1988 (7) TMI 83 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of depreciation on Service Line Contribution.
2. Disallowance of Bank Guarantee Commission.
3. Disallowance of Bad Debts.
4. Addition under Section 43B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on Service Line Contribution:

The assessee contested the disallowance of Rs. 2,15,473 claimed as depreciation on Service Line Contribution received from consumers prior to April 1, 1961. The CIT(A) confirmed the disallowance. The Tribunal, referencing its prior decisions for assessment years 1982-83 and 1983-84, upheld the CIT(A)'s decision, confirming the disallowance of depreciation.

2. Disallowance of Bank Guarantee Commission:

The assessee challenged the disallowance of Rs. 9,24,885 as Bank Guarantee Commission related to the I.D.B.I Bills Discounting Scheme. The CIT(A) had confirmed this disallowance. The Tribunal, referring to its detailed reasons recorded in the order dated July 21, 1988, for the assessment year 1982-83, upheld the CIT(A)'s decision, confirming the disallowance of the Bank Guarantee Commission.

3. Disallowance of Bad Debts:

The assessee argued against the disallowance of Rs. 58,70,063 in bad debts related to amounts due from H.T. consumers, which became sick units and had their service connections disconnected. The CIT(A) had confirmed this disallowance. The Tribunal, referencing its prior decision for the assessment year 1983-84, noted no change in facts and upheld the assessee's claim. The Tribunal directed the ITO to allow the necessary relief after verifying the amounts written off, as the bad debts were justified due to the non-recovery from 12 units even after 4 to 6 years.

4. Addition under Section 43B of the Income Tax Act:

The assessee contested the addition of Rs. 4,43,76,082 under Section 43B, related to Government Duty. The CIT(A) had confirmed this addition. The Tribunal analyzed the following arguments:

- The assessee acted as a collecting agent for the Government of Gujarat, receiving a commission of Rs. 6000 per annum.
- The amounts collected were credited to a separate account and not reflected in the P&L Account.
- The provisions of Section 43B were argued to be inapplicable as the amount was not claimed as a deduction in the P&L Account.
- The amount comprised Electricity Duty collected from consumers but payable to the Government in the subsequent assessment year.

The Tribunal noted that the Electricity Duty differs from sales tax, as the licensee (assessee) is not liable for unrecovered duty from consumers, unlike sales tax where the seller is liable. The Tribunal found that the amount was not due for payment during the year under appeal and relied on the Andhra Pradesh High Court's decision in S. Subba Rao & Co., which stated that Section 43B applies only if the tax or duty is statutorily payable in the accounting year. Consequently, the Tribunal directed the ITO to delete the addition, as the amount was retained as a collecting agent and paid within the statutory period.

Conclusion:

The Tribunal partly allowed the appeal, confirming the disallowances of depreciation and Bank Guarantee Commission, accepting the bad debts claim, and directing the deletion of the addition under Section 43B.