KSIDC, Trivandrum V. ACIT, Trivandrum

CO 29/COCH/2009

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7598 (ITAT-COCHIN)
• Duration Of Justice: 3 year(s) 15 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-08-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 07-08-2012
• Assessment Year: misc
• Appeal Filed On: 12-08-2009
• Court: TRIBUNAL
• Department Lawyers: VANI RAJ
• Assessee Lawyers: V DEVARAJAN
• Keywords: 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. 170/COCH/2009 ASSESSMENT YEAR: 2002-03 KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD., KOWDIAR, TRIVANDRUM-695 003. [PAN:AAACK 9434D] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), TRIVANDRUM. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) I.T.A NO. 429/COCH/2009 ASSESSMENT YEAR: 2006-07 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), TRIVANDRUM. VS. KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD., KOWDIAR, TRIVANDRUM-695 003. [PAN:AAACK 9434D] (REVENUE-APPELLANT) (ASSESSEE - RESPONDENT) C.O. NO. 29/COCH/2009 (ARSG. OUT OF I.T.A NO. 429/COCH/2009) ASSESSMENT YEAR: 2006-07 KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD., KOWDIAR, TRIVANDRUM-695 003. [PAN:AAACK 9434D] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), TRIVANDRUM. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI V.DEVARAJAN, CA REVENUE BY MS. VANI RAJ, JR. DR DATE OF HEARING 07/08/2012 DATE OF PRONOUNCEMENT 27/08/2012 I.T.A. NOS. 170 & 429 /COCH/2009 & C.O. NO. 29/COCH/200911 2 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED APPEAL AGAINST THE ORDER PA SSED BY THE LD CIT(A) FOR ASSESSMENT YEAR 2002-03. THE REVENUE HAS FILED APP EAL AND THE ASSESSEE HAS FILED CROSS OBJECTION AGAINST THE ORDER PASSED BY LD CIT( A) FOR ASSESSMENT YEAR 2006-07. THESE APPEALS WERE HEARD TOGETHER AND HENCE THEY AR E BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. IN THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2002-03 AND IN THE CROSS OBJECTION FILED BY IT FOR THE ASSESSMENT YEAR 2006-07, THE ASSESSEE IS CHALLENGING THE ORDER OF LD CIT(A) IN CONFIRMING THE DISALLOWAN CE MADE U/S 14A OF THE ACT IN RESPECT OF THE DIVIDEND INCOME WHICH IS EXEMPT UNDE R THE INCOME TAX ACT. 3. THE QUESTION OF DISALLOWANCE U/S 14A IN RESP ECT OF THE EXEMPTED INCOME HAS SINCE BEEN DECIDED BY THE HONBLE JURISDICTIONAL KERALA H IGH COURT IN THE CASE OF CIT VS. DHANALAKSHMI BANK (2012)(344 ITR 259) AND CIT VS. C ATHOLIC SYRIAN BANK (2011)(237 CTR (KER) 164). ACCORDING TO THE SAID DECISION, PR OPORTIONATE INTEREST EXPENSES CAN BE DISALLOWED BUT THERE IS NO REQUIREMENT OF MAKING AN Y DISALLOWANCE OF PROPORTIONATE AMOUNT OF ADMINISTRATIVE EXPENSES UP TO THE ASSESSM ENT YEAR 2006-07. THE OPERATIVE PORTION OF THE ORDER OF THE HIGH COURT IS EXTRACTED BELOW:- THE PROPORTIONATE DISALLOWANCE UNDER SECTION 14A S HOULD BE LIMITED TO ONLY INTEREST LIABILITY AND NOT OVERHEADS OR ADMINISTRAT IVE EXPENDITURE, WHICH SHOULD BE CONSIDERED FOR DISALLOWANCE UNDER RULE 8D FROM 2 007-08 ONWARDS IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT, IN OUR VIEW, THIS MATTER REQUIRES FRESH EXAMINATION AT THE END OF THE AO. ACCORDINGL Y, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE IN BOTH THE YEARS AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THE ISSUE AFRESH IN ACCORD ANCE WITH THE DECISION RENDERED BY THE JURISDICTIONAL HIGH COURT REFERRED SUPRA. I.T.A. NOS. 170 & 429 /COCH/2009 & C.O. NO. 29/COCH/200911 3 4. IN THE APPEAL FILED BY THE REVENUE FOR ASSES SMENT YEAR 2006-07, FOLLOWING TWO ISSUES ARE URGED:- (A) DELETION OF DISALLOWANCE OF BAD DEBTS CLAIM RS.5,06,27,188/- (B) GRANTING OF RELIEF OF RS.11,46,000/-, BEING T HE EXCESS PROVISION WRITTEN BACK. 5. IN THE INSTANT YEAR, THE ASSESSEE CLAIMED A S UM OF RS.5.06 CRORES AS BAD DEBTS IN ITS PROFIT AND LOSS ACCOUNT. THE AO TOOK THE VIEW T HAT AS PER SEC. 36(2)(V), NO DEDUCTION IS TO BE ALLOWED UNLESS THE ASSESSEE HAS DEBITED THE AMOUNT OF SUCH DEBT TO THE PROVISION FOR BAD DEBTS ACCOUNT. THE ASSESSEE EXPLAINED THAT IT HAD DEBITED THE ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS T O THE EXTENT OF BALANCE AVAILABLE THEREIN AND THE REMAINING AMOUNT OF BAD DEBTS IS DE BITED TO THE PROFIT AND LOSS ACCOUNT. IN THE WRITTEN SUBMISSIONS, IT IS STATED T HAT THE ASSESSEE WROTE OFF BAD DEBTS TO THE TUNE OF RS.8,82,14,785/-. OUT OF THE SAID A MOUNT, A SUM OF RS.3,75,87,597/- WAS DEBITED TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS AND THE BALANCE AMOUNT OF RS.5,06,27,188/- WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT AND CLAIMED AS DEDUCTION. 6. THIS BENCH OF THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE, I.E., THE ISSUE OF DISALLOWANCE OF BAD DEBTS CLAIM IN THE ASSESSEES O WN CASE IN ITA NO.547/COCH/2010 AND THE TRIBUNAL, VIDE ITS ORDER DATED 08-06-2012, AFFIRMED THE ORDER OF THE LD CIT(A) WITH THE FOLLOWING OBSERVATIONS:- 7. WE HAVE HEARD THE PARTIES ON THIS ISSUE. T HE 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. 3 6(2)(V) EXTRACTED 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 CLAIM OF I.T.A. NOS. 170 & 429 /COCH/2009 & C.O. NO. 29/COCH/200911 4 THE ASSESSEE IS THAT THE BALANCE OUTSTANDING IN TH E PROVISION ACCOUNT, WHICH IS MADE U/S 36(1)(VII) WAS ONLY RS.1,81,00,000/-. HENCE, IT WAS CONTENDE D THAT, AS PER SEC. 36(2)(V) OF THE ACT, THE BAD DEB TS CAN BE DEBITED ONLY TO THE EXTENT OF THE AVAILABLE BALANCE IN THE PROVISION A CCOUNT. WE ARE INCLINED TO AGREE WITH THE CONTENTIONS 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 PROVISI ON ACCOUNT CAN ONLY HAVE CREDIT BALANCE AND ON ACCOUNT OF MAKING DEBITS IN THAT AC COUNT, IF THE SAID PROVISION ACCOUNT IS CONVERTED INTO A DEBIT BALANCE ACCOUNT, THEN THE PROVISION ACCOUNT HAS TO BE CLOSED BY TRANSFERRING THE DEBIT BALANCE TO THE PROFIT AND LOSS ACCOUNT. ACCORDINGLY, EVEN IF THE ASSESSEE DEBITS THE ENTIR E BAD DEBTS AMOUNT OF RS.7.51 CRORES TO THE PROVISION ACCOUNT, THEN THE PROVISIO N ACCOUNT WILL SHOW A DEBIT BALANCE OF RS.5.70 CRORES WHICH HAS TO BE CLOSED B Y TRANSFERRING IT TO THE PROFIT AND LOSS ACCOUNT. INSTEAD OF FOLLOWING THIS CIRCU ITOUS 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 ACC OUNT WITH THE REMAINING BALANCE. IT CAN BE SEEN THAT THE NET EFFECT OF BO TH THE METHODOLOGIES GIVES SAME END RESULT. 9. IN VIEW OF THE FOREGOING DISCUSSION, WE AR E OF THE VIEW THAT THE LD CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF BAD DEBTS AND ACC ORDINGLY WE UPHOLD HIS DECISION ON THIS ISSUE. 7. THE HONBLE JURISDICTIONAL KERALA HIGH COURT HAS ALSO CONSIDERED AN IDENTICAL ISSUE IN THE CASE OF M/S KERALA FINANCIAL CORPORATION LTD AND THE HIGH COURT, VIDE ITS ORDER DATED 11-03-2010 HAS HELD AS UNDER:- QUESTION RAISED IS WHETHER THE TRIBUNAL WAS JUSTIF IED IN HOLDING THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF BAD DEBT ACTU ALLY WRITTEN OFF EVEN IF THE ASSESSEE HAS NOT DEBITED THE SAME IN THE PROVISION CREATED FOR BAD AND DOUBTFUL DEBTS. WE HAVE HEARD THE STANDING COUNSEL APPEARI NG FOR THE APPELLANT. I.T.A. NOS. 170 & 429 /COCH/2009 & C.O. NO. 29/COCH/200911 5 2. THE CLEAR FINDING OF THE TRIBUNAL IS THAT WHAT IS CLAIMED AS DEDUCTION IS BAD DEBT ACTUALLY WRITTEN OFF WHICH IS AN ALLOWABLE DE DUCTION U/S. 36(1)(VII) OF THE INCOME TAX ACT. HOWEVER, DEPARTMENTS CASE IS THA T BAD DEBT WRITTEN OFF IS NOT DEBITED TO THE PROVISION CREATED FOR BAD AND DOUBT FUL DEBTS AND SO MUCH SO, THE ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION U/S. 3 6(1)(VIIA). THE TRIBUNAL RIGHTLY FOUND THAT THE PROVISION CREATED BY THE ASSESSEE I S NOT CLAIMED AS A DEDUCTION AND SO MUCH SO, THERE IS NO REQUIREMENT TO DEBIT T HE ACTUAL DEBT WRITTEN OFF IN THE PROVISION CREATED FOR BAD AND DOUBTFUL DEBTS. WE ARE IN COMPLETE AGREEMENT WITH THE FINDING OF THE TRIBUNAL BECAUSE THE DEPAR TMENTS APPREHENSION THAT ASSESSEE WOULD HAVE CLAIMED DEDUCTION OF BOTH PROV ISION AS WELL AS ACTUAL DEBT WRITTEN OFF DOES NOT ARISE HERE. HOWEVER, IF PROV ISION CREATED IS DEBITED TO PROFIT AND LOSS ACCOUNT AND THE SAID PROVISION IS ALSO CL AIMED AS A DEDUCTION AND ALLOWED, THEN THE DEPARTMENTS STAND CERTAINLY IS CORRECT. HOWEVER, IN VIEW OF THE FACTUAL FINDING BY THE TRIBUNAL THAT PROVISION IS NEITHER CLAIMED NOR ALLOWED AS A DEDUCTION, WE DO NOT FIND ANY MERIT IN THE AP PEAL. CONSEQUENTLY THE SAME IS DISMISSED. HOWEVER, IF THERE IS ANY FACTUAL ER ROR IN THE FINDING OF FACT BY THE TRIBUNAL, IT IS FOR THE DEPARTMENT TO ASK FOR RECT IFICATION BEFORE THE TRIBUNAL. SINCE THE FACTS SURROUNDING IN THE INSTANT ISSUE IS IDENTICAL IN NATURE, BY FOLLOWING THE DECISIONS REFERRED SUPRA, WE UPHOLD OF THE ORDER OF LD CIT(A) ON THIS ISSUE. 7. THE NEXT ISSUE RELATES TO THE EXCESS PROVISI ON WRITTEN BACK. THE ASSESSEE HAD CREATED PROVISION FOR DIMINUTION IN THE VALUE OF IN VESTMENTS IN THE EARLIER YEARS BY FOLLOWING THE IDBI GUIDELINES. IN THOSE YEARS, THE AO HAD DISALLOWED THE CLAIM OF DEDUCTION. IN THE INSTANT YEAR, THE ASSESSEE HAS F OUND THAT THE PROVISION ALREADY MADE WAS IN EXCESS THAN THE REQUIRED AMOUNT. ACCORDINGL Y, THE ASSESSEE WROTE BACK AND EXCESS AMOUNT AVAILABLE IN THE SAID PROVISION ACCOU NT AND CREDITED THE SAME IN ITS PROFIT AND LOSS ACCOUNT. ACCORDING TO THE ASSESSEE, THE A MOUNT SO WRITTEN BACK AND CREDITED TO THE PROFIT AND LOSS ACCOUNT IS NOT TAXABLE, SINC E THE AO HAD DISALLOWED THE ORIGINAL CLAIM MADE BY IT IN THE EARLIER YEARS. IN THE RETU RN OF INCOME FILED, THE ASSESSEE DID NOT DEDUCT THE AMOUNT SO WRITTEN BACK FROM ITS TOTAL IN COME. ACCORDINGLY, THE ASSESSEE REQUESTED THE AO, DURING THE COURSE OF ASSESSMENT P ROCEEDING, TO REDUCE THE SAME FROM THE TOTAL INCOME. HOWEVER, THE AO DECLINED TO GIVE REDUCTION ON THE GROUND THAT THE APPEALS FILED BY THE ASSESSEE IN EARLIER YEARS AGAINST THE DISALLOWANCE OF PROVISION MADE FOR DIMINUTION IN THE VALUE OF INVESTMENTS ARE PENDING. THE LD CIT(A), HOWEVER, ALLOWED THE CLAIM OF THE ASSESSEE. I.T.A. NOS. 170 & 429 /COCH/2009 & C.O. NO. 29/COCH/200911 6 8. AT THE TIME OF HEARING, THE LD. A.R SUBMIT TED THAT THE CO-ORDINATE BENCH OF THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE IN THE A SSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 IN ITA NO.367/COCH/2009 AND THE TRIBUN AL, VIDE ITS ORDER DATED 29-07- 2011, HAS HELD THAT THE CLAIM OF THE ASSESSEE IS AL LOWABLE. THE LD A.R ALSO FURNISHED A COPY OF THE SAID ORDER OF THE TRIBUNAL. WE HAVE CA REFULLY GONE THROUGH THE ORDER OF THE TRIBUNAL AND NOTICE THAT THE TRIBUNAL HAS AGREED WI TH THE VIEW OF THE ASSESSEE IN PRINCIPLE, BUT SET ASIDE THE MATTER TO THE FILE OF THE AO FOR MAKING NECESSARY VERIFICATION, I.E., WHETHER THE DISALLOWANCES MADE IN THE EARLIER YEARS HAVE BEEN UPHELD IN THE APPELLATE FORUM. ACCORDINGLY, IN THE INSTA NT YEAR ALSO, WE AGREE WITH THE CONTENTION OF THE ASSESSEE IN PRINCIPLE, HOWEVER TH E FACT WHETHER THE DISALLOWANCES MADE IN THE EARLIER YEARS HAVE BEEN UPHELD OR NOT R EQUIRES VERIFICATION AT THE END OF THE AO. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE FI LE OF THE AO WITH THE DIRECTION TO VERIFY WHETHER THE DISALLOWANCE OF THE PROVISION CREATED F OR DIMINUTION IN THE VALUE OF SHARES HAS BEEN UPHELD BY THE APPELLATE AUTHORITIES OR NOT AND THEN TAKE APPROPRIATE DECISION IN THE LIGHT OF DISCUSSIONS MADE ABOVE. 9. IN THE RESULT, THE APPEAL AND THE CROSS OBJE CTION FILED BY THE ASSESSEE ARE TREATED AS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED ACCORDINGLY ON 27 -08-2012. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 27TH AUGUST, 2012 GJ COPY TO: 1. KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD., KOWDIAR, TRIVANDRUM-695 003. 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. I.T.A. NOS. 170 & 429 /COCH/2009 & C.O. NO. 29/COCH/200911 7 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) ITAT, COCHIN