ESAB India Ltd., CHENNAI V. DCIT Corporate Circle 2(1), CHENNAI

ITA 1844/CHNY/2019

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 6818 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 17-06-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A SUNDARARAJAN
• Assessee Lawyers: REDDI PRAKASH G ACA
• Keywords: Depreciation; Opportunity of being heard; Bad and doubtful debts

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NO. 1844/CHNY/2019 / ASSESSMENT YEAR : 2003-04 M/S. ESAB INDIA LIMITED, BLOCK NO. 13, 3 RD MAIN ROAD, INDUSTRIAL ESTATE, AMBATTUR, CHENNAI 600 058. [PAN: AAACE 0861G] VS. DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II91), CHENNAI. ( / APPELLANT) ( $%' /RESPONDENT ) ' ( / APPELLANT BY : SHRI. REDDI PRAKASH. G, ACA $%' ( / RESPONDENT BY : SHRI. A. SUNDARARAJAN, CIT ( /DATE OF HEARING : 25.09.2019 ( /DATE OF PRONOUNCEMENT : 20.12.2019 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-9, IN ITA NO. 67/CIT(A)-9/10-11 DATED 10.05.2019 FOR ASSESSMENT YEAR 2003-04. :-2-: ITA NO.1844/CHNY/2019 2. M/S. ESAB INDIA LIMITED, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF WELDING ELECTRODES & EQUIPMENTS. IN THE ASSESSMENT MADE FOR ASSESSMENT YEAR 2010-11 U/S. 14 3(3) R.W. 147, THE AO, INTER ALIA, MADE; ADDITION TOWARDS EXCESS R EMUNERATION PAID TO DIRECTOR OF RS. 32,51,000/-, DISALLOWANCE ON DEPREC IATION OF ASSETS AT KALWA RS. 67,27,500/-, DISALLOWANCE ON WRITE OFF OF BAD DEBTS OF RS. 2,91,13,227/- AND DISALLOWANCE ON SUNDRY BALANCE OF RS. 34,08,000/-. AGGRIEVED AGAINST THAT ORDER THE ASSESSEE FILED APP EAL BEFORE THE CIT(A). THE LD. CIT(A) DISMISSED THE APPEAL. AGGRI EVED AGAINST THAT ORDER THE ASSESSEE FILED THIS APPEAL. 3. THE LD AR SUBMITTED THAT THE ASSESSEE PAID RS. 6 0,25,546/-, TO ONE OF ITS DIRECTORS AS REMUNERATION FOR THE ACCOUN TING YEAR END 31.12.2002. SINCE, THE AMOUNT PAID WAS EXCESS OF R S. 39.22 LAKHS AS PER SCHEDULE XIII TO THE COMPANIES ACT, WHICH WAS R ECEIVABLE FROM THE DIRECTOR. THEREFORE, THIS SUM WAS CREDITED TO THE P&L ACCOUNT BY THE ASSESSEE ITSELF IN THE SAID YEAR AND OFFERED FOR TA X (DISCLOSED IN NOTES FORMING PART OF THE ACCOUNTS AND ACCEPTED BY THE AO IN THE COMMUNICATION DATED 19.11.2010). DURING THE PERIOD JANUARY 2003 TO MARCH 2003, RS. 6.7 LAKHS WAS COMPUTED TO BE PAYABL E BY THE ASSESSEE TO THE DIRECTOR. THEREFORE, THIS SUM WAS REDUCED F ROM THE RECEIVABLE AND HENCE THE ASSESSEE HAS SHOWN NET RECEIVABLE AT RS. 32.51 LAKHS AS :-3-: ITA NO.1844/CHNY/2019 ON 31.03.2003. THE AO FAILED TO UNDERSTAND THESE T RANSACTIONS AND HELD THAT THE ASSESSEE HAS ONCE AGAIN DEBITED THE S ALARY TO THE P&L ACCOUNT DURING THE PERIOD JANUARY TO MARCH 2003. I N THIS REGARD, THE LD. AR SUBMITTED THAT WHAT WAS ALREADY OFFERED TO T AX BY THE ASSESSEE BY CREDITING TO THE P&L ACCOUNT CANT BE ADDED BY T HE AO ONCE AGAIN AND IT WOULD AMOUNT TO DOUBLE TAXATION OF THE SAME AMOUNT. THEREFORE, HE PLEADED TO DELETE THE ADDITIONS. IN THIS REGARD, HE INVITED OUR ATTENTION TO CERTAIN PARTICULARS FILED IN SUPPO RT OF HIS CLAIM. 3.1 PER CONTRA, THE LD. DR SUBMITTED THAT THE ASSES SEE HAS NOT GIVEN ANY PARTICULARS BEFORE THE AO, AS IT HAS TAKEN A LE GAL GROUND FOR THE REOPENING OF THE ASSESSMENT ETC. BEFORE, THE LD. C IT(A) ALSO THE ASSESSEE HAS NOT FURNISHED THE REQUIRED DETAILS. T HEREFORE, THE LD. DR SUBMITTED THAT THE ASSESSEES APPEAL IS NOT HAVING ANY MERIT. 4. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL. IT IS CLEAR FROM THE LOWER AUTHORITIES O RDERS THAT THE ASSESSEE HAS NOT FURNISHED THE RELEVANT DETAILS, THOUGH IT H AS FILED CERTAIN PAPERS BEFORE US. THEREFORE, THE FACTS AND FIGURES ON THE ISSUE ARE TO BE EXAMINED BY THE LOWER AUTHORITIES FOR ARRIVING THE CORRECT CONCLUSION. THEREFORE, THIS ISSUE IS REMITTED BACK TO THE AO FO R A FRESH EXAMINATION. THE ASSESSEE SHALL LAY ALL MATERIALS IN SUPPORT OF ITS CONTENTION AND :-4-: ITA NO.1844/CHNY/2019 COMPLY WITH THE REQUIREMENTS OF THE AO IN ACCORDANC E WITH LAW. THE AO ON DUE EXAMINATION SHALL PASS APPROPRIATE ORDER, AFTER AFFORDING EFFECTIVE OPPORTUNITY TO THE ASSESSEE. 5. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS CLOSE D DOWN THE OPERATIONS AT KALWA UNIT, ONE OF THE FACTORIES. TH E WDV OF THE ASSETS AS PER THE BOOKS OF ACCOUNT AT THIS LOCATION INCLUD ED IN THE TOTAL ASSETS OF THE ASSESSEE AMOUNTED TO RS. 26.94 MILLIONS, WHI CH IS MENTIONED IN THE NOTES TO ACCOUNT. THE LD. AO ASSUMED THAT THE DEPRECIATION OF THESE ASSETS @ 25% AND DISALLOWED IT ON THE CONTENT ION THAT THE ASSETS WERE NOT PUT TO USE DURING THE YEAR CONCERNED. THE DISALLOWANCE MADE IS RS. 67,27,500/-. THE LD. AR SUBMITTED THAT THES E ASSETS ARE FORMING PART OF THE BLOCK OF ASSETS AND HENCE, THE INDIVIDU AL IDENTITY IS LOST. IN THIS REGARD, HE RELIED ON VARIOUS JUDGEMENTS VIZ., BOMBAY HIGH COURT AND TRIBUNAL DECISIONS ETC. THE LD. AR ALSO SUBMIT TED THAT WITHOUT CONCEDING TO THE AOS CONTENTION, THE AOS ASSUMPTI ON OF DEPRECIATION @ 25% ON 26.94 MILLION IS NOT CORRECT. THIS VALUE OF 26.94 MILLION IS THE WDV AS PER THE BOOKS OF ACCOUNT WHICH IS ARRIVED AT AFTER CLAIMING DEPRECIATION AS PER THE RATES GIVEN IN SCHEDULE XIV OF THE COMPANIES ACT WHICH ARE VERY LESS COMPARED TO THE RATE ADOPTE D BY THE LD. AO. THE RATE OF DEPRECIATION AS PER INCOME TAX ACT IS 2 5% ON WDV OF THE ASSETS, MOST OF THE ASSETS WERE PURCHASED IN THE YE AR 1989. IF WE :-5-: ITA NO.1844/CHNY/2019 APPLY THE INCOME TAX RATES AND COMPUTE THE WDV, IT WOULD BE VIRTUALLY NIL AND NO DISALLOWANCE IS WARRANTED. 5.1 PER CONTRA, THE LD. DR SUBMITTED THAT THE ASSET S AT KALWA, AS STATED BY THE ASSESSEE ITSELF WERE NOT USED FOR PRODUCTIVE PURPOSE AND WERE HELD FOR DISPOSAL. SINCE, THE ASSETS WERE NOT PUT TO USE AND WERE HELD FOR DISPOSAL, NO DEPRECIATION IS ADMISSIBLE ON SUCH ASSETS. IN THIS REGARD, THE AO RELIED ON THE KARNATAKA HIGH COURT D ECISION IN THE CASE OF DCIT VS YELLAMMA DASAPPA HOSPITAL REPORTED IN 29 0 ITR 353 (KAR). FURTHER, THE LD. DR INVITED OUR ATTENTION TO THE DE CISION OF THE LD. CIT(A), WHEREIN, THE LD. CIT(A) HAS TAKEN NOTE OF T HE FACT THAT THE ASSESSEES AUDITOR HAS CATEGORICALLY STATED THAT TH E ENTIRE FIXED ASSETS OF KALWA UNIT WERE NOT USED FOR THE PURPOSE OF BUSINES S DURING THE YEAR UNDER CONSIDERATION. SINCE, THE ASSESSEE IS HAVING UNIT WISE ACCOUNTS, THEREFORE, THE ENTIRE BLOCK OF ACCOUNTS FOR KALWA U NIT WERE NOT UTILISED FOR THE PURPOSE OF BUSINESS. THEREFORE, THE LD. DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 6. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL. IT IS CLEAR FROM THE ASSESSMENT ORDER, T HAT THE ASSESSEE HAS NOT FURNISHED THE RELEVANT DETAILS BEFORE THE AO. THEREFORE, THE AO HAS DECIDED THE ISSUE ON THE BASIS OF NOTES FORMING PAR T OF THE ACCOUNTS IN :-6-: ITA NO.1844/CHNY/2019 THE RETURN. IT IS SEEN FROM THE ORDER OF THE LD. C IT(A) ALSO THAT THE ASSESSEE HAS NOT FURNISHED THE RELEVANT DETAILS. T HEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THIS ISSUE REQUIRES PRO PER VERIFICATION OF THE ACCOUNTS AND EXAMINATION OF WHETHER THE ASSESSEE MA INTAINED UNIT WISE ACCOUNTS OR A COMBINED ACCOUNTS, HOW THE BLOCK OF A SSETS WERE DRAWN EARLIER, ETC. THEREFORE, WE DEEM IT FIT TO REMIT T HIS ISSUE BACK TO THE AO FOR A FRESH EXAMINATION. THE ASSESSEE SHALL LAY AL L MATERIALS IN SUPPORT OF ITS CONTENTION AND COMPLY WITH THE REQUIREMENTS OF THE AO IN ACCORDANCE WITH LAW. THE AO ON DUE EXAMINATION AND AFTER AFFORDING EFFECTIVE OPPORTUNITY TO THE ASSESSEE SHALL PASS AN APPROPRIATE ORDER. 7. WITH REGARD TO THE DISALLOWANCE OF BAD DEBTS WRI TTEN OFF AND THE SUNDRY BALANCES, THE ASSESSEE FILED AN ADDITIONAL G ROUNDS OF APPEAL PLEADING THAT THESE WERE SUBJECT MATTER OF ASSESSME NT IN THE ORIGINAL ASSESSMENT. ON APPEAL, THE LD. CIT(A) DISMISSED TH E ASSESSEES GROUNDS. AGGRIEVED, THE ASSESSEE FILED AN APPEAL B EFORE THE HONBLE ITAT. THE HONBLE ITAT PASSED THE ORDER ON 18.06.2 009 (ITA 4866/MUM/07) SETTING ASIDE THE ORDER OF CIT(A) AND REMITTING THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR CONSIDERING THE CLAIM OF THE ASSESSEE AFRESH AND ALSO MENTIONED THAT THE ASSESSING OFFICER HAS TO GIVE PROPER OPPORTUNITY FOR THE ASSESSEE FOR REPRESENTING ITS CASE BY RELYING ON THE JUDGEMENT IN THE CASE OF OM AN INTERNATIONAL :-7-: ITA NO.1844/CHNY/2019 BANK (313 ITR 128) WHERE THE HONBLE MUMBAI HIGH CO URT HELD THAT AFTER AMENDMENT TO SECTION 36(1)(VII) IT IS NEITHE R OBLIGATORY NOR IS THERE ANY BURDEN ON THE ASSESSEE TO PROVE THAT THE DEBT WRITTEN OFF BY HIM IS INDEED A BAD DEBT AS LONG AS IT IS BONAFIDE AND IS BASED ON COMMERCIAL WISDOM OR EXPEDIENCY. 7.1. HOWEVER, IN THE RE-ASSESSMENT MADE U/S. 143(3 ) R.W. 147 PASSED ON 29.12.2010, THE AO WITHOUT CONSIDERING THE DIREC TION OF THE ITAT, MADE FRESH ADDITIONS ON THESE ISSUES. ALTHOUGH, TH E ASSESSEE MADE SUBMISSIONS REGARDING THESE ISSUES BEFORE THE LD. C IT(A), THE LD. CIT(A) PASSED THE ORDER DATED 10.05.2019 WITHOUT CO NSIDERING THE ASSESSEES SUBMISSIONS. THEREFORE, THE ASSESSEE FI LED THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL: 1. THE LD. ASSESSING OFFICER AND CIT(A) ERRED IN NOT CONSIDERING THE DIRECTIONS OF ITAT WITH REGARD TO D ISALLOWANCE OF WRITE OFF OF BAD DEBTS AND SUNDRY BALANCES. 2. THE LD. ASSESSING OFFICER ERRED IN NOT PROVIDIN G THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. 3. THE LD. CIT(A) ERRED IN NOT CONSIDERING THE SUBMISSION MADE DURING THE FIRST APPELLATE PROCEEDI NGS WHILE ADJUDICATING THE APPEAL. THE LD. AR SUBMITTED ON THE LINES OF THE ABOVE GROU NDS OF APPEAL. :-8-: ITA NO.1844/CHNY/2019 8. WE HEARD THE RIVAL SUBMISSIONS AND ADMIT THE AD DITIONAL GROUNDS OF APPEAL. SINCE, THE ABOVE ISSUES ARE NOT CONSIDERED BY THE LD. CIT(A), WE DEEM IT FIT TO REMIT THOSE ISSUES BACK TO THE AO FOR A FRESH EXAMINATION WITH A DIRECTION TO DECIDE THEM ON THE LINES IN WHICH THIS TRIBUNAL DIRECTED THE AO IN THE ORIGINAL ORDER IN I TA NO. 4866/MUM/2007 FOR ASSESSMENT YEAR 2003-04 DATED 18.06.2009. 9. IN THE RESULT, THE ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 20 TH DECEMBER, 2019 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 20 TH DECEMBER, 2019 JPV ($1232 /COPY TO: 1. ' / APPELLANT 2. $%' /RESPONDENT 3. 4 ) ( /CIT(A) 4. 4 /CIT 5. 2$ /DR 6. 7 /GF