2015 (12) TMI 294 - AT - Income Tax

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. - Decided in favour of assessee. Disallowance of commission paid u/s. 40(a)(ia) - CIT(A) deleted addition - Held that - 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 the Learned CITA with regard to allowability of deduction of commission to the extent of ₹ 46,56,333/- . We find that the assessee had duly remitted the TDS on 8.9.2009 which is before the due date of filing the return of income 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. Applicability of provisions of section 40(a)(ia) read with section 194C - Held that - Learned CIT(A) appreciated the fact that the assessee s case falls only under contract for sale and not contract for work and 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 article or thing so fabricated passes from the fabricator contractor 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.

Summary

Issues Involved:
1. Disallowance of bad debts written off (Rs. 13,60,091/-).
2. Disallowance of commission paid to Sunshine Commotrade Pvt Ltd (Rs. 40,82,939/-).
3. Applicability of section 40(a)(ia) read with section 194C of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Bad Debts Written Off (Rs. 13,60,091/-):
The assessee, engaged in the business of Erection and Commissioning of Industrial Furnace, wrote off a debt of Rs. 13,60,091/- in the Asst Year 2009-10. The assessee had initially raised a debit note of Rs. 26,06,750/- in the Asst Year 2008-09 and offered it as income. However, part of this amount was deemed irrecoverable and written off in the subsequent year. The Assessing Officer (AO) disallowed this write-off, arguing it was not routed through the profit and loss account and not made in the course of business activity. The CIT(A) allowed the write-off, stating it met the conditions of section 36(1)(vii) read with section 36(2) of the Act. The Tribunal upheld the CIT(A)'s decision, citing the Supreme Court's ruling in TRF Ltd vs CIT, which clarified that post-1.4.1989, it is sufficient if the debt is written off in the books of accounts.

2. Disallowance of Commission Paid to Sunshine Commotrade Pvt Ltd (Rs. 40,82,939/-):
The assessee paid a commission of Rs. 87,39,272/- to Sunshine Commotrade Pvt Ltd, of which Rs. 40,82,939/- was disallowed by the AO due to lack of details on services rendered and the relationship between the parties. The CIT(A) deleted the disallowance after verifying the agreement and services provided, noting that Sunshine Commotrade Pvt Ltd was not a related concern. The Tribunal upheld the CIT(A)'s decision, emphasizing the principle of consistency and referencing past assessments where similar deductions were allowed. Additionally, the Tribunal noted that the TDS on the commission was remitted before the due date, making the disallowance under section 40(a)(ia) inapplicable.

3. Applicability of Section 40(a)(ia) Read with Section 194C of the Act:
The AO invoked section 40(a)(ia) for disallowing Rs. 20,91,62,853/- incurred on the supply of manufactured goods, treating it as a contract for work under section 194C. The CIT(A) disagreed, considering it a contract for sale, supported by CBDT Circulars No. 681 and No. 13/6, and the Bombay High Court's decision in CIT vs Glenmark Pharmaceuticals Ltd, which stated that such contracts do not attract TDS under section 194C. The Tribunal confirmed the CIT(A)'s decision, referencing its own rulings in the assessee's previous years (2007-08 and 2008-09), which consistently treated similar transactions as contracts for sale.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all issues. The bad debts write-off was allowed, the commission payment disallowance was reversed, and the applicability of section 40(a)(ia) was negated, aligning with judicial precedents and the principle of consistency.