DCIT, CIR-4, KOLKATA, KOLKATA vs. M/S ASIATIC OXYGEN LIMITED, KOLKATA

ORDER Per Shri M. Balaganesh, AM:

This appeal by revenue is arising out of order of CIT(A)-XII, Kolkata vide appeal No. 638/XII/08-09 dated 30.10.2013. Assessment was framed by ACIT, Circle-4, Kolkata u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2002- 03 vide his order dated 21.03.2005.

Ameri Gas private Ltd - 10,14,051.51 Pennzol Investment & Trading Co Pvt Ltd - 16,90,920.44 M/s Deepak Jhunjhunwala - 46,39,780.00 M./s C.K.Tibrewala & Co - 10,15,493.00 Earnest Money - 6,874.28 ------------------------ Total 83,67,119.23 ------------------------ The assessee explained the reasons for writing off the aforesaid amounts in its books as under:- Ameri Gas Private Ltd. -Rs. 10,14,051.51 The amount is due to assessee from 1996 from the Ameri Gas Private Limited in respect of work done by the assessee company for preparation and supply of Voters Identity Cards on behalf of Ameri Gas Private Limited against the order received by them from the Government of India. In fact, in the Profit & Loss Account for the year ended March, 1996, the assessee had offered the amount of Rs. 1,54,09,751.55 as income billed on Ameri Gas Pvt. Ltd for manufacturing & Supply of Voters Cards Job. The assessee could not recover the aforesaid amount of Rs. 10,14,051.51 from Ameri Gas Private Limited, as assessee company could not finish the job in time and the result was that the Government penalized Ameri Gas Private Limited and did not pay the amount for this portion of the job because the contract was incomplete. Further, since the debt was time barred, assessee had no option but to write off the same. But out of Rs. 1,54,09,751.55 only Rs. 10,14,051.51 was not recoverable.

Pennzol Investment & Trading Co. Pvt. Ltd. : Rs. 16,90,920.44 The assessee company bought Industrial Gases from Pennzol Investment & Trading Company Private Limited and marketed the same in Hyderabad. Such sale was shown as income in the relevant year’s profit & Loss Account. During the course of business, assessee had to give to the said Company an advance in the current account/running account for buying industrial gases. The said advance was liable to be refunded/adjusted by Pennzol Investment & Trading Company Private Limited from the bills. The balance advance of Rs.16,90,920.44 which remained unadjusted in the running/current account during the regular business, ultimately became a bad advance after Pennzol Investment & Trading Company Private Limited sold its business and closed the whole show on 15th April, 1998. Since the amount in spite of assessee’s best efforts, became time barred, it had no choice,

3 Asiatic Oxygen Ltd. AY 2002-03 but to write off. It is also stated that this amount is also advanced during the course of business and sale against the purchase of industrial gases as shown in the Profit & Loss Account in number of years. M/s. Deepak Jhunjhunwala - Rs. 46,39,780/- & M/s. C.K.Tibrewala & Co. - Rs.10,15,493/- The amounts of Rs. 46,39,780/- and Rs. 10,15,493/- from M/s. Deepak Jhunjhunwala & Company and M/s. C.K Tibrewala & Company were due from 03.11.2000 and 03.04.2000 i.e. almost over a year before writing it off. After making all efforts to recover the said amounts, assessee filed cases against both the parties for which the Suits are still pending in the Courts. There was no possibility of getting money back from these two parties since as per assessee’s investigations there are no assets/property in their names. Therefore, the amounts have been written off as bad debts. However, as and when the amounts are received from the parties, the same would be credited to the Profit & Loss A/c as bad debts recovered. However, the chances of recovering these amounts appear to be extremely remote. There is no element of interest in the case of Deepak Jhunjhunwala accounts and in the case of C. K. Tibrewala & Co. the principal amount is Rs.10,00,000/- and the interest is Rs.15,493/- written off as bad debts. Earnest Money – Rs.6874.28 The amount was required to be paid as Earnest Money against a Tender for securing company’s business, but the tender ultimately was not finalized in favour of the company. The assessee wrote off the aforesaid amounts as bad advances written off in its books as irrecoverable and claimed the same as deduction which was disallowed by the ld AO. The ld CITA appreciated the contentions of the assessee and deleted the disallowance. Aggrieved, the revenue is in appeal before us on the following grounds :- “1. On the facts and circumstances of the case the Ld. CIT(A) has erred in not considering the fact that in order for a debt to be considered bad or irrecoverable, the conditions a) The amount being written off should have been offered to tax as an income in earlier year. b) The first condition being fulfilled, the debt must have gone bad. Which are mutually exclusive, must be fulfilled separately. 2. that the business of the assessee co. not being money lending, allowing bad debt as trading liability is bad in law. 3. that the debt totaling 73,37,547/- out of a total claim of 83,57,119/- by the assessee co., have never been offered to tax.”

