DCIT, CHENNAI V. M/s. Shriram Equipment Finance Co. Ltd., CHENNAI

ITA 2828/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4507 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 29-09-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: R SIVARAMAN
• Keywords: Depreciation; Bad and doubtful debts; Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: CHENNAI . . . , !.. $ , ) BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.2828/MDS/2016 * * /ASSESSMENT YEAR: 2013-14 THE DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-6(1), AAYAKAR BHAVAN, NEW BLOCK, 121, M.G.ROAD, 7 TH FLOOR, CHENNAI-600 034. VS. M/S.SHRIRAM EQUIPMENT FINANCE CO. LTD., NO.4, MOOKAMBIKA COMPLEX, LADY DESIKACHARY ROAD, MYLAPORE, CHENNAI-600 004. [PAN: AAACS 7018 R ] ( - /APPELLANT) ( ./- /RESPONDENT) - 0 / APPELLANT BY : MR.SHIVA SRINIVAS, JCIT ./- 0 /RESPONDENT BY : MR.R.SIVARAMAN, ADV. 0 /DATE OF HEARING : 31.03.2017 0 /DATE OF PRONOUNCEMENT : 30.05.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 15.06.2016 OF COMMISSIONER OF INCOME TAX (APPEALS)- 15, CHENNAI, IN ITA NO.340/CIT(A)-15/15-16 FOR THE AY 2013-14 AND RAIS ED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPE ALS) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. ITA NO.2828/MDS/2016 :- 2 -: 2. THE LD.CIT(A) ERRED IN DIRECTING THE AO TO ALLOW RS.15,05,19,823/- AS NON PERFORMING ASSETS OR PROVISION FOR BAD DEBTS. 2.1 THE LD CIT(A)) ERRED IN ALLOWING BAD DEBTS TO TH E TUNE OF RS.1843.93 LAKHS WHEN ONLY SUM OF RS.348.73 LAKHS WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT MAINTAINED BY ASSESSEE ON THE BASIS OF WHICH FINANCIAL STATEMENTS WERE PREPAR ED BY THE ASSESSEE COMPANY WHICH WERE PLACED BEFORE THE AGM FOR APPROVAL AND ALSO SU BMITTED SUCH APPROVAL FINANCIAL STATEMENTS BEFORE OTHER STATUTORY AUTHORITIES UNDER REGISTRARS OF COMPANIES. 2.1 THE LD CIT(A) FAILED TO NOTE THAT ITS ORDER IN A SSESSEES GROUP CASE ( M/S. SHRIRAM CITY UNION FINANCE LTD VIDE IN ITA NO 726/MDS/2010) FOR TH E AY 2006-07 AND M/S.SHRIRAM TRANSPORT FINANCE CO. LTD. VIDE ITA NO.725/MDS/2010 FOR AY 2006-07 WHICH IS RELIED UPON IN THE IMPUGNED ORDER HAS NOT ATTAINED FINALITY AND REVENUES APPEAL AGAINST THE ABOVE ASST. YEARS ARE PENDING BEFORE HONOURABLE HIGH COUR T OF MADRAS. 2.2 THE LD.CIT(A) ERRED IN DIRECTING THE AO TO TREAT ROYALTY AS REVENUE EXPENDITURE. 2.3 THE LD.CIT(A) ERRED IN DELETING THE ADDITION MAD E TOWARDS ROYALTY PAYMENT, SINCE ASSESSEE WAS GETTING ENDURING BENEFIT AND ACQUIRED AN INTANGIBLE ASSET, WHICH MADE THE PAYMENT CAPITAL IN NATURE. 2.4 THE LD CIT(A) FAILED TO APPRECIATE THAT THE DECI SION OF THE ITAT RELIED UPON BY THE LD. CIT(A) IN THE ASSESSEES ONE OF THE GROUP COMPANIES CASE (M/S.SHRIRAM TRANSPORT FINANCE CO. PVT. LTD., & M/S.SHRIRAM CITY UNION FINANCE CO.) HAS NOT BECOME FINAL AND THE DEPARTMENT HAS PREFERRED APPEAL BEFORE THE HONBLE HIGH COURT OF MADRAS. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASID E AND THAT OF THE ASSESSING OFFICER RESTORED. 2.0 GROUND NOS.1 & 3 ARE GENERAL IN NATURE, WHICH D O NOT REQUIRE SPECIFIC ADJUDICATION. 3.0 GROUND NOS.2.0 TO 2.1 ARE RELATED TO THE DISALL OWANCE OF PROVISIONS FOR BAD DEBTS. DURING THE PREVIOUS YEAR RELEVANT T O THE AY 2013-14, THE ASSESSEE HAS CLAIMED THE DEDUCTION OF RS.18,53,93,0 14/- AS UNDER: PROVISIONS FOR NON PERFORMING ASSETS: 1505.20 LACS BAD DEBTS WRITE OFF: 348 .73 LACS TOTAL 1853.93 LACS 3.1 THE REASON FOR CLAIMING THE DEDUCTION OF NPA WAS EXPLAINED BY THE ASSESSEE BEFORE THE AO STATING THAT THE ASSES SEE IS MAINTAINING SEPARATE BOOKS OF ACCOUNTS TO COMPLY WITH THE PROVI SIONS OF INCOME TAX ACT AND COMPANIES ACT. THE ASSESSABLE INCOME UNDER REGULAR COMPUTATION ITA NO.2828/MDS/2016 :- 3 -: IS ARRIVED AT ON THE BASIS OF INCOME TAX BOOKS. IN THE CASE OF ASSESSEES GROUP COMPANY VIZ., SHRIRAM TRANSPORT FINANCE COMP ANY LIMITED, THIS METHOD HAS BEEN APPROVED BY THE APPELLATE AUTHORITI ES IN THE EARLIER YEARS AND THE APPELLATE TRIBUNAL HAS HELD THAT THE ASSESSABLE INCOME HAS TO BE COMPUTED ON THE BASIS OF INCOME TAX BOOKS. (H ONBLE ITAT, CHENNAI, ORDER IN ITA NO.725/MDS/2010 DATED 16.12.2 010 FOR ASSESSMENT YEAR 2006-2007 IN THE CASE OF M/S.SHRIRAM TRANSPORT FINANCE COMPANY LIMITED). IN THE SUBSEQUENT YEARS ALSO, THE ITAT HA S HELD THAT THE INCOME HAS TO BE COMPUTED ON THE BASIS OF INCOME TAX BOOK S ONLY. COPY OF ITATS ORDER FOR THE ASSESSMENT YEAR 2006-07 IN THE CASE O F SHRIRAM TRANSPORT FINANCE COMPANY LIMITED WAS AVAILABLE TO THE A.O. THE ASSESSEE FURTHER STATED THAT FROM THE PROFIT & LOSS ACCOUNT AND BALA NCE SHEET PREPARED FROM IT BOOKS, IT COULD BE SEEN THAT NO PROVISION H AS BEEN MADE FOR NPA. AS THE ASSESSEE HAS NOT MADE ANY PROVISION FOR NPA, THE QUESTION OF ADDING BACK THE SAME DOES NOT ARISE. IN THE INCOME TAX BOOKS THE ASSESSEE STATED TO HAVE WRITTEN OFF BAD DEBTS, AFTE R DUE PROCESS OF ENQUIRY. THE NPA AMOUNT OF RS.1505.20 LAKHS WAS MAD E IN CORPORATE ACCOUNTS TO COMPLY WITH THE REQUIREMENTS OF COMPANY ACT. THE ASSESSEE FURTHER STATED THAT THE FIGURES OF NPA APPEARING IN THE CORPORATE ACCOUNTS MAINTAINED FOR COMPANY LAW PURPOSES CANNOT BE IMPOR TED IN THE PRESENT PROCEEDINGS TO DISALLOW THE NPA. THE PROFIT & LOSS AND OTHER FIGURES IN THE BOOKS MAINTAINED FOR COMPANY LAW PURPOSES CAN BE CO NSIDERED ONLY FOR COMPUTING INCOME U/S.115JB OF THE ACT AND NOT UNDER REGULAR COMPUTATION. THE ASSESSEE FURTHER SUBMITTED BEFORE THE AO THAT, IN THE ITA NO.2828/MDS/2016 :- 4 -: BOOKS OF ACCOUNTS MAINTAINED FOR INCOME TAX PURPOSE , THE ASSESSEE HAS WRITTEN OFF THE BAD DEBTS. THE WRITE OFF HAS BEEN D ONE AFTER THE BRANCH MANAGERS HAVE EXPLORED ALL POSSIBILITIES OF RECOVER ING THESE DEBTS IN FULL OR IN PART. THE BRANCHES PURSUE THE COLLECTIONS BY ISS UING NOTICES, TAKING RECOURSE TO SEIZURE, DEPUTING THE FIELD OFFICERS TO MAKE ON THE SPOT STUDY TO CONSIDER THE VARIOUS POSSIBILITIES OF COLLECTION AND WHEN IT IS FOUND THAT THE CHANCES OF COLLECTION ARE REMOTE, THE WRITE OFF IS DONE. IN A FEW CASES, WHEN PARTIES COME FOR PAYMENT OF FINAL INSTALLMENTS , SETTLEMENT ETC, THEY DO NOT PAY THE FULL AMOUNTS AND INSIST ON SOME DISC OUNT, WHICH IS ALLOWED KEEPING IN VIEW THE GOOD RELATIONS WITH CUSTOMER. 3.2 NOT BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, THE AO DISALLOWED THE CLAIM OF THE ASSESSEE U/S.36(1)(VII) STATING THAT NO ACTUAL WRITE OFF TOOK PLACE IN THE ACCOUNTS TO THE EXTENT OF NPA PROVISION OF RS.1505.20 LACS. 3.2 THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A ) AND THE LD.CIT(A) DELETED THE ADDITION IN PARA NO.5.2.2 OF THE LD.CIT (A) WHICH IS EXTRACTED AS UNDER: 5.2.2 I HAVE CONSIDERED THE FINDINGS GIVEN BY THE A O AND ALSO SUBMISSIONS MADE BY THE AR OF THE APPELLANT. THE HONBLE ITAT B BENCH, CHENNAI IN CONSOLIDATED ORDER IN THE CASE OF M/S. SHRIRAM CITY UNION FINANCE LTD. VIDE ITA NO.726/MDS/2010 FOR A.Y.2006-07 AND M/S. SHRIRA M TRANSPORT FINANCE COMPANY LTD. VIDE ITA NO.725/MDS/2010 FOR A .Y.2006-07 DATED 16.12.2010 HAS DISMISSED THE REVENUES APPEAL ON TH E ISSUE OF BAD DEBTS. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE ITAT IN THE AFORESAID ORDERS, THE IS DIRECTED TO ALLOW RS.15,05,19,823/- AS NON-P ERFORMING ASSETS OR PROVISION FOR BAD DEBTS. THIS GROUND OF APPEAL IS A LLOWED. ITA NO.2828/MDS/2016 :- 5 -: 4.0 WE HEARD BOTH THE PARTIES AND PERUSED THE MATER IAL PLACED BEFORE US. THE LD.AR VEHEMENTLY ARGUED THAT THE ASSESSEE I S MAINTAINING TWO SEPARATE SETS BOOKS OF ACCOUNTS FOR INCOME TAX PURP OSE AND ANOTHER SET AS PER COMPANIES ACT. IN THE INCOME TAX BOOKS, THE LD.AR SUBMITTED THAT THE BAD DEBTS WERE WRITTEN OFF WHEREAS IN THE CORPORATE ACCOUNTS IT WAS SHOWN AS PROVISIONS FOR NPA. THE LD.AR FURTHER CONTENDED THAT SINCE THE BAD DEBTS WERE COMPLETELY WRITTEN OFF IN THE IN COME TAX ACCOUNTS, THE DEDUCTION CLAIMED BY THE ASSESSEE U/S.36(1)(VII) IS IN ORDER AND SHOULD BE ALLOWED AS DEDUCTION. THE LD.AR FURTHER ARGUED THAT THE ISSUE REGARDING MAINTENANCE OF TWO SEPARATE BOOKS OF ACCO UNTS IS UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF TH E ASSESSEES GROUP COMPANY M/S.SHRIRAM TRANSPORT FINANCE COMPANY LTD V . CIT IN APPEAL NO.621/2013. 4.1 WE HEARD BOTH THE PARTIES ON HEARING BOTH THE S IDES, THE ISSUE REQUIRED TO BE DECIDED IS WHETHER THE ASSESSEE HAS MAINTAINED TWO SETS OF BOOKS OF ACCOUNTS SEPARATELY FOR THE PURPOSE OF INC OME TAX AND FOR THE PURPOSE OF COMPANIES ACT. IF THE ANSWER IS AFFIRMA TIVE WHETHER THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S.36(1)(VII) O R NOT? AS FOR AS THIS ISSUE U/S SEC. 36(1)(VII) IS CONCERNED, THE HONBLE JURIS DICTIONAL HIGH COURT HAS HELD THAT THE ASSESSEE IS PERMITTED TO MAINTAIN TWO SEPARATE BOOKS OF ACCOUNTS, ONE FOR THE COMPANIES ACT AND THE SECON D FOR THE PURPOSE OF INCOME TAX. NOW THE QUESTION PENDING FOR ANSWER IS WHETHER THE ASSESSEE IS MAINTAINING TWO SEPARATE BOOKS OF ACCO UNTS OR NOT. ON ITA NO.2828/MDS/2016 :- 6 -: CAREFUL READING OF THE ASSESSMENT ORDER, IT APPEARS THAT THE ASSESSEE HAS NEITHER PRODUCED TWO SEPARATE BOOKS OF ACCOUNTS NOR THE AO HAS EXAMINED THE SAME. THERE WAS NO FINDING IN THE ASS ESSMENT ORDER BY THE AO THAT TWO SEPARATE SET OF BOOKS OF ACCOUNT WERE M AINTAINED AND PRODUCED BEFORE THE AO AND EXAMINED BY HIM AND THE BAD DEBTS WERE ACTUALLY WRITTEN OFF IN THE INCOME TAX ACCOUNTS. THE BALANCE SHEET, PROFIT & LOSS A/C, FILED BY THE ASSESSEE BEFORE THIS TRIBU NAL SHOWS THAT IN THE PROFIT & LOSS A/C MAINTAINED FOR THE PURPOSE OF INC OME TAX, THE ASSESSEE HAD WRITTEN OFF BAD DEBTS BUT NOT REDUCED FROM THE SUNDRY DEBTORS. THE BALANCE OF SUNDRY DEBTORS FOR LOANS AND ADVANCES SH OWS THE SAME AMOUNT OF DEBTORS IN THE BALANCE SHEET COMPILED BOT H FOR THE PURPOSE OF INCOME TAX AS WELL AS CORPORATE ACCOUNTS AS UNDER: COMPANIES ACT: SUNDRY DEBTORS AS ON 31.03.2013 ASSET CLAUSE-B LONG TERM LOANS AND ADVANCES RS.175,784.80 (AS IT IS) INCOME TAX ACT: SUNDRY DEBTORS AS ON 31.03.2013 ASS ET CLAUSE-B LONG TERM LOANS AND ADVANCES RS.175,784.80 4.2 FROM THE ABOVE, IT APPEARS THAT THE ASS ESSEE HAS NOT WRITTEN OFF THE DEBTORS IN THE BOOKS OF ACCOUNTS MAINTAINED FOR THE PURPOSE OF INCOME TAX ACT. THE ASSESSEE HAS ONLY DEBITED THE PROFIT & LOSS A/C BUT KEPT THE SAME AMOUNT IN THE SUNDRY DEBTORS FOR THE PURPOSE OF INCOME TAX ACT. THE HONBLE JURISDICTIONAL HIGH COURT IN THE ASSESSEE GROUP COMPANYS CASEIN PARA NO.8 & 9 OBSERVED AS UNDER: 8. WHAT REMAINS IS TO DECIDE WHETHER THE METHODOLOG Y FOR WRITE-OFF ADOPTED IS CORRECT AND IN ACCORDANCE WITH THE METHO DOLOGY SET OUT BY THE SUPREME COURT. THE ASSESSING OFFICE RAISED A QUERY IN THIS REGARD AT THE ITA NO.2828/MDS/2016 :- 7 -: TIME OF ASSESSMENT IN RESPONSE TO WHICH THE ASSESSE E HAS SUBMITTED THE FOLLOWING: WITH REFERENCE TO YOUR QUERY REGARDING BAD DEBTS, WE SUBMIT THAT THE BAD DEBTS ARE DEBITED TO THE PROFIT & LOSS ACCO UNT AND CORRESPONDING CREDIT IS GIVEN TO THE INDIVIDUAL ACC OUNT OF THE DEBTORS. THUS THE BAD DEBTS ARE ACTUALLY WRITTEN OF F IN THE ACCOUNTS AND THEY ARE NOT PROVISIONS. IF THERE ARE ANY COLLE CTIONS FROM THOSE DEBTORS AT A LATER DATE, THE AMOUNT IS CREDITED TO THE BAD DEBTS RECOVERY ACCOUNT. DURING THE YEAR ENDED 3 1.03.06, THERE HAVE BEEN BAD DEBTS RECOVERY TO THE EXTENT OF RS. 1,90, 75,851/-. THIS HAS BEEN SHOWN IN SCHEDULE J OF PROFIT & LOSS ACC OUNT INCOME FROM OPERATIONS BAD DEBTS RECOVERY. 9. OUR ATTENTION HAS ALSO BEEN INVITED TO THE PROFI T AND LOSS ACCOUNT THAT SUBSTANTIATES THE ABOVE METHODOLOGY. THUS, IT IS CL EAR THAT THE CLAIM OF BAD DEBTS RELATES TO DEBTS ACTUALLY WRITTEN OFF AND NOT A PROVISION MADE IN THIS REGARD. THE SUPREME COURT IN THE CASE OF VIJAY A BANK (SUPRA) EXPLAINING THE METHODOLOGY FOR PROPER WRITE-OFF SET OUT IN ACCORDANCE WITH THE JUDGMENT OF THE SUPREME COURT IN SOUTHERN TECHN OLOGIES (SUPRA) STATES AS FOLLOWS: TO UNDERSTAND THE ABOVE DICHOTOMY, ONE MUST UNDERS TAND HOW TO WRITE OFF. IF AN ASSESSEE DEBITS AN AMOUNT OF DOUB TFUL DEBT TO THE P&L ACCOUNT AND CREDITS THE ASSET ACCOUNT LIKE SUND RY DEBTORS ACCOUNT, IT WOULD CONSTITUTE A WRITE OFF OF AN ACTU AL DEBT. HOWEVER, IF AN ASSESSE DEBITS PROVISION FOR DOUBTFUL DEBT TO THE P&L ACCOUNT AND MAKES A CORRESPONDING CREDIT TO THE CURRENT LI ABILITIES AND PROVISIONS ON THE LIABILITIES SIDE OF THE BALANCE SHEET, THEN IT WOULD CONSTITUTE A PROVISION FOR DOUBTFUL DEBT. IN THE LA TTER CASE, ASSESSE WOULD NOT BE ENTITLED TO DEDUCTION AFTER 1-4-1989. IN VIEW OF THE ABOVE, THE ASSESSEE HAS, IN ACCORDAN CE WITH THE PROVISIONS OF SECTION 36 (1 )(VII), WRITTEN OFF THE BAD DEBT A ND THE CLAIM IS ALLOWABLE. SUBSTANTIAL QUESTION NO.1 IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 4.3 THE ASSESSING OFFICER DISALLOWED THE CLAIM STAT ING THAT THE ASSESSEE HAD NOT ACTUALLY WRITTEN OFF THE BAD DEBTS. DURING THE APPEAL HEARING, WE HAVE DIRECTED THE LD.AR TO PRODUCE 44AB REPORT AND THE BOOKS OF ACCOUNTS MAINTAINED AS PER SECTION 44AB AND THE CORPORATE OF ACCOUNTS AS PER THE COMPANIES ACT FOR VERIFICATION. THE LD.AR ARGUED T HAT THE ISSUE REGARDING THE MAINTENANCE OF BOOKS OF ACCOUNTS WAS ACCEPTED B Y THE INCOME TAX ITA NO.2828/MDS/2016 :- 8 -: DEPARTMENT AND THE TRIBUNAL HAS NO JURISDICTION TO GO INTO THAT ISSUE. WE EXAMINED THE SUBMISSIONS OF THE LD.AR AND WE ARE OF THE CONSIDERED OPINION THAT AS PER THE ASSESSMENT ORDER, THERE WAS NO FINDINGS GIVEN BY THE AO WITH REGARD TO THE PRODUCTION OF TWO SETS OF BOOKS OF ACCOUNTS. BEING FINAL FACT FINDING AUTHORITY, THIS TRIBUNAL H AS TO EXAMINE THE FACT REGARDING MAINTENANCE OF TWO SETS OF BOOKS OF ACCOU NTS AND DUTY BOUND TO GIVE FINDING ON IT. SINCE THE ASSESSEE FAILED TO P RODUCE THE BOOKS OF ACCOUNTS BEFORE US IN SPITE OF GIVING REPEATED OPP ORTUNITIES, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE SHOULD GO BACK TO THE FILE OF THE AO TO VERIFY WHETHER THE ASSESSEE IS MAINTAINING TWO SETS OF BOOKS OF ACCOUNTS AS STATED BY THE COMPANY AND FROM INCOME TAX BOOK S TRUE AND CORRECT INCOME CAN BE DEDUCED OR NOT? WHETHER THE ASSESSEE HAS WRITTEN OFF THE PROVISION FOR BAD DEBT IN INCOME TAX BOOKS OR NOT, REQUIRE VERIFICATION AND FINDING NEED TO BE GIVEN. 4.4 ON THE SIMILAR FACTS, IN THE ASSESSEES GRO UP COMPANY IN ITA NO.868 & 869/MDS/2015 THE ISSUE WAS REMITTED BACK T O THE FILE OF THE AO IN PARA NOS.13 & 14 ARE AS UNDER: 13. THE NEXT GROUND RAISED IN THE APPEAL OF THE RE VENUE IS WITH REGARD TO DELETION OF DISALLOWANCE MADE BY THE ASSESSING OFFICER TOWARDS P ROVISION FOR NON-PERFORMING ASSETS [NPA]. THE ASSESSEE HAS CLAIMED NON-PERFORMING ASSET S OF .32.36 CRORES AS BAD DEBTS. THE ASSESSING OFFICER HAS DISALLOWED THE SAME AS THE ASSESSEE HAS MADE TWO SETS OF ACCOUNTS I.E. ONE SET OF BOOKS OF ACCOUNT FOR INCOM E TAX ACT AND ANOTHER SET OF ACCOUNTS FOR COMPANIES ACT PURPOSES. ACCORDING TO THE ASSESS ING OFFICER, THE ASSESSEE CANNOT MAINTAIN TWO SETS OF ACCOUNT AND HE OBSERVED THAT T HE ASSESSEE HAS SHOWN AS PROVISION IN THE STATUTORY BOOKS AND WAS CLAIMED DEDUCTION ASS W RITTEN OFF FOR THE PURPOSE OF INCOME TAX. HE OBSERVED THAT AS PER SECTION 36(1)(VII) BAD D EBTS ACTUALLY WRITTEN OFF IS ONLY TO BE ALLOWED AS DEDUCTION. HE FURTHER OBSERVED THAT THE DECISION OF THE TRIBUNAL IN I.T.A. NO. 22/MDS/2011 DATED 10.10.2011 FOR THE ASSESSMENT YEAR 2006-07 CANNOT BE APPLIED AS THERE IS AN APPEAL PENDING BEFORE THE HONBLE HIGH COURT. HOWEVER, THE LD. CIT(A) HAS CONCURRED WITH THE SUBMISSIONS OF THE ASSESSEE AND ALLOWED THE GROUND RAISED BY THE ASSESSEE, AGAINST WHICH, THE REVENUE IS IN APPEAL B EFORE THE TRIBUNAL FOR ALL THESE ASSESSMENT YEARS. ITA NO.2828/MDS/2016 :- 9 -: 14. WE HAVE HEARD BOTH SIDES. THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE ISSUE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL BY ORDER C ITED (SUPRA) AND IT HAS TO BE FOLLOWED. HOWEVER, WE OBSERVED FROM THE ORDER OF THE ASSESSIN G OFFICER THAT HE HAS GIVEN A FINDING THAT IN THE ACCOUNT PREPARED FOR THE PURPOSE OF INC OME TAX, THE ASSESSEE HAS CLAIMED .11659.84 LAKHS AS BAD DEBT WRITTEN OFF AND THE AM OUNT OF .3236.89 LAKHS, WHICH WAS SHOWN AS PROVISION IN STATUTORY BOOKS WAS TAKEN AS WRITTEN OFF FOR THE PURPOSE OF INCOME TAX. FROM THIS, IT IS NOT CLEAR TO US AS TO WHETHER THIS AMOUNT HAS BEEN ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNTS MAINTAINED AND GOT AUDITED BY THE ASSESSEE UNDER STATUTE BY CREDITING EACH INDIVIDUAL DEBIT ACCOUNT, THEN, IT C OULD BE ALLOWED AS BAD DEBT AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. V. CI T 323 ITR 397, WHEREIN, THE HONBLE SUPREME COURT HAS HELD THAT AFTER 01.04.1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECO VERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. FURTHER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINED AS TO WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF, IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESSING OFFICER. HENCE, THE MATTER IS REMITTED BAC K TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE MENTIONED ASPECT ONLY, T HAT TOO ONLY TO THE EXTENT OF WRITTEN OFF. MOREOVER, IN OUR OPINION, THE FACTS OF THE ASSESSEE S CASE SQUARELY FIT INTO THE RATIO LAID DOWN BY THE ABOVE JUDGEMENT OF THE HONBLE SUPREME COURT RATHER THAN THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE CITED (SUPRA). BEING SO, IN OUR VIEW, IT IS APPROPRIATE TO REMIT BACK THE ENTIRE ISSUE TO VERIFY WHETHER THE D EBT IS ACTUALLY WRITTEN OFF IN THE AUDITED BOOKS OF ACCOUNTS PASSING ENOUGH ENTRIES TOWARDS WR ITTEN OFF TO THE INDIVIDUAL ACCOUNT AND THEN ONLY THE ASSESSEE IS ENTITLED FOR DEDUCTION AS BAD DEBT PROVIDED THE ASSESSEE FULFILS THE CONDITION SUCH AS SATISFACTION OF INCOME TAX AC T AS CONTEMPLATED UNDER SECTION 36(2) OF THE ACT. WE, THEREFORE, DIRECT THE ASSESSING OFFI CER TO VERIFY THE REQUIREMENT OF SECTION 36(2) AND DECIDE THEREUPON. ACCORDINGLY, THIS ISSUE RAISED BY THE REVENUE IS REMITTED BACK TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. 4.5 THEREFORE, WE REMIT THE MATTER BACK TO THE F ILE OF THE AO TO VERIFY BOTH THE BOOKS OF ACCOUNTS AND TO DECIDE THE ISSUE AFRESH ON THE MERITS. WE DIRECT THE ASSESSEE TO PRODUCE BOTH THE SETS OF BOOKS OF ACCOUNTS BEFORE THE AO. ACCORDINGLY, THIS GROUND OF THE ASSE SSEE IS SET-ASIDE AND ALLOWED FOR STATISTICAL PURPOSE. 5.0 GROUND NOS.2.2 TO 2.3 ARE RELATED TO THE TO THE ADDITION OF RS.3,15,92,059/- ON ACCOUNT OF ROYALTY PAYMENT: 6. THE AO FOUND THAT THE ASSESSEE HAS CLAIMED AN AM OUNT OF RS.4,21,22,746/- AS ROYALTY UNDER THE HEAD OTHER EX PENSES. THE AO HAS CALLED FOR THE EXPLANATION OF THE ASSESSEE AS TO WH Y THE ROYALTY PAYMENT ITA NO.2828/MDS/2016 :- 10 -: SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE. THE ASSESSEE EXPLAINED THAT THE PAYMENT WAS MADE TO USE THE LOGO OF THE SHRIRA M GROUP AND THERE WAS AN AGREEMENT BETWEEN THE ASSESSEE AND THE LICEN SOR FOR PAYMENT OF ROYALTY AND THERE WAS NO RIGHT OF OWNERSHIP IN RES PECT OF THE LOGO. THEREFORE, THE ASSESSEE ARGUED THAT THE EXPENDITURE WAS NOT A CAPITAL EXPENDITURE AND NO PERMANENT ASSET WAS CREATED BY P AYMENT OF ROYALTY TO THE LICENSOR. THE PAYMENT OF ROYALTY PAID @3% EVER Y YEAR AND HENCE ARGUED THAT THE EXPENDITURE IS REVENUE EXPENDITURE BUT NOT THE CAPITAL EXPENDITURE. THE ASSESSEE RELIED ON THE DECISION O F CIT V. WAVIN (INDIA) LTD. 236 ITR 214. NOT BEING CONVINCED WITH THE EX PLANATION OF THE ASSESSEE, THE AO HELD THE EXPENDITURE AS CAPITAL EX PENDITURE AND ALLOWED DEPRECIATION @25% (4,21,22,746 1,05,25,686 = 3,1 5,92,059). 6.1 THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A ) AND THE LD.CIT(A) ALLOWED THE ASSESSEES APPEAL PLACING RELIANCE ON T HE ASSESSEE GROUP COMPANYS CASE IN SHRIRAM TRANSPORT FINANCE CO. LT D., FOR THE AYS 2010- 11 & 2011-12, IN ITA NO.870 &871/MDS/2015 DATED 29/ 01/2016. 7. SINCE THE LD.CIT(A) ALLOWED THE APPEAL FOLLOWING THE ORDER OF THIS TRIBUNAL ON IDENTICAL FACTS IN THE CASE OF M/S.SHR IRAM TRANSPORT COMPANY FOR THE AYS 2010-11 & 2011-12, WE CONFIRM THE ORDE R OF THE LD.CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. ITA NO.2828/MDS/2016 :- 11 -: 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH MAY, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ! . . $ ) (D.S.SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: 30 TH MAY, 2017. TLN 0 .$6 76 /COPY TO: 1. - /APPELLANT 4. 8 /CIT 2. ./- /RESPONDENT 5. 6 . /DR 3. 8 ( ) /CIT(A) 6. * /GF