M/s. Humbold Wedag India (P) Ltd., Kolkata V. DCIT, Circle - 8, Kolkata, Kolkata

ITA 168/KOL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48069 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2011
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 19-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 27-01-2010
• Court: TRIBUNAL
• Assessee Lawyers: D S DAMLE; M D SHAH
• Keywords: Principle of natural justice; Bad and doubtful debts
• Section: 143(3)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : KOLKATA ( ) , , . . , , ) [BEFORE HONBLE SRI MAHAVIR SINGH, J.M. & HONBLE SRI C.D. RAO, A.M.] ! ! ! ! / I.T.A NOS. 168 & 169/KOL/2010 '# '# '# '# $% $% $% $% / ASSESSMENT YEARS : 2004-2005 & 2006-2007 M/S. HUMBOLDT WEDAG INDIA (P) LTD., -VS.- DEPUTY COMMISSIONER OF INCOME TAX, KOLKATA (PAN : AAACH 7474 G) CIRCLE-8, KOLKATA ( &' &' &' &' /APPELLANT ) ( ()&' ()&' ()&' ()&' / RESPONDENT ) FOR THE APPELLANT : S/SHRI D.S. DAMLE & M.D. SHAH , A.R. FOR THE RESPONDENT : SHRI M.S. MEENA, D.R. * * * * / ORDER PER BENCH :- THESE TWO APPEALS BY ASSESSEE ARE ARISING OUT OF TH E ORDERS OF CIT(A)-VIII, KOLKATA IN APPEAL NOS. 213/CIT(A)-VIII/KOL/06-07 & 312/CIT(A)-VIII/KOL/08-09, BOTH DATED 23.11.2009. ASSESSMENTS WERE FRAMED BY D CIT, CIR-8, KOLKATA FOR ASSESSMENT YEARS 2004-05 & 2006-07, VIDE DATED 22.1 1.2006 AND 02.12.2008 RESPECTIVELY U/S. 143(3) OF THE INCOME TAX ACT, 196 1 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE FIRST ISSUE IN THESE TWO APPEALS OF THE ASSE SSEE IS COMMON, WHICH IS AGAINST THE ORDER OF CIT (APPEALS) CONFIRMING THE DISALLOWA NCE OF BAD DEBTS. FOR THIS, THE ASSESSEE HAS RAISED THE GROUNDS AS UNDER:- IN ITA NO. 168/KOL./2010 FOR THAT ON LAW AS WELL AS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A.) HAS FAILED TO CONSIDER TH AT BAD DEBTS AMOUNTS TO RS.29,65,196/- WHICH WAS CONSIDERED BAD AND WRIT TEN OFF DURING THE YEAR UNDER CONSIDERATION HAS ORIGIN WITH THE NORMAL BUSINESS TRANSACTION OF THE COMPANY BEING A CONSTRUCTION COM PANY AND THE DEBTS REPRESENTED FOR THE BALANCE/ RETENTION MONEY AND DEBTOR BEING THE BUSINESS CLIENT WHICH HAS WITHHELD THE AMOUNT F OR VARIOUS DISPUTES ITA NOS.168 & 169/KOL./2010 2 WHICH CONSIDERED BAD TO WRITE OFF FROM BOOKS AND AN Y SUBSEQUENT RECOVERY WOULD BE CHARGED TO TAX UNDER SECTION. 41 OF THE ACT. IN ITA NO. 169/KOL./2010 FOR THAT ON LAW AS WELL AS ON FACTS AND IN THE CIR CUMSTANCES OF THE CASE, THE LD. CIT(A.) HAS FAILED TO CONSIDER THAT B AD DEBT AMOUNTING TO RS.22,50,080/- REPRESENTS FOR THE BALANCE AMOUNT OF OUTSTANDING BILLS FROM CUSTOMER WHICH WERE WITHHELD DUE TO DISPUTE AN D IS OUTSTANDING FOR A LONGTIME, CONSIDERED BAD AND WRITTEN OFF FROM BOOKS AND ANY SUBSEQUENT RECOVERY WOULD BE CHARGED TO TAX UNDER S ECTION 41 OF THE ACT. 2. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS ISSUE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04 IN ITA NO. 792/KOL ./2007 HAS ALREADY BEEN SET ASIDE TO THE FILE OF ASSESSING OFFICER AND HE REQUESTED THAT ON SIMILAR LINES, THE ISSUE CAN BE REMITTED BACK TO THE FILE OF ASSESSING OFFICER. ON THE OTHER HAND , THE LD. CIT (D.R.) HAS NOT OBJECTED TO THE SETTING ASIDE OF THE ISSUE AND HE CONCEDED THE POSI TION. 3. WE AFTER HEARING THE RIVAL SUBMISSIONS FIND FROM THE TRIBUNALS ORDER IN ASSESSEES OWN CASE IN ITA NO. 792/KOL./2007 FOR ASSESSMENT YEAR 2 003-04 THAT THIS ISSUE HAS BEEN SET ASIDE BY GIVING FOLLOWING FINDINGS :- SINCE IN THE PRESENT CASE ALSO THE ASSESSEE HAS NO T SUBMITTED THE EVIDENCE BEFORE THE AO AND THE LD. CIT(A.) SUCH CLAIM OF THE ASSESSEE CANNOT BE ENTERTAINED. HOWEVER, IN APPEAL BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IF GIVEN AN OPPORTUNITY, THE ASSESSE E WILL PRODUCE MATERIAL EVIDENCE BEFORE THE AUTHORITIES BELOW AND THEREFORE , KEEPING IN VIEW THE PRINCIPLES OF NATURAL JUSTICE, WE RESTORE THE MATTE R BACK TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH AFTER ALLOWING REASON ABLE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. RESPECTFULLY FOLLOWING THE TRIBUNALS DECISION, WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO CONSIDER THE DECISION OF THE H ONBLE APEX COURT IN THE CASE OF TRF LTD. VS. CIT (2010) 323 ITR 397 AND VIJAYA BANK LTD. VS. CIT (2010) 323 ITR 166, WHEREIN THE PRINCIPLES FOR ALLOWING BAD DEBTS IN THE YEAR IN WH ICH DEBT IS ACTUALLY WRITTEN OFF BY THE ASSESSEE IS LAID DOWN. RESULTANTLY, THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS.168 & 169/KOL./2010 3 4. THE NEXT ISSUE IN ITA NO. 169/KOL./2010 IS WITH REGARD TO THE ORDER OF LD. CIT(APPEALS) CONFIRMING THE DISALLOWANCE OF ROYALTY PAYMENT BY I NVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. FOR THIS, THE ASSESSEE HAS RAISED THE F OLLOWING GROUNDS :- FOR THAT ON LAW AS WELL AS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A.) HAS FAILED TO CONSIDER :- (A) THAT THE AMOUNT OF RS.3,96,11,062/- REPRESENTS FOR ROYALTY PAYABLE TO THE FOREIGN COLLABORATOR ON THE BASIS OF ACTUAL SALE OF GOODS MANUFACTURED/ SERVICE RENDERED WHICH WOULD ONLY BE ASSESSED AFTER CLOSE OF THE ACCOUNTING YEAR END OF THE COMPANY, AND COMPLETION OF THE AUDI TED AND NOT ON ANY EARLY DATE. (B) THAT THE PROVISIONAL ENTRIES ARE MADE IN ACCOUNTS A T THE TIME OF QUARTERLY CLOSING OF ACCOUNTS ONLY TO ASCERTAIN TRUE PROFIT O F THE COMPANY WITHOUT CREDITING TO THE ACCOUNTS OF THE FOREIGN COLLABORAT OR. (C) THAT THE PROVISIONS UNDER SECTION 195 OF THE ACT CA STS RESPONSIBILITY ON THE ASSESSEES TO DEDUCT TAX AT SOURCE ONLY AT THE TIME OF CREDIT OF THE AMOUNT IN THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUING CHEQUE OR DRAFT OF BY ANY OTHER MODE, WHICH EVER IS EARLIER, AND ROYALTY HAS BEEN THE CREDIT TO THE PARTYS ACCOUNT ONLY ON 31.3.2006 AND ACCORDINGLY TAX WAS DEPOSITED WITHIN TIME ON 23.05. 2006. (D) THAT THE ACTUAL REMITTANCE WERE MADE AFTER THE DEPO SIT OF TAX. (E) THAT BEING THE EARLIER OF THE TWO WAS THE CREDIT IN ACCOUNT OF THE PAYEE ON 31.03.2006, THE ASSESSEE HAS RIGHTLY DEPOSITED TAX ON 23.05.2006. 5. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ROYALTY PAYABLE TO THE FOREIGN COLLABORATOR WAS ON THE BASIS OF ACTUAL SAL E OF GOODS MANUFACTURED/ SERVICES RENDERED, WHICH WOULD BE ASSESSED ONLY AFTER CLOSE OF THE ACC OUNTING YEAR END OF THE COMPANY AND COMPLETION OF THE AUDIT AND NOT ON ANY EARLY DATE. ACCORDING TO THE LD. COUNSEL, THE PROVISIONAL ENTRIES ARE MADE IN ACCOUNTS AT THE TIME OF QUARTER LY CLOSING OF ACCOUNTS ONLY TO ASCERTAIN TRUE PROFIT OF THE COMPANY WITHOUT CREDITING TO THE ACCO UNTS OF THE FOREIGN COLLABORATOR. HE STATED THAT THE PROVISIONS OF SECTION 195 OF THE ACTS CAST S RESPONSIBILITY ON THE ASSESSEE TO DEDUCT TAX ONLY AT SOURCE AT THE TIME OF CREDIT OF THE AMOUNT IN THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUING CHEQUE OR DRA FT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, AND ROYALTY HAS BEEN CREDITED AND IN THIS CASE, ACCORDING TO LD. COUNSEL ROYALTY HAS BEEN CREDITED TO THE PARTYS ACCOUNT ONLY ON 31.03.2006 AND TDS WAS DEPOSITED WITHIN THE DUE DATE OF 23.05.2006. HE ARGUED THAT THE ACTUAL REMITTANCE S WERE MADE AFTER THE DEPOSIT OF TAX. IN VIEW OF THIS, HE STATED THAT NONE OF THE AUTHORITIES BEL OW HAVE CONSIDERED THIS ISSUE WHETHER THE ITA NOS.168 & 169/KOL./2010 4 PARTYS ACCOUNTS WERE CREDITED AS ON 31.03.2006 OR NOT. THIS ISSUE HAS NOT BEEN CONSIDERED BY THE AUTHORITIES BELOW. THEREFORE, THIS ISSUE MAY BE REMITTED BACK TO THE FILE OF ASSESSING OFFICER FOR VERIFICATION AND FRESH DECISION IN TERM S OF LAW. ON THE OTHER HAND, THE LD. CIT(D.R.) HAS NOT OBJECTED TO THE SETTING ASIDE OF THE ISSUE. 6. WE, AFTER HEARING THE RIVAL SUBMISSIONS AND PERU SING THE MATERIAL AVAILABLE ON RECORD, FIND THAT THE PLEA OF THE ASSESSEE IS QUITE REASONA BLE THAT THE ASSESSING OFFICER WILL FIRST ASCERTAIN THE TIME OF CREDIT WHETHER THE PARTYS AC COUNTS WERE CREDITED AS ON 31.03.2006 OR NOT AND THEN DECIDE THE ISSUE ON APPLICABILITY OF TDS A ND PAYMENT OF TDS WHETHER IT IS PAID WITHIN THE DUE DATE OR NOT. THE LD. COUNSEL FOR THE ASSESS EE ARGUED THAT AO DISALLOWED THE ROYALTY ON THE GROUND THAT THE ASSESSEE DID NOT PRODUCE EVIDEN CE TO ESTABLISH THAT THE TAX DEDUCTED ON THE ROYALTY WAS PAID IN CONFORMITY WITH SEC. 195 READ W ITH RULE 30 AND FURTHER CIT(A) UPHELD THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE FAILED TO ESTABLISH ITS SUBMISSIONS THAT ROYALTY WAS CREDITED TO THE PAYEES ACCOUNT ON THE LAST DAY OF THE PREVIOUS YEAR WHEN AS PER THE AGREEMENT THE ROYALTY WAS PAYABLE AT HALF YEARLY REST AND NOT ANNUALLY. 7. THE COUNSEL FURTHER ARGUED THAT BEFORE MAKING TH E DISALLOWANCE U/S. 40(A)(I) THE AUTHORITIES BELOW HOWEVER DID NOT EXAMINE JURISDICT IONAL FACTS TO ASCERTAIN WHETHER THE ASSESSEE HAD ACTUALLY VIOLATED THE PROVISIONS OF SEC. 195 RE AD WITH RULE 30 OF THE I. T. RULES. THE AMOUNT DISALLOWED INTER ALIA INCLUDED THE FOLLOWING SUMS: I) RESEARCH & DEVELOPMENT CESS PAYABLE TO RS. 20,49 ,731/- CENTRAL GOVT. ON ROYALTY. II) ROYALTY PAYABLE BY CEMENT DIVISION RS.3,46,51,982 /- (INCLUSIVE OF TDS OF RS.34,65,198) PAID ON 23.05.2006. III) ROYALTY PAYABLE BY MINERAL DIVISION RS. 29,09,43 9/- (INCLUSIVE OF TDS OF RS.3,26,429) PAID ON 30.12.2006 HE STATED IN RESPECT OF PAYMENT OF R&D CESS, THAT SEC. 40(A)(I) WAS NOT APPLICABLE BECAUSE PAYMENTS WERE NOT MADE TO NON RESIDENT BUT PAYMENTS WERE MADE TO CENTRAL GOVT. FURTHER HE REFERRED THAT THE ROYALTY PAYABLE TO TH E NON RESIDENT WAS CREDITED TO THE PAYEES ACCOUNT ON 31.03.2006 AND ON SAME DATE PRO VISION FOR ROYALTY WAS DEBITED IN THE ASSESSEES BOOKS AND CORRESPONDING AMOUNT WAS CREDI TED TO THE PAYEES ACCOUNT. AS PER SEC. ITA NOS.168 & 169/KOL./2010 5 195 OF THE I. T. ACT TAX IS REQUIRED TO BE PAID EIT HER AT THE TIME OF REMITTANCE OR AT THE TIME OF CREDIT TO THE PAYEES ACCOUNT; WHICHEVER IS EARLIER . HE NARRATED THE FACTS THAT THE ROYALTY OF RS.3,75,61,331/- WAS CREDITED TO THE PAYEES ACCOUN T AND CORRESPONDING AMOUNT WAS DEBITED TO THE ROYALTY ACCOUNT ON 31.03.2006 BESIDES R&D CESS OF RS.17,32,600/- WAS ALSO DEBITED TO THE ROYALTY ACCOUNT ON 31.03.2006. LD. COUNSEL FURTHER STATED THE FACTS THAT OUT OF R S.3,75,61,331/-, ROYALTY OF RS.3,46,51,982/- WAS PAYABLE BY THE CEMENT DIVISION AND RS.29,09,439/- WAS PAYABLE BY THE MINERAL DIVISION. TDS OF RS.34,65,198/- PAYABLE I N RESPECT OF ROYALTY OF CEMENT DIVISION; WAS PAID TO THE CREDIT OF CENTRAL GOVT. ON 23.05.20 06. IN RESPECT OF ROYALTY OF RS.29,09,439/- PAYABLE BY MINERAL DIVISION, THE TDS OF RS.3,26,429 /- WAS PAID ON 30.12.2006. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE R EMIT THIS ISSUE BACK TO THE FILE OF THE AO FOR FRESH DECISION IN TERMS OF THE ABOVE SUBMISS IONS AFTER VERIFICATION OF FACTS. ACCORDINGLY, THIS ISSUE OF THE ASSESSEES APPEAL IS SET ASIDE TO THE FILE OF THE AO. 8. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASS ESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- [C.D. RAO/ ( . . )] [MAHAVIR S INGH / ] ACCOUNTANT MEMBER/ JUDICIAL MEMBER/ LAHA, SR. P.S. DATED : 19/ 04 / 2011 COPY OF THE ORDER FORWARDED TO: 1 . M/S. HUMBOLDT WEDAG INDIA (P) LTD., KANAK BUILDING , 4 TH FLOOR, 41, CHOWRINGHEE ROAD, KOLKATA-700 071; 2 DCIT, CIRCLE-8, KOLKATA, P-7, CHOWRINGHEE SQUARE, K OLKATA- 69 3 . CIT(A)- ,KOLKATA 4 . CIT, KOLKATA- 5 . DR, KOLKATA BENCHES, KOLKATA (TRUE COPY) BY ORDER ASSISTANT REGISTRAR, I.T.A.T., KOLKATA