IFB AUTOMOTIVE PRIVATE LIMITED,KOLKATA vs. DCIT, CIRCLE - 10, KOLKATA, KOLKATA

The assessee has raised the following grounds: “1(a) For that the Ld. Assessing Authorities below was not justified in disallowing the appellant-assessee’s claim of Rs.16.21 Lacs for write off bad debts in the nature of advances.

The brief facts of the case are that the assessee is a company engaged in the business of manufacturing of various automobile parts i.e seat recliners, sliders etc... The return of income was filed disclosing the total income of Rs.3,82,85,624/- on 30-10-2002. Notices under section 143(2) and 142(1) of the Act issued and in response to such notices, the Manager-Taxation appeared filed various relevant details before the AO.

During the assessment proceedings, the AO found that the assessee has debited an amount of Rs.16.21 lakhs from its profit & loss account towards advances written off as doubtful. The assessee submitted by an letter dt: 02-03- 2005 that an amount of Rs.5,61,212/- was given to M/s Seven Engineering of Bangalore for manufacturing of tools and was not recovered on account of clousure of said unit. Another amount of Rs.8,98,800/- was given to various parties for manufacturing of tools and as the manufacture of said tools could not take place in view of change of drawings and specifications of tools, thereby, the assessee lost the said advance amounts totaling to Rs.14.60 lakhs given to various parties. For non explanation for an amount of Rs.1.62 lakhs and for the two advances as above, totaling to Rs.16.21 lakhs treating the same as capital amount, AO added to the total income of the assessee. Before the CIT-A, in first appeal, the assessee contended that the provisions made on doubtful debts for financial year 2001-2002 amounting to 14.81lakhs offered for tax and an amount of 16.1lakhs had been written off as bad advances during the year under consideration. The learned CIT-A having heard, was of the opinion since a mere provision for expenses is not allowable and a claim of expenditure on account of an item is a 2 capital in nature and writing off the same cannot be allowed as an expenditure, thereby, confirmed the disallowance made by the AO.

By such impugned order, the AR before us contended that the A.O. treating the advances given to suppliers as a capital is incorrect as the said advances given to two suppliers were for manufacturing of tools for the purpose of business activity. As the assesse could not recover the said two advances for various reasons, the said advances can be deducted as expenditure. The AR relied on two case laws of Mumbai Tribunal and sought to remand the matter to A.O. The learned DR submits that, but for the mentioning of the said advances as capital in nature and as found by the AO at column no.17 of tax audit report treated the same as capital in nature and relied on the orders of both the authorities below.

Heard rival submissions and perused the relevant material on record. We find from the record that the assessee failed to show the nature of the tools and did not file anything show that the advances paid to said two units for the purpose of purchasing the said tools and is useful for the purpose of assessee’s business activity. The assessee produced nothing as found by the learned CITA in his order that the submissions of the assessee quite repetitive in the 1st Appellate proceedings.

As relied on the case law by the assessee in the case of M/s. Greaves Cotton Limited Vs.ITO reported in 2013–(057)-SOT-0158-TBOM where the facts involved therein and relevant for the present case are that assessee had debited amount Rs.47,76,850/- and Rs1,1,659/- from profit & loss account on account of expenditure incurred for development of M.K.20 Engine. The said expenditure was dissolved by the A.O. treating the same as capital in nature on the ground that the 3 same was incurred for acquiring enduring benefit in terms of better sales. The learned CIT-A remanded the issue to the file of A.O. for verification as per law basing on the decision of Tribunal in assesses’s own case therein. The Bombay bench supra upheld the decision of the CIT-A in remanding the case to the file of AO is reproduced herein as below:

As discussed above in the present case the assessee failed to produce the details and nature of tools and the said tools is being ordered for the purpose of business activity on purchase from the said two business units, therefore, it is clear that the details were not available with AO at the time of assessment proceedings. Thus the case law cited by the AR is applicable to the present case and accordingly respectably following the Order of the Co-ordinate Bench supra we remand the issue under consideration to the file of AO to verify and pass order in accordance with law. Assessee also directed to produce all the details as indicated above. The Assessee shall not seek any further adjournments. The ground No. 1 raised by assessee is allowed for statistical purposes.

We have heard the rival submissions on this issue and also perused the relevant material available on record. As rightly submitted by the ld. Counsel for the assessee, Rule 8D is applicable only from assessment year 2008-09 and the same being not applicable to the year under consideration, i.e. A.Y. 2002-03, the disallowance made by the Assessing Officer under section 14A by applying the said Rule was not sustainable. As further submitted by him, the disallowance under section 14A for the assessment years upto 2007-08 is required to be worked out on reasonable basis and the disallowance so worked out by the ld. CIT(Appeals) being fair and reasonable in the facts and circumstances of the case, the same deserves to be confirmed. The ld. D.R., on the other hand, has not been able to raise any material contention to show that the disallowance as worked out by the ld. CIT(Appeals) under section 14A is not reasonable. We, therefore, find no justifiable reason to interfere with the order of the ld. CIT(Appeals) on this issue and upholding the same, we dismiss the Ground No. 2 of the assessee’s appeal.

In the result, the appeal of the assessee is partly allowed for statistical purposes.