DCIT, Circle-10, Kolkata, Kolkata V. M/S. Associated Pigments Ltd., Kolkata

ITA 2042/KOL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1866 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 07-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Recovery proceedings; Non-deduction of tax; Bad and doubtful debts; Revised return
• Section: 115JB; 194C

Judgement Text

ITA NO. 2042/KOL/2014 M/S ASSOCIATED PIGMENTS LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA B B ENCH, KOLKATA BEFORE : SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBE R I.T.A. NO. 2042/KOL/2014 A.Y : 2011-12 D.C.I.T., CIR-10, KOLKATA, P-7, CHOWRINGHEE SQUARE,3 RD FLOOR KOLKATA-700 069. APPELLANT -VS- M/S. ASSOCIATED PIGMENTS LTD. 18/1A, HINDUSTHAN ROAD, KOLKATA-29 PAN: AACCA 4246 P. RESPONDENT APPEARANCES BY: FOR THE APPELLANT: SHRI SAURABH KUMAR, ADDL. C IT (DR) FOR THE RESPONDENT: M.SATNALIWALA, FCA DATE OF HEARING : 10-10- 2017 DATE OF PRONOUNCEMENT : 03-01-2018 SHRI. S.S.VISWANETHRA RAVI, JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 29.08.2014 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-XII, KOLKATA FOR THE ASSESSMENT YEAR 2011-12. 2. THE ISSUE RAISED IN GROUNDS NO. 1 RELATES TO DEL ETION BY THE LD. CIT(A) OF THE ADDITION OF RS. 10,85,214/- MADE BY THE AO ON A CCOUNT OF COMMISSION EXPENSES RELATING TO ASSESSMENT YEAR 2010-11. ITA NO. 2042/KOL/2014 M/S ASSOCIATED PIGMENTS LTD. 2 3. THE ASSESSEE IN THE PRESENT CASE IS COMPANY WHIC H IS ENGAGED IN THE BUSINESS OF MANUFACTURER OF LEAD, LEAD OXIDES AND ALLIED PRODUCTS & TRADING OF LEAD/LEAD ALLOY. THE RETURN OF INCOME FOR THE YE AR UNDER CONSIDERATION WAS FILED BY IT ON 26.09.2011 DECLARING TOTAL INCOME OF RS. 14,99,20,648/-. IN THE PROFIT AND LOSS ACCOUNT FILED ALONG WITH SAID R ETURN A SUM OF RS. 26,61,183/- WAS DEBITED BY THE ASSESSEE ON ACCOUNT OF COMMISSION AND SALARY TO THE DIRECTORS. ON VERIFICATION, IT WAS FO UND BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THAT THE SAID AMO UNT WAS CLAIMED A SUM OF RS. 10,85,214/- PAID BY THE ASSESSEE COMPANY TO ITS MANAGING DIRECTOR ON ACCOUNT OF COMMISSION FOR THE FINANCIAL YEAR 200 9-10 RELEVANT TO ASSESSMENT YEAR 2010-11. IT WAS SEEN THAT THE ASSES SEE HAS FOLLOWED A MERCANTILE SYSTEM OF ACCOUNTING, AO HELD THAT THE S AID EXPENDITURE PERTAINING TO EARLIER YEAR COULD NOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION. HE ACCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE ON ACCOUNT OF COMMISSION TO THE DIRECTORS TO THE EXTEN T OF RS. 10,85,214/-. 3.1. THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF COMMISSION PAID TO DIRECTORS WAS CHALLENGED BY THE ASSESSEE IN THE APP EAL FILED BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSION MADE BY TH E ASSESSEE AS WELL AS MATERIAL AVAILABLE ON RECORD. THE LD. CIT(A) DELETE D THE SAID DISALLOWANCE FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 5. 2.3 OF HIS IMPUGNED ORDER. 5.2.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF TH E CASE, THE FINDING OF THE ASSESSING OFFICER AND TH E SUBMISSIONS PUT FORTH ON BEHALF OF THE APPELLANT. A CCRUED BUT UNDISCHARGED LIABILITY MUST BE ALLOWED U NDER MERCANTILE SYSTEM OF ACCOUNTING. IN METAL BOX CO. O F INDIA LTD. V. THEIR WORKMEN [1969] 73 ITR 53 (SC) , THE HON'BLE APEX COURT HELD THAT 'IN THE CASE OF AN ASSESSEE MAINTAINING HIS ACCOUNTS ON MERCANTILE SYSTEM, A LIABILITY ALREADY ACCRUED, THOUGH TO BE D ISCHARGED AT A FUTURE DATE, WOULD BE A PROPER DEDUC TION WHILE WORKING OUT THE PROFITS AND GAINS OF HIS BUSI NESS, REGARD' BEING HAD TO BE THE ACCEPTED PRINCIPL ES OF ITA NO. 2042/KOL/2014 M/S ASSOCIATED PIGMENTS LTD. 3 COMMERCIAL PRACTICE AND ACCOUNTANCY. IT IS NOT AS I F SUCH DEDUCTION IS PERMISSIBLE ONLY IN CASE OF AMO UNTS ACTUALLY EXPENDED OR PAID. JUST AS ACTUAL RECEIPTS AS WELL AS THOSE ACCRUED DUE ARE BROUGHT IN FOR INC OME- TAX ASSESSMENT, SO ALSO LIABILITIES ACCRUED DUE WOU LD BE TAKEN INTO ACCOUNT WHILE WORKING OUT THE PROF ITS AND GAINS OF THE BUSINESS'. IN VIEW OF THE RATIO LA ID DOWN BY THE APEX COURT, THE ACTION OF THE ASSESS ING OFFICER IN ALLOWING THE EXPENDITURE TO THE EXTENT O F RS.15,17,059/- FOR THE FINANCIAL YEAR 2010-11 REL EVANT FOR THE PRESENT ASSESSMENT YEAR IS JUSTIFIED. HOWEV ER, IN Y VIEW, THE DISALLOWANCE AS MADE BY HIM IN RESPECT OF THE COMMISSION @1 %,ON THE PROFITS RELAT ABLE TO FINANCIAL YEAR 2009-10, BUT CREDITED/PAID DURING THE FINANCIAL YEAR RELEVANT FOR THE ASSESSME NT YEAR 2011-12 DOES NOT APPEAR TO BE JUSTIFIED. TH E ISSUE RAISED BY THE ASSESSING OFFICER IS AS TO HOW DEDUCTION IN RESPECT OF AN EXPENDITURE, WHICH OUGHT TO HAVE BEEN CREDITED/PAID IN THE PRECEDING FINANCIAL YEAR COULD BE CREDITED/PAID DURING THE SUBSEQUENT FINANCIAL YEAR WHEN THE ASSESSEE FOLLOWED MERCANTIL E SYSTEM OF ACCOUNTING. THE ANSWER IS THAT THE LIAB ILITY OF AN EARLIER YEAR, WHICH WAS CRYSTALLIZED DURING T HE YEAR, CANNOT BE IGNORED STRAIGHT AWAY. IN SAURAS HTRA CEMENT & CHEMICAL INDUSTRIES LTD. VS. CIT [1995] 80 TAXMAN 61/213 ITR 523 (GUJ), IT HAS BEEN HELD THAT IF ANY LIABILITY, THOUGH RELATING TO THE EARLIER Y EAR, DEPENDS UPON MAKING A DEMAND ITS ACCEPTANCE B Y THE ASSESSEE AND SUCH LIABILITY HAS BEEN ACTUALLY CLAIM ED AND PAID IN THE LATER PREVIOUS YEARS, IT CANNOT BE DISALLOWED AS DEDUCTION MERELY ON THE BASIS THAT TH E ACCOUNTS ARE MAINTAINED ON MERCANTILE BASIS AND T HAT IT RELATED TO A TRANSACTION OF THE EARLIER YEAR. I N ANOTHER CASE OF CIT VS. PHALTON SUGAR WORKS LTD. [1986] 162 ITR 622 (BOM), THE HONBLE BOMBAY HIGH COURT HE LD THAT WHERE A LIABILITY ARISING OUT OF A CONTRAC TUAL OBLIGATION IS DISPUTED, THE ASSESSEE IS ENTITLED, I N THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE DISPUTE IS FINALLY ADJUDICATED UPON OR SE TTLED, TO CLAIM A DEDUCTION IN THAT BEHALF. IN VIEW OF THE FACTS OF THE CASE, AND THE PRINCIPLE OF LAW LAID DOWN IN THE CASES CITED SUPRA, I AM OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER W AS NOT JUSTIFIED IN MAKING THE IMPUGNED DISALLOWANC E. HIS APPREHENSION THAT THE CLAIM OF EXPENDITURE RELA TING TO TWO DIFFERENT ASSESSMENT YEARS IN A SINGLE ASSESSMENT YEAR WHEN RECEIPTS ARE ACCOUNTED FOR IN DIFFERENT ASSESSMENT YEARS ON THE BASIS OF REAL INCOME THEORY IN MERCANTILE SYSTEM OF ACCOUNTING IS NOT BASED ON CORRECT PRINCIPLE OF LAW. FURTHER, ON THE SAME ANALOGY, HIS OBSERVATION THAT SECTION 115JB WO ULD BE APPLICABLE IN RESPECT OF THE PRIOR PERIOD EXPENSES IS UNFOUNDED. HAVING REGARD TO THE FACTS A ND CIRCUMSTANCES, THE DISALLOWANCE OF RS. 10,85,214 /- IS HEREBY DELETED. THIS GROUND OF APPEAL IS ACCORDI NGLY ALLOWED. 4. WE HAVE HEARD THE ARGUMENTS ON BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. DR H AS CONTENDED THAT THE COMMISSION AMOUNT IN QUESTION WAS PAID BY THE COMPA NY TO ITS MANAGING DIRECTOR IN THE EARLIER YEAR AND THE SAME THEREFORE , WAS NOT ALLOWABLE AS DEDUCTION IN THE YEAR UNDER CONSIDERATION AS THE AS SESSEE COMPANY FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. HE H AS CONTENDED THAT THE SAID AMOUNT THEREFORE WAS RIGHTLY DISALLOWED BY THE AO AND THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE SAID DISALLOWANCE. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND HAS STRONGLY SUPPORTED T HE IMPUGNED ORDER OF THE LD. CIT(A) GIVING RELIEF TO THE ASSESSEE ON THI S ISSUE. HE HAS CONTENDED THAT THE COMMISSION WAS PAYABLE BY THE ASSESSEE COM PANY TO ITS MANAGING DIRECTOR @ 1% OF THE PROFITS OF THE CONCERNED FINAN CIAL YEAR. HE HAS CONTENDED THAT SINCE THE PROFIT OF THE FINANCIAL YE AR 2009-10 WAS DETERMINED ITA NO. 2042/KOL/2014 M/S ASSOCIATED PIGMENTS LTD. 4 ONLY IN THE FINANCIAL YEAR 2010-11 AFTER FINALIZING THE ACCOUNT, THE ALLOWABILITY ON ACCOUNT OF COMMISSION WAS CRYSTALLI ZED ONLY IN THE FINANCIAL YEAR 2010-11 RELEVANT TO ASSESSMENT YEAR 2011-12. W E FIND MERIT IN THIS CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. SI NCE, THE COMMISSION TO THE MANAGING DIRECTOR WAS PAYABLE BY THE ASSESSEE COMPA NY ON THE PROFITS AND THE PROFITS FOR THE FINANCIAL YEAR 2009-10 WAS DETE RMINED ONLY IN THE YEAR UNDER CONSIDERATION AFTER FINALIZING THE ACCOUNT. T HE ALLOWABILITY ON ACCOUNT OF COMMISSION WAS CRYSTALLIZED IN THE YEAR UNDER CO NSIDERATION AND THE LD. CIT(A) IN OUR OPINION WAS FULLY JUSTIFIED IN ALLOWI NG THE SAME. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) ON THE ISS UE AND UPHOLDING THE SAME. WE DISMISS THE GROUND NO.1 OF THE REVENUE APPEAL. 5. GROUND NO. 2 RAISED BY THE REVENUE RELATES TO DE LETION BY THE LD. CIT(A) OF THE ADDITION OF RS. 28,76,896/- MADE BY THE AO B Y WAY OF DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF PAYMENT S MADE TO FOREIGN SHIPPING LINES WITHOUT DEDUCTION OF TAX AT SOURCE. 5.1. DURING THE YEAR UNDER CONSIDERATION, THE TOTAL AMOUNT OF RS. 28,76,896/- WAS PAID BY THE ASSESSEE COMPANY ON ACC OUNT OF OCEAN FREIGHT TO THE DIFFERENT SHIPPING LINES WITHOUT DEDUCTION O F TAX AT SOURCE. ACCORDING TO THE AO, THE AGENTS OF THE SAID FOREIGN SHIPPING LINES WERE ITS DEPENDENT AGENTS AND THE FOREIGN SHIPPING LINES THUS HAVING A GENCY PES IN INDIA, THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE FROM TH E PAYMENTS MADE TO THEM ON ACCOUNT OF OCEAN FREIGHT. HE THEREFORE, DIS ALLOWED THE OCEAN FREIGHT OF RS. 28,76,896/- PAID BY THE ASSESSEE TO THE FORE IGN SHIPPING LINES U/S 40(A)(IA) OF THE ACT FOR NON-DEDUCTION OF TAX AT SO URCE. ITA NO. 2042/KOL/2014 M/S ASSOCIATED PIGMENTS LTD. 5 5.2. THE DISALLOWANCE MADE BY THE AO U/S 40(A)(IA) OF THE ACT WAS CHALLENGED BY THE ASSESSEE IN APPEAL FILED BEFORE THE LD. CIT(A) AND AFTER CONSIDERING THE SUBMISSION MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) DELETED THE SAI D DISALLOWANCE FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 5.3.3 OF H IS IMPUGNED ORDER. 5.3.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF TH E CASE AND THE SUBMISSIONS OF THE AR. I AM INCLINED TO ACCEPT THE SUBMISSIONS OF THE APPELLANT. IN THE CAS E OF SHIPPING BUSINESS OF NON-RESIDENTS, THE PROVIS IONS OF SECTION 172 ARE TO APPLY, NOTWITHSTANDING ANYTHI NG CONTAINED IN OTHER PROVISIONS OF THE ACT. THEREF ORE, IN SUCH CASES, THE PROVISIONS OF SECTIONS 194C AND 195 RELATING TO DEDUCTION AT SOURCE ARE NOT APPLICA BLE. THE RECOVERY OF TAX IS TO BE REGULATED, FOR A VOYAG E UNDERTAKEN FROM ANY PART IN INDIA BY A SHIP, UNDE R THE PROVISIONS OF SECTIONS 172. THERE WOULD BE CASE S WHERE PAYMENTS ARE MADE TO SHIPPING AGENTS OF NON-RESIDENT SHIP-OWNERS OF CHARTERS FOR CARRIAGE O F PASSENGERS ETC., SHIPPED AT A PORT IN INDIA. SINC E, THE AGENT ACTS ON BEHALF OF THE NON-RESIDENT SHIP OWNER OR CHARTERER, HE STEPS INTO SHOES OF THE PRINCIPAL . ACCORDINGLY, THE PROVISIONS OF SECTION 172 SHALL AP PLY AND THOSE OF SECTIONS 194C AND 195 WILL NOT APP LY AS PER CIRCULAR NO. 723 DATED 19.09.1995. IN VIEW OF T HE EXPRESS PROVISIONS OF SECTION 172 AND THE CBDTS CIRCULAR CITED SUPRA, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING THE APPELLANT AS IN DEFAULT I N MAKING TDS FROM OCEAN FREIGHT PAYMENTS AND MAKING DISALLOW ANCE OF RS. 28,76,896/- UNDER SEC. 40(A)(IA) OF THE ACT. THE DISALLOWANCE BEING UNJUSTIFIED IS HEREBY D ELETED. THIS GROUNDS OF APPEAL IS ALLOWED. 6. WE HAVE HEARD ARGUMENTS ON BOTH THE SIDES AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. AS CLARIFIED BY THE C BDT VIDE ITS CIRCULAR NO. 723 DATED 19.09.1995 (COPY AT PAGE NO. 11 OF THE PA PER BOOK), THE PROVISIONS OF SECTION 172 ARE APPLICABLE IN THE CAS E OF FOREIGN SHIPPING COMPANIES NOTWITHSTANDING ANYTHING CONTAINED IN THE OTHER PROVISIONS OF THE ACT AND THEREFORE, THE PROVISION OF SECTION 194C AN D 195 RELATING TO TAX DEDUCTION AT SOURCE ARE NOT APPLICABLE IN SUCH CASE S. AS FURTHER CLARIFIED BY THE CBDT, WHERE PAYMENTS ARE MADE TO SHIPPING AGENT S OF NON-RESIDENT SHIPPING OWNERS FOR CARRIAGE OF PASSENGERS ETC. SHI PPED AT A PORT IN INDIA, THE AGENTS STEP INTO THE SHOES OF THE PRINCIPAL AND ACCORDINGLY THE PROVISION OF SECTION 172 SHALL APPLY AND NOT THE PROVISIONS O F SECTION 194 AND 195. THE ISSUE IN THE PRESENT CASE RELATING TO THE DISAL LOWANCE U/S 40(A)(IA) THUS IS SQUARELY COVERED BY THE CBDT CIRCULAR NO. 723 DA TED 19.09.1995 AND ITA NO. 2042/KOL/2014 M/S ASSOCIATED PIGMENTS LTD. 6 EVEN THE LD. DR HAS NOT BEEN ABLE TO DISPUTE THIS P OSITION. WE THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) DELETING THE DISALLOWANCE MADE BY THE AO U/S 40(A)(IA) BY RELYIN G ON THE SAID CIRCULAR ISSUED BY THE CBDT AND UPHOLDING THE SAME, WE DISMI SS THE GROUND NO. 2 OF THE REVENUE APPEAL. 7. THE ISSUE RAISED IN GROUND NO.3 RELATES TO THE D ELETION BY THE LD. CIT(A) OF THE ADDITION OF RS. 73,66,430/- MADE BY THE AO O N ACCOUNT OF BAD DEBTS WRITTEN OFF. 8. WHILE EXAMINING THE CLAIM OF THE ASSESSEE FOR D EDUCTION ON ACCOUNT OF BAD DEBTS WRITTEN OFF AMOUNTING TO RS. 73,66,430/-, IT WAS NOTED BY THE AO THAT THE DECISION TO WRITE OFF THE RELEVANT DEBT AS BAD WAS TAKEN ON 12.04.2011 I.E. NOT IN THE YEAR UNDER CONSIDERATION . ALTHOUGH IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE COMPANY THAT TH E RELEVANT BAD DEBTS WERE WRITTEN OFF IN ITS BOOKS OF ACCOUNTS FOR THE Y EAR UNDER CONSIDERATION, THE AO HELD THAT IT WAS A BACK DATED ENTRY MADE BY THE ASSESSEE COMPANY IN ITS BOOKS OF ACCOUNTS AND THE ACTUAL DECISION TO WRITE OFF THE BAD DEBTS HAVING BEEN TAKEN ONLY IN THE PREVIOUS RELEVANT ASS ESSMENT YEAR 2012-13 THE ASSESSEE WAS NOT ENTITLED FOR DEDUCTION U/S 36( 1)(VII) IN THE YEAR UNDER CONSIDERATION. ACCORDINGLY, HE DISALLOWED THE CLAIM OF THE ASSESSEE FOR BAD DEBTS WRITTEN OFF. 8.1. THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF BAD DEBTS WRITTEN OFF WERE CHALLENGED BY THE ASSESSEE IN THE APPEAL FILE D BEFORE THE LD. CIT(A) ITA NO. 2042/KOL/2014 M/S ASSOCIATED PIGMENTS LTD. 7 AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) DELETE D THE SAID DISALLOWANCE FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH 5.4.3 OF H IS IMPUGNED ORDER. 5.4.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF T HE CASE, THE FINDINGS OF THE ASSESSING OFFICER AND THE SUBMISSIONS PUT FORTH ON BEHALF OF THE APPELLANT. T HE AO HAS BASED HIS FINDINGS ON THE NOTE PUT UP TO THE MANAGING DIRECTOR OF THE ACCOUNTS DEPARTMENT ON 09. 04.2011 BY THE SENIOR ACCOUNTS MANAGER AND THE APPROVAL OF THE MANAGING DIRECTOR ON THE NOTE IS DA TED 12.04.2011. 1 DO NOT FIND ANY MERIT IN THESE FINDINGS. FIRSTLY, BECAUSE THE SUBJECT OF THE NOTE IS 11 BAD DEBT TO BE WRITTEN OFF IN MARCH. 2011'. T HIS MEANS THERE WAS A PROPOSAL WITH THE ACCOUNTS DEPART MENT OF THE COMPANY TO WRITE OFF THE BAD DEBITS AS ON 31.03.2011 FOR WHICH EX-FACTO APPROVAL WAS SOUGH T AND OBTAINED IN THE SECOND WEEK OF APRIL, 2911, AFTER THE CLOSE OF THE FINANCIAL YEAR. SECONDLY, HA D THERE BEEN NO APPROVAL END THE ADJUSTMENT ENTRIES APPEARED IN THE BOOKS OF ACCOUNT AS ON 31 ST MARCH FOR THE WRITE OF THE BAD DEBTS, THERE COULD HAVE BEEN GENUINE DOUBT THAT THE BAD DEBTS WERE NOT WRITTEN O FF IN THE BOOKS OF ACCOUNT DURING THE FINANCIAL YEA R RELEVANT FOR ASSESSMENT YEAR 2011-1 2. FOR AND FROM A. YR. 1989- 90, THE CONDITIONS REQUISITE FOR ALLOWANCE OF A DEBIT AS BAD DEBT ARE:- I. IT MUST BE A PROPER DEBT, OR A PART THEREOF II. OF A REVENUE NATURE CONTRADISTINGUISHED FROM CA PITAL NATURE, III. WHICH HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR ; IV. (A) WHICH HAS BEEN TAKEN INTO ACCOUNT IN COMPUT ING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WR ITTEN OFF OR OF AN EARLIER PREVIOUS YEAR; OR (B) WHICH REPRESENTS MONEY LENT IN THE ORDINARY COU RSE OF THE BUSINESS OF BANKING OR MONEY LENDING WHI CH IS CARRIED ON BY THE ASSESSEE. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT TH E APPELLANT COMPANY HAS NOT FULFILLED THE CONDITION S PRECEDENT FOR WRITE OFF OF THE DEBTS AS BEING BAD. AS ALREADY MENTIONED, THE CASE OF THE ASSESSING OFF ICER IS THAT THE ACCOUNTS WERE NOT PREPARED IN ACCORDANC E WITH THE PROVISIONS OF THE COMPANY ACT AND THAT T HE WRITE OFF OF THE DEBTS WAS NOT POSSIBLE DURING THE F.Y. 2010-11. NOW, IT IS ONLY IN THOSE CASES WHERE THE DEPARTMENT RECORDS A FINDING THAT THE 'METHOD ADOPT ED BY THE ASSESSEE RESULTS IN DISTORTION OF PROFITS THAT THE DEPARTMENT CAN INSIST ON SUBSTITUTION OF THE EX ISTING METHOD: CIT V. BILAHARI INVESTMENT' P. LTD [ 2008] 299 ITR 1. IN CASES WHERE THE DEPARTMENT WANTS TO T AX AN ASSESSEE ON THE GROUND OF LIABILITY ARISING I N A PARTICULAR YEAR, IT SHOULD ALWAYS ASCERTAIN THE MET HOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IN THE P AST AND WHETHER THE CHANGE IN THE METHOD OF ACCOUNTING WAS WARRANTED ON THE GROUND THAT PROFIT BEING UNDER-ESTIMATED UNDER THE IMPUGNED METHOD OF ACCOUN TING. IF THE ASSESSING OFFICER COMES TO THE CONCLUSION THAT THERE IS UNDER-ESTIMATION OF PROFIT S, HE MUST GIVE FACTS AND FIGURES IN THAT REGARD TO DEMONSTRATE THAT THE IMPUGNED METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE RESULTS IN UNDER- ESTIMATION OF PROFITS AND IS THEREFORE REJECTED. OT HERWISE THE PRESUMPTION WOULD BE THAT THE ENTIRE EXERCISE IS REVENUE NEUTRAL AS HELD IN CIT V. REALE ST BUILDERS AND SERVICES LTD. [2008] 307 ITR 202. I N THE CASE OF CIT V. WOODWARD GOVERNOR INDIA P. LTD [2009 ] 312 ITR 202, IT HAS BEEN HELD THAT UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, WHAT IS DUE IS BRO UGHT INTO CREDIT BEFORE IT IS ACTUALLY RECEIVED; IT BRINGS INTO DEBIT AN EXPENDITURE FOR WHICH A LEGAL LIABILI TY HAS BEEN INCURRED BEFORE IT IS ACTUALLY DISBURSE D. IN THE APPELLANT COMPANYS CASE, THERE IS NO FINDING OF TH E ASSESSING OFFICER THAT THERE HAS BEEN ANY UNDER-ESTIMATE OF PROFITS DURING THE YEAR AND THAT THERE HAS BEEN ANY CHANGE IN THE METHOD OF ACCOUNTI NG WHICH AFFECTED THE PROFITS OF THE FINANCIAL YEAR RE LEVANT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. ! IT IS WELL-SETTLED THAT AS THE ASSESSING OFFICER EXAMINES THE ACCOUNTS OF AN ASSESSEE, HE HAS CONSIDERED THE FOLLOWING QUESTIONS:- (1) WHETHER THE ASSESSEE HAS REGULARLY EMPLOYED A M ETHOD OF ACCOUNTING? (2) EVEN IF REGULAR ADOPTION O F A METHOD OF ACCOUNTING IS THERE, WHETHER THE ANNUAL PROFITS CAN PROPERLY BE DEDUCED FROM THE METHOD EMPLOYED? (3) WHETHER THE ACCOUNTS ARE CORRECTLY MAINTAINED? ITA NO. 2042/KOL/2014 M/S ASSOCIATED PIGMENTS LTD. 8 (4) WHETHER THE ACCOUNTS MAINTAINED ARE COMPLETE IN THE SENSE THAT THERE IS NO SIGNIFICANT OMISSION THEREIN? THERE IS NO CATEGORICAL FINDING OF THE ASSESSING O FFICER IN NEGATIVE ON ANY OF THE FOUR QUESTIONS EXCEPT THAT THE WRITE OFF OF THE DEBT WAS NOT POSSI BLE DURING F.Y. 2010-11 AND THEREFORE, THE AMOUNT O F RS. 73,66,430/- IS NOTHING BUT PROVISION FOR DIMINU TION IN THE VALUE OF ASSETS FOR THE F.Y. 2010-11 (A S AT 31.03.2011). THE ACCOUNTS ARE DULY AUDITED BOTH UND ER THE COMPANIES ACT AND UNDER THE PROVISIONS OF SEC.44AB OF THE IT AC. THE AUDITORS HAVE NOT POINTE D OUT ANY LAPSES TO WARRANT ANY ADVERSE FINDING THA T THE SUBSEQUENT APPROVAL TO WRITE OFF ENTRIES IS A R ESULT OF CHANGE OF METHOD OF ACCOUNTING, OR WITH A VIEW TO REDUCE THE PROFITS OR THE VALUE OF ASSETS FOR TH AT MATTER. THE FACTS OF THE CASES RELIED UPON BY TH E ASSESSING OFFICER ARE NOT SQUARELY APPLICABLE TO TH E FACTS OF THE APPELLANTS CASE. IN THE CASE OF CIT VS. HERDILLA CHEMICALS LTD. REPORTED IN 225 ITR 532, TH E CONCLUSION TO WHICH THE HONBLE COURT REACHED IS THAT THE ASSESSEE CANNOT CLAIM DEDUCTION OF THE VALUE O F ASSET WRITTEN OFF ON THE GROUND ON THE GROUND THA T IT HAS BECOME ABSOLUTE SO LONG AS THE ASSET HAS NOT BE EN DISPOSED OFF. IN THIS CASE, THE APPROVAL ACCORDE D IS FOR WRITE OFF AS ON 31.03.2011. THERE IS NO MATERIA L BROUGHT ON RECORD TO INDICATE THAT THE BAD DEBTS WERE NOT WRITTEN OFF IN THE BOOKS AS WRITE OFF WAS EFFEC TED IN THE SUBSEQUENT FINANCIAL YEAR. EVEN IF IT IS ASSUMED TO BE SO, THE SAME IS REVENUE NEUTRAL. THEREFORE, H AVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE VIEW THAT THE ASSESSING OFFICER W AS NOT JUSTIFIED IN DISALLOWING THE AMOUNT OF RS. 73,66,430/- HOLDING THAT THE BAD DEBTS TO THE TUNE OF RS. 73,66,430/- WERE NOT WRITTEN OFF IN THE BOOK S AS ON 31.03.2011. THE DISALLOWANCE IS HEREBY DELETED. THIS GROUNDS OF APPEAL IS ACCORDINGLY ALLOWED. 9. WE HAVE HEARD THE ARGUMENTS ON BOTH THE SIDES AN D ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. DR HAS CONTEN DED THAT THE DISALLOWANCE TO WRITE OFF THE RELEVANT BAD DEBT HAVING BEEN TAKEN B Y THE MANAGEMENT OF THE ASSESSEE COMPANY ONLY AFTER THE END OF THE YEAR UND ER CONSIDERATION, IT IS NOT UNDERSTANDABLE HOW THE ENTRY TO WRITE OFF THE BAD D EBTS WAS MADE IN ITS BOOKS OF ACCOUNTS FOR THE PREVIOUS YEAR. HE HAD CONTENDED THAT THE SAID ENTRY MADE BY THE ASSESSEE COMPANY WAS CLEARLY A BACK DATED E NTRY AND ITS CLAIM FOR BAD DEBTS WRITTEN OFF WAS RIGHTLY DISALLOWED BY THE AO. HOWEVER AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THERE WAS A PROPOSAL T O WRITE OFF THE RELEVANT BAD DEBTS IN THE MONTH OF MARCH, 2011 ITSELF AND APPROV AL FOR THE SAME WAS SOUGHT AND OBTAINED IN THE MONTH OF APRIL, 2011 AFTER CLOS ING OF THE FINANCIAL YEAR. MOREOVER, THE FACT THAT REMAINS TO BE SEEN IS THAT THE RELEVANT BAD DEBTS WERE WRITTEN OFF BY THE ASSESSEE COMPANY IN ITS BOOKS O F ACCOUNTS OF THE YEAR UNDER CONSIDERATION AND HIS POSITION WAS NOT DISPUTED BY THE AO ALTHOUGH THE RELEVANT ENTRY WAS DONE BY HIM AS A BACK DATED ENTRY. AS PER THE RELEVANT PROVISIONS CONTENDED SECTION 36(1)(VII) THE CONDITION STIPULAT ED FOR THE ALLOWABILITY OF DEDUCTION ON ACCOUNT OF BAD DEBTS WRITTEN OFF IS TH AT THE RELEVANT BAD DEBTS ITA NO. 2042/KOL/2014 M/S ASSOCIATED PIGMENTS LTD. 9 SHOULD BE WRITTEN OFF AS IRRECOVERABLE IN THE ACCOU NT OF THE ASSESSEE FOR THE PREVIOUS YEAR AND IN OUR OPINION, THIS CONDITION H AVING BEEN FULFILLED BY THE ASSESSEE COMPANY, IT WAS ENTITLED FOR DEDUCTION ON ACCOUNT OF BAD DEBTS WRITTEN OFF AS RIGHTLY HELD BY THE LD. CIT(A). WE THEREFOR E, FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND UPHELD THE SAME. WE DISMISS THE GROUND NO. 3 OF THE REVENUE APPEAL. 10. THE ISSUE RAISED IN GROUND NO. 4 RELATED TO DEL ETION BY THE LD. CIT(A) OF THE ADDITION OF RS. 71,24,741/- MADE BY THE AO ON ACCOU NT OF DISALLOWANCE OF ASSESSEES CLAIM MADE DURING THE ASSESSMENT PROCEED INGS WITHOUT FILING REVISED RETURN. 10.1. IN THE RETURN OF INCOME ORIGINALLY FILED THE ALLOWABILITY RETURN BACK DURING THE YEAR UNDER CONSIDERATION AMOUNTING TO RS. 71,2 4,741/-WAS OFFERED TO TAX BY THE ASSESSEE COMPANY U/S 41(1) OF THE ACT. AFTER TAKING NOTICE THAT THE SAID AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT WAS N OT CLAIMED AS DEDUCTION IN THE COMPUTATION OF TOTAL INCOME FOR THE RELEVANT AS SESSMENT YEAR I.E. 2009-10, A CLAIM WAS MADE BY THE ASSESSEE VIDE ITS LETTER D ATED 26.02.2014 FILED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR DEDUCTION OF ITS TOTAL INCOME BY THE SAID AMOUNT OF RS. 71,24,741/-, ALTHO UGH THE AO FOUND THE SAID CLAIM MADE BY THE ASSESSEE TO BE CORRECT ON MERIT, HE DID NOT ENTERTAIN THE CLAIM OF THE ASSESSEE AS THE SAME WAS NOT MADE BY F ILING A REVISED RETURN OF INCOME. FOR THIS CONCLUSION, THE AO RELIED ON THE D ECISION OF HONBLE SUPREME COURT IN THE CASE OF GOETZ (INDIA) LIMITED VS. CIT REPORTED IN (2006) 284 ITR 323(SC). ON APPEAL, THE LD. CIT(A) HOWEVER ENTERTAI NED AND ALLOWED THE SAID CLAIM OF THE ASSESSEE BY RELYING ON THE OBSERVATION MADE BY THE HON'BLE ITA NO. 2042/KOL/2014 M/S ASSOCIATED PIGMENTS LTD. 10 SUPREME COURT IN THE CASE OF GOETZ (INDIA) LIMITED ITSELF CLARIFYING THAT THE DECISION RENDERED BY THE LORDSHIP IN THE SAID CASE WAS LIMITED TO THE POWER OF THE AO AND IT DID NOT IMPEACH ON THE POWERS OF TH E APPELLATE AUTHORITY. IN OUR OPINION, THE POSITION OF LAW AS EXPLAINED AND CLARI FIED BY THE HON'BLE SUPREME COURT IN THE CASE OF GOETZ (INDIA) LIMITED IS CLEAR THAT THE APPELLATE AUTHORITIES SUCH AS THE LD. CIT(A) IS SUFFICIENTLY EMPOWERED TO ENTERTAIN AND CONSIDER THE NEW CLAIM MADE BY THE ASSESSEE ON MERITS EVEN WITH OUT THERE BEING ANY REVISED RETURN FILED BY THE ASSESSEE MAKING SUCH C LAIM. AT THE TIME OF HEARING BEFORE US THE LD. DR HAS ALSO NOT DISPUTED ON THIS POSITION. HE HAS NOT RAISED ANY ARGUMENTS ON MERIT ON THIS ISSUE. AS THE AO HIM SELF IN THE ASSESSMENT ORDER HAD ACCEPTED THE CLAIM OF THE ASSESSEE ON MER IT AND THE SAME WAS DISALLOWED BY HIM ONLY FOR WANT OF REVISED RETURN. WE THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) G IVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND UPHOLDING THE SAME. WE DISMISS THE G ROUND NO. 4 OF THE REVENUE APPEAL. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03 -01-2018. SD/- SD/- P.M.JAGTAP S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 03-01-2018 ITA NO. 2042/KOL/2014 M/S ASSOCIATED PIGMENTS LTD. 11 COPIES TO : (1) APPELLANT/DEPARTMENT: THE DCIT, CIR-10, KOLKAT A. (2) RESPONDENT/ASSESSEE: M/S ASSOCIATED PIGMENTS LT D. (3)COMMISSIONER OF INCOME-TAX (APPEALS) (4) COMMISSIONER OF INCOME TAX, KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER SR.PS/H.O.O ITAT, KOLKATA