ACIT, New Delhi V. M/s. Khaitan Chemical & Fertilizers Ltd., New Delhi

ITA 726/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5031 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 22-05-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 07-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY VARMA
• Assessee Lawyers: VK JAIN CA SHRI VIKASH SINGH
• Keywords: Bad and doubtful debts; Provision of bad debts; Reassessment proceedings
• Section: 43B; 115JB; 147

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI H.S.SIDHU , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 72 6 /DEL/2014 (ASSESSMENT YEAR: 2003 - 04 ) ACIT, CIRCLE - 5(1), NEW DELHI VS. KHAITAN CHEMICAL & FERTILIZERS LTD, 201, SKIPPER HOUSE, 62 - 63, NEHRU PLACE, NEW DELHI PAN:AAACK2342Q (APPELLANT) (RESPONDENT) REVENUE BY : SHRI VIJAY VARMA, CIT DR ASSESSEE BY: SHRI VK JAIN, CA SHRI VIKASH SINGH, CA DATE OF HEARING 22/08 / 2017 DATE OF PRONOUNCEMENT 25 / 08 / 2017 O R D E R PER PRASHANT MAHARISHI, A. M. 1. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD CIT(A) - VIII, NEW DELHI DATED 08.11.2013 FOR THE ASSESSMENT YEAR 2003 - 04. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.32,34,481/ - ON ACCOUNT OF DISALLOWANCE OF PRIOR PERIOD EXPENSES WHICH WERE NOT RELATED TO THE YEAR UNDER CONSIDERATION? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 4,11,763/ - ON ACCOUNT OF DISALLOWANCE OF PROVISION OF BAD DEBTS FOR COMPUTING OF BAD DEBTS FOR COMPUTING OF BOOK PROFIT U/S 115JB? 3. WHETHER ON THE FACTS AND CI RCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 1,30,000/ - ON ACCOUNT OF DISALLOWANCE OF PROVISION OF GRATUITY FOR COMPUTING OF BOOK PROFIT U/S 115JB? 4. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND IS NOT TENAB LE ON FACTS AND IN LAW. 3. ASSESSEE IS A COMPANY, ENGAGED IN MANUFACTURING OF SELLING CHEMICALS, FERTILIZERS SEEDS SOYA ETC AND GENERATION OF POWER, FILED ITS RETURN OF INCOME SHOWING LOSS OF RS. 2 142349/ ON 28/11/2003. T HE ASSESSMENT UNDER SECTION 143 (3) OF THE INCOME TAX ACT WAS COMPLETED ON 29/12/2005, WHEREIN AN ADDITION OF RS. 113 5500/ WAS MADE TO THE TOTAL INCOME AND IT WA S ASSESSED AT THE LOSS OF RS. PAGE 2 OF 4 1 006849/ . SUBSEQUENTLY THE ASSESSMENT WAS REOPENED UNDER SECTION 147 OF THE INCOME TAX ACT . IN THE REASSESSMENT PROCEEDINGS IT WAS FOUND THAT ASSESSEE HAS DEBITED PRIOR PERIOD EXPENSES OF RS. 3 234481/ AND CREDIT ED PRIOR PERIOD INCOME OF RS. 2 167916/ AND THEREFORE NET PRIOR PERIOD EXPENDITURE WERE DEBITED TO THE EXTENT OF RS. 1 066565/ . THEREFORE ACCORDING TO THE A SSESSING OFFICER A SUM OF RS. 3 234481/ WAS PRIOR PERIOD EXPENDITURE WHICH CANNOT BE ALLOWED. DURING THE YEAR AND THEREFORE SAME WAS DISALLOWED AND TOT AL INCOME WAS ASSESSED AT RS. 1 546331 AFTER MAKING ABOVE ADJUSTMENT TO THE ALREADY ASSE SSED INCOME AFTER APPEAL WIDE ORDER DATED 17/09/2007 OF RS ( - ) 168 8150/ . 4. ALSO IN THE ASSESSMENT UNDER SECTION 115JB OF THE ACT. FURTHER ADJUSTMENT WAS ALSO MADE BY ADDING P ROVISION FOR BAD DEBTS OF RS. 4 11763/ AND PROVISION FOR GRATUITY OF RS. 1 30,000/ , CORRESPONDINGLY THE BOOK PROFIT WAS ASSESSED THAT RS. 5 604928/ COMPARED TO TH E ORIGINAL BOOK PROFIT OF RS. 5 063165/ . 5. ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO BY ORDER DATED 08/11/2013 DE LETED THE DISALLOWANCE OF RS. 3 234481/ ON ACCOUNT O F PRIOR PERIOD EXPENSES IN THE NORMAL COMPUTATION OF TOTAL INCOME. WHILE COMPUTING TH E BOOK PROFIT UNDER SECTION 115 JB OF THE INCOME TAX ACT. HE ALSO DELETED THE ADDITION OF RS. 4111763/ ON ACCOUNT OF DISALLOWANCE OF PROVISION OF BAD DEBTS AS WELL AS RS. 130000/ ON ACCOUNT OF DISALLOWANCE OF PROVISION OF GRATUITY. THEREFORE, THE LD. CIT(A) DELETED ALL THE ADDITION IN THE NORMAL COMPUTATION OF TOTAL INCOME AS WELL AS IN THE BOOK PROFIT MADE BY THE LD. AO IN HIS ORDER PASSED UNDER SECTION 143 (3) READ WITH SECTION 147 OF THE INCOME TAX ACT. THEREFORE, REVENUE IS IN APPEAL BEFORE US RAISING ABOVE GROUND OF APPEAL. 6. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. 7. REGARDING THE 1 ST GROUND OF APPEAL PERTAINING TO NORMAL COMPUTATION OF T OTAL INCOME , WHEREIN THE ADDITION OF RS. 3 234481/ WAS MADE ON ACCOUNT OF DISALLOWANCE OF PRIOR PERIOD EXPENSES WHICH HAS BEEN DEALT WITH LD. CIT(A) IN HIS ORDER AT PARA NO. 3.1 TO PARA NO. 3.6. THE LD. CIT(A) HAS DELETED THE ABOVE ADDITION HOLDING THAT THAT EXPENSES ARE ALLOWED IN THE YEAR IN WHICH THE LIABILITY TO BE INCURRED SUCH EXPENSES GETS CRYSTALLIZED AND QUANTIFIED. THE ABOVE PRINCIPLE WAS ALSO SUPPORTED BY THE ORDER OF HONBLE GUJARAT HIGH COURT IN CASE OF SAURASHTRA CEMEN T AND CHEMICAL INDUSTRIES LTD VS. CIT 213 ITR 523 AND OF HONBLE DELHI HIGH COURT IN CIT VS. MODIPON LTD 334 ITR 102. FURTHER, IN THE ASSESSMENT YEAR 2004 05. THE LD. CIT(A) ALSO DELETED THE ABOVE ADDITION BY HIS ORDER DATED 16/07/2007, WHICH WAS NOT CHA LLENGED. REVENUE COULD NOT POINT OUT ANY OTHER JUDICIAL PRECEDENT BEFORE US, WHICH SHOWS THAT PRIOR PERIOD PAGE 3 OF 4 EXPENDITURE IS NOT ALLOWABLE IN THE YEAR IN WHICH THEY ARE CRYSTALLIZED . THE MAJOR EXPENDITURE PERTAINING TO THE PRIOR PERIOD EXPENSES WAS WITH RESPE CT TO SALES TAX, AND CERTAIN OTHER MISCELLAN EOUS CHARGES AMOUNTING TO RS. 4 97030/ AND MAJOR EXPENDITURE OF RS. 2 586590/ ON ACCOUNT OF REBATE AND DISCOUNT. FURTHER, WITH RESPECT TO VARIOUS UNITS, THE MINOR EXPENDITURE WAS SHOWN AS PRIOR PERIOD EXPENDITURE . THE CLAIM OF THE ASSESSEE IS THAT REBATES AND DISCOUNT ON SALE OF PRODUCT PERTAINING TO EARLIER YEARS FOR WHICH THE DISCOUNT WAS GIVEN AND APPROVED DURING THE CURRENT YEAR. FOR THIS, THE ASSESSEE ESTABLISHED IT BY PRODUCING OFFICE MAY MORE DATED 15/2/200 3, WHICH SHOWS THAT SUCH EXPENDITURE HAVE BEEN CRYSTALLIZED DURING THE YEAR. IT IS NOT THE CASE OF THE REVENUE THAT EXPENDITURE HAVE BEEN CRYSTALLISED IN EARLIER YEAR AND ASSESSEE HAS NOT DEBITED IN THE BOOKS OF ACCOUNTS I N THAT YEAR, BUT H AS CLAIMED THESE EXPENDITURE IN THIS YEAR. FURTHER, WITH RESPECT TO SALES TAX AND OTHER TAXES IT IS APPARENT THAT THEY ARE ALLOWABLE ONLY WHEN THEY ARE PAID AS PER PROVISIONS OF SECTION 43B OF THE INCOME TAX ACT. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN THE ORDER O F THE LD. CIT(A) IN DELETING THE ABOVE DISALLOWANCE ON ACCOUNT OF PRIOR PERIOD EXPENSES AS THEY HAVE CRYSTALLIZED DURING THE YEAR. IN THE RESULT GROUND NO. 1 OF THE APPEAL OF THE REVENUE IS DISMISSED. 8. NOW COMING TO THE COMPUTATION OF TOTAL INCOME UNDER SEC TION 115 JB OF THE ACT, THE REVENUE HAS MADE TO ADJUSTMENT AND GROUND NO. 2 AND 3 OF THE APPEAL OF THE REVENUE CHALLENGE BOTH. 9. SUM OF RS. 4 11763/ WAS DISALLOWED ON ACCOUNT OF PROVISION FOR BAD DEBTS WHICH HAS BEEN DELETED BY THE LD. CIT (A) BY RELYING ON TH E DECISION OF THE HONBLE SUPREME COURT IN CASE OF CIT VS. HCL COMNET SYSTEMS AND SERVICES LTD 305 ITR 49. NO OTHER JUDICIAL PRECEDENT WAS POINTED OUT BEFORE US. THEREFORE, WE CONFIRM THE FINDING OF THE LD. CIT (A) IN DELETING THE DISALLOWANCE ON ACCOUNT OF PROVISION FOR BAD AND D OUBTFUL DEBTS UNDER SECTION 115 JB OF THE INCOME TAX ACT. THEREFORE, GROUND NO. 2 OF THE APPEAL IS DISMISSED. 10. GROUND NO. 3 OF THE APPEAL WAS WITH RESPECT TO THE ADDITION ON ACCOUNT OF PROVISION FOR GRATUITY UNDER SECTION 115 JB OF TH E ACT O F RS. 1 30000/ . THE LD. CIT (A) HAS ALSO DELETED THE ABOVE ADDITION HOLDING THAT PROVISION FOR GRATUITY WAS MADE ON THE BASIS OF PREMIUM PAID TO LIFE INSURANCE CORPORATION OF INDIA, AS PER ACTUARIAL VALUATION. SUCH PROVISION IS NOT CONTINGENT, BUT AC TUAL. LD. CIT(A) DECIDED THE ABOVE ISSUE IN FAVOUR OF THE ASSESSEE RELYING UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CIT VS. HEWLETT PACKARD INDIA P LIMITED 314 PAGE 4 OF 4 ITR 55. IN VIEW OF THIS, WE CONFIRM THE FINDING OF THE LD. CIT(A) IN DELETI NG THE ABOVE DISALLOWANCE, HENCE GROUND NO. 3 OF THE APPEAL IS DISMISSED. 11. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN COURT ON 2 5 / 08 / 2017 . - S D / - - S D / - ( H.S.SIDHU ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 5 / 08 / 2017 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI