UBS Publishers Distributors Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 4914/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3831 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 09-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 10-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BANITA DEVI NAOREM
• Assessee Lawyers: SACHIN VASUDEVA
• Keywords: Gift; Business expenditure; Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: H, NEW DELHI BEFORE SHRI R.P.TOLANI, JUDICIAL MEMBER AND SHRI B.C.MEENA, ACCOUNTANT MEMBER ITA NO: 4914/DEL/2010 ASSESSMENT YEAR : 2007-08 M/S UBS PUBLISHERS DISTRIBUTORS P.LTD. VS. DCIT, CI RCLE 18(1) 5, ANSARI ROAD, DARYA GANJ NEW DELHI NEW DELHI ( PAN: AAA CU0042R ) A N D ITA NO: 5461/DEL/2010 ASSESSMENT YEAR : 2007-08 ACIT, CIRCLE 18(1) VS. M/S UBS PUBLISHERS DISTRIBUTORS P.LTD. NEW DELHI NEW DELHI (APPELLANT) (RESPOND ENT) APPELLANT BY : SH. SACHIN VASUDEVA, C.A. RESPONDENT BY : MS.BANITA DEVI NAOREM, SR. D.R. O R D E R PER B.C. MEENA, ACCOUNTANT MEMBER BOTH THE CROSS APPEALS ARE ARISING OUT OF THE ORDER OF LD.CIT(A)- XXI, NEW DELHI DATED 22.9.2010 PERTAINING TO A.Y. 2 007-08. THE GROUNDS OF ASSESSEES APPEAL ITA 4914/DEL/2010 READ AS UNDER. ITA 4514/D EL/10 & ITA 5461/DEL/10 PAGE 2 OF 8 A.Y. 2007-08 M/S UBS PUBLISHERS DISTRIBUTORS P.LTD. 1 (A) THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED I N SUSTAINING THE DISALLOWANCE OF RS. 1,97,105/- MADE BY THE LD.A.O. OUT OF REPAIR AND MAINTENANCE EXPENSES ON CARS ON ACCOUNT OF ALLEGED PERSONAL USE. (B) THAT IN THIS CONNECTION THE LD.CIT(A) HAS IGNOR ED THE FACT THAT IN CASE OF A COMPANY THERE CANNOT BE ANY PERSONAL USE OF THE C AR AND THAT THE APPELLANT HAS PAID FRINGE BENEFIT TAX ON THE ENTIRE AMOUNT OF CAR EXPENSES INCLUDING INSURANCE, REPAIR AND PETROL. (C ) WITHOUT PREJUDICE TO THE ABOVE CONTENTION THAT THE DISALLOWANCE IS NOT WARRANTED IN THIS CASE, IF THE DISALLOWANCE OF RS. 1,97,105/- IS SUSTAINED THEN A DIRECTION BE GIVEN TO THE LD.AO TO REFUND TH E PROPORTIONATE AMOUNT OF FRINGE BENEFIT TAX PAID BY THE APPELLANT. 2(A) THAT THE LD.CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 6,11,620/- MADE BY THE LD.AO OUT OF TRAVELING EXPEN SES ON ALLEGED PERSONAL USE IGNORING THE FACT THAT THE APPELLANT H AD PAID FRINGE BENEFIT TAX IN RESPECT OF THE TOTAL TRAVEL EXPENDITURE. (B) THAT THE LD.CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE TRAVELING EXPENSES HAS AN ELEMENT OF PERSONAL USE BY STATING THAT IN TWO TA BILLS VERIFIED BY HIM AS SUCH, THE BILLS CONTAIN AN EXPEN DITURE OF RS. 10,240/- IN RESPECT OF GIFTS FOR CUSTOMERS. THE AMOUNT OF EXPE NDITURE INCURRED ON GIFTS FOR CUSTOMERS CANNOT BY ANY STRETCH OF IMAGINATION BE TAKEN AS PERSONAL EXPENDITURE OF THE COMPANY. (C ) WITHOUT PREJUDICE TO THE ABOVE CONTENTION THAT THE DISALLOWANCE IS NOT WARRANTED IN THIS CASE, IF THE DISALLOWANCE OF RS. 6,11,620/- IS SUSTAINED ITA 4514/D EL/10 & ITA 5461/DEL/10 PAGE 3 OF 8 A.Y. 2007-08 M/S UBS PUBLISHERS DISTRIBUTORS P.LTD. THEN A DIRECTION BE GIVEN TO THE LD.AO TO REFUND T HE PROPORTIONATE FRINGE BENEFIT TAX PAID BY THE APPELLANT. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND AN D/OR ALTER THE GROUNDS AT A LATER STAGE. THE GROUNDS OF REVENUES APPEAL ITA 5461/DEL/2010 READ AS UNDER. 1. THE LD.CIT(A) HAS ERRED BOTH IN LAW AND ON FAC TS IN LAW BY DELETING THE DISALLOWANCES OF RS. 37,77,914/- ON ACCOUNT O F BAD DEBTS WRITTEN OFF ON GROUND THAT IT WAS NOT NECESSARY FOR THE ASSESSE E TO ESTABLISH THAT THE DEBT HAD BECOME IRRECOVERABLE AND IT WAS ENOUGH THA T THE DEBTS HAD BEEN WRITTEN OFF AS IRRECOVERABLE IGNORING THAT : (I) AS PER THE PROVISION OF SECTION 36(I)(VII) OF THE A CT ONLY BAD DEBT AND NOT JUST ANY DEBT WHICH IS WRITTEN OFF IN THE A CCOUNTS OF ASSESSEE SHALL BE ALLOWED AS A DEDUCTION THUS IMPLY ING THAT THE AO IS NOT ENTIRELY BARRED FROM DECIDING ON MERITS F ROM THE FACTS OF THE CASE WHETHER THE DEBT HAD BECOME BAD OR NOT. (II) THE ASSESSEE COULD NOT SATISFACTORILY EXPLAIN WHY D EBTS IN RESPECT OF WELL KNOWN PARTIES WITH WHOM IT WAS STIL L CONTINUING BUSINESS HAD BEEN WRITTEN OFF AND WHY DEBTS WERE WR ITTEN OFF ALTHOUGH EFFORTS FOR RECOVERY WERE NOT MADE. 2. THE APPELLANT IS A PRIVATE LIMITED COMPANY ENGAG ED IN THE BUSINESS OF TRADING AND PUBLISHING THE BOOKS. THE APPELLANT ALSO EXPORTS BOOKS AND OTHER MISCELLANEOUS ITEMS MEANT F OR STUDENTS. ITA 4514/D EL/10 & ITA 5461/DEL/10 PAGE 4 OF 8 A.Y. 2007-08 M/S UBS PUBLISHERS DISTRIBUTORS P.LTD. RETURN OF INCOME WAS FILED ON 29 TH OCTOBER, 2006. THE ASSESSMENT WAS FINALIZED U/S 143(3) OF THE INCOME TAX ACT, 1961. 3. WHILE PLEADING ON BEHALF OF THE ASSESSEE ON GROU ND NO.1 THE LD.AR SUBMITTED THAT SINCE THE ASSESSEE IS A PRIVATE LIMI TED COMPANY AND THERE CANNOT BE ANY DISALLOWANCE FOR PERSONAL USE BY THE DIRECTORS IN VIEW OF DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON & ENGG. CO. VS. CIT, 253 ITR P. 749 (GUJARAT HIGH COURT). HE ALSO PLEADED THAT ASSESSEE HAD ALSO PAID FRINGE BENEFIT TAX ON THESE AMOUNTS. ON THE OTHER HAND LD.D.R. RELIED ON THE ORDER OF AUTHORITIES BEL OW. 4. AFTER HEARING BOTH THE SIDES WE FIND THAT THE HO NBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON & ENGG. CO. VS. CI T, CITED (SUPRA) HAS HELD AS UNDER. SAYAJI IRON & ENGG. CO. VS. CIT, 253 ITR P. 749 (G UJARAT HIGH COURT) THE ASSESSEE, A PRIVATE COMPANY, HAD INCURRED RS. 9 6,653/- TOWARDS MAINTENANCE OF ITS VEHICLES, WHICH IT HAD C LAIMED AS BUSINESS EXPENDITURE. ONE SIXTH OF THE EXPENDITURE WAS DISALLOWED ON THE GROUND THAT ALL THE VEHICLES WERE NOT EXCLUSIVELY USED FOR THE BUSINESS AS ITS DIRECTORS WERE ALSO USING THEM FOR THEIR PERSONAL PURPOSES. THE APPELL ATE TRIBUNAL CONFIRMED THE DISALLOWANCE OF ONE-SIXTH THEREOF. T HE TRIBUNAL HAD DISTINGUISHED EARLIER ORDERS IN THE CASE OF THE ASSESSEE ON THE GROUND THAT EVEN IF THERE WAS NO PERSONAL USER OF THE ITA 4514/D EL/10 & ITA 5461/DEL/10 PAGE 5 OF 8 A.Y. 2007-08 M/S UBS PUBLISHERS DISTRIBUTORS P.LTD. COMPANY IT WOULD YET BE USER FOR NON-BUSINESS PURP OSE. ON A REFERENCE : HELD, REVERSING THE DECISION OF THE TRIBUNAL, (I) T HAT, THE DIRECTORS OF THE ASSESSEE WERE ENTITLED TO USE THE VEHICLES FOR THEIR PERSONAL USE IN ACCORDANCE WITH THE TERMS AND CONDITIONS ON WHICH THEY WERE APPOINTED AND THE PERQUISITES GI VEN TO THE DIRECTORS FORMED PART OF THEIR REMUNERATION UNDER THE EXPLANATION TO SECTION 198 OF THE COMPANIES ACT, 19 56 FOR THE PURPOSE OF DETERMINING THEIR REMUNERATION U/S 309 O F THE ACT. ONCE SUCH REMUNERATION WAS FIXED AS PROVIDED IN SEC TION 309 IT WAS NOT POSSIBLE TO STATE THAT THE ASSESSEE INCURRE D THE EXPENDITURE FOR THE PERSONAL USE OF THE DIRECTORS. EVEN IF THERE WAS ANY PERSONAL USE BY THE DIRECTORS THAT WAS AS P ER THE TERMS AND CONDITIONS OF SERVICE AND, IN SO FAR AS T HE ASSESSEE WAS CONCERNED, IT WAS BUSINESS EXPENDITURE AND NO P ART OF THE EXPENDITURE COULD BE DISALLOWED. 5. SINCE THE ASSESSEE HAS SUBMITTED FULL DETAILS OF CAR EXPENSES IN THE PAPER BOOK AND NO PART OF ANY EXPENDITURE WHICH I S OF PERSONAL NATURE HAS BEEN CITED BY THE A.O. AND IN VIEW OF THE ORDER OF GUJARAT HIGH COURT CITED (SUPRA) WE HOLD THAT THE LD.CIT(A) WAS NOT JU STIFIED IN SUSTAINING THE ADDITION MADE ON ACCOUNT OF PERSONAL USE OF CAR BY DIRECTORS AND EMPLOYEES OF THE COMPANY. IN VIEW OF ITS FACT WE D IRECT TO DELETE THE ADDITION. 6. IN GROUND NO.2 OF ASSESSEES APPEAL THE ISSUE I NVOLVED IS DISALLOWANCE OF RS. 6,11,620/- OUT OF TRAVELING EXP ENSES ON ALLEGED ITA 4514/D EL/10 & ITA 5461/DEL/10 PAGE 6 OF 8 A.Y. 2007-08 M/S UBS PUBLISHERS DISTRIBUTORS P.LTD. PERSONAL USE. THE LD.A.R. SUBMITTED THAT THE ASSES SEE HAS FURNISHED FULL DETAILS REGARDING TRAVELING EXPENSES EVEN PERSON WI SE DETAILS WERE SUBMITTED. ALL THE FOREIGN TRAVEL BY THE PERSONS WERE FOR BUSINESS PURPOSE ONLY AS ASSESSEE ALSO EXPORTS THE BOOKS. T HERE WAS A DIRECT NEXUS BETWEEN THE TRAVELING OF THE PERSONS AND EXPO RT EARNINGS AND THE REVENUE HAS NOT PURPORTED ANY EXPENDITURE OF PERSO NAL NATURE EXCEPT THAT CERTAIN GIFTS FOR CUSTOMERS ARE PURCHASED. GI FT PURCHASE FOR CUSTOMERS CAN NOT BE HELD AS PERSONAL EXPENSES. TH ERE WAS NO PERSONAL EXPENDITURE DEBITED IN THE BOOKS OF ASSESSEE AND HE PLEADED TO DELETE THE SAME IN VIEW OF HONBLE GUJARAT HIGH COURT IN THE C ASE CITED (SUPRA). ON THE OTHER HAND LD.D.R. RELIED ON THE ORDER OF AUTHO RITIES BELOW. 7. AFTER HEARING BOTH THE SIDES WE FIND THAT THE AS SESSEE IS A PRIVATE LIMITED COMPANY. THE ASSESSEE HAS FURNISHED FULL D ETAILS REGARDING TRAVELING. NO SPECIFIC EXPENDITURE ATTRIBUTABLE T O PERSONAL ELEMENT HAS BEEN PIN POINTED BY THE REVENUE. THEREFORE, THERE IS NO INDICATION THAT SOME OF THE EXPENDITURE WAS NOT FOR BUSINESS PURPO SES. THE HONBLE GUJARAT HIGH COURT HAS ALSO HELD THAT NO DISALLOWAN CE CAN BE MADE IN THE CASE OF COMPANY FOR PERSONAL PURPOSES. CONSID ERING ALL THESE FACTS WE SET ASIDE THE ORDER OF AUTHORITIES BELOW AND DIR ECT TO DELETE THE ADDITION. 8. GROUND NO.3 IN ASSESSEES APPEAL IS GENERAL IN N ATURE AND DOES NOT REQUIRE ANY ADJUDICATION. ITA 4514/D EL/10 & ITA 5461/DEL/10 PAGE 7 OF 8 A.Y. 2007-08 M/S UBS PUBLISHERS DISTRIBUTORS P.LTD. 9. IN THE REVENUES APPEAL THE ONLY GROUND IS REGA RDING DELETION OF ADDITION OF RS. 37,77,914/- ON ACCOUNT OF BAD DEBTS WRITTEN OFF. THE LD.D.R. SUBMITTED THAT THE LD.CIT(A) HAS GRANTED TH E RELIEF BY HOLDING THAT IT IS NOT NECESSARY TO ESTABLISH THAT THE DEBT HAS BECOME IRREVOCABLE. HE FURTHER SUBMITTED THAT THE DEBT REGARDING EXPORT O F GOODS WAS ALSO WRITTEN OFF WHILE THE SAME REQUIRES THE PERMISSION OF THE RESERVE BANK OF INDIA OR OTHER FOREIGN EXCHANGE REGULATING AUTHORIT IES. ON THE OTHER HAND LD.A.R. RELIED ON THE ORDER OF LD.CIT(A). 10. AFTER HEARING BOTH THE SIDES WE FIND THAT THE DEBT WRITTEN OFF IN THE CASE OF EUREKA BOOK HOUSE, DHAKA FOR RS. 24,41, 992/-, EVERGREEN BUDHA, SINGAPORE RS. 14,313/- WAS RELATED TO THE E XPORTS AND ALL OTHERS DEBTS WERE RELATED TO THE PARTIES LOCATED IN INDIA. AFTER HEARING BOTH THE SIDES ON THE ISSUE AND CONSIDERING THE FACTS OF TH E CASE WE FIND THAT IN THE CASE OF DEBTS WRITTEN OFF RELATING TO THE PARTI ES LOCATED IN INDIA THE LD.CIT(A) WAS JUSTIFIED. HOWEVER IN THE CASE OF DE BT RELATING TO EUREKA AND EVERGREEN BUDHA WHICH WERE PERTAINING TO EXPORT S OF THE GOODS THE ISSUE NEEDS A RELOOK. THE EXPORTS AND REALIZATION O F THE PROCEEDINGS ARE GOVERNED BY FOREIGN EXCHANGE REGULATIONS AND CERTAI N GUIDELINES HAVE BEEN PROVIDED IN RESPECT OF UNREALIZED EXPORT EARNI NGS. THEREFORE, WE SET ASIDE THE ISSUE RELATING TO THE DEBT IN RESPECT OF FOREIGN PARTIES TO THE ITA 4514/D EL/10 & ITA 5461/DEL/10 PAGE 8 OF 8 A.Y. 2007-08 M/S UBS PUBLISHERS DISTRIBUTORS P.LTD. FILE OF THE A.O. TO DECIDE DE NOVO AFTER CONSIDER ING THE GUIDELINES IN THIS REGARD. THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED AND THE APPEAL BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PU RPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31.5.2011. SD/- SD/- (R.P. TOLANI ) (B.C.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31ST MAY, 2011 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; RESPONDENT; CIT; CIT(A); DR; GUARD F ILE BY ORDER DY. REGISTRAR // C O P Y //