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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI ARUN KUMAR GARODIA
O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the revenue which is directed against the order of ld. CIT(A)-11, Bangalore dated 21.09.2017 for Assessment Year 2014-15.
The grounds raised
by the revenue are as under. “1. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) erred in deleting the addition of Rs.50,02,917/- being disallowance made by the Assessing Officer on account of claim of write off of CENVAT credit pertaining to section 80IB(10) unit of earlier years against the income of non-eligible units during the F.Y. relevant to A.Y. 2014-15?
2. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) ignored the provisions of section 80IA (5), which mandates the assessee to maintain separate books of account for any eligible undertaking as if such business was the only source of income of the assessee; hence profit or loss pertaining to the eligible unit shall be dealt separately but not allowable to be set off against the profit or loss of other non-eligible businesses of assessee?
3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) erred in relying on the Hon'ble Supreme Court's decision in the case of Synco Industries Limited (215 CTR 385(2008), wherein the facts of the case are distinct from the present case? 4. Any other grounds that may arise at the time of hearing.”
Brief facts are that it is noted by the AO in para 6 of the assessment order that assessee has debited an amount of Rs. 50,02,917/- being ‘Write Offs’ under ‘Operating and Other Expenses’ as on 31st March, 2014. When query was made by the AO, the reply was filed by the assessee the summary of which is noted by the AO in Para 6.2 of the assessment order as per which it is submitted by assessee that those amount relates to the CENVAT credit for completed project M/s. Amoda Valmark which was completed and hence CENVAT for the same is not available and therefore, written off. Thereafter in para 6.3 of assessment order, the AO has noted that in respect of this project, the assessee has claimed deduction u/s. 80IB(10) of IT Act and therefore, assessee has not made payment of taxes on units sold of this project because the same was claimed as deduction u/s. 80IB(10). The AO disallowed this claim of the assessee by stating in Para 6.4 of assessment order that apart from stating that the CENVAT credit relates to the completed project Amoda Valmark, the assessee has not made any submissions on the allowability of the same in the present Assessment Year when the said project was completed in the Financial Year 2010-11 and on which claim of deduction u/s. 80IB (10) of the IT Act was allowed in respect of income of that project. Being aggrieved, the assessee carried the matter in appeal before CIT(A) who decided the issue in favour of the assessee. Now the revenue is in appeal before us.
The ld. DR of revenue supported the assessment order. He also submitted that as per section 36(2) of IT Act, no deduction is allowable in respect of bad debts unless it is proved that the concerned debts or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of in an earlier previous year. He submitted that when the income in this project is claimed and allowed as deduction u/s. 80IB(10), the income of this project has not entered into total
income of the assessee of the relevant year and therefore, for write off of any debt in respect of that project is not allowable. The ld. AR of assessee supported the order of CIT(A).
We have considered the rival submissions. First of all we reproduce paras 7 to 9 of order of CIT (A) because the issue in dispute was decided by CIT (A) as per these paras of his order. “7. I have considered the above main ground and the additional grounds of appeal
and statement of facts filed by the appellant and also gone through the assessment order passed by the assessing officer.
8. Based on the documents perused, it is clear that the assessee had written off certain CENVAT credit balances in the books of accounts pertaining to their 801E3 (10) approved project Amoda Valmark. However, these CENVAT credit balances are normally kept in the books of accounts for meeting any future liabilities that might arise due to assessments. Once the assessment is completed, the assessee has written off the liabilities.
9. In view of the factual matrix of the case of the case, I am of the view that case is squarely covered by the judgment of the Supreme Court in the case of Synco Industries mentioned above and the disallowance of Rs. 50,02,917 towards CENVAT credit written off is incorrect and hence the assessee's appeal is allowed.”
From the above paras reproduced from the order of CIT (A), it is seen that CIT (A) has decided this issue without negating the objections of AO in the assessment order. He has simply followed the judgement of Hon’ble Apex Court rendered in the case of Synco Industries as reported in 215 CTR 385 (2008). In this case, the issue in dispute was this that if the assessee was engaged in the business of oil and chemicals and it has a unit for oil division at Sirohi District, Rajasthan and it was also having a chemical division at Jodhpur. The assessee has earned profit in the Assessment Years 1990-91 and 1991-92 in both the units. However, the assessee had suffered losses in the oil division in earlier years. The assessee claimed deductions under Section 80HH and 80- I of the Act, claiming that each unit should be treated separately and the loss suffered by the oil division in earlier years is not adjustable against the profits of the chemical division while considering the question whether deductions
under Sections 80HH and 80-I were allowable. The Assessing Officer noticed that the gross total income of the assessee before deductions under Chapter VI-A was 'Nil' and therefore, he concluded that the assessee was not entitled to the benefit of deductions under Chapter VI-A.
In respect of this dispute, ultimately the Hon’ble Apex Court decided the issue against the assessee and it was held that since gross total income was Rs. Nil, the assessee was not entitled to claim deduction u/s. 80IB(10). Hence it is seen that this judgement is not rendering any help to the assessee in the present case. We find force in the submissions of ld. DR of revenue that since in the earlier year, when CENVAT credit was brought into balance sheet as an asset and corresponding income was accounted for, the income of the assessee was increased by either increase in credit side of P&L account or decrease in debit side of P&L account and in result, the assessee get extra deduction u/s. 80IB (10) to that extent and no income of this project ultimately was included in total income. As per the requirements of section 36(2) of IT Act, for making any deduction for a bad debt, it has to be seen that no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or in an earlier previous year. As per the facts of the present case, no income on account of CENVAT credit was included in the taxable income of the assessee in any year and therefore, write off of CENVAT credit of this project is not allowable as deduction against taxable income of a future year. At the best, the said deduction can be allowed in the relevant year when CENVAT credit was brought in asset side of assessee’s books. But in that situation, the deduction allowable to assessee u/s. 80IB (10) along with the income of this project will go down by the same amount and in the present year, the assessee’s taxable income will be increased by this amount. Hence, this will be a futile exercise with no impact on tax liability of that year and in the present year, the disallowance has to be made. Considering the entire facts and in view of above discussion, we reverse the order of CIT(A) and restore that of the AO.
In the result, the appeal filed by the revenue is allowed. Order pronounced in the open court on the date mentioned on the caption page.