M/s CHL Ltd., New Delhi V. DCIT, New Delhi

ITA 2814/DEL/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7929 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 17-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAGDISH SINGH
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B: NEW DELHI BEFORE SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER AND SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER I.T.A. NO. 2814/DEL/2016 ASSESSMENT YEAR: 2011-12 CHL LTD., HOTEL OFFICE FLOOR, VS. DCIT, CIRCLE 3(1 ), THE SURYA NEW FRIENDS COLONY, NEW DELHI. NEW DELHI. PAN: AAACC 2587M (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI SATISH KHOSLA, ADVOCATE DEPARTMENT BY: SHRI JAGDISH SINGH, SR. DR DATE OF HEARING: 16/01/2020 DATE OF PRONOUNCEMENT: 23/01/2020 ORDER PER K. NARASIMHA CHARY, JM CHALLENGING THE ORDER DATED 10.03.2016 IN APPEAL NO . 449/14-15 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)-2, NEW DELHI (LD. CIT(A)), FOR ASSESSMENT YEAR 2011-12,M/S. CH L LIMITED(THE ASSESSEE)PREFERRED THIS APPEAL ON THE FOLLOWING GR OUNDS : 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) GROSSLY ERRED ON FACTS AND IN LAW IN SUSTAINING THE DISALLOWANCE OF RS.1,14,10,793/- MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE I.T. ACT. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) GROSSLY ERRED ON FACTS AND IN LAW IN SUSTAINING AN ADDITION OF RS.35 ,00,000/- MADE BY THE ASSESSING OFFICER BEING BAD DEBT CLAIMED BY THE APP ELLANT IN RESPECT OF CORPORATE DEPOSIT WITH M/S. GANGA AUTO GENERAL & FI NANCE LIMITED (ACTUALLY, DELHI AUTO & GENERAL FINANCE PVT. LTD.) 2 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) GROSSLY ERRED ON FACTS AND IN LAW IN SUSTAINING THE DISALLOWANCE OF RS.54,32,000/- MADE BY THE ASSESSING OFFICER BEING BAD DEBT CLAIMED BY THE APPELLANT ON ACCOUNT OF WRITTEN OFF OF INVESTMENT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE HOTEL BUSINESS. FOR THE ASSESSMENT YEAR 2011-12 THEY HAVE FILED THEIR RETURN OF INCOME ON 26/9/2011 DECLARING AN INCOME OF RS.13,88 ,69,248/-. HOWEVER, BY ORDER DATED 6/3/2014, INCOME OF THE ASSESSEE WAS DETERMINED AT RS.16,19,04,690/-BY MAKING CERTAIN ADDITIONS INCLUD ING ADDITION OF RS.1,14,19,793/-UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) READ WITH RULE 8D OF THE INCOME TAX RULE S,1962 (THE RULES) AND MADE ADDITION OF RS.89,32,000/-BY DISALLOWING THE B AD DEBTS/ADVANCE AS WRITTEN OFF. 3. AGGRIEVED BY SUCH ADDITIONS ASSESSEE PREFERRED A PPEAL BEFORE THE LD. CIT(A). LD. CIT(A) BY WAY OF IMPUGNED ORDER CONFIRM ED THE SAME. HENCE THIS APPEAL BY THE ASSESSEE. 4. INSOFAR AS THE ADDITION UNDER 14A OF THE ACT REA D WITH RULE 8D OF THE RULES IS CONCERNED, IN THE ASSESSMENT ORDER, LEARNE D ASSESSING OFFICER NOTED THAT THE DIVIDEND INCOME WAS RS.91,154/-. LD. AR SU BMITTED THAT IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN JO INT INVESTMENTS P. LTD. VS. CIT (2015) 372 ITR 694, DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT CANNOT EXCEED THE AMOUNT OF TAX-EXEMPT INCOME. IN V IEW OF THIS BINDING PRECEDENT OF THE HONBLE JURISDICTIONAL HIGH COURT, WE FIND THAT THE DISALLOWANCE SHALL NOT EXCEED RS.91,154/-. WE, THER EFORE, DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO R S. 91,154/-. GROUND NO. 1 OF THE APPEAL IS ACCORDINGLY ALLOWED IN PART. 3 5. NOW COMING TO GROUND NO. 2 AND 3, THOSE RELATES TO THE ADDITION OF RS.89,32,000/-UNDER TWO COUNTS, NAMELY, RS. 35 LACS IN RESPECT OF DISALLOWANCE OF BAD DEBT WRITTEN OFF BY THE ASSESSE E IN RESPECT OF CORPORATE DEPOSIT WITH THE M/S GANGA AUTO GENERAL AND FINANCE LTD (DELHI AUTO AND GENERAL FINANCE LTD)., AND RS. 54,32,000/-INVESTMEN T WRITTEN OFF. ACCORDING TO THE LEARNED ASSESSING OFFICER THESE AMOUNTS ARE DEPOSITS AND INVESTMENT, AND NOT TRADING RECEIPTS AND PART OF P& L ACCOUNT AND, THEREFORE, THE SAME IS AN ITEM OF BALANCE SHEET AND NOT ALLOWABLE AS DEDUCTION. HE ACCORDINGLY MADE ADDITION OF THESE AM OUNTS. 6. IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT THE AMOUNT OF RS.35 LACS IS IN THE NATURE OF CORPORATE DEPOSIT PAID TO M/S D ELHI AUTO ANDGENERAL FINANCE LTD, BUT SINCE THE INTEREST WAS NOT PAID FR OM THE INCEPTION, THE ASSESSEE FILED A SUIT AGAINST THE SAID PARTY BUT IN ASMUCH AS THE PROSPECT OF ANY RESULT, ASSESSEE DECIDED TO WRITE OFF THIS AMOU NT FROM THE BOOKS AND CLAIMED THE SAME AS BAD DATE. IT IS FURTHER SUBMITT ED THAT SUBSEQUENTLY THE AMOUNT WAS RECOVERED AND WAS OFFERED TO TAX IN THE ASSESSMENT YEAR 2014- 15. 7. IN RESPECT OF THE AMOUNT OF RS.54,32,000/-IT WAS SUBMITTED THAT THE ASSESSEE TRIED TO TAKE OVER A CLOSED SICK UNIT OF M /S PALM PHARMACEUTICALS LTD AND IN THAT PROCESS PAID SUCH AN AMOUNT TO M/S AIR FORCE GROUP INSULIN SOCIETY AND THE NAVAL GROUP HOUSING BOARD UNDER THE ORDERS OF THE HONBLE HIGH COURT TO THE PALM PHARMACEUTICALS WHO OWED A D EBT; THAT SUCH A PROPOSAL COULD NOT BE MATERIALISED AND LOOKING AT T HE RECOVERABILITY OF SUCH AN AMOUNT,DECIDED TO WRITE OFF THE SAME AS BAD DEBT . 8. LD. CIT(A) RECORDED THAT THE ASSESSEE HAS NOT AD DUCED ANY EVIDENCE THAT IT TOOK NECESSARY RECOURSE TO LEGAL PROCEEDING S FOR RECOVERY OF THE 4 AMOUNTS AND THE LOSS ON ACCOUNT OF NON-RECOVERABILI TY OF THE AMOUNTS IS CAPITAL IN NATURE AND THEREFORE THE SAME CANNOT BE ALLOWED. 9. IT IS SUBMITTED BY THE COUNSEL FOR THE ASSESSEE THAT INASMUCH AS THE AMOUNT OF RS. 35 LACS WAS RECOVERED SUBSEQUENTLY AN D OFFERED TO TAX IN THE YEAR 2014-15 AND IF NO DEDUCTION IS ALLOWED IT WOUL D AMOUNT TO DOUBLE TAXATION. HE FURTHER SUBMITTED THAT THE AMOUNT OF R S.54,32,000/-WAS PAID TO TAKE OVER ANOTHER CONCERN IN THE YEAR 2008-09 AN D THE SAME COULD NOT BE RECOVERED TILL NOW. 10. HAVING REGARD TO THIS SET OF FACTS, WE ARE OF T HE CONSIDERED OPINION THAT THESE ISSUES HAVE TO BE REMANDED TO THE FILE O F THE ASSESSING OFFICER FOR VERIFICATION. IF THE AMOUNT OF RS. 35 LACS IS OFFER ED TO TAX IN THE YEAR 2014- 15, IN ORDER TO AVOID THE DOUBLE TAXATION THE LEARN ED ASSESSING OFFICER WILL GIVE RELIEF TO THE ASSESSEE IN THAT YEAR IN RESPECT OF THE SUM OF RS. 35 LACS THAT IS BROUGHT TO TAX THIS YEAR. IN RESPECT OF THE AMOUNT OF RS.54,32,000/-, THE LEARNED ASSESSING OFFICER WILL VERIFY WHETHER T HE BUSINESS LOSS RELATES TO THIS YEAR AND IF SO TO ALLOW DEDUCTION. WE ACCORDIN GLY REMAND THESE ISSUES TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR AB OVE SPECIFIED VERIFICATION. GROUNDS NO. 2 AND 3 ARE ACCORDINGLY ALLOWED FOR STA TISTICAL PURPOSE. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D IN PART FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JANUARY, 2020. SD/- SD/- (PRASHANT MAHARISHI) (K.NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23/01/2020 . *AKS