AZOFEN PVT LTD, MUMBAI V. DCIT 8 (1), MUMBAI

ITA 3810/MUM/2010

• Counselvise Citation: 381019914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 12-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P K B MENON
• Assessee Lawyers: M P MEHWALA
• Keywords: Bad and doubtful debts
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI R.K.PANDA (A .M) ITA NO.3810/MUM/2010(A.Y.2005-06) AZOFEN PVT. LTD. 37/38, L.K. ARCADE, MAROL NAKA, MAROL, ANDHERI (E), MUMBAI 400 059. PAN:AAACA 5098F (APPELLANT) VS. THE DCIT 8(1), AAYKAR BHAVAN, MK ROAD, MUMBAI 20. (RESPONDENT) APPELLANT BY : SHRI M.P.MEHWALA RESPONDENT BY : SHRI P.K.B.MENON ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE OR DER DATED 19/3/2010 OF CIT(A) 16 MUMBAI RELATING TO ASSESSMENT YEAR 200 5-06. GROUND NO.1 RAISED BY THE ASSESSEE READS AS FOLLOWS: IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(APPEAL) ERRED IN CONFIRMING THE ADDITION OF RS .33,695/- U/S. 36(1)(VA) WITHOUT APPRECIATING THE FACTS PUT FORTH BY THE APPELLANT. 2. THE A.O HAS NOTICED THAT THE ASSESSEE HAS MADE PAYMENT OF EMPLOYEES SHARE OF PF AFTER THE DUE DATE. THE AO INVOKED THE PROVISION OF SECTION 43B(B) AND SECTION 2(24)(X) R.W.S. 36(1)(VA) OF THE INCOME TAX ACT, 1961(THE ACT) AND DISALLOWED THE AMOUNT OF RS. 33,695/-. 3. BEFORE CIT(A) THE ASSESSEE HAS SUBMITTED THAT IT IS ONLY AFTER THE SALARIES ARE PAID BY THE EMPLOYER WILL THE EMPLOYEE GIVE HIS SHARE OF CONTRIBUTION TO PF. IT WAS THE CLAIM OF THE ASSESS EE THAT FROM THE DATE OF ITA NO.3810/MUM/2010(A.Y.2005-06) 2 RECEIPT OF SALARY BY THE EMPLOYEE, THE TIME LIMIT H AS TO BE COMPUTED AND IF DONE SO, THE PAYMENT IS WITHIN TIME. 4. THE CIT(A) HELD THAT SINCE THE PAYMENT OF PF IN THE GOVERNMENT ACCOUNT WAS MADE BEYOND THE GRACE PERIOD OF 5 DAYS, KEEPING THE DECISION OF BOMBAY HIGH COURT IN CASE OF CIT VS. PAMVI TISSU ES 215 CTR 150 (BOM) AND IN CASE OF CIT VS. GODAVARI MANOHAR SAHAKARI SA KHAR KHARKHANA 298 ITR 149, WHERE IT IS HELD THAT PAYMENT TOWARDS PF M ADE BEYOND THE DUE DATE COULD NOT BE ALLOWED AS DEDUCTION, THE CIT(A) CONFIRMED THE ORDER OF THE AO. THEREFORE, THE ACTION OF THE AO FOR DISALLOWIN G THE AMOUNT OF RS.33,695/- WAS CONFIRMED. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE H AS RAISED GROUND NO.1 BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVAL SUBMI SSIONS. IN CIT VS. AIMIL LTD. THE HONBLE DELHI HIGH COURT IN ITA NO. 1063 OF 2006 ITA NO.755 OF 2008 ITA NO. 204 OF 2009 ITA NO. 1214/2008 WITH ITA NO. 1246/2008 ITA NO. 50/2009 ITA NO. 78/2009 JUDGMENT DATED DECEMBE R 23, 2009 HAD TO DEAL WITH A CASE OF DISALLOWANCE U/S.36(1)(VA) OF T HE ACT. THE HONBLE COURT DISCUSSED THE PROVISIONS OF S. 2 (24) (X) WHICH PR OVIDES THAT AMOUNTS RECEIVED BY AN ASSESSEE FROM EMPLOYEES TOWARDS PF C ONTRIBUTIONS ETC SHALL BE INCOME AND S. 36 (1) (VA) WHICH PROVIDES THAT IF SUCH SUMS ARE CONTRIBUTED TO THE EMPLOYEES ACCOUNT IN THE RELEVAN T FUND ON OR BEFORE THE DUE DATE SPECIFIED IN THE PF ETC LEGISLATION, THE A SSESSEE SHALL BE ENTITLED TO A DEDUCTION. THE COURT ALSO NOTICED THAT THE SECOND P ROVISO TO S. 43B (B) PROVIDED THAT ANY SUM PAID BY THE ASSESSEE AS AN EM PLOYER BY WAY OF CONTRIBUTION TO ANY PROVIDENT FUND ETC. SHALL BE AL LOWED AS A DEDUCTION ONLY IF PAID ON OR BEFORE THE DUE DATE SPECIFIED IN 36(1 )(VA). AFTER THE OMISSION OF THE SECOND PROVISO W.E.F 1.4.2004, THE DEDUCTION IS ALLOWABLE UNDER THE FIRST PROVISO IF THE PAYMENT IS MADE ON OR BEFORE THE DUE DATE FOR FURNISHING THE ITA NO.3810/MUM/2010(A.Y.2005-06) 3 RETURN OF INCOME. IN ALOM EXTRUSIONS 319 ITR 306 (S C), THE DELETION OF THE SECOND PROVISO HAS BEEN HELD TO BE WITH RETROSPECTI VE EFFECT. THE HIGH COURT HAD TO CONSIDER WHETHER THE BENEFIT OF S. 43B CAN B E EXTENDED TO EMPLOYEES CONTRIBUTION AS WELL WHICH ARE PAID AFTER THE DUE D ATE UNDER THE PF LAW BUT BEFORE THE DUE DATE FOR FILING THE RETURN. THE HO NBLE COURT HELD THAT: (I) THOUGH THE REVENUE HAS ARGUED THAT A DISTINCTIO N IS TO BE MADE BETWEEN EMPLOYERS CONTRIBUTION AND EMPLOYEES CONTRIBUT ION AND THAT EMPLOYEES CONTRIBUTION BEING IN THE NATURE OF TRUST MONEY IN THE HANDS OF THE ASSESSEE CANNOT BE ALLOWED AS A DEDUCTION IF NOT PAID ON OR BEFORE THE DUE DATE SPECIFIED IN THE PF ETC LAW, THE SCHEME OF THE ACT IS THAT EMPLOYEES CONTRIBUTION IS TREATED AS INCOME U/S 2 (24) (X) ON RECEIPT BY THE ASSESSEE AND ALLOWED AS A DEDUCTION U/S 36 (1) (VA) ON MAKIN G DEPOSIT WITH THE CONCERNED AUTHORITIES. S. 43B (B) STIPULATES THAT S UCH DEDUCTION WOULD BE PERMISSIBLE ONLY ON ACTUAL PAYMENT; (II) THE QUESTION AS TO WHEN ACTUAL PAYMENT SHOULD BE MADE IS ANSWERED BY VINAY CEMENTS 213 CTR 268 WHERE THE DELETION OF THE SECOND PROVISO TO S. 43B W.E.F 1.4.2004 WAS HELD APPLICABLE TO EARLIER Y EARS AS WELL. AS THE DELETION OF THE 2ND PROVISO IS RETROSPECTIVE, THE C ASE HAS TO BE GOVERNED BY THE FIRST PROVISO. DHARMENDRA SHARMA 297 ITR 320 (D EL) & P.M. ELECTRONICS 313 ITR 161 (DELHI) FOLLOWED; (III) IF THE EMPLOYEES CONTRIBUTION IS NOT DEPOSIT ED BY THE DUE DATE PRESCRIBED UNDER THE RELEVANT ACTS AND IS DEPOSITED LATE, THE EMPLOYER NOT ONLY PAYS INTEREST ON DELAYED PAYMENT BUT CAN INCUR PENALTIES ALSO, FOR WHICH SPECIFIC PROVISIONS ARE MADE IN THE PROVIDENT FUND ACT AS WE LL AS THE ESI ACT. THEREFORE, THE ACT PERMITS THE EMPLOYER TO MAKE THE DEPOSIT WITH SOME DELAYS, SUBJECT TO THE AFORESAID CONSEQUENCES. INSO FAR AS THE INCOME-TAX ACT IS CONCERNED, THE ASSESSEE CAN GET THE BENEFIT IF T HE ACTUAL PAYMENT IS MADE BEFORE THE RETURN IS FILED, AS PER THE PRINCIPLE LA ID DOWN IN VINAY CEMENT . ITA NO.3810/MUM/2010(A.Y.2005-06) 4 6. IN VIEW OF THE AFORESAID DECISION, WE ARE OF TH E VIEW THAT THE ASSESSEE IS ENTITLED TO CLAIM THE DEDUCTION AND THE AO IS DIREC TED TO ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION. GROUND NO.1 IS ALLOWED . 7. GROUND NO.2 & 3 RAISED BY THE ASSESSEE READ AS F OLLOWS: 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(APPEAL) ERRED IN UPHOLDING THE DISALLOWANCE OF RS. 14,01,768/- BEING DEBTS WRITTEN OF WITHOUT APPRECIATING THAT MA KING OF SUCH DEPOSITS IS PART OF BUSINESS REQUIREMENT OF THE APP ELLANT AND NON- REFUND OF THE SAID DEPOSITS BY THE SAID AGENCIES I S A TRADING LOSS. 3. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(APPEAL) FAILED TO APPRECIATE THAT WITH THE CHANGE BROUGHT IN BY THE D IRECT TAX LAWS (AMENDMENT) ACT, 1987 WITH EFFECT FROM 1/4/1989 THE APPELLANT IS NOT REQUIRED TO ESTABLISH SUCH DEBTS AS BAD DEBTS. 8. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF PROPERTY DEVELOPMENT (BUILDER). DURING THE YEAR THE ASSESSE E HAS WRITTEN OF AN AMOUNT OF RS. 14,01,768/- ON ACCOUNT OF DEBIT BALAN CES WRITTEN OFF AS UNDER: I) MSEB DEPOIST RS. 8,45,635 II) THANE MUNICIPAL CORPORATION WATER DEPOSIT RS. 4,65,060 III) THANE MUNICIPAL CORPORATION TREE CUTTING DEP OSIT RS. 25,500 IV) THANE MUNICIPAL CORPORATION RENT DEPOSIT RS. 5,700 V) MIDC SECURITY DEPOSIT RS. 60,800 VI) BEST RS. 5,580 VII) EXCESS PROVISION (-) RS. 6,507 RS. 14,01, 768 =========== = DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSEE WAS ASKED TO EXPLAIN THE ALLOWABILITY OF THESE EXPENSES. IN REP LY DATED 24/12/2007, THE ASSESSEE HAS SUBMITTED THAT AMOUNT WRITTEN-OFF HAVE BEEN WRONGLY DESCRIBED AS SUNDRY DEBTORS. IN REALITY THE AMOUNT REPRESENT ED DEPOSITS MADE WITH VARIOUS AUTHORITIES TO COMPLY WITH THEIR REQUIREMEN TS IN RESPECT OF ITA NO.3810/MUM/2010(A.Y.2005-06) 5 DEVELOPMENT OF HOUSING PROJECTS. APPARENTLY, THE I MPUGNED AMOUNTS HAVE NOT GONE THROUGH SALES OR ANY CREDIT ITEM IN THE PR OFIT AND LOSS ACCOUNT OF THE PAST YEARS. NEVERTHELESS, THESE ARE VERY OLD A ND NON RECOVERABLE DEPOSITS, AND THEREFORE THE SAME REPRESENTS A TRADI NG LOSS INCIDENTAL TO CARRYING ON OF THE BUSINESS OF CONSTRUCTION. IN TH IS VIEW OF THE MATTER THEREFORE THE IMPUGNED AMOUNTS SO WRITTEN OFF ARE A LLOWABLE AS TRADING LOSS RATHER THAN BAD DEBT U/S. 36(1)(VII) OF THE I.T. AC T. 8. THE A.O FOUND THAT THE ASSESSEE HAS MADE THE DEP OSIT WITH MSEB. SIMILARLY THE ASSESSEE HAS MADE WITH THANE MUNICIPA L CORPORATION. THESE DEPOSITS WERE MADE TO GET THE WATER CONNECTION AND ELECTRICITY CONNECTION FOR THE FLAT OWNERS. IT IS A NORMAL PRACTICE THAT THE BUILDER COLLECTS THE MSEB DEPOSITS AND WATER CONNECTION CHARGES FROM THE FLAT OWNERS WHEN THE POSSESSION IS GIVEN. THE AO HELD THAT THE DEPOSITS WRITTEN OFF ARE NOT IN THE NATURE OF TRADE DEPOSITS. HE HELD THAT NO DOCUMENT ARY EVIDENCE HAS BEEN PRODUCED TO PROVE THAT THESE DEPOSITS ARE FOR THE P URPOSE OF TRADE. THE ASSESSEE HAS MADE HE DEPOSITS WITH GOVERNMENT AGENC IES. THEREFORE, THE QUESTION OF WRITING OFF IT DOES NOT ARISE AT ALL, I F IT IS LEGALLY REFUNDABLE. THE AO ALSO HELD THAT THE ASSESSEE HAS NOT FILED ANY EV IDENCE TO PROVE THAT GOVERNMENT AGENCY HAS REJECTED THE CLAIM OF DEPOSIT WHEN IT WAS REQUESTED. IN SUCH CIRCUMSTANCES, THE AO HELD THAT THE DEBIT B ALANCES WRITTEN OFF OF RS. 14,01,768/- BY THE ASSESSEE CANNOT BE ALLOWED AS DE DUCTION AND ACCORDINGLY THE SAME WAS ADDED TO THE TOTAL INCOME. 9. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED T HE ORDER OF THE ASSESSING OFFICER FOR THE FOLLOWING REASONS: 4.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPE LLANT, THE ORDER OF THE AO AND FACTS OF THE CASE THAT THE APPELLANT COM PANY HAS DEBITED RS.14,01,768/- ON ACCOUNT OF DEBIT BALANCE WRITTEN OFF FROM MSEB AND MUNICIPAL CORPORATION, THANE. THE AO HAS CALLED FO R THE EXPLANATION ITA NO.3810/MUM/2010(A.Y.2005-06) 6 FOR WRITING OF THESE ENTRIES BECAUSE ALL THESE PAY MENTS ARE MADE TO THE GOVERNMENT DEPARTMENT AND WRITING OFF IS NOT JU STIFIED. THE AO HAS ALSO HELD THAT THESE DEPOSITS WERE MADE TO GET THE WATER CONNECTION AND ELECTRICITY CONNECTION FOR THE FLAT OWNERS WHICH IS NORMALLY COLLECTED BY THE BUILDERS FROM THE FLAT OW NERS. THE APPELLANT HAS CLAIMED THAT THESE DEPOSITS ARE TRADE DEPOSITS BUT NO EVIDENCE WAS FILED BEFORE THE AO AND BEFORE ME TO SUBSTANTIATE ITS CLAIM. THE APPELLANT HAS NOT FILED ANY EVIDENCE BEFORE THE AO THAT GOVERNMENT DEPARTMENT AGENCIES HAS REJECTED THE CLAIM OF DEPOS IT WHEN IT WAS REQUESTED BEFORE THEM. THEREFORE, THE AO HAS MADE THE ADDITION OF RS. 14,01,768/-. BEFORE ME, THE APPELLANT HAS FAIL ED TO SUBMIT ANY OTHER EVIDENCE TO SUBSTANTIATE ITS CLAIM AND TO REB UT THE ORDER OF THE AO. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES T HAT THE DEPOSITS ARE WITH THE GOVERNMENT DEPARTMENT AND NO EVIDENCE WAS SUBMITTED BEFORE THE AO AND BEFORE ME TO PROVE THAT THE GOVER NMENT DEPARTMENT HAS REJECTED THE CLAIM OF DEPOSIT. THEREFORE, IT C ANNOT BE TREATED AS TRADE DEPOSITS RATHER THESE ARE THE SAFE DEPOSITS W HICH ARE LYING WITH THE GOVERNMENT DEPARTMENT. IN TOTALITY THE FACTS A ND CIRCUMSTANCES, I AM OF THE VIEW THAT THE AO HAS RIGHTLY DISALLOWED T HE AMOUNT OF RS. 14,01,768/-. THEREFORE, THE ACTION OF THE AO IS UP HELD AND GROUND OF APPEAL IS DISMISSED. 10. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNSE L FOR THE ASSESSEE, WHO SUBMITTED THAT THE LOSS IN QUESTION IS TRADING LOSS AND SHOULD BE ALLOWED AS A DEDUCTION. WE HAVE CONSIDERED HIS SUB MISSION AND ARE OF THE VIEW THAT THE LOSS IN QUESTION IS NO DOUBT A TRADIN G LOSS BECAUSE IT IS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. BUT TH E QUESTION IS WHETHER THE LOSS CAN BE SAID TO HAVE ACCRUED TO THE ASSESSEE. AS RIGHTLY HELD BY THE REVENUE AUTHORITIES THERE IS NO EVIDENCE ON RECORD TO SHOW THAT THE CLAIM OF THE ASSESSEE HAS BEEN REJECTED BY THE VARIOUS AUTHO RITIES. THE AMOUNTS WERE DUE FROM VARIOUS GOVERNMENT BODIES. THE ASSES SEE CANNOT, THEREFORE, PLEAD IMPOSSIBILITY OF RECOVERY. THE ASSESSEE HAS ALSO NOT SUBSTANTIATED THAT THE AMOUNTS ARE NOT RECOVERABLE AT ALL. IN THESE C IRCUMSTANCES WE ARE OF THE VIEW THAT THE REVENUE AUTHORITIES ARE JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE. WE MAY ALSO ADD THAT GROUND NO .3 RAISED BY ASSESSEE IS ITA NO.3810/MUM/2010(A.Y.2005-06) 7 MISCONCEIVED BECAUSE THE AMOUNT IN QUESTION CANNOT BE SAID TO BE A DEBT OWED TO THE ASSESSEE AND IT DOES NOT ARISE OUT OF T RADING/BUSINESS TRANSACTION. GROUND NO.2 & 3 ARE ACCORDINGLY DISMI SSED. 8. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON TH E 29 TH DAY OF JULY, 2011. SD/- SD/- (R.K.PANDA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 29 TH JULY.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RA BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.3810/MUM/2010(A.Y.2005-06) 8 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 20/7/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 21/7/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COM ES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER