DCIT CIR 3(3), MUMBAI V. WARTSILA INDIA LTD, MUMBAI

ITA 1278/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1268 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 05-04-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 25-02-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: BALA KRISHNA
• Assessee Lawyers: J D MISTRY
• Keywords: Question of law; Bad and doubtful debts
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI RAJENDRA SINGH (AM) AND SMT. ASHA VIJA YARAGHAVAN (JM) ITA NO. 1278/MUM/2009 ASSESSMENT YEAR-2004-05 THE DY. CIT, CIRCLE-3(3), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. WARTSILA INDIA LTD., 76, FREE PRESS HOUSE, NARIMAN POINT, MUMBAI-400 021 PAN-AAACW0345D (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI BALA KRISHNA RESPONDENT BY: SHRI J.D. MISTRY O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER PASSED BY THE LD. CIT(A)-XXXII, MUMBAI FOR THE ASSE SSMENT YEAR 2004- 05. 2. THE FIRST GROUND RAISED BY THE REVENUE READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAWS, THE LD. CIT(A) HAS ERRED IN ALLOWING THE PAYM ENTS TO CLUBS OF RS. 82,035/- WITHOUT APPRECIATING THE FACT THAT SUCH EXPENSES HAVE NOT RESULTED IN PROMOTION OF THE ASSE SSEES BUSINESS. 3. WE FIND THAT IN ASSESSEES OWN CASE IN ITA NO. 2 94/M/97 FOR A.Y. 1992-93 IN WHICH IT HAS BEEN HELD AS FOLLOWS: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE RECORD. IN THE CASE OF OTIS ELEVATORS CO. (INDIA) LTD., THE JURISDICTIONAL HIGH COURT HAS HELD THAT M EMBERSHIP ITA NO. 1278/M/09 2 OF A CLUB WOULD PROVIDE OFFICERS OF THE ASSESSEE CO MPANY BETTER CONTACT WITH PERSONS IN GOOD POSITION AND WO ULD RESULT IN PUBLICITY. THEREFORE, MEMBERSHIP FEES PAID TO T HE CLUB IS AN ALLOWABLE EXPENDITURE. FOLLOWING THE SAID DECISION , WE ALLOW THE CLAIM OF THE ASSESSEE AND DELETE THE DISALLOWAN CE RESPECTFULLY FOLLOWING THE ABOVE, WE DISMISS THE G ROUND RAISED BY THE REVENUE. 4. THE SECOND GROUND RAISED BY THE REVENUE READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE AMOUNT OF RS. 4,64,18,200/- ON ACCOUNT OF BAD DEBTS AND LIQUIDATE D DAMAGES WITHOUT APPRECIATING THE FACT THAT THE ASSE SSEE HAS NOT PRODUCED ANY EVIDENCE AS TO ACTUAL WRITE OFF IN THE BOOK OF ACCOUNT. 5. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED A S FOLLOWS: DURING THE COURSE OF ASSESSMENT, THE AO ASKED THE ASSESSEE TO FILE COMPLETE DETAILS OF BAD DEBTS AND LIQUIDATED DAMAGES CLAIMED ALONGWITH JUSTIFICATION. THE ASSE SSEE FURNISHED THE DETAILS BUT CLAIMED BEFORE THE AO THA T AFTER AMENDMENT MADE TO SEC. 36 (1)(VII) OF THE I.T. ACT W.E.F. 1.4.1989, IT IS NOT NECESSARY FOR THE APPELLANT TO SHOW THAT THE DEBT HAS BECOME BAD. IT WAS CLAIMED THAT ALL I T WAS REQUIRED TO SHOW THAT THE SAME HAS BEEN WRITTEN OFF AS BAD DEBT. THE AO DID NOT ACCEPT THE SUBMISSION OF THE APPELLANT AND DISALLOWED THE CLAIM. IN THE APPELLATE PROCEEDINGS, IT WAS SUBMITTED THA T IT IS A COVERED ISSUE. THE CIT(A) IN APPELLANTS OWN CAS E FOR A.Y. 2000-01 TO A.Y. 2003-04 DELETED THE ADDITION IN THI S RESPECT BY HOLDING THAT THE APPELLANT IS NO LONGER REQUIRED TO PROVE THAT AMOUNT HAS BECOME IRRECOVERABLE AND THAT IT WI LL SUFFICE IF THE SAME IS WRITTEN OFF IN THE BOOKS OF ACCOUNTS AN D THE SAME HAD ALSO BEEN TAKEN INTO ACCOUNT WHILE COMPUTING TH E INCOME OF THE PREVIOUS YEAR IN WHICH IT IS WRITTEN OFF OR IN EARLIER YEARS. IT WAS CLAIMED THAT THE AO HAS DISALLOWED A N AMOUNT OF RS. 4,64,18,480-/- CLAIMED BY THE AO HAS DISALLO WED AN AMOUNT OF RS.4,64,18,480/- CLAIMED BY THE ASSESSEE. THE ASSESSEE COULD NOT PRODUCE EVIDENCE WHICH COULD SHO W OR ITA NO. 1278/M/09 3 ESTABLISH THAT THE DEBTS HAVE INDEED BECOME BAD DUR ING THE RELEVANT FINANCIAL YEAR. THE APPELLANT CLAIMED DUR ING THE COURSE OF APPELLANT PROCEEDINGS THAT THE AO REQUIRE D THE APPELLANT TO SUBSTANTIATE THE CLAIM OF THE BAD DEBT S AND LIQUIDATE DAMAGES AND IN RESPONSE THERETO, THE APPE LLANT DULY SUBMITTED THE DETAILED BREAKUP THEREOF ALONGWITH RE ASONS FOR WRITING OFF BAD DEBTS AND LIQUIDATED DAMAGES AS ALS O ITS DETAILED CONTENTION WITH RESPECT TO THE ALLOWABILIT Y THEREOF. THEREAFTER, THE AO DID NOT REQUIRE THE APPELLANT TO SUBMIT ANYTHING FURTHER IN THAT RESPECT AT ANY POINT OF TI ME IN THE COURSE OF THE ASSESSMENT WHEREIN THE ORDER HE HAD A LLEGED THAT THE APPELLANT DID NOT PRODUCE DOCUMENTARY EVID ENCE. 6. THE ASSESSEE FURTHER SUBMITTED AS FOLLOWS: IN MAKING THE ABOVE DISALLOWANCE, THE LD. AO REJEC TED THE APPELLANTS SUBMISSION THAT AFTER AMENDMENT MADE TO SEC. 36(1)(VII) OF THE I.T. ACT W.E.F. 1.4.89 ALL THAT T HE APPELLANT WAS REQUIRED TO SHOW IS THAT THE BAD DEBTS HAVE BEEN WR ITTEN OFF IN HIS ACCOUNTS AS IRRECOVERABLE. IN REJECTING THE AB OVE SUBMISSION, HE RELIED ON THE DECISION OF THE DELHI TRIBUNAL IN THE CASE OF INDIA THERMAL CORPN. INDIA LTD. 56 ITD 307, IGNORING INTER-ALIA THE RATIO OF THE GUJARAT HIGH COURT DECISION IN THE CASE OF CIT VS GIRISH PRASAD, 152 CTR 199 RE LIED ON BY THE APPELLANT. IN THIS RESPECT IT WAS SUBMITTED TH AT AFTER AMENDMENT MADE TO SEC. 36(1)(VII) OF THE I.T. ACT W ITH EFFECT FROM 1.4.1989, ALL THAT THE ASSESSEE IS REQUESTED TO SHOW THAT A) THE AMOUNT IS WRITTEN OFF AS IRRECOVERABLE IN TH E BOOKS OF ACCOUNT AND B) THAT THE SAME HAD BEEN TAKEN INTO ACCOUNT IN COM PUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH IS WRITTEN OFF OR IN ANY OF THE EARLIER YEARS. BOTH THE ABOVE CONDITIONS HAVE BEEN FULFILLED BY TH E APPELLANT WITH RESPECT TO THE BAD DEBTS DISALLOWED BY THE AO, WHICH FACT IS NOT IN DISPUTE . HE MADE THE DISALLO WANCE JUST BECAUSE THE APPELLANT DID NOT SUBMIT ANY DOCUMENTARY EVIDENCE TO SHOW THAT THE DEBTS HAVE BECOME BAD. IN THIS RESPECT, THE HONBLE GUJARAT H IGH COURT IN THE CASE OF CIT VS GIRISH BHAGWAT PRASAD 1 52 CTR 199 HELD THAT UNDER THE PROVISIONS OF S. 36(1)( VII) AS IN FORCE FROM 1 ST APRIL, 1989, ALL THAT THE ASSESSEE HAD TO SHOW WAS THAT THE BAD DEBT WAS RITTEN OFF AS ITA NO. 1278/M/09 4 IRRECOVERABLE. THE GENUINENESS OF SUCH A CLAIM MAD E BY THE ASSESSEE WAS NOT IN DOUBT. THEREFORE, ALL T HAT THE TRIBUNAL HAS DONE IS TO UPHOLD THE FIRST APPELL ATE AUTHORITYS DECISION APPLYING THE PROVISIONS OF AME NDED S. 36(1)(VII) AND NO QUESTION OF LAW ARISES IN THE MATTER FROM SUCH APPLICATION OF THE PROVISION TO THE FACTS OF THE CASE. MOREOVER, THE INTENTION OF THE LEGISLATURE I N BRINGING THE AMENDMENTS TO SEC. 36(1)(VII) AND SEC. 36(2) OF THE ACT HAS CLEARLY BEEN BROUGHT OUT BY TH E CENTRAL BOARD OF DIRECT TAXES, VIDE CIRCULAR 551 DT . 23 RD JAN. 1990 THE RELEVANT PORTION WHEREOF READS AS UND ER: AMENDMENTS TO SEC. 36(1)(VII) AND 36(2) TO RATIONALIZE PROVISIONS REGARDING ALLOWABILITY OF BA D DEBTS. THE OLD PROVISIONS OF CLAUSE (VII) OF SUB-SE C (1) READ WITH SUB-SECTION (2) OF THE SEC. LAID DOWN CONDITIONS NECESSARY FOR ALLOWABILITY OF BAD DEBTS. IT WAS PROVIDED THAT THE DEBT MUST BE ESTABLISHED TO H AVE BECOME BAD IN THE PREVIOUS YEAR. THIS LED TO ENORM OUS LITIGATION ON THE QUESTION OF ALLOWABILITY OF BAD D EBT IN A PARTICULAR YEAR, BECAUSE THE BAD DEBT WAS NOT NECESSARILY ALLOWED BY THE AO IN THE YEAR IN WHICH THE SAME HAD BEEN WRITTEN OFF ON THE GROUND THAT THE DE BT WAS NOT ESTABLISHED TO HAVE BECOME BAD IN THAT YEAR . IN ORDER TO ELIMINATE THE DISPUTES IN THE MATTER OF DETERMINING THE YEAR IN WHICH A BAD DEBT CAN BE ALLOWED AND ALSO TO RATIONALIZE THE PROVISIONS, THE AMENDING ACT, 1987 HAS AMENDED CLAUSE (VII) OF SUB SECTION (1) AND CLAUSE (I) OF SUB-SECTION (2) OF SE C. TO PROVIDE THAT THE CLAIM FOR BAD DEBT WILL BE ALLOWED IN THE YEAR IN WHICH SUCH A BAD DEBT HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. CLAUSE (III) AND (IV) OF SUB-SEC. (2) OF THE SEC. PROVIDED FOR ALLOWING DEDUCTION FOR A BAD DEBT IN AN EARLIER OR LATER PREVIOUS YEAR, IF THE ITO WAS SATISFIED THAT THE DEBT DID NOT BECOME BAD IN THE YEAR IN WHICH IT WAS WRITTEN OFF BY THE ASSESSEE. THESE CLAUSES HAVE BECOME REDUNDANT, AS THE BAD DEBTS ARE NOW BEING STRAIGHTAWAY ALLOWED IN THE YEAR OF WRITE-OFF. THE AMENDING ACT, 1987 HAS THEREFORE, AMENDED THESE CLAUSES TO WITHDRAW THEM AFTER THE A.Y. 1988-89. FROM THE ABOVE EXCERPTS OF THE CIRCULAR OF THE CBD T, IT IS CLEAR THAT THE ABOVE SAID AMENDMENT THE REQUIREM ENT TO ESTABLISH THAT THE DEBT HAS BECOME BAD DURING TH E ITA NO. 1278/M/09 5 RELEVANT FINANCIAL YEAR (WHICH WAS THERE PRIOR TO T HE SAID AMENDMENT) HAS BEEN DONE AWAY WITH AND THE CLAIM IS ALLOWABLE IN THE YEAR IN WHICH THE DEBT IS ACTUALLY WRITTEN OFF AS IRRECOVERABLE. THE APPELLA NT ALSO RELIED UPON THE DECISION OF THE JURISDICTIONAL TRIB UNAL IN THE CASE OF ANIL S. RASTOGI 86 ITD 193 WHEREIN THE HONBLE TRIBUNAL HELD THAT AMENDMENT TO SEC. 36(1)( VII) OF THE ACT EFFECTIVE FROM A.Y. 1989-90, THE CONDITI ON FOR ALLOWABILITY OF BAD DEBTS IS ACTUAL WRITE OFF BY TH E ASSESSEE IN THE BOOKS OF ACCOUNT AND THAT THE REQUIREMENT WITH RESPECT TO PROVING THE DEBT TO BE BAD IS NO MORE APPLICABLE. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND FOUND THE SAME ACCEPTABLE. THE APPELLANT HAS FILED DETAI LS OF BAD DEBTS WRITTEN OFF AND AO HAS NOT PROVED THE CLAIM O F THE APPELLANT TO BE NOT BONAFIDE. SIMILAR CLAIM MADE B Y THE APPELLANT WERE ALLOWED IN EARLIER YEARS. FOLLOWING THE SAME, THE CLAIM OF THE APPELLANT FOR THIS YEAR IS ALLOWE D. 7. THE SUPREME COURT IN THE CASE OF TRF LTD. VS CI T, RANCHY (2010) TIO-15-SC-IT HAS HELD AS FOLLOWS: THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1ST AP RIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT TH E DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. 8. IN THE INSTANT CASE THERE IS NO CONTROVERSY ABOU T THE WRITE OFF. THEREFORE RESPECTFULLY FOLLOWING THE DECISION IN TH E CASE OF TRF LTD. (SUPRA), WE DISMISS REVENUES APPEAL ON THIS ISSUE. 9. THE THIRD GROUND RAISED BY THE REVENUE READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAWS, THE LD. CIT(A) HAS ERRED IN ALLOWING90% OF NE T HIRE CHARGES WITHOUT APPRECIATING THE FACT THAT 90% OF G ROSS HIRER CHARGES ARE REQUIRED TO BE EXCLUDED WHILE CALCULATI NG DEDUCTION U/S. 80HHC OF THE ACT. ITA NO. 1278/M/09 6 10. THIS GROUND HAS BEEN WRONGLY RAISED AND DOES NO T ARISE IN THIS YEAR THEREFORE IT IS DISMISSED AS INFRUCTUOUS. 11. THE LAST GROUND RAISED BY THE REVENUE READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAWS, THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO NOT TO EXCLUDE DISCOUNT RECEIPT, BALANCES, WRITTEN BACK AN D PROVISIONS WRITTEN BACK WHILE COMPUTING DEDUCTION U /S. 80HHC OF THE ACT. 12. WITH RESPECT TO BALANCES WRITTEN BACK, THE LD. CIT(A) HELD AS FOLLOWS: IT WAS SUBMITTED ON BEHALF OF THE APPELLANT THAT TH E SAME IS WITH RESPECT TO REVENUE EXPENSES, WHICH WERE DEDUCT ED IN THE EARLIER YEARS. ACCORDINGLY, THE SAME SHOULD AGAIN NOT BE EXCLUDED FROM INCOME IN THIS YEAR ALSO. HERE ALSO, I AM IN AGREEMENT WITH THE CONTENTION OF THE APPELLANT COMPANY AND DIRECT THE AO NOT TO EXCLUDE 90% THEREOF. 13. WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CI T(A) THEREFORE WE CONFIRM THE SAME. 14. WITH RESPECT TO DISCOUNT RECEIPT, THE LD. CIT(A ) HELD THAT SIMILAR ISSUE HAS BEEN CONSIDERED IN ASSESSEES OWN CASE FO R A.Y. 2000-01, 2001-02 AS WELL AS 2002-03 AND THE CLAIM OF THE ASS ESSEE HAS BEEN ALLOWED IN THOSE YEARS. THEREFORE WE SET ASIDE THI S ISSUE TO THE FILE OF THE AO TO ADJUDICATE THE SAME IN THE LIGHT OF THE EARLI ER DECISIONS. 15. WITH RESPECT TO PROVISIONS WRITTEN BACK FOR SUN DRIES RS. 84,28,260/-, THE LD. CIT(A) HELD AS FOLLOWS: IN THIS RESPECT, IT WAS SUBMITTED BY THE APPELLANT COMPANY IN THE COURSE OF APPELLATE PROCEEDINGS THAT PROVISION IN RESPECT OF THE SAME WAS MADE IN THE EARLIER YEAR(S) AND THE SA ME WAS ITA NO. 1278/M/09 7 ALLOWED AS DEDUCTION IN THE YEAR(S) OF MAKING THE P ROVISIONS. ACCORDINGLY, THE SAME SHOULD NOT BE EXCLUDED AGAIN FROM INCOME. IT WAS ALSO SUBMITTED THAT IN THE APPELLAN T COMPANYS OWN CASE, I HAVE ACCEPTED ITS IDENTICAL C ONTENTION IN MY ORDER FOR A.Y. 2003-04. ACCORDINGLY, THIS PL EA OF THE APPELLANT COMPANY IS ALLOWED. 16. WE REMIT BACK THE ISSUE TO THE FILE OF THE AO T O ADJUDICATE THE SAME IN THE LIGHT OF THE DECISION IN ASSESSEES OWN CASE FOR A.Y. 2003-04. 17. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 25 TH DAY OF JUNE, 2010 SD/- SD/- (RAJENDRA SINGH) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 25 TH JUNE, 2010 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR F BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 1278/M/09 8 DATE INITIALS 1 DRAFT DICTATED ON: 14.6.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 15.6.2010 ______ 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 FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______