DCIT CIR 3(1), MUMBAI V. AMFORGE INDUSTRIES LTD, MUMBAI

ITA 4124/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3010 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 05-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KUSUM BA NSAL
• Assessee Lawyers: B V JHAVERI
• Keywords: Business expenditure; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Additional evidence; Bad and doubtful debts
• Section: 143(3); 14A; 145

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.4124 /MUM/2014 ( / ASSESSMENT YEAR : 2007-08) DCIT CIRCLE 3(1), R. NO. 607, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020. / V. M/S AMFORGE INDUSTRIES LTD., 108 REHEJA CHAMBERS, FREE PRESS JOURNAL MARG, NARIMAN POINT, MUMBAI 400 021. ./ PAN : AAACA8756A ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY MS. KUSUM BANSAL ASSESSEE BY : SHRI B.V. JHAVERI / DATE OF HEARING : 29-6-2016 / DATE OF PRONOUNCEMENT : 26-09-016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE REVENUE, BEING ITA NO. 4 124/MUM/2014, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 20 TH MARCH, 2014 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 5, MU MBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2007-08, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE ASSESSME NT ORDER DATED 30 TH DECEMBER, 2009 PASSED BY THE LEARNED ASSESSING OFFI CER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME TAX ACT,1961 (HE REINAFTER CALLED THE ACT). ITA 4124 /MUM/2014 2 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL, MUMBA I (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE U/S.14A OF THE INCOME-TAX ACT, 1961 TO RS.1,00,000/ - AS AGAINST RS.2 ,93,198/ - MADE BY THE AO WITHOUT APPRECIATING THE FACT THAT ASSESSEE HAS MADE SUBSTANTIAL INVESTMENT DURING THE PREVIOUS YEAR RESULTI NG INTO EARNING OF EXEMPT INCOME. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING DISALLOWANCE OF RS.1 .99,00,801/- MADE BY THE A.O ON ACCOUNT OF PROVISION FOR WRITE OFF OF TH E DIES WITHOUT APPRECIATING THE FACT THAT NO ACTUAL SALE OR DISPOSAL O F DIES HAS TAKEN PLACE DURING THE YEAR OF THE OLD DIES WHICH HAS BEEN SHOWN AS WRITTEN OFF AND WHEREAS ACTUALLY THE AMOUNT WRITTEN OFF IS IN THE NATURE OF PROVISION ONLY. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF D EBIT BALANCE OF CREDITORS WRITTEN OFF TO THE TUNE OF RS.69,55,477/ - WI THOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO PROVE THAT THE ADVANC ES WERE GIVEN FOR THE PURPOSE OF BUSINESS AND EFFORTS WERE MADE FO R COLLECTION OF THE AMOUNTS ADVANCED TO THE SUNDRY CREDITORS. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITIONS MADE BY THE AO BY DISALLOWING THE SUNDRY BALANCES WRITTEN OFF WITHOUT A PPRECIATING THE FACT THAT ASSESSEE HAS NOT BEEN ABLE TO EXPLAIN THE NATU RE OF SUCH RECEIVABLE AMOUNT AND THE SAME SHALL BE TREATED AS THE AMOUNT PAID BY THE ASSESSEE FOR INTERNAL SETTLEMENT IN RESPECT OF VALU ATION OF VARIOUS BALANCE SHEET ITEMS IN THE SCHEME OF DEMERGER. 5. THE APPELLANT PRAYS THAT THE ORDER OF CIT (A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED.' ITA 4124 /MUM/2014 3 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING OF AUTOMOB ILE FORGINGS, AUTOMOBILE & AUTO PARTS. 4. IT WAS OBSERVED BY THE A.O. THAT THE ASSESSEE HA S SHOWN DIVIDEND INCOME AMOUNTING TO RS.10,19,208/- WHICH WAS CLAIMED AS EX EMPT INCOME U/S 10(34) OF THE ACT. HOWEVER NO DISALLOWANCE WAS MADE BY THE ASSESSEE U/S 14A OF THE ACT OF EXPENDITURE INCURRED IN RELATION TO EARNING OF EXEMPT INCOME. THE ASSESSEE WAS ASKED AS TO WHY THE EXPEND ITURE INCURRED FOR EARNING OF THE EXEMPT INCOME SHOULD NOT BE DISALLOW ED U/S 14A OF THE ACT. IN REPLY, THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NOT INCURRED ANY SPECIFIC EXPENDITURE FOR EARNING OF THE EXEMPT INCOME, HOWEV ER, THE ASSESSEE HAS DISALLOWED AN AMOUNT OF RS. 10,000/- TOWARDS EXPEND ITURE INCURRED IN RELATION TO THE EARNING OF THE EXEMPT INCOME U/S. 14A OF THE ACT. THE CONTENTION OF THE ASSESSEE WAS REJECTED BY THE A.O. . AS PER THE A.O., THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO EARNING OF EXEMPT INCOME IS TO BE DISALLOWED U/S. 14A OF THE ACT. THE EXPEND ITURE HAS BEEN INCURRED FOR THE DAY TO DAY ACTIVITIES OF THE ASSESSEE COMPANY, A PART OF WHICH IS RELATABLE TO THE EARNING OF THE DIVIDEND INCOME OF RS. 10,19, 208/- WHICH HAD BEEN CLAIMED AS EXEMPT BY THE ASSESSEE U/S 10(34) OF THE ACT. THE A.O. RELIED ON THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE O F DAGA CAPITAL MANAGEMENT LTD. (2009) 117 ITD 169(MUMBAI)(SB), WHEREBY IT WAS HELD THAT SECTION 14A OF THE ACT IS A SPECIAL PROVISION WHICH DEALS WITH DISALLOWANCE OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF TOTAL INCOME. THE EXPENSES FALLING UNDER ANY HEAD O R SECTION WHICH ARE OTHERWISE DEDUCTIBLE AS BUSINESS EXPENDITURE OR UND ER OTHER RESPECTIVE HEADS WOULD CALL FOR DISALLOWANCE TO THE EXTENT TO WHICH THOSE EXPENSES HAVE BEEN ITA 4124 /MUM/2014 4 INCURRED IN RELATION TO EARNING OF INCOME EXEMPT FR OM TAX. THUS, THE A.O. MADE THE DISALLOWANCE OF EXPENSES RELYING UPON PROV ISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, 1962 @ 0.5% OF THE AVERAGE VALUE OF INVESTMENTS OF RS.5,86,39,500/- HELD BY TH E ASSESSEE, WHICH DISALLOWANCE WORKED OUT TO RS. 2,93,198/- U/R 8D(2) (III) OF INCOME TAX RULES, 1962 AND WAS DISALLOWED BY THE AO WHILE COMPUTING I NCOME OF THE ASSESSEE VIDE ASSESSMENT ORDER DATED 30-12-2009 PASSED BY TH E AO U/S. 143(3) OF THE ACT. 5. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30-12-20 09 PASSED BY THE A.O. U/S 143(3) OF THE ACT, THE ASSESSEE FILED ITS FIRST APPEAL BEFORE THE LD. CIT(A) WHEREBY THE ASSESSEE REITERATED THE SUBMISSIONS MAD E BEFORE THE A.O. . THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS MADE INVE STMENTS IN MUTUAL FUNDS AS WELL AS INVESTED IN EQUITY SHARES OF FOUR PUBLIC LIMITED COMPANIES LISTED ON STOCK EXCHANGES. THE A.O. APPLIED RULE 8D OF INCOM E TAX RULES,1962 READ WITH SECTION 14A OF THE ACT , AND COMPUTED DISALLOW ANCE U/R 8D(2)(III) OF INCOME TAX RULES, 1962 @ 0.5% OF THE AVERAGE VALUE OF INVESTMENT AT RS. 2,93,198/- READ WITH SECTION 14A OF THE ACT AND DIS ALLOWED THE SAME WHILE COMPUTING INCOME OF THE ASSESSEE. THE LD. CIT(A) OB SERVED THAT THE YEAR UNDER CONSIDERATION IS ASSESSMENT YEAR 2007-08. THE ASSESSEE CONTENDED THAT AS HELD BY THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF GODREJ & BOYCE MFG. CO. LTD. V. CIT, (2010) 328 ITR 81(BOM.), RULE 8D OF INCOME TAX RULES, 1962 IS APPLICABLE FROM THE ASSESSMENT YEAR 2008-09 AND IT CANNOT BE APPLIED FOR THE CURRENT ASSESSMENT YEAR 2007-08 UND ER APPEAL. IT WAS SUBMITTED THAT THE ASSESSEE HAS MADE A REASONABLE D ISALLOWANCE OF RS. 10,000/- U/S 14A OF THE ACT AND NO FURTHER DISALLOW ANCE IS CALLED FOR. IT WAS SUBMITTED THAT THE ASSESSEE HAD MADE INVESTMENTS IN MUTUAL FUNDS FOR WHICH ITA 4124 /MUM/2014 5 A FORM IS TO BE FILLED AND A CHEQUE IS TO BE ISSUED FOR MAKING INVESTMENT HENCE NO FURTHER CLERICAL EXERCISE WAS REQUIRED WHI CH ENTAILS EXPENDITURE. IT WAS FURTHER SUBMITTED THAT INVESTMENTS IN SHARES H AVE BEEN MADE THROUGH BROKER AND THE BROKERAGE AMOUNT IS NOT CLAIMED AS E XPENDITURE BUT IT WAS TREATED AS COST OF THE INVESTMENT. THUS, IT WAS SU BMITTED THAT THE DISALLOWANCE MADE BY THE A.O. U/S 14A OF THE ACT O F RS. 2,93,198/- BE DELETED. THE ASSESSEE FILED ADDITIONAL EVIDENCES AN D THE LEARNED CIT(A) CALLED FOR REMAND REPORT FROM THE AO. THE AO IN REMAND REP ORT JUSTIFIED THE DISALLOWANCE OF RS.2,98,198/- U/S 14A OF THE ACT. I T WAS SUBMITTED IN REMAND REPORT THAT THE AO HAS RECORDED SATISFACTION IN LEN GTH TO ESTABLISH THE JUSTIFICATION OF APPLICATION OF DISALLOWANCE U/S 14 A OF THE ACT. THUS, IT WAS SUBMITTED IN REMAND REPORT THAT THE DISALLOWANCE OF RS.2,98,198/- U/S 14A OF THE ACT BE CONFIRMED. THE LD. CIT(A) OBSERVED THAT THE ASSESSEES CONTENT ION THAT RULE 8D OF THE INCOME TAX RULES, 1962 IS NOT APPLICABLE FOR THE AS SESSMENT YEAR 2007-08 IS CORRECT. HOWEVER, REASONABLE DISALLOWANCE OF EXPEN DITURE INCURRED IN RELATION TO EARNING OF EXEMPT INCOME HAS TO BE MADE U/S 14A OF THE ACT. THE ASSESSEES INVESTMENTS AS ON FIRST AND LAST DAY OF THE PREVIOUS YEAR WERE RS. 702.99 LACS AND RS. 469.80 LACS RESPECTIVELY AND TH E ASSESSEE HAS EARNED EXEMPT INCOME BY WAY OF DIVIDEND OF RS. 10,19,208/- . THE ASSESSEE HAS ITSELF MADE DISALLOWANCE OF RS. 10,000/- U/S 14A OF THE AC T. NO FURTHER EXPENSES WERE CLAIMED TO HAVE BEEN INCURRED BUT NO BASIS/ D ETAILS HAVE BEEN GIVEN BY THE ASSESSEE TO ARRIVE AT THE DISALLOWANCE OF RS.10 000/- U/S 14A OF THE ACT. THE LD. CIT(A) HELD RULE 8D OF INCOME TAX RULES, 19 62 IS NOT APPLICABLE PRIOR TO ASSESSMENT YEAR 2008-09 BUT THAT THE SAID METHOD PROVIDE BASIS TO ARRIVE AT AN AVERAGE EXPENSE ON PROPORTIONATE BASIS RELATE D TO EXEMPT INCOME EVEN ITA 4124 /MUM/2014 6 FOR EARLIER YEARS, THE LD. CIT(A) RESTRICTED THE DI SALLOWANCE OF EXPENSES INCURRED IN RELATION TO EARNING OF EXEMPT INCOME , U/S 14A OF THE ACT TO RS. 1 LAC AND DIRECTED THE A.O. TO GIVE APPEAL EFFECT AF TER ADJUSTING THE DISALLOWANCE OF RS. 10,000/- VOLUNTARILY DISALLOWED BY THE ASSES SEE U/S 14A OF THE ACT, THUS CONFIRMING THE ADDITION TO THE TUNE OF RS.90,0 00/- , VIDE APPELLATE ORDER DATED 20-03-2014 PASSED BY LEARNED CIT(A) . 6. AGGRIEVED BY THE APPELLATE ORDER DATED 20-03-201 4 PASSED BY THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 7. THE LD. D.R. SUBMITTED THAT THE A.O. HAS MADE TH E DISALLOWANCE OF RS. 2,93,198/- TOWARDS EXPENDITURE INCURRED IN RELATION TO EARNING OF EXEMPT INCOME U/S 14A OF THE ACT KEEPING IN VIEW THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.10,19,208/- WHICH WAS CLAIMED EXEMPT U/S 10(34) OF THE ACT , WHICH IS VERY REASONABLE DISALLOWANCE KEE PING IN VIEW THE INVESTMENT PORTFOLIO OF THE ASSESSEE WHICH IS TO TH E TUNE OF RS702.99 LACS AS AT 31-03-2006 AND RS.469.80 LACS AS AT 31-03-2007. THE ASSESSEE HAS EARNED EXEMPT INCOME TO THE TUNE OF RS. 10,19,208/- BY WAY OF DIVIDEND WHICH IS CLAIMED EXEMPT U/S 10(34) OF THE ACT. FUR THER, THE LD. D.R. SUPPORTED THE ORDER OF THE A.O. 8. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, RELIED ON THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT THE LD. CIT(A) HAS RIGHTLY RESTRICTED THE DISALLOWANCE U/S 14A OF THE ACT TO RS. 1LAC. 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND ALS O PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASS ESSEE HAS RECEIVED ITA 4124 /MUM/2014 7 DIVIDEND INCOME OF RS. 10,19,208/- WHICH INCOME WAS CLAIMED AS EXEMPT FROM TAX U/S 10(34) OF THE ACT. THE ASSESSEE HAS M ADE INVESTMENT IN MUTUAL FUNDS AND IN THE SHARES OF LISTED PUBLIC LIMITED CO MPANIES. THE ASSESSEES INVESTMENTS AS ON FIRST DAY OF THE PREVIOUS YEAR WE RE RS. 702.99 LACS AND THE LAST DAY OF THE PREVIOUS YEAR WAS RS. 469.80 LACS. THE A.O. HAS APPLIED RULE 8D OF THE INCOME TAX RULES, 1962 WHILE COMPUTING DI SALLOWANCE U/S 14A OF THE ACT OF THE EXPENDITURE INCURRED IN RELATION TO EARNING OF EXEMPT INCOME, HOWEVER, AS PER THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. CIT, (2010) 328 ITR 81(BOM.) WHEREIN IT WAS HELD THAT RULE 8D OF INCOME TAX RULES, 1962 CANNOT BE APPLIED FOR THE ASSESSMENT YEAR 2007-08 AND EARLIER YEARS FOR COMPU TING DISALLOWANCE U/S. 14A OF THE ACT OF THE EXPENDITURE INCURRED IN RELAT ION TO EARNING OF EXEMPT INCOME IN VIEW OF DECISION OF HONBLE BOMBAY HIGH C OURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LIMITED(SUPR A). HOWEVER, REASONABLE DISALLOWANCE HAS TO BE MADE IN VIEW OF P ROVISIONS OF SECTION 14A OF THE ACT TO DISALLOW EXPENDITURE INCURRED IN RELA TION TO EARNING OF EXEMPT INCOME HAVING REGARD TO THE ACCOUNTS OF THE ASSESSE EE AS PER MANDATE OF SECTION 14A OF THE ACT. WE HAVE OBSERVED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 10,19,208/- WHICH WAS CLAIME D AS EXEMPT INCOME U/S. 10(34) OF THE ACT AND THE LD. CIT(A) HAS RESTR ICTED THE DISALLOWANCE U/S 14A TO RS. 1 LAC. IN OUR CONSIDERED VIEW, THE DISA LLOWANCE OF RS. 1 LAC U/S 14A OF THE ACT KEEPING IN VIEW FACTUAL MATRIX OF T HE CASE IS QUITE REASONABLE. THE A.O. HAS NOT UNDERTAKEN ANY EXERCISE TO WORK OU T THE DISALLOWANCE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AND M ERELY APPLIED RULE 8D OF INCOME TAX RULES, 1962 IN A MECHANICAL MANNER WHIC H CANNOT BE APPLIED FOR THE ASSESSMENT YEAR 2007-08 AND EARLIER YEARS IN VI EW OF HONBLE BOMBAY HIGH COURT DECISION IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY ITA 4124 /MUM/2014 8 LIMITED(SUPRA) . KEEPING IN VIEW OF THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE , THE GROUND RAISED BY THE REVENUE IN THI S APPEAL W.R.T. COMPUTATION OF DISALLOWANCE U/S 14A OF THE ACT OF THE EXPENDITU RE INCURRED BY THE ASSESSEE IN RELATION TO EARNING OF EXEMPT INCOME LA CKS MERIT AND IS HEREBY DISMISSED AND WE CONFIRM THE DISALLOWANCE U/S 14A O F THE ACT TO BE AT RS 1 LACS FOR THE ASSESSMENT YEAR 2007-08 AS SUSTAINED B Y LEARNED CIT(A). THUS, THE ORDER OF THE LEARNED CIT(A) IN THIS REGARD IS U PHELD/SUSTAINED IN WHICH WE DONOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CI T(A). THIS DISPOSES OF GROUND NO1 RAISED BY THE REVENUE. WE ORDER ACCORDIN GLY. 10. GROUND NO. 2 RAISED BY REVENUE IN THIS APPEAL I S WITH RESPECT TO THE DELETION OF DISALLOWANCE BY LEARNED CIT(A) OF 1,99, 00,801/- WITH RESPECT TO ADDITION MADE BY THE A.O. ON ACCOUNT OF PROVISION F OR WRITE OFF OF THE DIES WITHOUT APPRECIATING THE FACT THAT NO ACTUAL SALE O R DISPOSAL OF DIES HAS TAKEN PLACE DURING THE YEAR OF THE OLD DIES WHICH HAS BEE N SHOWN AS WRITTEN OFF WHEREAS ACTUALLY THE AMOUNT WRITTEN OFF IS IN THE N ATURE OF PROVISION ONLY. 11. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE HAS CLAIMED DEDUCTION OF RS. 1,99,00,801/- ON ACCOUNT OF WRITE OFF OF OLD AND OBSOLETE DIES. THE A.O. ASKED THE ASSESSEE TO JUSTIFY THE ALLOWABILITY OF T HE SAME WITH NECESSARY EVIDENCES IN RESPECT OF DISPOSAL, SALE, ETC., OF TH E DIES WHEREBY THE ASSESSEE SUBMITTED THAT IT HAS WRITTEN OFF THE OLD AND OBSOL ETE DIES AS PER ACCOUNTING POLICY. IT WAS SUBMITTED THAT THE WRITE-OFF IS DIFF ERENCE IN VALUATION OF DIES AND THE COST AT WHICH IT IS BEING CARRIED IN THE BALANC E SHEET, AS ON 31-03-2007. THE A.O. HELD THAT THE CLAIM OF THE ASSESSEE IS NOT ALLOWABLE AS THE AMOUNT WRITTEN OFF WAS IN THE NATURE OF PROVISION ONLY. T HE A.O. HELD THAT DURING THE YEAR, NO ACTUAL SALE OR DISPOSAL OF DIES HAS TAKEN PLACE, WHICH MAY GIVE RISE TO ITA 4124 /MUM/2014 9 BUSINESS LOSS. THE AMOUNT WRITTEN OFF CANNOT BE CLA IMED DURING THE RELEVANT YEAR AND IT MAY BE ALLOWABLE ONLY WHEN ACTUAL EVENT DISPOSING OFF THE DIES TAKES PLACE. ACCORDINGLY, THE A.O. DISALLOWED THE D EDUCTION OF RS. 1,99,00,801/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF WRITE OFF OF DIES VIDE ASSESSMENT ORDER DATED 30-12-2009 PASSED BY THE AO U/S. 143(3) OF THE ACT. 12. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30-12-2 009 PASSED BY THE A.O. U/S. 143(3) OF THE ACT, THE ASSESSEE FILED ITS FIRS T APPEAL BEFORE THE LD. CIT(A). 13. BEFORE THE LD. CIT(A), THE ASSESSEE CONTENDED T HAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURING AUTOMOB ILE FORGING FOR WHICH ON REGULAR BASIS THE ASSESSEE COMPANY IN-HOUSE MANUFAC TURES DIES AND MOULDS. IT WAS SUBMITTED THAT PURSUANT TO THE SCHEME OF ARR ANGEMENT BETWEEN THE ASSESSEE AND M/S MAHINDRA FORGING LTD.( HEREINAFTER CALLED THE MFL)(EARLIER KNOWN AS MAHINDRA AUTOMOTIVE STEELS PRIVATE LIMITED ), THE CHAKAN PLANT OF THE ASSESSEE WAS DEMERGED FROM THE ASSESSEE COMPANY AND MERGED WITH MFL. TILL THE YEAR ENDED 31ST MARCH, 2006 , THE ASS ESSEE COMPANY WAS HAVING TWO PLANTS AT CHAKAN AND CHINCHWAD BOTH LOCA TED AT MAHARASHTRA. THE CHAKAN PLANT WAS PRODUCING THE FORGED ARTICLES ALL OF WHICH WERE SUITABLE FOR FOUR WHEELERS. THE CHINCHWAD PLANT WAS PRODUCIN G THE FORGED ARTICLES ALL OF WHICH WERE MAINLY SUITABLE FOR TWO WHEELERS. SIN CE M/S. MFL TOOK OVER THE BUSINESS OF CHAKAN PLANT, M/S MFL REQUESTED THE ASS ESSEE NOT TO COMPETE WITH THEM IN THE MANUFACTURE OF FORGED ARTICLES SIM ILAR TO THE ONES PRODUCED AT CHAKAN PLANT AND ACCORDINGLY NON-COMPETE AGREEME NT WAS ENTERED INTO. IT WAS SUBMITTED THAT IT WAS THE ACCOUNTING PRACTICE OF THE ASSESSEE COMPANY TO CLAIM DEDUCTION OF THE DIES MANUFACTURED AND CON SUMED DURING THE YEAR. SIMILARLY OBSOLETE DIES WERE BEING WRITTEN OFF FROM TIME TO TIME. ATTENTION WAS ITA 4124 /MUM/2014 10 INVITED TO SCHEDULE 21 TO THE AUDITED ACCOUNT WHERE IN ACCOUNTING POLICIES ARE GIVEN WHICH IS REPRODUCED AS UNDER:- (IV) INVENTORIES RAW MATERIAL & COMPONENTS, STORES AND SPARES, DIE S TEEL BLOCKS ARE VALUED AT COST. COST IS RECKONED ON 'FIF O' BASIS. WORK IN PROGRESS IS VALUED AT ESTIMATED COST. FINISHED GOODS ARE VALUED AT LOWER COST OR NET REAL IZABLE VALUE. DIES ARE VALUED AT COST, LESS AMORTIZATION/WRITE OF FS BASED ON EXPECTED LIFE AND USAGE TILL THE YEAR END. THE ASSESSEE ALSO DREW THE ATTENTION OF THE LD. CIT (A) WITH RESPECT TO THE DETAILS OF STOCK OF OBSOLETE DIES FOR ASSESSMENT YE ARS 2001-02 TO 2012-13 AND SUBMITTED THAT PERUSAL OF THESE CHARTS WILL REVEAL THAT IN BETWEEN ASSESSMENT YEARS 2001-02 TO 2009-10 THE ASSESSEE COMPANY HAD M ANUFACTURED NEW DIES EVERY YEAR WHICH WERE CAPITALIZED AND AT THE SAME TIME THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION OF THE DIES CONSUMED EVERY YEAR AND IN ASSESSMENT YEARS 2001-02, 2002-03, 2005-06 AND 2006 -07, THE ASSESSEE COMPANY HAD WRITTEN OFF THE OBSOLETE DIES AS PER TH E METHOD OF ACCOUNTING POLICY FOLLOWED BY IT. THE ASSESSEE COMPANY SUBMITT ED THAT IT HAS DEMERGED ITS CHAKAN PLANT WHICH WAS MANUFACTURING THE FORGED ARTICLES SUITABLE FOR FOUR WHEELERS, THEREFORE, ALL THE DIES WHICH WERE B EING USED IN THE CHAKAN PLANT HAD BECOME OBSOLETE AND OF NO USE FOR THE BUS INESS OF THE ASSESSEE COMPANY. HENCE, WHILE INVENTORISING THE DIES ON THE LAST DAY OF THE ACCOUNTING YEAR, AS PER THE METHOD OF ACCOUNTING PO LICY FOLLOWED THE ASSESSEE COMPANY HAD WRITTEN OFF THE OBSOLETE DIES OF CHAKAN PLANT AS WELL AS THE ITA 4124 /MUM/2014 11 OBSOLETE AND UNUSABLE DIES OF CHINCHWAD PLANT LYING WITH IT. THE OBSOLETE AND UNUSABLE DIES WERE VALUED AT THE NET REALISABLE VAL UE BASED ON EXPECTED LIFE AND USAGES OF THE SAID DIES. THE WRITE OFF OF RS.19 9.01 LAKHS IS ONLY THE DIFFERENCE IN VALUATION OF DIES AND COST AT WHICH I T WAS BEING CARRIED IN THE BALANCE SHEET. THE VALUE WAS ARRIVED AT AFTER TAKIN G THE PHYSICAL STOCK OF DIES AT THE END OF THE YEAR I.E., ON 31.3.2007 AND THE D IFFERENCE BETWEEN THE COST OF THE DIES AND THEIR VALUATION AS ON 31.3.2007 WAS DE BITED TO THE PROFIT AND LOSS ACCOUNT BEING DIMINUTION IN THE VALUE OF THE D IES USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY. IT WAS SUBMITTED THAT SUCH DECREASE OR DIMINUTION IN THE VALUE OF THE DIES IS REQUIRED TO BE ALLOWED AS BUSINESS EXPENDITURE IN THE YEAR UNDER CONSIDERATION. IT WAS SUBMITTED THAT IN ASSESSMENT YEARS 2001-02, 2002-03, 2005-06 AND 2006 -07, SIMILARLY THE ASSESSEE HAD REALIZED THAT THE VALUE OF THE DIES CA RRIED IN THE BALANCE SHEET HAS DIMINISHED , THE SAID REDUCTION IN THE VALUE OF THE DIES HAS BEEN WRITTEN OFF BY DEBITING TO THE PROFIT & LOSS ACCOUNT WHICH WAS ALLOWED TO THE ASSESSEE COMPANY IN RESPECTIVE YEARS BY THE REVENUE. THE A.O . REJECTED THE CLAIM OF THE ASSESSEE. THE A.O. HELD THAT THE AMOUNT WRITTE N OFF CANNOT BE CLAIMED DURING THE RELEVANT YEAR AND IT MAY BE ALLOWABLE ON LY WHEN THE ACTUAL EVENT OF DISPOSING OF THE DIES TAKES PLACE. THE ASSESSEE SUBMITTED THAT THE CONCLUSION OF THE A.O. TO THE EFFECT THAT THE AMOUN T WRITTEN OFF IS IN THE NATURE OF PROVISION IS INCORRECT AND CONTRARY TO TH E METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND PRESCRIBED U/S. 145 OF THE ACT. THE WRITE OFF AMOUNT OF RS. 1,99,00,801/- IS NOTHING BUT THE REDU CTION IN THE VALUE OF THE INVENTORIES OF DIES CARRIED IN THE BALANCE SHEET OF THE ASSESSEE COMPANY FROM YEAR TO YEAR. SECONDLY , AS THE ASSESSEE COMPANY HA D DEMERGED ITS CHAKAN PLANT, THE DIES REQUIRED AND USED FOR THE SAID PLAN T HAD BECOME OBSOLETE AND THEREFORE, THE ASSESSEE HAD REVALUED THE SAID OBSOL ETE AND UNUSABLE DIES AT ITA 4124 /MUM/2014 12 THE END OF THE YEAR. IT WAS SUBMITTED THAT THE A.O. FAILED TO APPRECIATE THAT THE ASSESSEE COMPANY HAD REVALUED ITS INVENTORIES O F DIES WHEREBY IT WAS REVEALED THAT THERE WERE MANY DIES WHICH HAD BECOME OBSOLETE AND UNUSABLE AND, HENCE THE VALUE OF SUCH DIES CANNOT BE THE COS T OF THE DIES REFLECTED IN THE BOOKS OF ACCOUNT AND ACCORDINGLY, SUCH DIES WER E VALUED AT THE NET REALISABLE VALUE WHICH HAS RESULTED INTO WRITE OFF OF THE EXCESS COST OF DIES REFLECTED IN THE BALANCE SHEET OF THE ASSESSEE. IT WAS SUBMITTED THAT AS THE COST OF THE DIES WAS NEVER CLAIMED AS REVENUE EXPEN DITURE AND THE REDUCTION IN THE VALUE OF SUCH DIES IS REQUIRED TO BE ALLOWED AS BUSINESS EXPENDITURE OR BUSINESS LOSS IRRESPECTIVE OF SUCH DIES WERE NOT SO LD OR DISPOSED OF. THE OTHER REASON GIVEN BY THE A.O. WAS THE YEAR OF SALE THE A MOUNT REALISED FROM SUCH OBSOLETE AND UNUSABLE DIES IS THE INCOME OF THE ASS ESSEE COMPANY IN THAT YEAR.IT WAS SUBMITTED THAT IN THE EARLIER YEARS SUC H CLAIM OF WRITE OFF OF THE DIES DUE TO DIMINUTION IN THE VALUE OF SUCH DIES HA S BEEN ALLOWED. IT WAS SUBMITTED THAT THE OBSOLETE AND UNUSABLE DIES WERE SOLD BY THE ASSESSEE COMPANY IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2012-13 FOR RS. 99,93,400/- AND THE SAID AMOUNT IS OFFERED AS INCOM E FOR TAXATION BY THE ASSESSEE COMPANY. THE LEARNED CIT(A) CALLED FOR REMAND REPORT FROM TH E AO , WHEREIN THE AO IN REMAND REPORT JUSTIFIED THE DISALLOWANCE OF RS.1,99 ,00,801/- AS NO ACTUAL SALE HAS TAKEN PLACE OF OLD AND OBSOLETE DIES AND SUCH W RITE OFF IS IN THE NATURE OF PROVISION ONLY WHICH AS PER THE AO CAN BE ALLOWED I N THE YEAR OF ACTUAL SALE. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, ALLOWED THE APPEAL OF THE ASSESSEE AND DIRECTED THE A.O. TO DEL ETE THE ADDITIONS OF RS.1,99,00,801/- MADE ON ACCOUNT OF WRITE OFF OF OL D AND OBSOLETE DIES BEING ITA 4124 /MUM/2014 13 THE DIFFERENCE IN THE VALUE AT WHICH THE SAID DIES WERE CARRIED IN THE BALANCE SHEET AS AT 31-03-2007 AND THE VALUE ARRIVED AT AFT ER TAKING PHYSICAL STOCK OF THE DIES AS AT 31-03-2007, VIDE APPELLATE ORDERS DA TED 20-03-2014 PASSED BY LEARNED CIT(A). 14. AGGRIEVED BY THE APPELLATE ORDER DATED 20-03-20 14 PASSED BY THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNA L. 15. THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAS WR ITTEN OFF AN AMOUNT OF RS. 1,99,00,801/- ON ACCOUNT OF WRITE OFF OF DIES. THE LD. D.R. TOOK US THROUGH THE ASSESSMENT ORDER AND SUBMITTED THAT WRI TE OFF IS MERELY A PROVISION AND THE SAID DIES WERE NOT SOLD DURING TH E PREVIOUS YEAR RELEVANT TO THE INSTANT ASSESSMENT YEAR AND IT IS MERELY A PRO VISION FOR REDUCING VALUE OF DIES IN THE BOOKS AND TO REDUCE PROFITS. THE LD. D .R. RELIED UPON THE ORDER OF THE A.O.. 16. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT PURSUANT TO THE SCHEME OF ARRANGEMENT/DEMERGER, CHAKAN PLANT OF THE ASSESSEE WAS DEMERGED AND TAKEN OVER BY MFL. THE ASSESSEE ENTERE D INTO AGREEMENT WITH MFL FOR DEMERGER OF CHAKAN PLANT. IN VIEW OF AGREEM ENT WITH MFL PERSUANT TO DEMERGER OF CHAKAN PLANT, THE ASSESSEE CANNOT PR ODUCE THE SAME ITEMS AS PER THE AGREEMENT WITH MFL SO AS TO COMPETE WITH MF L WHICH IS NOT ALLOWED IN VIEW OF TERMS AND CONDITION OF AGREEMENT . THE LD. COUNSEL SUBMITTED THAT THESE DIES HAVE BECOME OBSOLETE AND CANNOT BE USED. HE DREW OUR ATTENTION TO PAGE 46 OF THE PAPER BOOK WHEREBY THE DETAILS HA VE BEEN GIVEN W.R.T DIES FOR THE YEAR FROM 2001-02 TO 2012-13. HE SUBMITTED THAT THESE DIES WERE SOLD IN THE ASSESSMENT YEAR 2012-13 FOR RS. 99,93,400/- AND THE SAID AMOUNT IS ITA 4124 /MUM/2014 14 OFFERED AS INCOME OF THE ASSESSEE COMPANY FOR TAXAT ION IN THE ASSESSMENT YEAR 2012-13. THE LEARNED COUNSEL SUBMITTED THAT TH E MATTER MAY BE SET ASIDE TO THE FILE OF THE A.O. SO THAT THE ASSESSEE CAN PRODUCE ALL THE RELEVANT DOCUMENTS FOR VERIFICATION BEFORE THE AO AND THEN T HE MATTER MAY BE ADJUDICATED BY THE AO ON MERITS IN ACCORDANCE WITH LAW. FURTHER, THE LD. COUNSEL RELIED UPON THE ORDER OF THE LD. CIT(A). 17. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASS ESSEE HAS TWO MANUFACTURING PLANTS, ONE AT CHAKAN AND ANOTHER AT CHINCHWAD. IT IS THE CONTENTION OF THE ASSESSEE THAT THE CHAKAN PLANT WA S DEMERGED AND TAKEN OVER BY MFL . IT IS THE SAY OF THE ASSESSEE THAT TH E DIES LEFT WITH THE ASSESSEE WITH RESPECT TO CHAKAN PLANT CANNOT BE USED BECAUSE OF THE VARIOUS RESTRICTIONS ON THE ASSESSEE DUE TO THE NON-COMPETE AGREEMENT CLAUSES. IT IS THE SAY OF THE ASSESSEE THAT NOW THESE DIES CANNOT BE USED BY THE ASSESSEE AND ALSO HAVE BECAME OBSOLETE BECAUSE OF THE AGREEM ENT WITH MFL WHEREBY THE ASSESSEE AGREED NOT TO COMPETE WITH MFL IN PERS UANT TO DEMERGER OF CHAKAN PLANT IN FAVOUR OF MFL AND NON COMPETE-AGREE MENT WITH MFL. AS PER THE ASSESSEE THESE DIES WERE SOLD IN THE ASSESSMENT YEAR 2012-13 FOR A COST OF RS. 99.93 LACS WHICH HAS BEEN OFFERED FOR TAXATION. ALL THIS ABOVE CONTENTIONS OF THE ASSESSEE NEEDS VERIFICATION AND EXAMINATION BOTH ON FACTS AND ON LEGAL GROUNDS ABOUT THE VALIDITY AND LEGALITY OF THE ALLO WABILITY OF THE CLAIM OF THE ASSESSEE WITH RESPECT TO WRITE OFF OF OLD AND OBSOL ETE DIES TO THE TUNE OF RS.1,99,00,801/- AND IN OUR CONSIDERED VIEW, THE MA TTER/ISSUE NEEDS TO BE SET ASIDE AND RESTORED TO THE FILE OF THE A.O. FOR NECESSARY VERIFICATION AND EXAMINATION , AND DE-NOVO DETERMINATION OF THE ISSU E BY THE AO ON MERITS IN ACCORDANCE WITH LAW . THE AO SHALL DECIDE THE ISSUE ON MERITS IN ACCORDANCE ITA 4124 /MUM/2014 15 WITH LAW UNINFLUENCED BY ANY OF OUR OBSERVATIONS IN THIS ORDER AND SHALL BE ENTITLED TO MAKE ALL NECESSARY AND RELEVANT ENQUIRI ES, VERIFICATIONS AND EXAMINATIONS ETC. AS MAY DEEM FIT TO ADJUDICATE THE ABOVE ISSUE. THE ASSESSEE SHALL BE ALLOWED BY THE AO TO PRODUCE ALL NECESSARY AND RELEVANT EVIDENCES AND EXPLANATIONS BEFORE THE AO WHICH SHAL L BE ADMITTED BY THE AO AND THE MATTER BE ADJUDICATED BY THE AO ACCORDINGLY ON MERITS IN ACCORDANCE WITH LAW. NEEDLESS TO SAY THAT PROPER AND SUFFICI ENT OPPORTUNITY OF BEING HEARD BE PROVIDED TO THE ASSESSEE BY THE AO IN ACCO RDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LAW. WE ORDER AC CORDINGLY. 18. THE NEXT GROUND I.E. GROUND NO. 3 RAISED BY REV ENUE IS WITH RESPECT TO THE DELETION BY THE LEARNED CIT(A) OF DISALLOWANCE OF DEBIT BALANCE OF CREDITORS WRITTEN OFF TO THE TUNE OF RS. 69,55,477/- MADE BY AO WITHOUT APPRECIATING THAT THE ASSESSEE FAILED TO PROVE THAT THE ADVANCES WERE GIVEN FOR THE PURPOSE OF BUSINESS AND EFFORTS WERE MADE FOR COLLECTION OF THE AMOUNTS ADVANCED TO THE SUNDRY CREDITORS. THE LAST EFFECTIVE GROUND I. E. GROUND NO. 4 RAISED BY THE REVENUE IS WITH RESPECT TO THE DELETION BY THE LEAR NED CIT(A) OF ADDITION OF SUNDRY BALANCES WRITTEN OFF OF RS.1,10,00,000/- MAD E BY THE AO WITHOUT APPRECIATING THE FACT THAT ASSESSEE HAS NOT BEEN AB LE TO EXPLAIN THE NATURE OF SUCH RECEIVABLE AMOUNT AND THE SAME SHALL BE TREATE D AS THE AMOUNT PAID BY THE ASSESSEE FOR INTERNAL SETTLEMENT IN RESPECT OF VALUATION OF VARIOUS BALANCE SHEET ITEMS IN THE SCHEME OF DEMERGER.BOTH THE GROU NDS ARE TAKEN TOGETHER. 19. THE A.O. OBSERVED THAT THE ASSESSEE COMPANY HAS WRITTEN OFF DEBIT BALANCES OF RS.69,55,477/-. THE ASSESSEE WAS ASKED TO SUBSTANTIATE THE ALLOWABILITY OF SUCH WRITE OFF WITH NECESSARY EVIDE NCES. IN REPLY, THE ASSESSEE SUBMITTED THAT THESE ARE ADVANCES PAID IN EARLIER Y EARS AND THERE WERE NO ITA 4124 /MUM/2014 16 CHANCES OF ANY RECOVERY AND ACCORDINGLY THE SAME HA VE BEEN WRITTEN OFF BUT, HOWEVER, THE ASSESSEE FAILED TO GIVE THE PARTY-WISE DETAILS OF ADVANCES MADE AND ALSO FAILED TO PROVE THAT THE ADVANCES GIVEN WE RE FOR THE PURPOSE OF BUSINESS. THE ASSESSEE ALSO DID NOT SUBMITTED ANY EVIDENCE REGARDING THE EFFORTS MADE FOR THE RECOVERY OF THESE ADVANCES BEF ORE THE AO AND HENCE CLAIM OF THE ASSESSEE WAS REJECTED BY THE AO VIDE ASSESSM ENT ORDER DATED 30-12- 2009 PASSED BY THE AO U/S 143(3) OF THE ACT. SIMILARLY, THE ASSESSEE HAS WRITTEN OFF THE SUNDRY BALANCES OF RS 110 LAKHS WHICH HAD ARISEN AT THE TIME OF DEMERGER OF CHAKAN PLANT AND WAS TO BE RECEIVED FROM MFL. THE ASSESSEE WAS ASKED TO SUBSTA NTIATE THE ALLOWABILITY OF SUCH DEDUCTION BY PRODUCING NECESSARY EVIDENCES IN ITS SUPPORT. IN REPLY, THE ASSESSEE SUBMITTED THAT THESE ARE OLD DEBIT BALANCE S OF ITS CLOSED UNITS WHICH ARE NOT RECOVERABLE AND HENCE WRITTEN OFF. AS REGAR DS INTERNAL CLAIM SETTLEMENT WITH MFL , THE SAME HAS BEEN REDUCED BY MFL FROM THE PAYMENTS MADE BY THEM TO THE ASSESSEE. IT WAS SUBMITTED THAT THE CLAIM IS PERTAINING TO THE DIFFERENCE BETWEEN POINTS TAKEN IN DUE DILIG ENCE BY MFL VIS-A-VIS REPRESENTATIONS MADE BY THE ASSESSEE. THE CLAIM IS SETTLED ON 13 TH OCTOBER 2006 AND HENCE THE CLAIM HAS BEEN MADE IN THIS YEAR . THE ABOVE CLAIM OF ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO. THE A. O. OBSERVED THAT SUCH AMOUNTS WERE TO BE RECEIVED BY THE ASSESSEE AS PER THE SCHEME OF DEMERGER FROM MFL. THE ASSESSEE HAS NOT BEEN ABLE TO EXPLAIN THE NATURE OF SUCH RECEIVABLE AMOUNT. HENCE, IT WAS OBSERVED BY THE AO THAT THE ABOVE CLAIMS OF ASSESSEE CANNOT BE CONSIDERED AND ACCORDINGLY WAS R EJECTED BY THE AO VIDE ASSESSMENT ORDER DATED 30-12-2009 PASSED BY THE AO U/S 143(3) OF THE ACT. ITA 4124 /MUM/2014 17 20..AGGRIEVED BY THE ASSESSMENT ORDER DATED 30-12-2 009 PASSED BY THE A.O. U/S 143(3) OF THE ACT, THE ASSESSEE FILED FIRST APP EAL BEFORE THE LD. CIT(A). 21. BEFORE THE LD. CIT(A) THE ASSESSEE REITERATED T HE SUBMISSIONS WHAT WERE MADE BEFORE THE A.O. AND SUBMITTED THAT DURING THE YEAR THE ASSESSEE HAS WRITTEN OFF RS. 69.56 LACS AS DEBIT BALANCES W.R.T. ADVANCES MADE IN EARLIER YEARS BY THE ASSESSEE. THESE WERE INCLUDED IN THE L IST OF CREDITORS AS THERE MAY HAVE BEEN EARLIER TRANSACTIONS WITH THE SAME PA RTIES WHEN THE ASSESSEE OWED THEM AND LATER GAVE PAYMENTS TO THEM. THIS AMO UNT HAS BEEN NETTED OFF AGAINST CREDIT BALANCE WRITTEN BACK OF RS.22.22 LAC S. THE AMOUNT OF RS.43.05 LACS IS PERTAINING TO ONE OF ASSESSEES CLOSED PLAN T I. E., FARIDABAD. THESE AMOUNTS ARE WRITTEN OFF AS THERE MAY BE NO CORRESPO NDING INVOICES RECEIVED AFTER THE ADVANCE PAID BY THE ASSESSEE. THE ASSESS EE ALSO FILED STATEMENT GIVING PARTY-WISE DETAILS OF DEBIT BALANCES IN CRED ITORS ACCOUNTS WHICH AMOUNTS ARE WRITTEN OFF IN THE YEAR ENDED 31 ST MARCH, 2007. IT WAS SUBMITTED THAT THESE DEBIT BALANCES IN THE CREDITORS ACCOUNT WERE CARRIED FORWARD PRIOR TO THE ACCOUNTING YEAR ENDING ON 31 ST MARCH, 2003 AND ARE REFLECTED IN THE TRIAL BALANCE OF THE ASSESSEE FOR ALL THE EARLIER Y EARS. THE COPIES OF TRIAL BALANCES REFLECTING THE DEBIT BALANCES IN THE CREDI TORS ACCOUNT WHICH ARE WRITTEN OFF IN THE YEAR UNDER CONSIDERATION WHICH W ERE REFLECTED IN THE ASSESSMENT YEARS 2002-03 TO 2006-07 WERE SUBMITTED. SIMILARLY IT WAS SUBMITTED THAT THESE ADVANCES WERE GIVEN AS ADVANCE FOR SUPPLY OF GOODS OR SERVICES IN THE COURSE OF BUSINESS BUT THE SAID AMO UNT WAS NOT CLAIMED AS BUSINESS EXPENDITURE IN THE RESPECTIVE YEARS AS THE GOODS WERE NOT SUPPLIED OR PARTLY SUPPLIED OR THE SERVICES WERE NOT FULLY R ENDERED AND THEREFORE, THESE AMOUNTS WERE SHOWN AS DEBIT BALANCES IN THE CREDITO RS' ACCOUNTS IN THE BOOKS OF THE ASSESSEE COMPANY IN THE EARLIER YEARS. IN TH E YEAR UNDER CONSIDERATION ITA 4124 /MUM/2014 18 THE ASSESSEE COMPANY FINALLY DECIDED THAT THESE AMO UNTS ARE NOT RECOVERABLE FROM THESE PARTIES AND THEREFORE, THESE DEBIT BALAN CES IN CREDITORS' ACCOUNTS WERE WRITTEN OFF. IT WAS SUBMITTED THAT THE SHAREHO LDERS HAVE VIDE THEIR RESOLUTION ADOPTED THE ACCOUNTS AND COPY OF THE RES OLUTION WAS SUBMITTED AND CLAIMED THAT THE AMOUNT BE ALLOWED AS DEDUCTION WHILE COMPUTING INCOME OF THE ASSESSEE. REMAND REPORT WAS CALLED FOR BY LEARNED CIT(A) WHER EIN THE AO JUSTIFIED THE DISALLOWANCE OF RS. 69,55,477/- BEING DEBIT BALANCE OF CREDITORS AS THE ASSESSEE DID NOT GAVE PARTY WISE DETAILS OF ADVANCE S GIVEN TO CREDITORS. THE ASSESSEE ALSO FAILED TO PROVE THAT THESE ADVANCES W ERE GIVEN FOR THE PURPOSES OF BUSINESS. THE ASSESSEE ALSO DID NOT SUBMITTED PR OOF OF EFFORTS MADE FOR RECOVERY OF THESE AMOUNTS. IT WAS ALSO OBSERVED BY THE AO IN REMAND REPORT THAT THE ASSESSEE DID NOT FURNISHED ANY EVIDENCE TH AT THE SAID AMOUNTS WERE OFFERED FOR TAXATION BY THE ASSESSEE IN THE EARLIER YEARS. THE LEARNED CIT(A) OBSERVED THAT THE ASSESSEE HAS P ROVIDED PARTY WISE DETAILS OF ADVANCES. THESE DEBIT BALANCES WERE CARRIED FORW ARD PRIOR TO THE ACCOUNTING PERIOD ENDING 31-03-2003. IT WAS OBSERVE D BY LEARNED CIT(A) THAT THESE DEBIT BALANCES IN THE CREDITORS ACCOUNT WERE REFLECTED IN TRIAL BALANCE OF THE ASSESSEE FOR EARLIER YEARS. IT WAS OBSERVED BY LEARNED CIT(A) THAT THESE AMOUNTS WERE PAID AS ADVANCE TO VARIOUS PARTIES FOR SUPPLY OF GOODS OR SERVICES IN THE COURSE OF BUSINESS BUT THE SAID AMO UNT WAS NOT CLAIMED AS EXPENDITURE IN THE RESPECTIVE YEARS AS THE GOODS OR SERVICES WERE NOT SUPPLIED OR PARTLY SUPPLIED AND HENCE REFLECTED AS DEBIT BAL ANCE IN CREDITORS ACCOUNT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE LEARNED CIT(A) REFERRED TO PAGES IN PAPER BOOK FILED WITH HIM TO HOLD THAT THE DETAILS WORKED OUT TO TOTAL OF RS. ITA 4124 /MUM/2014 19 69.56 LACS WHICH WAS WRITTEN OFF BY THE ASSESSEE AN D WERE OLD BALANCES. IT WAS HELD THAT THE ASSESSEE WROTE OFF THE SAID BALAN CES AND THERE IS NO NEED TO SHOW THAT THE SUFFICIENT EFFORTS WERE MADE BY THE ASSESSEE FOR RECOVERY OF THESE ADVANCES BEFORE WRITING OFF THE SAID AMOUNT I N BOOKS OF ACCOUNTS AND HENCE THE CLAIM OF THE ASSESSEE WAS ALLOWED BY LEAR NED CIT(A) VIDE APPELLATE ORDER DATED 20-03-2014 PASSED BY LEARNED CIT(A). 22. WITH RESPECT TO THE DISALLOWANCE OF SUNDRY BALA NCES WRITTEN OF RS. 110 LACS, IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE L EARNED CIT(A) THAT THE A.O. DISALLOWED THE AMOUNT ON THE GROUND THAT THE ASSESS EE COMPANY COULD NOT EXPLAIN THE NATURE OF SUCH RECEIVABLE AMOUNTS. THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD THREE PLANTS; PLANT AT FARIDABAD, PLANT AT CHINCHWAD, MAHARASHTRA AND PLANT AT CHAKAN, MAHARASHTRA. IN TH E YEAR 2005, THE ASSESSEE COMPANY DEMERGED ITS CHAKAN PLANT WITH MFL TO SELL THE SAME TO MAHINDRA AUTOMOTIVE STEELS PRIVATE LIMITED(NOW KNOW N AS MFL) . TO THIS EFFECT, APPLICATION WAS FILED BY THE ASSESSEE WITH THE HONBLE BOMBAY HIGH COURT ALONG WITH THE SCHEME OF DEMERGER FOR THE CHA KAN PLANT WITH EFFECT FROM 1ST APRIL, 2005 , WHICH SCHEME OF DEMERGER WAS APPROVED BY THE HONBLE BOMBAY HIGH COURT ON 27 TH MARCH, 2006. DURING THE COURSE OF THE BUSINESS, THE ASSESSEE COMPANY HAD ADVANCED VARIOUS AMOUNTS F ROM TIME TO TIME TO ITS CHAKAN PLANT AND ACCORDINGLY IN THE BOOKS OF THE CH AKAN PLANT FOR THE YEAR ENDED 31 ST MARCH, 2006, THE AMOUNTS WERE OUTSTANDING DUE AND PAYABLE TO THE ASSESSEE. SIMILARLY, IN THE BOOKS OF THE ASSESS EE THERE WAS LEDGER ACCOUNT KNOWN AS CHAKAN UNIT, FOR THE YEAR ENDED 31 ST MARCH, 2006. AS PER THE AFORESAID LEDGER ACCOUNT THE ASSESSEE COMPANY HAD T O RECEIVE A SUM OF RS. 3,91,46,732/- AS ON 31 ST MARCH, 2006 FROM THE CHAKAN PLANT. AS ALL THE ASSETS AND LIABILITIES OF THE CHAKAN UNIT WERE DEME RGED AND TRANSFERRED TO ITA 4124 /MUM/2014 20 MFL THE ASSESSEE COMPANY HAD TO RECEIVE THE AFORESA ID AMOUNT OF RS. 3.91 CRORES FROM MFL AS THE CHAKAN PLANT WAS TAKEN OVER BY IT. AS PER DEMERGER, THE CHAKAN PLANT HAD SUNDRY DEBTORS AS ON 31 ST MARCH, 2005 WHICH WERE CONSIDERED TO BE GOOD OF RS.17.69 CRORES. ON DUE DI LIGENCE MADE BY MFL., IT WAS FOUND THAT CERTAIN DEBTORS OF CHAKAN PLANT WERE NOT GOOD AND HENCE MFL HAD REFUSED TO TAKE THE SAID DEBTORS AS PART OF THE CHAKAN PLANT. SIMILARLY AS PER THE SCHEME OF DEMERGER THE INVENTORY OF RAW-MAT ERIALS AND COMPONENTS, WORK-IN-PROGRESS, FINISHED GOODS, STORES AND SPARES AND DIES WHICH WERE AGGREGATING TO RS.42.65 CRORES WERE NOT FOUND TO BE CORRECT BY MFL AND HENCE MFL REDUCED THE VALUE OF THE INVENTORY BY RS. 1.78 CRORES. THESE FACTS WERE STATED BY MFL IN ITS LETTER DATED 13-10-2006 WHICH WAS SUBMITTED BEFORE THE LEARNED CIT(A). THUS, AFTER NEGOTIATIONS BETWEEN T HE ASSESSEE COMPANY AND MFL , IT WAS DECIDED THAT MFL WILL DEDUCT A SUM OF RS. 110 LACS FROM THE AMOUNT PAYABLE BY THE CHAKAN PLANT TO THE ASSESSEE COMPANY ON ACCOUNT OF BAD DEBTS AS WELL AS THE REDUCTION IN THE VALUE OF THE INVENTORIES OF THE CHAKAN PLANT TAKEN OVER BY MFL. WHILE EVALUATING TH ESE SUNDRY DEBTORS AND THE INVENTORIES IT WAS AGREED BY THE ASSESSEE COMPA NY THAT THOSE SUNDRY DEBTORS AS WELL AS THE INVENTORIES ARE BAD AND NOT RECOVERABLE TO THE EXTENT OF RS. 110 LACS AND HENCE THE ASSESSEE COMPANY HAD WRI TTEN OFF THOSE SUNDRY DEBTORS AS WELL AS THE INVENTORIES IN ITS BOOKS OF ACCOUNT IN THE YEAR UNDER CONSIDERATION AND THEREAFTER THE BALANCE SUNDRY DEB TORS AS WELL AS THE INVENTORIES WERE TRANSFERRED IN THE SCHEME OF DEMER GER TO MFL. THE ASSESSEE ACCORDINGLY PRAYED THAT THE SAID WRITE OFF AMOUNT O F RS. 110 LACS BEING THE SUNDRY DEBTORS AND INVENTORIES BY THE ASSESSEE SHOU LD BE ALLOWED AS DEDUCTION WHILE COMPUTING THE INCOME OF THE ASSESSE E COMPANY. ITA 4124 /MUM/2014 21 THE LEARNED CIT(A) CALLED FOR REMAND REPORT FROM TH E AO WHEREBY IT WAS OBSERVED BY THE AO THAT THIS AMOUNT OF RS.110 LACS REPRESENTS INTERNAL CLAIM ADJUSTMENT AS THE VALUATION OF MFL DIFFERS FROM THA T OF VALUATION OF SUNDRY DEBTORS AND ADVANCES AND THE SAID AMOUNT CANNOT BE CLAIMED AS SUNDRY BALANCE WRITTEN OFF WHEREAS THE SAME HAS BEEN PAID BY THE ASSESSEE FOR INTERNAL SETTLEMENT IN RESPECT OF VALUATION OF VARI OUS BALANCE SHEET ITEMS IN THE SCHEME OF DEMERGER AND HENCE IT WAS REQUESTED B Y THE AO TO CONFIRM THE ADDITION AS MADE IN ASSESSMENT ORDER. THE LEARNED CIT(A) DELETED THE DISALLOWANCE BY HOLD ING THAT THE SUNDRY DEBTORS AND INVENTORIES WERE APPEARING IN BOOKS OF CHAKAN PLANT WHICH WAS DEMERGED BY THE ASSESSEE AND SOLD TO MFL . THE MFL HAS FOUND THAT INVENTORIES AND BOOK DEBTS ARE NOT GOOD TO THE TUNE OF RS.1.78 CRORES WHICH WAS STATED BY MFL IN ITS LETTER DATED 13-10-2006 AN D ULTIMATELY THE AMOUNT WAS SETTLED FOR RS.1.10 CRORES AND THE BALANCE DEBT ORS AND INVENTORIES WERE TAKEN OVER BY MFL AND THIS AMOUNT OF RS.110 LACS WA S WRITTEN OFF BY THE ASSESSEE. THUS, THE LD. CIT(A) ACCEPTED THE CONTENT IONS OF THE ASSESSEE AND THE DISALLOWANCE OF RS. 110 LACS WAS DELETED BY LEA RNED CIT(A) VIDE APPELLATE ORDER DATED 20-03-2014. 23. AGGRIEVED BY THE APPELLATE ORDER DATED 20-03-20 14 PASSED BY THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNA L. 24. BEFORE THE TRIBUNAL, THE LD. D.R. SUBMITTED THA T THE DEBIT BALANCE TO THE SUNDRY CREDITORS TO THE TUNE OF RS. 69.56 LACS WERE WRITTEN OFF AND SIMILARLY SUNDRY DEBTORS AND INVENTORIES TO THE TUNE OF RS.11 0 LACS HAVE BEEN WRITTEN OFF. PROPER AND COMPLETE DETAILS WERE NOT SUBMITTE D BY THE ASSESSEE BEFORE ITA 4124 /MUM/2014 22 THE AO IN ASSESSMENT PROCEEDINGS NOR IN REMAND REPO RT PROCEEDINGS . THE LD. D.R. RELIED ON THE ORDER OF THE A.O. AND SUBMITTED THAT VERIFICATION AND EXAMINATION OF THE BOTH THE CLAIMS OF THE ASSESSEE IS REQUIRED IN THIS REGARD BY THE REVENUE AS TO THE LEGALITY AND VALIDITY OF T HE CLAIMS FILED OF THE ASSESSEE. 25. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT COMPLETE DETAILS WERE GIVEN VIDE PAPER BOOK PAGES 4 8,55 & 57. THE LD. COUNSEL ALSO INVITED OUR ATTENTION TO PAPER BOOK PA GE 136-37 AND 158 AND CONTENDED THAT ALL THE DETAILS WERE GIVEN TO JUSTIF Y THE BONAFIDE OF THE CLAIMS MADE BY THE ASSESSEE. THE LD. COUNSEL ALSO DREW OU R ATTENTION TO THE AGREEMENT ENTERED INTO WITH MFL,(EARLIER KNOWN AS M AHINDRA AUTOMOTIVE STEELS PRIVATE LIIMITED) WHICH IS PLACED AT PAPER B OOK PAGE NO. 158-180 AND CONTENDED THAT DEDUCTION SHOULD BE ALLOWED ON MERIT S.THE LEARNED COUNSEL RELIED ON ORDERS OF LEARNED CIT(A). 26. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PE RUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT THE ASSE SSEE HAS WRITTEN OFF OF SUNDRY ADVANCES TO THE TUNE OF RS. 69,55,477/- AND ALSO THERE WAS A CLAIM OF DEDUCTION BY MFL OF RS. 1.78 CRORES IN THE SCHEME O F DEMERGER OF CHAKAN PLANT WHEREBY THERE WAS A CLAIM OF DIMINUTION IN TH E VALUE OF DEBTORS AND INVENTORIES BY MFL FROM THE ASSESSEE , WHICH WAS SE TTLED FOR AT RS.1.10 CRORES BETWEEN MFL AND THE ASSESSEE WHEREBY MFL WILL DEDUC T THESE AMOUNTS FROM THE CONSIDERATION PAYABLE TO THE ASSESSEE AND THE A SSESSEE WROTE OFF THE SAID AMOUNT IN ITS BOOKS OF ACCOUNTS. THE ASSESSEE SUBM ITTED THAT ALL THE DETAILS WERE GIVEN BEFORE THE REVENUE WHILE REVENUE IS DISP UTING THE SAME AS COMPLETE DETAILS WERE NOT GIVEN NOR JUSTIFICATION F OR CLAIMING AS BUSINESS LOSS ITA 4124 /MUM/2014 23 OR BUSINESS EXPENDITURE AS PER PROVISIONS AND SCHEM E OF THE ACT WAS NOT GIVEN BY THE ASSESSEE WITH RESPECT TO ADVANCES OF R S. 69.55 LACS WRITTEN OFF AND ALSO WITH RESPECT TO THE OTHER CLAIM OF RS.110 LACS . IN OUR CONSIDERED VIEW, THE DETAILS SUBMITTED BY THE ASSESSEE REQUIRE S VERIFICATION AND EXAMINATION OF BOTH THE CLAIMS BY THE AO ON MERITS IN ACCORDANCE WITH LAW . WE, ACCORDINGLY, IN THE INTEREST OF JUSTICE BASED O N FACTS AND CIRCUMSTANCES OF THE CASE ARE INCLINED TO SET ASIDE AND RESTORE BOTH THE MATTERS/ISSUES BACK TO THE FILE OF THE A.O. FOR DE-NOVO DETERMINATION OF T HE ISSUES ON MERITS IN ACCORDANCE WITH LAW BY THE AO. THE RELEVANT AND NE CESSARY EXPLANATIONS AND THE EVIDENCES SUBMITTED BY THE ASSESSEE BEFORE THE AO BE ADMITTED BY THE A.O. BEFORE DE-NOVO ADJUDICATION OF THE BOTH THE MA TERS/ISSUES ON MERITS IN ACCORDANCE WITH LAW AND THE ASSESSEE SHOULD BE GIVE N PROPER AND SUFFICIENT OPPORTUNITY OF BEING HEARD IN ACCORDANCE WITH PRINC IPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LAW. WE ORDER ACCORDINGLY. 27. IN THE RESULT, APPEAL FILED BY THE REVENUE IN I TA NO. 4124/MUM/2014 FOR THE ASSESSMENT YEAR 2007-08 IS PARTLY ALLOWED A S INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH SEPTEMBER, 2016. # $% &' 26-09-2016 ( ) SD/- SD/- (MAHAVIR SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 26-09-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS ITA 4124 /MUM/2014 24 !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI A BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI