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TMI Blog2022 (3) TMI 465X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the present case, in view of the uncertainty in the collectability of the interest income, the same could not be said or treated as accrued. The assessee therefore, we hold, had rightly accounted for the same on receipt basis and there was no understatement of interest as per the mercantile system as alleged by the Revenue. In view of the same, the addition made to the income of the assessee on account of interest on loans under-stated is directed to be deleted. Disallowance of farmer's loan and interest which was written off in the books of the assessee - HELD THAT:- Since the assessee fulfills all the criteria of having returned the interest income to tax earlier and having written off the same in its books of accounts, its claim to the write off as bad debts is therefore, we hold, in accordance with law and we direct the same to be allowed to the assessee. Therefore, the claim of interest written off to the extent of 5.05 crores is held to be allowable to the assessee as bad debts written off as per the provisions of Section 36(1)(vii) r.w.s. 36(2) of the Act. Contention of the assessee before us is that it was a business loss for the assessee since it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showing the quantum of such expenses incurred in those years, which we find ranged from 2.85 crores to 5.36 crores, Copies of financial statements of the said years was also filed as evidence. Further assessment orders passed u/s. 143(3) of the Act for the said years was also filed showing that except in the impugned year no disallowance was made by the Revenue either in the preceding or succeeding years. Considering the entire facts and circumstances as above, we hold that an ad hoc disallowance of 10% of the total expenses for failure to substantiate the claim in entirety with evidences in the impugned year is highly unjustified and a disallowance of ₹ 5 lacs would be justified. We accordingly direct the AO to restrict the disallowance of soil conservation expenses to ₹ 5 lacs. - ITA Nos. 2538/Ahd/2014, ITA Nos. 2630 & 2632/Ahd/2015 - - - Dated:- 23-2-2022 - Annapurna Gupta , Member ( A ) And Madhumita Roy , Member ( J ) For the Appellant : Arti N. Shah , A. R. For the Respondents : Mohd. Usman, CIT / DR ORDER PER : ANNAPURNA GUPTA , ACCOUNTANT MEMBER These appeals relate to the same assessee, having been filed against separate orders pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mers' account is created on account of activities done for farmers, in other words, partial amount is raised recoverable from fanners and the same is shown under the head 'Loan to Farmers', which is recoverable in instalment as per the norms of the Government, with interest. The Corporation is engaged in such activities since 1978 on account of huge activities carried out by the Corporation, for the benefit of farmers huge amount is recoverable from the farmers. 5. Thereafter, Ld. Counsel for the assessee stated that in the backdrop of the aforesaid activities carried out by the assessee corporation, various additions/disallowances had been made during assessment proceedings which were upheld by the Ld. CIT(A) and against which the assessee has come up in appeal before us. 6. Taking up ground No. 1 raised before us, Ld. Counsel for the assessee contended that the same related to addition made to the income of the assessee on account of interest on farmer's loan amounting to ₹ 6.14 crores. Ground No. 1 reads as under: The Learned Commissioner of Income Tax (Appeals)-Gandhinagar, Ahmedabad has erred in law and on facts of the case by holding that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed system of accounting, being cash basis solely for interest and accrual basis for the rest, which was barred by law. Accordingly, he held that interest income to the extent under-stated in the impugned year on account of this change in accounting was to be brought to tax. The assessee was specifically asked to quantify the same which the assessee submitted as amounting to ₹ 6.14 crores and the A.O. accordingly subjected the said interest income to tax, the relevant findings of the A.O. at para 4.2 and 4.3 are as under: 4.2 The reply of the assessee has been perused, but the same is not acceptable in view of the following reasons:- a. Till AY 2007-08, interest on loan to farmers was shown as interest income. The statutory auditor (GA) in its auditor's report (point No. 4-c of the auditor's report dated 17th of November 2009; 30th annual accounts) had pointed out that the corporation has not provided interest on farmers loan during the FY 2007-08 relevant to AY 2008-09 resulting in underassessment of income and loans and advances. As per mercantile system of accounting, all incomes and expenses are to be accounted for on accrual basis. Therefore, assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) the same did not find favour with the Ld. CIT(A) who upheld the addition made by the A.O. holding at para 5.3 of his order are as under: 5.3 I have considered the facts of the case, submission of the appellant and the contention of the AO along with the case laws relied upon. The AO in his order has contended that the appellant has not maintained consistency by not offering the interest income in the year under consideration as the appellant had been offering till AY 2007-08. Further, it is held by the AO that the appellant is not in the business of granting loans and also not proved that the loans are bad. The appellant has also not proved before the AO that the claim of interest income on loan and advances to the farmers are not recoverable by way of any evidences. All the decisions on which the appellant relied upon are related with banking/NBFC cases and the appellant is different entity from them and hence the claim was disallowed. Considering the facts placed before me by the appellant and the contention of the AO, I am of the firm opinion that the contention of the AO is correct to the fact that: The appellant has not proved either before the AO or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s loan is recognized only when it is reasonable certain that the ultimate collection mil be made. In earlier accounting year up to FY 06-07 relevant to AY 07-08, the accounting policy of recognition of interest income on farmer's loan was as under: Schedule-XXII: Significant Accounting Policies: ... Interest on Loans to Farmers Interest. on loans to fanners is calculated on closing balance of control account of farmer's loan as at the end of the year, irrespective of transaction taken place during the year: It is submitted that the reason for making change in accounting policy is that there was poor recovery in respect of Fanner's. Loans. Even principle amount is not being recovered by-the corporation. And therefore, the Board of Directors thought that in view of poor recovery of farmer's loan and to represent correct financial state of affairs of the-corporation, it is necessary to change accounting policy in respect of recognition of interest income on Farmer's Loan, which is based on principle of recognition of income only when it is-reasonable certain and the ultimate collection will be made. This is also in accordance with p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laborate note on interest income on NPAs before Assessing Officer as to why same was not declared, reopening of assessment on ground that assessee had failed to admit correct income was not justified. 2.4. We would also like to point out that our accounts are also subject matter of C AG Audit and they have not made any comments on this issue. 11. Referring to the above reply, she contended that as per the accounting standard for revenue recognition issued by the Institute of Chartered Accountants of India (ICAI), AS-9, revenue should be recognized when there is no significant uncertainty as to its collectability. She pointed out that in the present case, it had been demonstrated both to the A.O. and the CIT(A) that collectability of interest as also the principal amount was highly uncertain since Financial Year 2004-05 onwards by way of chart which was placed before us at paper book page No. 78: SR. NO FINANCIAL YEAR OUTSTANDING LOAN (O/B) LOAN GIVEN DURING THE YEAR OUTSTANDING LOAN TOTAL (C/R) INTEREST ACCRUED DUE O/B INTEREST CHARGED INCOME DURING THE YEAR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.00 8 2002-2003 199,598,511.13 15,604,237.20 215,122,014.27 89,456,206.00 16,454,155.00 105,910,361.00 80,734.06 0 0.04 0.00 9 2003-2004 215,122,014.27 29,419,326.45 244,295,488.72 105,910,361.00 18,607,931.00 124,518,292.00 245,852.00 0 0.11 0.00 10 2004-2005 244,295,488.72 52,594,122:39 296,889,611.11 124,518,292.00 22,227,078.00 146,745,370.00. 0 0 0.00 11 2005-2006 296,889,611.11 98,249,662.32 395,139,273.43 146,745,370,00 28,794,522.00 175,539,892.00 0 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the following case laws in support of the proposition that where the collectability of income was uncertain, the income could not be said as accrued: (1) CIT vs. Eicher Ltd. [2010] 320 ITR 410 (Delhi) (2) CIT vs. Abbas Wazir (P.) Ltd. [2005] 274 ITR 448 (3) CIT vs. Motor Credit Co. P. Ltd. [1981] 127 ITR 572 (Mad.) (4) CIT vs. Giriraj Udyog (P.) Ltd. [2005] 273 ITR 495 (All.) (5) CIT vs. Woodward Governor India P. Ltd. [2009] 312 ITR 254 (SC) (6) Order of the High Court of Gujarat in case of Gujarat Insecticides Ltd. vs. Asst. CIT (7) CIT vs. Ganga Charity Trust Fund [1986] 162 ITR 612 (Guj.) (8) ACIT vs. Coromandal Investment P. Ltd. [2009] 316 ITR 104 (Guj.) 14. In view of the above, Ld. Counsel for the assessee contended that the addition made on interest income amounting to ₹ 6.14 crores was based on incorrect and improper appreciation of facts, was not as per law, was totally ad hoc and therefore need to be deleted. 15. Ld. D.R. on the other hand relied on the order of the authorities below. His contention being that the assessee having followed hybrid system of accounting, following the cash system for interest income and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Net) XX The amount of excise duty to be deducted from the turnover should be the total excise duty for the year except the excise duty related to the difference between the closing stock and opening stock. The excise duty related to the difference between the closing stock and opening stock should be recognised separately in the statement of profit and loss, with an explanatory note in the notes to accounts to explain the nature of the two amounts of excise duty. 11. In a transaction involving the sale of goods, performance should be regarded as being achieved when the following conditions have been fulfilled: (i) the seller of goods has transferred to the buyer the property in the goods for a price or all significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership; and (ii) no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods. 12. In a transaction involving the rendering of services, performance should be measured either under the completed service contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition made to the income of the assessee on account of interest on loans under-stated amounting to ₹ 6.14 crores is directed to be deleted. 20. Ground of appeal No. 1 is allowed. 21. Ground No. 2 relates to disallowance of farmer's loan and interest which was written off in the books of the assessee amounting to ₹ 12,15,71,474/-. Ground No. 2 reads as under: The Learned Commissioner of Income Tax (Appeals)-Gandhinagar, Ahmedabad has erred in law and on facts of the case by confirming the disallowance of ₹ 12,15,71,474/- being the amount of farmers' loan and interest not recovered, which are debited to Profit Loss Account and written off. 22. Drawing our attention to the facts of the case from the assessment order, Ld. Counsel for the assessee took us to para 5 of the said order pointing out there from that the A.O. had noted that the assessee had debited farmer's loan and interest to the tune of ₹ 12,15,71,474/- and claimed the same as expenditure/loss. The A.O. denied the same stating that the loan write off was on capital account and ought to have been deducted from the respective fund and not debited to the profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the AO. The AO in his order has contended that the appellant has not maintained the consistency not to offer the interest income in the year under consideration as the appellant had been offering of 2007-08. Further, it is held by the AO that the appellant is not in the business of granting loans and also not proved that the loans are bad. The appellant has also not proved before the AO that the claim of interest income on loan and advances to the farmers are not recoverable by way of any evidences. All the decisions on which the appellant relied upon are related with banking/NBFC cases and the appellant is different entity from them and hence the claim was disallowed. Considering the facts placed before me by the appellant and the contention of the AO I am of the firm opinion that the contention of the AO is correct to the fact that:- The appellant has not proved either before the AO or before me that the loan and advances to the farmers are bad or not recoverable by any evidence and circumstances which were termed by the appellant as NPA and the accrued interest on the same are claimed as deduction. It is also to be noted that the appellant is not doing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 5,05,83,562 27. Thus out of total write off, ₹ 7.10 crores pertained to principal written off while ₹ 5.05 crores pertained to interest written off. 28. As far as claim of interest written off is concerned the same has been denied for the reason that the assessee has not proved that the interest had become bad. It is not disputed and denied that the impugned interest of 5.95 crores had been returned as income of the assessee in the preceding years and had been written off in the impugned year and claimed as bad debt. It is settled law that the only requirement for legitimate claim of bad debts is that the assessee should have returned the said amount as income in earlier years and written off the same in its books of accounts, there being no requirement to prove the debts having bad. The Hon'ble Apex Court, in the case of TRF Ltd. (supra) settled the position of law as aforestated interpreting the provisions of section 36(1)(vii) of the Act alongwith Section 36(2) of the Act. The relevant portion of the order reads as under: 4. This position in law is well settled. After 1st April, 1989, it is not necessary for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to whether the assessee is eligible to claim write off of the same as per law and under which provision. We therefore deem it necessary to restore the issue back to the AO to determine the facts in which the impugned loans have arisen and thereafter adjudicate the issue in accordance with law. Needless to add the assessee be granted due opportunity of hearing in this regard. 29.2. Ground of appeal No. 2 is therefore allowed for statistical purposes. 30. Ground No. 3, it was pointed out relates to the disallowance of Soil Conservation Expenses to the tune of ₹ 47,03,26,795/-. Ground No. 3 reads as under: The Learned Commissioner of Income Tax (Appeals)-Gandhinagar, Ahmedabad has erred in law and on facts of the case by confirming the disallowance of ₹ 47,03,26,795/- made by the Assessing Officer out of soil conservation expenditure, which is made on estimated basis. 31. Draw our attention to the facts of the case from para 6 to 6.2 of the assessment order, it was pointed out that assessee had claimed Soil Conservation Expenses to the tune of ₹ 47,03,26,795/-, 10% of which were disallowed by the A.O., in the absence of physical verification bills/vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he division forwards such data to head office and from that necessary accounting entries are being passed at head office. Under the circumstances, the details was to be called from subdivision officer and it was impracticable to collect and furnish all the details in form of vouchers etc., which are very voluminous in a short time. 3.3 It is further submitted that the books of accounts of head office, division and sub-division are subject matter of internal audit carried out by independent internal auditor, wherein 100% verification of all expenditure incurred by division and subdivision is being carried out by internal auditor. Further, the duty is also caste on internal auditor to carry out physical verification of work done by sub-division. Thus, all the expenditures incurred have been fully verified by independent agency. Inspite of this, the Assessing Officer has made disallowance of 10% of expenditure which is based on presumption and assumption. Further, he has not brought any contrary facts to prove that expenditure is not genuine and therefore, such addition cannot be sustained. 3.4 It is also pointed out that the main activity of the Corporation is that of devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e years, which we find ranged from 2.85 crores to 5.36 crores, Copies of financial statements of the said years was also filed as evidence. Further assessment orders passed u/s. 143(3) of the Act for the said years was also filed showing that except in the impugned year no disallowance was made by the Revenue either in the preceding or succeeding years. 37. Considering the entire facts and circumstances as above, we hold that an ad hoc disallowance of 10% of the total expenses for failure to substantiate the claim in entirety with evidences in the impugned year is highly unjustified and a disallowance of ₹ 5 lacs would be justified. We accordingly direct the AO to restrict the disallowance of soil conservation expenses to ₹ 5 lacs. 38. We may add that our decision as above has been rendered in the backdrop of the peculiar facts before us where there was no basis/data for arriving at a justified amount of disallowance and should therefore not be treated as a precedent on the issue by any of the parties in any other year. 38.1. Ground of appeal No. 3 is partly allowed. ITA No. 2630/Ahd/2015 for A.Y. 2008-09. 39. Ground No. 1 raised by the assessee reads ..... X X X X Extracts X X X X X X X X Extracts X X X X
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