Income Tax Appellate Tribunal - Delhi
Wel Intertrade (P) Ltd.,, New Delhi vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH :I: NEW DELHI
BEFORE SHRI G.E. VEERABHADRAPPA, HON'BLE VICE PRESIDENT
AND
SHRI I.P. BANSAL, JUDICIAL MEMBER
ITA No.2778/Del/2009
Assessment Year : 2005-06
DCIT, Cir. 18(1), Vs. M/s Well Intertrade (P) Ltd.,
New Delhi. 5-E, Local Shopping Centre, G.K. II,
Masjid Moth, New Delhi.
PAN : AAACW0187F
C.O. No.235/Del/2009
(ITA No.2778/Del/2009)
Assessment Year : 2005-06
M/s Well Intertrade (P) Ltd., Vs. DCIT, Cir. 18(1),
5-E,Local Shopping Centre, G.K.II New Delhi.
Masjid Moth, New Delhi.
(Appellant) (Respondent)
Assessee by : Shri C.S. Agarwal & Shri D.B. Jain,Advocate
Revenue by : Ms Sheela Chopra, DR
ORDER
PER I.P. BANSAL, JUDICIAL MEMBER
The appeal is filed by the department and the Cross Objections by the assessee. Both are directed against the order of the CIT (A) dated 23rd March, 2009 for assessment year 2005-06. Grounds of appeal and grounds of Cross Objections read as under:-
Grounds of appeal
1. On the facts and in the circumstances of the case, Ld. CIT (A) has erred in allowing carry forward of losses on account of unabsorbed depreciation of Rs.17,57,933/-, short term capital loss of Rs.14,18,487/- and Rs.35,50,659/- on account of long term capital loss by holding that loss referred to in section 79 is only business loss and section 79 is not applicable to losses on account of unabsorbed depreciation and short term or long term capital losses.2 ITA No.2778/Del/2009 C.O. No.235/Del/2009
Grounds of Cross Objection
1. That the learned Commissioner of Income Tax (Appeal), has erred both on facts and in law in confirming the disallowance made of Rs.31,662/- incurred on the travel of employee out of foreign travel expenses aggregating to Rs.4,20,360/- incurred by the appellant company.
2. That the learned CIT (A), has erred both in law and on facts, in not directing to the learned Assessing Officer, to refund or allow the credit of the amount at tax deducted at source of Rs.4,32,690/-. The findings recorded by the learned CIT (A) in the order at page 6 para 7 have not been well and properly reached and as such the assessee has not yet been allowed the refund or the credit thereof.
3. That the learned CIT (A) has further erred in not directing the learned Assessing Officer not to withdraw interest of Rs.31,601/-, u/s 234D which had never been granted to the assessee and as such there was no justification to have held that the interest is to be withdrawn.
It is therefore prayed that, the addition sustained be directed to be deleted and the refund and interest withdrawn be allowed to the assessee company.
2. During the financial year 2004-05 there was change in the shareholding. 51% shareholding of the assessee company held on 31st March, 2004 was transferred to another company, namely, M/s Yoroshi Investments (Mauritius) Pte Ltd.. when M/s Splendor Exim Pvt. Ltd., a majority shareholder of the assessee company who already held 50994 shares out of total issued and subscribed shareholding of the assessee i.e., 76600 were transferred and as a result of such transfer M/s Yoroshi Investments (Mauritius) Pte Ltd. had become the majority shareholder owning 99.99% share as on 31st March, 2005. Accordingly, the Assessing Officer applied Section 79 of the Income Tax Act and held that following amounts could not be allowed to be carried forward:-
a. Unabsorbed depreciation (Rs. 17,57,933/-) b. Short term capital loss brought forward (Rs. 14,18,487/-) 3 ITA No.2778/Del/2009 C.O. No.235/Del/2009 c. Long term capital loss brought forward (Rs. 35,50,659/- and, d. Unabsorbed business loss (Rs. 39,33,573/-).
3. Before CIT (A) it was claimed that in view of the decision of Hon'ble Supreme Court in the case of CIT vs. Subh Lakshmi Mills Ltd. 249 ITR 795, Section 79 could be applied only to business loss thereby Ld. Assessing Officer was wrong in not allowing the carry forward of other items which is unabsorbed depreciation Rs.17,57,933/- short-term capital loss brought forward Rs.14,18,487/- and long-term capital loss brought forward Rs.35,50,659/-. Ld. CIT (A) after considering the submissions has come to the conclusion that in view of the decision of Hon'ble Supreme Court in the case of CIT vs. Subh Lakshmi Mills Ltd (supra), Section 79 could be applied only to business loss and Section 79 was not applicable to short-term capital loss or the long-term capital loss brought forward from earlier years. He observed that the claim of the appellant of Rs.17,57,933/- on account of unabsorbed depreciation Rs.14,18,487/- on account of short term capital gain and Rs.35,50,659/- for long- term capital loss brought forward are to be allowed to be carried forward or adjusted out of the income for the year under consideration as the case may be. The department is aggrieved with these findings of the CIT (A) and has filed the aforementioned grounds of appeal.
4. After narrating the facts, it was submitted by Ld. DR that as per Section 79, the Assessing Officer was right in disallowing all these claims to be carried forward and he pleaded that the findings of CIT (A) on this issue should be set aside and that of Assessing Officer be restored.
5. On the other hand, it was submitted by the Ld. Counsel that the verdict of Hon'ble Supreme Court in aforementioned case is that Section 79 has application only to the business loss and no other item is covered by Section 79. He contended that Ld. CIT (A) has correctly appreciated the legal position and has rightly held that other items could not be disallowed from being carried 4 ITA No.2778/Del/2009 C.O. No.235/Del/2009 forward. He submitted that so as it relates to applicability of Section 79 on business loss the assessee has not raised any dispute as, according to the assessee, Section 79 is applicable on the business loss which cannot be allowed to be carried forward.
6. We have carefully considered the rival submissions in the light of the material placed before us. According to computation of income which is placed on record the assessee has submitted assessable income for the year under consideration under the normal provisions of a sum of Rs.1,62,698/- from where the assessee has claimed the brought forward losses and unabsorbed depreciation, etc. to the tune of Rs.56,91,506/- resulting into net loss to be carried forward at a sum of Rs.55,28,808/-.
7. Under the provisions of Section 115 JB, the income is computed at Rs.10,79,870/- upon which income-tax payable has been worked out at Rs.80,990/-. The assessee has sought credit of TDS of Rs.4,32,690/- and, therefore, refund for balance amount of Rs.3,51,700/- has been sought by the assessee from the revenue. The bifurcation of brought forward capital loss, unabsorbed depreciation and unabsorbed business loss has already been described in the above part of this order and there is no dispute as to the correctness of this bifurcation.
8. It may be mentioned here that following questions of law was raised by the revenue before Hon'ble Supreme Court in the aforementioned decision in the case of CIT vs. Subh Lakshmi Mills Ltd :-
"2. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that in applying section 79 of the Act, only the business loss should be taken into account and not the unabsorbed depreciation or unabsorbed development rebate, is erroneous in law?5 ITA No.2778/Del/2009 C.O. No.235/Del/2009
9. The Hon'ble Supreme Court while giving answer to the aforementioned question has observed as under:-
"So far as question no. 2 is concerned, the question is whether in applying section 79 of the Act, only the business loss should be taken into account and not the unabsorbed depreciation or unabsorbed development rebate."
10. Ld. Counsel while arguing the appeal had laid stress on the word "only" in the aforementioned observations of Hon'ble Supreme Court to contend that what is subject matter of disallowance u/s 79 is only business loss.
11. The aforementioned question of law had arisen from the decision of Hon'ble Gujarat High Court which is reported as CIT vs. Subh Lakshmi Mills Ltd 143 ITR 863 wherein the question No.2 referred to their lordships:-
(2) Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that in applying section 79 of the Act, only the business loss should be taken into account and not the unabsorbed development rebate is erroneous in law?
12. In that case, the assessee had unabsorbed business loss of Rs.10,96,546/-, unabsorbed depreciation of Rs.13,55,126/- and unabsorbed development rebate of Rs.5,96,858. While considering the question whether all these disallowances could be made u/s 79 of the Act, their Lordships of Gujarat High Court had held as under:-
"Under these circumstances, our conclusions are that it was open to the taxation authorities to invoke the provisions of s. 79 so far as the assessment year 1965-66, was concerned but those provisions can only be applied to the quantum of business losses which had been allowed to be carried forward after the set-off in assessment proceedings of the assessment year 1964-65. Our conclusion also is that so far as the development rebate is concerned, in view of the fact that the development rebate was not created in the year of installation of the plant or machinery concerned, it could not be allowed in the assessment year 1965-66, or any of the assessment 6 ITA No.2778/Del/2009 C.O. No.235/Del/2009 years under reference before us. So far as depreciation allowance is concerned, the provisions of s. 79 cannot be apply to unabsorbed depreciation allowance."
13. Those findings of Hon'ble Gujarat were upheld by Hon'ble Supreme Court in the aforementioned decision.
14. In this view of the situation, after hearing both the parties and after considering the available material on record, we are of the opinion that the CIT (A) has rightly appreciated the legal position and his findings on this issue are in accordance with the law laid down by Hon'ble Supreme Court in the aforementioned case. Therefore, we decline to interfere and, therefore, the departmental appeal is dismissed.
15. Now, coming to the Cross Objections filed by the assessee, the first issue relates to disallowance made by the Assessing Officer on account of foreign travel expenses for a sum of Rs.31,662/-. The Assessing Officer has discussed this issue in para 5 at page 5 of the assessment order. The total expenses incurred by the assessee on the said travel is a sum of Rs.4,20,360. The Assessing Officer sought details from the assessee. It was found that the expenses were in respect of two visits by M/s Archana Jatia to visit Singapore in the month of April, 2004 and London in the month of May-June, 2004. She is a director and also wife of Shri S.K. Jatia who is the main person running the affairs of the company. Total amount spent was Rs.2,81,830/- out of which the boarding and lodging expenses were Rs.2,11,086/-. It was submitted by the assessee that these expenses were incurred on the meetings with international clients for procuring new business of the company. According to the Assessing Officer, such explanation of the assessee was vague and not backed by full evidence. In the absence of proper evidence on record, the Assessing Officer made estimated disallowance of 15% of a sum of Rs.2,11,086/- which resulted into disallowance of Rs.31,662/-. The CIT (A) has upheld the disallowance on the ground that there was absence of complete details of expenses incurred 7 ITA No.2778/Del/2009 C.O. No.235/Del/2009 during the foreign visit by the Director. He observed that the assessee has not been able to prove that whether such amount was expended wholly and exclusively for the purpose of business. The assessee is aggrieved, hence, in appeal. It was submitted by Ld. Counsel that boarding and lodging in respect of first trip was only Rs.87,936/- and for another trip Rs.1,23,150/- which was for six days. It was submitted that in the absence of any basis of estimation, the disallowance is unsustainable, more particularly when the said expenditure has been incurred by the company on the foreign travel of its employee for its business. Reliance was placed on the decision in the case of Sayyaji Mills Ltd. vs. CIT 253 ITR 749 where in the context of disallowance of car expenses it was held that such an estimation is not permissible.
16. On the other hand, Ld. DR submitted that it has been clearly recorded by the Assessing Officer and CIT (A) that proper details were never submitted. He submitted that the Assessing Officer had adopted right course to estimate the disallowance which is quite reasonable and the CIT (A) is wrong in deleting the disallowance.
17. We have carefully considered the rival submissions in the light of the material placed before us. It has been the case of the Assessing Officer that the assessee did not submit complete details. Ld. CIT (A) had called for the comments of the Assessing Officer and in those comments also it has been stated that the assessee has not filed proper details. If proper details are not forthcoming, then, there will be no course available with the Assessing Officer except to make disallowance on estimate. The disallowance appears to be very reasonable. Therefore, there is no scope of interference in such disallowance and we decline to interfere in the disallowance upheld by the CIT (A). This ground of Assessing Officer is dismissed.
18. So far as it relates to ground No.2 and 3 of Cross Objections, it may be mentioned here that during the course of hearing of this appeal and Cross 8 ITA No.2778/Del/2009 C.O. No.235/Del/2009 Objections, Ld. Assessing Officer was required to be present. He was directed to re-compute the tax and interest liability of the assessee which has now been re- computed to the satisfaction of the assessee vide order dated 16.07.10 passed u/s 154 of the Act. Since the tax liability as well as the interest has been rightly computed and right refund has been worked out, these grounds do not survive, hence, dismissed. It is expected that the Assessing Officer will issue necessary orders for refund as early as possible.
19. In the result, the appeal filed by the Department as well as the Cross Objections filed by the assessee, both are dismissed.
The order pronounced in the open court on 23.07.2010.
Sd/- Sd/-
[G.E. VEERABHADRAPPA] [I.P. BANSAL]
VICE PRESIDENT JUDICIAL MEMBER
Dated, 23.07.2010.
dk
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
TRUE COPY
By Order,
Deputy Registrar,
ITAT, Delhi Benches