DCIT 4(1)(2), MUMBAI V. AB & CO GLOBAL P. LTD, MUMBAI

ITA 3280/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3895 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 04-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATISH CHANDRA RAJORE
• Assessee Lawyers: JITENDRA SINGH
• Keywords: Unexplained cash credit; Bad and doubtful debts
• Section: 143(3); 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI JOGINDER SINGH (VICE PRESIDENT) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3280/MUM/2017 ASSESSMENT YEAR: 2012 - 13 DCIT - 4(1)(2), ROOM NO. 640, 6 TH F LOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. VS. M/S AB & CO. GLOBAL PVT. LTD. 30, 2 ND FLOOR, GOPAL BHUVAN, 199, PRINCESS STREET, KALBADEVI ROAD, MUMBAI - 400002. PAN NO. AAECA1095J APPELLANT RESPONDENT REVENUE BY : M R. SATISH CHANDRA RAJORE , DR ASSESSEE BY : MR. JITENDRA SINGH , AR DATE OF HEARING : 09/0 1/201 9 DATE OF PRONOUNCEMENT : 30/01/2019 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE REVENUE. THE RELEVANT ASSESSMENT YEAR IS 2012 - 13. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 9, MUMBAI [IN SHORT CIT(A)]AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE 1 ST GROUND OF APPEAL ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF BAD DEBTS WRITTEN OFF DURING THE YEAR OF RS.52,60,363/ - . M/S AB & CO. GLOBAL ITA NO. 3280/MUM/2017 2 3. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE HAD CLAIMED BAD DEBTS WRITTEN OFF AMOUNTING TO RS.52,60,363/ - . THE AMOUNT OF DEBTORS OUTSTANDING ARE FROM SHREEJI OVERSEAS INDIA PVT. LTD. AND SHRI GHANSHYAM AUTOPARTS PVT. LTD. IN RESPONSE TO A QUERY RAISED BY THE ASSESSING OFFICER (AO), THE ASSESSEE SUBMITT ED THAT (I) THE AMOUNT OF BAD DEBTS WRITTEN OFF IS IDENTICAL TO THE BUSINESS OF THE COMPANY I.E. DEBTOR TO WHOM THE SALES WERE MADE, (II) THE SALES MADE TO THE ABOVE TWO PARTIES HAVE BEEN OFFERED TO INCOME IN THE RESPECTIVE YEARS IN WHICH THE SALES HAVE BE EN MADE, ALSO THE INTEREST CHARGED ON THE OUTSTANDING AMOUNT HAS BEEN OFFERED TO TAX, (III) THE COMPANY IS WRITING OFF 20% OF THE BAD DEBTS OF THE SAID TWO PARTIES EVERY YEAR FROM AY 2011 - 12 ONWARDS AND (IV) THE ASSESSEE - COMPANY HAS DONE ALL POSSIBLE EFFOR TS TO REALIZE THESE OUTSTANDING DEBTORS, HOWEVER, ALL THE EFFORTS TURNED IN VAIN AND THEREFORE, THE COMPANY HAS WRITTEN OFF 20% OF THE OUTSTANDING AS BAD DEBTS DURING THE YEAR OF THE SAID TWO PARTIES. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPL ANATION OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE HAS FAILED TO ESTABLISH THAT THE DEBTORS HAVE BECOME BAD AND IRRECOVERABLE. AS PER THE AO THE ASSESSEE WAS ASKED TO SHOW THE EFFORTS MADE BY IT TO RECOVER THE SAME BUT IT FAILED TO DISCHARGE ITS ONUS . IT IS ALSO MENTIONED BY THE AO THAT THE ASSESSEE FAILED TO PROVE THAT THE DEBTORS WRITTEN OFF WERE OFFERED AS REVENUE INCOME IN ANY OF THE PREVIOUS YEAR. THEREFORE, THE AO MADE AN ADDITION OF RS.52,60,363/ - . M/S AB & CO. GLOBAL ITA NO. 3280/MUM/2017 3 4. IN APPEAL, THE LD. CIT(A), FOLLOWING THE D ECISION IN TRF LTD. V. CIT (2010) 323 ITR 397 (SC) AND VIJAYA BANK LTD. V. CIT (2010) 323 ITR 166 (SC) , DIRECTED THE AO TO DELETE THE DISALLOWANCE OF RS.52,62,363/ - . 5. BEFORE US, THE LD. DR SUPPORTS THE ORDER PASSED BY THE AO, WHEREAS THE LD. COUNSEL OF THE ASSESSEE RELIES ON THE ORDER PASSED BY THE LD. CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. AS HELD IN TRF LTD . (SUPR A), AFTER APRIL 1, 1989, IT IS NOT NECESSARY FOR AN ASSESSEE TO ESTABLISH THAT DEBT, IN FACT, HAS BECOME IRRECOVERABLE; IT IS ENOUGH IF BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN ACCOUNTS OF ASSESSEE. WE FIND THAT THE LD. CIT(A) HAS RIGHTLY FOLLOWED THE R ATIO LAID DOWN IN THE ABOVE CASE. THUS WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE 1 ST GROUND OF APPEAL . 7. THE 2 ND GROUND OF APPEAL ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION MADE TOWARDS UNEXPLAINED CASH CREDITS OF RS.90,00,000/ - U/S 68 OF THE IT ACT. 8. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS ISSUED 22,500 SHARES TO M/S ENRICH PROPERTIES PVT. LTD. ON A PREMIUM OF RS.390/ - PER SHARE. THE TOTAL PREMIUM WAS RS.87,75,000/ - . THE AO FOUND THAT MR. NATWAR HARIPRASAD AGARWAL AND MR. HARIPRASAD AGARWAL ARE COMMON SHAREHOLDER. BOTH THE ASSESSEE AND ALLOTTEE ARE RELATED PARTIES. IN RESPONSE TO A QUERY RAISED BY THE AO, THE ASSESSEE F AILED TO FILE DETAILS EXPLAINING HOW THE VALUE OF RS.400/ - PER SHARE (PREMIUM M/S AB & CO. GLOBAL ITA NO. 3280/MUM/2017 4 RS.390/ - ) HAS BEEN DETERMINED. THE ASSESSEE IS SHOWING RS.61,20,993/ - AND RS.74,98,152/ - ONLY AS PROFIT FOR AY 2011 - 12 AND AY 2012 - 13 RESPECTIVELY . ON THE BASIS OF THE ABOVE REAS ONS, THE AO MADE AN ADDITION OF RS.90,00,000/ - U/S 68 OF THE ACT. 9. IN APPEAL, THE LD. CIT(A) , FOLLOWING THE DECISION IN VODAFONE INDIA SERVICES PVT. LTD. V. ADDL. CIT (2014) 368 ITR 001 (BOM), ACIT V. GAGANDEEP INFRASTRUCTURE PVT. LTD. (2014 - TIOL - 656 - ITAT - MUM), GREEN INFRA LTD. V. ITO 38 TAXMANN.COM 253, CIT V. GOA SPONGE & POWER LTD. APPEAL NO. 16 OF 2012 (BOM . ), CIT V. CREATIVE WORLD TELEFILMS LTD . 333 ITR 100 (BOM), CIT V. LOVELY EXPORTS 216 CTR 195 (SC), CIT V. STELLER INVESTMENT LTD . 251 ITR 263 (SC), CIT V. EXPO GLOBE INDIA LTD. 361 ITR 147 (DEL), CIT V. VACMET PACKAGING (INDIA) PVT. LTD . 88 CCH 065 (ALL), JAYA SECURITIES LTD. V. CIT 166 TAXMAN 7 (SLP FILED BY THE DEPARTMENT DISMISSED), HELD THE FOLLOWING : FROM THE ABOVE DISCUSSI ON, IT IS VERY MUCH CLEAR THAT THE APPELLANT COMPANY HAD DEMONSTRATED THAT THE SHARE APPLICANT COMPANY WAS A GENUINE COMPANY AND WAS IN EXISTENCE AS IT WAS FILING INCOME TAX RETURN AND ALSO ANNUAL RETURN WITH THE REGISTRAR OF COMPANIES. THE TRANSACTION OF SHARE APPLICATION MONEY IS THROUGH BANKING CHANNEL. FROM THE FACTS NARRATED ABOVE, IT IS ALSO CLEAR THAT THE SHARE APPLICANT MONEY HAD SUFFICIENT FUND TO INVEST IN THE APPELLANTS COMPANY. THEREFORE, ON QUESTION OF FACT ITSELF, THERE CANNOT BE ANY ADDITION IN THE HANDS OF APPELLANT COMP ANY. RATIO OF VARIOUS JUDICIAL P RONOUNCEMENTS AS REFERRED ABOVE IS APPLICABLE TO THE FACTS OF PRESENT APPELLANT COMPANY. ACCORDINGLY, THE ADDITION MADE BY THE AO ON SHARE APPLICATION MONEY INCLUDING THE SHARE PREMIUM AMOUNT T OTALLING TO RS.90,00,000/ - CANNOT BE SUSTAINED AND THEREFORE, THE AO IS DIRECTED TO DELETE THE SAME. M/S AB & CO. GLOBAL ITA NO. 3280/MUM/2017 5 10. BEFORE US, THE LD. DR RELIES ON THE ORDER OF THE AO, WHEREAS LD. COUNSEL OF THE ASSESSEE RELIES ON THE ORDER OF THE LD. CIT(A). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT IN THE ASSESSMENT ORDER DATED 27.03.2015 THE AO HAS NOT MADE ANY INQUIRY BEFORE MAKING AN ADDITION OF RS.90,00,000/ - U/S 68 OF THE ACT. THIS IS EVIDENT FROM PARA 5 OF THE SAID ASSESSMENT ORDER. IN SUCH A SITUATION, THE LD. CIT(A), FOLLOWING THE DECISIONS NARRATED AT PARA 9 HEREINBEFORE, HAS RIGHTLY DELETED THE ADDITION OF RS.90,00,000/ - MADE BY THE AO. THUS, THE 2 ND GROUND OF APPEAL IS DISMISSED. 12. THE 3 RD GROU ND OF APPEAL ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION MADE TOWARDS CAPITALIZATION OF FINANCIAL COST OF RS.51,48,849/ - . 13. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO JUSTIFY THE CLAIM OF FINANCIAL COSTS OF RS.2,99,72,524/ - . I N RESPONSE TO IT, THE ASSESSEE SUBMITTED THAT IT INCLUDED BANK CHARGES, BANK PROCESSING CHARGES, LC OPENING CHARGES, INTEREST CHARGES, LC RETIRE MENT CHARGES FOR THE LC FACILITY USED FOR PURCHASE AND SALE OF GOODS DEBITED TO THE PROFIT AND LOSS ACCOUNT AND ALLOWABLE U/ S 36(1)(III) OF THE ACT. HOWEVER, THE AO WAS NOT FULLY CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE AND MADE A DISALLOWANC E OF LC OPENING CHARGES OF RS.51,48,849/ - ON THE REASON THAT IT HAS BEEN PAID ONCE FOR THE LONGER PERIOD MORE THAN ONE YEAR. M/S AB & CO. GLOBAL ITA NO. 3280/MUM/2017 6 14. IN APPEAL, THE LD. CIT(A) HELD AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE AS WELL AS STAND OF THE AO AND SUBMISSION OF THE APPELLANT. IT HAS BEEN EXPLAINED BY THE LD. AR THAT LETTER OF CREDIT FACILITY IS SANCTIONED BY BANK TO ITS CUSTOMER TO PURCHASE GOODS ON CREDIT BASIS WHEREIN ON DUE D ATE, BANK MAKE PAYMENT ON BEHALF OF CUSTOMER AND RECOVER THIS MONEY FROM ITS CUSTOMER. THIS LETTER OF CREDIT IS USED FOR IMPORT OF GOODS AS WELL AS LOCAL PURCHASE OF GOODS. ONCE THE LC IS OPENED BY THE BANK IN FAVOUR OF OUR SUPPLIER OF GOODS, THE SUPPLIER IS ASSURED ABOUT ITS PAYMENT AND SUPPLIES THE GOODS AS MENTIONED IN THE LCS. THESE LC CHARGES ARE NOTHING BUT FINANCIAL CHARGES TO GET THE GOODS ON CREDIT BASIS AND THE CUSTOMER AFTER SELLING THE GOODS, GET MONEY AND PAY IT TO THE BANK TOWARDS ITS LIABILIT Y OF LC. THIS IS A KIND OF WORKING FINANCIAL FACILITY FOR TRADING PURPOSE. THE APPELLANT IS A TRADING COMPANY WHICH IS DOING IMPORT AND LOCAL PURCHASES OF VARIOUS MERCHANDISE ITEM AND AS SUCH THEIR BANK HAS SANCTIONED THEM WORKING CREDIT FACILITY FOR SUCH TRADE TRANSACTION. THUS, THESE EXPENSES ARE REVENUE IN NATURE WHICH THE AO HA S FAILED TO APPRECIATE. THEREFORE, IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HELD THAT APPELLANT COMPANY HAS RIGHTLY DEBITED TO PROFIT AND LOSS ACCOUNT. IN VIEW OF T HE ABOVE, THE AO IS DIRECTED TO DELETE THE ADDITION OF RS.51,48,849/ - . 15. BEFORE US, THE LD. DR RELIES ON THE ORDER OF THE AO, WHEREAS THE LD. COUNSE L RELIES ON THE ORDER OF THE LD. CIT(A). 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IT IS FOUND THAT THE ONLY REASON GIVEN BY THE AO WHILE MAKING A DISALLOWANCE RS.51,48,849/ - RELATING TO LC OPENING CHARGES IS THAT IT HAS BEEN PAID ONCE FOR THE LONGER PERIOD OF MORE THAN ONE YEAR. DEFINITELY, THIS IS NOT A SOUND REASON TO MAKE A DISALLOWANCE. ON THE OTHER HAND, LC CHARGES ARE NOTHING BUT FINANCIAL CHARGES TO GET M/S AB & CO. GLOBAL ITA NO. 3280/MUM/2017 7 THE GOODS ON CREDIT BASIS AND THE CUSTOMER AFTER SELLING THE GOODS, GET MONEY AND PAY IT TO THE BA NK TOWARDS ITS LIABILITY OF LC . WE AGREE WITH THE LD. CIT(A) THAT THIS IS A KIND OF WORKING FINANCIAL FACILITY FOR TRADING PURPOSE AND THEREFORE, UPHOLD HIS ORDER. 1 7 . IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/01/201 9. SD/ - SD/ - (JOGINDER SINGH) (N.K. PRADHAN) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI ; DATED: 30/01/2019 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// ( SR. PRIVATE SECRETARY ) ITAT, MUMBAI