DCIT, CHENNAI V. Dymos Lear Automotive India Pvt Ltd., Kancheepuram

ITA 1931/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8095 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-01-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 01-09-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B LAKSHMINARAYANAN IRS
• Assessee Lawyers: RAHUNATHAN SAMPATH
• Keywords: Capital asset; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 37; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , ! . ! ' # , $ #% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 1931/MDS/2015 $ & !'& / ASSESSMENT YEAR : 2008-2009 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(1) CHENNAI VS. M/S. DYMOS LEAR AUTOMOTIVE INDIA PVT. LTD, A-6 & A-7, SIPCOT INDUSTRIAL PARK, IRUNGATTUKOTTAI, SRIPRUMBUDUR TALUK, KANCHEEPURAM 602 105. [PAN AAACH 2525A ] ( / APPELLANT) ( /RESPONDENT) () * + / APPELLANT BY : SHRI. B. LAKSHMINARAYANAN, IRS, JCIT. ,-() * + /RESPONDENT BY : SHRI. RAHUNATHAN SAMPATH, ADVOCATE ' ! * . / DATE OF HEARING : 13-01-2016 /0' * . / DATE OF PRONOUNCEMENT : 03-02-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEAL FILED BY THE REVENUE IS DIRECTED AGA INST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-6, CHEN NAI DATED ITA NO. 1931/MDS/2015. :- 2 -: 27.03.2015 FOR THE ASSESSMENT YEAR 2008-2009 PASSED U/S.143(3) AND 250 OF THE INCOME TAX ACT, 1961 ( HEREIN AFTER REFERRED TO AS THE ACT). 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL:- 2.1 THE LEARNED CIT(A) ERRED IN ALLOWING ADVANCES WRITTEN OFF TO THE TUNE OF 39,37,127/- TOWARDS ADVANCES PAID TO CUSTOM HOUSE AGENT TOWARDS FREIGHT FOR A.Y.2008-09. 2.2 THE LEARNED CIT(A) ERRED IN RELYING ON THE DECISION OF THE APEX COURT IN THE CASE OF CIT VS. MYSORE SUGAR CO. LTD (1962) 46 ITR 649 (SC) AND HELD THAT ADVANCES WHICH ARE WRITTEN OFF IN THE BOO KS CAN BE CLAIMED AS REVENUE EXPENSES U/S.37(1) OF THE ACT. 2.3 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT IN THE RELIED ON DECISION, THE APEX C OURT HAS HELD THAT THE EXPENDITURE WAS NOT IN THE NATURE OF CAPITAL EXPENDITURE, WAS DEDUCTIBLE AS REVENUE EXPENDITURE. 2.4. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FA CT THAT AS PER THE ABOVE APEX COURT'S DECISION, THE EXPENDITURE IN THE NATURE OF REVENUE CAN BE ALLOWED TO BE WRITTEN OFF. IN THE INSTANT CASE, THE LEARNED CIT(A) ERRED IN ALLOWING THE ENTIRE ADVANCES TO THE TUNE OF 39,37,127/-. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S IN THE BUSINESS OF MANUFACTURING AND SALE OF AUTOMOBILE SE ATING AND INTERIOR SYSTEMS AND FILED E-RETURN OF INCOME BELATEDLY ON 1 1.03.2010 ADMITTING TOTAL INCOME OF =33,34,33850/- AND SUBSE QUENTLY THE CASE WAS PROCESSED U/S.143(1) OF THE ACT ON 23.03.2010. AS PER SCRUTINY ITA NO. 1931/MDS/2015. :- 3 -: NORMS UNDER CASS, NOTICE U/S.143(2) WAS ISSUED. IN COMPLIANCE TO NOTICES, THE ASSESSEES LD. AUTHORISED REPRESENTATI VE APPEARED FROM TIME TO TIME AND FILED VARIOUS DETAILS CALLED FOR. THE LD. ASSESSING OFFICER MADE ADDITION OF PRIOR PERIOD EXPENSES, TECHNICAL FEES, EXPENSES AND ADVANCES WRITTEN