M/s Srinivasa Ferro Alloys Ltd., Visakhapatnam V. The JCIT, Range-4., Visakhapatnam

ITA 671/VIZ/2008

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1028 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 7 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-12-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 26-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Search and seizure; Deemed to accrue or arise in india; Bad and doubtful debts
• Section: 43B; 40A(3); 143(3); 194C

Judgement Text

ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.671/VIZAG/2008 ( / ASSESSMENT YEAR: 2005-06) M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM VS. JCIT RANGE - 4, VISAKHAPATNAM [PAN: AADCS 1493B ] ( % / APPELLANT) ( &'% / RESPONDENT) ./I.T.A.NO.382/VIZAG/2009 ( / ASSESSMENT YEAR: 2005-06) M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM VS. ACIT, RANGE - 4, VISAKHAPATNAM ( % / APPELLANT) ( &'% / RESPONDENT) ./I.T.A.NO.546/VIZAG/2009 ( / ASSESSMENT YEAR: 2006-07) M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM VS. ACIT, CIRCLE - 4(1), VISAKHAPATNAM ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI M.N. MURTHY NAIK, DR ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 2 / DATE OF HEARING : 30.05.2016 / DATE OF PRONOUNCEMENT : 15.07.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THESE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AG AINST SEPARATE, BUT IDENTICAL ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS), VISAKHAPATNAM FOR THE ASST. YEAR 2005-06 AND 2006-0 7. SINCE, THE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THEY ARE HEARD TOGETHER AND DISPOSED OFF, BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. BRIEF FACTS OF THE CASE AS STATED IN APPEAL NO. 671/V/2008 ARE THAT THE ASSESSEE IS PUBLIC LIMITED COMPANY WHICH IS ENG AGED IN THE BUSINESS OF MANUFACTURE OF FERRO ALLOYS. THE ASSESS EE HAS FILED ITS RETURN OF INCOME FOR THE A.Y. 2005-06 ON 1-11-2005 DECLARI NG BOOK PROFIT OF RS. 1,18,50,316/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT, RE- COMPUTING BOOK PROFIT OF RS. 3,29,64,621/-. THE CAS E WAS TAKEN UP FOR SCRUTINY ASSESSMENT AND ACCORDINGLY, NOTICE U/S 143 (2) OF THE ACT WAS ISSUED. IN RESPONSE TO NOTICE, THE AUTHORIZED REPRE SENTATIVE APPEARED FROM TIME TO TIME AND FURNISHED DETAILS CALLED FOR. THE A.O. AFTER CONSIDERING DETAILS FURNISHED BY THE ASSESSEE COMPL ETED ASSESSMENT U/S 143(3) OF THE ACT AND DETERMINED TOTAL INCOME OF RS . 2,32,82,376/-. ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 3 WHILE COMPLETING THE ASSESSMENT, THE A.O. MADE ADDIT ION OF RS. 4,22,76,838/- U/S 41(1) OF THE ACT, TOWARDS REMISSI ON OF LIABILITY ON ACCOUNT OF OTS BY STATE BANK OF INDIA, ADDITION OF RS. 68,85,531/- TOWARDS 20% DISALLOWANCE OF CASH PAYMENTS U/S 40A(3 ) OF THE ACT AND ADDITION OF RS. 2,81,38,392/- TOWARDS DISALLOWANCE OF EXPENDITURES U/S 40(A)(IA) OF THE ACT, FOR NON DEDUCTION OF TDS. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE AS SESSEE HAS FILED WRITTEN SUBMISSION AND CONTENDED EACH ITEM OF ADDIT ION MADE BY THE A.O. THE CIT(A), AFTER CONSIDERING EXPLANATION OF T HE ASSESSEE AND TAKEN INTO ACCOUNT REMAND REPORT OF A.O., HELD THAT WAIVER OF INTEREST ON ACCOUNT OF OTS WITH STATE BANK OF INDIA, IS ACCRUED TO THE ASSESSEE AND CHARGEABLE TO TAX U/S 41(1) OF THE ACT, FOR THE A.Y . 2005-06. THE CIT(A) FURTHER HELD THAT THERE IS A ERROR IN THE AMOUNT DE TERMINED BY THE ASSESSING OFFICER. THE A.O. HAS DETERMINED REMISSIO N OF LIABILITY OF RS. 4,23,76,838, BUT ACTUAL AMOUNT OF REMISSION WORKS O UT TO RS. 1,23,76,528/- (RS. 9,48,26,051 RS. 8,24,49,523) W HICH CONSTITUTE DEEMED INCOME U/S 41(1) OF THE ACT, THEREFORE DIREC TED A.O. TO SUBSTITUTE RS. 1,23,76,528/- AS AGAINST RS. 4,23,76 ,838 DETERMINED BY THE ASSESSING OFFICER. AS REGARDS ADDITIONS, BEING DISALLOWANCE OF 20% CASH PAYMENTS U/S 40A(3) AND DISALLOWANCE OF EXPEND ITURE U/S 40(A)(IA) ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 4 FOR NON DEDUCTION OF TDS, THE CIT(A) CONFIRMED THE ADDITIONS MADE BY THE ASSESSING OFFICER AND DISMISSED THE APPEAL FILE D BY THE ASSESSEE. AGGRIEVED BY THE CIT(A) ORDER, THE ASSESSEE IS IN A PPEAL BEFORE US. 4. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ADDITION TOWARDS REMISSION OF LIABILITY U/S 41(1) OF THE ACT . THE FACTS LEADS TO ADDITION ARE THAT DURING THE FINANCIAL YEAR RELEVAN T TO A.Y. 2005-06, THE ASSESSEE HAS SETTLED ITS OUTSTANDING LOAN LIABILITI ES UNDER OTS FROM STATE BANK OF INDIA. THE BANK HAS APPROVED OTS PROPOSAL O F THE ASSESSEE VIDE LETTER NO. SBI/COMM/8536 DATED 12-01-2005, I.E . IN FINANCIAL YEAR 2004-05 RELEVANT TO A.Y. 2005-06, AS PER THE OTS, T HE ASSESSEE HAS GOT WAIVER OF INTEREST ON LOANS TO THE EXTENT OF RS. 9, 48,26,051/-. FURTHER, AS PER THE TERMS AND CONDITIONS OF OTS WITH SBI, TH E BANK HAS STIPULATED A CONDITION, ACCORDING TO WHICH THE OTS SANCTIONED TO ASSESSEE IS SUBJECT TO OUTCOME OF SIMILAR OTS PROPO SAL OF IDBI BANK WHICH IS PENDING, ACCORDINGLY ASSESSEE COMPANY WILL HAVE TO BE COMPENSATE THE BANK, IF THE OTS WITH IDBI BANK IS S ETTLED ON BETTER TERMS. THE OTS PROPOSAL WITH IDBI BANK HAS BEEN APP ROVED IN THE FINANCIAL YEAR 2005-06 RELEVANT TO A.Y. 2006-07, TH EREFORE, THE ASSESSEE HAS GIVEN EFFECT TO SBI OTS PROPOSAL IN THE FINANCI AL YEAR 2005-06 AND PASSED NECESSARY ENTRIES IN THE BOOKS OF ACCOUNTS T O ACCOUNT INTEREST WAIVER. ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 5 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. OBSERVED THAT OTS PROPOSAL APPROVED BY THE STATE BANK OF IND IA FALLS UNDER THE FINANCIAL YEAR 2004-05 RELEVANT TO A.Y. 2005-06, BU T NOT FOR THE A.Y. 2006-07 AS CLAIMED BY THE ASSESSEE. THE A.O. FURTHE R OBSERVED THAT, THOUGH THERE IS STIPULATION IN THE OTS LETTER, A BA RE READING OF PARA-3 OF SBI LETTER DO NOT LEAD TO ANY SUCH INFERENCE THAT T HE OTS SANCTIONED WAS CONTINGENT ONE AND ITS OPERATION WAS LINKED TO OTS PROPOSAL PENDING WITH IDBI BANK. THE OTS PROPOSAL ACCEPTED B Y THE SBI IS MUTUALLY ACCEPTED PROPOSAL AND BOTH PARTIES HAVE CO NSENTED TO BE ACTED UPON. THE SAID CONDITION INDICATES A POSSIBLE ADDIT IONAL LIABILITY ON THE PART OF THE ASSESSEE WHICH MAY OR MAY NOT ACCRUE DE PENDING UPON THE TERMS OF SETTLEMENT TO BE FINALIZED WITH IDBI BANK. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, ACCORDINGLY, ALL INCOME AND EXPENDITURE HAVE TO BE ACCOUNTED ON ACCRUAL BASIS. SINCE, ASSESSEE FOLLOWING MERCANTILE SYSTEM AND THE OTS WAS FINALIZED IN THE FINANCIAL YEAR 2004-05, THE BENEFI T ARISING OUT OF SUCH OTS HAS TO BE ACCOUNTED FOR THE FINANCIAL YEAR 2004 -05 RELEVANT TO A.Y. 2005-06. ACCORDINGLY, WORKED OUT INTEREST WAIVER OF RS. 4,23,76,838/ AFTER ALLOWING SET OFF TOWARDS INTEREST LIABILITY D ISALLOWED U/S 43B AND BROUGHT TO TAX U/S 41(1) OF THE ACT. ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 6 6. THE A.R. FOR THE ASSESSEE CONTENDED THAT THE BEN EFIT OF OTS SHOULD BE CONSIDERED FOR THE A.Y. 2006-07, BUT NOT FOR THE A.Y. 2005-06. THE A.R. FURTHER ARGUED THAT THOUGH OTS WAS APPROVE D IN THE FINANCIAL YEAR 2004-05 RELEVANT TO A.Y. 2005-06, ITS OPERATIO N WAS SUBJECT TO FINALIZATION OF OTS WITH IDBI BANK AND HENCE, CANNO T BE GIVEN EFFECT UNLESS IDBI APPROVES ITS OTS PROPOSAL. THE OTS PROP OSAL WITH IDBI BANK HAS BEEN APPROVED IN THE FINANCIAL YEAR 2005-0 6, THOUGH, THERE IS NO CHANGE IN THE OTS SANCTIONED BY SBI, THE BENEFIT S OUT OF IT WAS ACCRUED FOR THE A.Y. 2006-07, WHEN IDBI APPROVED IT S OTS. THE ASSESSEE FURTHER SUBMITTED THAT IT IS FOLLOWED MERC ANTILE SYSTEM OF ACCOUNTING AND ACCORDINGLY MAINTAINED BOOKS OF ACCO UNTS. THOUGH, IT IS FOLLOWING MERCANTILE SYSTEM, THE BENEFITS OF OTS HA VE NOT BEEN CONSIDERED FOR THE A.Y. 2005-06, BECAUSE OF A RIDER IN THE OTS SANCTION GIVEN BY THE STATE BANK OF INDIA. A PLAIN READING O F PARA -3 OF THE OTS LETTER, IT IS INDICATES THAT IN THE EVENT OTS PROPO SAL WITH IDBI BANK SETTLED WITH BETTER TERMS, IT NEEDS TO COMPENSATE T HE BANK IN LINE WITH IDBI SETTLEMENT. UNDER THESE CIRCUMSTANCES, IT IS V ERY DIFFICULT TO CONSIDER OTS SETTLEMENT WITH SBI IS FINALLY MUTUALL Y ACCEPTED PROPOSAL. THE OTS PROPOSAL WITH IDBI BANK HAS BEEN APPROVED I N THE FINANCIAL YEAR 2005-06 RELEVANT TO A.Y. 2006-07, ACCORDINGLY IT HAS GIVEN EFFECT TO BENEFITS OF OTS FOR THE A.Y. 2006-07. ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 7 7. THE A.R. FURTHER SUBMITTED THAT EVEN ASSUMING TH AT WAIVER OF INTEREST IS FALLS UNDER THE FINANCIAL YEAR 2004-05 RELEVANT TO A.Y. 2005- 06, THE TOTAL INTEREST WAIVER CHARGEABLE TO TAX U/S 41(1) OF THE ACT IS LESS THAN TOTAL INTEREST ADDED BACK TO TOTAL INCOME UNDE R THE PROVISIONS OF SEC. 43B, THEREFORE, NO ADDITION IS REQUIRED U/S 41 (1) OF THE ACT. THE A.R. FURTHER SUBMITTED THAT ASSESSEE HAS GOT INTERE ST WAIVER OF RS. 9,48,26,051 AND THE AMOUNT DISALLOWED U/S 43B IS R S. 10,46,64,250/-. THE BENEFIT OF INTEREST WAIVER IS LESS THAN INTERES T ADDED BACK TO TOTAL INCOME UNDER THE PROVISIONS OF SEC. 43B, THEREFORE, NO ADDITION CAN BE MADE U/S 41(1) OF THE ACT. THE A.R. FURTHER SUBMITT ED THAT AS PER THE PROVISIONS OF SEC. 41(1), ANY BENEFIT OUT OF REMISS ION OR CESSATION OF LIABILITY WHICH WAS ALLOWED AS DEDUCTION IN THE EAR LIER YEAR IS CHARGEABLE TO TAX IN THE YEAR IN WHICH SUCH LIABILITY WAS CEAS ED TO EXIST. THERE IS NO SPECIFIC CONDITION AS TO BANK SPECIFIC ADJUSTMENT O F LIABILITY WHICH WAS ALLOWED AS DEDUCTION. IN CASE ASSESSEE CLAIMED DEDU CTION TOWARDS INTEREST ON TERM LOANS FROM DIFFERENT BANKS AND GOT BENEFIT OF REMISSION OF LIABILITY FROM ONE BANK, THEN TOTAL AMOUNT ADDED BACK U/S 43B SHOULD BE CONSIDERED TO ARRIVE AT THE QUANTUM OF REMISSION OF LIABILITY. THE A.O. HAS COMPLETELY ERRED IN WORKED OUT BANK SPECIFIC BE NEFIT IGNORING THE PROVISIONS OF SEC. 41(1) OF THE ACT. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORTED THE ORDER OF CIT(A). ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 8 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF LOWER AUTHORI TIES. THE FACTUAL MATRIX OF THE CASE IS THAT DURING THE FINANCIAL YEA R RELEVANT TO A.Y. 2005- 06, THE ASSESSEE HAS SETTLED ITS OUTSTANDING LOAN L IABILITIES UNDER OTS FROM STATE BANK OF INDIA. THE BANK HAS APPROVED OTS PROPOSAL OF THE ASSESSEE VIDE LETTER NO. SBI/COMM/8536 DATED 12-01- 2005, I.E. IN FINANCIAL YEAR 2004-05 RELEVANT TO A.Y. 2005-06, AS PER THE OTS, THE ASSESSEE HAS GOT WAIVER OF INTEREST ON LOANS TO THE EXTENT OF RS. 9,48,26,051/-. THE ASSESSEE HAS GIVEN EFFECT TO INT EREST WAIVER ON ACCOUNT OF OTS FOR THE A.Y. 2006-07. ACCORDING TO T HE ASSESSEE, THOUGH, OTS FROM SBI HAS BEEN APPROVED IN THE FINANCIAL YEA R 2004-05 RELEVANT TO A.Y. 2005-06, BECAUSE OF A RAIDER IN THE OTS PRO POSAL WHICH SAYS THAT ASSESSEE COMPANY WILL HAVE TO COMPENSATE THE BANK, IF THE OTS PROPOSAL WITH IDBI BANK IS SETTLED ON BETTER TERMS, THE OTS PROPOSAL WAS FINALLY ACCRUED FOR THE A.Y. 2006-07 WHEN OTS P ROPOSAL OF IDBI BANK WAS APPROVED. THE OTS PROPOSAL OF IDBI BANK WA S APPROVED IN THE FINANCIAL YEAR 2005-06 RELEVANT TO A.Y. 2006-07 , THEREFORE, THE BENEFITS OUT OF OTS PROPOSAL OF SBI ACCRUED FOR THE A.Y. 2006-07, ACCORDINGLY IT HAS PASSED NECESSARY ENTRIES IN THE BOOKS OF ACCOUNTS FOR THE A.Y. 2006-07 TO GIVE EFFECT TO INTEREST WAIVER. ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 9 9. THE A.O. WAS OF THE OPINION THAT THE BENEFITS OF OTS PROPOSAL WITH SBI ACCRUED FOR THE A.Y. 2005-06, BUT NOT FOR THE A .Y. 2006-07. THE A.O. FURTHER WAS OF THE OPINION THAT THOUGH, THERE IS ST IPULATION IN THE OTS LETTER, A BARE READING OF PARA-3 OF SBI LETTER DO N OT LEAD TO ANY SUCH INFERENCE THAT THE OTS SANCTIONED WAS CONTINGENT ON E AND ITS OPERATION WAS LINKED TO OTS PROPOSAL PENDING WITH IDBI BANK. THE OTS PROPOSAL ACCEPTED BY THE SBI IS MUTUALLY ACCEPTED PROPOSAL A ND BOTH PARTIES HAVE CONSENTED TO BE ACTED UPON. THE SAID CONDITION INDI CATES A POSSIBLE ADDITIONAL LIABILITY ON THE PART OF THE ASSESSEE WH ICH MAY OR MAY NOT ACCRUE DEPENDING UPON THE TERMS OF SETTLEMENT TO BE FINALIZED WITH IDBI BANK. SINCE, ASSESSEE FOLLOWING MERCANTILE SYSTEM A ND THE OTS WAS FINALIZED IN THE FINANCIAL YEAR 2004-05, THE BENEFI T ARISING OUT OF SUCH OTS HAS TO BE ACCOUNTED FOR THE FINANCIAL YEAR 2004 -05 RELEVANT TO A.Y. 2005-06. 10. THERE IS NO DISPUTE WITH REGARD TO REMISSION OF LIABILITY AND ITS QUANTIFICATION. THE A.O. HAS QUANTIFIED INTEREST WA IVER OF RS. 4,23, 76,838/- WHICH WAS SCALED DOWN BY THE CIT(A) TO RS. 1,23,76,528/-( RS. 9,48,26,051/- - RS. 8,24, 49,523/-) FOR WHICH REVEN UE DID NOT FILED ANY APPEAL. THE ONLY DISPUTE IS WITH REGARD TO YEAR OF CHARGEABILITY OF INTEREST WAIVER. ACCORDING TO ASSESSEE, INTEREST WA IVER ACCRUED FOR THE A.Y. 2006-07, BECAUSE OF A RIDER IN THE OTS PROPOSA L GIVEN BY THE BANK. ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 10 THE A.O. WAS OF THE OPINION THAT OTS PROPOSAL WAS N OT CONTINGENT ONE AND IT WAS MUTUALLY ACCEPTED FINAL PROPOSAL AND HEN CE, THE BENEFIT OUT OF IT ACCRUES FOR THE A.Y. 2005-06. IT IS AN UNDISP UTED FACT THAT ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. UNDER MERCANTILE SYSTEM OF ACCOUNTING, ALL INCOME AND EXPENDITURES ARE ACCO UNTED ON ACCRUAL BASIS. THE ACCRUAL CONCEPT OF ACCOUNTING MEANS THAT INCOME AND EXPENDITURES ARE RECORDED IN THE PERIOD THEY OCCUR, WHETHER OR NOT CASH IS INVOLVED. WHETHER A PARTICULAR RECEIPT IS ACCRUED OR NOT HAS TO BE DECIDED BASED ON THE SEQUENCE OF OCCURRENCE OF EVEN T EMBODIED WITH CERTAINTY OF REALIZATION OF REVENUE. 11. IN THE PRESENT CASE ON HAND, ON PERUSAL OF THE FACTS, WE FIND THAT STATE BANK OF INDIA HAS APPROVED OTS PROPOSAL IN TH E FINANCIAL YEAR 2004-05 RELEVANT TO A.Y. 2005-06. ON PERUSAL OF OTS PROPOSAL SANCTIONED BY THE SBI, THE BANK HAS IMPOSED A CONDI TION WHICH SAYS, THE ASSESSEE WILL HAVE TO COMPENSATE SBI, IN CASE S IMILAR OTS PROPOSAL PENDING WITH IDBI BANK IS SETTLED IN BETTER TERMS. IN OTHER WORDS, OTS SCHEME APPROVED BY THE SBI, IS NOT A FINALLY MUTUAL LY ACCEPTED PROPOSAL. THE OPERATION OF WHICH IS SUBJECTED TO THE OUTCOME OF OTS PROPOSAL OF IDBI BANK. THE OTS PROPOSAL OF IDBI BANK HAS BEEN F INALLY APPROVED IN THE FINANCIAL YEAR 2005-06 RELEVANT TO ASSESSMENT Y EAR 2006-07. THOUGH, THERE IS NO CHANGE IN THE OTS SANCTIONED BY SBI, ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 11 THE BENEFITS OUT OF IT WAS ACCRUED FOR THE A.Y. 200 6-07, WHEN IDBI APPROVED ITS OTS. A BARE READING OF PARA-3 OF SBI L ETTER LEADS TO A INFERENCE THAT OTS SANCTIONED WAS CONTINGENT ONE AN D ITS OPERATION WAS LINKED TO OTS PROPOSAL PENDING WITH IDBI BANK. THE SAID CONDITION INDICATES A POSSIBLE ADDITIONAL LIABILITY ON THE PA RT OF THE ASSESSEE, IN CASE OTS WITH IDBI BANK SETTLED IN BETTER TERMS. IF , ASSESSEE GIVES EFFECT TO OTS BENEFITS FOR THE FOR FINANCIAL YEAR 2 004-05 RELEVANT TO A.Y. 2005-06, WITHOUT WAITING FOR THE OUTCOME OF IDBI OT S PROPOSAL, THE ASSESSEE MAY HAVE TO REVERSE INTEREST WAIVER CREDIT ED TO INCOME ACCOUNT, IN THE EVENT THERE IS SOME CHANGES IN OTS PROPOSAL OF SBI WHICH LEADS TO A SITUATION WHERE ASSESSEE UNNECESSA RILY RECOGNIZES REVENUE WHICH IS REALLY NOT ACCRUES FOR THE RELEVAN T PERIOD. THEREFORE, WE ARE OF THE VIEW THAT INTEREST WAIVER ON ACCOUNT OF OTS IS ACCRUED, WHEN IDBI BANK HAS APPROVED ITS OTS PROPOSAL. THE O TS PROPOSAL OF IDBI BANK WAS APPROVED IN THE FINANCIAL YEAR 2005-0 6 RELEVANT TO A.Y. 2006-07, ACCORDINGLY, THE BENEFITS OUT OF OTS PROPO SAL OF SBI ACCRUED FOR THE A.Y. 2006-07. THEREFORE, WE DIRECT THE A.O. TO DELETE THE ADDITIONS MADE U/S 41(1) OF THE ACT TOWARDS INTERES T WAIVER. ACCORDINGLY, GROUNDS NO. 2 & 3 OF ITA.NO. 671/VIZAG /2008 ARE ALLOWED. ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 12 12. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF TRANSPORTATION CHARGES OF RS. 3,44,27,655/- UNDER T HE PROVISIONS OF SEC. 40A(3) AND 40(A)(IA) OF THE ACT. THE FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAS INCURRED AN AMOUNT OF RS.7,53,37,4 53/- TOWARDS CARRIAGE INWARD AND CARRIAGE OUTWARD. OUT OF WHICH A SUM OF RS. 4,09,09,798/- HAS BEEN PAID BY CHEQUES AND BALANCE AMOUNT OF RS. 3,44,27,655/- HAS BEEN PAID IN CASH. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, THE A.O. OBSERVED THAT THE ASSESSEE HA S MADE CASH PAYMENTS IN EXCESS OF RS. 20,000/-, HOWEVER, DELIBE RATELY SPLIT UP VOUCHERS IN TO TWO PAYMENTS TO MAKE IT LESS THAN RS . 20,000/-. THE A.O. HAS IMPOUNDED CASH PAYMENT VOUCHERS AND EXAMINED SU CH VOUCHERS AND AS AN EXAMPLE, CITED SIX CASES WHEREIN THERE WE RE INDICATIONS AND EVIDENCES OF DELIBERATE SPLIT UP OF VOUCHERS TO MAK E IT LESS THAN RS. 20,000/-. BASED ON SUCH EXAMINATION, THE A.O. CAME TO THE CONCLUSION THAT THE ENTIRE CASH PAYMENTS MADE FOR TRANSPORTATI ON CHARGES FALL WITHIN THE PURVIEW OF SEC. 40A(3) OF THE ACT. THE A .O. FURTHER OBSERVED THAT ENTIRE EXPENDITURE INCURRED UNDER THE HEAD CAR RIAGE INWARD AND OUTWARD IS PAID IN CASH IN EXCESS OF RS. 20,000/- A ND HENCE, SHOULD HAVE DEDUCTED TDS UNDER THE PROVISIONS OF SEC. 194C OF THE ACT. AS THE ASSESSEE DID NOT DEDUCT TDS WHILE MAKING SUCH PAYME NTS, THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SEC. 40 (A)(IA) OF THE ACT. ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 13 WITH THESE OBSERVATIONS, DISALLOWED A SUM OF RS. 68, 85,531/- FOR INFRINGEMENT OF PROVISIONS OF SEC. 40A(3) OF THE AC T AND DISALLOWED RS. 2,75,42,124/- UNDER THE PROVISIONS OF SEC. 40(A)(IA ) OF THE ACT, FOR NON DEDUCTION OF TDS U/S 194C OF THE ACT. 13. IT IS THE CONTENTION OF THE ASSESSEE THAT TRANS PORTATION CHARGES WERE PAID TOWARDS TRANSPORTATION OF RAW MATERIALS FROM S OURCE POINT TO WORK PLACE AND FINISHED GOODS FROM WORK PLACE TO DELIVER Y PLACE OF CUSTOMERS. THE VEHICLES ARE ENGAGED BY OUR STAFF MEMBERS AT TH E APPROPRIATE SOURCE OR DELIVERY POINT. THE VEHICLES ARE NOT CONT RACTED THROUGH ANY CARRIER OR TRANSPORTER AND NO FORMAL AGREEMENT IS E NTERED. THE PAYMENTS HAVE BEEN MADE TO TRUCK DRIVERS IN THE REG ULAR COURSE OF BUSINESS AND IN SOME TIMES ADVANCE IS PAID TO MEET RUNNING EXPENDITURES OF VEHICLE AND A FINAL PAYMENT IS MADE AS SOON AS DELIVERY OF GOODS TAKEN PLACE. IN NO CASE, PAYMENTS WERE MAD E WHICH EXCEEDS RS. 20,000/- IN A SINGLE DAY. THE A.O. MERELY RELYI NG UPON A FEW VOUCHERS CAME TO A GENERAL CONCLUSION THAT ENTIRE C ASH PAYMENTS ARE MORE THAN RS. 20,000/-. THE ASSESSEE FURTHER CONTEN DED THAT EVEN DURING THE COURSE OF APPELLATE PROCEEDINGS, WHILE I SSUING REMAND REPORT, THE A.O. HAD NOT TAKEN ANY STEPS TO EXAMINE IN DETA IL BEFORE COMING TO A GENERAL CONCLUSION THAT ALL VOUCHERS ARE SPLIT UP AS AS TO MAKE IT LESS THAN RS. 20,000/-. NO DOUBT, IN FEW CASES, THERE WA S REFERENCE IN THE ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 14 BACK SIDE OF VOUCHER REGARDING TOTAL PAYMENT MADE T O A SINGLE PARTY, HOWEVER, IN ANY CASE, THE INDIVIDUAL PAYMENT IS NOT MORE THAN RS. 20,000/- AND THE AGGREGATE OF SUCH PAYMENTS IN A YE AR IS NOT MORE THAN RS. 50,000/-. THEREFORE, THE A.O. WAS NOT CORRECT I N INVOKING PROVISIONS OF SEC. 40A(3) AND 40(A)(IA) OF THE ACT. 14. THE ASSESSEE, BY WAY OF ADDITIONAL GROUNDS FURT HER CONTENDED THAT MERE HIRING VEHICLES CANNOT BE SAID TO BE WORK WITH IN THE MEANING OF SEC. 194C OF THE ACT. THE VEHICLE ARE HIRED IN THE OPEN MARKET BY OUR STAFF MEMBERS DEPENDING UPON THE PLACE OF SOURCING OF MATERIALS WITHOUT ANY FORMAL CONTRACT FOR SUPPLY OF VEHICLES, THEREFORE, THE PROVISIONS OF SEC. 194C ARE NOT APPLICABLE. THE ASS ESSEE FURTHER SUBMITTED THAT ALTERNATIVELY, THE DISALLOWANCE MADE TOWARDS TRANSPORTATION CHARGES IS OUTSIDE THE SCOPE OF PROV ISIONS OF SEC. 40(A)(IA) OF THE ACT, TO THE EXTENT THESE PAYMENTS WERE PAID BEFORE 31 ST MARCH 2005, IN AS MUCH AS THE PROVISIONS OF SEC. 40 (A)(IA) IS APPLICABLE ONLY, IF EXPENDITURE INCURRED IS PAYABLE AT THE END OF THE FINANCIAL YEAR. IN SUPPORT OF HIS ARGUMENTS RELIED UPON THE DECISIO N OF VISAKHAPATNAM BENCH, IN THE CASE OF MERLYN SHIPPING & TRANSPORT V S. ACIT (2012) 136 ITD 23 AND SUBMITTED THAT NO DISALLOWANCE CAN BE MA DE FOR THE AMOUNT WHICH IS PAID WITHIN THE FINANCIAL YEAR. ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 15 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORDS. THE A.O. DISALLOWED TRANSPORTATION CHAR GES UNDER THE PROVISIONS OF SEC. 40A(3) AND 40(A)(IA) OF THE ACT. THE A.O. DISALLOWED 20% OF TOTAL AMOUNT PAID BY CASH FOR INFRINGEMENT O F PROVISIONS OF SEC. 40A(3). THE A.O. WAS OF THE OPINION THAT THE ASSESS EE HAS MADE CASH PAYMENTS IN EXCESS OF RS. 20,000/- IN CONTRAVENTION OF PROVISIONS OF SEC. 40A(3) OF THE ACT, THEREFORE DISALLOWED 20% OF CASH PAYMENTS UNDER THE PROVISIONS OF SEC. 40A(3) OF THE ACT. THE A.O. FURT HER WAS OF THE OPINION THAT ENTIRE EXPENDITURE INCURRED UNDER THE HEAD CAR RIAGE INWARD AND OUTWARD IS PAID IN CASH IN EXCESS OF RS. 20,000/- A ND HENCE, SHOULD HAVE DEDUCTED TDS UNDER THE PROVISIONS OF SEC. 194C OF THE ACT. AS THE ASSESSEE DID NOT DEDUCT TDS WHILE MAKING SUCH PAYME NTS, THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SEC. 40 (A)(IA) OF THE ACT FOR THE REMAINING AMOUNT OF ` 2,75,42,124/-. 16. IT IS THE CONTENTION OF ASSESSEE THAT IN NO CAS E, PAYMENTS WERE MADE WHICH EXCEEDS RS. 20,000/- IN A SINGLE DAY. TH E A.O. MERELY RELYING UPON A FEW VOUCHERS CAME TO A GENERAL CONCL USION THAT ENTIRE CASH PAYMENTS ARE MORE THAN RS. 20,000/-. IT IS FUR THER CONTENDED THAT, NO DOUBT, IN FEW CASES, THERE WAS REFERENCE IN THE BACK SIDE OF VOUCHER REGARDING TOTAL PAYMENT MADE TO A SINGLE PARTY, HOW EVER, IN ANY CASE, THE INDIVIDUAL PAYMENT IS NOT MORE THAN RS. 20,000/ - AND THE AGGREGATE ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 16 OF SUCH PAYMENTS IN A YEAR IS NOT MORE THAN RS. 50, 000/-. IT IS FURTHER SUBMITTED THAT ITS STAFF HAS HIRED VEHICLES IN THE OPEN MARKET, PAID ADVANCE IN THE PLACE WHERE VEHICLES ARE HIRED AND S ETTLED THE AMOUNT AFTER COMPLETION OF TRIP. THE GENERAL PRACTICE IN T HIS LINE OF ACTIVITY IS THAT WHEN VEHICLE ARE HIRED DIRECTLY, THE DRIVERS O F VEHICLE DEMANDS ADVANCE AMOUNT KEEPING IN VIEW THE TOTAL BILLING AM OUNT TO MEET THE INITIAL EXPENDITURE. THEREFORE, THE A.O. WAS NOT CO RRECT IN OBSERVING THAT VOUCHERS HAVE BEEN DELIBERATELY SPLIT UP TO MAKE IT LESS THAN RS. 20,000/-. 17. THERE IS NO DOUBT WITH REGARD TO CASH PAYMENTS. THE ASSESSEE HAS MADE CASH PAYMENTS OF RS. 3,44,27,655/- OUT OF TOTA L TRANSPORTATION CHARGES OF RS. 7,53,37,453/-. THE ONLY DISPUTE IS W HETHER EACH PAYMENT IS LESS THAN RS. 20,000/- OR MORE THAN RS. 20,000/- SO AS TO ATTRACT PROVISIONS OF SEC. 40A(3) AND 40(A)(IA) OF THE ACT. THE A.O. HAS TEST CHECKED FEW VOUCHERS AND CAME TO A CONCLUSION THAT ALL VOUCHERS ARE SPILT UP SO AS TO MAKE IT LESS THAN RS. 20,000/-. T HE A.O. HAS CITED EXAMPLE OF SIX CASES, WHEREIN THERE WERE ENOUGH IND ICATIONS AND EVIDENCES THAT PAYMENTS WERE DELIBERATELY SPILT UP TO MAKE IT LESS THAN RS. 20,000/-. THE A.O. HAD NARRATED MODUS OPERANDI OF ASSESSEE, ACCORDING TO HIM, IT HAS SPLIT UP VOUCHERS IN TO TW O PARTS AND TOTAL OF SUM WAS MENTIONED IN THE BACK OF VOUCHERS. THE ASSE SSEE EXPLAINED ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 17 THAT IN NO CASE PAYMENT IN CASH WERE IN EXCESS OF R S. 20,000/-. IT IS FURTHER EXPLAINED THAT ITS STAFF HAS HIRED VEHICLES IN THE OPEN MARKET, PAID ADVANCE IN THE PLACE WHERE VEHICLES ARE HIRED AND SETTLED AMOUNT AFTER COMPLETION OF TRIP. THE GENERAL PRACTICE IN T HIS LINE OF ACTIVITY IS THAT WHEN VEHICLE ARE HIRED DIRECTLY, THE DRIVERS O F VEHICLE DEMANDS ADVANCE AMOUNT KEEPING IN VIEW THE TOTAL BILLING AM OUNT TO MEET THE INITIAL EXPENDITURE. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT IT IS QUITE POSSIBLE IN THIS LINE O F ACTIVITY THAT WHEN VEHICLES ARE HIRED DIRECTLY FROM OPEN MARKET, THE D RIVERS OF VEHICLE DEMANDS ADVANCE AMOUNT KEEPING IN VIEW THE TOTAL BI LLING AMOUNT TO MEET THE INITIAL EXPENDITURE. THE ASSESSEE CLAIMS T HAT IT HAS PAID ADVANCE AMOUNT AS AND WHEN VEHICLES ARE HIRED AND S ETTLED THE AMOUNT WHEN TRIP IS COMPLETED, THEREFORE IN FEW CASES THER E WERE TWO VOUCHERS FOR ONE LORRY NUMBER AS OBSERVED BY THE A.O. BUT, E XCEPT AS STATED BY THE A.O., IN ALL OTHER CASES PAYMENT DOES NOT EXCEE D RS. 20,000/-. THEREFORE, WE ARE OF THE OPINION THAT THE A.O. WAS NOT CORRECT IN COMING TO A GENERAL CONCLUSION BASED ON SIX CASES THAT ASS ESSEE HAS SPLIT UP VOUCHERS TO MAKE IT LESS THAN RS. 20,000/- WHEN HE WAS IN POSSESSION OF COMPLETE VOUCHERS. THE ASSESSEE HAS FILED PAPER BOO K. ON PERUSAL OF PAPER BOOK FILED BY THE ASSESSEE, WE FIND THAT ASSE SSEE HAS FURNISHED COMPLETE LIST OF PAYMENTS ALONG WITH VOUCHERS AND E XPLAINED THAT IN NO ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 18 CASE SINGLE PAYMENT IN ANY DAY WERE IN EXCESS OF RS . 20,000/-. THOUGH, PRIMA FACIE WE ACCEPT THE ARGUMENTS OF ASSESSEE, BE CAUSE OF VOLUMINOUS MATERIAL, WE DEEM IT APPROPRIATE TO REMI T THE ISSUE BACK TO THE FILE OF A.O. TO VERIFY THE CLAIM OF THE ASSESSE E WITH REFERENCE TO VOUCHERS. 18. COMING TO THE ALTERNATIVE PLEA OF THE ASSESSEE. THE ASSESSEE, BY WAY OF ADDITIONAL GROUNDS PLEADED THAT THE IMPUGNED PAYMENTS ARE NOT HIT BY THE PROVISIONS OF SEC. 194C, AS THERE WAS NO ELEMENT OF WORK AS DEFINED U/S 194C IS INVOLVED. THE VEHICLE ARE HIRED IN THE OPEN MARKET BY OUR STAFF MEMBERS DEPENDING UPON THE PLACE OF SO URCING OF MATERIALS WITHOUT ANY FORMAL CONTRACT FOR SUPPLY OF VEHICLES, THEREFORE, THE PROVISIONS OF SEC. 194C ARE NOT APPLICABLE. TO SUPP ORT HIS ARGUMENTS RELIED UPON THE DECISION OF CO-ORDINATE BENCH, IN T HE CASE OF DCIT, CIRCLE -2(1) VS. YEKKALA SUBBA RAO, IN ITA.NO. 483/ VIZAG/2012, DATED 18-03-2016 AND SUBMITTED THAT MERE HIRING VEHICLES DOES NOT TANTAMOUNT TO CARRYING OUT ANY WORKS OR SUB CONTRAC T AS DEFINED U/S 194C OF THE ACT. WE FIND THAT THE ARGUMENT OF THE A SSESSEE IS DEVOID OF MERITS. THERE WAS A EXPLICIT CONTRACT EXISTED BETWE EN THE ASSESSEE AND VEHICLE OWNERS, THE MOMENT VEHICLES ARE HIRED FOR T HE PURPOSE OF TRANSPORTATION. THERE IS NO REQUIREMENT OF WRITTEN CONTRACT. EVEN ORAL AGREEMENT IS SUFFICIENT TO ESTABLISH A CONTRACT BET WEEN THE PARTIES. THE ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 19 REQUIREMENT OF WRITTEN CONTRACT IS ONLY A MODE OF F ACILITATING CONTRACT BETWEEN TWO PARTIES. THEREFORE, WE ARE OF THE VIEW THAT THERE IS CONTRACT BETWEEN VEHICLE OWNERS AND ASSESSEE, ACCOR DINGLY, ADDITIONAL GROUND NO. (I) IS REJECTED. 19. IN SO FAR AS THE ASSESSEE ARGUMENT THAT THE IM PUGNED PAYMENTS ARE OUTSIDE THE SCOPE OF PROVISIONS OF SEC. 40(A)(I A) OF THE ACT, AS THE AMOUNT INCURRED UNDER THE HEAD TRANSPORTATION CHARG ES IS PAID WITHIN THE FINANCIAL YEAR. THE ASSESSEE FURTHER CONTENDS T HAT DISALLOWANCE MADE TOWARDS TRANSPORTATION CHARGES IS OUTSIDE THE SCOPE OF PROVISIONS OF SEC. 40(A)(IA) OF THE ACT, TO THE EXTENT THESE P AYMENTS WERE PAID BEFORE 31 ST MARCH 2005, IN AS MUCH AS THE PROVISIONS OF SEC. 4 0(A)(IA) IS APPLICABLE ONLY, IF EXPENDITURE INCURRED IS PAYABLE AT THE END OF THE FINANCIAL YEAR. IN SUPPORT OF HIS ARGUMENTS RELIED UPON THE DECISION OF VISAKHAPATNAM BENCH, IN THE CASE OF MERLYN SHIPPING & TRANSPORT VS. ACIT (2012) 136 ITD 23 AND SUBMITTED THAT NO DISALL OWANCE CAN BE MADE FOR THE AMOUNT WHICH IS PAID WITHIN THE FINANC IAL YEAR. WE FIND THAT THE COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF MERLYN SHIPPING & TRANSPORTS VS. ACIT (SUPRA) HELD THAT NO DISALLOW ANCE CAN BE MADE, IF THE AMOUNT IS PAID WITHIN THE FINANCIAL YEAR, I.E. BEFORE 31 ST MARCH. THEREFORE, WE ARE OF THE VIEW THAT NO DISALLOWANCE CAN BE MADE, IF THE AMOUNT IS PAID WITHIN THE FINANCIAL YEAR. THE ASSES SEE CLAIMS THAT IT HAS ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 20 PAID ENTIRE AMOUNT WITHIN THE FINANCIAL YEAR. HOWEV ER, THE DETAILS OF PAID AND PAYABLE ARE NOT EMANATING FROM THE RECORDS . THEREFORE, WE REMIT BACK THE ISSUE TO THE FILE OF A.O. AND DIRECT THE A.O. TO VERIFY THE ISSUE WITH REFERENCE PAID AND PAYABLE. IN CASE, THE AMOUNT IS PAID WITHIN THE FINANCIAL YEAR, THEN NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF THE ACT. IN OTHER WORDS, RESTRICT DISA LLOWANCE TO THE EXTENT OF AMOUNTS REMAIN PAYABLE AT THE END OF THE FINANCI AL YEAR. ACCORDINGLY, THE GROUND NOS.4 & 5 AND ADDITIONAL GROUND NO. (II) OF ITA.NO. 671/V/2008 AND GROUND NOS.2 & 3 OF ITA NO.546/VIZAG /2009 ARE ALLOWED FOR STATISTICAL PURPOSE. 20. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF BAD DEBTS. THE A.O. DISALLOWED BAD DEBTS ON THE GROUND THAT INCOME RELATING TO BAD DEBTS CLAIM WAS NOT SHOWN AS INCOME IN THE EARLIER YEARS. IT IS THE CONTENTION OF ASSESSEE THAT THESE BAD DEBTS REPRESENT AMOUNTS RECEIVABLE FROM DEBTORS WHICH WERE ARISES I N THE ORDINARY COURSE OF BUSINESS AND ALSO THESE WERE CONSIDERED A S INCOME IN THE EARLIER YEARS. THESE BAD DEBTS HAVE BEEN WRITTEN OF F IN THIS YEAR AS IRRECOVERABLE. ONCE, BAD DEBTS ARE WRITTEN OFF IN T HE BOOKS AS IRRECOVERABLE, IN VIEW OF AMENDED PROVISIONS OF SEC . 36(1)(VII) OF THE ACT, THERE IS NO NEED TO PROVE WHETHER DEBT BECOMES BAD OR NOT. ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 21 21. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED MATERIALS AVAILABLE ON RECORDS, WE NOTICED THAT INITIALLY, AS SESSEE HAS TAKEN A STAND THAT BAD DEBTS REPRESENTS ADVANCES MADE IN TH E NORMAL COURSE OF BUSINESS IN THE EARLIER YEARS, WRITTEN OFF DURING T HIS YEAR AS THESE ADVANCES ARE IRRECOVERABLE. THE A.O. DISALLOWED BAD DEBTS BY HOLDING THAT THE ASSESSEE HAS FAILED TO PROVE THAT THESE BA D DEBTS WERE SHOWN AS INCOME IN THE EARLIER YEARS. THE ASSESSEE HAS TA KEN ALTOGETHER DIFFERENT ARGUMENTS AND STATED THAT BAD DEBTS REPRE SENTS AMOUNTS RECEIVABLE FROM DEBTORS WHICH WERE ARISES IN THE OR DINARY COURSE OF BUSINESS AND ALSO THESE WERE CONSIDERED AS INCOME I N THE EARLIER YEARS. THESE BAD DEBTS HAVE BEEN WRITTEN OFF IN THIS YEAR AS IRRECOVERABLE. ONCE, BAD DEBTS ARE WRITTEN OFF IN THE BOOKS AS IRR ECOVERABLE, IN VIEW OF AMENDED PROVISIONS OF SEC. 36(1)(VII) OF THE ACT, T HERE IS NO NEED TO PROVE WHETHER DEBT BECOMES BAD OR NOT. NO DOUBT, ON CE BAD DEBT IS WRITTEN OFF IN THE BOOKS OF ACCOUNTS AS IRRECOVERAB LE, THERE IS NO NEED TO PROVE WHETHER DEBT IS BAD OR NOT IN VIEW OF THE AME NDED PROVISIONS OF SEC. 36(1)(VII) OF THE ACT. BUT, ASSESSEE NEEDS TO PROVE THAT BAD DEBTS WERE SHOWN AS INCOME IN THE EARLIER YEARS. IN THE P RESENT CASE ON HAND, INITIALLY, ASSESSEE HAS TAKEN A STAND THAT BAD DEBT S REPRESENTS ADVANCES MADE IN THE NORMAL COURSE OF BUSINESS IN THE EARLIE R YEARS, WRITTEN OFF DURING THIS YEAR AS THESE ADVANCES ARE IRRECOVERABL E. NOW, IT HAS TAKEN ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 22 ALTOGETHER DIFFERENT ARGUMENTS AND STATED THAT BAD DEBTS REPRESENTS AMOUNTS RECEIVABLE FROM DEBTORS WHICH WERE ARISES I N THE ORDINARY COURSE OF BUSINESS AND ALSO THESE WERE CONSIDERED A S INCOME IN THE EARLIER YEARS. THOUGH, ASSESSEE HAS FILED LEDGER EX TRACTS OF BAD DEBTS TO PROVE THAT BAD DEBTS ARISES FROM SALES AND INCOME F ROM THESE SALES WERE SHOWN IN THE EARLIER YEAR, FAILED TO FILE DETA ILS BEFORE THE A.O. THEREFORE, WE DEEM IT APPROPRIATE TO REMIT THE ISSU E BACK TO THE FILE OF A.O. AND DIRECT THE A.O. TO EXAMINE THE ISSUE AFRES H IN THE LIGHT OF THE PROVISIONS OF SEC. 36(1)(VII) OF THE ACT. ITA.NO. 382/VIZAG/2009 22. THE ASSESSEE HAS FILED THIS APPEAL, AGAINST THE ORDER OF CIT(A) CONFIRMING PENALTY LEVIED U/S 271(1)(C ) OF THE ACT , FOR CONCEALMENT OF INCOME. THE A.O. LEVIED PENALTY U/S 271(1)(C) OF TH E ACT, TOWARDS CONCEALMENT OF INCOME TOWARDS WAIVER OF INTEREST CH ARGEABLE TO TAX U/S 41(1) OF THE ACT. THE A.O. HELD THAT THE BENEFIT OF INTEREST WAIVER ON ACCOUNT OF OTS FROM SBI ACCRUED TO THE ASSESSEE FOR THE A.Y. 2005-06, AS AGAINST CLAIM OF ASSESSEE FOR THE A.Y. 2006-07. THE ASSESSEE OFFERED ITS EXPLANATION BEFORE THE A.O. AND EXPLAINED THAT ITS CLAIM IS BONA FIED AND NO ELEMENT OF CONCEALMENT IS INVOLVED. THE ASSE SSEE FURTHER SUBMITTED THAT ITS CLAIM OF SET OFF OF DISALLOWANCE OF INTEREST U/S 43B WAS NOT ALLOWED AGAINST BENEFIT OF WAIVER OF INTEREST F ROM OTS PROPOSAL OF ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 23 SBI. THE TAX DEMAND ARISES BECAUSE OF TWO OPINION, WHETHER INTEREST DISALLOWED U/S 43B IS BANK SPECIFIC OR IN TOTAL. TH E PROVISION OF SEC. 41(1) DOES NOT SPEAK ABOUT SPECIFIC EXPENDITURE. ON CE, A PARTICULAR EXPENDITURE IS ALLOWED AS DEDUCTION IN THE EARLIER YEARS, ANY BENEFIT IS DERIVED IN THE SUBSEQUENT YEARS BY WAY OF REMISSION OF LIABILITY, THEN THE SAME IS CHARGEABLE TO TAX U/S 41(1). THEREFORE, ASS ESSEE HAS ALLOWED SET OFF AGAINST TOTAL INTEREST DISALLOWED U/S 43B, WHICH WAS NOT ACCEPTED BY THE A.O., WHICH LEADS TO ADDITION. THE A.O., HOW EVER, COULD NOT SATISFIED WITH THE EXPLANATION OF ASSESSEE, LEVIED PENALTY U/S 271(1)(C) OF THE ACT. THE ASSESSEE CARRIED MATTER BEFORE CIT( A), BUT COULD NOT SUCCEED. 23. THE TRIBUNAL, IN THE PREVIOUS PARAGRAPH NO. 11, IN ITA.NO. 671/VIZAG/2008, HAS CONSIDERED THE PLEA OF ASSESSEE AND DIRECTED THE A.O. TO DELETE ADDITION MADE TOWARDS INTEREST WAIVE R ON ACCOUNT OF BENEFITS FROM SBI OTS PROPOSAL, ON WHICH PENALTY U/ S 271(1)(C ) WAS LEVIED. SINCE, QUANTUM ADDITION ON WHICH PENALTY LE VIED WAS DELETED, THE PENALTY LEVIED U/S 271(1)(C ) CANNOT SUSTAIN. THERE FORE, WE DIRECT THE A.O. TO DELETE PENALTY LEVIED U/S 271(1)(C ) OF THE ACT. ITA NOS. 671/VIZAG/2008; 382/VIZAG/2009 & 546/VIZAG /2009 M/S. SRINIVASA FERRO ALLOYS LTD., VISAKHAPATNAM 24 24. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E IN ITA.NO. 671/VIZAG/2008 AND ITA.NO. 546/VIZAG/2009 ARE ALLOW ED FOR STATISTICAL PURPOSE AND ITA.NO. 382/VIZAG/2009 IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 15 TH JUL16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 15.07.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SHRI P.S. RAJU & CO., CHARTERED ACCOUNTANTS, FLAT NO.103, LAKSHMI APARTMENTS, KAILASAMETTA, WALTAIR U PLANDS, VISAKHAPATNAM. 2. / THE RESPONDENT THE JCIT, RANGE-4, VISAKHAPATNA M 3. / THE RESPONDENT THE ACIT, RANGE-4, VISAKHAPATNA M 4. / THE RESPONDENT THE ACIT, CIRCLE-4(1), VISAKHAP ATNAM 5. + / THE CIT, 6. + ( ) / THE CIT (A), 7. # . , . , # / DR, ITAT, VISAKHAPATNAM 8 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM