DCIT 9(2), MUUMBAI v. KAMA JEWELLERY (I) P. LTD, MUMBAI

ITA 6960/MUM/2008 | 2005-2006
Pronouncement Date: 28-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 696019914 RSA 2008
Bench Mumbai
Appeal Number ITA 6960/MUM/2008
Duration Of Justice 2 year(s) 1 month(s) 23 day(s)
Appellant DCIT 9(2), MUUMBAI
Respondent KAMA JEWELLERY (I) P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 28-01-2011
Date Of Final Hearing 31-12-2009
Next Hearing Date 31-12-2009
Assessment Year 2005-2006
Appeal Filed On 05-12-2008
Judgment Text
I.T.A NO.6960/ MUM/2008 KAMA JEWELLERY (I) PVT.LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH MUMBAI. [CORAM D.MANMOHAN V.P. AND PRAMOD KUMAR AM] I.T.A NO.6960/ MUM/2008 ASSESSMENT YEAR: 2005-06 DY.COMMISSIONER OF INCOME TAX 9(2) .. APPELLANT AAYAKAR BHAVAN M.K. ROAD MUMBAI. VS KAMA JEWELLERY (I) PVT.LTD. . RESPONDEN T UNIT-221 UDYOG BHAVAN SONAWALA ROAD GOREGAON (E) MUMBAI. PA NO.AAACK 2261 J APPEARANCES : JITENDRA YADAV FOR THE APPELLANT KISHOR PATEL FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL THE ASSESSING OFFICER HA S CHALLENGED CORRECTNESS OF CIT(A)S ORDER DATED 22 ND SEPTEMBER 2008 IN THE MATTER OF ASSESSMENT U/S.1 43(3) OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENT YEA R 2005-06. 2. IN GROUND NOS.1 AND 2 WHICH WE ARE TAKING UP TO GETHER THE ASSESSING OFFICER HAS RAISED THE FOLLOWING GRIEVANCES: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD CIT (A) ERRED IN ALLOWING THE BAD DEBT OF ` .1 44 367/- IGNORING THE FACT THAT THE ASSESSEE COULD NOT PROVE THE FACT THAT THE ALLEGED DEBT HAS BECOME BAD. RELIANCE IS PLACED ON THE HONBLE MAD RAS HIGH COURT I.T.A NO.6960/ MUM/2008 KAMA JEWELLERY (I) PVT.LTD. 2 DECISION IN THE CASE OF SOUTH INDIA SURGICAL CO. LT D. 201 CTR 289 (MAD). 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD CIT (A) ERRED IN ALLOWING THE SUNDRY BALANCES WRITT EN OFF AT ` .27 892/- JUST FOR THE REASON THAT THE AMOUNTS REPRESENT MINO R BALANCES RELATED TO THE BUSINESS WITHOUT APPRECIATING THE FACTS OF T HE CASE. 3. THE SHORT REASON FOR WHICH THE ASSESSING OFFICER DISALLOWED CLAIM OF BAD DEBT OF ` .1 44 367 AS ALSO CLAIM OF SUNDRY BALANCES OF ` .27 892 WRITTEN OFF WAS THAT THE ASSESSEE HAS FAILED TO PROVE THAT THE AMOUNT WRITTE N OFF AS IRRECOVERABLE PERTAIN TO BAD DEBTS. IN OTHER WORDS ACCORDING TO THE ASSES SING OFFICER THE ASSESSEE HAD FAILED TO ESTABLISH THAT THE DEBTS HAVE ACTUALLY BECOME BA D. HOWEVER IN APPEAL LEARNED CIT(A) DID NOT APPROVE THIS APPROACH AND HELD AS FO LLOWS: 2.3 IN PRINCIPLE I FIND MERITS IN THE APPELLANTS CONTENTION THAT NO DISALLOWANCE ON ACCOUNT OF BAD DEBTS CAN BE MADE ON THE GROUND THAT THE DEBTS HAD NOT BECOME BAD. THE APPELLANTS CONT ENTION IS ALSO SUPPORTED BY THE DECISIONS IN THE CASE OF DCIT V. O MAN INTERNATIONAL BANK (100 ITD 285) KANORIA SECURITIES & FINANCIAL SERVICES (P)LTD. V ACIT (108 TTJ 473 MUM). THE AO IS THEREFORE DIRECT ED TO DELETE THE ADDITION SUBJECT TO VERIFICATION OF THE FACT THAT T HE AMOUNT WRITTEN OFF HAD BEEN SHOWN AS INCOME IN THE EARLIER YEARS. THE AO IS ALSO DIRECTED TO DELETE THE ADDITION MADE ON ACCOUNT OF SUNDRY BA LANCES WRITTEN OFF SINCE THESE ARE MINOR BALANCES RELATED TO THE BUSI NESS OF THE ASSESSEE. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 4. AGGRIEVED BY THE STAND SO TAKEN BY THE CIT (A) THE ASSESSING OFFICER IS IN APPEAL BEFORE US. 5. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD WE ARE NOT REALLY INCLINED TO INTERFERE IN VERY WELL REASONED AND JUDICIOUS CONCLUSIONS ARRIVED AT BY THE LEARNED CIT (A). IN PRINCIPLE THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY HONBLE SUPREME COURT S JUDGEMENT IN THE CASE OF TRF LTD V. CIT (323 ITR 397) AND IN ANY EVENT LEARNED CIT (A) HAD REMITTED THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR CARRYING O UT NECESSARY FACTUAL VERIFICATIONS. WE SEE NO INFIRMITY IN THE ORDER OF THE CIT (A) AND APPROVE THE SAME. I.T.A NO.6960/ MUM/2008 KAMA JEWELLERY (I) PVT.LTD. 3 6. GROUND NOS.1 & 2 ARE THUS DISMISSED. 7. IN GROUND NO.3 THE ASSESSING OFFICER HAS RAISED THE FOLLOWING GRIEVANCE: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT (A) ERRED IN HOLDING THAT NO ALLOCATION ON ACCOUNT OF INTEREST AND FINANCE CHARGES SALES PROMOTION EXPENSES AND LICEN SE FEE AGGREGATING TO ` .6 00 559/- CAN BE DONE ON THE BASIS OF THE TURNOVE R TO THE ELIGIBLE UNIT FOR COMPUTATION OF DEDUCTION U/S. 10B WITHOUT APPRECIATING THE FINDINGS OF THE AO IN THE RIGHT MANNER. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER WAS OF THE VIEW THAT WHILE ` .11 16 106 OUT OF SALES PROMOTION EXPENSES OF ` .60 91 138 WERE TAKEN AS ATTRIBUTABLE TO 100% EOU IN FACT ` .11 37 962 WERE ATTRIBUTABLE TO EOU. SIMILARLY AS AGAINST LICENCE FEE OF ` .12 273 BEING ATTRIBUTABLE TO 100% EOU NO PART OF THIS EXPENSE WAS ACCOUNTED BY THE ASSESSEE AS ALLOC ATED TO EOU. SIMILARLY WHILE ASSESSE ALLOCATED ` .17 37 108 OUT OF INTEREST EXPENSES AS ATTRIBUTABLE TO EOU ASSESSING OFFICER ALLOCATED ` .23 03 538. THE VARIATIONS WEE DUE TO AOS ADOPTIO NING THE BASIS OF TURNOVER. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE PROFITS OF THE EOU ON THIS BASIS ARE OVERSTATED AND THUS EXCESSIV E DEDUCTION U/S.10B WAS CLAIMED. ACCORDINGLY EXEMPTIONS U/S.10B WAS RESTRICTED INT ER ALIA IN RESPECT OF THE ABOVE. HOWEVER WHEN MATTER WAS CARRIED IN APPEAL BEFORE T HE CIT (A) HE UPHELD THE GRIEVANCE OF THE ASSESSEE IN PRINCIPLE BY OBSERVIN G AS FOLLOWS: 3.3 I HAVE GONE THROUGH THE DETAILED EXPLANATION FILED BY THE APPELLANT AND I AM INCLINED TO AGREE WITH THE APPELLANTS CO NTENTION THAT NO ALLOCATION ON ACCOUNT OF INTEREST AND FINANCE CHARG ES AND SALES PROMOTION EXPENSES AND LICENSE FEE CAN BE DONE ON T HE BASIS OF THE TURNOVER AS HAS BEEN DONE BY THE AO. IT MAY BE SEE N THAT SEPARATE ACCOUNTS FOR EOU UNIT IS MAINTAINED BY THE ASSESSEE WHICH ARE DULY AUDITED. BESIDES THIS DETAILED BREAK UP OF TOTAL INTEREST EXPENSES HAS BEEN PROPERLY EXPLAINED BY THE APPELLANT. IT IS AL SO OBSERVED THAT THE ASSESSEES CAPITAL AND RESERVE/INCOME OF THE EOU UN IT IS FAR IN EXCESS OF THE ORIGINAL INVESTMENT IN THE EOU UNIT. THEREF ORE NO PART OF THE INTEREST ON UNSECURED LOAN IS TO BE ALLOCATED TO TH E EOU AS THE OWN FUND OF THE ASSESSEE AT THE BEGINNING OF THE YEAR I S FAR IN EXCESS OF INVESTMENT BY THE ASSESSEE IN THE EOU. THERE IS ME RIT IN THE I.T.A NO.6960/ MUM/2008 KAMA JEWELLERY (I) PVT.LTD. 4 APPELLANTS CONTENTION THAT ALLOCATION OF INTEREST HAS TO BE DONE ON THE BASIS OF CAPITAL EMPLOYED AND NOT ON THE BASIS OF T URNOVER. HOWEVER THE APPELLANT HAS NOT PRESSED THE ALLOCATION DONE B Y THE AO ON ACCOUNT OF INTERNET CHARGES PAYMENT TO AUDITORS APPEAL FE ES AND GUEST HOUSE EXPENDITURE THEREFORE THE SAID AMOUNT CAN ONLY BE CONSIDERED BY THE AO FOR THE CALCULATION OF DEDUCTION U/S.10B OF THE I.T.ACT. THE MISTAKE POINTED OUT BY THE APPELLANT WITH REGARD TO ` .34 755 ON ACCOUNT OF OTHER INCOME WHICH THE APPELLANT HAS CLAIMED TO HAV E REDUCED FROM THE PROFIT OF THE UNDERTAKING AT THE TIME OF THE CO MPUTATION OF DEDUCTION U/S.10B MAY BE RECTIFIED SUBJECT TO THE F ACTS. THEREFORE AO IS DIRECTED TO RE-CALCULATE THE DEDUCTION U/S.10B A S PER THE DIRECTIONS GIVEN ABOVE. THIS GROUND OF APPEAL IS PARTLY ALLOW ED. 9. AGGRIEVED BY THE STAND SO TAKEN BY THE CIT (A) THE ASSESSING OFFICER IS IN APPEAL BEFORE US. 10. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING P ERUSED THE MATERIAL ON RECORD WE SEE NO NEED TO INTERFERE IN THE CONCLUSI ONS ARRIVED AT BY THE CIT(A). HE IS QUITE JUSTIFIED IN HOLDING THAT ALLOCATION OF INTE REST HAS TO BE ON THE BASIS OF CAPITAL EMPLOYED AND NOT THE TURNOVER. WE HAVE ALSO NOTED THAT FOR NECESSARY FACTUAL VERIFICATIONS THE CIT (A) HAS REMITTED THE MATTER TO THE FILE OF THE ASSESSING OFFICER. WE SEE NO INFIRMITY IN THE STAND OF THE CIT (A) AND APPROVE THE SAME. 11. GROUND NO.3 IS THUS DISMISSED. 12. IN GROUND NO.4 THE ASSESSING OFFICER HAS RAISE D THE FOLLOWING GRIEVANCE: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT (A) ERRED IN HOLDING THE COMPUTER EXPENSES ON DEVEL OPING SOFTWARE PROGRAMMES OF ` .2 33 985/- AS REVENUE EXPENDITURE WITHOUT APPRECIATING THE FACT THAT THE SAID EXPENDITURE INC URRED ON COMPUTER SYSTEM BRINGS ENDURING BENEFIT TO THE ASSESSEE. RE LIANCE IS PLACED ON THE DECISION IN CIT V. ARAWALI CONSTRUCTION CO.(P)L TD. 259 ITR 30(RAJ) AND MARUTI UDYOG LTD V DCIT 92 ITD 19(DEL). 13. IN VIEW OF THE SPECIAL BENCH DECISION IN THE CA SE OF AMWAY INDIA ENTERPRISES VS DCIT (111 ITD SB 112) AS LEARNED REPRESENTATIVE S AGREE THIS MATTER IS TO BE EXAMINED AFRESH BY THE ASSESSING OFFICER. WE DIREC T THE AO TO RE-EXAMINE THE MATTER I.T.A NO.6960/ MUM/2008 KAMA JEWELLERY (I) PVT.LTD. 5 IN THE LIGHT OF THE CORRECT LEGAL POSITION AS INTE R ALIA LAID DOWN BY THE SPECIAL BENCH IN AMWAYS CASE (SUPRA) AFTER GIVING DUE OPPORTUNIT Y OF HEARING TO THE ASSESSEE BY WAY OF A SPEAKING ORDER AND IN ACCORDANCE WITH THE LAW. 14. GROUND NO.4 IS ALLOWED FOR STATISTICAL PURPOSES . 15. IN THE RESULT THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 28 TH JANUARY 2011 SD/- (D.MANMOHAN) (VICE PRESIDENT) SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI DATED 28 TH JANUARY 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS) IX MUMBAI 4. COMMISSIONER OF INCOME TAX IX MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH A MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI I.T.A NO.6960/ MUM/2008 KAMA JEWELLERY (I) PVT.LTD. 6 I.T.A NO.6960/ MUM/2008 KAMA JEWELLERY (I) PVT.LTD. 7