DCIT, New Delhi V. M/s. Spirotech Heat Exchangers Pvt. Ltd., New Delhi

ITA 917/DEL/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6689 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 14-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 17-02-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Assessee Lawyers: VIDHUR PURI
• Keywords: Deemed to accrue or arise in india; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SH. N. K. SAINI, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER I.T.A. NO. 650/DEL/2014 (ASSESSMENT YEAR 2010-11) A N D I.T.A. NO. 917/DEL/2014 (ASSESSMENT YEAR 2010-11) APPELLANT BY : SH. S. S. RANA, CIT, DR RESPONDENT BY : SH. VIDHUR PURI, ADV. DATE OF HEARING : 14.02.2017 DATE OF PRONOUNCEMENT: 2302.2017 ORDER PER BEENA A. PILLAI, JM: SPIROTECH HEAT EXCHANGERS PVT. LTD. B-13, 2 ND FLOOR, KAILASH COLONY NEW DELHI GIR/PAN: AABCS3931J VS. DCIT CIRCLE-9(1) NEW DELHI (APPELLANT) (RESPONDENT) DCIT CIRCLE-9(1) NEW DELHI VS. SPIROTECH HEAT EXCHANGERS PVT. LTD. B-13, 2 ND FLOOR, KAILASH COLONY NEW DELHI GIR/PAN: AABCS3931J (APPELLANT) (RESPONDENT) ITA NO. 917/DEL/2014 (AY 2010-11) PAGE 2 OF 12 1. THE PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AS WE LL AS REVENUE AGAINST ORDER DATED 11.11.2013 PASSED BY LD . CIT(A)- XI FOR ASSESSMENT YEAR 2010-11 ON THE FOLLOWING GRO UNDS OF APPEAL: ITA NO. 917/DEL/2014 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS.1,51,61,188/- MADE BY THE AO ON ACCOUNT OF COMMISSION PAID TO MANAGING DIRECTOR AND WHOLE TIME DIRECTOR U/S 36(L)(II) OF THE INCOME TAX ACT, 1961 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES MADE BY THE AO BY TREATING THE SAME AS PERSONAL IN NATURE.' 3. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS.6,76,6557- MADE BY THE AO ON ACCOUNT OF BEING CREDIT BALANCE WRITTEN OFF'. 4. 'THE APPELLANT CRAVES TO AMEND MODIFY, ALTER, A DD OR FOREGO ANY GROUND OF APPEAL AT ANY TIME BEFORE O R DURING THE HEARING OF THIS APPEAL.' ITA NO. 650/DEL/2014 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLD THE DISALLOWING RS. 3,00,000 OUT OF THE HRA OF RS.1202400/- PAID TO MANAGING DIRECTOR AS EXCESSIVE IN NATURE. ITA NO. 917/DEL/2014 (AY 2010-11) PAGE 3 OF 12 2. BRIEF FACTS OF THE CASE ARE AS UNDER: ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN TH E BUSINESS OF MANUFACTURE OF FINE AND TUBE TYPE COOLI NG AND CONDENSING COILS OF ALL TYPES OF AIR CONDITIONERS A ND REFRIGERATORS. ASSESSEE FILED ITS RETURN OF INCOME ON 27.09.2010 AT RS.16,66,81,360/- WHICH WAS SUBSEQUEN TLY REVISED ON 05.10.2010. THE CASE WAS SELECTED FOR SC RUTINY AND NOTICE UNDER SECTION 143(2) WAS SENT TO ASSESSE E. LD. AO WHILE COMPLETING THE ASSESSMENT MADE THE FOLLOWING ADDITIONS: PARTICULARS AMOUNT (RS) REASONS CONSIDERED BY AO FOR DISALLOWANCE COMMISSION PAID TO MANAGING DIRECTOR /WHOLE TIME DIRECTOR 1,51,61,188 DISALLOWED U/S 36(L)(II) OUT OF FOREIGN TRAVEL EXPENSES 1,79,704 HELD PERSONAL IN NATURE CREDIT BALANCE WRITTEN BACK 74,943 WRITTEN BACK TRADING LIABILITY IS THE DEEMED INCOME U/S 41(1) OUT OF HRA PAID TO MANAGING DIRECTOR 3,00,000 HELD AS EXCESSIVE U/S 40A(2)(B) 3. AGGRIEVED BY ORDER OF ASSESSING OFFICER ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A). LD. CIT(A) D ELETED THE ADDITION MADE BY AO IN RESPECT OF THE COMMISSION PA ID TO THE MANAGING DIRECTOR, TRAVEL EXPENSES INCURRED BY ASSE SSEE AND THE CREDIT BALANCE THAT WAS WRITTEN OFF IN THE PROF IT AND LOSS ITA NO. 917/DEL/2014 (AY 2010-11) PAGE 4 OF 12 ACCOUNT. HOWEVER, LD. CIT(A) CONFIRMED THE ADDITION ON ACCOUNT OF HRA PAID TO THE MANAGING DIRECTOR AS EXC ESSIVE IN NATURE. AGGRIEVED BY THE ORDER PASSED BY LD. CIT(A) ASSESSE E AS WELL AS REVENUE IS IN APPEAL BEFORE US NOW. GROUND NO. 1 (REVENUES APPEAL) 4. AT THE OUTSET LD. AR SUBMITTED THAT GROUND NO. 1, STANDS COVERED BY THE ORDER OF HONBLE HIGH COURT IN THE CASE OF ASSESSEE FOR ASSESSMENT YEARS 2008-09 AND 2009-1 0, HE REFERRED TO ORDER OF HONBLE HIGH COURT I N ITA NO. 341/2013 PLACED AT PAGE 1 TO 2 OF THE PAPER BOOK. HONBLE HI GH COURT VIDE ORDER DATED 19.07.2013 HAS OBSERVED AS UNDER: THIS APPEAL, WHICH RELATES TO ASSESSMENT YEAR 2008- 09, HAS TO BE (JISMISSED IN VIEW OF THE DECISION OF THE DELHI HIGH COURT IN AMD METPLAST PRIVATE LIMITED VERSUS DC1T, (2012) 341 1TR 563 (DEL.). THE RESPONDENT, M/S SPIROTECH HEAT EXCHANGERS PRIVATE LIMITED HAD PAID COMMISSION TO THE MANAGING DIRECTOR/DIRECTOR (OPERATIONS)! THE CONTENTION OF T HE REVENUE IS THAT THE SAID AMOUNT IS HIT AND COVERED UNDER SECTION 36(L)(II) OF THE INCOME TAX ACT, 1961 . THE RESPONDENT-ASSESSEE HAD 12 SHAREHOLDERS AND PAYMENT HAS BEEN MADE TO THE MANAGING DIRECTOR/DIRECTOR (OPERATIONS) IN TERMS OF RESOLUTI ON PASSED BY THE BOARD OF DIRECTORS. THE PAYMENT MADE IS FOR THE WORK DONE AND PERFORMED BY THEM. THE COMMISSION PAID WAS FOR SERVICES RENDERED AND AS PE R TERMS OF EMPLOYMENT. THIS CANNOT AND COULD NOT HAVE ITA NO. 917/DEL/2014 (AY 2010-11) PAGE 5 OF 12 BEEN PAID AS DIVIDEND OR BONUS. SIMILAR VIEW HAS BE EN TAKEN BY THE DELHI HIGH COURT IN COMMISSIONER OF INCOME TAX-I VERSUS CIT SHIPBROKERS PRIVATE LIMITED (ITA NO. 672/2012 DECIDED ON 7 TH DECEMBER, 2012. THE APPEAL IS DISMISSED IN LIMINE. 5. LD. DR ON THE CONTRARY RELIED UPON THE ORDER PASSE D BY ASSESSING OFFICER. 6. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH T HE SIDES IN THE LIGHT OF THE DOCUMENTS PLACED ON RECOR D. 7. IT IS OBSERVED THAT IT IS IN ASSESSEES OWN CASE ACCOUNTABLE HIGH COURT HAS ALLOWED THE COMMISSION P AID TO THE MANAGING DIRECTOR FOR THE SERVICES RENDERED AS PER THE TERMS OF THE EMPLOYMENT. AS THE REVENUE HAS NOT BRO UGHT ANY DISTINGUISHING FACTOR TO DEVIATE FROM THE DECIS ION OF HONBLE HIGH COURT, RESPECTFULLY FOLLOWING THE SAME WE DISMISS GROUND NO. 1 RAISED BY REVENUE. GROUND NO. 2 8. IN RESPECT OF THE ADDITION THAT HAS BEEN DELETED B Y LD. CIT(A) MADE ON ACCOUNT OF FOREIGN TRAVELLING EXPENS ES TREATING THE SAME AS PERSONAL IN NATURE. 9. LD. DR RELIED UPON THE ORDERS PASSED BY THE ASSESS ING OFFICER. 10. LD. AR SUBMITTED THAT ASSESSEE INCURRED RS. 8,98,5 20/- ON ACCOUNT OF FOREIGN TRAVELLING DURING THE YEAR BY THE ITA NO. 917/DEL/2014 (AY 2010-11) PAGE 6 OF 12 DIRECTORS. THE STATEMENT OF THE FOREIGN TRAVEL EXPE NSES HAS BEEN FILED ALONG WITH DETAILS OF DIRECTORS, THEIR P ASSPORT COPIES, COPIES OF BILLS OF EXPENSES AND THE COMPARA TIVE PARTY WISE DETAIL OF THE EXPORT SALES MADE BY THE ASSESSE E DURING THE YEAR UNDER CONSIDERATION AS WELL AS THE PRECEDI NG YEARS WERE FILED BEFORE LD. CIT(A). IT HAS BEEN SUBMITTED BY LD. AR THAT THE ADDITION MADE BY ASSESSING OFFICER WAS ON AN AD HOC BASIS. 11. LD. AR SUPPORTED THE ORDER PASSED BY LD. CIT(A). 12. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH T HE SIDES AND THE LIGHT OF THE DOCUMENTS PLACED ON RECO RD BEFORE US. 13. ASSESSING OFFICER IN HIS ORDER HAS RECORDED A FIND ING THAT THE ASSESSEE HAS FURNISHED DETAILS OF THE MANAGING DIRECTOR AND DIRECTOR OPERATIONS ALONG WITH SUPPORTING DOCUM ENTS. HE HAS ALSO ADMITTED THAT THE DIRECTORS HAVE TRAVELLED ABROAD FOR PARTICIPATION IN AN EXHIBITION. THE ASSESSING OFFIC ER FURTHER OBSERVED THAT ON THEIR VISIT TO GERMANY FOR PARTICI PATING IN EXHIBITION, THE DIRECTORS HAVE TRAVELLED TO CANADA AND UAE. THE PURPOSE OF TRAVELLING TO CANADA & UAE WAS NOT M ADE CLEAR, DUE TO WHICH LD. AO TREATED THE SAME AS PERS ONAL VISITS AND HAD DISALLOWED 20% OF TOTAL TRAVEL EXPENSES AMO UNTING TO RS.1,79,704/-. BEFORE LD. CIT(A) IT IS RECORDED THA T ALL THE DETAILS RELATING TO TRAVEL OF ALL DIRECTORS ALONG W ITH THE BILLS AND VOUCHERS AND PASSPORTS HAVE BEEN TENDERED BEFOR E LD. ITA NO. 917/DEL/2014 (AY 2010-11) PAGE 7 OF 12 CIT (A). LD. CIT(A) ON VERIFICATION OF THE DETAILS HAVE OBSERVED THAT NONE OF THE FAMILY MEMBERS HAS BEEN ACCOMPANYI NG DIRECTORS. THERE HAS BEEN NO CONTRARY EVIDENCE IS T HAT HAS BEEN BROUGHT ON RECORD BY LD. AO REGARDING ANY PERS ONAL TOUCH TO THE FOREIGN TRAVEL EXPENSES. IT APPEARS TH AT LD. AO WITHOUT THERE BEING COGENT MATERIAL HAS MADE ADDITI ON ON MERE SURMISES. ACCORDINGLY, WE ARE INCLINED TO UPHO LD THE FINDINGS OF LD. CIT(A). IN THE RESULT THE GROUND RAISED BY THE REVENUE STAN DS DISMISSED GROUND NO. 3 14. THIS GROUND HAS BEEN RAISED BY THE REVENUE AGAINST THE ADDITION BEING DELETED IN RESPECT OF THE CREDIT BAL ANCE WRITTEN BACK. 15. AT THE OUTSET LD. AR SUBMITTED THAT THIS ISSUE STA NDS COVERED IN FAVOUR OF ASSESSEE BY THE ORDER OF THIS TRIBUNAL FOR ASSESSMENT YEAR 2008-09 AND 2009-10. IT HAS BEEN SUBMITTED BY LD. AR THAT THE CREDIT BALANCE WRITTEN OFF A IS RS.74,943/- INSTEAD OF RS.6,76,655/- BEING A TYPOGR APHIC ERROR IN THE GROUNDS RAISED BY REVENUE. 16. IT HAS BEEN SUBMITTED THAT THIS MISTAKE WHILE REGA RDING FIGURE HAS CREPT IN FROM ORDER OF THIS TRIBUNAL FOR ASSESSMENT YEAR 2009-10. LD. AR RELIED UPON THE ORDERS OF LD. CIT (A). ITA NO. 917/DEL/2014 (AY 2010-11) PAGE 8 OF 12 17. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH T HE SIDES AND THE LIGHT OF THE RECORDS PLACED BEFORE US . 18. IT IS OBSERVED FROM THE ORDER PASSED BY LD. CIT(A) THAT DURING THE YEAR UNDER CONSIDERATION, THERE WAS A NE T WRITE OFF RS. 67,547/-. IT IS OBSERVED FROM ORDER OF LD. CIT( A) THAT BAD DEBTS WRITTEN OFF WAS RS.1,42,490/- WHICH ARE CREDI T BALANCE THAT HAS BEEN WRITTEN OFF AMOUNTS TO RS.74,943/-. T HESE DEBTS CONSISTS OF OUTSTANDING, FROM THE PARTIES FOR SALES. AN IDENTICAL ISSUE HAS BEEN DECIDED BY THIS TRIBUNAL I N ASSESSEES OWN CASE ON SIMILAR FACTS FOR ASSESSMENT YEAR 2008-09 AND 2009-10. LD. CIT(A) HAS OBSERVED THAT A SSESSEE HAS SHOWN THE NET AMOUNT OF BAD DEBTS IN THE PROFIT AND LOSS ACCOUNT CLAIMING THE NET EXPENSES. IT HAS BEEN OBSE RVED THAT ASSESSEE HAS INCLUDED THE CREDIT BALANCE WRITTEN BA CK IN ITS INCOME. IT IS ON THE SIMILAR PRINCIPLE THAT THIS TR IBUNAL FOR ASSESSMENT YEAR 2008-09 AND 2009-10 IN ASSESSEES O WN CASE IN ITA NO. 3255/DEL/2011 WITH CO NO. 234/DEL/2 011 AND 5362/DEL/2012 RESPECTIVELY, HAS ALLOWED THE CLA IM OF THE ASSESSEE. THIS TRIBUNAL HAS OBSERVED AS UNDER: 11. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFO RE US. SO FAR AS THE ADDITION FOR CESSATION OF LIABILITY I S CONCERNED, WE ARE OF THE OPINION THAT THE ASSESSEE ITSELF HAS CONSIDERED THE CESSATION OF LIABILITY AS ITS IN COME. THEREFORE, NO FURTHER ADDITION CAN BE MADE. SO FAR AS ALLOWABILITY OF BAD DEBTS IS CONCERNED, HON'BLE APE X COURT IN THE CASE OF T.R.F. LIMITED (SUPRA) HELD AS UNDER :- ITA NO. 917/DEL/2014 (AY 2010-11) PAGE 9 OF 12 'AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE INCOME- TAX ACT, 1961, WITH EFFECT FROM APRIL 1, 1989, IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE : IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE.' 12. THEREFORE, THE ONLY REQUIREMENT FOR ALLOWABILIT Y OF THE BAD DEBTS IS THAT THE ASSESSEE SHOULD WRITE OFF THE BAD DEBTS AS IRRECOVERABLE IN ITS ACCOUNTS IN THE RELEV ANT YEAR. ADMITTEDLY, THE ASSESSEE HAS WRITTEN OFF THE BAD DE BTS TO THE EXTENT OF RS. 2,59,041/- BY WAY OF DEBIT TO THE PROFIT & LOSS ACCOUNT. THEREFORE, IN VIEW OF THE ABOVE DECIS ION OF HON'BLE APEX COURT, THE ASSESSEE WAS ENTITLED TO CL AIM OF BAD DEBTS DEBITED TO THE PROFIT & LOSS ACCOUNT. MOR EOVER, THERE CANNOT BE MORE DISALLOWANCE THAN WHAT IS ACTU ALLY DEBITED TO THE PROFIT & LOSS ACCOUNT. IN THIS CASE, DEBIT TO THE PROFIT & LOSS ACCOUNT WAS ONLY FOR RS. 2,59,041 /- WHILE THE ASSESSING OFFICER MADE THE DISALLOWANCE O F RS. 9,35,706/-, AT THE SAME TIME ALSO MAKING SEPARATE ADDITION FOR THE CESSATION OF LIABILITY. BE THAT AS IT MAY, WE ARE OF THE OPINION THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION OF BAD DEBTS IN VIEW OF THE ABOVE DECISIO N OF HON'BLE APEX COURT IN THE CASE OF T.R.F. LIMITED. W E, THEREFORE, DO NOT FIND ANY MERIT IN GROUND NOS.3 & 4 OF THE REVENUE'S APPEAL. THE SAME ARE REJECTED. 19. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORD ER PASSED BY LD. CIT(A). ACCORDINGLY, GROUND RAISED BY REVENUE STANDS DISMISSED. ITA NO. 917/DEL/2014 (AY 2010-11) PAGE 10 OF 12 IN THE RESULT APPEAL FILED BY THE REVENUE STANDS DISMISSED . ITA NO. 650/DEL/2014 (ASSESSEES APPEAL) 20. THE ONLY GROUND RAISED BY ASSESSEE IS IN RESPECT O F DISALLOWANCE UPHELD BY LD. CIT(A) IN RESPECT OF HRA PAID TO THE MANAGING DIRECTOR AS EXCESSIVE IN NATURE. 21. LD. AR SUBMITTED THAT THIS ADDITION HAS BEEN MADE BY ASSESSING OFFICER FOR THE FIRST-TIME UNDER SECTION 40A(2)(A) OF THE ACT. LD. AR SUBMITTED THAT HRA REMUNERATED TO D IRECTORS, IS INCLUSIVE OF THE PACKAGE STRUCTURE. IT HAS BEEN SUBMITTED THAT AS ASSESSEE HAS NOT PROVIDED RESIDENTIAL ACCOM MODATION TO ITS MANAGING DIRECTOR INSTEAD IT PAYS 60% OF THE BASIC SALARY AS HRA, KEEPING IN VIEW OF THE TOTAL COST TO THE COMPANY PACKAGE COST WHICH IS AS PER THE POLICY LAI D DOWN BY THE COMPANY. LD. AR HAS SUBMITTED THAT HRA PAID TO DIRECTORS ARE SUPPORTED BY THE RESOLUTION PASSED BY ASSESSEE. 22. ON THE CONTRARY LD. DR IS RELIED UPON THE ORDERS O F THE AUTHORITIES BELOW. 23. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH PARTIES IN THE LIGHT OF THE RECORDS PLACED BEFORE U S. 24. IT IS OBSERVED THAT LD. CIT(A) HAS UPHELD ADDITION MADE BY AO ON AN ASSUMPTION THAT THE ASSESSEE IS PROVIDI NG UNDUE BENEFIT TO THE DIRECTORS IN THE SHAPE OF HIGH RENTALS. THERE HAS BEEN NO ADVERSE MATERIAL/FINDING/EVIDENCE THAT ITA NO. 917/DEL/2014 (AY 2010-11) PAGE 11 OF 12 HAS BEEN BROUGHT ON RECORD BY ASSESSING OFFICER BAS ED ON WHICH SUCH ASSUMPTION CAN BE MADE OUT. IN ANY EVENT , HRA PAID TO THE DIRECTORS WILL BE CONSIDERED AS PERQUIS ITES IN THE HANDS OF DIRECTORS. THERE CANNOT BE EVASION OF TAX AS THE DIRECTORS ARE PAYING TAX ON THE PERQUISITES RECEIVE D. WE ARE SETTING ASIDE THIS ISSUE TO LD. AO TO VERIFY WHETHE R SUCH INCOME HAS BEEN TREATED AS PREREQUISITE IN THE HAND S OF THE DIRECTORS AND TO ALLOW THE SAME IN THE HANDS OF ASS ESSEE. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE STAN DS ALLOWED FOR STATISTICAL PURPOSES. IN THE RESULT APPEAL FILED BY THE ASSESSEE STANDS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON _____ FEBRUARY , 2017. SD/- SD/- (N. K.SAINI) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 23.02.2017 @M!T COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI)