9911796707
TMI Blog2025 (1) TMI 1476X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee before the ld. CIT (A), which were sent to ld. AO for submission of remand report were not complete and proper. Therefore, we do not find any infirmity in the order of the ld. CIT-A in deleting the above disallowance. Accordingly ground number 1 of the appeal is dismissed. Addition of 5% of sundry creditors payable towards purchase suppliers and work and for expenses as a cessation of liability under section 41 (1) read with section 28 (iv) - HELD THAT:-Natural corollary would be that the amount of addition u/s 41(1) cannot be made on ad hoc basis. The learned assessing officer has applied five percentage of the total liability outstanding in the books of the assessee and held that it has ceased to exist and therefore chargeable to tax under section 41 (1). On reading of the provisions under section 41 (1) of the Act any ad hoc addition is not warranted. It must be the actual liability which has ceased to exist, is chargeable to tax in the hands of the assessee. Therefore, no infirmity in the order of CIT-A in dealing with the additional evidences filed by the assessee, which were sent for remand report to the assessing officer but for substantial time no such remand re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the learned CIT - A in confirming the disallowance being amount provided as bad and doubtful debts from ex-employees to whom materials issued are not returned as well as excess material is drawn by them. Excess balance of in the said bank - HELD THAT:- 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 non-existence 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 u/s 28 of the act for computation of profits and gains. Accordingly, we direct the learned lower authorities to delete an amount on account of excess balance of in the said bank. Disallowance being amount written off consisting of advances given to various parties - HELD THA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(Appeals)] dated 29.03.2023 wherein the appeal filed by assessee against the assessment order passed by ACIT, Circle 1(1)(2), Bangalore (the ld. AO) dated 30.12.2019, u/s. 143(3) of the Income-tax Act, 1961 (the Act) determining total income of assessee at 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 confirmin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax (Appeals) is not justified in law in confirming the disallowance a sum of Rs. 2.21 crores in respect of amount written off consisting of advance given to employees on the facts and circumstances of the case. 10. The learned Commissioner of Income-tax (Appeals) is not justified in law in confirming the disallowance a sum 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 clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess loss or unabsorbed deprecation as per the books of accounts of the Appellant prepared in accordance with the provisions of Companies Act, 2013 on the facts and circumstances of the case. 22. The learned Commissioner of Income-tax (Appeals) is not justified in taw in confirming the provisions to the extent a sum of Rs. 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 circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany took over the assets & liabilities on 1.6.2002 for distribution of electricity in 8 districts. Assessee is thus a DISCOM wholly owned by Govt. of Karnataka. 6. Assessee filed its return of income on 30.10.2017 at a loss of Rs. 232,87,679/- as per normal computation and computed book profit u/s. 115JB of the Act, at a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39 (SC), he disallowed 20% of the above expenditure of Rs. 31.19 crores. 11. Assessee contested disallowance before the ld. CIT(A) and referred to details of unit-wise list of payments made to contractor and reply to various show cause notices. Assessee also made an application of additional evidences which were admitted and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s purchase suppliers and work and for expenses as a cessation of liability under section 41 (1) read with section 28 (iv) of the act amounting to Rs. 225,07,30,000/-. The learned assessing officer has as per the annual report found that the assessee has total liability of Rs. 4953.53 crores. Out of that a sum of Rs. 452.07 crores 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power, creditors for supply of works etc of Rs. 498.53 crores and outstanding expenses of Rs. 90.11 crore. The assessee also submitted a breakup of creditors for purchase of power as well as the other information. The learned CIT-A in paragraph number 9.4 has discussed the allegation of the learned assessing officer appearing 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn in the books of accounts of the assessee. In subsequent year, on sample basis, he verified that the payments have been made to these parties. Therefore, when the payments have been made to the sundry creditors which were outstanding on the last day of the accounting period, in subsequent accounting year, there cannot be any 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2.48 crores which is once again comprising of the sum of Rs 2.21 crores and ₹ 0.27 crores already referred to in ground number eight. Therefore, there are many overlapping sums in the grounds of appeal as far as the number of addition/disallowances are confirmed and agitated. 24. The brief facts of the case and discussed by the learned assessing 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 comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provision for bad and doubtful debts. The learned CIT - A also noted the explanation of the assessee that assessee creates provisions for each year which is reversed in subsequent year and a fresh provision is made once again for the subsequent year which has resulted in the higher provision of Rs. 4.42 crores for the year ended on 31/3/2017. In view 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 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and therefore should have been allowed to the assessee as a bad debts. It was further stated that all the conditions mentioned under the provisions of the income tax act with respect to section 36 (2) and 36 (1) (vii) are completely satisfied. Therefore, the disallowance made by the learned lower authorities is not correct. 27. During hearing assessee 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 ₹ 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 perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But, for this reason only on migration when the account receivable from the customers could not be reconciled from the manual accounts to the computerised accounts, this sum was transferred to a consolidated account of the debtors. Had the details of individual accounts available with the assessee, there would not have been a separate account opened for such consolidated debtors. From that consolidated account of the debtors, part of the sum comprising of ₹ 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the nature of write-off of assets. 34. The learned authorised representative referred to page number 2733 of the paper book wherein accounting entries are explained. He further referred to page number 2739 and 2740 of the paper book wherein the amount of balance as per trial balance is stated. He referred to the sum of ₹ 22,468,74 relating to rural South division of the company related to amount recoverable from 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 bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volved is the addition to the extent of ₹ 0.14 crores the learned CIT - A referred to this issue in paragraph number 10.9 (B) wherein it has been mentioned that there is a write-off of ₹ 0.14 crores by the assessee which is related to excess balance in the said bank. The assessee has referred the audit enquiry number 31 and has stated that all the balances has been transferred after collection to main account of Bangalore metro areas 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. We have carefully considered the rival contentions and perused the orders of the learned lower authorities. The simple issue involved in this ground is that assessee has in fact no balances with the IndusInd bank as per the bank statement. But zonal accounts, the trial balance is showing balances with the banks. Therefore, it is the case of non-reconciliation of the bank account in the books of accounts of the assessee with actual bank balances 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 deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the accounting entries as well as the manual (standard operating procedure) when the material is issued to the staff, employees etc. It was stated that when the material is issued, it was debited to the capital work in progress and when the same is not returned, same is transferred to the asset account being amount recoverable from employees. The amount which is stated to be recoverable, when it is not realised, same is written off as a provision in the 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Therefore, we do not have any option, but to confirm the order of the learned lower authorities in confirming the disallowance of ₹ 221 lakhs with respect to the suppliers. 49. With respect to the second item of ₹ 0.27 crores of the advances to the staff, similar conditions apply as far as the claim of the loss raised by the assessee. For this also assessee has failed to give any reason that why such losses are treated as incurred during the year. No further 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 ₹ 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 dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt to be filed under provisions of section 115JB of the act, it cannot be determined that what is the least amount of the brought forward losses or unabsorbed depreciation as per the books of accounts of the assessee and therefore in absence of any claim, no amount was allowed as a deduction. It was further stated that in the written submission filed by the assessee also, only unabsorbed loss is shown, there is no details of unabsorbed depreciation. Only the least of two can be 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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