TaxTMI 
TaxTMI 
2014 (8) TMI 1159
X X X X Extracts X X X X
X X X X Extracts X X X X
....revised on 6.6.2006 by declaring total income at Rs.NIL after adjustment of carry forward loss. The case was selected for scrutiny and thereafter, the assessment was framed under section 143(3) vide order dated 30.12.2008 and the total income before the adjustment of brought forward loss was determined at Rs. 21,57,22,429/-. Aggrieved by the order of the AO, the assessee carried the matter before the CIT(A)-XX, who vide order dated 29.10.2010 granted partial relief to the assessee. Aggrieved by the order of the CIT(A), both the assessee and the Revenue are in appeal before us. First we take up assessee's appeal for adjudication. ITA No.216/Ahd/2011 (Asstt.Year 2005-06) - Assessee's Appeal: 3. The ground no.1 of the appeal of the assessee challenging validity of the assessment is general in nature not pressed for adjudication, and therefore, dismissed as not pressed. 4. The ground no.2 is with respect to disallowances of deduction in respect of writing off of the irrecoverable advances and other debit balances. During the course of assessment proceedings, AO noticed that the assessee had written off an amount of Rs. 14,83,037/- which was claimed as advances and another amount of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bad. The reliance of the AR of the case of TRF Ltd. Vs. CIT, reported in 323 ITR 397 (SC) is not correct. In that case the Honourable Supreme Court was dealing with bad debts mentioned in section 36(1)(vii)of the IT Act wherein after the amendment it is sufficient for the assessee to claim bad debts under section 36(1)(iii) of the IT Act, 1961 by writing off the amounts in its books of accounts. For claim of business loss of advances given which have become bad, the appellant has to prove that the advances have indeed become bad. In the instant case the details of the advances given has not been furnished only General explanation has been given to the AO. Thus, the condition for the claim of business loss has not been satisfied. In view of the above the AO is justified in disallowing these amounts. The addition made is hence confirmed." Ld. CIT(A), however, deleted the addition of Rs. 42,51,367/- by holding as under: "8.1 It is seen that the AO had made addition of Rs. 42,51,367/- being bad debts written off relying on the decision of Gujarat High Court in the case of Dhall Enterprises & Engineers P. Ltd. Vs. CIT reported in (2006) 207 CTR 729. However, in the recent judgmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nue. Further, relying on the decision cited by the assessee in the case of Commonwealth Trust (India) Ltd. (supra) and Abdul Razak & Co. (supra), we are of the view that the amounts towards EMDs., was having nexus with the business of the assessee, and therefore, the same needs to be allowed. However, with respect to the "Employees' Welfare Trust", amounting to Rs. 7,31,425/-, in the absence of any details, we are of the view that the same has rightly been disallowed by the AO. With respect to the balance written amount of Rs. 30,48,835/-, from the list placed at page no.50-51 of the paper book, it is seen that it contained various amounts which are shown to be not recoverable from the parties. However, it also includes certain amounts like provision for gratuity, salary payable, PF payable, staff loan etc. from which the full details thereof not placed before us Considering totality of the facts, we are of the view that disallowance in the present be restricted to Rs. 1,00,000/- (Rupees One Lakh) to cover such amounts. We direct accordingly, and the ground no.2 of the appeal are partly allowed. 7. The ground no.3 is with respect to disallowance of deduction of Rs. 46,247/- . Duri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....011 is partly allowed. ITA No.182/Ahd/2011 (Asstt.Year 2005-2006 : Revenue's appeal): 12. First ground is with respect to deletion of Rs. 16,64,667/- on account of adjustment in respect of international transaction of royalty payment. 13. During the course of assessment proceedings, the AO noticed that the assessee had international transaction with Associate Enterprise ("AE" for short) as defined under section 92B of the Income Tax Act in respect of purchase/sale of compressor, valves, copper tubes, remote parts etc. Reference was made to TPO. TPO vide order passed u/s.92CA(3) noted that the assessee was charged royalty by AE at rate higher than what has been charged to other group entities. The TPO, therefore, held that arm's length rate for payment of royalty should be at 3% instead of 3.75% charged from the assessee. He accordingly suggested an adjustment of Rs. 16,64,667/- being the payment for arm's length price ("ALP" for short) relating to the royalty. Based on the order of TPO, AO made addition of Rs. 16,64,667/-. Aggrieved by the order of the AO, assessee carried the matter before CIT(A), and the CIT(A) following his predecessors order for A.Y.2004-05, deleted the add....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rate is considered, then the effective rate of royalty is less than the royalty paid by other AEs to Hitachi Limited i.e. parent company. In our considered opinion, only stated rate is not decisive and effective rate has to be considered, and when the amount of royalty paid by the assessee is considered with ex-factory sale value, without deducting various expenses, such as dealer commission, special commission, warranty etc., as has been noted by the learned CIT(A) at page no.4 of his order, then the effective rate worked out is only 2.3% on sale, as against 3% paid by other group entities. This finding of the fact given by learned CIT(A) could not be controverted by the learned DR of the Revenue, and hence, on this aspect, we hold that no interference is called for in the order of the learned CIT(A), and accordingly, the ground no.5 of the Revenue is rejected." Since the facts in the year under appeal are identical to earlier years as admitted by both the parties, we find no reason to interfere with the order of the CIT(A) on this issue, and thus, this ground of the Revenue is dismissed. 16. The ground no.2 of the appeal of the Revenue is with respect to disallowance of Rs. 1,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cord copy of the aforesaid order and pointed to para 51 at page no.28 of the order. He further submitted that since the facts of the case in the year under appeal are identical to that of earlier years, the order of the CIT(A) be upheld. 20. We have considered rival submissions and perused the material available on record. We find that the CIT(A) while deleting the addition has noted that facts of the case of the assessee in the year are identical to the earlier years, and he had followed the decision of his predecessor. We further find that while deciding the Revenue's appeal in ITA No.2363/Ahd/2008 and others (ITA No.2881/Ahd/2007 for A.Y.2003-04), similar issue was decided by the ITAT in favour of the assesee and the addition was deleted as under: "33. We have considered rival submissions. We find that this issue was decided by the learned CIT(A) on this basis that the assessee has claimed this amount as per the normal practice of valuation of closing stock as per the audited accounts and it is an omission on the part of the AO not to have dealt with this issue. The ld.CIT(A) has directed the AO to allow the claim of the assessee subject to the assessee furnishing the complet....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3.2008 for the Asstt.Year 2004-05 in the assessee's case . The Revenue being aggrieved, is now in appeal before us. 25. Before us, the learned DR relied on the order of the AO, on the other hand, the learned AR reiterated the submissions before the CIT(A). He further submitted that similar disallowance was made in A.Y.2004-05 and in appeal, the Hon'ble ITAT, Ahmedabad Bench in ITA No.2361/Ahd/2008 order dated 24.9.2013 has restored this matter back to the file of the ld. CIT(A) for fresh decisions, in view of the decision of Hon'ble Apex Court in the case of Rotork Control India P. Ltd. CIT, 314 ITR 62 (SC). He placed on record copy of the aforesaid order and pointed to para 5 at page no.3 of the order. He, therefore, submitted that the matter may be restored to the file of CIT(A) with suitable directions. 26. We have considered rival submissions and perused the material available on record. We find that the CIT(A) while deleting the addition has noted that facts of the case of the assessee in the year are identical to the earlier years, and he had followed the decision of his predecessor. We further find that in ITA No.2361/Ahd/2008 for A.Y.2004-05, similar issue was before the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uld be disallowed. With these observations, we restore this matter back to the file of the ld.CIT(A) for fresh decision. The ground no.2 is allowed for statistical purpose." 27. Since it is admitted by both the parties that the facts of the case in the year under appeal are identical to that of earlier years, we respectfully following the decision for A.Y.2004-5 and with similar directions restore the issue of warranty expenses for A.Y.2005-06 to the file of the ld.CIT(A) for decision afresh. Needless to state that CIT(A) shall grant adequate opportunity of hearing to both the parties. Thus, this ground of Revenue is allowed for statistical purposes. 28. In the result, the ITA No.182/Ahd/2011 of the Revenue is partly allowed for statistical purpose. ITA No.1136/Ahd/2011 (A.Y.2006-2007 : Revenue's appeal) 30. The following three grounds are raised in this appeal of the Revenue: "1. The ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 22,58,337/- on account of adjustment in respect of international transaction of royalty payment, without properly appreciating the facts of the case and the material brought on record by the AO. 2. The ld. CIT(A) has e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ss that any sums either not recovered or ceased to be recoverable, are deductible expenditure in the computation of business income, hence the claim of the assessee be allowed. On the other hand, the learned DR relied on the orders of the AO and the CIT(A). 37. We have considered rival submissions and perused the material available on record. We find that the Revenue authorities have disallowed the claim of the assessee for deduction of Rs. 1,58,529/- for the debit balances written off which were due from different parties, on the ground that the same were not arising out of the sales made by the assessee. We find that there is no dispute to the fact that the loss of Rs. 1,58,529/- incurred during the course of business and that the assessee has written off the said amount from its accounts, as the same became irrecoverable. The Hon'ble Apex Court in the case of T.R.F. Ltd. Vs. CIT, 323 ITR 397 (SC) held that in order to obtain a deduction in relation to bad debts, 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. This being so in the case....