The DCIT, Circle-4(1)(2), Ahmedabad V. Voltamp Transformers Ltd., Ahmedabad

ITA 298/AHD/2020

AI Insights

The case involves the Deputy Commissioner of Income Tax (DCIT), Circle-4(1)(2), Ahmedabad as the appellant and Voltamp Transformers Ltd. as the respondent. The dispute arose from the assessment order for the Assessment Year 2014-15, where the Assessing Officer made several additions to the income of Voltamp Transformers Ltd. These included disallowances under section 14A read with Rule 8D for expenses related to earning exempt income, additions to the value of closing stock under section 145A as unutilized balance of taxes, and disallowances under section 36(1)(vii) for provision for doubtful debts. The Ld. CIT(A) deleted these additions, which led to the Revenue's appeal before the Tribunal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 114287 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-01-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 04-06-2020
• Other Referred Cases: CIT Vs. Torrent Power Ltd: 363 ITR 474, Reliance Petro Products Pvt. Ltd. Vs ACIT, Gujarat State Fertilizers & Chemicals Ltd. 358 ITR 323, Vijaya Bank V. CIT 323 ITR 166
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Bad and doubtful debts; Rule 8D
• Section: 154; 143(3); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member The DCIT, Circle-4(1)(2), Ahmedabad (Appellant) Vs Voltamp Transformers Ltd. 312, Sanman-II. Opp. Reliance Petrol Pump, Prahladnagar, Satellite, Ahmedabad PAN: AABCT9663N (Respondent) Assessee Represented: Shri A.C. Shah, A.R. & Shri Bhadresh Gandhakwala, A.R. Revenue Represented: Ms. Leena Lal, Sr.D.R. Date of hearing : 19-01-2023 Date of pronouncement : 31-03-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Revenue as against the Appellate order dated 18.02.2020 passed by the Commissioner of Income Tax (Appeals)-8, Ahmedabad, arising out of the Assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2014-15. ITA No. 298/Ahd/2020 Assessment Year 2014-15 I.T.A No. 298/Ahd/2020 A.Y. 2014-15 Page No DCIT vs. Voltamp Transformers Ltd. 2 2. 2. The Registry has noted that there is a delay of 34 days in filing the above appeal. The appeal is filed on 05.06.2020. This period falls under COVID-Pandemic situation, thus following Hon’ble Supreme Court judgment dated 23.3.2020 in suo moto Writ Petition (Civil) No.3 of 2020, vide Hon’ble Supreme Court has extended time limit for filing appeals w.e.f. 15.3.2020. Thus, there is no delay in filing the above appeal and we take the appeal of the assessee for adjudication. 2.1. The brief facts of the case is that the assessee is engaged in the business of manufacturing of Transformers. For the Assessment Year 2014-15, the assessee filed its Return of Income declaring total income of Rs. 24,20,79,130/-. The return was taken up for scrutiny assessment. 2.1. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has earned exempt income of Rs. 2,67,97,761/-. However the assessee has made a disallowance of Rs. 25,20,035/- u/s. 14A of the Act. The Assessing Officer asked the assessee why disallowance under Rule 8D should not be made. 2.2. After considering the explanations, the Assessing Officer made disallowance under Rule 8D of Rs. 77,05,623/-. The Assessing Officer also made disallowance u/s. 14A while calculating the Book Profit u/s. 115JB of the Act. The Assessing Officer added a sum of Rs.3,54,73,709/- being amount of unutilized balance of taxes and added back to the total income in view of the provisions of Section 145A of the Act. The Assessing Officer also made a disallowance of I.T.A No. 298/Ahd/2020 A.Y. 2014-15 Page No DCIT vs. Voltamp Transformers Ltd. 3 Rs. 4,88,308/- on account of provision for doubtful debts claimed u/s. 36(1)(vii) of the Act. 3. Aggrieved against the same, the assessee filed an appeal before Ld. CIT(A). The Ld. CIT(A) deleted all the additions by passing a very detailed order as follows: 4 Ground No.1 is against the disallowance of expenses of Rs.77,05,623/- u/s. 14 r.w.r 8D though the assessee has already disallowed Rs. 25,20,035/- being the expenditure incurred for earning exempt income. The AO disallowed the expense by stating that the appellant has not provided the fund flow statement The appellant has disallowed Rs.25,20,035/- being the salary and other expenses incurred towards earning the exempt income. The appellant argued with the help of judicial pronouncements and also mentioned the order of ITAT in appellant's own case in AY 2009-10, AY 2010-11 and AY 2011-12 confirming the view that the AO should apply the working under Rule 8D the working done by the assessee is not found to be satisfactory and application of the ratio of the judgment of the Hon'ble Gujarat High court in the case CIT Vs. Torrent Power Ltd: 363 ITR 474. Similar issues were raised up for AY 2012-13 and AY 2013-14 as well where the predecessor CIT(A) have also held the issue in favour of the appellant 4.1 From the copy of the Audit Report it is seen that investments of the appellant are to tune of Rs.1,98,63,50637/- as on 31.03.2014/ in contrast the appellant had interest free funds of Rs 424,73,51,792/- (share capital Rs.101171200 + Reserve and Surplus Rs.4146180592). This clearly indicates that the appellant had sufficient interest free funds and has in fact suo motu disallowed sum amounting to Rs.25,20,035/- being the salary and other expense incurred in earning the exempt income which is 8.5% of the exempt income earned. In view of the clear judicial pronouncement on this issue and the matter being covered by the orders of Hon'ble ITAT A.Y 2009-10 to AY 2011-12 and orders of my predecessors for A.Y.2012-13 & AY 2013-14, I following those orders and direct the AO to delete the additional disallowance of Rs.77,05,623/- made u/s 14A of the Act. Accordingly, appeal on this ground is allowed. Ground no. 2 is against the addition of a sum of Rs 3,54,73,709/- (cenvat receivable of Rs 2.78,22,363/+ service tax receivable of Rs 76,51,346/-) to the value of closing stock under Section 145A as unutilzed balance of taxes by the AO. The AO has made this addition following the earlier assessment orders--- contention given by the AO and the submission of the appellant is considered is contended by the appellant that on this issue and similar facts and contentions, the ITAT Ahmedabad Bench in appellant's own case for A. Y 2009-10 held that no addition can be made I.T.A No. 298/Ahd/2020 A.Y. 2014-15 Page No DCIT vs. Voltamp Transformers Ltd. 4 u/s. 145A, since the assessee follows the exclusive method. This view has also been followed by my predecessor CIT(A) for AY 2010-11 & 2011-12 and A.Y. 2012-138 AY 2012-13. Following the decision taken in earlier years and in view of the facts and submission and also the legal proposition on this issue, the addition so made by the AO for Rs. Rs 3,54,73,709/- is not justified. After judgment of ITAT for the AY 2009-10 the AO has already verified such method and has examined the issue for legal proposition and has deleted the addition by giving appeal effect. I find no reason to differ from the earlier decisions of CIT(A) and Hon'ble ITAT on this issue, hence, the AO is directed to delete the addition of Rs. Rs 3,54,73,709/- The appeal on ground no.2 is allowed. 6. Ground No.3 is against the addition of Rs. 77,05,623/- under Section 14A read with Rule 8D to the book profit while computing the book profit under Section 115JB. On this point the appellant submitted as under: “The learned AO also computed the profit under Section 115JB and in that computation he has disallowed Rs. 77,05,623/- under Section 115JB. The reasons for not disallowing the said amount are already stated in the above referred Para No. 3 There is no provision to disallow under Section 14A in Section 115JB Therefore, the disallowance is not called for. The addition cannot be made as held by ITAT, Ahmadabad in the case of Reliance Petro Products Pvt. Ltd. Vis ACIT, ITA No. 2324/Ahd/2009 for AY 2001-2002 The copy of Order is enclosed. 4.2 This view is also taken by the Gujarat High Court in the case of Gujarat State Fertilizers & Chemicals Ltd. 358 ITR 323. Your honour is therefore prayed to delete the addition made. 4.3 The CIT(A) has deleted the addition under Section 115JB for AY 2011-2012 [copy enclosed]. The assessee also relied the CIT(A) Order for A Y. 2011-2012 in A. Y. 2012-2013. The CIT(A) has not followed the order for AY 2011-2012 and also not followed the decision of Gujarat High Court cited which is of a binding nature. Therefore, the addition under Section 115JB was confirmed but the same was deleted in regular assessment. If the addition is deleted in regular assessment, the question of any addition under Section 115JB does not arise. The assessee made the application under Section 154 by letter dated 07-04- 2016 filed on 13-04-2016 [copy enclosed]. The said application is yet not disposed off. Your honour is prayed to rectify the order for AY 2012-2013 suitably and delete the addition under Section 115JB as held by the Gujarat High Court in the case of Gujarat State Fertilizers & Chemicals Ltd 358 ITR 323 and by ITAT, Ahmadabad in the case of Reliance Petro Products Pvt. Ltd. V/s. ACIT. ITA No 2324/Ahd/2009 for AY 2001-2002" I.T.A No. 298/Ahd/2020 A.Y. 2014-15 Page No DCIT vs. Voltamp Transformers Ltd. 5 In view of the above judicial pronouncement quoted by the appellant, the AO is directed to delete the addition of Rs.77,05,623/- while computing the book profit us 115JB. Accordingly, appeal on this ground is allowed. 7. Ground No.4 of the appeal relates to disallowance of Rs.488308/- on account of provision for doubtful debts claimed u/s.36(1)(vii) being disallowed by the AO. 7.1 Similar issue had arisen during AY 2013-14 where the facts as emanate from the copy of the audit report was that the appellant claimed that it had created a provision for doubtful debts as per 31.03.2013 of Rs. 18916687/- and the same amount was written off in the P&L A/c u/s.36(1)(vii). The AO had disallowed this write off while completing the assessment for A.Y.2013-14 However, it was found that my predecessor CIT(A).on similar issue raised in appeal proceedings during AY 2013-14 relying upon the decision of the Hon'ble Supreme Court in the case of Vijaya Bank V. CIT 323 ITR 166 has stated as under: “8.3 The AR of the appellant has contended that as per the finding of the Hon'ble Supreme Court making a provision on the debit side of P&L Account and reducing the sundry debtors amounts to actual write-off. In the present case, the assessee has made provision in P & L A/c and has reduced from the doubtful debts in the balance sheet and therefore it amounts to actual write off. The AR also produced the copy of annual report for the year ended 31/03/2013 As per this report in the 'Notes to the Financial Statements at point number-23, a provision for bad and doubtful debt of Rs. 1,89.16,687/- is shown as part of other expenses Simultaneously, at note no.13 the details of Trade Receivable' are shown reduced by provision for doubtful debts of Rs 1,89,16,087/- In view of this fact, the ratio of Hon'ble Supreme Court in the case of Vijaya Bank (supra) is applicable to the facts of the case of the appellant. The AO is directed to verify the entries in the P&L A/c and the balance-sheet to ascertain that the assessee has correspondingly/simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance-sheet, and consequently at the end of the year, the figure in the loans and advances or the debtors on the assets side of the balance-sheet is shown as net of the provision for impugned bad debt. If so, the assessee will be entitled to the benefit of deduction under section 36(1)(vi), as per the finding of the Hon'ble Supreme Court. Looking at the above facts and details subject to verification by the AO, this ground of appeal is allowed." 7.2. The specific facts of the case in current A.Y. emanate from the Audit Report for F.Y.2013-14 and that as on 31.03.2014, the appellant had shown a provision for doubtful debts of Rs.65,09,406/- in the balance I.T.A No. 298/Ahd/2020 A.Y. 2014-15 Page No DCIT vs. Voltamp Transformers Ltd. 6 sheet but in the P&L a/c, it had only claimed Rs.488308/- as an expenditure. The appellant was asked to reconcile the figures which was duly furnished. The appellant claimed that out of Rs.1,89,16,687/- written off provisions for bad debt for A.Y.2013-14 Rs.1,28,95,598/- was recovered in FY.2013-14. This amount was shown as part of Miscellaneous Income shown under the head Other Income totalling to Rs 7,89,57,900/- (Schedule 18)details of which were furnished during the hearing. So the balance amount pertaining to the provision created on 31.03.2013 remained to be Rs.60,21,098/-. During the current FY the appellant claimed that provision for doubtful debts in the name of Garden Silk Mill Ltd. for Rs.4,88,308/- was added to this figure and claimed as written off in the P&L A/c. The corresponding balance sheet entry for provision of doubtful debts therefore was Rs.60,21,098 + Rs.4,88,308/- is equal to Rs.65,09,406/-, Thus, the submission of the appellant is borne by the facts and cross verified by the entries in the audit report and other details filed during the appellate proceedings, the addition made by the AO of Rs.4,88,308/- is deleted. The ground of appeal is allowed. 8. In the result, the appeal is allowed.” 4. Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal: 1. Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition on account of disallowance of Rs. 77,05,623/- made u/s. 14A of the Income-Tax Act, 1961 r.w.r. 8D? 2. Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 3,54,73,709/- made u/s. 145 of the I.T. Act? 3. Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 77,05,623/- made u/s. 14A of the I.T. Act, 1961 r.w.r. 8D made to the book profit u/s. 115JB of the I.T. Act, 1961? 4. Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 4,88,308/-made u/s. 36(1)(vii) of the I.T. Act, 1961? 5. We have heard the rival submissions and perused the materials available on record including the Paper Book filed by the assessee. Regarding Ground no. 1 & 3 are raised by the Revenue namely disallowance of Section 14A read with Rule 8D, the same was considered by the Co-ordinate Bench of this Tribunal in assessee’s I.T.A No. 298/Ahd/2020 A.Y. 2014-15 Page No DCIT vs. Voltamp Transformers Ltd. 7 own case in the case of ACIT vs. M/s.Voltamp Transformers Ltd. in ITA No. 1323/Ahd/2017 wherein it was held as follows: “...15. We have heard the rival contentions and perused the material on record. In respect of ground no. 1 relating to deleting the addition of Rs. 2,98,57,398/- made on account of addition of CENVAT credit receivable and ground no. 2 pertaining to addition of Rs. 69,22,190/- made on account of disallowance u/s. 14A r.w.r. 8D the ld. Counsel has brought to our notice that in the case of the assessee itself, the ITAT Ahmedabad Bench has held that no addition can be made u/s. 145A since the assessee follows the exclusive method and similarly the second ground of appeal pertaining to disallowance u/s. 14A is also covered in favour of the assessee vide order of the ITAT Ahmedabad for the A.Y. 2009-10 in the case of the assessee itself. The ld. D.R. was fair enough to could not controvert these facts with any material. With the assistance of the Ld. Representatives, we have gone through the material on record and noticed that in respect of ground no. 1, the ld. CIT(A) at para 4.1 of his order deleted the impugned addition holding that ITAT Ahmedabad on similar facts and same issue for A.Y. 2009-10 in the case of the assessee itself holding that no addition can be made u/s. 145A since the assessee follows the inclusive method. Similarly, following the order of the ITAT Ahmedabad on the second issue, the ld. CIT(A) at para 5 of his order has deleted the addition made u/s. 14A r.w.r. 8D of the I.T. Rule. Respectfully following the decision of the Co-ordinate Bench as elaborated in the findings of the ld. CIT(A), we do not find any merit in the appeal of the Revenue. Therefore ground no. 1 and ground no. 2 of appeal of the Revenue are dismissed. Similarly, in respect of third ground of appeal, we do not find any infirmity in the decision of ld. CIT(A) in deleting the addition after following decision of the Hon’ble Gujarat High Court in the case of Gujarat State Fertilizers & Chemical Ltd. 358 ITR 323. Therefore, we justify the decision of ld. CIT(A) holding that if the addition is deleted in regular assessment the question of any addition under section 115JB does not arise. Regarding 4th ground of appeal in respect of disallowance of Rs. 1,89,16,687/- as provision for doubtful debt, after considering the fact that the assessee has made provision in the P & L account and has also reduced from the doubtful debt in the balance sheet, therefore, the ld. CIT(A) after following the decision of Hon’ble Supreme Court in the case of CIT vs. Vijaya Bank 323 ITR 166, the ld. CIT(A) has rightly held that the assessee will be entitled to the benefit of deduction under section 36(1)(vii) as per the finding of the Hon’ble Supreme Court subject to verification by the A.O. Therefore, this ground of appeal of the Revenue also stands dismissed.” 6. The Ld. D.R. could not contravent that the above decision of the Tribunal which is being reversed by the Higher Forum. Therefore respectfully following the above decision of the Co-ordinate Bench I.T.A No. 298/Ahd/2020 A.Y. 2014-15 Page No DCIT vs. Voltamp Transformers Ltd. 8 of the Tribunal ground no. 1 & 3 raised by the Revenue are hereby rejected. 6.1. Similarly ground no. 2 namely deleting the addition of Rs. 3,54,73,709/- made on account of addition of CENVAT credit receivable, Co-ordinate Bench of this Tribunal in assessee’s own case has held that no addition can be made u/s. 145A since assessee follows exclusive method. This view has been followed by the ld. CIT(A) for the subsequent Assessment Years 2010-11 to 2012-13, thereby the Ld. CIT(A) deleted the addition made by the Assessing Officer. Therefore respectfully following the same, we confirm the deletion made by the Ld. CIT(A). Therefore the grounds raised by the Revenue is devoid of merit and the same is liable to be dismissed. 6.2. Ground no. 4 of the Revenue deletion of addition of Rs. 4,88,308/- made u/s. 36(1)(vii) of the Act. The Ld. CIT(A) has recorded the factual finding namely during the current financial year, the assessee claimed that profit for doubtful debts of Rs. 4,88,308/- in the name of Garden Silk Mill Ltd. which was added to the figure of Rs. 60,21,098/- claimed as written off in the Profit and Loss A/c. Thus totaling Rs. 65,09,406/- which is reflecting in the Balance Sheet entry, as provision for doubtful debts. Thus the Ld. CIT(A) was satisfied the claim of the assessee is borne out by proper facts and cross verified by entries in the Audit Report and in the Balance Sheet. Therefore the addition made by the Assessing Officer of Rs. 4,88,308/- is deleted. I.T.A No. 298/Ahd/2020 A.Y. 2014-15 Page No DCIT vs. Voltamp Transformers Ltd. 9 7. The Ld. D.R. appearing for the Revenue could not contravent the findings of the Ld. CIT(A). Therefore, we have no hesitation in confirming the findings of the Ld. CIT(A) and thereby deleting the addition of Rs. 4,88,308/- made u/s. 36(1)(vii) of the Act. Thus the grounds raised by the Revenue is devoid of merits and the same is liable to be dismissed. 8. In the result, the appeal filed by the Revenue are devoid of merits and the same is liable to be dismissed. Order pronounced in the open court on 31-03-2023 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 31/03/2023 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद