ACIT, Alwar V. LORD CHLORO ALKALIES LTD., Alwar

ITA 385/JPR/2011

• Counselvise Citation: 38523114 RSA 2011
• Duration Of Justice: 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 29-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHRI
• Keywords: Gift; Bad and doubtful debts; Capital expenditure

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.385/ JP/2011 ASSESSMENT YEAR 2003-04 PAN: AABCM 3981 C THE ACIT VS. M/S. LORD CHLORO ALKALIES LTD. CIRCLE- 1 SP 460, MIA ALWAR ALWAR (APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI VINOD JOHRI ASSESSEE BY: SHRI P.C. PARWAL DATE OF HEARING: 17-08-2011 DATE OF PRONOUNCEMENT: 16-09-2011 ORDER PER N.L. KALRA, AM:- THE REVENUE HAS FILED APPEAL AGAINST THE ORDER OF THE LD. CIT(A), ALWAR DATED 04-02-2011 FOR THE ASSESSMENT YEAR 200 3-04. 2.1 THE FIRST GROUND OF THE REVENUE IS THAT THE LD . CIT(A) HAS ERRED IN RESTRICTING THE BUSINESS PROMOTION EXPENSES TO RS. 50,000/- OUT OF TOTAL DISALLOWANCE OF RS. 2.62 LACS MADE BY THE AO. 2 2.2 THE ASSESSEE DEBITED BUSINESS PROMOTION EXPENSE S OF RS. 15.74 LACS. THE AO NOTICED THAT THESE EXPENSES ARE IN THE FORM OF VARIOUS GIFTS TO VARIOUS GUESTS OF THE COMPANIES. THE COMPANY DOES N OT MAINTAIN THE DETAILS OF RECIPIENT OF GIFTS SO AS TO VERIFY THE LINK BETW EEN THE EXPENDITURE AND ACTUAL BUSINESS PROMOTION CAUSED BY SUCH EXPENDITUR E. THROUGH TEST CHECK, THE AO NOTICED THE VOUCHERS AS UNDER:- DATE AMOUNT PARTICULARS 13-11-02 14,925 PAID TO SN ELECTRONICS FOR PURCHASE OF DINNER SETS AND OTHER GIFT ITEMS 13-11-02 19,000 PAID TO SHAKSHI TRADERS FOR PURCHAS E OF DINNET SETS 13-11-02 15,000 PAID TO SHRI GHANSHYAM BHATT FOR PURCHASE OF PAINTINGS 28-12-02 44,000 PAID TO MAQBOOL SHAW FOR PURCHASE O F CARPETS 2.3 IN THE IMMEDIATELY PRECEDING YEAR, 1/6 TH OF THE EXPENSES WERE DISALLOWED. FOLLOWING THE ORDER FOR THE IMMEDIATELY PRECEDING YEAR, THE AO DISALLOWED 1/6 TH OF THE EXPENSES AMOUNTING TO RS. 2.62 LACS. 2.4 THE LD. CIT(A) HELD THAT THE ASSESSEE HAS NOT E STABLISHED THAT THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE OF BUSINESS WITH EVIDENCE. ACCORDING TO HIM, THE AO HAS DISALLO WED THE EXPENSES ON HIGHER SIDE. THE LD. CIT(A) THEREFORE, RESTRICTED T HE ADDITION TO RS. 50,000/-. 2.5 WE HAVE HEARD BOTH THE PARTIES. THE APPEAL FILE D BY THE ASSESSEE AGAINST DISALLOWANCE OUT OF THE BUSINESS PROMOTION EXPENSES FOR THE 3 ASSESSMENT YEAR 2002-03 IS PENDING. THE AO THROUGH TEST CHECK HAS REFERRED TO THE EXPENSES TO THE EXTENT OF AROUND RS. 92,000/ -. THE ASSESSEE HAS ALSO NOT FILED THE DETAILS OF THE EXPENSES. THE MAJOR EX PENSES HAVE BEEN INCURRED AT HEAD OFFICE AND NO DETAILS HAVE BEEN FILED BEFOR E THE LD. CIT(A). LOOKING TO THE QUANTUM OF EXPENSES INVOLVED IN VOUCHERS THR OUGH TEST CHECK BY THE AO, WE FEEL THAT IT WILL BE FAIR AND REASONABLE TO RESTRICT THE DISALLOWANCE TO RS. 1.00 LAC. 3.1 THE SECOND GROUND OF THE REVENUE IS THAT THE LD . CIT(A) HAS ERRED IN RESTRICTING THE TRAVELING AND CONVEYANCE EXPENSES T O RS. 1.00 LAC OUT OF THE TOTAL DISALLOWANCE OF RS. 8,03,000/- MADE BY THE AO . 3.2 THE AO HAS DISALLOWED 1/6 TH OF THE EXPENSES CLAIMED UNDER THE HEAD TRAVELING AND CONVEYANCE. THE DISALLOWANCE HAS BEEN MADE BECAUSE THE VOUCHERS DID NOT CONTAIN COMPLETE DETAILS AND SOME OF THE EXPENSES ARE NOT SUPPORTED WITH INDEPENDENT VOUCHERS. THE AO DISALLO WED RS. 8.03 LACS. 3.3 THE LD. CIT(A) HAS HELD THAT THE ASSESSEE HAS N EITHER SUBMITTED COMPLETE VOUCHERS BEFORE THE AO NOR BEFORE HIM. THE LD. CIT(A) FURTHER NOTICED THAT SOME OF THE EXPENSES HAVE BEEN INCURRE D THROUGH SELF MADE VOUCHERS AND ARE NOT VERIFIABLE. THEREFORE, THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO RS. 1.00 LAC AS AGAINST RS. 8.03 LA CS MADE BY THE AO. 4 3.4 WE HAVE HEARD BOTH THE PARTIES. THE FINDINGS OF THE LD. CIT(A) HAVE NOT BEEN CONTROVERTED BY THE ASSESSEE. WE ARE NOT H AVING THE BENEFIT OF THE DETAILS OF THE EXPENSES. THE LD. CIT(A) HAS VERIFIE D SOME OF THE VOUCHERS. WE THEREFORE, FEEL THAT THE LD. CIT(A) WAS JUSTIFIE D IN RESTRICTING THE DISALLOWANCE TO RS. 1.00 LAC. 4.1 THE THIRD GROUND OF THE REVENUE IS THAT THE LD . CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF BAD DEBTS WRITTEN OFF FOR RS. 20.00 LACS. 4.2 BEFORE THE AO, IT WAS SUBMITTED THAT THE AMOUNT OF RS. 20.00 LACS WAS WRITTEN OFF FROM THE ACCOUNT OF THE DEBTORS M/S. RA HUL SALES (P) LTD. AS THAT PARTY WAS NOT ABLE TO PAY ENTIRE AMOUNT OF OUTSTAND ING. ACCORDING TO THE AO, THE DEBIT BALANCE FOR WRITING OFF WAS STILL THE RE AND THEREFORE, THE PARTY IS IN EXISTENCE AND CAN MAKE THE PAYMENT THE CLAIM OF THE ASSESSEE FOR BAD DEBT WAS DISALLOWED. 4.3 THE LD. CIT(A) HAS DELETED THE DISALLOWANCE BEC AUSE THE DEBT HAS BEEN WRITTEN OFF TO THAT EXTENT. 4.4 WE HAVE HEARD BOTH THE PARTIES. THIS ISSUE STAN DS DECIDED BY THE HON'BLE APEX COURT IN THE CASE OF TRF LTD. VS CIT, 323 ITR 397. ACCORDING TO THE HON'BLE APEX COURT, THE DEDUCTION IS ALLOWABLE IN CASE THE AMOUNT IS WRITTEN OFF. FOLLOWING THE DECISION OF HO N'BLE APEX COURT, WE 5 HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 20.00 LACS. 5.1 THE FOURTH GROUND OF THE REVENUE IS THAT THE L D. CIT(A) HAS ERRED IN RESTRICTING THE MISC BALANCE WRITTEN OFF TO RS. 7, 48,740/- OUT OF TOTAL ADDITION OF RS. 15,55,205/- MADE BY THE AO. 5.2 THE ASSESSEE CLAIMED THE AMOUNT OF RS. 15.55 LA S AS MISC BALANCE WRITTEN OFF. THE DETAILS OF MISCELLANEOUS BALANCE W RITTEN OFF TO THE EXTENT OF RS. 15.55 LACS ARE UNDER:- AMOUNT NOT RECOVERABLE FROM M/S. BHARTI ELECTRONICS RS. 8,69,948/- AND OTHERS AMOUNT NOT RECOVERABLE FROM OTHER PARTIES RS. 6,0 4,421/- ADVANCE WITH EXCISE AUTHORITIES RS. 81,936/- TOTAL RS. 15,55,205/- 5.3 THE AO IN ORDER TO VERIFY THAT THE CONDITIONS AS MENTIONED IN SECTION 36(2)(I) HAS BEEN SATISFIED, REQUIRED THE ASSESSEE TO FILE THE DETAILS. NO DETAILS WERE FILED AND THEREFORE, THE AO HAS NOT ALLOWED TH E DEDUCTION IN RESPECT OF MISCELLANEOUS BALANCE WRITTEN OFF BECAUSE THE REQUI REMENT OF SECTION 36(2)(I) IS NOT FULFILLED. 5.4 THE LD. CIT (A) HAS REDUCED THE DISALLOWANCE TO RS.7,48,750/- AFTER OBSERVING AS UNDER:- 6 (A) THE LD. AO OBSERVED THAT, THE ASSESSEE FAILED TO EXPLAIN THAT, HOW THE ABOVE AMOUNT BECOME IRRECOVERABLE. ASSESSEE ALSO FAILED T O FILE THE DETAIL OR PARTICULARS TO EXPLAIN WHETHER THE SAID AMOUNT HAVE BEEN SHOWN AS INCOME IN ANY OF THE EARLIER PREVIOUS YEAR. SINCE THE ASSESSE E HAS NOT ABLE TO LINK THE AMOUNT WITH ANY PARTICULAR TRADING TRANSACTION OR O F ANY INCOME EITHER IN THE CURRENT YEAR OR IN ANY EARLIER YEAR, THE SAME CANNO T BE ALLOWED AS BAD DEBTS. FURTHER IT IS NOT UNDERSTOOD AS HOW THE AMOUNT OF A DVANCE TO EXCISE DEPARTMENT HAS BEEN CLAIMED AS BAD DEBTS. ACCORDING LY, THE AO DISALLOWED THE CLAIM OF RS. 15.55 LACS MADE BY THE ASSESSEE UN DER THE HEAD MISCELLANEOUS BALANCES WRITTEN OFF (B) THE LD. COUNSEL OF THE APPELLANT CONTENDED THAT THE ASSESSEE HAS SUBMITTED THE COMPLETE LIST OF THE AMOUNT WHICH ARE CLAIMED A S WRITTEN OFF, ALONG WITH THE NATURE OF THE TRANSACTION AND THE REASON DUE TO WHICH THESE AMOUNT WAS CLAIMED AS WRITTEN OFF. HE FURTHER CONTENDED THAT A SSESSEE HAS ALSO WRITTEN BACK AN AMOUNT OF RS. 34.71 LACS IN BOOKS AND INCLU DED SAME IN INCOME. THUS WHEN AMOUNT WRITTEN BACK IS INCLUDED IN INCOME , THERE IS NO JUSTIFICATION TO DISALLOW THE AMOUNT WRITTEN OFF. (C ) I HAVE PERUSED THE ASSESSMENT ORDER AS WELL AS SUBM ISSION OF THE ASSESSEE, THE ASSESSEE HAS SUBMITTED DETAILS OF AMOUNT WRITTE N OFF WHICH SHOWS THAT THE ASSESSEE HAS INCLUDED ADVANCE WITH THE EXCISE A UTHORITY AT RS. 81,936/- AND ALSO RIGHT ISSUE EXPENSES AT RS. 6,66,814/-. RE MAINING BALANCES ARE IN SMALL AMOUNTS FOR WHICH THE APPELLANT HAD ALREADY D ISCLOSED INCOME IN PAST WHICH HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT, ARE ALLOWABLE U/S. 36 OF THE IT ACT BUT ADVANCE WITH EXCISE AUTHORITY AND RI GHT ISSUE EXPENSE, ARE NOT ALLOW ABLE AS IT CAN BE REFUNDED BY THE EXCISE AUTH ORITY AND RIGHT ISSUE EXPENSES WAS NOT INCOME OF THE ASSESSEE IN THE PAST AND ALSO IT IS CAPITAL EXPENDITURE. THEREFORE, ADDITION OF RS. 7,48,750/- IS CONFIRMED BUT REMAINING ADDITION OF RS. 8,06,455/- IS DELETED. T HE ASSESSEE GETS RELIEF OF RS. 8,06,455/-. 7 5.5 WE HAVE HEARD BOTH THE PARTIES. THE DETAILS OF MISCELLANEOUS BALANCE WRITTEN OFF ARE AVAILABLE AT PAGE 17 OF THE PAPER B OOK FILED BY THE LD. AR . THE MISCELLANEOUS BALANCE WRITTEN OFF IS IN RESPECT OF 23 PARTIES . THE LD. CIT(A) AFTER CONSIDERING THE DETAILS IN RESPECT OF MISCELLANEOUS BALANCE WRITTEN OFF RESTRICTED THE DISALLOWANCE TO RS. 7,48 ,750/-. HENCE, WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A) WHICH IS SUSTA INED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 16-09 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 16/09/2011 *MISHRA COPY FORWARDED TO :- 1. THE ACIT, CIRCLE- 1, ALWAR 2. M/S. LORD CHLORO ALKALIES LTD., ALWAR 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.385/JP /11) A.R, ITAT, JAIPUR 8 9 10