9911796707
TMI Blog2011 (9) TMI 1175X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant facts are that assessee is a company engaged in the business of travel and tour and foreign currency exchange business, income from studio etc. The AO made reference u/s. 92CA(1) of Income Tax Act to Transfer Pricing Officer for computation of arms length price in relation to international transactions detailed by assessee in audit report in Form No. 3CEB. 5. The Transfer Pricing Officer stated that assessee is a part of Cox and Kings an established travel company in the world which has offices in U.K., USA and Japan. The principle services offered by company are Destination management, Outbound tourism, Business travel etc. M/s. Cox & King Ltd., UK holds 36% share holding in assessee-company. In the report, the assessee has identified M/s. Cox & Kings (Japan) Ltd., Japan, Cox & Kings Ltd., UK and Cox & Kings, USA as three associated enterprises. The Transfer Pricing Officer has given in his order dt. 4.12.2006, a copy of which is annexed to the assessment order, the details of transactions entered into by assessee with its three associated enterprises. The Transfer Pricing Officer stated that assessee had given extra credit period to its associated enterprises as compare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of business * Risk of bad debts * Rate of commission earned * Past history It was submitted that the business given by the associate enterprises is' 72% and unrelated enterprise is only 28%. Thus, the business from the AEs is 3 times more than that of the non AEs. Therefore, transaction with two isolated parties with small business cannot be used as a yardstick for comparing the Arms Length price. Therefore, transactions with two parties cannot be treated as held to be comparable. Further, the rate of commission earned from AEs is 26.71 % as against 18.50% from non AEs. It is submitted that the cost relating to excess credit period is being factored while quoting the tour cost to AEs and this gets reflected in the better margins earned in case of AEs. The TPO has assumed average credit period of 49 days and applying the rate of interest @ 15% p.a. computed that by not collecting the receivables in time, the appellant has ended up paying excess interest to the banks on various borrowings. The statement showing computation of the rate of interest chargeable by the TPO, with reference to the transactions with AE'.s was submitted before me. On perusal of the sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after considering the above submission of the assessee deleted the said addition made by AO vide Para-6 of the impugned order which reads as under: "I have considered the order passed by the TPO u/s 92CA(3) as well as Lbove submissions made by the Appellant during the course of hearing. In the year under consideration, the TPO has compared the transactions with Associated Enterprises in UK, USA and Japan with two parties, Catai Spain and Iberojet. The TPO has worked the average credit period in uncontrolled transactions at 49 days and accordingly, he calculated interest and made addition u/s 92CA(3) of the Act. 6.1 As has been held in the Appellant's own case for A.Y 2003-04 to compare the like transactions, the appellant was asked to submit full details of transactions with the two unrelated parties i.e Catai Spain and Iberojet entered into during the year and also the average credit period availed by them. This was compared with the entire transactions with AEs during the year and average credit period availed by these 3 AEs. Further, it is also important to take into account the advances received from the parties while working out the credit period. 6.2 The Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss credit period granted to Associated Enterprises and thereafter deleted the addition made by AO on the basis of order of TPO. He submitted that order of Ld. CIT (A) be confirmed. In rejoinder, Ld. DR submitted that in the earlier assessment years, Tribunal restored the issue to the file of AO and accordingly the matter could be restored to AO for his fresh adjudication following the earlier orders of Tribunal. 8.1 We have considered the submissions of Ld. Representatives of the parties and orders of the authorities below. We have also considered the earlier orders of Tribunal for A.Y. 2002-03 and 2003-04 (supra) placed at pages 24 to 40 of paper book relating to assessment year 2002-03 and pages 41 to 53 of the paper book relating to assessment year 2003-04 and orders of the authorities below. We observe that in both assessment years the Tribunal remanded back the issue to the file of AO for his fresh adjudication in accordance with law after considering all factual aspects as well as arguments advanced by assessee on the issue involved. In view of above, we restore this issue to the file of AO for his fresh consideration after setting aside the orders of authorities below with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zing the accounts, the management decided to treat this expenditure as 'deferred revenue expenses' and to write it off over a period of 5 years and accordingly a proportionate amount was charged to the current year's profit. Since the advertisement expenditure had been incurred by the assessee in the current year, it is claimed as deduction as per provisions of Income-tax Act. By incurring such expenses, it cannot be said that any tangible asset had been created. Hence, the said expenditure cannot be treated as capital expenditure. The AO did not accept the contention of the assessee and considered that the expenditure had been incurred for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business and, therefore, it is properly attributable to capital and is of the nature of capital expenditure. The assessee has created a brand image throughout the country, which is not a tangible asset but certainly it is a kind of intangible asset in the nature of goodwill. In view of above, the AO considered the advertisement expenditure of ₹ 2,22,84,651/- as capital expenditure. Being aggrieved, the assessee filed appeal before the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year against the department and, therefore, he relies on the order of AO. However, the ld. A.R. referred to pages 24 to 40 of paper book, which is a copy of ITAT's order dated 20-08-2010 in assessee's own case in ITA No.982/Mum/2007 for assessment year 2002-03 and also referred to pages 41 to 53 of paper book, which is a copy of ITAT's order dated 28-01-2011 in assessee's own case for assessment year 2003-04, and submitted that the said issue was decided in favour of the assessee by the Tribunal. 15. We have carefully considered the submissions of the ld. Representatives of the parties and the orders of the authorities below. We have also gone through the earlier orders of the Tribunal for assessment years 2002-03 and 2003-04 (supra). We observe that the Tribunal, after considering the case of the Hon'ble Apex Court in the case of Dy. CIT v. Core Health Care Ltd. [2008] 298 ITR 194 and the decisions of various High Courts viz., (i) CIT v. Brilliant Tutorials (P.) Ltd. [2007] 292 ITR 399, (ii) CIT v. Bhor Industries Ltd. [2003] 264 ITR 180 (Bom.) (iii) Silicon Graphics Systems (I) Ltd. v. Asstt. CIT [2007] 106 TTJ 152 (Del) etc. held that advertisement expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee subject to our above observation in respect expenditure of ₹ 53,65,475/- relating to the expenditure incurred in assessment year 2003-04, which has been allowed by ITAT in the appeal for relevant assessment year 2003-04. 17. Ground no.3 of the appeal taken by the department is as under : "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in allowing the claim of bad debts to the extent of ₹ 82,64,594/- without appreciating the fact that the assessee had failed to furnish the particulars of the claim and justification for write off before the AO." 18. Ground nos.3 & 4 of the appeal taken by the assessee are connected with ground no. 3 of the appeal of the department, which are as under : "3 erred in confirming the disallowance of sundry debits balance written off of ₹ 8,75,505 without appreciating the fact that after the amendment to section 36(1)(vii), write off of irrecoverable debts, is sufficient compliance for allowability of deduction under section 36(1)(vii) r.w.s. 36(2); 4. failed to appreciate the alternate contention of the appellant that sundry debt balance written off should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 166 (Guj.) * Kamla Cotton Co. v. CIT226 ITR 605 (Guj.) * DCIT v. Gobind Glass Industries Ltd. 110 Taxman 109 (Ahd. - Trib.) (Mag.) * General Insurance Corporation 254 ITR 204 (Bom.) The Hon'ble Mumbai Tribunal in the case of ITO v. Anil H. Rastogi 86 ITD 193 (Mum.) (TM) has held that after the amendment w.e.f. 1.4.89, write off of debts is sufficient to claim debt as bad. Further, reliance is also placed on the Spl. Bench decision of the Mumbai Tribunal in the case of Oman International Bank Saog 100 ITD 285, where it has been held by the Spl. Bench that after amendment to sec. 36(1)(vii) w.e.f. 1.4.2989, it is not obligatory on the part of the Appellant to prove that the debt written off by him is indeed a bad debt for the purpose of allowance u/s. 36(1)(vii). It was submitted that the Appellant has taken steps to recover the debts. In case of Bharat Heavy Electricals Ltd., the Appellant has filed legal suit and has recovered the amount of bad debt in A.Y. 2005-06. The amount recovered in A.Y. 2005-06 is offered to tax in that year. Thus, it is respectfully submitted before your Honour that since the amount of debt already offered to tax in A.Y. 2005-06, disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the same are given as per the prevailing norms of the industry. Certain amounts were given to the staff members for payment to various authorities on behalf of clients, which were subsequently recovered from the clients and offer to tax. Thus, the amount claimed as bad debts on account of non receipt of advances given to the staff should be allowed as bad debts because the conditions prescribed u/s. 36(2) are complied with. Without prejudice, it is submitted that even if your Honour is of the view that the claim cannot be allowed u/s.36(1)(vii), the same should be allowed as a business loss u/s. 37(1) or sec. 28. In this respect, we are relying on the decision of the Hon'ble Mumbai Tribunal in the following cases where, the Hon'ble Tribunal has held that advances given to staff, which remains unrecoverable, are to be allowed as business loss : • Madison Communications Pvt. Ltd. [OTA Mp/1093/M/2005 dated 13.3.2007] • Cheminova India Ltd. [ITA No.1948/M/2003 dated 31.8.2006] In view of the above, it was submitted that, as has been held by various Courts and Tribunals, it is management's bona fide belief and decision of a debt becoming bad and accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given to staff members are concerned, the Appellant's main arguments were that the advances paid to staff was as per prescribed norms of industry to facilitate the staff member for payment of fees etc. to various authorities & accordingly is a business advance. I agree with the contention of the Appellant that non recovery of advances given to staff under business necessity is an allowable business expenditure. Accordingly, I hold that the amount ₹ 4,25,367/- should be allowed as a business loss u/s.28. 10.5 As regards the other write off of bad debs, since no particulars/details of its nature were placed on record to justify the claim and completion of the conditions prescribed u/s.36(1)(vii) r.w.s. 36(2), I am not agreeable to allow the amount of ₹ 8,75,505/- as expenditure. Accordingly, I confirm the order of AO and disallow an amount of ₹ 8,75,505/. Thus the Appellant gets relief of ₹ 82,64,594/- (Rs. 52,38,227 + 26,01,000 + 4,25,367). This ground of appeal is partly allowed." Hence, the department as well as the assessee are in appeal before the Tribunal. 23. During the course of hearing, the ld. D.R. submitted that the sum of ₹ 52 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said order at pages 39 & 40 of paper book) and therefore, the total claim of the assessee is allowable as bad debt. 24. We have carefully considered the orders of authorities below and the submissions of the ld. Representatives of the parties. We have also considered the cases which are cited by the assessee in its chart filed with the paper book. 25. We observe that as far as claim of ₹ 52,38,227/- on account of business is concerned, the names of the parties are given at page 57 of the paper book, and at the time of hearing, the ld. D.R. conceded that to that extent the bad debt as claimed by the assessee is allowable because it represents sales to customers and income of which was offered for tax in earlier years. 25.1 Now, coming to ₹ 26,01,000/- in respect of non receipt of business advances given to 4 parties, details of which are placed at page 57 of the paper book, we observe that the ld. CIT (A) has stated that it was non-recovery of business advances and, therefore, the claim is allowable u/s.28 of the I.T. Act. During the course of hearing, the ld. D.R. has not brought any material on record that the said claim of the assessee is not genuine, save and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the write-up filed before us; and/or before the authorities below. Therefore, we hold that the ld. CIT (A) is justified to disallow the said claim of the assessee on the ground that no particulars/details of its nature have been filed by the assessee on record to justify the claim and to comply with the conditions prescribed u/s.36(1)(vii) read with sec. 36(2) of the Act. Hence, we do not find any reason, in the absence of material on record, to interfere with the order of the ld. CIT (A). 28. In view of above, we allow ground no.3 of the appeal of the department in part by confirming the disallowance of ₹ 4,25,367/- out of ₹ 82,64,594/- allowed by the ld. CIT (A). However, we confirm the order of ld. CIT (A) by rejecting ground nos.3 and 4 of the appeal of the assessee by confirming the disallowance of ₹ 8,75,505/-. 29. In ground nos.5 to 8 of the appeal filed by the assessee, the assessee has disputed the interest on advances given to associate companies of ₹ 1,46,34,434/-. 30. The relevant facts as stated by the AO are that in respect of advances aggregating ₹ 30,65,355/- given to certain parties, mentioned in para 9.1 of assessment order, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of interest. Therefore, ld. CIT (A), following the said orders of preceding assessment years, confirmed the action of AO. Hence, assessee is in appeal before the Tribunal. 33. On behalf of assessee, Ld. AR submitted that assessee filed all the details in respect of the advances given to various parties but same were ignored and Ld. CIT (A) by following orders of his predecessors for earlier assessment years confirmed the disallowance made by AO. He submitted that in the earlier years, disallowance of interest was in respect of interest free advances given to another party namely M/s. Ezeego and whereas in the assessment year under consideration the parties are different. To substantiate his submission, Ld. AR referred to pages 148 and 149 of the Paper Book. Ld. AR also referred to pages 117 to 119 of the Paper Book which contain the facts submitted before the Tribunal. It is relevant to state that in the said statement of facts read with page 148 of the Paper book, assessee has stated that advances given to various parties on which disallowance of interest has been made by authorities below are as under: (a) In respect of advances of ₹ 30,65,354/- for which disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 2002-03 and 2003-04. We observe that Ld. CIT (A) has not discussed the facts as are applicable to the assessment year under consideration specially in respect of advances aggregating ₹ 30,65,355/- given to various parties and advance of ₹ 12,00,000/- given to Ramarest as to whether the said advances were given by the assessee for business purposes. We also observe that Ld. AR has contended that assessee charged actually more interest from Tulip Hotels Ltd. than what assessee paid on the loans taken from ICICI and/or DCB. Considering the above facts and observing that Ld. CIT (A) has not passed a speaking order while confirming the action of AO, we consider it prudent to restore this issue to the file of Ld. CIT (A) for his fresh adjudication after considering relevant facts as may be placed before him and after giving due opportunity of hearing to the parties. Hence we set aside the order of Ld. CIT (A) on the above issue by allowing grounds No. 5 to 8 of the appeal of the assessee for statistical purposes. 35. In grounds No.9 to 11 of the appeal filed by the assessee, the assessee has disputed the order of Ld. CIT (A) in confirming the disallowance of inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not claim depreciation earlier but claimed from assessment year 2003-04 onwards. Assessee stated that Ld. CIT (A) asked Remand Report from AO but AO did not submit his Remand Report. Therefore, Ld. CIT (A) by following his order for assessment year 2003-04 did not allow depreciation on intangible assets as claimed by assessee. 39. The Ld. AR submitted that for assessment year 2003-04, assessee filed appeal before the Tribunal being ITA No. 3751/Mum/2007 and the Tribunal vide order dt. 28.1.2011after considering submission of assessee restored the issue to the file of AO vide para-16 of the said order for his fresh adjudication in accordance with law. Ld. AR referred to pages 41 to 53 of the Paper book (relevant pages 48 to 51 of Paper Book) to substantiate his submission. He submitted that the matter could be restored to AO to decide the issue in accordance with decision of Hon'ble Apex Court in the case of Techno Shares & Stocks Ltd. v. CIT [2010] 327 ITR 323 and other decisions of ITAT on the above issue. 40. The Ld. Departmental Representative submitted that he has no objection to restore the issue to the file of AO by following earlier order of ITAT dt. 28.1.2011 (sup ..... X X X X Extracts X X X X X X X X Extracts X X X X
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