The ACIT, Circle-I, Rajahmundry v. M/s Jeypore Sugar Company Ltd., Chagallu, W.G.Dt.

ITA 27/VIZ/2011 | 2007-2008
Pronouncement Date: 04-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 2725314 RSA 2011
Assessee PAN AAACJ9942R
Bench Visakhapatnam
Appeal Number ITA 27/VIZ/2011
Duration Of Justice 4 month(s) 19 day(s)
Appellant The ACIT, Circle-I, Rajahmundry
Respondent M/s Jeypore Sugar Company Ltd., Chagallu, W.G.Dt.
Appeal Type Income Tax Appeal
Pronouncement Date 04-07-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 04-07-2011
Date Of Final Hearing 26-04-2011
Next Hearing Date 26-04-2011
Assessment Year 2007-2008
Appeal Filed On 14-02-2011
Judgment Text
ITA NOS 18 AND 27 OF 2011 JEYPORE SUGAR COMPANY LTD . CHAGALLU PAGE 1 OF 12 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO. 18/ VIZAG/ 20 11 ASSESSMENT YEAR: 200 7 - 0 8 JEYPORE SUGAR COMPA NY LTD. CHAGALLU W.G. DISTT (APPELLANT) PAN NO:AAACJ 9942 R VS. CIT CENTRAL CIRCLE - 1 VISAKHAPATNAM ( RESPONDENT) ITA NO.27/VIZAG/2011 ASSESSMENT YEAR:2007 - 08 ACIT CIRCLE - 1 RAJAHMUNDRY VS. JEYPORE SUGAR COMPANY LTD. CHAGALLU W.G. DISTT (APPELLANT) (RESPONDENT) PAN NO:AAACJ 9942 R ASSESSEE BY: SHRI G.V.N. HARI CA DEPARTMENT BY: SHRI T.H. LUCAS PETER CIT (DR) ORDER PER SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER THESE CROSS APPEALS ARE PREFERRED BY THE ASSESSEE AS WELL AS THE REVENUE AGAINST THE ORDER OF THE CIT (A) PERTAINING TO THE ASSESSMENT YEAR 2007-08. SINCE THESE APPEALS WERE HEARD TOGETHER THESE ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE . WE HOWEVER PREFER TO ADJUDICATE THEM ONE AFTER THE OTHER. ITA NO. 18 OF 2011: 2. THIS IS AN APPEAL OF THE ASSESSEE IN WHICH THE O RDER OF THE CIT (A) IS ASSAILED MAINLY ON TWO GROUNDS. FIRST GROUND RELATE TO THE DIRECTION OF THE CIT (A) TO THE ASSESSING OFFICER TO ASSESS THE LOSS OF RENTAL INCOME OF RS.1.80 CRORES ITA NOS 18 AND 27 OF 2011 JEYPORE SUGAR COMPANY LTD . CHAGALLU PAGE 2 OF 12 AS AN INCOME OF THE IMPUGNED ASSESSMENT YEAR AND TH E OTHER GROUND RELATE TO THE DISALLOWANCE OF MISCELLANEOUS EXP TO THE EXTENT OF RS.10.00 LAKHS. 3. WITH REGARD TO THE FIRST GROUND FACTS BORNE OUT FROM THE ORDERS OF THE LOWER AUTHORITIES ARE THAT THE ASSESSEE COMPANY INS TEAD OF CARRYING OUT THE MANUFACTURING ACTIVITIES ON ITS OWN IN RESPECT OF E M DIVISION HAS LEASED OUT ITS FACTORY AT RAIGADHA ODISHA TO ONE M/S VBC FERRO AL LOYS FOR WHICH IT WAS ENTITLED TO RECEIVE LEASE RENTALS FROM SUCH PARTIES @ RS.18 LAKHS P.M. UPTO JANUARY 2007. HOWEVER SUCH LESSEE PARTY DID NOT PAY MONTHL Y LEASE RENTAL ON THE PLEA THAT IT COULD NOT CARRY OUT MANUFACTURING ACTIVITY ON ACCOUNT OF DISCONNECTION OF ELECTRICITY SUPPLY BY THE ELECTRICITY DEPARTMENT DU E TO SOME DISPUTE BETWEEN THE GOVERNMENT AND THE LESSEE. THE LESSEE EVIDENTLY DID NOT PAY THE LEASE RENTAL OF THE EARLIER YEARS AND THE CURRENT YEARS. THE ASSESS EE BEING PRUDENT BUSINESS MAN DECIDED NOT TO DISCLOSE ANY LEASE RENTAL INCOME ON ACCRUAL BASIS IN THE IMPUGNED ASSESSMENT YEAR. IN EARLIER YEARS THE LEAS E RENTAL WAS DISCLOSED/CREDITED ON ACCRUAL BASIS BUT IT WAS CLAI MED AS BAD DEBT IN THE IMPUGNED ASSESSMENT YEAR ON ITS NON-RECOVERY. 4. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF BA D DEBT RAISED BY THE ASSESSEE. THE ASSESSING OFFICER HAS NOT GIVEN ANY F INDING WITH REGARD TO THE ASSESSMENT OF THE RENTAL INCOME ON ACCRUAL BASIS DU RING THE IMPUGNED ASSESSMENT YEAR. 5. WHEN THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) AGAINST DISALLOWANCE OF BAD DEBT THE CIT (A) EXAMINED THE CLAIM OF THE ASSESSEE FOR NOT OFFERING THE RENTAL INCOME FOR THE IMPUGNED ASSESSM ENT YEAR. WITHOUT ISSUING ANY NOTICE OF ENHANCEMENT OF ASSESSMENT TO THE ASSE SSEE THE CIT (A) DIRECTED THE ASSESSING OFFICER TO ASSESSEE THE RENTAL INCOME OF RS.1.80 CRORES ON ACCRUAL BASIS FOR THE IMPUGNED ASSESSMENT YEAR. ITA NOS 18 AND 27 OF 2011 JEYPORE SUGAR COMPANY LTD . CHAGALLU PAGE 3 OF 12 6. NOW THE ASSESSEE HAS PREFERRED AN APPEAL AGAINST THE ORDER OF THE CIT (A) BEFORE US WITH THE SUBMISSIONS THAT IN THE EARL IER YEARS THE ASSESSEE HAS CREDITED/OFFERED THE RENTAL INCOME ON ACCRUAL BASIS AFTER ADJUSTING IT AGAINST ADVANCE RECEIVED BY THE ASSESSEE FROM THE LESSEE. B UT IN THE IMPUGNED ASSESSMENT YEAR WHEN THE ASSESSEE HAS REALISED THAT THE RENTS COULD NOT BE RECOVERED FROM THE LESSEE IT HAS TAKEN A DECISION I N THE MEETING OF THE BOARD OF DIRECTORS NOT TO CREDIT THE RENTAL INCOME ON ACCRUA L BASIS. IT WAS ALSO DECIDED TO OFFER ITS RENTAL INCOME ON RECEIPT BASIS. FOLLOWING THE DECISION OF THE BOARD OF DIRECTORS THE ASSESSEE DID NOT CREDIT THE RENTAL IN COME ON ACCRUAL BASIS DURING THE IMPUGNED ASSESSMENT YEAR. THE ASSESSEE HAS ALSO MADE ITS ALL EFFORTS TO RECOVER THE RENTAL INCOME BY ISSUING A LEGAL NOTICE TO THE LESSEE BUT FAILED TO RECOVER THE SAME. THE LD COUNSEL FOR THE ASSESSEE F URTHER CONTENDED THAT THE TREATMENT GIVEN BY THE ASSESSEE TO THE RENTAL INCOM E WAS NOT DISPUTED BY THE ASSESSING OFFICER AND THE OBJECTIONS WAS RAISED FOR FIRST TIME BY THE CIT (A). THE CIT (A) WITHOUT ISSUING THE NOTICE OF ENHANCEMENT T O THE ASSESSEE HAS DIRECTED THE ASSESSING OFFICER TO TREAT THIS RENTAL INCOME A S AN INCOME OF THE ASSESSEE ON ACCRUAL BASIS FOR THE IMPUGNED ASSESSMENT YEAR. HE HAS INVITED OUR ATTENTION TO THE PROVISIONS OF SEC. 251(2) ACCORDING TO WHICH TH E CIT (A) SHALL NOT ENHANCE THE ASSESSMENT OR A PENALTY OR REDUCE THE AMOUNT OF REFUND UNLESS THE ASSESSEE HAD REASONABLE OPPORTUNITY OF SHOWING CAUSE AGAINST SUCH ENHANCEMENT OR REDUCTION. THEREFORE THE ENHANCEMENT MADE BY THE C IT (A) IS AGAINST ALL CANNONS OF LAW AND AS SUCH NOT SUSTAINABLE IN THE E YES OF LAW. 7. THE LD COUNSEL FOR THE ASSESSEE FURTHER CONTENDE D THAT WHENEVER IT IS KNOWN TO THE ASSESSEE THAT THE OUTSTANDING DUES COU LD NOT BE RECOVERED FROM THE DEBTOR HE CAN TAKE A WISE DECISION NOT TO OFFE R IT TO TAX ON ACCRUAL BASIS. IN SUPPORT OF HIS CONTENTION HE HAS PLACED RELIANCE UP ON THE FOLLOWING JUDGMENT: I) CIT VS. MAHAVEER COMPANY LTD. 206 ITR 68 II) SHRI KEWAL CHAND BAGRI VS. CIT 183 ITR 207 III) CIT VS. RAIGADHA JUTE MILLS 132 ITR 702 ITA NOS 18 AND 27 OF 2011 JEYPORE SUGAR COMPANY LTD . CHAGALLU PAGE 4 OF 12 8. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HAS SUBMITTED THAT THE ASSESSEE HAS BEEN FOLLOWING THE METHOD OF ACCOUNTING ON ACCRUAL BASIS. IN THE EARLIER YEARS HE HAS OFFERED RENTAL INCOME O N ACCRUAL BASIS. ON ITS NON RECOVERY HE CLAIMED BAD DEBT OF THE OFFERED RENTAL INCOME IN THE IMPUGNED ASSESSMENT YEAR WHICH WAS ALLOWED BY THE CIT (A). S UDDENLY THE ASSESSEE HAS CHANGED THE METHOD OF ACCOUNTING AND DECIDED TO OFF ER THE RENTAL INCOME ON RECEIPT BASIS. THE SUDDEN CHANGE IN THE METHOD OF A CCOUNTING CANNOT BE ACCEPTED AS IT IS AGAINST THE PROVISIONS OF ACCOUNT ANCY. WITH REGARD TO THE MINUTES OF MEETING OF BOARD OF DIRECTORS THE LD DE PARTMENTAL REPRESENTATIVE HAS CONTENDED THAT IT IS AN IN HOUSE ARRANGEMENT OF THE ASSESSEE BUT IN HOUSE ARRANGEMENT CANNOT CHANGE THE LEGAL POSITION OR THE METHOD OF ACCOUNTING. THEREFORE THE CIT(A) HAS RIGHTLY DIRECTED THE ASSES SING OFFICER TO TREAT THE RENTAL INCOME AS AN INCOME OF THE ASSESSMENT YEAR ON ACCRU AL BASIS. IF THE ASSESSEE IS NOT ABLE TO RECOVER THE SAID AMOUNT IN FUTURE HE M AY WRITE IT OFF AS BAD DEBT IN SUCCEEDING YEARS AS HE HAS DONE FOR EARLIER YEARS RENTAL INCOME WHICH WAS OFFERED ON ACCRUAL BASIS AND THE ASSESSEE COULD NOT RECOVER THE SAME. 9. HAVING HEARD THE RIVAL SUBMISSIONS AND ON A CARE FUL PERUSAL OF THE ORDER OF THE LOWER AUTHORITIES AND DOCUMENTS PLACED ON RE CORD WE FIND THAT BEFORE THE ASSESSING OFFICER THE ASSESSEE HAS RAISED THE CLAIM OF BAD DEBT WHICH WAS DISALLOWED BY THE ASSESSING OFFICER ON ACCOUNT OF L ACK OF EVIDENCE. WHILE DEALING WITH THE ISSUE OF CLAIM OF BAD DEBT THE CIT (A) HA S NOTICED THAT THE RENTAL INCOME FOR THE CURRENT YEAR WAS NOT OFFERED TO TAX AS THE ASSESSEE HAS CHANGED HIS METHOD OF ACCOUNTING ON THE BASIS OF DECISION T AKEN BY THE BOARD OF DIRECTORS. HAVING NOTED THAT THE RENTAL INCOME FOR THE EARLIER YEARS WAS CREDITED ON ACCRUAL BASIS HE DIRECTED THE ASSESSING OFFICER TO TREAT THIS RENTAL INCOME FOR THE IMPUGNED ASSESSMENT YEAR AS INCOME ON ACCRUAL B ASIS AND THE LOSS CLAIMED BY THE ASSESSEE IS TO BE DEBITED FROM THE CURRENT Y EARS RENTAL INCOME. THOUGH THIS ACTION OF THE CIT (A) AMOUNTS TO ENHANCEMENT O F ASSESSMENT YET HE DID NOT ISSUE ANY NOTICE OF ENHANCEMENTS TO THE ASSESSEE AS PER THE PROVISIONS OF SEC.251(2) OF THE INCOME TAX ACT ACCORDING TO WHICH THE CIT(A) IS REQUIRED TO ITA NOS 18 AND 27 OF 2011 JEYPORE SUGAR COMPANY LTD . CHAGALLU PAGE 5 OF 12 ISSUE A NOTICE OF ENHANCEMENT TO THE ASSESSEE BEFOR E THE ENHANCING THE ASSESSMENT OR A PENALTY OR REDUCING THE AMOUNT OF R EFUND. RELEVANT PROVISIONS OF SECTION 251(2) ARE EXTRACTED AS UNDER: THE COMMISSIONER (APPEALS) SHALL NOT ENHANCE AN AS SESSMENT OR A PENALTY OR REDUCE THE AMOUNT OF REFUND UNLESS THE APPELLANT HAS HAD A REASONABLE OPPORTUNITY OF SHOWING CAUSE A GAINST SUCH ENHANCEMENT OR REDUCTION. 10. WE HAVE ALSO CAREFULLY EXAMINED THE GROUNDS OF APPEAL RAISED BEFORE THE CIT (A) AND WE FIND THAT THE GROUND RAISED BEFORE T HE CIT (A) WAS ONLY WITH REGARD TO THE CLAIM OF BAD DEBT WHICH WAS DISALLOWE D BY THE ASSESSING OFFICER. THE CIT (A) SUO MOTTO EXAMINED THIS ISSUE OF NON OF FERING THE RENTAL INCOME TO TAX ON ACCRUAL BASIS. BUT AS PER PROVISIONS OF RULE 251(2) WHENEVER THE ASSESSMENT IS TO BE ENHANCED BY ANY ACTION OF THE C IT (A) HE IS REQUIRED TO ISSUE A NOTICE OF ENHANCEMENT TO PROVIDE AN OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. IN THE INSTANT CASE THOUGH THE ASSESSMEN T IS ENHANCED BY THE DIRECTIONS OF THE CIT (A) BUT NO NOTICE FOR ENHANC EMENT WAS ISSUED TO THE ASSESSEE. THEREFORE THE ACTION OF THE CIT (A) IS I N VIOLATION OF PROVISIONS OF SEC.251(2) OF THE ACT. 11. SO FAR AS THE ON MERITS OF THE CLAIM IS CONCERN ED WE FIND THAT UNDISPUTEDLY IN EARLIER YEARS THE ASSESSEE HAS CRED ITED RENTAL INCOME ON ACCRUAL BASIS. BUT IN FACT HE DID NOT RECEIVE ANY PART OF I T AND IN THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAS WRITTEN IT OFF AS A BAD DEBT. REALISING THE FINANCIAL CONDITION OF THE LESSEE THE DECISION WAS TAKEN IN THE MEETING OF BOARD OF DIRECTORS THAT THE RENTAL INCOME TO BE OFFERED O R CREDITED ON RECEIPT BASIS AND NOT ON ACCRUAL BASIS. FOLLOWING THE DECISION OF THE BOARD OF DIRECTORS THE ASSESSEE DID NOT OFFER THE RENTAL INCOME TO TAX ON ACCRUAL BASIS. THOUGH IT IS A CHANGE OF METHOD OF ACCOUNTING IN THIS YEAR BUT THE DECISION WAS TAKEN UNDER THE PARTICULAR CIRCUMSTANCES BY THE BOARD OF DIRECT ORS UNDER A BONAFIDE BELIEF AND WE DO NOT FIND ANY IRREGULARITY THEREIN. EVEN I F WE ACCEPT THE CONTENTIONS OF THE REVENUE THAT THE ASSESSEE SHOULD HAVE FOLLOWED THE ACCRUAL SYSTEM OF ACCOUNTING AND OFFERED ITS RENTAL INCOME TO TAX IN THE IMPUGNED ASSESSMENT YEAR ITA NOS 18 AND 27 OF 2011 JEYPORE SUGAR COMPANY LTD . CHAGALLU PAGE 6 OF 12 AND CLAIMED IT TO BE BAD DEBT IN THE SUCCEEDING YEA RS IT WOULD ONLY THE MULTIPLICITY OF THE ACCOUNTING EXERCISES WHEN IT I S KNOWN TO THE ASSESSEE THAT HE IS NOT ABLE TO RECOVER THE RENTAL INCOME FROM THE L ESSEE. THESE FACTS ARE QUITE EVIDENT FROM THE CORRESPONDENCES EXCHANGED BETWEEN THE ASSESSEE AND THE PAYEE/LESSEE. MOREOVER IF THE ASSESSEE SUCCEEDS IN RECOVERY OF RENTAL INCOME EITHER THROUGH THE COURT OF LAW OR BY ANY OTHER MEA NS THE SAID INCOME WOULD BE OFFERED TO TAX IN THE SUCCEEDING YEARS AND THERE WOULD NOT BE ANY LOSS TO THE REVENUE. 12. WE HAVE ALSO CAREFULLY EXAMINED THE JUDGMENTS R EFERRED TO BY THE ASSESSEE ON AN ISSUE WHERE IT IS KNOWN TO THE ASSES SEE THAT THE AMOUNT DUE COULD NOT BE RECOVERED FROM THE DEBTORS HE MAY NOT OFFER IT TO TAX ON ACCRUAL BASIS. IN THE CASE OF CIT VS. MAHAVEER COMPANY PVT. LTD (SUPRA) THE LORDSHIP OF RAJASTHAN HIGH COURT HAS CATEGORICALLY HELD THAT WH EN THE MATERIAL OF RECORD SHOWED THAT THE AMOUNT OUTSTANDING TO DEBT IS NOT R ECOVERABLE IT WOULD NOT BE PROPER TO TAX INTEREST ON ACCRUAL BASIS THOUGH THE ASSESSEE FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING. SIMILARLY IN THE C ASE OF SHRI KEWAL CHAND BAGRI VS. CIT (SUPRA) THEIR LORDSHIP OF CALCUTTA HIGH CO URT HAVE ALSO HELD THAT WHERE EVEN THE PRINCIPAL WAS OF DOUBTFUL RECOVERY IT CAN NOT BE SAID THAT INTEREST INCOME HAS ACCRUED MERELY ON THE GROUND THAT THE AS SESSEE HAS BEEN FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. SIMILAR VIEW WAS FURTHER EXPRESSED BY THE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. RAIGADH JUTE MILLS (SUPRA) BY HOLDING THAT WHERE THE PRINCIPLE AMOUNT ADVANCED BY THE ASS ESSEE TO THE CONCERN BECOME DOUBT FULL OF RECOVERY NO CHARGEABLE INTERE ST ACCRUE EVEN THOUGH THE ASSESSEE FOLLOW THE MERCANTILE SYSTEM OF ACCOUNTING . IN THE LIGHT OF THE AFORESAID JUDGMENT WE DO NOT FIND ANY IRREGULARITY IN THE DEC ISION TAKEN BY THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY FOR NOT OFFERING RENTAL INCOME ON ACCRUAL BASIS WHEN IT WAS KNOWN TO THEM THAT THEY WERE NOT ABLE TO RECOVER THE RENTAL INCOME FROM THE LESSEE. THEREFORE WE FIND NO MERIT IN THE DIRECTIONS OF THE CIT (A) TO TREAT THE RENTAL INCOME AS THE INCOME OF THE YEAR ON ACCRUAL BASIS. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT (A) IN T HIS REGARD AND DELETE THE ADDITION. ITA NOS 18 AND 27 OF 2011 JEYPORE SUGAR COMPANY LTD . CHAGALLU PAGE 7 OF 12 13. THE NEXT GROUND RELATE TO THE ADDITION OF RS.10 .00 LAKHS ON ACCOUNT OF DISALLOWANCE OF MISCELLANEOUS EXPENDITURE. IN THIS REGARD IT IS NOTICED THAT THE ASSESSEE HAS CLAIMED MISCELLANEOUS EXPENDITURE OF R S.20 85 942/-. THOUGH THE ASSESSEE HAS FILED EVIDENCE BEFORE THE CIT (A) BUT THAT EVIDENCE DOES NOT SUPPORT THE ENTIRE CLAIM OF THE ASSESSEE. THE CIT (A) CAREFULLY EXAMINED THE CLAIM AND TREATED THE EXPENDITURE TO BE GENUINE TO AN EXTENT OF RS.10 85 942/-. THE BALANCE AMOUNT OF RS.10.00 LAKHS WAS NOT ALLOWE D FOR WANT OF EVIDENCE AGAINST WHICH THE ASSESSEE HAS PREFERRED AN APPEAL BUT COULD NOT PLACE THE RELEVANT EVIDENCE TO PROVE THE GENUINENESS OF THE E NTIRE CLAIM. WE HAVE CAREFULLY EXAMINED THE ORDER OF THE LOWER AUTHORITI ES IN THE LIGHT OF THE RIVAL SUBMISSIONS. SINCE THE ENTIRE CLAIM IS NOT OPEN FOR VERIFICATION CIT (A) HAS PARTLY ALLOWED THE CLAIM IN WHICH WE DO NOT FIND ANY INFIR MITY. WE THEREFORE CONFIRM THE ORDER OF THE CIT (A). ITA NO.27 OF 2011: 14. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINS T THE ORDER OF THE CIT (A) ON FOLLOWING GROUNDS: I) THE CIT (A) ERRED IN ADMITTING THE ADDITIONAL EVIDE NCES IN VIOLATION OF RULE 46A OF THE IT RULES AND ON THIS C OUNT THE ORDER OF THE CIT (A) MAY BE TREATED AS VOID-AB- INITIO AS REASONABLE OPPORTUNITY WAS NOT GIVEN TO THE ASSE SSING OFFICER. II) THE CIT (A) OUGHT NOT TO HAVE DELETED THE ADDITIONS WITHOUT PROVIDING A REASONABLE OPPORTUNITY TO THE ASSESSING OFFICER TO EXAMINE THE ADDITIONAL EVIDENC ES FILED BY THE ASSESSEE. NO VERIFICATION WAS CARRIED OUT BY THE CIT (A) THOUGH HIS POWERS ARE COTERMINOUS WITH THAT OF THE ASSESSING OFFICER. III) THE CIT (A) OUGHT TO HAVE SUSTAINED THE ADDITION MA DE BY THE ASSESSING OFFICER AT RS.86 45 496/- REPRESENTIN G DISALLOWANCE OF EXPENSES CLAIMED IN RESPECT OF LEAS ED OUT E.M. DIVISION AS THERE WAS NO ACTIVITY CARRIED OUT BY THE ASSESSEE. IV) THE CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER AT RS.2 08 65 110/- REPRESENTING THE AMOUNT OF BAD DEBTS WRITTEN OFF BASED ON THE ADDI TIONAL EVIDENCES FILED BY THE ASSESSEE BESIDES PLACING REL IANCE ON THE DECISION OF THE APEX COURT IN THE TRF LTD. VS. CIT ITA NOS 18 AND 27 OF 2011 JEYPORE SUGAR COMPANY LTD . CHAGALLU PAGE 8 OF 12 IN CIVIL APPEAL NO.5292 OF 2003 DATED 09-02-2010 A ND WITHOUT GIVING REASONABLE OPPORTUNITY TO THE ASSESS ING OFFICER AS REGARD THE VERACITY AND ALLOWABILITY OF ADDITIONAL EVIDENCES. V) THE CIT (A) OUGHT NOT HAVE GRANTED RELIEF OF RS.6 68 51 010/- IN RESPECT OF ADDITION MADE REPRES ENTING SUNDRY CREDITORS UPON HURRIED ACCEPTANCE OF THE ADDITIONAL EVIDENCES FURNISHED BY THE ASSESSEE AND WITHOUT OBTAINING THE VIEWS OF THE ASSESSING OFFICE R ON SUCH ADDITIONAL EVIDENCES AND WITHOUT VERIFICATION OF THE ADDITIONAL EVIDENCES HIMSELF. VI) THE CIT (A) FAILED TO APPRECIATE THE VIEW OF THE AS SESSING OFFICER WHILE DELETING THE ADDITION REPRESENTING TH E MISCELLANEOUS EXPENSES. THE CIT (A) OUGHT NOT TO HA VE GRANTED RELIEF UNDER THIS COUNT. 14.1 THE FIRST TWO GROUNDS RELATE TO NOT PROVIDING REASONABLE OPPORTUNITY TO THE ASSESSING OFFICER TO EXAMINE ADDITIONAL EVIDENC ES FILED BY THE ASSESSEE. THEREFORE THE ADMISSION OF THE SAME IS IN VIOLATIO N OF PROVISIONS OF RULE 46A OF THE IT RULES. IN THIS REGARD WE HAVE CAREFULLY EXAM INED THE ORDER OF THE CIT (A) AND IN PARA 2 OF HIS ORDER THE CIT (A) HAS CATEGOR ICALLY MENTIONED THAT WHENEVER ADDITIONAL EVIDENCE WAS FILED HE FORWARDE D TO THE ASSESSING OFFICER FOR HIS COMMENTS BUT THE ASSESSING OFFICER DID NOT OFFER HIS COMMENTS BEFORE THE DATE FIXED IN THE COVERING LETTER NOR DID HE ASK A NY TIME FROM THE CIT (A) FOR OFFERING HIS COMMENTS. AFTER CONFRONTING THE ADDITI ONAL EVIDENCES TO THE ASSESSING OFFICER THE CIT (A) HAS PROCEEDED TO EXA MINE THE EVIDENCE HIMSELF INDEPENDENTLY AS HE IS ARMED WITH CO-TERMINUS POWER OF THE ASSESSING OFFICER. WE THEREFORE FIND NO IRREGULARITY IN THE ACTION OF THE CIT (A). WE ACCORDINGLY REJECT THE GROUND NOS.1 & 2 OF THE REVENUE. 14.2 GROUND NO.3 RELATE TO THE DISALLOWANCES OF EXP ENSES OF RS.86 45 496/- CLAIMED BY THE ASSESSEE IN RESPECT OF LEASED OUT EM DIVISION. IN THIS REGARD THE FACTS BORNE OUT FROM THE RECORDS ARE THAT THE ASSES SEE HAS LEASED OUT ITS EM DIVISION TO M/S VBC FERRO ALLOYS @ MONTHLY RENTAL O F RS.18.00 LAKHS. FOR THE PURPOSE OF MAINTAINING SUCH UNITS THE ASSESSEE HAS INCURRED CERTAIN EXPENDITURE PRIMARILY TOWARDS STAFF AND EMPLOYEES WHICH IT CLAI MED AS A BUSINESS LOSS FOR THE ITA NOS 18 AND 27 OF 2011 JEYPORE SUGAR COMPANY LTD . CHAGALLU PAGE 9 OF 12 RELEVANT ASSESSMENT YEAR 2007-08. THE ASSESSING OFF ICER DECLINED TO ALLOW THE SAID LOSS FROM SUCH UNIT WHEN HE OBSERVED THAT THE ASSESSEE HAD NOT CARRIED OUT ANY BUSINESS OPERATION DURING THE RELEVANT ASSESSME NT YEAR. THE TOTAL LOSS CLAIMED BY THE ASSESSEE IN RESPECT OF SUCH UNIT WAS OF THE TUNE OF RS.2 48 45 496/- WHICH INCLUDED BAD DEBT WRITTEN OF F IN RESPECT OF SUCH UNIT IS RS.1.62 LAKHS AND AFTER SEGREGATING SUCH BAD DEBT A MOUNT THE ASSESSING OFFICER ASSESSED THE BUSINESS LOSS OF EM DIVISION AT RS.86 45 496/- AND DISALLOWED THE SAME. 14.3 THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CI T (A) WITH THE SUBMISSION INTER ALIA THAT IT IS AN ADMITTED POSITION THAT THE ASSESSEE NEVER CARRIED OUT MANUFACTURING OR BUSINESS OPERATIONS ITSELF BUT HAD LEASED OUT THE ENTIRE FACTORY TO M/S VBC FERRO ALLOYS IN CONSIDERATION OF WHICH T HE LATER HAD AGREED TO PAY LEAS RENTAL AT RS.18.00 LAKHS P.M BY THE END OF JAN UARY 2007. THOUGH THE LEASED PARTY DID NOT PAY THE LEASED RENT DURING THE IMPUGNED ASSESSMENT YEAR YET THE ASSESSEE HAD TO INCUR THE EXPENDITURE ON MA INTENANCE OF THE UNIT. THEREFORE THE EXPENDITURE WAS CLAIMED AS LOSS FOR THE UNIT. CIT (A) RE-EXAMINED THE ISSUE IN THE LIGHT OF THE ASSESSEES CONTENTION AND HAS ALLOWED THE EXPENDITURE INCURRED TOWARDS THE MAINTENANCE OF EM DIVISION BUT DIRECTED THE ASSESSING OFFICER TO ADJUST THIS EXPENDITURE AGAINS T THE RENTAL INCOME TO BE CREDITED ON ACCRUAL BASIS. 14.4 AGAINST THE ALLOWANCES OF EXPENDITURE INCURRED TOWARD THE EM DIVISION THE REVENUE HAS PREFERRED AN APPEAL BEFORE US WITH THE SUBMISSION THAT WHEN THE ASSESSEE HAS LEASED OUT THE ENTIRE UNIT TO VBC FERR O ALLOYS HE WAS NOT REQUIRED TO INCUR ANY EXPENDITURE TO MAINTAIN THE UNIT. THER EFORE THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE SAME. 14.5 THE LD COUNSEL FOR THE ASSESSEE ON THE OTHER H AND HAS SUBMITTED THAT THE ASSESSEE HAS MAINTAINED THE STAFF ON THIS DIVISION EVEN THOUGH THE UNIT WAS LEASED OUT TO THE VBC FERRO ALLOYS. IT WAS THE LIAB ILITY OF THE ASSESSEE TO MAINTAIN ITA NOS 18 AND 27 OF 2011 JEYPORE SUGAR COMPANY LTD . CHAGALLU PAGE 10 OF 12 THE UNIT. MOREOVER THE LESSEE VBC FERRO ALLOYS DID NOT RUN ITS BUSINESS OF MANUFACTURING ON ACCOUNT OF CERTAIN DISPUTE WITH TH E ELECTRICITY DEPARTMENT AND FOR THIS REASON HE NEITHER PAID LEASE RENT TO THE ASSESSEE NOR INCURRED ANY EXPENDITURE TO MAINTAIN THE UNIT. SINCE THE UNIT BE LONGS TO THE ASSESSEE IT IS THE RESPONSIBILITY OF THE ASSESSEE TO MAINTAIN THE UNIT IN TACT AND TO INCUR THE EXPENDITURE ON ITS STAFF. THE REVENUE HAS NOT POINT ED OUT ANY ERROR OR IRREGULARITIES IN THE ACCOUNTS MAINTAINED WITH RESP ECT TO THE EXPENDITURE INCURRED FOR THE MAINTENANCE OF EM DIVISION. 14.6 HAVING CAREFULLY GONE THROUGH THE ORDER OF THE LOWER AUTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS WE FIND THAT THE AS SESSING OFFICER HAS SIMPLY DISALLOWED THE EXPENSES INCURRED ON MAINTENANCE OF EM DIVISION. HE HAS NOT POINTED OUT ANY IRREGULARITIES IN THE MAINTENANCE O F THE ACCOUNTS RELATING TO THE EXPENDITURE INCURRED IN MAINTENANCE OF THE UNIT. IT IS ALSO EVIDENT FROM THE RECORD THAT THE LESSEE VBC FERRO ALLOYS DID NOT RUN ITS BUSINESS OF MANUFACTURING ON ACCOUNT OF DISPUTE WITH THE ELECTRICITY DEPARTME NT. IT IS ALSO EVIDENT FROM THE RECORD THAT THE LEASED RENTAL WAS NOT PAID BY THE L ESSEE TO THE ASSESSEE. THEREFORE THERE WAS NO QUESTION OF MAINTENANCE OF THE ENTIRE DIVISION BY THE LESSEE. SINCE THE DIVISION BELONGS TO THE ASSESSEE IT WAS HIS RESPONSIBILITY TO MAINTAIN THE SAME. THEREFORE THE EXPENDITURE CLAIM ED BY THE ASSESSEE ON MAINTENANCE OF EM DIVISION SHOULD NOT BE DOUBTED UN LESS AND UNTIL ANY DEFECTS OR IRREGULARITIES ARE POINTED OUT BY THE REVENUE. W E THEREFORE FIND NO MERIT IN THE CONTENTION OF THE LD DEPARTMENTAL REPRESENTATIV E. WE ACCORDINGLY CONFIRM THE ORDER OF THE CIT (A) IN THIS REGARD. 15. GROUND NO.4 RELATES TO THE WRITING OFF OF THE B AD DEBTS. IN THIS REGARD WE FIND FROM THE ORDER OF THE CIT (A) THAT HE HAS ALLO WED THE WRITING OF THE BAD DEBT FOLLOWING THE JUDGMENT OF THE APEX COURT IN TH E CASE OF TRF LTD. VS. CIT (323 ITR 397). THROUGH THE JUDGMENT IT HAS BEEN M ADE IT CLEAR THAT ONCE OTHER CONDITIONS OF SEC.36(2) ARE FULFILLED THE CLAIM OF BAD DEBT HAS TO BE ALLOWED IF IT IS DULY WRITTEN OFF IN THE BOOKS OF ACCOUNTS. UNDIS PUTEDLY THIS BAD DEBT WAS DULY ITA NOS 18 AND 27 OF 2011 JEYPORE SUGAR COMPANY LTD . CHAGALLU PAGE 11 OF 12 WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSE E AND THE OTHER CONDITIONS OF 36(2) ARE FULFILLED. THEREFORE WE FIND NO INFIRMIT Y IN THE ORDER OF THE CIT (A) BY ALLOWING THE WRITING OFF OF BAD DEBT. WE ACCORDINGL Y CONFIRM HIS ORDER. 16. GROUND NO.5 RELATE TO THE ADDITION ON ACCOUNT O F SUNDRY CREDITORS. FROM A CAREFUL PERUSAL OF THE ORDER OF THE LOWER AUTHORITI ES WE FIND THE ASSESSING OFFICER HAS DISALLOWED AN AMOUNT OF RS.6 68 51 010/- OUTSTA NDING AGAINST VARIOUS TRADE CREDITORS ON ACCOUNT OF NON FURNISHING OF SUPPORTIN G EVIDENCE OR CONFIRMATION LETTERS. BEFORE THE CIT (A) THE ASSESSEE HAS FURNIS HED THE CONFIRMATION LETTERS AND COPIES OF LEDGER ACCOUNTS OF THE VARIOUS TRADE CREDITORS. ALL THESE EVIDENCES WERE CONFRONTED WITH THE ASSESSING OFFICER BUT THE ASSESSING OFFICER DID NOT POINT OUT ANY DEFECTS THEREIN BY SUBMITTING ANY REM AND REPORT. THE CIT (A) HIMSELF HAS EXAMINED ALL THE CONFIRMATION LETTERS A ND COPIES OF LEDGER ACCOUNTS OF VARIOUS CREDITORS AND HAVING SATISFIED WITH THE SAME HE DELETED THE ADDITION. NOW THE REVENUE IS IN APPEAL BEFORE US WITH THE SUB MISSIONS THAT THE CIT (A) SHOULD NOT HAVE ACCEPTED THE ADDITIONAL EVIDENCES F ILED BEFORE HIM. THE ADDITIONAL EVIDENCED FILED BEFORE HIM WERE NOT PROP ERLY EXAMINED BY THE ASSESSING OFFICER. 17. THE LD COUNSEL FOR THE ASSESSEE ON THE OTHER HA ND HAS SUBMITTED THAT ALL THESE EVIDENCES WERE FILED BEFORE THE CIT (A) AND T HEREAFTER HAVING CONFRONTING THE SAME TO THE ASSESSING OFFICER THE CIT (A) EXAM INED THESE EVIDENCES HIMSELF AND BEING SATISFIED WITH IT HE ALLOWED THE CLAIM O F THE ASSESSEE. THEREFORE THERE IS NO IRREGULARITY IN THE ORDER OF THE CIT (A). 18. HAVING CAREFULLY EXAMINED THE ORDER OF THE LOWE R AUTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS WE FIND THAT THE ASSESSING OFFIC ER HAS MADE AN ADDITION OF THESE CREDITORS FOR THE REASON THAT THE REQUISITE E VIDENCE WAS NOT FILED BEFORE HIM. BEFORE THE CIT (A) THE ASSESSEE HAS FILED CONF IRMATION LETTERS AND THE COPIES OF ITS ACCOUNT OF THE TRADE CREDITORS. THE CIT (A) CONFRONTED THE SAID EVIDENCE TO THE ASSESSING OFFICER BUT THE ASSESSING OFFICER DID NOT POINT OUT ANY DEFECT ITA NOS 18 AND 27 OF 2011 JEYPORE SUGAR COMPANY LTD . CHAGALLU PAGE 12 OF 12 THEREIN. THEREAFTER THE CIT (A) HAS HIMSELF EXAMINE D THE EVIDENCE AND BEING CONVINCED WITH IT HE ALLOWED THE CLAIM OF THE ASSE SSEE AFTER TREATING IT TO BE THE GENUINE CREDITORS. DURING THE COURSE OF HEARING NO DEFECT HAS BEEN POINTED OUT BY THE REVENUE IN THESE TRADE CREDITS. WE THEREFORE FIND NO INFIRMITY IN THE ORDER OF THE CIT (A). WE ACCORDINGLY CONFIRM THE SAME. 19. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 4.7.2011. SD/- SD/- (BR BASKARAN) (SUNIL K UMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PVV/SPS VISAKHAPATNAM DATE: 4 TH JULY 2011. COPY TO 1 M/S THE JEYPORE SUGAR COMPANY LTD. D.NO.6/69 CHAGA LLU 534 342 WEST GODAVARI DISTT. 2 3 THE DY.COMMISSIONER OF INCOME TAX CENTRAL CIRCLE - 1 VISAKHAPATNAM THE ACIT CIRCLE-1 RAJAHMUNDRY 4 5. THE CIT RAJAHMUNDRY THE CIT(A) RAJAHMUNDRY 6 THE DR ITAT VISAKHAPATNAM. 7 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM