Vishal Exports Overseas Ltd., Ahmedabad V. The ACIT, Circle-8, Ahmedabad

ITA 1847/AHD/2014

AI Insights

The case involves cross appeals by Vishal Exports Overseas Ltd. and the Income Tax Department concerning the assessment years 2007-08 and 2008-09. The primary issues revolved around the additions made under section 41(1) of the Income Tax Act, which pertains to the cessation of liabilities, and the disallowance of bad debts. The Tribunal examined the legal and factual basis for these additions and disallowances, considering various precedents and the specific circumstances of each party involved. The Tribunal's decision involved a detailed analysis of the submissions, evidence, and applicable legal provisions, leading to a mixed outcome of allowed and dismissed grounds of appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131496 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Next Hearing Date: 02-05-2023
• Assessment Year: 2007-2008
• Appeal Filed On: 17-06-2014
• Other Referred Cases: TRF Ltd. vs. CIT, Khyati Realtors (P.) Ltd. vs. CIT, Bhogilal Ramjibhai Atara vs. CIT, Dattatray Poultry Breeding Farm (P.) Ltd. vs. CIT, S. Srinivasaraghavan vs. ACIT, Esaote India (NS) Ltd vs. DCIT, Ansal Land Mark Township (P.) Ltd vs. ACIT, Genex Industries Ltd vs. CIT, Moongipa Investment Ltd vs. CIT, Ranchod Jivabhai Nakhava vs. CIT, Diamonds & Chemicals Ltd vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Recovery proceedings; Depreciation; Additional depreciation; Deemed to accrue or arise in india; Additional evidence; Bad and doubtful debts; TDS; Rule 8D; Set aside
• Section: 68; 37; 28; 80HHC; 14A; 40(a)(ia); 32(1)(iia); 133(6); 250; 43; 194A

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH Before: Ms. Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Vishal Expo rts Overseas Ltd . ‘Vish al Ho use’, Opp Sales India, B/h, OBC Bank, Ashram Road, Ah medabad -3 80009 PAN: AAACV 2 354 D (Appellant) Vs The ACIT, Circle-8, Ah med abad (Resp ondent) Th e DCIT(OSD), Circle-8 , Ah medabad (Appellant) Vs Vishal Ex ports Overseas Ltd. ‘Vishal House’, Op p Sales India, B/h , OBC Bank, Ash ram Road, Ah med abad-3800 09 PAN: AAA CV 2354 D (Resp ondent) Asses see b y : Shri Bandish Sopa rkar, A. R. & Shri Parin Shah, A. R. Revenue by : Shri Prathvi Ra j M eena, CIT-D. R. Date of hearing : 03-05 -2 023 Date of pronouncement : 19-05 -2 023 ITA Nos. 1847 & 1848/Ahd/2014 Assessment Year 2007-08 & 2008-09 ITA Nos. 1916 & 1917/Ahd/2014 Assessment Year 2007-08 & 2008-09 I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 2 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- These are cross appeals filed by the Assessee and the Department for assessment years 2007-08 and 2008-09 against the order passed by Ld. CIT(Appeals) vide orders dated 11 th March, 2014 u/s 250 of the Act. Assessment year 2007-08 2. The assessee has taken the following grounds of appeal: “1. Ld. CIT (A) erred in law and on facts in confirming addition made by AO of Rs. 75, 38, 74, 413/- by invoking provisions of section 41(1) of the Act. Ld. CIT (A) further erred in confirming action of the A.O. in invoking provisions of section 41(1) in absence of any cessation or remission of liabilities outstanding till date in the books of the appellant. Ld. CIT (A) ought to have deleted addition made by AO. It be so held now. 2. Ld. CIT (A) erred in law and on facts in holding that outstanding liabilities ceased to exist in absence of confirmation from the parties and that it was probably settled through undisclosed & unaccounted amount by appellant. Ld. CIT (A) ought not to have confirmed addition on such presumptions without any corroborative evidence on record. It be so held now. 3. Ld. CIT (A) erred in law and on facts in not appreciating that the judgments relied upon by AO for making addition are distinguishable on facts of the case whereas ratio of the jurisdictional High Court judgments following sterling judgment of the Apex Court was squarely applicable to the facts. 4. Ld. CIT (A) erred in law and on facts in confirming part disallowance of Rs. 9, 70, 11, 868/- from total disallowance of Rs. 28, I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 3 28, 43, 345/- made by AO rejecting bad debts claimed from foreign debtors by the appellant. Ld. CIT (A) ought to have deleted total disallowance appreciating the fact that irrecoverable debts written off as per the guidelines of RBI are an allowable expense. It be so held now. 5. Ld. CIT (A) erred in law and on facts in confirming part disallowance of Rs. 1, 21, 27, 246/- from total disallowance of Rs. 136.48 crores made by AO rejecting bad debts claimed from domestic debtors by the appellant. Ld. CIT (A) ought to have deleted total disallowance appreciating the fact that irrecoverable advances for procurement of goods / services incidental to the business of the appellant is an allowable expense. It be so held now. 6. Alternatively and without prejudice to the claim of bad debts written off in respect of trade advances the same is allowable as business loss u/s 28 or business expenses u/s 37 of the Act. It be so held now. 7. Confirming levy of interest u/s 234A/234B/234C & 234D is not justified. 8. Initiation of penalty u/s 271(l)(c) of the Act is not justified. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.” 3. The department has taken the following grounds of appeal: “1). The Ld. Commissioner of Income-Tax (Appeals)-XlV, Ahmedabad has erred in law and on facts in deleting the disallowance of claim Rs.153.79 Crore out of total addition of Rs.1,64,70,91,0007- made on account of bad debts. 2). The Ld. Commissioner of Income-Tax (Appeals)-XlV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.4,76,368/- I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 4 out of total addition of Rs.5,76,368/-made u/s 14A of the Act, r.w.r.SD & hold that provision of Rule-80 were not applicable retrospectively. 3). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.10,47,07,692/-made on account of disallowance of additional depreciation in respect of windmill installed & operated by-. Assesses u/s,32(1)(ii) of the Act since generation of power can not be construed to be "manufacture or produce" as defined u/s.32(1)(ii) of the Act. 4)The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the additions of Rs.2,09,85,758/- & Rs.2,64,60,533/- on account of professional fees & NAFED charges, respectively, due to non deduction of TDS u/s.40(a)(ia) of the Act when such additions were based on Tax Audit Report which was not proved to be incorrect with documentary evidence.. 5.) The Ld. Commissioner of Income-Tax (Appeals)-XV, Ahmedabad has erred in law and on facts in holding that the amendment introduced by Finance Act 2000 in Section 40(a)(ia) of the Act are clarificatory & have retrospective effect and hence no disallowance be made u/s.40(a)(ia) of the Act, where T.D.S. has been paid before the due date of filing of R.o.I. 6). The Ld. Commissioner of Income-Tax (Appeals)-XlV, Ahmedabad has erred in law and on facts in admitting additional evidences in violation of Rule 46A. 7. On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XlV, Ahmedabad ought to have upheld the order of the Assessing Officer. 8). It is therefore, prayed that the order of the Ld. Commissioner of Income- Tax (Appeals)-XIV, Ahmedabad may be set-a-side and that of the order of the Assessing Officer be restored.” I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 5 We shall first discuss the assessee’s grounds of appeal Grounds 1-3: Addition under section 41(1) of 75,38,74,413/- 4. The brief facts in relation to these grounds of appeal are that during the course of assessment, the AO observed that from perusal of the list of sundry creditors, in respect of several parties, the amount payable which was outstanding was constant for the last three years. According, after taking the submissions of the assessee on record, the AO made additions in respect of six parties under section 41(1) of the Act on the ground that as per the Limitation Act, the parties do not have legal remedy to enforce the outstanding demand and therefore the right to recovery of the said amount has become time-barred by limitation. Accordingly, by invoking the provisions of section 41(1) of the Act, the AO made addition of 75,38,74,413/-in respect of six parties. In appeal, Ld. CIT(Appeals) confirmed the additions with respect to each of these parties after discussing the facts for each of the parties. While making the additions, Ld. CIT(Appeals) may made the following observations: “It is therefore, I am inclined with A.O. that total liability of ? 75,38,74,413/- for substantial amount does not reflect it as liability, the same is either discharged liability (presidential trading FZC) or receipt of amount which appellant claimed to be towards export but not able to reconcile the same til! date i.e. no such liability exist. The appellant failed to submitted necessary evidences about party (M/s Sonoma exports Pvt. Ltd. Tirupur) or transaction and therefore failed to substantiate that these liability are existing which give presumption that appellant already paid such liability. I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 6 It is therefore, though addition u/s 41(1)of the Act may not be legally justified, but on the facts of the details & explanation with tax auditor's qualifying remarks about balances of creditors are subjected to confirmation, such addition made by A.O. is justified. I am inclined with A.O. the ratio of cases relied on by him are applicable in the case of appellant. The appellant failed to establish that such liability exists / subsist and therefore as per accounting principle required to added as income. The addition of Rs. 75,38,74,413/- is upheld confirmed. This ground is dismissed.” 5. Before us, the counsel for the assessee submitted that this is not a fit case for invocation of provisions of section 41(1) of the Act. Section 41(1) of the Act can be invoked only the circumstance where the assessee has itself written off the liability in its books of accounts and cannot be invoked under the circumstance only on the ground that payment of the liability has become barred by limitation and the other party does not have a legal right/remedy to enforce such liability. It was submitted that it is well settled principle that simply because the liability is barred by limitation, it does not give right to the Assessing Officer to invoke section 41(1) of the Act. Secondly, the counsel for the assessee submitted that in order to invoke section 41(1) of the Act, the assessee should have claimed any allowance or deduction in respect of loss, expenditure or trading liability and subsequently, the assessee receives in respect of such trading liability any benefit by way of remission or cessation thereof. However, in the case of FIRC, no expenditure has been incurred by the assessee in the first instance since it is a case of export sales. Thirdly, on merits, all relevant documents were submitted before Ld. CIT(Appeals) for his consideration and therefore, the aforesaid additions cannot be sustained. I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 7 6. In response, the Ld. DR placed reliance on the observations made by the AO and Ld. CIT(Appeals) in their respective orders. 7. We have heard the rival contentions and perused the material on record. We are of the considered view that it is well settled law that additions under section 41(1) of the Act cannot be made simply on the basis that the claim of the parties are barred by limitation and therefore, the liability to pay ceases to exist so far as assessee is concerned. So far as the merits of each of the additions is concerned, in respect of addition of 1,69,978/- on account of purchase difference being outstanding differential amount towards marine exports, section 41(1) of the Act cannot be invoked in the first instance since the original party has not been doubted by the assessing officer. With respect to Sonoma Exports ( 8,74,500/ -), we are of the view that in this case, it cannot be presumed that the liability has ceased to exist and the Department has not brought forth any conclusive evidence in support of the same. With respect to Allure jewels ( 1,19,94,266/-), we observe that the assessee has furnished complete ledger account with respect to the aforesaid party in order to support the fact that the liability to make such payment exists in the assessee’s books of accounts. Accordingly, this addition is also liable to be deleted. So far as addition on account of FIRC is concerned, we are in agreement with the counsel for the assessee that no expenditure has been incurred by the assessee in this case and it is a case of export sales and therefore, addition could not be sustained under section 41(1) of the Act. Similarly, no addition is called for in the case of Pest Mortem ( 7,052/-) in respect of which the assessee had furnished copies of ledger account and the same is a carry forward balance from earlier years. I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 8 Accordingly, in respect of the aforesaid amounts, in our considered view, no addition is called for under 41(1) of the Act. We note that in the case of Bhogilal Ramjibhai Atara 43 taxmann.com 55 (Gujarat), the Gujarat High Court held that where assessee in return of income for assessment year 2007-08 had shown certain amount by way of his debts and Assessing Officer applying provisions of section 41(1) added back said amount to income of assessee as deemed income, since there was nothing on record to suggest that there was remission or cessation of liability and that too during assessment year 2007-08, above amount could not be added back to the income of assessee. In the case of Dattatray Poultry Breeding Farm (P.) Ltd. 104 taxmann.com 366 (Gujarat), the Gujarat High Court held that where existence of liabilities was doubted, same could have been disallowed in year in which it was claimed, or could have been treated as unexplained cash credit in hands of assessee under section 68, but same could not be taxed under section 41(1), inasmuch as if liability itself was not genuine, question of remission or cessation thereof would not arise. 7.1 However, with respect to the first party Presidential Trading FZC ( 73,33,67,778/-), while we are in agreement with the counsel for the assessee that since the amount outstanding shown in the name of the party on account of development of letter of credit opened on this party has since been taken over by the bank, now the assessee is liable to pay this amount to the bank and therefore, it cannot be held that the liability has ceased to exist. Further, the counsel for the assessee submitted that the bank has also filed a suit for recovery before DRT for recovery of the aforesaid amount and therefore, this is a genuine liability existing in the assessee’s books of I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 9 accounts. However, we observe that Ld. CIT(Appeals) rejected the assessee’s appeal on this issue for the reason that no details regarding the suit filed by the bank before DRT has been submitted by the assessee. Accordingly, since the assessee did not file any details whatsoever in support of the fact that the liability has been taken over by the bank and also did not file details of pending litigation before DRT in respect of recovery of the aforesaid amount by the banks, relief was not granted to the assessee by Ld. CIT(Appeals) with respect to the ground of appeal. In our considered view, we are principally in agreement with the contention of the assessee that if this liability has been taken over by the bank and the assessee is liable to pay such amount to the bank, then it is not a fit case for invocation of section 41(1) of the Act. However, at the same time, if the assessee has not filed any supporting documents to show that this liability has been taken over by the banks and has also not filed any details before Ld. CIT(Appeals) regarding the recovery proceedings pending before DRT, in the interest of justice, this issue is being restored to the file of Ld. CIT(Appeals) to examine the records afresh to ascertain whether the assessee is liable to pay the aforesaid amounts the banks. The assessee may also file necessary supporting documents to substantiate that this amount is still liable to be paid to the banks and the recovery proceedings are pending before DRT. In the result, this issue is being restored to the file of Ld. CIT(Appeals) with the necessary directions. 8. In the result, grounds of 1-3 of the assessee’s appeal are allowed for statistical purposes. I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 10 Grounds 4-6 of the assessee’s appeal: disallowance of bad debts and Ground Number 1 of Department’s appeal 9. The brief facts in relation to this ground of appeal are that during the course of assessment, the assessing officer observed that assessee had written off huge bad debts during the year under consideration. Before the assessing officer, the assessee contended that it was not the entire bad debts which are written off but by way of a prudent policy and as per expert advice, only 20% of the bad debts relating to the domestic debtors debt were written off and in case of debtors related to export receivable, only 10% of such bad debts were written off as per RBI regulations. Before the AO, the assessee submitted various details about correspondences, suits filed against such parties and efforts made to recover such amount. After considering the submissions made by the assessee, the assessing officer made a disallowance of 164,70,91,000/- on various grounds such as it is not clear when such amount which has been claimed as bad debt had been offered as income by the assessee in any previous year, under what circumstances such amounts had become bad debt, what steps had been taken by the assessee to recover the amount and whether the assessee was still in corresponding with the aforesaid parties to recover the amount. 10. In appeal before Ld. CIT(Appeals), the assessee reiterated the submissions made before the assessing officer and also relied upon the case of TRF Ltd, in which the Supreme Court of India has held that to claim the deduction of bad debts, only it’s write off from the books is an essential condition and the assessee need not prove/establish that the debts had in fact I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 11 become bad. The Ld. CIT(Appeals) restricted the disallowance made by the assessing officer to only 10,91,39,114/ - and deleted the balance disallowance amounting to 153.79 crores. In appellate proceedings, out of the disallowance on account of export debtors write off amounting to 28.28 crores, the Ld. CIT(Appeals) confirmed an amount of 9.70 crores after discussing the facts of each of the overseas debtors. The primary reasons why Ld. CIT(Appeals) confirmed some of the additions are firstly, any excess write off, i.e. in excess of the RBI guidelines of 10% permissible write off, was not allowable; secondly, that it is not clear whether such debt had already been allowed as a deduction in computation of income under section 80HHC of the Act and thirdly, in some instances it is not clear that the amounts written off had been reflected in the computation of income for earlier assessment years. Accordingly, out of the export debtors write off, Ld. CIT(Appeals) gave relief of 18,58,31,477/- and confirmed disallowance of 9,70,11,868/-. With respect to the domestic debtors write off disallowed by the assessing officer amounting to 136.48 crores approximately, the Ld. CIT(Appeals) noted certain discrepancies with respect to debtors amounting to 1,21,27,246/- and he confirmed disallowance with respect to the aforesaid domestic debtors on the ground that they were not trade debts but advances and the same were never taken into the computation of income in any of the earlier previous years. 11. Both the Assessee and Department are in appeal against us against the order passed by Ld. CIT(Appeals) party allowing the assessee’s appeal and deleting the balance disallowances made by the assessing officer. I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 12 12. Before us, the counsel for the assessee primary reiterated the submissions made before Ld. CIT(Appeals) and placed reliance on the case of TRF Ltd supra in support of the contention that once the amount is written off in the books of accounts of the assessee, the assessee is not required to further prove that the amount had in fact become bad and what steps the assessee had taken or was in the process of taking with respect to recovery of the aforesaid amount. Further, with respect to domestic debts written off, the Ld. Counsel for the assessee submitted that in case of trade advances, there is no question of showing the amount written off by the assessee in its books of accounts as part of its income in any of the earlier years. Accordingly, this disallowance may kindly be vacated in the hands of the assessee. In response, DR submitted that in case of export debtors written off, it is not clear whether assessee has claimed deduction under section 80 HHC in respect of such exports i.e. the income has not been subject to tax in the hands of the assessee, and therefore granting of relief to the assessee on this issue would amount to dual deduction in the hands of the assessee, if assessee is also able to get the write off of such amount. 13. We have heard the rival contentions and perused the material on record. We observe that in the case of TRF Ltd. 323 ITR 397 (SC), the Hon'ble Supreme Court held that after 1-4-1989, it is not necessary for assessee to establish that debt, in fact, has become irrecoverable; it is enough if bad debt is written off as irrecoverable in accounts of assessee. However, in the later case Khyati Realtors (P.) Ltd. 141 taxmann.com 461 (SC), the Hon'ble Supreme Court held that it is thus evident that merely stating a bad and doubtful debt as an irrecoverable write off without the appropriate I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 13 treatment in the accounts, as well as non-compliance with the conditions in section 36(1)(vii), 36(2) and Explanation to section 36(1)(vii) would not entitle the assessee to claim a deduction. [Para 14]. Further, the amount of any bad debt or part thereof has to be written-off as irrecoverable in the accounts of the assessee for the previous year; such bad debt or part of it written-off as irrecoverable in the accounts of the assessee cannot include any provision for bad and doubtful debts made in the accounts of the assessee; no deduction is allowable unless the debt or part of it has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee; and the assessee is obliged to prove to the Assessing Officer that the case satisfies the ingredients of section 36(1)(vii) as well as section 36(2). [Para 17]. Therefore, in view of joint reading of the aforesaid decisions, the assessee in addition to writing of the bad debts in the books of accounts is also required to prove that such amount written off has been earlier shown/ reflected as income of the assessee in any of the earlier previous years, so as to be eligible for such claim of write off of bad debts. Now coming to the instant facts, so far as write off of export debtors is concerned, we are in agreement with the counsel for the assessee that Ld. CIT(Appeals) erred in confirming the disallowance on the basis that assessee should have restricted the write off of bad debts to 10% of such export debtors in view of RBI regulations, since allowability of deduction under the Act cannot be governed by RBI regulations. Further, we are also in agreement with the arguments for the counsel of the assessee that simply I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 14 because the assessee has claimed deduction under 80 HHC of the Act in respect of aforesaid receipts, the assessee cannot be disallowed write off of such bad debts in the respect to export debtors. However, at the same time we observe that in respect of export debtors, Ld. CIT(Appeals) confirmed additions in some of the cases on the ground that it is not clear whether the assessee had shown the aforesaid amount in the computation of income in any of the previous years. Similarly, with respect to domestic debtors, in respect of which the Department is also in appeal for us, we observe that Ld. CIT(Appeals) confirmed the disallowance with respect to domestic debtors write off amounting to 1.21 crores on the basis that the assessee itself admitted that they were not trade debts but trade advances and hence the same were never taken into computation of income in any of the previous years. 14. Therefore, looking into the instant facts, so far as the write off with this respect to international debtors is concerned, the matter is being set aside to the file of Ld. CIT(Appeals) only with a view to confirm whether the aforesaid amount has been reflected in the computation of income by the assessee in any of the earlier years in view of the decision of Khyati Realtors supra. However, we are in agreement with the counsel for the assessee that no such disallowance is called for only on the basis whether the assessee has written of debt in excess of 10% of international debtors in view of RBI regulations. Further, we are also in agreement with the argument for the counsel of the assessee that such a write-off of debts cannot be disturbed on the basis that the assessee had claimed deduction under section 80 HHC with respect to the export proceeds offered to tax in any of the earlier previous I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 15 years. Accordingly, so far as international debtors is concerned, the issue is being restored to the file of Ld. CIT(Appeals) only to confirm whether the income with respect to which assessee has claimed write off of bad debts has been offered to tax by the assessee in any of the previous years in light of the decision of Khyati Realtors supra. 15. Now so far as write-off with respect to domestic debtors is concerned, we are in agreement with the argument of the counsel for the assessee that so far as trade advances are concerned which have been given during the course of business of the assessee, there is no scope for offering the same in the computation of income in any of the previous years. However, we are also in agreement with the arguments put forward by the Ld. DR (who is in appeal before us with respect of the balance amounts deleted by Ld. CIT(Appeals)) that it needs to be ascertained whether the assessee had offered the aforesaid amount in the computation of income in any of the previous years in light of the decision of honourable Supreme Court in the case of Khyati Realtors supra. Accordingly, in light of the above observations, the write off of bad debts with respect to domestic debtors is restored to the file of assessing officer only with a view to confirm whether the amount has been reflected in the computation of income by the assessee in any of the earlier previous years so as to be eligible to claim right of of such such amounts u/s 36(1)(vii) read with 36(2)(va) of the Act. Accordingly, this issue is being restored to the file of assessing officer with the aforesaid directions. I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 16 16. In the result, grounds 4-6 of the assessee’s appeal and ground 3 of Departments appeal are allowed for statistical purposes. 17. Ground Number 6 of the assessee’s appeal is the alternate contention that the trade advances may be allowable as a business loss. Since we have adjudicated with respect to claim of bad debts written off in respect of trade advances in the earlier parts of the judgement, we are separately not adjudicating on the ground of appeal raised by the assessee. 18. Ground number 7 and 8 of assessee’s appeal are general in nature and do not require any specific adjudication. Now we shall discuss the Department’s appeal. 19. Ground number 1 of Department’s appeal is with respect to deletion of disallowance of claim of 153.79 crores out of total addition of 164.70 crores made by the assessing officer. We have already adjudicated on this ground of appeal while dealing with Grounds 4-6 of assessee’s appeal on this issue, and the ground number 1 of the Department’s appeal is allowed for statistical purposes as per directions made in the earlier part of our order. Ground number 2: disallowance under section 14A 20. The brief facts in relation to this ground of appeal are that during the course of assessment, the assessing officer observed that the assessee had earned exempt dividend income of 285,000/ -. The assessing officer was of the view that that such earning of exempt income involves certain costs in I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 17 the form of expenditure which in the form of direct as well as indirect expenditure relatable to earning such exempt income. Accordingly, assessing officer invoked the provisions of section 14(2) of the Act read with Rule 8D and computed disallowance at 5,76,368/-. 21. Before Ld. CIT(Appeals), the assessee contended that as per the ratio of Bombay high court in the case of Godrej and Boyce 194 Taxman 203 (Bombay), provisions of Rule 8D which have been notified with effect from 24-3-2008 are not retrospective in nature and shall apply with effect from assessment year 2008-09. Therefore, the excessive and unreasonable disallowance made by the assessing officer may be deleted. Accordingly, considering the facts of the case, the Ld. CIT(Appeals) restricted the disallowance to 1 lakh. 22. Before us, the DR submitted that Ld. CIT(Appeals) erred in restricting the addition to only 1 lakhs since certain direct and indirect costs have been incurred by the assessee to earn the exempt income. Before us, the counsel for the assessee agreed that in the interest of justice, the disallowance may be restricted to the exempted income earned by the assessee during the impugned year under consideration. Accordingly, looking at the facts of instant case, the disallowance under section 14A is restricted to the amount of exempt income earned by the assessee i.e. 2,85,000/-. 23. In the result Grounds Number 2 of Department’s appeal is partly allowed. I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 18 Ground number 3: deletion of 10,47,07,692/- made on account of disallowance of additional depreciation in respect of windmill u/s 32(1)(ii) of the Act : 24. The brief facts in relation to the ground of appeal are that the assessee claimed additional depreciation @20% on 20 windmills installed and commissioned during the year under consideration amounting to 10,47,07,692/-. The assessing officer however disallowed the claim of the assessee in respect of additional depreciation on the ground that the assessee is not engaged in the business of “production or manufacture of article and thing” as contemplated u/s 32(1)(ii) of the Act. 25. In appeal, Ld. CIT(Appeals) allowed the appeal of the assessee on the ground that assessee is engaged in the business of production/generation of electricity and its claim for additional depreciation is fully supported by all the necessary documents. While allowing the assessee’s appeal, Ld. CIT(Appeals) made the following observations: “I am inclined with the contention of appellant that since appellant was already under the business of production / generation of electricity which is covered under sale of goods Act 1930 i.e. electricity is an article & thing, and appellant installed / commissioned windmill during previous year, its claim for additional depreciation duly supported by Form No.SAA is admissible and justified. I am inclined that ratio of Hon'ble ITAT that the govt. vide Finance Act 2012 has amended the provisions of section 32(1)(iia) to include the business of 'generation or generation and distribution of power 1 is eligible for benefit u/s.32(1)(iia) although effective from 01.04.2013 but it gives impetus to the view that generation of electricity is a manufacturing process and qualifies for the benefits u/s. 32(1)(iia). I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 19 I am inclined with appellant that it fulfilled all the eligible conditions for claim of additional depreciation (discussed by appellant at para 3 of written submission dated 17.2.2014), Hon'ble Gujarat High Court in the case of Diamonds & Chemicals Ltd, (supra) upheld the ratio of Hon'ble ITAT, Ahmedabad in the same case for such additional depreciation for windmill as relied on by appellant. I am inclined the ratio of Hon'ble High Court is squarely applicable in the facts of the appellant's case. It is therefore disallowances made by A.O. are neither justified nor sustainable in law. The A.O. is directed to allow such additional depreciation of Rs. 10,47,07,692/-. The appellant gets relief accordingly. This ground is allowed.” 26. The Department is in appeal before us against the aforesaid deletions made by Ld. CIT(Appeals). Before us, Ld. DR relied upon the observations made by the assessing officer in the assessment order. In response, the counsel with assessee submitted that the aforesaid issue is directly covered in favour of the assessee in assessee’s own case for assessment year 2006- 07.Accordingly, the assessee is eligible for grant of additional depreciation as claimed. 27. We have heard the rival contentions and perused the material on record. We observe that in the case of S.Srinivasaraghavan v. ACIT 139 taxmann.com 230 (Madras), the High Court held that generation of electricity by windmill should be equated to term “manufacturing or production of article or thing”, and, therefore, assessee was entitled to claim additional depreciation on windmill installed as per provision of section 32(1)(iia) of the Act. The aforesaid decision was followed in assessee’s own case for assessment year 2006-07 in DCIT v. Vishal Export Overseas Ltd I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 20 143 taxmann.com 305 (Ahmedabad - Trib.), wherein the ITAT Ahmedabad held that activity of generating electricity by windmill would be manufacturing in nature, thus, assessee would be eligible to claim additional depreciation with respect to windmill installed during relevant year. Accordingly, in view of the aforesaid decisions, we are of the considered view that Ld. CIT(Appeals) has not erred in fact and law allowing the appeal of the assessee on this issue. 28. In the result, ground number 3 of the Department’s appeal is dismissed. Ground number 4-5: disallowance under section 40(a)(ia) of the Act 29. The brief facts in relation to this ground of appeal that the assessing officer in the assessment order made additions u/s 40(a)(ia) of the Act on the basis of observations made in the Tax Audit Report in Form 3CD. Accordingly, the assessing officer made the following additions u/s 40(a)(ia) of the Act. (i) Professional 2,09,85,758 (ii) Interest 12,75,69,121 (iii) NAFED 2,64,60,533 (iv) FBT 6,71,449 ------------------ 17,56,86,861/- ------------------- 30. The assessee filed appeal before Ld. CIT(Appeals), who allowed the appeal of the assessee on the ground that so far as TDS on professional fees I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 21 of 2,09,85,758/- is concerned, the assessee has been able to substantiate that TDS on the same was deducted and deposited before the due date of filing of return of income. With respect to TDS on interest payment amounting to 12,75,69,121/-, Ld. CIT(Appeals) deleted the addition on the ground that the payments were made to banks and therefore there is no requirement for deduction of tax at source on such payments. So far as payment to NAFED is concerned amounting to 2,64,60,533/-, Ld. CIT(Appeals) agreed with the contention of the assessee that the entry of 2.64 crores was reversed in this year and hence there is no requirement of TDS deduction on such payment. Further, with respect to TDS on FBT, the Ld. CIT(Appeals) agreed with the contention of the assessee that there was an inadvertent typographical mistake in Annexure-4 for Clause 17(f) of Form 3CD, where details of FBT pertaining to financial year 2005-06 have been inadvertently mentioned for the impugned financial year i.e. financial year 2006-07. Accordingly, Ld. CIT(Appeals) allowed the appeal of the assessee with the following observations: “It is therefore, I am inclined with appellant that that there is bonafide mistakes on the part of tax auditor for working out such disallowable u/s 40(a) of the Act without considering the details in this regard. In view of such verification about payment of TDS out of prof, fees., interest is being paid to Bank, reversal entry of NAFED and entry mistake of FBT, the disallowances of ^ 17,56,86,861/- u/s 40(a) of the Act are neither justified nor sustainable in law. The A.O. is directed to allow such expenses and not to take cognizance of mistake entry of NAFED & FBT and delete the addition of Rs. 17,56,86,861/-. The appellant gets relief accordingly. This ground is allowed.” I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 22 31. The Department is in appeal before us against the aforesaid relief granted by Ld. CIT(Appeals) with respect to non-deduction of TDS on the aforesaid payments. The DR submitted that the details regarding reversal of entry in respect of payment made to NAFED was never submitted before the AO during the course of assessment proceedings and neither was any mention made regarding the inadvertent mistake with respect to TDS on FBT. In response, the counsel for the assessee placed reliance on the observations made by the Ld. CIT(Appeals) in the appellate order. 32. We have heard the rival contentions and perused the material on record. We observe that in the case of Ansal Land Mark Township (P.) Ltd 61 taxmann.com 45 (Delhi), the Delhi High Court held that second proviso to section 40(a)(ia) is declaratory and curative and it has retrospective effect from 1-4-2005.Therefore, where assessee made interest payments without deducting tax at source under section 194J, since payee had filed return and offered sum received from assessee to tax, impugned disallowance made under section 40(a)(ia) deserved to be deleted. The aforesaid decision was followed by the Ahmedabad Tribunal in the case of Esaote India (NS) Ltd 96 taxmann.com 624 (Ahmedabad - Trib.), wherein it was held that second proviso to section 40(a)(ia) has retrospective effect from 1-4-2005 and therefore, where recipient/deductee had already paid tax on impugned amount of interest under section 194A received from assessee by filing return of income, such interest payment could not be disallowed in assessee's hands under section 40(a)(ia). In view of the aforesaid decisions, we are in agreement with the counsel for the assessee that there is no requirement to deduct tax at source on interest payments to I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 23 banking institutions. Further, with respect to various other deletions, the DR has not pointed out any specific infirmity in the findings of Ld. CIT(Appeals) in the appellate order. Accordingly, we are of the considered view that CIT has not erred in fact and law in deleting the aforesaid additions made on account of non-deduction of TDS under section 40(a)(ia) of the Act. 33. In the result, ground number 4 and 5 of the Department’s appeal are dismissed. Assessment year 2008-09 34. The Assessee has taken the following grounds of appeal:- “1 Ld. CIT (A) erred in law and on facts in confirming part addition of Rs. 55, 44, 387/- from total addition of Rs. 2, 13, 57, 42, 374/- made by AO by invoking provisions of section 41(1) of the Act. Ld. CIT (A) ought to have deleted addition made in absence of cessation or remission of liabilities outstanding till date in the books of the appellant. It be so held now. 2 Ld. CIT (A) erred in law and on facts in holding that outstanding liabilities either ceased to exist or were already discharged by the appellant through undisclosed income. Ld. CIT (A) ought not to have confirmed additions on conjectures, surmises & presumptions. It be so held now. 3 Ld. CIT (A) erred in law and on facts in confirming part disallowance of Rs. 5, 21, 22, 081/- from total disallowance of Rs. 164.23 crores made by AO rejecting bad debts claimed from domestic debtors by the appellant. Ld. CIT (A) ought to have deleted total disallowance appreciating the fact that irrecoverable advances for procurement of goods / services incidental to the business of the appellant is an allowable expense. It be so held now. I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 24 4 Alternatively and without prejudice to the claim of bad debts written off in respect of trade advances the same is allowable as business loss u/s 28 or business expenses u/s 37 of the Act. It be so held now. 5 Ld. CIT (A) erred in law and on facts in confirming disallowance by AO of Rs. 26, 72, 600/- on account of loss claimed on sale of Hateshwari shares. Ld. CIT (A) ought to have deleted disallowance made by AO u/s 71 (3) of the Act treating business loss as short term capital loss. It be so held now. 6 Both the lower authorities erred in law and on facts in taking total loss for the year under consideration at Rs. 1, 71, 29, 646/- instead of total loss as per profit & loss account at Rs. 146, 07, 16, 536/- before depreciation and Rs. 147, 48, 30, 936/- after depreciation of Rs. 1,71, 29, 646/-. It is prayed that loss be computed at correct figure as per profit & loss account. 7 Confirming levy of interest u/s 234A/234B/234C & 234D is not justified. 8 Initiation of penalty u/s 271(l)(c) of the Act is not justified. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.” 35. The Department has taken the following grounds of appeal:- “1). The Ld. Commissioner of Income Tax (Appeals) XIV. Ahmedabad has erred in law and on facts in deleting the addition of Rs 2,14,12,86,761/- made u/s 41(1) of the Act. 2). The Ld. Commissioner of Income Tax (Appeals) XIV. Ahmedabad has erred in law and on facts to delete the addition u/s 41(1) of the Act on account of unverifiable outstanding liability to various Banks amounting to Rs. 1,03,92,88,919/- by relying upon the application filed with D.R.T. even though Bank wise outstanding do not tally with I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 25 the outstanding liability as per Assessee's books or the dates of such outstanding liability as per D.R.T. are not verifiable. 3). The Ld. Commissioner of Income-Tax (Appeals)-XIV. Ahmedabad has erred in law and on facts to delete the addition of Rs.73,28,25,599/- & Rs.7,63,199/- u/s.41(1) of the Act claimed to be outstanding to NAFED, A'bad & Mumbai respectively showing different outstanding on different date & hence, not proved to have been outstanding as on the last day of previous year for the year under consideration. 4). The Ld. Commissioner of Income-Tax (Appeals)-XlV, Ahmedabad has erred in law and on facts to delete the addition of Rs.34,26,30,000/- u/s.41(1) of the Act on account of liability claimed to be provision for bills awaited for WEG to NEG Micron (India) Ltd, without any verifiable evidence of such outstanding liability. 5). The Ld. Commissioner of Income-Tax (Appeals)-XIV. Ahmedabad has erred in law and on facts to delete the addition of Rs.1,45,07,373/- outstanding to Suzlon Greenpower Ltd., u/s.41(1) of the Act on the basis of arbitration order although the date of outstanding liability is not verifiable. 6). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in admitting additional evidences in violation of Rule 46A. 7). The Ld. Commissioner of Income-Tax (Appeals) XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.3,21,07,755/- made u/s.68 of the Act without Assessee's onus being discharged to prove creditworthiness of depositors detained In Police custody. 8). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs.1,64,23,00,000/- made on account of bad debts. 9). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 26 Rs.13,85,000/- made on account of unexplained cash deposit in Kalupur Commercial Co.Op. Bank Ltd. 10). On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer. 11). It is therefore, prayed that the order of the Ld. Commissioner of Income-Tax (Appeals) XIV, Ahmedabad may be set-a-side and that of the order of the Assessing Officer be restored.” Ground number 1-2 of assessee’s appeal and ground number 1-6 of Department’s appeal: addition under section 41 (1) of the Act 36. The brief facts in relation to this ground of appeal are that the assessing officer made certain disallowance under section 41(1) of the Act on the ground that the outstanding liability with respect to certain creditors had ceased to exist during the impugned assessment year and therefore, added back a sum of 214.12 crores to the income of the assessee. In appeal, Ld. CIT(Appeals) after analysing the details of each of the parties came to the conclusion that in respect of most of the parties, barring three parties, the assessee has been able to substantiate that the liability still subsists in the assessee’s books of accounts. Accordingly, the Ld. CIT(Appeals) deleted most of the additions and confirmed disallowance of only 55.44 lakhs. The assessee is in appeal before us against the confirmation of such disallowance, whereas the Department is in appeal before us against the relief granted by the Ld. CIT(Appeals) to the assessee. I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 27 37. Before us, the counsel for the assessee submitted that Ld. CIT(Appeals) failed to appreciate that the accounts in respect of which additions have been confirmed by the Ld. CIT(Appeals) are coming from earlier periods and therefore there is no cause for sustaining addition under section 41(1) of the Act. 38. In response, DR submitted that Ld. CIT(Appeals) has erred in fact and law in deleting the aforesaid additions and placed reliance on the observations made by AO in the assessment order. The Ld. DR further submitted that in the instant facts, the Ld. CIT(Appeals) has taken on record certain additional evidence by deleting the additions and he had admitted additional evidence without giving an opportunity to the assessing officer to rebut the same. Accordingly, Ld. CIT(Appeals) erred in fact and law in admitting additional evidences in violation of Rule 46A of the Income Tax Rules. 39. We have heard the rival contentions and perused the material on record. While we are in agreement with the counsel for the assessee that the Department has not been able to bring anything on record to controvert the findings made by Ld. CIT(Appeals), however, we also observe that instant case, the assessee filed certain supporting documentations which were considered by the Ld. CIT(Appeals) while affording relief to the assessee, without confronting this material to the assessing officer for his comments. Before us, the counsel for the assessee submitted that substantial documentations had all been furnished before the assessing officer during the course of assessment proceedings to substantiate that the outstanding amounts with respect to the aforesaid parties still existed, which was not I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 28 considered by the assessing officer. Further, whatever documents were furnished to the Ld. CIT(Appeals) only supported the documents which were placed on record before the assessing officer during the course of assessment proceedings. 40. In instant facts, we observe that Ld. CIT(Appeals) has analysed and discussed the case of each of the parties in detail before coming to the conclusion that the liability with respect to the aforesaid parties still subsists. Further, the Ld. DR has not brought anything on record to show that there was any error in the findings made by the Ld. CIT(Appeals) in the appellate order. However, we are also in agreement with the arguments of the Ld. DR that while considering the additional documents which were placed on record by the assessee before the Ld. CIT(Appeals) during the course of appellate proceedings for the first time, the same should have been confronted by Ld. CIT(Appeals) to the assessing officer for his review/comments. Therefore, omission to do so would amount to violation of Rule 46A of the Income Tax Rules. In the case of Manish Build Well (P.) Ltd. 16 taxmann.com 27 (Delhi), the Delhi High Court held that where additional evidence was admitted and accepted as genuine at first appellate stage without Assessing Officer furnishing his comments and without verification, requirement of Rule 46A(3) were not satisfied. In the case of Genex Industries Ltd. 109 taxmann.com 402 (Chandigarh - Trib.), the ITAT Chandigarh held that where Commissioner (Appeals) deleted additions made under section 68 by accepting fresh evidence submitted by assessee without providing Assessing Officer a reasonable opportunity of examining said evidence and rebutting it, there being violation of sub-rule I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 29 (3) of Rule 46A of Income-tax Rules, 1962, impugned order was to be set aside. 41. Accordingly, in the interest of justice, the matter is being set aside to file of Ld. CIT(Appeals) so as to allow the assessing officer to take cognizance of the additional evidence submitted before Ld. CIT(Appeals) during the course of appellate proceedings and seek his comments/observations with respect to the same in consonance with Rule 46A of the Income Tax Rules. 42. Accordingly, this issue is being set aside to the file of Ld. CIT(Appeals) with the above directions. 43. In the result, appeal of the Assessee and the Revenue with respect to the aforesaid grounds of appeal are allowed for statistical purposes. Ground number 3-4 of assessee’s appeal and ground number 8 of department’s appeal: disallowance of bad debts 44. We observe that the issues for consideration with respect to the aforesaid grounds of appeal have already been dealt by us in the preceding parts of the order while dealing with grounds 4-6 of assessee’s appeal and ground number 1 of the Department’s appeal. 45. Accordingly, in light of the observations made in the earlier part of the order, the issue is being set aside to the file of Ld. CIT(Appeals) to ascertain whether income with respect to such amounts written off have been I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 30 offered by the assessee in any of the earlier assessment years, in the light of observations made by us for assessment year 2007-08, and if that be the case, then relief may be allowed to the assessee in terms of the decisions of Khyati Realtors and TRF Ltd. supra. 46. In the result, both the appeals of the Assessee and Department are allowed for statistical purposes. Ground number 5 of assessee’s appeal: loss on sale of the Hateshwari shares of 26.72 lakhs 47. Brief facts in relation to this ground of appeal are that the AO in the impugned assessment order considered that assessee included capital loss of 26,72,600/- on sale of Hateshwari shares as business loss and as per the provisions of section 71(3) of the Act, such loss cannot be set off against income under the heads. 48. At the outset, the counsel for the assessee submitted before us that apparently on a perusal of the return of income or the Investment Schedule to the Balance Sheet, there is no such item appearing in the assessee’s records. Accordingly, in the interest of justice he requested that the issue may be restored to the file of Ld. Assessing Officer for re-examination. The Ld. DR also did not object to restoration of the file to Ld. CIT(Appeals) for re-examination of this aspect. I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 31 49. Accordingly, this issue is set aside to the file of Ld. Assessing Officer for re-examination of facts related to this issue. 50. In the result, ground number 5 of the assessee’s appeal is allowed for statistical purposes. Ground number 6 of assessee’s appeal: computation of total loss wrongly taken 51. With respect to this ground of appeal, the counsel for the assessee submitted that there seems to be a typographical error in computing the figure of total loss by the assessing officer in the assessment order. The computation should begin with the correct figure of loss as per return of income. Apparently, the assessing officer has taken the amount of depreciation of 1.7 crores instead of amount of total loss of the 147.48 crores. Accordingly, the counsel for this is submitted that the matter may be set aside to the file of the assessing officer for carrying out the necessary rectification. 52. Accordingly, this issue is being set aside to the file of assessing officer for carrying out the necessary verification/rectification. 53. In result, ground number 6 of the assessee’s appeal allowed for statistical purposes. Now we shall take up the grounds of appeal raised by the Department I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 32 Ground numbers 1-6: 54. These grounds by the Department have been dealt in the earlier part of the order while dealing with the assessee’s grounds 1-2. 55. Accordingly, grounds 1-6 of the Department’s appeal are allowed for statistical purposes. Ground number 7: Addition under section 68 56. The brief facts in relation to the ground of appeal are that the assessing officer made addition under section 68 of the Act amounting to 3.21 crores in respect of unsecured loans with respect to 3 parties, being the director and promoter of the group. Before the AO, the assessee submitted that the aforesaid loans had been taken from directors and promoter of the assessee company, who had been assessed with the same assessing officer for the past several years. Further, the loans had been accepted by account payee cheques and therefore, the assessee had discharged the onus cast upon him under section 68 of the Act. However, the assessing officer made additions under section 68 with respect to the aforesaid parties. 57. In appeal, Ld. CIT(Appeals) allowed the appeal of the assessee with the following observations: “The appellant in appeal submitted that Shri Dipak S. Metha from whom Rs. 28262281/- and Shri Predip S. Mehta from whom Rs. 3815474/- were accepted were under custody at the time of assessment proceedings hence such promoter & directors assessed with A.O. and earlier years also given loan to appellant company given confirmation with authorised person's i.e. wife of such I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 33 person's signature but A.O. refused to accept the same. The appellant contended that all the three ingredient i.e. identify, genuiness and credit worthiness was not doubted by A.O. and simply the confirmation were signed by authorised signatory, A.O. added the sum of Rs. 3,21,07,755/-. The appellant filed the confirmation with such parties in appeal proceedings. The appellant relied on Hon'ble Gujarat High Court decision in the case of Ranchod Jivabhai Nakhava (supra). I am inclined with contention of appellant (discussed in details at para 4B & 4C above) that merely the confirmation were sighed by authr signatory, such loans from directors & promoters of the group with their PAN, details of assessment with A.O. himself, loan accepted through cheques and in earlier years such parties were given loan to appellant i.e. having credit worthiness, such disallowance and addition under deeming provisions of section 68 of the Act is neither justified nor sustainable in law. The ratio of Hon'ble Gujarat High Court decision in the case of Ranchod Jivabhai Nakhava are squarely applicable in the case of appellant and it is the A.O. himself who has to verify the details of such loan from case record of such parties being he is having the jurisdictions over such parties. But, except the signature not by said party, there is no other adverse remarks from A.O.. It is therefore A.O. is directed to delete the addition so made of Rs. 3,21,07,755/-. The appellant gets relief accordingly. This ground is allowed.” 58. The Department is before us against the order passed by Ld. CIT(Appeals) giving relief to the assessee on this issue. On going through the contents of the order passed by Ld. CIT(Appeals), we observe that there is no infirmity in the facts recorded by Ld. CIT(Appeals) and has correctly allowed the appeal of the assessee on this issue by observing that in instant facts all the three ingredients viz identity, genuineness and creditworthiness of the parties was not doubted by the assessing officer and the only reason for confirming the addition in the hands of the assessee was that the I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 34 confirmation was signed by the authorised signatory and not the parties themselves. In the case of Chanakya Developers 43 taxmann.com 91 (Gujarat), the High Court held that where assessee in order to prove genuineness of transactions relating to receipt of booking amount of flats, supplied address and PAN of concerned persons, it had discharged its primary onus and, therefore, Assessing Officer could not make addition of said amount to assessee's taxable income without making proper inquiries under section 133(6) of the Act. In the case of Neotech Education Foundation 148 taxmann.com 372 (Gujarat), the High Court held that where assessee received loan for purchase of land for construction of an educational campus, in view of fact that though initial burden of proof was not discharged at level of Assessing Officer but assessee produced relevant documents to prove identity and creditworthiness of creditor and genuineness of transaction before Commissioner (Appeals) and, further, transaction was made through proper banking channel, impugned addition made under section 68 on account of said loan amount received by assessee was unjustified. Accordingly, in light of the above judicial precedents and facts of the instant case, we find no infirmity in the order of Ld. CIT(Appeals) so as to call for any interference. 59. In the result, ground number 7 of the Department’s appeal is dismissed. Ground number 8 of department’s appeal: deletion of disallowance of 164.23 crores on account of bad debts I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 35 60. We have already discussed ground number 8 of department’s appeal by dealing with grounds 3-4 of the assessee’s appeal. 61. Accordingly, ground number 8 of departments appeal is allowed for statistical purposes. Ground number 9 of Departments appeal: deletion of additional 13.85 lakhs made on account of unexplained cash deposit in Kalupur commercial cooperative bank 62. The brief facts in relation to this ground of appeal are that during the course of assessment, the assessing officer rejected the assessee’s reconciliation for cash deposited in Kalupur commercial cooperative bank. The assessing officer was of the view that the assessee has not been able to conclusively prove that the cash balances were available because the assessee is engaged in the business of import and export of agro commodities which is through Banking Channels. 63. In appeal, Ld. CIT(Appeals) allowed the appeal of the assessee on the ground that the assessee has been able to provide the complete reconciliation of cash available as evidenced from audited cash book. However, the assessing officer rejected the reconciliation and details submitted by the assessee on the ground that assessee cannot have cash in hand or cannot withdraw cash from bank for its import-export businesses. Accordingly, Ld. CIT(Appeals) after analysing the facts of the case, allowed the appeal of the assessee with the following observations: I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 36 “I am inclined with appellant that in view of reconciliation of cash deposit out of cash in hand available and as evidenced by audited cash book as well as withdrawal from bank account, the A.O. cannot reject such explanation on the presumption that appellant cannot have such cash in hand in the business of Import & Export of Agri. Commodities. In normal business activities, cash is withdrawn from bank to meet out daily expenses or specific expenses but at the same time surplus cash is deposited or such cash withdrawn if not used is re-deposited. Therefore, except the withdrawal of cash duly accounted for in cash book and audited bank accounts, no other conclusive proof can be given by appellant. I am inclined with appellant that ratio of Hon'ble ITAT Delhi in the case of Moongipa Investment Ltd. (supra) are squarely applicable to the facts of appellants. It is therefore, such addition of Rs. 13,85,000/- is neither justified nor sustainable in law. The A.O. is directed to delete the addition so made. The appellant gets relief accordingly.” 64. The Department is in appeal before us against the order passed by Ld. CIT(Appeals) with respect to this issue. However, the Ld. DR has not been able to point out any specific infirmity in the observations made by Ld. CIT(Appeals) in the appellate order. On going to the contents of the order passed by Ld. CIT(Appeals), we are of the considered view that the Ld. CIT(Appeals) has taken a very reasonable view looking into the facts of the instant case and we find no infirmity in the order of Ld. CIT(Appeals) so as to call for any interference. 65. Accordingly, Ground number 9 of the Department’s appeal is dismissed. I.T.A Nos. 1847, 1848, 1916 & 1917 A.Y. 2007-08 & 2008-09 Page No. Vishal Exports vs. ACIT & DY. CIT vs. Vishal Exports 37 66. Grounds 10-11 of the departments appeal are general in nature and do not require any specific adjudication. 67. In the result, the appeals filed by the Assessee and Department are partly allowed, for statistical purposes, for Assessment Year 2008-09. 68. In the combined result, the appeals of the Assessee and Department are partly allowed for statistical purposes. Order pronounced in the open court on 19-05-2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 19/05/2023 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद