ACIT -5(2), MUMBAI V. M/s. INDIA SECURITIES LTD., MUMBAI

ITA 1216/MUM/2007

• Counselvise Citation: 121619914 RSA 2007
• Duration Of Justice: 4 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 16-05-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 08-02-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIWAS RAO
• Keywords: Depreciation; Business expenditure; Retrospective amendment; Bad and doubtful debts
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI R.K.PANDA (A .M) ITA NO.1216/MUM/2007(A.Y. 2003-04) THE ACIT 5(2), ROOM NO.571, 5 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI 20. (APPELLANT) VS. M/S. INDIA SECURITIES LTD., ESSAR HOUSE, 11, KESHAVRAO KHADYE MARG, MAHALAXMI, MUMBAI 400 034. PAN:AAACI 9010K (RESPONDENT) APPELLANT BY : SHRI GOLI SRINIWAS RAO RESPONDENT BY : SHRI VIJAY MEHTA ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDE R DATED 29/11/2006 OF CIT(A) V, MUMBAI RELATING TO ASSESSMENT YEAR 200 3-04. THE GROUND NO.1 RAISED BY THE REVENUE READS AS FOLLOWS: (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND AS PER LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF BAD DEBTS AMOUNTING TO RS.3,54,16,000/- 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF LEASING AND HIRE PURCHASE. THE ASSESSEE CLAIMED AS DEDUCTION A SUM OF RS. 3,54,16,000/- ON ACCOUNT OF BAD DEBTS WRITTEN OFF. ACCORDING TO THE AO THE ASSESSEE HAD NOT ESTABLISHED THAT THE DEBTS HAVE BECOME BAD AND FOR THAT REASON HE DID NOT ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION. THE CIT(A) FOLLOWING HIS OWN ORDER IN ASSESSMENT YEAR 2002-03 DIRECTED THAT THE DEDUCTION CLAIMED SHOULD BE ALLOWED. ITA NO.1216/MUM/2007(A.Y. 2003-04) 2 3. IT IS NOT IN DISPUTE BEFORE US THAT IDENTICAL IS SUE WAS CONSIDERED IN ASSESSEES OWN CASE IN A.Y 2001-02 AND 2002-03 IN I TA NOS. 5026 & 5027/M/05 AND THE CLAIM OF THE ASSESSEE WAS ACCEPT ED BY THE TRIBUNAL. FURTHER IN THE LIGHT OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF OMAN INTERNATIONAL BANK, 313 ITR 128 (BOM) AND THE HONBLE SUPREME COURT IN THE CASE OF TRF LIMITED VS. CIT, 3 23 ITR 397(SC), THE CLAIM ON THE BASIS OF WRITE OFF OF A DEBT AS BAD DE BTS IN THE BOOKS OF ACCOUNTS WOULD BE SUFFICIENT TO ALLOW THE DEDUCTION AND IT I S NOT NECESSARY THAT THE DEBT SHOULD BE ESTABLISHED TO HAVE BECOME BAD. WE, THEREFORE, DO NOT FIND ANY MERIT IN GROUND NO.1 RAISED BY THE REVENUE AND THE SAME IS ACCORDINGLY DISMISSED. 4. GROUND NO.(II) RAISED BY THE REVENUE READS AS F OLLOW: (II) ON HE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND AS PER LAW, THE LD.CIT(A) ERRED IN ALLOWING THE CLAIM OF THE AS SESSEE ON ACCOUNT OF REVERSAL OF INCOME OF EARLIER YEARS AMOUNTING TO RS . 2,71,62,000/- ALTHOUGH THE ASSESSING OFFICER HAD CORRECTLY DISALL OWED THE SAME. 5. THE ASSESSEE COMPANY PROVIDED FOR INTEREST RECEI VABLE AT RS.156.67 LAKHS FOR THE ASSESSMENT YEAR 2001-02 AND RS. 100.2 7 LAKHS FOR THE A.Y 2002-03 FROM ONE OF THE PARTIES AND OFFERED THE SAM E FOR ASSESSMENT IN RESPECTIVE ASSESSMENT YEARS. SIMILARLY DELAYED PAY MENT CHARGES IN THE SUM OF RS.14.47 LAKHS WAS PROVIDED IN THE A.Y 2002-03 A S DUE FROM ONE OF THE LESSEES AND OFFERED FOR ASSESSMENT. HOWEVER, THE P ARTIES EITHER REFUSED TO ACCEPT THE CLAIM AS NOT FORMING PART OF THE TERMS A ND CONDITIONS OR SOUGHT WAIVER / REDUCTION IN THE AMOUNTS DEMANDED FROM THE M BY THE ASSESSEE. ULTIMATELY, THE ASSESSEE REVERSED THE SUM OF RS. 27 1.42 LAKHS IN ITS BOOKS OF ACCOUNTS AS REVERSAL OF EARLIER YEARS INCOME IN THE CURRENT ASSESSMENT YEAR. THE AO HOWEVER DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION FOR THE REASON THAT THERE WAS ABSENCE OF ANY DEFINI TE PROOF AND PLAUSIBLE EXPLANATION. THE AO HAD ALSO OBSERVED THAT THERE W AS NO ACTUAL WRITE OFF BY BOOK ENTRIES. BEFORE CIT(A), THE ASSESSEE POINTED OUT THAT THE ASSESSEE ITA NO.1216/MUM/2007(A.Y. 2003-04) 3 SUBMITTED DOCUMENTARY EVIDENCES TO PROVE THAT THE P ARTIES HAVE REJECTED ITS CLAIM. THE CIT(A) ACCEPTED THE STAND OF THE ASSESS EE AND HELD THAT THE CLAIM OF THE ASSESSEE HAD TO BE ACCEPTED. 6. WE HAVE CONSIDERED THE CASE OF THE AO AND WE FIN D THAT THERE HAS BEEN AN ACTUAL WRITE OFF. AT PAGE 34 OF THE PAPER BOOK THERE IS A REVERSAL OF EARLIER YEARS INCOME OF RS. 14,47,883/-, WHICH WAS EXCESS DELAYED PAYMENT CHARGES DUE FROM GUJARAT PAPER LTD. BOOKED IN THE E ARLIER YEARS AS INCOME AND NOW REVERSED. SIMILARLY PAGE 37 OF THE PAPER B OOK THERE IS REVERSAL OF INCOME RECOGNIZED IN THE PAST BEING AMOUNTS DUE FRO M ESSAR INVESTMENT LTD. WE DO NOT FIND ANY BASIS FOR THE CONCLUSIONS ARRIVED AT BY THE AO IN THE LIGHT OF THE ABOVE DOCUMENTS. WE, THEREFORE, UPHOL D THE ORDER OF CIT(A) AND DISMISS GROUND NO.2 RAISED BY THE REVENUE. 7. GROUND NO.(III) RAISED BY THE REVENUE READS AS F OLLOWS: (III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND AS PER LAW, THE LD. CIT(A) ERRED IN ALLOWING THE DEPRECIATION OF RS.15 ,39,771/- ON NON PERFORMING ASSETS ALTHOUGH THE ASSESSING OFFICER HA D CORRECTLY DISALLOWED THE SAME AS RELATABLE TO ASSETS WHICH DI D NOT YIELD ANY INCOME DURING THE YEAR. 8. IT IS NOT IN DISPUTE BEFORE US THAT IN A.Y. 200 1-02 AND 2002-03 IN ASSESSEES OWN CASE IN ITA NO.5026 & 5027/M/05 THIS TRIBUNAL TOOK THE VIEW THAT THE FACT THAT THE ASSESSEE DOES NOT RECOG NIZE INCOME IN RESPECT OF LEASE DOES NOT MEAN THAT THE ASSESSEE CANNOT CLAIM DEPRECIATION ON THE PROPERTY WHICH IS SUBJECT MATTER OF LEASE. RESPE CTFULLY FOLLOWING THE SAME WE DISMISS GROUND NO.3 RAISED BY THE REVENUE. 9. GROUNDNO.(IV) RAISED BY THE REVENUE READS AS FOL LOWS: (IV) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF RS.2,50,000/- OUT OF REPAIRS AND MAINTENANCE. ITA NO.1216/MUM/2007(A.Y. 2003-04) 4 10. ON PERUSAL OF PROFIT & LOSS ACCOUNT, IT WAS NOT ICED BY THE AO THAT THE ASSESSEE COMPANY HAS DEBITED RS. 13,75,651/- ON ACC OUNT OF REPAIRS & MAINTENANCE. ON FURTHER EXAMINATION IT WAS NOTICED THAT THESE EXPENSES INCLUDED THE FOLLOWING EXPENSES: HOUSE REPAIR DR. SAMPAT SWAROOPS FLAT RS. 36,520/- HARBANS FURNITURE RS. 50,000/- BHARAT FURNISHINGS FABRICS RS. 16,320/- TOZER CONTRACTOR REPAIRS RS.8,96,428/- LIKEWISE, THERE WERE OTHER EXPENSES ALSO OF SUCH NA TURE DEBITED IN THE NAMES OF VARIOUS PERSONS WITHOUT SPECIFYING WHETHER THESE ARE REIMBURSEMENT OF EXPENSES OR FORMING PART OF PERQUI SITES. THE ASSESSEE EXPLAINED BEFORE THE AO THAT THESE EXPENSES WERE IN CURRED IN RESPECT OF HOUSE GIVEN TO ONE OF THE EMPLOYEES AND THESE ARE I N THE COURSE OF BUSINESS ONLY. THE CONTENTION OF THE ASSESSEE WAS NOT ACCEP TED BY THE AO. SINCE PART OF THE EXPENSES WERE PRIMA FACIE NOT RELATED TO THE BUSINESS, A SUM OF RS. 2,50,500/- WAS DISALLOWED BY THE AO AS NON BUSINESS EXPENDITURE. ON APPEAL BY THE ASSESSEE THE CIT(A) DELETED THE ADDIT ION MADE FOR THE FOLLOWING REASONS: BEFORE ME IT HAS BEEN ARGUED THAT THE RESIDENCE OF THE DIRECTOR HAS BEEN TAKEN ON LEASE BY THE COMPANY AND REPAIRS HAVE BEEN DONE IN THESE PREMISES ON LEASE. IT IS CLAIMED THAT THE EX PENSES HAVE TO BE ALLOWED. THEY HAVE ALSO ARGUED THAT WHETHER EXPEND ITURE IS BY WAY OF REIMBURSEMENT SHOULD NOT MATTER FOR ITS ALLOWABILI TY. I FIND THAT AO HAS NOT CHALLENGED THE GENUINENESS O F THE EXPENDITURE. HE HAS MADE A CURSORY OBSERVATION THAT THESE ARE FO R NON-BUSINESS PURPOSES. NO REASONS HAVE BEEN GIVEN FOR THE SAME. ALSO, AN AD-HOC DISALLOWANCE HAS BEEN MADE. IN THIS SITUATION THER E IS NO SOUND BASIS FOR MAKING THE DISALLOWANCE. ALSO WHEN REPAIRS AR E DONE IN A PREMISES TAKEN BY APPELLANT ON LEASE HAVE TO BE ALL OWED AS REVENUE. ACCORDINGLY, THE ADDITION MADE BY THE A.O IS DELETE D. 11. WE AGREE WITH THE REASONING GIVEN BY THE CIT(A) . THERE CANNOT BE ANY ADHOC DISALLOWANCE OF REPAIRS AND MAINTENANCE EXPEN SES. THESE WERE EXPENSES INCURRED IN CONNECTION WITH THE RESIDENCE PROVIDED BY THE ASSESSEE ITA NO.1216/MUM/2007(A.Y. 2003-04) 5 TO ITS DIRECTORS. THESE ARE ADMITTEDLY REVENUE EXP ENSES. THEY WERE RIGHTLY HELD TO BE ALLOWABLE DEDUCTION BY THE CIT(A). GROU ND NO.(IV) IS ACCORDINGLY DISMISSED. 12. GROUND NO.(V) RAISED BY THE REVENUE READS AS FO LLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE AT RS.59,960/- DUE TO DISALLOWANCE OF STAFF WELFARE EXPENSES WHICH WERE UNRELATED TO THE BUSINESS. 13. THE ASSESSEE HAS DEBITED TO THE P&L ACCOUNT A S UM OF RS. 59,960/- UNDER THE HEAD STAFF WELFARE EXPENSES. THESE EXPEN SES ARE IN THE FORM OF CORPORATE HOUR EXPENSES, OUT OF POCKET EXPENSES, BO UQUET EXPENSES, STAFF MONTHLY EXPENSES ETC. IT WAS EXPLAINED BY THE ASS ESSEE THAT THESE EXPENSES ARE INCURRED IN RESPECT OF EMPLOYEES AND THERE THES E ARE IN THE COURSE OF BUSINESS ONLY. THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO AND HE HELD THAT THE EXPENSES WERE PRIMA FACIE NOT RELATED TO THE BUSINESS AND ALSO PARTLY UNVOUCHED. HE THEREFORE DISALLOWED A SUM OF RS.59,960/-. 14. ON APPEAL BY THE ASSESSEE THE CIT(A) DELETED TH E ADDITION MADE BY THE AO. WE HAVE PERUSED THE DETAILS OF THE EXPENSES WH ICH ARE GIVEN AT PAGE 61 OF THE PAPER BOOK. THESE ARE USUAL STAFF WELFARE E XPENSES LIKE CLOTH FOR DRIVER, CORPORATE ATTIRE EXPENSES, BOUQUET EXPENSES FOR GUESTS AND AUDITORS REFRESHMENTS ETC. WE ARE OF THE VIEW THAT CIT(A) H AS RIGHTLY DELETED THE ADDITION MADE BY THE A.O. 15. GROUND NO.(VI) RAISED BY THE REVENUE READS AS F OLLOWS: (VI) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFF ICER TO COMPUTE BOOK PROFIT U/S. 115JB WITHOUT MAKING ADJUSTMENTS TO THE BOOK PROFIT BY WAY OF ADDITION OF THE PROVISION FOR NON-PERFORMING ASSETS OF RS. 77,20,921/- AND PROVISION FOR DIMINUTION IN THE VAL UE OF INVESTMENTS OF RS.67,38,246/-. ITA NO.1216/MUM/2007(A.Y. 2003-04) 6 16. ON THE ABOVE GROUND IT WAS FAIRLY ACCEPTED THAT IN VIEW OF THE RETROSPECTIVE AMENDMENT TO THE PROVISIONS OF SECTIO N 115JB(2) EXPLANATION- 1(I) BY THE FINANCE ACT NO.2, 2009 WITH RETROSPECTI VE EFFECT FROM 1/4/2001 THE PROVISIONS FOR NON-PERFORMING ASSETS AND PROVIS ION FOR DIMINUTION IN THE VALUE OF INVESTMENT HAVE TO BE ADDED TO THE PROFIT AS PER THE P&L ACCOUNT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT, 1956. WE, THEREFORE, REVERSE THE ORDER OF THE CIT(A) AND RESTORE THE ORDER OF THE AO IN THIS REGARD. 17. IN THE RESULT, APPEAL BY THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 15 TH DAY OF JUNE, 2011. SD/- SD/- (R.K.PANDA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 15 TH JUNE.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RH BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.1216/MUM/2007(A.Y. 2003-04) 7 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 7/6/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 8/6/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER