TaxTMI 
TaxTMI 
2018 (4) TMI 993
X X X X Extracts X X X X
X X X X Extracts X X X X
....y, deriving income from manufacturing of cables. It filed return of income for the AY. 2008-09 on 18-09-2008, declaring total income of Rs. 30,00,493/-. Assessing Officer (AO) made various additions, out of which the following additions have been confirmed by the CIT(A). i. Sales Tax - Rs. 18,53,329/- ii. Bad Debts written off - Rs. 2,66,236/- iii. Bad Debts provision written back - Rs. 21,23,257/- Assessee is aggrieved and raised three grounds accordingly on each of the issue. Ground No.2: 3. In Ground No. 2, assessee is contesting the disallowance of sales tax demand of Rs. 18,53,329/- raised for earlier years but paid during the year. Assessee was issued a demand by sales tax authorities....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... sales tax is not in the nature of 'penalty' and is allowable as 'business expenditure'. The Hon'ble Madras High Court in the case of CIT Vs. Chemical Constructions (supra) has held as under: "The fact that a levy is termed a penalty in a statute is not by itself decisive of its true character. The compensatory element in a levy termed penalty is eligible for being regarded as business expenditure. It is only that part, which is purely penal that has to be excluded. The assessee engaged in the business of constructing buildings, obtained C form and availed of the concessional rate of sales tax at the rate of 3 per cent. even though it was not a re-seller and the goods obtained by it were not consumed in the manufacture....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he filing of C forms being optional and a mere condition to avail of the concessional rate contemplated in the statutory provision as such, the lapse, if any, cannot be considered to operate as a penal or forfeiture clause. Being an optional benefit available, non-availing of the same or noncompliance of such provision, in any event, cannot be held to be noncompliance with the provisions of the Act, Rules and notifications, envisaged in the notification dated January 30,1996. Placing such interpretation would amount to being not merely perfidious, but vitiated by perversity of approach also". 3.2.ii. Respectfully following the principles laid down by the above two judgments, we are of the opinion that sales tax so levied on assessee is n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Supreme Court in the case of T.R.F. Ltd., Vs. CIT [323 ITR 397] (SC) has held as under: "4. This position in law is well-settled. After 1-4-1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable, It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors.........." 4.2.i. Respectfully follow....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... been made in earlier years which was not allowed and placed the relevant orders in support. However, Ld.CIT(A) rejected the contentions noting as under: "8.1. After having gone through AO's observations I find that the AO has not allowed deduction of Rs. 21,23,257/- claimed by the assessee towards provision for bad and doubtful debts written back on the ground that the assessee should have claimed it earlier i.e., in the A.Y. 2007-08. During the appeal proceeding the AR could not file any evidence rebutting the conclusions drawn by the AO. Therefore, I am of the considered opinion that the action of the AO is justified in not allowing deduction of Rs. 21,23,257/- claimed by the assessee towards provision for bad and doubtful debts....
X X X X Extracts X X X X
X X X X Extracts X X X X
....have considered the rival contentions and perused the documents placed on record. Neither the AO nor the CIT(A) has examined the issue in the correct perspective. If the provision for bad and doubtful debts is not allowed as a deduction in the year in which the provision was made, the same cannot be considered as income in the year in which the provisions were written back. The accounting under the company law stands on a different footing from the computation of income in the income tax proceedings. Since the statement given by assessee and extracted above has not been examined by the AO and CIT(A) [even though they are provided before them], we are of the opinion that this aspect should be examined by the AO and in case the provisions are....