The DCIT(OSD)-I, Circle-4, Ahmedabad V. Kalathia Engineering & Construction Ltd., Ahmedabad

ITA 206/AHD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80226 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 31-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 21-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: M J SHAH
• Keywords: Earning of tax free income; Bad and doubtful debts
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 206 /AHD/2013 (ASSESSMENT Y EAR: 2009-10) THE DCIT, (OSD)-1, CIRCLE- 4, AHMEDABAD V/S KALTHIA ENGINEERING AND CONSTRUCTION LTD KALTHIA HOUSE, 193, SATYAGRAHCCAVNI, S.G. HIGHWAY, BODAKDEV, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACK 8944N APPELLANT BY : SMT. SONIA KUMAR, SR. D.R. RESPONDENT BY : SHRI M.J. SHAH, A.R. ( )/ ORDER DATE OF HEARING : 31-07-201 4 DATE OF PRONOUNCEMENT : 05 -08-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF CIT(A)-VIII, AHMEDABAD DATED 10.10.2012 FOR A.Y. 2009-10. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE B USINESS OF CONSTRUCTION WORKS. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 09-10 ON 30.09.09 DECLARING TOTAL INCOME OF RS. 7,62,35,480/-. THE CA SE WAS SELECTED FOR ITA NO 206/ AHD/2013 . A.Y. 2009- 10 2 SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED 1 43(3) VIDE ORDER DATED 26.12.2011 AND THE TOTAL INCOME WAS DETERMINED AT R S. 8,93,62,750/-. AGGRIEVED BY THE ORDER OF A.O ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A). LD. CIT(A) VIDE ORDER DATED 10.10.2012 GRAN TED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD. CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED FOLLOWING EFFECTIVE GROUND S:- 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELE TING THE DISALLOWANCE MADE OF RS.1,03,21,009/- ON ACCOUNT OF BAD DEBTS WITHOUT AP PRECIATING THE FACT THAT THE BAD DEBT CLAIMED BY THE ASSESSEE PERTAIN TO KECL JV ELLORA, A JOINT VENTURE FOR WORK RELATING TO MSRDC. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN REST RICTING THE DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE U/S 14A R.W.R, 8D AND THEREBY DELETED A DDITION OF RS. RS. 15,52,448/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD MADE SU BSTANTIAL INVESTMENT IN SHARES OF THE ASSOCIATES COMPANY, FINANCING OR MONEY LENDING AND THIS INVEST MENT HAD BEEN MADE WITH THE SOLE PURPOSE OF EARNING DIVIDEND WHICH HAD BEEN MADE CLAIMED AS EXE MPT INCOME. GROUND NO. 1 IS WITH RESPECT TO DELETION OF DISALLO WANCE ON ACCOUNT OF BAD DEBTS. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAS CLAIMED RS. 1,03,21,009/- AS BAD DEBTS. IN RESPONSE TO THE QUERY OF THE A.O, ASSESSEE SUBMITTED THE DETAILS OF THE AMOUNT WRITTE N OFF AND ALSO SUBMITTED THAT IT WAS ON ACCOUNT OF VARIOUS DEDUCTIONS MADE F ROM THE INVOICES BY MRDC. IT WAS ALSO SUBMITTED THAT THE AMOUNTS WERE O FFERED TO TAX IN EARLIER YEARS. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. AS HE WAS OF THE VIEW THAT ASSESSEE WAS A SUBCONTRA CTOR FOR THE WORK OF MSRDC WHICH WAS SUB CONTRACTED TO IT BY KECL JV ELL ORA WHICH WAS A JOINT VENTURE OF THE ASSESSEE. A,O WAS OF THE VIEW THAT THE BAD DEBT OF KECL JV ELLORA ON ACCOUNT OF SHORT RECOVERY FROM MS RDC SHOULD HAVE BEEN WRITTEN OFF IN THE BOOKS OF JV AND NOT IN THE CASE OF ASSESSEE. HE THEREFORE DISALLOWED THE CLAIM OF BAD DEBTS. AGGRIE VED BY THE ORDER OF A.O, ITA NO 206/ AHD/2013 . A.Y. 2009- 10 3 ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A). LD. CIT(A) DELETED THE ADDITION BY HOLDING AS UNDER:- 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE. THE AO HAS DISALLOWED AN AMOUNT OF RS.1,03,21,009/- AS BA D DEBTS AS AO HAS OBSERVED THAT IF THERE IS ANY BAD DEBT OF THE J OINT VENTURE KECL JV ELLORA ON ACCOUNT OF SHORT REC OVERY FROM THE PRINCIPAL MSRDC, THE SAME IS TO BE WRITTEN OFF IN T HE ACCOUNT BOOKS OF THE SAID JOINT VENTURE ONLY AND ITS PARTNERS HAVE NOTHING TO DO WITH THE SAID BAD DEBT AS FAR AS TAXA BILITY OF THEIR OWN INCOME IS CONCERNED. THE APPELL ANT HAS SUBMITTED THAT THE ASSESSING OFFICER COMPLETELY OVERLOOKED TH E FACT THAT THE ASSESSEE COMPANY IS A SUB-CONTRACTO R AND THE INVOICES WHICH ARE RAISED IN THE NAME OF KECL J.V. ELLORA, WHO IN TURN, RAISES THE SAME AMOUNT OF BILL TO MSRDC. THE SAID AMOUNT IS NOT RECEIVED BY THE ASSESSEE COMPANY THOUGH IT HAD ALREADY OFFERED THE FULL AMOUNT FOR TAX AND THE DEPARTMENT HAS BEEN PLEASED TO TAX THE ASSESSEE COM PANY ON THE FULL AMOUNT OFFERED BY IT AS ITS ACCRUE D INCOME. THE ASSESSEE SUBMITS THAT IT HAS FULFILLED ALL THE REQU IREMENTS U/S.36(1)(VII) FOR CLAIMING THE SAID AMOUN T OF RS. 1,03,21,009/- AS BAD DEBT AND IT CANNOT BE DISALLOW ED ON THE BASIS THAT THE CONTRACT IS BETWEEN KECL J .V. ELLORA AND MSRDC, OVERLOOKING THE FACT THAT THE ASSESSEE COMPA NY IS A SUB-CONTRACTOR WHO RAISED ITS OWN INVOICES FOR THE WORK DONE AND GETS PAID FOR THE SAME. IT IS AN UNDISPUTED FACT THAT THESE MONEYS HAVE NOT BEEN REC EIVED BY THE ASSESSEE COMPANY, AND HENCE, IT OUGHT TO BE ALLOWED AS BAD D EBT CLAIMED BY THE ASSESSEE COMPANY AND FOR THIS PR OPOSAL, IT RELIES ON THE LATEST SUPREME COURT DECISION IN CASE OF T.R.F. LIMITED VS. CIT REPORTED IN 323 ITR 397 WHEREIN THE HON'BLE SUPREME COURT HAS LAID DOWN AS FOLLOWS: 'AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE I NCOME-TAX ACT, 1961, WITH EFFECT FROM APRIL 1, 1989 , IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT TH E DEBT, IN FACT, HAS BECOME IRRECOVERABLE: IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE.' IN VIEW OF THE ABOVE DISCUSSION, IT APPEARS THAT IT HAS FULFILLED ALL THE REQUIREMENTS U/S.36(1)(VII) FOR CLAIMING THE SAID AMOUNT OF RS.1 ,03,21,009/- AS BAD DEBT AND IT CANN OT BE DISALLOWED ON THE BASIS THAT THE CONTRACT IS BETWEEN KECL J.V. ELLORA AND MSRDC, OVERLOOKING THE FACT THAT TH E ASSESSEE COMPANY IS A SUB-CONTRACTOR WHO RAISES I TS OWN INVOICES FOR THE WORK DONE AND GETS PAID FOR THE SA ME. THE APPELLANT HAS DEMONSTRATED THE TREATMENT OF THE ENTRIES AS IS BEING MAINTAINED REGULARLY IN THE BOOKS OF ACCOUNTS . IN VIEW OF THE ABOVE DISCUSSION AND IN VIEW OF TH E LATEST SUPREME COURT DECISION IN CASE OF T.R.F. LIMITED VS. CIT RE PORTED IN 323 ITR 397, THE CLAIM OF THE APPELLANT O F THE BAD DEBTS IS ALLOWABLE. THE AO IS DIRECTED TO DELETE THE ADDITIO N OF RS. 1,03,21,009/-. 5. AGGRIEVED BY THE ORDER OF LD. CIT(A) REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US, LD. D.R. RELIED ON THE ORDER OF A.O AND ALSO PLACED RELIANCE ON THE DECISION IN THE CASE KASHMIR TRADING CO. VS. DCIT 2 91 ITR 228 (RAJ.) ON THE OTHER HAND LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. LD. CIT(A). HE THUS SUPPORTED THE ORDER OF LD. CIT( A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS ABOUT DISALLOWANCE OF DEDUCTION AS BAD DEBTS. WE FIND THAT LD. CIT(A) VIDE DELETING THE AD DITION HAS NOTED THAT ASSESSEE HAS FULFILLED ALL THE REQUIREMENTS U/S. 36 (1)(VII) FOR CLAIMING THE AMOUNT AS BAD DEBTS. HE FURTHER RELYING ON THE DECI SION HONBLE APEX COURT IN THE CASE OF TRF LTD. VS. CIT REPORTED IN 323 ITR 397 ALLOWED THE CLAIM OF ASSESSEE. BEFORE US REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO ITA NO 206/ AHD/2013 . A.Y. 2009- 10 4 CONTROVERT THE FINDINGS OF LD. CIT(A). WE FURTHER F IND THAT THE DECISION RELIED UPON BY LD. D.R. ARE DISTINGUISHABLE ON FACTS AND D O NOT APPLY TO THE PRESENT CASE. IN VIEW OF THESE FACTS WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) THUS THIS GROUND OF REVENUE IS DISMISSED . 2 ND GROUND IS WITH RESPECT TO DELETION OF ADDITION U/S 14A OF THE ACT. 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS A.O NOT ICED THAT ASSESSEE HAD MADE INVESTMENT IN SHARES. HE ALSO NOTICED THAT ASS ESSEE WAS IN RECEIPT OF EXEMPT INCOME AND NO SEPARATE ACCOUNT HAS BEEN MAIN TAINED IN REGARD TO EXEMPT INCOME. HE ALSO NOTICED THAT NO DETAILS WERE FURNISHED BY THE ASSESSEE TO DEMONSTRATE THAT ASSESSEE HAS MAINTAINE D SEPARATE ACCOUNTS OF INTEREST BEARING AND NON INTEREST BEARING FUNDS UTI LIZED FOR INVESTMENT. HE WAS OF THE VIEW THAT THE FUNDS ONCE PUT IN BUSINESS GETS INTERMINGLED AND IS NOT POSSIBLE TO KEEP THE FUNDS SEGREGATED AND THUS IN THE ABSENCE OF ANY SPECIFIC DETAILS OF SOURCE OF INVESTMENT IN SHARES, HE WAS OF THE VIEW THAT IT COULD BE INFERRED THAT ASSESSEE HAS INVESTED INTERE ST BEARING FUNDS IN MAKING INVESTMENT IN SHARES. HE THEREFORE THE WORK ED OUT THE DISALLOWANCE U/S. 14A AND DISALLOWED RS. 22,32,577/-. AGGRIEVED BY THE ORDER OF A.O ASSESSEE CARRIED THE MATTER BEFORE CIT(A) CIT(A) AF TER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE GRANTED PARTIAL RELIEF TO THE ASSESSEE BY FOLLOWING THE DECISION IN ASSESSEE OWN CASE FOR A.Y . 08-09 BY HOLDING AS UNDER:- 4.3. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND T HE SUBMISSION OF THE APPELLANT. THE AO HAS DISALLOW ED AN AMOUNT OF RS. 22,32,577/- UNDER SECTION 14A OF T HE INCOME TAX ACT, 1961. THE ASSESSING OFFICER HAS APPLIED RULE 8D OF THE INCOME TAX RULES, 1962 R.W.S . 14A OF THE INCOME TAX ACT, 1961. THE AR HAS SUBMITTED THAT IT IS PERTINENT TO NOTE FROM THE LAN GUAGE OF SECTION 14A SUB-SECTION (2) AND SUB-SECTIO N (3) THAT THE PRESCRIBED RULE 8D CAN BE INVOKED ONLY WHE N THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE HAVING REG ARD TO THE ACCOUNTS OF THE ASSESSEE. THE DECISION O N THE IDENTICAL FACTS IN EARLIER YEAR(AY-08-09)HAS BEEN T AKEN BY THE UNDERSIGNED VIDE ORDER NO.CIT(A)- VIII/ADDLCIT/R.4/711/10-11 DATED 03/01/2012. THE RE LEVANT PART IS REPRODUCED AS UNDER: ITA NO 206/ AHD/2013 . A.Y. 2009- 10 5 'THE ASSESSING OFFICER ACCEPTS THAT IN THE EARLIER YEARS THE HON'BLE C.I.T.(APPEALS) HAS DECIDED THE I SSUE OF SPARE FUNDS BEING AVAILABLE WITH THE ASSESSEE IN FA VOUR OF THE ASSESSEE BUT IT DOES NOT TAKE THAT IN T O CONSIDERATION ON THE PRETEXT THAT THE DECISION OF H ON'BLE C.I.T.(APPEALS) HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND A FURTHER APPEAL HAS BEEN FILED BEFO RE THE HON'BLE I.T.A.T. ON THAT ISSUE. ALL THAT THE ASSESSEE IS TRYING TO STATE IS THAT THE ASSESSEE HA S ALWAYS HAD ENOUGH SPARE FUNDS AT ITS DISPOSAL AND THE SITUATION HAS NOT CHANGED AND IN THIS ASSESSMENT YE AR ALSO THE ASSESSEE HAS AMPLE SPARE FUNDS FROM WHI CH IT HAS INVESTED FUNDS WITH ITS SISTER CONCERN, AS H AS BEEN DEMONSTRATED HEREIN ABOVE. THE ASSESSING OF FICER IS NOT IN A POSITION TO DISLODGE THIS SUBMISSION OF THE ASSESSEE NOR IS HE IN A POSITION TO STATE THAT WHAT IS CLAIMED BY THE ASSESSEE IS NOT CORRECT HAVING REGAR D TO THE ACCOUNT OF THE ASSESSEE. AFTER GOING THROUGH THE FACTS AND THE CASE LAWS CIT ED BY THE APPELLANT, IT IS SEEN THAT AO HAS NEVER P OINTED OUT AS TO HOW THE APPELLANT HAS MADE THE INVESTMENT S FROM THE BORROWED FUNDS WHICH IS REQUIRED AS PER THE SECTION 14A OF THE IT ACT1961. ON THE CONTRARY THE APPELLANT HAS DEMONSTRATED BEFORE THE AO REGARDING THE FLOW OF FUNDS INVESTED WITH THE SISTER CONCERN. IN THE EARLIER YEAR THE C.I.T.(APPEALS) HAD DECIDE D THE ISSUE OF SPARE FUNDS BEING AVAILABLE WITH THE ASSES SEE, IN FAVOUR OF THE ASSESSEE. THE ABOVE FACTS POI NT THAT APPELLANT HAS SUFFICIENT INTEREST FREE FUNDS TO INV EST IN THE SHARES OF THE SISTER CONCERN. THEREFORE, INTEREST EXPENSES ARE NOT ATTRIBUTABLE TO THE INVESTMENTS. T HEREFORE, THE APPELLANT CASE DOES NOT CALL FOR ADDI TION U/S 14A R. W. RULE 8D(2)(II) OF THE ACT. THEREFORE, THE ADDITION MADE U/S 14A R. W. RULE 8D(2)(II) OF THE ACT OF RS. 25,45,870/- IS DELETED. HOWEVER, CONSIDERING TH E FACT THAT ADMINISTRATIVE EXPENSES ETC. WOULD HAVE BEEN INCURRED FOR THE ABOVE INVESTMENTS IN THE SHARE OF THE SISTER CONCERNS. IN VIEW OF THE ABOVE, THE ADDI TION MADE BY THE AO U/R 8D(2)(II) OF RS. 3,57,430/- IS C ONFIRMED'. FOLLOWING THE SAME RATIO OF EARLIER YEAR AS THE FAC TS FOR THIS YEAR ARE IDENTICAL, THE ADDITION MADE U /S 14A R. W. RULE 8D(2)(II) OF THE ACT OF RS. 15,52,448/- IS DELETED. HOWEVER, CONSIDERING THE FACT THAT ADMINISTRATIVE EXPENSES ETC. WOULD HAVE BEEN INCURR ED FOR THE ABOVE INVESTMENTS IN THE SHARES OF THE S ISTER CONCERNS WHICH ARE NOT DENIED BY THE APPELLANT. IN VIEW OF THE ABOVE, THE ADDITION MADE BY THE AO U/R 8D(2)(II) OF RS. 6,80,129/- IS CONFIRMED. 8. AGGRIEVED BY THE ORDER OF CIT(A) REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US LD. D.R. RELIED ON THE ORDER OF A.O. ON T HE OTHER HAND LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND CIT( A). HE FURTHER PLACED ON RECORD THE COPY OF THE BALANCE SHEET AT PAGE 17 OF THE PAPER BOOK TO DEMONSTRATE THE AVAIBILITY OF INTEREST FREE FUNDS WHICH WERE EXCESS OF INVESTMENT. HE FURTHER SUBMITTED THAT SINCE ASSESS EE WAS HAVING SUFFICIENT INTEREST FREE FUNDS WHICH WERE FAR IN EXCESS OF THE INVESTMENT AND THEREFORE RELYING ON THE DECISION IN THE CASE OF RELIANCE UTI LITIES REPORTED IN 313 ITR 340 (BOM.) SUBMITTED THAT NO DISALLOWANCE ON ACCOUN T OF INTEREST BE MADE. HE THUS SUPPORTED THE ORDER OF LD. CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, LD. A.R HAS PLACED BALANCE SHEET AND THE ISSUE IN THE PRESENT GROUND IS DISALLOWANCE U/S. 14A. ON ITS PERUSAL, IT IS SEEN THAT THE ASSESSEE ITA NO 206/ AHD/2013 . A.Y. 2009- 10 6 WAS HAVING SHAREHOLDERS FUNDS COMPRISING OF CAPITAL , RESERVES AND SURPLUS WHICH WERE FAR IN EXCESS OF THE INVESTMENT. IN THE CASE OF RELIANCE UTILITIES 313 ITR 340 (BOM) (SUPRA) THE HONBLE BOMBAY HIGH C OURT HELD THAT THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST-FREE AND OV ERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOU LD BE OUT OF THE INTEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST- FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS AND THEREFORE, INTEREST WAS DEDUCTIBLE. FURTHER LD. CIT(A) HAS ALSO GIVEN A FIN DING ABOUT AVAILABILITY OF SUFFICIENT INTEREST FREE FUNDS. WE FURTHER FIND THA T REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS O F LD. CIT(A). IN VIEW OF THESE FACTS, WE FIND NO REASON TO INTERFERE WITH TH E ORDER OF LD. CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN OPEN COURT ON 05- 08 - 2014. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHM EDABAD