M/s. Bhagirath Coach & Metal Fabricators Pvt. Ltd., Indore V. THE DCIT 1(1), Indore

ITA 351/IND/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9469 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 17-12-2018
• Assessment Year: 2013-2014
• Appeal Filed On: 11-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R P MOURYA
• Assessee Lawyers: S N AGRAWAL
• Keywords: Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 37(1)

Judgement Text

BHAGIRATH COACH & METAL FABRICATORS PVT. LTD ITA NO.351/IND/2017 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE HON'BLE KUL BHARAT, JUDICIAL MEMBER AND HON'BLE MANISH BORAD, ACCOUNTANT MEMBER ITA NO.351/IND/2017 ASSESSMENT YEAR 2013-14 REVENUE BY S HRI R.P. MOURYA , SR.DR ASSESSEE BY S/ SHRI S.N. AGRAWAL & PANKAJ MOGRA,CAS DATE OF HEARING 1 7 .1 2 . 2018 DATE OF PRONOUNCEMENT 19 .1 2 .2018 O R D E R PER MANISH BORAD, AM. THE ABOVE CAPTIONED APPEAL IS FILED AT THE INSTANCE OF ASSESSEE PERTAINING TO ASSESSMENT YEAR 2013-14 AND IS DIREC TED AGAINST THE ORDERS OF LD. COMMISSIONER OF INCOME TAX (APPEALS)- I (IN SHORT LD.CIT(A)], INDORE DATED 28.02.2017 WHICH IS ARIS ING OUT OF THE ORDER U/S 143(3) OF THE INCOME TAX ACT 1961(IN SHOR T THE ACT) DATED 23.03.2015 FRAMED BY DCIT-1(1), INDORE. M/ S. BHAGIRATH COACH & METAL FABRICATORS PVT. LTD, C/O M. MEHTA & CO, 11/5, SOUTH TUKOGANJ, INDORE VS. DCIT 1(1), INDORE ( APPELLANT ) (RESPONDENT ) PAN NO. A AACB7112P BHAGIRATH COACH & METAL FABRICATORS PVT. LTD ITA NO.351/IND/2017 2 2. ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL; 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND LAW THE LD. CIT(A) ERRED IN MAINTAINING DISALLOWANCE OF RS.31,5 0,000/- AS MADE BY THE LD. A.O U/S 37(1) BY TREATING THE EARNEST MONEY AS FORFEITED BY MARUTI SUZUKI INDIA LTD AS CAPITAL EXPENDITURE OF THE ASSE SSEE COMPANY WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE, NATURE OF BUSINESS AND SUBMISSION MADE BEFORE HIM. 2. THE ASSESSEE RESERVE ITS RIGHT TO ADD, ALTER, MO DIFY OR AMEND THE GROUNDS OF APPEAL AS AND WHEN REQUIRED. 3. BRIEFLY STATED FACTS AS CULLED OUT FROM THE RECO RDS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN BU S BODY BUILDING WORK. INCOME OF RS.8,36,61,650/- DECLARED IN THE INCOME TAX RETURN FILED ON 28.9.2013. CASE PICKED UP FOR SCRUTINY. NECESSARY NOTICES U/S 143(2) AND 142(1) OF THE ACT WAS DULY SERVED UPON THE ASSESSEE AND NECESSARY DETAILS AS CALLED F OR WERE FILED. LEARNED ASSESSING OFFICER (IN SHORT LD.A.O) DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE H AS WRITTEN OFF SUM OF RS.31,50,000/- AS EARNEST MONEY FORFEITED B Y MARUTI SUZUKI INDIA LTD. ASSESSEE HAS CLAIMED THIS AMOUNT AS REVENUE EXPENDITURE WHEREAS LD. A.O WAS OF THE VIEW THAT TH E ALLEGED EXPENDITURE OF RS.31,50,000/- IS IN THE NATURE OF C APITAL EXPENDITURE AND THEREFORE CANNOT BE ALLOWED AS AN R EVENUE BHAGIRATH COACH & METAL FABRICATORS PVT. LTD ITA NO.351/IND/2017 3 EXPENDITURE AND ACCORDINGLY DISALLOWED THIS AMOUNT. LD. A.O WAS ALSO MADE AD-HOC DISALLOWANCE OF RS.3,00,000/-. IN COME ASSESSED AT RS.8,71,11,650/-. 4. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE LD. C IT(A) AND PARTLY SUCCEEDED. 5. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNA L RAISING THE SOLE GROUND AGAINST THE FINDINGS OF LD. CIT(A) MAIN TAINING THE DISALLOWANCE OF RS.31,50,000/- MADE BY THE LD. A.O U/S 37(1) OF THE ACT FOR TREATING THE EARNEST MONEY FORFEITED BY MARUTI SUZUKI INDIA PVT. LTD AS CAPITAL EXPENDITURE. 6. LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE PA PER BOOK SUBMITTED THAT THE ASSESSEE COMPANY APPLIED FOR THE DEALERSHIP OF MARUTI SUZUKI INDIA PVT. LTD AND GAVE DEPOSITS ON V ARIOUS DATES. AT THE TIME OF THE APPLICATION THE ASSESSEE COMPANY AG REED TO PURCHASE A PLOT FOR SETTING UP THE SHOW ROOM FOR MA RUTI SUZUKI INDIA PVT. LTD. HE FURTHER SUBMITTED THAT THESE T RANSACTIONS OF PAYING THE AMOUNT TO MARUTI SUZUKI INDIA PVT. LTD A S WELL AS TO GIVE THE ADVANCE TO INDORE DEVELOPMENT AUTHORITY FOR PUR CHASE OF PLOT WERE FOR THE PURPOSE OF BUSINESS. SUBSEQUENTLY FOR UNAVOIDABLE REASONS THE REQUIRED PLOT WAS NOT ALLOTTED BY INDOR E DEVELOPMENT BHAGIRATH COACH & METAL FABRICATORS PVT. LTD ITA NO.351/IND/2017 4 AUTHORITY DUE TO WHICH THE DEALERSHIP WAS NOT ALLOT TED AND THE AMOUNT DEPOSITED IN MARUTI SUZUKI INDIA PVT. LTD W AS FORFEITED. HE FURTHER SUBMITTED THAT FOR THE CONTRACT FOR TAKING THE AGENCY OF THE VEHICLES MANUFACTURED BY MARUTI SUZUKI INDIA PVT. L TD WAS A BUSINESS CONTRACT ENTERED INTO WITH A VIEW TO EARN PROFIT AND IT WAS NOT A DEPOSIT MADE IN ORDER TO SECURE ANY CAPITAL A SSET OR A ADVANTAGE ENDEAVOUR IN NATURE. AS SUCH THE LOSS C LEARLY CANNOT BE ATTRIBUTED TO THE BUSINESS CARRIED ON BY THE ASSESS EE. RELIANCE WAS PLACED ON FOLLOWING JUDGMENTS; (I) HON'BLE BOMBAY HIGH COURT IN THE CASE OF NARAND AS MATHURADAS & CO. V/S CIT (1959) 35 ITR 461 (BOM). (II) HON'BLE SUPREME COURT IN THE CASE OF BADRIDAS DAGA V/S CIT 34 ITR 10 (III) HON'BLE SUPREME COURT IN THE CASE OF CIT V/S R.B. RUNGTA & CO. 50 ITR 233 (IV) MADEVA UPENDRA SINAI VS. UNION OF INDIA (1975) 98 ITR 209 (SC) (V) RAMCHANDAR SHIVNARAYAN VS. CIT (1978) 111 ITR 263(SC) BHAGIRATH COACH & METAL FABRICATORS PVT. LTD ITA NO.351/IND/2017 5 (VI) JWALA PRASAD RADHA KISHAN V/S CIT (1971) 79 IT R 530 (ALL.) (VII) I.B.M. WORLD TRADE CORPN. V/S CIT (1990) 186 ITR 412 7. PER CONTRA DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF LD. CIT(A). 8. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US. THE SOLE ISSUE RAISED BEFORE US FOR ADJUDICATION IS THAT WHETHER BOTH THE LOWER AUTHORITIES WERE JUSTIF IED IN TREATING THE FORFEITURE OF EARNEST MONEY AS CAPITAL EXPENDITURE. 9. PERUSAL OF THE RECORDS SHOWS THAT THE ASSESSEE C OMPANY APPLIED FOR DEALERSHIP OF MARUTI SUZUKI INDIA LTD. CORRESPONDENCES OF THE OFFICIALS WITH MARUTI SUZUKI INDIA LTD ARE ALSO PLACED ON RECORD. AMOUNT OF RS.31,50,000/- WH ICH INCLUDED RS.30,00,000/- AS DEPOSIT AND THE REMAINING AMOUNT FOR APPLICATION WERE PAID TO MARUTI SUZUKI INDIA LTD. AT THE TIME OF APPLICATION FOR TAKING DEALERSHIP, ASSESSEE AGREED TO PURCHASE PLOT NO. RA-17, SCHEME NO.71, GUMASTA NAGAR, INDORE FROM INDORE DEVELOPMENT AUTHORITY. THIS PLOT WAS APPROVED BY T HE OFFICIALS OF BHAGIRATH COACH & METAL FABRICATORS PVT. LTD ITA NO.351/IND/2017 6 MARUTI SUZUKI INDIA LTD FOR THE PURPOSE OF SHOW RO OM. ASSESSEE APPLIED IN THE TENDER WITH THE INDORE DEVELOPMENT A UTHORITY FOR ACQUIRING THE PLOT BUT THE SAME WAS NOT ALLOTTED. FOR THIS REASON MARUTI SUZUKI INDIA LTD FAILED TO ALLOT DEALERSHIP TO THE COMPANY AND AS PER THE AGREED TERMS, THE AMOUNT DEPOSITED W ITH MARUTI SUZUKI INDIA LTD WAS FORFEITED AS THE MARUTI SUZUK I INDIA LTD HAS TO INCUR VARIOUS EXPENSES IN RELATION TO SENDING IT S OFFICIALS TO VISIT ASSESSEE COMPANY AND OTHER INCIDENTAL EXPENSES. TH EREAFTER ON 14.9.2012 THE BOARD OF DIRECTORS RESOLVED TO WRITE OFF OF THE AMOUNT DEPOSITED WITH MARUTI SUZUKI INDIA LTD AS BUSINESS LOSS. 10. DURING THE COURSE OF ASSESSING PROCEEDINGS LD. A.O TOOK A VIEW THAT THE ALLEGED AMOUNT CANNOT BE CATEGORIZED AS A BAD DEBTS BECAUSE THE ALLEGED AMOUNT CANNOT BE TERMED AS BAD DEBT AND THEREFORE TREATED THE ALLEGED AMOUNT AS CAPITAL EXP ENDITURE AND DISALLOWED THE CLAIM MADE BY THE ASSESSEE. 11. NOW THE ISSUE BEFORE US IS WHETHER THE ALLEGED AMOUNT IS A CAPITAL EXPENDITURE OR REVENUE EXPENDITURE. IT CAN BE TREATED AS REVENUE EXPENDITURE IF IT HAS BEEN INCURRED FOR THE BUSINESS PURPOSE IN REGULAR COURSE. THIS FACT IS NOT DISPUT ED THAT THE BHAGIRATH COACH & METAL FABRICATORS PVT. LTD ITA NO.351/IND/2017 7 ASSESSEE HAS ENTERED INTO THE TRANSACTION WITH MARU TI SUZUKI INDIA LTD IN ORDER TO ACQUIRE DEALERSHIP THROUGH WHICH IT CAN INCREASE THE SCOPE OF BUSINESS AS WELL AS TO MAXIMIZE THE PROFIT . WHILE GOING THROUGH THE COMMUNICATION BETWEEN THE ASSESSEE AND MARUTI SUZUKI INDIA LTD WE CAME ACROSS A PARTICULAR MAIL FROM SHRI HARDEEP S. BRAR, OFFICER IN-CHARGE OF MARUTI SUZUKI INDIA LTD PLACED AT PAGE 111 OF THE PAPER BOOK, GIVEN TO INFO RM THE ASSESSEE ABOUT THE FORFEITURE OF THE AMOUNT. THE RELEVANT E XTRACT OF THIS MAIL DATED 8.12.2010 IS MENTIONED BELOW:- DEAR MR. ADITYA SHARMA, WE ARE DISAPPOINTED TO NOTE THAT THERE IS LITTLE PR OGRESS IN THE MATTER SO FAR. PLS FIND BELOW THE CHRONOLOGY OF EVENTS DURIN G THE PAST 3 MONTHS WITHOUT ANY PROGRESS. 1. THE PROOF OF POSSESSION OF THE SITE WAS TO BE PROVI DED BY 7 TH SEP2010 AS PER THE ORIGINAL LETTER DATED 23 RD JULY 2010. 2. THIS TIMELINE AS NO FULFILLED AND MEETING WAS HELD AT OUR HOWEVER, IN DELHI ON 13 TH SEPT 2010. IT WAS DISCUSSED DURING THIS MEETING T HAT THE SUITABLE SITE OPTIONS WILL BE PROVIDED BY 20 TH SEP. 3. HOWEVER, THERE WAS NO REVERT ON THE MATTER. SUBSEQ UENTLY, CBH(EAST) DURING HIS MEETING WITH YOU ON 28 TH SEP EXTENDED TIMELINE TO 10 TH OCT. 4. THIS TIMELINE WAS NOT MET AGAIN AND THE TIMELINE WA S EXTENDED TO 30 TH OCT VIDE MY MAIL DATED 15 TH OCT. BHAGIRATH COACH & METAL FABRICATORS PVT. LTD ITA NO.351/IND/2017 8 5. DURING MY VISIT TO INDORE ON 30 TH OCT, THERE WAS AGAIN NO SITE OPTION SHOWN. HENCE, I WENT ALONG WITH YOU AND SUGGESTED A FEW SITES. YOU REQUESTED FOR TIMELINE OF 10 TH NOV FOLLOWED BY REQUEST FOR EXTENSION TILL 15 TH NOV. 6. YOU HAD THEN SENT MAIL ON 17 TH NOV THAT SITE HAS BEEN FINALIZED AND YOU WILL REVERT WITHIN A WEEK AFTER CONSULTING YOUR ARCHITECT AND VASTU CONSULTANT. HOWEVER, THERE WAS NO REVERT ON THE SAME. 7. AFTER MY INSISTENCE VIDE 29 TH NOV BELOW, IT WAS AGREED TO SHOW SITE TO MR. ROY AND MR. TAMAL KAR ON 3 RD DEC. HOWEVER, THE SITE VISIT WAS VERY UNSATISFACTORY AND THERE WERE SHOPS IN FRONT O F THE SITE PROPOSED. YOU WILL APPRECIATE THAT WE NEED A SITE WHICH HAS A CLEAR FRONTAGE, WHICH HAS BEEN COMMUNICATED TO YOU IN PAST AS WELL. HENCE, THE SITE SHOWN WAS NOT ACCEPTABLE. TODAY WE HAVE EXACTLY CROSSED 3 MONTHS FROM THE ORI GINALLY AGREED TIMELINES AND 4 MONTHS FROM THE DATE OF ISSUANCE OF LETTER. CONSIDERING THE ABOVE POINTS, IT IS FELT THAT THIS PROJECT IS NOT BEING TAKEN SERIOUSLY WHICH IS HAMPERING OUR BUSINESS IN INDORE . OUR TEAM HAS INVESTED SO MUCH OF TIME IN THIS PROJECT BUT OF NO AVAIL. WE HAVE BEEN PATIENTLY WAITING TO COME OUT WITH THE SOLUTION, HO WEVER, IT IS NOT POSSIBLE TO WAIT ANY LONGER CONSIDERING THE CIRCUMS TANCES AND HENCE, WITH HEAVY HEART WE HAVE TO WITHDRAW THIS PROJECT. PLS BE INFORMED THAT UNDER THE CIRCUMSTANCES, SECURITY AMOUNT DEPOSITED BY YOU WILL BE FORFEITED. REGARDS, HARDEEP S. BRAR 12. THE ABOVE COMMUNICATION GIVEN BY THE OFFICER IN-CHARGE OF MARUTI SUZUKI INDIA LTD GIVES COMPLETE SERIES OF F ACTS WHICH BHAGIRATH COACH & METAL FABRICATORS PVT. LTD ITA NO.351/IND/2017 9 NOWHERE LEAVES A DOUBT THAT THE TRANSACTION RELATIN G TO ACQUIRING DEALERSHIP WERE ENTERED INTO IN THE DUE COURSE OF B USINESS AND FOR UNAVOIDABLE CIRCUMSTANCES THE DEAL COULD NOT BE FIN ALISED WHICH LEAD TO LOSS TO THE ASSESSEE IN THE SHAPE OF FORFEI TURE OF AMOUNT DEPOSITED AT RS.31,50,000/-. 13. WE FIND THAT HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF THACKERS H.P. & CO. V/S CIT 10 TAXMAN 187 HAS HELD IT IS WELL SETTLED THAT THE FORFEITURE OF A SECURITY DEPOSIT U NDER A CONTRACT IS A BUSINESS LOSS AND NOT CAPITAL LOSS. THE SECURITY A MOUNT DEPOSITED UNDER A CONTRACT IS NOT FOR OBTAINING THE CONTRACT BUT FOR THE DUE PERFORMANCE OF ITS TERMS. MORE EVER, IN THE INSTAN T CASE, IT WAS OBVIOUS THAT THE CONTRACT WITH THE CORPORATION WAS NOT A NEW BUSINESS STARTED BY THE ASSESSEE BUT WAS ONLY A VEN TURE IN THE COURSE OF BUSINESS WHICH THE ASSESSEE WAS ALREADY C ARRYING ON AND, THEREFORE IT COULD IN NO SENSE BE HELD THAT THE DEP OSIT OF SECURITY WAS MADE FOR ACQUIRING A BUSINESS. ACCORDINGLY, THE LO SS RESULTING FROM THE FORFEITURE OF SECURITY MONEY WAS A REVENUE LOS S 14. HON'BLE BOMBAY HIGH COURT IN THE CASE OF NARAND AS MATHURADAS & CO. V/S CIT (1959) 53 ITR 461 (BOM) H AS ALSO HELD BHAGIRATH COACH & METAL FABRICATORS PVT. LTD ITA NO.351/IND/2017 10 THAT FORFEITURE OF SECURITY OF A BUSINESSMAN DEPOSITED FOR PROPERTY CARRYING OUT A CONTRACT WOULD BE A TREADING LOSS AN D THE ASSESSEE WOULD BE ENTITLED TO DEDUCT SUCH LOSS TO ARRIVE AT THE TRUE PROFITS OF THE BUSINESS. 15. HON'BLE APEX COURT IN THE CASE OF CIT V/S R.B. RUNGTA & CO. 50 ITR 233 HELD THAT ANY LOSS WHICH OCCURS IN CARRYING ON THE BUSINESS IS RELATED TO THE BUSINESS OPERATION IS EN TITLED TO BE DEDUCTED TO ARRIVE AT THE PROFITS AND GAINS OF A BU SINESS U/S 28 OF THE INCOME TAX ACT. 16. WE THEREFORE RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE ABOVE STATED JUDGMENTS AND ALSO IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE ARE OF THE OPINION THAT T HE ALLEGED EARNEST MONEY WAS PAID BY THE ASSESSEE TO MARUTI SU ZUKI INDIA LTD IN ITS CAPACITY AS A PERSON CARRYING ON BUSINESS AN D THE CONTRACT FOR TAKING AN AGENCY OF VEHICLE MANUFACTURED BY MAR UTI SUZUKI INDIA LTD WAS A BUSINESS CONTRACT ENTERED INTO WITH A VIEW TO EARN PROFIT AND IT WAS NOT MADE OR SECURE ANY CAPITAL AS SET OR A ADVANTAGE ENDEAVOUR IN NATURE. AS SUCH THE ALLEGED AMOUNT THOUGH IS NOT COVERED BY THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE BHAGIRATH COACH & METAL FABRICATORS PVT. LTD ITA NO.351/IND/2017 11 ACT BUT CERTAINLY IT WILL BE ALLOWABLE U/S 37(1) OF THE ACT. WE ACCORDINGLY ALLOW GROUND NO.1 RAISED BY THE ASSESSE E AND DIRECT THE LD. A.O TO DELETE THE DISALLOWANCE OF RS.31,50, 000/-. 17. GROUND NO.2 IS GENERAL IN NATURE WHICH NEEDS NO ADJUDICATION. 18. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLO WED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 19.12.20 18. SD/- SD/- ( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER / DATED : 19 DECEMBER, 2018 /DEV COPY TO: THE APPELLANT/RESPONDENT/CIT CONCERNED/CIT (A) CONCERNED/ DR, ITAT, INDORE/GUARD FILE. BY ORDER, ASSTT.REGISTRAR, I.T.A.T., INDORE