Income Tax Appellate Tribunal - Delhi
Acit, New Delhi vs Sh. Ashok Mittal, New Delhi on 30 October, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "A", NEW DELHI
BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER
AND
MS. SUCHITRA KAMBLE, JUDICIAL MEMBER
ITA No.3764/Del/2004
Assessment Year : 2001-02
Shri Ashok Mittal, ITO, Ward- 24(3),
42, Sainik Farms, Vs. New Delhi.
New Delhi.
PAN : AASPM6882C
(Appellant) (Respondent)
ITA No.2997/Del/2009
Assessment Year : 2001-02
ACIT, Circle- 24(1), Shri Ashok Mittal,
New Delhi. Vs. 42, Sainik Farms,
New Delhi.
PAN : AASPM6882C
(Appellant) (Respondent)
C.O. No.257/Del/2009
(In ITA No.2997/Del/2009)
Assessment Year : 2001-02
Shri Ashok Mittal, ACIT, Circle- 24(1),
42, Sainik Farms, Vs. New Delhi.
New Delhi.
PAN : AASPM6882C
(Appellant) (Respondent)
ITA No.3307/Del/2013
Assessment Year : 2001-02
Shri Ashok Mittal, Addl. CIT, Range- 24,
42, Ashok Avenue, New Delhi.
Vs.
Sainik Farms,
New Delhi.
PAN : AASPM6882C
(Appellant) (Respondent)
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ITA No.3743/Del/2013
Assessment Year : 2001-02
ACIT, Circle- 24(1), Shri Ashok Mittal,
New Delhi. 42, Ashok Avenue,
Vs.
Sainik Farms,
New Delhi.
PAN : AASPM6882C
(Appellant) (Respondent)
Assessee by : Shri Gautam Jain, Adv.
Shri P. K. Kamal, Adv.
Department by : Shri R. C. Dande, Sr.DR
Date of hearing : 31-07-2017
Date of pronouncement : 30-10-2017
ORDER
PER R. K. PANDA, AM :
ITA No.3764/Del/2004 filed by the assessee is directed against the order
dated 21.06.2004 of CIT(A)- XXIII, New Delhi relating to assessment year 2001-02. ITA No.2997/Del/2009 filed by the Revenue is directed against the order dated 24.04.2009 of CIT(A)- XXIII, New Delhi relating to assessment year 2001-02. The assessee has filed Cross Objection bearing C.O. No.257/Del/2009 against the appeal filed Revenue in ITA No.2997/Del/2009. ITA No.3307/Del/2013 filed by the assessee and ITA No.3743/Del/2013 filed by the Revenue are cross appeals and are directed against the order dated 28.03.2013 of CIT(A)- VIII, New Delhi relating to assessment year 2001-02. All these appeals were heard together and are being disposed of by this common order for the sake of convenience.
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2. Facts of the case, in brief, are that the assessee is an individual and is the proprietor of the following concerns :-
Sr. Name of the concern Nature of business
No.
i) Ashok Mittal & Co. Dealing in shares investments,
loan finance and related activities
ii) M/s Ashok Exports Exports
iii) Pondy Marble Dealing in marble
Processors
iv) M/s Litolier Trading in lamps, lights fittings &
fixtures
v) M/s Light & Lighting Trading in lamps lights,
accessories and fittings
vi) M/s Carrara Marble & Manufacturing of marble items
Granite Industries
3. He filed his return of income on 31.10.2001 declaring loss of Rs.2,55,663/-. The Assessing Officer completed the assessment u/s 143(3) on 31.03.2004 determining the total income of the assessee at Rs.27,07,97,350/-. The assessee filed an appeal before the CIT(A) who vide order dated 21.06.2004 granted part relief to the assessee.
4. Aggrieved with such part relief given by the ld. CIT(A), both the assessee as well as the Revenue filed appeal before the Tribunal. The Tribunal vide order dated 16.11.2007 in ITA No.3946/Del/2004 restored the following issues to the file of the Assessing Officer for fresh adjudication which were deleted by the ld. CIT(A) :-
(i) Bad debts written off - Rs.20,62,19,878/-
(ii) Interest of loan advanced upto 15% - Rs.1,56,25,970/-
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(iii) Addition on account of net profit on
sales of M/s Litolier by restricting the
same to 8% as against 25% adopted
by the Assessing Officer - Rs.17,48,055/-
Total - Rs.22,35,93,903/-
5. The Tribunal vide ITA No.3764/Del/2004 order dated 02.03.2009 dismissed the appeal filed by the assessee for non-prosecution. However, vide order dated 26.06.2009, the Tribunal recalled the ex-parte order passed by it dismissing the appeal filed by the assessee. Vide order dated 31.03.2006, the Assessing Officer passed the order u/s 143(3)/250 determining the total income of the assessee at Rs.1,81,34,320/-. This order was passed to give effect to direction of the ld. CIT(A) in his order dated 21.06.2004 whereby he restored the addition made on account of sundry balances written off to the extent of Rs.3,35,16,394/- to the file of the Assessing Officer. As a result of this order, the Assessing Officer deleted the additions to the extent of Rs.2,08,86,316/- on account of 12 parties and confirmed the additions to the tune of Rs.1,26,30,078/- in respect of 10 parties. Ld. CIT(A) vide order 24.04.2009 deleted the disallowance of Rs.1,18,35,806/- and sustained the disallowance of Rs.7,94,271/- out of aggregate disallowance of Rs.1,26,30,078/- made by the Assessing Officer in the assessment order. Against such part relief, the assessee as well as the Revenue are in appeal vide ITA No.2997/Del/2009 (by Revenue) and CO No.257/Del/2009 (by assessee).
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6. On 15.12.2008, the Assessing Officer in pursuance to the direction of the Tribunal vide order dated 16.11.2007 framed an order of assessment determining the total income at Rs.1,52,83,550/- whereby he gave part relief to the assessee on account of the issue restored to his file by the Tribunal and the details of which are as under :-
Sr. Particulars Amount (Rs.) Remarks
No.
i) Bad debts written off 20,62,19,878/- Addition Deleted
ii) Interest on loan advanced 1,56,25,970/- Addition
restricted to
Rs.49,04,217/-*
iii) Addition on account of net profit on 17,48,055/- Addition
sales of M/s Litolier by restricting rate restricted to
@ 8% instead of 25% applied by the Rs.5,02,426/-
learned Assessing Officer
Total 22,35,93,903/-
* However, the Assessing Officer held that even in respect of disallowance sustained to the extent of Rs.62,50,388/- by the CIT(A) in order dated 21.6.2004 there is excessive disallowance by Rs.13,46,171/- on the factual basis i.e. only in respect of three parties to whom excess interest amounting to Rs.49,04,217 has been paid i.e. above 15% and not Rs.62,50,388/-."
7. Ld. CIT(A) vide order dated 28.03.2013 partly allowed the appeal filed by the assessee and now the position is as under :-
Sr. Particulars Total Addition Addition Addition Total No. by AO Deleted by made/ Addition by (1) CIT(A) enhanced by CIT(A) (2) CIT(A) (2+3) (3)
i) Disallowance of 49,04,219 47,99,998 1,39,344 2,43,563 interest on loan
i) Addition on 5,02,426 1,93,023 - 3,09,403 account of GP rates Total 54,06,645 48,53,677 1,39,344 5,52,966 6
8. Aggrieved with such part relief by the ld. CIT(A), the assessee as well as the Revenue are in appeal before the Tribunal vide ITA No.3743/Del/2013 (by Revenue) and ITA No.3307/Del/2013 (by assessee) and the position is as under :-
Ground No. Ground No. Issue Amount
(Assessee) (Revenue)
1 1 Addition on account of GP rates 3,09,403/-
2 2 Disallowance of interest on loan 2,43,563/-
ITA No.3764/Del/2004 (By Assessee) :
9. In ground no.1(a) and the additional ground, the assessee has challenged the order of the CIT(A) in sustaining the addition of Rs.39,50,000/- out of Rs.3,33,14,317/- on account of sundry balances written off.
10. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings observed that the assessee had claimed an amount of Rs.3,33,14,318/- under the head sundry balances written off. He, therefore, asked the assessee to furnish details of sundry balances written off along with copy of account of the concerned parties. From the details filed by the assessee, he observed that the same includes debit balances of Rs.3,74,66,396/- and a credit balance of Rs.41,52,079/-. From the details filed by the assessee, he observed that in most of the cases, the assessee has shown receipts and payments from such parties during the year itself and in some cases as late as in March, 2001 but surprisingly the closing balance has been shown as written off 7 as on 31.03.2001. The Assessing Officer analyzed the following parties and observed as under :-
"4.1 In the ledger account of M/s Regulus Freight Forwardes Pvt. Ltd., it is observed that on 19-10-200 and 02-02-2001, the assessee has received cheques from the said party amounting to Rs.22 crores and 14.50 crores respectively, aggregating to Rs.36.50 crores. On 27.3.2001, the assessee has first issued a cheque of Rs.36.50 crores which sauares up the account. Then he has given another cheque on this very date itself, i.e. 27.3.2001 for the reasons best known to the assessee. 4.2 In respect of M/s Tradrsya Infotech Pvt. Ltd., the assessee has made payment of Rs.1.10 crores on 22.02.2001 and have received payments on 27.02.2001 and 07.03.2001, amounting to Rs.50 lacs land Rs.10 lacs respectively, aggregating to Rs.60 lacs., But as on 31st March, the balance amount of Rs.50 lacs has been shown as written off.
4.3 In respect of Shri Narotam Das, it is seen that the assessee has given a sum of Rs.7 lacs, mentioning as loan in the narration, on 26.04.2000 and on 25.09.2000, he has against advance a sum of Rs.5 lacs to Shri Das. But surprisingly, on 31.3.2001, the whole sum of Rs.12 lacs has been claimed as written off. 4.1.3 In respect of Salin Investments Pvt. Ltd., the assessee has shown amount to be received from it as on 1.4.2000, amounting to Rs.40 lacs. The assessee has made payment of Rs.52,20,000/- to it on 27.04.2001 the assessee has written off the balance of Rs.12,50,000/-.
4.2 Similar position emerges in respect of others also. In certain cases, the assessee has written off the balances pertaining to earlier years as well. But most of these are at maximum one or two years old balance."
11. He, therefore, asked the assessee to explain the nature of transactions in the aforesaid accounts and to state as to how these are/were being reflected in the trading/Profit & Loss Account of the assessee. In absence of any details filed by the assessee, the Assessing Officer made addition of Rs.3,33,14,317/- to the total income of the assessee.
12. In appeal, ld. CIT(A) sustained an addition of Rs.39,50,000/- and deleted the balance addition by observing as under :-
"(iv) I have considered the submissions made. I have also gone into the facts narrated by the ld. A.O. The issue is discussed as under :-8
a) M/s Regulus Freight Forwarders Pvt. Ltd. : Since in this case, no case can be made out that the amount written off constituted to be debt irrecoverable, no interference is called for, the addition of Rs.15 lakhs is sustained/upheld.
b) M/s Tradrsya Infotech Pvt. Ltd. : No specific details have been given by the A.O. justifying addition. It has been pleaded that full details were furnished during asst., that, it was a Benami concern of Shri Ketan Parikh involved in scam and arrested, that it was a proper debt, revenue in nature, irrecoverable, had actually been written off, and, that, it had earlier been taken into account in computing appellant's income in the previous or earlier years. It was stated in appeal that now, as per arbitration award, repayment in installments is promised which would be declared as income. Thus, for identical facts, the addition is deleted subject to A.O.'s verifying from records the correctness of facts pleaded as aforesaid and that irrecoverable profits from speculative business.
c) Shri Narotam Das : Here also the amount written off has not proved to be an irrecoverable debt. Therefore, the addition is upheld at Rs.12 lakhs.
d) Salin Investments Pvt. Ltd. : The appellant failed both before the A.O. and before the undersigned to evidence that the amount written off had become irrecoverable bad debt. Therefore, the addition is upheld at Rs.12.50 lakhs.
e) Similarly, as in (b) above, for other misc. items, the A.O. has not given specific individual details to justify addition. It was argued that all these entries were old irrecoverable proper debts, revenue in nature, actually written off and that the same were earlier taken into account in computing the income of the appellant. Therefore, for identical facts, the addition is deleted subject to A.O.'s verifying from records the correctness of facts as aforesaid pleaded and also that the irrecoverable profits or speculative transactions can be set off only against profits from speculative business."
13. Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before us.
14. Ld. counsel for the assessee strongly challenged the order of the ld. CIT(A). He submitted that in the case of M/s Regulus Freight Forwarders Pvt. Ltd., the assessee has received a sum of Rs.36.50 crores and has paid an amount of Rs.36.65 crores and has written off an amount of Rs.15,00,000/-, the details of which are as under :-
Sums Received Date Amount (Rs.) 19.10.2000 22.00 crores 2.2.2001 14.50 crores Total 36.50 crores 9 Sums Paid Date Amount (Rs.) 27.3.2001 36.50 crores 27.3.2001 15,00,000 Amount Written off Date Amount (Rs.) 31.3.2001 15,00,000
15. Referring to page 6 of the Paper Book, he drew the attention of the Bench to the copy of Ledger Account of M/s Regulus Freight Forwarders Pvt. Ltd. in the books of the assessee. Referring to page 6A to 6C of the Paper Book, he drew the attention of the Bench to the bank statements for the assessment year 2001-02. Referring to page 7 of the Paper Book, he drew the attention of the Bench to the copy of Ledger Account of M/s Regulus Freight Forwarders Pvt. Ltd. in the books of the assessee when the amount was written back and offered as business income. Referring to page 8C of the Paper Book, he drew the attention of the Bench to the copy of the bank statements for assessment year 2005-06 when the amount was written back and offered as business income. Referring to page 9 of the Paper Book, he drew the attention of the Bench to the details of sundry balances written back and offered as income for assessment year 2005-06 in the books of the assessee. Referring to page 10 of the Paper Book, he drew the attention of the Bench to the Profit & Loss Account of the assessee for assessment year 2005-06. Referring to page 11 to 13 of the Paper Book, he drew the attention of the Bench to the copy of the assessment order dated 28.12.2007 passed u/s 143(3) in the case of the assessee for the 10 assessment year 2005-06. He accordingly submitted that since the assessee has offered the amount to tax in the assessment year 2005-06 after receipt of the same which has been accepted by the Assessing Officer in the order passed u/s 143(3), therefore, the sum of Rs.15,00,000/- written off during assessment year 2001-02 should be allowed as deduction.
16. So far as the amount of Rs.12,00,000/- relating to Shri Narotam Das is concerned, ld. counsel for the assessee submitted that the assessee has given advance of Rs.7,00,000/- on 26.04.2000 and another amount of Rs.5,00,000/- on 25.09.2000 to Shri Narotam Das, which was written off on 31.03.2001. Referring to page 14 to 14B of the Paper Book, ld. counsel for the assessee drew the attention of the Bench to the copy of account and copy of bank statements for the assessment year 2001-02. He submitted that the amount has been advanced by account payee cheques in the course of the business of the assessee. The Assessing Officer had conducted independent verification from the said party who had duly confirmed the advance from the assessee. Therefore, the advance given by the assessee in normal course of business, which was written off in the instant year has to be allowed as deduction. 16.1 So far as the amount of Rs.12,50,000/- written off in the case of Salin Investments (P) Ltd. is concerned, the ld. counsel for the assessee submitted that the assessee has paid an amount of Rs.52,50,000/- on 27.04.2000 when there was an opening balance of Rs.40,00,000/- as on 01.04.2000. Referring to page 11 15 of the Paper Book, he drew the attention of the Bench to the copy of the Ledger Account of M/s Salin Investments (P) Ltd. in the books of the assessee. Referring to page 15A to 15C of the Paper Book, he drew the attention of the Bench to the copy of the bank statements for the assessment year 2001-02. Referring to page 15D to 15E of the Paper Book, he drew the attention of the Bench to the copy of the Balance Sheet as on 31.03.2000. He submitted that the Assessing Officer disallowed the claim of deduction on the ground that no cogent reasons have been stated to support the writing off which has been upheld by the ld. CIT(A). He submitted that the assessee first received an amount of Rs.40,00,000/- from M/s Salin Investments Pvt. Ltd. which was repaid during the year. The assessee apart from the above sum had also paid an amount of Rs12,50,000/- as advance against the purchase of shares which was not repaid by the said company. Since the assessee had written off the amount during the year, the same should be allowed as a deduction.
17. Ld. counsel for the assessee referring to the decision of the Hon'ble Delhi High Court in the case of Mohan Meakin Ltd. vs. CIT reported in 348 ITR 109 submitted that the deduction claimed represents business loss of the assessee company and as such is eligible for deduction u/s 37(1) of the I.T. Act. Referring to the said decision, he submitted that the Hon'ble Delhi High Court, relying on the decision of the Hon'ble Supreme Court in the case of CIT vs. Mysore Sugar Co. Ltd. reported in 46 ITR 649 has accepted the plea of the 12 assessee. He submitted that following the aforesaid decisions it has been held that loss of advances in the course of business are eligible for deduction u/s 37 of the I.T. Act. Referring to the decision of the Hon'ble Calcutta High Court in the case of A.W. Figgis and Co. Pvt. Ltd. vs. CIT reported in 254 ITR 63, he submitted that the Hon'ble High Court in the said decision has held that despite pendency of the suit if the assessee felt that the loan could not be recovered the filing of civil suit for recovery of debt was not necessary to claim the bad debt. He submitted that in the present case, the assessee had exhausted all the remedies including the filing of the suit and, therefore, the assessee had got all the justifiable grounds for allowing the loss. He accordingly submitted that the sundry balances written off amounting to Rs.39,50,000/- which has been upheld by the ld. CIT(A) should be deleted. He also relied on the decisions of the Hon'ble Allahabad High Court in the case of Shitla Prasad Shyam Lal vs. CIT reported in 96 CTR 150 and decision in the case of Kamla Cotton Company vs. CIT reported in 226 ITR 605.
18. Ld. DR on the other hand heavily relied on the order of the CIT(A). He submitted that despite opportunities granted by the Assessing Officer as well as the CIT(A) the assessee has not given the requisite details to substantiate that the amount written off become irrecoverable bad debt. Therefore, the ld. CIT(A) was fully justified in sustaining the addition. He accordingly submitted 13 that the order of ld. CIT(A) on this issue be upheld and the grounds raised by the assessee should be dismissed.
19. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the ld. CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find out of the sundry balances written off totaling to Rs.3,33,14,317/-, ld. CIT(A) sustained an amount of Rs.39,50,000/- made by the Assessing Officer, the details of which are already given in the preceding paragraphs. So far as the amount written off in the case of M/s Regulus Freight Forwarders Pvt. Ltd. is concerned, we find the assessee had written off an amount of Rs.15,00,000/- on 31.03.2001. The above amount was reversed in the assessment year 2005-06 after the same was received back from the said party and was offered as income. Such income has already been accepted by the Assessing Officer in the order passed u/s 143(3), copy of which is placed at page 11 to 13 of the Paper Book. Since the assessee has already shown such amount of bad debt written off in the year of receipt which has been accepted by the Assessing Officer in the order passed u/s 143(3) in assessment year 2005-06, therefore, the ld. CIT(A), in our opinion, is not justified in sustaining the addition. Accordingly, the same is directed to be deleted.
20. So far as the amount written off in the case of Shri Narotam Das is concerned, we find that the Assessing Officer had conducted independent 14 verification from the said party who has confirmed such amount. The addition was mainly due to the difference in the balance as per the assessee and the other party. It is the submission of the ld. counsel for the assessee that the amount was given by the assessee in the normal course of business and the money was not returned back to the assessee. Therefore, we find merit in the submission of the ld. counsel for the assessee that the same should be allowed as deduction especially when the Assessing Officer had independently obtained confirmation from the said party along with PAN details.
21. Similarly, in the case of M/s Salin Investments Pvt. Ltd. we find the Assessing Officer himself has allowed the bad debts/amounts written off whenever the assessee had given PAN and address of the party. In the instant case also, the assessee had given the PAN and details of the same person. Even though long gap of almost ½ decade has passed the above money was not returned back to the assessee. The various Courts have held that advances given in the course of business are eligible for deduction u/s 37 of the I.T. Act when the same is written off. Admittedly, in the instant case the assessee had given advance during the course of trading business and the money has not returned back to the assessee. Since the assessee exhausted all the remedies including filing of the suit, therefore, the same in our opinion is sufficient to allow the claim of such loss as deduction. The ground raised by the assessee is accordingly allowed.
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22. In ground of appeal no.1(b) the assessee has challenged the order of the ld. CIT(A) in making the disallowance of interest on loan at 6%.
23. Since, this ground is inter-connected with the ground no.2 in ITA No.3307/Del/2013 and ITA No.3743/Del/2013, therefore, the same will be dealt with at appropriate place.
24. Ground no.1(c) relating to disallowance of telephone expenses of Rs.1,18,289/- was not pressed by the ld. counsel for the assessee for which the ld. DR has no objection. Accordingly, the same is dismissed as not pressed.
25. In ground no.2(a) the assessee has challenged the order of the ld. CIT(A) in confirming the action of the Assessing Officer in treating a sum of Rs.82,20,000/- as "income from other sources" instead of "business income".
26. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings observed that M/s Litolier is the proprietary concern of the assessee engaged in the business of trading in lamps, fittings and fixtures. The Assessing Officer while computing the assessment of the said concern, treated the following amounts as income from other sources as against business income disclosed by the assessee : (i) service charges - Rs.42,00,000/-, (ii) miscellaneous charges - Rs.36,00,000/-, (iii) establishment charges - Rs.4,20,000/-. While doing so, the Assessing Officer has not asked any explanation from the assessee to explain the nature of such income. 16
27. Before the CIT(A), it was submitted that the assessee was not given any opportunity to explain the nature of such income. It was submitted that during assessment year 2000-01 similar treatment was given by the Assessing Officer for which the assessee carried the matter before the Tribunal and the order is awaited. It was submitted that the assessee firm in earlier years was also engaged in the business of undertaking contract for maintenance and up keeping of various properties. During the course of such maintenance line of business from the past several years, the assessee is engaged in the contract for maintenance of properties belonging to M/s Jet Airway India Ltd. situated at Andheri (Mumbai) for which service charges of Rs.42,00,000/- was received which was treated as business income. So far as the miscellaneous income of Rs.36,00,000/- is concerned, it was submitted that this receipt is on account of facility given to M/s Fareast Corporation Pvt. Ltd. to use common business premises along with facility being currently used by the assessee solely for business purposes. So far as the establishment charges of Rs.4,20,000/- is concerned, it was submitted that these receipts are on account of composite charges recovered from other firms under the control of the assessee sharing common business premises and facility at such premises. The assessee is earning such type of income from past several years. Relying on various decisions, it was submitted that the Assessing Officer was not justified in 17 treating the sum of Rs.82,00,000/- an "income from other source" instead of "business income" as declared by the assessee.
28. However, the ld. CIT(A) was not satisfied with the explanation given by the assessee and upheld the action of the Assessing Officer in treating such income as income from other sources. While doing so, he relied on his order for the assessment year 2000-01 in assessee's own case.
29. Ld. counsel for the assessee referring to page 224 to 232 of the Paper Book drew the attention of the Bench to the audited Balance Sheet and Profit & Loss Account of the assessee for the year ending 31.03.2001. Referring to page 233 to 235 of the Paper Book, he drew the attention of the Bench to the details of miscellaneous income and service charges received by the assessee. Referring to page 237 to 268 of the Paper Book, he drew the attention of the Bench to the copy of the order of the Tribunal for assessment year 2000-01. He referred to para 26 of the order and submitted that the Tribunal has restored the issue to the file of the Assessing Officer for fresh adjudication.
30. Referring to page 261 to 263 of the Paper Book, ld. counsel for the assessee drew the attention of the Bench to the treatment given by the Department for such miscellaneous income received, service charges received and establishment charges received for different assessment years. Referring to page 261 of the Paper Book, he submitted that the miscellaneous income received has been assessed as business income in the order passed u/s 143(3) for 18 assessment year 1998-99 and in the order passed u/s 143(1) in assessment year 1999-2000. For assessment year 2000-01, the Tribunal has restored the issue to the file of the Assessing Officer. So far as service charges is concerned, he submitted that the Assessing Officer has accepted such income as business income in the order passed u/s 143(3) for assessment year 2003-04, 2004-05, 2005-06 and 2006-07 and in the order passed u/s 143(1) for assessment year 2002-03. Similarly, the Tribunal in the order passed for assessment years 2000-01 has restored the matter to the file of the Assessing Officer.
31. So far as treatment of establishment charges received is concerned, he submitted that the same has been accepted as business income in the order passed u/s 143(3) for assessment years 1998-99, 2003-04 and 2004-05. Similarly, the same is accepted as business income in the order passed u/s 143(1) for assessment years 1999-2000 and 2002-03. For assessment year 2000-01, the matter has been restored to the file of the Assessing Officer by the Tribunal. Referring to the order of the Hon'ble Delhi High Court in assessee's own case for assessment year 2000-01 vide ITA No.27/2013 order dated 21.11.2003, the ld. counsel for the assessee drew the attention of the Bench to the said order and submitted that the Hon'ble High Court has upheld the conclusion of the Tribunal that such income is business income. The above order relates to the sum of Rs.36,00,000/- as miscellaneous income and sum of Rs.4,20,000/- received as establishment charges. He submitted that the balance 19 amount of Rs.26.41 lakhs has been accepted by the Assessing Officer as business income in assessment year 2000-01. He accordingly submitted that the ld. CIT(A) is not justified in treating such income as income from other sources as against business income.
32. Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the CIT(A).
33. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also gone through the order of the Tribunal in assessee's own case as well as the order of the Hon'ble High Court. We find the Assessing Officer following his order for assessment year 2000-01 treated the service charges of Rs.42,00,000/-, miscellaneous income of Rs.36,00,000/- and establishment charges of Rs.4,20,000/- totaling to Rs.80,20,000/- as income from other sources as against business income treated by the assessee. From the various details furnished by the assessee, we find the Assessing Officer in the order passed u/s 143(3) has assessed such miscellaneous income received at Rs.31,50,000/- as business income for assessment year 2000-01. Similarly, he has also treated such service charges of Rs.9,00,000/- as business income in the order passed u/s 143(3) for assessment year 1998-99. For assessment year 1999-2000 same has been accepted as business income in the order passed u/s 143(1) of the I.T. Act. Although, the Tribunal has restored the issue to the file 20 of the Assessing Officer in assessment year 2000-01, subsequently, the Assessing Officer again treated the same as income from other sources.
34. In appeal, the ld. CIT(A) held such income as business income. The appeal filed by the Revenue on this issue was dismissed by the Tribunal and on further appeal by the Revenue, the Hon'ble High Court dismissed the appeal filed by the Revenue on this issue. The relevant observations of the Hon'ble High Court read as under :-
"4. In the second round, the Assessing Officer examined claim of Rs.31,50,000/- received as management and advisory fee from Fareast Corporation Pvt. Ltd. and M/s European Investment Ltd. under the heading "Miscellaneous Income". The Assessing Officer has held as under:-
"3. Miscellaneous Income That during the year the assessee has received Rs.31,50,000/- as management & advisory fees from Fareast Corporation Pvt Ltd. and M/s European Investment Ltd copy of the agreements are enclosed. It may stated that the similar receipt of the assessee in A.Y. 1998-99 and 1999-2000 have been assessed as business income. A comparative chart regarding miscellaneous income received by the assessee for A.Y. 1999-2000 to 2001-02 is enclosed. The receipt on account of establishment charges has been assessee in earlier assessment years as 'Business Receipts' and following the principle of consistency, the same may be treated as 'Business Receipts' x x x x x x x x x x"
5. Thereafter, Assessing Officer has made reference to other issues under the same heading but the same are not relevant. The only finding recorded by the Assessing Officer is as under:-
"During the year, the assessee has claimed the receipt of Rs.31,50,000/- from M/s Fareast Corporation Pvt. Ltd. and M/s European Investment Ltd. The assessee has filed the copy of the agreement entered into by the assessee with both the above parties. On going through the agreement it is seen that the assessee has been appointed as investment manager by both of these firms (namely M/s. Fareast Corporation Pvt. Ltd. and M/s. European Investment Ltd.) to invest and reinvest and manage such of its funds as may from time to time be entrusted to him and in consideration of the services to be rendered by the investment manager under this agreement, the company agreed to pay sum of Rs.1,50,00/- per month. The assessee was asked to indentify expenses attributable to Misc. expenses vide not sheet entry dated 19.11.2010. However, the assessee has stated that he has not maintained the separate 21 records of expenses incurred by M/s Litolier against different sources of income and segregated the expenses in the ratio of income earned which is not acceptable especially when this income is assessed as income from other sources. This income cannot be accepted to be business income since the assessee has not been able to identify and substantiate the expenses incurred for earning such income. There does not appear to be any expenses on account of infrastructure, staff etc. for earning the income under the head miscellaneous income. Hence this income is to be assessed under the head income from other sources."
6. It is clear from the aforesaid finding recorded by the Assessing Officer that he has not discussed the nature and character of the said receipt. The Assessing Officer did not dispute genuineness of the receipt. He has accepted that income was received pursuant to the agreements between the assessee and M/s Fareast Corporation Pvt. Ltd. and M/s European Investment Ltd. As noticed above, the assessee also dealt with share investment, loan finance and related activities.
7. The Commissioner of Income Tax (Appeals) in the first appellate order deleted the said addition and has held that the receipt of Rs.31.5 lacs was taxable under the head "business income" and not as "income from other sources". He observed that the Assessing Officer had not discussed the basis and had assumed that no expenses were incurred for earning of income from management and advisory services and in case the Assessing Officer was not satisfied on the basis of segregation of expenses, he should have adopted some other method for apportionment of expenses. He further observed that the Assessing had erred in treating the receipt of Rs.31.5 lacs under the head "income from other sources" instead of "business income" as he had neither stated nor held that the assessee was not rendering services to the foreign companies. Moreover, all expenses claimed by the respondent- assessee were allowed by the Assessing Officer under the head "other business income" of M/s Litolier and there was no dispute that expenses were incurred by M/s Litolier. He has held:-
"4.1 After examining the nature of these receipts and the accounting treatment in the appellant‟s books of accounts, I am of the opinion that the Assessing Officer has not appreciated the facts. The controversy regarding whether the income is to be treated as business income or as Income from Other Sources has arisen on account of the appellant crediting the gross amount of Rs.31,50,000/- to the Profit & Loss Account of M/s. Litolier, which is engaged in the business of trading of lamps. The Assessing Officer was of the view that the receipts from management and advisory fees had nothing to do with the business activity of M/s Litolier, hence the same could not be treated as business income. However, the Assessing Officer has failed to examine the nature of the receipts independently, as directed by the Hon‟ble ITAT. It has been submitted before the undersigned that the copies of the agreements entered into by the appellant with Far East Investment Corporation Ltd. and European Investment Ltd. were filed before the Assessing Officer vide letter dated 27.08.2010 which show that the appellant‟s proprietorship concern M/s Litolier was appointed as „Investment Manager‟ to invest and manage the funds and assets entrusted to him by these Mauritius based companies. The appellant has contended that the management fees were accounted for. In the 22 case of M/s. Litolier because as per its consistently followed modus operandi, administrative expenses are incurred centrally through M/s Litolier and apportioned in the different proprietorship business concerns in proportion to the turnover. The appellant has not maintained separate record for expenses incurred for separate sources of income and has shown all expenses incurred under one consolidated account for his convenience. However, it cannot be denied that some expenditure has been incurred for earning of the management and advisory fees in terms of common expenses of office overheads, salaries, rent etc. It is also seen that the Assessing Officer has not disallowed any portion of the expenditure claimed by M/s. Litolier, thus, implicitly accepting that the expenditure is duly incurred. Whether the expenditure is deducted against the Income from Business of M/s. Litolier or against the Income from Other Sources, it results in no difference to the taxable income. Moreover, it is seen that the appellant also derives income from business of speculation, dealing, in shares, investments, loan finance and related activities in the name of M/s Ashok Mittal & Co. Hence the management of the funds and assets of the two afore-mentioned companies is along the lines of the business activity of the other proprietorship concern. I find no cogent reason in the assessment order to support the finding that the income from management and advisory fees requires to be assessed as Income from Other Sources. The Assessing Officer has brought nothing on record to prove that the appellant did not carry out the stated activity of investment management. The alleged reason that the appellant could not identify the related expenses does not establish that the income was not derived from the business activity of „Investment Manager‟.
(4.2) The appellant‟s contention that on the principle of consistency, the income from investment management and advisory fees should have been assessed as business income is also with merit. There is no fundamental difference in the nature of business activity between the present income. In the Assessment Year 1998-99, the „miscellaneous income‟ was disclosed and assessed as business income in the order under section 143(3) dated 29.03.2001. This was the first year of the agreement signed with Far East Investment Corporation Ltd. and Eurpopean Investment Ltd. As there is no change in the terms of the agreement or in the nature of services rendered, even on account of principle of consistency, the Assessing Officer action of treating the income as Income from Other Sources is not justified. For all the above reasons, the appellant succeeds at Grounds of Appeal Nos.1 to 2."
The aforesaid findings have been affirmed by the tribunal.
9. In view of the aforesaid factual position, we do not find any merit in this appeal and the same is dismissed. No costs."
35. The above issue relates to miscellaneous income and establishment charges. However, so far as the issue relating to service charges is concerned, we find the Assessing Officer has accepted such income as business income in 23 the order passed u/s 143(3) for the assessment year 2003-04 to 2006-07. Similarly, after the issue was restored to the file of the Assessing Officer by the Tribunal, the Assessing Officer himself in the assessment order has accepted the same as business income. In view of the order of the Assessing Officer on the issue of service charges and respectfully following the decision of Hon'ble High Court in assessee's own case on the issue of miscellaneous income and establishment charges we hold that the ld. CIT(A) was not justified in treating the income to the extent of Rs.82,20,000/- as "income from other sources" as against "business income" declared by the assessee. Accordingly the order of the ld. CIT(A) is set-aside and the ground raised by the assessee is allowed.
36. In ground no.2(b) the assessee has challenged the order of the ld. CIT(A) in confirming the disallowance of gross loss of Rs.3,02,829/- and retaining the G.P. rate at 8% on the disclosed as well as undisclosed sales of Rs.17,44,130/-.
37. Since the above ground is linked with ground no.1 in ITA No.3743/Del/2013 (by Revenue) and ground no.1 in ITA No.3307/Del/2013 (by assessee), therefore, this ground will be discussed at appropriate place.
38. In ground no.2(c) the assessee has challenged the order of the ld. CIT(A) in confirming the disallowance of Rs.77,350/- u/s 43B.
39. After hearing both the sides, we find the Assessing Officer disallowed an amount of Rs.19,389/- (incorrectly stated in ground as Rs.77,350/-) on the ground that assessee has deposited the contribution to PF for the month of 24 August on 22.09.2000 which is beyond the due date prescribed i.e. 15.09.2000. In appeal, the ld. CIT(A) upheld the action of the Assessing Officer.
40. Since the assessee in the instant case has admittedly deposited such contribution to PF before the due date of filing of the return, therefore, in view of the consistent decisions of the Tribunal that no disallowance can be made u/s 43B being contribution to PF and ESIC deposited prior to due date of filing of the return, we set-aside the order of the ld. CIT(A) and direct the Assessing Officer to delete the addition.
41. Ground no.2(d) relates to addition of Rs20,457/- out of society charges which was not pressed by the ld. counsel for the assessee and the ld. DR has also no objection. Accordingly, the same is dismissed as not pressed.
42. In ground no.2(e) and 2(f), the assessee has challenged the order of the CIT(A) in confirming the disallowance of Rs.5,06,219/- out of advertisement expenses and Rs.10,866/- out of sales promotion expenses.
43. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings observed from the Profit & Loss Account of M/s Litolier that the assessee has incurred huge expenses aggregating more than Rs.95,32,941/-. The explanation of the assessee regarding such expenses that expenses related to other concerns are debited to the Profit & Loss Account of M/s Litolier was not accepted by the Assessing Officer on the ground that the expenses under certain heads like advertisements, sales promotion, etc. are 25 debited on these accounts and most of the other concerns are showing almost no business activity. In view of the inability of the assessee to furnish justification of such expenses under the head advertisement and sales promotion, the Assessing Officer disallowed an amount of Rs.5,06,219/- being 1/4th of such expenses and amount of Rs.10,866/- being 1/4th of the sale promotion expenses on ad-hoc basis, which was upheld by the ld. CIT(A).
44. Ld. counsel for the assessee submitted that the ld. CIT(A) sustained the above disallowance only on the ground that there are no business activity. Referring to page 225 of the Paper Book, ld. counsel for the assessee submitted that the same is factually incorrect since for the year ending 31st March, 2011, the assessee has shown sales at Rs.83,290/- in the Profit & Loss Account. Referring to various decisions, he submitted that such disallowance made by the Assessing Officer and upheld by ld. CIT(A) is not justified.
45. Ld. DR on the other hand heavily relied on the order of the ld. CIT(A).
46. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We find the assessee has debited an amount of Rs.20,20,876/- on account of advertisement expenses out of which the Assessing Officer disallowed Rs.5,06,219/- on ad-hoc basis. Similarly, out of sale promotion ofRs.43,467/-, he disallowed an amount of Rs.10,866/- being 1/4th of such expenses on ad-hoc basis. Ld. CIT(A) upheld such disallowance 26 made by the Assessing Officer on the ground that the assessee has not done any business under the proprietary concern, M/s Litolier. A perusal of the Profit & Loss Account of the said concern, copy of which is placed at page 225 of the Paper Book shows that the assessee has disclosed sales of Rs.83,290/-. Therefore, the finding of the ld. CIT(A) on this aspect that the said concern has not done any business is incorrect. Further, it is also an admitted fact that the assessee has not submitted all the bills and vouchers before the Assessing Officer during the course of assessment proceedings. Considering the totality of facts of the case and in the interest of justice, we sustain total disallowance of Rs.1,00,000/- on estimate basis out of advertisement and sale promotion expenses. The ground raised by the assessee on this account is partly allowed.
47. Ground no.2(g) and 2(h) relating to the motorcar expenses of Rs.98,745/- and telephone expenses of Rs.33,874/- were not pressed by the ld. counsel for the assessee for which ld. DR has no objection. Accordingly, the ground no.2(g) and 2(h) are dismissed for not pressed.
48. Ground no.3 relates to initiation of penalty proceedings u/s 271(1)(c) being pre-mature at this juncture is dismissed.
49. Ground no.4 relates to charging of interest u/s 234-B being consequential in nature is dismissed.
50. Ground no.5, 6 and 7 being general in nature are dismissed. 27 ITA No.2997/Del/2009 (By Revenue) C.O. No.257/Del/2009 (By Assessee)
51. As mentioned earlier the assessee had filed his return on 31st October, 2001 declaring loss of Rs.2,55,663/-. The Assessing Officer had completed the assessment u/s 143(3) on 31.03.2006 determining the total income of Rs.27,07,97,350/-.
52. In appeal, the ld. CIT(A) granted part relief to the assessee by deleting certain addition and sustained some addition and restored the issue to the file of the Assessing Officer for deciding the issue afresh on account of additions to the tune of Rs.3,35,16,394/-. Subsequently, the Assessing Officer in the order passed u/s 250/143(3) dated 31st March, 2006 completed the assessment determining the total income at Rs.1,81,34,320/- wherein huge disallowance of Rs.1,26,30,078/- was made on account of the following concerns :-
(i) M/s Prabhudas Lila Dhar Pvt. Ltd. - Rs.50,00,000/-
(ii) M/s Oson Construction Pvt. Ltd. - Rs.48,45,000/-
(iii) Shir Manish C. Zaveri - Rs.2,50,000/-
(iv) M/s A.J. Packing - Rs9,40,000/-
(v) M/s Siddharth Polymer - Rs.6,50,000/-
(vi) Shri Anil Sekhri - Rs5,40,000/-
(vii) M/s Architecture Autonomous - Rs.1,42,972/-
(viii) Sundry Advances - Rs1,70,106/-
(ix) Staff Advances - Rs.42,000/-
(x) Nagin T. Sanghvi - Rs.50,000/-
53. In appeal, the ld. CIT(A) deleted the addition to the tune of Rs.1,18,35,806/- and sustained the balance of Rs.7,94,272/-. 28
54. Aggrieved with such order of the CIT(A), the Revenue has filed the appeal by raising the following grounds :-
"1. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in Law in admitting the additional evidence in the case during the course of Appellate proceedings. The Ld. CIT-(A) has not followed the conditions prescribed under Rule 46A of the IT Rules before admitting the additional evidence filed during the course of appellate proceedings.
2. On the facts and in the circumstances of the case the Ld. CIT-(A) has erred in Law and on facts in deleting the addition of Rs.1,18,35,806/- out of Rs.1,26,30,078/- made on account of sundry balance.
3. The appellant craves leave to add, alter or amend any of the grounds of appeal before or during the course of hearing of the appeal."
55. The assessee has also filed Cross Objection by raising the following grounds of cross-objections :-
"1. That the learned Commissioner of Income Tax (Appeals) XXIII, New Delhi has erred both in law and, on facts in confirming the disallowance of claim of sundry balances written off Rs.7,94,272/-, partywise details of which are as under :
Sr. No. Name of Party Amount (Rs.)
1. Shri Anil Sekhri 5,40,000/-
2. M/s. Architecture Autonomous 1,42,972/-
3. Payments towards Stamp Fees 1,11,300/-
2. That while confirming the aforesaid disallowance that the learned Commissioner of Income Tax (Appeals) has failed to appreciate the submissions made by the appellant, evidence placed on record and, judicial pronouncement relied upon.
56. We have considered the rival arguments made by both the sides and perused the material available on record.
57. So far as the deletion of Rs.50,00,000/- is concerned, we find ld. CIT(A) while deleting such addition has given the following reasons :-
"8. For easy disposal of this appeal, I am taking party-wise transactions which have been written off. The first case is that of M/s Prabhudas Lila Dhar Pvt. Ltd. in which Rs.50,00,000/- has been written off by the assessee. The ld. AO in the impugned order has adopted two grounds for making addition of the said 29 Rs.50,00,000/-. The two grounds as mentioned in page 4 of the impugned order is (1)
- u/s. 133(6) of the Act, M/s. Prabhudas Lila Dhar Pvt. Ltd. was asked to confirm the closing bank balance in its account vis-à-vis the assessee. The ld. AO has simply stated that there is a lot of difference in the figure reported by evidence. (2) - claim of the assessee as not recoverable was untenable and therefore rejected by the ld. AO. The assessee in its submission dt.9.1.2009, which was submitted on 19.1.2009 and has been reiterated vide written submission on 12.3.2009 has stated -
(i) Mere difference in balances cannot be a ground to disallow claim of education of sundry balance written off;
(ii) Entire sum, which accrued out of an alleged share transaction with M/s. Prabhudas Lila Dhar Pvt. Ltd., had been disclosed as income by the assessee in the preceding assessment year.
(iii) The replied from M/s. Prabhudas Lila Dhar Pvt. Ltd. were F.Y. 1997-
98 and 1998-99 and not prior thereto. Thus, the sum of Rs.50,00,000/- which was the closing balance on 31.3.1996 and not been obtained by the ld. AO and therefore any addition on that account could not have been made;
(iv) Reliance was placed on the decisions in CIT v. Morgan Securities & Credits Pvt. Ltd. reported in 292 ITR 339 (Delhi) and CIT v. Nai Duniya reported in 295 ITR 346 (MP);
In the verbal submission made on 12.3.2009, it was vehemently contested that the accounts of the assessee were audited. Secondly, if the ld. AO deemed that the books were incorrect and did not manifest the true and correct picture, the books should have been rejected.
"9. I have carefully considered the order of the Id. AO and the submissions made by the assessee. It is not disputed that Rs. 50,00,000/- has been written off by the assessee during the current assessment year. It is also not disputed that on a reference to M/s. Prabhudas Lila Dhar Pvt. Ltd., the closing balances as shown by this third party was Nil. However, perusal of the record suggests that the transactions with M/s. Prabhudas Lila Dhar Ltd. had been disclosed in the earlier assessment years. There is no doubt that the reply from M/s. Prabhudas Lila Dhar Pvt. Ltd. has given details for the period 1.4.1997 onwards only. The difference in balance in the accounts of the assessee and M/s. Prabhudas Lila Dhar Pvt. Ltd. is no doubt a serious issue as it suggests that either the assessee's accounts are incorrect or that of M/s. Prabhudas Lila Dhar Pvt. Ltd. The third reason which can possibly be suggested is that there is a communication gap between the assessee and M/s. Prabhudas Lila Dhar Pvt. Ltd. This piece of evidence in the account of a third party is certainly persuasive in nature, but not clinching, in as much as that the Id. AO has not vetted the books of accounts of M/s. Prabhudas Lila Dhar Pvt. Ltd. Perusal of the assessment records do not suggest any such exercise. The books of the assessee have also not been rejected u/s. 145(3) of the Act. In other words, by merely receiving a communication from a third party account cannot nail the assessee without any further investigations into the matter.
10. Despite the persuasive nature of evidence as cited above, the stand taken by the ld. AO that the writing off is rejected, does not stand the test of law laid down by the Hon'ble Delhi High Court in CIT vs. Morgan Securities & Credits Pvt. Ltd. [2007] 292 ITR 339 (Delhi), which after referring to Board's circular No. 551 dt. 23.1.1990, has inter-alia held as under at page 343 & 344:-30
"A conjoint reading of section 36(2) and section 36(1)(vii) makes it clear that the assessee would be entitled to a deduction of the amount of any bad debt which has been written off as irrecoverable in its accounts for the previous year. Any lingering doubt would vanish on a careful reading of Circular No. 551, dated January 23, 1990 (see [1990] 183 ITR (St.)7), the relevant portion of which reeds as follows (page 37) :
'6.6. The old provisions of clause (vii) of sub-section (1) read with sub-section (2) of the section laid down conditions necessary for allowability of bad debts. It was provided that the debt must be established to have become had in the previous year. This led to enormous litigation on the question of allowability of bad debt in a particular year, because the bad debt was not necessarily allowed by the Assessing Officer in the year in which the same had been written off on the ground that the debt was not established to have become had in that year. In order to eliminate the disputes in the matter of determining the year in which a bad debt can be allowed and a/so to rationalize the provisions, the Amending Act, 1987, has amended clause (vii) of sub-section (1) and clause (i) of sub- section (2) of the section to provide that the claim of bad debt will be allowed in the year in which such a bad debt has been written off as irrecoverable in the accounts of the assessee.
6.7 Clauses (iii) and (iv) of sub-section (2) of the section provided for allowing deduction for a bad debt in an earlier or later previous year, if the Income-tax Officer was satisfied that the debt did not become bad in the year in which it was written off by the assessee. These clauses have become redundant, as the bad debts are now being straightaway allowed in the year of write off. The Amending Act, 1987, has, therefore, amended these clauses to withdraw them after the assessment year 1988-89."
The conundrum which has arisen before us had also engaged the attention of the Gujarat High Court in CIT v. Girish Bhagwatprasad [2002] 256 ITR 772 with which we are in respectful agreement. Our learned brothers had pointedly observed that the genuineness of the claim predicted on section 36(1)(vii) of the Income-tax Act was not in doubt. Where the loan transaction is itself shrouded in uncertainty other provisions of the status would immediately come into play. Our learned brothers further observed that prior to the amendment from April 1, 1989, the allowance under the said section was confined to debts and loans which had becomes irrecoverable in the accounting year. Without advertising the above extracted circular, it was opined that with effect from April 1, 1989, 'all that the assessees had to show was that the entire bad debt was written off as irrecoverable.' One year later an altogether different Bench of Gujarat High Court had to decided the question of whether it was enough if the assessee writes off the debt as bad in its books of account and whether the assessee company need not establish the debt to become bad, in Deputy CIT v. Patidar Ginning and Pressing Co. [1999] 157 CTR 177 (Guj). The appeal of the Revenue was dismissed.
It is our view that the Circular No. 551 (see [1990] 183 ITR (St.) 7) leaves no scope for debate since it specifically notices the previous practice of having to establish that a debt had become had in the previous year, which had generated enormous litigation on the question of allowability of bad debt in a particular year. The circular expressed the hope that this litigation would be eliminated by permitting a debt to be treated as a bad or irrecoverable no sooner it was written off in the books of the assessee concerned."
31
11. The same has been the stand of the Hon'ble Delhi High Court in CIT v. Autometres Ltd. [2007] 292 ITR 345 (Delhi); CIT v. IFCI Venture Capital Funds Ltd. [2008] 202 Taxation 329 (Del) and CIT v. Global Capital Ltd. [2008] 306 ITR 332 (Delhi) and more recently in CIT v. Smt. Nilofer I. Singh [2009] 309 ITR 233 (Delhi). In the last mentioned case at page 239, the Hon'ble High Court, on the facts of the case has held as under:-
"As regards the second issue pertaining to bad debts, we find that section 36(1)(vii) of the said Act clearly stipulates that the said deduction is allowed provided the bad debt is written off as irrecoverable in the accounts of the assessee for the concerned previous year. This is, however, subject to the provision of sub-section (2) of section 36 of the Act. Nothing has been pointed out before us to indicate that any of the provisions of sub-section (2) of the Act would come in the way of the assessee in the facts of the present case. It is also an admitted position that the assessee had, in fact, written off the bad debts as irrecoverable in her accounts in the relevant previous year. The only argument sought to be raised on behalf of the Revenue was that the Reserve Bank of India's permission had been communicated by the assessee's bank to the assessee on May 5, 1998, which was the year next to the previous year in question. It is relevant to note that the Reserve Bank of India had already taken the decision for granting permission to write off the said amount on March 18, 1998. In any event, this is not a relevant consideration inasmuch as all that the assessee had to do was to write off the debt as irrecoverable in its accounts of the relevant previous hear. The Tribunal has arrived at a finding of fact based upon a correct appreciation of the law. No substantial question of law arises for our consideration."
12. The decision of the Hon'ble Madhya Pradesh High Court in CIT v. Nai Duniya [2007] 295 ITR 346, also comes to the rescue of the assessee, wherein the head note states as follows :-
"When the assessee has actually written off the debit in his books of account as being had then unless the Assessing Officer had rejected the entire books of account to be totally unreliable and found extreme perversity in declaration of the debt to be a bad debt, there arises no occasion for the Assessing Officer for not accepting the stand of the assessee on this issue. It is essentially for the assessee to decide as to whether he is able to recover the debt or whether there are any viable chances to ensure its recovery or whether all hopes have come to an end for recovery. This being in the nature of what is called commercial expediency depending upon the nature of the transaction, capacity of debtor etc. the stand of the assessee cannot be ignored by the Revenue unless there are very cogent reasons to reject it."
13. In view of the discussion above the addition made on account of writing off or Rs.50,00,000/- for transaction with M/s. Prabhudas Lila Dhar Pvt. Ltd. deserves to be deleted, as all that the assessee has to do is to write off the debts as irrecoverable, which has been done in this case."
58. The ld. DR could not controvert the reasoning given by the ld. CIT(A) on this issue. Since the assessee in the instant case is in the business of share 32 dealing and the amount was outstanding in the books of the assessee on 31st March, 1996 which is not disputed by the Revenue and since mere difference, in our opinion, cannot be a basis for disallowance and the assessee has given justifiable reasons for difference in the figures as per the books of the assessee as well as the figures given by the third parties, therefore, in view of the detailed reasoning given by the ld. CIT(A) on this issue, we do not find any infirmity in the order of the ld. CIT(A) deleting the amount of Rs.50,00,000/- in the case of M/s. Prabhudas Lila Dhar Pvt. Ltd. The same is accordingly upheld.
59. So far as written off in the case of M/s Oson Construction Pvt. Ltd. amounting to Rs.48,45,000/- is concerned, we find the ld. CIT(A) while deleting the addition has called for a remand report from the Assessing Officer. After considering the remand report of the Assessing Officer and the submissions of the assessee, ld. CIT(A) admitted the additional evidence and deleted the addition by observing as under :-
"21. In the submission as given above, it is evident that the assessee has written off the amount of Rs.48,45,000/- in the case of M/s. Oson Construction Pvt. Ltd. This is an un-disputed fact. The additional evidence as filed also have confirmation from M/s. Oson Construction Pvt. Ltd. as on 31.03.2001, a copy of the PAN as downloaded from the website, Master Data copy from ROC website as well as the copy of the bank statement. The ld. AO in his report dt. 30.1.2001 also does not dispute the existence of correct PAN pertaining to M/s. Oson Construction Pvt. Ltd. The genuineness of the transaction also had not been doubted or suspected by the ld. AO. Be that as it may, in view of the binding decision of the Delhi High Court and the Madhya Pradesh High Court as deliberated in para 10 to 12, the assessee deserves to succeed. As such, the addition of Rs.48,45,000/- on account of M/s. Oson Construction Pvt. Ltd., written off by the assessee is deleted."33
60. We do not find any infirmity in the order of the ld. CIT(A) while deleting the addition. It is an admitted fact that the amount was outstanding in the books of the assessee. We, therefore, do not find any infirmity in the order of the ld. CIT(A) deleting the addition of Rs.48,45,000/- which in our opinion is in accordance with the law. The same is therefore upheld.
61. So far as the deletion of Rs.2,50,000/- in case of Shri Manish C. Zaveri Rs.9,40,000/- in case of A. J. Packing Co. and Rs.6,50,000/- in case of M/s Siddharth Polymers is concerned, we find ld. CIT(A) deleted the addition by observing as under :-
"22. Next we may take up the case of Manish C. Zaveri, wherein an amount of Rs.2,50,000/- has been written off by the assessee. The ld. AO has discussed the addition at page 5 of the impugned order. The ld. AO has made the addition, for the reason that no fresh evidence was filed. I have already deliberated upon the issue of admission of fresh evidence in paras 15, 17, 18, 19 & 20. The correct PAN has already been submitted to the ld. AO. In the remand report he has not disputed the correctness of the PAN. Subsequently, this amount which had been written off has already been shown as recovered in A.Y. 2008-09. As such, as long as the ld. AO has not disputed the writing off of the bad debts, it is immaterial that a decision would have to be based on fresh evidence, considering the binding decisions of the Jurisdictional High Court, apart from Madhya Pradesh High Court discussed in para 10 to 12 above. Thus, the addition of Rs.2,50,000/- on account of Manish C. Zaveri is deleted.
23. Next we may come to writing off of Rs.9,40,000/- vis-à-vis the transaction with M/s. A.J. Packing Company, on account of writing off of bad debts. This issue has been dealt at page 6 of the impugned order of the ld. AO. The addition of Rs.9,40,000/- has been made on the same lines as that the Shri Manish C. Zaveri, which has been discussed in the previous paragraph. The only difference here is that the written off account has been disclosed as recoverable and as income in A.Y. 2009-
10. As such, due to the reasons recorded in the previous paragraph in case of Shri Manish C. Zaveri, the addition of Rs.9,40,000/- is deleted.
24. On the same lines as that of Shri Manish C. Zaveri and M/s. A.J. Packing Co., wherein the amount has subsequently been recovered and reflected as income for A.Y. 08-09, the addition in the case of Siddharth Polymers to the extent of Rs.6,50,000/- is deleted."34
62. We further find the ld. CIT(A) has given a finding that the amount in case of Shri Manish C. Zaveri was returned in financial year 2008-09 and the assessee has offered the same to tax. Therefore, in view of the decision of the Hon'ble Supreme Court in the case of T.R.F. Ltd. vs. CIT reported in 323 ITR 397 and the decision of the Apex Court in the case of Badridas Daga vs. CIT reported in 134 ITR 10, we find no infirmity in the order of the ld. CIT(A) deleting the amount written off in the case of Shri Manish C. Zaveri, M/s A.J. packing and M/s Siddharth Polymer. Accordingly, the same is upheld.
63. So far as the amount relating to Mr. Nagin T. Sanghavi is concerned, we find the ld. CIT(A) while deleting the same has given the following reasons :-
"25. Next we may discuss the case of Nagin T. Sanghvi, wherein an amount of Rs.50,000/- has been written off. This has not been discussed in the order of the ld. AO. No reasons, in other words, have been assigned. There is not ever a whisper. During the course of the appellate proceedings, confirmation from the said Nagin Sanghvi had also been filed, which has been admitted as an additional evidence in the backdrop of my discussion above in para 16 to 20. In view of the fact that the conformation had been filed from the said Nagin T. Sanghvi, which has been admitted by me for the purpose of disposal of the this appeal, the said addition of Rs.50,000/- is deleted."
64. Since the assessee has filed the confirmation from the said party which was not filed before the Assessing Officer for which the addition was made, therefore, we find no infirmity in the order of the ld. CIT(A) in deleting the addition.
65. Similarly for other small advances, we find the ld. CIT(A) deleted the disallowance in case of Santosh Katkar - Rs.18,806/-, Aditya Narayan Sharma 35
- Rs.10,000/-, Sachin Bhatkar - Rs.15,000/- and Kailash Nath Yadav - Rs.15,000/- by observing as under :-
"28. In the case of Santosh Katkar, Aditya Narayan Sharma, Sachin Bhatkar & Kailashnath Yadav, the additions were made as no details were provided before the ld. AO. However, details have been provided during the appellate state and for the reasons mentioned in paras 16 -20 above, I have taken them on record as additional evidence for the purpose of disposal of the appeal. In all the four cases, confirmations had been filed by the entities. Furthermore, in all the cases the amount has been shown as recovered in A.Y. 2009-10, and disclosed as income. As such, due to the reasons recorded in the case of Shri Manish C. Zaveri, the additions made on account of writing off of debts in the case of Shri Santosh Katkar, Shri Aditya Narayan Sharma, Shri Sachin Bhatkar and Shri Kailashnath Yadav are deleted.
29. However, we are left with an amount of Rs.1,11,300/- towards payment of stamp fees. No evidence was filed before the ld. Assessing Officer, which could justify that this payment was for the purpose of business. Nor have any evidence been filed before me during the appellate stage. Thus, relying upon the decision of Cooper Engineering Ltd. (supra) and CIT v. Motor General Finance Ltd. (supra), the addition on account of Rs.1,11,300/- towards stamp fees is upheld.
30. Lastly, we are left with addition of Rs.42,000/- towards staff advances, which has two parts as under :-
(i) Rita Chaturvedi - Rs.40,000/-
(ii) Dinesh Potdar - Rs.2,000/-
The additions were made as no details were provided before the ld. AO. However, details have been provided during the appellate stage and for the reasons mentioned in paras 16 - 20 above, I have taken them on record as additional evidence for the purpose of disposal of the appeal. In both the cases, confirmations had been filed by the entities. Furthermore, in both the cases the amount has been shown as recovered in A.Y. 2009-10, as income. Thus, on account of the reasons recorded in the case of Manish C. Zaveri, above, the addition of Rs.42,000/- is deleted."
66. We find the reasoning given by the ld. CIT(A) for deleting the addition are based on the details provided during the appeal proceedings. Ld. CIT(A) based his decision on the basis of deletion made in the other cases which has been upheld by us in the preceding paragraphs. Therefore, we do not find any infirmity in the order of the ld. CIT(A) in deleting the addition to the tune of 36 Rs.58,806/- in respect of the above four parties. Accordingly, the same is upheld.
67. So far as the order of the ld. CIT(A) in sustaining the addition of Rs.5,40,000/- in the case of Mr. Anil Sekhri and Rs.1,42,972/- in case of Architecture Autonomous are concerned, we find the ld. CIT(A) while sustaining the above two additions amounting to Rs.6,82,972/- has given the following reasons :-
"26. Next we may come to the following writing off of debts/losses :-
(i) Anil Sekhri - Rs.5,40,000/-
(ii) Architecture Autonomous - Rs.1,42,972/-
No details were filed by the assessee before the ld. AO. Nor have any details been filed during the appellate state. Only bald assertions were made that the transaction relates to business of the assessee. They have not been backed by any evidence to substantiate the claim. In Cooper Engineering Ltd. vs. CIT [1982] 135 ITR 597 (Bom), it has been held that where details are not furnished by the assessee, the claim could be disallowed on the ground that assessee has not established that amount in question relating to expenditure was laid down wholly and exclusively for the purposes of busses. In CIT v. Motor General Finance Ltd. [2002] 254 ITR 449 (Delhi), it was held the failure of assessee to produce documents would justifiably result in adverse inference being drawn to the effect that if produced they would have gone against the assessee in terms of sec. 114 of the Evidence, 1872. It is clarified that this case had gone to the Supreme Court, wherein the Apex Court in the reported decision in 267 ITR 381 (SC) sent back the case to the High Court as certain facts had not been consideration. However, the Apex Court had not commented upon the issue of presumption raised u/s. 114 of the Evidence Act. Thus, the addition to the tune of Rs.5,40,000/- and Rs.1,42,972/- on account of Anil Sekhri and Architecture Autonomous are upheld. In other words, the total addition of Rs.6,82,972/- is confirmed."
68. Since the assessee has not given any details either before the Assessing Officer or before the CIT(A) or even before us at the time of hearing, therefore, we find no infirmity in the order of the ld. CIT(A) sustaining the above two additions. Accordingly, the same is upheld.
37
69. So far as Rs.1,11,300/- towards stamp fees is concerned, we find ld. CIT(A) while sustaining the addition at para 29 of the order has given the reasoning for such addition. Since the assessee has not given any details/evidence for the above amount, therefore, we find no infirmity in the order of the CIT(A). Accordingly, the same is upheld. Accordingly, the ground no.2 by the Revenue and the ground of the assessee in the Cross Objection are dismissed.
70. So far as ground no.1 by the Revenue relating to acceptance of additional evidence by the ld. CIT(A) in violation of provisions of Rule 46A is concerned, we find ld. CIT(A) while accepting such additional evidence has given the reasons for which he is admitting such additional evidence. For the sake of convenience, the same is reproduced as under :-
"16. The law regarding admission of additional evidence in the first appellate stage has been enunciated in ITO vs Mittal International (I) Pvt. Ltd., which has been reported in 2008-TIOL-474-ITAT-DEL (ITA No.1671/Del/04-D-Bench. It specifies the limitation in the powers of the CIT(A). In para 5, the Hon'ble Tribunal has observed as following :
"5. Reading of the provisions of Rule 46A of the IT rules 1962 show that the rules specifically bars an assessee from producing any oral or documentary evidences other than the evidences produced by him during the course of proceedings before the Assessing Officer except under the conditions provided in clause (a), (b), (c) & (d) of sub-rule (1) of rule 46A. Sub-rule (2) of Rule 46A makes it compulsory on the appellate authority who is admitting such additional evidences to record his reasons in writing for such admission. The nature of additional evidence including relevancy thereof alone cannot be ground enough to admit such additional evidence. It is the exceptional circumstances as envisaged by sub-rule (1) of rule 46A that is to be the foundation for the admission of the additional evidence along with the relevancy thereof of the additional evidence. Sub-rule (3) of rule 46A makes it compulsory for the appellate authority who has admitted the additional evidences under sub-rule (1) after recording his reasons in writing as per sub-rule (2) to grant the same to the Assessing Officer to examine the evidences or documents or to cross examine the witness produced by the appellant or to produce any evidence or 38 document or any witness in rebuttal of the additional evidence produced by the appellant:".
(emphasis supplied by me)
17. More recently, the Delhi High Court in Moser Baer India Ltd and Others vs Addl.CIT & Another (2009) 17 DTR (Del) 98 has again dissected the powers of the CIT(A) in adducing fresh evidence at the appellate stage, at pages 123 and 124, as under:
"While the CIT(A) under sub s. (4) of s. 250 in disposing of any appeal before it is empowered to make further inquiry either himself or by directing the AO to do so and receive the result of the same, the assessee cannot file any fresh evidence except in accordance with the provisions of r. 46A. The r. 46A inter alia permits an assessee to adduce additional evidence only if he is able to establish that he falls under one of the following situations envisaged under the said rule:
(i) Where an AO has either refused to admit evidence which he ought to have admitted; or
(ii) Where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the AO; or
(ii) Where the appellant was prevented by sufficient cause from producing before the AO any evidence which is relevant to any ground of appeal; or
(iv) Where the AO has made the order appealed against without giving sufficient opportunity to adduce evidence relevant to any ground of appeal.
16. It is evident upon a bare reading of r. 46A that the assessee does not have a right to file additional evidence unless his case falls within one of the situations prescribed under the r.46A. The discretion to permit the assessee to adduce additional evidence lies with the CIT(A). Therefore, it cannot be said that the CIT(A) is duty bound to admit any evidence that the assessee wishes to adduce, based on which he would conduct a denovo examination of the case before him".
(emphasis supplied by me)
18. In other words, the powers of the CIT(A) is extremely limited to admit any additional evidence during the appellate proceedings. The assessee has to establish that he falls within the exceptional clauses of rule 46A(1). In the petition, the assessee in para 2 has stated that there was a paucity of time given by the Id. AO for submitting the details during the course of assessment proceedings. It has been submitted that notices u/s. 133(6) were issued and on 6.2.2006, the assessee was asked to file confirmation from parties. Confirmation from some of the parties were filed on 22.7.06. Details of file Nos. (PAN) were also filed on 16.3.2006. However, the Id. AO directed to provide the details in respect of the names and addresses of the AO having jurisdiction over the 25 parties, while some PA Nos. as submitted by the assessee, were found to be incorrect and that it received the correct details contendedly on 30.3.2006 and the assessment was completed on 31.3.2006. In other words, the assessee evidences, as requisitioned by the ld. AO, which was a sufficient cause for admission of additional evidence under rule 46A.
19. Perusal of the assessment record suggests that Shri L. N. Malik, CA, who was the authorized representative of the assessee presented himself before the ld. AO on 16.3.2006. This was in response to a questionnaire issued on 6.2.2006. On 16.3.2006, the ld. AO requisitioned the assessee to furnish names and addresses of the 39 AOs with whom the parties were assessed to tax for purposes of verification, before the sundry balances could be allowed to be written off. Some of the PA Nos. given by the assessee were checked during the course of assessment proceedings and were found to be incorrect. This was intimated to the assessee, who was requisitioned to file the correct PA No. On that date tax details (Assessing Officer etc.) was also requisitioned.
20. There is no dispute that the requisition for furnishing the names and addresses to the assessing officer of the parties was first made on 16.3.2006. No doubt the time afforded to the assessee was very short, particularly when tax details of parties engaged in business are not expected to be kept by the assessee, and therefore it is held that the assessee was prevented by sufficient cause not to have submitted the evidences as requisitioned during the assessment stage. Thus, the additional evidence is admitted. This is despite the noting on 30.3.2006 on the order sheet that any PA No. found wrong or where the PA No. is not furnished, addition would be made. It is settled law that consent does not confer jurisdiction as held in N.S. Dhingra v CIT (1973) 90 ITR 110 (Delhi), Hira Lal patni Kali v Kali Nath AIR 1962 SC 199 etc. The very fact that the assessee is in appeal fortifies this aspect. "21. In the submission as given above, it is evident that the assessee has written off the amount of Rs.48,45,000/- in the case of M/s. Oson Construction Pvt. Ltd. This is an un-disputed fact. The additional evidence as filed also have confirmation from M/s. Oson Construction Pvt. Ltd. as on 31.03.2001, a copy of the PAN as downloaded from the website, Master Data copy from ROC website as well as the copy of the bank statement. The ld. AO in his report dt. 30.1.2001 also does not dispute the existence of correct PAN pertaining to M/s. Oson Construction Pvt. Ltd. The genuineness of the transaction also had not been doubted or suspected by the ld. AO. Be that as it may, in view of the binding decision of the Delhi High Court and the Madhya Pradesh High Court as deliberated in para 10 to 12, the assessee deserves to succeed. As such, the addition of Rs.48,45,000/- on account of M/s. Oson Construction Pvt. Ltd., written off by the assessee is deleted."
71. The above reasoning given by the ld. CIT(A) while admitting the additional evidence is self explanatory. We, therefore, do not find any infirmity in the order of the ld. CIT(A) accepting such additional evidence. Accordingly, the ground raised by the Revenue on this issue is dismissed.
72. Ground of appeal no.2(b) in ITA No.3764/Del/2004, ground no.1 in ITA No.3307/Del/2013 and ground no.1 in ITA 3743/Del/2013 relate to only one issue which read as under :-
40ITA No.3764/Del/2004 :
2(b) That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance of gross loss of Rs.30,28,829/- and retaining the G.P. Rate at 8% on the disclosed as well as undisclosed sales of Rs.17,44,130/-.ITA No.3307/Del/2013 :
That order passed u/s 250(6) of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Appeals)-VIII, New Delhi is against law and facts on the file in as much as the Ld. CIT(A) was not justified to arbitrarily sustain an addition of Rs.3,09,403/- made on account of low G.P. rate in respect of the gross profit declared by the appellant by its Proprietary concern M/s Litolier.ITA No.3743/Del/2013 :
1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in restricting the addition on account of G.P. to Rs.3,09,403/- only.
73. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings observed that the assessee has shown sale of Rs.83,219/- only whereas the perusal of the sales tax assessment order for the relevant period in respect of M/s Litolier shows total sale at Rs.17,44,130/-. On being questioned by the Assessing Officer, it was explained by the assessee that the sales figure taken by the sales tax authorities also included the sales of other proprietary concern. However, the Assessing Officer did not accept the explanation of the assessee on the ground that the assessee had maintained separate accounts in respect of all the proprietary concerns and that the sales tax order did not mention that the sales tax also included sales on other proprietary concerns. The Assessing Officer, therefore, rejected the book results as done in assessment year 2001-02 in similar circumstances and adopted net profit rate as done in that year. This resulted into addition of Rs.7,38,181/- on account of GP 41 rate. The Assessing Officer further made addition of Rs.12,45,630/- on account of unexplained investment made in the undisclosed shares.
74. In appeal, the ld. CIT(A) following the decision in earlier years adopted the GP rate of 8% and also deleted the addition made on account of undisclosed investment.
75. The assessee as well as the Revenue filed appeal before the Tribunal.
76. So far as the appeal filed by the Revenue is concerned, the Tribunal restored the issue to the file of the Assessing Officer with a direction to pass an order afresh after making necessary verification and after allowing opportunity of being heard to the assessee. Subsequently, the Assessing Officer in the order passed u/s 254/143(3) dated 15th December, 2008 deleted the unexplained investment in undisclosed sales on the ground that the total turnover under BST and CST have been assessed at Rs.17,02,530/- and Rs.41,600/- respectively. Further in the registration certificate names of four concerns of the assessee are mentioned. He, therefore, accepted the contention of the assessee regarding investment in undisclosed sales and did not make any addition. So far as GP rate is concerned, the Assessing Officer held that the assessee simply stated that there was a gross loss due to decrease in the value of old stock. However, according to the Assessing Officer, there is no occasion for decrease in stock as claimed by the assessee. In the absence of any documentary evidence filed 42 before him to his satisfaction, the Assessing Officer estimated the profit at the rate of 25% of the total turnover as against 8% directed by the ld. CIT(A).
77. In appeal, the ld. CIT(A) vide order dated 28th March 2013 following the order of the Tribunal in assessee's own case for assessment year 2000-01 directed the Assessing Officer to adopt profit rate of 8% on the disclosed sales of Rs.83,219/- as against gross loss claimed by the assessee.
78. Aggrieved with such order of the ld. CIT(A), the assessee as well as the Revenue in appeal before the Tribunal.
79. We have heard the rival contentions made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also gone through the order of the Tribunal in assessee's own case in the immediately preceding assessment year. Under similar facts and circumstances, the Tribunal in assessment year 2000-01 has held that GP rate of 8% adopted by the CIT(A) on both disclosed and undisclosed sales was incorrect. Since the Department has not carried the issue in appeal therefore, ITAT held that it is not a reason for not accepting the order of the ld. CIT(A) with regard to the disclosed sales.
80. Since in the impugned assessment year also the sale has been determined at Rs.83,219/-, therefore, the ld. CIT(A) following the order of the Tribunal has directed the Assessing Officer to adopt GP rate of 8%. We do not find any infirmity in the order of the ld. CIT(A). Since the order of the ld. CIT(A) is in 43 consonance with the order of the Tribunal in assessee's own case in the immediately proceedings assessment year, therefore, the same in our opinion is justified and does not call for any interference. The grounds raised by the assessee as well as the Revenue are accordingly dismissed.
81. Now ground no.1(b) in ITA No.3764/Del/2004, ground no.2 in ITA No.3307/Del/2013 and ground no.2 in ITA No.3743/Del/2013 which relate to the same issue read as under :-
ITA No.3764/Del/2004 :
1(b) That on the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals)-XXIII erred in making a disallowance of interest on loan at 6%.ITA No.3307/Del/2013 :
That the Ld. CIT(A) was further not justified to restrict the deduction in respect of payment of interest paid to Shri Raj Mittal and Shri Raj Mittal and Mala Mittal @ 12% p.a. as against interest paid @ 18% & 15% respectively to them by the appellant.ITA No.3743/Del/2013 :
2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting disallowance of interest of Rs.49,04,219/- u/s 36(1)(iii) of the Income Tax Act.
82. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings observed from the statement of affairs filed by the assessee that the assessee had made substantial borrowings from relatives, sister concerns and others on which interest of Rs.2,18,76,359/- has been claimed. Total borrowings were to the tune of Rs.57.36 crores. He observed that the total advances given to relatives, sister concern and others were Rs.63.73 crores on which interest is received to the tune of Rs.11,21,988/-. Thus, from most of the 44 parties no interest has been received while from some parties interest had been received at the rate of 15%. He observed that the assessee on the other hand has given interest at the rate of 21% to various parties. The Assessing Officer therefore, concluded that the borrowings had not been made wholly and exclusively for the purposes of business. Accordingly, the Assessing Officer disallowed the entire interest claim at Rs.2,18,76,359/-.
83. In appeal, ld. CIT(A) observed that Assessing Officer had not given any finding about the nexus between interest bearing borrowings and the advances given. The assessee had own capital and interest free advances from friends and relatives which exceeded the amounts advanced to others on which no interest had been charged. He, therefore, held that the Assessing Officer was not justified in disallowing the entire interest. However, the ld. CIT(A) observed that the assessee had paid interest at the rate of 21% whereas he had received interest at lower rates. As there was no agreement between the parties for paying interest @ 21%, he held that interest is to be allowed at the rate of 15% and the addition relatable to payment of interest over and above 15% has to be upheld.
84. Aggrieved with such order of the CIT(A), the assessee and the Revenue filed appeal before the Tribunal.
85. The Tribunal vide order dated 16.11.2007 in appeal filed by the Revenue in ITA No.3946/Del/2004 restored the issue to the file of the Assessing Officer 45 for fresh adjudication in the light of the decision of the Hon'ble Delhi High Court in the case of Elmer Howell Electric and others reported in 277 ITR 459 and the decision of the Hon'ble Punjab & Haryana High Court in the case of Abhishek Industries reported in 286 ITR 01.
86. Subsequently, before the Assessing Officer the assessee made elaborate submissions. It was submitted that the assessee had borrowed amount from own concerns to the tune of Rs.23,31,51,822/- as on 31.03.2001. Further, if the amount payable to Shri Raj Mittal at Rs.21,75,625/- is excluded on which interest has been paid, the balance comes to Rs.73,09,76,197/-. It was submitted that the assessee has own capital of Rs.10,06,37,706/-. The amount advanced to relatives and other concerns on which no interest was charged was Rs,44,88,02,111/- and to others was Rs.22,75,94,464/-. Thus, the balance amount advanced to others comes to Rs.1,48,84,747/- and the total sum advanced to relatives and other concerns on which interest has been charged comes to Rs.46,36,86,808/-. It was argued that in assessment year 2000-01, the assessee's claim of deduction of interest had been allowed even though as on 31.03.2000 the assessee had unsecured loan of Rs.38.11 crores and the interest free loan advanced was Rs.26.71 crores. Thus, unsecured interest free loan of Rs.31.20 crores have been received during the previous year while interest free advances increase by only Rs.26.74 crores. The decision of the Hon'ble Supreme Court in the case of S.A. Builders Ltd. reported in 288 ITR 01 was 46 relied upon. It was further argued that the interest has been paid to only three parties over and above 15% namely, Shri Raj Mittal amounting to Rs.80,00,000/-, Nagarjuna Impex Pvt. Ltd. - Rs.6 crores and Nagarjuna Fertilizers Ltd. - Rs.2 crores. It was argued that the disallowance of interest paid should have been made only in these three cases amounting to Rs.49,04,219/- and relief of Rs.1,69,72,140/- should have been allowed.
87. However, the Assessing Officer was not satisfied with the explanation given by the assessee. He observed that the evidence regarding the deployment of funds by the sister concern is not on record and therefore no interference is made to the direction of the CIT(A). However, the factual mistake regarding the disallowance made while allowing relief in consequence to the direction of the CIT(A) was rectified and the Assessing Officer allowed further deduction to Rs.13,46,171/- on account of re-computation of relief consequential to the direction of the CIT(A).
88. Before the CIT(A), the assessee took an additional ground regarding disallowance of interest of Rs.49,04,219/-. The ld. CIT(A) called a report from the Assessing Officer regarding the additional ground. The Assessing Officer in the remand report did not raise any objection regarding the admission of the additional ground. However, in the remand report the Assessing Officer submitted that as against the interest disallowance of Rs.49,04,219/- contested in the additional ground the entire interest claim by the assessee at 47 Rs.2,18,66,359/- should be disallowed as against the disallowance of interest of Rs.49,04,219/- in the light of the decision in the case of M/s Abhishek Industries (supra). He accordingly requested for enhancement of the income of the assessee by Rs.1,69,62,140/-. The Assessing Officer further observed that the assessee was not entitled to claim of interest on borrowings since the same had been diverted to other persons without interest.
89. So far as the disallowance of Rs.49,04,219/- is concerned, the Assessing Officer observed that the same was disallowed keeping in view the direction of the ld. CIT(A) and, therefore, the same should be upheld.
90. Ld. CIT(A) confronted the copy of the remand report to the assessee who filed a rejoinder to such remand report. It was brought to the notice of the ld. CIT(A) that the decision of the Hon'ble Punjab & Haryana High Court in the case of Abhishek Industries Ltd. (supra) has been reversed by the Hon'ble Supreme Court in the case of Munjal Sales Corporation reported in 168 taxmann.com 43.
91. So far as the decision of the Hon'ble Delhi High Court in the case of Elmer Havell Electrics (supra) is concerned, it was submitted that the said case is distinguishable from the facts of the case of the assessee. In that case the company had borrowed interest bearing loans from the market and at the same time it advanced interest free loan to its sister concerns and this finding was recorded by the Tribunal. After considering the entire facts the Hon'ble High 48 Court affirmed the order of the Tribunal and came to the conclusion that the Tribunal has established on record that the assessee itself has taken loan with interest and advanced funds by diversion or otherwise to its sister concerns free of interest. However, in the instant case, the facts are different. There is increase in unsecured interest free loans received by the assessee to the tune of Rs.35.20 cores while the amount of interest free advances to relatives and sister concerns is only 19.62 crores. No interest bearing funds have been diverted by the assessee to his relatives and other sister concerns in this year. Relying on various decisions it was argued that the disallowance made by the Assessing Officer should be deleted.
92. Based on the argument advanced by the assessee, ld. CIT(A) allowed the claim of assessee by deleting the disallowance of interest to the tune of Rs.49,04,219/- made by the Assessing Officer u/s 36(1)(iii). He however observed that interest have been paid at the rate of 15%. Since these are persons covered under the provisions of section 40(a)(2)(b), therefore, he directed the Assessing Officer to restrict the payment of interest at 12% i.e. the rate at which interest have been received from other related parties by the assessee. So far as the interest paid to M/s Nagarjuna Impex Pvt. Ltd. & M/s Nagarjuna Fertilizers Pvt. Ltd. are concerned, he held that since such interest paid is as a matter of commercial expediency and these parties also confirmed the payment of interest 49 to them and they are not persons covered under the provisions of section 40(a)(2)(b) such interest need not be disallowed.
93. Aggrieved with such order of the ld. CIT(A), the assessee as well as the Revenue are in appeal before the Tribunal.
94. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has claimed interest expenditure of Rs.2,18,76,359/-. The Assessing Officer after considering that the assessee has paid interest at higher rate as against lower rate of interest received from relatives and sister concerns, disallowed the entire interest of Rs.2,18,73,359/-. We find in the first round of appeal, the ld. CIT(A) directed the Assessing Officer to restrict the disallowance by 6% i.e. the interest paid over and above the rate of 15%. Thus, the interest paid over and above 15% was directed to be sustained. We find in the appeal filed by the Revenue, the Tribunal restored the issue to the file of the Assessing Officer with a direction to adjudicate the issue afresh in the light of the decision of the Hon'ble Punjab & Haryana High Court in the case of Abhishek Industries Ltd. (supra) and the decision of Hon'ble Delhi High Court in the case of Elmer Havell Electrics (supra). We find before the Assessing Officer the assessee made a submission that only in the case of three persons the interest had been paid above 15% and, 50 therefore, the same only is in excess. It was argued only in those three cases the interest amounting to Rs.49,04,219/- should have been disallowed and Rs.1,16,70,140/- should have been allowed. We find the Assessing Officer on the basis of such submissions rectified the earlier order and allowed further deduction of Rs.13,46,171/-. We find before the CIT(A) the assessee took an additional ground challenging the disallowance of Rs.49,04,219/-. We find since there was no objection for admission of additional ground before him, the ld. CIT(A) admitted the additional ground and decided the issue in favour of the assessee.
95. We find the ld. CIT(A) while adjudicating the issue has relied upon the decision of the Hon'ble Supreme Court in the case of Munjal Sales Corporation (supra), wherein the decision in the case of Abhishek Industries (supra) has been discussed. However, the ld. CIT(A) while adjudicating the issue has also given the reasons for which the excess interest paid to person covered u/s 40(a)(2b) has been restricted to 12% as against 15% and 18% respectively paid by the assessee to different persons. Further, the decision of Hon'ble Delhi High Court in the case of Elmer Havell Electrics (supra) is distinguishable and not applicable to the facts of the present case. We do not find any infirmity in the reasoned order of the ld. CIT(A). The grounds raised by the assessee and Revenue are accordingly dismissed.
51
96. In the result, the appeals filed by the assessee are partly allowed, the appeals by the Revenue and Cross Objection by the assessee are dismissed.
Order pronounced in the open Court on this 30th day of October, 2017.
Sd/- Sd/-
(SUCHITRA KAMBLE) (R. K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 30-10-2017.
Sujeet
Copy of order to: -
1) The Appellant
2) The Respondent
3) The CIT
4) The CIT(A)
5) The DR, I.T.A.T., New Delhi
By Order
//True Copy//
Assistant Registrar
ITAT, New Delhi