SIMPLEX ENGINEERING & FOUNDARY WORKS P. LTD, MUMBAI V. ADDL CIT RG 3(3), MUMBAI

ITA 8093/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71655 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 21-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 24-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Assessee Lawyers: DR PRAYAG JHA
• Keywords: Earning of tax free income; Bad and doubtful debts
• Section: 14A; 2

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI , BEFORE SHRI D.KARUNAKARA RAO , A M & SHRI SANJAY GARG , J M IT A NO. 809 3 /MUM/201 0 ( ASSESSMENT YEAR :200 7 - 200 8 ) M/S SIMPLEX ENGINEERING & FOUNDRY WORKS PVT. LTD., 601A, FAIRLINK CENTRE, OFF. ANDHERI LINK ROAD, ANDHERI (W), MUMBAI - 400 053 VS. ADCIT, RG.3(3), MUMBAI PAN/G IR NO. : A A BCS 4930 P ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : DR. PRAYAG JHA /REVENUE BY : MR . M.L.PERUMAL DATE OF HEARING : 2 1 ST NOVEMBER , 201 3 DATE OF PRONOUNCEMENT : 2 1 ST NOVEMBER,2013 O R D E R PER D.KARUNAKARA RAO ( A .M.) : TH IS APPEAL BY THE ASSESSEE HAS BEEN PREFERRED AGAINST THE ORDER DATED 28 - 9 - 2010 , PASSED BY THE LEARNED CIT(A) - 7 , MUMBAI FOR THE ASSESSMENT YEAR 200 7 - 200 8 . 2 . BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 18.56 CRORES. THE ASSESSMENT WAS COMPLETED DETERMINING THE ASSESSEE INCOME AT RS.19.83 CRORES. THE AO MADE ADDITIONS IN THE ASSESSMENT. THE D ISALLOWANCE UNDER SECTION 14A OF THE ACT (I.E. RS.6,07,005/ - ) AND DISALLOWANCE OF BAD DEBTS (RS.1,42,90,079/ - ) ARE COUPLE OF THEM. ITA NO. 809 3 /201 0 2 3 . IN APPEAL, THE CIT(A) CONFIRMED THE ABOVE ADDITIONS . AGGRIEVED THEREBY, THE ASSESSEE IS I N APPEAL HERE BEFORE THE TRI BU NAL. 4 . THE COUPLE OF ISSUES EMANATING FROM THE GROUNDS RAISED BEFORE US ARE AS UNDER : - (I) DISALLOWANCE OF RS. 6,07,005/ - UNDER SECTION 14A OF THE ACT WHEN EXEMPT DIVIDEND INCOME IS ONLY RS.74,492/ - AND; (II) DISALLOWANCE OF BAD DEBTS OF RS. 1,42,90,07 9/ - . 5 . IN REGARD TO THE ISSUE NO.1 , DR. PRAYAG JHA, LEARNED AR OF THE ASSESSEE MENTIONED THAT THE ASSESSEE EARNED EXEMPT INCOME OF RS. 74,492/ - AND INCURRED NO EXPENDITURE FOR ADDING OF THE SAME BY WAY OF INTEREST OR PARTICULAR ADMINISTRATIVE EXPENSES E TC.. THE AO DID NOT ACCEPT THE SAID EXPLANATION AND PROCEEDED TO INVOKE THE PROVISIONS OF RULE 8D OF THE IT RULES . ACCORDINGLY, HE DISALLOWED RS. 6,07,005/ - ON ACCOUNT OF INTEREST PAYMENT AND THE ADMINISTRATIVE EXPENSES. IN THIS REGARD, LEARNED COUNSEL SUBM ITTED THAT THE INTEREST BEARING FUNDS WERE NOT INVESTED IN THE INVESTMENT WITH YIELDED DIVIDEND. HE ALSO MENTIONED THAT THE SAID RULES IS NOT APPLICABLE TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THEREFORE, REASONABLE BASIS NEEDS TO BE ADOPTED FOR QUANTIF YING THE RELATABLE EXPENSES. CONSIDERING THE QUANTUM OF EXEMPT INCOME, NOMINAL EXPENSES I.E. PERCENTAGE OF EXEMPT INCOME MAY BE FAIRLY DISALLOWED. 6 . ON THE OTHER HAND, LEARNED DR RELIED ON THE ORDER OF AO AND CIT(A) ON THE PROVISIONS OF RULE 8D. ITA NO. 809 3 /201 0 3 7 . WE H EARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. IT IS A FACT THAT THE RELEVANT ASSESSMENT YEAR IS 2007 - 08 UNDER CONSIDERATION IS OUTSIDE THE SCOPE OF PROVISIONS OF RULE 8D. THE SAID PROVISIONS CANNOT BE TREATED AS APPLICABLE TO THE A.Y.2007 - 08 UNDER CONSIDERATION INDIRECTLY WHEN THE SAME IS PRECLUDED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT, REPORTED IN (2010) 328 ITR 81(BOM) . THE HON BLE BOMBAY HIGH COURT ALSO IN THE CASE OF CIT VS. MIS. GODREJ AGR OVET LTD VIDE INCOME TAX APPEAL NO. 934 OF 2011, DATED 8.1.2013 , HAS HELD THAT PERCENTAGE OF THE EXEMPT INCOME CAN CONSTITUTE A REASONABLE ESTIMATE FOR MAKING DISALLOWANCE IN THE YEARS EARLIER TO THE ASSESSMENT YEAR 2008 - 09. THE RELEVANT PORTION OF THE SAI D JUDGMENT OF THE BOMBAY HIGH COURT (SUPRA) READS AS UNDER: '4. SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUNAL IN ITS IMPUGNED ORDER DATED 17.9.2010 WHILE APPLYING THE DECISION OF THIS COURT IN THE MATTER OF GODREJ (SUPRA) HAS DISALLOWED THE EXPENDITUR E ONLY TO THE EXTENT OF 2% OF THE TOTAL EXEMPT INCOME EARNED BY THE RESPONDENT - ASSESSEE ON THE BASIS ITS ORDER DATED 27.2.2009 FOR THE ASSESSMENT YEAR 2002 - 2003 AND ORDER DATED 10.9.2009 FOR THE ASSESSMENT YEARS 2003 - 2004 AND 2004 - 2005 WHEREIN DISALLOWANCE WAS RESTRICTED TO 2% OF THE EXEMPT INCOME. FURTHER; THE TRIBUNAL HAS REMANDED THE MATTER TO THE AO TO VERIFY THE DISALLOWANCE CLAIMED AND RESTRICT THE DISALLOWANCE ONLY TO THE EXTENT TO 2% OF THE TOTAL EXEMPT INCOME. WE FIND NO FAULT WITH THE ORDER OF THE TRIBUNAL. ' CONSIDERING THE BINDING NATURE OF THE JUDGMENT, WE DIRECT THE AO TO QUANTIFY THE DISALLOWANCE IN THE LIGHT OF THE AFORESAID JUDGMENTS OF THE HON BLE HIGH COURT. ACCORDINGLY, ISSUE NO.1 RAISED IN GROUNDS NO.1 TO 1.3 STANDS PARTLY ALLOWED. ITA NO. 809 3 /201 0 4 8. I SSUE NO.2 RELATES TO DISALLOWANCE ON BAD DEBTS OF RS. 1,42,90,079/ - . 9. IT IS THE SUBMISSION OF THE ASSESSEE BEFORE US THAT THE SAID AMOUNT WAS WRONGLY HELD BY THE REVENUE AUTHORITIES AS NOT WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE WHEN THE BOO KS OF ACCOUNTS SUGGESTS UNDISPUTEDLY THE FACT OF WRITING OFF TO THE DEBTORS ACCOUNTS. IT IS THE SUBMISSION OF THE LEARNED AR OF THE ASSESSEE THAT THE SAID DEBTS WERE CONSTRUED TO HAVE BEEN WRITTEN OFF FOR THE SUBSEQUENT ASSESSMENT YEAR WHEN THE BOARD RESO LUTION WAS DECIDED. IN THIS REGARD HE SUBMITTED THAT THERE IS NEVER A RESOLUTION OF BOARD EXCEPT THAT THE RESOLUTION WAS TO ADOPT THE ACCOUNTS FINALIZED BY THE STATUTORY AUDITORS. 10 . IN OUR OPINION, THIS SUBMISSION OF THE ASSESSEE STANDS SUPPORTED BY T HE COPIES OF THE FINANCIAL STATEMENTS FURNISHED BEFORE US. THEREFORE, WE ARE OF THE VIEW THAT THE MATTER SHOULD BE SET ASIDE TO THE FILES OF THE REVENUE WITH THE FOLLOWING DIRECTIONS: - I) TO EXAMINE THE BOOKS OF ACCOUNTS IN GENERAL AND THE SUDRY DEBTORS IN PARTICULAR; II) TO FIND OUT IF THE DEBTORS ACCOUNTS ARE WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE; III) IN CASE OF SUNDRY DEBTORS ACCOUNTS ARE WRITTEN OFF IN THE BOOKS OF ACCOUNTS, THE ASSESSEES CLAIM OF BAD DEBTS SHOULD BE ALLOWED IN ACCORDA NCE WITH THE BINDING JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF ITA NO. 809 3 /201 0 5 T.R.F. LIMITED VS. CIT, REPORTED IN 323 ITR 397 , WHICH SUGGESTS THAT BAD DEBTS ARE ALLOWABLE AS EXPENSES, IF THEY ARE ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNTS. IT IS NOT THE CON DITION THAT RESOLUTION BECOMES CONCLUSIVE FACTORS IN MATTERS OF ALLOWING THE CLAIMS OF ASSESSEE. ACCORDINGLY, THIS ISSUE IS REMANDED PROTANTO . 11 . IN THE RESULT, APPEAL OF THE AS S ESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 1 ST OF NOV. 201 3 . 2 1 ST 201 3 SD/ - SD/ - ( ) ( SANJAY GARG ) ( ) ( D.KARUNAKARA RAO ) / JUDI CIALMEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 2 1 /11/ 2013 /PKM , PS COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) - X, MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//