Chowgule Brothers, Goa vs Department Of Income Tax

ITA NOS. 14 & 15/PNJ/2014 : (A.Ys : 2000-01 & 2001-02)

Asst. Commissioner of Income Vs. M/s. Chowgule Brothers, Tax, Circle-2, Margao, Goa. Chowgule House, Mormugao (Appellant) Harbour, Goa (Respondent) PAN : AABFC3959R

Assessee by : Pradip P.S. Kakodkar, CA Revenue by : Dr. S. Sundaresan, DR

Date of Hearing : 13/01/2015 Date of Pronouncement : 15/01/2015

ORDER

PER P.K. BANSAL

1. Both these appeals have been filed by the Revenue against the consolidated order of CIT(A) dt. 21.10.2013 by taking the following effective grounds of appeal :

ITA NO. 14/PNJ/2014 (A.Y : 2000-01) :

"2. The ld. CIT(A) has erred in deleting the additions of Rs.1,07,67,465/- made by the AO on account of brokerage/commission receivable duly reflected in TDS certificate on the ground that the assessee never ever received the amount, which is factually not correct.

3. The ld. CIT(A) has ignored the confirmation given by Flanders Dredging Corporation regarding rendering of services and payment of consideration in the subsequent financial year as mentioned in the order u/s 143(3) for A.Y 2001-02."

2 ITA NOS. 14 & 15/PNJ/2014 (A.Ys : 2000-2001 & 2001-02)

ITA NO. 15/PNJ/2014 (A.Y : 2001-02) :

"2. The Ld. CIT(A) has erred in allowing bad debts written off of Rs.1,01,66,637/- u/s 36(1)(vii) of the IT Act which was claimed in the year of receipts, shown in the TDS certificate.

3. The Ld. CIT(A) has erred in stating that the amount of Rs. 1,07,67,465/- was never ever received by the assessee even when the assessee has itself has offered the said receipt to tax in its return of income filed for A.Y 2001-02."

2. The brief facts of the case are that the Assessee entered into an agreement with a non-resident foreign company for providing ancillary services in lieu of payment of service fees. The Assessee has declared receipt of Rs.2,97,88,535/- on account of agency remuneration, survey fees, brokerage, CHA fee etc. The said receipt also includes amount of Rs.1,07,67,465/- from Flander Dredging Corp. (FDC). Against this, the Assessee debited a sum of Rs.1,01,66,637/- as irrevocable debt. It was explained that the income was not offered in A.Y 2000-01 on accrual basis for the reason that the Assessee did have any statement of account from FDC after 29.7.1999 specifying the amount to be received by the Assessee. The services were rendered in respect of Ennore Project which ended by March, 2000. In September/October a letter from JDN dt. 19.8.2000 and a TDS certificate for Rs. 5,92,211/- was also received. Total amount of Rs.1,07,67,465/- includes the aforesaid tax deducted at source. However, the remaining amount was not received by the Assessee till 31.3.2001. The AO sought information from FDC in terms of Sec. 133(6). Response was received from M/s. Botliboi & Co., C.A vide their letter dt. 17.3.2004. As per the letter it was submitted that FDC has debited expenditure for services rendered by M/s. Chowgule Brothers amounting to Rs.1,57,56,295/- during the financial year 1999-2000. In addition to above, Rs. 45,52,991/- and Rs.2,23,978/- was payable to M/s. Chowgule Brothers towards 3 ITA NOS. 14 & 15/PNJ/2014 (A.Ys : 2000-2001 & 2001-02)

reimbursement of expenses for F.Y 1999-2000 and 2000-2001 respectively and it was submitted that following gross payment was paid to M/s. Chowgule Brothers.

Particulars Amount in Rupees (Gross) Financial Year 1999-2000 1,23,45,290 Financial Year 2000-2001 78,137 Financial Year 2002-03 52,79,242/-

Amount payable as on Amount in Rupees March 31, 2000 1,13,78,036 March 31, 2001 1,08,65,536 March 31, 2002 1,08,65,536 March 31, 2003 Nil

This information was made available to the Assessee and Assessee was asked to reconcile the accounts. The Assessee initially doubted the reliability of the information. However, vide letter dt. 23.3.2004 it was agreed that the amount of Rs. 39,30,967/- can be taken as income of the Assessee for A.Y 2001-02 and necessary adjustment should be allowed to be made in A.Y 2002-03. The AO considering the submission of the Assessee made the following finding :

"(i) Flanders have a running account of their transactions with the assessee firm. They had an opening balance of Rs.34,14,039/- payable to the assessee firm but the same has not been disclosed to the Department in the statement of account given at the initial stage of the assessment proceedings. The amount of opening balance shown as per the statement of account which is reproduced in the earlier part of this order is only Rs.8,617/-. The intention of the assessee firm in not disclosing the correct opening balance is not known. The summary of Flanders account as per the assessee firm also confirms the fact that assessee firm is maintaining a running account of Flanders in its books.

(ii) In the amount written off the assessee firm has not mentioned an amount of Rs.34,14,039/- opening balance at all. What is written off is difference between the amount of fee and the amount of TDS and an opening balance of Rs.8,617/-.

4 ITA NOS. 14 & 15/PNJ/2014 (A.Ys : 2000-2001 & 2001-02)

(iii) The AR of the assessee has gone on to explain through various annexures attached to his letter dated 23-03-2004 the various transactions to relate the remittance of Rs.52,79,242/- received by them from Flanders. In fact this amount received by them in the financial year 2002-03 was never disclosed during the assessment proceedings and nor offered for taxation in the return filed for assessment year 2003-04 as the amount in question was already written off in their books and they had a liability to offer the same as income u/s 41(1) for the assessment year 2003-04 which was not done. Had the assessee firm offered that as an income in the assessment year 2003-04, it would have established the intention of the assessee firm that it pays its taxes legitimately. It is only after the information was received from S.R. Batliboi and Company, the assessee firm has come forward and has tried to reconcile the amount received by them of Rs.52,79,242/-.

(iv) As regards the final part agency fee of Calcutta job of Rs.46,23,540/- referred to in Sl. No.4 of the AR's letter reproduced above, the AR was asked as to whether any TDS was done by the Flanders on this amount. Actually speaking, this is an amount paid towards arrears outstanding for which the tax was already deducted vide the TDS certificate dated 31-03-2000.

(v) In para 5 of the letter of the AR, he concludes saying that if at all the AO wishes to take any income out of the amount written off by the assessee the same is worked out at Rs.39,30,967/-. The assessee firm has finally agreed for offering Rs.39,30,965/- as income for the assessment year 2001-02.

(vi) In para 7 of the letter of the AR, it is stated that the offer made of income of Rs.39,30,967/- should not be considered as an admission of any final settlement with Flanders as the assessee firm is still pursuing with them to determine the amount payable for services rendered by them. This goes to show that assessee firm is still in the process of recovering the amount from the Flanders."

The AO was of the view that the Assessee was not correct in writing off the debt. The Assessee has received the payment in A.Y 2002-03 and in different year goes to prove that the debt has not become bad. The AO taxed the sum of Rs. 1,07,67,465/- as offered by the Assessee but did not allow the claim of deduction of Rs. 1,01,66,634/- during the A.Y 2001-02. The Assessee went in appeal before CIT(A). CIT(A) took the view that the income is taxable in A.Y 2000-01 as income has accrued to the Assessee during the impugned 5 ITA NOS. 14 & 15/PNJ/2014 (A.Ys : 2000-2001 & 2001-02)

assessment year and Assessee has rendered the services to FDC in F.Y 1999- 2000. CIT(A) also disallowed the claim made u/s 36(1)(vii) in A.Y 2001-02. Against this order the Assessee went in appeal before the Tribunal. The Tribunal set aside the orders for both assessment year vide its order dt. 12.7.2007. The AO again made addition and CIT(A) deleted the addition in both the assessment year.

3. We heard the rival submissions and carefully considered the same. We noted that this is not a case where the Assessee has not rendered any services to the foreign principal. The AO sought information from FDC u/s 133(6). In response, information was submitted vide letter dt. 17.3.2004 through M/s. Botliboi & Co. It was submitted that the Assessee had rendered services worth Rs. 1,57,56,295/- during F.Y 1999-2000. Even particulars in respect of payment made to the Assessee during different financial years were also submitted before the AO. Even in the said letter we noted that FDC has confirmed the amount payable to the Assessee as on the year ended 31.3.2000 and 31.3.2001. So far as A.Y 2001-02 is concerned, the Assessee has included the income in its profit and loss account but so far as A.Y 2000-01 is concerned, the Assessee has not included the sum in its income. It is not a case where the income has not been received or accrued to the Assessee. It is a case where the income has duly been received as well as accrued to the Assessee. The provisions of Sec. 36(1)(vii) are not applicable in this case as it is not a debt written off but it is a case where the income has actually been received by the Assessee but not accounted for. We accordingly set aside the order of CIT(A) and confirm the addition of Rs.1,07,67,465/- made by the AO for the A.Y 2001-01.

4. So far as A.Y 2001-02 is concerned, we noted that the Assessee has credited a sum of Rs.1,07,67,465/- in his books of accounts and as per the 6 ITA NOS. 14 & 15/PNJ/2014 (A.Ys : 2000-2001 & 2001-02)

information received by the AO u/s 133(6), during the F.Y 2000-01 the Assessee has received payment from FDC amounting to Rs.78,137/- and a sum of Rs. 1,08,65,537/- has also accrued to the Assessee. In view of this fact and since the income accrued and the amount received must have some part of it as reimbursement and also the fact that the Assessee had already shown the said income in the total receipt declared by him amounting to Rs.2,97,88,535/-, we confirm the order of CIT(A) deleting the addition of Rs.1,07,67,465/- during the impugned assessment year. Thus, this ground stands dismissed.

5. The next issue relates to written off bad debts during the impugned assessment year. Since we have already confirmed the order of CIT(A) during the impugned A.Y 2001-02 amounting to Rs. 1,07,67,465/-, therefore, in our opinion, the ground relating to claim of deduction by the Assessee u/s 36(1)(vii) does not survive. Therefore, this ground also stands dismissed.

6. In the result, the appeal filed by the Revenue for A.Y 2000-01 stands allowed whereas the appeal for A.Y 2001-02 stands dismissed.

7. Order pronounced in the open court on 15/01/2015.

Sd/- Sd/- (D.T.Garasia) (P.K. Bansal) Judicial Member Accountant Member Place : PANAJI Dated : 15/01/2015 *SSL* 7 ITA NOS. 14 & 15/PNJ/2014 (A.Ys : 2000-2001 & 2001-02)

Copy to : (1) Appellant (2) Respondent (3) CIT concerned (4) CIT(A) concerned (5) D.R (6) Guard file True copy, By order