M/s. India Pistons Ltd., CHENNAI V. ACIT, CHENNAI

ITA 56/CHNY/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90466 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 01-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 09-01-2013
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Principle of natural justice; Additional evidence; Bad and doubtful debts; Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , . , ! '# $ [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ] ./ I.T.A.NO.56/MDS/2013 / ASSESSMENT YEAR : 2008-09 M/S INDIA PISTONS LTD HUZUR GARDENS, SEMBIUM CHENNAI 600 011 VS. THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE II(3) CHENNAI [PAN AAECI 1439 E] ( %& / APPELLANT) ( '(%& /RESPONDENT) / APPELLANT BY : SHRI VIKRAM VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : SHRI P. RADHAKRISHNAN, JCIT / DATE OF HEARING : 01-06-2015 ! / DATE OF PRONOUNCEMENT : 12-06-2015 / O R D E R PER D. KARUNAKARA RAO, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, COIMBATORE,( CAMP OFFICE AT CHENNAI) DATED 3.10.2012, FOR THE ASSESSMENT YEAR 2008-09. 2. THE GROUNDS RAISED BY THE REVENUE ARE FOUND TO BE ARGUMENTATIVE DESPITE CONCISING OF THE GROUNDS OF A PPEAL. THE MAIN ITA NO.56/13 :- 2 -: GROUNDS AS STATED BY THE ASSESSEE ARE GROUND NOS.2 , 3 & 4 AND THE SAME READ AS UNDER: 2. THE COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF AMOUNT WRITTEN OFF A S IRRECOVERABLE AMOUNTING TO ` 41,37,600/-. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF EXPORT PROMOTION EXP ENSES AMOUNTING TO ` 21,00,000/-. 4. THE COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE ON COMPU TER SOFTWARE AMOUNTING TO ` 80,000/-. 3. BRIEFLY STATED, THE RELEVANT FACTS ARE THAT THE AS SESSEE IS ENGAGED IN MANUFACTURING OF PISTON AND PISTON ASSEM BLIES. THE ASSESSEE FILED THE RETURN OF INCOME AND REVISED THE RETURN ADMITTING AN INCOME OF ` 30,95,50,450/-. AT THE END OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER QUANTIFIED THE T OTAL INCOME AT ` 31,85,76,890/-. THE ASSESSING OFFICER MADE VARIOUS ADDITIONS TO THE RETURNED INCOME ON ACCOUNT OF BAD DEBTS, EXPORT PRO MOTION EXPENSES AND COMPUTER SOFTWARE EXPENSES APART FROM OTHERS. THE CIT(A) HAS CONFIRMED THE ABOVE REFERRED ADDITIONS. THEREFORE, THE ASSESSEE IS IN APPEAL BEFORE US. 4. GROUNDWISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS: ITA NO.56/13 :- 3 -: 5. THE FIRST ISSUE RAISED IN GROUND NO.2 RELATES TO BA D DEBTS AMOUNTING TO ` 41,37,600/-. AT THE OUTSET, BRINGING OUR ATTENTIO N TO PARA 5 OF THE ASSESSMENT ORDER, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER DID NOT ALLOW THE CLAIM OF BAD DEBTS PRIMARILY FOR THE REASON THAT THE DEBTORS AR E THE GOVERNMENT UNDERTAKINGS/CORPORATIONS LIKE KSRTC, RSRTC, MPSRTC , GSRTC ETC. IT IS THE REASONING GIVEN BY THE ASSESSING OFFICER THAT THE GOVERNMENT UNDERTAKINGS CAN NEVER BE BAD DEBTORS. FURTHER, TH E ASSESSING OFFICER DID NOT HAVE THE BENEFIT OF THE DETAILS OF THE DEBT S. DURING THE FIRST APPELLATE PROCEEDINGS, THE ASSESSEE MENTIONED THAT THE IMPUGNED DEBTS ACTUALLY RELATE TO THE DISCOUNTS NEGOTIATED B Y THE ASSESSEE WITH THE SAID UNDERTAKINGS AND THEREFORE, THE CLAIM OF T HE ASSESSEE SHOULD BE ALLOWED IN FULL. HOWEVER, THE ASSESSEE COULD NO T PRODUCE ANY DETAILS SUCH AS COPIES OF INVOICES TO PROVE THE CLA IM RELATING TO THE CLAIM OF DISCOUNTS. FURTHER, IT IS THE REASONING OF THE CIT(A) WHICH IS EVIDENT FROM PARA 6.3 OF THE IMPUGNED ORDER, THAT IF THE DISCOUNTS ARE GIVEN IN A PARTICULAR YEAR, THEY ARE REQUIRED TO BE DEBITED IN THE RELEVANT YEAR ONLY. THE RELEVANT LINES IN THIS REG ARD READ AS UNDER: IF THE DISCOUNTS WERE GIVEN IN A PARTICULAR YEAR, THE DISCOUNTS HAVE TO BE DEBITED IN THE RELEVANT YAR ONLY. IT IS NOT THE CASE OF THE APPELLANT THAT THE TOTAL INVOICE WAS OFFERED AS INCOME AND THE BALANCE TO BE RECOVERED, IF ANY, FROM THE C USTOMER WAS WRITTEN OFF AS BAD DEBTS. THE DISCOUNTS ARE TH E AMOUNTS WHICH ARE NOT OFFERED TO INCOME. HENCE, THEY DO NO T QUALIFY AS BAD DEBTS. THE APPELLANT ALSO COULD NOT PRODUCE WHEN THE ITA NO.56/13 :- 4 -: DISCOUNTS WERE GIVEN I.E BEFORE PAYMENTS OR WHETHER THE CLIENTS DEDUCTED AND PAID FOR WHICH CREDIT NOTES WE RE ISSUED. THE AMOUNTS DO NOT COME UNDER THE PURVIEW OF BAD DE BTS AND IF ANY DISCOUNTS WERE GIVEN AS SUBMITTED BY THE APP ELLANT, THEY SHOULD HAVE BEEN DEBITED TO THE PROFIT & LOSS ACCO UNT DURING THAT YEAR. HENCE, THE ADDITION MADE BY THE ASSESSI NG OFFICER IS CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. 6. THUS, THIS IS FOR THE FAILURE OF THE ASSESSEE IN P RODUCING THE RELEVANT PARTICULARS RELATING TO THE DISCOUNTS AND ALSO FOR THE REASON THAT THE DEBTORS ARE UNDERTAKINGS OF THE STATE GOVE RNMENT, THE CIT(A) HAS CONFIRMED THE ADDITION MADE BY THE ASSESSING OF FICER. 7. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT TH E DEBTS IN QUESTION ARE WRITTEN OFF IN THE BOOKS OF ACCOUNT. H E RELIED ON VARIOUS DECISIONS TO DEMONSTRATE THE ALLOWABILITY OF THE DE BTS. THE LD. COUNSEL SUBMITTED THAT ANYBODY CAN BE THE DEBTOR. HE ASSER TED THAT THE IMPUGNED DEBTS WERE NOT RECOVERED AND THEREFORE, TH E ASSESSEE WROTE THEM OFF IN ITS BOOKS OF ACCOUNT. IN SUCH C IRCUMSTANCES, CONSIDERING THE HON'BLE SUPREME COURTS JUDGMENT IN THE CASE OF T.R.F LTD VS CIT, 323 ITR 397, THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED. 8. ON THE ISSUE OF NON-FURNISHING OF DETAILS REGARDING THE NATURE OF DEBTS QUA THE DISCOUNTS, THE LD. COUNSEL SUBMITT ED THAT THE PARTICULARS IN QUESTION BELONG TO OLD ASSESSMENT YE ARS. HE IS NOT SURE IF HE IS SUCCESSFUL IN SUPPLYING THE REQUISITE DETA ILS. HOWEVER, THE LD. COUNSEL IS FAIR IN SUBMITTING THAT ATTEMPT WILL BE MADE IF ONE MORE ITA NO.56/13 :- 5 -: CHANCE IS GRANTED BY WAY OF REMANDING THE ISSUE OF CLAIM OF BAD DEBTS TO THE FILE OF ASSESSING OFFICER FOR FRESH EXAMINAT ION. 9. BEFORE US, ON THIS ISSUE, THE LD. DR SUBMITTED THAT THE DEBTORS ARE GOVERNMENT UNDERTAKINGS AND THE FAILURE OF THE ASSESSEE IN FURNISHING THE RELEVANT DETAILS FOR DEMONSTRATIN G THAT THE DEBTS INVOLVED ARE MERELY DISCOUNTS NEGOTIATED WITH GOVER NMENT UNDERTAKINGS IS UNDISPUTED. THEREFORE, THE CLAIM OF THE ASSESSEE SHOULD NOT BE ALLOWED UNLESS THE NATURE OF DEBTS AR E ESTABLISHED AND CONDITIONS SPECIFIED IN RELEVANT PROVISIONS OF THE ACT ARE FULFILLED. JUDGMENT OF THE HON'BLE MADRAS HIGH COURT IN THE CA SE OF SOUTH INDIA SURGICALS CO. LTD VS CIT 287 ITR 62, IS RELEVANT. [ 10. WE HEARD BOTH THE PARTIES ON THIS ISSUE AND PERUSED THE ORDERS OF THE REVENUE AS WELL AS THE FACTS PLACED B EFORE US. IT IS A LIMITED REQUEST OF THE LD. COUNSEL FOR THE ASSESSEE THAT HE BE GIVEN ONE MORE OPPORTUNITY FOR FILING THE RELEVANT DETAIL S, IF ANY, BEFORE THE ASSESSING OFFICER FOR DEMONSTRATING THAT DEBTS IN Q UESTION PERTAIN TO DISCOUNTS GIVEN BY THE ASSESSEE TO THE SAID CORPOR ATIONS. HE ALSO MENTIONED THAT IN REMAND PROCEEDINGS, THE ASSESSING OFFICER CAN ALSO ADJUDICATE THE ISSUE RELATING TO ALLOWING THE SAID DEBTS AS BUSINESS LOSS. WE ORDER ACCORDINGLY AND DIRECT THE ASSESSIN G OFFICER TO ADJUDICATE THE ISSUE AFRESH AFTER CONSIDERING THE M ATERIAL PLACED BEFORE ITA NO.56/13 :- 6 -: HIM EVEN IT MEANS FURNISHING OF ADDITIONAL EVIDENCE S FOR THE FIRST TIME BEFORE HIM. IN THE REMAND PROCEEDINGS, THE ASSESSI NG OFFICER SHALL CONSIDER ALL THE JUDGMENTS RELIED UPON BY THE LD. C OUNSEL FOR THE ASSESSEE. THE ASSESSING OFFICER SHALL GRANT REASO NABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH THE PRINCIPLES OF NATURAL JUSTICE. ACCORDINGLY, GROUND NO.2 IS ALLOW ED FOR STATISTICAL PURPOSES. 11. THE SECOND ISSUE RAISED IN GROUND NO.3 RELATES TO DISALLOWANCE OF EXPORT PROMOTION EXPENSES AMOUNTI NG TO ` 21 LAKHS. IT IS THE CLAIM OF THE ASSESSEE THAT THE SAID AMOU NT CONSTITUTES REIMBURSEMENT OF EXPENSES. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IDENTICAL ISSUE CAME UP FOR ADJUDICA TION BEFORE THE TRIBUNAL IN ONE OF THE GROUP CASES OF THE ASSESSEE (M/S BIMETAL BEARINGS LTD.) IN I.T.A.NOS.89 AND 90/MDS/2015 FOR ASSESSMENT YEARS 2005-06 AND 2006-07 DATED 22.5.2015. FURTHER HE ME NTIONED THAT THIS ISSUE MAY ALSO BE REMANDED TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION CONSIDERING THE LACK OF DETAILED DISCU SSION ON THIS ISSUE SO AS TO PROVE THAT SUCH AMOUNT CONSTITUTES REIMBURSEM ENT. THE ASSESSING OFFICER DID NOT ALLOW THE CLAIM OF THE A SSESSEE PRIMARILY FOR WANT OF DETAILS. THE SAME IS EVIDENT FROM THE CONT ENTS OF PARA 6. THE CIT(A) ALSO CONFIRMED THE SAME. IT IS THE OPINION OF THE CIT(A) THAT ITA NO.56/13 :- 7 -: THE FACTS PLACED BEFORE THE ASSESSING OFFICER AND T HE CIT(A) ARE DIFFERENT THEREFORE, HE PROCEEDED TO CONFIRM THE A DDITION. 12. AFTER HEARING BOTH THE PARTIES AND PERUSING THE ORD ERS OF THE REVENUE, WE FIND IT RELEVANT TO REMAND THIS ISSUE A LSO TO THE FILE OF THE ASSESSING OFFICER FOR WANT OF RELEVANT FACTS. THE ASSESSING OFFICER SHALL ADJUDICATE THIS ISSUE AFRESH CONSIDERING THE DETAILS, IF ANY, FILED BEFORE HIM, AFTER GIVING AN OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. HE SHALL ALSO CONSIDER THE ORDERS OF THE ITAT IN THE ASSESSEES OWN CASE FOR OTHER ASSESSMENT YEARS. TH IS GROUND IS ALSO ALLOWED FOR STATISTICAL PURPOSES. 13. THE THIRD ISSUE RAISED IN GROUND NO.4 RELATES TO AD DITION OF ` 80,000/- ON ACCOUNT OF COMPUTER SOFTWARE EXPENSES. IT IS THE CLAIM OF THE ASSESSEE THAT IT HAD INCURRED ` 2 LAKHS TOWARDS PURCHASE OF COMPUTER SOFTWARE AND CONSIDERED THE SAME AS REVEN UE EXPENDITURE AND DEBITED IN THE PROFIT & LOSS ACCOUNT AS REVENUE EXPENDITURE. IN THE ASSESSMENT, THE ASSESSING OFFICER HELD IT AS A CAPITAL EXPENDITURE AND GRANTED DEPRECIATION AS PER LAW. THE ASSESSING OFFICER ALLOWED DEPRECIATION OF ` 1.2 LAKHS I.E @ 60% ON ` 2 LAKHS. THUS, ` 80,000/- WAS ADDED TO THE INCOME OF THE ASSESSEE. THE ORD ER OF ASSESSMENT IS NOT A SPEAKING ORDER ON THIS ISSUE AS THE ASSESS ING OFFICER FAILED TO GIVE REASONS AS TO HOW THE SAID EXPENDITURE FALLS I N CAPITAL FIELD. IN ITA NO.56/13 :- 8 -: THE FIRST APPELLATE PROCEEDINGS, THE ASSESSEE RELI ED ON THE JUDGMENTS IN THE CASE OF CIT VS SUNDARAM CLAYTON LTD, 321 ITR 69 (MAD) AND CIT VS AMWAY INDIA ENTERPRISES, 65 DTR 313 (DEL) IN SUP PORT OF ITS CLAIM AND SUBMITTED THAT THE EXPENDITURE OF ` 2 LAKHS ON COMPUTER SOFTWARE SHOULD BE ALLOWED AS REVENUE EXPENDITURE. IT IS THE SUBMISSION OF THE ASSESSEE (PARA 8.2 OF THE IMPUGNED ORDER) THAT THE SAID SOFTWARE RELATES TO CRASH RECOVERY SOFTWARE AND THE SAME FAL LS IN REVENUE FIELD. ON THE OTHER HAND, THE CIT(A) HAS HELD THAT THE SAM E FALLS IN CAPITAL FIELD AGAIN WITHOUT PASSING A SPEAKING ORDER ON THE ISSUE. 14. ON HEARING BOTH THE PARTIES AND GOING THROUGH THE O RDERS OF THE ASSESSING OFFICER AND THE CIT(A), WE FIND THAT THERE IS NO RELEVANT FACTS ON THE RECORD TO ADJUDICATE IF THE SAID EXPEN DITURE FALLS IN REVENUE OR CAPITAL FIELD. SO, ALL THE PARAMETERS R ELATING TO THE NATURE OF CAPITAL ASSET SHOULD BE BROUGHT ON RECORD BY TH E ASSESSING OFFICER. IT IS NOT CLEAR AS TO HOW THE CRASH RECOVERY SOFTW ARE GIVES ENDURING BENEFITS AND IS CAPABLE OF YIELDING INCOME ON STAND ALONE BASIS. IT IS PERTINENT TO NOTE THAT HON'BLE DELHI HIGH COURT IN CIT VS AMWAY INDIA ENTERPRISES (SUPRA) HAS PROVIDED CERTAIN GUIDELINES TO DECIDE ON CAPITAL OR REVENUE NATURE OF THE EXPENSES IN SOFTWARE. IN T HE REMAND PROCEEDINGS, THE ASSESSING OFFICER IS DIRECTED TO DECIDE THE ISSUE AFRESH AFTER CONSIDERING THE ABOVE CITED JUDGMENTS RELATING TO THE ITA NO.56/13 :- 9 -: ISSUE UNDER CONSIDERATION AND GRANTING THE ASSESSE E A REASONABLE OPPORTUNITY OF BEING HEARD. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH OF JUNE, 2015, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( . ) (D. KARUNAKARA RAO) ! / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 12 TH JUNE, 2015 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF