ACIT 10(1), MUMBAI V. COECLERICI LOGISTICS (I) LTD, MUMBAI

ITA 5524/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1704 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 07-01-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 07-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJARSHI DWIVEDI
• Keywords: Business income; Business expenditure; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C , BENCH , MUMBAI , BEFORE SHRI R.K.GUPTA , J M & SHRI D.KARUNAKAR RAO , A M ITA NO. 5524 / MUM / 20 1 0 ( ASSESSMENT YEAR : 200 5 - 20 0 6 ) ACIT 10(1) , MUMBAI - 400 020 VS. COECLERICI LOGISTIC (I) LTD., NCL BUILDING, 7 TH FLOOR, BANDRA KURLA COMPLEX, BANDRA(E) , MUMBAI - 400 051 . PAN/GIR NO. : A A A C S 5 394 P ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : SHRI RAJARSHI DWIVEDI /ASSESSEE BY : SHRI NISHANT THAKKAR DATE OF HEARING : 1 4 TH JAN ., 201 3 DA TE OF PRONOUNCEMENT : 01 / 03 / 201 3 O R D E R P ER SHRI R.K.G UPTA, JM : TH E DEPARTMENT HAS PREFERRED THIS APPEAL AGAINST THE ORDER DATED 27 - 04 - 2010 , PASSED BY THE CIT(A) - 21 , MUMBAI , RELATING TO ASSESSMENT YEAR 2005 - 0 6 . 2 . THE FIRST ISSUE IN APPEAL OF THE DEPARTMENT IS AGAINST NOT ALLOWING THE INTEREST EXPENSES OF RS.1,55,54,230/ - . 3 . BR IEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WAS OPERATING TRANS HIPPER VESSELS FOR CARRYING OUT LIGHTERAGE OPERATIONS OF BULK CARGO. DURING TH E EARLIER YEAR, THE ASSESSEE APPELLANT COMPANY HAD SOLD ITS BARGES AND THUS, CLOSED ITS BUSINESS ACTIVITY. DURING THE ITA NO. 5524 /20 1 0 2 YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY DERIVED INTEREST INCOME OF RS. 1,01,57,774/ - ON BANK DEPOSITS AND ALSO RECOVERED PART OF BA D DEBTS, WHICH WAS WRITTEN OFF IN THE EARLIER YEAR. THE ASS E S S EE TREATED THE SAID INTEREST INCOME AS BUSINESS INCOME. HOWEVER, SINCE THE BUSINESS WAS CLOSED IN THE YEAR UNDER CONSIDERATION, THE AO TREATED THE INCOME OF THE INTEREST AS INCOME FROM OTHER SOU RCES. THE ASSESSEE HAS ALSO PAID AN INTEREST OF RS. 1,55,54,230/ - ON BORROWINGS FROM BANK AND OTHERS. THIS INTEREST EXPENDITURE WAS ALSO NOT ALLOWED TO BE SET OFF AGAINST THE INTEREST INCOME BY THE AO WHILE COMPUTING THE INCOME OF THE ASSESSEE. 4 . THE ASS ESSEE PREFERRED APPEAL BEFORE THE CIT(A) , BEFORE WHOM THE ASSESSEE RAISED GROUND THAT INTEREST INCOME SHOULD BE TREATED AS BUSINESS INCOME AND THE INTEREST PAID BY THE ASSESSEE IS ALLOWABLE AGAINST EARNING OF INTEREST AND AGAINST BAD DEBTS RECOVERED DURING THE YEAR UNDER CONSIDERATION. LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS FOUND THAT SINCE THE BUSINESS ACTIVITY OF THE ASSESSEE WERE STOPPED IN THE EARLIER YEAR, THEREFORE, INTEREST INCOME HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES. ACCORDINGLY , THIS GROUND OF THE ASSESSEE WAS REJECTED. 4.1 HOWEVER, LEARN ED CIT(A) HELD THAT BAD DEBTS WRITTEN OFF IN THE EARLIER YEARS WERE RECOVERED DURING THE YEAR UNDER CONSIDERATION AND, THEREFORE, THE BAD DEBTS DURING THE YEAR UNDER CONSIDERATION IS A PART OF BUSINESS. ACCORDINGLY, THIS GROUND OF THE ASSESSEE WAS ALLOWED THAT ITA NO. 5524 /20 1 0 3 BAD DEBTS RECOVERED DURING THE YEAR IS TO BE ASSESSABLE AS BUSINESS INCOME. THIS PART OF THE ORDER OF THE CIT(A) HAS BEEN ACCEPTED BY THE DEPARTMENT AND THE ASSESSEE HAS ALSO ACCEPTED THA T THE INTEREST INCOME EARNED BY THE ASSESSEE IS INCOME FROM OTHER SOURCES. 4.2 REGARDING SET OFF OF INTEREST OF RS. 1 . 55 CRORES OR ODD, THE CIT(A) FOUND THAT BAD DEBTS RECOVERED DURING THE YEAR WERE TO THE TUNE OF RS. 3,12,90,762/ - , WHICH WAS CLAIMED BY THE ASSESSEE IN EARLIER YEAR AS BAD DEBTS WRITTEN OFF. LEARNED CIT(A) HAS HELD THAT IN VIEW OF SUB CLAUSE 4 OF SECTION 41, SUCH REALIZED BAD DEBTS WERE ASSESSABLE A S PROFITS AND GAINS OF BUSINESS OR PROFESSION , WHETHER THE BUSINESS OR PROFESSION IN RESPECT O F WHICH THE DEDUCTION HA D BEEN ALLOWED WAS IN EXISTENCE IN THAT YEAR OR NOT. THEREFORE, LEARNED CIT(A) HELD THAT THE ASSESSEE IS ELIGIBLE TO GET SET OFF OF RS. 1,55,54, 230/ - AGAINST BAD DEBTS RECOVERED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. TH E CIT(A) HAS ALSO NOTED THAT THE ASSESSEE HAD EARNED INTEREST INCOME OF RS. 1 ,01 ,57,774/ - WAS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND INTEREST COMPONENT WHICH WAS PAID BY THE ASSESSEE IS ALSO ALLOWABLE TO THE SET OFF AGAINST THIS INCOME OF T HE ASSESSEE UNDER SECTION 57(III ) OF THE ACT. THE CIT(A) HAS ALSO EXAMINED THE FACTUAL MATRIX OF THE CASE AND THEN ONLY CAME TO THE CONCLUSION THAT BOTH INTEREST INCOME AND INTEREST EXPENDITURE ARE LIABLE TO BE SET OFF AGAINST EACH OTHER AND THEREAFTER THE REMAINING PART OF THE INTEREST EXPENDITURE IS TO BE ADJUSTED AGAINST BUSINESS INCOME ON ACCOUNT OF BAD DEBTS RECOVERED. NOW THE DEPARTMENT IS IN APPEAL HERE BEFORE THE TRIBUNAL . ITA NO. 5524 /20 1 0 4 5 . L EARNED DR PLACED RELIANCE ON THE ORDER OF THE AO. ON THE OTHER HAND, LEAR NED COUNSEL OF THE ASSESSEE PLACED RELIANCE ON THE ORDER OF CIT(A) . 6 . AFTER CONSIDERING THE ORDER OF THE AO & CIT(A), WE FOUND NO INFIRMITY IN THE FINDINGS OF THE LEARNED CIT(A) . FINDINGS OF THE LEARNED CIT(A) HAVE BEEN RECORDED IN PARA 2.3 AT PAGE 5 TO 7, WHICH ARE AS UNDER : - 2.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE. COMPANY WAS INCORPORATED ON 23.03.2000. THE APPELLANT WAS ENGAGED IN THE BUSINESS OF OPERATING TRANSHIPPER VESSEL FOR CARRYING OUT THE LIGHTERAGE OPERATIONS OF BULK CARGO. F OR THE SAID BUSINESS, APPELLANT PURCHASED A HEAVY - DUTY GEARED BARGE IN FY 2002 - 03. THE SAME WAS PURCHASED FROM CHINA. THUS THE APPELLANT COMPANY, STARTED ITS BUSINESS IN AY 2003 - 04. THE APPELLANT WAS HAVING ONLY ONE BARGE FOR BUSINESS OPERATIONS. THE P URCHASE OF BARGE WAS FINANCED BY ITS PARENTS COMPANY WHO PAID THE AMOUNT DIRECTLY TO THE CHINESE COMPANY ON BEHALF OF THE APPELLANT. THUS FOR THE PURPOSE OF PURCHASE OF ITS ONLY ASSET, THE APPELLANT TOOK LOAN FROM ITS PARENT COMPANY. THE SAID LOAN WAS UTIL IZED FOR THE PURPOSE OF BUSINESS I.E. FOR PURCHASE OF BUSINESS ASSET BARGE. THE INCOME EARNED FROM OPERATIONS OF SUCH BARGE WAS OFFERED BY APPELLANT AS BUSINESS INCOME IN THE PRECEDING ASSESSMENT YEAR..%IN THE FACTS AND CIRCUMSTANCES, THE INTEREST PAID/P AYABLE BY APPELLANT COMPANY ON THE LOAN TAKEN FROM ITS PARENT COMPANY WAS A BUSINESS EXPENDITURE. THE APPELLANT COMPANY SOLD THE ONLY ASSET BARGE ON 03 - 02 - 2004. THEREA FT ER, THE APPELLANT DID NOT CARRY OUT ANY BUSINESS ACTIVIT Y OF OPERATION OF BARGE SINCE THE SAME WAS ALREADY SOLD BY THE APPELLANT. THE APPELLANT RECEIVED SALE PROCEEDS OF RS. 59,09,41,000/ - ON SALE OF BARGE. THIS SALE PROCEEDS RECEIVED WAS REQUIRED TO BE REMITTED BACK TO THE PARENT COMPANY FOR REPAYMENT OF LOANS TAKEN BY APPELLANT AND INTERE ST THEREON. HOWEVER, DUE TO PENDING APPROVAL FROM RBI, SUCH SALE PROCEEDS WAS DEPOSITED BY APPELLANT IN THE BANK FIXED DEPOSITS AND THE APPELLANT EARNED INTEREST THEREON. THE ACTIVITY OF DEPOSITING OF SALE PROCEEDS OF BARGE INTO FIXED DEPOSITS WITH THE BAN K HAD NO CONNECTIONS/NEXUS WITH THE APPELLAN TS BUSINESS ACTIVITY OF OPERATIONS OF BARGE. IN THE FACTS AND CIRCUMSTANCES, IT IS HELD THAT: (I) THE LOAN TAKEN BY APPELLANT FROM ITS PARENT COMPANY WAS UTILIZED BY APPELLANT COMPANY FOR PROCURING BUSINESS ASS ET I.E. BARGE, THE INCOME EARNED FROM OPERATIONS OF BARGE WAS ASSESSED UNDER THE HEA D BUSINESS INCOME AND THEREFORE, THE INTEREST PAYABLE ON SUCH LOAN UP TO THE DATE OF SALE OF BARGE WAS ALLOWABLE AS BUSINESS EXPENDITURE. THE APPELLANT SOLD THE BARGE O N 03 - 02 - 2004 I.E. IN A Y 2004 - 05. ITA NO. 5524 /20 1 0 5 THE AO ADMITTED THAT THE INTEREST EXPENSE OF RS.1,55,54,230/ - HAD NEXUS WITH THE APPELLANTS BUSINESS ASSET BARGE BUT THE SAME WAS NOT ALLOWABLE DURING THE YEAR AS THERE WAS NO BUSINESS ACTIVITY CONSEQUENTLY NO BUSINESS INCOME DURING THE YEAR. DURING THE YEAR THE APPELLANT REALIZED THE BAD DEBTS OF RS. 3,12,90,782/ - WHICH WAS CLAIMED BY APPELLANT IN EARLIER YEAR AS BAD DEBT WRITTEN OFF. IN VIEW OF SUB SECTION (4) OF SECTION 41, SUCH REALIZED BAD DEBTS WERE ASSESSABLE AS PR OFITS AND GAINS OF BUSINESS OR PROFESSION WHETHER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE DEDUCTION HAD BEEN ALLOWED WAS IN EXISTENCE IN THAT YEAR OR NOT. IN THE FACTS AND CIRCUMSTANCES THE AMOUNT REALIZED AS BAD DEBT WAS APPELLANTS BUSINESS IN COME. EVEN IF THE PAYMENT OF INTEREST WAS HELD TO BE A BUSINESS EXPENSES, THE SAME WAS ALLOWABLE AGAINST THE BUSINESS INCOME DURING THE YEAR UNDER CONSIDERATION. (II) THE SALE PROCEEDS OF BARGE WERE DEPOSITED BY APPELLANT IN THE BANK ON 05 - 04 - 2004 AS FIX ED DEPOSITS AND EARNED INTEREST THEREON. THEREFORE, THE SAID LOAN TAKEN BY THE APPELLANT COMPANY FROM ITS PARENT COMPANY WAS SAID TO BE UTILIZED FROM 05 - 04 - 2004 FOR THE PURPOSE OF EARNING INTEREST AND NOT FOR THE PURPOSES OF ITS BUSINESS ACTIVITY OF OPERAT IONS OF BARGE. THE ACTIVITY OF EARNING OF INTEREST HAD NO NEXUS WITH THE BUSINESS ACTIVITY OF OP ER ATIONS OF BARGE. THE APPELLANT WAS ALSO NOT IN THE BUSI NESS OF MONEY LENDING. THEREFORE, THE INTEREST EARNED ON SUCH FIXED DEPOSITS WAS ASSESSABLE UNDER THE H EAD INCOME FROM OTHER SOURCES. CONSEQUENTLY, THE INTEREST PAID/ PAYABLE BY THE APPELLANT FROM 05 - 04 - 2004 ON SUCH LOAN TAKEN FROM ITS PARENT COMPANY WAS ALLOWABLE EXPENDITURE U/S 57(III) OF THE ACT. IN THE FACTS AND CIRCUMSTANCES, THE APPELLANTS CLAIM OF ENTIRE INTEREST EXPENSE WAS ALLOWABLE EITHER UNDER THE HEAD INCOME FROM OTHER SOURCES AS EXPLAINED IN (II) ABOVE OR PROFITS AND GAINS OF BUSINESS OR PROFESSION AS EXPLAINED IN (I) ABOVE. THE APPELLANTS INTEREST INCOME OF RS. 1,01,57,774/ - WAS ASSESSA BLE UNDER THE HEAD INCOME FROM OTHER SOURCES WHEREAS THE INTEREST EXPENDITURE ALLOWABLE UNDER THIS HEAD WAS AT RS. 1,55,54,230/ - . THE EXCESS OF INTEREST EXPENDITURE OVER INTEREST INCOME WAS ASSESSABLE AS LOSS UNDER THE HEAD INCOME FROM OTHER SOURCES. SINCE THE APPELLANT WAS HAVING BUSINESS INCOME ON ACCOUNT OF REALIZATION OF BA D DEBTS , SUCH LOSS UNDER THE HEAD INCOME FROM OTHER SOURCES WAS ALLOWABLE AS SET OFF AGAINST THE BUSINESS INCOME. IN THE FACTS AND CIRCUMSTANCES, IN EITHER CASE, THE APPELLA NTS ENTIRE INTEREST EXPENDITURE WAS ALLOWABLE AS DEDUCTION. THESE FINDINGS OF THE LEARNED CIT(A) ARE SELF EXPLANATORY, WHICH DOES NOT REQUIRE ANY INTERFERENCE. THE CIT(A) HAS EXAMINED THE CASE IN DETAIL AND FOUND THAT IN VIEW OF SUBSECTION 4 OF SECTION 4 1, THE BAD DEBTS RECOVERED DURING THE YEAR UNDER CONSIDERATION ARE LIABLE TO BE ASSESSED AS BUSINESS INCOME. THEREFORE, THE SET OFF INTEREST ITA NO. 5524 /20 1 0 6 EXPENDITURE IS ALLOWABLE AGAINST THIS INCOME. FINDING OF THE CIT(A) THAT THE BAD DEBTS RECOVERED DURING THE YEAR UN DER CONSIDERATION ARE BUSINESS INCOME, HAS NOT BEEN CHALLENGED BY THE DEPARTMENT. THEREFORE, FOR THIS REASON ALONE, THE APPEAL OF THE DEPARTMENT IS LIABLE TO BE DISMISSED. 7 . WE FURTHER NOTED THAT THE ASSESSEE HAS EARNED INTEREST INCOME ON THE SAME ACTI VITY AND HAS ALSO PAID INTEREST ON THE SAME ACTIVITY. THEREFORE, BOTH OF THE INTERESTS ARE LIABLE TO BE SET OFF AGAINST EACH OTHER IN VIEW OF THE PROVISION OF SECTION 57(III) OF THE ACT . THERE SHOULD NOT BE ANY DISPUTE IN THIS FINDING OF THE LEARNED CIT(A) AS EARNING OF INTEREST AS WELL AS INTEREST EXPENDITURE ARE FOR THE SAME PURPOSE RELATED TO SAME ACTIVITY. THEREFORE, WE SEE NO REASON TO INTERFERE IN THE FINDINGS OF THE LEARNED CIT(A) , WHICH ARE REPRODUCED SOMEWHERE ABOVE IN THIS ORDER. ACCORDINGLY, WE C ONFIRM THE ORDER OF LEARNED CIT(A) ON THIS ISSUE. 8 . REMAINING ISSUE IS AGAINST NOT ALLOWING THE PROFESSIONAL AND LEGAL FEES OF S.I.MOGHUL & CO. AMOUNTING TO RS. 1,97,337/ - . 9 . AFTER GOING THROUGH THE ORDER OF THE LEARNED CIT(A) , WE FOUND THAT THE CIT(A) HAS NOT ALLOWED SUCH RELIEF TO THE ASSESSEE AS LEARNED CIT(A) HAS CONFIRMED THE ORDER OF THE AO FOR THE REASONS MENTIONED BY THE AO. THIS FACT HAS BEEN RECORDED BY THE LEARNED CIT(A) IN PARA 4.2(C) AT PAGE 9OF ITS ORDER. THEREFORE, THIS GROUND OF THE DEPA RTMENT IS INFRUCTUOUS IN NATURE AND ACCORDINGLY, THE SAME IS DISMISSED. ITA NO. 5524 /20 1 0 7 1 0 . IN THE RESULT , APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 1 ST DAY OF MAR . 201 3 . 201 3 SD/ - ( ) ( D.KARUNAKAR RAO ) SD/ - ( ) ( R.K.GUPTA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 0 1 / 0 3 / 201 3 . /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI . 4. / CIT 5. / DR, ITAT, MUMBAI . 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( /ASSTT. REGISTRAR) / ITAT, MUMBAI