TaxTMI 
TaxTMI 
2021 (10) TMI 1094
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.... incidental to business, upon being written off in the Books 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....
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.... appellant despite best efforts and, therefore, it took a business decision to write off the same. Thereafter, the appellant urged the 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 accou....
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.... we are not in a position to refund the advances." The above communication is not sufficient to prove that there were proper efforts to make the effective recovery, that too against such a huge 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 va....
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.... received by the appellant by virtue of the efforts of Govinda, the appellant made several correspondences with Govinda (copies of which were submitted before the ld. CIT (A)) for pursuance of business with them, extension of the contract, seeking of refund of 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....
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....rs had passed and there was no work yet done on the said order,thus, finally realizing the futility of the Order, the appellant company immediately vide its letter dated 15/01/2014 informed Linton of the termination of the Order. The advance lying with Linton was directed to 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 ....
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....nce OM Sai failed and neglected to settle the account and to refund the excess amount towards deductions proposed by Environ, 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. 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 realiz....
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....effect, being made by the appellant. 33. 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. To this, a detailed Reply dated 10/03/2014was 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....
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....tion of the disputes relating to termination of the contract. The matter travelled upto the Hon'ble Calcutta High Court where certain directions were given by the Hon'ble Court to KMR for suggesting/nominating names for arbitrators in a panel, out of which the arbitrators can be selected. 38. However since KMR did not abide 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 explai....
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.... the case with bad debts coming within the scope of section 36(1)(vii) r.w. section 36(2) of the Act. The appellant further submitted before the ld. CIT(A) that the ld. A.O. had not made any discussions in the Assessment Order about the actual nature of claim of the appellant, being write off, of trade advances which is loss incidental 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 ....
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....r the same was given by Govinda to the appellant vide the letter dated 15/12/2013 which had been placed at page 103 of the Paper book. The appellant had immediately given the go ahead for the said proposal verbally. However Govinda wanted a go ahead in writing and thus it prepared a draft of the said letter to be issued by the appellant, 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. 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....
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....uery regarding is not verifiable as the justification given by the appellant has no substance in it. The ld. DCIT also stated that if the appellant's contentions are accepted true and correct then the notices issued u/s 133(6) of the Act by her office to these companies should have been replied to, but no reply from these companies had been received by her office. 59. 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 th....
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.... the appellant, the ld. DCIT stated in the Remand Report that the appellant had not submitted any documents for these parties. 68. The ld. DCIT stated in the impugned Remand Report that the aggregate amount of Rs. 7,39,00,401/- written off by the appellant was disallowed in accordance with provisions of section 36(1)(vii) read with section 36(2) which provides that no deduction on account 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 r....
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....d 02/05/2011 with Govinda for purposes of developing the appellant's Security Business in pan India. Copy of the said Agreement dated 02/05/2011 is enclosed at pages 85-91 of the paper book for Your Honours' perusal. (ii) As per the Agreement, the appellant company being the 'Client' appointed Govinda as the 'Service Provider' wherein the Client was to pay as Service Fee, 10% of the business value that the Service Provider would generate 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 ...................
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.... to its effective and competitive bidding, managed to secure the Contract with KMR and Letter of Acceptance by KMR to the appellant was issued on 25/02/2011(copy enclosed at pages 273 to 277 of the paper book). However, pursuant to the above business being acquired by the appellant company, Govinda, claiming that the said business was secured due to their efforts and sent an immediate congratulatory message on 26/02/2011 vide a letter(copy enclosed at page 93 of the paper book). In the meanwhile on 11/04/2011, the above Letter 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 94-9....
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....s enclosed at page 100 of the paper book. The appellant noting that no efforts whatsoever were put into by Govinda to avoid the deductions and that Environ had imposed considerable deductions of Rs. 5.86 cr on them, the appellant informed Govinda vide it's letter dated 02/08/2014 that since due efforts and diligence was not displayed by Govinda, the invoice raised was not justified and thus they denied the payment against them. Copy of the same is enclosed at page 101 of the paper book. Thus it is seen that in case of business developed with Environ, admittedly due to the efforts of Govinda, again 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 A....
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....ance. Copies of the letters in the said connection dated 31/08/2011, 11/10/2011, 01/04/2013 and 30/06/2014 are all enclosed at pages 108a to 108d of the paper book. Finally pursuant to the letter of the appellant dated 30/06/2014 asking for refund, the appellant was able to recover only a sum of Rs. 23,00,000/- on 22/10/2014. (Rs. 25,00,000/- was refunded by Govinda on 22/10/2014which included the Rs. 2,00,000/- paid on behalf of it by the Appellant). Copy of the letter dated 22/10/2014 refunding the said amount is enclosed at page 108e of the paper book. (v) Here, derouting from the facts, it may be relevant to mention that the ld. A.O. in his Assessment Order has stated that it was 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 ....
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....en in course of his business. The same cannot be questioned by the Department.The Hon'ble S.C. in its recent decision has held that commercial expediency has to be adjudged from the point of view of the assessee and not the Revenue in the case of Shiv Raj Gupta vs. CIT reported in (2020) 425 ITR 420, where the Hon'ble Apex Court held that commercial expediency has to be adjudged from 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.(para 15, page 12 of the Order). Following are the relevant extracts of the decision: "This finding flies in the face of settled law. A catena of judgments has held that commercial expediency has to be adjudged from 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 th....
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....e appellant and during the course of the hearing before the ld. CIT(A) inadvertently got submitted before him as such. The appellant further requested the ld. DCIT to acknowledge the inadvertent action on the part of the appellant as also of the authorised representative and requested her to excuse the same. With regard to the exchange of letters between the appellant and Govinda, asked for an explanation from the appellant as to how the letters between the appellant and Govinda were exchanged. The appellant submitted 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 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 stam....
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....office to Govinda should have been replied to, but no reply from Govinda had been received by her office. Appellant vide response dated 21.12.2018 (pages 584 to 586 of the paper book) reiterated it's submissions made in this regard before the ld. DCIT earlier (vide response dated 16.10.2018), also reproduced above at page 21. The appellant further added by submitting 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. 25,00,000/- was received from it. Since then, it had no business transacted with Govinda and no communication whatsoever had been there with the appellant. It was also submitted by the appellant that Govinda is now a defunct company and even all efforts by the appellant to contact them had failed. The appellant thus concluded by submitting 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 pe....
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....a were all enclosed and available for the scrutiny of the ld. DCIT and nowhere had she raised any objections or doubts regarding the same. With regard to why the evidence submitted before the ld. CIT(A) could not be furnished during the assessment proceedings, DCIT stated that if the contention of the appellant regarding Branch office is not verifiable, then the question of correspondence with Kolkata office does not arise and thus the justification given by the appellant lacks conviction. She also stated that it appears strange that the appellant company's Delhi based officials dealing with A.O. were not aware of the correspondence at Kolkata office especially when major financial disputes with multiple parties were supposedly going on for years. It was submitted that 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. 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 absolutel....
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....d that the write off was unilateral action of the appellant in business prudence wherein the irrecoverable sums from Govinda were written off as loss incidental to business. Any confirmation from the other party thus does not arise. The Ld. DCIT thus, without correctly appreciating the evidences and the facts of the case of the appellant had made the passing by reference as to the commercial angle to the said write off. CIT(A)'s ALLEGATIONS and APPELLANT's RESPONSE: (xiii) As has already been submitted above, pursuant to the appellant's submissions made before the ld. CIT(A) and also the Reply filed before the ld. CIT(A) in response to the ld. DCIT's comments concerning Govinda 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 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: ....
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.... Govinda. The AO has mentioned that the appellant has admitted the mistake by stating that Govinda prepared a draft letter to be issued by the appellant, in its own letter head and inadvertently got submitted before the ld. CIT(A). Appellant's Reply: In this regard the appellant would like to reiterate that Govinda, being the Service Provider to the appellant, had procured business proposal for the appellant with AGC Network Ltd. (AGC) for subcontract of work of Hindustan petroleum Corporation Ltd. (HPCL) on back to back basis and the proposal for the same was given by Govinda to the appellant vide the letter dated 15/12/2013 which was placed at page 103 of the Paper book, submitted earlier before the ld. CIT(A) and is further now submitted before Your Honours at page 103 of the paper book. Pursuant to the same, the appellant had immediately given the go ahead for the said proposal verbally. However Govinda wanting a go ahead in writing, thus prepared a draft 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....
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.... 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. In this connection the 'Certificate of Enlistment' of the Kolkata Municipal Corporation in the name of the appellant at the Kolkata office is enclosed at pages 556 to 558 of the paper book. Thus the appellant having its Branch office in Kolkata and since Govinda was based out of Kolkata, simply for convenience sake, all the communications received and sent by the appellant to Govinda were all hand delivered at the Branch office in Kolkata. The Receipt Acknowledgement of the letters of the appellant, as stamped by Govinda, are all enclosed at pages 559 to 567 of the paper book. In view of the above, therefore the ld. CIT(A) alleging that there is no evidence of correspondence between the parties is factually incorrect. Further acknowledgment letters of various dates, hand delivered between the Govinda and the appellant are sufficient and valid proof of correspondence. Accordingly, the abovementioned alleged premise of the ld. CIT(A) for arriving at the conclusion....
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....ellant had advanced various sums of money from time to time without entering into legally recognized correspondence. The confusion regarding letterhead (as mentioned in the remand report) is also an important pointer to the ambiguity in the nature of the transaction. Theory of prudence would suggest that no prudent business man will advance such sums without well laid down outcome agreements and during remand or appellate proceedings the appellant has not come up with any cogent reasons as to why the entity was chosen with respect to its proven track record. Appellant's Reply: In this regard the appellant would like to reiterate that it had entered into an Agreement dated 02/05/2011 with Govinda for the purpose of developing its Security Business in PAN India wherein the appellant company being the 'Client' appointed Govinda as the 'Service Provider' and the Client was to pay as Service Fee, 10% of the business value that the Service Provider would generate for the Client. It was also 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. Invoice for the business development servic....
