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TMI Blog2013 (1) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... on judicial principles. If evidence is produced by the assessee in support of its return it should be accepted unless it is rebutted by admissible evidence and not by mere hearsay. In favour of assessee Disallowance u/s 40(a)(ia) – TDS deducted but paid after due date - Payment of expenditure made before last month of A.Y. on which TDS was deducted but paid after 31st March – Held that:- Amendment to the provisions of Sec. 40(a)ia), by the Finance Act, 2010 is applicable retrospectively from 1.4.2005. Undisputedly the payment of TDS has been made before due date of filing of the return. Return has been filed u/s 139(1), therefore, no disallowance can be made on account of non-payment of TDS u/s 40(a)(ia) on these facts. Therefore, the order of CIT(A) remained uncontroverted. In favour of assessee Addition on account of non-inclusion of excise duty in the closing stock of finished goods – Adjustment of excise duty in valuation of closing stock of finished goods - A.O. argued that these amounts have not been included in the valuation of closing stock of finished goods in terms of provisions of sec. 145 – Held that:- The excise duty relating to closing stock of finished goods was Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue in its appeal are general in nature and require no adjudication. 3. Ground no. 2 relates to the deletion of addition of Rs. 29,08,07,163/- made by the Assessing Officer on account of difference between the income appearing in TDS certificate and income offered for taxation. 4. Assessing Officer made an addition of Rs. 29,08,07,163/- on account of TDS claimed on advance against running contracts by observing as under: "During the year, the assessee has earned income from contract sales and the product sales. In respect of contract sales, it has claimed advance receipt of Rs.29,08,07,163/- which has not been considered as income of AY 2008-09 but considered as liability in the balance sheet. However, this advance money from various customers has been received after deduction of TDS. The assessee was asked to reconcile its claim of TDS credit with related income in the profit & loss account. The details submitted by the assessee in this regard lead to no conclusion as there are thousand of TDS tax credits as per Form No.26AS and the TDS claim made by the assessee which are not reconciled properly. The assessee itself has admitted that the TDS claim has been made in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has already filed along with the income tax return which is again enclosed with the submissions. As against the amount of Rs.259.42 crores, the assessee has reflected in the Profit & Loss account the total contract sales of 306.73 crores. This completely satisfies the requirements of the provisions of sec. 199 in so far as the claim for TDS has been made by the assessee in the assessment year in which such income is assessable. Both the sections, viz., 198 and 199, fall within Chapter XVII of the Income-tax Act, 1961, which are titled as "Collection and recovery of tax--Deduction at source." In other words, these are machinery provisions for effectuating collection and recovery of the taxes that are determined under the other provisions of the Act. In other words, these are only machinery provisions dealing with the matters of procedure and do not deal with either the computation of income or chargeability of income. The basis of charge of income to tax in the case of business income is provided in section 28 of the Act. The computation provisions of sections 28 to 43A deal with the assessment of profits and gains of business. In computing the income from business or professi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income is recognized considering net revenue or expenses as on reporting date and adjusting for any additional revenue / cost with reference to stage of individual contracts. Expected losses on ongoing contracts are recognized as an expense immediately. Estimate billings and expenses are based on budget approved by management at the time of finalization of the order/placement of procurement orders and includes subsequent revision, if any. Profit / Losses on job executed less than 10% of contract value has not been considered. The assessee-company is carrying on the business of product sales and job contracts. The assessee-company is maintaining its books of account on accrual system. The profits on contracts entered into by the assessee-company undisputedly have been recognized on percentage of completion method as per the accounting standards indicated above and offered for taxation accordingly. It does not mean that income from a project is earned only at the completion of the project. Income is earned by the assessee-company simultaneously with the progress in the project execution in a contemporaneous manner. The assessee-company is accounting for the expenditure in work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual. In this connection, reference is made to the Mumbai Tribunal decision in the case of Toyo Engineering India Ltd. vs. JCIT SR 27 reported in (2006) 5 SOT 616 (Mum), copy enclosed. The provisions of section relating to deduction of tax at source are not charging sections or computation section unless and until it is followed by an assessment order making a charge of tax. The deduction of tax is not a levy of tax. Deduction of tax at source is merely one of the mode of collection of tax. The amount on which TDS is deducted is subject to charge as per the provisions of the Act. There are few instances which can further elaborate this view. For example, the recipient maintains account on cash basis which may not match with the amounts certified in the TDS Certificate due to the reason that the deductor has maintained the account on mercantile basis. Naturally the deductor will deduct the tax on accrual basis; however, the recipient shall disclose the income on receipt basis. In this situation, there shall always be a mismatch between the amount of receipt as per TDS Certificate and the taxable income offered by the assessee. Due to this reason, the statute has clarified that it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly, he deleted the addition. 7. Ld. DR simply placed reliance on the order of Assessing Officer. On the other hand, counsel of the assessee placed reliance on the order of CIT(A). 8. After considering the orders of Assessing Officer and CIT(A) we find no infirmity in the finding of CIT(A). The finding of CIT(A) has been incorporated in para 3.2 to 3.6 at pages 6 to 10 of his order, which are self explanatory and in detail. The findings of CIT(A) are reproduced herein below: 3.2. I have carefully considered the submissions made on behalf of the appellant, the findings of the Assessing Officer and the facts on record. The perusal o the return of income and the computation of taxable income filed alongwith the return of income reveals that the assessee has claimed credit for TDS in the Income tax return amounting to Rs.6,18,49,871/- and the corresponding amount reflected in the said TDS certificates is to the tune of Rs.259,42,51,681/-. As against the amount of Rs.259,42,51,681/-, the assessee has shown contract sales of Rs.306,73,33,963/- in the Profit & Loss account (Refer to Schedule-8 to the accounts for the year5 ended 31st March 2008). There is also no dispute over the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time, i.e., payment or credit, the latter signifying accrual. In other words, the tax deduction has to match in time the earlier of the payment (receipt) or accrual. Put differently, the deduction of tax at source does not necessarily, or is not required to, match alongside the corresponding income, recognition of which by the recipient could be either on accrual or on receipt basis. The accrual of the tax liability on income would arise only on the same being/becoming assessable. There is thus an inherent mismatch, in terms of time, between the payment of tax (per TDS) and the accrual of tax liability against the corresponding income, i.e., given the fact of admission of income as per the relevant provisions of law. It is in view of and to address this mismatch in time, so that the tax stands deducted while the corresponding income, though accrued has yet to be received or though received, as by way of an advance, is yet to accrue, that the law [per section 199 r/w ss. 190 & 191 and Rule 37BA] clarifies that the credit for the TDS shall be available for the year for which the corresponding income is assessable. The law as provided by the statute, to my mind, could not get clearer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TTJ (Mumbai) (™)703, it was held as under:- "Section 199 of the Act has two objectives - one to declare the TDS as payment of tax on behalf of the person on whose behalf the deduction was made and to give credit for the amount so deducted on the production of the certificate in the assessment made for the assessment year for which such income is assessable. The second objective mentioned in section 199 is only to answer the question as to the year in which the credit for TDS shall be given. It links up the credit with assessment year in which such income is assessable. In other words, the Assessing Officer is bound to give credit in the year in which the income is offered to tax. This section 199 does not empower he Assessing Officer to determine the year of assess ability of the income itself but it only mandates the year in which the credit is to be given on the basis of the certificate furnished. In other words, when the assessee produces the certificates of TDS, the Assessing Officer is required to verify whether the assessee has offered the income pertained to the certificate before giving credit. If he finds that the income of the certificate is not shown, the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e liability nor the assessee is subjected to unreasonable hardship. No doubt it is not only the right but also the duty of the Assessing Officer to consider whether or not the books disclosed the true state of accounts and the correct income can be deduced therefrom. But these rights and duty have to be exercised in such a manner and have to be based on cogent reasons and sufficient material. The reasons given by the Assessing Officer in this case on the facts and circumstances is demonstrated, as erroneous by the assessee. Accounts regularly maintained in the course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable and incorrect. The procedure of the Assessing Officer is of judicial nature and in making the assessment he should proceed on judicial principles. If evidence is produced by the assessee in support of its return it should be accepted unless it is rebutted by admissible evidence and not by mere hearsay. 3.6. Thus for all these reasons and as the assessee has produced sufficient material justifying its claim and as it has repelled the contentions advanced by the Assessing Officer with cogent mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or subcontractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid,- (A) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub sec. (1) of sec. 139, or (B) in any other case, on or before the last day of the previous year. The high lighted part in the above provisions has been substituted by the Finance Act 2010 with effect from 1st April 2010 for the following words : "has not been paid on or before the due date specified in sub-section (1) of section 139". Therefore, with the above amendment by the Finance Act, 2010, the distinction between payments made in the last month of the previous year and payments made before the last month of the previous year for allowability u/s 40(a)(ia) has been done away with. In respect of both the payments, the TDS thereon if deposited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 (extract enclosed) wherein it has been held that the amendment made by the Finance Act 2010 being curative in nature and brought in to remove the hardship of the assessee is applicable retrospectively from 2005 onwards. Hence, the addition of Rs.1,78,31,914/- may kindly be deleted." 14. After considering the submissions and perusing the material on record CIT(A) found that Assessing Officer was not justified in making the disallowance. Various case laws relied on by assessee were found in favour of the assessee and accordingly he deleted the addition by further observing that provisions of sec. 40(a)(ia) as amended by Finance Act 2010 w.e.f. 1-4- 2010 to be effective for the year under consideration as these provisions are applicable with retrospective effect as held by various Courts. Accordingly, the issue was decided in favour of the assessee. 15. Ld. DR placed reliance on the order of Assessing Officer . It was stated that though ld. CIT(A) has held that provisions are applicable with retrospective effect whereas these provisions should have been taken applicable only from the date of amendment i.e. 1-4-2010 and not for the year under consideration. 16. On the other hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of TDS has been made before due date of filing of the return. Return has been filed u/s 139(1), therefore, no disallowance can be made on account of non-payment of TDS u/s 40(a)(ia) on these facts. Therefore, the order of CIT(A) remained uncontroverted. Therefore, we see no reason to interfere in the finding of CIT(A) on this issue also. The ground is dismissed. 20. Ground no. 5 relates to the deletion of additions of Rs. 51,68,020/- and Rs. 1,74,88,597/- made by the Assessing Officer on account of noninclusion of excise duty in the closing stock of finished goods and raw material respectively. 21. The Assessing Officer made a disallowance of Rs. Rs. 51,68,020/- on account of non-inclusion of excise duty in the closing of finished goods; and Rs. 1,74,88,597/- on account of non-inclusion of excise duty in the closing stock of raw material. Assessing Officer noted that these amounts have not been included in the valuation of closing stock of finished goods and raw material in terms of provisions of sec. 145 of the Act. Therefore, he made the disallowance. Detailed submissions were filed before CIT(A) which have been incorporated in the order of CIT(A) at page 19, which are as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 2006-07 and 2007-08 is enclosed to appreciate the consistent method of valuation of closing stock followed by the assessee which is in line with sec. 145A of the Income Tax Act 1961. There is no deviation by the assessee. Therefore, no addition is called for. The assessee has fully complied with the provision of sec. 145A of the Income Tax Act, 1961 as has been reported by the Tax Auditors giving the complete working. Therefore, the addition made of Rs.51,68,020/- and Rs.1,74,88,597/- may kindly be deleted." 22. After considering the submissions and perusing the material on record CIT(A) was satisfied with the explanation of the assessee. Accordingly, he deleted both the additions by giving following finding recorded in paras 6.1 to 6.3 (at pages 20 & 21) of his order: "6.1. I have carefully considered the submissions made on behalf of the appellant, the findings of the Assessing Officer in the assessment order and the facts on record. The Assessing Officer has referred to Annexure-3 of the Tax Audit Report and observed that the excise duty related to closing stock of finished goods comes to Rs.63,61,688/- out of which Rs.51,68,020/- has been shown to be paid unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the excise duty on the closing stock of finished goods as well as raw material and also reflecting the adjustment by way of Cenvat credit available to the assessee towards the excise liability. The above working shows that the excise duty on closing stock amounting to Rs.11,93,668/- has remained unpaid up to 31.07.2008 and therefore has been voluntarily disallowed under section 43B of the Act and added back to the total income by the assessee. In view of the above, it is held that the disallowances of (a) Rs.51,68,020/- on account of non-inclusion of excise duty in the closing stock of finished goods and (b) Rs.1,74,88,597/- on account of noninclusion of excise duty pertaining to closing stock of rawmaterials are not sustainable in law and the Assessing Officer is accordingly directed to delete the said additions. As a result, grounds of appeal No.12, 13 and 14 are allowed." 23. Ld. DR firstly placed reliance on the order of Assessing Officer . It was further submitted that every year is independent and if by any reason no disallowances were made in earlier year, then it cannot be said that addition cannot be made during the year under consideration as principles of resjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance u/s 43B, therefore, if the contention of the department is accepted, then this would amount to double addition because of the reason that assessee has added itself and as the same was paid before the due date of filing of the return and therefore to this extent the amount was claimed as deduction on account of excise duty paid. This is a factual finding given by CIT(A). Therefore, to this extent the order of ld. CIT(A) is liable to be confirmed and we confirm the same. 27. However, regarding the remaining amount of Rs. 1,74,88,597/- as non-inclusion of excise duty pertaining to closing stock of raw-material, assessee has maintained exclusive method and working has been given by it. As per this working, the opening balance on account of excise duty is also adjusted and thereafter closing amount of excise duty is also adjusted and if both these amounts are taken into consideration then there is no effect of computation of income. 28. The Hon'ble Delhi High Court in the case of Mahavir Alluminium Ltd. 297 ITR 77 has clearly held that: "Held, dismissing the appeal, that paragraph 23.13 of the guidance note on tax audit under section 44AB issued by the Institute of Charte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff by following observations: "It was noticed that these debts belong to very sound parties like BHEL, TATA, NTPC, L&T etc. Assessee has itself also accepted vide its reply dated 17.11.2010 that it is not a case where non-realisability is due to the party absconding or nontraceability. For any debt to become bad, it is imperative that it should really become non-recoverable i.e. either the debtor is incapable of paying or non-traceable etc. As these conditions are not all satisfied and keeping in view of the fact that assessee has never made any provision in the previous years and also the fact that assessee is having business relationship with these debt is disallowed and added to the total income of the assessee" 32. Detailed submissions were filed before CIT(A) which have been incorporated in the order of CIT(A) in para 7.1 (at page 22) of his order, as under: "The assessee vide letter dated 17th November 2010 has given detailed submission to the AO. The assessee reiterates the facts in order to appreciate that the bad debts written off by the assessee are allowable deduction u/s 36(1)(vii) read with sec. 36(2) of the Income Tax Act 1961. Enclosed please find the details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 043/-and for Asst. Year 2007-08 the bad debts claimed is Rs.3,56,27,738/- which has been allowed to the assessee. Therefore the conditions required for allowability of bad debt u/s 36(1)(vii) read with sec. 36(2) of the Income Tax Act are fully satisfied namely the bad debt is as a result of income which has been offered for tax and secondly, the amount has been written off in the books as bad debt, therefore, the claim of the assessee may be allowed." 33. After considering the submissions and perusing the material on record, CIT(A) found that in view of the provisions of sec. 36(1)(vii) of the Act, the assessee is entitled to a deduction equivalent to the amount of written off. CIT(A) has also observed in his order that conditions of sec. 36(2) have been satisfied by the assessee. The CIT(A) following the decision of the Apex Court in the case of T.R.F. Ltd. Vs. CIT (2010) 323 ITR 397 (SC), held that assessee is entitled for deduction on account of bad debt written off. The findings of CIT(A) have been recorded in para 7.2 to 7.4 of his order as under: "7.2. I have gone through the assessment order, the written and oral submission(s) of the appellant and the facts on record. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section -28 (i) to (vi) ** ** ** (vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year" 4. This position in law is well-settled. After 1.4.1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the AO has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's account is credited thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors". 7.4. In the present case, the perusal of the profit and loss account for the year under consideration shows that that an amount of Rs.3,57,55,437/- was shown as "bad debts" in the year under appeal. Elaborate submissions wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cases of CIT v. Modi Telecommunication (2010) 325 ITR 291 (Del.) and CIT v. Prasad & Co. 341 ITR 480 (Del.). 36. After considering the submissions and perusing the material on record we find no infirmity in the findings of CIT(A) which are reproduced somewhere above in this order. 37. Ld. D.R's main plank of argument is that these amounts have not become bad. The Various Courts including the Apex Court have held that any amount which is not received by the assessee can be claimed as bad debt, if other conditions are satisfied. In the present case, the assessee has shown the sale amount in its P&L a/c of previous year and in this year the assessee has claimed bad debt which is about 3.57% of the total gross receipts, since these amounts were not received by the assessee. 38. Ld. DR has stated that in view of the decision of Hon'ble Supreme Court in the case of T.R.F. (supra), the matter should be sent back to the file of Assessing Officer. However, we have gone through the order of Hon'ble Supreme Court by which it has been clearly held that" "After the amendment of section 36(1)(vii) of the Income tax act, 1961, with effect from April 1,1989, in order to obtain a deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter considering the submissions and considering various case laws, the CIT(A) found that disallowance has to be made on the basis of formula given in view of the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT & Anr. 328 ITR 81 (Bom.). Accordingly, he reduced the disallowance to Rs. 5,39,063/-. Working of this has been given by CIT(A) on page 13 of his order. 45. The ld. DR stated that Rule 8D is applicable and ld. CIT(A) has decided the issue on the basis of Hon'ble Mumbai High Court.. However, Rule 8D should be applied on the gross amount as applied by the Assessing Officer. 46. On the other hand, ld. A.R. stated that the decision of Hon'ble Punjab & Haryana High Court decision in the case of Hero Cycle (supra) and decisions of the Tribunal in various cases, copies of which are placed in the compilation, no disallowance is warranted as no expenditure has been incurred to earn dividend of s. 2,228/-. Further, it was stated that the matter can be sent back to the file of Assessing Officer to find out as to what expenditure has been incurred for earning of dividend of Rs. 2,228/- in the light of the decision of Hon'ble Punjab & Haryana Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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