IDEA LAKE INFORMATION TECHNOLOGIES P. LTD, MUMBAI V. ITO 5(2)(1), MUMBAI

ITA 2378/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7327 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 08-02-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 15-04-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS SOMOGYAN PAL
• Assessee Lawyers: VISHWAS V MEHENDALE
• Keywords: Bad and doubtful debts
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'I' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 2378/MUM/2009 (ASSESSMENT YEAR: 2005-06) M/S. IDEA LAKE INFORMATION INCOME TAX OFFICER - 5(2 )(1) TECHNOLOGIES PVT.LTD. MUMBAI R.R. HOUSE, MATHURADAS MILL COMP. VS. LOWER PAREL, MUMBAI 400013 PAN - AAACI 7536 A APPELLANT RESPONDENT APPELLANT BY: SHRI VISHWAS V. MEHENDALE RESPONDENT BY: MRS. SOMOGYAN PAL O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- V, MUMBAI DATED 03.03.2009. 2. ASSESSEE HAS RAISED 4 GROUNDS ON 2 ISSUES. GROUND N OS. 1 TO 3 PERTAIN TO ALLOWANCE OF DISCOUNT WRITTEN OFF/GIVEN TO THE CUSTOMERS DISALLOWED BY THE A.O. AT 50% BUT ENHANCED BY THE C IT(A) TO 100%. GROUND NO. 4 PERTAINS TO THE ISSUE OF DISALLOWANCE OF FORE IGN TRAVEL EXPENSES TO THE EXTENT OF 25% OF TOTAL EXPENSES. 3. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE DE BITED AN AMOUNT OF RS.12,02,066/- ON ACCOUNT OF BAD DEBT WRITTEN OF F ON DISCOUNT ALLOWED TO 12 PARTIES. THE A.O. CONSIDERED THAT ALL THE 12 PAR TIES ARE EXISTING COMPANIES AND THERE IS NO REASON FOR WRITING OFF OF THE AMOUNT AND ACCORDINGLY DISALLOWED 50% OF THE CLAIM. THE CIT(A) , AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE WHY AND HOW THE AMOUNTS ARE WRITTEN OFF CONSIDERED THAT THE AMOUNT WRITTEN OFF ARE NOT BAD DEBTS UNDER SECTION 36(1)(VII) AND THE SAME CANNOT BE ALLOWED UNDER THE PROVISIONS. HE NOT ONLY CONSIDERED THAT THE AMOUNTS DISALLOWED BY THE A.O. AT RS.6,01.033/- WAS NOT CORRECT BUT ENHANCED THE DISALLOWANCE TO THE EN TIRE AMOUNT. THE ASSESSEES CONTENTIONS ARE THAT THE AMOUNTS ARE ALL OWED AS DISCOUNT AS ITA NO. 2378/MUM/2009 M/S. IDEA LAKE INFORMATION 2 THERE WERE DISPUTES IN VARIOUS SUPPLIES/SERVICES MA DE TO THE ABOVE COMPANIES AND ACCORDINGLY THE ENTIRE AMOUNT IS TO B E ALLOWED EITHER AS BAD DEBT OR AS DEDUCTION UNDER SECTION 37(1). 4. WE HAVE CONSIDERED THE ARGUMENTS OF THE LEARNED COU NSEL AND THE LEARNED D.R. AND PERUSED THE ORDER OF THE CIT(A). A S PER PARA 2.1 OF THE ORDER OF THE CIT(A), THE REASONS FOR WRITING OFF OF THE ABOVE AMOUNTS ARE EXPLAINED AS UNDER: - 1) SONY MUSIC: THIS IS THE OLDEST CUSTOMER OF THE APPELLANT, HAS GIVEN BUSINESS OF OVER RS.45 LACS DURING THE PERIOD OF 5 YEARS AND HAS CUT SMALL AMOUNTS FROM SUM BILLS TOTALLING RS.1,60,450/ - WHICH HAS BEEN ACTUALLY WRITTEN OFF AS DISCOUNT. 2) LOWE PERSONNEL: THIS IS A PARTY WHICH A BRANCH OF A NON RESIDENT COMPANY AND THE APPELLANT HAS DONE BUSINESS OF OVER RS.10 LACS. LAST BILL, TO THE PARTY OF BUSINESS OF OVER RS.1000 00/- DATED 23.02.04 WAS NOT PAID BY THE PARTY ON THE GROUND TH AT THE SERVICES WERE NOT AGREED AND HAS BEEN WRITTEN OFF AS DISCOUN T. 3) PAN INDIA PARYATAN LIMITED: TOTAL BILLING TO THE PA RTY WAS RS.95000 DURING THE PERIOD OF LAST 2 YEARS OUT OF W HICH THE PARTY HAS CUT RS.10000 FROM THE PAYMENT AND HAS BEEN WRIT TEN OFF. 4) CENTRAL DEPOSITORY SERVICES INDIA LIMITED: THIS IS A PRESTIGIOUS CLIENT FOR THE APPELLANT HAS DONE BUSINESS OF OVER RS.1 CRORE OVER A PERIOD 3 YEARS AND SHORT PAYMENTS FROM CERTAIN BILL S TO THE EXTENT OF RS.1 LAC IS WRITTEN OFF AS DISCOUNT. 5) CHATTISGADH TOUR BOARD: THERE WERE 2 BILLS TO THE P ARTY, ONE OF RS.150000 AND OTHER BILL OF RS.180000/- THE FIRST O NE WAS FOR DESIGN AND DEVELOPMENT AND THE SECOND ONE WAS FOR D ISPATCH OF MONTHLY NEWS LETTER. THE SECOND BILL FOR NES LETTER WAS NOT PAID BY THE GOVERNMENT BOARD. THE CONTACT PERSON WHO ASKED FOR THIS WORK MISS SUNITI GHOSHAL LEFT THE SERVICES, THERE WAS CH ANGE IN THE GOVERNMENT AND NEW SET UP REFUSED TO HONOUR THE COM MITMENT IN SPITE OF FOLLOW UP BUT THERE WAS NO RESPONSE AND HE NCE THE AMOUNT WAS WRITTEN OFF. 6) FRIDAY CORPORATION: THE WEBSITE DEVELOPMENT WORK WA S DONE FOR THE COMPANY AS PER THE INVOICE DATED 31-03-2002. TH E COMPANY MADE A PAYMENT OF ONLY RS.50000/- NEXT YEAR AND THE CO WAS SHUT DOWN DUE TO ILL FAMOUS MELT DOWN IN IT SECTOR AND O UR CONTACT PERSON IN THE COMPANY MISS MADERIA HAD LEFT THE JOB . 7) B.R. FILM: OUT OF TOTAL BILL OF RS.1 LAC, THE COMPA NY PAID ONLY RS.75000/- AND ALSO DEDUCTED TAX AT SOURCE AND THE BALANCE AMOUNT IS TO BE TREATED AS REAL DISCOUNT. IT WAS ON E TIME JOB. 8) PIPAL SOLUTIONS: OUT OF TOTAL BILL OF RS.4 LACS, TH E CO. PAID ONLY RS.2 LAC AND THE COMPANY WAS CLOSED AND THE BALANCE AMOU NT HAD TO BE WRITTEN OFF. ITA NO. 2378/MUM/2009 M/S. IDEA LAKE INFORMATION 3 9) C MANGO: THE DESIGN AND DEVELOPMENT OF A WEBSITE W ORK WAS DONE FOR THE YEAR ENDED 31.03.02 AS PER BILL BUT TH E COMPANY IS SHUT DOWN AND DID NOT PAY A SINGLE FARTHING. 10) GUINESS UDV: IT IS A COMPANY TO WHICH A BILL WAS SE NT FOR RS.60000/- AS 30% ADVANCE FOR WEBSITE DEVELOPMENT. ALTHOUGH IT WAS AN ADVANCE PAYMENT DEMAND BILL, IT WAS WRONGLY SHOWN IN THE YEAR AS INCOME. THE COMPANY LATER DID NOT PAY A DVANCE AND ALSO DID NOT TAKE OUR SERVICES. IT IS THEREFORE REA LLY CANCELLATION OF OUR BILL SENT FOR ADVANCE PAYMENT. 11) STP LIMITED: IT WAS A MAINTENANCE BILL SENT TO THE COMPANY LOCATED IN GURGAON. THE COMPANY NEVER RESPONDED TO OUR SEVE RAL CALLS AND THE AMOUNT OF RS.40000/- HAD TO BE WRITTEN OFF. THE WEBSITE WAS DEVELOPED FOR THEM IN THE YEAR 2001. 12) UDV INDIA LIMITED: IT WAS A BILL SENT TO THE PARTY FOR A SAMPLE DESIGN OF THEIR WEBSITE. IT IS AN INTERNATIONAL COM PANYS INDIA BRANCH AND THE INTERNATIONAL HQ TOOK A DECISION TO ABANDON THE PROJECT AND THE AMOUNT HAD TO BE WRITTEN OFF WHICH SHOULD NOT HAVE BEEN ORIGINALLY SHOWN AS INCOME SINCE IT WAS ONLY A SAMPLE OF A DESIGN. 5. AS CAN BE SEEN FROM THE ABOVE THE ASSESSEE HAS GENU INE REASONS FOR NOT RECOVERING THE AMOUNTS AND THEY ARE WRITTEN OFF ACTUALLY IN THE BOOKS OF ACCOUNT. ACCORDINGLY, IN VIEW OF THE DECISION OF TH E HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. STAR CHEMICALS (BOMBAY ) PVT. LTD. 313 ITR 126 THE CLAIM IS REQUIRED TO BE ALLOWED. IN OUR VIEW TH E CIT(A) WAS WRONG IN NOT CONSIDERING THE ISSUE. EVEN OTHERWISE, IF THE AMOUN T IS NOT ALLOWED AS BAD DEBT THE SAME CAN ALSO ALTERNATIVELY CONSIDERED UND ER SECTION 37(1) AS A DISCOUNT ALLOWED TO VARIOUS PARTIES OUT OF THE BILL S RAISED. EITHER WAY THE AMOUNT IS ALLOWABLE. ACCORDINGLY THE A.O. IS DIRECT ED TO ALLOW THE AMOUNT. GROUNDS ARE ALLOWED. 6. GROUND NO. 4 PERTAINS TO DISALLOWANCE OF TRAVELLING EXPENSES ON THE PRETEXT THAT THE ASSESSEE HAS NOT FURNISHED DETAILS OF FOREIGN TRAVEL EXPENSES. A.O. DISALLOWED 50% OF THE TOTAL FOREIGN TRAVEL EXPENSES ON ADHOC BASIS AND THE CIT(A) HAS RESTRICTED TO 25%. IT WAS THE SUBMISSION THAT THE ASSESSEE HAD THE DETAILS AND THE DISALLOWANCE OF EX PENSES IS NOT PROPER. SINCE IT IS ONE OF THE CONTENTIONS THAT THE ASSESSE E HAS NOT FURNISHED THE DETAILS AND DISALLOWANCE WAS MADE ONLY ON ADHOC BAS IS, IN THE INTEREST OF JUSTICE WE REMAND THE MATER BACK TO THE A.O. TO EXA MINE THE DETAILS AND ALLOW THE DEDUCTION, IF THEY ARE FOR THE PURPOSE OF BUSINESS. WITH THIS ITA NO. 2378/MUM/2009 M/S. IDEA LAKE INFORMATION 4 DIRECTION THE ISSUE IS RESTORED TO THE FILE OF THE A.O. FOR EXAMINATION AND ALLOWANCE ACCORDINGLY. 7. IN THE RESULT, APPEAL PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH MARCH 2010. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 10 TH MARCH 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) V, MUMBAI 4. THE CIT V, MUMBAI CITY 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.