DCIT, CHENNAI V. Mando India Ltd., Kancheepuram

ITA 1102/CHNY/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8133 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 11-01-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 23-05-2013
• Court: TRIBUNAL
• Department Lawyers: A B KOLI JCIT
• Assessee Lawyers: B RAMAKRISHNANC A
• Keywords: Revenue expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , ! . ' #$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NOS.2277 & 1102 /MDS./2013 ( / ASSESSMENT YEARS :2005-06 & 2006-07) DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(1), CHENNAI. VS. M/S.MANDO INDIA LTD . (FORMERLY KNOWN AS MANDO BRAKES SYSTEMS INDIA LTD.,) F-64,SIPCOT INDUSTRIAL PARK, SRIPERUMBUDUR TALUK, TAMILNADU. PAN AAACM 7698 H ( %& / APPELLANT ) ( '(%& / RESPONDENT ) ASSESSEE BY : MR. B.RAMAKRISHNAN,C.A REVENUE BY : MR.A.B. KOLI,JCIT, D.R / DATE OF HEARING : 11.01.2016 /DATE OF PRONOUNCEMENT : 05.02.2016 ) / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THESE TWO APPEALS ARE FILED BY THE REVENUE ARE D IRECTED AGAINST THE DIFFERENT ORDER OF THE LEARNED COMMISSI ONER OF INCOME ITA NO.2277,1102/MDS/2013 2 TAX(A)-IV & V, CHENNAI DATED 30.08.2013 & 28.02.201 3 FOR THE ASSESSMENT YEARS 2005-06 & 2006-07 RESPECTIVELY. 2. THE COMMON GROUND IN THESE APPEALS IS WITH REGA RD TO DELETION OF ADDITION MADE ON ACCOUNT OF TOOLING ADVANCES WRI TTEN OFF, BEING ADVANCE GIVEN TO M/S.AM INDUSTRIES. 3.1 THE FACTS OF THE CASE PERTAINING TO A.Y 2005-0 6 ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANU FACTURE AND SALE OF AUTOMOTIVE HYDRAULIC BRAKE SYSTEMS, SHOCK A BSORBERS AND RELATED COMPONENTS AND FILED ITS RETURN OF INCOME F OR ASSESSMENT YEAR 2005-06 ADMITTING INCOME OF RS.12,99,06,560/-. SUBSEQUENTLY, THE RETURN WAS TAKEN UP FOR SCRUTINY AND THE ASSESS MENT U/S.143(3) OF THE ACT WAS COMPLETED ON 29.12.2008 BY DISALLOWIN G THE FOLLOWING:- TOOLING ADVANCES WRITTEN OFF TO THE EXTENT OF 45 ,56,179 PROFESSIONAL FEES OF 84,39,722 ACS CHARGES 61,43,242 ITA NO.2277,1102/MDS/2013 3 ON APPEAL, THE CIT(A) ALLOWED THE APPEAL IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 10.05.2010. THIS CASE WAS FURTHER APPEALED BY THE REVENUE BEFORE THE ITAT. THE TRIBUNAL VIDE ITS ORDE R DATED 25.03.2011 IN ITA NO.1293/MDS./10 REMITTED THE ISSU E BACK TO THE FILE OF AO FOR CONSIDERATION AFRESH. THE LD. ASSESSING O FFICER COMPLETED THE ASSESSMENT BY PASSING AN ORDER ON 16.04.2012, D ISALLOWING TOOLING ADVANCE WRITTEN OFF TO THE EXTENT OF ` 45,56,179/. AGGRIEVED BY THE ABOVE ADDITION, THE ASSESSEE PREFERRED APPEAL O N THE DISALLOWANCE OF TOOLING ADVANCE WRITTEN OFF. 3.2 THE CIT(A) OBSERVED IN HIS ORDER THAT AMOUNT REPRESENTS NON- RECOVERY OF THE AMOUNT DUE FROM THE RESPECTIVE PART IES, TOWARDS SUPPLY OF EXCLUSIVE TOOLING/MACHIENRY. SINCE THE AM OUNT HAS BEEN ADVANCED TOWARDS SUPPLY OF EXCLUSIVE TOOLING MACHIN ERY WHICH WAS SUBSEQUENTLY WRITTEN OFF, THEY ARE PURELY CAPITAL I N NATURE. THE CIT(A) FOLLOWING THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. MYSORE SURGAR CO. LTD., REPORTED IN 46 ITR 649( SC) AND ALSO THE DECISION OF THE MUMBAI BENCHOF THE ITAT IN M/S.PICK PEN PVT. LTD. IN ITA NO.6847/MUM./2008 DATED 28.01.2010 WHEREIN IT W AS THE CASE OF ITA NO.2277,1102/MDS/2013 4 ADVANCE PAID FOR PURCHASE OF MACHINERY, WHICH SUBS EQUENTLY NOT SUPPLIED, WHERE THE TRIBUNAL, HELD THAT THE SAID AD VANCES WERE ALLOWABLE U/S.37 OF THE ACT. FURTHER, HE FOLLOWED THE JUDGEMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. J ANAKI RAMAN MILLS REPORTED IN 275 ITR 403 WHEREIN IT WAS HELD THAT EV EN EXPENSES ON REPLACING OF MACHINERY AND SPARE PARTS WERE REVENUE EXPENSES. AGAINST THIS THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE ASSESSEE ADVANCED MONEY TOWARDS SUPPLY OF EXCLUSIVE TOOLING/MACHINERY AND THE SAME WAS WRI TTEN OFF ON ACCOUNT OF NON-SUPPLY OF THE TOOLS AND EQUIPMENTS. ASSESSEE CLAIMED THAT IT IS REVENUE EXPENDITURE AND ALLOWABL E U/S.37 OF THE ACT. THE DEBT COULD BE TREATED AS BAD DEBT FOR THE PURPO SE OF SEC.36(1)(VII) OF THE ACT, IF IT IS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, SUBJECT TO FULFI LL ALL CONDITIONS PRESCRIBED IN SEC.36(2) OF THE ACT. FURTHER, A DE BT MAY NOT COME WITHIN THE AMBIT OF SEC.36(2) OF THE ACT, BUT STILL IT MAY AMOUNT TO TRADING LOSS/BUSINESS LOSS IN THE CASE OF CARRYING ON BUSINESS AND ITA NO.2277,1102/MDS/2013 5 ALLOWABLE AS DEDUCTION. AS HELD BY THE HONBLE SUPR EME COURT IN THE CASE OF BADRIDAS DAGA V. CIT REPORTED IN 34 ITR 10 WHEREIN IT WAS HELD AS FOLLOWS:- THE RESULT IS THAT WHEN A CLAIM IS MADE FOR A DEDU CTION FOR WHICH THERE IS NO SPECIFIC PROVISION IN SECTION 10( 2), WHETHER IT IS ADMISSIBLE OR NOT WILL DEPEND ON WHETHER, HAVING REGARD TO ACCEPTED COMMERCIAL PRACTICE AND TRADING PRINCIPLES , IT CAN BE SAID TO ARISE OUT OF THE CARRYING ON OF THE BUSINES S AND TO BE INCIDENTAL TO IT. IF THAT IS ESTABLISHED, THEN THE DEDUCTION MUST BE ALLOWED. THUS, IT IS SEEN THAT AN ITEM OF BUSINESS LOSS COUL D BE DEDUCTED IN COMPUTING THE PROFIT AND GAINS OF THE ASSESSEE, IF IT IS DEDUCTIBLE ON ORDINARY COMMERCIAL PRINCIPLES OF ACCOUNTING. AS S EEN FROM THE ORDERS OF THE LOWER AUTHORITIES, THE ADVANCE MADE F OR THE PURPOSE OF SUPPLYING TOOLS AND MACHINERY, WHICH IS IN A CAPITA L FIELD, NON-SUPPLY OF TOOLS/EQUIPMENTS THAT AMOUNT PERMANENTLY IRRECO VERABLE. IN OUR OPINION, THIS ADVANCE CANNOT BE SAID THAT ADVANCE M ADE ON REVENUE ITA NO.2277,1102/MDS/2013 6 ACCOUNT IN THE COURSE OF BUSINESS. IN ORDER TO ENT ITLE THE DEDUCTION ON THE GROUND OF BUSINESS LOSS, THE LOSS WRITTEN OFF N OT ONLY HAVE BEEN INCURRED IN THE COURSE OF BUSINESS BUT IT SHOULD AL SO BE IN THE NATURE OF A REVENUE LOSS. IN VIEW THE FACTS OF THE PRES ENT CASE DID NOT SHOW THAT THE ADVANCES MADE FOR TOOLS AND MACHINERY ARE IN NATURE OF BUSINESS OR TRADING EXPENSES. AS ALREADY STATED, T HEY ARE INVESTMENT OF A CAPITAL NATURE. ADVANCING TOOLS AND MACHINERY IS NOT THE BUSINESS OF THE ASSESSEE AND THE JUDGMENT OF SUPREM E COURT N THE CASE OF CIT VS. MYSORE SUGAR CO. LTD. REPORTED IN 4 6 ITR 649(SC) CANNOT BE APPLIED TO THE FACTS OF THE PRESENT CASE. IN THAT CASE, MONEY WAS ADVANCED TO SUGAR CANE SEEDLINGS, WHICH I S A RAW MATERIAL TO THE ASSESSEE COMPANY IN THE PRODUCTION OF SUGAR AND THE FACTS OF THE PRESENT CASE CANNOT BE EQUATED AS MONE Y ADVANCED FOR SUPPLY OF RAW MATERIALS. BEING SO, WE ARE PLACING R ELIANCE ON THE JUDGMENTS OF JURISDICTIONAL HIGH COURT IN THE CASES OF CIT VS. COIMBATORE PICTURE PVT. LTD. REPORTED IN 90 ITR 452 (MAD.), CIT VS.SEMBI TRADERS REPORTED IN (1966)221 ITR 410(MAD. ) & CIT VS. SETHU FILM DISTRIBUTORS REPORTED IN [1995] 212 ITR 620(MDS.). WE ARE ITA NO.2277,1102/MDS/2013 7 INCLINED TO DISMISS THIS GROUND IN BOTH THE APPEALS OF THE REVENUE. 5. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED ON FRIDAY , THE 5 TH OF FEBRURY,2016 AT CHENNAI. SD/- SD/- ( . ) (G.PAVAN KUMAR) ( ( ) ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 05 TH FEBRURY,2016 . K S SUNDARAM. $%& '() *%) /COPY TO: 1. +, /APPELLANT 2. '- +, /RESPONDENT 3. . () /CIT(A) 4. . /CIT 5. )/0 '1 /DR 6. 02 3 /GF