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TMI Blog2025 (1) TMI 1476X X X X Extracts X X X X X X X X Extracts X X X X ..... normal computation at Rs. 190,03,50,556/- and computation of book profit at Rs. 187,98,18,404/- u/s. 115JB of the Act against the returned loss of Rs. 234,97,58,500/- and book profit of Rs. 84,77,18,404/-, was partly allowed. 2. The ld. AO is also aggrieved with the same appellate order and has also filed appeal in ITA No. 710/Bang/2023. 3. The assessee has raised the following 29 grounds of appeal :- "1. The order of the National Faceless Appeal Centre/learned Commissioner of Income tax (Appeals) passed under Section 250 of the Act in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case. Grounds in respect of confirming the disallowance of provision amounting to Rs. 86.66 Crores: 2. The learned Commissioner of Income-tax (Appeals) is not justified in law confirming the disallowance of provision made by the learned Assessing Officer in respect of materials not returned a sum of Rs. 0.23 crores, amount written off relating to excess balance in Indus Ind Bank a sum of Rs. 0.14 crores and amount written off recoverable from ex-employees- materials not returned/excess material drawn a sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 0.27 crores in respect of amount written off consisting of materials issued to personnel and not returned on the facts and circumstances case. 11. The learned Commissioner of Income-tax (Appeals) is not justified in law in holding that in the absence of specific identity of debtors (consumers whose bills are unpaid) it is not possible to closed such accounts of debtors which is also a necessary condition to prove that the account has been irreversibly closed. 12. The learned Commissioner of Income-tax (Appeals) is not justified in law in holding that the yardsticks laid down in the decision of the Hon'ble Supreme Court in POT v. Khyati Realtors Pvt. Ltd, (2022) 447 ITR 167 (SC) have not been satisfied on the facts and circumstances of the case. 13. The learned Commissioner of Income-tax (Appeals) is not justified in law in holding that the claim of a sum of Rs, 83.58 crores has been rightly disallowed by the Assessing officer under normal computation on the facts and circumstances of the case. 14. The learned Commissioner of Income-tax (Appeals) has erred in observing that the advance is in respect of advances given to various parties and not advances given to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 86.07 crores (83.59 crores +2.21 crores+0.27 crores) for making addition to computation of book profit under section 115JB of the Act on the facts and circumstances of the case. 23. The learned Commissioner of Income-tax (Appeals) is not justified in law in arriving a finding that the appellant does not satisfy the requirement of actual write off in respect of a sum of Rs. 86.07 crores (83.59 crores +2.21 crores+0.27 crores) and consequently addition under clause (i) to Explanation 1 of section 115JB of the Act holds good on the facts and circumstances of the case. 24. The learned Commissioner of Income-tax (Appeals) failed to appreciate that the learned Assessing Officer erred in adding the provision for receivable when the same was reduced from sundry debtors in the asset side the provision no longer an unascertained liability on the facts and circumstances of the case. 25. The learned Commissioner of Income-tax (Appeals) failed to appreciate that the learned Assessing officer erred in making the addition when the provision for receivable not shown in the liability of the Balance sheet and reduced from the debtors there is no requirement to add the same in the computation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book profit of Rs. 84,77,18,404/-. This return was subsequently revised on 26.3.2018 at a loss of Rs. 234,97,58,500/- and book profit was also changed to a book loss of Rs. 258,17,47,490/-. 7. This return was picked up for scrutiny by issue of notice u/s. 143(2) & 142(1) on 30.4.2019. On the various issues arising in the assessment order, a show cause notice was issued on 09.12.2019 which was replied to on 10.12.2019. After considering explanation, ld. AO made addition to normal income of assessee to the extent of Rs. 425,01,09,066/- on 5 different issues. Further, the computation of book loss claimed by assessee of Rs. 103.21 crores was also added back to book profit. The claim of book loss of Rs. 342/- crores was also not allowed as the assessee has not filed Form 29B of the Act. 8. Assessment order dated 30.12.2019 was challenged before the ld. CIT(A). The ld. CIT(A) partly allowed the claim of assessee and therefore both the parties are aggrieved and challenge it before us. 9. Before us, assessee has submitted voluminous paper books in five volumes, a case law compilation, and an application for admission of additional evidence. Assessee has also submitted written note on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d thereafter those were adjudicated on test check basis. The ld. CIT(A) deleted the addition after all the evidences were forwarded to the AO and waiting for his remand report, which was not submitted. The reasons for deletion of above disallowance is mentioned as per para 8 of his appellate order. The ld. AO is aggrieved. 12. The ld. DR vehemently submitted that assessee, despite being a public sector undertaking and receiving substantial finance by subsidy by Govt., did not furnish the complete details. The ld. AO has given detailed reason that there is allegation of higher expenditure booked by assessee and so the genuineness of the expenditure of contract payment was in doubt. Assessee did not produce the complete details and therefore the ld. AO disallowed 20% of the expenditure. The ld. CIT(A) is not correct in deleting the same. 13. The ld. AR supported the order of the ld. CIT(A) and submitted that assessee furnished complete details before the ld. CIT(A) and after verification of those details, when remand report of the AO was not submitted, he deleted the ad hoc disallowance. He further referred to the facts submitted before the ld. AO that assessee is a DISCOM based at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rores are related to other distribution companies. Balance of Rs. 4501.46 crores were inquired by the learned assessing officer with respect to the cessation of any liability. The assessee submitted a copy of unit-wise creditors and payables for supplies. It was stated that it is not feasible to provide the creditor wise details as the details are voluminous and would not be available at the corporate office level. The learned assessing officer was not satisfied with the explanation and stated that assessee should have furnished Bangalore office details at least. Same was also not furnished. He further noted on examination of the creditor details that many of the creditors were either contract payment or electricity purchase payments. It is also in news for having contracts for paying more than regulated prices for buying electricity. AO noted that assessee sign contract for buying electricity at higher prices but same is not paid to customers. However, these are bogus expenses, as assessee is bound by KERC rates. It was noted by him that this is one of the issues on the side of the liability. And there may be many such issues. As assessee failed to provide all the details, the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in certain newspaper reports regarding power purchases at higher rates. The learned CIT-A rejected the stand of the AO that the payments made to power producer at a higher rate is one of the reasons for subsequent cessation of liability. The learned CIT appeal further examined all the amounts of sundry creditors and further noted that assessee has claimed to have made payments to the creditors in subsequent years to prove the existence and validity of creditors appearing as on the last day of the balance sheet for the impugned assessment year. He further examined the breakup of existing liability and some payment made to these creditors in subsequent years. Thus, he noted that in absence of any specific liability having ceased being pointed out by the assessing officer, it is not correct to make disallowance on account of cessation of liability on estimated basis of a huge amount of around Rs. 225 crores. He further considered the various judicial precedents cited by the learned assessing officer and held that those are not applicable in the facts of the assessee. Therefore, he held that the disallowance/addition made by the learned assessing officer of Rs. 2,250,730,000 made un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny cessation of liability to that extent. The learned CIT-A further dealt with the doubt expressed by the learned assessing officer about the irregularity in sundry creditors and held that such doubt was unfounded. In paragraph number 9.5, he dealt with major creditors outstanding and how they have been dealt with in the books of accounts subsequently with respect to the payment. Therefore, he held that when the assessee has claimed to have made payments to the creditors in subsequent years, the fact of the outstanding liability in existence as on 31/3/2017 cannot be denied. He further held that the learned assessing officer has not pointed out any instance of any liability ceasing to exist out of the huge sum. He also rejected the criteria applied of 5% to make an addition to the total income of the assessee. In fact, according to the provisions of section 41 (1), there is no scope for any estimation of income, whatever liability has ceased to exist becomes the income of the assessee. Therefore, natural corollary would be that the amount of addition under section 41(1) cannot be made on ad hoc basis. The learned assessing officer has applied five percentage of the total liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing officer in paragraph number 4.5 of the assessment order wherein it was found that as per the computation of total income they assessee has not added back the provisions created in the profit and loss account. According to the learned assessing officer same should have also been added back in the minimum alternative tax computation. Accordingly, the assessee was issued a show cause notice that why the same should not be disallowed under section 37 holding it to be a contingent liability. The assessee's reply was that provisions debited to the profit and loss account are not in the nature of contingent liability and it is the liability that has accrued as on the date of closing the books of accounts which are paid in subsequent years, therefore there is no requirement to add the provisions back in the computation and in MAT computation. The learned assessing officer considered the explanation of the assessee and held that if the amount has been paid in subsequent years, the assessee should have furnished such evidence of actual payment, which are not furnished. He further referred to note number 2.35 of the annual report wherein such liabilities are tabulated. The liabilities a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the difference reconciled by the assessee, the learned CIT - A held that the onus lies on the assessee to show that the claim is correct and has not been claimed earlier as deduction. Further it was noted by him that assessee could not show the requirement of closure of the account of the debtor. The reason being that the details submitted by the assessee which are maintained division -wise and not consumer wise. Thus, he held that the assessee has not fulfilled the requirement of writing off/closure of the accounts of the consumer/ customer. Further as the exercises been undertaken based on the report of internal audit, the amount pointed out by that internal audit report and amount provided by the assessee are quite different. The learned CIT - A also noted that the assessee could not show that the above amount of Rs 83.58 crores have been reduced from the debtors account and from the trade receivables. He noted that the figure reduced from trade receivable is Rs. 1175.66 crores which could not be reconciled with the claim of bad debt written off by debiting to the profit and loss account. He further noted that in absence of specific identity of debtors, it is not possible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has also submitted the additional evidence with respect to the copy of the backup of the amounts falling under the head trade receivable which are pending for reconciliation. These are merely the extract of the books of accounts of the assessee of the trade receivable, therefore those are also considered while deciding this ground. The learned departmental representative on this issue did not raise any objection. 28. The learned departmental representative vehemently supported the orders of the learned lower authorities and submitted that in absence of proper details of Rs. 83.59 crore submitted by the assessee, the bad debts cannot be allowed to the assessee. He extensively referred the order of the learned CIT - A wherein the disallowance was confirmed. 29. We have carefully considered the rival contention and perused the orders of the learned lower authorities. The only issue involved in this ground is with respect to allowability of bad debt claim of the assessee. The brief facts shows that in the financial year 2016 - 17 the billing system of the assessee was computerised. The receivable maintained manually were taken to consumer wise data into the system software. A sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsolidated account of the debtors, part of the sum comprising of Rs. 83.59 crores could not be reconciled, which was written off. Therefore, disallowance, of the sum considered as bad debt by the assessee, by the learned lower authorities is not correct, as it satisfies all the conditions of section 36 (1) (vii) read with section 36 (2) of the act. This claim of the assessee is allowed based on the principles of the allowability of bad debts, which are otherwise allowable irrespective of the additional evidence submitted by the assessee. Accordingly, the learned assessing officer is directed to delete the disallowance of Rs. 83.59 Crores being amount written off in relation to the number of sundry debtors (the customers). 30. The other three disallowance/additions were with respect to (i) sum of Rs. 0.23 crores in respect of material not returned, (ii) Rs. 0.14 crores being amount of return of relating to excess balance in IndusInd bank and (iii) amount written off recoverable from ex-employees for materials not returned or excess material drawn of Rs. 0.22 crores. The reasons for making the about disallowance by the learned assessing officer as the amount of provision bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees as unused materials not returned/ excess material is drawn. It was his claim that it is not a bad that but a business loss. He further referred to judicial precedent placed at page number 110 of the case law compilation and also relied on the decision of 349 ITR 250 [ Bom] in case of Harshad J Chokshi. The learned authorised representative also referred to page number 9 - 11 comprising in paragraph number m - r of the written submission. 35. The learned departmental representative vehemently supported the order of the learned lower authorities. It was submitted that the reasons given by the learned CIT - A that whether the sum of 0.22 crores from ex-employees has already been reduced from the inventory in the year in which they were issued, has not been shown by the assessee. Therefore if the assessee does not furnish the proper and complete details, the disallowance has rightly been made. 36. We have carefully considered the rival contention and perused the orders of the learned lower authorities. Here the issue is whether a sum of Rs. 0.22 crores as shown by the assessee in other current assets is stated to be an amount written off recoverable from ex employees who h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas zone. The assessee claimed that the balances as per the bank statement of all the subs divisions was Rs Nil and the balances were being shown wrongly in the books of account of the assessee. The recoverability of such bank balance as per bank of account was considered doubtful and hence the assessee justified the said claim made. 38. During the course of hearing the learned CIT - A the assessee was asked to prove that when all collections have been transferred to main Branch and already shown as an income. He held that mere existence of certain fictitious assets figures in the books of accounts of the appellant does not partake nature of income already disclosed wrongly as income in earlier years. The assessee was asked to submit necessary clarification and evidences. The assessee did not submit any clarification and therefore the learned CIT - A confirmed the disallowance. 39. The learned authorised representative submitted before us that above sum represents erroneous excess balance in the bank account of the assessee as per books of account but in fact does not exist as per the bank ledger. Thus, in the books of account balance is shown which does not exist at all with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s available with the banks in the account of the assessee. This was found during the year that there exists an excess balance in the bank account as per the books of the assessee which did not exist in the bank itself. These are the minor differences arising on account of reconciliation. It was pointed out by the audit party. The assessee on its failure to reconcile the same decided to write it off to the profit and loss account but wrongly clubbed into another account head. Therefore, if the assessee has come to know about the error in its books of account during the year, of nonexistence of an asset, though disclosed as an existing asset in books of accounts of the assessee, writing off the same would be allowable to the assessee as deduction. Therefore, as the amount is small and it has arisen out of the bank reconciliation, same is allowable to the assessee under section 28 of the act for computation of profits and gains. Accordingly, we direct the learned lower authorities to delete an amount of Rs. 0.14 crores on account of excess balance of in the said bank. 42. The next issue of the disallowance is a sum of Rs 2.21 crores being amount written off consisting of advances giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e books of accounts of the assessee. It was further stated that the recovery of the above advance given to the suppliers is also not expected and therefore same was debited to the profit and loss account. It was further stated that the entire amount of Rs. 248 lakhs are amounts of materials advance to employees/ suppliers during the course of business activities of the assessee. Therefore the same is a business loss to the assessee and is allowable in view of the decision of the honourable Supreme Court in case of 34 ITR 10, the decision of the honourable Bombay High Court in case of 349 ITR 240 and honourable Madras High court in 415 ITR 146. Assessee also relied upon the several judicial precedents in his case law compilations. 46. The learned departmental representative referred to the paragraph number 10.8 (c ) of the order of the learned CIT - A and submitted that assessee has failed to give any evidence with respect to the amount written of which is merely a provision for bad and doubtful debt. He submits that if the advances given to the suppliers, and such amount is written of, it is not allowable u/s 36 (2) of the Act, as it does not satisfy necessary condition of it bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther details were provided, except showing us the standard operating procedure, which does not help the case of the assessee. Accordingly, the disallowance by the learned CIT - A Rs. 0.27 crores is also confirmed. 50. Accordingly, ground number 2 - 17 of the appeal are partly allowed. 51. Coming to the ground number 18 - 25 which relates to the computation of book profit under section 115JB of the act. Briefly stated the fact shows that assessee has disputed the action of the learned assessing officer in not allowing the claim of lower of business losses and depreciation as per books of accounts. It is the claim of the assessee that according to the provisions of section 115JB, the assessee is entitled for deduction from the book profit least of the brought forward losses or unabsorbed depreciation. It is the claim of the assessee that it has brought forward loss of Rs. 375.33 crores. 52. The learned assessing officer denied any adjustment for the reason that assessee has not filed any form number 29B to substantiate the amount of taxable book profit under section 115JB of the Act. 53. Aggrieved with the same, on appeal before the learned CIT - A paragraph number 11.3 of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted as deduction. As there is no unabsorbed depreciation available, no deduction is allowable to the assessee. 56. We have carefully considered the rival contention and perused the orders of the learned lower authorities. In the present case it is an accepted fact that the learned assessing officer has computed the book profit under section 115JB of the act without any form number 29B filed by the assessee. In absence of any details of any brought forward losses or unabsorbed depreciation as per the books of accounts, the learned assessing officer did not grant deduction of least of these two items. When the matter reached before the learned CIT - A, he directed the learned assessing officer to compute the book profit under section 115JB of the act by giving an opportunity of hearing to the assessee and then compute the same in accordance with the provisions of the law. As the issue has been restored back to the file of the learned assessing officer to compute the book profit correctly, it is the duty of the assessee to show that there is any book loss or unabsorbed depreciation available to the assessee to be granted as deduction from the book profit. It is for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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