ITO, New Delhi V. M/s. Siddhartha Trade Links (P) Ltd., New Delhi

ITA 4638/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4168 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 20-04-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 21-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHORE B
• Keywords: Bad and doubtful debts; Commercial expediency
• Section: 37

Judgement Text

ITA NOS. 4247 & 4638/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 4247/DEL/2010 A.Y. : 2007-08 SIDDHARTH TRADE LINKS PVT. LTD. WZ 462-A, 2 ND FLOOR, DASGHARA, TODAPUR, NEAR INDERPURI, NEW DELHI 110012 (PAN : AAICS6993H) VS. JCIT, RANGE - 8, NEW DELHI AND I.T.A. NO. 4638/DEL/2010 A.Y. 2007-08 INCOME TAX OFFICER, VS. SIDDHARTH TRADE LINKS PVT. LTD. WARD-8(3), WZ 462, 462A, 2 ND FLOOR, DASGHARA, ROOM NO. 196A, TODAPUR, NEAR INDERPURI, C.R. BUILDING, NEW DELHI NEW DELHI 110 012 (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. VED JAIN, CA & SMT. RANO JAIN, CA DEPARTMENT BY : SH. KISHORE B (D.R.) ORDER ORDER ORDER ORDER PER PER PER PER SHAMIM YAHYA SHAMIM YAHYA SHAMIM YAHYA SHAMIM YAHYA : : : : A AA AM MM M THESE CROSS APPEALS BY THE ASSESSEE AND REVENUE EM ANATE OUT OF ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 12.7.2010 AND PERTAINING TO ASSESSMENT YEAR 2007-08 . ITA NOS. 4247 & 4638/DEL/2010 2 REVENUES APPEAL REVENUES APPEAL REVENUES APPEAL REVENUES APPEAL 2. THE FIRST ISSUE RAISED IS THAT LD. COMMISSIONE R OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION OF ` 31,26 ,718/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CASH DISCOUNT MADE TO VARIOUS PARTIES. 3. THE ASSESSING OFFICER ON THIS ISSUE NOTED THAT ASSESSEE HAS DEBITED AN AMOUNT OF ` 3126718/- ON ACCOUNT OF CASH DISCOUNT. ASSESSEE WAS ASKED TO EXPLAIN THE SAME. ASSESSEE EXPLAINED THAT AS PER GENERAL TERMS THE CUSTOMERS USE TO PAY THE BILLS WITHIN 60 DAYS TO THE ASSESSEE COMPANY, BUT IN SOME CIRCUMSTANCES THE PARTIES PAID THE BILLS WITHIN THE SPECIFIED PERIOD AND AVAIL THE FACILITY OF CASH DISCOUNT AT THE RATES MENTIONED IN THE BILLS. ASSESS ING OFFICER WAS NOT SATISFIED. HE HELD THAT ONUS IS CAST ON THE ASSESS EE TO SUBSTANTIATE AND PROVE THAT FULL CREDIT FOR CASH DISCOUNT RECEIV ED HAS BEEN GIVEN BY THE ASSESSEE. HOWEVER, HE NOTED THAT SUCH ONUS H AS NOT BEEN DISCHARGED BY THE ASSESSEE. ACCORDINGLY, HE DISAL LOWED CASH DISCOUNT AMOUNTING TO ` 3126718/-. 4. ASSESSEE SUBMITTED BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AS UNDER:- THE APPELLANT GIVES CASH DISCOUNT TO THE CUSTOMERS WHO MAKE THE PAYMENT WITHIN 60 DAYS OF THE RAISING OF THE BIL L. THE ITA NOS. 4247 & 4638/DEL/2010 3 ACCOUNTING PRACTICE FOLLOWED BY THE APPELLANT IS TH AT WHEN A BILL OF ` 1,00,000/- IS RAISED, THE PARTIES ACCOUNT IS D EBITED AND THE SALES ACCOUNT IS CREDITED BY ` 1,00,000/-. IF THE P ARTY DOES NOT MAKE PAYMENT WITHIN 60 DAYS, THE ACCOUNTING TREATME NT REMAINS UNCHANGED. IN CASE THE CUSTOMERS MAKES PAYME NT WITHIN 60 DAYS OF ` 98,000/- (AFTER AVAILING OF THE DISCOUNT), THEN THE CUSTOMERS ACCOUNT IS CREDITED BY ` 1,00,000/-, AND BANK ACCOUNT IS DEBITED BY ` 98,000/- AND CASH DISCOUNT ACCOUNT IS DEBITED BY ` 2,000/-. THE SUGGESTION GIVEN BY THE ASSESSING OFFICER TO ACCOUNTING FOR, ON NET BASIS IS NOT PRA CTICABLE AS AT THE TIME OF RAISING OF THE BILL, THE APPELLANT HAS NO I NFORMATION AS TO WHO WERE THE CUSTOMERS WOULD BE MAKING PAYMENT WITHIN 60 DAYS AND HENCE THE SUGGESTIONS IS NOT JUSTIFIED. YOU R REFERENCE IS INVITED TO P-103/APB-I. IN ALL THE CASES AFTER DEDUC TING CST/ST THE APPELLANT HAS GIVEN 2% DISCOUNT ON EACH PAYMENT WH ICH CAN BE VERIFIED FROM THE CONFIRMATION OF ACCOUNTS OF M/S HOI SERY LINKERS. 4.1 CONSIDERING THE ABOVE LD. COMMISSIONER OF INCOM E TAX (APPEALS) HELD THAT ASSESSEE WAS CORRECT AND THE SU GGESTION OF THE ASSESSING OFFICER IS NOT CORRECT. HE ACCORDINGLY, AGREED WITH THE SUBMISSIONS OF THE ASSESSEE AND DELETED THE ADDITIO N. ITA NOS. 4247 & 4638/DEL/2010 4 5. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFO RE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. WE NOTE THAT ASSESSEE HAS A POLICY ACCORDING TO WH ICH CASH DISCOUNT ARE GIVEN. LD. COUNSEL OF THE ASSESSEE HAS SUBM ITTED VOLUMINOUS DOCUMENTS IN THIS REGARD. ASSESSING OFFICERS AL LEGATION IS THAT NO EVIDENCE HAS BEEN PRODUCED IN THIS REGARD IS NOT C ORRECT, IN VIEW OF THE VARIOUS DOCUMENTS SUBMITTED BY THE LD. COUNSEL O F THE ASSESSEE IN THE PAPER BOOK. UNDER THE CIRCUMSTANCES, WE DO NO T FIND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INC OME TAX (APPEALS), HENCE, WE UPHOLD THE SAME. 7. THE NEXT ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE ADDITION OF ` 40,01 5/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BAD DEBTS. 8. ON THIS ISSUE ASSESSING OFFICER NOTED THAT NO E VIDENCE HAS BEEN GIVEN AND NO EFFORT MADE BY THE ASSESSEE TO RECOVE R THE AMOUNT. ACCORDINGLY, HE PROCEEDED AND DISALLOW THE BAD DEB TS. 9. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ASSESSEE SUBMITTED THAT THE AMOUNT WAS SHOWN AS INCOME IN THE EARLIER ASSESSMENT YEAR AND THE SAME WAS CLAIMED IN THE CUR RENT YEAR U/S 36(VII) OF THE IT ACT. IT WAS FURTHER EXPLAINED TH AT THE AMOUNT HAS ITA NOS. 4247 & 4638/DEL/2010 5 BEEN WRITTEN OFF DURING THE RELEVANT YEAR. CONSI DERING THE ABOVE, LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT FOLLO WING THE DECISION OF TRF V C.I.T. (SUPREME COURT), THE APPROACH OF THE ASSESSEE WAS CORRECT AND HE DELETED THE DISALLOWANCE. 10. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEF ORE US. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR O F THE ASSESSEE BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF C.I.T. VS. MORGAN SECURITIES AND CREDITS PVT. LTD. 292 ITR 339. IN TH IS CASE, IT WAS HELD THAT THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION OF THE AMOUNT OF ANY BAD DEBTS IN THE YEAR IT HAS BEEN WRITTEN OFF AS IR RECOVERABLE IN ITS ACCOUNT AS PROVIDED U/S 36(2) AND 36(1)(VII) READ W ITH CIRCULAR NO. 551 DATED 23.1.2010. RESPECTFULLY FOLLOWING THE PRECED ENT AS ABOVE, WE UPHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOME T AX (APPEALS) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. ASSESSEES APPEAL ASSESSEES APPEAL ASSESSEES APPEAL ASSESSEES APPEAL 12. THE FIRST ISSUE RAISED IS THAT LD. COMMISSIONER O F INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING AN AMOUNT OF ` 29,15,556/- ON ACCOUNT O F COMMISSION. ITA NOS. 4247 & 4638/DEL/2010 6 13. ON THIS ISSUE THE ASSESSEE SUBMITTED TO THE ASS ESSING OFFICER THAT THE COMMISSION WAS PAID TO THE RESPECTIVE PARTIE S FOR BUSINESS PURPOSE. IT FURNISHED THEIR ADDRESSES AND PAN NUMB ER. HOWEVER, THE ASSESSING OFFICER NOTED THAT IN SOME CASES NEITHER THE FULL ADDRESS WAS GIVEN NOR THEIR PAN NUMBER HAS BEEN GIVEN. ASS ESSEE EXPLAINED THAT COMMISSION AND BROKERAGE IS BEING PAID TO THE A GENTS TO BOOK ORDERS AND TAKE RESPONSIBILITY OF COLLECTION OR OUT STANDING PAYMENT FROM THE CUSTOMERS ON THEIR BEHALF. IT WAS FURTHER SUBMITTED THAT THESE ARE ALL GENUINE PAYMENTS INCIDENTAL TO BUSIN ESS. HOWEVER, THE ASSESSING OFFICER OBSERVED THAT ASSESSEE COMPANY HA S FAILED TO ESTABLISH BY CORROBORATING AND LEADING EVIDENCES AS TO WHAT ACTUAL SERVICES WERE RENDERED BY THEM FOR THE BUSINESS. HE HELD THAT ONUS IS CAST ON THE ASSESSEE TO PROVE THAT AN AMOUNT CLAIMED AS AN EXPENDITURE WAS LAID OUT OR EXPENDED WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF THE BUSINESS. ACCORDINGLY, ASSESSING OFF ICER PROCEEDED TO DISALLOW A SUM OF ` 29,15,556/-. 14. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) ASSESSEE SUBMITTED AS UNDER:- IN MOST OF THE CASES SALES ARE EFFECTED THROUGH SAL ES REPRESENTATIVES / AGENTS. ON BEHALF OF THE APPELLA NT THEY PROCURE THE SALES ORDER, PROMOTE NEW PRODUCTS, FOLLOW UP CO LLECTION ETC. ITA NOS. 4247 & 4638/DEL/2010 7 FOR THIS, COMMISSION IS PAID TO SUCH AGENTS. ACCORDI NG TO ASSESSING OFFICER, NO EVIDENCE OF RENDERING OF SERV ICE COULD BE PRODUCED. IN THE REMAND STAGE, THE ASSESSING OFFICE R RAISED THE GROUND AS TO WHY THE EVIDENCE OF COMMISSION PAYMENT W AS NOT PRODUCED DURING THE COURSE OF HEARING. IN REALITY THE APPELLANT HAS PRODUCED THE BOOKS OF ACCOUNTS AND FILED COPIES OF BILLS RELATING TO COMMISSION. AS THERE WAS NO SPECIFIC QUE STION THE SAME COULD NOT BE ANSWERED, NEVERTHELESS THE APPELL ANT PAID COMMISSION TO 16 PARTIES OUT OF WHICH 14 PERSONS ARE MAINTAINING THEIR PAN AND THE APPELLANT HAS MADE TDS @ 5.1% ON THE SAID AMOUNT AND QUARTERLY TDS RETURN IS SOFT FORM HAS BEE N FILED EVIDENCING THE TDS PAYMENT MADE ON SUCH COMMISSION AMO UNT. 14.1 CONSIDERING THE ABOVE, LD. COMMISSIONER OF INCOM E TAX (APPEALS) OBSERVED THAT THERE IS NO MATERIAL ON RECO RD TO SUGGEST THAT THESE PERSONS HAVE DONE SPECIAL JOB SO THAT COMMISS ION IS GIVEN WHICH IS ALLEGEDLY CLAIM TO BE ALLOWABLE U/S 37 OF THE ACT. HENCE, HE PROCEEDED TO CONFIRM THE DISALLOWANCE HOLDING THAT T HERE IS NO EVIDENCE OF RENDERING THE CORRESPONDING SERVICES BY SUCH PERSONS. ACCORDINGLY, HE CONFIRMED THE ASSESSING OFFICERS A CTION. 15. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BE FORE US. ITA NOS. 4247 & 4638/DEL/2010 8 16. LD. COUNSEL OF THE ASSESSEE HAS DULY SUBMITTED BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) THAT ASSESSEE H AS SPECIFIED THE PURPOSE IN WHICH THE COMMISSION WAS GIVEN, THIS INCL UDED (I) PROCURING SALES ORDERS, (II) PROMOTION OF NEW PRODUCTS AND SCH EMES LAUNCHED, (III) FOLLOW UP FOR COLLECTIONS FROM THE CUSTOMERS, (IV) COLLECTION OF C-FORMS AND OTHER STATUTORY DOCUMENTS, (V) SETTLEMENT OF AC COUNTS WITH THE CUSTOMERS, (VI) INFORMATION ON COMPETITOR ACTIVITIES AND (VII) DAY TO DAY COMMUNICATION. 16.1 IN THE PAPER BOOK, LD. COUNSEL OF THE ASSESSEE SUBMITTED VARIOUS DOCUMENTS PERTAINING TO THE LEDGER ACCOUNTS, COMMISS ION PAID, BILLS RAISED AND CORRESPONDENCE WITH THE PARTIES TO WHOM C OMMISSION HAS BEEN PAID. 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORDS. WE FIND THAT IN VIEW OF THE VOLUMINOUS EVIDENCES SUB MITTED BY THE ASSESSEE IN THIS REGARD, IT CANNOT BE SAID THAT ASS ESSEE HAS FAILED TO ESTABLISH THAT THERE WAS TO EVIDENCE OF RENDERING T HE CORRESPONDING SERVICES BY SUCH PERSONS. WE FIND THAT ASSESSEE H AS DULY SUBMITTED VARIOUS DOCUMENTS PERTAINING TO LEDGER ACCOUNTS, CO MMISSION PAID, BILLS RAISED AND CORRESPONDENCES IN THIS REGARD. THE SERVICES PROVIDED HAVE ALSO BEEN DULY EXPLAINED. IT IS A SETTLED LAW THAT REVENUE AUTHORITIES CANNOT SIT INTO THE SHOE OF THE BUSINES SMAN. IN THIS REGARD, ITA NOS. 4247 & 4638/DEL/2010 9 WE PLACE RELIANCE UPON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT, BOMBAY VS. WALCHAND AND CO. PRIVATE LTD . IN 65 ITR 381, WHEREIN IT WAS HELD THAT 'IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER AN EXPENDITURE W AS WHOLLY AND EXCLUSIVELY FOR BUSINESS, THE EXPENDITURE HAS TO BE ADJUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT OF REVENUE' . ACCORDINGLY, WE HOLD THAT ASSESSEE HAS DULY ESTABLISHED THAT SUFFIC IENT SERVICES WERE RENDERED FOR THE PAYMENT OF THE COMMISSION INVOLVED IN THIS REGARD. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE AUTHORI TIES BELOW ON THIS ISSUE AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSE E. 18. THE NEXT ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DISALLOWING AN AMOUNT OF ` 28000/ - ON ACCOUNT OF RENT PAID. 19. ON THIS ISSUE THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS DEBITED AN AMOUNT OF ` 3,13,000/- ON ACCOUNT OF RENT . THE RENT AGREEMENT IN THIS REGARD REFLECTED THAT ASSESSEE HAD PAID ` 30,000/- PER MONTH DURING THE FINANCIAL YEAR, HOWEVER, THE AS SESSING OFFICER OBSERVED THAT ON VERIFYING THE RENT AGREEMENT IT WA S FOUND THAT THE TENANCY HAS STARTED W.E.F. 15.6.2006, HENCE, CONSID ERING THE AMOUNT OF ` 30,000/- PER MONTH, THE TOTAL AMOUNT OF RENT PA ID COMES TO ` ITA NOS. 4247 & 4638/DEL/2010 10 2,85,000/- DURING THE RELEVANT FINANCIAL YEAR. HEN CE, HE DISALLOWED ` 28,000/- IN THIS REGARD. 20. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) NOTED THAT ASSESSEE HAS CONCEDED THAT ` 1 3,000/- WAS WRONGFULLY CLAIMED. REGARDING THE BALANCE AMOUNT OF ` 15,000/- LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT A SSESSEE HAS FAILED TO EXPLAIN THE SAME TO THE SATISFACTION OF T HE ASSESSING OFFICER AND HE UPHELD THE ASSESSING OFFICERS ACTION. 21. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. AT THE OUTSET, LD. COUNSEL OF THE ASSESSEE SUBMITTED TH AT THE SUBMISSIONS MADE BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) WERE AS UNDER:- DURING THE RELEVANT PREVIOUS YEAR, THE APPELLANT W HILE COMPUTING ITS TAXABLE INCOME UNDER THE PROVISIONS OF THE ACT, CLAIMED A DEDUCTION AMOUNTING TO ` 3,13,000/- ON ACCO UNT OF RENT PAID FOR BUSINESS PURPOSES. THE ASSESSING OFFICER, HOWEVER, DISALLOWED AN AMOUNT OF ` 28,000/-, ON TH E GROUND THAT SINCE AS PER THE AGREEMENT, THE TENANCY STARTED ON 15.6.2006, RENT AMOUNTING TO ` 15,000/- FOR THE PER IOD 1.4.2006 TO 15.6.2006 IS NOT ALLOWABLE. HOWEVER, WITH REG ARD TO ITA NOS. 4247 & 4638/DEL/2010 11 DISALLOWANCE OF ` 13,000/-, NO FINDING HAS BEEN GIV EN BY THE ASSESSING OFFICER IN THE IMPUGNED ASSESSMENT ORDE R. IN THIS REGARD, IT IS RESPECTFULLY SUBMITTED THAT TH E SAID EXPENDITURE OF ` 13,000/- ON ACCOUNT OF RENT IS INC URRED FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT. THE SAI D EXPENSES ARE DULY ACCOUNTED FOR IN THE BOOKS OF ACCOUNT OF THE A PPELLANT AND THE SAME ARE PAID TO MR. SANJAY KHANNA ON ACCOUNT O F RENT FOR HIRING GODOWN FOR THE PURPOSES OF BUSINESS. 22. WE HAVE CAREFULLY CONSIDERED THE ISSUE. WE FIND THAT IT IS NOT THE CASE THAT ASSESSEE HAS CONCEDED THAT ` 13,000/- WAS WRONG FULLY CLAIMED. RATHER, DUE JUSTIFICATION HAS BEEN GIVEN. HOWEVER, AS CONCEDED BY THE LD. COUNSEL OF THE ASSESSEE THAT ` 15,000/- WAS NOT ALLOWABLE. ACCORDINGLY, WE HOLD THAT AGAINST THE DISALLOWANCE OF ` 28,000/-, ADDITION OF ` 15,000/- IS SUSTAINED IN TH IS REGARD. 23. IN THE RESULT, THE APPEAL FILED BY THE REVE NUE STANDS DISMISSED AND APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29/4/2011. SD/ SD/ SD/ SD/- -- - SD/ SD/ SD/ SD/- -- - [ [[ [A.D. JAIN A.D. JAIN A.D. JAIN A.D. JAIN ) )) ) ( (( (SHAMIM YAHYA SHAMIM YAHYA SHAMIM YAHYA SHAMIM YAHYA) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 29/04/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2.RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES