DCIT, Circle - 4, Kolkata, Kolkata V. M/s. Kay Bee Industrial Alloys Pvt. Ltd., Kolkata

ITA 1032/KOL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54733 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 22-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D R SINDHAL
• Assessee Lawyers: S M SURANA
• Keywords: Depreciation; Services rendered outside India; Condonation of delay
• Section: 143(3); 142(1); 5(2)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE . . , ! '# '# '# '# /AND ' $# , ! ) [BEFORE SHRI S. V. MEHROTRA, AM & SRI MAHAVIR SINGH , JM] #% #% #% #% / I.T.A NO. 1032/KOL/2011 $&' '() $&' '() $&' '() $&' '()/ // / ASSESSMENT YEAR: 2008-09 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. KAY B EE INDUSTRIAL ALLOYS PVT. LTD. CIRCLE-4, KOLKATA. (PAN:AABCK 1884 A) (+, /APPELLANT ) (-.+,/ RESPONDENT ) DATE OF HEARING: 25.11.2011 DATE OF PRONOUNCEMENT: 21.12.2011 FOR THE APPELLANT: SHRI D. R. SINDHAL FOR THE RESPONDENT: SHRI S. M. SURANA / / ORDER PER MAHAVIR SINGH, JM ( ' $# ' $# ' $# ' $#, , , , ! ! ! ! ) THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-IV, KOLKATA IN APPEAL NO.136/CIT(A)-IV/2010-11 DATED 23.03.2011. ASSESSME NT WAS FRAMED BY DCIT, CIRCLE-4, KOLKATA U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HE REINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2008-09 VIDE HIS ORDER DATED 23.12. 2010. 2. AT THE OUTSET, THIS APPEAL BY REVENUE IS DELAYED BY FIVE DAYS AND REVENUES CONTENTION IS THAT ON 17/07/2011, THERE WAS SUNDAY AND ON 18.07.2 011, THIS OFFICE WAS NOT INFORMED FOR FILING OF SECOND APPEAL BUT ON 19.07.2011, THE DECI SION REGARDING FILING OF SECOND APPEAL WAS COMMUNICATED. ON 20 AND 21 ST JULY, 2011, PAPERS WERE PROCESSED FOR FILING OF TH IS APPEAL BY THE OFFICE OF DCIT, CIRCLE-4, KOLKATA AND ACCORDING LY, APPEAL WAS FILED ON 22.07.2011 AND ACCORDING TO REVENUE, THE DELAY IS NOT DELIBERATE A ND THERE WAS SUFFICIENT CAUSE FOR DELAY. THE LD. COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED THE PO SITION AND STATED THAT HE HAS NO OBJECTION FOR CONDONATION OF DELAY AS THERE SEEMS TO BE A REASONA BLE CAUSE AND DELAY IS OF FIVE DAYS ONLY. IN VIEW OF THE ABOVE, WE CONDONE THE DELAY AND ADMIT T HE APPEAL. 3. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE MADE BY ASSESSING OFFICER ON ACCOUNT O F DEPRECIATION. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.1: 2 ITA 1032/K/2011 KAY BEE INDUSTRIAL ALLOYS PVT. LTD.. A.Y.08-09 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS ERRED IN LAW IN DELETING THE DISALLOWANCE OF RS.50,000/- ON ACCOUNT OF DEPRECIATION WITHOUT CONSIDERING THE FACT THAT THE CONTENTIONS OF THE ASSESEE COMPAN Y BEFORE HIM DIFFERS FROM THE A.OS STATEMENT. 4. BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT THE ASSESSING OFFICER DISALLOWED AN AD HOC AMOUNT OF RS.50,000/- ON ACCOUNT OF DEPRECIATION BY STATING THE REASON THAT THERE ARE NO BILLS FOR SEVERAL ITEMS OF FIXED ASSETS ON WHICH DEPRECIATION HAS BEEN CLAIMED. HENCE, ASSESSING OFFICER DISALLOWED DEPRECIATION ON ESTIMATE BASIS AMOUNTING TO RS.50,000/-. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALLOWED THE CLA IM OF THE ASSESSEE BY STATING THAT THERE IS NO BASIS FOR DISALLOWANCE OF DEPRECIATION ON ESTIMATE BASIS WITHOUT ANY MATERIAL FACTS AND AS SUCH DELETED THE DISALLOWANCE MADE BY ASSESSING OFFICER ON ACCOUNT OF DEPRECIATION. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE HAS FILED COMPLETE DETAIL S OF ADDITION TO FIXED ASSETS DURING FY 2007- 08 RELEVANT TO ASSESSMENT YEAR 2008-09 I.E. THE YEA R UNDER CONSIDERATION. THE ASSESSEE ALSO FILED COPIES OF BILLS FOR SUCH ADDITION VIDE THEIR LETTER IN RESPONSE TO NOTICE U/S. 142(1) OF THE ACT. RELEVANT COPY OF LETTER IS ENCLOSED IN ASSESS EES PAPER BOOK PAGES 1 AND 2. FURTHER, IT WAS CLARIFIED BEFORE THE ASSESSING OFFICER VIDE LETTER DATED MAY, 2010, WHEREIN COPIES OF BILLS OF ADDITION OF FIXED ASSETS WERE SUBMITTED. THE COPY OF LETTER IS ENCLOSED AS ASSESSEES PAPER BOOK PAGE 30A. FROM THE ASSESSMENT ORDER IT IS NOT CLEA R THAT WHICH BILL OF FIXED ASSETS IS NOT AVAILABLE AND FOR WHICH ITEM. HENCE, WE FIND NO INF IRMITY IN THE ORDER OF CIT(A). EVEN OTHERWISE FROM THE DOCUMENTS PRODUCED BEFORE US, WH ICH WERE BEFORE THE ASSESSING OFFICER AT THE TIME OF HEARING, ENCLOSING COMPLETE BILLS OF FI XED ASSETS FOR WHICH ADDITION WAS MADE DURING THE YEAR CLARIFIES POSITION THAT NO ADDITION ON THI S ACCOUNT SHOULD HAVE BEEN MADE. HENCE, WE UPHOLD THE ORDER OF CIT(A) AND THIS ISSUE OF REVENU ES APPEAL IS DISMISSED. 6. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF COMMISSION EXPENSES PAID TO NON-RES IDENT AS NO TDS WAS DEDUCTED. ACCORDING TO REVENUE, PROVISIONS OF SECTIONS 195(1) AND 195(2 ) OF THE ACT ARE APPLICABLE IN CASE PAYMENTS ARE MADE TO NON-RESIDENT. FOR THIS, REVENUE HAS RA ISED FOLLOWING GROUND NO.2: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, L D. CIT(A) HAS ERRED IN LAW IN DELETING THE DISALLOWANCE OF RS.10,66,902/- ON ACCOUNT OF NO N-DEDUCTION OF TDS ON COMMISSION PAYMENT TO NON-RESIDENT SINCE THERE IS NO FURTHER C ONTRARY VIEW EXPRESSED BY THE APEX COURT NOR COULD BE FILED BY THE ASSESEE IN ITS SUBM ISSION, IT SHOULD BE HELD AS FINAL JUDICIAL VIEW IN TERMS OF APPLICABILITY OF SECTION 195(1) AN D 195(2) IN THE CASE OF PAYMENT TO NON- RESIDENT. 3 ITA 1032/K/2011 KAY BEE INDUSTRIAL ALLOYS PVT. LTD.. A.Y.08-09 7. THE BRIEF FACTS ARE THAT THE ASSESSEE COMPANY PA ID COMMISSION TO FOREIGN AGENT M/S. MARATHON TRADE AMOUNTING TO RS.10,66,902/- WIT HOUT DEDUCTING TDS. ACCORDING TO ASSESSING OFFICER, IN VIEW OF PROVISIONS OF SECTION 195(1) AND 195(2) OF THE ACT, THE ASSESSEE IS OBLIGED TO DEDUCT TAX AND FAILURE TO DO SO ATTRACTS PROVISIONS OF SECTION 40A(IA) OF THE ACT AND DISALLOWANCE WAS MADE ON ENTIRE COMMISSION PAID TO MARATHON TRADE FOR AN AMOUNT OF RS.10,66,902/-. AGGRIEVED, ASSESSEE PREFERRED APPE AL BEFORE CIT(A), WHO ALLOWED THE CLAIM OF ASSESSEE BY CONSIDERING THE DECISION OF HONBLE APE X COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P) LTD. VS. CIT (2010) 327 ITR 456 (SC), WH EREIN IT IS HELD THAT PAYMENT TO NON- RESIDENT IS LIABLE TO DEDUCTED TAX IN INDIA ONLY WH EN INCOME IS TAXABLE IN INDIA AND ASSESSING OFFICER WHEN IS NOT SURE ABOUT THE TAXABILITY, TDS IS NOT LIABLE TO BE DEDUCTED. THE CIT(A) RELYING ON THE CBDT CIRCULAR NO.23 DATED 23.07.1969 AND ABOVE DECISION OF HONBLE APEX COURT ALLOWED COMMISSION PAYMENT AS EXPENSE. AGGRI EVED, REVENUE IS IN APPEAL BEFORE US. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSING OFFICER DISALLOWED THIS COMMISSION PAYMENT TO NON-RESIDENT FOR THE SIMPLE REASON THAT THE ASSESSEE COMPANY HAS NOT DED UCTED TDS UNDER PROVISIONS OF SECTION 195 OF THE ACT AND ACCORDINGLY, HE INVOKED PROVISIONS O F SECTION 40(A)(IA) OF THE ACT. IT IS A FACT THAT THE ASSESSEE COMPANY PAID COMMISSION TO FOREIG N AGENT M/S. MARATHON TRADE WITHOUT DEDUCTION OF TDS. LD. COUNSEL SHRI S. M. SURANA EX PLAINED BEFORE US THAT M/S. MARATHON TRADE, TO WHOM COMMISSION HAS BEEN PAID, IS FOREIGN AGENT HAVING NO ESTABLISHMENT IN INDIA. ACCORDING TO HIM, IN SUCH CIRCUMSTANCES, NO TDS IS TO BE DEDUCTED BY THE ASSESSEE FOR PAYMENT MADE TO FOREIGN AGENT IN REGARD TO COMMISSION PAYME NTS. LD. COUNSEL EXPLAINED THAT THE DECISION OF HONBLE APEX COURT REFERRED BY THE ASSE SSING OFFICER IN THE CASE OF TRANSMISSION CORPORATION OF INDIA (1999) 239 ITR 587(SC) IS EXPL AINED IN RECENT JUDGMENT OF HONBLE APEX COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P) LTD. (SUPRA) WHEREIN IT IS CLARIFIED THAT PAYMENT TO NON-RESIDENT IF NOT LIABLE TO BE CHARGEA BLE TO TAX UNDER INDIAN INCOME-TAX ACT, THEN NO TDS HAS TO BE DEDUCTED. HE FURTHER STATED THAT HONBLE APEX COURT HAS CLARIFIED THAT WHETHER A COMPOSITE CONTRACT OF PAYEE IS NOT CLEAR ABOUT ANY PART OF PAYMENT, WHETHER IS TAXABLE IN INDIA OR AMOUNT OF TAX TO BE DEDUCTED ON ANY AMO UNT, IN THAT CASE, IT SHOULD BE REFERRED TO THE ASSESSING OFFICER U/S. 195(2) OF THE ACT. WE FIND THAT IN THIS CASE, THERE IS NO DISPUTE ABOUT THE FACTS THAT PAYMENT IS MADE TO COMMISSION FOREIGN AG ENT FOR SERVICES RENDERED OUTSIDE INDIA AND ACCORDING TO US THE SAME IS FULLY COVERED BY CBDT C IRCULAR NO. 23 DATED 23.07.1969 AND CIRCULAR NO. 786 DATED 07.02.2000. THE RELEVANT CIR CULAR NO.786 DATED 7-2-2000 READS AS UNDER:- DEDUCTION OF TAX UNDER SECTION 195 AND THE TAXABI LITY OF EXPORT COMMISSION PAYABLE TO NON-RESIDENT AGENTS RENDERING SERVICES ABROAD- 4 ITA 1032/K/2011 KAY BEE INDUSTRIAL ALLOYS PVT. LTD.. A.Y.08-09 CLARIFICATION REGARDING- IN THEIR AUDIT REPORT FOR 1997-98 (D.P NO.79(I.T), THE COMPTROLLER AND AUDITOR-GENERAL (C & AC) RAISE D AN OBJECTION THAT THE ASSESSING OFFICER IN COMPUTING THE PROFITS AND GAINS OF BUSINESS OR PROFESSION, IN A CASE IN MUMBAI CHARGE, HAD WRONGLY ALLOWED A DEDUCTION IN RESPECT OF A PAYMENT TO A NON- RESIDENT WHERE TA X HAD NOT BEEN DEDUCTED AT SOURCE. THE NATURE OF THE PAYMENT IN T HIS CASE WAS EXPORT COMMISSION AND CHARGES PAYABLE FOR SERVICES RENDERE D OUTSIDE INDIA. IN THE VIEW OF C & AC THE EXPENDITURE SHOULD HAVE BEEN DISALLOWED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME-TAX ACT, 1961. IT HAS COME TO THE NOTICE OF THE BOARD THAT A SIMILAR VIEW, ON THE SAME SET OF FACTS HAS BEEN TAKEN BY SOME ASSESSING OFFICER IN OTHER CHARGES. 2. THE DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 WOULD ARISE IF THE PAYMENT OF COMMISSION TO THE NON-RESIDENT AGENT IS CHARGEABLE TO TAX IN INDIA. IN THIS REGARD ATTENTION TO C.B.D.T CIRCULA R NO.23, DATED 23 RD JULY,1969, IS DRAWN, WHERE THE TAXABILITY OF FOREI GN AGENTS OF INDIAN EXPORTERS WAS CONSIDERED ALONGWITH CERTAIN OTHER SPECIFIC SITUATIONS. IT HAD BEEN CLARIFIED THEN THAT WHERE THE NON-RESIDENT AGENT OPERATES OUTSIDE THE COUNTRY, NO PART OF HIS INCOME ARISES IN INDIA. FURTHER, SINCE THE PAYMENT IS USUALLY REMITTED DIRECTLY ABROAD IT CANN OT BE HELD TO HAVE BEEN RECEIVED BY OR ON BEHALF OF THE AGENT IN INDIA. SU CH PAYMENTS WERE THEREFORE HELD TO BE NOT TAXABLE IN INDIA. THE RELE VANT SECTIONS, NAMELY, SECTION 5(2) AND SECTION 9 OF THE INCOME-TAX ACT, 1 961, NOT HAVING UNDERGONE ANY CHANGE IN THIS REGARD, THE CLARIFICAT ION IN CIRCULAR NO.23 STILL PREVAILS. NO TAX IS THEREFORE DEDUCTIBLE UNDE R SECTION 195 AND CONSEQUENTLY, THE EXPENDITURE ON EXPORT COMMISSION AND OTHER RELATED CHARGES PAYABLE TO A NON-RESIDENT FOR SERVICES REND ERED OUTSIDE INDIA BECOMES ALLOWABLE EXPENDITURE. ON BEING APPRAISED FOR THIS POSITION, THE COMPTROLLER AND AUDITOR-GENERAL HAVE AGREED TO DROP THE OBJECTION REFERRED TO ABOVE. FROM THE ABOVE DEPARTMENTAL CIRCULAR NO.786 IT IS C LEAR THAT NO TAX IS DEDUCTIBLE AT SOURCE U/S.195 OF THE ACT IN RESPECT OF (I) COMMISSION PAY ABLE TO NON-RESIDENT ON EXPORT EARNINGS AND (II) RETAINER FEE PAYABLE TO NON-RESIDENT APART FRO M COMMISSION PAYABLE ON EXPORT EARNING WITH REFERENCE TO THE SECURING OF BUSINESS FROM OUTSIDE INDIA. SIMILARLY, IN THE PRESENT CASE THE COMMISSION IS PAID TO NON-RESIDENT FOR THE SERVICES PROVIDED OUTSIDE INDIA, HENCE, THIS COMMISSION PAYABLE IS NOT LIABLE TO TDS AND CONSEQU ENCE DISALLOWANCE U/S.40(A)(IA) OF THE ACT CANNOT BE MADE. TO SUPPORT ITS CONTENTION, THE ASSE SSEE ALSO FILED COPY OF DECLARATION OF COMMISSION AGENT, WHICH READS AS UNDER: TO WHOM IT MAY CONCERN THIS IS TO CERFIFY THAT MR. AHMED ISMAIL OF MARATHO N TRADE FOR COMMERCIAL AGENCIES L.L.C., 49, 291 STREET, NEW MAADE, CAIRO, EGYPT ARE PROCURI NG ORDERS ON COMMESSION. 5 ITA 1032/K/2011 KAY BEE INDUSTRIAL ALLOYS PVT. LTD.. A.Y.08-09 BASIS FOR KAY BEEN INDUSTRIAL ALLOYS PVT. LTD. 33, C. R. AVENUE, KOLKATA-700 012, INDIA FOR THE MATERIAL TO BE SUPPLIED TO EGYPTIAN MARKET. WE FURTHER CERTIFY THAT WE HAVE WE NO PERMANENT OR ANY ESTABLISHMENT IN INDIA. BEST REGARDS AHMED ISMAIL 49, 291 STREET, NEW MAADE, CAIRO, EGYPT TEL: + 20-2-25190193 FAX: [phone] CELL: [phone] EMAIL: [e-mail] ON THIS, LD. CIT DR SHRI D. R. SINDHAL OBJECTED THA T THIS WAS NOT PLACED BEFORE THE ASSESSING OFFICER BUT LD. COUNSEL SHOWN FROM ASSESSEES PAPER BOOK WHEREBY THIS LETTER WAS BEFORE THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT PROCEED INGS. WE FIND THAT THE ASSESSEE COMPANY PAID A SUM OF RS.10,66,902/- AS COMMISSION TO NON-C ORPORATE NON-RESIDENT INDIVIDUAL FOR SERVICES RENDERED BY IT OUTSIDE INDIA IN FOREIGN CO UNTRIES FOR SALE OF COMPANYS PRODUCT. EVEN PAYMENTS WERE MADE IN FOREIGN COUNTRY AND INCOMES A RISING OUT OF SUCH PAYMENTS ARE NOT TAXABLE IN INDIA BECAUSE INCOME IS NOT ARISING OR A CCRUING TO NON-RESIDENT IN INDIA AS EXPLAINED IN THE CHARGING SECTION I.E. THE PROVISIONS OF SECT ION 5(2) OF THE ACT. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 9. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF CO NTINGENT LIABILITY REFERRING TAX AUDIT REPORT. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO. 3 : 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.1,04,80,652/- ON ACCOUN T OF CONTINGENT LIABILITY WITHOUT CONSIDERING THE REFERENCE MADE IN THE TAX AUDIT REP ORT BY THE AUDITOR ON THE BASIS OF WHICH THE A.O. ADDED THE SAME. 10. THE ASSESSING OFFICER DURING THE COURSE OF ASSE SSMENT PROCEEDINGS GOING THROUGH THE TAX AUDIT REPORT COLUMN 17K OBSERVED THAT THE ASSESSEE HAS D EBITED A SUM OF RS.1,04,80,652/- AND AS PER AUDITOR S THIS WAS A CONTINGENT LIABILITY. ACCORDING TO ASSE SSING OFFICER, THIS AMOUNT BELONGS TO BILLS DISCOUN TING AND EVEN THOUGH THE AMOUNT IS DEBITED TO THE P&L AC COUNT BEING CONTINGENT LIABILITY. THE ASSESSING OFFICER DISALLOWED THIS AS NOT ALLOWABLE AS BUSINES S EXPENDITURE. AGGRIEVED, ASSESSEE PREFERRED APPEA L BEFORE CIT(A),WHO ALLOWED THE CLAIM OF ASSESSEE BY STATING THAT THIS CONTINGENT LIABILITY HAS NOT BEEN PROVIDED IN THE BOOKS OF ACCOUNT NOR CLAIMED IN THE P&L ACCOUNT. HENCE, HE DELETED THE DISALLOWANCE. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE US. 6 ITA 1032/K/2011 KAY BEE INDUSTRIAL ALLOYS PVT. LTD.. A.Y.08-09 11. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. THE BRIEF FACTS ARE THAT THE ASSESSEE MADE SALE OF MATE RIAL TO DIFFERENT PARTIES FOR WHICH BILLS RAISED ON THEM ARE DISCOUNTED FROM BANK AND ASSESSEE DISCLOSED THE SE AMOUNTS OF BILLS DISCOUNTED, WHICH REMAINED UNPAID BY THE DEBTORS AS ON THE DATE OF DISCLOSURE IN THE BOOKS OF ACCOUNT, WHICH IS CONTINGENT LIABIL ITY IN NATURE BECAUSE IF THE DEBTOR FAILS TO PAY OR DEN Y TO PAY, THE SAME IS REQUIRED TO BE PAID BY ASSESS EE TO BANK. SUCH BILLS ARE NOT CLEARED AS ON THE DATE OF CLOSURE OF THE ACCOUNTS BECAUSE THEIR DUE DATE FAL LS AFTER THE DATE OF CLOSURE OF ACCOUNTS. ACCORDINGLY , A DETAILED LIST OF SUCH BILLS DISCOUNTED AMOUNTIN G TO RS.1,04,30,652/- WITH COPIES OF BILLS OF EXCHANGE W AS FILED IN THE ASSESSEES PAPER BOOK AND EVEN BEFO RE ASSESSING OFFICER AS WELL AS CIT(A). IN VIEW OF TH IS DETAILED LIST AND BILLS DISCOUNTED, THE ASSESSEE CREATED LIABILITY OF THE AMOUNT OF RS.1,04,30,652/- AND AUDITOR IN THEIR AUDIT REPORTS VIDE COLUMN 17K HAS GIVEN THE NOTE AS UNDER: AMOUNTS DEBITED TO THE PROFIT AND LOSS ACCOUNT BEI NG PARTICULARS OF ANY LIABILITY OF A CONTINGENT NATURE. 12. LD. COUNSEL FOR ASSESSEE SHRI S. M. SURANA, FIR ST OF ALL, TOOK US TO ASSESSEES PAPER BOOK PAGES 36 TO 56 AND PARTICULARLY P&L ACCOUNT AT PAGE 43 AND STATED THAT NOWHERE ASSESSEE HAS MADE CLAIM OF THIS LIABILITY AND ONCE THIS IS NOT C LAIMED IN THE P&L ACCOUNT, MERELY GIVING REMARK BY THE AUDITOR IN THE AUDIT REPORT THAT THE LIABILITY IS A CONTINGENT OR ACCRUED LIABILITY, THE ADDITION CANNOT BE MADE. THE LD. COUNSEL SPECIFICA LLY REFERRED TO P&L ACCOUNT FOR THE YEAR ENDING 31 ST MARCH, 2008. HE ALSO STATED THAT CONTINGENT LIABIL ITY IS DEBITED TO THE P&L ACCOUNT ONLY WHEN SAME IS NOT OBLIGED AND THUS ONLY IT BECO MES AN EXPENDITURE OF THE ASSESSEE. BUT IN THE PRESENT CASE, THE ASSESSEE DISCLOSED THE AMOUNT OF CONTINGENT LIABILITY BUT HAD NOT DEBITED TO THE P&L ACCOUNT. ACCORDING TO LD. COUNSEL, THE AUDI TORS WHILE REPORTING IN COLUMN 17K OF THE AUDIT REPORT HAS ONLY MADE COUNTER DISCLOSER IN THE NOTES ON ACCOUNTS AND ACTUALLY THIS IS NOT DEBITED TO P&L ACCOUNT AND TO THAT EFFECT AUDITORS HAVE ISSUED A CERTIFICATE DATED 15.06.2010, WHEREIN, THEY CLARIFIED POSITION IN THIS REGARD. W E HAVE GONE THROUGH AUDITORS CERTIFICATE DATED 15.06.2010, WHICH READS AS UNDER: WE HAVE CONDUCTED THE AUDIT OF M/S KAYBEE INDUSTRI AL ALLOYS (P) LTD. OF 8, BENTINCK STREET, KOLKATA - 700 001, PAN : AABCK I884 A FOR T HE YEAR ENDED 31ST MARCH, 2008 AND AS PER GUIDELINES WE HAVE REPORTED THE PARTICULARS OF LIABILITIES OF A CONTINGENT NATURE AMOUNTING TO RS.1048652/- IN CLAUSE 17(K) OF FORM N O. 3CD OF TAX AUDIT REPORT. AS PER THE AUDIT GUIDELINES WE HAVE TO SCRUTINIZE T HE PROVISIONS AND OUTSTANDING LIABILITIES TO ENSURE THAT THESE ARE NOT IN RESPECT OF ANY CONT INGENT LIABILITY AND IF ANY PROVISION IS MADE IN RESPECT OF CONTINGENT LIABILITY REPORT HAS TO BE GIVEN UNDER CLAUSE 17(K) OF THE TAX AUDIT REPORT. WE HAVE REPORT THE CONTINGENT LIA BILITY UNDER CLAUSE 17(K) OF FORM NO. 3CD BUT DUE TO TYPING ERROR THE WORD NOT PROVIDED FOR WERE NOT TYPED. IN THIS RESPECT NOTE NO. 7 UNDER THE NOTES ON ACCOUNT UNDER THE COM PANIES AUDIT REPORT MAY BE REFERRED IN WHICH WE HAVE CLEARLY MENTIONED THE CONTINGENT L IABILITIES NOT PROVIDED FOR IN RESPECT OF BILL DISCOUNTED OF RS.10430652/- AND CALL DUE ON SH ARES RS. 50000/- ACCORDING TO AS-29, NO PROVISION SHOULD BE MADE FOR CONTINGENT LIABILITIES, IF ANY PROVISION IS MADE, THE AMOUNT SHOULD BE REPORTED UN DER CLAUSE 17(K). HOWEVER THE 7 ITA 1032/K/2011 KAY BEE INDUSTRIAL ALLOYS PVT. LTD.. A.Y.08-09 ASSESSEE HAS NOT MADE ANY PROVISIONS FOR THE CONTIN GENT LIABILITIES IN PROFIT & LOSS ACCOUNT IN RESPECT OF BILL DISCOUNTED AND CALL DUE ON SHARES. IN THE CASE OF DEPUTY CIT VS. INSOTEX (INDIA) LTD. [2005] 4 SOT 612 (BANG.), THE TRIBUNAL HELD THAT CONTINGENT LIABILITY SHOULD BE CONSTRUED IN THE SENSE IN WHICH IT IS DEFINED IN AS- 29 ISSUED BY ICAI [AND NOTIFIED BY THE CENTRAL GOVT . VIDE COMPANIES (AS) RULES, 2006 UNDER SECTION 21 1(3C) OF THE COMPANIES ACT, 1956. SUCH LIABILITIES REQUIRED TO BE PAID TO THE BANK IF PARTIES DISHONOUR THE BILLS DISCOUNTED OR THE OPPOSITE PARTY DEMANDS FOR THE CALLS DUE ON SHA RES. DURING THE A.Y. 2008-09, NO BILLS WERE DISHONOUR OR NO DEMAND FOR CALLS ON SHARE HAS BEEN RAISED AND AS SUCH NO PROVISION HAS BEEN MADE BY THE ASSESSEE IN ITS PROFIT & LOSS ACCOUNT. BUT, HOWEVER WE REPORTED THE SAME UNDER CLAUSE 17(K) WITH THE INTENTION THAT THE ASSESSEE HAS CONTINGENT LIABILITIES BUT INADVERTENTLY WE ESCAPED TO MENTION THE WORD NOT P ROVIDED FOR DUE TO TYPING ERROR AND AS SUCH THE SAME SHOULD BE TREATED AS DISALLOWABLE EXPENDITURE ONLY ON THE BASIS OF MENTIONING THE SAME UNDER CLAUSE 17(K). FROM THE ABOVE, IT IS CLEAR THAT ACTUALLY AUDITORS INITIALLY INTENDED TO DISCLOSE THIS AMOUNT AS CONTINGENT LIABILITY BUT ACTUALLY HAS NOT PROVIDED FOR IN THE BOOKS OF ACCOUNT OR MADE CLAIM IN THE P&L ACCOUNT AS IS EVIDENT FROM THE BALANCE SHEE T AND P&L ACCOUNT FILED BEFORE US IN ASSESSEES PAPER BOOK. THE LD. CIT DR SHRI D. R. S INDHAL HAS NOT DISPUTED THE AUTHENTICITY OF THE P&L ACCOUNT AND BALANCE SHEET EVEN THOUGH A CER TIFICATE IS GIVEN BY ASSESSEE REGARDING THESE DOCUMENTS BEING GENUINE AND FILED BEFORE LOWE R AUTHORITIES. WE ARE OF THE VIEW THAT ONCE ABOVE CONTINGENT LIABILITY, WHETHER DISCLOSED IN TH E AUDIT REPORT FOR MERE DISCLOSURE PURPOSES, BUT NOT CLAIMED AS DEDUCTION OR NOT PROVIDED IN THE BALANCE SHEET OR P&L ACCOUNT, NO ADDITION ON THIS ACCOUNT CAN BE MADE TO RETURNED INCOME. WHA T TO TALK OF ADDITION EVEN ASSESSEE HAS NOT MADE CLAIM QUA THIS, THEN, THERE IS NO QUESTION OF ANY DISALLOWANCE. HENCE, WE CONFIRM THE ORDER OF CIT(A) AND THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 13. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. 14. ORDER PRONOUNCED IN OPEN COURT ON 21.12.2011 . SD/- SD/- . . ! ' '' ' $# $# $# $# , ! (S. V. MEHROTRA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( 0 0 0 0) )) ) DATED : 21 ST DECEMBER, 2011 '12 $&34 $5' JD.(SR.P.S.) 8 ITA 1032/K/2011 KAY BEE INDUSTRIAL ALLOYS PVT. LTD.. A.Y.08-09 / 6 -$$7 87(9- COPY OF THE ORDER FORWARDED TO: 1 . +, / APPELLANT DCIT, CIRCLE-4, KOLKATA. 2 -.+, / RESPONDENT, M/S. KAY BEE INDUSTRIAL ALLOYS PVT. L TD., P-7, CHOWRINGHEE SQUARE, 8 TH FLOOR, KOLKATA-700 069. 3 . $/& ( )/ THE CIT(A), KOLKATA 4. $/& / CIT, KOLKATA 5 . '$? -$& / DR, KOLKATA BENCHES, KOLKATA .7 -$/ TRUE COPY, /&@/ BY ORDER, #4 /ASSTT. REGISTRAR .