Income Tax Appellate Tribunal - Mumbai
Kama Jewellery (I) P. Ltd , Muumbai vs Department Of Income Tax on 22 September, 2008
1 I.T.A No.6960/ Mum/2008
Kama Jewellery (I) Pvt.ltd.,
IN THE INCOME TAX APPELLATE TRIBUNAL,
" A" BENCH, MUMBAI.
[Coram D.Manmohan, V.P. and Pramod Kumar, AM]
I.T.A No.6960/ Mum/2008
Assessment year: 2005-06
Dy.Commissioner of Income tax 9(2) ..... Appellant
Aayakar Bhavan, M.K. Road, Mumbai.
vs
Kama Jewellery (I) Pvt.ltd., ,.... Respondent
Unit-221, Udyog Bhavan, Sonawala road,
Goregaon (E),Mumbai.
PA No.AAACK 2261 J
Appearances :
Jitendra Yadav, for the appellant
Kishor Patel, for the respondent
ORDER
Per Pramod Kumar:
1. By way of this appeal, the Assessing Officer has challenged correctness of CIT(A)'s order dated 22nd September, 2008, in the matter of assessment u/s.143(3) of the Income tax Act, 1961, for the assessment year 2005-06.
2. In Ground Nos.1 and 2, which we are taking up together, the Assessing Officer has raised the following grievances:
"1. On the facts and in the circumstances of the case and in law, the ld CIT (A) erred in allowing the bad debt of `.1,44,367/- ignoring the fact that the assessee could not prove the fact that the alleged debt has become bad. Reliance is placed on the Hon'ble Madras High Court 2 I.T.A No.6960/ Mum/2008 Kama Jewellery (I) Pvt.ltd., decision in the case of South India Surgical Co. Ltd., 201 CTR 289 (Mad).
2. On the facts and in the circumstances of the case and in law, the ld CIT (A) erred in allowing the sundry balances written off at `.27,892/-
just for the reason that the amounts represent minor balances related to the business without appreciating the facts of the case.'
3. The short reason for which the Assessing Officer disallowed claim of bad debt of `.1,44,367 as also claim of sundry balances of `.27,892 written off, was that "the assessee has failed to prove that the amount written off as irrecoverable pertain to bad debts". In other words, according to the Assessing Officer, the assessee had failed to establish that the debts have actually become bad. However, in appeal, learned CIT(A) did not approve this approach and held as follows:
"2.3 In principle, I find merits in the appellant's contention that no disallowance on account of bad debts can be made on the ground that the debts had not become bad. The appellant's contention is also supported by the decisions in the case of DCIT v. Oman International Bank (100 ITD 285), Kanoria Securities & Financial Services (P)Ltd. v ACIT (108 TTJ 473 Mum). The AO is therefore directed to delete the addition subject to verification of the fact that the amount written off had been shown as income in the earlier years. The AO is also directed to delete the addition made on account of sundry balances written off, since, these are minor balances related to the business of the assessee. This ground of appeal is partly allowed."
4. Aggrieved by the stand so taken by the CIT (A), the Assessing Officer is in appeal before us.
5. Having heard the rival contentions and having perused the material on record, we are not really inclined to interfere in very well reasoned and judicious conclusions arrived at by the learned CIT (A). In principle, the issue is now covered in favour of the assessee by Hon'ble Supreme Court's judgement in the case of TRF Ltd v. CIT (323 ITR 397) and in any event, learned CIT (A) had remitted the matter to the file of the Assessing Officer for carrying out necessary factual verifications. We see no infirmity in the order of the CIT (A) and approve the same.
3 I.T.A No.6960/ Mum/2008Kama Jewellery (I) Pvt.ltd.,
6. Ground Nos.1 & 2 are thus dismissed.
7. In Ground No.3, the Assessing Officer has raised the following grievance:
" On the facts and in the circumstances of the case and in law, the ld CIT (A) erred in holding that no allocation on account of interest and finance charges, sales promotion expenses and license fee aggregating to `.6,00,559/- can be done on the basis of the turnover to the eligible unit for computation of deduction u/s. 10B without appreciating the findings of the AO in the right manner."
8. During the course of assessment proceedings, the Assessing Officer was of the view that while `.11,16,106, out of sales promotion expenses of `.60,91,138, were taken as attributable to 100% EOU, in fact `.11,37,962 were attributable to EOU. Similarly, as against licence fee of `.12,273 being attributable to 100% EOU, no part of this expense was accounted by the assessee as allocated to EOU. Similarly, while assesse allocated `.17,37,108 out of interest expenses as attributable to EOU, Assessing Officer allocated `.23,03,538. The variations wee due to AO's adoptioning the basis of turnover. The Assessing Officer was of the view that the profits of the EOU, on this basis are overstated and thus excessive deduction u/s.10B was claimed. Accordingly, exemptions u/s.10B was restricted, inter alia, in respect of the above. However, when matter was carried in appeal before the CIT (A), he upheld the grievance of the assessee, in principle by observing as follows:
"3.3 I have gone through the detailed explanation filed by the appellant and I am inclined to agree with the appellant's contention that no allocation on account of interest and finance charges and sales promotion expenses and license fee can be done on the basis of the turnover as has been done by the AO. It may be seen that separate accounts for EOU unit is maintained by the assessee which are duly audited. Besides this, detailed break up of total interest expenses has been properly explained by the appellant. It is also observed that the assessee's capital and reserve/income of the EOU unit is far in excess of the original investment in the EOU unit. Therefore, no part of the interest on unsecured loan is to be allocated to the EOU as the own fund of the assessee at the beginning of the year is far in excess of investment by the assessee in the EOU. There is merit in the 4 I.T.A No.6960/ Mum/2008 Kama Jewellery (I) Pvt.ltd., appellant's contention that allocation of interest has to be done on the basis of capital employed and not on the basis of turnover. However, the appellant has not pressed the allocation done by the AO on account of internet charges, payment to auditors, appeal fees and guest house expenditure, therefore, the said amount can only be considered by the AO for the calculation of deduction u/s.10B of the I.T.Act. The mistake pointed out by the appellant with regard to `.34,755 on account of other income which the appellant has claimed to have reduced from the profit of the undertaking at the time of the computation of deduction u/s.10B may be rectified subject to the facts. Therefore, AO is directed to re-calculate the deduction u/s.10B as per the directions given above. This ground of appeal is partly allowed."
9. Aggrieved by the stand so taken by the CIT (A), the Assessing Officer is in appeal before us.
10. Having heard the rival contentions and having perused the material on record, we see no need to interfere in the conclusions arrived at by the CIT(A). He is quite justified in holding that allocation of interest has to be on the basis of capital employed, and not the turnover. We have also noted that for necessary factual verifications, the CIT (A) has remitted the matter to the file of the Assessing officer. We see no infirmity in the stand of the CIT (A) and approve the same.
11. Ground No.3 is thus dismissed.
12. In Ground No.4, the Assessing Officer has raised the following grievance:
" On the facts and in the circumstances of the case and in law, the ld CIT (A) erred in holding the computer expenses on developing software programmes of `.2,33,985/- as revenue expenditure without appreciating the fact that the said expenditure incurred on computer system brings enduring benefit to the assessee. Reliance is placed on the decision in CIT v. Arawali Construction Co.(P)Ltd., 259 ITR 30(Raj) and Maruti Udyog Ltd v DCIT, 92 ITD 19(Del)."
13. In view of the Special Bench decision in the case of Amway India Enterprises vs DCIT (111 ITD SB 112), as learned representatives agree, this matter is to be examined afresh by the Assessing officer. We direct the AO to re-examine the matter 5 I.T.A No.6960/ Mum/2008 Kama Jewellery (I) Pvt.ltd., in the light of the correct legal position as, inter alia, laid down by the Special Bench in Amway's case (supra) after giving due opportunity of hearing to the assessee by way of a speaking order and in accordance with the law.
14. Ground No.4 is allowed for statistical purposes.
15. In the result, the appeal is partly allowed for statistical purposes.
Pronounced in the open court on 28th January, 2011
Sd/- Sd/-
(D.Manmohan) (Pramod Kumar)
(Vice President) (Accountant Member)
Mumbai, Dated 28th January 2011
Parida
Copy to:
1. The appellant
2. The respondent
3. Commissioner of Income Tax (Appeals),IX, Mumbai
4. Commissioner of Income Tax, IX , Mumbai
5. Departmental Representative, Bench 'A', Mumbai //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI 6 I.T.A No.6960/ Mum/2008 Kama Jewellery (I) Pvt.ltd., 7 I.T.A No.6960/ Mum/2008 Kama Jewellery (I) Pvt.ltd.,