SMITA CONDUCTORS LTD, MUMBAI V. DCIT CIR 3(3), MUMBAI

ITA 158/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8810 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 19-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 04-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VISHWAS MUNDHE
• Keywords: Rule of consistency; Earning of tax free income; Bad and doubtful debts; Onus to prove
• Section: 143(3); 14A

Judgement Text

, B BB B INCOME TAX APPELLATE TRIBUNAL,MUMBAI - E BENCH , IOU IOUIOU IOU , BEFORE S/SH. RAJENDRA, ACCOUNTANT MEMBER & PAWAN SI NGH, JUDICIAL MEMBER /.ITA NO.158/MUM/2013, /ASSESSMENT YEAR-2008-09 M/S. SMITA CONDUCTORS LTD. C/O KARNAVAT & CO. 2A KITAB MAHAL, 1 ST FLOOR, 192 DR. D.N. ROAD, MUMBAI-400001 PAN: AAACS5379K VS. DCIT, CC-3(3), MUMBAI. ( / APPELLANT) ( / RESPONDENT) /.ITA NO.159/MUM/2013, /ASSESSMENT YEAR-2009-10 M/S. SMITA CONDUCTORS LTD. C/O KARNAVAT & CO. 2A KITAB MAHAL, 1 ST FLOOR, 192 DR. D.N. ROAD, MUMBAI-400001 PAN: AAACS5379K VS. ACIT, CC-3(3), MUMBAI. ( / APPELLANT) ( / RESPONDENT) ! / ASSESSEE BY : SHRI ANUJ KISNADWALA (AR) / REVENUE BY : SHRI VISHWAS MUNDHE (DR) ' / DATE OF HEARING : 03 -01-2017 ! '( / DATE OF PRONOUNCEMENT : 20 -01-2017 , 1961 ' 254(1) #$ ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER PAWAN SINGH, J.M. IOU IOUIOU IOU : 1. THESE TWO APPEALS FILED BY ASSESSEE(S) U/S. 253 OF THE INCOME-TAX ACT ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF LD. COMMISSIONER OF INCOME- TAX (APPEALS)-7, MUMBAI (FOR SHORT THE CIT(A) DATED 27.08.2012 FOR ASSESSMENT YEAR (AY) 2 008-09 AND 2009-10. AS THE FACTS FOR BOTH THE YEARS ARE SIMILAR, SOME COMMON GROUNDS ARE RAISED, THUS BOTH THE APPEAL WERE CLUBBED, HEARD TOGETHER AND ARE DECIDED BY COMMON O RDER FOR AVOIDING CONFLICTING DECISION. IN ITA NO.158/MUM/2013, FOR ASSESSMENT YEAR-2008-09 T HE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. DISALLOWANCE U/S.14A: 1. ON FACTS AND IN LAW, THE LEARNED CIT(A) HAD FAIL ED TO APPRECIATE THAT APPLYING RULE 8D WITHOUT REJECTING THE CLAIM OF THE APPELLANT IS BAD-IN-LAW. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE DIREC TED THE ASSESSING OFFICER NOT TO APPLY RULE 8D WITHOUT REJECTING THE CLAIM OF THE AP PELLANT WHILE COMPUTING THE DISALLOWANCE 14A OF THE ACT. 2. WITHOUT PREJUDICE TO GROUNDS OF APPEAL NO.1 ABOV E, THE LEARNED CIT(A) HAD FAILED TO APPRECIATE THAT THERE SHOULD NOT BE ANY DISALLOW ANCE UNDER RULE 8D(2)(II) R.W.S. 14A OF THE ACT AS NO AMOUNT OF INTEREST WAS INCURRE D FOR EARNING INCOME EXEMPT FROM TAX. 2 ITA NOS. 158 & 159/M/2013 M/S. SMITA CONDUCTORS LT D. 3. ON FACTS AND IN LAW, THE LEARNED CIT(A) HAD ERRE D IN NOT DIRECTING THE ASSESSING OFFICER NOT TO CONSIDER THE SHARE OF PROFIT FROM PA RTNERSHIP FIRM WHILE WORKING OUT THE DISALLOWANCE U/S.14A OF THE ACT. 4. ON FACTS AND IN LAW, THE LEARNED CIT(A) HAD FAIL ED TO APPRECIATE THAT BURDEN OF PROOF REMAIN WITH THE ASSESSING OFFICER AS THE APPE LLANT HAS ALREADY SUBMITTED THE WORKING OF THE AMOUNT OF DISALLOWANCE U/S.14A. 5. WITHOUT PREJUDICE TO GROUND OF APPEAL NO.1, THE LEARNED CIT(A) OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO RESTRICT THE DISA LLOWANCE U/S.14A AT RS.5,160/-. II. ON FACTS AND IN LAW, THE LEARNED CIT(A) HAD ERR ED IN NOT DIRECTING THE ASSESSING OFFICER NOT TO ADD RS.32,84,775/- BEING THE DISALLO WANCE MADE BY HIM U/S.14A READ WITH RULE 8D IN THE BOOK PROFIT UFS.115JB OF THE ACT. III. ON FACTS AND IN LAW, THE LEARNED CIT(A) HAD ER RED IN CONFIRMING THE ADDITION OF 12% TO THE COMMISSION PAID AMOUNTING TO RS.4,79,445/-. UNDER THE FACTS AND. CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE ALLOWED THE ENTIRE AMO UNT OF THE COMMISSION PAID. IV. ON FACTS AND IN LAW, THE LEARNED CIT(A) HAD ERR ED IN NOT DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.9,53,455/- BEI NG BAD DEBTS CLAIMED. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE SHOULD HAVE DIR ECTED THE ASSESSING OFFICER TO DELETE THE SAID ADDITION. V. ON FACTS AND IN LAW, THE LEARNED CIT(A) HAD ERRE D IN NOT APPRECIATING THE FACT THAT SECTION 234C IS CHARGEABLE ON RETURNED INCOME AND N OT ASSESSED INCOME. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE A MANUFACTURER OF ACSR & ALUMINUM CONDUCTOR. THE ASSESSEE FILED ITS RETURN OF INCOME FOR RELEVANT AY ON 13.12.2010. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 1 3.12.2010. THE ASSESSING OFFICER (AO) WHILE MAKING THE ASSESSMENT ORDER BESIDES THE OTHER ADDITION/DISALLOWANCE MADE THE DISALLOWANCE OF RS. 32,84,775/- U/S 14A OF THE ACT, DISALLOWED THE BAD-DEBT OF RS. 9,35,455/- AND MADE THE ADDITION OF RS. 4,79,445/- ON ACCOUNT OF COMMISSION PAYMENT. ON APPEAL BEFORE THE LD. CIT(A) THE ADDITION U/S 14A A ND DISALLOWANCE OF BAD-DEBT WAS SUSTAINED. HOWEVER, COMMISSION PAYMENT WAS RESTRICT ED TO 12%. THUS, FURTHER AGGRIEVED BY THE ORDER OF LD. CIT(A), THE PRESENT APPEAL IS FILE D BY ASSESSEE BEFORE US. 3. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE (AR ) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FIRST GROUND OF APPEAL RELATES TO THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF THE ACT. THE LEARNED AND AR OF THE ASSESSEE ARGUED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE EARNED EXEMPT INCOME CONSISTING OF PROFIT FROM PARTNERSHIP OF RS.14186/- EXEMPTED UNDER SECTION 10(2A) AND RS. 2,03,22,503/- AS DIVIDEND INCOME EXEMPTED UNDER SECTION 10(34)/ 10(35) OF THE ACT. NO VOLUNTARY DIS ALLOWANCE WAS OFFERED BY ASSESSEE. THE ASSESSING OFFICER MADE THE DISALLOWANCE OF RS. 26,8 0,784/- UNDER RULE 8D(II) AND RS. 6,01,991/- UNDER RULE 8D(III). THE AO MADE THE DISA LLOWANCE WITHOUT REJECTING EXPLANATION AND THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE ASSES SEE HAS SUFFICIENT INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE DURING THE YEAR. THE AS SESSEE MADE INVESTMENT IN THE MUTUAL FUND ONLY DURING THE YEAR. THE ASSESSEE ONLY MADE T HE EXPENSES OF RS. 5,160/- ONLY. THE 3 ITA NOS. 158 & 159/M/2013 M/S. SMITA CONDUCTORS LT D. DIVIDEND INCOME WAS RECEIVED DIRECTLY IN THE BANK A CCOUNT OF THE SHAREHOLDER THROUGH ECS. ALL THE DETAILS WERE PROVIDED TO THE ASSESSING OFFI CER AS PER PAGE 11 OF THE PAPER BOOK BEFORE THE TRIBUNAL. THE COPY OF STATEMENT OF ACCOU NT AND THE BALANCE SHEET IS ALSO PLACED ON RECORD SHOWING THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THE LD. AND AR OF THE ASSESSEE RELIED UPON THE DECISION OF CIT VERSUS REL IANCE UTILITY LTD 313 ITR 340(BOMBAY), CIT VERSUS HDFC BANK LTD 366 ITR 505(BOMBAY) ON THE RATIO THAT NO INTEREST DISALLOWS CAN BE MADE UNDER SECTION 14A OF THE ASSESSEE OWN S UFFICIENT FUNDS TO COVER UP THE VALUE OF INVESTMENT. ON THE DECISION OF DCIT VERSUS REI AGRO LTD (CALCUTTA), M/S GLOBAL CALCIUM PRIVATE LIMITED IN ITA NO.2255/MDS/2013 HE PROPOUND TO THE RATIO THAT ASSESSING OFFICER MUST RECORD HIS DISSATISFACTION BEFORE INVOKING PRO VISION OF RULE 8D. IN THE ALTERNATIVE, THE LD. AR OF THE ASSESSEE WOULD ARGUE THAT A TOKEN AMO UNT OF RS. 25,000/- MAY BE DISALLOWED UNDER SECTION 14 A OF THE ACT. ON THE OTHER HAND T HE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELOW. THE LD. DR FURTHER ARGU ED THAT ASSESSEE WAS MAKING HUGE INVESTMENT DURING THE YEAR UNDER CONSIDERATION. 4. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE NOTICED THAT THE ASSESSE E EARNED DIVIDEND INCOME OF RS.2,03,22,503/- AND PROFIT FROM PARTNERSHIP OF RS . 14,186/-WHICH WERE CLAIMED EXEMPTED BY THE ASSESSEE. THE AO ASKED THE ASSESSEE TO FURNI SH THE DETAILS OF THE EXPENSES INCURRED FOR EARNING EXEMPT INCOME. THE ASSESSEE FURNISHED I TS EXPLANATION ALONG WITH THE DETAILS OF EXEMPT INCOME, PROFIT AND LOSS ACCOUNT AND THE BALA NCE SHEET. THE AO HAS NOT DISCUSSED IN HIS ORDER ABOUT THE STATEMENT OF ACCOUNT AND THE DE TAILS OF EXPENSES INCURRED BY THE ASSESSEE, WHICH WAS FURNISHED BEFORE HIM DURING THE ASSESSMENT PROCEEDINGS. THE AO HAS NOT REJECTED THE ACCOUNTS FILED BY ASSESSEE. THE A O INVOKED THE PROVISION OF RULE 8D FOR MAKING DISALLOWANCE U/S 14A. THE AO DISALLOWED RS. 26,82,784/- UNDER RULE 8D(II) AND RS. 6,01,991/-UNDER RULE 8D(III). WE HAVE SEEN THAT ASSESSEE WAS HAVING SUFFICIENT INTEREST ON THE FREE FUND AVAILABLE. THE ASSESSEE HAD A RESE RVE AND SURPLUS FUND OF RS. 28,42,58,814/- AS ON 31 ST MARCH 2008. THE ASSESSEE MADE THE INVESTMENT OF RS . 17,01,81,310/ - IN MUTUAL FUNDS DURING THE YEAR UNDER CONSIDERATION. THUS, KE EPING IN VIEW THE FACT AND CIRCUMSTANCES OF THE CASE, WE DEEM IT APPROPRIATE THAT A LUMP SUM DISALLOWANCE OF RS. 25,000/-UNDER SECTION 14A WOULD MEET THE END OF JUSTICE. HENCE TH E AO IS DIRECTED TO RESTRICT THE DISALLOWANCE UNDER SECTION 14 A TO RS. 25,000/-. IN THE RESULT THIS GROUND OF APPEAL IS PARTLY ALLOWED. 5. GROUND NO. 2 RELATES THE COMMISSION DISALLOWANCE WH ICH WAS RESTRICTED TO 12% BY LD. CIT (APPEALS). THE LD. AR OF THE ASSESSEE ARGUED THAT T HE SIMILAR DISALLOWANCE WAS MADE BY AO 4 ITA NOS. 158 & 159/M/2013 M/S. SMITA CONDUCTORS LT D. IN EARLIER YEARS, ON APPEAL BEFORE CIT(A) THE DISAL LOWANCE WAS RESTRICTED TO 12%. THE ASSESSEE AS WELL AS REVENUE FILED APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL VIDE ORDER DATED 16 SEPTEMBER 2015 IN ITA NO. 4272/M/2011 AND ITA NO . 4005/M/2011, DISMISSED THE APPEAL OF REVENUE AND ALLOWED THE APPEAL OF ASSESSE E. THE LD DR FOR REVENUE NOT DISPUTED THE DECISION OF EARLIER YEAR. 6. WE HAVE CONSIDERED THE RIVAL CONTENTION OF PARTIES AND HAVE GONE THROUGH THE ORDER OF TRIBUNAL FOR AY 2007-08 AND FIND THAT SIMILAR DISAL LOWANCE ON ACCOUNT OF COMMISSION EXPENSES WAS MADE BY ASSESSING OFFICER WHICH WAS RE STRICTED TO 12% BY COMMISSIONER (APPEALS) . BOTH THE PARTIES FILED CROSS APPEAL BEF ORE THE TRIBUNAL WHEREIN THE FOLLOWING ORDER WAS PASSED:- 10. CONSIDERING THE FACTS THE TOTALITY IN THE LIGHT OF DOCUMENTARY EVIDENCES BROUGHT ON RECORD, WE HAVE NO HESITATION TO HOLD THAT THE C OMMISSION OF RS.21,22,404/- WAS PAID FOR THE PURPOSE OF BUSINESS AND IS TO BE ALLOW ED FULLY. ACCORDINGLY, WE DIRECT THE AO TO ALLOW THE COMMISSION OF RS.21,22,404/- IN FULL. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED AND THAT OF REVEN UE IS DISMISSED . 7. THUS CONSIDERING THE DECISION OF TRIBUNAL IN ASSESS EES OWN CASE FOR EARLIER YEAR ON THE SIMILAR DISALLOWANCE, THIS GROUND OF APPEAL RAISED BY ASSESSEE IS ALLOWED. 8. GROUND NO. 3 RELATES TO DISALLOWANCE OF BAD DEBTS. THE LANDED AR OF THE ASSESSEE ARGUED THAT THE AO DISALLOWED THE CLAIM OF BED THAT WITHOU T CONSIDERING THE FACTS OF THE CASE AND THE LEGAL POSITION. THE LD. AR OF THE ASSESSEE SUBM ITTED THAT DURING THE ASSESSMENT PRECEDING THE ASSESSEE FURNISHED THE DETAILS OF BAD DEBT WHICH WERE WRITTEN OFF IN THE BALANCE-SHEET OF ASSESSEE. IT WAS FURTHER ARGUED TH AT THE LD. COMMISSIONER (APPEALS) FAILED TO APPRECIATE THE FACT BROUGHT BEFORE HIM. THE LD C IT (A) WRONGLY CONCLUDED THAT THE ASSESSEE HAS NOT PROVED THAT THE DEBTORS WRITTEN OF F WERE OFFERED AS REVENUE INCOME IN ANY OF THE PREVIOUS YEAR. THE LD CIT (A) NOT APPRECIATE D THE DECISION OF HONBLE APEX COURT IN TRF LTD VS CIT 323 ITR 397(SC). THE LD AR OF THE AS SESSEE FURTHER RELIED UPON THE CBDT CIRCULAR N0. 12/2016. ON THE OTHER HAND THE LANDED AR FOR REVENUE SUPPORTED THE ORDER OF AUTHORITIES BELOW. THE LD. DR FURTHER ARGUED THAT A SSESSEE HAS NOT GIVEN ANY SATISFACTORY EXPLANATION BEFORE THE LOWER AUTHORITIES. 9. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND GONE THROUGH THE ORDER OF AUTHORITIES BELOW AND THE CBDT CIRCULAR DATED 30 TH MAY 2016. DURING THE ASSESSMENT PROCEEDING THE AO NOTICE THAT ASSESSEE CLAIMED RS. 9,53,455/- AS BAD DEBTS. THE ASSESSEE WAS ASKED TO FURNISH EVIDENCE AS TO HOW THE DEBTS H AVE BECOME BAD AND TO SHOW THE EFFORT TO RECOVER SUCH DEBTS. THE AO AFTER CONSIDERING THE REPLY OF ASSESSEE OBSERVED THAT THE ASSESSEE HAS NOT ESTABLISHED THAT DEBT HAS BECOME B AD AND LIABLE TO BE WRITTEN OFF IN THE 5 ITA NOS. 158 & 159/M/2013 M/S. SMITA CONDUCTORS LT D. ACCOUNTS. ON APPEAL THE LD. COMMISSIONER (APPEALS) CONCLUDED THAT ASSESSEE-COMPANY HAS NOT PROVED THAT THE DEBT WRITTEN OFF WERE OFFERED A S A REVENUE INCOME IN ANYONE OF THE PREVIOUS YEAR. WE HAVE NOTICED THAT THE CBDT IN ITS LATEST CIRCULAR DATED 30 MAY 2016 BY FOLLOWING THE MANDATE OF DECISION OF HONBLE SUPREM E COURT IN CASE OF TRF LTD (SUPRA) MADE THE ADMISSIBILITY OF THE CLAIM OF DEDUCTION OF BAD DEBT BY DOING AWAY WITH THE REQUIREMENT OF ASSESSEE TO ESTABLISH THAT THE DEBT HAS IN FACT, BECOME IRREVOCABLE. THUS WE HAVE SEEN THAT THE RELIEF CLAIMED IN THIS GROUND OF APPEAL BY ASSESSEE IS ALLOWABLE AS PER THE CBDT CIRCULAR NO.12/2016 DATED 30 MAY 2016. IN THE RESULT THIS GROUND OF APPEAL IS ALLOWED IN FAVOUR OF ASSESSEE. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 159/M/2013 FOR AY 2009-10 10. THE ASSESSEE HAS BASICALLY TWO GROUNDS OF APPEAL WH ICH ARE (I) DISALLOWANCE UNDER SECTION 14A AND (II) THE CONFIRMATION OF ADDITION OF COMMIS SION EXPENSES AT THE RATE OF 12%. 11. WE HAVE NOTICED THAT THE SIMILAR GROUNDS OF APPEAL WERE RAISED BY THE ASSESSEE FOR AY 2008-09 IN ITA NO. 158 /M/2013 VIDE GROUND NO. 1 AN D 2 AND WE HAVE ALREADY ALLOWED BOTH THE GROUNDS OF APPEAL IN FAVOUR OF ASSESSEE. W E HAVE FURTHER NOTICE THAT FACTS OF THIS ASSESSMENT YEAR ARE ALMOST IDENTICAL TO THE EARLIER YEAR. THUS, KEEPING IN VIEW THE PRINCIPLE OF CONSISTENCY BOTH THE GROUNDS OF APPEAL RAISED IN THIS APPEAL ARE ALSO ALLOWED WITH SIMILAR OBSERVATION. 12. AS A RESULT, BOTH THE APPEALS FILED BY ASSESSEE AR E ALLOWED. *'+ ,-' . / ! 01 2 ! ' 3 . ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JANUARY,2017. 5 ! 6 7 20 ( , 201 7 ! 01 ; SD/- SD/- ( / RAJENDRA ( IOU IOUIOU IOU / PAWAN SINGH)) ( / ACCOUNTANT MEMBER # ( / JUDICIAL MEMBER 1 /MUMBAI, 7 /DATE: 20.01.2017 SK ' )*+ ,+ / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ ., ( <' , 4. THE CONCERNED CIT / ., <' 5. DR E BENCH, ITAT, MUMBAI / =>0 '?, B BB B , . . . 1 6. GUARD FILE/ 0 *1 ' //TRUE COPY// 5 / BY ORDER, / DY./ASST. REGISTRAR ( ?, , 1 /ITAT, MUMBAI