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Income Tax Appellate Tribunal, “ B” BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN
आदेश/ O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The assessee filed this appeal against the order of the Commissioner of Income Tax (Appeals)-9, in dated 10.05.2019 for assessment year 2003-04.
M/s. ESAB India Limited, the assessee is engaged in the business of manufacturing and selling of welding electrodes & equipments. In the assessment made for assessment year 2010-11 u/s. 143(3) r.w. 147, the AO, inter alia, made; addition towards excess remuneration paid to director of Rs. 32,51,000/-, disallowance on depreciation of assets at kalwa Rs. 67,27,500/-, disallowance on write off of bad debts of Rs. 2,91,13,227/- and disallowance on sundry balance of Rs. 34,08,000/-.
Aggrieved against that order the assessee filed appeal before the CIT(A). The Ld. CIT(A) dismissed the appeal. Aggrieved against that order the assessee filed this appeal.
The Ld AR submitted that the assessee paid Rs. 60,25,546/-, to one of its directors as remuneration for the accounting year end 31.12.2002. Since, the amount paid was excess of Rs. 39.22 lakhs as
per schedule XIII to the Companies Act, which was receivable from the director. Therefore, this sum was credited to the P&L account by the assessee itself in the said year and offered for tax (disclosed in notes forming part of the accounts and accepted by the AO in the communication dated 19.11.2010). During the period January 2003 to March 2003, Rs. 6.7 lakhs was computed to be payable by the assessee to the director. Therefore, this sum was reduced from the receivable and hence the assessee has shown net receivable at Rs. 32.51 lakhs as on 31.03.2003. The AO failed to understand these transactions and held that the assessee has once again debited the salary to the P&L account during the period January to March 2003. In this regard, the Ld. AR submitted that what was already offered to tax by the assessee by crediting to the P&L account can’t be added by the AO once again and it would amount to double taxation of the same amount.
Therefore, he pleaded to delete the additions. In this regard, he invited our attention to certain particulars filed in support of his claim.
3.1 Per contra, the Ld. DR submitted that the assessee has not given any particulars before the AO, as it has taken a legal ground for the reopening of the assessment etc. Before, the Ld. CIT(A) also the assessee has not furnished the required details. Therefore, the Ld. DR submitted that the assessee’s appeal is not having any merit.
We heard the rival submissions and gone through the relevant material. It is clear from the lower authorities orders that the assessee has not furnished the relevant details, though it has filed certain papers before us. Therefore, the facts and figures on the issue are to be examined by the lower authorities for arriving the correct conclusion.
Therefore, this issue is remitted back to the AO for a fresh examination.
The assessee shall lay all materials in support of its contention and comply with the requirements of the AO in accordance with law. The AO on due examination shall pass appropriate order, after affording effective opportunity to the assessee.
The Ld. AR submitted that the assessee has closed down the operations at Kalwa unit, one of the factories. The WDV of the assets as per the books of account at this location included in the total assets of the assessee amounted to Rs. 26.94 millions, which is mentioned in the notes to account. The Ld. AO assumed that the depreciation of these assets @ 25% and disallowed it on the contention that the assets were not put to use during the year concerned. The disallowance made is Rs. 67,27,500/-. The Ld. AR submitted that these assets are forming part of the block of assets and hence, the individual identity is lost. In this regard, he relied on various judgements viz., Bombay High Court and Tribunal decisions etc. The Ld. AR also submitted that without conceding to the AO’s contention, the AO’s assumption of depreciation @ 25% on 26.94 million is not correct. This value of 26.94 million is the WDV as per the books of account which is arrived at after claiming depreciation as per the rates given in Schedule XIV of the Companies Act which are very less compared to the rate adopted by the Ld. AO.
The rate of depreciation as per Income Tax Act is 25% on WDV of the assets, most of the assets were purchased in the year 1989. If we apply the income tax rates and compute the WDV, it would be virtually Nil and no disallowance is warranted.
5.1 Per contra, the Ld. DR submitted that the assets at Kalwa, as stated by the assessee itself were not used for productive purpose and were held for disposal. Since, the assets were not put to use and were held for disposal, no depreciation is admissible on such assets. In this regard, the AO relied on the Karnataka High Court decision in the case of DCIT vs Yellamma Dasappa Hospital reported in 290 ITR 353 (kar).
Further, the Ld. DR invited our attention to the decision of the Ld. CIT(A), wherein, the Ld. CIT(A) has taken note of the fact that the assessee’s auditor has categorically stated that the entire fixed assets of Kalwa unit were not used for the purpose of business during the year under consideration. Since, the assessee is having unit wise accounts, therefore, the entire block of accounts for Kalwa unit were not utilised for the purpose of business. Therefore, the Ld. DR supported the orders of the lower authorities.
We heard the rival submissions and gone through the relevant material. It is clear from the assessment order, that the assessee has not furnished the relevant details before the AO. Therefore, the AO has decided the issue on the basis of notes forming part of the accounts in the return. It is seen from the order of the Ld. CIT(A) also that the assessee has not furnished the relevant details. Therefore, we are of the considered opinion that this issue requires proper verification of the accounts and examination of whether the assessee maintained unit wise accounts or a combined accounts, how the block of assets were drawn earlier, etc. Therefore, we deem it fit to remit this issue back to the AO for a fresh examination. The assessee shall lay all materials in support of its contention and comply with the requirements of the AO in accordance with law. The AO on due examination and after affording effective opportunity to the assessee shall pass an appropriate order.
With regard to the disallowance of bad debts written off and the sundry balances, the assessee filed an additional grounds of appeal pleading that these were subject matter of assessment in the original assessment. On appeal, the Ld. CIT(A) dismissed the assessee’s grounds. Aggrieved, the assessee filed an appeal before the Hon’ble ITAT. The Hon’ble ITAT passed the order on 18.06.2009 (ITA 4866/Mum/07) “setting aside the order of CIT(A) and remitting the issue back to the file of the Assessing Officer for considering the claim of the assessee afresh and also mentioned that the Assessing Officer has to give proper opportunity for the assessee for representing its case” by relying on the judgement in the case of OMAN International Bank (313 ITR 128) where the Hon’ble Mumbai High Court held that “after amendment to section 36(1)(vii) it is neither obligatory nor is there any burden on the assessee to prove that the debt written off by him is indeed a bad debt as long as it is bonafide and is based on commercial wisdom or expediency.”
7.1. However, in the re-assessment made u/s. 143(3) r.w. 147 passed on 29.12.2010, the AO without considering the direction of the ITAT, made fresh additions on these issues. Although, the assessee made submissions regarding these issues before the Ld. CIT(A), the Ld. CIT(A) passed the order dated 10.05.2019 without considering the assessee’s submissions. Therefore, the assessee filed the following additional grounds of appeal:
“1. The Ld. Assessing Officer and CIT(A) erred in not considering the directions of ITAT with regard to disallowance of write off of bad debts and Sundry balances. 2. The Ld. Assessing Officer erred in not providing the assessee an opportunity of being heard. 3. The Ld. CIT(A) erred in not considering the submission made during the first appellate proceedings while adjudicating the appeal.”
The Ld. AR submitted on the lines of the above grounds of appeal.
We heard the rival submissions and admit the additional grounds of appeal. Since, the above issues are not considered by the Ld. CIT(A), we deem it fit to remit those issues back to the AO for a fresh examination with a direction to decide them on the lines in which this tribunal directed the AO in the original order in for assessment year 2003-04 dated 18.06.2009.
In the result, the assessee’s appeal is treated as partly allowed for statistical purposes.
Order pronounced on 20th December, 2019 at Chennai.