ELITE INTERNATIONAL P.LTD, MUMBAI V. ACIT CIR 6(2), MUMBAI

ITA 3079/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0268 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 02-05-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ARVIND KUMAR LD
• Assessee Lawyers: VIMAL PUNMIYA LD
• Keywords: Business expenditure; Bad and doubtful debts; Capital expenditure
• Section: 143(3); 37(1); 37

Judgement Text

ITA NO.3079/MUM/2014 ELITE INTERNATIONAL PRIVATE LIMITED ASSESSMENT YEAR-2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.3079/MUM/2014 ( / ASSESSMENT YEAR: 2009-10) ELITE INTERNATIONAL PRIVATE L TD 1/9 FATIMA BUILDING 66, DR.RAIKAR MARG MAHIM, MUMBAI 400016 / VS. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 6(2) MUMBAI 400 020 !' ./ ./PAN/GIR NO. AABCE-3393-G ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) ASSESSEE BY : VIMAL PUNMIYA, LD. AR REVENUE BY : ARVIND KUMAR, LD. DR / DATE OF HEARING : 23/05/2017 / DATE OF PRONOUNCEMENT : 07 /06/2017 ITA NO.3079/MUM/2014 ELITE INTERNATIONAL PRIVATE LIMITED ASSESSMENT YEAR-2009-10 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2009-10 ASSAILS THE ORDER OF LD. COMMISSIONER OF IN COME TAX (APPEALS)-12 [CIT(A)], MUMBAI DATED 11/03/2014 QUA CONFIRMATION OF DISALLOWANCE OF RS.530.47 LACS TREATING THE SAME AS PROVISION. THE ASSESSEE HAS RAISED ADDITIONAL GROUNDS OF APPEAL AN D THE SAME BEING ALTERNATIVE GROUNDS WHICH DO NOT REQUIRE APPRECIATI ON OF NEW FACTS AND THEREFORE, TAKEN ON RECORD. THE FINAL GROUNDS OF AP PEAL READS AS UNDER:- 1.1 THE COMMISSIONER OF INCOME TAX-12, MUMBAI ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 5,30,47,066/- MADE U/S 36 OF TH E IT ACT ON THE GROUND THAT ONLY BAD DEBT IS ALLOWABLE UNDER THE ABOVE PRO VISION AND THE PROVISION FOR THE DOUBTFUL DEBT MADE IN ACCOUNT IS NOT ALLOWA BLE. 1.2 THE APPELLANT SUBMITS THAT, NO AMOUNT IS RECOVE RED OUT OF THE ABOVE DEBT FOR WHICH THE PROVISION WAS MADE EVEN TILL TODAY AND HE NCE THE SAID AMOUNT OF PROVISION SHOULD HAVE BEEN ALLOWED AS BUSINESS LOSS / BAD DEBT U/S 36/37 OF IT ACT. 1.3 THE LD. CIT(A) ERRED IN TREATING LOSSES WRITTEN OFF DURING THE YEAR AS PROVISION ON ACCOUNT OF BAD DEBTS. 1.4 THE LD. CIT(A) ERRED IN NOT ALLOWING LOSSES OF RS. 5,30,47,066/- WHICH ARE WRITTEN OFF DURING THE YEAR ON ACCOUNT OF DAMAGES D URING THE PROCESS OF CLOTH BY PROCESS HOUSE AND FINALLY NOT RECOVERABLE. 2. FACTS LEADING TO THE DISPUTE ARE THAT THE ASSESS EE, BEING RESIDENT CORPORATE ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURING & EXPORT OF TEXTILE MADE-UPS & HANDLOOM PRODUCTS , WAS ASSESSED FOR IMPUGNED AY U/S 143(3) AT LOSS OF RS.10,87,20,428/- VIDE ASS ESSING OFFICER [AO] ORDER DATED 28/11/2011 AS AGAINST RETURNED LOSS OF RS.16,17,67,494/- E- FILED BY ASSESSEE ON 30/09/2009. THE SOLE ADDITION SUFFER ED BY ASSESSEE WAS FOR RS.530.47 LACS AGAINST PROVISION F OR CERTAIN DOUBTFUL ITA NO.3079/MUM/2014 ELITE INTERNATIONAL PRIVATE LIMITED ASSESSMENT YEAR-2009-10 3 DEBTS U/S 36(I)(VII), AS THE SAME BEING, IN THE OPI NION OF LD. AO, MERE PROVISION FOR DOUBTFUL ADVANCES AND HENCE NOT ALLOW ABLE. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITHO UT ANY SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 11/03/2 014, WHERE THE ASSESSEE PROVIDED THE BREAK-UP OF THE PROVISION ALO NG WITH LEDGER ACCOUNTS THEREOF AND ADMITTED THAT THE IMPUGNED AMO UNTS WERE PROVISION FOR DOUBTFUL DEBTS. AFTER PERUSING VARIOU S CONTENTIONS / SUBMISSIONS MADE BY THE ASSESSEE, LD. CIT(A) CONFIR MED THE SAID DISALLOWANCE WITH FOLLOWING OBSERVATIONS:- I HAVE CAREFULLY CONSIDERED THE ORAL SUBMISSIONS O F THE LEARNED A.R. OF THE APPELLANT AND ALSO THE FACTS AVERRED BY THE A.O. AN D THE GROUNDS OF APPEAL RAISED BY THE APPELLANT. ON BEING ASKED DURING THE APPELLA TE PROCEEDINGS, THE LEARNED AR FAIRLY INFORMED THAT THE IMPUGNED AMOUNTS ARE IN TH E NATURE OF PROVISIONS ONLY. ON VERIFICATION OF LEDGER ACCOUNTS FILED BY THE LEARNE D A.R. DURING THE APPELLATE PROCEEDINGS, IT IS SEEN THAT THE IMPUGNED AMOUNTS A RE NOT WRITTEN OFF AND STILL OUTSTANDING IN THE BOOKS OF THE APPELLANT COMPANY. THUS, IT HAS NOW BECOME CLEAR THAT THE IMPUGNED AMOUNTS REPRESENT PROVISIONS ON LY. AS PER EXPLANATION TO SECTION 36(I)(VII) OF THE ACT, FOR THE PURPOSE OF THIS CLAUSE, ANY BAD DEBTS OR PART THEREOF WRITTEN OFF AS IRRECOVERABLE SHALL NOT INCL UDE ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE ACCOUNTS OF THE ASSESSEE . AS SUCH, THE ASSESSEES CLAIM U/S 36(I)(VII) IS NOT TENABLE. MOREOVER, IT I S ALSO NOT ESTABLISHED THAT THE IMPUGNED AMOUNTS WERE DISCLOSED AS INCOME OF THE AP PELLANT IN THE PREVIOUS YEAR OR YEARS PRIOR THERETO AS IS THE REQUIREMENT LAID D OWN IN SECTION 36(2) OF THE ACT. AS STATED HEREINABOVE, THE IMPUGNED AMOUNTS ARE NOT WR ITTEN OFF EVEN. IN VIEW OF THESE FACTS AND ALSO THE LEGAL POSITION DISCUSSED HERETOF ORE, THE APPELLANTS CLAIM IS NOT TENABLE IN THE EYES OF LAW FROM ANY ANGLE. THEREFOR E, THE GROUNDS OF APPEAL RAISED BY THE APPELLANT IN FORM NO. 35 STAND DISMISSED AND THE A.O.S ACTION OF MAKING DISALLOWANCE ON THIS COUNT STANDS CONFIRMED. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. COUNSEL FOR ASSESSEE [AR], WHILE DRAWING OUR ATTENTION TO PAPER BOOK, CONTENDED THAT THE ASSESSEE PRESENTLY BEING A SICK COMPANY, FOR THE PURPOSE OF EXPORT, PROCURED RAW MATERIAL A ND GOT THEM PROCESSED FROM THIRD PARTIES ON CONTRACTUAL BASIS. HOWEVER, SINCE THE ITA NO.3079/MUM/2014 ELITE INTERNATIONAL PRIVATE LIMITED ASSESSMENT YEAR-2009-10 4 RATIO OF WASTAGE WAS VERY HIGH DURING PROCESSING, T HE ASSESSEE RAISED DEBIT NOTES AGAINST THOSE PARTIES WHO, IN TURN, REF USED TO PAY THE OUTSTANDING AMOUNT WHICH LED THE ASSESSEE TO WRITE- OFF THESE AMOUNTS AND HENCE, ALLOWABLE AS BUSINESS LOSS U/S 37 / 28(I ) OF THE INCOME TAX ACT, 1961. THE DEBIT NOTES WERE ISSUED ON ACCOUNT O F LOSS OF STOCK / PROCESS LOSS OF GOODS FOR WHICH THE ASSESSEE HAS ALREADY PAID H IGHER CHARGES TO THE PROCESSING PARTIES. THE ASSESSEE HAS ACTUALLY WRITTEN OFF THE SAID AMOUNT IN THE BOOKS OF ACCOUNTS UNDER THE HEAD PROVISION FOR DOUBTFUL ADVANCES AND THEREFORE THE SAME ARE ALLOWABLE U/S 37 / 28(I ) OF THE INCOME TAX ACT. RELIANCE HAS BEEN PLACED ON FOL LOWING JUDICIAL PRONOUNCEMENTS FOR VARIOUS CONTENTIONS:- (I) VIJAYA BANK VS. CIT [SC 323 ITR 166 2010] (II) SOUTHERN TECHNOLOGIES LTD. VS. JCIT [SC 320 TR 577] (III) CIT VS. TAINWALA CHEMICALS & PLASTICS INDIA L TD. [BOMBAY HC 215 TAXMANN 153] (IV) CIT VS. NEWANAGAR CO-OPERATIVE BANK LTD. [GUJA RAT HC 54 TAXMANN.COM 28] (V) CIT VS. ABDUL RAZAK & CO. [GUJARAT HIGH COURT 1 982 136 ITR 825] (VI) ACIT VS. HI-LINES PENS PVT. LTD. [DELHI TRIBUN AL ITA NO. 2925/DELHI/2012] (VII) MINDA (HUF) LIMITED VS. JCIT [DELHI TRIBUNAL 101 ITD 191] 5. PER CONTRA, LD. DR PLACED RELIANCE ON THE FINDINGS OF LD. CIT(A ) AND CONTENDED THAT NO DEDUCTION COULD BE ALLOWED AG AINST PROVISIONS FOR ADVANCES AND THEREFORE, NOT ALLOWABLE. MOREOVER, TH E ASSESSEES CASE WAS NOT AT ALL COVERED BY THE PROVISIONS OF SEC. 36 (I)(VII) AS IT WAS NOT A CASE OF DEBTS BEING WRITTEN OFF BUT A MATTER OF CLAIM OF BUSINESS EXPENSES U/S 37 AND THEREFORE, RELIANCE PLACED BY T HE ASSESSEE ON THE JUDICIAL PRONOUNCEMENTS WAS MISCONCEIVED. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING THE CITED CASE LAWS. F IRST OF ALL, UPON ITA NO.3079/MUM/2014 ELITE INTERNATIONAL PRIVATE LIMITED ASSESSMENT YEAR-2009-10 5 PERUSAL OF FINANCIAL STATEMENTS WE FIND THAT THE AS SESSEE HAS CLAIMED THE SAID EXPENDITURE OF RS. 530.47 LACS UNDER THE H EAD PROVISION FOR DOUBTFUL ADVANCES AND THIS PROVISIONS HAS BEEN REDUCED FROM THE FIGURES OF ADVANCES RECOVERABLE IN CASH OR IN KIND OR FOR VALU E TO BE RECEIVED UNDER THE HEAD OTHER CURRENT ASSETS, LOANS & ADVANCES IN THE BALANCE SHEET FOR IMPUGNED AY. A PERUSAL OF DEBIT N OTES / LEDGER EXTRACT OF THE SUPPLIERS PLACED IN THE PAPER-BOOK REVEALS THAT THE ASSESSEE HAS RAISED THESE DEBIT NOTES BETWEEN AY 20 03-04 TO 2008-09 AGAINST VARIOUS SUPPLIERS / PARTIES AND MADE THE PR OVISIONS AGAINST DOUBTFUL ADVANCES FOR RS.530.47 LACS DURING IMPUGNE D AY AND CLAIMED THE SAME BY WAY OF DEBIT TO PROFIT & LOSS ACCOUNT A ND THE SAME HAS BEEN DISALLOWED BY THE REVENUE TREATING THE SAME AS MERE PROVISIONS AND HENCE NOT AN ELIGIBLE EXPENDITURE. WE FIND STRE NGTH IN THE ARGUMENT OF LD. DR THAT THE ISSUE UNDER DISPUTE IS NOT AT AL L COVERED BY THE PROVISIONS OF SECTION 36(I)(VII) AS THIS SECTION DE ALS WITH BAD DEBTS WRITTEN OFF BY THE ASSESSEE QUA SUNDRY DEBTORS , WHICH IS NOT THE CASE HERE. IN THE INSTANT CASE, THE ASSESSEE IS CLAIMING EXPENDITURE AGAINST DEBIT NOTES RAISED BY HIM AGAINST VARIOUS SUPPLIERS , WHICH, IN HIS OPINION, HAVE BECOME DOUBTFUL AND HENCE ALLOWABLE. THEREFORE , THE ADMISSIBILITY OF IMPUGNED EXPENDITURE IS COVERED BY THE PROVISION S OF SECTION 37(1) WHICH READS AS FOLLOWS:- 37.(1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF TH E NATURE DESCRIBED IN SECTIONS 30 TO 36 [***] AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCL USIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON' . ITA NO.3079/MUM/2014 ELITE INTERNATIONAL PRIVATE LIMITED ASSESSMENT YEAR-2009-10 6 UPON PERUSAL OF STATUTORY PROVISIONS, WE FIND THAT ANY EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSES OF BUSINESS SHALL BE ALLOWED PROVIDED THAT SAME IS NOT PERSONAL EXPENDITURE OR CAPITAL EXPENDITURE AND NOT OF THE NATURE COVERED B Y SECTION 30 TO 36. HOWEVER, PRIME CONDITION TO CLAIM THE SAME IS THAT THE EXPENDITURE, AT THE FIRST INSTANCE, MUST HAVE CRYSTALLIZED DURING T HE IMPUGNED AY BEFORE WHICH THE SAME COULD BE CLAIMED BY THE ASSESSEE AND THIS FACTOR, IN OUR OPINION, IS MISSING IN THE INSTANT CASE. UPON PERUS AL OF DOCUMENTS PLACED ON RECORD, WE FIND THAT THE ASSESSEE COULD N OT PRODUCE ANY EVIDENCE TO SHOW THAT THE SUPPLIERS REFUSED TO PAY THE OUTSTANDING AMOUNT OR DENIED THEIR LIABILITY IN ANY MANNER WHIC H CAN LEAD TO A CONCLUSION THAT THE IMPUGNED PROVISION CRYSTALLIZED DURING THE YEAR. THE RELEVANT LEDGER EXTRACT REVEALS THAT THE ASSESSEE H IMSELF HAS WRITTEN OFF THE SAME DURING FINANCIAL YEAR 2013-14. IT IS ALSO NOTED THAT THE RELEVANT PORTION OF NOTE NO. 15 OF NOTES FORMING PART OF ACCOUNT ATTACHED TO FINANCIAL STATEMENTS OF IMPUGNED AY REA DS AS UNDER:- 15(A) THE COMPANY HAS RAISED CLAIMS OF RS.6,99,57, 965/- ON THE PROCESSING UNITS FOR THE REJECTIONS / DAMAGES TO THE FABRICS. THE CO MPANY WAS IN NEGOTIATION WITH PARTIES TO RECOVER THE AMOUNT. HOWEVER, THE COMPANY IS OF THE OPINION THAT RS.5,30,47,066/- IS DOUBTFUL OF RECOVERY. ACCORDING LY, PROVISIONS IS BEING MADE IN THE BOOKS OF ACCOUNTS. THE ABOVE OBSERVATION OF THE ASSESSEE IN NOTES TO T HE ACCOUNT COUPLED WITH TREATMENT OF THE SAME IN THE BOOKS OF ACCOUNTS AND AN ANALYSIS OF OTHER DOCUMENTS PLACED IN THE PAPER BOOK LEAD US TO FORM AN OPINION THAT THE IMPUGNED EXPENDITURE, BEING MERE PROVISION S, DID NOT CRYSTALLIZED DURING THE YEAR AND HENCE NOT ALLOWABL E TO THE ASSESSEE. THE EXPENDITURE TO BE ADMISSIBLE, AT THE THRESHOLD, MUST BE CAPABLE OF ITA NO.3079/MUM/2014 ELITE INTERNATIONAL PRIVATE LIMITED ASSESSMENT YEAR-2009-10 7 BEING CLASSIFIED AS AN EXPENDITURE AT THE FIRST INS TANCE AND DEDUCTION OF MERE PROVISIONS / ESTIMATION COULD NOT BE ALLOWED T O THE ASSESSEE UNLESS PROVIDED BY THE STATUTE. ON THE SAME ANALOG Y, THE SAME IS NOT ADMISSIBLE EITHER UNDER SECTION 28(I). 7. THE ASSESSEE HAS PLACED RELIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT RENDERED IN VIJAYA BANK VS. CIT [SUPRA] FOR THE CONTENTION THAT DEDUCTION OF PROVISIONS ON AGGREGAT E BASIS IN THE BALANCE SHEET AMOUNTS TO ACTUAL WRITE-OFF. HOWEVER, THE SAME PRINCIPLE DO NOT APPLY IN THE INSTANT CASE AS WE ARE DEALING WITH ADMISSIBILITY OF EXPENDITURE U/S 37 AND NOT U/S 36(I)(VII) ACCORDING TO WHICH, THERE MUST BE AN EXPENDITURE AT THE FIRST INSTANCE WHICH HAS C RYSTALLIZED DURING THE IMPUGNED AY AS AGAINST DEDUCTION U/S 36(I)(VII) WHI CH IS ALLOWABLE TO THE ASSESSEE THE MOMENT BAD DEBT IS WRITTEN OFF IN THE BOOKS OF ACCOUNTS, NOTWITHSTANDING THE FACT THAT WHETHER THE SAME HAS ACTUALLY BECOME BAD OR NOT. SIMILARLY, THE DECISION IN SOUTHERN TECHNOLOGIES LTD. VS. JCIT [SUPRA] & CIT VS.TAINWALA CHEMICALS & PLASTIC INDIA LTD. [SUPRA] & CIT VS. NEWANAGER CO-OPERATIVE BANK LTD. [SUPRA] WAS RENDERED IN THE CONTEXT OF SECTION 36(I)(VII). IN THE CASE OF CIT VS. ABDUL RAZAK & CO. [SUPRA] & ACIT VS. HI-LINES PENS PVT. LTD. [SUPRA] & MINDA (HUF) LIMITED VS. JCIT [SUPRA ], THERE WAS NO DISPUTE AS TO THE CRYSTALLIZATION OF EXPENSES AND THOSE CASES DEALT WITH A SITUATION WHE RE THE EXPENDITURE ITSELF, INCURRED BY THE ASSESSEE, WAS NOT IN QUESTI ON AND THEREFORE, DISTINGUISHABLE WITH THE PRESENT CASE IN HAND. 8. THEREFORE, TO CONCLUDE, WE HOLD THAT THE IMPUGNE D EXPENDITURE, BEING MERE PROVISIONS, WERE NOT ALLOWABLE TO THE AS SESSEE WHICH RESULTS INTO DISMISSAL OF ALL GROUNDS OF ASSESSEES APPEAL. ITA NO.3079/MUM/2014 ELITE INTERNATIONAL PRIVATE LIMITED ASSESSMENT YEAR-2009-10 8 9. IN NUTSHELL, THE ASSESSEES APPEAL STANDS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 07 TH JUNE, 2017. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 07.06.2017 SR.PS:- THIRUMALESH ! / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. %&'$ / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. %. , . , / DR, ITAT, MUMBAI 6. /0 / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI