INTEGRATED TECHNOLOGY SOLUTIONS P.LTD, MUMBAI V. ITO 6(1)(3), MUMBAI

ITA 6021/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75367 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2009-2010
• Appeal Filed On: 10-10-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: HARESH G BUCH
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 6021/MUM/2013 ASSESSMENT YEAR: 2009-10 M/S. INTEGRATED TECHNOLOGY SOLUTIONS PVT. LTD. 4 TH FLOOR, KALPATARU SQUARE, KONDIVITA LANE, J.B. NAGAR ANDHERI EAST, MUMBAI-400 059 PNR:AAACI 8672 B VS. ITO 6(1)(3) ROOM NO. 508, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI- 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI HARESH G. BUCH RESPONDENT BY : SHRI O.P. SINGH DATE OF HEARING : 18.11.2013 DATE OF PRONOUNCEMENT : 15.01.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT(A)- 14, MUMBAI DATED 26.08.2013 CONFIRMING THE PENALTY OF ` 4,73,70,773/- LEVIED BY THE AO U/S 271(1)(C) OF THE ACT FOR THE ASSESSMENT YEAR 2009-10. 2. BRIEFLY STATED, DURING THE ASSESSMENT PROCEEDING S, THE ASSESSEE FURNISHED THE DETAILS OF SUNDRY DEBTORS AND SUNDRY DEBTS & ADVANC ES WRITTEN OFF. ON GOING THROUGH THE DETAILS, THE AO FOUND THAT THE ASSESSEE HAD WRI TTEN OFF AN AMOUNT OF ` 13,93,31,610/- OF M/S. MODI ENTERTAINMENT NETWORK LT D (MEN). HENCE, THE ASSESSEE WAS ASKED TO FURNISH THE DOCUMENTS RELATING TO THE TRANSACTION WITH MEN. THE ASSESSEE COMPANY THROUGH ITS REPRESENTATIVES LETTER DATED 0 5.12.2011 MADE WRITTEN SUBMISSIONS AND ALSO FILED A REVISED COMPUTATION OF TOTAL INCOM E STATING THAT THE ASSESSEE COMPANY ITA NO. 6021/MUM/2013 M/S. INTEGRATED TECHNOLOGY SOLUTIONS PVT. LTD. ASSESSMENT YEAR: 2009-10 2 HAD DECIDED TO WITHDRAW ITS CLAIM OF BAD DEBTS OF A DVANCES GIVEN TO M/S. MODI ENTERTAINMENT LTD. AS THE ASSESSEE HAD WITHDRAWN EXP ENSES U/S 36(1)(VII) OF THE I.T. ACT, 1961 OF ` 13,93,66,795/- BEING THE ADVANCES WRITTEN OFF OF M/ S. MODI ENTERTAINMENT NETWORK LTD, IN THE ABSENCE OF ANY DOCUMENTARY EVID ENCE, THE AO ADDED THE SAME TO NET PROFIT WHILE COMPUTING THE INCOME FROM BUSINESS AND PROFESSION. CONSEQUENTLY, PENALTY PROCEEDINGS U/S 271(1)(C) OF THE I.T. ACT. 1961 WERE INITIATED FOR CONCEALING THE PARTICULARS OF INCOME. DURING THE PENALTY PROCEEDIN GS, IT WAS THE CONTENTION OF THE ASSESSEE THAT THE ADVANCE WRITTEN OFF WAS IN THE NA TURE OF TRADING LOSS WHEREAS THE RETURN OF INCOME OF THE ASSESSEE WAS FILED BY THE A CCOUNTANT WITHOUT TAKING ANY ASSISTANCE OF THE PROFESSIONAL AND CLAIMED THE SAME AS BAD DEBTS. HOWEVER, THE AO REJECTED THE CONTENTION OF THE ASSESSEE ON THE REAS ON THAT THE CONSEQUENCE WOULD BE THAT THE PERSONS WHO MAKE CLAIMS OF THIS NATURE, AC TUATED BY A MALA FIDE INTENTION TO EVADE TAX OTHERWISE PAYABLE BY THEM WOULD GET AWAY WITHOUT PAYING THE TAX LEGALLY PAYABLE BY THEM, IF THEIR CASES ARE NOT PICKED UP F OR SCRUTINY. THIS WOULD TAKE AWAY THE DETERRENT EFFECT, WHICH THESE PENALTY PROVISIONS IN THE ACT HAVE. ACCORDINGLY, MINIMUM PENALTY @ 100% OF TAX SOUGHT TO BE EVADED WHICH AMO UNTS TO ` 4,73,70,773 WAS LEVIED UNDER SECTION 271(1)(C) OF THE ACT. 3. ON APPEAL BEFORE THE LD.CIT(A), THE ASSESSEE SUB MITTED THAT MEN WAS IN THE BUSINESS OF DISTRIBUTION OF SATELLITE CHANNELS TO T HE CABLE OPERATORS THROUGH THEIR DISTRIBUTION NETWORK. THE ASSESSEE WAS INTERESTED I N ACQUIRING THE SUB-DISTRIBUTORSHIP OF THE SATELLITE CHANNELS FROM MEN. THEREFORE, IN THE C OURSE OF ITS BUSINESS, THE ASSESSEE ADVANCED A SUM OF RS.13,93,31,610/- TO MEN IN ORDER TO OBTAIN THE SAID SUB- DISTRIBUTORSHIP RIGHTS. UNFORTUNATELY, DUE TO FINAN CIAL CRUNCHES, THE CREDITORS OF MEN FILED APPLICATION FOR WINDING UP OF MEN AND HONBLE DELHI HIGH COURT PASSED ORDER FOR LIQUIDATION OF MEN. IN VIEW OF THESE CIRCUMSTANCES, THE ASSESSEE, FOLLOWING THE PRINCIPLE OF PRUDENCE WROTE OFF THE ADVANCE GIVEN. FURTHER, T HE ADVANCES GIVEN TO MEN WHICH WERE WRITTEN OFF DURING THE YEAR WERE FULLY AND TRU LY DISCLOSED BY WAY OF NOTE NO. 11 OF ANNUAL ACCOUNTS WHICH READ AS IN VIEW OF THE WINDI NG UP ORDER ISSUED ON 02.03.2009 ITA NO. 6021/MUM/2013 M/S. INTEGRATED TECHNOLOGY SOLUTIONS PVT. LTD. ASSESSMENT YEAR: 2009-10 3 BY DELHI HIGH COURT AGAINST MEN AND CONSIDERING THEI R LIABILITIES AND NEGATIVE NET WORTH OF THE COMPANY IS NOT EXPECTING ANY RECOVERIES FROM MEN, THE COMPANY HAD WRITTEN OFF ` 13,93,31,611/- DUE FROM MEN. THEREFORE, THE QUESTION OF CONCEALMENT OF PARTICULARS OF INCOME DOES NOT ARISE AS PROPER DISCLOSURE WAS M ADE IN THE AUDITED ACCOUNTS. BEING A BUSINESS GETTING IRRECOVERABLE, THE ASSESSEE CLAI MED IT AS BAD DEBTS U/S 36(1)(VII) OF THE ACT IN ITS RETURN OF INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE, IN VIEW OF THE NATURE OF TRANSACTION, THE NON-ACCESSIBILITY OF THE DOCUMENTS FOR THE TRANSACTION, IN ORDER TO BUY PEACE AND AVOI D ANY FURTHER LITIGATION, HAD WITHDRAWN ITS CLAIM OF WRITE OFF AND REVISED ITS CO MPUTATION OF TOTAL INCOME. THE AO, WHILE ACCEPTING THE SAID REVISED COMPUTATION, HOWEV ER ALLEGED THAT ADVANCES WERE WRITTEN OFF IN THE ABSENCE OF ANY DOCUMENTARY EVIDE NCE. SIMPLY, BECAUSE THE ASSESEE WITHDREW ITS CLAIM OF WRITE OFF, IT DOES NOT MEAN T HAT PENALTY SHOULD AUTOMATICALLY BE LEVIED. HOWEVER, THE LD.CIT(A) DID NOT ACCEPT THE C ONTENTIONS OF THE ASSESSEE AND THEREBY CONFIRMED THE PENALTY. AGGRIEVED BY THE IMP UGNED ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, THE LD.AR FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE REPLY OF THE ASSESSEE DATED 21.06.2012 GIVEN IN RESPONSE TO THE SHOW NOTICE DATED 14.06.2012 ISSUED BY THE AO DURING THE PENALTY PROCEEDINGS WHI CH IS AVAILABLE FROM PAGES 24 TO 30 OF THE PAPER BOOK AND REITERATED HIS CONTENTIONS ON THE BASIS OF THE ARGUMENTS PREFERRED BEFORE THE LOWER AUTHORITIES. IT HAS BEEN STATED THAT THE ADVANCES TO MEN WRITTEN OFF DURING THE YEAR HAS BEEN SEPARATELY SHO WN IN THE P&L ACCOUNT UNDER THE HEAD DEBTS/ADVANCES WRITTEN OFF, WHICH IS HOWEVER IN THE NATURE OF TRADING LOSS. THE MISTAKE HAS BEEN COMMITTED BY THE ACCOUNTANT WITHOU T TAKING ANY ASSISTANCE FROM THE PROFESSIONAL RESULTED IN CLAIMING THE SAME AS BAD D EBTS. ALSO, RELIANCE HAS BEEN PLACED ON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. SUMANGAL OVERSEAS , DECISION OF THE TRIBUNAL IN THE CASE OF DCIT VS. SOFOTEL SOFTWARE SERVICES P.LTD AND THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS (P) LTD (2010) 322 ITR 158 (SC) TO SUPPORT THE CLAIM OF TH E ASSESSEE THAT THE ASSESSEE HAS ITA NO. 6021/MUM/2013 M/S. INTEGRATED TECHNOLOGY SOLUTIONS PVT. LTD. ASSESSMENT YEAR: 2009-10 4 DISCLOSED ALL THE FACTS RELATING TO THE TRANSACTION AND HENCE THERE CANNOT BE ANY CONCEALMENT OF INCOME AND THE PENALTY LEVIED/CONFIR MED BY THE AO/CIT(A) OUGHT NOT TO BE SUSTAINED. ON THE OTHER HAND, THE LD.DR HAS VEHE MENTLY ARGUED THAT THE CLAIM OF THE ASSESSEE IS NOT JUSTIFIED AND HAS STATED THAT I T IS NOT THE CASE OF TRADING LOSS. THE REASONS STATED BY THE ASSESSEE FOR NOT PROVIDING TH E DETAILS OF THE SUNDRY DEBTORS DURING THE PENALTY PROCEEDINGS ARE NOT JUSTIFIED. A LSO THE LD.DR HAS DEMONSTRATED THAT THE DECISIONS RELIED ON BY THE LD.AR ARE NOT APPLIC ABLE IN THE CASE OF THE ASSESSEE. 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD. FIRSTLY, ON THE CONTENTION OF THE LD.AR THAT THE MISTAKE COMMIT TED BY THE ACCOUNTANT WITHOUT TAKING ANY ASSISTANCE FROM THE PROFESSIONAL RESULTE D IN CLAIMING THE BAD DEBTS WRITTEN OFF INSTEAD OF CLAIMING THE SAME AS TRADING LOSS, I T IS PERTINENT TO MENTION THAT THE CLAIM OF THE ASSESSEE IS NOT SUPPORTED BY ANY EVIDENCE AN D ALSO THE SAME HAS NOT BEEN EXPLAINED WITH ANY COGENT REASON. EVEN ASSUMING THAT THE ASSESSEE HAS CLAIMED THAT IN THE COURSE OF ITS BUSINESS, THE ASSESSEE HAS ADVANC ED A SUM OF ` 13,93,31,610/- TO MEN IN ORDER TO OBTAIN THE SUB-DISTRIBUTORSHIP RIGHTS, THE SAME CANNOT BE A TRADING ADVANCE AS THE NATURE OF ADVANCE IS FOR THE PURPOSE OF ACQU IRING NEW BUSINESS ASSET CONSIDERING THE FACT THAT THE ASSESSEE IS ENGAGED IN THE BUSINE SS OF MANAGEMENT CONSULTANCY. THEREFORE, THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. SUMANGAL OVERSEAS RELIED BY THE LD.AR IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE. SECONDLY, IT IS THE CONTENTION OF THE LD.AR THAT THE ASSESSEE HA S WITHDRAWN ITS CLAIM OF BAD DEBT DURING THE ASSESSMENT PROCEEDINGS DUE TO INACCESSIB ILITY OF DOCUMENTS PERTAINING TO MEN AS THE RECORDS ARE KEPT UNDER THE CUSTODY OF LIQ UIDATOR. THE SAID CONTENTION OF THE ASSESSEE IS NOT JUSTIFIED AS THE WINDING UP ORDER O F THE DELHI HIGH COURT IS DATED 02.03.2009 AND THE ASSESSMENT YEAR UNDER CONSIDERAT ION IS 2009-10 WHERE THE ASSESSEE HAS GOT AMPLE OPPORTUNITY TO PRODUCE THE R EQUIRED DETAILS. THIRDLY, IT IS THE CONTENTION THAT THE ASSESSEE, IN VIEW OF THE NATURE OF TRANSACTION, THE NON-ACCESSIBILITY OF THE DOCUMENTS FOR THE TRANSACTION, IN ORDER TO B UY PEACE AND AVOID ANY FURTHER LITIGATION, HAD WITHDRAWN ITS CLAIM OF WRITE OFF AN D REVISED ITS COMPUTATION OF TOTAL ITA NO. 6021/MUM/2013 M/S. INTEGRATED TECHNOLOGY SOLUTIONS PVT. LTD. ASSESSMENT YEAR: 2009-10 5 INCOME. IN THIS CONNECTION, IT IS PERTINENT TO MENT ION THAT THE STATUTE DOES NOT RECOGNIZE THIS TYPE OF DEFENCE UNDER EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT. IT IS TRITE LAW THAT THE VOLUNTARY DISCLOSURE DOES NOT RE LEASE THE ASSESSEE FROM THE MISCHIEF OF PENAL PROCEEDINGS. THE LAW DOES NOT PROVIDE THAT WHEN AN ASSESSEE MAKES A VOLUNTARY DISCLOSURE OF HIS CONCEALED INCOME, HE HA S TO BE ABSOLVED FROM PENALTY. THIS PROPOSITION IS SUPPORTED BY THE RECENT DECISION OF THE HONBLE APEX COURT IN THE CASE OF MAC DATA PVT LTD. FOURTHLY, IT IS RELEVANT TO STATE THAT THE ASSESSEE HAS NOT B ROUGHT ANYTHING ON RECORD TO ESTABLISH THAT THE WRONG CLAI M IN THE RETURN OF INCOME IS ACTUATED BY ANY BONAFIDE ACT OR ARISES OUT OF DEBATABLE ISSU E AND THEREFORE THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF RELIANCE PETRO PRODUCTS (P) LTD (SUPRA) IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE. LASTLY, WE AGREE WITH THE CONTENTION OF THE REVENUE THAT THE CONSEQUENCE WOULD BE THAT THE PERS ONS WHO MAKE CLAIMS OF THIS NATURE WOULD OTHERWISE GET AWAY WITHOUT PAYING THE TAX LEGALLY PAYABLE BY THEM, IF THEIR CASES ARE NOT PICKED UP FOR SCRUTINY. IN VIEW OF THE AFOREMENTIONED DISCUSSION, WE ARE OF THE VIEW THAT THE ASSESSEES CASE ATTRACTS T HE PROVISION OF SECTION 271(1)(C) OF THE ACT AND WE DO NOT FIND ANY JUSTIFIABLE REASON T O INTERFERE WITH THE DECISION OF THE LD.CIT(A) CONFIRMING THE PENALTY LEVIED BY THE AO. THUS, THE ORDER OF THE LD.CIT(A) IS UPHELD. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF JANUARY 2014 SD/- SD/- (P.M. JAGTAP) (DR.S.T.M.PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 15-01-2014 *SRIVASTAVA ITA NO. 6021/MUM/2013 M/S. INTEGRATED TECHNOLOGY SOLUTIONS PVT. LTD. ASSESSMENT YEAR: 2009-10 6 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR I BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.