NRB BEARINGS LTD, MUMBAI V. DCIT RG 2(2), MUMBAI

ITA 1526/MUM/2010

• Counselvise Citation: 152619914 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 05-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 25-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUM EET KUMAR
• Assessee Lawyers: ARVIND SONDE
• Keywords: Bad and doubtful debts; Onus to prove
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI BEFORE SHRI D.K. AGARWAL (J.M.) AND SHRI RAJENDRA S INGH(A.M.) ITA NO. 1525/MUM /2010 ASSESSMENT YEAR 2004-05 NRB BEARINGS LTD., 15, DHANNUR, SIR P.M. ROAD, MUMBAI 400 001. PAN : AAACN3479P VS. THE DY. COMMISSIONER OF INCOME-TAX, RANGE 2(2), AAYAKAR BHAVAN, MUMBAI. (APPELLANT) (RESPONDENT) ITA NO. 1182/MUM /2010 ASSESSMENT YEAR 2004-05 THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE 2(2), AAYAKAR BHAVAN, ROOM NO. 545, 5 TH FLOOR, M.K. ROAD, MUMBAI- 20. VS. NRB BEARINGS LTD., 15, DHANNUR, SIR P.M. ROAD, FORT, MUMBAI 400 001. PAN : AAACN3479P (APPELLANT) (RESPONDENT) ITA NO. 1526/MUM /2010 ASSESSMENT YEAR 2005-06 NRB BEARINGS LTD., 15, DHANNUR, SIR P.M. ROAD, MUMBAI 400 001. PAN : AAACN3479P VS. THE DY. COMMISSIONER OF INCOME-TAX, RANGE 2(2), AAYAKAR BHAVAN, MUMBAI. (APPELLANT) (RESPONDENT) ITA NO. 1185/MUM /2010 ASSESSMENT YEAR 2005-06 ITA1525/M/10, 1526/M/10,1182/M/10 & 1185/M/10 M/S NRB BEARINGS LTD. 2 THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE 2(2), AAYAKAR BHAVAN, ROOM NO. 545, 5 TH FLOOR, M.K. ROAD, MUMBAI- 20. VS. NRB BEARINGS LTD., 15, DHANNUR, SIR P.M. ROAD, FORT, MUMBAI 400 001. PAN : AAACN3479P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ARVIND SONDE DEPARTMENT BY : SHRI SUMEET KUMAR O R D E R PER D.K. AGARWAL, J.M. THESE FOUR APPEALS BY THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST SEPARATE ORDERS BOTH DATED 10.12.2009 PASSE D BY THE LD. CIT(A) FOR A.YS. 2004-05 & 2005-06. SINCE THE FACTS ARE I DENTICAL AND THE ISSUE INVOLVED ARE COMMON, ALL THESE APPEALS WERE HEARD T OGETHER AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE . 2. BRIEFLY STATED FACTS OF THE CASE EXTRACTED FROM ITA NO. 1525/M/2010 ARE THAT THE ASSESSEE COMPANY IS ENGAGE D IN THE BUSINESS OF MANUFACTURING OF NEEDLE ROLLERS, NEEDLE BUSHES, NEEDLE ROLLER CAGES AND NEEDLE ROLLER BEARINGS ETC. AND ALSO MANUFACTURERS ELECTRICAL STAMPING AND AUTOMOBILE COMPONENTS AT ITS PLANT AT HYDERABAD . IT FILED RETURN DECLARING AN INCOME OF ` 33,92,13,490/-. HOWEVER, THE ASSESSMENT WAS COMPLETED AT AN INCOME OF ` 34,41,87,130/- INCLUDING DISALLOWANCE OF BAD DEBTS AND DISALLOWANCE U/S 14A VIDE ORDER DATED 27.12.2006 PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). ON APPEAL, THE LD. CIT(A) PARTLY ALLOWED THE APPEAL. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE AND REVENUE BOTH ARE IN APPEAL BEFORE US. ITA1525/M/10, 1526/M/10,1182/M/10 & 1185/M/10 M/S NRB BEARINGS LTD. 3 ITA NO. 1525/M/2010, A.Y. 2004-05 (ASSESSEES APPEA L) 4. GROUND NOS. 1 TO 5 ARE AGAINST THE SUSTENANCE OF DISALLOWANCE U/S 14A OF THE ACT. 5. BRIEFLY STATED THE FACTS OF THE ISSUE ARE THAT D URING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE A.O. TH AT OUT OF THE TOTAL FUND OF ` 1,42,98,00,000/-, ` 34,15,82,000/- WAS SECURED AND UNSECURED LOAN ON WHICH THE ASSESSEE HAS PAID INTER EST OF ` ` 1,95,00,000/-. OUT OF THE TOTAL FUND AN AMOUNT OF ` 11,67,73,000/- WAS INVESTED IN SHARES, WHEREIN THE DIVIDEND INCOME IS EXEMPT U/S 10(34). THE RATIO OF LOAN TOTAL FUND WAS 23.89%. HENCE, ` 2,78,97,069/- (23.98% OF ` 11,67,73,000/-) REPRESENTED AMOUNT OF LOAN INVESTE D IN SHARES WHICH IS 8.17% OF THE TOTAL LOAN AND 8.17% OF THE I NTEREST EXPENDITURE OF ` 1,95,00,000/- WHICH WORKS OUT TO ` 15,93,150/- WAS LIABLE TO BE DISALLOWED U/S 14A OF THE ACT. IN RESPONSE TO THE QUERY MADE IN THIS REGARD, THE ASSESSEE REPLIED THAT THE INVESTMENT OF ` 1167.73 LAKHS HAD BEEN MADE OUT OF THEIR OWN FUNDS AS THE CASH GENERA TIONS IN THE AYS 2002-03 AND 2003-04 WERE MORE THAN INVESTMENTS. HO WEVER, THE A.O. DID NOT ACCEPT SUCH CONTENTIONS FOR INVOKING PROVIS IONS OF SECTION 14A. THE ONUS TO PROVE THAT THE INVESTMENT IN SHARES HAD GONE OUT OF ITS OWN FUNDS IS ON THE ASSESSEE THE A.O. HELD THAT THE ASS ESSEE HAD NOT ESTABLISHED THAT THE INVESTMENT IN SHARES IS SOLELY OUT OF THE OWN FUND OF THE ASSESSEE. THEREFORE, HE WORKED OUT AN AMOUNT O F ` 15,93,150/- BEING 8.17% OF THE INTEREST EXPENDITURE OF ` 1,95,00,000/- AND DISALLOWED THE SAME U/S 14A OF THE ACT. ON APPEAL, THE LD. CIT(A) APPLYING THE DECISION IN THE CASE OF ITO VS. DAGA C APITAL INVESTMENT LTD. (2008) 26 SOT 603 (MUM)[SB] WORKED OUT THE DISALLOW ANCE AS PRESCRIBED IN RULE 8D OF THE INCOME TAX RULES AND ENHANCED THE DISALLOWANCE TO ` 18,93,627/-. ITA1525/M/10, 1526/M/10,1182/M/10 & 1185/M/10 M/S NRB BEARINGS LTD. 4 6. AT THE TIME OF HEARING, BOTH THE PARTIES HAVE AG REED THAT THIS ISSUE STANDS COVERED BY THE JUDGMENT OF HON'BLE JURISDICT IONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD., VS. DCIT, THEREFORE, THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER. 7. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND MERIT IN PLEA OF THE PARTIES THAT THE ISSUE STANDS COVERED BY THE RECENT JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. VS. DCIT IN INCOME TAX APPEAL NO.626 OF 2010 AND WRIT PETITION NO.758 OF 2010 DATED 12.8.2010 SINCE REPORTED IN (2010) 328 ITR 81 (BOM.) WHEREIN THEIR LORDSHIPS AFTER CONSIDERING THE DECIS ION OF THE TRIBUNAL IN DAGA CAPITAL MANAGEMENT PVT. LTD. (117 ITD 169 (MUM )(SB), WHILE HOLDING THAT THE PROVISIONS OF SUB SECTIONS (2) AND (3) OF SEC.14A OF THE ACT ARE CONSTITUTIONALLY VALID HAVE HELD VIDE PLAC ITUM 88(VI) APPEARING AT PAGE 138 OF THE ITR AS UNDER : (VI) EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB SECTIO N (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OF FICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HA S BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD; RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT WE SET AS IDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICER WHO SHALL DECIDE THE SAME AFRESH IN THE LIGHT OF THE DIRECTIONS OF THE HON'BLE JURISDICTION AL HIGH COURT IN THE ITA1525/M/10, 1526/M/10,1182/M/10 & 1185/M/10 M/S NRB BEARINGS LTD. 5 ABOVE CITED CASE AFTER PROVIDING REASONABLE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE AND ACCORDINGLY THE GROUND TAKEN BY TH E ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA 1182/M/2010, A.Y. 2004-05 (REVENUES APPEAL) 8. ALL THE GROUNDS TAKEN BY THE REVENUE ARE AGAINST THE DELETION OF DISALLOWANCE OF BAD DEBTS OF ` 23,81,847/-. 9. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS INTER ALIA OBSERVED BY THE A.O. THAT THE ASSESSEE HAD DEBITED ` 75,41,299/- AS BAD DEBTS WRITTEN OFF IN THE BOOKS OF ACCOUNT. THE A.O . ACCEPTED THE CLAIM TO THE EXTENT OF ` 52,59,862/-. REGARDING THE BALANCE OF ` 23,81,437/-, IT WAS SUBMITTED BY THE ASSESSEE THAT THESE PARTIES HA D ALSO CLOSED THEIR BUSINESS AND IN SOME OF THE CASES, THE DISPUTE WAS TOO OLD TO BE PURSUED. HOWEVER, THE ASSESSEE HAD NOT SUBMITTED A NY DOCUMENTARY EVIDENCE TO ARRIVE AT THE HONEST DECISION OF WRITIN G OFF THE DEBTS. THE A.O. DISALLOWED THE CLAIM OF ` 23,81,437/- BY HOLDING THAT ONLY IRRECOVERABLE BAD DEBT COULD BE WRITTEN OFF U/S 36( 1)(VII). HE ALSO PLACED RELIANCE ON VARIOUS DECISIONS OF SEVERAL COURTS VIZ . CIT VS. COATS OF INDIA LTD. 232 ITR 324 (CAL.), NANDLAL VITHALDAS VS. CIT 180 ITR 609, CIT VS. AHMEDABAD ELECTRICITY CO. LTD. 262 ITR 97, SOUTH I NDIA SURGICAL CO. LTD, VS. ACIT AND INDUSTRIAL CABLE (I) LTD. VS. ACI T 97 ITD 267 (CHAN- TRIB). ON APPEAL, THE LD. CIT(A) FOLLOWING THE DECI SION OF HONBLE JURISDICTIONAL HIGH COURT IN DIRECTOR (INT. TAXN.) VS. OMAN INTERNATIONAL BANK SAOG (2009) 184 TAXMAN 314 (BOM) HELD THAT THE DISALLOWANCE IS NOT JUSTIFIED AND ACCORDINGLY DELETED. 10. AT THE TIME OF HEARING, THE LD. D.R. SUPPORTS T HE ORDER OF THE A.O. ITA1525/M/10, 1526/M/10,1182/M/10 & 1185/M/10 M/S NRB BEARINGS LTD. 6 11. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE WHILE RELYING ON THE ORDER OF LD. CIT(A) ALSO RELIED ON THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF TRF LTD. VS. CIT (2010) 323 IT R 397(SC). HE THEREFORE SUBMITS THAT THE ORDER PASSED BY THE LD. CIT(A) BE UPHELD. 12. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THERE IS NO DISPUTE THAT THE PROVISIONS OF SECTION 36(1)(VII) O F THE ACT AS AMENDED W.E.F. 1.4.1989, THE ASSESSEE IS NOT REQUIRED TO ES TABLISH THAT THE CONCERNED DEBTS HAS ACTUALLY BECOME BAD IN THE RELE VANT YEAR FOR THE PURPOSE OF CLAIMING DEDUCTION AND THE ONLY REQUIREM ENT FOR CLAIMING THE DEDUCTION IS THAT THE ASSESSEE HAS TO WRITE OFF THE RELEVANT DEBTS IN ITS BOOKS OF ACCOUNT TREATING THE SAME AS BAD. IN THE PRESENT CASE, THERE IS NO DISPUTE THAT THE ASSESSEE HAS WRITTEN OFF THE RE LEVANT BAD DEBTS OF ` 23,81,437/- BY DEBITING THE P&L ACCOUNT AND REDUCIN G EQUIVALENT AMOUNT FROM THE TOTAL DEBTS, THEREFORE, RESPECTFULL Y FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD . VS. CIT [2010] 323 ITR 397(SC) WHEREIN IT HAS BEEN HELD THAT AFTER TH E AMENDMENT OF SECTION 36(1)(VII)OF THE INCOME-TAX ACT, 1961, WITH EFFECT FROM APRIL 1, 1989, IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAS BECOME IRRECOVERABLE : IT IS ENOUGH IF THE BAD DEBTS IS WR ITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE, WE HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF BAD DEBTS OF ` 23,81,437/- AND ACCORDINGLY WE ARE INCLINED TO UPHOLD THE FINDING OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF BAD DEBTS OF ` 23,81,437/- MADE BY THE A.O. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE REJECTED. ITA NO. 1526/M/2010 (ASSESSEES APPEAL) FOR A.Y. 20 05-06 AND ITA NO. 1185/M/2010 A.Y. 2005-06 (REVENUES APPEAL). ITA1525/M/10, 1526/M/10,1182/M/10 & 1185/M/10 M/S NRB BEARINGS LTD. 7 13. IN ITA NO. 1526/M/2010, ALL THE GROUNDS ARE AGA INST THE SUSTENANCE OF DISALLOWANCES U/S 14A. 14. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BR OUGHT ON RECORD BY THE PARTIES, WE FOLLOWING OUR FINDINGS RECORDED IN ASSESSEES APPEAL IN ITA NO. 1525/M/2010 VIDE PARA NO. 7 OF THIS ORDER, SET ASIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT A ND SEND BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICER WHO SHA LL DECIDE THE SAME AFRESH IN THE LIGHT OF THE DIRECTIONS OF THE HON'BL E JURISDICTIONAL HIGH COURT (SUPRA) AFTER PROVIDING REASONABLE OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE AND ACCORDINGLY THE GROUNDS TAKEN BY T HE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 15. IN ITA NO. 1185/M/10, ALL THE GROUNDS ARE AGAIN ST THE DELETION OF DISALLOWANCE OF BAD DEBTS. 16. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BR OUGHT ON RECORD BY THE PARTIES, WE FOLLOWING OUR FINDINGS RECORDED IN REVENUES APPEAL IN ITA NO. 1182/M/2010 VIDE PARA NO. 12 OF THIS ORDER, UPH OLD THE ORDER PASSED BY THE LD. CIT(A) IN DELETING THE DISALLOWAN CE OF BAD DEBTS MADE BY THE A.O. THE GROUNDS TAKEN BY THE REVENUE ARE, T HEREFORE, REJECTED. 17. IN THE RESULT, ASSESSEES APPEALS ARE PARTLY AL LOWED FOR STATISTICAL PURPOSE AND REVENUES APPEALS STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08.04.2011 SD/- (RAJENDRA SINGH) ACCOUNTANT MEMBER SD/- (D.K. AGARWAL) JUDICIAL MEMBER MUMBAI, DATED 8.4.2011 RK ITA1525/M/10, 1526/M/10,1182/M/10 & 1185/M/10 M/S NRB BEARINGS LTD. 8 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- CONCERNED , MUMBAI 4. COMMISSIONER OF INCOME TAX, CONCERNED, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH J, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI ITA1525/M/10, 1526/M/10,1182/M/10 & 1185/M/10 M/S NRB BEARINGS LTD. 9 1 DRAFT DICTATED ON 5.4.11 SR PS 2 DRAFT PLACED BEFORE AUTHOR ON 6 .4.11 SR PS 3 DRAFT PROPOSED & PLACE BEFORE THE 2 ND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY 2 ND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR PS 7 FILE SENT TO THE BENCH CLERK SR PS 8 DA TE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DATE OF DESPATCH SR PS