The ACIT- Circle- 4, Ahmedabad V. Inductotherm (India) Private Ltd., Ahmedabad

ITA 1613/AHD/2008

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85876 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-03-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 09-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K PATEL
• Keywords: Double taxation relief; Earning of tax free income; Bad and doubtful debts; Royalty expenses; Reassessment proceedings
• Section: 43B; 143(3); 80HHC; 14A; 147; 148; 263; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: SHRI MUKUL KR. SHRAWAT, JU DICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTAN T MEMBER THE ACIT, CIRCLE-4, AHMEDABAD (APPELLANT) VS M/S. INDUCTOTHERM (INDIA) PVT. LTD., AMBLI BOPAL ROAD, BOPAL, AHMEDABAD PAN: AAACI 3672 B (RESPONDENT) REVENUE BY: SHRI M.K. PATEL, SR. D.R. ASSESSEE BY: SHRI NIMESH YADAV, A. R. DATE OF HEARING : 13-03-2015 DATE OF PRONOUNCEMENT : 26-03-2 015 / ORDER PER : ANIL CHATURVEDI, ACCOUNTANT MEMBER:- THIS IS THE REVENUES APPEAL AGAINST THE ORDER OF LD. CIT(A)-VIII, AHMEDABAD DATED 29-02-2008 FOR A.Y. 2001-02. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI AL ON RECORD ARE AS UNDER. ITA NO. 1613/AHD/2008 ASSESSMENT YEAR 2001-02 ITA NO. 1613/AHD/2008 A.Y. 2001-02 2 ACIT VS. M/S INDUCTOTHERM (INDIA) PVT. LTD 3. ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF INDUCTION FURNACES. ASSESSEE FILED ITS RETURN O F INCOME FOR A.Y. 2001-02 ON 25-10-2001 DECLARING TOTAL INCOME OF RS. 4,69,93 ,442/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S. 143(3) AND THE TOTAL INCOME WAS DETERMINED AT RS. 5,41,22, 967/-. THEREAFTER THE CASE WAS RE-OPENED BY ISSUING NOTICE U/S. 148 DATED 30-03-2003 AND SUBSQUENTLY THE ASSESSMENT WAS FRAMED U/S. 143(3) R .W.S. SECTION 147 VIDE ORDER DATED 29-12-2006 AND THE TOTAL INCOME WA S DETERMINED AT RS. 6,74,61,580/-. AGGRIEVED BY THE ORDER OF AO, ASSES SEE CARRIED THE MATTER BEFORE CIT(A) WHO VIDE ORDER DATED 29-02-2008 GRANT ED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF CIT( A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUN DS:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE TO DELETING THE DISALLOWANCE OF RS.1,44,038/- MADE U/S 14A OF THE ACT. 2. THE LD. CIT(A) HAS ERRED IN LAW AND AN THE FACTS OF THE CASE IN DIRECTING THE A.O NOT TO EXCLUDE 'OTHER INCOME' BEI NG BAD DEBTS RECOVERED RS.2,18,454/-, INSURANCE CLAIM RS.5,73,32 5/-, SUNDRY CREDITORS RS. 1,30,148/-, FORFEITURE OF ADVANCES RS . 5,53,600/- AND EXCHANGE RATE FLUCTUATION RS.1,09,181/-, FROM THE B USINESS PROFITS, FOR THE COMPUTATION OF DEDUCTION U/S 80HHC. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FA CTS OF THE CASE IN DELETING THE DISALLOWANCE OF ROYALTY OF RS. 37,82,6 93/- U/S 40(A)(I) . 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF PREPAID EXCISE DUTY OF RS.62,59,521/-. 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN DELETING THE DISALLOWANCE OF RS.13,48,032/-, BEING PROVISIONS FOR GRATUITY. 6. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.2,00,000/- BEING PR OVISION FOR UNPAID SALES COMMISSION. ITA NO. 1613/AHD/2008 A.Y. 2001-02 3 ACIT VS. M/S INDUCTOTHERM (INDIA) PVT. LTD 7. THE LD. C|T(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF BAD DEBT CLAIM OF RS. 25,86,350/-. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CLT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. FIRST GROUND IS WITH RESPECT TO DELETION OF DISALLO WANCE U/S. 14A. 4. AO NOTICED THAT ASSESSEE HAD EARNED DIVIDEND INC OME OF RS. 25,898/- AND TAX FREE INTEREST OF RS. 10,50,000/-. HE ALSO NOTICED THAT ASSESSEE HAD SHOWN INVESTMENT OF RS. 96,15,000/- IN TAX FREE BONDS OF KONKAN RAILWAY CORPORATION LTD. AO HAS NOTED THAT ASSESSEE HAS NOT FURNISHED DETAILS OF EXACT SOURCE OF INVESTMENT IN SHARES AND MUTUAL FUNDS DURING THE YEAR UNDER CONSIDERATION AND HAD ALSO NO T STATED AS TO WHETHER IT HAS MAINTAINED SEPARATE ACCOUNTS OF INTEREST BEA RING FUNDS AND NON INTEREST BEARING FUNDS FOR THE PURPOSE OF INVESTMEN TS. HE WAS THEREFORE OF THE VIEW THAT IN THE ABSENCE OF AFORESAID INFORMATI ON, IT COULD BE INFERRED THAT ASSESSEE HAS INVESTED INTEREST BEARING FUNDS F OR MAKING INVESTMENTS IN SHARES AND MUTUAL FUNDS. HE ALSO NOTED THAT NO DEDUCTION CAN BE ALLOWED IN RESPECT OF ADMINISTRATIVE EXPENSES INCUR RED FOR EARNING EXEMPT INCOME. HE THEREFORE FOLLOWING THE DECISION IN THE CASE OF HARISH KRISHNA KANT BHATT VS. ITO (2004) 91 ITD 311 (AHD) WORKED O UT THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS. 1,44,038/- U/S. 14A. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT (A) WHO DELETED THE ADDITION BY HOLDING AS UNDER:- 4.1 BEFORE ME, THE LEARNED COUNSEL FOR THE APPELLA NT CONTENDED THAT THE AO FAILED TO APPRECIATE THAT THE APPELLANT HAD BOUGHT 10,000 10.50% TAX-FREE BONDS OF RS.1,000 EACH OF KONKAN RA ILWAY CORPORATION LIMITED, A GOVERNMENT OF INDIA UNDERTAK ING, IN THE YEAR 1995 AND MATURITY TERM OF THE SAID INVESTMENT HAS B EEN 10 YEARS ENDED 31ST OCTOBER, 2004. THERE HAS BEEN NO TRANSAC TION IN THESE BONDS AT ANY TIME DURING THE INTERVENING MATURITY T ERM OF 10 YEARS. ITA NO. 1613/AHD/2008 A.Y. 2001-02 4 ACIT VS. M/S INDUCTOTHERM (INDIA) PVT. LTD THE APPELLANT HAS MERELY RECEIVED TWO HALF YEARLY I NTEREST WARRANTS OF RS.5,25,000/- EACH DURING THE PREVIOUS YEAR, WHI CH HAVE BEEN COLLECTED IN ROUTINE THROUGH BANK ACCOUNT. IT WAS, THEREFORE, SUBMITTED THAT THERE IS NO IDENTIFIABLE OR RELATABL E ADMINISTRATION EXPENSES INVOLVED ON FACTS OF THE CASE IN RESPECT O F THIS TAX-FREE INTEREST INCOME OF RS. 10.50 LACS AND NO DISALLOWAN CE ON ACCOUNT OF PRORATA ADMINISTRATION EXPENSES IS, THEREFORE, WARR ANTED OR JUSTIFIED EVEN ON FACTS OF THE CASE. IT WAS SUBMITTED THAT TH E ADMINISTRATION EXPENSES, SOUGHT TO BE CO-RELATED, DO NOT HAVE ANY NEXUS WITH OR HAVE BEEN INCURRED IN RELATION TO TAX-FREE INTEREST INCOME SO AS TO BE HIT BY SECTION 14A. WITHOUT PREJUDICE TO ABOVE, IT WAS SUBMITTED THAT T HE QUESTION OF DISALLOWANCE UNDER SECTION 14A HAS BEEN CONSIDERED BY THE PREDECESSOR AO AT LENGTH AND MADE CERTAIN QUANTUM ADDITION THEREUNDER WHICH HAS BEEN SUBJECT MATTER OF REVIEW BY THE PREDECESSOR HON. CIT(A). THIS GROUND HAS BEEN ADJUD ICATED BY HIS FIRST APPEAL ORDER DATED 11TH FEBRUARY, 2005 A ND THEREFORE PRIMA FACIE OUTSIDE JURISDICTION OF THE REASSESSMENT PROC EEDINGS. IT WAS SUBMITTED THAT DURING THE YEAR DIVIDEND WARRANTS AN D TWO HALF YEARLY INTEREST WARRANTS WERE RECEIVED AND FOR ENCASH ING THE SAME, THERE WAS NO SPECIFIC EXPENDITURE INCURRED DURING THE YEAR, FURTHER THAT SIMILAR DISALLOWANCE MADE IN A.Y. 2004-05 WAS ALLOWED BY THE CIT(A)-VIII. HE ALSO RELIED ON THE DECISION OF HO N'BLE ITAT DELHI BENCH IN THE CASE OF ACIT V, EICHER LIMITED 101 TT J 369 WHEREIN IT WAS DECIDED THAT IT WAS THE DUTY OF THE AO TO PIN P OINT SUCH EXPENDITURE ON THE BASIS OF MATERIAL ON RECORD WITH AN ACCEPTABLE DEGREE OF ACCURACY AND NOT ON A NOTIONAL BASIS. I N THIS CASE, IT IS QUITE APPARENT THAT NO SPECIFIC EXPENDITURE IS ATTR IBUTABLE FOR DEPOSITING JUST 2 INTEREST WARRANTS AND 4 DIVIDEN D WARRANTS AND AS SUCH THE PROPORTIONATE DISALLOWANCE IS PURELY ON NOTIONAL BASIS AND HENCE THE DISALLOWANCE OF RS. 1,44,308/- ON THI S ACCOUNT IS DIRECTED TO BE DELETED. AS IN THE ORIGINAL ASSESS MENT, DISALLOWANCE ON THE SAME ISSUE WAS MADE TO THE TUNE OF RS.3,544/ - WHICH WAS REDUCED TO RS.806/- BY CIT(A) , THE A.O IS DIRECTED TO ENSURE THAT THE ORIGINAL DISALLOWANCE INCLUDED IN THE TOTAL INC OME OF THE APPELLANT. 5. BEFORE US AT THE OUTSET LD. AR SUBMITTED THAT ON IDENTICAL FACTS IN ASSESSEES OWN CASE FOR A.Y. 2004-05, THE ISSUE HAS BEEN DECIDED BY THE HONBLE TRIBUNAL IN ITS FAVOUR. HE PLACED ON RECOR D THE COPY OF THE ITA NO. 1613/AHD/2008 A.Y. 2001-02 5 ACIT VS. M/S INDUCTOTHERM (INDIA) PVT. LTD AFORESAID DECISION IN ITA NO. 4231/AHD/2007 ORDER D ATED 29-10-2010. HE ALSO POINTED TO THE RELEVANT PORTION OF THE ORDER. HE THEREFORE SUBMITTED THE SINCE THE FACTS OF THE CASE IN THE YEAR UNDER A PPEAL ARE IDENTICAL TO THAT OF EARLIER YEARS, THE ISSUE HAS RIGHTLY BEEN DECIDE D IN FAVOUR OF THE ASSESSEE BY LD. CIT(A). HE THUS SUPPORTED THE ORDE R OF LD. CIT(A). LD. DR ON THE OTHER HAND SUPPORTED THE ORDER OF AO. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT ASSESSEE HAS RECEIVED ONLY TWO HALF YEARLY INTERE ST WARRANT BONDS DURING THE YEAR UNDER APPEAL AND WHICH WERE COLLECTED IN R OUTINE THROUGH BANK ACCOUNT. HE HAS FURTHER NOTED THAT THE INVESTMENTS WERE MADE IN THE YEAR 1995 AND THERE HAVE BEEN NO TRANSACTIONS IN BONDS D URING THE YEAR UNDER REVIEW. WE FURTHER FIND THAT ON IDENTICAL FACTS, TH E CO-ORDINATE BENCH OF TRIBUNAL WHILE DECIDING THE ASSESSEES APPEAL FOR A .Y. 2005-06 AND AFTER RELYING ON THE DECISION IN THE CASE OF CIT VS. HERO CYCLE LTD (2010) 323 ITR 518 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER:- 11 IN THE INSTANT CASE, WE FIND THAT IT IS NOT IN DISPUTE THAT IN RESPECT OF EXEMPT INCOME WARRANTS THE ASSESSEE HAD ONLY RECEIVED TWO INTEREST WARRANTS AND FOUR DIVIDEND WARRANTS. NO MATERIAL WAS BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT ANY S PECIFIC EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME THEREFORE, IN VIEW OF THE ABOVE CITED DECISIONS WE DO NOT FIND AN Y ERROR IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS). IT IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE I S DISMISSED. 7. BEFORE US, REVENUE HAS NOT BROUGHT ANY CONTRARY BINDING DECISION IN ITS SUPPORT NOR COULD DISTINGUISH THE FACTS OF THE CASE OF THE YEAR UNDER APPEAL WITH THAT OF A.Y. 2004-05. IN VIEW OF THE A FORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND TH US THIS GROUND OF REVENUE IS DISMISSED. ITA NO. 1613/AHD/2008 A.Y. 2001-02 6 ACIT VS. M/S INDUCTOTHERM (INDIA) PVT. LTD GROUND NO. 2 IS WITH RESPECT TO COMPUTATION OF DEDU CTION U/S. 80HHC. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAD CLAIMED DEDUCTION OF RS. 59,86,965/- U /S. 80HHC OF THE ACT. HE ALSO NOTICED THAT ASSESSEE HAD SHOWN OTHER INCOM E COMPRISING OF TRAINING FEES (RS. 1,80,000/-), INSURANCE CLAIM (RS . 5,73,325/-), SUNDRY CREDITORS (RS. 1,30,148/-), BAD DEBT RECOVERED (RS. 2,18,454), FORFEITURE OF ADVANCES (OF RS. 5,53,600/-) AND EXCHANGE FLUCTUATI ON (RS. 1,8,181/) AGGREGATING TO RS. 16,92,708/- AND HAD ALSO EARNED INTEREST OF RS. 56,50,905/-. HE ALSO NOTICED THAT ASSESSEE HAD NOT EXCLUDED THE AFORESAID OTHER INCOME AND INTEREST FROM PROFIT OF THE BUSINE SS FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S. 80HHC OF THE ACT. AO WAS OF THE VIEW THAT DEDUCTION U/S. 80HHC IS ONLY AVAILABLE TO THE EXTEN T OF PROFIT DERIVED FROM EXPORT BUSINESS. THE RECEIPTS WHICH FORMED PART OF OTHER INCOME WERE NOT DERIVED FROM EXPORT BUSINESS AND THEREFORE IT HAS T O BE REDUCED FROM THE PROFIT OF THE BUSINESS FOR THE PURPOSE OF CALCULATI ON OF DEDUCTION U/S. 80HHC. WITH RESPECT TO INTEREST INCOME, AO AFTER R ELYING ON THE DECISIONS CITED IN HIS ORDER, WAS OF THE VIEW THAT THE INTERE ST INCOME WAS INCOME FROM OTHER SOURCES AND THEREFORE IT HAS ALSO TO BE EXCLUDED FROM THE PROFIT OF THE BUSINESS. HE ACCORDINGLY RE-WORKED THE DEDU CTION U/S. 80HHC AT RS. 49,37,379/- AS AGAINST CLAIM OF ASSESSEE OF RS. 51,85,178/- AND THE EXCESS DEDUCTION AT RS. 2,47,799/- WORKED OUT BY HI M WAS DISALLOWED. 9. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED T HE MATTER BEFORE CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DECIDED THE ISSUE BY HOLDING AS UNDER:- ITA NO. 1613/AHD/2008 A.Y. 2001-02 7 ACIT VS. M/S INDUCTOTHERM (INDIA) PVT. LTD 5.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. CAREFULLY. AS REGARDS EXCLUSION OF INTEREST, AS THE SAME IS NOT D ERIVED FROM EXPORT BUSINESS, THE A.O. HAS RIGHTLY EXCLUDED THE SAME FR OM BUSINESS PROFILE. AS REGARDS TRAINING FEES COLLECTED OF RS. 1 ,08,000/-, THE SAME IS NOT INCOME DERIVED FROM EXPORT BUSINESS AS DECIDED AGAINST THE APPELLANT BY CIT(A)-VIII IN A.Y. 2001-02 AND 20 00-01. SO THE FINDING OF THE ASSESSING OFFICER IS CONFIRMED ON TH E ISSUE OF REDUCTION OF TRAINING FEES COLLECTED. THE A.O IS D IRECTED TO VERIFY AND ENSURE THAT THE DISALLOWANCE IS NOT MADE AGAIN AS S IMILAR ADDITION WAS MADE IN THE ORIGINAL ASSESSMENT AND SUSTAINED I N FIRST APPEAL BY CLT(A). THE BAD DEBTS RECOVERED, INSURANCE CLAIMS, SUNDRY CREDITORS, FORFEITNRE OF ADVANCES AND EXCHANGE RATE FLUCTUATION HAVE ARISEN FULLY OUT OF THE REGULAR BUSINESS ACTIVITIES AND NOT OUT OF TRANSACTIONS DISTINCT AND SEPARATE FROM THE NORMAL COURSE OF BUSINESS, HENCE THE AO IS DIRECTED NOT TO EXCLUDE T HE ABOVE ITEMS OF INCOME FROM BUSINESS PROFITS IN WORKING OUT THE DED UCTION U/S. 80HHC. ACCORDINGLY THE ASSESSING OFFICER IS DIRECT ED TO REWORK THE DEDUCTION U/S. 80HHC. 10. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE I S NOW IN APPEAL BEFORE US. 11. BEFORE US, LD. DR SUPPORTED THE ORDER OF AO. H E FURTHER POINTED THAT THE ISSUE OF FORFEITURE OF ADVANCE AND EXCHANG E FLUCTUATION WAS NOT BEFORE THE CO-ORDINATE BENCH OF TRIBUNAL IN A.Y. 20 04-05. LD AR ON THE OTHER HAND, REITERATED THE SUBMISSION MADE BEFORE L D. CIT(A) AND FURTHER SUBMITTED THAT IDENTICAL ISSUE AROSE IN THE CASE OF ASSESSEE FOR A.Y. 2004- 05 AND THE MATTER HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES FAVOUR. HE PLACED ON RECORD THE COPY OF AFORESAID ORDER FOR A.Y. 2004-05 IN ITA NO. 4231/AHD/2007. HE THUS SUPPORTED THE ORDER OF LD. CIT(A). 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ISSUE OF DED UCTION U/S. 80HHC WAS CARRIED BY REVENUE BEFORE THE HONBLE TRIBUNAL IN A .Y. 2004-05 AND THE ITA NO. 1613/AHD/2008 A.Y. 2001-02 8 ACIT VS. M/S INDUCTOTHERM (INDIA) PVT. LTD ISSUE WAS DECIDED BY THE CO-ORDINATE BENCH OF TRIBU NAL BY HOLDING AS UNDER:- 32. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) DIRECTED TO DELETE 90% OF B AD DEBTS RECOVERED, DISCOUNT EARNED FROM SUPPLIERS OF GOODS, INSURANCE CLAIM RECEIVED, SUNDRY CREDIT BALANCES IN THE SUPPLIERS A CCOUNT WRITTEN BACK, MISCELLANEOUS CHARGES RECOVERED FROM THE CUST OMERS, SCRAP SOLD AND KASAR INCOME FROM 'PROFITS AND GAINS OF BU SINESS OR PROFESSION' TO COMPUTE ELIGIBLE PROFITS OF BUSINESS FOR THE PURPOSE OF SECTION 80HHC OF THE ACT. THE REVENUE CONTENDS BEFO RE US THAT THE ABOVE DEDUCTION SHOULD HAVE BEEN 100% AND NOT 90%. WE FIND THAT IT IS NOT IN DISPUTE THAT THE AMOUNTS UNDER CONSIDE RATION WERE ASSESSABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION' AND WAS ALSO SO ASSESSED BY THE LEARNED ASSESSING OFFICER. IN THE CIRCUMSTANCES, IN VIEW OF EXPLANATI ON (BAA) TO SECTION 8OHHC THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) WAS JUSTIFIED IN HOLDING THAT 90% OF SUCH RECEIPTS ARE TO BE EXCLUDED FOR ARRIVING AT ELIGIBLE PROFITS OF BUSINESS. NO SPECIF IC ERROR IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CO ULD BE POINTED OUT BY THE LEARNED DEPARTMENTAL REPRESENTAT IVE. WE THEREFORE, CONFIRM THE ORDER OF THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) AND DISMISS THE GROUND OF APPEAL OF T HE REVENUE. 13. WE THUS FIND THAT ON IDENTICAL FACTS FOR A.Y. 2 004-05, THE ISSUE HAS BEEN DECIDED BY THE CO-ORDINATE BENCH OF TRIBUNAL I N ASSESSEES FAVOUR. BEFORE US, REVENUE HAS NOT BROUGHT ANY CONTRARY BIN DING DECISION IN ITS SUPPORT NOR COULD DISTINGUISH THE DECISION OF THE T RIBUNAL FOR A.Y. 2004-05. AS FAR AS THE ISSUE WITH RESPECT TO EXCHANGE FLUCTU ATION AND FOREFEITURE OF ADVANCES ARE CONCERNED, WE FIND THAT LD. CIT(A) HAS CONSIDERED THE AFORESAID ITEMS AS BEING ELIGIBLE FOR DEDUCTION U/S . 80HHC IN VIEW OF THE FACT THAT THOSE AMOUNTS HAVE BEEN ASSESSED AS BUSIN ESS INCOME BY THE AO. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIA L TO CONTROVERT THE FINDINGS OF LD. CIT(A). WE THEREFORE FIND NO REASO N TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. ITA NO. 1613/AHD/2008 A.Y. 2001-02 9 ACIT VS. M/S INDUCTOTHERM (INDIA) PVT. LTD THIRD GROUND IS WITH RESPECT TO DELETING THE ADDITI ON U/S. 40(A)(I) OF THE ACT. 14. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAD CLAIMED ROYALTY EXPENSES OF RS. 62,92, 000/- ON THE GROUND THAT THE SAME WAS DISALLOWED IN EARLIER YEARS ON AC COUNT OF NON-DEDUCTION OF TDS. DURING THE YEAR ASSESSEE HAD STATED TO HAV E DEDUCTED TDS OF RS. 7,52,792/- AND THEREFORE THE ROYALTY WAS CLAIME D AS EXPENSES. AO NOTICED THAT ASSESSEE HAS BEEN PAYING ROYALTY UNDER THE AGREEMENT ENTERED INTO BY IT BEFORE 01-06-1997 AND WAS THEREF ORE LIABLE TO DEDUCT TDS AT 30% BUT HOWEVER ASSESSEE HAD DEDUCTED THE TD S ONLY RS. 7,52,792/- WHEREAS ACCORDING TO THE AO THE ASSESSEE SHOULD HAVE DEDUCTED TDS OF RS. 18,87,700/-. AO THEREFORE ON T HE BASIS OF TDS DEDUCTION MADE BY THE ASSESSEE RE-WORKED THE ELIGIB LE DEDUCTION ON ACCOUNT OF ROYALTY PAYMENT AT RS. 25,09,306/- AND T HE BALANCE AMOUNT OF ROYALTY OF RS. 37,82,693/- WAS DISALLOWED U/S. 40(A )(I) OF THE ACT. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO DECIDED THE ISSUE IN FAVOUR OF THE ASSES SEE BY HOLDING AS UNDER:- 6.1 BEFORE ME, THE LEARNED COUNSEL FOR THE APPELL ANT CONTENDED THAT THE ROYALTY PAYMENT IS ARISING OUT OF THE TRAN SACTIONS 'BETWEEN RESIDENTS OF INDIA AND RESIDENTS OF USA AND CHARGE OF ROYALTY UNDER CONSIDERATION IS THUS GOVERNED BY ARTICLE 12 OF THE DTAA BETWEEN GOVERNMENT OF INDIA AND GOVERNMENT OF USA ENTERED I NTO UNDER SECTION 90. THE APPELLANT, THEREFORE, HAS MADE TDS AT APPLICABLE BILATERAL RATE OF 15% AS PROVIDED IN ARTICLE 12 OF THE DTAA AND HENCE NO DISALLOWANCE IS WARRANTED EVEN ON FACTS AN D LAW OF THE CASE. THE ROYALTY PAYMENTS UNDER CONSIDERATION HAVE BEEN MADE TO THE COLLABORATOR BASED AT THE USA. THE ARTICLE 12 O F THE DTAA GOVERNS BILATERAL TAX INCIDENCE OF THESE ROYALTY PA YMENTS. THE SECTION 195 REQUIRES THE PAYER TO MAKE TDS FROM THE PAYMENTS MADE ABROAD AT THE RATES IN FORCE. THE SECTION 2(37 A) DEFINES THE RATES IN FORCE. CLAUSE (III) TO SAID SECTION 2(37A) PROVIDES AS UNDER: ITA NO. 1613/AHD/2008 A.Y. 2001-02 10 ACIT VS. M/S INDUCTOTHERM (INDIA) PVT. LTD '(III) FOR THE PURPOSES OF DEDUCTION OF TAX UNDER S ECTION 195, THE RATE OR RATES OF INCOME TAX SPECIFIED IN THIS BEHALF IN THE FINANCE ACT OF THE RELEVANT YEAR OR THE RATE OR RATES OF IN COME TAX SPECIFIED IN AN AGREEMENT ENTERED INTO BY THE CENTRAL GOVERNMENT UNDER SECTION 90, WHICHEVER APPLICABLE BY VIRTUE OF THE PROVISION S OF SECTION 90' THE SECTION 90(2) PROVIDES AS UNDER: '(2) WHERE THE CENTRAL GOVERNMENT HAS ENTERED INTO AN AGREEMENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSID E INDIA UNDER SUB-SECTION (1) FOR GRANTING RELIEF OF TAX, OR AS T HE CASE MAY BE, AVOIDANCE OF DOUBLE TAXATION, THEN, IN RELATION TO THE ASSESSEE TO WHOM SUCH AGREEMENT APPLIES, THE, PROVISION 5 OF TH IS ACT SHALL APPLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THA T ASSESSEE. NEEDLESS TO ADD THAT RATE OF TDS UNDER THE DTAA (AR TICLE 12) AT 15% OF THE ROYALTY PAYABLE IS MORE BENEFICIAL TO TH E ASSESSEE AND HENCE THE GENERAL RATE IN FIRST SCHEDULE TO THE FIN ANCE ACT DOES NOT COME INTO OPERATION. THE APPELLANT HAS DEDUCTED TDS FROM THE ROYALTY PAYMENTS IN ACCORDANCE WITH THE RATE PRESCR IBED UNDER ARTICLE 12 OF THE DTAA. THE PRESCRIBED DECLARATION S UNDER SECTION 195 HAVE BEEN FILED WITH THE AO/THE TDS OFFICER, TH E RESERVE BANK OF INDIA AND THE AUTHORISED DEALER. THE APPELLANT H AS THUS CLAIMED THE DEDUCTION IN RESPECT OF ROYALTY PAYMENTS IN ACC ORDANCE WITH SECTION 40(A)(I). 6.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R, CAREFULLY. I FIND THAT THE APPELLANT HAS MADE TDS AS PER THE RATES PR OVIDED IN DTAA, HENCE DISALLOWANCE MADE BY THE A.O. IS NOT JUSTIFIE D, AND THE SAME IS DELETED. 15. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE I S NOW IN APPEAL BEFORE US. 16. BEFORE US, LD. DR SUPPORTED THE ORDER OF AO AND FURTHER SUBMITTED THAT THE MATTER BE SENT BACK TO THE AO TO VERIFY AB OUT THE CORRECT RATES OF TDS. LD. AR ON THE OTHER HAND REITERATED THE SUBMI SSIONS MADE BEFORE LD. CIT(A) AND FURTHER SUBMITTED THAT AS PER ARTICL E 12 OF INDO-USA TREATY THE APPLICABLE RATE OF TDS ON ROYALTY IS 15% AND TH EREFORE THE TDS HAS BEEN CORRECTLY DEDUCTED BY THE ASSESSEE. HE ALSO P OINTED TO COPY OF THE ITA NO. 1613/AHD/2008 A.Y. 2001-02 11 ACIT VS. M/S INDUCTOTHERM (INDIA) PVT. LTD ARTICLE 13 PLACED AT PAGE 168 OF THE PAPER BOOK. H E THUS SUPPORTED THE ORDER OF LD. CIT(A). 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT LD. CIT(A) WHILE DELETING THE ADDITION HAS GIVEN A FINDING THAT ASSESSEE HAS CORRECTLY DEDUCTE D THE TDS AS PER THE RATES PROVIDED IN DTAA ENTERED BETWEEN THE GOVERNME NT OF INDIA AND GOVERNMENT OF USA AND THEREFORE AO WAS NOT JUSTIFIE D IN DISALLOWING THE EXPENDITURE. BEFORE US, REVENUE HAS NOT BROUGHT AN Y MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF LD. CIT(A). WE THERE FORE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS GROUND OF REVENUE IS DISMISSED. GROUND NO. 4 IS WITH RESPECT TO DELETING THE DISALL OWANCE OF PRE-PAID EXCISE DUTY. 18. AO NOTICED THAT ASSESSEE HAD DEBITED PRE-PAID E XCISE DUTY OF RS. 62,59,521/- AND THE SAME WAS CLAIMED AS DEDUCTION U /S. 43B OF THE ACT. AO WAS OF HE VIEW THAT DEDUCTION U/S. 43B IS AVAILA BLE IF THE EXPENSE IS INCURRED DURING THE YEAR AND PAID ON OR BEFORE THE DUE DATE OF FILING OF RETURN. HE WAS THEREFORE OF THE VIEW THAT ASSESSEE HAS NOT INCURRED EXCISE DUTY LIABILITY DURING THE YEAR AND ACCORDINGLY DISA LLOWED THE CLAIM OF ASSESSEE. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE DECISIONS STATED THEREIN, DECIDED THE ISSUE IN FAVOUR OF THE ASSSESSEE BY HOLDING AS UNDER:- 7.1 BEFORE ME, THE LEARNED COUNSEL FOR THE APPELLA NT CONTENDED THAT THE CLAIM OF EXCISE DUTY PAID IS SUPPORTED BY THE D IRECT JUDICIAL AUTHORITIES IN LAKANPAL NATIONAL LIMITED 162 1TR 24 0 (GUJ), 230 ITR 885 (GUJ) AND BY RATIO OF BERGER PAINTS INDIA LIMIT ED 266 ITR 99 ITA NO. 1613/AHD/2008 A.Y. 2001-02 12 ACIT VS. M/S INDUCTOTHERM (INDIA) PVT. LTD (SC) AND HENCE NO DISALLOWANCE THEREOF IS JUSTIFIE D IN ANY CASE IN THE REASSESSMENT PROCEEDINGS. THE HON. GUJARAT HI GH COURT IN LAKHANPAL NATIONAL LIMITED 162 1TR 240 (GUJ) HAS HE LD AS UNDER: 'SECTION 43B OF THE INCOME TAX ACT, 1961 OPENS WITH A NON- OBSTANTE CLAUSE WHICH MEANS THAT IRRESPECTIVE OF OT HER PROVISIONS, SECTION 43B WILL HAVE OVERRIDING EFFECT. THE INTENT ION OF THE LEGISLATURE IS TO ALLOW DEDUCTION IN RESPECT OF ANY TAX OR DUTY IN COMPUTING UNDER SECTION 28 THE INCOME OF THAT PREVI OUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY THE ASSESSEE. TH E INTENTION IS MADE MORE SPECIFIC BY PROVIDING THAT IT WOULD BE SO IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUC H SUM WAS INCURRED BY THE ASSESSEE ACCORDING TO THE METHOD OF ACCOUNTI NG REGULARLY EMPLOYED BY THE ASSESSCE,' THE HON. SUPREME COURT IN BERGER PAINTS INDIA LIMIT ED 266 ITR 99 (SC) HAS HELD AS UNDER:- 'THE ENTIRE AMOUNT OF EXCISE DUTY/CUSTOMS DUTY PAID BY THE ASSESSEE IN A PARTICULAR ACCOUNTING YEAR IS ALLOWAB LE UNDER SECTION 43B OF THE INCOME LAX ACT, 1961, AS DEDUCTION IN RE SPECT OF THAT YEAR, IRRESPECTIVE OF THE AMOUNT OF EXCISE DUTY/CUS TOMS DUTY INCLUDED IN THE VALUATION OF THE ASSESSEE'S CLOSING STOCK AT THE END OF THE ACCOUNTING YEAR AS RELATING THERETO.' 7. 2 I HAVE CONSIDERED THE SUBMISSIONS OF THE A, R . CAREFULLY. AS THE EXCISE DUTY HAS BEEN PAID DURING THE YEAR, THE SAME IS DIRECTED TO BE ALLOWED U/S.43B OF THE IT. ACT. 19. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE I S NOW IN APPEAL BEFORE US. 20. BEFORE US, LD. DR SUPPORTED THE ORDER OF AO. O N THE OTHER HAND, LD. AR REITERATED THE SUBMISSIONS MADE BEFORE LD. C IT(A) AND SUPPORTED HIS ORDER. HE FURTHER SUBMITTED THAT ASSESSEE HAS B EEN CONSISTENTLY FOLLOWING THE SAME METHOD OF ACCOUNTING FOR EXCISE DUTY AND NO DISALLOWANCE HAS BEEN MADE IN EARLIER YEARS OR SUCC EEDING YEARS. ITA NO. 1613/AHD/2008 A.Y. 2001-02 13 ACIT VS. M/S INDUCTOTHERM (INDIA) PVT. LTD 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) AFTER CONSIDERING THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF LAKHANPAL NATION AL LTD 162 ITR 240 AND BERGER PAINTS INDIA LTD 266 ITR 99 (SC) HAS DELETED THE ADDITION. BEFORE US, REVENUE HAS NOT BROUGHT ANY CONTRARY BINDING MA TERIAL IN ITS SUPPORT. WE FURTHER FIND THAT THE ASSESSEES SUBMISSIONS OF HAVING FOLLOWED THE SAME METHOD OF ACCOUNTING AND CLAIMING DEDUCTION OF EXCISE DUTY IN EARLIER AND SUBSEQUENT YEARS ALSO HAVE NOT BEEN CON TROVERTED BY REVENUE. IN VIEW OF THE AFORESAID FACTS, WE FIND N O REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THIS GROUND IS DISMISSED. GROUND NO. 5 IS WITH RESPECT TO DELETING THE DISALL OWANCE ON ACCOUNT OF PROVISION FOR GRATUITY. 22. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAD DEBITED GRATUITY OF RS. 19,44,868/- IN ITS PROFIT AND LOSS ACCOUNT. HE FURTHER NOTICED THAT ASSESSEE HAS MADE PAYMENT OF RS. 5,96,873/- TOWARDS GRATUITY FUND MAINTAINED BY LIC. AO WAS OF THE VIEW THAT OUT OF THE TOTAL PROVISION OF RS.19,44,869/- T OWARDS GRATUITY PAYMENT SINCE ASSESSEE HAD NOT PAYMENT OF RS. 13,48,032/- T O APPROVED GRATUITY FUNDS, THE SAME WAS NOT ALLOWABLE U/S. 40A(7) OF TH E ACT. HE ACCORDINGLY DISALLOWED THE SAME. AGGRIEVED BY THE ORDER OF AO, ASSSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION MADE BY AO BY HOLDING AS UNDER:- 8.1 BEFORE ME, THE LEARNED COUNSEL FOR THE APPELLA NT CONTENDED THAT THE GRATUITY PROVISION [NOT FUNDED UNDER SECTION 40 A(7)] AS ON 31ST MARCH, 2001 WAS CUMULATIVE AT RS.79,81,247. THIS SU M WAS INCLUSIVE OF OPENING BALANCE (IN GRATUITY PROVISION ACCOUNT) AS ON 31ST MARCH, 2000 OF RS.74,21,369 CARRIED FORWARD FR OM THE PRECEDING YEAR. THE APPELLANT HAS ALREADY DISALLOW ED THE SAID RS.74,21,369 UNDER SECTION 40A(7) DURING THE ASSESS MENT YEAR ITA NO. 1613/AHD/2008 A.Y. 2001-02 14 ACIT VS. M/S INDUCTOTHERM (INDIA) PVT. LTD 2000-01. THE ADDITIONAL GRATUITY PROVISION MADE DUR ING THE PREVIOUS YEAR OF RS.5 , 59,878 (RS.79,8 1,247 - RS.74,21,369) [AND WHICH HA S NOT BEEN FUNDED UNDER SECTION 40A(7) HAS BEEN DISAL LOWED DURING THE PREVIOUS YEAR. THE APPELLANT HAS PAID RS . 5,96,837 AS LIC GROUP GRATUITY POLICY PREMIUM AND SO CLAIMED AND ACCEPTED IN THE ORIGINAL ASSESSMENT. THE APPELLANT ALSO INVITES ATTENTION TO NOTE NO. 2 IN COMPUTATION OF TOTAL INCOME FOR THE PREVIOUS YEAR A ND GRATUITY PROVISION MADE OF RS.7,62,641, IN RESPECT OF THREE EMPLOYEES, WHO RETIRED ON 31 ST MARCH, 2001, HAVE BEEN CLAIMED UNDER SECTION 40A(7)(B), SINCE THE SAID GRATUITY OF RS.7,62,641 H AVE SINCE BEEN PAID TO THE RESPECTIVE RETIRED EMPLOYEES IN APRIL, 2001 AS PER THE RECEIPTS FILED ON RECORDS OF THE PREDECESSOR A0. TH E REMAINING SUMS OF RS.13,884, RS.10,077 AND RS.1,553, AGGREGATING R S.25,514, ARE THE GRATUITY PAID AND GRATUITY POLICY EXPENSES PAID DURING THE PREVIOUS YEAR AND CLAIMED/ALLOWED IN THE ASSESSMENT . AS THE ENTIRE CUMULATIVE GRATUITY PROVISIONS OF RS. 79,81,247/- A S ON 31ST MARCH, 2001 HAVE BEEN DISALLOWED DURING THE ASSESSMENT YE ARS 2000-01 AND 2001-02 AND NOT CLAIMED, THERE HAS BEEN NO ERRO R ON FACTS OF THE CASE ON PART OF THE PREDECESSOR AO. THUS IT WAS SUBMITTED THAT NON-DEDUCTIBLE PROVISION FOR GRATUITY HAS BEEN RIGHTLY DISALLOWED BY THE APPELLANT AND ACCEPT ED IN THE ORIGINAL ASSESSMENT AND NO FURTHER ADJUSTMENT IS WARRANTED E VEN ON FACTS OF THE EASE. THIS IS THE CASE OF DOUBLE DISALLOWANCE. 8.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. C AREFULLY. AS NON-DEDUCTIBLE PROVISION FOR GRATUITY OF RS.5,59,87 87/- HAS BEEN ALREADY DISALLOWED BY THE APPELLANT IN THE STATEMEN T OF INCOME AND THE APPELLANT HAS GIVEN A NOTE NO. 2 OF STATEMENT O F INCOME SAYING RS.7,62,641/- HAS BEEN PAID IN APRIL, 2001 TO THE T HREE EMPLOYEES WHO RETIRED ON 31.03.2001, HENCE, NO FURTHER DISALL OWANCE IS REQUIRED TO BE MADE . HENCE THE DISALLOWANCE IS DEL ETED. 23. AGGRIEVED BY THE ORDER OF AO, REVENUE IS NOW IN APPEAL BEFORE US. 24. BEFORE US, LD. DR SUPPORTED THE ORDER OF AO AND FURTHER SUBMITTED THAT THE PROVISION OF GRATUITY IS AN UNASCERTAINED LIABILITY AND FURTHER NO DETAILS OF PAYMENTS WERE SUBMITTED BY THE ASSESSEE BEFORE AO. HE FURTHER SUBMITTED THAT LD. CIT(A) DECIDED THE ISSUE WITHOUT CALLING FOR ANY REMAND REPORT FROM AO. HE THEREFORE SUPPORTED THE ORDER OF AO. LD. AR ITA NO. 1613/AHD/2008 A.Y. 2001-02 15 ACIT VS. M/S INDUCTOTHERM (INDIA) PVT. LTD ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE B EFORE LD. CIT(A) AND FURTHER SUBMITTED THAT THE PROVISION FOR GRATUITY W AS ALSO EXAMINED IN PROCEEDINGS U/S. 263 OF THE ACT AND THUS THERE WAS NO NEW EVIDENCE BEFORE LD. CIT(A). HE THUS SUPPORTED THE ORDER OF LD. CIT(A). 25. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE LD. CIT(A) AFTER CONSIDER ING THE SUBMISSIONS OF THE ASSESSEE HAS NOTED THAT THE NON-DEDUCTABLE PROV ISION OF GRATUITY WAS DISALLOWED BY THE ASSESSEE SUO MOTO AND ACCEPTED I N THE ORIGINAL ASSESSMENT AND NO FURTHER DISALLOWANCE WAS WARRANTE D AS IT WOULD BE A DOUBLE DISALLOWANCE. BEFORE US, REVENUE HAS NOT BR OUGHT ANY MATERIAL ON RECORD IN SUPPORT OF ITS CONTENTION. WE THEREFORE FIND NO REASON TO INTERFERE THE ORDER OF LD. CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED . NEXT GROUND IS WITH RESPECT TO DELETION OF UNPAID S ALES COMMISSION. 26. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAD PROVIDED FOR SALES COMMISSION OF RS. 2 ,00,000/-. HE ALSO NOTICED THAT THERE WAS UNPAID SALES COMMISSION OF R S. 15,15,000/- AS ON 01-04-2001. AO NOTICED THAT IN THE ABSENCE OF DETA ILS OF PROVISION OF RS. 2,00,000/- THE EXPENDITURE CANNOT BE ALLOWED AND AC CORDINGLY DISALLOWED THE SAME. AGGRIEVED BY THE ORDER OF AO, ASSESSEE C ARRIED THE MATTER BEFORE LD. CIT(A) WHO DELETED THE ADDITION BY HOLDI NG AS UNDER:- 9.1 BEFORE ME, THE LEARNED COUNSEL OF THE APPELLAN T SUBMITTED THAT THE SALES COMMISSION IS IN RESPECT OF SALES EFFECTE D DURING THE PREVIOUS YEAR, IS RELATABLE TO THE PREVIOUS YEAR, W AS ACTUALLY PAID BY CHEQUE DURING THE PREVIOUS YEAR AND THE SAID SALES COMMISSION WAS NOT OUTSTANDING FOR PAYMENT AND THAT IT WAS NOT A P ROVISION ENTRY FOR ANY OUTSTANDING EXPENSES. THE APPELLANT ADDS THAT THE OPENING BALANCE IN SALES COMMISSION PROVISION IS IN RESPECT OF LIABILITIES ACCRUED DURING EARLIER YEARS AND THE SAME HAS NOT B EEN CHARGED TO ITA NO. 1613/AHD/2008 A.Y. 2001-02 16 ACIT VS. M/S INDUCTOTHERM (INDIA) PVT. LTD PROFIT AND LOSS ACCOUNT OF THE PREVIOUS YEAR. THE SALES COMMISSION OF RS. 2 LACS ACCRUED, DUE AND WAS PAID BY CHEQUE D URING THE PREVIOUS YEAR. 27. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE I S NOW IN APPEAL BEFORE US. 28. BEFORE US, LD. DR SUBMITTED THE NO DETAILS OF S ALES COMMISSION WAS PROVIDED BY THE ASSESSEE BEFORE AO AND FURTHER LD. CIT(A) DECIDED THE ISSUE WITHOUT CALLING A REMAND REPORT FROM AO. HE THEREFORE SUPPORTED THE ORDER OF AO. LD. AR ON THE OTHER HAND REITERATED T HE SUBMISSION MADE BEFORE LD. CIT(A) AND FURTHER POINTED TO PAGE 198 T O 209 BEING THE DETAILS OF SALES COMMISSION THAT WERE FURNISHED BY THE ASSE SSEE BEFORE AO. HE THUS SUPPORTED THE ORDER OF LD. CIT(A). 29. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HAS GIVEN A FINDING THA T THE ALLOWABILITY TOWARDS SALES COMMISSIONS AROSE DURING THE YEAR AND HAS BEEN PAID DURING THE YEAR AND THEREFORE THE SAME WAS RIGHTLY CLAIMED AS EXPENDITURE. BEFORE US, REVENUE HAS NOT BROUGHT ANY CONTRARY MAT ERIAL ON RECORD IN ITS SUPPORT. WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). IN THE RESULT, THIS GROUND OF REVENUE IS DISMISSED . NEXT GROUND IS WITH RESPECT TO DELETION OF BAD DEBT S. 30. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAS CLAIMED BAD DEBTS. HE ALSO NOTICED TH AT ASSESSEE HAD NOT JUSTIFIED AS TO HOW DEBTS HAD BECOME BAD AND ALSO N OT PRODUCED ITA NO. 1613/AHD/2008 A.Y. 2001-02 17 ACIT VS. M/S INDUCTOTHERM (INDIA) PVT. LTD EVIDENCES OF RECOVERY MEASURES TAKEN BY THE ASSSESS EE AGAINST THE PARTIES. HE WAS THEREFORE OF THE VIEW THAT THE BAD DEBTS CANNOT BE ALLOWED AND ACCORDINGLY CONSIDERED 25% OF THE BAD DEBT OF R S. 1,3,45,401/- AMOUNTING TO RS. 25,86,350/- TO BE NOT ALLOWABLE AN D ACCORDINGLY DISALLOWED THE SAME. AGGRIEVED BY THE ORDER OF AO, ASSSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION BY HOLDING AS UNDER:- 11.2 I HAVE CONSIDERED THE FACTS OF THIS CASE AND ALSO PERUSED THE ASSESSMENT ORDER. I FIND THAT THE A.O. HAS MADE DI SALLOWANCE OF BAD DEBTS AT 25% OF TOTAL BAD DEBTS CLAIMED, THERE CAN NOT BE A PERCENTAGE DISALLOWANCE IN CASE OF BAD DEBT . FURTH ER THE CLAIM OF BAD DEBT HAD BEEN DISCUSSED IN THE ORIGINAL ASSESSM ENT AND DISALLOWANCE OF BAD DEBTS OF RS. 5,45,954/- WAS M ADE IN THE ORIGINAL ASSESSMENT AND THE SAME HAD BEEN ALLOWED BY THE C.I.T.(APPEALS) BY HOLDING THAT THE DEBTS WERE OUTS TANDING FOR MORE THAN THREE YEARS AND THE TOTAL AVERAGE AMOUNT OF BA D DEBT WAS QUITE SMALL WITH REFERENCE TO THE TOTAL TURNOVER OF THE C OMPANY AND THAT THE CONDITIONS LAID DOWN IN SECTION 36(L)(VII) R.W.S. 3 6(2) WERE SATISFIED. AS THE CLAIM OF BAD DEBTS WAS ALREADY EXAMINED BY THE A.O. AND HAD BEEN DECIDED BY THE CIT.(APPEALS), THE RE-EXAMI NATION OF THE SAME IS NOT PROPER . SIMILAR DISALLOWANCE OF BAD D EBTS HAS BEEN DELETED IN THE CASE OF APPELLANT IN A.Y. 2004-05 , A.Y. 2003-04 BY HOLDING THAT THE BAD DEBTS WRITTEN OFF ARE OF THE N AME OF PRICE REBATE. CONSIDERING THAT SIMILAR FACTS EXISTED IN THE YEAR UNDER CONSIDERATION AND THE FINDING IN THE ORIGINAL ASSESSMENT FOR THIS YEAR THAT CONDITIONS AS REQUIRED FOR CLAIM OF BAD DEBTS WERE SATISFIED EXCEPT FOR BAD DEBTS OF RS.5.45 LAKHS WHICH WERE FURTHER A LLOWED BY THE CIT(APPEALS) AND THAT THE A.O. HAS NOT COME OUT WITH SPECIFIC FINDING FOR MAKING/ DISALLOWANCE IN RESPECT OF ANY PARTICULAR BAD DEBT, BUT HAS MADE ESTIMATED DISALLOWANCE , THE DIS ALLOWANCE OF BAD DEBTS IS HELD TO BE NOT JUSTIFIED AND THE SAME IS DELETED. 31. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE I S NOW IN APPEAL BEFORE US. ITA NO. 1613/AHD/2008 A.Y. 2001-02 18 ACIT VS. M/S INDUCTOTHERM (INDIA) PVT. LTD 32. BEFORE US, LD. DR SUPPORTED THE ORDER OF AO. O N THE OTHER HAND, LD. AR REITERATED THE SUBMISSIONS MADE BEFORE AO AN D SUPPORTED THE ORDER OF CIT(A). 33. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) AFTER CONSIDERING T HE SUBMISSIONS OF THE ASSESSEE AND FOLLOWING THE ORDER OF HIS PREDECESSOR GRANTED RELIEF TO THE ASSESSEE. WE FURTHER FIND THAT LD. CIT(A) HAS NOTED THAT AO HAS NOT COME OUT WITH ANY SPECIFIC FINDING FOR MAKING DISALLOWAN CE IN RESPECT OF ANY PARTICULAR BAD DEBT BUT HAD MADE ESTIMATED DISALLOW ANCE. BEFORE US, REVENUE HAS NOT BROUGHT ANY CONTRARY BINDING MATERI AL IN ITS SUPPORT NOR COULD CONTROVERT THE FINDING OF LD. CIT(A). . WE T HEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 34. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENT IONED HEREINABOVE AT CAPTION PAGE SD/- SD/- (MUKUL KR. SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 26/03/2015 AK / COPY OF ORDER FORWARDED TO :- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. ITA NO. 1613/AHD/2008 A.Y. 2001-02 19 ACIT VS. M/S INDUCTOTHERM (INDIA) PVT. LTD BY ORDER/ , / ,