ACIT 25(3), MUMBAI V. R.J. ELECTRICAL, MUMBAI

ITA 7786/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9013 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 11-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AMARD EEP
• Assessee Lawyers: DEVANG K SHAH
• Keywords: Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D , MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER ITA NO. 7786/MUM/2010 ASSESSMENT YEAR : 2007-08 ASSTT. COMMISSIONER OF INCOME TAX -25(3) C-11, ROOM NO.308 PRATYAKSH KAR BHAVAN BANDRA KURLA COMPLEX BANDRA (E) MUMBAI-400 051. M/S. R.J. ELECTRICAL SHOP NO.7, LAXMI TOWER-B M.G. CROSS ROAD, NO.4 KANDIVALI (W) MUMBAI-400 101. PAN NO. AABFR 1333 A (APPELLANT) VS. (RESPONDENT) C.O. NO.96/MUM/2012 (ARISING OUT OF ITA NO. 7786/MUM/2011) ASSESSMENT YEAR : 2007-08 M/S. R.J. ELECTRICAL MUMBAI-400 101. ASSTT. COMMISSIONER OF INCOME TAX -25(3) MUMBAI-400 051. (CROSS OBJECTOR) VS. (RESPONDENT) DEPARTMENT BY : SHRI AMARDEEP ASSESSEE BY : SHRI DEVANG K. SHAH DATE OF HEARING : 29.08.2012 DATE OF PRONOUNCEMENT : 14.09.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSE SSEE IS DIRECTED AGAINST THE ORDER DATED 31.8.2010 OF CIT(A ) FOR ASSESSMENT YEAR 2007-08.THE DISPUTE RAISED IN THESE APPEALS RELA TE TO ITA NO.7786/MUM/11 & C.O. NO.06/M/12 A.Y. 07-08 2 DISALLOWANCE OF REMUNERATION PAID TO PARTNERS AND DISAL LOWANCE OF CLAIM OF BAD DEBT. 2. ITA NO.7786/MUM/2011 (BY REVENUE ): THE ONLY DISPUTE RAISED IS REGARDING DISALLOWANCE OF REMUNERATION PAID TO PARTNERS. THE AO DURING THE ASSESSM ENT PROCEEDINGS NOTED THAT THE ASSESSEE IN THE ORIGINAL RETUR N OF INCOME HAD DECLARED NET PROFIT OF RS.2,92,015/- ON THE SALE O F RS.5,44,35,961/-. THE ASSESSEE SUBSEQUENTLY REVISED RETURN IN WHICH NET PROFIT WAS SHOWN AT RS.15,34,909/- ON SALES OF RS.5, 43,25,282/-. THE AO NOTED THAT IN REVISED RETURN THE EXPENSES HAD B EEN REDUCED UNDER SEVERAL HEADS BUT REMUNERATION TO PARTNERS HAD B EEN INCREASED TO RS.11,79,840/- COMPARED TO RS.2,90,606/- CLAIMED IN THE ORIGINAL RETURN. THE AO ALSO NOTED THAT THE REMUNERATION TO P ARTNERS UNDER SECTION 40(B) WAS ALLOWABLE ON PAYMENT BASIS. IN THIS CA SE ASSESSEE HAD PAID RS.2,90,606/- AND, THEREFORE, EXCESS REMUNERAT ION CLAIM OF RS.8,89,234/- WAS DISALLOWED AND ADDED TO THE TOTAL IN COME. IN APPEAL CIT(A) OBSERVED THAT THE ASSESSEE NOT ONLY INCREASED CLAIM OF PARTNER REMUNERATION BUT HAD ALSO REDUCED CLAIM OF CERTAIN EXP ENSES IN THE REVISED RETURN WHICH SHOWED THAT THE CLAIM OF THE ASSESSEE WAS BONAFIDE. CIT(A) FURTHER OBSERVED THAT THE ASSESSEE CLAIM ED HIGHER REMUNERATION ON THE BASIS OF REVISED P&L ACCOUNT. HE, TH EREFORE, DELETED THE ADDITION MADE BY AO AGGRIEVED BY WHICH T HE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US, THE LD. AR SUBMITTED THAT THE AO HAD AC CEPTED COMPUTATION OF INCOME ON THE BASIS OF REVISED RETURN OF INCOME IN WHICH EXPENSES HAD BEEN REDUCED BY ASSESSEE UNDER SEVERAL HE ADS. ITA NO.7786/MUM/11 & C.O. NO.06/M/12 A.Y. 07-08 3 THEREFORE, THERE WAS NO REASON TO DISALLOW ENHANCED REM UNERATION. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAN D SUPPORTED THE ORDERS OF AO. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF E NHANCED REMUNERATION TO PARTNERS BASED ON REVISED RETURN FILED BY THE ASSESSEE. THE ASSESSEE IN THE ORIGINAL RETURN HAD CLAIMED REMUNERATION TO PARTNERS AT RS.2,90,606/-. HOWEVER, IN THE REVISED RETURN, SINCE INCOME HAD BEEN ENHANCED ASSESSEE HAD CLAIMED HIGHER REMUNERATION TO PARTNERS AT RS.11,79,840/-. WE FIND THAT THE AUTHORITIES BELOW HAVE DECIDED THE ISSUE WITHOUT LOOKIN G INTO PROVISIONS OF PARTNERSHIP DEED. A COPY OF PARTNERSHIP DE ED IS FILED BY AR WHICH WAS NOT THERE BEFORE THE LOWER AUTHORITIES. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER BEFORE AO FOR PASSING A FRESH ORDER AFTER EXAMINING THE PROVISIONS OF PARTNERSHIP DEED AND AFTER GIVING OPPORTUNITY OF HEARING TO THE ASSESSEE. 5. C.O. NO.96/MUM/2012 (BY ASSESSEE) : THE ONLY DISPUTE RAISED BY THE ASSESSEE IS REGARDING DISALLOWANCE OF BAD DEBT AGGREGATING TO RS.14,79,865/- . THE AO NOTED THAT THE ASSESSEE CLAIMED BAD DEBT OF RS.14,79,865/- IN THE REVISED RETURN OF INCOME. IT WAS OBSERVED BY HIM THAT UNDER TH E PROVISIONS OF SECTION 36(1)(VII), CLAIM OF BAD DEBT IS ALLOWABLE ONL Y WHEN IT IS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF THE ASSESSEE IN THE P REVIOUS YEAR IN WHICH THE CLAIM OF DEDUCTION IS MADE. IN THIS CASE TH E ASSESSEE HAD WRITTEN OFF DEBT AS BAD DEBT 1 YEARS AFTER CLOSE OF PREVIOUS YEAR. IT WAS ALSO OBSERVED BY HIM THAT IN MOST OF THE CASES OF BAD DEBT THERE WERE REGULAR TRANSACTIONS ON SALE AND RECEIPT DURING THE YEAR. THE AO, ITA NO.7786/MUM/11 & C.O. NO.06/M/12 A.Y. 07-08 4 THEREFORE, DISALLOWED THE CLAIM OF BAD DEBT. IN APPEA L CIT(A) AGREED WITH THE FINDING OF AO THAT THE DEBT HAD TO BE WRIT TEN OFF AS BAD DEBT BEFORE CLOSING OF BOOKS OF ACCOUNT. IN THIS CASE, ENTRIES HA D BEEN PASSED AFTER THE CLOSING OF THE ACCOUNTING YEAR WHICH WAS O NLY AN AFTER THOUGHT. CIT(A) THEREFORE, CONFIRMED DISALLOWANCE MADE BY AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE TRIBU NAL. 6. BEFORE US, THE LD. AR SUBMITTED THAT THERE WAS NO CO NDITION PRESCRIBED IN THE RELEVANT PROVISIONS THAT THE DECISION FOR WRITE-OFF OF BAD DEBT SHOULD BE TAKEN DURING THE PREVIOUS YEAR AN D IT SHOULD BE ACTUALLY WRITTEN OFF DURING THE PREVIOUS YEAR. THE ASSE SSEE HAD WRITTEN OFF THE BAD DEBT IN THE BOOKS OF ACCOUNT AND, THEREFOR E, THE CLAIM OF THE ASSESSEE IS ALLOWABLE AS UNDER AMENDED PROVISIONS ASSESSEE IS NOT REQUIRED TO PROVE THAT THE DEBT HAD ACTUALLY BECOME B AD. THE LD. AR PLACED RELIANCE ON THE LUCKNOW BENCH OF THE TRIBUNAL IN THE CASE OF U.P.R.N.N. LTD. VS. ITO (24 SOT 139) AND ON THE DECI SION OF AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF DINESH C HANDRA CHANDULAL SHAH VS. ITO (40 ITD 483). THE LD. DEPARTM ENTAL REPRESENTATIVE ON THE OTHER HAND PLACED RELIANCE ON T HE ORDERS OF AUTHORITIES BELOW. 7. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALLOWAB ILITY OF CLAIM OF BAD DEBT. THE ONLY GROUND ON WHICH CLAIM HAS BEEN DISA LLOWED BY LOWER AUTHORITIES IS THAT ENTRY REGARDING WRITE-OFF OF BAD DEBT HAS BEEN PASSED AFTER CLOSING OF ACCOUNTING YEAR. WE FIND TH AT THIS ISSUE HAD BEEN CONSIDERED BY THE TRIBUNAL IN THE CASE OF U.P. R.N.N. LTD. VS. ITO (SUPRA), AND IN THE CASE OF DINESH CHANDRA CHANDULA L SHAH VS. ITO (SUPRA). IN THESE CASES IT HAS BEEN HELD THAT CLAIM O F BAD DEBT CAN ITA NO.7786/MUM/11 & C.O. NO.06/M/12 A.Y. 07-08 5 NOT BE DISALLOWED ONLY ON THE GROUND THAT WRITE-OFF ENTRY IN RESPECT OF DEBT WAS MADE AFTER CLOSING OF ACCOUNTING YEAR. IN CASE OF DINESH CHANDRA CHANDULAL SHAH VS. ITO (SUPRA) ALSO THE CLAIM HAD BEEN MADE BY THE ASSESSEE ONLY IN REVISED RETURN AS IS THE CASE WITH THE ASSESSEE. WE, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCHES OF THE TRIBUNAL SET ASIDE THE ORDER OF CIT(A) AND ALLOW THE CLAIM OF THE ASSESSEE. 8. IN THE RESULT APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES WHEREAS THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 14.9.2012. SD/- SD/- (D. MANMOHAN ) VICE PRESIDENT (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 14.9. 2012. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.