Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2009 (4) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2009 (4) TMI 535 - AT - Income TaxDisallowance on bad debts and liquidity damages - debt involving the governmental agencies - assessee is under contractual obligation to make the payments on account of delayed deliveries - AO, disallowed the same stating that the assessee has not filed any evidence that the said debts have become bad - the proposition that the onus is on the assessee to furnish that the relevant details when claims are made. HELD THAT:- It is noticed that the liquidity charges are actually business expenditure, which is in the form of enhanced cost paid by the assessee in view of the delayed delivery of the orders. So far as bad debt is concerned, in our opinion, it is the debt squarely covered by the Special Bench decision in the case of Oman International Bank SAOG [2006 (5) TMI 117 - ITAT BOMBAY-H]. Considering the factual matrix of the ground, we are of the considered opinion that the assessee must succeed on this issue. Accordingly, ground 1 of the assessee is allowed. Disallowance on advances Written off - assessee failed to discharge the onus by furnishing requisite evidences - assessee has argued stating that the said amounts were advanced to the suppliers, which have become bad and, therefore, the assessee has written them off in the books of account considering the smallness of the amounts. HELD THAT:- Paper book does not contain any information as to the names of the parties involved and continuation of the business transactions with the said parties, if any, in the subsequent periods. We have also perused the Bombay High Court judgment in the case of Oman International Bank SAOG [2009 (2) TMI 54 - BOMBAY HIGH COURT]. Thus, the judgment has established the law on the issue of bad debts. Only restriction is with regard to the existence of good reason for AO to deem it otherwise. To exclude the said reason of AO, the undisputed facts of the absence of the details is the limiting factor for us to decide the issue conclusively. The claim of the assessee has to be allowed once the debt involving a party is written off by the assessee in the books of account. Paradoxically, the assessee cannot continue to have business transactions with the same party, in respect of whom the debt is written off. We are of the considered opinion that the issue must go to the files of AO for the limited purpose of examining if the assessee continues to have business transactions with the said parties, in respect of whom the debt is written off. If that finding of AO is affirmative, it constitutes a good reason referred to above in the judgment of the High Court. AO shall grant opportunity of being heard to the assessee. Accordingly, ground 2 is set aside. Disallowance on payments of sale commission - assessee has made the payment to M/s. Pramat Technical Services (P.) Ltd. as per the written contract between the assessee and the commission agent - AO held that the assessee failed to discharge the onus in this regard and proceeded to disallow the same treating the same as a bogus claim. HELD THAT:- It is noticed that it is not the case of the revenue that the said payments are made in violation of any criminal laws, such as, Prevention of Corruption Act etc. Their case revolve around the discharging of the onus in matters of submitting the details as well as the details of rendering of the services. The said objection of the revenue is not bona fide in the light of the details furnished in the paper book especially enlists the duties, responsibility of an agent, the details of the commission and other conditions. From the contract, it is evident that the commission agent is under obligation to generate the demand and also the requirements for the products of the company from the corporates such as NTPC and UPSEB and procure the orders. Accordingly, the assessee got the orders through the agent and commission became payable. In the process, the assessee furnished requisite basic information to AO, who was not satisfied with the said information. Considering the quantum of information available with AO in the matter, AO should have attempted to disprove the contents of the agency agreement or payments made through the banks are bogus or money has come back to the Assessee Company by way of cash etc. and in the process, AO has not done his part of the duty in the matter. Therefore, in our considered opinion the assessee has discharged the duty of furnishing the basic information. Accordingly, the Apex Court judgment in the case of Kaveri Engg. Industries Ltd.[1992 (7) TMI 131 - ITAT MADRAS-B] has no application to this ground. Accordingly, ground 3 of the assessee is allowed. MAT - adjustment of provision for gratuity u/s 115JB - objection of the revenue is with regard to the assessee's failure to follow the AS-15 and the 'actuarial method' referred therein and not disputed the quantification of the 'provision of gratuity' - assessee failed to follow the actuarial valuation in regard to gratuity for determining actual liability. AO added back the same to the book profits u/s 115JB - assessee has argued stating that AO has carried away by the word "provision" ignoring the fact that it is an ascertained liability. HELD THAT:- It is noticed that the said provision of section 115JB are code by itself and determination of the book profits has to be done only as per the provisions of section 115JB, which unambiguously provides for exclusion of provisions of ascertained liabilities for the purpose of 'book profits'. In this regard, we have perused the Apex Court judgment in the case of Bharat Earth Movers [2000 (8) TMI 4 - SUPREME COURT]. Thus, although the provision are not allowable as deduction, certain provisions which are capable of estimation with reasonable certain without quantification are allowable as they are ascertainable. On finding that the actual quantification is not a legal necessary in matters of ascertainment of the gratuity, we are of the opinion that the provision of gratuity in the assessee's case is capable of being estimated with reasonable certainty and therefore, it is not a contingent or unascertained liability. Thus, it is a ascertained liability and the same outside scope of the provisions of clause (c) of the Explanation 1 to section 115JB warranting no addition to the 'books profits'. Accordingly, the ground 4 of the assessee is allowed.
|