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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
AadoSa / O R D E R महावीर स िंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
This appeal filed by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-8, Mumbai [in short CIT(A)], Appeal No. CIT(A)-8/Cir.4/Trans.3/2012-13 vide order dated 04.12.2013. The Assessment was framed by the Asst. Commissioner of Income Tax, 2 Circle 6(3) Mumbai (in short ‘ACIT/ ITO / AO’) for the A.Y. 2006-07 vide order dated 26.12.2008 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in charging the amount of ₹ 49,87,455/- from Lohia Machine Limited (LML). For this assessee has also raised the alternative ground that the same may be treated as bad debt and write off of the same should be allowed. For this assessee has raised the following ground No. 1.1: - “1.1 holding that the amount of Rs.49,87,455/- received during the year from Lohia Machines Limited (LML) was chargeable as income of the appellant, though however, the said amount received could not be characterized as income and was on account of payment towards debt due as proved by the events which happened subsequently; Or alternatively not directing the assessing officer to allow the same for assessment year 2008-09 as bad debts being the year in which the net amount was - written off as bad debts by the appellant.”
Briefly stated facts are that the AO during the course of assessment proceedings noted that the assessee company has earned income from its defaulting client Lohia Machine Limited (LML) for an amount of Rs 49,87,455/- towards interest upto 31.01.2006. But 3 assessee has not offered this interest income. According to AO this is interest income and accordingly he made addition. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) confirmed the action of the AO vide Par 3.3. as under: - “3.3 I have considered the facts of the case and the arguments of the appellant. It is a matter of fact that the appellant in view of the Hon'ble Highs Court's order had received from Lohia Machines Ltd (LML) certain amount of money as referred to pam 5 above It's also a matter. of fact that MIs. LML. in view of Hon'ble High Court's order has paid the sum of ₹ 1,07,11,125/- against principal amount of ₹ 1,56,58,338/- and interest amount of ₹ 49,87,455/-. It is also matter of fact that the appellant was given due TDS certificate of the same The fact that MIs LML is before BIFR had not paid the subsequent instalment as agreed upon by it before the Hon’ble High Court As on the facts and in the circumstances of the case and in law that the appellant had received first instalment along with interest thereon for the period as mentioned supra. Therefore, the interest income needs to be treated as additional income of the appellant for the year under consideration and the same is required to be taxed as income from other sources. Admittedly this is the interest paid by MIs. LML 4 to the appellant on the delayed payment on its due. It is also a matter of fact that the appellant company who was doing advertising work for MIs. LML, certain amount was due from MIs. LML which the appellant has accounted as income in the earlier year. The appellant made claim of the same as bad debt. However, facts that it had received interest of ₹ 49,87,455 is not denied. Therefore, I find no infirmity in the order of the AO to tax as income. The same is accordingly upheld. This ground of appeal is accordingly dismissed. Coming to the argument of the appellant that bad debt may be allowed to the appellant in the subsequent year, it is submitted that it is for the appellant to claim the same as per the provisions of the Act and not for me to direct the AO to allow the same. Therefore, the addition made by the AO is accordingly upheld.”
Aggrieved assessee came in appeal before Tribunal.
Before us, the learned Counsel for the assessee explained that the assessee has raised bills on Lohia Machine Limited (LML) for various advertisements released in press and TV in earlier years and against which it had recovered a sum of ₹ 67,33,280/-. But LML did not paid the said bills to the assessee as per the due date or therefore despite best efforts put in for recovery of the same. Accordingly, the assessee filed its suit before the Hon’ble Delhi High Court under the provisions of agreement restraining them from advertising in different Media. Hon’ble 5 Delhi High Court in reference to the said application passed an interim order asking LML to pay the outstanding amount as per the schedule issued by them. In the meantime, LML had also filed a reference with Board of Industrial and Financial reconstruction (BIFR) for being declare a sick industrial unit. Accordingly, the LML close down their plant and substantially discontinue their business. Accordingly, LML in term of the direction of Hon’ble Delhi High Court paid certain amounts to the assessee out of the dues of 13.67 crores, the following were paid: - Sl Particulars Amount (Rs.) No. 1. Down payment 1,07,71,125/- 2. Installments (Sept 2005 to February, 2006) 1,56,58,338/- 3. Towards interest without deduction of TDS 49,87,455/- 5. The assessee admitted that this payment was received but stated that the amount paid by LML towards interest never fructified into income because LML failed to offer their dues of making payments by installments together with interest. On the other hand, the learned Sr. Departmental Representative supported the orders of the lower authorities. He relied on the findings of CIT(A) recorded in Para 3.3 and has reproduced above.
We have heard rival contentions and gone through the facts and circumstances of the case. We find that the assessee has received this interest amounting to ₹ 49,87,455/- in view of the directions of Hon'ble Delhi High Court. Admittedly, the assessee has received his first installments along with interest thereon for the period mentioned in the above chart. Admittedly this interest paid by LML to the assessee on the delayed payments which is due by installments. Admittedly, the assessee company was doing advertising work for LML and certain amount was due from LML which the assessee has accounted for as income from 6 earlier years. The assessee has once received this interest on the directions of the Hon’ble Delhi High Court and it is nothing but as interest income. Hence, we find no infirmity in the order of lower authorities and we confirm the addition.
As regards to the alternative claim of assessee regarding the claim of bad debt in regard to certain amounts which were due to LML and the assessee has accounted as income in earlier years need to be allowed. But as the facts are not before us, the learned Counsel for the assessee as well as the learned Sr. Departmental Representative agreed that the issue can be set aside to the file of the AO for verification and the bad debt can be claimed and allowed in the hands of the assessee in the relevant year in which the net amount has been written off as bad debt by the assessee. This issue of assessee’s appeal is partly allowed.
The next issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in disallowing the expenses for non-deduction of TDS. For this assessee has raised the following ground No. 1.2: - “1.2 disallowing U/s. 40(a)(ia) of the Income Tax Act, 1961 (the Act) the following amounts for alleged non-deduction of tax at source:
1.2.1 Rs. 10,64,116/- being the rent paid / rent shared with the group companies, tax on which was deducted by the original payer.
1.2.2 Rs. 10,05,499/- out of repairs and maintenance expenses.
7 1.2.3 Rs. 15,22,991/- out of research expenses. 1.2.4 Rs. 1,85,436/- out of business development expenses.
1.2.5 Rs.4,4 1,139/- out of legal and professional charges. 1.2.6 Rs.6,16,786/-out of support service expenses. 1.2.7 Rs.8,03,480/- out of software expenses. 1.2.8 Rs.2,70,740/- out of miscellaneous expenses.
1.2.9 not granting relief as per the Additional Ground of Appeal filed wherein, it was claimed that software expenses of Rs.8,03,480/- and research expenses of Rs.15,22991/- should be held as capital in nature and in respect of which depreciation at the rate of 60% ought to be granted.”
9. We find from the facts of the case that the assessee has claimed various expenses on account of rent paid/ rent shared, repair and maintenance expenses, research expenses, business developments expenses, legal and professional charges, support services, software expenses, Miscellaneous expenses and additional ground admitted but no relief was allowed on software expenses, research expenses by holding the same as capital in nature and consequent depreciation was not allowed by CIT(A).
8 10. We have gone through the order of CIT(A), wherein the CIT(A) has noted that the assessee had not given any evidences of all these expenses either before him or before Assessing Officer. The finding recorded by CIT(A) is in Para 5.4.1 and 5.4.2 reads as under: - “5.4.1 I find that the appellant had debited large number of expenses in its P & L account and it is also seen that the appellant had itself disallowed a sums of ₹ 78,20,796 under the provisions of section 40(i)(ia) of the Act. However, the AO had further disallowed an amount of '59,10,187/- over and above what the appellant had itself disallowed. These expenses are primarily in the nature of research, software expenses, reqt, rates and taxes expenses, repairs & maintenance, communication expenses, printing & stationery, business development, legal & professional charges, payment of support services to holding company expenses, conveyance and travelling, miscellaneous expenses and interest expense. I find that the appellant had not given any evidence of all these expenses either before me or before the AO except stating inter that these expenses are not subject to deduction of TDS. On the contrary, during the course of appellate proceedings, the appellant has taken an alternative plea by way of additional ground that these expenses may be treated as capital 9 expenditure and depreciation be provided on them to support its claim, the appellant relied on several decisions of the Hon'ble High Court and Tribunals, mainly, the jurisdictional High Court in the case of CIT vs. Pruthvi Brokers & Shareholders (P) Ltd. 3491TR 336 (Bom). However, I am not in agreement with the observation of the appellant. First of all, the appellant has not clarified as to the exact nature of the expenditure incurred by it. It is also imperative to claim the expenses correctly in its P & L account. Having claimed the same as revenue expenditure, the appellant cannot take alternate plea without any reason thereof. Therefore, alternate plea of the appellant is rejected and is not admitted It cannot by any stretch of imagination be called as genuine claim which can be admitted Further, since the appellant has not given cogent evidence. I do not find any reason to differ from the finding of the AO. The addition made by the AO on the heads stated above is accordingly confirmed.
5.4.2 In respect of the ground rent paid/rent shared with the group of the companies viz. Group M Media Pvt. Ltd. and Bates India Pvt. Ltd. and the appellant stated that it had paid gross amount of ₹ 10,64,1116 towards sister organization for the purpose of sharing the rent 10 of the premises. In this context, I find that the appellant had not placed on record any evidence to show that the rent is being shared with its sister organization and what is the basis of the same. It is also not brought on record by the appellant that in what proportion rent is shared amongst the 3 concerns. Further, whether these 3 concerns has deducted TDS of the rent paid to the owner of the property is also not given. The rent is an item of expenditure on which IDS is deductible. The appellant has not shown any document to prove that the 105 is ultimately deducted on the payment of rent payable to owner of the property. Further what is the basis of sharing rent amongst sister organization are also not explained. In view of the foregoing, no details was forthcoming, I have no option except to confirm the addition made by the AO. Since, the appellant company failed to deduct TDS on the amount made on account of rent, the addition made by the AO is accordingly confirmed.”
When these facts were confronted to the learned Counsel for the assessee, she requested that the issue can be remitted back to the file of the AO for consideration of this issue in entirety. The AO will allow the assessee to file necessary evidences and will adjudicate the issue accordingly. Accordingly, this issue is set aside and allowed for statistical purposes.
11 12. The next issue in this appeal of assessee is against the order of CIT(A) in not granting of set off of brought forwards of business losses and unabsorbed depreciation. For this assessee has raised the following ground No. 3: -
3. in not granting set off of the Brought forward business losses of Rs. 1,72,63,430/- and unabsorbed depreciation of Rs.20,69,993/- respectively against the current year's income.”
We have heard rival contentions on this issue and gone through the facts and circumstances of the case. Before us, the learned Counsel for the assessee narrated that this brought forward losses and unabsorbed depreciation relates to earlier years which is as under: - Sr. Asst. Year Business Unabsorbed Total No. Loss Depreciation 1. 2001-02 49,90,935 1,39,112 51,30,447 2. 2002-03 24,87,967 57,897 25,45,864 3. 2004-05 34,97,937 11,206 35,09,143 4. 2005-06 62,86,591 18,61,778 81,48,369 Total 1,72,63,430 20,69,993 1,93,33,423 Less set off in AY 06-07 1,18,28,739 0 1,18,28,739 Balance to be carried forward 54,34,691 20,69,993 75,04,684 14. The learned Counsel for the assessee stated that the CIT(A) has already directed the AO to verify from his records, the correct position as regards to brought forward business losses and unabsorbed depreciation vide para 6.3 as under: - “6.3 I have considered the facts of the case and the arguments of the appellant. The AO is directed to verify from his record as to the correct position of brought forward business loss 12 and unabsorbed depreciation from the preceding assessment order and allow the correct amount to be set off and determine the correct amount to be carried forward to the future assessment year. This ground of appeal is therefore, partly allowed for statistical purpose.”
The learned Counsel only requested that the same direction can be retreated to the AO and AO can be directed to verify the facts and then accordingly, allow the claim of assessee as per law. On this, the learned Sr. Departmental Representative has not objected. After hearing both the sides and going through the facts of the case, we direct the AO to verify the carry forward of the business loss of earlier years and depreciation also and after verifying the facts, allow the business loss as per law.
In the result, the appeal of assessee is allowed for statistical purposes.
Order pronounced in the open court on 10-04-2019. (राजेश कुमार / RAJESH KUMAR) (महावीर स िंह /MAHAVIR SINGH) (लेखा दस्य / ACCOUNTANT MEMBER) (न्याययक दस्य/ JUDICIAL MEMBER) मुिंबई, ददनािंक/ Mumbai, Dated: 10-04-2019 स दीप सरकार, व.निजी सधिव / Sudip Sarkar, Sr.PS