DCIT 20(3), MUMBAI V. Mrs. Agnes Theknath, Mr. Richard Theknath & Mr Dax Theknath, MUMBAI

ITA 5511/MUM/2009

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3856 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 26-12-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 08-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Gift; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AN D SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.5511/M/2009 ASSESSMENT YEAR: 2006-07 DY. COMMISSIONER OF INCOME TAX-20(3), ROOM NO.506, PIRAMAL CHAMBERS, PAREL, MUMBAI - 12 VS. SHRI FRANCIS THEKNATH, ROY APARTMENT, B-5, 2 ND FLOOR, NEAR CARGO COMPLEX, SAHAR ROAD, ANDHERI (E), MUMBAI 400 099 PAN: AAEPT 7607E (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI SANJAY R. PARIKH, A.R. REVENUE BY : MS. AMRITA SINGH, D.R. DATE OF HEARING : 04.02.2016 DATE OF PRONOUNCEMENT : 17.02.2016 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 13.07.2009 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2006-07. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF A PPEAL: 1. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LA W AND IN THE CIRCUMSTANCES OF THE CASE DIRECTING TO ALLOW THE AD DITION MADE ON ACCOUNT OF DISCOUNT CHARGES OF RS.17,16,911/- AND BAD DEBTS OF RS. 17,69,270/-. 2. THE LEARNED CIT (A) ERRED ON FACTS AND IN LAW AN D IN CIRCUMSTANCES OF THE CASE IN ALLOWING THE BAD DEBTS IN VIEW OF SPECI FIC PROVISION CONTAINED IN SECTION 36(2)(I) OF THE I.T.ACT,1961 THAT THE DEBTS CLAIMED AS BAD MUST BE WRITTEN OFF IN THE BOOKS BY THE ASSESSEE. HOWEVER IN THE PR ESENT CASE RECOVERY NOTICES HAVE BEEN ISSUED TO THE PARTIES AND HENCE DEBT WERE NOT BAD. ALSO LD.CIT(A) FAILED TO APPRECIATE THE FACT THAT DESPITE GIVEN SU FFICIENT OPPORTUNITY, THE ASSESSEE FAILED TO EXPLAIN THE FACTUAL POSITION AND BASIS FO R ALLOWING HUGE AMOUNT OF DISCOUNT. ITA NO.5511/M/2009 SHRI FRANCIS THEKNATH 2 3. THE LD.CIT (A) ERRED ON FACTS AND IN LAW AND IN CIRCUMSTANCES OF THE CASE IN DIRECTING TO REDUCE THE DISALLOWANCE MADE ON ACCOUN T OF BUSINESS PROMOTION EXPENSES FROM RS.7,46,511/- TO RS.2,98,604/- AND HA NDLING CHARGES FROM RS.4,37,765/- TO RS.2,18,882/-. 4. THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FACTS THAT THOUGH THE DISALLOWANCE MADE BY THE AO IS ON ESTIMATION BASIS, THIS WAS NECESSITATED BY THE FACT THAT THE ASSESSEE DID NOT ADDUCE ANY EVIDE NCE AND PRODUCE SUPPORTING BILLS TO PROVE THAT ALL EXPENSES CLAIMED AS BUSINESS PROMOTION EXPENSES AND HANDLING CHARGES WERE WHOLLY & EXCLUSI VELY FOR BUSINESS PURPOSES. 5. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A PPEALS) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR TO SUBMIT ADDITIONAL NEW GROUND WHICH MAY BE NECESSARY. GROUND NO.1 3. THE FIRST GROUND IS RELATING TO DISALLOWANCE OF BUSINESS PROMOTION EXPENSES. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) NOTED THAT THER E WAS INCREASE IN BUSINESS PROMOTION EXPENSES FROM 5.02% OF THE EARLIER YEAR T O 7.56% OF THE NET RECEIPTS FOR THE YEAR UNDER CONSIDERATION. HE REQUIRED THE ASSESSEE TO FURNISH THE DETAILS OF BUSINESS PROMOTION EXPENSES FROM TIME TO TIME. THE ASSESSEE STATED THAT THESE EXPENSES WERE INCURRED TO PROMOTE THE BUSINES S VIZ . EXPENSES INCURRED ON MEETINGS WITH THE BUSINESS PERSONS, LODGING AND BOA RDING OF SOME OF THE OUTSIDE CUSTOMERS, GIVING OF GIFT ARTICLES TO CUSTO MERS, ETC. IT WAS ALSO STATED BY THE ASSESSEE THAT MAJORITY OF EXPENSES WERE INCU RRED THROUGH CREDIT CARDS AND THEREFORE SUCH EXPENSES COULD NOT BE DOUBTED SP ECIALLY WHEN THE BOOKS OF ACCOUNT WERE AUDITED. HOWEVER, THE AO OBSERVED THAT THE ASSESSEE HAD NOT FURNISHED THE COMPLETE VOUCHERS/BILLS IN SUPPORT OF THE CLAIM OF BUSINESS PROMOTION EXPENSES, HE, THEREFORE, DISALLOWED 25% OF THE EXPENSES ON ADHOC BASIS. THE LD. CIT(A), CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HELD THAT SINCE MAJORITY OF THE EXPENSES WERE INCURRED THROUG H CREDIT CARD, DISALLOWANCE OF 25% OF EXPENSES MADE BY THE AO WAS ON A HIGHER S IDE. HE, THEREFORE, ITA NO.5511/M/2009 SHRI FRANCIS THEKNATH 3 RESTRICTED THE DISALLOWANCE IN THIS REGARD TO 10% O F THE TOTAL EXPENSES. 4. WE DO NOT FIND ANY INFIRMITY IN THE FINDING OF T HE LD. CIT(A) RESTRICTING THE ADHOC DISALLOWANCE OF 10% OF THE TOTAL OF EXPEN SES. THE ORDER OF THE LD. CIT(A) ON THIS ISSUE IS THEREFORE UPHELD. GROUND NO.2 5. GROUND NO.2 IS RELATING TO DISCOUNT RELATED CHAR GES. THE AO DOUBTED THE GENUINENESS OF THE DISCOUNT CHARGES CLAIMED BY THE ASSESSEE AT RS.85,84,556/- OBSERVING THAT THE SAME WERE HIGHER THAN THE EARLIER YEAR AND FURTHER THAT THE SAID CLAIM OF THE ASSESSEE WAS NOT VERIFIABLE. THE LD. CIT(A), HOWEVER, CONSIDERING THE SUBMISSION S OF THE ASSESSEE OBSERVED THAT THE ASSESSEE HAD SUBMITTED ALL THE DE TAILS TO THE AO REGARDING THE ABOVE CLAIM OF DISCOUNT CHARGES AND IT WAS EXPLAINE D THAT DISCOUNT CHARGES IN A.Y. 2006-07 WERE AT RS.1.63% AS COMPARED TO 1.7% I N A.Y. 2005-06 WHICH HAD BEEN CLAIMED ON CERTAIN PERCENTAGE OF GROSS REC EIPTS AND THAT THERE WAS DECREASE IN THE RATIO. IT WAS ALSO CONSIDERED BY H IM THAT THE ACCOUNTS OF THE ASSESSEE WERE AUDITED AND THAT ALL THE DETAILS WITH SUPPORTING VOUCHERS WERE PRODUCED BY THE ASSESSEE. THE LD. CIT(A), THEREAFT ER, OBSERVED THAT THE AO HAD MADE GENERAL DISCUSSION ABOUT THE INCREASE IN D ISCOUNT CHARGES AND HAD NOT POINTED OUT ANY DEFECT IN THE ABOVE CLAIM OF TH E ASSESSEE. NO ITEM OF EXPENDITURE WAS PROVED TO BE BOGUS. HE, THEREFORE, CONSIDERING THE EVIDENCES ON THE FILE, HELD THAT NO DISALLOWANCE OF DISCOUNT CHARGES WAS ATTRACTED ON THIS ISSUE. HE ACCORDINGLY DELETED THE ABOVE DISALLOWAN CE MADE BY THE AO. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE DO N OT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE ALSO AND THE SAME IS ACCORDINGLY UPHELD. GROUND NO.3 7. GROUND NO.3 IS RELATING TO THE DISALLOWANCE OF H ANDLING CHARGES. THE ITA NO.5511/M/2009 SHRI FRANCIS THEKNATH 4 ASSESSEE CLAIMED TOTAL HANDLING CHARGES AT RS.43,77 ,655/-. THE AO DISALLOWED 10% OF THE SAME AT RS.4,37,765/- DOUBTING THE GENUI NENESS OF THE EXPENSES AND OBSERVING THAT ONLY PART DETAILS HAVE BEEN FILE D DURING THE ASSESSMENT PROCEEDINGS. 8. IN APPEAL, THE LD. CIT(A), CONSIDERING THE SUBMI SSIONS OF THE ASSESSEE, OBSERVED THAT THOUGH THE ASSESSEE HAD FURNISHED ALL THE DETAILS IN RESPECT OF HANDLING CHARGES TO THE AO, HOWEVER THE AO WAS NOT SATISFIED WITH THE DETAILS BECAUSE OF THE FACT THAT MOST OF THE EXPENSES WERE INCURRED IN CASH AND WERE SUPPORTED WITH ONLY SELF MADE VOUCHERS. THE ASSESS EE EXPLAINED TO THE LD. CIT (A) THAT THE EXPENSES MAINLY WERE INCURRED IN C ONNECTION WITH CLEARING OF CARGO AND THE MAJORITY OF THE EXPENSES HAD BEEN PAI D TO LABOUR CLASS WORKERS AND IT WAS NOT ALWAYS POSSIBLE TO GET THE SIGNATURE OF EACH AND EVERY PAYEE OF LABOUR CLASS. THE LD. CIT(A), CONSIDERING THE ABOV E SUBMISSIONS AND LOOKING TO THE NATURE OF EXPENSES AND THE NATURE OF BUSINES S OF THE ASSESSEE, RESTRICTED THE DISALLOWANCE IN THIS REGARD TO 5% OF THE TOTAL EXPENSES AS AGAINST DISALLOWANCE OF 10% MADE BY THE AO. 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE DO N OT FIND ANY INFIRMITY OR DEFECT IN THE ABOVE ACTION OF THE LD. CIT(A) IN RES TRICTING THE DISALLOWANCE TO THE 5% OF THE EXPENSES ON ADHOC BASIS. THE FINDING OF THE LD. CIT(A) ON THIS ISSUE ALSO IS THEREFORE UPHELD. GROUND NO.4 10. GROUND NO.4 IS RELATING TO THE ACTION OF THE LD . CIT(A) IN DELETING THE ADDITION MADE BY THE AO IN RESPECT OF BAD DEBTS OF RS.17,69,270/-. THE AO, DURING THE ASSESSMENT PROCEEDINGS, NOTED THAT THE A SSESSEE HAD CLAIMED BAD DEBTS WRITTEN OFF AT RS.70,87,973/-. 11. AFTER GOING THROUGH THE DETAILS SUBMITTED BY TH E ASSESSEE IN THIS RESPECT, THE AO NOTED THAT THE ASSESSEE HAD FILED A RECOVERY SUIT AGAINST SIX PARTIES. ITA NO.5511/M/2009 SHRI FRANCIS THEKNATH 5 HOWEVER, THE ASSESSEE HAD NOT FILED ANY SUIT FOR RE COVERY OF DEBTS AGAINST 13 PARTIES. HE, THEREFORE, DISALLOWED THE CLAIM OF BA D DEBTS OF THE ASSESSEE IN RESPECT OF THE SAID 13 PARTIES. 12. IN APPEAL, BEFORE THE LD. CIT(A), THE ASSESSEE EXPLAINED THAT THE DEBTS WERE OUTSTANDING SINCE 3 TO 4 YEARS AND THAT THE AS SESSEE HAD FILED SUIT FOR ALL MAJOR CASES. THE ASSESSEE EXPLAINED THAT FOR SMALL AMOUNTS, IT WAS NOT PRACTICAL TO FILE THE SUIT BECAUSE A BUSINESSMAN HA S SOMETIMES CONSTRAINS OF TIME AND RESOURCES. THE LD. CIT(A), BEING AGREEMEN T WITH THE ABOVE SUBMISSIONS OF THE ASSESSEE AND CONSIDERING THE CIR CUMSTANCES OF THE CASE, OBSERVED THAT THE ASSESSEE IN FACT HAD ACTUALLY WRI TTEN OFF THESE DEBTS IN HIS BOOKS AND THE CLAIM CANNOT BE LINKED TO THE TURNOVE R. HE THEREFORE DISALLOWED THE DISALLOWANCE OF BAD DEBTS WRITTEN OFF MADE BY T HE AO. 13. WE HAVE HEARD THE RIVAL CONTENTIONS. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE ALSO. MOREOV ER, THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT (2010) 323 ITR 397 (SC) HAS HELD THAT AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE IN COME TAX ACT, 1961 W.E.F. 01.04.1989, IN ORDER TO OBTAIN A DEDUCTION IN RELAT ION 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 THE BAD DEBT IS WRI TTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. IN VIEW OF THE ABOVE, TH ERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHILE DELETING THE ADDITION MADE BY THE AO IN RELATION TO CLAIM OF BAD DEBTS. THIS ISSUE IS ALSO ACCORDIN GLY DECIDED AGAINST THE REVENUE. 14. GROUND NOS. 5 & 6 ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY ADJUDICATION. 15. IN VIEW OF OUR FINDINGS GIVEN ABOVE, THERE I S NO MERIT IN THE APPEAL OF ITA NO.5511/M/2009 SHRI FRANCIS THEKNATH 6 THE REVENUE AND THE SAME IS ACCORDINGLY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17.02.2016. SD/- SD/- (D. KARUNAKARA RAO) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 17.02.2016. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.