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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAMIT KOCHAR
This appeal is filed by the assessee against the order of CIT(A) dated 30.5.2014 for Assessment Year 2010-11. The first issue in the appeal of assessee is that CIT(A) erred in confirming the disallowance of business expenses amounting to Rs.34,970/-.
Briefly stated, the facts are that the assessee-company, which is engaged in the business of trading in flavours, fragrance, dehydrated vegetable and its allied products, filed a return of income on 12.10.2010 declaring income from business at Rs.11,45,392/- before set off of brought forward losses and NIL income after set off of brought forwarded losses. The assessment was completed u/s 143(3) of the 2 M/s. Sensient India Pvt. Ltd.
Income Tax Act, 1961 (in short ‘the Act’) on 12.3.2013 determining the income at Rs.18,31,994/- before set off of brought forwarded losses and NIL income after set off of brought forward losses. While completing the assessment, the Assessing Officer made an addition of Rs.34,750/- observing that the assessee could not explain why this amount was written off in the books of account and no details were furnished by the assessee. The Assessing Officer also disallowed Rs.6,51,852/- which was written off by the assessee observing that this is not a bad debt to be allowed as this amount represents only advance deposit given by the assessee to the lessor of the premises taken on lease, therefore, not allowable as bad debt. On appeal, CIT(A) confirmed the additions. Insofar as addition of Rs.34,750/- is concerned, the CIT(A) rejected the details filed before him by the assessee observing that there is no reason for not filing these details before the Assessing Officer and, therefore, it cannot be admitted as additional evidence. Coming to the bad debts written off, CIT(A) upheld the order of Assessing Officer in observing that the deposits written off are not covered u/s 36 of the Act.
The learned counsel for the assessee before us submits that insofar as the sundry balances written off in respect of Nestle India Ltd. and New India Assurance Co. Ltd. are concerned, they have been already offered as income, therefore, the addition by Assessing Officer has resulted in double taxation of same amounts. In respect of sundry balances written off of Rs.4,499/-, he submits that this amount pertains to payment made to courier company against which no expenses were booked. Since this amount was not recoverable, same has been written
3 M/s. Sensient India Pvt. Ltd. off. He submits that these expenses were incurred in the course of business and hence, it cannot be disallowed.
Coming to the deposits written off, the ld. Counsel, referring to pages 34 & 35 of paper book, submits that out of total deposit of Rs.12,78,000/-, assessee has adjusted Rs.9,52,074/- and the balance of Rs.3,25,926/-, which could not be adjusted, has been written off. Similarly, in respect of another property, similar amount of Rs.3,25,926/-, which could not be adjusted against the rent, was written off as there was dispute between the lessors and the assessee on the amount of municipal taxes and later on the assessee has vacated the premises. Therefore, since these amounts are not recoverable and as these amounts could not be adjusted, these were written off in the books of account and claimed as deduction. The learned counsel for the assessee submits that these amounts if not allowed u/s 36 of the Act, it should be allowed u/s 37 of the Act as revenue loss. The learned counsel for the assessee, referring to the submissions made before the CIT(A), submits that it was claimed before the CIT(A) that it should be allowed as deduction u/s 37 of the Act. The learned counsel for the assessee further in support of the above contentions placed reliance on the decision of Delhi Bench of the Tribunal in the case of Fab India Overseas P. Ltd. vs. ACIT, & 672/Del/2012 dated 28.6.2013, especially para 20 and submitted that in that case the assessee initially claimed that it is a bad debt but the Tribunal allowed it as a business loss.
The ld. DR supported the orders of the authorities below.
4 M/s. Sensient India Pvt. Ltd.
We have heard the rival submissions, perused the orders of the authorities below and the decisions relied on. In respect of the addition made towards sundry balances written off of Rs. 34,750/-, we find that the assessee contended before the CIT(A) that these amounts are, in fact, credit balances written off and they have already been offered as income and by this addition, it will result in double taxation of same amount. Regarding the amount written off of Rs.4,499/- paid to Federal Express India Pvt. Ltd. towards courier charges, it was submitted that the assessee could not recover the same from the courier and, therefore, it was written off and since these amounts are incurred in the course of business, they cannot be disallowed. We also find that assessee has initially not produced any details before the Assessing Officer but it was produced only before the CIT(A) and CIT(A) has not entertained these details in the absence of proper explanation. In our considered view, as these details were not there before the Assessing Officer, it should go back to the Assessing Officer for afresh adjudication and the assessee should produce all these details before the Assessing Officer, especially when it was contested that these amounts were already offered as income and by this addition it will be a double taxation. Thus, we restore the matter to the file of Assessing Officer who shall examine the claim of assessee afresh in accordance with law after providing assessee adequate opportunity of being heard. Regarding the amount written off of Rs.4,499/- paid to Federal Express India (P) Ltd. towards courier charges, we do not find a valid reason for not allowing such write off when such expenses were incurred for 5 M/s. Sensient India Pvt. Ltd.
business of the assessee which is not in dispute. Hence, we direct the Assessing Officer to delete the disallowance of Rs.4,499/-.
With regard to the deposits written off of Rs.6,51,852/-, which was given to the lessors towards rental deposit, we find that almost an identical issue has been considered by the Delhi Bench of Tribunal in the case of Fab India Overseas P. Ltd. (supra) wherein the assessee has given security deposit as well as advance rent to the lessor, Ghaziabad Real Estate P. Ltd., and since the contract for lease could not be concluded as the lease deed was not registered, assessee backed out of the lease and by virtue of this backing out of the lease, the advance and security deposit paid by Fab India Overseas P. Ltd. was withheld by the lessor, Ghaziabad Real Estate P. Ltd. to cover up its losses. The assessee, Fab India Overseas P. Ltd., has claimed this as bad debt initially and latter as business loss. The Tribunal allowed the claim of assessee, Fab India Overseas P. Ltd. observing as under :-
“18. On this factual matrix the issue before us is “whether the loss of security deposit in question is a business loss in the revenue field.” In our considered opinion the above loss is a business loss; for the reason that the assessee has taken on lease many premises spread over many parts of the country, and this act of taking this show room on lease is in the normal course of business. In fact 84 show rooms are taken on lease at various placed. Six months rent was given as security deposit. This was given in the course of business. The transaction is intimately connected with the business of the assessee. The Assessing Officer has not disputed the genuineness of the claim. The CIT(A) has disallowed the amount on the ground that the loss was in the capital field. We do not agree with this finding. There is no enduring benefit to the assessee. In our view the loss in question is in the revenue field and has been rightly claimed u/s 28. This is not a 6 M/s. Sensient India Pvt. Ltd. bad debt. It is not a case where “lease premium” is paid for a long term lease as in the case of Kribco (supra). It is a deposit in the usual course of taking show rooms on lease.
The Hon'ble Delhi High Court in the case of CIT vs. Khaitan Chemicals & Fertilizers Ltd. 326 ITR 114 has held as follows.
“We agree with the Ld. Counsel for the appellant/Revenue that the assessee had wrongly claimed it as a bad debt u/s 36(1)(vii) of the said Act. However, we find that the Tribunal has examined the matter in the correct light and allowed the same as an expenditure u/s 37(1) of the said Act. A plea was raised by the Ld. Counsel for the Revenue that the Tribunal ought not to have done this and ought to have remanded the matter to the Assessing Officer to determine as to whether the claim was allowable u/s 37(1) of the said Act or not. However, we find that the decisions cited by the Ld. Counsel for the assessee, namely, CIT vs. Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710 (SC) and CIT vs. Rose Services Apartments India P. Ltd. (2010) 326 ITR 100 (Delhi) – (ITA no. 777 of 2008 decided on February 20,2009), give a clear indication that the Tribunal was empowered to deal with the issue of allowability of the said amount of Rs.14.79 lakhs and as to whether the assessee was entitled to claim it as a bad debt or as an expenditure u/s 37(1).”
Applying the propositions laid down in this case law to the facts of the case we uphold the contentions of the assessee that the expenditure in question can be allowed as a business loss by the Tribunal though originally it was claimed as a bad debt. The amount in question was given, not for acquiring of any asset giving enduring benefit and was incurred in the course of trade and hence is in the revenue field. The Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. vs. CIT 124 ITR p.1 (SC) has held as follows.
“BY THE COURT: (i) It is not universally true proposition that what may be a capital receipt in the hands of the payee must necessarily be capital expenditure in relation to the payer. The fact that a certain payment constitutes income or capital receipt
7 M/s. Sensient India Pvt. Ltd. in the hands of the recipient is not material in determining whether the payment is revenue or capital disbursement qua the payer. (ii) There may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee’s trading operations or enabling the management and conduct of the assessee’s business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. (iii) What is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted in the process. The question must be viewed in the larger context of business necessity or expediency.”
Keeping in view the propositions laid down in this case and applying the same to the facts of this case, we allow this claim of the assessee.”
Respectfully following the said decision, we hold that the security deposit which was written off by the assessee should be allowed as 8 M/s. Sensient India Pvt. Ltd. business loss. Thus, we direct the Assessing Officer to delete the addition of Rs.6,51,852/- which was written off by the assessee.
In the result, appeal of the assessee is partly allowed for statistical purposes as indicated above.
Order pronounced in the open court on 1st November, 2016.