Commissioner of Income Tax and Another vs Modi Xerox Limited (No. 1)

Heard Sri A.N. Mahajan, learned standing counsel and Sri R.R. Agrawal, learned counsel appearing on behalf of respondent. At the instance of the Revenue, the following substantial questions of law arising from the order of the Tribunal dated June 26, 2000, relating to the assessment year 1990-91, have been raised.

(1) Whether, on the facts and in the circumstances of the case, the learned income tax Appellate Tribunal was legally justified in allowing the assessee''s claim for deduction to the extent of Rs. 6,84,520 on account of rent paid to the hotel close to the factory at Rampur and transit house in contravention of the provisions of section 37(4) read with section 37(5) of the income tax Act, 1961 ?

(2) Whether, on the facts and in the circumstances of the case, the learned income tax Appellate Tribunal was legally correct in deleting the addition of Rs. 1,47,831 towards payment of membership of club even though there is no material on record to substantiate that the expenditure is commercially expedient for the business of the assessee as required by the provisions of section 37(1) of the income tax Act ?

(3) Whether, on the facts and in the circumstances of the case, the learned income tax Appellate Tribunal was legally justified in deleting the addition of Rs. 34,09,937 on account of bad debts in the absence of any efforts for the realization of amount in the light of the provisions contained in section 36(2) read with section 36(1)(vii) of the income tax Act without contemplation of subsequent realization ?

(4) Whether, on the facts and in the circumstances of the case, the learned income tax Appellate Tribunal was legally justified in directing the Assessing Officer to allow the claim of amount of Rs. 19,01,035 u/s 43B of the income tax Act without appreciating the material available on record ?

The appellant is a public company. It is engaged in the business of manufacture and sale of photo copiers and toner, etc.

The counsel for both sides fairly admitted that questions Nos. (1) and (2) involved in the present appeal are covered by the decision of this court in the case of assessee itself in income tax Appeal No. 225 of 1999 (CIT v. Modi Xerox Ltd.) decided on May 14, 2009.

So far question No. 1 is concerned, this court held that the Tribunal was not justified in allowing the claim for deduction on account of the rent paid by the assessee to the M/s. Modipur Hotels (P) Ltd. and transit house as it contravened the provisions of section 37(4) read with section 37(5) of the Act.

Respectfully, following the aforesaid decision of this court, question No. (1) is answered in favour of the Revenue and against the assessee. The order of the Tribunal is accordingly set aside to this extent.

So far question No. 2 is concerned, this court held as follows:

Coming to the question as to whether the payment made by the assessee towards the membership of the club is an allowable deduction, we find that the expenditure was incurred in order to procure business. Whether the assessee was successful in getting any business or not is not the question. The intention has to be seen as the amount was spent towards advancement of business. It is a business expenditure and, therefore, has rightly been allowed as it is not specifically covered by any statutory provision wherein it has to be disallowed.

Respectfully, following the view taken by this court, as stated above, the question is answered in favour of the assessee and against the Revenue. The order of the Tribunal is accordingly upheld in this regard.

So far question No. 3 is concerned, the Tribunal held as follows:

We have considered the rival submissions. The assessee has a wide network of after sales service having more than 30,000 xerox machines on its annual maintenance agreement rolls. The assessee levies service charges on the basis of number of copies taken out from the machine. There is a digital meter in all the machines which counts the number of copies taken out of the machine. Some times dispute arises regarding the amount of service charges and looking to the past relations with the customers short recoveries are made. As the assessee thought that it was uneconomical to file suits against such defaulting clients no suits were filed. But this alone cannot be a ground for disallowing the claim of bad debts. After amendment to the provisions of section 36(2) read with section 36(1)(vii) of the Act if the amount has been considered for computation of income in the earlier years and the debt has been written off in the books of account it was sufficient to allow the claim of bad debts. In the case of the assessee both the conditions were fulfilled. It was under these circumstances that the Commissioner of income tax (Appeals) allowed relief. His finding is in accordance with the provisions of law and accordingly no interference is called for. We, therefore, uphold his order and dismiss the ground of appeal raised by the Revenue.

The apex court in Civil Appeal No. 5293 of 2003 (T. R. F. Ltd. v. CIT) decided on February 9, 2010, reported in TRF (T.R.F.) Limited Vs. Commissioner of Income Tax, Ranchi, has considered the question of deduction for bad debts with reference to section 36(1)(vii) of the Act. The apex court held that after April 1, 1989, the position has been altered by deleting the word "established" which existed earlier in section 36(1)(vii) of the Act and after April 1, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. In the present case, the Tribunal has recorded a categorical finding that the assessee has complied with both the requirements, namely, that the amount has been considered for computation of income in the earlier years and the debt has been written off in the books of account. The finding of the Tribunal is finding of fact.

We do not see any error in the view taken by the Tribunal which is in conformity with the law laid down by the apex court, referred to hereinabove.

So far question No. 4 is concerned, both the counsel agree that the issue involved is squarely covered by the decision of apex court in the case of Berger Paints India Ltd. Vs. Commissioner of Income Tax, Calcutta, wherein the apex court has held that the entire amount of excise duty/customs duty paid by the assessee in a particular accounting year is allowable u/s 43B of the income tax Act, 1961, as a 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.

In view of the law laid down above, we do not find any error in the order of the Tribunal. The question is accordingly answered in favour of the assessee. The order of the Tribunal is upheld in this regard. In the result, the appeal is allowed in part.