Anil Products Ltd., Ahmedabad V. THE Dy.CIT.,Range-1, Ahmedabad

ITA 1122/AHD/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6323 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 15-03-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 15-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: VIJAY RANJAN
• Keywords: Earning of tax free income; Bad and doubtful debts; Corroborative evidences
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ANIL PRODUCTS LTD., ANIL STARCH PREMISES, ANIL ROAD, NARODA, AHMEDABAD - 380025 PAN: AABCA 3154 H (APPELLANT) VS THE DCIT, RANGE - 1, AHMEDABAD (RESPONDENT) REVENUE BY : S H RI K. MADHUSUDAN , SR. D . R. ASSESSEE BY: S H RI VIJAY RANJAN , A.R. DATE OF HEARING : 15 - 03 - 2 017 DATE OF PRONOUNCEMENT : 06 - 04 - 2 017 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS ASSESSEE S A PPEAL FOR A.Y. 2007 - 08 , AR I SES FROM ORDER OF THE CIT(A) - VI, AHMEDABAD DATED 11 - 02 - 2011 IN APPEAL NO. CIT(A) - VI/ADDL. DCIT.R.1/307/09 - 10 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 1122 / A HD/20 11 A S SESSMENT YEAR 200 7 - 08 I.T. A NO. 1122 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ANIL PRODUCTS LTD. VS. DCIT 2 2. THE ASSESSEE HAS RAISED FOLLO WING GROUNDS OF APPEAL: - 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE ORDER PASSED BY CIT(A) IS BAD IN LAW AND DESERVES TO BE CANCELLED AS SHE HAS PASSED AN ORDER WITHOUT CONSIDERING AND APPRECIATING THE FACTS OF CASE OF APPELLANT. 2 IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN UPHOLDING DISALLOWANCE OF CLAIM OF BAD DEBT AND SUNDRY BALANCES WRITTEN OFF FOR RS 14,23,125 MADE BY ASSESSING OFFICER. 3 I N LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN CONFIRMING DISALLOWANCE U/S 14A FOR RS 2,74,561. 3. IN THIS CASE, THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 4,12,68,594/ - WAS FILED ON 30 TH OCTOBER, 2007. SUBSEQUENTLY, THE CASE WAS SELECTED UNDER SCRUTINY BY ISSUING NOTICE U/S. 143(2) OF THE ACT ON 22 ND JULY, 2008. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS NOTICED THAT ASSESSEE HAS DEBITED A SUM OF RS.3 805 04/ AS BAD DEBTS AND SUNDRY BALANCES WRITTEN OFF. THE ASSESSING OFFICER HAS RAISED QU E RY TO ASSESSEE TO SUBSTANTIATE THE CLAIM OF BAD DEBT EXPENDITURE IN RESPECT OF FOLLOWING TWO ENTRIES : - BANK OF INDIA IFB A/C. NO. 1220 5.27 LACS CHEQUES OUTSTANDING 8.96 LACS -------------- 14.23 LACS T HE AS SESSEE RESPONDED T HAT THERE WERE SEVERAL SMALL ACCOUNTS OF DEBTORS WHICH WAS ESSENTIAL RATE DIFFERENCES OR KASAR AND THE INCOME CORRESPONDING TO THESE ACCOUNTS WERE ALREADY BOOKED UNDER SALE IN I.T. A NO. 1122 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ANIL PRODUCTS LTD. VS. DCIT 3 EA RLIER YEARS. THE ASSESSEE FURTHER CONTENDED THAT THESE ACCOUNTS WERE NOT DEBTORS ACCOUNT BUT ARE DIRECTLY OR INDIRECTLY CONNECTED WITH THE BUSINESS OPERATION AND WRITTEN OFF DURING THE YEAR AS UNDER: - SUNDRY DEBIT BALANCES WRITTEN OFF BANK OF INDIA I FB A/C. NO. 1220 5.27 LACS CHEQUES OUTSTANDING 8.96 LACS -------------- 14.23 LACS THE ASSESEEE FURTHER EXPLAINED THAT DURING THE YEAR THE ASSESSEE COMPANY HAS UNDERTAKEN MASSIVE CLEANING OF BOOKS OF ACCOUNTS WH EREIN VARIOUS ACCOUNTS OF PARTIES WERE WRITTEN OFF OR WRITTEN BACK. THE SAME INCLUDE ITEM ON ACCOUNT OF BANK RE - CONCILIATION, CHEQUES OUTSTANDING ETC. IT WAS ALSO CONTENDED THAT THE ASSESSEE COMPANY HAS ALSO WRITTEN BACK CERTAIN ACCOUNTS AMOUNTING TO RS. 36.65 LACS WHICH WAS O FFERED FOR TAX . IT WAS EXPLAINED THAT OUT OF THE SAME , THE FOLLOWING ACCOUNTS WERE WRITTEN BACK WHICH WAS IN LINE WITH ACCOUNTS WRITTEN OFF AS UNDER: - SUNDRY DEBIT BALANCES WRITTEN BACK BANK OF INDIA A/C. NO. 1220 7.60 LACS CHEQUES OUTSTANDING 6. 87 LACS CORPORATION BANK A/C NO. 401 2.14 LACS -------------- 16.61 LACS I.T. A NO. 1122 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ANIL PRODUCTS LTD. VS. DCIT 4 THE ASSESSING OFFICER HAS NOT AGREED WITH THE CONTENTION OF THE ASSESSEE AND STATED THAT THE ASSESSEE HAS NOT PROVIDED SUPPORTING EVIDENCES REGARDING THIS BAD DEB T. HE FURTHER STATED THAT NO EVIDENCE HAS BEEN FILED WHETHER THESE AMOUNTS HAD BECOME BAD IN THIS YEAR OR EARLIER YEARS. THEREFORE, HE DISALLOWED THE CLAIM OF THE ASSESSEE OF BAD DEBT OF RS. 14,23,125/ - AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4 . AGGRIEVED AGAINST THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS SUSTAINED THE APPEAL BY OBSERVING AS UNDER: - 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND APPELLANT'S SUBMISS ION. APPELLANT CLAIMED MISCELLANEOUS AMOUNTS WRITTEN OFF AS BAD DEBTS. HOWEVER APPELLANT DID NOT GIVE ANY DETAILS OF THESE AMOUNTS AND ALSO THE NAME OF THE PERSONS TO WHOM THESE RELATES TO. FOR CLAIMING ANY DEBT AS BAD DEBTS, THE SAME HAS TO BE ACCOUNTED F OR AS INCOME IN EARLIER YEARS AS REQUIRED UNDER SECTION 36 (2) OF IT ACT. HOWEVER APPELLANT DID NOT SUBMIT ANY DETAILS OR NAME OR ADDRESSES OF THE PARTIES AND NATURE OF DEBT ETC. EVEN DURING APPEAL HEARING WHEN SPECIFICALLY ASKED, APPELLANT COULD NOT GIVE ANY DETAILS OR INFORMATION. AMOUNTS WERE JUST WRITTEN OFF WITHOUT GIVING ANY DETAILS THEREFORE IT CANNOT BE VERIFIED WHETHER CONDITIONS OF SECTION 36 (2) IS FULFILLED OR NOT. SINCE APPELLANT DID NOT SUBMIT THE REQUIRED INFORMATION IN RESPECT OF CLAIM MADE BY IT, IT HAS NOT DISCHARGED ITS ONUS AND THEREFORE CLAIM MADE BY IT REMAINED UNSUBSTANTIATED, I DO NOT AGREE WITH THE APPELLANT'S ARGUMENT THAT IT HAD OFFERED SOME INCOME OF THE SIMILAR BASIS AND ACCORDINGLY EXPENSE SHOULD ALSO BE ALLOWED. THE ONUS TO PRO VE THAT ANY EXPENSE IS INCURRED FOR THE PURPOSE OF BUSINESS AND IT FULFILLS THE REQUIRED CONDITIONS FOR ALLOWABILITY IS ON THE APPELLANT WHICH WAS NOT DISCHARGED. SUCH ONUS IS NOT THERE IN CASE OF DISCLOSING INCOME. THEREFORE, CLAIM OF BAD DEBTS MADE BY T HE APPELLANT IS NOT ALLOWABLE AND ACCORDINGLY ADDITION IS CONFIRMED. I.T. A NO. 1122 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ANIL PRODUCTS LTD. VS. DCIT 5 5. IN THE COURSE OF APPELLANT PROCEEDINGS , THE LEARNED COUNSEL HAS FURNISHED A COMPILATION CONTAINING INFORMATION PERTAINING TO STATEMENT OF FACTS , ANNUAL REPORTS, COPIES OF LEDGER ACC OUNTS ETC. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AN D PERUSED THE MATERIAL ON RECORD. W E NOTICED THAT ASSESSEE FAILED TO FURNISH PRIMARY SUPPORTING MATERIAL/INFORMATION PARTICULARLY NAME OR ADDRESSES OF THE PARTIES AND NATURE OF DEBT ETC. AND THE VITAL EVIDENCES OF OFFERING THESE AS INCOME IN THE PRECEDING YEARS. THE ASSESSEE FAILED TO DEMONSTRATE THAT IT HAD FULFILLED THE CONDITION LAID DOWN IN THE SECTION 36(2) OF THE ACT. IN VIEW OF THE ABOVE FACTS AND AFTER CONSIDERING D ETAILED FINDINGS AS ELABORATED SUPRA IN THE ORDER OF THE LD. CIT(A), WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDINGS OF THE LD. CIT(A). THUS, THIS GROUND OF APPEAL IS DISMISSED GROUND NO. 2 ( DISALLOWANCE U/S. 14A ) 7 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS T HE ASSESSING OF FICER OBSERVED THAT ASSESSEE HAS EARNED COMMISSION OF R S. 1 , 50 ,638/ - COMPRISING DIVIDEND INCOME AND UTI INCOME. HE ALSO NOTICED THAT NO EXPENSES HAS BEEN DIS ALLOWED BY THE ASSESSEE IN ITS COMPUTATION TOWARDS EARNING THIS INCOME AS PER SECTION 14A. THE REFORE, THE AS SESSING OFFICER BY APPL YING SECTION 14 A ALONG WITH RULE 8D WORKED OUT THE DISALLOWANCE U/S. 14A AMOUNT ING OF RS. 2 , 74 , 56 1 / - AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. I.T. A NO. 1122 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ANIL PRODUCTS LTD. VS. DCIT 6 8. AGGRIEVED AGAINST THIS IMPUGNED ADDITION MADE BY THE ASSESSING OFFICER, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER: - 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND APPELLANT'S SUBMISSION. IT IS N OT IN DISPUTE THAT APPELLANT EARNED EXEMPT INCOME IN THE FORM OF DIVIDEND ON INVESTMENT OF MORE THAN RS 56 LAKHS. IT IS ALSO NOT IN DISPUTE THAT APPELLANT BORROWED FUNDS ON WHICH INTEREST TO THE EXTENT OF RS 690.05 LAKHS WERE PAID. APART FROM THIS SUBSTANT IAL ADMINISTRATIVE EXPENSES WERE INCURRED, PART OF WHICH MAY RELATE TO INVESTMENT RESULTING IN EXEMPT INCOME. CONSIDERING THESE FACTS IT IS CLEAR THAT THERE ARE EXPENSES IN THE FORM OF INTEREST AND OTHER ADMINISTRATIVE EXPENSES RELATABLE TO EARNING OF EXEM PT INCOME WHICH ARE TO BE DISALLOWED UNDER SECTION 14 A. THEREFORE DISALLOWANCE UNDER SECTION 14 A IS NECESSARY. COMING TO THE METHOD OF COMPUTING DISALLOWANCE UNDER SECTION 14 A, ASSESSING OFFICER DISALLOWED EXPENSES RELATABLE TO EXEMPT INCOME AS PER RULE 8D. UP TO 2007 - 08 THE METHOD TO ARRIVE AT DISALLOWABLE EXPENSE WAS ESTIMATION. THEREAFTER RULE 8 D WAS FRAMED WHICH GIVES FORMULA FOR DISALLOWANCE OF EXPENSES RELATING TO EXEMPT INCOME. FOR INTEREST, PROPORTIONATE EXPENSE IS DISALLOWABLE WHEREAS FOR OTHER EXPENSES .5% OF INVESTMENT VALUE IS DISALLOWABLE. CONSIDERING THE FACT THAT APPELLANT CLAIMED HUGE ADMINISTRATIVE AND OTHER EXPENSES, THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES MADE BY THE ASSESSING OFFICER RUPEES 2 , 7 4, 915 IS QUITE REASONABLE AND THEREFO RE THE SAME IS CONFIRMED. AS REGARDS INTEREST, APPELLANT SUBMITTED THAT IT WAS HAVING INTEREST FREE FUNDS AND PROFIT THEREFORE NO INTEREST IS RELATABLE TO INVESTMENT RESULTING IN EXEMPT INCOME. HOWEVER IT IS SEEN THAT APPELLANT BORROWED MORE THAN RS 75 CRO RES WHICH WAS USED IN BUSINESS PURPOSE AS WELL AS INVESTMENT SINCE COMMON FUNDS ARE MAINTAINED AND APPELLANT COULD NOT IDENTIFY THE IMMEDIATE SOURCE OF INVESTMENT. IN VIEW OF THIS THE DECISIONS RELIED UPON BY THE APPELLANT ARE NOT APPLICABLE. CONSIDERING T HE FACT THAT EXPENSES RELATING TO EXEMPT INCOME ARE TO BE ESTIMATED AND RULE 8D GIVES BASIS FOR COMPUTING SUCH DISALLOWANCE, THEREFORE THE DISALLOWANCE UNDER SECTION 14 A MADE BY THE ASSESSING OFFICER AS PER RULE 8 D IS CONFIRMED. I.T. A NO. 1122 /AHD/20 11 A.Y. 2007 - 08 PAGE NO ANIL PRODUCTS LTD. VS. DCIT 7 9 . WE HEARD RIVAL CONTE NTIONS AND PERUSED THE MATERIAL ON RECORD. WE NOTICED THAT THE ASSESSEE HAS BORROWED FUNDS ON WH ICH INTEREST TO THE EXTENT OF R S. 690.05 LAKHS WAS PAID. THE ASSESSEE HAD EARNED EXEMPT INCOME IN THE FORM OF DIVIDEND ON INVESTMENT OF MORE THAN R S 56 LAKHS A ND ALSO CLAIMED ADMINISTRATIVE AND OTHER EXPENSES . IN VIEW OF THESE FACTS, W E FIND THAT THE DISALLOWANCE OF EXPENSES RELATING TO EXEMPT INCOME AS PER RULE 8D WAS JUSTIFIED . C ONSIDERING THE DETAIL REASONING MENTIONED IN THE ORDER OF THE LD. CI(A),WE DISINC LINED TO INTERFERE IN THE FINDINGS OF THE LD.CIT(A) 10 . IN THE RESULT , THE APPEAL OF THE ASSESSEE IS DISMISSED . ORDER PR ONOUNCED IN THE OPEN C OURT ON 06 - 04 - 201 7 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 06 /04 /2017 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,