Citadel Fine Pharmaceuticals Pvt. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1528/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8130 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 01-11-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 27-05-2016
• Court: TRIBUNAL
• Department Lawyers: AWIJIT RAKSHIT
• Assessee Lawyers: S SARAVANA KUMAR
• Keywords: Business expenditure; Bad and doubtful debts; Reason to believe
• Section: 143(3); 148

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI DUVVURU R L REDDY , JUDICIAL MEMBER ./ I T.A. NO. 1 528 /MDS/201 6 / ASSESSMENT YEAR :20 1 0 - 1 1 CITADEL FINE PHARMACEUTICALS PVT. LTD., 43, MAIN ROAD, VELACHERY, CHENNAI 600 042. [PAN: A A ACC1356N ] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, C O MPANY CIRCLE I(3) , CHENNAI 600 034 . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI S . SARAVANA KUMAR, C.A. / RESPONDENT BY : SHRI AWIJIT RAKSHIT , J CIT / DATE OF HEA RING : 0 1 . 11 .201 6 / DATE OF P RONOUNCEMENT : 06 . 0 1 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX ( APPEALS ) 1 , C HENNAI , DATED 1 6 . 0 2 .20 1 6 RELE VANT TO THE ASSESSMENT YEAR 20 10 - 1 1 CHALLENGING THE CONFIRMATION OF DISALLOWANCE OF (A) BUSINESS EXPENDITURE OF .12,69,602/ - AND BAD DEBTS OF .1,50,518/ - . 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A DEALER I N PHARMACEUTICALS AND FILED ITS RETURN OF INCOME ON 12.10.2010 ADMITTING TOTAL I.T.A. NO . 1 528 /M/ 16 2 INCOME OF .20,20,389/ - M FOR THE YEAR UNDER CONSIDERATION, THE PRINCIPAL HEADS OF INCOME ARE INTEREST INCOME ( .36,18,486/ - ) AND OTHER INCOME ( .56,688/ - ). THE ASSESSEE HAS ALSO REPORTED A MINOR SALES VALUE OF .57,698/ - . THE FIRST TWO HEADS OF RECEIPTS ARE CLASSIFIED AS INCOME FROM OTHER SOURCES . THE SALES REPORTED ARE ON ACCOUNT OF DISPOSAL OF UNUTILIZED RAW MATERIALS. THE COMPANY HAS WOUND UP ITS MANUFACTURING ACTIVITY AND A LL FORMS OF BUSINESS ACTIVITY WERE CLOSED DOWN. BUT, FOR THE MEASLY VALUABLE FURNITURE AND FITTINGS, ALL ASSETS INCLUDING LAND, BUILDING, PLANT & MACHINERY, VEHICLES, ETC. HAVE BEEN DISPOSED OFF. IN SUCH A SITUATION, SET OFF OF EXPENDITURE AMOUNTING TO .1 4,20,121/ - WHICH WAS AKIN TO BUSINESS EXPENDITURE BY NATURE, AGAINST INCOME FROM OTHER SOURCES WAS INCORRECT AND MORE PARTICULARLY WHEN COLLECTION OF DEBTS WAS ALSO NOT REPORTED DURING THE YEAR. THEREFORE, THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT THE INCOME TO THAT EXTENT OF CLAIM OF LOSS HAD ESCAPED ASSESSMENT. THUS, NOTICE UNDER SECTION 148 OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] DATED 07.10.2011 WAS ISSUED TO THE ASSESSEE. IN RESPONSE TO WHICH, THE ASSESSEE SUBMITTED A LETTER DATED 13.10.2 011 STATING THAT THE RETURN FILED FOR THE ASSESSMENT YEAR 2010 - 11 ON 12.10.2010 MAY BE TREATED AS COMPLIANCE TO NOTICE UNDER SECTION 148 OF THE ACT. FURTHER NOTICE UNDER SECTION 143(2) OF THE ACT WAS ALSO ISSUED TO THE ASSESSEE. VIDE LETTER DATED 11.08.201 2, THE ASSESSEE MADE DETAILED SUBMISSIONS BEFORE THE ASSESSING OFFICER. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER HAS I.T.A. NO . 1 528 /M/ 16 3 COMPLETED THE ASSESSMENT UNDER SECTION 143(3) R.W.S. 147 OF THE ACT BY ASSESSING TOTAL INCOME OF THE ASSESS EE AT .36,75,174/ - . 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS, BUT NOT ACCEPTING THE SAME AND BY FOLLOWING VARIOUS DECISIONS, THE LD. CIT(A) DISMISSED THE APPEAL FILED BY THE ASSESSEE. 4. O N BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. BY RELYING ON THE GROUNDS OF APPEAL, THE LD. COUNSEL FOR THE ASSESSEE HAS PLEADED THAT THE CONFIRMATION OF DISALLOWANCES SHOULD BE REVERSED. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 5. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. ON VERIFICATION OF THE PROFIT AND LOSS ACCOUNT FILED BY THE ASSESSEE, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS INTEREST INCOME OF .36,18,486/ - AND SALE OF SCRAP FOR .57,692/ - . HOWEVER, AGAINST THE SALE, THE ASSESSEE CLAIMED A TOTAL BUSINESS LOSS OF .14,20,121/ - . FROM THE PROFIT AND LOSS ACCOUNT OF THE YEAR ENDED 31.03.2009, THE ASSESSING OFFICER HA S NOTICED THAT THE ASSESSEE SOLD THE ENTIRE FIXED ASSETS AND THE NET BLOCK OF ASSESSEE IS NIL FOR THE CURRENT YEAR. SINCE THE ASSESSEE HAS CLOSED ITS BUSINESS AND IN THE PROCESS OF WINDING UP, HAS MADE SALE OF ENTIRE OF ITS FIXED ASSETS, THE ASSESSING OFFI CER HELD THAT THE ASSESSEE IS NOT ELIGIBLE TO CLAIM BUSINESS EXPENDITURE WHEN THERE I.T.A. NO . 1 528 /M/ 16 4 WAS NO BUSINESS RUN BY THE ASSESSEE. VIDE ITS LETTER DATED 11.08.2012, THE ASSESSE E HAS SUBMITTED THE FOLLOWING BREAK - UP OF DEDUCTION CLAIMED BY THE ASSESSEE: A) HUMAN RESO URCES . 11,13,794/ - B) OTHER EXPENSES . 1,54,760/ - C) BANK CHARGES . 1,048/ - D) BAD DEBTS . 1,50,518/ - AFTER CONSIDERING THE SUBMISSIONS AND ON VERIFICATION OF THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED ON 31.03.2009, THE ASSESSING OFFICER OBS ERVED THAT THE ASSESSEE SOLD ITS ENTIRE FIXED ASSETS AND THE NET BLOCK OF THE ASSESSEE WAS NIL FOR THE CURRENT YEAR. SINCE THE ASSESSEE HAS CLOSED ITS BUSINESS AND IT WAS IN THE PROCESS OF WINDING UP, THE ASSESSING OFFICER HAS HELD THAT THE ASSESSEE IS NOT ELIGIBLE TO CLAIM BUSINESS EXPENDITURE WHEN THERE WAS NO BUSINESS RUN BY THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER HAS NOT CONSIDERED THE EXPENSES OF THE ASSESSEE INCURRED EVEN IT WAS IN THE PROCESS OF CLOSURE OF ITS BUSINESS LIKE POSTAGE, POWER, ETC. AS WELL AS BAD DEBT CLAIMED BY THE ASSESSEE. 6. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE FURNISHED DETAILS BREAK - UP OF EXPENSES INCURRED BY THE ASSESSEE BEFORE THE LD. CIT(A) BESIDES CLAIMING BAD D EBTS. HOWEVER, NEITHER THE ASSESSING OFFICER NOR THE LD. CIT(A) CONSIDERED OR GAVE ANY FINDINGS FOR THE CLAIM OF BAD DEBT. THUS, WE DIRECT THE ASSESSING OFFICER TO VERIFY AS TO WHETHER THE ASSESSEE HAS ACTUALLY WRITTEN OFF A DEBT FROM M/S. TVS ELECTRONICS LTD. AMOUNTING TO I.T.A. NO . 1 528 /M/ 16 5 .1,50,518/ - AS NOT RECOVERABLE AND SUCH DEBT HAD BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEARS AND ALLOW THE SAME IN ACCORDANCE WITH LAW. 6.1 ON VERIFICATION OF THE ACCOUNTS OF THE ASSESSEE, THE AUTHORITIES BELOW HAVE OBSERVED THAT THERE WAS SALES REFLECTED IN ASSESSEE S ACCOUNT TO THE EXTENT OF .59,692/ - BESIDES INTEREST INCOME AND OTHER INCOME OF .36,18,486/ - AND .56,688/ - RESPECTIVELY. IN THIS CASE, THE ASSESSEE HAS NOT CLAIMED OF ANY BUSINE SS ACTIVITY, BUT CLAIMED SALE PROCEEDS FROM THE DISPOSAL OF UNUTILIZED RAW MATERIALS. FOR THE DISPOSAL OF UNUTILIZED RAW MATERIALS, SOME STAFF IS REQUIRED TO BE RETAINED. EVEN THOUGH THE ASSESSEE WAS NOT DOING BUSINESS ACTIVITY, THE EXPENSES SUCH AS POWER AND ELECTRICITY, POSTAGE, PHONES, ETC., CONVEYANCE CHARGES AND OTHER ESSENTIAL EXPENSES ARE NECESSARILY WOULD HAVE BEEN INCURRED BY THE ASSESSEE. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE MINIMAL AND BASIC EXPENS ES INCURRED SUCH AS SALARY ALONE TO BASIC STAFF, ACCOUNTING CHARGES, CONVEYANCE CHARGES, POSTAGE, PHONE, ETC., POWER & ELECTRICITY , AUDIT FEES, MISC. EXPENSES, BANK CHARGES. WHEN THERE WAS NO BUSINESS, THERE IS NO QUESTION OF PAYMENT OF BONUS TO THE EMPLOY EES OR INCURRING STAFF WELFARE EXPENSES AND CLAIMING THE SAME AS EXPENSES . WITH REGARD TO EXCISE DUTY PAID, THE LD. CIT(A) HAS RIGHTLY OBSERVED THAT THE SAME WAS NOT PAID FOR THE ACTIVITY OF PRODUCING ANY ARTICLE, GOODS OR THING. AS SUCH I.T.A. NO . 1 528 /M/ 16 6 THE EXCISE DUTY WA S NOT PAID FOR ANY PRODUCTION ACTIVITY, THE SAME CANNOT BE CLAIMED. WITH THE ABOVE OBSERVATIONS, WE REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE CLAIM OF THE ASSESSEE AFRESH AFTER ALLOWING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. 7 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 06 TH JANUARY , 2017 AT CHENNAI. SD/ - SD/ - (A. MOHAN ALANKAMONY ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 06 . 0 1 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.