Mjunction Services Limited, Kolkata V. DCIT, Circle-8, Kolkata, Kolkata

ITA 1879/KOL/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6312 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 27-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G HANGSHING
• Assessee Lawyers: AAKASH MANSINGHKA
• Keywords: Earning of tax free income; Bad and doubtful debts
• Section: 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SHRI J.SUDHAKAR REDDY, AM & HONB LE SMT. MADHUMITA ROY, JM ] I.T.A NO. 1960/KOL/20 16 ASSESSMENT YEAR : 2011-1 2 DCIT, CIRCLE-8(1), KOLKATA -VS- M. JUNC TION SERVICES LTD. [PAN: AACCM 5881 C ] (APPELLANT) (RESPON DENT) I.T.A NO. 1879/KOL/20 16 ASSESSMENT YEAR : 2011-1 2 M. JUNCTION SERVICES LTD. -VS- DCIT, CIRCLE-8(1), KOLKATA [PAN: AACCM 5881 C ] (APPELLANT) (RESPON DENT) FOR THE DEPARTMENT : SHRI G. HANGSHING, CIT FOR THE APPELLANT : SHRI AAKASH MANSINGHKA, AR DATE OF HEARING : 28.05.2018 DATE OF PRONOUNCEMENT : 01.06.2018 ORDER PER J.SUDHAKAR REDDY, AM THESE CROSS APPEALS DIRECTED AGAINST THE ORDER OF T HE COMMISSION OF INCOME TAX(APPEALS)-2, KOLKATA PASSED U/S 250 OF TH E INCOME TAX ACT, 1961(THE ACT) FOR THE ASSESSMENT YEAR 2011-12. 2 ITA NOS.1960&1879/KOL/2016 M. JUNCTION SERVICES LTD. A.YR .2011-12 2 2.THE ASSESSEE IS A COMPANY AND IS ENGAGED ONLINE M ARKET/EXCHANGE OF STEEL AND OTHER PRODUCTS, IT CONDUCTS FORWARD AUCTIONS ONLINE AS WELL AS REVERSE AUCTION (E- SOURCING) FOR PROCUREMENT OF GOODS AND SERVICES FOR ITS CLIENTS. IT IS ALSO ENGAGED IN ORGANIZING EVENTS AND CONFERENCES AND PR OVIDING FINANCIAL SERVICES AND SELLING OF CAR THROUGH AUTO JUNCTION. THE ASS ESSEE COMPANY IS A JOINT VENTURE BETWEEN STEEL AUTHORITY OF INDIA LTD. (SAIL ) AND TATA STEEL LTD. (TISCO). 3. WE HAVE HEARD THE LD . COUNSEL FOR THE ASSESSEE MR. AAKASH MANSINGHKA AND THE LD. CIT DR MR. G. HANGSHING. THE ASSESSEE FILED TWO PAPER BOOKS AS WELL AS CHARTS. 4. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS, ORDER OF THE AUTHORITIES BELOW, CASE LAW CITED AND HELD AS FOLLOWS. 5. FIRST WE TAKE UP IN I.T.A. NO. 1879/KOL/2016 FOR AS SESSMENT YEAR 2011-12 GROUND NO. 1 IS ON THE ISSUE OF DISALLOWANCE U/S 14 A OF THE ACT READ WITH RULE 8D OF THE I.T. RULES. THE FACTS RELATING TO THE DIS ALLOWANCE ARE BROUGHT OUT AT PARA 3 PAGE 2 OF THE ASSESSMENT ORDER WHICH IS EXTR ACTED BELOW FOR THE REFERENCE: IT IS NOTED THAT THE ASSESSEE COMPANY EARNED TAX E XEMPT DIVIDEND INCOME OF RS. 3,63,33,108/- FROM ITS INVESTMENT IN UNITS OF MUTUA L FUND AND SHARES OF OTHER COMPANIES. AS PER ANNEXURE-D OF THE BALANCE SHEET, THE VALUE OF INVESTMENT ON THE FIRST DAY AND ON THE LAST DAY OF THE PREVIOUS YEAR 2010-1 1 STAND AT RS. 64,03,99,000/- AND RS. 96,13,72,000/- RESPECTIVELY, THE AVERAGE OF VAL UE OF INVESTMENT BEING RS. 80,08,85,500/-. IN THIS REGARD, IT WAS SEEN FROM TH E TAR THAT AS PER THE DETAILS OF DEDUCTION INADMISSIBLE U/S 14A OF THE INCOME TAX AC T, 1961, AN AMOUNT OF RS. 11,97,030/- WAS DETERMINED AS INADMISSIBLE. IT WAS OBSERVED THAT SUCH INADMISSIBLE AMOUNT WAS COMPUTED BY DISALLOWING 50% SALARY PAID TO SHRI DILIP KR. SINGHAL, 10% SALARY PAID TO SHRI RAJARSHI CHATTOPADHAYAY, 5% SA LARY PAID TO SHRI VINAYA VERMA AND 2% SALARY PAID TO SHRI VIRESH OBEROI WHICH WER E RS. 4,83,606/-, RS. 1,78,122/-, 3 ITA NOS.1960&1879/KOL/2016 M. JUNCTION SERVICES LTD. A.YR .2011-12 3 RS. 1,81,482/- & RS. 2,03,820/- RESPECTIVELY. FURTH ER, THERE WAS DISALLOWANCE OF RS. 1,50,000/- AS TOWARDS MISCELLANEOUS ACTIVITIES FOR SAP ENTRY STATIONERIES ETC. AS PER THE PROVISIONS OF CIRCULAR NO. 05/2013 DATED 11.02.2014 ISSUED BY THE CBDT IT IS HELD THAT THE LEGISLATIVE INTENT IS TO ALLOW ONL Y THAT EXPENDITURE WHICH IS RELATABLE TO EARNING OF INCOME AND IT THEREFORE FOLLOWS THAT THE EXPENSES WHICH ARE RELATABLE TO EARNING OF EXEMPT INCOME HAVE TO BE CONSIDERED FOR DISALLOWANCE, IRRESPECTIVE OF THE FACT WHETHER ANY SUCH INCOME HAS BEEN EARNED DURING THE FINANCIAL YEAR OR NOT. AS THE ASSESSEE DID NOT MAINTAIN ANY SEPARATE BOOKS OF ACC OUNTS FOR ACCOUNTING FOR EXPENSES INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN IT S TOTAL INCOME, THE AMOUNT OF EXPENSE ACTUALLY INCURRED CANNOT BE ASCERTAINED FROM THE AS SESSEES BOOKS OF ACCOUNTS SATISFACTORILY. ACCORDINGLY, THE PROVISIONS OF SECT ION 14A READ WITH RULE 8D OF THE ACT ARE ATTRACTED IN THE CASE OF THE ASSESSEE. 6. THE LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT T HE SATISFACTION WAS NOT RECORDED BY THE AO GIVING COGENT REASONS FOR REJECT ING THE SUO-MOTO COMPUTATION OF DISALLOWANCE U/S 14A OF THE ACT BY THE ASSESSEE. HE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE O F MAXOPP INVESTMENTS LTD. VS. CIT IN CIVIL APPEAL NO. 104 TO 109 OF 2015 JUDG MENT DATED 12.02.2018 AS WELL AS ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. REI AGRO LTD. IN G.A. NO. 3022/2013 ITAT NO. 161 OF 2013 ORDER DATED 23.12.2013, WHEREIN THE DECISION OF A BENCH OF K OLKATA TRIBUNAL IN I.T.A. NO. 1811/KOL/2016 IN THE CASE OF DCIT VS. REI AGRO LTD. WAS UPHELD , FOR THE PROPOSITION THAT COGENT REASONS HAVE TO BE RECORDED BY THE AO AS TO WHY HE IS NOT IN AGREEMENT WITH THE SUO-MOTO DISALLOWANCE MAD E BY THE ASSESSEE. 7. THE LD. DR OPPOSED THIS CONTENTIONS. HE RELIED O N THE ORDER OF THE LD. CIT(A) AND ARGUED THAT THE AO HAS RELIED ON THE CBDT CIRCU LAR AND APPLIED RULE 8D OF THE ITAT RULE. 4 ITA NOS.1960&1879/KOL/2016 M. JUNCTION SERVICES LTD. A.YR .2011-12 4 8. ON AN EXAMINATION THE ISSUE, WE FIND THAT THE HO N'BLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. SUPRA AT PARA 41 PA GE 40 WHEREIN IT HAS HELD AS FOLLOWS: HAVING REGARD TO THE LANGUAGE OF SECTION 14A(2) OF THE ACT, READ WITH RULE 8D OF THE RULES, WE ALSO MAKE IT CLEAR THAT BEFORE APPLYING T HE THEORY OF APPORTIONMENT, THE AO NEEDS TO RECORD SATISFACTION THAT HAVING REGARD TO THE KIND OF THE ASSESSEE, SUO MOTO DISALLOWANCE UNDER SECTION 14A WAS NOT CORRECT. IT WILL BE IN THOSE CASES WHERE THE ASSESSEE IN HIS RETURN HAS HIMSELF APPORTIONED BUT THE AO WAS NOT ACCEPTING THE SAID APPORTIONMENT. IN THAT EVENTUALITY, IT WILL HAVE TO RECORD ITS SATISFACTION TO THIS EFFECT. FURTHER, WHILE RECORDING SUCH A SATISFACTION, NATUR E OF LOAN TAKEN BY THE ASSESSEE FOR PURCHASING THE SHARES/MAKING THE INVESTMENT IN SHAR ES IS TO BE EXAMINED BY THE AO. THIS BENCH OF THE TRIBUNAL IN THE CASE OF REI AGRO LTD. SUPRA AT PAGE 9 HELD AS FOLLOWS: WE FIND FROM THE FACTS OF THE ABOVE CASE THAT THE AO HAS NOT EXAMINED THE ACCOUNT SO THE ASSESSEE AND THERE IS NO SATISFACTION RECORDED BY THE AO ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE AND WITHOUT THE SAME HE I NVOKED RULE 8D OF THE RULES. WHILE REJECTING THE CLIAM OF THE ASSESSEE WITH REGARD TO EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPTED INCOME, THE AO HAS TO INDICATE COGENT REASONS FOR THE SAME. THIS DECISION WAS UPHELD BY THE HONBLE HIGH COURT VIDE ITS JUDGMENT DATED 23.12.2013. 8. APPLYING THE PROPOSITION OF LAW LAID DOWN IN THE SE JUDGMENT TO THE FACTS OF THE CASE WE FIND THAT THE ASSESSING OFFICER HAS NOT GIV EN ANY COGENT REASON AS TO WHY HE IS NOT SATISFIED WITH THE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE. THE ASSESSING OFFICERS COMMENT THAT THE ASSESSEE DID N OT TO MAINTAIN SEPARATE BOOKS OF ACCOUNTS, FOR THE EXPENSES INCURRED IN RE LATION TO EARNING OF INCOME NOT INCLUDIBLE IN THE TOTAL INCOME WOULD TANTAMOU NT TO AO BEING OF THE OPINION THAT THE ASSESSEE SHOULD MAINTAIN SEPARATE BOOKS FO R THIS PURPOSE. THIS IS NOT REQUIRED AS PER LAW. THE AO HAS COMMITTED AN ERROR IN ASSUMING SO. HENCE THIS 5 ITA NOS.1960&1879/KOL/2016 M. JUNCTION SERVICES LTD. A.YR .2011-12 5 GROUND ON WHICH THE AO HAS NOT ACCEPTED THE SUO MOT U DISALLOWANCE MADE BY THE ASSESSEE U/S 14A OF THE ACT IS WRONG. THUS, AS THE ASSESSING OFFICER HAS NOT RECORDED HIS SATISFACTION BEFORE REJECTING THE SUO- MOTO DISALLOWANCE MADE BY THE ASSESSEE U/S 14A OF THE ACT, WE DELETE THIS DISALLO WANCE MADE BY THE AO UNDER RULE 8D OF THE RULES AND ALLOW GROUND NO.1 OF THE ASSESSEE. 9. GROUND NO. 2 IS ON THE ISSUE OF PROVISION FOR L EAVE ENCASHMENT. THE ASSESSEE RELIES ON THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF EXIDE INDUSTRIES LTD. VS. UNION OF INDIA REPORTED IN 292 ITR 470. AL TERNATIVELY HE SUBMITS THAT THE CLAIM MAY BE ALLOWED ON ACTUAL PAYMENT BASIS AN D THAT THE ASSESSEE PREFERS TO WITHDRAW ITS GROUND IF THE AMOUNT IS ALLOWED ON ACT UAL PAYMENT, FOR THE REASON THAT IT WOULD TAKE CONSIDERABLE TIME BEFORE THE ISS UE ATTENDS FINALITY. THE LD. DR SUBMITTED THAT THIS ISSUE IS BEING REMANDED BACK TO THE FILE OF THE AO BY THE TRIBUNAL FOR AWAITING THE JUDGMENT OF THE HON'BLE S UPREME COURT AND PASSING ORDER IN ACCORDANCE THEREOF. 10. WE SET ASIDE THIS ISSUE TO THE FILE OF THE AO T O FRESH ADJUDICATION IN ACCORDANCE WITH LAW. THE ASSESSING OFFICER MAY EITH ER WAIT FOR THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF EXIDE INDUSTRI ES LTD. SUPRA OR MAY CONSIDER THE ALTERNATIVE PLEA OF THE ASSESSEE THAT THE CLAIM BE ALLOWED ON ACTUAL PAYMENT BASIS AND IF IT IS SO DONE, THE ASSESSEE W OULD WITHDRAW ALL THE PENDING LITIGATION, FOR ALL THE YEARS, WHEREIN HE SOUGHT D EDUCTION OF THE PROVISION MADE FOR THE LEAVE ENCASHMENT. HENCE, THIS GROUND IS AL LOWED FOR STATISTICAL PURPOSES. 11. GROUND NO. 3 IS ON THE ISSUE OF DISALLOWANCE O F BAD DEBTS WRITTEN OFF. 6 ITA NOS.1960&1879/KOL/2016 M. JUNCTION SERVICES LTD. A.YR .2011-12 6 12. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PROVISION WAS MADE IN THE PROFIT AND LOSS ACCOUNT FOR THE PREVIOUS YEAR UNDER 31 ST MARCH, 2010 OF RS. 9,10,94,000/-, TOWARDS DOUBTFUL DEBTS FROM RECEIVA BLES AND THAT THIS AMOUNT ADDED BACK TO THE COMPUTATION TO THE INCOME WHILE F ILING THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09. SIMILARLY FOR FINANCIA L YEAR 31 ST MARCH, 2009 AND THE PROVISION FOR DOUBTFUL RECEIVABLES WAS MADE OF AN AMOUNT OF RS. 18,31,000/- AND THIS AMOUNT WAS ADDED BACK TO THE INCOME WHILE COMPUTING INCOME FOR THE ASSESSMENT YEAR 2009-10. FOR THE FINANCIAL YEAR 31 ST MARCH, 2010, THE ASSESSEE HAD RECEIVED PART OF THE DOUBTFUL RECEIVABLES OUT O F CLAIMS PROVIDED TO THE EARLIER YEARS AND ACCORDINGLY RS. 1,48,00,000/- WAS WRITTEN BACK AND SHOWN AS OTHER INCOME IN THE ANNUAL ACCOUNTS. WHILE COMPUTIN G INCOME FOR THE ASSESSMENT YEAR 2010-11, THIS AMOUNT WAS DEDUCTED F ROM THE INCOME, AS THE EARLIER YEAR THE PROVISIONS MADE BY THE ASSESSEE W ERE ADDED BACK TO THE INCOME. BASED ON A LETTER GIVEN BY THE RECEIVER THE ASSESSE E COMPANY CAME TO A CONCLUSION THAT THE AMOUNT IN QUESTION IS NOT RECOV ERABLE AND CONSEQUENTLY IT WROTE OFF THESE DEBTS. THE AO DID NOT ALLOW THIS CL AIM OF THE ASSESSEE ON THE GROUNDS THAT THE LOSS HAS NOT CRYSTALLIZED DURING T HE YEAR AND THAT THE ISSUE IS SUB JUDICE AND THE ASSESSEE MAY RECEIVE DAMAGES IN FUT URE, WHICH ARE YET TO BE QUANTIFIED. FURTHER THE AO STATES THAT, IT IS EVIDE NT FROM THE NOTES TO ACCOUNT AS WELL AS THE NOTE OF THE STATUTORY AUDITOR THAT THE AMOUNT IN QUESTION MAY BE RECOVERED, THOUGH IT MAY TAKE CONSIDERABLE AMOUNT O F TIME. THE LD. COUNSEL FOR THE ASSESSEE ON FACTS REFERS TO THE LETTER FROM REC EIVER AND SUBMITS THAT ON FACTS THE RECOVERY IS DOUBTFUL AND HENCE THE SAME HAS BEE N WRITTEN OFF. HE RELIED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CA SE OF TRF LTD. VS. CIT REPORTED IN 323 ITR 397 (S C). FURTHER RELIED ON TH E CERTAIN JUDGMENTS FOR THE PROPOSITION THAT, THE LIABILITY IN QUESTION CRYSTAL LIZED DURING THIS YEAR AND IS 7 ITA NOS.1960&1879/KOL/2016 M. JUNCTION SERVICES LTD. A.YR .2011-12 7 ALTERNATIVELY ALLOWABLE AS BUSINESS LOSS. THE LD. D R SUBMITTED THAT THE CONDITION AS TO WHETHER THE AMOUNT IN QUESTION HAS BEEN TAKEN INTO ACCOUNT IS NOT ADDRESSED BY THE ASSESSING OFFICER AND HENCE THE SA ME MAY BE SET ASIDE TO THE FILE OF THE AO. HE DID NOT CONTROVERT THE OTHER SUBMISSI ONS OF THE ASSESSEE. 13. WE HAVE CONSIDERED THE LETTER WRITTEN BY THE OF FICIAL RECEIVER MR. A. PAUL TO THE ASSESSEE DATED 14.02.2011 WHICH IS AT PAGE 116 OF THE PAPER BOOK. AS PER THE ORDER PASSED ON 15.05.2009 THE HONBLE JUSTICE SHRI SANJIB BANERJEE OF THE HONBLE HIGH COURT OF CALCUTTA, THE ASSESSEE RECEIV ER HAD HANDED OVER CHEQUES TO THE TUNE OF RS. 1,54,94,333/- TO THE ASSESSEE, BY WAY OF FULL AND FINAL SETTLEMENT. THE TERM FULL AND FINAL SETTLEMENT S HOWN THAT THE BALANCE AMOUNT IS NOT RECOVERABLE. FROM THE ABOVE LETTER DATED 14. 02.2011 IT IS CLEAR THAT THE ASSESSEE HAD WRITTEN OFF BAD DEBTS IN ITS ACCOUNTS BASED ON COGENT MATERIAL. ONCE THE BAD DEBT IS WRITTEN OFF, IT SHOULD BE ALLOWED AS A DEDUCTION AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. SUPRA . ON THE OBJECTION OF THE LD. CIT DR, WE FIND THAT THE ASSESSEE HAS MADE A PR OVISION FOR DOUBTFUL DEBTS IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE IN THE EARLIER ASSESSMENT YEARS AND HENCE IT IS CLEAR THAT THESE AMOUNTS WERE TAKEN INT O ACCOUNT BY THE ASSESSEE IN THE EARLIER ASSESSMENT YEARS HENCE THE CONDITIONS S PECIFIED U/S 36(1)(VII) OF THE ACT ARE SATISFIED. HENCE THIS GROUND OF THE ASSESSE E IS ALLOWED. 14. GROUND NO. 4 IS AGAINST THE LEVY OF INTEREST U/ S 234B AND 234C OF THE ACT AS LEVY OF INTEREST IS CONSEQUENTIAL. 8 ITA NOS.1960&1879/KOL/2016 M. JUNCTION SERVICES LTD. A.YR .2011-12 8 15. NOW WE TAKE UP IN I.T.A. NO. 1960/KOL/2016 THE SOLE GROUNDS OF THE REVENUE APPEAL IS ON THE IS SUE OF DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT. IN VIEW OF OUR DECI SION ON GROUND NO.1 IN THE ASSESSEES APPEAL, THIS GROUND OF THE REVENUE HAS T O BE DISMISSED. 16. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE COURT ON 01.06.2018 SD/- SD/- [MADHUMITA ROY] [ J.SUDHAKAR R EDDY] JUDICIAL MEMBER ACCOUNTANT MEMB ER DATED : 01 .06.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. DCIT, CIRCLE-8(1), KOLKATA, AAYAKAR BHAWAN, 5 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA-700069. 2. M/S M JUNCTION SERVICES LTD, 43, J.L. NEHRU ROAD , TATA CENTRE, KOLKATA-700071. 3..C.I.T.(A)- , KOLKATA 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S