Appeal details
Counselvise Citation
[2011] 140 COUNSELVISE.COM (IT) 55396 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 5 month(s) 24 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-09-2011
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
C
Next Hearing Date
20-09-2011
Assessment Year
2004-2005
Appeal Filed On
05-04-2010
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C,MUMBAI BEFORE SHRI B.R. MITTAL (JM) & SHRI B. RAMAKOTAIAH (AM) ITA NO. 2560/MUM/2010 (A.Y. 2004-05) DY.COMMR. OF INCOME-TAX-1(1), R.NO.579, AAYKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. VS. M/S. COX & KINGS (I) LTD., GRINDLAYS BANK BLDG., 270/272, DR. D.N. ROAD, MUMBAI-400 001. PAN: AAACC1921B APPELLANT RESPONDENT ITA NO. 2600/MUM/2010 (A.Y. 2004-05) M/S. COX & KINGS (I) LTD., GRINDLAYS BANK BLDG., 270/272, DR. D.N. ROAD, MUMBAI-400 001. PAN: AAACC1921B VS. ASSTT.COMMR. OF INCOME-TAX-1(1), AAYKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. APPELLANT RESPONDENT DEPARTMENT BY SH RI DEVI SINGH. ASSESSEE BY SHRI RAJAN R .VORA, MS.SHEETAL SHAH & SHRI CHETAN NOVAL. DATE OF HEARING : 20-09-2011 DATE OF PRONOUNCEMENT : 30 -09-2011 O R D E R PER B.R. MITTAL (JM) THESE CROSS APPEALS ARE FILED BY DEPARTMENT AND ASS ESSEE FOR ASSESSMENT YEAR 2004-05 AGAINST ORDER OF LD. CIT(A) DT. 29.1.2010 D ISPUTING THE DELETION OF ADDITIONS MADE BY AO IN THE APPEAL FILED BY THE DEPARTMENT AN D DISPUTING THE CONFIRMATION OF ADDITIONS MADE BY AO IN THE APPEAL FILED BY THE ASS ESSEE. 2. FIRSTLY, WE TAKE UP APPEAL FILED BY THE DEPARTME NT BEING ITA NO. 2560/M/2010 FOR OUR CONSIDERATION. ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 2 3. IN GROUND NO. 1 OF THE APPEAL, DEPARTMENT HAS DI SPUTED IN DELETING THE ADJUSTMENT MADE U/S. 92CA(3) OF THE ACT AMOUNTING T O RS. 29,16,954/- ON THE BASIS OF ORDER PASSED BY TRANSFER PRICING OFFICER. 4. THE RELEVANT FACTS ARE THAT ASSESSEE IS A COMPAN Y ENGAGED IN THE BUSINESS OF TRAVEL AND TOUR AND FOREIGN CURRENCY EXCHANGE BUSIN ESS, INCOME FROM STUDIO ETC. THE AO MADE REFERENCE U/S. 92CA(1) OF INCOME TAX ACT TO TRANSFER PRICING OFFICER FOR COMPUTATION OF ARMS LENGTH PRICE IN RELATION TO INT ERNATIONAL TRANSACTIONS DETAILED BY ASSESSEE IN AUDIT REPORT IN FORM NO. 3CEB. 5. THE TRANSFER PRICING OFFICER STATED THAT ASSESSE E IS A PART OF COX AND KINGS AN ESTABLISHED TRAVEL COMPANY IN THE WORLD WHICH HAS O FFICES IN U.K., USA AND JAPAN. THE PRINCIPLE SERVICES OFFERED BY COMPANY ARE DESTI NATION MANAGEMENT, OUTBOUND TOURISM, BUSINESS TRAVEL ETC. M/S. COX & KING LTD. , UK HOLDS 36% SHARE HOLDING IN ASSESSEE-COMPANY. IN THE REPORT, THE ASSESSEE HAS IDENTIFIED M/S. COX & KINGS (JAPAN) LTD., JAPAN, COX & KINGS LTD., UK AND COX & KINGS, USA AS THREE ASSOCIATED ENTERPRISES. THE TRANSFER PRICING OFFICER HAS GIVE N IN HIS ORDER DT. 4.12.2006, A COPY OF WHICH IS ANNEXED TO THE ASSESSMENT ORDER, THE DE TAILS OF TRANSACTIONS ENTERED INTO BY ASSESSEE WITH ITS THREE ASSOCIATED ENTERPRISES. THE TRANSFER PRICING OFFICER STATED THAT ASSESSEE HAD GIVEN EXTRA CREDIT PERIOD TO ITS ASSOCIATED ENTERPRISES AS COMPARED TO TRANSACTION WITH UNRELATED PARTIES (NON ASSOCIAT ED ENTERPRISES). THE TRANSFER PRICING OFFICER CONSIDERED THAT AVERAGE RATE OF INT EREST PAID BY ASSESSEE TO BANK FOR VARIOUS BORROWINGS IS @15% PER ANNUM. HE STATED TH AT NON RECEIPT OF BILLS FROM THE ASSOCIATED ENTERPRISES WITHIN THE AVERAGE CREDIT PE RIOD OF 49 DAYS, LEADS TO BLOCKAGE OF FUNDS AND CORRESPONDINGLY MORE INTEREST PAYMENT TO BANKS ON THE BORROWINGS MADE BY ASSESSEE FOR ITS WORKING CAPITAL REQUIREMEN TS. HOWEVER, ASSESSEE CONTENDED THAT CREDIT PERIOD EXTENDED TO BOTH RELAT ED AND UNRELATED PARTIES IS PURELY ON THE MERITS OF THE VOLUME OF BUSINESS GIVEN BY TH EM, SEASONLY REQUIREMENT OF FUND FOR SERVICES TO BE RENDERED AND PROFIT MARGIN. THE INTEREST COST IS FACTORED WHILE QUOTING TO ASSOCIATED ENTERPRISES. IT WAS ALSO CON TENDED THAT THE BUSINESS VOLUME GENERATED DURING THE YEAR WITH RELATED PARTIES GENE RATED SUBSTANTIAL BUSINESS I.E. 72% COMPARED TO THE BUSINESS GIVEN TO UNRELATED PAR TIES I.E. 28%. IT WAS ALSO ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 3 CONTENDED THAT BUSINESS GIVEN BY RELATED PARTIES IS MORE SECURED AS THERE ARE NO BAD DEBTS. THE TRANSFER PRICING OFFICER AFTER CONSIDER ING THE ABOVE SUBMISSION OF THE ASSESSEE AND CONSIDERING THE RATE OF INTEREST OF 15 % ARRIVED AT A SUM OF RS.29,16,954/- AS INTEREST ON ACCOUNT OF EXCESS CRE DIT PERIOD GIVEN BY ASSESSEE TO ITS ASSOCIATED ENTERPRISES. ACCORDINGLY AO MADE SAID AD DITION TO THE INCOME OF THE ASSESSEE. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE FIRST APPELLATE AUTHORITY. 6. BEFORE LD. CIT(A), ASSESSEE FILED WRITTEN SUBMIS SION WHICH HAVE BEEN STATED BY LD. CIT(A) AT PAGES 3 & 4 OF THE IMPUGNED ORDER, WHICH IS AS UNDER: AT THE OUTSET IT WAS SUBMITTED THAT SINCE THE RATE OF COMMISSION EARNED ON THE TRANSACTIONS WITH AE IS FAR MORE THAN THAT OF N ON AES, NO ADJUSTMENT UNDER TP PROVISIONS IS JUSTIFIED. WITHOUT PREJUDICE, THE TPO HAS COMPARED THE TRANSAC TIONS ONLY WITH TWO UNRELATED PARTIES I.E. BOTH IN SPAIN (M/S. IBEROGAT AND M/S.CATAI SPAIN) AND DECIDED THAT THE NORMAL CREDIT PERIOD AVAILABLE OF 49 DAYS IS A YARDSTICK FOR COMPARING THE TRANSACTIONS WITH AES. THE ACTION OF THE TPO IN CONCLUDING THAT THE APPELL ANT SHOULD ALLOW IDENTICAL CREDIT PERIOD TO ALL THE AGENTS IS NOT JUSTIFIED. T PO SHOULD EVALUATE THE DECISION FROM THE POINT OF VIEW OF THE BUSINESSMEN AND TPO S HOULD HAVE CONSIDER SEVERAL FACTORS BEFORE MAKING ANY DECISION: VOLUME OF BUSINESS REGULARITY OF BUSINESS RISK OF BAD DEBTS RATE OF COMMISSION EARNED PAST HISTORY IT WAS SUBMITTED THAT THE BUSINESS GIVEN BY THE ASS OCIATE ENTERPRISES IS 72% AND UNRELATED ENTERPRISE IS ONLY 28%. THUS, THE BUS INESS FROM THE AES IS 3 TIMES MORE THAN THAT OF THE NON AES. THEREFORE, TRA NSACTION WITH TWO ISOLATED PARTIES WITH SMALL BUSINESS CANNOT BE USED AS A YAR DSTICK FOR COMPARING THE ARMS LENGTH PRICE. THEREFORE, TRANSACTIONS WITH TWO PARTIES CANNOT BE TREATED AS HELD TO BE COMPARABLE. FURTHER, THE RATE OF COMMISSION EARNED FROM AES IS 26.71 % AS AGAINST 18.50% FROM NON AES. IT IS SUBMITTED THAT THE COST RELATING TO EXCESS CREDIT PERIOD IS BEING FACTORED WHILE QUOTING THE TOUR COS T TO AES AND THIS GETS REFLECTED IN THE BETTER MARGINS EARNED IN CASE OF A ES. THE TPO HAS ASSUMED AVERAGE CREDIT PERIOD OF 49 DAY S AND APPLYING THE RATE OF INTEREST @ 15% P.A. COMPUTED THAT BY NOT COLLECT ING THE RECEIVABLES IN ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 4 TIME, THE APPELLANT HAS ENDED UP PAYING EXCESS INTE REST TO THE BANKS ON VARIOUS BORROWINGS. THE STATEMENT SHOWING COMPUTATI ON OF THE RATE OF INTEREST CHARGEABLE BY THE TPO, WITH REFERENCE TO THE TRANSA CTIONS WITH AE.S WAS SUBMITTED BEFORE ME. ON PERUSAL OF THE STATEMENT, I T COULD BE SEEN THAT THE HIGHEST RATE OF INTEREST CHARGEABLE BY THE AO WOULD BE 7.85%. AS ALREADY SUBMITTED, THE APPELLANT EARNS COMMISSION AT A RATE HIGHER BY 8.21% IN RESPECT OF THE AES THAN THE NON AES. THUS, THE APPE LLANT ALREADY OFFERED TO TAX MORE COMMISSION (8.21% 7.85%) THEN THE INTERE ST EXPENDITURE. WITHOUT PREJUDICE TO THE ABOVE, IT WAS SUBMITTED TH AT WHILE WORKING OUT THE CREDIT PERIOD, THE ADVANCES RECEIVED FROM CUSTOMERS OR AES HAS NOT BEEN TAKEN INTO ACCOUNT BY THE TPO. IF THE SAME IS CONSI DERED, THE CREDIT PERIOD WORKED OUT BY THE TPO GETS CHANGED SUBSTANTIALLY. T HE WORKING CALCULATION OF INTEREST IS SUBMITTED BY APPELLANT. IF THE ADVANCES RECEIVED FROM THE PARTIES IS CONSIDERED THE DISALLOWANCE SHOULD BE RESTRICTED AS BELOW AFTER TAKING INTO ACCOUNT THE ADVANCES RECEIVED FROM THE AES. COX & KINGS,UK RS. 6,65,570/ - COX & KINGS USA RS.2, 92,598/- COX & KINGS ,JAPAN RS. 15,36,774/- ......................... TOTAL RS. 24,94,942/- . IT WAS SUBMITTED THAT THE, HONBLE CIT(A) FOR A.Y. 2003-04 HAS RESTRICTED THE DISALLOWANCE TO THE EXTENT OF ONLY THE EXCESS OF AV ERAGE CREDIT GRANTED BEYOND 69 DAYS WAS TREATED AS EXCESSIVE AND PROPORTIONATE INTEREST WAS ADDED U/S. 92CA(4). FURTHER, IT WAS SUBMITTED THAT THE DISALLOWANCE OF INTEREST IS NOT JUSTIFIED SINCE THE EFFECT OF EXCESS CREDIT PERIOD GRANTED TO THE A ES IS ALREADY CONSIDERED WHILE ARRIVING AT THE PRICE OF THE TOUR, WHICH IS E VIDENT FROM MORE COMMISSION INCOME FROM AES THAN NON AES. IT HAS BEEN ALSO JUST IFIED BY THE APPELLANT THAT EVEN IF EXTRA CREDIT PERIOD IS GRANTED TO THE AES, THE SAME IS OFFSETTED BY THE HIGHER PROFIT MARGIN. IT HAS BEEN ALSO SUBMITTED TH AT THERE IS NO LOSS TO THE REVENUE SINCE THE APPELLANT HAS EARNED MORE PROFIT THAN THE PAYMENT OF INTEREST. IT WAS FURTHER SUBMITTED THAT IF THE EFFECT OF THE HIGH VOLUME OF BUSINESS (72% AS AGAINST 28% BY NON AES) PROVIDED BY THE AES IS F ACTORED INTO, THE ADDITION MADE BY THE AO COULD NOT BE JUST FIED. AS HAS BEEN HELD BY VARIOUS TRIBUNALS IN SEVERAL CASES, INCLUDING THE RECENT CASE OF SONY INDIA (P) LTD. 114 LTD 488 (DEL), WHEN THE EFFECT OF A PARTICULAR FACTOR COULD NOT BE QUANTIFIED ON SCIENTIFIC OR ACCURATE BASIS, THE SAME COULD BE EST IMATED ON AD HOC BASIS. SO IF ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 5 WE FURTHER CONSIDER THE IMPACT OF THE VOLUME OF BUS INESS PROVIDED BY THE AES, THE ADDITION AS MADE BY THE AO IS NOT JUSTIFIED 7. THE LD. CIT(A) AFTER CONSIDERING THE ABOVE SUBMI SSION OF THE ASSESSEE DELETED THE SAID ADDITION MADE BY AO VIDE PARA-6 OF THE IMP UGNED ORDER WHICH READS AS UNDER : I HAVE CONSIDERED THE ORDER PASSED BY THE TPO U/S 92CA(3) AS WELL AS LBOVE SUBMISSIONS MADE BY THE APPELLANT DURING THE COURSE OF HEARING. IN THE YEAR UNDER CONSIDERATION, THE TPO HAS COMPAR ED THE TRANSACTIONS WITH ASSOCIATED ENTERPRISES IN UK, USA AND JAPAN WITH TWO PARTIES, CATAI SPAIN AND IBEROJET. THE TPO HAS WORK ED THE AVERAGE CREDIT PERIOD IN UNCONTROLLED TRANSACTIONS AT 49 DA YS AND ACCORDINGLY, HE CALCULATED INTEREST AND MADE ADDITION U/S 92CA(3) OF THE ACT. 6.1 AS HAS BEEN HELD IN THE APPELLANTS OWN CASE FO R A.Y 2003-04 TO COMPARE THE LIKE TRANSACTIONS, THE APPELLANT WAS AS KED TO SUBMIT FULL DETAILS OF TRANSACTIONS WITH THE TWO UNRELATED PART IES I.E CATAI SPAIN AND IBEROJET ENTERED INTO DURING THE YEAR AND ALSO THE AVERAGE CREDIT PERIOD AVAILED BY THEM. THIS WAS COMPARED WITH THE ENTIRE TRANSACTIONS WITH AES DURING THE YEAR AND AVERAGE CREDIT PERIOD AVAIL ED BY THESE 3 AES. FURTHER, IT IS ALSO IMPORTANT TO TAKE INTO ACCOUNT THE ADVANCES RECEIVED FROM THE PARTIES WHILE WORKING OUT THE CREDIT PERIO D. 6.2. THE APPELLANT HAS ALSO BROUGHT TO MY NOTICE TH AT THE AVERAGE PROFIT EARNED ON TRANSACTIONS WITH AES IS 27.71% WHILE THA T FROM NON AES IS 18.50%. THUS, THE DIFFERENCE THE RATE OF COMMISSION EARNED FROM AES AND THAT OF NON AES IS 8.2 1%. APPELLANT SUBMITTED A STATEMENT SHOWING COMPUTATION OF THE RATE OF INTEREST CHARGEA BLE BY THE TPO, WITH REFERENCE TO THE TRANSACTIONS WITH AES. ON PER USAL OF THE STATEMENT, IT IS OBSERVED THAT THE HIGHEST RATE OF INTEREST CHARGEABLE BY THE AO ON A PROPORTIONATE BASIS IS 7.85% WHEREAS TH E EXTRA COMMISSION EARNED BY THE APPELLANT IN RESPECT OF AE S AS COMPARED TO NON AES IS 8.21% WHICH SHOWS THAT APPELLANT IS ALRE ADY OFFERED MORE TAX ON COMMISSION (8.21% 7.85%) THEN THE INTEREST EXPENDITURE 6.3. FURTHER, I AM OF THE CONSIDERED VIEW THAT, WHE N WE ARE COMPARING THE PROFITABILITY OF THE BUSINESS, WE HAVE TO TAKE TOTALITY OF ALL THE FACTORS AND NOT ISOLATED INDIVIDUAL ASPECT OF BUSIN ESS, WHICH CONTRIBUTES TO PROFIT FROM ACTIVITY. ACCORDINGLY, THE COMPARISO N OF MARGINS WITH AES & OTHERS AND ADJUSTMENT IF ANY UNDER TP HAS TO BE M ADE AFTER CONSIDERING THE VOLUME OF BUSINESS, REGULARITY OF T HE BUSINESS, RISK OF BUSINESS, RATE OF COMMISSION AND THE PROFITABILITY OF BUSINESS. ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 6 THEREFORE, ON CAREFUL EXAMINATION OF THE MATERIAL O N RECORD, I HOLD THAT THE WEIGHTED AVERAGE CREDIT PERIOD ALLOWED BY THE T PO OF 49 DAYS IS CORRECT IT IS ALSO A FACT THAT THE APPELLANT HAS EA RNED MORE COMMISSION THEN THE INTEREST EXPENDITURE CALCULATED ON AVERAG E CREDIT PERIOD OF 49 DAYS, WHICH MEANS THAT THE APPELLANT HAS ALREADY OF FERED MORE TAX ON COMMISSION. THUS TAKING A HOLISTIC VIEW, THERE REMA INS NO CASE FOR ADJUSTMENT. HENCE DEPARTMENT IS IN APPEAL BEFORE US. 8. AT THE TIME OF HEARING, LD. DR RELIED ON THE ORD ER OF AO AND WHEREAS LD. AR SUBMITTED THAT THE SAME VERY ISSUE HAS BEEN CONSIDE RED BY TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002-03 IN ITA NO. 982 AND 1937/M/2007 VIDE ORDER DT. 29 TH AUGUST, 2010 AND AGAIN THE SAME ISSUE WAS CONSIDER ED BY TRIBUNAL FOR ASSESSMENT YEAR 2003-04 IN ITA NO. 3751 & 4165/M/07 VIDE ORDER DT. 28.1.2011 AND REFERRED TO PAGES 24 TO 40 OF THE PAPER BOOK FOR TH E ORDER OF ASSESSMENT YEAR 2002- 03 AND PAGES 41 TO 53 OF THE PAPER BOOK FOR ASSESSM ENT YEAR 2003-04 WHICH ARE THE COPIES OF THE SAID ORDERS OF THE TRIBUNAL. HE SUBM ITTED THAT IN THE ASSESSMENT YEAR UNDER CONSIDERATION, LD. CIT(A) HAS JUSTIFIED THE E XCESS CREDIT PERIOD GRANTED TO ASSOCIATED ENTERPRISES AND THEREAFTER DELETED THE A DDITION MADE BY AO ON THE BASIS OF ORDER OF TPO. HE SUBMITTED THAT ORDER OF LD. CI T(A) BE CONFIRMED. IN REJOINDER, LD. DR SUBMITTED THAT IN THE EARLIER ASSESSMENT YEA RS, TRIBUNAL RESTORED THE ISSUE TO THE FILE OF AO AND ACCORDINGLY THE MATTER COULD BE RESTORED TO AO FOR HIS FRESH ADJUDICATION FOLLOWING THE EARLIER ORDERS OF TRIBUN AL. 8.1. WE HAVE CONSIDERED THE SUBMISSIONS OF LD. REPR ESENTATIVES OF THE PARTIES AND ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO CONS IDERED THE EARLIER ORDERS OF TRIBUNAL FOR A.Y. 2002-03 AND 2003-04 (SUPRA) PLAC ED AT PAGES 24 TO 40 OF PAPER BOOK RELATING TO ASSESSMENT YEAR 2002-03 AND PAGES 41 TO 53 OF THE PAPER BOOK RELATING TO ASSESSMENT YEAR 2003-04 AND ORDERS OF T HE AUTHORITIES BELOW. WE OBSERVE THAT IN BOTH ASSESSMENT YEARS THE TRIBUNAL REMANDED BACK THE ISSUE TO THE FILE OF AO FOR HIS FRESH ADJUDICATION IN ACCORDANCE WITH LAW AFTER CONSIDERING ALL FACTUAL ASPECTS AS WELL AS ARGUMENTS ADVANCED BY AS SESSEE ON THE ISSUE INVOLVED. IN VIEW OF ABOVE, WE RESTORE THIS ISSUE TO THE FILE OF AO FOR HIS FRESH CONSIDERATION AFTER ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 7 SETTING ASIDE THE ORDERS OF AUTHORITIES BELOW WITH A DIRECTION THAT HE WILL DECIDE THE SAME AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE AND CONSIDERING SUCH EVIDENCES AS MAY BE PLACED BY THE ASSESSEE BEFORE H IM. HENCE GROUND NO 1 OF THE APPEAL TAKEN BY DEPARTMENT IS ALLOWED FOR STATISTIC AL PURPOSES. 9. GROUND NO.2 OF THE APPEAL TAKEN BY THE DEPARTMEN T IS AS UNDER : WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A O TO TREAT THE ENTIRE AMOUNT OF ADVERTISEMENT EXPENDITURE OF RS.2,22,84,651/- AS REVENUE EXPENDITURE. 10. THIS GROUND OF APPEAL IS ALSO CONNECTED WITH GR OUND NOS.1 & 2 OF THE APPEAL FILED BY THE ASSESSEE, WHICH ARE AS UNDER : 1. ERRED IN CONFIRMING DISALLOWANCE OF ADVERTISEM ENT EXPENDITURE OF LAST QUARTER OF FINANCIAL YEAR 2003- 04 OF RS.2,22,84,651 ON THE BASIS OF DATE OF RELEASE OF A DVERTISEMENT BY OBSERVING THAT THE ADVERTISEMENT EXPENDITURE WAS NOT PERTAINING TO THE YEAR UNDER CONSIDERATION. 2. FAILED TO APPRECIATE THAT HAVING ACCEPTED THAT EXPENDITURE ON ADVERTISEMENT WAS INCURRED DURING THE YEAR AND T HE EXPENDITURE WAS OF REVENUE IN NATURE, THE SAME SHOU LD HAVE BEEN ALLOWED AS DEDUCTION DURING THE YEAR UNDER CON SIDERATION. 11. THE RELEVANT FACTS ARE THAT THE ASSESSEE CLAIME D ADVERTISEMENT EXPENDITURE OF RS.2,22,84,651/- IN THE INCOME-TAX RETURN AS DEDUCT ION OF EXPENSES STATING AS UNDER: ADVERTISEMENT EXPENSES INCURRED DURING THE YEAR BU T DEFERRED IN THE BOOKS OF ACCOUNTS. 12. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO ASKED THE ASSESSEE TO SUBMIT DETAILS ALONG WITH RELEVANT BILLS AND TO JUS TIFY THE CLAIM HOW THE SAID AMOUNT OF RS.2,22,84,651/- IS REVENUE EXPENDITURE, PARTICU LARLY WHEN IT IS NOT DEBITED IN THE P & L ACCOUNT. THE ASSESSEE FILED ITS EXPLANATION V IDE LETTER DATED 30-11-2006. THE CONTENTS OF THEIR SUBMISSIONS HAVE BEEN STATED BY T HE AO AT PAGE 3 OF THE ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 8 ASSESSMENT ORDER. IT IS RELEVANT TO STATE THAT THE ASSESSEE STATED THAT IT HAD INCURRED THE ADVERTISEMENT EXPENSES TO CREATE MARKET FOR ITS PRODUCT/SERVICES. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, AS PART OF MARKET STRATEGY ADOPTED DURING EARLIER YEAR, IT CREATED CE RTAIN SPECIAL ADVERTISEMENT CAMPAIGNS AND ALSO TRIED TO POPULARIZE TOURS UNDER CERTAIN CATCHY THEMES LIKE DUNIYA DEKHO AND BHARAT DEKHO. IT WAS STATED THAT AT THE TIME OF FINALIZING THE ACCOUNTS, THE MANAGEMENT DECIDED TO TREAT THIS EXPENDITURE AS DEFERRED REVENUE EXPENSES AND TO WRITE IT OFF OVER A PERIOD OF 5 YEARS AND AC CORDINGLY A PROPORTIONATE AMOUNT WAS CHARGED TO THE CURRENT YEARS PROFIT. SINCE THE ADVERTISEMENT EXPENDITURE HAD BEEN INCURRED BY THE ASSESSEE IN THE CURRENT YEAR, IT IS CLAIMED AS DEDUCTION AS PER PROVISIONS OF INCOME-TAX ACT. BY INCURRING SUCH EXP ENSES, IT CANNOT BE SAID THAT ANY TANGIBLE ASSET HAD BEEN CREATED. HENCE, THE SAID EX PENDITURE CANNOT BE TREATED AS CAPITAL EXPENDITURE. THE AO DID NOT ACCEPT THE CONT ENTION OF THE ASSESSEE AND CONSIDERED THAT THE EXPENDITURE HAD BEEN INCURRED F OR ACQUIRING OR BRINGING INTO EXISTENCE AN ASSET OR ADVANTAGE FOR THE ENDURING BE NEFIT OF THE BUSINESS AND, THEREFORE, IT IS PROPERLY ATTRIBUTABLE TO CAPITAL A ND IS OF THE NATURE OF CAPITAL EXPENDITURE. THE ASSESSEE HAS CREATED A BRAND IMAG E THROUGHOUT THE COUNTRY, WHICH IS NOT A TANGIBLE ASSET BUT CERTAINLY IT IS A KIND OF INTANGIBLE ASSET IN THE NATURE OF GOODWILL. IN VIEW OF ABOVE, THE AO CONSIDERED THE A DVERTISEMENT EXPENDITURE OF RS.2,22,84,651/- AS CAPITAL EXPENDITURE. BEING AGGR IEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). 13. THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE, HAS STATED THAT THIS ISSUE IS OLD AND HAD BEEN EXAMINED AT LEN GTH IN APPEAL IN EARLIER YEAR. THE LD. CIT(A) HAS STATED THAT IN HIS ORDER FOR ASSESSM ENT YEAR 2003-04 THE TEST OF ENDURING BENEFIT IS NOT ONLY THE CRITERIA TO HOLD T HE EXPENSES AS CAPITAL ONE BUT THE ENTIRE FACTS AND CIRCUMSTANCES HAVE TO BE CONSIDERE D. THE LD. CIT(A) HAS STATED THAT IN HIS VIEW THE EXPENDITURE INCURRED BY THE ASSESSE E ON ADVERTISEMENT IS ON REVENUE ACCOUNT FOR EFFICIENTLY CARRYING ON THE BUSINESS. T HE LD. CIT(A) HAS STATED THAT THERE IS NO DISPUTE THAT THE EXPENDITURE HAD BEEN INCURRE D ONLY FOR PUBLICIZING THE SERVICES RENDERED BY THE ASSESSEE. THEREFORE, THE AO WAS NOT CORRECT TO DISALLOW THE ADVERTISEMENT EXPENDITURE MERELY ON ENDURING BENEFI T TO CREATE GOODWILL OVER A PERIOD OF TIME. HE FURTHER OBSERVED THAT THERE IS N O PROVISION FOR AMORTIZATION OF ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 9 REVENUE EXPENDITURE IN THE INCOME-TAX ACT, AS THE R EVENUE EXPENDITURE IS TO BE ALLOWED IN TOTO. THE LD. CIT(A), AFTER CONSIDERING THE ORDERS OF HIS PREDECESSOR FOR ASSESSMENT YEARS 2002-03 AND 2003-04 IN ASSESSEES OWN CASE, HELD THAT THE EXPENDITURE ON ADVERTISEMENT AND PUBLICITY WAS OF R EVENUE NATURE AND WAS AN ALLOWABLE BUSINESS EXPENDITURE IN THE FACTS AND CIR CUMSTANCES OF THE CASE. HOWEVER, THE LD. CIT(A) HAS STATED THAT AS IN EARLIER YEARS, THE EXPENDITURE ALLOWABLE HAS TO BE COMPUTED BY ALLOWING EXPENDITURE OF LAST QUARTER OF ASSESSMENT YEAR 2003-04 BUT DISALLOWING EXPENDITURE OF THE LAST QUARTER OF ASSE SSMENT YEAR 2004-05 BASED ON THE DATE OF THE RELEASE OF THE ADVERTISEMENTS. THE LD. CIT(A) HAS STATED THAT AS PER THE DETAILS PROVIDED BY THE ASSESSEE, THE EXPENDITURE O F RS.2,22,84,651/- HAS BEEN INCURRED IN THE LAST QUARTER OF ASSESSMENT YEAR 200 4-05 AND ACCORDINGLY HE HAS DIRECTED THE AO TO ALLOW THE EXPENDITURE OF RS.2,22 ,84,651/- IN SUCCEEDING YEAR I.E. ASSESSMENT YEAR 2005-06, BUT HAS HELD THAT THE ASSE SSEE IS ENTITLED TO DEDUCTION OF RS.53,65,475/- BEING THE ADVERTISEMENT EXPENDITURE INCURRED IN THE LAST QUARTER FOR ASSESSMENT YEAR 2003-04. HENCE, THE ASSESSEE AS WEL L AS THE DEPARTMENT ARE IN APPEAL BEFORE THE TRIBUNAL. 14. AT THE TIME OF HEARING, THE LD. D.R. REFERRED T O THE WRITE-UP GIVEN AT THE TIME OF HEARING OF THE APPEAL AND SUBMITTED THAT THIS IS SUE IS COVERED BY THE ORDER OF ITAT OF THE EARLIER ASSESSMENT YEAR AGAINST THE DEPARTME NT AND, THEREFORE, HE RELIES ON THE ORDER OF AO. HOWEVER, THE LD. A.R. REFERRED TO PAGES 24 TO 40 OF PAPER BOOK, WHICH IS A COPY OF ITATS ORDER DATED 20-08-2010 IN ASSESSEES OWN CASE IN ITA NO.982/MUM/2007 FOR ASSESSMENT YEAR 2002-03 AND ALS O REFERRED TO PAGES 41 TO 53 OF PAPER BOOK, WHICH IS A COPY OF ITATS ORDER DATE D 28-01-2011 IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04, AND SUBMITTED THA T THE SAID ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL. 15. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE EARLIER ORDERS OF THE TRIBUNAL FOR ASSESSMENT YEARS 2002-03 AND 2003-04 (SUPRA). WE OBSERVE THAT THE TRIBUNAL, AFTER CONSIDERING THE CA SE OF THE HONBLE APEX COURT IN THE CASE OF DCIT VS. CORE HEALTH CARE LTD. (298 ITR 194 ) AND THE DECISIONS OF VARIOUS HIGH COURTS VIZ., (I) CIT VS BRILLIANT TUTORIALS P VT. LTD. 291 ITR 399 (MAD), (II) BHOR ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 10 INDUSTRIES LTD. 264 ITR 180 (BOM) (III) SILICON GRA PHICS SYSTEMS (I) PVT. LTD. 106 TTJ 152 (DEL) ETC. HELD THAT ADVERTISEMENT EXPENDITURE INCURRED BY ASSESSEE TO CREATE A BRAND IMAGE WITH ENDURING BENEFIT IS ALLOWABLE AS R EVENUE EXPENDITURE AND HELD THAT EVEN IF ASSESSEE WAS WRITING OFF THE EXPENDITURE OV ER A PERIOD OF TIME, THE AO WAS NOT JUSTIFIED TO DISALLOW THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAD AMORTIZED THE SAID EXPENDITURE AND CLAIMED DEDU CTION TO 1/5 TH OF THE TOTAL AMOUNT CLAIMED. THE TRIBUNAL HELD THAT THE EXPENDIT URE INCURRED BY THE ASSESSEE IS ALLOWABLE AS REVENUE EXPENDITURE AS THERE IS NOTHI NG ON RECORD TO SHOW THAT THE SAID EXPENDITURE WAS INCURRED FOR PROCURING BUSINESS FOR THE NEXT YEAR. THE TRIBUNAL, RELYING ON THE DECISION OF HONBLE APEX COURT IN TH E CASE OF SASSOON DAVID VS. CIT (118 ITR 261), HELD THAT EXPENDITURE MAY BE INCURR ED VOLUNTARILY AND FOR PROMOTING THE BUSINESS FOR EARNING PROFITS AND THE ASSESSEE CAN CLAIM DEDUCTION EVEN THOUGH THERE WAS NO NECESSITY TO INCUR SUCH EXPENDITURE. 16. SINCE THE FACTS IN THE YEARS UNDER CONSIDERATIO N AND THE REASONS GIVEN BY THE AO TO MAKE DISALLOWANCE AND THE REASONS GIVEN BY TH E LD. CIT(A) TO DELETE THE ADDITION MADE BY THE AO IN RESPECT OF THE EXPENDITU RE UNDER CONSIDERATION ARE SIMILAR TO ASSESSMENT YEARS 2002-03 AND 2003-04, RE SPECTFULLY FOLLOWING EARLIER ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE U PHOLD THE ORDER OF THE LD. CIT(A) TO HOLD THAT THE SAID EXPENDITURE OF RS.2,22,84,651 /- CLAIMED BY THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION IS REVENUE EXPE NDITURE. THEREFORE, WE DIRECT THAT THE SAID EXPENDITURE INCURRED BY THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION IS ALLOWABLE AS DEDUCTION IN THE ASSE SSMENT YEAR UNDER CONSIDERATION. HOWEVER, WE MODIFY THE ORDER OF LD. CIT(A) THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION OF RS.53,65,475/-, BEING THE ADVERTISEMEN T EXPENDITURE INCURRED IN THE LAST QUARTER FOR ASSESSMENT YEAR 2003-04 IN THE ASSESSME NT YEAR UNDER CONSIDERATION. WE OBSERVE THAT THE TRIBUNAL HAS ALLOWED THE ADVERTISE MENT EXPENDITURE INCURRED BY THE ASSESSEE IN THE RESPECTIVE ASSESSMENT YEARS AS REVE NUE EXPENDITURE, THE SAID DEDUCTION OF RS.53,65,475/- INCURRED BY THE ASSESSE E IN THE PRECEDING ASSESSMENT YEAR WAS ALLOWABLE IN THE SAID ASSESSMENT YEAR AND NOT IN THE ASSESSMENT YEAR UNDER CONSIDERATION. IN VIEW OF ABOVE, WE REJECT GROUND N O.2 OF THE APPEAL TAKEN BY THE DEPARTMENT AND ALLOW GROUNDS NO.1 AND 2 TAKEN BY TH E ASSESSEE SUBJECT TO OUR ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 11 ABOVE OBSERVATION IN RESPECT EXPENDITURE OF RS.53,6 5,475/- RELATING TO THE EXPENDITURE INCURRED IN ASSESSMENT YEAR 2003-04, WH ICH HAS BEEN ALLOWED BY ITAT IN THE APPEAL FOR RELEVANT ASSESSMENT YEAR 2003-04. 17. GROUND NO.3 OF THE APPEAL TAKEN BY THE DEPARTME NT IS AS UNDER : WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF BAD DEBTS TO THE EXTENT OF RS.82,64,594/- WITHOUT APPRECIATIN G THE FACT THAT THE ASSESSEE HAD FAILED TO FURNISH THE PARTICU LARS OF THE CLAIM AND JUSTIFICATION FOR WRITE OFF BEFORE THE AO . 18. GROUND NOS.3 & 4 OF THE APPEAL TAKEN BY THE ASS ESSEE ARE CONNECTED WITH GROUND NO. 3 OF THE APPEAL OF THE DEPARTMENT, WHICH ARE AS UNDER : 3 ERRED IN CONFIRMING THE DISALLOWANCE OF SUNDR Y DEBITS BALANCE WRITTEN OFF OF RS.8,75,505 WITHOUT APPRECIA TING THE FACT THAT AFTER THE AMENDMENT TO SECTION 36(1)(VII) , WRITE OFF OF IRRECOVERABLE DEBTS, IS SUFFICIENT COMPLIANCE FOR A LLOWABILITY OF DEDUCTION UNDER SECTION 36(1)(VII) R.W.S. 36(2); 4. FAILED TO APPRECIATE THE ALTERNATE CONTENTION OF THE APPELLANT THAT SUNDRY DEBT BALANCE WRITTEN OFF SHOU LD HAVE BEEN ALLOWED AS A BUSINESS LOSS UNDER SECTION 37(1) OR SECTION 28 OF THE ACT. 19. THE RELEVANT FACTS ARE THAT THE ASSESSEE HAD WR ITTEN OFF RS.91,40,099/- AS IRRECOVERABLE DEBTS AND IRRECOVERABLE SUNDRY BALANC ES AND THE BREAK-UP IS AS UNDER : BAD DEBTS ON ACCOUNT OF BUSINESS RS.5 2,38,227/- NON RECEIPT OF BUSINESS ADVANCE RS.26,01,000/- NON RECEIPT OF STAFF ADVANCE RS. 4,25,367/- OTHER BAD DEBTS RS. 8,75,505/- TOTAL RS.91,40,099/- ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 12 20. THE AO HAS STATED THAT THE ASSESSEE HAS FAILED TO SUBMIT DETAILS TO JUSTIFY DEDUCTION OF BAD DEBTS. HOWEVER, THE ASSESSEE GAVE A LIST VIDE LETTER DATED 30-11- 2006 SHOWING THE NAMES OF THE PARTIES AND AMOUNTS B UT FAILED TO GIVE COMPLETE ADDRESSES, DETAILS ABOUT THE YEARS IN WHICH IT WAS CREDIT TO P & L ACCOUNT AS REQUIRED U/S. 36(1)(VII), COPIES OF BILLS, CORRESPONDENCE, E TC. THE AO HAS FURTHER STATED THAT THE SAID BAD DEBTS CLAIMED BY THE ASSESSEE ALSO INC LUDED THE CLAIM FOR TDS CERTIFICATES NOT RECEIVED OF RS.1,18,542/- + RS.24, 356/- , I.E., AGGREGATE AMOUNT OF RS.1,42,898/-. THEREFORE, THE AO DISALLOWED THE CLA IM OF THE ASSESSEE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE OF RS.91,4 0,099/-. 21. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE T HE FIRST APPELLATE AUTHORITY. THE ASSESSEE FILED ITS WRITTEN SUBMISSIONS WHICH HAS BE EN SUMMARIZED BY THE LD. CIT(A) AT PAGES 10 TO 12 OF THE IMPUGNED ORDER AND WE CONS IDER IT RELEVANT TO REPRODUCE THE SAME: 9.3 THE APPELLANT HAS SUBMITTED DETAILS OF AMOUNTS WRITTEN OFF. THE APPELLANTS SUBMISSIONS IS SUMMARIZED AS U NDER : BAD DEBTS OF RS.52,38,227/-: IT WAS SUBMITTED THAT THE AMOUNT, WHICH HAS BEEN WRITTEN OFF DURING THE YEAR MAINLY, PERTAINS TO OLD DUES OR THE DUES IN RESPECT OF WHICH, NO RECEIPT IS ANTICIP ATED. THUS, CONSIDERING THE FACTS OF THE CASE, IN THE OPI NION OF THE MANAGEMENT, NO USEFUL PURPOSE WILL BE ACHIEVED BY CARRYING FORWARD THESE DEBTORS, KEEPING IN MIND THE COST OF LITIGATION AND BUSINESS RELATION POTENTIALS. ACC ORDINGLY, THE APPELLANT HAS WRITTEN OFF THE AMOUNT AS BAD DEB TS. AS HAS BEEN HELD BY THE COURTS, IF MANAGEMENT IS OF THE OPINION THAT DEBTS/ADVANCES ARE IRRECOVERABLE AND W RITE OFF IN THE BOOKS, IT IS SUFFICIENT COMPLIANCE. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS : JETHABHAI HIRJI VS. CIT 120 ITR 792 (BOM) SARANGPUR COTTON MFG. CO. VS. CIT 143 ITR 166 (GUJ) KAMLA COTTON CO. VS. CIT 226 ITR 605 (GUJ) DCIT VS. GOBIND GLASS INDUSTRIES LTD. 110 TAXMAN 109(AHD TRB) (MAG) ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 13 GENERAL INSURANCE CORPORATION 254 ITR 204 (BOM) THE HONBLE MUMBAI TRIBUNAL IN THE CASE OF ITO VS. ANIL H. RASTOGI 86 ITD 193 (MUM) HAS HELD THAT AFTER T HE AMENDMENT W.E.F. 1.4.89, WRITE OFF OF DEBTS IS SUFF ICIENT TO CLAIM DEBT AS BAD. FURTHER, RELIANCE IS ALSO PLA CED ON THE SPL. BENCH DECISION OF THE MUMBAI TRIBUNAL IN T HE CASE OF OMAN INTERNATIONAL BANK SAOG 100 ITD 285, WHERE IT HAS BEEN HELD BY THE SPL. BENCH THAT AFTER AMENDMENT TO SEC. 36(1)(VII) W.E.F. 1.4.2989, IT IS NOT OBLIGATORY ON THE PART OF THE APPELLANT TO PROVE TH AT THE DEBT WRITTEN OFF BY HIM IS INDEED A BAD DEBT FOR TH E PURPOSE OF ALLOWANCE U/S. 36(1)(VII). IT WAS SUBMITTED THAT THE APPELLANT HAS TAKEN STEPS TO RECOVER THE DEBTS. IN CASE OF BHARAT HEAVY ELECTRIC ALS LTD., THE APPELLANT HAS FILED LEGAL SUIT AND HAS RE COVERED THE AMOUNT OF BAD DEBT IN A.Y. 2005-06. THE AMOUNT RECOVERED IN A.Y. 2005-06 IS OFFERED TO TAX IN THAT YEAR. THUS, IT IS RESPECTFULLY SUBMITTED BEFORE YOUR HONO UR THAT SINCE THE AMOUNT OF DEBT ALREADY OFFERED TO TAX IN A.Y. 2005-06, DISALLOWANCE ON ACCOUNT OF BAD DEBT MADE I N THE YEAR UNDER CONSIDERATION WOULD AMOUNT TO DOUBLE TAXATION OF THE SAME AMOUNT WHICH IS AGAINST THE PRINCIPLE OF EQUALITY. IN VIEW OF THIS, IT IS RESP ECTFULLY SUBMITTED THAT THE AMOUNT OF BAD DEBTS SHOULD BE ALLOWED TO THE APPELLANT. NON RECOVERY OF ADVANCES: AS REGARDS THE NON RECOVERY OF ADVANCES GIVEN ARE CONCERNED, IT WAS SUBMITTED THAT THE ADVANCES WERE GIVEN TO VARIOUS PARTIES DURING THE COURSE OF BUSIN ESS AND FOR THE PURPOSE OF BUSINESS HENCE, NON RECEIPT OF THE ADVANCES IS A LOSS INCURRED DURING THE COURSE OF TH E BUSINESS AND THE SAME SHOULD HAVE BEEN ALLOWED AS A BUSINESS LOSS U/S.28 OR U/S.37 OF THE ACT. IN THIS RESPECT RELIANCE IS PLACED ON THE FOLLOWING DECISIONS : MINDA HUF LTD. 101 ITD 191 (DEL. TRIB.) T.J. LALWANI 78 ITR 176 (BOM) NATIONAL RAYON CORPORATIONS (1986) 17 ITD 1208 (BOM) A.W. FIGGIS CO.PVT. LTD. 254 ITR 63 (CAL) DHANALAXMI CORPORATION 46 ITR 1031 (MAD) THE APPELLANT SUBMITTED THAT WITHOUT APPRECIATING T HE DETAILS FILED, THE LEARNED AO DISALLOWED THE CLAIM MADE ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 14 ON THE GROUND THAT IT IS NOT POSSIBLE TO CONSIDER T HE CLAIM OF THE APPELLANT IN RESPECT OF BAD DEBTS IN ACCORDA NCE WITH THE PROVISIONS OF SEC. 36(1)(VII) OF THE ACT. THE AO ALSO IGNORED THE FACT AND THE DECISION OF THE MUMBA I SPECIAL BENCH IN OMAN INTERNATIONALS CASE 100 ITD 285. THE APPELLANT PLACED RELIANCE ON THE DECISION OF TH E DELHI HIGH COURT IN THE CASE OF MORGAN SECURITIES & CREDI TS PVT. LTD. DATED DECEMBER 7, 2007 292 ITR 339 THAT, AFTER THE AMENDMENT IN SEC. 37(1)(VII), ONCE THE DEBTS WH ICH ARE IRRECOVERABLE AS PER THE MANAGEMENT PERCEPTION ARE WRITTEN OFF, THAT IS SUFFICIENT FOR ALLOWABILITY OF CLAIM. IT WAS ALSO SUBMITTED THAT IT HAS BEEN HELD IN THE CASE OF STAR CHEMICALS (BOMBAY) (P) LTD. 11 DTR 311, THAT O NCE THE APPELLANT HAS WRITTEN OFF THE DEBT AS BAD DEBT, REQUIREMENT OF SECTION 36(1)(VII) IS SATISFIED AND THE CLAIM FOR DEDUCTION OF BAD DEBT IS ALLOWABLE. FURTHER, THE SAME VIEW HAS BEEN CONFIRMED BY THE BOMBAY HIGH COURT DECISION IN CASE OF CIT 4 VS. OMPRAKAS B. SALECHA IT APPEAL NO.11 OF 2007 THAT, WHEN IT IS WRITTEN IN THE BOOKS AS BAD DEBT, THE SA ME IS IN COMPLIANCE WITH THE REQUIREMENT OF SECTION 36(1) (VII) AND THE CLAIM FOR DEDUCTION OF BAD DEBT IS ALLOWABL E. NON RECOVERY OF STAFF ADVANCES: AS REGARDS ADVANCES GIVEN TO THE STAFF MEMBERS ARE CONCERNED, IT IS SUBMITTED THAT THE SAME ARE GIVEN AS PER THE PREVAILING NORMS OF THE INDUSTRY. CERTAIN AMOUN TS WERE GIVEN TO THE STAFF MEMBERS FOR PAYMENT TO VARI OUS AUTHORITIES ON BEHALF OF CLIENTS, WHICH WERE SUBSEQ UENTLY RECOVERED FROM THE CLIENTS AND OFFER TO TAX. THUS, THE AMOUNT CLAIMED AS BAD DEBTS ON ACCOUNT OF NON RECEI PT OF ADVANCES GIVEN TO THE STAFF SHOULD BE ALLOWED A S BAD DEBTS BECAUSE THE CONDITIONS PRESCRIBED U/S. 36(2) ARE COMPLIED WITH. WITHOUT PREJUDICE, IT IS SUBMITTED THAT EVEN IF YOUR HONOUR IS OF THE VIEW THAT THE CLAIM C ANNOT BE ALLOWED U/S.36(1)(VII), THE SAME SHOULD BE ALLOW ED AS A BUSINESS LOSS U/S. 37(1) OR SEC. 28. IN THIS RESP ECT, WE ARE RELYING ON THE DECISION OF THE HONBLE MUMBAI TRIBUNAL IN THE FOLLOWING CASES WHERE, THE HONBLE ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 15 TRIBUNAL HAS HELD THAT ADVANCES GIVEN TO STAFF, WHI CH REMAINS UNRECOVERABLE, ARE TO BE ALLOWED AS BUSINES S LOSS : MADISON COMMUNICATIONS PVT. LTD. [OTA MP/1093/M/2005 DATED 13.3.2007] CHEMINOVA INDIA LTD. [ITA NO.1948/M/2003 DATED 31.8.2006] IN VIEW OF THE ABOVE, IT WAS SUBMITTED THAT, AS HAS BEEN HELD BY VARIOUS COURTS AND TRIBUNALS, IT IS MANAGEM ENTS BONA FIDE BELIEF AND DECISION OF A DEBT BECOMING BA D AND ACCORDINGLY, THE DEDUCTION SHOULD BE ALLOWED TO THE APPELLANT FOR CLAIM OF BAD DEBTS. THUS, THE APPELLA NT IN THIS CASE IS FULFILLING ALL THE CONDITIONS, WHETHER AS PER THE OLD LAW OR AS PER THE AMENDED LAW AND SINCE THE AMO UNT WRITTEN OFF DURING THE YEAR, SAME ARE ALLOWABLE AS DEDUCTION U/S. 36(1)(VII) OR ALTERNATIVELY U/S.28 O F THE IT ACT. IT WAS SUBMITTED THAT ALL THESE DEBTS AND ADVANCES WERE TAKEN INTO ACCOUNT IN EARLIER YEARS THEREFORE, SINC E THESE AMOUNTS ARE NOW NOT RECOVERABLE, THE SAME HAVE BEEN WRITTEN OFF AS BAD DEBTS/IRRECOVERABLE ADVANCES AN D ACCORDINGLY, ALLOWABLE U/S.36(1)(VII) OR ALTERNATIV ELY U/S.28 R.W.S. 37 OF THE IT ACT. IT WAS SUBMITTED THAT IN A.Y. 2002-03 AND A.Y. 2003 -04, THE LEARNED CIT(A) HAS ALLOWED THE GROUND OF THE APPELLANT ON BAD DEBTS. THUS, IN VIEW OF THE ORDER FOR THE ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 16 PRECEDING YEAR, IT IS REQUESTED BEFORE YOUR HONOUR TO KINDLY ALLOW THE BAD DEBTS OF RS.91,40,099/-. FURTHER, DURING THE COURSE OF HEARING THE APPELLANT HAS SUBMITTED THE PARTY WISE FACTS OF EACH PARTY. 22. THE LD. CIT(A) CONSIDERED ABOVE SUBMISSIONS OF THE ASSESSEE AND VIDE PARA 10 OF THE IMPUGNED ORDER GAVE RELIEF TO THE ASSESSEE O F RS.82,64,594/- AND CONFIRMED THE DISALLOWANCE OF RS.8,75,505/-. THE RELEVANT PAR T OF THE ORDER OF LD. CIT(A) IS AS UNDER : 10.1 TO SUPPORT ITS PROPOSITIONS FOR THE ALLOWABIL ITY OF BAD DEBTS WRITTEN OFF, WRITE OFF OF ADVANCES NON RECOVE RABLE AND WRITE OFF OF STAFF ADVANCES, THE APPELLANT RELIED U PON VARIOUS DECISIONS INCLUDING THE DECISION OF THE BOMBAY HIGH COURT IN CASE OF STAR CHEMICALS (BOMBAY) (P) LTD. (SUPRA), M UMBAI SPECIAL BENCH DECISION IN CASE OF OMAN INTERNATIONA LS (SUPRA), DELHI HIGH COURT IN CASE OF MORGAN SECURITIES & CRE DITS PVT. LTD. (SUPRA), BOMBAY HIGH COURT IN CASE OF OMPRAKASH B S ALECHA (SUPRA). 10.2 ON PERUSAL OF DETAILS AND SUBMISSIONS OF THE APPELL ANT, I AGREE WITH THE CONTENTION OF APPELLANT AND ALLOW TH E BAD DEBTS OF RS.52,38,227/- RECEIVABLE FROM THE CUSTOMERS AS THE CONDITIONS PRESCRIBED U/S. 36(1)(VII) R.W.S. 36(2) ARE COMPLIED WITH. 10.3 AS REGARDS THE NON RECOVERY OF BUSINESS ADVANCES AL SO, I AGREE WITH THE ARGUMENT OF THE APPELLANT THAT IT RE PRESENTS WRITE OFF OF BUSINESS ADVANCES AND ACCORDINGLY LOSS ARISING FROM THE BUSINESS OPERATION & IS ALLOWABLE U/S. 28 OF TH E ACT. ACCORDINGLY, I DELETE THE AMOUNTS OF RS.26,01,000/- . 10.4 AS REGARDS THE ADVANCES GIVEN TO STAFF MEMBERS ARE CONCERNED, THE APPELLANTS MAIN ARGUMENTS WERE THAT THE ADVANCES PAID TO STAFF WAS AS PER PRESCRIBED NORMS OF INDUSTRY TO FACILITATE THE STAFF MEMBER FOR PAYMENT OF FEES ETC. TO VARIOUS AUTHORITIES & ACCORDINGLY IS A BUSINESS ADVANCE. I AGREE WITH THE CONTENTION OF THE APPELLANT THAT NON RECOVERY OF AD VANCES GIVEN TO STAFF UNDER BUSINESS NECESSITY IS AN ALLOWABLE B USINESS EXPENDITURE. ACCORDINGLY, I HOLD THAT THE AMOUNT RS .4,25,367/- SHOULD BE ALLOWED AS A BUSINESS LOSS U/S.28. ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 17 10.5 AS REGARDS THE OTHER WRITE OFF OF BAD DEBS, SI NCE NO PARTICULARS/DETAILS OF ITS NATURE WERE PLACED ON RE CORD TO JUSTIFY THE CLAIM AND COMPLETION OF THE CONDITIONS PRESCRIB ED U/S.36(1)(VII) R.W.S. 36(2), I AM NOT AGREEABLE TO ALLOW THE AMOUNT OF RS.8,75,505/- AS EXPENDITURE. ACCORDINGLY , I CONFIRM THE ORDER OF AO AND DISALLOW AN AMOUNT OF RS.8,75,5 05/-. THUS THE APPELLANT GETS RELIEF OF RS.82,64,594/- (RS.52,38,227 + 26,01,000 + 4,25,367). THIS GROUND OF APPEAL IS PARTLY ALLOWED. HENCE, THE DEPARTMENT AS WELL AS THE ASSESSEE ARE IN APPEAL BEFORE THE TRIBUNAL. 23. DURING THE COURSE OF HEARING, THE LD. D.R. SUBM ITTED THAT THE SUM OF RS.52,38,227/-, TO THE EXTENT OF BAD DEBTS CLAIMED, RELATES TO SALES TO CUSTOMERS, INCOME OF WHICH HAD BEEN OFFERED FOR TAX IN THE EAR LIER YEARS. HENCE, TO THAT EXTENT, THE SAID ORDER OF THE LD. CIT(A) IS JUSTIFIED. HE S UBMITTED THAT FOR THE BALANCE AMOUNT OF RS.26,01,000/- CLAIMED AS BUSINESS ADVANCE AND O F RS.4,25,367/- CLAIMED AS STAFF ADVANCE, THE AO IS JUSTIFIED TO DISALLOW THE CLAIM OF THE ASSESSEE AS BAD DEBTS AS THE SAID ADVANCES HAD NEVER BEEN OFFERED FOR TAX IN EAR LIER YEARS. HE FURTHER SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE ASSESSEE WAS ASKED TO GIVE DETAILS IN RESPECT OF ABOVE AMOUNTS, WHICH ASSESSEE FAILED TO DO SO. HE SUBMITTED THAT THE ASSESSEE FAILED TO DISCHARGE ITS ONUS WITH DOCUMENTARY EVIDENCE, HENCE THE ORDER OF AO BE CONFIRMED BY REVERSING THE ORDER OF LD. CIT(A) IN RESPECT OF ABOVE AMOUNTS. THE LD. D.R. FURTHER SUBMITTED THAT IN RES PECT OF DISALLOWANCE OF RS.8,75,505/-, THE LD. CIT(A) IS JUSTIFIED TO DISAL LOW THE CLAIM OF THE ASSESSEE AS NO PARTICULARS/DETAILS TO JUSTIFY THE CLAIM WERE FURNI SHED EVEN BEFORE THE CIT(A). 12.1 ON THE OTHER HAND, THE LD. A.R., IN RESPECT OF DELETION OF RS.82,64,594/-, SUPPORTED THE ORDER OF LD. CIT(A). HE FURTHER REFER RED TO PAGE 58 OF THE PAPER BOOK AND SUBMITTED THAT IT CONTAINS THE NAMES OF PARTIES FROM WHOM THE AMOUNT AGGREGATING RS.8,75,504/- WAS CLAIMED AS BAD DEBT. THE LD. A.R. FURTHER SUBMITTED THAT AT PAGE 57 OF THE PAPER BOOK, THE ASSESSEE HAS ALSO GIVEN THE NAMES OF PARTIES FROM WHOM BUSINESS ADVANCES AGGREGATING RS.26,01,00 0/- AND ALSO THE NAMES OF THE STAFF TO WHOM ADVANCES WERE GIVEN AGGREGATING RS.4, 25,367/- WERE NOT RECEIVED. ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 18 THE LD. A.R. SUBMITTED THAT SINCE THE ASSESSEE COUL D NOT RECOVER THE AMOUNT FROM SAID PARTIES, THE DETAILS OF WHICH ARE GIVEN AT PAG ES 56 & 57 OF THE PAPER BOOK, THE SAID AMOUNT BECAME IRRECOVERABLE/BAD DEBTS AND, THE REFORE, IS ALLOWABLE AS DEDUCTION U/S.36(1)(VII) OR, ALTERNATIVELY, U/S.28 READ WITH SEC. 37 OF THE I.T. ACT. THE LD. A.R. FURTHER SUBMITTED THAT ADVANCES TO STAFF M EMBERS WAS GIVEN FOR PAYMENTS TO VARIOUS AUTHORITIES ON BEHALF OF CLIENTS, WHICH WER E SUBSEQUENTLY RECOVERED FROM CLIENTS AND OFFERED TO TAX. THE LD. A.R. FURTHER SU BMITTED THAT SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN THE ASSESSEES OWN CA SE FOR ASSESSMENT YEAR 2002-03 VIDE ORDER DATED 20-08-2010 (VIDE PARAS 25 TO 28 OF THE SAID ORDER AT PAGES 39 & 40 OF PAPER BOOK) AND THEREFORE, THE TOTAL CLAIM OF TH E ASSESSEE IS ALLOWABLE AS BAD DEBT. 24. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUTH ORITIES BELOW AND THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTI ES. WE HAVE ALSO CONSIDERED THE CASES WHICH ARE CITED BY THE ASSESSEE IN ITS CHART FILED WITH THE PAPER BOOK. 25. WE OBSERVE THAT AS FAR AS CLAIM OF RS.52,38,227 /- ON ACCOUNT OF BUSINESS IS CONCERNED, THE NAMES OF THE PARTIES ARE GIVEN AT PA GE 57 OF THE PAPER BOOK, AND AT THE TIME OF HEARING, THE LD. D.R. CONCEDED THAT TO THAT EXTENT THE BAD DEBT AS CLAIMED BY THE ASSESSEE IS ALLOWABLE BECAUSE IT REPRESENTS SALES TO CUSTOMERS AND INCOME OF WHICH WAS OFFERED FOR TAX IN EARLIER YEARS. 25.1 NOW, COMING TO RS.26,01,000/- IN RESPECT OF NO N RECEIPT OF BUSINESS ADVANCES GIVEN TO 4 PARTIES, DETAILS OF WHICH ARE PLACED AT PAGE 57 OF THE PAPER BOOK, WE OBSERVE THAT THE LD. CIT(A) HAS STATED THAT IT WAS NON-RECOVERY OF BUSINESS ADVANCES AND, THEREFORE, THE CLAIM IS ALLOWABLE U/S.28 OF TH E I.T. ACT. DURING THE COURSE OF HEARING, THE LD. D.R. HAS NOT BROUGHT ANY MATERIAL ON RECORD THAT THE SAID CLAIM OF THE ASSESSEE IS NOT GENUINE, SAVE AND EXCEPT STATIN G THAT THE ASSESSEE COULD NOT GIVE SPECIFIC DETAILS WHICH WERE CALLED BY THE AO. IN VI EW OF THE ABOVE, WE DO NOT FIND MERIT IN THE CONTENTION OF THE LD. D.R. AND CONFIRM THE ORDER OF LD. CIT(A) IN RESPECT OF DELETION OF RS.26,01,000/- MADE BY THE AO. THUS, THE SAID CLAIM OF THE ASSESSEE HAS RIGHTLY BEEN ALLOWED BY THE LD. CIT(A). ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 19 26. NOW, COMING TO THE STAFF ADVANCES OF RS.4,25,36 7/-, WHICH HAS BEEN ALLOWED BY THE LD. CIT(A), WE OBSERVE THAT THE ASSESSEE HAS GIVEN BREAK-UP OF THE SAID AMOUNT AT PAGE 57 OF THE PAPER BOOK UNDER THE HEAD ING NON-RECEIPT OF STAFF ADVANCES. FURTHER, IN THE WRITE-UP FILED BY LD. A. R., AT THE TIME OF HEARING, IT IS STATED THAT STAFF ADVANCES WERE GIVEN AS PER PREVAI LING NORMS OF THE INDUSTRY. IT IS FURTHER STATED THAT CERTAIN AMOUNTS WERE GIVEN TO S TAFF MEMBERS FOR PAYMENT TO VARIOUS AUTHORITIES ON BEHALF OF CLIENTS WHICH WERE SUBSEQUENTLY RECOVERED FROM THE CLIENTS AND OFFERED TO TAX. WE OBSERVE THAT SAVE AN D EXCEPT ABOVE STATEMENT, THE ASSESSEE HAS NOT FURNISHED THE DETAILS AS TO HOW MU CH AMOUNT WAS RECOVERED FROM THE CLIENTS AND IF ADVANCES WERE GIVEN TO STAFF MEM BERS FOR INCURRING EXPENDITURE ON BEHALF OF THE CLIENTS AND THE SAME WAS RECOVERED FR OM THEM, HOW THE SAID AMOUNT COULD BE SHOWN UNDER THE HEAD ADVANCE TO STAFF. O N THE OTHER HAND, THE ASSESSEE SHOULD HAVE SHOWN THE BALANCE AMOUNT UNDER THE HEAD ADVANCE GIVEN TO STAFF AND IF THE SAME IS NOT RECOVERED, IT COULD BE CLAIMED A S BAD DEBT AND/OR EXPENDITURE U/S.37 OF THE ACT BUT NO DETAILS TO THAT EXTENT HAV E BEEN FILED. THEREFORE, WE OBSERVE THAT IN THE ABSENCE OF ANY SPECIFIC DETAILS AS TO H OW THAT AMOUNT OF ADVANCES GIVEN TO THE STAFF HAS BECOME BAD DEBT AND/OR EXPENDITURE TO BE ALLOWED AS EXPENDITURE, WE HOLD THAT THE ACTION OF THE AO TO DISALLOW THE C LAIM OF THE ASSESSEE, I.E., RS.4,25,367/- IS JUSTIFIED. ACCORDINGLY, WE REVERSE THE ORDER OF THE LD. CIT(A) TO THAT EXTENT BY CONFIRMING THE ACTION OF AO. 27. NOW, WE TAKE UP THE BALANCE AMOUNT OF RS.8,75,5 04/- WHICH HAS BEEN DISALLOWED BY THE LD. CIT(A) BY CONFIRMING THE ACTI ON OF AO AND IS BEING DISPUTED BY THE ASSESSEE IN ITS APPEAL. WE OBSERVE THAT THE ASS ESSEE HAS MERELY STATED THE NAMES OF THE PARTIES AND THE AMOUNT AGAINST EACH OF THEM BY PLACING THE DETAILS AT PAGE 58 OF THE PAPER BOOK BUT NO REASONS/EXPLANATIO NS HAVE BEEN GIVEN BY THE ASSESSEE IN THE WRITE-UP FILED BEFORE US; AND/OR BE FORE THE AUTHORITIES BELOW. THEREFORE, WE HOLD THAT THE LD. CIT(A) IS JUSTIFIED TO DISALLOW THE SAID CLAIM OF THE ASSESSEE ON THE GROUND THAT NO PARTICULARS/DETAILS OF ITS NATURE HAVE BEEN FILED BY THE ASSESSEE ON RECORD TO JUSTIFY THE CLAIM AND TO COM PLY WITH THE CONDITIONS PRESCRIBED U/S.36(1)(VII) READ WITH SEC. 36(2) OF THE ACT. HEN CE, WE DO NOT FIND ANY REASON, IN THE ABSENCE OF MATERIAL ON RECORD, TO INTERFERE WIT H THE ORDER OF THE LD. CIT(A). ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 20 28. IN VIEW OF ABOVE, WE ALLOW GROUND NO.3 OF THE A PPEAL OF THE DEPARTMENT IN PART BY CONFIRMING THE DISALLOWANCE OF RS.4,25,367/ - OUT OF RS.82,64,594/- ALLOWED BY THE LD. CIT(A). HOWEVER, WE CONFIRM THE ORDER OF LD. CIT(A) BY REJECTING GROUND NOS.3 AND 4 OF THE APPEAL OF THE ASSESSEE BY CONFIR MING THE DISALLOWANCE OF S.8,75,505/-. 29. IN GROUND NOS.5 TO 8 OF THE APPEAL FILED BY THE ASSESSEE, THE ASSESSEE HAS DISPUTED THE INTEREST ON ADVANCES GIVEN TO ASSOCIAT E COMPANIES OF RS.1,46,34,434/-. 30. THE RELEVANT FACTS AS STATED BY THE AO ARE THAT IN RESPECT OF ADVANCES AGGREGATING RS.30,65,355/- GIVEN TO CERTAIN PARTIES , MENTIONED IN PARA 9.1 OF ASSESSMENT ORDER, THE ASSESSEE WAS ASKED TO GIVE CO PIES OF BILLS TO JUSTIFY THAT ADVANCES WERE GIVEN FOR THE PURPOSE OF BUSINESS. TH E AO STATED THAT THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES ON THE ONE HAND A ND WAS PAYING HUGE INTEREST ON CERTAIN SECURED AND UNSECURED LOANS VARYING FROM @ 12 TO 15.5%. HE HAS STATED THAT IN THE ABSENCE OF DETAILS GIVEN BY THE ASSESSEE, TH E INTEREST @ 15.5% ON RS.30,65,355/- COMES TO RS.4,75,130/- AND DISALLOWE D THE SAME. 30.1. HE HAS FURTHER STATED THAT THE ASSESSEE HAS G IVEN ONE DEPOSIT OF RS.12 LAKHS TO A PARTY NAMED RAMAREST. THE ASSESSEE STATED THAT IT IS AN OLD PAYMENT AND HENCE ADDRESS OF THE PARTY IS NOT TRACEABLE. THE AO DID N OT ACCEPT THE SAID CONTENTION OF THE ASSESSEE AND TREATED THE SAID AMOUNT AS INTERES T FREE ADVANCES AND DISALLOWED THE INTEREST OF RS.1,86,000/- BY CALCULATING @ 15.5 % ON RS.12 LAKHS. 30.2. THE AO HAS STATED THAT THE ASSESSEE HAS GIVEN VARIOUS LOANS/ADVANCES TO M/S. TULIP HOTELS PVT. LTD., A SISTER CONCERN, THE OPENI NG BALANCE WAS RS.24,95,93,814/- AND CLOSING BALANCE WAS RS.28,10,47,484/-.THE AO HA S STATED THAT THE ASSESSEE CHARGED INTEREST @ 11% AND THAT, TOO, ON THE BALANC E AT THE END OF THE MONTH. HE HAS STATED THAT, ON THE OTHER HAND, THE ASSESSEE BO RROWED FUNDS FROM ICICI @ 15.5% AND CITY BANK @ 14%. THE AO, AFTER CONSIDERIN G THE DIFFERENCE IN RATE OF INTEREST BY MAKING CALCULATION AS MENTIONED IN PARA S 10.3 AND 10.4 OF THE ASSESSMENT ORDER, HELD THAT THE DIFFERENCE IN CONC ESSIONAL RATE OF INTEREST TO SISTER CONCERN COMES TO RS.1,39,73,304/-. HENCE, THE AO DI SALLOWED THE AGGREGATE AMOUNT OF INTEREST OF RS.1,46,34,434/-. ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 21 30.3. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BE FORE THE LD. CIT(A). 31. ON BEHALF OF THE ASSESSEE, IT WAS CONTENDED THA T IT HAD GIVEN INTEREST FREE ADVANCES FOR THE PURPOSE OF BUSINESS AND UNDER COMM ERCIAL EXPEDIENCY AND, THEREFORE, NO DISALLOWANCE OF INTEREST U/S.36(1)(II I) COULD BE MADE. THAT ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF S.A. BUILDERS LTD. (288 ITR 01) AND ALSO ON THE DECISION OF THE H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (313 IT R 340). 32. THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE, HAS HELD THAT ON SIMILAR ISSUE HIS PREDECESSOR FOR ASSESSMEN T YEARS 2002-03 AND 2003-04 UPHELD THE DISALLOWANCE OF INTEREST. THEREFORE, LD. CIT(A), FOLLOWING THE SAID ORDERS OF PRECEDING ASSESSMENT YEARS, CONFIRMED THE ACTION OF AO. HENCE, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 33. ON BEHALF OF ASSESSEE, LD. AR SUBMITTED THAT AS SESSEE FILED ALL THE DETAILS IN RESPECT OF THE ADVANCES GIVEN TO VARIOUS PARTIES BU T SAME WERE IGNORED AND LD. CIT(A) BY FOLLOWING ORDERS OF HIS PREDECESSORS FOR EARLIER ASSESSMENT YEARS CONFIRMED THE DISALLOWANCE MADE BY AO. HE SUBMITTED THAT IN THE EARLIER YEARS, DISALLOWANCE OF INTEREST WAS IN RESPECT OF INTEREST FREE ADVANCES G IVEN TO ANOTHER PARTY NAMELY M/S. EZEEGO AND WHEREAS IN THE ASSESSMENT YEAR UNDER CON SIDERATION THE PARTIES ARE DIFFERENT. TO SUBSTANTIATE HIS SUBMISSION, LD. AR REFERRED TO PAGES 148 AND 149 OF THE PAPER BOOK. LD. AR ALSO REFERRED TO PAGES 117 TO 119 OF THE PAPER BOOK WHICH CONTAIN THE FACTS SUBMITTED BEFORE THE TRIBUNAL. IT IS RELEVANT TO STATE THAT IN THE SAID STATEMENT OF FACTS READ WITH PAGE 148 OF THE PAPER BOOK, ASSESSEE HAS STATED THAT ADVANCES GIVEN TO VARIOUS PARTIES ON WHICH DISALLOW ANCE OF INTEREST HAS BEEN MADE BY AUTHORITIES BELOW ARE AS UNDER: A) IN RESPECT OF ADVANCES OF RS. 30,65,354/- FOR WHICH DISALLOWANCE OF INTEREST OF RS. 4,75,130/- HAS BEEN MADE BY AO AND CONFIRMED BY LD. CIT(A), THE DETAILS ARE AS UNDER: S. NO. NAME OF PARTY AMOUNT REMARKS ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 22 1. DILIP G. JHANGIANI 8,30,138/- HE IS OUR LEGAL ADVISOR RENDERING PROFESSIONAL SERVICES. THERE WAS AMOUNT RECEIVABLE TOWARDS SERVICES TAKEN BY HIM FROM COMPANY. THESE AMOUNTS WERE TO BE ADJUSTED AGAINST HIS FEES ONCE WE RECEIVED THE BILLS. 2. SHAMIT KAJUMDAR ASSOCIATES 8,78,682/- - DO - 3. SUYOG 1,50,000/- ADVANCE TO SUPPLIER 4. L.P. SINGH 12,06,534/- HE IS CHIEF OPERATING OFFICER OF OUR IBT DIVISION. THESE WERE ADVANCES TAKEN BY HIM IN THE COURSE OF OPERATION TILL THE TIME ALL VOUCHERS AND APPROVALS ARE SUBMITTED TO ACCOUNTS DEPARTMENT THE SAME ARE SHOWN ADVANCE TO STAFF. B) IN RESPECT OF ADVANCE OF RS. 12,00,000/- GIVEN TO R AMAREST FOR WHICH DISALLOWANCE OF INTEREST, THE ASSESSEE STATED THAT THE SAID ADVANCES WERE GIVEN DURING THE COURSE OF BUSINESS FOR FINANCIAL CONSULTANCY SERVICES TO BE RENDERED BY THE FIRM. C) IN REGARD TO ADVANCES GIVEN TO TULIP HOTEL PVT. LTD ., ASSESSEE STATED THAT IT CHARGED INTEREST @ 11% AMOUNTING TO RS.2,79,46,610/ - ON MONTHLY CLOSING BALANCE. HE FURTHER STATED THAT OVER AND ABOVE THI S, INTEREST OF RS. 1,18,19,848/- AND RS. 71,05,004/- WAS ALSO RECOVERE D IN RESPECT OF UNSECURED LOANS OBTAINED FROM DCB AND ICICI BANK RE SPECTIVELY. HENCE, DISALLOWANCE OF INTEREST HAS BEEN MADE WITHO UT APPRECIATING THE FACTS IN CORRECT PERSPECTIVE. 33.1. THE LD. AR FURTHER SUBMITTED THAT ADVANCES WE RE GIVEN FROM MIXED FUNDS THEREFORE DISALLOWANCE IS NOT IN ACCORDANCE WITH LA W. TO SUBSTANTIATE HIS SUBMISSIONS, LD. AR PLACED RELIANCE ON THE DECISION IN THE CASE OF S.A BUILDERS LTD. (SUPRA) AND DECISION IN THE CASE OF KANDAGIRI SPINNING MILLS LT D. 298 ITR 306 (MAD) ETC. ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 23 33.2. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENT ATIVE SUBMITTED THAT THE FACTS AS STATED BY LD. AR HAVE NOT BEEN MENTIONED IN THE ORDER OF THE AUTHORITIES BELOW. HE FURTHER SUBMITTED THAT THE MATTER COULD BE RESTO RED TO THE AO FOR HIS FRESH CONSIDERATION ON THE BASIS OF THE FACTS AS MENTIONE D HEREIN. 34. WE HAVE CONSIDERED THE SUBMISSION OF LD. REPRES ENTATIVES OF THE PARTIES AND THE ORDERS OF THE AUTHORITIES BELOW. WE OBSERVE THA T LD. CIT(A) HAS CONFIRMED THE ACTION OF AO TO DISALLOW INTEREST AGGREGATING RS.1, 46,34,434/- BY FOLLOWING ORDERS OF HIS PREDECESSORS FOR ASSESSMENT YEAR 2002-03 AND 20 03-04. WE OBSERVE THAT LD. CIT(A) HAS NOT DISCUSSED THE FACTS AS ARE APPLICABL E TO THE ASSESSMENT YEAR UNDER CONSIDERATION SPECIALLY IN RESPECT OF ADVANCES AGGR EGATING RS. 30,65,355/- GIVEN TO VARIOUS PARTIES AND ADVANCE OF RS. 12,00,000/- GIVE N TO RAMAREST AS TO WHETHER THE SAID ADVANCES WERE GIVEN BY THE ASSESSEE FOR BUSINE SS PURPOSES. WE ALSO OBSERVE THAT LD. AR HAS CONTENDED THAT ASSESSEE CHARGED ACT UALLY MORE INTEREST FROM TULIP HOTELS LTD. THAN WHAT ASSESSEE PAID ON THE LOANS TA KEN FROM ICICI AND/OR DCB. CONSIDERING THE ABOVE FACTS AND OBSERVING THAT LD. CIT(A) HAS NOT PASSED A SPEAKING ORDER WHILE CONFIRMING THE ACTION OF AO, WE CONSIDE R IT PRUDENT TO RESTORE THIS ISSUE TO THE FILE OF LD. CIT(A) FOR HIS FRESH ADJUDICATIO N AFTER CONSIDERING RELEVANT FACTS AS MAY BE PLACED BEFORE HIM AND AFTER GIVING DUE OPPOR TUNITY OF HEARING TO THE PARTIES. HENCE WE SET ASIDE THE ORDER OF LD. CIT(A) ON THE A BOVE ISSUE BY ALLOWING GROUNDS NO. 5 TO 8 OF THE APPEAL OF THE ASSESSEE FOR STATIS TICAL PURPOSES. 35. IN GROUNDS NO.9 TO 11 OF THE APPEAL FILED BY TH E ASSESSEE, THE ASSESSEE HAS DISPUTED THE ORDER OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS. 9,47,888/- UNDER SECTION 14A OF INCOME TAX ACT BY A PPLYING RULE 8D OF I.T. RULES, 1962, BY FOLLOWING THE RATIO LAID DOWN BY SPECIAL B ENCH ITAT, MUMBAI IN THE CASE OF DAGA CAPITAL MANAGEMENT LTD. 119 TTJ 289. 36. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. WE OBSERVE THAT AO MA DE ADHOC DISALLOWANCE OF RS. 26,96,012/- U/S. 14A OF I.T. ACT. HOWEVER, LD. CIT (A) MADE DISALLOWANCE OF RS. 9,47,888/- BY APPLYING RULE 8D OF I.T. RULES BY FOL LOWING THE SPECIAL BENCH DECISION IN THE CASE OF DAGA CAPITAL MANAGEMENT LTD (SUPRA). SINCE SAID DECISION OF SPECIAL ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 24 BENCH OF ITAT HAS BEEN REVERSED BY HONBLE BOMBAY H IGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. 328 ITR 81, WHEREIN IT HAS BEEN HELD THAT RULE 8D OF I.T. RULE IS PROSPECTIVE IN NATURE AND IS APPLICABL E FROM ASSESSMENT YEAR 2008-09, WE HOLD THAT ACTION OF LD. CIT(A) WAS NOT JUSTIFIED TO MAKE AFORESAID DISALLOWANCE U/S. 14A OF INCOME TAX ACT BY APPLYING RULE 8D OF INCOME TAX RULES AS THE SAID RULE 8D IS NOT APPLICABLE TO ASSESSMENT YEAR UNDER CONSIDER ATION I.E. ASSESSMENT YEAR 2004- 05. HENCE, WE SET ASIDE THE ORDER OF LD. CIT(A) AN D RESTORE THE SAME TO HIS FILE WITH A DIRECTION TO DECIDE IT AFRESH AS PER LAW AFTER CO NSIDERING SUCH EVIDENCES AS MAY BE FILED BY THE PARTIES AND AFTER GIVING DUE OPPORTUNI TY OF HEARING BY A SPEAKING ORDER. THEREFORE GROUNDS NO. 9 TO 11 OF THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 37. IN GROUNDS NO. 12 AND 13 OF THE APPEAL FILED BY THE ASSESSEE, THE ASSESSEE HAS DISPUTED THE ORDER OF LD. CIT(A) IN NOT ACCEPTI NG THE CLAIM OF ASSESSEE FOR GRANT OF DEPRECIATION IN RESPECT OF INTANGIBLE ASSET OF R S. 95,36,727/- CLAIMED BEFORE HIM. 38. IT IS RELEVANT TO STATE THAT CLAIM OF DEPRECIAT ION OF RS. 95,36,727/- WAS NOT CLAIMED BEFORE AO AND IS TAKEN FIRST TIME BEFORE LD . CIT(A). THE ASSESSEE HAS STATED THAT DURING THE FINANCIAL YEAR 2002-03, IT HAD TAKE N OVER THE FOREIGN EXCHANGE BUSINESS OF TULIP STAR HOTELS LTD. AT 9 LOCATIONS W.E.F. 1.10.2002 FOR THE TOTAL CONSIDERATION OF RS. 3.5 CRORES. THIS AMOUNT INCLU DED RS. 95,36,727/- BEING INTANGIBLE ASSETS IN THE FORM OF DATA BASE OF CUSTO MERS, CONTRACTS, APPROVALS, LICENSES ETC. AND WAS RECORDED UNDER THE HEAD INTANGIBLE AS SETS IN THE BOOKS. THE ASSESSEE STATED THAT IT DID NOT CLAIM DEPRECIATION EARLIER B UT CLAIMED FROM ASSESSMENT YEAR 2003-04 ONWARDS. ASSESSEE STATED THAT LD. CIT(A) A SKED REMAND REPORT FROM AO BUT AO DID NOT SUBMIT HIS REMAND REPORT. THEREFORE , LD. CIT(A) BY FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 2003-04 DID NOT ALLOW DEP RECIATION ON INTANGIBLE ASSETS AS CLAIMED BY ASSESSEE. 39. THE LD. AR SUBMITTED THAT FOR ASSESSMENT YEAR 2 003-04, ASSESSEE FILED APPEAL BEFORE THE TRIBUNAL BEING ITA NO. 3751/MUM/2007 AND THE TRIBUNAL VIDE ORDER DT. 28.1.2011AFTER CONSIDERING SUBMISSION OF ASSESSEE R ESTORED THE ISSUE TO THE FILE OF AO ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 25 VIDE PARA-16 OF THE SAID ORDER FOR HIS FRESH ADJUDI CATION IN ACCORDANCE WITH LAW. LD. AR REFERRED TO PAGES 41 TO 53 OF THE PAPER BOOK (RE LEVANT PAGES 48 TO 51 OF PAPER BOOK) TO SUBSTANTIATE HIS SUBMISSION. HE SUBMITTED THAT THE MATTER COULD BE RESTORED TO AO TO DECIDE THE ISSUE IN ACCORDANCE W ITH DECISION OF HONBLE APEX COURT IN THE CASE OF TECHNO SHARES & STOCK LTD. 327 ITR 3 23 AND OTHER DECISIONS OF ITAT ON THE ABOVE ISSUE. 40. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT HE HAS NO OBJECTION TO RESTORE THE ISSUE TO THE FILE OF AO BY FOLLOWING EA RLIER ORDER OF ITAT DT. 28.1.2011 (SUPRA). 41. WE HAVE CONSIDERED THE SUBMISSIONS OF LD. REPRE SENTATIVES OF THE PARTIES AND EARLIER ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FO R A.Y. 2003-04 (SUPRA). RESPECTFULLY FOLLOWING THE EARLIER ORDER OF TRIBUNA L, WE SET ASIDE THE ORDER OF LD. CIT(A) ON THE ABOVE ISSUE AND RESTORE IT TO THE AO FOR HIS CONSIDERATION IN ACCORDANCE WITH LAW AND AFTER CONSIDERING SUCH MATE RIAL AS MAY BE PLACED BEFORE HIM. NEEDLESS TO SAY THAT AO WILL GIVE ADEQUATE OP PORTUNITY OF BEING HEARD TO THE ASSESSEE ON THE ABOVE ISSUE AND WILL PASS A SPEAKIN G ORDER. HENCE, GROUNDS NO. 12 & 13 OF THE APPEAL OF THE ASSESSEE IS ALLOWED FOR S TATISTICAL PURPOSES. 42. IN RESPECT OF GROUNDS NO. 14 OF THE APPEAL FILE D BY THE ASSESSEE IN RESPECT OF LEVY OF INTEREST U/S. 234B OF THE I.T. ACT, IT IS C ONSEQUENTIAL AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 45. IN THE RESULT, APPEALS OF THE DEPARTMENT AS WEL L AS ASSESSEE FOR ASSESSMENT YEAR 2004-05 ARE ALLOWED IN PART. ORDER PRONOUNCED ON THIS 30 TH DAY OF SEPTEMBER, 2011. SD/- SD/- ( B. RAMAKOTAIAH) (B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 30 TH SEPTEMBER, 2011 RJ ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 26 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR C BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NOS.2560-2600/MUM/20 M/S.COX & KINGS (I) LTD. 27 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 23-09-2011 SR.PS/ 2 DRAFT PLACED BEFORE AUTHOR 28.09.2011 SR.PS/ 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER
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