The Commissioner Of Income Taxkarnal v. M/S. Mittal Wine Traders, Karnal

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 81 of 2007Date of decision: 7.12.2010 The Commissioner of Income TaxKarnal Versus --- Appellant M/s. Mittal Wine Traders, Karnal --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Mr. Yogesh Putney, Senior Standing Counselfor the appellant. Mr. D.K. Goyal, Advocatefor the respondent. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the Revenue against theorders dated 13.4.2006, 1.2.2006, 26.3.2004 and 24.9.2004 passedby the Income Tax Appellate Tribunal Delhi Bench ‘B’ New Delhi (inshort “the Tribunal”) in ITA No. 66/Del/2001, relating to theassessment year 1997-98. The appeal was admitted for determination of thefollowing substantial questions of law by this Court: “1-Whether on the facts and circumstances of the caseHon’ble ITAT was right in law in confirming the order ofCIT(A) deleting the addition of Rs. 18,40,549/- made bythe AO on account of bad debts when the partners of thefirm failed to produce the books of account?Hon’ble ITAT was right in law in confirming the order ofCIT(A) deleting the addition of Rs. 18,40,549/- made bythe AO on account of bad debts when the partners of thefirm failed to produce the books of account? 2-Whether on the facts and circumstances of the caseHon’ble ITAT was right in law in confirming the order ofCIT(A) deleting the addition of Rs. 1,86,565/- when theassessee failed to furnish the confirmatory account?Hon’ble ITAT was right in law in confirming the order ofCIT(A) deleting the addition of Rs. 1,86,565/- when theassessee failed to furnish the confirmatory account? The facts, in brief, necessary for adjudication and asnarrated in the appeal, are that the respondent-assessee, at therelevant time, was a wholesale wine contractor and was carrying onthe business under L-1 licence, at Karnal. The assessee filed returnfor the assessment year in question declaring an income of Rs.3,120/-. The return was selected for scrutiny and, accordingly,notices under Sections 143(2) and 142(1) were issued to it. Duringthose proceedings it came to the notice of the assessing officer thattotal sale as per the account maintained by the assessee, up to theperiod 30.6.1996, was of Rs. 1,08,70,358/-. But in the tradingaccount appended along with the return, the assessee had shownthe sales at Rs. 86,69,564/- as against the amount of Rs.1,08,70,358/-. The assessing officer, thus, found that there was asuppression of Rs. 22,00,794/- though on other hand the assesseeclaimed that it had allowed rebate to the tune of Rs. 1,73,580/- toM/s. Shiva Agency and Rs. 1,86,565/- to M/s. Attar Singh and Co. on30.4.1996 and an amount of Rs. 18,40,549/- was a bad debt unrecoverable from the people who made purchases from it but ranaway leaving no whereabouts. The assessing officer required the assessee to reconcile the above amounts and afforded opportunities to it in that behalf, butthe replies furnished by the assessee did not find favour with theassessing officer who ultimately, vide order dated 8.3.2000, rejectedthe books of account of the assessee and disallowed the amount ofRs. 1,86,565/- claimed as rebate and Rs. 18,40,549/- as bad debts.Consequently, the assessing officer made additions of the saidamounts in the income of the assessee. The Commissioner of Income Tax (Appeals) [for short unrecoverable from the people who made purchases from it but ranaway leaving no whereabouts. The assessing officer required the assessee to reconcile the above amounts and afforded opportunities to it in that behalf, butthe replies furnished by the assessee did not find favour with theassessing officer who ultimately, vide order dated 8.3.2000, rejectedthe books of account of the assessee and disallowed the amount ofRs. 1,86,565/- claimed as rebate and Rs. 18,40,549/- as bad debts.Consequently, the assessing officer made additions of the saidamounts in the income of the assessee. The Commissioner of Income Tax (Appeals) [for short “the CIT(A)”], on an appeal carried by the assessee, vide order dated13.10.2000, observed that the assessee was right in writing off theoutstanding balance standing in the names of certain parties underthe provisions of Section 36(1)(vii) of the Act. As regards the amountof Rs. 1,86,565/- claimed as rebate, the CIT(A) found that the saidamount stood included in the balance outstanding which had beenwritten off and accordingly deleted the addition made on that countas well. The CIT(A) while partly allowing the appeal sustained theaddition of Rs. 2,73,264/-. The Revenue preferred appeal before the Tribunalagainst the order of the CIT(A). The Tribunal did not feel satisfied onthe reconciliation of the difference on the ground that the same wasnot correct inasmuch as the assessing officer had not noticed anydifference in its order as observed by the CIT(A). The Tribunal, thus,vide order dated 26.3.2004, directed the matter to be sent back tothe CIT(A) for factual verification and decision on the questions afresh after considering the evidence and affording an opportunity ofbeing heard to the assessee. One of the members of the Tribunal,however, came to a different view. There being a difference ofopinion, the appeal was heard by the Vice-President as a ThirdMember. The Third Member concurred with the view of theAccountant Member (AM) and ordered for placing the matter fordisposal before the regular Bench. We have heard learned counsel for the parties andperused the record. The appeal raises the question regarding addition of Rs.18,49,549/- made by the assessing officer on account ofdisallowance of bad debts claimed by the assessee, and deletion ofRs. 1,86,565/- in regard to which the assessee had failed to furnishconfirmatory account. There being a difference of opinion betweenboth the members of the Tribunal, the matter was referred to theVice-President, i.e. the Third Member. The Third Member whileagreeing with the AM with regard to first addition of Rs. 18,49,549/-on account of bad debts had recorded the following: “I have considered the rival contentions and the material on record. The foremost fact which needs to beappreciated in its right perspective is that when thebusiness of the assessee had just started picking up andwhen just three months had passed, the HaryanaGovernment imposed prohibition in the State. It is notdifficult to imagine what could be the state of affairs of thewhole lot of liquor vendors, be it a wholesaler or a retailer.It is not a case of the business going awry but it is a case “I have considered the rival contentions and the material on record. The foremost fact which needs to beappreciated in its right perspective is that when thebusiness of the assessee had just started picking up andwhen just three months had passed, the HaryanaGovernment imposed prohibition in the State. It is notdifficult to imagine what could be the state of affairs of thewhole lot of liquor vendors, be it a wholesaler or a retailer.It is not a case of the business going awry but it is a case where there is complete derailment of the business. Theassessee was in the wholesale trade. He supplied goodsto the retailers. Needless to say, when there is totalprohibition, the retailers have to effect distress sales torecoup whatever they have invested, particularly, bypaying heavy license fees and in the purchases. It cansend any businessman into a dizzy and cripple him for along time. It is in this background that the assessee,despite all his efforts could not recover the sum of Rs.18,49,549/- from nine parties. I fail to understand whatmore is required to prove that the debts had reallybecome bad. Not only that, three out of nine partiesappeared before the Assessing Officer and admitted theirliability but categorically stated about their inability tomake the payment. The debts from these three partiesalone account for nearly Rs. 14 lacs which covers themajor portion of the total debts written off by theassessee. I also fail to understand as to what purposewould be served by restoring the matter back to the file ofthe Assessing Officer. More over the parties havevanished which even the Assessing Officer could nottrace, then what to talk of the assessee itself. It is alsonot in dispute that quantum of sales declared by theassessee has been accepted by the Assessing Officer.The purchases are verifiable from excise record. Underthese circumstances, I do not see anything wrong on thepart of the assessee to write off the debts. Therefore, I agree with the view taken by the learned AM and upholdthe deleting of the addition of Rs. 18,49,549/-.” The Tribunal, thus, per majority on appreciation of material had concluded that the assessee had written off bad debtsamounting to Rs. 18,49,549/- which had become irrecoverable fromnine parties out of which the debts from three parties was to the tuneof Rs.14 lacs. The prohibition imposed in the State of Haryana hadcreated difficulties for the assessee which had resulted in debtsbecoming bad. It was further observed that parties had vanished dueto prohibition. The said finding has not been shown to be perverse or erroneous by the counsel for the revenue. Now adverting to the second addition of Rs. 1,86,565/- on account of rebate allowed to M/s. Attar Singh and Co., the VicePresident in para 7, has noticed as under: “7. The second question pertains to the deletion of theaddition of Rs. 1,86,565/- made on account of rebateallowed to M/s. Attar Singh & Co. In fact, the assesseehad allowed rebate also to M/s. Shiva Agency. TheAssessing Officer allowed the rebate in the case of M/s.Shiva Agency on the grounds that a confirmation in thisregard was filed by the assessee. However, since therewas no confirmation from M/s. Attar Singh & Co., theAssessing Officer did not allow the claim for rebate. Onecan not lose sight of the fact that M/s. Attar Singh & Co.appeared before the Assessing Officer. Therefore, atleast the identity is proved. When the party itself appeared before the Assessing Officer, I fail to understand as to what prevented the Assessing Officer “7. The second question pertains to the deletion of theaddition of Rs. 1,86,565/- made on account of rebateallowed to M/s. Attar Singh & Co. In fact, the assesseehad allowed rebate also to M/s. Shiva Agency. TheAssessing Officer allowed the rebate in the case of M/s.Shiva Agency on the grounds that a confirmation in thisregard was filed by the assessee. However, since therewas no confirmation from M/s. Attar Singh & Co., theAssessing Officer did not allow the claim for rebate. Onecan not lose sight of the fact that M/s. Attar Singh & Co.appeared before the Assessing Officer. Therefore, atleast the identity is proved. When the party itself appeared before the Assessing Officer, I fail to understand as to what prevented the Assessing Officer from making the specific inquiry with M/s. Attar Singh &Co. Mere absence of a written confirmation does notrender the claim to be non-genuine, particularly, in thebroader perspective of the fact narrated while disposingof the first question. Here also, I do not see that anyuseful purpose would be served by restoring the matterback to the file of the Assessing Officer. Thus, thedeletion of this addition is also confirmed.” The Tribunal on appreciation of the evidence had arrived at the finding that the identity of M/s. Attar Singh and Company wasproved as the party had appeared before the assessing officer. Therebate allowed had been held to be genuine. No illegality orperversity could be pointed out by the counsel for the appellant in thesaid finding as well and, thus, the Tribunal was justified in deletingboth the additions. Accordingly, the substantial questions of law are answered in favour of the assessee and against the revenue andfinding no merit in the appeal the same is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) JUDGE