M/s Hindustan Associated Engineers Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 5930/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0171 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 24-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Keywords: Business income; Earning of tax free income; Bad and doubtful debts; Rule 8D; Set aside; Capital Gains
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRESI DENT AND SHRI I.P. BANSAL, JUDICIAL MEMBER ITA NO.5930/DEL/2010 ASSESSMENT YEAR : 2006-07 HINDUSTAN ASSOCIATED ENGINEERS PVT. LTD., K BLOCK CHAUDHARY BUILDING, CONNAUGHT PLACE, NEW DELHI. PAN : AAACH1505J VS. DCIT, CIRCLE 12 (1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJNISH AGGARWAL, FCA REVENUE BY : SMT. MONA MOHANTY, SR. DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DIRECTED AGAINST THE ORDER OF THE CIT (A) DATED 26 TH OCTOBER, 2010 FOR ASSESSMENT YEAR 2006-07. GROUNDS OF APPEAL READ AS UNDER:- 1. THAT LD. CIT(A) HAS BEEN ERRED IN LAW AND FACTS I N ORDERING THE DISALLOWANCE TO 10% OF DIVIDEND INCOME A T RS. 67,799/- AND FURTHER RESTRICTING THE AMOUNT OF DISALLOWA NCE U/S 14A OF THE INCOME TAX ACT TO RS. 39,520/- WITHOUT ESTABLISHING THE RELATIONSHIP OF THE EXPENDITURE WITH TAX EXEMPT INCOME. THEREFORE, THE LD. CIT(A) WAS NOT JUSTI FIED IN RESTRICTING THE DISALLOWANCE TO RS. 39,520/-. 2. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN CONF IRMING THE ACTION OF THE AO IN DISALLOWING THE EXPENSES U/S 14 A READ WITH RULE 8D OF THE INCOME TAX ACT WITHOUT APPRECIATING THE FACTS THAT WHEN THERE WAS NO DIRECT AND INDIRECT EXPENDITURE HAVE BEEN INCURRED BY THE APPELLA NT FOR EARNING THE EXEMPT DIVIDEND INCOME. THEREFORE, TH E ACTION OF THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMIN G DISALLOWANCE OF RS. 39,520/-. ITA NO.5930/DEL/2010 2 3. THE LD. CIT(A) ERRED IN LAW AND FACTS IN CONFIRMI NG THE DISALLOWANCE MADE BY THE AO IN ACCORDANCE WITH PROVIS ION OF CLAUSE (III) OF SUB SECTION (2) OF RULE 8D OF THE INCOME TAX RULES 1962, WITHOUT APPRECIATING THE FACTS THAT THE HONBLE BOMBAY HIGH COURT HAS DECIDED IN THE CASE OF M/S GODREJ & BOYCE MFG. CO. LTD. MUMBAI V. DY. CIT MUMBA I & ANR. VIDE APPEAL NO. 626 OF 2010 WRIT PETITION NO. 758 OF 2010 WHEREIN IT WAS HELD THAT THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES WHICH HAVE NOTIFIED WITH EFFECT FR OM 24.3.08 SHALL APPLY W.E.F. A.Y. 2008-09. THEREFORE , THE LD. CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE DISALLOWANCE U/S 14A TO RS.39,520/-. 4. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN CONF IRMING THE ACTION OF THE AO IN DISALLOWING THE BAD DEBT AMOUNTIN G TO RS. 2,07,340/- BY ALLEGING THAT THE CONDITIONS LAID D OWN IN SEC. 36(I)(VII) READ WITH SECTION 36(2) WAS NOT FUL FILLED BY THE APPELLANT, WITHOUT APPRECIATING THE FACTS THAT SINCE THE APPELLANT HAS ALREADY SATISFIED NECESSARY CONDITIONS L AID DOWN IN THE SAID PROVISIONS OF SECTION FOR THE ALLOWAB ILITY OF BAD DEBTS. THEREFORE, THE ACTION OF LD. CIT(A) IS ARB ITRARY, ILLEGAL AND AGAINST THE PROVISIONS OF LAW. 5. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN CONF IRMING THE ACTION OF THE AO DISALLOWANCE OF BAD DEBTS IN HOLDI NG THAT THE APPELLANT HAS FAILED TO ESTABLISH THE FACTS BY ADDUCING EVIDENCE BEFORE THE AO. WITHOUT APPRECIATING THE FACTS THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE APPELLANT HAS FILED THE DETAILS OF PAR TIES ALONG WITH THE ACCOUNT OF SALE BILLS OF GOODS WHICH HA S BEEN TAKEN INTO ACCOUNT IN THE COMPUTATION OF INCOME IN EARLIER YEARS. THE BAD DEBTS WRITTEN OFF AS IRRECOVER ABLE IN THE ACCOUNTS OF THE APPELLANT COMPANY, THEREFORE, THE ACTION OF LD. CIT(A) IS ARBITRARY, ILLEGAL AND AGAINS T THE PROVISIONS OF LAW. 6. THE APPELLANT CRAVES TO ADD, AMEND ANY ADDITIONAL GROUNDS OF APPEAL AT THE TIME OF HEARING OR BEFORE THE HEARING OF APPEAL. 2. GROUND NOS.1 TO 3 RELATE TO DISALLOWANCE MADE U/S14 A AMOUNTING TO ` 39,520/- BY THE ASSESSING OFFICER BY REF ERRING TO RULE 8D. LEARNED CIT (A) HAS ENHANCED THE SAID DISALLOWANC E ON THE GROUND THAT RULE 8D IS NOT APPLICABLE AS PER THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. PVT. L TD. AS REPORTED IN 43 DTR 177 (BOM.). HOWEVER, HE OBSERVED THAT IT SHOU LD BE UPTO 10% ITA NO.5930/DEL/2010 3 OF THE DIVIDEND INCOME I.E., A SUM OF ` 67,799/-, BU T HAS RESTRICTED THE DISALLOWANCE ONLY TO THE EXTENT MADE BY THE ASSESSING OF FICER OF ` 39,520/-. 3. BEFORE US, LEARNED AR PLEADED THAT THERE IS NO NEX US ESTABLISHED BETWEEN THE EARNING OF DIVIDEND AND THE EXPENSES MADE BY THE ASSESSEE. HE SUBMITTED THAT RULE 8D IS NOT APPLICABLE. HE SUBMITTED THAT THE DISALLOWANCE HAS BEEN MADE ON ESTIMATE BASIS, T HEREFORE, THE DISALLOWANCE CANNOT BE MADE AND HE REFERRED TO THE D ECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. PRINT ERS HOUSE (P) LTD. IN ITA NO.277 OF 2009 VIDE WHICH THE ORDER OF THE TRIB UNAL WAS UPHELD WHERE THE SIMILAR DISALLOWANCE WAS DELETED ON THE GROU ND OF ITS BEING MADE ON ESTIMATE. THUS, IT WAS PLEADED BY LEARNED AR THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND UPHELD BY THE CIT (A) SHOULD BE DELETED. 4. ON THE OTHER HAND, RELYING UPON THE ORDER OF ASSESSI NG OFFICER AND CIT (A) IT WAS SUBMITTED BY LEARNED DR THAT THE D ISALLOWANCE HAS RIGHTLY BEEN MADE AND, THEREFORE, THE ORDER OF THE CIT (A) SHOULD BE UPHELD. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE ASSESSING OFFICER HA S MADE THE DISALLOWANCE BY REFERRING TO RULE 8D. LEARNED CIT ( A) HAS HELD THAT RULE 8D IS NOT APPLICABLE, HOWEVER, THE DISALLOWANCE IS TO BE MADE. HE OBSERVED THAT THE DISALLOWANCE WAS TO BE MADE @ 10% OF THE DIVIDEND INCOME EARNED WHICH HAS BEEN COMPUTED AT ` 67,799/-. THUS, THE ASSESSING OFFICER HAS BASED THIS DISALLOWANCE ON THE PROVISI ONS OF RULE 8D AND LEARNED CIT (A) HAS ESTIMATED THE DISALLOWANCE. BOTH THESE SITUATIONS CANNOT BE APPLIED AS RULE 8D HAS BEEN HELD T O BE NOT APPLICABLE TO ASSESSMENT YEAR 2006-07 IN THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S GODREJ & BOYCE M FG. PVT. LTD ITA NO.5930/DEL/2010 4 (SUPRA). THE DISALLOWANCE ALSO CANNOT BE ESTIMATED WIT HOUT PIN POINTING THE BASIS. IN THIS VIEW OF THE SITUATION, TO A DOPT A CONSISTENT VIEW, WE RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICE R AS IN OTHER CASES ALSO SIMILAR DISALLOWANCES ARE BEING RESTORED TO THE FILE OF ASSESSING OFFICER. REFERENCE CAN BE MADE TO THE DECISIO N DATED 4.10.2010 OF ITAT, DELHI BENCH D IN THE CASE OF KA HAN INTERNATIONAL PVT. LTD VS ITO IN ITA NO. 215/DEL/2010, THE RELEVAN T PORTION OF WHICH IS REPRODUCED BELOW:- 5. WE HAVE HEARD THE SUBMISSIONS OF THE LD DR OF THE REVENUE AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORI TIES BELOW. THE ONLY GRIEVANCE OF THE ASSESSEE IS REGARDI NG DISALLOWANCE MADE BY THE ASSESSING OFFICER OF `.2,33 ,540/- AND THIS DISALLOWANCE HAS BEEN MADE ON THIS BASIS THAT THE A SSESSEE COMPANY DID NOT HAVE ANY BUSINESS INCOME AND HAD INC OME ON ACCOUNT OF CAPITAL GAINS AND INTEREST ONLY. BEING AGGRI EVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD CIT(A) WHO HAS HELD THAT DISALLOWANCE IN THIS CASE HAS TO BE MADE IN A CCORDANCE WITH THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE IT RULES, 1962 AND HE DIRECTED THE ASSESSING OFFICER TO W ORK OUT THE DISALLOWANCE IN TERMS OF RULE 8D WHILE GIVING EFF ECT TO HIS ORDER. IT IS ALSO HELD BY LD CIT(A) THAT DISALLOWANCE TO BE MADE BY THE ASSESSING OFFICER AS PER HIS DIRECTION WOULD R ESULT INTO ENHANCEMENT. LD CIT(A) HAS FOLLOWED THE DECISION OF TH E SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF ITO V . DAGA CAPITAL MANAGEMENT PVT. LTD. AS REPORTED IN 26 SOT (SB) 603. THIS DISALLOWANCE HAS BEEN CONFIRMED BY THE LD CIT(A ) ON THE BASIS OF PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT,1961 AND RULE 8D OF THE IT RULES, 1962, SINCE THE ASSESSEE HAD DIVIDEND INCOME ALSO AND THEREFORE, IT WAS HELD THAT THE PROVISIONS OF SECTION 14A ARE APPLICABLE BUT AS PER TH E RECENT JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GODREJ & BOYCE MFG. PVT. LTD. AS REPORTED IN 43 DTR 17 7 (BOM.). RULE 8D IS NOT RETROSPECTIVE AND HENCE IT CANNOT BE MADE APPLICABLE IN THE ASSESSMENT YEAR 2006-07 AS IN THE PR ESENT CASE BUT STILL DISALLOWANCE HAS TO BE MADE BY THE ASSES SING OFFICER ON REASONABLE BASIS. WE FEEL THAT THIS MATTER SH OULD GO BACK TO THE FILE OF THE ASSESSING OFFICER FOR A FRESH DECISION ON THIS ISSUE IN THE LIGHT OF THE JUDGMENT OF HON'BLE BOMBA Y HIGH COURT RENDERED IN THE CASE OF GODREJ BOYCE MFG. CO. ( SUPRA). WE, THEREFORE, SET ASIDE THE ORDER OF LD CIT(A) AND RESTOR E THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR A F RESH DECISION IN THE LIGHT OF THIS JUDGMENT OF HON'BLE BOMBA Y HIGH COURT RENDERED IN THE CASE OF GODREJ BOYCE MFG. CO. ( SUPRA). THE ASSESSING OFFICER SHOULD PASS NECESSARY ORDER AS PE R LAW AS PER ITA NO.5930/DEL/2010 5 ABOVE DISCUSSION AFTER PROVIDING ADEQUATE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. 6. WITH THE SIMILAR OBSERVATIONS, WE RESTORE THIS ISSUE T O THE FILE OF ASSESSING OFFICER WITH SIMILAR DIRECTION. 7. THIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSES IN THE MA NNER AFORESAID. 8. THE OTHER DISALLOWANCE OF ` 2,07,340/- IS AGITATED BY THE ASSESSEE AS PER GROUND NO.4 AND 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT A SUM OF ` 2,07,340/- WAS DEBITED AS BAD DEBT WRITTEN OFF IN THE PROFIT & LOSS ACCOUNT. IT WAS SUBMITTED BY THE ASSESSEE THAT THE BAD D EBT PERTAINS TO SUPPLIES/SALES MADE TO GOVERNMENT DEPARTMENTS AND DUE TO LATE SUPPLY, 2% OF THE CONTRACT PAYMENT WAS RELEASED ONLY O N RECEIPT OF GOODS IN GOOD CONDITION AND THE SAID AMOUNT NOT BEING RECEIVED WAS DEBITED TO PROFIT & LOSS ACCOUNT. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT SUCH SUBMISSIONS OF THE ASSESSEE BY RELYING UPON THE CIRCULAR NO.551 W.E.F. 1.4.89 AS, ACCORDING TO THE A SSESSING OFFICER, THE ASSESSEE REMAINED UNABLE TO PROVE THAT THE DEBTS HAD ACT UALLY BECOME BAD. BEFORE LEARNED CIT (A), IT WAS SUBMITTED THAT THE APPELLANT IS SUPPLYING DIESEL ENGINE SPARE PARTS TO VARI OUS ORGANIZATIONS INCLUDING GOVERNMENT DEPARTMENTS. THE ASSESSEE RAISED TWO INVOICES AT THE TIME OF SUPPLY MADE TO GOVE RNMENT DEPARTMENTS. IN ONE INVOICE 98% OF THE PRICE IS MENT IONED AND IN OTHER THE REMAINING 2% OF PRICE IS MENTIONED. ACCOR DING TO THE EXPERIENCE OF THE ASSESSEE, IN MOST OF THE CASES THE GOVER NMENT DEDUCTS BETTER PART OF THE REMAINING 2% OF INVOICES R AISED ON THEM. THE DETAILS OF SUCH AMOUNTS WERE FILED AND IT WAS SUBMIT TED THAT IT IS A CONSISTENT PRACTICE OF THE ASSESSEE TO WRITE OFF THE AMOU NT WHICH REMAINS OUTSTANDING FOR THE PAST THREE YEARS OUT OF THE INVOICES PERTAINING TO 2% AMOUNT. THOSE AMOUNTS WERE VERY SMAL L AND AS THE ITA NO.5930/DEL/2010 6 GOODS WERE SUPPLIED DIRECTLY BY THE PRINCIPAL, THE ASSE SSEE WAS HAVING LITTLE CONTROL OVER SUCH SUPPLY AND, IN THIS MANNER, I T WAS CLAIMED THAT THE CLAIM OF THE ASSESSEE SHOULD BE ACCEPTED. HOWEVER, LEARNED CIT (A) DID NOT ACCEPT SUCH SUBMISSIONS AND HAS OBSERVED THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE FACT TO THE SATISFACTIO N OF ASSESSING OFFICER BY PRODUCING PRIMARY EVIDENCE THAT THE DEBT HAD ACTUALLY BECOME BAD. THEREFORE, LEARNED CIT (A) HAS OBSERVED THAT THE ASSESSING OFFICER IS VERY MUCH WITHIN HIS JURISDICTION FOR ASKING TO FILE SUCH EVIDENCE AND AS THE ASSESSEE HAS FAILED TO ESTABLISH SUC H FACT BY ADDUCING THE EVIDENCE, THEREFORE, THE DISALLOWANCE H AS TO BE UPHELD. THE ASSESSEE IS AGGRIEVED WITH SUCH FINDINGS RECORDED BY L EARNED CIT (A). 9. AFTER NARRATING THE FACTS, THE SUBMISSIONS MADE BEFOR E THE ASSESSING OFFICER AND CIT (A) WERE REITERATED BEFORE US AND IT WAS CLAIMED THAT THE DISALLOWANCE HAS WRONGLY BEEN UPHELD BY THE CIT (A). 10. ON THE OTHER HAND, RELYING UPON THE ORDER OF ASSE SSING OFFICER AND CIT (A), IT WAS PLEADED BY LEARNED DR THAT THE D ISALLOWANCE HAS RIGHTLY BEEN MADE. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE ISSUE IN THE PRESEN T CASE IS NO MORE RES INTEGRA. THE HONBLE SUPREME COURT RECENTLY HAS DECIDED THIS ISSUE IN THE CASE OF T.R.F. LTD. VS. CIT 190 TAXMAN 391 (SC) THAT AFTER 01.04.89, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUG H IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE A SSESSEE. IN THE PRESENT CASE, THERE IS NO DISPUTE REGARDING THE WRITING OFF OF THE BAD DEBT. HENCE, THE DISALLOWANCE CANNOT BE MADE SIMPLY FOR THE REASON THAT THE ASSESSEE COULD NOT PROVE THAT THE QUESTIONED DE BT, IN FACT, ITA NO.5930/DEL/2010 7 HAD BECOME BAD. THEREFORE, WE DELETE THE DISALLOWAN CE AND THESE GROUNDS OF THE ASSESSEE ARE ALLOWED. 12. IN THE RESULT, FOR STATISTICAL PURPOSES, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN THE MANNER AFORESAID. THE ORDER PRONOUNCED IN THE OPEN COURT ON 15.03.20 11. SD/- SD/- [G.E. VEERABHADRAPPA] [I.P. BANSAL] VICE PRESIDENT JUDICIAL MEMBER DATED, 15.03.2011. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES