MAHINDRA INTERTRADE LTD, MUMBAI V. DCIT CIR 2(2), MUMBAI

CO 193/MUM/2010

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7716 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 11 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-07-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 28-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRAVIN VARMA
• Assessee Lawyers: H P MAHAJANI
• Keywords: Depreciation; Bad and doubtful debts
• Section: 14A

Judgement Text

M/S MAHINDRA INTERTRADE LTD. I.T.A.NO. 1698 & CO. NO. 193 PAGE 1 OF 5 IN THE INCOME TAX APPELL ATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER I.T.A. NO. 1698/MUM/2010 ASSESSMENT YEAR : 2005-06 DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(3), MUMBAI. VS. M/S MAHINDRA INTERTRADE LIMITED, GATEWAY BUILDING, APOLLO BUNDER, MUMBAI 400 001. PAN AAACM 4745 P (APPELLANT) (RESPONDENT) AND C.O. NO. 193/MUM/2010 (ARISING OUT OF ITA NO. 1698/M/10) ASSESSMENT YEAR : 2005-06 M/S MAHINDRA INTERTRADE LIMITED, MUMBAI. VS. DY. CIT, CIRCLE 2(3), MUMBAI. DEPARTMENT BY : SHRI PRAVIN VARMA. ASSESSEE BY : SHRI H . P. MAHAJANI. DATE OF HEARING : 24-072012. DATE OF PRONOUNCEMENT: 08-08-2012. O R D E R PER VIVEK VARMA, JM: THE APPEAL IS FILED BY THE DEPARTMENT AGAINST THE ORDER OF CIT(A) 5, MUMBAI, DATED 22-12-2009, WHEREIN THE SOLITARY GROUND TAKEN BY THE DEPARTMENT IS ALLOWANCE OF RS. 1,90,25,556/- AS BAD DEBT, BY THE CIT(A), WH ICH WAS NOT CLAIMED BY THE ASSESSEE EITHER IN THE RETURN OF INCOME OR IN THE R EVISED RETURN, WHICH ACCORDING TO THE GROUNDS OF APPEAL, IS AGAINST THE DECISION OF H ONBLE SUPREME COURT IN THE CASE OF GOETZ (INDIA) LTD., REPORTED IN 285 ITR 323. M/S MAHINDRA INTERTRADE LTD. I.T.A.NO. 1698 & CO. NO. 193 PAGE 2 OF 5 2. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION AGAI NST THE IMPUGNED ORDER OF CIT(A). ACCORDING TO THE AO AND SUBSEQUENTLY BEFORE US, THE DR DWELLED ON THE FACT THAT THE CLAIM OF BAD DEBT OF : A) MAHAVIR FOODS RS. 24,60,949 B) ALBERTVILLE EXPORTS RS. 68,62,668 C) VERVE IMPEX PVT. LTD. RS. 97,01,939 AGGREGATING TO RS. 1,90,25,556/- WAS NEVER CLAIMED IN THE RETURN FILED BY THE ASSESSEE, AND THEREFORE CANNOT BE ALLOWED, AS MANDA TED IN THE CASE OF GOETZE (I) LTD., BY THE HONBLE APEX COURT. 3. BEFORE US, THE ASSESSEE POINTED OUT THAT AN APPR OPRIATE REPLY WAS GIVEN BY THE ASSESSEE VIDE ITS SUBMISSIONS DATED 28-10-2005 TO THE DCIT, WHEREIN THE ASSESSEE HAD SUBMITTED IN THE COMPUTATION OF TOTAL INCOME FILED FOR THE YE AR WE HAVE ADDED BACK A SUM OF RS. 1,90,25,556/- (INCLUDED IN THE FIGURE OF RS.2,53,62,223) DEBITED TO PROFIT & LOSS ACCOUNT BEING BAD DEBTS & ADVANCES W RITTEN OFF, WHICH WERE CLAIMED IN THE YEAR OF PROVISION VIZ. A.Y: 2000-01 (ACCOUNTING YEA R ENDED 31.3.2000). THE A.R. THEN POINTED OUT THAT IN THE SUBMISSIONS BEFORE THE CIT( A), IT WAS CLARIFIED AS UNDER: THE APPELLANT CONTENDS THAT THE LEARNED D.C.I.T. H AS ERRED IN DISALLOWING THE CLAIM TOWARDS ADVANCES WRITTEN OFF AMOUNTING TO RS. 1,90, 25,556/-. THE APPELLANT CONT4END THAT THESE ADVANCES WERE MADE DURING THE N ORMAL COURSE OF BUSINESS AND AFTER TAKING INTO ACCOUNT THE POTENTIALITY OF RECOV ERY THE COMPANY HAS COME TO THE CONCLUSION HAT THE ADVANCES ARE IRRECOVERABLE AND T HUS ALLOWABLE UNDER SECTION 2L8 AND/OR 37 OF THE INCOME-TAX ACT, 1961 AS MAY BE APP LICABLE. THE APPELLANT FURTHER CONTENDS THAT THE LEARNED D.C .I.T. HAS ERRED IN ADDING BACK THE ABOVE AMOUNT OF RS. 1,90,25,556/- IN THE COMPUTATIO N OF TOTAL INCOME RESULTING IN DOUBLE DISALLOWANCE SINCE THE APPELLANT HAD ADDED-B ACK THIS AMOUNT IN THE COMPUTATION OF TOTAL INCOME AND CLAIMED THE DEDUCTI ON BY WAY OF NOTE IN THE COVERING LETTER ATTACHED TO THE RETURN OF INCOME. 4. WE HAVE HEARD THE CONTENTIONS OF THE PARTIES AND HAVE GONE THROUGH THE PAPERS PLACED ON RECORD. WE HAVE SEEN FROM THE SUBM ISSION, AS WELL AS, FROM THE M/S MAHINDRA INTERTRADE LTD. I.T.A.NO. 1698 & CO. NO. 193 PAGE 3 OF 5 RECORDS, THAT THE OBSERVATIONS OF THE AO, THAT NO CLAIM WAS MADE IN THE RETURN , IS INCORRECT. WHAT THE ASSESSEE HAD DONE WAS, THAT IT HAD DEBITED A SUM OF RS. 2,53,62,223/- TO THE PROFIT & LOSS ACCOUNT, WHICH I NCLUDED THE AGGREGATE SUM OF RS. 1,90,25,556/- (THE IMPUGNED SUM). THEREFORE, THE BA SIC ARGUMENT OF THE AO FAILS HERE. THIS IS BESIDES THE FACT THAT THE ASSESSEE HA D IN ITS SUBMISSIONS GIVEN DETAILED REASONS AS TO HOW THE ACCOUNTS HAD BECOME BAD AND R ECOVERY OF EVEN PRINCIPLE AMOUNTS WAS NOT FORESIGHTED. THE A.R THEREFORE SUBM ITTED THAT THE FACTUAL FINDING OF THE CIT(A) ITSELF CLEARS ALL DOUBTS. THE CIT(A) CON CLUDED AS UNDER: 12. I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS AN D FIND SUFFICIENT MERITS IN THE CONTENTIONS OF THE APPELLANT. IT IS NOTICED FROM THE ASSESSMENT OR DER THAT THE AO HAS NOT BEEN ABLE TO REFUTE THE CLAIM OF THE APPELLANT IN ANY MANNER WHATSOEVER . EVEN THE AO IN VERY CLEAR TERMS ADMITTED SUCH A FACT. IT IS ALSO APPARENT THAT THE APPELLANT HAS WRITTEN OFF THE ADVANCES AFTER TAKING NECESSARY MEASURES FOR RECOVERY AND ONLY AFT ER EXHAUSTING SUCH MEASURES, THE SAID ADVANCES WERE WRITTEN OFF. THE FACT REMAINS THAT TH E ADVANCES WERE GIVEN BY THE APPELLANT TO THE PARTIES CONCERNED IN THE NORMAL COURSE OF THE B USINESS AND LOSS BY SUFFERED BY NON RECOVERY OF THESE ADVANCES CONSTITUTES A NORMAL TRA DING/BUSINESS LOSS SUFFERED COURSE OF CARRYING ON THE BUSINESS OF EXPORT HOUSE. THE APPEL LANT HAS IT ON RECORD ENOUGH MATERIALS IN RECORD TO SHOW, THERE WAS NO MALAFIDE ACT ON ITS PA RT IN MAKING THE CLAIM OF DEDUCTION AFTER WRITING OFF THE TRADE ADVANCES. THE AO HAS ACCEPTED THE POSITION THAT THE ADVANCES WERE GIVEN IN THE NORMAL COURSE OF THE BUSINESS AND LOSS BY NO N-RECOVERY OF THESE ADVANCES CONSTITUTES A NORMAL TRADING/BUSINESS LOSS SUFFERED IN THE COURSE OF CARRYING ON THE BUSINESS OF AN EXPORT HOUSE. IT HAS BEEN RIGHTLY POINTED OUT THAT IN ITS ORDER FOR AY 1997-98, HONBLE TRIBUNAL HELD THAT WHERE THE PRINCIPAL AMOUNT OF ADVANCE AS ITSEL F DOUBTFUL, THERE WAS NO QUESTION OF ANY INTEREST ACCRUING THEREON. THUS, THE FACT THAT THES E ADVANCES WERE DOUBTFUL IN THE EARLIER YEARS ALSO HAS BEEN ACCEPTED BY THE DEPARTMENT. IN THE LI GHT OF SUCH ACCEPTED FACTS, THERE IS ABSOLUTELY NO JUSTIFICATION FOR IGNORING ALL SUCH R ELEVANT FACTS AND THE PAST HISTORY IN DENYING A GENUINE CLAIM OF DEDUCTION. THE ADDITION MADE IS, T HEREFORE, DELETED. AGAINST THESE FACTUAL FINDINGS, THE DEPARTMENT IS I N APPEAL BEFORE THE ITAT, WHERE THE DR RELIED UPON THE ORDER OF THE AO AND PLEADED THAT THE AOS ORDER BE RESTORED, WHEREAS, THE AR, ON THE OTHER HAND SUBMITTED THAT T HE ORDER OF THE CIT(A) IS COMPLETELY BASED ON FACTS, WHICH WERE BEFORE THE AO , WHICH INCLUDED THE FACTS, IN RESPECT OF THE IMPUGNED CLAIM OF WRITE OFF OF BAD D EBTS. M/S MAHINDRA INTERTRADE LTD. I.T.A.NO. 1698 & CO. NO. 193 PAGE 4 OF 5 5. WE HAVE GONE THROUGH THE ORDERS OF BOTH THE REVE NUE AUTHOTITIES AND ALSO THE MATERIAL PLACED BEFORE US, FROM WHICH WE FIND T HAT THE BASIS GRIEVANCE OF THE DEPARTMENT THAT THE CLAIM WAS NOT THERE IN THE RETU RN CANNOT STAND, AS, THE SAME WAS CLAIMED IN THE PROFIT & LOSS ACCOUNT ITSELF. ON THESE FACTUAL FINDINGS, WE DO NOT INTEND TO DISTURB THE OBSERVATION OF THE CIT(A), DE LETING THE ADDITION. 6. THE APPEAL, THUS FILED BY THE DEPARTMENT, IS DIS MISSED. 7. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS IN THE CROSS OBJECTION : BEING AGGRIEVED BY THE ORDER PASSED BY THE COMMISSI ONER OF INCOME TAX (APPEALS) 5, MUMBAI THE RESPONDENT WISHES TO RAISE THE FOLLOWING CROSS OBJECTIONS AGAINST THE SAID ORDER: 1. THE RESPONDENT OBJECTS TO THE CONFIRMATION BY TH E LEARNED CIT(A) OF DISALLOWANCE OF ITS CLAIM FOR DEPRECIATION OF RS. 28,21,416 ON INTANGIB LE ASSETS ACQUIRED IN EARLIER YEARS. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED CIT(A) OUGHT TO HAVE ALLOWED THE CLAIM. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE RESPONDENT OBJECTS TO PART DISALLOWANCE OF INTEREST U/S 14A READ WITH RULE 8D WHEN, BOTH ON FACTS AND IN LAW, SUCH DISALLOWANCE, WHETHER U/S 14A READ WITH RULE 8D OR EVEN OTHERWISE, WAS UNCALLED FOR. THE PART DISALLOWANCE MERITS DELETION. 8. AT THE TIME OF HEARING, THE A.R CONCEDED THAT GR OUND NO. 1 IS AGAINST THE ASSESSEE, HENCE THE BENCH MAY TAKEN AN APPROPRIATE VIEW. SINCE THE ISSUE INVOLVED IN THE GROUND HAS BEEN CON CEDED BY THE AR, THE GROUND IS REJECTED. 9. GROUND NO. 2 IS AGAINST THE DISALLOWANCE OF EXPE NDITURE U/S 14A READ WITH RULE 8D. 10. THE ISSUE, NOW, IS SETTLED THAT RULE 8D IS APPL ICABLE PROSPECTIVELY FROM ASSESSMENT YEAR 2008-09 AND SINCE THE IMPUGNED YEAR IS 2005-06, RULE 8D CANNOT BE APPLIED IN THE INSTANT CASE. HOWEVER, REASONABLE AND APPROPRIATE DISALLOWANCE HAS TO BE MADE. IN THIS LIGHT OF THE ISSUE, WE SET A SIDE THE ORDER OF THE CIT(A) AND M/S MAHINDRA INTERTRADE LTD. I.T.A.NO. 1698 & CO. NO. 193 PAGE 5 OF 5 DIRECT THE AO TO COMPUTE A REASONABLE DISALLOWANCE U/S 14A, AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE, WITH REGARD TO THE COMPUTATION OF DISALLOWANCE. THE GROUND IS THUS, ALLOWED FOR STATISTICAL PURPOSE S. THE CROSS OBJECTIONS, AS FILED BY THE ASSESSEE, IS THUS, PARTLY ALLOWED. 11. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMENT IS DISMISSED AN D THE CROSS OBJECTION FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 08/08/2012. SD/- SD/- (R.S. SYAL) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 08/08/2012. P/-*