CYMA EXPORTS P. LTD, MUMBAI V. ITO 5(1)(3), MUMBAI

ITA 1510/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8922 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 25-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: KIRIT S SANGHVI
• Keywords: Business expenditure; Bad and doubtful debts; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 1510/MUM/2010 (ASSESSMENT YEAR: 2006-07) M/S. CYMA EXPORTS PVT. LTD. INCOME TAX OFFICER - 5 (13) 220, 2ND FLOOR, ARUN CHAMBERS AAYAKAR BHAVAN, M.K. ROAD TARDEO, MUMBAI 400034 VS. MUMBAI 400020 PAN - AANCC 4920 F APPELLANT RESPONDENT APPELLANT BY: SHRI KIRIT S. SANGHVI RESPONDENT BY: SHRI S.K. SINGH O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- IX, MUMBAI DATED 25.01.2010. 2. ASSESSEE HAS RAISED THE FOLLOWING FOUR GROUNDS: - 1. THE LEARNED CIT(A) ERRED IN LAW AND CIRCUMSTANC ES OF THE CASE IN CONFIRMING THE DISALLOWANCE OF RS.2,42,017/- OUT OF REPAIRS. 2. THE LEARNED CIT(A) ERRED IN LAW AND CIRCUMSTANCE S OF THE CASE IN CONFIRMING THE ADDITION OF RS.1,00,000/- ON THE ALL EGED GROUND OF UNDERSTATEMENT OF SALE OF PARKING LOTS. 3. THE LEARNED CIT(A) ERRED IN LAW AND CIRCUMSTANCE S OF THE CASE THAT APPELLANT WAS NOT GIVEN A SUFFICIENT OPPORTUNI TY TO SATISFY THE A.O. ON THE NATURE OF TRAVEL EXPENSES AT RS.2,26,31 4/-. 3.2. THE LEARNED CIT(A) ERRED IN LAW AND CIRCUMSTAN CES OF THE CASE IN CONFIRMING THE DISALLOWANCE OF RS.2,26,314/- BEING TRAVELLING EXPENSES 4. THE LEARNED CIT(A) ERRED IN LAW AND CIRCUMSTANCE S OF THE CASE IN CONFIRMING THE DISALLOWANCE OF RS.5,00,000/- BEING BAD DEBT. 3. WE HAVE HEARD THE LEARNED COUNSEL AND THE LEARNED D .R. 4. GROUND NO. 1 PERTAINS TO THE DISALLOWANCE OF ` 2,42,017/- OUT OF THE CLAIM OF REPAIRS. THE A.O. NOTICED THAT THE ASSESSE E HAS INCURRED MAINTENANCE AND REPAIR BILLS OF ` 2,22,859/- AND ELECTRIC BILLS, PROPERTY TAX AND RENT TOTALLING TO ` 2,42,017/-. THE A.O. NOTICED THAT THIS AMOUNT WAS ITA NO. 1510/MUM/2010 M/S. CYMA EXPORTS PVT. LTD. 2 INCURRED ON FLAT NO. 101, BELMONT, 37D NEPEAN SEA R OAD, MUMBAI WHEREAS ASSESSEES BUSINESS OPERATIONS ARE IN BANGALORE AND OFFICE ADDRESS IS SHOWN AS 220, ARUN CHAMBERS, TARDEO, MUMBAI. ASSESSEE SUB MITTED THAT THIS PROPERTY IS IN THE POSSESSION OF THE COMPANY AS A M ONTHLY TENANT AND THE PROPERTY BELONGS TO SMT. ARUNA VORA SINCE 1970 AND THE EXPENDITURE WAS ALLOWABLE AS BUSINESS EXPENSES. A.O. DID NOT ACCEPT THE CONTENTIONS AS THE FLAT IS SUPPOSED TO BE OWNED BY SMT. ARUNA VORA WHE REAS THE AUTHORITIES ISSUED THE BILLS IN THE NAME OF SHRI SURESH VORA AN D SMT. LATA S. VORA, SHAREHOLDERS OF THE COMPANY AND ITS DIRECTORS. BEFO RE THE CIT(A) IT WAS SUBMITTED THAT THE PROPERTY WAS IN COMPANYS OCCUPA TION AND WAS PAYING NOMINAL RENT THEREBY EXPENDITURE ON REPAIRS WERE BO RNE OUT OF COMMERCIAL EXPEDIENCY AND THE RENT BEING PAID WERE ALLOWED IN EARLIER YEAR. THE CIT(A) CONSIDERED THE ISSUE AND REJECTED BY STATING AS UND ER: - 2.4 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT. THE APPELLANT IS CLAIMING THAT IT HAS USED THE FLAT AT 37D NEPEANSEA ROAD, MUMBAI, FOR ITS BUSINESS. THE APPELLANT ALSO CLAIMS THAT ITS OFFICE ADDRESS IS 101, BELMONT 37D, NEPEANSEA ROAD, MUMBAI . HOWEVER, THE APPELLANT FILED NO EVIDENCE FOR THIS. IN APPEAL, IN FORM NO. 35, THE ADDRESS GIVEN IS 220, ARUN CHAMBERS 2 ND FLOOR, TARDEO, MUMBAI. THUS CLAIM OF THE APPELLANT THAT IT HAS USED THE FLAT FO R THE PURPOSE OF BUSINESS CANNOT BE ACCEPTED. FURTHER THE APPELLANT IS ONLY MONTHLY TENANT AS CLAIMED BY IT, THEREFORE, THE REPAIR AND MAINTENANCE EXPENSES OF FLAT IS TO BE BORNE BY THE OWNER AND NO T BY THE TENANT. IN VIEW OF THESE FACTS, THE ACTION OF THE ASSESSING OF FICER IN NOT ALLOWING EXPENSES RELATING TO THE FLAT IS UPHELD. THIS GROUN D OF APPEAL IS NOT ALLOWED. 5. THE LEARNED COUNSEL EXPRESSED HIS INABILITY TO FURN ISH ANY EVIDENCE WITH REFERENCE TO USE OF THE ABOVE PREMISES FOR THE PURPOSE OF ASSESSEES BUSINESS. IT IS ALSO SUBMITTED THAT THERE IS NO AGR EEMENT IN WRITING FOR PAYMENT OF MAINTENANCE CHARGES AS WELL. IN VIEW OF THIS WE HAVE NO OPTION THAN TO CONFIRM THE ORDER OF THE CIT(A) AS ASSESSEE FAILED IN JUSTIFYING THE EXPENDITURE FOR THE PURPOSE OF ITS BUSINESS . IN V IEW OF THIS GROUND NO. 1 IS REJECTED. 6. GROUND NO. 2 PERTAINS TO THE ISSUE OF ADDITION ON A LLEGED UNDERSTATEMENT OF SALE OF PARKING LOTS. THE A.O. MA DE AN ADDITION OF ` 2,00,000/- AS UNDERSTATEMENT OF SALE PROCEEDS WHEN THE ASSESSEE SOLD FOUR PARKING SPACES IN CONSIDERATION OF ` 2,00,000/- TO ONE OF THE GROUP CONCERNS ITA NO. 1510/MUM/2010 M/S. CYMA EXPORTS PVT. LTD. 3 @ RS 50,000 ACH WHEREAS THE ASSESSEE HAS SOLD PARKI NG SPACES AT ` 75,000/- EACH TO OUTSIDERS. BEFORE THE CIT(A) IT WAS SUBMITT ED THAT THE ASSESSEE SOLD THE PARKING SPACES TO THE SISTER CONCERN ON 17.06.2 005 AT ` 50,000/- EACH WHEREAS ONE MORE PARKING SPACE WAS SOLD AT ` 32,000/- ONLY ON THE BASIS OF THE ORDER FROM THE HIGH COURT AND THE OTHER TWO PAR KING SPACES SOLD DURING THE YEAR WERE DATED 09.03.2006, I.E. AFTER NINE MON THS OF THE SALE TO THE GROUP CONCERN. IT WAS THE SUBMISSION THAT THE SALE WAS MADE AT THE MARKET PRICE AVAILABLE THEN AND THERE WAS NO UNDERSTATEME NT. WITHOUT PREJUDICE TO THE ABOVE, IT WAS ALSO SUBMITTED THAT THE ADDITION MADE BY THE A.O. AT ` 2,00,000/- WAS WRONG AS THE ADDITION SHOULD BE AT ` 1,00,000/- (4X25,000). THE CIT(A), WHILE CONFIRMING THE UNDERSTATEMENT, RE DUCED THE AMOUNT TO ` 1,00,000/-. 7. AFTER CONSIDERING THE ARGUMENTS OF THE LEARNED COUN SEL AND THE LEARNED D.R. WE ARE OF THE VIEW THAT THERE IS NO RE ASON TO SUSTAIN THE ADDITION ON UNDERSTATEMENT OF SALE OF PARKING LOTS. FIRST OF ALL IT IS NOT THE CASE OF THE A.O. THAT THERE IS ANY SUPPRESSION OF S ALE AND RECEIPT IN ANY OTHER FORM. ASSESSEE HAS PLACED AN AGREEMENT WITH T HE GROUP CONCERN NOT ONLY OF SALE OF PARKING LOT BUT ALSO CERTAIN SPECIA L AMENITIES BY WAY OF AGREEMENT. AS SUBMITTED BY THE ASSESSEE, THE SALES ARE NOT MADE AT ONE POINT OF TIME AND THE ASSESSEE SOLD FOUR PARKING LO TS TO THE GROUP CONCERN AT ` 50,000/- IN JUNE 2005 IN BULK WHEREAS OTHER TWO PAR KING LOTS WERE SOLD TO VARIOUS PERSONS AT ` 75,000/- EACH IN MARCH 2006, I.E. AFTER ALMOST NINE MONTHS. AS SEEN FROM THE SALE TO ONE SRI P.V. NANDI NI, ASSESSEE RECEIVED ONLY ` 32,000/- AND THE A.O. HAS ACCEPTED THE SAME. THIS I NDICATES THAT THERE IS NO FIXED PRICE FOR PARKING LOT AND IT DEPE NDS ON THE MARKET FORCES. MOREOVER THE LAW ALSO DOES NOT PERMIT ADDITION BY W AY OF SUPPRESSION OF SALE/ ESTIMATION OF SALE PRICE UNLESS THERE IS EVID ENCE IN THE FORM OF ANY MATERIAL THAT ASSESSEE HAS PURPOSEFULLY RECORDED PR ICE AT A LESSER VALUE. IT IS NOT A PURHASE FROM GROUP CONCERN SO AS TO ATTRACT P ROVISIONS OF SEC.40A(3). BOTH ON FACTS AS WELL AS ON LAW THE ADDITION CANNOT BE SUSTAINED. GROUND NO. 2 IS ALLOWED. 8. GROUND NO. 3 PERTAINS TO THE DISALLOWANCE OF TRAVEL LING EXPENSES OF ` 2,26,314/- CLAIMED ON BEHALF OF SHRI SURESH VORA AN D MR. LATA S. VORA. IT ITA NO. 1510/MUM/2010 M/S. CYMA EXPORTS PVT. LTD. 4 WAS ASSESSEES SUBMISSION THAT ENOUGH OPPORTUNITY W AS NOT GIVEN TO JUSTIFY THE EXPENDITURE AS A.O. AS SENT THE QUESTIONNAIRE O N 03.12.2008 AND THE REPLY WAS DATED 05.12.2008 AND THE ORDER WAS PASSED ON 08.12.2008. IT WAS LEARNED COUNSELS SUBMISSION THAT THESE TWO PERSONS , WHO ARE EX-DIRECTORS, HAVE TO TRAVEL TO BANGALORE FOR SETTLEMENT OF VARIO US CASES AND SUBMITTED THAT THE EXPENDITURE WILL BE JUSTIFIED IF ONE MORE OPPORTUNITY IS GIVEN BEFORE THE A.O. THE DETAILS OF TRAVEL AND PURPOSE WERE PLA CED ON RECORD. IN VIEW OF THIS WE ARE OF THE OPINION THAT THE ISSUE IN GROUND NO. 3 TO BE EXAMINED AND ACCORDINGLY ISSUE IS RESTORED TO THE FILE OF THE A .O. TO CONSIDER IT AFRESH AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE. GROUND IS C ONSIDERED ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO. 4 PERTAINS TO THE CLAIM OF BAD DEBTS OF ` 5,00,000/-. ASSESSEE HAS CLAIMED AN AMOUNT OF ` 5,00,000/- RECEIVABLE TOWARDS CLUB EXPENDITURE BUT NOT RECOVERED. IT WAS ASSESSEES CO NTENTION THAT THIS AMOUNT WAS CREDITED IN A.Y. 2004-05 TO THE P & L AC COUNT AS RECEIVABLE FROM VARIOUS FLAT OWNERS TO THE EXTENT OF ` 5,15,000/- AND ONLY AN AMOUNT OF ` 15,000/- WAS RECEIVED AND THE BALANCE ` 5,00,000/- WAS NOT RECEIVED FROM THE FLAT OWNERS. THE A.O. REJECTED THE CLAIM OF WRI TE OFF OF THE AMOUNT OF ` 5,00,000/- STATING THAT CLUB MEMBERSHIP WAS NOT OPT IONAL AND MEMBERS WOULD CERTAIN TO USE THE CLUB FACILITIES AND THE AS SESSEE HAS NOT SHOWN ANY REASON WHY THE AMOUNT COULD NOT BE RECOVERED FROM T HE FLAT OWNERS. ACCORDINGLY THE AMOUNT WAS NOT ALLOWED. THE CIT(A) CONFIRMED THE ACTION OF THE A.O. 10. IT WAS THE SUBMISSION THAT THE ASSESSEE HAS CREDITE D THE AMOUNT AS RECEIVABLE FROM FLAT OWNERS AND ONLY AN AMOUNT OF ` 15,000/- WAS RECEIVED AND THE BALANCE AMOUNT WAS WRITTEN OFF DURING THE Y EAR. THE LEARNED COUNSEL RELIED ON THE DECISION OF THE HON'BLE BOMBA Y HIGH COURT IN THE CASE OF OMAN INTERNATIONAL BANK 313 ITR 128 TO SUBMIT TH AT THE WRITE OFF IS A BONAFIDE DECISION TAKEN ON ACCOUNT OF BUSINESS EXPE DIENCY. THE CIT(A), HOWEVER, REJECTED THE CONTENTION RELYING ON THE JUD GEMENT OF THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF M/S KOHLI BROTH ERS COLOR LAB ITA NO. 2 OF 2007 STATING THAT THE SAID ENTRY OF WRITE OFF IN THE BOOKS OF ACCOUNT IS NOT ITA NO. 1510/MUM/2010 M/S. CYMA EXPORTS PVT. LTD. 5 CONCLUSIVE AND THE A.O. IS NOT PRECLUDED FROM MAKIN G INQUIRIES AS TO WHETHER THE ENTRIES ARE GENUINE OR NOT. 11. THE SAME SUBMISSIONS WERE REITERATED BEFORE US. AFT ER CONSIDERING THE DETAILS AVAILABLE ON RECORD AND THE CONTENTIONS, WE ARE OF THE VIEW THAT THE ASSESSEES CLAIM IS A BONAFIDE ONE. THERE IS NO DOU BT THAT THE ASSESSEE HAS OFFERED AN AMOUNT OF `5, 15,000/- AS INCOME IN EARLIER YEAR TOWARDS CLUB MEMBERSHIP AGAINST ALL INDIVIDUAL FLAT OWNERS WHICH WAS NOT RECOVERED SUBSEQUENTLY. SINCE THE AMOUNT WAS OFFERED TO INCOM E IN EARLIER YEAR, PROVISIONS OF SECTION 36(2) ARE SATISFIED. MOREOVER , THE ASSESSEE HAS WRITTEN OFF THE AMOUNT IN THE P & L ACCOUNT. ACCORDINGLY, R ESPECTFULLY FOLLOWING THE JUDGEMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE C ASE OF OMAN INTERNATIONAL BANK 313 ITR 128 SUBSEQUENTLY CONFIR MED BY THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. 323 ITR 397, THE WRITE OFF IS SUFFICIENT TO ALLOW THE CLAIM OF BAD DEBTS. THE A.O . IS DIRECTED TO ALLOW THE AMOUNT. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH JANUARY 2011. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 14 TH JANUARY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) IX, MUMBAI 4. THE CIT V, MUMBAI CITY 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.