Intas Biopharmaceuticals Ltd., Ahmedabad V. The Dy.Commissioner of Income Tax,Circle-2(1)(1), Ahmedabad

ITA 865/AHD/2016

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 5292 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Next Hearing Date: 23-07-2024
• Assessment Year: misc
• Appeal Filed On: 06-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Bad and doubtful debts; TDS
• Section: 143(3); 115JB; 40(a)(ia); 195; 13; 22; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICAL MEMBER & SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 865/Ahd/2016 (िनधाᭅरण वषᭅ िनधाᭅरण वषᭅ िनधाᭅरण वषᭅ िनधाᭅरण वषᭅ / Assess ment Year : 2011-12) Int as Bi op ha r mac eu tic al s Lt d. Pl ot 42 3/ P/ A, S ar k hej Ba vla H ig hw a y, Mo rai ya , Sa nan d, A h med ab a d, Gu jar at , 38 22 13 बनाम बनामबनाम बनाम/ V s . Th e Dy . Co m mis si on er of In co me T ax Cir cl e- 2( 1)( 1) , Ah me dab ad ᭭थायी लेखा सं./जीआइआर सं./P A N / G IR N o . : A A BC I4 7 2 2 M (Appellant) . . (Respondent) अपीलाथᱮ ओर से /Appellant by : Shri Bandish Soparkar & Shri Parin Shah, ARs. ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Dr. Darsi Suman Ratnam, CIT. DR & Shri Ashish Rajesh Revar, Sr. DR D a t e o f H e a r i n g 24/07/2024 D a t e o f P r o n o u n c e m e n t 07/08/2024 O R D E R PER SHRI NARENDRA PRASAD SINHA, AM: This appeal is filed by the assessee against the order of the Co mmissioner of I nco me-Tax (Appe als)-7, Ah medaba d (in short ‘the C IT( A) ’) date d 20.01.2016 for the Assessment Year 2011-12. ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 2 – 2. The brief facts of the case are that the assesse co mpan y, M/s Int as Bi op har ma ce ut ica ls Lt d., is engaged in the business of manufacturing and marketing of bio-pharmaceutical products. The return of income for assessment year 2011-12 was filed on 28/09/2012 declaring total loss of (-) Rs.22,42,39,525/-. The assessment was completed u/s 143(3) on 09/02/2015 at loss of (-) Rs.16,99,42,180/- by disallowing certain claims made by the Company in the return of income. The assessee had preferred an appeal before the CIT( A) which was decided vide the i mpugned order. Aggrieved with the order of the CIT( A) , the a ssessee is now in appeal before us. 3. The assessee has taken the following grounds in this appeal: “1. In law and in the facts and circumstances of the appellant's case, the impugned Assessment Order and confirming by the Ld. CIT A, is void and deserves to be cancelled and/or modified. 2. In law and in the facts and circumstances of the appellant's case, the learned assessing officer has grossly erred and the Ld. CIT A has grossly erred in confirming, in the alleged excess deduction u/s. 35(2AB) by Rs. 50,34,302/- considered @ 200% of the amount of expenditure on clinical trials etc. laid out for the in house R&D. Without prejudice to the above, in law and in the facts and circumstances of the appellant's case, the learned assessing officer has grossly erred and the Ld CIT A has grossly erred in confirming the computation of the quantum of disallowance at 200% ie. Rs.50,34,302/-, even when as per the provisions of Indian income Tax Act u/sec. 35 the same is eligible for atleast 100% allowance at Rs.25, 17,151/-. 3. In law and in the facts and circumstances of the appellant's case, the learned assessing officer has erred and the Ld. CIT A has erred in confirming in disallowing interest expenses to the extent of Rs.212,94,836/- considering the same to be of capitalized on account Capital WIP of the assessee company. ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 3 – Further, the Ld. AO has erred in determining and the Ld. CIT A has erred in confirming that the quantum of the same should be net of the quantum of amount already capitalised by the appellant company and duly identified by the assessee company as interest debit during the year in P/L account and not availed deduction. Also, the Ld. AO has erred in determining and the Ld. CIT A has erred in confirming that, in the event, there is any amount finally determined to be of capital nature, the depreciation allowance in respect of the same be eligible to the assessee company commencing from the year of put to use of relevant assets. 4. In law and in the facts and circumstances of the appellant's case. the learned assessing officer has grossly erred and the Ld. CIT A has grossly erred in confirming in making further disallowance of Rs.16,35,331 on account of capital loss, while the same comprises a quantum of expenditure laid out on R&D which is eligible as allowance u/s 35 of the IT Act, the same should be duly allowed to the appellant company 5. In law and in the facts and circumstances of the appellant's case, the learned assessing officer has grossly erred and the Ld. CIT A has grossly erred in confirming, in the sales commission to foreign agents expenditure of Rs. 11,47,701 as ineligible expenditure under the provisions of the sec. 40, when the appellant company has while furnishing the details as desired by the Learned Assessing officer, clarified that the expenditure was not disallowable. 6. In law and in the facts and circumstances of the appellant's case, the learned assessing officer has grossly erred and the Ld. CIT A has grossly erred in confirming, in denying deduction, which was made based on valid claim during the assessment proceedings, towards bad Debts expenses of Rs.2,40,043/- (and w/off) and of Rs. 116,47,500/- (provided on account of the appellant's services provided, not yielding results) being debts w/off/provided during the year, The same should be duly allowed to the appellant company, if not to the full extent in the present assessment, should be allowed in the year of w/off. 7. In law and in the facts and circumstances of the appellant's case, the learned Assessing officer has grossly erred and the Ld. CIT A has grossly erred in confirming to the extent of Rs.240043 as referred to in ground no. 6 above, in working out the income liable to MAT.” ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 4 – 4. Ground No.1 is general in nature and does not require an y adjudication. Ground Number-2: Deduction u/s 35(2AB) 5. Ground No.2 pert ains to disallowance of Rs.50,34,3 02/- under Section 35(2AB) of the Inco me Tax Act, 1961 (in short ‘the Act ’). The assessee had clai me d weighted deduction of Rs.6,66,06,663/- under Section 35(2AB) of the Act @ 200% of in-house Researc h and Development (R&D) expenses of Rs.3,26,90,222/- and further R&D expenses towards building of Rs.12,26,219/-. In the course of assessment, the as sessee had filed the report of the Depart ment of Scientific and Industrial Research (DSIR) in For m No.3C L and it was f ound that expenditure to the extent of Rs.313.99 lacs only was approved by the DSIR. It was explained by the a ssessee that the quantum of expenditure certified in For m No.3CL excluded cli nical trial expenses, as the sa me were attributable to in-house R&D c enter. The AO held that the assessee was eligible to claim deduction under Section 35(2AB) of the Act o nly in r espect of e xpenditure of Rs.3,13,99,290/- as approved b y t he DSI R. According to the AO, the assessee was not eligible for clai m the weighted deduction @200% of R& D expenditure of Rs.25,17,151/-, which was not approved b y the DSI R. Accordingly, he disallowed a sum of Rs.50,34,302/- (being 200% of the a mount of Rs.25,17,151/- not approved by the DSIR) under Sectio n 35(2AB) ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 5 – of the Act. The disallowance as mad e b y the AO was c onfir med by the Ld . C IT( A) . 6. Shri Bandish Soparkar, Ld. AR for the assessee submitted that there was no require ment und er the provision of Section 35(2AB) of the Ac t that the expenditure has to be certified by the DSIR . Such a me ndment was bro ught on the statute w.e.f . 01.04.2016 only. Therefore, the AO was not corr ect in restricting the claim of the assessee on the basis of expenditure as certified by the DSI R. Per contra, Dr. Darsi Suman Ratnam the Ld. CI T- DR, supported the orders of the lower authorities. He sub mitted that the assessee had not properl y e xplained the difference of Rs.25,17,151/-, which was not approved by the DSI R, as the clinical trial expenses incurred b y the ass essee was Rs.14,33,967/- only. 7. We have considered the rival submiss ions. The AO has held that the deduction under Section 35(2AB) of the Act was ad missible only if the expenditure was approved by the DSIR. We find that at the relevant point of ti me ther e was no require ment of la w that R&D expenditure should be approved by the DSIR . The p rovision of Section 35(2AB) of the Act was a mended w.e .f. 01.04.2016 whereby the quantu m o f eligible expenditure incurred on in-house R&D facilit y was required to be quantified by t he DSIR . Prior to 01/04/2016, there was no such requirement f or quantification of the eligible expenditure by ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 6 – the DSI R for claiming the deduction. Mer el y because DSIR had quantified the total R&D expenditure in the current year, which is prior to 01.04.2016, the same was not binding on the revenue authorities. Theref ore, the Revenue was not correct in restricting the deduction u/s. 35(2AB) of the Ac t on the basis of the a mount quantified by the DSIR in their approval. Rather, the AO should have exa mined the correctness of the R&D expense of the assessee than me rel y rel ying on the expenditure approved by DSIR . 8. It is found that th e exact basis of clai m of deduction under Section 35(2AB) of the Act at Rs.6,6 6,06,663/- was not properly explained by the a ssessee in the case of assessment proceedings. The assessee had filed the details of the R&D expenses in the course of assess ment, as per which the total expenses was to the extent of Rs.3,39,16,441/-. If this figure is taken as correct, then the assessee should have clai med de duction of Rs.6,7 8,32,882/- @ 200% of the expenditure and not Rs.6,66,06,663/- as actually clai med. This indicates that the details of R&D expenditure as furnished was not correct. Further, the difference of Rs.25,07,151/- being expenditure not approved by the DSIR was also not properly e xplained b y the as sessee. Therefore, the matter is set aside to the file of the AO to corr ectl y v erif y the expenditure incurred b y the assessee on in-house R&D center and, thereafter, al low the deduction at the eligible rate, without taking into account the expenditure as certified by the DSIR . The ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 7 – ground ta ken b y the assessee is allowed for statistical purposes. Ground Number-3: Disallowance of interest u/s 36(1)(iii): 9. The next ground pertains to disallowance of interest expenses of Rs.2,12,94,836/-. The AO noticed that assessee had made huge addition to the fixed assets/CWI P during the year . He , therefore, called f or the working of capitalization of interest on C WIP . It was explained by the assessee that CWIP included an a mount of Rs.1,43,41,166/- towards interest capitalization by the assessee itself. The AO, however, was not satisfied with the explanation of the assessee. He, therefore, considered the borrowed funds of the assessee vis-à -vis C WIP and proportionate interest disallowance on C WI P was worked out in the following manner: B o r r o w e d F u n d a s o n 0 1 . 0 4 . 2 0 1 0 1 7 5 1 1 5 2 4 8 9 B o r r o w e d F u n d a s o n 3 1 . 0 3 . 2 0 1 1 9 0 6 1 7 1 5 2 5 A v e r a g e B o r r o w e d F u n d ( A ) 2 6 5 7 3 2 4 0 1 4 1 3 2 8 6 6 2 0 0 7 I n t e r e s t P a i d d u r i n g t h e y e a r ( B ) 1 1 2 1 4 4 0 1 1 C WI P f o r t h e y e a r a s o n 0 1 . 0 4 . 2 0 1 0 ( O t h e r t h a n R &D ) 3 4 3 0 9 7 2 3 7 C WI P f o r t h e y e a r a s o n 3 1 . 0 3 . 2 0 1 1 ( O t h e r t h a n R &D ) 1 6 1 4 9 7 5 0 4 A v e r a g e W I P ( C ) 5 0 4 5 9 4 7 4 1 2 5 2 2 9 7 3 7 1 ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 8 – P r o p o r t i o n a t e I n t e r e s t d i s a l l o w a n c e o n C W I P ( B X C / A ) 2 1 2 9 4 8 3 6 Accordingly, out of total interest expenses debited in the P&L account, a su m of Rs.2,12,94,836/- was capitalized towards C WI P under Section 36(1)(iii) of the Act a nd added to the total income of the assessee. The addition as ma de by the AO was upheld by the Ld. C IT( A) . 10. The Ld. AR explained that out of total interest expenditure of Rs.9.70 Crores, the assessee had itself capitalized Rs.3.02 Crores and interest of Rs.6.6 Cr ores only was c lai med as deduction in the P&L account. Considering this fact, the proportionate disallowance of intere st on C WI P as wor ked out b y the AO was not c orrect. He sub mi tted that identical issue was involved in the as sessee’s o wn case in the A.Y. 2013-14 which was decided in fav our of the assessee b y the Ld . I TAT i n ITA No. 400/Ahd/2018. He further sub mitted that the interest free funds of the assessee were much more than interest free advances which were utilized towards CWIP. The Ld. CIT- DR , on the other hand, supported the order of the lower authorities. 11. We have considered the rival sub mi ssions. It is found that the AO has not given an y re a son for working out the proportionate interest disallowance on C WIP. It is f ound from Note-12 of the accounts that the assessee had itself capitalized ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 9 – interest of Rs.14,341,166/- to CWIP- Tangibles and another interest amount of Rs.108,888,368/- to CWIP-Intangibles as on 31 s t March, 2011, which was duly certified b y th e auditor. Further, the AO has made the disallowance on the presu mption that all the interest bearing funds were utilized towards CWIP, which was not cor rect. F ro m the Sc hedule-B of balance sheet it is seen that the assessee had surplus reserve of Rs.3,392,038,627/- which also would have been deployed towards CWIP. In fact fresh share pre miu m of Rs.2,356,380,318/- was re ceived during the current yea r onl y. Considering this huge interest free funds available with the assessee the presu mption of the AO that onl y the interest bearing funds were utilized towards C WIP , was not correct. Therefore , t he disallowance as made b y the AO which was based on wrong p resu mption, can ’t be held as correct. It is further found that the identical issue was involved in assessee’s own case in A.Y. 2013-14 which was deci ded b y the Co-ordinate Bench of this Tribunal in IT A No. 400/Ahd/2018. The finding as given in the said order is reproduced below: “61. Ground No.3 raised by the Revenue reads as under: “3. The Ld CIT(A) had erred in deleting the disallowance of u/s.36(1)(iii) of the IT Act. “ 62. Briefly stated the AO noted substantial investment made by the assessee in capital work-in-progress (CWIP) increasing from Rs. 94.58 crs as at the beginning of the year to Rs.392.08 crs as at the end of the impugned year. He also found that the assessee had made huge payment of interest, to the tune of Rs.47.48 crs during the year. The assesses explanation of investment in CWIP being made out of own funds was rejected by the AO since the assessee failed to establish nexus and establish that borrowed funds were utilized for giving capital advances ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 10 – for the purpose of CWIP. Accordingly he held that borrowed funds had been used for investing in CWIP and computing the funds so allegedly deployed on CWIP on the average CWIP for the year he worked out the interest attributable to the same on proportionate basis amounting to Rs.15,11,66,895/-, which accordingly was disallowed in terms of section 36(1)(iii) of the Act. 63. The ld.CIT(A), however, noted that interest free funds owned by the assessee was much more than the interest free advances towards CWIP. He also noted, as a matter of fact, that the assessee company had earned sufficient profits for the purpose of making investment in CWIP during the year. Noting this fact and taking note of his decision rendered in the immediately preceding year in the case of the assessee for Asst.Year 2012-13, rendered in identical set of facts, he deleted the disallowance of interest made under section 36(1)(iii) of the Act. 64. Before us, the ld.DR was unable to controvert the factual finding of the ld.CIT(A) that the assessee’s own interest free funds were much more than its investment made in CWIP during the year, as also the fact that even the profits earned during the year sufficed for the purpose of making investment in CWIP during the year. The Ld.CIT(A) ‘s factual finding in this regard are at para 7.5 of his order as under: “7.5. It is apparent that the appellant had shown the CWIP advances of Rs.392,08,80,000/- while it had the interest free own funds of Rs.229,67,01,075/- as on 31/03/2013 and Rs. 13,11,19,51,186/- as on 31/03/2012. Thus, the interest free funds owned by the appellant were much more than the interest free advances towards CWIP. Thus, no interest bearing funds have been utilized for the purpose of CWIP advances. Even otherwise also the advances given towards CWIP were for the business purposes not for any other purposes. Further, during the year under consideration the appellant company had earned the profit after tax at Rs.547 crores during the year under consideration which was more than the total CWIP as on 31/03/2013.” Also the judicial proposition in this regard also stands settled by the decision of the Hon’ble Apex Court in the case of CIT Vs. Reliance Industries Ltd., 410 ITR 466(SC) holding that where mixed funds are available and where sufficient interest free funds are there the presumption is that the same were used for the purpose of making interest free investments, calling for no disallowance under section 36(1)(iii) of the Act. The Ld.DR was unable to point out any subsequent decision of the Hon’ble apex court unsettling the said proposition of law. 65. Since the Ld.DR was unable to controvert the findings of the Ld.CIT(A) both on facts as well as law we see no reason to interfere in the order of the ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 11 – ld.CIT(A) deleting the disallowance of interest amounting to Rs. 15,11,66,895/- made under section 36(1)(iii) of the Act. Ground of appeal No.3 is dismissed.” 12. Respectfully following the decision of the Co-ordinate Bench as well as considering the facts as discussed earlier, the disallowance of in terest of Rs.2,12,94,836/- as made by the AO is deleted. The ground ta ken by t he assessee is allow ed. Ground Number-4: Disallowance of capital loss: 13. The next ground pertains to disallowance of capital loss of Rs.16,35,331/-. The reason for disallowance as given by the AO in the assessment order is found to be as under: “ 6 . 1 F r o m t h e p e r u s a l o f t h e f i n a n c i a l s t a t e m e n t , it w a s n o t i c e d t h a t t h e r e w a s O p e n i n g a n d C l o s i n g C W I P a n d a d d i t i on t o a s s e t s m a d e d u r i n g t h e y e a r . D u r i n g t h e c o u r s e o f t h e s c r ut i n y v i d e p o i n t N o . 7 o f t h e n o t i c e u / s 1 4 2 ( 1 ) t h e a s s e s s e e w a s a s ke d t o f u r n i s h t h e d e t a i l e d w o r k i n g o f L o s s o n t h e s a l e o f a s s e t s w i t h a n e x p l a n a t i o n a s t o w h e t h e r i t w a s a d d e d b a c k t o t h e t o t a l i n c o m e o r n o t . I n r e s p o n s e , t h e a s s e s s e e s u b m i t t e d s o m e d e t a i l s o n t hi s i s s u e . A s n o c l a r i t y a n d c o n f o r m i t y w a s n o t i c e d b e t w e e n t h e C WI P a n d a d d i t i o n t o a s s e t s f r o m t h e d e t a i l s s u b m i t t e d b y t h e a s s e s s ee , v i d e o r d e r s h e e t e n t r y d a t e d 0 9 / 0 1 / 2 0 1 5 , f o l l o w i n g s p e c i f i c q u e r y w as r a i s e d : " A s p e r d e t a i l s p r o v i d e d v i d e a n n e x u r e 1 6 l e t t e r d at e d 0 9 / 0 1 / 2 0 1 5 i n r e s p e c t o f C W I P t o t a l c a p i t a l i z a t i o n i s s h o w n a t R s . 4 2 7 5 1 8 2 1 8 / - h o w e v e r a s p e r S c h e d u l e E t o t h e f i n a n c i a l s t a t e m e n t , t h e t o t a l a d d i t i o n t o F i x e d A ss e t s d u r i n g t h e y e a r i s r e p o r t e d a t R s . 3 9 5 4 0 0 0 1 5 / - o n l y . T h e r e fo r e , e x p l a i n t h e r e a s o n o f d i f f e r e n c e o f R s . 3 2 1 0 9 3 0 3 / A ls o e x p l a i n a s t o w h y t h e d i f f e r e n c e a m o u n t s h o u l d n o t b e a d d e d b a c k . " 6 . 2 I n r e s p o n s e , t o t h e a b o v e s p e c i f i c q u e r y , t h e as s e s s e e f i l e d a r e c o n c i l i a t i o n s h o w i n g o p e n i n g b a l a n c e o f C WI P , a d di t i o n , ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 12 – d e d u c t i o n a n d c l o s i n g b a l a n c e o f C WI P a l o n g w i t h a dd i t i o n s a n d d e d u c t i o n s t o t h e a s s e t s . F o r t h e s a k e o f c l a r i t y th e s a m e i s r e p r o d u c e d b e l o w : " W e w i s h t o s u b m i t t h a t t h e a m o u n t s h o w n a s d e d u c t io n c o l u m n i n C W I P m o v e m e n t c o m p r i s e s o f t h e c r e d i t s t ow a r d a m o u n t c a p i t a l i z e d t o t h e A s s e t s B l o c k a s w e l l a s am o u n t s t h a t a r e r e d u c e d f r o m C W I P f o r r e v e r s a l o r a d j u s t m en t o f a d v a n c e s a g a i n s t C W I P e x p e n d i t u r e b o o k i n g . A l s o t h e a m o u n t o f a d d i t i o n i n A s s e t s b l o c k c o m p r i s e s o f c a p i t a l i z a t i o n o f C W I P o r d i r e c t b o o k i n g o f a n a d d it i o n i n t h e a s s e t s b l o c k , t h u s t h e r e c a n n o t b e a s c o p e o f an y i n f e r e n c e t h a t , u n m a t c h e d a m o u n t s h o u l d b e a d d e d a s i n c o m e . " 6 . 3 T h e a b o v e r e p l y o f t h e a s s e s s e e a n d t h e r e c o n c il i a t i o n f i l e d h a v e b e e n t h o r o u g h l y p e r u s e d . I t i s n o t i c e d t h a t t he a s s e s s e e h a s b e e n a b l e t o e x p l a i n a l m o s t t h e m a j o r a m o u n t o f d i ff e r e n c e v i d e i t s r e c o n c i l i a t i o n c h a r t s h o w i n g i n t e r n a l t r a n s f e r . H o we v e r , t h e a s s e s s e e f a i l e d t o e x p l a i n t h e d i f f e r e n c e a m o u n t i n g t o R s . 1 6 3 5 3 3 1 / - ( R s . 8 9 6 0 9 4 1 4 - R s . 6 7 9 7 4 0 8 3 ) o n a c c o u n t o f a d d i t i o n t o C WI P , T h e r e f o r e , t h e A R o f t h e a s s e s s e e w a s a g a i n r e q u e s te d t o e x p l a i n w h e r e t h e d i f f e r e n c e a m o u n t o f C WI P o f R s . 1 6 3 5 3 3 1 /- h a s b e e n a c c o u n t e d f o r . I t w a s a l s o a s k e d a s t o w h y i t s h o u ld n o t b e t r e a t e d a s c a p i t a l i t e m s w r i t t e n o f f t o t h e e x t e n t o f t h e am o u n t o f R s . 1 6 3 5 3 3 1 / - a n d a c c o r d i n g l y b e t r e a t e d a s c a p i t a l l o ss i n a b s e n c e o f a n y e x p l a n a t i o n a n d e v i d e n c e s a n d b e d i s a l l o w e d a n d a d d e d b a c k t o t h e t o t a l i n c o m e o f t h e a s s e s s e e . 6 . 4 I n r e s p o n s e , t h e A . R . o f t h e a s s e s s e e d i d n o t of f e r a n y e x p l a n a t i o n a n d a l s o w a s u n a b l e t o e x p l a i n t h e r e a so n o f t h e d i f f e r e n c e . F u r t h e r , t h e A . R . o f t h e a s s e s s e e a l s o f a i l e d t o e x p l a i n a s t o w h e r e t h i s d i f f e r e n c e h a s b e e n a c c o u n t e d f o r i n t h e b o o k s o f a c c o u n t . T h u s , t h e a s s e s s e e d i d n o t p r o v e a n d j u s t if y t h e w h e r e a b o u t s o f t h e a c c o u n t i n g o f t h e a m o u n t o f C WI P o f R s . 1 6 3 5 3 3 1 / - . T h u s , t h e a s s e s s e e f a i l e d t o e x p l a i n t h e d i f f e r e n c e a m o u n t o f a d d i t i o n t o C WI P o f R s . 1 6 3 5 3 3 1 / - . T h u s , th e d i f f e r e n t i a l a m o u n t o f R s . 1 6 3 5 3 3 1 / - i s c o n s i d e r e d a s a s s e t w r i tt e n o f f a n d t r e a t e d a s C a p i t a l L o s s i n a b s e n c e o f e x p l a n a t i o n an d e v i d e n c e s a n d i s d i s a l l o w e d a n d a d d e d b a c k t o t h e t o t a l i n c o m e o f t h e a s s e s s e e . P e n a l t y p r o c e e d i n g s u / s . 2 7 1 ( 1 ) ( c ) i s b e i n g i n i t i a t ed s e p a r a t e l y f o r f u r n i s h i n g i n a c c u r a t e p a r t i c u l a r s o f i n c o m e . ” ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 13 – The addition as made b y the AO was confir med by the Ld . CIT( A). 14. The Ld. AR sub mitted that AO was not correct in ma king disallowance of R s.16,35,331/- on account of capital loss as the sa me co mprised a quantum of expenditure laid down on R&D which was eligible for allowance under Section 35 of the Act. He further submitted that if not allowed as revenue expenses, then the capital loss as deter mined b y the AO should be allowed to be carried for ward. Per contra, the Ld. CI T-DR supported the order of the lower authorities. He sub mitted that the assessee had failed to explain the difference in the addition to CWIP and this was not an actual capital loss which can be allowed c arr y forward, as clai med b y the ass essee. 15. We have carefull y considered the rival submissions. The assessee was unable to establish or reconcile the difference of an a mount of Rs.16,35,331/- on account of addition to C WIP . The sa me was treated as asset written of f b y the AO and d isallowed as capital loss. In essence, the assessee had failed to e xplain the difference a mount of C WIP additions of Rs.16,35,331/- and its allocations towards capitalization and internal transfers. The details of this unreconciled CWI P was filed befo re the Ld. CIT( A) with a cla i m that sa me was eligible for deduction under Section 37 of the Act or alternatively as capital loss. The fact re mains that the a mount of Rs.16,35,331/- in respect of C WI P ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 14 – additions re maine d unreconciled. As this clai m was not on revenue account, but in respect of C WIP which was to be allocated to fixed assets, the clai m was ce rtainly not on revenue account and ineligible for deduction under Section 37 of the Act . As regards the clai m of capital loss, in order to claim the carr y forward of the loss, the sa me has to be first established. This is not the case wher e the assessee ha d incurred an y c apital loss. Rather the addition to CWI P was not fully justified b y the assessee and the amount of Rs.16,35,331/- re mained unreconciled which cannot be considered as actual capital loss. The refore, we do not find anything wrong with the treat ment as given by the AO. The decision of Ld. CI T( A) on this issue is, therefore, upheld and the ground take n by the assessee is dis missed. Ground Number-4: Disallowance u/s 40(a)(ia): 16. Ground No.5 pertains to disallowance of Rs.11,47,701/- in respect of co mmission paid to non-residents under Se ction 40(a)(ia) of the Act. The AO found that no TDS was de ducted by the assessee in respect of co mmission paid to the non-residents. It was contended by the assessee that non-residents to who m the co mmission was p aid had rendered s ervices outside India and that their income was not taxable in India. Accordingly, a re quest was made not to disallow the foreign commission merel y because of non-deduction of TDS under Section 195 r.w.s . 40(a)(ia) of the Act. The AO, however, was of the opinion that the source of ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 15 – income of the non-residents was in India and, ther efore, their income was dee me d to be accrued or arisen in India under Section 9(1)(i) of the Act. Accordingl y, he r ejected the contention of the assessee and disallowed the co mmis sion paid to the non-resident under Section 40(a)(ia) of the Act. 17. The Ld. AR sub mitted that this issue was not dealt by the Ld. CI T( A) and no finding has been given in this regard in his order. He , howev er, sub mitted that identical issue was involved in assessee’s own case in A.Y. 2013-14 in ITA No.400/Ahd/2018 and relief was gra nted to the assessee. The Ld. CIT.DR, on the other hand, relied upon the order of the AO. 18. We have carefull y considered the rival submissions. It is found from the co py of the For m No .35 filed b y the as sessee that no specific ground was taken before the Ld. CI T(A) in respect of addition of Rs.11,47,701/- under Section 40(a)(ia) of the Act. Therefore, the Ld . CIT(A) cannot be faulted for not giving any finding on this issue, when the matt er was not specifically raised before hi m. Howe ver, considering the fact that this issue was also involved in assessee’s o wn case in A.Y. 2013-14 where the issue was decided in the favour of the assessee, we dee m i t proper to set aside the matter to the file of the Ld. CIT(A) to exa mine the matter on the meri ts of the case. The assessee is also directed to raise a specific gr ound in this regard before the Ld. CIT( A) in order to enable him to exa mine the matter on the meri ts, within a ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 16 – reasonable period of ti me . The gr ound of assessee is allow ed for statistical purposes. Ground Number-5: Disallowance of provision of bad debt: 19. Ground Nos.6 & 7 pertain to disallowance of provision of bad debt of Rs.1,18,87,543/-. The AO noticed that the assessee had debited an a mount of Rs.1,18,87,543/- on account of provision of bad debts in its P&L account. The sa me was disallowed by the AO for the reaso n that the bad debt was not actually written off b y the assessee during the year under consideration and the addition as ma de b y the AO was upheld by the Ld. C IT( A) . 20. The Ld. AR sub mitted that the a mount of Rs.1,18,87,543/- was offered b y the assessee as income in the earlier years. He further explained that though the amount was shown as provision of bad debt in the current year , the sa me was reduced fro m debtor’s account and was, therefore, eligible for deduction in the current year itself. In this regard, he placed reliance on the decision of Hon ’ble Gu jarat High C ourt in the case of Vodafone Essar Gujarat Ltd. 397 IT R 55 ( Guj.). 21. Per contra, Ld. C IT.DR sub mitted that the nature of the clai m was exa mi ned by the AO i n the course of assessment proceedings and f ound to be in the nature of provision for bad ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 17 – debt only. The AO had made speci fic quer y about the nature of this claim and as per the finding given by hi m the a mount was not actually written off in the curren t year . Therefore , the cla i m being in the nature of provision for bad debt was rightly disallowed b y the AO and accordingly the order of the Ld. C IT( A) on this issue was correct. 22. We have carefull y considered the rival submissions. It is found fro m Schedule-S of the audited account that the assessee had clai med deduction of Rs.1,18,15,926/- on account of provision for bad debts. As per the pr ovision of Section 36(1)(vii) of the Act, a mou nt of an y bad de bt which is written off as irrecoverable in t he accounts of th e assessee can be allowed as deduction. Further, Explanation 1 to Section 36(1)(vii) of the Act categoricall y stipulates that any bad debt or part thereof written off as ir re coverable in the a ccounts of the assessee shall not include any pr ovision for bad and doubtful debts made in the accounts of the as sessee. The deduction in respect of provision for bad and doubtful debt is ad missible under Section 36(1)(viia) of the Act, which is applicable to banking companies, financial institutions, non-banking financial co mpan y etc. and the said provision is not applicable in the case of present assessee. Therefore, we ha ve to exa mine the clai m for deduction of the assessee in accord ance with the pro vision of Section 36(1)(vii) of the Act. ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 18 – 23. The basic requirement for clai ming deduction under Section 36(1)(vii) of the Act is that the bad debt should be written off as irrecoverable in the accounts of the assessee for the previous year , in which the deduction is clai med. Further that, such clai m should not be on a ccount of an y ‘provision for bad and doubtful debts’. This aspect was exa mined by the AO in the course of assessment and he has given the following finding in this regard: “ 4 . 2 S i n c e t h e a b o v e r e p l y o f t h e a s s e s s e e w a s n o t g i v i n g a n y c l a r i t y o n t h i s I s s u e a n d t h e a s s e s s e e h a d n o t f u r ni s h e d a n y e v i d e n c e s t o e s t a b l i s h i t s c o n t e n t i o n t h a t t h e p r o vi s i o n f o r B a d D e b t s w e r e a c t u a l l y B a d D e b t s Wr i t t e n O f f , t h e a s s es s e e w a s a f f o r d e d a n o t h e r o p p o r t u n i t y t o f u r n i s h j u s t i f i c a t io n a n d e v i d e n c e s i n s u p p o r t o f i t s c l a i m . I n r e s p o n s e , a g a i n t h e a s se s s e e v i d e l e t t e r d a t e d 1 6 / 0 1 / 2 0 1 5 s t a t e d t h e v e r y s a m e r e p l y w h i c h wa s f i l e d b y i t v i d e l e t t e r d a t e d 0 9 / 0 1 / 2 0 1 5 . I t i s r e l e v a n t t o m e nt i o n t h a t t h e d e t a i l s i n s u m m a r y s u p p l i e d b y t h e a s s e s s e e o f t h e p a r t i e s a l s o p r o v e t h a t i t w a s a r u n n i n g a c c o u n t w h e r e o p e n i n g a n d c l os i n g b a l a n c e s w e r e r u n n i n g a n d i t w a s n o t w r i t t e n o f f . S i n c e t h e a s s e s s e e r e p e a t e d l y w a s n o t g i v i n g f u l l d e t a i l s t o j u s t i f y it s c l a i m o f p r o v i s i o n f o r B a d D e b t s , v i d e o r d e r s h e e t e n t r y d a t e d 2 8 / 0 1 / 20 1 5 t h e A R o f t h e a s s e s s e e w a s a s k e d t o e x p l a i n a s t o w h y a s u m of R s . 1 1 6 4 7 5 0 0 / - a s s h o w n b y t h e a s s e s s e e a s f o r e i g n r e c e i v a b l e s t o wa r d s s e r v i c e s i n c o m e n o t r e a l i z e d i n i t s r e p l y d a t e d 0 9 / 0 1 / 2 0 1 5 (r e p r o d u c e d a b o v e ) w h i c h i s a t h e m a j o r p a r t o f B a d D e b t s P r o v is i o n o f R s . 1 1 8 8 7 5 4 3 / - w a s a d d e d b a c k b y t h e a s s e s s e e w h i l e c a lc u l a t i n g t h e b o o k p r o f i t u / s . 1 1 5 J B o f I T A c t I f i t w a s B a d D e b t Wr i t t e n O f f a n d n o t t h e B a d D e b t P r o v i s i o n , t h e A R o f t h e a s s e s s e e f a i l e d t o o f f e r a n y e x p l a n a t i o n . 4 . 3 T h u s , c o n s i d e r i n g t h e f a c t s a n d c i r c u m s t a n c e s of t h e c a s e i t i s e v i d e n t t h a t t h e c l a i m o f B a d D e b t P r o v i s i o n o f R s . 1 1 6 8 7 5 4 3 / - w a s p a t e n t l y a w r o n g l y c l a i m w h i c h i s n o t a l l o w a b l e a s p e r t h e p r o v i s i o n s o f t h e l a w . A c c o r d i n g l y , c l a i m o f B a d D eb t P r o v i s i o n o f R s . 1 1 8 8 7 5 4 3 / - i s d i s a l l o w e d a n d a d d e d b a c k t o t h e to t a l i n c o m e o f t h e a s s e s s e e . F u r t h e r , a n a m o u n t o f R s . 2 4 0 0 4 3 / - i s a l s o l i a b l e f o r a d d i t i o n t o t h e B o o k P r o f i t u / s 1 1 5 J B o f I T A c t . ” ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 19 – 24. It is, thus, evident fro m the above f acts that the provision for bad debt as c lai med in the cur rent yea r was not actuall y written off in this yea r. A cop y of the letter dated 29.01.2015 filed b y the assessee before the AO has been brought on record, which is reproduced below: ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 20 – It is evident from the above reply of the assesse e that the provision for bad debt as debited to the accounts of t he current year was not actually written off in t he current yea r. The assessee had itself submitt ed that these debts were actuall y wr itten off in the next year and had accordingly re quested the AO to allow the deduction for the bad debt in the A.Y. 2012-13. In view of these facts, we do not find anything wrong with the orders of the AO and the CIT( A) on this issue. 25. As regarding reliance of the assessee on the decision of Hon’ble Gujarat High Court in the case of Vodafone Essar Gujarat Ltd. (supra), it is found that the ratio involved in that case was in respect of consideration of provision for bad and doubtful debt to work out the book profit for co mputation of M AT liability under Sec tion 115JB of the Act. On the other hand, the issue before us is allowability of deduction in r espect of provision for bad debt under Section 36(1)(vii) of the Act. In view of this mater ial difference, the ratio of the decision of the Hon’ble Gujarat High Court in the case of Vodafone Essar Gujarat Ltd. (supra) cannot be i mpor ted to the facts of the present case. 26. In view of the abo ve facts and discussions, we do not find any merit in the gr ound as taken by the assessee. The a ddition of ITA No. 865/Ahd/2016 [Intas Biopharmaceuticals Ltd. vs. DCIT] A.Y. 2011-12 - 21 – Rs.1,18,15,926/- on account of provision for bad debts is upheld and the ground of the assessee is dismissed. 27. In the result, appeal preferred b y the assessee is allowed in part. This Order pronounced on 07/08/2024 Sd/- Sd/- (SUCHITRA KAMBLE) (NARENDRA PRASAD SINHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 07/08/2024 S. K. SINHA True Copy आदेश कᳱ ᮧितिलिप अᮕेिषत आदेश कᳱ ᮧितिलिप अᮕेिषतआदेश कᳱ ᮧितिलिप अᮕेिषत आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant 2. ᮧ᭜यथᱮ / The Respondent. 3. संबंिधत आयकर आयुᲦ / Concerned CIT 4. आयकर आयुᲦ(अपील) / The CIT(A)- 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडᭅ फाईल / Guard file. आदेशानुसार आदेशानुसारआदेशानुसार आदेशानुसार/ BY ORDER, उप उपउप उप/सहायक पंजीकार सहायक पंजीकारसहायक पंजीकार सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद अहमदाबादअहमदाबाद अहमदाबाद / ITAT, Ahmedabad