WILHEMSEN SHIP MANAGEMENT (I) P. LTD, MUMBAI V. DCIT 8(3), MUMBAI

ITA 6159/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8960 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 29-11-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 07-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S SENT H IL KUMARAN
• Keywords: Retrospective amendment; Bad and doubtful debts
• Section: 143(3)

Judgement Text

1 , INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./6159/MUM/2014, / ASSESSMENT YEAR: 2010-11 WILHELMSEN SHIP MANAGEMENT(INDIA) PRIVATE LTD. 31/32, 3 RD FLOOR, APPLE HERITAGE SIR M.V. ROAD, ANDHERI (E) MUMBAI-400 003. PAN:AAACI 1614 H VS. THE DY. CIT 8(3) 2 ND FLOOR, AAYAKAR BHAVAN MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI S.SENTHIL KUMARAN- DR /ASSESSEE BY: SHRI NISHANT THAKKAR / DATE OF HEARING: 29/11/2016 / DATE OF PRONOUNCEMENT: 11.01.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA A.M. - CHALLENGING THE ORDER DATED 3.9.14 OF CIT(A)- 18, M UMBAI THE ASSESSEE HAD FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANNING, SHIP MANAGEMENT, MARINE CONSULTANCY, MARITIME TRAINING, ETC.,FILD ITS RETU RN OF INCOME ON 25.09.2010 DECLARING A TOTAL INCOME OF RS.2.26 CRORES.THE ASSESSING OFFICER(AO)C OMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT,ON 30.01.2014,DETERMINING ITS INCOME AT RS. 3.22 CRORES. 2.FIRST GROUND OF APPEAL IS ABOUT DISALLOWANCE OF A DVANCES AND BAD DEBTS WRITTEN OFF, AMOUNT -ING TO RS.4.91 LAKHS.DURING THE ASSESSMENT PROCEED INGS,THE AO FOUND THAT THE ASSESSEE HAD CLAIMED A SUM OF RS. 3.04 LAKHS AS BAD DEBTS WRITTE N OFF AND A FURTHER SUM OF RS. 1.87 LAKHS AS ADVANCES WRITTEN OFF IN ITS P&L ACCOUNT. SHE CALLED FOR THE BREAKUP OF THE AMOUNTS IN QUESTION, ON VERIFICATION IT WAS OBSERVED BY THE AO THAT AMOUNTS WRITTEN OFF BY THE ASSESSEE WERE NOT OFFERED AS INCOME IN THE EARLIER YEARS. SH E HELD THAT DISPUTED AMOUNTS WOULD NOT FALL UNDER THE CATEGORY OF DEBTS.THE ASSESSEE WAS DIRECT ED TO JUSTIFY THE CLAIM MADE BY IT IN ACCORDANCE WITH THE CONDITIONS SPECIFIED U/S. 3 6(2 ) R.W.S. 36(I)(VII) OF THE ACT.AFTER CONSIDER - ING THE SUBMISSIONS OF THE ASSESSEE THE AO HELD THA T ADVANCES PAID BY THE ASSESSEE COULD NOT BE TREATED AS INCOME AND THEREFORE, COULD NOT BE HE LD TO BE UNRECOVERED DEBT, THAT NO TDS WAS DEDUCTED AT THE TIME OF MAKING THE ADVANCES, THAT P AYMENT MADE BY WAY OF DEPOSITS / ADVANCES WERE WITH THE INTENTION TO OBTAIN BENEFITS OF ENDURING NATURE, THAT THE NATURE OF LOSS 2 61 59/M/14-WILHELMSEN SM(I)PL ARISING ON ACCOUNT OF FORFEITURE OF DEPOSITS/ADVANC ES WAS TO BE CONSTRUED AS CAPITAL IN NATURE, THAT THERE WAS NO EVIDENCE TO SHOW THE LOSS, IF ANY , HAD CRYSTALLIZED IN THE YEAR UNDER CONSI - DERATION,THAT THE WRITE OFF WAS A UNILATERAL ACT ON -THE PART OF THE ASSESSEE. FINALLY.THE AO ADDED A SUM OF RS.4.91 LAKHS TO THE INCOME OF THE A SSESSEE. 2. 1.DURING THE COURSE OF HEARING BEFORE THE FIRST APPELLATE AUTHORITY (FAA),THE ASSESSEE ARGUED THAT IT HAD FILED THE COMPLETE DETAILS OF WR ITE OFFS VIDE IS LETTER DT.3.10.13, THAT THE AO HAD NOT CONSIDERED JUDGMENT OF TRF LTD. (3231TR397) AND MOHAN MEAKIN LTD.(348 ITR 109),STAR CHEMICALS (BOMBAY)(P.) LTD.(3 131TR126).A FTER CONSIDERING THE ASSESSMENT ORDER AND SUBMISSION OF THE ASSESSEE,THE FAA HELD THAT TH E ASSESSEE HAD CLAIMED A SUM OF RS. 4, 91,998/- AS BAD DEBTS/ADVANCES,THAT IT HAD NOT PLAC ED EVIDENCE ON RECORD,THAT THE FINDING OF THE AU THAT IT HAD NOT FULFILLED THE CONDITIONS AS ENVISAGED BY PROVISIONS OF SECTION 36 OF THE ACT REMAINED UNCHALLENGED, HAT THE ASSESSEE HAD REL IED UPON THE CASES BUT HAD NOT ESTABLISHED AS TO HOW THE SAME WERE APPLICABLE TO THE FACTS OF THE CASE UNDER CONSIDERATION, THAT IT HAD FAILED TO PRODUCE ANY DOCUMENTARY EVIDENCE TO PROVE THAT LOSS HAD CRYSTALLIZED DURING THE YEAR UNDER APPEAL.FINALLY, HE UPHELD THE ORDER OF THE AO . 2.2.BEFORE US,THE AUTHORISED REPRESENTATIVE (AR) AR GUED THAT EXPENDITURE WAS INCURRED FOR RENOVATION OF BUILDING, THAT IT COULD NOT RECOVER T HE AMOUNTS FROM THE TENANTS,THAT THE AMOUNTS BECAME TIME BARRED,THAT ASSESSEE COULD NOT RECOVER TRAINING FEE FROM THE PERSONS WHOM IT HAD TRAINED THOUGH IT HAD OFFERED TRAINING FEE FOR TAXATION, THAT THE AU/FAA HAD NOT CONSIDERED THE ANNEX-8 AND 9 OF THE REPLY SUBMITTED TO THE AU.HE RELIED UPON THE CASES OF TRF LTD.(SUPRA) AND SHREYAS MORAKHIA(3421TR285).HE ALSO REFERRED TO THE CERTIFICATE ISSUED BY THE CA GIVING DETAILS OF THE DISPUTED AMOUNTS.TH E DEPARTMENTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE FAA. 2.3.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD WRITTEN OFF CERTAIN AMOUNTS IN ITS P&L ACCOUNT,THAT THE AO HAD CALLED FOR DETAILS IN THAT REGARD, IN ITS REPLY THE ASSESSEE HAD FILED DETAILS ABOUT THE BAD DEBTS/ADVANCES WRITTEN OFF AND NATURE OF THE EXPENDITURE IN DISPUTE,THAT T HE AO DID NOT MAKE ANY ENQUIRY AND DID NOT CONSIDER THE REPLY WHILE FINALISING THE ASSESSMENT, THAT GENERAL COMMENTS WERE MADE BY AO IN THE ASSESSMENT ORDER,THAT THE FAA HAD SIMPLY END ORSED THE VIEW OF AU WITHOUT CONSIDER - ING THE JUDGMENTS RELIED UPON BY THE ASSESSEE. IN T HESE CIRCUMSTANCES WE ARE OF THE OPINION THAT THE ISSUE NEEDS FURTHER VERIFICATION AND INVES TIGATION. THEREFORE, IN THE INTEREST OF JUSTICE WE ARE RESTORING BACK THE ISSUE TO THE FILE OF AO F OR FRESH ADJUDICATION. HE IS DIRECTED TO 6159/M/14-WILHELMSEN SM(I)PL AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE A SSESSEE. FIRST GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE IN PART. 3.SECOND GROUND OF APPEAL PERTAINS TO DISALLOWANCE ON ACCOUNT OF NON DEDUCTION OF TDS U/S. 195 OF THE ACT.DURING THE COURSE OF ASSESSMENT PROC EEDINGS,THE AO FOUND THAT CERTAIN SUMS WERE PAID TO THE NON-RESIDENT COMPANIES/FIRMS ON AC COUNT OF VARIOUS EXPENSES DEBITED TO P&L ACCOUNT.SHE DIRECTED THE ASSESSEE TO CLARIFY AS TO WHETHER IT HAD DEDUCTED TAX AT SOURCE WHILE MAKING PAYMENTS AS PER PROVISIONS OF SECTION 195 OF THE ACT. THE ASSESSEE SUBMITTED THAT EXPENSES IN QUESTION WERE IN THE NATURE OF REIMBURS EMENT AND THEREFORE, NO TDS U/S. 195 OF THE ACT WAS LIABLE TO BE DEDUCTED. THE AO OBSERVED THAT THE ASSESSEE HAD TERMED THE PAYMENTS AS REIMBURSEMENTS, THAT SAME HAD INCOME EM BEDDED IN IT, THAT THE EXPENDITURE WAS INCURRED FOR SERVICES RENDERED OR FOR BENEFITS OBTA INED BY IT, THAT IT HAD INCURRED COST FOR OBTAINING SOFTWARE AND LICENSES, THAT THE PURCHASES QUALIFIED AS ROYALTY PAYMENT AS PER SECTION 9(1) (VI) OF THE ACT,THAT IT HAD MADE THE IMPUGNED PAYMENT FOR OBTAINING SPECIFIC SERVICES IN CONSIDERATION FOR THE USE OF SUCH INFORMATION CONCE RNING INDUSTRIAL AND COMMERCIAL EXPERIEN - CES,THAT IT HAD NOT PRODUCED ANY NON DEDUCTION CERT IFICATE TO ESTABLISH THAT TAX WAS NOT TO BE DEDUCTED AT SOURCE WHILE MAKING PAYMENTS TO NON RES IDENTS.REFERRING TO THE CASE OF VAN OORD ACZ INDIA (P.) LTD.(1 121TD79) THE AO HELD THAT WHI LE MAKING THE PAYMENTS TO NON RESIDENTS THE PAYER COULD NOT ESCAPE LIABILITY OF DEDUCTING T AX UNLESS A CERTIFICATE FOR AO IS OBTAINED FOR NON DEDUCTION OF TAX AT SOURCE, THAT THE ASSESSEE W AS NOT EXPECTED TO STEP INTO THE SHOES OF THE AO TO EXAMINE AS TO WHETHER THE RECEIPT IN THE HAND S OF RECIPIENTS WAS INCOME OR THAT WHETHER IT WAS LIABLE TO PAY TAX THEREON, THAT THE ASSESSEE HAD NOT FURNISHED ANY EVIDENCE TO PROVE THAT THE PAYMENTS WERE NOT PAID TO THIRD PARTIES, THAT I T SHOULD HAVE AFFECTED THE TDS BEFORE MAKING THE PAYMENTS.ACCORDINGLY, THE EXPENDITURE DE BITED, OF RS.69.90 LAKHS WAS DISALLOWED AS PER THE PROVISIONS OF SECTION 40(A)(I). 3.1.AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA AND MADE ELABORATE SUBMISSIONS.BEFORE HIM, IT WAS ARGUE D THAT OUT OF THE SIX ITEMS FIVE ITEMS WERE NOT FALLING UNDER TDS PROVISIONS,THAT PURE REIMBURS EMENTS WERE NOT ATTRACTING THE TDS PROVISIONS,THAT IT REFERRED TO THE CASE OF SIEMENS AG (31 01TR320)BEFORE THE AO,THAT THE AO HAD WRONGLY MADE THE DISALLOWANCE.THE FAA AFTER HE ARING THE RIVAL SUBMISSIONS HELD THAT THE ASSESSEE HAD MADE PAYMENT OF RS.60,90,206/- T O NON-RESIDENT COMPANIES,THAT THE EXPENDI -TURE WAS IN THE NATURE OF SUBSCRIPTION FEE FOR OFF ICE LICENCE /REIMBURSEMENT OF TRAINING COST, TRAVEL COST AND MISCELLANEOUS EXPENSES THAT THE ASS ESSEE WAS LIABLE FOR DEDUCTING TAX ON THESE 4 61 59/M/14-WI!HELMSEN SM(I)PL PAYMENTS BECAUSE SAME WERE IN THE NATURE OF ROYALTY ,THAT AS PER THE PROVISIONS OF SECTION 1 95(2)(III) THE ASSESSEE WAS LIABLE TO OBTAIN CERTIF ICATE FROM AO FOR NON DEDUCTION OF TAX AT SOURCE, DEDUCTING TAX AT LOWER RATE, THAT IT HAD NO T PRODUCED SUCH A CERTIFICATE,THAT THE ASSESSEE HAD FAILED TO SUBMIT ANY APPLICATION BEFOR E THE AO FOR OBTAINING THE CERTIFICATE.HE REFERRED TO THE CASE OF TRANSMISSION CORPORATION OF A.P. LTD. AND HELD THAT THE ASSESSEE HAD VIOLATED THE PROVISIONS OF SECTION 195 OF THE ACT A ND THAT THE AO HAD RIGHTLY MADE THE DISALLOWANCE U/S. 40(A)(I) OF THE ACT. 3.2.THE AUTHORISED REPRESENTATIVE (AR),BEFORE US,AR GUED THAT REIMBURSEMENT OF EXPENSES COULD NOT BE REGARDED AS A REVENUE RECEIPT,THAT EXCEPT FO R THE FIRST ITEM OF REIMBURSEMENT ALL OTHER PAYMENTS WERE NOT FALLING UNDER CATEGORY OF REVENUE RECEIPT. HE REFERRED TO THE CASES OF GE INDIA TECHNOLOGY CENTRE (P)LTD.(3271TR456) ;SAMSUNG (64 D TR 178); AIRPORTS AUTHO - RITY OF INDIA.(304 ITR 216) ;AND RELIANCE INDUSTRIES LTD. ( 47 CCH 94).THE DR SUPPORTED THE ORDER OF THE FAA. 3.3.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD ARGUED THAT THE PAYMENTS WERE REIMBURS EMENT,THAT NO DEDUCTION WAS TO BE MADE WITH REGARD TO THE REIMBURSEMENT PAYMENTS MADE BY IT,THA T THE AO AND THE FAA HAD RELIED UPON THE RETROSPECTIVE AMENDMENT MADE TO THE SECTION 40(A)(I )OF THE ACT FOR MAKING THE DISALLOWANCE.BUT,THEY DID NOT TAKE NOTICE OF THE FA CT THE AMENDMENT WAS CURATIVE IN NATURE. CONSIDERING THE FACT THAT PAYMENTS IN QUESTION WERE REIMBURSEMENTS, WE REVERSE THE ORDER OF THE FAA AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. HERE,WE WOULD LIKE TO REFER TO THE MATTER OF SIEMENS AKTIONGESELLSCHAFT OF THE HON'BLE'BLE BOMBA Y HIGH COURT.IN THAT CASE THE HON'BLE COURT HAS HELD AS UNDER: '57. THAT LEAVES US WITH THE LAST CONTENTION AS TO WHETHER THE AMOUNTS BY WAY OF REIMBURSEMENT ARE LIABLE TO TAX. TO ANSWER THAT ISSUE, WE MAY GAI NFULLY REFER TO THE JUDGMENT OF A DIVISION BENCH OF THE DELHI HIGH COURT IN CIT V. INDUSTRIAL ENGINEERING PROJECTS P. LTD. [1993] 202 ITR 1014. THE LEARNED DIVISION BENCH OF THE DELHI HIGH COURT WAS PLEASED TO HOLD THAT REIMBURSEMENT OF EXPENSES CAN, UNDER NO CIRCUMSTANC ES, BE REGARDED AS A REVENUE RECEIPT AND IN THE PRESENT CASE THE TRIBUNAL HAD FOUND THAT THE ASSESSEE RECEIVED NO SUMS IN EXCESS OF EXPENSES INCURRED. A SIMILAR ISSUE HAD ALSO COME UP FOR CONSIDERATION BEFORE THE DIVISION BENCH OF THE CALCUTTA HIGH COURT IN CIT V. DUNLOP R UBBER CO. LTD. [1983] 142 ITR 493 (CAL). THE LEARNED DIVISION BENCH WAS ANSWERING THE FOLLOW ING QUESTION: WHETHER,ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE AMOUNTS RECEIVED BY THE ASSESSEE (ENGLISH COMPANY) FROM MIS. DUN LOP RUBBER CO. (INDIA) LTD. (INDIAN COMPANY) AS PER AGREEMENT DATED JULY 29, 1957, CONSTITUTED I NCOME ASSESSABLE TO TAX?' 58. ON CONSIDERING THE ISSUE THE LEARNED BENCH NOTE D THAT THE TRIBUNAL WAS OF THE VIEW THAT WHAT WAS RECOUPED BY THE ENGLISH COMPANY WAS PART O F THE EXPENSES INCURRED BY IT. THE 6159/M114-WILHELMSEN SM(J)PL LEARNED COURT UPHELD THE SAID FINDING. THE LEARNED BENCH WAS PLEASED TO HOLD THAT SHARING OF EXPENSES OF THE RESEARCH UTILISED BY THE SUBSIDIARIES AS WELL AS THE HEAD OFFICE ORGANISATION WOULD NOT BE INCOME WHICH WOULD BE ASSESSABLE TO TAX. A SIMILAR VIEW WAS TAKEN IN CIT V. STEWARDS AND LLOYDS OF INDIA LTD. [1987] 165 ITR.41 6. 59. WE ARE IN RESPECTFUL AGREEMENT WITH THE VIEW EX PRESSED BY THE DELHI AND CALCUTTA HIGH COURTS.' 4.GROUND NO.3 DEALS WITH MISTAKES APPARENT FROM THE RECORD THAT WERE NOT RECTIFIED BY THE AO BEFORE US.THE AR STATED THAT THERE WERE FACTUAL MISTAKES IN THE CALCULATIONS/GIVING CREDITS OF THE TAX DEDUCTED AT SOURCE ETC.THE AO IS DIRECTED TO PASS THE NECESSARY ORDER AFTER VERIFICA -TION AND AFTER HEARING THE ASSESSEE.GROUN D NO.3 IS ALLOWED IN FAVOUR OF THE ASSESSEE,IN PART. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH ,JANUARY, 2017. 11 , 2017 SD/- SD/- ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 11.01.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR B BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.