KSIDC, Trivandrum V. ACIT, Trivandrum

CO 11/COCH/2010

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7352 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-06-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 19-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 12-11-2010
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: V DEVARAJAN
• Keywords: Business income; Bad and doubtful debts
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A NO. 547/COCH/2010 ASSESSMENT YEAR : 2007-08 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), TRIVANDRUM VS. M/S. KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD., KESTON ROAD, KOWDIAR, TRIVANDRUM. [PAN: AAACK 9434D] (REVENUE-APPELLANT) (ASSESSEE - RESPONDENT) C.O. NO. 11/COCH/2010 (ARSG. OUT OF I.T.A. NO. 547/COCH/2010) ASSESSMENT YEAR : 2007-08 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), TRIVANDRUM VS. M/S. KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD., KESTON ROAD, KOWDIAR, TRIVANDRUM. [PAN: AAACK 9434D] (REVENUE -APPELLANT) (ASSESSEE - RESPONDENT) ASSESSEE BY SHRI V. DEVARAJAN, CA REVENUE BY SMT. S. VIJAYAPRABHA, JR. DR DATE OF HEARING 19/04/2012 DATE OF PRONOUNCEMENT 08/06/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 14.07.2010 PASSED BY LD CIT(A)-1, TRIVANDRUM AND THEY RELATE TO THE ASSESSMENT YEAR 2007-08. I.T.A. NO.547 /COCH/2010 & C.O. NO. 11/COCH/2010 2 2. THE REVENUE IS ASSAILING THE DECISION OF LD CIT(A) IN RESPECT OF FOLLOWING ISSUES:- (A) DELETION OF DISALLOWANCE OF BAD DEBTS CLAIM - RS.5,70,13,359/- (B) RELIEF OF EXCESS PROVISION WRITTEN BACK - RS.2 ,09,80,000/- 3. IN THE CROSS OBJECTION, THE ASSESSEE IS ASSA ILING THE DECISION OF LD CIT(A) IN PARTIALLY CONFIRMING THE DISALLOWANCE MADE U/S 14A OF THE ACT. 4. THE FACTS RELATING TO THE ABOVE SAID ISSUES A RE SET OUT IN BRIEF. THE ASSESSEE COMPANY IS A KERALA GOVERNMENT UNDERTAKING ENGAGED IN THE BUSINESS OF PROVIDING FINANCIAL ASSISTANCE TO INDUSTRIAL PROJECTS IN THE STATE OF KERALA BY WAY OF TERM LOAN, INVESTMENT IN SHARES ETC. THE ASSESSEE FILED ITS R ETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DISCLOSING A TOTAL INCOME OF RS.39,01 ,81,389/-. THE AO DISALLOWED THE CLAIM OF BAD DEBTS OF RS.5,70,13,359/- AND ALSO MAD E DISALLOWANCE OF ESTIMATED EXPENDITURE OF RS.11,44,900/- U/S 14A AS EXPENSES R ELATABLE TO THE EXEMPTED DIVIDEND INCOME. THE ASSESSEE CHALLENGED BOTH THE ADDITIONS BEFORE LD CIT(A). BESIDES THE ABOVE, THE ASSESSEE ALSO CHALLENGED NON-DEDUCTION O F EXCESS PROVISION OF RS.2,09,80,000/- WRITTEN BACK BY THE ASSESSEE IN IT S PROFIT AND LOSS ACCOUNT. HOWEVER, WE NOTICE THAT THE ASSESSING OFFICER DID NOT DISCUS S ANYTHING ABOUT THE EXCESS PROVISION WRITTEN BACK IN THE ASSESSMENT ORDER. 5. THE LD CIT(A) DELETED THE DISALLOWANCE OF BAD DEBTS, ALLOWED THE DEDUCTION OF EXCESS PROVISION WRITTEN BACK AND GRANTED PARTIAL R ELIEF IN RESPECT OF DISALLOWANCE MADE U/S 14A OF THE ACT. AGGRIEVED, BOTH THE PARTIES AR E IN APPEAL BEFORE US. 6. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF CLAIM OF BAD DEBTS. THE AO DISALLOWED THE CLAIM MAINLY ON THE GROUND THAT THE ASSESSEE HAS FAILED TO COMPLY WITH THE PROVISIONS OF SEC. 36(2)(V). THE ASSESSEE WROT E OFF BAD DEBTS TO THE TUNE OF RS.7,51,13,359/-. THE BALANCE OUTSTANDING IN THE PROVISION FOR BAD DEBTS A/C WAS RS.1,81,00,000/-. AFTER ADJUSTING THE PROVISION AC COUNT AGAINST THE BAD DEBTS AMOUNT CITED ABOVE, THE BALANCE OF BAD DEBTS AMOUNTING TO RS.5,70,13,359/- (RS.7,51,13,359 I.T.A. NO.547 /COCH/2010 & C.O. NO. 11/COCH/2010 3 LESS RS.1,81,00,000/-) WAS DEBITED TO THE PROFIT AN D LOSS ACCOUNT. THE CASE OF THE AO WAS THAT THE ASSESSEE SHOULD HAVE DEBITED THE ENTIR E AMOUNT OF RS.7,51,13,359/- TO THE PROVISION FOR BAD DEBTS A/C. SINCE THE ASSESSEE HAS DEBITED ONLY A SUM OF RS.1,81,00,000/- TO THAT ACCOUNT, THE AO DISALLOWED THE CLAIM OF RS.5,70,13,359/-. THE LD CIT(A) DELETED THE SAID DISALLOWANCE BY ACCEPTIN G THE CONTENTION OF THE ASSESSEE THAT THE DEBIT/ADJUSTMENT COULD BE MADE ONLY TO THE EXTENT OF BALANCE AVAILABLE IN THE PROVISION FOR BAD DEBTS A/C. 7. WE HAVE HEARD THE PARTIES ON THIS ISSUE. THE ISSUE REVOLVES AROUND SEC. 36(2)(V), WHICH READS AS UNDER:- (V) WHERE SUCH DEBT OR PART OF DEBT RELATES TO ADV ANCES MADE BY THE ASSESSEE TO WHICH CLAUSE (VIIA) OF SUB SECTION (1) APPLIES, NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS THE ASSESSEE HAS DEBITED THE AMOUNT OF SUCH DEBT OR PART OF DEBT IN THAT PREVIOUS YEAR TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE. THE CLAIM FOR PROVISION FOR BAD AND DOUBTFUL DEBTS IS CREATED AS PER THE PROVISIONS OF SEC. 36(1)(VIIA) OF THE ACT. SEC. 36(2)(V) EXTRACT ED ABOVE STATES THAT THE DEBIT HAS TO TO BE MADE TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER SEC. 36(1)(VII) OF THE ACT. IN THE INSTANT CASE, THE CL AIM OF THE ASSESSEE IS THAT THE BALANCE OUTSTANDING IN THE PROVISION ACCOUNT, WHICH IS MADE U/S 36(1)(VII) WAS ONLY RS.1,81,00,000/-. HENCE, IT WAS CONTENDED THAT, AS PER SEC. 36(2)(V) OF THE ACT, THE BAD DEBTS CAN BE DEBITED ONLY TO THE EXTENT OF THE AVAILABLE BALANCE IN THE PROVISION ACCOUNT. WE ARE INCLINED TO AGREE WITH THE CONTENT IONS OF THE ASSESSEE, AS THE SAME IS IN ACCORDANCE WITH THE ACCOUNTING PRINCIPLES, WHICH WE EXPLAIN IN THE ENSUING PARAGRAPH. 8. UNDER THE ACCOUNTING PRINCIPLES THE PROVISIO N ACCOUNT CAN ONLY HAVE CREDIT BALANCE AND ON ACCOUNT OF MAKING DEBITS IN THAT ACCOUNT, IF THE SAID PROVISION ACCOUNT IS CONVERTED INTO A DEBIT BALANCE ACCOUNT, THEN THE PR OVISION ACCOUNT HAS TO BE CLOSED BY TRANSFERRING THE DEBIT BALANCE TO THE PROFIT AND LO SS ACCOUNT. ACCORDINGLY, EVEN IF THE ASSESSEE DEBITS THE ENTIRE BAD DEBTS AMOUNT OF RS.7 .51 CRORES TO THE PROVISION ACCOUNT, THEN THE PROVISION ACCOUNT WILL SHOW A DEBIT BALANC E OF RS.5.70 CRORES WHICH HAS TO BE I.T.A. NO.547 /COCH/2010 & C.O. NO. 11/COCH/2010 4 CLOSED BY TRANSFERRING IT TO THE PROFIT AND LOSS AC COUNT. INSTEAD OF FOLLOWING THIS CIRCUITOUS METHODOLOGY, THE ASSESSEE HAS HEREIN HAS DEBITED THE PROVISION ACCOUNT WITH THE AVAILABLE BALANCE OF RS.1.81 CRORES AND DEBITED THE PROFIT AND LOSS ACCOUNT WITH THE REMAINING BALANCE. IT CAN BE SEEN THAT THE NET EFF ECT OF BOTH THE METHODOLOGIES GIVES SAME END RESULT. 9. IN VIEW OF THE FOREGOING DISCUSSION, WE ARE OF THE VIEW THAT THE LD CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF BAD DEBTS AND ACCORDIN GLY WE UPHOLD HIS DECISION ON THIS ISSUE. 10. THE NEXT ISSUE RELATES TO THE REDUCTION OF EXCESS PROVISION WRITTEN BACK. AS STATED EARLIER, WE DO NOT FIND ANY DISCUSSION ABOUT THE SAME IN THE ASSESSMENT ORDER. DURING THE COURSE OF ARGUMENT, THE LD A.R SUBMITTED THAT THE ASSESSEE HAD NOT CLAIMED ANY DEDUCTION EARLIER IN RESPECT OF THE PROVISION S O WRITTEN BACK AND HENCE THE SAME CANNOT BE TAXED U/S 41(1) OF THE ACT. SINCE THE AO DID NOT DISCUSS THIS ISSUE, WE FEEL THAT THIS MATTER REQUIRES EXAMINATION AT HIS END. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF AO FOR FRESH CONSIDERATION IN ACCORDANCE WITH LAW, AFTER AFFORDING NECESSARY OPPO RTUNITY OF BEING HEARD. 11. IN THE CROSS OBJECTION, THE ASSESSEE IS ASS AILING THE DECISION OF LD CIT(A) IN PARTIALLY CONFIRMING THE DISALLOWANCE MADE U/S 14A OF THE ACT. THE ASSESSEE HAD RECEIVED DIVIDEND INCOME, WHICH IS EXEMPT UNDER THE ACT. THE AO CONSIDERED 5% OF THE DIVIDEND INCOME AS THE EXPENSES RELATABLE TO TH E EXEMPTED INCOME AND DISALLOWED THE SAME U/S 14A OF THE ACT. THE LD CIT(A), BY FOL LOWING HIS ORDER FOR EARLIER YEAR, DIRECTED THE AO TO DISALLOW 0.5% OF THE AVERAGE VAL UE OF INVESTMENT ON THE FIRST DAY AND LAST DAY OF THE PREVIOUS YEAR FROM WHICH THE AS SESSEE HAD RECEIVED DIVIDEND. 12. BEFORE US, THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S CCI LTD IN ITA NO.359 OF 2011. WE HAVE CAREFULLY GONE THROUGH THE SAID DECISION AND WE NOTICE THAT THE AS SESSEE THEREIN HAS TREATED THE DIVIDEND INCOME AS ITS BUSINESS INCOME, AS IT WAS I NDULGING IN TRADING OF SHARES. I.T.A. NO.547 /COCH/2010 & C.O. NO. 11/COCH/2010 5 HOWEVER, THE POSITION AVAILABLE IN THE INSTANT CASE IS NOT CLEARLY BORNE OUT OF RECORD. WE FURTHER NOTICE THAT THE TRIBUNAL HAS CONSIDERED THIS ISSUE IN THE ASSESSEES OWN CASE RELATING TO THE ASSESSMENT YEAR 2003-04 TO 2005-06 IN ITA NOS. 200 TO 202/COCH/2009. IN THAT ORDER, THE TRIBUNAL HAS TAKEN NOTE OF THE D ECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. DHANALAKSHMI BANK LTD IN ITA NO .1324/2009 DATED 21.10.2010. HOWEVER, BOTH THE PARTIES HAVE FAILED TO PRODUCE A COPY OF THE JURISDICTIONAL HIGH COURT AND HENCE WE ARE UNABLE TO EXPRESS OUR OPINION. HE NCE, WE ARE OF THE VIEW THAT THIS ISSUE ALSO REQUIRES FRESH EXAMINATION AT THE END OF THE AO IN THE LIGHT OF THE DECISION OF THE JURISDICTIONAL HIGH COURT. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF AO WITH T HE DIRECTION TO EXAMINE THE ISSUE IN ACCORDANCE WITH LAW BY DULY CONSIDERING THE DISCUSS IONS MADE SUPRA. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS TREATED AS PARTLY ALLOWED AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE IS TREATED AS ALLO WED. PRONOUNCED ACCORDINGLY ON 08-06-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 8TH JUNE, 2012 GJ COPY TO: 1. M/S. KERALA STATE INDUSTRIAL DEVELOPMENT CORPORA TION LTD., KESTON ROAD, KOWDIAR, TRIVANDRUM. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1(1), TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, TRIV ANDRUM. 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTER) ITAT, COCHIN