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Income Tax Appellate Tribunal, MUMBAI BENCH “A” MUMBAI
Before: SHRI JOGINDER SINGH & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the Revenue. The relevant assessment year is 2012-13. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-9, Mumbai [in short ‘CIT(A)’]and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
The 1st ground of appeal On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the Assessing Officer to delete the disallowance of bad debts written off during the year of Rs.52,60,363/-.
3. Briefly stated, the facts are that the assessee had claimed bad debts written off amounting to Rs.52,60,363/-. The amount of debtors outstanding are from Shreeji Overseas India Pvt. Ltd. and Shri Ghanshyam Autoparts Pvt. Ltd. In response to a query raised by the Assessing Officer (AO), the assessee submitted that (i) the amount of bad debts written off is identical to the business of the company i.e. debtor to whom the sales were made, (ii) the sales made to the above two parties have been offered to income in the respective years in which the sales have been made, also the interest charged on the outstanding amount has been offered to tax, (iii) the company is writing off 20% of the bad debts of the said two parties every year from AY 2011-12 onwards and (iv) the assessee-company has done all possible efforts to realize these outstanding debtors, however, all the efforts turned in vain and therefore, the company has written off 20% of the outstanding as bad debts during the year of the said two parties. However, the AO was not convinced with the above explanation of the assessee for the reason that the assessee has failed to establish that the debtors have become bad and irrecoverable. As per the AO the assessee was asked to show the efforts made by it to recover the same but it failed to discharge its onus. It is also mentioned by the AO that the assessee failed to prove that the debtors written off were offered as revenue income in any of the previous year. Therefore, the AO made an addition of Rs.52,60,363/-.
4. In appeal, the Ld. CIT(A), following the decision in TRF Ltd. v. CIT (2010) 323 ITR 397 (SC) and Vijaya Bank Ltd. v. CIT (2010) 323 ITR 166 (SC), directed the AO to delete the disallowance of Rs.52,62,363/-.
Before us, the Ld. DR supports the order passed by the AO, whereas the Ld. counsel of the assessee relies on the order passed by the Ld. CIT(A). 6. We have heard the rival submissions and perused the relevant materials on record. As held in TRF Ltd. (supra), after April 1, 1989, it is not necessary for an assessee to establish that debt, in fact, has become irrecoverable; it is enough if bad debt is written off as irrecoverable in accounts of assessee. We find that the Ld. CIT(A) has rightly followed the ratio laid down in the above case. Thus we uphold the order of the Ld. CIT(A) and dismiss the 1st ground of appeal
7. The 2nd ground of appeal On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the Assessing Officer to delete the addition made towards unexplained cash credits of Rs.90,00,000/- u/s 68 of the IT Act.
8. During the year under consideration, the assessee has issued 22,500 shares to M/s Enrich Properties Pvt. Ltd. on a premium of Rs.390/- per share. The total premium was Rs.87,75,000/-. The AO found that Mr. Natwar Hariprasad Agarwal and Mr. Hariprasad Agarwal are common shareholder. Both the assessee and allottee are related parties. In response to a query raised by the AO, the assessee failed to file details explaining how the value of Rs.400/- per share (premium M/s AB & Co. Global Rs.390/-) has been determined. The assessee is showing Rs.61,20,993/- and Rs.74,98,152/- only as profit for AY 2011-12 and AY 2012-13 respectively. On the basis of the above reasons, the AO made an addition of Rs.90,00,000/- u/s 68 of the Act.
9. In appeal, the Ld. CIT(A), following the decision in Vodafone India Services Pvt. Ltd. v. Addl. CIT (2014) 368 ITR 001 (Bom), ACIT v. Gagandeep Infrastructure Pvt. Ltd. (2014-TIOL-656-ITAT-MUM), Green Infra Ltd. v. ITO 38 taxmann.com 253, CIT v. Goa Sponge & Power Ltd. Appeal No. 16 of 2012 (Bom.), CIT v. Creative World Telefilms Ltd. 333 ITR 100 (Bom), CIT v. Lovely Exports 216 CTR 195 (SC), CIT v. Steller Investment Ltd. 251 ITR 263 (SC), CIT v. Expo Globe India Ltd. 361 ITR 147 (Del), CIT v. Vacmet Packaging (India) Pvt. Ltd. 88 CCH 065 (All), Jaya Securities Ltd. v. CIT 166 Taxman 7 (SLP filed by the Department dismissed), held the following : “From the above discussion, it is very much clear that the appellant company had demonstrated that the share applicant company was a genuine company and was in existence as it was filing Income Tax Return and also Annual Return with the Registrar of Companies. The transaction of share application money is through banking channel. From the facts narrated above, it is also clear that the share applicant money had sufficient fund to invest in the appellant’s company. Therefore, on question of fact itself, there cannot be any addition in the hands of appellant company. Ratio of various Judicial pronouncements as referred above is applicable to the facts of present appellant company. Accordingly, the addition made by the AO on share application money including the share premium amount totalling to Rs.90,00,000/- cannot be sustained and therefore, the AO is directed to delete the same.”
10. Before us, the Ld. DR relies on the order of the AO, whereas Ld. counsel of the assessee relies on the order of the Ld. CIT(A).
We have heard the rival submissions and perused the relevant materials on record. We find that in the assessment order dated 27.03.2015 the AO has not made any inquiry before making an addition of Rs.90,00,000/- u/s 68 of the Act. This is evident from para 5 of the said assessment order. In such a situation, the Ld. CIT(A), following the decisions narrated at para 9 hereinbefore, has rightly deleted the addition of Rs.90,00,000/- made by the AO. Thus, the 2nd ground of appeal
is dismissed.
12. The 3rd ground of appeal On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the Assessing Officer to delete the addition made towards capitalization of financial cost of Rs.51,48,849/-.
13. During the course of assessment proceedings, the AO asked the assessee to justify the claim of financial costs of Rs.2,99,72,524/-. In response to it, the assessee submitted that it included bank charges, bank processing charges, LC opening charges, interest charges, LC retirement charges for the LC facility used for purchase and sale of goods debited to the profit and loss account and allowable u/s 36(1)(iii) of the Act. However, the AO was not fully convinced with the above explanation of the assessee and made a disallowance of LC opening charges of Rs.51,48,849/- on the reason that it has been paid once for the longer period more than one year.