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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI INTURI RAMA RAO & SHRI DUVVURU R.L.REDDY
आदेश / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee directed against the Order of the Commissioner of Income Tax (Appeals)-8, Chennai, in dated 13.02.2017 for the AY 2007-08.
The assessee company name M/s.KEC International Ltd., duly incorporated under the Companies Act, 1956, which is engaged in the business of erection & selling of power transmission towers. The return of income for the AY 2007-08 was filed on 31.10.2007 declaring ‘NIL’ income and the same was revised declaring same income. Against the said return of income, the assessment came to be completed by the AO vide an order dated 24.12.2009 passed u/s.143(3) of the Income Tax Act, 1961 at ‘Nil’ income after set off unabsorbed loss of earlier years to an extent of Rs.42,41,04,258/-. Subsequently, the assessment was re-opened u/s.148 by issuing notice dated 28.03.2012, on the ground that the duty drawback receivables of Rs.1,81,98,949/- was not offered to tax, while computing the tax liability u/s.115JB, the provision for contingent liability of Rs.15,60,00,000/- was not added to the book profit. Subsequently, the AO completed the assessment vide order dated 27.03.2013 passed u/s.143(3) r.w.s.147 of the Act, at total loss of Rs.11,37,61,156/- under normal provisions of Income Tax Act, 1961 by brining to tax duty drawback receivables of Rs.1,81,98,949/- and by adding provision for contingent liability of Rs.15,60,00,000/- to the book profit.
3. Being aggrieved, the appeal was preferred before the Ld.CIT(A) who vide impugned order confirmed the additions.
Being aggrieved, the assessee is on appeal before us in the present appeal. The Ld.Counsel for the assessee submitted that the duty drawback is taxable in the year of actual receipt in view of the law laid down by the Hon’ble Supreme Court in the case of CIT vs. Excel Industries Ltd., reported in 358 ITR 295, as regards, the addition of provision of contingent liability of Rs.15,60,00,000/- to the book profit for the purpose of tax liability u/s.115JB, it is submitted that it is not a provision for unascertained liability since the liability is ascertained and the liability is credited and the provisions had been made. It is submitted that the details of the provisions made are as under:
1. Sales tax dispute Rs.2.75 Crs.
2. Provision for disputed claims of Rs.9.75 Crs.
This represents the contract bills raised but claims disputed by the clients and the provision for doubtful advance of Rs.3.25 Crs. It is submitted that the provision is debited to P&L A/c and reduced from the sundry debtors, loans and advances which constitutes write off in terms of law laid down by the Hon’ble Supreme Court in the case of Vijaya Bank vs. CIT reported in 323 ITR 166. He also submitted that the provisions netted of against the assets cannot be added to the book profit for the purpose of computing tax liability in the light of the above decision. On the other hand, the Ld.Sr.DR placed reliance on the orders of the lower authorities.
We heard the rival contentions and perused the materials placed on record.
Ground No.2 challenges the validity of the initiation of re- assessment proceedings. These grounds of appeal were not pressed during the course of appeal, hence dismissed as such.
7. Ground No.3 challenges the decision of the lower authorities to tax the due drawback of Rs.1,81,98,949/-. The details of the claims receivables are as under:
Insurance charges paid on behalf of the customers due to be received Rs.51,85,105/-.
2. Works contract tax recoverable from client Rs.5,47,492/-.
Excise Deposit under protest refundable from department Rs.3,00,000/-
4. Sales Tax recoverable from client sales tax department Rs.12,09,510/-.
5. Duty draw back on ED recoverable from JDGFT Rs.1,09,56,842/-.
It is submitted that while executing the work contracts for various customers, the company is required to take insurance coverage on the materials supplied by them, such insurance charges are paid on behalf of the customers and claimed the reimbursement. When the amount is paid, it is debited to advance account and when it is recovered from the customers, the advance amount is credited. Similarly, is the case in the case of works contracts and excise duty paid and sales tax. As regards to the duty drawback, it is submitted that the same is offered to tax as and when it is received, in the light of the decision of the CIT vs. Excel Industries Ltd. The explanation offered by the assessee had not been controverted by the lower authorities but merely rejected the same without giving valid reasons. On the face of the explanation in respect of Item Nos.1 to 4, no addition is warranted. The disputed tax liability paid under protest does not constitute the income in the hands of the assessee.
However, the AO had not gone into the issue in detail by undertaking the due process of verification with the evidence. Similarly, as regards to the duty drawback of Rs.1,09,56,842/-, the AO had not undertaken the exercise of verifying whether the due drawback had accrued to the assessee or not. Therefore, we are of the considered opinion that the issue may be restored to the file of the AO for de novo assessment on this issue.
As regards, the addition of provision for disputed claims to the book profit for the purpose of computing tax liability u/s.115JB, from the details on record the provision includes that the disputed tax liability and the provision made for disputed claims for Rs.9.50 crs. and the provision of doubtful debts of Rs.3.25 Crs. etc., undoubtedly these provisions cannot be considered as a provision for unascertained liabilities. However, from the perusal of the Assessment Order it is clear that the AO had not looked into the details and the nature of the provision made and simply added back to the book profit. Therefore, these issues are restored to the file of the AO for the purpose of due verification of the nature of the provision and decide the issue in accordance with the law.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.