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Income Tax Appellate Tribunal, KOLKATA BENCH “C” KOLKATA
Before: Shri S.S.Godara & Dr. A.L. Saini
O R D E R
PER S.S.Godara, Judicial Member:
- These four Revenue’s appeal(s) for assessment year(s)1998-99, 2003- 04 to 2005-06 arise against the Commissioner of Income Tax (Appeals)-10 Kolkata’s separate order dated 04.03.2016 (in former three assessment years) & 07.03.2016 passed in case Nos 513, 514, 512 & 515/CIT(A)-12(1)-10/09- 10/14-15/Kol; respectively involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’. We have heard both the part(ies) reiterating their respective stands against and in support of CIT(A)’s findings deleting various disallowance(s)/addition(s) made by the Assessing Officer in all four assessment year(s). Case file(s) perused. -1314/Kol/2016 A.Ys 98-99, 03-04 to 05-06 JCIT(OSD) Cir-11(1), Kol. Vs. M/s KRM International Ltd. Page 2 2. It transpires during the course of hearing that some of the issues raised in instant four appeal(s) are identical, we therefore proceed to adjudicate all the four instant case(s) together for the sake of convenience and brevity. Assessment Year 1998-99 ITA No.1311/Kol/2016.
The Revenue’s first substantive ground raised
in the instant appeal challenges correctness of the CIT(A)’s order reversing Assessing Officer’s action disallowing assessee’s fabrication charges paid to M/s Goenka Industries amounting to ₹59,72,233/- as under:- “DECISION:
1. I have examined the action of the AO in making the disallowance of Rs.59,72,233/- on grounds that no such firm could be located at the address offered by the appellant-assessee. The AO noticed that the turnover of the assessee-company has reduced considerably from Rs.36.24 crores in the previous year to Rs.29.45 crores in the present year under appeal. The AO also noticed that the expenses haves shown an increase, and these expenses included increase in the fabrication charges to Rs.2.81 crores in the year of appeal from Rs.1.95 crores n the previous year. According to the AO, the assessee had submitted copies of bills and details of these expenses, as also submitted that through the value of sales had decreased the quantity have in fact increased due to a change in the products mix resulting in higher fabrication charges. It has also been recorded by the AO that the appellant- assessee had submitted details of such changes in the product mix for some periods. Thereafter, the AO has recorded that enquiries were conducted by issue of letters through post, which however revealed that some of the parties who claimed to have done job work for the assessee had either left, or closed their concerns, and in the case of M/s Goenka Industries no such firm was found at the address given by the assessee. The AO thereafter confronted the assessee-company with such information, and asked to prove the services rendered by the various parties. The AO also required the appellant to produce records, so as to verify that the goods have, in fact been given to, and received from the concerned parties. The AO also required the appellant to produce the original bills for examination. The AO has recorded that the assessee had replied that the copies of the bills have already submitted, and it further requested for two weeks time to furnish the original bills and to produce the stock records. However, the AO found such attitude on the part of the assessee-appellant to be dilatory. The AO has commented that the assessee had not complied with requisitions on time even in the past and has again not produced the records called for on the appointed date. The AO reckoned that even if the cases where the firms are stated to have closed down or left are considered doubtful, the case of M/s Goenka Industries shows that the assessee has taken bills from a "non- existent" party. The AO has stated that a bills of the party submitted by the assessee, shows that the exact address of this concern has been struck off by dark ink on the copies of the bills, and that this lends more doubt to the genuineness of the expenditure claimed by the assessee. The AO noticed that the total amount of bills debited against this party is Rs.S9,72,233/-, and further observed that the -1314/Kol/2016 A.Ys 98-99, 03-04 to 05-06 JCIT(OSD) Cir-11(1), Kol. Vs. M/s KRM International Ltd. Page 3 assessee has failed to establish the genuineness of the work done by M/s Goenka Industries. The AO further observed that the assessee had produced the neither the original bills nor the stock records from where the factum of the work could at least be established, vls-a-vls the total amount of work done. This expenditure was accordingly disallowed by the AO.
2. On the other hand, it has been argued by the Ld A.R in appeal that the AO has disallowed the genuine payment of Rs.S9,72,233/- made by the appellant company to the job worker on the grounds of non existence of a job worker M/s. Goenka Industries. It has been argued that the Ld. A.O.'s findings itself are contradictory and the Ld. A.O. disallowed the whole amount on the grounds of genuineness of expenditure. The Ld. A.R contradicted the findings of the AO in his order where he says that while going through the bills submitted by the assessee, he, the AO had found that the address was struck off by dark ink on the copies of bills, as also that no original bills were produced before the Ld. A.O. It was stated by the Ld.A.R that all copies of bills were submitted by the appellant before the AO. It was reiterated by the Ld A.R that the assessee is an export house having its factory at Peenya Industrial Area, Bangalore and its Registered Office is at Kolkata, and that as records were maintained at the factory level, the appellant-assessee had requested the Ld AO. to grant some times which was turned down by the L.d .AO. It was stated by the l.d A.R that the job worker is a genuine party and that it: was not a non-existent party, And in support of such contention regarding genuineness, the appellant/ L.d A.R has submitted certain documents In an annexure, These are No.1: Certificate of Registration No. 3512648.6 & 35176489 issued by Govern lent or Karnataka Commercial Taxes containing the address of the job worker's works at Bangalore, No.2.: A copy of Sales Tax Assessment order dated :3 .6.1999 which states that the concern is doing job work of stitching for KRM International and Bata India. No.3: A copy of audited Final Accounts of the M/s Goenka Industries along with computation of total Income. And No.4: Acknowledgement of Income Tax Return in Form 2, filed by the job worker.
3. It is seen that the predecessor Ld. CIT(Appeals) has found these documents admissible on account of their importance as relevant evidence, as also that the appellant was prevented by sufficient cause in filing them before the AO, and had called for a re land report from t e AO by his letter dated 09.12.2003 issued in F.No. CIT(A)-XI,. Kol./Remand Report: / 2002.-03. A reminder in the matter had also been issued to the AO on 23.11.2005. From the records, it is seen that the AO had requested the Appellate Authority to allow more time, by his letter dated 07.06.2006 issued from in F.No. ACIT/Cir.11/Remand Report/Kol/2005-06/833. The remand report was finally not sent by the AO and as such there is no option but to decide the matter on the basis of the records and evidence/ documents available on record. Be that as it may, it is seen that the AO could not have simply brushed aside the claim of payments having been made by he appellant Oil account: of the job-works done, on the sole reason that the letter sent to the party for verification has come back unserved.
4. From the documents submitted, it is observed that the party in question, Shri Arun Goenka C/o Ms Goenka Industries, has a clear address for communication. It is also seen that the job-worker has a PAN (ACJPG2257L) and a copy of the PAN card has -1314/Kol/2016 A.Ys 98-99, 03-04 to 05-06 JCIT(OSD) Cir-11(1), Kol. Vs. M/s KRM International Ltd. Page 4 also been submitted. For the A.Y 1970·-99, tile said Shri Goenka has also tiled his return with the ACIT,Circle-1, Mangalore, Karnataka on 06.11.98, and the said return bears the stamp of that Office. The Balance sheet and P&L account are also available, and the appellant is shown as a Sundry creditor in the books of the said party. It is seen that the nature of business has been disclosed as "manufacturing of shoe uppers", which fits the job-workers description. The copy of the intimation u/s 143(1) for tile said year also suggests that the party is existent. It is also seen that the TDS was also made by the assessee-appellant M/s KRM International Ltd, as the said job-worker has claimed specific TDS amounts against the said assessee (the Deductor) of Rs.1,34,210/- as evidenced by the return med by the Job worker. The Certificate of Registration under the Bangallore Commercial Tax Authority also suggests that he was registered under that Authority since 02.12.1992, and the Certificate has been given on 12.01.1996. Moreover tile appellant has been able to produce several order of assessment of the Commercial Tax Authority, Bangalore in the case of the concern M/d Goenka Industries, where it has been clearly mentioned that Shri Arun Goenka is the proprietor. As per tile assessment order 30,06.1999 for the year 1997-98, the individual has been mentioned to do job works of shoe Uppers. The said assessment order also mentions that "It is evident from the documents produced that the assessee has done job work: of stitching shoe upper for M/d KRM International Ltd. Bangalore and BATA India Ltd. For such work the assessee has received leather and other raw materials by the parties themselves for whom the job work is done. He has received job work charges of Rs. 68,23,705.60 towards stitching of shoe uppers. Invoice copies of the job work charges received are filed. Some are verified. The claim of exemption is in order and hence allowed. " In the face of the clear and unequivocal evidence filed, I am of the considered view that the appellant has been able to successfully bring on evidence the existence of the party who has been paid job-work charges. There could be a distinct possibility that the address of the job worker may have changed or he may have shifted, but the AO ought to have allowed the appellant sufficient opportunity to submit the necessary documents before concluding thin the manner that he did. In denying him such an opportunity, there appears to be a clear violation of the principles of natural justice. When the matter was remanded to the AO also, other than seeking time, there appears to have been no other effort made to ascertain the whereabouts of the party, or offer the comments and findings on the remand proceedings. Accordingly, the appellate proceedings have to be brought to fruition sometime. In any case, I find that the appellant has submitted adequate positive evidence which has not been countered by the AO. In the given set of facts and circumstances, I find that the addition made by the AO cannot be sustained, and therefore I direct the same to be deleted.”
4. We have given our thoughtful consideration to rival contentions. Learned Departmental Representative vehemently pleads during the course of hearing that CIT(A) has made placed reliance on assessee’s additional evidence without calling for remand report from the Assessing Officer’s end. We find no merit Revenue’s instant argument as it has come on record in CIT(A)’s above extracted findings in para-3 that he had duly called for remand -1314/Kol/2016 A.Ys 98-99, 03-04 to 05-06 JCIT(OSD) Cir-11(1), Kol. Vs. M/s KRM International Ltd. Page 5 report vide letter dated 09.12.2003 which never came from the Assessing Officer’s end despite various opportunities / reminders. This is what made the CIT(A) to proceed further in the course of lower appellate proceedings. Coming to merits, we notice that the assessee has placed on record all the relevant details of its payee M/s Goenka Industries i.e. PAN, assessment(s), balance-sheet, profit & loss account and all other relevant particulars. The Revenue is fair enough in not disputing the correctness of the said details on merits in the course of hearing. We accordingly conclude that CIT(A) has rightly deleted the impugned fabrication charge disallowance made in the course of assessment. The Revenue’s instant first technical ground placing violation of Rule 46A of the Income Tax Rules fails accordingly.
5. Next comes the Revenue’s second substantive ground pleading that CIT(A) has erred in deleting capital expenditure of ₹2,05,000/- incurred by the assessee on account of construction of a new sceptic tank. The CIT(A)’s findings to this effect reads as follows:- “DECISION:
1. I have examined the action of the AO is disallowing an expenditure of Rs.2,05,000/- treating such an expenditure as a capital expenditure and therefore not an allowable expense. The AO noticed that tile appellant had submitted certain copies of bills for repairs exceeding Rs.25,000/- each, and that some of the bills related to reconstruction of a collapsed boundary wall. The AO further observed that the assessee has claimed expenditure of Rs.2,05,000/- for making a new septic tank and related work, also as repairs, The AO reckoned that as the expenditure is for construction of a new item altogether, the same is considered as capital in nature. The AO however allowed depreciation @ 10% on the said expense.
2. Arguing against such action by the AO, the appellant/ Ld A.R has submitted that the Ld, A.O. has disallowed Rs.2,00,000/- out of' expenditure of' Rs. 2,,05,000/- towards septic tank and related work stating that the expenditure is for construction of new item altogether and the same is considered as a capital nature. Further he stated that depreciation @10% is however allowable on the above amount. It was submitted that the Ld. A.O. erred in treating the above revenue expenditure as capital in nature without going in depth of the matter, and that the impugned expenditure was of "revenue in nature", in as much as it was relating to the replacement of the old and unserviceable tank with contribution to maintain the output of the whole plant. It was contended that such expenses are of recurring nature. It was argued by the Ld.A.R that it has been held by the Hon'ble Supreme Court that in deciding whether a particular expenditure is capital or revenue in nature, what the courts have to see is whether the expenditure in question was incurred to create any new asset or was incurred for maintaining the business of the Company, and that if it was the former, it is capital expenditure, and that if it was the latter, it is revenue expenditure. The Ld A.R also relied upon the cases of Dalmia Jain & Co. Ltd. Vs CIT(1971) 81 ITR 754 (SC), CIT Vs. Karnal Co-operative Sugar Mills Ltd. 243 ITR2 (SC). It was further -1314/Kol/2016 A.Ys 98-99, 03-04 to 05-06 JCIT(OSD) Cir-11(1), Kol. Vs. M/s KRM International Ltd. Page 6 pleaded by the Ld. A.R that it was also held in the case of CIT Vs. Steel Complex Ltd. (1999) 238 ITR 1054 (KER) that cost of installation of water treatment plant and fume extraction plant is a revenue expenditure as it does not increase the volume of productive capacity though such installation resulted in improvement of operating of existing systems with greater efficiency and profitability and avoiding health hazards. The Ld .A.R also relied upon the case of CIT Vs Co-operative Sugar Ltd. (1998) 99 Taxman 93 (99) Ker, wherein it was held that expenditure incurred on purchasing of new machinery to ensure sound functioning of the sugar mill and to replace the old ones is of revenue nature because all machinery put together complete the sugar plant. It was also further pointed out that the Ld. A.O. has not even allowed depreciation of the above as discussed in para 5 of page 3 of his order.
3. I have examined the issue from both sides, and find that the AO has not provided adequate opportunity to the appellant-assessee to explain the nature of the expenses incurred. While the AO has considered the expenditure was towards creating a new asset, the undisputed fact emerges that the same was spent towards the septic tank, an existing asset. It is seen that the appellant is a going concern, and the expenditure was towards the repair I renovation of a septic tank and not towards the creation of a new septic tank. To me it appears that there can be no doubt that the septic tank repair and renovation would be a recurring item of expenditure, and the same ought to have been considered by the AO. In the instant case, I find that the assessee made certain renovations to a septic tank in the factory premises and had had carried out certain renovations in order to ensure that the business was carried out effectively and smoothly, and to ensure such effectiveness, for which certain repairs were carried out by the assessee in the septic tank. The quantum of expenditure is certainly not relevant in determining the issue in question, and the AO has also not observed about the same. The expenditure incurred by the assessee was not for the purpose of bringing into existence any new asset or advantage, but incurred for running the business effectively and in smooth manner. It could not, therefore be said that the expenditure was incurred for the purpose of acquiring and appreciating capital assets . Having perused the factual matrix relating to this addition, as well as the judicial as precedents submitted by the appellant, I hold that expenditure claimed towards the septic tank was of revenue in nature, and therefore the additions made by the AO cannot be sustained, and is deleted accordingly.”
6. We have given our thoughtful consideration to rival contentions. The Revenue’s only arguments during the course of hearing is that assessee had constructed a new septic tank which amounts to capital expenditure than a revenue head item. We find no substance in the instant argument as well. The assessee has proved by way of its details on record that it had only carried out renovation of an old septic tank than raising a new one. The CIT(A)’s findings under challenge are upheld therefore.
7. The Revenue’s fourth & fifth substantive grounds seek to revive Assessing Officer’s action disallowance(s) / addition(s) amounts of ₹6,30,109/- and ₹16,96,559/- on account of interest free loans given to sister concern ITA No.1311-1314/Kol/2016 A.Ys 98-99, 03-04 to 05-06 JCIT(OSD) Cir-11(1), Kol. Vs. M/s KRM International Ltd. Page 7 M/s Bipin Textile and M/s KRM Global Finance. Suffice to say, we notice that both these two entities are assessee’s sister concerns. The very issue appears to have come up before the tribunal in preceding assessment year which ultimately stood decided in taxpayer’s favour. The CIT(A) has followed the very reasoning by adopting judicial consistency. Mr. Choudhury fails to dispute that Revenue’s fourth and fifth substantive grounds as both issues pleaded in the instant appeal nowhere pin-point any specific distinguishing feature in the impugned assessment year. We therefore conclude that the CIT(A) has rightly followed this tribunal’s order in earlier assessment year having attained finality. The Revenue’s fourth and fifty substantive grounds as well as the instant main appeal are rejected.
Next come Revenue’s second appeal ITA No.1312/Kol/2016 for assessment year2003-04. It’s only substantive ground pleads that CIT(A) has erred in law and on facts in assessee’s Forex bad debts of ₹97,58,137/- which stood disallowed by the Assessing Officer during the course of assessment. The CIT(A)’s detailed discussion to this effect reads as follows:- “Decision:
1.
1. I have carefully perused the action of the AO in disallowing the amount of Rs.97,58,137/- claimed by the appellant-assessee under head ‘bad & doubtful debts/advance/sundry written off’. The AO noticed that the appellant-assessee during the year had written off bad and doubtful debts, advances and sundry written off amounting to Rs.97,58,137/- in the P&L A/c. During the course of hearing the AO required the assessee to produce the details and also evidence that these amounts were earlier charged to profit of the assessee company. According to the AO, no details of these amounts written off could be produced at the hearing stage. Therefore, the AO disallowed these amounts for want of satisfactory explanation, relating to expenses etc. of earlier years.
2. During the stage of appeal, the assessee-appellant /Ld AR has submitted that the Ld. AO has disallowed Rs.97,58,137/- under the head Bad& Doubtful Debts/Advances/Sundries written off debited to Profit & Loss account as per schedule 15 page No.17 of the Annual Report on the ground that full details and evidence that these amount were earlier charged to Profit of the Company were not furnished at the hearing stag. The breakup of the amounts were submitted as under: 01 Bad Debts written off 62,35,052.51 02 Claims written off 2,54,506.00 03 Telephone deposit written off 12,000.00 04 Advances of parties written off 9,67,896.00 05 Exps. of prague office 20,53,429.49 06 Advance to travel home 2,28,252.70 07 Taj coupon 7,000.00 97,58,137.00 -1314/Kol/2016 A.Ys 98-99, 03-04 to 05-06 JCIT(OSD) Cir-11(1), Kol. Vs. M/s KRM International Ltd. Page 8
3. According the Ld AR, the assessee has furnished sufficient detail of Bad & Doubtful Debts/Advances/Sundries written off during the year under consideration along with RBI permission to Bank to write off non-realization of export proceeds relating to export sales and claims admitted by ECGC, before the AO, and a copy of the same was also submitted during the appeal stage. It has also been contended by the Ld AR that all these debts written off during the year were duly charged to profit of the assessee company in the earlier years and is therefore an allowable expenditure in the AY 2003-04. It was argued that as parsec.36(1)(vii) of the Income tax Act 1961 amount of any debt or part thereof is allowable as deduction if (i) the debt has been taken into account in computing the income of the assessee of that previous year or of an earlier previous year, and (ii) it has been written off as irrecoverable in the accounts of the assessee for that previous year are satisfied. According to the Ld. AR the details furnished satisfy both the above conditions and as such the deduction of Rs.62,35,052/- & Rs.2,54,506/- relating to Debts & Claims written off is allowable expenditures. It was further subtitled by the Ld. AR that the expenses relating to item 3,4,6,7 are advances written of during AY 2003-04, and that these advances were made in the course of the business and is not recoverable from the respective parties. It was submitted that these advances are business expenses and for the benefit of the business of the assessee, and therefore the write-off was genuine. In support of it claims the appellant/Ld AR has also submitted the copy of the annual report, the details of the Bad and Doubtful debts / Advances / Sundry Written off details. The letter of the RBI and a copy of the letter of the ECGC dated 28.08.2002, regarding the claim field under the relevant policy No.73543 in respect of shipment to M/s Agiokas, Republic of Kharzakistan. It is seen that the appellant has submitted the entire list of the bad debts in the schedule amounting to Rs.97,58,137/-. The relevant claim filed before the Export Credit Guarantee Corporation of India in respect of the claims made by the appellant is also available. The letter is by the said Authority, which is an undertaking of the Government of India to protect the Indian exporter against unforeseen losses, which may arise due to failure of the buyer, bank or problems faced by the country of the buyer by providing cost effective credit insurance covers in the form of policy, factoring and investment insurance services comparable to similar covers available to exporters in other countries. From such letter it is quite evident that there have been exports against specified shipments and this value of payments had not been received. It is seen that the appellant has after receiving the claims for certain amounts from the same taken these amounts into cognizance while making the write-offs. The amounts received from the ECGCI have been accounted for. It is also seen that the appellant has submitted the ledge of the bad and doubtful debts and advances written off for the period 01.04.2002 to 31.03.2003.
I have examined the matter relating to the bad debts. The entire details have been submitted by the assessee-appellant before the AO also, and these are as under:- DETAILS OF BADD & DOUBTFUL DEBTS/ADVANCES WRITTEN OFF DURING THE YEAR 2002-2003 (ASST. YEAR 2003-2004) (A) BAD DEBTS WRITTEEN-OFF 01. Sale Invoice Total amount No. Date Amount 01.Wheeler Leather 10 23.04.98 11541.50 Corporation 80 03.07.98 628105.00 ITA No.1311-1314/Kol/2016 A.Ys 98-99, 03-04 to 05-06 JCIT(OSD) Cir-11(1), Kol. Vs. M/s KRM International Ltd. Page 9 101 20.07.98 143746.00 02 Web Trading D/N 27.07.98 10133.00 793525.50 227 31.10.00 12259.00 12259.00 03 Tarun Export 115 16.07.00 1103.00 1003.00 04 Sisodia Designers & 55 08.07.98 1381.00 81851.00 Advertisers 88 05 SMY Enterprises 202 19.10.98 13592.00 13592.00 06Roger Exports 325 24.02.01 72313.20 72313.20 07 Pan Electronics (India) Ltd. E25 14.06.99 1550.00 12400.00 E61 01.09.99 10850.00 08 Mital Trade & Industries E46 04.03.02 8951.00 8951.00 09 Le-Bootique 02 04.04.00 12947.00 25858.00 05 22.04.00 12711.00 10. K.K. International Ltd 340 13.10.99 23997.00 346 15.10.99 127625.00 348 23.10.99 64265.00 488 03.03.00 47865.00 263752.00 11.Kavis Fashion (P) Ltd 47 06.09.01 4047.00 4047.00 12 Kalanady Tanneries Pvt. 154 12.08.00 59024.75 59024.75 Ltd. 13 JRD Exports 324 24.01.01 6432.00 7790.00 326 27.01.01 1358.00 14. Hits Exports 1060.00 2060.00 15. Hindustan Leaver Ltd. JW29 29.07.99 2160.00 JW46 18.08.99 2082.00 JW58 30.08.99 3946.50 27256.90 28 23.02.98 19068.40 16 N Abdul Wazid 286 05.01.01 7243.00 7243.00 17 Electromica Components` 164 19.12.96 4310.00 4310.00 18 Bata India Ltd JW15 26.05.98 39822.50 39822.50 19 Anusha International Ltd 122 22.06.99 40215.66 123 22.06.99 11283.00 124 22.06.99 10111.00 126 23.06.99 31792.00 127 23.06.99 4205.00 129 23.06.99 29383.00 130 23.06.99 4190.00 133 23.06.99 91975.00 134 23.06.99 20318.00 135 23.06.99 2325.00 138 24.0699 18530.00 139 24.06.99 31671.00 140 25.06.99 15635.00 141 25.06.99 130522.00 159 30.06.99 14038.00 646324.66 160 30.06.99 27787.00 161 30.06.99 17831.00 168 30.06.99 18736.00 178 16.07.99 71500.00 196 30.06.99 11689.00 197 30.06.99 2780.00 198 30.06.99 3307.00 504 22.03.00 36582.00 20 Ruggeri, Italay Misc. 01 03.10.97 2824.00 2824.00 21 Agiokaz 100 05.11.98 1380834.00 101 05.11.98 1380834.00 102 05.11.98 1380834.00 103 05.11.98 1380834.00 104 05.11.98 1528780.00 132 17.12.98 1385748.00 11708716.00 133 17.12.98 1385748.00 170 01.02.99 1885104.00 Claims lodged with ECGC due (-) 7610666.00 4098050.00 to non-payment and received 22 Calza 2 Zeta, Italy 51995.00 A.Ys 98-99, 03-04 to 05-06 JCIT(OSD) Cir-11(1), Kol. Vs. M/s KRM International Ltd. Page 10 (Short payment adjusted) TOTAL 6235052.51 (B) CLAIMS WRITTENI-OFF 254506.00 Out of total claim for Rs.309010 lodged on the New India Assurance Co. against the chemical (Imported from M/s Vetal Chem ,Italy) damaged at Madras Port, only Rs.54504 received, hence balance written-off. (C) TELEPHONE DEPOSIT WRITTEN-OFF 12000.00 Out of deposit for Rs.340,000 under OYT scheme With Telephone Department only Rs.15,555 including Interest for Rs.8 after adjustment of Rs.2453 towards Safe custody rental charges which debited to prior Period expenses and balance written-off. (D) ADVANCES TO THE PARTIES Advances on account against purchase of Raw materials/ Job-work to the following parties snot adjusted. Since these Are pending for a very long time, hence written off.
Rider Tanning Industries 24724.00 2. K.Asfaque Ahamed 82506.00 3. Shanta Industries 586712.50 4. S.M.Chan Basa 7274.00 5. Ambur Shoes 48000.00 6. Mahaveere International 197505.00 7. Priya Engineering 21175.00 967896.50 LESS: Amount payable to the following parties are Pending for a very long period due to some Disputes on account of materials purchased From them 1. B.S. Leathers 26568 2. Asra Communication 16200 3. Haleem Leather 1187 4. K.P. Traders 3162 5. M.R.Enterprises 2526 6. Royal Leather 19882 7. Sarda Garments 3600 8. Sri Shiva Sakthi Leathers 2901 9. Wasan & Co. 35656.01 10. Mahadev Industries 734 11. Vivek Footweare Pvt. Ltd 2881 1118300.01 849596.49 7351155.00 (E) Amount remitted to Prague, Czech Republic during Period when we were maintain an office here. The Expenditures for which could not be booked earlier 2053429.49 (F) Advances paid to Travel House towards air fare 333874.60 (G) Purchases Taj coupon for the stay of foreign customers But could not be utilized within the prescribed period, Hence lapsed 7000.00 (H) others 12677.91 TOTAL 9758137.00
Moreover, it appears that the AO has not considered the matter relating to the items of telephone deposits written off, advances to parties written off, expenses relating to travel advances and Taj coupon. There is nothing to disbelieve the ITA No.1311-1314/Kol/2016 A.Ys 98-99, 03-04 to 05-06 JCIT(OSD) Cir-11(1), Kol. Vs. M/s KRM International Ltd. Page 11 contention of the assessee that these advances had been made in the course of the business, and were decided as not being recoverable form the said parties. As such I find that they satisfy the claims and are elig9ible for being claimed a write off in terms of Sec 36(i)(vii) of the Income Tax Act. In view of the above findings, I am unable to confirm the findings and disallowance made by the AO, and order for deletion of the same. this ground is accordingly allowed, and adjudicated in favour of the appellant.” Learned Departmental Representative strongly argues during the course of hearing that the CIT(A) has erred in deleting the impugned disallowance after admitting assessee’s additional evidence in violation of Rule 46A of the Income Tax Rules, 1962. We find no substance in instant argument. The assessee had relied upon its schedule-15 page 17 of the annual report alongwith details of each party’s accounts written off and of profit and loss a/c which alongwith formed part of assessment record before the Assessing Officer. Coupled with this, the fact also remains that assessee has proved unavoidable circumstances compelling it to write off the impugned sums after duly compliance with the necessary procedures alongwith intimation / permission obtained from the Reserve Bank of India on account of non- realization of export proceeds. We make it clear that the Revenue has not posed any challenge to the CIT(A)’s findings that the assessee had recorded a very sums as income of the earlier assessment year and then chose write off the same as not recoverable as stipulated in sec. 36(i)(vii) of the Act. We accordingly conclude that the CIT(A) has rightly deleted the impugned foaxbad debts disallowance of ₹97,58,137/-. This Revenue’s second appeal raising the instant sole issue is declined therefore.
Next comes Revenue’s third and fourth appeal(s) ITA No.1313 & 1314/Kol/2016 raising first and second substantive ground seeking to revive bad debt disallowance of ₹76,43,149 and ₹97,06,971/-. Both parties are fair enough during the course of hearing that these two identical grounds raised
in latter as many assessment year(s) are covered in assessee’s favour by our findings in preceding assessment year 2003-04 (supra). We therefore adopt judicial consistency to reject the Revenue’s said substantial grounds in these two latter appeal(s) as well. -1314/Kol/2016 A.Ys 98-99, 03-04 to 05-06 JCIT(OSD) Cir-11(1), Kol. Vs. M/s KRM International Ltd. Page 12
11. We stay in 2004-05seeking to revive sec. 40A(2)(b) disallowance of ₹55,33,987/-. The CIT(A)’s detailed discussion deleting the impugned disallowance reads as follows:- “1. I have examined the action of the AO in disallowing an amount of Rs.SS,33,978 to one of the job workers of the assessee-company. The AO on noticing the amount paid required the appellant-company to explain the nature of payment, details of payment, justification of rate paid and commercial expediency of the transaction. According to the AO, the appellant company submitted neither the details nor any satisfactory explanation to justify the transaction with the job worker. The AO has opined that it is not understandable why the job work charges were made to sister concern in which one of Director of the company is interested, as it is his proprietorship concern. The AO reckoned that it is required to be verified whether the payment was made for commercial expediency and the fair market rate has been charged by the interested person. However, as per the AO, in the absence of the complete details as called, which was not submitted the same remains unverified. The AO reckoned that as the assessee-company itself has its own manufacturing unit, so why the job work was undertaken by one of the interested persons in his individual capacity, remains unexplained. The AO reckoned that in the absence of absence of details, explanation, evidence, the aforesaid payment was to be treated as not related to assessee's business and to be treated as paid otherwise. According to the AO, the commercial expediency of the transaction and evidence of actual service rendered was not furnished, thereby payment made to Mls P.M. Singhania & Co. being person specified u/s 40A(2)(b) amounting to Rs.55,33,978/- has to be disallowed and added back.
2. On the other hand the appellant /Ld A.R has argued that in so far as the amount of Rs.55,33,978 claimed as expenditure to M/s P.M. Singhania & Co. is concerned, though it is true that proprietor of MI5 P.M.Singhania & Co. Mr. Diiip Singhania happens to be one of the directors of the appellant company, but no active part is taken by Mr. Dillp Singhania in the day to day affairs of the company, as no director's remuneration is paid to him. Further the appellant has been dealing with M/s P.M.Singhania & Co. since 1990, and the job works charges duly allowed in all the earlier years. it was stated that Shri Dilip Singhania has become director in the Company only recently only, and that however, he had been doing job work since past 15 years. It was stated that all the transactions done by the Company with the said job-worker were at arm's length ,and the entire job work charges paid were subject to TDS and payment made through Bank, and therefore is a genuine business expenditure. It was also explained that the appellant-company has added back the Job charges in its computation for expenses not allowed for non-payment of TDS in the concerned year, but allowable in the year of TDS payments later on. It was also claimed that Shri Dilip Singhania is an income tax payee, and respective income duly accounted for by him also. In the said matter, it is seen that the AO has invoked the provisions of Sec 40A(2)(b) to disallow the entire clam of expenditure. A brief overview of the relevant provisions are as under: [Expenses or payments not deductible in certain circumstances. 40A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained In any other provision of this Act relating to the computation of income under the head "Profits and gains of business or profession". -1314/Kol/2016 A.Ys 98-99, 03-04 to 05-06 JCIT(OSD) Cir-11(1), Kol. Vs. M/s KRM International Ltd. Page 13 (2)(a) Where the assessee Incurs any expenditure in respect of which payment has been or is to be made to any person' referred to in clause (b) of this sub-section, and the [Assessing} Officer is opinion that such expenditure is excessive or unreasonable having regard to the fair market value the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as deduction : . [Provided that no disallowance, on account of any expenditure being excessive or unreasonable having regard to the fair market value, shall be made in respect of a specified domestic transaction. referred to in section 92BA, if such transaction is at arm's length price as defined in clause (ii) of section 92F.] (b) The persons referred to in clause (a) are the following, namely :- (i) where the assessee is an individual any relative of the assessee; (ii) where the assessee is a company, firm association of persons or Hindu, any director of the company, undivided family partner of the firm, or member of the association or family or any relative of such director, or member; (iii) any individual who has a substantial interest in the business or profession of the assessee, or an relative of such individual; , (iv) a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or profession of the assessee or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member [or any other company carrying on business or profession in which the first mentioned company has substantial interest]; (v) a company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the assessee; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member; (vi) any person who carries on a business or profession,- (A) where the assessee being an individual, or. any relative of such assessee, has a substantial interest in the business or profession of that person; or (B) where the assessee being a company, firm, association of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the association or family, or any relative of such director, partner or member, has a substantial interest in the business or profession of that person. Explanation.-For the purposes of this sub-section, a person shall be deemed to have a substantial interest in a business or profession, if,- (a) in a case where the business or profession is carried on by a company, such person is, at any rime during the previous year, the beneficial owner of shares (not -1314/Kol/2016 A.Ys 98-99, 03-04 to 05-06 JCIT(OSD) Cir-11(1), Kol. Vs. M/s KRM International Ltd. Page 14 being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying not less than twenty per cent of the voting power; and (b) In any other case, such person is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the profits of such business or profession. I find that in the case under consideration, the AO has doubted the genuineness of the transaction, while he has not cast any doubt on the identity of the job worker. It appears that the company had been having transactions relating to job-work with the job worker Shri Dilip Singhania, whereas the said job worker was also a director of the company. It is i to be observed from the Annual Report of the Company submitted by the appellant before this forum, that the name of the said Shri Dilip Singhania [Prop: Mls P M Singhania& I Company] has been disclosed in the items related to "Related Party Disclosure" listed at B3 of the notes to accounts at page 23 of the said Annual Report. The same has been listed as a party "where control exists", Under these circumstances, the contention of the appellant that the transactions were-at-arm's length has to be viewed in that light. The appellant has submitted certain documents by way of proof that Shri Singhania filed his Income Tax Return, and the said return has been filed in Kolkata with the AddI.CIT, Range- 32, Kolkata, However, it is also seen that the appellant-company has also suo motu added the job charges in its computation, a point overlooked by the Ld. AO . The addition on its own has been on account of expenses not allowed for non-payment of TDS in the year concerned, which would be allowable in the year of the TDS payments later on. Be that as the case, I find that the entire disallowance made by the AO was highly I excessive, and that the essence of Sec 40(A)(2)(b) is to disallow portions of expenditure III between related parties thought to be excessive. For the case at hand I am of the considered opinion that a disallowance of 10% of the expenditure claimed (Rs.55,33,978) would be adequate to take care of the element of nearness and proximity between the parties. Therefore this much is directed to be disallowed, and for the balance the appellant would be eligible for relief. This ground of appeal is accordingly partly allowed.”
12. Mr. Choudhury’s case during the course of hearing is that the CIT(A) has erred in law as well as on facts in partly deleting the impugned disallowance without any basis. We find that CIT(A)’s above extracted discussion has duly established the fact that the assessee’s payee Mr. Dilip Singhania in the instant case has rendered his job work services stand assessed qua the very income. There is further no rebuttle to the fact that assessee-company suo motu added the job charges in its computation. This is what had made CIT(A) to disallow only a apportion @ 10% than the entire sum. We conclude in these peculiar facts and circumstances that the Revenue’schallenge to correctness of the CIT(A)’s findings does not carry any