ACIT, CHENNAI V. Thermodyne Technologies Pvt Ltd., CHENNAI

ITA 2385/CHNY/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4323 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 01-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 22-09-2014
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Business income; Permanent establishment

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI , ! ' ! # . $% & '( BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NOS.2403,1480/MDS./2014 & 807/MDS./2013 / ASSESSMENT YEARS : 2008-09,2006-07 & 2009-10 M/S.THERMODYNE TECHNOLOGIES PRIVATE LIMITED, 18, AYODHYA COLONY, VELACHERY, CHENNAI 600 042. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(2), CHENNAI 600 034. [PAN AAACT 3393 E ] ( )* / APPELLANT) ( +,)* /RESPONDENT) ./ I.T.A.NO.2385/MDS./2014 / ASSESSMENT YEAR :2008-09 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(2), CHENNAI 600 034. VS. M/S.THERMODYNE TECHNOLOGIES PRIVATE LIMITED, 18, AYODHYA COLONY, VELACHERY, CHENNAI 600 042. [PAN AAACT 3393 E ] ( )* / APPELLANT) ( +,)* /RESPONDENT) ASSESSEE BY : SHRI S.SRIDHAR, ADVOCATE REVENUE BY : SHRI A.V.SREEKANTH, JCIT, D.R M/S.THERMODYNE TECHNOLOGIES P LTD. :- 2 -: / DATE OF HEARING : 01 - 05 - 2017 / DATE OF PRONOUNCEMENT : 02.06 - 2017 - / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS CROSS APPEAL IS FILED BY THE ASSESSEE IN ITA NO.2403/MDS./14 & THE REVENUE IN ITA NO.2385/MDS/1 4 ARE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF IN COME TAX(A)-III, CHENNAI DATED 27.06.2014 PERTAINING TO THE ASSESSME NT YEAR 2008-09. THE OTHER APPEAL OF THE ASSESSEE IN ITA NO.1480/MDS ./2014 IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(A)- III, CHENNAI DATED 12.03.14 PERTAINING FOR ASSESSME NT YEAR 2006-07 AND ANOTHER APPEAL OF THE ASSESSEE IN ITA NO.807/MD S./2013 IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(A)- III, CHENNAI DATED 05.12.12 PERTAINING FOR ASSESSME NT YEAR 2009-10. SINCE ISSUES INVOLVED IN ALL THESE CROSS APPEALS A S WELL AS ASSESSEES APPEALS ARE COMMON IN NATURE, THESE APPEALS ARE CLU BBED TOGETHER, HEARD TOGETHER, DISPOSED OFF BY THIS COMMON ORDER F OR THE SAKE OF CONVENIENCE. FIRST WE TAKE UP ITA NO.1480/MDS./14(ASSESSEES APP EAL: 2004-05) 2. IN THIS APPEAL, ONLY ONE GROUND FOR OUR CONSIDE RATION IS WITH REGARD TO SUSTENANCE OF DISALLOWANCE OF THE CLAIM F OR DEDUCTION OF M/S.THERMODYNE TECHNOLOGIES P LTD. :- 3 -: ` 27,62,934/- BEING THE PROVISION FOR WARRANTY QUANTI FIED AT 2% OF THE TOTAL SALES IN THE COMPUTATION OF TAXABLE TOTAL INC OME WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION. 3. THE FACTS OF THE ISSUE ARE THAT THE AO DISALLOW ED THE PROVISION FOR WARRANTY AMOUNTING TO ` 27,62,934/- AS IT IS NOT AN ALLOWABLE EXPENDITURE, RELYING ON THE DECISION OF T HE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE CIT VS. ROTAR K CONTROLS INDIA LTD., REPORTED IN 293 ITR 311. AGGRIEVED WITH THE ORDER OF AO, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). O N APPEAL, THE LD.CIT(A) OBSERVED THAT THE ASSESSEE PROVIDES SPECI FIC PERCENTAGE 2% ON TOTAL SALES AND THE SAME IS WRITTEN BACK IN TWO YEARS, IN EQUAL INSTALLMENTS. FURTHER, LD.CIT(A) OBSERVED THAT THE DECISION OF THE JURISDICTIONAL HIGH COURT CITED SUPRA RELYING BY TH E LD. ASSESSING OFFICER WAS REVERSED BY THE HONBLE SUPREME COURT IN THE CA SE OF M/S.BHARAT EARTH MOVERS VS. CIT IN (2000) 245 ITR 428(SC) WHER EIN THE APEX COURT LAID DOWN CERTAIN IMPORTANT GUIDELINES WITH R EGARD TO PROVISIONS FOR WARRANTY TO BE ALLOWED AS A BUSINESS EXPENDITUR E. THE GIST OF THE GUIDELINES IS AS FOLLOWS:- A PROVISION IS A LIABILITY WHICH CAN BE MEASURED O NLY BY USING A SUBSTANTIAL DEGREE OF ESTIMATION. A PROVISI ON IS RECOGNIZED WHEN: (A) AN ENTERPRISE HAS A PRESENT OB LIGATION AS A RESULT OF A PAST EVEN; (B) IT IS PROBABLE THAT AN OUTFLOW M/S.THERMODYNE TECHNOLOGIES P LTD. :- 4 -: OF RESOURCES WILL BE REQUIRED TO SETTLE THE OBLIGAT ION; AND (C) A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF TH E OBLIGATION. IF THESE CONDITIONS ARE NOT MET, NO PRO VISION CAN BE RECOGNIZED. ACCORDING TO LD.CIT(A), IT IS SEEN FROM THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE THAT THE ASSESSEE PROVIDES AT A SPECIF IC PERCENTAGE SAY 2% WHICH CLEARLY INDICATES IT IS NOT BASED ON ANY SPECIFIC HISTORICAL TREND OR DATA SYSTEMATICALLY MAINTAINED. HENCE, THE LD.CIT(A), FOLLOWING THE GUIDELINE OF THE APEX COURT CITED SUP RA, CONFIRMED THE ACTION OF THE LD. ASSESSING OFFICER. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, LD.A.R SUBMITTED THAT ON THE BASIS O F PAST EXPERIENCE, THE ASSESSEE PROVIDED 2% OF TOTAL SALE S AS A PROVISION FOR WARRANTY AND THE SAME WAS WRITTEN BACK IN TWO EQUAL INSTALLMENTS, WHILE THE EXPENDITURE INCURRED FOR SUCH WARRANTY RE LATED ITEMS ARE WRITTEN OFF AS EXPENSES IN THE YEARS OF INCIDENCE A ND HE PLACED RELIANCE IN THE JUDGEMENT OF SUPREME COURT IN THE C ASE OF M/S.ROTORK CONTROLS INDIA LTD. IN 314 ITR 62(SC). 4.1. ON THE OTHER HAND, LD.D.R RELIEF ON THE ORDER OF LOWER AUTHORITIES. M/S.THERMODYNE TECHNOLOGIES P LTD. :- 5 -: 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL ON RECORD. IN OUR OPINION, THE WARRANTY BASED ON TH E ACTIONABLE BASIS OR SCIENTIFIC BASIS, IT IS TO BE ALLOWED. THIS FAC T WAS NOT DEMONSTRATED BY THE ASSESSEE BEFORE THE LD.CIT(A). IF THE METHOD OLOGY FOLLOWED TO MAKE SUCH WARRANTY PROVISIONS IN THE BOOKS OF ACCOU NTS IS ON NOTIONAL BASIS, THEN NOTIONAL PROVISIONS CANNOT BE ALLOWED. THE ASSESSEE IS DUTY BOUND TO EXPLAIN THE BASIS ON WHICH IT WAS PRO VIDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. ACCORDINGLY, THE ISSU E IN DISPUTE IS REMITTED TO THE FILE OF LD. ASSESSING OFFICER FOR F RESH CONSIDERATION. 5.1. IN THE RESULT, THE APPEAL NO.1480/MDS/2014 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.2403/MDS./14(ASSESSEES APPEAL) & 2385/MDS./ 2014(REVENUES APPEAL) FOR A.Y 2008-09 THESE ARE CROSS APPEALS. FIRST WE TAKE ASSESSEES A PPEAL. 6. IN ASSESSEES APPEAL, GROUND NOS.2 TO 4 IS WITH REGARD TO DISALLOWANCE MADE U/S.14A OF THE ACT R.W.RULE 8D. A T THE TIME OF HEARING, THE LD.A.R HAS NOT PRESSED THESE GROUNDS. ACCORDINGLY, THESE GROUNDS NO.2, 3 & 4 STAND DISMISSED AS NOT PRESSED. 7. THE NEXT GROUND IN THIS APPEAL IS WITH REGARD T O DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUATION LOSS. M/S.THERMODYNE TECHNOLOGIES P LTD. :- 6 -: 8. THE FACTS OF THE ISSUE ARE THAT THE EXCHANGE LO SS ON AMOUNT LYING IN EEFC ACCOUNT WAS RS.5,09,335/-. THE AO D ISALLOWED THE FOREIGN EXCHANGE FLUCTUATION LOSS AS NOTIONAL SINCE THE ASSESSEE COMPANY HAS CHOSEN TO KEEP A PORTION OF THE RECEIPT OF EXPORT IN EEFC ACCOUNT BASED ON RBI GUIDELINES. AGGRIEVED, THE ASS ESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). BEFORE LD.CIT(A), THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY MAINTAINED ACCOUNTS REGUL ARLY ON MERCANTILE SYSTEM AND FOLLOWING ACCOUNTING STANDARD S PRESCRIBED BY ICAI, ON ACCOUNT OF FLUCTUATION IN THE RATE OF FORE IGN EXCHANGE AS ON THE DATE OF BALANCE SHEET WAS AN ITEM OF EXPENDITUR E U/S.37(1) OF THE ACT, NOTWITHSTANDING THAT THE LIABILITY HAD NOT BEE N DISCHARGED IN THE YEAR IN WHICH THE FLUCTUATION IN THE RATE OF FOREIG N EXCHANGE OCCURRED AND PLACED RELIANCE IN THE CASE OF OIL AND NATURAL GAS CORPORATION LTD. IN [2010] 189 TAXMAN 292(SC). ON APPEAL, THE LD.CIT (A) OBSERVED THAT WHILE DECIDING THE APPEAL IN ABOVE CITED SUPRE ME COURT JUDGEMNET RELIED BY THE ASSESSEE, THE HONBLE SUPREME COURT F OLLOWED THE DECISION RENDERED IN WOODWARD GOVERNOR INDIA (P) LT D.,. THE HONBLE SUPREME COURT WHILE DECIDING THE CASE SUMMARIZED CE RTAIN IMPORTANT FACTORS TO BE TAKEN INTO ACCOUNT ON ACCOUNT OF FLUC TUATION IN FOREIGN EXCHANGE CURRENCY RATES. THE LD.CIT(A) OBSERVED THA T THE FACTS OF THE PRESENT CASE ARE COMPLETELY DIFFERENT FROM THE FACT S IN THE CASE REFERRED TO ABOVE. ACCORDING TO LD.CIT(A), IN THIS CASE THE ASSESSEE M/S.THERMODYNE TECHNOLOGIES P LTD. :- 7 -: HAS NOT BEEN ABLE TO PROVE THAT THE FACTORS MENTION ED BY THE APEX COURT IN THE CASE OF WOODWARD GOVERNOR INDIA (P) LT D., HAD BEEN ADHERED TO BY THE ASSESSEE IN ITS CASE. THE FACTS O F THE ASSESSEES CASE IS THAT THE MONEY WAS LYING IN ITS EEFC A/C. HENCE , LD.CIT(A) UPHELD THE ACTION OF THE AO. AGAINST THIS, THE ASSESSEE I S IN APPEAL BEFORE US. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, THE LOSS INCURRED BY THE AS SESSEE ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION IS ARISEN ON DEPOSITIN G OF EXPORT PROCEEDS IN EEFC ACCOUNT BASED ON RBI GUIDELINES. BEING SO, THE LOSS ON THIS COUNT TO BE ALLOWED AS A REVENUE LOSS IN VIEW OF TH E JUDGMENT OF SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDI A (P) LTD. IN [2009] 312 ITR 254(SC). ACCORDINGLY, THIS GROUND OF ASSESSEE IS ALLOWED 9.1. IN THE RESULT, THE APPEAL IN 2403/MDS.2014 IS PARTLY ALLOWED. REVENUES APPEAL 10. THE FIRST ISSUE IN REVENUES APPEAL IS WITH RE GARD TO DELETION OF DISALLOWANCE OF RS.13,65,327/- U/S.40(A)(I) OF T HE ACT IN RESPECT OF COMMISSION PAID TO M/S.TRICEL LTD, WITHOUT DEDUCTIN G TDS. 10.1. THE FACTS OF THE ISSUE ARE THAT THE AO FOUND THAT THE ASSESSEE MADE PAYMENTS TO A FOREIGN AGENT AND THE ASSESSEE D ID NOT DEDUCT M/S.THERMODYNE TECHNOLOGIES P LTD. :- 8 -: THE TDS ON THE BELIEF THAT THE COMMISSION PAID IS N OT CHARGEABLE TO TAX AND ALSO THE SAID COMPANY I.E. M/S.TRICEL LTD., DOES NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA. THE LD. ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES CONTENTION AND PLACING RELIAN CE IN THE CASE OF VAN OORD ACZ INDIA (P) LTD. VS. CIT REPORTED IN 323 ITR 130(DEL.), DISALLOWED AT RS.13,65,327/- U/S.40(A)(I) OF THE AC T. AGGRIEVED WITH THE ORDER OF LD. ASSESSING OFFICER, THE ASSESSEE CA RRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, THE LD.CIT(A) OBSE RVED THAT THE SAME ISSUE WAS DECIDED IN FAVOUR OF ASSESSEE IN AS SESSEE'S OWN CASE FOR ASSESSMENT YEAR 2009-10 BY CIT(A)-1, MADURAI AN D LD.CIT(A) FOLLOWING THE DECISION TAKEN ON THIS ISSUE IN THE A BOVE CIT(A)S ORDER, LD.CIT(A) DIRECTED THE AO TO DELETE THE ADDITION MA DE U/S.40(A)(I) OF THE ACT. AGAINST THIS, THE REVENUE IS IN APPEAL BEF ORE US. 10.2. WE HAVE HEARD BOTH THE PARTIES AND PERUSED T HE MATERIAL ON RECORD. A SIMILAR ISSUE CAME FOR CONSIDERATION BEFO RE THIS TRIBUNAL IN ASSESSEE'S OWN CASE IN ITA NOS.1707 & 1782/MDS./201 2 FOR ASSESSMENT YEAR 2008-09 VIDE ORDER DATED 27.04.2016 WHEREIN HELD AS FOLLOWS:- 27. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERU SED THE MATERIALS ON RECORD. WITH REGARD TO THE ISSUE AS TO WHETHER THE TDS HAS TO BE DEDUCTED OR NOT WHEN THE COMMISSION PAYMENT MADE TO THE OVER SEAS AGENTS, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. FAIZAN SHOES PVT M/S.THERMODYNE TECHNOLOGIES P LTD. :- 9 -: LTD. [2014} 367 ITR 155, WHEREIN BY DISMISSING THE APPEAL OF THE REVENUE, THE HONBLE HIGH COURT HAS HELD AS UNDER:-- HELD, DISMISSING THE APPEAL, THAT ON A READING OF S ECTION 9(1)(VII) , COMMISSION PAID BY THE ASSESSEE TO THE NON-RESIDENT AGENTS WOULD NOT COME UNDER THE TERM FEES FOR TECHNICAL SERVICE S. FOR PROCURING ORDERS FOR LEATHER BUSINESS FROM OVERSEAS BUYERS, W HOLESALERS OR RETAILERS, AS THE CASE MAY BE, THE NON-RESIDENT AGE NT WAS PAID 2.5 PER CENT. COMMISSION ON FREE ON BOARD BASIS. THIS W AS A COMMISSION SIMPLICITER. WHAT WAS THE NATURE OF TECHNICAL SERVI CE THAT THE NON- RESIDENT AGENTS HAD PROVIDED ABROAD TO THE ASSESSEE WAS NOT CLEAR FROM THE ORDER OF THE ASSESSING OFFICER. THE OPENIN G OF LETTERS OF CREDIT FOR THE PURPOSE OF COMPLETING THE EXPORT OBL IGATION WAS AN INCIDENT OF EXPORT AND, THEREFORE, THE NON-RESIDENT AGENT WAS UNDER AN OBLIGATION TO RENDER SUCH SERVICES TO THE ASSESS EE, FOR WHICH COMMISSION WAS PAID. THE NON-RESIDENT AGENT DID NOT PROVIDE TECHNICAL SERVICES FOR THE PURPOSES OF RUNNING OF T HE BUSINESS OF THE ASSESSEE IN INDIA. THEREFORE, THE COMMISSION PAID T O THE NON- RESIDENT AGENTS WOULD NOT FALL WITHIN THE DEFINITIO N OF FEES FOR TECHNICAL SERVICES AND THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE ON PAYMENT OF COMMISSION. 28. RESPECTFULLY FOLLOWING THE ABOVE JUDGEMENT OF THE HONBLE JURISDICTIONAL HIGH COURT CITED SUPAR, THE GROUND R AISED BY THE REVENUE IS DISMISSED. IN VIEW OF THE ORDER OF THE TRIBUNAL CITED SUPRA, T HIS GROUND OF REVENUE IS DISMISSED. 11. THE SECOND ISSUE IN REVENUES APPEAL IS WITH R EGARD TO DELETION OF ADDITION ON ACCOUNT OF RETENTION MONEY AMOUNTING TO RS.53,62,227/-. M/S.THERMODYNE TECHNOLOGIES P LTD. :- 10 - : 11.1 THE FACTS OF THE ISSUE ARE THAT THE AO FOUND THAT RETENTION MONEY WAS NOT INCLUDED IN TOTAL INCOME. HENCE, THE AO HAD ADDED RETENTION MONEY ON THE BASIS OF CONCEPT OF ACCRUAL I.E. THERE CANNOT BE POSTPONEMENT OF INCOME AND ENUNCIATED THE SCOPE OF TOTAL INCOME U/S.5(1) OF THE ACT. AGGRIEVED BY THE ORDER OF LD. ASSESSING OFFICER, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A ). ON APPEAL, THE LD.CIT(A) OBSERVED THAT THE SAME ISSUE WAS DECIDED IN FAVOUR OF ASSESSEE IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEA R 2009-10 BY CIT(A)-1, MADURAI AND LD.CIT(A) FOLLOWING THE DECIS ION TAKEN ON THIS ISSUE IN THE ABOVE CIT(A)S ORDER, LD.CIT(A) DIRECT ED THE AO TO DELETE THE ADDITION OF RS.53,62,227/-. AGAINST THIS, THE R EVENUE IS IN APPEAL BEFORE US. 11.2 AFTER HEARING BOTH THE PARTIES, THIS ISSUE CA ME FOR CONSIDERATION BEFORE THE JUDGMENT OF MADRAS HIGH COURT IN THE CAS E OF CIT VS EAST COAST CONSTRUCTIONS AND IND. LTD, 283 ITR 297(MAD.) WHEREIN HELD THAT:- THE ASSESSEE WAS ENTITLED TO RECEIVE THE RETENTION MONEY AFTER COMPLETION OF THE CONTRACT. ON THE DATE OF TH E BILLS, NO ENFORCEABLE LIABILITY HAD ACCRUED OR ARISEN. WHEN T HE ASSESSEE HAD NO RIGHT TO RECEIVE THE MONEY BY VIRTU E OF THE CONTRACT BETWEEN THE PARTIES AND THE ASSESSEE ALSO HAD NO RIGHT TO ENFORCE PAYMENT, IT COULD NOT BE SAID THAT THE RIGHT TO M/S.THERMODYNE TECHNOLOGIES P LTD. :- 11 - : RECEIVE PAYMENT OF THE REMAINING 10 PER CENT OF THE VALUE OF JOB HAD ACCRUED. ACCORDINGLY, THIS GROUND OF REVENUE STANDS DISMISSE D. 11.3 IN THE RESULT, THE APPEAL OF REVENUE IN ITA N O.2385/MDS./2014 IS DISMISSED. ITA NO.807/MDS./2013 (REVENUES APPEAL) (A.Y 2009-1 0) 12. THE FIRST ISSUE IN REVENUES APPEAL IS WITH RE GARD TO DELETION OF DISALLOWANCE U/S.40(A)(I) OF THE ACT IN RESPECT OF COMMISSION PAID TO M/S.TRICEL LTD., AND M/S.ENGLISH BOILER, WITHOUT DE DUCTING TDS. 12.1 AS DISCUSSED EARLIER THE SAME ISSUE IN PARA - 10 OF THIS ORDER IN ITA NO.2385/MDS./2014, THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDI CTIONAL HIGH COURT IN THE CASE OF CIT VS. FAIZAN SHOES PVT LTD. [2014} 36 7 ITR 155(MAD.).ACCORDINGLY, THIS GROUND OF REVENUE STAND S DISMISSED. 13. THE SECOND ISSUE IN REVENUES APPEAL IS WITH R EGARD TO DELETION OF ADDITION ON ACCOUNT OF RETENTION MONEY AMOUNTING TO RS.49,35,891/-. M/S.THERMODYNE TECHNOLOGIES P LTD. :- 12 - : 13.1 AS DISCUSSED EARLIER THE SAME ISSUE IN PARA -1 1 OF THIS ORDER IN ITA NO.2385/MDS./2014, THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE MADRAS HIGH COU RT IN THE CASE OF CIT VS EAST COAST CONSTRUCTIONS AND IND. LTD, 283 I TR 297(MAD.). ACCORDINGLY, THIS GROUND OF REVENUE STANDS DISMISSE D. 14. THE LAST ISSUE IS WITH REGARD TO DELETION OF A DDITION OF RS.50 LAKHS MADE TOWARDS FORFEITED TRADE ADVANCES. 14.1 THE FACTS OF THE ISSUE ARE THAT THE AO FOUND THAT UNSECURED LOANS ALSO INCLUDED TRADE ADVANCES RECEIVED FROM PA RTIES ON ACCOUNT OF CONTRACTS. THE AO IN HIS ORDER CALLED FOR DETAILS O N ADVANCES FROM THREE PARTIES, NAMELY , MATA ENERGY LTD., THE INDUR E PVT LTD AND NIRANI SUGARS LTD. ACCORDING TO AO, NO SALES HAD BE EN BOOKED IN RESPECT OF TRADE ADVANCES RECEIVED DURING THE PREVI OUS YEAR. THE AO DID NOT ACCEPT THE EXPLANATION GIVEN BY THE ASSESSE E A REGARDING NIRANI SUGARS LTD. AS THE ASSESSEE DID NOT PRODUCE ANY PROOF FOR THE DEFRAYMENT OF EXPENSES. THE AO MADE AN ADDITION OF RS.50LAKHS TOWARDS FORFEITED TRADE ADVANCES. AGGRIEVED, THE A SSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). 14.2 DURING THE APPELLATE PROCEEDINGS BEFORE LD.CI T(A), LD.A.R EXPLAINED THAT THE SAID ADVANCE (CREDIT BALANCE OF RS.50 LAKH) WAS ALREADY BROUGHT TO TAXATION BY MEANS OF WRITE BACK BY WAY OF CREDIT TO M/S.THERMODYNE TECHNOLOGIES P LTD. :- 13 - : ADMINISTRATIVE EXPENSES, DEFRAYING THE AMOUNT OF RS .30 LAKHS FROM OFFICE MAINTENANCE GENERAL AND RS.20 LAKHS FROM DRAUGHTSMAN SERVICE CHARGES.THE LD.A.R SUBMITTED THAT THIS WAS ALSO BROUGHT TO THE NOTICE OF LD. ASSESSING OFFICER ALONG WITH LEDG ER EXTRACT IN SUPPORT OF THE ENTRY. THE MAIN CONTENTION OF LD.A.R WAS THA T THE TRADE ADVANCE OF RS.50 LAKH WAS ADDED BACK TO THE TOTAL INCOME AS THE LIABILITY WAS NO LONGER PAYABLE. SO, WHILE THE ASSESSEE ITSELF HA D RECKONED IT AS INCOME AND OFFERED FOR TAXATION, THE AO HAD WITHOUT APPRECIATING THE ENTRIES PASSED DEFRAYING THE EXPENSES, HAS ADDED TH E AMOUNT AS INCOME OF ASSESSEE. THE LD.CIT(A) OBSERVED THAT TH E AO IS NOT JUSTIFIED IN MAKING THE ADDITION OF RS.50 LAKHS SIN CE THE ASSESSEE ITSELF HAD CONSIDERED IT NO LONGER AS A LIABILITY AND TAKE N CREDIT OF THE EXPENDITURE TO AN EQUAL AMOUNT IN TWO HEADS. IT IS SEEN THAT TO THIS EXTENT, THE TAXABLE INCOME OF ASSESSEE HAD INCREASE D BY DEFRAYMENT OF EXPENSES OF A LIKE AMOUNT. THE JOURNAL ENTRY PASSED TO THIS EFFECT IS SUFFICIENT EVIDENCE OF THE ASSESSEE HAVING BROUGHT THIS AMOUNT FOR TAXATION. THOUGH THESE DETAILS WERE BEFORE THE AO EVEN DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO HAS FAILE D TO APPRECIATE THE ACCOUNTING ENTRY PASSED BY THE ASSESSEE IN THIS REG ARD. HENCE, LD.CIT(A) DELETED THE ADDITION MADE BY THE AO ON TH IS COUNT. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. M/S.THERMODYNE TECHNOLOGIES P LTD. :- 14 - : 14.3 WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL ON RECORD. THE LD.CIT(A) DELETED THE ADDITION WITHOUT CALLING FOR A REMAND REPORT FROM THE AO AND THE SUBMISSIONS OF TH E ASSESSEE IS NOT AT ALL VERIFIED BY THE AO. HENCE, THIS ISSUE IN DIS PUTE IS REMITTED TO THE FILE OF AO FOR FRESH CONSIDERATION. 14.1. IN THE RESULT, THIS APPEAL NO.807/MDS./2013 I S PARTLY ALLOWED FOR STATISTICAL PURPOSES. 15. TO SUM UP, THE APPEAL OF ASSESSEE IN 2403/MDS. 2014 IS PARTLY ALLOWED AND APPEALS OF REVENUE IN ITA NO.238 5/MDS./2014 AND ITA NO.2385/MDS./2014 ARE DISMISSED & IN ITA NO.807 /MDS./2013 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 02 ND JUNE, 2017, AT CHENNAI. SD/ - SD/ - ( . ! ) ( DUVVURU RL REDDY ) ) & / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 02 ND JUNE, 2017. K S SUNDARAM &' ) *+ ,+ / COPY TO: 1 . -. / APPELLANT 3. / () / CIT(A) 5. +01 ) 2 / DR 2. )3-. / RESPONDENT 4. / / CIT 6. 1! 4 / GF