Ita/68/2011 Of The Commissioner Of Income Tax, Cochin v. M/S.apollo Tyres Ltd., Kochi

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT 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,COCHINBENCH] 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 MATHEWSRI.B.J.JOHN PRAKASHSRI.JOSEPH KODIANTHARA (SR.)SRI.MATHEWS K.UTHUPPACHANSRI.TERRY V.JAMESSRI.TOM THOMAS (KAKKUZHIYIL)SRI.V.ABRAHAM MARKOSSRI.V.B.UNNIRAJBY SRI. JOSEPH MARKOSE THIS INCOME TAX APPEAL HAVING BEEN FINALLY ON10.04.2019, THE COURT ON THE SAME DAY DELIVERED THEFOLLOWING: :-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 arisesfrom the verdict passed by the Income Tax AppellateTribunal, Cochin Bench in I.T.A.No.274/Coch/2005 (appealpreferred by the assessee) in respect of the assessmentyear 2001-2002. 2. The sequence of events reveals that theassessment was finalised by the assessing officer on23.3.2004. The appeal preferred by the assessee, onbeing aggrieved by the order passed by the assessingofficer, was turned down by the Commissioner of Appeals,which was the subject matter of challenge before theTribunal. The Tribunal decided the issue in favour ofthe assessee and hence, the challenge is at the instanceof the revenue. 3. The questions of law suggested by the Revenue asinvolving substantial questions of law are in thefollowing terms:- :-3-: “1. (a) Whether, on the facts and in thecircumstances of the case, the scope andapplicability of Section 234D has been correctlyunderstood by the ITAT;circumstances of the case, the scope andapplicability of Section 234D has been correctlyunderstood by the ITAT; (b) Whether, Sec.234D is applicable to asst.year2001-02?2001-02? 2.(a) Whether, on the facts and circumstances ofthe case and the expenditure towards club beingpersonal, the assessee company is entitled toclaim deduction towards entrance fee andsubscription to club.the case and the expenditure towards club beingpersonal, the assessee company is entitled toclaim deduction towards entrance fee andsubscription to club. (b) Whether the assessee is entitled torepetitive claim of expenditure (for prior andsubsequent years) towards entrance fee and isnot the very claim bogus and unheard of?repetitive claim of expenditure (for prior andsubsequent years) towards entrance fee and isnot the very claim bogus and unheard of? 3. Whether, the assessee company is entitled todeduction of contribution to Employees WelfareTrust, the same calls for disallowanceU/s.40A(9)? deduction of contribution to Employees WelfareTrust, the same calls for disallowanceU/s.40A(9)? 4.(a) Whether on the facts and in the circumstancesof the case, the ITAT is right in law ininterfering with the order of the AssessingOfficer who had disallowed bad debts written off(Rs.25 lakhs) in view of the fact that suchdebts were not taken into consideration whilecomputing the total income?of the case, the ITAT is right in law ininterfering with the order of the AssessingOfficer who had disallowed bad debts written off(Rs.25 lakhs) in view of the fact that suchdebts were not taken into consideration whilecomputing the total income? (b) Whether the ITAT is justified in relying onthe decision of the Supreme Court in 323 ITR 397in view of the difference in fact situation; the decision of the Supreme Court in 323 ITR 397in view of the difference in fact situation; 5. (a) Whether on the facts and in the circumstancesof the case, the ITAT is right in law ininterfering with the order of the AssessingOfficer who had disallowed Rs.46,62,000/- onaccount of investment fluctuation reserve-of the case, the ITAT is right in law ininterfering with the order of the AssessingOfficer who had disallowed Rs.46,62,000/- onaccount of investment fluctuation reserve- (b) Is not the claim of the assessee and allowingthe claim by ITAT against law and accountingpractice?”the claim by ITAT against law and accountingpractice?” 4. Heard Sri. Christopher Abraham, the learned Standing Counsel for the Revenue and Sri.Joseph Markose,the learned Senior counsel for the respondent-assessee. :-4-: 5. The first question is with regard to the scopeand applicability of Section 234D of the Income Tax Act,particularly whether the same is liable to be invoked inthe assessment year 2001-02. It is brought to the noticeof this Court that when the same question had come up forconsideration before this Court earlier, it wascategorically held that Section 234D was having effectonly from 1.6.2003 and as such, the same cannot beinvoked in respect of assessment year 2001-02. Thisissue having been decided by this Court inI.T.A.No.77/2011, answering the question in favour of theassessee and against the revenue, it stands coveredagainst the appellant. 6. The second question is with regard to the 'ClubExpenses' met by the assessee. Both the AssessingOfficer 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/Commissionerthat the said amount was part of the personal expenses :-5-: met by the assessee was turned down by the Tribunal andthe entire amount was allowed which is not liable to besustained according to the revenue and hence thechallenge. 7. During the course of hearing, it is brought tothe notice of this Court by the learned counsel appearingfor the parties to the effect that out of the totalamount claimed under this head, after segregating theactual club expenses for obtaining the membership in theclub for facilitating entry and to avail the services, asum of `1,61,691/- represented the cost of variousfacilities/services availed by the persons who utilisedthe same at the instance of the assessee. Insofar asthere is no dispute with regard to the quantum involvedand that `1,61,691/- was towards the cost of servicesavailed, it is clearly attributable as 'personalexpenses', unlike the other portion which represents theamount spent as fee for getting membership in the club.The amount spent for getting membership in the clubstands on a different pedestal and this amount has to beallowed 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 andagainst the revenue. But coming to the other part thatis `1,61,691/- spent by the assessee, it represents theexpenses incurred for availing the benefit/services, inrespect of which no allowance can be made and theaddition has to be sustained. This Court is of the viewthat the assessment has to be completed afresh in respectof the said amount of `1,61,691/- spent by the assesseetowards the cost of services availed. Accordingly, weanswer the said question in favour of the Revenue to theabove extent. The Assessing Officer is at liberty toproceed with further steps for assessing the tax elementin respect of the said amount. I.T.A. No.68 of 2011 :-6-: I.T.A.No.1347/2009 decided in favour of the assessee andagainst the revenue. But coming to the other part thatis `1,61,691/- spent by the assessee, it represents theexpenses incurred for availing the benefit/services, inrespect of which no allowance can be made and theaddition has to be sustained. This Court is of the viewthat the assessment has to be completed afresh in respectof the said amount of `1,61,691/- spent by the assesseetowards the cost of services availed. Accordingly, weanswer the said question in favour of the Revenue to theabove extent. The Assessing Officer is at liberty toproceed with further steps for assessing the tax elementin respect of the said amount. 8. The third issue pertains to the deduction ofcontribution made by the assessee to the Employees'Welfare Trust and disallowance of the said amount withreference of Section 40A of the Act. The stand of theassesee is that the said amount was contributed to thewelfare trust only to provide transportation of theemployees and had it not been undertaken by the saidtrust, it would have been the look out of the assessee, I.T.A. No.68 of 2011 by way of appropriate measures, it being part of theservice conditions. This issue was consideredelaborately by this Court and decided in favour of theassessee as per the verdict passed on 27.2.2019 inI.T.A.No.69/2011. As such, this question stands answeredagainst the revenue and in favour of the assessee. 9. Question No.4 deals with the categorisation ofdebts as 'bad debts' and the deduction allowed by theTribunal as discussed in paragraph 137 of Annexure-Forder. For convenience and to avoid repetition, we findit appropriate to extract paragraph 137 and 138 of Annexure F order as given below:- “137. The above clearly shows that addition hasbeen made by the AO without any application of mindand without considering the details filed by theassessee. The details filed at pgs.38 to 43 of thepaper book gives all the details of bad debts. Thepaper book has been certified and it is clearlymentioned that all these papers were placed beforethe AO as well as the CIT(A) and it has not beendenied by the Revenue before us that this si not acorrect statement. The details at pg.39 show thatthe debts due are from various Government RoadwaysCorporations and few other large customers. Thereis another list of small customers consisting of 221parties from whom sums of less than Rs.5000/- wereoutstanding which have been written off. The listat pg.39 also shows that a sum of Rs.1,25,000/-which was earlier claimed as deductions and nowreceived, has been reduced from the amount writtenoff during the year. All these details are clearlyavailable. Further the amounts from Roadways Corporations would naturally be outstanding only onaccount of supply of tyres. Similarly the amountffrom small customers will also be outstanding onaccount of tyres only. Recently, the Hon'bleSupreme Court in the case of T.R.F.Ltd.vs.CIT,323ITR 397(SC) had an occasion to consider theamendment of law with effect from 1.4.1989 Corporations would naturally be outstanding only onaccount of supply of tyres. Similarly the amountffrom small customers will also be outstanding onaccount of tyres only. Recently, the Hon'bleSupreme Court in the case of T.R.F.Ltd.vs.CIT,323ITR 397(SC) had an occasion to consider theamendment of law with effect from 1.4.1989 “After the amendment of section 36(1)(vii) of the Income Tax Act,1961, witheffect from April 1,1989, in order toobtain a deduction in relation to baddebts, it is not necessary for theassessee to establish that the debt, infact, has become irrecoverable: It isenough if the bad debt is written offas irrecoverable in the accounts of theassessee.TheSupremeCourtaccordingly remanded the matter to theAssessing Officer to examine solely tothe extent to write off, whether thedebt or part thereof was written off inthe accounts of the assessee.”138. From the above, it is clear that after1.4.1989, there is no need for the assessee toprove that the debt has really become bad. Merelywriting off debts would be sufficient compliance interms of section 36(1)(vii) for claiming thebenefits. Respectfully following, this decision,we set aside the order of the Id.CIT(A) and deletethe addition made on account of bad debts.” From the above, it is crystal clear that the findingrendered by the Tribunal is based on the relevant factsand figures. This being the position, the point involvedis purely a 'question of fact' and does not constituteany question of law, much less any substantial question :-9-: of law to call for interference in terms of Section 260Aof the Act. 10. The remaining question i.e., question No.5 wasthe subject matter involved in I.T.A.NO.67/2011 as well(which we have closed as per a separate verdict). TheAssessing Officer disallowed the claim simply pointingout that the amount was not actually debited in theprofit and loss account. The stand of the assessee isthat debit was actually effected, but from the totalcredit available. The learned Standing Counsel for theRevenue submits that the issue is in respect of the bookprofits and as such, the course pursued by the AssessingOfficer is justified. The stand of the Assessing Officerwas 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 bythe Apex Court in Commissioner of Income Taxv. HCLConnect Systems and Services Ltd [(2008) 305 ITR 409(SC)] whereby the issue was decided in favour of theassessee. 11. The learned Standing Counsel submits that the :-10-: Tribunal was not right in pursuing the said course in sofar as the law declared by the Supreme Court in thedecision cited supra was not applicable to the case onhand. The finding and reasoning given by the Tribunal isgiven in paragraph 164 of Annexure F order which isreproduced below:- “164.Ground No.21: After hearing both the parties, wefind that in this Ground, the assessee has raised twoissues, i.e. regarding addition of Rs.46,62,000/- onaccount of investment fluctuation reserve and additionof Rs.87,09,109/- on account of fixed assetsrevaluation reserve. The amounts were disallowed bythe AOI because of the following reasons:-find that in this Ground, the assessee has raised twoissues, i.e. regarding addition of Rs.46,62,000/- onaccount of investment fluctuation reserve and additionof Rs.87,09,109/- on account of fixed assetsrevaluation reserve. The amounts were disallowed bythe AOI because of the following reasons:- i) The amount withdrawn is not actually creditedto P&L.to P&L. ii) The reserve in question were created before1.4.1997.1.4.1997. iii) The book profit of the year of creation ofsuch reserves were not increased by the debitfor reserve under section 115JA or 115JB.such reserves were not increased by the debitfor reserve under section 115JA or 115JB. i) The amount withdrawn is not actually creditedto P&L.to P&L. ii) The reserve in question were created before1.4.1997.1.4.1997. iii) The book profit of the year of creation ofsuch reserves were not increased by the debitfor reserve under section 115JA or 115JB.such reserves were not increased by the debitfor reserve under section 115JA or 115JB. iv) Provisions for reduction in the value ofinvestment in GEPL is an unascertainedliability as on 31.3.2001 which is notadmissible under Explanation (c) below Sectioninvestment in GEPL is an unascertainedliability as on 31.3.2001 which is notadmissible under Explanation (c) below Section :-11-: 115JB(2) as was held in the order U/s.154dated 10.7.2002. Further the scheme of rehabilitation was approved by the court afterthe end of the previous year.” 12. According to the learned Standing Counsel, though clause (c) of Explanation(1) as such may not beapplicable as held by the Apex Court, clause (i) of thevery 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. Byvirtue of the amendment of the statute, the decisionrendered by the Supreme Court in [(2008) 305 ITR 409]prior to the substitution of the provision by the FinanceAct 2009 stands nullified, submits the learned StandingCounsel. 13. In this context, it is relevant to note thatthe actual case projected by the assessee is notspecifically discussed by the authorities concerned andparticularly by the Tribunal. 14. The rival contentions have not beenspecifically adverted to or appreciated by the Tribunal I.T.A. No.68 of 2011 :-12-: while passing Annexure F order and it requires to bereconsidered with specific reference to the stand takenby the assessee, referring to the actual 'writing off'and as to the substitution of the provision by theFinance Act 2009- as contended by the Revenue. 15. So as to facilitate such exercise, the findingand 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 theTribunal for fresh consideration on this question. Wehope, the matter being related to the year 2001-02, wouldbe finalised by the Tribunal as expeditiously aspossible. The questions of law are answered asmentioned above. This I.T.Appeal is partly allowed. Sd/- P.R.RAMACHANDRA MENON, JUDGE sd/- N.ANIL KUMAR, JUDGE