DCIT 7(2), MUMBAI V. SIEMES LTD, MUMBAI

ITA 7181/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4316 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2000-2001
• Appeal Filed On: 09-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJUNATHA SWAMY
• Assessee Lawyers: NITESH JOSHIAR
• Keywords: Business income; Bad and doubtful debts; Revenue expenditure

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI E BENCH , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & SANDEEP GOSAIN,JUDICIAL MEMBER /.ITA NO.7181/M/2013, /ASSESSMENT YEAR-2000-01 DY. CIT -7(2) ROOM NO.624, M.K. ROAD MUMBAI-400 020. VS M/S. SIEMENS LTD. 130, PANDURANG BUDHKAR MARG MUMBAI-400 018. PAN:AAACS 0764 L ( / APPELLANT) ( / RESPONDENT) /.ITA NO.7298/M/2013, /ASSESSMENT YEAR-2000-01 M/S. SIEMENS LTD. 130, PANDURANG BUDHKAR MARG MUMBAI-400 018. VS DY. CIT -7(2) ROOM NO.624, M.K. ROAD MUMBAI-400 020. ( / APPELLANT) ( / RESPONDENT) /ASSESSEE BY : SHRI NITESH JOSHI-AR / REVENUE BY : SHRI MANJUNATHA SWAMY (DR) / DATE OF HEARING : 19-11 -2015 / DATE OF PRONOUNCEMENT : 01.01.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) ' #$ PER RAJENDRA, AM - CHALLENGING THE ORDER 30.09.2013 OF CIT(A)-13,MUMBA I THE ASSESSEE AND THE ASSESSING OFFICER (AO)HAVE FILED CROSS APPEALS FOR THE ABOVE MENTIONE D AY. ASSESSEE-COMAPNY,ENGAGED IN THE BUSINESS OF MANUFAC TURING AND MARKETING OF MOTORS,SWITCH GEARS ETC.FILED ITS RETURN OF INCOME ON 29.11.2000, DECLARING INCOME AT RS.NIL.THE AO COMPLETED THE ASSESSMENT ON 29.01.2003,U/S.143(3) OF THE ACT, DETERMINING THE INCOME OF THE ASSESSEE AT RS. 20.83 CRORES. ITA NO.7298/MUM/2013 2. FIRST EFFECTIVE GROUND OF APPEAL IS ABOUT TREATING BUSINESS INCOME AS INCOME FROM OTHER SOURCES,AMOUNTING TO RS.4.17 CRORES.DURING THE ASSE SSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD RECEIVED INTEREST INCOME OF RS.4,17,53 ,000/-,THAT IT HAD INCLUDED THE SAID AMOUNT IN THE TOTAL PROFIT OF THE BUSINESS,IT HAD CLAIMED THA T IT WAS FOLLOWING THE SAME SYSTEM FOR EARLIER YEARS ALSO,THAT IN THE EARLIER YEARS CLAIM MADE BY THE ASSESSEE WAS REJECTED.REFERRING TO THE JUDGMENT OF TUTICORIN ALKALI AND FERTILISERS LTD.,T HE AO HELD INTEREST RECEIVED BY THE ASSESSEE FROM LOANS AND BANK DEPOSITS HAD TO BE TAXED AS INC OME FROM OTHER SOURCES AND NOT AS BUSINESS INCOME. 2.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS CONTENDED THAT INC OME RECEIVED BY IT WAS RESULT OF INVESTMENT MADE BY IT,THAT IT WAS BUSINESS RECEIPT.THE FAA DIR ECTED THE ASSESSEE TO FILE DETAILS OF FUNDS ON WHICH INTEREST EARNED WAS GENERATED AND SUPPORT ITS CLAIM.AS PER THE FAA THE ASSESSEE DID NOT FILE NECESSARY DETAILS.FOLLOWING THE DECISION OF HI S PREDECESSOR FOR THE AY.1998-99, THE FAA UPHELD THE ORDER OF THE AO. 7181&7298/M/13 SIEMENS LTD.-00-01 2 2.2. BEFORE US,THE AUTHORISED REPRESENTATIVE(AR) STATED THAT THE TRIBUNAL,WHILE DECIDING THE APPEAL FOR THE AY.1998-99(ITA/6757-6424/MUM/2011/-D TD.30.04.2015)HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE.DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE TRIBUNAL HAD ADJUDICATED THE ISSUE AS UNDER IN PARA GRAPH NO.6 OF ITS ORDER FOR THE AY.1998-99 (SUPRA): 6. WE HAVE CONSIDERED RIVAL CONTENTIONS AND ALSO DE LIBERATED ON THE JUDICIAL PRONOUNCEMENTS REFERRED BY THE CIT(A) FOR HOLDING VARIOUS INCOME A S INCOME FROM OTHER SOURCES. WE HAD ALSO DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS CITED AT BAR AND HOLD THAT INTEREST OF HDFC BANK RS.4,69,887/-, THE INTEREST OF IT REFUND AMOUNTING TO RS.32,45,346/-, IS ASSESSABLE AS INCOME FROM OTHER SOURCES. THE INTEREST ON LOANS GIVEN TO STAFF IN THE COURSE OF ITS BUSINESS INSOFAR AS SUCH ADVANCES WAS TO BE GIVEN AS A PART OF BUSINESS NECE SSITY IS ASSESSABLE AS BUSINESS INCOME. THE MANAGEMENT FESS HAS BEEN EARNED BY THE ASSESSEE IN THE COURSE OF CARRYING ON ITS BUSINESS, THEREFORE, THE SAME IS ASSESSABLE AS BUSINESS INCOM E IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GILBERT & BARKER MANUFACT URING CO. USA, 111 ITR 529 (BOM). THUS, THE INCOME RECEIVED BY THE ASSESSEE IN THE FORM ON INTE REST OF STAFF LOAN, INTEREST ON OVERDUE OUTSTANDING AND MANAGEMENT FEES ARE IN THE NATURE O F BUSINESS INCOME. ACCORDINGLY, WE DIRECT THE AO TO TREAT ALL THESE THREE INCOME AS INCOME FROM B USINESS. IN RESPECT OF THE MISCELLANEOUS INCOME OF RS.2,45,63,111/-, SINCE NO DETAIL WAS FILED BEFO RE THE LOWER AUTHORITIES, WE RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR DECIDING AFRESH SO A S TO SUBSTANTIATE THE NATURE OF INCOME RECEIVED BY THE ASSESSEE WITH RESPECT TO NATURE OF ASSESSEES B USINESS. WE ACCORDINGLY CONFIRM THE ACTION OF LOWER AUTHORITIES FOR TREATING THE SAME AS INCOME F ROM OTHER SOURCES. RESPECTFULLY,FOLLOWING THE ABOVE,WE DECIDE GROUND N O.1 IN FAVOUR OF THE ASSESSEE. 3. THE NEXT GROUND DEALS WITH ADDITION ON ACCOUNT OF U NUTILIZED MODVAT CREDIT OF RS.3.24 CRORES. DURING THE COURSE OF HEARING BEFORE US,THE REPRESEN TATIVES OF BOTH THE SIDES AGREED THAT THE ISSUE HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE T RIBUNAL IN THE APPEAL FILED FOR THE AY.1998- 99.WE WOULD LIKE TO REPRODUCE THE RELEVANT PART OF THE ORDER(SUPRA)AND SAME READS AS UNDER: 7. IN GROUND NO.2, ASSESSEE IS AGGRIEVED FOR ADDI TION ON ACCOUNT OF UNUTILIZED MODVAT CREDIT TO CLOSING STOCK. 7.1 WE HAVE CONSIDERED RIVAL CONTENT IONS AND FOUND THAT ASSESSEE WAS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING WHEREBY DUTY ELEMENT IN PURCHASES AND SALES IS TAKEN TO THE BALANCE SHEET AND NOT TO THE PROFIT AND LOSS ACCOUN T. THUS, THE OPENING STOCK AND CLOSING STOCK BOTH ARE VALUED NET OF SUCH DUTIES. IT IS ACCEPTED POSIT ION PRIOR TO INSERTION OF SECTION 145A BY THE FINANCE (NO.2) ACT, 1998 WITH EFFECT FROM 01.04.199 9 THAT IT WAS OPEN TO THE ASSESSEE TO FOLLOW THE METHOD OF ACCOUNTING. WE FOUND THAT IN ASSESSEES O WN CASE FOR THE ASSESSMENT YEAR 1993-94 TO 1996-97 THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVO UR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DI RECT THE AO TO DELETE THE ADDITION MADE ON ACCOUNTS OF UNUTILIZED MODVAT CREDIT. RESPECTFULLY FOLLOWING THE SAME,GROUND NO.2 IS ALLO WED. 4. NEXT GROUND OF APPEAL IS REGARDING DISALLOWANCE OF 20% OF RS.44.29 LAKHS SPENT TOWARDS CLUB MEMBERSHIP EXPENSES.DURING THE ASSESSMENT PROCEEDIN GS THE AO HELD THAT THE ASSESSEE HAD NOT BEEN ABLE TO EXPLAIN THAT THE EXPENDITURE WAS INCUR RED EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THAT IN SUCH TYPE OF EXPENDITURE PERSONAL ELEMENT C OULD NOT BE RULED OUT.HE ESTIMATED PERSONAL ELEMENT AT 20% OF THE TOTAL EXPENDITURE AND MADE A DISALLOWANCE OF RS.8.85 LAKHS. 4.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS CONTENDED THAT IN EARLIER YEAR THE ISSUE WAS DECIDED IN ITS FAVOUR BY THE THEN FAA.AS PER THE FAA,THE ASSESSEE WAS DIRECTED TO CHECK OF THE EXPENSES HAD 7181&7298/M/13 SIEMENS LTD.-00-01 3 BEEN TAKEN ACCOUNT FOR PURPOSE OF FBT RETURN FILED FOR THE AY.2007-08.AS THE ASSESSEE DID NOT FILE COPY OF THE FBT RETURN,THE FAA UPHELD THE ORDE R OF THE AO. 4.2. BEFORE US,THE AR ARGUED THAT PROVISIONS OF FBT WERE NOT APPLICABLE FOR THE YEAR UNDER APPEAL,THAT IN THE EARLIER YEAR THE FAA HAD ALLOWED THE EXPENDITURE,THAT THE AO HAD NOT CHALLENGED THE ORDER OF THE FAA FOR THAT YEAR BEFOR E THE TRIBUNAL,THAT WHILE PASSING THE ORDER FOR THE AY.2010-11 THE AO HAD NOT MADE ANY DISALLOWANCE IN THAT REGARD.DR SUPPORTED THE ORDER OF THE FAA. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT IN THE EARLIER AY.THE AO HAD ACCEPTED THE ORDER OF THE FAA WHEREIN SIMILAR ADDITION WAS DELETED,THAT IN THE AY.2010-11 THE AO HIMSELF HAD NOT MADE ANY D ISALLOWANCE.IN OUR OPINION,IF THE FACTS AND CIRCUMSTANCES REMAIN SAME THE AO SHOULD FOLLOW A CO NSISTENT APPROACH.WE FIND THAT THE AO AND THE FAA ARE NOT DEVIATING FROM THE RULE OF CONSISTE NCY THOUGH THE FACTS ARE IDENTICAL IN ALL THE YEARS.THERFORE,REVERSING THE ORDER OF THE FAA,WE DE CIDE GROUND NO.3 IN FAVOUR OF THE ASSESSEE. 5. GROUND NO.4 IS REGARDING DISALLOWANCE OF INVENTORY WRITTEN OFF AMOUNTING TO RS.1.87 CRORES. BEFORE US,THE AR AND THE DR STATED THAT THE ISSUE S TANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL FOR THE AY.1998-99(SUPRA).WE FIND THAT IN PARAGRAPH NO.8 OF THE SAID ORDER,THE TRIBUNAL HAD DECIDED THE ISSUE AS UNDER: 8. THE NEXT GRIEVANCE OF THE ASSESSEE RELATES TO A LLOWANCE OF NET INVENTORY WRITE OFF. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT ASSESSE E CHARGES COST OF ACTUAL CONSUMPTION OF RAW MATERIALS AND BROUGHT OUT OF COMPONENTS TO MATERIAL CONSUMPTION ACCOUNT. THE COST OF DIFFERENCE IN THE RAW MATERIALS AND BROUGHT OUT COMPONENTS DUE TO EXCESSES AND SHORTAGES ON PHYSICAL VERIFICATION AND PART AND FULL WRITE OFF DUE TO OBS OLESCENCE IS SEPARATELY SHOWN UNDER THE HEAD INVENTORY WRITE OFF. WE FOUND THAT ASSESSEE HAS AL SO ACCOUNTED FOR AS INCOME IN RESPECT OF SALE OF SCRAP IN THE SUBSEQUENT YEAR. SINCE THIS METHOD OF ACCOUNTING HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE IN EARLIER YEAR AS WELL AS IN SUBSEQUENT Y EAR, THERE IS NO JUSTIFICATION FOR DISALLOWING SCRA P INVENTORY WRITTEN OFF IN THE BOOKS OF ACCOUNTS. SIN CE THE ASSESSEE HAS ACCOUNTED FOR INCOME EARNED IN RESPECT OF OBSOLETE STOCK OF THE SUBSEQUENT YEAR AND THE SAME HAVE ALREADY BEEN OFFERED FOR TAX AND ACCEPTED BY THE DEPARTMENT, NOT ALLOWING SUCH I NVENTORY WRITTEN OFF AMOUNTS TO DOUBLE TAXATION OF THE SAME INCOME. ACCORDINGLY, WE DIRECT THE AO T O DELETE THE DISALLOWANCE. RESPECTFULLY FOLLOWING THE ABOVE,WE DECIDE GROUND N O.4 IS DECIDED IN FAVOUR OF THE ASSESSEE. 6. NEXT GROUND OF APPEAL PERTAINS TO DISALLOWANCE OF BAD DEBTS WRITTEN OFF AMOUNTING TO RS. 5.80 CRORES.WE FIND THAT THE IDENTICAL ISSUE WAS DEALT B Y THE TRIBUNAL,WHILE DECIDING THE APPEAL FOR THE AY.1998-99(SUPRA) IN FOLLOWING MANNER: 9. THE NEXT GRIEVANCE RELATES TO THE ALLOWANCE OF BAD DEBTS WRITTEN OFF. FROM THE RECORD WE FOUND THAT ASSESSEE HAS WRITTEN OFF DEBTS WHICH ARE NOT R ECOVERABLE. ALL THESE BAD DEBTS WERE RELATING TO THE OLD INVOICES, INCOME OF WHICH HAS ALREADY BEEN ACCOUNTED FOR IN EARLIER YEARS, THEREFORE, THERE IS NO REASON TO DECLINE THE CLAIM OF BAD DEBTS U/S. 36(1)(VII). THE ISSUE OF ALLOWING OF CLAIM OF BAD DEBTS IS COVERED BY THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF TRF LTD., 323 ITR 397 (SC). HOWEVER, IN RESPECT OF PAYMENT ON WHICH TDS C ERTIFICATE HAS NOT ISSUED BY THE DEDUCTORS, IS TO BE CONSIDERED FOR DEDUCTION AS BUSINESS LOSS. TO THIS EXTENT, WE RESTORE THE MATTER BACK TO THE FIL E OF THE AO FOR DECIDING ALTERNATIVE CLAIM OF BUSINES S LOSS. GROUND NO.5 FILED BY THE ASSESSEE STANDS ALLOWED. ITA NO.7181/MUM/2013: 7. FIRST GROUND OF APPEAL FILED BY THE AO IS REGARDIN G EXPENDITURE INCURRED TOWARDS VOLUNTARY RETIREMENT SCHEME(VRS)AS REVENUE EXPENDITURE.DURING THE ASSESSMENT PROCEEDING THE AO FOUND 7181&7298/M/13 SIEMENS LTD.-00-01 4 THAT THE ASSESSEE HAD DEBITED RS.28.64 CRORES UNDER THE HEAD PAYMENT TOWARDS VRS.FOLLOWING THE ORDER FOR THE AY.1998-99 OF THE-THEN-AO,THE AO DISALLOWED THE CLAIM MADE BY THE ASSESSEE AND HELD THAT THE EXPENDITURE WAS CAPITAL IN NATURE . 7.1. BEFORE THE FAA,IN THE APPELLATE PROCEEDINGS,THE ASS ESSEE ARGUED THAT THE FAA HAD ALLOWED THE APPEAL FILED BY IT FOR THE AY.1998-99,THAT THE EXPENDITURE WAS INCURRED FOR CARRYING ON BUSINESS WITH LESSER COST OF LABOUR,THAT IT HAD DEC REASED THE LOSSES.THE FAA,FOLLOWING THE ORDER OF HIS PREDECESSOR FOR THE AY.1998-99,ALLOWED THE A PPEAL FILED BY THE ASSESSEE. 7.2. BEFORE US,THE DR SUPPORTED THE ORDER OF THE AO AND THE AR RELIED UPON THE ORDER OF THE FAA.HE REFERRED TO THE CASE OF BHOR INDUSTRIES(264 ITR180). WE HAVE PERUSED THE MATERIAL ON RECORD.WE FIND THAT THE SIMILAR QUESTION WAS DEALT WITH BY THE HONBLE BOMBAY HIGH COURT WHILE DECIDING THE APPEAL IN THE CASE OF BHOR INDUSTRIES(SUPRA).WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTION OF THA T ORDER AND SAME READS AS UNDER: SAID EXPENSES WERE INCURRED BY THE ASSESSEE TO SAVE EXPENSE. THIS WAS NOT REFEREABLE TO ANY INCOME YIELDING ASSET. IT MUST BE ALLOWED IN ITS EN TIRETY IN THE YEAR IN WHICH IT WAS INCURRED AND IT COULD NOT BE SPREAD OVER A NUMBER OF YEARS EVEN THO UGH THE ASSESSEE HAD WRITTEN IT OFF IN ITS BOOKS OVER A PERIOD OF YEARS. RESPECFULLY,FOLLOWING THE ABOVE JUDGMENT,WE DECIDE EFFECTIVE GROUND AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS AL LOWED AND THE APPEAL OF THE AO IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST JANUARY, 2016. 01 , 2016 SD/- S D/- ( / SANDEEP GOSAIN) ( / RAJENDRA) / JUDICIAL MEMBER ' / ACCOUNTANT MEMBER /MUMBAI, /DATE: 01.01.2016 . . . JV.SR.PS. % & / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ % , 4. THE CONCERNED CIT / & % 5. DR A BENCH, ITAT, MUMBAI / ') , & , . . . 6. GUARD FILE/ - //TRUE COPY// ' / BY ORDER, / DY./ASST. REGISTRAR ) , /ITAT, MUMBAI.