M/s. Status Mark Finvest Ltd., New Delhi V. ACIT, New Delhi

CO 287/DEL/2010

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 5281 (ITAT-DELHI)
• Duration Of Justice: 1 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-10-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 26-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAJANAND MEENA
• Keywords: Business income; Retrospective amendment; Bad and doubtful debts
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI B.C. MEENA I.T.A. NO. 3186/DEL/2010 ASSESSMENT YEAR: 2006-07 ASSISTANT COMMISSIONER OF IT, VS. M/S. STATUS MARK FINVEST LTD., CIRCLE 9(1), B-4, GROUND FLOOR, MAIN VILL. NEW DELHI. ROAD, GHAZIPUR, NEW DELHI-96 (APPELLANT) (RESPONDENT) CROSS-OBJECTION NO.287/DEL/2010 ( IN I.T.A. NO. 3186/DEL/2010 ) ASSESSMENT YEAR: 2006-07 M/S. STATUS MARK FINVEST LTD., VS. ASSISTA NT COMMISSIONER OF IT B-4, GROUND FLOOR, MAIN VILL. ROAD, CIRCLE 9(1), GHAZIPUR, NEW DELHI-96 NEW DELHI. (CROSS-OBJECTOR) (RESPONDENT) DEPARTMENT BY: SHRI GAJANAND ME ENA, CIT(DR) ASSESSEE BY: SH RI PRADEEP DINODIA, CA ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LEARNED CIT(APPEALS) DATED 24.02.2010 PASSED FOR ASSESSMENT YEAR 2006-07. ON RECEIPT OF THE NOTICE IN THE REVENUES APPEAL, ASSE SSEE HAS FILED CROSS OBJECTION BEARING NO.287/DEL/20. 2. IN THE REVENUES APPEAL, THE SOLITARY GRIEVANCE OF THE REVENUE IS THAT THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF 2 RS.4,48,60,718 WHICH WAS ADDED BY THE ASSESSING OFF ICER BY MAKING A DISALLOWANCE OUT OF THE CLAIM OF BAD DEBTS. THE BRI EF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A REGISTERED NON-BANKING FINA NCIAL COMPANY (NBFC) VIDE REGISTRATION NO.14-01194 ISSUED BY THE RBI ON 14 TH SEPTEMBER, 1998. EARLIER THE NAME OF THE COMPANY WAS STATUS CHITS & PROPERTY LTD. WHICH HAS BEEN CHANGED NOW. IT HAS FILED ITS RETURN OF INCOME ON 28.11.2008 DECLARING LOSS OF RS.3,26,66,315. THE ASSESSEE HAD ADVANCED A SUM OF RS.4,40,86,000 TO M/S. QUALITY PRINTERS (P) LTD., NEW DELHI ON INT EREST. M/S. QUALITY PRINTERS (P) LTD. FAILED TO REPAY THIS AMOUNT AND T HE ASSESSEE HAD FILED AN FIR, AND A WINDING OF PETITION BEFORE THE HON'BLE H IGH COURT. IT WAS ALSO CONTENDED BY THE ASSESSEE THAT IT WAS EXPLORING TO INITIATE CRIMINAL PROCEEDINGS UNDER SEC. 138 OF THE NEGOTIABLE INSTRU MENT ACT UPON THE DISHONOUR OF CHEQUE OF RS.1 CRORE GIVEN BY THE BORR OWER TOWARDS BILL PAYMENT. WHEN ASSESSEE INFORMED ITS INTENTION TO TH IS EFFECT, THE BORROWER HAD PAID RS. 1 CRORE. THE REMAINING AMOUNT OF RS.3, 40,86,000 WAS ALSO RECOVERED BY THE COMPANY IN ASSESSMENT YEAR 2007-08 . THE ASSESSEE HAD WRITTEN OFF THESE AMOUNTS IN THIS ASSESSMENT YEAR. ITS CLAIM WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT ASSESSE E FAILED TO PROVE THAT DEBT HAS REALLY BECOME BAD. 3 3. ON APPEAL, LEARNED CIT(APPEALS) HAS DELETED THE DISALLOWANCE ON THE GROUND THAT AFTER 1989-90, IT WAS NOT NECESSARY FOR THE ASSESSEE TO BRING DEMONSTRATIVE PROOF ON THE RECORD IN SUPPORT OF ITS BELIEF THAT DEBT HAS BECOME BAD. IT IS SUFFICIENT TO ALLOW THE CLAIM IF SUCH DEBT HAS BEEN WRITTEN OFF IN THE BOOKS. 4. LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OUT SET SUBMITTED THAT THE ISSUE IS IN DISPUTE IS SQUARELY COVERED IN FAVOUR O F THE ASSESSEE BY THE TWO RECENT DECISIONS OF THE HON'BLE DELHI HIGH COURT, N AMELY, CIT VS. MODI TELECOMMUNICATION REPORTED IN 325 ITR 291 AND CIT V S. D.B. INDIA SECURITIES REPORTED IN 187 TAXMAN 161. ON THE OTHER HAND, LEARNED DR WAS UNABLE TO CONTROVERT THE CONTENTS OF LEARNED COUNSE L FOR THE ASSESSEE. HE RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. IN THE LIGHT OF HON'BLE DELHI HIG H COURTS DECISION, IF WE CONSIDER THE ORDER OF LEARNED CIT(APPEALS) THEN WE DO NOT FIND ANY ERROR IN THE ORDER OF LEARNED CIT(APPEALS) THEN WE DO NOT FI ND ANY ERROR IN IT. THE INTEREST INCOME HAS BEEN OFFERED BY THE ASSESSEE AS BUSINESS INCOME. THE LOANS WERE ADVANCED IN THE ORDINARY COURSE OF BUSIN ESS AND THE BORROWER FAILED TO REPAY THE LOANS. THE ASSESSEE HAS WRITTEN OFF THE LOANS AS BAD DEBTS 4 IN ITS BOOKS OF ACCOUNT. AFTER 18.9.1990, IT IS NOT REQUIRED TO BRING DEMONSTRATIVE PROOF ON THE RECORD FOR CLAIMING WRIT ING OFF OF BAD DEBTS. IT IS SUFFICIENT THAT SUCH DEBTS HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT. 6. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT IN THE REVENUES APPEAL. IT IS DISMISSED. 7. IN CROSS-OBJECTION, ASSESSEE IS IMPUGNING THE AD DITION OF RS.5,62,841 UNDER SEC. 14A OF THE ACT. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS DISALLOWANCE WAS MADE BY THE ASSESSING OF FICER ON THE GROUND THAT ASSESSEE HAS TAX FREE INCOME, FOR EARNING SUCH TAX FREE INCOME EXPENSES ATTRIBUTABLE ARE DESERVES TO BE DISALLOWED UNDER SE C. 14A OF THE ACT. ASSESSING OFFICER HAS MADE AN ESTIMATED DISALLOWANC E. BY TAKING AVERAGE VALUE OF INVESTMENT RELATED TO TAX FREE INCOME, AVE RAGE TOTAL ASSETS AND INTEREST EXPENSES. HE WORKED OUT DEEMED EXPENSES. L EARNED CIT(APPEALS) HAS CONFIRMED THE DISALLOWANCE ON THE BASIS OF ITAT S SPECIAL BENCH DECISION IN THE CASE OF M/S. DAGA CAPITAL MANAGEMEN T REPORTED IN 117 ITD 169, ACCORDING TO WHICH, DISALLOWANCE OF EXPENSES R ELATABLE TO TAX FREE INCOME IS TO BE COMPUTED ACCORDING TO RULE 8D OF TH E INCOME-TAX RULES, THE SPECIAL BENCH HAS HELD THAT RULE 8D IS APPLICABLE W ITH RETROSPECTIVE EFFECT. 5 8. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT IN THE CASE OF M/S. GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT REPO RTED IN (2010) TOIL 564, HON'BLE MUMBAI HIGH COURT HAS HELD THAT RULE 8 D WILL NOT BE APPLICABLE WITH RETROSPECTIVE EFFECT RATHER, IT IS APPLICABLE FROM ASSESSMENT YEAR 2008-09. IN VIEW OF THIS DECISION, THE EXPENSE S RELATABLE TO TAX FREE INCOME IS TO BE COMPUTED AFRESH. HE PLACED ON RECOR D A WORKING WHEREIN HE POINTED OUT THAT INDIRECT EXPENSES INCURRED BY THE ASSESSEE IN THIS YEAR ARE RS.1,92,925. IT PAID AUDIT FEE OF RS.9,520. AS PER THE DECISION OF THE HON'BLE MUMBAI HIGH COURT, IF ANY AMOUNT IS TO BE DISALLOWE D THAT HAS TO BE DISALLOWED FROM THIS AMOUNT. HE REFERRED PAGE 13 OF THE PAPER BOOK ( ANNEXURE F ). LEARNED DR ON THE OTHER HAND RELIED U PON THE ORDER OF THE ASSESSING OFFICER. 9. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. AT PAGE NOS. 2 TO 15 OF THE PAPER BOOK, ASSESSEE HAS PLACED ON RECORD COPY OF AUDITED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR ENDED ON 31.3.2006. AT PAGE 13, SCHE DULE F IS AVAILABLE WHEREIN ASSESSEE HAS SHOWN ADMINISTRATIVE AND OTHER EXPENSES. THE ASSESSEE HAS SHOWN TOTAL EXPENSES OF RS.4,50,44,117. OUT OF THIS TOTAL AMOUNT RS.4,48,60,712 IS IN RESPECT OF BAD DEBTS. IF THIS AMOUNT IS DEBITED FROM THE 6 TOTAL AMOUNT, THEN THE BALANCE WILL REMAIN RS.1,92, 925. APART FROM THIS, ASSESSEE HAS PAID AUDIT FEE OF RS.9,520. THE EXPENS ES INCURRED ARE IN RESPECT OF PRINTING AND STATIONERY, POSTAGE AND TELEGRAM, B ANK CHARGES OF RS.818 ONLY, LEGAL FEE RS.34,702, SALARY RS.99,678 ETC. TH E CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT EXPENSES ASSE SSEE ARE TO BE DISALLOWED FROM THE ABOVE SCHEDULE. ON DUE CONSIDERATION OF TH E ORDERS OF REVENUE AUTHORITIES BELOW, WE DO NOT FIND ANY ANALYTICAL DI SCUSSION ON THIS ISSUE. HOW MUCH IS THE TAX FREE INCOME WHICH AMOUNT HAS BE EN USED BY THE ASSESSEE FOR EARNING THOSE TAX FREE INCOME. ASSESSI NG OFFICER OUGHT TO HAVE BRING ALL THOSE FACTS ON THE RECORD. HE HAS MADE AN ALYSIS FROM THE OVERALL RESULT WITHOUT ATTRIBUTING ANY SPECIFIC AMOUNT OR W HICH SPECIFIC ITEM OF EXPENDITURE IS RELATABLE FOR EARNING OF THE TAX FRE E INCOME. HE HAS NOT EVEN TAKE NOTE OF THE QUANTUM OF TAX FREE INCOME IN THE DISCUSSION. FACED WITH THIS DIFFICULTY, WE DEEM IT APPROPRIATE TO SET ASID E THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR READJUDICATION. ASSESSING OFF ICER SHALL ADJUDICATE THIS ISSUE IN ACCORDANCE WITH LAW AND OBSERVATIONS MADE BY US WILL NOT IMPAIR OR INJURE THE CASE OF THE ASSESSING OFFICER OR WOULD C AUSE ANY PREJUDICE TO THE DEFENCE/EXPLANATION OF THE ASSESSEE. CROSS-OBJECTIO N FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THAT OF THE CROSS-OBJECTION FILED BY THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON 08.10.201 0 ( B.C. MEENA ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 08/10/2010 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR