The ACIT, Circle-4, Ahmedabad V. Infinium Motors Pvt.Ltd., Ahmedabad

ITA 4485/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0355 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 10-08-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 20-12-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BHUVNESH KUISHR ESTHA
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABA D (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HON'BLE S HRI A.N. PAHUJA , A.M.) I.T.A. NO. 4485/AHD./2007 ASSESSMENT YEAR : 2003-2004 & I.T.A. NO. 10/AHD/2008 ASSESSMENT YEAR : 2004-2005 ASSISTANT COMMISSIONER OF INCOME TAX, -VS.- INFINIUM MOTORS PVT. LTD., CIRCLE-4, AHMEDABAD AHMEDABAD (PAN : AACCI 8684 B) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI BHUVNESH KUISHR ESTHA, D.R. RESPONDENT BY : SHRI SAKAR SHARMA O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THESE TWO APPEALS FILED BY THE REVENUE ARE AGAINST TWO SEPARATE ORDERS BOTH DATED 29.10.2007 OF LEARNED COMMISSIONER OF INCOME TAX(AP PEALS)-VIII, AHMEDABAD FOR THE ASSESSMENT YEAR 2003-04 AND 2004-05. THE ISSUES INV OLVED IN BOTH THESE APPEALS ARE COMMON, HEARD ON THE SAME DATE, ARGUED BY COMMON LD. REPRES ENTATIVE, THEREFORE, THESE ARE DECIDED BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2.1. VARIOUS GROUNDS RAISED BY THE REVENUE IN ITS A PPEAL FOR THE ASSESSMENT YEAR 2003-04 ARE AS UNDER :- (1) THE LD. CIT(A.) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF BAD DEBTS OF RS.1,96,536/-. (2) THE LD. CIT(A.) ERRED IN LAW AND ON THE FACTS O F THE CASE IN DELETING THE DISALLOWANCE OF RS.33,52,301/- OUT OF THE INTER EST EXPENSES CLAIMED BY THE ASSESSEE ON ACCOUNT OF DIVERSION OF INTEREST BEARING FUNDS FOR NON-BUSINESS PURPOSES. (3) THE LD. CIT(A.) ERRED IN LAW AND ON THE FACTS O F THE CASE IN DELETING THE DISALLOWANCE OF RS.26,481/- BEING INSURANCE PRE MIUM RELATED TO THE DIRECTORS OF THE COMPANY. (4) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A.) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 2 ITA NO. 4485-AHD-2007 & 10/AHD/2008 2.2. VARIOUS GROUNDS RAISED BY THE REVENUE IN ITS A PPEAL FOR THE ASSESSMENT YEAR 2004-05 ARE AS UNDER :- (1) THE LD. CIT(A.) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.10,64,272/- OUT OF THE INTER EST EXPENSES CLAIMED BY THE ASSESSEE ON ACCOUNT OF DIVERSION OF INTEREST BEARING FUNDS FOR NON-BUSINESS PURPOSES. (2) THE LD. CIT(A.) ERRED IN LAW AND ON THE FACTS O F THE CASE IN DELETING THE DISALLOWANCE OF RS.6,071/- BEING INSURANCE PREM IUM RELATED TO THE DIRECTORS OF THE COMPANY. (3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A.) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THE AFORESAID GROUND NO. 1 FOR THE ASSESSMENT YEAR 2003-04 ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF DEALERSHIP OF TOYATA KIRLOSKAR MOTOR LIMITED. IN THE ASSESSMENT ORDER, T HE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE-COMPANY HAS WRITTEN OFF DEBIT BALANCES AMO UNTING TO RS.1,96,536/-. THESE WERE DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND T HAT THE ASSESSEE HAS NOT MADE ANY CONCRETE EFFORTS TO RECOVER THE DEBITS AND IT IS LIKELY THAT THE DEBTORS MAY PAY THE AMOUNT IN THE SUBSEQUENT YEARS. FOR MAKING THIS DISALLOWANCE, THE ASSESSING OFFICER RELIED ON THE JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF AHMEDABAD ELECTRI CITY CO. VS.- CIT REPORTED IN 262 ITR 97 (GUJ.) 3.1. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF I NCOME TAX(APPEALS), THE ASSESSEE SUBMITTED THAT THE CORRESPONDING TRANSACTIONS ARE R ELATED TO THE ACTIVITY CARRIED ON BY THE ASSESSEE IN THE COURSE OF ITS NORMAL BUSINESS OF DEALING IN MOTOR CARS, SPARE PARTS AND SERVICING ETC. AND WHEN THESE AMOUNTS HAVE BECOME UNREALIZABLE ON THE BASIS OF CONDUCT OF THE CUSTOMERS, THE SAME HAVE BEEN WRITTEN OFF IN THE BOOKS AND CLAIMED AS BAD DEBTS/ BUSINESS LOSS. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), IT WAS ALSO SUBMITTED THAT THE DECISION CITED BY THE ASSESSING OFFICER OF THE HON'BLE GUJARAT HIGH C OURT IN THE CASE OF AHMEDABAD ELECTRICITY CO. (SUPRA) SUPPORTS THE VIEW OF THE ASSESSEE AND T HE SAID DECISION PERTAINED TO THE ASSESSMENT YEAR 1983-84 WHEN THE LANGUAGE OF SECTION 36(1)(VII ) READ WITH SECTION 36(2) WAS DIFFERENT AND THAT AFTER 1.4.1989, THE PROVISIONS OF SECTION 36(1 )(VII) HAVE UNDERGONE SUBSTANTIAL CHANGES. AS PER THE AMENDED LAW, THE ASSESSEE WAS NOT REQUIRED TO PROVE THAT THE DEBT HAS BECOME BAD. IN 3 ITA NO. 4485-AHD-2007 & 10/AHD/2008 SUPPORT OF THIS, RELIANCE WAS PLACED ON THE DECISIO N OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS.- GIRISH BHAGWAT PRASAD REPORTED IN 256 ITR 772 (GUJ.). 3.2. AFTER CONSIDERING THESE SUBMISSIONS, IN THE I MPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT THE TOTAL AMOU NT OF BAD DEBT CONSISTS AMOUNTS DUE FROM 22 PARTIES AND THE AMOUNTS ARE RANGING FROM RS.140/ - TO RS.26,441/- AND WERE OUTSTANDING FOR A LONG PERIOD AND MOSTLY THE AMOUNTS ARE LIKE KASAR A CCOUNTS AND THE ASSESSEE HAS NO CHANCE OF RECOVERY. AGGRIEVED BY THIS, THE REVENUE IS IN APPE ALS BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING, ON BEHALF OF REVENUE SHR I BHUVNESH KUISHRESTHA, LD. D.R. APPEARED AND BY RELYING ON THE REASONING GIVEN BY T HE ASSESSING OFFICER CONTENDED THAT THE DISALLOWANCE WAS RIGHTLY MADE. AS AGAINST THIS, SHR I SAKAR SHARMA, LD. COUNSEL OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX(APPEALS). THE LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT BAD DEBTS IN QUESTION ARE ALLOWABLE AND ASSESSEE ONLY TO ESTABLISH THAT DEBT WAS WRITTEN OFF AND NOT NECESSARY TO ESTABLISH THAT DEBT IN FACT HAD BECOME IRRECOVERABLE AS PER THE LATEST JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF T.R.F. LTD. VS.- COMMISSIONER OF INCOME TAX REPORT ED IN [2010] 323 ITR 397 (SC). THE BAD DEBTS IN QUESTION WERE RETAINED IN THE BOOKS OF ACC OUNTS, THEREFORE, THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BE UPHE LD. 5. AFTER HEARING BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FOUND CONSIDERABLE FORCE IN THE SUBMISSIO NS MADE BY THE LD. COUNSEL OF THE ASSESSEE. THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOM E TAX(APPEALS) IS SUPPORTED BY THE LATEST JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F T.R.F. LTD. (SUPRA). WE, THEREFORE, DECLINE TO INTERFERE. RESULTANTLY, GROUND NO. 1 FOR THE ASS ESSMENT YEAR 2003-04 IS REJECTED. 6. GROUND NO. 2 FOR THE ASSESSMENT YEAR 2003-04 AND GROUND NO. 1 FOR THE ASSESSMENT YEAR 2004-05 IN BOTH THE REVENUES APPEALS ARE AGAINST D ELETING THE DISALLOWANCE OF RS.33,52,301/- AND RS.10,64,272/- OUT OF THE INTEREST EXPENSES CLA IMED BY THE ASSESSEE RESPECTIVELY ON ACCOUNT OF DIVERSION OF INTEREST BEARING FUNDS FOR NON-BUSI NESS PURPOSES. 4 ITA NO. 4485-AHD-2007 & 10/AHD/2008 7. IN RESPECT OF THESE DISALLOWANCES, AT THE OUTSET , SHRI SAKAR SHARMA, LD. COUNSEL ON BEHALF OF THE ASSESSEE POINTED OUT THAT IN THE ASSESSMENT YEAR 2001-02 ALSO, SIMILAR DISALLOWANCE WAS MADE AND IT WAS DELETED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-VIII, AHMEDABAD VIDE ORDER DATED 18.01.2005. IN BOTH THE ASSESSMENT YEARS UNDER APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT T HERE WAS SUFFICIENT INTEREST-BEARING FUNDS AND SINCE THE SIMILAR DISALLOWANCE IS DELETED IN TH E ASSESSMENT YEAR 2001-02, HE DELETED THE DISALLOWANCE. THE LD. COUNSEL OF THE ASSESSEE FURTH ER SUBMITTED THAT THE DEPARTMENT HAS ACCEPTED THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APP EALS) FOR THE ASSESSMENT YEAR 2001-02, THEREFORE, THE VIEW TAKEN BY THE LEARNED COMMISSION ER OF INCOME TAX(APPEALS) DELETING DISALLOWANCE OF INTEREST FOR BOTH THE ASSESSMENT YE ARS BE CONFIRMED. 8. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE COULD NOT CONTROVERT THE AFORESAID SUBMISSIONS MADE BY THE LD. COUNSEL OF THE ASSESSEE . 9. WE HAVE CAREFULLY GONE THROUGH THE REASONING GIV EN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AS WELL AS BY THE LEARNED COMMISSI ONER OF INCOME TAX(APPEALS) IN PARA 3.2 ON PAGE 5 FOR THE ASSESSMENT YEAR 2003-04 AND PARA 2.2 ON PAGE 3 FOR THE ASSESSMENT YEAR 2004- 05. BOTH THE REASONING ARE RE-PRODUCED HEREUNDER :- ASSESSMENT YEAR -2003-04 3.2. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS M ADE AND THE DECISIONS CITED BY THE LD. AUTHORIZED REPRESENTATIV E. APART FROM EQUITY CAPITAL AND RESERVES AND BOOKING FROM CUSTOMERS TOT ALING TO RS.3.93 CRORES, THE APPELLANT HAS GOT LOAN FROM DIRECTORS A ND THEIR RELATIVES TO THE TUNE OF RS.96.20 LAKHS ON WHICH THE APPELLANT HAS P AID INTEREST AT THE RATE OF 3.25%. FURTHER, THE TERM LOAN TAKEN FROM KOTAK M AHINDRA PRIMUS ON WHOLESALE FINANCE SCHEME HAS BEEN UTILIZED TO MEET THE WORKING CAPITAL REQUIREMENTS AND TO MAKE REPAYMENTS OF BORROWINGS F ROM GSFC. SO NO PART OF INTEREST TO KOTAK MAHINDRA PRIMUS LTD., CAN BE DISALLOWED. SIMIARLY NO PART OF INTEREST PAID ON CAR LOANS CAN BE DISALLOWED. FURTHER, AS SUBMITTED BY THE A.R., THE EFFECTIVE INCREASE IN INTEREST COST IS RS.6,11,730/- AND THE APPELLANT HAS GOT INTEREST IN INTEREST INCOME TO THE TUNE OF RS.7,11,445/-. CONSIDERING THE ABOVE FACTS AND ALSO THE FACT THAT SIMILAR DISALLOWANCE WAS DELETED BY CIT(A.)-VIII, A HMEDABAD IN AY 2001-02 AND CONSIDERING THE DECISION OF TORRENT FIN ANCIERS AND DECISION OF HON'BLE SC IN S./A. BUILDERS 288 ITR 1 AS ADVANC ES OF RS.1,00,50,100/- TO INFINIUM MOTORS (GUJ.) P. LTD. AND TO INFINIUM D RIVE P. LTD. OF RS.1,42,64,092/- HAVE BEEN GIVEN FOR BUSINESS CONSI DERATION, THE 5 ITA NO. 4485-AHD-2007 & 10/AHD/2008 DISALLOWANCE OF INTEREST IS HELD TO BE NOT JUSTIFIE D AND THE SAME IS DELETED. ASSESSMENT YEAR : 2004-05 2.2. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS M ADE AND THE DECISIONS CITED BY THE LD. AUTHORIZED REPRESENTATIV E. THE APPELLANT HAS INTEREST FREE FUNDS IN THE FORM OF EQUITY CAPITAL O F RS.1,42,00,000/- AND RESERVES AND SURPLUS OF RS.2,02,81,411/- AND ALSO B OOKING ADVANCE FROM CUSTOMERS. THE APPELLANT HAS EXPLAINED EACH AND EVE RY NEW INTEREST FREE ADVANCE AS HAVING BEEN MADE FOR BUSINESS CONSIDERAT ION EXCEPT ADVANCE OF RS.5 LAKHS TO SURESH M. LAKHYANI. CONSIDERING TH E ABOVE FACTS AND ALSO THE FACT THAT SIMILAR DISALLOWANCE WAS DELETED BY C IT(A.)-VIII, AHMEDABAD IN AY 2001-02 AND CONSIDERING THE DECISIO N OF TORRENT FINANCIERS AND DECISION OF HON'BLE SC IN S.A. BUILD ERS 288 ITR 1 AS ADVANCE OF RS.21,24,036/- TO INFINIUM MOTORS (GUJ.) P. LTD. AND OTHER ADVANCES AS DISCUSSED ABOVE HAVE BEEN MADE FOR BUSI NESS CONSIDERATION, THE DISALLOWANCE OF INTEREST IS HELD TO BE NOT JUST IFIED AND THE SAME IS DELETED. 9.1. FROM THE PERUSAL OF THE AFORESAID REASONING, I T IS CLEAR THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS FOLLOWED HIS DECISION FOR T HE ASSESSMENT YEAR 2001-02. THE FACTUAL FINDING RECORDED BY THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS) COULD NOT BE CONTROVERT BY THE LD. D.R. IN VIEW OF THIS, WE INCLINE TO UPHO LD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). RESULTANTLY, GROUND NO. 2 FOR THE ASSESSMENT YEAR 2003-04 AND GROUND NO. 1 FOR THE ASSESSMENT YEAR 2004-05 BOTH ARE REJE CTED. 10. THE LAST GROUND OF BOTH THE APPEALS IS AGAINST DELETING THE DISALLOWANCE OF RS.26,481/- AND RS.6,071/- BEING INSURANCE PREMIUM RELATED TO T HE DIRECTORS FOR THE ASSESSMENT YEAR 2003-04 AND 2004-05 RESPECTIVELY. 11. FOR BOTH THE ASSESSMENT YEARS, THE ASSESSING OF FICER DISALLOWED THE INSURANCE PREMIUM ON THE GROUND THAT THE SAME IS PERSONAL IN NATURE. ON APPEAL, IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE SAM E BY FOLLOWING THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF SAYAJI IRON & ENGINEERING CO. VS.- CIT REPORTED IN 253 ITR 749 (GUJ.). 12. AT THE TIME OF HEARING, WE SPECIFICALLY ASKED T HE LD. COUNSEL OF THE ASSESSEE TO PRODUCE THE APPOINTMENT LETTER OR BOARDS RESOLUTION, THROU GH WHICH THE COMPANY IS AUTHORIZED TO PAY 6 ITA NO. 4485-AHD-2007 & 10/AHD/2008 INSURANCE PREMIUM OF THE DIRECTORS. THE LD. COUNSEL OF THE ASSESSEE FAIRLY ADMITTED THAT IT IS NOT AVAILABLE. UNLESS THE PAYMENT IS AUTHORIZED AND THE ASSESSEE HAS DEDUCTED THE TAX AT SOURCE ON THIS PAYMENT, THIS CANNOT BE ALLOWED AS BUSINESS EX PENDITURE. THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON & ENGINEERING CO.(SUPRA) OB SERVED THAT IN OUR OPINION, AS THE DIRECTORS OF THE ASSESSEE ENTITLED TO USE THE VEHICLES OF ASS ESSEE-COMPANY FOR THEIR PERSONAL USE AS PER TERMS AND CONDITIONS ON WHICH THEY WERE APPOINTED. IT WAS NOT PROPER ON THE PART OF ASSESSING OFFICER TO DISALLOW 1/6 TH OF EXPENDITURE INCURRED BY ASSESSEE ON MAINTENANCE OF ITS VEHICLES. IN THE PRESENT CASE, SINCE THE ASSESSEE FAILED TO PROD UCE THE APPOINTMENT LETTER/ BOARD RESOLUTION THROUGH WHICH THE ASSESSEE-COMPANY HAS PAID THE INS URANCE PREMIUM OF THE DIRECTORS, WE ARE OF THE VIEW THAT THE DISALLOWANCE WAS RIGHTLY MADE BY THE ASSESSING OFFICER. IN THIS VIEW OF THE MATTER, THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS REVERSED AND DISALLOWANCE OF RS. 26,481/- AND RS.6,071/- MADE BY THE ASSESSING OFFICER BEING INSURANCE PREMIUM RELATED TO THE DIRECTORS FOR THE ASSESSMENT YEAR 2003-04 AND 2004-05 RESPECTIVELY IS RESTORED. RESULTANTLY, LAST GROUND OF BOTH THE APPE ALS IS ALLOWED. 13. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE ARE PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 10.08.20 10 SD/- SD/- (A.N. PAHUJA) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 10 / 08 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.