PHARMED LTD, MUMBAI v. ACIT (OSD) CIR 2(2), MUMBAI

ITA 2427/MUM/2010 | 2006-2007
Pronouncement Date: 11-03-2011 | Result: Allowed

Appeal Details

RSA Number 242719914 RSA 2010
Assessee PAN AAACP2191A
Bench Mumbai
Appeal Number ITA 2427/MUM/2010
Duration Of Justice 11 month(s) 13 day(s)
Appellant PHARMED LTD, MUMBAI
Respondent ACIT (OSD) CIR 2(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 11-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 11-03-2011
Assessment Year 2006-2007
Appeal Filed On 29-03-2010
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH MUMBAI BEFORE SHRI N.V.VASUDEVAN (JM) AND SHRI RAJENDRA S INGH(AM) ITA NO.2427/M/2010 ASSESSMENT YEAR 2006-07 M/S. PHARMED LIMITED THE ACIT (OSD) CIR.2(2) M UMBAI 141 PHARMED HOUSE WALCHAND HIRACHAND MARG MUMBAI 400 001. PAN : AAACP 2191 A APPELLANT RESPONDENT ASSESSEE BY : SHRI VIJAY MEHTA REVENUE BY : SHRI P.N. DEVDASAN O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 3.2.10 OF CIT(A) FOR THE ASSESSMENT YEAR 2006-07. THE ASSESSE E IN THIS APPEAL HAS RAISED DISPUTES ON FOUR DIFFERENT GROUNDS. 2. THE FIRST DISPUTE IS REGARDING THE DISALLOWANCE OF RS.2 36 547/- BEING THE EMPLOYEES CONTRIBUTION TO PROVIDENT FUND. IN THE A SSESSMENT ORDER THE AO HAD DISALLOWED AND ADDED A SUM OF RS.25 25 951/- BE ING THE EMPLOYEES CONTRIBUTION TO PROVIDENT FUND ON THE GROUND THAT T HE SAME HAD NOT BEEN PAID WITHIN THE DUE DATE UNDER THE PROVISIONS OF SECTION 36(1)(VA) R.W.S.2(24) (X). IN APPEAL CIT(A) NOTED THAT THE PROVIDENT FUND AUTH ORITIES HAVE ALLOWED A GRACE 2 PERIOD OF 5 DAYS AFTER THE DUE DATE WHICH WAS 15 TH DAY OF THE FOLLOWING MONTH. HE THEREFORE ALLOWED ALL PAYMENTS MADE WITHIN THE G RACE PERIOD AND THE ONLY ADDITION CONFIRMED WAS THE CONTRIBUTION OF RS.2 36 547/- IN THE MONTH OF OCTOBER WHICH HAD BEEN DEPOSITED AFTER THE GRACE PE RIOD ON 26.11.2005. AGGRIEVED BY THE SAID DECISION THE ASSESSEE IS IN A PPEAL. 2.1 BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT AFTER THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF CIT VS ALOM EXTRUSIONS LTD. (319 ITR 306) THE EMPLOYEES CONTRIBUTION TO PROVID ENT FUND HAS BECOME ALLOWABLE IF PAID WITHIN THE DUE DATE OF FILING THE RETURN OF INCOME. IT WAS POINTED OUT THAT VARIOUS BENCHES OF THE TRIBUNAL WE RE ALLOWING THE CLAIM BASED ON THE SAID JUDGMENT. HE PLACED RELIANCE ON THE DEC ISION OF THE TRIBUNAL IN CASE OF M/S.PRANAVADITYA SPINNING MILLS LTD. VS ACIT IN ITA NO.6855/M/2008. THE LEARNED DR PLACED RELIANCE ON THE ORDER OF CIT(A). 2.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF EMPLOYEES CON TRIBUTION TO PROVIDENT FUND PAID AFTER THE GRACE PERIOD OF 5 DAYS ALLOWED BY TH E PROVIDENT FUND AUTHORITIES AFTER DUE DATE WHICH IS 15 TH DAY OF THE FOLLOWING MONTH. THE HONBLE SUPREME COURT IN CASE OF CIT VS ALOM EXTRUSIONS LTD. (SUPRA ) HAVE HELD THAT THE CONTRIBUTION PAID BEFORE DUE DATE OF FILING THE RET URN OF INCOME HAS TO BE ALLOWED. THERE COULD BE DIFFERENCE OF OPINION AS TO APPLICABILITY OF THE SAID JUDGMENT TO EMPLOYEES CONTRIBUTION. HOWEVER THE VA RIOUS BENCHES OF THE TRIBUNAL HAVE BEEN TAKING THE VIEW THAT FOLLOWING T HE SAID JUDGMENT EMPLOYEES CONTRIBUTION PAID BEFORE THE DUE DATE OF FILING RET URN OF INCOME HAS TO BE ALLOWED. ONE SUCH DECISION OF THE TRIBUNAL HAS BEEN PLACED BEFORE US. WE 3 THEREFORE FOLLOWING THE SAID DECISION SET ASIDE THE ORDER OF CIT(A) AND ALLOWED THE CLAIM OF THE ASSESSEE. 3. THE SECOND DISPUTE IS REGARDING DISALLOWANCE OF CLAIM OF BAD DEBT AMOUNTING TO RS.2 82 898/-. DURING THE ASSESSMENT P ROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAD MADE A CLAIM OF BAD DEBT OF R S.1 50 985/- BEING THE IMPRESS ADVANCES GIVEN TO THE FIELD STAFF WHO HAD L EFT THE JOB. THE ASSESSEE HAD ALSO MADE A FURTHER CLAIM OF RS.2 03 031/- AS P ER THE DETAILS GIVEN BELOW : PARTICULARS AMOUNT REMARK SALES TAX RECOVERABLE 71118 LEDGER ALREADY SUBMITTE D IN MORE THAN RS.70 000 VIDE OUR EARLIER SUBMISSION. KST RECOVERABLE 27207 THE CREDIT FOR SALES TAX CLAI MED NOT GIVEN IN THE ASSESSMENT WHICH WE HAVE CLAIMED AND HENCE TO RECTIFY IT WAS TRANSFER OF BALANCE WRITTEN OFF TN ST RECOVERABLE 12417 SAME AS ABOVE OTHER 92299 ADVANCES GIVEN TO EMPLOYEES WHICH IS IRRECOVERABLE 3.1 THE AO MENTIONED THAT HE HAD ASKED THE ASSESSEE TO PRODUCE THE EVIDENCE AND TO PROVE THE GENUINENESS OF THE CLAIM AND TO CORROBORATE THE SAME WITH LEDGER ACCOUNTS OF THE PRECEDING THREE YE ARS. THE ASSESSEE EXPLAINED THAT THE SUM OF RS.1 50 985/- WAS IN RELA TION TO MAXIMUM AMOUNT OF RS.5 000/- GIVEN TO FIELD STAFF IN CONNECTION WITH BUSINESS AND SINCE THEY HAD LEFT THE JOB AND AFTER WAITING FOR THREE YEARS THE ASSESSEE HAD WRITTEN OFF THE AMOUNT AS THE SAME COULD NOT RECOVERED. IT WAS ALSO POINTED OUT THAT THE EMPLOYEES HAD LEFT THE COMPANY WITHOUT ANY NOTICE A ND HAD NOT BEEN PAID THEIR DAILY EXPENSES OF PAST 1 OR TWO MONTHS AS THE Y DID NOT CLAIM AND DID NOT SETTLE THEIR IMPRESS ADVANCES. IT WAS ALSO SUBMITTE D THAT GIVING INDIVIDUAL LEDGER COPY OF EACH EMPLOYEES FOR PRECEDING YEARS W OULD RUN INTO MORE THAN 150 PAGES AND THEREFORE THE ASSESSEE HIGHLIGHTED TH E REASONS IN THE LEDGER ITSELF WHICH HAD BEEN PRODUCED FOR PERUSAL OF THE A O. THE ASSESSEE EXPLAINED 4 THE OTHER AMOUNTS WRITTEN OFF AS MENTIONED IN TABLE REPRODUCED EARLIER. THE AO HOWEVER OBSERVED THAT THE CLAIM OF THE ASSESSEE WAS NOT SUPPORTED BY PROPER DOCUMENTARY EVIDENCES IN ALL THE CASES. IT WAS ALSO OBSERVED BY THE AO THAT THE ASSESSEE HAD GIVEN ADVANCES OF RS.2 82 898/- TO ITS STAFF AND THE SAID AMOUNTS DID NOT QUALIFY FOR DEDUCTION AS BAD DEBT. THE AO FURTHER OBSERVED THAT THE AMOUNT COULD ALSO NOT BE ALLOWED UNDER SEC TION 37(1). HE THEREFORE DISALLOWED THE CLAIM OF RS.2 82 898/-. 3.2 IN APPEAL THE ASSESSEE SUBMITTED THAT THE OBSE RVATION OF AO THAT A SUM OF RS.2 82 898/- REPRESENTED THE ADVANCE PAYMENT MA DE TO THE FIELD STAFF WAS NOT CORRECT. THE AMOUNT RELATING TO STAFF WAS ONLY RS.1 50 985/-. THERE WAS A FURTHER AMOUNT OF RS.92 299/- BEING THE PETTY AMOUN TS GIVEN TO THE EMPLOYEES WHICH WAS SIMILAR TO THE ADVANCES GIVEN TO THE FIEL D STAFF. THUS THE TOTAL AMOUNT ADVANCED TO THE EMPLOYEES WAS RS.2 43 284/- AND THE BALANCE AMOUNT OF RS.39 624/- REPRESENTED THE IRRECOVERABLE SALES TAX. THE ASSESSEE FURTHER ARGUED THAT IN CASE THE ABOVE AMOUNTS WERE NOT ALLO WED AS BAD DEBT THE SAME SHOULD BE ALLOWED AS A BUSINESS LOSS AS THE AMOUNTS REPRESENTED NEITHER CAPITAL EXPENDITURE NOR PROFESSIONAL EXPENSES OF TH E ASSESSEE. CIT(A) HOWEVER HELD THAT THE AMOUNTS COULD NOT BE ALLOWED AS BAD D EBT AS THE PROVISIONS OF SECTION 36(1)(VII) WAS NOT APPLICABLE. THE AMOUNTS COULD ALSO NOT BE ALLOWED AS EXPENDITURE UNDER SECTION 37(1) AS THE SAME WERE IN THE NATURE OF CAPITAL LOSS. CIT(A) FURTHER OBSERVED THAT THE ASSESSEE HAD FAILE D TO GIVE ANY SATISFACTORY REPLY EITHER WITH REGARD TO THE CLAIM OF BAD DEBT O R BUSINESS EXPENDITURE AND EVEN IN RESPECT OF SALES TAX RECOVERIES WRITTEN OFF . HE THEREFORE CONFIRMED THE DISALLOWANCE AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5 3.3 BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT THE FINDING OF CIT(A) THAT AMOUNTS WERE CAPITAL IN NATURE WAS NOT CORRECT AS THE SAME REPRESENTED THE DAY TO DAY BUSINESS TRANSACTIONS OF THE ASSESSEE. THE ADVANCES TO THE EMPLOYEES WERE GIVEN DURING THE COU RSE OF CARRYING ON THE BUSINESS AND THEREFORE ANY NON RECOVERY HAS TO BE A LLOWED AS BUSINESS LOSS. THE LEARNED DR PLACED RELIANCE ON THE ORDER OF CIT( A). 3.4 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF SUM OF RS.2 82 898/- CONSISTING OF A SUM OF RS.2 43 284/- BEING THE ADVA NCES GIVEN TO THE EMPLOYEES AND A SUM OF RS.39 624/- BEING THE SALES TAX RECOVERABLE. THESE AMOUNTS HAVE BEEN CLAIMED BY THE ASSESSEE AS BAD DE BT OR ALTERNATIVELY AS BUSINESS LOSS ON THE GROUND THAT TRANSACTIONS WERE PART OF DAY TO DAY BUSINESS OF THE ASSESSEE. THE AO HELD THAT THE AMOUNTS COULD NOT BE ALLOWED AS BAD DEBT AS THE CONDITIONS OF SECTION 36(1)(VII) WERE N OT SATISFIED AND SINCE THE AMOUNT DID NOT REPRESENT EXPENDITURE THEY COULD NO T BE ALLOWED UNDER SECTION 37(1). HE ALSO OBSERVED THAT THE CLAIM WAS NOT SUPP ORTED BY PROPER DOCUMENTARY EVIDENCE AS THE ASSESSEE DID NOT FILE T HE LEDGER COPY OF THE EMPLOYEES. CIT(A) HAS HELD THAT THE AMOUNTS NOT REC OVERABLE FROM THE STAFF OR THE TRADE PARTIES REPRESENTED CAPITAL LOSS AND THER EFORE COULD NOT BE ALLOWED. CIT(A) THEREFORE DID NOT GO INTO THE OTHER ASPECTS. IN OUR VIEW THE AMOUNT GIVEN AS ADVANCE TO THE STAFF DURING THE COURSE OF BUSINESS AS WELL AS THE SALES TAX RECOVERABLE FROM THE PARTIES WILL BE ALLOWABLE AS BUSINESS LOSS IN CASE IT WAS ESTABLISHED THAT THE SAME WAS NOT RECOVERABLE. THE IRRECOVERABILITY ASPECT HOWEVER IS REQUIRED TO BE VERIFIED PROPERLY. THOUGH THE AO DID CALL FOR THE COPY OF LEDGER ACCOUNT HE DID NOT PURSUE THE MATTER AND ULTIMATELY HELD THAT THE CLAIM WAS NOT LEGALLY ALLOWABLE AS A BAD DEBT OR AS REVENUE EXPENDITURE. WE 6 HAVE ALREADY HELD THAT THE AMOUNTS IF FOUND IRRECOV ERABLE HAVE TO BE ALLOWED AS BUSINESS LOSS. THEREFORE WE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER TO THE FILE OF AO FOR PASSING FRESH ORDER AN D AFTER NECESSARY VERIFICATION IN THE LIGHT OF OBSERVATION MADE ABOVE AND AFTER AL LOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 4. THE THIRD DISPUTE IS REGARDING DISALLOWANCE OF E XPENDITURE OF RS.6 37 179/- UNDER THE PROVISIONS OF SECTION 14A R ELATING TO THE EXEMPT INCOME. THE AO NOTED THAT THE ASSESSEE HAD SHOWN IN COME OF RS.10 36 721/- ON ACCOUNT OF DIVIDEND WHICH WAS EXEMPT. HE THEREFO RE DISALLOWED A SUM OF RS.10 36 721/- WHICH HAVE BEEN COMPUTED AS PER RULE 8D. IN APPEAL CIT(A) CONFIRMED THE ORDER OF AO AFTER OBSERVING THAT RULE 8D HAD RETROSPECTIVE APPLICATION IN VIEW OF THE DECISION OF THE TRIBUNAL IN CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. (26 SOT 603). AGGRIEVED BY THE SAID DECISION THE ASSESSEE IS IN APPEAL. 4.1 WE HAVE HEARD BOTH THE PARTIES PERUSED THE REC ORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING DISALLOW ANCE OF EXPENDITURE RELATING TO THE DIVIDEND INCOME WHICH WAS EXEMPT. UNDER THE PROVISIONS OF SECTION 14(2)/ 14(3) DISALLOWANCE OF EXPENDITURE IN RELATIO N TO EXEMPT INCOME HAS TO BE MADE AS PER THE METHOD PRESCRIBED BY THE GOVERNM ENT. THE GOVERNMENT HAVE PRESCRIBED THE METHOD IN THE FORM OF RULE NO.8 D. THE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF DAGA CAPITAL MANAGEMENT PVT. LT D. (SUPRA) HAD HELD THAT RULE 8D HAD RETROSPECTIVE APPLICATION. HOWEVER THE SAID VIEW OF THE SPECIAL BENCH HAS NOT BEEN UPHELD BY THE HONBLE HIGH COURT OF MUMBAI IN CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (328 ITR 81) IN WHICH IT HAS BEEN HELD THAT RULE 8D WOULD APPLY ONLY FROM ASSESSMENT YEAR 2008-09 AND FOR THE PRIOR 7 PERIOD DISALLOWANCE HAS TO BE MADE IN RESPECT OF B OTH DIRECT AND INDIRECT EXPENDITURE ON A REASONABLE BASIS AFTER ALLOWING OP PORTUNITY OF HEARING TO THE ASSESSEE. THE ASSESSMENT YEAR INVOLVED IN THE PRESE NT CASE IS A.Y.2006-07 AND THEREFORE RULE 8D IS NOT APPLICABLE. WE THEREFORE S ET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER TO THE FILE OF AO FOR FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF JUDGMENT OF HONBLE HIG H COURT OF MUMBAI IN CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA) AND A FTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 5. THE FOURTH DISPUTE IS REGARDING ADDING BACK OF E XCESS DEPRECIATION OF RS.1 41 493/-. THE ASSESSEE HAD ADDED BACK A SUM OF RS.1 41 493/- AS EXCESS DEPRECIATION CLAIMED WHICH WAS A MISTAKE. AS PER T HE ASSESSEE THE AO SHOULD HAVE ALLOWED THE CORRECT DEPRECIATION. THE ASSESSEE RAISED A DISPUTE BEFORE THE CIT(A) WHO HELD THAT THE ASSESSEE COULD HAVE MOVED A RECTIFICATION APPLICATION BEFORE THE AO. HE THEREFORE REJECTED THE CLAIM AGGR IEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5.1 WE HAVE HEARD BOTH THE PARTIES PERUSED THE REC ORDS. THE CLAIM OF THE ASSESSEE IS THAT IN THE COMPUTATION OF INCOME IT HA D ADDED A SUM OF RS.1 41 393/- AS EXCESS DEPRECIATION BY MISTAKE WHI CH SHOULD HAVE BEEN CORRECTED BY THE AO AS THE AO WAS SUPPOSED TO ACT U NDER THE PROVISIONS OF LAW. IN OUR VIEW DEPRECIATION HAS TO BE ALLOWED CORRECTL Y AND AO WAS REQUIRED TO WORK OUT THE DEPRECIATION UNDER THE PROVISIONS OF L AW. IN CASE THERE IS A MISTAKE IT SHOULD BE CORRECTED. WE THEREFORE RESTOR E THIS ISSUE TO THE FILE OF AO FOR PASSING A FRESH ORDER ON THIS POINT AFTER NECES SARY EXAMINATION AND AFTER ALLOWING NECESSARY OPPORTUNITY OF HEARING TO THE AS SESSEE. 8 6. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLO WED ON THE TERMS INDICATED IN THE ORDER. 7. ORDER WAS PRONOUNCED IN THE OPEN COURT 11.03.201 1. SD/- SD/- ( N.V.VASUDEVAN ) (RAJENDR A SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 11.03.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) MUMBAI CONCERNED 4. THE CIT MUMBAI CITY CONCERNED 5. THE DR C BENCH ITAT MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ALK