M/s. United Breweries Limited, Bangalore V. Additional Commissioner Of Income Tax, Range- 12, Bangalore

ITA 125/BANG/2020

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0156 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 17-10-2022
• Assessment Year: 2010-2011
• Appeal Filed On: 26-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Double taxation relief; Opportunity of being heard; Additional depreciation; Bad and doubtful debts; TDS; Rule 8D
• Section: 90; 154; 43B; 14A; 40(a)(ia); 201(1); 201; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND Ms. PADMAVATHY S, ACCOUNTANT MEMBER ITA Nos.125 & 126/Bang/2020 Assessment years : 2010-11 & 2011-12 M/s United Breweries Ltd., Level 4, UB Tower, UB City, 24 Vittal Mallya Road, Bangalore – 560 001. PAN: AAACU 6053C Vs. The Additional Commissioner of Income Tax, Range 12, Bengaluru. APPELLANT RESPONDENT Appellant by : Shri, K.R. Vasudevan, Advocate Respondent by : Shri Sankar K. Ganeshan, CIT(DR)(ITAT), Bengaluru. Date of hearing : 18.10.2022 Date of Pronouncement : 20.10.2022 O R D E R Per Padmavathy S., Accountant Member These appeals are against the common order of CIT(Appeals)- 10, Bangalore dated 29.11.2019 for the assessment years 2010-11 and 2011-12 involving common issues. They were heard together and disposed of by this common order. ITA Nos.125 & 126/Bang/2020 Page 2 of 26 ITA No.125/Bang/2020 2. The assessee is a company engaged in the manufacture and sale of beer. For the AY 2010-11, then assessee filed return of income on 30.09.2010 declaring a total income of Rs,154,73,67,170. The case was selected for scrutiny under CASS and notice u/s.143(2) was duly served on the assessee. The AO completed the assessment by making the following additions/disallowances:- (i) Depreciation on goodwill – Rs.6,57,08,884. (ii) Foreign royalty – Rs.8,47,948. (iii) Disallowance u/s. 14A r.w. Rule 8D – Rs.6,26,81,738. (iv) Disallowance u/s. 40(a)(ia) (a) In respect of year end provisions – Rs.21,72,88,675. (b) Business promotion expenses – Rs.1,44,00,000. (v) Disallowance u/s. 43B – Rs.4,84,865 (vi) Excess claim of depreciation – Rs.14,03,28,945. (vii) Disallowance of bad advances written off u/s 36(1)(vii) – Rs.1,08,36,000. 3. Aggrieved, the assessee filed an appeal before the CIT(Appeals), who gave partial relief to the assessee in terms disallowance made u/s.14A. The assessee is in appeals before the Tribunal against the order of the CIT(Appeals). Ground no.1 and 2 are general and Ground no.10 is consequential. Hence these grounds do not warrant a separate adjudication. Depreciation on goodwill 4. Ground No.3 raised by the assessee is as follows:- ITA Nos.125 & 126/Bang/2020 Page 3 of 26 “3. Depreciation on Goodwill; 3.1 The learned CIT(Appeals) erred in confirming the action of the AO in disallowing Depreciation of Rs. 6,57,08,884 on Goodwill arising on acquisition of Karnataka Breweries and Distilleries Limited and other subsidiaries; 3.2 The learned CIT(Appeals) erred in confirming the action of the AO in disallowing Depreciation by blindly relying on the earlier year order, without appreciating the complete facts of the case. 3.3 The learned CIT(Appeals) erred in confirming the action of the AO in holding that Goodwill on amalgamation has no value attributable to it. 3.4 The learned CIT(Appeals) erred in confirming the action of the AO without appreciating the fact that Goodwill is an intangible asset entitled for depreciation under the provisions of the Act; 3.5 The learned CIT(Appeals) erred in confirming the action of the AO in disallowing Depreciation, ignoring the decision of Hon'ble Supreme Court and other judicial precedents” 5. In the return of income filed the assessee claimed a sum of Rs.6,57,08,884 as depreciation on goodwill @ 25%. The AO disallowed the claim by stating that there was no value assigned to the goodwill by relying on the decision of the Supreme Court in the case of CIT v. Smiffs Securities Ltd., 348 ITR 302 (SC). The CIT(Appeals) confirmed the disallowance by relying on the decision of the coordinate Bench of the Tribunal in assessee’s own case for AY 2007- 08, 2008-09 & 2009-10 in ITA No.722,801, 1065 & 1066/Bang/2014. ITA Nos.125 & 126/Bang/2020 Page 4 of 26 6. During the course of hearing, the ld. AR conceded that the issue is held against the assessee by the decision of the coordinate Bench in assessee’s own case for AY 2013-14 [IT(TP)A 2569/Bang/2017], wherein it was held as under:- “36. We have heard both the parties. The coordinate Bench of this Tribunal in the assessee's own case for AY 2007-08 has held that depreciation on goodwill is not allowable based on the facts of the case of assessee. Respectfully following that decision, we hold that depreciation on goodwill is not allowable. Accordingly, these grounds are dismissed.” 7. Respectfully following the decision of the coordinate Bench of the Tribunal, we hold that depreciation on goodwill is not allowable. Accordingly these grounds are dismissed. Foreign royalty 8. Ground No.4 read as follows:- “4. Withholding tax amount of Rs.8,47,948 on foreign royalty 4.1 The learned CIT(Appeals) erred in confirming the action of the AO in making addition of the withholding taxes deducted by foreign enterprises, disregarding the fact that neither TDS certificates nor actual consideration were received 4.2 The learned CIT(Appeals) erred in confirming the action of the AO in making addition of the withholding taxes deducted by foreign enterprises, disregarding the submission made on the nuances of Section 5 and Section 198 of the Act 4.3 The learned CIT(Appeals) erred in confirming the action of the AO disregarding the judicial decisions cited on the principle applicable to the issue; ITA Nos.125 & 126/Bang/2020 Page 5 of 26 4.4 The learned CIT(Appeals) erred in not adjudicating on the alternate ground raised that if the stand of the A.0 is upheld, then the appellant should be allowed credit for the tax withheld, as per the provisions of the applicable DTAA;” 9. During the year, the assessee received royalty from M/s. Independent Distilleries (Aust) Pvt. Ltd., Australia and Independent Distilleries (NZ) Ltd., New Zealand amounting to Rs.35,81,869 and Rs.58,39,779 respectively towards sale of Kingfisher Beer. The AO during the course of hearing noticed that the assessee has disclosed only 90% of the royalty amount. The assessee submitted before the AO that the balance 10% was withheld by the payer towards withholding of tax towards which no TDS certificate has been issued nor the actual consideration was paid by the payers. The AO added this 10% to the income of the assessee by stating that it is the gross value of consideration that needs to be offered to tax on accrual basis and not the amount net of tax. 10. Before the CIT(Appeals), the assessee reiterated the submissions made before the AO. The assessee made an alternative submission by stating that if gross receipts are to be taxed, then the assessee would be entitled to the provisions of Double Tax Avoidance Agreement [DTAA] thereby the assessee should be allowed credit against the tax paid in the foreign country. 11. The CIT(Appeals) upheld the decision of the AO by stating that the royalty received should be offered to tax on gross basis. The CIT(Appeals) also mentioned in the order that the credit for foreign tax ITA Nos.125 & 126/Bang/2020 Page 6 of 26 paid is allowable as per the provisions of DTAA, but did not give any direction to the AO in this regard. Before us, the ld. AR without prejudice submitted that if gross receipts are to be taxed, then the assessee should be allowed to claim credit for the amount of tax paid in other countries. 12. The ld.DR submitted that the assessee did not produce any evidence to substantiate that the lesser amount received and offered is the tax deducted on the amount of royalty received. The ld DR also submitted that when the assessee had offered the net amount to tax for the reason that the assessee does not have the TDS certificate how it would be possible for the assessee to claim credit for the foreign tax paid. The ld.DR further submitted that for the purpose of claiming credit with respect to tax deducted, the assessee has not brought anything on record and therefore the alternate plea of the assessee should not be entertained. 13. We have heard the rival submissions and perused the material on record. Under the mercantile system of accounting, the income is to be offered to tax on accrual basis and therefore it is the gross income that needs to offered to tax in assessee’s case here. However the assessee is entitled to claim credit for the tax paid on the doubly taxed income in accordance section 90/91 read with Rule 128 of the Income Tax Rules and in the given case, this fact is also held by the CIT(Appeals) that the assessee is entitled for credit for foreign tax paid. Though the assessee has not brought any new evidence on record before us to substantiate ITA Nos.125 & 126/Bang/2020 Page 7 of 26 the tax deducted by the payer, in the interest of justice, we are of the view that the assessee should be given an opportunity to produce the evidence. Therefore, we remit the issue back to the AO with a direction to allow credit for the tax paid in foreign countries on the doubly taxed income in accordance with provisions of section 90 /91 r.w. Rule 128 based on the documents / evidences submitted by the assessee in this regard. The assessee is directed to submit the relevant documents and cooperate with the proceedings before the AO. This ground is allowed for statistical purposes. Disallowance u/s. 40(a)(ia) 14. Ground No.5 reads as under:- “5. Disallowance of expenditure u/s 40(a)(ia) 5.1 The learned CIT(Appeals) has erred in confirming the action of the AO in making disallowance under section 40(a)(ia) amounting to Rs. 21,72,88,675 on the ground that TDS was not made on the year end provisions; 5.2 The learned CIT(Appeals) has erred in confirming the action of the AO in making the disallowance without appreciating that there was no requirement of making TDS on year end provisions when no credit was given to the identified party; 5.3 The learned CIT(Appeals) has erred in confirming the action of the AO in making disallowance under section 40(a)(ia) without appreciating the rationale of the provisions of the Act and without appreciating that TDS is required only when the income is credited to identified party; 5.4 The learned CIT(Appeals) has erred in confirming the action of the AO in making disallowance under section 40(a)(ia) without appreciating that the year end provisions are reversed ITA Nos.125 & 126/Bang/2020 Page 8 of 26 in the subsequent year and the TDS is deposited based on the actual credit given to the party, as per law;” 15. From the tax audit report, the AO noticed that the assessee has created year end provisions and that the assessee has not deducted tax at source in respect of these provisions created. The assessee submitted that these provisions are reversed in the subsequent year as and when the bills or invoices are received during the month of April/May, taxes have been duly deducted and deposited before the due date for filing the return of income. The AO did not accept the submissions of the assessee and proceeded to make a disallowance u/s. 40(a)(ia). 16. On further appeal, the CIT(Appeals) held that the assessee is following mercantile system of accounting and the assessee is supposed to credit the account of the service provider or supplier upon receiving the services after deducting tax at source. Since the assessee has deducted tax at the time of payment to respective parties in violation of provisions of Chapter XVII, there is no merit in the claim of the assessee that no disallowance should be made u/s. 40(a)(ia). 17. Before us, the ld. AR submitted that the AO has made the addition based on clause 27(b)(i) of the audit report which states that the provision is not created against the supplier account but created against the provision for expenses account. The ld. AR also submitted that the provision created is subsequently adjusted against the actual receipt of invoices in the month of April/May and the TDS is deducted and paid on these bills before the due date for filing the return of ITA Nos.125 & 126/Bang/2020 Page 9 of 26 income u/s. 139(1). Therefore, the ld. AR contended that the assessee should not be treated as an assessee in default for the purpose of section 40(a)(ia). The ld. AR also drew our attention to the decision of the coordinate Bench in assessee’s own case (supra) where it was held as under:- “50. In the present case, we notice that the assessee has furnished the details of subsequent deduction of tax from the year end provisions and the details of payment made before the due date for filing the return of income at pages 528 to 537 of the assessee's PB. In view of the above discussion and respectfully following the decision of the coordinate Bench of this Tribunal supra, we remand this issue back to the AO to verify the details of payments and tax deducted and allow the expenditure where the TDS is remitted to the Government account on or before the due date for filing the return of income. The assessee may be given a reasonable opportunity of being heard.” 18. The ld. AR further submitted that in the above order, the Hon’ble ITAT has in principle held that if the assessee has deducted and remitted the tax into the Government account on or before the due date for filing the return of income the expenditure should be allowed and the issue was remitted for the limited purpose of verification of whether the tax is deducted and remitted into Government account on or before the due date for filing the return of income. The ld AR also submitted that for the year under consideration, the AO had initiated proceedings u/s. 201(1) and 201(1A) in connection with the same year end provisions and after verification of tax deducted subsequently the AO did not raise any demand u/s. 201(1). Therefore the ld AR prayed that based on the ratio of the above decision, the expenditure should be ITA Nos.125 & 126/Bang/2020 Page 10 of 26 allowed as the details have already been verified by the AO. The ld. AR placed on record the order of the AO u/s. 201(1) at pages 30 to 50 of PB. 19. The ld. DR relied on the orders of the lower authorities. 20. We have heard the rival submissions and perused the material on record. We notice that the coordinate Bench of the Tribunal in assessee’s own case (supra) has relied on the decision in the case of Biocon Ltd. v. DCIT in ITA No.1248/Bang/2014 and remanded the issue back to the AO to verify the details of payments and tax deducted and allow the expenditure where TDS is remitted to the Govt. account on or before the due date for filing the return of income u/s. 139(1). For the year under consideration we notice that the AO in the order u/s. 201(1) has verified the year end provisions with regard to subsequent payment and tax deduction thereon. We further notice that the AO did not make any addition u/s. 201(1) with respect to year end provisions and has charged only interest u/s. 201(1A) [para 15 of AO’s order u/s.201(1) in page 35 of PB]. We therefore are of the considered view that the verification of the year end provision has already been by the AO and by not making any addition u/s. 201 the AO has confirmed that tax has been deducted subsequently and remitted to the Govt. account before the due date for filing the return of income. We therefore respectfully following the ratio laid in the decision of the coordinate bench of the Tribunal in assessee’s own case, delete the disallowance u/s. 40(a)(ia) for the year under consideration. ITA Nos.125 & 126/Bang/2020 Page 11 of 26 Disallowance u/s. 43B 21. Ground No.6 is as follows:- “6. Disallowance under section 43B: The learned CIT(Appeals) has erred in confirming the action of the AO in making disallowance u/s 43B, an amount of Rs 4,84,865, without appreciating that no such expenditure has been claimed in the P & L account” 22. The ld. AR during the course of hearing submitted that the assessee filed a petition for rectification u/s. 154 for the disallowance u/s. 43B on the ground that no such expenditure was claimed in the P&L account and therefore the disallowance is untenable. The ld. AR also submitted that the AO has accepted the assessee’s contention and passed the rectification order u/s. 154 deleting the disallowance and therefore this ground is not pressed for AY 2010-11. In view of the above submissions, we dismiss this ground as not pressed. Disallowance of depreciation 23. Ground No.7 raised by the assessee reads as follows:- “7. Disallowance of depreciation 7.1 The learned CIT(Appeals) has erred in confirming the action of the AO in making disallowance of depreciation to the extent of Rs 14,03,28,945, by holding it as excess claim made by mistake, without appreciating that the appellant has claimed additional depreciation on Plant & Machinery and Energy saving devices as allowed under law; ITA Nos.125 & 126/Bang/2020 Page 12 of 26 7.2 The learned CIT(Appeals) has erred in confirming the action of the AO in making disallowance of depreciation without considering the additional depreciation claim made in the electronic return filed by the appellant;” 24. The AO during the course of assessment held that assessee has made excess claim of depreciation on plant & machinery, affluent treatment plant and energy saving devices, amounting to Rs.14,03,28,944 and disallowed the same. 25. Before the CIT(Appeals), the assessee submitted that the excess amount as disallowed by the AO is additional depreciation claimed by the assessee in the return of income and these details are substantiated in the tax audit report. The assessee also submitted the details of additional depreciation claimed as per the return of income before the CIT(Appeals). The CIT(Appeals) did not consider the submissions of the assessee and confirmed the disallowance. 26. The ld. AR reiterated the submissions made before the lower authorities and submitted that the details furnished by the assessee have not been verified by the lower authorities. The ld. AR therefore prayed that the issue may go back to the AO for examination factually. 27. The ld. DR did not raise objection to the issue going back to the AO for verification. 28. We have heard the rival submissions and perused the material on record. We notice that the assessee has furnished the details of ITA Nos.125 & 126/Bang/2020 Page 13 of 26 additional depreciation claimed in the ITR as per below table before the CIT(Appeals):- S.No. Description Amount 1. Plant and Machinery – Additional Depreciation on additions more than 180 days 5,02,83,756 2. Do - Less than 180 days 8,79,64,059 Total (as mentioned in the Asst Order) 13,82,47,705 1. Plant and Machinery – Energy Saving Devices – more than 180 days 49,000 2 Do – Less than 180 days 7,33,405 Total 7,82,405 29. We also notice that the CIT(Appeals) did not go into the details of the submissions, but has summarily rejected the claim of the assessee while confirming the disallowance. It is also noticed that the AO while disallowing the depreciation, did not call for any details in this regard from the assessee and has computed the disallowance by applying the depreciation percentages on the value of the assets. We therefore remit this issue back to the AO to verify the details of additional depreciation claimed by the assessee in the return of income and as declared in the tax audit report accordingly allow the depreciation. This ground is allowed for statistical purposes. Business promotion expenses – Rs.1,44,00,000 30. Ground No.8 is as under:- “8. Disallowance of Business Promotion expenses u/s 40(a)(ia) ITA Nos.125 & 126/Bang/2020 Page 14 of 26 8.1 The learned CIT(Appeals) has erred in confirming the action of the AO in making disallowance of Business Promotion expenses of Rs 1,44,00,000 on the ground that non deduction certificate was not available at the time of payment of the aforesaid sums; 8.2 The learned CIT(Appeals) erred in confirming the action of the AO in making the disallowance, without appreciating the fact that the non - deduction certificate was issued to the payee for the sums to be received for the full financial year, which is evident from the certificate; 8.3 The learned CIT(Appeals) erred in confirming the action of the AO in making the disallowance by holding that no deduction certificate is not applicable retrospectively, without appreciating that the certificate was issued for the payment to be received for the full year and hence there was no infirmity in the claim of no deduction on the impugned payments; 8.4 Notwithstanding the above, the learned CIT(Appeals) erred in not appreciating that the proviso to Section 201 are applicable to this case and the disallowance made amounts to double taxation;” 31. During the course of assessment proceedings, the AO noticed that assessee has made payment to GMR Sports P Ltd. being the franchisee for Delhi Daredevils and no TDS was deducted on the payment aggregating to Rs.2,94,52,608. The assessee submitted before the AO that the payee has obtained NIL deduction certificate from their AO and therefore no TDS was deducted on the strength of the certificate., The assessee also produced copy of certificate before the AO. On perusal of certificate, the AO noticed that the certificate was issued on 20.4.2009 and that an amount of Rs.1,44,00,000 was paid to GMR Sports on 14.4.2009. The AO held that at the time of making payment on 14.4.2009, the assessee was not in possession of NIL ITA Nos.125 & 126/Bang/2020 Page 15 of 26 deduction certificate and therefore tax should have been deducted on the said amount. On this ground, the AO disallowed the amount of Rs.1,44,00,000 u/s. 40(a)(ia). 32. The CIT(Appeals) confirmed the disallowance by relying on the decision of Chennai Bench of the Tribunal in the case of Sri Santhalakshmi Mills P. Ltd. [2008] 25 SOT 40. 33. Before us, the ld. AR submitted that the certificate u/s. 197(1) was issued for the payments made during the year 2009-10 and the assessee has not deducted tax on the payment made during the said period. The ld. AR brought to our attention that as per the certificate is for the payments made during FY 2009-10 and no specific date is mentioned in the certificate from when it is effective. Therefore, the ld.AR argued that the AO laying emphasis on the date of certificate is not correct. In this regard, he placed reliance on the decision of the coordinate bench of the Tribunal in the case of M/s. Bovis Lend Lease India P. Ltd. v. ITO, ITA No.636, 637 & 665/Bang/2008. 34. With regard to reliance placed by the CIT(Appeals) in the case of Santhalakshmi Mills (supra), the ld. AR submitted that in the said case the certificate was issued in the subsequent financial year whereas the payments were made in the previous financial year, which fact is clearly distinguishable from assessee’s case where the certificate is issued in the same financial year relating to the year in which the payments were made. ITA Nos.125 & 126/Bang/2020 Page 16 of 26 35. The ld. DR relied on the orders of the lower authorities. 36. We have heard the rival submissions and perused the material on record. We notice that the coordinate Bench of the Tribunal in the case of Bovis Lend Lease India P. Ltd (supra) has considered a similar issue and held that – “14. Section 197 provides that the certificate shall be issued by the Assessing Officer if he is satisfied that the circumstances of the case justify a lower or nil deduction of tax at source. Satisfaction refers to situation where the element of uncertainty or doubt no longer exists. The expression employed in section 197(1) is ‘satisfied’. As per Shorter Oxford English Dictionary, the term ‘satisfaction’ means ‘sufficient information, proof or removal of doubt, conviction, provide with sufficient proof or information, free from doubt or uncertainty, convince’. The usage of the word ‘shall’ obligates or mandates an Assessing Officer to issue the certificate on being satisfied. The issue of a certificate under section 197(1) presupposes that the Assessing Officer is satisfied that the payments in question justify lower or nil deduction of tax at source. .......... 17. The aspect of “credit” of a sum to the account of the payee or any other account inviting or mandating the deduction of tax at source is not to be regarded as having an all pervasive effect. For example, an application is made to the Authority for Advance Ruling for a determination whether the payment under a transaction warrants deduction of tax at source. The Authority has a time of six months to dispose the said application. If the application is made close to the financial year end, it is possible that the Authority may give its ruling after the expiry of the financial year. In the meanwhile the company may pass accounting entries to close books of account to have the same audited and publish the financial results. Technically therefore, the credit would happen before the ruling is obtained. If TDS liability is to be triggered on the factum of credit, then the ITA Nos.125 & 126/Bang/2020 Page 17 of 26 certificate obtained from the Authority subsequently would be of no avail. Similar would be the position when an application (for NIL TDS certificate) is made to the Assessing Officer before the accounting year end but the same is disposed by him after financial year and subsequent to the passing of the accounting entries by the payer. In either circumstance, the ruling or certificate obtained subsequently should enable the recipient of the sums to receive the amount without deduction of tax at source. It should, therefore, be held that the payees’ obligation and the timing thereunder is one facet of the issue. The other facet is the payees’ right to take advantage of certain avenues to mitigate or reduce the rigours of TDS. These two aspects represent two sides of the same coin. Any favourable conclusion under one facet should, therefore, be held as equally applicable to the other facet. 18. In the instant case, the applications were disposed of by Assessing Officer authorizing the reimbursements without deduction of tax at source. The certificate clearly mentions that there is no liability to withhold tax on the sums credited to the account of the payees. The certificate cannot be invalidated on the ground that it was issued subsequent to the passing of the accounting entries by the payer. .......... 37. Even otherwise, the law recognizes the possibility of a delayed application. Where the validity of the earlier certificate expires; the assessee may make another application. The second application for a fresh certificate may be make after the expiry of the earlier certificate (refer Rule 28AB). On the date of the second certificate, the credit entry to the account of the payee would have already have been made. The law nevertheless visualizes and postulates a fresh application. ......... 39. Even otherwise, Circulars not beneficial are not binding on an assessee. They cannot affect an assessee in an adverse manner - UCO Bank v. CIT [1999] 237 ITR 8891 (SC). There is no mandate of law that the application has necessarily to be made ITA Nos.125 & 126/Bang/2020 Page 18 of 26 before credit or payment. To that extent, the Circular is not to be regarded as binding and, hence, liable to be ignored.” 37. In assessee’s case, we notice that assessee has made three payments to the same payee on 14.4.2009 and 22.4.2009. We also notice that the AO has considered the certificate issued u/s. 197(1) for the payment made on 22.4.2009 since the certificate is dated 20.4.2009. However the AO did not consider the certificate for payment made on 14.4.2009. On perusal of the certificate, we notice that the same is issued for payments expected to be received during the FY 2009-10. The extract of certificate is given below:- ITA Nos.125 & 126/Bang/2020 Page 19 of 26 38. From the above, it is clear that certificate is issued for payments pertaining to FY 2009-10 and the impugned payment is made on 14.4.2009 falls within the period for which the certificate is issued. Considering these facts and relying on the decision of coordinate ITA Nos.125 & 126/Bang/2020 Page 20 of 26 Bench, (supra) we hold that no disallowance u/s. 40(a)(ia) is warranted towards payments made to GMR Sports towards business promotion expenses. Disallowance of bad advances written off u/s 36(1)(vii) 39. Ground No.9 is as follows:- “9. Disallowance of Bad advances 9.1 The learned CIT(Appeals) has erred in confirming the action of the AO in disallowing the claim of Bad advances written off amounting to Rs.1,08,36,000 without considering the facts of the case; 9.2 The learned CIT(Appeals) erred in not appreciating that the bad advances written off has been validly claimed as a deduction” 40. The AO during the course of assessment proceedings noticed that the assessee has debited a sum of Rs.1,08,36,000 being bad advances written off. The AO disallowed the same by holding that bad advances written off cannot be allowed as a deduction u/s. 36/37 and cannot be equated with bad debts written off so as to claim deduction u/s. 36(1)(vii). 41. On further appeal, the CIT(Appeals) confirmed the disallowance by stating that only bad debts written off can be allowable as deduction u/s. 36(1)(vii) and not bad advances. The CIT(Appeals) further held that the amount treated as bad advances written off has to be proved that the same was taken into account for computation of income in earlier years and since the assessee has not been able to prove that, CIT(Appeals) confirmed the disallowance. ITA Nos.125 & 126/Bang/2020 Page 21 of 26 42. Before us, the ld. AR submitted that the disallowance is made based on wrong understanding without giving any show cause notice or without giving any opportunity of being heard. The ld. AR submitted that in the grounds of appeal filed before the CIT(Appeals), the break-up of bad advances was submitted and the CIT(Appeals) did not call for any further details on the same during the appellate proceedings. The ld AR further submitted that the deduction is not claimed u/s.36(1)(vii) as bad debts but u/s.37 as bad advances which were given in the normal course of business no longer recoverable and therefore is an allowable expenditure. The ld. AR in this regard relied on the decision of the Calcutta bench of the Tribunal in the case of M/s. Summit Investments Ltd. v. JCIT, ITA No.338/Cal/1999. 43. The ld. DR submitted that the major amount of disallowance is towards amount paid to Al Tajir Glass was towards purchase of blow moulds and therefore is an advance towards purchase of capital asset. The ld DR contended that the advance given towards purchase of the capital asset cannot be written off as revenue expenditure and in this regard relied on the decision of the coordinate Bench in the case of Velankini Information Systems Ltd. v. DCIT, ITA No.156/Bang/2017. 44. We have heard the rival submissions and perused the material on record. We notice that the assessee has submitted the break-up of the bad advances while filing Form 35 itself as per details given below:- “Disallowance of Bad Advance: The details are given below: ITA Nos.125 & 126/Bang/2020 Page 22 of 26 Amount Narration 87,05,700.00 Amount paid to Al Tajir Glass as advance for making the blow moulds of bottles for new products like Buzz etc. vide BP/BDV/APR08 /0782, BP/BDV/FEB09/0767 AND BP/BDV/FEB09/0768 – WRITTEN OFF 9,358.00 BALANCE in Loan to Staff/Workmen as at 31.3.10 WRITTEN OFF 19,436.00 OTHER STAFF ADVANCES NOT RECOVERABLE WRITTEN OFF AS AT 31.03.10 82,054.00 VEHILCE LOAN BALANCES OF LEFT CASES AS AT 31.03.10 WRITTEN OFF 3,015.00 FURNITURE LOAN BALANCES OF LEFT CASES AS AT 31.03.10 WRITTEN OFF 20,03,117.70 Staff Advances – Others not recoverable as at 31.03.10 written off. 1,08,22,680.70 45. We also notice that the CIT(Appeals) while confirming the disallowance has not called for any details with regard to the break-up submitted. We further notice that he AO has also not called for any details from the assessee with regard to the bad advances written off. We therefore remit the issue back to the AO to verify the details of bad advances and decide in accordance with law. This ground is allowed for statistical purposes. 46. The appeal for AY 2010-11 is partly allowed. ITA Nos.125 & 126/Bang/2020 Page 23 of 26 ITA No.126/Bang/2020 - AY 2011-12 47. For assessment year 2011-12, the assessee filed the return of income on 30.11.2011, declaring a total income of Nil under regular provisions of the Act and Rs.238,92,09,130 u/s.115JB of the Act. The assessing officer while completing the assessment u/s.143(3) made the following disallowance (i) Depreciation on goodwill – Rs.4,98,51,450 (ii) Disallowance u/s.14A – Rs.4,27,19,147 (iii) Liabilities no longer required written back – Rs.5,12,54,702 (iv) Disallowance u/s.40(a)(ia) – Rs.7,65,43,034 (v) Disallowance u/s.43B – Rs.4,60,672 (vi) Foreign royalty – Rs.13,43,290 48. The CIT(Appeals) gave partial relief to the assessee and the assessee is in appeal before the Tribunal with respect to the following issues i. Depreciation on goodwill – Rs.4,98,51,450 ii. Disallowance u/s.40(a)(ia) – Rs.7,65,43,034 iii. Disallowance u/s.43B – Rs.4,60,672 iv. Foreign royalty – Rs.13,43,290 49. Ground no.1 and 2 are general. Ground no.7 is consequential. Hence these grounds do not warrant a separate adjudication. Ground No.3 is regarding depreciation on goodwill. This issue has been dealt with in AY 2010-11 hereinabove against the assessee and for the reasons mentioned therein, this ground by the assessee is dismissed. 50. Ground No.4 relates to withholding tax amount on foreign royalty. This issue has also been dealt by us in the AY 2010-11 ITA Nos.125 & 126/Bang/2020 Page 24 of 26 wherein the it is held that the gross income should be offered to tax and the assessee is entitled to claim credit for the tax paid on the doubly taxed income in accordance with Rule 128 of the Income Tax Rules and the issue is remitted to the AO to allow credit for the tax paid in foreign countries, provided the assessee is able to substantiate the same. The facts being identical we hold accordingly for the AY 2011- 12 also. 51. Ground No.5 is regarding disallowance of expenditure u/s. 40(a)(ia) on the year end provision. This issue has also been dealt with for AY 2010-11 wherein it was held that the expenditure is allowable where tax is deducted and the same is remitted to the Govt. account on or before the due date for filing the return of income u/s. 139(1). The ratio laid by the coordinate Bench of the Tribunal in assessee’s own case (supra) where the decision in the case of Biocon Ltd. v. DCIT in ITA No.1248/Bang/2014 is followed and order of AO passed u/s.201(1) was considered while holding as above. For the year under consideration also, the ld AR submitted that the AO has passed order u/s.201(1) where no tax was levied u/s.201(1) on the basis of verification of details pertaining to subsequent tax deduction and payment into Government account. Therefore the ld AR prayed that the disallowance be deleted for AY 2011-12 also. We have in earlier part of the order have considered the order of AO u/s.201 and held that the year-end provisions are allowable respectfully following the decision of the coordinate bench of the Tribunal in assessee’s own case. We notice that for AY 2011-12 also, the AO has passed an order u/s.201 ITA Nos.125 & 126/Bang/2020 Page 25 of 26 and based on examination of facts had not levied any tax u/s. 201(1), but charged only interest u/s.201(1A) for delayed remittance. Following our decision of AY 2010-11, we hold that the expenditure claimed by way of year end provisions be allowed as a deduction and the disallowance made in this regard is deleted. 52. Vide Ground No.6 the plea of the assessee is that Rs.4,60,672 disallowed u/s. 43B is not justified since no such expenditure is claimed in the P&L account. We notice that for AY 2010-11, for a similar disallowance, the assessee made petition u/s.154 which was considered by the AO who deleted the disallowance. We therefore remit the issue back to AO with a direction to verify and allow the claim of the assessee taking into consideration the rectification order passed u/s.154 for AY 2010-11. It is ordered accordingly. 53. The appeal for AY 2011-12 is partly allowed. 54. In the result, both the appeals of the assessee are partly allowed. Pronounced in the open court on this 20 th day of October, 2022. Sd/- Sd/- ( GEORGE GEORGE K. ) ( PADMAVATHY S. ) JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore, Dated, the 20 th October, 2022. / Desai S Murthy / ITA Nos.125 & 126/Bang/2020 Page 26 of 26 Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.