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TMI Blog2023 (5) TMI 914X X X X Extracts X X X X X X X X Extracts X X X X ..... outstanding till date in the books of the appellant. Ld. CIT (A) ought to have deleted addition made by AO. It be so held now. 2. Ld. CIT (A) erred in law and on facts in holding that outstanding liabilities ceased to exist in absence of confirmation from the parties and that it was probably settled through undisclosed & unaccounted amount by appellant. Ld. CIT (A) ought not to have confirmed addition on such presumptions without any corroborative evidence on record. It be so held now. 3. Ld. CIT (A) erred in law and on facts in not appreciating that the judgments relied upon by AO for making addition are distinguishable on facts of the case whereas ratio of the jurisdictional High Court judgments following sterling judgment of the Apex Court was squarely applicable to the facts. 4. Ld. CIT (A) erred in law and on facts in confirming part disallowance of Rs. 9, 70, 11, 868/- from total disallowance of Rs. 28, 28, 43, 345/- made by AO rejecting bad debts claimed from foreign debtors by the appellant. Ld. CIT (A) ought to have deleted total disallowance appreciating the fact that irrecoverable debts written off as per the guidelines of RBI are an allowable expense. It be so he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ahmedabad has erred in law and on facts in holding that the amendment introduced by Finance Act 2000 in Section 40(a)(ia) of the Act are clarificatory & have retrospective effect and hence no disallowance be made u/s.40(a)(ia) of the Act, where T.D.S. has been paid before the due date of filing of R.o.I. 6). The Ld. Commissioner of Income-Tax (Appeals)-XlV, Ahmedabad has erred in law and on facts in admitting additional evidences in violation of Rule 46A. 7. On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XlV, Ahmedabad ought to have upheld the order of the Assessing Officer. 8). It is therefore, prayed that the order of the Ld. Commissioner of Income- Tax (Appeals)-XIV, Ahmedabad may be set-a-side and that of the order of the Assessing Officer be restored." We shall first discuss the assessee's grounds of appeal Grounds 1-3: Addition under section 41(1) of Rs. 75,38,74,413/- 4. The brief facts in relation to these grounds of appeal are that during the course of assessment, the AO observed that from perusal of the list of sundry creditors, in respect of several parties, the amount payable which was outstanding was constant f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right/remedy to enforce such liability. It was submitted that it is well settled principle that simply because the liability is barred by limitation, it does not give right to the Assessing Officer to invoke section 41(1) of the Act. Secondly, the counsel for the assessee submitted that in order to invoke section 41(1) of the Act, the assessee should have claimed any allowance or deduction in respect of loss, expenditure or trading liability and subsequently, the assessee receives in respect of such trading liability any benefit by way of remission or cessation thereof. However, in the case of FIRC, no expenditure has been incurred by the assessee in the first instance since it is a case of export sales. Thirdly, on merits, all relevant documents were submitted before Ld. CIT(Appeals) for his consideration and therefore, the aforesaid additions cannot be sustained. 6. In response, the Ld. DR placed reliance on the observations made by the AO and Ld. CIT(Appeals) in their respective orders. 7. We have heard the rival contentions and perused the material on record. We are of the considered view that it is well settled law that additions under section 41(1) of the Act cannot be mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have been disallowed in year in which it was claimed, or could have been treated as unexplained cash credit in hands of assessee under section 68, but same could not be taxed under section 41(1), inasmuch as if liability itself was not genuine, question of remission or cessation thereof would not arise. 7.1 However, with respect to the first party Presidential Trading FZC (Rs. 73,33,67,778/-), while we are in agreement with the counsel for the assessee that since the amount outstanding shown in the name of the party on account of development of letter of credit opened on this party has since been taken over by the bank, now the assessee is liable to pay this amount to the bank and therefore, it cannot be held that the liability has ceased to exist. Further, the counsel for the assessee submitted that the bank has also filed a suit for recovery before DRT for recovery of the aforesaid amount and therefore, this is a genuine liability existing in the assessee's books of accounts. However, we observe that Ld. CIT(Appeals) rejected the assessee's appeal on this issue for the reason that no details regarding the suit filed by the bank before DRT has been submitted by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer made a disallowance of Rs. 164,70,91,000/- on various grounds such as it is not clear when such amount which has been claimed as bad debt had been offered as income by the assessee in any previous year, under what circumstances such amounts had become bad debt, what steps had been taken by the assessee to recover the amount and whether the assessee was still in corresponding with the aforesaid parties to recover the amount. 10. In appeal before Ld. CIT(Appeals), the assessee reiterated the submissions made before the assessing officer and also relied upon the case of TRF Ltd, in which the Supreme Court of India has held that to claim the deduction of bad debts, only it's write off from the books is an essential condition and the assessee need not prove/establish that the debts had in fact become bad. The Ld. CIT(Appeals) restricted the disallowance made by the assessing officer to only Rs. 10,91,39,114/- and deleted the balance disallowance amounting to Rs. 153.79 crores. In appellate proceedings, out of the disallowance on account of export debtors write off amounting to Rs. 28.28 crores, the Ld. CIT(Appeals) confirmed an amount of Rs. 9.70 crores after discussing the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax in the hands of the assessee, and therefore granting of relief to the assessee on this issue would amount to dual deduction in the hands of the assessee, if assessee is also able to get the write off of such amount. 13. We have heard the rival contentions and perused the material on record. We observe that in the case of TRF Ltd. 323 ITR 397 (SC), the Hon'ble Supreme Court held that after 1-4-1989, it is not necessary for assessee to establish that debt, in fact, has become irrecoverable; it is enough if bad debt is written off as irrecoverable in accounts of assessee. However, in the later case Khyati Realtors (P.) Ltd. 141 taxmann.com 461 (SC), the Hon'ble Supreme Court held that it is thus evident that merely stating a bad and doubtful debt as an irrecoverable write off without the appropriate treatment in the accounts, as well as non-compliance with the conditions in section 36(1)(vii), 36(2) and Explanation to section 36(1)(vii) would not entitle the assessee to claim a deduction. [Para 14]. Further, the amount of any bad debt or part thereof has to be written-off as irrecoverable in the accounts of the assessee for the previous year; such bad debt or part of it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en into computation of income in any of the previous years. 14. Therefore, looking into the instant facts, so far as the write off with this respect to international debtors is concerned, the matter is being set aside to the file of Ld. CIT(Appeals) only with a view to confirm whether the aforesaid amount has been reflected in the computation of income by the assessee in any of the earlier years in view of the decision of Khyati Realtors supra. However, we are in agreement with the counsel for the assessee that no such disallowance is called for only on the basis whether the assessee has written of debt in excess of 10% of international debtors in view of RBI regulations. Further, we are also in agreement with the argument for the counsel of the assessee that such a write-off of debts cannot be disturbed on the basis that the assessee had claimed deduction under section 80 HHC with respect to the export proceeds offered to tax in any of the earlier previous years. Accordingly, so far as international debtors is concerned, the issue is being restored to the file of Ld. CIT(Appeals) only to confirm whether the income with respect to which assessee has claimed write off of bad debts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment's appeal is allowed for statistical purposes as per directions made in the earlier part of our order. Ground number 2: disallowance under section 14A 20. The brief facts in relation to this ground of appeal are that during the course of assessment, the assessing officer observed that the assessee had earned exempt dividend income of Rs. 285,000/-. The assessing officer was of the view that that such earning of exempt income involves certain costs in the form of expenditure which in the form of direct as well as indirect expenditure relatable to earning such exempt income. Accordingly, assessing officer invoked the provisions of section 14(2) of the Act read with Rule 8D and computed disallowance at 5,76,368/-. 21. Before Ld. CIT(Appeals), the assessee contended that as per the ratio of Bombay high court in the case of Godrej and Boyce 194 Taxman 203 (Bombay), provisions of Rule 8D which have been notified with effect from 24-3-2008 are not retrospective in nature and shall apply with effect from assessment year 2008-09. Therefore, the excessive and unreasonable disallowance made by the assessing officer may be deleted. Accordingly, considering the facts of the case, the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.2013 but it gives impetus to the view that generation of electricity is a manufacturing process and qualifies for the benefits u/s. 32(1)(iia). I am inclined with appellant that it fulfilled all the eligible conditions for claim of additional depreciation (discussed by appellant at para 3 of written submission dated 17.2.2014), Hon'ble Gujarat High Court in the case of Diamonds & Chemicals Ltd, (supra) upheld the ratio of Hon'ble ITAT, Ahmedabad in the same case for such additional depreciation for windmill as relied on by appellant. I am inclined the ratio of Hon'ble High Court is squarely applicable in the facts of the appellant's case. It is therefore disallowances made by A.O. are neither justified nor sustainable in law. The A.O. is directed to allow such additional depreciation of Rs. 10,47,07,692/-. The appellant gets relief accordingly. This ground is allowed." 26. The Department is in appeal before us against the aforesaid deletions made by Ld. CIT(Appeals). Before us, Ld. DR relied upon the observations made by the assessing officer in the assessment order. In response, the counsel with assessee submitted that the aforesaid issue is directly covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FED is concerned amounting to Rs. 2,64,60,533/-, Ld. CIT(Appeals) agreed with the contention of the assessee that the entry of Rs. 2.64 crores was reversed in this year and hence there is no requirement of TDS deduction on such payment. Further, with respect to TDS on FBT, the Ld. CIT(Appeals) agreed with the contention of the assessee that there was an inadvertent typographical mistake in Annexure-4 for Clause 17(f) of Form 3CD, where details of FBT pertaining to financial year 2005-06 have been inadvertently mentioned for the impugned financial year i.e. financial year 2006-07. Accordingly, Ld. CIT(Appeals) allowed the appeal of the assessee with the following observations: "It is therefore, I am inclined with appellant that that there is bonafide mistakes on the part of tax auditor for working out such disallowable u/s 40(a) of the Act without considering the details in this regard. In view of such verification about payment of TDS out of prof, fees., interest is being paid to Bank, reversal entry of NAFED and entry mistake of FBT, the disallowances of Rs. 17,56,86,861/- u/s 40(a) of the Act are neither justified nor sustainable in law. The A.O. is directed to allow such expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's appeal are dismissed. Assessment year 2008-09 34. The Assessee has taken the following grounds of appeal:- "1 Ld. CIT (A) erred in law and on facts in confirming part addition of Rs. 55, 44, 387/- from total addition of Rs. 2, 13, 57, 42, 374/- made by AO by invoking provisions of section 41(1) of the Act. Ld. CIT (A) ought to have deleted addition made in absence of cessation or remission of liabilities outstanding till date in the books of the appellant. It be so held now. 2 Ld. CIT (A) erred in law and on facts in holding that outstanding liabilities either ceased to exist or were already discharged by the appellant through undisclosed income. Ld. CIT (A) ought not to have confirmed additions on conjectures, surmises & presumptions. It be so held now. 3 Ld. CIT (A) erred in law and on facts in confirming part disallowance of Rs. 5, 21, 22, 081/- from total disallowance of Rs. 164.23 crores made by AO rejecting bad debts claimed from domestic debtors by the appellant. Ld. CIT (A) ought to have deleted total disallowance appreciating the fact that irrecoverable advances for procurement of goods / services incidental to the business of the appellant is an allowable expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals)-XlV, Ahmedabad has erred in law and on facts to delete the addition of Rs.34,26,30,000/- u/s.41(1) of the Act on account of liability claimed to be provision for bills awaited for WEG to NEG Micron (India) Ltd, without any verifiable evidence of such outstanding liability. 5). The Ld. Commissioner of Income-Tax (Appeals)-XIV. Ahmedabad has erred in law and on facts to delete the addition of Rs.1,45,07,373/- outstanding to Suzlon Greenpower Ltd., u/s.41(1) of the Act on the basis of arbitration order although the date of outstanding liability is not verifiable. 6). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in admitting additional evidences in violation of Rule 46A. 7). The Ld. Commissioner of Income-Tax (Appeals) XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.3,21,07,755/- made u/s.68 of the Act without Assessee's onus being discharged to prove creditworthiness of depositors detained In Police custody. 8). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs.1,64,23,00,000/- made on account of bad debts. 9). The Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to rebut the same. Accordingly, Ld. CIT(Appeals) erred in fact and law in admitting additional evidences in violation of Rule 46A of the Income Tax Rules. 39. We have heard the rival contentions and perused the material on record. While we are in agreement with the counsel for the assessee that the Department has not been able to bring anything on record to controvert the findings made by Ld. CIT(Appeals), however, we also observe that instant case, the assessee filed certain supporting documentations which were considered by the Ld. CIT(Appeals) while affording relief to the assessee, without confronting this material to the assessing officer for his comments. Before us, the counsel for the assessee submitted that substantial documentations had all been furnished before the assessing officer during the course of assessment proceedings to substantiate that the outstanding amounts with respect to the aforesaid parties still existed, which was not considered by the assessing officer. Further, whatever documents were furnished to the Ld. CIT(Appeals) only supported the documents which were placed on record before the assessing officer during the course of assessment proceedings. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid grounds of appeal have already been dealt by us in the preceding parts of the order while dealing with grounds 4-6 of assessee's appeal and ground number 1 of the Department's appeal. 45. Accordingly, in light of the observations made in the earlier part of the order, the issue is being set aside to the file of Ld. CIT(Appeals) to ascertain whether income with respect to such amounts written off have been offered by the assessee in any of the earlier assessment years, in the light of observations made by us for assessment year 2007-08, and if that be the case, then relief may be allowed to the assessee in terms of the decisions of Khyati Realtors and TRF Ltd. supra. 46. In the result, both the appeals of the Assessee and Department are allowed for statistical purposes. Ground number 5 of assessee's appeal: loss on sale of the Hateshwari shares of Rs. 26.72 lakhs 47. Brief facts in relation to this ground of appeal are that the AO in the impugned assessment order considered that assessee included capital loss of Rs. 26,72,600/- on sale of Hateshwari shares as business loss and as per the provisions of section 71(3) of the Act, such loss cannot be set off against inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, who had been assessed with the same assessing officer for the past several years. Further, the loans had been accepted by account payee cheques and therefore, the assessee had discharged the onus cast upon him under section 68 of the Act. However, the assessing officer made additions under section 68 with respect to the aforesaid parties. 57. In appeal, Ld. CIT(Appeals) allowed the appeal of the assessee with the following observations: "The appellant in appeal submitted that Shri Dipak S. Metha from whom Rs. 28262281/- and Shri Predip S. Mehta from whom Rs. 3815474/- were accepted were under custody at the time of assessment proceedings hence such promoter & directors assessed with A.O. and earlier years also given loan to appellant company given confirmation with authorised person's i.e. wife of such person's signature but A.O. refused to accept the same. The appellant contended that all the three ingredient i.e. identify, genuiness and credit worthiness was not doubted by A.O. and simply the confirmation were signed by authorised signatory, A.O. added the sum of Rs. 3,21,07,755/-. The appellant filed the confirmation with such parties in appeal proceedings. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee received loan for purchase of land for construction of an educational campus, in view of fact that though initial burden of proof was not discharged at level of Assessing Officer but assessee produced relevant documents to prove identity and creditworthiness of creditor and genuineness of transaction before Commissioner (Appeals) and, further, transaction was made through proper banking channel, impugned addition made under section 68 on account of said loan amount received by assessee was unjustified. Accordingly, in light of the above judicial precedents and facts of the instant case, we find no infirmity in the order of Ld. CIT(Appeals) so as to call for any interference. 59. In the result, ground number 7 of the Department's appeal is dismissed. Ground number 8 of department's appeal: deletion of disallowance of Rs. 164.23 crores on account of bad debts 60. We have already discussed ground number 8 of department's appeal by dealing with grounds 3-4 of the assessee's appeal. 61. Accordingly, ground number 8 of departments appeal is allowed for statistical purposes. Ground number 9 of Departments appeal: deletion of additional Rs. 13.85 lakhs made on account of unexp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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