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TMI Blog2025 (5) TMI 1172X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's Appeal) ITA No.50/Coch/2024 : (Revenue's Appeal) 3. Briefly, the facts of the case are that the appellant is a company duly incorporated under the provisions of the Companies Act. It is an undertaking of the State Government of Kerala. It is engaged in the business of Chitti Investment Services. The return of income of the assessment year 2020-2021 was filed on 15th February, 2021 disclosing an income of Rs. 124,46,82,850. The same was revised on 31st March, 2021 at a total income of Rs. 161,76,56,460. Against the said return of income, the assessment was completed by the National Faceless Assessment Centre ("the AO) passed u/s. 143(3) r.w.s. 144B of the Act vide order dated 5th September, 2022 at a total income of Rs. 454,75,49,402. While doing so, the AO made following disallowances. (i) Disallowance of provision for bad and doubtful debts. Rs.227,48,76,260 (ii) Disallowance of guarantee commission paid to Government of Kerala u/s. 40(a)(iib) of the Act Rs. 65,39,86,799 (iii) Disallowance u/s. 40A(3) Rs. 1,60,63,721 4. Being aggrieved by the above disallowances, the appellant filed an appeal before the CIT(A), who vide the impugned order, upheld the addition on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exempt from Union taxation. Therefore, in terms of Article 289, the Union is prevented from taxing the States on its income and property. It is the constitutional protection granted to the States in terms of the abovesaid Article. This protection has led the States in shifting income/profits from the State Government Undertakings into Consolidated Fund of the respective States to have a protection under Article 289. In the instant case the KSBC, a State Government Undertaking, is a company like any other commercial entity, which is engaged in the business and trade like any other business entity for the purpose of wholesale and retail business in liquor. As much as these kind of undertakings are under the control of the States as the total shareholding or in some cases majority of shareholding, is held by States. As such they exercise control over it and shift the profits by appropriating whole of the surplus or a part of it to the Government by way of fees, taxes or similar such appropriations. From the relevant Memorandum to the Finance Act, 2013 and underlying object for amendment of Income-tax Act by Act 17 of 2013, by which section 40(a)(iib)(A)(B) is inserted, it is clear t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Ltd. which is also granted licence under FL-1. The aspect of 'exclusivity' under section 40(a)(iib) has to be viewed from the nature of undertaking on which levy is imposed and not on the number of undertakings on which the levy is imposed. If this aspect of exclusivity is viewed from the nature of undertaking, in this particular case, both KSBC and Kerala State Co- operatives Consumers' Federation Ltd. are undertakings of the State of Kerala, therefore, levy is an exclusive levy on the State Government Undertakings. Therefore, we are of the considered view that any other interpretation would defeat the very object behind the amendment to Income-tax Act, 1961. 14.1 It is fairly well settled that the interpretation is to be in the manner which will subserve and promote the object and intention behind the legislation. If it is not interpreted in the manner as aforesaid it would defeat the very intention of the legislation. To defeat the said provision, the State Governments may issue licences to more than one State owned undertakings and may ultimately say it is not an exclusive undertaking and therefore section 40(a)(iib) is not attracted. The submission of Sri Ganes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 51,14,77,320. From the perusal of the assessment order, it would reveal that the loans and advances claimed for deduction of Rs. 227,48,76,260 towards provision for bad and doubtful debts and claimed as deduction u/s. 36(1)(vii) of the Act placing reliance on the decision of the Hon'ble Apex Court in the case of Vijaya Bank v. CIT (2010) 323 ITR 166 (SC). However, the AO had disallowed the claim for deduction in respect of provision for bad and doubtful debts by holding that the appellant had failed to substantiate that this amount was offered to tax in the earlier years and the amounts were written off irrecoverable. 11. On appeal before the CIT(A), the CIT(A) while accepting the contention of the appellant that debiting the provisions for bad and doubtful debts to the profit and loss account and reducing the same from the advances in the balance sheet constitute a "write off", however, mixed up the issue with the deduction u/s. 36(1)(vii) and 36(1)(viia) of the Act, which is patently wrong, as both the deductions stand a different footing and the material on record does not indicate that the appellant made out claim of deduction u/s. 36(1)(viia) of the Act. Therefore, we ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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