft expenses by the A.O. holding the same as not related to business.

The A.O. noticed that the assessee has declared air charter revenue of Rs.5,79,08,954/-, which consisted of amount collected from private parties of Rs.4,77,32,454/- and amount related to use by the management of assessee company amounting to Rs.1,01,76,500/-. While computing the profit from operation of aircraft the assessee had considered the taxable revenue of Rs.4,77,32,454/-, being the amount received from other private parties. Further, the assessee had also claimed depreciation of Rs.1,75,98,638/-. The assessee did not declare the aircraft revenue related to use by the management on the ground that the same was M/s. VRL Logistics Limited, Varur

We heard the parties and perused the record. At the time of hearing, the Ld. A.R. did not press disallowance of Rs.2,70,000/- being the first amount mentioned in the table above. Accordingly, the disallowance of Rs.2,70,000/- is confirmed. With regard to the second amount of Rs.5,02,500/-. It is the contention of the Ld. A.R. that the same has been used by the Directors as well as Finance Officer of the company. He submitted that this trip was for official purposes since the assessee is having branches in Bengaluru, Hubli and Tirupathi. Accordingly, he submitted that this amount should be considered as relating to official purposes only. He further submitted that the disallowance of proportionate amount of depreciation is not called for since the identity of the asset is lost, once the asset enters the block under the block concept of allowing depreciation.

We heard Ld. D.R. and perused the record. We notice that the assessee has not furnished any evidence to substantiate its claim that the second trip, which is having charter amount of Rs.5,02,500/-, was for official purposes only. In our view, mere existence of branches in Bengaluru, Hubli or Tirupati would not support the case of the assessee, since the assessee is otherwise having branches all over the country. There should not be any dispute that the responsibility to show that the above said trip was for official purposes only would lie upon the shoulders of the assessee. In this case, the assessee has made only oral submissions without furnishing any material to support its claim, meaning thereby, the assessee has failed to prove that the trip was undertaken for official purpose. Accordingly, we have no other option, but to confirm the order passed by Ld. CIT(A) on the addition of Rs.5,03,500/-. Thus the addition of both items aggregating to Rs.7,72,500/- is confirmed.

With regard to the disallowance of proportionate depreciation of Rs.2,34,764/-, we notice that the assessee has not furnished copy of depreciation schedule relating to claim of depreciation under the Income Tax Act. There is no dispute with regard to the fact that the identity of the asset would be lost once it enters the block. In the instant case, it is not clear as to whether the identity of the helicopter has been lost or not. Accordingly, we are unable to decide on these contentions of the assessee. Accordingly, we restore this issue to the file of the A.O. with a direction to examine the alternative claim of the assessee afresh by duly considering the relevant documents. The A.O. may take appropriate decision in accordance with law after affording adequate opportunity of being heard to the assessee.