TMI Blog2012 (7) TMI 614X X X X Extracts X X X X X X X X Extracts X X X X ..... ny objection in any proceedings or enquiry under this Act as the appellant has not raised such objection before the completion of said reassessment proceedings - ground of appellant dismissed - ITA no. 6184, 1302, 6185/Mum./2011 ITA no. 6666, 1865/Mum./2011 - - - Dated:- 25-5-2012 - SHRI J. SUDHAKAR REDDY, SHRI R.S. PADVEKAR, JJ. Revenue by : Mr. Arvind Sonde Assessee by : Mr. Narender Kumar O R D E R PER J. SUDHAKAR REDDY The cross appeals for assessment year 2005-06, are directed against the impugned order dated 4th July 2011, for assessment year 2005-06, and the cross appeals for assessment year 2006-07 are directed against the impugned order dated 10th December 2010, passed by the Commissioner (Appeals) III, Mumbai. The assessee also preferred an appeal which is directed against the impugned order dated 4th July 2011, passed by the Commissioner (Appeals) III, Mumbai, for assessment year 2007-08. As the issues in these appeals are common, for the sake of convenience, these appeals were heard together and are being disposed off by way of this consolidated order. 2. Both the parties submitted before us that the lead order is for the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t reproductions, defective jobs/ releases in media and not necessarily because the party is not financially sound, the advances received cannot be presume to be adjustable against the outstanding bills which have been written off, as done by the Assessing Officer. 4. The main contention of the assessee was that the write-off was based on commercial consideration and business prudence. Bills were furnished. Reliance was placed on the judgment of Hon'ble Supreme Court in TRF Limited v/s CIT, (2010) 35 DTR 156 (SC). 5. The first appellate authority did not fully accept the contention of the assessee. He held as follows:- The ACIT rejected the appellants claim for bad debts for the reasons mentioned by him in the assessment order, which were summarized by appellant as under:- i) Since the assessee has received advances from the parties, whose debts have been written off as bad debts, the write off can at best be said to be arbitrary, irrational or mala-fide and lacking commercial prudence. ii) It is only a bad debt which is irrecoverable which can be written off and not any debt, As already stated above, that the debt becomes bad only when the creditor has no chance of reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the parties from the assessee company has recoverable debts and from whom it has received advances year after year, the entire bad debts written off during the FY 2005-06 of Rs.2,44, .23, 135/- is disallowed and added back to the Total income of the assessee company for the A Y 2007-08. 6. Further disallowance was made under section 40(a)(ia) of the Act, which is also a subject matter in this appeal. The assessee has filed an appeal on the following grounds:- 1) The Commissioner of Income Tax (Appeals)-3, Mumbai (hereinafter referred to as CIT(A)) erred in holding that the Assistant Commissioner of Income Tax, Range-i 1(1), Mumbai (hereinafter referred to as the ACIT) has rightly reopened the Appellants assessment under section 147 I 148 of the Act. The Appellants submit that since the original assessment has been completed under section 143(3) and the Appellants have fully disclosed all material facts for the completion of the assessment, the reasons mentioned by the ACIT for reopening the Appellants assessment are merely based on a change of opinion and therefore it is submitted that there is no reason for the ACIT to believe that any income chargeable to tax had escape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at since they have deducted tax under section 194C, there is no provision under section 40(a)(ia) to make a proportionate disallowance in respect of the above expenses. The Appellants therefore pray that the additions made by the ACIT on this account be deleted. 4(a) The CIT (A) erred in holding that the ACIT was right in disallowing a proportionate part of the expenses of Rs.4,64,46,529 on Data Compilation / Analysis Translation / Tabulation under section 40(a)(ia) on the ground that the Appellants had not deducted tax under section 194J of the Act. the Appellants submit that the said expenses are not covered by section 194J and since they have deducted tax under section 194C, the ACIT ought not to have made a proportionate disallowance under section 40(a)(ia). (b) The CIT (A) erred in directing the ACIT to verify the payment of Rs.99,82,871 in respect of which the Appellants had deducted tax under section 1 94J and in not deleting the disallowance in respect of these payments. (c) Without prejudice to (a) (b), even assuming that tax is deductible under section 194J, the Appellants submit that since they have deducted tax under section 194C, there is no provision under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame both in sections 194J and 9(i)(vii). He relied on the Vishakhapatnam Special Bench decision of the Tribunal in Merilyn Shipping and Transport v/s ACIT, ITA no.477/Viz./2008 (SB), order. He submitted that the issue may be set aside to the file of Assessing Officer to apply the decision of the Special Bench and restricted the disallowance to the amount payable. 10. The learned Counsel did not press ground no.3, on section 14A and ground no.4(a) and 4(b) on the issue of treatment of software expenditure as capital. 11. Learned Departmental Representative, Mr. Narender Kumar, representing the Revenue, on the other hand, controverted the submissions of the assessee s Counsel and argued that the write-off was not bonafide. He relied on the judgment of Hon'ble Jurisdictional High Court in Oman International Bank SAOG, 313 ITR 128, for the proposition that the decision must be based on material that the debt is not recoverable and the decision must be bonafide. He pointed out that the assessee was having advances from these very customers and instead of adjusting the amounts due, the assessee wrote off certain debts as bad. He relied on the decision of Bangalore Bench of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e out of a commercial consideration and cannot be termed as arbitrary or irrational. In fact, it is a reversal of income which was booked in excess. The judgment of Hon'ble Supreme Court in TRF Ltd. (supra), squarely applies. Thus, we allow this ground on the similar issue by the assessee. 16. Coming to the disallowance under section 40(a)(ia), insofar as ground no.2(a) is concerned, the assessee has deducted tax under section 194C. It is a case of the Assessing Officer that the tax should have been deducted under section 194J. In our considered view, under such circumstances, no disallowance can be made under section 40(a)(ia) in view of the decision of the Tribunal in ITA no.70/Mum./2010 in the case of M/s. Chandabhoy Jassobhoy, order dated 8th July 2011, and in the case of Mr. Nitin M. Panchemiya, ITA no.3874/Mum./2009, and ITA no.3244/Mum./2007, order dated 17th February 2012. Following the same, we delete the disallowance of Rs. 3,93,14,264, and allow this ground of the assessee. 17. On ground no.2(a), as suggested by both the parties, we set aside the same to the file of Assessing Officer for fresh adjudication by applying the decision of the Special Bench of the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds of appeal as no disallowance under section 40(a)(ia) can be made when there is no short deduction of tax. 25. In the result, Revenue s appeal is dismissed. We now take up assessee s appeal in ITA no.6184/Mum./2011, for assessment year 2005-06. 26. Grounds no.1 and 2, are on the issue of re-opening. 27. Grounds no.3(a), 3(b), 3(c) and 3(d), are on the issue of disallowance under section 40(a)(ia). 28. Grounds no.4(a), 4(b) and 4(c) are also on the issue of disallowance under section 40(a)(ia) of the Act. 29. Learned Counsel for the assessee submitted that the reopening was made within a period of four years, as is evident from the assessment order passed by the Assessing Officer vide Para-4/Page-1. The reasons are nothing but a change of opinion. He pointed out that the original assessment was completed under section 143(3) and the Assessing Officer allowed the claim of the assessee despite short deduction of tax. Hence, he argued that reopening is bad in law. He further submitted that no notice was given under section 143(2), hence, the assessment is bad in law. He pointed out to Page- 14 of the assessee s paper book and submitted that only a letter was issued o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en that in response to the said notice/letter, the appellant has attended the hearing before the AO and did not complain to the afores id letter/notice and did not raise any objection during the course of assessment proceedings with regard to that the notice was not served upon him or not served upon him in time and served upon him in improper manner till the completion of the reassessment proceedings. Therefore, the provisions of section 292BB would be applicable as the appellant would be has not taken such objection during the course of assessment proceedings. The provisions of section 292BB introduced w.e.f. 1-4-2008 reads as under: Where an assessee has appeared in any proceeding or co-operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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