Commissioner of Income Tax, Delhi - IV vs Excel Fashion (P.) Ltd.

V.B. Gupta, J.—This appeal has been filed by the revenue u/s 260A of the income tax Act, 1961 (for short as ''Act'') against the order dated 5-9-2005 passed by income tax Appellate Tribunal (in short as ''Tribunal'') in ITA No. 1260/Del./2002 for the assessment year 1994-95. Vide impugned order, the Tribunal allowed deduction of Rs. 3,58,563 u/s 361(1)(vii) of the Act on account of export incentives which became irrecoverable during the year under consideration. The Tribunal also allowed the liability of Rs. 14,35,072 payable to Old Village Industries Ltd. by inter alia holding that there was no good reason brought on record by the Assessing Officer to doubt genuineness of the liability.

Brief facts of the case are that assessee in three assessment years i.e. 1989-90 to 1991-92 credited a sum of Rs. 5,80,527 in its Profit & Loss account on the basis of mercantile system of accounting. However, the assessee received a sum of Rs. 2,21,964 only against such provision. The balance of Rs. 3,58,563 not received by him was considered as irrecoverable and the same stood written off for the year under consideration. The Assessing Officer disallowed the claim as the assessee gave different explanation and no document was filed in support of the claim.

The Commissioner of income tax (Appeals) allowed the claim of the assessee u/s 36(1)(vii) of the Act.

Further, the assessee had to recover a sum of Rs. 5,64,928 from its associate concern Ovil. Since the assessee had to execute certain export orders, it made a request to the said concern to give payment of Rs. 20 lakhs. The request of the assessee was acted upon by M/s. Ovil and the payment was remitted by M/s. Apollo International Enterprises (P.) Ltd. The assessee credit the amount of M/s. Ovil for the amount received from M/s. Apollo International Enterprises (P.) Ltd. The Assessing Officer was not satisfied about the genuineness of the transaction and as such made the addition of Rs. 14,35,072 by holding that the liability remained unproved.

On appeal, the Commissioner (Appeals) deleted the addition made by the Assessing Officer.

As far as deduction of Rs. 3,58563 is concerned, the Tribunal held that the assessee has taken the aforesaid amount as part of its income of earlier years and this amount which became irrecoverable, stood written off, the essentials of section 36(1)(vii) stood satisfied and upheld the decision of the Commissioner (Appeals).

We find no infirmity in the reasoning given by the Tribunal and as such no substantial question of law with regard to the deduction of Rs. 3,58,563 is involved and appeal filed by the revenue on this issue is dismissed.

With regard to the issue of deleting the addition of Rs. 14,35,072, we are of the opinion that following substantial question of law arises for our consideration.

"(1) Whether the Tribunal was justified in law in deleting the addition of Rs. 14,35,072 made by the Assessing Officer u/s 68 of the Act on account of unexplained liability?"

Paper books be filed in accordance with the High Court Rules. List the matter in due course.