M/s, Kalyani Agencies, Coimbatore v. ACIT, Coimbatore

ITA 637/CHNY/2010 | 2006-2007
Pronouncement Date: 28-01-2011 | Result: Allowed

Appeal Details

RSA Number 63721714 RSA 2010
Assessee PAN AABFK5125D
Bench Chennai
Appeal Number ITA 637/CHNY/2010
Duration Of Justice 8 month(s) 24 day(s)
Appellant M/s, Kalyani Agencies, Coimbatore
Respondent ACIT, Coimbatore
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 28-01-2011
Date Of Final Hearing 20-01-2011
Next Hearing Date 20-01-2011
Assessment Year 2006-2007
Appeal Filed On 04-05-2010
Judgment Text
IN THE INCOMETAX APPELLATE TRIBUNAL: B- BENCH:CHENN AI (BEFORE SHRI ABRAHAM P. GEORGE. ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN JUDICIAL MEM BER) ITA NO. 637 / MDS/10 ASST. YEAR 2006-07 M/S. KALYANI AGENCIES 1027 R.G. STREET COIMBATORE 641`001 PAN AABFK5125D VS. THE ACIT CIR.III COIMBATORE (APPELLANT) (RESPONDENT) APPELLANT BY : RESPONDENT BY: SHRI R.VIJAYARAGHAVAN SHRI P.B.SEKARAN CIT(DR) ORDER PER SHRI ABRAHAM P.GEORGE A.M: IN THIS APPEAL FILED BY THE ASSESSEE ITS GRIEVANC E IS THAT THE CLAIM OF ` 5 15 602/- MADE BY IT ON ACCOUNT OF WRITE OFF OF A PAYMENT DUE TO IT FROM ONE M/S VMSV SCREEN PRINTERS (VMSV FOR SHORT) WAS NOT ALLOWED. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE ENGAGED I N THE BUSINESS OF TRADING IN COTTON YARN AND ALSO AS YARN BROKERS HA D CLAIMED A SUM OF ` 5 15 602/- IN ITS PROFIT AND LOSS ACCOUNT AS BAD DE BT. AO WAS OF THE ITA NO. 637/MDS /10 2 OPINION THAT ASSESSEE COULD NOT PROVIDE ANY PROOF R EGARDING THE DEBT WHETHER IT HAD BECOME IRRECOVERABLE OR IT HAD BECO ME BAD. HE DISALLOWED THE CLAIM. 3. ASSESSEES CONTENTION BEFORE THE LD. CT(A) WAS THAT IN ITS CAPACITY AS A BROKER FOR A DEAL BETWEEN M/S SRI RAM AKRISHNA MILLS (CBE) (SRM FOR SHORT) AND VMSV A SUM OF ` 5 15 602/- BECAME DUE FROM VMSV TO SRM AND IT PAID SUCH AMOUNT TO SRM SINCE M/S VMS V FAILED TO MEET ITS COMMITMENTS. THIS AMOUNT WAS SHOWN DUE FROM M/ S VMSV. ACCORDING TO ASSESSEE WHEN VMSV FAILED TO PAY THE SUM TO THE ASSESSEE IT HAD WRITTEN IT OF AS A BAD DEBT. THIS PLEA TAKEN BY ASS ESSEE BEFORE THE CIT(A) DID NOT FIND ACCEPTANCE FROM HIM. 4. IN FURTHER APPEAL FILED BY ASSESSEE BEFORE THIS TRIBUNAL A GROUND WAS TAKEN BY ASSESSEE THAT IF THE AMOUNT WAS NOT AL LOWABLE AS BAD DEBT IT SHOULD BE ALLOWED AS A BUSINESS LOSS. THIS TRIBUNAL IN ITS ORDER DATED 15- 10-2009 IN ITA NO.522/MDS/09 REMITTED THE ISSUE BAC K TO THE CIT(A) FOR THE LIMITED PURPOSE OF CONSIDERING THE PLEA OF THE ASSESSEE THAT AMOUNT SHOULD BE ALLOWED AS A BUSINESS LOSS. IN THE SECOND ROUND OF PROCEEDINGS BEFORE THE CIT(A) ASSESSEE RELIED ON VARIOUS DECIS IONS FOR CLAIMING IT AS A LOSS. BUT NEVERTHELESS LD. CIT (A) WAS OF THE OPIN ION THAT NONE OF THE CASES CITED WAS COMPARABLE ON FACTS OR ON PRINCIPLE TO ASSESSEES CASE. ITA NO. 637/MDS /10 3 ACCORDING TO HIM LOSS CLAIMED BY ASSESSEE IN THE F IRST PLACE DID NOT RELATE TO THE IMPUGNED A.Y. IN THE SECOND PLACE AS PER TH E LD. CIT(A) THERE WAS NO WRITTEN ARRANGEMENT WHEREBY THE ASSESSEE WAS OB LIGED TO PAY THE SUMS TO SRM ON FAILURE OF VMSV AND IT WAS ALSO NOT IN ACCORDANCE WITH ACCEPTED COMMERCIAL PRACTICE. THEREFORE HE DID NOT ALLOW THE CLAIM OF BUSINESS LOSS. 5. NOW BEFORE US ASSAILING THE ORDER OF LD. CIT(A) LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE HAD IN ITS CAPACIT Y AS A BROKER ARRANGED FOR A DEAL BETWEEN SRM AND VMSV. ACCORDING TO THE L D. AR WHEN VMSV FAILED TO MAKE PAYMENT TO SRM ASSESSEE WAS OBLIGED TO MAKE SUCH PAYMENT IN ORDER TO KEEP THE BUSINESS RELATIONSHIP WITH SRM INTACT WHICH WAS ESSENTIAL IN THE NATURE OF THE TRADE OF THE ASS ESSEE. ACCORDING TO HIM ASSESSEE COULD NOT GET THE AMOUNT FROM VMSV WHICH B ECAME SICK. THUS THE PAYMENT MADE IN 2001 COULD NOT BE RECOVERED EVE N DURING THE RELEVANT PREVIOUS YEAR AND ASSESSEE HAD WRITTEN OFF THE AMOUNT. THEREFORE ACCORDING TO HIM IT WAS A LOSS WHICH WA S INCURRED DURING THE COURSE OF BUSINESS AND THEREFORE HAD TO BE ALLOWED . 6. PER CONTRA LD. DR SUBMITTED THAT THERE WAS NO O BLIGATION IN THE NORMAL COURSE OF BUSINESS OF THE ASSESSEE TO MAKE G OOD THE PAYMENT DUE TO A SELLER FROM A BUYER SINCE ASSESSEES ROLE WA S ONLY AS BROKER AND HE HAD NEVER UNDERTAKEN TO MAKE GOOD ANY SUCH LOSS SUF FERED. ITA NO. 637/MDS /10 4 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. THE FACTS NOT IN DISPUTE ARE THAT THE ASSESSEE HAD BROK ERED A TRANSACTION BETWEEN SRM AND VMSV AND VMSV HAD FAILED TO MAKE TH E PAYMENT TO SRM. IN PURSUANCE OF THIS ASSESSEE HAD EFFECTED TH E PAYMENT TO SRM IN THE YEAR 2001 AND TREATED SUCH AMOUNT AS A DEBT DUE FROM VMSV. DURING THE RELEVANT PREVIOUS YEAR IT HAD WRITTEN OFF SUCH DEBT THROUGH ITS PROFIT AND LOSS ACCOUNT. AS PER ASSESSEE THE AMOUNT SHOULD BE ALLOWED AS A BUSINESS LOSS. THE FACTS OF THE CASE WOULD CLEARLY SHOW THAT ASSESSEE HAD EFFECTED THE PAYMENT TO M/S.SRM IN THE COURSE OF IT S BUSINESS AS A BROKER SO AS TO KEEP ITS STATUS AS A RELIABLE BROKER INTA CT. IN THE BUSINESS OF A BROKER IN ORDER TO ENSURE CONTINUOUS FLOW OF BUSIN ESS IT IS NECESSARY THAT HE ENJOY THE CONFIDENCE OF ITS CLIENTS. SUPPLIER FI RM WOULD MAKE A SUPPLY BASED ON A DEAL BROKERED BY A BROKER AND GIVE CREDI T TO THE BUYER BASED ON THE CONFIDENCE HE REPOSES ON THE BROKER. IF THER E IS A FAILURE FROM BUYER TO MAKE GOOD THE PAYMENT DUE NO DOUBT IT WILL HAV E A NEGATIVE IMPACT ON THE BROKER. IN SUCH A SITUATION IN ORDER TO KEEP IT S REPUTATION INTACT IF THE BROKER EFFECTS THE PAYMENT WE CANNOT SAY THAT THIS IS NOT A BUSINESS PRACTICE WHICH IS NOT ACCEPTABLE IN THE LINE OF BU SINESS AS A BROKER. ASSESSEE HAVING MADE THE PAYMENT WOULD HAVE TREATED VMSV AS A DEBTOR IN ITS BOOKS. WHEN IT FOUND THAT VMSV WOULD NOT BE ABLE TO MAKE THE PAYMENT THE WRITE OFF EFFECTED WAS NOTHING BUT A BUSINESS LOSS OF THE ITA NO. 637/MDS /10 5 ASSESSEE. SUCH BUSINESS LOSS WAS INCURRED SO AS TO KEEP ITS REPUTATION AS A BROKER UNIMPAIRED. IT IS DEFINITELY ALLOWABLE UND ER SEC. 37(1) OF THE INCOME-TAX ACT 1961 (THE ACT FOR SHORT). THAT EX PENDITURE MENTIONED IN SEC.37(1) OF THE ACT WOULD ALSO INCLUDE A LOSS HAS BEEN CLEARLHY HELD BY HONBLE APEX COURT IN THE CASE OF CIT VS. WOODWARD GOVERNOR (I) P. LTD. (312 ITR 254). HONBLE APEX COURT HELD THAT UNDER S EC.37(1) OF THE ACT COVERED BOTH EXPENSES INCURRED AS WELL AS THE REAL LOSS THOUGH THE AMOUNT HAD NOT GONE FROM THE POCKET OF THE ASSESSE E. HERE ON THE OTHER HAND THE AMOUNT HAD INDEED GONE OUT OF THE POCKET OF THE ASSESSEE AND CLAIM WAS THEREFORE ALL THE MORE ALLOWABLE AS A BUS INESS LOSS OF THE ASSESSEE. WE THEREFORE DIRECT THE AO THAT THE CLA M OF ASSESSEE BE ALLOWED AS BUSINESS LOSS. 9. APPEAL OF THE ASSESSEE IS THEREFORE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 28-01-2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI: 28TH JANUARY 2011. NBR CC: ASSESSEE/ ASSESSING OFFICER/ CIT(A)/ CIT/ D .R/ GUARD FILE. ITA NO. 637/MDS /10 6