4. The ld DR vehemently relied on the order of the ld AO . In response to this, the Ld AR claimed that the advances given to M/s Deepak Jhunjhunwala and M/s C.K.Tibrewala & Co were in the normal course of business of the assessee and interest income derived from M/s Deepak Jhunjhunwala and M/s C.K.Tibrewala & Co were offered to tax by the assessee as income from business which has been accepted by the ld AO in scrutiny assessment proceedings completed u/s 143(3) of the Act dated 18.3.2004 for the Asst Year 2001-02. The amounts were advanced to them in the normal course of business with a view to earn higher rate of interest and hence it was purely a business call taken by the assessee to lend the same with partial and nil security. It was argued that the decision to write off the said advances were taken by the assessee during the year under appeal after taking all the necessary efforts for recovery of the dues and after taking cognizance of the fact that those two share brokers had literally become bankrupt due to huge share market scam that happened in the year 2000 / 2001 which is popularly known as ‘ketan parekh scam’. With regard to loan dues recoverable from M/s Deepak Jhunjhunwala , the assessee had even sold the securities in the form of shares and sale proceeds thereon amounting to Rs. 23,60,220/- was appropriated towards the loan account. Hence the only security available with that party was sold and appropriated towards the loan account. Parallely the assessee had preferred a civil suit against those two parties which are still pending in the courts. The assessee had taken a conscious decision to write off the balances outstanding in their accounts as there are no assets / property in their names for confiscation. Hence the assessee had proved the irrecoverability status in order to claim the same as a trading loss u/s 28 of the Act.

With regard to amounts due from Ameri Gas Pvt Ltd from 1996 onwards in the sum of Rs. 10,14,051/-, the same is only a trade debt against supplies made by the assessee and income has been offered in the earlier years and since the dues were outstanding from 1996 onwards, the assessee took a conscious decision to write off the same as irrecoverable in its books and claimed the same as deduction u/s 36(1)(viii) of the Act after satisfying the conditions prescribed u/s 36(2) of the Act.

With regard to amounts due from Pennzol Investment & Trading Pvt Ltd in the sum of Rs. 16,92,920/- from 1996 onwards, the assessee used to buy Industrial Gases from the said

5 Asiatic Oxygen Ltd. AY 2002-03 party and for that party this amount was paid on account. Since the party closes their business in 1998 , the above amount could not be recovered from them either in goods or in physical payment. Since the debts were time barred, the assessee had no other option but to write off the same. He argued that admittedly this advance was paid in the normal course of business of the assessee as a trade advance and loss arising on account of write off of the same is allowable as a trading loss u/s 28 of the Act.

With regard to debts due from Ameri Gas Pvt Ltd, we find that the assessee had offered the sales in the year of supplies made to that party and had written off as irrecoverable in the year under appeal. The assessee had duly complied with the provisions of section With regard to amounts due from Pennzol Investment & Trading Co Pvt ltd, we find that the trade advances against supplies given by the assessee to such party could not be recovered and remaining outstanding for quite a long period of time and hence the assessee decided to write off the same as irrecoverable. We find that the advance was given in the nature of trade and in the normal course of business of the assessee for supply of industrial gases and loss arising on account of irrecoverabilty of the same is a trading loss allowable u/s 28 of the Act.

With regard to write off the earnest money deposits, the same was paid in the normal course of business and write off of the same is an allowable trading loss u/s 28 of the Act.

In view of the aforesaid facts and findings given thereon, we find no infirmity in the order of the ld CITA and accordingly we dismiss the grounds raised by the revenue.