TMI Blog2011 (9) TMI 1175X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee 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 compared to transaction with un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 statement, it could be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r consider the impact of the volume of business provided by the AEs, the addition as made by the AO is not justified. 7. The Ld. CIT (A) 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. Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copies of the said orders of the Tribunal. He submitted that in the assessment year under consideration, Ld. CIT (A) has justified the excess 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ze tours under certain catchy themes like 'Duniya Dekho' and Bharat Dekho. It was stated that at the time of finalizing 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 advertise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven at the time of hearing of the appeal and submitted that this issue is covered by the order of ITAT of the earlier assessment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r consideration. In view of above, we reject ground no.2 of the appeal taken by the department and allow grounds no.1 and 2 taken by 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount as bad debts. As has been held by the Courts, if management is of the opinion that debts/advances are irrecoverable and write off in the books, it is sufficient compliance. Reliance is placed on the following decisions : Jethabhai Hirji v. CIT 120 ITR 792 (Bom.) Sarangpur Cotton Mfg. Co. v. CIT143 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 Bha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prakas B. Salecha IT Appeal No.11 of 2007 that, when it is written in the books as bad debt, the same is in compliance with the requirement of section 36(1)(vii) and the claim for deduction of bad debt is allowable. Non recovery of staff advances: As regards advances given to the staff members are concerned, it is submitted 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 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As regards the non recovery of business advances also, I agree with the argument of the Appellant that it represents write off of business advances and accordingly loss arising from the business operation is allowable u/s. 28 of the Act. Accordingly, I delete the amounts of ₹ 26,01,000/-. 10.4 As regards the advances 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbers was given for payments to various authorities on behalf of clients, which were subsequently recovered from clients and offered to tax. The ld. A.R. further submitted that similar issue was considered by the Tribunal in the assessee's own case for assessment year 2002-03 vide order dated 20-08-2010 (vide paras 25 to 28 of the 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 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT (A) by confirming the action of AO and is being disputed by the assessee in its appeal. We observe that the assessee has merely stated the names of the parties and the amount against each of them by placing the details at page 58 of the paper book but no reasons/explanations have been given by the assessee 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 and also on the decision of the Hon'ble jurisdictional High Court in the case of CIT v. Reliance Utilities Power Ltd. [2009] 313 ITR 340. 32. The ld. CIT (A), after considering the submissions of the assessee, has held that on similar issue his predecessor for assessment years 2002-03 and 2003-04 upheld the disallowance 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 bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision in the case of CIT v. Kandagiri Spinning Mills Ltd. [2008] 298 ITR 306 (Mad.) etc. 33.2 On the other hand, Ld. Departmental Representative submitted that the facts as stated by Ld. AR have not been mentioned in the order of the authorities below. He further submitted that the matter could be restored to the AO for his fresh consideration on the basis of the facts as mentioned herein. 34. We have considered the submission of Ld. Representatives of the parties and the orders of the authorities below. We observe that Ld. CIT (A) has confirmed the action of AO to disallow interest aggregating ₹ 1,46,34,434/- by following orders of his predecessors for assessment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of intangible asset of ₹ 95,36,727/- claimed before him. 38. It is relevant to state that claim of depreciation of ₹ 95,36,727/- was not claimed before AO and is taken first time before Ld. CIT (A). The assessee has stated that during the financial year 2002-03, it had taken over the foreign exchange business of Tulip Star Hotels Ltd. at 9 locations w.e.f. 1.10.2002 for the total consideration of ₹ 3.5 crores. This amount included ₹ 95,36,727/- being intangible assets in the form of data base of customers, contracts, approvals, licenses etc. and was recorded under the head intangible assets in the books. The assessee stated that it 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
