ITO 8(3)2, MUMBAI V. SIRUS PHARMACEUTICALS P.LTD, MUMBAI

ITA 6804/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6679 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 12-06-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 07-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ADGIRI
• Assessee Lawyers: N H GAJRIA
• Keywords: Bad and doubtful debts
• Section: 115JB; 37(1); 194C; 28

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - E BENCH. .. , ! , BEFORE S/SH.I.P.BANSAL, JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.6804/MUM/2011, ' ' ' ' # # # # / ASSESSMENT YEAR-2008-09 ITO 8(3)2, R.NO.202, 2 ND FLOOR, AAYAKAR BHAVAN, MUMBAI-400020 VS M/S SIRUS PHARMACEUTICALS PVT. LTD., 203, PATEL SERVICE INDUSTRIAL ESTATE, B/40, VEERA INDS. LAYOUT, NEW KINK ROAD, ANDHERI (W),MUMBAI-400053 PAN: AAECS6240D ( $% / APPELLANT) ( &'$% / RESPONDENT) ( ) / REVENUE BY : SHRI B. YADGIRI '*+ '*+ '*+ '*+ ) ) ) ) / ASSESSEE BY : SHRI N.H. GAJRIA ' ' ' ' ( (( ( +, +, +, +, / DATE OF HEARING : 12-06-2014 -.# ( +, / DATE OF PRONOUNCEMENT : 12-06-2014 ' ' ' ' , 1961 ( (( ( 254 )1( +/+ +/+ +/+ +/+ 0 0 0 0 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM ! ! ! ! ' ' ' ' : CHALLENGING THE ORDER DT. 29.07.2011 OF THE CIT(A)- 18,MUMBAI, ASSESSING OFFICER (AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) ERRED IN DIRECTING THE ADDITION ON ACCOUNT OF BAD BEBTS OF RS.1,40,19,240/ - WITHOUT APPRECIATING THAT THE SAID AMOUNT DID NOT QUALIFY AS BAD DEBT IN TERMS OF SECT ION 36(1)(VII) R.W.S 36(2) OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF BAD DEBTS OF RS. 1,40,19,240 /- WITHOUT APPRECIATING THAT THE ADVANCES WERE GIVEN FOR ERECTION OF PLANT AND MACHINERY AND HENCE DID NOT QUALIFY FOR DEDUCTION U/S. 28 AS THEY WERE ON CAPITAL ACCOUNT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE U/S. 40(A)(IA) ON ACCOUNT OF FREI GHT CHARGES AMOUNTING TO RS. 22,24,237/- WITHOUT APPRECIATING THE RELEVANT FACTS AND WITHOUT CONSIDERING CBDTS CIRCULAR NO. 715 DATED 08.08.1995, AS PER WHICH TDS IS APPLICABLE ON PAYMENTS OF ACTUAL REIMBURSEMENTS AS WELL WHEN THE NATURE OF SERVICES IS COVERED BY SEC. 194C OR 194J. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) ERRED IN DIRECTING THE A.O TO EXCLUDE SUNDRY BALANCES WRITTEN BACK OF RS. 1,40,19,240/- FOR COMPUTING BOOK PROFIT U/S. 115JB. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ITO/AC/DCIT BE RESTORED. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ASSESSEE COMPANY,ENGAGED IN THE BUSINESS OF EXPORTE RS OF DRUGS AND CHEMICALS,FILED IT RETURN OF INCOME ON 01.10.2008 DECLARING TOTAL INCOME OF RS.N IL.AO FINALISED THE ASSESSMENT ON 31.12. 2010 U/S.143(3) OF THE INCOME-TAX ACT, 1961 DETERMI NING THE INCOME OF THE ASSESSEE AT RS. 1.6 CRORE UNDER NORMAL PROVISIONS AND AT RS.66 LAKHS UN DER SECTION 115JB OF THE ACT. 2. FIRST TWO GROUND OF APPEAL IS ABOUT ADDITION MADE O N ACCOUNT OF BAD-DEBTS.DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT ASSESSEE,IN IT S PROFIT & LOSS ACCOUNT,HAD SHOWN AN 2 ITA NO. 6804/MUM/2011 M/S SIRUS PHARMACEUTICALS PVT. LTD. AMOUNT OF RS. 1,40,19,240/- UNDER THE HEAD BAD-DEBT S WRITTEN OFF. HE DIRECTED THE ASSESSEE TO FILE EXPLANATION IN THIS REGARD AS TO HOW THE SUM IN QUE STION WAS ALLOWABLE AS BAD-DEBTS U/S. 36(1) (VII) OF THE ACT.HE FOUND THAT AMOUNT HAD EARLIER N OT BEEN CREDITED IN P & L A/C IN ANY OF THE PRECEDING ASSESSMENT YEARS (AYS).ASSESSEE STATED TH AT CLAIM MADE BY IT SHOULD BE ALLOWED U/S. 37(1) OF THE ACT AS BUSINESS LOSS.AO HELD THAT CLAI M MADE BY IT COULD NOT BE ALLOWED BECAUSE THE ASSESSEE HAD MADE PROVISIONS FOR DOUBTFUL DEBTS OF RS. 5.47 CRORES FOR AY 2007-08 OUT OF WHICH IT HAD WRITTEN OF RS.1.40 CRORES DURING THE YEAR UNDER CONSIDERATION AND THAT FROM THE PAPER SUBMITTED BY THE ASSESSEE IT CANNOT BE HELD THAT TH E DEBTORS HAD REFUSED TO PAY ADVANCE BY THE ASSESSEE. HE FURTHER HELD THAT THE PROVISIONS OF SE CTION 37(1) OF THE ACT DID NOT PERMIT CLAIM OF LOSS OF CAPITAL AND PERSONAL NATURE.FINALLY, HE HEL D THAT AMOUNTS IN QUESTION WRITTEN OFF WAS NOT ALLOWABLE FOR DEDUCTION U/S. 36(1)(VII) OR U/S. 37( 1) OF THE ACT. 3. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, HE HELD AS UNDER: 3.1I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNE D COUNSEL AND IN VIEW OF THE FACTS BROUGHT RECORD AND CASE LAWS CITED AND RELIED UPON ABOVE ESPECIALLY THE DECISION OF HONBLE J&K HIGH COURT IN CHENAB FOREST CO. VS. CIT (1974) 96 ITR 56 8 (J&K). THE CLAIM OF THE APPELLANT IS ALLOWED U/S 28 OF I.T.ACT.ACCORDINGLY,A.O. IS DIREC TED TO DELETE THE DISALLOWANCE OF RS. 1,40,19,240/-. THIS GROUND OF APPEAL IS ALLOWED. 4.1 I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNE D COUNSEL AND AS RIGHTLY STATED BY HIM THAT WHEN IN THE EARLIER YEAR THIS AMOUNT OF RS. 1,40,19 ,240/- WAS INCLUDED IN THE AMOUNT BY RS. 5,47,67,653/- WHICH WAS DISALLOWED (NOT CLAIMED AS AN EXPENSE)- THEN IN THE SUBSEQUENT YEAR IT CAN NOT AGAIN BE DISALLOWED AGAIN. THE A.O. IS DIRE CTED TO VERIFY THIS ASPECT OF THE SUM OF RS. 1,40,19,240/- BEING INCLUDED IN THE EARLIER DISALLO WANCE OF RS. 5,47,67,653/- AND THEN DELETE THE DISALLOWANCE MADE AGAIN IN THIS YEAR SUBJECT TO T HIS VERIFICATION, THIS GROUND OF APPEAL IS ALLOWED. 4. BEFORE US, DEPARTMENTAL REPRESENTATIVE (DR) ARGUED THAT ORDER OF THE FAA WAS NON-SPEAKING, THAT FAA HAD NOT DISCUSSED AS HOW THE JUDGMENT OF H ONBLE HIGH COURT OF J&K WAS APPLICABLE TO THE FACTS OF THE CASE UNDER CONSIDERATION.AUTHORISE D REPRESENTATIVE (AR) STATED THAT DETAILED SUBMISSION WERE MADE BEFORE THE AO AND THE FAA, THA T FAA HAD PASSED ORDER AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE MADE BEFORE HIM DURI NG THE APPELLATE PROCEEDINGS. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT WHILE DECIDING THE APPEAL,FAA HAS JUST REPRODUCED THE SUB MISSION OF THE ASSESSEE AND IN A VERY CRYPTIC ORDER HAS DELETED THE ADDITION MADE BY THE AO. HOW THE FACTS OF THE CASE UNDER CONSIDERATION AND THE FACTS OF CHENAB FOREST CO. WERE IDENTICAL OR SI MILAR HAS NOT BEEN DISCUSSED BY HIM. COURT ARE OF THE OPINION THAT SECTION 250(6) OF THE ACT,PRESC RIBES THE MANNER OF DISPOSAL OF AN APPEAL,THAT AN ORDER MUST BE IN WRITING CONTAINING THE POINTS F OR DETERMINATION AND DECISION,THAT THE OBJECT IS OBVIOUS,THAT IT ENABLES A PARTY TO KNOW THE PRECISE POINTS DECIDED IN HIS FAVOUR OR AGAINST HIM,THAT ABSENCE OF FORMULATION OF POINTS FOR DECISION OR WA NT OF CLARITY IN DECISION PUTS A PARTY IN A QUANDARY,THAT A DECISION AGAINST A PARTY ENABLES HI M TO GO UP IN APPEAL,THAT A DECISION BY ITS VERY NATURE MUST BE FIRM AND SHOULD NOT BE VAGUE AND UNC LEAR,THAT IF THERE IS A DIRECTION BY THE APPELLATE AUTHORITY TO THE ITO, THE LATTER IS BOUND TO CARRY OUT THE DIRECTION,THAT REFUSAL TO CARRY OUT A DIRECTION IS A DENIAL OF JUSTICE AND DESTRUCT IVE OF ONE OF THE BASIC PRINCIPLES IN THE ADMINISTRATION OF JUSTICE BASED ON THE HIERARCHY OF THE AUTHORITIES,THAT WHEN A SUBORDINATE AUTHORITY IS DIRECTED TO CARRY OUT CERTAIN DIRECTIO NS BY A SUPERIOR AUTHORITY, THE TENOR AND COLOUR OF THE ORDER OF THE SUPERIOR AUTHORITY MUST BE FIRM, C LEAR, CERTAIN, DEFINITE AND WITHOUT ANY AMBIGUI - TY.AS THE ORDER PASSED BY THE FAA IS NOT SPEAKING O RDER, THEREFORE, IN THE INTEREST OF JUSTICE, WE ARE REMITTING BACK THE MATTER TO THE FILE OF THE FA A FOR PASSING A SPEAKING AND REASONED ORDER.HE DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEAR ING TO THE ASSESSEE. 3 ITA NO. 6804/MUM/2011 M/S SIRUS PHARMACEUTICALS PVT. LTD. GROUND NO.1 AND 2 ARE ALLOWED IN FAVOUR OF THE AO, IN PART. 6. GROUND NO.3 IS ABOUT DISALLOWANCE U/S 40(A)(IA) ON ACCOUNT OF FREIGHT CHARGES, AMOUNTING TO RS. 22.24 LAKHS.DURING THE ASSESSMENT PROCEEDINGS,AO FO UND THAT ASSESSEE HAD MADE PAYMENT OF RS.20.03 LAKHS TO VARIOUS CONTRACTORS,THAT THE ASSE SSEE HAD NOT DEDUCTED TDS ON THE SAID PAYMEN -TS.HE ASKED THE ASSESSEE AS TO WHY THE EXPENSES SH OULD NOT BE DISALLOWED.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,AO HELD THAT FREIGHT CH ARGES WERE PAID TO THE AGENT DIRECTLY,THAT FREIGHT CHARGES WERE LIABLE FOR TDS U/S. 194C OF TH E ACT.HE DISALLOWED RS.20.03 LAKHS U/S. 40(A) (IA)UNDER THE HEAD FREIGHT CHARGES. 7. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.AFTER C ONSIDERING THE SUBMISSIONS OF THE ASSESSEE,FAA PASSED FOLLOWING ORDER: 5.1 I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNE D COUNSEL AND SINCE THIS REPRESENTS NOTHING BUT REIMBURSEMENT OF ACTUAL EXPENSES FOLLOWING THE DE CISION OF HONBLE DELHI ITAT IN ITO VS. CARGO LINKERS 15 SOT 144 (DEL.), I DIRECT THE A.O. TO DELETE THE SAME. HENCE, THIS GROUND OF APPEAL IS ALLOWED. WE FIND THAT WHILE DECIDING THE ISSUE OF NON-DEDUCT ION OF TDS,FAA HAS NOT PASSED ANY REASON - ED ORDER.FOLLOWING OUR ORDER AT PARAGRAPH 5,WE ARE REMITTING BACK THE ISSUE TO THE FILE OF THE FAA FOR PASSING A FRESH ORDER AFTER HEARING THE ASSESSE E. 8. LAST GROUND OF APPEAL IS ABOUT COMPUTING PROFIT U/S .115JB OF THE ACT.AO HAD COMPUTED THE INCOME OF THE ASSESSEE UNDER THE NORMAL PROVISIONS AS WELL AS UNDER MAT PROVISIONS. AS PER THE ASSESSEE,THERE WERE CERTAIN MISTAKES IN COMPUTING O F PROFIT U/S.115JB OF THE ACT.THEREFORE, HE FILED AN APPEAL AGAINST THE ORDER OF THE AO BEFORE THE FAA. VIDE HIS PARAGRAPH NO. 7.1 (PAGE 7), HE DECIDED THE ISSUE AS UNDER: 7.1 I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNE D COUNSEL AND THE A.O. IS DIRECTED TO COMPUTE THE BOOK PROFITS U/S 115JB ACCORDINGLY- AFTER GIVIN G BENEFIT OF DEDUCTION UNDER CLAUSE (I) OF THE EXPLANATION 1 TO SECTION 115JB. ACCORDINGLY, THIS G ROUND OF APPEAL IS ALLOWED. BEFORE US, DR MADE SAME SUBMISSIONS THAT WERE MADE FOR GROUND NO. 1 AND 2. AR SUPPORTED THE ORDER OF THE FAA. AFTER CONSIDERING THE RIVAL SUBMI SSIONS, WE ARE OF THE OPINION THAT ORDER OF THE FAA IS NOT A SPEAKING ORDER AND DOES NOT GAVE THE R EASONS FOR HIS CONCLUSIONS. THEREFORE, IN THE INTEREST OF JUSTICE, THIS ISSUE IS ALSO BEEN RESTOR ED BACK TO THE FILE OF THE FAA. GROUND NO.4 IS ALLOWED IN PART, IN FAVOUR OF THE AO. AS A RESULT, APPEA L FILED BY THE AO STANDS PARTLY ALLOWED. 1+2 '*+ VF/KDKJH VF/KDKJH VF/KDKJH VF/KDKJH ( VAKR VAKR VAKR VAKR% %% % 3 ( + 45. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH JUNE,2014 . 0 ( -.# 6 7' 12 TWU , 201 4 . ( / 8 SD/- SD/- ( .. / I.P. BANSAL) ( ! ! ! ! / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 7' /DATE: 12.06 . 2014. 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