The Commissioner of Income Tax, Thiruvananthapuram v. M/s Kerala State Industrial Development Corporation Limited

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE FRIDAY, THE 1ST DAY OF NOVEMBER 2013/10TH KARTHIKA, 1935 ITA.No. 239 of 2012 () ----------------------- AGAINST THE ORDER IN ITA 547/Coch/2010 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 08/06/2012. APPELLANT/APPELLANT: ------------------- THE COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT: ----------- M/S. KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LIMITED, KESTON ROAD, KOWDIAR, TRIVANDRUM-695003. THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 0111-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ## **APPENDIX TO I.T.A.NO.239 OF 2012** ## **APPELLANT'S EXHIBITS:** ANNEXURE - A : TRUE COPY OF THE ORDER U/S 143(3) OF THE ASSESSING OFFICER DATED 07/12/2009. ANNEXURE - B: TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 14/07/2010. ANNEXURE - C: TRUE COPY OF THE ORDER OF THE APPELLATE TRIBUNAL DATED 08/06/2012. ## **RESPONDENT'S EXHIBITS:** NIL // True Copy// PA to Judge ## **MANJULA CHELLUR, CJ & A.M.SHAFFIQUE, J. * * * * * * * * * * * * *** I.T.Appeal No.239 of 2012 ---------------------------------------- Dated this the 1[st] day of November 2013 ## **J U D G M E N T** ## **SHAFFIQUE,J** This appeal is filed by the revenue challenging the order passed by the Income Tax Appellate Tribunal, Cochin Bench in I.T.A.No.547/Coch/2010. The issue relates to the assessment year 2007-2008. 2. The assessee had filed a return on 16/10/2007. The case was selected for scrutiny which was completed under Section 143(3) of the Income Tax Act on 07/12/2009 disallowing a sum of Rs.5,70,13,359/- being bad debts written off u/s 36(1)(vii) and disallowance under Section 14A for an amount of Rs.11,44,900/-. The total income was determined as Rs.44,83,39,648/-. The assessee preferred an appeal before the Commissioner of Income Tax (Appeals) raising three issues. The disallowance of Rs.11,44,900/- u/s I.T.Appeal No.239/2012 2 14A, the deduction for bad debts written off amounting to Rs.5,70,13,359/- and deduction for Rs.2,09,80,000/- being excess provision written back. The Commissioner of Appeals allowed the Assessee's appeal with reference to deduction of Rs.5,70,13,359/- and the deduction for Rs.2,09,80,000/-. Appeal was filed by the revenue challenging the decision of the first appellate authority regarding deletion of deduction of bad debts claimed and the relief granted in respect of excess provision written back. Cross objection is filed by the assessee against the order of the 1[st] appellate authority, who had only partially confirmed the disallowance of claim of bad debts u/s 14A of the Act. 3. In regard to the first issue relating to disallowance of claim of bad debts amounting to Rs.5,70,13,359/- it was disallowed by the Asssessing Officer mainly on the ground that the assessee failed to comply with provisions of Section 36(2)(v) of the Act. In fact, the assessee wrote off the bad debts amounting to Rs.7,51,13,359/- and the balance outstanding was only Rs.1,81,00,000/-. Then an amount of I.T.Appeal No.239/2012 3 Rs.5,70,13,359/- was debited to the profit and loss account. According to the Assessing Officer he should have debited the entire amount to the provision for bad debts account. The Tribunal having considered Section 36(2)(v) of the Act opined that the claim for provision for bad and doubtful debts is created as per the provisions under Section 36(1) (vii) of the Act. The Tribunal accepted the contention of the assessee that since the balance outstanding in the provision account made under Section 36(1)(vii) was only Rs.1,81,00,000/- the bad debts can be debited only to that extent. Further it is found that even if the assessee debits the entire bad debts of Rs.7.51 crores to the provision account then the said account will show a debit balance of Rs.5.7 crores which has to be closed by transferring it to the profit and loss account. It is found that the net effect would be that both methodologies would give the same result. 4. The next issue is with reference to reduction of excess provision written back. The Tribunal found that there was no discussion about the same in the assessment order. I.T.Appeal No.239/2012 4 It is found that since no such discussion is made, the matter requires examination by the Assessing Officer. With reference to the cross objection in regard to the disallowance made under Section 14A of the Act, the Tribunal found that the assessee's own case relating to the assessment years 2004-2005 and 2005-2006 has been disposed of relying upon the High Court judgment in **CIT v. Dhanalakhmi Bank Ltd.** in I.T.A.No.1324/2009. Hence it was found that the matter requires fresh examination and was remitted back to the Assessing Officer. 5. The learned counsel appearing for the revenue placed much emphasis on the issue relating to deletion of disallowance of bad debts claimed amounting to Rs.5,70,13,359/- . The Tribunal has come to a finding that if any of the methods suggested by the Assessing Officer and the assessee is taken into account, the effect will be the same. 6. Though the learned counsel for the appellant tried to impress upon us that a substantial question of law arises I.T.Appeal No.239/2012 5 for consideration in the appeal, we do not think so. The question raised is whether on the facts and circumstances of the case, and in the light of Section 36(1)(vii) read with 36(viii) whether the deduction under Section 36(1)(vii) should be limited to the amount by which such debt or part thereof exceeds the credit. The first appellate authority as well as the Tribunal had formed an opinion that the method adopted does not make any change at all. Such being the situation, we do not think that any question of law arises for consideration in the matter. Accordingly, this appeal is dismissed. (sd/-) **(MANJULA CHELLUR, CHIEF JUSTICE)** (sd/-) ## **(A.M.SHAFFIQUE, JUDGE)** jsr I.T.Appeal No.239/2012 6 I.T.Appeal No.239/2012 7 I.T.Appeal No.239/2012 8