Income Tax Appellate Tribunal - Mumbai
Mrs. Agnes Theknath, Mr. Richard ... vs Department Of Income Tax on 17 February, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "F", MUMBAI
BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND
SHRI SANJAY GARG, JUDICIAL MEMBER
ITA No.5511/M/2009
Assessment Year: 2006-07
Dy. Commissioner of Income Shri Francis Theknath,
Tax-20(3), Roy Apartment,
Room No.506, B-5, 2nd Floor,
Piramal Chambers, Vs. Near Cargo Complex,
Parel, Sahar Road,
Mumbai - 12 Andheri (E),
Mumbai - 400 099
PAN: AAEPT 7607E
(Appellant) (Respondent)
Present for:
Assessee by : Shri Sanjay R. Parikh, A.R.
Revenue by : Ms. Amrita Singh, D.R.
Date of Hearing : 04.02.2016
Date of Pronouncement : 17.02.2016
ORDER
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the Revenue against the order dated 13.07.2009 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2006-07.
2. The Revenue has taken the following grounds of appeal:
"1. The learned CIT(A) has erred on facts and in law and in the circumstances of the case directing to allow the addition made on account of discount charges of Rs.17,16,911/- and bad debts of Rs. 17,69,270/-.
2. The learned CIT (A) erred on facts and in law and in circumstances of the case in allowing the bad debts in view of specific provision contained in section 36(2)(i) of the I.T.Act,1961 that the debts claimed as bad must be written off in the books by the assessee. However in the present case recovery notices have been issued to the parties and hence debt were not bad. Also Ld.CIT(A) failed to appreciate the fact that despite given sufficient opportunity, the assessee failed to explain the factual position and basis for allowing huge amount of discount.2 ITA No.5511/M/2009
Shri Francis Theknath
3. The Ld.CIT (A) erred on facts and in law and in circumstances of the case in directing to reduce the disallowance made on account of Business Promotion expenses from Rs.7,46,511/- to Rs.2,98,604/- and handling charges from Rs.4,37,765/- to Rs.2,18,882/-.
4. The Ld. CIT(A) has erred in not appreciating the facts that though the disallowance made by the AO is on estimation basis, this was necessitated by the fact that the assessee did not adduce any evidence and produce supporting bills to prove that all expenses claimed as Business Promotion expenses and Handling Charges were wholly & exclusively for business purposes.
5. The appellant prays that the order of the CIT (Appeals) on the above grounds be set aside and that of the AO be restored.
6. The appellant craves leave to amend or alter any ground or to submit additional new ground which may be necessary."
Ground No.1
3. The first ground is relating to disallowance of business promotion expenses. During the course of assessment proceedings, the Assessing Officer (hereinafter referred to as the AO) noted that there was increase in business promotion expenses from 5.02% of the earlier year to 7.56% of the net receipts for the year under consideration. He required the assessee to furnish the details of business promotion expenses from time to time. The assessee stated that these expenses were incurred to promote the business viz. expenses incurred on meetings with the business persons, lodging and boarding of some of the outside customers, giving of gift articles to customers, etc. It was also stated by the assessee that majority of expenses were incurred through credit cards and therefore such expenses could not be doubted specially when the books of account were audited. However, the AO observed that the assessee had not furnished the complete vouchers/bills in support of the claim of business promotion expenses, he, therefore, disallowed 25% of the expenses on adhoc basis. The Ld. CIT(A), considering the submissions of the assessee, held that since majority of the expenses were incurred through credit card, disallowance of 25% of expenses made by the AO was on a higher side. He, therefore, 3 ITA No.5511/M/2009 Shri Francis Theknath restricted the disallowance in this regard to 10% of the total expenses.
4. We do not find any infirmity in the finding of the Ld. CIT(A) restricting the adhoc disallowance of 10% of the total of expenses. The order of the Ld. CIT(A) on this issue is therefore upheld.
Ground No.2
5. Ground No.2 is relating to discount related charges. The AO doubted the genuineness of the discount charges claimed by the assessee at Rs.85,84,556/- observing that the same were higher than the earlier year and further that the said claim of the assessee was not verifiable. The Ld. CIT(A), however, considering the submissions of the assessee observed that the assessee had submitted all the details to the AO regarding the above claim of discount charges and it was explained that discount charges in A.Y. 2006-07 were at Rs.1.63% as compared to 1.7% in A.Y. 2005-06 which had been claimed on certain percentage of gross receipts and that there was decrease in the ratio. It was also considered by him that the accounts of the assessee were audited and that all the details with supporting vouchers were produced by the assessee. The Ld. CIT(A), thereafter, observed that the AO had made general discussion about the increase in discount charges and had not pointed out any defect in the above claim of the assessee. No item of expenditure was proved to be bogus. He, therefore, considering the evidences on the file, held that no disallowance of discount charges was attracted on this issue. He accordingly deleted the above disallowance made by the AO.
6. After considering the rival submissions, we do not find any infirmity in the order of the Ld. CIT(A) on this issue also and the same is accordingly upheld.
Ground No.3
7. Ground No.3 is relating to the disallowance of handling charges. The 4 ITA No.5511/M/2009 Shri Francis Theknath assessee claimed total handling charges at Rs.43,77,655/-. The AO disallowed 10% of the same at Rs.4,37,765/- doubting the genuineness of the expenses and observing that only part details have been filed during the assessment proceedings.
8. In appeal, the Ld. CIT(A), considering the submissions of the assessee, observed that though the assessee had furnished all the details in respect of handling charges to the AO, however the AO was not satisfied with the details because of the fact that most of the expenses were incurred in cash and were supported with only self made vouchers. The assessee explained to the Ld. CIT (A) that the expenses mainly were incurred in connection with clearing of cargo and the majority of the expenses had been paid to labour class workers and it was not always possible to get the signature of each and every payee of labour class. The Ld. CIT(A), considering the above submissions and looking to the nature of expenses and the nature of business of the assessee, restricted the disallowance in this regard to 5% of the total expenses as against disallowance of 10% made by the AO.
9. After considering the rival submissions, we do not find any infirmity or defect in the above action of the Ld. CIT(A) in restricting the disallowance to the 5% of the expenses on adhoc basis. The finding of the Ld. CIT(A) on this issue also is therefore upheld.
Ground No.4
10. Ground No.4 is relating to the action of the Ld. CIT(A) in deleting the addition made by the AO in respect of bad debts of Rs.17,69,270/-. The AO, during the assessment proceedings, noted that the assessee had claimed bad debts written off at Rs.70,87,973/-.
11. After going through the details submitted by the assessee in this respect, the AO noted that the assessee had filed a recovery suit against six parties.
5 ITA No.5511/M/2009Shri Francis Theknath However, the assessee had not filed any suit for recovery of debts against 13 parties. He, therefore, disallowed the claim of bad debts of the assessee in respect of the said 13 parties.
12. In appeal, before the Ld. CIT(A), the assessee explained that the debts were outstanding since 3 to 4 years and that the assessee had filed suit for all major cases. The assessee explained that for small amounts, it was not practical to file the suit because a businessman has sometimes constrains of time and resources. The Ld. CIT(A), being agreement with the above submissions of the assessee and considering the circumstances of the case, observed that the assessee in fact had actually written off these debts in his books and the claim cannot be linked to the turnover. He therefore disallowed the disallowance of bad debts written off made by the AO.
13. We have heard the rival contentions. We do not find any infirmity in the order of the Ld. CIT(A) on this issue also. Moreover, the Hon'ble Supreme Court in the case of "TRF Ltd. vs. CIT" (2010) 323 ITR 397 (SC) has held that after the amendment of section 36(1)(vii) of the Income Tax Act, 1961 w.e.f. 01.04.1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable; it is enough, if the bad debt is written off as irrecoverable in the accounts of the assessee. In view of the above, there is no infirmity in the order of the Ld. CIT(A) while deleting the addition made by the AO in relation to claim of bad debts. This issue is also accordingly decided against the Revenue.
14. Ground Nos. 5 & 6 are general in nature and do not require any adjudication.
15. In view of our findings given above, there is no merit in the appeal of 6 ITA No.5511/M/2009 Shri Francis Theknath the Revenue and the same is accordingly dismissed.
Order pronounced in the open court on 17.02.2016.
Sd/- Sd/-
(D. Karunakara Rao) (Sanjay Garg)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 17.02.2016.
* Kishore, Sr. P.S.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT (A) Concerned, Mumbai
The DR Concerned Bench
//True Copy// [
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.