INDORE COMPOSITE P. LTD, MUMBAI V. DCIT CIR 4(2),

ITA 4295/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9069 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 17-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 26-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C TRIPURA SUNDARI
• Assessee Lawyers: PRAVIN KUMAR BAFNA
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A. NO.4295/M/2010 ASSESSMENT YEAR: 2006-2007 M/S. INDORE COMPOSITE PVT. LTD., 4 TH FLOOR, SETHNA HOUSE, 55 M.K. ROAD, MARINE LINES, MUMBAI 400 002. PAN: AAACI1091A VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 4(2), M.K. ROAD, MUMBAI 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRAVIN KUMAR BAFNA RESPONDENT BY : SMT. C. TRIPURASUNDARI, CIT-DR DATE OF HEARING: 17.12.2012 DATE OF ORDER: 21. 12.2012 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 26.5.2010 IS A GAINST THE ORDER OF CIT (A)- 8, MUMBAI DATED 26.3.2010 FOR THE ASSESSMENT YEAR 2 006-2007. 2. AT THE OUTSET, SHRI PRAVIN KUMAR BAFNA, LD COUNS EL FOR THE ASSESSEE INFORMED THE BENCH ABOUT THE DECISION OF THE ASSESSEE IN NON -PRESSING OF THE GROUND NO.3 IN THE GROUNDS OF APPEAL. AFTER SEEKING THE NO OBJEC TION IF ANY FROM LD DR, THE SAID GROUND NO.3 IS DISMISSED AS NOT PRESSED. THUS, GROU NDS NO. 1 & 2 WHICH ARE LEFT FOR ADJUDICATION AND THE SAME READ AS UNDER: 1. THAT THE CIT (A) HAS ERRED AT LAW AND FACTS IN T HE CIRCUMSTANCES IN CONFIRMING THE ASSESSING OFFICERS ORDER THAT PAYMENT OF RS. 36,659/- TOWARDS ADVERTISEMENT EXPENSES TO NON-RESIDENT IS NOT ALLOWABLE AS EXPENSES, BEING TAX IS NOT DEDUCTED U/S 195 ON THES E PAYMENTS. 2. THAT THE LD CIT (A) HAS ERRED AT LAW AND FACTS I N THE CIRCUMSTANCES IN CONFIRMING THE ASSESSING OFFICERS ORDER THAT BAD-DEBTS CLAIMED BY THE APPELLANT OF RS. 37,47,035/- IS NOT ALLOWABLE, BEING THE SAME HAS NOT BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT AND IS ONL Y A PROVISION. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE TH AT THE ASSESSEE IS ENGAGED IN THE MANUFACTURING OF FIBER REINFORCED PLASTIC RODS FILED RETURN OF INCOME DECLARING THE INCOME OF RS. 1.97 CR (ROUNDED OFF TO NEAREST L AKHS) AND ASSESSMENT WAS 2 COMPLETED U/S 143 OF THE ACT DETERMINING THE TAXABL E INCOME OF RS. 3,06,55,460/-. AO MADE A COUPLE OF ADDITIONS AND THEY ARE: (I) ADD ITION U/S 40(A)(IA) R.W.S. 195 OF THE ACT AMOUNTING TO RS. 36,659/-; AND (II) BAD DEB TS OF RS. 37,47,035/-. CIT(A) CONFIRMED THE SAME. AGGRIEVED WITH THE ORDER OF THE CIT(A), THE ASSESSEE FILED THE PRESENT APPEAL BEFORE US. GROUND-WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS OF THIS ORDER. 4. THE FACTS RELATING TO THE FIRST ISSUE OF ADDITIO N OF RS. 36,659/- U/S 40(A)(IA) R.W.S. 195 OF THE ACT ARE THAT THE ASSESSEE INCURRE D THE SAID AMOUNT ON ACCOUNT OF ADVERTISEMENT EXPENSES AND MADE PAYMENT TO A NON-R ESIDENT PAYEE. BOTH THE REVENUE AUTHORITIES CONCURRED IN INVOKING THE PROVI SIONS OF SECTION 195 OF THE ACT. 5. BEFORE US, LD COUNSEL ARGUED THAT THE SAID PAYME NTS WERE MADE TO WIRE & CABLE ASIA, A NON-RESIDENT ENTITY, WITHOUT MAKING T DS AND AS PER PARA 5 OF THE IMPUGNED ORDER, ASSESSEE SUBMITTED THAT THE PAYMENT S WERE MADE FOR ADVERTISEMENT IN MAGAZINES TO BE PUBLISHED OUTSIDE INDIA TO A PERSON OF NON- RESIDENT STATUS. AS PER THE COUNSEL, THE INCOME HAS NOT ACCRUED IN INDIA, THEREFORE, THE PROVISIONS OF SECTION 195 HAVE NO APPLICATION. CIT (A), ON FINDING THAT THE ASSESSEE FAILED TO PRODUCE SPECIFIED NO TDS CERTIFI CATE OR LESSER TDS CERTIFICATE AS PER THE PROVISIONS OF SECTION 195(3) OF THE ACT, CO NFIRMED THE DISALLOWANCE WITHOUT EXAMINING THE ISSUE THAT WHETHER THE INCOME CHARGEA BLE TO TAX IN INDIA ACCRUED OR OTHERWISE WHICH IS A CONDITION PRECEDENT FOR INVOKI NG THE PROVISIONS OF SECTION 195 OF THE ACT. AT THE OUTSET, BOTH THE PARTIES MENTIO NED THAT THE ORDER OF THE REVENUE DOES NOT CONTAIN ANY DISCUSSION ON THIS CORE AND IM PORTANT ASPECT OF THE PROVISIONS IE WHETHER THE INCOME CHARGEABLE TO TAX IN INDIA IS ACCRUED OR NOT. IN OUR OPINION, THIS ASPECT IS GREATLY ESSENTIAL FOR ADJUDICATING T HE ISSUE ON HAND. IT WAS MENTIONED IN THE COURT THAT THE ISSUE HAS TO BE SENT TO THE F ILES OF THE REVENUE FOR EXAMINING THE ISSUE AFRESH AND TO GIVE A FINDING ON THE CHARG EABILITY ON THE INCOME WHICH IS MANDATORY FOR INVOKING THE PROVISIONS OF SECTION 19 5 OF THE ACT. BOTH THE PARTIES ALSO INFORMED US OF THE BINDING JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE P. LTD. VS COMMISSIONER O F INCOME-TAX (SC) 327 ITR 456 IN THIS REGARD. IN THE SET ASIDE PROCEEDINGS, THE CIT (A) ALSO WILL EXAMINE THE 3 APPLICABILITY OF THE ASSESSEES ARGUMENT THAT THE P AYMENTS INVOLVED ARE MADE ON PRINCIPLE TO PRINCIPLE BASIS. CIT(A) SHALL ALSO CON SIDER THE CITED JUDGMENT AND ITS APPLICABILITY TO THE FACTS OF THE CASE. ACCORDING LY, GROUND NO.1 IS SET ASIDE . 6. GROUND 2 RELATES TO THE ISSUE OF BAD DEBTS AMOUNTING TO RS. 37,47,035/-. RELEVANT FACTS ON THIS ISSUE ARE THAT THE ASSESSEE CLAIMED BAD DEBTS OF RS. 37,47,035/- INVOLVING A COUPLE OF BAD DEBTORS NAMEL Y NEPTCO JV LLC AND OWENS CORNING JAPAN. IN THE BOOKS OF ACCOUNT AND AT SOME PLACES, ASSESSEE GAVE NARRATION OF DOUBTFUL DEBTS INSTEAD OF BAD DEBTS . REVENUE AUTHORITIES MISTOOK THESE DOUBTFUL DEBS AS THE PROVISIONS. OTHERWISE, AS PER THE BOOKS OF ACCOUNT, THE ASSESSEE DEBITED THE BAD DEBTS TO THE P & L ACCOUNT UNDER THE HEAD SELLING AND DISTRIBUTION CHARGES ( PAGE NO. 11, SCHEDULE NO-20 IS RELEVANT). SCHEDULE NO.20 AT PAGE 13 OF THE PAPER BOOK CONTAINS THE CLEAR DESCRI PTION OF THE BAD DEBTS. ASSESSEES COUNSEL ALSO TOOK US THROUGH THE CONTENT S OF THE VARIOUS PAGES OF THE PAPER BOOK AT PAGES 11, 13, 31, 37, 38 & 39 IN ORDE R TO DEMONSTRATE THAT THE DEBTS INVOLVED IS BAD DEBTS, NOT DOUBTFUL DEBTS AND ALSO NOT THE PROVISIONS AS MISTAKENLY HELD BY THE REVENUE. 7. DURING THE PROCEEDINGS BEFORE US, LD DR MENTIONE D THAT BY USE OF THE WORD DOUBTFUL DOUBTS, THE SAME MUST BE CONSTRUED AS P ROVISIONS FOR DOUBTFUL DEBTS. THERE WAS AN ARGUMENT AND COUNTER ARGUMENTS IN THE COURT MENTIONING THAT THE BALANCE SHEET DOES NOT REFLECT PROVISIONS ON ACCOUN T OF DOUBTFUL DEBTS, THEREFORE, THE DOUBTFUL DEBTS SHOULD BE READ AS BAD DEBTS CO NSIDERING THE NATURE OF ENTRIES POSTED IN THE BOOKS OF ACCOUNTS. LD COUNSEL FOR TH E ASSESSEE CATEGORICALLY MENTIONED THAT THESE AMOUNTS ARE NOT PROVISION FOR BAD DEBTS AS EVIDENT FROM THE P& L ACCOUNT, BALANCE SHEET AND THE SUNDRY DEBTORS LIST. HE ALSO DEMONSTRATED TO ESTABLISH THAT THE AMOUNT INVOLVES ONLY BAD DEBTS. 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE ORDE RS OF THE REVENUE AUTHORITIES AND CONSIDERED THE RELEVANT PAPERS OF T HE PAPER BOOK PLACED BEFORE US. IT IS EVIDENT FROM THE PAGE 11 OF THE PAPER BOOK THA T SCHEDULE NO.20 RELATES TO SELLING AND DISTRIBUTION CHARGES, WHERE THE BAD D EBTS OF RS. 37,47,035/- CONSTITUTE 4 BAD DEBTS. PAGES 27 & 28 OF THE PAPER BOOK REFLECT CONCERNED BILLS INVOLVING BAD DEBTS OF BOTH THE PARTIES. PAGE 36 DATED 6.2.2006 AND PAGE 37 DESCRIBES THE DISPUTE BETWEEN THE PARTIES RELATING TO THE QUALITY / DEFECTS IN THE MATERIAL LEADING TO THE CREATION OF DEBT. PAGE 38 SHOWS THE BOOK ENT RIES BY WHICH THE AMOUNTS ARE TRANSFERRED AS BAD DEBTS; OF COURSE, THERE IS SOME REFERENCES TO THE EXPRESSIONS DOUBTFUL DEBTS IN THE NARRATION GIVEN UNDER THE JOU RNAL ENTRIES. PAGE 39 REFERS TO THE RECOVERABLE AMOUNTS FROM NEPTCO JV LLC AFTER WR ITTEN OFF AMOUNT WAS REDUCED. IT IS A FACT THAT THESE PAPERS WERE AVAILABLE BEFORE THE REVENUE AUTHORITIES. IN THESE FACTUAL CIRCUMSTANCES, CONSIDERING THE ENTRIE S IN THE P & L ACCOUNT AND SCHEDULES CONCERNED, WE ARE OF THE OPINION THAT THE DEBT WRITTEN OFF IS NOT A PROVISION. CIT (A) HAS NOT CONSIDERED THE ABOVE EN TRIES IN THE BOOKS OF ACCOUNT AND HE SIMPLY CARRIED AWAY BY THE WORD DOUBTFUL DEBTS FOR COMING TO THE CONCLUSION THAT THESE ARE MERE PROVISIONS, WHICH ARE OF COURSE , NOT ALLOWABLE. THEREFORE, CONSIDERING THE FINAL ENTRIES IN THE BOOKS AS BAD D EBTS, WE ARE OF THE OPINION THAT THE ORDER OF CIT (A) NEEDS TO BE REVERSED. ACCORDI NGLY, GROUND NO.2 IS ALLOWED. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF DECEMBER, 2012. SD/- SD/- (I.P. BANSAL) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 21.12.2012 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR I, BENCH, ITAT, MUMBAI. 6. GUARD FILE. 5 // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI