High Court of KeralaDivision Bench2021-07-29Appeal dismissed; substantial questions 1 and 2...

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

Case / Petition Number:ITA No.172/2013

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: S.V. Bhatti
Bechu Kurian Thomas
Judgment Date: 2021-07-29
Court Decision / Holding: The substantial questions 1 and 2 are answered in favor of the assessee and against the Revenue. The appeal is dismissed. No order as to costs.
Final Disposition: Appeal dismissed; substantial questions 1 and 2 answered in favor of the assessee; Revenue's appeal failed; no costs.

Parties to the Case

Appellants / Petitioners

Commissioner of Income Tax-I, Kochin

Respondents

Apollo Tyres Ltd.

Legal Representation & Advocates

Counsels for Petitioners

• P.K.R. Menon (Senior Counsel)
• Jose Joseph (SC)

Counsels for Respondents

• V. Abraham Markos
• Abraham Joseph Markos
• Joseph Markose Sr.
• Tom Thomas Kakkuzhiyil

Case Synopsis & Summary

This Kerala High Court judgment in ITA No. 172 of 2013 concerns a Revenue appeal challenging an Income Tax Appellate Tribunal (Cochin Bench) order for Assessment Year 2003-04. The Tribunal dealt with two primary issues: (i) whether the assessee could deduct a bonus paid in AY 2002-03 in AY 2003-04 under section 43B, following a reported precedent; and (ii) whether Rs. 2,32,93,575 spent on acquiring revenue items could be allowed as a current expense under section 37 after being written off, while Rs. 28,67,407 was treated as a capital loss on capital assets. The Assessing Officer had disallowed these items in different respects. The High Court analyzed the interaction of sections 43B, 36(1)(vii), 36(2) and 37, and whether the Tribunal’s conclusion to allow the write-off under section 37 was legally tenable. It noted that the Tribunal relied on the decision in Commissioner of Income Tax v. Apollo Tyres Ltd and, on that basis, answered the first question in the assessee’s favor and allowed the section 37 deduction for the second issue. The Court also cited decisions in Chenab Forest Co. v. CIT, CIT v. Mysore Sugar Co. Ltd, and CIT v. Mahalakshmi Textile Mills Ltd to support the reasoning. The appeal was dismissed with no costs, and substantial questions 1 and 2 were resolved in favor of the assessee.

Provisions of Law Cited

Section 43B of the Income Tax ActSection 36(1)(vii)Section 36(2)Section 37Section 80IA of the Income Tax Act

Submissions & Arguments

Contentions of Appellants / Petitioners

The Revenue contends that the deduction of the bonus in AY 2003-04, paid in AY 2002-03, cannot be allowed under the timing framework of section 43B absent explicit statutory support, and that the Tribunal erred in treating the Rs. 2,32,93,575 for revenue items as a current expense under section 37; since if the special provision (36(2)) is inapplicable, deduction under section 37 would be illegitimate. It also argues that the alternative classification of such advances should not override the statutory scheme. The Revenue submits that the Tribunal’s reliance on a precedent in Apollo Tyres Ltd and the cited cases is misapplied or limited, and that the proper avenue for bad debts remains under section 36(2).

Contentions of Respondents

The assessee argues that the bonus paid in 2002-03 and claimed in 2003-04 is deductible under section 43B in light of precedent (Apollo Tyres). It contends that the Rs. 2,32,93,575 amount, written off as an advance for revenue items, is a valid deduction under section 37 as current expenses, with Rs. 28,67,407 treated as a capital loss; the Treasurer’s logic under section 43B and the Tribunal’s application of section 37 should be sustained. The assessee relies on prior judicial orders to justify the Tribunal’s conclusions and upholds that the revenue claims under section 36(2) are not a bar to these deductions.

Cited Precedents (4)

Case Name	Citation	Treatment	Explanation
Commissioner of Income Tax v Apollo Tyres Ltd	2019 419 ITR 100	Positive	The judgment states it followed this reported decision to decide question 1 in favor of the assessee.
Chenab Forest Company v. CIT	1974 96 ITR 568 (J&K)	Positive	Cited by Tribunal and relied upon to support the treatment of capital vs revenue allocations; used to justify Section 37 deduction for the revenue item.
CIT v Mysore Sugar Company Ltd	1962 46 ITR 649 (SC)	Positive	Cited as authority leveraged by the Tribunal to allow the write-off under Section 37 as a current expense.
CIT v Mahalakshmi Textile Mills Ltd	1967 66 ITR 710 (SC)	Positive	Cited by Tribunal and used to support the approach that Section 37 can govern the write-off in the given context.

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Extracted Judgment Text

Exact text extracted from official judgment records.

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT** **THE HONOURABLE MR.JUSTICE S.V.BHATTI** **&** **THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS THURSDAY, THE 29[TH] DAY OF JULY 2021 / 7TH SRAVANA, 1943 ITA NO. 172 OF 2013** **AGAINST THE ORDER IN ITA 430/2006 OF I.T.A.TRIBUNAL,COCHIN BENCH,** ## **ERNAKULAM** ## **APPELLANT/S:** THE COMMISSIONER OF INCOME TAX-I, COCHIN BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT ## **RESPONDENT/S:** APOLLO TYRES LTD. 6TH FLOOR, CHERUPUSHPAM BUILDING, SHANMUGHAM ROAD, KOCHI-682031 BY ADVS. SRI.V.ABRAHAM MARKOS SRI.ABRAHAM JOSEPH MARKOS SRI.JOSEPH MARKOSE SR. SRI.TOM THOMAS KAKKUZHIYIL THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 29.07.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **I.T.A. No.172/2013** **-2-** ## **J U D G M E N T** ## S.V. Bhatti, J. Heard learned Standing Counsel Mr. Christopher Abraham and learned Senior Counsel Mr. Joseph Markos for parties. 2. The Commissioner of Income Tax/Revenue is the appellant. M/s. Apollo Tyres Ltd., Kochi/Assessee is the respondent. The subject appeal is at the instance of Revenue from the order of Income Tax Appellate Tribunal (for short ‘Tribunal), Cochin Bench in ITA No.430/Coch/2006 dated 24.08.2012. The appeal deals with the Assessment Year 2003-04. 3. The following substantial questions are stated for consideration: “1. Whether, on the facts and in the circumstances of the case and also in the light of Section 43B of the Income Tax Act, the Tribunal is right in allowing the deduction of the bonus in the Asst. Year 2003-04 claimable and paid in the Assessment Year 2002 03? **I.T.A. No.172/2013** **-3-** 2. Whether, on the facts and in the circumstances of the case and for the reasons stated in the grounds, the Tribunal is right in law allowing the claim of Rs.2,32,93,575/- stating that it was spent for acquisition of revenue items and is allowable under Section 37 of the Act as current expenses? 3. Whether, on the facts and in the circumstances of the case the Tribunal is right in law and fact in holding that DG Power Generation Units 1 and II constituted an "undertaking" under Section 80 1A of the Income Tax Act ? 4. Whether DG Power Generation Units 1 and II are entitled to the benefit of Section 80 1A of the Income Tax Act ? Learned counsel appearing for the parties have confined their submissions to substantial question nos.1 and 2. 4. Substantial question no.1 deals with payment of bonus by the assessee in the Assessment Year 2003-04 claimable and paid in the Assessment Year 2002-03. The Department, raising similar questions of law, filed ITA No.40/2011 for the Assessment Year 2002-03. In the said appeal, question no.4 **I.T.A. No.172/2013** **-4-** deals with the payment of bonus in the subsequent Assessment Year. In the reported judgment in _Commissioner of Income-Tax v. Apollo Tyres Ltd_[1] the question was answered in favour of the assessee and against the Revenue. Except the change of Assessment Years, the circumstances in the reported judgment and the instant case are substantially similar. Hence, question no.1 is answered in favour of the assessee and against the Revenue, by following the reported judgment between the parties. 5. Question no.2 deals with the claim of assessee towards debts and advances written off. The assessee claimed a total deduction of Rs.8,74,73,974/- out of which a sum of Rs.6,13,12,992/- related to the trade debts and the remaining amount represented two categories as follows: 1. Advances given for acquisition of capital assets - Rs.28,67,407/- 2. Advances given for acquisition of Revenue items -Rs.2,32,93,575/- > 1 (2019) 419 ITR 100 **I.T.A. No.172/2013** **-5-** The Assessing Officer treated the claim of Rs.28,67,407/- as capital loss and disallowed the claim. As regards advances given for acquisition of Revenue items amounting to Rs.2,32,93,575/- the Assessing Officer held that the claim is not allowable under Section 36(1)(vii) read with Section 36(2) as the said amount was not offered for taxation. The Assessing Officer rejected the alternative claim for deduction under Section 37(1) of the Act. The Tribunal, by referring to the judgments reported in _Chenab Forest Company v. CIT_[2] , _CIT v. Mysore Sugar Company Ltd_[3] , and _CIT v. Mahalakshmi Textile Mills Ltd_[4] ., held that the advances of Rs.28,67,407/- made for acquisition of capital assets is liable to be disallowed as 'capital loss' and the advances amounting to Rs.2,32,93,575/- given for acquisition of revenue items subsequently written off are held as allowable under Section 37 of the Act as 'current expenses'. > 2 (1974) 96 ITR 568 (J&K) 3 (1962) 46 ITR 649 (SC) > 4 (1967) 66 ITR 710 (SC) ## **I.T.A. No.172/2013** **-6-** 5.1 The present question deals with the view taken by the Tribunal that the claim of assessee though is not permissible under Section 36(1)(vii) of the Act, still the same is admissible under Section 37 of the Act. The contention of Revenue is that the specific provision applicable in this behalf is Section 36(2) of the Act which governs the allowance of bad debts. Section 37 deals with general provision for allowances. When the special provision is inapplicable to the claim of the assessee, giving the deduction under Section 37 of the Act is illegal and impermissible. The argument of assessee is that the claim of assessee, though was at the first instance presented under Section 36(2) of the Act, for the reasons recorded by the Assessing Officer upto the Tribunal, the claim has been rejected under Section 36(2) of the Act. It does not mean that the claim is rejected on the merits. The claim if can be brought within the ambit of Section 37, no exception could be pointed out for **I.T.A. No.172/2013** **-7-** according deduction under Section 37 of the Act. 6. We have perused the judgments which were taken note of by the Tribunal while recording a finding in favour of the assessee that the claim can be brought under Section 37 of the Act. Except raising a general argument that general provision ought not to have been applied when a special provision is available and found to be not applicable, we notice that the argument does not satisfactorily demonstrate as to how the claim of assessee does not merit consideration under Section 37 of the Act. The finding of the Tribunal has proceeded on the footing that the claim amounting to Rs.2,32,93,575/would come within the scope of Section 37 of the Act. For the circumstances noted by the authorities and the findings recorded by the Tribunal, we are of the view that accepting the claim of assessee under Section 37 of the Act for the Assessment Year does not warrant interference at the instance of Revenue. **-8-** ## **I.T.A. No.172/2013** The question framed is not substantial question of law, however dependent on the findings of fact recorded by the Tribunal as well as other authorities. Since no exception to the other reasoning is pointed out, we are satisfied that no ground is made out warranting interference with the findings recorded by the Tribunal. Hence the question is answered in favour of the assessee and against the Revenue. The substantial question nos.1 and 2 are accordingly answered in favour of the assessee and against the Revenue. The appeal fails. Hence, dismissed accordingly. No order as to costs. Sd/S.V.BHATTI JUDGE Sd/- BECHU KURIAN THOMAS JUDGE jjj **-9-** ## **I.T.A. No.172/2013** ## **APPENDIX OF ITA 172/2013** PETITIONER ANNEXURE ANNEXURE A COPY OF THE ASSESSMENT ORDER U/S. 143(3) PASSED BY THE ASSESSING OFFICER ON 27/03/2006 FOR AY 2003-04. ANNEXURE B COPY OF THE ASSESSMENT ORDER U/S. 143(3) R.W.S.147 DATED 12/12/2008. ANNEXURE C COPY OF CIT(A)'S ORDER DATED 25/04/2006. ANNEXURE D COPY OF CIT(A)'S ORDER DATED 30/03/2009. ANNEXURE E ORDER OF THE ITAT, IN ITA NO.430/COCH/2006 AND 378/COCH/2009 DATED 24/08/2012.