DCIT, CHENNAI V. Ambadi Enterprises Ltd., CHENNAI

ITA 1161/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8744 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 14-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 28-04-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH IRS
• Assessee Lawyers: M KARUNAKARAN
• Keywords: Transfer pricing; International transaction; Bad and doubtful debts; Revenue expenditure
• Section: 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , ! ' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 1161/MDS/2016 ! # $# / ASSESSMENT YEAR : 2010-2011. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(1) CHENNAI 600 034. VS. M/S. AMBADI ENTERPRISES LTD, PARRYS HOUSE, 5 TH FLOOR, 43,MOORE STREET, CHENNAI 600 001 . [PAN AAACA6374J] ( / APPELLANT) ( /RESPONDENT) %& ' ( / APPELLANT BY : SHRI. A.V.SREEKANTH, IRS, JCIT. )*%& ' ( /RESPONDENT BY : SHRI. M. KARUNAKARAN, ADVOCATE ' + / DATE OF HEARING : 14-07-2016 ,-$ ' + / DATE OF PRONOUNCEMENT : 20-07-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEAL FILED BY THE REVENUE IS DIRECTED AGA INST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-1, CHEN NAI IN ITA NO.224/14-15, DATED 28.01.2016 FOR THE ASSESSMENT Y EAR 2010-2011 ITA NO.1161/MDS/2016. :- 2 -: PASSED U/S.143(3) R.W.S. 92CA AND 250 OF THE INCOM E TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- 2.1 THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE ON ADVANCES WRITTEN OFF TO THE TUNE OF .1,36,67,972/- IN RESPECT OF TWO PARTIES VIZ., UNIVERSAL PRODUCT & ALLIED P LTD & J.J. FASHIONS HOLDING THAT THE TRANSACTIONS FALL UNDER BUSINESS EXPEDIENCY. 2.2 THE LD. CIT(A) FAILED TO APPRECIATE THE DETAILE D REASONING GIVEN BY THE ASSESSING OFFICER IN HIS REMAND REPORT STATING THAT THE ELABORATE DISCUSSION ON THE AGREEMENT BETWEEN THE IMPUGNED PARTIES REVEAL THAT THE TRANSACTIONS CANNOT BE ALLOWED AS REVENUE EXPENDITURE. 2.3 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE ADVANCED THE SAID AMOUNT TO THE PARTIES NOT IN THE REGULAR COURSE OF BUSINESS AND MORE IN THE NATURE OF MONEY LENDING AND THEREFORE THE LOSS ARISING THERE FROM WAS A CAPITAL LOSS AND NOT ADMISSIBLE TO BE ALLOWED AS A REVENUE EXPENDITURE. 2.4 THE LEARNED CIT(A) FAILED TO NOTE THAT THE ASSESSEE HAD ADVANCED 1,31,53,000/- TO J.J. FASHIONS CALCULATING INTEREST AT 11% P.A. WHICH IS IN THE NATURE OF MONEY LENDING AND NOT ALLOWABLE AS REVENUE EXPENDITURE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS IN THE BUSINESS OF MANUFACTURING AND TRADING OF FAB RICS, FLOOR COVERINGS ETC., AND FILED RETURN OF INCOME FOR THE ASSESSMEN T YEAR 2010-2011 ITA NO.1161/MDS/2016. :- 3 -: ON 30.09.2010 ADMITTING NIL INCOME AND RETURN OF INCOME WAS PROCESSED U/S.143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE U/S.143 (2) OF T HE ACT WAS ISSUED. IN COMPLIANCE TO NOTICES, THE LD. AUTHORISED REPRES ENTATIVE FOR ASSESSEE APPEARED FROM TIME TO TIME AND SUBMITTED DETAILS. THE LD. ASSESSING OFFICER FOUND THAT THE ASSESSEE ENTERED I NTO INTERNATIONAL TRANSACTIONS AND THE MATTER WAS REFERRED TO THE TRA NSFER PRICING OFFICER (TPO) AND THE LD. TPO VIDE ORDER DATED 09.01.2014 H ELD THAT THE INTERNATIONAL TRANSACTIONS ENTERED BY THE COMPANY A RE WITHIN THE ARMS LENGTH PRICE (ALP) AND NO ADJUSTMENT IS REQUIRED. THE LD. ASSESSING OFFICER ON PERUSAL OF PROFIT AND LOSS ACCOUNT FOUND THAT THE ASSESSEE HAS WRITTEN OFF BAD DEBTS OF A4,27,75,243/-. THE LD . AUTHORISED REPRESENTATIVE FILED DETAILED NOTE ON BAD DEBTS AND TRANSACTIONS ENTERED EXPLAINED THAT THE COMPANY HAS A MERCHAND ISE DIVISION AND ADVANCED MONEY TO THIRD PARTIES DURING THE PERIOD F ROM 1998 TO 2004 FOR EXPORT OF GOODS AND SINCE THERE IS NO RECOVERY OF AMOUNTS TILL THE YEAR 2007, THE COMPANY HAS DECIDED TO WRITE OFF THE ADVANCES AS NOT RECOVERABLE. THE LD. ASSESSING OFFICER AFTER PERUSI NG THE INFORMATION IS OF THE OPINION THAT THE ASSESSEE COMPANY IS NOT IN MONEY LENDING BUSINESS AND THE ASSESSEE HAS NOT RECOGNIZED INCOM E ON ADVANCES TO THIRD PARTIES IN THE BOOKS, AND THE ASSESSEE IS IN MERCHANDISE ITA NO.1161/MDS/2016. :- 4 -: BUSINESS AND THERE WAS NO NECESSITY TO FINANCE THE THIRD PARTIES AND THE INCOME OF THE ASSESSEE IS RECOGNIZED BY MARGIN FIXED AND NOT OUT OF INCOME OF ADVANCES. THE ASSESSEE HAS CLAIMED BEN EFIT RELATED TO INCREASE IN EXPORT TURNOVER BY WAY OF DUTY EXEMPTIO NS AND DUTY ENTITLEMENT IN EARLIER YEARS AND SUBSEQUENTLY, THE ASSESSEE WRITING OFF ADVANCES IN EARLIER YEARS IN ORDER TO REDUCE TAXABL E INCOME OF THE CURRENT YEAR IS NOT ACCEPTABLE. FURTHER, THE ASSES SEE COMPANY HAS INSTITUTED THE LEGAL PROCEEDINGS AND WRITTEN OFF OF ADVANCES AS BAD DEBTS A4,27,75,243/- DISALLOWED ALONGWITH OTHER DI SALLOWANCES AND ASSESSED THE INCOME AND PASSED ORDER U/S.143(3) R. W.S.92A OF THE ACT DATED 28.03.2014. AGGRIEVED BY THE ORDER, THE A SSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE ARGUED THE GROUNDS A ND REITERATED THE SUBMISSIONS MADE BEFORE LD. ASSESSING OFFICER. THE COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE FINDINGS OF THE LD. ASSESSING OFFICER AND SUBMISSIONS AND THE MATERIALS FILED DU RING THE COURSE OF HEARING. ON THE DISPUTED ISSUE OF WRITTEN OFF OF A DVANCES, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN HIS ORDER D EALT EXHAUSTIVELY AT PAGE 3 WERE THE ASSESSEE HAS WRITTEN OFF THE ADV ANCES OF EARLIER ASSESSMENT YEARS. THE LD. AUTHORISED REPRESENTATIV E EXPLAINED THE ITA NO.1161/MDS/2016. :- 5 -: WORKING AND NATURE OF EXPORT OF MERCHANDISE DIVIS ION AND THE SYSTEM OF COMMERCIAL TRANSACTIONS AND ALSO FURNISHE D DETAILS OF PERSONS TO WHOM THE ADVANCES WERE MADE AND EXPLAINE D POINT WISE OBSERVED AT PAGE 3 TO 5 OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ORDER AND ALSO LEGAL PROCEEDINGS WERE INI TIATED AGAINST THE PARTIES AND THE REASONS OF WRITTEN OFF OF ADVANCE S OF EARLIER YEARS. FURTHER, WHEN THE AMOUNT IS RECOVERED THE SAME SHA LL BE OFFERED TO TAX AND ADVANCES PROVIDED IN THE COURSE OF BUSINE SS AND SAME IS ADMISSIBLE FOR DEDUCTION AND RELIED ON THE JUDICIAL DECISIONS AND THE ASSESSEES OWN CASE IN ITA NO.194/MDS/2013, DATED 2 1.05.2013 WERE IT WAS HELD THAT THE ADVANCES WRITTEN OFF CAN BE A LLOWED AS DEDUCTION WERE THE SAME WAS IN THE COURSE OF ASSESSEE BUSINE SS AND THE MATTER WAS REMITTED TO THE COMMISSIONER OF INCOME TAX (APP EALS) TO TAKE INTO CONSIDERATION THE RELEVANT MATERIALS EVIDENC E. THE PRESENT LD. COMMISSIONER OF INCOME TAX (APPEALS) PERUSED THE FI NANCIAL STATEMENTS AND DISALLOWANCE BY THE LD. ASSESSING OFFICER AND WRITTEN SUBMISSIONS WITH EVIDENCE FILED BY THE ASSESSEE. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS CALLED FOR REMAND REPORT FROM THE LD. ASSESSING OFFICER UNDER RULE 46A OF T HE ACT. UPON RECEIPT OF REMAND REPORT, THE LD. COMMISSIONER OF I NCOME TAX (APPEALS) FOUND THE OBSERVATIONS OF THE BUSINESS E NTITIES M/S. ITA NO.1161/MDS/2016. :- 6 -: UNIVERSAL PRODUCT AND ALLIED P LTD (UPA) A5,98,257/ - WERE THE ASSESSEE ENTERED INTO EXPORT TRANSACTIONS IN THE N ATURE OF INDIAN WHITE CANE SUGAR AND ASSESSEE COMPANY HAS ADVANCED AMOUNT IN THE REGULAR COURSE OF BUSINESS. SIMILARLY IN THE CASE OF J.J. FASHIONS, THE ASSESSEE HAS WRITTEN OFF A1,30,69,715/- TO PURCHASE RAW MATERIAL FOR FINISHED PRODUCTS FOR EXPORT OBLIGATION. THE LD. CO MMISSIONER OF INCOME TAX (APPEALS) PROVIDED A COPY OF REMAND REPO RT TO THE ASSESSEE AND THE ASSESSEE HAS FILED OBJECTIONS AND COMMENTS PARTY WISE AND SIMILAR ISSUE WAS CONSIDERED BY TRIBUNAL FOR ASSESSMENT YEAR 2008-2009. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BASED ON THE REMAND REPORT AND SUBMISSIONS OF LD. AUTHORI SED REPRESENTATIVE HAS DEALT EXHAUSTIVELY ON THE NATUR E OF ADVANCES FROM THE ASSESSMENT YEAR 2003-04 TO THE PRESENT ASSESSME NT YEAR AT PAGE 8 TO 12 OF HIS ORDER AND CONFIRMATIONS WERE OBTAIN ED AND ALSO DETAILS OF LEGAL PROCEEDINGS AND CRIMINAL PROCEEDINGS INIT IATED BY THE COMPANY AND RELIED ON JUDICIAL DECISIONS IN THE CA SE OF VIJAYAKUMAR MILLS LTD VS. CIT 247 ITR 176 AND CONCLUDED THAT THE LOSSES INCURRED BY THE ASSESSEE IN THE CASES OF M/S. JJ FASHIONS A ND UNIVERSAL PRODUCT AND ALLIED P. LTD ARE TRADING LOSSES AND ARE TO B E ALLOWED AS DEDUCTION AND DIRECTED THE LD. ASSESSING OFFICER TO ALLOW THE CLAIM AND PARTLY ALLOWED THE APPEAL. AGGRIEVED BY THE ORDER OF THE ITA NO.1161/MDS/2016. :- 7 -: COMMISSIONER OF INCOME TAX (APPEALS) THE REVENUE AS SAILED AN APPEAL BEFORE TRIBUNAL. 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ARGU ED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE ADVANCES IN RESPECT OF UNIVERSAL PRODUCT & ALLIED P . LTD AND JJ FASHIONS OF A1,36,67,972/- ON THE BASIS OF COMMERCI AL EXPEDIENCY AND NOT CONSIDERED THE COMMENTS OF THE LD. ASSESSING OF FICER IN REMAND REPORT AND IGNORED THE FACTS THAT THE PARTIES TO W HOM ADVANCES WERE PROVIDED ARE NOT IN REGULAR COURSE OF BUSINESS AND NATURE BEING MONEY LENDING TRANSACTIONS. THE LD. COMMISSIONER O F INCOME TAX (APPEALS) ERRED IN DIRECTING THE LD. ASSESSING OFFI CER FOR ALLOWING THE DEDUCTION IS BAD IN LAW AND PRAYED FOR SETTING ASI DE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS). 6. CONTRA, THE LD. AUTHORISED REPRESENTATIVE RELIED ON THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS ) ORDER AND OPPOSED TO THE GROUNDS. 7. WE HEARD RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS. THE MAIN CRUX OF THE DISPU TED ISSUE REVOLVES AROUND WRITE OFF OF BAD DEBTS IN THE BOOKS OF ACCOU NT. THE ASSESSEE ITA NO.1161/MDS/2016. :- 8 -: HAS ADVANCED MONIES TO PARTIES AND SAME COULD NOT B E RECOVERED AND WAS WRITTEN OFF AND THE ASSESSEE COMPANY HAS INIT IATED LEGAL PROCEEDINGS. THE LD. AUTHORISED REPRESENTATIVE HIGH LIGHTENED THAT THE ASSESSEE HAS MADE PROVISION FOR BAD DEBTS IN THE EA RLIER YEARS AND MADE DISALLOWANCE IN COMPUTING TOTAL INCOME FROM T HE ASSESSMENT YEAR 2003-2004. DURING THE CURRENT FINANCIAL YEAR, THE ASSESSEE HAS WRITTEN OFF BAD DEBTS AFTER THE APPROVAL OF THE B OARD OF MANAGEMENT OF THE COMPANY IN RESPECT OF TWO PARTIES AND SUBM ITTED JOURNAL ENTRIES PASSED FOR WRITE OFF OF BAD DEBTS AND FURN ISHED ANNUAL REPORT OF THE COMPANY FOR THE PERIOD 2008-09 AND 2009-2010 . THE LD. DEPARTMENTAL REPRESENTATIVE CONTENTION THAT THE ADV ANCES WERE NOT MADE IN ORDINARY COURSE OF BUSINESS AND IT IS A TRA NSACTION OF MONEY LENDING. BUT, THE LD. AUTHORISED REPRESENTATIVE REL IED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF TRF LTD. VS. CIT (2010) 323 ITR AND DREW OUR ATTENTION TO THE PAGE 25 OF ANNUAL RE PORT PROFIT AND LOSS ACCOUNT SCHEDULE 14 WERE THE ASSESSEE HAS WRIT TEN OFF BAD DEBTS AND ENTRIES ARE PASSED IN THE BOOKS OF ACCOUNT AND THE ASSESSEE HAS WRITTEN OFF AMOUNT FROM THE SUNDRY DEBTORS AND PR ODUCED IN HEARING PROCEEDINGS SCHEDULE OF ADVANCE WRITTEN OFF IN TH E BOOKS OF ACCOUNT AND THE ANNUAL REPORT OF FINANCIAL YEAR 2008-2009 WERE PROVISION WAS DISALLOWED IN EARLIER YEAR. THE ASSESSEE FOLLOWING THE DECISION OF TRF ITA NO.1161/MDS/2016. :- 9 -: (SUPRA) HELD THAT AFTER 01.04.1989, IT IS NOT NECES SARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT HAS BECOME IRRE COVERABLE. IT IS ENOUGH IF THE BAD DEBTS IS WRITTEN OFF AS IRRECOVER ABLE IN THE ACCOUNTS OF THE ASSESSEE. SINCE THE ASSESSEE HAS WRITTEN OFF THE BAD DEBTS FROM THE BOOKS OF ACCOUNT AND CORRESPONDING EFFECT WAS A LSO GIVEN IN SUNDRY DEBTORS IF ANY RECOVERY IS MADE IT SHALL BE OFFERED TO TAX. WE ARE OF THE OPINION THAT THE APEX COURT IS CLEAR IN RESPECT OF ORDINARY BUSINESS TRANSACTIONS OF WRITTEN OFF OF BAD DEBTS. SINCE THE ASSESSEE HAS FILED ANNUAL REPORT AND STATEMENT OF BAD DEBTS WRITTEN OFF AND DETAILS OF PROVISION FOR DOUBTFUL DEBTS MADE OF EAR LIER YEARS. FURTHER, THE LD. DEPARTMENTAL REPRESENTATIVE OBJECTED TO FRE SH EVIDENCE WERE THE LD. ASSESSING OFFICER WAS DEPRIVED TO EXAMINE. WE ARE OF THE OPINION THAT THE LD. ASSESSING OFFICER SHOULD BE PR OVIDED WITH OPPORTUNITY TO VERIFY THE ENTRIES PASSED IN THE BOO KS OF ACCOUNT AND ALSO GENUINENESS OF EVIDENCE FILED IN THE COURSE OF HEARING BEFORE US. THEREFORE CONSIDERING APPARENT FACTS, MATERIAL ON R ECORD AND JUDICIAL DECISION, WE REMIT THE DISPUTED ISSUE TO THE FILE O F THE LD. ASSESSING OFFICER TO VERIFY THE EVIDENCE AND WHETHER THE DEBT IS WRITTEN OFF IN THE ASSESSEE BOOKS OF ACCOUNT AND IF IT SO ALLOW THE DE DUCTION AS CLAIMED BY THE ASSESSEE IN ACCORDANCE WITH THE RATIO LAID D OWN BY THE HONBLE ITA NO.1161/MDS/2016. :- 10 -: APEX COURT IN CASE OF TRF LTD (SUPRA) AND GROUNDS OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON WEDNESDAY, THE 20TH DAY OF JULY, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ) (G. PAVAN KUMAR) /JUDICIAL MEMBER / CHENNAI . / DATED: 20.07.2016 KV / ' )!+12 32$+ / COPY TO: 1 . %& / APPELLANT 3. 4+ () / CIT(A) 5. 278 )!+! / DR 2. )*%& / RESPONDENT 4. 4+ / CIT 6. 89# : / GF