Income Tax Appellate Tribunal - Pune
C.T.R. Mfg. Industries Ltd. vs Dy. Cit on 1 January, 2001
Equivalent citations: (2002)76TTJ(PUNE)554
ORDER
K.C. Singhal, J.M. Since some of the issues are common, these appeals are being disposed of by the common order for the sake of convenience.
2. The first common issue relates to the addition on account of credit balances being written off to profit and loss account. The assessee had written off the sum of Rs. 46,159 to the credit side of profit and loss account since such amount was not claimed by the creditors. Similarly, the sum of Rs. 1,13,237 was credited to the profit and loss account for assessment year 1994-95. The assessing officer considered these amounts as income of the assessee in view of the order of Commissioner (Appeals) for assessment year 1992-93. The Commissioner (Appeals) also confirmed the action of assessing officer following the order passed by his predecessor for assessment year 1992-93. Aggrieved by the same, the assessee is in appeal before the Tribunal.
3. The learned counsel for the assessee has submitted before us that there cannot be any remission or cessation of the liability by unilateral act of the debtor. According to him, the liability continues to exist despite the unilateral act of the debtor though it may become unenforceable on account of limitation. Consequently, no addition can be made under section 41. In support of his submission, he has relied on the judgment of Supreme Court in the case of CIT v. Sugauli Sugar Works (P) Ltd. (1999) 236 ITR 518 (SC). On the other hand, the learned senior Departmental Representative has relied on another judgment of the Supreme Court in the case of CIT v. T.V. Sundaram Iyengar & Sons Ltd. (1996) 222 ITR 344 (SC) wherein it was held that transfer of the unclaimed balances to the profit and loss account amounted to income of the assessee. He drew out attention to the facts that this judgment was delivered by a Bench of three Judges, while the judgment relied upon by the learned counsel for the assessee was delivered by the Bench of two Judges and, therefore, in the case of conflict, the earlier judgment of three Judges must prevail. He also pointed out that the aforesaid judgment was not referred to in the later judgment. In reply, the learned counsel for the assessee drew our attention to the fact that the later judgment of the Supreme Court had applied the ratio laid down by larger Bench of five Judges of Supreme Court in the case of Bombay Dyeing & Manufacturing Co. Ltd.'s case AlR 1958 SC 328 wherein it has been held that "when a debt becomes time-barred, it does not become extinguished, but, only unenforceable in a court of law......... If then a debt subsists even after it is barred by limitation, the employer does not get in law, a discharge therefrom".
4. Rival submissions of the parties have been considered carefully. After giving our deep thoughts to both the judgments relied upon by the respective parties, we find that there is no divergence of views inasmuch as both the judgments were delivered in different context and hold the different fields. In the case of T.V. Sundaram Iyengar & Sons (supra), the assessee had received certain amounts which were in excess of the sale price of goods supplied to its customers. It was these unclaimed credit balances, which were transferred to profit and loss account. The Supreme Court held that such amounts were received in the course of trading transactions and, therefore, assessable when the assessee decided to transfer the same in the profit and loss account even though these were not revenue receipts when the assessee actually received the same. The relevant portion of the judgment is quoted as below :
"If an amount is received in the course of trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right. When such a thing happens, common sense demands that the amount should be treated as income of the assessee. "
On the other hand, in the case of Sugauli Sugar Works (P) Ltd. (supra), the question was whether the transfer of unclaimed credit balances could be assessed under section 41. These amounts represented the trading liability in respect of which the assessee had got the benefit of deduction in the earlier years and because of these facts, the question of assessability under section 41 arose. The Supreme Court noted that obtaining of the benefit by the assessee by virtue of remission or cessation was the cine qua non for the application of section 41(1). It is in this context, the judgment of the larger Bench of the Supreme Court in the case of Bombay Dyeing & Manufacturing Co. Ltd. (supra) was applied and held that unilateral action of the debtor did not amount to remission or cessation of liability.
5. The combined reading of aforesaid judgments of Supreme Court clearly shows that there was no conflict between these two decisions. If the amount is received in the case of trading transactions just as advance against the sale of goods and thereafter surplus arises after adjustment of sale price, then the unclaimed credit balances if credited to profit and loss account would be assessable as a trading receipt in view of earlier judgment of the Supreme Court in the case of T.V. Sundaram Iyengar & Sons Ltd. (supra). On the other hand, if the assessee had claimed deduction in respect of any trading liability or loss or expenditure in a particular year, then in any subsequent year, the assessee obtained the benefit by way of remission or cessation of such liability, then such benefit would be assessable under section 41(1). However, unilateral action of the debtor transferring the same to profit and loss account would not amount to remission or cessation of such liability and consequently, such amount would not be assessable under section 41(1) in view of the later judgment of the Supreme Court in the case of Sugauli Sugar Works (P) Ltd. (supra). Since, in the present case, no details are available as to the nature of unclaimed credit balances, the matter cannot be adjudicated upon by us. Accordingly, the orders of Commissioner (Appeals) for both the years are set aside on this issue and the matter is restored to the file of assessing officer for fresh adjudication after ascertaining the nature of unclaimed credit balances. The assessing officer is directed to keep in mind the distinction made by us in respect of the two decisions of the Supreme Court.
6. The second common issue relates to the disallowance of commission of Rs. 2,81,109 for assessment year 1993-94 and Rs. 12,000 for assessment year 1994-95. For assessment year 1993-94, the assessee had claimed the deduction of Rs. 18,12,677 on account of commission paid to its agents which included the sum of Rs. 2,81,109 payable to one Shri P.K. Gupta. The perusal of the details filed by the assessee showed that assessee had paid the sum of Rs. 1, 14,990 on 20-6-1994, in that subsequent year and the balance amount of Rs. 1,66,119 remained outstanding even thereafter. Thus, it was noticed that assessee had claimed deduction in respect of outstanding amount by way of provision created the assessee. Accordingly, the disallowance was made by the assessing officer. Similar disallowance of Rs. 12,000 has been made for assessment year 1994-95, though it was payable to some different person.
7. The matter was carried before the Commissioner (Appeals) before whom it was argued on behalf of the assessee that liability to pay the commission accrued as and when the invoices were raised in respect of sales made by the agents. However, the commission to be paid depended upon the period of time involved in collection of the price and sales-tax forms, etc. However, the Commissioner (Appeals) was not convinced and consequently, the disallowance was confirmed. Aggrieved by the same, the assessee is in appeal before the Tribunal.
8. The learned counsel for the assessee has reiterated the contention which was raised before the Commissioner (Appeals). In this connection, he also relied on the written agreement and pointed out that commission was payable at different rates between 2 to 5 per cent depending upon the period of collection of the invoice amounts. On the other hand, the learned senior Departmental Representative submitted before us that the copy of the agreement on which reliance is placed, was not before the assessing officer. Even, the working as to how the commission payable was arrived at was not before the assessing officer. Therefore, the matter cannot be adjudicated upon at this stage, unless the assessing officer gets the opportunity to examine this aspect in the light of the agreement. In reply, the learned counsel for the assessee has no objection if the matter is restored to the file of assessing officer. Accordingly, the orders of Commissioner (Appeals) for both the years are set aside on this issue and the matter is restored for fresh adjudication to the file of assessing officer who shall decide the issue after considering the terms of the agreement.
9. The next issue which pertains to assessment year 1993-94 only is whether the deduction in respect of depreciation can be thrust upon the assessee by the assessing officer. After hearing both the parties, we find that this issue is covered in favour of the assessee by the decision of Supreme Court in the case of CIT v. Mahindra Mills Ltd. (2000) 243 ITR 56 (SC). Respectfully following the same, the issue is decided in favour of the assessee.
10. The next issue relates to the disallowance of expenses incurred for increasing the share capital of the company. This issue is relevant only for assessment year 1993-94. Both the parties are agreed that this issue is covered against the assessee by the decision of Supreme Court in the case of Brook Bond India v. CIT (1997) 225 ITR 798 (SC). Respectfully following the same, the issue is decided against the assessee.
11. The next issue relates to the disallowance of 80 per cent of entertainment expenses for assessment year 1994-95. Both the parties are agreed that this issue is covered by the decision of this Bench in the case of Bharat Forge Ltd. v. Dy CIT (1995) 53 ITR 575 (Pune). Following the same, this issue is decided against the assessee.
12. The next issue for assessment year 1994-95 relates to part disallowance of conference and seminar expenses. After hearing both the parties, we find that this issue is covered by the decision of Special Bench of the Tribunal in the case of Lakhanpal National Ltd. v. ITO (1999) 69 ITD 9 (Ahd) (SB). Following, the same, it is held that no disallowance can be made in respect of such expenses. Accordingly, this issue is decided in favour of the assessee.
13. The next issue for assessment year 1994-95 relates to the disallowance of Rs. 50,000 out of staff welfare expenses on account of entertainment expenses. After hearing both the parties, we are of the view that no disallowance can be made out of staff welfare expenses, since such expenses cannot be termed as entertainment expenses.
14. The next issue for assessment year 1994-95 relates to the part disallowance of miscellaneous expenses. The ground raised in this regard is dismissed as not pressed.
15. The next ground for assessment year 1994-95 relates to the disallowance of gift expenses of Rs. 10,305. This ground is also dismissed as not pressed.
16. In the result, both the appeals are partly allowed.