Income Tax Appellate Tribunal - Bangalore
Gxs India Technology Centre Private ... vs Dcit, Bangalore on 15 November, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND
SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER
IT(TP)A No. 1041/Bang/2016
Assessment Year :2010-11
M/s. GXS India Technology Centre
Pvt. Ltd.,
Prestige Emerald, 2, 3 & 4th floor,
The Deputy Commissioner of
Municipal no. 2, Madras Bank Road,
Income Tax,
Lavelle Road Junction, Vs.
Circle 11(3),
Bangalore - 560 001.
Bangalore.
PAN: AABCG 7972P
APPELLANT RESPONDENT
Assessee by : Shri K.R. Vasudevan, Advocate
Revenue by : Smt. Padmameenakshi, JCIT (DR)
Date of hearing : 07.11.2017
Date of Pronouncement : 15.11.2017
ORDER
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee which is directed against the order of ld. CIT(A)-3, Bangalore dated 18.03.2016 for Assessment Year 2010-11.
2. The grounds raised by the assessee are as under.
"I. Disallowance of write off of rental deposit amounting to Rs. 1,000,000 • The Honourable Commissioner of Income Tax (Appeals) ['Hon'ble CIT(A)'] erred in upholding the disallowance of write- off of rental deposit made.
• The Hon'ble CIT(A) has erred in not appreciating the fact that the loss incurred by the Appellant on account of write-off is in relation to business and allowable as a businessloss under section 28 of the Income Tax Act, 1961 ['the Act'].
• Without prejudice to the above, the Hon'ble CIT(A) has erred in not giving a deductionfor the above mentioned amount as the same is in the nature of a legitimate business expenditure IT(TP)A No. 1041/Bang/2016 Page 2 of 7 incurred wholly and in the ordinary course of business and hence, is eligible for a deduction under section 37(1) of the Income Tax Act, 1961 ['the Act'].
• The Hon'ble CIT(A) has erred in not accepting the documentary proof submitted by theAppellant as conclusive evidence and that the matter has reached finality resulting in non-recoverability of rental deposit.
• The Hon'ble CIT(A) has erred in not appreciating the steps taken by the Appellant by way of e-mail correspondences and the fact that the landlord initially agreed to repay but later was unresponsive and no further communications took place.
• The Hon'ble CIT(A) erred in concluding that the matter is still under discussion between the parties concerned without appreciating the fact that a period of 6 years has elapsed from when the negotiations have begun; and no other communication has been received from the other party apart from the evidence furnished before the Hon'ble CIT(A).
• The Hon'ble CIT(A) erred upholding that the disallowance on the basis that no legal remedy is pursued by the Appellant without appreciating that in this case, the cost of legal action would be higher than the actual rental deposit forgone.
II. Interest under section 234D of the Act amounting to Rs. 56,083 • The Learned AO and the Hon'ble CIT(A) erred in levying interest under section 234D of the Act. The interest is consequential in nature.
The Appellant craves to leave to add, to alter, to amend, to rescind or to modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing this appeal.
For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided.
3. It was submitted by ld. AR of assessee that only one issue is involved in the present case and this is regarding the assessee's claim for write off of rental deposit which was made by the assessee and was disallowed by AO and this IT(TP)A No. 1041/Bang/2016 Page 3 of 7 disallowance was confirmed by the CIT (A). He submitted that in para no. 6.1 of his order, the CIT (A) has reproduced the contents of email message dated 25.05.2009 as per which it was stated by M/s. Black Pearl to whom the deposit was made for rent that they are not able to make the payment of deposit but will make the refund as early as possible. He submitted that although the premises was vacated in the month of March 2009 but till May 2009, the party was assuring about refund of deposit. He submitted that the claim regarding write off of deposit should be accepted as business loss in the present year and the same should be allowed.The ld. DR of revenue supported the order of CIT (A).
