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ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee under section 253 of Income-tax Act (‘Act’) is directed against the order of ld. Commissioner of Income-tax (Appeals)- 5, Mumbai [hereinafter referred as ld. CIT(A)] dated 15.02.2016 for Assessment Year 2008-09. The assessee has raised the following grounds of appeal:
01. The learned CIT(A)-5 has grossly heard in disallowing the claim of appellant of bad debts of Rs. 88,87,650/-.
02. The learned CIT(A)-5 has grossly heard in passing his order without considering all the facts and details to him.
2. The assessee vide application dated 25.09.2018 raised the following additional grounds of appeal: Mum 2017-Orient Multimodal Carriers Pvt. Ltd.
“On the facts and in the circumstances of the case and in law, the reassessment proceedings are bad in law.” 3. Brief facts of the case are that the assessee is a company engaged in the business of transport contractor and Ship freight forwarder, filed its return of income on 13.01.2009 declaring loss of Rs. 19,77,423/-. The assessment was completed under section 143(3) on 15.12.2010 by assessing loss of Rs. 7,79,060/-. Subsequently, the assessment was re- opened under section 147 on 25.03.2013. Notice under section 148 dated 25.03.2013 was served upon the assessee. In response to the notice under section 148, the assessee filed its return of income on 16.04.2013.
The assessing officer recorded the following reasons of re-oppening:
"It is seen from the schedule to P & L a/c that assessee has claimed bad debts of Rs. 2, 06,02,015/-. Out of this, an amount of Rs.88,87,650/- pertains to bad debts written off in respect of Sanjivak Cargo Trading Co. It was stated regarding the bad debts that the bad debts amounting to Rs.88,87,650/- was claimed to have been paid as advance to Mr. Sanjeev Rishi, General Manger. In this regard para 11, Schedule 17, Notes to the Accounts to Audit Report submitted by the assessee is reproduced below: "The amount misappropriated by Mr. Sanjeev Rishi , General Manger, amounting to Rs.77,26,977/- is included in the schedule of advances recoverable in cash or kind for value to be received. This was provided in the accounts of FY 2005-06 and is carried forward. Legal action has been taken. The misappropriation was on account of personal withdrawal and investments made by him without authority. Company had provided for recovery of various expenses by way of debit notes from M/s Sajivak Cargo Trading Co., a company belonging to Capt. Sanjeev Rishi. Out of the total provision for recovery due to doubtfulness of full recovery, the management has written off as bad debits of Rs.88,87,650/-". 2 Mum 2017-Orient Multimodal Carriers Pvt. Ltd.
From the above, it is clear that the bad debts claimed out of advance given to M/s Sanjivak Cargo Trading Co., belongs to Capt. Sanjeev Rishi, is not a bad debt as claimed by the assessee but it is only an advance given in earlier years. Accordingly, this amount was not offered to tax in the earlier assessment years since it was only an advance given to Mr. Sanjeev Rishi, which was appearing in balance sheet and not routed through P & Laic so as to qualify as deduction as per section 36(1)(vii) r.w sec. 36(2) of the IT Act. The claim of assessee does not satisfy the conditions laid down for allowance of a debt as bad as per provisions of sec. 36(1)(vii) r.w sec. 36(2) of the IT Act, which inter alia states that no such deduction shall be allowed unless such debt or part thereto has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represent money lent in the ordinary course of the business of banking or money lending which is carried on by the assessee. In the instant case, the amount bad debts are advances and not those which are credited to the P & L a/c in earlier years. Hence, the conditions enumerated u/s 36(2) of the IT Act are not satisfied for allowing deduction of bad debts.
In support thereof reliance is also placed on the decision of the following case laws by the Audit: i) Grindwell Norton Ltd. v/s DCIT 199 Taxman 197, 85 ITJ 389 ii) CIT Vis S R Subramanya Pillai 181TR 85 (Mad.) iii) Indian Aluminum Co. Ltd. v/s CIT 79 ITR 514,518 (SC) 4. The Assessing Officer after supplying the reasons recorded proceeded for reassessment. The assessee was asked to file the details of bad-debt and to furnish the explanation about its allowability. The assessee filed its detailed reply dated 27.11.2013. The reply of assessee was not accepted by Assessing Officer holding that the said amount is in respect of M/s Sanjivak Cargo Trading Co. as an advance in the Audit Report, this amount is shown as misappropriated by Sanjeev Rishi of M/s 3 Mum 2017-Orient Multimodal Carriers Pvt. Ltd. Sanjivak Cargo Trading Co. amounting to Rs. 77,26,977/-. This amount was shown in accounts for Financial Year 2005-06 and is carried forward in the books of account. The misappropriation was on account of personal withdrawal and investment made by Sanjeev Rishi without authority. The Assessing Officer concluded that this amount is not a bad-debt as claimed by assessee but is only an advance given in earlier years, this amount was not offered to tax in earlier years, it was only an advance given to Sanjeev Rishi which is appearing in the balance-sheet not rooted through Profit & Loss Account qualified for deduction under section 36(1)(vii). The Assessing Officer disallowed the bad-debt of Rs. 88,87,650/- in assessment order passed under section 143(3) r.w.s. 147.
On appeal before the ld. CIT(A), the assessee in its statement of fact stated that the assessee filed its submissions vide their letter dated 1.0.10.2013, 27.11.2013 and 05.12.2013, however the assessing officer has mentioned about reply dated 27.11.2013 only. The assessee further explained in the statement of facts that bed debts of Rs.88.87,650/- was on account of certain expenses incurred by the assessee company and debited to the account of non recovery of certain expenses and debited to the account of Sanjivik Cargo Trading Company Pvt Ltd. the recovery was by way of debit notes of Rs.6324437/- for Financial Year (FY) 2004-05 and Rs.2563183/- for FY 2005-06. These expenses were offered as income by reduction in the various expenditure for AY 2006- 4 ITA No. 2050 Mum 2017-Orient Multimodal Carriers Pvt. Ltd.
7. Therefore, it was claimed that bed debts for AY2008-09 was fully alllwavable as deduction in accordance with the provisions of section 36(2) and section 36(1)(vii). The assessee also furnished the copy of assessment order for AY 2006-07 passed under section143(3) dated 23.12.2008. The assessee also raised objection before ld CIT(A) that the notice under section 148 is invalid. The ld. CIT(A) confirmed the action of Assessing Officer on almost similar lines. Thus, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us. 6. Perusal of record reveals that there is delay of 313 days in filing appeal before the Tribunal. The order impugned in the present appeal was passed by ld CIT(A) on 15.02.2016. However, this appeal was filed before the Tribunal only on 23.03.2017. The assessee has filed an application for condonation of delay. The application for condonation of delay is supported by the affidavit of Mr. Jamil Jalali, Director of the assessee-company and Sh. Praful Sahghvi Chartered Accountant CA. In the application, the assessee has stated that they received order of ld. CIT(A) dated 15.02.2016 on 15.03.2016. The order was handed over to Shri Praful K. Sanghvi, Chartered Accountant (CA) for preparing and filing appeal before the Tribunal. The appeal could not be prepared by him and for statutory period for filing appeal expired in 2nd week of June 2016. There was no intentional and deliberate delay in filing the appeal. 5 Mum 2017-Orient Multimodal Carriers Pvt. Ltd. The assessee has also filed affidavit of Shri Praful K. Sanghvi, Chartered Accountant. In the affidavit, the said CA stated that the assessee handed over the copy of impugned order to him for filing appeal before the Tribunal. He could not prepared appeal immediately on account of Chronic Diarrhea and he could not attend the professional work immediately for some time. Thereafter, inadvertently the said impugned order was mixed up with the other papers in the office. He was treated by Dr. Gunvantlal N. Sheth, who expired in the year 2018. The said Doctor Sheth was treating his ailment of Chronic Diarrhea, therefore, it is not possible for him to obtain and produce the Medical Certificate.
The said CA further stated in the affidavit that appeal could not be filed within the prescribed period of limitation, when he came across the CIT(A) order, he realize that appeal against the said order has not been filed and thereafter, the appeal was field immediately.
The ld. AR of the assessee made her submission on the line of contents of application for condonation of delay and the affidavits of Director and Chartered Accountant, who was handed over the copy of impugned order for filing appeal before the Tribunal. The ld. AR of the assessee submits that there was no intentional and deliberate delay in filing appeal before the Tribunal. The delay was due to bonafide reasons as explained in the application and the affidavit filed in support thereof.
The ld AR further submits that the assessee has good case on merit and 6 Mum 2017-Orient Multimodal Carriers Pvt. Ltd. would succeed on merit. The assessee would suffer legal injury if the delay in filing the appeal is not condoned.
On the other hand, the ld. DR for the revenue submits that the assessee has not explained the delay in filing the present appeal. The reason for condonation of delay is not plausible reasons.
We have considered the rival submission of the parties and have gone through the application for condonation of delay and the affidavit of Mr. Jamil Jalali filed in support of the application for condonation of delay.
We have considered the submission of the parties and have gone through the orders of authorities below. We have noted that the first appeal of the assessee was dismissed by ld CIT(A) on 15.02.2016. However, the appeal before Tribunal is filed only on 23.03.2017. Thus, there is delay of 313 days in filing the present. In support of his condonation of delay, the assessee company has filed the affidavit of Sh. Jamil Jalali Director and the affidavit of Shri Praful K. Sanghvi, C.A. It is the contention of ld. AR of the assessee is that they handed over the copy of the order of ld CIT(A) to Shri Praful K. Sanghvi; C.A to file appeal before the Tribunal well within time, however, the said CA neither filed the appeal nor inform about not filing of appeal before Tribunal within time. The ld. AR of the assessee also contended that not filing of appeal in time would not benefit the assessee rather the assessee would suffer legal injury and is now facing hardship and harassment. 7 ITA No. 2050 Mum 2017-Orient Multimodal Carriers Pvt. Ltd.
The Hon’ble Supreme Court in B. Madhuri Goud v. B. Damodar Reddy (2012) 12 SCC 693, by referring various to earlier decisions of Superior Courts and held the following principal must be kept in mind while considering the application for condonation of delay;
(i) There should be a liberal, pragmatic, justice oriented, non-pedantic approach while dealing with an application for condonation of delay, for the courts are not supposed to legalise injustice but are obliged to remove injustice. (ii) The terms “sufficient cause” should be understood in their proper spirit, philosophy and purpose regard being had to the fact that these terms are basically elastic and are to be applied in proper perspective to the obtaining fact-situation. (iii) Substantial justice being paramount and pivotal the technical considerations should not be given undue and uncalled for emphasis. (iv) No presumption can be attached to deliberate cause of delay but, gross negligence on the part of the counsel or litigant is to be taken note of. (v) Lack of bona fides imputable to a party seeking condonation of delay is a significant and relevant fact. (vi) It is to be kept in mind that adherence to strict proof should not affect public justice and cause public mischief because the courts are required to be vigilant so that in the ultimate eventuate there is no real failure of justice. (vii) The concept of liberal approach has to encapsulate the conception of reasonableness and it cannot be allowed a totally unfettered free play. (viii)There is a distinction between inordinate delay and a delay of short duration or few days, for to the former doctrine of prejudice is attracted whereas to the latter it may not be attracted. That apart, the first one warrants strict approach whereas the second calls for a liberal delineation. (ix) The conduct, behaviour and attitude of a party relating to its inaction or negligence are relevant factors to be taken into consideration. It is so as the fundamental principle is that the courts are required to weigh the scale of balance of justice in respect of both parties and the said principle cannot be given a total go by in the name of liberal approach.
Mum 2017-Orient Multimodal Carriers Pvt. Ltd.
(x) If the explanation offered is concocted or the grounds urged in the application are fanciful, the courts should be vigilant not to expose the other side unnecessarily to face such litigation. (xi) It is to be borne in mind that no one gets away with fraud, is representation or interpolation by taking recourse to the technicalities of law of limitation. (xii) The entire gamut of facts are to be carefully scrutinized and the approach should be based on the paradigm of judicial discretion which is founded on objective reasoning and not on individual perception. (xiii) The State or a public body or an entity representing a collective cause should be given some acceptable latitude.
Considering the aforesaid legal position and the submission of ld. AR of the assessee that the assessee that non filing of the appeal by assessee in time has not given any benefit to the assessee and the delay in filing appeal was due to bonafide reasons as explained in the application. The application of assessee is supported by affidavit of Director of assessee and the CA to whom they handed over the copy of the impugned order for filing appeal. In the application as well as in affidavit file in support thereof, the applicant has categorically taken stand that they have taken proper step and handed over the copy of impugned order to their CA to file appeal and that there was no deliberate delay on the part of the assessee. The ld.CA to whom the copy of impugned order was handed over also filed his affidavit explaining the cause for not filing the appeal well in time. Therefore, keeping in view the aforesaid legal points and the principle that when substantial justice and technicalities are pitted against each other the consideration of substantial justice must Mum 2017-Orient Multimodal Carriers Pvt. Ltd. prevailed. Therefore, keeping in view the principle of natural justice, the delay in filing of the appeal is condoned.
On merit of the case, we have heard the submission of ld. AR of the assessee and ld. DR for the revenue and perused the material available on record. The ld. AR of the assessee submits that she has raised additional ground of appeal
vide application dated 25th September 2018. The additional ground of appeal is raised in addition to original ground of appeal as a preliminary ground of appeal. The additional/preliminary ground of appeal is purely question of law and goes to the root of jurisdictional and does not require any new fact to bring on record. The relevant material related to the preliminary/additional ground emanates from the orders of lower authorities.
14. In support of additional ground of appeal, the ld. AR of the assessee submits that the reasons of reopening was furnished to the assessee vide letter dated 14.08.2013. The assessment was re-opened on 25.03.2013 wherein the Assessing Officer re-opened the assessment on two issues i.e. (i) regarding claim of bad-debt of Rs. 88,87,650/- in respect of M/s Sanjivak Cargo Trading Co. and (ii) bad-debt in respect of Punjab State Container and Warehousing Corporation of Rs. 37,92,760/-. No addition was made in respect of 2nd issue, however, the Assessing Officer made the addition in respect of first issue. The ld. AR of the assessee further submits that during the original assessment, the Assessing Officer 10 ITA No. 2050 Mum 2017-Orient Multimodal Carriers Pvt. Ltd. examined the issue thoroughly. The Assessing Officer issued necessary questionnaire regarding loan and advances. The assessee vide his reply dated 26.11.2008 furnished the details of loan and advances including Note on bad-debt. The assessee also provided necessary information about the recoveries made from M/s Sanjivak Cargo Trading Co. recovered during the Financial Year 2005-06. The ld. AR of the assessee further submits that all the details regarding sundry debtor written off were furnished before the Assessing Officer during the original assessment proceeding vide letter dated 30.11.2010, copy of which is placed before the Tribunal as per page no.4 to 7 of the Paper Book. The ld. AR of the assessee further submits that the Assessing Officer after verifying the necessary claim accepted and passed the assessment order under section 143(3) on 15.12.2010. The ld. AR of the assessee further submits that the re-assessment was based on mere change of opinion. In support of his submission, the ld. AR of the assessee relied upon the decision of Hon’ble Bombay High Court in case of CIT vs. Prima Papers and Engineering Industries. [2014] 364 ITR 222 (Bom.).
On the other hand, the ld. DR for the revenue submits that the no such ground of appeal was raised before the First Appellate Tribunal. In case additional/preliminary ground of appeal is admitted then the matter may be restored to the file of ld. CIT(A) for adjudication of issue. Mum 2017-Orient Multimodal Carriers Pvt. Ltd.
We have noted that the assessee has raised the additional/preliminary ground of appeal
that the assessment is bad in law. Though, no specific ground of appeal was raised by assessee before first appellate authority. However, during the first appellate stage, the assessee made submission regarding validity of re-opening; the First Appellate Authority despite recording the submission of assessee has not adjudicated the objection of the assessee. In our view, the additional/preliminary ground of appeal raised by assessee is purely legal in nature and does not require to bring any new or additional fact on record. The facts relating the adjudication of additional/preliminary ground of appeal are emanating from the order of lower authorities. Thus, the additional/preliminary ground of appeal is admitted.
17. We have considered the rival submission of the parties on the preliminary ground of appeal and perused the material available on record. We have also deliberated on case law relied by lower authorities and by representative of the parties. The Assessing Officer re-opened the assessment on 25.03.2013. The reasons of re-opening was served to the assessee vide letter dated 14.08.2013. The Assessing Officer otherwise has referred the reasons of re-opening on page no.1 of his order. The Assessing Officer while recording the reasons of re-opening recorded that from the perusal of Schedule to Profit & Loss Account, the Assessing Officer has seen that assessee has claimed bad-debt of Rs. 12 Mum 2017-Orient Multimodal Carriers Pvt. Ltd. 2,06,02,015/-. Out of this amount, an amount of Rs. 88,87,650/- pertains to bad-debt written off in respect of M/s Sanjivik Cargo Trading Co.
This bad-debt was claimed to have been paid as advance to Mr. Sanjeev Rishi, General Manager. In paragraph-11, Schedule-17, Note to the account, Audit Report, the assessee mentioned about misappropriation of amount of Rs. 77,26,977/- by Mr. Sanjeev Rishi, General Manager of M/s Sanjivik Cargo Trading Co., this amount was carried forward in the account from Financial Year 2005-06. This misappropriation was on account of personal withdrawal and investment made by him without authority. Out of the total provision of recovery due to doubtful of recovery, the management/assessee has written off of bad-debt of Rs. 88,87,650/-. The Assessing Officer further recorded that the bad-debt claimed are clearly out of advance given to M/s Sanjivak Cargo Trading Co. is not a bad-debt but an advance given in earlier years, not rooted through Profit & Loss Account so as to qualify deduction under section 36(1)(vii). The Assessing Officer took the view that the advance given to Mr. Sanjeev Rishi, General Manager is not in the nature of bad-debt and does not satisfy the condition prescribed under section 36(1)(vii) r.w.s. 36(1)(ii) as the same was not offered in the earlier years, hence, not eligible for claim of bad-debt. The ld. CIT(A) confirmed the action of Assessing Officer in adding/disallowing the bad-debt. Though the ld. CIT(A) recorded the objection of assessee that notice under section 148 13 Mum 2017-Orient Multimodal Carriers Pvt. Ltd. is invalid and merely change of opinion. However, no finding on this legal objection/submission was given by him.
We have noted in the reasons recorded, which is supplied to the assessee or as recorded by Assessing Officer of page no.1 of the assessment order, the Assessing Officer has nowhere recorded that any income chargeable to tax has come to his notice subsequently. Moreover, the Assessing Officer has recorded that he has seen from the Schedule to the Profit & Loss Account that bad-debt amounting to Rs. 88,87,650/- was not routed through Profit & Loss Account and does not qualify for deduction. We have further noted that the assessee during the original assessment proceeding vide their reply dated 30.11.2010 furnished the complete details and explained before the Assessing Officer. No doubt that Assessing Officer has not passed any detailed order while allowing such bad-debt. Therefore, we are of the view that the Assessing Officer made the re-opening on the basis of material available on record and his action is based on merely change of opinion.
The Hon’ble Bombay High Court in CIT vs. Prima Papers and Engineering Industries (supra) held that the power to re-open the assessment is not a power of review and mere change of opinion would not justify the re-opening of the assessment. This would apply even then the assessment is sought to be re-opened within for year from the end of Assessment Year. Therefore, in view of the above discussion, we are of 14 Mum 2017-Orient Multimodal Carriers Pvt. Ltd. the view that all material related with claim of bad-debt was available before the Assessing Officer who has considered the material and allowed the bad-debt to the assessee while passing the assessment order.
Therefore, subsequent re-assessment of the same issue based on the same material in absence of any subsequent information, the re-opening is merely a change of opinion; we hold so. Therefore, the re-opening is invalid. In the result, the additional/preliminary ground of appeal raised by assessee is allowed.
As we have allowed the additional/preliminary ground of appeal, therefore, he discussion on merit of the case have become academic.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 30/04/2019.
Sd/- Sd/- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER Mumbai, Date: 30.04.2019 SK Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. DR “C” Bench, ITAT, Mumbai 6. Guard File