A.P. Sheth Investment Pvt.Ltd., Ahmedabad V. The Income tax Officer, Ward-1(2), Ahmedabad

ITA 3144/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0286 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 11-08-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 20-07-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Assessee Lawyers: SUNIL H TALATI
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI G.D.AGRAWAL, VICE-PRESIDENT (AZ) AND SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER DATE OF HEARING : 11/08/2010 DRAFTED ON:12/08/ 2010 ITA NO.3144/AHD/2007 ASSESSMENT YEAR : 2004-05 A.P.SHETH INVESTMENT PVT.LTD. 705, ADITYA NR.MITHAKHALI SIX ROAD ELLIS BRIDGE, AHMEDABAD VS. ITO WARD-1(2) AHMEDABAD PAN/GIR NO. : AABCA 5964 D (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI SUNIL H.TALATI RESPONDENT BY: SHRI K.M.MAHESH, SR. D.R. O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE W HICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-V A HMEDABAD DATED 09/05/2007 PASSED FOR ASSESSMENT YEAR 2004-05. GROU NDS OF THE ASSESSEE AS INITIALLY RAISED WERE STATED TO BE NOT CORRECTLY WORDED, THEREFORE, LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SHRI SUNIL H.TALATI HAS PLACED BEFORE US THE REVISED GROUNDS T O BE READ AS FOLLOWS:- (2) THE LEARNED C.I.T. (APPEALS) V, HAS GROSSLY ERRED I N LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF BALANCE OF LOAN OF RS.2,63,012/- AS A TRADING LOSS U/S.28 OF INCOME TA X ACT, 1961, WHICH WAS GIVEN TO ANISH CHEMICALS PVT.LTD. DURING THE COURSE OF BUSINESS OF THE COMPANY. ITA NO. 3144/AHD/2007 A.P.SHETH INVESTMENT PVT.LTD. VS. ITO ASST.YEAR - 2004-05 - 2 - ALTERNATIVELY IT IS SUBMITTED THAT THE LEARNED C.I. T.(APPEALS) HAS GROSSLY ERRED IN LAW AND ON FACTS IN DISALLOWING TH E DEBT WRITTEN OFF AS BAD DEBT OF RS.2,63,012/- ON THE GROUND THAT MER E DEBITING AND WRITING OF THE SAME IN ACCOUNT IS NOT SUFFICIENT TO ALLOW THE CLAIM AS PER THE DECISION OF DHALL ENT. & ENGG. (P) LTD. VS. CIT (2007) 207 CTR 729. IT IS SUBMITTED THAT IN VIEW OF THE RECE NT JUDGEMENT OF SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT 323 I TR 397 THE ASSESSEE HAVING WRITTEN OFF THE DEBT, THE SAME BE ALLOWED NOW. (3) THE A.O. ERRED IN HYPOTHETICALLY DISALLOWING EX PENSES OF RS.80,565/- @ 15% OF TOTAL EXPENDITURE OF THE COMPA NY ON THE GROUND OF EXPENSES BEING INCURRED FOR EARNING DIVID END INCOME OF RS.5,61,585/- WHICH IS EXEMPT FROM TAX. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S. 143(3) OF THE I.T. ACT, 1961 DATED 30 /10/2006 WERE THAT THE ASSESSEE-COMPANY IS IN THE BUSINESS OF TRADING OF SHARES. IT WAS FOUND THAT A SUM OF RS.2,63,012/- WAS CLAIMED AS BAD DEBT . FACTS IN THIS REGARD WERE THAT THE ASSESSEE-COMPANY HAD GIVEN LOA N TO ANISH CHEMICALS PVT.LTD. THE ASSESSEE-COMPANY HAD DECLAR ED INTEREST EARNED ON THE SAID LOAN IN THE PAST. DUE TO FINANCIAL DIF FICULTY, IT WAS FOUND BY THE DIRECTORS OF THE ASSESSEE-COMPANY THAT THERE WA S NO CHANCE OF GETTING BACK THE IMPUGNED LOAN AMOUNT, HENCE, DECIDED TO WR ITE OFF THE BALANCE AMOUNT IN THE CURRENT YEAR. THE ASSESSING OFFICER HAS HELD THAT SINCE THE ASSESSEE IS NOT IN THE MONEY-LENDING BUSINESS, THE REFORE, NOT ENTITLED TO CLAIM THE IMPUGNED LOAN AMOUNT AS A BAD DEBT FOR THE YEAR UNDER CONSIDERATION. THE FIRST APPELLATE AUTHORITY HAS A FFIRMED THE ACTION OF THE ASSESSING OFFICER BY RELYING ON THE DECISION OF DHA LL ENTERPRISES & ENGINEERS (P) LTD. VS. CIT REPORTED AS (2007) 207 C TR 729(SC). 3. WE HAVE HEARD BOTH THE SIDES AND ALSO CAREFULLY EXAMINED THE FACTS OF THE CASE IN THE LIGHT OF THE ORDERS OF THE AUTHO RITIES BELOW. WE FIND ITA NO. 3144/AHD/2007 A.P.SHETH INVESTMENT PVT.LTD. VS. ITO ASST.YEAR - 2004-05 - 3 - THAT THE ISSUE IS DIRECTLY COVERED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF T.R. F. LTD. VS. CIT REPORTED AS (2010) 323 ITR 397 (SC), WHEREIN THE HON'BLE APEX COURT HAS TAKEN IN TO CONSIDERATION THE POSITION OF LAW, AFTER 01/04/1989 AND HELD AS UNDER :- THIS POSITION IN LAW IS WELL-SETTLED. AFTER APRI L 1, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRI TTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HOW EVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHE R THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN THE ACCOUNTS OF THE ASSES SEE. WHEN A BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUS TOMERS ACCOUNT IS CREDITED, THUS, CLOSING THE ACCOUNT OF THE CUSTOMER . IN THE CASE OF COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DE BTORS. AS STATED ABOVE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETH ER, IN FACT, THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESSING O FFICER. HENCE, THE MATTER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVEMENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE-OFF. 3.1. ONCE THE HON'BLE APEX COURT HAS HELD THAT IT I S ENOUGH IF THE BAD DEBT IS WRITTEN-OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE, THEN IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAD BECOME IRRECOVERABLE. THEREFORE, THIS GROUND IS AL LOWED. 4. APROPOS NEXT GROUND, THE ASSESSING OFFICER HAS O BSERVED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME WHICH WAS AN EX EMPTED INCOME AGAINST WHICH CERTAIN EXPENSES HAVE BEEN CLAIMED. HE HAS HELD THAT 15% WOULD BE REASONABLE IN PROPORTION TO DISALLOW T HE EXPENSES AND WITH THE RESULT, DISALLOWANCE OF RS.80,565/- WAS COMPUTE D. THE FIRST APPELLATE AUTHORITY HAS AFFIRMED THE ACTION OF THE ASSESSING OFFICER. ITA NO. 3144/AHD/2007 A.P.SHETH INVESTMENT PVT.LTD. VS. ITO ASST.YEAR - 2004-05 - 4 - 5. THE LEARNED AUTHORISED REPRESENTATIVE OF THE A SSESSEE HAS NOT CONTESTED THE LEGAL ACTION OF THE ASSESSING OFFICER , HOWEVER, HE HAS PLEADED THAT THE CALCULATION OF DISALLOWANCE SHOULD BE MADE AS PER RULE 8D OF THE I.T.RULES, 1962. A CALCULATION HAS ALSO BEEN PLACED ON RECORD; REPRODUCED FOR READY REFERENCE. CALCULATION OF DISALLOWANCE U/S.14A AS PER RULE 8 D FOR A.Y. 2004-05 1. AMOUNT OF DIRECT EXPENDITURE NIL 2. INTEREST EXPENDITURE = INTEREST * AVG.INVESTMENT/ AVG.ASSETS 36,151 3. % AVG.INVESTMENT 20,550 TOTAL EXPENDITURE DISALLOWED U/S.14A (RULE 8D) 56,7 02 6. CONSIDERING THE ABOVE FACTS AND THE ARGUMENTS OF BOTH THE SIDES, WE ARE OF THE VIEW THAT THE LEGALITY OF THE DISALLO WANCE BEING NOT CHALLENGED, THEREFORE, GOES IN FAVOUR OF THE REVENU E, HOWEVER, FOR THE PURPOSES OF THE CORRECT COMPUTATION OF THE DISALLOW ANCE, THE MATTER IS TO BE RESTORED BACK FOR THIS LIMITED PURPOSE TO ASSESS ING OFFICER. THIS GROUND IS HEREBY DISMISSED WITH THE DIRECTIONS NOTE D HEREINABOVE. 5. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 13/ 08 /2010. SD/- SD/- ( G.D.AGRAWAL ) ( MUKUL KR. SHRAWAT ) VICE PRESIDENT (AZ) JUDICIAL ME MBER AHMEDABAD; DATED 13/ 08 /2010 T.C. NAIR, SR. PS ITA NO. 3144/AHD/2007 A.P.SHETH INVESTMENT PVT.LTD. VS. ITO ASST.YEAR - 2004-05 - 5 - COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-V, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD