THE COMMISSIONER OF INCOME TAX V. M/S IBM INDIA PVT LTD

ITA/392/2011

AI Insights

The case involves the Commissioner of Income-Tax and the Deputy Commissioner of Income-Tax as appellants against IBM India Pvt. Ltd. as the respondent. The appeal, under Section 260A of the Income Tax Act, 1961, challenges the tribunal's decision regarding the treatment of bad debts and other deductions under Section 10A of the Act for the assessment year 2002-03. The main legal issues pertained to the interpretation of mandatory versus directory compliance with RBI conditions and the Income Tax Act concerning the maintenance of separate accounts for STP and non-STP units, the entitlement to double deduction under Section 10A, and the treatment of expenses related to export turnover. The tribunal's findings on these issues were contested, leading to this appeal.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 728424 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 03-11-2020
• Assessment Year: misc
• Other Referred Cases: T.R.F. LTD. VS. COMMISSIONER OF INCOME-TAX, COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE VS. FUSION SOFTWARE ENGG. (P.) LTD., COMMISSIONER OF INCOME TAX, BANGALORE VS. MILENNIA DEVELOPERS (P.) LTD.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: PERCY PARDIWALLA; VANI
• Assessee Lawyers: K V ARVIND
• Keywords: Assessment Year 2002-03; Bad debts; Foreign Inward Remittance Certificate; Income Tax; Tribunal; Write off
• Section: 36(1)(vii); 10A; 260-A

Judgement Text

"1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 3RD DAY OF NOVEMBER 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.392 OF 2011 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX C.R.BUILDING QUEENS ROAD BANGALORE. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE - 11(1), C.R.BUILDING QUEENS ROAD, BANGALORE ... APPELLANTS (BY SRI. K.V.ARVIND, ADV.,) AND: M/S IBM INDIA PVT. LTD., SUBRAMANYA ARCADE NO.12, BANNERGHATTA MAIN ROAD BANGALORE - 560 029. ... RESPONDENT (BY SRI. PERCY PARDIWALLA, SR. COUNSEL A/W SMT. VANI. H, ADV.) - - - THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 24.06.2011 PASSED IN ITA NO.1151/BANG/2009 FOR THE ASSESSMENT YEAR 2002-03, PRAYING TO: 2 (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (II) ALLOW THE APPEAL AND SET ASIDE THE ORDER DATED 24.06.2011 PASSED BY THE ITAT, BANGALORE IN ITA NO.1151/BANG/2009 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(1), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. THIS ITA COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2002-03. The appeal was admitted by a bench of this Court vide order dated 28.03.2012 on the following substantial questions of law: (i) Whether the tribunal was correct in holding that whether the appellate authority were correct in holding that maintenance of separate accounts for STP units and non STP units was only directory and not mandatory in accordance with RBI conditions, Government Notification and Income Tax Act? 3 (ii) Whether the Appellate Authority were correct in holding that payments made to sub contractors who have separately exported and have been issued foreign inward remittance certificate and have also claimed 10A deduction will also be entitled to double deduction under Section 10A of the Act in hands of the assessee? (iii) Whether the tribunal was correct in holding that the expenses like freight, telephone charges and insurance attributable to the delivery of articles or things on computer software outside India reduced from export turnover should be reduced from total turnover while computing deduction under Section 10A of the Act? (iv) Whether the tribunal was correct in holding that the assessee is entitle for write off of a sum of Rs.12,72,91,172/- as bad debts before the debt becoming bad merely on the write off of the assessee without following the law laid down by the Apex Court in the case of TRF Ltd., 323 ITR 397 4 and recorded a perverse finding? (v) Whether the tribunal was correct in allowing the write off as bad debt in the facts and circumstances of the present case, when invoices were raised few months prior to the write off of the debtors were reputed companies including Government undertakings and business was continued with the debtors by the assessee without establishing the debt has become bad and recorded a perverse finding? 2. Learned counsel for the revenue with reference to substantial question of law Nos.4 & 5 submitted that after amendment to Section 36(1) of the Act, with effect from 01.04.1989, it is not necessary for the assessee to establish that the debt in fact, has become irrecoverable. However, the assessee has to show the bad debt is written off as irrecoverable in the accounts of the assessee. However, the tribunal in the instant case, has not satisfied itself with the aforesaid requirement and therefore, the matter deserves to be 5 remitted to the tribunal. On the other hand, learned Senior counsel for the assessee has invited our attention to the compilations filed before the tribunal and has invited our attention to the details of the debts written off by the customers and has relied on the judgments in 'T.R.F. LTD. VS. COMMISSIONER OF INCOME-TAX', (2010) 323 ITR 397 (SC) and decisions of this court in 'COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE VS. FUSION SOFTWARE ENGG. (P.) LTD.', (2012) 18 TAXMANN.COM 57 (KARNTAKA), 'COMMISSIONER OF INCOME TAX, BANGALORE VS. MILENNIA DEVELOPERS (P.) LTD.', (2018) 100 TAXMANN.COM 369 (KARNATAKA). 3. We have heard the learned counsel for the parties at length. For the reasons assigned in our judgment passed today in I.T.A.No.286/2010 passed in the case of assessee itself in respect of Assessment Year 2000-01, the substantial questions of law Nos.1 to 3 are answered against the revenue and in favour of the 6 assessee. The relevant extract of the order passed by the tribunal pertaining to bad debts reads as under: Bad debts: At the out-set, we would like to point out that once the assessee had written off debts as irrecoverable in his / its accounts, the assessee need not be required to prove that they have become bad etc. Our view is in consonance with the various judicial pronouncements on the issue, chiefly- (i) in the case of Lawlys Enterprises P.Ltd. vs. CIT reported in (2009) 314 ITR 297 (Patna) the Hon'ble Patna High Court was pleased to observe that - \"The laws as amended with effect from April 1, 1989, permitted deduction of the amount of any bad debt or part thereof, which was written off as irrecoverable in accounts of the assessee for the Previous Year. The assessee having written off the amount as irrecoverable in its accounts for the Previous Year was entitled to deduction of the amount of the bad debt. ….' 7 (ii) The Hon'ble High Court of Himachal Pradesh in the case of Suresh Gaggal vs. ITO reported in (2009) 222 CTR (HP) 96 had held that - \"Once the assessee writes off the debt as irrecoverable, his claim for deduction cannot be rejected on the ground that the debt has not been established to have become irrecoverable. The aforesaid position is also supported by the amendment made to S.36(2) w.e.f.1st April 1989 and any doubt, if remaining, has been clarified by Circular No.551 dated 23rd January, 1990. (iii) The Hon'ble Bombay High Court, in the case of CIT vs. Star Chemicals (Bombay) P. Ltd. reported in (2009) 313 ITR 126 (Bom), in its wisdom had held that \"under Section 36(1)(vii) of the Income Tax Act, 1961 and Circular No.551 dated January 23, 1990 if the assessee had written off the debt as a bad debt that would satisfy the purpose of the Section.\" (iv) The Hon'ble highest judiciary of the 8 land in its recent verdict in the case of T.R.F. ltd. Vs. CIT reported in (2010) 323 ITR 397 (SC), observed that - \"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 is written off as irrecoverable in the accounts of the assessee. Accordingly, we hold that the bad debts written off by the assessee in its books of account shall be allowed as a deduction. It is ordered accordingly. 4. Thus, from perusal of the aforesaid relevant extract of the order passed by the tribunal, it is axiomatic that the tribunal has not recorded any specific finding whether the assessee has written off bad debt in the books of accounts as irrecoverable. Therefore, the order passed by the tribunal to the extent it records the finding with regard to the bad debts is hereby quashed 9 and the matter is remitted to the tribunal to decide the issue afresh after recording a specific finding whether or not the assessee has written off the bad debt in the books of accounts as irrecoverable. Accordingly, substantial question of law Nos.4 and 5 are answered. In the result, the appeal is disposed of. Sd/- JUDGE Sd/- JUDGE ss "