THE ADIT(IT)-3(2), MUMBAI V. M/S. BANK INTERNATIONAL INDONESIA, MUMBAI

ITA 1003/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1025 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: L1
• Next Hearing Date: 31-05-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 11-02-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R S SRIVASTAVA
• Assessee Lawyers: TEJAS MEHTA
• Keywords: Retrospective amendment; Bad and doubtful debts; Set aside
• Section: 115JB; 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L-1 MUMBAI BEFORE SHRI P.M. JAGTAP (AM) AND SMT. ASHA VIJAYA RAGHAVAN (JM) ITA NO. 1003/MUM/2008 ASSESSMENT YEAR-2004-05 THE ADIT (IT)-3(2), SCINDIA HOUSE, N.M. ROAD, MUMBAI -400 038 VS. BANK INTERNATIONAL INDONESIA, AMARCHAND MANSION, GROUND FLOOR, MADAM CAMA ROAD COLABA, MUMBAI-400 039 PAN-AAATB0658D (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI R.S. SRIVASTAVA RESPONDENT BY: SHRI TEJAS MEHTA O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER DT. 28.11.2007 PASSED BY THE LD. CIT(A)-XXXIII, MUM BAI FOR THE ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE BANK IS OPERATING IN THE FIELD OF C ORPORATE BANKING AS WELL AS RETAIL BANKING IN INDIA. WHILE COMPLETING THE ASSESSMENT U/S. 143(1) OF THE I.T. ACT, THE ASSESSING OFFICER HELD AS FOLLOWS: ON GOING THROUGH THE COMPUTATION OF TOTAL INCOME U NDER THE PROVISIONS OF MINIMUM ALTERNATE TAX U/S. 115JB, IT IS SEEN THAT THE ASSESSEE HAS NOT ADDED THE FOLLOWING PROVISIONS I N THE BOOK PROFITS WITHIN THE MEANING OF SECTION 115JB OF THE I.T. ACT. I) PROVISION FOR COUNTRY RISK RS. 33,000 II) PROVISION FOR STANDARD DEBTS RS. 44,829 III) PROVISION FOR DOUBTFUL DEBTS RS.28,87,501 HOWEVER, EXPLANATION (C) TO SEC. 115JB CLEARLY PR OVIDES THAT NET PROFITS AS SHOWN IN PROFIT AND LOSS ACCOUNT SHOULD BE INCREASED BY THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MADE FOR MEETING ITA NO. 1003/M/08 2 LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES FO R COMPUTATION OF BOOK PROFIT. IN THIS CONNECTION, IT MAY BE NOTED THAT THE INTENT ION OF LEGISLATURE IN ENACTING THE PROVISIONS OF MAT IS TO TAX THE BOOK PROFITS FOR THE RELEVANT YEAR AT A MINIMUM RATE OF TAXATION AND THEREFORE ALL THE PROVISIONS MADE WERE REQUIRED TO BE ADDED FOR A RRIVING AT THE FIGURE OF BOOK PROFIT. IT IS APPARENT THAT THE PROVISION MADE FOR DOUBTFUL DEBT WAS NOT FOR ASCERTAINED LIABILITIES, BUT WAS TOWARDS CONTINGENT LIABILITY. DURING THE END OF THE RELEV ANT ACCOUNTING YEAR, THE COMPANY WAS MAKING ALL EFFORTS TO RECOVER THE D UES AND THAT IS WHY IT HAS NOT WRITTEN OFF THE DEBTS, BUT HAS JUST MADE A PROVISION FOR THE SAME. ALSO THE FACT THAT THE PARTYS ACCO UNTS HAVE NOT BEEN WRITTEN OFF SHOWS THAT LIABILITY WAS NOT ASCERTAINE D. THE ISSUE OF WHETHER THE PROVISIONS FOR DOUBTFUL D EBTS SHOULD BE ADDED FOR PURPOSE OF COMPUTATION OF BOOK PROFIT HAS BEEN DECIDED IN FAVOUR OF REVENUE BY THE MADRAS HIGH COURT IN TH E CASE OF DCIT VS. BEARDSELL LTD. (162 CTR 467), WHEREIN THE HONB LE COURT HAS HELD THAT THE ASSESSING OFFICER IS JUSTIFIED IN ADD ING THE PROVISIONS FOR DOUBTFUL DEBTS EVEN WHILE CARRYING OUT THE PRI MA FACIE ADJUSTMENTS U/S.143(1)(A) OF THE I.T. ACT. THE BO MBAY HIGH COURT IN THE CASE OF CIT VS. ECHJAY FORGINGS (P) LTD.