The ACIT, Circle-1, Eluru V. M/s Sree Satyanarayana Spinning Mills Ltd., Tanuku

ITA 258/VIZ/2004

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2726 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 6 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 06-10-2010
• Assessment Year: 1998-1999
• Appeal Filed On: 12-04-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J SIRI KUMAR
• Keywords: Depreciation; Additional evidence; Bad and doubtful debts
• Section: 37(1); 68

Judgement Text

ITANO.258 & 259 OF 2004 SREE SATYANARAYANA SPINNING S MILLS LTD TANUKU PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 258 & 259/VIZAG/2004 ASSESSMENT YEAR: 1998-99 & 1999-2000 ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1 ELURU VS. SREE SATYANARAYANA SPINNING MILLS LTD., TANUKU (APPELLANT) (RESPONDENT) GIR NO:S-71 APPELLANT BY: SHRI J. SIRI KUMAR, DR RESPONDENT BY: SHRI G.V.N. HARI, CA ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THESE TWO APPEALS OF THE REVENUE ARE DIRECTED AGAI NST THE ORDERS OF LEARNED CIT(A),RAJAHMUNDRY AND THEY RELATE TO THE A SSESSMENT YEARS 1998-99 & 1999-2000. SINCE BOTH THE APPEALS WERE HE ARD TOGETHER, WE PREFER TO DISPOSE OF THEM BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. IN THE ASSESSMENT YEAR 1998-99, THE REVENUE IS CO NTESTING FOLLOWING TWO ISSUES: A) DATE OF INSTALLATION OF THE THERMAL EFFICIENT V APOR ABSORPTION HEAT PUMP FOR THE PURPOSE OF ALLOWING DEPRECIATION THER EON. B) ADDITION OF DEPOSIT RECEIPTS UNDER SECTION 68 AN D ALSO THE INTEREST ON THOSE DEPOSITS. 3. IN THE ASSESSMENT YEAR 1999-2000, THE REVENUE IS IN APPEAL IN RESPECT OF THE FOLLOWING TWO ISSUES: A) AMOUNT WRITTEN OFF CLAIMED UNDER SECTION 36(1) (VII) OF THE ACT B) ADDITION MADE UNDER SECTION 68 IN RESP ECT OF DEPOSITS AND ALSO INTEREST ON THOSE DEPOSITS. 4. THE FIRST ISSUE IN THE APPEAL RELATING TO THE AS SESSMENT YEAR 1998-99 IS ABOUT THE DATE OF INSTALLATION OF THE THERMAL EF FICIENT VAPOR ABSORPTION HEAT PUMP. THE ASSESSEE PURCHASED THE SAID MACHINER Y, VIDE SUPPLIERS ITANO.258 & 259 OF 2004 SREE SATYANARAYANA SPINNING S MILLS LTD TANUKU PAGE 2 OF 5 INVOICE DATED 19-9-1997. UNDER THE INCOME TAX ACT, THE DEPRECIATION CAN BE DEDUCTED AT THE PRESCRIBED RATE ONLY IF THE MACHINE RY IS PUT TO USE FOR 180 DAYS OR MORE IN THAT YEAR. IF THE MACHINERY IS PUT TO USE FOR LESS THAN 180 DAYS, THEN THE DEPRECIATION IS ALLOWABLE AT 50% OF THE PRESCRIBED RATE. THE ASSESSEES CONTENTION IS THAT IT HAS PUT THE ABOVE SAID MACHINERY FOR MORE THAN 180 DAYS WHEREAS THE CASE OF THE ASSESSING OFF ICER IS THAT THE MACHINERY WAS PUT TO USE FOR LESS THAN 180 DAYS. DU RING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSEE COULD NOT PRODU CE ANY COGENT MATERIAL BEFORE THE ASSESSING OFFICER TO SUBSTANTIA TE ITS CLAIM. HENCE THE ASSESSING OFFICER ALLOWED DEPRECIATION ONLY AT 50% OF THE PRESCRIBED RATE OF DEPRECIATION ON THAT MACHINERY. BEFORE THE LEARNED CIT (A), THE ASSESSEE PRODUCED CERTAIN MATERIALS I.E. LOG BOOK RECORD SHO WING FUNCTIONING OF THE MACHINE AND ALSO CERTAIN CERTIFICATES. BASED ON THO SE EVIDENCES, THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. 4.1 IT WAS POINTED OUT BY THE LEARNED DEPARTMEN TAL REPRESENTATIVE THAT THE LEARNED CIT (A) DID NOT SEEK THE OPINION OF THE ASSESSING OFFICER IN RESPECT OF THE ADDITIONAL EVIDENCES FILED BEFORE HI M AND DECIDED THE SAID ISSUE, WHICH ACTION HAS RESULTED IN VIOLATION OF RU LE 46A OF THE INCOME TAX RULES. ACCORDINGLY, HE PLEADED THAT THE MATTER MAY BE SET ASIDE TO THE FILE OF ASSESSING OFFICER FOR FRESH CONSIDERATION. LEAR NED AUTHORISED REPRESENTATIVE ALSO ACCEPTED TO THE PLEA MADE BY TH E LEARNED D.R. 4.1 SINCE THE ADDITIONAL EVIDENCE FILED BEFORE THE LEARNED CIT (A) WAS NOT CONFRONTED TO THE ASSESSING OFFICER, WE DEEM IT PROPER TO SEND THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION BY DULY CONSIDERING THE EVIDENCES FILED BEFORE THE LEARNED CIT (A). ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LEARNED CIT (A) ON THIS ISSUE AND REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DI RECTION TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH THE LAW BY DULY CONSIDERI NG THE MATERIALS THAT WERE/MAY BE FILED BY THE ASSESSEE. 5. THE NEXT ISSUE RELATING TO THE DISALLOWANCE OF F IXED DEPOSITS RECEIVED BY THE ASSESSEE UNDER SECTION 68 OF THE ACT AND THE DISALLOWANCE OF INTEREST ITANO.258 & 259 OF 2004 SREE SATYANARAYANA SPINNING S MILLS LTD TANUKU PAGE 3 OF 5 PAID THEREON IS COMMON IN BOTH THE YEARS. THE ASSES SING OFFICER HAS DISALLOWED A SUM OF RS.4,42,000/- IN THE ASSESSMENT YEAR 1998-99 AND A SUM OF RS.4,52,000/- DURING THE ASSESSMENT YEAR 199 9-2000 AS UNEXPLAINED DEPOSITS UNDER SECTION 68 OF THE ACT. C ONSEQUENTLY, THE ASSESSING OFFICER ALSO DISALLOWED THE INTEREST PAID ON THOSE DEPOSITS. IT WAS REPRESENTED TO US THAT THESE DEPOSITS HAVE BEEN COL LECTED FROM THE PUBLIC AS PER THE PROVISIONS OF COMPANY LAW BY DULY COMPLY ING WITH THE REGULATIONS OF RESERVE BANK OF INDIA BY ISSUING ADV ERTISEMENT IN THE NEWS PAPERS. IT WAS FURTHER SUBMITTED THAT MOST OF THE DE POSITS HAVE BEEN RECEIVED FROM THE GENERAL PUBLIC ONLY, IN PURSUANCE OF THE ADVERTISEMENT. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAD DISCHARG ED ITS PRIMARY ONUS BY FURNISHING THE COPIES OF FIXED DEPOSITS APPLICATION SUBMITTED BY EACH OF THE DEPOSITORS TO THE ASSESSING OFFICER. THE SAID DEPO SIT APPLICATIONS CONTAIN, INTER ALIA NAME AND FULL ADDRESS OF THE DEPOSITORS. IT WAS ALSO SUBMITTED THAT THESE DEPOSITS WERE RECEIVED BY WAY OF ACCOUNT PAYEE CHEQUES, PAY ORDERS AND DEMAND DRAFTS AND REPAYMENT OF THE DEPOS ITS WERE ALSO MADE BY WAY OF A/C PAYEE CHEQUES. WHEREVER POSSIBLE, THE ASSESSEE HAS ALSO OBTAINED CONFIRMATION LETTERS FROM THE DEPOSITORS A ND THEY WERE FURNISHED TO THE ASSESSING OFFICER. 5.1 WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESEN TATIVE ALSO ON THIS ISSUE. FROM THE DETAILS OF DEPOSITS EXTRACTED BY TH E ASSESSING OFFICER, WE NOTICE THAT THESE DEPOSITS HAVE BEEN RECEIVED FROM VARIOUS PEOPLE AND MOST OF THE DEPOSITS ARE OF SMALL AMOUNT ONLY. FURT HER THE ASSESSEE HAS STATED THAT IT HAD FILED THE PARTICULARS LIKE DEPOS IT APPLICATION FORM WHICH WERE AVAILABLE WITH IT. WHEREVER POSSIBLE, THE ASSE SSEE HAS ALSO FILED CONFIRMATION LETTERS. THUS THE CONDUCT OF THE ASSES SEE SHOWS THAT IT HAS DISCHARGED THE PRIMARY ONUS PLACED UPON IT UNDER SE CTION 68 OF THE ACT. AFTER THE RECEIPT OF THE DETAILS FURNISHED BY THE A SSESSEE THE ASSESSING OFFICER HAS NOT PROCEEDED TO MAKE FURTHER INQUIRIES . IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE LEARNED CIT (A) HAS RIG HTLY DELETED THE ADDITIONS MADE UNDER SECTION 68 OF THE ACT IN RESPECT OF THES E DEPOSITS AND ACCORDINGLY WE UPHOLD THE SAME. CONSEQUENTLY THE IN TERESTS DISALLOWED ON THESE DEPOSITS ARE ALSO LIABLE TO BE DELETED, AS HE LD BY LEARNED CIT (A). ITANO.258 & 259 OF 2004 SREE SATYANARAYANA SPINNING S MILLS LTD TANUKU PAGE 4 OF 5 6. THE ONLY ISSUE WHICH IS LEFT OUT FOR OUR CONSIDE RATION IN THE APPEAL RELATING TO THE ASSESSMENT YEAR 1999-2000 IS WITH R EGARD TO THE DISALLOWANCE OF CLAIM OF BAD DEBTS. THE ASSESSEE CL AIMED A SUM OF RS.21,05,206/- AS EXPENDITURE RELATING TO DEBIT BAL ANCES WRITTEN OFF. THE ASSESSING OFFICER TOOK THE SAID CLAIM AS BAD DEBTS CLAIM MADE UNDER SECTION 36(1) (VII) OF THE ACT. ACCORDINGLY HE DISALLOWED THE SAID CLAIM BY STATING THAT THE ASSESSEE HAS FAILED TO PROVE THAT THE IMPU GNED AMOUNTS HAD BEEN OFFERED AS INCOME EARLIER, AS PROVIDED UNDER SECTIO N 36(1)(VII) OF THE ACT. THE LEARNED CIT (A) DELETED THE ADDITION BY HOLDING THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH WHEN AND WHETHER THE DEBT HAS BECOME BAD AFTER THE AMENDMENTS MADE TO SECTION 36(1)(VII) BY THE DIRECT LAW (AMENDMENT ACT 1987). 6.1. THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTEN DED THAT THE SAID ADDITION HAS TO BE SUSTAINED SINCE THE ASSESSEE HAS FAILED TO PROVE THAT THE AMOUNT SO WRITTEN AS BAD DEBT WAS EARLIER TAKEN AS INCOME FOR THE PURPOSES OF THE INCOME TAX ACT, WHICH IS A MANDATORY CONDITI ON TO BE FULFILLED FOR ALLOWING DEDUCTION OF BAD DEBTS UNDER SECTION 36(1) (VII) OF THE ACT. THE LEARNED AUTHORISED REPRESENTATIVE HOWEVER SUBMITTED THAT THE ASSESSEE CLAIMED THE IMPUGNED AMOUNT ONLY AS DEBIT BALANCES WRITTEN OFF AND NOT AS BAD DEBTS, AS ASSUMED BY THE TAX AUTHORITIES. H E FURTHER SUBMITTED THAT OUT OF THE SAID CLAIM OF RS. 21.05 LAKHS, A SUM OF RS.8.95 LAKHS REPRESENTS LONG PENDING SUPPLIER ADVANCES WHICH WERE WRITTEN O FF AS IRRECOVERABLE AND THE SAME IS ALLOWABLE UNDER SECTION 37(1) OF THE AC T. HE FURTHER SUBMITTED THAT THE REMAINING AMOUNTS REPRESENTS TRADE DEBTORS AND THE SAME HAVE BEEN OFFERED TO TAX BY WAY OF SALES CREDIT AND HENC E THEY ARE ALLOWABLE UNDER SECTION 36(1)(VII). IN SUPPORT OF ITS CONTEN TIONS, THE ASSESSEE HAS FILED A COPY OF ANNUAL REPORT OF THE RELEVANT FINAN CIAL YEAR AND SUBMITTED THAT THE SAID ANNUAL REPORT WAS ALSO FILED BEFORE T HE ASSESSING OFFICER ALSO. 6.2 WE HAVE GONE THROUGH THE ANNUAL REPORT FILE D BY THE ASSESSEE BEFORE US. AS CLAIMED BY THE LEARNED AUTHORISED REPRESENT ATIVE, THE ASSESSEE HAS DEBITED THE SUM OF RS.21,05,026/- UNDER THE HEAD D EBIT BALANCES WRITTEN ITANO.258 & 259 OF 2004 SREE SATYANARAYANA SPINNING S MILLS LTD TANUKU PAGE 5 OF 5 OFF, UNDER THE MAJOR HEAD EXPENSES, VIDE SCHEDUL E 17 OF THE ANNUAL REPORT. FURTHER THE LEARNED AUTHORISED REPRESENTAT IVE CLAIMS THAT THE IMPUGNED AMOUNT CONSISTS OF BALANCES RELATING TO TR ADE DEBTORS AND ALSO ADVANCES GIVEN TO THE SUPPLIER AND THEY ARE ALLOWAB LE UNDER DIFFERENT SECTIONS OF THE ACT. THUS IT CAN BE SEEN THAT THE I MPUGNED ISSUE HAS NOT BEEN PROPERLY CONSIDERED BY THE ASSESSING OFFICER A ND HENCE, IN OUR VIEW, IT REQUIRES RECONSIDERATION. ACCORDINGLY, WE SET ASID E THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION IN AC CORDANCE WITH LAW. THE ORDER OF LEARNED CIT(A) ON THIS ISSUE STANDS MODIFI ED. THE ASSESSING OFFICER SHOULD PROVIDE NECESSARY OPPORTUNITY OF BEI NG HEARD AND THE ASSESSEE IS ALSO DIRECTED TO FILE NECESSARY DETAILS THAT MAY BE CALLED FOR BY THE ASSESSING OFFICER. 7. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AR E TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 20 TH OCTOBER, 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE:20-10-2010 COPY TO 1 THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1 , KKS TOWERS R.R. PET, ELURU 534 002 2 SREE SATYANARAYANA SPINNING MILLS LTD., VENKATARA YAPURAM, TANUKU, WEST GODAVARI DISTT. 3 4. THE CIT RAJAHMUNDRY THE CIT(A), RAJAHMUNDRY 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM