Emotion Enterprises Pvt. Ltd., Meerut V. ACIT, Meerut

ITA 1357/DEL/2016

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0591 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2012-2013
• Appeal Filed On: 10-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Keywords: Capital asset; Principle of natural justice; Date of conversion; Fair market value; Bad and doubtful debts
• Section: 45(2); 13; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SH. BHAVNESH SAINI, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA NO. 1357/DEL./2016 : ASSTT. YEAR : 2012-13 EMOTION ENTERPRISES PVT. LTD. (PRESENT NAME SIDDHIVINAYAK FABRICATORS PVT. LTD.), 258, GARDEN HOUSE, MALL ROAD, MEERUT-250001 VS ACIT, CIRCLE-1 MEERUT (APPELLANT) (RESPONDENT) PAN NO. AAB CE9396H ASSESSEE BY : SH. ROHIT AGARWAL, CA REVENUE BY : MS. ASHIMA NEB, SR. DR DATE OF HEARING: 03 . 12 .2019 DATE OF PRONOUNCEMENT: 24 .12 .2019 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD. CIT (A), MEERUT DATED 05.02.2016. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESS EE: 1. THAT EACH GROUND OF APPEAL IS WITHOUT PREJUDICE TO EACH OTHER. 2. THAT THE LD. CIT WAS NOT CORRECT AND JUSTIFIED I N SUSTAINING THE ADDITION OF RS.1,13,65,949/- U/S 45(2) OF THE INCOM E TAX ACT, 1961 ON THE BASIS OF FACTS AND CIRCUMSTANCES OF THE CASE . 3. THAT THE LD. CIT (A) WAS NOT CORRECT AND JUSTIFI ED IN SUSTAINING THE ADDITION OF RS.2,00,000/- U/S 36(1)(VII) READ WITH SECTION 37 OF THE INCOME TAX ACT, 1961 ON THE BASIS OF FACTS AND CIRC UMSTANCES OF THE CASE. 4. THAT ON THE BASIS OF FACTS OF THE CASE AND IN VI EW OF THE CIRCUMSTANCES IT IS PRAYED THAT EITHER THE ADDITION S SUSTAINED BY THE LD. CIT MAY PLEASE BE DELETED OR THE MATTER MAY PLE ASE BE RESTORE BACK TO THE FILE OF THE LD. CIT (A) IN THE INTEREST OF NATURAL JUSTICE. 3. GROUND NO. 3 RELATES TO DISALLOWANCE OF RS.2 LAC S U/S 36(1)(VII) R.W.S. 37 OF THE INCOME TAX ACT, 1961. DURING THE Y EAR, THE ASSESSEE COMPANY HAD WRITTEN OFF BAD DEBTS AMOUNTING TO RS.2 LACS DURING THIS 2 ITA NO.1357/DEL/2016 EMOTION ENTERPRISES PVT. LTD. YEAR AND HAS CLAIMED THE AMOUNT AS ALLOWABLE UNDER SECTION 36(1)(VII). THE ASSESSEE HAS EXPLAINED THAT THIS AMOUNT WAS GIV EN TO M/S GAUTAM & GAUTAM ASSOCIATES AS THE COMPANY WAS INITIALLY PLAN NING FOR CONSTRUCTION OF MULTIPLEX AND THIS AMOUNT WAS GIVEN AS ADVANCE F OR PREPARATION OF LAYOUT PLAN AND MAP ETC. THE ASSESSING OFFICER DENI ED THE CLAIM ON THE GROUNDS THAT ASSESSEE NEVER COMMENCED AND ANY SUCH EXPENSES OF PRELIMINARY NATURE ARE ONLY ALLOWABLE AS DEDUCTION U/S 35D OF I.T. ACT AFTER COMMENCEMENT OF BUSINESS. 4. DURING APPEAL PROCEEDINGS BEFORE THE LD. CIT (A) , IT WAS ARGUED THAT THE ASSESSING OFFICER DISALLOWED THE CLAIM OF BAD D EBTS OF RS.2,00,000.00 ON THE GROUNDS THAT THE ASSESSEE COMPANY HAS NOT CA RRIED ON ANY BUSINESS HENCE THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT ARE NOT APPLICABLE. IT IS SUBMITTED THAT THE COMPANY WAS EN GAGED IN THE BUSINESS AND THIS AMOUNT WAS GIVEN AS ADVANCE FOR THE PURPOS E OF BUSINESS AND HENCE IT IS COVERED UNDER THE PROVISIONS OF SECTION 36(1)(VII) OF THE IT ACT, 1961. IT WAS FURTHER ARGUED THAT THE ASSESSEE COMPA NY FULFILS THE PRE CONDITIONS OF SECTION 36(1)(VII) AND THEREFORE ELIG IBLE FOR DEDUCTION OF THE BAD DEBTS AMOUNTING TO RS, 2,00,000.00 AS THE ASSES SEE COMPANY HAS ACTUALLY WRITTEN OFF THE AMOUNT AS BAD DEBTS. THE L D. AR RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF TR F LTD VS COMMISSIONER OF INCOME TAX REPORTED IN 190 TAXMAN 3 91 ( SC). 5. SECTION 36(1)(VII) PROVIDES THAT: SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF [ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN, OFF AS IRRECOVERABLE IN T HE ACCOUNTS OF THE ASSESSES FOR THE PREVIOUS YEAR]: PROVIDED THAT IN THE CASE OF [AN ASSESSES] TO WHICH CLAUSE (VIIA) APPLIES, THE AMOUNT OF THE DEDUCTION RELATING TO ANY SUCH DEBT O R PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHICH SUCH DEBT OR PART THEREOF EX CEEDS THE CREDIT, BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MA DE UNDER THAT CLAUSE.] 3 ITA NO.1357/DEL/2016 EMOTION ENTERPRISES PVT. LTD. [EXPLANATION 1]FOR THE PURPOSES OF THIS CLAUSE, AN Y BAD DEBT, OR PART THEREOF WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE SHALL NOT INCLUDE ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE AC COUNTS OF THE ASSESSEE;] [EXPLANATION 2- FOR THE REMOVAL OF DOUBTS, IT IS HE REBY CLARIFIED THAT FOR THE PURPOSES-OF THE PROVISO TO CLAUSE (VII) OF THIS-SUB -SECTION AND CLAUSE (V) OF SUB- SECTION (2), THE ACCOUNT REFERRED TO THEREIN SHALL BE ONLY ONE ACCOUNT IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS UNDER CLAUS E (VIIA) AND SUCH ACCOUNT SHALL RELATE TO ALL TYPES OF ADVANCES, INCLUDING ADVANCES MADE BY RURAL BRANCHES;] 6. CASE LAW RELIED UPON BY ASSESSEE IN THE CASE OF T.R.F. LTD. V. COMMISSIONER OF INCOME-TAX 190 TAXMAN 391 WHEREIN H ONBLE SUPREME COURT HAS HELD AS UNDER: THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1-4-19 89, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FAC T, HAS BECOME IRRECOVERABLE, H IS ENOUGH IF THE BAD DEBT IS WRITT EN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HOWE VER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHE R THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUS TOMERS ACCOUNT IS CREDITED, THUS, CLOSING, THE ACCOUNT OF THE CUSTOME R. IN THE CASE OF COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DE BTORS. AS STATED ABOVE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETH ER, IN FACT, THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCO UNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESS ING OFFICER. HENCE, THE MATTER IS REMITTED TO THE ASSESSING OFFI CER FOR DE NOVO CONSIDERATION OF THE ABOVE-MENTIONED ASPECT ONLY AN D THAT TOO ONLY TO THE- EXTENT OF THE WRITE OFF. 7. IN THE INSTANT CASE ALSO, THE ASSESSEE HAS NOT F URNISHED ANY DETAILS OF ADVANCE GIVEN TO GAUTAM & GAUTAM ASSOCIATES. THE ASSESSEE COULD NOT ESTABLISH ON WHICH DATE SUCH AMOUNTS WERE GIVEN, DE TAILS OF PAYMENT ETC. IT IS NOT OPEN TO THE REVENUE TO EXAMINE WHETHER TH E DEBT HAS INDEED BECOME BAD OR NOT. HENCE, KEEPING IN VIEW THE JUDGM ENT OF HONBLE APEX COURT, THE MATTER BEING REFERRED TO THE FILE OF THE LD. CIT (A) TO EXAMINE AND ALLOW THE BAD DEBTS CLAIMED BY THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT. THE AS SESSEE IS HEREBY DIRECTED TO FURNISH SUITABLE EVIDENCES PERTAINING TO THE MOO T FACT OF PAYMENT OF THE 4 ITA NO.1357/DEL/2016 EMOTION ENTERPRISES PVT. LTD. ADVANCES TO THE PARTIES TO THE LD. CIT (A), AS THIS HAS NOT BEEN EXAMINED HITHERTO. 8. WITH REGARD TO THE GROUND NO. 2, THE ASSESSEE HA S TAKEN UP ADDITIONAL GROUNDS WHICH ARE AS UNDER: 1. THAT THE LD. CIT(A) ERRED ON FACTS AND IN LAW I N HOLDING THAT CONVERSION OF CAPITAL ASSET INTO STOCK-IN-TRADE WAS DONE BY THE APPELLANT WITH SOLE MOTIVE OF TAX AVOIDANCE WITHOUT CONFRONTING THE APPELLANT DURING THE COURSE OF APPELLATE PROCEEDING S THEREBY VIOLATING THE PRINCIPLES OF NATURAL JUSTICE BY COMP LETELY IGNORING THE FACT THAT AO HAD ACCEPTED SUCH CONVERSION. 2. THAT THE AUTHORITIES BELOW ERRED ON FACTS AND IN LAW IN MAKING/CONFIRMING THE ADDITION OF RS. 1,13,65,949/- (I.E. RS.2,46,60,000/- FMV ASSESSED BY THE AO ON CONVERSI ON OF CAPITAL ASSET INTO STOCK-IN-TRADE MINUS RS.1,32,94,051/- CO ST OF PURCHASE OF CAPITAL ASSET) ON ACCOUNT OF SHORT TERM CAPITAL GAI N U/S 45(2) OF I.T. ACT, WITHOUT GIVING CONSEQUENTIAL RELIEF BY CONSIDE RING THE COST OF PURCHASE OF STOCK-IN-TRADE AT ITS FMV OF RS.2,46,60 ,000/- AND WITHOUT FURTHER ALLOWING COST OF DEVELOPMENT OF RS. 31,04,563/- INCURRED AFTER THE DATE OF CONVERSION AND COST OF S TAMP PAPERS AND REGISTRATION FEE PAID ON TRANSFER THEREOF AT RS. 13 ,61,890/- AS COST OF TRANSFER. 3. THAT THE A.O. ERRED IN SUBSTITUTING THE FMV OF T HE CAPITAL ASSET ON THE DATE OF CONVERSION I.E. 31/03/2010 AT RS.2,46,6 0,000 ON THE BASIS OF CIRCLE AREA VALUE PREVALENT ON THE DATE OF SALE I.E. 08/04/2011. 4. THAT THE AUTHORITIES BELOW ERRED ON FACTS AND IN LAW IN NOT SUBSTITUTING OPENING VALUE OF STOCK-IN-TRADE ON FMV OF RS.2,46,60,000 WHICH WOULD HAVE RESULTED IN COMPUTI NG BUSINESS LOSS AT RS.96,88,180. 5. THAT THE AUTHORITIES BELOW ERRED ON FACTS AND IN LAW IN NOT WORKING OUT AND SETTING OFF BUSINESS LOSS OF RS.96,88,180 U /S 70 OF I.T. ACT AGAINST SHORT TERM CAPITAL GAIN OF RS.1,13,65,949 A S ASSESSEE U/S 45(2) OF I.T. ACT RESULTING IN NET INCOME OF RS.16, 77,769 AS DECLARED BY THE APPELLANT CO. VARIOUS SUBMISSIONS AS MADE BE FORE THE AUTHORITIES BELOW HAVE EITHER BEEN IGNORED OR HAVE NOT BEEN APPRECIATED PROPERLY. 9. IT WAS ARGUED THAT THE ADDITIONAL GROUND NO. 1 I S EMANATING FROM CIT(A) ORDER WHILE ADDITIONAL GROUND NOS. 2, 3, 4 & 5 ARE PURELY LEGAL GROUNDS WHICH ARE NOT ONLY INTERCONNECTED WITH THE GROUND NO. 2 AS RAISED IN MEMO OF APPEAL IN FORM 36 BUT ALSO GO TO THE ROOT OF THE MATTER. 5 ITA NO.1357/DEL/2016 EMOTION ENTERPRISES PVT. LTD. HE RELIED ON THE JUDGMENT OF THE HONBLE SUPREME CO URT IN THE CASE OF NTPC 229 ITR 383. FURTHER, HE ALSO RELIED ON THE JU DGMENT OF THE HONBLE ORISSA HIGH COURT IN THE CASE OF SIKSHA O ANUSAND HAN VS. CIT 336 ITR 112 WHICH HELD AS UNDER:. ADMITTEDLY, THE TRIBUNAL AFTER BEING SATISFIED THAT THE ADDITIONAL GROUND TAKEN BY THE APPELLANT BEFORE IT TO BE A QUE STION OF LAW AND GOES TO THE ROOT OF THE MATTER VIDE ORDER DATED MAY 5, 2009 (ANNEXURE 8) DIRECTED THE LEARNED DEPARTMENTAL REPR ESENTATIVE TO PRODUCE THE RECORDS OF SEARCH TO EXAMINE AS TO WHET HER A SEARCH WARRANT WAS ISSUED IN THE NAME OF THE ASSESSEE OR N OT AND ADJOURNED THE CASE TO MAY 6, 2009. AT THIS STAGE, T HERE IS NO REASON AS TO WHY THE TRIBUNAL BEING THE FINAL FACT FINDING AUTHORITY COULD NOT HAVE RECORDED ITS FINDING ON THE AFORESAID VITAL JU RISDICTIONAL ISSUE WHEN CONSCIOUSLY THE TRIBUNAL CALLED FOR THE RECORD OF SEARCH. THIS ACTION OF THE LEARNED TRIBUNAL, IN OUR VIEW, SEEMS TO BE UNJUST. 22. THE SPECIFIC STAND OF THE APPELLANT IS THAT PUR SUANT TO THE ORDER DATED MAY 5, 2009 (ANNEXURE 8) PASSED BY THE LEARNE D INCOME-TAX APPELLATE TRIBUNAL DIRECTING THE LEARNED DEPARTMENT AL REPRESENTATIVE TO PRODUCE THE RECORDS OF THE SEARCH TO EXAMINE WHE THER SEARCH WARRANT WAS ISSUED IN THE NAME OF THE ASSESSEE, THE REVENUE PRODUCED THE SEARCH RECORDS AND THE INCOME-TAX APPE LLATE TRIBUNAL AFTER EXAMINING THE RELEVANT RECORDS WAS SATISFIED THAT NO SUCH SEARCH WARRANT WAS ISSUED AGAINST THE APPELLANT-SOC IETY UNDER SECTION 132(1) OF THE INCOME-TAX ACT, 1961. IN SPIT E OF THE SAME, THE INCOME-TAX APPELLATE TRIBUNAL VIDE ITS ORDER DATED JULY 27, 2009 REMITTED THE MATTER TO THE COMMISSIONER OF INCOME-T AX (APPEALS) FOR FRESH HEARING WHICH IS NOT PERMISSIBLE UNDER THE LA W. 23. LAW IS WELL-SETTLED THAT ONCE THE MATERIALS ARE AVAILABLE ON RECORD, THE APPELLATE COURT SHOULD HAVE DISPOSED OF THE CASE ON THE MERITS TAKING THOSE MATERIALS INTO CONSIDERATION AN D THERE IS NO NEED TO DIRECT REMAND. 10. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ADDITIONAL GR OUND NOS. 2, 3, 4 & 5 ARE PURELY LEGAL IN NATURE, HENCE KEEPING IN VIEW T HE RATIO LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF NTPC (SUPRA), THE ADDITIONAL GROUNDS ARE HEREBY ADMITTED. REGARDING THE JUDGMENT IN THE CASE OF SIKSHA O ANUSANDHAN, WE FIND THAT IT IS NOT APPLI CABLE TO THE INSTANT CASE AS THE FACTS OF THE CASE ARE ENTIRELY DIFFEREN T AND NEEDED PRIMARY ADJUDICATION AND EXAMINATION AT THE END OF THE REVE NUE. SINCE, THE REVENUE HAS NOT GOT THE OPPORTUNITY OF EXAMINING TH E GROUNDS RAISED ADDITIONALLY BY THE ASSESSEE BEFORE THE TRIBUNAL FO R THE FIRST TIME, IN THE 6 ITA NO.1357/DEL/2016 EMOTION ENTERPRISES PVT. LTD. INTEREST OF JUSTICE WE HEREBY REMAND THE MATTER BAC K TO THE FILE OF THE LD. CIT (A) TO ADJUDICATE ON THE ADDITIONAL GROUNDS TAK EN UP BY THE ASSESSEE. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 24/12/2019. SD/- SD/- (BHAVNESH SAINI) (DR . B. R. R. KUMAR) JUDICIAL MEMBER AC COUNTANT MEMBER DATED: 24/12/2019 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR