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Income Tax Appellate Tribunal, MUMBAI ‘G’ BENCH, MUMBAI.
Before: Shri B.R. Baskaran (AM) & Shri Pavan Kumar Gadale (JM)
All the three appeals filed by the assessee are directed against the orders passed by Ld CIT(A) -51, Mumbai and they relate to the assessment years 2013-14 to 2015-16. Since common issues are involved in these appeals, they were heard together and are being disposed of by this common order, for the sake of convenience.
The assessee is engaged in the business of developing, operating, maintaining & constructing various infrastructure facilities like roads, bridges etc. A survey operation u/s 133A of the Act was conducted in the premises of the assessee on 20-07-2012. Consequent thereto, the assessments of these years were completed u/s 143(3) of the Act by making certain additions. In the appellate proceedings, the assessee got partial relief and still aggrieved, the assessee has filed these appeals before the Tribunal.
2 M/s. Supreme Infrastructure India Limited ASSESSMENT YEAR 2013-14:- 3. We shall first take up the appeal filed for AY 2013-14. The first ground urged therein is general in nature. The ld A.R did not press the second ground relating to disallowance of bogus purchases. Hence the said ground is dismissed as not pressed.
The third ground relates to the disallowance of depreciation claimed on the amount capitalized out of alleged bogus purchases. The assessing officer had disallowed in the earlier years, entire amount of alleged bogus purchases of materials. It was noticed that the assessee had capitalized certain portion of bogus purchases in the earlier years, viz., in AY 2009-10 to 2012-13 and the entire amount so capitalized was considered as bogus purchases. The AO added 100% of the amount so capitalized and the Ld CIT(A) & ITAT restricted the addition to 12.50%. During the year under consideration, the assessee has brought forward WDV of those assets and claimed depreciation thereon. Since the AO had disallowed the depreciation in the earlier years treating the amount so capitalized as bogus purchases, the AO disallowed the entire amount of depreciation claimed on the WDV of such capitalized amount during this year also.
4.1 The Ld CIT(A) noticed that his predecessor had restricted the disallowance of bogus purchases to 12.50% of the amount of alleged bogus purchases in the earlier years. Accordingly, the assessee contended before Ld CIT(A) that the WDV may be reduced by the amount of disallowance of 12.50% made in the earlier years and depreciation should be allowed on the balance amount of WDV. However, the Ld CIT(A) took the view that the decision has been rendered by his predecessor in the earlier years under the wrong assumption all the purchases were related to trading purchases. He further observed that the ITAT, in paragraph 19 of its order passed for AY 2009-10 to 2012-13 has agreed with the finding of Ld CIT(A) that, in respect of Capital purchases, only depreciation has to be disallowed and not the 3 M/s. Supreme Infrastructure India Limited entire amount of purchases. Following the same, the Ld CIT(A) confirmed the action of the AO in disallowing entire depreciation claim made on the capitalized amount of alleged bogus purchases.
4.2 We heard the parties on this issue and perused the record. In the earlier years, the entire amount of bogus purchases, whether relating to trading goods or capitalsed goods, was disallowed by the AO. In the appellate proceedings, the Ld CIT(A), however, restricted the disallowance to 12.50% of the value of alleged bogus purchases relating to both types of goods. We notice that the Ld CIT(A) had initially rendered his decision for AY 2010-11, wherein identical addition of bogus purchases had been made and the Ld CIT(A) had restricted the addition to 12.50% of the value of purchases and in this regard, the Ld CIT(A) has followed the decision rendered by Hon’ble Gujarat High Court in the case of CIT vs. Simit P Sheth (ITA No.553 of 2012 dated 16-01-2013). The said decision was followed in the subsequent years. A perusal of the decision rendered by Hon’ble Gujarat High Court in the above said case would show that the reasoning given in the above said decision is that the assessee has purchased goods from one party in grey market and obtained accommodation bills from another party. In that process, the assessee would have saved certain amount and the said profit element alone is required to be added, which was estimated at 12.50%. It means that the receipt and use of materials/goods were not doubted, but only the cost of materials was doubted. We may explain this with an example. Suppose the cost of material booked by the assessee is say Rs.100/- and the appellate authorities has estimated the profit element involved (savings made by the assessee) at 12.50%. In that case, the actual cash outflow of the assessee towards the purchase of material would be Rs.87.50 (100 (-) 12.50) only. Since the assessee had shown cash outflow as Rs.100/- and claimed the same as deduction, the profit element of Rs.12.50 was disallowed. Since the actual cost of the assessee was Rs.87.50 both for trading items and capital items, there is merit in the claim of the assessee
4 M/s. Supreme Infrastructure India Limited that depreciation should be allowed on Rs.87.50, being actual cost to the assessee.
4.3 In the preceding years, the profit element involved in the purchases of goods, which were capitalized, at 12.50%. As observed earlier, the cost of the asset to the extent of 87.50% was accepted to be genuine. Hence there is no reason to disallow entire amount of depreciation, i.e., depreciation claimed on Rs.100/-. The depreciation should be allowed on the value of 87.50% and disallowance should be restricted on the balance value of 12.50%. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to restrict the disallowance of depreciation on 12.50% of the value of WDV relating to alleged bogus purchases.
The fourth ground contested by the assessee in AY 2013-14 relates to the disallowance of Provision of Doubtful debts amounting to Rs.3.01 crores. The AO noticed that the assessee debited Rs.3,01,50,000/- in the Profit and Loss account towards “Provision for Doubtful debts” and claimed the same as deduction. Since the said provision is not allowable, the AO asked the assessee to clarify the same. Before the AO, the assessee submitted that the above said amount has been actually written off in the books of accounts against the clearly identified debts. The copies of relevant schedules and documents were also produced before the AO. It was also clarified that “Provision for doubtful debts” is generally made on adhoc basis without clearly identifying any particular debt. On the contrary, the assessee has clearly identified debts and it has been actually written off in the books of accounts. Accordingly, the assessee contended before the AO that the above said claim is allowable as deduction u/s 36(1)(vii) of the Act. The AO did not agree with the above said contentions. The AO, however, was carried away by the expression “Provision for doubtful debts” and held that the same cannot be considered as actual write off. He also expressed the view that the 5 M/s. Supreme Infrastructure India Limited assessee has not proved that the debt has really become bad. Accordingly, he disallowed the above said claim of Rs.3.01 crores.
5.1 Before Ld CIT(A), the assessee placed reliance on the decision rendered by Hon’ble Supreme Court in the case of TRF Ltd vs. CIT (Appeal No. 5292 to 5294 of 2003), in which it has been held that it is not necessary to establish that the debt has become irrecoverable. It was further held that it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. The Ld CIT(A), however, noticed that his predecessor has confirmed similar disallowance made in AY 2011-12 and the assessee did not contest the same before ITAT. Accordingly, the Ld CIT(A) confirmed the disallowance.
5.2 The Ld A.R submitted that the relevant ledger account copies of the debtors would show that the debt has actually been written off by the assessee. He furnished details of actual write off as under:- Details of Irrecoverable Debtors W/off (Doubtful Debts)
Name of Party Amount Nature Thakur Infra Projects Pvt Ltd 40,92,075 Sales Pnc Infratech Ltd 1,97,36,998 Sales RNA Corp Ltd 49,24,199 Safes Rapid Infra 13,96,728 Sales Total 3,01,50,000 He submitted that the AO has disallowed the claim of the assessee on the basis of “nomenclature” given in the accounts. However, the factual aspects were not seen by the AO and hence the nomenclature should not decide the nature of transaction. He further submitted that a provision for bad debts/expenses are created on estimated basis, where as the actual write off is done against identified debtors. He submitted that the above said table would show that the debtors have actually been identified and the said
6 M/s. Supreme Infrastructure India Limited amount has been written off against their outstanding balances in the books of accounts. The Ld A.R furnished copies of relevant account copies of debtors also in support of the above said submissions. The Ld A.R further submitted that the AO did not actually look into the ledger accounts and he has made the impugned disallowance on the basis of nomenclature given in the financial statements. He submitted that the Ld CIT(A) also did not appreciate the contentions of the assessee and followed the decision rendered by his predecessor in AY 2011-12, wherein the facts were different. Accordingly, he submitted that the impugned disallowance should be deleted.
5.3 The ld D.R, however, supported the orders passed by the tax authorities.
5.4 We have heard rival contentions on this issue and perused the record. We have also gone through the financial statements and ledger account copies of debtors furnished by the Ld A.R. A perusal of the ledger account of concerned debtors would show that the assessee has actually written off the debts as stated in the table above. In the table above, the assessee has also stated as to how the amounts so written off have been offered as income. As contended by Ld A.R, the real entries passed in the books of account should be considered for deciding this kinds of issues. The nomenclature given in the annual accounts is not relevant. In the facts of the present case, we are of the view that the assessee has complied with the provisions of sec. 36(1)(vii) r.w.s 36(2) of the Act as held by Hon’ble Supreme Court in the case of TRF Ltd (supra). Accordingly, in the facts of this case, we are of the view that this claim of the assessee is allowable. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance of this claim of the assessee.
ASSESSMENT YEAR 2014-15:- 6. We shall now take up the appeal filed for AY 2014-15. In this year, the ground no.1 & 6 are general in nature. The Ld A.R did not press ground 7 M/s. Supreme Infrastructure India Limited numbers 4 & 5. Accordingly, both these grounds are dismissed as not pressed.
Ground no.3 urged by the assessee relates to the disallowance of claim made under the nomenclature “Provision for Doubtful Debts”. The facts relating to this claim is identical with a similar issue discussed in AY 2013- 14 in the preceding paragraphs. In this year also, the assessee has furnished following table, relevant ledger account copies of debtors in order to show that the amount has actually been written off:- Details of Irrecoverable Debtors W/off Doubtful Debts) Name of Party Amount Nature NKG Infrastructure Limited 17,18,14,569 Sales Aster Private Limited 9,84,85,431 Sales Total 27,03,00,000 It is seen that the amount claimed under the nomenclature “Provision for Doubtful debts” is against identified debtors and the said amounts have actually been written off against each of the identified debtors. The said amounts have also been offered to tax as per the information given in the above said table. Accordingly, following the decision rendered by us on a similar issue in AY 2013-14, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this disallowance.
Ground no. 3 urged by the assessee relates to the disallowance of claim of depreciation on the capitalized value of alleged bogus purchases. A similar issue has been adjudicated by us in the preceding paragraphs in AY 2013- 14, wherein we have held that the capitalized value should be reduced by the estimated profit element of 12.50% and the depreciation should be allowed on the balance amount. Accordingly, we had directed the AO to restrict the disallowance of depreciation on 12.50% of the value of WDV relating to alleged bogus purchases. Following the said decision, we set aside the order
8 M/s. Supreme Infrastructure India Limited passed by Ld CIT(A) on this issue and direct the AO to restrict the disallowance of depreciation on 12.50% of the value of WDV relating to alleged bogus purchases.
ASSESSMENT YEAR 2015-16:- 9. We shall now take up the appeal filed for AY 2015-16. Ground no.1 and 5 are general in nature. The assessee did not press ground no.4. Accordingly, the said ground is dismissed as not pressed.
Ground no. 3 urged by the assessee relates to the disallowance of claim of depreciation on the capitalized value of alleged bogus purchases. A similar issue has been adjudicated by us in the preceding paragraphs in AY 2013-14, wherein we have held that the capitalized value should be reduced by the estimated profit element of 12.50% and the depreciation should be allowed on the balance amount. Accordingly, we had directed the AO to restrict the disallowance of depreciation on 12.50% of the value of WDV relating to alleged bogus purchases. Following the said decision, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to restrict the disallowance of depreciation on 12.50% of the value of WDV relating to alleged bogus purchases.
Ground no.4 urged by the assessee relates to the disallowance of claim made under the nomenclature “Provision for Doubtful Debts”. The facts relating to this claim is identical with a similar issue discussed in AY 2013- 14 in the preceding paragraphs. In this year also, the assessee has furnished following table, relevant ledger account copies of debtors in order to show that the amount has actually been written off:-
9 M/s. Supreme Infrastructure India Limited
Details of irrecoverable debtors w/off (doubtful debts) Name of Party Amount Nature
Pkss Infrastructure Pvt. Ltd 6,39,01,286 Sales Rajubhai Thakkar 31,14,825 Sales
Aasthaa Professional Estate Ser. Pv 29,57,624 Rental Income offered as business income Salasar Exteriors 11,60,760 Sales
Ketan Distributors 11,38,008 Sales
Iskcon -Oshivara 6,26,129 Sales
Total 7,28,98,632 It is seen that the amount claimed under the nomenclature “Provision for Doubtful debts” is against identified debtors and the said amounts have actually been written off against each of the identified debtors. The said amounts have also been offered to tax as per the information given in the above said table. Accordingly, following the decision rendered by us on a similar issue in AY 2013-14, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this disallowance.
In the result, all the appeals of the assessee are partly allowed. Pronounced in the open court on 29.3.2023.