LEXICON FINANCE LTD, MUMBAI V. ACIT CIR 2(2), MUMBAI

ITA 477/MUM/2010

• Counselvise Citation: 47719914 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 20-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts; Commercial expediency
• Section: 14A

Judgement Text

1 ITA NO. 477/MUM/2010 (ASST YEAR 2004-05 ) IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI A A A A BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI R S SYAL, AM & R S SYAL, AM & R S SYAL, AM & R S SYAL, AM & VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM ITA NO. ITA NO. ITA NO. ITA NO. 477/MUM/2010 477/MUM/2010 477/MUM/2010 477/MUM/2010 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2004 2004 2004 2004- -- -05 0505 05 ) )) ) LEXICON FINANCE LTD 124 ANDHERI UNIVERSAL INDL PREMISES J P ROAD ANDHERI (W) MUMBAI 58 VS THE ASST COMMR OF INCOME TAX CIR 2(2), MUMBAI ( (( ( APPELLANT APPELLANT APPELLANT APPELLANT ) )) ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO.AAACL0914H AAACL0914H AAACL0914H AAACL0914H A SSESSEE BY SHRI KUNAL GOKHALE REVENUE BY SHRI SANDEEP DAHIYA/DR PER PER PER PER VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 17.12.2009 OF THE CIT(A) 5 FOR THE AY 2004-05. 2 THE ASSESSEE HAS FILED A REQUEST LETTER FOR ADJOU RNMENT OF THE CASE. SINCE THE ISSUES RAISED IN THIS APPEAL ARE COVERED; THERE FORE, WE REJECT THE REQUEST OF THE ASSESSEE FOR ADJOURNMENT AND TAKEN UP THE APPEA L FOR HEARING. 3 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: I)THE LD CIT(A) ERRED IN CONFIRMING THE ACTION OF T HE ASSESSING OFFICER IN DISALLOWING BAD DEBTS OF RS. 8 LACS WHICH WERE CONS IDERED IN THE BOOKS OF ACCOUNT AS BAD DEBTS IN THE YEAR UNDER CONSIDERATIO N. II) THE LD CIT(AA) ERRED IN ENHANCING THE DISALLOWA NCE U/S 14A FOR RS. 15,95,296/- WITHOUT CONSIDERING THE FACT THAT THERE WERE SUFFICIENT OWN FUNDS TO DO THE INVESTMENTS. 2 ITA NO. 477/MUM/2010 (ASST YEAR 2004-05 ) 4 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL AVAILABLE ON RECOR D. THE ASSESSEE HAS WRITTEN OFF THE BAD DEBTS AMOUNTING TO RS. 83,07,675/- DURI NG THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER HAS NOTED TH AT OUT OF THIS WRITTEN OFF AMOUNT, SOME OF THE AMOUNTS HAVE BEEN PAID TO THE EMPLOYEES OF THE ASSESSEE, THE DETAILS OF WHICH ARE GIVEN IN PARA 4 . 1 OF THE ASSESSMENT ORDER AS UNDER: I) M PSHYAM RS. 2 LACS II) H A SADRIWALA RS. 3 LACS III)_ BATUL A SADRIWALA RS. 3 LACS TOTAL RS 8 LACS 4.1 THE ASSESSING OFFICER HAS FURTHER RECORDED THA T THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH DURING THE COURSE OF THE ASS ESSMENT PROCEEDINGS THAT THE ABOVE DEBTS HAVE BECOME BAD DURING THIS YEAR. THE ASSESSING OFFICER, FOLLOWING THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS COATS OF INDIA LTD REPORTED IN 232 ITR 324, DECISION OF TH E JURISDICTIONAL HIGH COURT IN THE CASE OF NANDLAL VITHALDAS VS CIT REPORTED IN 180 I TR 609, DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS AH MEDABAD ELECTRICITY CO LTD REPORTED IN 262 ITR 97, DECISION OF THE HONBLE MAD RAS HIGH COURT IN THE CASE OF SOUTH INDIA SURGICAL CO LTD VS ACIT REPORTED IN 28 7 ITR 62 AND THE ORDER OF THE CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF IND USTRIAL CABLE (I) LTD VS ACIT REPORTED IN 97 ITD 267 DISALLOWED THE CLAIM OF THE ASSESSEE TO THE EXTENT OF RS. 8 LACS IN RESPECT OF THE ABOVE THREE DEBTORS. 3 ITA NO. 477/MUM/2010 (ASST YEAR 2004-05 ) 4.2 ON APPEAL, THE CIT(A) HAS CONFIRMED THE DISALLO WANCE MADE BY THE ASSESSING OFFICER BY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF DIRECTOR (INT. TAXATION) VS OMAN INTERNATI ONAL BANK SAOG(2009) REPORTED IN 184 ITR 324 (BOM). THE RELEVANT PORTION OF THE ORDER OF THE LD CIT(A) READS AS UNDER: I HAVE DULY CONSIDERED THE FACTS OF THE CASE. THE APPELLANT HAS NOT BROUGHT OUT ANY EVIDENCE ON RECORD IN SUPPORT OF IT S ACTION OF WRITING OFF OF THE SAID AMOUNTS EITHER BEFORE THE UNDERSIGNED OR B EFORE THE ASSESSING OFFICER. IT MAY BE STATED HERE THAT IN A RECENT DEC ISION IN THE CASE OF DIRECTOR (INT. TAXATION) VS OMAN INTERNATIONAL BANK SAOG(2009) REPORTED IN 184 ITR 324 (BOM) IT WAS INTER ALIA OBSERVED THA T THOUGH CONSEQUENT TO THE AMENDMENT W.E.F 1.4.1989, IT IS SUFFICIENT IF T HE BAD DEBT OR PART THEREOF IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCO UNTS OF THE ASSESSEE BASED ON COMMERCIAL EXPEDIENCY, WHEN THE ASSESSEE T REATS THE DEBT AS BAD, THE DECISION HAS TO BE A BUSINESS OR COMMERCIA L DECISION AND NOT WHIMSICAL OR FANCIFUL DECISION. IT MUST BE BASED ON MATERIAL THAT THE DEBT IS NOT RECOVERABLE. THE DECISION MUST BE BONAFIDE. IN THE ABSENCE OF ANY SUCH MATERIAL, APART FROM THE CLAIM THAT THE AMOUNT HAS BEEN WRITTEN OFF, IT CANNOT BE CONCLUDED THAT THE ACTION OF THE APPEL LANT WAS BONAFIDE. ACCORDINGLY, THE ADDITION MADE IS UPHELD. 5 IT IS TO BE NOTED THAT THIS IS NOT AN ADVANCE GIV EN BY THE ASSESSEE IN THE ORDINARY COURSE OF BUSIES BUT THE SAID AMOUNT WAS G IVEN BY THE ASSESSEE TO ITS EMPLOYEES; THEREFORE, THE BURDEN IS CAST UPON THE A SSESSEE TO ESTABLISH THAT THE AMOUNT HAS REALLY GONE BAD AND THE DECISION OF WRIT ING OFF OF THE SAID AMOUNT IS A BONAFIDE AND HONEST DECISION AND NOT WHIMSICAL OR FANCIFUL AS OBSERVED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF OMAN INTER NATIONAL BANK SAOG (SUPRA). SINCE THE ASSESSEE HAS FAILED TO BRING ANY MATERIA L ON RECORD TO SHOW THAT EVEN PRIMA FACIE THAT THIS AMOUNT HAS BECOME IRRECOVERAB LE AND THE DECISION OF WRITING OFF OF THE SAID AMOUNT IS HONEST AND BONAFI DE; ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE LD CIT (A) ON THIS ISSUE. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY DISMISSED 4 ITA NO. 477/MUM/2010 (ASST YEAR 2004-05 ) 6 GROUND OF APPEAL NO.2 RELATES TO DISALLOWANCE OF RS. 15,95,296/- U/S 14A. 6.1 WE HAVE HEARD THE LD AR OF THE ASSESSEE AND THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER HAS DISALLOWED THE INTEREST EXPENDITURE OF RS. 6,76,394/- BEING THE PROPORTIONA TE OF THE TOTAL INTEREST EXPENDITURE TO EARN THE DIVIDEND INCOME BY APPLYING PROVISIONS OF SEC 14A. 6.2 ON APPEAL, THE LD CIT(A) ISSUED SHOW CAUSE NOT ICE FOR ENHANCEMENT OF THE DISALLOWANCE MADE U/S 14A BASED ON RULES 8D AND IN LIGHT OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DAGA C APITAL MANAGEMENT P LTD REPORTED IN 26 SOT 603. ACCORDINGLY, THE CIT(A) DIR ECTED THE ASSESSING OFFICER TO ENHANCE THE DISALLOWANCE TO RS. 15,95,296/-. 7 AT THE OUTSET, WE NOTED THAT THIS ISSUE IS NOW SE TTLED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOY CE MFG LTD VS ACIT REPORTED 328 ITR 81 IN WHEREIN THE HONBLE HIGH COURT HAS H ELD THAT RULE 8D IS APPLICABLE PROSPECTIVE AND NOT RETROSPECTIVE; THEREFORE, FOR T HE ASSESSMENT YEAR UNDER CONSIDERATION, RULE 8D IS NOT APPLICABLE. HOWEVER, IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOY CE MFG LTD (SUPRA), THIS ISSUE IS SET ASIDE TO THE RECORD OF THE ASSESSING OFFICER TO DECIDE THE SAME IN TERMS OF THE DECISION CITED SUPRA. 5 ITA NO. 477/MUM/2010 (ASST YEAR 2004-05 ) 8 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 20 TH DAY OF MAY 2011. SD/- SD/- ( (( ( R S SYAL R S SYAL R S SYAL R S SYAL ) )) ) ACCOUNTANT MEMBER ( (( ( VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO ) )) ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 20 TH MAY 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI