DCIT, Kanpur V. M/s. Super House Leathers Ltd., Kanpur

ITA 638/LKW/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9138 (ITAT-LUCKNOW)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-02-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 18-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK MISHRA
• Keywords: Bad and doubtful debts; Revenue expenditure; Set aside
• Section: 143(3); 80HHC; 115JB; 143(1); 80IA; 37; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, B - BENCH, LUCKNOW. BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT AND SHRI N.K.SAINI, ACCOUNTANT MEMBER I.T.A.NO. 638(LKW.)/2010 A.Y. : 2001-02 THE DY.CIT, RANGE-6, VS. M/S.SUPER HOUSE LEATHERS LTD., KANPUR. 150 FEET ROAD,JAJMAU, KANPUR. PAN AABCS9328K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIVEK MISHRA, CIT(D.R.) RESPONDENT BY : SHRI AMIT SHUKLA, ADVOCATE O R D E R PER H.L.KARWA, VICE PRESIDENT THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT(A)-I, KANPUR DATED 29.7.2010 RELATING TO THE ASSESSMENT YEAR 2001- 02. 2. GROUND NO.1 OF THE APPEAL READS AS UNDER: 1. THAT THE COMMISSIONER OF INCOME TAX (A) HAS ERR ED IN LAW AND ON TACT IN DELETING THE DISALLOWANCE OF RS.44,235/- CLAIMED AS SERVICE BILL OF PREVIOUS YEAR AND ACCOUNTED FOR DUR ING THE CURRENT YEAR WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IS MAINTAINING ACCOUNTS ON MERCANTILE BASIS AND THEREF ORE THE EXPENSES RELATING TO EARLIER YEARS IS NOT ALLOWABLE IN CURRENT YEAR. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED ITS RETURN 2 DISCLOSING NIL INCOME UNDER THE PROVISIONS OF THE INCOME-TAX ACT,1961 (IN SHORT THE ACT) AND RS.1,70,11,878 UNDER SECTION 1 15JB OF THE ACT ON 31.10.2000. THE SAID RETURN WAS PROCESSED UNDER SE CTION 143(1) OF THE ACT ON 31.3.2003 AT THE INCOME AS SHOWN IN THE RETURN. THE RETURN WAS ACCOMPANIED WITH AUDITED COPIES OF TRADING/MANUFA CTURING ACCOUNT, P & L ACCOUNT AND BALANCE SHEET ALONGWITH ITS ANNEXURES AS ALSO THE TAX AUDIT REPORT IN FORM 3CA DATED 27.10.2001 AND RELEV ANT PARTICULARS IN FORM 3CD. 3.1 SUBSEQUENTLY, THE CASE WAS PICKED UP FOR SCRUT INY AND THE ASSESSMENT WAS EVENTUALLY COMPLETED VIDE ORDER DAT ED 25.3.2004 PASSED UNDER SECTION 143(3)OF THE ACT ON INCOME OF RS.61,1 4,240 UNDER THE NORMAL PROVISIONS OF THE ACT. 3.2 SUBSEQUENTLY, LD.CIT-II,KANPUR CALLED FOR AND E XAMINED THE RELEVANT CASE RECORD. DURING THE COURSE OF EXAMINATION OF RE LEVANT RECORDS, THE LD.CIT-II, KANPUR OBSERVED THAT WHILE COMPLETING T HE ASSESSMENT UNDER SECTION 143(3) OF THE ACT CONCLUDED VIDE ORDER DAT ED 25.3.2004 THAT THE AO HAD ERRONEOUSLY OVERLOOKED THE PROVISIONS OF SECTIO N 80I(A) OF THE ACT. HE ALSO OBSERVED THAT THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT SHOWN BY THE ASSESSEE AT RS.1,70,11,878, WHICH WAS ACCEPTED IN THE COURSE OF ASSESSMENT PROCEEDINGS UNDER SECTION 143( 3), WAS NOT CORRECT, AS THE ASSESSEE HAD CLAIMED EXCESSIVE DEDUCTION UNDE R SECTION 80HHC AMOUNTING TO RS.1,07,90,569. ACCORDINGLY, THE DED UCTION ALLOWED UNDER CHAPTER VI WHILE COMPLETING ASSESSMENT U/S 143(3) OF THE ACT WAS ALSO NOT AS PER LAW AND CONTRARY TO THE PROVISIONS OF SECTIO N 80IA OF THE ACT. WITH THESE OBSERVATIONS, THE LD.CIT-II, KANPUR HELD THA T THE ORDER DATED 3 25.3.2004 PASSED BY THE AO UNDER SECTION 143(3) OF THE ACT WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF REVENUE AND THEREFORE, HE INVOKED THE PROVISIONS OF SECTION 263 OF THE ACT A ND ISSUED NOTICE UNDER SECTION 263 DATED 22.9.2004. 3.3 VIDE NOTICE UNDER SECTION 263 DATED 22.9.2004, IT WAS, INTER ALIA, POINTED OUT THAT THE METHOD FOLLOWED BY THE ASSESS EE-COMPANY WAS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 80IA(9) O F THE ACT. IT WAS ALSO POINTED OUT TO THE ASSESSEE-COMPANY THROUGH NOTICE UNDER SECTION 263 OF THE ACT THAT ACCEPTANCE OF THIS KIND OF COMPUTATION DO NE IN THE COMPUTATION OF INCOME FILED ALONGWITH THE RETURN OF INCOME RESULTE D IN AN ERRONEOUS ASSESSMENT, WHICH WAS OBVIOUSLY PREJUDICIAL TO THE INTEREST OF REVENUE AND EVENTUALLY THROUGH THIS NOTICE ASSESSEE-COMPANY W AS CALLED UPON TO SHOW CAUSE AS TO WHY THE ASSESSMENT ORDER DATED 25.3.20 04 PASSED UNDER SECTION 143(3) OF THE ACT BE NOT REVISED. AFTER CONSIDERING THE ASSESSEES CLARIFICATION ON THE AFORESAID ISSUES, THE ORDER DA TED 25.3.2004 PASSED U/S 143(3) OF THE ACT WAS SET ASIDE TO BE MADE DE NOVO IN ACCORDANCE WITH CORRECT PROVISIONS OF LAW, PARTICULARLY SECTION 80I A(9) OF THE ACT. 3.4 IN COMPLIANCE TO NOTICE UNDER SECTION 142(1)O F THE ACT, THE ASSESSEE- COMPANY FURNISHED WRITTEN SUBMISSIONS DATED 9.5.200 6, WHICH WERE CAREFULLY EXAMINED BY THE AO. 3.5 THE ISSUE ON WHICH THE ASSESSMENT WAS SET ASIDE BY THE LD.CIT- II,KANPUR PERTAINED TO THE CLAIM OF RS.12,57,480 ON ACCOUNT OF PRIOR PERIOD EXPENSES. AS PER THE DIRECTIONS OF THE LD. CIT, TH E AO REQUIRED THE ASSESSEE TO FURNISH THE DETAILS OF THE EXPENSES OF RS.12,57 ,480 AND JUSTIFY HOW THE 4 SAME COULD BE ALLOWED DURING THE YEAR UNDER CONSI DERATION WHEN THE SAME DO NOT PERTAIN TO THE YEAR UNDER CONSIDERATION. THE AO OBSERVED THAT THE ASSESSEE FAILED TO EXPLAIN THE ALLOWABILITY OF CLA IM OF RS.12,57,480 AND ALSO NOT BEEN ABLE TO GIVE ANY FURTHER EVIDENCE TO PROV E THAT THE EXPENSES WERE AN ALLOWABLE EXPENDITURE AGAINST THE INCOME FOR THE CURRENT YEAR. HENCE, THE AMOUNT OF RS.12,57,480 WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). THE LD.CIT(A) DELETED THE ADDITION OF RS.44,235 OBSERVING AS UNDER : THESE SERVICE BILLS AMOUNTING TO RS.44,235/- WERE BILLS RECEIVED IN THE CURRENT YEAR FOR SERVICES RENDERED IN THE PREVIOUS YEARS. SINCE THE SERVICE BILLS HAVE BEEN RECEIVED I N THIS YEAR, THE EXPENDITURE IS ALLOWABLE IN THIS YEAR. THUS, ADDITI ON OF RS.44,235/- IS DELETED. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE MATERIALS AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT BILLS AMOUNTING TO RS.44,235 WERE RECEIVED IN THE CURRENT YEAR FOR S ERVICES RENDERED IN THE PREVIOUS YEAR. THUS, THE LIABILITY WAS DETERMINED AND CRYSTALLIZED IN THE YEAR IN QUESTION ON THE BASIS OF MAINTAINING ACCOUNTS O N THE MERCANTILE BASIS. THEREFORE, THE LD. CIT(A) HAS CORRECTLY DELETED TH E ADDITION. WHILE TAKING SUCH A VIEW, WE ARE ALSO FORTIFIED BY THE DECISIO N OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES LTD. VS. CIT 1995) 213 ITR 523(GUJ.), WHEREIN THE HON'BLE HIGH C OURT OBSERVED (HEAD NOTE) AS UNDER : MERELY BECAUSE AN EXPENSE RELATES TO A TRANSACTION OF AN EARLIER YEAR IT DOES NOT BECOME A LIABILITY PAYABLE IN THE EARLI ER YEAR UNLESS IT CAN 5 BE SAID THAT THE LIABILITY WAS DETERMINED AND CRYST ALLIZED IN THE YEAR IN QUESTION ON THE BASIS OF MAINTAINING ACCOUNTS ON TH E MERCANTILE BASIS; 5.1 RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT AND C HEMICAL INDUSTRIES LTD. (SUPRA), WE DO NOT FIND ANY MERIT IN GROUND NO.1 O F THE APPEAL AND ACCORDINGLY WE DISMISS THE SAME. 6. GROUND NO.2 OF THE APPEAL READS AS UNDER ; 2. THAT THE COMMISSIONER OF INCOME TAX (A) HAS ERR ED IN-LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.76,666. 40 CLAIMED AS EXPENSES OF EARLIER YEAR SETTLED DURING THE YEA R WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS UNABLE TO FURNISH THE DETAILS OF DISPUTE, DETAILS OF THE PARTIES, NATURE OF AMOUNT DISPUTED AT ANY STAGE BEFORE THE A.O., COMMISSIONER OF INCOME TAX-II, KANPUR DURING THE PROCEEDINGS U/S 263 AND A LSO BEFORE THE AO. PASSING THE CONSEQUENTIAL ORDER U/S 143(3)/ 263 AND EVEN BEFORE THE COMMISSIONER OF INCOME TAX (A). 7. AT THE VERY OUTSET, SHRI AMIT SHUKLA, ADVOCATE, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AMOUNT OF DISALLOWANCE IS NOT RS.76,666,BUT THE EXACT AMOUNT IS RS.60,776. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS SEEN THAT THE LD.CIT(A) HAS DELETED THIS ADDITION OBSERVING AS UNDER : SINCE THE SETTLEMENT OF DISPUTE HAS TAKEN PLACE TH IS YEAR, THE AMOUNT IS ALLOWABLE AS A EXPENDITURE IN THIS YEAR ITSELF. THE AO IS DIRECTED TO ALLOW THIS AS A DEDUCTION. THUS ADDITION OFRS.76,66 6/- IS DELETED. 9. WE FIND THAT THERE WAS A SETTLEMENT OF DISPUTE AND AS A RESULT OF THE SAID SETTLEMEN T, THE AMOUNT IN 6 QUESTION IS ALLOWABLE AS AN EXPENDITURE IN THIS YEA R ITSELF. IN OUR VIEW THERE IS NO INFIRMITY IN THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE. ACCORDINGLY WE UPHOLD THE SAME. CONSEQUENTLY, WE DISMISS GROUND NO.2 OF THE APPEAL. 10. GROUND NO.3 OF THE APPEAL READS AS UNDER : 3. THAT THE COMMISSIONER OF INCOME TAX (A) HAS ERR ED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS,4,87,96 4.40/- CLAIMED A SHORT/EXCESS ESTIMATION OF EXPENSES WITHO UT APPRECIATING THE FACT AS MENTIONED IN THE ORDER U/S 263 PASSED BY THE COMMISSIONER OF INCOME TAX-II, KANPUR. 11. THE LD.CIT(A) HAS DELETED THIS ADDITION OBSERVI NG AS UNDER : 4. THIS AMOUNT RELATES TO DUTY DRAWBACK, FOREIGN C OMMISSION PAID AND SETTLEMENT OF INSURANCE CLAIM. THE APPELLANT HA S STATED THAT NORMALLY THE DUTY DRAWBACK CHEQUES WERE RECEIVED WI THIN 3 TO 4 MONTHS FROM THE DATE OF SHIPMENT. AS THE APPELLANT IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AT THE TIME OF FINA LIZATION OF ACCOUNTS THE CREDIT FOR DUTY DRAWBACK RECEIVABLE WAS TAKEN I N THE ACCOUNT ON THE BASIS OF OWN COMPUTATION/ ESTIMATE. HOWEVER SOM ETIMES THERE WAS A DIFFERENCE IN THE COMPUTATION AND THE COMPUTA TION MADE BY THE CUSTOM DEPARTMENT WHICH RESULTED IN EITHER EXCESS C REDIT OR SHORT CREDIT. IN THIS CASE SINCE EXCESS CREDIT WAS MADE E ARLIER THE NECESSARY ENTRIES WERE PASSED DEBITING THE ACCOUNTS OF THE EX CESS AMOUNT OF DUTY DRAWBACK. IT WAS EXPLAINED BY THE APPELLANT TH AT IT WAS A REGULAR SYSTEM OF ACCOUNTING FOLLOWED BY HIM AND DID NOT RE SULT IN ANY PROFIT OR LOSS OVER A PERIOD OF TIME. IN MY VIEW THIS AMOU NT IS ALLOWABLE IN THE CONTEXT OF SYSTEM OF ACCOUNTING FOLLOWED BY APP ELLANT. SIMILAR IS THE CASE OF INSURANCE CLAIM. NOW COMING TO THE COMM ISSION PAYMENT THE SAME IS PAYABLE IS FOREIGN CURRENCY AND ACCORDI NG TO THE MERCANTILE METHOD OF ACCOUNTING THE SAME HAS TO BE PROVIDED ON THE ESTIMATE BASIS OF CURRENCY AS PREVAILING ON THE LAS T DAY OR THE FINANCIAL YEAR. THE PAYMENT MAY GET SETTLED IN THE NEXT YEAR WHEREBY ON THE DATE OF PAYMENT THERE MIGHT BE A CHANGE IN THE FORE IGN CURRENCY RATES. IT WAS EXPLAINED BY THE APPELLANT THAT IT WAS A REG ULAR SYSTEM OF ACCOUNTING FOLLOWED BY HIM AND DID NOT RESULT IN AN Y PROFIT OR LOSS OVER A PERIOD OF TIME. THUS, ADDITION OF RS.4,87,96 4.40 IS DELETED. 7 12. AFTER HEARING THE RIVAL SUBMISSIONS, WE DO NO T FIND ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE. IT I S OBSERVED THAT THE ASSESSEE WAS FOLLOWING A REGULAR SYSTEM OF ACCOUNTING WHIC H DID NOT RESULT IN ANY PROFIT OR LOSS OVER A PERIOD OF TIME. IN OTHER WO RDS, THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AT T HE TIME OF FINALIZATION OF ACCOUNTS, THE CREDIT FOR DUTY DRAWBACK RECEIVABLE WAS TAKEN IN THE ACCOUNT ON THE BASIS OF OWN COMPUTATION/ESTIMATE. HOWEVER, SOMETIMES, THERE WAS DIFFERENCE IN THE COMPUTATION AND THE COMPUTATION MADE BY THE CUSTOM DEPARTMENT, WHICH RESULTED IN EITHER EXCESS CREDI T OR SHORT CREDIT. IN OUR OPINION, THE LD.CIT(A)HAS CORRECTLY APPRECIATED TH E FACTS OF THE PRESENT CASE AND PASSED A SPEAKING ORDER AFTER APPRECIATING THE FACTS. WE DO NOT FIND ANY VALID GROUND IN INTERFERING WITH THE SAME. ACCORDIN GLY, WE DO NOT SEE ANY MERIT IN GROUND NO.3 OF THE APPEAL AND WE DISMISS T HE SAME. 13. GROUND NO.4 OF THE APPEAL READS AS UNDER : 4. THAT THE COMMISSIONER OF INCOME TAX (A) HAS ERR ED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.1,28,50 9.09 BEING BILLS DEDUCTED IN PREVIOUS YEAR BUT SETTLED IN CURR ENT YEAR WITHOUT APPRECIATING THE FACT AS MENTIONED IN ORDER U/S 263 PASSED BY THE COMMISSIONER OF INCOME TAX-II, KANPUR . 14. THE LD.CIT(A) HAS DELETED THE ADDITION OF RS.1, 28,509.09 OBSERVING AS UNDER : SINCE THE SETTLEMENT OF DISPUTE HAS TAKEN PLACE I N THIS YEAR, THE AMOUNT IS ALLOWABLE AS AN EXPENDITURE IN THIS YEAR ITSELF. THE AO S DIRECTED TO ALLOW THIS AS A DEDUCTION. THUS ADDITIO N OF RS.1,28,509 IS DELETED. 15. THIS GROUND OF APPEAL IS SIMILAR TO THAT OF G ROUND NO.2 OF THE APPEAL, FOR THE DETAILED REASONS GIVEN THEREIN, WE DO NOT S EE ANY MERIT IN THIS GROUND 8 OF APPEAL AND ACCORDINGLY WE DISMISSED THE SAME. TH US, GROUND NO.4 OF THE APPEAL STANDS DISMISSED. 16. GROUND NO.5 OF THE APPEAL READS AS UNDER : 5. THAT THE COMMISSIONER OF INCOME TAX (A) HAS ERR ED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS .1,08,847,71 BEING GOVERNMENT BILLS/STATUTORY BILLS RECEIVED DUR ING THE YEAR UNDER CONSIDERATION WITHOUT APPRECIATING THE FACT A S MENTIONED IN THE ORDER U/S 263 PASSED BY THE COMMISSIONER OF INCOME TAX-II, KANPUR AND ALSO THAT NO EVIDENCE IN SUPPORT OF CLAIM WAS FILED BY THE ASSESSEE BEFORE THE AO. 17. AT THE VERY OUT SET, SHRI AMIT SHUKLA, ADVOCA TE, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE REVENUE HAS WRONGLY M ENTIONED THE FIGURE IN THE GROUNDS OF APPEAL AND THE CORRECT FIGURE IS RS .1,08,847.71. THE LD. CIT(A) HAS DISCUSSED THIS ISSUE IN PARA 6 OF THE OR DER: SINCE THE BILLS HAVE BEEN RECEIVED IN THIS YEAR, THE EXPENDITURE IS ALLOWABLE IN THIS YEAR. THUS, ADDITION OF RS.10884 8 IS DELETED. 18. WE HAVE ALREADY DECIDED GROUND NO.1 OF THE AP PEAL. THIS GROUND OF APPEAL IS SIMILAR TO GROUND NO.1 OF THE APPEAL. THE FINDINGS GIVEN THEREIN SHALL APPLY WITH EQUAL FORCE TO THIS GROUND OF APPE AL ALSO. ACCORDINGLY, WE DISMISS GROUND NO.5 OF THE APPEAL. 19. GROUND NO.6 OF THE APPEAL READS AS UNDER : 6. THAT THE COMMISSIONER OF INCOME TAX (A) HAS ERR ED IN LAW AND ON FACTS IN DELETING THE CLAIM OF RS.21,09,234/- BE ING DEFERRED REVENUE EXPENDITURE IGNORING THE FACT AS MENTIONED IN THE ORDER U/S 263 PASSED BY THE COMMISSIONER OF INCOME TAX-II , KANPUR AND ALSO THAT THE ASSESSEE ITSELF HAS PRAYED FOR AL LOWANCE OF 1/5 TH OF THE EXPENSES AS UNDER. 9 'PRELIMINARY EXPENSES AS DEFINED U/S 35D OF THE I.T . ACT, 1961 CAN BE AMORTIZED OVER A PERIOD OF 5 YEARS. BRA ND DEVELOPMENT EXPENSES ARE NOT COVERED U/S 35D OF THE INCOME TAX ACT AND ARE THEREFORE ALLOWABLE REVENUE EXPENDI TURE. HOWEVER, FOR THE AMOUNT BE AMORTIZED OVER A PERIOD OF 5 YEARS, THE SAME HAS BEEN ALLOWED IN THE EARLIER ASSESSMENT YEAR WHEN THE EXPENDITURE WAS INCURRED 1/5 BASIS, THUS WE HUM BLY REQUEST TO MAINTAIN THE SAME.' THE ORDER OF THE COMMISSIONER OF INCOME TAX (A)IS ERRONEOUS. 20. THE FACTS MENTIONED BY THE AO REGARDING THIS IS SUE ARE AS UNDER : WITH REFERENCE TO THE REMAINING AMOUNT OF RS.26,36 ,541/-, THE ASSESSEE COULD NOT GIVE ANY JUSTIFICATION FOR CLAIM ING THE ENTIRE AMOUNT DURING THE YEAR UNDER CONSIDERATION. IT ALSO DID NOT PRODUCE ANY FURTHER EVIDENCE OR JUSTIFICATION, TO SUPPORT I TS CLAIM THAT THE ENTIRE AMOUNT WAS AN ALLOWABLE EXPENDITURE DURING THE YEAR . AS NO NEW FACTS HAVE BEEN PRODUCED FOR EXAMINATION BY THE ASS ESSING OFFICER, IN VIEW OF THE OBSERVATIONS MADE BY THE LD. CIT-II, KA NPUR IN HIS ORDER PASSED U/S 263, THE AMOUNT OF RS.26,36,542/- WOULD BE DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE AND ONLY AN AMOUNT OF RS.5,27,308/- BEING 1/5TH OF THIS AMOUNT WOULD BE A LLOWED AS DEDUCTION U/S 350 OF THE I.T. ACT, 1961. HENCE, NET ADDITION WOULD BE ONLY OF RS.21,09,234/-. 21. ON APPEAL, THE LD.CIT(A) DELETED THE ADDITION O BSERVING AS UNDER : 20. I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, THE REASONING OF THE AO AND THE SUBMISSIONS OF THE APPE LLANT THROUGH LD. A.R., RELEVANT PART OF WHICH HAS BEEN REPRODUCED AB OVE. THE AO HAS SIMPLY STATED IN THE ORDER THAT AS THE LEARNED COMM ISSIONER OF INCOME TAX-II, KANPUR HAS MADE OBSERVATIONS ON THE SAME IN HIS ORDER U/S 263 THUS THE SAME IS BEING ADDED. I AGREE WITH THE VIEW TAKEN BY THE AO AND THE AMOUNT OF RS.1,81,627 IS CO NFIRMED. FOR THE BALANCE BRAND DEVELOPMENT EXPENSES AMOUNTING TO RS .26,36,541 THE SAME ARE EXPENSES ALLOWABLE U/S 37 OF THE INCOME TA X ACT, 1961 AS 10 THEY ARE NOT EXPENSES OF PERSONAL NATURE, THESE EXP ENSES HAVE BEEN INCURRED FOR BUSINESS PURPOSES AND THESE EXPENSES B ASICALLY DO NOT BRING GIVE RISE TO ANY NEW ANY ASSET NOR THESE EXPE NSES ARE COVERED UNDER SECTION 35D OF THE INCOME TAX ACT, 1961. THUS , THIS ADDITION IS DELETED AND GROUND NO. 5 OF APPEAL IS ALLOWED. 22. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH T HE PARTIES, WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE AND AGAINST THE REVENUE BY THE DECISION OF THIS BENCH OF THE TRIBUN AL IN ASSESSEES OWN CASE IN I.T.A.NO.905(LUC.)/2006 RELATING TO THE ASS ESSMENT YEAR 2002-03. THE TRIBUNAL VIDE ITS ORDER DATED 30.4.2008 HELD AS UNDER : 14. GROUND NO.5 RELATES TO RELIEF OF RS.4,71,868 O N ACCOUNT OF DEFERRED REVENUE EXPENDITURE. THE FACTS OF THE CASE ARE THAT THE ASSESSEE INCURRED EXPENDITURE ON THE ADVERTISEMENT ON A NEW BRAND ALLEN COOPER. THE ASSESING OFFICER DISALLOWED TH E CLAIM ON THE GROUND THAT EXPENDITURE IS INCURRED ON ANEW BRAND HENCE, IT IS CAPITAL. THE LEARNED CIT(A) ALLOWED THE CLAIM ON TH E GROUND THAT ENTIRE EXPENDITURE IS INCURRED IN THIS YEAR AND IS REVENUE IN NATURE. 15. LEARNED D.R. ON THE OTHER HAND SUPPORTED THE O RDER OF THE ASSESSING OFFICER WHEREAS LD. A.R. SUPPORTED THE OR DER OF CIT(A). 16. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE DE CLINE TO INTERFERE. IT IS BECAUSE EXPENDITURE HAS BEEN ADMITTEDLY INCUR RED FOR DEVELOPMENT OF BRAND FOR ITS PRODUCTS. IT IS NOT A NEW LINE OF BUSINESS. IT IS NOT AN EXPENDITURE INCURRED FOR SETTING UP OF A NEW UNIT OR NEW LINE OF BUSINESS. ONCE IT CANNOT BE HELD TO BE CAPI TAL EXPENDITURE, IT HAS RIGHTLY BEEN ALLOWED BY LEARNED CIT(A). THIS GR OUND OF REVENUE IS DISMISSED. 22.1 RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBU NAL PASSED IN ASESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002-03 (SUPRA), W E DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL AND ACCORDINGLY, WE DISMIS S THE SAME. GROUND NO.6 OF THE APPEAL STANDS DISMISSED. 11 23. GROUND NO.7 OF THE APPEAL READS AS UNDER : 7. THAT THE COMMISSIONER OF INCOME TAX(A) HAS ERRE D IN LAW AND ON FACT IN DELETING THE DISALLOWANCE OF BAD DEBT OF RS.15,85,928/- WITHOUT APPRECIATING THE FACT THAT T HE DETAILS OF AMOUNT OF RS.25,85,928/- WAS NOT VERIFIABLE WITH TH E DETAILS AS PER LETTER ISSUED BY THE STATE BANK OF INDIA AND AL SO THE FACTS AS MENTIONED IN THE ORDER U/S 263 PASSED BY THE COMMIS SIONER OF IN COME TAX-II. KANPUR. 24. THE AO HAS DISCUSSED THIS ISSUE IN THE FOLLOWIN G MANNER: THE NEXT ISSUE PERTAINS TO THE CLAIM OF THE ASSESS EE MADE ON ACCOUNT OF BAD DEBTS OF RS.15,85,928/-. DURING THE PROCEEDI NGS BEFORE THE LD. CIT-II, KANPUR, IT WAS OBSERVED THAT A REQUEST WAS MADE TO THE STATE BANK OF INDIA BY THE ASSESSEE THROUGH THEIR LETTER NIL DT,. 16.5.2001 TO WRITE OFF THE UNREALISED BALANCE AMOUNT OF FR FR RS . 1,32,700/- AS THEY WERE NOT ABLE TO RECEIVE THE OUTSTANDING EXPORT DUE S DESPITE THEIR BEST EFFORTS. THE ASSESSEE WAS NOT ABLE TO EXPLAIN HOW I T WROTE OFF THE AMOUNT IN THE ASSESSMENT YEAR 2001-02 WHILE THE REQ UEST FOR WRITING OFF WAS MADE TO THE BANK IN THE FINANCIAL YEAR 2001 -02 RELEVANT TO THE A.Y. 2002-03. THE LD. CIT-II, KANPUR THEREFORE, OBSERVED THAT THE ASSESSING OFFICER HAD ALLOWED THE CLAIM OF BAD DEBT S FOR RS.15,85,928/- WITHOUT PROPER EXAMINATION OF FACTS AND IT IS ALSO NOT CLEAR HOW THE AMOUNT HAS BEEN WORKED OUT. FURTHER, NO APPROVAL OF SUCH BAD DEBTS WAS TAKEN FROM THE RBI WHICH IS A MA NDATORY CONDITION IN RESPECT OF PROCEEDS PERTAINING TO EXPO RTS. THE LD. CIT-II, KANPUR THEREFORE, DIRECTED TO VERIFY THE CLAIM OF T HE ASSESSEE AND EXAMINE ITS ALLOWABILITY AFTER PROPER EXAMINATION O F FACTS. THEREFORE, THE ASSESSEE WAS REQUIRED TO GIVE THE DE TAILS OF SUCH BAD DEBTS AND EXPLAIN THE REASONS WHY THE SAME MAY NOT BE DISALLOWED. THE ASSESSEE VIDE ITS REPLY DT. 9.5.200 6 ONLY SUBMITTED THAT THE DEDUCTION OF RS.15,85,928/- HAS BEEN RIGHT LY ALLOWED IN ORIGINAL ASSESSMENT AND THE BAD DEBTS WRITTEN OFF B Y THE ASSESSEE FULFILL ALL THE CONDITIONS MENTIONED IN SECTION 36( I)(VIII) AND 36(2) OF THE I.T. ACT, 1961. WHEN REQUIRED TO GIVE THE EVIDE NCES IN SUPPORT OF 12 ITS CLAIM, THE ASSESSEE VIDE ORDER SHEET ENTRY DATE D 17.10.2006 SUBMITTED THAT IT HAS GOT NOTHING MORE TO SAY WHAT HAS BEEN SUBMITTED THROUGH WRITTEN SUBMISSIONS. IN VIEW OF THE ABOVE, IT IS CRYSTAL CLEAR THAT THE ASSESSEE DOES NOT HAVE ANY EXPLANATION OR JUSTIFICATION FOR CLAIMING THE BAD DEBITS OF RS. 15,85,928/- AND THE BAD DEBTS OF THESE AMOUNTS ARE NOT ALLOWABLE DURING THE YEAR UNDER CONSIDERATION. HE HAS NOT FUR NISHED ANY FURTHER EVIDENCE AND HAS NOT SUBMITTED ANY FURTHER ARGUMENT S THAN WHAT WAS SUBMITTED BEFORE THE LD. CIT-II, KANPUR DURING THE PROCEEDINGS U/S 263. IN VIEW OF THESE FACTS AND CIRCUMSTANCES OF TH E CASE, THE AMOUNT OF RS.15,85,928/- BEING CLAIM OF THE BAD DEBTS MADE BY THE ASSESSEE WOULD BE DISALLOWED AND ADDED TO THE TOTAL INCOME O F THE ASSESSEE. ADDITION RS.15,85,928 25. ON APPEAL, THE LD.CIT(A) ALLOWED THE CLAIM OBSE RVING AS UNDER: 23. I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, THE REASONING OF THE AO AND THE SUBMISSIONS OF THE APPE LLANT THROUGH LD. A.R., RELEVANT PART OF WHICH HAS BEEN REPRODUCED AB OVE. THE CLAIM OF BAD DEBTS HAS BEEN VERY CLEARLY DEFINED IN THE SECT ION 36(1)(VII) OF THE INCOME TAX ACT, 1961 WHEREIN IT STATES' 'NO SUC H DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEE N 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 AN EARLIER PREVIOUS YEAR, OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OR MONEY LENDING WHICH IS CARRIED ON BY THE ASSESSEE'. THE ASSESSEE VIDE WRITTEN SUBMISSIONS DATED 09.05.2 006 HAS ALREADY ENCLOSED THE EXPORT SALES WHICH HAVE BEEN WRITTEN O FF DURING THE YEAR UNDER CONSIDERATION. THERE IS NO STIPULATION THAT A PPROVAL FROM THE RESERVE BANK HAS TO BE TAKEN BEFORE ALLOWANCE OF TH E SAME AS BAD DEBT. THUS IN MY VIEW THE ADDITION OF BAD DEBTS AMOUNTING TO RS.15,85,928/IS DELETED AND THIS GROUND NO. 6 OF AP PEAL IS ALLOWED. 26. AT THE VERY OUTSET, SHRI AMIT SHUKLA, ADVOCATEK LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAV OUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF HON'BLE SUPR EME COURT IN THE CASE OF 13 T.R.F. LTD. VS. CIT (2010) 323 ITR 397(SC) WHEREIN THE HON'BLE SUPREME COURT HELD (HEAD NOTE) AS UNDER: AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE I NCOME-TAX ACT, 1961, WITH EFFECT FROM APRIL 1, 1989, IN ORDER TO O BTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE : IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT S OF THE ASSESSEE. 26.1 RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE SUPEME COURT IN THE CASE OF T.R.F. LTD., WE DO NOT FIND AN Y MERIT IN THIS GROUND OF APPEAL AND ACCORDINGLY WE DISMISS THE SAME. 27. GROUNDS NO.8 AND 9 ARE GENERAL IN NATURE AND HE NCE NO COMMENTS ARE BEING GIVEN. 28. IN THE RESULT, THE APPEAL IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 28.2.11 . SD. SD. (N.K.SAINI) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT FEBRUARY 28TH ,2011. COPY TO THE : 1. APPELLANT 2. RESPONDENT 3. CIT(A) (4) CIT 5.DR. A.R.,ITAT, LUCKNOW. SRIVASTAVA.