KERALA TRANSPORT COMPANY Vs. COMMISSIONER OF INCOMETAX

JUDGEMENT

(1.) THIS is an appeal preferred by the assessee under section 260a of the Income-tax Act against the order of Income-tax Appellate Tribunal in ITA. 622/coch/92. Following are the questions of law raised for our consideration. 1. Whether or not the Tribunal was right in law in not allowing a deduction of Rs. 1,06,978/- as bad under section 36 (2) of Income-tax act? 2.Whether or not the Tribunal misdirected itself and acted perversely taking into consideration that the goods did not belong to the assessee and that there is no amount due to the assessee particularly when the claim of the assessee was that the freight due has become bad and written off as evidenced by page 50 & 51 of the paper book? 3.Whether or not the Tribunal was right inholding that the three items of bad debt in aggregate Rs. 44,527/- is not an allowable deduction as a bad debt without considering each item on its merits about recoverability like period of pendency difficulty for initiation of legal proceedings and other similar matters but only on a rule of thumb that amounts about Rs. 3,000/-are not bad debt? 4.Whether or not the Tribunal was right in law in disallowing payment of interest on Rs. 73,996/- when it is a liability incurred by the assessee and when there is no attornment when the vehicle was transferred to their sister concern and also when there is no material to show that the interest payment was for extra legal, personal or any non business consideration and voluntary in nature? Assessee is a partnership firm engaged in the business of transportation of goods. For the assessment year 1988-89, assessment under section 143 (3) on a total income of Rs. 74,05,000/- was made as against the total income of Rs. 31,83,510/- returned by the assessee. Aggrieved by the various findings rendered by the assessing officer, assessee preferred an appeal before the Commissioner of Income-tax (Appeals ). Appeal was partially allowed. Dissatisfied with the order of the Commissioner, assessee took up the matter in appeal before the Tribunal. A cross-objection was also filed by the revenue. Assessee had claimed deduction of an amount of Rs. 1,06,978/- as cost of goods damaged in transit. Disallowance was upheld by the Commissioner (Appeals) as well as by the Tribunal. Claim raised by the assessee as bad debt under section 36 (2) was also decided against the assessee.

(2.) AGGRIEVED by the same this appeal has been preferred. Assessee had claimed three items of deduction, Rs. 1,06,978/- being the amount of freight which had become bad and irrecoverable as a result of the damage claimed by the customers, Rs. 49,527/- being the aggregate of other bad debts and Rs. 73,996/- being the interest payable to the financier on account of purchases of motor vehicles. Tribunal rejected the claims except bad debts to the extent of Rs. 23,024/- made up of various debts each being below Rs. 3000/ -. According to the assessee, the reasoning for the disallowance are flimsy, perverse and contrary to the provisions of Income-tax Act, 1961. Assessee had claimed freight charges which had gone into the computation of the earlier years and had become irrecoverable because of the refusal by the customer to pay the freight due to the assessee on account of the pending claim for damages by the customer. Assessee has also stated that the Tribunal has committed an error in disallowing bad debts of three items.

(3.) THE stand of the revenue is that the assessee was not entitled to claim the deduction either as a trading loss or as a bad debt for the assessment year 1988-89. Revenue placed considerable reliance on the report of the auditor. It was stated that the loss was incurred in the year 1983 and the matter was settled and the remaining goods were taken back in 1986. It was pointed out by the revenue that even if there was any liability that related to the earlier year. On the claim for bad debt, stand of the revenue, was that this was not an amount which had been taken into account in computing the assessee's income for the current year or for any earlier year. Further it was pointed out that the assessee was only transporting the goods belonging to KSDC and there was no question of crediting the value of the goods in the assessee's account.