Seven Seas Petroleum Pvt. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2225/CHNY/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90494 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 11-06-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 20-12-2013
• Court: TRIBUNAL
• Department Lawyers: DR B NISCHAL
• Assessee Lawyers: N DEVANATHAN
• Keywords: Depreciation
• Section: 14A; 115JB; 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , . !' , # $ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO.2225/MDS/2013 / ASSESSMENT YEAR : 2010-11 M/S SEVEN SEAS PETROLEUM PVT. LTD NO.20, CHESNEY TOWN HOUSE ETHIRAJ SALAI, CHENNAI 600008 VS. THE DY. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE VI(2) CHENNAI [PAN AABCS 5033 R ] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SHRI N. DEVANATHAN, ADVOCATE /RESPONDENT BY : DR. B. NISCHAL, JCIT / DATE OF HEARING : 11 - 0 6 - 2015 ! / DATE OF PRONOUNCEMENT : 19 - 0 6 - 2015 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER THIS APPEAL WAS DISMISSED EARLIER BY AN ORDER DA TED 29.10.2014. HOWEVER, ON THE APPLICATION FILED BY T HE ASSESSEE IN M.P.NO.165/MDS/2014, THE ORDER OF THIS TRIBUNAL DAT ED 29.10.2014 WAS RECALLED AND THE APPEAL WAS RESTORED ON RECORD. ACCORDINGLY, THE SAME WAS POSED FOR HEARING ON 11.6.2015. ITA NO.2225/13 :- 2 -: 2. SHRI N. DEVANATHAN, LD. COUNSEL FOR THE ASSESSEE SU BMITTED THAT THE FIRST ISSUE ARISES FOR CONSIDERATION IS CL AIM OF BAD DEBT TO THE EXTENT OF ` 20,98,200/-. ACCORDING TO THE LD. COUNSEL, THE A SSESSEE HAS BUSINESS TRANSACTION WITH M/S MADRAS POLYMOUNDS . M/S MADRAS POLYMOUNDS REFUSED TO PAY THE AMOUNT DUE TO THE AS SESSEE ON THE GROUND THAT THEY COULD NOT RECOVER THE SAME FROM TH EIR CUSTOMER OUTSIDE INDIA. THEREFORE, THE ASSESSEE WRITTEN OFF THE AMOUNT OUTSTANDING TO THE EXTENT OF ` 20,98,200/- IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE EVEN AFTER WRITING OFF TH E AMOUNT IN ITS BOOKS OF ACCOUNT, HAS CONTINUED BUSINESS WITH M/S M ADRAS POLYMOUNDS. EVEN AFTER WRITING OFF THE AMOUNT, THE ASSESSEE RECOVERED ` 65,84,363/-. THE ASSESSEE HAS ALSO CONTINUED ITS BUSINESS WITH M/S MADRAS POLYMOUNDS IN THE SUBSEQUE NT YEARS. THEREFORE, THE ASSESSING OFFICER FOUND THAT THE CLA IM OF THE ASSESSEE TO THE EXTENT OF ` 20,98,200/- IS NOT A BAD DEBT HENCE, IT CANNOT BE ALLOWED. ACCORDING TO THE LD. COUNSEL, WHEN THE BU YER REFUSED TO PAY THE MONEY, IT HAS NO WAY EXCEPT TO WRITE OFF THE S AME OTHERWISE THE OTHER OUTSTANDING AMOUNT COULD NOT BE RECOVERED. A CCORDING TO THE LD. COUNSEL, THIS AMOUNT WAS DUE IN RESPECT OF SUPP LY MADE BY THE ASSESSEE TO M/S MADRAS POLYMOUNDS AND IN TURN M/S M ADRAS POLYMOUNDS EXPORTED THE SAME TO THEIR CUSTOMER OUTS IDE INDIA. THE ITA NO.2225/13 :- 3 -: PAYMENT DUE TO THE ASSESSEE WAS REFUSED BY M/S MAD RAS POLYMOUNDS ON THE GROUND THAT THEY COULD NOT RECOVER THE SAME FROM FOREIGN PARTY. THEREFORE, ACCORDING TO THE LD. COUNSEL, TH E ASSESSEE HAS RIGHTLY WRITTEN OFF THE SAME AND HENCE, IT HAS TO B E ALLOWED. 3. THE NEXT GROUND, ACCORDING TO THE LD. COUNSEL, IS W ITH REGARD TO DISALLOWANCE U/S 14A. THE LD. COUNSEL SUBMITTED THAT THE ASSESSEE HAS INVESTED ITS OWN FUNDS FOR EARNING THE EXEMPTED INCOME. REFERRING TO SECTION 14A AND RULE 8D, THE LD. COUNS EL SUBMITTED THAT DISALLOWANCE HAS TO BE MADE ONLY AS PER THE FORMULA PROVIDED IN RULE 8D OF THE I.T. RULES. IN THIS CASE, THE ASSESSEE HAS BORROWED OVERDRAFT AND PAID INTEREST ON SUCH OVERDRAFT. THE INTEREST PAID ON THE OVERDRAFT CANNOT BE CONSIDERED FOR COMPUTING DISALL OWANCE UNDER RULE 8D. REFERRING TO THE JUDGMENT OF HON'BLE DELHI HIG H COURT IN THE CASE OF CIT VS MS. SUSHMA KAPOOR, 319 ITR 299, AND THAT OF HON'BLE BOMBAY HIGH COURT IN CIT VS HDFC BANK LTD, 366 ITR 505, THE LD. COUNSEL SUBMITTED THAT INTEREST ON LOAN BORROWED CA NNOT BE DISALLOWED UNDER RULE 8D. ACCORDING TO THE LD. COUNSEL, THE I NTEREST PAID BY THE ASSESSEE ON THE OVERDRAFT FACILITY CANNOT BE CONSID ERED FOR DISALLOWANCE. 4. THE LD. COUNSEL FURTHER SUBMITTED THAT THE ASSESSE E HAS ALSO RAISED ANOTHER GROUND FOR DISALLOWANCE OF CLUB EXPE NSES. THE ITA NO.2225/13 :- 4 -: ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSE SSEE ON THE GROUND THAT NO EVIDENCE WAS PRODUCED. ACCORDING TO THE LD . COUNSEL, THE ASSESSEE HAS PRODUCED BILLS AND OTHER MATERIAL BEFO RE THE ASSESSING OFFICER, THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE QUALIFY FOR DEDUCTION U/S 37 OF THE ACT. 5. THE LD. COUNSEL FURTHER SUBMITTED THAT WHILE COMPUT ING INCOME U/S 115JB OF THE ACT, THE ASSESSING OFFICE R FOUND THAT LOSS CANNOT BE REDUCED. ACCORDING TO THE LD. COUNSEL, T HE IMPAIRMENT OF ASSETS COULD NOT BE TREATED AS DEPRECIATION. 6. ON THE CONTRARY, DR.B. NISCHAL, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT IN THIS CASE, THE AS SESSEE CLAIMED AN AMOUNT OF ` 20,98,200/- AS BAD DEBT FROM M/S MADRAS POLYMOUNDS . THOUGH THE ASSESSEE CLAIMED BEFORE THE ASSESSING O FFICER THAT THE ASSESSEE HAS DISCONTINUED ITS BUSINESS WITH M/S MAD RAS POLYMOUNDS, ON ENQUIRY, THE ASSESSING OFFICER FOUND THAT THE A SSESSEE CONTINUED ITS BUSINESS WITH M/S MADRAS POLYMOUNDS. THE ASSE SSEE HAS ALSO RECOVERED ` 65,84,363/- EVEN AFTER THE AMOUNT OF ` 20,98,200/- WSA WRITTEN OFF AS BAD DEBT. ACCORDING TO THE LD. DR, THE AMOUNT HAS NOT BECOME BAD DEBT AND THEREFORE, THERE IS NO QUESTION OF ALLOWING THE SAME AS BAD DEBT. ITA NO.2225/13 :- 5 -: 7. REFERRING TO THE CLAIM OF THE ASSESSEE WITH REGARD TO EXPENDITURE FOR EARNING THE EXEMPTED INCOME, THE LD . DR SUBMITTED THAT THE ASSESSEE RECEIVED EXEMPTED INCOME TO THE EXTENT OF ` 8,90,086/-. HOWEVER, NO EXPENDITURE WAS CLAIMED. THEREFORE, THE ASSESSING OFFICER APPLIED RULE 8D AND COMPUTED THE DISALLOWANCE. 8. REFERRING TO THE CLAIM OF THE ASSESSEE WITH REGARD TO CLUB EXPENSES OF ` 40,169/-, THE LD. DR SUBMITTED THAT THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT FOREIGN D ELEGATES WERE ENTERTAINED IN MADRAS CRICKET CLUB AND COSMOPOLITAN CLUB ETC. HOWEVER, NO EVIDENCE WAS FILED TO SHOW THAT THESE E XPENSES ARE FOR BUSINESS PURPOSES. THEREFORE, THE ASSESSING OFFICE R HAS RIGHTLY DISALLOWED THE CLAIM OF THE ASSESSEE. 9. REFERRING TO THE COMPUTATION MADE U/S 115JB OF THE ACT, THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER FOUND THAT ` 75,40,905/- WAS CONSIDERED AS EXCESS CLAIM DISALLOWED. THE LD. DR FURTHER POINTED OUT THAT AS PER THE BOOKS OF ACCOUNT, THE PROFIT OF THE ASSESSEE WAS ` 89,05,442/-. WHILE MAKING ADJUSTMENT IN TERMS OF E XPLANATION 1 TO SECTION 115JB OF THE ACT, THE ASSESSEE REDUCED AN AMOUNT OF ` 89,05,442/- TOWARDS SET OFF OF BROUGHT FORWARD LOSS ES AND ULTIMATELY WORKED OUT THE TAXABLE PROFIT AT ` NIL. HOWEVER, THE ASSESSING OFFICER FOUND THAT THERE IS A DIFFERENCE IN THE BROUGHT FOR WARD LOSSES ON ITA NO.2225/13 :- 6 -: COMPARISON WITH DETAILS AVAILABLE IN FORM 3CD. SIN CE THE ASSESSEE COULD NOT RECONCILE THE DIFFERENCE, THE ASSESSING O FFICER FOUND THAT THE CLAIM OF THE ASSESSEE OF ` 89,05,442/- WAS EXCESSIVE IN TERMS OF CLAUSE (III) OF EXPLANATION 1 TO SECTION 115JB OF T HE ACT. ACCORDINGLY, THE ASSESSING OFFICER RESTRICTED THE CLAIM OF THE ASSESSEE TO ` 13,64,538/- AND DISALLOWED THE EXEMPTION CLAIMED OF ` 75,40,904/-. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT M/S MADRAS POLYMO UNDS HAS FOUR DIVISIONS. ACCORDING TO THE ASSESSEE, PAYMENT WAS NOT MADE BY M/S MADRAS POLYMOUNDS SINCE THE PAYMENT WAS NOT REC EIVED FROM THE PURCHASER. IT IS NOT IN DISPUTE THAT THE ASSESSEE SUPPLIED GOODS TO M/S MADRAS POLYMOUNDS AND THE AMOUNT IS DUE FROM M/ S MADRAS POLYMOUNDS. THE ONLY CONTENTION OF THE LD. DR IS T HAT THE ASSESSEE CONTINUED BUSINESS EVEN AFTER THE DEBT BECAME BAD A ND ALSO RECEIVED MONEY IN RESPECT OF OTHER TRANSACTIONS FROM M/S MAD RAS POLYMOUNDS. THEREFORE, THE DEPARTMENT CLAIMS THAT THE AMOUNT DU E HAS NOT BECOME BAD. THE FACT REMAINS THAT THE MATERIAL SUP PLIED BY THE ASSESSEE TO THE EXTENT OF ` 20,98,200/- REMAINS UNPAID AND M/S MADRAS POLYMOUNDS REFUSED TO PAY THE SAME ON THE GR OUND THAT THEY COULD NOT RECOVER THE SAME FROM THE PURCHASER LOCAT ED OUTSIDE INDIA. ITA NO.2225/13 :- 7 -: THEREFORE, IT IS OBVIOUS THAT THERE WAS A LOSS IN T HE COURSE OF BUSINESS TRANSACTION. ADMITTEDLY, THE ASSESSEE HAS WRITTEN OFF THE AMOUNT OF ` 20,98,200/- IN ITS BOOKS OF ACCOUNT. THE HON'BLE A PEX COURT IN THE CASE OF T.R.F. LTD VS CIT 323 ITR 397, CONSIDERED T HE SCOPE OF BAD DEBT AS EXPLAINED IN THE INCOME-TAX ACT, 1961 AND F OUND THAT ONCE THE ASSESSEE HAS WRITTEN OFF THE SAME IN ITS BOOKS, IT HAS TO BE ALLOWED. EVEN OTHERWISE, SINCE IT WAS A TRADING TRANSACTION AND THE ASSESSEE COULD NOT RECOVER THE AMOUNT SINCE M/S MADRAS POLYM OUNDS REFUSED TO PAY ON THE GROUND THAT THEY COULD NOT RECOVER FROM THEIR CUSTOMER OUTSIDE INDIA, IT HAS TO BE TREATED AS A TRADING LO SS. THEREFORE, EVEN IF IT COULD NOT BE ALLOWED AS BAD DEBT, IT HAS TO BE A LLOWED AS TRADING LOSS WHILE COMPUTING THE TAXABLE INCOME. THEREFORE, THI S TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE LOWER AUTHORITIES ARE N OT CORRECT IN DISALLOWING THE CLAIM OF THE ASSESSEE. ACCORDINGL Y, ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ADDITION MA DE OF ` 20,98,200/- IS DELETED. 11. NOW COMING TO THE DISALLOWANCE U/S 14A OF THE ACT, THERE IS NO OBJECTING FOR COMPUTING THE DISALLOWANCE UNDER R ULE 8D OF THE I.T. RULES. THE ONLY OBJECTION OF THE LD. COUNSEL IS TH AT INTEREST ON LOAN ALONE COULD BE CONSIDERED FOR DISALLOWANCE AND THE INTEREST ON OVERDRAFT FACILITY WHICH WAS AVAILED FOR EXPORTING THE GOODS IS FOR ITA NO.2225/13 :- 8 -: BUSINESS PURPOSES AND THEREFORE, CANNOT BE CONSIDER ED FOR DISALLOWANCE UNDER RULE 8D. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. THE CLAIM OF THE ASSESSEE WITH REGARD TO INTEREST ON OVERDRAFT FACILITY WAS NOT CONSIDERE D BY EITHER OF THE AUTHORITIES BELOW. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED BY THE ASS ESSING OFFICER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES A RE SET ASIDE AND THE ISSUE OF DISALLOWANCE U/S 14A IS REMITTED BACK TO T HE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL REC ONSIDER THIS ISSUE IN THE LIGHT OF THE MATERIAL AVAILABLE ON RECORD AND T HEREAFTER FIND OUT WHETHER THE INTEREST PAID BY THE ASSESSEE ON OVERD RAFT FACILITY HAS TO BE CONSIDERED FOR DISALLOWANCE UNDER RULE 8D OR NO T AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GIVING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 12. THE NEXT ISSUE IS WITH REGARD TO CLUB EXPENSES. TH E ASSESSEE CLAIMS BEFORE THE LOWER AUTHORITIES THAT A N AMOUNT OF ` 40,169/- WAS INCURRED FOR ENTERTAINING FOREIGN DELE GATES IN MADRAS CRICKET CLUB AND COSMOPOLITAN CLUB ETC. THOUGH THE ASSESSEE CLAIMS THAT EVIDENCE WAS FILED BEFORE THE LOWER AUTHORITIE S, THE CIT(A) FOUND THAT NO SUCH EVIDENCE WAS FILE. THEREFORE, THIS TR IBUNAL IS OF THE CONSIDERED OPINION THAT IF THE ASSESSEE ESTABLISHE S THAT THE ITA NO.2225/13 :- 9 -: EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINES S, IT HAS TO BE ALLOWED. THEREFORE, THIS TRIBUNAL IS OF THE CONSID ERED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED BY THE ASSESSING OF FICER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E SET ASIDE AND THE ISSUE OF CLUB EXPENSES IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RECONSIDER TH E MATTER AFRESH IN THE LIGHT OF THE MATERIAL THAT MAY BE PRODUCED BY THE ASSESSEE AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW A FTER GIVING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 13. NOW COMING TO THE DEDUCTION U/S 115JB OF THE ACT, T HE ASSESSING OFFICER DISALLOWED THE EXCESS PAYMENT TO THE EXTENT OF ` 75,40,904/- FROM THE NET PROFIT FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT. THE CIT(A) FOUND THAT THE ASSESSEE AGREED FOR THE DISALLOWANCE BY LETTER DATED 28.12.2012. THIS TRIB UNAL IS OF THE CONSIDERED OPINION THAT WHEN THE ASSESSEE AGREED F OR DISALLOWANCE BEFORE THE ASSESSING OFFICER, NO FURTHER APPEAL CAN BE ENTERTAINED. THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING O FFICER WITH REGARD TO EXCESS CLAIM OF ` 75,40,905/- IS CONFIRMED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. ITA NO.2225/13 :- 10 -: ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH OF JUNE, 2015, AT CHENNAI. SD/- SD/- ( . !' ) (A. MOHAN ALANKAMONY) # / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 19 TH JUNE, 2015 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF