M/s Lloyd Insulation (India) Ltd., New Delhi V. DCIT, New Delhi

CO 201/DEL/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7654 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 1 month(s) 15 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 09-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 31-07-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 24-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DK MISHR A
• Keywords: Recovery proceedings; Business income; Earning of tax free income; Retrospective amendment; Bad and doubtful debts
• Section: 43B; 143(3); 14A; 145; 27; 28; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI R.K. GUPTA AND SHRI B.C. MEENA ITA NO. 2400/DEL/11 ASSTT. YR. 2008-09 DCIT CIR. 4(1), VS. M/S LLOYD INSULATION (INDIA) LTD., NEW DELHI. M-13, PUNJSTAR PREMISES, CONNAUGHT PLACE, NEW DELHI. PAN/ GIR NO. AAACL0486E C.O. NO. 201/DEL/11 ( IN ITA NO. 2400/DEL/11) ASSTT.YR. 2008-09 M/S LLOYD INSULATION (INDIA) LTD., VS. DCIT CIR. 4 (1), M-13, PUNJSTAR PREMISES, NEW DELHI. CONNAUGHT PLACE, NEW DELHI. ( APPELLANT ) ( RESPONDENT ) DEPARTMENT BY : SHRI D.K. MISHRA DR ASSESSEE BY : SHRI K.V.S.R. KRISHNA CA O R D E R PER R.K. GUPTA, J.M: : THE DEPARTMENT IS IN APPEAL AGAINST THE ORDER OF C IT(A) DATED 1-3- 2011 IN RESPECT OF A.Y. 2008-09, RAISING AS MANY AS 7 GROUNDS OF APPEAL. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION ASSAIL ING THE ORDER OF CIT(A). BOTH THE MATTERS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. GROUND NOS. 1 & 7 RAISED BY THE REVENUE IN ITS A PPEAL ARE GENERAL IN NATURE AND REQUIRE NO ADJUDICATION. ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 2 3. GROUND NO. 2 RELATES TO THE DELETION OF ADDITION OF RS. 29,08,07,163/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DIFFER ENCE BETWEEN THE INCOME APPEARING IN TDS CERTIFICATE AND INCOME OFFERED FOR TAXATION. 4. ASSESSING OFFICER MADE AN ADDITION OF RS. 29,08 ,07,163/- ON ACCOUNT OF TDS CLAIMED ON ADVANCE AGAINST RUNNING CONTRACTS BY OBSERVING AS UNDER: DURING THE YEAR, THE ASSESSEE HAS EARNED INCOME FRO M CONTRACT SALES AND THE PRODUCT SALES. IN RESPECT OF CONTRAC T SALES, IT HAS CLAIMED ADVANCE RECEIPT OF RS.29,08,07,163/- WHICH HAS NOT BEEN CONSIDERED AS INCOME OF AY 2008-09 BUT CONSIDE RED AS LIABILITY IN THE BALANCE SHEET. HOWEVER, THIS ADVA NCE MONEY FROM VARIOUS CUSTOMERS HAS BEEN RECEIVED AFTER DEDU CTION OF TDS. THE ASSESSEE WAS ASKED TO RECONCILE ITS CLAIM OF TDS CREDIT WITH RELATED INCOME IN THE PROFIT & LOSS ACC OUNT. THE DETAILS SUBMITTED BY THE ASSESSEE IN THIS REGARD LE AD TO NO CONCLUSION AS THERE ARE THOUSAND OF TDS TAX CREDITS AS PER FORM NO.26AS AND THE TDS CLAIM MADE BY THE ASSESSEE WHIC H ARE NOT RECONCILED PROPERLY. THE ASSESSEE ITSELF HAS A DMITTED THAT THE TDS CLAIM HAS BEEN MADE IN RESPECT OF ADVANCES RECEIPTS ALSO. AS PER THE PROVISIONS OF RULE 37BA READ WITH SEC. 199, CREDIT FOR TAX DEDUCTED AT SOURCE AND PAID TO THE CENTRAL GOVERNMENT, SHALL BE GIVEN IN ASSESSMENT YEAR IN WH ICH SUCH INCOME IS ASSESSABLE. SINCE TDS CREDIT OF RS.66.0 1 HAS BEEN CLAIMED DURING THE YEAR, THE CORRESPONDING ADVANCE RECEIPTS OF RS.29,08,07,163/- HAVE ALSO TO BE TAKEN IN THE INCO ME RELATED TO AY 2008-09. ACCORDINGLY, ADDITION OF RS.29,08,07,1 63/- IS BEING MADE TO THE TOTAL INCOME OF THE ASSESSEE. 5. DURING THE APPELLATE PROCEEDINGS DETAILED SUBMIS SIONS WERE FILED BEFORE CIT(A) WHICH HAVE BEEN INCORPORATED IN THE ORDER OF CIT(A) AT PAGE 21, AS UNDER: AT THE OUTSET, IT IS ESSENTIAL TO UNDERSTAND THE N ATURE OF ASSESSEES BUSINESS. THE ASSESSEE COMPANY UNDERTAK ES TURNKEY ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 3 CONTRACTS OF THERMAL INSULATION, HYDRO AND ACOUSTIC INSULATIONS, SPRAY INSULATIONS, ELECTRIC HEAT TRACI NG, BUYING AND SELLING OF INSULATIONS AND ANCILLARY MATERIAL A ND MANUFACTURING OF CERAMIC FIBER PRODUCTS, POLYURETHA NE BOARD / SLAB SLASH PIPE SECTION, PRE-FABRICATED BUILDINGS, DOORS, SHAPE AND SECTIONS OF IRON AND STEEL SHEETING AND ISOTHAN E PRODUCTS. THE AO HAS UNDERSTOOD ADVANCE AGAINST RUNNING CONTR ACTS APPEARING IN THE LIABILITY SIDE OF THE AUDITED BALA NCE SHEET, COPY ENCLOSED OF THE COMPANY UNDER THE HEAD CURRENT LIABILITIES AS ADVANCE RECEIVED OF RS.29,08,07,163/- AND CONCLU DES THAT THE SAID AMOUNT OF ADVANCE MONEY RECEIVED FROM VARIOUS CUSTOMERS IS AFTER DEDUCTION OF TDS AND CONSEQUENTL Y SURMISES THE AMOUNT AS INCOME OF THE ASSESSEE WHICH IS FACTU ALLY WRONG. THE SAID AMOUNT IS NOT ADVANCE RECEIVED BY THE ASSE SSEE FROM THE CUSTOMERS BUT IS THE BALANCE RESULTING UPON WOR KING AS PER THE METHOD OF REVENUE RECOGNITION PRESCRIBED BY ACC OUNTING STANDARD 7 BEING ACCOUNTING FOR CONSTRUCTION CONTRA CTS PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANT S OF INDIA AND CONSISTENTLY FOLLOWED BY THE ASSESSEE IN ALL TH E EARLIER YEARS AND ACCEPTED BY THE DEPARTMENT IN THE ASSESSMENT U/ S 143(3). COPY OF THE ACCOUNTING STANDARD-7 OF THE INSTITUTE OF CHARTERED ACCOUNTANTS IS ENCLOSED . THE ASSESSEE HAD CLARIFIED VIDE LETTER DATED 17 TH NOV. 2010 WHICH IS ALREADY FILED ALONGWITH THE APPEAL PAPERS THAT THE TDS CLAIMED BY THE ASSESSEE IN THE INCOME TAX RETURN AG GREGATES TO RS.6,18,49,871/-, THE CORRESPONDING AMOUNT REFLECTE D IN THE SAID TDS CERTIFICATES AGGREGATE TO RS.259.42 CRORES . THIS DETAILS THE ASSESSEE HAS ALREADY FILED ALONG WITH T HE INCOME TAX RETURN WHICH IS AGAIN ENCLOSED WITH THE SUBMISSIONS. AS AGAINST THE AMOUNT OF RS.259.42 CRORES, THE ASSESSE E HAS REFLECTED IN THE PROFIT & LOSS ACCOUNT THE TOTAL CO NTRACT SALES OF 306.73 CRORES. THIS COMPLETELY SATISFIES THE REQUIREMENTS OF THE P ROVISIONS OF SEC. 199 IN SO FAR AS THE CLAIM FOR TDS HAS BEEN MA DE BY THE ASSESSEE IN THE ASSESSMENT YEAR IN WHICH SUCH INCOM E IS ASSESSABLE. BOTH THE SECTIONS, VIZ., 198 AND 199, FALL WITHIN CHAPTER XVII OF THE INCOME-TAX ACT, 1961, WHICH ARE TITLED AS ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 4 COLLECTION AND RECOVERY OF TAXDEDUCTION AT SOURCE . IN OTHER WORDS, THESE ARE MACHINERY PROVISIONS FOR EFF ECTUATING COLLECTION AND RECOVERY OF THE TAXES THAT ARE DETER MINED UNDER THE OTHER PROVISIONS OF THE ACT. IN OTHER WORDS, T HESE ARE ONLY MACHINERY PROVISIONS DEALING WITH THE MATTERS OF PR OCEDURE AND DO NOT DEAL WITH EITHER THE COMPUTATION OF INCOME O R CHARGEABILITY OF INCOME. THE BASIS OF CHARGE OF IN COME TO TAX IN THE CASE OF BUSINESS INCOME IS PROVIDED IN SECTI ON 28 OF THE ACT. THE COMPUTATION PROVISIONS OF SECTIONS 28 TO 43A DEAL WITH THE ASSESSMENT OF PROFITS AND GAINS OF BUSINES S. IN COMPUTING THE INCOME FROM BUSINESS OR PROFESSION , THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE BECOM ES RELEVANT. THE PROFITS AND GAINS OF BUSINESS OR PRO FESSION CARRIED ON BY THE ASSESSEE SHOULD BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSE SSEE AS PROVIDED IN SECTION 145(1) OF THE INCOME-TAX ACT, 1 961. SECTIONS 198 AND 199 OF THE ACT NOWHERE PROVIDE FOR AN EXCEPTION EITHER TO THE DETERMINATION OF THE INCOME UNDER THE AFORESAID PROVISIONS OF SECTION 28, 29 OR AS TO THE METHOD OF ACCOUNTING EMPLOYED UNDER SECTION 145 OF THE ACT, W HICH ALONE COULD BE THE BASIS FOR COMPUTATION OF INCOME UNDER THE PROVISIONS OF SECTIONS 28 TO 43A OF THE ACT. SECTI ON 198 HAS A LIMITED INTENTION. IT ONLY DECLARES THE AMOUNTS DE DUCTED AT SOURCE TO BE TREATED AS AN INCOME RECEIVED. THE PU RPOSE OF SECTION 198 IS NOT TO CARVE OUT AN EXCEPTION TO SE CTION 145 OF THE ACT. SECTION 199 OF THE ACT HAS TWO OBJECTIVES ONE TO DECLARE THE TAX DEDUCTED AT SOURCE AS PAYMENT OF TA X ON BEHALF OF THE PERSON ON WHOSE BEHALF THE DEDUCTION WAS MAD E AND TO GIVE CREDIT FOR THE AMOUNT SO DEDUCTED ON THE PRODU CTION OF THE CERTIFICATE IN THE ASSESSMENT MADE FOR THE ASSESSME NT YEAR FOR WHICH SUCH INCOME IS ASSESSABLE. IN THIS CONNECTION, THE ASSESSEE IS CONSISTENTLY FO LLOWING ACCOUNTING FOR CONSTRUCTION CONTRACTS PRESCRIBED BY THE ACCOUNTING STANDARD 7 OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THIS IS A MANDATORY ACCOUNTING STANDARD AND HAS BEEN FOLLOWED BY THE ASSESSEE FOR RECOGNIZING INCOME FRO M THE TIME IT CAME INTO EXISTENCE. THE BASIS OF RECOGNIZING I NCOME IN ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 5 RESPECT OF LONG TERM CONSTRUCTION CONTRACTS IS ON P ERCENTAGE OF COMPLETION METHOD. THIS HAS BEEN CLEARLY STATED BY THE ASSESSEE IN THE NOTES FORMING PARTS OF THE ACCOUNTS SCHEDULE-13 UNDER THE HEAD STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES. THIS SYSTEM OF RECOGNIZING INCOME AND EXPENDITURE FROM LONG TERM CONTRACTS HAS BEEN ACCEP TED BY THE ASSESSING OFFICERS IN THE EARLIER YEARS ASSESSMENT S U/S 143(3) AS WELL AS BY THE AO HIMSELF IN THIS VERY ASSESSMEN T YEAR. UNDER THIS METHOD, THE PERCENTAGE OF COMPLETION IS DETERMINED BY THE PROPORTION THAT THE CONTRACT COSTS INCURRED FOR WORK DONE AS ON REPORTING DATE BEARS TO THE ESTIMATED TOTAL C ONTRACT COST. CONTRACT REVENUE COMPRISES OF INITIAL ESTIMATED REV ENUE AS ADJUSTED FOR SUBSEQUENT VARIATIONS IN THE CONTRACT WORK, CLAIMS / LIQUIDATED DAMAGES AND INCENTIVE PAYMENTS. INCOME IS RECOGNIZED CONSIDERING NET REVENUE OR EXP ENSES AS ON REPORTING DATE AND ADJUSTING FOR ANY ADDITIONAL REV ENUE / COST WITH REFERENCE TO STAGE OF INDIVIDUAL CONTRACTS. E XPECTED LOSSES ON ONGOING CONTRACTS ARE RECOGNIZED AS AN EXPENSE IMMEDIATELY. ESTIMATE BILLINGS AND EXPENSES ARE BASED ON BUDGET APPROVED BY MANAGEMENT AT THE TIME OF FINALIZATION OF THE OR DER / PLACEMENT OF PROCUREMENT ORDERS AND INCLUDES SUBSEQ UENT REVISION, IF ANY. PROFIT / LOSSES ON JOB EXECUTED LESS THAN 10% OF CONTRACT VALUE HAS NOT BEEN CONSIDERED. THE ASSESSEE-COMPANY IS CARRYING ON THE BUSINESS OF PRODUCT SALES AND JOB CONTRACTS. THE ASSESSEE-COMPANY IS M AINTAINING ITS BOOKS OF ACCOUNT ON ACCRUAL SYSTEM. THE PROFIT S ON CONTRACTS ENTERED INTO BY THE ASSESSEE-COMPANY UNDI SPUTEDLY HAVE BEEN RECOGNIZED ON PERCENTAGE OF COMPLETION ME THOD AS PER THE ACCOUNTING STANDARDS INDICATED ABOVE AND OF FERED FOR TAXATION ACCORDINGLY. IT DOES NOT MEAN THAT INCOME FROM A PROJECT IS EARNED ONLY AT THE COMPLETION OF THE PRO JECT. INCOME IS EARNED BY THE ASSESSEE-COMPANY SIMULTANEOUSLY WI TH THE PROGRESS IN THE PROJECT EXECUTION IN A CONTEMPORANE OUS MANNER. THE ASSESSEE-COMPANY IS ACCOUNTING FOR THE EXPENDIT URE IN ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 6 WORK-IN-PROGRESS ACCOUNT AS WELL AS RAISING RUNNING BILLS AND BEING CARRIED FORWARD FROM ASSESSMENT YEAR TO ASSES SMENT YEAR TILL THE COMPLETION OF THE PROJECT. HOWEVER, PRO FITS ARE BENCH MARKED UPON PERCENTAGE COMPLETION OVER THE PERIOD O F THE CONTRACT AS EXPLAINED ABOVE AND TAXED. THE INCOME IS, THEREFORE, EARNED FROM YEAR TO YEAR AS PER THE METH OD OF RECOGNIZING INCOME EXPLAINED ABOVE. THERE IS NO CONFLICT BETWEEN THE CLAIM FOR CREDIT O F TDS MADE BY THE ASSESSEE-COMPANY AND THE PROVISIONS OF LAW C ONTAINED IN SECTION 199 OF THE INCOME-TAX ACT, 1961. THE PROVI SIONS OF SECTION 199 IT HAS BEEN PROVIDED THAT CREDIT FOR TD S SHALL BE GIVEN TO THE ASSESSEE FOR THE AMOUNT SO DEDUCTED ON THE PRODUCTION OF THE CERTIFICATE FURNISHED U/S 203 IN THE ASSESSMENT MADE IN THE ACT IN THE ASSESSMENT YEAR IN WHICH SUC H INCOME IS ASSESSABLE. SUCH INCOME IS IMPREGNATED IN THE VALU E OF THE JOBS COMPLETED DURING THE YEAR AS WELL AS JOBS WHICH ARE IN WORK-IN- PROGRESS AND CONSIDERED AS INCOME BASED ON PERCENTA GE COMPLETION METHOD OF RECOGNIZING INCOME. EARNING OF INCOME IS A CONTINUOUS, INDIVISIBLE PROC ESS EMBEDDED IN THE BUSINESS DYNAMICS ESPECIALLY IN THE CASE OF CONTRACTORS JOB CONTRACT ACCOUNTING. THE INCOME I S RECOGNIZED FOR A PARTICULAR PERIOD, STATUTORILY FOR ONE YEAR O N THE BASIS OF THE METHOD EMPLOYED BY AN ASSESSEE. THE INCOME OR LOSS OF AN ASSESSEE IS THE CUMULATIVE RESULT OF THE WORKING CA RRIED ON BY THE ASSESSEE AND REASONABLY MEASURED FOR THAT PARTI CULAR ASSESSMENT YEAR. EVEN THE SECTION 199 DOES NOT CON TEMPLATE THAT THERE SHOULD BE IMMEDIATE NEXUS BETWEEN THE I NCOME AS SUCH AND THE TDS MADE OUT OF A PARTICULAR PAYMENT. TAX DEDUCTION AT SOURCE IS BASICALLY A MACHINERY PROVIS ION FOR COLLECTING TAX ON THE POTENTIAL INCOME OF THE ASSES SEE. THE PITH AND SUBSTANCE IS THAT IT MAY NOT BE POSSIB LE ALL THE TIME TO CO-RELATE A SPECIFIC AMOUNT OF TDS WITH A SPECIF IC AMOUNT OF INCOME EARNED BY AN ASSESSEE IN A PARTICULAR ASSESS MENT YEAR. IF AT ALL SUCH A NEXUS IS REQUIRED, SUCH NEXUS IS R ATHER NOTIONAL OR CONCEPTUAL, RATHER THAN SPECIFIC OR IMMEDIATE. WHEN THE LAW HAS USED THE WORDS IN SECTION 199 OF THE INCOME-TAX ACT THAT CREDIT SHALL BE GIVEN TO THE TAX DEDUCTED AT SOURC E ON ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 7 PRODUCTION OF THE CERTIFICATE FOR THE ASSESSMENT YE AR FOR WHICH SUCH INCOME IS ASSESSABLE; IT IMPLIED THAT THE NEXU S BETWEEN TDS AND THE CORRESPONDING INCOME ELEMENT WOULD REMA IN RATHER NOTIONAL/CONCEPTUAL. IN THIS CONNECTION, RE FERENCE IS MADE TO THE MUMBAI TRIBUNAL DECISION IN THE CASE OF TOYO ENGINEERING INDIA LTD. VS. JCIT SR 27 REPORTED IN ( 2006) 5 SOT 616 (MUM), COPY ENCLOSED . THE PROVISIONS OF SECTION RELATING TO DEDUCTION OF TAX AT SOURCE ARE NOT CHARGING SECTIONS OR COMPUTATION SECTION UNLESS AND UNTIL IT IS FOLLOWED BY AN ASSESSMENT ORDER MAKING A CHARGE OF TAX. THE DEDUCTION OF TAX IS NOT A LEVY OF TAX. D EDUCTION OF TAX AT SOURCE IS MERELY ONE OF THE MODE OF COLLECTION O F TAX. THE AMOUNT ON WHICH TDS IS DEDUCTED IS SUBJECT TO CHARG E AS PER THE PROVISIONS OF THE ACT. THERE ARE FEW INSTANCES WHICH CAN FURTHER ELABORATE THIS VIEW. FOR EXAMPLE, THE RECI PIENT MAINTAINS ACCOUNT ON CASH BASIS WHICH MAY NOT MATCH WITH THE AMOUNTS CERTIFIED IN THE TDS CERTIFICATE DUE TO THE REASON THAT THE DEDUCTOR HAS MAINTAINED THE ACCOUNT ON MERCANTI LE BASIS. NATURALLY THE DEDUCTOR WILL DEDUCT THE TAX ON ACCRU AL BASIS; HOWEVER, THE RECIPIENT SHALL DISCLOSE THE INCOME ON RECEIPT BASIS . IN THIS SITUATION, THERE SHALL ALWAYS BE A MISMAT CH BETWEEN THE AMOUNT OF RECEIPT AS PER TDS CERTIFICAT E AND THE TAXABLE INCOME OFFERED BY THE ASSESSEE. DUE TO THI S REASON, THE STATUTE HAS CLARIFIED THAT IT IS NOT NECESSARY THAT THE RECEIPTS ON WHICH TAX WAS DEDUCTED AS PER TDS CERTIFICATE SHOUL D BE OFFERED TO TAX IN THE SAME ASSESSMENT YEAR AS PER T HE DATES MENTIONED IN THE TDS CERTIFICATE. THERE CAN BE A N INSTANCE THAT THE TDS WAS DEDUCTED ON THE INCOME WHICH MAY N OT BE SUBJECT TO TAX AT ALL, SUCH AS, ELIGIBLE FOR DEDUCT ION U/S.10A, ETC. SO THE DEDUCTION OF TAX ON AN INCOME DOES NOT IPSO FACTO DECLARE THAT THE AMOUNT REFERRED IN THE TDS CERTIFI CATE IS SUBJECT TO TAX ON THE WHOLE FIGURE THAT TOO ON THE SAME YEA R MENTIONED IN THE CERTIFICATE . AN INCOME OF A TAXPAYER IS NOT REQUIRED TO BE COMPUTED MERELY WITH REFERENCE TO THE TDS CERTIFICA TE BUT ASSESSMENT OF AN INCOME IS ALTOGETHER AN INDEPENDEN T EXERCISE. THEREFORE, THE ADDITION MADE BY THE AO ON THE BASIS THAT THE ASSESSEE HAS CLAIMED TDS CREDIT OF RS. 6,18,49,871/ - AND THEREFORE, THE SUM OF RS.29,08,07,163/- AS THE INCO ME OF THE ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 8 ASSESSEE IS WITHOUT APPRECIATING THE CONSISTENT MET HOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE FOR I NCOME RECOGNITION IN RESPECT OF JOB CONTRACTS, WITHOUT AP PRECIATING THAT THE ASSESSEE HAS ALREADY DECLARED INCOME FROM JOB C ONTRACTS OF RS.306.73 CRORES MORE THAN WHAT HAS BEEN THE CUMULA TIVE TOTAL REFLECTED IN THE TDS CERTIFICATES OF RS.259.42 CROR ES AS EXPLAINED ABOVE SATISFYING THE PROVISIONS OF 199 OF THE INCOME- TAX ACT, 1961. A CHART IS ENCLOSED COVERING ASSESSMENT YEAR 2006-07 UPTO 2010-11 DEPICTING THE CONTRACT JOB INCOME REFLECTED IN THE P&L ACCOUNT, THE TDS CLAIM MADE BY THE ASSESSEE IN THE INCOME TAX RETURN WITH THE CORRESPO NDING AMOUNT REFLECTED IN THE TDS CERTIFICATES. IN ALL T HE YEARS THE CONTRACT JOB INCOME IS MORE IN COMPARISON TO THE AM OUNT REFLECTED IN THE TDS CERTIFICATES. HENCE, THE ADDITION OF RS.29,08,07,163/- IS FACTUAL LY, LEGALLY NOT TENABLE AND SHOULD BE DELETED. 6. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, CIT(A) FOUND THAT ASSESSEE HAS FILED RECON CILIATION CHART AND FROM THAT CHART IT IS CLEARLY SEEN THAT NO ADDITION IS W ARRANTED AS THESE ARE NOT ADVANCES ON ACCOUNT OF RECEIPT BUT ARE ON ACCOUNT O F ADVANCE ON RUNNING JOBS. THE CIT(A) HAS ALSO NOTED THAT NEITHER ASSES SEE HAS OFFERED ADVANCE OF RS. 29 LACS AND ODD TO TAX IN THE RELEVANT YEAR NOR CLAIMED ANY TDS CORRESPONDING TO THIS AMOUNT. THEREFORE, HE HELD TH AT PERHAPS THE ASSESSING OFFICER COULD UNDERSTAND THE METHOD OF ACCOUNTANCY MAINTAINED BY THE ASSESSEE. ACCORDINGLY, HE DELETED THE ADDITION. 7. LD. DR SIMPLY PLACED RELIANCE ON THE ORDER OF AS SESSING OFFICER. ON THE OTHER HAND, COUNSEL OF THE ASSESSEE PLACED RELI ANCE ON THE ORDER OF CIT(A). 8. AFTER CONSIDERING THE ORDERS OF ASSESSING OFFICE R AND CIT(A) WE FIND NO INFIRMITY IN THE FINDING OF CIT(A). THE FI NDING OF CIT(A) HAS BEEN ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 9 INCORPORATED IN PARA 3.2 TO 3.6 AT PAGES 6 TO 10 OF HIS ORDER, WHICH ARE SELF EXPLANATORY AND IN DETAIL. THE FINDINGS OF CIT(A) ARE REPRODUCED HEREIN BELOW: 3.2. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MA DE ON BEHALF OF THE APPELLANT, THE FINDINGS OF THE ASSESS ING OFFICER AND THE FACTS ON RECORD. THE PERUSAL O THE RETURN OF INCOME AND THE COMPUTATION OF TAXABLE INCOME FIL ED ALONGWITH THE RETURN OF INCOME REVEALS THAT THE ASS ESSEE HAS CLAIMED CREDIT FOR TDS IN THE INCOME TAX RETURN AMOUNTING TO RS.6,18,49,871/- AND THE CORRESPONDING AMOUNT REFLECTED IN THE SAID TDS CERTIFICATES IS TO THE TUNE OF RS.259,42,51,681/-. AS AGAINST THE AMOUNT OF RS.259,42,51,681/-, THE ASSESSEE HAS SHOWN CONTRACT SALES OF RS.306,73,33,963/- IN THE PROFIT & LOSS ACCOUNT (REFER TO SCHEDULE-8 TO THE ACCOUNTS FOR THE YEAR5 ENDED 3 1 ST MARCH 2008). THERE IS ALSO NO DISPUTE OVER THE FAC T THAT THE ASSESSEE HAS SHOWN CONTRACT SALES OF RS.306,73,33,963/- AFTER REDUCING ADVANCE OF RS.29,08,07,163/- WHICH IMPLIES THAT THE SAID ADVAN CE OF RS. 29,08,07,163/- HAS NOT BEEN CONSIDERED AS INCOM E OF A.Y. 2008-09 BUT CONSIDERED AS LIABILITY IN THE BAL ANCE SHEET. IT PASSES MY COMPREHENSION THAT ON WHAT BAS IS THE ASSESSING OFFICER HAS ARRIVED A THE CONCLUSION THAT THIS ADVANCE MONEY FROM VARIOUS CUSTOMERS HAS BEEN RECEIVED AFTER DEDUCTION OF TAX AT SOURCE (TDS) THE CREDIT OF WHICH HAS BEEN CLAIMED IN THE YEAR UNDER APPEAL. THERE IS ABSOLUTELY NOTHING ON RECORD BROU GHT ABOUT BY THE ASSESSING OFFICER TO SUGGEST THAT TDS CREDIT CORRESPONDING TO ADVANCE OF RS.29,08,07,163/- HAS B EEN CLAIMED BY THE ASSESSEE DURING THE YEAR UNDER APPEA L. IF CREDIT FOR TDS CORRESPONDING TO ADVANCE OF RS.29,08,07,163/- WOULD HAVE BEEN CLAIMED BY THE ASSESSEE, THE ASSESSING OFFICER WOULD HAVE BEEN FUL LY JUSTIFIED IN DENYING CREDIT OF THE SAID TDS AS THE CORRESPONDING ADVANCE WERE NOT OFFERED TO TAX FOR T HE RELEVANT YEAR, BUT IT IS NOT UNDERSTANDABLE AS TO W HY THE ADVANCE OF RS.29,08,07,163/- SHOULD BE BROUGHT TO T AX ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 10 ONLY DURING THE YEAR UNDER APPEAL. NEEDLESS TO MEN TION THAT THE ASSESSEE HAS NEITHER OFFERED ADVANCE OF RS.29,08,07,163/- TO TAX IN THE RELEVANT YEAR NOR C LAIMED CREDIT FOR TDS CORRESPONDING TO THE SAID ADVANCE OF RS.29,08,07,163/-. 3.3. IT IS OBSERVED THAT THE DEDUCTION OF TAX AT SO URCE IS MADE IN ACCORDANCE WITH PROVISIONS OF PART B TO CHAPTER XVII OF THE ACT TITLED COLLECTION AND RECOVERY OF TAX. PART A OF THE SAID CHAPTER IS TITLED GENERAL AND CONTA INS TWO PROVISIONS, WHICH ARE IN THE NAME OF A PRELUDE TO T HE ENSUING PARTS OF THE CHAPTER. SECTION 190 OF THE A CT CLARIFIES THAT THE TAX SHALL BE DEDUCTED AND COLLEC TED, AS THE CASE MAY BE, AS PER THE PROVISIONS OF THE CHAPT ER, NOTWITHSTANDING THAT THE REGULAR ASSESSMENT IN RESP ECT OF INCOME (WHICH IS SUBJECT TO TAX DEDUCTION OR COLLEC TION) IS TO BE MADE IN A LATER ASSESSMENT YEAR AND, FURTH ER, THAT THE SAID PROVISION IS WITHOUT PREJUDICE TO THE CHAR GE OF TAX ON INCOME U/S 4(1) OF THE ACT. SECTION 191 STA TES THAT TDS IS ONLY ONE OF THE MODES OF RECOVERY OF TAX, AN D THAT THE SAME DOES NOT PRECLUDE DIRECT PAYMENT OF TAX BY THE PERSON RECEIVING INCOME. THE OBLIGATIONS CAST AS P ER THE VARIOUS PROVISIONS RELATING TO TDS IN CHAPTER XVII OF THE ACT ARE FOR DEDUCTION OF TAX AT SOURCE AT THE E ARLIER OF THE TWO POINTS IN TIME, I.E., PAYMENT OR CREDIT, TH E LATTER SIGNIFYING ACCRUAL. IN OTHER WORDS, THE TAX DEDUCT ION HAS TO MATCH IN TIME THE EARLIER OF THE PAYMENT (RECEIP T) OR ACCRUAL. PUT DIFFERENTLY, THE DEDUCTION OF TAX AT SOURCE DOES NOT NECESSARILY, OR IS NOT REQUIRED TO, MATCH ALONGSIDE THE CORRESPONDING INCOME, RECOGNITION OF WHICH BY THE RECIPIENT COULD BE EITHER ON ACCRUAL O R ON RECEIPT BASIS. THE ACCRUAL OF THE TAX LIABILITY ON INCOME WOULD ARISE ONLY ON THE SAME BEING/BECOMING ASSESSA BLE. THERE IS THUS AN INHERENT MISMATCH, IN TERMS OF TIM E, BETWEEN THE PAYMENT OF TAX (PER TDS) AND THE ACCRUA L OF TAX LIABILITY AGAINST THE CORRESPONDING INCOME, I.E ., GIVEN THE FACT OF ADMISSION OF INCOME AS PER THE RELEVANT PROVISIONS OF LAW. IT IS IN VIEW OF AND TO ADDRESS THIS MISMATCH IN TIME, SO THAT THE TAX STANDS DEDUCTED W HILE THE CORRESPONDING INCOME, THOUGH ACCRUED HAS YET TO BE ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 11 RECEIVED OR THOUGH RECEIVED, AS BY WAY OF AN ADVANC E, IS YET TO ACCRUE, THAT THE LAW [PER SECTION 199 R/W SS . 190 & 191 AND RULE 37BA] CLARIFIES THAT THE CREDIT FOR TH E TDS SHALL BE AVAILABLE FOR THE YEAR FOR WHICH THE CORRESPONDING INCOME IS ASSESSABLE. THE LAW AS PRO VIDED BY THE STATUTE, TO MY MIND, COULD NOT GET CLEARER T HAN THIS. 3.4. THERE SHOULD NOT BE ANY CONTROVERSY, IN FACT, EVEN IN THE ABSENCE OF THE PROVISION OF SECTION 199, AS SECTION 191 CLEARLY STATES THAT TDS IS ONLY ONE OF THE MODES OF RECOVERY OF TAX, SO THAT TAX TO THAT EXTENT HAS BEE N PAID ON A PARTICULAR INCOME, AND THE LIABILITY TO TAX OF TH E ASSESSEE-DEDUCTEE ON THE CORRESPONDING INCOME ABATE S TO THAT EXTENT. NOW, IT CANNOT BE THAT WHILE THE TAX DEDUCTION AT SOURCE, WHICH IS ONLY A MANNER OR MODE OF PAYMENT OR RECOVERY OF TAX IS ON INCOME A, THE CR EDIT THEREOF IS ALLOWED AGAINST INCOME B. IN ANY CASE, SECTION 1999 AND RULE 37BA OF INCOME TAX RULES, 196 2 MAKE THINGS ABUNDANTLY CLEAR, ELIMINATING SCOPE OF ANY DOUBT. IT WOULD BE EVIDENT FROM PLAIN READING OF S ECTION 199 OF THE ACT AND RULE 37BA OF INCOME TAX RULES, 1 962 THAT CREDIT IS TO BE GIVEN TO THE ASSESSEE FOR THE AMOUNT SO DEDUCTED IN THE ASSESSMENT MADE UNDER THIS ACT FOR THE ASSESSMENT YEAR FOR WHICH SUCH INCOME IS ASSESSABLE . SO IMPORTANT CONDITIONS FOR GETTING BENEFIT OF TDS AS PER SECTION 199 OF THE ACT ARE; (A) THE ASSESSEE SHOULD PRODUCE THE CERTIFICATE FOR THE AMOUNT OF TAX DEDUCTED AT SOURCE; (B) SHOW THAT INCOME SUBJECTED TO TDS IS DISCLOSED IN THE RETURN OF THE ASSESSMENT YEAR AS ASSESSABLE. THUS BOTH THE ABOVE MENTIONED CONDITIONS ARE TO BE SATISFIED. IT IS, THEREFORE, CLEAR THAT THE ASSESSEE WILL NOT BE ENTITLED TO HAVE BENEFIT OR CREDIT FOR THE AMOUNT THOUGH MENTIONED I N THE CERTIFICATE FOR THE ASSESSMENT YEAR IF INCOME RELAT ABLE TO THE AMOUNT IS NOT SHOWN AND IS NOT ASSESSABLE IN THAT A SSESSMENT YEAR. IF INSTEAD OF ENTIRE INCOME REFERABLE TO AMO UNT OF TAX DEDUCTED, ONLY A PORTION OF INCOME IS FOUND ASSESSA BLE THE BENEFIT HAS TO BE ALLOWED ONLY ON THE PORTION SHOWN . IF BALANCE INCOME, ON ACCOUNT OF SYSTEM OF ACCOUNTING FOLLOWED BY THE ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 12 ASSESSEE OR FOR SOME OTHER REASON IS FOUND TO BE AS SESSABLE IN FUTURE, THEN THE CREDIT FOR THE BALANCE TDS CAN BE ALLOWED ONLY IN FUTURE WHEN INCOME IS ASSESSABLE. CREDIT ALLOWE D ON PRO RATA BASIS IN THE YEAR IN WHICH THE CERTIFICATE IS ISSUE D AND ALSO IN FUTURE WHERE BALANCE OR SUCH INCOME IS FOUND TO BE ASSESSABLE IS AS PER THE MANDATE OF PROVISION OF SECTION 199 O F THE ACT. ANY AMOUNT WHICH HAS NOT BEEN ASSESSED IN ANY YEAR BUT REFERRED IN THE TDS CERTIFICATE, CANNOT BE CLAIMED UNDER SECTION 199 OF THE ACT. IN THE CASE OF SMT. VARSHA G. SALU NKE VS. DCIT (2006) 98 ITD 147(MUMBAI): 101 TTJ (MUMBAI) ()703, IT WAS HELD AS UNDER:-- SECTION 199 OF THE ACT HAS TWO OBJECTIVES ONE TO DECLARE THE TDS AS PAYMENT OF TAX ON BEHALF OF THE PERSON ON WHOSE BEHALF THE DEDUCTION WAS MADE AND TO GIVE CREDIT FOR THE AMOUNT SO DEDUCTED ON THE PRODUCTION OF THE CERTIFICATE IN THE ASSESSMENT MADE FOR THE ASSESSMENT YEAR FOR WHICH SUCH INCOME IS ASSESSABLE. THE SECOND OBJECTIVE MENTIONED IN SECTION 199 IS ONLY TO ANSWER THE QUESTION AS TO THE YEAR IN WHICH THE CREDIT FOR TDS SHALL BE GIVEN. IT LINKS UP THE CREDIT WITH ASSESSMENT YEAR IN WHICH SUCH INCOME IS ASSESSABLE. IN OTHER WORDS, THE ASSESSING OFFICER IS BOUND TO GIVE CREDIT IN THE YEAR IN WHICH THE INCOME IS OFFERED TO TAX. THIS SECTION 199 DOES NO T EMPOWER HE ASSESSING OFFICER TO DETERMINE THE YEAR OF ASSESS ABILITY OF THE INCOME ITSELF BUT IT ONLY MANDATES THE YEAR IN WHICH THE CREDIT IS TO BE GIVEN ON THE BASIS OF THE CERTIFICATE FURNISHED. I N OTHER WORDS, WHEN THE ASSESSEE PRODUCES THE CERTIFICATES OF TDS, THE ASSESSING OFFICER IS REQUIRED TO VERIFY WHETHER THE ASSESSEE HAS OFFERED THE INCOME PERTAINED TO THE CERTIFICATE BEFORE GIVING CREDIT. IF HE FINDS THAT THE INCOME OF THE CERTIFICATE IS NOT SHOWN, THE ASSESSING OFFICER HAS NOT ONLY TO GIVE THE CREDIT FOR TDS IN THAT ASSESSMENT YEAR AND HAS TO DEFER THE CREDIT BEING GIVEN TO THE YEAR IN WHICH THE INCOME IS TO BE ASSESSED. ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 13 3.5. IN THE PRESENT CASE, THERE IS NO DISPUTE REGAR DING SYSTEM OF ACCOUNTING CONSISTENTLY FOLLOWED BY THE ASSESSEE AND ITS INCOME HAS BEEN COMPUTED AS PER ABOVE SYSTEM. IT MAY BE RELEVANT TO MENTION HERE THAT THE ASSESSEE H AS BEEN FOLLOWING ACCOUNTING FOR CONSTRUCTION CONTRACT S PRESCRIBED BY THE ACCOUNTING STANDARD 7 OF THE INST ITUTE OF CHARTERED ACCOUNTANTS OF INDIA WHICH IS A MANDATORY ACCOUNTING STANDARD AND HAS BEEN FOLLOWED BY THE ASSESSEE FOR RECOGNIZING INCOME FROM THE TIME IT CA ME INTO EXISTENCE. THE BASIS OF RECOGNIZING INCOME IN RESPECT OF LONG TERM CONSTRUCTION CONTRACTS IS ON PERCENTAGE OF COMPLETION METHOD. BENEFIT FOR THE T AX DEDUCTED AT SOURCE IS TO BE ALLOWED AS PER STATUTOR Y PROVISIONS CONTAINED IN SECTION 199 OF THE ACT. IT HAS NOTHING TO DO WITH THE SYSTEM OF ACCOUNTING FOLLOWE D BY THE ASSESSEE. IN THE PRESENT CASE, THE ASSESSEE HA S NEITHER OFFERED ADVANCE OF RS.29,08,07,163/- TO TAX FOR THE RELEVANT YEAR NOR CLAIMED CREDIT FOR TDS CORRESPOND ING TO ADVANCE OF RS.29,08,07,163/-. THE ASSESSING OFF ICER DID NOT DISPUTE THE METHOD OF ACCOUNTING FOLLOWED B Y THE ASSESSEE AND COMPLIANCE OF THE ACCOUNTING STANDARD. THE MAIN REASON FOR MAKING ADDITION OF RS.29,08,07,163/ - IS THAT ACCORDING TO THE AO CREDIT FOR TDS CORRESPONDI NG TO ADVANCE OF RS.29,08,07,163/- HAS BEEN CLAIMED DURIN G THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICE R HAS NOT POINTED OUT ANY SPECIFIC DEFECT OR DISCREPANCY IN THE BOOKS OF ACCOUNTS. ADMITTEDLY, THE ASSESSEE HAD BE EN MAINTAINING REGULAR BOOKS OF ACCOUNT, WHICH WERE DU LY AUDITED BY INDEPENDENT CHARTERED ACCOUNTANTS. THE ACCOUNTS WHICH ARE REGULARLY MAINTAINED IN THE COUR SE OF BUSINESS AND ARE DULY AUDITED, FREE FROM ANY QUALIF ICATION BY THE AUDITORS, SHOULD NORMALLY BE TAKEN AS CORREC T UNLESS THERE ARE ADEQUATE REASONS TO INDICATE THAT THEY ARE INCORRECT OR UNRELIABLE. THE ONUS IS UPON THE ASSE SSING OFFICER TO SHOW THAT EITHER THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE INCORRECT OR INCOMP LETE OR METHOD OF ACCOUNTING ADOPTED BY HIM WAS SUCH THA T TRUE PROFITS OF THE ASSESSEE CANNOT BE DEDUCED THER EFROM. THE ASSESSING AUTHORITY HAS TO LOOK INTO THE SUBSTA NCE OF ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 14 THE SITUATION AND DECIDE THE MATTER IN SUCH A MANNE R THAT NEITHER IS PUT TO UNREASONABLE LIABILITY NOR THE AS SESSEE IS SUBJECTED TO UNREASONABLE HARDSHIP. NO DOUBT IT IS NOT ONLY THE RIGHT BUT ALSO THE DUTY OF THE ASSESSING O FFICER TO CONSIDER WHETHER OR NOT THE BOOKS DISCLOSED THE TRUE STATE OF ACCOUNTS AND THE CORRECT INCOME CAN BE DED UCED THEREFROM. BUT THESE RIGHTS AND DUTY HAVE TO BE EX ERCISED IN SUCH A MANNER AND HAVE TO BE BASED ON COGENT REA SONS AND SUFFICIENT MATERIAL. THE REASONS GIVEN BY THE ASSESSING OFFICER IN THIS CASE ON THE FACTS AND CIRCUMSTANCES IS DEMONSTRATED, AS ERRONEOUS BY THE ASSESSEE. ACCOUNTS REGULARLY MAINTAINED IN THE COU RSE OF BUSINESS HAVE TO BE TAKEN AS CORRECT UNLESS THERE A RE STRONG AND SUFFICIENT REASONS TO INDICATE THAT THEY ARE UNRELIABLE AND INCORRECT. THE PROCEDURE OF THE ASS ESSING OFFICER IS OF JUDICIAL NATURE AND IN MAKING THE ASS ESSMENT HE SHOULD PROCEED ON JUDICIAL PRINCIPLES. IF EVIDE NCE IS PRODUCED BY THE ASSESSEE IN SUPPORT OF ITS RETURN I T SHOULD BE ACCEPTED UNLESS IT IS REBUTTED BY ADMISSIBLE EVI DENCE AND NOT BY MERE HEARSAY. 3.6. THUS FOR ALL THESE REASONS AND AS THE ASSESSEE HAS PRODUCED SUFFICIENT MATERIAL JUSTIFYING ITS CLAIM A ND AS IT HAS REPELLED THE CONTENTIONS ADVANCED BY THE ASSESS ING OFFICER WITH COGENT MATERIAL AND EVIDENCE, I AM OF THE CONSIDERED VIEW THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER WA S NOT JUSTIFIED IN MAKING THE ADDITION OF RS.29,08,07,163 /- ON ACCOUNT OF TDS CLAIM ON ADVANCE AGAINST RUNNING CONTRACTS. THE ADDITION TO THE EXTENT OF RS.29,08,07,163/- IS, THEREFORE, DIRECTED TO BE DEL ETED. AS A RESULT, GROUNDS OF APPEAL NOS. 1 TO 5 ARE ALLOWED . 9. THE ABOVE FINDINGS OF CIT(A), WHICH ARE IN DETA IL, COULD NOT BE CONTROVERTED BY LD. DR. NEITHER ANY MATERIAL HAS BE EN BROUGHT ON RECORD TO ESTABLISH THE FINDING OF CIT(A) OTHERWISE. THEREFO RE, THERE IS NO REASON TO INTERFERE IN THE FINDING OF CIT(A). ACCORDINGLY, W E CONFIRM THE FINDING OF CIT(A) ON THIS ISSUE. ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 15 10. GROUND NO. 3 WILL TAKEN LATERON ALONG WITH GROU ND RAISED IN ASSESSEES CROSS OBJECTION. 11. GROUND NO. 4 IN APPEAL OF THE DEPARTMENT IS AGA INST DELETING THE DISALLOWANCE OF RS. 1,78,34,914/- MADE BY THE ASSES SING OFFICER U/S 40(A)(IA) OF THE ACT. 12. THE ASSESSING OFFICER MADE DISALLOWANCE OF RS . 1,78,34,914/- U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF PAYMENT IN RESPE CT OF EXPENDITURE MADE BEFORE LAST MONTH OF A.Y. 2007-08 ON WHICH TDS WAS DEDUCTED BUT PAID AFTER 31 ST MARCH 2008. THEREFORE, ASSESSING OFFICER MADE DI SALLOWANCE U/S 40A(IA). 13. DETAILED SUBMISSIONS WERE MADE BEFORE CIT(A), WHICH HAVE BEEN INCORPORATED AT PAGES 14 AND 15 OF CIT(A)S ORDER, WHICH ARE AS UNDER: THE DEDUCTION OF TAX AT SOURCE HAS BEEN CORRECTLY MADE AND THE DEPOSIT OF TAX HAS BEEN MADE BEFORE THE DUE DATE OF FILING OF RETURN SPECIFIED UNDER SUB-SEC. (1) OF SECTION 139 OF THE INCOME-TAX ACT, 1961. THIS FACTUAL ASPECT HAS NOT BEEN DISPUTED BY THE AO BECAUSE IN THE ASSESSMENT ORDER, IT IS CLEARLY STATED THAT THE TDS ON THE SAID PAYMENTS HA VE BEEN DULY DEPOSITED BY THE ASSESSEE ON 31 ST JULY 2008. ASSESSEE WOULD LIKE TO DRAWN THE ATTENTION TO THE P ROVISIONS OF SEC. 40(A)(IA) AND THE DEVELOPMENT OF LAW TO APPREC IATE THAT A PURPOSIVE INTERPRETATION SHOULD BE FOLLOWED RATHER THAN A NARROW AND PEDANTIC APPROACH. THE PROVISIONS OF SEC. 40(A)(IA) AS THEY STOOD FOR THE RELEVANT ASSESSMENT YEAR ARE AS UNDER:- AMOUNTS NOT DEDUCTIBLE. 40 . NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIO NS 30 TO 88 [38], THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED I N ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 16 COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PRO FITS AND GAINS OF BUSINESS OR PROFESSION (IA)ANY INTEREST, COMMISSION OR BROKERAGE, 91 [RENT, ROYALTY,] FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SER VICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR O R SUB- CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WO RK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHI CH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION , HAS NOT BEEN PAID,- (A) IN A CASE WHERE THE TAX WAS DEDUCTIBLE AND WAS SO DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR, ON OR B EFORE THE DUE DATE SPECIFIED IN SUB SEC. (1) OF SEC. 139, OR (B) IN ANY OTHER CASE, ON OR BEFORE THE LAST DAY O F THE PREVIOUS YEAR. THE HIGH LIGHTED PART IN THE ABOVE PROVISIONS HAS B EEN SUBSTITUTED BY THE FINANCE ACT 2010 WITH EFFECT FRO M 1 ST APRIL 2010 FOR THE FOLLOWING WORDS : HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIF IED IN SUB-SECTION (1) OF SECTION 139. THEREFORE, WITH THE ABOVE AMENDMENT BY THE FINANCE ACT, 2010, THE DISTINCTION BETWEEN PAYMENTS MADE IN THE LAST MONTH OF THE PREVIOUS YEAR AND PAYMENTS MADE BEFORE THE L AST MONTH OF THE PREVIOUS YEAR FOR ALLOWABILITY U/S 40(A)(IA) HAS BEEN DONE AWAY WITH. IN RESPECT OF BOTH THE PAYMENTS, THE TD S THEREON IF DEPOSITED ON OR BEFORE THE DUE DATE SPECIFIED U/S 1 39(1), THERE WILL BE NO DISALLOWANCE U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961. THE ASSESSEE SUBMITS THAT THE ABOVE AMENDMENT BROUG HT IN BY THE FINANCE ACT, 2010 IS CURATIVE IN NATURE AND THE REFORE WOULD APPLY RETROSPECTIVELY FOR THE A.Y. 2008-09 ALSO. S INCE THE DEPOSIT OF TDS HAS BEEN DONE BY THE ASSESSEE BY JUL Y 2008 I.E. ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 17 WITHIN THE DUE DATE OF THE FILING OF THE RETURN U/S 139(1), NO DISALLOWANCE U/S 40(A)(IA) SHOULD BE MADE. REFERENCE IN THIS CONNECTION IS MADE TO THE CBDT CI RCULAR NO.1 OF 2009 DATED 27.3.2009 WHICH CLARIFIES THE AM ENDMENT MADE TO SEC. 40(A)(IA) BY THE FINANCE ACT, 2008 I.E . THE EARLIER AMENDMENT, WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL 2005 WAS TO MITIGATE HARDSHIP CAUSED BY THE ABOVE PROVISIONS OF SEC. 40(A)(IA) WHILE MAINTAINING TDS DISCIPLINE. THE FU RTHER AMENDMENT WHEREBY THE TIME LIMIT FOR PAYMENT OF TDS DEDUCTED/DEDUCTIBLE DURING THE YEAR HAS BEEN EXTEND ED TILL THE DUE DATE OF FILING RETURN BY THE FINANCE ACT, 2010 THEREFORE IS AN AMENDMENT TO THE PREVIOUS AMENDMENT MADE BY THE FINANCE ACT 2008 WHICH WAS WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL 2005, HENCE THIS AMENDMENT MADE BY FINANCE ACT, 201 0 ALSO SHOULD BE CONSIDERED AS RETROSPECTIVE AS IT IS CUR ATIVE IN NATURE AND THEREFORE CLARIFICATORY AND HENCE WOULD APPLY T O ALL CASES. ASSESSEE IS DRAWING SUPPORT FROM SIMILAR AMENDMENT MADE TO SEC. 43B WHEREIN BY THE SUPREME COURT IN THE CASE O F CIT VS. ALOM EXTRUSIONS LTD., 319 ITR 306(SC) ( COPY ENCLOSED ) HAS HELD THAT AMENDMENT TO SEC 43B TO BE RETROSPECTIVE IN OPERATION ALLOWING THE ASSESSEE THE BENEFIT UPON DEPOSIT OF S TATUTORY DUES ON OR BEFORE THE DUE DATE OF FILING OF THE RETURN A S IT IS CURATIVE IN NATURE AND WAS BROUGHT IN TO REMOVE THE HARDSHIP CAUSED TO THE ASSESSEE. ON A PARITY OF REASONING THE AMENDMENT MADE BY THE FINANCE ACT, 2010 EXTENDING THE TIME LIMIT OF DEPOSIT OF TD S ON OR BEFORE THE DUE DATE OF FILING OF RETURN U/S 139(1) SHOULD ALSO BE MADE AVAILABLE FOR A.Y. 2008-09. AS THE ASSESSEE HA S DEPOSITED THE TDS BY JULY 2008, CONSEQUENTLY, THERE IS NO DIS ALLOWANCE TO BE MADE U/S 40(A)(IA). RELIANCE IS PLACED ON THE DECISION OF THE MUMBAI TR IBUNAL IN THE CASE OF GLOBAL STABLES LIFESTYLE CENTRE PVT. LT D. VS. CIT IN ITA NO.5145/MUM/2009 REPORTED IN BCAJ NOVEMBER 2010 ISSUE, THE RELEVANT EXTRACT IS ENCLOSED , ITAT B BENCH AHMEDABAD IN ITA NO.3983/AHD./2008 DATED 3 RD DEC. 2010 REPORTED IN 2010-TIOL-765-ITAT/AHM ( EXTRACT ENCLOSED ) ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 18 WHEREIN IT HAS BEEN HELD THAT THE AMENDMENT MADE BY THE FINANCE ACT 2010 BEING CURATIVE IN NATURE AND BROUG HT IN TO REMOVE THE HARDSHIP OF THE ASSESSEE IS APPLICABLE RETROSPECTIVELY FROM 2005 ONWARDS. HENCE, THE ADDITION OF RS.1,78,31,914/- MAY KINDLY BE DELETED. 14. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD CIT(A) FOUND THAT ASSESSING OFFICER WAS NOT JUSTIF IED IN MAKING THE DISALLOWANCE. VARIOUS CASE LAWS RELIED ON BY ASSESS EE WERE FOUND IN FAVOUR OF THE ASSESSEE AND ACCORDINGLY HE DELETED THE ADDI TION BY FURTHER OBSERVING THAT PROVISIONS OF SEC. 40(A)(IA) AS AMENDED BY FI NANCE ACT 2010 W.E.F. 1-4- 2010 TO BE EFFECTIVE FOR THE YEAR UNDER CONSIDERAT ION AS THESE PROVISIONS ARE APPLICABLE WITH RETROSPECTIVE EFFECT AS HELD BY VAR IOUS COURTS. ACCORDINGLY, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. 15. LD. DR PLACED RELIANCE ON THE ORDER OF ASSESSIN G OFFICER . IT WAS STATED THAT THOUGH LD. CIT(A) HAS HELD THAT PROVIS IONS ARE APPLICABLE WITH RETROSPECTIVE EFFECT WHEREAS THESE PROVISIONS SHOUL D HAVE BEEN TAKEN APPLICABLE ONLY FROM THE DATE OF AMENDMENT I.E. 1-4 -2010 AND NOT FOR THE YEAR UNDER CONSIDERATION. 16. ON THE OTHER HAND, LD. AR OF THE ASSESSEE FIRST PLACED RELIANCE ON THE ORDER OF CIT(A) AND FURTHER STATED THAT BESIDES VA RIOUS CASE LAWS RELIED ON BEFORE LD. CIT(A), THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. VIRGIN CREATIONS [ ITA NO. 302 OF 2011 DATED 23-11- 2011], HAS ALSO HELD THAT PROVISIONS OF SEC. 4(A)(IA) ARE APPLICABLE WIT H RETROSPECTIVE EFFECT. THEREFORE, THE PAYMENT ON THE PAYMENTS MADE BEFORE DUE DATE OF FILING OF THE RETURN U/S 139(1), PROVISIONS OF SEC. 40(A)(IA) ARE NOT APPLICABLE. ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 19 17. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, AGAIN WE FIND NO INFIRMITY IN THE ORDER OF CIT(A), WHICH REMAINED UNCONTROVERTED. IT IS FURTHER SEEN THAT TDS HAS BEE N DEPOSITED WITHIN DUE DATE BECAUSE THE SAME WAS DEDUCTED IN THE PERIOD OF LAST MONTH OF THE END OF THE YEAR AND DUE DATE OF FILING IN THE NEXT MONTH I .E. APRIL OF THE YEAR AND THE PAYMENT HAD BEEN MADE BEFORE THE DUE DATE OF FILING OF THE RETURN. THEREFORE, PROVISIONS OF SEC. 40(A)(IA) ARE NOT ATT RACTED AT ALL. 18. IN THE CASE OF ITO VS. TARU LEADING EDGE (P) LT D. (ITA NO. 3592/DEL/11 FOR A.Y. 2008-09), SIMILAR DISALLOWANC ES MADE WERE DELETED. IN THAT CASE THE TRIBUNAL HAS FOLLOWED THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. VIRGIN CREATIONS IN I TA NO. 302 OF 2011 DATED 23-11-2011. THE TRIBUNAL HAS OBSERVED THAT: IN VIEW OF THE FOREGOING, FOLLOWING THE VIEW TAKEN IN THE AFORESAID DECISION OF THE HONBLE CALCUTTA HIGH COU RT IN VIRGIN CREATIONS (SUPRA), WE ARE OF THE OPINION THAT THE AMENDMENT TO THE PROVISIONS OF SEC. 40(A)IA) OF THE ACT, BY THE FINANCE ACT, 2010 IS APPLICABLE RETROSPECTIVELY FROM 1.4.2005. C ONSEQUENTLY, ANY PAYMENT OF TAX DEDUCTED AT SOURCE ON OR BEFORE THE DUE DATE FOR FILING RETURN OF INCOME U/S 139(1) OF THE ACT, CANNOT BE DISALLOWED IN TERMS OF PROVISIONS OF SEC. 40A(IA) O F THE ACT. UNDISPUTEDLY, IN THE INSTANT CASE THE ASSESSEE DEPO SITED THE TAX DEDUCTED AT SOURCE ON 11.4.2008 I.E. BEFORE THE DUE DATE FOR FILING RETURN OF INCOME U/S 139(1) OF THE ACT. IN T HIS SITUATION, ESPECIALLY WHEN THE REVENUE HAVE NOT BROUGHT TO OUR NOTICE ANY CONTRARY DECISION, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). 18.1. ACCORDINGLY, THE GROUND OF THE DEPARTMENT WAS DISMISSED. 19. HERE IN BEFORE US, THE FACTS ARE IDENTICAL. CI T(A) FOLLOWED VARIOUS OTHER DECISIONS WHEREBY SIMILAR VIEW HAS BEEN EXPRE SSED. UNDISPUTEDLY THE ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 20 PAYMENT OF TDS HAS BEEN MADE BEFORE DUE DATE OF FIL ING OF THE RETURN. RETURN HAS BEEN FILED U/S 139(1), THEREFORE, NO DIS ALLOWANCE CAN BE MADE ON ACCOUNT OF NON-PAYMENT OF TDS U/S 40(A)(IA) ON THES E FACTS. THEREFORE, THE ORDER OF CIT(A) REMAINED UNCONTROVERTED. THEREFORE , WE SEE NO REASON TO INTERFERE IN THE FINDING OF CIT(A) ON THIS ISSUE A LSO. THE GROUND IS DISMISSED. 20. GROUND NO. 5 RELATES TO THE DELETION OF ADDITIO NS OF RS. 51,68,020/- AND RS. 1,74,88,597/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF NON- INCLUSION OF EXCISE DUTY IN THE CLOSING STOCK OF F INISHED GOODS AND RAW MATERIAL RESPECTIVELY. 21. THE ASSESSING OFFICER MADE A DISALLOWANCE OF R S. RS. 51,68,020/- ON ACCOUNT OF NON-INCLUSION OF EXCISE DUTY IN THE CLOS ING OF FINISHED GOODS; AND RS. 1,74,88,597/- ON ACCOUNT OF NON-INCLUSION OF E XCISE DUTY IN THE CLOSING STOCK OF RAW MATERIAL. ASSESSING OFFICER NOTED T HAT THESE AMOUNTS HAVE NOT BEEN INCLUDED IN THE VALUATION OF CLOSING STOCK OF FINISHED GOODS AND RAW MATERIAL IN TERMS OF PROVISIONS OF SEC. 145 OF THE ACT. THEREFORE, HE MADE THE DISALLOWANCE. DETAILED SUBMISSIONS WERE FILED B EFORE CIT(A) WHICH HAVE BEEN INCORPORATED IN THE ORDER OF CIT(A) AT P AGE 19, WHICH ARE AS UNDER: IT IS NOT CLEAR ON WHAT GROUNDS THE AO STATES THAT THE TREATMENT GIVEN BY THE ASSESSEE IS INCORRECT. IN RESPECT OF OPENING BALANCE THE EXCISE DUTY ELEMENT IS PAID AND DISCHAR GED IN THE LAST YEAR AND THEREFORE, DOES NOT FORM PART OF THE COMPUTATION U/S 145A FOR THE PREVIOUS YEAR RELEVANT TO THIS ASS ESSMENT YEAR. SO FAR AS THE PAYMENT OF RS.51,68,020/- IS CONCERNE D, WE ARE ENCLOSING THE COPY OF THE CHALLAN FOR PAYMENT OF EXCISE DUTY BEFORE 31 ST OF JULY 2008 WHICH HAS BEEN DULY VERIFIED BY THE ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 21 CHARTERED ACCOUNTANTS SIGNING THE TAX AUDIT REPORT. THEREFORE, THERE IS NO ADDITION CALLED FOR. COMING TO THE EXCISE DUTY ON THE CLOSING STOCK OF R AW-MATERIAL OF RS.1,74,88,597/-. THE EXCISE DUTY COMPONENT IS SET OFF AGAINST THE CENVAT CREDIT AVAILABLE TO THE ASSESSEE . COPY OF THE CENVAT ACCOUNT FOR ADJUSTMENT OF THE EXCISE DUTY IS ENCLOSED . THE OFFICER HIMSELF STATES THAT THERE IS CORRESPOND ING DEBIT BALANCE OF EXCISE DUTY IN ASSETS / LOANS AND ADVANC ES. THAT IS THE ASSESSEE HAS STILL TO RECOVER EXCISE DUTY FROM THE GOVT. AS ON THE CLOSE OF THE BALANCE SHEET. THE ASSESSEE HAS SUBMITTED DURING THE COURSE OF ASS ESSMENT PROCEEDINGS THAT THE PROVISIONS OF SEC. 145A ARE FU LLY COMPLIED WITH AND SO FAR AS THE IMPACT OF EXCISE DUTY ON THE CLOSING STOCK OF FINISHED GOODS AS WELL AS THE CLOSING STOCK OF R AW MATERIAL IS REFLECTED IN SCHEDULE III OF THE TAX AUDIT REPORT DULY VERIFIED BY THE CHARTERED ACCOUNTANT. THE CONSISTENT PRACTICE FOLLOWED BY THE ASSESSEE IN THE BOOKS IS NEITHER TO DEBIT THE EXPENDITURE OF EXCISE DUTY NOR CREDIT THE EXCISE DU TY AS PART OF THE CLOSING STOCK . HOWEVER, FOR THE PURPOSE OF INCOME TAX COMPUTATION, A SEPARATE WORKING IS DONE U/S 145A DEPICTING THE EXC ISE DUTY ON THE CLOSING STOCK OF FINISHED GOODS AS WELL AS RAW MATERIAL AND ALSO REFLECTING THE ADJUSTMENT BY WAY OF CENVAT CRE DIT AVAILABLE TO THE ASSESSEE TOWARDS THE EXCISE LIABILITY. AS A RESULT OF THIS WORKING AN AMOUNT OF RS.11,93,668/- IS THE AMOUNT O F EXCISE DUTY ON CLOSING STOCK WHICH HAS REMAINED UNPAID UP TO 31 ST JULY 2008 AND HAS BEEN CONSIDERED BY THE ASSESSEE FOR DI SALLOWANCE U/S 43B WITH THE INCOME TAX ACT, 1961. ONLY IF THE AO HAD UNDERSTOOD THE WORKING UNDER 145 A, THE ADDITION WOULD NOT HAVE RESULTED. THE ASSESSEE HAS CONSISTENTLY FOLLOWED THE SAME SYSTEM IN THE EARLIER YEARS WHICH HAS BEEN ACCEPTED BY THE AO IN ASSESSMENT U/S 143(3). COPY OF THE WORKING U/S 145A FOR THE ASSESSMENT YEAR 2006-07 AN D 2007-08 IS ENCLOSED TO APPRECIATE THE CONSISTENT METHOD OF VALUATION OF CLOSING STOCK FOLLOWED BY THE ASSESSEE WHICH IS IN LINE WITH SEC. 145A OF THE INCOME TAX ACT 1961. ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 22 THERE IS NO DEVIATION BY THE ASSESSEE. THEREFORE, NO ADDITION IS CALLED FOR. THE ASSESSEE HAS FULLY COMPLIED WITH T HE PROVISION OF SEC. 145A OF THE INCOME TAX ACT, 1961 AS HAS BEE N REPORTED BY THE TAX AUDITORS GIVING THE COMPLETE WORKING. T HEREFORE, THE ADDITION MADE OF RS.51,68,020/- AND RS.1,74,88, 597/- MAY KINDLY BE DELETED. 22. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD CIT(A) WAS SATISFIED WITH THE EXPLANATION OF THE AS SESSEE. ACCORDINGLY, HE DELETED BOTH THE ADDITIONS BY GIVING FOLLOWING FIND ING RECORDED IN PARAS 6.1 TO 6.3 (AT PAGES 20 & 21) OF HIS ORDER: 6.1. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS M ADE ON BEHALF OF THE APPELLANT, THE FINDINGS OF THE ASSESS ING OFFICER IN THE ASSESSMENT ORDER AND THE FACTS ON RECORD. THE ASSESSING OFFICER HAS REFERRED TO ANNEXURE-3 OF THE TAX AUDIT REPORT AND OBSERVED THAT THE EXCISE DUTY RELATED TO CLOSING ST OCK OF FINISHED GOODS COMES TO RS.63,61,688/- OUT OF WHICH RS.51,68 ,020/- HAS BEEN SHOWN TO BE PAID UNDER SECTION 43B IN RESPECT OF CLEARANCES UP TO 31 ST JULY 2008 AND THE BALANCE AMOUNT OF RS.11,93,668/- HAS BEEN ADDED IN THE COMPUTATION AS THE DISALLOWANCE U/S 43B OF THE ACT. REGARDING THE PAY MENT OF RS.51,68,020/- IT IS AN ADMITTED FACT THAT IT HAS B EEN DONE BEFORE 31 ST OF JULY 2008 WHICH HAS BEEN DULY VERIFIED BY THE C HARTERED ACCOUNTANTS SIGNING THE TAX AUDIT REPORT AND WHICH IS ALSO EVIDENT FROM THE COPIES OF CHALLANS PRODUCED ON BEH ALF OF THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS AS WELL AS THE APPELLATE PROCEEDINGS. THEREFORE, ADDITION ON THIS ACCOUNT IS NOT JUSTIFIED. 6.2. WITH REGARD TO THE EXCISE DUTY ON THE CLOSING STOCK OF RAW-MATERIALS OF RS.1,74,88,597/-, IT IS OBSERVED T HAT THE EXCISE DUTY COMPONENT IS SET OFF AGAINST THE CENVAT CREDIT AVAILABLE TO THE ASSESSEE WHICH IS EVIDENT FROM THE PERUSAL OF T HE COPY OF THE CENVANT ACCOUNT FOR ADJUSTMENT OF THE EXCISE DU TY. THE ASSESSING OFFICER HAS HIMSELF OBSERVED IN THE ASSES SMENT ORDER THAT THERE IS CORRESPONDING DEBIT BALANCE OF EXCISE DUTY IN ASSETS ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 23 / LOANS AND ADVANCES, WHICH IMPLIES THAT THE ASSESS EE HAS STILL TO RECOVER EXCISE DUTY FROM THE GOVERNMENT AS ON 31.03 .2008. IT IS ALSO NOTED THAT THE ASSESSEE HAS CONSISTENTLY FO LLOWED THE PRACTICE ACCORDING TO WHICH THE EXPENDITURE OF EXCI SE DUTY IS NEITHER DEBITED FROM NOR CREDITED TO THE EXCISE DUT Y AS PART OF THE CLOSING STOCK WHICH IMPLIES THAT THE NET IMPACT ON PROFIT OR LOSS WILL BE NIL. THE DETAILS FURNISHED BY THE APP ELLANT ALSO SHOW THAT NO DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER IN ASSESSMENT YEARS 2006-07 & 2007-08. THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE IDENTICAL CLAI M IN THE YEAR UNDER CONSIDERATION IS NOT TENABLE ON THE PRINCIPLE S OF CONSISTENCY ALSO. IT IS SETTLED LAW THAT IN THE AB SENCE OF ANY CHANGE EITHER IN FACTS OR IN LAW, PRINCIPLES OF CON SISTENCY ITSELF CAN BE MADE A BASIS TO UPHOLD THE CLAIM OF THE APPE LLANT COMPANY. RELIANCE IS PLACED ON THE JUDGMENTS OF TH E HONBLE DELHI HIGH COURT IN THE CASES OF COMMISSIONER OF IN COME-TAX VS. NEO POLY PACK (P) LTD. (2000) 245 ITR 492 (DEL) AND CIT VS. RAJEEV GRINDING MILLS (2005) 279 ITR 86 (DELHI) WHEREIN THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT (1992) 193 ITR 321 (SC) WAS FOLLOWED. 6.3. IT IS ALSO OBSERVED THAT FOR THE PURPOSE OF CO MPUTATION OF TAXABLE INCOME, A SEPARATE WORKING HAS BEEN DONE U/ S 145A OF THE ACT DEPICTING THE EXCISE DUTY ON THE CLOSING ST OCK OF FINISHED GOODS AS WELL AS RAW MATERIAL AND ALSO REF LECTING THE ADJUSTMENT BY WAY OF CENVAT CREDIT AVAILABLE TO THE ASSESSEE TOWARDS THE EXCISE LIABILITY. THE ABOVE WORKING SH OWS THAT THE EXCISE DUTY ON CLOSING STOCK AMOUNTING TO RS.11,93, 668/- HAS REMAINED UNPAID UP TO 31.07.2008 AND THEREFORE HAS BEEN VOLUNTARILY DISALLOWED UNDER SECTION 43B OF THE ACT AND ADDED BACK TO THE TOTAL INCOME BY THE ASSESSEE. IN VIEW OF THE ABOVE, IT IS HELD THAT THE DISALLOWANCES OF (A) RS.51,68,0 20/- ON ACCOUNT OF NON INCLUSION OF EXCISE DUTY IN THE CLOS ING STOCK OF FINISHED GOODS AND (B) RS.1,74,88,597/- ON ACCOUNT OF NON- INCLUSION OF EXCISE DUTY PERTAINING TO CLOSING STOC K OF RAW- MATERIALS ARE NOT SUSTAINABLE IN LAW AND THE ASSESS ING OFFICER IS ACCORDINGLY DIRECTED TO DELETE THE SAID ADDITIONS. AS A RESULT, GROUNDS OF APPEAL NO.12, 13 AND 14 ARE ALLOWED. ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 24 23. LD. DR FIRSTLY PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER . IT WAS FURTHER SUBMITTED THAT EVERY YEAR IS INDEPENDEN T AND IF BY ANY REASON NO DISALLOWANCES WERE MADE IN EARLIER YEAR, THEN IT CA NNOT BE SAID THAT ADDITION CANNOT BE MADE DURING THE YEAR UNDER CONSIDERATION AS PRINCIPLES OF RES- JUDICATA ARE NOT APPLICABLE IN INCOME-TAX PROCEEDIN GS. RELIANCE WAS PLACED ON THE DECISIONS OF APEX COURT IN THE CASES OF CIT VS. LUXMI DEVI SUGAR MILLS P. LTD. 188 ITR 41 (SC); AND 31 ITR 12. 24. ON THE OTHER HAND, LD. AR OF THE ASSESSEE FIRST LY PLACED RELIANCE ON THE ORDER OF CIT(A). IT WAS FURTHER SUBMITTED THAT NO DOUBT THE PROVISIONS OF SEC. 145 ARE MANDATORY BUT AS PER THE INSTRUCTION O F INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI), THE ASSESSEE IS FREE T O CHOOSE ANY METHOD OF ACCOUNTING OUT OF TWO METHODS AVAILABLE I.E. INCLUS IVE METHOD OR EXCLUSIVE METHOD. ASSESSEE HAS CHOSEN EXCLUSIVE METHOD AND IT HAS BEEN APPROVED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF MAHAVIR ALLUMINIUM 297 ITR 77 (DEL.). IT WAS FURTHER SUBMITTED THAT IT IS WRO NG TO SAY THAT NO DETAILS WERE FILED. ALL THE DETAILS WERE FILED BEFORE ASSES SING OFFICER AS WELL AS BEFORE CIT(A). ATTENTION OF THE BENCH WAS DRAWN ON PAGE 107 OF THE PAPER BOOK, WHERE COPY OF THE DETAILS ARE PLACED. IT IS N OTED THAT SUM OF RS. 51,68,020/- WAS DISALLOWED BY THE AUDITORS U/S 43B . HOWEVER, IT CAN BE SEEN THAT THIS PAYMENT WAS MADE BEFORE 31 ST JULY 2008, WHICH HAS BEEN DULY VERIFIED BY THE C.A. SIGNING THE TAX AUDIT REPORT A ND CIT(A) HAS VERIFIED FROM THE COPIES OF CHALLANS PRODUCED ON BEHALF OF T HE ASSESSEE WHICH WERE ALSO PRODUCED BEFORE ASSESSING OFFICER . THEREFORE, DISALLOWANCE OF THIS AMOUNT WAS NOT JUSTIFIED AT ALL BECAUSE THEY WERE D ISALLOWABLE U/S 43B BUT THEY WERE ALLOWABLE FOR THE REASON THAT PAYMENTS WE RE MADE BEFORE DUE DATE OF FILING OF THE RETURN OF INCOME. ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 25 25. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERI AL ON RECORD, WE ARE OF THE VIEW THAT ADJUSTMENT MADE OF RS. 51,68,020/- WA S NOT JUSTIFIED FOR THE SIMPLE REASON THAT ASSESSEE HAS HIMSELF INCLUDED TH IS AMOUNT. HOWEVER, SINCE THE PAYMENTS WERE MADE BEFORE DUE DATE OF FIL ING OF RETURN, THEY WERE CLAIMED AS DEDUCTION. LD. CIT(A) HAS EXAMINED THIS ASPECT AND THEREFORE, IT HA BEEN HELD THAT THE ADDITION OF ADJUSTMENT OF RS. 51,68,020/- WAS NOT CORRECT. 26. IN FACT THE EXCISE DUTY RELATING TO CLOSING STO CK OF FINISHED GOODS WAS RS. 63,61,688/- OUT OF WHICH RS. 51,68,020/- HAS BE EN SHOWN TO BE PAID IN VIEW OF THE PROVISIONS OF SEC. 43B IN RESPECT OF CL EARANCE UP TO 31 ST JULY 2008 AND BALANCE AMOUNT OF RS. 11,93,668/- HAS ALRE ADY BEEN ADDED IN THE COMPUTATION AS DISALLOWANCE U/S 43B, THEREFORE, IF THE CONTENTION OF THE DEPARTMENT IS ACCEPTED, THEN THIS WOULD AMOUNT TO DOUBLE ADDITION BECAUSE OF THE REASON THAT ASSESSEE HAS ADDED ITSELF AND AS THE SAME WAS PAID BEFORE THE DUE DATE OF FILING OF THE RETURN AND THEREFORE TO THIS EXTENT THE AMOUNT WAS CLAIMED AS DEDUCTION ON ACCOUNT OF EXCISE DUTY PAID. THIS IS A FACTUAL FINDING GIVEN BY CIT(A). THEREFORE, TO THIS EXTENT THE ORDER OF LD. CIT(A) IS LIABLE TO BE CONFIRMED AND WE CONFIRM THE SAME. 27. HOWEVER, REGARDING THE REMAINING AMOUNT OF RS. 1,74,88,597/- AS NON-INCLUSION OF EXCISE DUTY PERTAINING TO CLOSING STOCK OF RAW-MATERIAL, ASSESSEE HAS MAINTAINED EXCLUSIVE METHOD AND WORKIN G HAS BEEN GIVEN BY IT. AS PER THIS WORKING, THE OPENING BALANCE ON ACCOUNT OF EXCISE DUTY IS ALSO ADJUSTED AND THEREAFTER CLOSING AMOUNT OF EXCISE DU TY IS ALSO ADJUSTED AND IF BOTH THESE AMOUNTS ARE TAKEN INTO CONSIDERATION THE N THERE IS NO EFFECT OF COMPUTATION OF INCOME. ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 26 28. THE HONBLE DELHI HIGH COURT IN THE CASE OF MAH AVIR ALLUMINIUM LTD. 297 ITR 77 HAS CLEARLY HELD THAT: HELD, DISMISSING THE APPEAL, THAT PARAGRAPH 23.13 OF THE GUIDANCE NOTE ON TAX AUDIT UNDER SECTION 44AB ISSUE D BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA MADE IT CLEAR THAT WHENEVER ANY ADJUSTMENT IS MADE IN THE VALUATION O F INVENTORY, THIS WILL AFFECT BOTH THE OPENING AS WELL AS THE CL OSING STOCK. IF ANY ADJUSTMENT WAS REQUIRED TO BE MADE BY A STATUTE , EFFECT SHOULD BE GIVEN TO IT IRRESPECTIVE OF ANY CONSEQUEN CES ON THE COMPUTATION OF INCOME FOR TAX PURPOSES. SECTION 145 A BEGINS WITH A NON OBSTANTE CLAUSE AND THEREFORE TO GIVE EF FECT TO SECTION 145A, IF THERE IS A CHANGE IN THE OPENING S TOCK AS ON MACH 31, 1999, THERE MUST NECESSARILY BE A CORRESPO NDING ADJUSTMENT MADE IN THE OPENING STOCK AS ON APRIL 1, 1998. THUS, THE QUESTION OF DOUBLE DEDUCTION DID NOT ARIS E SINCE NO ADJUSTMENT WAS MADE BY THE ASSESSEE IN THE PROFIT A ND LOSS ACCOUNT FOR THE YEAR ENDING MARCH 31,1998. 29. WHILE HOLDING SO, THE HONBLE DELHI HIGH COURT HAS EXAMINED THE ISSUE IN DEPTH. THE DECISION OF PRIVY COUNCIL IN TH E CASE OF CIT VS. AHMEDABAD NEW COTTON MILLS CO. LTD. AIR 1930 PC 56 HAS BEEN CONSIDERED ALONG WITH THE BOARDS CIRCULAR NO. 772 DATED 23-12-1998 235 ITR (STAT.) 35. THE PRIVY COUNSEL HAS ALSO CLARIFIE D THAT BOTH ENDS OF THE VALUATION OF STOCK I.E. OPENING STOCK AS ON FIRST D AY OF THE PREVIOUS YEAR AND LAST DAY OF THE PREVIOUS YEAR HAS TO BE TAKEN INTO CONSIDERATION . THIS POSITION HAS BEEN FURTHER CLARIFIED BY THE BOARD CI RCULAR NO. 772 (SUPRA) BY WHICH IT HAS BEEN CLARIFIED THAT IN VIEW OF THE PRO VISIONS OF SEC. 145A FOR VALUATION BOTH ENDS I.E. OPENING AND CLOSING IS TO BE TAKEN INTO CONSIDERATION AND THEREAFTER THE HONBLE HIGH COURT HAS GIVEN ITS FINDING WHICH HAS BEEN REPRODUCED HEREIN ABOVE IN THIS ORDER. ACCORDINGLY THE MATER IS REQUIRED TO BE RE-EXAMINED IN THE LIGHT OF THE DECISION OF THE HONBLE HIGH COURT AND ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 27 GUIDELINES OF ICAI IN RESPECT OF PROVISIONS OF SEC. 145A AND IN THE LIGHT OF THE WORKING MADE BY THE ASSESSEE ON THE BASIS OF EX CLUSIVE METHOD BY WHICH IT HAS BEEN STATED THAT THERE WILL BE NIL EFFECT. A CCORDINGLY, WE RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO EXAMINE THE ISSUE AFRESH IN VIEW OF OUR OBSERVATIONS ABOVE AND AFTER AFFORDING OPPORTUN ITY TO THE ASSESSEE OF BEING HEARD. WE ORDER ACCORDINGLY. THIS GROUND OF T HE DEPARTMENT IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 30. GROUND NO. 6 IS AGAINST THE DELETION OF ADDITIO N OF RS. 3,57,55,437/- MADE ON ACCOUNT OF BAD DEBT. 31. THE ASSESSING OFFICER MADE ADDITION OF RS. 3,5 7,55,437/- ON ACCOUNT OF BAD DEBT WRITTEN OFF BY FOLLOWING OBSERVATIONS: IT WAS NOTICED THAT THESE DEBTS BELONG TO VERY SOU ND PARTIES LIKE BHEL, TATA, NTPC, L&T ETC. ASSESSEE HAS ITSEL F ALSO ACCEPTED VIDE ITS REPLY DATED 17.11.2010 THAT IT IS NOT A CASE WHERE NON-REALISABILITY IS DUE TO THE PARTY ABSCOND ING OR NON- TRACEABILITY. FOR ANY DEBT TO BECOME BAD, IT IS IM PERATIVE THAT IT SHOULD REALLY BECOME NON-RECOVERABLE I.E. EITHER TH E DEBTOR IS INCAPABLE OF PAYING OR NON-TRACEABLE ETC. AS THESE CONDITIONS ARE NOT ALL SATISFIED AND KEEPING IN VIEW OF THE FA CT THAT ASSESSEE HAS NEVER MADE ANY PROVISION IN THE PREVIOUS YEARS AND ALSO THE FACT THAT ASSESSEE IS HAVING BUSINESS RELATIONSHIP WITH THESE DEBT IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE 32. DETAILED SUBMISSIONS WERE FILED BEFORE CIT(A) WHICH HAVE BEEN INCORPORATED IN THE ORDER OF CIT(A) IN PARA 7.1 ( AT PAGE 22) OF HIS ORDER, AS UNDER: THE ASSESSEE VIDE LETTER DATED 17 TH NOVEMBER 2010 HAS GIVEN DETAILED SUBMISSION TO THE AO. THE ASSESSEE REITER ATES THE FACTS IN ORDER TO APPRECIATE THAT THE BAD DEBTS WRITTEN O FF BY THE ASSESSEE ARE ALLOWABLE DEDUCTION U/S 36(1)(VII) REA D WITH SEC. 36(2) OF THE INCOME TAX ACT 1961. ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 28 ENCLOSED PLEASE FIND THE DETAILS GIVING THE NAME AN D ADDRESS OF THE PARTY, JOB NO., PRODUCT SALE/JOB BILL WITH BILL NUMBER, DATE OF BILL AND THE YEAR OF CONSIDERING AS PART OF INCOME OF THE ASSESSEE I.E. THE BAD DEBTS ARE ARISING AS A RESULT OF THE INCOME WHICH HAS BEEN BOOKED AND TAXED IN THE EARLIER YEAR S. SECONDLY, THE BAD DEBTS HAVE BEEN WRITTEN OFF IN THE BOOKS AS IRRECOVERABLE. THIS FACTUAL ASPECT SUBMITTED TO T HE A.O. IS NOT IN DISPUTE. THE LAW RELATING TO ALLOWABILITY OF BAD DEBTS U/S 3 6(1)(VII) IS NOW WELL SETTLED. ASSESSEE IS ENCLOSING PHOTO COPY OF THE SUPREME COURT DECISION IN THE CASE OF T.R.F. LTD. V S. CIT (2010) 323 ITR 397 (SC). THE RELEVANT PORTION OF T HE JUDGMENT IS REPRODUCED BELOW:- THIS POSITION IN LAW IS WELL-SETTLED. AFTER APRIL 1, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT TH E DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FURTHER, THE JURISDICTIONAL DELHI HIGH COURT IN CIT VS. MODI TELECOMMUNICATION LTD. (2010) 325 ITR 291 (DEL), CO PY ENCLOSED FOLLOWING THE ABOVE SUPREME COURT HAS UPH ELD THE ORDER OF THE TRIBUNAL ALLOWING THE BAD DEBTS WHICH HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE AS ALLOWABLE BUSINESS DEDUCTION. HENCE, THE CLAIM OF THE ASSESSEE FOR ALLOWABILITY O F BAD DEBT IS FULLY COVERED BY THE ABOVE DECISION OF THE HONBLE SUPREME COURT AS WELL AS HIGH COURT AND THE CLAIM SHOULD BE ALLOWED. THE ASSESSEE HAS ALSO EXPLAINED TO THE AO DURING TH E COURSE OF HEARING THAT THE NATURE OF THE BUSINESS ACTIVITY O F THE ASSESSEE IS SUCH THAT THE DEBTORS BECOME IRRECOVERABLE DUE TO JOB/MATERIAL REJECTIONS, QUALITY OF MATERIAL USED/S UPPLY ORDER, MEASUREMENT DIFFERENCES, NON-PAYMENT OF EXTRA WORK DONE, DELAYS IN COMPLETION RESULTING IN SLASHING OF BILLS BY THE PARTY. IT MAY BE NOTED THAT THESE DISPUTES MAY ARISE WITH ANY OF THE CUSTOMERS, EVEN REPUTED PARTIES LIKE BHEL, TATA, NT PC, L&T WILL NOT ADMIT THE JOB WORK BILLS / PRODUCT BIL LS UNLESS IT IS SCRUTINIZED BY THEIR OFFICIALS AND ARE SATISFIED WI TH THE WORK. ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 29 ASSESSEE HAS ALSO REFLECTED IN THE PROFIT & LOSS AC COUNT THE RECOVERY OF BAD DEBTS AS AND WHEN THERE IS A REALIZ ATION OF THE BAD DEBTS AS ITS INCOME. EVEN IN THE EARLIER YEARS SUCH CLAIM OF THE ASSESSEE HAS BEEN ALLOWED IN THE ASSESSMENT U/S 143(3). FOR THE ASST. YEAR 2006-07, THE BAD DEBT CLAIMED BY THE ASSESSEE IS RS.1,67,76,043/-AND FOR ASST. YEAR 2007-08 THE BAD DEBTS CLAIMED IS RS.3,56,27,738/- WHICH HAS BEEN ALLOWED TO THE ASSESSEE. THEREFORE THE CONDITIONS REQUIRED FOR ALLOWABILITY OF BAD DEBT U/S 36(1)(VII) READ WITH SEC. 36(2) OF THE INCOME T AX ACT ARE FULLY SATISFIED NAMELY THE BAD DEBT IS AS A RESULT OF INCOME WHICH HAS BEEN OFFERED FOR TAX AND SECONDLY, THE AM OUNT HAS BEEN WRITTEN OFF IN THE BOOKS AS BAD DEBT, THEREFOR E, THE CLAIM OF THE ASSESSEE MAY BE ALLOWED. 33. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, CIT(A) FOUND THAT IN VIEW OF THE PROVISION S OF SEC. 36(1)(VII) OF THE ACT, THE ASSESSEE IS ENTITLED TO A DEDUCTION EQUIVA LENT TO THE AMOUNT OF WRITTEN OFF. CIT(A) HAS ALSO OBSERVED IN HIS ORDER THAT CONDITIONS OF SEC. 36(2) HAVE BEEN SATISFIED BY THE ASSESSEE. THE CIT (A) FOLLOWING THE DECISION OF THE APEX COURT IN THE CASE OF T.R.F. LT D. VS. CIT (2010) 323 ITR 397 (SC), HELD THAT ASSESSEE IS ENTITLED FOR DE DUCTION ON ACCOUNT OF BAD DEBT WRITTEN OFF. THE FINDINGS OF CIT(A) HAVE BEE N RECORDED IN PARA 7.2 TO 7.4 OF HIS ORDER AS UNDER: 7.2. I HAVE GONE THROUGH THE ASSESSMENT ORDER, THE WRITTEN AND ORAL SUBMISSION(S) OF THE APPELLANT AND THE FACTS O N RECORD. IT IS APPARENT FROM THE PLAIN READING OF SECTION 36(1)(VI I) OF THE ACT THAT AN ASSESSEE IS ENTITLED TO A DEDUCTION EQUIVAL ENT TO THE AMOUNT OF A WRITTEN OF DEBT. THE QUESTION OF APPLI CABILITY OF SECTION 36(1)(VII) OF THE ACT WILL, HOWEVER, ARISE IF THE ASSESSEE CAN ESTABLISH THE FULFILLMENT OF THE INGREDIENTS OF SECTION 36(2) OF THE ACT. A PLAIN READING OF CLAUSE (I) OF SECTI ON 36(2) OF THE ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 30 ACT PRIMA FACIE SHOWS THE FOLLOWING ESSENTIAL INGRE DIENTS THEREOF:- I) THE ASSESSEE OUGHT TO HAVE DEPICTED THE DEBT UND ER REFERENCE, AS HIS INCOME, DURING THE PREVIOUS YEAR (DURING WHICH THE DEDUCTION IS SOUGHT) OR ANY OTHER EARLIER PREVIOUS YEAR (PRIOR TO THE YEAR DURING WHICH THE DEDUCTION IS SOUGHT); II) THE ASSESSEE OUGHT TO HAVE SHOWN THE DEBT AS IRRECOVERABLE OR AS A BAD DEBT, AND OUGHT TO HAVE W RITTEN OFF THE SAME DURING THE PREVIOUS YEAR; III) THE DEDUCTION FOR SUCH A DEBT WHICH HAS BEEN W RITTEN OFF, CAN BE CLAIMED IN THE PREVIOUS YEAR DURING WHICH TH E ASSESSEE HAS WRITTEN OFF THE DEBT. 7.3. AN ANALYSIS OF CLAUSE (I) OF SECTION 36(2) OF THE 1961 ACT SHOWS THAT ALL 3 ESSENTIAL INGREDIENTS THEREOF MUST BE FULFILLED BEFORE AN ASSESSEE CAN CLAIM A DEDUCTION. IT WOULD ALSO BE RELEVANT TO MENTION THAT THE CONTROVERSY REGARDING THE ALLOWABILITY OF BAD DEBTS WRITTEN OFF HAS BEEN SETT LED BY THE HONBLE SUPREME COURT IN T.R.F. LTD. V. CIT (2010) 323 ITR 397(SC): 190 TAXMAN 391 (SC) WHEREIN IT HAS BEEN HE LD AS UNDER:- 2. IN THESE APPEALS, WE ARE CONCERNED WITH ASSESSM ENT YEAR 1990-91 AND ASSESSMENT YEAR 1993-94. PRIOR TO 1.4.1989, EVERY ASSESSEE HAD TO ESTABLISH, AS A MAT TER OF FACT, THAT THE DEBT ADVANCED BY THE ASSESSEE HAD IN FACT, BECOME IRRECOVERABLE. THAT POSITION GOT ALTERED BY DELETION OF THE WORD ESTABLISHED, WHICH EARLIER E XISTED IN SECTION 36(1)(VII) OF THE INCOME-TAX ACT, 1961 (ACT). 3. FOR THE SAKE OF CLARITY, WE REPRODUCE HEREIN BEL OW PROVISIONS OF SECTION 36(1)(VII) OF THE ACT, BOTH P RIOR TO 1.4.1989 AND POST 1.4.1989: PRE-1-4-1989 ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 31 36. OTHER DEDUCTIONS(1) THE DEDUCTIONS PROVIDED FO R IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPEC T OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE IN COME REFERRED TO IN SECTION 28 (I) TO (VI) ** ** ** (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) THE AMOUNT OF ANY DEBT, OR PART THEREOF, WHICH IS ESTABLISHED TO HAVE BECOME A BADE DEBT IN THE PREVI OUS YEAR. POST- 1 ST APRIL, 1989 : 36. OTHER DEDUCTIONS---(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RE SPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 (I) TO (VI) ** ** ** (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRI TTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSE E FOR THE PREVIOUS YEAR 4. THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1.4.19 89, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH T HAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERA BLE IN THE ACCOUNTS OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE AO HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMERS ACCOUNT IS CREDITED THUS, CLOSING THE ACCOUNT OF THE CUSTOMER. IN THE CASE OF COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 32 7.4. IN THE PRESENT CASE, THE PERUSAL OF THE PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION SHOWS THAT THAT AN AMOUNT OF RS.3,57,55,437/- WAS SHOWN AS BAD DEBTS IN THE YEAR UNDER APPEAL. ELABORATE SUBMISSIONS WERE MADE ON BEHALF OF THE ASSESSEE BEFORE THE A.O. AS WELL AS BEFORE T HE UNDERSIGNED TO ESTABLISH THAT THE INCOME PERTAINING TO THE ABOVE AMOUNT WAS REFLECTED IN THE ACCOUNTS AND THE SAME W AS CONSIDERED AS PART OF SALES IN THE EARLIER YEARS. THEREFORE, I AM OF THE CONSIDERED VIEW THAT IN THE PRESENT CASE, AS SESSEE HAS FULFILLED ALL THE AFORE STATED MANDATORY CONDITIONS AND THE ASSESSEE WOULD BE ENTITLED TO A DEDUCTION ON THE BA SIS OF ITS HAVING WRITTEN OFF THE DEBT UNDER REFERENCE. IN VI EW OF THE DISCUSSION MADE ABOVE, I AM OF THE CONSIDERED VIEW THAT THE A.O. WAS NOT JUSTIFIED IN MAKING ADDITION OF RS.3,5 7,55,437/- OUT OF BAD DEBT WRITTEN OFF. THEREFORE, THE A.O. I S DIRECTED TO DELETE THE SAID ADDITION. AS A RESULT GROUND NO. 15 & 16 ARE ALLOWED. 34. LD. D.R. STRONGLY OBJECTED THE FINDING OF LD. CIT(A). IT WAS FURTHER SUBMITTED THAT THE DEBT HAS NOT BECOME BAD AND THER EFORE, THEY ARE NOT ALLOWABLE. ATTENTION OF THE BENCH WAS DRAWN ON PAGE S 121 & 122 OF THE PAPER BOOK AND IT WAS SUBMITTED THAT AS PER THESE D ETAILS IT CANNOT BE ESTABLISHED THAT THESE DEBTS HAVE BECOME BAD. IT WA S FURTHER SUBMITTED THAT THE MATTER MAY BE SENT BACK TO THE FILE OF ASSESSIN G OFFICER TO EXAMINE THE SAME AFRESH IN THE LIGHT OF THE DECISION OF THE APE X COURT IN THE CASE OF T.R.F. LTD. 323 ITR 397. 35. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSE SSEE STRONGLY PLACED RELIANCE ON THE ORDER OF CIT(A). IT WAS FURTHER SU BMITTED THAT BOTH THE CONDITIONS ARE SATISFIED IN THIS CASE AS THE SALES HAVE BEEN EFFECTED IN THE LAST SO MANY YEARS WHICH HAVE BEEN OFFERED FOR TAXATION IN THOSE VERY RESPECTIVE YEARS. NOW SINCE THE PAYMENTS HAVE NOT BEEN RECEIV ED, THEREFORE, IN THIS YEAR THE AMOUNT HAS BEEN WRITTEN OFF BY TREATING TH ESE RECEIVABLE PAYMENTS ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 33 AS BAD DEBTS. THEREFORE, IT CANNOT BE SAID THAT CON DITIONS ARE NOT SATISFIED. IT WAS FURTHER SUBMITTED THAT ALL THESE DETAILS WERE F ILED BEFORE ASSESSING OFFICER AND HE HAS NOT COMMENTED OVER THE DETAILS WHETHER THEY ARE RIGHT OR NOT, AS HE DISALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING THAT THE DEBTS HAVE BECOME BAD. ACCORDINGLY, CONDITIONS WERE NOT S ATISFIED AND THEREFORE DISALLOWANCE WAS MADE. WHEREAS, LD. CIT(A) HAS EXA MINED THIS ASPECT AND AFTER SATISFYING HIMSELF THEN ONLY FOLLOWING THE D ECISION OF THE HONBLE SUPREME COURT HAS ALLOWED THE CLAIM OF THE ASSESSEE . FURTHER RELIANCE WAS PLACED ON THE DECISIONS OF HONBLE DELHI HIGH COURT IN THE CASES OF CIT V. MODI TELECOMMUNICATION (2010) 325 ITR 291 (DEL.) AN D CIT V. PRASAD & CO. 341 ITR 480 (DEL.). 36. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD WE FIND NO INFIRMITY IN THE FINDINGS OF CIT(A) WHI CH ARE REPRODUCED SOME WHERE ABOVE IN THIS ORDER. 37. LD. D.RS MAIN PLANK OF ARGUMENT IS THAT THESE AMOUNTS HAVE NOT BECOME BAD. THE VARIOUS COURTS INCLUDING THE APEX C OURT HAVE HELD THAT ANY AMOUNT WHICH IS NOT RECEIVED BY THE ASSESSEE CA N BE CLAIMED AS BAD DEBT, IF OTHER CONDITIONS ARE SATISFIED. IN THE PRE SENT CASE, THE ASSESSEE HAS SHOWN THE SALE AMOUNT IN ITS P&L A/C OF PREVIOUS YE AR AND IN THIS YEAR THE ASSESSEE HAS CLAIMED BAD DEBT WHICH IS ABOUT 3.57% OF THE TOTAL GROSS RECEIPTS, SINCE THESE AMOUNTS WERE NOT RECEIVED BY THE ASSESSEE. 38. LD. DR HAS STATED THAT IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF T.R.F. (SUPRA), THE MATTER SHO ULD BE SENT BACK TO THE FILE OF ASSESSING OFFICER . HOWEVER, WE HAVE GONE THROUG H THE ORDER OF HONBLE SUPREME COURT BY WHICH IT HAS BEEN CLEARLY HELD THA T ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 34 AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE I NCOME TAX ACT, 1961, WITH EFFECT FROM APRIL 1,1989, IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECES SARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS B ECOME IRRECOVERABLE: IT IS ENOUGH IF THE BAD DEBT IS WRIT TEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. 39. THE HONBLE SUPREME COURT FURTHER HAS REMANDED THE MATTER TO THE ASSESSING OFFICER TO EXAMINE SOLELY TO THE EXTENT OF WRITE OFF, WHETHER THE DEBT OR PART THEREOF WAS WRITTEN OFF IN THE ACCOUNT S OF THE ASSESSEE. 40. IN THE PRESENT CASE, THERE IS NO DISPUTE THAT T HESE AMOUNTS WERE WRITTEN OFF IN THE BOOKS OF A/C ON ACCOUNT OF IRREC OVERABLE, THEREFORE, THE DECISION OF THE APEX COURT IN THE CASE OF T.R.F. LT D. SUPPORTS THE CASE OF THE ASSESSEE. THE LD. CIT(A) HAS CONSIDERED THE SAME A ND THEN HAS ONLY ALLOWED THE DEDUCTION TO THE ASSESSEE. THE ISSUE IS SQUAREL Y COVERED BY THE DECISION OF THE SUPREME COURT. 41. FURTHER, THE DECISIONS OF HONBLE DELHI HIGH CO URT IN THE CASES OF MODI TELECOMMUNICATION (SUPRA) AND PRASAD & CO. 341 ITR 480 ALSO SUPPORT THE CASE OF THE ASSESSEE. 42. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES WE HOLD THAT CIT(A) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE . ACCORDINGLY, WE CONFIRM THE ORDER OF CIT(A) ON THIS ISSUE ALSO. 43. REMAINING GROUND I.E. GROUND NO. 3 IN APPEAL OF DEPARTMENT IS AGAINST RESTRICTING THE ADDITION U/S 14A TO RS. 5,39,063/- AS AGAINST RS. 13,88,000/- MADE BY THE ASSESSING OFFICER . THE ASSESSEE HAS AL SO CHALLENGED THE ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 35 ADDITION SUSTAINED BY LD. CIT(A) BY FILING ITS CRO SS-OBJECTION. SINCE THESE GROUNDS ARE COMMON, THEREFORE, THEY ARE BEING DISPO SED OF TOGETHER. 44. ASSESSING OFFICER MADE A DISALLOWANCE OF RS. 1 3,88,000/- U/S 14A OF THE ACT READ WITH RULE 8D OF THE I.T. RULES. IT WAS SUBMITTED BEFORE CIT(A) THAT ASSESSING OFFICER HAD MECHANICALLY APPLIED TH E PROVISIONS OF RULE 8D WITHOUT APPRECIATING THE SUBMISSIONS OF THE ASSESSE E THAT THERE IS NO EXPENDITURE INCURRED TO EARN DIVIDEND INCOME, WHICH IS ONLY RS. 2,228/-. IT WAS FURTHER SUBMITTED THAT THIS DIVIDEND INCOME WAS EARNED BY THE ASSESSEE ON THE BASIS OF INVESTMENTS MADE IN MARCH 05 AND BE FORE THE YEAR 1990 IN PUNJAB NATIONAL BANK AND BOMBAY OXYGEN LTD., ON WH ICH DIVIDEND HAS BEEN RECEIVED OF RS. 2,228/-. RELIANCE WAS PLACED O N VARIOUS CASE LAWS I.E. DELHI TRIBUNALS DECISIONS IN MINDA INVESTMENTS VS. DCIT; DCIT VS. JINDAL PHOTO LTD. AND ALSO THE DECISION OF HONBL E PUNJAB & HARYANA HIGH COURT IN THE CASE OF HERO CYCLES LTD. AFTER CONSIDE RING THE SUBMISSIONS AND CONSIDERING VARIOUS CASE LAWS, THE CIT(A) FOUND TH AT DISALLOWANCE HAS TO BE MADE ON THE BASIS OF FORMULA GIVEN IN VIEW OF THE D ECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MF G. CO. LTD. VS. DCIT & ANR. 328 ITR 81 (BOM.). ACCORDINGLY, HE REDUCED T HE DISALLOWANCE TO RS. 5,39,063/-. WORKING OF THIS HAS BEEN GIVEN BY CIT (A) ON PAGE 13 OF HIS ORDER. 45. THE LD. DR STATED THAT RULE 8D IS APPLICABLE AN D LD. CIT(A) HAS DECIDED THE ISSUE ON THE BASIS OF HONBLE MUMBAI HI GH COURT.. HOWEVER, RULE 8D SHOULD BE APPLIED ON THE GROSS AMOUNT AS AP PLIED BY THE ASSESSING OFFICER . ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 36 46. ON THE OTHER HAND, LD. A.R. STATED THAT THE DEC ISION OF HONBLE PUNJAB & HARYANA HIGH COURT DECISION IN THE CASE OF HERO C YCLE (SUPRA) AND DECISIONS OF THE TRIBUNAL IN VARIOUS CASES, COPIES OF WHICH ARE PLACED IN THE COMPILATION, NO DISALLOWANCE IS WARRANTED AS NO EXP ENDITURE HAS BEEN INCURRED TO EARN DIVIDEND OF S. 2,228/-. FURTHER, I T WAS STATED THAT THE MATTER CAN BE SENT BACK TO THE FILE OF ASSESSING OFFICER TO FIND OUT AS TO WHAT EXPENDITURE HAS BEEN INCURRED FOR EARNING OF DIVIDE ND OF RS. 2,228/- IN THE LIGHT OF THE DECISION OF HONBLE PUNJAB & HARYANA H IGH COURT (SUPRA) AND THE DECISIONS OF VARIOUS BENCHES OF THE TRIBUNAL. 47. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE ARE OF THE VIEW THAT THIS MATTER SHOULD GO BACK TO THE FILE OF ASSESSING OFFICER TO EXAMINE THE ISSUE AFRESH IN T HE LIGHT OF THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF HERO CYCLES LTD. 323 ITR 518 (P&H), WHEREIN THE HONBLE HIGH COURT HAS H ELD THAT THE EXPENDITURE ON INTEREST WAS SET OFF AGAINST THE I NCOME FROM INTEREST AND THE INVESTMENT IN THE SHARES AND FUNDS WERE OUT OF DIVI DEND PROCEEDS. IN VIEW OF THIS FINDINGS OF FACT DISALLOWANCE U/S 14A WAS NOT SUSTAINABLE. WHILE HOLDING SO, THE HONBLE PUNJAB & HARYANA HIGH COURT HAS ALSO TAKEN INTO ACCOUNT THE PROVISIONS OF RULE 8D. 48. THEREAFTER, THE DELHI BENCH E OF THE TRIBUNAL IN THE CASE OF MINDA INVESTMENTS LTD. VS. DCIT VIDE ORDER DATED 13-10-2 010 RENDERED IN ITA NO. 4046/DEL/09 HAS HELD THAT: 6.3. WE HAVE CONSIDERED THE SUBMISSIONS CAREFULLY. WE FIND THAT IN THE CASE OF HERO CYCLES LTD. THE HONBLE PU NJAB AND HARYANA HIGH COURT HAS HELD THAT DISALLOWANCE U/S 1 4A REQUIRED FINDING OF INCURRING OF EXPENDITURE AND WH ERE IT WAS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITU RE HAD ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 37 BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A COULD NOT STAND. ON THE OTHER HAND, THE HONBLE MUMBAI HIGH COURT DE CISION IN THE AFORESAID CASE OF GODREJ BOYCE MFG. CO. LTD. HA S HELD THAT ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS TO IDENTIFY THE EXPENSES IN RELATION TO THE EARNING OF EXEMPT INCOM E. NOW IN THE PRESENT CASE, WE FIND THAT THE MATTER CANNOT BE SET ASIDE TO THE FILES OF ASSESSING OFFICER TO APPLY RULE 8D AS THE SAID PROVISION CANNOT BE APPLICABLE FOR THE CURRENT ASSE SSMENT YEAR. SECONDLY, THE ASSESSEE HAS URGED THAT NO EXPENDITU RE HAS BEEN IDENTIFIED TO HAVE BEEN INCURRED TO EXEMPT INCOME. NEITHER THE ASSESSING OFFICER NOR THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) HAS REBUTTED THESE SUBMISSION. ASSESSING OFFICER HAS GONE INTO TO MAKE THE AD HOC ESTIMATE WHICH IS NOT SUSTAINABLE IN THE LIGHT OF THE HONBLE PUNJAB AND HARYANA HIGH COURT DECISION ABOVE. 6.4. UNDER SUCH CIRCUMSTANCES, WE REFER THE HONBLE APEX COURT DECISION IN THE CASE OF M/S VEGETABLE PRODUCT S LTD. 88 ITR 192, THAT IN THE TAXING PROVISION IF TWO CONSTR UCTIONS ARE POSSIBLE, ONE FAVOURING ASSESSEE SHOULD BE ADOPTED. 6.5. ACCORDINGLY, FOLLOWING THE PRECEDENT FROM THE HONBLE PUNJAB AND HARYANA HIGH COURT AS ABOVE, WE SET ASID E THE ORDERS OF THE AUTHORITIES BELOW AND DECIDE THE ISSU E IN FAVOUR OF THE ASSESSEE. 49. THE RATIO OF THIS DECISION OF THE TRIBUNAL IS S QUARELY APPLICABLE ON THE FACTS OF THE PRESENT CASE, THEREFORE, WE DIRECT THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE DECISION OF TH E TRIBUNAL (SUPRA) WHICH IS AFTER TAKING INTO CONSIDERATION THE DECISION OF HON BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF HERO CYCLES LTD. (SUPRA). ACCORDINGLY, WE RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO PAS S ORDER AFRESH. WE ORDER ACCORDINGLY. ITA 2400 & CO 201/DEL/11 LLOYD INSULATION (INDIA) LTD. 38 50. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 09-08-2012. SD/- SD/- ( B.C. MEENA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 09-08-2012. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR