DCIT, CHENNAI V. M/s. Nilakantan and Brothers Constructiions Private Limited, CHENNAI

ITA 1551/CHNY/2010

• Counselvise Citation: 155121714 RSA 2010
• Duration Of Justice: 3 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-04-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 17-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VASANTH KUMAR IRS
• Assessee Lawyers: S SRIDHAR
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , !' , # $! % BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENTAND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ./ ITA NO. 1551/MDS/2010 # & '& / ASSESSMENT YEAR : 2006-07 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(4), CHENNAI - 600 034 V. M/S NILAKANTAN AND BROTHERS CONSTRUCTIONS PVT. LTD., NO.2, 1 ST FLOOR, GOKUL TOWER, 7, C.P. RAMASWAMY ROAD, ALWARPET, CHENNAI - 600 018. PAN : AAACN 2123 N (')/ APPELLANT) (+,')/ RESPONDENT) ') - / APPELLANT BY : SHRI VASANTH KUMAR, IRS, CIT +,') - / RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE . - /0 / DATE OF HEARING : 30 TH APRIL, 2014 12' - /0 / DATE OF PRONOUNCEMENT : 1 ST MAY, 2014. / O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT THIS APPEAL FILED BY THE REVENUE RELATES TO THE ASSESSMENT YEAR 2006-07. THE APPEAL IS DIRECTED AGAINST THE O RDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-V AT CHENN AI, ON 30.6.2010 AND ARISES OUT OF THE ASSESSMENT COMPLETE D UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961. 2 I.T.A. NO. 1551/MDS/10 2. WE HEARD SHRI VASANTH KUMAR, THE LEARNED COMMISS IONER OF INCOME TAX APPEARING FOR THE REVENUE AND SHRI S. SR IDHAR, THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE. 3. THE FIRST ISSUE RAISED IN THE PRESENT APPEAL IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN D IRECTING THE ASSESSING OFFICER TO ASSESS ONLY A SUM OF ` 26,81,520/- OUT OF THE TOTAL INTEREST RECEIVED BY THE ASSESSEE TO THE EXTE NT OF ` 5,55,26,032/-. IT IS THE CASE OF THE REVENUE THAT THE ASSESSEE HAS ORIGINALLY OFFERED THE ENTIRE INTEREST AMOUNT OF ` 5,55,26,032/- FOR ASSESSMENT AND IT IS BEFORE THE COMMISSIONER OF INC OME TAX (APPEALS) THAT THE ASSESSEE HAS RAISED THE NEW GROU ND OF ASSESSING ONLY THE PROPORTIONATE INCOME ATTRIBUTABL E TO THE IMPUGNED ASSESSMENT YEAR. 4. THE ASSESSEE-COMPANY IS A CONTRACTOR EXECUTING L ARGE SCALE CIVIL WORKS. IN LATE 70S, THE ASSESSEE HAD UNDERT AKEN SUCH CONTRACT WORKS FOR GOVERNMENT OF TAMIL NADU. DIFFERENT WORK S UNDER CONSTRUCTION DURING THE SAID PERIOD, WERE DAMAGED O R DESTROYED ON ACCOUNT OF NATURAL CALAMITIES. AS PER THE CONTRACT TERM, THE ASSESSEE WAS ENTITLED FOR COMPENSATION. THE CLAIM FOR COMPENSATION WAS SETTLED THROUGH THE ORDER OF THE H ONBLE MADRAS HIGH COURT, WHEREIN THEIR LORDSHIPS HAVE DECIDED A SUM OF ` 3 I.T.A. NO. 1551/MDS/10 2,23,46,000/- AS COMPENSATION PROPER AND A SUM OF ` 5,55,26,032/- TOWARDS INTEREST THEREON. THE INTEREST AMOUNT PERT AINED TO 19 YEARS COMMENCING FROM 27.11.1986 BEING THE DATE OF REFERE NCE OF THE DISPUTE TO THE ARBITRATOR, JUSTICE PADMANABAN. 5. IN THE RETURN ORIGINALLY FILED BY THE ASSESSEE, THE ASSESSEE- COMPANY OFFERED BOTH THE COMPENSATION AMOUNT AS WEL L AS THE INTEREST AMOUNT AS A WHOLE, FOR ASSESSMENT FOR THE IMPUGNED ASSESSMENT YEAR 2006-07. BUT, BEFORE THE COMMISSIO NER OF INCOME TAX (APPEALS), THE ASSESSEE RAISED A NEW GRO UND THAT EVEN THOUGH COMPENSATION AMOUNT OF ` 2,23,46,000/- IS ASSESSABLE FOR THE IMPUGNED ASSESSMENT YEAR 2006-07, THE WHOLE OF THE INTEREST AMOUNT OF ` 5,55,26,032/- IS NOT ENTIRELY ASSESSABLE FOR THE S INGLE ASSESSMENT YEAR 2006-07. THE ASSESSEE CONTENDED TH AT THE INTEREST RELATED TO 19 YEARS AND THEREFORE, THAT PO RTION OF INTEREST PERTAINABLE TO THE IMPUGNED ASSESSMENT YEAR 2006-07 ALONE COULD BE ASSESSED FOR THE IMPUGNED ASSESSMENT YEAR AND TH E BALANCE SHOULD BE SPREAD OVER EARLIER ASSESSMENT YEARS ON T IME BASIS. THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THIS C ONTENTION OF THE ASSESSEE RELYING ON THE FOLLOWING JUDGMENTS OF THE HONBLE SUPREME COURT:- (1) SANKARI MANIKYAMMA V. CIT (181 ITR 400) (2) CIT V. T.N.K. GOVINDARAJULU CHETTY (165 ITR 23 1) 4 I.T.A. NO. 1551/MDS/10 6. THE ASSESSEE CONTENDED BEFORE THE COMMISSIONER O F INCOME TAX (APPEALS) THAT THE INTEREST PORTION ATTR IBUTABLE TO THE IMPUGNED ASSESSMENT YEAR 2006-07 WAS ` 26,81,520/- AND THEREFORE, THIS AMOUNT OF INTEREST SHOULD ALONE BE ASSESSED FOR IMPUGNED ASSESSMENT YEAR. ACCEPTING THE ABOVE CONT ENTION, THE COMMISSIONER OF INCOME TAX (APPEALS) DIRECTED THE A SSESSING OFFICER TO COMPUTE THE CORRECT PORTION OF INTEREST RELATABLE TO THE IMPUGNED ASSESSMENT YEAR 2006-07 AND EXCLUDE THE BA LANCE AMOUNT FROM THE ASSESSMENT FOR THE IMPUGNED ASSESSM ENT YEAR. IT IS IN THIS CONTEXT THAT THE REVENUE HAS RAISED THE ISSUE STATED ABOVE. 7. WE CONSIDERED THE ISSUE IN A DETAILED MANNER. T HE HONBLE HIGH COURT OF MADRAS HAS CLEARLY MENTIONED IN THEIR ORDER THAT THE INTEREST AMOUNT OF ` 5,55,26,032/- REPRESENTED THE INTEREST ON COMPENSATION FOR 19 YEARS COMMENCING FROM 27.11.198 6. IT MEANS THE INTEREST AMOUNT RELATED TO THE ASSESSMENT YEAR 1987-88 AND ONWARDS. WHEN THE HONBLE HIGH COURT THEMSELVES HA VE SPECIFIED THE PERIOD FOR WHICH THE INTEREST AMOUNT RELATED AN D ALSO WHERE THE ASSESSEE-COMPANY IS FOLLOWING ACCRUAL SYSTEM OF ACC OUNTING, IT IS ONLY JUST AND PROPER TO ACCEPT THE ARGUMENT OF THE ASSESSEE. IF THE COMPENSATION WAS PAID TO THE ASSESSEE THEN AND THER E, I.E. FOR THE 5 I.T.A. NO. 1551/MDS/10 PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1987- 88 ITSELF, THE QUANTUM OF INTEREST WOULD HAVE BEEN VERY VERY LOW. BUT, AT THE SAME TIME, THE ENTIRE INTEREST WOULD HAVE BEEN LIAB LE FOR TAXATION FOR THE SAID ASSESSMENT YEAR 1987-88. THE INTEREST WAS ORDERED BY THE HONBLE HIGH COURT ONLY FOR THE REASON THAT THE PAY MENT OF COMPENSATION WAS DELAYED. WHEN THAT IS THE CASE, I T IS ONLY LEGITIMATE TO CONTEND THAT THE INTEREST RELATED TO THE ENTIRE PERIOD OF DELAY IN MAKING PAYMENT OF COMPENSATION. THE HONB LE HIGH COURT HAS ALSO MENTIONED THAT THE SAID PERIOD OF DELAY WA S 19 YEARS. IN SUCH CIRCUMSTANCES, THE COMMISSIONER OF INCOME TAX (APPEALS) IS JUSTIFIED IN HOLDING THAT ONLY THAT PORTION OF THE INTEREST PERTAINING TO THE ASSESSMENT YEAR 2006-07 WOULD BE ASSESSABLE FOR THE IMPUGNED ASSESSMENT YEAR. 8. IN THE CIRCUMSTANCES EXPLAINED ABOVE, THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) ON THE FIRST I SSUE IS UPHELD. 9. THE SECOND ISSUE RAISED BY THE REVENUE IS THAT T HE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN D IRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION OF BAD DEB TS OF ` 3,29,67,020/-. THE MAIN GRIEVANCE OF THE REVENUE I S THAT THE ASSESSEE HAD NOT EXPLAINED BEFORE THE ASSESSING OFF ICER THAT THE 6 I.T.A. NO. 1551/MDS/10 SAID AMOUNT OF DEBTS WRITTEN OFF BY IT WAS IN FACT OFFERED AS INCOME IN THE PRIOR ASSESSMENT YEARS. 10. BUT, A PERUSAL OF THE DETAILED ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) GIVES A DIFFER ENT PICTURE. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS CONSID ERED THIS ISSUE IN A VERY OBJECTIVE MANNER IN PARAGRAPHS 7, 7 .1, 7.2 AND 7.3 OF HIS ORDER. IN PARA 7, THE COMMISSIONER OF INCOME T AX (APPEALS) HAS CLEARLY OBSERVED THAT THE ASSESSEE HAD PLACED B EFORE THE ASSESSING OFFICER THE DETAILS OF INCOME OFFERED BY IT IN THE EARLIER ASSESSMENT YEARS PERTAINING TO THE DEBTS WRITTEN OF F. IT IS ALSO USEFUL TO EXTRACT PARAGRAPH 7.1 FROM THE ORDER OF T HE COMMISSIONER OF INCOME TAX (APPEALS):- 7.1 THE ABOVE LETTER CLEARLY DEMONSTRATES THAT THE APPELLANT HAD INDEED PRODUCED THE BOOKS OF ACCOUNTS AND THEREBY PROVED THAT THE AMOUNTS WRITTEN OFF AS INCO ME HAVE SUFFERED TAX IN EARLIER YEARS. IN THE LIGHT O F THE MATERIALS AVAILABLE ON RECORD, PARTICULARLY THE INCONTROVERTIBLE EVIDENCE AVAILABLE ON RECORD AND P APER- BOOKS FILED BEFORE ME, I AGREE WITH THE APPELLANTS CONTENTION THAT THE AMOUNTS WRITTEN OFF AS BAD DEBT S HAVE SUFFERED TAX IN THE EARLIER ASSESSMENT YEARS. EXCEP T FOR HIS OVER GENERALIZATION, THE LEARNED OFFICER HAD NOT BO UGHT ON RECORD ANY TANGIBLE OR CREDIBLE CIRCUMSTANCE AGAINS T THE APPELLANT, ESPECIALLY IN THE FACE OF DOCUMENTARY EV IDENCE SUPPORTING THE APPELLANTS CASE. 11. IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE, WE AGREE WITH THE ABOVE FINDING OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND HOLD THAT THE CONTENTION RAISED BY TH E REVENUE ON 7 I.T.A. NO. 1551/MDS/10 THIS ISSUE IS WITHOUT ANY BASIS. THE HONBLE SUPRE ME COURT IN THE CASE OF TRF LTD. V. CIT (323 ITR 397) HAS ALREADY U PHELD THE PROPOSITION OF DEDUCTING THE BAD DEBTS ONCE WRITTEN OFF BY THE ASSESSEE. IN THESE CIRCUMSTANCES, THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE OF BAD DEBTS IS ALSO UPHELD. 12. THE THIRD ISSUE RAISED BY THE REVENUE IS THAT T HE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN D IRECTING THE DELETION OF THE ADDITION TO THE EXTENT OF ` 87,78,525/- OUT OF ` 2,07,85,552/- DISALLOWED BY THE ASSESSING OFFICER U NDER THE HEAD MISCELLANEOUS EXPENSES. THIS ISSUE IS CONSIDERED BY THE COMMISSIONER OF INCOME TAX (APPEALS) IN PARAGRAPH 8 OF HIS ORDER. ON VERIFICATION OF THE DETAILS OF EXPENDITURE INCUR RED UNDER THE HEAD MISCELLANEOUS EXPENDITURE, THE COMMISSIONER OF IN COME TAX (APPEALS) FOUND THAT THE AMOUNT TOTALLING TO ` 87,78,525/- WAS INCURRED BY THE ASSESSEE-COMPANY TOWARDS HIRING OF CRANES, EARTH WORK MACHINERY, TRUCKS, ETC. IN EXECUTING THE CONTR ACT WORKS UNDERTAKEN BY THE ASSESSEE-COMPANY. THE COMMISSION ER OF INCOME TAX (APPEALS) ALSO FOUND THAT THE EXPENDITUR E RELATED TO OTHER ITEMS ALSO LIKE TELEPHONE AND POSTAGE, PRINTI NG AND STATIONERY, DIRECTORS REMUNERATION, GUARANTEE COMMISSION, ETC. OBVIOUSLY, ALL THE ABOVE ITEMS OF EXPENDITURE ARE EXPENSES INCURRE D IN THE COURSE OF CARRYING ON OF BUSINESS. THEREFORE, EVEN IF THO SE ITEMS ARE 8 I.T.A. NO. 1551/MDS/10 DEBITED UNDER THE HEAD MISCELLANEOUS EXPENDITURE, THE ITEMS OF EXPENDITURE QUALIFY FOR DEDUCTION WHILE COMPUTING T HE INCOME. THEREFORE, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS RIGHTLY DELETED THE AMOUNT OF ` 87,78,525/-. THIS FINDING OF THE COMMISSIONER OF INCOME TAX (APPEALS) IS ALSO UPHELD . 13. IN RESULT, THIS APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THURSDAY, THE 1 ST OF MAY, 2014 AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (DR. O.K. NARAYANAN) ( !' ) ( ... ) # $! /JUDICIAL MEMBER /VICE-PRESIDENT /CHENNAI, 5$ /DATED, THE 1 ST MAY, 2014. KRI. $6 - +#/7 8 '/ /COPY TO: 1. ') /APPELLANT 2. +,') /RESPONDENT 3. . 9/ () /CIT(A)-V, CHENNAI-34 4. . 9/ /CIT, CHENNAI-III, CHENNAI 5. :; +#/# /DR 6. ;& < /GF.