M/S. Online Media Solutions Ltd., Hyd, ... vs Assessee
- CitationI.T.A. No. 1318/HYD/2011
Ratio decidendi
The rule this decision rests on
Depreciation cannot be disallowed on assets whose existence has not been disputed where the assessee has in fact claimed no depreciation in the computation of income filed with the return, the depreciation claimed being confined to a lesser sum on assets used in the business; a disallowance premised on the non-existence of assets fails where the claim underlying it does not arise on the facts. Where an assessee has failed to furnish necessary details in support of a claimed write-off of advances, and the tribunal considers that the assessee may be able to substantiate the claim, the matter may be restored to the Assessing Officer with a direction to examine afresh whether the amounts are allowable under the provisions of the Act after affording the assessee an opportunity to furnish the details. Where an increase in unsecured loans has been treated as income under section 68 without examination of whether the increase arose from fresh credit or from accrual of interest on existing loans, the addition cannot be sustained merely on the assessee's failure to furnish confirmations, and the issue is to be restored to the Assessing Officer for examination of the nature of the credit. Where bad debts have been actually written off in the books of account and are not disputed to be of a revenue nature, the write-off satisfies the requirements of section 36(1)(vii) and the assessee is not required to further justify the bad debts, in accordance with the principle laid down by the Supreme Court in T.R.F. Ltd. v. CIT.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
This is an appeal by assessee against the order of the Commissioner of Income Tax (Appeals)-V, Hyderabad dated 25-04-2011.
2. At the outset, Ld. Counsel did not prefer the additional Ground of Appeal raised on the issue of reopening of assessment u/s. 147 of the Income Tax Act [Act]. Since, no assessment u/s. 143(3) was completed and the reopening was within four years, we also do not find any merit in the additional grounds raised. In view of this, ground is dismissed as withdrawn.
I.T.A. No. 1318/Hyd/2011 :- 2 -: M/s. Online Media Solutions Ltd.,
3. Coming to the main Grounds of Appeal, assessee has raised as many as 13 grounds on five issues of additions made by the Assessing Officer (AO) in the assessment order. Ground No. 2, 3, 4, 5 and 9 are material grounds which are as under:
"2. The Dy. Commissioner of Income Tax, Circle-16(3), Hyderabad has erred while disallowing an amount of Rs. 1,84,81,375/- towards advances - others written off and the same has been confirmed by the Commissioner of Income tax-V, which is not correct, not justified and bad in law.
3. The Dy. Commissioner of Income Tax, Circle-16(3), Hyderabad has erred while disallowing an amount of Rs. 19,11,589/- towards unsecured loans u/s. 68 of the Income Tax Act, 1961 and the same has been confirmed by the Commissioner of Income tax-V, which is not correct, not justified and bad in law. Hence, the addition may please be deleted.
4. The Dy. Commissioner of Income Tax, Circle-16(3), Hyderabad has erred while disallowing an amount of Rs. 31,34,838/- towards advances written off and the same has been confirmed by the Commissioner of Income tax-V, which is not correct, not justified and bad in law. Hence, the addition may please be deleted.
5. The Dy. Commissioner of Income Tax, Circle-16(3), Hyderabad has erred while disallowing an amount of Rs. 1,69,89,612/- towards Bad debts written off and the same has been confirmed by the Commissioner of Income tax-V, which is not correct, not justified and bad in law. Hence, the addition may please be deleted.
9. The Dy. Commissioner of Income Tax, Circle-16(3), Hyderabad has erred while disallowing an amount of Rs. 5,70,47,031/- towards depreciation and the same has been confirmed by the Commissioner of Income tax-V, which is not correct, not justified and bad in law. Hence, the addition may please be deleted".
The rest of the grounds are submissions on various issues which do not require any adjudication.
I.T.A. No. 1318/Hyd/2011 :- 3 -: M/s. Online Media Solutions Ltd.,
4. Briefly stated, assessee is in the business of internet service provider and in the impugned assessment year filed return of income admitting a total loss of Rs. 3,96,52,413/-. AO noticed that assessee- company has debited an amount of Rs. 1,84,81,375/- towards advances written off including capital goods and therefore, reopened the assessment u/s. 147. Even though, AO notes that AR attended and after discussion, assessment is completed, he however, disallowed various amounts on the reason that assessee has not explained properly/for want of proof. The various issues considered by the AO as confirmed by CIT(A) are dealt with ground-wise:
5. Ground No.9: Before adverting to other grounds, we intend to discuss Ground No.9 first. AO recorded in para 3.1 that assessee has claimed depreciation at 5.24 Crores on WDV of 6.32 Crores which is 83% of the WDV. However, in para 3.5, he records that assessee claimed huge depreciation of 6.40 Crores on WDV of Fixed Assets shown as Rs. 8.62 Crores. Vide para 3.8, Item 'e', AO records further as under:
"e. Depreciation: Assessee had claimed depreciation of Rs. 45,83,501 on WDV of computers shown at Rs. 1,06,98,740/- and Rs. 5,24,63,530/- on WDV of software and hardware shown at Rs. 6,32,78,926/-. Vide this office letters dated 12-12-2008 and 16-12- 2008, assessee's AR was asked to furnish proof in support of existence of these assets and whether all these assets were put to use for earning a meager receipt of Rs. 80,75 lakhs. As there was no response from the assessee and as no evidence was filed in support of the existence of the above assets and their WDV as on 31-03-2006, assessee's claim of depreciation on these assets totaling to Rs. 5,70,47,031/- is disallowed and added".
6. Assessee contested before the Ld.CIT(A) that the disallowance is not correct, but Ld.CIT(A) in his wisdom confirmed the disallowance as he has relied on the Inspector's report extracted by the AO as under:
I.T.A. No. 1318/Hyd/2011 :- 4 -: M/s. Online Media Solutions Ltd.,
"9.2 I have considered carefully the arguments and facts in this case. The fundamental issue, even before consideration of particular Block of Assets is the existence of the asset. An asset cannot enter a block, if its very existence is not there. The appellant has not shown any proof to substantiate its claim of purchase of fixed assets as per Schedule 2 Balance Sheet. No details have been provided regarding the fixed assets. During physical inspection, the inspector could not even find the fixed assets.
9.3 In view of the above facts, I find that when the existence of the asset themselves is not proven, there is no question of allowing depreciation on the same".
7. Ld. Counsel at the outset drew our attention to the computation of income filed along with return of income to submit that assessee's P&L A/c indicate a loss of an amount of Rs. 9,76,12,872/-. From there, assessee has added back i.e., reduced the depreciation claim of Rs. 5,79,60,459/- and filed net loss of Rs. 3,96,52,413/-. Since, assessee has not claimed any depreciation on the assets, question of disallowing depreciation does not arise. Therefore, the ground to that extent is to be allowed.
8. On verification of computation of income filed along with return of income as well as perusal of the order indicate that assessee has not claimed any depreciation while claiming only loss incurred in the business. Therefore, question of disallowing the depreciation does not arise. From the table of un-absorbed business loss/depreciation to be carried over, it is evident that the depreciation claimed was only Rs. 61,02,857/- on the part of assets used in the business. Since the disallowance of Rs. 5,70,47,031/- of depreciation does not arise on the facts of the case, we agree with assessee's contentions and direct the AO to delete the addition so made. Ground No. 9 is accordingly, allowed.
I.T.A. No. 1318/Hyd/2011 :- 5 -: M/s. Online Media Solutions Ltd.,
9. Ground No. 2: AO noticed that assessee has disallowed an amount of Rs. 1,84,81,375/- towards advances which include capital goods. The entire amount was disallowed as the capital loss. It was the contention that there are certain trade advances also which required to be allowed and that entire amount cannot be disallowed. In the absence of any details, both AO and CIT(A) did not allow the amount. It was pleaded that another opportunity may be given to furnish the necessary amounts so as to allow the same as per the provisions of law. Assessee pleaded that they were not in the business at that point of time during the period of completion of assessment and now they have restarted the business, they were in a position to furnish the necessary details. In view of that, we are of the opinion that one more opportunity can be given to assessee to substantiate the claims made in the return of income / P&L A/c. Assessee is directed to furnish necessary details to AO and AO to examine whether the amounts can be allowed as write off as per the provisions of the Act. With this, Ground No.2 is considered allowed for statistical purposes.
10. Ground No. 3 is with reference to treating an amount of Rs. 19,11,589/- unsecured loans as income u/s. 68. In the absence of any confirmation for increase in the unsecured loans during the year, both AO and CIT(A) treated the same as the income of assessee. Even though, there is failure on the part of assessee in furnishing necessary confirmations towards increase in unsecured loans, there is nothing on record to indicate that unsecured loans arise either due to fresh credit. It could be due to increase in interest on the existing loans. Therefore, without examining the details, it is not possible to confirm the same just because, assessee could not furnish any details. Here also Ld. Counsel pleaded that assessee can furnish necessary details before the AO. In view of this, this ground is restored to the file of AO to examine the I.T.A. No. 1318/Hyd/2011 :- 6 -: M/s. Online Media Solutions Ltd.,
nature of credit and treat accordingly as per the provisions of law and facts. This ground is allowed for statistical purposes.
11. Ground No. 4 is also with reference to disallowance of an amount of Rs. 31,34,838/- towards advances written off being capital in nature. This ground is also similar to the issue in Ground No.2 discussed above. For the reasons stated there in, we are of the opinion that this matter is also can be re-examined by the AO, after giving due opportunity to assessee to explain the nature of advances written off. Accordingly, Ground No. 4 is also restored to the file AO. This ground is considered allowed for statistical purposes.
12. Ground No. 5 is with reference to disallowance of an amount of Rs. 1,69,89,612/- towards bad debts written off. It is the submission that these are trade debts which were written off and these were actually been written off in the Books of Accounts. While there is no dispute with reference to the actual write off in the Books of Accounts, the AO and CIT(A) did not allow the amount on the reason that assessee did not furnish the necessary details. Consequent to the decision of the Hon'ble Supreme Court in the case of T.R.F. Ltd Vs. CIT [323 ITR 397 (SC), there is no necessity for assessee to justify the bad debts written off. It would be satisfying the provisions, if the amounts are actually written off in the Books of Accounts, being trading nature as irrecoverable. As and when they are recovered, the same are automatically to be taxed under the provisions of Section 41(1). In view of the specific provisions of Section 36(1)(vii), write off of the amount is enough to allow the same. As there is no dispute with reference to the fact that these amounts are not capital in nature, AO is directed to allow the amounts. This ground is considered allowed.
I.T.A. No. 1318/Hyd/2011 :- 7 -: M/s. Online Media Solutions Ltd.,
13. In the result, assessee's appeal is treated as allowed for statistical purposes.
Order pronounced in the open Court on 26th June, 2015.
Sd/- Sd/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated 26th June, 2015
TNMM
Copy to :
1. M/s. Online Media Solutions Ltd., C/o. P. Murali & Co., Chartered Accountant, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad.
2. Deputy Commissioner of Income Tax, Circle-16(3), Hyderabad.
3. CIT(Appeals)-V, Hyderabad.
4. CIT-IV, Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.
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