SMD TRAVEL CORPORATION,MUMBAI vs. ITO 18(3)(4), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार PER RAJENDRA, AM- अनुसार Challenging the order dated 23.02.2012 of CIT(A)-29, Mumbai the assessee has filed the present appeal.Assessee-firm,a travel agent,filed its return of income 31.10 2007,declaring total income at Rs.nil. The Assessing Officer (AO)completed the assessment,u/s.143 of the Act,on 30.12.2009 determining its income at Rs.(-) 54.71 lakhs. 2.The appeal filed by the assessee is time barred by 361 days.Explaining the delay,the assessee had submitted that it decided, as per the advice given by the then Chartered Accountant(CA),not to contest the order of the First Appellate Authority (FAA)considering the amount involved in the assessment order, that on getting penalty order,the present CA suggested to file the appeal for the additions made by the AO, that assessee was guided by the professional advice on both the occasions,that there was reasonable cause in not filing the appeal in time and so,the same should not be rejected.The Authorised Representative (AR)reiterated the arguments mentioned in the affidavit of the partner of the firm and in the condonation application.Departmental Representative (DR) left the issue to the discretion of the Bench.After considering the peculiar facts and circumstance of the case i.e., the professional advice,we are of the opinion that it is a fit case to condone the delay. 1

3026/M/13-SMD Travel 3.The Effective Ground of appeal is about confirming the addition made by the AO,u/s. 41 of the Act,amounting to Rs.29.06 lakhs.During the assessment proce -edings the AO asked the assessee to submit the details of sundry creditors and its subsequent settlements. After going through the list of sundry creditors and the details filed,the AO found that following amounts were not paid to the creditors and were outstanding for a long period, that the assessee had not filed any confirmation about those creditors: i)Modiluft -Rs.26,96,502/- ii)Geeta Travels and Crago- Rs.1,20,334/- iii)Jasraj Kalina & Co. –Rs.89,823/- Accordingly,the assessee was asked to explain as to why the unpaid creditors of Rs.29.06 lakhs should not be taken as income of the assessee as per the provisions of section 41(1)of the Act. Vide its letter,dt.21.9.2009,the assessee stated that the creditors were genuine and payment had to be made to them, that due to financial crisis and all of sudden stoppage of Modiluft its money was stuck up and it could not make payment to creditors on time.However, the AO held that contention of the assessee was not acceptable. Assessee had not paid the credit liability, that it was to receive deposits from Modiluft during the course of operation of business and it had already written off bad debts with regard to Modiluft, that it had not offered trade liability for taxation.Finally, he held that trade liability of Rs.29.06 lakhs was to be treated as deemed profit for the year under consideration as per provisions of section 41(1) of the Act.

4.Aggrieved by the order of the AO, the assessee is in appeal before the FAA. Before him,it was argued that it had to receive from Modiluft an amount of Rs.295 lakhs, that the cross claims were pending before the Hon’ble Delhi High Court, that the AO was not justified in adding the disputed credit liability. After considering the assessment order, the submission of the assessee, the FAA held

3026/M/13-SMD Travel that the assessee had written off bad debts from Modiluft in AY 2003-04, that it was impossible that assessee had to pay to Modiluft, that it should have written off only net amount after adjusting payable, if any, that it had not filed confirmation letters from Modiluft, that the AO was justified in making the addition.

5.During the course of hearing before us, the Authorised Representative (AR) stated that out of Rs.2.95 crores,the assessee had written off only Rs.1.75 crores only,that matters about the counter claims were pending in the Delhi High Court,that Tribunal had allowed bad debts (Tribunal order pg-39 para-6 ),that the liability on receivable side had not attained finality,that liabilities had not ceased to exist.The DR argued that assessee was giving two different treatments to receivables and the payables,that it had written off huge amount as bad debts and had refused to pay taxes for the amounts receivable.He referred to the cases of T.V. Sundaram Iyengar & Sons Ltd. (222ITR344); M/s. Solid Containers Ltd. (308 ITR 407). In the rejoinder the AR stated that allowance of bad debts was not linked with the provisions of section 41(1) of the Act, that both were applicable in different situations, that there was no provision of netting of bad debts and creditors.

6.We have heard the rival submissions and perused the available material. We find that while deciding the appeal,the FAA had mentioned that the assessee had written off bad debts amounting to ‘a few crores’. But,he had not given the exact figure though, it was available with him. It is also a fact, that Modiluft and assessee are before the Court and disputing the liabilities towards each other. It

3026/M/13-SMD Travel