The ACIT, Circle-6, Ahmedabad V. M/s. Altra Fine Gums, Ahmedabad

ITA 2053/AHD/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6769 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 29-05-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Assessee Lawyers: PF JAIN
• Keywords: Bad and doubtful debts; Capital expenditure

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE S/SHRI M.K. SHRAWAT, JM AND D.C.AGRAWAL, AM ASSTT. CIT, CIRCLE-6, AHMEDABAD. VS. M/S ALTRA FINE GUMS, PLOT NO.91/17, PHASE -1, GIDC ESTATE, VATVA, AHMEDABAD- 382 455. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI R. K. DHANESTA, DR RESPONDENT BY:- SHRI P. F. JAIN, AR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUNDS :- (1) THE LD. CIT(A)-XI, AHMEDABAD HAS ERRED IN LAW AND O N FACTS IN DELETING THE ADDITION MADE OF RS.97,000/- ON ACCOUN T OF DISALLOWANCE OF BUSINESS PROMOTION EXPENSES. (2) THE LD. CIT(A)-XI, AHMEDABAD HAS ERRED IN LAW AND O N FACTS IN DELETING THE ADDITION MADE OF RS.8,17,600/- ON ACCO UNT OF SHORT CREDIT OF EXPORT SALES. (3) THE LD. CIT(A)XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF RS.14,00,317/- ON ACC OUNT OF DISALLOWANCE OF BAD DEBTS. (4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) XI, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE AO. ITA NO.2053/AHD/2008 ASST. YEAR 2005-06 ITA NO.2053/AHD/2008 ASST. YEAR 2005-06 2 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURING OF GUAR DAL POWDER. THE AO EXAMINED THE ACCOUNTS OF THE ASS ESSEE AND MADE VARIOUS ADDITIONS. 3. THE FIRST ISSUE RELATES TO ADDITION ON ACCOUNT O F DISALLOWANCE OF BUSINESS PROMOTION EXPENSES. THE AO OBSERVED THAT D URING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS DEBITED A SUM OF RS.1,09,000/- TOWARDS BUSINESS PROMOTION EXPENSES. WHEN DETAILS W ERE EXAMINED IT WAS FOUND THAT EXPENSES WERE INCURRED FOR PROCURING ISO CERTIFICATION. THE DETAILS OF THESE EXPENSES AS SHOWN BY THE A.O. IN HIS ORDER ARE AS UNDER :- SL. NO. NAME OF THE PARTY NATURE OF PAYMENT BILL DATE AMOUNT 1 NAMAN INFOTECH CENTRE CONSULTANCY ADVANCE CHARGES 14/11/2003 20,000 2 NAMAN INFOTECH CENTRE DOCUMENT KIT CHARGES 06/12/2003 20,000 3 NAMAN INFOTECH CENTRE ISO 9001 01/01/2004 20,000 4 NAMAN INFOTECH CENTRE ISO 9001- 2000 INTERNAL AUDIT CHARGES 12/02/2004 25,000 5 TOPRANKER NET WEB MARKETING CHARGES FOR 26/09/04 TO 25/04/2005 14/09/2009 24,000 THE AO HELD THAT ABOVE EXPENSES ARE IN THE NATURE O F CAPITAL EXPENDITURE AS THERE WILL BE ENDURING BENEFIT TO THE ASSESSEE. OUT OF THE ABOVE PAYMENT A SUM OF RS.85,000/- WAS PAID TO NAMAN INFO TECH CENTRE. THEY ARE RELATING TO FY 2003-04 RELEVANT TO ASST. YEAR 2 004-05 AND, THEREFORE, CANNOT BE ALLOWED AS EXPENDITURE IN THE CURRENT YEA R. FURTHER THERE WAS A ITA NO.2053/AHD/2008 ASST. YEAR 2005-06 3 PAYMENT OF RS.24,000/- TO ONE TOPRANKER NET FOR WEB MARKETING CHARGES. THE ENTIRE EXPENDITURE RELATED TO THE PERIOD FROM 2 4.9.2004 TO 24/09/2005, THUS RELATED TO ASST. YEAR 2006-07 ALSO . HE THEREFORE, CONSIDERED HALF OF IT AS PERTAINING TO SUBSEQUENT Y EAR AND DISALLOWED THE SAME. 4. WHEN THE MATTER CAME UP BEFORE LD. CIT(A) HE ALL OWED THE CLAIM BY HOLDING THAT PAYMENT MADE BY THE ASSESSEE IS CO NSULTANCY CHARGE IN RESPECT OF CERTIFICATION WORK AND THE SAME ARE NOT IN THE NATURE OF CAPITAL EXPENDITURE SINCE NO ASSETS OF ENDURING BENEFIT HAS COME INTO EXISTENCE. FURTHER THE PAYMENT MADE TO TOPRANKER NET IS IN RES PECT OF RENEWAL CHARGES FOR SERVICES RENDERED BY THE ABOVE PARTY. A CCORDING TO THE LD. CIT(A) THEY ARE ALLOWABLE EXPENDITURE U/S 37. 5. AGAINST THIS, THE LD. DR SUBMITTED THAT LD. CIT( A) HAS PASSED A CRYPTIC ORDER AND HAS NOT GIVEN REASONING AS TO HOW THE EXPENDITURE INCURRED FOR PROCURING A CERTIFICATION WILL NOT GIV E ENDURING BENEFIT TO THE ASSESSEE. ACCORDING TO THE LD. DR IT IS LIKE PROCUR ING A GOOD WILL, A STATUS WHICH WILL GO A LONG WAY FOR IMPROVING THE BUSINESS OF THE ASSESSEE. ACCORDING TO HIM ENDURING BENEFIT DOES NOT MEAN ACQ UISITION OF TANGIBLE ASSET BUT IT WOULD ALSO MEAN AN EXPENDITURE INCURRE D FOR ACQUIRING INTANGIBLE ASSET WHICH WOULD GIVE ENDURING BENEFIT TO THE ASSESSEE. IT IS LIKE PURCHASING GOOD WILL. 6. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT PAY MENT MADE IS FOR OBTAINING CONSULTANCY AND IT IS NOT A FEE FOR ACTUA L CERTIFICATION. EVEN OTHERWISE NO ASSET AS SUCH HAS BEEN ACQUIRED BY THE ASSESSEE. 7. WE HAVE HEARD THE PARTIES. IN OUR CONSIDERED VIE W THE ISSUE HAS NOT BEEN EXAMINED PROPERLY (I) WHETHER ASSESSEE HAS A CTUALLY OBTAINED ITA NO.2053/AHD/2008 ASST. YEAR 2005-06 4 CERTIFICATION FROM ISO AND (II) HOW MUCH WAS THE CO NSULTANCY CHARGES AND HOW MUCH WAS THE ACTUAL FEES PAID TO THE INSTIT UTE IN RESPECT OF CERTIFICATION. BOTH ITEMS WILL HAVE DIFFERENT NATUR E. PAYMENT MADE TO EXPERT FOR OBTAINING CONSULTANCY WOULD BE REVENUE E XPENDITURE. IF THE CERTIFICATE OBTAINED IS FOR A LIMITED PERIOD THEN I T CANNOT BE SAID THAT ENDURING BENEFIT HAS BEEN DERIVED. THEREFORE, SUCH PAYMENT WOULD ALSO BE REVENUE IN NATURE, EXCEPT WHERE LIFE TIME CERTIF ICATION IS OBTAINED THEN EXPENDITURE INCURRED WOULD BE CAPITAL IN NATURE. TH E AO WOULD OBTAIN NECESSARY DOCUMENT FROM THE ASSESSEE AND RE-DECIDE THE ISSUE. SO FAR AS DISALLOWANCE OF RS.12,000/- IS CONCERNED WE UPHOLD THE ORDER OF LD. AO AS THIS PERTAINED TO ASST. YEAR 2006-07 AND CANNOT BE ALLOWED IN ASST. YEAR 2005-06. ACCORDINGLY, THIS GROUND OF REVENUE I S ALLOWED FOR STATISTICAL PURPOSES. 8. THE SECOND ISSUE IS ABOUT SHORT CREDIT OF EXPORT SALES. THE AO FOUND THAT ASSESSEE HAS CREDITED SALES BY RS.8,72,5 7,617/- WHEREAS EXPORT AMOUNT RECEIVED WAS RS.8,80,75,217/-. THE DIFFERENC E WAS NOT EXPLAINED AND HENCE THE AO SOUGHT TO MAKE THE ADDITION BUT AC TUALLY NO SUCH ADDITION WAS MADE. 9. THE LD. CIT(A) HELD THAT THE DIFFERENCE WAS A SA LES RETURN WHICH THE AO FAILED TO CONSIDER. 10. THE LD. DR SUBMITTED THAT NOT MAKING ADDITION I S A MISTAKE WHICH THE AO CAN RECTIFY. THE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE TO SHOW THAT RS.8,17,600/- WAS SALES RETURN. THE LD. CIT(A) DELETED THE ADDITION WITHOUT BRINGING ANY EVIDENCE ON RECORD. 11. WE HAVE HEARD THE PARTIES. IN OUR CONSIDERED VI EW, THE ASSESSEE SHOULD PRODUCE NECESSARY EVIDENCE SUCH AS COPY OF A CCOUNTS AND INVOICES ITA NO.2053/AHD/2008 ASST. YEAR 2005-06 5 TO SHOW THAT SUM OF RS.8,17,600/- IS SALES RETURN. HE SHOULD RECONCILE THE DIFFERENCE PROPERLY. THE ISSUE IS ACCORDINGLY RESTO RED TO THE FILE OF AO FOR VERIFICATION AND GIVING OPPORTUNITY TO THE ASSESSEE . THIS GROUND OF REVENUE IS ALLOWED BUT FOR STATISTICAL PURPOSES. 12. THE THIRD ISSUE RELATES TO CLAIM OF BAD DEBTS O F RS.14,00,317/-. IT WAS EXPLAINED TO THE AO THAT ASSESSEE HAD SOLD GOOD S TO M/S ORIENTAL COMMODITIES LTD., UK DURING EARLIER YEARS. THE SAID COMPANY IS A BIG CLIENT OF THE ASSESSEE. THE OUTSTANDING SUM OF RS.1 4,00,317/- WAS NOT REMITTED BY THAT COMPANY EVEN THOUGH LONG CORRESPON DENCES HAD TAKEN PLACE. IT WAS ALSO EXPLAINED THAT GUAR DAL WAS SOLD AT HIGHER PRICE TO THAT PARTY WHEREAS SUBSEQUENTLY INTERNATIONAL PRICE DROP PED AND THAT PARTY WAS NOT ABLE TO SELL THE PRODUCT AT THE PRICE AT WH ICH ASSESSEE HAD SOLD THE GOODS TO IT. IT WAS ALSO EXPLAINED TO THE AO THAT A SSESSEE COULD NOT HAVE TAKEN THE GOODS BACK FROM THAT PARTY AS IT WOULD HA VE INVOLVED HEAVY COSTS. ACCORDINGLY, THE AMOUNT WAS WRITTEN OFF. THE AO DID NOT AGREE AND MADE THE ADDITION WHICH WAS DELETED BY LD. CIT( A). 13. WE HAVE HEARD THE PARTIES. IN OUR CONSIDERED VI EW, THE CLAIM OF THE ASSESSEE IS ALLOWABLE IN VIEW OF THE DECISION OF HO N. SUPREME COURT IN TRF LTD. VS. CIT 323 ITR 397 (SC). HOWEVER, IT HAS TO BE ONLY SEEN WHETHER THE ABOVE SUM HAS BEEN CREDITED IN THE TRAD ING ACCOUNT IN ANY EARLIER YEAR. IF THE SAME HAS BEEN CREDITED IN THE TRADING ACCOUNT THEN ON WRITING IT OFF THE CLAIM IS ALLOWABLE AS BAD DEBT I N VIEW OF THE ABOVE DECISION OF HON. SUPREME COURT. WITH THIS OBSERVATI ON, FOR THE LIMITED PURPOSE WE RESTORE THE MATTER TO THE FILE OF AO. ITA NO.2053/AHD/2008 ASST. YEAR 2005-06 6 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 4/5/11. SD/- SD/- (M. K. SHRAWAT) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 4/5/11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 18/4/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 29/4/ 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..