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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HONBLE KUL BHARAT & HONBLE MANISH BORAD
pertaining to Assessment Year 2014-15 and directed against the order of Ld. Commissioner of Income Tax (Appeals)-III (in short ‘Ld.CIT(A)’], Indore dated 29.09.2017 which is arising out of the order u/s 143(3) of the Income Tax Act 1961(In short the ‘Act’) dated 29.12.2016 framed by ACIT (Central), Ujjain. 1
Assessee has raised following grounds of appeal;
(i) On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs.1,86,82,431/- made by the AO on account of disallowance u/s 14A r.w.r 8D. (ii) On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs.50,36,528/- made by the AO on account of disallowance of write-off of sundry balances in Profit & Loss account”.
Brief facts of the case as culled out from the records are that the assessee company is engaged in the business Built-Operate-Transfer (BOT) projects. E-return of income filed on 30.11.2014 showing loss of Rs.10,01,60,335/-. Case selected for scrutiny through CASS followed by serving of statutory notices u/s 143(2) and 142(1) of the Act. Various information were asked by Ld. A.O to which written reply was submitted with details. Ld. A.O on observing that the investment as on 31.3.2014 stood at Rs.35,32,01,628/- which included equity investments, examined necessary details in light of the provisions of Section 14A of the Act r.w.s. rule 8D of I.T. rules. Submissions made by the assessee were not found satisfactory by the Ld. A.O as there was no declaration of list of unlisted company as far as investment in shares are concerned. Ld. A.O accordingly computed the disallowance u/s 14A of the Act at Keti Sangam Infrastructure Ltd Rs.1,86,82,431/-. Ld. A.O also observed that in the Profit & Loss account assessee has claimed expenditure of sundry balance written off at Rs.50,36,528/-. Ld. A.O denied the claim u/s 37 of the Act treating the alleged loan and advance written off treating the alleged expenditure to have been incurred wholly and exclusively for the business purposes.
Accordingly income assessed at (-) Rs.7,64,41,376/-. Aggrieved assessee preferred appeal before Ld. CIT(A) and succeeded. Now the revenue is in appeal before the Tribunal.
We will first take up Ground No.1 relating to deletion of addition of Rs.1,86,82,431/- made by the Ld. A.O on account of disallowance u/s 14A r.w.r. 8D.
At the outset Ld. Counsel for the assessee submitted that the issue raised by the revenue is squarely covered in favour of the assessee in the judgment of Hon’ble Delhi High Court in the case of Cheminvest Limited V/s CIT (2015) 387 ITR 033 (Delhi) as well as another judgment of Hon’ble Gujarat High Court in the case of Corrtech Energy (P) Ltd (2015)
372 ITR 0097 (Guj) wherein it has been held that in case there is no exempt income earned by the assessee during the year, no disallowance u/s 14A of the Act is called for. Ld. Counsel for the assessee has also 3 Keti Sangam Infrastructure Ltd made reference to the written submissions placed on record.
6. Per contra Ld. Departmental Representative vehemently argued supporting the order of Ld. A.O but could not controvert the submissions of the Ld. Counsel for the assessee contending on the strength of judicial pronouncements that in case of “NIL” exempt income disallowance u/s 14A of the Act is not called for.
We have heard rival contentions and perused the records placed before us. Through this ground No.1 revenue has challenged the finding of Ld. CIT(A) deleting the addition of Rs.1,86,82,431/- made by Ld. A.O on account of disallowance made u/s 14A of the Act. From perusal of the audited balance sheet placed in the paper book, we observe that os on 31.3.2014, investment in unquoted shares stands at Rs.35,32,01,628/-.
During the year bank interest of Rs.3,18,07,503/- has been charged to the Profit and loss account. On 31.3.2014 share capital stood at Rs.9,24,00,000/- and accumulated reserve and surplus stood at Rs.217,90,24,214/-. On going through the Profit & Loss Account we find that during the year assessee has not earned any exempt income.
Investments shown in the balance sheet are only towards unquoted shares of Kalyan Toll Infrastructure Ltd which is the group company and 4 Keti Sangam Infrastructure Ltd not fetching any exempt income to the assessee.
The fact that no exempt income has been earned by the assessee during the year is not disputed at any stage by the revenue authorities.
Hon’ble Delhi High Court in the case of Cheminvest Limited (supra) held that where no exempt income has been received by the assessee in the previous year, disallowance u/s 14A of the Act is not warranted. This view was adopted by the Co-ordinate Bench in the case of Pr. CIT V/s Oil Industries Development Board in order dated 16.02.2018. It is also brought to our notice that the Special Leave petition preferred by the Department against the judgement of Hon’ble Delhi High Court in the case of Chemeinvest Limited (supra) has recently been dismissed by the Hon’ble Apex Court by order dated 08.02.2019.
Therefore we can safely conclude by respectfully following the judgment of Hon’ble Apex Court and Hon’ble Delhi High Court as mentioned herein above that as the assessee has not earned any exempt income during the year therefore no disallowance u/s 14A of the Act is called for. We therefore find no reason to interfere in the finding of Ld. CIT(A) deleting the disallowance of Rs.1,86,82,431/- made by Ld. A.O u/s 14A r.w.r.t rule 8D. This ground of revenue’s appeal is dismissed.
Now we take up Ground No.2 challenging the finding of Ld. CIT(A) deleting the addition of Rs.50,36,528/- made by the Ld. A.O on account of disallowance of write off of sundry balance in Profit & Loss account.
Brief facts of the case are that the during the course of assessment proceedings Ld. A.O noticed that the assessee has debited Rs.50,36,528/- under the head sundry balance written off. The assessee was asked to justify the claim and substantiate with documentary evidence. Assessee filed written submission giving party wise details of the amounts outstanding as well as showing the balance contending that the outstanding cannot be recovered and the same are to be claimed as expenses u/s 37 of the Act as sundry balance written off. Ld. A.O however was not convinced and in his view the impugned amount was in the nature of bad debts on which provisions of Section 36(1)(vii) of the Act applies and as the alleged debit balance were not offered for income in any previous year the sundry balance written off needs to be disallowed.
When the matter came up before Ld. CIT(A), the evidence were placed on record showing the advance to have been made for business purposes, Ld. CIT(A) appreciated the same and following the judgment of Hon’ble Apex Court in the case of Mysore Sugar Co. Ltd (1962) 46 ITR Keti Sangam Infrastructure Ltd 0649 as well as the judgement of Hon’ble Delhi High Court in the case of Mohan Meakin Limited Vs. Commissioner of Income Tax (2011) 79 CCH 0397, deleted the disallowance.
Now the Revenue is in appeal before the Tribunal.
Ld. Departmental Representative vehemently argued supporting the orders of Ld. A.O. On the other hand Ld. Counsel for the assessee supported the finding of Ld. CIT(A) as well as written submission placed on record.
We have heard rival contentions and perused the records placed before us and also carefully gone through the judicial pronouncements referred by the Ld. Counsel for the assessee. In Ground No.2 Revenue’s grievance is against the finding of Ld. CIT(A) deleting the disallowance of Rs.50,36,528/- made by the Ld. A.O on account of disallowance of write off of sundry balance in the profit and loss account. We observe that Ld. CIT(A) deleted the disallowance giving following finding of fact;
I have gone through the assessment order and the appellant's contentions. During the year under consideration the appellant company treated certain debtors / advances as irrecoverable and also certain creditors/ credit balances as not payable and accordingly an amount of Keti Sangam Infrastructure Ltd Rs. 50,36,528/- being net of debit balances in the nature of discount/bad debts/trade advances written off and credit balances written back being no more payable, was debited to the P&L A/ c. Ledger of sundry balances written off along with ledger accounts of relevant parties have been placed on record to show that it has actually written them off and debited these balances in its books of accounts.
6.1 The major balance written off pertains to the following two parties: Party O/s amount outstanding Since Bharat Udyog Limited Rs.27,00,000/- A.Y.2009-10 Escorp Commodities Rs.29,86,625/ -. A.Y.2009-10 LLC
6.1.1 The appellant is engaged in the business of road development across various states of lndia. ]t had made advance payments of Rs. 27,00,000/- to Bharat Udyog Limited in F.Y. 2008·09 for the supply of High Grade Bitumen required for road construction and development. It is submitted that Bharat Udyog Limited failed to supply the Bitumen despite of persistent oral as well as written follow up made by the appellant company. The appellant had also filed legal notice for supply of said goods or refund of the advance money paid by it. The appellant decided to write off the said amount of Rs. 27,00,000/- in its books of accounts in F.Y. 2013-14 .
6.2. Regarding Escarp commodities LLC, the appellant has submitted that it had placed order of 850 MT Bitumen to Escorp commodities LLC and gave an advance of Rs. 1,30,31,349/ - in F.Y. 2008-09. Only 605 MT Bitumen was supplied by the said company to the appellant company amounting to Rs.1,00,44,724/-. It us submitted that even after the persistent follow ups, either the supply of the balance amount was made nor the balance amount of Rs.29,86,625/- refunded and therefore, the 8 Keti Sangam Infrastructure Ltd said outstanding amount has been written off in its books of accounts during the year under consideration.
6.3 It is seen that the claim of Rs. 50,36,528/- being net of debit balances in the nature of discount/ bad debts / trade advances written off and credit balances written back being no more payable, has been made u/s 37. It is submitted that the amount of expenditure has been expended wholly and exclusively for business purposes. The amounts were advanced for incurring the business expenditure only.
6.4 It is not the Assessing Officers case that the appellant has failed to produce any evidence regarding efforts made for the recovery of the said amount and that it is not established that the said amounts have become bad during the year. The Assessing Officer has made the disallowance only the appellant has placed on record enough evidence to show that the advances were given for purchase of Bitumen which is required for road construction, the business of the appellant. The advances made by the appellant will certainly be within the words "laid out or expended wholly and exclusively for the purposes of business". As the said advances are not loss of capital expenditure, it has to be treated as a case of business loss and is therefore allowable under the provisions of section 37. The appellant has submitted that the proposition laid down by the Hon'b1e Supreme Court in the case of CIT vs. Mysore Sugar Co. Ltd. (1962) 46 ITR 0649 though referred in the context Income Tax Act, 1922 applies to the instant case. The decision of Hon'ble Delhi High Court in the case of Mohan Meakin Ltd Vs. Commissioner of Income Tax (2011) 79 CCH 0397 Delhi HC is squarely applicable to the facts of the case.
6.5 In view' of the above, the addition of Rs. 50,36,528/- Is deleted. Ground No.2 is allowed.”
The above finding of fact has not been controverted by Ld. Departmental Representative at any stage of hearing. Further we observe that the alleged amount of sundry balance written off at Rs.50,36,528/- is the net balance of debits and credits. The Ld. A.O has not raised any doubts on the credit balance written off and offered to tax and has generally pointed out to the net debit balance of Rs.50,36,228/- being not eligible as business expenditure u/s 37 of the Act. From perusal of the record we find that the major portion of the debit balance written off includes following; Name of party Amount outstanding From Bharat Udyog Limited Rs.27,00,000/- 2009-10 Shri Ram Distributors Rs.36,470/- 2013-14 Escorp Commodities Rs.29,86,625/- 2009-10 LLC Short fall in toll Rs.4,97,417/- collection
We find that the assessee is in the field of infrastructure and Build- Operate-Transfer projects. In the course of business the advances were given to Bharat Udyog Limited and Shri Ram Distributors but the work could not be commenced for long time even after persistent follow up by Keti Sangam Infrastructure Ltd the assessee. Both the parties are not in the category of related parties.
Genuineness of payment has not been doubted. As regards the debit balance outstanding from Assessment Year 2009-10 onwards in the case of Escorp Commodities LLC records shows that the amount was given as advance for purchase of bitumen, which is a material required in the construction of roads. During financial year 2008-09 against the payment for purchase of Rs.1,30,31,349/-, the supply was made only for material worth Rs.1,00,44,724/- and supplier was unable to supply the remaining. Escorp Commodities LLC denied to pay back the outstanding amount and therefore the assessee had no option except to written off the amount as sundry balance written off.
From going through the above facts we are of the considered view that the alleged outstanding debit balance and advances were given during the course of business in the construction projects and were not recoverable. These amounts are not falling under the category of sundry debtors and therefore writing off these amount cannot be covered u/s 36(1)(vii) of the Act. The assessee has rightly claimed them as business expenditure u/s 37 of the Act. Our view finds of support from on the judgment of Hon’ble Delhi High Court in the case of CIT vs. Mohan Keti Sangam Infrastructure Ltd Meakin Limited (supra) wherein the advances were also made for the purpose of business and were written off subsequently as irrecoverable in the books of accounts and claimed as business loss, which was disallowed by the AO. Hon’ble High Court held in favour of the assessee observing as follows;
“The advances made by the assessee in the case were certainly of a type which would be within the contemplation of the words “laid out or expended wholly and exclusively for the purposes of the business”. As no portion of the said advances could be stated to be loss of capital expenditure, but it is being a plain case of business loss, it would certainly be allowable to be deducted under the provisions of Section 37”.
Hon’ble Court also placed reliance on the judgment of Hon’ble Apex Court in the case of CIT V/s Mysore Sugar Co. Ltd (1962) 46 ITR 0649 and another judgment of Hon’ble Apex Court in the case of CIT V/s Mahalakshmi Textile Mills Ltd (1967) 66 ITR 710.
We therefore in the given facts and circumstances of the case and respectfully following the judgments referred above find no reason to interfere in the finding of Ld. CIT9A) deleting the disallowance of sundry balance written off at Rs.50,36,528/- as in our view this amount has Keti Sangam Infrastructure Ltd been incurred wholly and exclusively for the purpose of business and is eligible for deduction u/s 37 of the Act. Ground No.2 of the revenue’s appeal stands dismissed.
In the result appeal of the revenue stands dismissed.
The order pronounced in the open Court on 30.05.2019.