Preeti Tex v. Income-tax Officer,
Ward-II(4), Coimbatore
A.Y. : 2003-04. Dated : 18-1-2008
S. 36(1)(vii) of the Income-tax Act — Since debts could not
be recovered in spite of best efforts, whether assessee was entitled to
deduction u/s.36(1)(vii) — Held, Yes.
The assessee-firm had entered into a Cost, Insurance and
Freight (CIF) agreement with a certain Bangladeshi party for selling its
goods. When the goods reached Custom station of Benapole inside Bangladesh,
said party failed to pay for goods after having acknowledged receipt of goods
at Custom station. Therefore, the assessee claimed value of goods from foreign
buyer. Despite making an honest attempt to recover the said amount, the
assessee could not recover the same and, therefore, had written-off said
amount as bad debts in its books of account during the year and claimed
deduction of same u/s.36(1)(vii). The Assessing Officer rejected its claim. On
appeal, the Commissioner (Appeals) found that there was no evidence on the
part of the assessee to show as to what legal steps were taken by it against
the buyer or its bank to recover its money. He, therefore, rejected the
assessee’s claim.
On second appeal : the ITAT held that :
(1) Under a CIF contract, seller is required to insure
the goods; to deliver them to the shipping company; to arrange for
affreightment; and to send the bill of lading and insurance policy together
with invoice and a certificate of origin to a bank.
(2) The documents are usually delivered by the bank
against the payment of price or against the acceptance of the bill.
(3) The property in the goods passes on to the buyer on
the delivery of documents. In the instant case, it was not disputed that the
buyer had got the delivery of documents.
(4) In a CIF contract the buyer has got to accept the
documents and to pay the price, even if the goods are destroyed or lost. In
that case, he has the remedy against the insurer to recover the loss.
(5) The whole documents the assessee relied upon had
clearly proved the completed wholesome CIF contract and the assessee had
taken an honest decision as contemplated on the part of the duty of the
seller. The insurance was perfectly made. All requirements of CIF contract
were satisfied. Therefore, the assessee could not be faulted with
transaction. As per the C&F terms, the goods were sold and the fact that the
goods had reached the Custom station was not at all disputed.
(6) The fact that the goods were lost or destroyed in a
fire at the Custom port in Bangladesh was also not disputed. Under the above
circumstances, the amounts were due under two of the invoices for goods sold
on C&F terms and the goods were exported on C&F terms after fulfilling all
the conditions for entering into C&F contract, the goods were covered by
transit insurance arranged by the buyer.
Under the above facts and circumstances, in spite of honest
efforts made by the assessee, the debts could not be recovered and in view of
the honest decision of the assessee the book debts were written-off for the
previous year relevant to the assessment year under appeal. Therefore, the
claim of the assessee was to be allowed.
