ACIT 2 (2)(1), MUMBAI V. LAFFANS PETROCHEMICALS LTD., MUMBAI

ITA 2552/MUM/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 6160 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2022
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 30-12-2021
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: MAKING VARIOUS
• Keywords: Depreciation; Transactions in derivatives; Bad and doubtful debts; Set aside
• Section: 14A; 115JB

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL “SMC” Bench, Mumbai Shri B.R. Baskaran (AM) I.T.A. No. 2552/Mum/2021 (A.Y. 2014-15) ACIT-2(2) Room No. 545 5 th Floor Aayakar Bhavan M.K. Road Mumbai-400 020. Vs. M/s. Laffans Petrochemicals Ltd. 10, Luthra Industrial Premise Safed Pool, Andheri Kurla Road Mumbai-400 072. PAN : AAACL0645D (Appellant) (Respondent) Assessee by None Department by Shri Vivek Upadhyay Date of Hearing 16.08.2022 Date of Pronouncement 17.08.2022 O R D E R The Revenue has filed this appeal challenging the order dated 21.10.2021 passed by learned CIT(A), National Faceless Appeal Centre, Delhi and it relates to A.Y. 2014-15. The Revenue is assailing the decision of learned CIT(A) rendered on the following three issues : a) Disallowance of bad debts claim b) Disallowance made out of motorcar expenses c) Disallowance under section 14A of the I.T. Act. 2. None appeared on behalf of the assessee, even though the notice of hearing was sent to the assessee on earlier occasions by the registry by registered post. Hence, I proceed to dispose of the appeal ex-parte, without presence of the assessee. 3. I have heard learned Dr and perused the record. The assessee is a manufacturer of petrochemical products. During the year under consideration assessee has sold its manufacturing unit and started the business of trading in chemicals. It also started the business in commodities arbitrage. The M/s. Laffans Petrochemicals Ltd. 2 assessment of the year under consideration was completed by the Assessing Officer, wherein he determined total income of the assessee at Rs. 35.42 lakhs as against loss of Rs. 4.42 crores declared by the assessee by making various additions. The appeal filed by the assessee before learned CIT(A) was partly allowed. Aggrieved, the Revenue has filed this appeal challenging the relief granted by learned CIT(A) in respect of above said three issues. 4. The first issue relates to disallowance of bad debts claim of Rs.4.50 crores claimed by the assessee. The assessee was carrying on trading in commodities through National Spot Exchange Limited (NSEL). During the year under consideration, it has purchased commodities for a value of Rs. 38.94 croes and sold commodities for a value of Rs. 43.23 crores. As on 31.3.2014 a sum of Rs. 9,01,54,404/- was due to the assessee from NSEL. Due to scam, the operations in NSEL were suspended. Hence the assessee wrote off 50% of the outstanding balance due from NSEL as bad debts, which worked out to Rs. 4,50,77,202/-. The Assessing Officer, however, took the view that there were prospects of recovery of this amount and hence write off bad debts is premature in nature. He also took the view that the assessee has indulged in writing off bad debts in order to escape tax liability under section 115JB of the Act. Accordingly, he disallowed the claim of bad debts. The Learned CIT(A) allowed same. 5. I have heard learned DR and perused the record. On careful reading of the order passed by learned CIT(A), I noticed that learned CIT(A) has confirmed the action of the Assessing Officer in treating commodity transaction entered by the assessee with NSEL as “speculative” in nature. The above said bad debts claim relates to the activity of trading in commodities. The Ld CIT(A) has allowed the claim of bad debts. The question that remained unanswered by Ld CIT(A) is whether the bad debts claim should be allowed against speculation income or regular business income. Be that as it may, if the assessee has offered amount written off as bad debts as its income in any of the years, writing off bad debts should be allowable as deduction under section 36(1)(vii) M/s. Laffans Petrochemicals Ltd. 3 of the Act read with section 36(2) of the Act, as per decision rendered by Hon'ble Supreme Court in the case of TRF Ltd. (232 ITR 397). I noticed that learned CIT(A) has not given any finding as to whether assessee has complied with the provisions of section 36(2) of the Act by offering the amount written off of as bad debts as its income in any of the years. From the orders passed by the tax authorities it is also not clear as to whether the amount was actually written off as bad debts in the books of account. In the absence of basic facts required for adjudicating this issue, I am of the view this issue requires fresh examination at the end of the Assessing Officer. Accordingly, I set aside the order passed by learned CIT(A) on this issue and restore the same to the file of the Assessing Officer for examining it afresh in the light of the discussion made supra. 6. The next issue contested by the Revenue relates to disallowance of claim of depreciation of motorcar. The Assessing Officer noticed that the assessee has claimed depreciation of Rs. 4,75,388/- on the value of motorcar purchased during the year. The Assessing Officer noticed that the assessee has purchased motorcar in the name of Shri Sandeep Sheth, Managing Director of the assessee-company. The Assessing Officer further noticed that he has made identical disallowance in A.Y. 2012-13 in identical set of facts. He also noticed that the Tribunal in the case of Edwise Consultants (P) Ltd. (35 taxamnn.com 149) has held that the vehicles standing in the name of the person other than the assessee-company is not entitled to depreciation. Accordingly, the Assessing Officer disallowed the depreciation claimed by the assessee on the value of motorcar. He also disallowed 50% motorcar expenses. 7. The Learned CIT(A) noticed that an identical issue has been decided in favour of the assessee in assessee’s own case in A.Y. 2012-13. Accordingly, he deleted the disallowance. M/s. Laffans Petrochemicals Ltd. 4 8. The Learned DR submitted that learned CIT(A) has passed a cryptic order without explaining parity of facts. Accordingly he submitted that the order passed by learned CIT(A) should be reversed. 9. I have heard DR on this issue and perused the record. I agree with learned DR that the parity of facts between the year under consideration and A.Y. 2012-13 have not been properly brought out by the Assessing Officer or learned CIT(A). Hence, it is not clear as to whether the decision rendered by the Tribunal in assessee’s own case for A.Y. 2012-13 is applicable to the year under consideration or not. Further, the Ld CIT(A) has not discussed about the applicability of decision relied upon by AO to the facts of the present case. Accordingly, I set aside the order passed by learned CIT(A) on this issue and restore the same to the file of the Assessing Officer for examining it afresh. 10. The next issue relates to the disallowance made under section 14A of the Act. The Assessing Officer noticed that the assessee has held investment to the tune of Rs. 44.62 crores and Rs. 40.11 crores respectively as on 31.3.2013 and 31.3.2014. However, the assessee did not make disallowance under section 14A of the Act. Hence the Assessing Officer computed the disallowance under section 14A of the Act read with Rule 8D at Rs. 21,18,370/- as per rule 8D(2)(iii) out of administrative expenses @ 0.5% of the average value of investment. The Learned CIT(A) deleted the disallowance by relying on the decision rendered by Hon'ble Bombay High Court in the case of CIT Vs. M/s. Bengal Finance & Investment Pvt. Ltd.(ITA No. 337/2013) and also decision rendered by Special bench of the ITAT in the case of Vireet Investment P. Ltd. (58 ITR 313)(Del)(SB). 11. I have heard learned DR on this issue and perused the record. I noticed that learned CIT(A) has not discussed the fats relating to this issue in his order and also did not bring out as to how the decision rendered by Hon'ble Bombay High Court in the case of M/s. Bengal Finance & Investment Pvt. Ltd. (supra) is applicable to the facts of this case. I also noticed that the Assessing M/s. Laffans Petrochemicals Ltd. 5 Officer has also not properly discussed the facts and he has computed the disallowance simply by applying rule 8D. Accordingly, I am of the view that this issue also requires fresh examination at the end of the Assessing Officer. Accordingly, I set aside the order passed by learned CIT(A) and restore the same to the file of the Assessing Officer for examining it afresh. 12. Needless to mention the assessee should be given proper opportunity of being heard. 13. In the result, appeal filed by the Revenue is allowed for statistical purposes. Order pronounced in the open court on 17.08.2022. Sd/- (B.R. BASKARAN) ACCOUNTANT MEMBER Mumbai; Dated : 17/08/2022 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// (Assistant Registrar) PS ITAT, Mumbai