Setron India Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 3519/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3888 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 18-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 19-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SRUJANI MOHANTY
• Keywords: Bad and doubtful debts
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO. 3519(DEL)/2010 ASSESSMENT YEAR: 2007-08 SETRON INDIA PVT. LTD., ASSISTANT COMMISSIONER OF E-282, GREATER KAILASH-I, VS. INCO ME-TAX, CIRCLE 8(1), NEW DELHI. NEW DELHI. PAN-AAACS4088F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHOK KHURANA, C .A. RESPONDENT BY : MS. SRUJANI MOHANTY, SR. DR ORDER PER K.G. BANSAL : AM GROUND NO. 1 IS THAT THE LD. CIT(APPEALS) ERRED IN SUSTAINING DISALLOWANCE OF RS. 1,12,816/- IN RESPECT OF SUND RY BALANCES WRITTEN OFF, BEING IN THE NATURE OF BAD DEBTS DEBITED IN THE BOOKS OF ACCOUNT. THE FINDING OF THE LD. CIT(APPEALS) IS THAT AS PER A SSESSING OFFICER NO DOCUMENT IN SUPPORT OF THE CLAIM WAS FILED BEFORE H IM. HOWEVER, THE CASE OF THE ASSESSEE IS THAT THE DETAILS WERE FILED. SOME DETAILS HAVE BEEN FILED IN THE COURSE OF APPELLATE PROCEEDINGS. H OWEVER, IT HAS BEEN HELD THAT PROPER FORUM TO FILE THE DETAILS IS THE ASSESSING OFFICER. THEREFORE, THE DISALLOWANCE WAS SUSTAINED. ITA NO. 3519(DEL)/2010 2 1.1 BEFORE US, THE LD. COUNSEL REFERRED TO PAGE N O. 4 OF THE PAPER BOOK, WHICH GIVES THE DETAILS OF THE BALANCES WRITTEN OFF IN RESPECT OF FOUR PARTIES. APART FROM THAT, OTHER ITEMS AGGREGA TING TO RS. 21,001/- HAS ALSO BEEN WRITTEN OFF. PAGE NO. 5 OF THE PAPER BOOK SHO WS THAT THE AMOUNT OF RS. 1,12,816/- HAS BEEN DEBITED TO PROFIT AND LOSS AC COUNT UNDER THE HEAD PERSONNEL, ADMINISTRATIVE AND SELLING EXPENSES . IT IS SUBMITTED THAT THE AMOUNTS WERE IN RESPECT OF SALES AND A PART O F SALE PROCEEDS WAS NOT RECEIVED. ACCORDINGLY, THE AMOUNT WAS WRITTEN O FF FROM THE BOOKS OF ACCOUNT. THE LD. DR SUPPORTED THE ORDERS OF LO WER AUTHORITIES BY SUBMITTING THAT IT HAS NOT BEEN SHOWN BEFORE TH E LOWER AUTHORITIES THAT THE AMOUNTS HAD BEEN TAKEN INTO CONSIDERATION IN THE PROFIT OF THIS OR ANY OTHER EARLIER YEAR. 1.2 HAVING CONSIDERED THE RIVAL SUBMISSIONS, WE T HINK IT FIT TO RESTORE THE MATTER TO THE FILE OF THE AO FOR EXAMINING WH ETHER THE AMOUNTS WERE TAKEN INTO CONSIDERATION IN THE INCOME OF THIS OR ANY OTHER EARLIER YEAR. IF IT IS SO, THEN THE ASSESSEE CANNOT BE ASKED T O PROVE THAT THE DEBTS HAVE BECOME BAD IN THIS YEAR, AND THE ASSESSEE WILL BE ENTITLED TO DEDUCTION ITA NO. 3519(DEL)/2010 3 OF THE AMOUNT IN COMPUTING THE INCOME. ACCORDINGLY , THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 2. GROUND NO. 2 IS IN RESPECT OF DISALLOWANCE U/ S 40A(2)(B) FROM THE RENT PAID TO THE DIRECTOR. IN THIS CONNECTION, I T IS MENTIONED IN THE IMPUGNED ORDER THAT THE ASSESSEE PAID RENT TO I TS OWN DIRECTOR FOR USING A PORTION OF HIS HOUSE AT GREATER KAILASH-I, NE W DELHI AND OFFICE AT GREATER KAILASH ENCLAVE-I, NEW DELHI. THE AO HAS OBSERVED THAT THE RENT HAS INCREASED SIGNIFICANTLY FROM LAST YEAR. IT HAS BEEN FURTHER OBSERVED THAT THE ASSESSEE HAS DIVERTED ITS PROFIT TO THE DIRECTOR AS IN HIS ASSESSMENT DEDUCTION U/S 24 @ 30% OF THE RENT IS ADMISSIBLE. ON THE OTHER HAND, THE CASE OF THE ASSESSEE IS THAT A COMPA NY AND ITS DIRECTOR ARE TWO SEPARATE ENTITIES. IT HAS BEEN HELD THAT UNDOUB TEDLY THE ASSESSEE AND DIRECTOR ARE TWO SEPARATE PERSONS. HOWEVER, THE QUESTION HERE IS WHETHER THE RENT PAID TO THE DIRECTOR IS EXCESSIVE HAVI NG REGARD TO THE FAIR MARKET RENT AND WHETHER PROVISION U/S 40A(2)(B) IS A PPLICABLE. THE RENT HAS BEEN ABRUPTLY INCREASED FOR WHICH NO REASON H AS BEEN GIVEN. NO COMPARATIVE INSTANCE HAS ALSO BEEN FURNISHED. TH EREFORE, THE ACTION OF THE AO HAS BEEN UPHELD. ITA NO. 3519(DEL)/2010 4 2.1 THE ONLY SUBMISSION MADE BEFORE US IS THAT THE AO HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW THAT THE RENT P AID TO THE DIRECTOR WAS EXCESSIVE HAVING REGARD TO THE FAIR MARKET R ENT, THE BURDEN OF WHICH WAS ON HIM. ON THE OTHER HAND, THE CASE OF THE LD. DR IS THAT ABRUPT INCREASE IN THE RENT SHOWS THAT EXCESSIVE RENT H AS BEEN PAID TO THE DIRECTOR. 2.2 WE HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE US. PAGE NO. 7 OF THE PAPER BOOK CONTAINS THE DETAILS OF RENT PAID FOR VARIOUS YEARS. AN AMOUNT OF RS. 5,58,929/- WAS PAID IN FINANCIAL YEAR 2004-05. THE RENT PAID IN FINANCIAL YEAR 2 005-06 AMOUNTED TO RS. 3,84,000/-. AS AGAINST THE AFORESAID, THE RENT PAID IN FINANCIAL YEAR 2006- 07 AMOUNTS TO RS. 7,68,000/-. THE RENT IN RESPEC T OF GREATER KAILASH AND GREATER KAILASH ENCLAVE PROPERTY HAS INCREASED SI GNIFICANTLY IN THIS YEAR VIS--VIS THE LAST YEAR. THEREFORE, THERE IS AN INTERNAL DATA REGARDING RENT PAID TO THE DIRECTOR IN THREE YEARS. THER E IS NO EXPLANATION REGARDING SUDDEN INCREASE IN THE RENT IN THIS Y EAR. NONETHELESS, THIS BY ITSELF MAY NOT LEAD TO A CONCLUSION THAT THE R ENT PAID IN THIS YEAR IS MORE THAN THE FAIR RENTAL VALUE OF THE PROPERTY. THE REFORE, WE THINK IT FIT TO RESTORE THIS MATTER ALSO TO THE FILE OF THE AO F OR OBTAINING COMPARATIVE RENT AND THEREAFTER CONSIDER THE APPLICABILITY OF SECTION 40A(2)(B) DE-NOVO ITA NO. 3519(DEL)/2010 5 AFTER HEARING THE ASSESSEE. THUS, THIS GROUN D IS ALSO TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 3. GROUND NOS. 3 AND 4 ARE IN RESPECT OF DISALLO WANCE OF EXPENSES AMOUNTING TO RS. 1,61,616/- AND RS. 1,69,272/- AS C APITAL EXPENSES. IN THIS CONNECTION, THE FINDING OF THE LD. CIT(APPEALS) I S THAT ON THE FACTS MAJOR EXPENSES ARE OF CAPITAL NATURE. THEREFORE, HE AL LOWED SOME RELIEF AND CAPITALIZED THE REST OF THE EXPENSES. 3.1 BEFORE US, THE LD. COUNSEL REFERRED TO THE DE TAILS OF THE EXPENSES PLACED IN PAPER BOOK AT PAGE NOS.8 AND 9. PAGE NO. 8 SHOWS EXPENSES IN RESPECT OF REPAIR AND MAINTENANCE OF BUILDING. IT IS SEEN THAT EXPENDITURE HAS BEEN INCURRED ON RE-DOING THE FLOORING, PAINTING, CARPENTRY AND VARNISHING. SIMILARLY, OTHER RE PAIRS AND MAINTENANCE ARE IN RESPECT OF PAINTING OF OLD FURNITURE, FURNIS HING, WATER PROOFING, REPLACING UPHOLSTERY OF SOFAS, CHAIRS ETC. HAVI NG CONSIDERED THESE EXPENSES, WE ARE OF THE VIEW THAT THEY DO NOT BR ING INTO EXISTENCE ANY ASSET OF CAPITAL NATURE. THE EXPENSES ARE PROPE RLY REPAIRS AND MAINTENANCE EXPENSES DEDUCTIBLE U/S 37(1) OF THE ACT. THUS, GROUND NOS. 3 AND 4 ARE ALLOWED. ITA NO. 3519(DEL)/2010 6 4. NO APPEAL LIES AGAINST INITIATION OF PENALTY PRO CEEDINGS U/S 271(1)(C) OF THE ACT. THUS, GROUND NO. 5 IS DISMISSED. 5. IN THE RESULT, THE APPEAL IS TREATED AS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 2 7 MAY, 2011. SD/- SD/- (RAJPAL YADAV) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 27 TH MAY, 2011. SP SATIA COPY OF THE ORDER FORWARDED TO:- SETRON INDIA PVT. LTD., NEW DELHI. ACIT, CIRCLE 8(1), NEW DELHI. CIT CIT(A), THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR .