ASST.C.I.T-3(2), MUMBAI v. M/S. OVERTURE COMMUNICATIONS PVT.LTD., MUMBAI

ITA 6681/MUM/2008 | 2003-2004
Pronouncement Date: 21-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 668119914 RSA 2008
Assessee PAN AAACO2417Q
Bench Mumbai
Appeal Number ITA 6681/MUM/2008
Duration Of Justice 2 year(s) 2 month(s) 2 day(s)
Appellant ASST.C.I.T-3(2), MUMBAI
Respondent M/S. OVERTURE COMMUNICATIONS PVT.LTD., MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 21-01-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 21-01-2011
Date Of Final Hearing 12-01-2011
Next Hearing Date 12-01-2011
Assessment Year 2003-2004
Appeal Filed On 19-11-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH MUMBAI BEFORE SHRI D.K. AGARWAL JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 6681/MUM/2008 (ASSESSMENT YEAR: 2003-04) ACIT - 3(2) M/S. OVERTURE COMMUNICATIONS ROOM NO. 608 6TH FLOOR P. LTD. 5TH FLOOR QUEST E ND AAYAKAR BHAVAN M.K. ROAD VS. 47 CUFFE PARADE COLABA MUMBAI 400020 MUMBAI 400005 PAN - AAACO 2417 Q APPELLANT RESPONDENT APPELLANT BY: SHRI P.N. DEVDASAN RESPONDENT BY: SHRI JAYESH DADIA O R D E R PER B. RAM AKOTAIAH A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) III MUMBAI DATED 08.09.2008 IN WHICH REVENUE HAS RAISED THE FOLLOWING TWO GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN ADMITTING ADDITIONAL GROUND FOR ALLOWING DEDUCTION OF ` 87 12 906/- U/S 28 OF THE I.T. ACT 1961 AS AGAINST BAD DEBT CLAIMED BEFORE THE A.O. ION CONTRA VENTION OF RULE 46A. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION OF ` 87 12 906/- U/S 28 OF THE I.T. ACT 1961 WITHOUT APPRECIATING THE FACT THA T ISSUE OF BUSINESS EXPEDIENCY WAS NOT PROVED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER AT THE INITIAL STAGE. 2. ASSESSEE VIDE LETTER DATED 8 TH DECEMBER 2009 HAS RAISED THE FOLLOWING GROUNDS UNDER RULE 27 SUPPORTING THE ORDER OF THE C IT(A) WHICH GAVE RELIEF TO THE ASSESSEE: - THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS O F THE CASE IN NOT ALLOWING THE AMOUNT OF RS.87 12 906/- AS BAD DEBTS UNDER SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT PARTI CULARLY WHEN THE ASSESSEE COMPANY HAS CONSIDERED THE ENTIRE AMOUNT A S INCOME AND HAVE WRITTEN-OFF THE ENTIRE AMOUNT IN THE ACCOUNTS. ITA NO. 6681/MUM/2008 M/S. OVERTUNE COMMUNICATIONS P. LTD. 2 3. BRIEFLY STATED ASSESSEE HAS CLAIMED AN AMOUNT OF ` 87 12 906/- AS BAD DEBT IN ITS P & L ACCOUNT. ASSESSEE HAS RETURNE D A LOSS OF ` 1 33 33 694/- AND WHILE SCRUTINIZING THE SAID RETUR N THE A.O. EXAMINED THE CLAIM OF BAD DEBTS AND WAS OF THE OPINION THAT THE ASSESSEE HAS NOT SPECIFIED REASONS WHY THE AMOUNT HAS BECOME BAD SO AS TO CLAIM DEDUCTION UNDER SECTION 36(1)(VII). HE WAS ALSO OF THE OPINIO N THAT ASSESSEE HAS NOT BROUGHT ANY MATERIAL TO PROVE THAT THE DEBTS WERE N OT RECOVERABLE AND BECAME BAD TO SUBSTANTIATE ITS CLAIM. ACCORDINGLY T HE A.O. DISALLOWED THE AMOUNT CLAIMED UNDER THE HEAD BAD DEBTS. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE WAS RUNNING AN ADVERTIS ING AGENCY AND THE CLAIM OF BAD DEBTS WERE ENQUIRED BY THE A.O. BY SEE KING THE DETAILS. IT WAS FURTHER CONTENDED THAT IN THE BUSINESS OF RUNNING A DVERTISING AGENCY VERY OFTEN SERVICES WERE PROVIDED TO VARIOUS CLIENTS AND THE CLIENTS DISPUTE THE BILLS FOR THE REASON THAT THEY WERE NOT SATISFIED W ITH THE SERVICES PROVIDED. ACCORDINGLY THERE WILL BE REALISATION OF LESSER AMO UNT THAN THE BILLED AMOUNT. IT WAS ASSESSEES SUBMISSION THAT THE AMOUN T AT THE TIME OF BILLING WAS TREATED AS INCOME AND THE DIFFERENCE BETWEEN TH E BILLED AMOUNT AND REALISATION WAS TREATED AS BAD DEBTS AND THE CLAIMS ARE ALLOWABLE UNDER SECTION 36(1)(VII) R.W.S 36(2). IN THE ALTERNATE THE ASSESSEE RAISED AN ADDITIONAL GROUND WITH OUT PREJUDICE THAT THE CLAI M IS ALLOWABLE AS BUSINESS LOSS UNDER SECTION 28. THE CIT(A) AFTER CONSIDERIN G THE SUBMISSIONS OF THE ASSESSEE ALLOWED THE SAME UNDER SECTION 28 AS UNDER : - 1.3 I HAVE PERUSED THE FACTS OF THE CASE. THE CLAI M THAT THE AMOUNT DEBITED IN THE BOOKS OF ACCOUNTS AS BAD DEBT WAS ON ACCOUNT OF DISPUTE IN RELATION TO BILL AMOUNT WAS THERE BEFORE ASSESSING OFFICER AS WELL. THIS FACTUAL SUBMISSION HAS BEEN MENTIONED BY ASSESSING OFFICER IN HIS ORDER OF ASSESSMENT. HOWEVER IN THE ASSESSMENT PROCEEDINGS ASSESSEES CLAIM WAS ON ALLOWABILITY O F BAD DEBTS AND ASSESSING OFFICER HAS ALSO CONSIDERED ALLOWABILITY AS BAD DEBTS ONLY. VERY STRICTLY THE DEDUCTION BEING CLAIMED CANNOT BE CLASSIFIED AS BAD DEBT. IT IS NOT A CASE WHERE DEBT HAS BECOME BAD. I T IS A CASE WHERE THE DEBT AS UNDERSTOOD BY APPELLANT HAS NOT BEEN RE COGNIZED BY THE PARTIES AS PAYABLE BY THEM TO APPELLANT. THE REASON FOR THE SAME THAT THE SERVICE PROVIDED FOR WHICH THE BILLS WERE RAISE D WAS NOT UPTO THE MARK IS NOT AT ALL UNDER DISPUTE. CONSEQUENTLY THE AMOUNT UNDER CONSIDERATION IS REALLY A BUSINESS LOSS WHICH IS AL LOWABLE U/S. 28. THE ADDITIONAL GROUND OF APPEAL IS A BONAFIDE GROUN D AND IS CONSEQUENTLY ADMITTED. ITA NO. 6681/MUM/2008 M/S. OVERTUNE COMMUNICATIONS P. LTD. 3 4. REVENUE IS AGGRIEVED THAT THE CIT(A) HAS ADMITTED T HE ADDITIONAL GROUND IN CONTRAVENTION OF RULE 46A AND ALLOWED THE LOSS WITHOUT EXAMINING THE ISSUE OF BUSINESS CONTINGENCY WHICH SHOULD HAV E BEEN PROVED BEFORE THE A.O. THE ASSESSEE ALSO WHILE SUPPORTING THE OR DER OF THE CIT(A) ALLOWING THE AMOUNT UNDER SECTION 28 HOWEVER RAISED AN ALT ERNATE GROUND THAT THE AMOUNT SHOULD HAVE BEEN ALLOWED AS BAD DEBT SO AS T O KEEP THE LEGAL OPTIONS FOR THE CLAIM. 5. WE HAVE CONSIDERED THE ARGUMENTS OF THE RIVAL PARTI ES. ADMITTEDLY THE ASSESSEE IS IN THE BUSINESS OF RUNNING ADVERTISEMEN T AGENCY AND IN THE COURSE OF BUSINESS IT HAS BILLED AMOUNTS TO VARIOUS PARTIES AND RECEIVED LESSER AMOUNT THAT THE BILLED AMOUNT AND THE DIFFER ENCE WAS TREATED AS BAD DEBTS. SINCE THE ASSESSEE HAS ACCOUNTED THE ENTIRE AMOUNT AS INCOME AS AND WHEN THE AMOUNT WAS BILLED NATURALLY THE DIFFE RENCE OF AMOUNT CLAIMED HAS TO BE ALLOWED AS DEDUCTION. THE ASSESSEE CLAIME D THE AMOUNT AS BAD DEBTS IN THE BOOKS OF ACCOUNT. THE CIT(A) CONSIDERE D THAT THE OTHER PARTIES HAVE NOT EXPLAINED THE AMOUNT AS A DEBT SO ALLOWANC E OF BAD DEBT DOES NOT ARISE AND AS THE ASSESSEE RAISED ADDITIONAL GROUND TO ALLOW IT AS BUSINESS LOSS THE SAME WAS CONSIDERED AND ALLOWED. WE ARE OF THE OPINION THAT THE REVENUES CONTENTION THAT THE A.O. WAS NOT GIVEN AN OPPORTUNITY UNDER RULE 46A DOES NOT ARISE IN THIS CASE AS THE CIT(A) HAS O NLY CONSIDERED THE ADDITIONAL GROUND AND NOT ADDITIONAL EVIDENCE. RULE 46A IS APPLICABLE TO ADDITIONAL EVIDENCE FILED BEFORE THE APPELLATE AUTH ORITY FOR THE FIRST TIME. IN THIS CASE THERE IS NO ADDITIONAL EVIDENCE FILED BEF ORE THE CIT(A) BUT ONLY ADDITIONAL GROUND/ALTERNATE GROUND WHILE CLAIMING T HE AMOUNT AS ALLOWABLE DEDUCTION. WE ARE OF THE VIEW THAT THERE IS NO CONT RAVENTION OF RULE 46A AND THE GROUND RAISED IN THIS REGARD IS NOT CORRECT. TH E SAME IS ACCORDINGLY DISMISSED. 6. WITH REFERENCE TO THE ISSUE OF ALLOWING THE AMOUNT UNDER SECTION 28 BOTH THE COUNSELS ARE IN AGREEMENT WHILE ARGUING TH E CASE THAT THE ISSUE REQUIRES RE-EXAMINATION BY THE A.O. IN OUR VIEW THE A.O. DID NOT EXAMINE THE ISSUE ABOUT NATURE OF THE AMOUNT TREATED AS BAD DEBT BY THE ASSESSEE WHICH IS A SORT OF DISCOUNT/REMISSION ON THE BILLED AMOUNT. IF THE SERVICES ITA NO. 6681/MUM/2008 M/S. OVERTUNE COMMUNICATIONS P. LTD. 4 ARE TO BE UP TO THE SATISFACTION OF THE CLIENT THE CLIENT DISPUTES THE BILLED AMOUNT AND THERE WILL BE VARIATIONS IN THE BILLED A MOUNT TO REALISED AMOUNT. THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT THE BILLED AMOUNT WAS ACCOUNTED FOR BY THE ASSESSEE. CONSEQUENTLY THE DIF FERENCE AMOUNT ON REALISATION IS ALLOWABLE TO THE ASSESSEE EITHER UND ER SECTION 37(1) OR UNDER SECTION 28 OR UNDER SECTION 36(1)(VII) AS THE CASE MAY BE DEPENDING ON THE FACTS. SINCE THE A.O. WENT ON THE PRINCIPLE THAT TH E DEBT HAS NOT BECOME BAD WE ARE OF THE OPINION THAT HIS LINE OF ENQUIRY IS NOT CORRECT AS THE AMOUNT OF BAD DEBT WILL COME INTO THE BOOKS ONLY WH EN THE OTHER PARTY ACCEPTS THE AMOUNT AS DEBT AND BECOMES BAD WHEN THE AMOUNT WAS NOT REALISED. IN THIS CASE THE AMOUNT IS NOT ACCEPTED A S SUCH AND THERE IS A REDUCTION IN THE BILLED AMOUNT. ACCORDINGLY TO THAT EXTENT CONSIDERING THE AMOUNT UNDER BAD DEBT IS NOT PROPER. IN OUR VIEW TH E DISCOUNT ALLOWED OR THE REMISSION OF THE AMOUNT IS DIRECTLY ALLOWABLE U NDER SECTION 37(1) OR IN THE ALTERNATE AS RIGHTLY ALLOWED BY THE CIT(A) UND ER SECTION 28. SINCE THE NATURE OF AMOUNTS BILLED AND THE AMOUNT REALISED AR E NOT BEFORE US AND SINCE THE A.O. HAS NOT EXAMINED THE ISSUE IN IT COR RECT PERSPECTIVE WE ARE OF THE OPINION THAT THE ISSUE REQUIRES RE-EXAMINATION BY THE A.O. WHO SHOULD EXAMINE THE NATURE OF THE TRANSACTION AND ALLOW THE AMOUNTS EITHER UNDER SECTION 36(1)(VII) OR UNDER SECTION 28 OR UNDER SEC TION 37(1) AS THE CASE MAY BE KEEPING IN VIEW THE PROVISIONS OF THE ACT AND P ROVISIONS OF THE LAW GOVERNING VARIOUS PROVISIONS. FOR THIS PURPOSE THE ISSUE IS RESTORED TO THE FILE OF THE AO TO EXAMINE AND ALLOW THE SAME AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE. WITH THIS REMARKS GROUND NO. 2 IS CON SIDERED ALLOWED TO THAT EXTENT. 7. IN THE RESULT APPEAL IS PARTLY ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST JANUARY 2011. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 21 ST JANUARY 2011 ITA NO. 6681/MUM/2008 M/S. OVERTUNE COMMUNICATIONS P. LTD. 5 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) III MUMBAI 4. THE CIT III MUMBAI CITY 5. THE DR C BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.