M/s. TTK Healthcare Ltd., CHENNAI V. ACIT, CHENNAI

ITA 794/CHNY/2010

• Counselvise Citation: 79421714 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 11-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 21-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR I V IJAYAKUMAR IRS
• Assessee Lawyers: SAROJ KUMAR
• Keywords: Depreciation; Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER ITA NO.794, 795 & 1427(MDS)/2010 ASSESSMENT YEARS: 2005-06, 2006-07 & 2007-08) M/S. TTK HEALTHCARE LTD., 6, CATHEDRAL ROAD, CHENNAI-600 086. PAN AABCT3312J. VS. THE ASSISTANT COMMISSIONER O OF INCOME -TAX, COMPANY CIRCLE-III(4), CHENNAI. (APPELLANT) (RESPONDENT) AND ITA NOS.832 & 833(MDS)/2010 ASSESSMENT YEARS: 2005-06 & 2006-07 THE DEPUTY COMMISSIONER M/S.TTK HEALTH CARE LTD., OF INCOME-TAX, VS. 6, CAT HEDRAL ROAD, COMPANY CIRCLE III(4), CHENNAI. CHENNAI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SARO J KUMAR, ADVOCATE DEPARTMENT BY : DR. I.VIJA YAKUMAR, IRS, CIT-DR. DATE OF HEARING : 11 TH OCTOBER, 2011 DATE OF PRONOUNCEMENT : 13 TH OCTOBER, 2011 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS IS A BUNCH OF FIVE APPEALS. THE ASSESSEE H AS FILED - - ITA 794, 795, ETC. OF 10 2 THREE APPEALS FOR THE ASSESSMENT YEARS 2005-06, 200 6-07 AND 2007-08. THE REVENUE HAS FILED TWO APPEALS FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07. THESE APPEAL S ARE DIRECTED AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME- TAX(APPEALS)-III AT CHENNAI DATED 12-3-2010, 25-3-2 010 AND 30-6-2010. THE APPEALS ARISE OUT OF THE ASSESSMENT S COMPLETED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961. 2. FIRST WE WILL CONSIDER THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.794(MDS)/2010. 2.1. THE FIRST GROUND RAISED IS THAT THE COMMI SSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN CONFIRMING THE RES TRICTION OF THE CLAIM OF DEPRECIATION MADE BY THE ASSESSEE. IT IS THE CASE OF THE ASSESSEE THAT THE CLAIM OF HIGHER DEPRECIATION HAS BEEN MADE ONLY TOWARDS THE ADDITIONS MADE TO THE LEASEHOLD BU ILDING. 2.2 THE VERY SAME ISSUE WAS CONSIDERED BY THE B-BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 AND DISPOSED OF THROUGH THE IR ORDER PASSED ON 19-6-2009. THE TRIBUNAL HAD HELD AGAINST THE ASSESSEE AND CONFIRMED THE RESTRICTION MADE BY THE LOWER - - ITA 794, 795, ETC. OF 10 3 AUTHORITIES. ACCORDINGLY, THIS ISSUE IS DECIDED AG AINST THE ASSESSEE. 2.3. THE SECOND GROUND RAISED BY THE ASSESSEE IS T HAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED I N CONFIRMING THE DISALLOWANCE OF CARRY FORWARD OF LOS S. THIS ISSUE WAS ALSO CONSIDERED BY THE B-BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN THE APPEAL FILED BY THE REVE NUE FOR THE ASSESSMENT YEAR 2000-01 IN ITA NO.369(MDS)/2009, DI SPOSED OF ON 16-7-2010. THE TRIBUNAL HELD AGAINST THE ASSESS EE. ACCORDINGLY, THIS ISSUE IS ALSO DECIDED AGAINST THE ASSESSEE. 2.4. THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 IS LIABLE TO BE DISMISSED. 3. NEXT WE WILL CONSIDER THE APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.832(MDS)/2010. 3.1. THE ONLY GROUND RAISED BY THE REVENUE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN DE LETING THE BAD DEBTS WRITTEN OFF BY THE ASSESSEE TO THE EXTENT OF ` 1,74,71,607/-. - - ITA 794, 795, ETC. OF 10 4 3.2. THIS ISSUE WAS CONSIDERED BY THIS BENCH OF TH E TRIBUNAL IN THE APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2002-03 IN ITA NO.1389(MDS)/2009, DISPOSED OF BY THE COMMON ORDER DATED 5-5-2011. THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS LIABLE TO BE REJECTED. 3.3. THE REVENUE FAILS IN ITS APPEAL FILED FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.832(MDS)/2010. 4. NEXT WE WILL CONSIDER THE APPEAL FILED BY THE ASSESSEE IN ITA NO.795(MDS)/2010 FOR THE ASSESSMENT YEAR 2006-07. 4.1. THE FIRST GROUND RAISED BY THE ASSESSEE IS TH AT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN CO NFIRMING THE DISALLOWANCE OF NON RECOVERABLE DEPOSITS WRITTE N OFF TO THE EXTENT OF ` 21,74,342/-. THE ASSESSEE HAS WRITTEN OFF ` 21,74,342/- PAID AS EARNEST MONEY DEPOSIT (EMD) TO VARIOUS INSTITUTIONS, MAINLY GOVERNMENT BODIES. ACCORDING TO THE ASSESSEE, THE GOVERNMENT BODIES HAVE NOT RETURNED T HE EMD TO THE ASSESSEE COMPANY EVEN AFTER THE EXPIRY OF THE C ONTRACT, INSPITE OF BEST EFFORTS MADE BY IT. BUT THE CLAIM WAS DISALLOWED - - ITA 794, 795, ETC. OF 10 5 BY THE ASSESSING OFFICER AND THE COMMISSIONER OF IN COME- TAX(APPEALS) ON THE GROUND THAT THE NECESSARY DETAI LS WERE NOT FURNISHED BEFORE THEM. SO ALSO, THEY HELD THAT MON EY DUE FROM GOVERNMENT INSTITUTIONS WOULD BE UNLIKELY TO BE IRR ECOVERABLE. 4.2. WE CONSIDERED THIS ISSUE. WE DO NOT ENDORSE THE VIEW OF THE COMMISSIONER OF INCOME-TAX(APPEALS) THA T THE EMD WOULD NOT BECOME IRRECOVERABLE ONLY FOR THE REASON THAT THOSE DEPOSITS WERE DUE FROM GOVERNMENT INSTITUTIONS. TH ERE CANNOT BE A DISTINCTION BETWEEN GOVERNMENT AND NON GOVERNM ENT INSTITUTIONS IN THIS REGARD. THE MATTER DEPENDS UP ON THE FACTS OF EVERY CASE. 4.3. IN THE PRESENT CASE THE CRUCIAL ISSUE IS THAT THE ASSESSEE HAS NOT FURNISHED THE NECESSARY DETAILS OF SUCH INSTITUTIONS OR GOVERNMENT DEPARTMENTS. THAT WAS V ERY IMPORTANT. THE EMD WOULD BE RETURNED IF THE ASSESS EE WAS NOT SHORT LISTED FOR SUPPLY, OR, IF SO SHORT LISTED, AF TER THE EXPIRY OF THE CONTRACT. IF ANY MONEY IS DUE FROM THE ASSESSEE, T HAT WOULD BE DEDUCTED FROM SUCH DEPOSITS. BUT AS FAR AS THE PRE SENT CASE IS CONCERNED, THE NECESSARY DETAILS ARE NOT AVAILABLE ON RECORD. IT IS ALSO NOT POSSIBLE TO GATHER FROM THE RECORDS AS TO WHAT EFFORTS - - ITA 794, 795, ETC. OF 10 6 HAVE BEEN MADE BY THE ASSESSEE IN THIS REGARD. IN SUCH CIRCUMSTANCES, IT IS VERY DIFFICULT TO ACCEPT THE C ONTENTIONS OF THE ASSESSEE. WE CONFIRM THE DISALLOWANCE MADE BY THE LOWER AUTHORITIES. THIS GROUND IS REJECTED. 4.4. THE NEXT GROUND RAISED BY THE ASSESSEE FOR TH E ASSESSMENT YEAR 2006-07 IS THAT THE COMMISSIONER OF INCOME- TAX(APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWAN CE OF CONVERSION CHARGES UNDER SECTION 40(A)(IA) AS THE A SSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON THE RELEVANT PAYMENTS . 4.5. THERE IS NO DOUBT THAT THE CONVERSION CHARGES ARE BOUND BY TDS PROVISIONS. THE ASSESSEE HAD NOT DEDU CTED ANY TAX WHILE MAKING PAYMENTS AGAINST CONVERSION CHARGE S. THEREFORE, THE ASSESSEE IS HIT BY THE PROVISIONS OF LAW STATED IN SECTION 40(A)(IA). THE CONTENTION OF THE ASSESSEE THAT THE RECIPIENTS HAVE ACCOUNTED FOR THE RECEIPTS AND HAVE ALREADY MADE PAYMENTS OF TAX THEREON, IS NOT A GOOD GROUND TO ABSOLVE THE ASSESSEE FROM ITS PRIMARY RESPONSIBILITY. THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS RIGHTLY CONFIRMED THE DI SALLOWANCE MADE BY THE ASSESSING OFFICER. THIS GROUND IS REJE CTED. - - ITA 794, 795, ETC. OF 10 7 4.6. THE THIRD GROUND RAISED BY THE ASSESSEE IS TH AT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN CO NFIRMING THE DISALLOWANCE OF SET OFF OF CARRIED FORWARD LOSS /DEPRECIATION OF M/S. TTK BIOMED AND M/S.TTK MEDICAL DEVICES IN THE HANDS OF THE ASSESSEE. 4.7. THIS ISSUE WAS CONSIDERED BY THE B-BENCH OF T HIS TRIBUNAL IN THE APPEAL FILED BY THE REVENUE IN ITA NO.369(MDS)/2009, DISPOSED OF ON 16-7-2010, AND HEL D AGAINST THE ASSESSEE. ACCORDINGLY, THIS GROUND FAILS. 4.8. THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-07 IS NOT SUCCESSFUL. 5. NOW WE WILL CONSIDER THE APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2006-07 IN ITA NO.833(MDS)/2010. 5.1. THE FIRST GROUND RAISED BY THE REVENUE IS THA T THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN DE LETING THE BAD DEBTS TO THE TUNE OF ` 1,61,50,954/-. THIS GROUND IS DISMISSED IN VIEW OF THE DECISION TAKEN BY THE TRIB UNAL FOR THE EARLIER ASSESSMENT YEARS. - - ITA 794, 795, ETC. OF 10 8 5.2. THE NEXT GROUND RAISED BY THE REVENUE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN DE LETING THE DISALLOWANCE OF NON RECOVERABLE ADVANCES TO THE TUN E OF ` 33,09,120/- MADE TO M/S. ORIENT LABORATORIES LTD. IT IS THE CASE OF THE REVENUE THAT THE ASSESSEE HAS NOT PRODU CED ANY EVIDENCE TO PROVE THAT M/S. ORIENT LABORATORIES LTD . WAS WOUND UP. IT IS ALSO THE CASE OF THE REVENUE THAT THE AS SESSEE HAS NOT MADE ANY EFFORT TO COLLECT THE DUES FROM M/S. ORIEN T LABORATORIES LTD. BEFORE ITS WINDING UP. IT IS ALSO THE CASE OF THE REVENUE THAT THE ASSESSING AUTHORITY HAS ESTABLISHED IN HIS ORDE R THAT THE ADVANCES AND DEPOSITS WERE NOT IN FACT IRRECOVERABL E. 5.3. IN THE PREVIOUS YEAR, RELEVANT TO THE ASSESSM ENT YEAR, THE ASSESSEE HAD WRITTEN OFF ADVANCES AS NON RECOVERABLE TO THE EXTENT OF ` 33,09,120/-, DUE FROM ONE OF ITS GROUP COMPANIES, M/S. ORIENT LABORATORIES LTD. THE SAID GROUP COMPANY WAS ALSO ENGAGED IN THE BUSINESS OF PHARMAC EUTICAL FORMULATIONS. THE ASSESSEE WAS DISTRIBUTING THEIR PRODUCTS ON CONSIGNMENT BASIS AT AN AGREED RATE OF SELLING COMM ISSION. AN AMOUNT OF ` 33,09,120/- WAS DUE FROM THE GROUP COMPANY AGAINST THE ABOVE SERVICE. BUT M/S. ORIENT LABORAT ORIES LTD. - - ITA 794, 795, ETC. OF 10 9 DISCONTINUED ITS BUSINESS FOR VARIOUS OPERATIONAL R EASONS AND ULTIMATELY WOUND UP VOLUNTARILY. ACCORDING TO THE ASSESSEE THE SAID AMOUNT COULD NOT BE RECOVERED AND, THEREFORE, WRITTEN OFF IN ITS BOOKS OF ACCOUNT. THE ASSESSING AUTHORITY DISA LLOWED THE CLAIM, BUT THE COMMISSIONER OF INCOME-TAX(APPEALS) DELETED THE DISALLOWANCE. 5.4. THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS DISCUSSED THE LAW RELATING TO THE DEDUCTIBILITY OF SIMILAR EXPENSES IN COMPUTING THE TAXABLE INCOME OF A BUSINESS ENTIT Y. WE DO NOT HAVE ANY DISSENTING VIEW FROM THE VIEW TAKEN BY THE COMMISSIONER OF INCOME-TAX(APPEALS) AS FAR AS THE L EGAL PROPOSITIONS ARE CONCERNED. 5.5. BUT THE ISSUE IS THAT WHETHER THE AMOUNT WRI TTEN OFF BY THE ASSESSEE COMPANY COULD BE IN FACT HELD TO BE IRRECOVERABLE AMOUNT DUE FROM ITS GROUP CONCERN M/S . ORIENT LABORATORIES LTD. IT IS NOWHERE ARGUED BY THE ASSE SSEE THAT IT HAS MADE REASONABLE EFFORTS TO COLLECT THE MONEY DU E FROM M/S.ORIENT LABORATORIES LTD. WHILE THE LATTER WAS C ARRYING ON ITS BUSINESS. WHEN THE ASSESSEE IS DOING BUSINESS WITH M/S.ORIENT LABORATORIES LTD., THE ASSESSEE SHOULD DO THE BUSIN ESS FOLLOWING - - ITA 794, 795, ETC. OF 10 10 THE PRINCIPLES OF NORMAL PRUDENCE. THERE CANNOT BE A SPECIAL LEEWAY IN THE CASE OF ASSOCIATE CONCERNS. WHETHER THE ASSESSEE HAS MADE ATTEMPTS TO COLLECT THE DUES FROM M/S.ORIENT LABORATORIES LTD., AS PER THE TERMS OF THE AGREEMEN T; THERE IS NO ANSWER AVAILABLE ON RECORDS. WHY THE ASSESSEE WAS AGAIN AND AGAIN RENDERING SERVICES TO M/S.ORIENT LABORATORIES LTD. EVEN WHEN THE LATTER WAS NOT MAKING PAYMENTS TO THE ASSE SSEE COMPANY AS REQUIRED BY THE AGREEMENT. THEREFORE, I T IS CLEAR THAT DURING THE LIFETIME OF M/S.ORIENT LABORATORIES LTD. THE ASSESSEE HAS NOT MADE ANY EFFORTS TO COLLECT THE DU ES FROM M/S.ORIENT LABORATORIES LTD. ON THE OTHER HAND, TH E ASSESSEE COMPANY CONTINUED TO RENDER SERVICES TO ITS GROUP C ONCERN, THEREBY INCREASING THE VOLUME OF THE AMOUNT DUE FRO M THAT COMPANY. THIS CONDUCT OF THE ASSESSEE COMPANY IS N OT THRUST UPON IT BY ANYBODY. THE ASSESSEE HAS FOLLOWED SUCH A COURSE OF ACTION BY ITS OWN VOLITION. THEREFORE, IT IS TO BE SEEN THAT THIS CLAIM OF DEDUCTION MADE BY THE ASSESSEE COMPANY DOE S NOT HAVE THE NECESSARY INEVITABLE CHARACTER. IT IS ALS O TO BE SEEN THAT M/S. ORIENT LABORATORIES LTD. WAS WOUND UP VOL UNTARILY. WHEN ALL THESE CIRCUMSTANCES ARE CONSIDERED TOGETHE R, WE FIND - - ITA 794, 795, ETC. OF 10 11 THAT THE AMOUNTS DUE FROM M/S.ORIENT LABORATORIES L TD. WERE GIVEN A GO-BY BY THE ASSESSEE COMPANY IN A VOLUNTAR Y MANNER. IN THESE CIRCUMSTANCES THIS AMOUNT CLAIMED AS DEDUC TION BY WAY OF NON RECOVERABLE ADVANCES CANNOT BE ACCEPTED IN L AW. THEREFORE, WE REVERSE THE ORDER PASSED BY THE COMMI SSIONER OF INCOME-TAX(APPEALS) ON THIS ISSUE AND RESTORE THE D ISALLOWANCE OF ` 33,09,120/-, MADE BY THE ASSESSING AUTHORITY. THI S ISSUE IS DECIDED IN FAVOUR OF THE REVENUE AND THE GROUND IS ALLOWED. 5.6. THE REVENUE IS PARTLY SUCCESSFUL IN ITS APPEA L FILED FOR THE ASSESSMENT YEAR 2006-07. 6. LASTLY, WE WILL CONSIDER THE APPEAL FILED BY TH E ASSESSEE FOR THE ASSESSMENT YEAR 2007-08 IN ITA NO.1427(MDS)/2010. 6.1. THE FIRST ISSUE RAISED BY THE ASSESSEE IS AGA INST THE DISALLOWANCE OF NON RECOVERABLE DEPOSITS WRITTEN OF F BY THE ASSESSEE. THIS ISSUE HAS ALREADY BEEN CONSIDERED B Y US FOR THE EARLIER ASSESSMENT YEAR 2006-07 IN THE ABOVE PARAGR APH AND DECIDED AGAINST THE ASSESSEE. THEREFORE, THIS GROUN D FAILS. 6.2. THE SECOND GROUND RAISED BY THE ASSESSEE IS AGAINST THE SET OFF OF CARRIED FORWARD LOSS/DEPRECI ATION. THIS - - ITA 794, 795, ETC. OF 10 12 ISSUE HAS ALREADY BEEN DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL WHILE CONSIDERING THE MATTER FOR THE ASSES SMENT YEAR 2000-01. THEREFORE, THIS GROUND ALSO FAILS. 6.3. THE ASSESSEE FAILS IN ITS APPEAL IN ITA NO.1 427(MDS)/2010. 7. IN RESULT, THE APPEALS FILED BY THE ASSESSEE AR E DISMISSED. THE APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2005-06 IS ALSO DISMISSED. THE APPEAL FILED B Y THE REVENUE FOR THE ASSESSMENT YEAR 2006-07 IS PARTLY A LLOWED. ORDER PRONOUNCED ON THURSDAY, THE 13 TH OF OCTOBER, 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 13 TH OCTOBER, 2011. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.