TaxTMI 
TaxTMI 
TaxTMI 
2025 (6) TMI 1209
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....tal income at Rs. 7,44,71,279/- after making the following disallowances / additions to the total income of the assessee. 1. Disallowance u/s 14A Rs. 162/- 2. Disallowance of Bad Debts Rs. 3,90,76,843/- 3. Disallowance u/s 40(a)(ia) Rs. 15,01,561/- 4. Disallowance u/s 36(1)(va) Rs. 3,341/- 5. Addition u/s 41(1) Rs. 7,65,98,856/- 6. Disallowance of capital expenses Rs. 16,61,419/- 3. The assessee filed appeal against the order to the Ld. CIT(A), who partly allowed the assessees appeal, confirming the disallowance of bad debts, the addition made u/s 41(1) of the Act and the disallowance of legal and professional fees paid by the assessee while deleting the rest of the additions/disallowances. Aggrieved by the same both the assessee and the revenue have come up in appeal before us. 4. We shall first be dealing with Assessee's Appeal in I.T.A. No. 1782/Ahd/2014. I.T.A. No. 1782/Ahd/2014. Assessees Appeal 5. The grounds raised by the asssesee read as under :- "1. Ld. CIT (A) erred in law and on facts in confirming disallowance made by AO of irrecoverable loans and advances of Rs. 3,90,76,843/- written off as bad debts alternatively claimed by the appellant u/....
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....de claims of bad debts during the impugned year amounting in all to Rs. 17,58,42,082/-. During assessment proceedings the assessee was asked to justify its claim in accordance with the provision of section 36(1)(vii) of the Act r.w.s. 36(2) of the Act, as to whether the bad debt related to amount treated as income in any of the preceding years. In response to the same the assessee submitted details of bad debts, from which the AO noted that part of the bad debts written off, represented loans and advances i.e. they were not taken into consideration in computing the income of the assessee in any of the years. The assessee was asked accordingly to justify the claim of bad debts in terms of the provision of section 36(2) of the Act, which allowed claims of bad debts only if they represented income accounted for by the assessee. The assessee in response submitted that the loan and advance written off represented amounts given to various parties for procurement of goods and services and since the transaction could not be completed due to various reasons and circumstances beyond control of the parties, and the amount having become irrecoverable, the said advances were written off. He als....
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..... following the maxim of generalia specialibus non derogant and generalia specialia derogant, i.e. If a special provision is made on a certain matter that matter is excluded from the general provision is well settled in India and the same is applicable to Income Tax provisions, and relying Hon'ble ITAT Mumbai order in the case of Snowcem India Ltd. (supra) disallowed such alternative claim. The appellant in appeal made submission (already discussed at para 4B & 4C above) where it was admitted that undisputedly the outstanding amount of Rs. 3,90,76,843/- as brought out by A.O. on records are loans & advances given by appellant in its ordinary course of business as advances for goods & services, advances to staff, advances for statutory liability etc. It was also admitted that never such loan & advances were considered for computation of income of appellant. The appellant also contended that appellant after making various efforts to recover the same, claimed such amount as bad debt written off u/s 36(1)(vii) of the Act after writing off such amount from books of accounts as irrecoverable. The appellant referred incorrectly that A.O. relied on the judgement of Ahmedabad electr....
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....unts of the assessee for the impugned year and contained details of traded goods by the asesssee during the impugned year. From the same Ld. Counsel for the assessee pointed out that assessee traded in precious metal purchasing 737 kgs. of the same during the year amounting to Rs. 100,53,51,036/-. Thereafter, he drew our attention to the details of bad debts claim not allowed to the assessee placed at page-51 of the paper book. From the same he pointed out Rs. 1.95 Crores represented the balance of Pujan Impex written off. Our attention was drawn on the paper book at page no. 78, which is the copy of the account of Pujan Impex for the impugned year. From the same it was pointed out that while the same showed an opening credit balance of Rs. 2.64 Crores, the assessee during the impugned year had sold precious metal to it being gold, amounting in all to Rs. 4.60 Crores, resulting in a debit balance in the account of Pujan Impex of Rs. 1.95 Crores, which was thereafter shown as written off during the year. The Ld. Counsel for the assessee therefore contended that out of bad debt claim disallowed by the AO Rs. 1.95 Crores represented income accounted for by the assessee during the impu....
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.... the said party during the year. Thus, the assessee has sufficiently demonstrated Rs. 1.95 Crores pertaining to M/s Pujan Impex claimed as bad debts, representing income duly accounted for by the assessee. The Ld. DR was unable to controvert the factual contention of the Ld. Counsel for the assessee. In the light of the same, we have no hesitation in holding that the assessee claim of bad debts amount to Rs. 1.95 Crores was in accordance with law and allowable to the assessee. 15. As for the remaining amount we have noted that the disallowance has been made by the CIT(A)/AO in complete disregard to the assessees contention before it. As is evident from the orders of the authorities below, the assessee had repeatedly stated the remaining amount to represent advances made during the course of carrying out business. The assessee had clearly stated so before the AO which is evident from the para 5.2 of the order as under:- 5.2. In response to the same the assessee's vide its letter dated 22.12.2011 has submitted as under :- "Regarding bad-debts written off during the year, we have already submitted the details of bad-debts written off during the year along with copies of parti....
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....judicial decisions holding that business advances written off during the year are allowable u/s 37(1) of the Act. In the light of the same since the authorities below have failed to consider the plead of the assessee despite all facts in relation to the same being brought to their notice, we agree with the assessee that the remaining claim of bad debts of approximately Rs. 2 crores disallowed u/s 36(1)(vii) of the Act is allowable to the assessee u/s 37(1) of the Act. 17. Ground of appeal no. 1 and 2 is accordingly allowed. 18. GROUND NO. 3 & 4 pertains to the addition made to the income of the assessee on account of cessation of liability as per section 41(1) of the Act. 19. Brief facts relating to the issue are that during assessment proceedings the AO noted credit balances outstanding in the books of the assessee from the past three years amounting to Rs. 6,06,53,992/- on account of which the assesee failed to submit any confirmation of the balances. Accordingly, he treated the liability represented by these credit balances to have ceased to exist and added the same to the income of the assessee u/s 41(1) of the Act. Further, the AO noted that in the case of Suzlon Energy Ltd....
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....s of settlement, as these amounts of short generation were already credited to income from generation of power in the respective year including the current year. The final amount arrived at as per the terms of settlement have been debited to the income from power generation which is justified and should be allowed as it is." 24. He further drew our attention to the explanation given to the Ld. CIT(A) at page 21 of his order as under: "The Ld. AO has arbitrarily made addition of Rs. 1,59,44,864/- on account of waiver of liability of Suzlon Energy Limited Inter alia Suzlon Green Power Limited. In this regard, detailed submissions were made by the appellate as well as entire information/copies of accounts were submitted during the assessment proceedings, however, the Ld. AO has failed to appreciate that the amount waiver has already been booked as Income in Profit & Loss Account and have been offered to take and by making this addition, the double taxes has been invoked on the appellate. We are submitting herewith copies of entire details submitted during the assessment proceedings in this regard for your honour's ready reference from which it will be quite clear that the amoun....
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....Crores on account of alleged waiver of liability of Suzlon by the assessee. The Ld. Counsel for the assessee has clearly demonstrated from the ledger account of the Suzlon that the amount waived by settlement / arbitration was in fact the debit balance of Suzlon and not a credit balance representing any liability. It has been demonstrated that the assessee had accounted income in its books of accounts which was outstanding for recovery as debit balance and the same being contested by the other party was ultimately settled by way of arbitration, the assessee being awarded recovery of the part of the amount outstanding while the balance was written off as its business loss. All these facts are clearly coming out from the ledger account of Suzlon which we have noted was filed by the assessee to the revenue authorities below. It is not the case of the revenue at all that the amount waived by the assessee by way of settlement / arbitration represented a credit balance. The assessment order records the fact that the A.O. noted the fact of waiver by way of settlement, from the accounts of Suzlon. There is no fact recorded of this representing any credit balance, nor has the Ld. DR been ab....
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..... Ground of appeal No.5 is allowed. 36. In effect, appeal of the assessee is allowed. 37. We shall now take up the appeal of the Revenue vide ITA No. 1776/Ahd./2014. ITA No. 1776/Ahd./2014. (Revenue's Appeal) 38. The grounds of appeals raised by the Revenue read as under:- "1). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance made u/s.40(a)(ia) of the Act amounting to Rs. 15,01,561/- on the ground that the Explanation inserted by Finance Act-2010 has retrospective effect. 2). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs. 6,06,53,992/- out of total addition of Rs. 7,65,98,856/- made u/s.41(1) of the Act when Assessee had failed to discharge its onus to prove that the liability actually existed on 31. March of the year. 3). On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer. 4). It is therefore, prayed that the order of the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad may be set-a-side and that of th....
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....ade u/s 41(1) of the Act. Ld. CIT(A) has dealt with the issue at para 5.6 of his order reads as under:- 5.6 Ground No. 6 is against the addition' of Rs. 7,65,98,856/- u/s 41(1) of the Act for the outstanding creditors as such outstanding since last 3 years. This addition has two parts i.e. Addition of Rs. 6,06,53,992 and addition of Rs. 1,59,44,864/-. The A.O. after verification of details as submitted by appellant in respect of sundry creditors outstanding as such since last three year of Rs. 82,96,90,487/- in respect of various parties (already discussed at para 4A(d) above) considered appellant's explanation for adjustment in respect of M/s NEG Micon (India) Pvt. Ltd., the peculiar circumstances about financial position and confirmation filed by appellant in respect of some parties viz M/s Wellworth overseas Ltd., M/s Anand Trade & Movers etc., held that in respect of 12 parties for an aggregate outstanding liability of Rs. 6,06,53,992/- the appellant failed to substantiate that these outstanding liabilities still exist. The A.O. following the ratio of Hon'ble Supreme Court in the case of Kesoram Industries & cotton Mills Ltd. (supra) and Hon'ble Karnataka High....
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.... 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, ....
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....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 sect....
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....e the addition so made. The appellant gets relief accordingly. This ground is allowed. Now coming to other part of addition of Rs. 1,54,44,864/-. The A.O. after considering the details with confirmation from M/s Suzlon Green Power Pvt. Ltd. and M/s Suzlon Energy Ltd. found that certain amount have been ; waived by them by settlement / arbitration order, the A.O. rejected appellant's explanation dt. 22/12/11 that income from such benefit so derived from waiver & arbitration had already recorded as receipt & offered as income. The A.O. analyzed the details of other income of Rs. 1,75,75,096/- and details about sundry debtors written off & sundry creditor written off but could not find such receipt from such details. The appellant in appeal proceedings also failed to submit any details or explanation to substantiate the ground that amount of Rs. 1,75,75,096/- as waiver & arbitration has been considered in receipt or in computation of total income. I am inclined with contention of A.O. that after verification of facts as submitted by appellant, on account of arbitration award the appellant was in receipt of advantage / benefit of Rs. 1,75,75,096/- from the outstanding liabili....