DCIT, Cir-4, Kolkata, Kolkata V. M/s J. Thomas & Co. Pvt. Ltd., Kolkata

ITA 275/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9253 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 08-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 17-02-2014
• Court: TRIBUNAL
• Department Lawyers: R S BISWAS
• Assessee Lawyers: KARISHMA JAISWAL
• Keywords: Depreciation; Bad and doubtful debts
• Section: 143(3)

Judgement Text

I.T.A. NO. 275/KOL./2014 ASSESSMENT YEAR: 2009-2010 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER & SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 275/KOL/ 2014 ASSESSMENT YEAR : 2009-2010 DEPUTY COMMISSIONER OF INCOME TAX,................ ..............APPELLANT CRCLE-4, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, 7 TH FLOOR, KOLKATA-700 069 -VS.- M/S. J. THOMAS & CO. PVT. LIMITED,................. .............................RESPONDENT C/O. SALARPURIA JAJODIA & CO., 7, C.R. AVENUE, KOLKATA-700 072 [PAN: AABCJ 2851 Q] APPEARANCES BY: SHRI R.S. BISWAS, CIT, D.R., FOR THE DEPARTMENT MS. KARISHMA JAISWAL, A.R., FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : FEBRUARY 08, 2017 DATE OF PRONOUNCING THE ORDER : FEBRUARY 28, 2017 O R D E R PER SHRI J. SUDHAKAR REDDY, A.M. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-IV, KOLKATA DA TED 03.10.2013 FOR THE ASSESSMENT YEAR 2009-10. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A CO MPANY, WHICH IS ENGAGED IN THE BUSINESS OF TEA AND COFFEE AUCTIONEE RING, FINANCING AND RUBBER HANDLING. IT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 THROUGH E-FILING ON 29.11.2010 SHOWING TOTA L INCOME OF I.T.A. NO. 275/KOL./2014 ASSESSMENT YEAR: 2009-2010 PAGE 2 OF 5 RS.3,31,90,721/-. THE ASSESSING OFFICER PASSED AN O RDER UNDER SECTION 143(3) OF THE ACT ON 30.12.2011 DETERMINING THE TOT AL INCOME AT RS.4,77,63,850/-, INTER ALIA MAKING ADDITION ON ACC OUNT OF BUILDING REPAIRS AND BAD DEBTS. ON APPEAL, THE FIRST APPELLA TE AUTHORITY ALLOWED THESE ADDITIONS MADE BY THE ASSESSING OFFICER FOR T HE VARIOUS REASONS GIVEN IN HIS ORDER. AGGRIEVED, THE REVENUE HAS FILE D AN APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS:- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE DISALLOWANC E MADE ON REPAIR AND MAINTENANCE EXPENDITURE TO THE T UNE OF RS.52,72,402/- WITHOUT CONSIDERING THE FACT THAT THE SAID EXPENSE FAR EXCEEDS THE AMOUNT OF RS.12,34,957 /- CHARGED AS DEPRECIATION ON BUILDING AND THAT THE MA JOR CONSTRUCTION WORKS LIKE MAINTENANCE ON BUILDING, WA TER SUPPLY, PLUMBING AND SANITATION, ETC. ARE IN THE NA TURE OF MAJOR ADDITIONS AND NOT QUINTESSENTIAL REPAIR WO RK AND, THEREFORE, SHOULD HAVE BEEN CAPITALIZED. AND THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN LAW IN ALLOWING BAD DEBT TO THE TUNE OF RS.82,34,907/- WITHOUT CONSIDERING THE FACT THAT THE APPELLANT FAILED TO ESTABLISH AS TO THE LEGAL E FFORTS TAKEN TO RECOVER THE DEBTS. ALSO, IT COULD NOT BE ESTABLISHED WHETHER THE AMOUNTS, WRITTEN OFF AS BAD DEBT WERE TAKEN AS INCOME IN EARLIER YEARS WHICH IS A PR E- CONDITION OF WRITING OFF OF ANY BAD DEBT. 3. WE HAVE HEARD SHRI R.S. BISWAS, LD. CIT, D.R. ON BEHALF OF THE REVENUE AND MS. KARISHMA JAISWAL, LD. A.R. ON BEHAL F OF THE ASSESSEE. 4. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRC UMSTANCES OF THE CASE AND THE PERUSAL OF PAPERS ON RECORD AND THE OR DERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAW CITED, WE HOLD AS FOL LOWS:- GROUND NO. 1 IS AGAINST THE DELETION OF DISALLOWAN CE MADE ON REPAIRS AND MAINTENANCE EXPENSES TO THE TUNE OF RS. 52,72,402/- BY THE LD. CIT(APPEALS). THE ASSESSEE HAD INCURRED THE TOTAL A MOUNT OF RS.1,01,64,986/- ON ACCOUNT OF REPAIRS AND MAINTENA NCE OF THE BUILDINGS USED BY THE ASSESSEE FOR THE PURPOSES OF ITS BUSINE SS. THE ASSESSING OFFICERS RECORD SHOWS THAT THE DEPRECIATION CHARGE D TO THE BUILDING I.T.A. NO. 275/KOL./2014 ASSESSMENT YEAR: 2009-2010 PAGE 3 OF 5 ACCOUNT IS RS.12,34,957/- AND WHEREAS REPAIRING EXP ENSES OF THE BUILDING INCLUDING REPAIRS AND MAINTENANCE COMES TO RS.52,72 ,402/-. HENCE, HE WAS OF THE VIEW THAT THE AMOUNT OF EXPENDITURE INCU RRED FOR REPAIRS SHOULD HAVE BEEN CAPITALIZED AND ADDED TO THE VALUE OF THE ASSETS. AFTER CONSIDERING THE EXPENDITURE INCURRED ON MAINTENANCE OF GARDEN, SECURITY ARRANGEMENT, WATER SUPPLY, PLUMBING AND SANITARY, M ISCELLANEOUS EXPENSES, ETC. AS ALLOWABLE, HE DISALLOWED THE BALA NCE AMOUNT OF EXPENDITURE CLAIMED. THE FIRST APPELLATE AUTHORITY CONSIDERED THE SUBMISSIONS OF THE ASSESSEE THAT THE DETAILS OF EXP ENSES INCURRED FOR REPAIRS AND MAINTENANCE OF THE BUILDING WAS IN THE NATURE OF ELECTRICAL REPAIRING WORK OF OFFICE BUILDING AS WELL AS RESIDE NTIAL ACCOMMODATION USED BY THE EMPLOYEES OF THE COMPANY AND RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BALLIMAI NAVAL KISHORE VS.- CIT [224 ITR 414 (SC)] DELETED THE DISALLOWANCE. HE ALS O REFERRED TO THE DECISION OF HIS PREDECESSOR IN THE ASSESSEES OWN C ASE FOR THE ASSESSMENT YEAR 2007-08 AND 2006-07 ON THE VERY SAME ISSUE AND FOLLOWED THE SAME. WE FIND THAT THE TRIBUNAL IN ASSESSEES OWN CASE FO R THE ASSESSMENT YEAR 2007-08 IN ITA NO. 693/KOL/2012 AND ITA NO. 554/KOL /2012 FOR ASSESSMENT YEAR 2006-07, ORDER DATED 29.04.2015 AT PARA 4, CONSIDERED A SIMILAR ADDITION AND ADJUDICATED THE SAME IN FAVOUR OF THE ASSESSEE. AS THE REVENUE HAS NOT BROUGHT ANYTHING ON RECORD TO D EMONSTRATE ITS POINT OF VIEW THAT THE EXPENDITURE IN QUESTION WAS INCURR ED IN THE CAPITAL FIELD, WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORIT Y AND DISMISS THIS GROUND OF APPEAL. 5. GROUND NO. 2 IS AGAINST THE DELETION OF A DISALL OWANCE MADE ON ACCOUNT OF CLAIM FOR BAD DEBT OF RS.82,34,907/-. TH E ASSESSING OFFICER DISALLOWED THIS CLAIM OF BAD DEBTS ON THE GROUND TH AT THE ASSESESE COULD NOT ESTABLISH AS TO THE LEGAL EFFORTS TAKEN TO RECO VER THE DEBTS AND ALSO ON THE GROUND THAT THE ASSESSEE COULD NOT DEMONSTRATE THAT THESE AMOUNTS WERE TAKEN AS THE INCOME OF THE ASSESSEE IN THE EAR LIER YEAR. BEFORE THE LD. CIT(APPEALS), THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE WERE TRADE ADVANCES MADE TO VARIOUS TEA COMPANIES, WHICH WERE WRITTEN I.T.A. NO. 275/KOL./2014 ASSESSMENT YEAR: 2009-2010 PAGE 4 OF 5 OFF IN THE YEAR UNDER CONSIDERATION. IT WAS SUBMITT ED THAT THE ADVANCES WERE MADE TO M/S. ALL INDIA TEA & TRADING CO., TONG ANAGAON TEA CO. LIMITED, AMRITAPUR TEA CO. LIMITED DURING THE NORMA L COURSE OF BUSINESS OF THE ASSESSEE AT THE INTEREST RATE OF 21% PER ANN UM. ON THE CONDITION MENTIONED IN SECTION 36(1)(VII) READ WITH SECTION 3 6(2) OF THE ACT, HE SUBMITTED THAT, WHEN A LOSS ARISES OUT OF NON-RECOV ERY OF SUCH ADVANCES, THE SAME SHOULD BE ALLOWED AS A BUSINESS LOSS WHILE COMPUTING THE PROFIT AND GAINS OF BUSINESS AND AS THE MONIES WERE ADVANC ED FOR THE PURPOSE OF ITS BUSINESS. THESE THREE COMPANIES HAD FINANCIAL A ND CERTAIN OTHER DIFFICULTIES AND CONSEQUENTLY THE AGREEMENTS COULD NOT BE EXECUTED. THEREAFTER SETTLEMENTS WERE ARRIVED BETWEEN THE ASS ESESE AND THESE COMPANIES, WHEREIN, CERTAIN DUES WERE PAID TO THE A SSESSEE-COMPANY AND THE BALANCE WAS WRITTEN OFF. THE BOARD OF DIRECTORS OF THE ASSESSEE- COMPANY HAD RECORDED THESE BUSINESS DEVELOPMENTS AN D PASSED RESOLUTION ACCEPTING THE SETTLEMENTS. FURTHER THERE WERE SMALL SUNDRY BALANCES RECEIVABLE FROM VARIOUS TEA COMPANIES AND THESE WERE WRITTEN OFF AS IRRECOVERABLE BY PASSING NECESSARY RESOLUTIO NS THE ASSESSEE RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS.- MYSORE SUGAR COMPANY LIMITED [46 ITR 649(SC)] AND B Y THE HONBLE MADRAS HIGH COURT IN THE CASE OF DEVI FILMS PRIVATE LIMITED VS.- CIT [75 ITR 301 (MAD.). RELIANCE WAS PLACED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS.- ABDULLABHAI ABDULKADAR REPORTED IN 41 ITR 545. RELIANCE WAS ALSO PLACED ON THE DECI SION OF THE KOLKATA BENCH OF THIS TRIBUNAL IN CASE OF DCIT VS.- ITC LI MITED IN ITA NO. 157/KOL/1996, ORDER DATED 30.04.2001. THE LD. CIT(A PPEALS) AGREED WITH THE CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE AND GRANTED RELIEF. WE FIND NO INFIRMITY IN THIS ORDER OF THE LD. CIT(APPE ALS). THE ADVANCES WERE GIVEN BY THE ASSESSEE IN THE NORMAL COURSE OF ITS B USINESS AND WHEN A LOSS ARISES DUE TO NON-RECOVERY OF SUCH ADVANCES AND WHE N THE SAME IS IRRECOVERABLE AND WRITTEN OFF AS SUCH, THE SAME SHO ULD BE ALLOWED AS A LOSS WHILE COMPUTING THE PROFIT AND GAINS OF BUSINE SS. I.T.A. NO. 275/KOL./2014 ASSESSMENT YEAR: 2009-2010 PAGE 5 OF 5 6. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS.- SUMANGAL OVERSEAS LIMITED (ITA NO. 174 OF 2011)(DEL.) HELD A S FOLLOWS:- A TRADING LOSS HAS A WIDER CONNOTATION THAN A BAD DEBT. A BAD DEBT MAY ALSO BE A TRADING LOSS. BUT A TRADING LOSS NEED NOT NECESSARILY BE A BAD DEBT. THERE MAY BE A BAD DEBT WHICH MAY NOT FALL WITHIN THE PURVIEW OF SECTI ON 36(1)(VII) OF THE ACT, BUT MAY WELL BE REGARDED AS ONE ELIGIBLE FOR DEDUCTION INCURRED IN THE COURSE OF CA RRYING ON BUSINESS WILL COME UNDER THAT CATEGORY AND WILL NAT URALLY ENTER INTO COMPUTING THE NET TOTAL INCOME AS THE RE AL PROFIT CHARGEABLE TO TAX CANNOT BE ARRIVED AT WITHO UT SETTING OFF LEGITIMATE TRADING LOSS. 7. APPLYING THE PROPOSITION LAID DOWN IN THIS CASE LAW TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE UPHOLD THE FINDING OF THE FIRST APPELLATE AUTHORITY AND DISMISS THIS GROUND OF THE REVENUE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 28, 2017. SD/- SD/- (S.S. VISWANETHRA RAVI) (J. SUDHAKAR REDDY) JUDICIAL MEMBER AC COUNTANT MEMBER KOLKATA, THE 28 TH DAY OF FEBRUARY, 2017 COPIES TO : (1) DEPUTY COMMISSIONER OF INCOME TAX, CRCLE-4, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, 7 TH FLOOR, KOLKATA-700 069 (2) M/S. J. THOMAS & CO. PVT. LIMITED, C/O. SALARPURIA JAJODIA & CO., 7, C.R. AVENUE, KOLKATA-700 072 (3) COMMISSIONER OF INCOME-TAX (APPEALS)-IV, KOLK ATA (4) COMMISSIONER OF INCOME TAX, KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.