ACIT, New Delhi V. M/s. Times Business Solutions Ltd., New Delhi

ITA 629/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65381 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 27-08-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 06-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS REENA S PURI
• Keywords: Bad and doubtful debts; Revenue expenditure; Capital expenditure

Judgement Text

ITA NO. 629/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H, NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI C.M. GARG, JUDICIAL MEMBER I.T.A. NO. 629/DEL/2012 A.Y. : 2007-08 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 16(1), NEW DELHI VS. M/S TIMES BUSINESS SOLUTIONS LTD., 10, DARGYAGANJ, NEW DELHI 110 002 (PAN/GIR NO. : AACCT4972F) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSESSEE BY : SH. GAUTAM JAIN, CA DEPARTMENT BY : MRS. REENA S. PURI, C.I.T. (D.R.) ORDER ORDER ORDER ORDER PER PER PER PER SHAMIM YAHYA: AM SHAMIM YAHYA: AM SHAMIM YAHYA: AM SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-18, MUMBAI D ATED 14.10.2011 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED READ AS UNDER:- I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN DELETING THE DISALLOWANCE OF ` 3,63,31,532 /- BEING BAD DEBTS WRITTEN OFF. II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. COMMISSIONER OF INCOME TAX (A) ERRED I N NOT APPRECIATING THAT THE DEBTS WRITTEN OFF BY THE ITA NO. 629/DEL/2012 2 ASSESSEE HAD ACTUALLY BECOME BAD AND HENCE WRONGLY DELETED THE ADDITION ON THAT ACCOUNT. III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN DIRECTING THAT THE EXPENDITURE OF ` 26,29, 614/- INCURRED ON RENOVATION OF ELECTRICAL FITTINGS ETC. BE TREATED A REVENUE EXPENDITURE AS AGAINST OF CAPITAL NATURE HELD BY THE ASSESSING OFFICER. IV) THE APPELLANT CRAVES LEAVE FOR RESERVING THE RI GHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO, ANY GROUND(S) O F APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF APPEAL. 3. DURING THE YEAR, THE COMPANY PURSUANT TO A SCHE ME OF DEMERGER UNDER SECTION 391 TO 394 OF THE COMPANIES A CT, 1956, ACQUIRED ALL THE ASSETS AND LIABILITIES OF TWO WEB BASED PORTALS THAT WERE BEING OPERATED BY ITS HOLDING COMPANY AS A GOI NG CONCERN. SHAREHOLDERS OF THE HOLDING COMPANY WERE ISSUED SH ARES IN THE COMPANY PURSUANT TO THE DEMERGER. THE COMPANY TH EREAFTER CONTINUES TO RUN AND OPERATE THE TWO WEB PORTALS AN D DERIVES INCOME BY WAY OF ONLINE SERVICES, CO-BRANDED INCOME, ADVER TISEMENTS AND MANAGEMENT OF EVENTS. 4. APROPOS ISSUE OF WRITING OFF OF BAD DEBTS IN THIS REGARD ASSESSING OFFICER NOTED THAT ASSES SEE HAS WRITTEN OFF BAD DEBTS AMOUNTING TO ` 3,63,31,432/- IN ITS A CCOUNTS. ASSESSING OFFICER FURTHER FOUND THAT ON PERUSAL OF THE DETAI LS FILED IN THIS REGARD SHOWS THAT THESE DEBTS RELATED TO THE YEARS 2003 T O 2006 WHEN THE ITA NO. 629/DEL/2012 3 WEB PORTALS WERE RUN AND OPERATED BY THE HOLDING CO MPANY (DEMERGED COMPANY). ASSESSING OFFICER FURTHER NOTED THAT THIS BEING THE FIRST YEAR OF THE OPERATIONS OF THE COMPANY, THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO HOW THE CONDITIONS UNDER SECTION 3 6(1)(VII) READ WITH SECTION 36(2) OF THE ACT HAVE BEEN COMPLIED WITH. IN REPLY THERETO, THE ASSESSEE SUBMITTED THAT IT BEING A SUCCESSOR TO THE BUSINESS CARRIED ON BY THE PREDECESSOR (DEMERGED COMPANY) A ND FOLLOWING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF C.I.T. VS. VEERABHADRA RAO 155 ITR 152, IT WAS ELIGIBLE TO CLA IM AND BE ALLOWED DEDUCTION OF BAD DEBTS OF ITS PREDECESSOR. FURTHE R ASSESSEE RELIED UPON THE DECISION OF THE MUMBAI HIGH COURT IN THE CAS E OF LD. D.I.T. (INT. TAXATION) VS. OMAN INTERNATIONAL BANK (313 I TR 128) TO CONTEND THAT AFTER THE AMENDMENT TO SECTION 36(1)(VII) FROM ASSESSMENT YEAR 1989-90, ONCE AN ASSESSEE RECORDS A DEBT AS A BAD D EBT IT PRIMA FACIE ESTABLISHES THAT IT WAS A BAD DEBT. ASSESSING OFF ICER FURTHER OBSERVED THAT THE CASE LAWS RELIED UPON THE BY THE ASSESSEE WERE NOT RELEVANT. HE ACCORDINGLY, REJECTED THE CLAIM OF BAD DEBT AMOU NTING TO ` 3,63,31,432/-. 5. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) NOTED THAT THE HONBLE APEX COURT IN THE CASE OF C .I.T. VS. VEERABHADRA RAO 155 ITR 152 WAS CONCERNED WITH AN I DENTICAL CLAIM AS THAT IN THE CASE OF THE COMPANY. IN THE SAID CASE, A PARTNERSHIP FIRM TOOK OVER THE ASSETS AND LIABILITIES OF AN EXISTIN G FIRM THAT INCLUDED DEBTS DUE FROM VARIOUS PARTIES. THE SUCCESSOR FIRM WROTE OFF ONE SUCH DEBT AND CLAIMED THE AMOUNT AS BAD DEBT. WHILE ALLO WING THE CLAIM IN THE HANDS OF THE SUCCESSOR FIRM THE HONBLE APEX CO URT AT PAGES 156 AND 157 OBSERVED AS FOLLOWS:- ITA NO. 629/DEL/2012 4 IF THE SAME ASSESSEE WAS CARRYING ON A BUSINESS A ND HE WROTE OFF A DEBT RELATING TO THE BUSINESS AS IRRE COVERABLE, HE WOULD WITHOUT DOUBT BE ENTITLED TO A CORRESPOND ING DEDUCTION UNDER CL. (VII) OF SUB-S. (1) OF S. 36. IF A BUSINESS, ALONG WITH ITS ASSETS AND LIABILITIES, IS TRANSFERR ED BY ONE OWNER TO ANOTHER, WE SEE NO REASON WHY A DEBT SO TRANSFERRED SHOULD NOT BE ENTITLED TO THE SAME TREA TMENT IN THE HANDS OF THE SUCCESSOR. THE RECOVERY OF THE DE BT IS A RIGHT TRANSFERRED ALONG WITH THE NUMEROUS OTHER RIG HTS COMPRISING THE SUBJECT OF THE TRANSFER. IF THE LAW PERMITS THE TRANSFEROR TO TREAT THE WHOLE OR PART OF THE DE BT AS IRRECOVERABLE AND TO CLAIM A DEDUCTION ON THAT ACCOU NT, IT SEEMS DIFFICULT TO ACCEPT THAT THE SAME RIGHT SHOULD NOT BE RECOGNIZED IN THE TRANSFEREE. IT IS MERELY AN IN CIDENT FLOWING FROM THE TRANSFER OF THE BUSINESS, TOGETHER WITH ITS ASSETS AND LIABILITIES, FROM THE PREVIOUS OWNER TO THE TRANSFEREE. IT IS A RIGHT WHICH SHOULD, ON A PROPE R APPRECIATION OF ALL THAT IS IMPLIED IN THE TRANSFER OF BUSINESS, BE REGARDED AS BELONGING TO THE NEW OWNER.. IT SEEMS TO US THAT EVEN IF THE DEBT HAD BEEN TAKE N INTO ACCOUNT IN COMPUTING THE INCOME OF THE PREDECESSOR FIRM ONLY AND HAD SUBSEQUENTLY BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE, THE ASSESSEE WOULD STILL HAVE BEEN ENTITLED TO A DEDUCTION OF TH E AMOUNT WRITTEN OFF AS A BAD DEBT. IT IS NOT IMPERATIVE TH AT THE ASSESSEE REFERRED TO IN SUB-CL. (A) MUST NECESSARILY MEAN THE IDENTICAL ASSESSEE REFERRED TO IN SUB-CL. (B). A SUCCESSOR TO THE PERTINENT INTEREST OF A PREVIOUS A SSESSEE ITA NO. 629/DEL/2012 5 WOULD BE COVERED WITHIN THE TERMS OF SUB-CL.(B). THE SUCCESSOR ASSESSEE, IN EFFECT, STEPS INTO THE SHOES OF HIS PREDECESSOR. ACCORDINGLY, WE HOLD THAT THE ASSESSEE IN THE INST ANT CASE WAS ENTITLED TO THE DEDUCTION AS A BAD DEBT OF THE SUM OF ` 15,100 WRITTEN OFF BY IT IN ITS ACCOUNTS OF THE PRE VIOUS YEAR AS IRRECOVERABLE. 6. ASSESSEE SUBMITTED THAT APPLYING THE RATIO O F THE ABOVE DECISION TO THE FACTS OF THE COMPANYS CASE, THE COMP ANY BEING A SUCCESSOR TO THE BUSINESS OF THE TWO WEBSITE PORTA LS THAT IT ACQUIRED PURSUANT TO THE DEMERGER, IT IS ELIGIBLE TO CLAIM T HE DEDUCTION AS BAD DEBT UNDER SECTION 36(1)(VII) READ WITH SECTION 36 (2) OF THE INCOME TAX ACT, 1961. LD. COMMISSIONER OF INCOME TAX (A ) FURTHER NOTED THAT HONBLE APEX COURT IN TRF LIMITED VS. C.I.T. 323 ITR 397 WAS ALSO CONCERNED WITH A CLAIM OF BAD DEBTS UNDER SECTION 36 (1)(VII) OF THE INCOME TAX ACT, AFTER ITS AMENDMENT WITH EFFECT FR OM 1 ST APRIL, 1989. THEIR LORDSHIPS AT PAGE 398 HELD AS FOLLOWS:- THIS POSITION IN LAW IS WELL SETTLED. AFTER APRIL 1, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTAB LISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. I T IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERA BLE IN THE ACCOUNTS OF THE ASSESSEE. 7. CONSIDERING THE ABOVE CASE LAWS, LD. COMMISSIONER OF INCOME TAX (A) HELD THAT THE GROUND OF APPEAL IS ALLOWED AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF THE ASSES SEE RELATING TO BAD DEBTS. ITA NO. 629/DEL/2012 6 8. AGAINST THE ABOVE DECISION, THE REVENUE IS IN AP PEAL BEFORE US. 9. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. IN OUR CONSID ERED OPINION, THE CASE LAW RELIED UPON BY THE LD. COMMISSIONER OF INCOME TAX (A) ARE SQUARELY APPLICABLE ON THE FACTS OF THE CASE. HENC E, RESPECTFULLY FOLLOWING THE ABOVE PRECEDENTS FROM THE APEX COURT, WE AFFIRM THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A). HEN CE, THE CLAIM OF BAD DEBT IS ALLOWED. 10. APROPOS ISSUE OF EXPENDITURE OF ` 26,29,614/- I NCURRED ON RENOVATION OF ELECTRICAL FITTING ETC. ON THIS ISSUE ASSESSING OFFICER NOTED THAT ASSESS EE HAS INCURRED OF ` 16,30,169/- TOWARDS FLOORING OF THE PREMISES. FROM THE BILLS OF THE PARTY ASSESSING OFFICER NOTED THAT RENOVATION HAS TAKEN PLACE AND FRESH FLOORING, TILING AND FURNITURE WORK HAS BEEN CARRIED OUT BY THE ASSESSEE. ASSESSING OFFICER FURTHER OBSERVED TH AT EXPENDITURE INCURRED WERE CAPITAL IN NATURE. HENCE, THE SAME A MOUNT WAS DISALLOWED AND ADDED TO THE TOTAL INCOME. ASSESSI NG OFFICER FURTHER NOTED THAT ASSESSEE HAS ALSO INCURRED EXPENDITURE O F ` 999445/- TOWARDS ELECTRICAL FITTINGS AT ITS ANDHERI OFFICE. ASSESSING OFFICER NOTED THAT THE PERUSAL OF THE BILL OF THE PARTY MA GENTA ELECTRICALS WOULD SHOW THAT THE EXPENDITURE HAS BEEN INCURRED IN THE FORM OF NEW ELECTRICAL WIRING AND ELECTRICAL POINTS AS WELL AS UPS SYSTEMS. ASSESSING OFFICER DISALLOWED THE SAID EXPENDITUR E AS CAPITAL EXPENDITURE. 11. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) NOTED THAT ASSESSEE COMPANY HAS TAKEN A PREMISES ON L EASE AND INCURRED THESE EXPENDITURES. ASSESSEE FURTHER SUBMITTED THAT ITA NO. 629/DEL/2012 7 EXPENDITURE WAS REVENUE IN NATURE ON THE TOUCH STO NE OF HONBLE APEX COURT IN THE CASE OF EMPIRE JUTE CO. LTD. VS. C.I.T . 124 ITR 001 (SC). IT WAS FURTHER SUBMITTED THAT NONE OF THE EXPENSES IN CURRED BY THE ASSESSEE COMPANY TOWARDS RENOVATION / ELECTRICAL FI TTINGS IN THE SAID LEASEHOLD PREMISES GAVE THE COMPANY ANY ENDURING BEN EFIT. NO ASSETS WERE ACQUIRED BY THE COMPANY BY INCURRING THE SAID EXPENDITURE. THE EXPENDITURE WAS ONLY INCURRED TO CREATE A BETTER WORKING ENVIRONMENT AND ONLY TO FACILITATE THE COMPA NYS OPERATIONS AND TO ENABLE IT TO CARRY ON MORE EFFICIENTLY / PROF ITABLY ITS BUSINESS. CONSIDERING THE ABOVE, LD. COMMISSIONER OF INCOME TAX (A) HELD THAT THE ASSESSING OFFICER IS DIRECTED TO TREAT THIS EX PENDITURE AS REVENUE EXPENDITURE. 12. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPE AL BEFORE US. 13. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. LD. DEPARTMENT AL REPRESENTATIVE SUBMITTED THAT BEFORE THE LD. COMMISSIO NER OF INCOME TAX (A) ASSESSEE HAS SUBMITTED THAT THE RENOVATION / ADDITIONS WERE MADE IN THE LEASED PREMISES. LD. DEPARTMENTAL REPRE SENTATIVE FURTHER SUBMITTED THAT THIS FACT WAS NOT DISCLOSED BEFORE T HE ASSESSING OFFICER. HENCE, SHE CONTENDED THAT THE MATTER MAY BE REMITTED TO THE FILE OF THE ASSESSING OFFICER TO GIVE A FINDING REGARDING THE OWNERSHIP OF THE PREMISES. 14. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. IN OUR CONSIDERED OPINION, INTEREST OF JUSTICE WILL BE SERVED IF THE ISSUE IS REMITTED TO THE FILES OF THE ASSESSIN G OFFICER TO CONSIDER THE ISSUE DENOVO, IN LIGHT OF THE SUBMISSIONS MADE BE FORE THE LD. COMMISSIONER OF INCOME TAX (A). WE HOLD AND DIRECT ACCORDINGLY. ITA NO. 629/DEL/2012 8 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31/8/2012. SD/- SD/- [ [[ [C.M. GARG C.M. GARG C.M. GARG C.M. GARG] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 31/8/2012 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES