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Facts
Global Green Company Ltd., engaged in food product manufacturing, filed appeals against orders for AYs 2007-08 to 2015-16. Assessments for AYs 2007-08 and 2008-09 were reopened u/s 147, while others were completed u/s 143(3). The appeals contested disallowances related to interest, provisions for bad debts, write-offs of trade debtors and stock, and employee contributions to PF/ESI.
Held
The Tribunal held that the reopening of assessments u/s 147 for AYs 2007-08 and 2008-09 was bad in law. It allowed the disallowance of interest expense, provisions for bad and doubtful advances/debts, and write-offs of trade debtors and stock in favor of the assessee, primarily on a write-off basis. However, the disallowance of employee's contribution to PF and ESI for AY 2015-16 was decided against the assessee, citing a Supreme Court judgment.
Key Issues
1. Validity of assessment proceedings u/s 147. 2. Disallowance of interest expense. 3. Disallowance of provision for bad and doubtful farmer advances/debts. 4. Disallowance of write-off of trade debtors. 5. Disallowance of stock write-off. 6. Disallowance of employee's contribution to PF and ESI.
Sections Cited
147, 143(3), 144C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCHES : H : NEW DELHI
Before: SHRI G.S. PANNU, HON’BLE & SHRI ANUBHAV SHARMA
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : H : NEW DELHI BEFORE SHRI G.S. PANNU, HON’BLE VICE PRESIDENT AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITAs No.3898 & 3899/Del/2019 Assessment Years: 2007-08 & 2015-16 ITAs No.3910 to 3913/Del/2018 Assessment Years: 2008-09, 2012-13, 2013-14 & 2014-15 Global Green Company Ltd., Vs DCIT, First India Place, Circle-10(1), Tower-C, New Delhi. Mehrauli Road, Gurgaon, Haryana – 122 002. PAN: AAACR0635H (Appellant) (Respondent) Assessee by : Shri Yogesh Thar, Shri Ankit Aggarwal, : Ms. Akta Shah & Ms Komal Goyal, CAs Revenue by : Ms Sapna Bhatia, CIT-DR Date of Hearing : 05.04.2024 Date of Pronouncement : 30.04.2024 ORDER PER ANUBHAV SHARMA, JM:
These are appeals preferred by the Assessee against the orders of the Commissioner of Income Tax (Appeals) (hereinafter referred to as Ld. First Appellate Authority or ‘the ld. FAA’ for short) in appeals filed before it against the orders of the ld. Assessing Officer (hereinafter referred to as the Ld. AO, for short). Further details of the orders of the lower authorities are as under:-
ITAs No.3910 to 3913/Del/2018 ITAs No.3898 & 3899/Del/2019 (A) who Appeal No. & AO who Section of the passed the Date of order passed the IT Act under order of the CIT(A) assessment which the AO order & Date passed the of order order 3898/Del/2019 CIT(A)-22, 39/18- DCIT, 147 r.w.s. New Delhi 19/CIT(A)-22, Cir.10(1), New 143(3) date Delhi, date 23.02.2019 10.02.2011 3899/Del/2019 CIT(A)-22, 40/18- DCIT, 143(3) New Delhi 19/CIT(A)-22, Cir.10(1), New date Delhi, date 27.02.2019 21.12.2017 - Do- 3910/Del/2018 CIT(A)-35, 437/16-17, date ACIT, Circle New Delhi 28.02.2018 12(1), New Delhi; date 30.01.2012 3911/Del/2018 - Do - 438/16-17, date DCIT, 143(3) r.w.s. 28.02.2018 Cir.10(1), New 144C Delhi; date Nil 3912/Del/2018 - Do - 439/16-17; - Do - 143(3) date 28.02.2018 3913/Del/2018 - Do - 456/16-17; - Do - - Do - date 28.02.2018 2. The assessee is engaged in the business of processing and sale of food products and particularly engaged in the business of growing, manufacturing, distributing and selling of food products, namely, gherkins, jalapenos, relishes, etc. The assessee’s assessments for years under consideration 2007-08 and 2008-09 were reopened u/s 147. In case of AYs 2012-13, 2013-14, 2014-15 and 2015-16, the assessments were completed u/s 143(3) of the Act. On hearing the ld. AR for the assessee, it comes up that there are certain issues which are particular to individual assessment years under consideration and some issues are common. Thus, for convenience, the appeals in hand shall be disposed of by ITAs No.3910 to 3913/Del/2018 ITAs No.3898 & 3899/Del/2019 making discussion issue-wise and the following issues come up for consideration:- (i) Whether the assessment proceedings u/s 147 of the Act for AY 2007-08 and 2008-09 are void and bad in law; (ii) Whether the disallowance of interest expense in all the assessment years under consideration is erroneous; (iii) Whether the disallowance of provision of bad and doubtful farmer advances in AY 2012-13 is erroneous; (iv) Whether the disallowance of provision of bad and doubtful debts in AY 2012-13 is erroneous; (v) Whether disallowance of write off of trade debtors in AY 2015-16 is erroneous; and (vi) Whether disallowance of stock write off in AY 2012-13 and 2015- 16 is erroneous.
In regard to issue No.1, the ld. AR has primarily pointed out that reopening being beyond a period of four years from the end of relevant assessment year, in the absence of new tangible material, the reopening is bad for which he has relied on the following:- i) CIT vs. Kelvinator of India Ltd. (2002) 256 ITR 1 (Del); ii) Rubix Trading (P) Ltd. vs. ITO, 108 taxmann.com 176 (Bom); iii) Bajaj Allianz vs. DCIT (2020) 113 taxmann.com 238 (Bom); iv) Bharat Sanchar Nigam Ltd. vs. DCIT (2013) 355 ITR 188 (Del); and 3
ITAs No.3910 to 3913/Del/2018 ITAs No.3898 & 3899/Del/2019 v) Tulsi Shipping P. Ltd. vs. ITO (2018) 169 ITD 629 (Mumbai Trib.)
3.1 It is further submitted that in the absence of any specific observations in the reopening that there was failure to furnish fully and truly all material relevant for assessment, reassessment could not have been initiated for which he has relied on the following:- i) CIT vs. Eicher Ltd. (2007) 294 ITR 310 (Del); ii) Atma Ram Properties (P) Ltd. vs. DCIT (2012) 343 ITR 141 (Del); iii) Ananta Landmark P. Ltd. vs. DCIT (2021) 439 ITR 168 (Bom); iv) Noshir Darabshaw Talati v DCIT (2023) 156 taxmann.com 498 (Bom); & v) Space Capital Services Ltd. vs. ITO (2005) 148 Taxman 44 (Del Trib.)
3.2 The ld. DR has, however, supported the findings of the ld. tax authorities.
3.3 As we appreciate the matter on record, it comes up that the basis of reopening is purely the information and documents which were available on record at the time of assessment. The ld.CIT(A) merely on a presumption that the AO might have some other information, dismissed the ground of the assessee by which reopening u/s 147 of the Act was challenged. On going through the reasons as recorded, it comes up that for mere allegations of failure of the assessee to disclose fully and truly all material facts, the jurisdiction was invoked. However, no factual aspect is reflected in the reasons. Thus, we consider it an appropriate case to allow the grounds raised in AYs 2007-08 and 2008-09. Accordingly, the said issue is decided in favour of the assessee. 4
ITAs No.3910 to 3913/Del/2018 ITAs No.3898 & 3899/Del/2019
The second issue arises out of the disallowance of interest and the grounds runs common to all the appeals. The case of the assessee is that out of commercial expediency investments were made. In this regard, on perusal of the paper book, we find that investments were made in Global Green USA Ltd. and Global Green International Nv. These two companies deal in same products as sold by the assessee, but, in different territories. The AO in AY 2010-11 has questioned the investments on the basis that borrowed funds are used to acquire shares of foreign subsidiaries. However, admittedly, this disallowance for AY 2010-11 stands deleted by order dated 20th June, 2023 in ITA No.1308/Del/2017. The ld. DR could not dispute the aforesaid fact. Furthermore, it comes up that since the investments are made in foreign subsidiaries dealing in same line of products, there is presumption that commercial expediency exists. Reliance in this regard has been rightly placed by ld. AR before us on the judgement of Hon’ble Supreme Court in the case of Hero Cycles Pvt. Ltd. vs. CIT (2015) 379 ITR 347 (SC). The investments are not just portfolio investment, but, strategic investments for expansion of the business of the assessee. In this context, the ld. AR has apprised us of the year- wise sale of goods by the appellant company to the said subsidiaries and the same satisfies us to hold that the assessee has generated revenue and, on the basis of the allegation that borrowed funds have been used, so, interest or or other expenses of banking should be disallowed is not justified. Even otherwise, when the assessee has own funds and surplus is more than the 5
ITAs No.3910 to 3913/Del/2018 ITAs No.3898 & 3899/Del/2019 investments, then, the presumption is that own funds are used. The year-wise balance sheet of the assessee made available in the paper book establishes that except for AY 2012-13 the total funds of the assessee were higher than the investments made in the subsidiary companies. Lastly, we also find substance in the contention of the ld. AR that now the matter stands covered in favour of the assessee by the Tribunal order dated 20th June, 2023 (supra). Consequently, we are inclined to decide this issue in all the appeals in favour of the assessee. The grounds which have been raised in the alternative on without prejudice basis, thus, become of academic interest and are left undecided.
The third issue is with regard to disallowance of provisions for bad and doubtful farmer advances, provision for bad and doubtful trade debts and provision for bad and doubtful trade debts and provision for bad and doubtful other advances relevant to AY 2012-13. It comes up during hearing that these provisions were disallowed by the assessee in the return of income as reflected in the computation filed at page No.24 of the paper book for AY 2012-13. Further, it comes up that this issue is being raised for the first time in the tribunal only. However, as the issue is based on facts appearing on record which were before the tax authorities also, the ground is admitted. However, in assessee’s own case, the Tribunal, by order dated 30.06.2023 has held that the provisions should be allowed on write off basis in the year when underlying asset is actually written off and directions have been given to the assessee that ITAs No.3910 to 3913/Del/2018 ITAs No.3898 & 3899/Del/2019 assessee shall produce the write off details before the AO. We consider it appropriate to follow the coordinate Bench findings applying the directions pari materia to AY 2012-13. Accordingly ground is decided in favour of assessee for statistical purposes.
The next issue is disallowance of write off of trade debtors and write off of farmer advances which are specific to AY 2015-16. In regard to this issue also, the ld. AR has relied the findings of the coordinate Bench in order dated 20.06.2023 wherein it is held that provisions should be allowed on write off basis in the year when the underlying asset is actually written off. We respectfully follow the directions and make the same applicable pari materia to AY 2015-16 also. Accordingly ground is decided in favour of assessee for statistical purposes.
The next issue is disallowance of stock write off, which is peculiar to AYs 2012-13 and 2015-16. The assessee has, in its book, debited the Profit & Loss Account with write off of its damaged/obsolete stock. With regard to AY 2015-16, the assessee had disallowed the write off in its return of income, but had raised the claim before the CIT(A) and for AY 2012-13 the claim is raised for the first time before the Tribunal. The ld. AR has pointed out that this issue is also covered in favour of the assessee by order dated 20.06.2023 (supra). Since the ground arises out of facts coming up from the material which was also available before the ld. tax authorities, the legal claim is admitted and following ITAs No.3910 to 3913/Del/2018 ITAs No.3898 & 3899/Del/2019