M/s Marketing Comminications & Advertising Limited , Bangalore V. Assistant Commissioner of Income Tax Circle-4(1)(2), Bangalore

ITA 686/BANG/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7997 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-08-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 08-04-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K Y NINGOJI RAO
• Keywords: Business expenditure; Bad and doubtful debts; Tax effect; TDS
• Section: 234B; 37(1); 201; 2(A); 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER IT A NO . 686/ BANG / 201 9 ASSESSMENT YEAR : 2013 - 14 M/S. MARKETING COMMUNICATIONS & ADVERTISING LTD., MC&A HOUSE, NO.42, MILLERS ROAD, VASANTH NAGAR, BANGALORE 560 053. PAN: AAACM 7139D VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 4(1)(2), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI K.Y . NINGOJI RAO, CA RESPO NDENT BY : SHRI KANNAN NARAYANAN , JT . C IT(DR)(ITAT ), BENGALURU. DATE OF HEARING : 12 . 0 8 .2021 DATE OF PRONOUNCEMENT : 23 .0 8 .202 1 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF CIT(APPEALS), BANGALORE-9, BANGALORE DATED 14.02.2 019 FOR THE ASSESSMENT YEAR 2013-14. GROUNDS OF APPEAL TAX EFFECT RELATING TO EACH GROUND OF APPEAL 1 THE IMPUGNED ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)- 9, BENGALURU IS LIABLE TO SET AS IDE IN SO FAR AS THE UPHOLDING OF THE ADDITIONS AND DISALLOWANCES MADE BY THE RESPONDENT OFFICER ARE INCORRECT, IMPROPER, UNLAWFUL A ND OPPOSED TO FACTS OF THE CASE AND LAW. 5,41,985/ - ITA NO.686/BANG/2019 PAGE 2 OF 8 2 THE LEARNED APPELLATE COMMISSIONER ERRED IN UPHOLDING THE DISALLOWANCE MADE BY THE AO REGARDING CLAIM OF BAD DEBTS WRITTEN OFF TO THE EXTENT OF RS.6,89,958/-, THE SAME BEING THE CLAIMS OF THE APPELLANT DISPUTED BY THE DIRECTOR OF INFORMATION AND PUBLICITY, GOVERNMENT OF KARNATAKA EVEN THOUGH THE SAME IS ALLOWABLE AS DEDUCTION U/S 36(1)(VII) OF THE ACT FOR THE A.Y.2013-14. 2,23,857/ - 3 THE LEARNED APPELLATE COMMISSIONER ERRED IN UPHOLDING THE DISALLOWANCE MADE BY THE AO REGARDING CLAIM OF BAD DEBTS WRITTEN OFF TO THE EXTENT OF RS.6,89,958/-, MISCONSTRUING THE FACTS OF THE CASE, EVEN THOUGH THE SAME IS ALLOWABLE AS DEDUCTION U/S 36(1)(VII)OF THE ACT FOR THE A.Y. 2013-14. 2,23,857/ - 4 THE LEARNED APPELLATE COMMISSIONER ERRED IN UPHOLDING DISALLOWANCE OF RS. 9,80,516/- MADE BY THE ASSESSING OFFICER TOWARDS THE UNREALIZED TDS MADE BY THE APPELLANT'S CUSTOMERS OUT OF ITS TRADE BILLS IN THE ESTER YEARS FOR WHICH NEITHER TDS CERTIFICATES WERE ISSUED BY THEM NOR CREDIT FOR THE SAME WAS GIVEN BY THE AO FOR A.YS.2008- 09, 2009-10 AND 201011 EVEN AFTER BEING SATISFIED THAT THE SAID AMOUNT BEING OTHERWISE IRRECOVERABLE TRADING RECEIPTS AMOUNTS TO BAD DEBTS LIABLE TO DEDUCTION U/S 36(1)(VII) OF THE ACT FOR THE A.Y.2013-14. 3,18,128/ - 5 THE LEARNED APPELLATE COMMISSIONER ERRED IN UPHOLDING THE DISALLOWANCE OF RS.9,80,516/- U/S 36(1)(VII)OF THE ACT FOR THE A.Y. 2013-14 WITH COMPLETE DISREGARD TO THE PROVISIONS OF SECTIONS 198, 199, 36(1)(VII) AND OTHER APPLICABLE PROVISIONS OF THE INCOME TAX ACT. 3,18,128/ - ITA NO.686/BANG/2019 PAGE 3 OF 8 6 THE LEARNED APPELLATE COMMISSIONER ERRED IN UPHOLDING INTEREST LEVIED BY THE RESPONDENT OFFICER UNDER SECTION 234B OF THE INCOME TAX ACT, 1961. 10,12,449/ - 2. THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE AR E AS FOLLOWS:- 1. THE LEARNED APPELLATE COMMISSIONER OUGHT TO HAV E, ALTERNATIVELY, ALLOWED DEDUCTION OF RS.9,80,516/- A S DEDUCTION OF BUSINESS EXPENDITURE U/S 37 (1) OF THE INCOME TAX A CT IN SO FAR AS THE SAID INCOME TAX DEDUCTED AT SOURCES MADE OUT OF THE TRADE BILLS OF THE APPELLANT WERE TREATED AND ASSESSED AS INCOME IN THE PAST YEARS U/S 198 OF THE ACT, ONCE HE DECIDED TO D ISALLOW THE CLAIM OF DEDUCTION U/S 36(1)(VII) OF THE ACT FOR TH E A.Y.2013-14. 2. THE LEARNED APPELLATE COMMISSIONER OUGHT TO HAVE , ALTERNATIVELY, ALLOWED THE DEDUCTION OF RS.6,89,958 /- AS BUSINESS EXPENDITURE U/S 37 OF THE INCOME TAX ACT, SINCE THE SAME IS INCURRED AND PAID BY THE APPELLANT EXCLUSIVELY FOR THE PURPOSES AND IN THE COURSE OF ITS BUSINESS, ONCE HE DECIDED TO DISALLOW THE CLAIM OF DEDUCTION U/S 36(1)(VII) OF THE ACT FOR TH E A.Y.2013-14. 3. THE ASSESSEE SUBMITTED THAT DUE TO INADVERTENCE THE ASSESSEE COULD NOT RAISE THESE GROUNDS IN THE ORIGINAL GROUN DS AND SUBMITTED THAT ALL THE FACTS RELEVANT TO THE ISSUE ARE ALREADY ON RECO RD AND THESE ADDITIONAL GROUNDS MAY BE ADMITTED UNDER RULE 11 OF THE INCOME -TAX (APPELLATE) TRIBUNAL RULES, 1963 [THE RULES]. THE LD. DR HAD N O SERIOUS OBJECTION FOR ADMISSION OF THE ADDITIONAL GROUNDS. AFTER HEARING BOTH THE PARTIES, IN OUR OPINION, ALL THE FACTS RELATING TO THE ISSUE ARE AL READY ON RECORD AND PLACING RELIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT I N THE CASE OF NATIONAL THERMAL POWER COMPANY LTD. V. CIT, 229 ITR 283 (SC) , WE ADMIT THE ADDITIONAL GROUNDS FOR ADJUDICATION. 4. THE FIRST ISSUE OF CLAIM OF THE ASSESSEE IS WIT H REGARD TO BAD DEBTS ON ACCOUNT OF TDS AMOUNT OF RS.9,80,516 RELATING TO AYS 2008-09, 2009- 10 & 2010-11 WHICH CREDITED WAS NOT GIVEN TO THE AS SESSEE U/S. 199 OF THE ACT, THOUGH RELEVANT INCOME WAS TAXED IN THE HANDS OF ASSESSEE. ITA NO.686/BANG/2019 PAGE 4 OF 8 5. THE LD. AR SUBMITTED THAT THE INCOME RELATING TO THIS PERIOD WAS ALREADY SUBJECT TO TAX AND RECOVERY OF TDS AMOUNT H AS BECOME BAD IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND IT WAS WRIT TEN OFF IN THE BOOKS OF ACCOUNT IN TERMS OF SECTION 36(1)(VII) OF THE INCOM E-TAX ACT, 1961 [THE ACT] AND THIS AMOUNT IS CLAIMED TO BE ALLOWED AS BAD DEB TS. EVEN OTHERWISE, IT IS SUBMITTED THAT THE SAME SHOULD BE ALLOWED AS BUS INESS LOSS U/S. 37(1) OF THE ACT BY WAY OF ADDITIONAL GROUND OF APPEAL. 6. THE LD. DR SUBMITTED THAT NON-AVAILABILITY OF CR EDIT IN RESPECT OF TDS CANNOT BE REASON TO WRITE OFF U/S. 36(1)(VII) OR IT CAN BE CONSIDERED AS BUSINESS LOSS SINCE THERE IS NO EVIDENCE TO SHOW TH AT IT WAS DULY DEDUCTED THE TAX AND RELEVANT INCOME OFFERED BY THE ASSESSEE FOR TAXATION. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN THIS CASE, THE ASSESSEES CLAIM IS THAT TDS WAS NOT REFUNDED BY THE DEPARTMENT AND THE SAME HAS TO BE ALLOWED AS BAD DE BT. TO CLAIM TDS CREDIT, THE ASSESSEE SHALL FURNISH THE DETAILS OF T DS BY THE DEDUCTOR AND THE RELEVANT CERTIFICATE OF TDS ISSUED BY THE DEDUC TOR. FIRST OF ALL, THE ASSESSEE HAS NOT FURNISHED THE TDS CERTIFICATE TO T HE CORRESPONDING AMOUNT OF RS.9,80,516. WITHOUT FURNISHING THESE DET AILS, THE ASSESSEE IS CLAIMING BENEFIT OF TDS REFUND. SINCE THE TDS WAS NOT GIVEN CREDIT, THE ASSESSEE IS CLAIMING THE SAME AS BAD DEBTS U/S. 36( 1)(VII) OF THE ACT. 8. SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE T HE KOLKATA BENCH OF THE TRIBUNAL IN ITA NO.927/KOL/2013 IN THE CASE OF MC NALLY SAYAJI ENGINEERING LTD. V. ACIT AND BY ORDER DATED 10.03.2017 IT WAS HELD AS UNDER:- WITH REGARD TO ALLOWABILITY OF TDS RECOVERABLE WRI TTEN OFF IS CONCERNED, WE FIND THAT THE ASSESSEE HAD FILED THE DETAILS OF THE SAME BEFORE THE LD AO , WHEREIN IT WAS CLEARLY MENT IONED THAT THE ASSESSEE HAD DECIDED TO WRITE OFF THE SAME DUE TO N ON AVAILABILITY OF TDS CERTIFICATES. SINCE THE RECOVER ABILITY AROSE ONLY IN THE FORM OF COLLECTION OF TDS CERTIFICATES, IT GOES BEYOND ITA NO.686/BANG/2019 PAGE 5 OF 8 DOUBT THAT THE ASSESSEE HAD OFFERED THE SAME AS INC OME IN THE EARLIER YEARS AS ADMITTEDLY THE TDS WOULD BE RELATA BLE TO INCOME ONLY. MOREOVER, WE HOLD THAT THERE IS NO REQUIREMEN T TO SATISFY THE TEST OF OFFERING OF INCOME IN THE EARLIER YEARS IN TERMS OF SECTION 36(2) OF THE ACT AS THE SUBJECT MENTIONED I SSUE IS NOT TOWARDS BAD DEBTS BUT ONLY BAD ADVANCES WRITTEN OFF . HENCE, THE ALLOWABILITY OF THE SAME WOULD BE GOVERNED BY THE P ROVISIONS OF SECTION 28 OF THE ACT. THE ASSESSEE IN THE INSTANT CASE HAD WRITTEN OFF THE TDS PORTION DUE TO NON-AVAILABILITY OF THE SAME AND HENCE IT BECOMES A TRADING LOSS U/S 28 OF THE ACT AS TO T HAT EXTENT, IT HAD NEITHER RECEIVED THE MONEY NOR THE TDS CERTIFICATE. HENCE IT BECOMES A TRADING LOSS ALLOWABLE U/S 28 OF THE ACT. ACCORDINGLY, THE GROUND NO. 2(A) RAISED BY THE ASSESSEE IN ITA N O. 927/KOL/2013 FOR ASST YEAR 2009-10 IS ALLOWED. 9. HOWEVER, IN THE PRESENT CASE, THE ASSESSEE HAS N OT FURNISHED THE DETAILS OF TDS FROM DEDUCTOR BY FURNISHING VALID TD S CERTIFICATES. IT IS INCUMBENT UPON THE ASSESSEE TO SHOW THAT THE AMOUNT HAS ACTUALLY BEEN DEDUCTED BY THE DEDUCTOR TOWARDS TDS DUE FROM THE A SSESSEE. ONCE THE ASSESSEE ESTABLISHES THAT IT HAS BEEN ACTUALLY DEDU CTED FROM THE DEDUCTOR, THE CORRESPONDING WRITE OFF BY THE ASSESSEE ON NON- RECOVERY OF TDS CREDIT IS TO BE ALLOWED. WITH THESE OBSERVATIONS, WE REMI T THIS ISSUE TO THE FILE OF ASSESSING OFFICER FOR FRESH CONSIDERATION. ACCORDI NGLY, THE MAIN GROUND AND ADDITIONAL GROUND RAISED BY THE ASSESSEE ON THI S ISSUE IS DISPOSED OF. 10. THE NEXT GROUND IS WITH REGARD TO ALLOWABILITY OF RS.6,89,958 TOWARDS SERVICE TAX WHICH WAS WRITTEN OFF AS BAD DEBT U/S. 36(1)(VII) OF THE ACT. THE DEPARTMENT OF INFORMATION & PUBLICITY [DIP] TAKES C ARE OF PUBLICITY FOR THE GOVERNMENT OF KARNATAKA. THE GOVERNMENT DIRECTS THE APPELLANT TO PUBLISH VARIOUS ADVERTISEMENTS /PUBLICITY MATERIAL IN MEDIA AND FOR THESE SERVICES THE APPELLANT RAISES THE INVOICES IN THE NAME OF GO VERNMENT OF KARNATAKA IN PARTICULAR DIP. SINCE THE APPELLANT IS LIABLE TO PAY SERVICE TAX AND VAT ON THIS, THE APPELLANT RAISED THE INVOICES AND CHARGED SERVICE TAX. THIS SERVICE TAX SHOULD HAVE BEEN REIMBURSED BY DIP. HOWEVER, TH EY REFUSED TO DO SO. THE CONTENTION OF THE LD. AR IS THAT ASSESSEE HAS W RITTEN OFF RS.6,89,958 ITA NO.686/BANG/2019 PAGE 6 OF 8 DUE FROM THE DIP ON THE REASON THAT IT WAS ALREADY PAID BY THE ASSESSEE, BUT COULD NOT BE RECOVERED FROM THE DIP ON THE GROU ND THAT DIP IS NOT PAYING SERVICE TAX FOR THE LAST 20 YEARS SINCE THEY ARE FOLLOWING THE GUIDELINES OF THE DEPARTMENT OF AUDIO VISUAL PUBLIC ITY [DAVP] OF THE CENTRAL GOVT. AND THAT IT IS ALSO NOT PAYING SERVIC E TAX TO ANY OF THE OTHER ADVERTISING AGENCIES ALSO. HENCE IT WAS WRITTEN OF F AS BAD DEBT AND THE SAME HAS TO BE ALLOWED OR OTHERWISE IT SHOULD BE AL LOWED AS BUSINESS LOSS U/S. 37(1) OF THE I.T. ACT. 11. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT TH E ASSESSEE HAS NOT OFFERED IT AS INCOME AND IT WAS ONLY A STATUTORY LI ABILITY ROUTED THROUGH BALANCE SHEET AND WRITE OFF CANNOT BE ALLOWED AS BA D DEBT IN TERMS OF SECTION 36(1)(VII) R.W.S. 36(2) OF THE ACT. THE AL TERNATIVE CONTENTION OF THE ASSESSEE IS THAT IF IT IS NOT ALLOWED AS BAD DEBT, THE SAME HAS TO BE ALLOWED AS BUSINESS LOSS AS THE ASSESSEE HAS ALREADY MADE P AYMENT ON THIS COUNT TO THE GOVERNMENT AUTHORITY. ACCORDING TO THE LD. DR, THIS CONTENTION IS ALSO NOT HAVING ANY MERIT. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE CONTENTION OF THE LD. AR IS THAT THE CLAIM OF B AD DEBT WAS ALLOWABLE TO THE ASSESSEE IF THE SAME HAS BEEN WRITTEN OFF AS IR RECOVERABLE BY THE ASSESSEE AND IT WAS NOT NECESSARY TO ESTABLISH THAT THE DEBT HAS ACTUALLY BECOME BAD. THE LD. AR SUBMITTED THOUGH SERVICE T AX WAS ROUTED THROUGH BALANCE SHEET, THE RELEVANT INCOME RELATING TO THIS TRANSACTION WAS OFFERED TO TAX AND ASSESSEE FAILED TO RECOVER THE SERVICE T AX CHARGED TO ITS CUSTOMER WHICH WAS CLAIMED AS BAD DEBT AND THE SAME HAS TO BE ALLOWED. 13. IN THIS CASE, THE CONSIDERATION PAID AS SERVICE TAX WAS TO BE CLAIMED AS RECEIVABLE FROM DIP. IN THE ASSESSMENT YEAR UND ER CONSIDERATION, THE ASSESSEE CAME TO KNOW THAT IT IS NOT RECOVERABLE AN D HAS WRITTEN OFF AS BAD DEBTS IN THE BOOKS OF ACCOUNT. THE ONLY CONTENTION OF THE LD. DR IS THAT SINCE IT HAS NOT ROUTED THROUGH PROFIT & LOSS ACCOU NT, IT CANNOT BE ALLOWED ITA NO.686/BANG/2019 PAGE 7 OF 8 AS BAD DEBT. WE ARE OF THE VIEW THAT THE ARGUMENT OF THE LD. DR IS NOT TENABLE AND CANNOT BE ACCEPTED ON THE REASON THAT S ERVICE TAX IS SHOWN AS RECEIVABLE FROM THE DIP WHICH WAS NOT RECEIVED ON T HE FACT THAT DIP IS NOT PAYING SERVICE TAX IN VIEW OF THE GUIDELINES OF THE DAVP OF THE CENTRAL GOVT. AND IT IS ALSO NOT PAYING SERVICE TAX TO ANY OTHER ADVERTISING AGENCIES. HOWEVER, THE ASSESSEE HAS ALREADY PAID THIS AMOUNT TO THE GOVERNMENT. SINCE SERVICE TAX PAYMENT RECOVERY IS DENIED BY THE DIP, THE ASSESSEE HAS WRITTEN OFF IT AS BAD DEBT. THEREFORE, WE ARE OF T HE VIEW THAT THE ASSESSEE IS JUSTIFIED IN CLAIMING IT AS BAD DEBT BY WRITING OFF IN THE PROFIT & LOSS ACCOUNT. ACCORDINGLY WE ALLOW THE CLAIM OF THE ASS ESSEE. THIS VIEW OF OUR IS FORTIFIED BY THE ORDER OF THE TRIBUNAL IN THE CA SE OF DCIT V. M/S SINGHANIA & SONS PVT. LTD. IN ITA NO.1896/KOL/2014 DATED 04.1 2.2017 WHEREIN IT WAS HELD AS FOLLOWS:- 7. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD, WE NOTE THAT THE ASS ESSEE CLAIMED THE EXPENDITURE AS PER MERCANTILE SYSTEM OF ACCOUNT ING. DURING THE FINANCIAL YEAR 2010-11, IN THE INSTANT CASE OF THE ASSESSEE, THE SERVICE TAX AUTHORITIES HAVE PASSED VARIOUS ORD ERS AND THE TOTAL CLAIM OF REFUND HAD BEEN ALLOWED TO THE EXTEN T OF RS.78,43,992/- AND THE BALANCE REFUND WAS NOT ALLOW ED, WHICH IS AT RS.96,78,546/-. THE BALANCE AMOUNT OF REFUND AT RS. 96,78,546/-, WHICH HAD BEEN DISALLOWED BY THE SERVI CE TAX OFFICER, THEREFORE, THE SAME AMOUNT HAD BEEN WRITTE N OFF BY THE ASSESSEE BY DEBITING THE SAME TO THE PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER HAS NOT ALLOWED THE CLAIM OF THE ASSESSEE ON THE REASONING THAT THE APPEAL WAS NOT FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE SERVICE TAX OFFICER. WE DO NOT ACCEPT THE ARGUMENT OF THE ASSESSING OFFICER, DUE TO THE REASO N THAT ORDERS PASSED BY THE SERVICE TAX OFFICER ARE QUASI-JUDICIA L ORDERS AS EQUIVALENT TO AN ORDER OF A COURT AND IT IS THE DUT Y OF THE ASSESSEE TO FOLLOW THE SAME. FILING OF APPEAL IS ONLY A PRER OGATIVE WHICH IS OPTIONAL AND WHICH MAY OR MAY NOT BE EXERCISED. 14. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS ALL OWED. ITA NO.686/BANG/2019 PAGE 8 OF 8 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF AUGUST, 2021. SD/- SD/- ( N V VASUDEV AN ) ( CHANDRA POOJARI ) VICE PRESIDENT ACCOUNTANT MEMBER BANGALORE, DATED, THE 23 RD AUGUST, 2021. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.