Inductotherm (India) Private Ltd., ... vs Department Of Income Tax

The ACIT, M/s. Inductotherm (India) Pvt. Circle-4, Ltd., Ambli Bopal Road, Ahmedabad Vs Bopal, Ahmedabad (Appellant) PAN: AAACI 3672 B (Respondent)

Revenue by: Shri M.K. Patel, Sr. D.R. Assessee by: Shri Nimesh Yadav, A.R.

Date of hearing : 13-03-2015 Date of pronouncement : 26-03-2015

आदे श/ORDER

PER : ANIL CHATURVEDI, ACCOUNTANT MEMBER:-

This is the Revenue's appeal against the order of Ld. CIT(A)-VIII, Ahmedabad dated 29-02-2008 for A.Y. 2001-02.

2. The relevant facts as culled out from the material on record are as under.

ITA No. 1613/Ahd/2008 A.Y. 2001-02 2 ACIT vs. M/s Inductotherm (India) Pvt. Ltd

3. Assessee is a company engaged in the business of manufacturing of induction furnaces. Assessee filed its return of income for A.Y. 2001-02 on 25-10-2001 declaring total income of Rs. 4,69,93,442/-. The case was selected for scrutiny and thereafter assessment was framed u/s. 143(3) and the total income was determined at Rs. 5,41,22,967/-. Thereafter the case was re-opened by issuing notice u/s. 148 dated 30-03-2003 and subsquently the assessment was framed u/s. 143(3) r.w.s. section 147 vide order dated 29-12-2006 and the total income was determined at Rs. 6,74,61,580/-. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who vide order dated 29-02-2008 granted partial relief to the assessee. Aggrieved by the aforesaid order of CIT(A), Revenue is now in appeal before us and has raised the following grounds:-

"1. The Ld. CIT(A) has erred in law and on the facts of the case to deleting the disallowance of Rs.1,44,038/- made u/s 14A of the Act.

2. The Ld. CIT(A) has erred in law and an the facts of the case in directing the A.O not to exclude 'other income' being bad debts recovered Rs.2,18,454/-, Insurance claim Rs.5,73,325/-, Sundry Creditors Rs. 1,30,148/-, Forfeiture of advances Rs. 5,53,600/- and Exchange rate fluctuation Rs.1,09,181/-, from the business profits, for the computation of deduction u/s 80HHC.

3. The Ld. CIT(A) has erred in law and on the facts of the case in deleting the disallowance of royalty of Rs. 37,82,693/- u/s 40(a)(i) .

4. The Ld. CIT(A) has erred in law and on the facts of the case in deleting the disallowance of prepaid excise duty of Rs.62,59,521/-.

5. The Ld. CIT(A) has erred in law and on the facts of the case in deleting the disallowance of Rs.13,48,032/-, being provisions for gratuity.

6. The Ld. CIT(A) has erred in law and on the facts of the case in deleting the disallowance of Rs.2,00,000/- being provision for unpaid sales commission.

ITA No. 1613/Ahd/2008 A.Y. 2001-02 3 ACIT vs. M/s Inductotherm (India) Pvt. Ltd

7. The Ld. C|T(A) has erred in law and on the facts of the case in deleting the disallowance of bad debt claim of Rs. 25,86,350/-.

8. On the facts and in the circumstances of the case, the Ld. ClT(A) ought to have upheld the order of the Assessing Officer.

First ground is with respect to deletion of disallowance u/s. 14A.

4. AO noticed that assessee had earned dividend income of Rs. 25,898/- and tax free interest of Rs. 10,50,000/-. He also noticed that assessee had shown investment of Rs. 96,15,000/- in tax free bonds of Konkan Railway Corporation Ltd. AO has noted that assessee has not furnished details of exact source of investment in shares and mutual funds during the year under consideration and had also not stated as to whether it has maintained separate accounts of interest bearing funds and non interest bearing funds for the purpose of investments. He was therefore of the view that in the absence of aforesaid information, it could be inferred that assessee has invested interest bearing funds for making investments in shares and mutual funds. He also noted that no deduction can be allowed in respect of administrative expenses incurred for earning exempt income. He therefore following the decision in the case of Harish Krishna kant Bhatt vs. ITO (2004) 91 ITD 311 (Ahd) worked out the disallowance of administrative expenses of Rs. 1,44,038/- u/s. 14A. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who deleted the addition by holding as under:-

"4.1 Before me, the learned counsel for the appellant contended that the AO failed to appreciate that the appellant had bought 10,000 10.50% tax-free bonds of Rs.1,000 each of Konkan Railway Corporation limited, a Government of India undertaking, in the year 1995 and maturity term of the said investment has been 10 years ended 31st October, 2004. There has been no transaction in these bonds at any time during the intervening maturity term of 10 years.

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The appellant has merely received two half yearly interest warrants of Rs.5,25,000/- each during the previous year, which have been collected in routine through bank account. It was, therefore, submitted that there is no identifiable or relatable administration expenses involved on facts of the case in respect of this tax-free interest income of Rs. 10.50 lacs and no disallowance on account of prorata administration expenses is, therefore, warranted or justified even on facts of the case. It was submitted that the administration expenses, sought to be co-related, do not have any nexus with or have been incurred in relation to tax-free interest income so as to be hit by section 14A.

Without prejudice to above, it was submitted that the question of disallowance under section 14A has been considered by the predecessor AO at length and made certain quantum addition thereunder which has been subject matter of review by the predecessor Hon. CIT(A). This ground has been adjudicated by his first appeal order dated 11th February, 2005 and therefore prima facie outside jurisdiction of the reassessment proceedings. It was submitted that during the year dividend warrants and two half yearly interest warrants were received and for encashing the same, there was no specific expenditure incurred during the year, further that similar disallowance made in A.Y. 2004-05 was allowed by the CIT(A)-VIII. He also relied on the decision of Hon'ble ITAT Delhi Bench in the case of ACIT v, Eicher Limited 101 TTJ 369 wherein it was decided that it was the duty of the AO to pin point such expenditure on the basis of material on record with an acceptable degree of accuracy and not on a notional basis. In this case, it is quite apparent that no specific expenditure is attributable for depositing just 2 interest warrants and 4 dividend warrants and as such the proportionate disallowance is purely on notional basis and hence the disallowance of Rs. 1,44,308/- on this account is directed to be deleted. As in the original assessment, disallowance on the same issue was made to the tune of Rs.3,544/- which was reduced to Rs.806/- by CIT(A), the A.O is directed to ensure that the original disallowance included in the total income of the appellant."

5. Before us at the outset Ld. AR submitted that on identical facts in assessee's own case for A.Y. 2004-05, the issue has been decided by the Hon'ble Tribunal in its favour. He placed on record the copy of the ITA No. 1613/Ahd/2008 A.Y. 2001-02 5 ACIT vs. M/s Inductotherm (India) Pvt. Ltd

aforesaid decision in ITA No. 4231/Ahd/2007 order dated 29-10-2010. He also pointed to the relevant portion of the order. He therefore submitted the since the facts of the case in the year under appeal are identical to that of earlier years, the issue has rightly been decided in favour of the assessee by Ld. CIT(A). He thus supported the order of Ld. CIT(A). Ld. DR on the other hand supported the order of AO.

6. We have heard the rival submissions and perused the material on record. We find that Ld. CIT(A) while deleting the addition has noted that assessee has received only two half yearly interest warrant bonds during the year under appeal and which were collected in routine through bank account. He has further noted that the investments were made in the year 1995 and there have been no transactions in bonds during the year under review. We further find that on identical facts, the Co-ordinate Bench of Tribunal while deciding the assessee's appeal for A.Y. 2005-06 and after relying on the decision in the case of CIT vs. Hero Cycle Ltd (2010) 323 ITR 518 decided the issue in favour of the assessee by holding as under:-

"11 In the instant case, we find that it is not in dispute that in respect of exempt income warrants the assessee had only received two interest warrants and four dividend warrants. No material was brought on record by the Revenue to show that any specific expenditure was incurred for earning exempt income therefore, in view of the above cited decisions we do not find any error in the order of the Learned Commissioner of Income Tax (Appeals). It is confirmed and the ground of appeal of the Revenue is dismissed."

7. Before us, Revenue has not brought any contrary binding decision in its support nor could distinguish the facts of the case of the year under appeal with that of A.Y. 2004-05. In view of the aforesaid facts, we find no reason to interfere with the order of CIT(A) and thus this ground of Revenue is dismissed.

ITA No. 1613/Ahd/2008 A.Y. 2001-02 6 ACIT vs. M/s Inductotherm (India) Pvt. Ltd

Ground No. 2 is with respect to computation of deduction u/s. 80HHC.

8. During the course of assessment proceedings, AO noticed that assessee had claimed deduction of Rs. 59,86,965/- u/s. 80HHC of the Act. He also noticed that assessee had shown other income comprising of training fees (Rs. 1,80,000/-), insurance claim (Rs. 5,73,325/-), sundry creditors (Rs. 1,30,148/-), bad debt recovered (Rs. 2,18,454), forfeiture of advances (of Rs. 5,53,600/-) and exchange fluctuation (Rs. 1,8,181/) aggregating to Rs. 16,92,708/- and had also earned interest of Rs. 56,50,905/-. He also noticed that assessee had not excluded the aforesaid other income and interest from profit of the business for the purpose of calculation of deduction u/s. 80HHC of the Act. AO was of the view that deduction u/s. 80HHC is only available to the extent of profit derived from export business. The receipts which formed part of other income were not derived from export business and therefore it has to be reduced from the profit of the business for the purpose of calculation of deduction u/s. 80HHC. With respect to interest income, AO after relying on the decisions cited in his order, was of the view that the interest income was "income from other sources" and therefore it has also to be excluded from the profit of the business. He accordingly re-worked the deduction u/s. 80HHC at Rs. 49,37,379/- as against claim of assessee of Rs. 51,85,178/- and the excess deduction at Rs. 2,47,799/- worked out by him was disallowed.

9. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who after considering the submissions of the assessee decided the issue by holding as under:-

ITA No. 1613/Ahd/2008 A.Y. 2001-02 7 ACIT vs. M/s Inductotherm (India) Pvt. Ltd

"5.2 I have considered the submissions of the A.R. carefully. As regards exclusion of interest, as the same is not derived from export business, the A.O. has rightly excluded the same from business profile. As regards training fees collected of Rs. 1 ,08,000/-, the same is not income derived from export business as decided against the appellant by CIT(A)-VIII in A.Y. 2001-02 and 2000-01. So the finding of the Assessing Officer is confirmed on the issue of reduction of training fees collected. The A.O is directed to verify and ensure that the disallowance is not made again as similar addition was made in the original assessment and sustained in first appeal by ClT(A). The bad debts recovered, insurance claims, sundry creditors, forfeitnre of advances and exchange rate fluctuation have arisen fully out of the regular business activities and not out of transactions distinct and separate from the normal course of business, hence the AO is directed not to exclude the above items of income from business profits in working out the deduction u/s.

80HHC. Accordingly the Assessing Officer is directed to rework the deduction u/s. 80HHC."

10. Aggrieved by the order of Ld. CIT(A), Revenue is now in appeal before us.

11. Before us, Ld. DR supported the order of AO. He further pointed that the issue of forfeiture of advance and exchange fluctuation was not before the Co-ordinate Bench of Tribunal in A.Y. 2004-05. Ld AR on the other hand, reiterated the submission made before Ld. CIT(A) and further submitted that identical issue arose in the case of assessee for A.Y. 2004- 05 and the matter has been decided by the Tribunal in Assessee's favour. He placed on record the copy of aforesaid order for A.Y. 2004-05 in ITA No. 4231/Ahd/2007. He thus supported the order of Ld. CIT(A).

12. We have heard the rival submissions and perused the material available on record. We find that the issue of deduction u/s. 80HHC was carried by Revenue before the Hon'ble Tribunal in A.Y. 2004-05 and the ITA No. 1613/Ahd/2008 A.Y. 2001-02 8 ACIT vs. M/s Inductotherm (India) Pvt. Ltd

issue was decided by the Co-ordinate Bench of Tribunal by holding as under:-

"32. We have heard the rival submissions and perused the materials available on record. In the instant case, the Learned Commissioner of Income Tax (Appeals) directed to delete 90% of bad debts recovered, discount earned from suppliers of goods, insurance claim received, sundry credit balances in the suppliers account written back, Miscellaneous charges recovered from the customers, scrap sold and Kasar income from "profits and gains of business or profession" to compute eligible profits of business for the purpose of section 80HHC of the Act. The Revenue contends before us that the above deduction should have been 100% and not 90%. We find that it is not in dispute that the amounts under consideration were assessable under the head "profits and gains of business or profession" and was also so assessed by the Learned Assessing Officer. In the circumstances, in view of explanation (baa) to section 8OHHC the Learned Commissioner of Income Tax (Appeals) was justified in holding that 90% of such receipts are to be excluded for arriving at eligible profits of business. No specific error in the order of the Learned Commissioner of Income Tax (Appeals) could be pointed out by the Learned Departmental Representative. We therefore, confirm the order of the Learned Commissioner of Income Tax (Appeals) and dismiss the ground of appeal of the Revenue."

13. We thus find that on identical facts for A.Y. 2004-05, the issue has been decided by the Co-ordinate Bench of Tribunal in Assessee's favour. Before us, Revenue has not brought any contrary binding decision in its support nor could distinguish the decision of the Tribunal for A.Y. 2004-05. As far as the issue with respect to exchange fluctuation and forefeiture of advances are concerned, we find that Ld. CIT(A) has considered the aforesaid items as being eligible for deduction u/s. 80HHC in view of the fact that those amounts have been assessed as business income by the AO. Before us, Revenue has not brought any material to controvert the findings of Ld. CIT(A). We therefore find no reason to interfere with the order of Ld. CIT(A) and thus this ground of Revenue is dismissed.

ITA No. 1613/Ahd/2008 A.Y. 2001-02 9 ACIT vs. M/s Inductotherm (India) Pvt. Ltd

Third ground is with respect to deleting the addition u/s. 40(a)(i) of the Act.

14. During the course of assessment proceedings, AO noticed that assessee had claimed royalty expenses of Rs. 62,92,000/- on the ground that the same was disallowed in earlier years on account of non-deduction of TDS. During the year assessee had stated to have deducted TDS of Rs. 7,52,792/- and therefore the royalty was claimed as expenses. AO noticed that assessee has been paying royalty under the agreement entered into by it before 01-06-1997 and was therefore liable to deduct TDS at 30% but however assessee had deducted the TDS only Rs. 7,52,792/- whereas according to the AO the assessee should have deducted TDS of Rs. 18,87,700/-. AO therefore on the basis of TDS deduction made by the assessee re-worked the eligible deduction on account of royalty payment at Rs. 25,09,306/- and the balance amount of royalty of Rs. 37,82,693/- was disallowed u/s. 40(a)(i) of the Act. Aggrieved by the order of AO, Assessee carried the matter before Ld. CIT(A) who decided the issue in favour of the assessee by holding as under:-

"6.1 Before me, the learned counsel for the appellant contended that the royalty payment is arising out of the transactions "between residents of India and residents of USA and charge of royalty under consideration is thus governed by Article 12 of the DTAA between Government of India and Government of USA entered into under section 90. The appellant, therefore, has made TDS at applicable bilateral rate of 15% as provided in Article 12 of the DTAA and hence no disallowance is warranted even on facts and law of the case. The royalty payments under consideration have been made to the collaborator based at the USA. The Article 12 of the DTAA governs bilateral tax incidence of these royalty payments. The section 195 requires the payer to make TDS from the payments made abroad at the rates in force. The section 2(37A) defines the rates in force. Clause (iii) to said section 2(37A) provides as under:

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"(iii) for the purposes of deduction of tax under section 195, the rate or rates of income tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income tax specified in an agreement entered into by the Central Government under section 90, whichever applicable by virtue of the provisions of section 90"

The section 90(2) provides as under:

"(2) Where the Central Government has entered into an agreement with the Government of any country outside India under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the, provision 5 of this Act shall apply to the extent they are more beneficial to that assessee."

Needless to add that rate of TDS under the DTAA (Article 12) at 15% of the royalty payable is more beneficial to the assessee and hence the general rate in First Schedule to the Finance Act does not come into operation. The appellant has deducted TDS from the royalty payments in accordance with the rate prescribed under Article 12 of the DTAA. The prescribed declarations under section 195 have been filed with the AO/the TDS officer, the Reserve Bank of India and the authorised dealer. The appellant has thus claimed the deduction in respect of royalty payments in accordance with section 40(a)(i).

6.2 I have considered the submissions of the A.R, carefully. I find that the appellant has made TDS as per the rates provided in DTAA, hence disallowance made by the A.O. is not justified, and the same is deleted."

15. Aggrieved by the order of Ld. CIT(A), Revenue is now in appeal before us.

16. Before us, Ld. DR supported the order of AO and further submitted that the matter be sent back to the AO to verify about the correct rates of TDS. Ld. AR on the other hand reiterated the submissions made before Ld. CIT(A) and further submitted that as per Article 12 of Indo-USA Treaty the applicable rate of TDS on royalty is 15% and therefore the TDS has been correctly deducted by the assessee. He also pointed to copy of the ITA No. 1613/Ahd/2008 A.Y. 2001-02 11 ACIT vs. M/s Inductotherm (India) Pvt. Ltd

Article 13 placed at page 168 of the paper book. He thus supported the order of Ld. CIT(A).

17. We have heard the rival submissions and perused the material available on record. We find that Ld. CIT(A) while deleting the addition has given a finding that assessee has correctly deducted the TDS as per the rates provided in DTAA entered between the Government of India and Government of USA and therefore AO was not justified in disallowing the expenditure. Before us, Revenue has not brought any material on record to controvert the findings of Ld. CIT(A). We therefore find no reason to interfere with the order of Ld. CIT(A) and thus ground of Revenue is dismissed.

Ground No. 4 is with respect to deleting the disallowance of pre-paid excise duty.

18. AO noticed that assessee had debited pre-paid excise duty of Rs. 62,59,521/- and the same was claimed as deduction u/s. 43B of the Act. AO was of he view that deduction u/s. 43B is available if the expense is incurred during the year and paid on or before the due date of filing of return. He was therefore of the view that assessee has not incurred excise duty liability during the year and accordingly disallowed the claim of assessee. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who after considering the submissions of the assessee and the decisions stated therein, decided the issue in favour of the asssessee by holding as under:-

"7.1 Before me, the learned counsel for the appellant contended that the claim of excise duty paid is supported by the direct judicial authorities in Lakanpal National Limited 162 1TR 240 (Guj), 230 ITR 885 (Guj) and by ratio of Berger paints India Limited 266 ITR 99 ITA No. 1613/Ahd/2008 A.Y. 2001-02 12 ACIT vs. M/s Inductotherm (India) Pvt. Ltd

(SC) and hence no disallowance thereof is justified in any case in the reassessment proceedings. The Hon. Gujarat High Court in Lakhanpal National Limited 162 1TR 240 (Guj) has held as under:

"Section 43B of the income tax Act, 1961 opens with a non- obstante clause which means that irrespective of other provisions, section 43B will have overriding effect. The intention of the Legislature is to allow deduction in respect of any tax or duty in computing under section 28 the income of that previous year in which such sum is actually paid by the assessee. The intention is made more specific by providing that it would be so irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by the assessce,"

The Hon. Supreme Court in Berger Paints India Limited 266 ITR 99 (SC) has held as under:-

"The entire amount of excise duty/customs duty paid by the assessee in a particular accounting year is allowable under section 43B of the Income lax Act, 1961, as deduction in respect of that year, irrespective of the amount of excise duty/customs duty included in the valuation of the assessee's closing stock at the end of the accounting year as relating thereto."

7. 2 I have considered the submissions of the A,R. carefully. As the excise duty has been paid during the year, the same is directed to be allowed u/s.43B of the IT. Act."

19. Aggrieved by the order of Ld. CIT(A), Revenue is now in appeal before us.

20. Before us, Ld. DR supported the order of AO. On the other hand, Ld. AR reiterated the submissions made before Ld. CIT(A) and supported his order. He further submitted that assessee has been consistently following the same method of accounting for excise duty and no disallowance has been made in earlier years or succeeding years.

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21. We have heard the rival submissions and perused the material on record. We find that Ld. CIT(A) after considering the decision of Hon'ble Gujarat High Court in the case of Lakhanpal National Ltd 162 ITR 240 and Berger Paints India Ltd 266 ITR 99 (SC) has deleted the addition. Before us, Revenue has not brought any contrary binding material in its support. We further find that the assessee's submissions of having followed the same method of accounting and claiming deduction of excise duty in earlier and subsequent years also have not been controverted by Revenue. In view of the aforesaid facts, we find no reason to interfere with the order of Ld. CIT(A) and thus this ground is dismissed.

Ground No. 5 is with respect to deleting the disallowance on account of provision for gratuity.

22. During the course of assessment proceedings, AO noticed that Assessee had debited gratuity of Rs. 19,44,868/- in its Profit and loss Account. He further noticed that assessee has made payment of Rs. 5,96,873/- towards gratuity fund maintained by LIC. AO was of the view that out of the total provision of Rs.19,44,869/- towards gratuity payment since assessee had not payment of Rs. 13,48,032/- to approved gratuity funds, the same was not allowable u/s. 40A(7) of the Act. He accordingly disallowed the same. Aggrieved by the order of AO, Asssessee carried the matter before Ld. CIT(A) who after considering the submissions of the assessee deleted the addition made by AO by holding as under:-

"8.1 Before me, the learned counsel for the appellant contended that the gratuity provision [not funded under section 40A(7)] as on 31st March, 2001 was cumulative at Rs.79,81,247. This sum was inclusive of opening balance (in gratuity provision account) as on 31st March, 2000 of Rs.74,21,369 carried forward from the preceding year. The appellant has already disallowed the said Rs.74,21,369 under section 40A(7) during the assessment year ITA No. 1613/Ahd/2008 A.Y. 2001-02 14 ACIT vs. M/s Inductotherm (India) Pvt. Ltd

2000-01. The additional gratuity provision made during the previous year of Rs.5,59,878 (Rs.79,8 1,247 - Rs.74,21,369) [and which has not been funded under section 40A(7) has been disallowed during the previous year. The appellant has paid Rs. 5,96,837 as LIC group gratuity policy premium and so claimed and accepted in the original assessment. The appellant also invites attention to note no. 2 in computation of total income for the previous year and gratuity provision made of Rs.7,62,641, in respect of three employees, who retired on 31st March, 2001, have been claimed under section 40A(7)(b), since the said gratuity of Rs.7,62,641 have since been paid to the respective retired employees in April, 2001 as per the receipts filed on records of the predecessor A0. The remaining sums of Rs.13,884, Rs.10,077 and Rs.1,553, aggregating Rs.25,514, are the gratuity paid and gratuity policy expenses paid during the previous year and claimed/allowed in the assessment. As the entire cumulative gratuity provisions of Rs. 79,81,247/- as on 31st March, 2001 have been disallowed during the assessment years 2000-01 and 2001-02 and not claimed, there has been no error on facts of the case on part of the predecessor AO.

Thus it was submitted that non-deductible provision for gratuity has been rightly disallowed by the appellant and accepted in the original assessment and no further adjustment is warranted even on facts of the ease. This is the case of double disallowance.

8.2 I have considered the submissions of the A.R. carefully. As non-deductible provision for gratuity of Rs.5,59,8787/- has been already disallowed by the appellant in the statement of income and the appellant has given a note No. 2 of statement of income saying Rs.7,62,641/- has been paid in April, 2001 to the three employees who retired on 31.03.2001, hence, no further disallowance is required to be made . Hence the disallowance is deleted."

23. Aggrieved by the order of AO, Revenue is now in appeal before us.

24. Before us, Ld. DR supported the order of AO and further submitted that the provision of gratuity is an unascertained liability and further no details of payments were submitted by the Assessee before AO. He further submitted that Ld. CIT(A) decided the issue without calling for any remand report from AO. He therefore supported the order of AO. Ld. AR ITA No. 1613/Ahd/2008 A.Y. 2001-02 15 ACIT vs. M/s Inductotherm (India) Pvt. Ltd

on the other hand reiterated the submissions made before Ld. CIT(A) and further submitted that the provision for gratuity was also examined in proceedings u/s. 263 of the Act and thus there was no new evidence before Ld. CIT(A). He thus supported the order of Ld. CIT(A).

25. We have heard the rival submissions and perused the material on record. We find that the Ld. CIT(A) after considering the submissions of the assessee has noted that the non-deductable provision of gratuity was disallowed by the assessee suo moto and accepted in the original assessment and no further disallowance was warranted as it would be a double disallowance. Before us, Revenue has not brought any material on record in support of its contention. We therefore find no reason to interfere the order of Ld. CIT(A) and thus this ground of Revenue is dismissed.

Next ground is with respect to deletion of unpaid sales commission.

26. During the course of assessment proceedings, AO noticed that assessee had provided for sales commission of Rs. 2,00,000/-. He also noticed that there was unpaid sales commission of Rs. 15,15,000/- as on 01-04-2001. AO noticed that in the absence of details of provision of Rs. 2,00,000/- the expenditure cannot be allowed and accordingly disallowed the same. Aggrieved by the order of AO, Assessee carried the matter before Ld. CIT(A) who deleted the addition by holding as under:-

"9.1 Before me, the learned counsel of the appellant submitted that the sales commission is in respect of sales effected during the previous year, is relatable to the previous year, was actually paid by cheque during the previous year and the said sales commission was not outstanding for payment and that it was not a provision entry for any outstanding expenses. The appellant adds that the opening balance in sales commission provision is in respect of liabilities accrued during earlier years and the same has not been charged to ITA No. 1613/Ahd/2008 A.Y. 2001-02 16 ACIT vs. M/s Inductotherm (India) Pvt. Ltd

Profit and Loss account of the previous year. The sales commission of Rs. 2 lacs accrued, due and was paid by cheque during the previous year."

27. Aggrieved by the order of Ld. CIT(A), Revenue is now in appeal before us.

28. Before us, Ld. DR submitted the no details of sales commission was provided by the assessee before AO and further Ld. CIT(A) decided the issue without calling a remand report from AO. He therefore supported the order of AO. Ld. AR on the other hand reiterated the submission made before Ld. CIT(A) and further pointed to page 198 to 209 being the details of sales commission that were furnished by the Assessee before AO. He thus supported the order of Ld. CIT(A).

29. We have heard the rival submissions and perused the material available on record. We find that Ld. CIT(A) after considering the submissions of the assessee has given a finding that the allowability towards sales commissions arose during the year and has been paid during the year and therefore the same was rightly claimed as expenditure. Before us, Revenue has not brought any contrary material on record in its support. We therefore find no reason to interfere with the order of Ld. CIT(A). In the result, this ground of revenue is dismissed.

Next ground is with respect to deletion of bad debts.

30. During the course of assessment proceedings, AO noticed that assessee has claimed bad debts. He also noticed that assessee had not justified as to how debts had become bad and also not produced ITA No. 1613/Ahd/2008 A.Y. 2001-02 17 ACIT vs. M/s Inductotherm (India) Pvt. Ltd

evidences of recovery measures taken by the asssessee against the parties. He was therefore of the view that the bad debts cannot be allowed and accordingly considered 25% of the bad debt of Rs. 1,3,45,401/- amounting to Rs. 25,86,350/- to be not allowable and accordingly disallowed the same. Aggrieved by the order of AO, Asssessee carried the matter before Ld. CIT(A) who after considering the submissions of the assessee deleted the addition by holding as under:-

"11.2 I have considered the facts of this case and also perused the assessment order. I find that the A.O. has made disallowance of bad debts at 25% of total bad debts claimed, there can not be a percentage disallowance in case of bad debt . Further the claim of bad debt had been discussed in the original assessment and disallowance of bad debts of Rs. 5,45,954/- was made in the original assessment and the same had been allowed by the C.I.T.(Appeals) by holding that the debts were outstanding for more than three years and the total average amount of bad debt was quite small with reference to the total turnover of the company and that the conditions laid down in section 36(l)(vii) r.w.s. 36(2) were satisfied. As the claim of bad debts was already examined by the A.O. and had been decided by the CIT.(Appeals), the re-examination of the same is not proper . Similar disallowance of bad debts has been deleted in the case of appellant in A.Y. 2004-05 , A.Y. 2003-04 by holding that the bad debts written off are of the name of price rebate. Considering that similar facts existed in the year under consideration and the finding in the original assessment for this year that conditions as required for claim of bad debts were satisfied except for bad debts of Rs.5.45 lakhs which were further allowed by the CIT(Appeals) and that the A.O. has not come out with specific finding for making/ disallowance in respect of any particular bad debt, but has made estimated disallowance , the disallowance of bad debts is held to be not justified and the same is deleted."

31. Aggrieved by the order of Ld. CIT(A), Revenue is now in appeal before us.

ITA No. 1613/Ahd/2008 A.Y. 2001-02 18 ACIT vs. M/s Inductotherm (India) Pvt. Ltd

32. Before us, Ld. DR supported the order of AO. On the other hand, Ld. AR reiterated the submissions made before AO and supported the order of CIT(A).

33. We have heard the rival submissions and perused the material on record. We find that Ld. CIT(A) after considering the submissions of the assessee and following the order of his predecessor granted relief to the assessee. We further find that Ld. CIT(A) has noted that AO has not come out with any specific finding for making disallowance in respect of any particular bad debt but had made estimated disallowance. Before us, Revenue has not brought any contrary binding material in its support nor could controvert the finding of Ld. CIT(A). . We therefore find no reason to interfere with the order of Ld. CIT(A) and thus this ground of revenue is dismissed.

34. In the result, the appeal of the Revenue is dismissed.

Order pronounced in open court on the date mentioned hereinabove at caption page

Sd/- Sd/-

(MUKUL KR. SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 26/03/2015 ak आदे श क ूितिल प अमे षत / Copy of Order Forwarded to:-

1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. ITA No. 1613/Ahd/2008 A.Y. 2001-02 19 ACIT vs. M/s Inductotherm (India) Pvt. Ltd

आदे श से, By order/आदे

उप/सहायक उप सहायक पंजीकार ीकार आयकर अपीलीय अिधकरण, अिधकरण अहमदाबाद