TMI Blog2014 (12) TMI 297X X X X Extracts X X X X X X X X Extracts X X X X ..... nk of Commerce the borrowings of the assessee has to be considered as borrowings from Oriental Bank of Commerce and Oriental Bank of Commerce is a scheduled bank, therefore provisions of section 43B clearly apply on the facts of the case - The disallowance of ₹ 3.25 crores made under section 43B of the Act is confirmed - in subsequent years, i.e. AY 2007-08 the bank has waived the loan and the liability of interest and the assessee has shown the same as its income in AY 2007-08 - If the AO finds that the same has been offered for taxation in AY 2007-08 then the same must be considered as per provisions of law – Decided against assessee. Transfer pricing adjustment – Computation of ALP - Application of most appropriate method – CUP method or TNMM method – Held that:- Following the decision in Dy. Commissioner of Income Tax Versus Trigyn Technologies Limited [2013 (8) TMI 701 - ITAT MUMBAI] - the assessee was having total international transactions with the AE of more than ₹ 5 crores, AO made reference to TPO u/s 92CA(1) for computation of Arm's Length Price (ALP) of the international transaction u/s 92C – assessee contended that the TPO adopted TNMM and selected certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the order of the CIT(A)- 15, Mumbai dated 27.02.2012 for AY 2006-07. All these appeals were heard together and disposed of by this common order for the sake of convenience. ITA No. 3123/Mum/2012 AY 2005-06 2. Assessee has raised five substantive grounds of appeal. Ground No. 1 to 4 relate to the disallowance on account of interest paid to bank amounting to ₹ 3.25 crores and ground No. 5 is on account of transfer pricing adjustment of ₹ 3,04,96,436/-. 3. Assessee is in the business of developing software and technical services. The return for the year was filed on 27.10.2005 declaring total income as Nil. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee. During the course of assessment proceedings assessee was asked to explain the claim of interest debited in the Profit Loss Account vis-a-vis section 43B of the Act. The AO noticed that the assessee has an outstanding loan of ₹ 23.34 crores. The loan was taken in earlier years from Global Trust Bank (now Oriental Bank of Commerce). The loan was taken sometime in 2001 and no fresh loans were taken during the year. The AO furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not been paid, therefore disallowable under section 43B of the Act. 7. Aggrieved by this the assessee is before us. The counsel for the assessee explained the nature of transaction as it was explained before the lower authorities. It is the say of the counsel that the AO has grossly erred in treating the liability of interest as dividend. The counsel further stated that provisions of section 43B are also not applicable as the amount has been borrowed from Global Trust Bank, which is not a scheduled bank within the provisions of section 43B of the Act. 8. Per contra the learned D.R. vehemently submitted that even if the liability is considered as interest the same is hit by the provisions of section 43B of the Act in as much as Global Trust Bank has been merged with Oriental Bank of Commerce and Oriental Bank Commerce is a scheduled bank. Therefore, provisions of section 43B of the Act clearly apply on the facts of the case. 9. We have considered the rival submission and carefully perused the orders of the lower authorities. It is an undisputed fact that the loan from Global Trust Bank was taken sometime in 2001 and since then the assessee has been debiting its Profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogies Inc, USA Reimbursement of travel and other expenses (payable) 23,44,995 - 4 Trigyn Technologies Inc, USA Reimbursement of travel and other expenses (Receivable) 78,06,850 - 5 Trigyn Technologies Europe GimbH Germany Reimbursement of travel and other expenses (payable) 1,22,385 The case was transferred to the Transfer Pricing Officer (TPO) under section 92CA of the Act for determination of arm s length prices of the international transactions of the assessee. During the transfer pricing proceedings the TPO observed that the CUP method has been applied without any internal comparables and external third party comparables. Assessee has considered its associate enterprise as the tested party for benchmarking software development services and considering the availability of data TNMM should not be considered as the most appropriate method. The TPO provided an entire search process to the assessee and final set of comparable with the arithmetic mean of 27.31 percent. Assessee made a detailed submission before the TPO. After considering the submissions of the assessee the TPO came to the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the lower authorities. The counsel also filed an application for admission of additional grounds of appeal. The counsel also brought to out notice the decision of the Tribunal in assessee s own case for AY 2004-05 and stated that the issue relating to applicability of most appropriate method has been set aside by the Tribunal. Therefore, the same view should be taken in the year under consideration also. 15. Per contra the learned D.R. strongly opposed to the admission of additional ground of appeal. It is the say of the learned D.R. that additional grounds raised by the assessee need verification of facts, which is against the ratio laid down by the Hon'ble Supreme Court in the case of NTPC 229 ITR 383. On merits of the case the learned D.R. strongly supported the findings of the lower authorities. 16. We have given thoughtful consideration to the findings of the lower authorities. We have also the benefit of the order of the Tribunal in assessee s own case for AY 2004-05 in ITA No. 4855/Mum/2009. The entire dispute boils down to the application of most appropriate method on the facts of the case. The assessee is insisting on CUP method whereas the TPO has adopte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) after considering the submissions of assessee vide para 3.8 has held that international transaction of assessee with its Associated Enterprises are at ALP and accordingly deleted the addition made on account of transfer pricing adjustment. Hence, department is in appeal before the Tribunal. 18. At the time of hearing, Id.DR submitted that assessee did not furnish external CUP data before TPO and the same were furnished before ld.CIT(A). He submitted that Id. CIT(A) accepted additional evidence without referring to the TPO. He submitted that international CUP data were not available at all. He further submitted that for application of CUP method standard of comparability are stringent and should be accurate. On the other hand, Id. AR submitted that TPO in his order has not discussed as to why CUP method is not applicable though the Id. CIT(A) has stated to apply CUP method. He further submitted that the TPO did not provide any details and names of comparables to the assessee to arrive at arithmetic means at 9.92%. It was also submitted that the assessee had entered into the transactions with Associated Enterprises as well as non Associated Enterprises and TPO considered the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. 19. During the course of scrutiny assessment proceedings the AO noticed that the assessee has debited ₹ 96,11,238/- under the head other costs as bad debts and the provisions for doubtful debts has been simultaneously credited. The AO was of the firm belief that the deduction is not allowable as the amount is in the nature of provision. The AO accordingly added ₹ 96,11,238/- to the returned income of the assessee. The assessee strongly objected to this addition before the CIT(A). It was explained that the assessee has debited to the Profit Loss Account towards provisions for bad and doubtful debts but the same is also been deducted from the debtors and only the net debtors are reflected in the Balance Sheet. It was explained that the netting of debtors by the amount of provision of bad debts amounts to writing off of the debts and therefore allowable as deduction under section 36(1)(vii) of the Act. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Vijaya Bank vs. CIT 323 ITR 166. 20. After considering the facts and the submissions the CIT(A) was convinced that the ratio laid down by the Hon'ble Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court which came to the conclusion by placing reliance on a relied upon judgment in the case of CIT Anr. vs. Wipro Infotech Ltd. [reported at (2009) 27 DTR (Kar) 102 Ed.] (see p. 5 of the paper book), that, in view of the insertion of the Explanation vide Finance Act, 2001, w.e.f. 1st April, 1989, the decision of the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala (supra) no more held the field and, consequently, mere creation of a provision did not amount to actual write off of bad debts, hence, these civil appeals. 5. At the outset, we may state that, in these civil appeals, broadly, two questions arise for determination. The first question which arises for determination concerns the manner in which actual write off takes place under the accounting principles. The second question which arises for determination in these civil appeals is, whether it is imperative for the assessee-bank to close the individual account of each debtor in its books or a mere reduction in the loans and advances account or debtors to the extent of the provision for bad and doubtful debt is sufficient ? 6. The first question is no more res integra. Recently, a Division Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Vithaldas H. Dhanjibhai Bardanwala (supra) was prior to the insertion of the Explanation vide Finance Act, 2001, w.e.f. 1st April, 1989, hence, that law is no more a good law. According to the learned counsel, in view of the insertion of the said Explanation in s. 36(1)(vii) w.e.f. 1st April, 1989, a mere debit of the impugned amount of bad debt to the P L a/c would not amount to actual write off. According to him, the Explanation makes it very clear that there is a dichotomy between actual write off on the one hand and a provision for bad and doubtful debt on the other. He submitted that a mere debit to the P L a/c would constitute a provision for bad and doubtful debt, it would not constitute actual write off and that was the very reason why the Explanation stood inserted. According to him, prior to Finance Act, 2001, many assessees used to take the benefit of deduction under s. 36(1)(vii) of 1961 Act by merely debiting the impugned bad debt to the P L a/c and, therefore, the Parliament stepped in by way of Explanation to say that mere reduction of profits by debiting the amount to the P L a/c per se would not constitute actual write off. To this extent, we agree with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for claiming deduction under s. 36(1)(vii) of 1961 Act. This view has been taken by the AO because the AO apprehended that the assessee-bank might be taking the benefit of deduction under s. 36(1)(vii) of 1961 Act, twice over. [See order of CIT(A) at pp. 66, 67 and 72 of the paper book, which refers to the apprehensions of the AO]. In this context, it may be noted that there is no finding of the AO that the assessee had unauthorisedly claimed the benefit of deduction under s. 36(1)(vii), twice over. The order of the AO is based on an apprehension that, if the assessee fails to close each and every individual account of its debtor, it may result in assessee claiming deduction twice over. In this case, we are concerned with the interpretation of s. 36(1)(vii) of 1961 Act. We cannot decide the matter on the basis of apprehensions/desirability. It is always open to the AO to call for details of individual debtor s account if the AO has reasonable grounds to believe that assessee has claimed deduction, twice over. In fact, that exercise has been undertaken in subsequent years. There is also a flipside to the argument of the Department. Assessee has instituted recovery suits in Courts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41(4) of 1961 Act and, consequently, there is no merit in the contention that, if the assessee succeeds, then it would result in escapement of income from assessment. 10. For the afore-stated reason, we uphold the judgment of the Tribunal dt. 31st July, 2003, and set aside the impugned judgment of the High Court. Consequently, the assessee s appeals stand allowed with no order as to costs. 24. As the facts of the case in hand are identical to the facts considered by the Hon'ble Supreme Court the CIT(A) has rightly followed the ratio laid down by the Hon'ble Supreme Court. Therefore no interference is called for. Appeal filed by the Revenue is accordingly dismissed. ITA No. 3124/Mum/2012 AY 2006-07 25. In this appeal the assessee has raised four substantive grounds of appeal. Ground No. 1 to 3 relate to the disallowance of ₹ 3.25 crores on account of interest paid to the bank and ground No. 4 relates to the transfer pricing adjustment of ₹ 39,32,900/-. 26. The issue in dispute in this appeal are identical to the issues considered by us in ITA 3123/Mum/2012 hereinabove where we have given detailed findings. For similar reasons and for similar fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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