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.... 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. Stating the above the Ld. CIT(A) has alleged that confusion regarding letterhead is also an important pointer to the ambiguity in the nature of the transaction. In this connection that appellant would like to submit that there is no confusion regarding letterhead (as alleged by the ld. CIT(A)). The appellant submits that in the above paras it has clearly explained and established that it did have a Branch (Work) office in Kolkata at 216, AJC Bose Road, 2nd Floor, Flat No. 2C, Kolkata- 17. The "Certificate of Enlistment" of the Kolkata Municipal Corporation in the name of the appellant at the Kolkata office was also duly enclosed. However the ld. CIT(A) with an absolute prejudiced and predetermined mind has tried to de....
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....dvance given to it would be refunded by it. Thus it is not the appellant's case that it advanced money to Govinda without well laid down outcome agreements as alleged by the ld. CIT(A). Further it was also not the case that the appellant did not come up with cogent reasons as to why Govinda was chosen with respect to its proven track record. The appellant very well submitted before the ld. CIT(A) that Govinda was a Private Limited Company actively engaged in the business of providing Business Development services to its various clients in PAN India and held expertise in the field of providing security services and solutions (similar to the appellant's line of business) and had strong connections in the various Government Departments which would help the appellant source and facilitate business. Hence Govinda was chosen as a service provider. In view of the above the Ld. CIT(A)'s allegation that the dealing with the entity shows opaqueness and ambiguities is incorrect and baseless and 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 Govindah as no basis to stand. ....
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....m 'refundable security deposit' given to land owners, it was in default of not discharging TDS liability - Assessee submitted that there was no applicability of section 194-IA since there was no transfer in terms of section 2(47)(v) in relation to JDA - Revenue however submitted that since deposit would be recovered through sale of part of owners' constructed area, it constituted advance payment - However, as seen from JDA, assessee was only permitted by landowners to develop scheduled property as residential apartment buildings and it could not be construed as delivery or possession in terms of section 53 of Transfer of Property Act read with section 2(47)(v), as legal possession of scheduled property continued to remain with possession of landowner - Further, even if it was advance payment, it was not linked to transfer of immovable property as enumerated in section 194-IA, so as to deduct TDS by assessee on said refundable security deposit - Whether therefore, assessee could not be held as the assessee-in-default under section 201(1) and 201(1A) - Held, yes [Paras 5.4, 5.8 and 6] [In favour of assessee] Further without prejudice to the above it is submitted ....
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....private limited companies and companies in the public sector). Service providers (in this case Govinda) usually have good connections with private limited companies and companies in the public sector who bring out tenders from time to time for purchase of various goods and services. The service providers are usually informed of such tenders even before they are published and brought out and thus they are hired by sellers (like in this case the appellant) for informing them about such tenders and preparation in advance for bidding for such tenders. The service providers further develop connections between the buyer and the seller (in this case the appellant) once a tender is out for bidding which facilitates the chances of winning a tender for the prospective bidder/seller (in this case the appellant). Besides, the procurement policies of companies go for an overhaul many a times which is studied and understood in detail by the service providers for an efficient bidding and such knowledge is then shared by the service provider with the ultimate seller (in this case the appellant) for an efficient bidding. Thus the service providers act as a bridge between the buyer....
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....he account of Govinda Infra was written off as loss incidental to business. The appellant further submits that since then, it had no business transactions with Govinda and no communication whatsoever has been there between Govinda and the appellant. Lastly it is submitted by the appellant in this regard that Govinda is now a defunct company and even all efforts by the appellant to contact them has failed. Thus the notices u/s 133(6) of the Act issued by the ld. AO at the end of the year 2018 had gone non replied to, by Govinda. Therefore the appellant submits that the 'no reply' to notices u/s 133(6) of the Act by Govinda should not lead to the appellant's approach being inconsistent and thereafter determine the genuineness of its transactions with Govinda which were dated four years back. In such a scenario, after a gap of more than four years and that too with zero communication with the said party of the appellant, no adverse inference can be drawn against the appellant for any absence of reply from Govinda. Lastly with regard to the Ld. AO's observation that the onus of proving that expenditure has wholly and exclusively related to the business of the....
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....e ld. A.O.'s disallowance of the claim of Write off, of advances given to Govindahas no basis to stand. 4. (iv) CIT(A)'s Allegation: That under the income tax proceedings, evidentiary value is on a different footing. Theory of human probability has an important role to play in acceptance and rejection of such explanations wherein the applicable standards of evidence is based on preponderance of probabilities and thereafter the decision of the Hon'ble Supreme Court of India in the cases of CIT vs. Durga Prasad Moore (1971) 82 ITR 540 and Sumati Dayal vs. CIT (1995) 214 CTR 124 were relied upon and it was alleged by the ld. CIT(A) that in view of all the facts stated by him in the above paras, the explanation of the appellant fails the test of human probability. The ld. CIT(A) also alleged that the appellant has failed to prove the genuineness and commercial expediency of the expenditure incurred. No prudent reasonable man would advance such a substantial amount for procuring orders from other entities. It raises legitimate presumptions about the legitimacy of the payment made. Moreover no tax has been deducted on the amounts paid to the entity, which shows....
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....eculiar to that case led the Hon'ble Apex Court to apply the theory of preponderance of probabilities) 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 office, one letter out of 21 letters to Govinda being submitted on the letterhead of Govinda and signed by Govinda as an inadvertent mistake by the appellant, have all been duly explained by the appellant before the ld. CIT(A). Hence there is no such surrounding circumstances (none of such circumstance even being pointed out by the ld. CIT(A) while applying the Supreme Court decision) on which the test of human probability (as laid down in the case of Sumati Dayal (supra)) can be applied to. Similarly in the case of Durga Prasad Moore (supra)the Hon'ble Supreme Court was considering the explanation offered by the assessee that the property, from which income was generated was the trust property; the sale deed in favour of the assesse....
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.... when the basic test of direct and factual evidences fails." It was further held by the Hon'ble ITAT, Delhiin the decision of Brij Bhushan (supra)that when the complete evidences have been placed by the assessee before the revenue authorities and if they are not found to be false but only allegation has been made that transactions are sham, then the theory of preponderance of probabilities invoked by the learned assessing officer is merely a conjecture and surmises. The Hon'ble ITAT further held that only on the theory of preponderance of probabilities addition cannot be sustained. 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. 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 especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee. The reliance placed by the learned AO on the decis....
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....of Govinda Infra and being observed that no substantial profit earning business was received by the appellant by virtue of the efforts of Govinda Infra, the appellant made several correspondences with Govinda for pursuance of business with them, extension of the contract, seeking of refund of the advance and ultimately the recovery of the advance. Copies of the letters in the said connection dated 31/08/2011, dated 11/10/2011, 01/04/2013 and 30/06/2014 are all enclosed at pages 108a to 108d of the paper book. Finally pursuant to the letter of the appellant dated 30/06/2014 asking for refund, the appellant was able to recover only a sum of Rs. 23,00,000/- on 22/10/2014 (Rs. 25,00,000/- was refunded by Govinda Infra on 22/10/2014, which included the Rs. 2,00,000/- paid on behalf of it by the appellant). Copy of the letter dated 22/10/2014 refunding the said amount is enclosed at page 108e of the paper book. The above sequence of events clearly prove and substantiate that inspite of all correspondences and recovery proceedings, the party (Govinda) was unwilling to refund the entire amount and after much deliberations a meagre sum of Rs. 23 lakhs was paid by them. How....
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....he best judge of its affairs and knows the best way to run its business and incur expenses in the process accordingly. The ld. CIT(A) cannot step into the appellant's shoes or sit in his armchair and decide about the expenditure and the reasonableness, commercial expediency and justifiability of such expenditure. It all has to be judged from the point of view of the appellant. Reliance in this regard is placed in the following judicial pronouncements: The Hon'ble Supreme Court of India in the case of S.A. Builders Ltd. v. CIT (Appeals) reported in [2007] 281 ITR 1 held the following: "We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement Ltd. [2002] 254 ITR 377 that once it is 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. No businessman can be compelled to maximize his profit. The in....
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....liance in this regard is once again placed on the following judicial pronouncements: * The Hon'ble ITAT, Hyderabad in the case of Shri A. Naga Srinivas (supra). * The Hon'ble ITAT, Bangalore in the case of Prestige Estates Projects (supra). Thus in view of the above, the appellant's payment of advance to Govinda cannot be held as aboveboard on the alleged premise that no tax was deducted on the amounts advanced to Govinda, as done by the ld. CIT(A). Also in view of the submissions made above, the appellant has sufficiently discharged the onus on it of establishing the commercial expediency of the transaction. B. FOR LINTON DISTRIBUTORS PVT. LTD. (LINTON) - ADVANCE WRITTEN OFF: Rs. 1,17,50,000/-: Herein firstly the appellant would like to submit that for confirming the disallowance of appellant's claim of write off, of advance given to Linton the ld. CIT(A) made various allegations against the appellant. Before going into the specific allegations of the ld. CIT(A) vis-à-vis the appellant's submission, it is pertinent to explain the background facts which gave rise to the advance given to Linton being written off: ....
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....he complete ledger account of Linton as standing in the books of the appellant is enclosed at pages 153-157 of the paper book. (v) Work progressed as per the PO and there were continuous updates from Linton as to the progress of the Order vide letters dated 21/09/2010 and 05/12/2010 whereby the appellant company was informed about the infrastructural set up and of the purchase of the fabrics for the uniforms. (Copies enclosed at pages 158 and 159 of the P/B.) The appellant duly vide its letters dated 22/11/2010, 24/12/2010 and 01/06/2011 expressed concern over the status of the order and that they were using the buffer stock of the uniforms which needed immediate replacements and also its desire to inspect the fabrics.(Copies of the letters in the said connection are enclosed at pages 160-163 of the paper book). Linton vide its letter dated 06/06/2011, acknowledging the advance of Rs. 1,05,00,000/- from the appellant duly informed the appellant that the inspection may be carried out. In response to the said letter, the appellant vide it's letter dated 28/06/2011 fixed the date for inspection on 11/07/2011. Copy of the said letters dated 06/06/2011 and 28/....
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....of letter dated 04/04/2013 enclosed at page 172 of the P/B). Thereafter advance payments totalling to Rs. 1,17,50,000/- was paid by the year end of 2013. It is here relevant to mention that the appellant was using its buffer stock of uniforms which were wearing out due to wear and tear. The appellant was thus in need for the Order to go through and thus the appellant, based on the continuous assurances of Linton, in complete good faith and hope that the Order would be executed, even if with delay, kept making the said balance payments. (vii) Entire advances having been made, the appellant company in the month of January 2014 was made aware that Linton had not even initiated the purchase of the new fabric after being informed in September 2011 of the change of the fabric. It was seen by the appellant that 4 years had passed and there was no work yet done on the said order. Thus, finally realizing the futility of the Order, the appellant company immediately vide its letter dated 15/01/2014 informed Linton of the termination of the Order. The advance lying with Linton was directed to be immediately refunded.(Copy of letter dated 15/01/2014enclosed at pages 1....
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....erred to. (xi) The abovementioned detailed facts were also submitted by the appellant before the ld. CIT(A). INFORMATION SOUGHT U/S 133(6) OF THE ACT (xii) As submitted above, 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 the appellant u/s 133(6) of the Act, in connection with the evidences submitted by it before the ld. CIT(A), during the appellate proceedings. Response to the same was submitted by the appellant vide Reply dated 16.10.2018, copy enclosed at pages 552 to 577 of the paper book. Information as sought by the ld. DCIT concerning Linton vide the notice issued u/s 133(6) of the Act and the appellant's response to the same are as mentioned in a table hereunder: Issue raised by ld. DCIT in 133(6) notice Appellant's Response With regard to the exchange of letters between the appellant and Linton, the ld. DCIT asked for an explanation from the appellant as to how the letters between the appellant and Linton were exchanged. The appellant subm....
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....r book) before the ld. CIT(A), as detailed out in a table hereunder: Issue raised/stated by DCIT in Remand Report Appellant's Response The notice issued u/s 133(6) of the Act by the DCIT to Linton should have been replied to, but no reply from Linton had been received by the DCIT/AO's office. The appellant submitted that with Linton, the last transaction whereby a payment of Rs. 30,000/- was made by the appellant was on 09/12/2013. In this connection Ledger Account was enclosed at pages 153-157 of paper book. After this, the last communication with Linton was on 21/05/2014, post which the appellant before closing the books for the said year, decided in business prudence to write off the unrealizable balance from Linton. Further it was submitted by the appellant in this regard that Linton is now a defunct company and even all efforts by the appellant to contact it has failed. Also notice 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, which had gone non replied to. In such a scenario and that too with zero communication of the appellant with Linton, the appellant could not be held responsible for ....
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....olkata Work office as it's dealings were with the appellant company in Delhi, however since Linton was based out of Kolkata, simply for convenience sake, the letters were received in the Kolkata office by hand delivery. The appellant in this regard submitted that the Receipt Acknowledgement of the letters of the appellant company, as stamped by Linton, were all enclosed and available for the scrutiny of the ld. DCIT and nowhere had she raised any objections or doubts regarding the same. With regard to why the evidence submitted before the ld. CIT(A) could not be furnished during the assessment proceedings, DCIT stated that if the contention of the appellant regarding Branch office is not verifiable, then the question of correspondence with Kolkata office does not arise and thus the justification given by the appellant lacks conviction. She also stated that it appears strange that the appellant company's Delhi based officials dealing with A.O. were not aware of the correspondence at Kolkata office especially when major financial disputes with multiple parties were supposedly going on for years. The person of the appellant's office in Delhi dealing with the A.O. was not a....
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....ringing her attention to the letter dated 21/09/2010 of Linton written to the appellant (placed at page 158 of the paper book submitted before Ld. CIT(A)), that from the said letter it can be seen that the infrastructure referred to therein is the particular Order specific against which Linton had to incur huge expenditure which was funded out of the advance given by the appellant company. That the entire correspondence between the appellant and Linton revolved around reminders by the appellant for delivery and the party assuring progress on the basis of money it has spent. No delivery schedule was given in the purchase order but payment terms were 100% advance. All the letters were signed by the same person from respective sides in their capacity as Authorised Representative without disclosing their name and designation. That the appellant in its letter dated 15/09/2011complained of substandard material and asked for replacement / refund of advance given to the tune of Rs. 1,10,00,000/- but on the other hand, the appellant made further paymentsof Rs. 50,000 each on 13/01/2012, 22/02/2012 and 30/03/2012. The appellant also continued to make payments which aggregated to Rs. 6,....
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....the genuineness of the transactions with it was not understandable. CIT(A)'s ALLEGATIONS and APPELLANT's RESPONSE (xv) 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 Linton 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 allegations against the appellant, thus confirming the ld. A.O.'s disallowance of the claim of Write off, of advances given to Linton. The appellant's Reply to each of the allegations are also submitted hereunder: 1. CIT(A)'s Allegation: That both Linton and Govinda shared the same address and the payments to both proceeded on similar trajectory. Appellant's Reply: In this regard the appellant would like to submit that the ld. CIT(A), like the ld. A.O. in the Remand Report, has for no reason alleged that Govinda and Linton share the same address which is a matter of record al....
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....in a certain set pattern (as required by the appellant), with the appellant's monogram and name of the security guard embossed on it. Thus upon receipt of the order for supply of uniforms and shoes for security guards/care takers from the appellant, Linton had to set up infrastructure which was particular Order specific(specifications as mentioned above) and for which Linton had to incur huge expenditure which was funded out of the advance given by the appellant. The same shall be clear from the letter dated 21.09.2010 of Linton to the appellant (copy placed at page 158 of the paper book). This however by no stretch of imagination implies that Linton had no required infrastructure or proven capacity to execute the order. Infact Linton had the potential and connections to immediately hire and appoint skilled tailors and karigars for preparing the uniforms as per the specifications of the appellant, upon receipt of the order and that further corroborates the capacity of Linton to meet the order. In view of the above the ld. CIT(A)'s allegation that the payment was made to an entity which did not possess the necessary infrastructure to execute the order and did not h....
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....s paid to Linton by the appellant in a 'one time' commercial transaction. In view of the above, the ld. CIT(A)'s allegation that it is not at all probable that a prudent businessman would make a payment of Rs. 1,17,50,000/- as a one off transaction to one entity, which did not have any prior experience in manufacturing products which the appellant required is completely baseless and has no legs to stand. Moreover the ld. CIT(A) cannot step into the appellant's shoes or sit in his armchair and decide about the expenditure and the reasonableness, commercial expediency and justifiability of such expenditure. It all has to be judged from the point of view of the appellant. Reliance in this regard is placed in the following judicial pronouncements: * The Hon'ble Supreme Court of India in the case of S.A. Builders (supra). * The Hon'ble Supreme Court of India in the case of Shiv Raj Gupta (supra). * The Hon'ble Delhi High Court (jurisdictional High Court) in the case of Dalmia Cement (Bharat) Ltd. (supra). In addition to the above it is further submitted by the appellant that the ld. CIT(A) on his own whims and fancies made a....
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.... 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 amount representing travelling expenses of assessee to Hyderabad and Bangalore had not been debited at all; likewise, losses suffered by the assessee in the races had not been shown at all in the books of account and lastly, from the year 1972 onwards, she had stopped going to races as from that year onwards, winnings in races were brought within the tax purview. These reasons were found to be cogent and convincing reasons to reject the explanation offered by the assessee. In light of the above, it is submitted that in the appellant's case no such surrounding circumstances have been pointed out by the ld. CIT(A) as doubtful or suspicious on which the test of human probability (as laid down in the case of Sumati Dayal (supra) where the facts peculiar to that case led the Hon'ble Apex Court to apply the theory of preponderance of probabilities) 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, 1....
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....nts to them being made in the same trajectory, have all been duly explained by the appellant before the Ld. CIT(A) and also before Your Honours' now. Hence there is no such surrounding circumstances (none of such circumstance even being pointed out by the Ld. CIT(A) while applying the Supreme Court decisions) on which the test of human probability (as laid down in the case of Durga Prasad Moore (supra)) can be applied to. Further the Hon'ble jurisdictional ITAT, Delhi in the case of Brij Bhushan Singhal vs. ACIT, Central Circle - 3, ITA Nos. 1415 to 1417, 1483, 1484 and 1479 to 1481/Del/2018 held the following: "that the preponderance of probabilities would come into play only when the basic test of direct and factual evidences fails." It was further held by the Hon'ble ITAT, Delhi in the decision of Brij Bhushan (supra) that when the complete evidences have been placed by the assessee before the revenue authorities and if they are not found to be false but only allegation has been made that transactions are sham, then the theory of preponderance of probabilities invoked by the learned assessing officer is merely a conjecture and surmises. ....
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..... M/S. OM SAI ASSOTECH PVT. LTD. (OM SAI) -ADVANCE WRITTEN OFF Rs. 1,56,77,731/-: Herein firstly the appellant would like to submit that for confirming the disallowance of appellant's claim of write off, of advance given to OM Sai, the ld. CIT(A) made various allegations against the appellant. Before going into the specific allegations of the ld. CIT(A) vis-à-vis the appellant's submission, it is pertinent to explain the background facts which gave rise to the advance given to OM Sai being written off: BACKGROUND: (i) As has been submitted above that the appellant company is engaged in the business of undertaking contract works on project basis. The appellant was awarded a Works Contract vide letter of Award (LOA) dated 14/08/2012 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). Copy of the said LOA is enclosed at pages 177-180 of the paper book. (ii) Now OM Sai was a company which was engaged in the business of undertaking civil contract and maintenance work....
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....t 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 alsoEnviron Energy were making payments with regard to salaries and allowances of the workers and technicians on the site on behalf of OM Sai upon the same assurance that the same may be deducted from the payments due to them. There are several mails exchanged between the parties and OM Sai had also issued Debit Notes towards reimbursement of salary and bonus paid by the appellant on behalf of OM Sai. - With regard to Statutory Liabilities also OM Sai had failed to discharge its liabilities under the Employees Provident Fund and thus the appellant was requested to make the payment of Rs. 23,90,031/- on its behalf which was guaranteed by the Director of OM Sai, Mr. Neeraj Kumar vide undertaking dated 10/06/2013.Copy of the said Undertaking is enclosed at pages 193-194 of the paper book. - Another amount of Rs. 8,24,528/- was similarly paid against guarantee of director on account of payments on Employee State Insurance Corporation.Copy of the said Undertaking is enclosed at pages 195-196 of....
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....8.04.2014(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 28/08/2014, before the 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. Copy of the said Suit filed is enclosed at pages 217 -239 of the paper book. Also in the said connection, a Board Resolution was passed by the appellant company whereby Mr. Rajesh Verma, Assistant manager- Billing was appointed to represent the company before the Court in all legal matters against OM Sai. Copy of the said Board Resolution is enclosed at page 216 of the paper book. (xiii) 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. Copy of the Counter Claim filed is enclosed at pages 240-263 of the paper book. (xiv) Thus pursuant to a....
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....ompted 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 Delhi High Court. It was reiterated that in the year 2012, the appellant in order to sub-contract the work for comprehensive operations and maintenance of Passive Infrastructure of sites in ROWB Circle maintained by VIOM Networks (Principal), entered into the LOA dated 20/08/2012with OM Sai. Keeping up with the terms of the contract, during the process of the execution of the same, numerous payments were made, bothby the appellant company and Environ Energy, to the subcontractors and vendors of OM Sai. Also bills raised by OM Sai were all settled by the appellant. However after making the entire payments in terms of the demands raised by OM Sai, it was learnt by the appellant that due to certain defaults/ shortcomings of OM Sai, Environ Energy had made certain deductions in the payments to the appellant. The appellant submitted that also it was learnt that cert....
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....eunder: 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 litigation. The ld. CIT(A) has further held that in respect of damages for breach of contract, it is established law that such damages arise only when it is either accepted by the other party or decreed by the competent court. He also held that an award by the arbitrator may stand on a same footing like the court award. In either case when the award is not accepted but is the subject matter of further appeal, a part payment even if it is received could not be treated as income. For this purpose the Ld. CIT(A) placed reliance on the judgments of Paragon Constructions (I) Pvt. Ltd. vs. CIT [2005] 274 ITR 413 (Delhi) following the decision of the Supreme Court in CIT vs. Hindustan Housing and Land Development Trust Ltd. [1986] 161 ITR 524 (SC). Having stated this the Ld. CIT(A) further stated that the same argument can be exten....
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....s 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 payment even if it is received could not be treated as income. Based on this ratio the ld. CIT(A) held that the same can be applied on the reverse in the appellant's case and extended to issues relating to expenditure as well and thereafter alleged that the advances given by the appellant to OM Sai being written off can be treated as neither determined nor crystallized and hence cannot be allowed as a business expenditure. In this connection it is firstly submitted by the appellant that the decision in the case of Paragon Constructions (supra)relied on by the ld. CIT(A) is distinguishable on facts from the appellant's case at hand. In the case of Paragon Constructions (supra), in the appeal for the A.Y. 1992-93 the question of law which arose for consideration was wh....
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..... 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 Narottamdas) what was deferred was not the accrual of the right, but date of payment. As such, the right to receive the remuneration could not be said to have arisen on the date of the judgment of the High Court. Whereas Paragon Construction's case is not one where merely the date of payment was deferred. There, the entire right to receive the same was in question and jeopardy and the right accrued to it when the award was affirmed by the High Court. Therefore, the Hon'ble Delhi High Court held that the decision of Babulal Narottamdas sought to be relied on by the counsel for the Revenue was not applicable to Paragon Construction's case. The Hon'ble Delhi High Court thereafter relying on the Hon'ble Supreme Court's decision....
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....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 year of taxability of interest accrued on amount of damages received and fixed deposited as the specific right to receive the damages was not yet finalised as on A.Y. 1992-93. Whereas the instant case of the appellant involves the issue of allowability of expenditure incurred on account of excess payment* made by the appellant to OM Sai, which being excess payments were refundable but however became non recoverable firstly due to OM Sai's denial to refund and then due to protracted litigation for filing of suit by appellant and counter claim by OM Sai before Hon'ble Delhi High Court, which led to writing off, of the said excess payments by the appellant. In....
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.... 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. Before going into the specific allegations of the ld. CIT(A) vis-à-vis the appellant's submission, it is pertinent to explain the background facts which gave rise to the advance given to KMR being written off: BACKGROUND: (i) As stands as a matter of fact, it is known that the appellant company has specialized knowledge and expertise in supply, installation, commissioning, operation & maintenance of Internet Protocol ("IP") based surveillance system, personal baggage screening system, as well as explosive detection and disposal system. (ii) Notice Inviting Tender (NIIT)....
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....on 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 of supply and 10% of the value of installation and commissioning after successful installation and commissioning on production of Acceptance Test Certificate; (iv) The KMR was to pay remaining 10% of the value of supply and 10% of the value of installation and commissioning on production of Completion Certificate. (v) Notably, the execution of MOA was dependent upon KMR performing its obligation under the MOA. It is pertinent to mention that the performance of the MOA by the appellant depended o....
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....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 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 payab....
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....ther 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 performance on the appellant and had wrongfully terminated the contract and it had the performance bank guarantee of Rs. 85,36,764/- encashed. The letter dated 24/07/2015 addressed by KMR to the Yes Bank for release of the BG is enclosed at pages 348-350 of the P/B. Letters from KMR addressed to the appellant date....
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.... 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 out of the panel for appointment as contractor's nominee within 30 days from the date of dispatch of the request by Railway. The General Manager shall appoint at least one out of them as the contractor's nominee and will, also simultaneously app....
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....bitrator 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 Hon'ble Calcutta High Court directed KMR to furnish the names of three persons for nomination of an arbitrator to be made by the contractor "keeping in mind the fifth schedule t....
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....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 the ld. DCIT's Remand Report was thereafter forwarded to the appellant by the ld. CIT(A), in....
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....d 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 own failures and omiss....
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....he outcome 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 o....
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.... in the assessment year 1956-57 and allowed the 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 Housi....
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....o receive payment was in dispute before the Court as although the award was made by the Arbitrator on July 29, 1955 enhancing the amount 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 Asses....
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.... Thus, what is relevant for claiming write off of advances is that (i) the said advance should not of capital in nature and (ii) the same should have been incurred wholly and exclusively 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 cha....
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....iform and shoes for security guards. Neither the goods were supplied nor was the advance refunded despite best efforts. Therefore, the loss incurred by the appellant due to fraudulent act towards breach of commitment was incidental to operation of the business and 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....
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....TR 263(SC) Taking into consideration the ratios of decisions of Hon'ble Supreme Court in the cases of CIT vs. Badridas Daga (supra) and CIT vs. National Bank Ltd. (supra), the Hon'ble Supreme Court in this case has held that loss is deductible where there is a direct and proximate nexus between the operation and the loss or where the 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 t....
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....come amounting to Rs. 6,525/- during the relevant Assessment Year and made a suo moto disallowance of Rs. 1,418/-u/s 14A of the Income Tax Act, 1961 r.w. Rule 8D(2) of the Income Tax Rules, 1962for earning the said exempt income. However the Ld. Assessing Officer disallowed Rs. 1,87,024/-u/s 14A of the Income Tax Act, 1961 read with Rule 8D(2) of the Income Tax Rules, 1962 over and above the suo 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 co....
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....on'ble Calcutta High Court against the order of the Hon'ble ITAT, Kolkata in the case of REI Agro, the appeal was again decided in favour of the assessee on 09.04.2014 holding the following: "The Revenue has once again come up in appeal before us. Mr. Bhowmick, learned Counsel appearing for the appellant /Revenue drew our attention to a judgment of this Court in the case of Dhanuka & Sons Vs. Commissioner of Income Tax reported in 339 ITR 319. Mr. 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....
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....ith regard to disallowance of claim advance written off which has been confirmed by the ld. CIT(A), it is seen that, firstly in the case of Govinda Infraproperty Pvt. Ltd. (Govinda) in whose account the assessee has written off the advance of Rs. 3,92,00,000/-, there was an agreement between the assessee and the said party for the purpose of developing the assessee's security business across the India wherein the assessee was required to pay service fee of 10% of the business value 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 busine....
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....e copy of purchase order has also been placed in the paper book. As per the purchase order, there 5250 pieces of complete uniform @ Rs. 2000/- per set and 2625 shoes @ Rs. 480/- was ordered. The total purchase order amounting to Rs. 1,17,50,000/- was agreed between the parties as per the terms and conditions of the purchase and supply 100% amount was to be given and if there was any defect in the material supply the same was also agreed to replace/remove at own cost of the supplier. 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....
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.... was engaged in the business of undertaking civil contract and maintenance works. The assessee company in order to sub-contract the work awarded by Environ Energy had entered into agreement with Om Sai for comprehensive operations and maintenance of Passive Infrastructure of sites in ROWB Circle. The letter of award clearly defines the scope of services required to be undertaken by Om Sai and also provided for the payment terms required to be made by the appellant. During the course 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 ....
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....system, Personal Baggage Screening system and Explosive Detection & Disposal System at 23 Metro Railway station premises and Metro Rail Bhavan', vide Letter of Acceptance issued on 25/02/2011. The Contract value of the work was at Rs. 17,07,35,271/- . A total Security Deposit for the Contract @ 5 % of the accepted value of Rs. 17,07,35,271/- being Rs. 85,36,764/- was to be deposited. However, Rs. 14,15,130/- being the Earnest Money Deposited (EMD) deposited with the offer was retained by 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 detail....