(116 TAXMAN 322) HAS ALSO HELD THAT PROVISIONS FOR DOUBTFUL DEBTS IS A L IABILITY THOUGH THE CASE WAS DECIDED IN FAVOUR OF THE ASSESSEE SINCE TH E REVENUE HAS NOT DISPUTED THE CONTENTION OF THE ASSESSEE THAT SU CH PROVISIONS WERE FOR ASCERTAINED LIABILITY. IN VIEW OF THE ABOVE DISCUSSION, THE PROVISIONS AS MENTIONED ABOVE ARE TAKEN INTO CONSIDERATION FOR COMPUTATION OF BO OK PROFIT U/S.115JB OF THE I.T. ACT. 3. ON FURTHER APPEAL, THE LD. CIT(A) FOLLOWING THE DECISION OF THE HONBLE ITAT MUMBAI BENCH IN THE CASE OF MAHARASHTR A STATE ELECTRICITY BOARD VS JCIT 77 TTJ 33 HAS DIRECTED THE AO TO DELE TE THE ADDITION OF RS. 28,87,501/- TOWARDS PROVISION FOR DOUBTFUL DEBT S AND RS. 44,829/- TOWARDS PROVISION FOR STANDARD DEBTS FROM THE BOOK PROFITS DETERMINED IN THE ASSESSMENT ORDER. 4. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US AND R AISED THE FOLLOWING GROUND: ITA NO. 1003/M/08 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO DELETE THE ADDITION OF I) PROVISION FOR DOUBTFUL DEBTS -RS. 28,87,502/- II) PROVISION FOR STANDARD DEBT -RS. 44,829/- DETERMINED IN THE ASSESSMENT ORDER, ONLY RELYING ON THE DECISION OF ITAT IN THE CASE OF MSEB (77 TTJ 33) , WHEREIN THE HONBLE ITAT HAS STATED THAT PROVISION FOR BAD AND DOUBTFUL DEBTS REPRESENTS A RESTATEMENT OF VALUE OF ASSETS AND NOT A LIABILITY, IGNORING THE AOS FINDING. 5. PRIOR TO THE AMENDMENT BY THE FINANCE (NO.2) ACT , 2009 WITH RETROSPECTIVE EFFECT FROM 1.4.2001, THE ISSUE WAS C OVERED BY THE DECISION IN THE CASE OF CIT VS HCL COMNET SYSTEMS & SERVICE S LTD. 305 ITR 409 WHEREIN IT HAS BEEN HELD AS FOLLOWS : ITEM (C) OF THE EXPLANATION TO SEC. 115JA IS NOT A TTRACTED TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS. THE PROV ISION FOR BAD AND DOUBTFUL DEBTS IS MADE TO COVER UP PROBABLE DIMINUTION IN THE VALUE OF THE ASSETS, I.E. A DEBT WHICH IS AN AMOUNT RECEIVABLE BY THE ASSESSEE. SUCH A PROVISIO N CANNOT BE SAID TO BE A PROVISION FOR A LIABILITY, BECAUSE EVEN IF THE DEBT IS NOT RECOVERABLE NO LIABILITY CAN BE FASTENE D ON THE ASSESSEE. ANY PROVISION MADE TOWARDS IRRECOVERABIL ITY OF A DEBT CANNOT BE SAID TO BE A PROVISION FOR LIABILITY . 6. AFTER THE SUBSTITUTION IN EXPLANATION 1(I) TO SE C. 115JB BY THE FINANCE (NO.2) ACT, 2009 WITH RETROSPECTIVE EFFECT FROM 1.4.2001 WHICH IS AS FOLLOWS: IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (H) IS DEBITED TO THE PROFIT AND LOSS ACCOUNT, AND AS REDUCED BY- 7. AFTER THE AMENDMENT, THE DECISION OF HCL COMNET SYSTEMS & SERVICES LTD. (SUPRA) IS NO MORE GOOD LAW. THEREFO RE, PROVISION FOR DOUBTFUL DEBTS AND PROVISION FOR STANDARD DEBTS AR E TO BE TAKEN INTO ITA NO. 1003/M/08 4 CONSIDERATION FOR COMPUTATION OF BOOK PROFIT U/S. 1 15JB OF THE I.T. ACT. HENCE, WE ALLOW THE APPEAL OF THE REVENUE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S ALLOWED. ORDER PRONOUNCED ON THIS 23 RD DAY OF JULY, 2010 SD/- SD/- (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 23 RD JULY, 2010 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR L-1 BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 1003/M/08 5 DATE INITIALS 1 DRAFT DICTATED ON: 15.7.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 1 9 .7 .2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/ PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______