DCIT, Circle-10(1), Kolkata, Kolkata V. K.N.D. Engineering Technologies Pvt. Ltd., Kolkata

ITA 1979/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1411 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 07-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K TIWARI
• Assessee Lawyers: A DUDHWEWALA
• Keywords: Bad and doubtful debts; Commercial expediency
• Section: 43B; 139

Judgement Text

ITA NO.1979/KOL/2016 K.N.D.ENGINEERING TECHNOLOGIES PVT. LTD. A.Y.2013-14 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH 'D', KO LKATA [BEFORE HON'BLE SRI N.V.VASUDEVAN, JM & HON'BLE SRI WASEEM AHMED, AM] ITA NO 1979/KOL/2016 ASSESSMENT YEAR : 2013-14 D.C.I.T., CENTRAL CIRCLE-10(1) -VS- K.N.D. ENGINEERING TECHNOLOGIES KOLKATA PVT. LTD., KOLKATA (PAN AABCK 2863 R) (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI.A.K.TIWARI, CIT FOR THE RESPONDENT: SHRI A.DUDHWEWALA, FCA DATE OF HEARING : 27.2.2018 DATE OF PRONOUNCEMENT : 01.03.2018. ORDER PER SHRI N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 20.07.2016 OF CIT(A)-4, KOLKATA RELATING TO A.Y.2013-14. 2. GROUND NO.1 RAISED BY THE REVENUE READS AS FOLLO WS :- 1. WHETHER THE LD. CIT(A) WAS CORRECT IN DELETING 50% OF THE DISALLOWANCE MADE FOR RS.20,48,066/- U/S.37 OF THE ACT DESPITE HIS AG REEMENT WITH THE A.O. THAT THE A.O. WAS UNABLE TO VERIFY WHETHER ANY EXPENSES WERE SUBJ ECT TO TDS AND WHETHER ANY DISALLOWANCE U / S.40(A)(IA) WAS WARRANTED ? WHETHE R THE LD. CIT(A) WAS NOT INCORRECT IN DELETING THE DISALLOWANCE TO THE EXTEN T OF 50% EVEN THOUGH HE OBSERVED THAT THE ASSESSEE HAS FAILED TO PRODUCE RELEVANT BI LLS AND VOUCHERS IN SUPPORT OF THE EXPENSES CLAIMED BY IT 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE EXECUTI ON OF CIVIL CONSTRUCTION CONTRACT. WHILE COMPUTING INCOME FROM BUSINESS, THE ASSESSEE CLAIMED AS DEDUCTION OF RS.20,48,066/- UNDER THE HEAD BUSINESS PROMOTION EX PENSES. THE ASSESSEE CLAIMED THAT IT HAD INCURRED EXPENSES AT VARIOUS SITES WHERE CONSTR UCTION WAS BEING EXECUTED. THE AO CALLED UPON THE ASSESSEE TO PRODUCE EVIDENCE TO SUB STANTIATE CLAIM OF THE ASSESSEE THAT THE ITA NO.1979/KOL/2016 K.N.D.ENGINEERING TECHNOLOGIES PVT. LTD. A.Y.2013-14 2 AFORESAID EXPENSES HAD NEXUS WITH THE BUSINESS OF T HE ASSESSEE . NO SUCH EVIDENCE WAS FILED. THE AO THEREFORE DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION OBSERVING AS FOLLOWS :- HENCE IN THE ABSENCE OF DOCUMENTARY EVIDENCES NEIT HER THE BUSINESS EXIGENCY OF THE EXPENDITURE HAS BEEN PROVED NOR IT HAS BEEN PRO VED THAT THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. FURTHER THE ASSESSEE ALSO DID NOT PRODUCE ANY EVIDENCE OF DEDUCTING TDS AS REQUIRED BY SECTION 40(A)(IA) OF THE LT. ACT. WITHOUT ANY DOCUMENTARY EVIDENCE IT IS NOT VERIFIABLE REGARDING THE PROVISION OF TDS THEREOF. THEREFORE, IN VIEW OF ABOVE, THE EXPENDITURE CLAIME D UNDER THE HEAD 'BUSINESS PROMOTION' TO THE TUNE OF RS.20,48,066/- WHICH WERE SHOWN TO BE PAID AT VARIOUS SITE EXPENSES, DURING THE PERIOD 01.04.2012 TO 31.03.201 3 IS NOT AL ABLE EXPENDITURE U/S.37(1) OF THE LT. ACT, 1961 AND ADDED BACK WITH THE RETURNED INCOME. 4. ON APPEAL BY THE ASSESSEE THE CIT(A) HELD THAT 5 0% OF THE EXPENSES ALONE SHOULD BE DISALLOWED AND NOT THE ENTIRE EXPENSES CLAIMED U NDER THE HEAD BUSINESS PROMOTION. 5. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE HA S RAISED GROUND NO.1 BEFORE THE TRIBUNAL. 6. THE LD. DR RELIED ON THE ORDER OF THE AO AND ON THE JUDICIAL DECISIONS CITED BY THE AO IN THE ORDER OF ASSESSMENT. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF CIT(A). 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. IT IS SEEN THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXECUTION OF SEVERAL CON TRACTS ACROSS INDIA. IT HAD OPERATIONAL PROJECT SITES AT MORE THAN 25 LOCATIONS IN INDIA DU RING THE RELEVANT PREVIOUS YEAR. THESE WERE LOCATED IN THE OUTSKIRTS OF TOWNS AND CITIES. CONSIDERING THE NATURE OF THE BUSINESS IT IS NOT POSSIBLE TO HOLD THAT VISIT TO THE CUSTOMERS AND SUPERVISORY HEADS ASSESSEE TO THE SITES WAS NOT NECESSARY. ON SUCH VISITS IT IS NECES SARY TO INCUR EXPENSES ON FOODING AND LODGING AND THIS WAS INVARIABLY EVIDENCED BY CASH V OUCHERS MAINTAINED AT THE SITE. THE BUSINESS PROMOTION EXPENSES AS A PERCENTAGE OF SALE WAS 0.26%. KEEPING ALL THESE FACTS IN MIND AND ALSO COMMERCIAL EXPEDIENCY IN INCURRING THESE EXPENSES AND THE CIRCUMSTANCES UNDER WHICH PROPER EVIDENCE COULD NOT BE FILED, WE ARE OF THE VIEW THAT CIT(A) WAS JUSTIFIED IN RESTRICTING THE ADDITION MA DE BY THE AO TO 50% OF THE ITA NO.1979/KOL/2016 K.N.D.ENGINEERING TECHNOLOGIES PVT. LTD. A.Y.2013-14 3 DISALLOWANCE MADE BY THE AO . WE FIND NO GROUNDS TO INTERFERE WITH THE ORDER OF CIT(A). GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 8. GROUND NO.2 RAISED BY THE REVENUE READS AS FOLLO WS :- 2. WHETHER THE LD. CIT(A) WAS CORRECT IN ALLOWING BAD DEBTS TO THE TUNE OF RS.6,78,30,7581 - DESPITE THE FACT THAT THE ASSESSE E HAD NOT SATISFIED THE PRESCRIBED CONDITIONS U/S.36(1)(VII) AND SECTION 36(2)? WHETHE R THE LD. CIT(A) WAS NOT WRONG WHEN HE DELETED THE ADDITIONS EVEN AFTER FINDING TH AT THERE WAS NO EVIDENCE THAT SUCH BAD DEBTS WERE TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT IS W RITTEN OFF OF AN EARLIER PREVIOUS YEAR? 9. THE ASSESSEE CLAIMED DEDUCTION ON ACCOUNT OF BAD DEBTS WRITTEN OFF TO RS.6,78,30,758/-. THE ASSESSEE EXPLAINED THAT IT GO T A CONTRACT FOR PILE FOUNDATION WORK FROM M/S SOMA ENTERPRISES LTD, HYDERABAD. DURING T HE FINANCIAL YEAR 2011-12, THE ASSESSEE EXECUTED THE WORK AND RAISED INVOICES OF R S.10,38,44,610/- ON M/S SOMA ENTERPRISES. THE INCOME WAS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR FINANCIAL YEAR 31.03.2012 (A.Y.2012-13). THE ASSESSEE WAS UNABLE T O RECOVER THE AMOUNT DUE TO POOR FINANCIAL POSITION OF M/S. SOMA ENTERPRISES, WHOSE CONTRACT WITH THE STATE GOVERNMENT OF TAMIL NADU WAS ALSO CANCELLED. THE ASSESSEE CLAIMED THAT IT HAD COMPLIED WITH ALL THE REQUIREMENTS FOR CLAIMING THE DEDUCTION FOR BAD DEB TS U/S 36(1)(VII) R.W.S. 36(2) OF THE ACT. THE ASSESSEE SUBMITTED THAT SINCE THE BAD DEBT S WERE WRITTEN OFF IN THE PREVIOUS YEAR RELEVANT TO A.Y.2013-14, THE CLAIM HAD TO BE ALLOWE D AS DEDUCTION KEEPING IN MIND THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F TRF LTD. VS CIT 323 ITR 397 (SC). 10. THE AO HOWEVER DID NOT ALLOW THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE INCOME ,IN RESPECT OF THE BAD DEBTS WRITTEN OFF WAS RECOGNIZED BY THE ASSESSEE ONLY IN A.Y.2012-13. THE AO ALSO HELD THAT THE ASSESSEE FAI LED TO PROVE THAT THE DEBT IN QUESTION HAD BECOME BAD. 11. ON APPEAL BY THE ASSESSEE THE CIT(A) DELETED TH E ADDITION MADE BY THE AO BY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. VS CIT(SUPRA) WHEREIN THE HONBLE SUPREME COURT HELD T HAT IT IS NOT NECESSARY FOR THE ITA NO.1979/KOL/2016 K.N.D.ENGINEERING TECHNOLOGIES PVT. LTD. A.Y.2013-14 4 ASSESSEE TO PROVE THAT THE DEBT HAS BECOME BAD TO C LAIM DEDUCTION ON ACCOUNT OF BAD DEBTS WRITTEN OFF. A MERE WRITING OFF OF THE DEBT A S BAD IN THE BOOKS OF ACCOUNT WAS SUFFICIENT TO CLAIM DEDUCTION U/S 36(1)(VIII) OF TH E ACT. THE CIT(A) ALSO REFERRED TO CBDT CIRCULAR NO.12 OF 2016 DATED 30.05.2016 ON THE ISSUE OF DEDUCTION ACCOUNT OF BAD DEBTS. THE ADDITION MADE BY THE AO WAS DELETED BY C IT(A). 12. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE HA S RAISED GROUND NO.2 BEFORE THE TRIBUNAL. 13. FROM A READING OF THE GROUNDS OF APPEAL OF THE REVENUE IT APPEARS THAT THE REVENUE HAS CHALLENGED ONLY THE APPLICABILITY OF PROVISION OF SECTION 36(2) OF THE ACT IN THE PRESENT CASE. IN THIS REGARD IT IS SEEN THAT EVEN T HE AO IN THE ORDER OF ASSESSMENT HAS ACCEPTED THE FACT THAT SUM IN QUESTION HAS BEEN SH OWN AS INCOME BY THE ASSESSEE IN A.Y.2012-13. FOR THE SAKE OF READY REFERENCE THE F OLLOWING OBSERVATIONS OF THE AO IN THE ORDER OF ASSESSMENT ARE REPRODUCED : THE SUBMISSION MADE BY THE ASSESSEE ALONG WITH THE COPY OF CORRESPONDENCE MADE WITH M/S SOMA ENTERPRISES LIMITED HAS BEEN PERUSED. IT IS FOUND THAT IT IS ONLY IN THE LAST YEAR I.E. ASSESSMENT YEAR 2012-13 IN WHICH THE AFORESAID TURNOVER WAS CLAIMED TO HAVE BEEN CREDITED BY THE ASSESSEE AND THEN ALL OF A SUDDEN IN THE NEXT FINANCIAL YEAR THE SAME HAS UNILATERALLY BEEN DECLARED AS A B AD DEBT OR WRITTEN OFF IN THE GARB 9OF TURNOVER WRITTEN OFF BEFORE DERIVING ANY CONC LUSIONS AND WITHOUT MAKING ANY ATTEMPT TO RECOVER THE SAME. 14. IN THE LIGHT OF THE CLEAR FINDING IN THE ORDER OF ASSESSMENT WE ARE OF THE VIEW THAT THERE IS NO MERIT IN GROUND NO.2 RAISED BY THE REVE NUE. THE FINDINGS WITH REGARD TO ACTUAL WRITE OFF OF THE DEBT AS BAD DEBTS IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, HAS NOT BEEN DISPUTED BY THE REVENUE. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN GROUND NO.;2 RAISED BY THE REVENUE. CONSEQUENTLY GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 15. GROUND NO.3 RAISED BY THE REVENUE READS AS FOLL OWS :- 3. WHETHER THE LD. CIT(A) WAS CORRECT IN DELETING THE ADDITION OF RS. 64,07,695/- WITHOUT APPRECIATING THAT THE EMPLOYEES' CONTRIBUTI ON HAS TO BE DEPOSITED WITHIN THE DUE DATE BY WHICH THE ASSESSEE WAS REQUIRED AS EMPL OYER TO CREDIT THE EMPLOYEES CONTRIBUTION TO THE EMPLOYEES ACCOUNT IN THE RELEV ANT FUND UNDER ANY ACT OR RULE ITA NO.1979/KOL/2016 K.N.D.ENGINEERING TECHNOLOGIES PVT. LTD. A.Y.2013-14 5 16. THE ASSESSEE AS AN EMPLOYER WITHHELD THE PROVI DENT FUND CONTRIBUTION PAYABLE BY ITS EMPLOYEES FROM THEIR SALARIES PAYABLE, AS THEIR SHA RE OF CONTRIBUTION TO PROVIDENT FUND (PF) AND EMPLOYEES STATE INSURANCE (ESI). AS PER S ECTION 36(1)(VA) OF THE ACT, THE SUM SO WITHHELD AS EMPLOYEES CONTRIBUTION TO PF & ESI, IF IT IS NOT PAID ON OR BEFORE THE DUE DATE AS PROVIDED UNDER THE RELEVANT LAW GOVERNING T HE PROVIDENT FUND, WILL NOT BE ALLOWED AS DEDUCTION. IT IS THE PLEA OF THE ASSESSEE THAT T HE EMPLOYEES CONTRIBUTION TO PF & ESI HAD BEEN PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR U/S 139(1) OF THE ACT AND THEREFORE DEDUCTION CLAIMED SHOULD BE ALLOWED AS PROVIDED UNDER THE PROVISO TO SECTION 43B OF THE ACT. THE SAID PLEA OF THE ASSESSEE WAS REJECTED BY THE AO FOR THE REAS ON THAT THE PROVISO TO SECTION 43B OF THE ACT CANNOT BE READ INTO THE PROVISION OF SECTIO N 36(1)(VA) OF THE ACT. ON APPEAL BY THE ASSESSEE, THE CIT(A) DELETED THE ADDITION MADE BY THE AO HOLDING THAT EMPLOYEES SHARE OF CONTRIBUTION TO PF/ESI SHOULD BE ALLOWED A S DEDUCTION WHICH IS PAID ON OR BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME U/S 139 OF THE ACT. THE DEPOSITS AS CAN BE SEEN FROM THE CHART GIVEN BELOW WERE ON OR BEFOR E THE DUE DATE FOR FILING RETURN OF INCOME BY THE ASSESSEE FOR AY 2013-14. THE DETAILS OF THE LATE DEPOSIT OF PF/ESI DUES OF EMPLOYEES WAS AS FOLLOWS: 17. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE H AS RAISED GROUND NO.3 BEFORE THE TRIBUNAL. ITA NO.1979/KOL/2016 K.N.D.ENGINEERING TECHNOLOGIES PVT. LTD. A.Y.2013-14 6 18. AT THE TIME OF HEARING IT WAS BROUGHT TO OUR N OTICE THAT THE HONBLE CALCUTTA HIGH COURT HAS ALSO TAKEN THE VIEW THAT EMPLOYEES CONTR IBUTION TO PF PAID ON OR BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME U/S 139(1) OF THE ACT SHOULD BE ALLOWED AS DEDUCTION. IN THIS REGARD THE DECISION OF THE HONB LE CALCUTTA HIGH COURT IN THE CASE OF M/S. AKZO NOBEL INDIA LTD. VS CIT IN ITA 110 OF 201 1 ORDER DATED 14.06.2016 AND IN THE CASE OF CIT VS VIJAYSHREE LTD., OF THE HONBLE CALCUTTA HIGH COURT IN GA NO.2607 OF 2011 ORDER DATED 06.09.2011 WAS FILED BEFORE US. I N THE ORDER IN THE CASE OF VIJAYSHREE LTD., (SUPRA), THE HONBLE CALCUTTA HIGH COURT HELD AS FOLLOWS : THE ONLY ISSUE INVOLVED IN THIS APPEAL IS AS TO WH ETHER THE DELETION OF THE ADDITION BY THE ASSESSING OFFICER ON ACCOUNT OF EMPLOYEESCO NTRIBUTION TO ESI AND PF BY INVOKING THE PROVISION OF SECTION 36(1)(VA) READ WI TH SECTION 2(24)(X) OF THE ACT WAS CORRECT OR NOT. IT APPEARS THAT THE TRIBUNAL BELOW, IN VIEW OF THE DECISION OF THE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ALOM EXTRUSION LTD., REPORTED IN 2009 VOL.390 ITR 306, HELD THAT THE DEL ETION WAS JUSTIFIED. BEING DISSATISFIED, THE REVENUE HAS COME UP WI TH THE PRESENT APPEAL. AFTER HEARING MR. SINHA, LEARNED ADVOCATE, APPEARIN G ON BEHALF OF THE APPELLANT AND AFTER GOING THROUGH THE DECISION OF THE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ALOM EXTRUSION LTD., WE FIND THAT THE SUPREME COURT IN THE AFORESAID CASE HAS HELD THAT THE AMEND MENT TO THE SECOND PROVISO TO THE SEC. 43(B) OF THE INCOME TAX ACT, AS INTRODUCED BY FINANCE ACT, 2003, WAS CURATIVE IN NAT.URE AND IS REQUIRED TO BE APPLIED RETROSPECT IVELY WITH EFFECT FROM 1 ST APRIL, 1988. SUCH BEING THE POSITION, THE DELETION OF T HE AMOUNT PAID BY THE EMPLOYEES' CONTRIBUTION BEYOND DUE DATE WAS DEDUCTIBLE BY INVO KING THE AFORESAID AMENDED PROVISIONS OF SECTION 43(B) OF THE ACT. WE, THEREFORE, FIND THAT NO SUBSTANTIAL QU ESTION OF LAW IS INVOLVED IN THIS APPEAL AND CONSEQUENTLY, WE DISMISS THIS APPEAL. 19. IN VIEW OF THE AFORESAID DECISION OF THE HONB LE CALCUTTA HIGH COURT, WE ARE OF THE VIEW THAT THE DEDUCTION CLAIMED SHOULD BE ALLOWED A S THE EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND HAD ADMITTEDLY BEEN PAID ON OR BEFOR E THE DUE DATE FOR FILING RETURN OF ITA NO.1979/KOL/2016 K.N.D.ENGINEERING TECHNOLOGIES PVT. LTD. A.Y.2013-14 7 INCOME U/S.139(1) OF THE ACT. THE LEARNED DR ATTEM PTED TO ARGUE THAT THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IS NOT CORRECT AND THAT SOME OF THE OTHER HIGH COURTS HAVE TAKEN A DIFFERENT VIEW ON THE ISSUE. WE ARE OF THE VIEW THAT THE DECISION OF THE JURISDICTIONAL HIGH COURT IS BINDING ON US AND THER EFORE, RESPECTFULLY FOLLOWING THE SAME, WE ALLOW GR.NO.3 AND DELETE THE ADDITION MADE. 20. IN THE RESULT THE APPEAL BY THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01.03.2018. SD/- SD/- [WASEEM AHMED] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 01.03.2018. R.G.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. K.N.D.ENGINEERING TECHNOLOGIES PVT. LD., 7A, HOSPITAL STREET, KOLKATA-700072. 2. D.C.I.T., CENTRAL CIRCLE-10(1), KOLKATA 3. CIT(A)-4, KOLKATA 4. CIT 4, KOLKATA. 5. CIT DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, SR.PRIVATE SECRETARY, HEAD OF OFFICE/ D.D.O. ITAT, KOLKATA BENCHES