DCIT, New Delhi V. M/s. M.K. Overseas Pvt. Ltd., New Delhi

ITA 6856/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3771 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 19-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K YADAV SENIOR
• Assessee Lawyers: SAMEEP GUPTA
• Keywords: Business expenditure; Earning of tax free income; Bad and doubtful debts; Commercial expediency
• Section: 14A; 37(1); 6; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE HONBLE PRESIDENT, SHRI G.D. AGRAWAL AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.6856/DEL./2014 (ASSESSMENT YEAR : 2010-11) DCIT, CIRCLE 16 (1), VS. M/S. M.K. OVERSEAS PVT.LTD ., NEW DELHI. 39/5864, BASTI HARPOOL SINGH, SADAR BAZAR, DELHI 110 006. (PAN : AAACM2076P) CO NO.178/DEL/2017 (IN ITA NO.6856/DEL./2014) (ASSESSMENT YEAR : 2010-11) M/S. M.K. OVERSEAS PVT.LTD., VS. DCIT, CIRCLE 16 ( 1), 39/5864, BASTI HARPOOL SINGH, NEW DELHI. SADAR BAZAR, DELHI 110 006. (PAN : AAACM2076P) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SAMEEP GUPTA, ADVOCATE REVENUE BY : SHRI A.K. YADAV, SENIOR DR DATE OF HEARING : 30.10.2017 DATE OF ORDER : 31.10.2017 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE AFORESAID APPEAL FILED BY THE REVENUE AND CROSS OBJECTIONS FILED BY THE ASSESSEE ARE BEING DISPOSED OFF BY WAY OF CONSOLIDATED ORDER TO AVOID REPETITION OF DISCUSSIO N. ITA NO.6856/DEL./2014 CO NO.178/DEL./2017 2 2. THE APPELLANT, DEPUTY COMMISSIONER OF INCOME-TAX , CIRCLE 16 (1), NEW DELHI (HEREINAFTER REFERRED TO AS THE REVENUE) IN ITA NO.6856/DEL/2014 BY FILING THE PRESENT APPEAL SOUGH T TO SET ASIDE THE IMPUGNED ORDER DATED 02.07.2014 PASSED BY THE C OMMISSIONER OF INCOME-TAX (APPEALS)-XXXIII, NEW DELHI QUA THE A SSESSMENT YEAR 2010-11 ON THE GROUNDS INTER ALIA THAT :- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETI NG THE ADDITION OF RS. 1,48,34,300/- BY HOLDING IT AS AN ALLOWABLE EXPENDITURE U/S 37(1) OF THE I.T. ACT, 19 61 IGNORING THE FACT THAT IT IS NOT IN NATURE OF ANY C URRENT EXPENDITURE COVERED U/S 37(1)? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE ADDITION OF RS.12,28,007/- TO RS.2,14,935/- U/S 14A OF THE I.T. ACT IGNORING THE CALCULATION AS PER RULE 8D? 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.14,51,206/- ON ACCOUNT OF BUSINESS TOURS AND PROMOTION EXPENSES IGNORING THE FACT THAT THE ASSESSEE FAILED TO SUBMIT SATISFACTOR Y EXPLANATION REGARDING COMMERCIAL EXPEDIENCY OF THE EXPENDITURE RELATING TO FOREIGN TRAVEL? ITA NO.6856/DEL./2014 CO NO.178/DEL./2017 3 3. THE OBJECTOR, M/S. M.K. OVERSEAS PVT. LTD., BY F ILING THE PRESENT CROSS OBJECTIONS CHALLENGED THE IMPUGNED OR DER DATED 02.07.2014 PASSED BY THE COMMISSIONER OF INCOME-TA X (APPEALS)- XXXIII, NEW DELHI QUA THE ASSESSMENT YEAR 2010-11 O N THE GROUND THAT :- THAT ON THE FACTS AND IN LAW, THE ID. CIT (A) HAS ERRED IN SUSTAINING AN ADDITION OF RS. 2,14,935/- ON ACCO UNT OF PROVISIONS OF SECTION 14A READ WITH RULE 80 OF T HE INCOME-TAX RULES. 4. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICATION OF THE CONTROVERSY AT HAND ARE : ASSESSING OFFICER DISALLO WED AN AMOUNT OF RS.1,48,34,300/- DEBITED BY THE ASSESSEE COMPANY IN PROFIT AND LOSS ACCOUNT AS AMOUNT RECOVERABLE WRITTEN OFF IN THE NATURE OF BAD DEBT UNDER SECTION 36 (2) READ WITH SECTION 36 (1)(VII) OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) AND MADE ADDITION THEREOF TO THE TOTAL INCOME OF THE ASSESSEE COMPANY ON THE GROUND THAT THERE IS NO EVIDENCE ON RECORD THAT THE ASSESS EE HAS CREDITED THE AMOUNT OF RS.1,48,34,300/- EITHER IN THE PROFIT & LOSS ACCOUNT OR IN THE COMPUTATION OF INCOME IN THE RELEVANT PRE VIOUS YEAR OR ANY EARLIER YEAR. 5. AO FURTHER DISALLOWED AN AMOUNT OF RS.12,28,007/ - U/S 14A OF THE ACT ON THE GROUND THAT THE ASSESSEE COMPANY HAS INVESTED A ITA NO.6856/DEL./2014 CO NO.178/DEL./2017 4 PORTION OF ITS BORROWED FUNDS IN SHARES THE INCOME OF WHICH IS EXEMPT FROM TAX AND TO EARN THE SAID INCOME, THE AS SESSEE INCURRED OTHER ADMINISTRATIVE EXPENSES RELATED TO ACTIVITIES OF INVESTMENTS MADE IN SHARES. AO FURTHER DISALLOWED AN AMOUNT OF RS.14,51,206/- BEING 10% OF RS.1,45,12,068/- DEBITE D BY THE ASSESSEE COMPANY UNDER THE HEAD BUSINESS TOURS AND PROMOTION DURING THE YEAR UNDER ASSESSMENT ON THE GROUND THAT THE SAME IS NOT PROPERLY SUPPORTED BY SUFFICIENT DETAILS AND RE LATED EXPENSES. 6. ASSESSEE CARRIED THE MATTER BY WAY OF FILING APP EAL BEFORE THE LD. CIT (A) WHO HAS ALLOWED THE DEDUCTION OF R S.1,48,34,300/- U/S 37 (1) AND DELETED THE ADDITION OF RS.14,51,206 /- MADE BY THE AO ON ESTIMATED BASIS FROM THE BUSINESS TOURS AND P ROMOTION EXPENSES. LD. CIT (A) HOWEVER PROVIDED PART RELIEF TO THE ASSESSEE COMPANY BY CONFIRMING THE DISALLOWANCE OF RS.2,14,9 35/- OUT OF RS.12,28,007/- MADE BY THE AO U/S 14A OF THE ACT BY PARTLY ALLOWING THE APPEAL. FEELING AGGRIEVED, THE REVENU E AS WELL AS ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF CHALLENGING THE IMPUGNED ORDER PASSED BY LD. CIT (A) . 7. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.6856/DEL./2014 CO NO.178/DEL./2017 5 GROUND NO.1 OF REVENUES APPEAL 8. IT IS CATEGORIC CASE OF THE ASSESSEE COMPANY THA T IT HAS ADVANCED AN AMOUNT OF RS.5,00,00,000/- TO M/S. ARAB IAN EXPORTS LIMITED DURING FY 1996-97 TO PURCHASE GOODS FOR BU SINESS PURPOSE. ASSESSEE COMPANY CLAIMED TO HAVE MADE EFF ORTS TO GET THE COMMITMENT HONOURED BY M/S. ARABIAN EXPORTS LIM ITED, WHICH WAS PARTLY HONOURED. BUT M/S. ARABIAN EXPORT S LIMITED FAILED TO HONOUR ITS COMMITMENT QUA THE AMOUNT OF RS.1,48,34,300/- AND CONSEQUENTLY WRITTEN OFF THE S AME AS BAD DEBTS AND CLAIMED THE SAME AS BUSINESS EXPENDITURE. 9. THE LD. AO HAS NOT DISPUTED THE ADVANCE OF RS.5,00,00,000/- MADE TO M/S. ARABIAN EXPORTS LIMIT ED DURING FY 1996-97. AO HAS ALSO NOT DISPUTED THE FACT THAT TI LL AY 2005-06, THE ENTIRE AMOUNT EXCEPT THE AMOUNT OF RS.1,48,34,3 00/- MADE AS AN ADVANCE HAS BEEN ADJUSTED FOR THE GOODS PURCHASE D FOR BUSINESS PURPOSE. 10. LD. CIT (A) EXAMINED THE ISSUE U/S 37 OF THE AC T BY CALLING A REMAND REPORT FROM THE AO BY TAKING A VIEW THAT T HE ASSESSEE COMPANY IS NOT ELIGIBLE FOR DEDUCTION U/S 36(1)(VII ) READ WITH ITA NO.6856/DEL./2014 CO NO.178/DEL./2017 6 SECTION 36(2) AS BAD DEBT AS THE SAID AMOUNT WAS NE VER CREDITED OR OFFERED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE COM PANY. WE ARE OF THE CONSIDERED VIEW THAT WHEN UNDISPUTEDLY AN AD VANCE OF RS.5,00,00,000/- WAS GIVEN BY THE ASSESSEE COMPANY TO M/S. ARABIAN EXPORTS LIMITED DURING FY 1996-97 TO PURCHA SE GOODS FOR BUSINESS PURPOSE OUT OF WHICH GOODS WORTH RS.3,51,6 5,700/- (RS.5,00,00,000/- MINUS RS.1,48,34,300/-) WERE SUPP LIED AND FOR REMAINING AMOUNT, COMMITMENT WAS NOT HONOURED, THE LD. CIT (A) HAS RIGHTLY AND VALIDLY TREATED THE AMOUNT OF RS.1, 48,34,300/- EXPENDED FOR BUSINESS PURPOSE AND ALLOWED THE SAME AS DEDUCTION U/S 37. WHEN IT IS NOT IN DISPUTE THAT HONBLE BOM BAY HIGH COURT VIDE ORDER DATED 03.07.2009 HAS ORDERED M/S. ARABIA N EXPORTS LIMITED, IN WINDING UP PETITION, TO DEPOSIT DEBT OF RS.3,16,00,000/- TO M/S. MAFCO LTD. WITHIN SIX WEEKS OR ELSE WINDING UP PETITION WILL BE ADMITTED. IT IS PROVED ON RECORD THAT M/S. ARABIAN EXPORTS LIMITED WAS NOT IN A POSITION TO PAY THE ADVANCE QU A THE REMAINING AMOUNT OF RS.1,48,34,300/- NOR WAS IN POSITION NOT SUPPLY THE GOODS AND AS SUCH IT IS BUSINESS EXPENSES. SO, FIN DING NO ILLEGALITY OR PERVERSITY IN DELETING THE AMOUNT OF RS.1,48,34, 300/- U/S 37(1) IN THE IMPUGNED ORDER OF LD. CIT (A), WE DETERMINE GROUND NO.1 OF REVENUES APPEAL AGAINST THE REVENUE. ITA NO.6856/DEL./2014 CO NO.178/DEL./2017 7 GROUND NO.2 OF REVENUES APPEAL GROUND NO.1 OF ASSESSEES CROSS OBJECTION 11. LD. CIT (A) SUSTAINED THE DISALLOWANCE OF RS.2, 14,935/- U/S 14A AS AGAINST DISALLOWANCE OF RS.12,28,007/- MADE BY THE AO U/S 14A ON THE SOLE GROUND THAT THE ASSESSEE HAS INVEST ED IN MUTUAL FUND WHICH REQUIRED SOME MANPOWER AND PROFESSIONAL MANAGEMENT. IT APPEARS THAT LD. CIT (A) HAS SUSTAI NED THE DISALLOWANCE ON THE BASIS OF CONJECTURES AND SURMIS ES WITHOUT RESORTING TO ANY WORKING AS TO HOW THE FIGURE OF RS .2,14,935/- HAS COME UP. 12. WHEN ALL THESE FACTS ARE EXAMINED IN THE LIGHT OF THE UNDISPUTED FACTS INTER ALIA THAT THE ASSESSEE COMPA NY HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR UNDER ASSE SSMENT; THAT THE ASSESSEE COMPANY HAS FUNDS TO THE TUNE OF RS.92 .23 CRORES IN THE FORM OF SHARE CAPITAL AND FREE RESERVES AS AGAI NST THE TOTAL INVESTMENT OF RS.8.51 CRORES, DISALLOWANCE AS MADE BY AO AS WELL AS CIT (A) IS NOT SUSTAINABLE IN THE EYES OF LAW. 13. SO, WHEN THERE IS NO TAXABLE INCOME FORMING PAR T OF THE TOTAL INCOME AND THE ASSESSEE COMPANY HAS AMPLE FUNDS TO THE TUNE OF RS.9.23 CRORES IN THE FORM OF SHARE CAPITAL AND FRE E RESERVE AS AGAINST THE TOTAL INVESTMENT OF RS.8.51 CRORES IN M UTUAL FUNDS AND SHARE INVESTMENT IN SUBSIDIARY COMPANY, NO DISALLOW ANCE CAN BE ITA NO.6856/DEL./2014 CO NO.178/DEL./2017 8 MADE U/S 14A OF THE ACT. MOREOVER THE ASSESSEE COM PANY HAS NOT INCURRED ANY INTEREST ON ITS INVESTMENT AMOUNT OF R S.8,51,36,990/- RATHER ITSELF DISALLOWED AN AMOUNT OF RS.50,000/- O N AD HOC BASIS ON ACCOUNT OF ADMINISTRATIVE EXPENSES. 14. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT IN THE GIVEN FACTS AND CIRCUMS TANCES OF THE CASE, SECTION 14A READ WITH RULE 8D IS NOT ATTRACTE D AND AS SUCH NO DISALLOWANCE CAN BE MADE IN THIS CASE. CONSEQUENTL Y, GROUND NO.2 OF REVENUES APPEAL IS DISMISSED AND GROUND NO.1 OF ASSESSEES CROSS OBJECTION IS ALLOWED. GROUND NO.3 OF REVENUES APPEAL 15. LD. CIT (A) DELETED THE DISALLOWANCE OF RS.14,5 1,206/- BEING 10% OF BUSINESS TOURS AND PROMOTION EXPENSE S ON ACCOUNT OF PERSONAL USE ON THE SOLE GROUND THAT DISALLOWAN CE ON THE BASIS OF PERSONAL USE CANNOT BE MADE IN CASE OF A COMPANY . SO, WE ARE OF THE CONSIDERED VIEW THAT WHEN THE ASSESSEE HAS C ATEGORICALLY DEBITED AN AMOUNT OF RS.14,51,206/- UNDER THE HEAD BUSINESS TOURS AND PROMOTION EXPENSES, THE SAME CANNOT BE D ISALLOWED ON THE BASIS OF PERSONAL USE AS THE EXPENSES ARE DEBIT ED IN CASE OF A COMPANY. MOREOVER, THE LD. AO BY DISALLOWING ESTI MATED AMOUNT OF 10% DEBITED BY THE ASSESSEE UNDER HEAD BUSINESS TOURS AND ITA NO.6856/DEL./2014 CO NO.178/DEL./2017 9 PROMOTION) HAS NOT DISPUTED THE GENUINENESS OF THE EXPENDITURE RATHER DISALLOWED THE SAME ON THE BASIS OF CONJECTU RES AND SURMISES. SO, AGAIN, WE FIND NO GROUND TO INTERFER E IN THE FINDINGS RETURNED BY LD. CIT (A) ON THIS ISSUE. HENCE, GROU ND NO.3 OF REVENUES APPEAL IS DETERMINED AGAINST THE REVENUE. 15. RESULTANTLY, THE APPEAL OF THE REVENUE IS DISMI SSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 31 ST DAY OF OCTOBER, 2017. SD/- SD/- (G.D. AGRAWAL) (KULDIP SINGH) PRESIDENT JUDICIAL MEMBER DATED THE 31 ST DAY OF OCTOBER, 2017 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-XXVII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.