REYNOLD TRADERS P.LTD, MUMBAI V. DCIT 7(2), MUMBAI

ITA 3534/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3295 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 18-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJARSHI DWIVEDI
• Keywords: Depreciation; Earning of tax free income; Bad and doubtful debts
• Section: 143(3); 14A

Judgement Text

D IN THE INCOME TAX APPELLATE TRIBUNAL D BENC H, MUMBAI . , . ! , # $%& $ BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI D. KARUNAKARA RAO, AM $ ./I.T.A. NO.3534/M/2012 ( ' ( )( / ASSESSMENT YEAR : 2006-2007) REYNOLD TRADERS P. LTD., 2 ND FLOOR, VICTORIA HOUSE, PANDURANG BUDHKAR MARG, LOWER PAREL (W), MUMBAI 400 013. / VS. DCIT-7(2), 6 TH FLOOR, R.NO. 670, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. &* # $ ./PAN : AAACR 5787 N ( *+ /APPELLANT) .. ( ,-*+ / RESPONDENT) *+ . / $ / APPELLANT BY : SHRI HERO RAI ,-*+ . / $ / RESPONDENT BY : SHRI RAJARSHI DWIVEDI, DR $ . 0# /DATE OF HEARING : 11.6.2013 1) . 0# /DATE OF PRONOUNCEMENT : 3.7.2013 %2 %2 %2 %2 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 18.5.2012 IS A GAINST THE ORDER OF CIT (A)- 13, MUMBAI DATED 12.12.2011 FOR THE ASSESSMENT YEAR 2006-2007. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GRO UNDS WHICH READ AS UNDER: 1. THE LD CIT (A) ERRED IN LAW IN UPHOLDING DISALLO WANCE OF THE CLAIM IN RESPECT OF BAD DEBTS AMOUNTING TO RS. 1,72,800/- WRITTEN OFF DURING THE YEAR. 2. WITHOUT PREJUDICE TO THE ABOVE, THE LD CIT (A) E RRED IN LAW BY UPHOLDING THE DISALLOWANCE OF BAD DEBTS TWICE IE DISALLOWANCE AS BAD DEBTS AND ALSO CONSIDERING THE SAME WHILE WORKING OUT THE DISALLOWANCE U/S 14A . 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE TH AT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES, LETTING OUT OF P ROPERTIES AND MANAGEMENT CONSULTANCY SERVICES. ASSESSEE FILED THE RETURN DE CLARING THE TOTAL INCOME OF RS. 31,76,345/-. AO SCRUTINIZED THE RETURN U/S 143(3) OF THE ACT AND THE ASSESSED 2 INCOME OF ASSESSEE WAS DETERMINED AT RS. 36,92,795/ - WHICH INCLUDES THE ADDITION BY WAY OF DISALLOWANCE OF RS. 3,43,650/- U/S 14A TH E ACT. FURTHER, DISALLOWANCE FO THE BAD DEBTS WRITTEN OFF AMOUNTING TO RS. 1,72,800 /- IS THE ALSO SUBJECT MATTER OF THE DISPUTE IN THIS APPEAL. 3.1. REGARDING BAD DEBTS , AO HELD THAT THE BAD DEBTS ARE NOT ALLOWABLE AS T HE ASSESSEE FAILED TO DEMONSTRATE THAT THE DEBTS HAVE BECOME BAD AND IRRECOVERABLE. ON THIS ISSUE, THE MATTER TRAVELLED TO THE FIRST AP PELLATE AUTHORITY, WHERE THE ASSESSEE RELIED ON THE JUDGMENT OF JURISDICTIONAL H IGH COURT IN THE CASE OF DIT (INT. TAX) VS. OMAN INTERNATIONAL BANK & SAOG, 313 ITR 128 (BOM), WHICH IS RELEVANT FOR THE PROPOSITION THAT MERE WRITE OFF IN THE BOOKS OF ACCOUNTS TANTAMOUNTS TO THE BADNESS OF THE DEBTS AND ASSESSE E IS ENTITLED TO DEDUCTION. ASSESSEE ALSO RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD VS. CIT, WHICH IS RELEVANT FOR THE PROPOSITION THA T IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THE DEBT HAS BECOME BAD AND I RRECOVERABLE. IN FACT, IT IS ENOUGH THAT THE DEBT IS WRITTEN AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. WITHOUT ANY DISCUSSION, WHATSOEVER, CIT (A) REJECTE D THE CONTENTIONS OF THE ASSESSEE AND IGNORED THE SUPREME COURT JUDGMENT IN THE CASE OF TRF LTD (SUPRA) AND THE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF O MAN INTERNATIONAL BANK (SUPRA) AND UPHELD THE DISALLOWANCE MADE BY THE AO. HELD 3.2. DURING THE PROCEEDINGS BEFORE US, SHRI HERO RA I, LD COUNSEL FOR THE ASSESSEE OPENLY SUBMITTED THAT CIT (A) IS COMPLETELY CARELES S ABOUT THE JUDGMENTS OF THE HONBLE SUPREME COURT AND THE BOMBAY HIGH COURT, WH ICH WERE CITED BEFORE HIM AND UPHELD THE ADDITIONS MADE BY THE AO WITHOUT ANY APPLICATION OF MIND. LD COUNSEL BROUGHT OUR ATTENTION TO THE ASSESSEES SUB MISSIONS MADE IN THIS REGARD AND THE HIS CONCLUSIONS DISCUSSED IN PARA 3, 3.1 AND 3. 2 OF THE IMPUGNED ORDER. AS PER THE COUNSEL, THE CIT(A) FAILED TO APPRECIATE THE JU DGMENTAL LAWS ON THE DISPUTE AND MENTIONED THAT THERE IS NO NEED FOR THE ASSESSEE TO DEMONSTRATE THAT IMPUGNED DEBT HAS BECOME BAD. THERE IS NO SUCH REQUIREMENT A S PER THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA). IT I S NOT THE CASE OF THE CIT (A) THAT THE DEBTS WERE NOT WRITTEN OFF IN THE BOOKS OF ACCO UNTS. IN OUR OPINION, THE CASE OF 3 THE ASSESSEE IS COVERED BY THE ABOVE CITED SUPREME COURT JUDGMENT IN THE CASE OF TRF LTD (SUPRA) AS WELL AS THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF OMAN INTERNATIONAL BANK (SUPRA). THIS IS THE CASE, WHERE CIT (A) IS COMPLETELY NOT JUDICIOUS ON THE ISSUE RAISED BEFORE HIM AND HAS NO T REGARDED THE ESTABLISHED BINDING JUDICIAL PRONOUNCEMENTS. THUS, WE ARE OF T HE OPINION THAT THE ASSESSEE IS ENTITLED TO RELIEF ON ACCOUNT OF BAD DEBTS IN VIEW OF THE CITED SUPREME COURT AND JURISDICTIONAL HIGH COURT JUDGMENTS. ACCORDINGLY, GROUND NO.1 IS ALLOWED . 4. GROUND NO.2 RAISED WITHOUT PREJUDICE SO FAR AS T HE APPLICABILITY OF SECTION 14A READ WITH RULE-8D OF THE ACT. DURING PROCEEDINGS B EFORE US, IT IS MENTIONED THAT ASSESSEE EARNED DIVIDEND INCOME AMOUNTING TO RS. 61 ,10,010/- AND NOT ATTRIBUTED ANY EXPENDITURE FOR EARNING OF SUCH INCOME. AO REL IED ON THE SPECIAL BENCH DECISION IN THE CASE OF ITO VS. DAGA CAPITAL MANAGE MENT (P) LTD, 119 TTJ (MUM) AND OTHERS AND INVOKED THE PROVISIONS OF RULE-8D AN D QUANTIFIED THE DISALLOWANCE OF RS. 3,43,650/-. WHILE COMPUTING THE AO CONSIDERED THE EXPENDITURE INCLUDING THE BAD DEBTS, WHICH ARE OTHERWISE MUST NOT BE CONSID ERED FOR MAKING DISALLOWANCES U/S 14A OF THE ACT. ACCORDINGLY, AO MADE ADDITION. AGGRIEVED, ASSESSEE WENT ON APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 5. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLAT E AUTHORITY, ASSESSEE SUBMITTED THAT NO DISALLOWANCE OF ADMINISTRATIVE AN D OTHER EXPENSES WAS CALLED FOR AS THEY HAVE NO DIRECT NEXUS TO THE EXEMPT INCOME. CIT (A) DISMISSED THE SAME AND HELD AS FOLLOWS. 2.3. PERUSAL OF THE AFORESAID FACTS AND CASE LAWS S HOWS THAT MOST OF THE ESTABLISHMENTS AND OTHER EXPENSES RELATES TO EARNIN G OF THE DIVIDEND INCOME (AS OTHER SOURCE OF INCOME IS RENT / MFG CONSULTANCY). AS SUCH, 80% OF THE SAME, IE 80% OF RS.3,71,180/- IS DISALLOWED U/S 14A R.W. RUL E-8D(II) = RS. 2,96,944/- ON ESTIMATE BASIS. (DEPRECIATION AMOUNTING TO RS. 8,23,758/- & MISCELLA NEOUS EXPENSES WRITTEN OFF AMOUNTING TO RS. 38,540/- AND ELECTRIC CHARGES RS. 27,525/- HAS ALREADY BEEN ADDED BACK SUOMOTO). 2.4. DISALLOWANCES IS THEREFORE RESTRICTED TO RS. 2 ,96,944/-. 6. AGGRIEVED WITH THE SAME, ASSESSEE IS IN APPEAL B EFORE THE TRIBUNAL WITH THE LIMITED ISSUE IE THE BAD DEBTS SO DEBITED TO THE P & L ACCOUNT MUST NOT BE CONSIDERED WHILE MAKING DISALLOWANCE U/S 14A OF THE ACT AND MORE SO WHEN THE SAID 4 CLAIM OF BAD DEBTS ARE NOT ALLOWED. AS PER THE ASSE SSEE, IT AMOUNTS TO MAKING ADDITION TWICE, WHICH IS NOT SUSTAINABLE IN LAW. F URTHER, ASSESSEE MENTIONED THAT THERE CANNOT BE DISALLOWANCE U/S 14A OF THE ACT IN RESPECT OF THE CLAIM OF BAD DEBTS AND RELIED ON THE DECISION IN THE CASE OF STAR TELEVISION ENTERTAINMENT LTD [2010] 321 ITR 001. LD COUNSEL FOR THE ASSESSEE PRAYED TO SEND THE MATTER TO THE FILES OF THE AO FOR FRESH ADJUDICATION OF THE ISSUE. HE MEN TIONED THAT BY VIRTUE OF THE CIT (A)S DECISION ON GROUND NO.1 RELATING TO BAD DEBTS AND ALSO ON ACCOUNT OF SECTION 14A DISALLOWANCE, ASSESSEE SUFFERED THE ADDITION TW ICE WITH REGARD TO THE BAD DEBTS CLAIMS UNDER DIFFERENT PROVISIONS AND IT REQUIRES C ORRECTION. 7. ON THE OTHER HAND, LD DR RELIED ON THE ORDER OF THE REVENUE AUTHORITIES. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDER OF THE REVENUE AUTHORITIES AS WELL AS THE DECISIONS CITED BY THE L D REPRESENTATIVES OF BOTH THE PARTIES. ON HEARING THE SUBMISSIONS OF THE ASSESSEE , WE FIND THAT THE CLAIM OF THE BAD DEBTS IS ALLOWABLE IN FAVOUR OF THE ASSESSEE AS PER DISCUSSION IN THE PARAGRAPHS ABOVE. WE ARE OF THE OPINION THAT THIS ISSUE MUST B E SET ASIDE TO THE FILES OF THE AO FOR ADJUDICATING THE ISSUE AFRESH AFTER CONSIDERING OUR DECISION ON BAD DEBTS IN THIS ORDER AND THE OTHER DECISIONS CITED BY THE ASSESSEE FOR THE PROPOSITION THAT THE EXPENDITURE OF BAD DEBT IS OUTSIDE THE SCOPE OF THE PROVISIONS OF SECTION 14A R W R 8D. ACCORDINGLY, AS REQUESTED BY THE ASSESSEES CO UNSEL, GROUND NO.2 IS SET ASIDE . 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 3.7.2013 . SD/- SD/- (D. MANMOHAN ) (D. KARUNAKARA RAO ) / VICE PRESIDENT # $%& / ACCOUNTANT MEMBER MUMBAI; 3% 3.7.2013 . ' . $ ./ OKK , SR. PS 5 %2 %2 %2 %2 . .. . ,'045 ,'045 ,'045 ,'045 65)0 65)0 65)0 65)0 / COPY OF THE ORDER FORWARDED TO : 1. *+ / THE APPELLANT 2. ,-*+ / THE RESPONDENT. 3. 7 ( ) / THE CIT(A)- 4. 7 / CIT 5. 5 89 ,'0' , , / DR, ITAT, MUMBAI 6. 9( : / GUARD FILE. $-50 ,'0 //TRUE COPY// %2 $ %2 $ %2 $ %2 $ / BY ORDER, / $ $ $ $ ; ; ; ; (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI