TMI Blog2014 (1) TMI 1231X X X X Extracts X X X X X X X X Extracts X X X X ..... cided in favour of Assessee. Disallowance made under Rule 6D of the Act – Held that:- The decision in Aorow India ltd. Vs CIT [1997 (7) TMI 92 - BOMBAY High Court] followed - The computation has to be made in accordance with rule 6D – the decision of the CIT(A) upheld – Decided against Assessee. Deduction u/s 80-O of the Act – Net income from service – Held that:- the decision in Commissioner of Income-Tax Versus Asian Cables Corporation Ltd. (No. 2) [2003 (3) TMI 87 - BOMBAY High Court] followed - for special deduction gross receipts cannot constitute the basis for deduction u/s. 80-O of the Act - Deduction to be allowed is only on net income basis – Decided against Assessee. Disallowance of depreciation on assets on lease - Held that:- The claim of the depreciation by the assessee is totally based on paper evidence whereas the AO has rejected the claim based on the categorical denial by Gujarat Energy Development Agency (GEDA) which is an autonomous body of the State of Gujarat - the lower authorities have accepted this to be a financial transaction, in that case, the other claims of the assessee has to be verified – thus, the matter remitted back to the AO for fresh adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d provision is created by debit to cost of sales account. Thus, this debit is the net effect of the additions and deletions of provisions in the current year. 3.1. It was further explained that requirements Sec. 36(2)(1) has been fully complied with by posting debit entry in profit loss account and corresponding credit entries in provision for Doubtful Debts account. It was further explained that it was not essential to post corresponding entry in the individual ledger accounts of parties. The AO has discussed the names and amounts of 19 parties for which provision for doubtful debts was created. These details find place at para-7.2 of assessment order. The AO further discussed the client-wise movement of provision for doubtful debts at pages 12 and 13 of the assessment order. The AO further discussed the claim of the assessee in respect of various parties and finally came to the conclusion that after the amendment to the provisions of Sec. 36, deduction on account of bad debts is allowable only when it is written off as irrecoverable in the accounts of the assessee in the previous year. According to the AO after 1.4.1989, writing off of bad debts as irrecoverable has become es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf. It is also held that the amount written off in respect of bad debts is allowable even though the individual account of debtor is not written off but a consolidated entry is passed in respect of the same by debit to P L account. To this extent, the judgment in Vithaldas H. Dhanjibhai Bardanwals Vs CIT (1981) 21 CTR (Guj) 190 (1981) 130 ITR 95 (Guj) still holds good." The matter was set aside to the file of AO with a direction to allow the claim in the light of the findings in para 3.11 at page 802 of the judgement. The Ld. AR further stated that the explanation to Sec. 36(1)(vii) of the I.T. Act does not require that individual account of the debtors are to be credited. Reliance was also placed on the decision of Hon'ble Bombay High Court in CIT Vs ASEA Ltd. (2002) 258 ITR 407 (Bom). The Ld. DR stated that in order to allow the claim of the assessee is bad debts, the accounts have to be reconciled when any bad debt is written off, simultaneously entry is passed in the P L account, but in case of provision no deduction is made to the parties account, the liability stands and provision in the form of liability is created with no change to the P L account. The Ld. DR conclud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 996-97, the Ld. CIT(A) has categorically examined this issue considering the findings of the Ld. CIT(A) in earlier assessment years, the AO allowed the actual amount utilized during the year at Rs. 19,02,580/- and added back to the entire provision of Rs. 2,08,32,829/-. 12. The assessee carried the matter before the Ld. CIT(A). The Ld. CIT(A) has considered the grievance of the assessee vide ground No. 4 of his order at page-5 and at para 6.5 the Ld. CIT(A) has confirmed the findings of the AO relying upon the decision of his predecessor for A.Yrs 1995-96 and 1996-97. 13. Before us, the Ld. Counsel for the assessee submitted that the issue has been restored back to the files of the AO by the Tribunal in A.Yrs 1995-96 and 1996-97. 14. We have carefully perused the findings of the lower authorities and the decision of the Tribunal in assessee's own case for A.Y. 1995-96 in ITA No. 303/M/99. We find that at para-31 on page-13 of its order, the Tribunal has given the following directions: "The ground No. 2 raised by the assessee is against the disallowance on account of provision for warranty and field services. Similar issue was decided by the Tribunal in its order dt. 31.7.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record. 21. After considering the facts and the submissions made before the lower authorities, in our humble opinion, the findings of the Ld. CIT(A) require no interference. Ground No. 4 is accordingly dismissed. 22. Ground No. 5 relates to the claim of deduction u/s. 80-O of the Act on the net income from service. 23. The assessee claims that the deduction u/s. 80-O of the Act be allowed on gross service charges received and not on net income from service charges received after deducting expenses incurred. 24. The AO has considered this issue at para-17 on page-50 of his order and at para-17.2 the AO computed the eligible deduction of the assessee at Rs. 17,75,105/-. 25. The assessee carried the matter before the Ld. CIT(A). The Ld. CIT(A) has considered the grievance of the assessee at para-10 of his order and at para-10.3 confirmed the action of the AO. 26. Aggrieved by this, the assessee is before us. Before us, the Ld. Counsel for the assessee fairly conceded that this issue has been decided against the assessee by the decision of the Bombay High Court in the case of Asian Cable Corpn. Ltd. 262 ITR 537. We find that in the said decision, the Hon'ble Jurisdictional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of depreciation for which the AO wrote letters to REPL Synergy Power Systems Ltd which is at page-21 22 of the assessment order and at page-22, the AO remarked that the said letter could not be served upon the address provided by the assessee as it was found that the company is closed for a long time. A letter was also issued to Dr. Yeshwant R. Ullal, Chartered Engineer who issued certificate relating to the technical details and utility value of 100% depreciable asset. The said letter is at page-22 23 of the assessment order. Reply to the same is at page-24 of the assessment order. The AO further wrote a letter dt. 12.11.1999 to Gujarat Energy Development Agency at Porbunder which is at page-25 of the assessment order and at page-26 the AO reproduced the reply received from Gujarat Energy Development Agency. The AO further wrote a letter to REPL Engineering Ltd., which is the lessee of the assessee. The said letter is at page-27 of the assessment order and reply to the same is at page-28 of the assessment order. 32. After considering all these letters and reply to them, the AO recorded the statement of Shri B.S. Doctor, Director of the REPL Engineering ltd, the lessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel for the assessee reiterated the claim of depreciation relying upon the very same documents which have been considered by the AO during the course of the assessment proceedings. It is the say of the Ld. Counsel that the assessee has been showing lease rental income which clearly establishes the fact that the assessee has leased out assets to M/s. REPL Engineering. The Ld. Counsel also drew our attention to the criminal proceedings initiated by the assessee against the lessee for cheque bouncing case as the lease rental cheques were dishonored by the bank. The Ld. Counsel also drew our attention to the settlement between the assessee and the lessee for an amount of Rs. 20,00,000/-. It is the say of the Ld. Counsel that these related facts go to establish the claim of depreciation on the leased assets. In alternative, the Ld. Counsel argued that the lease rentals shown by the assessee should be allowed as bad debts and the cost of the Windmill should be allowed as a business loss as the material evidence on record clearly suggest that the assessee was cheated by M/s. REPL Engineering. Therefore, the claim of business loss is tenable in law. 36. The Ld. Departmental Represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bills have been received in the accounting year under consideration nor in the immediate succeeding financial year. The AO concluded that the purchases to the provision amount to the extent of Rs. 26,50,685/- as excess provision towards cost of sale. 40. Aggrieved by this, the assessee carried the matter before the Ld. CIT(A). The Ld. CIT(A) has considered this grievance vide ground No. 14 before him. It was contended before the Ld. CIT(A) that the method of accounting followed by the assessee is a scientific one inasmuch as it is based on the matching principle of providing for in the very same year the expenditure incurred or services availed of during an accounting year. After considering the facts and the submissions, the Ld. CIT(A) observed that there is no evidence either of the services rendered at the point of sale and bill or debit note has been received subsequent to sale, the liability created by way of provision can be held to be made not in respect of services rendered at the point of sale but probably at a much later point of time. Hence, at the point of sale, such liability cannot be held to have accrued. Hence, the provision created cannot be said to be for accr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 to 1995-96. We find force in the submissions of the Ld. Counsel as the Ld. CIT(A) himself at page-4 on para 4.4 has observed that this fact has also been accepted in the preceding year both by the ITAT and by the Ld. CIT(A). In the light of the above and following the decisions of the Tribunal, findings of the Ld. CIT(A) are confirmed. Ground No. 1 is accordingly dismissed. 49. Ground No. 2 relates to the deletion of the disallowance of Rs. 35.70 lakhs being the notional interest. 50. This issue has been considered by the Ld. CIT(A) vide ground No. 3 before him and at para-5.4, the Ld. CIT(A) deleted the addition following the decision of his predecessor for A.Yrs. 1995-96 and 1996-97. 51. The Ld. Counsel for the assessee submitted that the Tribunal has confirmed the findings of the Ld. CIT(A) in preceding assessment years. Copies of the orders of the Tribunal are placed before us. 52. We have carefully perused the orders of the lower authorities and the orders of the Tribunal. We find force in the submissions of the Ld. Senior Counsel. We find that the Tribunal in assessee's own case has confirmed the findings of the Ld. CIT(A). Respectfully following the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, on similar lines, similar reasons, the appeal filed by the assessee in ITA No.7391/M/02 for assessment year 1999-2000 is dismissed. The AO is directed to verify the claim if the impugned amount was taxed in earlier year, then the same should not be taxed once again in this year. 65. Ground No. 4 relates to the disallowance of the provision for doubtful debts. 66. The issue involved is identical with the issue in ground No. 1 in para 3 to 9 in ITA No. 7389/M/02 for A.Y. 1997-98, therefore, on similar lines, similar reasons, the appeal filed by the assessee in ITA No.7391/M/02 for assessment year 1999-2000 is allowed for statistical purpose. . ITA No. 790/M/03 - A.Y. 1999-2000 - Revenue's appeal 67. Ground No. 1 relates to the deletion of the disallowance on account of fees paid for technical services. 68. The issue involved is identical with the issue in ground No. 1 in para 47 48 in ITA No. 614/Mum/2003 for A.Y. 1997-98 in Revenue's appeal, therefore, on similar lines, similar reasons, the appeal filed by the Revenue in ITA No.790/M/03 for assessment year 1999-2000 is dismissed. 69. In the result, the appeals filed by the assessee in ITA Nos. 7389 to 7391/M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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