DCIT, CHENNAI V. Automotive Coaches & Components Ltd., CHENNAI

ITA 813/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7870 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 24-11-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 13-04-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Bad and doubtful debts
• Section: 143(3)

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO. 813/MDS/2015 / ASSESSMENT YEAR :2003 - 04 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(I) , CHENNAI 600 034. VS. M/S. AUTOMOTIVE COACHES & COMPONENTS LTD., KHIVRAJ COMPLEX, II FLOOR, 477 - 48 2, ANNA SALAI, NANDANAM, CHENNAI 600 0 35 . [PAN: A AACA3150E ] ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI A.V. SREEKANTH , JCIT / RESPONDENT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE / DATE OF HEARING : 24 . 11 .201 5 / DATE OF P RONOUNCEMENT : 24 . 0 2 .201 6 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONE R OF INCOME TAX (APPEALS) I, CHENNAI DATED 29.12.2014 RELEVANT TO THE ASSESSMENT YEAR 2003 - 04. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF TIPPER BODIES, TRAILORS AND ACCESSORIES AND I.T.A. NO . 813 /M/ 1 5 2 ASSEMBLY OF FRONT ST RUCTURES. FOR THE ASSESSMENT YEAR, THE ASSESSEE FILED ITS RETURN DECLARING LOSS ON 17.11.2003. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] DATED 16.02.2006 DETERMINING THE LOSS FOR THE YE AR AT .88,10,057/ - BY DISALLOWING A SUM OF .15,01,910/ - INCLUDING .12.27 LAKHS BEING THE BUSINESS LOSS TREATED AS PROVISION FOR DOUBTFUL DEBTS AND DISALLOWANCE OF DEPRECIATION ON UPS AND VOLTAGE STABILIZERS OF .1,34,196/ - RESTRICTED TO 25% AS AGAINST T HE CLAIM OF 100%. THE ASSESSEE WENT ON APPEAL BEFORE THE LD. CIT(A), WHO CONFIRMED THE SAID DISALLOWANCE VIDE HIS ORDER DATED 03.01.2007. AGAINST THIS ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE TRIBUNAL, WHICH VIDE ITS ORDER DATED 07.05.2008 HAS REMITT ED BACK THE ISSUES RELATING TO PROVISION FOR DOUBTFUL DEBTS AND DEPRECIATION FOR UPS FOR FRESH CONSIDERATION OF THE ASSESSING OFFICER. WHILE GIVING EFFECT IN THIS ORDER, THE ASSESSING OFFICER TREATED THE BUSINESS LOSS AS PROVISION FOR DOUBTFUL DEBTS AND DI SALLOWED THE SAME. FURTHER, HE TREATED THE UPS AND VOLTAGE STABILIZERS AS CHARGEABLE BATTERIES AND DISALLOWED THE CLAIM FOR 100%. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND O N THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO WITHDRAW THE DISALLOWANCE MADE BY HIM. 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. I.T.A. NO . 813 /M/ 1 5 3 5. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE REVENUE HAS CONTENDED THAT THE ASSESSEE HAS MADE A PROVISION IN THE BOOKS OF ACCOUNTS WHICH IS NOT AN ALLOWABLE EXPENDITURE. IN THIS CASE, THE ASSESSEE HAS CONTRACTED FOR SUPPLY OF GOODS WITH ONE OF ITS REGULAR SUPPLIERS. ON INFORMING THE ASSESSEE THAT THE GOODS WERE DISPATCHED, THE SUPPLIER DREW A BILLS OF EXCHANGE FOR A SUM OF .12,27,000/ - IN THE NAME OF THE ASSESSEE WHICH WAS ACCEPTED BY THE ASSESSEE. THE SUPPLIER THEREAFTER DISCOUNTED THE BILL OF EXCHANGE WITH A FINANCIER AND GOT THE MONEY, LESS THE DISCOUNTING CHARGES. ON THE DUE DATE, THE FINANCIER PRESENTED THE BILL OF EXC HANGE BEFORE THE ASSESSEE FOR PAYMENT WHICH HAD TO BE HONOURED BY THE ASSESSEE AS THE BILL OF EXCHANGE WAS ACCEPTED BY IT. THE ASSESSEE FOUND BY THE TIME THAT THE GOODS CONTRACTED FOR BY THE ASSESSEE WERE NOT SUPPLIED BY THE PARTY AND THE PARTY WAS OBTAINI NG THE ACCEPTANCE OF BILL OF EXCHANGE IN A FRAUDULENT MANNER. THE ASSESSEE COULD NOT GET THE AMOUNT FROM THE SUPPLIER WHO DUPED THE ASSESSEE. IT IS IN THESE CIRCUMSTANCES THAT THE SAID AMOUNT HAS BEEN CLAIMED BY THE ASSESSEE BY WAY OF BUSINESS LOSS. IN THE FIRST ROUND OF LITIGATION, THE ITAT HAS DIRECTED THE ASSESSING OFFICER TO VERIFY THE FACTS AFRESH AND COME TO A CONCLUSION IN THE LIGHT OF THE JUDGEMENT OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF DANDEKAR MACHINE WORKS LTD. V. CIT (1993) 202 ITR 161. AFTER CONSIDERING THE ABOVE DIRECTIONS OF THE TRIBUNAL, THE ASSESSING OFFICER HAS PASSED AN ORDER DATED 31.12.2009 GIVING EFFECT TO THE ORDER OF THE ITAT. I.T.A. NO . 813 /M/ 1 5 4 WHILE DOING SO, THE ASSESSING OFFICER AGREED WITH ALL THE FACTS SUBMITTED BY THE ASSESSEE BEFORE HIM AND BEFORE THE ITAT. HOWEVER, HE FOUND THAT THE LOSSES CLAIMED BY THE ASSESSEE ARE ONLY PROVISIONS BUT NOT ACTUALLY PAID. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED AS UNDER: 4.3. I HAVE GONE THROUGH THE FACTS AND CIR CUMSTANCES OF THE CASE. AS PER THE PROVISIONS OF S. 36(1)(VII) AND ITS EXPLANATION READ COMBINEDLY GIVES A MEANING THAT ANY AMOUNT OF BAD & DOUBTFUL DEBTS WRITTEN OFF IN THE BOOKS OF THE APPELLANT AS IRRECOVERABLE CAN BE ALLOWED AS AN EXPENDITURE BUT NOT T HE PROVISIONS FOR SUCH BAD & DOUBTFUL DEBTS,. IT IS ALSO DECIDED IN THE CASE OF YOKAGOWA INDIA LTD. REPORTED IN 204 TAXMAN 305 (KAR.)(2012) THAT THE SAID AMOUNT NOT ONLY TO BE DEBITED IN P & L A/C BUT SIMULTANEOUSLY ALSO TO BE REDUCED FROM THE LOANS AND AD VANCES OR THE DEBTORS FROM THE ASSET SIDE OF THE BALANCE SHEET. IN THE INSTANT CASE, THE AO FELT THAT IT IS A PROVISION CREATED FOR BAD & DOUBTFUL DEBTS BUT THAT AMOUNT WAS NOT WRITTEN OFF IN THE BOOKS OF ACCOUNT. HOWEVER, THE LD. AR HAS DEMONSTRATED BASED ON THE NOTES FORMING PART OF THE ACCOUNTS THAT THE SAID AMOUNT WAS REDUCED FROM THE DEBTORS ON THE ASSETS SIDE OF THE BALANCE SHEET. IT READS AS UNDER: NOTES TO THE ACCOUNTS 11. LOANS & ADVANCES (A) ALL ADVANCES AND BALANCES ARE UNSECURED AND CONSIDERED GO OD (OTHER THAN RS.12.27 LAKHS IN (B) HEREIN. (B) ADVANCES OF RS.228.56 LAKHS IS NET OFF PROVISION FOR DOUBTFUL ADVANCES OF RS.12.27 LAKHS (31.3.2002 RS. NIL) IN VIEW OF THE ABOVE, I HOLD THAT THE APPELLANT IS ENTITLED TO CLAIM PROVISION FOR BAD & DOUBTFUL DEB TS AS EXPENDITURE U/S 36(1)(VII) OF THE ACT. THE AO IS DIRECTED TO WITHDRAW THE DISALLOWANCE MADE BY HIM. THE GROUND IS ALLOWED. 6. IN THIS CASE, THE ASSESSING OFFICER OBSERVED THAT IT IS A PROVISION CREATED FOR BAD AND DOUBTFUL DEBTS BUT THAT AMOUNT W AS NOT WRITTEN OFF IN THE I.T.A. NO . 813 /M/ 1 5 5 BOOKS OF ACCOUNT. ACCORDINGLY, I N VIEW OF THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT AND ITS EXPLANATION, IF ANY AMOUNT OF BAD AND DOUBTFUL DEBTS WRITTEN OFF IN THE BOOKS OF THE ASSESSEE AS IRRECOVERABLE CAN BE ALLOWED AS AN EXPENDITURE BUT NOT THE PROVISIONS FOR SUCH BAD & DOUBTFUL DEBTS. HOWEVER, THE LD. CIT(A) HAS HELD THAT IT WAS DEMONSTRATED BASED ON THE NOTE FORMING PART OF THE ACCOUNTS THAT THE SAID AMOUNT WAS REDUCED FROM THE DEBTORS ON THE ASSETS SIDE OF THE BALANCE S HEET AND I N VIEW OF THE RATIO LAID DOWN BY THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. YOKAGOWA INDIA LTD. (SUPRA), THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO WITHDRAW THE DISALLOWANCE MADE BY HIM. BEFORE ARRIVING TO THE ABOVE CONCLUSION, THE LD. CIT(A) HAS NOT OBTAINED ANY REMAND REPORT FROM THE ASSESSING OFFICER AS TO WHETHER THE ASSESSEE HAS MADE ONLY A PROVISION FOR BAD AND DOUBTFUL DEBT OR THE BAD DEBT WAS ACTUALLY WRITTEN OFF IN THE BOOKS OF ASSESSEE. THE HON BLE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT V. MICROMAX SYSTEMS P. LTD. 277 ITR 409 HAS OBSERVED AND HELD AS UNDER: PRIOR TO APRIL 1, 1989, EVEN IF THE DEBT HAD NOT BEEN WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, IT COULD STILL BE ALLOWED AS A BAD DEBT IF THE ASSESSEE COULD ESTABLISH THAT IN FACT IT HAD BECOME A BAD DEBT IN THE PREVIOUS YEAR. BUT, AFTER APRIL 1, 1989, IT IS A MANDATORY CONDITION THAT DEDUCTION CAN BE ALLOWED AS BAD DEBT ONLY WHEN IT IS ACTUALLY WRITTEN OFF AS IRRECOVERABLE IN THE BO OKS OF ACCOUNT AND NOT ON THE BASIS OF A MERE PROVISION. HELD ACCORDINGLY, ALLOWING THE APPEAL (I) THAT THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE INCOME TAX ACT, 1961, WERE NOT APPLICABLE TO THE ASSESSEE SINCE THE ASSESSEE WAS ADMITTEDLY NOT A BANK OR A PUBLIC FINANCIAL INSTITUTION. IT WAS ONLY A COMPANY MANUFACTURING CONTROL I.T.A. NO . 813 /M/ 1 5 6 SYSTEMS AND EQUIPMENT. THEREFORE, ONLY SECTION 36(1)(VII) WOULD APPLY TO THE ASSESSEE AND NOT SECTION 36(1)(VIIA). (II) THAT SINCE THE ASSESSEE DID NOT WRITE OFF THE DEBT IN QUE STION AS IRRECOVERABLE IN ITS BOOKS OF ACCOUNT FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1997 - 98, THE DEBT COULD NOT BE ALLOWED AS BAD DEBT ON THE PLAIN LANGUAGE OF SECTION 36(1)(VII). 7. IN THE PRESENT CASE, THE ASSESSEE, BEING MANUFACTURI NG COMPANY, MANUFACTURING TIPPER BODIES, TRAILORS AND ACCESSORIES, ETC. , THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT WERE NOT APPLICABLE. IF THE ASSESSEE HAS ACTUALLY WRITTEN OFF THE BAD AND DOUBTFUL DEBTS AS IRRECOVERABLE, IT CAN BE ALLOWED AS EXPEND ITURE UNDER SECTION 36(1)(VII) OF THE ACT . UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE SET ASIDE THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND REMIT THE MATTER BACK TO THE ASSESSING OFFICER TO VERIFY AS TO WHETHER THE ASSESSEE HAS ACTUALLY WRITTEN O FF THE BAD AND DOUBTFUL DEBTS AS IRRECOVERABLE IN THE BOOKS OF ACCOUNT IN THE PREVIOUS YEAR AND IF SO, IT CAN BE ALLOWED, OTHERWISE NOT. THUS, THE GROUND RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 8. WITH REGARD TO ALLOWANCE OF DEPRECIAT ION ON UPS, BY FOLLOWING THE DECISION OF THE TRIBUNAL IN I.T.A. NO. 1815/MDS/2011 DATED 02.04.2013 IN THE CASE OF INDIAN OVERSEAS BANK, THE LD. CIT(A) HAS HELD THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION @ 60% TREATIN G IT AS PART OF THE COMPUTERS. THE ONLY CONTENTION OF THE REVENUE IS THAT THE DEPARTMENT PREFERRED AN APPEAL BEFORE THE HON BLE HIGH COURT AGAINST THE ORDER OF THE TRIBUNAL, WHICH CANNOT BE A I.T.A. NO . 813 /M/ 1 5 7 GROUND TO TAKE A DIFFERENT VIEW UNTIL THE ORDER OF THE TRIBUNAL IS REVERSED BY ANY HIGHER COURT. HENCE, WE CONFIRM THE ORDER OF THE LD. CIT(A). 9. WITH REGARD TO ALLOWANCE OF DEPRECIATION ON VOLTAGE STABILIZER, THE LD. CIT(A) HAS HELD THAT IT FALLS UNDER PART A (III)(8)(IX) E(C) OF APPENDIX I OF IT RULES WHICH ENTIT LED FOR A DEPRECIATION OF 80%. IN VIEW OF THE ABOVE, WE FIND THAT THE LD. CIT(A) HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON UPS @ 60% AND VOLTAGE STABILIZER @ 80%. WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THUS, THE G ROUNDS OF DEPRECIATIONS BOTH ON UPS @ 60% AND VOLTAGE STABILIZER @ 80% RAISED BY THE REVENUE ARE DISMISSED. 10 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 24 TH FEBRUARY , 20 16 AT CH ENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 24 . 0 2 .201 6 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.