Income Tax Officer, New Delhi V. M/s Lotus Overseas Pvt. Ltd., New Delhi

ITA 4446/DEL/2010

• Counselvise Citation: 444620114 RSA 2010
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 21-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 05-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: NONEWRITTEN SUBMISSIONS
• Keywords: Depreciation; Bad and doubtful debts
• Section: 37(1); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI D BENC H BEFORE SHRI C.L. SETHI, JM & SHRI A.N. PAHUJA, AM ITA NO.4446/DEL/2010 ASSESSMENT YEAR:2006-07 INCOME TAX OFFICER, WARD-4(4),ROOM NO. 234B,CENTRAL REVENUE BUILDING,I P ESTATE NEW DELHI V/S . M/S LOTUS OVERSEAS PVT. LTD., SF-9, BHIKAJI CAMA BHAWAN, BHIKAJI CAMA PLACE, NEW DELHI [PAN:AAACL 0393 E] (APPELLANT) (RESPONDENT) ASSESSEE BY NONE[WRITTEN SUBMISSIONS] REVENUE BY MS. Y. KAKKAR, DR DATE OF HEARING 21-09-2011 DATE OF PRONOUNCEMENT 30-09-2011 O R D E R A.N.PAHUJA:- THIS APPEAL BY THE REVENUE FILED ON 5.10.2010 AGA INST AN ORDER DATED 1 ST JULY, 2010 OF THE LEARNED CIT(A)-VII, NEW DELHI, R AISES THE FOLLOWING GROUNDS:- 1 THE ORDER OF THE CIT(A) IS ERRONEOUS & CONTRARY TO FACTS AND LAW. 2 ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION O F ` 1,53,874/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BAD DEB TS. 2.1 THE LEARNED CIT(A) IGNORED THE FACT THAT T HE ASSESSEE DID NOT FILE ANY EVIDENCE TO SUBSTANTIATE ITS CLAIM OF BAD DEBTS AND EVEN DID NOT FILE THE NAMES AND ADDRESSES OF THE PARTIES WHOSE DEBTS WERE WRITTEN OFF. 3 ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION @15% ON OFFICE EQUIPMENT AS AGAI NST 10% ALLOWED BY THE ASSESSING OFFICER. ITA NO.4446 /DEL./2010 2 3.1 THE LEARNED CIT(A) IGNORED THE FACT THA T ACCORDING TO INCOME- TAX ACT THE DEPRECIATION ON OFFICE EQUIPMENT IS ALL OWABLE @10% AND NOT @15% AS CLAIMED BY THE ASSESSEE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN RESTRICTING THE ADD ITION OF ` 9,70,525/- TO RS. 2,50,000/- MADE BY THE ASSESSING OFFICER BY DISALLOWING THE STAFF CONTRACT EXPENSES. 4.1 THE LEARNED CIT(A) IGNORED THE FACT THAT TH E ASSESSEE NEITHER DEDUCTED TAX AT SOURCE ON THESE PAYMENTS NOR FILED ANY DETAILS OF THE PARTIES TO WHOM THE PAYMENTS IN QUESTION WER E MADE. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF ` 53,350/- MADE BY THE ASSESSING OFFICER ON ACCOUNT O F ALLOWANCES SALES. 5.1 THE LEARNED CIT(A) IGNORED THE FACT THA T THESE EXPENSES PERTAINS TO PRIOR PERIOD AS CONFESSED BY THE ASSESS EE VIDE LETTER DATED 24.11.2008 AND ARE NOT ALLOWED IN THE YEAR UNDER CONSIDERATION. 6. THE APPELLANT CRAVES LEAVE TO ADD, TO A LTER, OR AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF H EARING. 2. AT THE OUTSET, NONE APPEARED BEFORE US ON BEH ALF OF THE ASSESSEE NOR ANY REQUEST FOR ADJOURNMENT HAS BEEN FILED EVEN WHEN EA RLIER ADJOURNMENTS WERE GRANTED ON 3.3.2011 & 7.6.2011 ON THE REQUEST OF TH E COUNSEL OF THE ASSESSEE. INSTEAD, WRITTEN SUBMISSIONS HAVE BEEN FILED. IN TH ESE CIRCUMSTANCES, THE BENCH DECIDED TO DISPOSE OF THE APPEAL AFTER HEARING THE LD. DR IN THE LIGHT OF AFORESAID WRITTEN SUBMISSIONS. 3. ADVERTING FIRST TO GROUND NOS. 2 AND 2.1 IN THE APP EAL, FACTS, IN BRIEF ,AS PER RELEVANT ORDERS ARE THAT RETURN DECLARED NIL IN COME FILED ON 24.11.2006 BY THE ASSESSEE, ENGAGED IN THE RESTAURANT BUSINESS, AFTER BEING PROCESSED ON 20 TH AUGUST, 2007 U/S 143(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS SELECTED FOR SCRUTINY WITH THE SERVI CE OF A NOTICE U/S 143(2) OF THE ACT ISSUED ON 28 TH SEPTEMBER, 2007. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO IN SHORT) NOTICED THAT THE ASSESSEE ITA NO.4446 /DEL./2010 3 DEBITED AN AMOUNT OF ` 1,78,874/- TOWARDS BAD DEBTS. TO A QUERY BY THE AO , SEEKING DETAILS OF THESE BAD DEBTS INCLUDING NAME A ND ADDRESS OF THE PARTIES, REASONS FOR WRITE OFF AND STATEMENT OF THEIR ACCOUN TS IN THE BOOKS OF THE ASSESSEE, IT WAS REPLIED THAT DESPITE THEIR BEST EF FORTS RECOVERY BECAME IMPOSSIBLE AND AMOUNTS HAD BEEN WRITTEN OFF. EXCEP T FOR AN AMOUNT OF ` 25,000/- THE ASSESSEE DID NOT FURNISH NAME & ADDRESS OF THE PARTIES NOR THEIR STATEMENT OF ACCOUNTS OR EVEN REASONS FOR WRITE OFF. IN THES E CIRCUMSTANCES, THE AO DISALLOWED AN AMOUNT OF ` 1,53, 874/-. 4. ON APPEAL, THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN THE FOLLOWING TERMS:- 4.1 I HAVE GONE THROUGH THE ASSESSMENT ORDER, THE 'WRITTEN AND ORAL SUBMISSION(S) OF THE APPELLANT AND THE FACTS O N RECORD. IT IS APPARENT FROM THE PLAIN READING OF SECTION 36(1 )(V II) OF THE ACT THAT AN ASSESSEE IS ENTITLED TO A DEDUCTION EQUIVALENT T O THE AMOUNT OF A WRITTEN OFF DEBT. THE QUESTION OF APPLICABILITY OF SECTION 36(L)(VII) OF THE ACT WILL, HOWEVER, ARISE IF THE ASSESSEE CAN ES TABLISH THE FULFILLMENT OF THE INGREDIENTS OF SECTION 36(2) OF THE ACT. A PLAIN READING OF CLAUSE (I) OF SECTION 36(2) OF THE ACT P RIMA FACIE SHOWS THE FOLLOWING ESSENTIAL INGREDIENTS THEREOF:- I) THE ASSESSEE OUGHT TO HAVE DEPICTED THE DEBT UND ER REFERENCE. AS HIS INCOME, DURING THE PREVIOUS YEAR (DURING WHICH THE DEDUCTION IS SOUGHT) OR ANY OTHER EARLIER PREVIOUS YEAR (PRIOR T O THE YEAR DURING WHICH THE DEDUCTION IS SOUGHT); II) THE ASSESSEE OUGHT TO HAVE SHOWN THE DEBT AS IR RECOVERABLE OR AS A BAD DEBT, AND OUGHT TO HAVE WRITTEN OFF THE SA ME DURING THE PREVIOUS YEAR; III) THE DEDUCTION FOR SUCH A DEBT WHICH HAS BEEN W RITTEN OFF CAN BE CLAIMED IN THE PREVIOUS YEAR DURING WHICH THE ASSES SEE HAS WRITTEN OFF THE DEBT. 4.2 AN ANALYSIS OF CLAUSE (I) OF SECTION 36(2) OF THE 1961 ACT SHOWS THAT ALL 3 ESSENTIAL INGREDIENTS THEREOF MUST BE FULFILLED BEFORE AN ASSESSEE CAN CLAIM A DEDUCTION. IT WOULD ALSO BE RELEVANT TO MENTION THAT THE CONTROVERSY REGARDING THE ALLOW ABILITY OF BAD DEBTS WRITTEN OFF HAS BEEN SETTLED BY THE HO N'BLE SUPREME COURT IN T.R.F. LTD. V. CIT [2010 ) 190 TAXMAN 391 (SC) WHERE IN IT HAS BEEN HELD AS UNDER:- '2. IN THESE APPEALS, WE ARE CONCERNED WITH ASSESSMENT YEAR 1990-91 AND ASSESSMENT YEAR 1993- ITA NO.4446 /DEL./2010 4 94. PRIOR TO 1-4-1989. EVERY ASSESSEE HAD TO ESTABLI SH AS A MATTER OF FACT, THAT THE DEBT ADVANCED BY THE ASSESSEE HAD, IN FACT, BECOME IRRECOVERABLE. THAT POSITION GOT ALTERED BY DELETION OF THE WORD 'ESTABLISHED', WHICH EARLIER EXISTED IN SECTION 36(1 )(VII) OF THE INCOME-TAX ACT, 1961 ('ACT'). 3. FOR THE SAKE OF CLARITY. WE REPRODUCE HEREINBELOW PROVISIONS OF SECTION 36(1 )(VII) OF THE ACT, BOTH PRIOR TO 1-4-1989 ANDPOST-1-4-1989: ' PRE-1-4-1989 36. OTHER DEDUCTIONS.-(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28- (I) TO (VI) ** ** ** (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF ANY DEBT. OR PART THEREOF: WHICH IS ESTABLISHED TO HAVE BECOME A BAD DEBT IN THE PREVIOUS YEAR. POST-1ST APRIL, 1989: 36. OTHER DEDUCTIONS.-(1) THE DEDUCTIONS PROVIDED FOR IN THE OF OWING CLAUSES SHALL HE ALLOWED IN RESP ECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED 10 IN SECTION 28-- (I) TO (VI) * * ** ** (VII)SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1-4-198 9, IT IS NOT NECESSARY (OR THE ASSESSEE TO ESTABLISH THAT TH E DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUG H IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN TH E ACCOUNTS OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINED ITA NO.4446 /DEL./2010 5 WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMER'S ACCOUNT IS CREDITED, THUS, CLOSING THE ACCOUNT OF TH E CUSTOMER. IN THE CASE OF COMPANIES, THE PROVISION I S DEDUCTED FROM SUNDRY DEBTORS. ' 4.3 IN THE PRESENT CASE, THE COPIES OF THE BALAN CE SHEET FOR F. Y.1995-96 ONWARDS WERE PRODUCED BY THE APPELLANT. T HE PERUSAL OF THE BALANCE SHEET FOR THE F. Y.1995-96 SHOWS THAT A N AMOUNT OF RS.6,83,674/- WAS SHOWN AS 'SUNDRY DEBTORS' IN THE SAID YEAR. THIS IMPLIES THAT THE INCOME PERTAINING TO THE ABOVE AMO UNT WAS REFLECTED IN THE ACCOUNTS AND THE SAME WAS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE F.Y.1995-96. IT IS AL SO OBSERVED THAT THE SAID AMOUNT CONTINUED TO BE CARRIED FORWARD IN THE BALANCE SHEET OF THE SUBSEQUENT YEARS ALSO BECAUSE THE SAME COULD NO T BE REALIZED. THEREFORE, I AM OF THE CONSIDERED VIEW THAT IN THE PRESENT CASE, ASSESSEE HAS FULFILLED ALL THE AFORESTATED MANDATOR Y CONDITIONS AND THE ASSESSEE WOULD BE ENTITLED TO A DEDUCTION ON THE BA SIS OF ITS HAVING WRITTEN OFF THE DEBT UNDER REFERENCE. IN VIEW OF TH E DISCUSSION MADE ABOVE I AM OF THE CONSIDERED VIEW THAT THE A.O. WAS NOT JUSTIFIED IN MAKING ADDITION OF RS.1,53,874/- OUT OF BAD DEBT WR ITTEN OFF. THEREFORE, THE A.O. IS DIRECTED TO DELETE THE SAID ADDITION. A S A RESULT, GROUND NO. 2 IS ALLOWED. 5. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF LEARNED CIT(A). THE LD. DR WHILE INVITING OUR ATTEN TION TO THE ASSESSMENT ORDER POINTED OUT THAT THE ASSESSEE DID NOT SUBMIT ANY DE TAILS BEFORE THE AO NOR ESTABLISHED AS TO WHETHER OR NOT THE AMOUNT WAS DIS CLOSED AS INCOME IN THE EARLIER YEARS. ON THE OTHER HAND, THE LEARNED CIT(A ) WHILE REFERRING TO BALANCE SHEET OF THE ASSESSEE FOR THE FINANCIAL YEAR 2005-0 6 INFERRED THAT THE AMOUNT WAS REFLECTED IN THE ACCOUNTS AND HAD BEEN TAKEN INTO A CCOUNT IN THE INCOME OF THE ASSESSEE FOR THE FINANCIAL YEAR 1995-96. THERE IS NOTHING TO SUGGEST THAT THE AMOUNT OF RS. 1,53,874/- WAS EMBEDDED IN THE DEBTORS OF RS. 6,73,674/- SHOWN IN THE BALANCE SHEET AS ON 31 ST MARCH, 1996. THE ASSESSEE IN ITS WRITTEN SUBMISSIONS MERELY REITERATED WHAT WAS SUBMITTED BE FORE THE LEARNED CIT(A) AND THE AO. ITA NO.4446 /DEL./2010 6 6. WE HAVE HEARD THE LEARNED DR AND GONE THROUGH TH E WRITTEN SUBMISSIONS FILED ON BEHALF OF THE ASSESSEE. INDISPUTABLY, THE ASSESSEE DID NOT FURNISH DETAILS OF BAD DEBTS DESIRED BY THE AO NOR ESTABLISHED THAT THE AMOUNT OF ` 1,53,874/- WAS REFLECTED IN THE INCOME OF THE ASSESSEE IN THE EARLIER YEARS. THE LEARNED CIT(A) WHILE REFERRING TO BALANCE SHEET OF THE ASSE SSEE AS ON 31 ST MARCH, 1996 INFERRED THAT THE AMOUNT WAS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE FOR THE FINANCIAL YEAR 1995-96. THERE IS NOTHING TO SUGGEST AS TO WHETHER OR NOT THE AMOUNT OF ` 1,53,874/- IS EMBEDDED IN THE SUNDRY DEBTORS OF ` 6,83,674/- FOR THE FINANCIAL YEAR 1995-96 OR HAS BE EN INCLUDED IN THE INCOME OF THE ASSESSEE FOR THE SAID ASSESSMENT YEAR. THE IMP UGNED ORDER IS CRYPTIC AND DOES NOT BRING OUT CLEARLY AS TO HOW THE ASSESSEE F ULFILLED CONDITIONS STIPULATED U/S 36(2)(I) OF THE ACT. IN THESE CIRCUMSTANCES, WE HAVE NO ALTERNATIVE BUT TO VACATE THE FINDINGS OF LEARNED CIT(A) AND RESTORE T HE MATTER TO HIS FILE WITH THE DIRECTIONS TO READJUDICATE THE ISSUE ,BRINGING OUT CLEARLY AS TO WHETHER OR NOT THE ASSESSEE FULFILLED THE CONDITIONS STIPULATED U/S 36 (2)(I) OF THE ACT AND THE AMOUNT OF ` 1,53,178/- WAS EMBEDDED IN THE FIGURE OF ` 6,83,674/- FOR THE FINANCIAL YEAR 1995-96 AND WAS SHOWN AS INCOME IN THE SAID ASSESS MENT YEAR OR ANY OTHER ASSESSMENT YEAR ,AFTER ALLOWING SUFFICIENT OPPORTUN ITY TO BOTH THE PARTIES. WITH THESE DIRECTIONS, GROUND NOS. 2 & 2.1 IN THE APPEAL ARE DISPOSED OF. 7. GROUND NOS.3 AND 3.1 IN THE APPEAL RELATE TO RES TRICTION OF DEPRECIATION TO 10% AS AGAINST CLAIM OF 15% ON THE OFFICE EQUIPMENT . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASS ESSEE CLAIMED DEPRECIATION @15% ON THE ASSETS UNDER THE HEAD OFFICE EQUIPMENT. HOWEVER, THE AO RESTRICTED THE CLAIM TO 10% OF THE WDV OF THE OFFI CE EQUIPMENT AND FAX MACHINE, RESULTING IN DISALLOWANCE OF RS. 17,725 +290/-. 8. ON APPEAL, THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN THE FOLLOWING TERMS:- 5.1 I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT O RDER, THE WRITTEN AND ORAL SUBMISSION(S) OF THE APPELLANT AND THE FAC TS ON RECORD. THE PERUSAL OF THE DEPRECIATION TABLE AS PER NEW APPEND IX I (WHICH IS ITA NO.4446 /DEL./2010 7 EFFECTIVE FOR ASSESSMENT YEAR 2006-07) REVEALS THAT THE ALLOWABLE DEPRECIATION ON MACHINERY AND PLANT IS 15% OF THE W RITTEN DOWN VALUE. THE ASSESSING OFFICER HAS NOT GIVEN ANY FIND ING WHICH COULD MAKE IT CLEAR THAT DEPRECIATION IS ALLOWABLE ON OFF ICE EQUIPMENTS AND FAX MACHINE @ 10%.IT IS ALSO OBSERVED THAT THE A.O. HAS NOT MADE ANY FINDING THAT THE SAID ITEMS FALL IN THE CA TEGORY OF FURNITURE AND FITTINGS ON WHICH ALLOWABLE DEPRECIATION IS 10% . IN THE BACKGROUND OF THE FACTS STATED ABOVE, I DO NOT FIND ANY REASON TO FORM AN OPINION THAT THE OFFICE EQUIPMENTS AND FAX MACHINE ARE TO BE TAKEN UNDER THE CATEGORY OF' FURNITURE AND FITTI NGS' ON WHICH ALLOWABLE DEPRECIATION IS 10% AND NOT UNDER THE CAT EGORY OF 'MACHINERY AND PLANT' ON WHICH ALLOWABLE DEPRECIATI ON IS 15%. IN VIEW OF THE AFORESAID, IT IS HELD THAT THE OFFICE E QUIPMENTS AND FAX MACHINE FALL UNDER THE CATEGORY OF MACHINERY AND PL ANT ON WHICH ALLOWABLE DEPRECIATION IS 15%. SUBJECT TO THE ABOVE REMARKS, THE A.O. IS DIRECTED TO ALLOW DEPRECIATION @15% ON THE WRITTEN DOWN VALUE OF OFFICE EQUIPMENTS AND FAX MACHINE, DECLARE D BY THE APPELLANT IN ITS ACCOUNTS AND STATEMENT OF FIXED AS SETS FOR THE YEAR UNDER CONSIDERATION. AS A RESULT, GROUND OF APPEAL NO.3 IS ALLOWED 9. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF LEARNED CIT(A). THE LD. DR SUPPORTED THE ORDER OF THE AO WHILE THE ASSESSEE IN THEIR WRITTEN SUBMISSIONS REITERATED WHAT WAS SUBMI TTED BEFORE THE LEARNED CIT(A). 10. WE HAVE HEARD THE LEARNED DR AND GONE THROUGH T HE FACTS OF THE CASE AS ALSO THE WRITTEN SUBMISSIONS. WE FIND THAT THE EX TANT APPENDIX-1 IN THE INCOME- TAX RULES,1962 STIPULATES DEPRECIATION @15% OF THE WRITTEN DOWN VALUE OF THE PLANT AND MACHINERY. THE AO IN THE ASSESSMENT ORDE R DID NOT IDENTIFY THE RELEVANT ENTRY OF APPENDIX-1 UNDER WHICH DEPRECIATI ON COULD BE RESTRICTED TO 10% NOR BROUGHT OUT CLEARLY AS TO HOW THE OFFICE EQUIPM ENTS COULD BE CATEGORISED AS FURNITURE AND FITTINGS. SINCE THE LEARNED DR DID NO T PLACE ANY MATERIAL BEFORE US, CONTROVERTING THE AFORESAID FINDINGS OF LEARNED CIT (A), SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF LEARNED CIT(A). THEREFORE, GROUND NOS.3 & 3.1 IN T HE APPEAL ARE DISMISSED. 11. GROUND NO.4 IN THE APPEAL RELATES TO DISALLOWAN CE OF ` 9,70,525/- ON ACCOUNT OF STAFF CONTRACT EXPENSES. THE AO NOTICED THAT THE ASSESSEE DEBITED ITA NO.4446 /DEL./2010 8 AN AMOUNT OF ` 9,70,525/- ON ACCOUNT OF STAFF ON CONTRACT AS AGAIN ST NIL EXPENSES IN THE PRECEDING YEAR. TO A QUERY BY THE AO, THE A SSESSEE REPLIED THAT THEY HIRED TEMPORARY STAFF DURING THE PEAK SEASON FROM O CTOBER TO MARCH ON CONTRACT BASIS. HOWEVER, SINCE THE ASSESSEE DID NOT FURNISH NAME AND ADDRESS OF THE PERSONS NOR THE NATURE OF WORK DONE BY HIM NOR EVEN DEDUCTED TAX AT SOURCE, KEEPING IN VIEW THE SALES IN THE YEAR UNDER CONSIDE RATION VIS-A-VIS PRECEDING YEAR, THE AO DISALLOWED THE AFORESAID AMOUNT ON TH E GROUND THAT THERE WAS NO JUSTIFICATION FOR INCURRING HUGE EXPENDITURE FOR TH E FIRST TIME IN THE YEAR UNDER CONSIDERATION. 12. ON APPEAL, THE LEARNED CIT(A) RESTRICTED THE DI SALLOWANCE TO ` 2,50,000/- IN THE FOLLOWING TERMS:- 6.1 I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSI ONS MADE ON BEHALF OF THE APPELLANT AND THE FACTS AND CIRCUMSTA NCES UNDER WHICH THE SAID ADDITION WAS MADE BY THE ASSESSING O FFICER. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES OF THE CASE. I AM OF THE CONSIDERED VIEW THAT THE ONUS OF PROVIN G NECESSARY FACTS IN ORDER TO AVAIL THE DEDUCTION U/S 37(1) HAS NOT BEEN FULLY DISCHARGED. THIS ALSO IMPLIES THAT THE APPELLANT H AS FAILED TO ESTABLISH THE FACTS NECESSARY TO SUPPORT ITS CLAIM FOR DEDUCTION U/S 37(1) TO THE COMPLETE EXTENT OF HUNDRED PERCENT. T HEREFORE, THE CLAIM FOR DEDUCTION OF EXPENDITURE IS NOT FULLY ADM ISSIBLE AND I HOLD THAT IT IS FAIR TO DISALLOW A SUM OF RS.2,50,000/- OUT OF THE IMPUGNED EXPENSES. AS A RESULT, THE APPELLANT GETS A RELIEF OF RS.7,20,525/- (RS.9,70,525 -RS.2,50,000/-). SUBJECT TO THE ABOVE REMARKS, GROUND NO.4 IS PARTLY ALLOWED. 13. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF LEARNED CIT(A) IN ALLOWING THE RELIEF OF ` 7,20,525/-. THE LD. DR WHILE INVITING OUR ATTENTION TO THE FINDINGS OF THE AO CONTENDED THAT THE ASSESSEE DID NOT EVEN FURNISH NAME OF THE PERSONS OR THE NATURE OF WORK D ONE BY THEM NOR DEDUCTED TAX AT SOURCE FROM PAYMENTS TO THE ALLEGED STAFF ON CON TRACT. SINCE THE LD. CIT(A) HIMSELF CONCLUDED THAT THE ASSESSEE FAILED TO ESTAB LISH THE FACTS NECESSARY TO SUPPORT ITS CLAIM FOR DEDUCTION U/S 37(1) OF THE AC T, HE WAS NOT JUSTIFIED IN ALLOWING ANY RELIEF TO THE ASSESSEE, THE LD. DR VEH EMENTLY ARGUED. ON THE OTHER ITA NO.4446 /DEL./2010 9 HAND, THE ASSESSEE IN THEIR WRITTEN SUBMISSIONS REI TERATED WHAT WAS SUBMITTED BEFORE THE LEARNED CIT(A). 14. WE HAVE HEARD THE LEARNED DR AND GONE THROUGH T HE FACTS OF THE CASE AS ALSO THE WRITTEN SUBMISSIONS ON BEHALF OF THE ASSES SEE. WE FIND THAT THE ASSESSEE DID NOT FURNISH ANY DETAILS VIZ. NAME AND ADDRESS OF THE PERSONS, NATURE OF WORK DONE BY THEM, BEFORE THE AO NOR ADDU CED ANY REASONS AS TO WHY TAX WAS NOT DEDUCTED AT SOURCE FROM THE CONTRACTOR WAGES OF ` 9,70,525.55. WE FIND FROM DETAILS PLACED AT PAGE 164 TO 185 OF THE PAPER BOOK THAT EXCEPT FEW PAYMENTS ,MOST OF THE AMOUNTS HAVE BEEN PAID IN CAS H TO VARIOUS PERSONS. THERE IS NOTHING TO SUGGEST AS TO WHETHER OR NOT TH E SUBMISSIONS/DETAILS FILED BY THE ASSESSEE WERE CONFRONTED BY THE LEARNED CIT(A) TO THE AO NOR THE BASIS FOR RESTRICTION OF DISALLOWANCE TO ` 2,50,000/- IS EVIDENT FROM THE IMPUGNED ORDER. IN THESE CIRCUMSTANCES, ESPECIALLY WHEN THE LD. CIT(A) HIMSELF CONCLUDED THAT THE ASSESSEE FAILED TO ESTABLISH THE FACTS NECESSARY TO SUPPORT ITS CLAIM FOR DEDUCTION U/S 37(1) OF THE ACT TO THE COMPLETE EXTENT OF HUND RED PERCENT, WE CONSIDER IT FAIR AND APPROPRIATE TO VACATE THE FINDINGS OF LEARNED C IT(A) AND RESTORE THE MATTER TO HIS FILE WITH THE DIRECTIONS TO RE-ADJUDICATE TH E CLAIM IN ACCORDANCE WITH LAW IN THE LIGHT OF OUR AFORESAID OBSERVATIONS AFTER ALLOW ING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES, BRINGING OUT CLEARLY AS TO WHETHER OR NOT EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSIN ESS OF THE ASSESSEE. WITH THESE DIRECTIONS GROUND NOS.4 AND 4.1 IN THE APPEAL ARE DISPOSED OF. 15. GROUND NOS.5 & 5.1 RELATE TO DISALLOWANCE OF ` 55,350/- ON ACCOUNT OF ALLOWANCES ON SALES. THE AO NOTICED DURING THE COU RSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE ADJUSTED AN AMOUNT OF ` 55,350/- ON ACCOUNT OF OLD SUNDRY DEBTORS PERTAINING TO EARLIER YEARS. TO A QUERY BY THE AO, THE LD. AR ON BEHALF OF THE ASSESSEE DID NOT OBJECT TO THE DIS ALLOWANCE. ACCORDINGLY, THE AMOUNT OF ` 55,350/- WAS DISALLOWED. HOWEVER, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE LEARNED CIT(A), WHO ALLOWED THE CLAIM ON THE GROUND THAT THE LIABILITY TO PAY THE ALLOWANCES PERTAINING TO EARLIER YEARS W AS CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. THE RELEVANT FINDINGS OF THE LEARNED CIT(A) READ AS UNDER:- ITA NO.4446 /DEL./2010 10 8.1 I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSI ON MADE ON BEHALF OF THE APPELLANT AND THE FACTS AND CIRCUMSTA NCES UNDER WHICH THE SAID ADDITION WAS MADE BY THE AO. IT IS NOW A WELL SETTLED PROPOSITION THAT CRYSTALLIZATION OF THE LIA BILITY ON A FUTURE DATE WOULD NECESSARILY RELATE BACK TO THE EARLIER PERIOD BUT THE ENTITLEMENT TO A DEDUCTION WOULD HAVE REFERENCE TO THE DATE ON WHICH THE LIABILITY GETS CRYSTALLIZED. IN THIS CONT EXT, RELIANCE IS PLACED ON THE DECISION OF THE JURISDICTIONAL HIGH COURT OF DELHI IN CIT VS. SHRIRAM PISTONS & RINGS LTD.(2008) 174 TAXMAN 147(D ELHI)/220 CTR 404(DELHI).IN THE INSTANT CASE, THERE IS NO DIS PUTE OVER THE FACT THAT THE LIABILITY TO PAY ALLOWANCES(SALES) PERTAIN ING TO EARLIER YEARS WAS CRYSTALLIZED DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2006-07.UNDER THE CIRCUMSTANCES STATED ABOVE, I AM OF THE CONSIDERED VIEW THAT AO WAS NOT JUSTIFIED IN DISALL OWING THE SUM OF RS.55,350/- ON ACCOUNT OF ALLOWANCES(SALES).AS A RE SULT, GROUND NO.6 IS ALLOWED GRANTING RELIEF OF RS.55,350/-. 16. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF LEARNED CIT(A). THE LEARNED DR WHILE INVITING OUR ATTENTION TO THE IMPUGNED ORDERS CONTENDED THAT AFTER HAVING AGREED BEFORE TH E AO FOR DISALLOWANCE OF THE SAID AMOUNT, THE LEARNED CIT(A) WAS NOT JUSTIFIED I N ADMITTING THE APPEAL OF THE ASSESSEE ON THE ISSUE. EVEN OTHERWISE, THERE IS NO THING TO SUGGEST AS TO WHETHER OR NOT THE LIABILITY TO INCUR THE SAID AMOU NT CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION. ON THE OTHER HAND, THE ASSESSEE IN THE WRITTEN SUBMISSIONS MERELY REITERATED WHAT WAS SUBMITTED BEFORE THE LEA RNED CIT(A). 17. WE HAVE HEARD THE LEARNED DR AND GONE THROUGH T HE FACTS OF THE CASE AS ALSO THE WRITTEN SUBMISSIONS ON BEHALF OF THE ASSES SEE. WE FIND THAT THE ASSESSEE HAVING AGREED BEFORE THE AO FOR DISALLOWAN CE, PREFERRED APPEAL BEFORE THE LD. CIT(A), WHO ALLOWED THE CLAIM ON THE GROUND THAT THE LIABILITY TO PAY ALLOWANCES (SALES) PERTAINING TO EARLIER YEARS WAS CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. HOWEVER, AS POINTED OUT BY TH E LEARNED DR, THERE IS NO MATERIAL ON RECORD TO JUSTIFY AS TO HOW THE LIABILI TY FOR THE AMOUNT OF RS.55,350/- CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION. IN T HE ABSENCE OF ANY BASIS, WE HAVE NO ALTERNATIVE BUT TO VACATE THE FINDINGS OF L EARNED CIT(A) AND RESTORE THE MATTER BACK TO HIS FILE WITH THE DIRECTIONS TO RE-A DJUDICATE THE CLAIM AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES, BRINGIN G OUT CLEARLY AS TO HOW THE LIABILITY ITA NO.4446 /DEL./2010 11 ON ACCOUNT OF RS.55,350/- ADJUSTED WITH THE ALLOWAN CE WRITTEN OFF, CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION. WITH THESE DIRECTION S, GROUND NOS.5 AND 5.1 IN THE APPEAL ARE DISPOSED OF. 18. GROUND NO.1 IN THE APPEAL BEING GENERAL IN NATU RE NOR ANY SUBMISSIONS HAVING BEEN MADE BEFORE US ON THIS GROUND, DOES NOT REQUIRE SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HAS BEEN RA ISED BEFORE US IN TERMS OF GROUND NO.6 IN THE APPEAL, ACCORDINGLY, THESE GROUN DS ARE DISMISSED. 19. IN RESULT, APPEAL IS ALLOWED BUT PARTLY FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT SD/- SD/- (C.L. SETHI) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1. INCOME TAX OFFICER, CIRCLE 4(4), NEW DELHI. 2. M/S LOTUS OVERSEAS PVT. LTD., SF-9, BHIKAJI CAMA BHAWAN, BHIKAJI CAMA PLACE, NEW DELHI 3. CIT (APPEALS)-VII, NEW DELHI 4. THE CIT CONCERNED. 5. THE DR, ITAT,D BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI