PAN INDIA NETWORK INFRAVEST PRIVATE LIMITED, MUMBAI V. ADDL C.I.T.RG.7(1), MUMBAI

ITA 1864/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79376 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 08-05-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 07-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Assessee Lawyers: RAJESH CHAMANA
• Keywords: Additional evidence; Bad and doubtful debts
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUM BAI , BEFORE SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA, AM I.T.A. NO. 1864/MUM/2011 ( / ASSESSMENT YEAR: 2006-07) PAN INDIA NETWORK INFRAVEST PVT. LTD. CONTINENTAL BUILDING, 135, DR. ANNIE BESANT ROAD, WORLI, MUMBAI-400 018 VS. ADDL. CIT, RANGE 7(1), AAYAKAR BHAVAN, MUMBAI-400 020 ! ' ./PAN/GIR NO. AACCP 2459 H ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) !#&' / APPELLANT BY : SHRI RAJESH CHAMANA $%!#&' / RESPONDENT BY : SHRI R. K. SAHU ( )*&+, / DATE OF HEARING : 08.05.2014 -./&+, / DATE OF PRONOUNCEMENT : 10.07.2014 0 O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-13, MUMBAI (CIT(A) FOR SH ORT) DATED 23.11.2010, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2006-07 VIDE ORDER DATED 30.12.2008. 2. THE APPEAL RAISES THREE GROUNDS, WHICH WE SHALL TAKE UP IN SERIATIM. THE FIRST GROUND IS QUA THE CLAIM FOR BAD DEBTS IN THE SUM OF RS.27.05 LACS . THE SAME, THOUGH 2 ITA NO. 1864/MUM/2011 (A.Y. 2006-07) PAN INDIA NETWORK INFRAVEST PVT. LTD. VS. ADDL. CIT WRITTEN OFF IN ACCOUNTS, STOOD DISALLOWED BY THE AS SESSING OFFICER (A.O.) AS THE ASSESSEE DID NOT PROVIDE PARTY-WISE DETAILS OF THE CLAIM, SO THAT EVEN THE IDENTITY OF THE DEBTS CLAIMED BAD WAS NOT KNOWN. A HONEST JUDGMENT FOR WR ITE OFF HAS TO BE SHOWN, AS THE PROVISION WOULD OTHERWISE BECOME A HANDY TOOL FOR T AX EVASION. AS IT APPEARED, THE DEBTS HAD MERELY BEEN WRITTEN OFF WITHOUT EXERCISE OF ANY DISCRETION. THE CLAIM WAS ACCORDINGLY DISALLOWED. IN APPEAL, THE ASSESSEE FURNISHING THE RELEVANT DET AILS, A REMAND REPORT WAS CALLED FOR (PB PGS.54-55). THE LD. CIT(A) WAS, HOWEVER, OF THE VIEW THAT THE ADDITIONAL EVIDENCE COULD NOT BE ACCEPTED IN-AS-MUCH AS THE TE RMS OF RULE 46A STOOD NOT SATISFIED, CITING THE DECISION IN THE CASE OF RAM PRASAD SHARMA VS. CIT [1979] 119 ITR 867 (ALL) IN SUPPORT. TRUE, THE APEX COURT PER ITS DECISION I N THE CASE OF TRF LTD. VS. CIT [2010] 323 ITR 397(SC), HAD SINCE CLARIFIED THAT IT WAS NO T NECESSARY FOR THE ASSESSEE, TO CLAIM A DEBT AS BAD, ESTABLISH IT AS HAVING BECOME ACTUALLY SO, AND THAT A WRITE OFF IN ACCOUNTS WAS SUFFICIENT FOR THE PURPOSE. HOWEVER, A DEBT MUST AT LEAST PRIMA FACIE BE SHOWN TO BE BAD, WHICH HAD NOT BEEN. ACCORDINGLY, WITH REFERENCE TO THE DECISION BY THE HONBLE JURISDICTIONAL HIGH COURT IN DIT(IT) VS. OMAN INTERNATIONAL BANK SAOG [2009] 313 ITR 128 (BOM), THE ASSESSEES CLAIM WAS CONSIDERED AS N OT MAINTAINABLE. AGGRIEVED, THE ASSESSEE IS IN APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3.1 OUR FIRST OBSERVATION IN THE MATTER IS THAT THE LD. CIT(A) HAVING CALLED FOR A REMAND REPORT FROM THE A.O., WE ARE UNABLE TO UNDER STAND THE DENIAL OF ADMISSION OF THE ADDITIONAL EVIDENCE IN THE FORM OF PARTY-WISE DETAI LS IN-AS-MUCH AS THE QUESTION OF CONFRONTING THE A.O. WITH THOSE MATERIALS BEING NOW ADDUCED BEFORE THE FIRST APPELLATE AUTHORITY, CALLING FOR HIS REPORT THEREON, COULD ON LY BE WHERE HE ADMITS THE SAME, I.E., THE SAID EVIDENCE/S. FURTHER, HE GOES ON TO STATE THAT A PRIMA FACIE CASE HAD NOT BEEN MADE OUT BY THE ASSESSEE. HOW COULD HE DO SO WITHOUT AS MUCH AS CONSIDERING THE PARTY-WISE DETAILS ON WHICH THE A.O. HAS HIMSELF COMMENTED UPO N. WE ACCORDINGLY DO NOT FIND MUCH MERIT IN THE SAID DENIAL, WHICH DISCRETION IS TO BE JUDICIALLY EXERCISED BY THE FIRST 3 ITA NO. 1864/MUM/2011 (A.Y. 2006-07) PAN INDIA NETWORK INFRAVEST PVT. LTD. VS. ADDL. CIT APPELLATE AUTHORITY, WHO ENJOY POWERS WIDER THAN AN ORDINARY COURT OF APPEAL (REFER: PRABHAVATI S. SHAH V. CIT [1998] 231 ITR 1 (BOM). 3.2 THE DETAIL FURNISHED (PB PG.10) LISTS 59 PARTIE S, OF WHICH, BARRING THREE, I.E., FOR RS.990/-; RS.52/-; AND RS.2,08,842/-, STAND CATEGOR IZED IN ITS ACCOUNTS BY THE ASSESSEE AS CANCELLED, SIGNIFYING THEIR STATUS. TRUE, AS CLAR IFIED BY THE HONBLE JURISDICTIONAL HIGH COURT IN OMAN INTERNATIONAL BANK SAOG (SUPRA), THE WRITE OFF MUST BE GENUINE, AND THE A.O. COULD FOR GOOD REASONS HOLD IT AS NOT BONA FIDE , DISALLOWING THE CLAIM. THIS IN FACT REPRESENTS TRITE LAW IN-AS-MUCH AS THERE IS NO QUES TION OF A CLAIM WHICH IS NOT GENUINE AS BEING EVEN CONSIDERED FOR DEDUCTION UNDER LAW, WHIC H IS PREMISED ON IT BEING A GENUINE CLAIM. HOWEVER, WE ARE UNABLE TO FATHOM AS TO ON WH AT BASIS DOES THE REVENUE INFERS NON-GENUINENESS WITH REGARD TO THE CLAIM QUA 56 PARTIES, AGGREGATING TO RS.24,95,027/- ; THE SAME HAVING BEEN EXPLAINED AS IRRECOVERABLE FRO M RETAIL CUSTOMERS (OF LOTTERIES) AFTER ADJUSTING THEIR DEPOSITS. APPARENT IS REAL UNLESS S HOWN OTHERWISE, AND THE ONUS TO SHOW WHICH IS ON THE PERSON WHO SO ALLEGES. IN THE ABSEN CE OF AS MUCH AS A WHISPER, MUCH LESS MATERIAL, FOR THE REVENUE TO REGARD THE ASSESSEES CLAIM AS NOT BONA FIDE , THE CONTENTION OF IT BEING NOT GENUINE CANNOT BE ACCEPTED. WE, ACC ORDINGLY, DIRECT ALLOWANCE OF THE ASSESSEES CLAIM TO THAT EXTENT. THE ASSESSEE CONCEDED ITS CLAIM QUA DEBTS FROM TWO PARTIES FOR A TOTAL OF RS.1,042/-, WHICH EVEN OTHERWISE ARE SHOWN TO HAVE ACTIVE STATUS PER THE ASSESSEES ACCOUNTS. THE SAME IS, THEREFORE, CONFIRMED FOR DIS ALLOWANCE. COMING TO THE BALANCE CLAIM OF RS.2,08,842/-, THE S AME STANDS EXPLAINED BY THE ASSESSEE BEFORE THE LD. CIT(A) (VIDE REPLY TO REMAN D REPORT SUBMITTED ON 11.08.2010/PB PGS.56-57), TO BE ON ACCOUNT OF EXCESS REDEMPTION I N RESPECT OF LOTTERY PLAYWIN WHICH COULD BE PLAYED THROUGH ITZ CARD; THE WINNER (ITZ) CARDHOLDER BEING ABLE TO REDEEM HIS PRIZE MONEY AT ANY PLAYWIN OUTLET. HOWEVER, DUE TO A DECIMAL PROBLEM IN THE COMPUTER SYSTEM, A HIGHER PRIZE WAS ALLOWED TO THE WINNER/S, WHICH COULD NOT BE RECOUPED BY THE ASSESSEE FROM ITZ. THE SAME, CLEARLY, IS IN THE NAT URE OF BUSINESS LOSS, ALLOWABLE IN THE YEAR IN WHICH IT STANDS INCURRED. THE DETAILS OF RE DEMPTION FURNISHED (PB PGS.58-59) 4 ITA NO. 1864/MUM/2011 (A.Y. 2006-07) PAN INDIA NETWORK INFRAVEST PVT. LTD. VS. ADDL. CIT REVEAL A CLAIM OF RS.2,49,342/- ARISING FOR THE CUR RENT YEAR. THE SAME IN FACT EXCEEDS THE AMOUNT BEING CLAIMED. HOW COULD THAT BE ? IN ANY CASE, THERE BEING NO EXAMINATION AND, CONSEQUENTLY, FINDING IN THE MATTER BY THE AUTHORIT IES BELOW, THE ISSUE QUA THE DEDUCTIBILITY OF CLAIM FOR RS.2,08,842/- FOR THE CU RRENT YEAR IS RESTORED BACK TO THE FILE OF THE A.O., TO BE DECIDED IN ACCORDANCE WITH THE LAW, ISSUING DEFINITE FINDINGS OF FACT AFTER HEARING THE ASSESSEE. WE DECIDE ACCORDINGLY. 4. THE SECOND GROUND IS TOWARD DISALLOWANCE OF THE CLAIM QUA EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND (PF). THE SAME H AVING BEEN DEPOSITED, FOR EIGHT (8) MONTHS OF THE RELEVANT PREVIOUS YEAR, BEYOND THE PR ESCRIBED TIME, THE SAME STOOD DISALLOWED U/S.36(1)(VA) R/W.S. 2(24)(X) OF THE ACT . THE SAME STOOD CONFIRMED IN APPEAL; THE DECISION IN CIT VS. ALOM EXTRUSIONS LTD. [2009] 319 ITR 306 (SC) BEING U/S.43B; THE APEX COURT HAVING ITSELF CLARIFIED THAT THE DEDUCTI ON QUA EMPLOYERS CONTRIBUTION IS NOT COVERED BY SECTION 36(1)(VA). 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF JT. CIT V. ITC LTD . [2008] 112 ITD 57 (AT 102, 103) (KOL) (SB) HAS CLARIFIED THAT SECTION 43B IS ONLY IN RESP ECT OF EMPLOYERS CONTRIBUTION TO THE RELEVANT FUND/S AND NOT THE EMPLOYEES CONTRIBUTION . THE DEDUCTION QUA THE EMPLOYEES CONTRIBUTION STANDS SQUARELY COVERED BY SECTION 36( 1)(VA) R/W.S. 2(24), SO THAT THE DECISION BY THE APEX COURT IN THE CASE OF ALOM EXTRUSIONS LTD. (SUPRA) WOULD NOT APPLY, EVEN AS CLARIFIED BY THE TRIBUNAL PER IT IS AT LENG TH DECISION IN THE CASE OF ITO V . LKP SECURITIES LTD. [2013] 36 CCH 093 (MUM). FURTHER, THE MATTER HAS A GAIN BEEN CLARIFIED BY THE HONBLE COURTS, AS IN THE CASE OF CIT VS. GUJARAT STATE ROAD TRANSPORT CORPORATION [ 2014] 41 TAXMANN.COM 100 (GUJ), AFTER CONSIDERING J UDICIAL PRECEDENTS. ALSO, THE ASSESSEES CLAIM FOR THE GRACE PERIOD OF FIVE DAYS, I.E., BEYOND THE DUE DATE OF THE 15 TH OF THE FOLLOWING MONTH (AS PER SECTION 38 OF THE E MPLOYEES PROVIDENT FUND SCHEME, 1952) BE TAKEN INTO ACCOUNT, WHICH STOOD NO T ACCEPTED BY THE A.O., WOULD BE TO NO MOMENT AS WE FIND (FROM THE DETAILS SPECIFIED AT PG. 4 OF THE ASSESSMENT ORDER) ALL THE 5 ITA NO. 1864/MUM/2011 (A.Y. 2006-07) PAN INDIA NETWORK INFRAVEST PVT. LTD. VS. ADDL. CIT IMPUGNED PAYMENTS TO BE MADE AFTER 20 TH OF THE FOLLOWING MONTH. WE, ACCORDINGLY, CONFIRM THE DISALLOWANCE. WE DECIDE ACCORDINGLY. 6. THE ASSESSEES THIRD AND FINAL GROUND IS TOWARD DISALLOWANCE OF RS.52,61,234/-, COMPRISED OF INTEREST (RS.49,13,538/-) AND EXPENDIT URE (RS.3,47,705/-), U/S.14A OF THE ACT, MADE WITH REFERENCE TO INVESTMENT IN SHARES OF COMPANIES AND MUTUAL FUND UNITS. THE DISALLOWANCE STOOD EFFECTED BY THE A.O. AT THE IMPUGNED AMOUNT BY APPLYING RULE 8D; THE ASSESSEE HAVING EARNED DIVIDEND INCOME AT R S.2,70,982/- FOR THE YEAR, CLAIMED EXEMPT UNDER CHAPTER III OF THE ACT. IN APPEAL, THE LD. CIT(A) FOUND THAT THE INVESTMENT S HAD BEEN MADE FROM A COMMON POOL OF FUNDS, SO THAT THE ASSESSEE COULD NO T EXHIBIT THE INVESTMENT AS HAVING BEEN SOURCED ONLY FROM THE INTEREST-FREE FUNDS. HE, HOWEVER, PROPOSED A WEIGHTED AVERAGE FORMULA FOR APPORTIONING THE INTEREST CLAIM AS WELL AS ESTIMATING THE EXPENDITURE AT 0.5% OF THE AVERAGE INVESTMENT OBTAINING DURING THE YEAR. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 7. BEFORE US, IT WAS CONTENDED BY THE ASSESSEE WITH REFERENCE TO ITS BALANCE-SHEET THAT THE INVESTMENT IN SHARES IS IN ITS FOREIGN SUBSIDI ARY/S, WHICH DID NOT ENTAIL ANY EXPENDITURE ON MANAGEMENT, BEING POLICY DRIVEN. FUR THER, THE INVESTMENT EVEN ON TAXABLE MUTUAL FUNDS HAS BEEN INCLUDED. THE LD. DEPARTMENTA L REPRESENTATIVE (DR) RELIED ON THE IMPUGNED ORDER. 8. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE OBSERVE THAT IT CANNOT BE, IN VIEW OF THE AVERAG E FORMULA PROPOSED BY THE LD. CIT(A), SAID THAT RULE 8D HAD BEEN APPLIED, WHICH I S BASED ON A SIMPLE AVERAGE BETWEEN TWO DATES, I.E., THE BEGINNING AND CLOSE OF THE YEA R. IF A DIRECT NEXUS BETWEEN THE INVESTMENT AND OWN FUNDS CANNOT BE SHOWN BY THE ASS ESSEE WITH REFERENCE TO ITS ACCOUNTS, THE PRESUMPTION WOULD ONLY BE OF THE LOAN S AS FINANCING PROPORTIONATELY ALL THE ASSETS, INCLUDING ASSETS YIELDING INCOME NOT FORMIN G PART OF THE TOTAL INCOME. AT THE SAME TIME, IT MAY WELL BE THAT THE LOANS REPRESENT DEDIC ATED FUNDS, SO THAT WHERE ADEQUATE 6 ITA NO. 1864/MUM/2011 (A.Y. 2006-07) PAN INDIA NETWORK INFRAVEST PVT. LTD. VS. ADDL. CIT LEVELS OF THE RELEVANT (FINANCED) ASSETS ARE MAINTA INED DURING THE YEAR, INCLUDING THE MARGIN MONEY, THEIR FINANCING STANDS PROVED, SO THA T NO PRESUMPTION QUA PROPORTIONATE FUNDING THROUGH LOANS/BORROWED CAPITAL, OR LOANS TO THAT EXTENT, CAN HOLD. THE MATTER IS PURELY FACTUAL. THE LD. CIT(A) HAS GIVEN A CLEAR AN D SPECIFIC DIRECTION FOR APPLYING THE PROPORTIONATE FORMULA AND, FURTHER, ONLY IN RESPECT OF THE TAX FREE SECURITIES. THE ONUS TO SHOW WHICH OF ITS SECURITIES ARE TAX-FREE, I.E., IN COME FROM WHICH, WHETHER ON HOLDING OR ON TRANSFER, WOULD NOT FORM PART OF TOTAL INCOME, I S ON THE ASSESSEE. UNDER THE CIRCUMSTANCES, TO RESOLVE ALL THE AFORESA ID ISSUES, WE ONLY CONSIDER IT FIT AND PROPER THAT THE MATTER IS RESTORED BACK TO THE FILE OF THE A.O., WHO SHALL DECIDE THE SAME AFTER ALLOWING REASONABLE OPPORTUNITY OF HEARI NG TO THE ASSESSEE TO PRESENT ITS CASE. WE DECIDE ACCORDINGLY. 9. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. 1/+23451+& 60) 7 +&+8 ORDER PRONOUNCED IN THE OPEN COURT ON JULY 10, 2014 SD/- SD/- (D. MANMOHAN) (SANJAY ARORA) / VICE PRESIDENT / ACCOUNTANT MEMBER ( 9* MUMBAI; : DATED : 10.07.2014 )3 ROSHANI , SR. PS !' # $%&' ('% COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. ( ;+ < = / THE CIT(A) 4. ( ;+ / CIT - CONCERNED 5. >)?@$3+3A4 ,A4/ ( 9* / DR, ITAT, MUMBAI 6. @5B* GUARD FILE !' ) / BY ORDER, */)+ (DY./ASSTT. REGISTRAR) , ( 9* / ITAT, MUMBAI