SKF INDIA LTD ( SINCE MAY 19,2004 NAME HAS BEEN CHANGED FROM SKF BERING INDIA LTD), MUMBAI V. ADDL CIT RG 4(3), MUMBAI

ITA 1666/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92540 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 10-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 09-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N V NADKARNI
• Assessee Lawyers: MILIN THAKORE
• Keywords: Bad and doubtful debts

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . , , , BEFORE SHRI D. KARUNAKARA RAO , ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO , J UDICIAL MEMBER . / ITA NO . 7723 / MUM./ 2010 ( / ASSESSMENT YEAR : 200 6 07 ) . / ITA NO .1666 / MUM./ 2012 ( / ASSESSMENT YEAR : 2007 08 ) SKF INDIA LIMITED , (SINCE MAY 19, 2003, NAME HAS BEEN CHANGED FROM SKF BEAR INGS INDIA LTD.), CORPORATE OFFICE: MAHATMA GANDHI MEMORIAL BUILDING, NETAJI SUBHASH ROAD, CHARNI ROAD, MUMBAI 400 002 PAN AAACS0684H .. / APPELLANT V/S A DDL . COMMISSIONER OF INCOME TAX RANGE 4(3), MUMBAI .. .. / RESPONDENT / ASSESSEE BY : S HRI MILIN THAKORE / REVENUE BY : SHRI N.V. NADKARNI / DATE OF HEARING 18.05 .2015 / DATE OF ORDER 22.05.2015 / ORDER . , / PER D. KARUNAKARA RAO , A .M. TH E PRESENT APPEAL S PREFERRED BY THE ASSESSEE ARE DIRECTED AGAINST THE TWO SEPARATE IMPUGNED ORDER S DATED 23 RD AUGUST 2010, FOR SKF INDIA LIMITED 2 THE ASSESSMENT YEAR 2006 07 AND ORDER DATED 14 TH FEBRUARY 2011 , FOR THE ASSESSMENT YEAR 2007 08, PASSED BY THE COMMISSIONER ( APPEALS) 8 , MUMBAI. SINCE BOTH THE APPEALS INVOLVE COMMON ISSUES FOR OUR ADJUDICATION, THEREFORE, AS A MATTER OF CONVENIENCE, THESE APPEALS WERE CLUBBED TOGETHER AND ARE BEING D ISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. 2. WE SHALL FIRST PROCEED TO DISPOSE THE ASSESSEES APPEAL IN ITA NO.7723/MUM./2010, FOR THE ASSESSMENT YEAR 2006 07. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN UPHOLDING ADDITION TO TOTAL INCOME ON ACCOUNT OF ADJUSTMENT FOR PROPORTIONATE ELEMENT OF CENVAT UNDER SECTION 145A TO THE EXTENT OF ` 94,89,422. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LA W THE LEARNED CIT(A) HAS LEGALLY ERRED IN CONFIRMING DISALLOWANCE OF ` 4,34,062 BEING SUBSCRIPTION / MEMBERSHIP FEES PAID TO THE CLUBS INCLUDING ` 41,722 TOWARDS COST OF CLUB SERVICES AND FAILURES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) LEGALLY ERRED IN CONFIRMING DISALLOWANCE OF ` 61,00,460 IN RESPECT OF DEBTS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. 3. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE ARISING OUT O F THE GROUND NO.1, RELATES TO INVOKING OF THE PROVISIONS OF SECTION 145A OF THE ACT IN RESPECT OF ADJUSTMENT TO CENVAT. SKF INDIA LIMITED 3 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT HE DID NOT WISH TO PRESS THIS GROUND. THE LEARNED DEPARTMENTAL REPRESENTA TIVE HAS NOT MADE ANY OBJECTION TO THE SUBMISSIONS OF THE LEARNED COUNSEL. CONSEQUENTLY, THIS GROUND IS DISMISSED AS NOT PRESSED . 5. GROUND NO.2, RELATES TO DISALLOWANCE OF CLUB EXPENDITURE AMOUNTING TO ` 4,34,062. 6. BEFORE US, THE LEARNED COUNSEL FOR THE A SSESSEE BROUGHT TO OUR NOTICE THE ORDER OF THE TRIBUNAL PASSED IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEAR 1990 91, 1991 92, 1999 2000 & 2005 06 AND SUBMITTED THAT THE SAID ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. FOR THE SAKE OF COMPLETENESS, WE PERUSE THE ORDER OF THE TRIBUNAL IN ONE OF THE ABOVE ASSESSMENT YEARS I.E., ASSESSMENT YEAR 2005 06 AND FIND THAT PARA 5 OF THE SAID ORDER DEALS WITH THIS GROUND AND ITS ADJUDICATION IS GIVEN IN PARA 5.2 WHICH IS EXTRACTED AS UNDER: 5.2 THUS IT IS CLEAR THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF OTIS ELEVATORS CO. LTD. REPORTED IN 195 ITR 682 (BOM.) WHICH HAS BEEN FOLLOWED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS. ACCORDINGLY, RESPECTFULLY FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. SKF INDIA LIMITED 4 7. CONSIDERING THE ABOVE SETTLED NATURE OF THE ISSUE, WE AR E OF THE OPINION THAT THE ASSESSEES GROUND NO.2 IS REQUIRED TO BE ALLOWED. ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND ALLOW GROUND NO.2 RAISED BY THE ASSESSEE. 8. GROUND NO.3, RELATES TO DISALLOWANCE OF BAD AND DOUBTFUL DEBT WRITTEN OF AMOUNTING TO ` 61,00,460. 9. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE NARRATED THE FACTS LEADING TO THE WRITE OFF OF THE BAD AND DOUBTFUL DEBT AND SUBMITTED THAT SUCH WRITE OF IS NOW ALLOWED BY VIRTUE OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN TR F LTD. V/S CIT, [2010] 323 ITR 397 (SC) , AND MANY OTHERS. FURTHER, HE ALSO MENTIONED THAT THE BAD AND DOUBTFUL DEBTS WERE ULTIMATELY WRITTEN OF F IN THE PROFIT & LOSS ACCOUNT AS PER THE METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED OVER THE YEARS. THE LEARNED COUNSEL SUPPORTED THE ABOVE STATEMENT BY FOLLOWING WRITTEN SUBMISSIONS. THE APPELLANT CREATES PROVISION FOR BAD AND DOUBTFUL DEBTS WHICH IS DISALLOWED IN COMPUTATION OF INCOME. REFER COMPUTATION OF INCOME FOR A YS 2003 - 04, 2004 - 05, 2005 - 06 AND 2006 - 07. THE APPELLANT HAD WRITTEN OFF BAD DEBTS BY DEBITING THE PROVISION ACCOUNT CREATED IN EARLIER YEARS AND MAKING CREDIT TO RELEVANT DEBTOR ACCOUNT. FOR METHOD OF ACCOUNT OF BAD DEBTS AND RECONCILIATION FOR PROVISION FOR BAD DEBTS REFER LETTER TO CIT(A) DATE D 4 AUGUST 2010. THE METHOD FOLLOWED BY THE APPELLANT ULTIMATELY RESULTS IN DEBITING BAD DEBTS WRITTEN OFF TO P&L ACCOUNT. THESE BAD DEBTS SKF INDIA LIMITED 5 ARE CLAIMED SEPARATELY BY THE APPELLANT IN COMPUTATION OF INCOME. REFER COMPUTATION OF INCOME FOR A YS 2003 - 04, 200 4 - 05, 2005 - 06 AND 2006 - 07. PROVISION CREATED EARLIER IS DISALLOWED AND THEREFORE CLAIM OF BAD DEBTS DOES NOT RESULT IN DOUBLE DEDUCTION. IN CASE THE APPELLANT HAD WRITTEN OFF THE BAD DEBTS BY DEBITING IT TO PROFIT AND LOSS ACCOUNT, PROVISION CREATED FO R BAD AND DOUBTFUL DEBTS CREATED IN EARLIER YEARS WILL HAVE TO BE REVERSED. THE IMPACT ON PROFIT AND LOSS ACCOUNT AND COMPUTATION OF TOTAL INCOME IN BOTH CASES IS DEPICTED IN SEPARATE STATEMENT. IT IS EVIDENCE FROM THE STATEMENT THAT THE IMPACT ON PROFIT A ND LOSS ACCOUNT AND COMPUTATION OF INCOME OF ANY OF THE METHOD FOLLOWED (AS PER THE APPELLANT OR THAT AS PER THE CIT(A)) IS SAME. 10. FINALLY, THE ASSESSEE RELIED ON THE DECISION OF THE TRIBUNAL, MUMBAI BENCHES, RENDERED IN ARROW COATED PRODUCTS LTD. V/S ACI T, 22 TAXMAN.COM 31 (MUM.). HE ALSO FURNISHED STATEMENT SHOWING IMPACT ON PROFIT & LOSS ACCOUNT AND COMPUTATION OF INCOME ON DIFFERENT METHODS OF WRITE OFF OF BAD AND DOUBTFUL DEBTS. 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE DUTIFULLY RELIED ON THE ORDERS O F THE REVENUE AUTHORITIES. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE NOTICED THAT THERE IS A NEED FOR EXAMINING THE STATEMENT OF THE ASSESSEES WRITE OFF ON THE PROFIT & LOSS ACCOUNT FOR VERIFICATION BY THE ASSES SING OFFICER. IT IS ALSO NOTICED THAT THE DECISION OF THE TRIBUNAL IN ARROW COATED PRODUCTS LTD. (SUPRA) WAS DELIVERED SUBSEQUENT TIME AND THE SAME WAS NOT AVAILABLE BEFORE SKF INDIA LIMITED 6 THE REVENUE AUTHORITIES AT THE RELEVANT POINT OF TIME. WE, ACCORDINGLY, REMAND THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION AND ALLOWING THE CLAIM OF THE ASSESSEE AFTER APPLYING THE DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN ARROW COATED PRODUCTS LTD. (SUPRA). CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY TH E LEARNED COMMISSIONER (APPEALS) AND ALLOW THE GROUND RAISED BY THE ASSESSEE FOR STATISTICAL PURPOSES. 13. 14. IN THE RESULT, ASSESSEES APPEAL FOR A.Y. 2006 07 IS PARTLY ALLOWED FO R STATISTICAL PURPOSE. WE SHALL NOW TAKE UP ASSESSEES APPEAL IN ITA NO.1666/MUM./ 2012, FOR THE ASSESSMENT YEAR 2007 08. GROUND RAISED BY THE ASSESSEE ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN C ONFIRMING DISALLOWANCE OF ` 16,11,913 BEING SUBSCRIPTION / MEMBERSHIP FEES PAID TO THE CLUBS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF ` 1,52,26,284 IN RESPECT OF DEBTS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE APPELLANT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW IN CONFIRMING AN ADDITION OF ` 12,99,690 IN RESPECT OF ALLEGED UNRECONCILED TRANSACTIONS . SKF INDIA LIMITED 7 15. AFTER HEARING BOTH THE PARTIES, WE FIND THAT GROUND NO.1, RELATES TO DISALLOWANCE OF CLUB EXPENSES OF ` 16,11,913, WHICH IS COMMON TO GROUND NO.2, OF ASSESSEES APPEAL IN ITA NO.7723/MUM./2010, WHICH IS RELEVANT FOR THE ASSESSMENT YEAR 2006 07, WHICH WE HAVE ALREADY ADJUDITATED AND ALLOWED THE SAID GROUND IN FAVOUR OF THE ASSESSEE. SINCE THIS GROUND IS COMMON TO THE GROUND NO.2, RAISED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2006 07, THEREFORE, FOR THE REASONS STATED THEREIN VIDE PARA 6 AND 7 ABOVE, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNE D COMMISSIONER (APPEALS) ON THIS ISSUE AND ALLOW THE GROUND RAISED BY THE ASSESSEE. 16. GROUND NO.2, RELATES TO THE ISSUE OF BAD AND DOUBTFUL DEBTS WRITTEN OFF AMOUNTING TO ` 1,52,26,284 . 17. AFTER HEARING BOTH THE PARTIES, WE FIND THAT THIS GROUND IS COMMON TO GROUND NO.3, RAISED BY THE ASSESSEE IN ITA NO.7723/MUM./ 2010, FOR THE ASSESSMENT YEAR 2006 07, WHICH WE HAVE ALREADY ADJUDICATED. SINCE THIS GROUND IS COMMON TO THE GROUND NO.3, RAISED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2006 07, THEREFORE, FOR THE REA SONS STATED THEREIN VIDE PARA 12 ABOVE, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED CIT(A) AND RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR DENOVO ADJUDICATION. CONSEQUENTLY, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. SKF INDIA LIMITED 8 18. G ROUND NO.3, RELATES TO DISALLOWANCE ON ACCOUNT OF ALLEGED UNRECONCILED ITS DATA AMOUNTING TO ` 12,99,690. 19. IN THIS REGARD, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AIR DATA AMOUNTING TO ` 65,93,498, THE ASSESSEE SUCCESSFULLY RECONCILED TO THE EX TENT OF ` 52,93,803 THAT CONSTITUTE 80% OF THE ENTIRE TRANSACTION. REGARDING THE BALANCE OF ` 12,99,690, THE ASSESSING OFFICER DID NOT PROVIDE THE NECESSARY DETAILS TO ENABLE THE ASSESSEE TO RECONCILE THE SAME. IT IS A SETTLED ISSUE THAT MERELY NON RECONCI LIATION OF THE AIR DATA AND DOES NOT LEAD TO SUSTAINABLE ADDITION IN THE ASSESSMENT. IN OUR OPINION, THERE IS A NEED FOR REMANDING THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED CIT(A) O N THIS ISSUE AND RESTORE THE ISSUE BACK TO HIS FILE WITH A DIRECTION TO FURNISH REQUISITE SPECIFIC INFORMATION TO THE ASSESSEE CALLING FOR RECONCILIATION. NORMALLY, THE AIR DATA IS GENERIC AS WELL AS GENERAL IN NATURE. THE ASSESSING OFFICER IS REQUIRED TO FIRST EXAMINE THE SPECIFIC OF THE TRANSACTION THAT REQUIRE RECONCILIATION. THUS, GROUND NO.3, IS ALLOWED FOR STATISTICAL PURPOSES. SKF INDIA LIMITED 9 20. 21. IN THE RESULT, ASSESSEES APPEAL FOR TH E A.Y. 2007 08 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT O N 22.05.2015 SD/ - VIJAY PAL RAO JUDICIAL MEMBER SD/ - . D. KARUNAKARA RAO ACCOUNTANT MEMBER MUMBAI, DATED : 22 / 05 / 2015 / COPY OF THE ORDER FORWARDED TO : (1) / THE ASSESSEE; (2) / THE REVENUE; (3) ( ) / THE CIT(A); (4) / THE CIT, MUMBAI CITY CONCERNED; (5) , , / THE DR, ITAT, MUMBAI; (6) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI