PR. COMMISSIONER OF INCOME TAX-II ASHOK MARG LUCKNOW V. M/S U.P.STATE AGRO INDUSTRIAL CORPORATION LTD.LUCKNOW

IAPL/40/2017

AI Insights

The case involves two appeals by the Income Tax Department against M/s U.P. State Agro Industrial Corporation Ltd., concerning the disallowance of bad debts amounting to Rs. 5,97,61,000 for the assessment year 2012-13. The primary legal contention was whether the Income Tax Appellate Tribunal was justified in deleting the addition made by the Assessing Officer, who had disallowed the bad debts due to the unaudited status of the corporation's accounts at the time of assessment. The Tribunal and the Commissioner of Income Tax (Appeals) found that the bad debts were not claimed in the audited accounts, leading to the dismissal of the Department's appeals.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 728077 (HC-LUCKNOW)
• Appeal Type: Others
• Pronouncement Date: 06-01-2022
• Assessment Year: misc
• Other Referred Cases: Goetze (India) Ltd. Vs. CIT, National Thermal Power Company Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: MANISH MISHRA; RAJEEV SINHA
• Keywords: Audit; Bad debt; Commissioner of Income Tax (Appeals); Income tax appellate tribunal
• Section: 271(1)(c); 44 AB; 292-B; 260-A

Judgement Text

"1 Court No. - 2 (1) Case :- INCOME TAX APPEAL No. - 40 of 2017 Appellant :- Pr. Commissioner Of Income Tax-Ii Ashok Marg Lucknow Respondent :- M/S U.P.State Agro Industrial Corporation Ltd.Lucknow Counsel for Appellant :- Manish Mishra Counsel for Respondent :- Rajiv Kumar Sinha Alongwith (2) Case :- INCOME TAX APPEAL No. - 43 of 2017 Appellant :- Pr. Commissioner of Income Tax-II Ashok Marg Lucknow Respondent :- M/S UP State Agro Industrial Corporation Ltd. Lucknow Counsel for Appellant :- Rajeev Kumar Sinha Hon'ble Devendra Kumar Upadhyaya J. Hon'ble Subhash Vidyarthi J. (Per Subhash Vidyarthi, J.) 1. Since the controversy involved in both the appeals arises from the same dispute, these are being heard together and decided by a common judgement and order which is being passed treating Income Tax Appeal No. No. 40 of 2017, as the leading case. 2. Heard Shri Manish Mishra, learned counsel for the Appellant and Shri Rajiv Kumar Sinha, learned counsel for the respondent. 3. By means of the Income Tax Appeal No. 40 of 2017 filed under Section 260-A of the Income Tax Act, the appellant has challenged the judgement and order dated 09-06-2017 passed by the Income Tax Appellate Tribunal at Lucknow in Income Tax Appeal Number 112/LKW/2017. 4. The following two substantial questions of law have been framed in the memorandum of the appeal:- “Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT is justified in deleting the addition of Rs.5,97,61,000/– made on account of bad debt without appreciating the fact that the assessing officer made the addition as the books of accounts of the assessee corporation were not audited under section 40 4AB of the income tax act, 1961 and it could not be ascertained whether bandits were actually written off in the books or not? 2 Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT is justified in allowing the appeal of the respondent by recording a finding regarding the addition having been made by the assessing officer without looking into the audited balance sheet, while admittedly at the time of assessment the books of accounts were not audited, thereby rendering the said order perverse, erroneous and contrary to facts on record ?” 5. On 03.01.2018 this court had passed an order to the effect that the Income Tax Appeal No. 41 of 2017 has already been admitted on the same substantial questions of law and under the aforesaid circumstances this appeal was also admitted on the substantial questions of law as framed in the memorandum of appeal and reproduced above. 6. The respondent/assessee M/s U.P. State Agro industrial Corporation Ltd. is a company owned by the U.P. government and is engaged in trading of agricultural inputs to farmers like fertilizers, seeds, pesticides, cattle feed and implements etc. and also did purchasing of wheat and paddy under price support scheme of Central Government from farmers and delivered it to the Central Pool (FCI). 7. On 30.03.2015, the Assessing Officer passed the assessment order for the assessment year 2012–13 in respect of the assessee respondent, in which the following submission made on behalf of the assessee was categorically recorded: – “We are state government corporation and our accounts are audited by CAs appointed by Comptroller and Auditor General of India. We have divisions all over U.P. and Head Office at Lucknow. For each Division and Head Office, separate auditors are appointed by CAG. During the year there is a delay in appointment of auditors by C & AG for Divisional Officers and for Head Office. Audit of accounts are not finally completed yet.” 8. As the case was getting barred by limitation on 31.03.2015 in absence of audit report and the audit was still pending, the assessee filed its return by computing its income at Rs. 23,19,68,000/- on the basis of the returned income and adjustments reflected in the provisional accounts, which was later on revised to Rs.24,07,64,886/-. 9. In the Assessment Order dated 30-03-2015, the Assessing Officer has stated that in the profit and loss account (subject to audit) of the Assessee 3 Corporation for the relevant year, expenses amounting to Rs.5,97,61,000/- were claimed under the head “bad debts written off”. Since the books of accounts of the assessee corporation were not audited under section 44 AB of the Income Tax Act, the Assessing Authority held that it could not be ascertained whether the debts were actually finally written off in the books or not and the same was disallowed and added in the total income of the assessee. 10. The assessee filed an Appeal Number 71/09/JCID/R – VI/LKO/15-16 before the Commissioner of Income Tax (Appeal) -II, Lucknow, which was decided by means of a judgement dated 30-11-2016, recording a finding of fact “that the appellant had filed provisional accounts showing a profit of Rs.23,19,68,000/-. Later audited accounts were filed showing the profit of Rs.24,07,64, 886/-. The Assessing Officer has made an addition for the difference of Rs.87,96,886/- which means that the income has been taken as shown in the audited accounts. In the audited profit and loss account and balance sheet for the period under consideration amount of Rs.5,97,61,000/- has not been claimed by the appellant as bad debts. An expenditure which has not been claimed in the audited accounts cannot be disallowed.” The Appellate Authority deleted the addition of Rs.5,97,61,000/- made by the Assessing Officer on account of dis-allowance of bad debts. 11. The Income Tax Department challenged the aforesaid order dated 30- 11-2016 by filing ITA number 112/LKW/2017 before the Income Tax Appellate Tribunal at Lucknow, which has been dismissed by the impugned judgement and order dated 09-06-2017. The Income Tax Appellate Tribunal has recorded a categorical finding “that the assessee has not raised any claim of bad debt either in the profit and loss account or balance sheet. The Assessing Officer has made an addition having read provisional profit and loss account without looking to the audited balance sheet.” The Income Tax Appellate Tribunal accordingly dismissed the appeal filed by the department. 12. The Department has filed the present appeal under Section 260 of the Income Tax Act on the ground that the aforesaid finding is perverse. The Income Tax Appellate Tribunal is the final fact-finding authority. No 4 material has been placed on record to establish that the finding of fact recorded by the Commissioner of Income Tax and affirmed by the Income Tax Appellate Tribunal is perverse. In absence of any material brought on record to establish that the aforesaid findings of fact recorded by the Commissioner Income Tax and affirmed by the Income Tax Appellate Tribunal is perverse, we cannot interfere and set aside the aforesaid finding of fact treating it to be perverse. 13. Shri Manish Mishra, learned counsel for the appellant has placed reliance on a judgement of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT reported in (2006) 204 CTR SC 182 and has contended that there is no provision under the Income Tax Act to make amendment in the return of the income by moving an application at the assessment stage without revising the return. However, in the aforesaid case, the Hon’ble Supreme Court has been pleased to place reliance on the decision of National Thermal Power Company Ltd., (1998) 229 ITR 383 in which it has been held that it is open to the Authority to raise the points of law before the Appellate Tribunal under Section 254 of the Income Tax Act, 1961. 14. In the present case, the order of the Assessing Officer was challenged in appeal before the Commissioner. While deciding an appeal, the Commissioner has all the powers of Assessing Officer and he may affirm, reduce, endorse or annul the assessment. In the present case, the Commissioner, on the basis of material on record, recorded a categorical finding of fact, which has been affirmed by the Income Tax Appellate Tribunal in further appeal exercising the powers conferred on it by Section 254 (1) of the Income Tax Act, 1961 and we find no legal error in exercise of powers by the Income Tax Appellate Tribunal. 15. Accordingly we answer that substantial questions of law formulated in the appeal as follows: – (i) In view of the facts and circumstances of the case it is clear that the Income Tax Appellate Tribunal has committed no illegality in upholding the finding of fact recorded by the commissioner income tax deleting the addition of Rs. 5,97,61,000/- made on account of bad debt by holding that the assessee has not raised any claim of bad debts either in the profit and loss account or balance sheet. 5 (ii) In view of the facts and circumstances of the case the Income Tax Appellate Tribunal is justified in dismissing the appeal of the Department by affirming the finding of fact recorded by the Commissioner regarding the addition having been made by the Assessing Officer and the orders of the commissioner as well as the Income Tax Appellate Tribunal or not perverse or erroneous. 16. The Income Tax Appeal No. 43 of 2017 has been filed challenging the judgement and order dated 09.06.2017 passed in ITA No. 110/NKW/2017 by the Income Tax Appellate Tribunal, Lucknow Bench Lucknow, whereby the Income Tax Department’s appeal challenging the order Dated 30-11-2016 passed by the Commissioner Income Tax Appeals to Lucknow has been dismissed and the order of the Commissioner setting aside the penalty of Rs.1,00,20,000/-levied by the Assessing Authority under Section 27 (1) C of the Income Tax Act has been set aside. 17. This appeal was admitted by means of an order dated 07–01–2020 on the following substantial question of law:- “whether the learned Tribunal could have disallowed the three appeals filed by the revenue which had assailed the orders of the Commissioner of Income Tax (Appeals) whereby the penalty levied under section 271 (1) (c) of the Income Tax Act 1961 (as amended till date) by the Assessing Officer was deleted without taking into consideration the specific provision of law as contained under section 292-B of the Income Tax Act 1961 (as amended till date)?” 18. Since the order passed by the Assessing Officer holding that the assessee had wrongly claimed benefit of ‘bad debts written off’ was set aside by the Commissioner in appeal and the Commissioner’s order has been affirmed by the Income Tax Appellate Tribunal and Income Tax Appeal No. 40 of 2017 filed by the department against the aforesaid order of the Income Tax Appellate Tribunal has been dismissed, consequently this appeal is also liable to be dismissed. 19. In view of the aforesaid discussion, both the above noted Income Tax Appeals are hereby dismissed. Order Date :- 6.1.2022 Jaswant (Justice Subhash Vidyarthi) (Justice Devendra Kumar Upadhyaya) "