Income Tax Appellate Tribunal - Delhi
M/S. Alps Industries Ltd., Ghaziabad vs Dcit, Ghaziabad on 16 March, 2020
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'D' NEW DLEHI
BEFORE SHRI G.S. PANNU, VICE PRESIDENT
AND
SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER
C.O. No. 58/Del/2018
(in ITA N o. 6027/Del/2015)
Assessment Year: 2011-12
M/s. Alps Industries Ltd., vs. DCIT, Circle-1,
57/2, Site-V, Indl. Area, Ghaziabad.
Sahibabad, Ghaziabad.
PAN AAACA7569D
(Appellant) (Respondent)
Appellant by: Shri Sahil Sharm a, advocate
Shri Sanjay Parashar, Advocate
Shri Anup Sharm a, Advocate
Respondent by: Shri Vipul Kashyap, Sr. DR
Date of hearing: 03/03/2020
Date of order : (^/03/2020
ORDER
PER K. NARASIM HA CHARY. J.M. Challenging the order dated 31/08/2015 in appeal No. 309/2013- 14/GZB passed by the learned Com m issioner of Incom e Tax (Appeals), Gaziabad ("Ld. CIT(A)") for the assessm ent year 2011-12 in the case of M/s Alps Industries, Revenue preferred appeal in ITA No. 6027 /D el/ 2015 and the assessee preferred cross objections No. 58/Del/2018. 2
2. Brief facts of the case are that the assessee com pany is engaged in the business of m anufacturing the yarn by running the spinning mills besides production and sale of home furnishings m ade ups and fashion accessories, and carrying out its business activities in different cities in the state of Uttar Pradesh and Uttarakhand. For the assessm ent year 2011-12, the assessee filed the return of incom e on 29/9/2011 declaring a total loss of Rs. l,2 8 ,5 2,9 8,0 44 /-claim in g a refund of Rs. 14,27,781/-. Assessm ent was com plete by order dated 30/3/2013 at a loss of R s.l,2 1 ,8 0 ,5 0 ,0 1 8 /-afte r m aking certain additions/disallow ances, which includes, inter alia, for the purpose of the present cross objections, disallow ance to the tune of Rs. 80 Lacs on increase in expenses relating to w ages, food and beverages, addition of Rs. 1,26,00,000/-on account of disallow ance of loss claim ed by the assessee on sale of investm ent and the disallow ance of Rs. l,3 9,9 0,5 53 /-o n account of bad debts claim ed in respect of M/s Alps Tex Fab Pvt. Ltd.
3. Assessee preferred appeal before the Ld. CIT(A) challenging all five additions and by way of im pugned order Ld. CIT(A) deleted two additions, but confirm ed the disallow ance of Rs.80 Lacs, a part of Rs. 1,26,00, 000/- to the tune of Rs. 45 Lacs and disallow ance of Rs. 1,39,90,553/-. Challenging the deletion of additions, Revenue preferred appeal and it was disposed of by order dated 5/9/2019 in the light of the CBDT circular No. 17/2018, dated 8/8/2019. The cross objection is preferred by the assessee in respect of the ad hoc disallow ance of Rs. 80 Lacs, addition restricted to Rs. 45 Lacs and the disallow ance on account of bad debts.
4. Assessee, however, preferred the cross objection with a delay of about 829 days. Reason explained by the assessee is that there was delay 3 in the advice given by the Chartered A ccountant to file the cross objections. In the affidavit filed, the Chartered A ccountant explained that the assessee com pany has been incurring losses for several years including the present year; that the com pany was declared as sick unit by BIFR (Board of Industrial and Financial Reconstruction) under the provisions of the SICA upon erosion of net w orth resulting into financial crisis; that for the assessm ent year 2011-12 the com pany was assessed at the reduced loss after m aking certain additions as enum erated in the assessm ent order and form 35 was filed with the appeal; that the Ld. CIT(A) vide order dated 12/8/2015 partly allow ed the appeal of the assessee com pany after deleting certain additions and sustaining som e additions; that against the relief given by the Ld. CIT(A) Revenue preferred appeal before the ITAT, the know ledge of w hich had com e to the assessee on 14/12/2015; that the learned Assessing O fficer levied penalty for concealm ent of incom e under section 271(1)( c ) of the Act vide order dated 28/2/2017 against which the assessee preferred appeal; in the circum stances, the chartered accountant had initially advised the assessee to accept the order of the Ld. CIT(A) deleting and sustaining som e additions under the bona fide belief on exam ination of the nature of additions sustain thinking that they would not attract any penalty inasm uch as such issues are highly debatable; that ow ing to num erous problem s facing the com pany being financial, m anagerial, productivity and assessee foresaw no useful purpose w ould be served in incurring long litigation with the Revenue; that, how ever, such an opinion of the Chartered Accountant was changed after due deliberations with the advocates and as advised by them , the assessee had to decide that the 4 additions sustained by the Ld. CIT(A) should also be challenged by filing the cross objections.
5. Ld. AR subm itted that the assessee com pany has been incurring heavy losses to the tune of more than Rs. 100 crores and therefore, there will not be any deliberate attem pt to make delay to gain anything, and as a m atter of fact labouring under the bona fide belief and advice rendered by the Chartered Accountant to accept the order of the Ld. CIT(A) and thinking that the additions sustained by the Ld. CIT(A) would not attract any penalty proceedings, the assessee thought of not to have the long fought legal battle, but it is only when the penalty is levied and during the course of the appellate proceedings against the penalty levied, there was advice from the advocates to prefer appeal against the additions sustained by the Ld. CIT(A), the assessee had to file this appeal. Assessee placed reliance on the addition of the Hon'ble Apex Court in the case of M anoharan vs. Shivrajan in civil appeal No. 10581 of 2013 arising out of SLP (C) No. 23 9 (l)(v iii) of the Act of 2012, and collector, land acquisition, Anantnag vs. Katiji(1987) 167 ITR 0471 in support of their contention that the pow er to condone the delay in approaching the court is conferred upon the courts to enable them to do substantial Justice 2 parties by disposing the cases on merits and typical day should not run over the possibility of delivery of substantial Justice.
6. Per contra, it is the subm ission of the Ld. DR that the assessee cannot take advantage of their own default and pleaded that it is due to the delayed advice to file the cross objections, the delay in preferring the cross objections has to be condoned. He subm itted that when the parties sleepover their rights, the courts cannot extend their helping hand. t"'„ 5
7. It rem ains an undisputed fact that as on the date of filing the cross objections the appeal preferred by the Revenue was pending. Further, it's not the case of the Revenue that because of the delay any rights are crystallised in them so as not to accept the contention of the assessee that an opportunity may be granted to them to contest the m atter on merits. It is the settled principle of law that when the technicalities are pitted against the substantial Justice, the form er m ust give w ay to the later. Assessee does not stand to gain by preferring the cross objections with any delay. As the things stand now, the highest that would happen by condoning the delay is that a cause could be decided on merits. Unless and until it is established that the crystallised rights of any party are prejudiced due to the afflux of tim e, no party can plead vested right in ex parte orders and cannot be hard to say that the delay shall not be condoned or that the technicalities are overrun the possibility of securing substantial Justice.
8. Further there is no reason for us not to believe this sworn statem ent of the Chartered Accountant who sw ore to the effect that labouring under the im pression that the additions sustained by the Ld. CIT(A) are on highly debatable issues and do not entail any penalty proceedings, he advised the party to accept the order of the Ld. CIT(A) w ithout preferring any appeal and it was so more particularly in view of the financial and m anagerial condition of the assessee, the long drawn legal battle was not in the interest of the com pany. It is only after the penalty w as levied, the parties had to revisit the m atter and that the legal advice rendered by the com petent advocates, the assessee decided to challenge the additions sustained by the Ld. CIT(A) and in that process 6 the assessee is seeking the condonation of delay. There is nothing im probable inherent in this plea taken by the assessee. W e are therefore, inclined to accept the same. W ith this view of the m atter we condone the delay, and proceed to decide the m atter on merits.
9. In respect of the ad hoc disallow ance of Rs. 80 Lacs, on exam ination of records, learned Assessing O fficer noticed that the m anufacturing expenses debited to P&L account w ere increased as com pared to the last 3 years and in the opinion of the Assessing Officer, the increase in som e of the items was not proportionate to the increase in quantity of m anufactured products. Learned Assessing O fficer was specific in saying that som e of the expenses like wages, food and beverages to w orkers etc were made in cash which w ere not fully verifiable and the assessee also did not properly justify the claim under such head and therefore, in his discussion, learned Assessing Officer made an addition of Rs. 80 Lacs to the incom e of the assessee towards the unverifiable expenses to cover up any possibilities of Revenue on account of the deficiency found by him.
10. Assessee reiterated before the Ld. CIT(A) that was taken before the Assessing O fficer with reference to the chart subm itted by the assessee reflecting the sales m aterial consum ed and the m anufacturing expenses for the assessm ent years 2010-11 and 2011-12. Assessee further pleaded that the com plete details were produced before the Assessing O fficer at the tim e of assessm ent proceedings and there was no dispute as to the am ount of wages paid. Insofar as the expenses on food and beverages to the w orkers is concerned, the total expense was Rs. 40.91 Lacs and therefore the addition of 80 Lacs is unjustifiable. ^ 7
11. Ld. CIT(A) however, held that in view of the observations of the learned Assessing O fficer that the paym ents in cash are not able for verification and also that no details w ere produced recording the increase in the num ber of labourers and therefore the increase in sales cannot be correlated to the increase in the expenses. In the opinion of the Ld. CIT(A), the disallow ance of Rs. 80 Lacs constitutes only 2.5% of the total expenses and therefore such disallow ance cannot be said to be unreasonable or unjustified. Ld. CIT(A) accordingly brushed aside the plea taken by the assessee and upheld the addition.
12. There is no denial of the fact that the assessee produced the details of cost of m aterial consum ed and the details of m anufacturing expenses as com pared to the preceding year and such figures as extracted by the Ld. CIT(A) in his order, show that the sales of com pany were increased to alm ost 150% when com pared to the previous year. Such a chart further shows that the related expenses of m aterial consum ed and the m anufacturing expenses have also gone upon sim ilar percentage. From the start we find that the learned Assessing O fficer was not factually correct in stating that the increasing m anufacturing expenses w ere substantial when com pared to the sales. W e find strength in the subm ission on behalf of the assessee that the observation of the learned Assessing O fficer and the consequent disallow ance of the expenses is untenable because of non-specificity of any such expenses claim ed by the assessee with reference to the chart subm itted by the assessee reflecting the sales, m aterial consum ed and the m anufacturing expenses for the assessm ent years 2010-11 and 2011-12. I' ' v. 8
13. There is no com m ent of the authorities below as to the details in the wage register that was claim ed to have been produced by the assessee before the learned Assessing O fficer at the tim e of assessm ent proceedings and that the paym ents tow ards w ages are fully vouched. We do not find anything im probable in the subm ission of the assessee that it is a com m on practice that the w ages are paid on day-to-day basis in cash for all m anufacturing units and also that the petty expenses like tea, vegetables, fruits etc are also purchased on day-to-day basis by paying cash. Sole basis for m aking the addition was that the cash expenses incurred tow ards the expenses for tea, vegetables, fruits etc which are purchased on day-to-day basis and such expenses are not fully vouched. W hen there is no denial of the fact that the expense of wage was fully vouched and the expense for food and beverages itself is about 40 Lacs, we find it difficult to hold that the disallow ance to the tune of Rs. 80 Lacs is perm issible. M erely because the disallow ance of Rs. 80 Lacs constitutes only 2.5% of the total expenses, such disallow ance on an ad hoc basis cannot be perm itted w ithout any justification. Since such a justification is conspicuously absent in this matter, we hold the issue in favour of the assessee and direct the learned Assessing O fficer to delete such an addition.
14. Now com ing to the second disputed addition of Rs. 45 Lacs,, the facts are that the assessee claim ed loss on sale of investm ent am ounting to Rs. 1.26 crores and subm itted that they have invested an am ount of Rs. 2.70 crores in Kotak Incom e O pportunities Funds which was encashed before the m aturity by incurring a loss of Rs. 81 Lacs due to the bad financial condition of the assessee. Assessee further claim ed that a sum 9 of Rs. 45 Lacs was invested in the shares of M/s Im prove Interior Com pany (P) Ltd; that such com pany was struck off by the release of M inistry of Corporate Affairs and it stands dissolved as per intim ation letter received from the ROC dated 25/3/2011; that the said com pany has filed an application for striking of the nam e under Early Exit Schem e, 2011; that the said com pany did not possess any asset and its net worth was m ade as per the accounts duly certified by the chartered accountant; that the value of these shares was w ritten off pursuant to the letter received from the ROC confirm ing the dissolution of the com pany which is beyond the control of the assessee and since the net realisable value of these shares had becom e nil the sam e was w ritten off. Assessee further pleaded that the assessee has been incurring heavy losses to the tune of more than Rupees Hundred crores and hence it cannot be said that these funds w ere sold only to book losses.
15. Though the learned Assessing O fficer added the loss of Rs. 81 Lacs on account of the sale of the Kodak Incom e O pportunity Fund units and Rs. 45 Lacs on account of loss incurred due to the striking of the com pany M/s Im prove Interior Com pany (P) Ltd; Ld. CIT(A) considered the plea of the assessee and directed the deletion of Rs. 81 Lacs on the ground that the loss on sale of investm ent in Kotak O pportunities Fund not be regarded as a speculative loss under the provisions of explanation to section 73 of the Act. Ld. CIT(A), however, confirm ed the addition of Rs. 45 Lacs on the ground that it is a speculative loss because it falls squarely within the purview of explanation to section 73 of the Act and the assessee com pany of other com pany. According to the Ld. CIT(A) the m anner in which the loss was incurred is im m aterial. K ,
16. Insofar as the observations of the Ld. CIT(A) while upholding the addition of Rs. 45 Lacs the loss incurred by the assessee in respect of the value of shares of M/s Im prove Interior (P) Ltd, we are unable to agree with the sam e. As a m atter of fact, there is no sale of shares in this m atter. Alleged loss is not the result of the actus inter vivos. Record reveals that the assessee purchased such shares on 31/3/2001 and the return took place on 31/3/2011 as declared in the details of profit and loss on investm ent as on 31/3/2011 at page No. 24 of the paper book. Revenue does not dispute the factual statem ent made by the assessee that M/s Im prove Interiors was struck off by the Registrar under intim ation dated 25/3/2011 and since the net worth of this com pany was nil due to their not possessing any assets, there is no chance of assessee realising anything, leading to the assessee w riting off the sam e. In such situation, it is not correct for the authorities below to observe that such a loss had arisen on purchase and sale of shares. O nly purchase and holding of shares for more than 10 years is there. W e are, therefore, of the considered opinion that the loss pleaded by the assessee to the tune of Rs. 45 Lacs also deserves to be allowed. W e accordingly direct the Assessing O fficer to delete such an addition on that score.
17. Now com ing to the last limb of addition, nam ely R s .l, 39, 90, 553/- the facts are that the assessee had claim ed bad debts to the tune of Rs.2,04,96,529/-and on a perusual of the details subm itted by the assessee, learned Assessing O fficer noticed that an am ount of R s.l,3 9 ,9 0 ,5 5 3 /-p erta in s to M/s Alps Tex Fab Pvt. Ltd., a sister concern of the assessee and no efforts were made to collect such a debt and therefore due to the deliberated decision of the m anagem ent of the 11 assessee for not attem pting to realise the debt, such a debt cannot be allow ed and therefore an addition to the tune of Rs. 1,39,90,553/-was made.
18. Assessee pleaded before the Ld. CIT(A) that the concern M/s Alps Tex Fab is neither under the same m anagem ent nor is a sister concern of the assessee and for such purpose the assessee produced the list of directors. Assessee further contended that the am ount was not recoverable and the sam e was written off in its books of accounts by the assessee and since the assessee had actually w ritten off the bad debts the sam e is allow able. Ld. CIT(A) did not accept the contention of the assessee on the ground that the assessee failed to show how the debt had becom e bad while referring to the decision of the Hon'ble M adras High Court in the case of South India Surgical Com pany Lim ited vs. ACIT 287 ITR 62 and the decision of the Hon'ble Gujarat High Court in the case of Dhall Enterprises And Engineers (P) Ltd vs. CIT 207 CTR 729, Ld. CIT(A) reached a conclusion that in the absence of any evidence m anifesting the efforts m ade by the assessee to recover the debts, no allow ance of bad debts could be made.
19. We have gone through the record in the light of the subm issions made on either side. Our attention is drawn to the notification No. 12 of 2016 dated 30/5/2016 issued by the CBDT in which the decision of the Hon'ble Apex Court in the case of TRF Ltd in civil appeal No. 5292 to 5294 of 2003 vide judgem ent dated 9/2/2010 was referred and said that after 1/4/1989 for allow ing deduction for the am ount of any bad debt or part thereof under section 3 6 (l)(v ii) of the Act, it is not necessary for the assessee to establish that the debt in fact has becom e irrecoverable, and f--
12it is enough if bad debt is written off as irrecoverable in the books of accounts of the assessee. It is obvious that the Ld. CIT(A) did not have the benefit of going through this circular, which was issued by the CBDT subsequent to the im pugned order. CBDT circular referred to the addition of the Hon'ble Apex Court in the case of TRF Ltd (supra) which was rendered w rong prior to the im pugned order. The decision of the Hon'ble Apex Court has not been followed by the authorities below before m aking the addition and sustaining the same.
20. Since the issue is squarely covered by the decision of the Hon'ble Apex Court in the case of TRF Ltd (supra) and also the circular of the CBDT, while respectfully follow ing the sam e we conclude that when the assessee actually w ritten off the debt in their books of accounts as irrecoverable, the authorities cannot insist the assessed to establish that they made efforts to recover the debt and such efforts were to the satisfaction of the Revenue authorities. W ith this view of the m atter we uphold the contentions raised by the assessee and direct the deletion of this addition.
21. In the result, appeal of the assessee is allowed.
ys'
Pronouqced in open court on )4 M arch, 2020 .
sd/- Sd/_
(G.S. PANNU) (K N ARASIM HA CHARY)
VICE PRESIDEN T JU D ICIA L M EM BER
Dated: ,5"/0 3 /2 0 2 0
'aks'
13
Copy forw arded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
A SSISTA N T REGISTRAR
ITAT NEW DELHI