ACIT, Coimbatore V. Elgi Ultra Industries Ltd., Coimbatore

ITA 1796/CHNY/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68861 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 18-11-2013
• Assessment Year: 2010-2011
• Appeal Filed On: 27-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T N BETGERI IRS
• Assessee Lawyers: T BANUSEKAR
• Keywords: Bad and doubtful debts
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI V.DURGA RAO, JUDICIAL MEMBER ITA NO.1616/MDS/2013 ASSESSMENT YEAR : 2010-11 M/S. ELGI ULTRA INDUSTRIES LTD., ELGI HOUSE, TRICHY ROAD, COIMBATORE 641 018. PAN AAACE4566G VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-I(1), COIMBATORE 641 018. (APPELLANT) (RESPONDENT) ITA NO.1796/MDS/2013 ASSESSMENT YEAR : 2010-11 THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-I(1), COIMBATORE-641 018. VS. M/S. ELGI ULTRA INDUSTRIES LTD., INDIA HOUSE, 1239, TRICHY ROAD, COIMBATORE 641 018. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI T. BA NUSEKAR, FCA DEPARTMENT BY : SHRI T.N.BE TGERI, IRS, CIT DATE OF HEARING : 18 TH NOVEMBER, 2013 DATE OF PRONOUNCEMENT : 18 TH NOVEMBER, 2013 ITA 1616 & 1796/13 :- 2 -: O R D E R PER DR.O.K.NARAYANAN, VICE PRESIDENT THESE TWO APPEALS RELATE TO THE ASSESSMENT YEAR 2010-11. THESE ARE CROSS APPEALS, FILED BY THE ASS ESSEE AND BY THE REVENUE. THESE APPEALS ARE DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-I AT COIMBATORE DATED 2.7.2013. THE APPEALS ARISE OUT OF THE ASSESSMENT COMPLETED UNDER SEC.143(3) OF THE INCOME-TAX ACT, 1961. 2. WE HEARD SHRI T. BANUSEKAR, THE LEARNED CHARTERE D ACCOUNTANT APPEARING FOR THE ASSESSEE AND SHRI T.N. BETGERI, THE LEARNED JOINT COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENUE. 3. THE ISSUE RAISED IN ASSESSEES APPEAL IS THAT TH E COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN CO NFIRMING THE DISALLOWANCE OF ` 1,20,94,500/- MADE BY THE ASSESSING OFFICER. THE ASSESSEE-COMPANY HAD SOLD CERTAIN ACTIONABLE CL AIMS FOR A LOSS. THE ACTIONABLE CLAIMS WERE PAYABLE BY M/S. B RILLIANT BOTTLERS AND SRIKUMAR TEXTILES TO THE ASSESSEE-COMPANY. M/S . BRILLIANT BOTTLERS HAD TO PAY ` 1,26,54,327/- AND SRIKUMAR TEXTILES HAD TO ITA 1616 & 1796/13 :- 3 -: PAY ` 1,75,81,923/-. THESE TWO AMOUNTS TOTALLED TO ` 3,02,36,250/-. THESE TWO AMOUNTS WERE ASSIGNED FOR REALIZATION TO A THIRD PARTY FOR A TOTAL OF ` 1,81,41,750/-. THIS HAS CAUSED A REALIZATION DEFICIENCY IN THE HANDS OF THE ASSESSEE -COMPANY. THIS AMOUNT HAS BEEN CLAIMED BY THE ASSESSEE AS DED UCTION IN COMPUTING ITS TAXABLE INCOME, AS THE LOSS INCURRED ON SALE OF ACTIONABLE CLAIMS. THIS AMOUNTED TO ` 1,20,94,500/-. 4. THE ASSESSING OFFICER DISALLOWED THE CLAIM FOR T HE FOLLOWING REASONS : THE BUSINESS OF ASSESSEE IS MANUFACTURE OF WET GRINDERS AND TEXTILE ACCESSORIES AND NOT TRADING OF DEBTS. THE BASIS OF VALUATION OF THESE DEBTS IS ALSO NOT K NOWN AND THIS SALE WAS ALSO MADE TO ITS GROUP COMPANY M/ S. ATS ELGI LIMITED. THESE DEBTS TERMED BY ASSESSEE AS ACTIONABLE CLAIMS DOES NOT ORIGINALLY BELONG TO THE ASSESSEE BUT OF I TS SISTER CONCERN M/S. ELGI FINANCE LIMITED A PART OF WHICH WAS TAKEN BY THE ASSESSEE IN THE PREVIOUS YEA R 2001-02 (ASST. YEAR 2002-03). THIS IS THE SAME ACTIONABLE CLAIM THAT WAS EXPLAINE D IN THE PARA 3 STATED ABOVE THAT THE ASSESSEE HAS CONTINUOUSLY CHOSEN TO WRITE-OFF IN THE BOOKS OF ASSESSEE AFTER THE AY 2002-03 WHICH EXISTS IN THIS AY TOO. BUT THIS NEW ARRANGEMENT OF LOSS ON SALE OF ACTIONABLE CLAIMS WERE INTRODUCED BY THE ASSESSEE ITA 1616 & 1796/13 :- 4 -: ONLY DURING THE AY 2010-11 SO AS TO WIPE OFF THE ACTIONABLE CLAIMS QUICKLY IN ITS BOOKS AND TO DIVER T IT TO ANOTHER SISTER CONCERN M/S. ATS ELGI LIMITED WHICH MAY SUBSEQUENTLY WRITE OFF THE SAME IN ANY OF THE FOLLOWING YEARS. THIS IS ONLY AN INTERNAL ARRANGEMENT AMONG THE GROU P COMPANIES OF REDUCING THEIR PROFIT AND SHARING THE BURDEN OF THE LOSS OF M/S ELGI FINANCE LIMITED. 5. IN FIRST APPEAL, THE COMMISSIONER OF INCOME-TAX( APPEALS) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OF FICER STATING THE REASON THAT THE ASSESSEE HAS NOT FURNISHED DETA ILS AS CALLED FOR, FROM IT. IN ASSESSEES OWN CASE, TAKING OVER OF DEBTS AS ACTIONABLE CLAIMS WERE CONSIDERED BY INCOME-TAX APP ELLATE TRIBUNAL. THE ITAT, CHENNAI BENCH D, IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 2002-03 AND 2003-04 HAS HE LD THAT LOSS ARISING FROM SUCH ASSIGNMENT OF ACTIONABLE CLAIMS I S DEDUCTIBLE EXPENDITURE, AS EXPENDITURE INCURRED IN THE COURSE OF CARRYING ON OF BUSINESS. THIS FINDING HAS BEEN GIVEN BY THE TR IBUNAL IN THEIR ORDER DATED 14.9.2007 IN ITA NOS. 2207 & 2208/MDS/2 005. THIS ISSUE WAS AGAIN CONSIDERED IN ASSESSEES OWN CASE F OR THE ASSESSMENT YEAR 2005-06 BY ITAT, CHENNAI BENCH D IN THEIR ORDER DATED 12.6.2009 PASSED IN ITA NO.1220/MDS/200 8. LIKEWISE, THE ISSUE WAS CONSIDERED FOR THE ASSESSME NT YEAR ITA 1616 & 1796/13 :- 5 -: 2006-07 IN ASSESSEES OWN CASE BY ITAT, CHENNAI B BENCH IN ITA NO.1267/MDS/2009 DATED 20.11.2009. ALMOST ALL THE OBJECTIONS RAISED BY THE ASSESSING OFFICER HAVE BEE N CONSIDERED BY THE TRIBUNAL IN THOSE VARIOUS ORDERS. EVEN IF T HE TRANSACTIONS WERE CARRIED OUT BETWEEN SISTER CONCERNS, THE TRIBU NAL HAS HELD THAT THERE IS NOTHING UNLAWFUL IN THAT. THE TRIBUN AL HAS ALSO FOUND IN THE MEMORANDUM AND ARTICLES OF ASSOCIATION THAT THE ASSESSEE-COMPANY IS PERMITTED TO INDULGE IN SUCH BU SINESS AND AS SUCH, LOSS ARISING OUT OF RELATED TRANSACTIONS M UST BE ALLOWED AS DEDUCTIONS. THEREFORE, FOLLOWING A NUMBER OF OR DERS IN ASSESSEES OWN CASE AND IN THE CASE OF SISTER CONCE RNS, WE HOLD THAT THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN DIS ALLOWING THE CLAIM OF LOSS MADE BY THE ASSESSEE-COMPANY. 6. IN FACT, THE ASSESSEE HAS FURNISHED THE DETAILS BEFORE THE ASSESSING AUTHORITY, HIMSELF. THE ONLY THING WAS T HAT THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATIONS O FFERED BY THE ASSESSEE-COMPANY. BUT THE COMMISSIONER OF INCOME- TAX(APPEALS) REPEATS ALL OBJECTIONS RAISED BY THE A SSESSING OFFICER IN HIS ORDER AND MAKES AN AWESOME STATEMENT THAT THE ASSESSEE HAS NOT FURNISHED ANY DETAILS IN THE LIGHT OF THOSE ITA 1616 & 1796/13 :- 6 -: OBJECTIONS. ONCE THE ASSESSEE HAS SUBMITTED THE DE TAILS BEFORE THE ASSESSING AUTHORITY HIMSELF, IT IS NOT PROPER O N THE PART OF THE COMMISSIONER OF INCOME-TAX(APPEALS) TO RAISE THE SA ME OBJECTIONS. 7. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DELETE THE DISALLOWANCE OF ` 1,20,94,500/- MADE BY THE ASSESSING OFFICER . 8. NEXT, WE WILL CONSIDER THE APPEAL FILED BY THE R EVENUE. 9. THE FIRST GROUND RAISED BY THE REVENUE IS THAT T HE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN DI RECTING THE ASSESSING OFFICER TO ALLOW THE CLAIM OF BAD DEBTS/A CTIONABLE CLAIMS UNDER SEC.37(1) RELYING ON THE DECISION IN A SSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05. AS ALREADY ST ATED IN EARLIER PARAGRAPHS, THIS ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL CONSISTENTLY FOR THE EARLIER ASSESSMENT Y EARS AND HAVE HELD THAT THE CLAIM MADE BY THE ASSESSEE WAS ALLOWA BLE IN LAW. IN THE LIGHT OF THE TRIBUNAL ORDER, THE COMMISSIONE R OF INCOME- TAX(APPEALS) HAS ACCEPTED AND ALLOWED THE GROUND RA ISED BY THE ASSESSEE BEFORE HIM. WE DO NOT FIND ANY MISTAKE IN THE ORDER ITA 1616 & 1796/13 :- 7 -: PASSED BY THE COMMISSIONER OF INCOME-TAX(APPEALS). THIS GROUND RAISED BY THE REVENUE IS LIABLE TO BE DISMIS SED. 10. THE SECOND ISSUE RAISED BY THE REVENUE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) OUGHT TO HAVE O BSERVED THAT THE ASSESSING OFFICER HAS IN HIS ORDER MERELY STATED THAT THE ASSESSING OFFICER HAS NOT GIVEN ANY REASON FOR INVO KING PROVISIONS OF SECTION 14A NOR HAS GIVEN ANY FINDING OF CORRELATION BETWEEN THE DIVIDEND INCOME EARNED AND EXPENDITURE FOR EARNING THE INCOME. IT IS THE CASE OF THE REVENUE THAT TH E ASSESSING OFFICER WAS NOT SATISFIED WITH THE CLAIM AND HENCE ESTIMATED 5% OF THE DIVIDEND RECEIVED AS DISALLOWANCE U/S.14A. 11. WHATEVER IS TOLD AND DONE, THE ASSESSING OFFICE R HAS DISALLOWED ONLY 5% OF THE DIVIDEND RECEIVED BY THE ASSESSEE UNDER SEC.14A. THE SAID NOMINAL DISALLOWANCE SHOUL D NOT HAVE BEEN DISTURBED BY THE COMMISSIONER OF INCOME-TAX(AP PEALS). THEREFORE, WE REVERSE THE ORDER OF THE COMMISSIONER OF INCOME- TAX(APPEALS) ON THIS POINT AND SUSTAIN THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER. 12. THE REVENUE IS PARTLY SUCCESSFUL IN ITS APPEAL. ITA 1616 & 1796/13 :- 8 -: 13. IN RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDERS PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON MONDAY, THE 18 TH OF NOVEMBER, 2013 AT CHENNAI. SD/- SD/- (V.DURGA RAO) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 18 TH NOVEMBER, 2013. MPO* COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GF.