M/S. PRATIK STOCK VISION PVT. LTD, MUBMAI v. THE ITO 4(2)-1, MUMBAI

ITA 2390/MUM/2008 | 2004-2005
Pronouncement Date: 30-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 239019914 RSA 2008
Assessee PAN AABCP8660P
Bench Mumbai
Appeal Number ITA 2390/MUM/2008
Duration Of Justice 2 year(s) 8 month(s) 23 day(s)
Appellant M/S. PRATIK STOCK VISION PVT. LTD, MUBMAI
Respondent THE ITO 4(2)-1, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-12-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 30-12-2010
Date Of Final Hearing 16-12-2010
Next Hearing Date 16-12-2010
Assessment Year 2004-2005
Appeal Filed On 07-04-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH MUMBAI BEFORE SHRI R.S. PADVEKAR JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 2390/MUM/2008 (ASSESSMENT YEAR: 2004-05) M/S. PRATIK STOCK VISION P. LTD. INCOME TAX OFFICER - 4(2)(1) 17 KHATAU BUILDING A.D. MODI MARG AAYAKAR BHAVAN M.K. ROAD FORT MUMBAI 400023 VS. MUMBAI 400020 PAN - AABCP 8660 P APPELLANT RESPONDENT APPELLANT BY: SHRI H.P. SHAH RESPONDENT BY: SHRI P.M. DEVDASAN O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- IV MUMBAI DATED 06.02.2008. 2. ASSESSEE HAS RAISED TWO GROUNDS ONE IS WITH REFERE NCE TO THE DISALLOWANCE OF ` 15 70 490/- CLAIMED BY THE ASSESSEE AS BAD DEBTS/BUSINESS LOSS AND SECOND IS WITH REFERENCE TO ADHOC DISALLOWANCE OUT OF TRAVELLING EXPENSES AND BUSINESS PROMOTION EXPEN SES OF ` 2 97 325/- AND ` 84 100/- RESPECTIVELY. 3. BRIEFLY STATED THE A.O. WHILE COMPLETING THE ASSE SSMENT UNDER SECTION 143(3) HAS NOTICED THAT THE ASSESSEE HAS WR ITTEN OFF AN AMOUNT OF ` 20 85 048/- OUT OF WHICH AN AMOUNT OF ` 15 70 490/- WAS PERTAINING TO SHRI ATUL KHADILKAR INDIVIDUAL ( ` 58 193/-) AND SHRI ATUL KHADILKAR HUF ( ` 15 12 297/-). FROM THE DETAILS IT WAS FOUND OUT THE CLAIM OF BAD DEBTS IN BOTH CASES BELONGS TO THE SAME PERSON SHRI ATUL KH ADILKAR. THE A.O. EXAMINED THE CLAIMS OF DELIVERY OF SHARES PURCHASED THROUGH THE ASSESSEE AND NOTICED THAT THE ASSESSEE DID NOT REALISE ANY A MOUNT DURING THE YEAR BUT CLAIMED TRAVELLING EXPENSES OF THE SAME PERSON EVENTHOUGH SHRI ATUL KHADILKAR WAS NEITHER AN EMPLOYEE OF THE ASSESSEE N OR ON THE BOARD OF DIRECTORS. HE DOUBTED THE GENUINENESS OF THE BAD DE BTS CLAIMED IN THE ITA NO. 2390/MUM/2008 M/S. PRATIK STOCK VISION P. LTD. 2 ABSENCE OF ANY LEGAL STEP TAKEN FOR RECOVERY AND AL SO THE FACT THAT THE ASSESSEE HAS CLAIMED OTHER EXPENSES IN TRAVELLING O F SHRI ATUL KHADILKAR. IN VIEW OF THIS THE AMOUNTS OF BAD DEBTS CLAIMED AGAIN ST THE SAID PERSON ARISING OUT OF PURCHASE OF SHARES DURING THE YEAR W ERE NOT ALLOWED. BEFORE THE CIT(A) IT WAS CONTENDED THAT SHRI ATUL KHADILKA R WAS KNOWN TO THE DIRECTOR MR. R.K. JHUNJHUNWALA SINCE 1993 BUT HAS DONE TRANSACTIONS ONLY IN F.Y. 2003-04 (IN THE IMPUGNED ASSESSMENT YEAR) A ND HE BEING A CLOSE FRIEND OF THE DIRECTOR THE COMPANY HAS NOT RECEIVED AND DEMANDED ANY MARGIN MONEY OR DEPOSIT FROM HIM. FURTHER SINCE TH E LAST TRANSACTION WAS MADE ON 04.12.2003 AND THE NO AMOUNT HAS BEEN RECEI VED THE AMOUNT WAS WRITTEN OFF. THE MATTER WAS REMANDED BY THE CIT(A) AND STATEMENT OF SHRI R.K. JHUNJHUNWALA AND SHRI ATUL KHADILKAR WERE RECO RDED UNDER SECTION 131 OF THE I.T. ACT AND IT IS TRANSPIRED THAT OUT O F THE AMOUNT WRITTEN OFF THE ASSESSEE HAS RECEIVED SUBSTANTIAL AMOUNT IMMEDIATEL Y IN THE LATER YEAR TO THE EXTENT OF ` 15 12 297/- PERTAINING TO THE HUF. THE BALANCE OF ` 58 193/- WAS RECEIVED IN A.Y. 2006-07 AND WAS OFFERED TO INC OME TAX BY THE COMPANY. THE CIT(A) AFTER CONSIDERING THE REMAND REPORT AND THE STATEMENTS OF THE SAID PERSONS HAS CONFIRMED THE DISALLOWANCE STATIN G THAT THE DEBT NEVER HAD BECOME BAD AND THE DEBT WAS WRITTEN OFF WITHOUT ANY BASIS AND WAS AN ATTEMPT TO REDUCE TAX LIABILITY OF THE ASSESSEE. FU RTHER OUT OF THE TRAVELLING EXPENSES CLAIMED AS THERE WAS CLAIM OF SHRI ATUL K HADILKAR TRAVEL ALSO 25% OF THE TRAVELLING EXPENSES CLAIMED BY THE ASSESSEE COMPANY WAS DISALLOWED BY THE AO WHICH WAS ALSO CONFIRMED BY THE CIT(A). I N ADDITION TO THE ABOVE TWO ADDITIONS IT IS NOTICED THAT THE ASSESSEE HAS PURCHASED AND CLAIMED MAJOR EXPENSES ON ACCOUNT OF SILVER ARTICLES AS GIF TS. 10% OF THE AMOUNT WAS DISALLOWED ON THE GROUND THAT POSSIBILITY OF PERSON AL EXPENDITURE CANNOT BE RULED OUT. THIS WAS ALSO CONFIRMED BY THE CIT(A). 4. THE LEARNED COUNSEL REFERRED TO THE FACTS AND THE S TATEMENTS AND SUBMITTED THAT THE ASSESSEES CLAIMED THE EXPENDITU RE GENUINELY. ON A QUESTION WHETHER ASSESSEE COMPANY TRIED TO REDUCE T AX LIABILITY AS NOTICED BY THE CIT(A) THE LEARNED COUNSEL SUBMITTED THAT TH ESE AMOUNTS WERE OFFERED AS INCOME OF THE YEAR IN WHICH THEY WERE RECOVERED BUT COULD NOT SUBMIT THE ITA NO. 2390/MUM/2008 M/S. PRATIK STOCK VISION P. LTD. 3 DETAILS OF RECOVERY SO AS TO EXAMINE WHETHER THE SA ID AMOUNTS WERE RECOVERED BY THE TIME THE RETURNS FOR THE YEAR WAS FILED OR NOT. 5. THE LEARNED D.R. RELIED ON THE ORDERS OF THE A.O. A ND CIT(A). 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND EXAMIN ED THE RECORD. AS SEEN FROM THE CLAIMS MADE WITH REFERENCE TO TRAVELL ING EXPENSES OF SHRI KHADILKAR AND BAD DEBTS CLAIMED FOR THE TRANSACTION S OF PURCHASES DURING THE YEAR WE ARE OF THE OPINION THAT THE CLAIM OF B AD DEBT WAS NOT ONLY PRE- MATURE BUT ALSO NOT BASED ON ANY BONAFIDE CONSIDERA TION. THE SAID PERSON PURCHASED ALL THE STOCK BEFORE DECEMBER 2003 WITHOU T ANY MARGIN MONEY. AND HE IS ALSO A FRIEND OF THE DIRECTOR FOR A LONG PERIOD IS ON RECORD. NOT ONLY THAT WITH REFERENCE TO THE EXPLANATION GIVEN FOR CL AIM OF TRAVELLING EXPENSES ON THE SAID PERSON IT WAS SUBMITTED THAT SHRI KHADI LKAR ACCOMPANIED THE DIRECTOR WITH REFERENCE TO VARIOUS COURT CASES IN D ELHI BEING A FRIEND AND KNOWLEDGEABLE PERSON IN THESE MATTERS. IT WAS ALSO ON RECORD THAT THE AMOUNTS STATED TO HAVE BEEN TREATED AS BAD DEBTS DU RING THE YEAR WERE RECOVERED SUBSTANTIALLY IN THE CASE OF HUF IN THE L ATER YEAR AND THE BALANCE PERTAINING TO THE INDIVIDUAL IN THE LATER YEAR. IN THESE CIRCUMSTANCES IT IS NOT EXPLAINED HOW THE AMOUNT COULD BECOME BAD OR LO SS DURING THE YEAR. AS RIGHTLY POINTED OUT BY THE CIT(A) IT SEEMS TO BE A TAX EVADING ARRANGEMENT AS THE ASSESSEES PROFITS DURING THE YEAR BEFORE WR ITE OFF WAS TO THE TUNE OF ` 39 LAKHS WHEREAS IN THE NEXT YEAR THERE WAS A LOSS OF ` 66 461/- EVEN AFTER TREATING THE RECOVERY OF BAD DEBT WRITTEN OFF ` 15 12 297/- AS INCOME IN THAT YEAR. THIS INDICATES THAT AN ATTEMPT WAS MADE TO RE DUCE TAXABLE INCOME DURING THE YEAR BY CLAIMING BAD DEBTS OF THE TRANSA CTIONS OF THE YEAR WHICH WERE RECOVERED IN THE NEXT YEAR TO THE EXTENT OF ` 15 12 297/-. WHEN SPECIFICALLY ASKED ABOUT THE DATES OF RECOVERY AND WHETHER RECOVERY WAS MADE BY THE TIME OF ACCOUNTS BEING FINALISED OR NOT THE LEARNED COUNSEL EXPRESSED HIS INABILITY TO FURNISH THE DETAILS. IN THE ABSENCE OF ANY JUSTIFICATION FOR CLAIMING THE AMOUNT AS BAD DEBT W HICH ITSELF WAS RECOVERED IMMEDIATELY IN THE LATER YEAR(S) THE FINDINGS OF T HE A.O. AND CIT(A) THAT THE CLAIM OF BAD DEBT IS NOT GENUINE HAS TO BE UPHELD. IN VIEW OF THIS THE ASSESSEES CLAIM OF BAD DEBT DURING THE YEAR AND IN THE ALTERNATIVE AS ITA NO. 2390/MUM/2008 M/S. PRATIK STOCK VISION P. LTD. 4 BUSINESS LOSS CANNOT BE ALLOWED. ORDERS OF THE A.O. AND THE CIT(A) ON THIS ISSUE ARE THEREFORE UPHELD. GROUND NO. 1 IS ACCOR DINGLY REJECTED. 7. REGARDING GROUND NO. 2 IT IS SUBMITTED THAT THE A.O . DISALLOWED AN AMOUNT OF ` 2 37 368/- CLAIMED ON ACCOUNT OF TRAVELLING UNDERTA KEN BY SHRI ATUL KHADILKAR AS IT IS NOT IN THE NATURE OF EXPEND ITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND OUT OF THE BALANCE EXPENDITURE DISALLOWED 25% OF THE EXPENDITURE PERTA INING TO TRAVELLING TO JAIPUR AND DELHI TOTALLING TO ` 2 97 325/-. AFTER CONSIDERING THE EXPLANATION ON RECORD AND ORDERS OF THE A.O. AND CIT(A) WE ARE OF THE OPINION THAT THE EXPENDITURE CLAIMED ON SHRI ATUL KHADILKAR WHO IS NEITHER A DIRECTOR OR EMPLOYEE OF THE COMPANY WAS NOT JUSTIFIABLE TO BE ALLOWED AS BUSINESS EXPENDITURE. THE ASSESSEE COULD NOT JUSTIFY THE EXP ENDITURE CLAIM IS FOR THE PURPOSE OF BUSINESS. IN VIEW OF THIS THE EXPENDITUR E TO THE EXTENT OF ` 2 37 368/- DISALLOWED BY THE A.O. AND CONFIRMED BY THE CIT(A) IS ACCORDINGLY CONFIRMED. GROUND TO THAT EXTENT OF THE CLAIM OF TRAVELLING EXPENDITURE IS REJECTED. AS REGARDS THE BALANCE EXP ENSES MORE SO FOR THE DIRECTORS TRAVEL TO JAIPUR AND DELHI THE A.O. WAS OF THE OPINION THAT THERE WILL BE PERSONAL ELEMENT INVOLVED IN THE EXPENDITUR E AS TRAVELLING TO THESE PLACES IS NOT FULLY JUSTIFIED. IT WAS THE SUBMISSIO N THAT THE ENTIRE EXPENDITURE CLAIMED WAS MADE FOR BUSINESS TRAVEL. W E ARE OF THE OPINION THAT ONCE THE JOURNEY IS APPROVED AS FOR BUSINESS THERE CANNOT BE A PORTION OF PERSONAL ELEMENT WHEN TRAVEL WAS UNDERTAKEN FOR THE PURPOSE OF BUSINESS. ACCORDINGLY DISALLOWANCE OF ` 54 947/- OUT OF THE BALANCE OF EXPENDITURE IS NOT JUSTIFIABLE. THEREFORE THE A.O. IS DIRECTED TO ALLOW THE AMOUNT AS CLAIMED. CONSEQUENTLY OUT OF THE TOTAL CL AIM OF ` 2 97 325/- MADE IN GROUND 2.1 ASSESSEE GETS RELIEF OF EXPENDITURE C LAIMED OF ` 59 947/- WHEREAS THE BALANCE AMOUNT OF DISALLOWANCE IS CONFI RMED. GROUND NO. 2.1(A) IS PARTLY ALLOWED. 8. WITH REFERENCE TO GROUND 2 (B) OF BUSINESS PROMOTIO N EXPENSES AS SEEN FROM THE CLAIM THE ASSESSEE HAS SPENT AN AMOUN T OF ` 8 40 683/- AND THE A.O. NOTICED THAT MAJOR PORTION OF THE EXPENDIT URE OF RS. 7 91 585/- WAS TOWARDS PURCHASE OF SILVER ARTICLES AND BALANCE EXP ENDITURE IS INCURRED ON ITA NO. 2390/MUM/2008 M/S. PRATIK STOCK VISION P. LTD. 5 RESTAURANTS AND CLOTH ITEMS STATED TO BE GIFTS FOR THE CLIENTS. THE A.O. HAS DISALLOWED 10% OF THE AMOUNT AS NOT PERTAINING TO T HE BUSINESS WITHOUT ANY JUSTIFICATION. IF THE AMOUNTS OF GOODS PURCHASED AR E TO BE DOUBTED THE A.O. COULD HAVE DISALLOWED THE ENTIRE EXPENDITURE BUT TH ERE NO JUSTIFICATION FOR ESTIMATING 10% OF THE EXPENDITURE AS FOR NON BUSINE SS PURPOSES WITHOUT CRYSTALLISING OR EXAMINATION AS TO WHAT PART OF THE EXPENDITURE IS FOR NON- BUSINESS PURPOSES. IN VIEW OF THIS WE ARE OF THE O PINION THAT THE ASSESSEE DESERVES TO SUCCEED ON THIS GROUND AS DISALLOWANCE IS MADE PURELY ON PRESUMPTIONS AND SURMISES. GROUND NO. 2.1(B) PERTAI NING TO DISALLOWANCE OF BUSINESS PROMOTION EXPENSES IS THEREFORE ALLOWED AND A.O. IS DIRECTED TO ALLOW THE EXPENDITURE OF ` 84 100/-. 9. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DECEMBER 2010. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 30 TH DECEMBER 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) IV MUMBAI 4. THE CIT IV MUMBAI CITY 5. THE DR C BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.