Assistant Commissioner of Income Tax, Central Circle-1(4), Bengaluru V. Sri. Nakoda Construction Ltd, Bengaluru

ITA 2647/BANG/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4830 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 07-12-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO C IT DR I
• Assessee Lawyers: SAURABH T JAIN
• Keywords: Bad and doubtful debts
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO. 2647 / BANG/201 7 ASSESSMENT YEAR : 20 14 - 15 THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1 (4), BANGALORE. VS. M/S. SRI NAKODA CONSTRUCTION LTD., NO. 133/1, THE RESIDENCY, 10 TH FLOOR, RESIDENCY ROAD, BANGALORE 560 025. PAN: AAHCS8562K APPELLANT RESPONDENT APPELLANT BY : SHRI C.H. SUNDAR RAO, CIT (DR - I) RESPONDENT BY : SHRI SAURABH T. JAIN, CA DATE OF HEARING : 0 3 . 0 4 .2018 DATE OF PRONOUNCEMENT : 11 . 0 4 .201 8 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE REVENUE WHICH IS DIRECT ED AGAINST THE ORDER OF LD. CIT(A)-11, BANGALORE DATED 21.09.2017 FOR ASSESSMEN T YEAR 2014-15. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER. 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN DELETING THE ADDITION OF RS.50,02, 917/- BEING DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOU NT OF CLAIM OF WRITE OFF OF CENVAT CREDIT PERTAINING TO SECTION 80 IB(10) UNIT OF EARLIER YEARS AGAINST THE INCOME OF NON-ELIGIBLE UN ITS DURING THE F.Y. RELEVANT TO A.Y. 2014-15? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) IGNORED THE PROVISIONS OF SECTION 80IA (5), WHICH MANDATES THE ASSESSEE TO MAINTAIN SEPARATE BOOKS OF ACCOUNT FOR ANY ELIGIBLE UNDERTAKING AS IF SUCH BUSINESS WAS THE ONLY SOURCE OF INCOME OF THE ASSESSEE; HENCE PROFIT OR LOSS PERTAINING TO THE EL IGIBLE UNIT SHALL BE DEALT SEPARATELY BUT NOT ALLOWABLE TO BE SET OFF AG AINST THE PROFIT OR LOSS OF OTHER NON-ELIGIBLE BUSINESSES OF ASSESSEE? ITA NO. 2647/BANG/2017 PAGE 2 OF 5 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN RELYING ON THE HON'BLE SUPREME COUR T'S DECISION IN THE CASE OF SYNCO INDUSTRIES LIMITED (215 CTR 385(2 008), WHEREIN THE FACTS OF THE CASE ARE DISTINCT FROM THE PRESENT CAS E? 4. ANY OTHER GROUNDS THAT MAY ARISE AT THE TIME OF HEARING. 3. BRIEF FACTS ARE THAT IT IS NOTED BY THE AO IN PA RA 6 OF THE ASSESSMENT ORDER THAT ASSESSEE HAS DEBITED AN AMOUNT OF RS. 50,02,917/- B EING WRITE OFFS UNDER OPERATING AND OTHER EXPENSES AS ON 31 ST MARCH, 2014. WHEN QUERY WAS MADE BY THE AO, THE REPLY WAS FILED BY THE ASSESSEE THE SUMMARY OF WHICH IS NOTED BY THE AO IN PARA 6.2 OF THE ASSESSMENT ORDER AS PER WHICH IT IS SUBMITTED BY ASSESSEE THAT THOSE AMOUNT RELATES TO THE CENVAT CREDIT FOR COMPLETED PROJECT M/S. AMODA VALMARK WHICH WAS COMP LETED AND HENCE CENVAT FOR THE SAME IS NOT AVAILABLE AND THEREFORE, WRITTEN OFF. THEREAFTER IN PARA 6.3 OF ASSESSMENT ORDER, THE AO HAS NOTED THAT IN RESPECT OF THIS PROJECT, THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IB(10) OF IT ACT AND THEREFORE, ASSESSEE HAS NOT MADE PAYMENT OF TAXES ON UNITS SOL D OF THIS PROJECT BECAUSE THE SAME WAS CLAIMED AS DEDUCTION U/S. 80IB(10). T HE AO DISALLOWED THIS CLAIM OF THE ASSESSEE BY STATING IN PARA 6.4 OF ASS ESSMENT ORDER THAT APART FROM STATING THAT THE CENVAT CREDIT RELATES TO THE COMPLETED PROJECT AMODA VALMARK, THE ASSESSEE HAS NOT MADE ANY SUBMISSIONS ON THE ALLOWABILITY OF THE SAME IN THE PRESENT ASSESSMENT YEAR WHEN THE SAID P ROJECT WAS COMPLETED IN THE FINANCIAL YEAR 2010-11 AND ON WHICH CLAIM OF DE DUCTION U/S. 80IB (10) OF THE IT ACT WAS ALLOWED IN RESPECT OF INCOME OF THAT PROJECT. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CI T(A) WHO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. NOW THE REVENUE IS IN A PPEAL BEFORE US. 4. THE LD. DR OF REVENUE SUPPORTED THE ASSESSMENT O RDER. HE ALSO SUBMITTED THAT AS PER SECTION 36(2) OF IT ACT, NO DEDUCTION IS ALL OWABLE IN RESPECT OF BAD DEBTS UNLESS IT IS PROVED THAT THE CONCERNED DEBTS OR PAR T THEREOF 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 IN AN EARLIER PREVIOUS YEAR. HE SUBMITTED THAT WHEN THE INCOME IN THIS PR OJECT IS CLAIMED AND ALLOWED AS DEDUCTION U/S. 80IB(10), THE INCOME OF THIS PROJ ECT HAS NOT ENTERED INTO TOTAL ITA NO. 2647/BANG/2017 PAGE 3 OF 5 INCOME OF THE ASSESSEE OF THE RELEVANT YEAR AND THE REFORE, FOR WRITE OFF OF ANY DEBT IN RESPECT OF THAT PROJECT IS NOT ALLOWABLE. THE LD. AR OF ASSESSEE SUPPORTED THE ORDER OF CIT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL WE REPRODUCE PARAS 7 TO 9 OF ORDER OF CIT (A) BECAUSE THE ISSUE IN DISPUTE WAS DECIDED BY CIT (A) AS PER THESE PARAS OF HIS ORDER. 7. I HAVE CONSIDERED THE ABOVE MAIN GROUND AND THE ADDITIONAL GROUNDS OF APPEAL AND STATEMENT OF FACTS FILED BY T HE APPELLANT AND ALSO GONE THROUGH THE ASSESSMENT ORDER PASSED BY TH E ASSESSING OFFICER. 8. BASED ON THE DOCUMENTS PERUSED, IT IS CLEAR THAT THE ASSESSEE HAD WRITTEN OFF CERTAIN CENVAT CREDIT BALANCES IN THE B OOKS OF ACCOUNTS PERTAINING TO THEIR 801E3 (10) APPROVED PROJECT AMO DA VALMARK. HOWEVER, THESE CENVAT CREDIT BALANCES ARE NORMALLY KEPT IN THE BOOKS OF ACCOUNTS FOR MEETING ANY FUTURE LIABILITIE S THAT MIGHT ARISE DUE TO ASSESSMENTS. ONCE THE ASSESSMENT IS COMPLETE D, THE ASSESSEE HAS WRITTEN OFF THE LIABILITIES. 9. IN VIEW OF THE FACTUAL MATRIX OF THE CASE OF THE CASE, I AM OF THE VIEW THAT CASE IS SQUARELY COVERED BY THE JUDGMENT OF TH E SUPREME COURT IN THE CASE OF SYNCO INDUSTRIES MENTIONED ABOVE AND TH E DISALLOWANCE OF RS. 50,02,917 TOWARDS CENVAT CREDIT WRITTEN OFF IS INCORRECT AND HENCE THE ASSESSEE'S APPEAL IS ALLOWED. 6. FROM THE ABOVE PARAS REPRODUCED FROM THE ORDER O F CIT (A), IT IS SEEN THAT CIT (A) HAS DECIDED THIS ISSUE WITHOUT NEGATING THE OBJ ECTIONS OF AO IN THE ASSESSMENT ORDER. HE HAS SIMPLY FOLLOWED THE JUDGE MENT OF HONBLE APEX COURT RENDERED IN THE CASE OF SYNCO INDUSTRIES AS R EPORTED IN 215 CTR 385 (2008). IN THIS CASE, THE ISSUE IN DISPUTE WAS THI S THAT IF THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF OIL AND CHEMICALS AND IT HAS A UNIT FOR OIL DIVISION AT SIROHI DISTRICT, RAJASTHAN AND IT WAS ALSO HAVING A CHEMICAL DIVISION AT JODHPUR. THE ASSESSEE HAS EARNED PROFIT IN THE ASSESSMENT YE ARS 1990-91 AND 1991-92 IN BOTH THE UNITS. HOWEVER, THE ASSESSEE HAD SUFFER ED LOSSES IN THE OIL DIVISION IN EARLIER YEARS. THE ASSESSEE CLAIMED DEDUCTIONS U NDER SECTION 80HH AND 80- I OF THE ACT, CLAIMING THAT EACH UNIT SHOULD BE TRE ATED SEPARATELY AND THE LOSS SUFFERED BY THE OIL DIVISION IN EARLIER YEARS IS NO T ADJUSTABLE AGAINST THE PROFITS OF THE CHEMICAL DIVISION WHILE CONSIDERING THE QUESTIO N WHETHER DEDUCTIONS ITA NO. 2647/BANG/2017 PAGE 4 OF 5 UNDER SECTIONS 80HH AND 80-I WERE ALLOWABLE. THE AS SESSING OFFICER NOTICED THAT THE GROSS TOTAL INCOME OF THE ASSESSEE BEFORE DEDUCTIONS UNDER CHAPTER VI-A WAS 'NIL' AND THEREFORE, HE CONCLUDED THAT THE ASSESSEE WAS NOT ENTITLED TO THE BENEFIT OF DEDUCTIONS UNDER CHAPTER VI-A. 7. IN RESPECT OF THIS DISPUTE, ULTIMATELY THE HONB LE APEX COURT DECIDED THE ISSUE AGAINST THE ASSESSEE AND IT WAS HELD THAT SINCE GRO SS TOTAL INCOME WAS RS. NIL, THE ASSESSEE WAS NOT ENTITLED TO CLAIM DEDUCTION U/ S. 80IB(10). HENCE IT IS SEEN THAT THIS JUDGEMENT IS NOT RENDERING ANY HELP TO THE ASSESSEE IN THE PRESENT CASE. WE FIND FORCE IN THE SUBMISSIONS OF LD. DR OF REVENUE THAT SINCE IN THE EARLIER YEAR, WHEN CENVAT CREDIT WAS BROUGHT INTO BALANCE SHEET AS AN ASSET AND CORRESPONDING INCOME WAS ACCOUNTED FOR, T HE INCOME OF THE ASSESSEE WAS INCREASED BY EITHER INCREASE IN CREDIT SIDE OF P&L ACCOUNT OR DECREASE IN DEBIT SIDE OF P&L ACCOUNT AND IN RESULT , THE ASSESSEE GET EXTRA DEDUCTION U/S. 80IB (10) TO THAT EXTENT AND NO INCO ME OF THIS PROJECT ULTIMATELY WAS INCLUDED IN TOTAL INCOME. AS PER THE REQUIREME NTS OF SECTION 36(2) OF IT ACT, FOR MAKING ANY DEDUCTION FOR A BAD DEBT, IT HA S TO BE SEEN THAT NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF 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 IN AN EARLIER PREVIOUS YEAR. AS PER THE FACTS OF THE PRESENT CASE, NO INC OME ON ACCOUNT OF CENVAT CREDIT WAS INCLUDED IN THE TAXABLE INCOME OF THE AS SESSEE IN ANY YEAR AND THEREFORE, WRITE OFF OF CENVAT CREDIT OF THIS PROJE CT IS NOT ALLOWABLE AS DEDUCTION AGAINST TAXABLE INCOME OF A FUTURE YEAR. AT THE BEST, THE SAID DEDUCTION CAN BE ALLOWED IN THE RELEVANT YEAR WHEN CENVAT CREDIT WAS BROUGHT IN ASSET SIDE OF ASSESSEES BOOKS. BUT IN THAT SITUATION, THE DEDUCTION ALLOWABLE TO ASSESSEE U/S. 80IB (10) ALONG WITH THE INCOME OF THIS PROJECT WILL GO DOWN BY THE SAME AMOUNT AND IN THE PRESENT YEAR, THE ASSESSEES TAXABLE INCOME WILL BE INCREASED BY THIS AMOUNT. HENCE, TH IS WILL BE A FUTILE EXERCISE WITH NO IMPACT ON TAX LIABILITY OF THAT YEAR AND IN THE PRESENT YEAR, THE DISALLOWANCE HAS TO BE MADE. CONSIDERING THE ENTIRE FACTS AND IN VIEW OF ABOVE DISCUSSION, WE REVERSE THE ORDER OF CIT(A) AND REST ORE THAT OF THE AO. ITA NO. 2647/BANG/2017 PAGE 5 OF 5 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (N.V. VASUDEVAN) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMB ER BANGALORE, DATED, THE 11 TH APRIL, 2018. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.