Jasper Industries Private Limited, Hyderabad V. DCIT., Central Circle-2, Hyderabad, Hyderabad

ITA 1886/HYD/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6106 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 08-01-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 11-12-2014
• Court: TRIBUNAL
• Department Lawyers: M SITARAM
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Bad and doubtful debts; Capital expenditure
• Section: 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH ES A , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 1 8 86 /H YD /201 4 ASSESSMENT YEAR: 20 1 0 - 1 1 JASPER INDUSTRIES PVT. LTD., HY DERABAD [P AN: A AACJ5760M ] VS DEPUTY COMMISSIONER OF INCOME TAX , CENTRAL CIRCLE - 2 , HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P. MURALI MOHAN RAO , AR FOR REVENUE : S HRI M. SITARAM , DR DATE OF HEARING : 08 - 0 1 - 201 6 DATE OF PRONOUNCEMENT : 20 - 0 1 - 201 6 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN ASSESSEE S APPEAL AGAINST THE ORDER OF THE COM MISSIONER OF INCOME TAX ( APPEALS ) - I , HYDERABAD , DATED 2 0 - 1 0 - 201 4 . ASSESSEE HAS RAISED SIX G ROUNDS ON TWO ISSUES. ONE IS TH AT OF F OREIGN TRAVEL EXPENDITURE OF RS. 36,28,480/ - AND THE SECOND ONE IS AN AMOUNT OF RS. 2,50,19,726/ - DEBITED AS BAD DEBT, DISALLOWED TREATIN G IT AS AN ITEM OF CAPITAL EXPENDITURE . I.T.A. NO. 1 8 86 / HYD / 201 4 JASPER INDUSTRIES PVT. LTD., : - 2 - : 2. WE HAVE HEARD IN DETAIL THE ARGUMENTS OF THE LD. COUNSEL AND LD. DR AND PERUSED THE PAPER BOOKS PLACED ON RECORD INCLUDING THE WRITTEN SUBMISSIONS BY THE PARTIES. I. ISSUE OF FOREIGN TRAVEL EXPENDITURE : 3. ASSESSEE IS DEALER OF TATA MOTORS. ASSESSING OFFICER (AO) NOTICED THAT ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 36 ,28,480/ - TOWARDS FOREIGN TRAVEL EXPENDITURE. AO ASKED FOR THE DETAILS ALONG WITH THE DETAILS OF BUSINESS EXPEDIENCY. IT WAS SUBMITTED THAT SEVERAL TRIP S WERE MADE BY ITS DIRECTORS AND SHAREHOLDERS FOR EXPLOR ING THE OPPORTUNITIES ACROSS OTHER GEOGRAPHIES AND CLAIMED THAT THE SAME WERE BUSINESS RELATED. AO DID NOT ACCEPT THE CONTENTION AND POINTED OUT THAT ASSESSEE BEING A DEALER OF TATA MOTORS IS ENGAGED IN SALE OF VEHICLES IN AP AND F ROM THE VERY NATURE OF BUSINESS CARRIED ON BY ASSESSEE , IT BECOMES CLE AR THAT ITS BUSINESS OPERATION ARE CONFINED TO INDIA. THEREFORE, HE WAS OF THE OPINION THAT THE FOREIGN TRAVEL EXPENDI T URE IS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. LD. CIT(A) AGREED WITH THE OPINION OF THE AO AS ASSESSEE DID NOT JUSTIFY THE EXPENDITURE. THE CONTENTION THAT SIMILAR EXPENDITURE WAS ALLOWED IN EARLIER YEARS WAS ALSO REJECTED ON THE REASON THAT ASSESSEE DID NOT ESTABLISH ANY DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE - COMPANY. LD. CIT(A) IN FACT DIRECTED THE AO TO EXAMINE THE ISSUE IN OTHER YEARS AS WELL AND TAKE NECESSARY ACTION. AGGRIEVED, ASSESSEE RAISED THE GROUNDS. 3. 1 IT WAS THE CONTENTION OF THE LD. COUNSEL THAT ASSESSEE WAS EXPLORING THE BUSINESS DEVELOPMENT BY VISITING ABROAD AND REFER RED TO THE BULK PURCHASES OF FOREIGN COMPANIES OF ASSESSEES VEHICLES I.T.A. NO. 1 8 86 / HYD / 201 4 JASPER INDUSTRIES PVT. LTD., : - 3 - : FOR WHICH ASSESSEE HAS TO NECESSARILY GO ABROAD. IT WAS FURTHER SUBMITTED THAT THE ERSTWHILE D IRECTOR HAVE BECOME A MEMBER OF PARLIAMENT, CONSEQUENTLY, HE HAS TO RESIGN AS THE DIRECTOR OF THE COMPANY AS AN INCHARGE OF THE BUSINESS. AS HE HAS TO TRAVEL ABROAD FOR THE PU RPOSE OF BUSINESS, THEREFORE CLAIM OF EXPENDITURE OF SHAREHOLDER DID ARISE. IT WAS FURTHER SUBMITTED THAT CANVASSING OF BUSI NESS ABROAD HAS YIELDED THE BENEFITS TO THE A SSESSEE IN LATER YEARS. THEREFORE, THE ENTIRE EXPENDITURE IS FOR THE PURPOSE OF BUSINESS. 3.2 . LD. DR , HOWEVER, SUBMITTED THAT ASSESSEE DID NOT SUBMIT ANY DETAILS TO PROVE BU SINESS CONNECTION OR BUSINESS NECESSITY . ASSESSEE HAS STATED THAT PURPOSE IS TO START A NEW BUSINESS IN FOREIGN LANDS . IF THAT WERE TO BE SO, THE EXPENDITURE HAS TO BE CONSIDERED AS CAPITAL EXPENDITURE OF A NEW BUSINES S. TRIPS OF NATURE OF PERSONAL NATURE DOES NOT BIND THE COMPANY THEREFORE, CANNOT BE TREATED AS BUSINESS EXPENDIT URE U/S. 37 (1) OF THE ACT. BOTH THE PARTIES RELIED ON V ARIOUS CASE LAW IN SUPPORT OF CONTENTIONS. 4. WE HAVE CONSIDERED THE ISSUE AND EXAMINE D THE DETAILS PLACED BE FORE US. EXCEPT PLACING THE LEDGER CO PY OF THE EXPENDITURE, THERE WERE NO DETAILS OF AN Y FOREIGN TRAVEL EXPENDITURE , SO AS TO EXAMINE THE PLACES WHICH WERE VISITED, THE PERIOD OF VISIT AND AT LEAST THE NAME OF THE PERSON WHO WENT ABROAD. NO DETAILS WERE ALSO FURNISHED AB OUT THE PURPOSE OF VISIT TO A PARTICULAR COUNTRY. IN THE ABSENCE OF BA SIC DETAILS, ONE CANNOT ALLOW THE EXPENDITURE OR DISALLOW THE EXPENDITURE ON PRESUMPTIONS AND ASSUMPTIONS. THEREFORE, IN THE INTEREST OF JUSTICE, WE ARE OF THE OPINION THAT THE MATTER IS TO BE RE - EXAMINED BY THE AO , AFTER I.T.A. NO. 1 8 86 / HYD / 201 4 JASPER INDUSTRIES PVT. LTD., : - 4 - : OBTAINING THE DETAILS OF THE PERS O NS WHO VISITED ABROAD THE PLACES VISITED, THE PERIOD OF STAY, COPIES OF VISA/PASSPORT AND THE PURPOSE STATED FO R OBTAINING FOREIGN EXCHANGE, INCLUDING THE PL ACES AND MEETINGS THEY HAD AND THE BUSINESS TRANSACTED IF ANY . UNLESS THES E FACTS ARE EXAMINED, I T IS VERY DIFFICULT TO COME TO A CONCLUSION WHETHER THE EXPENDITURE IS FOR THE PURPOSE OF BUSINESS OR NOT. AO IS DIRECTED ACCORDINGLY. ASSESSEE IS DIRECTED TO FURNISH THE RELEVANT DETAILS IN ITS SUPPORT. WIT H THESE DIRECTIONS, TH E S E GROUNDS ARE CONSIDERE D ALLOWED FOR STATISTICAL PURPOSES. II. DISALLOWANCE OF CLAIM OF BAD DEBTS OF RS. 2,50,19,726/ - : 5. DURING THE ASSESSMENT PROCEEDINGS, AO NOTICED THAT AN AMOUNT OF RS. 2,50,19,726/ - WAS WRITTEN OFF AS B AD D EBT IN THE NAME OF M/S. DECCAN CONSUMER CARE PVT. LTD., (DCCPL). WHEN QUESTIONED, IT WAS SUBMITTED THAT BRK TOURISM AND TRAVELS PVT. LTD. ( BRKTT) , MERGED INTO ASSESSEE - COMPANY THROUGH THE COURT ORDER W.E.F. 01 - 04 - 2008 AND ALL THE ASSETS AND LIABILITIES WERE TRANSFERRED TO THE ASSESSEE - COMPANY, THAT BRK TT HAS STOOD AS A GUARANTOR FOR THE CASH CREDIT FACILITY TO THE EXTENT OF RS. 3 CRORES BEING ENJOYED BY M/S. DCCPL FROM UCO BANK AND SINCE DCCPL WAS NOT IN A POSITION TO RAISE ANY FUNDS TO MEET ITS OBLIGATION, UCO BANK ADVISED ASSESSEE - COMPANY TO SETTLE THE OD ACCOUNT , WHICH IT DID ON 02 - 04 - 2009 AND THE SAME WAS CLAIMED AS B AD D EBT BY ASSESSEE - COMPANY. AO HELD THAT SINCE THE SAID AMOUNT WAS PAID TO DISCHARGE THE LIABILITY OF M/S. DCCPL ON BEHALF OF BRK TT THE CLAIM CANNOT BE ALLOWED AS PER THE PROVISIONS O F SECTION 36(1)(VII) OF THE ACT. IT WAS CONTENDED THAT ANY DEBT WHICH HAS BECOME BAD AND IRRECOVERABLE, WHICH IS WRITTEN OFF IN THE P&L A/C SHALL BE ALLOWED IN THE YEAR IN WHICH IT IS ACTUALLY WRITTEN OFF AND SINCE I.T.A. NO. 1 8 86 / HYD / 201 4 JASPER INDUSTRIES PVT. LTD., : - 5 - : ASSESSEE HAS WRITTEN OFF THE ABOVE AMOUN T BEING THE LIABILITY OF THE MERGED COMPANY, IT IS ALLOWABLE AS AN EXPENDITURE. IT RELIED ON VARIOUS CASE LAW AS EXTRACTED BY THE LD. CIT(A) IN PARA 7.1. LD. CIT(A) HOWEVER, RELIED ON VARIOUS OTHER CASE LAW AND CAME TO THE CONCLUSION THAT ASSESSEE DID NO T SATISFY THE CONDITIONS SPECIFIED UNDER THE ABOVE PROVISIONS TO HOLD THAT THE DEBT CLAIMED AS B AD D EBT IS NOT A TRADING DEBT FROM THE TRADING ACTIVITY OF ASSESSEE AND THE DEBT ARISES OUT OF THE EXPANSION OF BUSINESS BY TAKING OVER ALL SUM OF OTHER CONC ERN AND I.E., IN THE CAPITAL FILED , NOT ON ACCOUNT OF REVENUE AND THIS CANNOT BE ALLOWED AS B AD D EBT. 6. LD. COUNSEL REFERRING TO VARIOUS DOCUMENTS AND CLARIFICATIONS PLACED ON RECORD, SUBMITTED THAT ORIGINALLY, BRK TOURISM AND TRAVELS PVT. LTD., HAS STOOD GUARANTEE TO M/S. DCCPL, WHICH IS ALSO A GROUP COMPANY AND CONSEQUENT TO MISAPPROPRIATION OF FUNDS IN M/S. DCCPL, IT COULD NOT REPAY THE OUTSTANDING LOAN TO BANK AND BR KTT DISCHARGED THE LIABILITY AS ITS PROPERTIES WERE PLEDGED , CONSEQUENT TO THE MER GER WITH RETROSPECTIVE DATE, THE D EBT AVAILABLE AGAINST M/S. DCCPL BECAME A DEBT OF ASSESSEE - COMPANY AND CONSIDERING THE FACT THAT NO AMOUNT CAN BE RECOVERED FROM M/S. DCCPL, ASSESSEE HAD NO OPTION THAN TO WRITE - OFF THE AMOUNT IN THE BOOKS OF ACCOUNT. THI S IS AN ALLOWABLE EXPENDI T U R E. 6.1 LD. DR, HOWEVER, SUBMITTED THAT COMPLETE DETAILS WERE NOT FURNISHED AND SUBMITTED THAT THERE IS NO QUARREL AGAINST THE PROPOSITION THAT THE SUCCESSOR IN BUSINESS WILL BE ENTITLED TO WRITE - OFF THE BAD DEBT IN THE SAME MANNER AS THE ORIGINAL ASSESSEE IS ENTITLED. BUT FOR CLAIMING SUCH LOSS/BAD DEBT, THERE SHOULD BE A DEBT INCURRED WHICH SHOULD BE IN THE PROCESS OF CARRYING ON ITS BUSINESS/TRADE DEBT. IT WAS SUBMITTED THAT IN THE PRESENT CASE, I.T.A. NO. 1 8 86 / HYD / 201 4 JASPER INDUSTRIES PVT. LTD., : - 6 - : THE PREDECESSOR COMPANY H AS NOT INCURRED THE DEBT AND THEREFORE, THE PROVISIONS OF SECTION 36(2) HAVE NOT BEEN SATISFIED. 7. AFTER CONSIDERING THE RI VAL CONTENTIONS AND PERU S ING THE DETAILS PLACED ON RECORD, WE ARE UNABLE TO COME TO A CONCLUSION WHETHER THE AMOUNT CL AIMED IS A BAD DEBT OR A LOSS. THE PROVISIONS OF ALLOWING BAD DEBT ARE ENTIRELY DIFFERENT FROM THE CLAIMS OF LOSS. A DEBT CAN BE WRITTEN OFF ONLY WHEN IT IS IN THE BOOKS AS A DEBT. WHETHER THE AMOUNT WAS A DEBT IN THE BOOKS OF ACCOUNT OF B RKTT , HAD NOT BEEN EXAMINED BY THE AO AT ALL. IN THE COURSE OF ARGUMENTS, LD. COUNSEL SUBMIT TED THAT IT WAS IN FACT BRKTT , WHICH DISCHARGE D THE LIABILITY, WHEREAS THE ORDERS OF THE AO AND CIT(A) INDICATE THAT IT IS THE ASSESSEE WHO DISCHARGED THE LIABILITY . WHETHER ORIGINALLY THE LIABILITY TO THE BANK WAS DISCHARGED BY THE ERSTWHILE BRK TT ,, BEFORE THE ORDER OF MERGER ORDER CAME FROM THE COURT OR BY THE ASSESSEE AFTER THE MERGER OF B RKTT IS NOT CLEAR. IN CASE THE AMOUNT WAS ALREADY STOOD DISCHARGED BY THE MERGED COMPANY AND DEBT AG AINST M/S. DCCPL WAS RAISED IN THE BOOKS OF ACCOUNT OF BRK TT THEN ASSESSEE MAY BE WELL WITHIN ITS RIGHTS TO WRITE OFF THE AMOUNT AS A BAD DEBT. IN CASE ASSESSEE DISCHARGE D THE LIABILITY AFTER THE COURT ORDER I.E., AFTER THE MERGER, THEN THE AMOUNT DISC HARGED CAN ONLY BE A LOSS TO ASSESSEE, THE ALLOWANCE OF WHICH IS TO BE EXAMINED NOT IN THE CONTEXT OF SECTION 36(1)(VII) , BUT UNDER THE PROVISIONS OF SECTION 28 ITSELF. WHETHER IT IS A LOSS OR BAD DEBT IS NOT CLEAR FROM THE DOCUMENTS PLACED ON RECORD. MO REOVER, THE COMPANY, M/S. DCCPL IS ALSO ASSESSED TO TAX, LIKE - WISE BRK TT ALSO WAS ASSESSED TO TAX. WHETHER GUARANTEEING IS A BUSINESS BY BRK TT SO AS TO ST AN D GUARANTEE IS NOT ASCERTAINABLE AS THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF ANY OF THE COMPAN IES ARE NOT PLACED ON RECORD. I.T.A. NO. 1 8 86 / HYD / 201 4 JASPER INDUSTRIES PVT. LTD., : - 7 - : CONSEQUENTLY, WE CANNOT CONSIDER THE ALLOWANCE OR DISALLOWANCE OF THE ABOVE AMOUNT , SIMPLY ON THE BASIS OF THE RIVAL CASE LAW PLACED BEFORE US. IN THE INTEREST OF JUSTICE, WE RESTORE THE ISSUE TO THE FILE OF THE AO TO EXAMIN E THE COMPLETE NATURE OF THE TRANSACTIONS, THE VARIOUS ENTRIES PASSED IN THE BOOKS OF ACCOUNT OF M/S. DCCPL, BRK TOURISM AND TRAVELS PVT. LTD., AND ALSO IN THE ASSESSEES BOOKS AND TO DETERMINE WHETHER THE AMOUNT IS A BAD DEBT OR LOSS AND ALSO TO EXAMINE W HETHER AMOUNT CAN BE ALLOWED AS PER THE PROVISIONS OF LAW . ASSESSEE SHOULD BE GIVEN DUE OPPORTUNITY AND ITS SUBMISSIONS SHOULD BE EXAMINED ON FACTS, THEN, THE APPLICABLE LAW MAY BE CONSIDERED FOR ALLOWING OR DISALLOWING THE AMOUNT INVOLVED. ACCORDINGLY, THE GROUND S ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JANUARY , 201 6 SD/ - SD/ - (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEM BER ACCOUNTANT MEMBER HYDERABAD, DATED 20 TH JANUARY , 201 6 TNMM COPY TO : 1. JASPER INDUSTRIES PVT. LTD., HYDERABAD. C/O. P. MURALI & CO., CHARTERED ACCOUNTANTS, 6 - 3 - 655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 2 . DEPUTY COMM ISSIONER OF INCOME TAX , CENTRAL CIRCLE - 2 , HYDERABAD. I.T.A. NO. 1 8 86 / HYD / 201 4 JASPER INDUSTRIES PVT. LTD., : - 8 - : 3 . CIT (APPEALS) - I , HYDERABAD. 4. CIT (CENTRAL) , HYDERABAD. 5 . D.R. ITAT, HYDERABAD. 6 . GUARD FILE.