TaxTMI 
TaxTMI 
2021 (10) TMI 1094
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....oks of the Appellant is a claimable deduction allowable u/s 28 r.w.s. 37 of the Income Tax Act, 1961. 3. That the Ld. A.O. and the Ld. C.I.T.(A) have erred in holding that the deduction claimed on account of advances written off was a claimable deduction only u/s 36(l)(vii) r.w.s.36(2) of the Income Tax Act, 1961 but was impermissible in the case at hand since the Appellant had failed to meet the statutory pre-conditions stipulated therein. 4. That the Ld. A.O. and the Ld. C.I.T.(A) have erred in holding that the Appellant's method of computing the disallowance u/s 14A of the Income Tax Act, 1961 is not in accordance with Rule 8D of the Income Tax Rules, 1962. 5. That the Impugned Orders of the Ld. A.O. and the Ld. CIT(A) suffer from illegality, infirmity, and are devoid of any merit. The same are therefore prayed to be quashed and the relief(s) prayed for by the Appellant may be pleased to be allowed by this Hon'ble ITAT. 6. That the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/or rescind any or all of the above grounds." 2. The facts in brief are that the assessee-company, BCL Secure Premises Private Ltd. (hereinafter referred to as 'BC....
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....ld. A.O. that the loss incurred in not getting back the trade advances and consequential writing off the same in the accounts should be allowed as a deductible expenditure u/s 28 r.w. section37 of the Act. 4. Further, ld. Assessing Officer noted that the assessee had made investment of Rs. 219,58,096/- in equity shares as on 31st March, 2015 as against Rs. 1,86,83,563/- as on 31.03.2014 and has computed the disallowance of Rs. 1,418 u/s.14A read with Rule 8D. The ld. Assessing Officer thereafter had proceeded to make the disallowance of Rs. 1,88,838/- and after giving the benefit of disallowance made by the assessee finally added at Rs. 1,87,024/-. The Assessing Officer made disallowance of loss claimed at Rs. 7,39,00,401/- on account of business loss on following reasoning. "5.1 The ld. A.O., rejecting all the explanations and evidences as filed by the appellant, however considered the case of the appellant within the scope of provisions of section 36(1)(vii) read with section 36(2) of the Act and deduction of Rs. 7,39,00,401/- on account of business loss u/s 28 r.w.section 37 of the Act was disallowed on the following alleged premises: "The amended provisions of section 36(1....
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....ge amount of advances. Besides these facts, which were considered relevant to discuss here, the legal position as discussed above also cannot permit an assessee to make claim of amounts written off which were earlier not taken into account as income. The provisions of Sec. 36(1)(vii) read with section 36(2) are very much clear in this regard. The apex court has also made it clear in the decision of Hasimara Industries Ltd. vs. CIT (231 ITR 842)." 5. Finally, the assessment was completed on the total income of Rs. 9,13,82,440/- after making the following additions:- (i) "Addition on account of disallowances of advances written off Rs. 7,39,00,401/- (ii) Addition on account of bank interest not disclosed. Rs. 19,15,791/- (iii) Disallowance u/s14A of the Income Tax Act, 1961 read with Rule 8D(2) of the Income Tax Rules, 1962 Rs. 1,87,024/- 6. Before the ld. CIT (A), assessee had filed the very detailed submission with regard to advances made to various parties and the reasons for write it off claiming it as business loss or deduction. Since voluminous documents and explanation was given to substantiate the loss upon which CIT (A) called for remand report and in the ....
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....f the advance and ultimately the recovery of the advance. 11. Pursuant to this, the appellant was able to recover only a sum of Rs. 23,00,000/- on 22/10/2014. Since inspite of all correspondences and recovery proceedings, Govinda refunded a meagre sum of Rs. 23 lakhs only, out of outstanding amounts to the tune of Rs. 4,15,00,000/- and that too when the agreed period of time limit being March 31, 2013 expired and Govinda was still unable and unwilling to refund the whole amount, the appellant decided to write off the same in its books before the F.Y. end 2014-15. 12. For M/s. Linton Distributors Pvt. Ltd. (hereinafter referred to as 'Linton' for short), it was submitted by the appellant that Purchase Order (PO) dated 11.05.2010 was placed with Linton for Rs. 1,17,50,000/- for supply of Uniforms and shoes for the Care Taker/Security Guard @ 2 uniform plus 1 shoes pair for each care taker. Initial deposit of Rs. 1,00,00,000/- was paid as advance. 13. This was followed be several exchanges of correspondences between the appellant and Linton regarding the progress of the work, when in one instance the appellant expressed concern over the status of the order and that they were using ....
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.... be immediately refunded. 19. To this, Linton gave evasive replies regarding market conditions. The appellant, realizing the futility of the entire proceedings was left with no other option than to terminate the said Contract which was also brought to the notice of Linton vide the letter dated 15/04/2014. Thereafter on 27.03.2015, the advance of Rs. 1,17,50,000/- given to Linton was written off in its books by the appellant. 20. For OM Sai Assotech Pvt. Ltd. (hereinafter referred to as 'OM Sai' for short) the appellant would like to submit that it was awarded a Works Contract vide Letter of Award(LOA)dated14/08/2012 executed by M/s Environ Energy Corpn. India P. Ltd. (hereinafter referred to as 'Environ' for short) for comprehensive operations and maintenance of sites in Rest of West Bengal (ROWB) circle maintained by VIOM Networks (Principal). In connection to the award by Environ, the appellant in order to sub-contract the work, entered into a LOA dated 20/08/2012 with OM Sai in terms of which it sub-contracted the work for comprehensive operations and maintenance of Passive Infrastructure of sites in ROWB Circle maintained by VIOM Networks (Principal). 21. In terms of the LOA....
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.... deductions proposed by Environ. 27. However, OM Sai instead of making the payments towards the legitimate demands raised by the appellant, sent a reply dated 08.04.2014, making false and baseless averments about being entitled to claim an amount of Rs. 9,30,10,552/- from the appellant. Thus the appellant in light of the above facts, filed on 28/08/2014, before the Hon'ble High Court of Delhi, a Suit for recovery of an amount of Rs. 1,56,64,000/-along with interest thereon @ 18% per annum from the date of the filing of the suit till realization of the said amount. 28. Pursuant to the above, OM Sai, with no desire to settle the accounts in fact filed a counter claim against the appellant before the Hon'ble Delhi High Court for recovery of Rs. 9.30 crores from the appellant. 29. Thus pursuant to all of the above sequence of events, the appellant finally considering and realizing that the matter was likely to go through protracted litigation involving huge costs and harassment, took the decision to write off the amount in its books. 30. For Metro Railways, Kolkata (hereinafter referred to as 'KMR' for short), the appellant would like to submit that it was awarded the Contract for ....
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..../03/2014was sent by the appellant. 34. As the situation was reaching a deadlock, the appellant in all earnestness and to demonstrate its bona fides, as also with a view to recover its dues (which were still not paid), engaged with KMR and began seeking release of due payments and to try and chart out a course for the future of the project. KMR had paid only Rs. 8,34,59,446/- till date out of the contract value of Rs. 17,07,35,271/-. The appellant had completed more than 90% of the contracted work and raised a bill out of which Rs. 10,24,09,303/- became receivable by the appellant. However Rs. 8,34,59,446/- only, was paid to the appellant out of the said receivable amount. Thus a sum of Rs. 1,89,49,857/- along with interest was due and payable by KMR to the appellant. Despite repeated requests and reminders KMR had failed and neglected to pay the aforesaid amount and in fact on the contrary, the KMR had been writing letters to the appellant mentioning alleged defects and berating the appellant for doing unsatisfactory work. 35. Here, at this stage before closing the books of the accounts as on 31/03/2015 for the A.Y. 2015-16, the appellant in view of the discussions made in the pr....
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....by the directions of the Hon'ble Calcutta High Court in nominating members for appointment of arbitrator as directed by the Hon'ble Court, the appellant filed a case of contempt against KMR as it had committed contempt of the court orders and the said case is pending. 39. Regarding other small Write off, of advances to parties GSID Furniture (Rs. 83,190), Wage advance paid to two persons (Rs. 8,000), Security Deposit Electricity (Rs. 2,000), WCT - Haryana (Rs. 1,440), EMD Haldia Dock (Rs. 20,000), EMD Deposits (Rs. 26,280), Inventory w/o (Rs. 10,125) totaling to Rs. 1,51,035/-, the appellant submitted that the said advances were very much trade advances which on becoming irrecoverable were accordingly written off by the it and enclosed copy of the ledger accounts of the said heads of Advances for the Ld. CIT(A)'s perusal. 40. The appellant having explained its case in detail to the ld. CIT(A) further went on to submit before him that the ld. A.O. had considered the appellant's case as that of write off of bad debt within the scope of provisions of section 36(1)(vii) read with section 36(2) of the Act as against write off, of business advances as business loss u/s. 28 r.w. section....
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.... to operation of business and which undoubtedly falls and is allowable within the meaning of section 28 r.w. section 37 of the Act. 43. In addition to the above submitted before the ld. CIT(A), the appellant further submitted that the ld. AO had relied on the Apex Court's decision in the case of Hasimara Industries Ltd. (supra) and how the reliance placed by the ld. AO on the said decision in the background of the facts of this case are totally misplaced. The said decision was thus distinguished. 44. Lastly, the appellant submitted before the ld. CIT(A) that section 28 of the Income Tax Act, 1961 imposes a charge on the profits or gains of business or profession and the expression 'Profits and gains of business or profession' is to be understood in its ordinary commercial meaning and the same does not mean total receipts. What has to be brought to tax is the net amount earned by carrying on a profession or a business which necessarily requires deducting expenses and losses incurred in carrying on business or profession. 45. The appellant concluded that thus, what is relevant for claiming write off of advances is that (i) the said advance should not of capital in nature and (ii) ....
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....tter head and under its signature. The go ahead having already been given verbally, the appellant did not issue a formal written letter. However the said draft so prepared by Govinda remained in the possession of the appellant and during the course of the hearing before the ld. CIT(A) inadvertently got submitted as such. 51. The ld. DCIT further vide her letter dated 03.10.2018, with regard to the exchange of letters between the appellant and Govinda and Linton, asked for an explanation from the appellant as to how the letters between the appellant and the other two companies were exchanged. 52. The appellant responded to the said query by submitting that it has its Branch office in Kolkata at 216, AJC Bose Road, 2nd Floor, Flat No. 2C, Kolkata- 17. The appellant, having secured the Contract with Metro Railway Department, Kolkata (KMR) had set up its Branch office in Kolkata since the year 2011 and for the said purpose enclosed the 'Certificate of Enlistment' of the Kolkata Municipal Corporation in the name of the appellant at it's Kolkata office (which is also now enclosed at pages 555 to 558 of the paper book). 53. The appellant submitted that thus having its Branch office in ....
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....9. In response to the above, the appellant submitted it's detailed response in pages 01 to 03 of the Reply dated 21.12.2018 reiterating its submissions made in this regard before the ld. DCIT earlier (vide response dated 16.10.2018). 60. The ld. DCIT referring to her earlier notice issued u/s 133(6) of the Act to the appellant, stated in the Remand Report that from the perusal of appellant's records and its ITR/Form 3CD/Ledger accounts (submitted during assessment proceedings), it is revealed that there is no branch office at Kolkata, that the letter head of the appellant showed no branch office with Kolkata address and that the letters from these two parties (Govinda and Linton) were addressed to the appellant company at its Delhi address. The ld. DCIT also stated that not a single letter was found addressed to the appellant's Kolkata branch office, however, during the course of appellate proceedings before the ld. CIT(A), the documents submitted by the appellant showed that it had obtained registration certificate at 216A A.J.C. Bose Road, 2nd Floor, Kolkata - 700017. Hence the appellant's contentions were not verifiable. 61. In response to the above, the appellant submitted it....
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....count of bad debts shall be allowed unless such bad debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which amount of such debts or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money lending which is carried on by the assessee. In this connection the ld. DCIT mentioned that these amounts were never offered for taxation as revenue receipt, however it is also true that these are the business advances given by the appellant during the course of business and dispute has also been raised by the appellant. 69. In response to the above, the appellant submitted before the ld. CIT(A) that this issue (mentioned by the ld. DCIT in the Remand Report) was raised by the A.O. in his Assessment Order and the same had been dealt with in full details in the earlier submission filed before him (ld. CIT(A)) which was again being relied upon. 70. Ld. CIT(A) however confirmed the disallowance in respect of the parties to the tune of Rs. 7,37,49,366/- and disallowances of Rs. 1,87,024/- made u/s.14A after discussing the entire remand order has compl....
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....nerate for the Client. It was represented by the Service Provider that it would generate business of at least Rs. 50,00,00,000/- per year in F.Y.s. 2011-12 and 2012-13, each. Invoice for the business development services would be raised by the Service provider on realization of fees by the Client from the business generated by the Service Provider. In the interim, on the request of the Service provider, a sum of Rs. 4,15,00,000/- was given to the Service Provider during the course of business, as a refundable business advance/deposit. The purpose of advancing such money to the service provider and the conditions thereof, as reduced in writing in the said agreement, are reproduced below: "III. COMMERCIALS ............... Refundable Advance/Deposit In the interim, on the request of Service Provider, the Client has agreed to pay Rs. 4,15,00,000 (Rupees Four Crore Fifteen Lakh only) as a non-interest bearing and non-adjustable refundable advance/deposit. It is expressly agreed between the parties that amount would be refunded forthwith in case the Service Provider fails to develop business for the client as committed hereinabove by the end of the year. In any case, the ad....
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....r of Acceptance was formalized vide a written contract dated 11/04/2011 with KMR for providing electronic security systems. The said Agreement with Kolkata Metro was entered into for a contract value of 17 crores. The Contract was secured after very tight bidding and due to the whole team effort of the appellant company. Again pursuant to the above, Govinda, claiming its credit of the said contract, acknowledging the receipt of the advance of Rs. 4,15,00,000/- sent a letter dated 05/05/2011 enclosing therewith an Invoice of Rs. 1.7 crores being 10% of the project value. Copy of the said letter dated 05/05/2011 is enclosed at page 94-94aof the paper book. The appellant company on receipt of the said Invoice, vide its letter dated 30/06/2011 totally denied the claim of Govinda of having any role to play in securing the business of KMR. The appellant further reminded Govinda to fulfil it's commitment with regard to the generation of business to the tune of Rs. 50 crores. Copy of the said letter dated 30/06/2011 is enclosed at page 95 of the paper book. Thus it is seen that from the very beginning of the contract itself, dispute was created with Govinda. It should also be noted t....
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....ain disputes arose on account of the unjust and unreasonable deductions imposed by Environ on the appellant company which left the business with Environ with no profitability. - Re: Business developments with AGC Network Ltd. (referred to as 'AGC' for short) for sub-contract of work of Hindustan petroleum Corporation Ltd. (referred to as 'HPCL' for short) - F.Y. 2013-14 In connection with the above, Govinda vide its letter dated 15/12/2013 informed the appellant that it was in efforts to secure the sub-contract from AGC with regard to the main contract of AGC with HPCL on back to back basis. It was informed that the value of the sub-contract may be to the tune of Rs. 15 to 16 crores. Copy of letter enclosed at page 103 of the paper book. Pursuant to the above, the appellant vide its letter dated 20/12/2013 (copy enclosed at page 104 of the paper book) gave the go ahead to Govinda. In the meanwhile, the appellant company secured the contract with AGC for a contract value of Rs. 16.31Cr, which was again claimed by Govinda to be on account of their efforts and accordingly Govinda, vide its letter dated 16/01/2014 raised its Invoice on the appellant company. (copy of invoice en....
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.... noticed by him that Rs. 25,00,000/- was paid by the Party in the current year itself and tried to draw analogy that the party was thus a paying party and thus the write off was unjustified. In the said connection it is pointed out that the above sequence of events clearly prove and substantiate that inspite of all correspondences and recovery proceedings, the party was unwilling to refund the entire amount and after much deliberations a meagre sum of Rs. 23 lakhs was paid by them. The said payment in no way points out to the fact that the party was paying. Infact the action of the Party in refunding only a sum of Rs. 23,00,000/- out of outstanding amounts to the tune of Rs. 4,15,00,000/- reinstates that the Party was unable and unwilling to refund the whole amount. (vi) Coming back to the issue, it is stated that the numerous facts of dispute between the appellant and Govinda on account of the various businesses claimed to have been secured by Govinda and the various letters of claims filed by Govinda, made the appellant company weary of the recovery of the advance given to Govinda. The appellant was also not sure of its desire to enter into protracted lengthy legal recovery m....
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....m the point of view of the Assessee and that the Income Tax Department cannot enter into the thicket of reasonableness of amounts paid by the Assessee." (vii) Pursuant to such write off, the said loss incidental to the operation of the business was claimed as deduction for computing the profit and loss of the business/profession u/s28 of the Act for the assessment year under appeal. (viii) The aforesaid facts leading the appellant to write off the advance given to Govinda were explained in details before the ld. CIT(A) as well. (ix) As submitted above, thereafter the submission and paper book filed by the appellant before the ld. CIT(A) was forwarded by him to the ld. DCIT/A.O. The appellant thereafter received a notice from the ld. DCIT dated 03.10.2018 seeking information and explanation from itu/s 133(6) of the Act, in connection with the evidences submitted by it before the ld. CIT(A), during the appellate proceedings. Copy of the notice dated 03.10.2018 is enclosed at page 551 of the paper book. INFORMATION SOUGHT U/S 133(6) OF THE ACT. (x) Information as sought by the ld. DCIT vide the notice issued u/s 133(6) of the Act concerning Govinda and the appellant's resp....
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....d the 'Certificate of Enlistment' of the Kolkata Municipal Corporation in the name of the appellant at the Kolkata office (which is also now enclosed at pages 555 to 558 of the paper book). Thus having its Branch office in Kolkata, all the communications received and sent by it to Govinda were all hand delivered. The Receipt Acknowledgement of the letters of the Appellant, as stamped by Govinda were all enclosed by the appellant along with the reply to the ld. DCIT, for her perusal which are now also enclosed at pages 559 to 567 of the paper book. Explanation as to the reason why the evidence submitted before the ld. CIT(A) could not be furnished during the assessment proceedings. The appellant submitted that having it's branch office in Kolkata, most of the documents and correspondences relating to the debtors from Kolkata were all kept in the Kolkata office. During the course of the assessment proceedings before the A.O., however the person of the appellant's office in Delhi dealing with the A.O. was not aware of the correspondences at the Kolkata office, because after 2016, due to disputes with the KMR contract, the Kolkata office was lying closed and defunct. It was only ....
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....itting that the notices u/s 133(6) of the Act had been issued by the ld. DCIT at the end of the year 2018, after a gap of more than four years and that too when there was zero communication of the appellant with Govinda. Thus the notices having gone non replied to in such a scenario, the appellant could not be held responsible. From the perusal of appellant's records and its ITR/Form 3CD/Ledger accounts submitted during assessment proceedings, it is revealed that there is no branch office at Kolkata. The letter head of the appellant showed no branch office with Kolkata address and that the letters from Govinda were addressed to the appellant company at its Delhi address.Not a single letter was found addressed to the appellant's Kolkata branch office. However, during the course of appellate proceedings before the ld. CIT(A), the documents submitted by the appellant showed that it had obtained registration certificate at 216A A.J.C. Bose Road, 2nd Floor, Kolkata - 700017 but it was not mentioned in any correspondence with the parties as well as in the return of income. Hence the appellant's contentions in this regard were not verifiable. The ld. DCIT had clearly admitted that t....
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....e correspondences at the Kolkata office because after 2016, due to disputes with the KMR contract, the Kolkata office was lying closed and defunct. Post 2016, thus there was no correspondences received or issued from the Kolkata office. The office being defunct and the KMR work being totally stalled, there was absolutely no activity between the Delhi office and the Kolkata Branch office. During the assessment proceedings in the year 2017, the person looking after the taxation matter of the Delhi main office was not aware of the correspondences which were exchanged by the parties in the Kolkata office. Only when during the appellate proceedings, the Director of the appellant company came to know of the matter, that the documents were all traced and recovered from the Kolkata office, as he informed the Delhi office of the correspondences between the appellant company and the parties in Kolkata office. In fact it was that since major financial disputes had taken place, that the Director remembered that certain correspondences could be found at the Kolkata office and thus after intensive searching that the file was retrieved from the Kolkata office. With regard to advances given to ....
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....r on 28.08.2020, making the following allegations against the appellant, thus confirming the ld. A.O.'s disallowance of the claim of Write off, of advances given to Govinda. The appellant's Reply to each of the allegations are also submitted hereunder: 1. CIT(A)'s Allegation: That in the Remand Report, the Ld. A.O. mentioned that Govinda did not comply with the notices issued. Appellant's Reply: The appellant in this regard would like to submit (as also submitted in response to the Remand Report) that the ld. CIT(A), completely without any basis stated on the basis of the ld. AO's observation in the Remand Report that Govinda did not reply to the notice issued u/s 133(6) of the Act. The appellant submits that the last transaction between the appellant and Govinda was on 22/10/2014 when, after lots of insistence and follow ups, a refund of Rs. 23,00,000/- was received from them. Pursuant to that, on realizing the futility of recovery of the balances, on 27/03/2015 the balance lying in the account of Govinda Infra was written off as loss incidental to business (evidencing the same, Govinda's ledger account from 01.04.2011 to 31.03.2015 is enclosed at pages 109-112 of the ....
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....of the said letter to be issued by the appellant, however in its own letter head and under its signature. The go ahead having already been given verbally, the appellant did not issue a formal written letter. The said draft so prepared by Govinda however, remained in the possession of the appellant and during the course of the hearing before the ld. CIT(A) inadvertently got submitted before the ld. CIT(A) as such. The appellant further in light of the above submits that the same was very clearly a mistake on the part of the appellant whereby the draft that was prepared by Govinda was inadvertently enclosed in the paper book submitted by the appellant. It was therefore humbly submitted by the appellant both before the ld. AO and the ld. CIT(A) to acknowledge the inadvertent action on the part of the appellant and to excuse the same. The appellant thereafter submits that however, the ld. CIT(A) has completely ignored the humble and honest admission of mistake of the appellant and based on this alleged premise upheld the Ld. AO's disallowance of advance written off. The appellant also submits in this regard that it is pertinent to mention that a perusal of the paper book submitte....
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....roof of correspondence. Accordingly, the abovementioned alleged premise of the ld. CIT(A) for arriving at the conclusion of confirming the ld. A.O.'s disallowance of the claim of Write off, of advances given to Govinda, does not hold good and has no basis to stand. 4. That with regard to the ld. A.O. stating the following in the Remand Report, the ld. CIT(A) further made severalallegations: * The justification given by the appellant regarding letter dated 20.12.2013 (purported to be written by it to its service provider Govinda, using the letter head of Govinda for this correspondence) has no substance in it as the content of the said letter was a mere consent to proceed with the order procurement. Therefore it is beyond comprehension why one party will guide and advise the other party in drafting a simple two line letter and that too under its signature and letter head. * That appellant's contention regarding Kolkata office is not verifiable as from the perusal of appellant's records and its ITR/Form 3CD/Ledger accounts submitted during assessment proceedings it is revealed that there is no branch office at Kolkata. The letter head of the appellant showed no branch office ....
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....12 and 2012-13. Invoice for the business development services would be raised by the Service provider on realization of fees by the Client from the business generated by the Service Provider. Copy of the Agreement dated 02/05/2011 is enclosed at pages 85 to 91 of the paper book. Meanwhile on the request of the Service provider, i.e. Govinda, a sum of Rs. 4,15,00,000/-was given/advanced to it during the course of business as a refundable business advance/deposit. The purpose of advancing such money to the service provider and the conditions thereof, as reduced in writing in the said agreement, are (at the cost of repetition) reproduced below: "III. COMMERCIALS ............... Refundable Advance/Deposit In the interim, on the request of Service Provider, the Client has agreed to pay Rs. 4,15,00,000 (Rupees Four Crore Fifteen Lakh only) as a non-interest bearing and nonadjustable refundable advance/deposit. It is expressly agreed between the parties that amount would be refunded forthwith in case the Service Provider fails to develop business for the client as committed hereinabove by the end of the year. In any case, the advance/deposit are refundable latest by March 31....
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....ed Branch/Work Office of the appellant since the Branch office was not mentioned in the Returns or in the letterhead of the appellant. The appellant in this connection reiterates that nowhere is it a requirement of law that the Branch office of any Company has to be stated in the letter head of the Company. Besides the above, the appellant would like to submit that the ld. CIT(A) pointing out that the letters from Govinda were all addressed to the appellant at its Delhi address was without appreciating that the Kolkata Branch office was in the nature of a Work station, set up for easy coordination in the Metro railways, Kolkata project. The appellant submits that the contract between the appellant and Govinda had nothing to do with the Kolkata Work office. Govinda's dealing was with the appellant company in Delhi, however since it was based out of Kolkata, simply for convenience sake, the letters were received by the appellant in its Kolkata office. Thus this allegation of the ld. CIT(A) that confusion regarding letterhead is also an important pointer to the ambiguity in the nature of the transaction is indeed a very casual statement/allegation which cannot hold any weightage a....
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....s to be accepted, it is in the nature of a commission. The appellant has not brought on record any evidence to suggest that tax was deducted on the said amount. Appellant's Reply: In this regard the appellant would like to submit that the sum advanced by it to Govinda was not in the nature of a commission but was in the nature of a refundable 'advance' as is clear from the Agreement dated 02/05/2011 (copy enclosed at pages 85 to 91 of the paper book), Chapter III (also reproduced above). Commission is a nature of payment which is made after the completion of the work assigned, as an incentive/remuneration for successful completion of such work and is different from 'advance' which is given before completion of the work assigned. Since the appellant had given refundable advance of Rs. 4,15,00,000/- to Govinda (which by no stretch of imagination can be considered as a commission), hence there was no requirement of deducting tax on such payment as has been held in the following judicial pronouncements: The Hon'ble ITAT, Hyderabad in the case of Shri A. Naga Srinivas vs. DCIT, Circle 13(1), ITA No. 944/Hyd/2017 held the following: "10. Even on merits, we find that the advance....
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....enalized by treating the non-recoverability of its advances as non genuine and thereafter treating the write off of such advances as non genuine. In view of the above the impugned alleged premises of the ld. CIT(A) for upholding the ld. A.O.'s disallowance of the claim of Write off, of advances given to Govindahas no basis to stand. 4. (iii) CIT(A)'s Allegation: That it is important to analyze whether payments made to the entity also measures upto the principle of commercial expediency. Various payments were made to Govinda for procurement of business and payment amounting to Rs. 4,15,00,000/- was made on 03/05/2011. Further Govinda was engaged for procuring business for the appellant from various concerns like Metro Railways, Kolkata, Environ Energy Corporation India Pvt. Ltd., AGC Network Ltd. and Walmart India, out of which two concerns are in the nature of PSUs and it is not known how the appellant could take advantage of the tendering process by engaging an entity like Govinda. Most of the public procurements done by such companies are transparent and undertaken through an open competitive bidding process. Similarly Walmart India is a reputed MNC and therefore explanatio....
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....er, for an efficient participation in the bidding of the tender. Further the appellant was earlier only involved in providing manpower security systems and it was venturing into providing electronic security systems for the first time when Govinda was hired as a Service Provider in helping it source more business and tender information in this specific field. Therefore the ld. CIT(A)'s allegation in this regard that it is not known how the appellant could take advantage of the tendering process by engaging an entity like Govinda (when out of concerns like Metro Railways, Kolkata, Environ Energy Corporation India Pvt. Ltd., AGC Network Ltd. and Walmart India, two concerns were in the nature of PSUs and Walmart was a MNC), stands explained from the role of Govinda as a Service Provider, explained above. Further there is no such requirement of law that for participating in tenders of PSUs or MNCs, the help of Service Providers cannot be taken or are not required. It is quite a practice in the service industry to hire Service Providers for successful bidding of tenders as explained above. Having submitted the above with regard to the ld. CIT(A)'s further allegations it is submi....
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....is submitted that - the submissions made above, before Your Honours' along with the documentary evidences under the heading 'Background', amply establish that the advance given to Govinda being written off and claimed as loss incidental to business was wholly and exclusively related to the business of the appellant and that the same was incurred on account of commercial expediency. The said submissions made above may be referred to for the same. Herein it is pertinent to mention that this advance of Rs. 4,15,00,000/- given to Govinda by the appellant on 03/05/2011 was the subject matter of assessment for A.Y.s. 2012-13, 2013-14 and 2014- 15 wherein the efficacy of the advance given to Govinda was never questioned in the previous A.Y.s. Now when the said advance was written off in the assessment year under consideration, it being questioned on the grounds of commercial expediency thereby a ploy by the Department for disallowing the appellant's claim. Also, it is a matter which is in the domain of a business man where considering the commercial expediency of his business, an advance is given in course of his business. The same cannot be questioned by the Department.The Hon'ble ....
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.... Supreme Court of India in the cases of CIT vs. Durga Prasad Moorereported in [1971] 82 ITR 540(SC) and Sumati Dayal reported in [1995] 214 ITR 801 (SC) and pointed out that the Apex Court has held in these casesthat the test of human probability after considering the surrounding circumstances should be applied. Thereafter in light of these decisions the ld. CIT(A) has held that the appellant's explanation fails the test of human probability, without however specifying and/or explaining as to how these decisions are applicable in the appellant's case or how the appellant's explanations fails the test of human probabilities as per these decisions. Further both these decision of Durga Prasad Moore (supra)and Sumati Dayal (supra) are distinguishable on facts from the appellant's case. In the case of Sumati Dayal (supra), the assessee had explained that the credited amounts represent her winnings in races. On facts, it was found that the explanation was unsatisfactory because the assessee had no expertise in races; to accept that a race goer had won jackpot events so many times in a short period of two years, was highly improbable; in the books of account of the assessee, the amoun....
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.... wide-open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. In that context it was held that it is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In light of the above, it is submitted that in the appellant's case the ld. CIT(A) has nowhere alleged that the appellant has executed any document itself or that it has got any document executed in its favour so as to evade tax, as in the case of Durga Prasad Moore (supra). Also no doubtful/suspicious instances have been pointed out by the ld. CIT(A) or no such surrounding circumstances have been pointed out by the ld. CIT(A) which showed that the apparent was not the real on which the test of human probability (as laid down in the case of Durga Prasad Moore (supra)) can be applied to. All the allegations/suspicion of the ld. CIT(A) regarding - notice u/s 133(6) of the Act not being replied to by Govinda, correspondences between the appellant and Govinda being hand delivered in the appellant's Branch Office in Kolkata but address on the letter head being that of the appellant's Delhi offic....
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....pellant's case. Further the complete evidences placed by the appellant before the ld. CIT(A) have not been found to be false but only allegation has been made that transactions are sham, hence the theory of preponderance of probabilities cannot be again invoked by the ld. CIT(A). Moreover it is laid down by the Hon'ble ITAT, Delhi in the case of Brij Bhushan (supra) that the theory of "preponderance of probability' is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side and the conclusions have to be drawn based on certain admitted facts and materials and not based on presumption of facts that might go against assessee. Once nothing has been proved against the assessee with aid of any direct material, then nothing can be implicated against the assessee. In light of the same as in the appellant's case nothing has been proved against it with aid of any direct material, the theory of "preponderance of probability' cannot be applied in the appellant's case. In view of the above the ld. CIT(A)'s alleged premise for upholding the ld. A.O.'s disallowance of the claim of Write off, of advances giv....
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.... claims filed by Govinda, made the appellant weary of the recovery of the advance given to Govinda Infra. The appellant was also not sure of its desire to enter into protracted lengthy legal recovery methods which would involve huge amounts of legal fees and also unfruitful investment of time and effort. Hence the appellant, pursuant to the recovery of only Rs. 23,00,000/- (after total non refund of the advance even after the expiry of the agreed period of time limit being March 31, 2013 and beyond), desirous thus of not pursuing the balance refund and of not carrying forward the unrealizable and dead amounts of advance, decided to write off the same in its books before the year end 2014-15. Accordingly on 27/03/2015, the balance advance of Rs. 3,92,00,000/- lying unpaid in its books of account was written off by the appellant and resultantly the appellant incurred a loss of Rs. 3,92,00,000/- in carrying out the operation of the business. The said action of the appellant shall be evident from the copy of the ledger accounts of the said party in the books of the appellant for F.Ys 2012-13, 2013-14 & 2014-15 placed at pages 109-112 of the paper book. Thus the above sufficiently....
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....e Hon'ble Delhi High Court (jurisdictional High Court) in the case of CIT vs Dalmia Cement (Bharat) Ltd reported in[2002] 254 ITR 377 had held that once it was established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. Relevant extracts of the same are reproduced below: "Under section 37(1) of the Income-tax Act, 1961, the jurisdiction of the Revenue is confined to deciding the reality of the business expenditure, viz., whether the amount claimed as a deduction was factually expended or laid out and whether it was wholly and exclusively for the purpose of the business. It must not, however, suffer from the vice of collusiveness or colourable device. The reasonableness of the expenditure could be gone into only for the purpose of determining whether, in fact, the amount was spent. Once it is established that there was a nexus between the expend....
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....curity guards are placed at pages 113-152 of the paper book. (ii) The Order was for 5250 pieces of Complete Uniform comprising of Shirt, Trouser, Belt and Cap at Rs. 2000/- per set. Also 2625 number of shoes at the rate of 480 was ordered. Thus a total Purchase Order (after discount) of Rs. 1,17,50,000/- was drawn up. A complete list of such caretakers including the Site/Tower Number, the Site/Tower Name and the Caretaker's name who manned the said site whose uniforms were to be made were also provided with the PO and the same can be seen at pages 114-152of the paper book. (iii) The Purchase Order, laying down the Terms and Conditions of the Purchase/ Supply, laid out that against such order of Purchase, 100% advance would be given in as much the uniforms required immediate investment in the materials and also the uniforms being tailor made specific to each caretaker, the payment was all to be made in advance. With regard to defective material it was clearly laid out that "Any material which is found defective due to manufacturing defects/not as per specifications, will be notified to you within 15 days from the receipt at site, will be rejected and the same will be replaced ....
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....ressing displeasure to the rejection, however promised the appellant of changing the fabric and they assured the appellant of completing the Order as per specifications. Further advance for procurement of other materials as per the Order was requested and the same was also advanced by the appellant in good faith. The appellant company was concerned about the proper execution of the Order and the same was expressed to Linton vide letters dated 05/12/2011 and 15/12/2011. Copy of the said letters are enclosed at pages 168 and 169 of the paper book. (vi) However, suddenly on 13/06/2012, when an advance of Rs. 1,11,50,000/- was all made to Linton, vide its letter dated 13/06/2012 Linton intimated the appellant that it had suffered a loss of Rs. 25,00,000/- on the disposal of the rejected fabric and it was thus requested by them to the appellant to increase the Contract value by Rs. 25,00,000/- (Copy enclosed at page 170 of the paper book). Vehemently opposing to the abovementioned, the appellant company immediately vide its letter dated 25/06/2012 informed Linton that they were in no way liable for any loss that Linton may suffer due to its own negligence. It was also informed to Li....
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....ppellant company was consequently forced to write off, as on 27/03/2015 before closing the books for the said year, the entire advance lying unpaid in its books of account and resultantly incurred in the said year, a loss of Rs. 1,17,50,000/- in carrying out the operation of the business. The Ledger account of Linton is enclosed at pages 153-157 of the paper book. It is to be noted here that the appellant all along, having paid the huge sums of Rs. 1,11,50,000/- was hopeful that the Order would be completed. Only during the year under assessment being theF.Y.2014-15 did the appellant realize that inspite of repeated correspondences and pressures, the money was irrecoverable and only then the write off was done. (ix) Accordingly, the said loss incidental to the operation of the business was claimed as deduction for computing the profit and loss of the business/profession u/s28 of the Act for the assessment year under appeal. (x) Before concluding on the said topic, bringing out the action of the ld. A.O., it is stated that the ld. A.O. in his assessment Order (referring to said transaction) has stated that in the said account there was opening debit balance of Rs. 1,11,50,000/....
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....per book. The ld. DCIT sought an explanation as to the reason why the evidence submitted before the ld. CIT(A) could not be furnished during the assessment proceedings. The appellant submitted that having it's branch office in Kolkata, most of the documents and correspondences relating to the debtors from Kolkata were all kept in the Kolkata office. During the course of the assessment proceedings before the A.O., however the person of the appellant's office in Delhi dealing with the A.O. was not aware of the correspondences at the Kolkata office, because after 2016, due to disputes with the KMR contract, the Kolkata office was lying closed and defunct. It was only during the Appellate proceedings, when the Director of the Company came to know of the matter, that the documents were all traced and recovered from the Kolkata office. Hence for this reason the evidences submitted before the ld. CIT(A) could not be furnished during the assessment proceedings. REMAND REPORT AND ISSUES RAISED: (xiii) Pursuant to the above, the ld. DCIT provided specific comments and raised queries as well, in a Remand Report dated 15.11.2018 forwarded to the ld. CIT(A), accompanied by a covering l....
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.... office. Howeverduring appellate proceedings before the ld. CIT(A), the documents submitted by the appellant showed that it had obtained registration certificate at 216A A.J.C. Bose Road, 2nd Floor, Kolkata - 700017 but it was not mentioned in any correspondence with the parties as well as in the ROI. The ld. DCIT had clearly admitted that the documents submitted by the appellant during the appeal proceedings did show that it had obtained registration certificate at 216A A.J.C. Bose Road, 2nd Floor, Kolkata - 700017. Further the "Certificate of Enlistment" of the Kolkata Municipal Corporation in the name of the appellant showed the said address in Kolkata which clearly proved beyond any doubt that indeed the appellant has a Branch (Work) office in Kolkata. Thereafter, the statement of the ld. DCIT that the said fact still remained unverified was indeed a very casual statement which could hold any weightage at all. Further it was submitted by the appellant that nowhere is it a requirement of law that the Branch office of any Company has to be stated in the Returns, in the accounts, in the letter head or in the letters of the Company. The appellant also submitted that the ld. DC....
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....he parties in Kolkata office. Infact it was that since major financial disputes had taken place, that the Director remembered that certain correspondences could be found at the Kolkata office and thus after intensive searching that the file was retrieved from the Kolkata office. That Linton was given an advance of Rs. 1,00,00,000 on 28.06.2010. On 21.09.2010, Linton while acknowledging receipt of advance informed the appellant that it had duly set up the required infrastructure for the preparation and delivery of order. Thus it was to be noted that such a huge order with 100% advance payment was placed with a party which did not even possess the required infrastructure. The ld. DCIT travelled beyond her scope of investigation wherein she was questioning the terms and conditions of the Contract and the viability of the same especially when the basic facts of the case including the ledger account of the party was all before her for examination. The appellant submitted that the contract being evidenced by a proper Purchase Order laying down in black and white the terms of the same, there was no reason to look beyond what was laid out and followed. The appellant submitted that ever....
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....hat no delivery was made by Linton which infact supports the facts of the appellant's case that indeed the party was failing its commitments and thus the fact of the appellant that the amount advanced was in all surety irrecoverable stands confirmed. The appellant further submitted that the ld. DCIT pointed out to the fact that inspite of non delivery and empty promises, the appellant kept making the payments to Linton, ignoring the fact that the same were all made in good faith and with the honest belief that Linton would fulfil its obligations. The appellant submitted before the ld. CIT(A) that each and every complaint and promise was all supported by ample exchanges between the parties and were all put before him for perusal. The payments were all made after repeated requests and promises by the party and the entire detailed exchanges had all been explained before the ld. CIT(A) and the ld. DCIT relying upon the same was misinterpreting the same in her vain effort to prove that the transactions were all not genuine. That Linton Distributors Pvt. Ltd. shared the same address as that of Govinda Infraproperty Pvt. Ltd., with similar kind of disputes. That the ld. DCIT without ....
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.... address cannot lead to drawing of an adverse conclusion against the appellant. In view of the above, the ld. CIT(A)'s alleged premise for confirming the ld. A.O.'s disallowance of the claim of Write off, of advances given to Linton has no basis to stand. 2. CIT(A)'s Allegation: That 100% advance was paid on 10.05.2010 amounting to Rs. 1,17,50,000/- and as per ld. A.O.'s Remand Report, the payment was made to an entity which did not possess the necessary infrastructure to execute the order and did not have proven capacity. Appellant's Reply: In this regard it is submitted by the appellant that the Order having been placed with Linton and evidenced by the Purchase Order, the payments having been made by the appellant vide the regular banking channels, all evidenced by supporting communications, the commercial intelligence of the appellant is being unnecessarily questioned by the ld. CIT(A) by alleging that payment was made to an entity which did not possess the necessary infrastructure to execute the order and did not have proven capacity. Further infrastructure for the purpose of supplying uniforms and shoes to the appellant involved hiring/appointing tailors and kariga....
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....r book).The Order was for 5250 pieces of Complete Uniform comprising of Shirt, Trouser, Belt and Cap at Rs. 2,000/- per set. Also 2625 pair of shoes at the rate of Rs. 480/- per pair was ordered. Thus a total Purchase Order (after discount) of Rs. 1,17,50,000/- was drawn up. A complete list of such caretakers including the Site/Tower Number, the Site/Tower Name and the Caretaker's name who manned the said site whose uniforms were to be made were also provided with the Purchase Order (PO) and the same can be seen at pages 114-152 of the paper book. The Purchase Order, laying down the Terms and Conditions of the Purchase/Supply, laid out that against such order of Purchase, 100% advance would be given in as much the uniforms required immediate investment in the materials and also the uniforms being tailor made specific to each caretaker, the payment was all to be made in advance. Infact it is an industry norm that for stitching of uniforms/shoes etc which are specific to the measurement of every individual and if not accepted/used goes bad/useless leading to a loss as the same set cannot be used for another individual (being specific to the measurement of the concerned individual....
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.... brought out in the Theory of Human Probability as laid down in CIT vs. Durga Prasad (1971) 82 ITR 540 (SC), [Sumati Dayal vs. CIT (1995) 214 CTR 124; 80 taxman 89 (SC)], are equally applicable to the factum of transaction. Appellant's Reply: In this regard the appellant would like to submit that the ld.CIT(A) has referred to decisions of the Hon'ble Supreme Court of India in the cases of CIT vs. Durga Prasad Moorereported in [1971] 82 ITR 540(SC) and Sumati Dayal reported in [1995] 214 ITR 801 (SC) and stated that these decisions are equally applicable to the factum of transaction of the appellant, without however specifying and/or explaining as to how these decisions are applicable to the facts of appellant's case or how the appellant's explanations fails the test of human probabilities as per these decisions. Further both these decision of Durga Prasad Moore (supra) and Sumati Dayal (supra) are distinguishable on facts from the appellant's case. In the case of Sumati Dayal (supra), the assessee had explained that the credited amounts represent her winnings in races. On facts, it was found that the explanation was unsatisfactory because the assessee has no expertise in ra....
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....uld be left wide-open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. In that context it was held that it is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In light of the above, it is submitted that in the appellant's case the ld. CIT(A) has nowhere alleged that the appellant has executed any document itself or that it has got any document executed in its favour so as to evade tax, as in the case of Durga Prasad Moore (supra). Also no doubtful/suspicious instances have been pointed out by the Ld. CIT(A) or no such surrounding circumstances have been pointed out by the ld. CIT(A) which showed that the apparent was not the real on which the test of human probability (as laid down in the case of Durga Prasad Moore (supra)) can be applied to. All the allegations/suspicion of the Ld. CIT(A) regarding - Linton having no infrastructure or experience in supplying to the appellant the uniforms and shoes, 100% advance being paid to Linton without delivery of any items, Govinda and Linton both sharing the same address or payments to them bein....
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....e false but only allegation has been made that transactions are sham, hence the theory of preponderance of probabilities cannot be again invoked by the Ld. CIT(A). Moreover it is laid down by the Hon'ble ITAT, Delhi in the case of Brij Bhushan (supra) that the theory of "preponderance of probability' is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side and the conclusions have to be drawn based on certain admitted facts and materials and not based on presumption of facts that might go against assessee. Once nothing has been proved against the assessee with aid of any direct material, then nothing can be implicated against the assessee. In light of the same as in the appellant's case nothing has been proved against it with aid of any direct material, the theory of "preponderance of probability' cannot be applied in the appellant's case. In view of the above the ld. CIT(A)'s alleged premise for upholding the ld. A.O.'s disallowance of the claim of Write off, of advances given to Lintonhas no basis to stand. C. M/S. OM SAI ASSOTECH PVT. LTD. (OM SAI) -ADVANCE WRITTEN OFF Rs. 1,56,77,731/....
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.... Sai and had also made payments towards statutory dues for OM Sai, a few of which are listed as below: - One of the vendors of OM Sai, M/s Smart Project, addressed a letter dated 31/03/2013 to Environ regarding release of payment of Rs. 8.58lakhs + TDS towards fuelling services for the cell sites in West Bengal stating that they have been engaged by the appellant through OM Sai. Pursuant to the said, Environ Energy accordingly made the said payment to M/s Smart project and deducted the said amount from the amount payable to the appellant. - Environ Energy was receiving mails and reminders from sub-contractors M/s Teletech and Vodafone being the vendors supplying their services to OM Sai, asking Environ Energy to clear the payments towards services provided to OM Sai. Thus Environ was facing constant pressures from vendors and subcontractors who had provided services to OM Sai. - OM Sai was constantly executing settlement agreements with its sub-contractors, Teletech, Ringo Services, etc and requesting the appellant company to make the payment on its behalf, which would be adjusted in the payments to be made by the appellant to OM Sai against the LOA. - The appellant and a....
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....ich was discharged by it. Emails were sent requesting OM Sai to come forward and hold a meeting to settle the accounts between the parties. Copy of the emails are enclosed at pages 200-210 of the paper book. (ix) However, OM Sai failed to hold any discussions for settlement of accounts and in fact made false allegations of acting unreasonably on the appellant company. (x) Eventually, since OM Sai failed and neglected to settle the account and to refund the excess amount towards deductions proposed by Environ Energy, the appellant was constrained to address a final Demand Notice dated 01.04.2014 to OM Sai, calling upon it to make a payment of Rs. 1,56,64,000/- towards the excess amount towards deductions proposed by Environ Energy. Copy of the said Demand Notice is enclosed at pages211-213 of the paper book. (xi) However OM Sai, instead of making the payments towards the legitimate demands raised by the appellant, sent a reply dated 08.04.2014(copy enclosed at pages 214-215 of the paper book)making false and baseless averments about being entitled to claim an amount of Rs. 9,30,10,552/- from the appellant. (xii) Thus the appellant in the light of the above facts, filed on 28....
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....the appellant had submitted documents related to suit filed in the High Court of Delhi vide petition dated 28/08/2014 for recovery of the excess payments made. However, the appellant had written off the amount due in the same F.Y. 2014-15 without waiting for even the initiation of legal proceedings. It can be seen that the ld. DCIT had accepted that the contract with OM Sai was genuine and had however raised doubts on the decision of the appellant company to write off the said amount without waiting for initiation of legal proceedings on the Suit filed on 28/08/2014before the Hon'ble Delhi High Court. The appellant submitted before the ld. CIT(A) in connection to the above that the ld. DCIT had totally failed to consider all the events which led to the filing of the Suit by the appellant and also the immediate events that followed the filing of the said Suit which prompted the action of the appellant in writing off the said due balances from the said party. By submitting the same, the appellant reproduced and explained the numerous events and correspondences that led to the filing of the Suit by the appellant company, followed by OM Sai filing a counter claim before the Hon'ble ....
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.... matter was likely to go through protracted litigation involving huge costs and harassment, took the decision to write off the amount in its books. CIT(A)'s ALLEGATIONS and APPELLANT's RESPONSE (xix) As has already been submitted above, pursuant to the appellant's submissions made before the ld. CIT(A) and the Reply filed before the ld. CIT(A) in response to the ld. DCIT's comments concerning OM Sai in the impugned Remand Report, the ld. CIT(A) without paying heed to any of such submissions, explanations and evidences filed before him at the appellate stage, finally passed the Appellate Order on 28.08.2020, making the following allegationsagainst the appellant, thus confirming the ld. A.O.'s disallowance of the claim of Write off, of advances given to OM Sai. The appellant's Reply to each of the allegations are also submitted hereunder: CIT(A)'s Allegations: The ld. CIT(A) has alleged that since the appellant had filed suit for recovery before the Hon'ble Delhi High Court which is pending, deduction of the 'advances written off' claimed by the appellant, without waiting for outcome of the legal proceedings is premature as the transaction is still the subject matter of litig....
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....en off by the appellant are refunded to the appellant or a part of it is refunded, the same shall be offered to tax by the appellant as 'income' in its ROI in that concerned Assessment Year. However that does not bar the appellant from writing off these advances and claiming the written off amount as a deduction, since as per the prevailing situation and circumstances, the advances on becoming non recoverable, it was only justified that they were written off. It is further submitted in this regard that the ld. CIT(A) relying on the decision in the case of Paragon Constructions (I) Pvt. Ltd. vs. CIT [2005] 274 ITR 413 (Delhi) which followed the decision of the Supreme Court in CIT vs. Hindustan Housing and Land Development Trust Ltd. [1986] 161 ITR 524 (SC), stated that the ratio of this decision is that in respect of damages for breach of contract, it is established law that such damages arises only when it is either accepted by the other party or decreed by the competent court. He also stated that an award by the arbitrator may stand on a same footing like the court award and in either case when the award is not accepted but is the subject matter of further appeal, a part paymen....
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.... under consideration, i.e. A.Y. 1992-93. Before appeal was preferred before the Tribunal, the High Court decided the issue in favour of Paragon Constructions during the financial year that ended on 31st March, 1995. Paragon Constructions offered the principal sum awarded, namely, Rs. 33,45,669 and interest accrued thereon totalling to Rs. 61,46,020 for tax for the A.Y. 1995-96 and these amounts were duly brought to tax in the previous year relevant to A.Y. 1995-96. The Tribunal, however, held that since Paragon Constructions was following the mercantile system, it was liable to pay tax on the interest which was earned by it in the relevant year (i.e. A.Y. 1992-93) and not in the year of determination by the High Court (i.e. A.Y. 1995-96). On appeal before the Hon'ble Delhi High Court, the counsel for the Revenue submitted that in view of the Supreme Court decision in Babulal Narottamdas & Ors. v. CTT , the interest which was earned by Paragon Constructions was required to be charged in the relevant year (i.e. A.Y. 1992-93) and not on the date when the Court made the order finally (i.e. A.Y. 1995-96). However the Hon'ble Delhi High Court held that in that case (Babulal Narotta....
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.... on furnishing of a bank guarantee (on the condition that if NDMC succeeds, Paragon Constructions shall refund the amount to NDMC along with interest) OR II. Whether the said interest would be taxed in the yearthe Court finally decided the issue of dispute (about implementation of the contract between Paragon and NDMC in time and the default committed by NDMC) in favour of Paragon Constructions i.e. during the financial year that ended on 31st March, 1995 and the amount of damages stood granted to Paragon Constructions finally, without any conditions. The Hon'ble Delhi High Court in the above factual backdrop held that the said interest that accrued on the damages received by Paragon Constructions from NDMC, which was fixed deposited in the bank, would be taxed in the year the Court finally decided the issue of dispute (about implementation of the contract between Paragon and NDMC in time and the default committed by NDMC) in favour of Paragon Constructions i.e. during the F.Y. 31st March, 1995 and the amount of damages stood granted to Paragon Constructions without any conditions. Thus the case of Paragon Constructions (supra )involved the issue as to which would be the ye....
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....is has been held by the Hon'ble Supreme Courtof India in the case of Badridas Daga vs. CIT reported in (1958) 34 ITR 10 (SC)by holding as under- "Loss resulting from embezzlement by an employee or agent in a business is, however, admissible as a deduction under section 10(1) of the Indian Income-tax Act, if it arises out of the carrying on of the business and is incidental to it. It makes no difference in the admissibility of the deduction whether the employee occupies a subordinate position in the establishment or is an agent with large powers of management. It is a question turning on the facts of each case whether the embezzlement in respect of which deduction is claimed took place in the carrying on of the business." In view of the above the impugned alleged premises of the ld. CIT (A) for upholding the ld. A.O.'s disallowance of the claim of Write off, of advances given to OM Sai has no basis to stand. D. METRO RAILWAYS, KOLKATA (KMR) - ADVANCE Rs. 71,21,635/-: Herein firstly the appellant would like to submit that for confirming the disallowance of appellant's claim of write off, of advance given to KMR, the ld. CIT(A) made various allegations against the appellant. B....
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.... in continuation of the previous letter giving in details the description of works, units, quantities, etc.Copy at page 278-284 of the paper book. (iv) However, after a delay of almost four months from the date of issuance of the Letter of Acceptance, a Memorandum of Agreement dated 03/06/2011 ("MOA") was finally executed between the appellant and KMR whereby the appellant's scope of work included supply, installation, commissioning of Internet Protocol based Surveillance System, Personal and Baggage Screening System and Explosive Detection and Disposal System at 23 Metro Railway Station premises and Metro Rail Bhavan. The appellant was to maintain equipment at all locations as specified by KMR. The said contract would require deployment of manpower in the number of 145 personnel. Copy of the said MOA is enclosed at pages 285-289 of the P/B. The payment terms were as follows: (i) The KMR was to pay 70% of the value of supply against physical receipt of material in good condition in Railways store; (ii) The KMR was to pay 10% of the value of supply and 80% of the value of installation in commissioning after successful installation; (iii)The KMR was to pay 10% of the value ....
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....ages 290-294of the paper book. The appellant however was still to receive a response from KMR, without which it could not get necessary clearance to begin with the vital security equipment. The foregoing also resulted in failure of the appellant to utilize various listed materials because the KMR failed to release dispensation of overseas inspection under the provisions of the tender document, despite requests to this effect, being made by the appellant. (x) Surprisingly however, despite the considerable delays attributable to KMR, the appellant was shocked to receive a SCN dated 01/03/2014 from KMR in connection with the alleged delay of the appellant to complete the work within the extension. Copy of the same is enclosed at pages 295-299 of the paper book A detailed Reply dated 10/03/2014was sent by the appellant, copy of which is enclosed at pages 300- 331 of the paper book. (xi) As the situation was reaching a deadlock, the appellant in all earnestness and to demonstrate its bona fides, as also with a view to recover its dues (which were still not paid), engaged with KMR and began seeking release of due payments and to try and chart a course for the future of the proj....
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....art of KMR. Copy enclosed at pages 339-343 of the paper book. (xvi) KMR however paid no heed to such reply and issued another notice dated June 25, 2015 stating that it is serving the 48 hours' notice on the appellant and thenceforth the contract shall stand rescinded. Copy enclosed at pages 344-345 of the paper book. (xvii) Immediately thereafter another notice dated July 9, 2015 was served upon the appellant by KMR that since the 48 hours' notice had expired, the following would happen(copy enclosed at pages 346 - 347 of the paper book): - contract shall stand rescinded with immediate effect in terms with clause 62 of General Condition of Contract - the balance work will be carried out without the participation of BCL and - the Tender Security Deposit shall be forfeited and the Performance Bank Guarantee shall be encashed. In view of the above it is clearly understandable that in order to cover up its own failures and omissions, KMR invoked the extreme measure of terminating the MOA which is disputed by the appellant, of forfeiting the tender security deposit and also encashing the BG. (xviii) KMR instead of invoking the arbitration clause had shifted onus of its pe....
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.... subject to the exclusive jurisdiction of Indian Courts at the place from where the Purchase Order has been placed. 69.3 Foreign companies, operating in India or entering into Joint Venture in India, shall have to obey the law of the land and there shall be no compromise or excuse for the Ignorance of the Indian legal system in any way." Since the appointment procedure is to be governed by the GCC in terms of 64(3)(a)(ii) which reads as follows: "64.(3) (a)(ii) In cases not covered by the Clause 64(3)(a)(i), the Arbitral Tribunal shall consist of a Panel of three Gazetted Railway Officers not below JA Grade or 2 Railway Gazetted Officers not below JA Grade and a retired Railway Officer, retired not below the rank of SAG Officer, as the arbitrators. For this purpose, the Railway will send a panel of more than 3 names of Gazetted Railway Officers of one or more departments of the Railway which may also include the name(s) of retired Railway Officer(s) empanelled to work as Railway Arbitrator to the contractor within 60 days from the day when a written and valid demand for arbitration is received by the GM. Contractor will be asked to suggest to General Manager at least 2 names ....
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....MR had been misusing its superior position and had attempted to enforce conditions which were adverse to the appellant. (xx) Next, in view of the neglect and/or wrongful refusal of KMR to appoint an arbitrator in terms of the said agreement, the agreed procedure between the parties failed and an Application was made by them before the Hon'ble Calcutta High Court u/s 11 of the Arbitration and Conciliation Act, 1996, for appointment of an arbitrator. (xxi) The said Application wa s disposed off, by the Hon High Court vide Order dated 29/06/2016 whereby the Hon'ble High Court directed KMR to take a decision for nomination in terms of Clause 64(1)(i) of the contract within a period of 120 days. (xxii) KMR inspite of the said Order failed and neglected to comply with the directions of the High Court's Order dated 29/06/2016. Several communications dated 14/10/2016, 15/11/2016 and 15/12/2016 to this effect were exchanged. Copies of the letters are enclosed at pages 368-373 of the paper book. (xxiii) Thus again Application was made by the appellant u/s 11 of the Arbitration and Conciliation Act, 1996, (AP 52 of 2017) pursuant to which, by an Order dated 15th February, 2017the Ho....
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.... (xxx) Thus in view of the above it was the contention of the appellant that KMR had committed contempt of the orders of this Hon'ble Court and was accordingly liable to be dealt with in accordance with law for the aforesaid contumacious acts and conduct. (xxxi) Thus the appellant-company ultimately filed on 30/04/2018 vide C.C.No.21 of 2018 (A.P.No.374 of 2017) a Contempt Case before the Hon'ble Calcutta High Court. A copy of the said Contempt Suit is enclosed at pages 385-504 of the paper book. It was stated therein that the Contemner (KMR) should be held guilty of Contempt of Court and be suitably punished by imposition of fine and/or by imprisonment in civil prison for an appropriate term as this Hon'ble Court may deem fit and proper. (xxxii) The abovementioned detailed facts were also submitted by the appellant before the ld. CIT(A). REMAND REPORT AND ISSUES RAISED: (xxxiii) Pursuant to the above, the ld. DCIT provided specific comments and raised queries as well, in a Remand Report dated 15.11.2018 to the ld. CIT(A), accompanied by a covering letter of the Additional Range Head. Copy of the Remand Report is enclosed at pages 578 to 582 of the paper book. A copy of t....
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..... Hindustan Housing & Land Development Trust Ltd. reported in (1986) 161 ITR 524 (SC). Appellant's Reply: In this regard the appellant would firstly like to submit thatthe ld. CIT(A) has not disbelieved the advances (in the form of retention security deposit) made by the appellant to Metro Railways, Kolkata (KMR) during the course of its business and entirely for the purpose of running its business.The ld. CIT(A) has also not disputed the fact of non-recovery of the said retention security deposit during the relevant Assessment Year. It is that the ld. CIT(A) has alleged that the claim of write off, of the said non recoverable advance (in the form of retention security deposit) has not crystallized during the relevant Assessment Year owing to the appellant having filed a case of contempt against KMR before the Hon'ble Calcutta High Court which is still sub judice. In this connection it is firstly submitted that there is no such law which prohibits writing off, of non recoverable advances/deposits and claiming deduction of the same if the transaction is pending adjudication before a Court or is sub judice. Besides, it is pertinent to mention that KMR in order to cover its ....
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....come of the case of contempt pending before the Hon'ble Calcutta High Court. It is further submitted in this regard that the ld. CIT(A) held that his decision of upholding the Ld. AO's disallowance of the appellant's deduction claimed on account of retention security deposit written off, is in line with the Hon'ble Supreme Court of India's decision in the case of CIT vs. Hindustan Housing and Land Development Trust Ltd. [1986] 161 ITR 524 (SC). However the said decision it distinguishable on facts from the appellant's case and hence cannot be relied upon for this purpose. In this connection it is submitted that the FACTS of the decision of Hindustan Housing (supra) is that the assessee (Hindustan Housing), a company dealing in land maintained its accounts in the mercantile system. By an order dated June 21, 1946 under Defence of India Rules read with Defence of India Act, 1939 certain plots of land measuring about 19.17 acres in village Kankulia in the District of 24 Parganas and belonging to Hindustan Housing, were requisitioned by the Government of West Bengal. Subsequently the land was acquired permanently in the State Government under s. 5, Requisition of Land (Continuance ....
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....appeal accordingly by its order dated February 22, 1964. At the instance of the Revenue, the Appellate Tribunal referred the question of law set out earlier to the Calcutta High Court for its opinion, and by its judgment dated January 9, 1973 the High Court answered the question in favour of the assessee and against the Revenue. Thereafter the Revenue was is appeal before the Hon'ble Supreme Court of India and the following issue was involved in the said appeal: ISSUE:Whether the Revenue can claim that the sum of Rs. 7,24,914/- payable to the assessee (Hindustan Housing) as compensation can be said to have accrued to it as income during the previous year ended March 31, 1956 relevant to the A.Y. 1956-57. DECISION:Several decisions were relied on which held that it was on the final determination of the amount of compensation that the right to such income in the nature of compensation would arise or accrue and till then there was no liability in present in respect of the additional amount of compensation claimed by the owner of the land. The Apex Court thus held in the case of Hindustan Housing (supra): * That there was a clear distinction between cases such as the assess....
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....ount of compensation payable to the assessee, the entire amount was in dispute in the appeal filed by the State Government and during this period of pendency, assessee was not permitted to withdraw the sum of Rs. 7,36,691 deposited by the State Government on April 25, 1956 without furnishing a security bond for refunding the amount in the event of the appeal being allowed. There was no absolute right to receive the amount at that stage. Whereas in the appellant's case the retention security deposit of Rs. 71,21,635/- was to be deducted by Metro railways, Kolkata at the rate of 10% from the bills raised on it as and when they were raised. Ledger copy for such security deposit with Metro Railways, Kolkata in the books of the appellant can be seen at pages 505-509 of the paper book. Thus in the appellant's case, the appellant having completed 90% of the work, its right to receive the retention security deposit (deducted by Metro Railways, Kolkata on the bills raised on it) had accrued and become absolute and crystallized during the relevant Assessment Year itself. It is not dependant on the outcome of the case of contempt and hence deduction claimed on write off, of the said retenti....
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....lusively for the purpose of the business. In the case of the appellant, as explained above, these two conditions are undisputedly well existed, entitling it to adjust the loss occurred in relation to the operation of business with its income as per provisions of section 28 r.w. section 37 of the Income Tax Act, 1961. In view of the above facts of the case of the appellant, it places reliance on the following authorities, the ratios of which are squarely applicable to the facts and circumstances of the appellant's case. * Badridas Daga vs. CIT (1958) 34 ITR 10 (SC): According to this decision, in assessing the amount of profits and gains liable to tax, one must necessarily have regard to the accepted commercial practice that deduction of such expenses and losses is to be allowed, if it arises in carrying on business and is incidental to it. It was held as under: "While section 10(1) of the Indian Income-tax Act, 1922, imposes a charge on the profits or gains of a business, it does not provide how these profits are to be computed. Section 10(2) enumerates various items which are admissible as deductions but they are not exhaustive of all allowances which could be made in ....
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....d allowable as business expenditure. This is what has been held by the Hon'ble Supreme Court in the case of Badridas Daga vs. CIT (supra) by holding as under- "Loss resulting from embezzlement by an employee or agent in a business is, however, admissible as a deduction under section 10(1) of the Indian Income-tax Act, if it arises out of the carrying on of the business and is incidental to it. It makes no difference in the admissibility of the deduction whether the employee occupies a subordinate position in the establishment or is an agent with large powers of management. It is a question turning on the facts of each case whether the embezzlement in respect of which deduction is claimed took place in the carrying on of the business." * CIT vs. Mysore Sugar Co. Ltd. (1962) 46 ITR 649 (SC) In this case, the assessee, a sugar manufacturer, gave seedlings, fertilizers and money in advance to sugarcane growers to be adjusted towards price of sugarcane to be supplied latter. The assessee incurred loss for non-delivery of sugarcane and the said loss was allowed as trading loss and not as a capital loss. For better appreciation, the finding of the Hon'ble Supreme Court is reproduc....
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....he loss is incidental to it as, without the business operation and doing all that is incidental it it, no profit can be earned. The relevant portion of the judgement is quoted below: "It is to be remembered that the direct and proximate connection and nexus must be between the business operation and the loss. It goes without saying that a businessman has to keep money either when he gets it as sale proceeds of the stock-in-trade or for disbursement to meet the business expenses or for purchasing stock-in-trade and if he loses such money in the ordinary course of business, the loss is a deductible trading loss. It is immaterial whether the money is a part of the stock-in-trade, such as, of a banking company or a money-lender, or is directly connected with the other business operations. The risk is inherent in the carrying on of the business and is either directly connected with it or incidental to it." * Mohan Meakin Ltd. vs. CIT (2012) 348 ITR 109 (Del) The facts before the Hon'ble jurisdictional High Court were that the assessee was dealing in leather products and had made advance payments for import of materials to a supplier in the U.S.A. The advances were not adjusted o....
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....uo moto disallowance of Rs. 1,418/- offered to tax by the appellant as per Rule 8D(2) of the Income Tax Rules, 1962, which has been further upheld by the Ld. CIT(A). In this connection the appellant would like to submit that the Ld. AO for the purpose of computing disallowance u/s 14Aof the Income Tax Act, 1961 r/w Rule 8D(2) of the Income Tax Rules, 1962attributed disallowance of Rs. 87,234/- as per Rule 8D(2)(ii)(where the proportionate interest expense is worked out on the basis of a prescribed formula - Interest Expense*Average Investment/Average Assets) and Rs. 1,01,604/- as per Rule 8D(2)(iii) of the Income Tax Rules, 1962 (which provides for attribution of 0.5% of the dividend yielding average investments). Thereafter it is submitted that for the purpose of computing proportionate expenses as per Rule 8D(2)(ii) of the Income Tax Rules, 1962 by applying the prescribed formula of Interest Expense*Average Investment/Average Assets, the Ld. AO has computed proportionate interest at a figure of Rs. 87,234/-. However the exempt dividend income of Rs. 6,525/- being earned from the investment in shares of LIC Housing Finance Corporation Ltd. which stood at a figure of Rs. 2,83,5....
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....Khaitan, learned Senior Counsel appearing for the assessee submitted that the judgment in the case of Dhanuka & Sons has no manner of application to the facts and circumstances of this case. In that case, the assessee was unable to produce any material before the authorities showing the source from which the shares were acquired. He contended that no such finding has been recorded by the Assessing Officer in this case. The Assessing Officer, as a matter of fact, did not record his dissatisfaction with the correctness of the claim made by the assesssee. Therefore, the judgment cited by Mr. Bhowmick has not manner of application. We have considered the rival submissions and are of the opinion that on the basis of the judgment cited by Mr. Bhowmick, it cannot be said that the appeal raises any question or substantial question of law. The appeal is, therefore, not admitted and is, consequently, dismissed." Hence, the investment which gave rise to the dividend of Rs. 6,525/- in the relevant Assessment Year being the shares of LIC Housing Finance Corporation Ltd. which stood at a figure of Rs. 2,83,563/- both as on 31.03.2015 and 31.03.2014, disallowance u/s 14A r/w Rule 8D(2)(iii) of ....
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....lue that service provider would generate for the assessee. In the agreement itself it was agreed by the service provider that it would generate business of Rs. 50 crore per year in the Financial Years 2011-12 and 2012-13 each and the invoice for the business development service would be raised by the service provider on realization of fees by the client from the business generated by the service provider. However, the service provider has requested for interim sum of Rs. 4,15,00,000/- during the course of business as a refundable business advance /deposits, but thereafter there arose a dispute with the said party as assessee claimed that sufficient efforts were not made the said party for bringing the business and most of the efforts was made by the assessee. The nature of disputes along with various documentary evidences and the submission has been filed and discussed in the foregoing paragraphs with regard to each and every business development arrangement with Govinda Infraproperty. Nowhere has it been disputed that such an advance was not given nor it has been found that it was not a genuine transaction. The only reason given by ld. CIT (A) is that why such an advance was given....
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....r. The assessee in pursuance of such purchase order had paid amount of Rs. 1 crore for which there is no dispute by the lower authorities. Thereafter from various exchange of letters and continuous update from the said party for the progress of orders as there was delay and concern over the status of the order, it is seen that certain disputes has arisen between the parties which has been explained from the exchange of letters placed in the paper book as incorporated above. It is also not in dispute that the Linton has also acknowledged the amount of Rs. 1,05,00,000/-. Further, it was found that the fabrics so procured by Linton was not to the specification of the appellant and were sub-standard, and there further dispute to the supply of materials with regard to the quality and the Linton has also made a counter claim of loss of Rs. 25 lacs. It then requested to increase the contract value by the said amount which was immediately opposed. The factum of the transaction and the dispute between the parties has been discussed in detail which was for more than four years and no work was done on the said order and accordingly the order was terminated resulting into loss to the assessee.....
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.... of process of execution of the contract, payment was made by the assessee-company and Environ Energy to the sub-contractors and vendors of Om Sai and has also made payments towards statutory dues which has been incorporated above. Various invoices were also raised from time to time by the Om Sai for the settlement of the said amount based on invoices and payments aggregating to Rs. 468.59 lacs was made after the payment as per the demand raised by the Om Sai, it was discovered that due to certain defaults and short comings of Om Sai in the execution of the work Environ Energy had made certain deduction for which the assessee after making repeated request and series of discussion managed to get the said deduction/penalty reduced. The assessee also realized that certain excess payments were made by the appellant on behalf of Om Sai as discussed above. The assessee requested and duly informed Om Sai about the proposed deduction and liability towards the sub-contractor which were discharged by the assessee on its behalf, however, Om Sai failed to settled the accounts and there arose a dispute between the assessee and Om Sai. There is a letter written by the assessee raising a final de....
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....y KMR as part of the Security Deposit. Thus the balance amount of Rs. 71,21,634/- was to be paid by the appellant to KMR as Retention Security Deposit. The said Retention Security Deposit of Rs. 71,21,634/- was to deducted by KMR at the rate of 10% from the bills raised on KMR as and when they were raised. Ledger copy for such security deposit with KMR in the books of the appellant can be seen at pages 505-509 of the paper book. Also, the appellant company was to immediately furnish the performance bank guarantee to the tune of Rs. 85,36,764/- equivalent to 5% of the Contract value. Another Letter of Acceptance dated 11/04/2011 was issued by KMR in continuation of the previous letter giving in details the description of works, units, quantities, etc. However, after a delay of almost four months from the date of issuance of the Letter of Acceptance, a Memorandum of Agreement dated 03/06/2011 ("MOA") was finally executed between the appellant and KMR whereby the appellant's scope of work included supply, installation, commissioning of Internet Protocol based Surveillance System, Personal and Baggage Screening System and Explosive Detection and Disposal System at 23 Metro Railway Stat....