ITO 2(2)(3), MUMBAI v. MEGA MEDICALS P. LTD, MUMBAI

ITA 5800/MUM/2009 | 2005-2006
Pronouncement Date: 09-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 580019914 RSA 2009
Assessee PAN AABCM8728R
Bench Mumbai
Appeal Number ITA 5800/MUM/2009
Duration Of Justice 1 year(s) 4 month(s) 10 day(s)
Appellant ITO 2(2)(3), MUMBAI
Respondent MEGA MEDICALS P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-03-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted F
Tribunal Order Date 09-03-2011
Date Of Final Hearing 19-10-2010
Next Hearing Date 19-10-2010
Assessment Year 2005-2006
Appeal Filed On 30-10-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F MUMBAI BEFORE SHRI D.K. AGARWAL (J.M.) AND SHRI J. SUDHAKA R REDDY (A.M.) ITA NO. 5800/MUM /2009 ASSESSMENT YEAR : 2005-06 INCOME TAX OFFICER 2(2)(3) ROOM NO. 542 5 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI 400 020. VS. M/S MEGA MEDICALS PVT. LTD. 101/102 VELINKINNI TOWERS A WING MARI NAGAR OFF SENAPATI BAPAT MARG OPP. RLY STATION MAHIM (W) MUMBAI 400 016. PAN : AABCM8728R (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. ASHIMA GUPTA RESPONDENT BY : SHRI K. GOPAL O R D E R PER D.K. AGARWAL J.M. THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 26.8.09 PASSED BY THE LD. CIT (A) FOR THE A.Y 2005-06. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE O F SURGICAL DRESSINGS FILED RETURN DECLARING TOTAL INCOME AT ` 6 19 790/-. HOWEVER THE ASSESSMENT WAS COMPLETED AT AN INCOME OF ` 17 13 470/- INCLUDING THE ADDITION OF CONVERSION CHARGES PAID U/S 40(A)(IA) ` 6 14 930/- ADMINISTRATIVE CHARGES U/S 40(A)(IA) ` 3 60 000 AND BAD DEBTS WRITTEN OFF ` 1 18 753/- VIDE ORDER DATED 24.12.2007 PASSED U/S 143(3) OF THE INCOME TAX ACT 1961 (THE ACT). ON APPEAL THE LD. CIT(A) DELETED THE ADDITIONS MADE BY THE A.O. ITA NO.580 0/MUM/2009 M/S MEGA MEDICAL S PVT. LTD. 2 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 4. GROUND NO. 1 & 2 READ AS UNDER:- (1) THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(APPEALS) ERRED IN HOLDING THAT PROVISIONS O F SECTION 40(A)(IA) WERE NOT APPLICABLE TO PAYMENTS OF ` 12 29 860/- TOWARDS CONVERSION CHARGES AND ` 3 60 000/- TOWARDS ADMINISTRATIVE CHARGES WHICH IS CONTRARY TO THE PROVISIONS OF SAID SECTION WHICH INCLUDES ANY WORK ON WHICH THERE IS A LIABILITY T O DEDUCT TAX AT SOURCE. 5. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IN THE A SSESSMENT ORDER THE A.O. HAS NOTED THAT THE ASSESSEE COMPANY IS A GROUP CONCERN OF ALVES GROUP. M/S GOLDWIN MEDICARE LTD. WAS TAKEN OVER BY ALVES GROUP AS A SICK UNIT. HENCE THE SAME IS ALSO A GROUP CONCERN. THE ASSESSEE COMPANY HAS CLAIMED THAT IT HAD NOT ENTERED INTO AN Y SORT OF FIXED/WRITTEN AGREEMENT WITH THE MAIN MANUFACTURING COMPANY AS THE OWNERSHIP AND DIRECTORS OF BOTH COMPANIES ARE COMMO N AN AGREEMENT WOULD NOT SERVE ANY PURPOSE. THE ASSESSEE COMPANY IS NOT HAVING ANY MANUFACTURING FACILITIES AND TO GET GOODS MANUFACTU RED FROM M/S GOLDWIN MEDICARE LTD. IT IS PAYING THE CONVERSION CHARGES AND ADMINISTRATIVE EXPENSES TO ITS ASSOCIATE CONCERN. THESE FACTS CLEARLY SHOW THAT THE CONVERSION CHARGES AND ADMINISTRATIVE EXPENSES ARE NOTHING BUT CONTRACT CHARGES WHICH ARE COVERED BY THE PROVISIONS OF SECTION 40(A)(IA) AND ARE ALSO COVERED BY THE PROVI SIONS OF SECTION 40A(2) OF THE ACT AS THE PAYMENTS ARE BEING MADE TO AN ASS OCIATE CONCERN OF THE SAME. SINCE THE ASSESSEE NEITHER PAID THE TDS WITH IN DUE DATE BUT ALSO NOT DEDUCTED TDS AT ALL. HENCE HE DISALLOWED THE PA YMENT OF ` 12 29 860/- TOWARDS COST OF CONVERSION AND ` 3 60 000/- TOWARDS ADMINISTRATIVE EXPENSES U/S 40A(IA). ON APPEAL BEFO RE THE LD. CIT(A) IT ITA NO.580 0/MUM/2009 M/S MEGA MEDICAL S PVT. LTD. 3 WAS CONTENDED BY THE ASSESSEE THAT M/S GOLDWIN MEDI CARE LTD. IS THE ORIGINAL COMPANY WHO IS IN THE BUSINESS OF MANUFACT URING SURGICAL DRESSINGS FOR MULTINATIONAL COMPANIES. AS A BUSINES S COMPULSION THE ASSESSEE FORMED TWO NEW COMPANIES TO CARRY OUT THE SAME BUSINESS OF MANUFACTURING SURGICAL DRESSINGS. ALL COMPANIES HAV E THEIR OWN MANUFACTURING STATUS AND CARRY OUT THEIR RESPECTIVE JOB ON THEIR OWN. THE ADMINISTRATIVE AND OTHER EXPENSES OF ALL GROUP COMPANIES ARE INCURRED BY M/S GOLDWIN MEDICARE LTD. ONCE THE ORIG INAL COMPANY INCURS EXPENSES ON BEHALF OF OTHER GROUP COMPANIES THE GROUP COMPANIES REIMBURSE OR SHARES THOSE EXPENSES INCURR ED ON THEIR BEHALF TO M/S GOLDWIN MEDICARE LTD. THE ASSESSEE APPORTION S THE EXPENDITURE ON THE BASIS OF TURNOVER AND ON COST. THE ASSESSEE HAD PAID CERTAIN AMOUNTS TOWARDS ADMINISTRATIVE AND CONVERSION CHARG ES. THE AMOUNT PAID TOWARDS THE ABOVE EXPENSE WERE FOR OFFICE EXPE NSES PRINTING & STATIONERY ELECTRICITY BILLS TELEPHONE BILLS AND SIMILAR OFFICE OVERHEADS WHICH WERE SHOWN TOWARDS ADMINISTRATIVE EXPENSES. A LL THE ABOVE CHARGES WERE REIMBURSED OR SHARED ON THE BASIS OF I TS TURNOVER AND AS PER COST. IN REIMBURSING THIS EXPENDITURE NO PROFI T ELEMENT IS ADDED AND THERE CANNOT BE ANY PROFIT ELEMENT IN REIMBURSING A CTUAL EXPENDITURE. THUS THERE WAS NO NEED TO DEDUCT TDS ON THE ABOVE TYPE OF EXPENSES. SIMILARLY CONVERSION CHARGES WERE PAID AND THE NAT URE OF CONVERSION CHARGES WAS TOWARDS FACTORY SALARY STORES CONSUMA BLES POWER FUEL STAFF WELFARE ETC. THIS EXPENDITURE WAS APPORTIONED ON THE BASIS OF TURNOVER AND THE WORKING AND BASIS WERE EXPLAINED T O THE A.O. AND DETAILS IN THIS REGARD WERE SUBMITTED TO HIM. THE CONVERSION CHARGES WERE ALSO CALCULATED AS PER COST ONLY. IN REIMBURS ING THIS EXPENDITURE NO PROFIT ELEMENT WAS ADDED AS THEY WERE ACTUAL EXP ENDITURE. SIMILARLY IN THIS TYPE OF EXPENDITURE ALSO THERE WAS NO NEED TO DEDUCT TDS. ITA NO.580 0/MUM/2009 M/S MEGA MEDICAL S PVT. LTD. 4 6. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS PA ID CONVERSION CHARGES AND ADMINISTRATIVE EXPENSES WITHOUT ANY FOR MAL AGREEMENT WITH M/S GOLDWIN MEDICARE LTD. HENCE THE PROVISIONS OF SECTION 194C ARE NOT APPLICABLE TO THE FACTS OF THE CASE. THE ASSESS EE HAS REIMBURSED EXPENSES LIKE OFFICE EXPENSES PRINTING AND STATION ERY ELECTRICITY BILLS TELEPHONE BILLS AND SEVERAL OTHER OFFICE OVERHEADS WHICH DO NOT ATTRACT TDS AND ACCORDINGLY HELD THE A.O. WAS NOT JUSTIFIED IN DISALLOWING CONVERSION CHARGES AND ADMINISTRATIVE EXPENSES U/S 40(A)(IA) AND HENCE DELETED THE ADDITION MADE BY THE A.O. 7. AT THE TIME OF HEARING THE LD. D.R. SUBMITS THA T THE FACTS CLEARLY SHOWS THAT THE CONVERSION CHARGES AND ADMINISTRATIV E EXPENSES ARE NOTHING BUT CONTRACT CHARGES WHICH ARE COVERED BY T HE PROVISIONS OF SECTION 40(A)(IA) AND THEREFORE THE ASSESSEE IS L IABLE TO DEDUCT TDS AND SINCE THE ASSESSEE HAS NOT DEDUCTED TDS THE LD. CI T(A) WAS NOT JUSTIFIED IN HOLDING TDS PROVISIONS ARE NOT APPLICABLE AND IN DELETING THE ADDITION MADE BY THE A.O. 8. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSES SEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFOR E THE A.O. AND LD. CIT(A) FURTHER SUBMITS THAT SIMILAR ISSUE CAME UP B EFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-02 IN ITA NO. 4006/MUM/05 ORDER DATED 9.5.2008 WHEREIN THE TRIBUN AL FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL I NVOLVING THE SIMILAR ISSUE ACCEPTED THE CLAIM OF THE ASSESSEE AND DELETE D THE ADDITION MADE BY THE A.O. RELIANCE WAS ALSO PLACED ON THE DECISIO N OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 6231/MUM/05 FOR A.Y. 2002-03 ORDER DATED 18.6.2008 WHEREIN ON THE SIMILAR FACTS AND CI RCUMSTANCES THE TRIBUNAL HAS DELETED THE ADDITION MADE BY THE A.O. HE FURTHER SUBMITS THAT THE ABOVE DECISION OF THE TRIBUNAL HAS BEEN UP HELD BY THE HONBLE ITA NO.580 0/MUM/2009 M/S MEGA MEDICAL S PVT. LTD. 5 HIGH COURT IN THE CASE OF CIT VS. M/S ARAMEX INDIA PVT. LTD. IN INCOME TAX APPEAL NO. 234 OF 2009 DATED 23 RD APRIL 2009. HE ALSO PLACED ON RECORD A COPY OF THE SAID DECISIONS. HE THEREFORE S UBMITS THAT THE ORDER PASSED BY THE LD. CIT(A) BE UPHELD. 9. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS PAID CONVERSION CHARG ES AND ADMINISTRATIVE EXPENSES WITHOUT ANY FORMAL AGREEMEN T WITH M/S GOLDWIN MEDICARE LTD. IT IS ALSO NOT IN DISPUTE THAT THE AS SESSEE HAS REIMBURSED OR SHARED THE AMOUNT OF CONVERSION CHARGES AND ADMI NISTRATIVE EXPENSES ON THE BASIS OF ITS TURNOVER AND AS PER THE COST. IT IS NOT A CASE OF THE REVENUE THAT IN REIMBURSEMENT OF EXPENSES ANY PROF IT ELEMENT IS INVOLVED. IN ASSESSEES OWN CASE IN ITA NO. 4006/M UM/05 FOR A.Y. 2001-02 ORDER DATED 9 TH MAY 2008 THE TRIBUNAL ON THE SIMILAR FACTS AND CIRCUMSTANCES HAS HELD VIDE PARA NO. 9 9.1 & 9.2 A S UNDER:- AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE ASSESSEE DESERVES TO SUCCE ED IN THIS GROUND ALSO. THERE IS NO DISPUTE THAT THE PAYMENTS MADE BY THE A SSESSEE AT ` 44 88 001/- ARE ON ACCOUNT OF REIMBURSEMENT OF EXPE NSES TO THE PRINCIPAL COMPANY ARAMEX INTERNATIONAL LTD. THE DET AILS OF THE PAYMENTS AND VOUCHERS RECEIVED FROM THE PRINCIPAL COMPANY AR E PLACED ON RECORD AND IT IS SEEN THAT WHATEVER THE PRINCIPAL COMPANY HAVE INCURRED ON BEHALF OF THE ASSESSEE THOSE WERE DEBITED TO THE AC COUNTS OF THE ASSESSEE AND BILL WAS RAISED AND ON RECEIVING THE BILLS THE ASSESSEE HAS REIMBURSED THE EXPENSES TO ITS PRINCIPAL COMPANY. THIS IS THEREFORE PURELY ON ACCOUNT OF REIMBURSEMENT OF EXPENSES WHER E NO PROFIT ELEMENT IS INVOLVED. IT IS ALSO SEEN THAT THE SUPPLIES WERE MADE FROM ABROAD TO THE ASSESSEE AND THEREFORE IT IS ALSO NOT CORRECT THAT THESE SUPPLIES ARE MADE WITHIN THE COUNTRY. ON SIMILAR FACTS IN THE CASE OF MODICON NETWORK (P ) LTD. D BENCH OF THE DELHI TRIBUNAL HAVE HELD THAT ON REIMBURSEME NT OF EXPENSES AS HAVING AN INCOME ELEMENT EMBEDDED THEREIN SO AS TO ATTRACT SEC. 195. ACCORDINGLY THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. THE TRIBUNAL HAS OBSERVED IN THAT CASE THAT THE ASSESSE E REIMBURSED TO H.K. COMPANY THE AMOUNTS PAID BY IT TO CONSULTANCY. THE RE WAS NO INCOME ELEMENT IN THE IMBURSEMENT MADE TO THE ASSESSEE TO H.K. COMPANY. ITA NO.580 0/MUM/2009 M/S MEGA MEDICAL S PVT. LTD. 6 THEREFORE THE ASSESSEE WAS REQUIRED TO DEDUCT THE TAX AT SOURCE U/S 195 FROM THE AMOUNT REIMBURSED TO H.K. COMPANY. IN THE PRESENT CASE ALSO THE ASSESSEE REMITTED THE AMOUNT TO ITS PRINCIPAL COMPANY ON ACCOUNT OF REIMBURSEMENT OF EX PENSES. THE PRINCIPAL COMPANY HAS PURCHASED THE MATERIALS OF IT S OWN FOR THE PURPOSE OF THE ASSESSEE AND BILL PAID BY THE PRINCI PAL COMPANY WAS SENT TO THE ASSESSEE COMPANY FOR REIMBURSEMENT OF THE SA ME. ON RECEIVING THE BILL FROM THE PRINCIPAL COMPANY THE ASSESSEE HA D MADE PAYMENT ON ACCOUNT OF REIMBURSEMENT OF EXPENSES. THEREFORE T HERE IS NO QUESTION OF ANY PROFIT ELEMENT IN THESE PAYMENTS. ACCORDINGLY WE HOLD THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT THE TAX AT SOURCE ON THESE PAYMENTS. ACCORDINGLY WE ALLOW THE GROUND OF THE ASSESSEE. THE ABOVE DECISION HAS BEEN FOLLOWED BY THE TRIBUNA L IN ASSESSEES OWN CASE FOR A.Y. 2002-03 IN ITA NO. 6231/MUM/2003 DATE D 18.6.2006 (SUPRA) UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT VIDE JUDGMENT DATED 23 RD APRIL 2009. THIS BEING SO AND IN THE ABSENCE OF A NY DISTINGUISHING FEATURE BROUGHT ON RECORD BY THE REV ENUE WE RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL UPHE LD BY THE HONBLE JURISDICTIONAL HIGH COURT HOLD THAT THE ASSESSEE WA S NOT LIABLE TO DEDUCT TAX AT SOURCE ON THE REIMBURSEMENT OF CONVERSION CH ARGES AND ADMINISTRATIVE CHARGES AND ACCORDINGLY WE ARE INCLI NED TO UPHOLD THE FINDINGS OF THE LD. CIT(A) IN DELETING THE SAME. TH E GROUNDS TAKEN BY THE REVENUE ARE THEREFORE REJECTED. 10. GROUND NO. 3 READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (APPEALS) ERRED IN DELETING THE DISALLOWANCE OF ` 6 14 000/- OUT OF CONVERSION CHARGES AND ` 3 60 000/- OUT OF ADMINISTRATIVE EXPENSES MADE U/S 40A(2) OF THE I.T. ACT BY IGNORING THAT SU CH ALLOCATION WAS NOT MADE ON A FIXED PERCENTAGE ON TURNOVER. 11. BRIEF FACTS OF THE ISSUE ARE THAT THE A.O. HAS OBSERVED THAT THE ASSESSEE HAS PAID ADMINISTRATIVE EXPENSES AND CONVE RSION CHARGES TO ITS GROUP CONCERN IN PROPORTION TO SALES. HOWEVER THE A.O. HAS NOTED THAT THE STATEMENT OF THE ASSESSEE IS NOT CORRECT. HE HA S ALSO NOTED THAT THE ITA NO.580 0/MUM/2009 M/S MEGA MEDICAL S PVT. LTD. 7 PAYMENT OF CONVERSION CHARGES IS NOT IN PROPORTION TO THE SALES E.G. IN THE CASE OF M/S ALVES HEALTHCARE PVT. LTD. THE EXPENSES HAVE BEEN ALLOCATED @ 14.02% WHICH SHOULD BE ` 18 15 015/- WHEREAS THE EXPENSES HAS BEEN RECOVERED ONLY ` 7 36 720/-. THE A.O. ALSO POINTED OUT SOME OTHER DISCREPANCIES IN RECOVERING THE CONVERSION CHARGES. ACCORDINGLY THE A.O. DISALLOWED 50% OF CONVERSION CHARGES AMOUNTING TO ` 6 14 930/- U/S 40A(2). HE ALSO DISALLOWED ADMINISTRATIVE EXPENSES OF ` 3 60 000/- PAID TO M/S GOLDWIN MEDICARE LTD. IN ADDITION TO THE ABO VE SAID CONVERSION CHARGES FOR WHICH NO WRITTEN AGREEMENT IS IN EXISTE NCE AND IN THE ABSENCE OF ANY DETAILS OF PAYMENT OF ` 3 60 000/- AS ADMINISTRATIVE EXPENSES TO THE GROUP CONCERN. HOWEVER HE DID NOT MAKE ANY SEPARATE ADDITION IN THIS REGARD ON THE GROUND THAT THE ENTI RE EXPENSES HAVE ALREADY BEEN DISALLOWED U/S 40(A)(IA). ON APPEAL T HE LD. CIT(A) WHILE OBSERVING THAT NONE OF THE DIRECTORS ARE HOLDING AN Y SUBSTANTIAL INTEREST IN EITHER OF THE COMPANIES AND THE A.O. HAS NOT GIV EN ANY COMPARATIVE FIGURE TO SHOW THAT THE PAYMENTS HAS BEEN OVER AND ABOVE THE ARMS LENGTH PRICE DELETED THE ADDITION MADE BY THE A.O. 12. AT THE TIME OF HEARING THE LD. D.R. SUBMITS TH AT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE ON THE GROUND TH AT NONE OF THE DIRECTORS ARE HOLDING ANY SUBSTANTIAL INTEREST IN E ITHER OF THE COMPANIES WHEREAS EVEN AS PER ASSESSEES LETTER DATED 27.11.0 7 REPRODUCED AT PAGE NO. 2 OF THE ASSESSMENT ORDER WHEREIN IT HAS BEEN C LEARLY MENTIONED THAT THE OWNERSHIP AND DIRECTORS OF BOTH THE COMPANIES A RE COMMON THEREFORE THE LD. CIT(A) WAS NOT JUSTIFIED IN DELE TING THE DISALLOWANCE MADE BY THE A.O. AND THEREFORE THE ADDITION MADE BY THE A.O. BE RESTORED. 13. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT SINCE THIS ISSUE HAS NOT BEEN EXAMINED BY THE A.O. IN THE LIGHT OF ITA NO.580 0/MUM/2009 M/S MEGA MEDICAL S PVT. LTD. 8 THE PROVISIONS OF SECTION 40A(2) THEREFORE IN THE IN THE INTEREST OF JUSTICE THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE A.O. TO RECONSIDER THE SAME IN THE LIGHT OF THE APPLICABILITY OF THE PROVI SIONS OF SECTION 40A(2). 14. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECO RD. WE FIND THAT THE AMOUNT OF ` 6 14 930/- BEING 50% OF CONVERSION CHARGES OF ` 12 29 860/- PAID TO MEGA MEDICALS PVT. LTD. HAS BEE N DISALLOWED BY THE A.O. BY INVOKING THE PROVISIONS OF SECTION 40A(2) O F THE ACT. WE FURTHER FIND THAT THE A.O. HAS ALSO DISALLOWED ADMINISTRATI VE EXPENSES OF ` 3 60 000/- PAID TO GOLDWIN MEDICARE LTD. IN ADDITIO N TO THE ABOVE CONVERSION CHARGES ON THE GROUND THAT THERE IS NO D ETAILS AND NO AGREEMENT IS IN EXISTENCE. HOWEVER FINALLY HE MAD E NO SEPARATE ADDITION ON THE GROUND THAT THE ENTIRE EXPENSES HAVE ALREADY BEEN DISALLOWED U/S 40(A)(IA) OF THE ACT. BEFORE THE LD. CIT(A) IT WAS CONTENTED BY THE ASSESSEE THAT THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT AP PLICABLE AND THE LD. CIT(A) WHILE DELETING THE DISALLOWANCE U/S 40A(2) A FTER HAVING NOTED THE ASSESSEES SUBMISSION THAT THE ASSESSEE COMPANY IS A GROUP CONCERN OF ALVES GROUP AND M/S GOLDWIN MEDICARE PVT. LTD. WAS TAKEN OVER BY ALVES GROUP HENCE THE SAME IS ALSO A GROUP CONCERN AND G OLDWIN MEDICARE LTD. IS AN ASSOCIATE CONCERN DELETED THE DISALLOWA NCE MADE BY THE A.O. IN THE ABSENCE OF ANY SUPPORTING MATERIAL PLACED ON RECORD BY EITHER OF THE PARTIES AT THIS STAGE AND KEEPING IN VIEW THAT THERE IS A CONTRADICTION IN THE FACTS WE ARE OF THE VIEW THAT IN THE INTER EST OF JUSTICE THE MATTER SHOULD GO BACK TO THE FILE OF THE LD. CIT(A). AND A CCORDINGLY WE SET ASIDE THE ORDER PASSED BY THE LD. CIT(A) ON THIS ACCOUNT AND SEND THE MATTER BACK TO THE FILE OF LD. CIT(A) WHO SHALL DECIDE THE SAME AFRESH IN THE LIGHT OF OUR OBSERVATIONS HEREINABOVE AND ACCORDING TO LA W AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. THE GROUND TAKEN BY THE REVENUE IS THEREFORE PARTLY ALLOWED FOR STAT ISTICAL PURPOSE. ITA NO.580 0/MUM/2009 M/S MEGA MEDICAL S PVT. LTD. 9 15. GROUND NO. 4 READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (APPEALS) ERRED IN DELETING THE DISALLOWANCE OF DEBT OF ` 1 18 753/- WHICH HAD NOT BECOME IRRECOVERABLE AND BAD AS PROVI DED IN SECTION 36(1)(VII) OF THE I.T. ACT. 16. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE A.O . OBSERVED THAT THE ASSESSEE HAS CLAIMED BAD DEBTS OF ` 1 18 753/- ON ACCOUNT OF 3M INDIA LTD. THE ASSESSEE COMPANY IS HAVING REGULAR BUSINES S WITH THE ABOVE SAID PARTY. DURING THE YEAR THE ASSESSEE HAS SOLD GOODS WORTH ` 49 14 528/- TO THE ABOVE SAID PARTY. CONSIDERING TH ESE FACTS THE ASSESSEE WAS ASKED TO FURNISH THE COPY OF DEBIT NOT ES RECEIVED FROM THE ABOVE PARTY IN SUPPORT OF THE DEBTS WRITTEN OFF. IN RESPONSE IT WAS SUBMITTED BY THE ASSESSEE THAT AS THEY HAD INCURRED EXPENSES TOWARDS FREIGHT DEVELOPMENT OF ARTWORKS AND PRINTING PROOF S SUPPLY OF EMPTY PACKING MATERIALS AGAINST GOODS DAMAGED AT THEIR EN D AND ALSO AGAINST SOME SUPPLIES THAT WERE MADE FOR TRIALS AND PRODUCT EVALUATION FOR WHICH DEBIT NOTES AND BILLS WERE RAISED OVER A PERIOD OF TIME. THE SAID COMPANY HAS NOT PAID THE SAID EXPENSES AND BEING A LARGE MU LTINATIONAL FROM WHOM SUBSTANTIAL BUSINESS HAS BEEN GENERATED AND ON WHOM THE ASSESSEE IS DEPENDENT UPON FOR ITS SURVIVAL IT HA S BEEN DECIDED NOT TO PURSUE FOR THIS AMOUNT IN THE INTEREST OF OUR FUTUR E BUSINESS AND THEREFORE WRITTEN OFF. HOWEVER THE A.O. WAS OF THE OPINION THAT THE ASSESSEE IS HAVING REGULAR BUSINESS RELATION WITH T HE COMPANY THE ASSESSEE HAD FAILED TO FURNISH ANY EVIDENCE SHOWING THAT PARTY HAS DISPUTED THE PAYMENTS OR HAD ISSUED ANY DEBIT NOTES IN THIS REGARD THERE IS NOTHING ON RECORD TO SHOW THAT ASSESSEE HA D CLAIMED THE PAYMENT BUT THE PARTY HAD REFUSED TO PAY THE ASSES SEE IN SUPPORT OF ITS CLAIM OF EXPENSES HAS NOT PRODUCED COPY OF BILLS D EBIT NOTES RAISED AND THE ASSESSEE HAS FAILED TO PRODUCE EVIDENCE SHOWING THAT THE DEBTS WHICH ITA NO.580 0/MUM/2009 M/S MEGA MEDICAL S PVT. LTD. 10 WERE ACCOUNTED FOR IN THE INCOME IN EARLIER YEARS A ND HENCE HE DISALLOWED THE CLAIM OF BAD DEBTS AMOUNTING TO ` 1 18 753/-. ON APPEAL THE LD. CIT(A) WHILE OBSERVING THAT FROM THE COPY O F LEDGER EXTRACTS OF THE PARTY THAT THE ASSESSEE HAS DULY SHOWN THE INCOME I N EARLIER YEARS BUT WRITTEN OFF THE AMOUNT THIS YEAR AS IT HAS BECOME I RRECOVERABLE AND THE FACT THAT THE COMPANY IS STILL HAVING BUSINESS WITH THE PARTY DOES NOT COME IN THE WAY OF WRITING OFF THE DEBT AS THERE IS NO SUCH REQUIREMENT UNDER THE AMENDED PROVISIONS OF SECTION 36(1)(VII) PLACED RELIANCE ON THE DECISION IN THE CASE OF CIT VS. STAR CHEMICALS REPO RTED IN (2009) 313 ITR 126 (BOM) DELETED THE DISALLOWANCE MADE BY THE A.O . 17. AT THE TIME OF HEARING THE LD. D.R. SUPPORTS T HE ORDER OF THE A.O. 18. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE WHILE RELYING ON THE ORDER OF THE LD. CIT(A) SUBMITS THAT HE HAS NO OBJECTION TO IF THE ISSUE IS SET ASIDE TO THE FILE OF THE LD. CI T(A) TO VERIFY THE BILLS AND DEBIT NOTES RAISED BY THE ASSESSEE THE PAYMENT OF WHICH HAS NOT BEEN GIVEN BY THE COMPANY 3 M INDIA LTD. 19. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND T HAT THE DISALLOWANCE WAS MADE BY THE A.O. ON THE GROUND THAT THE ASSESSE E HAS FAILED TO FILE RELEVANT EVIDENCE I.E COPIES OF BILLS OR DEBIT NOTE S RAISED BY THE ASSESSEE AND THE ASSESSEE HAS FILED NO EVIDENCE TO SHOW THAT THE DEBTS WHICH HAS BEEN WRITTEN OFF WERE ACCOUNTED FOR IN THE EARLIER YEARS. HOWEVER THE LD. CIT(A) WITHOUT VERIFYING THE SAME MERELY ON THE CO PY OF LEDGER EXTRACTS AND KEEPING IN VIEW THE PROVISIONS OF LAW AND ALSO THE DECISION IN THE CASE OF CIT VS. STAR CHEMICALS (BOMBAY) P. LTD. (SU PRA) DELETED THE DISALLOWANCE MADE BY THE A.O. EVEN AT THIS STAGE THE ASSESSEE HAS FILED NO MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAS ISSUED BILLS/DEBIT ITA NO.580 0/MUM/2009 M/S MEGA MEDICAL S PVT. LTD. 11 NOTES TO THE PARTY AND HAS DULY ACCOUNTED FOR THE C ORRESPONDING INCOME IN THE RELEVANT A.Y. THIS BEING SO AND IN THE INTER EST OF JUSTICE WE CONSIDER IT FAIR AND REASONABLE THAT THE MATTER SHO ULD GO BACK TO THE FILE OF LD. CIT(A) AND ACCORDINGLY WE SET ASIDE THE ORDE R PASSED BY THE LD. CIT(A) ON THIS ACCOUNT AND SEND BACK THE MATTER TO HIS FILE WHO SHALL DECIDE THE SAME AFRESH IN THE LIGHT OF OUR OBSERVAT IONS HEREINABOVE AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. THE GROUNDS TAKEN BY THE REVENUE IS THEREFORE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 20. IN THE RESULT REVENUES APPEAL STANDS PARTLY A LLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THIS 9 TH OF MARCH 2011. SD/- (J. SUDHAKAR REDDY) ACCOUNTANT MEMBER SD/- (D.K. AGARWAL) JUDICIAL MEMBER MUMBAI DATED 9 TH MARCH 2011. RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- II MUMBA I 4. COMMISSIONER OF INCOME TAX II MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH F MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI ITA NO.580 0/MUM/2009 M/S MEGA MEDICAL S PVT. LTD. 12 1 DRAFT DICTATED ON 2.3.11 SR PS 2 DRAFT PLACED BEFORE AUTHOR ON 4.4.11 SR PS 3 DRAFT PROPOSED & PLACE BEFORE THE 2 ND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY 2 ND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR PS SR .PS 6 KEPT FOR PRONOUNCEMENT ON SR PS 7 FILE SENT TO THE BENCH CLERK SR PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DATE OF DESPATCH SR PS