M/s ETE Electronics Pvt. Ltd., Chandigarh V. JCIT, Patiala

ITA 314/CHANDI/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9161 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 25-07-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 05-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Depreciation; Earning of tax free income; Bad and doubtful debts
• Section: 143(3); 14A

Judgement Text

PAGE 1 OF 5 ETE ELECTRO GEARS P LTD V JCIT ITA NO 314/ CHD/2016 A Y 2011 - 12 INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 314 /CHD/ 2016 ASSESSMENT YEAR : 2011 - 12 M/S. ETE ELECTRO GEARS PVT LTD, PLOT NO. - 24/8, INDUSTRIAL AREA, PHASE - 1, CHANDIGARH PAN:AAACE6262D VS. JOINT COMMISSIONER OF INCOME TAX, RANGE - II, CHANDIGARH (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. A S HOK GOYAL REVENUE BY: SH. MANJIT SINGH DATE OF HEARING 03 /0 8 /2016 DATE OF PRONOUNCEMENT 1 1 /0 8 /2016 O R D E R PER PRASHANT MAHARISHI , A . M . 1 . THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT(A) - I, CHANDIGARH DATED 29.02.2016 FOR THE ASSESSMENT YEAR 2011 - 12, WHEREIN 5 GROUNDS OF APPEAL WERE RAISED: - 1. THAT THE WORTHY COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ADDITION MADE BY ASSESSING OFFICER BY DOING ASSESSMENT U/S 143(3). 2. THAT THE WORTHY CIT (A) HAS ERRED IN UPHOLDING THE ADDITION OF RS. 14,33,331 / - . 3. THAT THE LD. CIT (A) HAS ERRED IN UPHOLDING THE DISALLOWING OF DEPRECIATION ON CAPITAL SUBSIDY TO THE TUNE OF RS. 93,094/ - . AND INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME TAX ACT, 1961. 4. THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF INTEREST U/S 14A READ WITH RULE 8D AND MAKING AN ADDITION OF RS. 3,90,738 / - BY DISALLOWING INTEREST ON BORROWED FUNDS AND IN PAGE 2 OF 5 ETE ELECTRO GEARS P LTD V JCIT ITA NO 314/ CHD/2016 A Y 2011 - 12 INITIATING PENALTY PROCEEDINGS U/S 271 (1)(C) OF THE INCOME TAX ACT, 1961. 5. THAT THE LD. A.O. HAS ERRED BY DISALLOWING BAD DEBTS AMOUNTING TO RS 9,49,499/ - WHICH WERE INCURRED DURING THE NORMAL COURSE OF BUSINESS AND INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME TAX ACT,1961. 2 . THE ASSESSEE DID NOT PRESS GROUND NOS. 1 NO 1 AND GROUND NO 3 . GROUND NO 2 IS GENERAL IN NATURE. THEREFORE, GROUNDS NOS. 1 TO 3 WERE DISMISSED. 3 . THIS LEAVES US WITH DISPOSAL OF ONLY GROUND NOS. 4 AND 5 OF THIS APPEAL. 4 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LTD COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF ELECTRICAL CONT ROL PANEL AND DOING RELATED JOB WORK. IT FILED ITS RETURN OF INCOME ON 26.09.2011 SHOWING INCOME OF RS. 6655260/ - . THE ASSESSMENT U/S 143(3) WAS PASSED ON 31 ST DECEMBER 2012 AT AN ASSESSED INCOME OF RS. 8088591/ - . THE SUBJECT MATTER OF THE APPEAL ARE DISAL LOWANCE MADE U/S 14A OF RS. 390738/ - AND DISALLOWANCE OF BAD DEBT WRITTEN OFF AMOUNTING TO RS. 949499/ - . 5 . GROUND NO. 4 OF THE APPEAL IS AGAINST THE ADDITION OF RS. 390738/ - BEING INTEREST ON BORROWED FUNDS DISALLOWED U/S 14A OF THE INCOME TAX ACT INVOKING RULE 8D. THE ASSESSEE HAS MADE INVESTMENT OF RS. 7675852/ - IN EQUITY SHARES. HOWEVER, NO INCOME HAS BEEN RECEIVED AGAINST THE ABOVE INVESTMENT MADE. THE ASSESSEE HAS PAID INTEREST OF RS 1286743/ - DURING THE YEAR AND THEREFORE, THE LD AO DISALLOWED THE PROP ORTIONATE INTEREST EXPENDITURE INVOKING RULE 8D OF RS. 322613/ - AND EXPENDITURE OF RS. 68125/ - TOTALING TO RS. 390738/ - . THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT ( A), HOWEVER THE LD CIT ( A) CONFIRMED THE DISALLOWANCE OF RS. 390738/ - . 6 . BEFORE US TH E LD AR SUBMITTED THAT DURING THE YEAR THE ASSESSEE HAS NOT RECEIVED ANY INTEREST INCOME AS TAKEN FROM PARA 3.1 OF THE PAGE 3 OF 5 ETE ELECTRO GEARS P LTD V JCIT ITA NO 314/ CHD/2016 A Y 2011 - 12 ASSESSMENT ORDER, THEREFORE THERE CANNOT BE ANY DISALLOWANCE U/S 14A OF THE ACT. 7 . THE LD DR SUBMITTED THAT EVEN IN ABSENCE OF ANY EXEMPT I NCOME DISALLOWANCE U/S 14A AND APPLICABILITY OF RULE 8D IS NOT AUTOMATIC THEREFORE DISALLOWANCE IS RIGHTLY BEEN MADE. 8 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS; IT IS AN UNDISPUTED FACT THAT DURING THE YEAR THE ASSESSEE HAS NOT RECEIVED ANY INCOME, WHICH IS EXEMPT. HONBLE DELHI HIGH COURT IN CASE OF CHEMINVEST LTD. VS. CIT 378 ITR 33 HAS HELD THAT SECTION 14A ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME DURING THE RELEVANT PREVIOUS Y EAR FOR THE PURPOSE OF DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. THE REVENUE COULD NOT POINT OUT ANY OTHE R DECISION CONTESTING THE ABOVE ARGUMENTS. IN VIEW OF THE THIS RESPECTFULLY FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT WE REVERSE THE DECISION OF THE LD CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS. 390738/ - U/S 14A OF THE ACT READ WITH RULE 8D. IN THE RESULT GROUND NO. 4 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 9 . GROUND NO. 5 OF THE APPEAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF BAD DEBT WRITTEN OFF RS. 949499/ - . THE ASSESSEE HAS AGREED TO SUPPLY CERTAIN MATERIAL TO BRAR INDUSTRIES, WHICH IN TURN WERE TO BE SOLD TO INDIA N ARMED FORCE S . THEREFORE, THE AMOUNT OUTSTANDING OF GOODS SOLD TO BRAR INDUSTRIES OF RS. 949499/ - COULD NOT BE RECOVERED, HENCE, THE ASSESSEE HAS WRITTEN OFF THIS AMOUNT AS BAD DEBT. IT WAS DISALLOWED BY THE LD AO. THE REASON FOR DISALLOWANCE IS THAT THE ASSESSEE WAS NOT A PARTY TO SUPPLY OF GOODS TO MINISTRY OF DEFENSE . THE LD CIT ( A) CONFIRMED THIS DISALLOWANCE. THE LD CIT(A) DISALLOWED THE CLAIM FOR THE REASON THAT SUCH SALE AMOUNT HAS NOT BE CREDITED IN THE BOOKS OF ACCOUNT AND THEREFORE PAGE 4 OF 5 ETE ELECTRO GEARS P LTD V JCIT ITA NO 314/ CHD/2016 A Y 2011 - 12 CONDITION U/S 36(2) WAS NOT FULFILLED. THEREFORE THE ISSUE IS IN APPEAL BEFORE US. 10 . THE LD AR SUBMITTED THAT THE ASSESSEE HAS PREPARED BILL IN FAVOUR OF THE BRAR INDUSTRIES WHICH ARE PLACED AT PAGE 2 TO 5 OF THE PAPER BOOK, THOUGH THE GOODS A RE SUPPLIED FOR APPROVAL PURPOSE, HOWEVER, S A ME ARE BOOKED BY INVOICES NO. 084, 112, 101 AS SALES . ACCORDING TO SALE VOUCHERS THE AMOUNT IS CREDITED AS SALES AND DEBITED TO BRAR INDUSTRIES. THEREFORE, IT WAS SUBMITTED THAT THE ASSESSEE HAS OFFERED THIS AMO UNT IN EARLIER YEARS AND PROVISION OF SECTION 36(2) ARE FULLY COMPLIED WITH AND THEREFORE THE ASSESSEE IS ELIGIBLE FOR DEDUCTION OF BAD DEBTS. 11 . THE LD DR RELIED UPON THE ORDER OF THE LOWER AUTHORITIES; HOWEVER, HE DID NOT CONTROVERT THE SALE BILL SHOWN BY THE ASSESSEE AS PER PAGE 2 TO 5 OF THE PAPER BOOK . 12 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. THE PROVISION OF SECTION 36(1 ) ( VII) PROVIDES THAT ANY BAD DEBT WHICH IS WRITTEN OFF A S IRRECOVERA BLE IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR IS ELIGIBLE FOR DEDUCTION. HOWEVER, THIS DEDUCTION IS SUBJECT TO THE PROVISION OF SECTION 36(2) OF THE ACT. IN THE PRESENT CASE , ASSESSEE HAS ALREADY TAKEN THE ABOVE SUM AS INCOME IN FINANC IAL YEAR 2008 - 09 AS PER VARIOUS SALES BILLS AND VOUCHERS SUBMITTED IN THE PAPER BOOK. THE REVENUE DOES NOT DISPUTE THIS EVIDENCE AND THEREFORE THE CONDITION OF SECTION 36(2) OF THE ACT IS COMPLIED WITH BY THE ASSESSEE. ACCORDING TO THE DECISION OF THE HON' BLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT 323 ITR 397, WHEREIN IT IS HELD THAT IT IS NOT NECESSARY FOR ASSESSEE TO ESTABLISH THAT DEBT HAS BECOME IRRECOVERABLE AND IT ENOUGH FOR THE ASSESSEE IF THE AMOUNT IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS VIEW HAS FURTHER BEEN ACCEPTED BY REVENUE IN ITS CIRCULAR NO. 12/2016 DATED 30.05.2016. IN THE PRESENT CASE BAD DEBTS HAVE BEEN WRITTEN OFF IN THE PROFIT AND LOSS ACCOUNT, WHICH IS PLACED AT PAGE 6 OF THE PAGE 5 OF 5 ETE ELECTRO GEARS P LTD V JCIT ITA NO 314/ CHD/2016 A Y 2011 - 12 PAPER BOOK. THEREFORE, THE ASSESSEE HAS COMPLIED WITH THE CONDITIONS OF SECTION 36(1 ) ( VII) OF THE ACT READ WITH SECTION 36(2) OF THE ACT AND THEREFORE, THE CLAIM OF THE ASSESSEE IS ALLOWABLE. IN VIEW OF THIS WE REVERSE THE FINDING OF THE LD CIT ( A) IN CONFIRMING THE DISALLOWANCE OF BAD DEBT OF RS. 949499/ - . THEREFORE, THE GROUND NO. 5 IS ALLOWED. 13 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 1 / 08 /2016 . - S D / - - S D / - ( BHAVNESH SAINI ) ( PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 1 / 08 / 2016 A K KEOT COPY FORWARDED TO 1 . APPLICANT 2 . RESPONDENT 3 . CIT 4 . CIT (A) 5 . DR:ITAT ASSISTANT REGISTRAR ITAT, CHANDIGARH