The DCIT, Circle-4, Ahmedabad V. M/s. Fairdeal Suppliers Pvt. Ltd., Ahmedabad

ITA 1121/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5775 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 09-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 15-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: PF JAIN
• Keywords: Capital asset; Depreciation; Bad and doubtful debts
• Section: 43B

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, D-BENCH, AHMEDABAD. BEFORE: SHRI G.D. AGARWAL, VICE PRESIDENT, AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.1121/AHD/2007 WITH CO 108/AHD/2007 (ASSESSMENT YEAR 2003-2004) THE DCIT, CIR-4, AHMEDABAD, NAVJIVAN TRUST BLDG., OFF. ASHRAM ROAD, AHMEDABAD. VERSUS FAIRDEAL SUPPLIERS PVT. LTD. 4 TH FLOOR, SHALIN BUILDING, ASHRAM ROAD, AHMEDABAD. (APPELLANT) (RESPONDENT) PAN:AAACF 2878 C FOR THE REVENUE: SHRI. C.K. MISHRA, SR. DR FOR THE ASSESSEE: SHRI. P.F. JAIN, AR ORDER PER G.D. AGARWAL, VICE-PRESIDENT: THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESS EE ARE ARISING OUT OF THE ORDER OF LD. COMMISSIONER OF INCOME TAX(APPEALS )-VIII, AHMEDABAD DATED 20-12-2006. ITA NO.1121/AHD/2007- REVENUES APPEAL 2. THE FIRST GROUND OF THE REVENUES APPEAL READS A S UNDER: 1. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING THE A.O. TO DELETE THE DISALLOWANCE OF RS .59,049/- MADE BY THE A.O. TOWARDS BELATED PAYMENT OF EMPLOYERS C ONTRIBUTION TO THE P.F. 3. THE ASSESSING OFFICER HAS DISALLOWED THE SUM OF RS.59,049/- BEING THE EMPLOYERS CONTRIBUTION OF PROVIDENT FUND WHICH WAS DEPOSITED 2 ITA NO.1121/AHD/2007 WITH CO 108/AHD/2007 (A.Y. 2003-2004) BELATEDLY. HOWEVER, THE DEPOSIT WAS MADE BEFORE TH E DUE DATE FOR FILING OF THE RETURN AND THEREFORE THE CIT(A) HELD THAT TH E AMENDMENT TO THE SECTION 43B BEING CLARIFICATORY IN NATURE, THE PAYM ENT ON ACCOUNT OF EMPLOYERS CONTRIBUTION MADE BEFORE THE DUE DATE OF FILING OF THE RETURN CANNOT BE DISALLOWED. WE FIND THIS ISSUE IS COVERE D IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD. [2010] 319 ITR 306 (SC). RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) ON THIS POINT AND REJECT THE G ROUND NO.1 OF THE REVENUES APPEAL. 4. GROUND NO. 2 OF THE REVENUES APPEAL READS AS UN DER: 2. THE LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF T HE CASE IN DIRECTING THE A.O. TO DELETE THE DISALLOWANCE OF RS .9,15,961/- MADE ON ACCOUNT OF BAD DEBTS AS THE ASSESSEE HAS FAILED TO SUBSTANTIATE ITS CLAIM BY EVIDENCES. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WE FIND THIS ISSUE ALSO TO BE COVERED I N FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE APEX COURT IN THE CA SE OF 323 ITR 397. THE ASSESSING OFFICER HAD MADE THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE HAS NOT PRODUCED SUFFICIENT EVIDENCE TO SH OW THAT REASONABLE STEPS WERE TAKEN TO RECOVER THE DEBT. HOWEVER, THE RE IS NO DISPUTE THAT THE ABOVE AMOUNT WAS DULY WRITTEN OF IN THE ASSESSE ES BOOKS OF ACCOUNTS. ON THE ABOVE FACTS THE DECISION OF HONBLE APEX COU RT IN THE CASE OF T.R.F. LIMITED V. COMMISSIONER OF INCOME TAX (SUPRA ) WOULD BE SQUARELY APPLICABLE WHERE, THEIR LORDSHIPS HELD AS UNDER: AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE IN COME-TAX ACT, 1961, WITH EFFECT FROM APRIL 1, 1989, IN ORDER TO O BTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR T HE ASSESSEE TO 3 ITA NO.1121/AHD/2007 WITH CO 108/AHD/2007 (A.Y. 2003-2004) ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECO VERABLE : IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERA BLE IN THE ACCOUNTS OF THE ASSESSEE. 5. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HONBLE APEX COURT, WE UPHELD THE ORDER OF THE LEARNED COMMISSIO NER OF INCOME TAX (APPEALS) ON THIS POINT AND REJECT THE GROUND NO.2 OF THE REVENUES APPEAL. 6. GROUND NO. 3 OF THE REVENUES APPEAL READS AS UN DER: 3. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING THE A.O. TO DELETE THE DISALLOWANCE OF RS .108.49 LACS MADE ON ACCOUNT OF (I) EXTRAORDINARY REPAIRS DUE TO EARTHQUAKE OF RS.79.39 LACS AND (II) REPAIRS TO PLANT AND MACHINE RY FOR RS.29.10 LACS, AFTER WITHDRAWING THE DEPRECIATION ALLOWED ON CAPITALIZATION, IGNORING THE FACT THAT THE EXPENDITURE OF SUCH LARG E MAGNITUDE WAS INCURRED RESULTING IN REPLACEMENT OF LARGE PORTION OF ITS FACTORY BUILDING AND PLANT AND MACHINERY AND THUS THE ASSES SEE HAD GOT ENDUING BENEFIT OVER A LONG PERIOD TIME FROM THE AS SETS. 7. DURING THE ACCOUNTING YEAR, RELEVANT TO ASSESSME NT YEAR UNDER CONSIDERATION, THE ASSESSEE HAS CLAIMED THE DEDUCTI ON FOR REPAIR EXPENSES AMOUNTING TO RS.79,39,893/- TO THE FACTORY BUILDING AND RS.29,10,600/- TO THE PLANT AND MACHINERY. IT WAS EXPLAINED BY THE A SSESSEE THAT THE HEAVY REPAIRS WAS REQUIRED TO BE MADE BECAUSE DUE TO EART HQUAKE, THE BUILDING AS WELL AS THE PLANT AND MACHINERY GOT DAMAGED. HO WEVER, THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE CLAIMED BY THE A SSESSEE. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DE LETED THE DISALLOWANCE WITH THE FOLLOWING FINDINGS: I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPELLAN T IN DETAIL AND ALSO CONSIDERED THE REASONING OF THE AO IN THIS REG ARD. IT IS MADE OUT ON RECORDS THAT LARGE SCALE REPAIRS WERE CARRIE D OUT ONLY ON THE EXTRA ORDINARY EVENTS OF EARTHQUAKE DAMAGING THE NO RMAL BUSINESS ASSETS WHICH WERE RESTORED TO THEIR ORIGINAL CONDIT ION AND QUALITY. NO ADDITIONAL ASSET NOR INCREASE IN THE CAPACITY IS CREATED. WHAT 4 ITA NO.1121/AHD/2007 WITH CO 108/AHD/2007 (A.Y. 2003-2004) HAS BEEN CARRIED OUT IS NOT EVEN REPLACEMENT BUT RE STORATION OF THE BUSINESS ASSETS TO THEIR ORIGINAL OPERATION CONDITI ON. IN VIEW OF THE SPECIFIC CLARIFICATION BROUGHT ON RECORD, NO PART O F REPAIR EXPENDITURE CAN BE HELD TO BE RELATABLE TO CREATION OF ANY NEW ASSET MUCH LESS ANY SPECIFIC CAPITAL ASSET. EXPENS ES INCURRED IN THE NORMAL COURSE FOR REPAIRS AND UPKEEP IRRESPECTI VE OF THE QUANTUM HAVE TO BE ALLOWED AS REVENUE EXPENSES AND NOTHING CAN BE HELD TO BE CAPITAL IN NATURE. IN THAT VIEW OF T HE MATTER, THE AO IS DIRECTED TO DELETE THE DISALLOWANCE OF RS.108.49 LACS. THOUGH HOWEVER HE SHOULD WITHDRAW THE DEPRECIATION ALLOWED ON CAPITALIZATION. 8. AT THE TIME OF HEARING BEFORE US, THE ABOVE FACT UAL FINDINGS RECORDED BY THE LD. COMMISSIONER OF INCOME TAX(APPE ALS) HAS NOT BEEN CONTROVERTED. MERELY BECAUSE THE HEAVY EXPENDITURE WAS INCURRED ON REPAIRS, IT CANNOT BE SAID THAT IT WAS CAPITAL EXPE NDITURE. THE LD. COMMISSIONER OF INCOME TAX(APPEALS) HAS RECORDED A CATEGORICAL FINDING THAT BY INCURRING SUCH EXPENDITURE THE ASSE TS WERE RESTORED TO THE ORIGINAL OPERATIONAL CONDITION. NO NEW ASSET OR AD DITIONAL ASSET WAS CREATED. THE ASSESSEE HAS ALSO EXPLAINED THE REASO N FOR SUCH HEAVY EXPENDITURE ON REPAIR. DUE TO EARTHQUAKE, THE BUIL DING AS WELL AS PLANT AND MACHINERY WERE BADLY DAMAGED AND THEREFORE THE EXPENDITURE WAS INCURRED TO REPAIR SUCH DAMAGE. CONSIDERING THE FA CTS OF THE CASE AND THE ARGUMENTS OF BOTH THE SIDES, WE ENTIRELY AGREE WITH THE ABOVE FINDING OF THE LD. COMMISSIONER OF INCOME TAX(APPEALS). ACCOR DINGLY, GROUND NO.3 OF THE REVENUES APPEAL IS REJECTED. 9. GROUND NO.4 OF THE REVENUES APPEAL READS AS UND ER: 5 ITA NO.1121/AHD/2007 WITH CO 108/AHD/2007 (A.Y. 2003-2004) 4. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN RESTRICTING THE DISALLOWANCE ON ACCOUNT OF STAFF WELFARE EXPENSES, FROM RS.5.89 LACS TO RS.1.50 LACS. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. DURING THE YEAR UNDER CONSIDERATION, TH E ASSESSEE HAS INCURRED THE TOTAL EXPENDITURE OF RS.7,80,973/- AT THE CALCU TTA BRANCH OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER DISALLOWED 75% OF THE EXPENSES OF THIS BRANCH I.E. AMOUNTING TO RS.5,85,7 30/-. ON APPEAL THE LD. COMMISSIONER OF INCOME TAX(APPEALS) HELD THAT D ISALLOWANCE OF 75% EXPENSES OF THE BRANCH OFFICE OF A COMPANY IS E XCESSIVE. HE, THEREFORE, RESTRICTED THE DISALLOWANCE TO RS.1,50,0 00/-. 11. THE REVENUE AGGRIEVED WITH THE RELIEF ALLOWED B Y THE LD. COMMISSIONER OF INCOME TAX(APPEALS) IS IN APPEAL. 12. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SID ES AND FACTS OF THE CASE, IN OUR OPINION, THE ORDER OF THE LD. COMMISSI ONER OF INCOME TAX(APPEALS) ON THIS PINT IS QUITE FAIR AND REASONA BLE. THE DISALLOWANCE OF 75% EXPENSES OF THE BRANCH OFFICE OF THE ASSESSE E COMPANY WAS CERTAINLY VERY EXCESSIVE AND UNREASONABLE. WE, THE REFORE, DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LD . COMMISSIONER OF INCOME TAX(APPEALS) ON THIS POINT, THE SAME IS SUST AINED AND GROUND NO.4 OF THE REVENUES APPEAL IS REJECTED. 14. GROUND NO.5 OF THE REVENUES APPEAL READS AS UN DER: 5. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING THE A.O. TO ALLOW THE DISALLOWANCE OF RS.44,238/- MADE TOWARDS DEPRECIATION ON FURNITURE AND OFFICE EQUIPM ENTS. 6 ITA NO.1121/AHD/2007 WITH CO 108/AHD/2007 (A.Y. 2003-2004) 15. THE ASSESSING OFFICER HAD DISALLOWED THE DEPREC IATION ON FURNITURE/OFFICE EQUIPMENT ON THE BASIS OF THE REMA RK OF THE AUDITOR THAT THE COMPANY HAS NOT PREPARED FIXED ASSET REGISTER A ND INSTEAD HAS COMPILE ONLY ITEM WISE LIST OF ITS FIXED ASSETS. THE LD. C OMMISSIONER OF INCOME TAX(APPEALS) DELETED THE DISALLOWANCE OF THE DEPREC IATION WITH THE FOLLOWING FINDINGS. 7.2 I HAVE CONSIDERED THE APPELLANTS ARGUMENTS IN THIS REGARD AND ALSO PERUSED PARA 7 OF THE ASSESSMENT ORDER IN THIS REGARD. EVEN AS STATED IN THE AUDIT NOTE, ITEM-WISE LIST OF FIXED ASSETS WAS COMPLIED AND THE SAME TALLIED WITH THE GROSS VALUE SHOWN IN THE BOOKS. THERE WAS NO MATERIAL DEFICIENCY EITHER. O NLY ABSENCE OF PHYSICAL VERIFICATION AS ADMINISTRATIVE DEFICIENCY WAS POINTED OUT. THUS, AS RIGHTLY CONTENDED BY THE APPELLANT, THE EX ISTENCE OF THE ASSET AND THE USE OF THE SAME FOR BUSINESS PURPOSE ESPECIALLY OF ITEMS LIKE FURNITURES CANNOT BE DISBELIEVED WITHOUT SPECIFIC OMISSIONS. THERE IS NO SPECIFIC FINDING THAT THE S AID ITEMS DID NOT EXIST OR THAT THEY WERE NOT PUT TO USE. A QUALIFYI NG NOTE OF THE AUDIT IS NOT A CONCLUSIVE PROOF AND ANY DISALLOWANCE WOUL D HAVE TO BE CORROBORATED WITH RELEVANT FACTS IN THIS REGARD. I N THE ABSENCE OF THE SAME, AS THE VALUE OF THE FURNITURE IS INCLUDED IN THE LIST OF FIXED ASSETS AND BEING PART OF THE AUDITED ACCOUNTS, DEPR ECIATION ON THE BASIS OF ITS USE FOR THE COMPANYS BUSINESS PURPOSE S IS ELIGIBLE AND THE SAME IS DIRECTED TO BE ALLOWED. 16. AFTER CONSIDERING THE DOCUMENTS OF BOTH THE SID ES AND THE FACTS OF THE CASE, WE ENTIRELY AGREE WITH THE ABOVE FINDING OF THE LD. COMMISSIONER OF INCOME TAX(APPEALS), MERELY BECAUSE THE REGISTER OF FIXED ASSET WAS NOT MAINTAINED OR NO PHYSICAL VERIF ICATION OF THE ASSETS WAS MADE BY THE AUDITOR WOULD BE NO GROUND FOR DISA LLOWING THE 7 ITA NO.1121/AHD/2007 WITH CO 108/AHD/2007 (A.Y. 2003-2004) DEPRECIATION. THERE IS NO DOUBT THAT THE FURNITURE AND OFFICE EQUIPMENTS WERE OWNED BY THE ASSESSEE AND WERE USED FOR THE PU RPOSE OF BUSINESS. 17. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF LD . COMMISSIONER OF INCOME TAX(APPEALS) AND REJECT GROUND NO.5 OF THE R EVENUES APPEAL. 18. GROUND NO.6 OF THE REVENUES APPEAL READS AS UN DER: 6. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING THE A.O. TO RESTRICT THE DISALLOWANCE OF COMMISSION PAYMENTS OF RS.1,75,821/- TO 50% TAKING INTO ACCOUN T THE TDS ELEMENT THAT HAS ALREADY GONE TO THE GOVT. A/C. ON THE INCOME COVERED BY THE TRANSACTIONS IGNORING THE FACT THAT THE ASSESSEE HAS FAILED TO FURNISH COMPLETE DETAILS IN THIS REGARD. 19. DURING THE YEAR UNDER CONSIDERATION THE ASSESSE E HAS CLAIMED THE SALES COMMISSION EXPENSES OF RS.19,51,399/-. THE AS SESSEE HAD FURNISHED THE DETAILS OF SUCH COMMISSION. ON THE VERIFICATION OF SUCH DETAILS, IT WAS FOUND THAT NO DETAILS OR BILLS OR CONFIRMATION IN R ESPECT OF COMMISSION OF RS.1,75,821/- CLAIMED TO HAVE BEEN PAID TO FOUNDRY EQUIPMENT ENGINEER, KOLAPUR WAS FURNISHED. THEREFORE, THE ASSESSING OF FICER DISALLOWED THE SUM OF RS.1,75,821/- OUT OF THE TOTAL COMMISSION OF RS.19,51,399/-. ON APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX(APPEAL S) NO EVIDENCE IN RESPECT OF PAYMENT OF SUCH COMMISSION IS PRODUCED. HOWEVER, IT WAS ARGUED THAT THE PAYMENT OF COMMISSION WAS SUBJECT T O TDS. THEREFORE, THE LD. COMMISSIONER OF INCOME TAX(APPEALS) REDUCED THE DISALLOWANCE TO 50%. IN OUR OPINION, MERELY BECAUSE THE PAYMENT OF COMMISSION WAS SUBJECT TO TDS, WOULD BE NO GROUND FOR REDUCING THE DISALLOWANCE OF COMMISSION TO THE 50% OF THE COMMISSION PAID. IT I S A SETTLED LAW THAT ONUS IS UPON THE ASSESSEE TO ESTABLISH THAT THE COM MISSION WAS PAID FOR THE PURPOSE OF ASSESSEES BUSINESS. TO DISCHARGE S UCH ONUS, ASSESSEE HAS 8 ITA NO.1121/AHD/2007 WITH CO 108/AHD/2007 (A.Y. 2003-2004) TO ESTABLISH THAT THE SERVICES WERE RENDERED BY THE CONCERNED AGENT. HOWEVER, IN THIS CASE, THE ASSESSEE HAS NOT FURNISH ED AN IOTA OF EVIDENCE FOR THE SERVICES RENDERED BY THE FOUNDRY EQUIPMENT ENGINEERS. EVEN THE DETAILS FOR SUCH COMMISSION OR THE CONFIRMATION OF THE COMMISSION AGENT, IS NOT PRODUCED. IN THE ABOVE CIRCUMSTANCES, IN OU R OPINION, THE DISALLOWANCE OF COMMISSION WAS FULLY JUSTIFIED AND THERE WAS NO JUSTIFICATION FOR 50% OF RELIEF BEING ALLOWED BY TH E LD. COMMISSIONER OF INCOME TAX(APPEALS). WE, THEREFORE, REVERSE THE OR DER OF THE LD. COMMISSIONER OF INCOME TAX(APPEALS) ON THIS POINT A ND RESTORE THAT OF ASSESSING OFFICER. GROUND NO.6 OF THE REVENUES AP PEAL IS ALLOWED. CO NO.108/AHD/2007 20. IN THE CROSS OBJECTION, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: 1. THE LD.CIT(APPEAL) HAS ERRED IN LAW AND ON THE F ACTS IN UPHOLDING THE UNDER MENTIONED DISALLOWANCES MADE BY THE ASSESSING OFFICER. A. OUT OF EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND OF RS.52064 ON THE GROUND OF LATE PAYMENT AS P ER PARA 3 OF THE CIT(A) ORDER. B. OUT OF ADMINISTRATIVE EXPENSES AT KOLKATA TO THE EXTENT OF RS.150000/- AS PER PARA 6 OF THE CIT(A)S ORDER. C. OUT OF COMMISSION PAYMENT TO THE EXTENT OF RS.87 911/- AS PER PARA 8 OF THE CIT(A)S ORDER. 2. ON THE FACTS OF THE ASSESSEE NO INTEREST U/S. 23 4B, 234C, 234D OUGHT TO HAVE BEEN LEVIED. 21. HOWEVER, AT THE TIME OF HEARING BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS THE CROSS OBJECTION. AC CORDINGLY, THE SAME IS REJECTED. 9 ITA NO.1121/AHD/2007 WITH CO 108/AHD/2007 (A.Y. 2003-2004) 22. IN THE RESULT THE REVENUES APPEAL IS PARTLY AL LOWED, WHILE ASSESSEES CO IS REJECTED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 25 TH JUNE, 2010. SD/- SD/- (MAHAVIR SINGH) (G.D. AGARWAL) JUDICIAL MEMBER VIC E PRESIDENT AHMEDABAD; DATED: 25/06/2010 ANKIT* COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT, 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT, AHMEDABAD BENCHES, AHMEDABAD.