Commissioner of Income Tax-I, Cochin v. Apollo Tyres Ltd.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON** **&** **THE HONOURABLE MR.JUSTICE N.ANIL KUMAR** **WEDNESDAY, THE 10TH DAY OF APRIL,2019/20TH CHAITHRA,1941** **ITA.No. 68 of 2011** **[AGAINST THE ORDER IN ITA 274/Coch/2005 of I.T.A.TRIBUNAL,COCHIN BENCH]** ## **APPELLANT/RESPONDENT:** **THE COMMISSIONER OF INCOME TAX-I, COCHIN** **BY ADV. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) SRI.CHRISTOPHER ABRAHAM** ## **RESPONDENT:** **M/S.APOLLO TYRES LTD.,6TH FLOOR, CHERUPUSHPAM BUILDINGS, SHANMUGHAM ROAD, KOCHI, 682 031.** **BY ADVS. SRI.BINU MATHEW SRI.B.J.JOHN PRAKASH SRI.JOSEPH KODIANTHARA (SR.) SRI.MATHEWS K.UTHUPPACHAN SRI.TERRY V.JAMES SRI.TOM THOMAS (KAKKUZHIYIL) SRI.V.ABRAHAM MARKOS SRI.V.B.UNNIRAJ BY SRI. JOSEPH MARKOSE** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY ON 10.04.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** I.T.A. No.68 of 2011 :-2-: ## **I.T.A.NO.68 OF 2011** ## **J U D G M E N T** ## **P.R.RAMACHANDRA MENON,J:** This appeal preferred by the Revenue arises from the verdict passed by the Income Tax Appellate Tribunal, Cochin Bench in I.T.A.No.274/Coch/2005 (appeal preferred by the assessee) in respect of the assessment year 2001-2002. 2. The sequence of events reveals that the assessment was finalised by the assessing officer on 23.3.2004. The appeal preferred by the assessee, on being aggrieved by the order passed by the assessing officer, was turned down by the Commissioner of Appeals, which was the subject matter of challenge before the Tribunal. The Tribunal decided the issue in favour of the assessee and hence, the challenge is at the instance of the revenue. 3. The questions of law suggested by the Revenue as involving substantial questions of law are in the following terms:- I.T.A. No.68 of 2011 :-3-: - “1. (a) Whether, on the facts and in the circumstances of the case, the scope and applicability of Section 234D has been correctly understood by the ITAT; - (b) Whether, Sec.234D is applicable to asst.year 2001-02? - 2.(a) Whether, on the facts and circumstances of the case and the expenditure towards club being personal, the assessee company is entitled to claim deduction towards entrance fee and subscription to club. - (b) Whether the assessee is entitled to repetitive claim of expenditure (for prior and subsequent years) towards entrance fee and is not the very claim bogus and unheard of? 3. Whether, the assessee company is entitled to deduction of contribution to Employees Welfare Trust, the same calls for disallowance U/s.40A(9)? - 4.(a) Whether on the facts and in the circumstances of the case, the ITAT is right in law in interfering with the order of the Assessing Officer who had disallowed bad debts written off (Rs.25 lakhs) in view of the fact that such debts were not taken into consideration while computing the total income? - (b) Whether the ITAT is justified in relying on the decision of the Supreme Court in 323 ITR 397 in view of the difference in fact situation; 5. (a) Whether on the facts and in the circumstances of the case, the ITAT is right in law in interfering with the order of the Assessing Officer who had disallowed Rs.46,62,000/- on account of investment fluctuation reserve- - (b) Is not the claim of the assessee and allowing the claim by ITAT against law and accounting practice?” ## 4. Heard **Sri. Christopher Abraham,** the learned Standing Counsel for the Revenue and Sri.Joseph Markose, the learned Senior counsel for the respondent-assessee. ## I.T.A. No.68 of 2011 :-4-: 5. The first question is with regard to the scope and applicability of Section 234D of the Income Tax Act, particularly whether the same is liable to be invoked in the assessment year 2001-02. It is brought to the notice of this Court that when the same question had come up for consideration before this Court earlier, it was categorically held that Section 234D was having effect only from 1.6.2003 and as such, the same cannot be invoked in respect of assessment year 2001-02. This issue having been decided by this Court in I.T.A.No.77/2011, answering the question in favour of the assessee and against the revenue, it stands covered against the appellant. 6. The second question is with regard to the 'Club Expenses' met by the assessee. Both the Assessing Officer as well as the Commissioner of Income Tax (Appeals) disallowed the amount spent by the assessee, which was challenged by the assessee before the Tribunal. The stand taken by the Assessing Officer/Commissioner that the said amount was part of the personal expenses ## I.T.A. No.68 of 2011 :-5-: met by the assessee was turned down by the Tribunal and the entire amount was allowed which is not liable to be sustained according to the revenue and hence the challenge. 7. During the course of hearing, it is brought to the notice of this Court by the learned counsel appearing for the parties to the effect that out of the total amount claimed under this head, after segregating the actual club expenses for obtaining the membership in the club for facilitating entry and to avail the services, a sum of `1,61,691/- represented the cost of various facilities/services availed by the persons who utilised the same at the instance of the assessee. Insofar as there is no dispute with regard to the quantum involved and that `1,61,691/- was towards the cost of services availed, it is clearly attributable as 'personal expenses', unlike the other portion which represents the amount spent as fee for getting membership in the club. The amount spent for getting membership in the club stands on a different pedestal and this amount has to be allowed in view of the law declared by this Court in I.T.A. No.68 of 2011 :-6-: I.T.A.No.1347/2009 decided in favour of the assessee and against the revenue. But coming to the other part that is `1,61,691/- spent by the assessee, it represents the expenses incurred for availing the benefit/services, in respect of which no allowance can be made and the addition has to be sustained. This Court is of the view that the assessment has to be completed afresh in respect of the said amount of `1,61,691/- spent by the assessee towards the cost of services availed. Accordingly, we answer the said question in favour of the Revenue to the above extent. The Assessing Officer is at liberty to proceed with further steps for assessing the tax element in respect of the said amount. 8. The third issue pertains to the deduction of contribution made by the assessee to the Employees' Welfare Trust and disallowance of the said amount with reference of Section 40A of the Act. The stand of the assesee is that the said amount was contributed to the welfare trust only to provide transportation of the employees and had it not been undertaken by the said trust, it would have been the look out of the assessee, ## I.T.A. No.68 of 2011 :-7-: by way of appropriate measures, it being part of the service conditions. This issue was considered elaborately by this Court and decided in favour of the assessee as per the verdict passed on 27.2.2019 in I.T.A.No.69/2011. As such, this question stands answered against the revenue and in favour of the assessee. 9. Question No.4 deals with the categorisation of debts as 'bad debts' and the deduction allowed by the Tribunal as discussed in paragraph 137 of Annexure-F order. For convenience and to avoid repetition, we find it appropriate to extract paragraph 137 and 138 of Annexure F order as given below:- “137. The above clearly shows that addition has been made by the AO without any application of mind and without considering the details filed by the assessee. The details filed at pgs.38 to 43 of the paper book gives all the details of bad debts. The paper book has been certified and it is clearly mentioned that all these papers were placed before the AO as well as the CIT(A) and it has not been denied by the Revenue before us that this si not a correct statement. The details at pg.39 show that the debts due are from various Government Roadways Corporations and few other large customers. There is another list of small customers consisting of 221 parties from whom sums of less than Rs.5000/- were outstanding which have been written off. The list at pg.39 also shows that a sum of Rs.1,25,000/which was earlier claimed as deductions and now received, has been reduced from the amount written off during the year. All these details are clearly available. Further the amounts from Roadways ## I.T.A. No.68 of 2011 :-8-: Corporations would naturally be outstanding only on account of supply of tyres. Similarly the amount ffrom small customers will also be outstanding on account of tyres only. Recently, the Hon'ble Supreme Court in the case of T.R.F.Ltd.vs.CIT,323 ITR 397(SC) had an occasion to consider the amendment of law with effect from 1.4.1989 “After the amendment of section 36(1) (vii) of the Income Tax Act,1961, with effect from April 1,1989, 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. The Supreme Court accordingly remanded the matter to the Assessing Officer to examine solely to the extent to write off, whether the debt or part thereof was written off in the accounts of the assessee.” 138. From the above, it is clear that after 1.4.1989, there is no need for the assessee to prove that the debt has really become bad. Merely writing off debts would be sufficient compliance in terms of section 36(1)(vii) for claiming the benefits. Respectfully following, this decision, we set aside the order of the Id.CIT(A) and delete the addition made on account of bad debts.” From the above, it is crystal clear that the finding rendered by the Tribunal is based on the relevant facts and figures. This being the position, the point involved is purely a 'question of fact' and does not constitute any question of law, much less any substantial question ## I.T.A. No.68 of 2011 :-9-: of law to call for interference in terms of Section 260A of the Act. 10. The remaining question i.e., question No.5 was the subject matter involved in I.T.A.NO.67/2011 as well (which we have closed as per a separate verdict). The Assessing Officer disallowed the claim simply pointing out that the amount was not actually debited in the profit and loss account. The stand of the assessee is that debit was actually effected, but from the total credit available. The learned Standing Counsel for the Revenue submits that the issue is in respect of the book profits and as such, the course pursued by the Assessing Officer is justified. The stand of the Assessing Officer was upheld by the Commissioner of Income Tax (Appeals). But on raising further challenge before the Tribunal, reliance was sought to be placed on the verdict passed by the Apex Court in **Commissioner of Income Tax** v. **HCL Connect Systems and Services Ltd** [(2008) 305 ITR 409 (SC)] whereby the issue was decided in favour of the assessee. 11. The learned Standing Counsel submits that the I.T.A. No.68 of 2011 ## :-10-: Tribunal was not right in pursuing the said course in so far as the law declared by the Supreme Court in the decision cited supra was not applicable to the case on hand. The finding and reasoning given by the Tribunal is given in paragraph 164 of Annexure F order which is reproduced below:- “164.Ground No.21: After hearing both the parties, we find that in this Ground, the assessee has raised two issues, i.e. regarding addition of Rs.46,62,000/- on account of investment fluctuation reserve and addition of Rs.87,09,109/- on account of fixed assets revaluation reserve. The amounts were disallowed by the AOI because of the following reasons:- - i) The amount withdrawn is not actually credited to P&L. - ii) The reserve in question were created before 1.4.1997. - iii) The book profit of the year of creation of such reserves were not increased by the debit for reserve under section 115JA or 115JB. - iv) Provisions for reduction in the value of investment in GEPL is an unascertained liability as on 31.3.2001 which is not admissible under Explanation (c) below Section ## I.T.A. No.68 of 2011 :-11-: 115JB(2) as was held in the order U/s.154 dated 10.7.2002. Further the scheme of rehabilitation was approved by the court after the end of the previous year.” 12. According to the learned Standing Counsel, though clause (c) of Explanation(1) as such may not be applicable as held by the Apex Court, clause (i) of the very same Explanation was substituted by the Finance Act, 2009 with retrospective effect from 1.4.2001 and hence, it comes into play, to justify the disallowance. By virtue of the amendment of the statute, the decision rendered by the Supreme Court in [(2008) 305 ITR 409] prior to the substitution of the provision by the Finance Act 2009 stands nullified, submits the learned Standing Counsel. 13. In this context, it is relevant to note that the actual case projected by the assessee is not specifically discussed by the authorities concerned and particularly by the Tribunal. 14. The rival contentions have not been specifically adverted to or appreciated by the Tribunal ## I.T.A. No.68 of 2011 :-12-: while passing Annexure F order and it requires to be reconsidered with specific reference to the stand taken by the assessee, referring to the actual 'writing off' and as to the substitution of the provision by the Finance Act 2009- as contended by the Revenue. 15. So as to facilitate such exercise, the finding and reasoning given by the Tribunal by Annexure F order, with reference to the above particular question of law, stands set aside and the matter is remitted to the Tribunal for fresh consideration on this question. We hope, the matter being related to the year 2001-02, would be finalised by the Tribunal as expeditiously as possible. The questions of law are answered as mentioned above. This I.T.Appeal is partly allowed. Sd/- ## **P.R.RAMACHANDRA MENON** , JUDGE sd/- MBS/ **N.ANIL KUMAR** , JUDGE