OFF. THE ISSUE IN DI SPUTE BEING THAT THE ASSESSEE HAS WRITTEN OFF =43,09,757/- AS BAD AD VANCES AND CLAIMED AS REVENUE EXPENDITURE. THE ASSESSING OFFIC ER CALLED FOR THE PROOF AND NATURE OF SUCH ADVANCES AND WHETHER THE S UCH ADVANCES WERE MADE IN THE NORMAL COURSE OF THE BUSINESS. TH E LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT AMOUNTS ARE NON-RECOV ERABLE BAD DEBTS IN RESPECT OF EMPLOYEES WHO LEFT SERVICES AND ADVAN CE FOR CUSTOMS HOUSE AGENT AND PASSED THE RESPECTIVE ENTRIES IN T HE BOOKS OF ACCOUNT. THE ASSESSING OFFICER CONSIDERED INFORMA TION ON RECORD AND MADE ADDITION OF ADVANCES WRITTEN OFF =43,09,757/- AS NO PROOF WAS SUBMITTED ALONGWITH OTHER DISALLOWANCEA AND ASSESSE D TOTAL INCOME OF =36,59,81,930/- AND RAISED DEMAND. AGGRIEVED BY TH E ORDER OF THE ASSESSING OFFICER, THE ASSESSEE FILED AN APPEAL BEF ORE THE COMMISSIONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS , THE LD. AUTHORISED REPRESENTATIVE REITERATED HIS SUBMISSIONS MADE BEFO RE THE ASSESSING OFFICER TO THE ISSUE IN PARTICULAR OF ADVANCES WRI TTEN OFF =43,09,757/-. ITA NO. 1931/MDS/2015. :- 4 -: THE ASSESSEE HAS SUBMITTED THAT ADVANCES ARE MADE I N NORMAL COURSE OF BUSINESS AND ALLOWABLE U/S.37(1) OF THE ACT. TH E SUBMISSIONS OF THE LD. AUTHORISED REPRESENTATIVE ARE CONSIDERED BY COM MISSIONER OF INCOME TAX (APPEALS) ARE AS UNDER:- 5. GROUND 9- DISALLOWANCE OF ADVANCES WRITTEN OFF AMOUNTING TO INR 43,09,575/- 5.1 DURING THE YEAR UNDER CONSIDERATION, THE COMPANY HAD WRITTEN OFF CERTAIN ADVANCES WHICH WERE NOT RECOVERABLE FROM THE PARTIES. DETAILS OF SUCH ADVANCES WRITTEN OFF ARE AS UNDER: SR. NO PARTICULARS AMOUNT (IN INR) 1 ADVANCES TO CUSTOM HOUSE AGENT TOWARDS FREIGHT 3,937, 1 27 2 ADVANCES TO EMPLOYEES TOWARDS SALARY, TRAVEL, ETC. 147,630 3 DEPOSIT WITH AMERICAN INTERNATIONAL SCHOOL 225,000 TOTAL 4,309,757 5.2 AT THE OUTSET, WE SUBMIT THAT THE AFOREMENTIONE D ADVANCES GIVEN BY THE APPELLANT REPRESENTED ADVANCE TOWARDS REVENUE EXPENDITURE AND THAT THE SAME WERE NOT GIVEN FOR THE PURPOSE OF ACQUIRING ANY CAPITAL ASSET. IT MAY BE NOTED THAT THE ADVANCES WERE GIVEN BY THE APPELLANT IN THE NORMAL COURSE OF ITS BUSINESS AND WERE INCIDENTAL TO CARRYING ON OF BUSINESS AND THEREFORE, SHOULD BE ALLOWABLE AS BUSINESS LOSS UNDER SECTION 28 OF THE ACT. 5.3 WITH REGARD TO ADVANCES GIVEN TO CUSTOM HOUSE AGENT (,CHA ') OF INR 3,937,127 AS REFERRED IN SERIAL NO. (L) ABOVE, WE HEREBY SUBMIT THAT THE APPELLANT HAD GIVEN ADVANCES TO CHA FOR CLEARANCE OF IMPORT CONSIGNMENTS ON A REGULAR BASIS. THE APPELLANT HAS ALSO DEDUCTED TAX AT SOURCE ON SUCH PAYMENT AND REMITTED THE SAME TO GOVERNMENT. THE SAID ADVANCES WERE ADJUSTED AGAINST THE SERVICE INVOICES RAISED B Y THE CHA AS AND WHEN THE INVOICES WERE RAISED. SOME OF THE INVOICES RECEIVED FROM THE CHA WERE MISPLACE D ITA NO. 1931/MDS/2015. :- 5 -: BY THE PURCHASE DEPARTMENT OF THE COMPANY. IN THE ABSENCE OF SUCH INVOICES, THE FINANCE DEPARTMENT OF THE COMPANY COULD NOT BOOK CHA EXPENSES IN THE ACCOUNTS. CONSEQUENTLY, THERE WAS A DEBIT BALANCE OF INR 3,937,127 IN THE CHA ACCOUNT STANDING IN THE BOOKS OF THE COMPANY AT THE END OF THE YEAR, WHICH COULD NOT BE TRACED TO INVOICES RAISED BY THE CHA. AS A RESULT, THE COMPANY HAD WRITTEN OF F SUCH ADVANCES. A COPY OF THE STATEMENT OF ACCOUNT FOR 'ADVANCES - OTHERS', INDICATING THE WRITE OFF OF ADVANCE AMOUNTING TO INR 3,937,127 ALONG WITH THE BREAK-UP OF ADVANCES APPEARING IN THE BALANCE SHEET AS ON 31 MARCH 2008 IS ENCLOSED AS ANNEXURE 5. IN THIS REGARD, RELIANCE HAS BEEN PLACED ON THE DECISION OF THE HON'BLE CHENNAI TRIBUNAL IN THE CAS E OF ACIT V. YUBO INVESTMENTS CO. PVT LTD (ITA NO 807/MDS/2012), WHEREIN THE HON'BLE TRIBUNAL IN ITS FACTS OF THE CASE HAS HELD THAT ADVANCE WRITTEN OFF BY THE ASSESSEE AS IRREVOCABLE IS ALLOWABLE AS BUSINESS LOSS UNDER SECTION 28 OF THE ACT. YOUR GOODSELF WOULD APPRECIATE THAT THE ADVANCES TO CHA WERE MADE IN THE NORMAL COURSE OF BUSINESS AND WERE WRITTEN OFF IN THE BOOKS AS THE SAME COULD NOT BE ADJUSTED AGAINST THE ACTUAL EXPENSES INCURRED DUE TO MISPLACEMENT OF RELEVANT INVOICES. THEREFORE, SAME SHOULD BE ALLOWED AS DEDUCTION UNDER SECTION 37 OR ALTERNATIVELY UNDER SECTION 28 OF THE ACT. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSID ERED THE DECISION OF SUPREME COURT IN THE CASE OF CIT VS. MYSORE SUGAR CO. LTD 46 ITR 649 AND THE PROVISIONS APPLICABLE FOR BAD DEBTS U/S.28 AND U/S.36(1) (VII) OF THE ACT AND DISCUSSED IN HIS ORDER AT LENG TH AND CONCLUDED THAT AMOUNT SUBJECTED TO TDS IN EARLIER YEARS AND ELIGIB LE FOR DEDUCTION FOR BAD DEBTS AND RELIED ON THE SUPREME COURT DECISION IN THE CASE OF T.R.F. LTD VS. COMMISSIONER OF INCOME TAX (2010) 3 23 ITR 397(SC ) HELD THAT AFTER 01.04.1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ITA NO. 1931/MDS/2015. :- 6 -: ESTABLISH THAT THE DEBT, IN FACT HAS BECOME IRRECOV ERABLE. IT IS ENOUGH IF THE BAD DEBTS IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. AFTER ELABORATE SUBMISSIONS AND DISCUSSI ONS BY THE LD. AUTHORISED REPRESENTATIVE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) RELYING ON THE FACTUAL SITUATION GAVE A FINDING THAT BAD DEBTS WRITTEN OFF ON ACCOUNT OF ADVANCE TO CUSTOM C LEARING AGENCIES =39,37,127/- AND ADVANCE TO THE EMPLOYEES =1,47,63 0/- IS ALLOWABLE EXPENDITURE NOT ONLY U/S.37(1) OF THE ACT BUT ALSO U/S.28 AND DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF BAD DEB TS AND PARTLY ALLOWED THE APPEAL. AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE HAS ASSAILED AN A PPEAL BEFORE THE TRIBUNAL. 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE REI TERATED HIS SUBMISSIONS THAT THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT HAS CALLED FOR THE DETAILS AND SUCH DETAILS WERE N OT PROVIDED TO THE ASSESSING OFFICER INSPITE OF GIVING SUFFICIENT TIME TO THE ASSESSEE. THE INFORMATION WHICH WAS SUBMITTED BEFORE THE COMMISS IONER OF INCOME TAX (APPEALS) IS NEITHER PUT BEFORE THE ASSESSING OFFICER FOR COMMENTS NOR AN OPPORTUNITY WAS GIVEN TO ASSESSING OFFICER TO VERIFY THE GENUINESS OF ADVANCES WRITTEN OFF. THE ASSESS EE HAS NOT PRODUCED ANY DOCUMENTS LIKE VOUCHERS, JOURNALS AND LEDGER ACCOUNTS ITA NO. 1931/MDS/2015. :- 7 -: EXTRACTS TO PROVE THE BONAFIDE CLAIM. THE LD.CIT( A) RELIED ON THE GROUNDS AND ALSO ON THE MATERIALS SUBMITTED BEFORE HIM IN THE APPELLATE PROCEEDINGS AND UNILATERALLY CONCLUDED W ITHOUT GOING INTO THE GENUINESS OF THE MATERIAL, ALLOWED THE ASSESSE ES APPEAL. THEREFORE, THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IS BAD IN LAW AND PASSED WITHOUT ANY BASIS EXCEPT ON JUDICIAL DECISIONS RELIED WHICH ARE DISTINGUISHABLE AND PLEADED FOR S ET ASIDE OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 6. CONTRA TO THE ARGUMENTS, THE LD. AUTHORISED REPRESE NTATIVE OF THE ASSESSEE REITERATED HIS SUBMISSIONS MADE BEF ORE THE ASSESSING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) AN D SUBMITTED THAT ALL THE INFORMATION SUBMITTED IN THE APPELLATE PROC EEDINGS ARE AS PER LAW. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) VERIFIED THE PROVISIONS APPLICABLE AND GRANTED RELIEF RELYING ON THE DECISIONS OF TRIBUNAL AND HIGH COURTS AND PRAYED FOR DISMISSING THE APPEAL. 7. WE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES, PERUSED THE MATERIAL ON RECORD AND ALSO JUDICIAL DECISIONS CITED. THE LD. DEPARTMENTAL REPRESENTATIVE ARGUED THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRA TO T HE LAW AND FACTS ITA NO. 1931/MDS/2015. :- 8 -: AS LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT PROVIDED DOCUMENTS FOR VERIFICATION OR CALLED FOR THE REMAND REPORT FROM THE ASSESSING OFFICER. INSPITE OF FRESH EVIDENCES AND N O OPPORTUNITY WAS PROVIDED TO THE ASSESSING OFFICER TO VERIFY THE GEN UINESS OF ADVANCES WRITTEN OFF RELATING TO CUSTOM HOUSE AGENT FOR FRE IGHT IN FINANCIAL YEAR 2008-2009. THE LD. AUTHORISED REPRESENTATIVE SUBMI TTED THAT CONSIDERING THE MAGNITUDE OF THE TURNOVER, THE AMOU NT WRITTEN OFF IS VERY MEAGER AND ALSO FURNISHED LEDGER ACCOUNTS, ST ATEMENT OF DEPOSITS FOR THE PERIOD FROM 01.04.2003 TO 31.03.20 08 WITH ENTRIES OF ADVANCES WRITTEN OFF REFLECTED IN THE ACCOUNTS STAT EMENTS. THE ASSESSING OFFICER WAS DEPRIVED OF THE DOCUMENTS AND ALSO EVIDENCES FILED BEFORE THE COMMISSIONER OF INCOME TAX (APPEAL S) AS VIOLATION OF SEC.46(1)(A) OF INCOME TAX RULES. CONSIDERING THE FACTS AND CIRCUMSTANCES AND ALSO THE FRESH EVIDENCES FILED, W E ARE OF THE OPINION THAT DISPUTED ISSUE SHOULD BE RE-EXAMINED WITH AVAI LABLE MATERIALS FILED IN APPELLATE PROCEEDINGS AND BEFORE US THEREF ORE WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S) AND RESTORE THE DISPUTED ISSUE FOR LIMITED PURPOSE TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE CLAIM AND GENUINESS OF THE TR ANSACTIONS AS PER LAW AND THE ASSESSING OFFICER SHOULD PROVIDED ADEQUATE OPPORTUNITY OF ITA NO. 1931/MDS/2015. :- 9 -: HEARING BEFORE PASSING THE ORDER ON MERITS. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON WEDNESDAY, THE 3RD DAY OF F EBRUARY, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ' # ) (G. PAVAN KUMAR) /JUDICIAL MEMBER / CHENNAI 1 / DATED:03.02.2016. KV 2 * ,$.34 54'. / COPY TO: 1 . () / APPELLANT 3. ' 6. () / CIT(A) 5. 4!9: ,$.$ / DR 2. ,-() / RESPONDENT 4. ' 6. / CIT 6. :;& < / GF