Sarabhai Holdings Pvt. Ltd., Ahmedabad V. The ACIT.,(OSD) Circle-8, Ahmedabad

CO 8/AHD/2011

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9339 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 10 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 10-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M K PATEL
• Assessee Lawyers: J P JHANGID
• Keywords: Bad and doubtful debts
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 3341/AHD/2010 & C.O. NO. 08/AHD/2011 (ASSESSMENT YEAR: 2007-08) ACIT(OSD), CIRCLE-8, AHMEDABAD V/S SARABHAI HOLDING PVT. LTD. OPP. JANSATTA PRESS, MIRZAPUR ROAD, AHMEDABAD (APPELLANT) (RESPONDENT) SARABHAI HOLDING PVT. LTD. OPP. JANSATTA PRESS, MIRZAPUR ROAD, AHMEDABAD V/S ACIT(OSD), CIRCLE-8, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAFCS 6919B APPELLANT BY : SHRI J.P. JHANGID, SR. D.R . RESPONDENT BY : SHRI M. K. PATEL ( )/ ORDER DATE OF HEARING : 04-02-2014 DATE OF PRONOUNCEMENT : 21 -02-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A)-XIV, AHMEDABAD DATED 23.09.2010 FOR A.Y. 2007-08 AND ASS ESSEE HAS ALSO FILED A CO. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI AL ON RECORD ARE AS UNDER. ITA NO 3341/AHD/2010 & CO NO.08/A/2011 . A .Y. 2007-08 2 3. ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MONEY LENDING, FINANCING & INVESTMENT. IT FILED ITS RETURN OF INCOME FOR A.Y . 07-08 ON 26.10.2007 DECLARING TOTAL INCOME OF RS. 33,11,900/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECT ION 143(3) VIDE ORDER DATED 22.12.2009 AND THE TOTAL INCOME WAS DETERMINE D AT RS. 1,19,85,435/-. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 23.09.2010 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A), THE REV ENUE IS NOW IN APPEAL BEFORE US. AND ASSESSEE HAS ALSO FILED A CO. WE FIR ST TAKE UP REVENUES APPEAL. THE GROUNDS RAISED BY THE REVENUE READS AS UNDER:- 1. THE LD. CIT(A)-XIV, AHMEDABAD HAS ERRED IN LAW A ND ON FACTS IN RESTRICTING THE ADDITION MADE U/S. 14A TO THE EXTENT OF RS. 10, 00,000/- AS AGAINST THE ADDITION OF RS. 39,38,045/- MADE BY THE ASSESSING O FFICER. 2. THE LD. CIT(A)-XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS. 4,17,959/- MADE ON ACCOUNT OF SUNDRY DEBIT BALANCE WRITTEN OFF, ON RELYING THE JUDGMENT IN THE CASE OF TRF LTD. VS. CIT 323 ITR 397, AND FAILED TO APPRECIATE THE FACTS REL ATED TO DISALLOWANCE, WHEREAS THE FACTS OF THE PRESENT CASE ARE DIFFERENT FROM THE FACTS OF RELIED CASE LAWS. 4. 1 ST GROUND IS WITH RESPECT TO RESTRICTING THE DISALLOW ANCE UNDER 14A TO THE EXTENT OF RS. 10 LAC AS AGAINST RS. 39,38,045/- MAD E BY A.O. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O . NOTICED THAT ASSESSEE HAS EARNED DIVIDEND INCOME TO THE TUNE OF RS. 24,92 ,096/- WHICH WAS EXEMPT FROM TAX. HE ALSO NOTED THAT ASSESSEE HAD MADE INV ESTMENT OF RS. 23.78 CRORES AND HAD ALSO TAKEN LOAN OF RS. 3.89 CRORE ON WHICH INTEREST OF RS. 22,50,000/- WAS PAID BY THE ASSESSEE. HE ALSO NOTIC ED THAT THERE WAS INTERMINGLING OF OWN FUNDS AND BORROWED FUNDS AND T HEREFORE DISALLOWANCE UNDER SECTION 14A R.W.S. RULE 8D WAS WARRANTED. HE ALSO NOTED THAT ASSESSEE HAD INCURRED VARIOUS ADMINISTRATIVE EXPENS ES LIKE DOCUMENTATION, ITA NO 3341/AHD/2010 & CO NO.08/A/2011 . A .Y. 2007-08 3 SALARIES TO EMPLOYEES, TELEPHONE EXPENSES ETC. HE W AS THEREFORE OF THE VIEW THAT A PART OF THE EXPENSES CAN BE ATTRIBUTED TO IN VESTMENT PORTFOLIO. HE THEREFORE APPLYING THE METHOD PRESCRIBED UNDER RULE 8D OF THE I.T. RULES, WORKED OUT THE DISALLOWANCE OF RS. 39,38,045/- UNDE R SECTION 14A AND DISALLOWED THE SAME. AGGRIEVED BY THE ORDER OF A.O. , ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE GRANTED PARTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER:- 3.2 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE ABOVE CONTENTIONS. IT IS NOTICED THAT SO FAR AS FIR ST CONTENTION IS CONCERNED, THE APPELLANT HAS RIGHTLY POINTED OUT THAT THE DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES MADE BY THE A.O. IS TWICE, FIRSTLY HE HAS DISALLOWED RS.10 LAKH ON ADHOC BASIS AND AGAIN HE HAS DISALLOWED 0.5% OF THE INVESTMENT I.E. RS.11,89,390/-. IN MY VIEW, THEREFORE, THE A.O . WAS NOT JUSTIFIED IN MAKING ADDITION FOR BOTH THESE AMOUNTS. IT IS NOTICED THAT RULE 8D HAS BEEN INTRODUCED ONLY FROM 29-3-2008 AND, THEREFORE, THER E WAS NO REASON FOR MAKING THE DISALLOWANCE BY APPLYING RULE 8D. HOWEVER, ONE CANNOT DENY THE INVO LVEMENT OF ADMINISTRATIVE EXPENSES FOR INVESTMENT/EARNING OF DIVIDEND INCOME WHICH IS EXEM PT AND HENCE IUMPSUM DISALLOWANCE MADE BY THE A.O. AT RS.10 LAKH ON ACCOUNT OF ADMINISTRATIVE EXP ENSES U/S.14A IS HEREBY CONFIRMED AND THE ADDITION OF RS, 11,89,390/- STANDS DELETED, AS IT IS DUPLICA TION OF DISALLOWANCE. IN SO FAR AS THE DISALLOWANCE OF INTEREST IS CONCER NED, THE A.O. HAS MADE PROPORTIONATE DISALLOWANCE WITHOUT ESTABLISHING THAT THE DIVIDEND EARNING ACTI VITY IS FROM THE BORROWED FUNDS ON WHICH INTEREST I S PAID. NO NEXUS HAS BEEN ESTABLISHED BY THE A.O. F OR THAT PURPOSE. THAT APART, THE APPELLANT HAS CLEARLY POINTED OUT THAT AS AGAINST THE COST OF INV ESTMENT AS PER THE BOOKS AMOUNTING TO RS.23,78,38,000/- THE APPELLANT'S OWN FUND BY WAY O F CAPITAL AND RESERVES IS OF THE AGGREGATE AMOUNT OF RS.26,68,41,000/-. THEREFORE, CONSIDERING THE RA TIO OF VARIOUS DECISIONS AND IN PARTICULAR THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF RE LIANCE UTILITIES & POWER LTD. 313 ITR 340, WHICH IS DIRECTLY ON THIS ISSUE, THE APPELLANT HAVING SUF FICIENT INTEREST FREE FUNDS WHICH COVERS COVER THE INVESTMENT, THERE WAS, THUS, NO JUSTIFICATION FOR D ISALLOWANCE OF INTEREST. THE ADDITION MADE BY THE A .O. IS NOT JUSTIFIED. IT IS NOTICED THAT THE ITAT, AHME DABAD IN THE CASE OF HIPOLIN LTD. HAS ALSO HELD SIM ILAR VIEW, FOLLOWING THE DECISION OF BOMBAY HIGH COURT I N THE CASE OF RELIANCE UNITIES & POWER LTD. THUS, RESPECTFULLY FOLLOWING THE DECISION OF HONBLE ITAT , AHMEDABAD, THE DISALLOWANCE OF RS.17,48,655/- IS DELETED. 6. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US. 7. BEFORE US, THE LD. D.R. SUBMITTED THAT DURING TH E YEAR ASSESSEE HAD MADE INVESTMENT, HAD TAKEN LOANS FOR WHICH INTEREST WAS ALSO PAID AND THERE WAS INTERMINGLING OF FUNDS AND THEREFORE A.O. WAS JUSTI FIED IN WORKING OUT THE DISALLOWANCE OF INTEREST. HE FURTHER SUBMITTED THA T THE INVESTMENT DECISIONS ARE TAKEN BY THE BOARD OF DIRECTORS WHO ARE PAID SA LARIES AND OTHER EXPENSES ARE ALSO INCURRED BY THE ASSESSEE AND THEREFORE EXP ENSES CAN BE ATTRIBUTED FOR EARNING TAX FREE INCOME. HE FURTHER SUBMITTED T HAT PROVISIONS OF SECTION 14A ARE MANDATORY AND THEREFORE THE A.O. HAS RIGHTL Y DISALLOWED THE AMOUNT. ITA NO 3341/AHD/2010 & CO NO.08/A/2011 . A .Y. 2007-08 4 8. THE A.R. ON THE OTHER HAND SUBMITTED THAT PROVIS IONS OF RULE 8D ARE APPLICABLE FROM A.Y. 08-09 AND ARE THEREFORE NOT AP PLICABLE TO THE YEAR UNDER CONSIDERATION. HE FURTHER SUBMITTED THAT THOUGH TH E ASSESSEE HAS EARNED TAX FREE INCOME OF RS. 24,92,000/- THAT DISALLOWANCE MA DE BY THE A.O. WAS OF RS. 39 LACS WHICH WAS MORE THAN THE DIVIDEND EARNED BY THE ASSESSEE. HE FURTHER SUBMITTED THAT DISALLOWANCE OF 10 RS. LACS THAT WAS SUSTAINED BY CIT(A) IS ALSO ON A HIGHER SIDE. HE THUS SUBMITTED THAT THE ADDITION BE DELETED. IN THE ALTERNATE HE SUBMITTED THAT A REASO NABLE DISALLOWANCE MAY BE MADE 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) WHILE GRANTING RELIEF TO THE ASSES SEE HAS NOTED THAT A.O HAD MADE DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES TW ICE FIRSTLY ON ADHOC BASIS AND SECONDLY BY DISALLOWING 0.5% OF THE INVESTMENT BY FOLLOWING RULE 8D. SINCE PROVISIONS OF RULE 8D WERE NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION, HE DELETED THE ADDITION OF ADMINISTR ATIVE EXPENSES MADE ON THE BASIS OF RULE 8D. WITH RESPECT TO DISALLOWANCE OF INTEREST, CIT(A) HAS GIVEN A FINDING THAT INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WAS MORE THAN THE INVESTMENT AND THEREFORE THERE WAS NO JUST IFICATION FOR DISALLOWANCE OF INTEREST. BEFORE US, THE REVENUE ALSO COULD NOT BRING ANY CONTRARY MATERIAL TO CONVERT THE FINDINGS OF CIT(A). IT IS ALSO SEEN THAT A.O. WHILE MAKING THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES HAS NOTED THAT ASSESSEE HAS CLAIMED VARIOUS ADMINISTRATIVE EXPENSES LIKE PA YMENT OF SALARIES TO EMPLOYEES, DIRECTORS REMUNERATION, PROFESSIONAL FEE S AND OTHER OFFICE EXPENSES WHICH CAN BE ATTRIBUTED TO EARNING TAX FRE E INCOME. HE HAS ALSO NOTED THAT THE DECISION OF INVESTMENTS ARE TAKEN BY THE DIRECTORS WHO ALSO PAID SALARIES. THE AFORESAID FINDING OF A.O. COULD NOT BE CONTROVERTED BY LD. A.R. ITA NO 3341/AHD/2010 & CO NO.08/A/2011 . A .Y. 2007-08 5 10. IT IS ALSO A FACT THAT ASSESSEE HAS EARNED TAX FREE INCOME TO THE EXTENT OF RS. 24.92 LACS AGAINST WHICH THE DISALLOWANCE. OF RS. 1 0 LACS UNDER 14A HAS BEEN SUSTAINED BY CIT(A). CONSIDERING THE TOTALITY OF FA CTS, WE FIND THAT THE DISALLOWANCE THAT HAS BEEN SUSTAINED BY CIT(A) IS O N HIGHER SIDE AND THE ENDS OF JUSTICE SHALL BE MET IF THE DISALLOWANCE IS RESTRICTED TO RS. 5 LACS. WE THUS DIRECT ACCORDINGLY. IN THE RESULT, THIS GROUND OF REVENUE IS PARTLY ALLOWED. 2 ND GROUND IS WITH RESPECT TO DELETION OF DISALLOWANCE MADE ON ACCOUNT OF SUNDRY DEBIT BALANCES WRITTEN OFF. 11. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A. O. NOTICED THAT ASSESSEE HAS CLAIMED RS. 4,17,959/- AS SUNDRY BALANCES WRITT EN OFF. BEFORE A.O. SINCE THE ASSESSEE WAS NOT ABLE TO FURNISH THE BREAK UP A ND COULD NOT PROVE WITH DOCUMENTARY EVIDENCE THAT THE AMOUNT WAS SHOWN AS I NCOME IN ANY PREVIOUS YEAR PRIOR TO THE YEAR UNDER CONSIDERATION, HE DISA LLOWED THE SAME. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER B EFORE CIT(A). CIT(A) DELETED THE ADDITION BY HOLDING AS UNDER:- 4.2 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE ABOVE SUBMISSIONS. ON PERUSAL OF THE DETAILS FURNISHED BEFORE THE UNDERSIGNED I FIND THAT THE AP PELLANT HAD IN FACT CLAIM NET AMOUNT OF SUNDRY DEBIT BALANCES WRITTEN OFF AMOUNTING TO RS.4,17,959 /-. THIS AMOUNT IS ARRIVED AT AS UNDER: (I) DEBIT BALANCES RELATING TO RECEIVABLE FR OM VARIOUS COMPANIES RS. 21,21,495/- (II) INTEREST ACCRUED AND DUE BUT NOT RECEIVED FRO M VARIOUS PARTIES RS. 25,39,024/ - RS. 46,60 ,519/- LESS: SUNDRY CREDIT BALANCES WRITTEN OFF RS. 42,42,560/- NET RS. 4,17,959/- THUS THE APPELLANT HAD OFFERED THE AMOUNT OF RS.42, 42,560/- AND AT THE SAME TIME CLAIMED DEDUCTION OF RS.46,60,529/-. THEREFORE, THE DISALLO WANCE OF RS.4,17,959/- AS ALSO THE ADDITION OF RS.42,42,560/- ULTIMATELY RESULTS INTO DISALLOWANCE OF CLAIM OF RS.46,60,519/- BEING THE SUNDRY DEBIT BALANCES WRITTEN OFF. THE A.O. HAS APPLIED THE RATIO OF THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF DHALL ENTERPRISES & ENGINEERS PVT. LTD. VS. CIT REPORTED AT 207 ITR 729 AND HELD THAT CLAIM OF THE APPELLANT FOR BAD DEBT IS NO T ALLOWABLE. THOUGH HE HAS STATED THAT THE CLAIM OF RS.4,17,959/- IS DISALLOWED, AS STATED EARLIER, IN FACT THE ADDITION RESULTS INTO DISALLOWANCE OF CLAIM OF BAD DEBT OF RS.46,60,519/- THE A.O. IS OF THE VIEW THAT AS PER THE PROVISIONS OF SECTION 36(1 )(VII) AND SECTION 36(2) THE ASSESSEE HAS TO P ROVE THAT DEBTORS HAS BECOME BAD. HE HAS STATED THAT THE APPELLANT HAD NOT FURNISHED THE REA SON AS TO HOW THE DEBTS HAD BECOME BAD AND THE ASSESSEE HAD NOT GIVEN DETAILS OF THE STEPS TAKEN F OR THE RECOVERY OF THE AMOUNT IN DISPUTE. HE STATES THAT MERELY WRITING OFF THE DEBT IS NOT SUFF ICIENT. HOWEVER, HAVING REGARD TO THE RECENT DECISION OF THE SUPREME COURT IN THE CASE OF TRF LT D. REPORTED AT 323 ITR 397 AFTER THE AMENDMENT OF SECTION 36(2) EFFECTIVE FROM 1-4-1989 BY THE FINANCE ACT 1987 ONCE THE ASSESSEE HAS WRITTEN OFF THE DEBTS IN THE BOOKS IT IS NOT NE CESSARY TO PROVE THAT THE DEBT HAD BECOME BAD FOR ITA NO 3341/AHD/2010 & CO NO.08/A/2011 . A .Y. 2007-08 6 THE PURPOSE OF ALLOWING CLAIM OF BAD DEBT. ACCORDIN GLY, THE A.O. IS DIRECTED TO ALLOW THE CLAIM FOR BAD DEBT OF RS. 46,60,519/-. THUS EFFECTIVELY BOTH THE ADDITIONS (4.17 LAKH + 42.42 LAKH) STANDS DELETED. 12. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE I S NOW IN APPEAL BEFORE US. BEFORE US, LD. D.R. RELIED ON THE ORDER OF A.O. ON THE OTHER HAND LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE CIT(A) AND S UPPORTED HIS ORDER. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) HAS GIVEN A FINDING THE ASSESSEE H AS WRITTEN OFF NET DEBIT BALANCE OF RS. 4,17,959/- AND HAS FOLLOWED THE DECI SION OF HON. APEX COURT IN THE CASE OF TRF LTD. REPORTED AT 323 ITR 397 WHERE IT WAS HELD THAT AFTER THE AMENDMENT OF SECTION 36(2) EFFECTIVE FROM 01.04.198 9 BY FINANCE ACT, 1987, ONCE THE ASSESSEE HAS WRITTEN OF THE DEBTS IN THE B OOKS, IT IS NOT NECESSARY TO PROVE THAT THE DEBT HAS BECOME BAD FOR THE PURPOSE OF ALLOWING CLAIM OF BAD DEBTS. 14. BEFORE US, THE REVENUE COULD NOT CONTROVERT THE FINDINGS OF CIT(A), WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDE R OF CIT(A). THUS THIS GROUND OF REVENUE IS DISMISSED. 15. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISS ED. C.O. NO. 08/AHD/2011 OF ASSESSEE 16. THE GROUNDS RAISED BY CO. READS AS UNDER:- 1. THAT THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF RS. 10,00,000/- U/S. 14A OF THE ACT ON ESTIMATE BASIS ONLY AND WITHOUT ANY BASIS. 2. THAT ON FACTS AND IN LAW, THE LEARNED CIT(A) HAS GR IEVOUSLY ERRED IN CONFIRMING THE ADDITION OF RS. 23,602/- U/S.40(A)(IA) OF THE ACT. 1 ST GROUND OF C.O. IS WITH RESPECT TO DISALLOWANCE UND ER 14A. ITA NO 3341/AHD/2010 & CO NO.08/A/2011 . A .Y. 2007-08 7 17. THIS GROUND IS INTERCONNECTED WITH THE GROUND N O. 1 OF REVENUE. SINCE GROUND NO. 1 OF REVENUES APPEAL HAS BEEN PARTLY AL LOWED FOR THE REASONS HEREINABOVE, WE FOR THE SIMILAR REASONS GIVEN HEREI NABOVE WHILE DECIDING THE APPEAL OF REVENUE, PARTLY ALLOW THIS GROUND OF ASSE SSEE. THUS THIS GROUND OF ASSESSEE IS PARTLY ALLOWED. 2 ND GROUND WAS NOT PRESSED DUE TO SMALLNESS OF AMOUNT AND THUS IT IS DISMISSED. 18. IN THE RESULT, THE C.O. OF ASSESSEE IS PARTLY ALLOW ED. 19. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED A ND CO OF ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 21 - 02 - 2014. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHM EDABAD