Appeal details
Counselvise Citation
526220114 RSA 2012
Assessee PAN
Bench
Appeal Number
Duration Of Justice
9 month(s) 27 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-08-2013
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
G
Next Hearing Date
25-07-2013
Assessment Year
2009-2010
Appeal Filed On
12-10-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH G GG G : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SHRI SHRI SHRI SHRI I.C.SUDHIR I.C.SUDHIR I.C.SUDHIR I.C.SUDHIR, ,, , JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO.5262/DEL/2012 5262/DEL/2012 5262/DEL/2012 5262/DEL/2012 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2009 2009 2009 2009- -- -10 1010 10 DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -9(1), 9(1), 9(1), 9(1), ROOM NO.163 ROOM NO.163 ROOM NO.163 ROOM NO.163, , , , C.R.BUILDING, C.R.BUILDING, C.R.BUILDING, C.R.BUILDING, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. VS. VS. VS. VS. M/S SPIROTECH HEAT EXCHANGERS M/S SPIROTECH HEAT EXCHANGERS M/S SPIROTECH HEAT EXCHANGERS M/S SPIROTECH HEAT EXCHANGERS PVT.LTD., PVT.LTD., PVT.LTD., PVT.LTD., B BB B- -- -13, IIND FLOOR, 13, IIND FLOOR, 13, IIND FLOOR, 13, IIND FLOOR, KAILASH COLONY, KAILASH COLONY, KAILASH COLONY, KAILASH COLONY, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 048. 110 048. 110 048. 110 048. PAN : PAN : PAN : PAN : AABCS3931J. AABCS3931J. AABCS3931J. AABCS3931J. (APPELLANT) (RESPONDENT) APPELLANT BY : SMT.RENUKA JAIN GUPTA, SR.DR. RESPONDENT BY : SHRI VIDUR PURI, CA. ORDER ORDER ORDER ORDER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-XII, NEW DELHI DATED 26 TH JULY, 2012 FOR THE AY 2009-10. 2. THE FIRST GROUND OF THE REVENUES APPEAL READS A S UNDER:- THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELETIN G THE ADDITION ON ACCOUNT OF COMMISSION TO MANAGING DIREC TOR OF RS.1,16,42,148/-. 3. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL PLACED BEFORE US. WE FIND THIS ISSUE TO BE SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR WHEREIN THE ITAT, VIDE O RDER DATED 19 TH OCTOBER, 2012 IN ITA NO.3255/DEL/2011 & C.O. NO.234 /DEL/2011, DELETED THE ADDITION WITH THE FOLLOWING FINDING:- ITA-5262/DEL/2012 2 12. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE THROUGH THE MATERIAL PLACED ON RECORD. WE HAVE NOT ED THAT MANAGING DIRECTOR AND WHOLE TIME DIRECTOR (OPERATIONS) WHO WERE PAID COMMISSION ON THE BASIS OF DULY PASSED BOARD RESOLUTION AND WAS IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT. THE PAYMENT O F COMMISSION IS NECESSARILY A PART OF SALARY AS DEFIN ED IN SECTION 17 OF THE INCOME-TAX ACT, 1961. THE CASE L AW RELIED UPON BY LD.DR HAD ITS SPECIFIC FACTS AND CIRCUMSTANCES WHEREIN THERE WERE ONLY THREE SHAREHO LDERS AND ALL THREE WERE DIRECTORS AND WERE RELATED TO EA CH OTHER. MOREOVER, IN THAT CASE, NO EVIDENCE OF PUTT ING ANY EXTRA SERVICES WAS PLACED AND THE TURNOVER AND PROF ITS OF THAT COMPANY HAD INCREASED DUE TO GENERAL IMPROVEME NT IN STOCK MARKET. IN THE CASE LAW RELIED UPON BY AR OF THE AMD METPLAST (P) LTD., THE FACTS AND CIRCUMSTANCES OF WHICH ARE SIMILAR TO THE FACTS OF THE PRESENT CASE. HON'BLE DELHI HIGH COURT HAS HELD AS UNDER:- WE FAIL TO UNDERSTAND HOW THE AFORESAID OBSERVATIO NS ASSIST AND HELP THE REVENUE IN THE FACTUAL MATRIX O F THE PRESENT CASE. ASHOK GUPTA IS THE MANAGING DIRECTOR AND IN TERMS OF THE BOARD RESOLUTION IS ENTITLED TO RECEIV E COMMISSION FOR SERVICES RENDERED TO THE COMPANY. I T IS A TERM OF EMPLOYMENT ON THE BASIS OF WHICH HE HAD REN DERED SERVICE. ACCORDINGLY, HE WAS ENTITLED TO THE SAID AMOUNT. COMMISSION WAS TREATED AS A PART AND PARCEL OF SALA RY AND TS HAS BEEN DEDUCTED. ASHOK GUPTA WAS LIABLE TO PA Y TAX ON BOTH THE SALARY COMPONENT AND THE COMMISSION. PAYMENT OF DIVIDEND IS MADE IN TERMS OF THE COMPANI ES ACT, 1956. DIVIDEND HAS TO BE PAID TO ALL SHAREHOL DERS EQUALLY. THIS POSITION CANNOT BE DISPUTED BY THE R EVENUE. DIVIDEND IS A RETURN ON INVESTMENT AND NOT SALARY O R PART THEREOF. HEREIN THE CONSIDERATION IN THE FORM OF COMMISSION WHICH WAS PAID TO ASHOK GUPTA WAS FOR SERVICES RENDERED BY HIM AS PER TERMS OF APPOINTMEN T AS A MANAGING DIRECTOR. IN THE PRESENT CASE ALSO, THE PAYMENT OF COMMISSION WAS PAID TO MANAGING DIRECTOR AND DIRECTOR (OPERATIONS) AS PER THEIR TERMS OF APPOINTMENT AS IS APPARENT FROM BOAR D RESOLUTION PLACED AT PAGE 8 & 9 OF THE PAPER BOOK. THEREFORE, IN VIEW OF THE ABOVE, WE HOLD THAT THE P AYMENT OF COMMISSION WAS A GENUINE BUSINESS EXPENDITURE AN D WE DO NOT SEE ANY REASON TO INTERFERE IN THE ORDER OF LD.CIT(A). IN VIEW OF THE ABOVE, THE FIRST GROUND OF THE REVEN UE IS DISMISSED. ITA-5262/DEL/2012 3 4. ADMITTEDLY, THE FACTS FOR THE YEAR UNDER CONSIDE RATION ARE IDENTICAL AND IN THE PRECEDING YEAR, THE ITAT CONSI DERED SIMILAR FACTS AND, APPLYING THE DECISION OF HON'BLE JURISDICTIONA L HIGH COURT IN THE CASE OF AMD METPLAST P.LTD. VS. DCIT [2012] 341 I TR 563 (DELHI), UPHELD THE ORDER OF CIT(A) IN THIS REGARD. SINCE T HE FACTS ARE IDENTICAL IN THIS YEAR, WE DO NOT FIND ANY JUSTIFICATION FOR TAKING A DIFFERENT VIEW THAN WHAT WAS TAKEN BY THE ITAT IN THE IMMEDIATELY PRECEDING YEAR. THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE UPHO LD THE ORDER OF LEARNED CIT(A) IN THIS REGARD AND REJECT GROUND NO. 1 OF THE REVENUES APPEAL. 5. GROUND NO.2 OF THE REVENUES APPEAL READS AS UND ER:- THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELETIN G THE ADDITION ON ACCOUNT OF FOREIGN TRAVELING EXPENSES AMOUNTING TO RS.1,14,102/-. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THAT IN THE IMM EDIATELY PRECEDING YEAR, THE ITAT IN ITS ORDER CITED SUPRA CONSIDERED THIS ISSUE ALSO IN THE ASSESSEES CROSS-OBJECTION WHEREIN THE ASSESSEE HAD CHALLENGED THE SUSTENANCE OF 20% DISALLOWANCE OUT OF FOREIGN TRAVE L EXPENSES AMOUNTING TO ` 1,40,685/-. THE ITAT UPHELD THE 20% DISALLOWANCE O UT OF FOREIGN TRAVEL EXPENSES WITH THE FOLLOWING FINDI NG:- 14. AS REGARDS CROSS OBJECTION FILED BY THE ASSESS EE, WE ARE OF THE OPINION THAT SINCE SPOUSES HAD ALSO ACCOMPANIED WITH THE DIRECTORS OF THE COMPANY THERE MUST HAVE BEEN SOME ELEMENT OF PERSONAL NATURE IN THE EXPENSES AND ASSESSING OFFICER, THEREFORE, HAD RIGH TLY MADE DISALLOWANCE OUT OF FOREIGN TRAVEL EXPENSES. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. ITA-5262/DEL/2012 4 7. IN THE YEAR UNDER CONSIDERATION ALSO, THE ASSESS ING OFFICER HAS DISALLOWED 20% OF TOTAL FOREIGN TRAVEL EXPENSES. A DMITTEDLY, THE FACTS OF THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO TH E IMMEDIATELY PRECEDING YEAR. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF ITAT IN THE IMMEDIATELY PRECEDING YEAR, WE REVERSE THE O RDER OF LEARNED CIT(A) ON THIS POINT AND RESTORE THAT OF THE ASSESS ING OFFICER. ACCORDINGLY, GROUND NO.2 OF THE REVENUES APPEAL IS ALLOWED. 8. GROUND NOS.3 & 4 OF THE REVENUES APPEAL, WHICH READ AS UNDER, ARE DEALT WITH TOGETHER:- 3. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELE TING THE ADDITION ON ACCOUNT OF BAD DEBTS WRITTEN OFF AMOUNT ING TO RS.9,35,706/-. 4. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELET ING THE ADDITION ON ACCOUNT OF CESSATION OF LIABILITIES OF RS.6,76,655/-. 9. WITH REGARD TO GROUND NOS.3 & 4, IT IS STATED BY THE LEARNED COUNSEL THAT DURING THE YEAR UNDER CONSIDERATION, T HERE WAS BAD DEBT AMOUNTING TO ` 9,35,706/- AND THERE WAS CESSATION OF LIABILITY OF ` 6,76,655/-. THAT THE ASSESSEE CLAIMED THE DEDUCTIO N FOR BAD DEBTS ONLY FOR THE NET AMOUNT I.E. FROM THE BAD DEBTS, TH E LIABILITY WHICH CEASED, WAS CREDITED AND ONLY THE DEDUCTION FOR THE BALANCE AMOUNT WAS CLAIMED. THUS, THE NET DEBIT TO THE PROFIT & L OSS ACCOUNT FOR BAD DEBTS WRITTEN OFF WAS ONLY ` 2,59,041/-. IN THIS REGARD, HE REFERRED TO PAGE 125 OF THE ASSESSEES PAPER BOOK WHICH WAS SCH EDULE OF ADMINISTRATIVE AND OTHER EXPENSES. THAT THE ASSESS ING OFFICER DISALLOWED THE SUM OF ` 9,35,306/- THOUGH THE DEDUCTION WAS CLAIMED ONLY FOR ` 2,59,041/- BY WAY OF DEBIT TO PROFIT & LOSS ACCOUNT . MOREOVER, THE ASSESSING OFFICER FURTHER MADE THE ADDITION OF ` 6,76,655/- ON ACCOUNT OF CESSATION OF LIABILITY WHICH WAS ALREADY OFFERED AS AN INCOME BY WAY OF REDUCING FROM THE CLAIM OF BAD DEB T. THAT WITH REGARD TO BAD DEBT, IT IS STATED BY THE LEARNED COU NSEL THAT NOW THE ITA-5262/DEL/2012 5 ISSUE IS SETTLED BY THE DECISION OF HONBLE APEX CO URT IN THE CASE OF T.R.F. LTD. VS. CIT [2010] 323 ITR 397 (SC). IT IS NOT IN DISPUTE THAT THE DEDUCTION CLAIMED BY THE ASSESSEE AT ` 2,59,041/- WAS ALREADY WRITTEN OFF BY THE ASSESSEE. THEREFORE, NO ADDITIO N WITH REGARD TO BAD DEBTS CAN BE MADE. HE, THEREFORE, SUBMITTED THAT T HE ORDER OF LEARNED CIT(A) SHOULD BE SUSTAINED. 10. LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND SHE STATED THAT THE ASSESSING OFFICER HAS GIVEN ADEQUATE REASON FOR DISALLOWANCE OUT OF BAD DEBTS A S WELL AS FOR MAKING THE ADDITION WITH REGARD TO CESSATION OF LIA BILITY. 11. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. SO FAR AS THE ADDITION FOR CESSATION OF LIABILITY IS CONCERNED, WE ARE OF THE OPINION THAT THE ASSESSEE ITSELF HAS CONSIDERED THE CESSATION OF LIA BILITY AS ITS INCOME. THEREFORE, NO FURTHER ADDITION CAN BE MADE. SO FAR AS ALLOWABILITY OF BAD DEBTS IS CONCERNED, HONBLE APEX COURT IN THE C ASE OF T.R.F.LIMITED (SUPRA) HELD AS UNDER:- AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE I NCOME- TAX ACT, 1961, WITH EFFECT FROM APRIL 1, 1989, IN O RDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAS BECOME IRRECOVERABLE : IT IS ENOUGH IF TH E BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT S OF THE ASSESSEE. 12. THEREFORE, THE ONLY REQUIREMENT FOR ALLOWABILIT Y OF THE BAD DEBTS IS THAT THE ASSESSEE SHOULD WRITE OFF THE BAD DEBTS AS IRRECOVERABLE IN ITS ACCOUNTS IN THE RELEVANT YEAR. ADMITTEDLY, THE ASSESSEE HAS WRITTEN OFF THE BAD DEBTS TO THE EXTENT OF ` 2,59,041/- BY WAY OF DEBIT TO THE PROFIT & LOSS ACCOUNT. THEREFORE, IN VIEW OF THE A BOVE DECISION OF HONBLE APEX COURT, THE ASSESSEE WAS ENTITLED TO CL AIM OF BAD DEBTS DEBITED TO THE PROFIT & LOSS ACCOUNT. MOREOVER, TH ERE CANNOT BE MORE ITA-5262/DEL/2012 6 DISALLOWANCE THAN WHAT IS ACTUALLY DEBITED TO THE P ROFIT & LOSS ACCOUNT. IN THIS CASE, DEBIT TO THE PROFIT & LOSS ACCOUNT WA S ONLY FOR ` 2,59,041/- WHILE THE ASSESSING OFFICER MADE THE DISALLOWANCE O F ` 9,35,706/-, AT THE SAME TIME ALSO MAKING SEPARATE ADDITION FOR THE CESSATION OF LIABILITY. BE THAT AS IT MAY, WE ARE OF THE OPINIO N THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION OF BAD DEBTS IN VIEW OF T HE ABOVE DECISION OF HONBLE APEX COURT IN THE CASE OF T.R.F.LIMITED. W E, THEREFORE, DO NOT FIND ANY MERIT IN GROUND NOS.3 & 4 OF THE REVENUES APPEAL. THE SAME ARE REJECTED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 8 TH AUGUST, 2013. SD/- SD/- ( (( (I.C.SU I.C.SU I.C.SU I.C.SUDHIR DHIR DHIR DHIR) )) ) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 08.08.2013 VK. COPY FORWARDED TO: - 1. APPELLANT : DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -9(1), ROOM NO.163, C.R.BUILDING,NEW DELHI. 9(1), ROOM NO.163, C.R.BUILDING,NEW DELHI. 9(1), ROOM NO.163, C.R.BUILDING,NEW DELHI. 9(1), ROOM NO.163, C.R.BUILDING,NEW DELHI. 2. RESPONDENT : M/S SPIROTECH HEAT EXCHANGERS PVT.L TD., M/S SPIROTECH HEAT EXCHANGERS PVT.LTD., M/S SPIROTECH HEAT EXCHANGERS PVT.LTD., M/S SPIROTECH HEAT EXCHANGERS PVT.LTD., B BB B- -- -13, IIND FLOOR, KAILASH COLONY, NEW DELHI 13, IIND FLOOR, KAILASH COLONY, NEW DELHI 13, IIND FLOOR, KAILASH COLONY, NEW DELHI 13, IIND FLOOR, KAILASH COLONY, NEW DELHI 110 048. 110 048. 110 048. 110 048. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR
