DCIT 3(2), MUMBAI v. KORN-FERRY INTERNATINAL P. LTD, MUMBAI

ITA 1907/MUM/2009 | 2004-2005
Pronouncement Date: 30-04-2010 | Result: Partly Allowed

Appeal Details

RSA Number 190719914 RSA 2009
Assessee PAN AABCK8210E
Bench Mumbai
Appeal Number ITA 1907/MUM/2009
Duration Of Justice 1 year(s) 1 month(s) 4 day(s)
Appellant DCIT 3(2), MUMBAI
Respondent KORN-FERRY INTERNATINAL P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 30-04-2010
Date Of Final Hearing 13-04-2010
Next Hearing Date 13-04-2010
Assessment Year 2004-2005
Appeal Filed On 26-03-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI. BEFORE SHRI R.V. EASWAR SENIOR VICE-PRESIDENT AND SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER. I.T.A. NO. 1 907/MUM/2009. ASSESSMENT YEAR : 2004-05. DY. COMMISSIONER OF KORN-F ERRY INTERNATIONAL PVT.LTD. INCOME TAX 3(2) VS. MAKER CHAMBERS-VI OFFICE NO.82 MUMBAI. NARIMAN POINT MUMBAI 400 021. PAN : AABCK8210E. APPELLANT RESPONDENT APPELLANT BY : SHRI VIKRAM GAUR. RESPONDENT BY : SHRI SANJEEV MALHOTRA. O R D E R PER J. SUDHAKAR REDDY A.M. THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS)-III MUMBAI DATED 15-01-2009 FO R THE ASSESSMENT YEAR 2004-05. 2. FACTS IN BRIEF : THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS IN THE BUSINESS OF PROVIDING EXECUTIVE SEARCH CONSULTING AND RELATED SERVICE. IT FILED ITS RETURN OF INCOME ON 01-11-2004 DECLARING A TOTAL INCOME OF RS.3 04 03 810. THE ISSUES THAT ARISE OUT OF THIS A PPEAL IS A DISALLOWANCE MADE ON ACCOUNT OF BAD DEBTS WRITTEN OFF AS WELL AS DISALLOWANCE MADE BY THE AO BY INVOKING SECTION 40A(2)(B) OF THE ACT. 2 3. THE ASSESSEE HAD WRITTEN OFF AN AMOUNT OF RS.24 11 472/- AS BAD DEBTS. THE AO OBSERVED THAT THE BAD DEBTS IN QU ESTION ARE IN RESPECT OF FIVE PARTIES. HE OBSERVED THAT IN RESPECT OF THR EE PARTIES DUES HAVE BEEN CREDITED ON ACCOUNT OF SERVICES RENDERED DURIN G THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION . CONSIDERING THE FACT THAT THE DUES HAVE BEEN CREDITED DURING THIS YEAR O NLY AND ALSO CONSIDERING THE REPUTATION OF THE CLIENTS THE ASSE SSEES CLAIM THAT THE DEBTS HAVE BECOME BAD DID NOT APPEAR AS SATISFACTO RY TO THE AO. THE AO ALSO OBSERVED THAT IDENTICAL ISSUE HAD CROPPED UP I N THE PRECEDING YEAR AND A DISALLOWANCE WAS MADE. FOLLOWING THIS PRECEDE NT THE AO DISALLOWED THE AMOUNT IN THIS YEAR ALSO. ON APPEAL THE FIRST APPELLATE AUTHORITY OBSERVED THAT THE DEBTS HAVE BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT AND ON THE GROUND THAT THE ISSUE IS COVERED BY THE JURISDICTIONAL HIGH COURT DECISION AND ALSO ON THE GROUND THAT T HE AO HAS NOT GIVEN ANY SPECIFIC REASON FOR NOT ALLOWING THE BAD DEBT E XCEPT THAT HE FOLLOWED THE PRECEDENT HE DELETED THE DISALLOWANCE. AGGRIEV ED THE REVENUE IS IN APPEAL. 4. COMING TO THE DISALLOWANCE U/S 40A(2)(B) THE A O FOUND THAT THE ASSESSEE HAS PAID PROFESSIONAL CHARGES OF RS.19 20 020/- TO M/S GOPAL RAO & CO. CHARTERED ACCOUNTANCY FIRM WHICH I S A PERSON COVERED BY THE PROVISIONS OF SECTION 40A(2)(B). THE ASSESSEE WAS ASKED TO EXPLAIN THE REASONABLENESS OF THE PAYMENTS MADE. ON CONSIDERATION OF THE SUBMISSIONS THE AO CAME TO A CONCLUSION THAT T HE PAYMENTS MADE TO M/S GOPAL RAO AND CO. IS HIGHLY UNREASONABLE. HE DI SALLOWED RS.4 20 000/- AND ADDED THE SAME BACK U/S 40A(2)(B) OF THE ACT. ON APPEAL THE FIRST APPELLATE AUTHORITY OBSERVED THAT THE AO SIMPLY FOLLOWED HIS PREDECESSORS VIEWS ON THE MATTER AND MADE THE DISALLOWANCE. AS THE CIT(APPEALS) IN THE IMMEDIATELY PRECEDING YEAR IN T HE ASSESSEES OWN 3 CASE DELETED THE ADDITION THE PRESENT CIT(APPEALS) ALSO DELETED THE ADDITION. AGGRIEVED THE REVENUE HAS COME IN APPEAL . 5. SHRI VIKRAM GAUR LEARNED DR SUBMITTED THAT TH E PARTIES WHOSE ACCOUNTS HAVE BEEN WRITTEN OFF AS BAD DEBTS I N THE BOOKS OF THE ASSESSEE ARE HIGHLY REPUTED PARTIES AND THAT THE CL AIM IS NOT BONAFIDE. HE SUBMITTED THAT THOUGH TECHNICALLY ON A WRITE OFF OF A DEBT IN THE PROFIT AND LOSS ACCOUNT THE ASSESSEE WOULD BE ENTITLED TO A D EDUCTION WHEN THE CLAIM IS NOT BONAFIDE THE CLAIM SHOULD BE DENIED. HE SUBMITTED THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE EITHER BEFOR E THE AO OR BEFORE THE CIT(APPEALS) TO PROVE THE BONAFIDE NATURE OF TH E CLAIM FOR BAD DEBTS. HE RELIED ON THE DECISION OF THE COORDINATE BENCH O F THE TRIBUNAL IN ITA NO. 1178/MUM/2008 AND ITA NO. 934/MUM/2008 IN THE C ASE OF AAKASH STONE INDUSTRIES LTD. VS. ACIT RANGE-8(1) MUMBAI A-BENCH ASSESSMENT YEAR 2003-04 ORDER DATED 6 TH OCT. 2009 AND SUBMITTED THAT IN THAT CASE THE BENCH HAD HELD THAT THE ASSESSEE HAS TO ESTABLISH THAT THE WRITE OFF OF THE BAD DEBTS WAS BONAFIDE IN VIEW OF THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX VS. OMAN INTERNATIONAL BANK 313 ITR 128 (BOM.). 6. ON GROUND NO. 2 REGARDING DISALLOWANCE MADE U/S 40A(2)(B) THE LEARNED DR RELIED ON THE ORDER OF TH E AO AND SUBMITTED THAT THE PAYMENT MADE TO THE CHARTERED ACCOUNTANCY FIRM WHICH IS ALSO THE PERSON COVERED U/S 40A(2)(B) IS HIGHLY EXCESSIV E AND UNREASONABLE. HE PRAYED THAT THE SAME BE UPHELD. 7. SHRI SANJEEV MALHOTRA LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND FILED THE ORDERS OF THIS BENCH OF T HE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1993-94 AND SUBMITTED THAT BOTH THE ISSUES ARE COVERED IN FAVOUR OF THE ASSESS EE. HE POINTED OUT THAT 4 THE K-BENCH OF THE TRIBUNL IN ITA NO. 1527/MUM/2007 FOR THE ASSESSMENT YEAR 2003-04 ORDER DATED 17 TH NOV. 2009 APPLIED THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF OMAN INTERNATIONAL 100 ITD 25 AND GRANTED RELIEF TO THE ASSESSEE. AS FAR AS GROUND NO. 2 IS CONCERNED HE POINTED OUT THAT THE A-BENCH OF THE TRIBUNAL IN ITA NO. 926/MUM/2007 FOR THE SAME ASSES SMENT YEAR 2003- 04 IN REVENUES APPEAL VIDE ORDER DATED 20-02-2009 UPHELD THE ORDER OF THE CIT(APPEALS) BY OBSERVING THAT THE BURDEN OF PR OVING THAT THE PAYMENT IS EXCESSIVE U/S 40A(2)(B) IS ON THE REVENU E AND THE SAME HAS NOT BEEN DISCHARGED BY PRODUCING ANY MATERIAL. 8. ON A QUERY FROM THE BENCH THE LEARNED COUNSEL FOR THE ASSESSEE SOUGHT TIME TO PRODUCE THE BILLS VOUCHERS AND CORRESPONDENCE WITH THE THREE PARTIES ON WHOM THE BILLS HAVE BEEN RAISED ON ACCOUNT OF SERVICES RENDERED DURING THE YEAR AND HAVE BEEN WRI TTEN OFF AS BAD DEBTS IN THE VERY SAME YEAR TO PROVE THE BONAFIDE OF THE TRANSACTION. TIME WAS GRANTED. WHEN THE APPEAL CAME FOR HEARING AGAIN TH E LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT HE IS NOT IN A POSITION TO SUBMIT THESE PAPERS TO THE BENCH RIGHT NOW AND THAT HE WOULD HAVE NO OB JECTION IF THE ISSUE IS SET ASIDE TO THE FILE OF THE AO BEFORE WHOM THE AS SESSEE WOULD PRODUCE THE SAID DOCUMENTS TO PROVE THE BONAFIDE OF THE WRI TE OFF OF BAD DEBTS. 9. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERA TION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON A PERUSA L OF THE PAPERS ON RECORDS AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED WE HOLD AS FOLLOWS : 10. SECTION 36(2) DOES NOT PROHIBIT WRITE OFF OF I NCOME WHICH IS TAKEN INTO ACCOUNT DURING THE YEAR. SECTION 36 SUB- SECTION (2)(I) READS AS FOLLOWS : 5 (2) IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PART THEREOF THE FOLLOWING PROVISIONS SHALL APPLY- (I) NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING TH E INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE A MOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN E ARLIER PREVIOUS YEAR OR REPRESENTS MONEY LENT IN THE ORDI NARY COURSE OF THE BUSINESS OF BANKING OR MONEY-LENDING WHICH IS CARRIED ON BY THE ASSESSEE. 11. THUS THE SUBMISSION OF THE LEARNED DR AND THE FINDING OF THE AO THAT THE DEDUCTION CANNOT BE ALLOWED FOR THE REA SON THAT THE INCOME HAS BEEN TAKEN INTO ACCOUNT DURING THE PREVIOUS YEA R IS DEVOID OF MERIT. 12. COMING TO THE ASPECT WHETHER THE CLAIM IS BO NAFIDE OR NOT IN OUR HUMBLE OPINION NO CLAIM CAN BE ALLOWED IN A NY CASE WHERE IT IS PROVED THAT THE CLAIM IS NOT BONAFIDE. THE HONBLE BOMBAY HIGH COURT HAS IN THE CASE OF OMAN INTERNATIONAL BANK (SUPRA) OBSERVED THAT THE WRITE OFF OF A BAD DEBT HAS TO BE BONAFIDE. THIS BE NCH OF THE TRIBUNAL IN THE CASE OF AAKASH STONE INDUSTRIES LTD.(SUPRA) AT PARA 8 HELD AS FOLLOWS : WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE RECORD OF THE CASE. THE MAIN REASON FOR DISALLOWANC E OF THIS AMOUNT WAS WHETHER THIS AMOUNT WAS TAKEN AS INCOME IN EARLIER YEARS OR NOT. FURTHER THE ASSESSEE HAS TO ESTABLIS H THAT THE WRITE OFF WAS BONAFIDE IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX V. OMAN INTERNATIONAL BANK 313 ITR 128 (BOM) WHEREIN IT HAS BEEN HELD THAT TO TREAT THE DEBT AS A BAD HAD TO BE A COMMERCIAL OR BUSINES S DECISION OF THE ASSESSEE BASED ON THE RELEVANT MATERIAL IN THE POSSESSION OF THE ASSESSEE. ONCE THE ASSESSEE RECORDS THE DEBT AS A B AD DEBT IN HIS BOOKS OF ACCOUNT THAT WOULD PRIMA FACIE ESTABLISH T HAT IT WAS A BAD DEBT UNLESS THE AO FOR GOOD REASONS HOLDS OTHERWISE . THE WRITING OFF IN THE ACCOUNT NO DOUBT HAS TO BE BONAFIDE. ON CE THAT BE THE CASE THE ASSESSEE WAS NOT CALLED UPON TO DISCHARGE ANY FURTHER 6 BURDEN. AFTER TH AMENDMENT IT WAS NEITHER OBLIGATOR Y NOR WAS THE BURDEN ON THE ASSESSEE TO PROVE THAT THE DEBT WRITT EN OFF BY HIM WAS INDEED A BAD DEBT AS LONG AS IT WAS BONAFIDE AN D BASED ON COMMERCIAL WISDOM OR EXPEDIENCY. THE ASSESSEE HAD R ELIED ON VARIOUS CASE LAWS IN SUPPORT OF ITS CONTENTION THAT MERE WRITE OFF IN THE BOOKS OF ACCOUNT IS SUFFICIENT. HOWEVER THESE ASPECTS HAVE TO BE ESTABLISHED BY THE ASSESSEE. THEREFORE WE CONSI DER IT PROPER IN THE INTEREST OF JUSTICE TO RESTORE THE ISSUE TO TH E FILE OF THE AO TO ADJUDICATE THE SAME AFRESH AFTER AFFORDING REASONAB LE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE ITS CLAIM. THE AO W ILL EXAMINE THE ASSESSEES CLAIM DENOVO IN ACCORDANCE WITH LAW. THI S GROUND IS ALLOWED FOR STATISTICAL PURPOSES. CONSISTENT WITH THE VIEW THEREIN AND IN VIEW OF THE FACT THAT THE ASSESSEE HAS NOT PRODUCED THE RELEVANT DOCUMENTS TO PROVE TH E BONAFIDE OF THE WRITE OFF WE SET ASIDE THE MATTER TO THE FILE OF T HE AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW. 13. IN THE RESULT THIS GROUND OF THE REVENUE IS A LLOWED FOR STATISTICAL PURPOSES. 14. COMING TO GROUND NO. 2 THIS BENCH OF THE TRIB UNAL IN THE ASSESSEES OWN CASE IN ITA NO.926/MUM/2007 FOR THE ASSESSMENT YEAR 2003-04 ORDER DATED 20-02-2009 AT PARA 4 HELD AS FO LLOWS : WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MA TTER CAREFULLY. THE DISPUTE IS REGARDING PART DISALLOWAN CE OF THE PAYMNENTS MADE TO M/S GOPAL RAO & CO. ON THE GROUND THAT THE PAYMENT MADE WAS EXCESSIVE COMPARED TO THE MARKET V ALUE. THE ASSESSING OFFICER HAD COMPARED THE PAYMENT MADE TO M/S GOPAL RAO & CO. WITH THE PAYMENTS OF M/S S.R. BATLIBOI & ASSOCIATES AND M/S S.R. BATLIBOI & CO. WHO WERE DOING ONLY THE AUDIT OF ACCOUNTS WHICH WAS LIMITED TO A PERIOD OF ONE MONTH OR SO WHEREAS THE SERVICES RENDERED BY M/S GOPAL RAO & CO. DETAIL S OF WHICH HAVE BEEN GIVEN IN PARA 2.1 WERE QUITE COMPREHENSIV E SPREAD OVER THE ENTIRE ACCOUNTING PERIOD. THESE FACTS HAVE NOT BEEN DISPUTED BEFORE US. THE ASSESSING AS HAS BEEN RIGHTLY OBSERV ED BY CIT(A) HAS NOT PLACED ANY KMATERIAL ON RECORD TO SHOW THAT THE PAYMENT 7 MADE TO M/S. GOPAL RAO & CO. WAS EXCESSIVE COMPARED TO THE MARKET VALUE FOR THE SIMILAR SERVICES. BURDEN FOR P ROVING THE PAYMENT TO BE EXCESSIVE UNDER SECTION 40A(2)(B) IS ON THE REVENUE WHICH HAS NOT BEEN DISCHARGED BY PRODUCING ANY RELE VANT MATERIAL. IN SUCH A SITUATION NO DISALLOWANCE CAN BE MADE UN DER SECTION 40A(2)(B). WE THEREFORE SEE NO INFIRMITY IN THE OR DER OF CIT(A) DELETING THE ADDITION AND THE SAME THEREFORE UPHELD . 15. AS THE FACTS ARE IDENTICAL WE FOLLOW THE COOR DINATE BENCH ORDER AND UPHOLD THE ORDER OF THE CIT(APPEALS) ON T HIS ISSUE AND DISMISS THIS GROUND. 16. IN THE RESULT THE APPEAL OF THE REVENUE IS AL LOWED IN PART. ORDER PRONOUNCED ON THIS 30 TH DAY OF APRIL 2010. SD/- SD/- (R.V. EASWAR) (J. SUDHAKAR REDDY) SENIOR VICE-PRESIDENT. ACCOUNTANT MEMBER. MUMBAI DATED : 30 TH APRIL 2010. COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR A-BENCH. (TRUE COPY) BY ORDER ASSTT. REGISTRAR ITAT MUMBAI BENCHES MUMBAI. WAKODE