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TMI Blog2009 (4) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly, ground 1 of the assessee is allowed. Disallowance on advances Written off - assessee failed to discharge the onus by furnishing requisite evidences - assessee has argued stating that the said amounts were advanced to the suppliers, which have become bad and, therefore, the assessee has written them off in the books of account considering the smallness of the amounts. HELD THAT:- Paper book does not contain any information as to the names of the parties involved and continuation of the business transactions with the said parties, if any, in the subsequent periods. We have also perused the Bombay High Court judgment in the case of Oman International Bank SAOG [ 2009 (2) TMI 54 - BOMBAY HIGH COURT] . Thus, the judgment has established the law on the issue of bad debts. Only restriction is with regard to the existence of good reason for AO to deem it otherwise. To exclude the said reason of AO, the undisputed facts of the absence of the details is the limiting factor for us to decide the issue conclusively. The claim of the assessee has to be allowed once the debt involving a party is written off by the assessee in the books of account. Paradoxically, the assessee cannot conti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31 - ITAT MADRAS-B] has no application to this ground. Accordingly, ground 3 of the assessee is allowed. MAT - adjustment of provision for gratuity u/s 115JB - objection of the revenue is with regard to the assessee s failure to follow the AS-15 and the actuarial method referred therein and not disputed the quantification of the provision of gratuity - assessee failed to follow the actuarial valuation in regard to gratuity for determining actual liability. AO added back the same to the book profits u/s 115JB - assessee has argued stating that AO has carried away by the word provision ignoring the fact that it is an ascertained liability. HELD THAT:- It is noticed that the said provision of section 115JB are code by itself and determination of the book profits has to be done only as per the provisions of section 115JB, which unambiguously provides for exclusion of provisions of ascertained liabilities for the purpose of book profits . In this regard, we have perused the Apex Court judgment in the case of Bharat Earth Movers [ 2000 (8) TMI 4 - SUPREME COURT] . Thus, although the provision are not allowable as deduction, certain provisions which are capable of estimation with reasonab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is engaged in the business of manufacturing and trading of control valves and actuators, level instruments and related accessories and filed the return of income for the assessment year 2003-04 declaring the total income at Rs. 'nil' under the normal provisions and Rs. 20,78,853 under section 115JB of the Income-tax Act (Act). The same was scrutinized under section 143(3) and the assessment was made determining the total income at Rs. 'nil' under normal provisions and Rs. 37,50,742 as book profit under section 115JB of the Act. Assessing Officer made certain additions and adjustments during the assessment. Ground-wise adjudication is given in the following paragraphs. 3. Ground 1 relates to bad debts written off and liquidity damages. Relevant facts in this regard are that the assessee claimed the deduction of bad debts written off amounting to Rs. 20,70,012. Assessing Officer disallowed the same stating that the assessee has not filed any evidence that the said debts have become bad. Relying on the Supreme Court judgment in the case of CIT v. Calcutta Agency Ltd. [1951] 19 ITR 191 for the proposition that the onus is on the assessee to furnish that the relevant details when cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay High Court judgment in the case of CIT v. Star Chemicals (Bombay) (P.) Ltd. [2008] 220 CTR (Bom.) 319 for the proposition that once the assessee has written off the debt as bad debt requirements under section 36(1)(iii) is satisfied and claim for deduction for bad debts is allowed. On the other hand, Learned DR has relied on the orders of the revenue authorities. 6. We have heard both the parties and perused the relevant orders on the papers of the paper book. It is noticed that the liquidity charges are actually business expenditure, which is in the form of enhanced cost paid by the assessee in view of the delayed delivery of the orders. So far as amount of Rs. Rs. 5,90,009 is concerned, in our opinion, it is the debt squarely covered by the Special Bench decision in the case of Oman International Bank SAOG (supra). Considering the factual matrix of the ground, we are of the considered opinion that the assessee must succeed on this issue. Accordingly, ground 1 of the assessee is allowed. 7. Ground 2 relates to advances written off amounting to Rs. 12,265. On facts, Assessing Officer disallowed the said amount stating that the assessee failed to discharge the onus by furnishin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional Bank SAOG (supra) and same reads as under:-- "13. Considering the above discussion, in our opinion to treat the debt as bad debt has to be commercial or business decision of the assessee based on the relevant material in possession of the assessee. Once the assessee records the debt as bad debt in his books of account that would prima facie establish that it is a bad debt unless the Assessing Officer for good reasons holds otherwise. The writing in the accounts no doubt, has to be bona fide. Once that be the case the assessee is not called upon to discharge any further burden. In our opinion, therefore, we are in agreement with the view taken by the majority constituting the Bench of the learned Tribunal." [Emphasis supplied] 10. Thus, the judgment has established the law on the issue of bad debts. Only restriction is with regard to the existence of good reason for the Assessing Officer to deem it otherwise. To exclude the said reason of the Assessing Officer, the undisputed facts of the absence of the details is the limiting factor for us to decide the issue conclusively. Considering the above law, the claim of the assessee has to be allowed once the debt involving a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Services (P.) Ltd. as per the written contract between the assessee and the commission agent. In this regard, he has taken us through pages 29 to 44 of the paper book showing the names, their addresses, account, the purpose of the commission payments (page 29), the agreement dated 24-1-2000 showing the terms and conditions of the commission payment (page 30), the details of the services to be rendered by the agent (Page 31) and other details relating to the amount of orders etc. In this regard, the Counsel has argued that so far as the company is concerned, it has received the orders and commission was paid as per the terms and conditions. Therefore, the claim should be allowed. He also questioned that on having in possession the basic information about the commission agent, the Assessing Officer failed to discharge his part of the onus in conducting the enquiries, if any, in case of any doubt or suspicion. In the absence of any such initiative from the Assessing Officer side, the evidences furnished by the assessee must be accepted in toto. Per contra, Learned DR for revenue has argued stating that this is the case where the assessee has failed to submit the exact nature of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to the Assessing Officer, who was not satisfied with the said information. Considering the quantum of information available with the Assessing Officer in the matter, Assessing Officer should have attempted to disprove the contents of the agency agreement or payments made through the banks are bogus or money has come back to the Assessee Company by way of cash etc. and in the process, the Assessing Officer has not done his part of the duty in the matter. Therefore, in our considered opinion the assessee has discharged the duty of furnishing the basic information. Accordingly, the Apex Court judgment in the case of Kaveri Engg. Industries Ltd. (supra) has no application to this ground. Accordingly, ground 3 of the assessee is allowed. 15. Ground 4 relates to adjustment of provision for gratuity under section 115JB. During the assessment proceedings, Assessing Officer noticed that the assessee added back the 'provision for gratuity' amounting to Rs. 3,46,107, while computing the total income under the normal provisions. However, he did not add back the same while computing the total income under the provisions of section 115JB. On finding that assessee failed to follow the actu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification does not decide the issue of ascertainment or otherwise of the liability and therefore, the provision for gratuity is required to be excluded for the purpose of determining the book profits. Considering the rival positions, it is noticed that the said provision of section 115JB are code by itself and determination of the book profits has to be done only as per the provisions of section 115JB, which unambiguously provides for exclusion of provisions of ascertained liabilities for the purpose of 'book profits'. In this regard, we have perused the Apex Court judgment in the case of Bharat Earth Movers (supra) and the relevant portions of the same reads as under. "Business liability arising in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with the reasonable certainty without actual quantification. Till these requirements are satisfied the liability is not a contingent one. The liability is one presenti though it will be discharged at a future date. It does not make any difference if th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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