The ACIT, Circle -1(1), Baroda V. Deepak Nitrite Ltd., Baroda

ITA 1067/AHD/2005

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8913 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 23-09-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 08-04-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: U S RAINA
• Keywords: Retrospective amendment; Bad and doubtful debts; Set aside
• Section: 43B; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH D DD D BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI T.K.SHARMA T.K.SHARMA T.K.SHARMA T.K.SHARMA, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER AND AND AND AND SHRI N.S. SAINI, ACCOUNTANT MEMBER SHRI N.S. SAINI, ACCOUNTANT MEMBER SHRI N.S. SAINI, ACCOUNTANT MEMBER SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING: 23.09.09 DRAFTED ON: 24.09.09 ITA NO.1067/AHD/2005 ASSESSMENT YEAR : 2001-02 ACIT, CIRCLE-1(1), BARODA. VS. DEEPAK NITRITE LTD. 9/10, KUNJ SOCIETY, ALKAPURI, BARODA. PAN/GIR NO. : AAA CD 7468 A (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI U.S.RAINA, SR. D.R. RESPONDENT BY: WRITTEN SUBMISSION O R D E R O R D E R O R D E R O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD.CIT(APPEALS)-III, BARODA, DATED 06.01.2005. ITA NO. 1067/AHD/2005 M/S.DEEPAK NITRITE LTD. ASST.YEAR -2001-02 - 2 - 2. GROUND NO.1 OF THE APPEAL RELATES TO DELETING ADDITION OF RS.5,20,753/- MADE ON ACCOUNT OF DISALLOWANCE OF PROVISIONS MADE IN RESPECT OF LEAVE ENCASHMENT. 3. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS DECIDED THE ISSUE AS UNDER:- 2. FIRST GROUND OF APPEAL PERTAINS TO DISALLOWANCE OF PROVISION MADE AN ACCOUNT OF LEAVE ENCASHMENT OF RS.5,20,753/-. THE A.O. NOTED THAT A PROVISION OF RS.5,20,753/- ON ACCOUNT OF LEAVE ENCASHMENT AS PER ACTURIAL VALUATION WAS MADE ON 31-3-2001 IN THE BOOKS OF ACCOUNTS AND DEBITED TO THE PROFIT AND LOSS ACCOUNT. ACCORDING TO THE A.O, IN VIEW OF AMENDMENT TO SECTION 43B(F) WHICH WAS CLARIFICATORY IN NATURE, CLAIM OF THE APPELLANT WAS NOT ALLOWABLE, AS THE APPELLANT WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE A.O ACCORDINGLY, DISALLOWED THE CLAIM OF THE APPELLANT. 2.1 THE APPELLANT HAS SUBMITTED THAT CLAIM ON ACCOUNT OF PROVISION FOR LEAVE ENCASHMENT IS ALLOWABLE IN VIEW OF SUPREME COURT DECISION IN THE CASE OF BHARAT EARTH MOVERS LTD.245 ITR OF BHARAT EARTH MOVERS LTD.245 ITR OF BHARAT EARTH MOVERS LTD.245 ITR OF BHARAT EARTH MOVERS LTD.245 ITR 428. 428. 428. 428. THE A.O HAS MADE THE DISALLOWANCE IGNORING THE SUPREME COURT DECISION ON THE GROUND THAT SECTION 43B HAS BEEN AMENDED WITH EFFECT FROM A.Y.2002-03 AND THE AMENDED PROVISIONS WILL BE APPLICABLE EVEN TO THE EARLIER ASSESSMENT YEARS. IT IS SUBMITTED THAT THE TEXT OF THE AMENDMENT DOES NOT MENTION ABOUT ANY WORDS OR EXPRESSION WHICH WILL SUGGEST THAT THE AMENDMENT IS CLARIFICATORY IN NATURE. THE APPELLANT HAS, ITA NO. 1067/AHD/2005 M/S.DEEPAK NITRITE LTD. ASST.YEAR -2001-02 - 3 - THEREFORE, REQUESTED THAT THE DISALLOWANCE MADE BY THE A.O BE DELETED AS THERE WAS NO JUSTIFICATION FOR MAKING THE DISALLOWANCE. 2.2 I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND THE FACTS OF THE CASE. I AGREE WITH THE VIEW OF THE COUNSEL OF THE APPELLANT THAT AMENDMENT IN SECTION 43B(F) IS PROSPECTIVE IN NATURE AND THE AMENDED PROVISIONS WILL APPLY TO A.Y.2002-03 ONWARDS. AS THE ASSESSMENT YEAR UNDER CONSIDERATION IS A.Y. 2002-03, APPELLANT'S CASE IS BY THE SUPREME COURT DECISION AS AFORESAID. FOLLOWING THIS, I HOLD THAT PROVISION OF RS.5,20,753/- MADE ON ACCOUNT OF LEAVE ENCASHMENT IN THE BOOKS OF ACCOUNT WILL BE ALLOWABLE AS DEDUCTIBLE EXPENDITURE. THE DISALLOWANCE IS, THEREFORE, DELETED. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 5. THE LEARNED ASSESSEE IN THE WRITTEN SUBMISSION FILED RELIED ON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, PROVISION FOR LEAVE SALARY MADE ON 31.03.2001 ON THE BASIS OF ACTUARIAL VALUATION WAS DISALLOWED BY THE LEARNED ASSESSING ITA NO. 1067/AHD/2005 M/S.DEEPAK NITRITE LTD. ASST.YEAR -2001-02 - 4 - OFFICER ON THE GROUND THAT AMENDMENT TO SECTION 43B(F) WAS CLARIFICATORY IN NATURE AND APPLICABLE FOR ASSESSMENT YEAR 2001-02 ALSO. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OPINED THAT CLAUSE (F) IN SECTION 43B WAS INSERTED W.E.F. 1.04.2002 AND THEREFORE, WAS APPLICABLE FOR THE ASSESSMENT YEAR 2002-03 AND SUBSEQUENT YEARS AND THE SAME IS NOT APPLICABLE FOR THE ASSESSMENT YEAR IN QUESTION I.E. ASSESSMENT YEAR 2001-02. WE FIND THAT CLAUSE (F) WAS INSERTED IN SECTION 43B W.E.F. FROM 1.04.2002. NO MATERIAL WAS BROUGHT ON RECORD BY THE LEARNED ASSESSING OFFICER IN THE ASSESSMENT ORDER OR BY THE LEARNED DEPARTMENTAL REPRESENTATIVE BEFORE US TO SHOW THAT THE ABOVE INSERTION WAS ONLY CLARIFICATORY IN NATURE AND EVEN THOUGH THE LEGISLATURE HAS MADE IT APPLICABLE W.E.F. 1.04.2002, IT SHALL APPLY F OR THE ASSESSMENT YEAR 2001-02 ALSO. IN OUR CONSIDERED VIEW, NORMAL PRESUMPTION IS IN FAVOUR OF PROSPECTIVE OPERATION OF AN AMENDED LAW. WE THEREFORE, DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE AND ACCORDINGLY THE SAME IS DISMISSED. ITA NO. 1067/AHD/2005 M/S.DEEPAK NITRITE LTD. ASST.YEAR -2001-02 - 5 - 7. GROUND NO.2 OF THE APPEAL RELATES TO EXCLUDING RS.2,40,000/- BEING WEALTH TAX LIABILITY WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 8. GROUND NO. 3 OF THE APPEAL IS DIRECTED AGAINST THE DIRECTION OF LEARNED ASSESSING OFFICER TO EXCLUDE RS.33,01,115/- BEING PROVISION OF DOUBTFUL DEBTS FOR COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 9. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS DECIDED THE ISSUE AS UNDER:- 5. GROUND NO.4 OF APPEAL PERTAINS TO COMPUTATION OF BOOK PROFIT U/S.115JB. THE A.O WHILE COMPUTING THE PROFIT U/S.LLSJB, ADDED THE FOLLOWING AMOUNTS IN THE BOOK PROFIT : (I) WEALTH-TAX : RS. 2,40,0007/- (II) PROVISION FOR DOUBTFUL DEBTS : RS.33,0 1,1157- (III) NOT REDUCING THE BOOKS PROFITS BY REVERSAL OF PROVISION OF RETIREMENT BENEFITS : RS.10,48,7797- THE A.O WAS OF THE VIEW THAT PROVISIONS FOR DOUBTFUL DEBTS WAS NOT A LIABILITY OF THE APPELLANT AND THIS AMOUNT WAS ALSO NOT WRITTEN OFF AS BAD DEBT IN BOOKS OF ACCOUNTS AS PER PROVISIONS OF SECTION 36(L)(III). FURTHER, PROVISION FOR DOUBTFUL DEBTS WAS NOT AN ASCERTAINED LIABILITY AND THEREFORE, THIS CLAIM COULD NOT BE REDUCED ITA NO. 1067/AHD/2005 M/S.DEEPAK NITRITE LTD. ASST.YEAR -2001-02 - 6 - FROM THE BOOK PROFIT FOR THE PURPOSE OF CALCULATION OF INCOME UNDER MAT. THE A.O ACCORDINGLY ADDED THIS AMOUNT TO THE BOOK PROFIT. THE A.O ALSO ADDED WEALTH-TAX AMOUNTING TO RS.2,40,000/- IN THE COMPUTATION OF BOOK PROFIT ON THE GROUND THAT PAYMENT OF WEALTH-TAX IS A PERSONAL LIABILITY OF THE ASSESSEE / LIKE INCOME - TAX ETC. THE A.O ACCORDINGLY CALCULATED THE BOOK PROFIT AT RSLO,49,78,842/- AND TAXED 7.5% OF THIS BOOK PROFIT I.E RS.78,73,413/-. 5.1 THE APPELLANT HAS SUBMITTED THAT ADDITION OF RS.10,48,779/- MADE ON ACCOUNT OF PROVISION OF RETIREMENT BENEFIT AS AFORESAID IS NOT PRESSED. HOWEVER, AS REGARDS THE ADDITION OF WEALTH-TAX OF RS.2,40,000/-TO THE BOOK PROFIT COMPUTED U/S.115JB, IT IS SUBMITTED THAT THERE IS NO SPECIFIC MENTION IN SECTION 115JB OF WEALTH-TAX TO BE ADDED IN THE BOOK PROFIT. THE A.O IS ONLY AUTHORIZED TO ADD INCOME-TAX PAYABLE OR PAID FOR THE PURPOSE OF DETERMINING OF BOOK PROFIT. ACCORDINGLY, THIS ADDITION TO THE BOOK PROFIT IS REQUIRED TO BE DELETED. REGARDING ADDITION OF RS.33,01,115/- ON ACCOUNT OF DOUBTFUL DEBTS, IT IS SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE APPELLANT BY APPELLATE ORDER OF CIT(A) FOR A.YS.1998-99 AND 1999-2000. THE APPELLANT HAS, THEREFORE, REQUESTED THAT THE A.O BE DIRECTED TO DELETE THE AMOUNT OF RS.2,40,000/- ON ACCOUNT OF WEALTH-TAX AND RS.33,01,115/- TOWARDS PROVISION OF DOUBTFUL DEBTS FROM THE BOOK PROFIT DETERMINED BY A.O U/S.LLSJB. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT. SECTION 115JB READ WITH EXPLANATION PROVIDES THAT FOR THE PURPOSE OF ITA NO. 1067/AHD/2005 M/S.DEEPAK NITRITE LTD. ASST.YEAR -2001-02 - 7 - CALCULATION F BOOK PROFIT ANY AMOUNT OF INCOME-TAX PAID OR PAYABLE AND INCOME-TAX PROVISION IS TO BE ADDED TO THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT THERE IS NO MENTION WHATSOEVER OF THE WEALTH-TAX IN THE EXPLANATION. THEREFORE, 1 AGREE WITH THE VIEW OF COUNSEL OF THE APPELLANT WEALTH TAX AMOUNT OF RS.2,40,000/- CAN NOT BE ADDED TO THE NET PROFIT FOR THE PURPOSE OF DETERMINING OF BOOK PROFIT. THE A.O IS DIRECTED TO EXCLUDE RS.2,40,000/- FROM THE BOOK PROFIT. FURTHER ADDITION OF RS.33,01,115/- ON ACCOUNT OF PROVISION OF DOUBTFUL DEBTS FOR CALCULATING THE BOOK PROFIT U/S.115JB IS COVERED BY THE C1T(A) IN THE APPELLATE ORDER FOR A.Y.1999-2000. VIDE PARA 12.4 OF HER APPELLATE ORDER, THE C1T(A) HAS DELETED SIMILAR ADDITION MADE TO THE BOOK PROFIT . AS THE ISSUE IS IDENTICAL, THEREFORE, 1 DIRECT THE A.O TO EXCLUDE THE AMOUNT OF RS.33,01,115/- FROM THE BOOK PROFIT U/S.115JB. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER. 11. THE ASSESSEE FOR GROUND NO.2 OF HIS APPEAL IN THE WRITTEN SUBMISSION SUPPORTED THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 12. AS REGARDS, GROUND NO.3 OF HIS APPEAL, THE ASSESSEE IN THE WRITTEN SUBMISSION HAS CONCEDED THAT THE ISSUE SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE. THE ASSESSEE STATED AS UNDER:- ITA NO. 1067/AHD/2005 M/S.DEEPAK NITRITE LTD. ASST.YEAR -2001-02 - 8 - HOWEVER, SINCE THE LAW HAS BEEN AMENDED RETROSPECTIVE BY THE FINANCE ACT, 2009 BY INSERTION OF CLAUSE (I) IN EXPLANATION I TO SECTION 115JB OF THE ACT, WE CONCEDE THAT THE REVENUES GROUND OF APPEAL MAY BE ALLOWED. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN OUR CONSIDERED OPIOIN, IT IS AN ESTABLISHED POSITION OF LAW THAT THE LEARNED ASSESSING OFFICER CAN MAKE ONLY SPECIFIED ADJUSTMENT IN THE NET PROFIT DECLARED BY THE AUDITED PROFIT AND LOSS ACCOUNT PREPARED IN ACCORANDACNE WITH THE PART-II AND PART-III OF SCHEDULE-VI TO THE COMPANIES ACT. WE FIND THAT WEALTH TAX IS NOWHERE SPECIFIED IN SECTION 115JB AND THEREFORE, LEARNED ASSESSING OFFICER ERRED IN MAKING ADJUSTMENT WITH REGARD TO WEALTH TAX. THEREFORE, THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN RESPECT OF WEALTH TAX IS CONFIRMED. THUS, THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 14. AS REGARDS THE PROVISION FOR DOUBTFUL DEBTS, IT IS OBSERVED THAT DUE TO AMENDMENT BROUGHT BY FINANCE ACT (NO.2) 2009 WITH RETROSPECTIVE EFFECT, PROVISION FOR DOUBTFUL DEBT IS TO BE ADJUSTED FOR ITA NO. 1067/AHD/2005 M/S.DEEPAK NITRITE LTD. ASST.YEAR -2001-02 - 9 - DETERMINING BOOK PROFIT UNDER SECTION 115JB. IN VIEW OF THE ABOVE, RETROSPECTIVE AMENDMENT IN THE LAW, THE GROUND OF APPEAL OF THE REVENUE IS ALLOWED AND THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS SET ASIDE AND THAT OF THE LEARNED ASSESSING OFFICER IS RESTORED IN RESPECT OF THE ISSUE OF PROVISION FOR DOUBTFUL DEBT. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 25.09.2009. SD/- SD/- ( T.K. SHARMA ) ( T.K. SHARMA ) ( T.K. SHARMA ) ( T.K. SHARMA ) ( N.S. SAINI ) ( N.S. SAINI ) ( N.S. SAINI ) ( N.S. SAINI ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 25.09.2009 PARAS # COPY OF THE ORDER FORWARDED TO COPY OF THE ORDER FORWARDED TO COPY OF THE ORDER FORWARDED TO COPY OF THE ORDER FORWARDED TO : :: : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-III, BARODA. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD