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TMI Blog2020 (2) TMI 981X X X X Extracts X X X X X X X X Extracts X X X X ..... mmission w.e.f. 01.06.2006. CIT(A) has rightly allowed the deduction towards pay revision debited to the profit and loss account holding the same as ascertained liability crystallized during the year under consideration. No good reason to interfere with the observations of the CIT(A) in deleting the addition so made by the AO on account of admissibility of provisions created for unforeseen and unascertained expenditure. Disallowance of write off of doubtful loans and advance to subsidiary - proper accounting treatment has not been given in the books of account for write off of advance - vehemently argued by ld. AR that in the said additional information the 1st column contains Opening Balance; 2nd column contains advance Released; 3rd column contains Advance refunded; 4th column contains Advance written off and 5th column contains closing Balance. Hence, the position of opening balance and closing balance is now clear - HELD THAT:- We set aside the impugned order passed by CIT(A) and remit the matter to the file of CIT(A) to pass a fresh order after considering the submissions of the assessee as well as the documents filed by the assessee in the form of paper book before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 53,50,20,000/- which was later revised on 22.12.2010 showing a total income of Rs. Nil after setting off brought forward losses. During the course of assessment proceedings, the AO found that the assessee has made compensation to the extent of ₹ 1722.75 lakhs to IDCOL Kalinga Iron Works Ltd (IKIWL), a wholly owned subsidiary of the corporation, on account of purchase of ore from outside sources being the additional cost over the raising cost for captive use. The AO issued show cause to justify admissibility of the expense on this score and after careful consideration of the reply of the assessee, he found that the compensation was not made as per commercial expediency, rather, it was made on moral grounds for survival of IKIWL. Therefore, the AO added the same back to return income of ₹ 53,50,20,000/- and after allowing set off of unabsorbed depreciation brought forward from earlier years of ₹ 28,80,98,231/-, he assessed income of the year at ₹ 41,91,96,769/-, rounded off to ₹ 41,91,96,770/-. Further the assessment was completed u/s.263/143(3) of the Act dated 30.07.2014 determining total income at ₹ 94,73,96,770/-. Subsequently, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the assessee towards salary liability of employees pending pay revision. It was also submitted by the ld. DR that having regard to the specific comments by the Statutory Auditor, under point No. 9.3 of the 'Notes on Account' referred to by the AO at Page-10 of the assessment order, and in absence of any evidence produced by the assessee to establish that a business liability has definitely arisen during the financial year 2008-09, the CIT(A) was not justified in deleting the disallowance of ₹ 2,82,00,000/- towards a contingent liability. Therefore, ld. DR submitted that the appeal of the Revenue deserves to be allowed and the addition made by the AO should be upheld. 6. On the other hand, ld. AR of the assessee supported the observations of the CIT(A) to the extent of deleting the addition made on account of admissibility of provisions created for unforeseen and unascertained expenditure and submitted that the CIT u/s.263 of the Act dated 24.03.2014 directed the AO to examine as to whether the provision made for pay revision is a contingent liability or an ascertain liability in the light of the decision of Hon ble Delhi High Court in the case of CIT Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the CIT(A) in this regard are as under :- Decision :The Hon'ble Apex Court in the case of Meal Box Company of India Ltd. V.s Their Workmen, 73(1969)ITR 53 held as follows : If a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to quantify and discharge at a future date. What. should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible . If these requirements are satisfied, the liability is not a contingent one. The liability is in present though it will be discharged at a future date it does not make any difference if the future date on which the liability shall have to be discharges is not certain.''' In appellant's case, the Board of Directors of IDCOL in their 323rd meeting held on 23.12.2008, constituted a committee to examine and recommend the revision of scale of pay of the employees of IKIWL and IFCAL w.e.f. 01.01.2006 in line with State Govt, employees. In the mean time the Govt, of Orissa by a notification dated 07.01.2009 revised the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the employees as per the recommendation of 6th Pay Commission w.e.f. 01.06.2006. Therefore, the CIT(A) has rightly allowed the deduction towards pay revision debited to the profit and loss account holding the same as ascertained liability crystallized during the year under consideration. We also find that the case laws relied on by the CIT(A) are squarely applicable to the present facts of the case. Ld. DR also could not bring any new material on record to controvert the above findings of the CIT(A). Accordingly, we do not see any good reason to interfere with the observations of the CIT(A) in deleting the addition so made by the AO on account of admissibility of provisions created for unforeseen and unascertained expenditure. Thus, we uphold the findings of the CIT(A) recorded in this regard and dismiss the grounds of appeal raised by the Revenue. 8. Thus, appeal of the Revenue is dismissed. 9. Now, we shall take up appeal of the assessee in ITA No.392/CTK/2017 (AY : 2009-2010), wherein the assessee has raised the following grounds of appeal :- 1. The order of assessment as well as the Appellate Order is against law, weight of evidences and probabilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amounting to ₹ 50.00 crore, advance by the appellant for one of its subsidiary (IKIWL) was written off as the certainty of realization was doubtful on account of continuous loss because of global meltdown. He has quoted notes of account which is a disclosure of facts by the appellant. He has also mentioned that doubtful loan and advances in the Balance Sheet as per schedule - 8, as on 31.03.2009 and 31.03.2008, stood at the same figure. Hence, it is not written off. The Learned Assessing Office has not properly understood the accounts of the appellant. The facts is that the advances given to the KIWL has been written off without making any provision by crediting to the loan account amounting of ₹ 50.00 crore and debiting the same to the Profit and Loss account under the head Advance Written off. The Learned Assessing Officer without going through the decision of ITAT, Cuttack, in the assessee's own case for the Assessment Years 1989-90 1990-91, asked the appellant why the claim written off of loan ₹ 50.00 crore shall not be disallowed. The appellant made his submission by referring the (ITAT) Order and also explained how the doubtful loans and advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich, we believe, has become final . 5. The Learned Commissioner of Income Tax (Appeal), while disposing appeal discussed in detail the Income Tax Appellate Tribunal (ITAT) order ITA No. ITA No,69 70(CTK) of 1994, 25.09.1997,relating to the write off of loan to subsidiary and also another order of ITAT 585/CTK/2012, 26.04.2017, allowing compensation given to subsidiaries as business expenses. In the operating part of his order, he mentioned that : Respectfully following the orders of the Hon'ble Tribunal, it is found that claim of the appellant to write off the loans and advances of ₹ 50.00 crore given to IKIWL is, prima facie, an admissible business expenditure subject to the condition that the appellant has fulfilled the accounting principles while passing the entries in the books of accounts. !n this regard, the entries in the P L account were perused and it is found that the appellant has claimed deduction of ₹ 50,03,67,000/- as other provisions and this deduction is obviously related to the alleged writing off the loans and advances given to IKIWL. On perusal of the Schedule - 8 of the Balance Sheet, it transpires that the opening and closing bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was ₹ 4,67,17,000/-. He concluded that it cannot be said that the alleged sum was written off. This comment of Learned Commissioner of Income Tax (Appeals) is purely on surmise and imagination. In Schedule-8, relating to advance made to number of subsidiaries, the opening and closing balance relates to group of subsidiaries. During the year, advances made to subsidiaries which is debited to their accounts and written off of advance is shown as credit in advance account and debited to profit Loss account. The resultant of all these transaction discloses the closing balance at the end of the year. Moreover, the account is audited by a Statutory Auditor, appointed by C AG and also by A. G. Odisha. Both the Auditors have not commented anything wrong relating to written off of loan and advance. The appeal before the Learned Commissioner of Income Tax (Appeal) arose against the order of the Learned Assessing Officer made u/s 263/143(3) of the Income Tax Act. The said Assessment order is made as per the direction made under section 263 of the Income Tax Act. On the face of the order, the observation of the Commissioner of Income Tax was that the provision for bad and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax (Appeal) ignoring the judgment cited, concluded that principle of res judicata shall apply to the case of the appellant. The above issues were argued at the time of hearing on 14.08.2018. The Learned Commissioner of Income Tax (A) in prima facie respecting two nos of ITAT appeal orders bearing ITA No,69 70(CTK) of 1994 25.09.1997,,and order ITA No. 585/CTK/2012, dtd.26.04.2017, placed in the Paper Book at page no. 72 and 135, agreed to write off of ₹ 50.00 crore as bad debt. But he could not properly understood accounting entry of write off of advance on the plea that provision for bad and doubtful debt remains same. Again he observed that in schedule - 8 loan and advances considered good given to subsidiary companies having opening balance of ₹ 98,54,97,000/- and closing balance is ₹ 93,87,80,000/- and thus the total deduction is ₹ 4,67,17,000/- instead of ₹ 50,03,67,000/-. After submission of the case before the Bench the Honourable Bench decided to settle the accounting entry of ₹ 50.00 crore, which is the only issue to be addressed The Honourable Bench asked to file an additional Paper Book certified by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorities in their respective orders and the paper book filed by the assessee, we find that during the course of assessment proceedings the AO found that the allowance of doubtful loans/advances in the scrutiny assessment was irregular and therefore, he disallowed the inadmissible claim of the assessee. The CIT(A) observed that the total income in normal computation is higher than the book profit, therefore, the provisions of Section 115JB of the Act are not applicable in the case of the assessee for the year s under consideration. The CIT(A) also held justified the findings of AO that res judicate is not applicable for infirmities noticed in writing off the loans and advances of the subsidiary company IKIWL. During the course of hearing, ld. AR drew our attention to schedule - 8 of Balance sheet, page no. - 17 of paper book, wherein advance to subsidiary amounting to ₹ 93,87,80,000/- as on 31st March 2009 and opening balance is ₹ 96,54,97,000/- have been mentioned. The details of opening balance amounting to ₹ 98,54,97,099/- and closing balance of ₹ 93,87,79,894/-, is placed in page 1 of the 2nd additional Paper Book. He also submitted that Item no. 1 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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