TaxTMI 
TaxTMI 
2025 (6) TMI 1209
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....of the Act, dated 30.12.2011 computing the total 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 ....
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....ng to Rs. 3,90,76,843/- by the A.O. 7. The order of the Assessing Officer reveals the facts relating to the issue as the assessee having made 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 r....
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....sallowed." The A.O. also considered the appellant's alternate submission of its allowability u/s 37 of the Act instead of 36(1)(vii) of the Act. The A.O. 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....
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....resented bad debts occurring on account of trading in precious metal by the assessee. In this regard he first drew our attention to paper book at page 20, which was the audited annual accounts 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....
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....esented debts on account of sale of precious metals to the said party which was written off during the year. From the ledger account of the said party the assessee has fairly demonstrated having accounted for the sales made to 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 ....
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....orities have failed to consider the plea of the assessee and adjudicated the allowability of claim of the bad debts in terms of the provisions of section 36(1)(vii) r.w.s. 36(2) of the Act. The Ld. Counsel for the assessee has drawn our attention to various 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....
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....does not arise any more. Further, the justification of reduction of Rs. 58,39,002/- from income from windmillshnorgy generation income, the same is as per the terms of settlement in which our claim of shortqeneration have been accepted less by the Arbitration Authorities under the terms 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....
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.... the order of the authorities below. 27. We have heard the rival contention and have also carefully gone through the documents to which our attention was drawn. 28. We find merit in the contention of Ld. Counsel for the assessee that there is no case at all on facts to make addition of Rs. 1.60 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 ....
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....ble to be set off against the same and surely therefore there is no loss to the Revenue if the expenses are allowed in the impugned year. The entire exercise therefore being a revenue neutral exercise, the AO is therefore directed to allow the claim of impugned legal & Professional expenses of Rs. 16,61,490/- 35. 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.....
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....rder of CIT(A), deleting the disallowance made u/s 40(a)(ia) of the Act of Rs. 15,01,561/- since admittedly it is in accordance with the proposition of law settled by the Hon'ble apex court in the case of Calcutta Exports(supra). Ground of Appeal No. 1 of the Revenue is dismissed. 45. GROUND NO. 2 raised by the revenue relates to the deletion of addition made 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....
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.... 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 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 Cour....
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....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 ....
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....ery 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. It is therefore respectfully following the ratio of Hon'ble Gujarat High Court, the addition so made by A.O. of Rs. 6,06,53,992/- u/s 41(1) of the Act is held unjustified and not sustainable in law. The A.O. is directed to delete 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 fr....