Appeal details
Counselvise Citation
[2010] 136 COUNSELVISE.COM (IT) 1356 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 7 month(s) 8 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-06-2010
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
16-06-2010
Assessment Year
2004-2005
Appeal Filed On
21-11-2008
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, B, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI J SUDHAKAR REDDY, ACCOUNTANT MEMBER I T A NO: 6619/MUM/2008 (ASSESSMENT YEAR: 2004-05) MILESTONE INTERACTIVE SOFTWARE LIMITED, MUMBAI AP PELLANT (PAN: AAACE4733D) VS DEPUTY COMMISSIONER OF INCOME TAX, RANGE 8(2) RES PONDENT MUMBAI I T A NO: 6726/MUM/2008 (ASSESSMENT YEAR: 2004-05) DEPUTY COMMISSIONER OF INCOME TAX, RANGE 8(2) APP ELLANT MUMBAI VS MILESTONE INTERACTIVE SOFTWARE LIMITED, MUMBAI RE SPONDENT ASSESSEE BY: SHRI ASHOK PATIL REVENUE BY: SHRI B K SINGH / SHRI S S RANA O R D E R R V EASWAR, PRESIDENT: THESE ARE CROSS APPEALS RELATING TO THE ASSESSMENT YEAR 2004- 05. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSIN ESS OF SOFTWARE DEVELOPMENT IN THE FIELDS OF EDUCATION, GAMES AND A NIMATION. THE APPEALS ARISE OUT OF THE ASSESSMENT ORDER PASSED UN DER SECTION 143(3) OF THE INCOME TAX ACT, 1961, ON 15.12.2006. 2. TAKING THE APPEAL FILED BY THE ASSESSEE FIRST, T HE FIRST TWO GROUNDS RELATE TO THE DISALLOWANCE OF THE BAD DEBTS OF RS.3,88,583/-. THERE IS NO DISPUTE THAT THE DEBTS WERE WRITTEN OFF TO THE PROFIT & LOSS ACCOUNT. THE TOTAL DEBTS WRITTEN OFF WAS RS.6,44,1 66/- FOR WHICH THE RELEVANT DETAILS ARE GIVEN IN PARA 4.3 OF THE ASSES SMENT ORDER. WE ARE CONCERNED ONLY WITH THREE DEBTS, NAMELY, PIER 57 RS .54,015/-, ITA NOS: 6619 & 6726/MUM/2008 2 INDIGAANA.COM RS.2,89,435/- AND ACCURATE SHOPPING A GENCY RS.45,133/-. SINCE THE DEBTS HAVE BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, RESPECTFULLY FOLLOWING THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT (2010 ) 323 ITR 397 (SC), THE DEBTS OF RS.54,015/- AND RS.45,133/- HAVE TO BE ALLOWED AS A DEDUCTION. THE ASSESSEE HAS ALSO FURNISHED THE REL EVANT DETAILS ABOUT THE DEBTS TO SHOW THAT THE WRITE OFF WAS BONA FIDE. IT IS SEEN FROM PAGES 5 AND 6 OF THE PAPER BOOK THAT THE OPENING BA LANCE IN THE LEDGER ACCOUNT OF PIER 57 WAS RS.1,24,800/- AND DUR ING THE YEAR ONE PAYMENT OF RS.70,785/- WAS RECEIVED. THE BALANCE O F RS.54,015/- WAS WRITTEN OFF IN THE ACCOUNT. THE AMOUNT HAS BEEN OU TSTANDING FROM 27.05.2002 AND THE AMOUNT OF RS.70,785/- WAS RECEIV ED ALMOST ONE YEAR LATER ON 05.04.2003. THE WRITE OFF APPEARS TO US TO BE BONA FIDE. AS REGARDS THE DEBT IN THE NAME OF ACCURATE SHOPPIN G AGENCY, THE RELEVANT DETAILS HAVE BEEN FILED AT PAGES 29 TO 34 OF THE PAPER BOOK. THE OPENING BALANCE IN THE ACCOUNT AS ON 01.04.2002 WAS RS.45,133/- . BEFORE THIS DATE THERE WERE SEVERAL TRANSACTIONS IN THE ACCOUNT, BOTH DEBTS AND CREDITS AND THE CLOSING BALANCE AS ON 26. 05.2001 WAS RS.45,133/-. THE ASSESSEE HAS WAITED ALMOST THREE YEARS FROM THAT DATE FOR FURTHER PAYMENTS BUT NOTHING WAS FORTHCOMI NG. THE BALANCE WAS WRITTEN OFF FINALLY ON 31.03.2004. SINCE NO PA YMENTS WERE RECEIVED FROM THE DEBTOR FOR ALMOST THREE YEARS, TH E WRITE OFF APPEARS TO BE BONA FIDE. 3. AS REGARDS THE CLAIM OF RS.2,89,435/- IN THE ACC OUNT OF INDIGAANA.COM, THE FACTS BROUGHT OUT IN THE ORDERS OF THE INCOME TAX ITA NOS: 6619 & 6726/MUM/2008 3 AUTHORITIES SHOW THAT IT CANNOT BE CONSIDERED AS A BAD DEBT BUT IS MORE IN THE NATURE OF BUSINESS LOSS. IT APPEARS TH AT THE ASSESSEE VENTURED INTO THE DOTCOM BUSINESS AND INCURRED THE AFORESAID AMOUNT IN THE PROJECT. THE PROJECT IS STATED TO HAVE FAIL ED AND, THEREFORE, THE AMOUNT WAS WRITTEN OFF. THE ASSESSING OFFICER HAS SOMEHOW CONSIDERED THIS ALSO AS A BAD DEBT. THE CIT(A), HO WEVER, NOTED THAT THE AMOUNT SPENT ON THE NEW VENTURE CANNOT BE SAID TO BE A TRADE DEBT BECAUSE THE JOINT VENTURE PLANNED BY THE ASSESSEE W ITH INDIGAANA.COM ULTIMATELY FAILED LEADING TO THE WRITE OFF. ACCORD ING TO THE CIT(A), SINCE THIS AMOUNT HAD NOT BEEN OFFERED BY THE ASSESSEE AS ITS INCOME, IT CANNOT BE ALLOWED AS A BAD DEBT. THE LEARNED COUNS EL FOR THE ASSESSEE DID NOT DISPUTE THE FACTUAL POSITION THAT THE CLAIM CANNOT BE PUT AS A BAD DEBT BUT CONTENDED THAT ON THE VERY SA ME FACTS IT CAN BE ALLOWED AS A BUSINESS LOSS. THE CONTENTION SEEMS T O US TO BE CORRECT. THE ASSESSEE WAS ALREADY ENGAGED IN SOFTWARE DEVELO PMENT AND DOTCOM BUSINESS IS CONNECTED TO THE SAID BUSINESS. IT IS COMMON KNOWLEDGE THAT THE DOTCOM BUSINESS BUBBLE BURST IN THE RELEVANT PERIOD AND MANY PERSONS WHO FORAYED INTO THE SAID B USINESS HAD BURNT THEIR FINGERS. THE ASSESSEE IS THEREFORE ENTITLED TO THE CLAIM AS BUSINESS LOSS THOUGH NOT AS BAD DEBT. ACCORDINGLY THE AMOUNT OF RS.2,89,435/- IS ALLOWED AS A BUSINESS LOSS AND NOT AS A BAD DEBT. THE FIRST TWO GROUNDS ARE THUS ALLOWED. 4. THE THIRD AND FOURTH GROUNDS ARE DIRECTED AGAINS T THE DISALLOWANCE OF 50% OF THE EXPENSES INCURRED BY THE ASSESSEE ON ACCOUNT OF REPAIRS AND MAINTENANCE. THE ASSESSEE D EBITED ITA NOS: 6619 & 6726/MUM/2008 4 RS.9,10,606/- AS REPAIRS AND MAINTENANCE EXPENDITUR E. FROM THE DETAILS SUBMITTED BY THE ASSESSEE, THE ASSESSIN G OFFICER NOTICED THAT THE EXPENSES WERE INCURRED FOR REPAIRS OF FURN ITURE AND REMAKING OF ENTRANCE DOOR AND OTHER EXPENSES WHICH WERE CONS IDERED BY HIM TO BE OF CAPITAL NATURE. HE ACCORDINGLY TREATED THE E NTIRE EXPENDITURE AS CAPITAL EXPENDITURE ELIGIBLE FOR ALLOWANCE OF DEPRE CIATION AT 10%. THE BALANCE OF RS.8,19,546/- WAS DISALLOWED. 5. ON APPEAL THE ASSESSEE SUBMITTED THAT THE EXPENS ES WERE ROUTINE DAY-TO-DAY EXPENSES INCURRED ON MINOR REPAI RS AND ADDITIONS TO THE OFFICE FURNITURE AND THAT IT WAS CARRYING ON BU SINESS ON RENTED PREMISES AND THAT NO ASSET OF ENDURING NATURE WAS C REATED. THE CIT(A), HOWEVER, HELD THAT 50% OF THE CLAIM OF RS.9 ,10,606/- SHOULD BE CONSIDERED AS CAPITAL AND DIRECTED THE ASSESSING OF FICER ACCORDINGLY. IN THE FURTHER APPEAL BEFORE US, OUR ATTENTION WAS DRAWN TO THE DETAILS OF THE EXPENDITURE FURNISHED AT PAGE 48 OF THE PAPE R BOOK. THE EXPENDITURE WAS INCURRED UNDER SEVERAL HEADS. SO F AR AS CAR REPAIRS OF RS.39,923/- IS CONCERNED, THE SAME HAS TO BE ALLOWE D AS BUSINESS EXPENDITURE SINCE NO NEW ASSET IS CREATED AND THE E XPENDITURE APPEARS TO BE ROUTINE MAINTENANCE EXPENDITURE INCLU DING REPLACEMENTS OF WORN OUT PARTS. THE SAME IS ALLOWED. THE SAME DECISION HOLDS GOOD IN RESPECT OF THE COMPUTER AND PRINTER REPAIRS EXPENDITURE OF RS.26,743/-. THERE IS AN EXPENDITURE OF RS.74,900/ - WHICH IS SHOWN AS DED. FROM DEPOSIT. THERE WAS NO EXPLANATION AS T O THE NATURE OF THIS ITEM. THIS DOES NOT APPEAR TO REPRESENT ANY R EPAIRS OR MAINTENANCE EXPENDITURE. IN THE ABSENCE OF THE REL EVANT FACTS, THIS ITA NOS: 6619 & 6726/MUM/2008 5 ISSUE REGARDING RS.74,900/- IS RESTORED TO THE ASSE SSING OFFICER FOR FRESH DECISION. AS REGARDS THE ELECTRICAL MATE RIALS AND REPAIRS OF RS.66,432/-, THE SAME IS ALLOWABLE AS IT IS IN THE NATURE OF ROUTINE MAINTENANCE EXPENSES. THE PEST CONTROL EXPENSES OF RS.21,040/- AND THE WAREHOUSE REPAIR OF RS.2,525/- AND THE EXPENSES ON REPAIRS TO GENERATOR OF RS.36,567/- ALSO FALL IN THE SAME CATE GORY AS ROUTINE MAINTENANCE EXPENSES AND HENCE ALLOWABLE. THE MISC ELLANEOUS REPAIR OF RS.4,487/- IS A VERY SMALL AMOUNT AND IS ALLOWED. THIS LEAVES US WITH OFFICE REPAIRS UNDER TWO HEADS. IN THE FIR ST HEAD, THE ASSESSEE HAS DEBITED EXPENSES SUCH AS AC REPAIRS, CARPET CLE ANING, DOOR REPAIR, FABRICATION, PAINTING, SLIDING BARS, REPAIRS TO TOI LET, WATER FILTER, ETC. THESE ITEMS APPEAR TO BE ROUTINE MAINTENANCE EXPEND ITURE AND ARE DIRECTED TO BE ALLOWED. AS REGARDS SANITATION EXPE NDITURE OF RS.1,04,052/-, SINCE THEY HAVE BEEN INCURRED ONLY O N RENTED PREMISES, NO ENDURING BENEFIT CAN BE SAID TO HAVE ARISEN TO T HE ASSESSEE. THE EXPENDITURE INCURRED UNDER THE HEAD OFFICE REPAIRS 2 REPRESENTS CARPENTRY LABOUR, GLASS PURCHASE, PLYWOOD AND AMOUN TS PAID TO INTERIORS AND DECORATORS. IT IS STATED THAT THESE WERE EXPENDITURE INCURRED ON SETTING UP PARTITIONS IN THE PREMISES. SINCE THIS EXPENDITURE HAS BEEN INCURRED ON PREMISES TAKEN ON RENT, THEY WOULD HAVE TO BE DISMANTLED WHEN THE TENANCY COMES TO AN END AND THEREAFTER THE MATERIALS MAY NOT BE FIT TO BE REUSE D. THUS NO ENDURING BENEFIT CAN BE SAID TO HAVE ARISEN TO THE ASSESSEE. FURTHER THERE IS NO EVIDENCE TO SHOW THAT BY INCURRING THE EXPENDITURE THE ASSESSEE OBTAINED ANY EXTRA SPACE. IT ONLY APPEARS TO US TH AT THERE WAS MORE ITA NOS: 6619 & 6726/MUM/2008 6 EFFICIENT UTILIZATION OF THE PREMISES BY PUTTING UP OF THE PARTITIONS AND SMALL CUBICLES. THIS CANNOT BE SAID TO BE EXPENDIT URE INCURRED IN THE CAPITAL FIELD. ACCORDINGLY THESE ITEMS OF EXPENDIT URE UNDER BOTH THE HEADS OF OFFICE REPAIRS ARE ALLOWED. THE GROUNDS A RE PARTLY ALLOWED. 6. GROUND NO.5 RELATES TO THE DISALLOWANCE ON ACCOU NT OF PERSONAL EXPENSES UNDER THE HEAD FOREIGN TRAVEL EXPENSES. WHILE EXAMINING THE EXPENSES THE ASSESSING OFFICER NOTICED THAT SOM E EXPENDITURE WAS INCURRED THROUGH CREDIT CARD WHICH HE CONSIDERED TO BE PERSONAL EXPENSES. HE DISALLOWED 20% OF THE EXPENSES WHICH CAME TO RS.1,68,891/-. ON APPEAL THE CIT(A) UPHELD THE DIS ALLOWANCE, REJECTING THE ASSESSEES CONTENTION THAT IN THE CAS E OF A COMPANY THERE CANNOT BE ANY ELEMENT OF PERSONAL EXPENSES. THE CO NTENTION WAS REJECTED ON THE GROUND THAT NO PART OF THE EXPENSES WAS TAXED IN THE HANDS OF ANY OF THE EMPLOYEES AS PERQUISITE AS SEEN FROM FORM NO.16. THE SAME CONTENTION IS REPEATED BEFORE US ON BEHALF OF THE ASSESSEE. IT IS SEEN THAT THE ASSESSEE HAS DEBITED THE AMOUNT UNDER THE HEAD FOREIGN TRAVEL WHICH MEANS THAT IT IS THE PERSONN EL OF THE ASSESSEE WHO HAVE INCURRED THE EXPENDITURE ON THEIR FOREIGN TRAVEL. THE COMPANY AS SUCH CANNOT TRAVEL BECAUSE IT IS A JURIS TIC ENTITY AND IT CAN ACT ONLY THROUGH HUMAN AGENCY. WHEN THE EMPLOYEES OF THE COMPANY HAVE GONE ON A FOREIGN TOUR, THE INCURRING OF SOME PERSONAL EXPENSES WHICH RELATE TO THEIR FOOD, CLOTHING, ENTERTAINMENT , ETC. CANNOT BE TOTALLY RULED OUT. SUCH EXPENSES ARE PERSONAL IN THE SENSE THAT THEY RELATE TO THE EMPLOYEES AND NOT TO THE COMPANY. THEREFORE, W E UPHOLD THE DISALLOWANCE IN PRINCIPLE. WE, HOWEVER, REDUCE THE SAME TO 10% OF ITA NOS: 6619 & 6726/MUM/2008 7 THE TOTAL FOREIGN TRAVEL EXPENSES OF RS.8,44,456/- AND ALLOW THE GROUND IN PART. 7. THE ASSESSEES APPEAL IS THUS PARTLY ALLOWED. 8. IN THE DEPARTMENTS APPEAL, THE FIRST GROUND REL ATES TO THE ALLOWANCE OF BAD DEBTS TO THE EXTENT OF RS.2,55,583 /-. SINCE THERE IS NO DISPUTE THAT THE AMOUNTS HAVE BEEN WRITTEN OFF I N THE ASSESSEES BOOKS OF ACCOUNT AND THE OTHER CONDITION THAT THEY SHOULD HAVE BEEN OFFERED AS INCOME IN THE EARLIER YEARS HAS ALSO BEE N SATISFIED, RESPECTFULLY FOLLOWING THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT CITED SUPRA, WE CONFIRM THE DECISI ON OF THE CIT(A) AND DISMISS THE GROUND. 9. THE SECOND GROUND RELATES TO THE ALLOWANCE OF TH E REPAIR EXPENDITURE. WE HAVE DEALT WITH THIS ISSUE WHILE D EALING WITH THE ASSESSEES APPEAL (GROUND NOS. 3 AND 4). IN ACCORD ANCE THEREWITH THE GROUND IS PARTLY ALLOWED ONLY TO THE EXTENT OF RESTORING THE ISSUE RELATING TO THE ALLOWANCE OF THE AMOUNT OF RS.74,90 0/- SHOWN AS DE. FROM DEPOSIT. THE APPEAL OF THE DEPARTMENT IS ALL OWED TO THE AFORESAID EXTENT. 10. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE 2010. SD/- SD/- (J SUDHAKAR REDDY) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 30 TH JUNE 2010 SALDANHA ITA NOS: 6619 & 6726/MUM/2008 8 COPY TO: 1. MILESTONE INTERACTIVE SOFTWARE LIMITED 2 ND FLOOR, PRAMUKH PLAZA, CARDINAL GRACIOUS ROAD CHAKALA, ANDHERI (EAST), MUMBAI 400 099 2. DCIT, RANGE 8(2) 3. CIT-VIII 4. CIT(A)-VIII 5. DR B BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI
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