THE PRINCIPAL COMMISSIONER OF INCOME TAX 4 vs. M/S VOLTAMP TRANSFORMERS LIMITED

C/TAXAP/700/2019 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 700 of 2019 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX 4 Versus M/S VOLTAMP TRANSFORMERS LIMITED ========================================================== Appearance: MRS MAUNA M BHATT(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE MS. JUSTICE SANGEETA K. VISHEN

Date : 25/11/2019

ORAL ORDER (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. Mrs.   Mauna   Bhatt,   learned   senior   standing counsel for the appellant, has, in the context of proposed question [A], invited the attention of the court to the order dated 18.09.2013 passed by this   court   in   Tax   Appeal   No.748   of   2013,   to submit that this court has admitted the appeal on a similar question of law. 1.1 Under the circumstances, ADMIT. The following substantial   question   of   law   arises   for consideration: (A) Whether   on   the   facts   and   in   the circumstances  of   this  case,   the   Income   Tax Page 1 of 6

C/TAXAP/700/2019 ORDER Appellate Tribunal was justified in upholding the deletion of addition of CENVAT receivable on Rs.2,98,57,398/­ made under section 145A of the Income Tax Act, 1961? 2. Insofar   as   the   proposed   question   [B]   is concerned,   the   same   relates   to   deletion   of disallowance of Rs.69,22,190/­ made under section 14A   of   the   Income   Tax   Act,   1961   (hereinafter referred to as “the Act”) read with rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as “the rules”). 2.1 The Assessing Officer disallowed expenses of Rs.69,22,190/­ under section 14A of the Act read with rule 8D of the rules though the assessee had already   disallowed   Rs.20,25,500/­,   being   the expenditure incurred for earning exempt income, on the ground that the assessee had not provided the   fund   flow   statement.   The   assessee   had disallowed Rs.20,25,500/­, being the salary and other   expenses   incurred   towards   earning   the exempt income. 2.2 Before   the   Commissioner   (Appeals),   the assessee   had   relied   upon   the   decision   of   the Tribunal   in   its   own   case   for   assessment   year 2009­10   confirming   the   view   that   the   Assessing Officer should apply the working under rule 8D of Page 2 of 6

C/TAXAP/700/2019 ORDER the rules, if the working done by the assessee is not   found   to   be   satisfactory.   The   Commissioner (Appeals) noted that, in the present case, the assessee had suo motu computed the disallowance of Rs.20,25,500/­, which is 8.50% of the exempt income. In view thereof, by following the earlier decision of the Tribunal in the assessee's own case   for   the   assessment   year   2009­10,   the Commissioner   (Appeals)   directed   the   Assessing Officer to delete the additional disallowance of Rs.69,22,190/­ and allowed the ground of appeal. The   Tribunal,   in   the   impugned   order,   has concurred   with   the   view   adopted   by   the Commissioner (Appeals) and followed its earlier decision   in   the   assessee's   own   case   for assessment year 2009­10. 2.3 Having regard to the fact that the assessee had   suo   motu   disallowed   the   amount   of Rs.20,25,500/­,   being   the   expenditure   incurred for   earning   exempt   income,   which   was   8.50%   of such   income,   it   is   not   possible   to   state   that there   is   any   infirmity   in   the   impugned   order passed by the Tribunal upholding the order of the Commissioner (Appeals) qua this ground of appeal. Proposed question [B], therefore, does not give rise to any question of law. 3. Insofar   as   proposed   question   [C]   is Page 3 of 6

C/TAXAP/700/2019 ORDER concerned,   a   perusal   of   the   controversy   raised vide   the   said   question   shows   that   it   is   only consequential to the ground of appeal raised vide proposed question [B]. Having regard to the fact that   question   [B]   does   not   give   rise   to   any question   of   law;   as   a   necessary   corollary   it follows that question [C] also does not give rise to any question of law. 4. Insofar   as   the   proposed   question   [D]   is concerned,   the   same   relates   to   disallowance   of provision of doubtful debts of Rs.1,89,16,687/­. During the course of assessment proceedings, the Assessing   Officer   noticed   on   a   perusal   of   the Profit   and   Loss   Account   that   the   assessee   had claimed   an   amount   of   Rs.1,89,16,687/­   as provision   for   bad   and   doubtful   debts   and   had disallowed the same in terms of the provisions of section   36(1)(vii)   of   the   Act.   The   assessee carried   the   matter   in   appeal   before   the Commissioner   (Appeals),   who   allowed   the   said ground of appeal by following the decision of the Supreme Court in the case of CIT v. Vijaya Bank, 323 ITR 166. Revenue failed in its appeal before the Tribunal. 4.1 As can be seen from the order passed by the Commissioner (Appeals), she has found that in the present case, the assessee had made provision on Page 4 of 6

C/TAXAP/700/2019 ORDER the debit side of the profit and loss account and had   reduced   the   doubtful   debts   in   the   balance sheet, which, therefore, amounted to actual write off.   The   authorised   representative   of   the assessee had produced a copy of the annual report for the year ended 31.03.2013, wherein, in the “Notes   to   the   Financial   Statements”,   at   point No.23, the provision for bad and doubtful debt of Rs.1,89,16,687/­   was   shown   as   part   of   “other expenses” and simultaneously, at note No.13, the details of "Trade Receivable" were shown reduced by

provision

for

doubtful

debts

of Rs.1,89,16,687/­. 4.2 In view of the above facts, the Commissioner (Appeals) was of the view that the ratio of the decision of the Supreme Court in the case of CIT v. Vijaya Bank (supra) would be applicable to the facts   of   the   present   case,   and   directed   the Assessing Officer to verify the entries in the profit and loss account and the balance sheet to ascertain

that

the

assessee

has correspondingly/simultaneously   obliterated   the said provision from its accounts by reducing the corresponding   amount   from   loans   and   advances/ debtors on the assets side of the balance sheet, and   consequently,   at   the   end   of   the   year,   the figure in the loans and advances or the debtors on the assets side of the balance sheet is shown Page 5 of 6

C/TAXAP/700/2019 ORDER as   net   of   the   provision   for   the   “impugned   bad debt”. She, accordingly, held that the assessee will   be   entitled   to   the   benefit   of   deduction under section 36(1)(vii) of the Act and allowed the ground of appeal, subject to verification by the   Assessing   Officer.   The   Tribunal,   in   the impugned   order,   has   concurred   with   the   view adopted by the Commissioner (Appeals). 4.3 In   the   light   of   the   fact   that   the Commissioner   (Appeals)   has   merely   applied   the decision of the Supreme Court in the case of CIT v.   Vijaya   Bank  (supra)   to   the   facts   of   the present case and directed the Assessing Officer to ascertain the entitlement of the benefit of deduction under section 36(1)(vii) of the Act, no infirmity can be said to have been committed qua this ground of appeal so as to give rise to any question   of   law.   Accordingly,   this   ground   of appeal is also rejected. (HARSHA DEVANI, J) (SANGEETA K. VISHEN,J) PRAVIN KARUNAN Page 6 of 6