PARADEEP PHOSPHATES LTD.,BHUBANESWAR vs. JCIT, RANGE-1, BHUBANESWAR, BHUBANESWAR

आयकर अपीऱीय अधिकरण, कटक न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI N.S.SAINI, AM & SHRI PAVAN KUMAR GADALE, JM आयकर अऩीऱ सं./ITA No.560/CTK/2013 (नििाारण वषा / Assessment Year :2009-2010) M/s Paradeep Phosphates Ltd., Vs. JCIT, Range-1, Bayan Bhawan, Pt.Jawaharlal Bhubaneswar Nehru Marg, Bhubaneswar- 751001 स्थायी लेखा सं./ जीआइआर सं./ PAN/GIR No. : AABCP 3276 D (अऩीऱाथी /Appellant) (प्रत्यथी / Respondent) .. AND आयकर अऩीऱ सं./ITA No.02/CTK/2013 (नििाारण वषा / Assessment Year :2009-2010) DCIT, Range-1, Bhubaneswar Vs. M/s Paradeep Phosphates Ltd., Bayan Bhawan, Pt.Jawaharlal Nehru Marg, Bhubaneswar- 751001 स्थायी लेखा सं./ जीआइआर सं./ PAN/GIR No. : AABCP 3276 D (अऩीऱाथी /Appellant) (प्रत्यथी / Respondent) .. ननधााररती की ओर से /Assessee by : Shri B.K.Mahapatra/A.K.Sabat, AR राजस्व की ओर से /Revenue by : Shri Saad Kidwai, CITDR सुनवाई की तारीख / Date of Hearing : 24/04/2018 घोषणा की तारीख/Date of Pronouncement 27/04/2018 आदेश / O R D E R Per Shri Pavan Kumar Gadale, JM: These are the cross appeals filed by the assessee against the order of the CIT(A)-I, Bhubaneswar, passed in IT Appeal No.0058/13-14, dated 28.10.2013 for the assessment year 2009-10. 2. Since the issues raised in both the appeals are common, they are heard together and disposed off by this consolidated order. For the sake of convenience, we shall take up the facts and grounds narrated in

2 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 assessee’s appeal in ITA No.560/CTK/2013 for the assessment year 2009-2010, wherein the assessee has raised the following grounds :- 1. That the order dated 28.10.2013 passed by the learned Commissioner of Income Tax (Appeals) - I, Bhubaneswar ("CIT (A)") in not fully allowing the appeal of the assessee is erroneous and bad in law. 2. Disallowance of 'School Expenses'- Rs. 2,33,07,717/- a. That on the facts and in the circumstances of the case, the order of the learned CIT (Appeals) in sustaining the disallowance of Rs 2,33,07,717/- under 'School Expenses' is based on irrelevant considerations, presumptions, conjectures and surmises, contrary to facts, arbitrary, unjustified, erroneous and bad in law. b. That the aforesaid Rs 2,33,07,717/- towards 'School Expenses' is incurred by the assessee wholly and exclusively for the purpose of its business and on the facts and in the circumstances of the case, the upholding of disallowance of the said Rs 2,33,07,717/- is contrary to facts, arbitrary, erroneous and bad in law. c. That on the facts and in the circumstances of the case, the learned CIT (Appeals) has misconstrued/mis-appreciated the facts and has erred in holding that the assessee is running a school. 3. Disallowance under Miscellaneous Expenses — CSR Related Activities'- Rs. 22,35,912/- a. That the learned CIT (Appeals) has misconstrued/mis- appreciated the facts and his sustenance of the additions/disallowance of Rs 22,35,912/- under 'Miscellaneous Expenses — CSR Related activities' is contrary to facts, arbitrary, unjustified, erroneous and bad in law. b. That the aforesaid of Rs 22,35,912/- under 'Miscellaneous Expenses — CSR Related activities' is incurred by the assessee wholly and exclusively for the purpose of itsbusiness and on the facts and in the circumstances of the case, the upholding of disallowance of the said of Rs 22,35,912/- is on mis-appreciation of /contrary to facts, arbitrary, erroneous and bad in law. c. That on the facts and in the circumstances of the case, the learned CIT (Appeals) has misconstrued/mis-appreciated the facts and has erred in holding that the details of the aforesaid

3 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 Rs 22,35,912/- towards 'CSR Related activities' are not known and the assessee has not established that aforesaid Rs 22,35,912/- is incurred for the purpose of its business. 4. Addition under 'Subsidy Income'- Rs. 9,52,2I,000/-a. That the learned CIT (Appeals) has misconstrued/mis-appreciated the facts and his upholding the additions of Rs 9,52,21,000/- under 'Subsidy Income' is contrary to facts, arbitrary, unjustified, erroneous and bad in law. b. That case laws relied upon by the learned CIT (Appeals) is distinguishable on facts and are not applicable to the facts and circumstances of the case of the assessee. c. That without prejudice to the grounds 4(a) & (b) above, on the facts and in the circumstances of the case: (i) the income as per return of assessee relating to fertilizer 'Subsidy from Govt. of India being on the basis of 'real income' there is no under statement of subsidy income of Rs 9,52,21,000/- calling for addition of the same; (ii) the lower authorities have failed to appreciate that the fertilizer 'Subsidy is a claim from Govt. of India and the Income thereon is to be considered under the provisions of income tax only on the basis of acceptance/settling of the same and accordingly the addition of the aforesaid Rs 9,52,21,000/- under 'Subsidy Income' is unjustified, erroneous and bad in law. 5. Disallowance of diminution in value of GOI value of Fertilizer Bonds'- Rs. 46,86,09L535/-a. That the learned CIT (Appeals) has misconstrued/mis-appreciated the facts and his sustenance of the additions/disallowance of Rs 46,86,09,535/- towards diminution of GOI Fertilizer Bonds' is contrary to facts, arbitrary, unjustified, erroneous and bad in law. b. That on the facts and in the circumstances of the case, the lower authorities have failed to appreciate that the GOI Fertilizer Bonds', being in lieu of cash subsidy, is `current asset' in the hands of the assessee and diminution of the value of the same of Rs. 46,86,09,535/- is a revenue loss fully allowable under the Income tax Act. c. That on the facts and in the circumstances of the case, the learned CIT (Appeals) has mis-appreciated the facts and has erred in holding that the GOI Fertilizer Bonds' are capital assets in the hands of the assessee. d. That case laws relied upon by the learned CIT (Appeals) are distinguishable on facts and are not applicable to the facts and circumstances of the case of the assessee.

4 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 6. Non-deduction/Disallowance of punitive charges by Railways - Rs.1,14,09,150/- a. That on the facts and in the circumstances of the case, the upholding of the non-deduction of Rs. 1,14,09,150/- towards punitive charges by Railways by the learned CIT (Appeals) is unjustified, erroneous, arbitrary, contrary to facts and bad in law. b. That on the facts and in the circumstances of the case, the lower authorities have failed to appreciate that the aforesaid Rs.1,14,09,150/- towards punitive charges by Railways for violation of contractual terms regarding loading of Wagons is not penalty and is fully allowable under the Income tax Act and the non non-deduction of the same is based on irrelevant considerations, presumptions, conjectures and surmises, contrary to facts, unjustified, erroneous, arbitrary and bad in law. 7. Non-deduction/ Disallowance of loss in respect of valuation of stores and spares - Rs. 404,494/- a. That on the facts and in the circumstances of the case, the sustaining of the non-deduction of Rs. 400,494/- relating to valuation loss of stores and spares by the learned CIT (Appeals) is unjustified, erroneous, arbitrary, contrary to facts and bad in law. b. That That on the facts and in the circumstances of the case, the lower authorities has failed to appreciate that the stores and spares is 'current asset' and the loss of Rs.400,494/- on account of valuation of the same based on physical verification, is a revenue loss fully allowable under the Income tax Act and the denial of the same by the learned CIT (Appeals) is based on irrelevant considerations, presumptions, conjectures and surmises, contrary to facts, unjustified, erroneous, arbitrary and bad in law. 8. Non-deduction/Disallowance of interest on water charges - Rs. 21,34,566/- a. That on the facts and in the circumstances of the case, the sustaining of the non-deduction of Rs. 21,34,566/- regarding interest on water charges by the learned CIT (Appeals) is unjustified, erroneous, arbitrary, contrary to facts and bad in law. b. That on the facts and in the circumstances of the case, the lower authorities have failed to appreciate that the interest on water charges Rs. 21,34,566/- is an ascertained liability and is fully allowable under the Income tax Act and the denial of the same by the learned CIT (Appeals) is based on irrelevant considerations, presumptions, conjectures and surmises,

5 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 contrary to facts, unjustified, erroneous, arbitrary and bad in law. 9. Non-deduction/Disallowance of club expenses - Rs. 129,111/- a. That on the facts and in the circumstances of the case, the sustaining of the non-deduction of Rs. 129,111/- on account of Club Expenses by the learned CIT (Appeals) is unjustified, erroneous, arbitrary, contrary to facts and bad in law. b. That on the facts and in the circumstances of the case, the lower authorities have failed to appreciate that Club Expenses of 129,111/- is incurred by the assessee wholly and exclusively for the purpose of its business and is fully allowable under the Income tax Act and the denial of the same by the learned CIT (Appeals) is based on irrelevant considerations, presumptions, conjectures and surmises, contrary to facts, unjustified, erroneous, arbitrary and bad in law. 10. Non-deduction/Disallowance of provision for leave salary - Rs. 7,28,75,325/- a. That on the facts and in the circumstances of the case, the learned CIT (Appeals) sustaining of the non-deduction of Rs. 7,28,75,325/- on account of provision for leave salary is unjustified, erroneous, arbitrary, contrary to facts and bad in law. b. That the denial/rejection of the claim of Rs.7,28,75,325/- in respect of Provision for Leave Salary (Encashment) by the lower authorities is arbitrary, erroneous and bad in law in view of the 'validity of the amendments made by Finance Act, 2001 by insertion of subsection (f) to section 43B of the Act' having been struck down by the Hon'ble Calcutta High Court in the case of Exide Industries Ltd. Vs. Union of India in APO No. 301/2005 [reported in (2007) 292 ITR 470] by holding the same being arbitrary, unconscionable and de hors the Apex Court decision in the case of Bharat Earth Movers v. CIT [2000] 245 ITR 428. c. That on the facts and in the circumstances of the case, the denial of deletion of Rs.7,28,75,325/- in respect of Provision for Leave Salary (Encashment) by the learned CIT (Appeals) is based on irrelevant considerations, presumptions, conjectures and surmises, contrary to facts, unjustified, erroneous, arbitrary and bad in law. 11. That in the facts and circumstances of the case, the learned CIT (Appeals) ought to have allowed the claim of carry forward of business loss and depreciation of Rs.45,20,05,128/- instead of

6 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 giving the direction to the learned AO vide his order dated 28.10.2013. 3. The assessee has raised 11 grounds in the appeal, out of which ground Nos.6,7,8,9,10 & 11 have not been pressed by ld. AR of the assessee at the time of hearing and made endorsement on the grounds of appeal. Accordingly, ground Nos. 6,7,8,9,10 & 11 are dismissed as not pressed. 4. Brief facts relating to the ground No.1 & 2 that the assessee is engaged in manufacturing and trading of fertilizers and filed the return of income for the assessment year 2009-10 on 29.09.2009 declaring total income of Rs.202,86,25,375/- and the return of income was processed u/s.143(1), subsequently the case was selected for scrutiny and notice u/s.142(1) & 143(2) along with questionnaire was issued to the assessee. In compliance, the AR of the assessee appeared and filed the details and case was discussed. The AO on perusal of the financial statement found that the assessee has claimed an amount of Rs.2,33,07,017/- as school expenses and the ld. AO has called for explanations. The assessee submitted that for the welfare of the employees, the expenses of the school (DAV School) was incurred and was established within the assessee plant premises, further all the expenses incurred are wholly and exclusively for the purpose of business and therefore allowable u/s.37 of the Act, whereas the AO dealt on the provisions of Section 40A(9) of the Act and was not satisfied with the submissions on the expenses incurred on school and made addition.

7 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 5. On appeal, the CIT(A) confirmed the disallowance made by the AO. 6. On further appeal before the Tribunal, ld. AR submitted that these expenses are for the purpose of benefit of welfare of the children of the employees. Ld. AR further emphasized that this issue is covered by the decision of coordinate bench of the Tribunal in assessee’s own case for the assessment year 2011-2012 in ITA Nos.86/CTK/2016, order dated 09.11.2017 and prayed for allowing the appeal. 7. Contra, ld. DR relied on the orders of lower authorities. 8. We have heard rival submissions and perused the material on record. The disputed issue is that in the assessment proceedings the AO found that the assessee has claimed an amount of Rs.2,33,07,017/- in respect of school expenses and AO was not convinced with the explanations of the assessee and disallowed the same. In appeal, the CIT(A) confirmed the disallowance made by the AO. We found the very same issue has been decided by the Tribunal in assessee’s own case for the assessment year 2011-2012 in ITA Nos.86/CTK/2016, order dated 09.11.2017, wherein the Tribunal observed as under :- “6. Both the parties agreed that the issue is covered in favour of the assessee and against the revenue by the order of this Bench of the Tribunal in the case of the assessee itself in ITA No.289/CTK/2014 and No.264/CTK/2015 for the assessment year 2010-2011 order dated 4.8.2017, wherein, it has been held as under" "6. Ld A.R. relied on the decision of Delhi Benches of the Tribunal in the case of DCIT vs. Gujarat Guardian Ltd., (2006) 152 Taxman 37 (Del) (Mag), wherein, the assessee had incurred an expenditure Rs.10 lakhs towards contribution to a school and the Assessing Officer disallowed the same u/s.40A(9) of the Act, which bars deduction of contribution made by an employer to any fund, trust, etc for the benefit of employees. On appeal, the CIT(A) allowed th4

8 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 deduction by following the decision of the Delhi Benches of the Tribunal in the case of Modi Rubber Ltd vs IAC(IT Appeal Nos.6227 (Delhi) of 1986 and 142 (Del) of 1987 dated 29.1.1993. On further appeal, the Tribunal confirmed the order of the CIT(A). 24. Further, Id A.R. relied on the decision of Hon'bie Kerala High Court in the case of CIT vs N.Radhakrishnan, (2000) 243 ITR 284 (Ker) where the assessee a public sector undertaking engaged in the manufacture and sale of certain chemicals claimed in the assessment year 1985-86, deduction for payment of Rs.5,34,406/- made to FACT school where children of its employees were studying by way of reimbursement of the school's proportionate expenditure on the ground that the same was allowable under section 40A(10) and section 37(1) of the Act as expenditure was incurred for welfare of the employees and for business purposes. However, the Assessing Officer disallowed the claim observing that the payment had no direct relation with the business activity of the assessee and was more or less in the nature of a donation. The CIT(A) confirmed the disallowance. On appeal, the Tribunal accepted the assessee's claim on the ground the said contribution was for business purposes. On further appeal, Hon'ble High Court held that the expenditure met by the assessee was wholly and exclusively for the welfare of its employees and also for carrying on business of the assessee company more efficiently by having a contended labour force. it was neither a donation covered under section 40A(9) nor a capital in nature not covered by section 37(1) of the Act.. Hence, the Tribunal was justified in allowing the above expenditure towards contribution for the running of the FACT School, as an expenditure for the smooth functioning of the business of the assessee and an expenditure wholly and exclusively for the welfare of the employees of the assessee and thus, allowable under section 37(1) as well as section 40A(1O) of the Act. 5. Ld D.R. though relied on the orders of lower authorities but Id not cite any contrary decisions before us. 20. After considering the rival submissions and perusing materials available on record, we find that the issue at hand is squarely covered by the decision of Hon'ble Kerala High Court in the case of -N.Radhakrishnan quoted above. Respectfully following the same, we set aside the orders of lower authorities and delete the disallowance of Rs.1,74,85,684/- made u/s.40A(9) of the Act and allow the ground of appeal of the assessee."

9 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 7. Facts being identical, respectfully following the precedent, we delete the disallowance of Rs.2,06,38,226/- made u/sA0A(9) of the Act and allow the ground of appeal of the assessee.” On perusal of above order of the Tribunal, we find the issue raised by the assessee in ground No.1 is squarely covered in favour of the assessee, and in our opinion the addition made by the AO cannot be sustained. Accordingly, we set aside the order of both the authorities on this ground and direct the AO to delete the addition made on account of school expenses and accordingly, we allow this ground of appeal of the assessee. 9. In ground No.2, the assessee is aggrieved by the order of CIT(A) in confirming the disallowance made on account of CSR activities of Rs.22,35,912/-. 10. Ld. AR’s contention that the expenses has been incurred wholly and exclusively for the purpose of business, whereas the AO disallowed the same observing that the said expenses were not verifiable and was disallowed. 11. On appeal, the CIT(A) confirmed the addition made by the AO on CSR activities. 12. Before us, ld. AR submitted that the expenses have been incurred wholly and exclusively for the business purpose and referred to page No.23 of the paper book where CSR expenses has been claimed and relied on the judicial decisions. Ld. AR further explained that the disputed issue is covered in favour of the assessee by the decision of the Tribunal in case of NALCO in ITA Nos.66-68, 459, 511 & 512/CTK/2003 for the

10 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 assessment year 1994-95 to 98-99 & 2000-01, order dated 30.11.2005 and prayed for allowing the appeal. Contra, ld. DR relied on the order of AO. 13. We have heard rival submissions and perused the record and found that the submissions of ld. AR of the assessee are acceptable. We have also perused the order of the Tribunal in case of NALCO in ITA Nos.66- 68, 459, 511 & 512/CTK/2003 [(2006) 101 TTJ CTK 948] for the assessment year 1994-95 to 98-99 & 2000-01, order dated 30.11.2005, wherein the Tribunal has held as under :- “57. Considering the totality of the facts of the case and relying on the case decisions cited above we are of the considered opinion that the remaining amount of Rs.38,26,000 has to be allowed as business expenditure u/s.37 of the IT Act. We direct accordingly. The grounds of appeal no.3 by the appellant is accordingly allowed.” 14. Considering the facts and circumstances of the case and judicial decisions, referred above, the expenses under CSR expenditure incurred by the assessee company as per the details provided is admissible expenses u/s.37(1) of the Act. Accordingly we set aside the order of CIT(A) on this ground and direct the AO to delete the addition. This ground of appeal of the assessee is allowed. 15. Ground No.3 is with regard to addition made on subsidy income. The AO made addition in respect of subsidy income on referring to Schedule 19 of notes of accounts of the assessee and observed that in absence of the relevant notification by Govt. of India, Ministry of Chemical & Fertilizers, subsidy income for the month March 2009 has been

11 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 accounted for on the basis of rate estimated by the management. The income on the above basis is lower by Rs.952.21 lakhs over the base rate which is subjected to announcement of final rates by the Government of India. As per the query the assessee has filed explanation but the AO is of the opinion that the assessee has not furnished the working of subsidy income as asked for and has not proved with documentary evidence on the short recognition of Rs.952.21 lacs as income and offered for taxation in the immediately succeeding assessment year 2010-2011. Since the balance of subsidy income is crystallized and the assessee is following mercantile system of accounting. Therefore, the short accounted subsidy income of Rs.952.21 lacs has to be recognized as income in the current assessment year and made addition. On appeal, the CIT(A) confirmed the addition. 16. Before us Ld. AR has referred to the annual report and these facts are brought on record and also referred at page 32 & 33 of the annual report and profit and loss account at page 33 of the paper book. The contention of the ld. AR that the subsidy has been offered in the subsequent assessment year but no proof was filed before the lower authorities. 17. On the other hand, ld. DR submitted that the AO has rightly made observation and added the subsidy as income and the CIT(A) has affirmed the same. 18. We have heard rival submissions and perused the material on record. The contention of ld. AR that this subsidy as referred earlier in the

12 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 AO’s order has been offered in the assessment year 2009-2010, therefore, it has to be excluded in the current year but on perusal of the assessment order we found that the assessee could not produce any evidence or substantiated to have offered in the subsequent year. Therefore, we in the interest of substantial justice, remit this issue to the file of AO to examine as to whether the assessee has offered this income in the subsequent year as envisaged before us. Accordingly, we allow this ground for statistical purposes. 19. In respect to ground No.4, the AO in response to the questionnaire, called for the assessee to furnish a working of provision for Diminution of GOI Fertilizer Bonds of Rs.46,86,09,535/- and why such provision should not be added back to the total income. The assessee submitted that since the bonds were issued against subsidy, which is in lieu of cash any diminution in the value of bonds is an allowable business expenses. The AO was not satisfied with the submissions of assessee and made the addition. On appeal, the CIT(A) has confirmed the action of AO. 20. Before us, ld.AR submitted that the assessee has to purchase the Government of India Fertilizers Bonds as this amount could not be paid to them and Bonds were disclosed under current assets. Ld. AR referred to annual report where the same has been reflected under other current assets and also relied on the judicial decision in similar case and referring to the paper book and prayed for allowing the appeal. Contra, ld. DR relied on the order of CIT(A).

13 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 21. We have heard rival submissions and perused the material on record. The assessee has claimed the loss in diminution of Government of India Fertilizer Bonds. The ld. AR submitted that these bonds were issued by the Government of India in lieu the payments to be received by the assessee and they are disclosed in the balance sheet and also the loss has been claimed. Therefore, due to diminution in valuation of Bonds the claim has been considered. The Ld. AR supported his arguments with the decision of the Tribunal DCM Shriram Consolidated Ltd., ITA No.1447 & 1836/Del/2012, order dated 20.05.2015, which has been confirmed by the Hon’ble High Court in DCM Shriram Consolidated Ltd. Vs. CIT, ITA No.939/2015, dated 14.12.2015. We find that the Tribunal in case of DCM Shriram Consolidated Ltd., in ITA No.1447 & 1836/Del/2012 for the assessment year 2008-09, order dated 20.05.2015, has held as under :- 9. On careful consideration of above submissions, at the very outset, we note that undisputedly the assessee company was forced and compelled by the Government of India to receive fertilizer's bonds in lieu of fertilizer subsidy by the Government of India. It is also pertinent to note that the assessee was entitled to receive fertilizer subsidy in cash but due to shortage of funds with the Government of India an alternative way was created and the assessee company was compelled to receive fertilizer's bonds in lieu of cash fertilizers subsidy. In this situation, we hold that the assessee company rightly showed these bonds as "other current assets" (prayed) under the head "current assets, loans and advances". In the case of Patnaik & Company (supra) the Apex Court explicitly held that where the investments were made under commercial expediency for the purpose of carrying on the assessee's business, then, the losses suffered by the assessee on the sale of such investments must be regarded as Revenue loss because the investment did not bringing an asset of capital nature and in these circumstances of the case, the losses suffered by the assessee should be treated as Revenue loss and not a capital loss. We, further respectfully take cognizance of the judgment of the Hon'ble High Court of Delhi in the case of CIT vs. D.S. Bisht and Sons (supra), wherein it was held that when the assessee had no option but to subscribe the securities if it wanted to continue to do

14 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 business with the Government Departments, then the investments were thus, necessarily by way of commercial expediency for the purpose of carrying on the business. The Hon’ble Delhi high Court affirming the above decision of the Tribunal in the case of DCM Shriram Consolidated Ltd. Vs. CIT, ITA No.939/2015, dated 14.12.2015, has held as under :- “4. The first issue that arises for consideration is whether the Assessee could have claimed loss for the diminution in value of fertilizer bonds against the sale of fertilizers. 5. The assessment order itself shows that in its books, the Assessee categorized the bonds under the head „current investment assets‟. In that view of the matter, the diminishing value of the bonds not being held as long term investment was in the nature of a revenue loss and could have been claimed as such by the Assessee. The stand of the Revenue that this was only a notational loss and allowable, is not tenable since bonds held as stock-in-trade can be valued at market rate or cost whichever is less.” We are in agreement with the ratio laid down by the Tribunal as well as the Hon’ble Delhi High Court. Accordingly, we find merit in the arguments of the ld. AR of the assessee duly supported by the judicial decision and therefore, we set aside the order of lower authorities and direct the AO to delete the addition and allow this ground of appeal of the assessee. 22. Thus, the appeal of assessee is allowed for statistical purposes. 23. Now, we shall take up the appeal of Revenue in ITA No.02/CTK/2014, wherein the Revenue has raised the following grounds:- 1. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts in deleting the addition of Rs.4491,86,39,189/- made by the AO on account of non-deduction of tax u/s.40(a)(i) of the Act. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts in ignoring the fact that Section 195 was applicable in the above case and

15 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 hence provisions of section 40(a)(i) were also applicable to the impugned expenditure. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts in relying upon the case laws in deleting the above addition which were clearly distinguishable. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts in deleting the addition of Rs.73,89,532/- made by the AO on account of repair and maintenance expenditure which was purely capital in nature. 5. On the facts and in the circumstances of the case, the Ld. CIT(A) Is not justified in taw as well as on facts in deleting the addition. of Rs.22,52,169/- made by the AO on account of miscellaneous expenses which could not be substantiated by the assessee. 6. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in allowing the expenditure of Rs.5,87,216/- claimed u/s.80G without giving the AO an opportunity to verify the claim. 7. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts in deleting the addition of Rs.91,92,731/- made by the AO on account of prior period expenses. 8. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts in allowing the bad debt of Rs.28,94,145/- without giving the AO an opportunity in this regard. 9. On the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in accepting the contention of the assessee and not accepting the findings of the AO in violation of Rule 46A without a complete thorough verification. 10. The appellant craves to alter, amend or add any other round that may be considered necessary in course of the appeal proceedings. 24. Grounds No.1 to 3 relate to addition made on account of non- deduction of tax u/s.40(a)(ia) of the Act. The AO in the assessment proceedings observed that the assessee failed to discharge its obligations to deduct tax at source u/s.195(1) of the Act for which the provisions of

16 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 section 40(a)(ia) of the Act is attracted. Accordingly, the AO made the addition u/s.40(a)(ia) of the Act. 25. On appeal, the CIT(A) considered the submissions of the assessee and the findings of AO and deleted the addition after observing as under:- 3.2 I have carefully gone through the observations of the AO for concluding that the appellant was liable to deduct tax at source u/s.195(1), detailed submissions of the appellant, relevant decisions and various facts on record. The dispute has arisen when the appellant purchased raw materials, components & spares, capital goods and traded goods from non-resident concerns for a total cost of Rs.4737,24,79,764/- (including all other expenses, duty and taxes) out of which the total cost of raw materials is Rs.4491,86,39,189/-. As per provisions of sec.195(1) of the Act, any person responsible for paying (Payer) to a Non- Resident or Foreign Company (Payee) any interest or 'any other sum chargeable under the provision of the Act', is required to deduct tax at source. The provision applies to all the Payers, including individual and HUF. The only specific exclusion provided is in respect of payment of dividend which is exempt by virtue of payment of Dividend Distribution Tax. The scope of the provision is wide and therefore, the implications thereof have far-reaching effect in large numbers of cases as the number of such payments has increased manifold with the development of the economy and growth of cross border transactions in the last decade. As per provisions of sec.195(2) of the Act, if the Payer considers that the whole of such a sum would not be chargeable to tax in the hands of the payee, he may make an application to the Assessing Officer(AO) to determine the appropriate portion of such taxable income by passing a general or special order and upon such determination, the Payer is obliged to deduct tax only on the portion so determined. As per provisions of·sec.195(3)/(5) read with Rule 29B of the Act the specified recipient of such a sum can also make an application to the AO in the prescribed form for grant of a certificate authorising him to receive such sum without TDS and upon grant of such a certificate, the Payer is required to make payment without TDS. These provisions are largely used by foreign banks operating in India for receiving payments from their customers without TDS. Section 195(6) was introduced by the Finance Act, 2008 (with effect from 1-4-2008) providing that the Payer shall furnish the information relating to payments of such sums in the prescribed form and

17 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 manner. For this Rule 37BB was introduced and the procedure for making remittances is provided for which the certificate of Chartered Accountant in the prescribed Form 15CB is required to be obtained by the Payer before making remittance to the Payee (New Procedure for Remittance). Earlier, there was a requirement for obtaining certificate of Chartered Accountant for making remittance to the Non-Resident, but the same was operating under the Circulars issued by CBDT. The Apex Court in the case of Transmission Corporation of A.P. Ltd. (239 ITR 597) has held that the expression 'taxable income' used in S. 195(1) applies to any sum payable to the Non-Resident even if such a sum is a trading receipt in the hands of the payee, if, the whole or part thereof is chargeable to tax under the Act. These provisions are only limited to the sums which are of 'Pure Income' nature. Based on this judgment, it was felt by the Payers of such income that the that the TDS is required to be made u/s.195(1) only if, the income is chargeable to tax (partly or wholly) under the Act and in cases where" the income itself is not chargeable to tax (Non- taxable income) question of making any TDS should not arise. However, because of the interpretation that it is not for the assessee to decide whether the income is chargeable in the hands of the Payee or not, the litigation on the obligation to make TDS continues, even after the decision of the Apex Court in Transmission Corporation of A:P. Ltd and particularly in view of interpretation of this judgement by the Hon'ble KarnatakaHigh Court in the case of CIT (International Taxation) v. Samsung Electronics Co. Ltd, [2009J 185 Taxman 313 (Kar.)/ [2010] 320 ITR 209 in the case of M/s. Samsung Electronics Co. Ltd. land other cases in the context of obligation to make TDS in respect of payments made to Non-Resident Payees for supply of shrink wrapped standardised software. The Hon'ble Karnataka High Court held as under: 66. If one is allowed the liberty of giving a rough and crude comparison to the manner in which the provisions of section 195 of the Act operates on a resident payer who makes payment to a non-resident recipient and if the payment bears the character of a semblance of an income receipt in the hands of the non-resident recipient, then the obligation on the part of the resident payer who makes such a payment to the non- resident recipient is like a guided missile which gets itself attached to the target, the moment the resident assessee makes payment to the non-resident recipient and there is no way of the resident payer avoiding the guided missile zeroing on the resident payer whether by way of contending that the amount does not necessarily result in the receipt of an amount taxable as income in the hands of the non-resident recipient under the Act or even by contending that the non-resident recipient could have possibly avoided any liability for payment of tax under the Act by the overall operation of different provisions of the Act or even by the combined operation of the

18 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 provisions of a double taxation avoidance agreement and the Act as is sought to be contended by the respondents in the present appeals. 67. The only limited way of either avoiding or warding off the guided missile is by the resident payer invoking the provisions of section 195(2) of the Act and even here to the very limited extent of correcting an incorrect identification, an incorrect, computation or to call in aid the actual determination of the tax liability of the non-resident which in fact had been determined as part of the process of assessing the income of the non- resident and by using that as the basis for claiming a proportionate reduction in the rate at which the deduction is required to be made on the payment to the non-resident. Except for this method, there is no other way of the resident payer avoiding the obligations cast on it by the provisions of section 195(1) of the Act and as a consequence of such default when is served with a demand notice in terms of section 201 of the Act. 3.2.1 The AO is of the opinion that the decision of the AP High Court in the case of Transmission Corporation of AP Ltd. v. CIT, which was approved by the Supreme Court in 239 ITR 58.7 (Se) .Is applicable and accordingly the assessee-was liable to deduct tax u/s.195(1). In this case the AO considered that the person making payments to a non-resident cannot take a unilateral decision that the payments made by him are not sums chargeable to income tax, and therefore he cannot make such payments without deducting tax at source unless he gets the concurrence of the Assessing Officer as provided in section 195(2) or an exemption certificate under section 195(3). However, as per the High Court's decision the obligation of the assessee is limited to deduct tax u/s.195 on the appropriate portion of the income chargeable under the Act in respect of sums paid under the contract. Accordingly, tax was deductible in respect of income imbedded in the contract amount, In the instant case, the appellant has purchased raw materials from non-resident business entities and no income can be said to have accrued in India in respect of cost of raw materials. The income, if any, earned by the non-resident seller of the raw materials is earned in foreign soil and not taxable under the Indian Income Tax Law. Further, application u/s.195(2) was required to be made in case the appellant was having any doubt about the proportion of income embedded in the remittance and in case the income itself was not assessable in India, there was no requirement to make any. application u/s.195(2). In any case, not making an application u/s.195(2) before remittance could at best be considered as a violation and would not attract the provisions of section 40(a)(i). It was held by the Hon'ble ITAT, Hyderabad, in the case of SOL Pharmaceuticals. Ltd. v. ITO [2002] 83 ITD 72 (Hyd.) that Section 195(2) is attracted only in a case where at least a portion of the

19 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 payment to non resident is chargeable as income. If no portion is chargeable then section 195(2) is not attracted. It was held by the Hon'ble ITAT, Madras, in the case of Indopel Garments (P.) Ltd. v. DCIT, 86 ITD 102 (Mad), that no tax was deductible from the commission paid to the non-residents. Where there is no chargeable income, it is not necessary for assessee to get concurrence of AO u/s. 195(2). In the case of Graphite Vicarb Ind. Ltd. v. ITO [1986] 18 ITD 58 (Ca!.), it was held that section 195(2) envisages application for determining appropriate proportion of the sum which would be chargeable to tax; but does not envisage a case where the assessee claims that no profits of the sum to be remitted is liable to tax at all. 3.2.2 Under similar circumstances for the AY 2006-07, the AO has given a finding that no tax is deductible u/s.195(1) in respect of payment made by the assessee for import of goods. The AO's observations and conclusions in the assessment order u/s.143(3)/263 dt.28.12.2011 is as under: “Non deduction of TDS: Assessee PPL has made payment of Rs.14,479.93 lakhs to non-resident for import of goods. Assessee was asked whether TDS provision is applicable to them or not. A. R. of the assessee stated stat: Since no income is chargeable in India under the provision of the IT Act in respect of the said imports, the question of TDS ujs.195 of the I.T Act does not arise and therefore the assessee has rightly not deducted any TDS u/s.195 of the I. T.Act on such foreign payments. Thus the aforesaid payments for supply of raw material remain outside the purview of Sec 195 of the Act 'and therefore there is no scope for any disallowance ujs.40(a)(i) of the Act. This is a well established principle. It is pertinent to mention that the Hon'ble Supreme Court in the case of GE India Technology Cen. (P) Ltd. Vs CIT reported in (2010) 193 Taxman 234(SC); (2010) 327 ITR 456 (SC) has interpreted the provisions of Section 195 of the Act and has held that payment on supply of goods does not attract TDS u/s.195 of the IT Act and section 195 is applicable to the service components and not to the supply components. " Argument of the assessee is accepted because of the following reason. 1. According to the provisions of Sec. 195(1) and 195(2), the TDS is required to be made on "any other sum chargeable under the provisions this Act". Chargeability is relevant in this

20 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 case. As per decision of Hon'ble Supreme Court in the case of CWT Vellis Bridge Gymkhan (1998) 229 ITR 1 (SC), if a person has not been brought in the ambit of Section by clear words, he cannot taxed at all. 2. In this case the above payments are made towards purchase of goods on principal to principal basis. Assessee has not entered into any contract with foreign parties rather assessee has procured the goods at its own cost like payment of customs duty, freight, handling charges etc. i.e. on CIF basis. 3. In case of CIT vs, R.D, Agrawal & Co. (1965) 56 ITR 20(SC), Hon'ble Apex Court has stated that 'In the case of assessee company the purchases are made by placing the purchase order and delivery are made on CIF basis, payment is remitted to foreign sellers in advance, hence, question the taxing the foreign exporters do not arise in India'. Thus, in the case of the assessee, when the sum paid to foreign companies are not chargeable to tax in India, applicability of section 195(1) & 195(2) is not sustainable. 4. Trading activities are duly covered under Article 7 of DTAAs of which all related provisions are also in operation and according to DTAAs, the payment made by assessee are not taxable in India. Being specific provisions, DTAAs will prevail other sections of the Act. 5. In Circular No. 17 (XXXVIJ-l) of 1953, No.26 (26)-IT/53 dated 17.07.1953, CBDT has clarified that if transaction is on principal to principle basis no tax liability will be arise in the foreign companies. . 6. In case of Vijay Ship Breaking Co. Vs. CIT (Ahmedabad) 314 ITR 309 (SC), Hon 'ble Apex Court has stated that provision of Sec.195 is not applicable in case where income is not chargeable to tax in India (Also see Veneburg Group B, V. 289 ITR 466 AAR New Delhi), 7. In a recent judgment, in case of Van Oord ACZ (India) Vs. CIT (Delhi) dtd.24.03.2010, Hon'ble High Court has stated that the obligation to deduct tax at source u/s.195(1) arises only when the payment to chargeable to tax in 'India. 8. In case of Transmission Corporation of AP Ltd. Vs. CIT (1999)- 239 ITR 587 (SC) (cited by RAP), Hon'ble Supreme Court has given its findings as below:- "in this view of the matter, the answer given by the High Court that (i) the assessee who made payments to the three non- residents was under obligation to deduct tax at source u/s.195

21 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 of the I.T.Act in respect of the sums paid to them under the contracts entered into and (ii) the obligation of the respondent assessee to deduct tax u/s.195 is limited only to the appropriate proportion of income chargeable under the Act, are correct". By the above findings of Hon'ble Supreme Court, it is clear that provisions of section Sec.195 are applicable where assessee enters into a contract with non-resident. In this very case, no contract was made by the assessee. Trading transaction was covered under the Sale of Goods Act not under Contract Act. " 3.2.3 Under similar circumstances, the Hon'ble ITAT, Cuttack Bench in case of the appellant for AY 2007-08 has quashed the order of CIT, Bhubaneswar u/s.263 on the ground that the CIT did not consider the direction of Hon'ble Apex Court in GE India Technology case which has been reproduced earlier in the submission of the appellant. Accordingly, in view of the detailed submission of the appellant, the decision of the Hon'ble Supreme Court in the case of GE India Technology which have been- referred-by the ITAT in appellant‟s own case for the AY 2007-08 and by the AO for AY 2006-07, it is clear that no tax is deductible ujs.195(1) in respect of remittance made by the appellant for purchase of raw' materials amounting to Rs.4491,86,39,189/ -. 3.2.4 The case of the appellant is squarely covered by the judgment of the Hon'ble Supreme Court in the case of GE India Technology Cen. (P) Ltd. v. CIT (2010) 327 ITR 456 (SC) which has been quoted by the appellant in its submissions. The Hon'ble Supreme Court in GE India Technology Cen. (P) Ltd. has also considered the judgment in the case of Transmission Corporation of AP Ltd. (supra), support of which was taken by the AO in holding that assessee was required to deduct tax u/s.195(1). The Hon'ble Supreme Court has observed that every remittance would not result in deduction of tax but only in respect of the amount taxable under the provisions of the Income Tax Act. The application u/s.195(2) is required only when the remitter has no doubt that tax is deductible but not sure of the amount of tax to be deducted. In case no tax is deductible on the remittance, no application u/s.195(2) or no certificate u/s.197 is necessary. The Hoh'ble Supreme Court in GE India Technology Cen. (P) Ltd. v. cn (supa), observed as under: "10 In Transmission Corpn. of AP. Ltd. IS case (supra) ·it was held that TAS was liable to be deducted by the payer on the gross amount if such payment included in it an amount which was exigible to tax in India. It was held that if the payer wanted to deduct TAS not on the gross amount but on the lesser amount, on the footing that only a portion of the payment made represented "income chargeable to tax in Indie", then it was necessary for him to make an application under section 195(2) of the Act to the ITO(TDS) and obtain his permission for

22 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 deducting TAS at lesser amount. Thus, it was held by this Court that if the payer had a doubt as to the amount to be deducted as TAS he could approach the ITO(TDS) to compute the amount which was liable to be deducted at source. In our view, section 195(2) is based on the "principle of proportionality". The said sub-section gets attracted only in cases where the payment made is a composite payment in which a certain proportion of payment has an element of "income" chargeable to tax in India. It is in this context that the Supreme Court stated, "If no such application is filed, income-tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such 'sum' to deduct tax thereon before making payment. He has to discharge the obligation to TDS". If one reads the observation of the Supreme Court, the words "such sum" clearly indicate that the observation refers to a case of composite payment where the payer has a doubt regarding the inclusion of an amount in such payment which is exigible to tax in India. In our view, the above observations of this Court in Transmission Corpn. of AP. Ltd. 's case (supra) which is put in italics has been completely, with respect, misunderstood by the Karnataka High Court to mean that it is not open for the payer to contend that if the amount paid by him to the non-resident is not at all "chargeable to tax in India", then no TAS is required - to-be-deducted from such payment. This interpretation of the High Court completely loses sight of the plain words of-section 195(1) which in clear terms lays down that Tax at source is deductible only from "sums chargeable" under the provisions of the Income-tax Act, i. e., chargeable under sections 4, 5 and 9 of the Income-tax Act. " In the instant case; the amounts have been paid towards purchase of raw material on principal to principal basis and the appellant has procured the goods from the non-resident seller at its own cost after making payments of custom duty, freight, handling charges etc. on CIF, basis. The raw material is sold by the non-resident seller in foreign soil, hence, no income accrues to the non-resident seller in the Indian territory. The AO has not brought any facts on record nor it is apparent that income in respect of transactions arises in favour of the nonresident sellers in the, Indian territory or that the income of such nonresidents in respect of transactions is assessable under Indian Income tax Law. 3.2.5 In view of the judgment of the Apex Court in the case of GE India Technology Cen. (P) Ltd. v. CIT (supra), it is the clear that if the payment is made to a non-resident, which is not a taxable income in India, then no tax is required to be deducted u/s.195. Accordingly, the addition u/s 40(a)(i) made by the AO is hereby deleted, Ground No.2 is thus allowed.

23 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 26. Against the above order of CIT(A), the Revenue is in appeal before the Tribunal. 27. Ld. DR relied on the order of AO, whereas ld. AR of the assessee relied on the order of CIT(A). 28. We have heard rival submissions and perused the material available on record. We find the CIT(A) while dealing with the disputed issue has made an elaborate discussion relying upon various judicial decisions and deleted the addition. The CIT(A) further found that the AO has not brought any facts on record nor it is apparent that income in respect of transactions arises in favour of the nonresident sellers in the Indian territory or that the income of such nonresidents in respect of transactions is assessable under Indian Income tax Law. The CIT(A) also relied upon the decision of Hon’ble Supreme Court in the case of GE India Technology Cen. (P) Ltd. v. CIT (supra) 327 ITR 456 (SC), wherein it is held that if the payment is made to a non-resident, which is not a taxable income in India, then no tax is required to be deducted u/s.195 of the Act. Accordingly, we do not find any mistake in the order of CIT(A) and the same is upheld and ground Nos. 1 to 3 of Revenue are dismissed. 29. Next ground relates to addition made on account of repair and maintenance expenditure. The AO after allowing depreciation @15% on the total amount i.e. Rs.86,93,567/-, disallowed the balance amount of Rs.73,89,532/- and added to the total income. On appeal, the CIT(A) deleted the addition by observing as under :-

24 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 6.2 I have considered the submissions of the appellant, the remand report and facts on record. During the course of remand proceedings, the AO has examined in detail the relevant issues and came to the conclusion that the amounts spent is for maintenance of the assets and supports the submissions of the appellant. No new assets nave come into existence and no new capacity has been added. In view of the same, the amount of Rs.86,93,567/- on account of repair & maintenance to the plant & machinery is allowable as revenue expenditure. Hence, the addition made by the AO for an amount of Rs.73,89,532/- is deleted. Consequently, the AO is directed to withdraw depreciation allowed by him on the amount of Rs.86,93,567/-. 30. Against the above order of CIT(A), the Revenue is in appeal before the Tribunal 31. The ld. DR relied on the order of AO, whereas the AR of the assessee relied on the order of CIT(A). 32. We have heard rival submissions and perused the material available on record. We find the CIT(A) observed in the instant case where no new assets have come into existence and no new capacity has been added, therefore, deleted the addition made on account of repair & maintenance to the plant and machinery and directed the AO to withdraw the depreciation allowed by him. We have carefully perused order of authorities below and found that the CIT(A) has taken a plausible view to which our interference is not required. Accordingly, we upheld the same and dismiss the ground of appeal of the Revenue. 33. Next ground relates to addition made on account of miscellaneous expenses. The AO disallowed the miscellaneous expenses of Rs.22,52,169/- as the assessee could not produce any break-up or ledger copies of the aforesaid expenses, which could not be verifiable. On

25 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 appeal, the CIT(A) deleted the same. Against which the Revenue is in appeal before us. 34. Ld. DR relied on the order of AO, whereas ld. AR of the assessee relied on the order of CIT(A). 35. We have heard rival submissions and perused the material available on record. We find that the CIT(A) observed that the expenditure in question i.e miscellaneous expenditure to the extent of Rs.22,52,169/- has been incurred during the course of running of business and for business purpose and reduced the addition observing as under :- “8.2 I have given careful consideration to the matter. As pointed out by AO, the amounts spent under the head CSR welfare activities to the extent of Rs.22,35,912/- has not been established to have been spent for the purpose of the business and details of such expenditure are not known. Merely because the appellant terms the expenditure as for CSR activities would not entitle it to claim deduction unless it is established that the same is for the business purposes. As far as miscellaneous expenditure to the extent of Rs.22,52,169/- is concerned, the same has been incurred during the course of running of business and for business purposes. Accordingly, the addition of Rs.44,88,081/- made by the AO is reduced and addition sustained to the extent of Rs.22,35,912/- on account of CSR activities considered as not for the business purposes.” From the above observation of the CIT(A), we find that the action of CIT(A) is just and proper. Accordingly, we uphold the findings of the CIT(A) and dismiss the ground of Revenue. 36. In the next ground the grievance of the Revenue is that the CIT(A) is erred in allowing the claim of expenditure made u/s.80G of the Act. The AO disallowed the claim u/s.80G of the Act observing that the contribution to Chief Minister’s relief fund was made by an individual and not by the

26 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 assessee as per the document produced and no evidence has been produced to support the claim. On appeal, the CIT(A) deleted the same. Against which the Revenue is in appeal before the Tribunal. 37. Ld. DR relied on the order of AO, whereas the ld. AR of the assessee relied on the order of CIT(A). 38. We have heard rival submissions and perused the material available on record. We find that the CIT(A) on the disputed issue found that even though the 80G certificate was wrongly issued in the name of Sri A.P.Singh, however, Sri A.P.Singh has not claimed the relief u/s.80G of the Act in his personal income tax return and directed the AO to delete the addition after observing as under :- “12.1 I have gone through, the facts on record. Out of the total addition of Rs.5,93,199/-, an amount of Rs.5,87,216/- has been paid from appellant's account to the Chief Minister's relief fund and Sri A. P. Singh, Regional Marketing Manager represented the appellant in handing over the cheque to the Chief Minister's relief fund. Accordingly, there is no doubt that the contribution was made by the appellant to the Chief Minister's relief fund even though the 80G certificate was wrongly issued in the name of Sri A. P. Singh. Accordingly, the AO is directed to allow deduction u/s.80G for an amount of Rs.5,87,216/- after being satisfied that Sri A. P. Singh has not claimed the relief u/s.80G in his personal income tax return. We on perusing the finding of CIT(A), do not see any reason to interfere with the observations of CIT(A), accordingly we uphold the same and dismiss the ground of appeal of Revenue. 39. Next ground relates to addition made on account of prior period expenses. The AO observed that the assessee is maintaining its account on mercantile basis and the hybrid system of accounting is not permissible therefore, disallowed the prior period expenses. On appeal,

27 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 the CIT(A) reduced the disallowance made by the AO of Rs.92,37,510/- on prior period expenses to Rs.44,779/- after observing as under :- “ 16.1 I have gone through the submissions of the appellant and facts on record. The disallowance made by the AO on account of prior period adjustment consists of items as under :- Provision for custom duty on demurrage - Rs.29,62,596/- Punitive charges - Rs.62,30,135/- Payment of FBT - Rs. 44,779/- Total :- Rs.92,37,510/- As per the appellant‟s computation of total income, an amount of Rs.70,13,537/- has been added as provision for custom duty and interest on demurrage. The said Rs.70,13,537/- is outstanding amount out of Rs.79,56,462/- whereas the latter includes Rs.29,62,596/-. Accordingly, the amount of Rs.29,62,596/- has already been offered to tax being part of the amount of Rs.70,13,537/-. As per the appellant's computation of total income! an amount of Rs.1,14,09,150/- has been .added as punitive charges. The said amount includes the amount of Rs.62,30,135/- as punitive charges for DAP. Accordingly, the amount of Rs.62,30,135/- has already been offered to tax being part of the amount of Rs.1,14,09, 150/-. No details have been submitted regarding payment of FBT. In view of the same, the addition of Rs.92,37,510/- is reduced to Rs.44,779/-.” 40. Against the above order of CIT(A), the Revenue is in appeal before the Tribunal. 41. Ld. DR relied on the order of AO, whereas ld. AR of the assessee relied on the order of CIT(A). 42. We have heard rival submissions and perused the material available on record. We find that the CIT(A) on the disputed issue was satisfied with the computation of income disclosed by the assessee and partly allowed the claim of the assessee, whereas we do not see any reason to interfere with the order of CIT(A) on this ground, accordingly, we uphold the same and dismiss this ground of appeal of Revenue.

28 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 43. Next disputed issue is in respect of claim of bad debt written back, which was claimed by therefore raising additional ground before the CIT(A) where the CIT(A) has called for comments and has sent to AO for his report and reconciliation statement was filed. The CIT(A) observed that no new claim was made by the assessee during the assessment proceedings but mistake in calculation was rectified and enhanced claim was made and he allowed the claim made by the assessee on deduction of bad debts observing as under :- “ 20.1 I have considered the matter carefully. The appellant claimed bad debt for an amount of Rs.76,79,492/- whereas the correct claim comes to Rs.1,05,73,637/- as per above calculation. During the assessment proceedings, the appellant recalculated the correct claim and accordingly made a further claim of Rs.28,94,145/-of bad debt. Accordingly, no new claim was made by the appellant during the assessment proceedings but mistake in calculation was rectified and enhanced claim was made. In view of the decisions in the cases of CIT v. Pruthvi Brokers &Shareholders, 252 CTR 151 (Bom.) and CIT v. Bharat Aluminium Co. Ltd., 303 ITR 256 (Del.}, the claim made by the appellant for further deduction of bad debt to the extent of Rs.28,94,145/- is allowed.” 44. Against the above order of CIT(A), the Revenue is in further appeal before us. 45. Ld. DR relied on the order of AO, whereas the ld. AR of the assessee relied on the order of CIT(A). 46. We have heard rival submissions and perused the material available on record. We find that the CIT(A) dealt on the disputed issue and considered the submissions of assessee and findings of AO and relied on the judicial decisions. Accordingly, we see no mistake in the order of CIT(A) in this disputed issue and we uphold the same and dismiss the ground of Revenue.

29 ITA No.560/CTK/2013 & ITA No.02/CTK/2014 47. On the last ground, the Revenue is aggrieved that the findings of the AO have not been accepted by the CIT(A) resulting in violation of Rule 46A of the I.T. Rules. We find the CIT(A) has made elaborate discussion on the disputed issues after considering the submissions of the assessee and findings of the AO. Accordingly, we do not find any merit in the submission of ld. DR and this ground of Revenue is dismissed. 48. In the result, appeal of the assessee is allowed for statistical purposes and appeal of Revenue is dismissed. Order pronounced in the open court on this 27/04/2018. Sd/- Sd/- (N. S. SAINI) (PAVAN KUMAR GADALE) ऱेखा सदस्य / ACCOUNTANT MEMBER न्यानयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनांक Dated 27/04/2018 प्र.कु.मि/PKM, Senior Private Secretary आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : 1. Appellant- M/s Paradeep Phosphates Ltd., Bayan Bhawan, Pt.Jawaharlal Nehru Marg, Bhubaneswar-751001 2. Respondent- ACIT, Circle-1, Bhubaneswar 3. आयकर आयुक्त(अपील) / The CIT(A), आदेशािुसार/ BY ORDER, आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण, कटक / DR, ITAT, Cuttack 5. (Senior Private गार्ा पाईऱ / Guard file. 6. Secretary) सत्यापऩत प्रनत //True Copy// आयकर अपीऱीय अधिकरण, कटक / ITAT, Cuttack