ITO Ward 18 (3), v. Whale Graphic (I) Ltd,

ITA 2115/DEL/2007 | 2003-2004
Pronouncement Date: 05-03-2010 | Result: Partly Allowed

Appeal Details

RSA Number 211520114 RSA 2007
Assessee PAN AAACW4583B
Bench Delhi
Appeal Number ITA 2115/DEL/2007
Duration Of Justice 2 year(s) 10 month(s) 9 day(s)
Appellant ITO Ward 18 (3),
Respondent Whale Graphic (I) Ltd,
Appeal Type Income Tax Appeal
Pronouncement Date 05-03-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted I
Tribunal Order Date 05-03-2010
Date Of Final Hearing 24-02-2010
Next Hearing Date 24-02-2010
Assessment Year 2003-2004
Appeal Filed On 26-04-2007
Judgment Text
ITA NO.2115/DEL/07 A.Y. 2003-04 1 IN THE INCOMETAX APPELATE TRIBUNAL DELHI BENCH I: NEW DELHI BEFORE SHRI C.L. SETHI JUDICIAL MEMBER & SHRI SHAMIM YAHYA ACCOUNTANT MEMBER ITA NO. 2115/DEL/2007 A.Y. : 2003-04 INCOME TAX OFFICER VS. M/S WHALE GRAPHICS (I NDIA) LTD. WARD -18(3) 19 IGI GURGAON ROAD ROOM NO. 248 CR BLDG. KAPASHEDA NEW DELHI NEW DELHI [PAN : WH-73/AAACW4583B] (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SH. AJAY VOHRA ROHIT JAIN AV DESH BANSAL DEPARTMENT BY : MS. ANUSHA KHURANA DR O R D E R PER SHAMIM YAHYA : AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. CIT(A) DATED 08.02.2007 AND PERTAINS TO ASSESSM ENT YEAR 2003- 04. 2. THE FIRST ISSUE RAISED IS THAT THE LD. CIT(A) ER RED IN DELETING THE ADDITION OF RS. 19 89 880/- MADE BY THE AO ON ACCOU NT OF BAD DEBTS. 3. IN THE INSTANT CASE DURING THE COURSE OF ASSESS MENT AO NOTED THAT IN THE AUDITED ACCOUNTS ASSESSEE HAD CLAIMED A SUM OF RS. 1989880/- WRITTEN OFF AS BAD DEBTS. AO ASKED FOR DETAILS THEREOF. AO OBSERVED THAT:- THE COMPANY SIMPLY STATED THE NAMES OF THE PARTIES WITH AMOUNTS:- NO. 1 AIR FORCE STATION B CLAIMENT TOWN DEHRADUN R S. 4 800 ITA NO.2115/DEL/07 A.Y. 2003-04 2 NORTHERN RAILWAY SHAKUR BASTI NEW DELHI RS. 3 620 PAY AND ACCOUNTS MINISTRY RS. 18 91 580 OTHERS RS. 89 880 3.1 AO OBSERVED THAT ASSESSEE COMPANY DID NOT FURNI SH WHETHER ANY EFFORTS WAS MADE TO RECOVER THESE AMOUNTS. AO F URTHER OBSERVED THAT ASSESSEE DID NOT ESTABLISH WHETHER TH ESE AMOUNTS BECAME BAD OR NOT. HENCE AO HELD THAT SINCE THE CO MPANY DID NOT FOLLOW THE PROVISIONS OF 36(2) THE COMPANY IS NOT ENTITLED TO THE TO THE BENEFIT OF WRITING OFF THE BAD DEBTS. ACCORDI NGLY HE MADE THE DISALLOWANCE OF RS. 1989880/-. 4. UPON ASSESSEES APPEAL LD. CIT(A) OBSERVED THAT HE FOUND THAT ALL THE CONDITIONS STIPULATED FOR CLAIMING DEDUCTI ONS UNDER SECTION 36(2) HAVE BEEN COMPLIED WITH. THE ASSESSEE BROUGH T TO HIS NOTICE THE LIST OF DEBTORS AMOUNTING TO RS. 1989880/- WHIC H PERTAINS TO AMOUNT SHORT RECEIVED FROM PARTIES. LD. CIT(A) OBSERVED THAT TOTAL PERCENTAGE OF BAD DEBT IS ONLY 2.18%. HE OPIN ED THAT TOTAL CLAIM OF WRITE OFF IS FAIRLY INSIGNIFICANT. ACCORD INGLY HE DIRECTED THAT ASSESSEES CLAIM BE ALLOWED. AGAINST THIS ORDER RE VENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT HONBLE APEX COURT IN THE RECENT JUDGEMEN T IN THE CASE OF TRF LTD. VS. CIT HAS HELD THAT AFTER 1.4.89 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 WRI TTEN OFF IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. W HEN A BAD DEBT OCCURS THE BAD DEBT IS DEBITED AND THE CUSTOMERS ACCOUNT IS ITA NO.2115/DEL/07 A.Y. 2003-04 3 CREDITED THUS CLOSING THE ACCOUNT OF THE CUSTOMER . IN THE CASE OF THE COMPANIES THE PROVISIONS IS DEDUCTED FROM SUNDR Y DEBTORS. SINCE THE AO HAD NOT EXAMINED WHERE THE DEBT HAS IN FACT WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE THE MATTER WA S REMITTED TO THE AO FOR DE-NOVA CONSIDERATION ON THE ABOVE MENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXT OF WRITE OFF. 6. NOW EXAMINING THE PRESENT CASE ON THE TOUCHSTON E OF THE AFORESAID APEX COURT DECISION WE FIND THAT AOS VI EW THAT THE ASESSEE HAS TO PROVE THE DEBT HAS BECOME BAD IS NOT SUSTAINABLE. HOWEVER WE FURTHER NOTED THAT IN THE DETAIL OF B AD DEBT WRITTEN OFF THERE IS INCLUDED A SUM OF OTHER RS. 89 880/-. THE NECESSARY DETAILS FOR THESE ARE NOT AVAILABLE ON RECORD. RESP ECTFULLY FOLLOWING THE PRECEDENT FROM THE APEX COURT DECISION WE R EMIT THIS ISSUE TO THE FILES OF THE AO TO EXAMINE THE ISSUE DE-NOVA W ITH THE SAME DIRECTIONS AS IN THE APEX COURT DECISION AS ABOVE. 7. THE NEXT ISSUE RAISED IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 3385362/- ON ACCOUNT O F CESSATION OF LIABILITY. 7.1 ON THIS ISSUE THE AO OBSERVED THAT AS UNDER:- THE SUNDRY CREDITORS AS ON 31.3.2003 AMOUNTED TO RS. 59 17 861/-. THIS AMOUNTS INCLUDES OF RS. 3385362/- DUE TO HPC LTD. THE AUDITOR MENTIONED THAT OWING TO AN AR BITRATOR THE AMOUNT OF RS. 33 35 620/- HAS BEEN RETURNED BAC K THE SAME AMOUNT DURING THE FINANCIAL YEAR 2002-03. T HE ITA NO.2115/DEL/07 A.Y. 2003-04 4 BALANCE AMOUNT DUE TO HPC LTD. RS. 3385362/- IS PEN DING FOR RECONCILIATION AS PER ARBITRATORS ORDER AND SHALL B E ADJUSTED ACCORDINGLY. IN SPITE OF OPPORTUNITIES GRANTED THE ASSESSEE DID NOT FILE THE ARBITRATORS AWARD. THIS PROVE THAT THE LIABIL ITY OF RS. 3385362/- SHOWN AS LIABILITY TOWARDS HPC LTD. CEAS ED TO EXIST ON 31.3.2003 AND ACCORDINGLY TREATED AS COMPANYS I NCOME FOR THE ASSESSMENT YEAR 2003-04. ACCORDINGLY THE COMP ANYS INCOME IS INCREASED BY RS. 3385362/- AS CESSATIO N OF LIABILITY. 7.2 BEFORE THE LD. CIT(A) ASSESSEE SUBMITTED THE DE TAIL OF ARBITRATION AWARD WHICH WAS ALSO PROVIDED TO THE A SSESSING OFFICER. IT WAS FURTHER BROUGHT TO THE NOTICE OF THE LD. CIT (A) THAT M/S HPC LTD. HAD APPROACHED HONBLE HIGH COURT OF DELHI CHA LLENGING THE AWARD AND CLAIMING THE BALANCE AMOUNT ALONG WITH TH E INTEREST LEFT OPEN AND UNDECIDED BY THE ARBITRATOR. HENCE IT W AS SUBMITTED THAT THE BALANCE AMOUNT OF RS. 3385362/- IS UNDER A DJUDICATION OF THE HONBLE DELHI HIGH COURT. IT CAN ONLY BE THE F INAL VERDICT AS PER THE FINAL ORDER OF THE HIGH COURT THAT THE MATTER W ILL BE SETTLED. CONSIDERING THE ABOVE LD. CIT(A) HELD THAT THE ADD ITION MADE BY THE AO IS NOT CORRECT AND IS LIABLE TO BE DELETED. 7.3 AGAINST THIS ORDER THE REVENUE IS IN APPEAL BE FORE US. 7.4 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED T HE RECORDS. IT IS CLEAR THAT THE TOTAL AMOUNT REFERRED FOR ARBI TRATION WAS RS. ITA NO.2115/DEL/07 A.Y. 2003-04 5 5917861/-. AFTER ARBITRATION AWARD RS. 3335620/- W ERE WRITTEN BACK IN THE FINANCIAL YEAR 2002-03. THE BALANCE AMOUNT DUE TO HPC LTD OF RS. 3385362/- WAS PENDING RECONCILIATION AS PER ARBITRATION AWARD. MOREOVER M/S HPC LTD. HAS ALSO APPROACHED DELHI HIGH COURT CHALLENGING THE AWARD. IN THIS BA CKGROUND IT CANNOT BE SAID THAT THERE WAS ANY CESSATION OF L IABILITY. LD. COUNSEL OF THE ASSESSEE HAD ALSO BROUGHT TO OUR NOT ICE THAT IN THE SUBSEQUENT YEAR WHEN THE MATTER HAS BECOME FINAL T HE AMOUNT HAD BEEN DULY ADJUSTED IN THE ACCOUNTS. UPON CA REFUL CONSIDERATION WE FIND THAT LD. CIT(A) IS CORRECT IN HOLDING THAT THERE IS NO CESSATION OF LIABILITY. WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 8. THE NEXT ISSUE RAISED IS THAT THE LD. CIT(A) ERR ED IN DELETING THE ADDITION OF RS. 60878/- ON ACCOUNT OF EXPENDITURE O N REPAIR OF PLANT AND MACHINERY. 8.1 ON THIS ISSUE AO NOTED THAT IN THE PREVIOUS YE AR THE ASSESSEE HAD CLAIMED ONLY RS. 26872/- FOR MACHINERY REPAIR WHILE THIS YEAR THE AMOUNT SHOWN WAS RS. 183403/-. THE VOUCHERS IN THIS REGARD WAS PRODUCED ONLY FOR RS. 122604/-. THE ASSESSEE E XPRESSED ITS INABILITY TO PRODUCE THE VOUCHERS AND IN THE ABSENC E OF VOUCHERS THE BALANCE OF RS. 60878/- WAS DISALLOWED BY THE AO . 8.2 UPON ASSESSEES APPEAL LD. CIT(A) NOTED THAT AS SESSEE HAD CLAIMED THAT AT NO POINT OF ASSESSMENT THEY WERE A SKED TO SUBMIT THE BALANCE VOUCHERS. THE ASSESSEE PRODUCED ALL TH E VOUCHERS ITA NO.2115/DEL/07 A.Y. 2003-04 6 BEFORE THE LD. CIT(A). LD. CIT(A) GAVE A FINDING THAT ALL THE VOUCHERS ARE AVAILABLE WITH THE ASSESSEE. HENCE H E DIRECTED THAT THE ADDITION BE DELETED. 8.3 AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 8.4 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT AO HAS SPECIFICALLY NOTED THAT THERE W ERE NO VOUCHERS PRODUCED FOR EXPENDITURE OF RS. 60878/-. ON THE OT HER HAND LD. CIT(A) HAS GIVEN A FINDING THAT ALL THE VOUCHERS AR E AVAILABLE. IT IS NOT THE CASE THAT THE AO WAS CONFRONTED BY THE CIT( A) ON THIS ASPECT. HENCE IN OUR CONSIDERED OPINION THE MAT TER NEEDS TO BE REMITTED TO THE FILES OF THE AO. ACCORDINGLY THE M ATTER IS REMITTED TO THE FILES OF THE AO. AO IS DIRECTED TO EXAMINE TH E VOUCHERS IN THIS REGARD AND GIVE A FINDING ACCORDINGLY. 9. NEXT ISSUE RAISED IS THAT THE LD. CIT(A) ERRED I N DELETING THE ADDITION OF 832974/- ON ACCOUNT OF MANUFACTURING AN D ADMINISTRATIVE EXPENSES. 9.1 ON THIS ISSUE THE AO NOTED THAT RS. 832974/- WO RTH OF VOUCHERS PERTAINING TO VARIOUS HEADS IN MANUFACTURI NG AND ADMINISTRATIVE EXPENSES WERE NOT PRODUCED AND THE ASSESSEES COUNSEL HAS EXPRESSED ITS INABILITY TO PRODUCE THE SE VOUCHERS. HENCE AO HAD DISALLOWED THE CLAIM OF RS. 832974/- IN THIS REGARD. ITA NO.2115/DEL/07 A.Y. 2003-04 7 9.2 UPON ASSESSEES APPEAL LD. CIT(A) NOTED THAT B EFORE HIM THE ASSESSEE HAD PRODUCED ALL THE VOUCHERS. ACCORDINGL Y HE DIRECTED THAT THE ADDITIONAL BE DELTED. 9.3 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT AO HAS SPECIFICALLY NOTED THAT THERE W ERE NO VOUCHERS PRODUCED FOR EXPENDITURE OF RS. 832974. ON THE OTH ER HAND LD. CIT(A) HAS GIVEN A DIAMETRICALLY OPPOSITE FINDING T HAT ALL THE VOUCHERS ARE AVAILABLE. IT IS NOT THE CASE THAT T HE AO WAS CONFRONTED BY THE CIT(A) ON THIS ASPECT. HENCE I N OUR CONSIDERED OPINION THE MATTER NEEDS TO BE REMITTED TO THE FIL ES OF THE AO. ACCORDINGLY THE MATTER IS REMITTED TO THE FILES OF THE AO. AO IS DIRECTED TO EXAMINE THE VOUCHERS IN THIS REGARD AND GIVE A FINDING ACCORDINGLY. 10. THE NEXT ISSUE RAISED IS THAT THE LD. CIT(A) ER RED IN DELETING THE ADDITION OF RS. 1518972/- ON ACCOUNT OF BANK INTERE ST AND OTHERS. 10.1 ON THIS ISSUE AO NOTED THAT THE DETAILS OF BA NK CHARGES AND INTEREST WERE AS UNDER:- BANK INTEREST ON BANK OVERDRAFT AND RS. 10 45 036/ - CASH CREDIT BANK INTEREST ON TERM LOAN RS. 4 41 178/- CHEQUE DISCOUNTING CHARGES RS. 32 758/- THE AO STATED THAT THE ASSESSEE COMPANY IS A DEFAUL TER TO THE BANK AND INTEREST HAS NOT BEEN PAID TO THE BANK. ACCORDINGLY THE CLAIM OF INTEREST PAYMENT OF RS. 1482004/- IS NOT ALLOWED AS A DEDUCTION AND ALSO TH E INTEREST CLAIM ON TERM LOAN OF RS. 36968/- IS NOT ALLOWED. ITA NO.2115/DEL/07 A.Y. 2003-04 8 10.2 UPON ASSESSEES APPEAL LD. CIT(A) NOTED THAT THE APPELLANT HAS PRODUCED BEFORE ME THE BANK STATEMENT OF ACCOUNT NO. CC 237 OF CENTRAL BANK OF INDIA AND AS PER THE BANK STATEMENT IT IS ABSOLUTELY EVIDENT THAT THE APPELLANT HAS R EPAID THE INTEREST CHARGE BY THE BANK OF RS. 486342/-. FURTHER THE APP ELLANT ALSO HAS AN OVERDRAFT ACCOUNT IN CENTRAL BANK OF INDIA BEARI NG ACCOUNT NO. 42978 WHEREIN THE TOTAL INTEREST DURING THE YEAR A MOUNTING TO RS. 558694/- HAS BEEN PAID BEFORE FILING OF INCOME TAX RETURN AS LAID DOWN UNDER SECTION 43(B) OF THE INCOME TAX ACT. IN ADDITION AS REGARDS THE WORKING CAPITAL TERM LOAN OF RS. 35 00 000/- FROM CENTRAL BANK OF INDIA ACCOUNT NO. L.N. 14681. THE INTEREST CHARGED BY THE BANK IS AS:- 29.06.2002 - RS. 1 39 730/- 28.09.2002 - RS. 1 45 252/- 31.12.2002 - RS. 1 19 381/- TOTAL - RS. 4 04 363/- AS WOULD BE EVIDENT FROM THE BANK STATEMENT PRODUC ED BY THE APPELLANT THE APPELLANT HAS REPAID A SUM OF RS. 10 03 877/- DURING THE FINANCIAL YEAR. I FIND THA T ALL INTEREST CHARGED FOR HAS BEEN PAID BY THE APPELLANT. FURTHER AS REGARDS THE TERM LOAN FROM CENTRAL BANK OF INDIA AT DEHRADUN BRANCH FOR RS. 2.54 LAKHS. THE A PPELLANT HAS PAID THE INTEREST CHARGED OF RS. 36 815/- AS PE R THE BANK STATEMENT PRODUCED BEFORE ME. IT IS FURTHER SEEN THAT THE AO HAS DISALLOWED CHEQUE DISCOUNTING AMOUNT OF RS. 32 758/- ITA NO.2115/DEL/07 A.Y. 2003-04 9 WITHOUT ASSIGNING ANY REASON WHICH IS ALSO AN ALLOW ABLE BUSINESS EXPENDITURE. 10.3 IN THIS BACKGROUND LD. CIT(A) HELD THAT THE A DDITION MADE BY THE AO BY DISALLOWING THE INTEREST IS NOT C ORRECT SINCE THE SAME HAS BEEN PAID BEFORE FILING OF THE RETURN. ACCORDINGLY THIS ADDITION IS DELETED. 10.4 AGAINST THIS ORDER THE REVENUE IS IN APPEAL B EFORE US. 10.5 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. 10.6 WE FIND THAT THE AO IN THIS CASE HAS GIVEN A FINDING THAT THE INTEREST AND BANK CHARGES HAVE NOT BEEN PAID. THE LD. CIT(A) ON THE OTHER HAND HAS GIVEN A DIAMETRICALLY OPPOSIT E FINDING THAT IMPUGNED SUM HAVE BEEN PAID TO THE BANK INCLUDING A MOUNTS PAID BEFORE THE FILING OF RETURN. IT IS NOT THE CASE TH AT AO WAS ASKED FOR A REMAND REPORT IN THIS REGARD. UNDER THE CIRCUMST ANCES IN OUR CONSIDERED OPINION IN THE INTEREST OF JUSTICE THIS ISSUE IS REMITTED TO THE FILES OF THE AO TO GIVE A FINDING WITH REGARD T O VERACITY OF ASSESSEES SUBMISSION BEFORE THE LD. CIT(A) AND DEC IDE AS PER LAW. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GIVEN A DEQUATE OPPORTUNITY OF BEING HEARD. ITA NO.2115/DEL/07 A.Y. 2003-04 10 11. IN THE RESULT THE REVENUES APPEAL IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 05/03/2010 SD/- SD/- (C.L. SETHI) [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 05/03/ 2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES