DCIT, Hyderabad V. M/s. Laser Dot Limited, Hyderabad

ITA 128/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61913 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-05-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 27-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M S RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Bad and doubtful debts; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, A.CCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 128/HYD/2011 ASSESSMENT YEAR : 2006-07 DY. COMMISSIONER OF INCOME-TAX, APPELLANT CIRCLE 16(1), HYDERABAD VS. LASER DOT LTD., RESPONDENT HYDERABAD. (PAN AAACL6230C) ITA NO. 30/HYD/2011 ASSESSMENT YEAR : 2006-07 LASER DOT LTD., APPELLANT HYDERABAD. (PAN AAACL6230C) VS. DY. COMMISSIONER OF INCOME-TAX, RESPONDE NT CIRCLE 16(1), HYDERABAD REVENUE BY : MR. M.S. RAO ASSESSEE BY : MR. S. RAMA RAO DATE OF HEARING : 09/05/2012 DATE OF PRONOUNCEMENT : 06/06/2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THESE ARE THE CROSS APPEALS DIRECTED AGAINST THE O RDER OF THE CIT(A)-V, HYDERABAD, PASSED ON 02/11/2010 FOR T HE ASSESSMENT YEAR 2006-07. ITA NO. 128/HYD/11 & 30/HYD/11 M/S LASER DOT LTD. 2 ITA NO. 128/HYD/2011 APPEAL BY THE REVENUE. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUND OF APPEAL:- THE LEARNED CIT(A) ERRED IN NOT CONSIDERING THE JUD GMENT IN THE CASE OF M/S SOUTH INDIA SURGICAL CO. LTD. VS. ACIT [2006] 153 TAXMAN 491 (MAD) THOUGH THE FACTS ARE SIMILAR AND THE ACT OF WRITE OFF OF DEBTS BY THE ASSESSEE WAS UNIL ATERAL. 3. THE FACTS RELATING TO RAISE THIS GROUND ARE THAT THE ASSESSEE ENGAGED IN THE BUSINESS OF OFFSET PRINTING. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, BOOKS OF ACCOUNT WERE PRODU CED BY THE ASSESSEE, FROM WHICH THE AO NOTICED THAT THE ASSESS EE HAD DEBITED RS. 12,18,718/- AS BAD DEBTS AND LEDGER EXT RACTS FOR THE SAME WERE PRODUCED. THE AO WAS OF THE VIEW THAT AS PER THE LEDGER EXTRACTS, THERE WAS NO DESCRIPTION AS TO WHY THE DEBTS HAD GONE BAD. HE, THEREFORE, MADE THE ADDITION OF THE S AID AMOUNT. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE CIT(A). 4. BEFORE THE CIT(A), THE LEARNED AR OF THE ASSESSE E STATED THAT IN THE OPINION OF THE ASSESSEE, THE DEBTS WERE NOT RECOVERABLE AND AS PER PROCEDURE, IT HAD DEBITED TH E DEBTS TO THE P&L A/C, FOR WHICH FULL DETAILS OF THE DEBTS WERE P ROVIDED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ANA LYZING THE ISSUE, THE CIT(A) HELD THAT THE AO HAD NOT BROUGHT ANY FACTS ON RECORD TO SHOW THAT THE DEBTS WERE NOT BAD OR THAT THE CLAIM WAS FALSE. HE, THEREFORE, DIRECTED THE AO TO ALLOW BAD DEBTS CLAIM OF THE ASSESSEE. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE US. ITA NO. 128/HYD/11 & 30/HYD/11 M/S LASER DOT LTD. 3 6. AFTER HEARING THE ARGUMENTS OF BOTH THE PARTIES AND PERUSING THE RECORD AS WELL AS THE ORDERS OF THE AU THORITIES BELOW, WE FIND THAT THE ISSUE UNDER CONSIDERATION I S SQUARELY COVERED BY THE DECISION OF THE HONBLE SUPREME COUR T IN THE CASE OF TRF LTD. VS. CIT, 323 ITR 397 (SC), WHEREIN THE APEX COURT HELD AS UNDER:- 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. 7. IN VIEW OF THE RATIO LAID DOWN BY THE ASSESSEE, WE UPHOLD THE ORDER OF THE CIT(A) IN DIRECTING THE AO TO ALLO W THE BAD DEBTS CLAIM OF THE ASSESSEE, AS THE ASSESSEE HAS WRITTEN OFF THE BAD DEBTS IN ITS BOOKS OF ACCOUNT AS IRRECOVERABLE. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ITA NO. 30/HYD/2011 APPEAL BY THE ASSESSEE 9. GROUND NO. 1 IS GENERAL IN NATURE AND, THEREFORE , THE SAME IS NOT REQUIRED TO BE ADJUDICATED BY US. 10. GROUND NO. 2 READS AS FOLLOWS:- THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION O F THE AO IN REJECTING THE CLAIM FOR DEDUCTION OF RS. 73,626 /- BEING PROVISION MADE TOWARDS LEAVE ENCASHMENT. THE LEARNE D CIT(A) OUGHT TO HAVE SEEN THAT THE SAID LIABILITY A CCRUED DURING THE PREVIOUS YEAR AND IS ALLOWABLE AS A DEDU CTION. 11. THE AO DISALLOWED THE ASSESSEES CLAIM FOR DEDU CTION OF RS. 73,626/- BEING PROVISION MADE TOWARDS LEAVE ENCASHM ENT, ON THE GROUND THAT THE SAME WAS NOT PAID BEFORE THE DU E DATE FOR ITA NO. 128/HYD/11 & 30/HYD/11 M/S LASER DOT LTD. 4 FILING OF THE RETURN OF INCOME. ON APPEAL, THE CIT( A) CONFIRMED THE ACTION OF THE AO. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 12. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. WE FIND THAT IN THE CASE OF M/S BHARAT EARTH MOVERS LTD., [2000] 245 ITR 428 (SC), THE HONBLE A PEX COURT HAS HELD THAT THE PROVISION MADE FOR LEAVE ENCASHME NT CANNOT BE TAKEN AS A CONTINGENT LIABILITY AND HENCE IT IS AN ASCERTAINED LIABILITY. HOWEVER, THE LEGISLATURE BY WAY OF AMEND MENT RESTRICTS SUCH DEDUCTION IN THE CASE OF LEAVE ENCASHMENT UNLE SS IT IS ACTUALLY PAID IN THAT PARTICULAR FINANCIAL YEAR. HE NCE, WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE ISSUE TO THE FILE OF THE AO TO VERIFY WHETHER THE AMOUNT HAS BEEN PAID B EFORE FILING OF THE RETURN OR NOT AND, THEREAFTER, DECIDE THE IS SUE IN ACCORDANCE WITH LAW. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 13. GROUND NO. 3 READS AS UNDER:- THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION O F THE AO IN REJECTING THE CLAIM OF THE APPELLANT FOR DEDUCTI ON OF RS. 2,70,940/- BEING THE AMOUNT PAID TO THE LIC TOWARDS LIC GROUP GRATUITY SCHEME. 14. THE ASSESSEE HAD CLAIMED TO HAVE PAID AN AMOUNT OF RS. 2,70,940/- TOWARDS LIC GROUP GRATUITY SCHEME AND CL AIMED THE SAME AS DEDUCTION. THE ASSESSEE WAS ASKED TO STATE WHETHER THE SCHEME WAS APPROVED BY THE CIT. SINCE THE ASSESSEE HAD NOT PRODUCED ANY EVIDENCE, THE AO NOTED THAT THE PAYMEN TS WERE NOT MADE TO AN IRRECOVERABLE TRUST FOR THE EXCLUSIVE BE NEFIT OF THE EMPLOYEES WHICH IS APPROVED BY THE CIT AS PER THE P ROVISIONS OF ITA NO. 128/HYD/11 & 30/HYD/11 M/S LASER DOT LTD. 5 SECTION 36(1)(V) OF THE ACT. THE AO, THEREFORE, DIS ALLOWED THE SAID CLAIM OF THE ASSESSEE BY HOLDING THAT IN THE ABSENC E OF ANY PROOF THAT THE SCHEME WAS APPROVED BY THE CIT AND ALSO RE LYING ON THE DECISION IN THE CASE OF SONY INDIA PVT. LTD., VS. C IT (DEL.) 285 ITR 123, THE CLAIM WAS DISALLOWED. ON APPEAL, THE C IT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO AS NO EVI DENCE WAS PRODUCED BEFORE HIM. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 15. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE ISSUE UNDER CO NSIDERATION IS COVERED BY THE DECISION OF CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2004-05 & 2003-04 IN ITA NOS. 1322/HYD/ 2008 AND 1039/HYD/2008 VIDE ORDER DATED 20 TH APRIL, 2012, WHEREIN THE COORDINATE BENCH HELD AS UNDER:- 19. THE NEXT ISSUE RELATES TO DISALLOWANCE ON AMOUN TS PAID TO LIC, GROUP GRATUITY SCHEME. WE FIND THAT THE ASSESSEE'S CASE IS COVERED BY THE COORDINATE BENCH IN ITA NO.349/HYD/2006 IN T HE CASE OF ACIT, CIRCLE 3(2), HYDERABAD VS. M/S KRISHNA DRUGS LIMITED, HYD. WHEREIN IT HAS BEEN HELD IN PARAS 4 - 5 & 6 AS FOLL OWS : 'WE HAVE CONSIDERED RIVAL SUBMISSIONS ON EITHER SID E AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDL Y, THE GROUP GRATUITY SCHEME WAS NOT RECOGNISED BY THE CIT . THIS FACT IS NOT IN DISPUTE. WE HAVE CAREFULLY GONE THRO UGH THE PROVISIONS OF SECTION 36(1)(V) OF IT ACT. SECTION 3 6(1)(V) READS AS FOLLOWS: 36(1): THE DEDUCTION PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WI TH THEREIN IN COMPUTING THE INCOME REFERRED TO IN SECTION 28..... ........ (V) ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND CREA TED BY HIM FOR THE EXCLUSIVE BENEFIT OF HIS EMPLOYEES UNDE R AN IRREVOCABLE TRUST'. ITA NO. 128/HYD/11 & 30/HYD/11 M/S LASER DOT LTD. 6 WE HAVE ALSO CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 37 OF THE IT ACT. SEC. 37 PROVIDES FOR DEDUCTION OF EXPEN DITURE NOT BEING IN THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT B EING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENDITURE OF T HE ASSESSEE, BUT LAID OUT AND EXPENDED WHOLLY AND EXCLUSIVELY FOR TH E PURPOSES OF THE BUSINESS OR PROFESSION, WHILE COMPUTING INCOME CHARGEABLE TO TAX. THE MAIN CONTENTION OF THE REVENUE IS THAT U/S 36(1)(V) THE PAYMENT MADE BY THE ASSESSEE AS EMPLOYER COULD BE A LLOWED ONLY IN RESPECT OF APPROVAL GRATUITY FUND. SINCE THE GRO UP GRATUITY SCHEME IS NOT APPROVED BY CIT, ACCORDING TO THE REVENUE, I T CANNOT BE ALLOWED. HOWEVER, THE CONTENTION OF THE ASSESSEE IS THAT IN VIEW OF THE JUDGEMENT OF THE MADRAS HIGH COURT IN THE CASE OF PREMIER COTTON SPINNING MILLS LTD. AND THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF WARNER HINDUSTAN LTD. IT HAS TO BE ALLOWED. WE HAVE CAREFULLY GONE THROUGH THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF WARNER HINDUSTAN LTD. IN THE CASE BEFORE THE JURISDICTIONAL HIGH COURT, THE PROVIDENT FUND W AS NOT APPROVED BY THE CIT. THE ANDHRA PRADESH HIGH COURT, AFTER RE FERRING TO THE JUDGEMENT OF THE BOMBAY HIGH COURT IN TATA IRON & S TEEL CO. LTD. VS. DV BAPAT, ITO (1975) (101 ITR 292) AND THE JUDG EMENT OF THE SC IN METAL BOX COMPANY OF INDIA LTD. VS. THEIR WORKME N (1969) 73 ITR 53 HELD THAT THE AMOUNT PAID TOWARDS AN UNAPPRO VED GRATUITY FUND CAN BE DEDUCTED U/S 37 OF THE ACT THOUGH NOT U /S 36(1)(V). IN VIEW OF THIS JUDGEMENT OF THE JURISDICTIONAL HIGH C OURT, IN OUR OPINION , EVEN IF ANY PAYMENT IS MADE TO AN UNAPPROVED GRAT UITY FUND, IT HAS TO BE ALLOWED U/S 37. BY RESPECTFULLY FOLLOWING THE BINDING JUDGEMENT OF THE ANDHRA PRADESH HIGH COURT IN THE C ASE OF WARNER HINDUSTAN LTD. WE UPHOLD THE ORDER OF THE CIT(A).' 16. SINCE THE ISSUE IN THE PRESENT CASE IS IDENTICA L TO THAT OF THE CASE DECIDED BY THE COORDINATE BENCH IN ASSESSE ES OWN CASE (SUPRA), RESPECTFULLY FOLLOWING THE SAME, WE SET AS IDE THE ORDER OF THE CIT(A) AND ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF RS. 2,70,940/- BEING THE AMOUNT PAID TO THE LIC TOW ARDS LIC GROUP GRATUITY SCHEME. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 128/HYD/11 & 30/HYD/11 M/S LASER DOT LTD. 7 17. GROUND NO. 4 READS AS UNDER:- THE LEARNED CIT(A) ERRED IN HOLDING THAT THE REMISS ION OF THE LOAN OF RS. 63,43,341/- REPRESENTS THE INCOME OF TH E ASSESSEE HEREIN. THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE SAID AMOUNT REPRESENTS THE REMISSION OF THE LOAN AND THAT THE PROVISIONS OF SE C. 41(1) OF THE ACT DO NOT APPLY TO THE FACTS OF THE CASE. THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE SAID SUM DOES NO T REPRESENT THE INCOME OF THE APPELLANT. 18. THE CIT(A) WRONGLY HELD IN HIS ORDER AT PARA 7. 2 THAT THE SAID GROUND IS COVERED BY HIS OWN ORDER. THE SAID PARA IS REPRODUCED BELOW:- 7.2 I HAVE CONSIDERED THE ARGUMENTS OF THE APPELLAN T AS WELL AS FACTS OF THE CASE. THIS ISSUE HAS BEEN DECI DED BY ME VIDE MY ORDER IN ITA NO. 371/DC-16(1)/CIT(A)V/2007- 08 DATED 16/04/2010 IN THE CASE OF THE APPELLANT. SINC E THE ISSUE INVOLVED IS IDENTICAL, THE DECISION AS OUTLIN ED IN THE AFOREMENTIONED ORDER ALSO APPLIES TO THE CURRENT CA SE. ACCORDINGLY, I HOLD THAT THE ADDITION MADE BY THE A O IS CORRECT AND DOES NOT REQUIRE ANY INTERFERENCE. 19. SINCE THERE IS NO SUCH ISSUE IN THE ORDER OF TH E CIT(A) IN ITA NO. 371/DC-16(1)/CIT(A)V/2007-08 DATED 16/04/20 10, AS MENTIONED BY HIM, WE RESTORE THIS ISSUE TO THE FILE OF THE CIT(A) FOR ADJUDICATION DE-NOVO. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ` ITA NO. 128/HYD/11 & 30/HYD/11 M/S LASER DOT LTD. 8 21. TO SUM UP, APPEAL OF THE REVENUE IS DISMISSED A ND THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. PRONOUNCED IN THE OPEN COURT ON 06/06/2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGH AVAN) ACCOUNTANT MEMBER JUDICIAL MEMBE R HYDERABAD, DATED: 6 TH JUNE, 2012. KV COPY TO:- 1) DCIT, CIRCLE 16(1), HYDERABAD 2) M/S LASER DOT LTD., C/O, SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, 3-6-643, ST. NO. 9, HIMAYATNAGAR, HYDERABAD 500 0 3) THE CIT (A)-V, HYDERABAD 4) THE CIT-IV, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.