Maruti Koatsu Cylinders Pvt.Ltd., Baroda V. The Income tax Officer,Ward-4(1), Baroda

ITA 1028/AHD/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1174 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 10-07-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 08-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Keywords: Depreciation; Business expenditure; Bad and doubtful debts; Corroborative evidences; Notional interest; Commercial expediency; Onus to prove
• Section: 143(3); 28

Judgement Text

ITA NO .1028 /AHD/ 20 11 ASSESSMENT YEAR: 2 0 0 5 - 06 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH , AHMEDABAD [CORAM: PRAMOD KUMAR AM AND KUL BHARAT JM ] ITA NO. 1028 / AHD / 2 0 11 ASSESSMENT YEAR: 200 5 - 06 MARUTI KOATSU CYLINDERS PVT. LTD., ....... .. . ..... APPELLANT 2 ND FLOOR, VIP APARTMEN TS, NEAR AMARJYOTI ASHRAM, ELLORA PARK, BARODA. [PAN: A ABCM 4108 P ] VS. INCOME TAX OFFICER, .... ........ .... .. .. .. .... .. RESPONDENT WARD 4(1), BARODA. APPEARANCES BY: URVASHI SODHAN , FOR THE APPELLANT P.L. KUREEL , FOR THE RESPONDENT DATE OF CONC LUDING THE HEARING : JULY 1 6 TH , 201 5 DATE OF PRONOUNCING THE ORDER : AUGUST 21 ST , 2015 O R D E R PER PRAMOD KUMAR AM : BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HAS CHALLENGED CORRECTNESS OF LEARNED CIT(A) S ORDER DATED 4 TH NOVEMBER 2010, IN THE MA TTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR 2005 - 06. 2. GROUND NO.1 IS NOT PRESSED AND IS, ACCORDINGLY, DISMISSED FOR WANT OF PROSECUTION. ITA NO .1028 /AHD/ 20 11 ASSESSMENT YEAR: 2 0 0 5 - 06 PAGE 2 OF 7 3. IN GROUND NO.2, THE ASSESSEE HAS R AISED T HE FOLLOWING GRIEVANCE: - 2 . LD CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF CLAIM OF BAD DEBT OF RS.8,00,000/ - MADE BY AO THOUGH THE AMOUNTS HAVE BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS BY THE APPELLANT. BOTH THE LOWER AUTHORITIES FA ILED TO APPRECIATE THE FACT THAT THE ADVANCES WRITTEN OFF WERE MADE OUT OF COMMERCIAL EXPEDIENCY AND COMPLETE DETAILS AS TO NAME, ADDRESS OF THE PARTIES ALONG WITH LEDGER ACCOUNT WERE SUBMITTED. LD. CIT(A) OUGHT TO HAVE DELETED SUCH DISALLOWANCE. 4. BRI EFLY STATED , THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED BAD DEBTS DEDUCTION IN RESPECT OF, IN T ER ALIA, AMOUNTS WRITTEN OFF BEING RS.3,00,000/ - ADVANC ED TO MITHILESH SAHU AND RS.5,00,000/ - ADVANCED TO AMIT SURGICALS. THESE AMOUNTS WERE STATED TO HAVE BEEN ADVANCED, BY CHEQUES, FOR LIAISON WORK FOR ORDERS. AS NO BILL WAS GIVEN AS THE AMOUNTS WERE NO LONGER RECOVERABLE, THE SAME WERE WRITTEN OFF. HOWEV ER, THE ASSESSING OFFICER DISALLOWED THIS CLAIM BY OBSERVING AS FOLLOWS : - IN T HE CASE OF THE ASSESSEE, THE ASSESSEE HAS FAILED T O SUBSTANTIATE THAT THE AMOUNT GIVEN TO THE ABOVE TWO PERSONS WAS FOR THE PURPOSE OF THE BUSINESS . NO DETAILS ARE FURNISHED A S TO WHAT LIAISON WORK HAS BEEN DONE OR WAS TO BE DONE BY THE PERSONS TO WHOM THE AMOUNTS HAVE BEEN PAID. THE ONUS TO PROVE THAT THE AMOUNT CLAIMED AS BAD DEBTS IS WITH REFERENCE TO THE BUSINESS ACTIVITIES AND ALSO TO SUBSTANTIATE THAT THE REQUIRED CONDIT IONS ARE FULFILLED LIES ON THE ASSESSEE. BY NOT BEING ABLE TO FURNISH THE RELEVANT DETAILS AND S U BSTANTIATE ITS CLAIM WITH RELEVANT EVIDENCES, THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS CAST UPON IT. UNDER THE CIRCUMSTANCES, THE ABOVE AMOUNT CLAIMED A S BAD DEBTS CANNOT BE ALLOWED AS A DEDUCTION. 5. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CI T(A) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. ITA NO .1028 /AHD/ 20 11 ASSESSMENT YEAR: 2 0 0 5 - 06 PAGE 3 OF 7 6. HAVING HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT WHILE LOSS ON ACCOUNT OF WRITING OFF THE TRADE ADVANCES IS, IN PRINCIPLE, ADMISSIBLE AS DEDUCTION UNDER SECTION 28 OF THE ACT , IN THE LIGHT OF THE LAW LAID DOWN BY HON BLE JURISDICTIONAL H IGH COURT IN THE CASE OF CIT VS. ABDUL RAZAK & CO. (1 36 ITR 825), THE FACTUAL ELEMENTS EMBEDDED IN STAND OF THE ASSESSEE REMAIN UNSUBSTANTIATED. IT IS FOR THE ASSESSEE TO DEMONSTRATE AT LEAST BY WAY OF CORROBORATIVE EVIDENCES, THAT THE AMOUNTS WERE ADVAN CED IN THE COURSE OF, A ND FOR THE PURPOSES OF BUSINESS AND HAVE BECOME UNRECOVERABLE. NO SUCH EXERCISE HA S BEEN CARRIED OUT ON THE FACTS OF THIS CASE. WE, THEREFORE, APPROVE THE CONCLUSIONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 7. GROUND NO.2 IS THUS DISMISSED. 8. IN THIRD GROUND OF APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: 3. LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS.14,455/ - MADE BY AO HOLDING THE SAME TO BE AS PERSONAL EXPENSE. BOTHE THE LOWER AUTHORITIES FAILED TO APPRECIATE THAT THE AMOUNT EXPENDED TO MAKE PAYMENT OF CLUB BILLS WERE PURELY BUSINESS EXPENDITURE AND OUGHT NOT TO HAVE DISALLOWED THE SAME. 9. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , THE ASSESSING OFFIC ER DISALLOWED RS.14,455/ - IN RESPECT OF EXPENDITURE ON CLUB MEMBERSHIP ETC., EVEN THOUGH, AS NOTED IN THE ASSESSMENT ORDER ITSELF, THESE EXPENSE PERTAINED TO CREDIT CARD MEMBERSHIP FEES. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT ( A ) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOW IN SECOND APPEAL BEFORE US. ITA NO .1028 /AHD/ 20 11 ASSESSMENT YEAR: 2 0 0 5 - 06 PAGE 4 OF 7 10. HAVING HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD, WE FIND THAT THE EXPENSES IN QUESTION, A S DETAILED ON PAGE NO.24 OF THE PAPER BOOK FILED BEFORE US, ARE IN RESPECT OF RENEWAL /ANNUAL FEE FOR CR E DIT CARD ISSUED TO SHRI M.T. TAHAKKAR AND SHRI N.J. THAKKAR. THE S E ARE NOT AS SUCH, CLUB EXPENSES. IT IS ALSO NOT IN DISPUTE THAT THESE CARDS WERE USED FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. IN VIEW OF TH ESE DISCUSSIONS , AS ALSO BEARING IN MIND ENTIRETY OF THE C A SE, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE. 11. GROUND NO.3 IS THUS ALLOWED. 1 2 . IN GROUND NOS.4 TO 7, WHICH WE WILL TAKE UP TO GETHER, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCES : - 4. LD. CIT(A) HA S ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS.55,234/ - OUT OF STAFF WELFARE EXPENSES BY AO ON ADHOC BASIS WITHOUT APPRECIATING THE FACT THAT THE S E EXPENSES WERE INC URRED FOR PROVIDING LUNCH, TEA/COFFEE TO STAFF MEMBERS. LD. CIT(A) OUGHT TO HAVE ALLOWED THE SAME. 5. LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS.79,695/ - OUT OF TRAVELLING EXPENSES ON ADHOC BASIS BY AO WITHOUT GIVING ANY COG ENT REASON FOR SUCH DISALLOWANCE. LD. CIT(A) OUGHT TO HAVE DELETED SUCH ADHOC DISALLOWANCE. 6. LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS .1,34,856/ - MADE BY AO OUT OF VEHICLE EXPENSES, DEPRECIATION ON VEHICLES AND CAR LEASE RENTALS @ 10% OF TOTAL EXPENSE S . BOTH THE LOWER AUTHORITIES FAILED TO APPRECIATE THE RATIO OF THE JURISDICTIONAL HIGH COURT IN SAYAJI IRON & STEEL (253 ITR 749) THAT APPELLANT BEING AN ARTIFICIAL ENTITY CANNOT HAVE ANY PERSONAL EXPENSES AND HENCE NO DISAL LOWANCE IS CALLED FOR. 7. LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS.40,413/ - MADE BY AO OUT OF SALES PROMOTION EXPENSES AND DIWALI, POOJA & BONI EXPENSES ON ADHOC BASIS. LD. CIT(A) HA S ERRED IN IGNORING EXPLANATION AND EVI DENCES SUBMITTED BY THE APPELLANT IN CONFIRMING THE 10% DISALLOWANCE MADE ON ADHOC BASIS. LD. CIT(A) OUGHT TO HAVE DELETED THE DISALLOWANCE. ITA NO .1028 /AHD/ 20 11 ASSESSMENT YEAR: 2 0 0 5 - 06 PAGE 5 OF 7 1 3 . SO FAR AS ABOVE DISALLOWANCES ARE CONCERNED, ALL THE ABOVE DISALLOWANCES ARE MADE ON ADHOC BASIS @ 10% ON TH E GROUND THAT THESE EXPENSES ARE NOT PROPERLY VOUCHED, THAT PERSONAL EXPENSES IN THE SAME CANN OT BE RULED OUT AND THAT NON - BUSINESS EXPENSE THEREIN CAN ALSO NOT BE RULED OUT. IN APPEAL, LEARNED CIT(A) HA S CONFIRMED THE DISALLOWANCES . AGGRIEVED, ASSESSEE IS IN SECOND APPEAL BEFORE US. 1 4 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 15 . W E FIND THAT THE ASSESSEE BEFORE US IS A CORPORATE ENTITY AND AS SUCH THERE CANNOT BE ANY PERSONAL EXPENSES, AS IS HELD BY HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SAYAJI IRON & ENGINEERING CO. VS. CIT (253 ITR 749). THE DISALLOWANCES OUT OF STAFF WELFARE EXPENSES , TRAVELLING EXPENSE AND POOJA EXPENSE ARE PURE LY ON ADHOC BASIS AND THERE IS NO COGENT BASIS, SAVE AND EXCEPT FOR GENERALITIES, FOR THE SAME. WE ARE UNABLE TO SEE ANY LEGALLY SUSTAINABLE MERITS IN T HE SAME. IN VIEW OF THESE DISCUSSIONS, WE CONSIDER IT FIT AND PROPER TO DELETE THE IMPUGNED DISALLOWAN CES. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 1 6 . GROUND NOS.4 TO 7 ARE THUS ALLOWED . 17 . IN GROUND NO.8, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: - 8. LD. CIT(A) HAS ERRED IN LAW AND ON FACT IN CONFIRMING DISALLOWANCE OF RS.8,05,892/ - OUT OF INT EREST EXPENSES MADE BY AO BY WORKING OU T AVERAGE RATE OF INTEREST TO BE NOTIONALLY CHARGED ON INTEREST FREE LOANS AND ADVANCES. LD. CIT(A) OUGHT TO HAVE ALLOWED INTEREST EXPENSES CLAIMED THAT WERE INCURRED FOR THE PURPOSE OF BUSINESS. ITA NO .1028 /AHD/ 20 11 ASSESSMENT YEAR: 2 0 0 5 - 06 PAGE 6 OF 7 1 8 . SO FAR AS THI S GRIEVANCE OF THE ASSESSEE IS CONCERNED, RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS ADVANCED INTEREST FREE ADVANCES AGGREGATING TO RS.53,72,611/ - BUT THEN TH E ASSESSEE HAS BORROWED FUNDS AND PAID INTEREST ON THE SAME. IT WAS IN THIS BACKGROUND THAT THE ASSESSING OFFICER DISALLOWED RS.8,05,892/ - , BEING INTEREST @ 15% - WHICH WAS THE AVERAGE RATE AT WHICH BORROWINGS HAD TAKEN PLACE, ON SUCH INTEREST FREE ADVANC ES . IN APPEAL, THE DISALLOWANCE WAS CONFIRMED. THE ASSESSEE IS NOW IN SECOND APPEAL BEFORE US. 19 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITIO N. 20 . LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS, AND, THEREFORE, NO DISALLOWANCE COULD BE MADE IN RESPECT OF NOTIONAL INTEREST ON INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE. SHE, HOWEVER, FAIRLY ADMITS THAT THIS ASPECT OF THE MATTER HAS NOT BEEN EXAMINED BY ANY OF THE AUTHORITIES BEL OW, AND, THEREFORE THE MATTER CAN BE REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR THIS PURPOSE. LEARNED DEPARTMENTAL REPRESENTATIVE DOES NOT SERIOUSLY OPPOSE TH IS PRAYER BUT SUBMITS THAT THE MATTER SHOULD BE LEFT OPEN, WITHOUT ANY OBSERVATIONS ON THE MERITS. IN VIEW OF THEE DISCUSSIONS, AND WITH THE CONSENT OF THE PARTIES, THE MA T TER STANDS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION DE NOVO. 2 1 . GROUND NO.8 IS THUS ALLOWED FOR STATISTICAL PURPOSES . 2 2 . IN GROUND NO.9, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: 9. LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING ADDITION MADE BY AO OF RS.37,104/ - MAKING APPLICABLE PROVISIONS OF SEC TION 41(1) OF THE ITA NO .1028 /AHD/ 20 11 ASSESSMENT YEAR: 2 0 0 5 - 06 PAGE 7 OF 7 ACT. BOTH THE LOWER AUTHORITIES FAILED TO APPRECIATE THE FACT THAT THE APPELLANT HAD NEITHER OBTAINED ANY BENEFIT NOR THE AMOUNT WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT THAT INDICATED ANY CESSATION OF LIABILITY. LD. CIT(A) OUGHT TO HAVE DELETED THE ADDITION. 23 . AS FAR AS THIS ADDITION IS CONCERNED, IT WAS ADDED AS INCOME OF THE ASSESSEE ON THE GROUND THAT IT REPRESENTED CEASED LIABILITY BUT THEN, A S POINTED OUT TO US BY THE LEARNED COUNSEL FOR THE ASSESSEE, IT HAS BEEN SUBSEQUENTLY RE OPENED BY THE ASSESSEE. THIS FACT WAS NOT BEFORE THE ASSESSING OFFICER. IN VIEW OF THIS DEVELOPMENT, AND WITH THE CONSENT OF THE PARTIES, THIS ISSUE IS ALSO RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION DE NOVO . 2 4 . GROUND NO.9 IS THUS A LLOWED FOR STATISTICAL PURPOSES. 2 5 . IN THE RESULT, THE APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. (ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST AUGUST, 2015 ) SD/ - SD/ - KUL BHAR A T PRAMOD KUMAR (JU DICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD , THE 21 ST DAY OF AUGUST, 201 5 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD