M/s. Trak Services Private Ltd., New Delhi V. ACIT, New Delhi

ITA 2220/DEL/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4120 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 17-05-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 16-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIJAY VARMA
• Keywords: Bad and doubtful debts
• Section: 14A

Judgement Text

TRAK SERVICES PRIVATE LIMITED V ACIT, NEW DELHI A Y 2007 - 08 ITA NO 2220/DEL/2013 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI H.S.SIDHU , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 2220/DEL/2013 (ASSESSMENT YEAR: 2007 - 08 ) TRAK SERVICES PRIVATE LTD, B - 19, DEFENCE COLONY, NEW DELHI PAN:AAACT0911A VS. ACIT, CIRCLE - 16(1), CR BUILDING, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI GN GUPTA, ADV REVENUE BY: SHRI VIJAY VARMA, CIT DR DATE OF HEARING 16/08 /2017 DATE OF PRONOUNCEMENT 1 6 /10 /2017 O R D E R PER PRASHANT MAHARISHI, A. M. 1. THIS IS AN APPEAL FILED BY T H E ASSESSEE AGAINST THE ORDER OF THE LD CIT(A) - 19, NEW DELHI DATED 31.12.2012 FOR THE ASSESSMENT YEAR 2007 - 08. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - XIX, NEW DELHI (HEREINAFTER CALLED CIT(A) FOR THE SAKE OF BREVITY) ERRED IN CONFIRMING THE ACTION OF THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 16(1), NEW DELHI (HEREINAFTER CALLED AO FOR SHORT) IN HOLDING THAT THE ADVANCES AGGREGATING TO RS. 17,06,230/ - RECEIVED FROM THE PROSPECTIVE FRANCHISEE CONSTITUTED INCOME OF THE APPELLANT ALTHOUGH NO FORMAL AGREEMENTS WER E ENTERED INTO BETWEEN THE APPELLANT AND THE PROSPECTIVE FRANCHISEE. 2.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, CIT(A) ERRED IN NOT DELETING THE ENTIRE DISALLOWANCE OF RS. 13,63,202/ - MADE BY THE AO OUT OF TRAVELLING EXPENSES AND IN CONFIR MING THE AFORESAID DISALLOWANCE TO THE EXTENT OF RS. 10,87,204/ - DESPITE THE DECISION OF H ONBLE INCOME TAX APPELLATE TRIBUNAL, BENCH - H DATED 17.07.20 09 IN THE CASE OF THE APPELLANT FOR ASSESSMENT YEAR 2005 - 2006. TRAK SERVICES PRIVATE LIMITED V ACIT, NEW DELHI A Y 2007 - 08 ITA NO 2220/DEL/2013 2 2.2 THAT WITHOUT PREJUDICE TO THE GROUND OF APPEAL NO. 2.1 ABOVE, THE DISALLOWANCE OF RS. 10,87,204/ - IS NOT ONLY ARBITRARY AND SUBJECTIVE BUT IS HIGHLY EXCESSIVE. 3.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, CIT(A) ERRED IN NOT DELETING THE ENTIRE DISALLOWANCE OF RS. 23,57,440/ - MAD E BY THE AO OUT OF LEGAL, PROFESSIONAL AND CONSULTANCY EXPENSES AND IN CONFIRMING THE AFORESAID DISALLOWANCE TO THE EXTENT OF RS. 17,72,032/ - DESPITE THE DECISION OF HONBLE INCOME TAX APPELLATE TRIBUNAL, BENCH - H DATED 17.07.2009 IN THE CASE OF THE APPELLA NT FOR ASSESSMENT YEAR 2005 - 2006. 3.2 THAT WITHOUT PREJUDICE TO THE GROUND OF APPEAL NO. 3.1 ABOVE, THE DISALLOWANCE OF RS. 17,72,032/ - IS NOT ONLY ARBITRARY AND SUBJECTIVE BUT IS HIGHLY EXCESSIVE. 3.3 WITHOUT PREJUDICE TO THE GENERALITY OF GROUNDS OF APP EAL NO. 3.1 & 3.2 ABOVE, THE DISALLOWANCE OF RS. 17,72,032/ - UPHELD BY CIT(A) SUFFERS FROM V/ AN ARTHMATICAL INACCURACY IN AS MUCH AS THE DISALLOWANCE SHOULD HAVE ONLY BEEN RS. 49,871/ - AS PER PARA 4.7 OF THE IMPUGNED ORDER. 4.1 THAT ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE, CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE, OF RS. 9,56,393/ - MADE BY THE AO OUT OF PERSONNEL EXPENSES. 4.2 THAT WITHOUT PREJUDICE TO THE GENERALITY OF GROUND OF APPEAL NO. 4.1 ABOVE, THE DISALLOWANCE OF RS. 9,56,393/ - IS NOT ONLY ARBITRARY AND SUBJECTIVE BUT IS HIGHLY EXCESSIVE. 5.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 1,42,000/ - MADE BY THE AO U/S 14A OF THE INCOME TAX ACT, 1961. 5.2 THAT WITHOUT PREJUDICE TO THE GROUND OF APPEAL NO.5.1 ABOVE, THE DISALLOWANCE OF RS. 1,42,000/ - IS NOT ONLY ARBITRARY SUBJECTIVE BUT IS HIGHLY EXCESSIVE. 3. APPELLANT IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF FRANCHISING AND RESTAURANT CHAIN. IT FILED ITS RETURN OF IN COME DECLARING NIL INCOME BUT CLAIMING LOSS OF RS. 16425470/ 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS RECEIVED ADVANCE OF RS. 170 6230/ SHOWN BY THE ASSESSEE AS ADVANCES AND NOT INCOME. ACCORDING TO THE ASSESSING OFFICER, THIS SUM I S SHOWN IN THE BALANCE SHEET AS LIABILITY WITHOUT ROUTING THEM TO PROFIT AND LOSS ACCOUNT AND THEREFORE ACCORDING TO THE ASSESSING OFFICER IT APPEARS TO BE MECHANISM UNDER WHICH ITS REAL INCOME REMAINS UNDERSTATED TO THE EXTENT OF THIS ADVANCES WHICH ARE N OT ROUTED THROUGH PROFIT AND LOSS ACCOUNT AND THEREFORE THE ADDITION OF RS. 1706230/ - WAS MADE TO THE TOTAL INCOME OF THE TRAK SERVICES PRIVATE LIMITED V ACIT, NEW DELHI A Y 2007 - 08 ITA NO 2220/DEL/2013 3 ASSESSEE. FURTHER, THE LD. ASSESSING OFFICER MADE DISALLOWANCE OF CERTAIN EXPENDITURE FOR THE REASON THAT ACCORDING TO THE LD ASSESSIN G OFFICER THE ASSESSEE HAS FAILED TO PROVE THAT ALL THESE EXPENSES WERE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS. HENCE, A SUM OF RS. 4677035/ - WAS DISALLOWED. FURTHER, THE LD. ASSESSING OFFICER DISALLOWED RS. 70,000 A S BAD DEBTS WRITTEN OFF AS ASSESSEE COULD NOT SHOW THAT ASSESSEE HAS WRITTEN OFF THE ADVANCES WHICH HAVE FORMED PART OF THE INCOME IN EARLIER YEARS. FURTHER ASSESSEE HAS EARNED EXEMP T INCOME OF RS. 35305/ - AND THE ASSESSEE WAS ASKED TO STATE THE AMOUNT OF EXPENDITURE DISALLOWABLE UNDER SECTION 14 A OF THE INCOME TAX ACT. ASSESSEE SUBMITTED THAT IT HA S NOT INCURRED ANY SEPARATE EXPENSES RELATING TO THE EARNING OF THE DIVIDEND INCOME AND THEREFORE NO DISALLOWANCE CAN BE MADE ON ACCOUNT OF THIS SUM AND FURTHER THE ASSESSE E HAVE SUFFICIENT FUNDS TO INVEST INTO THE SHARES FROM WHICH THE DIVIDEND INCOME IS EARNED. HOWEVER, THE LD. ASSESSING OFFICER APPLYING THE PROVISIONS OF RULE 8D OF THE INCOME TAX ACT DISALLOWED A SUM OF RS. 142,000/ - UNDER SECTION 14 A OF THE INCOME TAX ACT. THEREFORE, THE ASSESSMENT UNDER SECTION 143 (3) WAS FRAMED ON 09/12/ 2009 REDUCING THE LOSS OF THE ASSESSEE TO RS. 9830 205/ . 5. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT (A PPEALS ) . THE LD. CIT (A PPEAL ) FOLLOWING THE DECISION IN A Y 2006 07, REDUCE D THE DISALLOWANCE/ ADDI TION BY THE ADVANCES REFUNDED AND THE REMAINING ADVANCES WHICH ARE NOT BEEN REFUNDED WERE ADDED TO THE TOTAL INCOME OF THE ASSESSEE WITH SOME DIRECTION . WITH RESPECT TO THE EXPENDITURE A PPLYING THE PERCENTAGE TO INCOME FRO M OPERATIONS OF THE EARLIER YEAR WITH RESPECT TO THIS YEAR GRANTED RELIEF OF RS. 2 75998 IN TRAVELLING EXPENDITURE AND RS. 5 85408 IN LEGAL AND PROFESSIONAL FEES, AND CONFIRMED THE BALANCE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER. THE DISALLOWANCE UN DER PERSONNEL EXPENDITURE WAS CONFIRMED OF RS. 9 56393/ . HE ALSO CONFIRMED THE DISALLOWANCE UNDER SECTION 14 A OF THE INCOME TAX ACT. 6. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE US. ASSESSEE SUBMITTED A PAPER BOOK WHEREIN THE VARIOUS DISALLOWANCE CONFIRME D BY THE LD. CIT (A) ARE CONTESTED. THE REVENUE RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. TRAK SERVICES PRIVATE LIMITED V ACIT, NEW DELHI A Y 2007 - 08 ITA NO 2220/DEL/2013 4 7. WE HAVE HEARD BOTH THE PARTIES AND ALSO CONSIDERED THE ORDERS PASSED BY THE LOWER AUTHORITIES. 8. WITH RESPECT TO THE ADDITION ON ACCOUNT OF RS. 1 706230/ RESPEC TIVE FROM FRANCHISEE THE LD. ASSESSING OFFICER HAS MADE THE ADDITION ON ACCOUNT OF REVENUE RECOGNITION OF THESE AMOUNT RECEIVED FROM FRANCHISEE WHEREAS THE LD. CIT (A) HAS ALLOWED THE CLAIM OF THE ASSESSEE TO THE EXTENT THAT ABOVE SUM HAS BEEN RETURNED BAC K TO THE PARTIES. ASSESSEE SUBMITTED AT PAGE NO. 72 OF THE PAPER BOOK DETAILS OF FRANCHISEE FEES RECEIVED OF RS. 1 706230, WHICH IS ALSO PART OF THE ASSESSMENT ORDER AT PAGE NO. 3, WHEREIN IT HAS BEEN STATED THAT THE AMOUNT OF RS. 5 34569/ HAS BEEN REFUND ED TO THE PARTY ON 26/09/2008, WHEREAS ALL OTHER INCOME HAVE BEEN TRANSFERRED TO THE PROFIT AND LOSS ACCOUNT ON 31/03/2009, OR FOR THE YEAR ENDED ON 31/03/2010 AND IN NONE OF THE FRANCHISEE BUSINESSES THE OPERATION HAS STARTED. THE LD. CIT APPEAL HAS HELD THAT ADVANCES WHICH ARE REFUNDED DO NOT CONSTITUTE THE APPELLANTS INCOME AND FURTHER THE ADVANCES WHICH ARE OFFERED FOR TAXATION IN SUBSEQUENT YEARS CONSTITUTE APPELLANTS INCOME WITH THE RIDER THAT THE NECESSARY RELIEF MAY BE GIVEN IN THE YEARS IN WHICH THIS AMOUNTS WOULD BE OFFERED FOR TAXATION. THE LD. CIT (A) HAS FOLLOWED HIS OWN DECISION FOR ASSESSMENT YEAR 2006 07, WHICH IS ALSO PLACED AT PAGE NO. 49 OF THE PAPER BOOK. THE LD. AUTHORIZED REPRESENTATIVE HAS NOT SUBMITTED, WHETHER THE ABOVE ORDER OF THE LD. CIT (A) HAS BEEN CONTESTED BEFORE THE HIGHER FORUM OR NOT. IN VIEW OF THIS WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT (A) IN HOLDING THAT IF THE FRANCHISEE FEES ARE RETURNED BACK TO THE DEPOSITORS THEN NO ADDITION CAN BE MADE INTO THE HANDS O F THE ASSESSEE AND FURTHER WHEN THE FRANCHISEE INCOME HAVE BEEN OFFERED FOR INCOME IN SUBSEQUENT YEARS , THEN THE AMOUNT OF INCOME CAN BE TAXED IN THIS YEAR BY GRANTING RELIEF TO THE ASSESSEE IN THE YEAR IN WHICH SUCH AMOUNT HAVE BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT. IN VIEW OF THIS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A) AND DISMISS GROUND NO. 1 OF THE APPEAL OF THE ASSESSEE. 9. GROUND NO. 2.1, 2.2 OF THE APPEAL OF THE ASSESSEE IS AGAINST THE CONFIRMATION OF THE DISALLOWANCE OF RS. 1 087204/ OUT OF THE TRAVELLING EXPENDITURE. THE ASSESSEE HAS SUBMITTED THAT SIMILAR DISALLOWANCE MADE IN THE ASSESSMENT TRAK SERVICES PRIVATE LIMITED V ACIT, NEW DELHI A Y 2007 - 08 ITA NO 2220/DEL/2013 5 YEAR 2005 06 WAS DELETED BY THE COORDINATE BENCH. FURTHER, V IDE GROUND NO. 3.1 THE DISALLOWANCE ON ACCOUNT OF PROFESSIONAL AND CONSULTANCY EXPENSES CONFIRMED BY THE LD. CIT (A) OF RS. 1 772032/ WERE ALSO CHALLENGED AND IT WAS SUBMITTED THAT SIMILAR DISALLOWANCES MADE IN THE ASSESSMENT YEAR 2005 06 WERE DELETED BY THE COORDINATE BENCH. SIMILARLY, V IDE GROUND N O. 4.1 AND 4.2 THE DISALLOWANCE ON ACCOUNT OF PERSONNEL EXPENSES OF RS. 9 56393/ CONFIRMED BY THE LD. CIT (A) ARE CONTESTED BEFORE US AND THE LD. AR HAS SUBMITTED THAT SIMILAR DISALLOWANCES HAVE BEEN DELETED BY THE COORDINATE BENCH IN ASSESSMENT YEAR 2005 06. IT WAS ALSO SUBMITTED THAT IN ASSESSMENT YEAR 2006 - 2007 , THE LD. CIT (A ) FOLLOWING THE DECISION OF THE COORDINATE BENCH HAS DELETED THE SIMILAR DISALLOWANCES MADE BY THE LD. ASSESSING OFFICER WHICH HAS NOT BEEN CHALLENGED BY THE REVENUE. IT WAS ALS O STATED THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE NATURE OF EXPENDITURE WHICH HAS BEEN INCURRED BY THE ASSESSEE. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CONTROVERT THE FINDING OF THE COORDINATE BENCH OR DISTINGUISHED THE SAME WITH THE CURRENT YEARS FACT. WE HAVE CAREFULLY CONSIDERED THE DECISION OF THE COORDINATE BENCH IN ITA NO. 50/DEL/2009 FOR ASSESSMENT YEAR 2005 06 DATED 17/07/2009 WHEREIN IDENTICAL EXPENDITURE DISALLOWED BY THE LD. ASSESSING OFFICER WERE DELET ED BY THE COORDINATE BENCH. THE LD. CIT APPEAL FOR ASSESSMENT YEAR 2006 07 HAS ALSO FOLLOWED THE SAME AND DELETED THE DISALLOWANCE MADE FOR THAT YEAR. IN VIEW OF THIS WE DO NOT FIND ANY REASON TO SUSTAIN THE DISALLOWANCE CONFIRMED BY THE LD. CIT APPEAL. IN VIEW OF THIS WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE ON ACCOUNT OF PERSONNEL EXPENDITURE , TRAVELLING EXPENSES AND PROFESSIONAL AND CONSULTANCY EXPENSES. IN VIEW OF THIS, THE ABOVE GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED. 10. GROUND NO. 3.3 OF THE APPEAL OF THE ASSESSEE HAS NOT BEEN PRESSED BEFORE US AND THEREFORE SAME IS DISMISSED. 11. GROUND NO. 5 OF THE APPEAL OF THE ASSESSEE IS AGAINST THE DISALLOWANCE UNDER SECTION 14 A OF THE INCOME TAX ACT OF RS. 1 42000/ MADE BY THE LD. ASSESSING OFFICER WHICH WAS CONFIRMED BY THE LD. CIT (A). THE LD. AUTHORIZED REPRESENTATIVE RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN TRAK SERVICES PRIVATE LIMITED V ACIT, NEW DELHI A Y 2007 - 08 ITA NO 2220/DEL/2013 6 CIT VERSUS HERO MANAGEMENT SERVICES LTD 360 ITR 68 (2014) (DELHI) ( AY 2007 - 08) STATING THAT NO SATISFACTION A S REQUIRED BY RULE 8 D HAS BEEN RECORDED BY THE ASSESSING OFFICER AND THEREFORE NO DISALLOWANCE CAN BE MADE UNDER SECTION 14 A OF THE INCOME TAX ACT. THE LD. AUTHORIZED REPRESENTATIVE FURTHER SUBMITTED THAT IN THE CASE OF THE ASSESSEE ALSO THERE IS NO SATISFA CTION REQUIRED HAVE BEEN RECORDED BY THE LD. ASSESSING OFFICER THEREFORE THERE CANNOT BE ANY DISALLOWANCE UNDER SECTION 14 A OF THE INCOME TAX ACT. HE REFERRED TO THE ASSESSMENT ORDER PASSED BY THE LD. ASSESSING OFFICERS STATING THAT THERE IS NO SATISFACT ION RECORDED BY THE LD. ASSESSING OFFICER ON THE STATEMENT OF THE ASSESSEE THAT NO EXPENDITURE HAVE BEEN INCURRED BY THE ASSESSEE AND THE AMOUNT INVESTED BY THE ASSESSEE IS OUT OF THE INTEREST - FREE FUNDS AVAILABLE WITH THE ASSESSEE. THE LD. DEPARTMENTAL RE PRESENTATIVE COULD NOT CONTROVERT THE ABOVE SUBMISSION. WE HAVE ALSO CAREFULLY CONSIDERED THE ASSESSMENT ORDER WHERE IN PARA NO. 7 OF THE ASSESSMENT ORDER WHERE THE ASSESSEE HAS STATED THAT NO SEPARATE EXPENSES RELATING TO THE EARNING OF DIVIDEND INCOME HA VE BEEN INCURRED AND THE ASSESSEE ARE SUFFICIENT FOR TO INVEST INTO THE SHARES FROM WHICH THE DIVIDEND INCOME IS EARNED. THE LD. ASSESSING OFFICER HA S MERELY STATED THAT THE CONTENTION OF THE ASSESSEE IS NOT FOUND CORRECT AS THE ASSESSEE HAS MADE INVESTMEN T OF RS. 1.54 CRORES IN THE SHARES. WE DO NOT FIND THAT ANY SATISFACTION HAS BEEN RECORDED BY THE LD. ASSESSING OFFICER AFTER EXAMINATION OF THE BOOKS OF ACCOUNT STATING THAT THE STATEMENT MADE BY THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE IS INCORR ECT. THEREFORE , RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT WE DIRECT THE LD. ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS. 1 42000/ MADE UNDER SECTION 14 A OF THE INCOME TAX ACT. IN THE RESULT GROUND NO. 5 OF THE APPEAL OF T HE ASSESSEE IS ALLOWED. 12. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 6 / 1 0/2017. - S D / - - S D / - ( H.S.SIDHU ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 6 / 1 0/2017 TRAK SERVICES PRIVATE LIMITED V ACIT, NEW DELHI A Y 2007 - 08 ITA NO 2220/DEL/2013 7 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI