TRUIMPH INTERNATIONAL FINANCE INDIA LTD, MUMBAI V. ASST CIT CEN CIR 40, MUMBAI

ITA 242/MUM/2011

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5825 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 15-05-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 10-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P DANIEL
• Keywords: Depreciation; Carry forward of business losses; Bad and doubtful debts; Unabsorbed depreciation
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE S/ SHRI B.R.BASKARAN (AM) & AMARJIT SINGH (JM) I.T.A. NO. 242 /MUM /20 1 1 (ASSESSMENT YEAR 20 0 3 - 0 4 ) TRIUMP H INTERNATIONAL FINANCE INDIA LIMITED OXFORD CENTRE, 10 SHROFF LANE, COLABA CAUSWAY MU MBAI - 400 005. VS. ACIT CC - 40 AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400020. ( APPELLANT ) ( RESPONDENT ) I.T.A. NO. 428/MUM/2011 (ASSESSMENT YEAR 2003 - 04) ACIT CC - 40 AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400020. VS. TRIUMP H INTERNATIONAL FINANCE INDIA LIMITED OXFORD CENTRE, 10 SHROFF LANE, COLABA CAUSWAY MUMBAI - 400 005. ( APPELLANT ) ( RESPONDENT ) PAN : AAACE0308A ASSESSEE BY SHRI RAJIV KHANDELWAL DEPARTMENT BY DR. P. DANIEL DATE OF HEARING 28 . 6 . 201 8 DATE OF PRONOUNCEMENT 0 6 . 7 . 201 8 O R D E R PER B.R. BASKARAN (A M) : - THESE CROSS APPEALS RELATED TO ASSESSMENT YEAR 2003 - 04 AND THEY ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A) - 36, MUMBAI. BOTH THE APPEALS WERE HEARD TOGETHER AND HENCE THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER, F OR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE ASSESSEE. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF CLAIM OF BAD DEBTS OF RS.456.62 LAKHS. THE AO DISALLOWED THE SAME BY HOLDING THAT THE AMOUNT CLAIMED AS BAD DEBTS WAS TRIUMP H INTERNATIONAL FINANCE INDIA LIMITED 2 NOT OFFERED AS INCOME IN THE EARLIER YEARS AS STIPULATED IN SEC. 36(2) OF THE ACT. THE LD CIT(A) NOTICED THAT THE BAD DEBTS CLAIM PERTAINED TO THE AMOUNT DUE TO THE ASSESSEE O N ACCOUNT OF PURCHASE TRANSACTIONS OF SHARES OF CUSTOMERS, WHICH WAS HELD TO BE ALLOWABLE AS DEDUCTION BY MUMBAI SPECIAL BENCH IN THE CASE OF SHREYAS MORARKHIA (ITA NO.3374/M/2004 DATED 10 - 01 - 2010). THE LD CIT(A) NOTICED THAT THE BAD DEBTS CLAIM OF THE AS SESSEE INCLUDED AMOUNT DUE FROM SISTER CONCERNS AMOUNTING TO RS.71.38 LAKHS. ACCORDINGLY HE CONFIRMED THE DISALLOWANCE OF BAD DEBTS OF CLAIM OF 7.38 LAKHS RELATING TO SISTER CONCERNS AND DELETED THE BALANCE ADDITION. BOTH THE PARTIES ARE AGGRIEVED BY TH E DECISION RENDERED BY LD CIT(A). 3. WE HEARD THE PARTIES ON THE DECISION OF LD CIT(A) IN PARTIALLY CONFIRMING THE ADDITION. THE LD A.R SUBMITTED THAT THE SISTER CONCERNS ARE FRANCHISEES OF THE ASSESSEE AND THEY HAVE, IN TURN, DONE SHARE BROKING BUS INESS ONLY IN VARIOUS PLACES AND THE BAD DEBTS RELATED TO THE BUSINESS ACTIVITIES CARRIED ON WITH THEM. THE LD A.R INVITED OUR ATTENTION TO THE LEDGER ACCOUNT COPIES OF THE SISTER CONCERNS, IN ORDER TO SHOW THAT THE ASSESSEE HAS DEBITED/CREDITED THEIR ACCO UNT WITH THE PURCHASE/SALE OF SHARE TRANSACTIONS BY RAISING PROPER BILLS AGAINST THEIR NAME. HE SUBMITTED THAT THE SISTER CONCERNS HAVE DEFAULTED IN MAKING PAYMENT TO THE ASSESSEE, SINCE THEY INCURRED HEAVY LOSSES. ACCORDINGLY HE SUBMITTED THAT THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED, AS IT HAS BEEN INCURRED IN THE NORMAL COURSE OF BUSINESS. ON THE CONTRARY, THE LD D.R PLACED HEAVY RELIANCE ON THE ORDER PASSED BY LD CIT(A). 4. WE NOTICE THAT THE LD CIT(A) HAS CONFIRMED THE DISALLOWANCE TO THE EXTE NT OF RS.71.38 LAKHS ONLY ON THE REASON THAT SAID BAD DEBTS CLAIM RELATED TO THE AMOUNT DUE FROM SISTER CONCERNS OF THE ASSESSEE. HOWEVER, A PERUSAL OF THE LEDGER ACCOUNTS OF THE SISTER CONCERNS WOULD SHOW THAT THEY ARE FRANCHISEES OF THE ASSESSEE CARRYIN G ON SHARE BROKING BUSINESS. THE LEDGER ACCOUNT SHOWS THAT THE BILLS RAISED BY THE ASSESSEE AGAINST THEM FOR PURCHASE AND SALE OF SHARES. ACCORDINGLY WE NOTICE THE TRANSACTIONS WITH THE SISTER CONCERNS WERE REGULAR BUSINESS TRANSACTIONS. THE LD A.R SUBM ITTED THAT THE SISTER CONCERNS, TRIUMP H INTERNATIONAL FINANCE INDIA LIMITED 3 BEING FRANCHISEES OF THE ASSESSEES SHARE BROKING BUSINESS, COULD NOT REPAY THE DEBTS DUE TO HEAVY LOSSES INCURRED BY THEM. THE CONTENTION OF THE LD A.R COULD NOT BE CONTROVERTED BY THE LD D.R. IN THIS VIEW OF THE MATTER, WE ARE OF THE VIEW THAT THERE IS NO REASON TO DOUBT THE GENUINENESS OF CLAIM. ACCORDINGLY WE MODIFY THE ORDER PASSED BY LD CIT(A) AND DIRECT THE AO TO ALLOW THE CLAIM OF RS.71.38 LAKHS, REFERRED ABOVE. 5. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF CLAIM OF RS.11,469/ - . THE LD A.R DID NOT PRESS THE SAME IN VIEW OF THE SMALLNESS OF THE AMOUNT. ACCORDINGLY WE DISMISS THE GROUND RELATING TO THE SAME. 6. THE NEXT ISSUE RELATES TO THE CLAIM OF DEPRECIATION @ 25% ON ELECTRICAL FITTINGS, WHEREAS THE AO HAS ALLOWED THE CLAIM @ 15%. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE CO - ORDINATE BENCH IN AY 2004 - 05 (ITA NO.6879/M/08 DATED 19 - 04 - 2013), WHEREIN THE TRIBUNAL HAS FOLLOWED THE DECISION RENDERED IN ASSESSEES OWN CASE IN ITA NO.76/M UM/2009 RELATING TO AY 2005 - 06. THE TRIBUNAL HAS NOTICED THAT THE ELECTRICAL FITTINGS HAVE ALREADY ENTERED INTO THE BLOCK OF PLANT AND MACHINERY PRIOR TO AY 2003 - 04 AND ACCORDINGLY HELD THAT THE AO CANNOT SEGREGATE ELECTRICAL FITTINGS OUT OF THE BLOCK. ACCORDINGLY IT WAS HELD THAT THE DEPRECIATION SHOULD BE ALLOWED AT THE RATE APPLICABLE TO PLANT & MACHINERY. ACCORDINGLY, FOLLOWING THE DECISION RENDERED BY THE CO - ORDINATE BENCHES, WE DIRECT THE AO TO ALLOW DEPRECIATION ON ELECTRICAL FITTINGS @ 25%. 7. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF CLAIM FOR CARRY FORWARD OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION OF EARLIER YEARS. THE LD CIT(A) DISALLOWED THE ABOVE SAID CLAIM ON THE GROUND THAT THE ASSESSEE HAS NOT CARRIED ON ANY BUSINESS ACTIVI TY DURING THE YEAR UNDER CONSIDERATION. THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE CO - ORDINATE BENCH IN AY 2004 - 05 (ITA NO.6879/MUM/2008 DATED 19 - 04 - 2013), WHEREIN THE TRIBUNAL HAS FOLLOWED THE DECISION RENDERED ON THIS ISSUE IN AY 2005 - 06 (ITA NO.76/MUM/2009 DATED 25 - 04 - 2012). THE TRIBUNAL HAS COME TO THE TRIUMP H INTERNATIONAL FINANCE INDIA LIMITED 4 CONCLUSION THAT THE ASSESSEE COULD NOT DO THE BUSINESS FOR THE REASONS BEYOND ITS CONTROL, I.E., BECAUSE OF THE BAN IMPOSED ON ITS TRADING BY SEBI AND THE ORDER SO PASSED BY SE BI HAS BEEN CHALLENGED BY THE ASSESSEE. FOLLOWING THE ORDER PASSED BY THE TRIBUNAL IN AY 2005 - 06 (WHICH IS AN ORDER PERTAINING TO THE YEAR SUBSEQUENT TO AY 2003 - 04), WE DIRECT THE AO TO ALLOW CARRY FORWARD OF BUSINESS LOSS AND UNABSORBED DEPRECIATION. 8. THE NEXT ISSUE RELATES TO THE DISALLOWANCE MADE U/S 14A OF THE ACT. THE ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS.83,314/ - . THE ASSESSEE DID NOT MAKE ANY DISALLOWANCE AND THE AO ALSO DID NOT EXAMINE THE SAME. THE LD CIT(A) DIRECTED THE AO TO COMPUTE THE DISALLOWANCE BY FOLLOWING RULE 8D OF THE IT RULES. 9. SINCE THE YEAR UNDER CONSIDERATION FALLS PRIOR TO AY 2008 - 09, THE ASSESSEE CONTENDED THAT RULE 8D WILL NOT APPLY TO THIS YEAR AS PER THE DECISION RENDERED BY THE JURISDICTIONAL HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO. LTD (328 ITR 81). ACCORDINGLY THE DISALLOWANCE HAS TO BE MADE ON REASONABLE BASIS. ACCORDINGLY WE MODIFY THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO COMPUTE DISALLOWANCE U/S 14A OF TH E ACT ON REASONABLE BASIS. 10. THE LAST ISSUE RELATES TO CHARGING OF INTEREST U/S 234D OF THE ACT. THE ASSESSMENT HAS BEEN COMPLETED IN THE PRESENT CASE ON 12 - 12 - 2005, I.E. AFTER 01 - 06 - 2003. AS PER THE EXPLANATION 2 TO SEC.234D, THE PROVISIONS OF SEC. 234D SHALL ALSO APPLY TO AN ASSESSMENT YEAR COMMENCING BEFORE THE 1 ST DAY OF JUNE, 2003 IF THE PROCEEDINGS IN RESPECT OF SUCH ASSESSMENT YEAR IS COMPLETED AFTER THE SAID DATE. HENCE THE PROVISIONS OF SEC. 234D SHALL APPLY TO THE YEAR UNDER CONSIDERATION, SINCE THE ASSESSMENT ORDER WAS PASSED AFTER 01 - 06 - 2003. IN THIS REGARD, THE LD D.R PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF CIT VS. M/S RELIANCE ENERGY LTD (CIVIL NO.14013/2013 DATED 30 - 09 - 2013). ACCORDINGLY WE DI SMISS THIS GROUND OF THE ASSESSEE. TRIUMP H INTERNATIONAL FINANCE INDIA LIMITED 5 11. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REVENUE FOR AY 2003 - 04. THE ONLY ISSUE CONTESTED BY THE REVENUE RELATES TO THE RELIEF GRANTED BY THE LD CIT(A) ON THE BAD DEBTS CLAIM OF THE ASSESSEE. WE HAVE NOTICED THAT THE FIRST APPELLATE AUTHORITY HAS ALLOWED THE CLAIM BY FOLLOWING THE DECISION RENDERED BY THE SPECIAL BENCH OF TRIBUNAL IN THE CASE OF SHRI SHREYAS MORARKHIA (ITA NO.3374/M/2004 DATED 10 - 01 - 2010). THE DECISION RENDERED BY THE SPECIAL BENCH HAS SINCE BEEN APPROVED BY HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN ITS DECISION REPORTED IN 342 ITR 285 IN THE VERY SAME CASE. HENCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. 12. IN THE RESULT, THE APPEAL FILED BY THE ASS ESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER HAS BE E N PRONOUNCED IN THE COURT ON 6 . 7 .201 8 . SD/ - SD/ - (AMARJIT SINGH ) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 6 / 7 / 20 1 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( SENIOR PRIVATE SECRETARY ) PS ITAT, MUMBAI