M/s. TLG INDIA P. LTD., MUMBAI v. ADDL. CIT(A)-XXIII, MUMBAI

ITA 2887/MUM/2007 | 2002-2003
Pronouncement Date: 09-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 288719914 RSA 2007
Assessee PAN AAACC1756E
Bench Mumbai
Appeal Number ITA 2887/MUM/2007
Duration Of Justice 3 year(s) 10 month(s) 26 day(s)
Appellant M/s. TLG INDIA P. LTD., MUMBAI
Respondent ADDL. CIT(A)-XXIII, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 09-03-2011
Date Of Final Hearing 06-01-2011
Next Hearing Date 06-01-2011
Assessment Year 2002-2003
Appeal Filed On 13-04-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI R.K. PANDA (AM) AND SMT ASHA VIJAYARAGH AVAN (JM) ITA NOS. 2887 2888 & 2889/MUM/2007 (ASSESSMENT YEARS-2002-03 2003-04 & 2004-05) M/S. TLG INDIA PVT. LTD. BIG APPLE A 36 DR. SHIRODKAR ROAD MUMBAI-400 012 PAN-AAACC 1756E VS. THE ACIT RANGE -5 (2) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI S.M. LALA RESPONDENT BY: SHRI D. SONGATE O R D E R PER ASHA VIJAYARAGHAVAN (JM) THESE THREE APPEALS HAVE BEEN FILED BY THE AASSES SEE AGAINST THE COMMON ORDES PASSED BY THE LD. CIT(A)-XXIII FOR THE A.YRS. 2002-03 2003- 04 AND 2004-05. AS MOST OF THE ISSUES ARE COMMON F OR THE SAKE OF CONVENIENCE THE APPEALS FOR THE THREE YEARS ARE DI SPOSED OF TOGETHER. 2. THE FIRST GROUND COMMON TO ALL THE YEARS IS AGAI NST THE CONFIRMATION BY THE CIT(A) OF THE DISALLOWANCE BY AO OF THE BAD DEBTS WRITTEN OFF AMOUNTING TO RS 58 06 503/- RS 5 52 759/- AND RS 15 96 842/- FOR THE ASST. YEARS 2002-03 2003-04 AND 2004-05 RESPECTIVE LY AND THE ASSESSEE HAD CLAIMED THE SAME AS A DEDUCTION FROM ITS TAXABL E INCOME. 3. IT WAS SUBMITTED THAT THE ENTIRE ACTIVITY CONDUC TED BY THE ASSESSEE FOR VARIOUS CLIENTS WAS EITHER FEE BASED OR COMMISSION BASED. IN THE CASE OF FEE BASED CLIENTS THE ASSESSEE USED TO RECEIVE A FIXED SUM OF FEES FOR A PERIOD. SIMILARLY IN CASE OF COMMISSION BASED CLIENTS VENDO RS LIKE ART WORK SUPPLIERS PHOTOGRAPHERS ETC. USED TO RAISE THEIR BI LLS ON THE APPELLANT WHO IN TURN USED TO BILL THEIR CLIENTS AFTER INCLUDING THE REIN ITS COMMISSION AS PER ITA NOS 2887 2888 & 2889/M/07. 2 THE CONTRACTUAL AGREEMENT. SINCE THE VENDORS HAD D IRECT CONTRACTUAL RELATIONSHIP WITH THE ASSESSEE THE ONUS OF PAYMENT USED TO BE RESTING ON THE ASSESSEE ITSELF AND THEY COULD NOT BE DIRECTED TO T HE CLIENTS FOR RECOVERIES. HENCE THE ASSESSEE USED TO MAKE THE PAYMENT TO THE VENDORS AND IF THE APPELLANT WAS UNABLE TO RECOVER THEIR FEES FROM THE CLIENT IT HAD TO INCUR THE LOSS AND WAS BOUND TO WRITE OFF THE SAME IN ITS BOO KS OF ACCOUNTS IN THE CASE OF IRRECOVERABILITY. IT WAS CONTENDED THAT THE ASSE SSEE HAD WRITTEN OFF SUCH AMOUNTS ONLY AFTER ASSESSING EACH INVOICE CRITICALL Y AND ASCERTAINING THAT THE SAME WAS IRRECOVERABLE. 4. IT WAS FURTHER SUBMITTED THAT THE COMMISSION INC OME HAD BEEN BOOKED AND OFFERED TO TAX AS PER THE METHOD OF ACCO UNTING CONSISTENTLY FOLLOWED BY IT. IN THE CASE OF MEDIA ACTIVITIES THE COMMISSION INCOME HAD BEEN BOOKED AS SOON AS THE ADVERTISEMENTS HAD BEEN RELEASED OR AIRED AND THE RELEASE ORDERS HAD BEEN BOOKED. IN THE CASE OF PRODUCTION ACTIVITIES THE COMMISSION INCOME HAD BEEN BOOKED WHEN THE JOB HAD BEEN COMPLETED OR CLOSED. THUS THE AR SUBMITTED THAT IT HAD ALREADY O FFERED TO TAX THE COMMISSION INCOME IN EITHER THE SAME YEAR OR IN THE PREVIOUS YEARS AND THEREFORE THE WRITE OFF OF THE AMOUNT DUE TO IT FRO M ITS CLIENTS SHOULD HAVE BEEN ALLOWED AS DEDUCTION. THE ASSESSEE FURNISHED THE PARTY WISE BREAK UP. 5. THE AO HAD DISALLOWED THE CLAIM ON THE GROUND TH AT THE APPELLANT HAD CREDITED ITS PROFIT AND LOSS ACCOUNT WITH THE COMMI SSION AMOUNT OF 10% TO 15% AND THEREFORE THE ENTIRE AMOUNT ACCORDING TO HI M HAS NOT BEEN ROUTED THROUGH THE SAME TO MERIT SUCH DEDUCTION ON THE BAS IS OF UNILATERAL WRITE OFF. 6. ON APPEAL BEFORE THE LD. CIT(A) THE AR OF THE AS SESSEE CONTENDED THAT THE HONBLE MUMBAI TRIBUNAL IN THE CASE OF ANIL H. RASTOGI 86 ITD 193 AND ALSO A SPECIAL BENCH OF THE HONBLE MUMBAI TRIBUNAL IN THE CASE OF OMAN INTERNATIONAL BANK 100 ITD 285 HAD HELD THAT FOR A LLOWING THE CLAIM OF BAD DEBTS AN ASSESSEE NEED NOT ESTABLISH AND DEMONSTRAT E THAT THE SAME HAD BECOME BAD. ITA NOS 2887 2888 & 2889/M/07. 3 7. THE LD.CIT(A) DISMISSED THE CLAIM OF THE ASSESSE E OBSERVING AS UNDER: I HAVE VERY CAREFULLY CONSIDERED THE SAME AND FIND THAT THE DISALLOWANCE IN EACH OF THESE 3 YEARS HAD BEEN MADE BY THE AO FOR NOT FINDING THE EVIDENCE THAT THE WRITTEN OFF AMOUNTS H AD ACTUALLY BEEN OFFERED TO TAX IN THE EARLIER YEARS AS HAD BEEN CLA IMED. FURTHER I FIND THAT THE AR WITHOUT PREJUDICE TO THE ABOVE CONTENTI ONS HAS ALSO CLAIMED THAT AT LEAST THE AGENCY COMMISSION FEES ALONG WITH THE SERVICE TAX THEREON SHOULD BE ALLOWED AS A DEDUCTION THE AMOUN TS UNDER THE SAID HEAD FOR THE 3 YEARS UNDER APPEAL HAVE BEEN CLAIMED AS UNDER (THE RELEVANT PORTION HAS BEEN HIGHLIGHTED IN THE TABLE) . PARTICULARS A MOUNT IN RUPEES AY 2002-03 AY 2003-04 AY 2004-05 AGENCY COMMISSION/FEE 4 578 875 225 924 476 661 SERVICE TAX THEREON 158 333 9 413 ----- AMOUNTS PAID TO THIRD PARTIES NOT RECOVERED FROM CLIENTS 1 069 297 417 420 1 120 181 TOTAL 5 806 505 652 759 1 596 842 HOWEVER I FIND THAT THE AR HAS MERELY ACADEMICALLY ARGUED THE POINT WITHOUT BRINGING ANY MATERIAL EVIDENCE TO COUNTER T HE ALLEGATION MADE BY THE AO. I AM OF THE VIEW THAT DESPITE THE JUDI CIAL DECISIONS FOR NO REQUIREMENT OF THE DEMONSTRATION TO SHOW THE BADNES S OF THE DEBTS EVEN IN THE POST AMENDMENT SCENARIO THE ASSESSEE IS STILL REQUIRED TO PROVE AT LEAST THE FOLLOWING TWO POINTS. A. THAT THE AMOUNTS INVOLVED HAD ACTUALLY BEEN OFFER ED FOR TAXATION ON THE REVENUE ACCOUNT. B. THAT THE SAID AMOUNTS HAD ACTUALLY BEEN WRITTEN OFF IN THE BOOKS. IN A RECENT DECISION THE HONBLE MADRAS HIGH COURT IN THE CASE OF SOUTH INDIA SURGICAL CO.LTD 287 ITR 62 AFTER SPECIFICALLY CONSIDERING THE AMENDED PROVISIONS OF SEC 36(1)(III) HELD THAT IT W AS NOT OPEN TO THE TAX PAYER TO WRITE OFF GOOD DEBTS MERELY TO POSTPONE LI ABILITY. I FIND IN THE PRESENT APPEAL THAT FOR ALL THE THREE YEARS UNDER C ONSIDERATION THE APPELLANT HAS MERELY ACADEMICALLY ARGUED ITS CLAIM OF WRITE OFF. THEREFORE I DISMISS THIS GROUND FOR ALL THE THREE Y EARS. 8. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFOR E US. 9. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI S.M. LALA SUBMITTED AS FOLLOWS: ITA NOS 2887 2888 & 2889/M/07. 4 THE ASSESSEE IS IN THE BUSINESS OF PRODUCTION AND R ELEASE OF ADVERTISEMENT AND PROVIDING RELATED SERVICES WHICH INTER ALIA INCLUDE RELEASE OF ADVERTISEMENTS THROUGH VARIOUS MEANS OF MEDIA CREATING ADVERTISEMENTS FOR CLIENTS ENGAGING ARTISTS MODEL S PHOTOGRAPHS AND PROCESS HOUSES ETC.. THE ASSESSEE ON THE BASIS OF O RDERS PLACED BY THE CLIENTS GOT WORK CARRIED OUT BY THE VENDORS LIKE A RT WORK SUPPLIERS PHOTOGRAPHERS ETC. THESE VENDORS USED TO RAISE THE BILLS ON THE ASSESSEE. THE ASSESSEE RAISED INVOICES ON THEIR CL IENTS INCLUDING THESE COSTS PAYABLE TO THE VENDORS PLUS THE COMMISSION DU E TO THEM. AS THE ASSESSEE HAD CONTRACTED FOR THE SERVICES OF THE VEN DORS THEY HAD TO PAY TO THE VENDORS IRRESPECTIVE OF WHETHER THEIR CL IENTS PAID THEM OR NOT. THE ASSESSEE HAD WRITTEN OFF THE AGENCY COMMISSION / FEE NOT RECOVERED AS WELL AS AMOUNTS PAID TO THIRD PARTIES WHICH COULD NOT BE RECOVERED FROM THE CLIENTS. THE CLAIM OF THE ASSESS EE HAD BEEN DISALLOWED BY THE CIT(A) ON THE GROUND THAT IT HAS NOT BEEN SHOWN THAT THE AMOUNTS HAS BEEN ACTUALLY OFFERED FOR TAXATION EARLIER AND THE AMOUNT HAS BEEN ACTUALLY WRITTEN OFF. 10. HE FURTHER SUBMITTED AS FOLLOWS: IN THE EXTRACTS FROM THE BALANCE SHEETS/ FINANCIAL STATEMENTS FOR THE THREE YEARS FURNISHED BY THE ASSESSEE IT IS SEEN TH AT FOR THE A.Y 2002- 03 AND 2003-04 THE ASSESSEE HAS DEBITED RS.58 06 5 03/- AND RS. 6 52 759/- AS BAD DEBTS AS PART OF THEIR OPERATING EXPENSES. FOR THE A.Y 2004-05 A SUM OF RS. 1 596 842 HAS BEEN SHOWN A S BAD DEBTS AS PART OF THEIR OPERATING EXPENSES BUT THE SAME HAS B EEN SET OFF AGAINST THE PROVISION FOR BAD DEBT MADE IN THE EARLIER YEAR . THUS NO AMOUNT WAS DEBITED TO THE P&L AS BAD DEBTS UNDER THE HEAD OPERATING EXPENSES. 10.1 THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTE D AS FOLLOWS: THE NATURE OF THE BUSINESS OF THE ASSESSEE IS SUCH THAT THEY HAVE TO INCUR EXPENDITURE ON VENDORS IN THE COURSE OF CARRYING OUT WORK FOR THEIR CLIENTS. NORMALLY SUCH EXPENDITURE INCURR ED IN CARRYING OUT WORK THROUGH THE VENDORS MAY BE CLAIMED AS THE EXPE NDITURE OF THE ASSESSEE IN THE YEAR IN WHICH THE LIABILITY AROSE. THEREAFTER WHEN THE ASSESSEE RAISES THE INVOICE ON THE CLIENTS WHICH I NCLUDES THESE EXPENSES PLUS THEIR AGENCY COMMISSION THE ENTIRE I NVOICE AMOUNT IS OFFERED AS INCOME. IT MAY ALSO BE MENTIONED THAT TH E EXPENDITURE INCURRED ON PAYMENT TO THE VENDORS WHEN INCURRED ARE NOT DEBITED TO THE P&L AS EXPENDITURE BUT TAKEN TO THE BALANCE SHE ET AND SHOWN AS RECEIVABLE. WHEN THE ASSESSEE RAISES THE INVOICE ON THE CLIENTS ONLY THE AGENCY COMMISSION IS CREDITED TO THE P&L ACCOUNT AN D THE EXPENSES ON VENDORS WOULD BE SHOWN AS RECEIVABLE FROM THE CLIEN T. IN EITHER CASE THE AMOUNT WHICH HAS BECOME IRRECOVERABLE FROM THE CLIENT AND WRITTEN OFF BY THE ASSESSEE IS AN ALLOWABLE DEDUCTION. ITA NOS 2887 2888 & 2889/M/07. 5 11. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON T HE ORDER OF THE AO. 12. WE HEARD BOTH THE PARTIES. WE FIND THAT IN THE CASE OF SHREYAS S. MORAKHIA (131 TTJ 641) THE SPECIAL BENCH OF THE MUMBAI ITAT HAS HELD THAT IN THE CASE OF A SHAREBROKER WHO HAS PURCHASED SHARES ON BEHALF OF THE CLIENT THE ENTIRE AMOUNT WHICH HAS BECOME IRRECOVE RABLE FROM THE CLIENT IS ALLOWABLE AS A BAD DEBT U/S 36(1)(VII) EVENTHOUGH THE ASSESSEE WOULD HAVE OFFERED ONLY THE PORTION OF THE AMOUNT BEING COMMIS SION AS INCOME. THUS EVENTHOUGH THE ASSESSEE OFFERS ONLY THE COMMISSION PORTION AS INCOME THE ENTIRE AMOUNT RECOVERABLE FROM THE CLIENT INCLUDIN G THE EXPENSES INCURRED ON PAYMENT TO VENDORS IS ALLOWABLE AS A BAD DEBT W HEN WRITTEN OFF AS BAD DEBT. FURTHER IN THE FOLLOWING CASES CITED BY THE A SSESSEE I. F.M. CHINOY & CO. (P) LTD 74 ITR 780(BOM) II. MYSORE SUGAR CO. LTD 46 ITR 649(SC) III. INVESTA INDUSTRIAL CORPORATION LTD 119 ITR 380(BOM) IV. INDEN BISLERS 181 ITR 69(MAD). IT HAS BEEN HELD THAT ADVANCES MADE IN THE COURSE OF BUSINESS WHICH HAVE BECOME IRRECOVERABLE IS ALLOWABLE AS A BUSINE SS LOSS. 13. THEREFORE THE CLAIM OF THE ASSESSEE IN RESPECT OF AMOUNTS WRITTEN OFF IS ALLOWABLE (A) IN SO FAR AS COMMISSION IS CONCERNED IF THE SAME HAS BEEN OFFERED AS INCOME EARLIER AND (B) IN SO FAR AS OTHE R EXPENSES ARE CONCERNED WHEN THE SAME HAS BEEN WRITTEN OFF AS IRRECOVERABLE . BUT WE FIND THAT PARTICULARS ARE LACKING. THE ASSESSEE HAS MERELY ST ATED THAT COMMISSION HAS BEEN OFFERED FOR TAX. THIS FACT HAS TO BE VERIFIED. THE ASSESSEE HAS ALSO CLAIMED AMOUNTS PAID TO VENDORS BUT COULD NOT BE CL AIMED FROM CLIENTS. THIS FACT HAS TO BE VERIFIED BEFORE ALLOWING. FOR THE A. Y 2004-05 WE FIND THAT THE BAD DEBT OF RS. 15 96 842/- HAS BEEN SET OFF AGAIN ST PROVISION MADE FOR THE EARLIER YEARS AND NO AMOUNT HAS BEEN DEBITED TO THE P&L. IT IS NOT CLEAR WHETHER THE ASSESSEE HAS CLAIMED ANY AMOUNT SEPARAT ELY IN THE MEMO. IT IS ALSO TO BE VERIFIED WHETHER THE PROVISION MADE IN T HE EARLIER YEAR HAS NOT BEEN ALLOWED AS A DEDUCTION IN THAT YEAR IN WHICH C ASE THE ALLOWABILITY OF THE BAD DEBTS DEBITED TO THE OPERATING EXPENSES WILL HA VE TO BE CONSIDERED. THUS IN PRINCIPLE THE CLAIM OF THE ASSESSEE FOR DEDUCTIO N OF IRRECOVERABLE AGENCY ITA NOS 2887 2888 & 2889/M/07. 6 COMMISSION WHICH HAS BEEN OFFERED FOR TAX IN THE EA RLIER YEARS AND THE EXPENSES INCURRED FOR PAYMENT TO VENDORS WHICH HAS BECOME IRRECOVERABLE WOULD BE ALLOWABLE SUBJECT TO VERIFICATION OF THE F ACTS BY THE AO AND THEREFORE WE SET ASIDE THE ISSUE TO THE FILE OF THE AO.. 14. IN THE RESULT THE ASSESSEES CLAIM FOR BAD DEBT S FOR 2002-03 2003-04 AND 2004-05 ARE ALLOWED FOR STATISTICAL PURPOSES. 15. GROUND NO.2 AND 3 IS APPLICABLE ONLY FOR THE A .Y 2002-03 RELATES TO THE ADVANCES WRITTEN OFF TO THE TUNE OF RS 51 93 1 86/-. IT CONSISTS OF ADVANCES WRITTEN OFF OF RS. 48 40 509/- AND TDS REC EIVABLE WRITTEN OFF AMOUNTING TO RS. 3 52 677/- THE ASSESSEE DEBITED A SUM OF RS. 51 93 186/- TO THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT FIN ANCIAL YEAR UNDER SCHEDULE 15 OPERATING EXPENSES AND FURTHER HAD DISCLOSED THE SAME AS EXPENDITURE OF A CAPITAL NATURE IN NOTE NO 4 IN CLAUSE 17(A) TO TH E TAX AUDIT REPORT. HOWEVER AND AS SUBMITTED BEFORE AO THE SAME AMOUNT OF RS 51 93 186/- THOUGH DISCLOSED AS EXPENDITURE OF A CAPITAL NATURE BY THE TAX AUDITORS HAD ALSO BEEN ALREADY CREDITED TO THE PROFIT AND LOSS A /C UNDER THE HEAD EXCESS PROVISION WRITTEN BACK UNDER SCHEDULE 18 OTHER INC OME. THUS IT WAS ARGUED THAT THERE HAD BEEN NO IMPACT ON THE PROFIT IN THE PROFIT AND LOSS ACCOUNT OF THE YEAR UNDER CONSIDERATION. THE AR SUB MITTED THE FOLLOWING ENTRIES ALLEGEDLY TO HAVE BEEN MADE IN THE BOOKS TO EXPLAIN THE SAID CONTENTIONS. ADVANCES TO CREDITORS RS 4 8 40 509 TDS RECEIVABLES WRITTEN OFF RS 3 52 677 _______________ TOTAL RS.51 93 186 __________________ 16. THE AR FURTHER SUBMITTED THAT PERTAINING TO THE ADVANCES OF RS 48 40 509/- IN THE EARLIER YEARS THE COMPANY HAD MA DE PROVISION FOR DEBIT BALANCES OF DOUBTFUL RECOVERY. THESE BALANCES HAD BECOME IRRECOVERABLE AS THERE WERE NO MOVEMENT TRANSACTIONS WITH THESE VEND ORS TILL THE YEAR UNDER ITA NOS 2887 2888 & 2889/M/07. 7 CONSIDERATION. THE ENTRIES PASSED IN THE EARLIER Y EARS WERE CLAIMED AS UNDER: PROVISION FOR ADVANCES TO CREDITORS (P&L) DEBIT 4 840 590 X1 RESERVE FOR CREDITORS/ADVANCES (B/S) CREDIT 4 840 590 X1 17. IT WAS CLAIMED THAT SINCE THE AMOUNT OF RS 48 4 0 509/- HAD BEEN DISALLOWED AT THE TIME OF MAKING THE PROVISION IT H AD BEEN OFFERED TO TAX. THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE A ND ADDED RS. 51 93 186/- ON THE GROUND THAT THE SAID EXPENDITURE DEBITED TO P&L HAS BEEN STATED AS CAPITAL EXPENDITURE BY THE AUDITORS IN THEIR AUDIT REPORT U/S 44AB. 18. AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE T HE LD. CIT(A) AND REITERATED THE ARGUMENTS. THE LD. CIT(A) DISMISSED THE ASSESSEES CLAIM BY OBSERVING AS UNDER: HOWEVER AFTER CAREFUL CONSIDERATION OF THE ABOVE A GREEMENT I AM OF THE VIEW THAT THE ARS CONTENTION IS NOT ACCEPTABLE BEC AUSE A) IT IS NOT UNDERSTOOD AS TO WHEN MAKING PROVISIO N WHY ONLY THE AMOUNT OF RS 48 40 590/- HAD BEEN TAKEN WITHOUT CON SIDERING THE TDS RECEIVABLE OF RS 352 677/- B) WHEN ADVANCES WERE CONSIDERED AS BAD AND ULTIMAT ELY HAD TO BE WRITTEN OFF THEN WHY PROVISIONS WERE NECESSARY TO B E MADE MINUS THE TDS RECEIVABLE. THE ARS ALTERNATIVE GROUND THAT FOLLOWING THE SAID DISALLOWANCE THE AMOUNT DISALLOWED IN THIS YEAR WOULD AMOUNT TO TAXI NG IT TWICE IS INFRUCTUOUS. FIRST OF ALL IT HAS NOT ESTABLISHED T HAT IT IS THE VERY SAME AMOUNT THAT HAD BEEN DISALLOWED IN AN EARLIER YEAR. THIS BECOMES MORE INEXPLICABLE WHEN THE AMOUNT OF PROVISION MADE IN T HE SAID YEAR HAD BEEN SO CLAIMED NET OF THE TDS RECEIVABLE. IT WAS ARGUED THAT AFTER THE CLOSURE OF THE CALCUTTA BRANCH DURING THE YEAR UNDE R CONSIDERATION IN JANUARY 2002 CERTAIN TDS RECEIVABLES AMOUNTING TO RS 352 677/- WERE WRITTEN OFF AS IRRECOVERABLE AS THE COMPANY NO LONGER HAD THE REQUIRED LOCAL STAFF IN CALCUTTA OR ANY OTHER MECHA NISM SO AS TO BE ABLE TO RIGOROUSLY FOLLOW UP WITH THE CLIENTS FOR RECOVE RY OF THE SAID TDS CERTIFICATE HOWEVER IT WAS ALSO CLAIMED THAT THE SA ME HAD ALREADY BEEN OFFERED TO TAX IN EARLIER YEARS WITHOUT CATEGORICAL LY MENTIONING THE YEAR OR THE TEARS. AGAIN CONTENDING THAT THE ENTIRE AMO UNTS HAD REPRESENTED DEBIT BALANCES IN THE CREDITORS ACCOUNT WHICH HAD B ECOME IRRECOVERABLE ITA NOS 2887 2888 & 2889/M/07. 8 IT WAS ARGUED THAT IT SHOULD HAVE BEEN ALLOWED IN A NY CASE AS BUSINESS LOSS TO THE COMPANY SAYING SO THE AR RELIED ON THE FOLLOWING DECISIONS. I. F.M. CHINOY & CO. (P) LTD 74 ITR 780(BOM) II. MYSORE SUGAR CO. LTD 46 ITR 649(SC) III. INVESTA INDUSTRIAL CORPORATION LTD 119 ITR 380(BOM ) IV. INDIAN BISLERS 181 ITR 69(MAD) CAREFULLY CONSIDERING THE ABOVE CONTENTIONS I AM OF THE VIEW THAT THE APPELLANT COMPANY HAD NOT ESTABLISHED THE FACTS BEF ORE THE AO AND EVEN BEFORE ME IT HAS MERELY ARGUED ACADEMICALLY IN PRIN CIPLE NO AMOUNT SHOULD BE TAXED TWICE BUT THE SAME HAS NOT BEEN ESTABLISHE D HERE. THEREFORE I DISMISS THIS GROUND. 19. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFO RE US. THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT THE ASSESSEE HAS OFFER ED THE SUM OF RS. 51 93 186/- BEING ADVANCES TO CREDITORS AND DOUBTFU L DEBTS WRITTEN BACK AS PART OF THEIR OTHER INCOME AGGREGATING TO RS. 2 39 45 408/-. THE ASSESSEE HAS WRITTEN OFF AN IDENTICAL AMOUNT OF RS. 51 93 18 6/- AS ADVANCE WRITTEN OFF UNDER OPERATING EXPENSES AGGREGATING TO RS. 24 89 21 369/-. THE AO HAS TO MERELY VERIFY WHETHER THE AMOUNTS WRITTEN BA CK OF RS. 51 93 186/- WAS NOT ALLOWED IN THE EARLIER YEAR. IF IT HAD NOT BEEN ALLOWED IN THE EARLIER YEAR/S THE AMOUNT WRITTEN BACK THIS YEAR SHOULD BE EXCLUDED FROM THE TAXABLE INCOME. THEREFORE THE INCOME OF THIS AMOUNT WILL OFFSET THE EXPENDITURE OF SIMILAR AMOUNT OF RS. 51 93 186/- CL AIMED UNDER OPERATING EXPENSES. THE NET EFFECT WILL BE THAT THERE WILL BE NO CHANGE IN THE TAXABLE INCOME. IT DOES NOT MATTER WHETHER THE PROVISION IS NET OF TDS AND TDS RECEIVABLE IS SEPARATELY WRITTEN OFF. 20. WE FIND THAT THE TWO AMOUNTS ARITHMETICALLY CAN CEL OUT EACH OTHER AND HAS NO EFFECT ON THE FINAL TAXABLE INCOME. THER EFORE NO ADDITION IS REQUIRED IN RESPECT OF THE AMOUNT OF ADVANCE WRITTE N OFF AS IT IS CANCELLED OUT BY AN EQUAL AMOUNT INCLUDED IN THE INCOME WHICH IS NOT TAXABLE. WE SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR VERIFICAT ION AS TO WHETHER THE PROVISION WRITTEN BACK TO THE EXTENT OF RS. 51 93 1 86/- HAS NOT BEEN ALLOWED IN THE EARLIER YEARS AND IF IT HAS NOT BEEN ALLOWED IN EARLIER YEARS THE AO ITA NOS 2887 2888 & 2889/M/07. 9 SHALL ALLOW THE CLAIM OF THE ASSESSEE AGAINST THE A DDITION OF RS. 51 93 186/- IN RESPECT OF ADVANCES WRITTEN OFF FOR A.Y 2002-03 . 21. THE NEXT COMMON GROUND FOR ALL THE THREE YEARS IS THE ADDITION RELATING TO CONFIRMATION BY THE LD. CIT(A) OF THE A DDITION OF INCOME FROM MEDIA ACTIVITIES OF RS 1 29 226/- RS. 7 14 081/- A ND RS. 4 82 057 FOR THE A.YRS 2002-03 2003-04 AND 2004-05 RESPECTIVELY AS ALSO ADDITION TO INCOME FROM PRODUCTION ACTIVITIES OF RS. 15 75 715/- AND 4 38 995/- FOR A.YRS 2002- 03 AND 2003-04. THERE IS NO ADDITION TO INCOME ON A CCOUNT OF PRODUCTION ACTIVITIES FOR THE AY 2004-05. THE LD.CIT(A) DISMI SSED THE ASSESSEES CLAIM FOR DELETION OF THE ADDITION TO INCOME IN RESPECT O F THE MEDIA ACTIVITIES BY AO BY OBSERVING AS UNDER: THE NEXT COMMON GROUND IS WITH REGARD TO THE A DDITIONS RELATING TO INCOME FROM MEDIA ACTIVITIES. IN THE APPEAL FOR AY 2002-03 RS 129 226/- FOR AY 2003-04 A SUM OF RS 714 081/- AND FOR AY 200 4-05 A SUM OF RS 482 057/- HAVE BEEN CLAIMED FOR DELETION IN THE RES PECTIVE GROUND NO 4 3&2 I FIND THAT BEFORE THE AO THE APPELLANT HAD P LACED THE SAME ARGUMENT THAT THE AR HAS PLACED BEFORE ME. THE ARG UMENTS ARE UNSPECIFIC AND BROADLY ABOUT THE METHOD OF ACCOUNTING OF INCOM E ARISING OUT OF MEDIA ACTIVITIES. IT SEEMS THAT BEFORE THE AO THE APPELLA NT HAD TAKEN A STAND THAT MERE RELEASE OR AIRING OF THE ADVERTISEMENTS WERE N OT SUFFICIENT FOR THE RECOGNITION OF MEDIA INCOME THE APPELLANT HAD CLAIM ED THAT IT HAD FOLLOWED THE ACCOUNTING STANDARD 9 TO RECOGNIZE THE INCOME. BESIDES IT HAD CONTENDED BEFORE THE AO AND AGAIN HAS ARGUED BEFORE ME THAT THE LOSS ARISING IN THOSE YEARS HAD BEEN INFLUENCED BY VARIO US UNCERTAINTIES WHICH INTER ALIA HAD INCLUDED. A ENSURING THE TIMING OR PLACEMENT OF THE ADVERTISE MENT A. ENSURING THE QUALITY OF ADVERTISEMENT B. SETTLEMENT OF RATES WITH THE VENDORS C. MAKING OF GOOD ADS AS COMPENSATION FOR ERRORS COMMI TTED EARLIER D. RECEIPT OF PROOF OF ADVERTISEMENT HAVING BEEN AIRED THUS IT WAS ARGUED THAT THOUGH THE ADVERTISEMENT S HAD BEEN RELEASED THE ROS HAD NOT BEEN BOOKED IN THAT YEAR DUE TO VAR IOUS UNCERTAINTIES OR ISSUES AND SINCE THE SAME HAD NOT BEEN RESOLVED IN THE RELEVANT FINANCIAL YEAR AND HAD ONLY BEEN RESOLVED THEREAFTER THE ROS HAD BEEN BOOKED WHEN THERE HAD BEEN REASONABLE ASSURANCE AS REGARDS THE COLLECTABILITY OF THE REVENUES AND HAD BEEN OFFERED FOR TAXATION IN T HE RELEVANT YEARS. IT IS THEREFORE EVIDENT THAT THE APPELLANT HAD DEFERRED THE RECOGNITION OF REVENUE AS PER ITS OWN SWEET WILL DESPITE HAVING RE CEIVED THE MONEY. THE ITA NOS 2887 2888 & 2889/M/07. 10 PLEAS TAKEN TO DEFER HAD NOT BEEN EXACTLY EXPLAINED TO THE AO NOR HAVE THEY BEEN BROUGHT TO MY NOTICE WITH ANY CATEGORICAL EXAMPLE. IT SEEMS WITH SOME INEXPLICABLE AND INSCRUTABLE LOGIC THE MONEY RECEIVED FROM VARIOUS CLIENTS FOR THE ADVERTISEMENT S HAVE BEEN WITHHELD FROM REVENUE RECOGNITION WITHOUT SUFFICIENT REASON. ON THE OTHER HAND EXPENDITURE INCURRED ON ACCOUNT OF THE SAME HAVE RE SULTED IN LOSSES WHICH THE APPELLANT HAS CLAIMED IN THESE 3 APPEALS BUT AF TER CAREFUL CONSIDERATION OF THE ARGUMENTS I AM OF THE VIEW THA T THE APPELLANT COMPANY HAS MERELY CONTENDED THEORETICALLY AND IT H AS NOT BEEN CLARIFIED AS TO WHEN THE AMOUNTS RECEIVED HAD ULTIMATELY BEEN RECOGNIZED AS REVENUE AS PER ITS OWN RELIED UPON ACCOUNTING STAND ARD. THE ISSUES THAT REMAINS AT THE END OF THE DAY IS THAT THE CLAIMS CA NNOT BE ACCEPTED AS RESOLVED ON AN ACADEMIC LEVEL. THE FACTUAL POINT OF RECOGNITION OF INCOME HAD BEEN AVOIDED TO BE PRODUCED BEFORE THE AO TO BE SCRUTINIZED BY HIM. I AM OF THE VIEW THAT THE APPELLANT HAS NOT ESTABLISH ED ITS CLAIM FACTUALLY. THEREFORE I DISMISS THE GROUND TAKEN IN THIS REGARD IN ALL THESE 3 APPEALS. 22. AS REGARDS THE CLAIM OF THE ASSESSEE AGAINST DE LETION OF ADDITION TO INCOME ON ACCOUNT OF PRODUCTION ACTIVITIES THE LD. CIT(A) DELETED THE ADDITION OBSERVING AS UNDER: GROUND NO.5 FOR A.Y 2002-03 HAS BEEN TAKEN AGAINST ADDITIONS RELATING TO INCOME FROM PRODUCTION ACTIVITIES. THE AMOUNT INVOLVED IS RS 15 75 715/- AND THE CONTENTIONS ISSUE IS THE RECOGN ITION OF REVENUE ON THE VERY SAME ISSUE GROUND NO 3 HAS BEEN TAKEN FOR AY 2003-04 FOR RS 438 995/- WHEREAS THE APPELLANT HAD CLAIMED TO HAVE DONE IT ON THE BASIS OF COMPLETION AND CLOSURE OF THE RESPECTIVE J OB THE AO HAD BEEN OF THE VIEW THAT THE SAME SHOULD HAVE BEEN RECOGNISED ON THE BASIS OF THE INVOICE AS PER THE REGULAR MERCANTILE METHOD O F ACCOUNTING. I FIND THAT THE APPELLANT HAD NOT ELABORATED UPON ITS CONS ISTENTLY FOLLOWED METHOD AND HAD NOT SHOWN AS TO HOW THE JOBS RELATIN G TO THE IMPUGNED AMOUNT HAD BEEN DEFERRED TO THE SUBSEQUENT YEARS. I AM OF THE VIEW THAT THE ISSUE SHOULD HAVE BEEN ADDRESSED TO FROM T HE POINT OF VIEW OF ACTUAL RECONCILIATION. THE SAME HAS ALSO BEEN MERE LY PRESENTED BEFORE ME IN AN ACADEMIC MANNER WITHOUT ACTUAL RECONCILIAT ION. THAT WAY I AM OF THE VIEW THAT THE APPELLANT HAD ADVANCED THE FACTS FROM THE SCRUTINY OF THE AO. I DISMISS THE GROUND BEING SHO RT ON MERITS. 23. THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE I BENCH OF THE MUMBAI TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y 2000-01 AND 2001-02 IN ITA NOS. 5120 5121 5275 8593 859 4 AND 8620/MUM/2004 DATED 15.12.2009. IN PARAS 6-8 THE TR IBUNAL OBSERVED AS UNDER: ITA NOS 2887 2888 & 2889/M/07. 11 GROUND NOS 2 TO 6 PERTAINS TO COMMON ISSUE INVOLVE D ABOUT THE EXACT YEAR IN WHICH THE INCOME EARNED BY THE ASSESS EE COMPANY FROM THE MEDIA AND PRODUCTION ACTIVITIES IS CHARGEA BLE TO TAX. ACCORDING TO THE ASSESSEE THE MEDIA INCOME AND INC OME FROM PRODUCTION ACTIVITIES WAS DECLARED BY IT IN THE REL EVANT YEARS ON THE BASIS OF INCOME RECOGNITION METHOD CONSISTENTLY FOLLOWED BY IT OVER THE YEARS. THE ASSESSEE WAS ACCOUNTING THE IN COME NOT AT THE TIME OF RELAY OF TELE-FILM NOR AT THE TIME OF R ELEASE OF ADVERTISEMENT IN THE PRINT MEDIA BUT WHEN THE SAME WAS ACCEPTED BY OTHER PARTY AFTER VERIFYING THE RELEASE ORDER IN THE RESPECTIVE MEDIA. IT WAS EXPLAINED THAT SOMETIMES THE ADVERTISEMENTS WERE NOT ACCEPTED DUE TO OVER LAPPIN G OF TIME OR QUALITY ETC AND ACCORDINGLY THE ASSESSEE ACCOUNTS THE INCOME ONLY AFTER THE SAME IS ACCEPTED BY OTHER PARTY BY W AY OF RELEASE ORDER. THIS METHOD WAS CONSISTENTLY FOLLOWING AND INCOMES WERE OFFERED IN THE LATER YEAR. THE STAND OF THE AUTHOR ITIES HOWEVER WAS THAT AS THE SAID INCOME TO THE EXTENT OF AMOUNT S IN QUESTION HAD ACCRUED TO THE ASSESSEE COMPANY IN THE YEAR EAR LIER TO THE YEAR IN WHICH THE SAME WAS DECLARED BY THE ASSESSEE COMPANY. CONSEQUENTLY THE FOLLOWING AMOUNTS WERE ADDED BY TH E AO IN THE ASSESSMENT ORDER: I) ADDITION ON MEDIA INCOME RS. 47 49 826/- II) ADDITION BEING DIFFERENCE IN RE- CONCILIATION OF INCOME ON MEDIA WIPRS. 17 79 972/- III) ADDITION OF INCOME FROM PRODUCTION ACTIVITIES RS. 15 69 026/- IV) ADDITION MADE BEING SPECIAL ADDITIONAL FEES FOR M/S. KELLOGGS (I) LTD. RS. 22 76 336/- V) ADDITION OF PRODUCTION INCOME NOT OFFERED TO TAXATION A.Y. 2000-01 RS. 9 50 834/- WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RECORD OF THE CASE. WE FIND THAT SIMILAR ADDITIONS ARE CONSIDERED ON TH E SAME PRINCIPLES IN THE CASE OF ASSESSEES SISTER CONCERN M/S. ORCHARD ADVERTISING PVT. LTD. IN ITA NO. 5119/M/04 AND OTHERS AND THE TRIBUNAL VI DE ORDER DT. 16.6.2009 IN PARA 7 HELD AS UNDER: AT THE TIME OF HEARING BEFORE US THE LD. COUNSEL FOR THE ASSESSEE HAS FILED A COMPARATIVE CHART SHOWING THAT THE BASIS RATE OF INCOME TAX FOR ALL THE RELEVANT YEARS WAS 35% WHICH MAKES IT ABUNDANTLY CLEAR THAT BY OFFERING THE AMOUNT OF INC OME IN QUESTION IN SUBSEQUENT YEAR THERE WAS NO BENEFIT ACCRUED TO TH E ASSESSEE NOR THERE WAS ANY LOSS CAUSED TO THE REVENUE. MOREOVER THE MEDIA INCOME AND INCOME FROM PRODUCTION ACTIVITIES WAS OFFERED T O TAX BY THE ASSESSEE IN THE RELEVANT YEARS ON THE BASIS OF METH OD OF ACCOUNTING REGULARLY AND CONSISTENTLY FOLLOWED BY IT. KEEPING IN VIEW ALL THESE ITA NOS 2887 2888 & 2889/M/07. 12 FACTS INCLUDING ESPECIALLY THE FACT THAT THE BASIC RATE OF INCOME TAX FOR ALL THE RELEVANT YEARS WAS THE SAME AT 35% WE ARE OF THE VIEW THAT THERE WAS NO JUSTIFIABLE REASON FOR THE AUTHORITIES BELOW TO BRING TO TAX THE AMOUNT IN QUESTION IN EARLIER YEARS WHEN THE SA ME WAS ADMITTEDLY INCLUDED BY THE ASSESSEE COMPANY IN ITS TOTAL INCOM E FOR THE SUBSEQUENT YEARS. IN THESE VIEW OF THE MATTER WE DELETE THE ADDITIONS MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) ON T HIS ISSUE AND ALLOW THE RELEVANT GROUNDS OF THE PRESENT APPEALS O F THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIA NATE BENCH IN ASSESSEES OWN CASE FOR THE EARLIER YEARS THE CLAI M FOR DELETION OF ADDITION TO INCOME ON ACCOUNT OF THE MEDIA ACTIVITIES FOR A.Y 2 002-03 2003-04 AND 2004-05 AND THE CLAIM OF THE ASSESSEE FOR DELETION OF THE ADDITION TO INCOME IN RESPECT OF PRODUCTION ACTIVITIES FOR THE A.Y 200 2-03 AND 2003-04 ARE ALLOWED. 24. THE NEXT GROUND RAISED BY THE ASSESSEE FOR THE A.Y 2002-03 IS AGAINST THE CONFIRMATION BY THE LD. CIT(A) OF THE DISALLOWA NCE OF FEES PAID FOR TECHNICAL SERVICES AND CO ORDINATION FEES OF RS 22 26 000/- PAID TO M/S. LEO BURNETT WORLDWIDE INC. 25. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE BY OB SERVING AS UNDER: THE FACT IN THAT THERE HAD BEEN AN AGREEMENT BETWE EN THE SAID CONCERN AND THE APPELLANT COMPANY WHICH HAD TO COME INTO EFFECT FROM THE BEGINNING OF AY 2003-04. BUT THE APPELLANT HAD WITHOUT MENTIONING ANY REASON DEBITED AN AMOUNT OF RS 22.26 LAKH FOR A Y 2002-03. THE AMOUNT COULD HAVE AT BEST BEEN AN ADVANCE BUT THEN IT WOULD NOT HAVE COME INTO THE P AND LOSS A/C TO REDUCE THE INCOME O F THE YEAR. I AM OF THE VIEW THAT THE DEBITING WAS NOT MAINTAINABLE ON THE REVENUE ACCOUNT IN A PERIOD WHICH WAS PRIOR TO THE DATE OF THE AGRE EMENT COMING INTO EFFECT. I UPHOLD THE ADDITION MADE DURING THE YEAR. THE GROUND IS DISMISSED. 26. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. THE ASSESSEE POINTED OUT THAT SIMILAR PAYMENTS HAD BEEN ALLOWED FOR THE SUBSEQUENT YEARS VIZ. 2003-04 AND 2004-05. IN THE CIRCUMSTANCES IT IS NO T CLEAR AS TO WHY THE FEES PAID HAVE BEEN DISALLOWED FOR THE A.Y 2002-03. IF THE AMOUNT HAS BEEN AN ADVANCE THEN THE SAME IS ALLOWABLE IN THE SUBSE QUENT YEARS. THE LD. CIT(A) COULD HAVE VERIFIED THE SAME AS ALL THE 3 YE ARS WERE BEFORE HIM. WE ITA NOS 2887 2888 & 2889/M/07. 13 REMIT THE ISSUE BACK TO THE FILES OF THE AO TO EXAM INE AS TO WHY THE AMOUNT PAID FOR THIS YEAR IS NOT ALLOWABLE WHEN SIMILAR PA YMENTS HAVE BEEN ALLOWED IN THE SUBSEQUENT YEARS AND VERIFY THE YEAR IN WHIC H THE AMOUNT IS ALLOWABLE. AS A.YRS. 2002-03 2003-04 AND 2004-05 I S BEFORE US WE REMIT THIS ISSUE BACK TO THE FILES OF THE AO TO VERIFY AN D ALLOW THE PAYMENT FOR TECHNICAL SERVICES IF NOT FOR 2002-03 IN THE A.Y 20 03-04 OR 2004-05 IN THE YEAR/S IN WHICH SERVICES WERE RENDERED. THIS GROUND FOR A.Y 2002-03 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 27. THE ASSESSEE HAS NOT PRESSED DISALLOWANCE OF RE CRUITMENT EXPENSES OF RS. 3 81 773/- AND DISALLOWANCE OF DOUBTFUL DEBTS/A DVANCES OF RS. 3 62 702/-. THEREFORE IT IS DISMISSED AS NOT PRESS ED. 28. THE LAST GROUND RAISED BY THE ASSESSEE IN A.Y. 2002-03 REGARDING ERRONEOUS LEVY OF INTEREST U/S. 234B OF RS. 5 51 32 6. THE LEVY OF INTEREST IS CONSEQUENTIAL. 25. IN THE RESULT ALL THE THREE APPEALS OF THE ASSE SSEE FOR THE A.Y 2002-03 2003-04 AND 2004-05 ARE PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 9 TH DAY OF MARCH 2011 SD/- SD/- (R.K. PANDA) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL M EMBER MUMBAI DATED 9 TH MARCH 2011. RJ COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CENTRAL - I CONCERNED 5. THE DR E BENCH TRUE COPY BY ORDER ASST. REGISTRAR I.T.A.T MUMBAI ITA NOS 2887 2888 & 2889/M/07. 14 DATE INITIALS 1 DRAFT DICTATED ON: 2.3.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 3.3..2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: ______ 9 DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER: ______