IFB Automotive Private Limited, Kolkata V. DCIT, Circle - 10, Kolkata, Kolkata

ITA 286/KOL/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4912 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2002-2003
• Appeal Filed On: 11-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SARBONI MU KHOPADHYA
• Assessee Lawyers: P K MUKHERJEE; MD NIZAMUDDIN
• Keywords: Bad and doubtful debts
• Section: 143(3); 142(1); 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B, KOLKATA (BEFORE SHRI P. M. JAGTAP, A.M. & SHRI S.S.VISWANET HRA RAVI, J.M.) ITA NO. 286/KOL/2010 : ASSTT. Y EAR : 2002-2003 IFB AUTOMOTIVE PRIVATE LIMITED. PAN: AABCI2766H VS DCIT, CIRCLE-10, KOLKATA (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MD.NIZAM UDDIN & SHRI P.K.M UKHERJEE RESPONDENT BY : SMT.SARBONI MU KHOPADHYA, JCIT, SR.DR DATE OF HEARING : 09.02.2016 DATE OF PRONOUNCEMENT : 06-05-2016 ORDER PER SHRI S.S.VISWANETHRA RAVI, J.M . THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 29.09.2009 PASSED BY THE CIT(A)-XXXII, KOLKATA FOR THE ASSESSMENT YEA R 2002-03 FRAMED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1(A) FOR THAT THE LD. ASSESSING AUTHORITIES BELOW W AS NOT JUSTIFIED IN DISALLOWING THE APPELLANT-ASSESSEES CLAIM OF RS.16 .21 LACS FOR WRITE OFF BAD DEBTS IN THE NATURE OF ADVANCES. (B) FOR THAT THE DISALLOWANCE OF RS.16.21 LACS WA S NOT IN ACCORDANCE OF LAW AND DEVOID OF FACT AND CIRCUMSTANCES OF THE CASE. 2(A) FOR THAT THE LD. CIT(APPEAL) WAS NOT JUSTIFIE D IN REMANDING BACK THE ADDITION OF RS.4,00,000/- MADE BY THE ASSESSING OFFICER UNDER RULE 8D OF THE INCOME TAX RULES READ WITH SECTION 14A OF THE INCOME TAX ACT, 1961 FOR RE-DETERMINATION OF THE AMOUNT UNDER THE SAID RULES DETERMINATION OF THE AMOUNT UNDER THE SAID RULE. 2 (B) FOR THAT THE RETROSPECTIVE APPLICATION OF RUL E 8D IS YET NOT DECIDED BY ANY HONBLE HIGH COURT (S) OF INDIA. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF VARIOUS AUTOMOBILE PAR TS I.E SEAT RECLINERS, SLIDERS ETC... THE RETURN OF INCOME WAS FILED DISCLOSING TH E TOTAL INCOME OF RS.3,82,85,624/- ON 30-10-2002. NOTICES UNDER SECTI ON 143(2) AND 142(1) OF THE ACT ISSUED AND IN RESPONSE TO SUCH NOTICES, THE MAN AGER-TAXATION APPEARED FILED VARIOUS RELEVANT DETAILS BEFORE THE AO. 4. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.16.21 LAKHS FROM ITS PROFIT & LOSS ACCOUNT TOWARDS ADVANCES WRITTEN OFF AS DOUBTFUL. THE ASSESSEE SUBM ITTED BY AN LETTER DT: 02-03- 2005 THAT AN AMOUNT OF RS.5,61,212/- WAS GIVEN TO M /S SEVEN ENGINEERING OF BANGALORE FOR MANUFACTURING OF TOOLS AND WAS NOT RE COVERED ON ACCOUNT OF CLOUSURE OF SAID UNIT. ANOTHER AMOUNT OF RS.8,98,80 0/- WAS GIVEN TO VARIOUS PARTIES FOR MANUFACTURING OF TOOLS AND AS THE MANUFACTURE O F SAID TOOLS COULD NOT TAKE PLACE IN VIEW OF CHANGE OF DRAWINGS AND SPECIFICATI ONS OF TOOLS, THEREBY, THE ASSESSEE LOST THE SAID ADVANCE AMOUNTS TOTALING TO RS.14.60 LAKHS GIVEN TO VARIOUS PARTIES. FOR NON EXPLANATION FOR AN AMOUNT OF RS.1. 62 LAKHS AND FOR THE TWO ADVANCES AS ABOVE, TOTALING TO RS.16.21 LAKHS TREAT ING THE SAME AS CAPITAL AMOUNT, AO ADDED TO THE TOTAL INCOME OF THE ASSESSEE. BEFOR E THE CIT-A, IN FIRST APPEAL, THE ASSESSEE CONTENDED THAT THE PROVISIONS MADE ON DOUB TFUL DEBTS FOR FINANCIAL YEAR 2001-2002 AMOUNTING TO 14.81LAKHS OFFERED FOR TAX A ND AN AMOUNT OF 16.1LAKHS HAD BEEN WRITTEN OFF AS BAD ADVANCES DURING THE YE AR UNDER CONSIDERATION. THE LEARNED CIT-A HAVING HEARD, WAS OF THE OPINION SIN CE A MERE PROVISION FOR EXPENSES IS NOT ALLOWABLE AND A CLAIM OF EXPENDITUR E ON ACCOUNT OF AN ITEM IS A 3 CAPITAL IN NATURE AND WRITING OFF THE SAME CANNOT B E ALLOWED AS AN EXPENDITURE, THEREBY, CONFIRMED THE DISALLOWANCE MADE BY THE AO. 5. BY SUCH IMPUGNED ORDER, THE AR BEFORE US CONTEN DED THAT THE A.O. TREATING THE ADVANCES GIVEN TO SUPPLIERS AS A CAPITAL IS INC ORRECT AS THE SAID ADVANCES GIVEN TO TWO SUPPLIERS WERE FOR MANUFACTURING OF TOOLS FO R THE PURPOSE OF BUSINESS ACTIVITY. AS THE ASSESSE COULD NOT RECOVER THE SAI D TWO ADVANCES FOR VARIOUS REASONS, THE SAID ADVANCES CAN BE DEDUCTED AS EXPEN DITURE. THE AR RELIED ON TWO CASE LAWS OF MUMBAI TRIBUNAL AND SOUGHT TO REMAND T HE MATTER TO A.O. THE LEARNED DR SUBMITS THAT, BUT FOR THE MENTIONING OF THE SAID ADVANCES AS CAPITAL IN NATURE AND AS FOUND BY THE AO AT COLUMN NO.17 OF TA X AUDIT REPORT TREATED THE SAME AS CAPITAL IN NATURE AND RELIED ON THE ORDERS OF BO TH THE AUTHORITIES BELOW. 6. HEARD RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND FROM THE RECORD THAT THE ASSESSEE FAILED TO SH OW THE NATURE OF THE TOOLS AND DID NOT FILE ANYTHING SHOW THAT THE ADVANCES PAID TO SA ID TWO UNITS FOR THE PURPOSE OF PURCHASING THE SAID TOOLS AND IS USEFUL FOR THE PUR POSE OF ASSESSEES BUSINESS ACTIVITY. THE ASSESSEE PRODUCED NOTHING AS FOUND BY THE LEARNED CITA IN HIS ORDER THAT THE SUBMISSIONS OF THE ASSESSEE QUITE REPETITI VE IN THE 1 ST APPELLATE PROCEEDINGS. 7. AS RELIED ON THE CASE LAW BY THE ASSESSEE IN THE CASE OF M/S. GREAVES COTTON LIMITED VS.ITO REPORTED IN 2013(057)-SOT-0158-TBOM WHERE THE FACTS INVOLVED THEREIN AND RELEVANT FOR THE PRESENT CASE ARE THAT ASSESSEE HAD DEBITED AMOUNT RS.47,76,850/- AND RS1,1,659/- FROM PROFIT & LOSS ACCOUNT ON ACCOUNT OF EXPENDITURE INCURRED FOR DEVELOPMENT OF M.K.20 ENGI NE. THE SAID EXPENDITURE WAS DISSOLVED BY THE A.O. TREATING THE SAME AS CAPITAL IN NATURE ON THE GROUND THAT THE 4 SAME WAS INCURRED FOR ACQUIRING ENDURING BENEFIT IN TERMS OF BETTER SALES. THE LEARNED CIT-A REMANDED THE ISSUE TO THE FILE OF A.O . FOR VERIFICATION AS PER LAW BASING ON THE DECISION OF TRIBUNAL IN ASSESSESS OW N CASE THEREIN. THE BOMBAY BENCH SUPRA UPHELD THE DECISION OF THE CIT-A IN REM ANDING THE CASE TO THE FILE OF AO IS REPRODUCED HEREIN AS BELOW: 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASS ESSEE HAS SUBMITTED THAT A SIMILAR ISSUE WAS RESTORED BY THE TRIBUNAL TO THE FILE OF THE AO IN ASSESSMENT YEAR 2001-02 WITH A DIRECTION TO VERIFY AND ALLOW THE SAME AS THE RELEVANT DETAILS WERE NOT AVAILABLE ON RECORD. SHE HAS SUBMITTED THAT IN THE YEAR UNDER CONSIDERATION, SUCH DETAILS HOWEVER, WER E FURNISHED BY THE ASSESSEE BEFORE THE AO AS WELL AS BEFORE THE LEARNE D CIT(APPEALS) AND THE LEARNED CIT(APPEALS), THEREFORE, OUGHT TO HAVE DECI DED THIS ISSUE ON MERIT INSTEAD OF SENDING BACK TO THE AO FOLLOWING THE ORD ER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2001-02. IN OUR OPINION, EVEN THOUG H THE RELEVANT DETAILS IN SUPPORT OF ITS CLAIM ON THE ISSUE UNDER CONSIDERATI ON WERE FURNISHED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS), HE HAS NO T DECIDED THE ISSUE ON MERIT AFTER VERIFYING THE SAID DETAILS. IT IS, THER EFORE, NOT APPROPRIATE FOR US TO CONSIDER AND DECIDE THIS ISSUE ON MERIT WITHOUT THERE BEING ANY DECISION OF THE LEARNED CIT(APPEALS) AVAILABLE ON THIS ISSUE ON MERIT. MOREOVER, A SIMILAR ISSUE WAS RESTORED BY THE TRIBUNAL TO THE F ILE OF THE AO IN ASSESSMENT YEAR 2001-02 WITH A DIRECTION TO VERIFY THE RELEVAN T DETAILS AND ALLOW THE CLAIM OF THE ASSESSEE AS PER LAW AND THE RULE OF CO NSISTENCY, IN OUR OPINION, WAS RIGHTLY APPLIED BY THE LEARNED CIT(APPEALS) WHI LE SENDING BACK THE SIMILAR ISSUE TO THE FILE OF THE AO FOR DECIDING TH E SAME AS PER THE SAME DIRECTIONS AS GIVEN BY THE TRIBUNAL IN ASSESSMENT Y EAR 2001-02. WE, THEREFORE, FIND NO JUSTIFIABLE REASON TO INTERFERE WITH THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE AND UPHOLDIN G THE SAME, WE DISMISS GROUND NO.1 OF THE ASSESSEES APPEAL. 8. THE FACTS IN THE AFOREMENTIONED CASE IS THAT THE ASSESSEE HAD DEBITED RS.47,76,850/- AND RS.1,21,659/- ON ACCOUNT OF MK 2 0 ENGINE DEVELOPMENT EXPENDITURE. THE SAID EXPENDITURE WAS DISALLOWED BY THE AO TREATING THE SAME AS OF CAPITAL NATURE ON THE GROUND THAT THE SAME WAS I NCURRED FOR ACQUIRING ENDURING BENEFIT IN TERMS OF BETTER SALES AND HIGHER PROFITA BILITY OWING TO THE DEVELOPMENT OF 5 ENGINES. BEFORE THE LEARNED CIT(APPEALS), IT WAS SU BMITTED ON BEHALF OF THE ASSESSEE THAT ITS CORE BUSINESS BEING THAT OF MANUF ACTURE AND SALE OF VARIOUS TYPES OF ENGINES, THE EXPENDITURE INCURRED ON RESEARCH TO MAKE MODIFICATIONS, CORRECTIONS AND DEVELOPMENT IN THE EXISTING PRODUCTS AS ONGOING PROCESS WAS REVENUE IN NATURE. CIT(APPEALS) FOUND THAT A SIMILAR ISSUE INV OLVED IN ASSESSEES CASE FOR ASSESSMENT YEAR 2001-02 WAS RESTORED BY THE TRIBUNA L TO THE FILE OF THE AO WITH THE DIRECTIONS TO VERIFY AND ALLOW THE SAME AS PER LAW. 9. AS DISCUSSED ABOVE IN THE PRESENT CASE THE ASSES SEE FAILED TO PRODUCE THE DETAILS AND NATURE OF TOOLS AND THE SAID TOOLS IS B EING ORDERED FOR THE PURPOSE OF BUSINESS ACTIVITY ON PURCHASE FROM THE SAID TWO BUS INESS UNITS, THEREFORE, IT IS CLEAR THAT THE DETAILS WERE NOT AVAILABLE WITH AO AT THE TIME OF ASSESSMENT PROCEEDINGS. THUS THE CASE LAW CITED BY THE AR IS APPLICABLE TO THE PRESENT CASE AND ACCORDINGLY RESPECTABLY FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH SUPRA WE REMAND THE ISSUE UNDER CONSIDERATION TO THE FILE OF AO TO VERI FY AND PASS ORDER IN ACCORDANCE WITH LAW. ASSESSEE ALSO DIRECTED TO PRODUCE ALL THE DETAILS AS INDICATED ABOVE. THE ASSESSEE SHALL NOT SEEK ANY FURTHER ADJOURNMENTS. T HE GROUND NO. 1 RAISED BY ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO.2 RELATING TO ADDITION OF RS.4,00,000/ - MADE BY THE A.O. UNDER RULE 8D R/W SEC 14A OF THE ACT. THE AO FOUND THAT T HE ASSESSEE HAS RECEIVED A TAX FREE DIVIDEND FOR AN AMOUNT OF RS.99.98 LAKS AND AS SESSEE CLAIMED NO EXPENDITURE IN EARNING THE SAID DIVIDEND. THE AO DISALLOWED RS. 1,00,000/- ( 4,00,000/-) ON ESTIMATION. THE CIT-A DIRECTED THE AO TO DETERMINE THE DISALLOWANCE U/SEC 14A OF THE ACT IN VIEW OF THE ORDER DT: 20-10-2008 OF M UMBAI SPECIAL BENCH IN ITA/8057/MUM/03 AND BATCH CASES. 6 10. WE HAVE HEARD THE RIVAL SUBMISSIONS ON THIS ISS UE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE, RULE 8D IS APP LICABLE ONLY FROM ASSESSMENT YEAR 2008-09 AND THE SAME BEING NOT APPL ICABLE TO THE YEAR UNDER CONSIDERATION, I.E. A.Y. 2002-03, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A BY APPLYING THE SAID RULE WAS NOT SUSTAINABLE . AS FURTHER SUBMITTED BY HIM, THE DISALLOWANCE UND ER SECTION 14A FOR THE ASSESSMENT YEARS UPTO 2007-08 I S REQUIRED TO BE WORKED OUT ON REASONABLE BASIS AND THE DISALLOWANCE SO WORKED OUT BY THE LD. CIT(APPEALS) BEING FAIR AND REASONABLE I N THE FACTS AND CIRCUMSTANCES OF THE CASE, THE SAME DESERVES TO BE CONFIRMED. THE LD. D.R., ON THE OTHER HAND, HAS NOT BEEN ABLE TO R AISE ANY MATERIAL CONTENTION TO SHOW THAT THE DISALLOWANCE AS WORKED OUT BY THE LD. CIT(APPEALS) UNDER SECTION 14A IS NOT REASONABLE. W E, THEREFORE, FIND NO JUSTIFIABLE REASON TO INTERFERE WITH THE ORDER O F THE LD. CIT(APPEALS) ON THIS ISSUE AND UPHOLDING THE SAME, WE DISMISS THE GROUND NO. 2 OF THE ASSESSEES APPEAL. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 06-05-2016 SD/- SD/- (P. M. JAGTAP) (S.S.VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 06/05/2016 TALUKDAR (SR.PS) 7 COPY OF THE ORDER FORWARDED TO: 1. IFB AUTOMOTIVE PRIVATE LTD., PLOT NO.INDI-5, SEC TOR-1, EAST KOLKATA TOWNSHIP, GOLDPARK, KASBA INDUSTRIAL ESTATE, KOLKA TA 700 107 2 DCIT, CIRCLE-10, KOLKATA 3. THE CIT-I, 4. THE CIT(A)-I, 5. DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, ASST. REGISTRAR , ITAT, KOLKATA BENCHES