The Commissioner Of Income Tax – 8, Mumbai v. Tainwala Chemicals & Plastics India Limited

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.2409 OF 2011 The Commissioner of Income Tax – 8, Mumbai Versus Tainwala Chemicals & Plastics India Limited ..Appellant. ..Respondent. Mr.Suresh Kumar for the appellant.Mr.S.N. Inamdar, Senior Advoate with Mr.Mihir Naniwadekar for the respondent. CORAM : J.P. Devadhar &M.S. Sanklecha, JJ. DATE : 6[th] March 2013 P.C. : 1.In this appeal by the Revenue for assessment year 2004-05, following questions of law have been proposed for our consideration.following questions of law have been proposed for our consideration. “a)Whether, on the facts and circumstances of the case, the Tribunal was right in law in deleting the disallowance of Rs.2,15,764/- under Section 14A, even though the expenses were attributable to the earning of dividend income of the Act, and directing the AO to decide the same in the light of the decision of the Bombay High Court in the case of Godrej & Boyce Manufacturing Company Limited, even though the Assessing Officer had disallowed only 10% of the exempt dividend income under Section 14A of the Act and had not applied Rule 8D and therefore the ratio of the decision of the Hon'ble Bombay High Court was not at all applicable to the assessee's case ?was right in law in deleting the disallowance of Rs.2,15,764/- under Section 14A, even though the expenses were attributable to the earning of dividend income of the Act, and directing the AO to decide the same in the light of the decision of the Bombay High Court in the case of Godrej & Boyce Manufacturing Company Limited, even though the Assessing Officer had disallowed only 10% of the exempt dividend income under Section 14A of the Act and had not applied Rule 8D and therefore the ratio of the decision of the Hon'ble Bombay High Court was not at all applicable to the assessee's case ? b) Whether, on the facts and circumstances of the case, the Tribunal was justified in deleting the disallowance of Rs.2.15,764/- under Section 14A even though the disallowance was reasonable ?was justified in deleting the disallowance of Rs.2.15,764/- under Section 14A even though the disallowance was reasonable ? c)Whether, on the facts and circumstances of the case, the Tribunal was justified in deleting the addition of Rs.1,90,51,000/- being provision for bad debts on account loand to its group concern, even though the debt did not qualify for deduction under ection 36(1)(vii) read with Section 36(2) of the Act and the said debt has been depicted as a provision in the accounts of the assessee ?was justified in deleting the addition of Rs.1,90,51,000/- being provision for bad debts on account loand to its group concern, even though the debt did not qualify for deduction under ection 36(1)(vii) read with Section 36(2) of the Act and the said debt has been depicted as a provision in the accounts of the assessee ? d) Whether, on the facts and circumstances of the case, the Tribunal was justified in allowing the deduction of Rs.1,90,51,000/- as a bad debt even though the said item was clearly depicted in the accounts of the assessee as a provision and the assessee had failed to show that it was a bad debt and the same had been actually written off by it in its books.was justified in allowing the deduction of Rs.1,90,51,000/- as a bad debt even though the said item was clearly depicted in the accounts of the assessee as a provision and the assessee had failed to show that it was a bad debt and the same had been actually written off by it in its books. d) Whether, on the facts and circumstances of the case, the Tribunal was justified in allowing the deduction of Rs.1,90,51,000/- as a bad debt even though the said item was clearly depicted in the accounts of the assessee as a provision and the assessee had failed to show that it was a bad debt and the same had been actually written off by it in its books.was justified in allowing the deduction of Rs.1,90,51,000/- as a bad debt even though the said item was clearly depicted in the accounts of the assessee as a provision and the assessee had failed to show that it was a bad debt and the same had been actually written off by it in its books. e) Whether, on the facts and circumstances of the case, the Tribunal was justified in deleting the disallowance of provision for bad debt of Rs.1,90,51,000/- even though the assessee had made contradictory statements as to the identity of the bad debt (debtor) before the AI and CIT (A) and Tribunal had itself remitted this issue to the AO to ascertain the identity of the bad debt (debtor) ?was justified in deleting the disallowance of provision for bad debt of Rs.1,90,51,000/- even though the assessee had made contradictory statements as to the identity of the bad debt (debtor) before the AI and CIT (A) and Tribunal had itself remitted this issue to the AO to ascertain the identity of the bad debt (debtor) ? f) Whether, on the facts and circumstances of the case, the Tribunal was justified in deleting the disallowance of Rs.3,06,75,058/- on account of long term capital loss claimed by the assessee even though the loss had arisen due to the transfer of unquoted shares of group companies which had been sold to other companies at abysmally low prices to contrive the loss ?was justified in deleting the disallowance of Rs.3,06,75,058/- on account of long term capital loss claimed by the assessee even though the loss had arisen due to the transfer of unquoted shares of group companies which had been sold to other companies at abysmally low prices to contrive the loss ? g)Whether, on the facts and circumstances of the case, the Tribunal was justivied in deleting the disallowance of Rs.3,06,75,058/- on account of long term capital loss claimed by the assessee, even though the assessee had failed to substantiate the sale price of the shares of the group concern Samsonite India Private Limited at Rs.5.57 per share without taking into account the fair market value of the land, building, plant and machinery and loans / advances / debts ?was justivied in deleting the disallowance of Rs.3,06,75,058/- on account of long term capital loss claimed by the assessee, even though the assessee had failed to substantiate the sale price of the shares of the group concern Samsonite India Private Limited at Rs.5.57 per share without taking into account the fair market value of the land, building, plant and machinery and loans / advances / debts ? h)Whether, on the facts and circumstances of the case, the Tribunal was justivied in deleting the disallowance of Rs.3,06,75,058/- on account of long term capital loss claimed by the assessee, even though the assessee admitted that the value land and building at market price ought to have been calculated by the Revenue ?was justivied in deleting the disallowance of Rs.3,06,75,058/- on account of long term capital loss claimed by the assessee, even though the assessee admitted that the value land and building at market price ought to have been calculated by the Revenue ? h)Whether, on the facts and circumstances of the case, the Tribunal was justivied in deleting the disallowance of Rs.3,06,75,058/- on account of long term capital loss claimed by the assessee, even though the assessee admitted that the value land and building at market price ought to have been calculated by the Revenue ?was justivied in deleting the disallowance of Rs.3,06,75,058/- on account of long term capital loss claimed by the assessee, even though the assessee admitted that the value land and building at market price ought to have been calculated by the Revenue ? i)Whether, on the facts and circumstances of the case, the Tribunal was justivied in deleting the disallowance of Rs.3,06,75,058/- on account of long term capital loss claimed by the assessee, without considering that admittedly the share transactions were carried out in view of a family settlement and were not at all transactions for commercial purposes ?was justivied in deleting the disallowance of Rs.3,06,75,058/- on account of long term capital loss claimed by the assessee, without considering that admittedly the share transactions were carried out in view of a family settlement and were not at all transactions for commercial purposes ? j)Whether, on the facts and circumstances of the case, the Tribunal was justivied in deleting the disallowance of Rs.3,06,75,058/- on account of long term capital loss claimed by the assessee, without considering that no sale consideration was actually received by the assessee for these share transactions and that there was no possibility of receiving the same consideration from Katyayan Construction & Developers P Limited as the assessee had itself written off debt of Rs.1,90,51,000/- due fro M/s.Satyayan Construction & Developers P Limited as irrecoverable ?was justivied in deleting the disallowance of Rs.3,06,75,058/- on account of long term capital loss claimed by the assessee, without considering that no sale consideration was actually received by the assessee for these share transactions and that there was no possibility of receiving the same consideration from Katyayan Construction & Developers P Limited as the assessee had itself written off debt of Rs.1,90,51,000/- due fro M/s.Satyayan Construction & Developers P Limited as irrecoverable ? k)Whether, on the facts and circumstances of the case, the Tribunal was justified in upholding the decision of the CIT (A), in deleting the addition on account of provision for doubtful debts to the book profit under Section 115JB of the Act without appreciating that the disallowance / addition on account of diminution in the value of assets is mandatory in view of explanation (I) to Section 115JB of the Act ?was justified in upholding the decision of the CIT (A), in deleting the addition on account of provision for doubtful debts to the book profit under Section 115JB of the Act without appreciating that the disallowance / addition on account of diminution in the value of assets is mandatory in view of explanation (I) to Section 115JB of the Act ? 2.In so far as questions (a) and (b) are concerned, we find that by the impugned order the Tribunal has restored the issue of dis-allowance under Section 14A of the Income Tax Act, 1961 to the file of the assessing officer to decide afresh in the light of the decision of this Court in the matter of Godrej & Boyce Manufacturing Company Limited V/s. DCIT reported in (2010) 328 ITR 81 (Bom). In view of the above, we find no reason to 2.In so far as questions (a) and (b) are concerned, we find that by the impugned order the Tribunal has restored the issue of dis-allowance under Section 14A of the Income Tax Act, 1961 to the file of the assessing officer to decide afresh in the light of the decision of this Court in the matter of Godrej & Boyce Manufacturing Company Limited V/s. DCIT reported in (2010) 328 ITR 81 (Bom). In view of the above, we find no reason to 3.In so far as question (c) is concerned, the Tribunal by the impugned order has followed the decision of the Apex court in the matter of Vijaya Bank V/s. Commissioner of Income Tax reported in 322 ITR 166, wherein it has been held that once the provision of doubtful debt has been debited to the profit and loss account and corresponding provision has been credited or reduced from the debtors account in the balance-sheet, then, this would amount to writing off. In the present case, the Tribunal recorded a finding of fact that the respondent – assessee has debited the provision of doubtful debt to the profit and loss account and correspondingly reduced the assets by reducing the amount of unsecured loans. On the aforesaid facts, the Tribunal held that this would amount to writing off of the debt. Thus, on examination of facts it concluded that the respondent – assessee has written off the loan and would be entitled to the claim of bad debts. The Tribunal by the impugned order also recorded a finding of fact that once the respondent – assessee has lent surplus money and offered the interest to tax as business income, then the activity of the respondent – assessee of lending money is a business activity. Therefore, the debt qualifies for deduction under Section 36(1)(vii) read with Section 36(2) of the Income Tax Act, 1961. In view of the finding of fact recorded by the Tribunal that the provision has been written off and reliance placed on the decision of the Apex Court in the 4.In so far as question (d) is concerned, according to the Revenue, it is a mere facet of question (c). 5.In so far as question (e) is concerned, according to the Revenue, same does not survive in view of the subsequent order dated 14[th] September 2012 passed by the assessing officer on remand to ascertain the identity of the debtor. 6.In so far as question (f) is concerned, it is the case of the Revenue that the shares were sold due to family arrangement at very low prices and, hence, the loss is alleged to have been contrived. The Tribunal referred to the decision of the Apex Court in the matter of K.P. Varghese V/s. I.T.O. reported in 131 ITR 597, wherein it is held that it is not sufficient for the Revenue to merely allege that the assessee has received more consideration than what is declared, but the Revenue must prove that the assessee had in fact received more consideration. The Tribunal has recorded a finding in the impugned order that the Revenue has not discharged the burden which is casts upon it in terms of the decision of the Apex Court in the matter of K.P. Vargese (supra). Further the Tribunal also recorded that in case the Revenue doubted the calculation of the intrinsic value of shares, it was open to the Revenue to rework the appropriate value so as to justify its allegation that the price at which they were transferred was low. In these circumstances, we see no reason to entertain question (f). 7.In so far as question (g) to (j) is concerned, counsel for the Revenue states that these are mere facets of question (f) and, hence, not pressed. 8.In so far as question (k) is concerned, the grievance of the Revenue is that for the purpose of computing profits under Section 115JB, the provision of doubtful debts has to be added. In view of our decision to question (c) above, issue of adding back the provisions for the purpose of computing book profits does not survive. This is particularly so in view of the fact that the Tribunal has recorded a finding of fact that the provision has been written off. Accordingly, we see no reason to entertain question (k). allegation that the price at which they were transferred was low. In these circumstances, we see no reason to entertain question (f). 7.In so far as question (g) to (j) is concerned, counsel for the Revenue states that these are mere facets of question (f) and, hence, not pressed. 8.In so far as question (k) is concerned, the grievance of the Revenue is that for the purpose of computing profits under Section 115JB, the provision of doubtful debts has to be added. In view of our decision to question (c) above, issue of adding back the provisions for the purpose of computing book profits does not survive. This is particularly so in view of the fact that the Tribunal has recorded a finding of fact that the provision has been written off. Accordingly, we see no reason to entertain question (k). 9.Accordingly, the appeal is dismissed with no order as to costs. (M.S. Sanklecha, J.) (J.P. Devadhar, J.)