The ACIT,(OSD), Circle-9, Ahmedabad V. M/s. V.K. Patel & Co., Ahmedabad

ITA 3250/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80320 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 07-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 08-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Gift; Business expenditure; Bad and doubtful debts

Judgement Text

, , , , C, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, C BENCH . .. . . .. . , !' !' !' !', , , , #$ %&'( #$ %&'( #$ %&'( #$ %&'(, , , , )* + ) ' )* + ) ' )* + ) ' )* + ) ' BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND ANIL CHATURVEDI, ACCOUNTANT MEMBER) ITA NO.3250/AHD/2010 [ASSTT.YEAR : 2007-2008] ACIT (OSD), CIR.9 AHMEDABAD. /VS. M/S.V.K. PATEL & CO. V.K. PATEL HOUSE 35-B, MUNICIPAL SERVANTS SOCIETY NR. FOOTBALL GROUND KANKARIA, AHMEDABAD. PAN : AACFV 2510 N ( (( (-. -. -. -. / APPELLANT) ( (( (/0-. /0-. /0-. /0-. / RESPONDENT) + 1 2 )/ REVENUE BY : SHRI NIMESH YADAV, SR.DR 4& 1 2 )/ ASSESSEE BY : MS.URVASHI SHODHAN 5 1 &(*/ DATE OF HEARING : 7 TH JULY, 2014 678 1 &(*/ DATE OF PRONOUNCEMENT : 05/09/2014 )9 / O R D E R PER G.C. GUPTA, VICE-PRESIDENT: THIS APPEAL BY THE REVENUE FOR THE ASSTT.YEAR 2007-2008 IS DIRECTED AGAINST TH E ORDER OF THE CIT(A). 2. THE GROUND NO.1 OF THE APPEAL OF THE REVENUE IS AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE BY THE AO REGARDING LIQUEFIED DAMAGES OF RA BILLS OF TOTAL RS.1,78,96,726/- (RS.1,13,18,467/- BEING INVO KED BANK GUARANTEE AND RS.65,78,259/- BEING FORFEITED RETENT ION MONEY. ITA NO.3250/AHD/2010 -2- 3. THE LEARNED DR HAS RELIED ON THE ORDER OF THE AO . HE REFERRED TO RELEVANT PORTIONS OF THE ASSESSMENT ORDER IN SUPPOR T OF THE CASE OF THE REVENUE. THE LEARNED COUNSEL FOR THE ASSESSEE HAS OPPOSED THE SUBMISSIONS OF THE LEARNED DR. SHE SUBMITTED THAT IT IS A PURE AND SIMPLE CASE OF AMOUNT PAID AS LIQUIDATED DAMAGES AND INVOK ED BANK GUARANTEE ON ACCOUNT OF BREACH OF CONTRACT, AND THEREFORE, ALLOW ABLE AS BUSINESS EXPENDITURE. SHE REFERRED TO THE COPY OF THE LETTE R OF THE EXECUTIVE ENGINEER, STATE ROAD PROJECT DIVISION, GANDHINAGAR DATED 25.9.2007 ADDRESSED TO THE ASSESSEE-COMPANY STATING THAT THE ASSESSEE HAD MADE A FUNDAMENTAL BREACH OF THE CONTRACT ACCORDING TO SUB -CLAUSE 59.2 (G) OF SECTION 3 OF THE CONTRACT, AND THEREFORE, THE ASSES SEE WAS MADE LIABLE FOR LIQUIDATED DAMAGES ETC. COPY OF THE SAID LETTER HA S BEEN FIELD IN THE COMPILATION BEFORE THE TRIBUNAL. SHE RELIED ON THE DECISION OF THE ITAT, AHMEDABAD BENCH IN DCIT VS. GAYATRI CONSTRUCTION CO ., IN ITA NO.736/AHD/2010 DATED 31.1.2013. SHE RELIED ON THE ORDER OF THE CIT(A). 4. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND HAVE PE RUSED THE ORDERS OF THE AO AND THE CIT(A). WE FIND THAT IT IS CLEAR CASE OF BREACH OF CONTRACT ON THE PART OF THE ASSESSEE, FOR WHICH IT HAD TO PAY LIQUIDATED DAMAGES AND FORFEITURE OF RETENTION MONEY. A PERUS AL OF THE LETTER OF EXECUTIVE ENGINEER, STATE ROAD PROJECT DIVISION DTD . 25.9.2007 CLEARLY ESTABLISHES THAT THE RETENTION WAS MADE ON ACCOUNT OF THE BREACH OF CONTRACT ON THE PART OF THE ASSESSEE. NO INFRACTIO N OF LAW ON THE PART OF THE ASSESSEE COULD BE SHOWN BY THE REVENUE. THE DECISI ON OF THE ITAT, AHMEDABAD BENCH IN DCIT VS. GAYATRI CONSTRUCTION CO . (SUPRA) ALSO SUPPORTS THE CASE OF THE ASSESSEE. IN THESE FACTS OF THE CASE, WE HOLD THAT THE RECOVERY ON ACCOUNT OF INVOKING THE BANK GUARAN TEE BY THE EXECUTIVE ENGINEER AND FORFEITURE OF THE RETENTION MONEY WAS THE BUSINESS EXPENDITURE, AND THE CIT(A) WAS JUSTIFIED IN HOLDIN G THAT THE SAME IS TO BE ITA NO.3250/AHD/2010 -3- ALLOWED AS DEDUCTION, BECAUSE THE AMOUNTS WERE NOT RECOVERED FOR ANY INFRACTION OF LAW, BUT FOR BREACH OF CONTRACTUAL OB LIGATION BY THE ASSESSEE ENTERED INTO WITH THE AIRPORT AUTHORITY OF INDIA, A CCORDINGLY, ORDER OF THE CIT(A) ON THIS ISSUE IS CONFIRMED AND THE GROUND NO .1 OF THE REVENUE IS DISMISSED. 5. THE GROUND NO.2 OF THE APPEAL OF THE REVENUE IS AS UNDER: 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCES OF TOTAL RS.,48,257/- UNDER VARIOUS E XPENSES (I.E. CELEBRATION EXPENDITURE OF RS.10,032/- AND BUSINESS EXPENDITURE OF RS.98,748/- AND DIWALI EXPENDITURE OF RS.39,447/- M ADE BY THE AO. 6. WE HAVE HEARD THE PARTIES. WE FIND THAT THE EXP ENSES DISALLOWED BY THE AO AND DELETED BY THE CIT(A) WERE CELEBRATION E XPENSES, BUSINESS PROMOTION EXPENSES, DIWALI EXPENSES INCURRED BY THE ASSESSEE. THE ASSESSEE HAS CLAIMED THAT IT HAS PRODUCED COMPLETE VOUCHERS THEREOF, AND COPIES THEREOF HAVE BEEN FILED IN THE COMPILATION B EFORE THE TRIBUNAL. WE FIND THAT THE EXPENSES OF RS.10,032/- WERE INCURRED FOR CELEBRATION EXPENSES FOR INAUGURATION OF WORK SITE AT JAMANAGAR MUNICIPAL CORPORATION, WHICH IS CLEARLY FOR BUSINESS PURPOSE. THE BUSINESS PROMOTION OF RS.98,748/- WERE INCURRED FOR PROVIDIN G GIFTS ETC. TO VARIOUS PERSONS. HOWEVER, THE BUSINESS PURPOSE OF ENTIRE EXPENSES OF RS.98,748/- COULD NOT BE ESTABLISHED BY THE ASSESSEE, AND ACCOR DINGLY, WE HOLD THAT ENDS OF JUSTICE SHALL BE MET, IF THE DISALLOWANCE I S RESTRICTED TO RS.50,000/- OUT OF TOTAL BUSINESS PROMOTION EXPENSES OF RS.98,7 48/-. REGARDING DIWALI EXPENSES OF RS.39,477/-, THE SAME IS ALLOWABLE IN NATURE, AS INCURRED FOR CUSTOMARY EXPENDITURE ETC. ACCORDINGL Y, OUT OF THIS GROUND OF THE APPEAL, DISALLOWANCE OF RS.50,000/- OUT OF BUSI NESS PROMOTION EXPENSES IS SUSTAINED AND THE GROUND NO.2 OF THE RE VENUE IS PARTLY ALLOWED. ITA NO.3250/AHD/2010 -4- 7. THE GROUND NO.3 OF THE REVENUES APPEAL IS AS UN DER: 3. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.3,17,158/- MADE BY THE AO BEING TRAVELING EXPENDITURE. 8. THE LEARNED DR HAS RELIED ON THE ORDER OF THE AO . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSE E HAS FILED ENTIRE SET OF VOUCHERS SUPPORTING THE TRAVELING EXPENSES, A COPY THEREOF HAS BEEN FILED IN THE COMPILATION BEFORE THE TRIBUNAL AT PAGE NO.5 3 TO 95 THEREOF. WE FIND THAT THE AO HAS MADE A DISALLOWANCE OF 50% OF THE TOTAL TRAVELING EXPENSES OF RS.7,92,893/- WHICH WAS RESTRICTED TO 1 0% OF THE TOTAL TRAVELING EXPENSES BY THE CIT(A). 9. WE HAVE CONSIDERED RIVAL SUBMISSIONS. WE FIND T HAT THE ASSESSEE HAS NOT FILED THE COPY OF ENTIRE SET OF VOUCHERS PE RTAINING TO THE CLAIM OF TRAVELING EXPENSES. THE ASSESSEE HAS FILED THE COP Y OF LEDGER ACCOUNT OF UNDER THE HEAD TRAVELING FROM PAGES 54 TO 95, AND THEREFORE, BUSINESS PURPOSE OF INCURRING TRAVELING EXPENSES COULD NOT B E ESTABLISHED BY THE ASSESSEE IN FULL. IN THESE FACTS OF THE CASE, WE A RE OF THE VIEW THAT CONSIDERING VOLUME OF THE BUSINESS AND FACTUAL MATR IX OF THE CASE, THE ENDS OF THE JUSTICE SHALL BE MET, IF THE DISALLOWANCE OU T OF TRAVELING EXPENSES IS RESTRICTED TO 20% OF THE TOTAL TRAVELING EXPENSE OF RS.7,92,893/-, INSTEAD OF 10% DISALLOWANCE SUSTAINED BY THE CIT(A), AND THE G ROUND NO.3 OF THE REVENUE IS PARTLY ALLOWED. 10. THE GROUND NO.4 OF THE REVENUES APPEAL IS AS U NDER: ITA NO.3250/AHD/2010 -5- 4. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF TOTAL RS.10,42,139/- WRITTEN OFF AS BAD DEBTS (I.E. RS.3,85,367/- REG. ADANI PORT LTD., AND RS.6,56,772 /- REG. GEB, SIKKA, JNR) MADE BY THE AO. 11. THE LEARNED DR HAS RELIED ON THE ORDER OF THE A O AND THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE O F ALLOWABILITY OF BAD DEBT IS COVERED IN FAVOUR OF THE ASSESSEE WITH THE DECIS ION OF THE HONBLE APEX COURT IN THE CASE OF T.R.F. LTD. VS. CIT, 323 ITR 3 97 (SC). SHE SUBMITTED THAT ENTIRE AMOUNT OF BAD DEBT HAS BEEN W RITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. WE HAVE CONSIDERED RI VAL SUBMISSIONS. SINCE THE WRITING OFF OF THE AMOUNT OF BAD DEBTS HAS NOT BEEN DOUBTED BY THE REVENUE, WE HOLD THAT THE ISSUE IS COVERED IN FAVOU R OF THE ASSESSEE WITH THE DECISION OF THE HONBLE APEX COURT IN TRF LTD. (SUPRA), AND ACCORDINGLY, THE GROUND NO.4 OF THE REVENUE IS DISM ISSED. 12. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( %&'( %&'( %&'( %&'( / ANIL CHATURVEDI) )* + )* + )* + )* + /ACCOUNTANT MEMBER ( . .. . . .. . /G.C. GUPTA) !' !' !' !' /VICE-PRESIDENT C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD