M/s. Zenith Exports Limited, Kolkata V. ACIT, Circle-5, Kolkata, Kolkata

ITA 1845/KOL/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9390 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 20-09-2016
• Court: TRIBUNAL
• Assessee Lawyers: MANISH TIWARI F
• Keywords: Business income; Bad and doubtful debts
• Section: 143(3); 115JB; 10B

Judgement Text

I.T.A. NO. 1845/KOL./2016 ASSESSMENT YEAR: 2006-2007 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA SMC BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER I.T.A. NO. 1845/KOL/ 2016 ASSESSMENT YEAR: 2006-2007 M/S. ZENITH EXPORTS LIMITED,....................... .............................APPELLANT 19, R.N. MUKHERJEE ROAD, KOLKATA-700 001 [PAN: AAACZ 0986 F] -VS.- ASSISTANT COMMISSIONER OF INCOME TAX,.............. .................RESPONDENT CIRCLE-5, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 APPEARANCES BY: SHRI MANISH TIWARI, F.C.A., FOR THE ASSESSEE SHRI DULAL CH. MONDAL, JCIT, SR. D.R., FOR THE DEPARTMENT DATE OF CONCLUDING THE HEARING : DECEMBER 20, 2016 DATE OF PRONOUNCING THE ORDER : FEBRUARY 03, 2017 O R D E R THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, KOLKATA DAT ED 05.07.2016. 2. THE ISSUE INVOLVED IN GROUND NO. 1 RELATES TO TH E DISALLOWANCE OF ASSESSEES CLAIM FOR EXEMPTION UNDER SECTION 10B IN RESPECT OF THE FOLLOWING INCOMES:- PROVISION FOR BAD AND DOUBTFUL DEBTS WRITTEN BACK RS.5,16,789/ - EXCESS PROVISION WRITTEN BACK RS.7,59,417/ - MISCELLANEOUS RECEIPTS (SALE OF SCRAP) RS.5,05,375/ - SUNDRY BALANCES WRITTEN BACK RS. 70,249/ - PROFIT ON SALE OF ASSETS RS. 23,315/ - I.T.A. NO. 1845/KOL./2016 ASSESSMENT YEAR: 2006-2007 PAGE 2 OF 5 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF EXPORT OF LEATHER HAND GLOVES, SILK FABRICS AND MADE-UPS, MANUFACTURE OF YARNS AND 100% NATURAL SILK FABRICS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 30.11.2006 DECLARING TOTAL INCOME AT NIL AFTER CLAIMING EXEMPTION UNDE R SECTION 10B. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE CLAIM OF THE ASSESSEE FOR EXEMPTION UNDER SECTION 10B WAS EXAMINED BY THE ASS ESSING OFFICER AND ON SUCH EXAMINATION, HE DISALLOWED THE CLAIM OF THE ASSESSEE FOR EXEMPTION UNDER SECTION 10B IN RESPECT OF CERTAIN R ECEIPTS AGGREGATING TO RS.18,75,145/- ON THE GROUND THAT THE EXEMPTION UND ER SECTION 10B WAS ALLOWED ONLY IN RESPECT OF RECEIPTS, WHICH ARE DIRE CTLY LINKED TO THE EXPORT. ON APPEAL, THE LD. CIT(APPEALS) UPHELD THE ACTION OF THE ASSESSING OFFICER ON THIS ISSUE BY OBSERVING THAT FOR CLAIMIN G EXEMPTION/DEDUCTION UNDER SECTION 10B, THE ASSESSEE SHOULD SHOW THAT TH E AMOUNT WAS RECEIVED FROM EXPORT. HE HELD THAT THE RELEVANT REC EIPTS WERE NOT DIRECTLY LINKED TO THE EXPORT BUSINESS OF THE ASSESSEE AND, THEREFORE, THE ASSESSEE WAS NOT ENTITLED FOR EXEMPTION/DEDUCTION THEREOF. 4. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT A SIMILAR ISSUE IN THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 10B IN THE CONTEXT OF INTEREST INCOME HAD COME UP FOR CONSIDERATION BEFOR E THE BANGALORE BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS.- MO TOROLA INDIA ELECTRONICS (P) LIMITED [114 ITD 387] AND AFTER TAKING INTO CON SIDERATION THE METHODOLOGY PROVIDED IN SUB-SECTION (4) FOR ARRIVIN G AT THE EXPORT PROFITS OF THE BUSINESS OF THE UNDERTAKING, IT WAS HELD BY THE TRIBUNAL THAT THE ENTIRE PROFITS DERIVED FROM THE BUSINESS OF UNDERTA KING SHOULD BE TAKEN INTO CONSIDERATION WHILE COMPUTING PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTION 10B BY APPLYING THE MANDATORY FORMULA GIVEN IN SUB-SECTION 4. IN MY OPINION, THE RATIO LAID DOWN BY THE COORDINATE B ENCH OF THIS TRIBUNAL IS SQUARELY APPLICABLE IN THE PRESENT CASE AND SINC E THE RECEIPTS OR INCOME ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS WRITTEN BACK, EXCESS PROVISION WRITTEN BACK, SALE OF SCRAP AND SU NDRY BALANCES WRITTEN I.T.A. NO. 1845/KOL./2016 ASSESSMENT YEAR: 2006-2007 PAGE 3 OF 5 BACK CLEARLY FORMED PART OF THE BUSINESS INCOME OF THE ASSESSEE, I AM OF THE VIEW THAT THE SAME SHOULD BE TAKEN INTO CONSIDE RATION WHILE COMPUTING THE PROFIT OF THE ASSESSEE ELIGIBLE FOR D EDUCTION UNDER SECTION 10B, I ACCORDINGLY DIRECT THE ASSESSING OFFICER TO RECALL THE DEDUCTION UNDER SECTION 10B AFTER TAKING INTO CONSIDERATION T HE SAID RECEIPTS AND PARTLY ALLOW GROUND NO. 1 OF THE ASSESSEES APPEAL. 5. THE ISSUE INVOLVED IN GROUND NO. 2 RELATES TO TH E DISALLOWANCE OF RS.8,92,230/- MADE BY THE ASSESSING OFFICER AND CON FIRMED BY THE LD. CIT(APPEALS) ON ACCOUNT OF PRIOR PERIOD EXPENSES. 6. THE PRIOR PERIOD EXPENSES OF RS.8,92,230/- DEBIT ED BY THE ASSESSEE TO THE PROFIT & LOSS ACCOUNT WERE DISALLOWED BY THE ASSESSING OFFICER IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) AS TH E ASSESSEE FAILED TO ESTABLISH ON EVIDENCE THE ALLOWABILITY AS WELL AS C RYSTALLISATION OF THE SAID EXPENSES IN THE YEAR UNDER CONSIDERATION. ON A PPEAL, THE LD. CIT(APPEALS) CONFIRMED THE SAID DISALLOWANCE MADE B Y THE ASSESSING OFFICER ON THE GROUND THAT ONLY THOSE PRIOR PERIOD EXPENSES COULD BE ALLOWED WHICH HAD BEEN CRYSTALLIZED DURING THE RELE VANT YEAR. HE HELD THAT THE ASSESSEE NEITHER DURING THE COURSE OF ASSE SSMENT PROCEEDINGS NOR EVEN DURING THE COURSE OF APPELLATE PROCEEDINGS HAD PRODUCED ANY EVIDENCE TO SHOW THAT THE LIABILITY FOR THE RELEVAN T PRIOR PERIOD EXPENSES WAS CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION. 7. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT THE PRIOR PERIOD EXPENSES OF RS.8,92,230/- CLAIMED BY THE ASSESSEE I N THE YEAR UNDER CONSIDERATION ARE DISALLOWED BY THE ASSESSING OFFIC ER AS WELL AS BY THE LD. CIT(APPEALS) AS THE ASSESSEE FAILED TO ESTABLISH ON EVIDENCE THAT THE SAME HAD CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATIO N. EVEN AT THE TIME OF HEARING BEFORE ME, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT BEEN ABLE TO DO SO. I, THEREFORE, FIND NO JUSTIFIABLE REASON TO INT ERFERE WITH THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) CONFIRMING THE DISALL OWANCE MADE BY THE I.T.A. NO. 1845/KOL./2016 ASSESSMENT YEAR: 2006-2007 PAGE 4 OF 5 ASSESSING OFFICER ON ACCOUNT OF PRIOR PERIOD EXPENS ES AND UPHOLDING THE SAME, I DISMISS THE GROUND NO. 2 OF THE ASSESSEES APPEAL. 8. AS REGARDS THE ISSUE RAISED IN GROUND NO. 3 RELA TING TO THE ADDITION OF RS.18,75,145/- MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON ACCOUNT OF DISALLOWANCE MADE UNDER SECTION 10B WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB, IT I S OBSERVED THAT SUCH ADJUSTMENT TO THE BOOK PROFIT ON ACCOUNT OF DISALLO WANCE UNDER SECTION 10B IS NOT PERMISSIBLE AS PER EXPLANATION TO SECTIO N 115JB AS RIGHTLY POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE. EV EN THE LD. D.R. HAS NOT BEEN ABLE TO DISPUTE THIS POSITION. MOREOVER, I HAV E ALREADY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRME D BY THE LD. CIT(APPEALS) ON ACCOUNT OF DISALLOWANCE OF DEDUCTIO N UNDER SECTION 10B SUBSTANTIALLY WHILE DECIDING GROUND NO.1 RAISED BY THE ASSESSEE IN THIS APPEAL. I ACCORDINGLY DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF DEDUCTION UNDER SECTION 10B WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB AND ALLOW GROUND NO. 3 OF THE ASSESSEES APPEAL. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 03, 2017. SD/- (P.M. JAGTAP) ACCOUNTANT MEMBER KOLKATA, THE 3 RD DAY OF FEBRUARY, 2017 COPIES TO : (1) M/S. ZENITH EXPORTS LIMITED, 19, R.N. MUKHERJEE ROAD, KOLKATA-700 001 (2) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-5, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (3) COMMISSIONER OF INCOME TAX(APPEALS)-2, KOLKATA ; I.T.A. NO. 1845/KOL./2016 ASSESSMENT YEAR: 2006-2007 PAGE 5 OF 5 (4) COMMISSIONER OF INCOME TAX- , (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.