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TMI Blog2017 (11) TMI 851X X X X Extracts X X X X X X X X Extracts X X X X ..... Profit &Loss account for the assessment year under consideration. We are of the view that if the loss occurred during the course of carrying on the business, it is incidental to it and hence allowable. Admittedly, in this case, the assessee suffered loss during the course of carrying on its business. Therefore, same is allowable. In the assessee's case under consideration. we note that necessary TDS certificates were not issued by the deductions/clients nor any actual payment was made by them, the assessee company could not claim credit thereof against the tax liability. Therefore, when there was no possibility of TDS certificates being received from the clients, the assessee company decided to write off the TDS receivable ot ₹ 21,72,227/- and debited the same to the profit & Loss account for the assessment year under consideration. We are of the view that in this case the assessee suffered loss during the course of carrying on its business and said loss is allowable. - Decided in favour of assessee. - ITA No.-505/Kol/2014 - - - Dated:- 18-10-2017 - Mr.A.T. Varkey, JM And Dr. A.L. Saini, A.M., JJ. Shri Manoj Kataruka, Adv.For The Assessee. Md. Usman CIT(Dr.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t residence and office premises on 28.03.2007 and on subsequent dates. The assessee had filed return of Income-tax for the relevant period, on 31.03.2008 declaring a total income of ₹ 48,59,109/-. The assessment u/s143(3) was complete an 22.05.2009 for a total income of ₹ 64,95,078/-. Subsequently. it was noticed that as per Schedule 10 of the profit Loss Account of the assessee company attached with return filed on 31.03.2008, there were claim of expenses of Rs.'16.0401, stating the narration being ,,Bhutan tax [TDS] and of ₹ 21,56,187/-, stating the narration being TDS [Sikkim] written off. The total amount written off by the assessee in the profit and loss account was at ₹ 21,72.227/- (Rs.16040 + ₹ 21,56,187). The Assessing Officer observed that these expenses, though prima facie,were not allowable deduction under the Income-tax Act, but was allowed in the assessrnent dated 22.05.2009; therefore a notice u/s148 of the Act was issued on 17.09.2010 after recording the reasons for reopening on the same date. ln response to the notice U/s 148 of the Act, the assessee company submitted by a letter on 29.06.2011, stating that its earlier return which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions of the assessee, observed that the assessee company had to face some procedural difficulties in claiming credit of TDS but that does not mean that the assessee company becomes entitled to claim deductions or expenses which are contrary to the law. The AO noted that the assessee had cited apex court decision which says that tax payers need not establish the debts are irrecoverable for claiming deduction of bad debt but tax deducted at source (TDS) by a Govt. authority does not qualify as ,bad debt. under the provision of Income Tax Act. This way, the Assessing Officer held that TDS made by Sikkim Bhutan Government cannot be claimed as a bad debt and therefore, he rejected the claim of the assessee and in the re- assessment proceedings, he made the addition of ₹ 21,56,187/- 6. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the CIT(A), who has confirmed the addition made by the Assessing Officer. The CIT(A) held that there was no any dispute that the sum of ₹ 21,56.1871 was the amount which was deducted by the Govt. of Sikkim. as tax at source (TDS) during the Assessment year 2002-03 to 2004-05. ln the respective asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer that since the amount of TDS could not be recovered and/or adjusted as credit against tax liabilities of the Company whereas the debit balance on such amount being the instant case, the asse ad rightly claimed as a bad debt carried forward in the Balance-sheet turned out to be a bad doubtful balance and ihe Company was left with no other option but to write off the same in the Profit Loss A/c during financial year ending 31.03.2007. The ld. Counsel for the assessee has demonstrated an example before us which is given below: Say, X Ltd. renders professional services to y Ltd. worth ₹ 21,00,000. The Y Ltd. was making payment to X Ltd and as per provisions of the Act, say 10% TDS rate supposed to be deducted, as the TDS, which comes to 2,10,000/-. The balance amount i.e 18,9O,OOO/- (Rs.21,00,000 - ₹ 2,10,000)/-, the X Ltd. will get from y Ltd. They Ltd. is supposed to deposit ₹ 2,1 0,0001 to the Central Govt. account on behalf of the X Ltd. ln the TDS scheme it is treated as if the X Ltd. has paid the tax to the Government. But, suppose the y Ltd. does not deposit TDS amount so deducted at ₹ 2,10,000/- to the Central Government account then 11 wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, same is allowable. The Counsel for the assessee also relied on the. Judgment of Delhi Trjbunal in the case of ACIT Vs Kelly Services India Pvt Ltd. (2012)34 CCH 0342 wherein the Tribunal held that while making payment of professional charges, the TDS was being made by the clients and the aggregate TDS receivable by the company at the end of the FY relevant to the Ay under consideration was ₹ 11,12,816/-.However, as necessary TDS certificates were not issued by the deductors/clients nor any actual payment was made by them, the assessee company could not claim credit thereof against the tax liability. Therefore, when there was no possibility of TDS certificates being received from the clients, the assessee company decided to write off the TDS receivable of ₹ 11,12,816/- and debited the same to the profit Loss account for the assessment year under consideration. The Tribunal held thal in this case the assessee suffered loss during the course of carrying on its business and said loss is allowable 8.On the other hand, the Ld DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted jn our earlier para and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if the loss occurred during the course of carrying on the business, it is incidental to lt and hence allowable. Admittedly, in th,s case, the assessee suffered loss during the course of carrying on its business. Therefore, same is allowable. ln the assessee.s case under consideration. we note that necessary TDS certificates were not issued by the deductions/clients nor any actual payment was made by them, the assessee company could not claim credit thereof against the tax liability. Therefore, when there was no possibility of TDS certificates being received fron.r the clients, the assessee company decided to write off the TDS receivable ot ₹ 21,72,227/- and debited the same to the profit Loss account for the assessment year under consideration. We are of the view that in this case the assessee suffered loss during the course of carrying on its business and said loss is allowable. Based on the factual position discussed above, we are of the view that the addition made by the Assessing Officer and confirmed by the Ld CIT(A) needs to be deteted. Accordingly we delete the addition at ₹ 21,72,227/-. 10.1n the result, the appeal filed by the assessee, is allowed. ..... 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