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TMI Blog2023 (5) TMI 914X X X X Extracts X X X X X X X X Extracts X X X X ..... ken over by the banks and has also not filed any details before Ld. CIT(Appeals) regarding the recovery proceedings pending before DRT, in the interest of justice, this issue is being restored to the file of Ld. CIT(Appeals) to examine the records afresh to ascertain whether the assessee is liable to pay the aforesaid amounts the banks. The assessee may also file necessary supporting documents to substantiate that this amount is still liable to be paid to the banks and the recovery proceedings are pending before DRT. Disallowance of bad debts - write off with respect to international debtors - HELD THAT:- Matter is being set aside to the file of Ld. CIT(Appeals) only with a view to confirm whether the aforesaid amount has been reflected in the computation of income by the assessee in any of the earlier years in view of the decision of Khyati Realtors supra - we are in agreement with the counsel for the assessee that no such disallowance is called for only on the basis whether the assessee has written of debt in excess of 10% of international debtors in view of RBI regulations. We are also in agreement with the argument for the counsel of the assessee that such a write-off o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT-A deleted addition - HELD THAT:- We observe that in the case of S.Srinivasaraghavan [ 2022 (5) TMI 1066 - MADRAS HIGH COURT] held that generation of electricity by windmill should be equated to term manufacturing or production of article or thing , and, therefore, assessee was entitled to claim additional depreciation on windmill installed as per provision of section 32(1)(iia) The aforesaid decision was followed in assessee s own case for assessment year 2006-07 in DCIT v. Vishal Export Overseas Ltd [ 2022 (8) TMI 88 - ITAT AHMEDABAD] , wherein held that activity of generating electricity by windmill would be manufacturing in nature, thus, assessee would be eligible to claim additional depreciation with respect to windmill installed during relevant year. CIT(Appeals) has not erred in fact and law allowing the appeal of the assessee on this issue. Additions u/s 40(a)(ia) on the basis of observations made in the Tax Audit Report in Form 3CD - Scope of second proviso to section 40(a)(ia) - HELD THAT:- We observe that in the case of Ansal Land Mark Township (P.) Ltd [ 2015 (9) TMI 79 - DELHI HIGH COURT] held that second proviso to section 40(a)(ia) is declaratory and cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stant facts all the three ingredients viz identity, genuineness and creditworthiness of the parties was not doubted by the assessing officer and the only reason for confirming the addition in the hands of the assessee was that the confirmation was signed by the authorised signatory and not the parties themselves. In the case of Neotech Education Foundation [ 2023 (1) TMI 671 - GUJARAT HIGH COURT] held that where assessee received loan for purchase of land for construction of an educational campus, in view of fact that though initial burden of proof was not discharged at level of AO but assessee produced relevant documents to prove identity and creditworthiness of creditor and genuineness of transaction before Commissioner (Appeals) and, further, transaction was made through proper banking channel, impugned addition made under section 68 on account of said loan amount received by assessee was unjustified. Accordingly Department s appeal is dismissed. Unexplained cash deposit in Kalupur commercial cooperative bank - AO rejected the reconciliation and details submitted by the assessee on the ground that assessee cannot have cash in hand or cannot withdraw cash from bank f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on such presumptions without any corroborative evidence on record. It be so held now. 3. Ld. CIT (A) erred in law and on facts in not appreciating that the judgments relied upon by AO for making addition are distinguishable on facts of the case whereas ratio of the jurisdictional High Court judgments following sterling judgment of the Apex Court was squarely applicable to the facts. 4. Ld. CIT (A) erred in law and on facts in confirming part disallowance of Rs. 9, 70, 11, 868/- from total disallowance of Rs. 28, 28, 43, 345/- made by AO rejecting bad debts claimed from foreign debtors by the appellant. Ld. CIT (A) ought to have deleted total disallowance appreciating the fact that irrecoverable debts written off as per the guidelines of RBI are an allowable expense. It be so held now. 5. Ld. CIT (A) erred in law and on facts in confirming part disallowance of Rs. 1, 21, 27, 246/- from total disallowance of Rs. 136.48 crores made by AO rejecting bad debts claimed from domestic debtors by the appellant. Ld. CIT (A) ought to have deleted total disallowance appreciating the fact that irrecoverable advances for procurement of goods / services incidental to the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Ahmedabad has erred in law and on facts in admitting additional evidences in violation of Rule 46A. 7. On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XlV, Ahmedabad ought to have upheld the order of the Assessing Officer. 8). It is therefore, prayed that the order of the Ld. Commissioner of Income- Tax (Appeals)-XIV, Ahmedabad may be set-a-side and that of the order of the Assessing Officer be restored. We shall first discuss the assessee s grounds of appeal Grounds 1-3: Addition under section 41(1) of ₹ 75,38,74,413/- 4. The brief facts in relation to these grounds of appeal are that during the course of assessment, the AO observed that from perusal of the list of sundry creditors, in respect of several parties, the amount payable which was outstanding was constant for the last three years. According, after taking the submissions of the assessee on record, the AO made additions in respect of six parties under section 41(1) of the Act on the ground that as per the Limitation Act, the parties do not have legal remedy to enforce the outstanding demand and therefore the right to recovery of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, the assessee should have claimed any allowance or deduction in respect of loss, expenditure or trading liability and subsequently, the assessee receives in respect of such trading liability any benefit by way of remission or cessation thereof. However, in the case of FIRC, no expenditure has been incurred by the assessee in the first instance since it is a case of export sales. Thirdly, on merits, all relevant documents were submitted before Ld. CIT(Appeals) for his consideration and therefore, the aforesaid additions cannot be sustained. 6. In response, the Ld. DR placed reliance on the observations made by the AO and Ld. CIT(Appeals) in their respective orders. 7. We have heard the rival contentions and perused the material on record. We are of the considered view that it is well settled law that additions under section 41(1) of the Act cannot be made simply on the basis that the claim of the parties are barred by limitation and therefore, the liability to pay ceases to exist so far as assessee is concerned. So far as the merits of each of the additions is concerned, in respect of addition of ₹ 1,69,978/- on account of purchase difference being outstanding d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t arise. 7.1 However, with respect to the first party Presidential Trading FZC (₹ 73,33,67,778/-) , while we are in agreement with the counsel for the assessee that since the amount outstanding shown in the name of the party on account of development of letter of credit opened on this party has since been taken over by the bank, now the assessee is liable to pay this amount to the bank and therefore, it cannot be held that the liability has ceased to exist. Further, the counsel for the assessee submitted that the bank has also filed a suit for recovery before DRT for recovery of the aforesaid amount and therefore, this is a genuine liability existing in the assessee s books of accounts. However, we observe that Ld. CIT(Appeals) rejected the assessee s appeal on this issue for the reason that no details regarding the suit filed by the bank before DRT has been submitted by the assessee. Accordingly, since the assessee did not file any details whatsoever in support of the fact that the liability has been taken over by the bank and also did not file details of pending litigation before DRT in respect of recovery of the aforesaid amount by the banks, relief was not granted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s had been taken by the assessee to recover the amount and whether the assessee was still in corresponding with the aforesaid parties to recover the amount. 10. In appeal before Ld. CIT(Appeals), the assessee reiterated the submissions made before the assessing officer and also relied upon the case of TRF Ltd, in which the Supreme Court of India has held that to claim the deduction of bad debts, only it s write off from the books is an essential condition and the assessee need not prove/establish that the debts had in fact become bad. The Ld. CIT(Appeals) restricted the disallowance made by the assessing officer to only ₹ 10,91,39,114/- and deleted the balance disallowance amounting to ₹ 153.79 crores. In appellate proceedings, out of the disallowance on account of export debtors write off amounting to ₹ 28.28 crores, the Ld. CIT(Appeals) confirmed an amount of ₹ 9.70 crores after discussing the facts of each of the overseas debtors. The primary reasons why Ld. CIT(Appeals) confirmed some of the additions are firstly, any excess write off, i.e. in excess of the RBI guidelines of 10% permissible write off, was not allowable; secondly, that it is not clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the rival contentions and perused the material on record. We observe that in the case of TRF Ltd. 323 ITR 397 (SC) , the Hon'ble Supreme Court held that after 1-4-1989, it is not necessary for assessee to establish that debt, in fact, has become irrecoverable; it is enough if bad debt is written off as irrecoverable in accounts of assessee. However, in the later case Khyati Realtors (P.) Ltd. 141 taxmann.com 461 (SC) , the Hon'ble Supreme Court held that it is thus evident that merely stating a bad and doubtful debt as an irrecoverable write off without the appropriate treatment in the accounts, as well as non-compliance with the conditions in section 36(1)(vii), 36(2) and Explanation to section 36(1)(vii) would not entitle the assessee to claim a deduction. [Para 14]. Further, the amount of any bad debt or part thereof has to be written-off as irrecoverable in the accounts of the assessee for the previous year; such bad debt or part of it written-off as irrecoverable in the accounts of the assessee cannot include any provision for bad and doubtful debts made in the accounts of the assessee; no deduction is allowable unless the debt or part of it has been taken into ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... file of Ld. CIT(Appeals) only with a view to confirm whether the aforesaid amount has been reflected in the computation of income by the assessee in any of the earlier years in view of the decision of Khyati Realtors supra. However, we are in agreement with the counsel for the assessee that no such disallowance is called for only on the basis whether the assessee has written of debt in excess of 10% of international debtors in view of RBI regulations. Further, we are also in agreement with the argument for the counsel of the assessee that such a write-off of debts cannot be disturbed on the basis that the assessee had claimed deduction under section 80 HHC with respect to the export proceeds offered to tax in any of the earlier previous years. Accordingly, so far as international debtors is concerned, the issue is being restored to the file of Ld. CIT(Appeals) only to confirm whether the income with respect to which assessee has claimed write off of bad debts has been offered to tax by the assessee in any of the previous years in light of the decision of Khyati Realtors supra . 15. Now so far as write-off with respect to domestic debtors is concerned, we are in agreement with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to this ground of appeal are that during the course of assessment, the assessing officer observed that the assessee had earned exempt dividend income of ₹ 285,000/-. The assessing officer was of the view that that such earning of exempt income involves certain costs in the form of expenditure which in the form of direct as well as indirect expenditure relatable to earning such exempt income. Accordingly, assessing officer invoked the provisions of section 14(2) of the Act read with Rule 8D and computed disallowance at 5,76,368/-. 21. Before Ld. CIT(Appeals), the assessee contended that as per the ratio of Bombay high court in the case of Godrej and Boyce 194 Taxman 203 (Bombay), provisions of Rule 8D which have been notified with effect from 24-3-2008 are not retrospective in nature and shall apply with effect from assessment year 2008-09. Therefore, the excessive and unreasonable disallowance made by the assessing officer may be deleted. Accordingly, considering the facts of the case, the Ld. CIT(Appeals) restricted the disallowance to ₹ 1 lakh. 22. Before us, the DR submitted that Ld. CIT(Appeals) erred in restricting the addition to only ₹ 1 lakhs since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I am inclined with appellant that it fulfilled all the eligible conditions for claim of additional depreciation (discussed by appellant at para 3 of written submission dated 17.2.2014), Hon'ble Gujarat High Court in the case of Diamonds Chemicals Ltd, (supra) upheld the ratio of Hon'ble ITAT, Ahmedabad in the same case for such additional depreciation for windmill as relied on by appellant. I am inclined the ratio of Hon'ble High Court is squarely applicable in the facts of the appellant's case. It is therefore disallowances made by A.O. are neither justified nor sustainable in law. The A.O. is directed to allow such additional depreciation of Rs. 10,47,07,692/-. The appellant gets relief accordingly. This ground is allowed. 26. The Department is in appeal before us against the aforesaid deletions made by Ld. CIT(Appeals). Before us, Ld. DR relied upon the observations made by the assessing officer in the assessment order. In response, the counsel with assessee submitted that the aforesaid issue is directly covered in favour of the assessee in assessee s own case for assessment year 2006- 07.Accordingly, the assessee is eligible for grant of addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments were made to banks and therefore there is no requirement for deduction of tax at source on such payments. So far as payment to NAFED is concerned amounting to ₹ 2,64,60,533/-, Ld. CIT(Appeals) agreed with the contention of the assessee that the entry of ₹ 2.64 crores was reversed in this year and hence there is no requirement of TDS deduction on such payment. Further, with respect to TDS on FBT, the Ld. CIT(Appeals) agreed with the contention of the assessee that there was an inadvertent typographical mistake in Annexure-4 for Clause 17(f) of Form 3CD, where details of FBT pertaining to financial year 2005-06 have been inadvertently mentioned for the impugned financial year i.e. financial year 2006-07. Accordingly, Ld. CIT(Appeals) allowed the appeal of the assessee with the following observations: It is therefore, I am inclined with appellant that that there is bonafide mistakes on the part of tax auditor for working out such disallowable u/s 40(a) of the Act without considering the details in this regard. In view of such verification about payment of TDS out of prof, fees., interest is being paid to Bank, reversal entry of NAFED and entry mistake of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the aforesaid additions made on account of non-deduction of TDS under section 40(a)(ia) of the Act. 33. In the result, ground number 4 and 5 of the Department s appeal are dismissed. Assessment year 2008-09 34. The Assessee has taken the following grounds of appeal:- 1 Ld. CIT (A) erred in law and on facts in confirming part addition of Rs. 55, 44, 387/- from total addition of Rs. 2, 13, 57, 42, 374/- made by AO by invoking provisions of section 41(1) of the Act. Ld. CIT (A) ought to have deleted addition made in absence of cessation or remission of liabilities outstanding till date in the books of the appellant. It be so held now. 2 Ld. CIT (A) erred in law and on facts in holding that outstanding liabilities either ceased to exist or were already discharged by the appellant through undisclosed income. Ld. CIT (A) ought not to have confirmed additions on conjectures, surmises presumptions. It be so held now. 3 Ld. CIT (A) erred in law and on facts in confirming part disallowance of Rs. 5, 21, 22, 081/- from total disallowance of Rs. 164.23 crores made by AO rejecting bad debts claimed from domestic debtors by the appellant. Ld. CIT (A) ought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tively showing different outstanding on different date hence, not proved to have been outstanding as on the last day of previous year for the year under consideration. 4). The Ld. Commissioner of Income-Tax (Appeals)-XlV, Ahmedabad has erred in law and on facts to delete the addition of Rs.34,26,30,000/- u/s.41(1) of the Act on account of liability claimed to be provision for bills awaited for WEG to NEG Micron (India) Ltd, without any verifiable evidence of such outstanding liability. 5). The Ld. Commissioner of Income-Tax (Appeals)-XIV. Ahmedabad has erred in law and on facts to delete the addition of Rs.1,45,07,373/- outstanding to Suzlon Greenpower Ltd., u/s.41(1) of the Act on the basis of arbitration order although the date of outstanding liability is not verifiable. 6). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in admitting additional evidences in violation of Rule 46A. 7). The Ld. Commissioner of Income-Tax (Appeals) XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.3,21,07,755/- made u/s.68 of the Act without Assessee's onus being discharged to prove creditworthiness of depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment order. The Ld. DR further submitted that in the instant facts, the Ld. CIT(Appeals) has taken on record certain additional evidence by deleting the additions and he had admitted additional evidence without giving an opportunity to the assessing officer to rebut the same. Accordingly, Ld. CIT(Appeals) erred in fact and law in admitting additional evidences in violation of Rule 46A of the Income Tax Rules. 39. We have heard the rival contentions and perused the material on record. While we are in agreement with the counsel for the assessee that the Department has not been able to bring anything on record to controvert the findings made by Ld. CIT(Appeals), however, we also observe that instant case, the assessee filed certain supporting documentations which were considered by the Ld. CIT(Appeals) while affording relief to the assessee, without confronting this material to the assessing officer for his comments. Before us, the counsel for the assessee submitted that substantial documentations had all been furnished before the assessing officer during the course of assessment proceedings to substantiate that the outstanding amounts with respect to the aforesaid parties stil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue with respect to the aforesaid grounds of appeal are allowed for statistical purposes. Ground number 3-4 of assessee s appeal and ground number 8 of department s appeal: disallowance of bad debts 44. We observe that the issues for consideration with respect to the aforesaid grounds of appeal have already been dealt by us in the preceding parts of the order while dealing with grounds 4-6 of assessee s appeal and ground number 1 of the Department s appeal. 45. Accordingly, in light of the observations made in the earlier part of the order, the issue is being set aside to the file of Ld. CIT(Appeals) to ascertain whether income with respect to such amounts written off have been offered by the assessee in any of the earlier assessment years, in the light of observations made by us for assessment year 2007-08, and if that be the case, then relief may be allowed to the assessee in terms of the decisions of Khyati Realtors and TRF Ltd. supra . 46. In the result, both the appeals of the Assessee and Department are allowed for statistical purposes. Ground number 5 of assessee s appeal: loss on sale of the Hateshwari shares of ₹ 26.72 lakhs 47. Brief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the ground of appeal are that the assessing officer made addition under section 68 of the Act amounting to ₹ 3.21 crores in respect of unsecured loans with respect to 3 parties, being the director and promoter of the group. Before the AO, the assessee submitted that the aforesaid loans had been taken from directors and promoter of the assessee company, who had been assessed with the same assessing officer for the past several years. Further, the loans had been accepted by account payee cheques and therefore, the assessee had discharged the onus cast upon him under section 68 of the Act. However, the assessing officer made additions under section 68 with respect to the aforesaid parties. 57. In appeal, Ld. CIT(Appeals) allowed the appeal of the assessee with the following observations: The appellant in appeal submitted that Shri Dipak S. Metha from whom Rs. 28262281/- and Shri Predip S. Mehta from whom Rs. 3815474/- were accepted were under custody at the time of assessment proceedings hence such promoter directors assessed with A.O. and earlier years also given loan to appellant company given confirmation with authorised person's i.e. wife of such person&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f flats, supplied address and PAN of concerned persons, it had discharged its primary onus and, therefore, Assessing Officer could not make addition of said amount to assessee's taxable income without making proper inquiries under section 133(6) of the Act. In the case of Neotech Education Foundation 148 taxmann.com 372 (Gujarat) , the High Court held that where assessee received loan for purchase of land for construction of an educational campus, in view of fact that though initial burden of proof was not discharged at level of Assessing Officer but assessee produced relevant documents to prove identity and creditworthiness of creditor and genuineness of transaction before Commissioner (Appeals) and, further, transaction was made through proper banking channel, impugned addition made under section 68 on account of said loan amount received by assessee was unjustified. Accordingly, in light of the above judicial precedents and facts of the instant case, we find no infirmity in the order of Ld. CIT(Appeals) so as to call for any interference. 59. In the result, ground number 7 of the Department s appeal is dismissed. Ground number 8 of department s appeal: deletion of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition of Rs. 13,85,000/- is neither justified nor sustainable in law. The A.O. is directed to delete the addition so made. The appellant gets relief accordingly. 64. The Department is in appeal before us against the order passed by Ld. CIT(Appeals) with respect to this issue. However, the Ld. DR has not been able to point out any specific infirmity in the observations made by Ld. CIT(Appeals) in the appellate order. On going to the contents of the order passed by Ld. CIT(Appeals), we are of the considered view that the Ld. CIT(Appeals) has taken a very reasonable view looking into the facts of the instant case and we find no infirmity in the order of Ld. CIT(Appeals) so as to call for any interference. 65. Accordingly, Ground number 9 of the Department s appeal is dismissed. 66. Grounds 10-11 of the departments appeal are general in nature and do not require any specific adjudication. 67. In the result, the appeals filed by the Assessee and Department are partly allowed, for statistical purposes, for Assessment Year 2008-09. 68. In the combined result, the appeals of the Assessee and Department are partly allowed for statistical purposes. Order pronounced in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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