MESUKA ENGINEERING CO. P. LTD, NAVI MUMBAI V. ACIT 10(3), MUMBAI

ITA 4090/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55677 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 19-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G P TRIVEDI
• Assessee Lawyers: N M PORWAL
• Keywords: Bad and doubtful debts
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND SHRI R.K. PANDA (ACCOUNTANT MEMBER) ITA NO. 4090/MUM/2010 ASSESSMENT YEAR- 2007-08 M/S. MESUKA ENGINEERING CO. PVT.LTD., 406, VARDHAMAN MARKET, SECTOR-12, VASHI, NAVI MUMBAI-400 705 PAN-AAACM 8381M VS. THE ACIT-10(3), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI N.M. PORWAL RESPONDENT BY: SHRI G.P. TRIVEDI DATE OF HEARING :18.10.2011 DATE OF PRONOUNCEMENT: 21.10.2011 O R D E R PER B.R. MITTAL, JM : THE ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2007-08 AGAINST ORDER OF LD. CIT(A) DT.29.4.2010. 2. IN GROUND NO. 1 OF APPEAL, ASSESSEE HAS DISPUTED THE ORDER OF LD. CIT(A) IN CONFIRMING DISALLOWANCE OF EARNEST MONEY DEPOSIT OF RS. 39,74,000/- STATED TO BE PAID TO M/S. VENKATESH COK E & POWER LTD., IN THE YEAR 1997 FOR DOING COMPLETE STRUCTURAL WORK AND PI PING FOR COKE OVEN BATTERIES FOR THEIR PLANT AT CHENNAI. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASS ESSING OFFICER OBSERVED THAT ASSESSEE DEBITED AN AMOUNT OF RS. 62, 40,402/- ON ACCOUNT OF BAD DEBTS WRITTEN OFF. THE AO ASKED THE ASSESSEE T O JUSTIFY ITS CLAIM AS PER ITA NO. 4090/M/10 2 PROVISIONS OF SECTION 36(1)(VII) OF THE ACT. THE A O OBSERVED FROM THE SUBMISSION OF ASSESSEE THAT ASSESSEE CLAIMED BAD DE BT OF RS. 39,74,000/- IN THE NAME OF M/S. VENKATESH COKE & POWER LTD., THE ASSESSEE STATED THAT SAID AMOUNT WAS PAID TO ABOVE CONCERN ON ACCOUNT OF EARNEST MONEY DEPOSIT BY EXECUTING A CONTRACT. THE AO STATED THAT THE SA ID DEBT CLAIMED BY ASSESSEE IS NOT AN ITEM OF INCOME. IT WAS SIMPLY AN ADVANCE IN THE FORM OF EARNEST MONEY DEPOSIT FOR CONTRACT AND HAD NOT SHOW N ANY INCOME FROM SAID ENTITY. HE STATED THAT CONDITIONS TO CLAIM BAD DEB T AS PROVIDED U/S. 36(1)(VII) R.W. SUB-SECTION (2) OF SEC. 36 ARE NOT FULFILLED. THAT THE SAID AMOUNT IS NOT COVERED WITHIN THE AMBIT OF BAD DEBTS. THEREFORE T HE AO DISALLOWED CLAIM OF BAD DEBT AMOUNTING TO RS. 39,74,000/- AND ADDED BAC K TO THE INCOME OF ASSESSEE. BEING AGGRIEVED, ASSESSEE FILED APPEAL B EFORE LD. CIT(A). 4. ON BEHALF OF ASSESSEE IT WAS CONTENDED THAT ASSE SSEE PAID A SUM OF RS. 39,74,000/- BY WAY OF EARNEST MONEY DEPOSIT TO M/S. VENKATESH COKE & POWER LTD., FOR EXECUTING A JOB AWARDED TO ASSESSEE COMPANY IN THE YEAR 1997 BEING 2% OF TOTAL CONTRACT VALUE. IT WAS CONT ENDED THAT ASSESSEE WAS OPTIMISTIC ABOUT SUCCESS OF SUCH PRIVATE SECTOR P OWER PLANT AND IT WAS A BIG ACHIEVEMENT FOR ASSESSEE TO BEG AN ORDER OF RS. 19. 87 CRORES IN SETTING UP OF A POWER PLANT. SINCE THERE WERE NO DEVELOPMENTS FO UND AND IT WAS FELT DURING NEGOTIATION WITH M/S. VENKATESH COKE & POWER LTD., THAT IT COULD NOT PROCURE NECESSARY FINANCIAL ASSISTANCE FOR SETTING UP A POWER PLANT RESULTING IN INDEFINITE DELAY IN START UP OF POWER PROJECT, T HE ASSESSEE FOR RETURN OF EARNEST DEPOSIT AMOUNT. SINCE IT WAS NOT PAID BACK , THE ASSESSEE FILED PETITION IN HIGH COURT OF CHENNAI FOR RECOVERY OF S AID AMOUNT TOGETHER WITH INTEREST FROM M/S. VENKATESH COKE & POWER LTD. AS T HERE WAS NO HOPE OF RECOVERY, IT WAS DECIDED BY BOARD OF DIRECTORS TO WRITE OFF THE AMOUNT DURING THE YEAR ENDED 31.3.2007. IT WAS ALSO CONTEN DED THAT THE AMOUNT WRITTEN OFF, WAS EXPENDED WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF BUSINESS OF ASSESSEE AND ISALLOWABLE U/S. 37 OF THE I.T. ACT . THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF APEX COURT IN THE CASE OF CIT VS MYSORE SUGAR CO. LTD. 46 ITR 649 (SC) AND DECISION OF BOMBAY HIGH CO URT IN THE CASE OF I.B.M. ITA NO. 4090/M/10 3 WORLD TRADE CORPN. VS CIT 186 ITR 412. THE LD. CIT (A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE HELD THAT SAID CLAIM OF ASSESSEE OF RS. 39,74,000/-, THE MONEY GIVEN AS EARNEST MONEY DEPOS IT TO M/S. VENKATESH COKE & POWER LTD., HAD NOT FINALLY BECOME A BAD DEB T OR LOSS TO ASSESSEE COMPANY AS AN ORDER HAS BEEN PASSED ON A SUIT FILED BY ASSESSEE AND THEREFORE ASSESSEE IS STILL TRYING FOR RECOVERY . IT WAS ALSO HELD BY LD. CIT(A) THAT THE CONDITIONS AS LAID DOWN U/S. 36(2) OF THE ACT ARE NOT FULFILLED TO CLAIM IT AS BAD DEBT. THE LD. CIT(A) HAS ALSO STATED THA T THE CLAIM ALSO COULD NOT BE ALLOWED U/S. 37 OF THE ACT AS ASSESSEE FAILED TO ESTABLISH THAT LOSS RELATES TO ASSESSMENT YEAR UNDER CONSIDERATION AND NOT FOR EARLIER YEARS. THE LD. CIT(A) HAS ALSO STATED THAT THE CASES RELIED ON BY ASSESSEE (SUPRA) ARE NOT RELEVANT TO THE FACTS OF ASSESSEE. THE LD. CIT(A) OBSERVED THAT IN THE CASE OF MYSORE SUGAR CO. LTD.,(SUPRA) IT WAS RELATING TO AD VANCE GIVEN TO SUGARCANE GROWERS WHICH WAS WRITTEN OFF ON THE RECOMMENDATION OF STATE GOVERNMENT. HE ALSO OBSERVED THAT IN THE CASE OF I.B.M. WORLD T RADE CORPN.(SUPRA), THE ISSUE BEFORE HONBLE COURT WAS TO DECIDE THE NATURE OF LOSS BEING CAPITAL OR REVENUE. THUS, THE RATIO OF THESE JUDGEMENT BEING BASED ON DIFFERENT SET OF FACTS IS NOT APPLICABLE TO THE CASE OF ASSESSEE. AC CORDINGLY, LD. CIT(A) CONFIRMED THE ORDER OF AO. BEING AGGRIEVED, ASSESSE E IS IN FURTHER APPEAL BEFORE TRIBUNAL. 5. AT THE TIME OF HEARING, LD. AR BESIDES STATED TH E FACTS ON LINES AS STATED BEFORE AUTHORITIES BELOW AND AS MENTIONED HE REIN ABOVE. HE ALSO REFERRED TO PAGE-39 OF PAPER BOOK, WHICH IS COPY OF LETTER DT. 25.12.1997 ADDRESSED TO M/S. VENKATESH COKE & POWER LTD., VIDE WHICH ASSESSEE INTRODUCED ITSELF FOR UNDERTAKING THE CONTRACT WORK RELATING TO POWER PLANT. HE SUBMITTED THAT ASSESSEE PAID EARNEST MONEY DEPOS IT AGGREGATING TO RS. 39,74,000/- TO M/S. VENKATESH COKE & POWER LTD., AN D REFERRED TO PAGES 42 AND 43 OF PAPER BOOK WHICH CONTAINS DETAILS OF PAYM ENT MADE BY ASSESSEE. HE REFERRED PAGE-48 OF PAPER BOOK WHICH IS A COPY O F MINUTES OF MEETING AND SUBMITTED THAT WHEN M/S. VENKATESH COKE & POWER LTD ., COULD NOT PROCEED FOR SETTING UP ABOVE PROJECT, ASSESSEE ASKED FOR RE TURN OF AMOUNT. HOWEVER, ITA NO. 4090/M/10 4 ASSESSEE COULD NOT RECEIVE BACK THE SAID AMOUNT AND ACCORDINGLY ASSESSEE FILED SUIT IN HONBLE HIGH COURT OF MADRAS. IN REP LY TO A QUERY, LD. AR SUBMITTED THAT THE SUIT WAS DECIDED IN FAVOUR OF AS SESSEE AND ASSESSEE HAS REALIZED THE SAID AMOUNT IN JULY TO SEPTEMBER, 2011 . THE LD. AR FURTHER SUBMITTED THAT IN THE ASSESSMENT YEAR UNDER CONSIDE RATION, SAID AMOUNT SHOULD BE CONSIDERED AS BUSINESS LOSS AND BE ALLOWE D AS DEDUCTION U/S. 37 OF THE I.T. ACT AS THE SAID AMOUNT WAS PAID BY ASSESSE E TO M/S. VENKATESH COKE & POWER LTD., FOR ITS BUSINESS PURPOSES. WHEN THE CONTENTION OF LD. AR WAS DRAWN COPY OF ANNUAL REPORT PLACED AT PAGE 8 TO 22 OF PAPER BOOK AND PARTICULARLY AT PAGE 15 OF PAPER BOOK WHICH IS A CO PY OF PROFIT AND LOSS ACCOUNT, WHEREIN IT IS STATED THAT ASSESSEE CLAIMED INTER ALIA THE SAID AMOUNT AS BAD DEBT WRITTEN OFF, THE LD. AR SUBMITTED THAT IT WAS WRONGLY MENTIONED AS BAD DEBT BUT IT BE TREATED AS BUSINESS LOSS. HO WEVER, LD. AR COULD NOT JUSTIFY THAT THE SAID AMOUNT COULD BE CONSIDERED AS BUSINESS LOSS FOR ASSESSMENT YEAR UNDER CONSIDERATION. THE LD. DEPAR TMENTAL REPRESENTATIVE POINTED OUT THAT ASSESSEE HAS FAILED TO ESTABLISH B USINESS CONNECTION IN RESPECT OF ABOVE AMOUNT OF EARNEST MONEY DEPOSIT TO M/S. VENKATESH COKE & POWER LTD., AND THEREFORE SAME COULD NOT BE ALLOWED AS BUSINESS LOSS. 6. CONSIDERING THE ABOVE FACTS AND THE NOMENCLATURE GIVEN BY ASSESSEE IN RESPECT OF ABOVE AMOUNT OF EARNEST MONEY DEPOSIT WH ILE CLAIMING DEDUCTION AS BAD DEBT WRITTEN OFF IN THE PROFIT AND LOSS ACCO UNT AS WELL AS CLAIM MADE BEFORE AO, WE HOLD THAT CLAIM OF ASSESSEE IS NOT AL LOWABLE AS BAD DEBT BECAUSE THE AUTHORITIES BELOW HAVE RIGHTLY POINTED OUT THAT THE CONDITIONS AS LAID DOWN U/S. 36(2) OF THE I.T. ACT ARE NOT FULFILL ED. FURTHER WE ALSO OBSERVE THAT ASSESSEE HAS NOT BEEN ABLE TO PROVE THAT THE S AID CLAIM IS A BUSINESS LOSS IN THE ASSESSMENT YEAR UNDER CONSIDERATION. M OREOVER, LD. AR CONCEDED THAT ASSESSEE HAS RECEIVED THE ENTIRE AMOUNT IN JUL Y TO SEPTEMBER, 2011. IN VIEW OF ABOVE FACT, WE HOLD THAT THERE IS NO INFIRM ITY IN THE ORDER OF LD. CIT(A) IN CONFIRMING THE ACTION OF AO TO DISALLOW C LAIM OF ASSESSEE OF THE SAID AMOUNT OF RS. 39,74,000/- AS CLAIMED BY ASSESSEE AS BAD DEBT. HENCE GROUND NO. 1 OF ASSESSEE IS REJECTED. ITA NO. 4090/M/10 5 7. IN GROUND NO. 2 AND 3 OF APPEAL, ASSESSEE HAS DI SPUTED THE ORDER OF LD. CIT(A) IN NOT ALLOWING CREDIT OF AMOUNT OF INCO ME TAX PAID OF RS. 4,88,407/-. 8. WE HAVE HEARD THE LD. REPRESENTATIVES OF PARTIES AND PERUSED THE ORDERS OF AUTHORITIES BELOW. WE OBSERVE THAT LD. C IT(A) HAS STATED THAT AO HAS NOT DISCUSSED THE SAID GROUND OF ASSESSEE, HENC E THIS GROUND OF APPEAL DOES NOT ARISE FROM THE ASSESSMENT ORDER. HOWEVER, LD. CIT(A) HAS DIRECTED THE AO TO VERIFY THE CLAIM OF ASSESSEE AND GIVE CR EDIT FOR TAXES PAID AFTER DUE VERIFICATION. THE ATTENTION OF LD. AR WAS DRAWN TO ABOVE ORDER OF LD. CIT(A) THAT, LD. CIT(A) HAS NOT DISALLOWED THE CLAIM OF AS SESSEE BUT HAS DIRECTED AO TO ALLOW THE CREDIT TO ASSESSEE FOR THE TAX PAID AF TER VERIFICATION. HENCE, THERE IS NO INFIRMITY IN THE SAID ORDER OF LD. CIT(A). T HE LD. AR SUBMITTED THAT AO SHOULD BE DIRECTED TO GIVE EFFECT TO ABOVE FINDING OF LD. CIT(A) WITHIN A TIME BOUND PROGRAMME. 9. CONSIDERING THE ABOVE SUBMISSION OF LD. AR, WE D IRECT THE AO TO GIVE EFFECT THE ORDER OF LD. CIT(A) WITHIN A PERIOD OF 3 MONTHS FROM THE DATE OF RECEIPT OF THIS ORDER SUBJECT TO THE CONDITION THAT ASSESSEE WILL FURNISH REQUISITE DETAILS TO AO. HENCE, GROUNDS NO. 2 & 3 TAKEN BY ASSESSEE ARE REJECTED SUBJECT TO ABOVE OBSERVATION. . 9. IN THE RESULT, APPEAL FILED BY ASSESSEE IS DISMIS SED. ORDER PRONOUNCED ON THIS 21 ST DAY OF OCTOBER, 2011 SD/- SD/- ( R.K. PANDA) (B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 21 ST OCTOBER, 2011 RJ ITA NO. 4090/M/10 6 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR B BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 4090/M/10 7 DATE INITIALS 1. DRAFT DICTATED ON: 19.10.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 19.10.2011 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 COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: