ASSOCIATED CONTAINER LINE P. LTD, MUMBAI V. DCIT 5(1), MUMBAI

ITA 6290/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54918 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-08-2011
• Assessment Year: misc
• Appeal Filed On: 04-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PARTHA SARATHI NAIK
• Keywords: Bad and doubtful debts; Commercial expediency
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, MUMBAI. BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER I.T.A NO.6290/ MUM/2009 ASSESSMENT YEAR: 2006-07 ASSOCIATED CONTAINER LINE P.LTD. .. APPELLANT 901, PENISULA TOWERS, LOWER PAREL, MUMBAI-400 013 PA NO.AAACA 9239 L VS DY.CIT 5(1) ,. RESPONDEN T AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. APPEARANCES: PRAKASH PANDIT, FOR THE APPELLANT PARTHASARATHI NAIK, FOR THE RESPONDENT DATE OF HEARING : 8.8.2011 DATE OF PRONOUNCEMENT : 12 .8. 2011 O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CALLED INTO Q UESTION CORRECTNESS OF CIT(A)S ORDER DATED 12 TH NOVEMBER, 2009 IN THE MATTER OF ASSESSMENT UNDER SECTIO N 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMEN T YEAR 2006-07. 2. GROUND NOS.1 & 2 READ AS UNDER: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF ` . 1,10,514 UNDER SECTION 14A OF INCOME TAX ACT, 1961 OUT OF TOTAL EXPENSES ON ACCOUN T OF SALARY, ALLOWANCE, ETC BEING EXPENSES ATTRIBUTED TO EARNING O F DIVIDEND INCOME OF ` . 18,06,236. I.T.A NO.6290/ MUM/2009 ASSESSMENT YEAR: 2006-07 2 2. REASONS GIVEN BY THE CIT(A) FOR CONFIRMING THE DISA LLOWANCE OF ` . 1,10,514 UNDER SECTION 14A OF INCOME TAX ACT, 1961 OUT OF TOTAL EXPENSES ON ACCOUNT OF SALARY, ALLOWANCE, ETC, BEING E XPENSES ATTRIBUTED TO EARNING OF DIVIDEND INCOME OF ` . 18,06,236 ARE WRONG INSUFFICIENT AND CONTRARY TO THE FACTS AND EVIDENCE O N RECORD. 3. FACTS IN BRIEF ARE THAT DURING THE COURSE OF ASSESSME NT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS RECEIVED DI VIDEND INCOME OF ` . 18,06,236 AND NOT DISALLOWED ANY EXPENSES TO EARN THE SE DIVIDENDS AS PER PROVISIONS OF SECTION 14A OF THE INCOME TAX AT. RELYING ON TH E DECISION OF ITAT MUMBAI IN THE CASE OF DAGA CAPITAL MANAGEMENT P. LTD., 26 SOT 609, THE AO APPLIED RULE 8 AND DISALLOWED ` . 1,10,514. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A) BUT WITHOUT ANY SUCCESS. 4. LEARNED REPRESENTATIVES AGREE THAT SO FAR AS THE QU ESTION OF RULE 8D IS CONCERNED, THE ISSUE IS NOW COVERED IN FAVOUR OF THE A SSESEE BY THE HONBLE JURISDICTIONAL HIGH COURTS JUDGEMENT IN THE CASE OF G ODREJ & BOYCE MFG CO LTD VS DCIT (328 ITR 81), WHEREIN, IT HAS BEEN HELD THAT R ULE 8D OF THE INCOME TAX RULES, 1962 IS APPLICABLE ONLY PROSPECTIVELY I.E. FROM A.Y. 2008-09. THE ASSESSMENT YEAR INVOLVED IN THE PRESENT CASE IS 2006-07 AND, THEREFO RE, RULE 8D IS NOT APPLICABLE IN THE PRESENT CASE. THE HONBLE HIGH COURT HAS HELD TH AT A REASONABLE DISALLOWANCE FOR EXPENSES INCURRED IN EARNING DIVIDEND INCOME IS NEVER THELESS TO BE COMPUTED BY THE AO. IN VIEW OF THE DECISION OF THE HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG CO. LTD (SUPRA) , WE REMIT THE ISSUE TO THE FILE OF THE AO TO RE- COMPUTE THE DISALLOWANCE U/S.14A IN THE LIGHT OF THE LAW LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG CO. LTD (SUPRA). 5. GROUND NOS.1 & 2 ARE ALLOWED FOR STATISTICAL PURPOSE S. 6. IN GROUND NO.3, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF ` . 5,00,000 MADE BY THE AO OUT OF BAD DEBTS CLAIMED BY THE APPELLANT OF ` . 10,88,301 BEING THE I.T.A NO.6290/ MUM/2009 ASSESSMENT YEAR: 2006-07 3 AMOUNT WRITTEN OFF IN THE BOOKS OF ACCOUNT OF THE AP PELLANT, ARE WRONG INSUFFICIENT AND CONTRARY TO THE FACTS AND EVIDENCE O N RECORD. 7. BRIEFLY STATED THE RELEVANT MATERIAL FACTS ARE LIK E THIS. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED A SUM OF RS. 10,88, 301 UNDER THE HEAD SUNDRY BALANCES WRITTEN OFF AS AGAINST RS. 4,43,093 IN THE PR EVIOUS YEAR. IN RESPONSE TO ASSESSING OFFICERS REQUISITION TO FURNISH THE NATURE AND DETAILS OF SUCH SUNDRY BALANCES, IT WAS SUBMITTED BY THE ASSESSEE THAT BALANCES LY ING WITH VARIOUS PARTIES BEING UNRECOVERABLE HAVE BEEN WRITTEN OFF. SINCE T HE NATURE AND DETAILS COULD NOT BE FURNISHED BEFORE THE AO TO PROVE THAT SUCH BALANC ES HAVE BECOME ACTUALLY BAD AND NON RECOVERABLE, THE CLAIM OF THE ASSESSEE WAS PART LY DECLINED AND ` . 5,00,000 WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVE D, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 8. IT WAS SUBMITTED BEFORE THE CIT(A) THAT THE ASSESSEE H AS WRITTEN OFF THE DEBTS AS WELL AS CREDITS OF THE VARIOUS PARTIES APPEARING IN T HE ASSESSEES BOOKS OF ACCOUNT AND HAS COMPLIED WITH PROVISIONS OF SECTION 36(1)(VII) OF THE ACT. RELIANCE WAS PLACED ON THE DECISION OF ITAT MUMBAI (SB) IN THE CA SE OF DCIT VS OMAN INTERNATIONAL BANK, 313 ITR 128, INTERNATIONAL BANK , 110 ITD 285 AND OTHER DECISIONS ON THE SUBJECT. THE CIT(A) WAS OF THE VIEW T HAT THE ASSESSEE HAS FILED NO EVIDENCE THAT ITS DECISION TO WRITE OFF THE AMOUNTS IS BONAFIDE AND IS TAKEN INTO ACCOUNT OF COMMERCIAL EXPEDIENCY. SINCE IN THE PR ESENT CASE THE ASSESSEE HAS NOT SHOWN THAT DEBTS WRITTEN OFF ARE TAKEN INTO CONSIDERAT ION FOR COMPUTING INCOME IN THE EARLIER YEARS AND THE APPELLANT HAS ALSO NOT SHOWN THAT IT HAS TAKEN BONAFIDE DECISION TO WRITE OFF, THE CIT(A) UPHELD THE ACTION OF THE AO. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 9. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PER USED THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE BEFORE THE AUTHORITIES BELOW THAT THE BALANCES HAVE ACTUALLY BEC OME BAD AND ARE NOT RECOVERABLE, BUT THEN IN VIEW OF HONBLE SUPREME CO URTS DECISION IN THE CASE OF TRF LTD VS CIT (323 ITR 397), ALL THAT IS NECESSARY FO R THE ASSESSEE IS TO ACTUALLY I.T.A NO.6290/ MUM/2009 ASSESSMENT YEAR: 2006-07 4 WRITE OFF THE AMOUNT IN THE BOOKS OF ACCOUNTS, AND IT IS NOT NECESSARY FOR HIM TO PROVE THAT THE AMOUNT HAS ACTUALLY BECOME BAD. HOWE VER, THE CIT(A) HAS ALSO UPHELD THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE HAS NOT DEMONSTRATED THAT THE AMOUNT SO WRITTEN OFF BY THE ASSESSEE HAS BEEN INCLUD ED BY THE ASSESSEE IN HIS INCOME FOR ONE OF THE PRECEDING PERVIOUS YEARS. TO THIS EXTENT, OBJECTION OF THE CIT(A)S IS VALID IN PRINCIPLE. IT IS INDEED REQUIRE D OF THE ASSESSEE TO DEMONSTRATE THAT AMOUNT WRITTEN OFF, AS BAD DEBTS ELIGIBLE FOR DE DUCTION UNDER SECTION 36(1)(VII) R.W.S. 36(2) OF THE ACT, WAS ACTUALLY INCLUDED IN INC OME OF THE ASSESSEE IN THE PREVIOUS YEAR OR ONE OF THE PRECEDING PREVIOUS YEARS, BUT SINCE THE ASSESSEE WAS NOT GIVEN SPECIFIC OPPORTUNITY TO DISCHARGE THIS ONUS, WE D EEM IT FIT AND PROPER TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSES OF GIVING OPPORTUNITY TO THE ASSESSEE FOR DISCHARGING THIS ONUS. W HILE SO EXAMINING THE MATTER, IN THE LIGHT OF SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER WILL DECLINE THE ISSUE IN ACCORDANCE WITH LAW AND BY WAY OF A SPEAK ING ORDER. WE DIRECT SO. 10. GROUND NO.3 IS THUS ALLOWED FOR STATISTICAL PUR POSES. 11. IN THE RESULT, APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON 12 TH AUGUST, 2011 SD/- (VIJAY PAL RAO) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATED 12 TH AUGUST, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),9, MUMBAI 4. COMMISSIONER OF INCOME TAX, 5 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH A MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI