ACIT, CHENNAI V. M/s. Radaan Media Works India Ltd., CHENNAI

ITA 802/CHNY/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4620 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2017
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 27-04-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 12-04-2012
• Court: TRIBUNAL
• Assessee Lawyers: A S SRIRAMAN
• Keywords: Depreciation; Rectification of order; Bad and doubtful debts; Notional interest; Commercial expediency
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . ' # , $ #% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER . /ITA NOS. 802/MDS/2012 & 1669/MDS/2013 / ASSESSMENT YEARS: 2008-09 & 2004-05 THE ASST. COMMISSIONER OF INCOME-TAX, MEDIA CIRCLE-II, CHENNAI. ( /APPELLANT) V. M/S. RADAAN MEDIA WORKS INDIA LTD., NO.10 (OLD NO.3), PAUL APPASAMY STREET, T.NAGAR, CHENNAI 600 017. PAN AABCR3815L RESPONDENT) / APPELLANT BY : SHRI GURUBASHYAM, JCIT / RESPONDENT BY : SHRI A.S.SRIRAMAN, ADVOCATE ! / DATE OF HEARING : 27.04.2017 '# ! / DATE OF PRONOUNCEMENT : 11.05.2017 & / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINS T DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME-TAX( APPEALS)-VI, CHENNAI FOR THE ASSESSMENT YEARS 2004-05 AND 2008-0 9. - - ITA 802/12 & 1669/13 2 2. THE FIRST GROUND RAISED BY THE REVENUE IN ITA NO.802/MDS/2012 IS THAT THE CIT(APPEALS) ERRED IN A LLOWING DEPRECIATION ON NON-COMPETE FEE AND BRAND EQUITY WH EN THEY ARE NOT IN THE NATURE OF INTANGIBLE ASSET LIST ED U/S.32 NAMELY KNOW-HOW, COPY RIGHTS, PATENTS. 3. THE FACTS OF THE ISSUE ARE THAT THE AO MADE THE DISALLOWANCE OF DEPRECIATION CLAIM ON BRAND EQUITY OF 2,50,282/- AND NON-COMPETE FEE OF 2,50,282/- RELYING ON THE STAND TAKEN IN THE PREVIOUS YEAR. BEFORE THE CIT(APPEALS), THE ASSESSEE RELIED ON THE DECISION O F THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS.2241/MDS/2006 FOR ASSESSMENT YEAR 2001-02, 812/MDS/2008 FOR ASSESSMENT YEAR 2004-05, AND 1900/MDS/2008 FOR THE ASSESSMENT YEARS 2005-06 AND IN ITA NO.1035/MDS/2009 FOR ASSESSMENT YEAR 2006-07 HE LD THAT THE CLAIM OF DEPRECIATION ON NON-COMPETE FEE A ND BRAND EQUITY WAS FULLY ALLOWED IN FIRST APPEAL AND UPHELD SUBSEQUENTLY BY THE TRIBUNAL. THEREFORE, THE CIT ( APPEALS) RESPECTFULLY FOLLOWING AFORESAID ORDER OF THE TRIBU NAL, - - ITA 802/12 & 1669/13 3 ALLOWED THE CLAIM OF DEPRECIATION. AGAINST THIS, T HE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, THIS ISSUE IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER ASSESSMENT YEARS CITED SUPRA WHEREIN HELD T HAT THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON NON-COMPET ENT FEE AND BRAD EQUITY. BEING SO, WE DO NOT FIND ANY INFI RMITY IN THE ORDER OF LD. LEARNED COMMISSIONER OF INCOME TAX (A) AND THE SAME IS CONFIRMED. THIS GROUND OF REVENUE S TANDS DISMISSED. 5. THE NEXT GROUND IN THIS APPEAL IS THAT THE CIT(APPEALS) ERRED IN DELETING THE NOTIONAL INTERES T INCOME OF 24 LAKHS CHARGED AT THE RATE OF 12% ON THE INTERES T FREE LEASE DEPOSIT PAID BY THE COMPANY. - - ITA 802/12 & 1669/13 4 6. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE COMPANY TOOK A PROPERTY ON RENT FROM SMT. A. RADHIK A, CREATIVE HEAD AND 50% SHAREHOLDER OF THE ASSESSEE COMPANY AND IN ADDITION TO PAYMENT OF ANNUAL RENT O F 18,00,000/- AND ALSO PAID RENTAL ADVANCE OF 18,00,000/- AS WELL AS A FURTHER SUM OF 2 CRORES WAS PAID TO HER AS INTEREST FREE LEASE DEPOSIT. THE AO FOUND THAT THE COMPANY HAD TAKEN A LOAN OF 6,95,66,007/- AND CHARGED 80,84,543/- AS INTEREST. THE AO OBSERVED THAT THE C OMPANY HAVING APPLIED 7.41 CRORES TOWARDS FIXED ASSETS, 18.90 CRORES TOWARDS SUNDRY DEBTORS AND 6.35 CRORES FOR TELESERIAL RIGHTS INFERRED THAT THE INTEREST FREE L EASE DEPOSIT OF 2 CRORES WAS ONLY PAID OUT OF LOANS AVAILED AND MA DE NOTIONAL INTEREST DISALLOWANCE OF 24,00,000/- BEING 12% OF 2 CRORES. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS). 6.1 BEFORE THE CIT(APPEALS), THE LD. AR, IN HIS WRI TTEN SUBMISSION ARGUED THAT NO PART OF THE BORROWED FUND S WAS UTILISED IN THE PAYMENT OF RENT DEPOSIT AS THE AGRE EMENT OF - - ITA 802/12 & 1669/13 5 LEASE WAS ENTERED INTO ON 31.3.2000 AND 1.7.2002 FO R THE LEASE OF THE PREMISES AT NO.3 AND NO.4, PAUL APPASA MY STREET, T. NAGAR, CHENNAI AND NO DISALLOWANCE ON TH IS COUNT WAS MADE IN ANY OF THE PREVIOUS ASST. YEARS A ND NO DEPOSIT WAS MADE DURING THE RELEVANT PREVIOUS YEAR. HE ALSO SUBMITTED THAT THE SAID PREMISES WERE FULLY UT ILISED FOR THE BUSINESS OF THE ASSESSEE. THE CIT(APPEALS) OBS ERVED THAT THOUGH THE AO HAS NOT GIVEN A CATEGORICAL FIND ING THAT 2 CRORES GIVEN AS LEASE DEPOSIT TO SMT. A. RADHIKA HAS COME OUT OF BORROWED FUNDS, IN VIEW OF THE FACT THA T THE DEPOSIT WAS GIVEN FOR THE PURPOSE OF TAKING THE PRE MISES ON LEASE BY THE ASSESSEE COMPANY FOR CARRYING ON ITS BUSINESS. ACCORDINGLY, THE CIT(APPEALS) OBSERVED T HAT THERE WAS COMMERCIAL EXPEDIENCY IN EXTENDING THE DE POSIT AND HENCE THERE IS NO CASE FOR DISALLOWING INTEREST ON BORROWED FUNDS ATTRIBUTABLE TO DEPLOYMENT TOWARDS L EASE DEPOSIT AND HE DELETED THE ADDITION. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. - - ITA 802/12 & 1669/13 6 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE LEARNED ASSE SSING OFFICER WANTS TO DISALLOW THE NOTIONAL INTEREST ON INTEREST FREE LEASED DEPOSIT GIVEN TO SMT. A.RADHIKA, WHO HA S 50% SHAREHOLDER OF THE ASSESSEE COMPANY. IN OUR OPINIO N, THE INTEREST FREE DEPOSIT HAS BEEN GIVEN TO SMT. A.RADH IKA ON ACCOUNT OF BUSINESS EXPEDIENCY AND THE LEARNED ASSESSING OFFICER CANNOT DECIDE WHAT THE BUSINESSMA N CAN DO FOR THE PURPOSE OF BUSINESS. HE CANNOT DECIDE ON BEHALF OF THE ASSESSEE. BEING SO, WE DO NOT FIND ANY INFIR MITY IN THE ORDER OF LD. LEARNED COMMISSIONER OF INCOME TAX (A) IN DELETING THE DISALLOWANCE OF NOTIONAL INTEREST AT R S.24 LAKHS. HENCE, THIS GROUND RAISED BY THE REVENUE IS REJECTED. 8. THE ONLY GROUND RAISED BY THE REVENUE IN ITA NO.1669/MDS/2013 IS THAT THE CIT(APPEALS) ERRED IN DELETING THE ADDITION MADE TOWARDS PROVISION FOR BA D AND DOUBTFUL DEBTS TO THE EXTENT OF 48.77 LACS. - - ITA 802/12 & 1669/13 7 9. THE FACTS OF THE CASE ARE THAT THE ASSESSEE CLAI MED 48.77 LACS AS PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE RETURN OF INCOME FILED. HOWEVER, AT THE TIME OF AS SESSMENT, REVISED COMPUTATION WAS FILED AND CLAIMED IT AS A B AD DEBT. THE SAME WAS ALLOWED BY THE ASSESSING OFFICER. FUR THER, VIDE RECTIFICATION ORDER U/S.154 OF THE ACT DATED 3 1.3.2011, THE AO TREATED IT AS PROVISION FOR BAD DEBT AND DIS ALLOWED THE SAME. ON APPEAL, THE CIT(APPEALS) ALLOWED THE SAME AS BAD DEBT. AGAINST THIS, THE REVENUE IS IN APPEA L BEFORE US. 10. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. AS SEEN FROM THE GROUNDS OF RE VENUE, A COPY OF LETTER FURNISHED BY THE ASSESSEE BEFORE T HE LEARNED ASSESSING OFFICER AT THE TIME OF ASSESSMENT PROCEEDINGS AND THE ASSESSEE MADE A CLAIM BEFORE TH E LEARNED ASSESSING OFFICER THOUGH REVISED COMPUTATIO N OF INCOME AS BAD DEBT. THIS CLAIM WAS ALLOWED BY THE L EARNED ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT U/S. 143(3) OF THE ACT. LATER, THE LEARNED ASSESSING OFFICER TO OK UP THE - - ITA 802/12 & 1669/13 8 PROCEEDINGS U/S.154 OF THE ACT AND DISALLOWED THE S AME AND ADDED IT TO THE INCOME OF THE ASSESSEE. IN OUR OPINION, IT CANNOT BE SAID THAT THERE IS A MISTAKE APPARENT FROM RECORD SO AS TO RECTIFY U/S.154 OF THE ACT BY THE L EARNED ASSESSING OFFICER. THE CLAIM OF ASSESSEE AS BAD DE BT VIDE LETTER DATED 04.10.2006 AND THE LEARNED ASSESSING O FFICER HAS TAKEN A CONSCIOUS DECISION TO ALLOW AS BAD DEBT . NOW, THE ISSUE WHICH IS VERY DEBATABLE, CANNOT BE CONSID ERED BY THE LEARNED ASSESSING OFFICER U/S.154 OF THE ACT SO AS TO DISALLOW THE CLAIM OF ASSESSEE. WE PLACE RELIANCE IN THE JUDGEMNET OF SUPREME COURT IN THE CASE OF TRF LTD. V. CIT 323 ITR 397, WHEREIN, THE HONBLE SUPREME COURT HAS HELD THAT AFTER 01.04.1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRR ECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRE COVERABLE IN THE ACCOUNTS OF THE ASSESSEE. FURTHER, IN THE PRESE NT CASE, THE ASSESSING OFFICER HAS EXAMINED AS TO WHETHER TH E DEBT HAS, IN FACT, BEEN WRITTEN OFF, IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS BEEN UNDERTAKEN BY THE ASSESSING OFFICER WITH REGARD TO TREATMENT OF BAD D EBT. - - ITA 802/12 & 1669/13 9 BEING SO, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. LEARNED COMMISSIONER OF INCOME TAX(A) IN DELETING T HE ADDITION TOWARDS BAD DEBTS. HENCE, THIS GROUND RAIS ED BY THE REVENUE IS REJECTED. 11. IN THE RESULT, THE APPEAL OF REVNUE IN I.T.A NOS.802/MDES./2012 AND 1669/MDS./2013 ARE DISMISSED . ORDER PRONOUNCED ON 11 TH MAY, 2017 SD/- SD/- ( $% & ) ( ' ( ) $ ) *%+,-,./01,2345,.62,+778,293 : ;< /JUDICIAL MEMBER ! ;<=>>70.?,.?@A1BA2 ': /CHENNAI, C; /DATED, THE 11 TH MAY, 2017. K S SUNDARAM ;D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H3 /CIT(A) 4. H /CIT 5. FIJ K /DR 6. JLM /GF.