4. We have considered the rival submissions. We find that the CIT (A) has reproduced the contents of various emails which are dated 15.05.2009, 18.05.2009, 22.05.2009 and 25.05.2009. The last email reproduced is dated 25.05.2009. As per the contents of this email, the party has not stated that they will not refund the money. The party has stated that the money will be released very shortly. In para no. 6.3 of order of CIT (A), this is the finding of CIT (A) that the assessee is not able to substantiate its claim that the deposit advanced to M/s. Black Pearl was not recoverable. In respect of any claim for business loss on the basis of write off of any deposit or advance, this is required to be established that the same has become irrecoverable and only in case of write off of bad debts, mere write off is sufficient and the assessee is not required to establish that the debt in question has become bad and irrecoverable in the year in which it is claimed as deduction. In the present case, the claim of the assessee is not regarding write off of bad debts u/s. 36(1) (vii) and the claim of the assessee is regarding business loss in respect of write off of a deposit and therefore, in the present case, the assessee has to establish that the deposit in question has become irrecoverable. As per email dated 25.05.2009 reproduced by CIT (A) on para no. 6.1 of his order, it cannot be said that the deposit in question is not recoverable.
5. Before us also, in the paper book, the assessee has submitted the same emails dated 15.05.2009, 18.05.2009, 22.05.2009 and 25.05.2009 and there is no evidence brought on record before us also in support of this that the deposit in question has become irrecoverable. Copy of 11 judgments are submitted in the IT(TP)A No. 1041/Bang/2016 Page 4 of 7 case laws of paper book but none of these judgments is rendering any help to the assessee as per discussion hereinafter. In some cases, the issue in dispute is about write off of bad debts u/s 36 (1) (vii) in respect of write off of bad debts and therefore, the same are not relevant in present case. We will individually discuss where the dispute is not about write off of bad debts u/s 36 (1) (vii). The first such judgment is the tribunal order rendered in the case of United Motors Vs. ITO as reported in 6 taxmann.com 32(Mumbai), copy available on pages 9 to 18 of the case law paper book. This judgment is regarding allowability of deduction u/s. 28 in respect of forfeiture of security deposit placed by the assessee on account of property taken on rent but this judgment is in respect of the order passed by CIT u/s. 263 of IT Act and it was held in this case as per Para no. 8 of this tribunal order noted that this was the claim in that case that on the basis of judgment of Hon'ble Apex court rendered in the case of CIT Vs. Max India Ltd. as reported in 295 ITR 282, at least two views were possible on the question of taxability of the two amounts claimed by the assessee and if that is so, there can be no resort to action under section 263. The objection of CIT was this in that case that the deposits represented capital amounts and if they were not returned to the assessee, the loss was capital loss not allowable in computing the income. In view of these facts, this tribunal order is also not applicable in the present case.
6. Similarly in the case of M/s. LG Soft India Pvt. Ltd. Vs. DCITin IT(TP)A No. 1121/Bang/2011 dated 22.03.2013, copy available on pages 19 to 50 of paper book, facts noted in para no. 6 of this tribunal order are these that the assessee had placed a refundable deposit of Rs. 24,93,600/- with the landlord and since the assessee had difficulty in recovering the deposit from the landlord, it had filed a suit before the Hon'ble High Court of Karnataka which was dismissed on the ground that the lease deed was not duly registered. Thereafter the assessee wrote off the rental deposit in its books and claimed as deduction while computing business profits of the assessee and it was disallowed by the AO with the contention that the same is not revenue in nature and, hence, not deductible under the Act. Hence it is seen that in that case also, this is not the dispute that the deposit in question is recoverable or not as in the present case and therefore, this tribunal order is also not applicable in the present case.
IT(TP)A No. 1041/Bang/2016 Page 5 of 7
7. Similarly, the tribunal order in the case of Fab India Overseas Pvt. Ltd. vs. ACIT as reported in 2013-TIOL-672-ITAT-DEL, copy available on pages 51 to 60 of paper book, the stand of the department was this that the write off of security deposit in question for taking lease of various places is a capital loss and not revenue loss. Hence it is seen that in that case also, this was not the dispute that the deposit in question is non-recoverable or not and the only dispute is this that it is capital loss or revenue loss. In the present case, the assessee was not able to establish that the deposit in question has become irrecoverable and therefore, this tribunal order also is not applicable in the present case.
8. Next judgment cited before us is a Judgment of Hon'ble Madras High Court rendered in the case of CIT Vs. K.T.M.S. Mahmood as reported in 74 ITR 100, copy available on pages 61 to 64 of paper book. In this case, the issue in dispute was regarding loss on account of theft of watches and it was the dispute as to whether the act of the assessee of carrying watches to his home at late hours for the purpose of safe keeping was for the business purpose or not and therefore, loss in those circumstances is allowable as business loss or not. Hence this judgment is also not applicable in the present case because the facts are different.
9. The next judgment is judgment of Hon'ble Apex Court rendered in the case of Ramchandar Shivnarayan Vs. CIT as reported in 111 ITR 263. In this case, the dispute was regarding claim of the assessee in respect of cash brought by the assessee to business place of the assessee for buying securities and the dispute was as to whether such loss was incidental to carrying on of business of purchase of government securities to earn profit and therefore, it was deductible as business trading loss. In the present case, the issue is different and hence, this judgment is also not applicable in the present case.
10. The next judgment cited before us is the judgment of Hon'ble Apex Court rendered in the case of Aluminium Corporation of India Ltd. Vs. CIT as reported in 86 ITR 11. In that case, the issue in dispute was this as to whether the commission paid to its sole selling agents was allowable because it was disallowed for this reason that during the relevant year, all sales were affected IT(TP)A No. 1041/Bang/2016 Page 6 of 7 by assessee directly and no sales was effected by selling agents and therefore, payments were not made for business considerations. The dispute was this as to whether mere fact that no sales were affected by selling agents themselves could lead to the conclusion that expenditure was not expended for purposes of assessee's business. In the present case, the facts are different and therefore, this judgment is also not applicable in the present case.
11. The next judgment is the judgment of Hon'ble Apex Court rendered in the case of J.K. Woollen Mfg. Vs. CIT as reported in 72 ITR 612. In that case, the issue in dispute was regarding allowability of Rs. 75,465/- claimed by the assessee as commission paid to its general manager which was disallowed by the AO on this basis that it was excessive and quite unreasonable. In the present case, the issue in dispute is different and therefore, this judgment is also not applicable.
12. The next judgment is judgment of Hon'ble Apex Court rendered in the case of CIT Vs. Walchand and Co. (P.) Ltd. as reported in 65 ITR 381. In this case, the issue in dispute was regarding allowability of increased remuneration of executive officers. It was disallowed by the AO on this basis that increase in remuneration or salary of officers was not reflected in increase in profits of assessee and therefore, it was not an expenditure which can be justified as laid out wholly and necessarily for purposes of business. The facts of the present case are different and therefore, this judgment is also not applicable.
13. The next judgment cited before us is the judgment of Hon'ble Apex Court rendered in the case of Hero Cycles (P.) Ltd. Vs. CIT as reported in 63 taxmann.com 308, copy available on pages 91 to 96 of paper book. In this case, the issue in dispute was regarding interest paid on borrowed funds from bank which was disallowed by the AO with the finding that the assessee had used borrowed funds for giving interest free loans to its subsidiary company and its directors. This judgment is also not applicable because the dispute and facts are different.
14. The last judgment cited by the assessee is judgment of Hon'ble Delhi High Court rendered in the case of CIT Vs. Dalmia Cement (P.)Ltd. as reported in IT(TP)A No. 1041/Bang/2016 Page 7 of 7 121 Taxman 706 (Delhi). In this case, the dispute was regarding allowability of deduction of commission paid by the assessee to its sole selling agent at Rs. 1.75 per M.T. and the AO allowed only to the extent of Re. 1 per M.T. and the balance 0.75 paise per M.T. was disallowed by the AO and the second issue in that case was regarding allowability of interest on borrowed capital which was disallowed by the AO partly by holding that there was no need to borrow loan as a substantial amount was already lying with CDL (a selling agent of assessee) which was not claimed by the assessee. Since in the present case, the dispute and facts are different, this judgment is also not applicable in the present case.
15. As per above discussion, we have seen that none of the judgments is helping the assessee and the assessee is not able to establish that the deposit in question has become recoverable in the present year and therefore, we find no reason to interfere in the order of CIT(A).
16. In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on the date mentioned on the caption page.
Sd/- Sd/-
(SUNIL KUMAR YADAV) (ARUN KUMAR GARODIA)
Judicial Member Accountant Member
Bangalore,
Dated, the 15th November, 2017.
/MS/
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Senior Private Secretary,
Income Tax Appellate Tribunal,
Bangalore.