Income Tax Appellate Tribunal - Mumbai
Lexicon Finance Ltd, Mumbai vs Assessee
1
ITA No. 477/Mum/2010
(Asst Year 2004-05 )
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI 'A
'A ' BENCH
MUMBAI BENCHES, MUMBAI
BEFORE SHRI R S SYAL, AM & VIJAY PAL RAO, JM
ITA No. 477/Mum/2010
(Asst Year 2004-
2004-05 )
Lexicon Finance Ltd Vs The Asst Commr of Income Tax
124 Andheri Universal Indl Premises Cir 2(2), Mumbai
J P Road Andheri (W)
Mumbai 58
(Appellant)
Appellant) (Respondent)
PAN NO.AAACL0914H
NO.AAACL0914H
Assessee by Shri Kunal Gokhale
Revenue by Shri Sandeep Dahiya/DR
PER VIJAY PAL RAO, JM
This appeal filed by the assessee is directed against the order dated 17.12.2009 of the CIT(A) - 5 for the AY 2004-05.
2 The assessee has filed a request letter for adjournment of the case. Since the issues raised in this appeal are covered; therefore, we reject the request of the assessee for adjournment and taken up the appeal for hearing. 3 The assessee has raised the following grounds:
i)The ld CIT(A) erred in confirming the action of the Assessing Officer in disallowing bad debts of Rs. 8 lacs which were considered in the books of account as bad debts in the year under consideration.
ii) The ld CIT(AA) erred in enhancing the disallowance u/s 14A for Rs.
15,95,296/- without considering the fact that there were sufficient own funds to do the investments."
2ITA No. 477/Mum/2010
(Asst Year 2004-05 ) 4 We have heard the ld AR of the assessee as well as the ld DR and considered the relevant material available on record. The assessee has written off the bad debts amounting to Rs. 83,07,675/- during the year under consideration. The Assessing Officer has noted that out of this written off amount, some of the amounts have been paid to the employees of the assessee, the details of which are given in para 4. 1 of the assessment order as under:
i) M PShyam Rs. 2 lacs
ii) H A Sadriwala Rs. 3 lacs
iii)_ Batul A Sadriwala Rs. 3 lacs
Total Rs 8 lacs
4.1 The Assessing Officer has further recorded that the assessee has not
been able to establish during the course of the assessment proceedings that the above debts have become bad during this year. The Assessing Officer, following the decision of the Hon'ble Calcutta High Court in the case of CIT vs Coats of India Ltd reported in 232 ITR 324, decision of the jurisdictional High Court in the case of Nandlal Vithaldas Vs CIT reported in 180 ITR 609, decision of the Hon'ble Gujarat High Court in the case of CIT vs Ahmedabad Electricity Co Ltd reported in 262 ITR 97, decision of the Hon'ble Madras High Court in the case of South India Surgical Co ltd vs ACIT reported in 287 ITR 62 and the order of the Chandigarh Bench of the Tribunal in the case of Industrial Cable (I) Ltd vs ACIT reported in 97 ITD 267 disallowed the claim of the assessee to the extent of Rs. 8 lacs in respect of the above three debtors.
3ITA No. 477/Mum/2010
(Asst Year 2004-05 ) 4.2 On appeal, the CIT(A) has confirmed the disallowance made by the Assessing Officer by following the decision of the jurisdictional High Court in the case of Director (Int. Taxation) vs Oman International Bank SAOG(2009) reported in 184 ITR 324 (Bom). The relevant portion of the order of the ld CIT(A) reads as under:
" I have duly considered the facts of the case. The appellant has not brought out any evidence on record in support of its action of writing off of the said amounts either before the undersigned or before the Assessing Officer. It may be stated here that in a recent decision in the case of Director (Int. Taxation) vs Oman International Bank SAOG(2009) reported in 184 ITR 324 (Bom) it was inter alia observed that though consequent to the amendment w.e.f 1.4.1989, it is sufficient if the bad debt or part thereof is written off as irrecoverable in the accounts of the assessee based on commercial expediency, when the assessee treats the debt as bad, the decision has to be a business or commercial decision and not whimsical or fanciful decision. It must be based on material that the debt is not recoverable. The decision must be bonafide. In the absence of any such material, apart from the claim that the amount has been written off, it cannot be concluded that the action of the appellant was bonafide. Accordingly, the addition made is upheld."
5 It is to be noted that this is not an advance given by the assessee in the ordinary course of busies but the said amount was given by the assessee to its employees; therefore, the burden is cast upon the assessee to establish that the amount has really gone bad and the decision of writing off of the said amount is a bonafide and honest decision and not whimsical or fanciful as observed by the jurisdictional High Court in the case of Oman International Bank SAOG (supra). Since the assessee has failed to bring any material on record to show that even prima facie that this amount has become irrecoverable and the decision of writing off of the said amount is honest and bonafide; accordingly, we do not find any error or illegality in the order of the ld CIT(A) on this issue. The ground raised by the assessee is accordingly dismissed 4 ITA No. 477/Mum/2010 (Asst Year 2004-05 ) 6 Ground of appeal no.2 relates to disallowance of Rs. 15,95,296/- u/s 14A. 6.1 We have heard the ld AR of the assessee and the ld DR and considered the relevant material on record. The Assessing Officer has disallowed the interest expenditure of Rs. 6,76,394/- being the proportionate of the total interest expenditure to earn the dividend income by applying provisions of sec 14A. 6.2 On appeal, the ld CIT(A) issued show cause notice for enhancement of the disallowance made u/s 14A based on Rules 8D and in light of the decision of the Special Bench of the Tribunal in the case of Daga Capital Management P Ltd reported in 26 SOT 603. Accordingly, the CIT(A) directed the Assessing Officer to enhance the disallowance to Rs. 15,95,296/-.
7 At the outset, we noted that this issue is now settled by the decision of the jurisdictional High Court in the case of Godrej Boyce Mfg Ltd vs ACIT reported 328 ITR 81 in wherein the Hon'ble High Court has held that Rule 8D is applicable prospective and not retrospective; therefore, for the assessment year under consideration, Rule 8D is not applicable. However, in view of the decision of the jurisdictional High Court in the case of Godrej Boyce Mfg Ltd (supra), this issue is set aside to the record of the Assessing Officer to decide the same in terms of the decision cited supra.
5ITA No. 477/Mum/2010
(Asst Year 2004-05 ) 8 In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on the 20th day of May 2011.
Sd/- Sd/-
( R S SYAL ) ( VIJAY PAL RAO )
Accountant Member Judicial Member
Place: Mumbai : Dated: 20th May 2011
Raj*
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai