Asstt. Commissioner of Income Tax -6, Kanpur V. M/s. Super House Leather.Ltd., Kanpur

ITA 213/LKW/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9061 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 26-11-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 24-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P K KAPOOR
• Keywords: Depreciation; Business expenditure; Bad and doubtful debts

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.213/LKW/2012 ASSESSMENT YEAR:2004 - 05 M/S SUPER HOUSE LEATHER LTD., 150 FT. ROAD, JAJMAU, KANPUR. PAN:AABCS9328K VS A.C.I.T. - 6, KANPUR. (RESPONDENT) (APPELLANT) SHRI AMIT NIGAM, D. R. APPELLANT BY SHRI P. K. KAPOOR, C.A. RESPONDENT BY 26/11/2014 DATE OF HEARING 13 /01/2015 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, A.M. THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT(A) - I, KANPUR DATED 2 7/01/2012 FOR THE ASSESSMENT YEAR 2004 - 2005. 2. GROUND NO. 1 IS AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.1,75,000/ - MADE ON ACCOUNT OF AD HOC DISALLOWANCE OF FOREIGN TRAVELING WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE'S MAIN BUSINESS OF EXPORT OF LEATHER AND LEATHER PRODUCTS AND CLAIM PERTAINING TO FOREIGN TRAVELING HAS BEEN CLAIMED AND A LLOWED IN THE PAST. IN THIS CONTEXT THE ASSESSEE SOME VOUCHERS WERE PRODUCED BEFORE THE AO PERTAINING TO FOREIGN TRAVELING BUT FACTS THE BUSINESS EXPEDIENCY FOR TOUR COULD NOT BE ASCERTAINED FROM SUCH VOUCHERS. 3. LEARNED D. R. OF THE REVENUE SUPPORTED T HE ASSESSMENT ORDER WHEREAS LEARNED A. R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). 2 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE WAS DECIDED BY CIT(A) AS PER PARA 5.2 OF HIS ORDER, WHICH IS REPRODUCED BELOW FOR THE S AKE OF READY REFERENCE: - 5.2 I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, THE REASONING OF THE AO AND THE SUBMISSIONS OF THE APPELLANT THROUGH THE LD. A.R., RELEVANT PART OF WHICH HAS BEEN REPRODUCED ABOVE. THE ADDITIONS MADE BY THE AO ARE OF AD HOC NATURE. EVEN A, SINGLE VOUCHER HAS NOT BEEN POINTED OUT BY THE AO WHICH WAS EITHER UNVERIFIABLE OR WHICH INDICATED THE IMPUGNED EXPENDITURE AS A NON - BUSINESS EXPENDITURE. ACCORDINGLY, THIS GROUND NO 3 OF APPEAL IS ALLOWED AND ADDITION OF RS.1,75 ,000/ - IS DELETED. 5. WE FIND THAT IN THE ABOVE PARA , A CLEAR FINDING IS GIVEN BY CIT(A) THAT THE ADDITION WAS MADE BY THE ASSESSING OFFICER ON AD HOC BASIS AND NOT EVEN A SINGLE VOUCHER HAS BEEN POINTED OUT BY THE AO WHICH WAS EITHER UNVERIFIABLE OR WHICH INDICATED THE IMPUGNED EXPENDITURE AS A NON - BUSINESS EXPENDITURE. THESE FINDINGS OF CIT(A) COULD NOT BE CONTROVERTED BY LEARNED D.R. OF THE REVENUE. UNDER THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO INFIRMITY IN THE ORDER OF CIT( A) ON THIS ISSUE BECAUSE IN THE ABSENCE OF SOME SPECIFIC DEFECTS HAVING BEEN POINTED OUT BY THE A.O. IN THE EVIDENCE BROUGHT ON RECORD BY THE ASSESSEE IN SUPPORT OF THE CLAIM OF THE ASSESSEE REGARDING EXPENDITURE INCURRED ON ACCOUNT OF FOREIGN TRAVELLING, AD HOC DISALLOWANCE MADE BY THE ASSESSING OFFICER CANNOT BE SUSTAINED. HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A). GROUND NO. 1 IS REJECTED. 6. GROUND NO. 2 IS AS UNDER: 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITI ON OF RS.31,07,398/ - WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE COMPANY HAS NOT BEEN ABLE TO EXPLAIN AND GIVE EVIDENCE HOW THE DEBT IN RESPECT OF EXPORT SALES WERE DECLARED AS BAD AND WHETHER ANY STEPS WERE TAKEN TO REALIZE THE SAME. THE ASSESSEE ALSO COULD NOT FURNISH BEFORE THE ASSESSING OFFICER ANY EVIDENCE IN THE SHAPE OF CERTIFICATE OF THE RBI OR ANY OTHER BANKING 3 ORGANIZATION CERTIFYING THAT THE AMOUNT AS CLAIMED BY THE ASSESSEE HAD ACTUALLY BEEN WRITTEN OFF AND CLAIMED AS IRRECOVERABLE. SIMILARL Y IN RESPECT OF THE DOMESTIC SALES, THE ASSESSEE COULD NOT FURNISH ANY EVIDENCE TO PROVE THAT ANY EFFORTS WERE MADE BY THE ASSESSEE TO REALIZE THE BAD DEBTS AS CLAIMED. 7. LEARNED D. R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A. R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE WAS DECIDED BY CIT(A) AS PER PARA 6.2 OF HIS ORDER, WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: - 6.2 THE AO HAS DISALLOWED TOTAL BAD DEBTS AMOUNTING TO RS.31,07,398/ - , OUT OF WHICH RS.23,08,617/ - ARE ON ACCOUNT OF BAD DEBTS AGAINST EXPORTS MADE TO ONE M/S TOTECTORS LTD. U.K. AND ITS GROUP CONCERN, M/S U.K. SAFETY GROUP LTD. IT IS ALSO SEEN THAT THE GOODS EXPORTE D TO THESE CONCERNS HAVE BEEN INSURED BY THE ASSESSEE WITH THE EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD. ON PERUSAL OF LETTER ISSUED BY ECGC DATED 04.02.2004 WHICH IS CAPTIONED 'CLAIM UNDER SPECIFIC SHIPMENT IN RESPECT OF SHIPMENTS TO M/S TOTECTORS LTD. U.K.', IT IS SEEN THAT THE TOTAL BAD DEBT WHICH HAS BEEN INCURRED BY THE ASSESSEE ON THE EXPORTS MADE TO THIS PARTY IS ONLY RS.9,74,000/ - . AGAINST THIS CLAIM, ECGC HAVE PASSED A CLAIM OF RS.7,79,000/ - , THEREFORE, THERE WAS A NET BAD DEBT OF ONLY RS.1 ,94,800/ - . SIMILARLY, THERE IS A LETTER BY ECGC DATED 11.02.2004 CAPTIONED AS 'CLAIM UNDER SPECIFIC SHIPMENT IN RESPECT OF SHIPMENTS TO M/S U.K. SAFETY GROUP LTD. U.K'. IN THIS CASE, THE TOTAL ADMISSIBLE BAD DEBT THAT HAS BEEN CALCULATED IS RS.3,04,811 / - A ND THE CLAIM HAS BEEN PASSED AT 80 % AMOUNTING TO RS.2,43,849 / - THUS, THE NET LOSS ON ACCOUNT OF BAD DEBTS IN THIS CASE WOULD BE ONLY RS.60,962/ - . TOTAL BAD DEBTS FOR THIS GROUP COMES TO RS.2,55,762/ - (RS.60,962 + RS.1,94,800). THE LD A.R WAS SPECIFICALLY AS KED TO CLARIFY THE ISSUE, BUT NO CLARIFICATION WAS SUBMITTED. IN THIS VIEW OF THE MATTER, IT IS APPARENT THAT THE NET BAD DEBTS ON ACCOUNT OF EXPORTS MADE M/S TOTECTORS LTD. U.K. AND M/S U.K . S AFETY GROUP LTD. U.K WOULD BE ONLY RS.2,55,7 6 2/ - (SUPRA) INSTEA D OF THE CLAIMED AMOUNTS OF RS.23,08,617/ - . AS REGARDS OTHER BAD DEBTS CLAIMED, THESE HAVE BEEN ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNT AND THEY SATISFY THE CONDITIONS LAID DOWN IN SEC. 36(1)(VII) OF THE ACT. THE DECISION OF THE HON'BLE 4 SUPREME COURT IN THE CASE OF TRF LTD. IN THIS REGARD IS VERY CLEAR ON THE ISSUE. ACCORDINGLY, THESE BAD DEBTS ARE ALLOWED. THE A.O IS DIRECTED TO RECOMPUTE THE ALLOWABLE BAD DEBTS AS PER MY FINDINGS GIVEN ABOVE. 9. WE FIND THAT PARTY - WISE DETAILS OF BAD DEBTS ARE APPE ARING ON PAGE NO. 69 OF THE PAPER BOOK AND AS PER THE SAME, THE BAD DEBTS CLAIMED BY THE ASSESSEE ON AMOUNT OF EXPORT SALES AND ADVANCES ARE AS UNDER: I TOTECTORS LTD., U.K. 10,51,681.00 EXPORT II AMAN LEATHERS 1,78,508.00 ADVANCE III MAXMA TRADING CORPN. 2,86,637.00 EXPORT I V U. K. SAFETY GROUP LTD. 10,95,945.00 EXPORT V TOTECTORS LTD. 62,658.00 EXPORT VI K. K. NILE TRADERS 1,44,542.00 EXPORT VII U. K. SAFETY GROUP LTD. 98,333.00 EXPORT VIII K. K. NILE TRADE, UGANDA 62,154.00 EXPORT TOTAL 29 ,8 0 , 458 .00 10. THE BALANCE AMOUNT WRITTEN OFF BY THE ASSESSEE IS IN RESPECT OF DOMESTIC SALES. IN THE LIGHT OF THESE FACTS, WE NOW EXAMINE THE BASIS GIVEN BY THE ASSESSING OFFICER FOR MAKING DISALLOWANCE OF THE ASSESSEES CLAIM OF BAD DEBTS WRITTEN OFF. WE FIND THAT THE ASSESSING OFFICER HAS REJECTED THE CLAIM OF THE ASSESSEE ON THE BASIS THAT THE ASSESSEE COULD NOT FURNISH ANY EVIDENCE IN THE SHAPE OF CERTIFICATE OF THE RBI OR ANY OTHER BANKING ORGANIZATION CERTIFYING THAT THE AMOUNT CLAIMED BY THE ASSESSEE HAS BEEN WRITTEN OFF A ND CLAIMED AS IRRECOVERABLE. THIS DISALLOWANCE WAS DELETED BY CIT(A) BY MAKING THIS OBSERVATION THAT OUT OF TOTAL DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS.31,07,398/ - , RS. 23,08,617/ - ARE ON ACCOUNT OF BAD DEBTS AGAINST EXPORTS MADE TO ONE M/S TOTE CTORS LTD. U.K. AND ITS GROUP CONCERN, M/S U.K. SAFETY GROUP LTD. HE HAS ALSO OBSERVED THAT THESE EXPORTS WERE INSURED BY THE 5 ASSESSEE WITH THE EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD. AND AS PER THE LETTER ISSUED BY ECGC DATED 04.02.2004 , IT IS SEEN THAT THE TOTAL BAD DEBT WHICH HAS BEEN INCURRED BY THE ASSESSEE ON THE EXPORTS MADE TO THIS PARTY IS ONLY RS.9,74,000/ - AND A GAINST THIS CLAIM, ECGC HAVE PASSED A CLAIM OF RS.7,79,000/ - AND THEREFORE, THERE WAS A NET BAD DEBT OF ONLY RS.1,94,800/ - . THE CIT(A) HAS ALSO REFERRED TO ONE MORE LETTER OF ECGC DATED 11.02.2004 IN WHICH IT HAS BEEN STATED THAT THE TOTAL ADMISSIBLE BAD DEBT THAT HAS BEEN CALCULATED IS RS.3,04,811/ - AND THE CLAIM HAS BEEN PASSED AT 80% AMOUNTING TO RS.2,43,849/ - . THUS, THE NET LOSS ON ACCOUNT OF BAD DEBTS IN THIS CASE WOULD BE ONLY RS.60,962/ - . IT IS FURTHER NOTED THAT THE LEARNED A.R. OF THE ASSESSEE WAS SPECIFICALLY ASKED TO CLARIFY THE ISSUE, BUT NO CLARIFICATION WAS SUBMITTED. BUT THEREAFTER , HIS FINDING AND DIRECTIONS ARE NOT CLEAR AND THEREFORE, WE MODIFY HIS DIRECTIONS AND WE DIRECT THE ASSESSING OFFICER THAT AGAINST THE CLAIM OF THE ASSESSEE REGARDING EXPORT BAD DEBTS OF RS.23,08,617/ - , ONLY RS.2,55,772/ - SHOULD BE ALLOWED BEING ACTUAL BAD DEBT AFTER CONSIDERING THE CLAIM RECEIVED FROM ECGC. THIS IS SO BECAUSE WHEN THE CLAIM IS REALIZED FROM ECGC, THE DEBT REMAINING BAD TO BE WRITTEN OFF IS THIS MUCH ONLY BECAUSE NO EVIDENCE HAS BEEN PRODUCED BEFORE CIT (A) OR BEFORE US ALSO THAT EVEN AFTE R ACCOUNTING FOR THE CLAIM REALIZED FROM ECGC, REMAINING DEBT WAS MORE THAN RS. 255,772/ - . IF THE DEBT ITSELF WAS THIS MUCH, NOTHING MORE CAN BE WRITTEN OFF AND CLAIMED AS BAD DEBT. IN RESPECT OF WRITE OFF OF ADVANCE OF RS. 1,78,508.00 IN THE NAME OF AMAN LEATHERS CLAIMED TO HAVE BEEN WRITTEN OFF, DEDUCTION IS NOT ALLOWABLE U/S 36 (1) (VII). THE SAME CAN BE CLAIMED AS BUSINESS LOSS IF IT IS ESTABLISHED THAT THIS IS BUSINESS ADVANCE AND LOSS HAS OCCURRED IN THIS YEAR. SINCE NO MATERIAL IS BROUGHT ON RECORD T O SHOW THAT THIS IS BUSINESS ADVANCE AND LOSS HAS OCCURRED IN THIS YEAR, IT IS NOT ALLOWABLE AS BUSINESS LOSS ALSO. WE HOLD ACCORDINGLY. REGARDING THE BAD DEBTS IN RESPECT OF DOMESTIC SALES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) BECAUSE HE H AS SIMPLY FOLLOWED THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF TRF LIMITED. HENCE, WE PARTLY 6 APPROVE THE ORDER OF CIT(A) ON THIS ISSUE IN ABOVE MANNER . ACCORDINGLY, GROUND NO. 2 OF THE REVENUE IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE . 11. GROUND NO. 3 IS AS UNDER: 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,75,703/ - WITHOUT APPRECIATING THE FACT AND FINDING OF THE AO THAT THE ASSESSEE COMPANY EXPLAINED THAT TOTAL DEPRECIATION CLAIMED IN RESPECT OF THE PORTION OF PREMISES NO. 15/288, CIVIL LINES, KANPUR WHICH WAS BEING USED AS GUEST HOUSE AMOUNTING TO RS.6,89,256/ - WHICH WAS CLAIMED AS EXPENDITURE AND WAS INCLUDED IN THE CLAIM RELATING TO DEPRECIATION. AS IT HAS ALREADY BEEN HELD IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 2003 - 04 THAT THE DEPRECIATION RELATABLE TO THE PORTION OF PREMISES NO. 15/288, CIVIL LINES, KANPUR USED AS GUEST HOUSE WILL NOT BE ALLOWABLE AS BUSINESS EXPENDITURE. 12. LEARNED D. R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A. R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE WAS DECIDED BY CIT(A) AS PER PARA 8.2 OF HIS O RDER, WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: - 8.2 I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, THE REASONING OF THE AO AND THE SUBMISSIONS OF THE APPELLANT THROUGH LD. A.R., RELEVANT PARA OF WHICH HAS BEEN REPRODUCED ABO VE. THE PROVISIONS OF 37(3) OF THE INCOME TAX ACT, 1961 HAVE BEEN OMITTED FROM AY 1998 - 99, THEREFORE THERE IS NO LAW PROHIBITING THE EXPENDITURE INCURRED ON GUEST HOUSE, IF MAINTAINED FOR THE PURPOSE OF BUSINESS. THERE IS NO FINDING BY THE A.O. THAT THIS W AS NOT A GOVT. HOUSE OR WAS NOT USED FOR A GUEST HOUSE FOR THE PURPOSE OF BUSINESS OF THE APPELLANT. FURTHER, THE CIT(A) IN THE APPELLATE PROCEEDINGS FOR THE EARLIER YEAR IN THE APPELLANT'S OWN CASE, HAS DELETED THE ADDITION MADE; THERE BEING NO DIFFERENCE IN FACTS IN THIS YEAR, THE ADDITION OF RS.2,75,703/ - IS HEREBY DELETED. 13.1 FROM THE ABOVE PARA FROM THE ORDER OF CIT(A), IT IS SEEN THAT HIS DECISION IS ON THE BASIS THAT THE P ROVISIONS OF 37(3) OF THE INCOME TAX ACT, 1961 HAVE BEEN OMITTED FROM AY 19 98 - 99 AND THEREFORE , THERE IS NO LAW PROHIBITING THE 7 EXPENDITURE INCURRED ON GUEST HOUSE, IF MAINTAINED FOR THE PURPOSE OF BUSINESS. THE CIT(A) HAS ALSO GIVEN A FINDING THAT THERE IS NO FINDING GIVEN BY THE ASSESSING OFFICER THAT GUEST HOUSE WAS NOT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THIS FINDING OF CIT(A) COULD NOT BE CONTROVERTED BY LEARNED D.R. OF THE REVENUE. HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE. GROUND NO. 3 IS REJECTED. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 13 /01/2015. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR