Income Tax Appellate Tribunal - Ahmedabad
The Ito, Ward-8(4),, Ahmedabad vs Vishal Plastomers Pvt. Ltd.,, ... on 26 October, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
"D" BENCH, AHMEDABAD
BEFORE SHRI PRAMOD KUMAR VICE PRESIDENT &
Ms. MADHUMITA ROY, JUDICIAL MEMBER
1. I.T.A. No.1773/Ahd/2014 - AY 2006-07
2. I.T.A. No.1774/Ahd/2014 - AY 2007-08
3. I.T.A. No.1775/Ahd/2014 - AY 2008-09
1-3. The ITO Vs. 1-3. Vishal Plastomers
Ward-8(4) Pvt.Ltd.
Ahmedabad 3 r d Floor
301,Sheel Complex
4, Mayur Colony
Nr.Mithakhali 6
Road
Ahmedabad-380006
[PAN No.AAACV6745Q]
(Appellant) .. (Respondent)
Appellant by : Shri Mukesh Kumar Shah, CIT-DR
Respondent by : Shri S.N. Soparkar &
Shri Parin Shah, ARs
Dat e of H e a r i ng : 31/07/2018
D at e o f P ro n o u n c e me nt : 26/ 10 /2018
ORDER
PER Ms. MADHUMITA ROY - JM:
The instant appeals have been filed by the Revenue before us against the order dated 10.03.2014 passed by the Commissioner of Income Tax(Appeals)-XIV, Ahmedabad [Ld.CIT(A) in short] arising out of the order dated 04.11.2011, 14.12.2009 & 20.12.2010 passed by the ACIT, Circle-8, Ahmedabad for Assessment Years (AYs) 2006-07, 2007-08 & 2008-09 respectively.ITA No.1773/Ahd/2014 - AY 2006-07
2. The following main ground has been raised by the Revenue in its appeal:
-2-ITA Nos.1773,1774 & 1775/Ahd/2014 ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09 The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition made in respect of additional depreciation of Rs.2,73,49,248/- on account of Wind Mills commissioned and operated by the Assessee on the ground that generation of electricity was not in the nature of "manufacture" or "production" as intended u/s.32(1)(iia) of the Act.
3. The main grievance of the Revenue is against the deletion of addition made by the Ld CIT(A) in respect of additional depreciation of Rs.2,73,49,248/- on account of Wind Mills commissioned and operated by the assessee on the sole ground that generation of electricity was not in the nature of manufacture or production as intended u/s.32(1)(iia) of the Income Tax Act, 1961 (hereinafter referred to as "the Act").
4. The assessee-company is engaged in a business of exports, imports and trading activity and activity of generation of electricity through use of wind mills. U/s.115JB of the Act, assessee has shown income of Rs.4,88,78,544/-. Ultimately, a loss of Rs.6,44,60,126/- was assessed by the assessment order u/s.143(3) of the Act dated 23.12.2008. Subsequently, the case was reopened by issuance of notice u/s.148 on 28.03.2011 and the assessee filed its return dated 10.08.2011 declaring total loss of Rs.6,62,05,160/-. In the re-assessment proceedings, the assessee has claimed additional depreciation of Rs.2,73,49,248/- at 20% on wind mills. The case of the assessee is this that as per provisions of section 32(1)(iia) of the Act in the event any machinery or plant other than ships and air craft which has been acquired and installed after 31st day of March-2005 by an assessee engaged in the business of manufacture or production of any article or things, a further sum equal to 20% of the actual cost of such machinery or plant shall be allowed as deduction and hence such claim.
4.1. Since none appeared on behalf of the assessee upon going the records available before the Ld. Assessing Officer, the Ld. Assessing Officer disallowed the assessee's claim and added back the entire amount of Rs.2,73,49,248/- to the income of the assessee.
-3-ITA Nos.1773,1774 & 1775/Ahd/2014 ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09
5. In appeal, the Ld.CIT(A) allowed the assessee's claim by deleting the addition. Hence, the instant appeal.
6. The Ld. Representative of the Department relied upon the order passed by the Ld. Assessing Officer and prayed for quashing of the order passed by the Ld. CIT(A).
7. At the time of hearing of the instant appeal, the Ld. Representative of the assessee submitted before us that the case of the assessee is covered by the judgment pronounced by the Hon'ble Jurisdictional High Court in the case of CIT vs. Diamines and Chemicals Ltd. (2017) 271 CTR 0098 (Guj.) as well as in the matter of Principal Commissioner of Income- Tax, Vadodara vs. Gujarat State Fertilizer & Chemicals Ltd. (2017) 80 taxmann.com 40 (Guj.).
8. We have heard the Ld. Representatives appearing for the respective parties. We have perused the relevant materials available on record. We find that the power generation is a manufacturing activity and duly recognized by the government. It is a priority section under the government policies. In this particular business, wind is the raw-material for generation of electricity and/or power by wind mills through which the turbines are operated and power is generated and transmitted to grid lines. Since this is manufacturing activity claim of additional depreciation under the provisions of section 32(1)(iia) of the Act is attracted, in fact, the activity has been well verified by the auditors of the company which have been certified separately by way of certificates which are required to be submitted for claiming such additional depreciation u/s.32(1)(iia) of the Act as discussed above in Form No.3AA copy whereof was also submitted with the return of income as a part of audited report by the assessee. While allowing the claim of depreciation of the assessee, the ld. CIT(A) observed as follows:
"(v)(a) I am inclined with the contention of appellant that since appellant was already under the business of production/generation of electricity which is covered under sale of goods Act 1930 i.e -4- ITA Nos.1773,1774 & 1775/Ahd/2014 ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09 electricity is an article & thing, and appellant installed/commissioned windmill during previous year, its claim for additional depreciation duly supported by Form no.3AA is admissible and justified. I am inclined that ratio of Hon'ble ITAT that the govt. vide Finance Act 2012 has amended the provisions of section 32(1)(iia) to include the business of generation or generation and distribution of power is eligible for benefit u/s.32(1)(iia) although effective from 01.04.2013 but it gives impetus to the view that generation of electricity is a manufacturing process and qualified for the benefits u/s.32(10(iia).
(b) I am inclined with appellant that it fulfilled all the eligible conditions for claim of additional depreciation (discussed by appellant at para 3 of written submission dated 17.2.2014). Hon'ble Gujarat High Court in the case of Diamonds & Chemicals Ltd. (supra) upheld the ratio of Hon'ble ITAT, Ahmedabad in the same case for such additional depreciation for windmill as relied on by appellant. I am inclined the ratio of Hon'ble High Court is squarely applicable in the facts of the appellant's case.
It is therefore disallowances made by A.O. are neither justified not substantial in law. The A.O. is directed to allow such additional depreciation of Rs.2,73,49,248/-. The appellant gets relied accordingly. This ground is allowed."
9. The judgment relied upon by the assessee in the case of Diamines & Chemicals Ltd. (supra), the relevant portion whereof as follows:
"3. Heard Shri K.M. Parikh, learned Counsel appearing on behalf of the revenue and perused the impugned judgement and order passed by the ITAT. At the outset, it is required to be noted that the assessee claimed the deduction under Section 32(1)(iia) of the Income Tax Act with respect to the cost incurred by it for installation of the Wind Electric Generator. The Assessing Officer disallowed the same and made the addition of Rs.1,17,98,030/- by observing that as the assessee is not in the business of generation and distribution of power, the assessee shall not be entitled to deduction under Section 32(1)(iia) of the Income Tax Act of Rs.l,17,98,030/-. The said addition has been deleted by the CIT(A) relying upon the decisions of the Madras High Court in the case of VTM Ltd (Supra) and in the case of Hi Tech Arai Ltd. (Supra). In both the aforesaid decisions, the Madras High Court had an occasion to consider the similar issue and it is held that while claiming the deduction under Section 32(1)(iia) of the Income Tax Act setting up wind mill has nothing to do with the power industry and what is required to be satisfied in order to claim additional depreciation is that the setting up of new machinery or plant should have been acquired and installed by an assessee, who was already engaged in the business of manufacture or production of any article or thing. Considering the aforesaid facts and circumstances and considering the relevant provisions of Section 32(1)(iia) of the Income Tax Act, which was prevailing at the relevant time, i.e. during the year under consideration, it cannot be said that the ITAT by applying the ratio of decision of the Madras High Court in the case of VTM Ltd (Supra) and in the case of Hi Tech Arai Ltd. (Supra) has committed any error in deleting the addition of Rs.1,17,98,030/- on account of disallowance of additional depreciation of Wind Electric Generator.-5-
ITA Nos.1773,1774 & 1775/Ahd/2014 ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09
4. We see no reason to interfere with the impugned judgment and order passed by the ITAT. No question of law, much less substantial question of law arises in the present Tax Appeal. Hence, the present Tax Appeal deserves to be dismissed and is accordingly dismissed."
10. The relevant portion of the judgment in the case of Principal Commissioner of Income- tax, Vadodara vs. Gujarat State Fertilizer & Chemicals Ltd. (supra) is as follows:-
"5.1 Now so far as ground no.1 with respect to the additional depreciation under Section 32(1)(iia) read with Section 32(1)(iia) of the Act on windmill, which was allowed by the Assessing Officer is concerned, at the outset it is required to be noted that the aforesaid issue is now not res Integra and the same is concluded by the Division Bench of this Court against the revenue in view of the decision of the Division Bench of this Court in the case of Diamines & Chemicals Ltd. (Supra). The aforesaid is not disputed by Shri K.M. Parikh, learned advocate appearing on behalf of the revenue that while passing the impugned judgment and order the learned tribunal has relied upon the binding decision of the Division Bench of this Court in the case of Diamines & Chemicals Ltd. (Supra). Under the circumstances, the learned tribunal has rightly quashed and set aside the order passed by the learned Commissioner with respect to additional depreciation of Rs.7,22,82,760/- claimed by the assessee under Section 32(1)(iia) of the Act on windmill. Under the circumstances, the learned tribunal has rightly quashed and set aside the order passed by the learned Commissioner so far as the additional depreciation claimed by the assessee under Section 32(1) (iia) read with Section 32(1)(iia) of the Act."
11. Taking into consideration the facts and circumstances of the case and respectfully following the judgment passed by the Jurisdictional High Court as cited above, we find that the assessee is entitled to claim of depreciation u/s.32(1)(iia) of the Act on windmill and we, therefore, find no reason to interfere with the order passed by the Ld. CIT(A). Thus, the appeal preferred by the Department against the impugned order is dismissed.
ITA No.1774/Ahd/2014 for AY 2007-0812. In this appeal, the Revenue has raised the following ground of appeal:
The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.3,58,39,862/- made u/s.41(1) of the Act when Assessee had failed to discharge its onus to prove existence of the liability to pay the creditors.-6-
ITA Nos.1773,1774 & 1775/Ahd/2014 ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09 12.1. The grievance of the Department is against the deletion of addition of Rs.3,58,39,862/-
made u/s.41(1) of the Act particularly when the assessee has failed to discharge its onus to prove the existence of the liability to pay the creditors as claimed by the Department.
13. The assessee-company filed its return of income for the AY 2007-08 on 08.11.2007 declaring total income of Rs.NIL as per normal provision of the Act after setting off of the brought forward losses of the previous year. The book profit as per section 115JB was Rs.53,62,390/-. The return was duly processed u/s.143(1) of the Act. Upon scrutiny, notice u/s.143(2) was issued on 16.09.2008 followed by notice u/s.142(1) dated 01.07.2009 along with the questionnaire upon the assessee. Upon perusal of the list of sundry creditors submitted by the assessee, it was noticed by the Ld. Assessing Officer that in respect of following creditors, the outstanding amount payable was constant for last three years:
Sl.no. Name of creditor Amount
Rs.
1. Arpit Export 751633/-
2. Karnavati Alfa International 273778/-
Ltd.
3. Mahadev Trading Co. 12158935/-
4. P.K. Traders 2100000/-
5. R.Kay Trading Co. 4319342/-
6. Ronak Trading Co. 9471474/-
Total 35839862/-
13.1. The assessee was asked to show cause as to why the amount of Rs.3,58,39,862/- would not be added u/s.41(1) of the Act to the total income of the assessee upon which by and under a letter dated 11.02.2009 following was submitted by the assessee:
"In this regard, we would like to submit that all these parties are suppliers from whom material has been produced at different times and amount is genuinely outstanding payable to all the parties and is genuine liability which cannot be written off as such any addition cannot be made for these liabilities in the assessment. From all these parties, the goods have been purchased in the F.Y. 2004-05 i.e A.Y. 2005-06 and in some of the parties, further transaction -7- ITA Nos.1773,1774 & 1775/Ahd/2014 ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09 has taken place in last two years. We are enclosing herewith copied of accounts of those parties for your ready reference.'' 13.2. The ledger account of some of the parties were placed before the Ld. Assessing Officer wherefrom it appears that the last transaction made with them was in the month of September-2004 i.e. beyond three years and still demands are outstanding as it were on 31.03.2007, the Ld. Assessing Officer found as per Limitation Act, the creditor does not have any legal right to enforce the account or that the liability is barred by limitation. According to the Ld. Assessing Officer, the amount has been remitted on foregone or the sum has ceased to be claimable against the assessee it would be a clear case of remission or cessation or liability of the assessee. The right of recovery of the said amount has become time-barred and invoking section 41(1) of the Act, the entire amount of Rs.3,58,39,862/- has been added to the total income of the assessee.
14. In appeal, while dealing with the ground, the Ld.CIT(A) observed as follows:
"5.3 Ground No. 3 is against the addition of Rs.3,58,39,862/- u/s 41(1) of the Act with regards to the long outstanding creditors. The A.O. in assessment proceedings after verifying the details as submitted by appellant, found in respect of six parties that undoubtedly they are sundry creditors for goods but the account outstanding were as such since last three years. The A.O. after discussing the unenforceability on account of Limitation Act and ratio of case laws, held that "the conduct and surrounding circumstances demonstrate that the amount has been remitted or fore gone or the sum has ceased to be claimable against the assessee, it would be a clear case of remission or cessation of the liability of the assessee."
The appellant in appeal contended that such outstanding is for goods purchased in A.Y. 05-06 and for some parties, there are transaction during last two years therefore the period of 3 years is not true. The appellant has not submitted the details of account of these parties to support this contention. The appellant raised the legal preposition that as per clear unambiguous provisions of section 41(1) of the Act, unless & until the liability is remitted and an assessee gets some benefit or advantage directly or indirectly out of such remission then only the provisions u/s 41(1) of the Act comes in picture. If such liabilities remained outstanding for many years such unilateral interpretation by A.O. for invoking section 41(1) of the Act is not as per settled legal proposition. The appellant relied on Hon'ble Supreme Court decision in the case of Sugauli Sugar Works (P) Ltd. (supra) and Hon'ble Gujarat High Court decision in the case of Puridevi Mahendra kumar Chaudhary (supra), Bhogilal Ramjibhai Atara (supra) and Nitin Garg (supra).
-8-ITA Nos.1773,1774 & 1775/Ahd/2014 ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09 I am inclined with contention of appellant that in spite of the fact that such trade creditors are outstanding as such since many years now (The appellant has not submitted till date whether the same is settled or not) may be on account of bad financial position of appellant but as per the ratio of Hon'ble Gujarat High Court in the case of Bhogilal Ramjibhai Atara (supra), the same cannot be added as income by invoking section 41(1) of the Act."
15. The judgment of Bhogilal Ramjibhai Atara (2014) 43 taxmann.com 55 (Guj.) has been relied upon by the Ld. CIT(A) while allowing the appeal preferred by the assessee in deleting the addition made by the Ld. Assessing Officer.
16. At the time of hearing of the instant appeal, the Ld. DR relied upon the order passed by the Ld.AO. On the contrary, the representative of the assessee submitted before us that as per clear an ambiguous provision of section 41(1) of the Act unless and until the liability is remitted and an assessee gets some benefit or advantage directly or indirectly out of such remission then only the provision of section 41(1) of the Act comes into play. If such liabilities remained outstanding for many years such unilateral interpretation made by the Ld. Assessing Officer for invoking section 41(1) of the Act is not as per settled principle of law. He further submitted that the case is covered by the judgment of Bhogilal Ramjibhai Atara. He thus, relies upon the order passed by the Ld. CIT(A).
17. We have heard the Ld. Representatives appearing for the respective parties. We have perused the relevant materials available on record. We have gone through the orders passed by the Ld. Assessing Officer and Ld. CIT(A). We find that the Hon'ble Jurisdictional High Court decided the issue in the case of Bhogilal Ramjibhai Atara as relied upon by the Ld. AR in favour of assessee in the manner as follows:
"Briefly stated, the facts are that for the assessment year 2007-08, the assessee filed return of income which showed, besides others, a sum of Rs.37.52 lacs by way of his debt. The Assessing Officer inquired into such outstanding dues of the assessee. The assessee supplied details of 27 different creditors. The Assessing Officer issued -9- ITA Nos.1773,1774 & 1775/Ahd/2014 ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09 summons to all these so called creditors and questioned them about the alleged credit to the assessee. In detail, the Assessing Officer in his order of assessment recorded that number of parties were not found at the given address. Many of them stated that they had no concern with the assessee. Some of them conveyed that they did not even know the assessee. On the basis of such findings and considering that the debts were outstanding since several years, the Assessing Officer applied section 41(1) of the Income Tax Act, 1961 and added the entire sum as income of the assessee. The Assessing Officer held that liabilities have ceased to exist within the meaning of section 41(1) of the Act and therefore, the same should be deemed to be the income of the assessee.
Hon'ble High Court considered following decisions:
''The counsel relied on following decisions:
(i)In the case of CIT v. Miraa Processors (P) Ltd. (2012) 208 Taxman 93 (Guj.) in which Division Bench of this Court observed as under:
''14.As pointed out in the case of Sugauli Sugar Works (P) Ltd. (supra), vide the last five lines of the paragraph-6 of the judgment, the question whether the liability is actually barred by limitation is not a matter which can be decided by considering the assessee's case alone but has to be decided only if the creditor is before the concerned authority. In the absence of the creditor, it is not possible for the authority to come to a conclusion that the debt is barred and has become unenforceable. There may be circumstances which may enable the creditor to come with a proceeding for enforcement of the debt even after expiry of the normal period of limitation as provided in the Limitation Act."
(ii) In the case of CIT v. Nitin S. Garg, (2012) 208 Taxman 16 (Guj.), it was observed as under:
15. In the case before us, it is not been established that the assessee has written off the outstanding liabilities in the books of account. The Appellate Tribunal is justified in taking the view that as assessee had continued to show the admitted amounts as liabilities in its balance sheet the same cannot be treated as assessment of liabilities. Merely because the liabilities are outstanding for last many years, it cannot be inferred that the said liabilities have seized to exist. The Appellate Tribunal has rightly observed that-the Assessing Officer shall have to' prove that the assessee has obtained the benefits in respect of such, trading liabilities by way of remission or cessation thereof which is not the case before us. Merely because the assessee obtained benefit of reduction in the earlier years and balance is carried forward in the subsequent year, it would not prove that the trading liabilities of the assessee have become non existent.
16. Moreover, as pointed out in the case of Sugauli Sugar Works (P) Ltd. (supra), vide the last five lines of the paragraph-6 of the judgement, the question whether the liability is actually barred by limitation is not a matter which can be decided by considering the assessee's case alone but has to be decided only if the creditor is before the concerned authority. In the absence of the creditor, it is not
- 10 -
ITA Nos.1773,1774 & 1775/Ahd/2014 ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09 possible for the authority to come to a conclusion that the debt is barred and has become unenforceable. There may be circumstances which may enable the creditor to come with a proceeding for enforcement of the debt even after expiry of the normal period of limitation as provided in the Limitation Act."
(iii) In the case of CIT v. G.K. Patel & Co. (2013) 212 Taxman 384 (Guj)., in which a Division Bench of this court held and observed as under:
"To the extent the said decision holds that a unilateral act on the part of the debtor cannot bring about a cessation of his liability, the same would not be applicable to the facts of the present case, in view of the insertion of Explanation 1. However, at the cost of repetition it may be stated that in this case there is no unilateral act on the part of the debtor so as to bring about a cessation of its liability. Therefore, the other part of the decision would still apply to the facts of the present case, namely that the cessation of liability has to be either by reason of operation of law, i.e., on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to honour his liability when payment is demanded by the creditor, or a contract between the parties, or by discharge of the debt - the debtor making payment thereof to his creditor. In the present case, admittedly there in no declaration by the assessee that it does not intend to honour its liabilities nor is there any discharge of the debt. In the aforesaid premises, as no event had taken place in the year under consideration to indicate remission or cessation of the liabilities in question, the provisions of section 41(1) of the Act could not have been invoked. The reasoning adopted by the Tribunal while holding that section 41(1) would not be applicable to the facts of the present case is in line with the principles enunciated in the above decision. The Tribunal, therefore, committed no legal error so as to give rise to any question of law warranting interference by this court."
The Hon'ble Gujarat High Court held that "We are in agreement with the view of the Tribunal. Section 41(1) of the Act as discussed in the above three decisions would apply in a case where there has been remission or cessation of liability during the year under consideration subject to the conditions contained in the statute being fulfilled. Additionally, such cessation or remission has to be during the previous year relevant to the assessment year under consideration. In the present case, both elements are missing. There was nothing on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The Assessing Officer undertook the exercise to verify the records of the so called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex parte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi-parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income under section 41(c) of the Act. This is one of the strange cases where even if the debt itself is found to be non- genuine from the very inception, at least in terms of section 41(1) of the Act there is no cure for it. Be that as it may, insofar as the orders of the Revenue authorities are concerned, the Tribunal not having made any error, this Tax Appeal is dismissed."
- 11 -
ITA Nos.1773,1774 & 1775/Ahd/2014 ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09
18. Having regard to the facts and circumstances of the case, we find that merely because the liabilities are outstanding for a long period of time the same cannot be said to be ceased to exist. Neither the Ld. Assessing Officer has proved that the assessee has obtained the benefit of the said liabilities by way of remission or cessation thereof. The judgments cited above have decided the same issue involved in this matter as discussed. We, therefore, find no infirmity in the order passed by the Ld. CIT(A) and respectfully following the judgments, we decline to interfere with the same. This ground of appeal preferred by the Revenue is thus dismissed.
19. In the result, appeal preferred by the Department stands dismissed.
ITA No.1775/Ahd/2014 for AY 2008-0920. In this appeal, the Revenue has raised the following ground of appeal:
1) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance on account of setting off STCG against depreciation.
2) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.20,95,000/- made u/s.68 of the Act.
3) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabd has erred in law and on facts in deleting the disallowance of claim of Rs.5,49,74,891/- made on account of bad debt written off.
4) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.47,60,000/- made on account of cash deposit.
21. The first ground relates to the disallowance on account of set off of Short Term Capital Gain (STCG) against unabsorbed depreciation for AY 2006-07. The assessee- company filed its return of income for AY 2008-09 on 30.09.2009 declaring total income of
- 12 -
ITA Nos.1773,1774 & 1775/Ahd/2014 ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09 Rs.NIL after setting off of the brought forward business losses and unabsorbed depreciation. The income/loss under various heads are as follows:
Sl.No. Heads of Income Income / Loss (In Rs.) 1. Income from house property 1849899/-
2. Income from business and profession (Including (- 9384638/-
depreciation)
3. Income from STG u/s.50 15825808/-
4. Income from other Sources 80695/-
Total 8371764/-
21.1. The income from STCG after setting off of the business losses including depreciation had been set off against the unabsorbed depreciation for the AY 2006-07 and consequently, the total return of income was shown as Rs.NIL.
22. Upon scrutiny, notice u/s.143(2) of the Act dated 25.08.2009 was issued followed by notice u/s.142(1) along with the questionnaire against the assessee. However, the contention made by the assessee was not accepted by the Ld. Assessing Officer and the same was disallowed. According to him, the loss incurred on account of unabsorbed depreciation is a loss under the head "Business and Profession". The carry forward loss since only be set off against business income and not otherwise. The assessee, according to the Ld. Assessing Officer, violated the provisions of section 72 and has wrongly set off of the business loss against STCG u/s.50 of the Act and the set off against STCG of Rs.83,71,764/- has been charged to tax.
23. In appeal, the claim of set off was affirmed by the first appellate authority by reversing the order of the Ld. Assessing Officer against which the Revenue came up in appeal before us.
- 13 -
ITA Nos.1773,1774 & 1775/Ahd/2014 ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09
24. At the time of hearing of the instant appeal, the Ld. DR relied upon the order passed by the Ld. Assessing Officer. On the contrary, Ld. AR submitted that the case of the assessee is covered by different judgments of High Court as well as by the Apex Court. He then relied upon the order passed by the Ld. CIT(A). He placed reliance on the judgment of Hon'ble Apex Court in the case of Jaipuria China Clay Mine (P.) Ltd. reported at 59 ITR 555 (SC), wherein the Hon'ble Apex Court has dealt with the issue in the manner as follows:
"It is wrong to assume that section 72 also deals with the carrying forward of depreciation. This carry forward having been provided in section 32(2) in a different manner, section 72 deals with losses other than the losses due to depreciation."
24.1. He also relied upon the judgment passed by the Hon'ble Apex Court in the matter of CIT vs. Mahalaxmi Sugar Mills Co.Ltd.
25. We have heard the Ld. Representatives appearing for the respective parties. We have perused the relevant materials available on record. While disallowing the set off of STCG against depreciation, the Ld. Assessing Officer observed as follows:
"3.1. Loss incurred on account of unabsorbed depreciation is a loss under the head "Business and Profession". Under section 72, carried forward business losses can only be set off against business income and not against any other head of income. The assessee has wrongly and in violation of the Income tax Act set off the unabsorbed depreciation of the Assessment Year 2006-07 against STCG u/s.50 of the Income tax Act. The irregular and illegal set off of STCG u/s.50 against brought forward unabsorbed depreciation is therefore denied to the assessee and the STCG of Rs.8371764/- is charged to tax.
3.2. Without prejudice to the fact that the irregular set off of unabsorbed depreciation has been denied to the assessee, full effect to the brought forward business losses and unabsorbed depreciation had been given in the order u/s.143(3) for the Assessment Year 2007-08 wherein the whole carried forward business losses and unabsorbed depreciation had been set off against the assessed income. Therefore the claim of set off of unabsorbed depreciation is disallowed to the assessee on this ground also. As the assessee has furnished inaccurate particulars of income penalty proceedings u/s.271(1)(c) r.w.s. 274 is also being initiated separately."
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ITA Nos.1773,1774 & 1775/Ahd/2014 ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09 25.1. In appeal, the Ld. CIT(A) observed as follows:
"These legal proposition gives following priority based on provisions u/s.32(2) and u/s.72 of the Act as follows:
(i) Unabsorbed depreciation can be carried forward for unlimited years as per section 32(2) of the Act. Such unabsorbed depreciation become part of allowance of depreciation for subsequent asstt.
year irrespective of fact whether there is business or not i.e. such unabsorbed depreciation in subsequent year takes the shape of current year depreciation and in case there is no sufficient income from business and profession or no such income, the same will be adjusted against such income or if not set off becomes negative income under the head 'Profit & gains from business and profession' of current year eligible to be set off against any other head as per provisions of section 71 of the Act.
(ii) Unabsorbed business loss excluding unabsorbed depreciation of any year can only be set off against the income under the head 'Profit & gains from business & profession'. Further the carry forward and set off is limited for eight years 'as per provisions of section 72(3) of the Act. It is therefore the order of priority of set off will be, first current year depreciation be allowed from the income under the head 'profit & gains from business &profession.' If any surplus remains, then considering provisions of section 72(2) of the Act & 72(3) of the Act, unabsorbed business loss be adjusted against surplus in view of limitation of 8 years for business loss. It is after this set off, the unabsorbed depreciation comes to adjusted against any surplus left under this head and even if no such surplus or inadequate surplus, then such unabsorbed depreciation becomes current year loss and can be adjusted against income under any other head.
As per Hon'ble Supreme Court decision in the case of CIT vs.Mahalakshmi Sugar Mills Co.Ltd. (1986) 160 ITR 920, there is a duty cast on the ITO to apply the relevant provisions of the Act for the purpose of determining the true figure of the assessee's taxable income and the consequential tax liability.
It is therefore, I am not inclined with A.O. that as per provisions of section 72 of the Act, such unabsorbed depreciation of A.Y. 06-07 cannot be adjusted against short term capital gain u/s 50 of the Act. Further as discussed in initial para, after various appeal order for A.Y. 06-07& A.Y. 07-
08. there is unabsorbed depreciation for A.Y. 06-07 of Rs.3,46,65,017/- which can be and has to be given benefit of set off from income of A.Y. 08-09. The A.O. is directed to verify such figure after giving appeal effect for those year and allow the set off of such unabsorbed depreciation determined from the income first from business & profession and if still such unabsorbed depreciation remained then as per provision of section 71 of the Act, from income under other head including short term capital gain. The appellant gets relief accordingly but for the amount as worked out for unabsorbed depreciation for A.Y. 06-07 after appeal effect for A.Y. 06-07 & A.Y. 07-08. This ground is therefore partly allowed."
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ITA Nos.1773,1774 & 1775/Ahd/2014 ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09
26. Respectfully following the judgment passed by the Hon'ble Apex Court which decided the issue of the present case relating to setting off STCG against brought forward unabsorbed depreciation in favour of the assessee, we find no justification to interfere with the order passed by the Ld. CIT(A) and dismiss this ground of appeal preferred by the Department.
27. Ground No.2 is against the deletion of addition of Rs.20,95,000/- made u/s.68 of the Act. During the year under consideration, the assessee received unsecured loan from various parties including the Directors of the company. The assessee was asked to furnish the confirmation of the loan upon which the same was filed but not signed by the respective person but by the authorized person of the Director. The Ld. Assessing Officer came to a finding that the assessee thus not been able to prove the creditworthiness of the parties and has not discharged the onus cast upon it u/s.68 of the Act and the entire amount of Rs.20,95,000/- was added to the income of the assessee u/s.68 of the Act. In appeal, the Ld.CIT(A) deleted such addition and hence the instant appeal by the Revenue.
28. The Ld.DR relies upon the order passed by the Ld.AO at the time of hearing of the matter. On the other hand, the Ld.AR submitted that the assessee submitted that the PAN, details of ledger accounts showing transactions through banking channel by the director of the assessee's company was lying with the same Assessing Officer and therefore in the absence of the Director his creditworthiness could have been verified by the Ld. Assessing Officer which he failed to do.
29. In appeal, the Ld.CIT(A) observed that since the PAN, address, details of ledger accounts showing such transaction through banking channel was duly filed by the authorized person before the Ld. Assessing Officer the duties of the assessee casted upon him u/s.68 of the Act has rightly been discharged in order to establish the identity, genuineness and creditworthiness. Relying upon judgment of Hon'ble Gujarat High Court in the matter of
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ITA Nos.1773,1774 & 1775/Ahd/2014 ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09 Ranchood Jivabha Nakhava reported at 21 taxmann.com 159 (Guj.), he further observed that it was the Ld. Assessing Officer who is to find out from the records available with him since Shri Pradip S. Mehta being one of the assessees also under him has no creditworthiness before making such addition u/s.68 of the Act. He therefore deleted the addition of Rs.20,05,000/-. We find the Ld. Assessing Officer failed to consider that the loan was accepted through banking channel only and the details which was given by the authorized signatory of the Director were also not verified vis-a-vis records available with him in its proper perspective. The said lacuna has rightly been pointed out by the Ld. CIT(A) and deleted the addition accordingly. We thus do not find any infirmity in the order of the Ld. CIT(A). The ground of appeal preferred by the Revenue is therefore disallowed by us.
30. Ground No.3: The revenue has challenged the deletion of disallowance of claim of Rs.5,49,74,891/- made on account of bad debt written off. The assessee has incurred an expenditure of Rs.5,49,74,891/- on selling and other expenses which in fact was bad debt written off. In reply to the show-cause, the assessee submitted that the bad debts details written off during the year are genuine bad debts. He further added that amount has become irrecoverable by passage of time and in spite of legal and other recovery action taken by the company against all the parties the amount has become irrecoverable. The matter was duly discussed in the Board meetings before written off. However, such explanation was not accepted by the Ld. Assessing Officer and he thus added the entire amount to the income of the assessee on the premise that written off of debt as irrecoverable has to be based upon a bona fide belief of the assessee and not merely a convenient belief. According to him, the assessee failed to produce the material to indicate that there was any formation of a reasonable and bona fide belief to write off of the debt irrecoverable.
31. In appeal, relying upon the judgment passed by the Honb'ble Apex Court in the matter of TRF Ltd. reported at 323 ITR 397 (Guj.) the Ld. CIT(A) allowed the claim of the assessee and thereby deleted the disallowance made by the Ld. CIT(A). The judgment of TRF Ltd.
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ITA Nos.1773,1774 & 1775/Ahd/2014 ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09 was also relied upon by the representative of the assessee at the time of hearing of the matter in support of his argument in favour of assessee. On the contrary, the Ld. DR relies upon the order passed by the Ld.CIT(A).
32. In the matter of TRF Ltd. the Hon'ble Apex Court observed as follows:
"After 01.04.1989, it is necessary for assessee to establish that the debt, in fact, has become irrecoverable if it is written off as irrecoverable in the accounts of the assessee."
32.1. Therefore, once such debts are written off in the books of accounts of the assessee, the claim of bad debts will be available to the assessee in that year. While deleting the depreciation, the Ld. CIT(A) observed as follows:
"I am inclined with appellant that after Hon'ble Supreme Court decision in the case of TRF Ltd. (supra), it is not mandatory on the part of appellant to establish that debt has become bad or appellant's bonafide about the irrecoverability of debt. The only conditions required for claim of bad debt are (as per provisions)
(i) The debt must be trade debt and the same should have been taken in computing income of appellant of any year i.e. current year and earlier years.
(ii) The debt should be written off from the books of accounts of appellant.
In view of details about trade debt, and ratio of Hon'ble Supreme Court, the A.O. is directed to allow the claim of bad debt written off of Rs.5,49,74,891/- and delete the addition so made. The appellant gets relief accordingly. This ground is allowed."
33. Relying upon the judgment of TRF Ltd. (supra) as being settled principle of law, we find no infirmity in the order passed by the Ld. CIT(A) and the same is hereby upheld.
34. In the result, the ground preferred by the Revenue is dismissed.
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ITA Nos.1773,1774 & 1775/Ahd/2014 ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09
35. Ground No.4: The Revenue has challenged the validity of the order of deletion of disallowance to the tune of Rs.47,60,000/- made on account of cash deposit. In terms of Annual Information Return/ITS, the assessee has deposited cash aggregating to Rs.47,60,000/- in the Kalupur Commercial Co.op.Bank Ltd. The entire amount was added by the Ld. Assessing Officer which was subsequently deleted by the Ld.CIT(A) and hence the appeal before us by Revenue.
36. We have heard the Respective parties and perused the relevant material available on records. We find at the time of hearing of the appeal, the Ld.DR relied upon the order passed by the Ld. Assessing Officer and the Ld.AR prays for confirmation of the order passed by the Ld. CIT(A). In reply to a show-cause proposing addition of such amount made by the Ld. Assessing Officer the assessee replied as follows:
I".... All the cash deposits in the respective banks have been made out of the cash balances available with the company in hand as on that day. The source of this cash deposits is either from the cash in hand or from the withdrawal from other banks.
This being a genuine cash deposits deposited in various banks on various dates out of the cash available with the company in cash books and source of that cash balance is also clearly reflected in the cash book became totality is genuine transaction and hence no addition can be made on this account."
36.1. However, the said explanation was not become satisfactory before the Ld. Assessing Officer and he thus added the same to the total income of the assessee though the complete details in the form of cash-book and bank book reflecting such transactions were duly submitted before the Ld. Assessing Officer by the assessee.
37. In appeal, those documents were again considered by the Ld.CIT(A) and also the contention made by the assessee that the books of accounts are duly audited under the Companies Act and Income Tax Act u/s.44AB of the Act as well and such audited books and tax audit report does not reflect any adverse remarks in this regard. The contention of the
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ITA Nos.1773,1774 & 1775/Ahd/2014 ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09 assessee that the cash so deposited in the bank account is out of cash available in the hand or out of withdrawals from bank in normal business activity.
37.1. This particular fact is supported by the cash book being a good evidence for source of such cash deposits. The Ld. CIT(A) thus on the basis of the audited books of accounts and in the absence of any adverse comment by tax auditor or finding of incorrect cash book and the recording of transactions and reflections in the books of accounts found no fault on the part of the assessee neither reason to disbelieve the assessee as made by the Ld. Assessing Officer because of export business of the assessee only on assumption and without any basis. The Ld. CIT(A) found the addition is based on surmises & conjectures in the absence of verification made by the Ld. Assessing Officer. Relying upon the judgment of the Saurin Nandkumar Shodhan of the Co-ordinate Bench holding that presumption on surmises by the Ld. Assessing Officer cannot be justified for such audited cash book and bank book the Ld.CIT(A) deleted such addition. Taking into consideration the ratio laid down by the Co- ordinate Bench in the matter of Saurin Nandkumar Shodhan, we find no infirmity in the order passed by the ld.CIT(A), same is hereby upheld. Thus, this ground of appeal raised by the Revenue is dismissed.
38. In the combined result, all the three appeals of the Revenue are dismissed.
This Order pronounced in Open Court on 26 / 10/2018
Sd/- Sd/-
( PRAMOD KUMAR ) ( Ms. MADHUMITA ROY )
VICE PRESIDENT JUDICIAL MEMBER
Ahmedabad; Dated 26/ 10 /2018
ट .सी.नायर, व.
न.स./T.C. NAIR, Sr. PS
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ITA Nos.1773,1774 & 1775/Ahd/2014
ITO vs.Vishal Plastomers Pvt.Ltd.
Asst.Years - 2006-07, 2007-08 & 2008-09
आदे श क त ल
प अ े
षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं धत आयकर आयु त / Concerned CIT
4. आयकर आयु त(अपील) / The CIT(A)-XIV, Ahmedabad
5. !वभागीय
त
न ध, आयकर अपील य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड) फाईल / Guard file.
आदे शानुसार/ BY ORDER,
स या!पत
त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.Registrar)
आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation .. 4.10.18 (dictation-pad 23+18pages attached at the end of this appeal-file)
2. Date on which the typed draft is placed before the Dictating Member ...5/7.10.18
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......26.10.18
7. Date on which the file goes to the Bench Clerk.....................26.10.18
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................