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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
आदेश / O R D E R महावीर स िंह, उपाध्यक्ष / PER MAHAVIR SINGH, VP:
This appeal by assessee is arising out of order of the Commissioner of Income Tax (Appeals)]-21, Mumbai [in short CIT(A)], in Appeal No. CIT(A)-X/IT/251/2008-09, CIT(A)21/IT/211/2009-10 vide dated 01.06.2010. The Assessment was framed by the Income Tax Officer, Ward-
P a g e | Artson Engineering Ltd.; AY:06-07 10(2)(1), Mumbai (in short ITO/ AO) for the A.Y. 2006-07 vide order dated 24.12.2008 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
The assessee has raised the following grounds: - “1(a) The learned CIT(A) has erred in disallowing Rs.7,13,93,880/- being advances written off.
(b) without prejudice the learned CIT(A) has not considered the net figure of Rs.6,92,85,898/- after adjusting credit balance of Rs.2017812/- without considering facts and circumstances of the case. Same be allowed.
(c)Without prejudice to above the Assessee state that all details as sought by AO has been furnished and in the light of Company being BIFR Company and final order of BIFR dated 18.12.2007 and the Appellate Authority of BIFR being furnished to him allowing all such claims has not been considered. Same be allowed.”
The assessee has raised the following additional ground.
P a g e | Artson Engineering Ltd.; AY:06-07 “Additional ground of appeal filed vide letter dated 14 September 2018 had been filed.
2.1 Based on the facts and in the circumstances of the case and in law, the amount of Rs.5,41,84,009 representing net liabilities written back ought to be taxed under section 41(1) of the Income- tax Act, 1961 (‘Act’) in view of the specific exemption granted by the Board for Industrial and Financial Reconstruction (‘BIFR’) vide its order dated 18 December 2007.
The appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal.”
From the aforesaid grounds of appeal, it could be seen that the issues to be decided in this appeal are as under: - (i) allowability of loss on write off of advances in the sum of Rs.7,13,93,880/-.
(ii) Write back of liabilities in the sum of Rs.5,41,84,009/- not to be taxed under section 41(1) of the Act in terms of BIFR directions vide its order dated 18.12.2007, provided the additional ground raised by the assessee is admitted.
P a g e | Artson Engineering Ltd.; AY:06-07 5. We have heard rival contentions and perused the materials available on record. We find that assessee company is engaged in the business of site work in civil, mechanical and electrical engineering works etc. The assessee was a sick industrial company as on 30.09.2004 and under the clutches of Board for Industrial and Financial Reconstruction (BIFR in short) in terms of section 3(1)(o) of Sick Industrial Companies (Special Provisions) Act, 1985. We find that the assessee had received the sanctioned scheme from BIFR vide its order dated 18.12.2007 granting various reliefs and concessions to the assessee. The assessee company had filed its return of income for Assessment Year 2006-07 declaring total income as Rs. Nil. We find that the assessment was completed under section 143(3) of the Act on 24.12.2000 determining the total income at Rs. Nil after set off of brought forward business loss/ unabsorbed depreciation. In the assessment, the learned Assessing Officer disallowed the claim of deduction of write off of advances of Rs.7,13,93,880/- on the following grounds: - a) The assessee has not furnished any material to show as to why and how these have become irrecoverable. b) The assessee has not shown what efforts were made or steps were taken to recover the amount. c) No evidence is produced to show the debts have become bad.
P a g e | Artson Engineering Ltd.; AY:06-07 6. We find that the assessee company vide its board resolution passed on 1st March 2006 had sought to clean up its balance sheet whereby old debit balances lying in various accounts in Sundry Creditors ledger of the company’s book as on 31.03.2006 were decided to be written off as the said amounts were irrecoverable and had crossed the limitation period as per Limitation Act. The learned AR pleaded that this was a conscious decision on the part of the assessee to write off business advances given to 354 parties in its books. We find that the assessee has also enclosed a statement showing the complete list of accounts showing debit balances in the sundry creditors ledger account as on 31.03.2006 item by item together with the nature of transaction with each party. From the perusal of the said statement, we find that the assessee had made payment towards advance for purchase of material, payment to parties who had rendered services or executed sub- contract works/ work contracts in the projects of the assessee, payment made towards transport charges, vehicle hire charges, equipment hire charges, petty site expenses incurred by staff and insurance charges, Earnest Money Deposits (in short ‘EMD’) paid to prospective clients, deposit towards industrial gas supply, security deposits paid towards obtaining temporary accommodation for workers/ site supervisor staff, security deposits for obtaining labour licenses required for execution of work in various project sites and bank guarantee charges etc. From the aforesaid list it could be seen that all these advances were made by the assessee in the regular course of its business. We find that the assessee has also enclosed the P a g e | Artson Engineering Ltd.; AY:06-07 details of projects executed during the period Assessment Years 2000-01 to 2006-07 together with the details of income earned from those projects in those respective years. The learned AR vehemently pleaded that the aforesaid business advances were in connection with the various projects executed by the assessee during the assessment years 2000-01 to 2006-07 and since the project income has been duly accounted and offered to tax by the assessee, corresponding project expenses should be allowed as deduction either in the form of allowability of expenses or in the form of allowability of deduction by way of write off of advances. We find that the assessee company was referred to BIFR in the year 2004 and in May 2006, BIFR had appointed Bank of India as an operating agency to prepare a rehabilitation scheme and submit, after considering up to date accumulated loss of the company, its revival programme. The learned AR also informed that M/s Tata Projects Limited agreed to enter into the assessee’s company as an investor, provided the balance sheet of the assessee company containing old debit and credit balances in Sundry Debtors, Sundry Creditors, loans and advances account were cleared up and only real balances that are actually recoverable/ payable be retained in the books. Accordingly, the assessee by way of its Board Resolution thought it fit to clean its balance sheet which included writing off of old debit balances in advances account or debit balances in creditors account. The learned AR pleaded that there is no dispute about the fact that advances/ expenses incurred which were debited to certain parties account kept under the head advances were made in the course of the assessee’s business
P a g e | Artson Engineering Ltd.; AY:06-07 and in the event of such advances getting written off in the books, the same would be allowable as deduction as a regular business loss under section 28 of the Act. We find that the assessee had erroneously made the claim in the return of income under section 36(1)(vii) of the Act. We hold that the learned AO had rightly rejected the claim of deduction under section 36(1)(vii) of the Act as the said write off of advances will not fall within the ambit of bad debts. Moreover, the condition for allowability of bad debt under section 36(1)(vii) of the Act is also not fulfilled in the instant case in as much as assessee could not have offered any income to tax under section 36(2) of the Act in respect of said sum advanced to various parties. To this extent, the action of the learned Assessing Officer is affirmed.
We find that there was no claim made by the assessee before the learned Assessing Officer for allowability of the aforesaid write off of advances as a regular business loss under section 28 of the Act. There was no ground raised by the assessee even before the learned CIT(A) to this effect. However, we find that before the learned CIT(A), the assessee had filed written submission, wherein this claim of allowability of write off of business advances as a business loss under section 28 of the Act was made by the assessee by way of written submission before the learned CIT(A) for the first time. The learned CIT(A) did not adjudicate this aspect of the submission made before him and upheld the action of the learned Assessing Officer in disallowing the claim under section 36(1)(vii) of the Act.
P a g e | Artson Engineering Ltd.; AY:06-07 8. In this background, since no finding has been given by the learned Assessing Officer in this regard as there was no occasion for adjudication of claim of write off of advances as a business loss under section 28 of the Act, we deem it fit and appropriate in the interest of justice and fair play, to remand this issue to the file of the learned Assessing Officer for adjudication of the claim of the assessee with regard to the allowability of the claim of write off of advances in the sum of Rs.7,13,93,880/- (net) as a business loss under section 28 of the Act. Accordingly, the original ground No.1 raised by the assessee is allowed for statistical purposes.
We find that the assessee has raised an additional ground vide letter dated 14.09.2018 seeking relief from the taxability of Rs.5,41,84,009/- representing the net liabilities written back to the profit and loss account, to be reduced from the taxable income of the assessee in terms of exemption granted by BIFR vide order dated 18.12.2007 under section 41(1) of the Act. We find that the learned Departmental Representative had vehemently objected for admission of this additional ground and even filed detailed written submissions before us. The sum and substance of the written submissions of the learned DR is that the additional ground is raised by the assessee after several years of filing this appeal before this Tribunal which amount to laches on the part of the assessee and that the said additional ground requires verification of facts which cannot be entertained by way of additional ground. The learned Departmental Representative vehemently argued that only pure question of P a g e | Artson Engineering Ltd.; AY:06-07 law which does not involve verification of facts could be admitted in the form of additional ground by the Tribunal.
We find that pursuant to reference made to BIFR under Sick Industrial Companies (Special Provisions) Act, 1985, Bank of India, in the capacity of operating agency, had submitted a revival scheme to BIFR. Pursuant to the said revival scheme, BIFR had given directions to various regulatory authorities, banks and financial institutions including Income-Tax Department, wherein in Para 8.5 of BIFR dated 18.12.2007, had directed the Income Tax as under: - “8.5 Income Tax and Services Tax (iii) Exemption from the following provisions of the Income Tax Act, 1961 will be available to the company:- a) Section 41(1) – Additions not to be caused to the returned income due to which write back of liabilities, no longer considered payable.”
It has to be seen that BIFR had accepted the revival scheme submitted by the operating agency i.e. Bank of India and had decided to discharge the assessee company from its clutches vide order dated 18.12.2007 by giving various directions to various regulatory authorities, banks and financial institutions and to the assessee herein. The said revival scheme contemplates writing off of balances of old Debtors, Creditors, advances and writing back of old liabilities that are no longer
P a g e | Artson Engineering Ltd.; AY:06-07 payable etc. Once the liabilities were written back to profit and loss account, it would result in an income to be taxed under section 41(1) of the Act. The BIFR thought it fit that if the income gets taxed under section 41(1) of the Act pursuant to write back of liabilities, then the very purpose of the revival scheme contemplated with various conditions would stand defeated as there would be substantial portion of outflow towards payment of taxes under section 41(1) of the Act which would be detrimental to the revival scheme per se. Hence, in order to protect the interests of the assessee company to successfully implement the rehabilitation/ revival scheme, this direction in Para 8.5 was given to Income Tax Department to consider granting exemption under section 41(1) of the Act in respect of liabilities written back which are considered no longer payable. Hence, the entire order of BIFR dated 18.12.2007 needs to be understood in a holistic way. However, we find that this claim was never made by the assessee before lower authorities and is raised for the first time before us by way of additional ground. We find that all the facts with regard to write back of liabilities were very much available to the learned Assessing Officer and the learned CIT(A). Even copy of the BIFR order dated 18.12.2007 was placed before the lower authorities wherein, the above mentioned direction is included. Hence, this is not a case which involves verification of fresh facts. It is only a fresh claim made by the assessee before the Tribunal by way of additional ground. In our considered opinion, the assessee is only seeking to reduce Rs.5,41,84,009/- representing write back of net liabilities from the taxable income by seeking
P a g e | Artson Engineering Ltd.; AY:06-07 exemption under section 41(1) of the Act, pursuant to directions of BIFR. It is not in dispute that this sum of Rs.5,41,84,009/- was already offered to tax by the assessee in the return of income. We find that the assessee is now trying to seek exemption of such taxability hence, this is purely a legal claim made by the assessee which does not involve verification of any facts. Hence, we deem it fit to admit this additional ground and remand this ground to the file of the learned Assessing Officer for adjudication in accordance with law and in the light of the observations made hereinabove. The assessee is at liberty to furnish fresh evidences, if any, in support of its claim before the learned Assessing Officer to substantiate its claim. Accordingly, the additional ground raised by the assessee is allowed for statistical purposes.
12. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 04.02.2020. Sd/- Sd/- (एम बालगणेश / M BALAGANESH) (महावीर स िंह /MAHAVIR SINGH) (उपाध्यक्ष / VICE PRESIDENT) (लेखा दस्य / ACCOUNTANT MEMBER) मुिंबई, ददिािंक/ Mumbai, Dated: 04.02.2020. स दीप सरकार, व.ननजी सधिव / Sudip Sarkar, Sr.PS