DCIT, V. M/s Big Bags International Pvt. Ltd.,

ITA 674/BANG/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7011 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 10-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L V BHASKAR REDDY JT
• Keywords: Retrospective amendment; Bad and doubtful debts
• Section: 37(1); 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.674/BANG/2013 ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(2), BANGALORE. VS. M/S. BIG BAGS INTERNATIONAL PVT. LTD., NO.37, NADAKERAPPA INDUSTRIAL ESTATE, ANDHRAHALLI MAIN ROAD, VISWANEEDAM POST, NEAR PEENYA II STAGE, BANGALORE 560 091. PAN : AABCB 4004D APPELLANT RESPONDENT APPELLANT BY : SHRI L.V. BHASKAR REDDY, JT. CIT(DR) RESPONDENT BY : SHRI NARENDRA SHARMA, ADVOCATE DATE OF HEARING : 05.08.2014 DATE OF PRONOUNCEMENT : 21.08.2014 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DA TED 28.02.2013 OF THE CIT(APPEALS)-I, BANGALORE RELATING TO ASSESSMEN T YEAR 2009-10. 2. GROUND NO.1 RAISED BY THE REVENUE IS GENERAL IN NATURE. ITA NO.674/BANG/2013 PAGE 2 OF 19 3. GROUNDS NO.2 TO 5 RAISED BY THE ASSESSEE IS WITH REGARD TO THE DISALLOWANCE MADE BY THE AO INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE MATERIAL FACTS IN THIS REGARD ARE THA T THE AO NOTICED FROM ANNEXURE-6 ENCLOSED TO FORM 3CD REPORT OF THE AUDIT OR THAT THE ASSESSEE HAD DEDUCTED A SUM OF RS.2,302 DURING FEBRUARY, 200 3 AS TAX DEDUCTED AT SOURCE ON COMMISSION PAID. THE SAME WAS REMITTED O NLY ON 11.4.2009. ACCORDING TO THE AO, AS PER THE PROVISIONS OF SECTI ON 40(A)(IA) OF THE ACT AS APPLICABLE FOR THE A.Y. 2009-10, TAX DEDUCTED AT SO URCE OUGHT TO HAVE BEEN REMITTED TO THE CREDIT OF THE GOVERNMENT ON OR BEFO RE THE 7 TH DAY OF THE SUCCEEDING MONTH I.E., 7.3.2009. SINCE THE ASSESSE E DEPOSITED THE AMOUNT ONLY ON 11.4.2009, THE AO DISALLOWED THE CLA IM OF THE ASSESSEE FOR DEDUCTION INVOKING THE PROVISIONS OF SECTION 40(A)( IA) OF THE ACT. 4. SIMILARLY, ANOTHER SUM OF RS.45,444 WHICH WAS TA X DEDUCTED AT SOURCE FOR JANUARY, 2009 HAD BEEN DEPOSITED BY THE ASSESSEE TO THE CREDIT OF THE GOVERNMENT ONLY ON 19.4.2009. THE AO, INVOK ING THE PROVISIONS OF SECTION 40(A)(IA), WAS OF THE VIEW THAT SINCE THE P AYMENT HAD NOT BEEN MADE ON OR BEFORE THE DUE DATE, THE CLAIM OF DEDUCT ION MADE BY THE ASSESSEE HAD TO BE DISALLOWED. 5. THE GROSS AMOUNT RELATABLE TO THE AFORESAID TAXE S DEDUCTED AT SOURCE AND NOT PAID TO THE CREDIT OF GOVERNMENT WAS A SUM OF RS.4,41,204. THIS SUM WAS DISALLOWED BY THE AO AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ITA NO.674/BANG/2013 PAGE 3 OF 19 6. ON APPEAL, THE CIT(APPEALS) DELETED THE ADDITION MADE BY THE AO, OBSERVING AS FOLLOWS:- 3.3 I HAVE CAREFULLY CONSIDERED THE APPELLANTS S UBMISSIONS AND ALSO THE REASONS GIVEN BY THE AO IN THE ASSESSM ENT ORDER. I FIND MERIT IN THE APPELLANTS CONTENTIONS. IT HAS B EEN JUDICIALLY RECOGNISED THAT, IF THE TAX DEDUCTED AT SOURCE IS P AID BEFORE THE DATE DUE FOR FILING THE RETURN OF INCOME OR BEFORE FILING THE RETURN OF INCOME, THE APPELLANT IS ENTITLED TO THE DEDUCTI ON OF THE EXPENDITURE CONCERNED. HENCE, THE AO IS DIRECTED TO ALLOW DEDUCTION IN RESPECT OF THE TWO AMOUNTS MENTIONED A BOVE. 7. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE REVENUE HAS RAISED THE GROUNDS NO. 2 TO 5 BEFORE THE TRIBUNAL. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS NOT IN DISPUTE THAT BEFORE US THAT THIS TRIBUNAL IN THE CASE OF SRI SANTOSH KUMAR SHETTY IN ITA NO.1194/BANG/2012 BY ORDER DATED 26.7.2013 , HAS TAKEN A VIEW THAT AMENDMENT TO PROVISIONS OF SECTION 40(A)(IA) O F THE ACT BY THE FINANCE ACT, 2010 WILL OPERATE RETROSPECTIVELY W.E.F. 1.4.2 005. AS PER THE AFORESAID AMENDMENT, TAX DEDUCTED AT SOURCE, IF IT IS PAID ON OR BEFORE THE DUE DATE FOR FILING OF RETURN OF INCOME, THEN NO DISALLOWANC E U/S. 40(A)(IA) OF THE ACT CAN BE MADE. FOR THE SAKE OF READY REFERENCE, WE R EPRODUCE BELOW THE DECISION RENDERED ON A SIMILAR ISSUE IN THE CASE OF SRI SANTOSH KUMAR SHETTY (SUPRA) :- 9. THE LEGISLATIVE HISTORY OF THE PROVISIONS OF SE C.40(A)(IA) OF THE ACT IS AS FOLLOWS: SECTION 40 HAS CERTAIN CLAUS ES PROVIDING FOR ITA NO.674/BANG/2013 PAGE 4 OF 19 THE AMOUNTS WHICH ARE NOT DEDUCTIBLE. SUB-CLAUSE (I A) OF CLAUSE (A) OF SECTION 40 WAS INSERTED BY THE FINANCE (NO.2 ) ACT, 2004 WITH EFFECT FROM 1ST APRIL, 2005 READING AS UNDER:- 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTED THE INCOME CHARGEABLE UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. .. (IA) ANY INTEREST, COMMISSION OR BROKERAGE, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB- CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK), ON OR, AFTER DEDUCTION, HAS NOT BEEN PAID DURING THE PREVIOUS YEAR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 200 : PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR OR, HAS BEEN DEDUCTED IN THE PREVIOUS YEAR BUT PAID IN ANY SUBSEQUENT YEAR AFTER THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 200, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. EXPLANATION. FOR THE PURPOSES OF THIS SUB-CLAUSE, - (I)COMMISSION OR BROKERAGE SHALL HAVE THE SAME MEANING AS IN CLAUSE (I) OF THE EXPLANATION TO SECTION 194H; (II)FEES FOR TECHNICAL SERVICES SHALL HAVE THE SA ME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB- SECTION (1) OF SECTION 9; ITA NO.674/BANG/2013 PAGE 5 OF 19 (III)PROFESSIONAL SERVICES SHALL HAVE THE SAME MEANING AS IN CLAUSE (A) OF THE EXPLANATION TO SECTION 194J; (IV)WORK SHALL HAVE THE SAME MEANING AS IN EXPLANATION III TO SECTION 194C; 10. THE MEMORANDUM EXPLAINING THE PROVISIONS IN TH E FINANCE BILL EXPLAINED THE RATIONALE OF THE INSERTI ON OF THE NEW PROVISION IN FOLLOWING WORDS :- WITH A VIEW TO AUGMENT COMPLIANCE OF TDS PROVISIONS, IT IS PROPOSED TO EXTEND THE PROVISIONS OF SECTION 40(A)(I) TO PAYMENTS OF INTEREST, COMMISSIO N OR BROKERAGE, FEES FOR PROFESSIONAL SERVICES OR FEE S FOR TECHNICAL SERVICES TO RESIDENTS, AND PAYMENTS T O A RESIDENT CONTRACTOR OR SUB-CONTRACTOR FOR CARRYIN G OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION, HAS NOT BEEN PAID BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB- SECTION (1) OF SECTION 200 AND IN ACCORDANCE WITH THE OTHER PROVISIONS OF CHAPTER XVII-B. IT IS ALSO PROPOSED TO PROVIDE THAT WHERE IN RESPECT OF PAYMENT OF ANY SUM, TAX HAS BEEN DEDUCTED UNDER CHAPTER XVII-B OR PAID IN ANY SUBSEQUENT YEAR, THE SUM OF PAYMENT SHALL BE ALLOWED IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. THE PROPOSED AMENDMENT WILL TAKE EFFECT FROM 1ST DAY OF APRIL, 2005 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2005- 2006 AND SUBSEQUENT YEARS. [CLAUSE 11] 11. THEREAFTER THE FINANCE ACT, 2008 MADE AMENDMENT TO CLAUSE (A) IN SUB-CLAUSE (IA) IN SECTION 40 WITH RE TROSPECTIVE EFFECT FROM 1ST APRIL, 2005. THE SECTION AS AMENDED BY THE FINANCE ACT, 2008 READ AS UNDER:- (IA) ANY INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNT S ITA NO.674/BANG/2013 PAGE 6 OF 19 PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN PAID,- (A) IN A CASE WHERE THE TAX WAS DEDUCTIBLE AND WA S SO DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR, ON OR BEFORE THE DUE DATE SPECIFIED IN SUB- SECTION (1) OF SECTION 139 ; OR (B) IN ANY OTHER CASE, ON OR BEFORE THE LAST DAY OF THE PREVIOUS YEAR. PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCTED- (A) DURING THE LAST MONTH OF THE PREVIOUS YEAR BUT PAID AFTER THE SAID DUE DATE ; OR (B) DURING ANY OTHER MONTH OF THE PREVIOUS YEA R BUT PAID AFTER THE END OF THE SAID PREVIOUS YEAR, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. ; 12. THE FINANCE ACT, 2008 BROUGHT OUT AMENDMENT TO SECTION 40(A)(IA) W.R.E.F. 1.4.2005 BY RELAXING EARLIER POS ITION TO SOME EXTENT. IT MADE TWO CATEGORIES OF DEFAULTS CAUSING DISALLOWANCE ON THE BASIS OF THE PERIOD OF THE PREVIOUS YEAR IN WHICH TAX WAS DEDUCTIBLE. THE FIRST CATEGORY OF DISALLOWANCES INC LUDED THE CASES IN WHICH TAX WAS DEDUCTIBLE AND WAS SO DEDUCTED DUR ING THE LAST MONTH OF THE PREVIOUS YEAR BUT THERE WAS FAILURE TO PAY SUCH TAX ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 OF THE ACT. IN OTHER WORDS, IF ANY AMOUNT ON WH ICH TAX WAS DEDUCTIBLE DURING LAST MONTH OF THE PREVIOUS YEAR, THAT IS MARCH 2005, BUT WAS PAID BEFORE 31ST OCTOBER, 2005, BEING THE DUE DATE U/S 139(1), THE DEDUCTIBILITY OF THE AMOUNT WAS KEP T INTACT. THE SECOND CATEGORY INCLUDED CASES OTHER THAN THOSE GIV EN IN CATEGORY FIRST. TO PUT IT SIMPLY, IF TAX WAS DEDUCTIBLE AND WAS SO DEDUCTED DURING THE FIRST ELEVEN MONTHS OF THE PREVIOUS YEAR , THAT IS, UP TO ITA NO.674/BANG/2013 PAGE 7 OF 19 FEBRUARY, 2005, THE DISALLOWANCE WAS TO BE MADE IF THE ASSESSEE FAILED TO PAY IT BEFORE 31ST MARCH, 2005. 13. THEN CAME THE AMENDMENT TO SECTION 40(A)(IA) B Y THE FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM 1S T APRIL, 2010. THE PROVISION SO AMENDED, NOW READS AS UNDER :- (IA) ANY INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNT S PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR; AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 13 9. PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCTED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. 14. FROM THE ABOVE PROVISION AS AMENDED BY THE FINA NCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM 1ST APRIL, 2010 IT CAN BE SEEN THAT THE ONLY DIFFERENCE WHICH THIS AMENDMENT HAS M ADE IS DISPENSING WITH THE EARLIER TWO CATEGORIES OF DEFAU LTS AS PER THE FINANCE ACT, 2008, AS DISCUSSED IN THE EARLIER PARA , CAUSING DISALLOWANCE ON THE BASIS OF THE PERIOD OF THE PREV IOUS YEAR DURING WHICH TAX WAS DEDUCTIBLE. THE FIRST CATEGORY OF DISALLOWANCES INCLUDED THE CASES IN WHICH TAX WAS D EDUCTIBLE AND WAS SO DEDUCTED DURING THE LAST MONTH OF THE PREVIO US YEAR BUT THERE WAS FAILURE TO PAY SUCH TAX ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139. THE FI NANCE ACT, 2010 HAS NOT TINKERED WITH THIS POSITION. THE SECON D CATEGORY OF THE FINANCE ACT, 2008 WHICH REQUIRED THE DEPOSIT OF TAX BEFORE THE CLOSE OF THE PREVIOUS YEAR IN CASE OF DEDUCTION DURING THE FIRST ELEVEN MONTHS, AS A PRE-CONDITION FOR THE GRANT OF DEDUCTION IN THE YEAR OF INCURRING EXPENDITURE, HAS BEEN ALTERED . THE HITHERTO REQUIREMENT OF THE ASSESSEE DEDUCTING TAX AT SOURCE DURING THE ITA NO.674/BANG/2013 PAGE 8 OF 19 FIRST ELEVEN MONTHS OF THE PREVIOUS YEAR AND PAYING IT BEFORE THE CLOSE OF THE PREVIOUS YEAR UP TO 3 1ST MARCH OF THE PREVIOUS YEAR AS A REQUIREMENT FOR GRANT OF DEDUCTION IN THE YEAR OF INCURRING SUCH EXPENDITURE, HAS BEEN EASED TO EXTEND SUCH TIM E FOR PAYMENT OF TAX UP TO DUE DATE U/S 139(1) OF THE ACT. AS PER THE NEW AMENDMENT, THE DISALLOWANCE WILL BE MADE IF AFTER D EDUCTING TAX AT SOURCE, THE ASSESSEE FAILS TO PAY THE AMOUNT OF TAX ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTIO N 139 OF THE ACT. THE EFFECT OF THIS AMENDMENT IS THAT NOW THE ASSESS EE DEDUCTING TAX EITHER IN THE LAST MONTH OF THE PREVIOUS YEAR O R FIRST ELEVEN MONTHS OF THE PREVIOUS YEAR SHALL BE ENTITLED TO DE DUCTION OF THE EXPENDITURE IN THE YEAR OF INCURRING IT, IF THE TAX SO DEDUCTED AT SOURCE IS PAID ON OR BEFORE THE DUE DATE U/S 139(1) . THIS IS THE ONLY DIFFERENCE WHICH HAS BEEN MADE BY THE FINANCE ACT, 2010. 15. THE QUESTION AS TO WHETHER THE AMENDMENT BY T HE FINANCE ACT, 2010 AS AFORESAID IS PROSPECTIVE OR RE TROSPECTIVE FROM 1.4.2005 CAME UP FOR CONSIDERATION BEFORE THE MUMBAI SPECIAL BENCH ITAT IN THE CASE OF BHARATI SHIPYARD LTD . BEFORE THE SPECIAL BENCH IT WAS ARGUED THAT THE AMENDMENT WAS MADE WITH A VIEW TO REMOVE THE UNNECESSARY HARDSHIP CAUS ED TO THE ASSESSEE BY THE EARLIER PROVISION. THE SPECIAL BENC H BY ITS ORDER DATED 9.9.2011 HOWEVER HELD THAT THE AMENDMENT CARR IED OUT BY THE FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FRO M ASSESSMENT YEAR 2010- 2011 CANNOT BE HELD TO BE RETROSPECTIVE FROM ASSESSMENT YEAR 2005-2006. THE SPECIAL BENCH HELD THAT THE AMENDMENT BROUGHT OUT BY THE FINANCE ACT, 2010 TO S ECTION 40(A)(IA) W.E.F. 01.04.2010, IS NOT REMEDIAL AND CU RATIVE IN NATURE. 16. PRIOR TO THE DECISION OF THE SPECIAL BENCH, I DENTICAL ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE ITAT KOLKA TA BENCH IN THE CASE OF VIRGIN CREATIONS VS. ITO, WARD 32(4), KOLKATA ITA NO. 267/KOL/2009 FOR AY 05-06. THE ISSUE THAT AROSE FOR CONSIDERATION WAS DISALLOWANCE OF EXPENSES U/S.40(A )(IA)CLAIMED AS DEDUCTION WHILE COMPUTING INCOME FROM BUSINESS B EING EMBROIDERY CHARGES, DYEING CHARGES, INTEREST ON LOA N AND FREIGHT CHARGES WITHOUT DEDUCTING TAX AT SOURCE. THE EMBRO IDERY CHARGES WERE PAID BETWEEN 22ND MAY, 2004 TO 30.11.2 004. TAX HAD BEEN DEDUCTED AT SOURCE BUT WERE PAID TO THE GO VERNMENT ONLY ON 28.10.2005 AND NOT WITHIN THE TIME CONTEMPL ATED BY SECTION 200(1) OF THE ACT. THE DYEING CHARGES WERE PAID BETWEEN 5.4.2004 TO 20.8.2004. TAX WAS DEDUCTED AT SOURCE BUT WAS PAID TO THE GOVERNMENT ONLY ON 28.10.2005. FRE IGHT ITA NO.674/BANG/2013 PAGE 9 OF 19 OUTWARD CHARGES WERE PAID WITHOUT DEDUCTION OF TAX AT SOURCE. INTEREST ON LOANS WERE CREDITED TO THE CREDITORS AC COUNT ON 31.3.2005 TO THE EXTENT THEY WERE PAID AFTER THE DU E DATE FOR FILING RETURN OF INCOME U/S.139(1) OF THE ACT, THE DISALLO WANCE WAS MADE U/S.40(A)(IA) OF THE ACT. BEFORE THE TRIBUNAL , THE ASSESSEE CONTENTED THAT THE AMENDMENT BY THE FINANCE ACT, 20 10 WITH RETROSPECTIVE EFFECT FROM 1ST APRIL, 2010 WHEREBY A MOUNT OF TAX DEDUCTED AT THE TIME OF MAKING PAYMENT IN RESPECT O F EXPENDITURE REFERRED TO IN SEC.40(A)(IA) OF THE ACT, IF PAID TO THE GOVERNMENT ON OR BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME DUE DATE U/S 139(1) OF THE ACT SHOULD BE ALLOWED AS A DEDUCT ION. IN OTHER WORDS IT WAS ARGUED THAT THE AMENDMENT BY THE FINAN CE ACT, 2010 TO THE PROVISIONS OF SEC.40(A)(IA) HAS TO BE H ELD TO BE RETROSPECTIVE W.E.F. 1-4-2005. THE ITAT KOLKATA BE NCH BY ITS ORDER DATED 15.12.2010, HELD AS FOLLOWS: 8. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAREFUL PERUSAL OF THE MATERIALS AVAILABLE ON RECOR D, KEEPING IN VIEW OF THE FACT THAT THOUGH THE LD.D.R. SUBMITTED THAT THE DECISIONS OF THE COORDINATE BENCHES ARE NOT BINDING AND THE KOLKATA BENCHES MAY TAKE A DIFFERENT VIEW, SINCE MUMBAI BENCH AFTER ANALYZING THE PROVISIONS OF SEC.40(A)9IA) SIN CE ITS INCEPTION AND VARIOUS AMENDMENTS MADE TO THE SAME INCLUDING THE SUGGESTION MADE BY THE INDUSTRY IN THE FORM OF REPRESENTATION IN THEIR PRE - BUDGET MEMORANDUM TO THE HONBLE FINANCE MINISTER AND BY APPLYING THE DECISION OF THE HONBL E APEX COURT IN THE CASE OF ALOM EXTRUSIONS LTD., HAS OBSERVED THAT THE PROVISIONS OF SECTION 40(A)(IA) AS STOOD PRIOR TO THE AMENDMENTS MADE BY THE FINANCE ACT 2010 THUS WERE RESULTING INTO UNINTENDED CONSEQUENCES AND CAUSING GRAVE AND GENUINE HARDSHIPS TO THE ASSESSES WHO HAD SUBSTANTIALLY COMPLIED WITH THE RELEVANT TDS PROVISIONS BY DEDUCTING THE TAXES AT SOURCE AND BY PAYING THE SAME TO THE CREDIT OF THE GOVERNMENT BEFORE THE DUE DATE OF FILING OF THEIR RETURNS U/S.139(1). IN ORDER TO REMEDY THIS POSITION AND T O REMOVE THE HARDSHIPS WHICH WAS BEING CAUSED TO THE ASSESSEE BELONGING TO SUCH CATEGORY, AMENDMENTS HAVE BEEN MADE IN THE PROVISIONS OF SECTION 40(A)(IA) BY THE FINANCE ACT, 2010. THE SA ID AMENDMENTS, IN OUR OPINION, THUS ARE CLEARLY ITA NO.674/BANG/2013 PAGE 10 OF 19 REMEDIAL/CURATIVE IN NATURE AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF ALLIED MOTORS PVT.LTD. (SUPRA) AND MOM EXTRUSIONS LTD. (SUPRA) AND THE SAME THEREFORE WOULD APPLY RETROSPECTIVELY W.E.F. 1ST APRIL, 2005. IN THE CASE OF R.B.JODHA MAL KUTHIALA 82 ITR 570, IT WAS HELD BY THE HONBLE SUPREME COURT THAT A PROVISO WHICH IS INSERTED TO REMEDY UNINTENDED CONSEQUENCES AND TO MAKE THE PROVISION WORKABLE, REQUIRES TO BE TREATED AS RETROSPECTIVE IN OPERATION SO THAT A REASONABLE INTERPRETATION CAN BE GIVEN TO THE SECTION AS A WHOLE. IN THE PRESENT CASE, THE AMOUNT OF TAX DEDUCTED AT SOURCE FROM THE FREIGHT CHARGES DURING THE PERIOD 01/04/2005 TO 28/02/2006 WAS PAID BY THE ASSESSEE IN THE MONTH OF JULY AND AUGUST 2006 I.E., WELL BEFORE THE DUE DATE OF FILING OF IT S RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. THIS BEING THE UNDISPUTED POSITION, WE HOLD THAT THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LEARNED CIT(A) ON ACCOUNT OF FREIGHT CHARGES BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) IS NOT SUSTAINABLE AS PER THE AMENDMENTS MADE IN THE SAID PROVISIONS BY THE FINANCE ACT, 2010 WHICH, BEING REMEDIAL/CURATIVE IN NATURE, HAVE RETROSPECTIVE APPLICATION, WE FIND NO REASON TO DEVIATE FROM THE DECISIONS OF THE ITATS MUMBAI BENCH AND AHMEDABAD BENCH, IN THE ABSENCE OF A CONTRARY VIEW, EXCEPT THE OTHER BENCHES DECISIONS OR ANY OTHER HIGH COURT. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCHES (SUPRA), WE ALLOW THE GROUND NOS. I TO 3 OF THE ASSESSEES APPEAL. 17. AS AGAINST THE AFORESAID DECISION THE REVENUE PREFERRED APPEAL BEFORE THE HONBLE CALCUTTA HIGH COURT. THE HONBLE CALCUTTA HIGH COURT IN ITA NO. 302 OF 2011 GA 3200/2011 DECIDED ON 23.11.2011 , HELD AS FOLLOWS: WE HAVE HEARD MR. NIZAMUDDIN AND GONE THROUGH THE IMPUGNED JUDGMENT AND ORDER. WE HAVE ALSO EXAMINED THE POINT FORMULATED FOR WHICH THE PRESENT APPEAL IS SOUGHT TO BE ADMITTED. IT IS ARGUED BY MR. NIZAMUDDIN THAT THIS COURT NEEDS TO ITA NO.674/BANG/2013 PAGE 11 OF 19 TAKE DECISION AS TO WHETHER SECTION 40(A)(IA) IS HAVING RETROSPECTIVE OPERATION OR NOT. THE LEARNED TRIBUNAL ON FACT FOUND THAT THE ASSESSEE HAD DEDUCTED TAX AT SOURCE FROM THE PAID CHARGES BETWEEN THE PERIOD APRIL 1, 2005 AND APRIL 28, 2006 AND THE SAME WERE PAID BY THE ASSESSEE IN JULY AND AUGUST 2006, I.E. WELL BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME FOR THE YEAR UNDE R CONSIDERATION. THIS FACTUAL POSITION WAS UNDISPUTED. MOREOVER, THE SUPREME COURT, AS HAS BEEN RECORDED BY THE LEARNED TRIBUNAL, IN THE CASE OF ALLIED MOTORS PVT. LTD. AND ALSO IN THE CASE OF ALOM EXTRUSIONS LTD., HAS ALREADY DECIDED THAT THE AFORESAID PROVISION HAS RETROSPECTIVE APPLICATION. AGAIN, IN THE CASE REPORTED IN 82 ITR 570, THE SUPREME COURT HELD THAT THE PROVISION, WHICH HAS INSERTED THE REMEDY TO MAKE THE PROVISION WORKABLE, REQUIRES TO BE TREATED WITH RETROSPECTIVE OPERATION SO THAT REASONABLE DEDUCTION CAN BE GIVEN TO THE SECTION AS WELL. IN VIEW OF THE AUTHORITATIVE PRONOUNCEMENT OF THE SUPREME COURT, THIS COURT CANNOT DECIDE OTHERWISE. HENCE WE DISMISS THE APPEAL WITHOUT ANY ORDER AS TO COSTS. 18. IT CAN BE SEEN FROM THE ABOVE DECISION OF THE H ONBLE CALCUTTA HIGH COURT THAT AMENDMENT TO THE PROVISION S OF SEC.40(A)(IA) OF THE ACT, BY THE FINANCE ACT, 2010 AS AFORESAID WAS HELD TO BE RETROSPECTIVE FROM 1.4.2005. IF THE AMENDMENT IS CONSIDERED AS RETROSPECTIVE FROM 1.4.2005, THE EFFE CT WILL BE THAT PAYMENTS OF TDS TO THE CREDIT OF THE GOVERNMENT ON OR BEFORE THE LAST DATE FOR FILING RETURN OF INCOME U/S.139(1 ) OF THE ACT FOR THE RELEVANT AY HAVE TO BE ALLOWED AS DEDUCTION. A DMITTEDLY IN THE CASE OF THE ASSESSEE PAYMENTS WERE SO MADE BEFO RE THE SAID DUE DATE AND IN TERMS OF THE DECISION OF THE HONBL E CALCUTTA HIGH COURT NO DISALLOWANCE COULD BE MADE BY THE AO U/S. 40(A)(IA) OF THE ACT. 19. THE QUESTION NOW IS AS TO WHETHER TO FOLLOW T HE DECISION OF THE HONBLE SPECIAL BENCH WHICH HAS TAKEN THE VI EW THAT AMENDMENT BY THE FINANCE ACT, 2010 TO THE PROVISION S OF SEC.40(A)(IA) OF THE ACT IS PROSPECTIVE AND NOT RET ROSPECTIVE FROM 1.4.2005 OR THE DECISION OF THE HONBLE CALCUTTA H IGH COURT TAKING A CONTRARY VIEW. ON THE ABOVE QUESTION, THE LEARNED ITA NO.674/BANG/2013 PAGE 12 OF 19 COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THE DECISION OF THE ITAT DELHI IN THE CASE OF TEJ INTERNATIONAL (P) LTD. V. DY. CIT (2000) 69 TTJ (DEL) 650 , WHEREIN IT WAS HELD THAT IN THE HIERARCHICAL JUDICIAL SYSTEM THAT WE HAVE IN INDIA, THE WISDOM OF THE COURT BELOW HAS TO YIELD TO THE HIGHER WISDOM O F THE COURT ABOVE, AND THEREFORE, ONCE AN AUTHORITY HIGHER THAN THIS TRIBUNAL HAS EXPRESSED ITS ESTEEMED VIEWS ON A AN ISSUE, NOR MALLY, THE DECISION OF THE HIGHER JUDICIAL AUTHORITY IS TO BE FOLLOWED. THE BENCH HAS FURTHER HELD THAT THE FACT THAT THE JUDGM ENT OF THE HIGHER JUDICIAL FORUM IS FROM A NON-JURISDICTIONAL HIGH COURT DOES NOT REALLY ALTER THIS POSITION, AS LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. GODAVARIDEVI SARAF 113 ITR 589(BOM) . 20. IN VIEW OF THE ABOVE, WE HOLD FOLLOWING THE DE CISION OF THE HONBLE CALCUTTA HIGH COURT, THAT AMENDMENT TO THE PROVISIONS OF SEC.40(A)(IA) OF THE ACT, BY THE FINA NCE ACT, 2010 IS RETROSPECTIVE FROM 1.4.2005. CONSEQUENTLY, ANY PAYMENT OF TAX DEDUCTED AT SOURCE DURING PREVIOUS YEARS RELEVA NT TO AND FROM AY 05-06 CAN BE MADE TO THE GOVERNMENT ON OR BEFORE THE DUE DATE FOR FILING RETURN OF INCOME U/S.139(1) OF THE ACT. IF PAYMENTS ARE MADE AS AFORESAID, THEN NO DEDUCTION U /S.40(A)(IA) OF THE ACT CAN BE MADE. ADMITTEDLY IN THE PRESENT CASE, THE ASSESSEE HAD DEPOSITED THE TAX DEDUCTED AT SOURCE O N OR BEFORE THE DUE DATE FOR FILING RETURN OF INCOME U/S.139(1) OF THE ACT AND THEREFORE THE IMPUGNED DISALLOWANCE DESERVES TO BE DELETED. WE ORDER ACCORDINGLY AND ALLOW THE APPEAL BY THE ASSES SEE. 21. THE AFORESAID VIEW HAS ALSO BEEN TAKEN IN THE FOLLOWING DECISIONS OF THE TRIBUNAL:- RAJAMAHENDRI SHIPPING & OIL FIELD SERVICES LTD., ITA NO.352/VIZAG/2008 DATED 13.04.2012. SRI PIYUSH C. MEHTA, ITA NO.1321/MUM/2009 DATED 11.04.2012. 9. IT WAS ALSO BROUGHT TO OUR NOTICE THAT THE HONB LE HIGH COURT OF KARNATAKA IN ITA NO.590/2013 BY JUDGMENT DATED 15.7 .2014, HAS UPHELD ITA NO.674/BANG/2013 PAGE 13 OF 19 THE VIEW TAKEN BY THE TRIBUNAL. IN VIEW OF THE ABO VE, WE DO NOT FIND ANY MERIT IN THE GROUNDS NO.2 TO 5 RAISED BY THE REVENU E. 10. GROUNDS NOS.6 & 7 RAISED BY THE REVENUE ARE WIT H REFERENCE TO THE ACTION OF THE CIT(APPEALS) IN ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF BAD DEBTS WRITTEN OFF. TH E FACTS IN THIS REGARD ARE, THAT THE AO NOTED THAT THE ASSESSEE HAD CLAIMED A S UM OF RS.1,45,96,224/- BEING BAD DEBTS WRITTEN OFF REPRESENTING DEBTORS RE LATED TO THE EXPORTS MADE. ON THE GROUND THAT THE ASSESSEE HAD NOT TAKEN PERMISSION FROM THE RESERVE BANK OF INDIA FOR MAKING THE WRITE-OFF OR F OR EXTENSION FOR RECEIPT OF FOREIGN EXCHANGE, THE AO DISALLOWED THE CLAIM AND B ROUGHT THE SUM OF RS.1,45,96,224/- TO TAX. 11. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). BEFORE CIT(A) THE ASSESSEE CONTENDE D THAT THE AMOUNT WHICH WAS CLAIMED AS BAD DEBTS HAD BEEN OFFERED FOR TAXATION FOR THE ASSESSMENT YEAR 2006-07 AND THE SAME WAS UNREALIZED ON ACCOUNT OF THE REFUSAL OF THE FOREIGN IMPORTER TO ACKNOWLEDGE THE DEBIT NOTE. THE ASSESSEE POINTED OUT THAT DURING THE COURSE OF ITS BUSINESS IT HAD MADE EXPORTS OF THE FINISHED GOODS BEING HDPE PRODUCTS T O VARIOUS FOREIGN CUSTOMERS WHO ARE THE IMPORTERS, AT THE CONSIDERATI ON AGREED TO THROUGH A CONTRACT. FOR THE MANUFACTURE OF THE ABOVE PRODUCTS , THE ASSESSEE HAD TO IMPORT RAW MATERIALS. DUE TO HEAVY FLUCTUATION IN T HE FOREIGN EXCHANGE RATE, THE ASSESSEE HAD TO REMIT EXCESS COST IN TERMS OF I NDIAN RUPEE TOWARDS ITA NO.674/BANG/2013 PAGE 14 OF 19 SUCH IMPORTS. THUS, SUCH HEAVY COST INCURRED BY THE ASSESSEE HAD RESULTED IN LOSS IN ITS BUSINESS AND IN ORDER TO CONTAIN THE LOSS THE ASSESSEE HAD MADE/RAISED DEBIT NOTES TO ITS CUSTOMERS BEING THE IMPORTERS OF THE PRODUCTS, FOR INCREASING THE SALE PRICE AND SUCH EX CESS CONSIDERATION REQUESTED TO BE PAID BY THE IMPORTER WHICH WAS REFL ECTED THROUGH DEBIT NOTE ISSUED TO THEM WAS CONSIDERED IN ITS ACCOUNTS AS SA LE CONSIDERATION RECEIVABLE. SUCH SALE CONSIDERATION RECEIVABLE, IN ACCORDANCE WITH THE ASSESSEES UNILATERAL CLAIM, WAS OFFERED FOR TAXATI ON IN THE YEAR 2006-07. IT WAS POINTED OUT THAT COPIES OF THE ACCOUNTS RELATED TO ASSESSMENT YEAR 2006-07 WHEREIN THE INCOME WAS OFFERED WAS ALSO SUB MITTED. HOWEVER, THE FOREIGN CUSTOMER/IMPORTERS DID NOT ACKNOWLEDGE THE ADDITIONAL CONSIDERATION CLAIMED BY THE ASSESSEE AND HAVING FO UND AFTER PERSUASION THAT THE AMOUNT WAS NOT RECEIVABLE AND NOT EXPECTED TO BE REALIZED IN THE RELEVANT PREVIOUS YEAR TO THE ASSESSMENT YEAR 2009- 10, THE ASSESSEE HAD TO WRITE OFF THE AMOUNT OF RS. 1,45,96,224/- AND RE DUCE ITS INCOME ACCORDINGLY. THE DETAILS OF THE CLAIM OF ADDITIONAL CONSIDERATION WERE PROVIDED AS FOLLOWS: A. FOREIGN DEBTS RS.1,45,96,224/- REPRESENTS PRIC E VARIANCE CLAIMS OF EARLIER YEARS. B. THESE ARE THE DEBIT NOTES RAISED ON IMPORTERS O F FINISHED GOODS BEING THE EXTRA COST INCURRED ON RAW MATERIAL S INPUTS (IMPORTED) DUE TO HEAVY INCREASE IN COST OF RAW MAT ERIALS. C. THESE DEBIT NOTES RAISED ON IMPORTERS EVEN THO UGH THERE IS NO SPECIFIC AGREEMENT FOR SUCH PAYMENT. D. DETAILS ARE ITA NO.674/BANG/2013 PAGE 15 OF 19 A. FLEXCON OFFERED TO TAX DURING FINANCIAL YEAR 2004-05 RS.19,49,719/- B. CORRPAK OFFERED TO TAX DURING THE FINANCIAL Y EAR 2004- 05 RS.14,09,400/- C. NORDENIA OFFERED TO TAX DURING THE FINANCIAL YEAR 2005- 06 RS.1,12,37,104/-. THE PROOF OF OFFERING THE SAME AS INCOME FOR THE AS SESSMENT YEAR 2006-07 WAS ENCLOSED AND THE DETAILS OF DEBIT NOTE WAS ALSO ENCLOSED. 12. THE CIT(APPEALS) AFTER CONSIDERING THE SUBMISSI ONS OF THE ASSESSEE AND THE ASSESSMENT ORDER, DIRECTED THE AO TO ALLOW DEDUCTION TO THE ASSESSEE ON ACCOUNT OF BAD DEBTS WRITTEN OFF. THE RELEVANT OBSERVATIONS OF THE CIT(APPEALS) ARE AS FOLLOWS:- 5.4 THUS THE QUESTION NOW TO BE CONSIDERED IS AS TO WHETHER THE BAD DEBTS WRITTEN OFF IN RESPECT OF FOR EIGN PARTIES ON ACCOUNT OF RAISING DEBIT NOTES IS AN ALLOWABLE DEDU CTION. THE CONTENTION OF THE AO IS THAT THERE SHOULD BE PERMIS SION FROM THE RBI BEFORE THE WRITE OFF WAS MADE. HOWEVER, THERE A RE NO SPECIFIC PROVISIONS IN THIS REGARD AND THE AOS REA SONING IS NOT JUSTIFIABLE. THE PROVISIONS U/S 36(1)(VII) R.W.S. 3 6(2) ARE SELF CONTAINED CODE AND THE ASSESSEE FULFILLED THESE CON DITIONS. UNDER SIMILAR CIRCUMSTANCES, THE HONBLE ITAT, MUMBAI BEN CH IN THE CASE OF SABRA IMPEX LTD. [141 TTJ (MUMBAI)(UO) 11] HELD THAT THE RBI DIRECTIVES CANNOT OVERRIDE THE STATUTORY PR OVISIONS OF EXPLANATION TO SECTION 36(1)(VII) OF THE ACT AND, T HEREFORE, THE ASSESSEES CLAIM FOR WRITE OFF OF BAD DEBTS PERTAIN ING TO FOREIGN PARTY COULD NOT BE DISALLOWED MERELY FOR WANT OF RB I APPROVAL. IN THE INSTANT CASE ALSO, THE INCOME ARISING ON ACC OUNT OF THE EXPORTS WAS ADMITTED BY THE APPELLANT IN THE ASSESS MENT YEAR 2006-07 AND ALL THE CONDITIONS AS REQUIRED U/S 36(1 )(VII) READ WITH SECTION 36(2) OF THE ACT ARE FULFILLED. RESPECTFULL Y FOLLOWING THE SAID DECISION, THE AO IS DIRECTED TO ALLOW THE DEDU CTION OF BAD ITA NO.674/BANG/2013 PAGE 16 OF 19 DEBTS WRITTEN OFF BY THE APPELLANT DURING THE PERIO D UNDER CONSIDERATION. 13. BEFORE US, THE LD. DR POINTED OUT THAT IN THE G ROUNDS OF APPEAL, THE DEPARTMENT HAS TAKEN AN OBJECTION THAT THE DECISION RENDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S SABRA IMPEX LTD. (SUPRA) HAS NOT ATTAINED FINALITY. WITHOUT PREJUDICE TO THE ABOVE SUBMISSION, IT WAS ALSO SUBMITTED BY HIM THAT THE D ISALLOWANCE MADE BY THE AO CAN BE SUSTAINED BY INVOKING EXPLANATION TO SECTION 37(1) OF THE ACT. 14. THE LD. COUNSEL FOR THE ASSESSEE, BESIDES RELYI NG ON THE ORDER OF THE CIT(APPEALS), ALSO FILED A COPY OF THE DECISION OF THE ITAT BANGALORE BENCH RENDERED IN THE CASE OF M/S. ACE DESIGNERS LTD. V. ADDL. CIT , ITA NO.1150(B)/2009 FOR THE A.Y. 2004-05 , WHEREIN SIMILAR VIEW HAS EXPRESSED BY THE MUMBAI BENCH OF THE TRIBUNAL IN TH E CASE M/S SABRA IMPEX LTD. (SUPRA) HAS BEEN TAKEN. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN T HE CASE OF M/S SABRA IMPEX LTD. (SUPRA) AS WELL AS IN THE CASE OF M/S. ACE DESIGNERS LTD. (SUPRA) , A CONSISTENT VIEW HAS BEEN TAKEN THAT NON- REALISATION OF EXPORT PROCEEDS FROM A FOREIGN PARTY CAN BE CONSIDERED AS A BAD DEBT AND WRITTEN OFF AND CLAIMED AS A DEDUCTION . IT WAS ALSO HELD THAT ITA NO.674/BANG/2013 PAGE 17 OF 19 THE FACT THAT PERMISSION OF RBI HAS NOT BEEN OBTAIN ED FOR SUCH WRITE OFF WILL NOT BE A BAR TO CLAIM DEDUCTION ON ACCOUNT OF SUCH BAD DEBTS WRITTEN OFF. THE FOLLOWING OBSERVATIONS OF THE BANGALORE BENCH O F THE TRIBUNAL IN THE CASE OF M/S. ACE DESIGNERS LTD. (SUPRA) ARE RELEVANT IN THIS REGARD:- 18. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE ISSU E WITH REGARD TO WRITE OFF OF BAD DEBTS AND THE CIRCUMSTAN CES UNDER WHICH THE SAME CAN BE CLAIMED AS DEDUCTION IS NOW W ELL SETTLED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S T.R.F LTD., VS CIT 323 ITR 397(SC). THE HONBLE SUP REME COURT IN THE AFORESAID DECISION, HELD AS FOLLOWS; AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE INCOME-TAX ACT, 1961, WITH EFFECT FROM APRIL 1, 1989, IN ORDER TO OBTAIN 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 ACCOUNTS OF THE ASSESSEE. 19. IN THE PRESENT CASE, THERE IS NO DISPUTE THAT THE ASSESSEE HAD NOT ONLY WRITTEN OFF THE AMOUNTS IN QUESTION IN THE PROFIT & LOSS ACCOUNT, BUT ALSO CLOSED THE INDIVIDUAL ACCOUN T OF THE DEBTOR. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW T HAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION HAS TO BE ALLOWED. W ITH REGARD TO THE PERMISSION OF THE RBI WHICH HAS NOT BEEN OBTAIN ED FOR THE PERIOD RELEVANT TO THE PREVIOUS YEAR, WE ARE OF THE VIEW, THAT THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS SAWHNEY EXPORTS SUPRA WILL BE SQUARELY APPLICABLE. ADMITTEDLY, THERE WAS APPROVAL OF THE RBI IN THE SUBSEQUENT ASS ESSMENT YEAR AND THEREFORE, THIS WOULD BE SUFFICIENT. WE ARE ALS O OF THE VIEW THAT THE CLAIM FOR DEDUCTION UNDER THE ACT, WILL HA VE NO RELEVANCE TO PERMISSION BY THE RBI. THUS, GROUND NOS.5 TO 7 B Y THE ASSESSEE ARE ALLOWED. ITA NO.674/BANG/2013 PAGE 18 OF 19 16. THE FACT THAT THE AFORESAID DECISION HAS NOT BE EN ACCEPTED BY THE REVENUE WILL NOT BE RELEVANT. FOLLOWING THE DECISI ONS OF THE TRIBUNAL REFERRED TO ABOVE, WE UPHOLD THE ORDER OF THE CIT(A PPEALS). 17. AS FAR AS THE ISSUE OF APPLICABILITY OF EXPLANA TION TO SECTION 37(1) OF THE ACT IS CONCERNED, WE ARE OF THE VIEW THAT THE A FORESAID EXPLANATION WILL APPLY ONLY WHEN AN EXPENDITURE IS INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW. IN OUR VIEW , THE SALE PROCEEDS TO BE RECEIVED FROM A FOREIGN BUYER WHICH ALREADY SHOWN A S INCOME AND WHICH IS NOW WRITTEN OFF AS IRRECOVERABLE, CANNOT BE SAID TO BE AN EXPENDITURE INCURRED BY THE ASSESSEE FOR ANY PURPOSE WHICH IS A N OFFENCE OR WHICH IS PROHIBITED BY LAW. WE THEREFORE REJECT THE CONTENT ION RAISED ON BEHALF OF THE REVENUE. GROUND NOS.6 & 7 ARE ACCORDINGLY DISM ISSED. 18. IN THE RESULT, THE APPEAL BY THE REVENUE IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF AUGUST , 2014 . SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 21 ST AUGUST , 2014 . /D S/ ITA NO.674/BANG/2013 PAGE 19 OF 19 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.