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2015 (12) TMI 294 - ITAT KOLKATA

2015 (12) TMI 294 - ITAT KOLKATA - TMI - Disallowance of bad debts written off - Held that:- The transactions involved were true and genuine. They had also held that the advances had been made during the course of the business and they had become irrecoverable as bad debts and hence the assessee was entitled to the benefit under section 36(1). The question as to whether a debt had become bad or not was a pure question of fact and, therefore, it could not be construed as a question of Law. - Deci .....

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ome u/s 139(1) of the Act and accordingly is entitled for deduction for the same in the previous year itself. No adverse remarks were rendered by the Learned AO in this regard in the remand report. Hence it has to be presumed that the Learned AO had accepted the same in the remand proceedings. Having done so, we hold that the revenue ought not to have come on appeal before us on the alleged ground of violation of Rule 46A of the Income Tax Rules - Decided in favour of assessee.

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to the assessee only after such article or thing is delivered to the assessee, such contract would be a contract for sale and so outside the purview of section 194C - Decided in favour of assessee. - ITA No. 91/Kol/2013 - Dated:- 27-11-2015 - Shri Mahavir Singh, Judicial Member And Shri M. Balaganesh, Accountant Member For the Appellant : Shri Rajendra Prasad, JCIT, Sr. DR For the Respondent : Shri Anup Sinha, Advocate , ld. AR ORDER Shri M. Balaganesh, AM This appeal of the revenue arises out .....

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e is engaged in the business of Erection and Commissioning of Industrial Furnace. The assessee executed a project jointly with Stein Heurtey Bilbao in Gujarat for Welspun Group and part of the work was executed by the assessee on behalf of Stein Heurtey Bilbao and a debit note was raised by the assessee on 15.1.2008 for the same in Asst Year 2008-09 for ₹ 26,06,750/-. On raising the debit note, the assessee duly offered the same as its income for Asst Year 2008-09 by correspondingly debiti .....

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ooks of accounts, it had erroneously shown this transaction as advances written off instead of debt written off . The Learned did not heed to this request of the assessee and proceeded to disallow the said sum of ₹ 13,60,091/- on the ground that the advances were not routed through profit and loss account of any earlier year and further on the ground that the said sum was not made in the course of business activity of the assessee. On first appeal, the Learned CITA deleted the addition on .....

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rred in disallowing the bad debt written of amounting to ₹ 13,60,091/- (b) That the ld.CIT(A) has erred on facts and circumstances of the case and in law in holding that the AO has erred in disallowing the bad debt written off amounting to ₹ 13,60,091/- on the alleged ground that the same is allowable under the provisions of Sec. 36(1)(vii) read with Sec. 36(2) of the Act. 3.1. The Learned AR reiterated the submissions made by him before the Learned CIT(A). He further argued that nam .....

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o this, the Learned DR vehemently supported the order of the Learned AO. 3.2. We have heard the rival submissions and perused the materials available on record. We are in agreement with the arguments of the Learned AR that the substance of the transaction is to be seen and that would always prevail over its form. Hence by the fact that the assessee had categorized as advances written off in his books alone would not be the determinative factor for deciding the legitimate claim of deduction of th .....

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ee to write off the part of the debit note amount in the sum of ₹ 13,60,091/- in Asst Year 2009-10 itself. We find that the assessee had duly complied with the requirements stipulated in section 36(1)(vii) read with section 36(2) of the Act in claiming the deduction towards bad debts to the tune of ₹ 13,60,091/- and accordingly is duly entitled for deduction. We find that the decision of the Hon ble Supreme Court in the case of TRF Ltd vs CIT reported in 323 ITR 397 (SC) is directly .....

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he transaction of the asessee of financing the subsidiary company was genuine and bona fide. The assessee paid further advances in its own interest with a view to recover the amount given earlier, to sustain a share and to avoid the guarantee being invoked. The mere fact of payment of money after stoppage of interest from the subsidiary company by itself could not be a ground to hold that the transactions were not in the course of the business. There was no bar in law for financing the subsidiar .....

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anced by the assessee had become irrecoverable and was given during the course of the business. What was not paid by the subsidiary company was only the interest and there was no principal amount due at the time of advancing the amount thereafter. The advances made by the assessee were also utilized by the subsidiary company for the purpose for which they were obtained which was to run the foundry. This would also indicate that the amount had been given out of commercial expediency as well. Both .....

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d as a question of. Law. In view of the aforesaid facts and respectfully following the aforesaid judicial precedents on the impugned issue, we don t find any reason to interfere with the order of the Learned CITA and accordingly, the ground no. 1 raised by the revenue is dismissed. 4. The next issue to be decided in this appeal is as to whether commission paid to Sunshine Commotrade Pvt Ltd amounting to ₹ 40,82,939/- could be disallowed in the facts and circumstances of the case. This issu .....

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fresh evidences or counter the same before deleting the disallowance u/s. 40(a)(ia) of ₹ 46,56,333/-. 4.1. The brief facts of this issue is that the assessee entered into an agreement with Sunshine Commotrade Pvt Ltd wherein the said party would render certain services to the asssessee in consideration of 2% commission on total value of contract. The assessee debited a sum of ₹ 87,39,272/- as expenditure incurred towards commission paid to Sunshine Commotrade Pvt Ltd by account payee .....

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y the said concern was made available before him and whether the commission paid to sister concern is excessive or unreasonable or not could not be verified. Accordingly he sought to disallow the sum of ₹ 40,82,939/- towards commission payment. 4.2. On first appeal, the assessee placed the copy of the agreement entered into with Sunshine Commotrade Pvt Ltd and also elaborated the various services rendered by the said party to the assessee. The assessee pleaded that the services provided by .....

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acts with various parties , and on the basis of such contracts the assessee company s business was surviving. The said concern had the requisite knowledge, experience and expertise that enabled the assessee to promote its business. The assessee also filed before the Learned CIT(A) a declaration from its Managing Director that the said party Sunshine Commotrade Pvt Ltd is not a related concern of the assessee. The Learned CIT(A) sought for a remand report from the Learned AO. Before the Learned A .....

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essee raised additional ground before the Learned CIT(A) for seeking relief in respect of disallowance u/s 40(a)(ia) of the Act made by the assessee voluntarily in the return of income to the tune of ₹ 46,56,633/- towards commission paid during the period April 2008 to Feb 2009. It was pleaded before the Learned CIT(A) that the commission payment to the extent of ₹ 46,56,633/- was subjected to deduction of tax at source and the TDS thereon was duly remitted to the account of Central .....

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ned DR vehemently supported the order of the Learned AO. 4.5. We have heard the rival submissions and perused the materials available on record. We find from the paper book filed by the assessee that Sunshine Commotrade Pvt Ltd had been rendering various services to the assessee in consideration for receipt of commission at an agreed rate pursuant to a duly executed agreement entered into by the assessee for a long time. We find that the revenue before us has not controverted the findings given .....

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nd that the assessee s case is also covered by the decision of this tribunal in the case of IFB Agro Industries Ltd vs CIT in ITA No. 3756 (Cal.) 92 , 382 & 383 (cal.)/90 for Asst Years 1985-86 , 1984-85 & 1995-96 dated 9.4.1996 wherein it was held as follows:- The payment of commission would be allowable even if the same has been paid to any related entity provided the following conditions are fulfilled:- (i) there must be two separate corporate entities (ii) there must be an agreement .....

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ervices against which the assessee was making payments at an agreed rate. There is no evidence on record to show that the amount of commission paid to Sunshine flowed back to the coffers of the assessee. 4.6. We also find that the commission payments were made by the assessee through account payee cheques to Sunshine Commotrade Pvt Ltd. We also find that this commission payment has been made by the assessee for a long time and deduction has been granted by the Learned AO in all the previous year .....

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wing year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 4.7. We also find that the Learned AO had an opportunity in the remand proceedings to verify the entire veracity of the claim made by the assessee in the additional ground before th .....

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the remand proceedings. Having done so, we hold that the revenue ought not to have come on appeal before us on the alleged ground of violation of Rule 46A of the Income Tax Rules. Accordingly, the ground no. 2 & 4 raised by the revenue are dismissed. 5. The last issue to be decided in this appeal is as to whether the provisions of section 40(a)(ia) read with section 194C of the Act would be applicable in the facts and circumstances of the case. 5.1. The brief facts of this issue is that the .....

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ection 40(a)(ia) disallowance for the same. The Learned AO observed as under :- • The goods manufactured by the vendor for the appellant company were tailor made according to the requirements of the appellant and hence the work assigned by the appellant to its vendor is not a contract for sale instead the work is in nature contract for work . • The whole manufacturing process was carried out under the close supervision of the appellant and as such the work carried out by the vendor was .....

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nsactions in Income Tax proceedings because both the proceedings are guided by two difference Acts and Laws. Definition of the terms may not be same in both the Acts. Hence, it was alleged that the argument of the assessee that the transaction should be treated as contract for sale because the same view was held by Sales tax authority is not tenable. • Since the appellant is not falling within the scope of subsection (3) of section 194C of the Act, the provisions of subsection (1) of 194C o .....

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the definition of work as per Explanation (iv) (e) to section 194C which was introduced with effect from 1.10.2009 has been held to be retrospective in operation by the decision of Bombay High Court in the case of CIT vs Glenmark Pharmaceuticals Ltd reported in 324 ITR 199 (Bom) . He also held that the case before the Bombay High Court was the goods were manufactured by the vendor as per the specification of the assessee and it was alleged by the AO that the payment for the same should suffer T .....

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ed that the amendment being clarificatory in nature would be applicable retrospectively. 5.3. The Learned CIT(A) also relied on the CBDT Circular No. 681 dated 8.3.1994 containing various situations in which the provisions of section 194C would apply / not apply. He also relied on the CBDT Circular No. 13/6 dated 13.12.2006 wherein it was categorically stated that the provisions of section 194C would not apply to contracts for sale of goods and further clarifies that where the property in the ar .....

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e also amply clear that the supply of articles as per the specifications of the customer would not attract TDS u/s 194C. The Learned CIT(A) also placed reliance on the decisions of this tribunal in assessee s own case on the same issue for the Asst Years 2007-08 & 2008-09 which was decided in favour of the assessee and accordingly deleted the addition made by the Learned AO. Aggrieved, the revenue is in appeal before us on the following ground:- 3. That the ld. CIT(A) has erred on facts and .....

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impugned issue is squarely covered by the decision of this tribunal in assessee s own case for the Asst Year 2008-09 in ITA No. 1143 / Kol / 2011 dated 18.5.2012, wherein the grounds raised before this tribunal and finding given thereon are reproduced herein below:- 1. That the ld.CIT(A) has erred on facts and circumstances of the case and in law by holding that supply of articles as per the specification of the customer would not attract TDS under section 194C and that the present case is one o .....

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, 2 & 3, which are against the actions of the learned Commissioner in holding that the supply of articles as per the specification of the customer would not attract TDS under section 194C and that the present case is one of sale per se and not a contract of work, it was fairly agreed by both the sides that the issue is squarely covered in favour of the assessee by the decision of the co-ordinate bench of this tribunal in assessee s own case in ITA No.349/Kol/2011 dated 30th day of March 2012 .....

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