ITO, New Delhi V. M/s. Metal Rod Ltd., Delhi

ITA 5692/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2762 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2001-2002
• Appeal Filed On: 21-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Assessee Lawyers: K P GARG
• Keywords: Capital asset; Depreciation; Bad and doubtful debts; Revenue expenditure
• Section: 143(3)

Judgement Text

1 ITA NO. 5259/DEL/2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI N. K. SAINI, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER ITA NO. 5259/DEL/201 4 ( A.Y 2001-02) ITO WARD-6(1) NEW DELHI (APPELLANT) VS METAL ROD LTD. B-97, WAZIRPUR INDL. AREA, RING ROAD, NEW DELHI AAACM8295Q (RESPONDENT) ITA NO. 5692/DEL/201 4 ( A.Y 2001-02) ITO WARD-6(1) NEW DELHI (APPELLANT) VS METAL ROD LTD. B-97, WAZIRPUR INDL. AREA, RING ROAD, NEW DELHI AAACM8295Q (RESPONDENT) APPELLANT BY SH. S. R. SENAPATI, SR. DR RESPONDENT BY SH. K. P. GARG, CA ORDER PER SUCHITRA KAMBLE, JM THESE TWO APPEALS ARE FILED BY THE REVENUE AGAINST THE ORDERS DATED 23/07/2014 AND 22/08/2014 PASSED BY CIT(A)-IX, NEW DELHI. 2. WE ARE FIRST TAKING UP THE APPEAL FOR QUANTUM BE ING ITA NO. 5259/DEL/2014. DATE OF HEARING 12.02.2018 DATE OF PRONOUNCEMENT 27.03.2018 2 ITA NO. 5259/DEL/2014 THE GROUNDS OF APPEAL ARE AS UNDER:- 1. WHETHER THE LD. CIT (A) IS RIGHT IN DELETING TH E ADDITION OF RS 13,30,125/- MADE ON ACCOUNT OF BANK CHARGES? 2. WHETHER THE LD. CIT (A) IS RIGHT IN DELETING TH E ADDITION OF RS 39,02,288-/- U/S 36(II) MADE ON ACCOUNT OF BED DEBT, IGNORING TH E FACT THAT ASSESSEE FAILED TO PROVE THAT THE DEBT WAS EVER BECOME THE PART OF COMPUTATION OF INCOME AS PER PROVISION OF SEC 36(II)? 3. WHETHER THE LD. CIT(A) IS RIGHT IN DELETING THE ADDITION OF RS 1,49,394(54038+95,356) MADE ON ACCOUNT OF DELAY IN DEPOSIT OF EXCISE DUTY & REPAYMENT OF LOAN? 4. WHETHER THE LD. CIT (A) IS RIGHT IN DELETING TH E ADDITION OF RS 18,03,327 MADE ON ACCOUNT OF REBATE AND DISCOUNT ALLOWED TO S UNDRY DEBTOR ? 5. WHETHER THE LD. CIT (A) IS RIGHT IN DELETING TH E ADDITION OF RS 3,94,134 MADE ON ACCOUNT OF DEPRECIATION DISALLOWED IGNORING THE FACT THAT ASSESSEE BUSINESS HAD BEEN STOPPED IN OCT. 2000 DUE TO NOTIC ES FROM POLLUTION CONTROL BOARD AND MCD(DELHI)? 6. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 7. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 8. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEN D OR FORGO ANY GROUND(S) OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING . 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND TRADING OF FERROUS AND NON-FERROUS METALS AND ALLOY S. THE RETURN OF INCOME FOR THE A.Y. 2001-02 WAS FILED ON 31.10.2001 DECLARING LOSS OF RS.2,30,97,910/-. THIS RETURN WAS PROCESSED INITIALLY U/S 143(1) AND SUBSEQUENTLY SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED ON 31.03. 2004 U/S 143(3) OF THE ACT REDUCING THE LOSS TO RS. 1,54,72,010/- AFTER MA KING ADDITIONS TO THE RETURNED INCOME ON ACCOUNT OF THE FOLLOWING: I. THE AO STARTED THE COMPUTATION WITH THE STATEMENT, NET LOSS AS PER P&L ACCOUNT - RS.2,30,97,910, WHICH IS THE LOSS RETURN , AS AGAINST THE ACTUAL AMOUNT OF NET LOSS AS PER P&L, RS.2,30,52,416/-. DU E TO THIS THE ADDITIONS 3 ITA NO. 5259/DEL/2014 AND DEDUCTIONS MADE BY THE ASSESSEE HIMSELF, WERE A GAIN DISALLOWED BY THE AO, RESULTING INTO DOUBLE ADDITION. II. PROVISION OF GRATUITY, RS. 11,757/- III. DEPRECIATION FOR SEPARATE CONSIDERATION, RS.5,12,79 9/- IV. DEFERRED REVENUE EXPENDITURE CHARGED TO P&L ACCOUNT , RS.65,450/- V. INADMISSIBLE ACCOUNT U/S.43-B: PF-RS.1,01,355/-; CS T-RS. 1,20,000/- AND BONUS- RS.23,539/-, TOTAL-RS.2,44,894/-. VI. DISPUTED BANK CHARGES, RS.13,30,125/- VII. BAD DEBTS WRITTEN OFF, RS.39,02,288/- VIII. INTEREST-LOAN CONSIDERING SAME AS REPAYMENT OF PRI NCIPAL, RS. 1,49,391/- IX. INADMISSIBLE REBATE, RS. 18,03,327/- X. SHARE APPLICATION MONEY, RS. 10,00,000/- IN CASH CO NSIDERED AS LOAN IN VIOLATION OF S.269-SS FOR IMPOSING PENALTY. 4. THE ASSESSEE FILED AN APPEAL WITH CIT(A)-II ON 3 0.04.2004 AND FILED WRITTEN SUBMISSIONS DATED 14.02.2005 AND 25.02.2005 ALONG WITH EVIDENCE WHICH HAD BEEN FILED WITH THE AO, ANNEXURE-1 TO ANN EXURE-8. THE CIT(A) IN HIS ORDER DATED 16.03.2005 DISMISSED THE APPEAL ON TECH NICAL GROUNDS. THE ASSESSEE WENT IN APPEAL TO ITAT AND THE TRIBUNAL VI DE ORDER DATED 23.05.2008 REMITTED THE MATTER BACK TO CIT(A) WITH DIRECTIONS TO CONSIDER THE VARIOUS GROUNDS OF APPEAL RAISED BY THE ASSESSEE AND TO DEC IDE THE SAME ON MERITS AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEA RD TO THE ASSESSEE AS WELL AS TO THE AO. THE CIT(A) VIDE ORDER DATED 23.07.2014 PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 5. AS RELATES TO GROUND NO. 1 OF THE REVENUES QUAN TUM APPEAL, THE LD. DR SUBMITTED THAT THE COMPANY HAS STOPPED PRODUCTION S INCE OCT., 2000 IN VIEW OF NOTICE FROM POLLUTION CONTROL BOARD AND MUNICIPA L CORPORATION OF DELHI. THE ASSESSEE HAS CLAIMED DISPUTED BANK CHARGES OF RS.13 ,30,125/- AND THE SAME WILL NOT BE ALLOWED AS THE ASSESSEE HIMSELF HAS DIS PUTED THE BANK CHARGES WITH THE BANK AND THEREFORE, THE ASSESSING OFFICER RIGHT LY DISALLOWED THESE EXPENSES. 6. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER HAS NOT MENTIONED ANY FINDINGS IN THE ASSESSMENT ORDER AS WELL AS IN REMA ND REPORT. THEREFORE, THE 4 ITA NO. 5259/DEL/2014 CIT(A) HAS RIGHTLY ALLOWED THIS GROUND OF THE ASSES SEE. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RECORDS. THE LIABILITY IN RESPECT OF BANK CHARGES (INTEREST) WAS ALREADY A RISEN AND ACCOUNTED FOR BY CREDIT TO THE ACCOUNT OF THE BANK, DURING THE FINAN CIAL YEAR. THE SAME WAS PRODUCED BEFORE THE ASSESSING OFFICER AS WELL AS BE FORE THE CIT(A) BY THE ASSESSEE. THE CIT(A) IN PARA 5.3 OF THE ORDER RIGHT LY HELD THAT THE ASSESSING OFFICER HAS NOT MENTIONED ANY FINDINGS IN THE ASSES SMENT ORDER AS WELL AS IN THE REMAND REPORT REGARDING THESE CHARGES. THE CIT( A) FURTHER HELD THAT THIS IS AN ACCOUNT CREATED TO SEPARATELY SHOW THE AMOUNT PA YABLE TO THE BANK AS ADDITIONAL INTEREST CHARGED. THE ASSESSING OFFICER WAS NOT RIGHT IN CONSIDERING THE ADDITIONAL INTEREST CHARGED AS PENALTY. THERE I S NO NEED TO INTERFERE WITH THE FINDINGS OF THE CIT(A). GROUND NO. 1 OF THE REV ENUES QUANTUM APPEAL IS DISMISSED. 8. AS RELATES TO GROUND NO. 2 OF THE REVENUES QUAN TUM APPEAL, THE LD. DR SUBMITTED THAT FOR THE ASSESSEES CLAIM FOR BAD DEB TS WRITTEN OFF AMOUNTING TO RS.39,02,288/-, NO DETAILS AND EVIDENCE TO THIS EFF ECT WAS FILED BY THE ASSESSEE AND IN THE ABSENCE OF THE VERIFICATION, THE EXPENSE S WERE RIGHTLY DISALLOWED BY THE ASSESSING OFFICER. 9. THE LD. AR SUBMITTED THAT ALL THE DOCUMENTARY EV IDENCE WAS FILED BEFORE THE ASSESSING OFFICER. THE ENTIRE AUDITED ACCOUNTS, CONTAINING THE DETAILS OF SUCH WRITE OFF, FORM PART OF THE RECORD OF THE ASSE SSING OFFICER AND THE ASSESSEE ALSO PRODUCED BOOKS OF ACCOUNTS WHICH WAS DULY EXAM INED ALONG WITH THE NOTE ON ACCOUNTS TO THE AUDITED ACCOUNTS BY THE ASSESSIN G OFFICER. THUS, THE SINGLE LINER OBSERVATION OF THE ASSESSING OFFICER THAT NO EVIDENCE WAS PRODUCED, IS CONTRADICTED BY THE ASSESSEE. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RECORDS. THE CIT(A) MENTIONED THAT THE ASSESSING OFFICER HAS CONFIRMED IN REMAND REPORT THAT LEDGER ACCOUNT OF BALANCES WRITTEN OFF WAS ON HIS R ECORD AND WAS DULY EXAMINED. THE ONLY OBJECTION TOOK BY THE ASSESSING OFFICER IS THAT OF THE COPIES 5 ITA NO. 5259/DEL/2014 OF LEDGER ACCOUNT OF VARIOUS PARTIES WHOSE BALANCES HAVE BEEN WRITTEN OFF WAS NOT FILED. THE CIT(A) RIGHTLY HELD THAT IN CASE OF TRF LTD. VS. CIT (2010) 323 ITR 397 (SC) WHEREIN IT WAS HELD THAT IT IS NOT NECESSA RY FOR ASSESSEE TO ESTABLISH THAT DEBT HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN ACCOUNTS OF THE ASSESSEE. THUS, TH E CIT(A) HAS FOLLOWED THE RATIO OF THE APEX COURT DECISION IN CASE OF TRF LTD . THERE IS NO NEED TO INTERFERE WITH THE FINDING OF THE CIT(A). GROUND NO . 2 OF THE REVENUES QUANTUM APPEAL IS DISMISSED. 11. AS REGARDS TO GROUND NO. 3 OF THE REVENUES APP EAL, THE LD. DR SUBMITS THAT IN THE INTEREST ON LOAN AMOUNT, THE ASSESSEE C LAIMED EXPENSES OF RS.54,038/- FOR DELAY DEPOSIT OF EXCISE DUTY AND RS .95,356/- PAID TO M/S. JAKSON LTD. FOR 10 INSTALLMENTS. THESE INSTALLMENT PAYMENTS ARE NOT THE INTEREST ON LOAN BUT THE REPAYMENT OF THE CAPITAL I NVESTMENT, THEREFORE, THESE EXPENSE RIGHTLY WERE DISALLOWED BY THE ASSESSING OF FICER. 12. THE LD. AR SUBMITS THAT THE COPIES OF EXCISE DU TY ACCOUNT AND THE ACCOUNT OF JACKSON LTD. IS ACKNOWLEDGED WHICH CLEAR LY SHOWS RELEVANT INVOICES AS WELL BEFORE THE ASSESSING OFFICER. THE INTEREST ON LOAN WAS SHOWN IN THE AUDITED ACCOUNTS AND IN THE INTEREST PAID ACCOUNT C LEARLY SHOWS INTEREST PAID TO JACKSONS AND TO CENTRAL EXCISE DEPARTMENT ON DEL AYED DEPOSIT OF EXCISE DUTY. THUS, THE SUFFICIENT EVIDENCE WAS FILED BEFOR E THE ASSESSING OFFICER AND THE CIT(A) RIGHTLY DELETED THIS ADDITION. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RECORDS. THE CIT(A) AFTER GOING THROUGH THE DOCUMENTS AND EVIDENCES PRO DUCED BEFORE THE ASSESSING OFFICER RIGHTLY HELD THAT THE EXPENSE CLA IMED IS ONLY INTEREST AND NOTHING TO DO WITH ANY CAPITAL ASSET. THERE IS NO N EED TO INTERFERE WITH THE FINDINGS OF THE CIT(A). GROUND NO. 3 OF THE REVENUE S QUANTUM APPEAL IS DISMISSED. 14. AS RELATES TO GROUND NO. 4 OF THE REVENUES APP EAL, THE LD. DR SUBMITS THAT THE ASSESSEE ALLOWED A REBATE OF RS.18,03,327/ - TO A DEBTOR TO M/S 6 ITA NO. 5259/DEL/2014 METALLIC ALLOYS AND IN SUPPORT OF HIS CLAIMED FILED TWO DEBIT NOTES DATED 30.09.1999 EACH NO. SL. NO. OF THE ACCOUNTING YEAR MENTIONED ON THESE DEBIT NOTES ARE NOT RELEVANT TO THIS ACCOUNTING YEAR. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE STATED THAT THE REBATE WAS GIVEN ON ACCOUNT OF QUALITY DIFFERENCE, BUT NO SUCH QUALITY DIFFERENCE WAS MENT IONED IN THE PRODUCTION. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY DISALL OWED THE REBATE. 15. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER DULY ACKNOWLEDGED THE DEBIT NOTES ISSUED BY THE PARTY. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE DID NOT ACCEPTED THESE DEBIT NOTES IN AY 2 000-01 AND WAS ULTIMATELY FORCED TO ACCEPT THE CLAIM AND WRITTEN OFF THE AMOU NT AS REBATE AND DISCOUNT IN THE AY 2001-02 ONLY AND DULY STATED AS SUCH BY T HE AUDITOR IN THE NOTES ON ACCOUNTS WHEREIN IT WAS CLEARLY MENTIONED THAT THE REBATE HAS BEEN ALLOWED TO A DEBTOR. THUS, THE CIT(A) RIGHTLY DELETED THIS ADD ITION. 16. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RECORDS. THE CIT(A) HELD THAT ALTHOUGH THE EXPENSE CLAIMED IS TERMED AS REBATE AND DISCOUNT, THIS IS AN AMOUNT IRRECOVERABLE AMOUNT FROM THE CUSTOMER . THE AMOUNT IS RELATED TO A.Y. 1999-2000 BUT IT COULD NOT BE CLAIMED IN TH AT YEAR AS THE AMOUNT WAS STILL UNCERTAIN. DURING THE RELEVANT ASSESSMENT YEA R, THE AMOUNT BECAME CERTAIN AND THE ASSESSEE WRITTEN OFF THE AMOUNT IN THE BOOKS OF ACCOUNT. THERE WAS NO QUERY RAISED BY THE ASSESSING OFFICER REGARD ING THE DEBIT NOTES SUBMITTED BEFORE HIM. THEREFORE, THE CIT(A) RIGHTLY DELETED THIS ADDITION. GROUND NO. 4 OF THE REVENUES QUANTUM APPEAL IS DIS MISSED. 17. AS REGARDS TO GROUND NO. 5 OF THE REVENUES APP EAL, THE LD. DR SUBMITTED THAT THE ASSESSEE CLAIMED DEPRECIATION AT RS.7,88,269/- BUT THE FACTORY RUN FOR 6 MONTHS ONLY I.E. UPTO SEPT. 2000. THEREFORE, THE ASSESSING OFFICER RIGHTLY ALLOWED 50% OF THE DEPRECIATION TO THE ASSESSEE. 18. THE LD. AR RELIED UPON THE ORDER OF THE CIT(A). 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RECORDS. THE CIT(A) HELD THAT THE ASSESSING OFFICER TREATED THE ISSUE A S CESSATION OF BUSINESS AND 7 ITA NO. 5259/DEL/2014 HENCE DISALLOWED DEPRECIATION. HOWEVER, CESSATION O F BUSINESS IS DIFFERENT FROM DISCONTINUANCE OF THE BUSINESS. THE CIT(A) IS RIGHT IN HOLDING THAT BECAUSE THERE IS NO PRODUCTION, IT CANNOT BE SAID THAT THE BUSINESS IS COMPLETELY STOPPED. THERE IS NO NEED TO INTERFERE WITH THE FIN DINGS OF THE CIT(A). GROUND NO. 5 OF THE REVENUES QUANTUM APPEAL IS DISMISSED. 20. NOW WE TAKE UP THE APPEAL FOR THE A.Y. 2001-02 IN ITA NO. 5692/DEL/2014 FILED BY THE REVENUE AGAINST THE ORDE R DATED 22.08.2014 PASSED BY THE CIT(A) WHEREBY THE CIT(A) DELETED THE PENALTY. SINCE THE QUANTUM APPEAL FILED BY THE REVENUE IS DECIDED IN F AVOUR OF THE ASSESSEE AND AGAINST THE REVENUE, THE PENALTY DOES NOT SURVIVE. THUS, THE APPEAL FILED BY THE REVENUE AGAINST THE DELETION OF PENALTY IS DISMISSE D. 21. IN RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MARCH, 2018 . SD/- SD/- (N. K. SAINI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 27/03/2018 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 8 ITA NO. 5259/DEL/2014 DATE 1. DRAFT DICTATED ON 13/01/2018 PS 2. DRAFT PLACED BEFORE AUTHOR 13/01/2018 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2018 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 27.03.2018 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 2 7 .03.2018 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.