THE DY CIT 2(3), Mumbai V. M/S. TRENT LTD, Mumbai

ITA 1073/MUM/2005

• Counselvise Citation: 107319914 RSA 2005
• Duration Of Justice: 7 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 09-05-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 09-02-2005
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANJIV DUTT
• Assessee Lawyers: NITESH JOSHI
• Keywords: Bad and doubtful debts
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER, A ND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 1073/MUM./2005 (ASSESSMENT YEAR : 2001-02 ) DY. COMMISSIONER OF INCOME TAX CIRCLE2(3), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S M/S. TRENT LIMITED BOMBAY HOUSE 24, HOMI MODY STREET MUMBAI 400 001 PAN AAACL1838J .... RESPONDENT ITA NO. 1708/MUM./2005 (ASSESSMENT YEAR : 2001-02 ) M/S. TRENT LIMITED BOMBAY HOUSE 24, HOMI MODY STREET MUMBAI 400 001 PAN AAACL1838J .. APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE2(3), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... RESPONDENT REVENUE BY : MR. SANJIV DUTT ASSESSEE BY : MR. NITESH JOSHI DATE OF HEARING 09.05.2012 DATE OF ORDER 18.05.2012 M/S. TRENT LIMITED 2 O R D E R PER J. SUDHAKAR REDDY THESE CROSS APPEALS ARE DIRECTED AGAINST IMPUGNED O RDER DATED 25 TH NOVEMBER 2004, PASSED BY THE COMMISSIONER (APPEALS) XXXIII, MUMBAI, FOR ASSESSMENT YEARS 2001-02. WE FIRST TAKE UP REVENUES APPEAL IN ITA NO.1073/M UM./2005. 2. GROUND NO.1, IS AGAINST THE DISALLOWANCE OF EXPENDI TURE UNDER SECTION 14A, OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ). 3. BOTH THE LEARNED REPRESENTATIVES AGREE BEFORE US TH AT THE HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO . LTD. V/S DCIT, (2010), 328 ITR 081 (BOM.), HAS PARTLY REVERSED THE MUMBAI SPECIAL BENCH DECISION OF THE TRIBUNAL IN DAGA CAPITAL MANAGEMENT PVT. LTD . [2008] 119 TTJ (MUM.) 289 (SB). UNDER THESE CIRCUMSTANCES, WE DEEM IT APP ROPRIATE TO SET ASIDE THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPE ALS) AND RESTORE THE ISSUE TO THE FILE OF ASSESSING OFFICER FOR DENOVO A DJUDICATION IN LINE WITH THE PROPOSITIONS LAID DOWN BY THE HONBLE JURISDICTIONA L HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. (SUPRA). THIS GROUND IS, THUS, ALLOWED FOR STATISTICAL PURPOSES. 4. GROUND NO.2, IS REGARDING COMPUTATION OF BOOK PROFI T WITH REFERENCE TO DISALLOWANCE UNDER SECTION 14A. 5. BEFORE US, BOTH THE LEARNED REPRESENTATIVES AGREE T HAT THIS GROUND IS CONSEQUENTIAL TO THE GROUND NO.1, ABOVE. THEREFORE, WE RESTORE THIS ISSUE ALSO TO THE FILE OF ASSESSING OFFICER FOR DENOVO AD JUDICATION IN ACCORDANCE WITH LAW. 6. IN THE RESULT, REVENUES APPEAL IS ALLOWED FOR STAT ISTICAL PURPOSES. M/S. TRENT LIMITED 3 WE NOW TAKE UP ASSESSEES APPEAL IN ITA NO.1708/MUM ./2005. 7. BEFORE US, THE LEARNED COUNSEL, MR. NITESH JOSHI, R EPRESENTING THE ASSESSEE, FILED AN APPLICATION FOR ADMISSION OF ADD ITIONAL GROUND OF APPEAL. HE SUBMITTED THAT GROUND NO.3, WHICH IS ON THE ISSU E OF COMPUTING INCOME UNDER SECTION 115JB OF THE ACT, AND GROUND NO.4, WH ICH IS ON THE ISSUE OF ASSESSABILITY OF RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY OR UNDER THE HEAD INCOME FROM BUSINESS ARE ADDITIONAL GROUNDS, AS THEY WERE NEITHER RAISED BEFORE THE ASSESSING OFFICER NO R BEFORE THE FIRST APPELLATE AUTHORITY. HE SUBMITTED THAT THE NECESSARY FACTS TH AT ARE REQUIRED FOR ADJUDICATING THE AFORESAID TWO GROUNDS, ARE ON RECO RD AND THESE ARE LEGAL GROUNDS AND PRAYED FOR ADMISSION OF THE ADDITIONAL GROUNDS. 8. ON GROUND NO.1, THE LEARNED COUNSEL FOR THE ASSESSE E POINTED OUT THAT THE DUE DATE FOR PAYMENT OF DEPOSIT LINKED INSURANC E PREMIUM WAS 1 ST JUNE 2000, AND WHEREAS, THE SAME WAS PAID ON 18 TH MAY 2000, AND HENCE, IT IS PAID WITHIN THE DUE DATE AND NO DISALLOWANCE IS WAR RANTED. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTH ER HAND, SUBMITTED THAT THE EVIDENCE WAS NOT BEFORE THE AUTH ORITIES BELOW. THE ISSUE IN QUESTION IS PAYMENT OF PROVISIONAL PREMIUM FOR R ENEWAL OF GROUP INSURANCE AND THE SAME WAS IN LIEU OF DEPOSIT LINKE D INSURANCE PREMIUM WHICH WAS DUE TO 1 ST JUNE 2000. THE ASSESSEE REMITTED THE SAME ON 18 TH MAY 2000 AND, THUS, NO DISALLOWANCE UNDER SECTION 4 3B, IS CALLED FOR. HENCE, THIS GROUND IS ALLOWED. 10. ON GROUND NO.2, THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAS MADE A PROVISION FOR DOUBTFUL DEBT AND REDUCED THE SAID PROVISION FROM CURRENT ASSETS DISCLOSED IN THE BALANCE SHEET. ON T HESE FACTS, IT IS ARGUED THAT CLAUSE (I) OF EXPLANATION (1) OF SECTION 115JB OF THE ACT, CANNOT BE APPLIED IN VIEW OF THE JUDGMENT OF THE HON'BLE SUPR EME COURT IN VIJAYA BANK V/S CIT, 323 ITR 166 (SC), AS INTERPRETED BY THE HO NBLE KARNATAKA HIGH COURT IN CIT V/S YOKOGAWA INDIA LTD., [2012] 204 TA XMAN 305 (KAR.). M/S. TRENT LIMITED 4 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE, WHILE AGRE EING WITH THE PROPOSITIONS LAID DOWN BY THE HONBLE KARNATAKA HIG H COURT, IN ITS JUDGMENT CITED SUPRA WHEREIN THE HONBLE COURT HAS DEALT WIT H AN IDENTICAL ISSUE AND THE SAME WAS DECIDED IN FAVOUR OF THE REVENUE, RELI ED ON THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT, AND SUBMITTED THAT T HE INTERPRETATION REQUIRES RE-CONSIDERATION. HE FURTHER RELIED ON PAGE-30, OF THE ASSESSEES PAPER BOOK AND SUBMITTED THAT FOR THE PURPOSE OF COMPUTATION O F MANAGERIAL REMUNERATION, THE ASSESSEE HAS ADDED BACK THE PROVI SION FOR DOUBTFUL DEBTS AND ADVANCES TO ARRIVE AT THE PROFITS. 12. IN REPLY, THE LEARNED COUNSEL RELIED ON THE PROVISI ONS OF SECTION 309 OF COMPANIES ACT, 1956, AND SUBMITTED THAT THE MANNER IN WHICH THE NET PROFITS ARE TO BE COMPUTED FOR THE PURPOSE OF CALCU LATION OF REMUNERATION OF DIRECTORS IS SPECIFIED AND HENCE, THE ARGUMENT OF T HE LEARNED DEPARTMENTAL REPRESENTATIVE IS WRONG. 13. AFTER HEARING RIVAL CONTENTIONS, WE FIND THAT THE A SSESSEE HAS DEBITED THE PROFIT & LOSS ACCOUNT BY THE AMOUNT OF PROVISIO NS FOR DOUBTFUL DEBTS / ADVANCES. THIS APPEARS IN SCHEDULE-I/ITEM-4(P) UNDE R THE HEAD GENERAL EXPENSES . THEREAFTER, THE ASSESSEE HAS REDUCED THE PROVISIO NS FROM THE LOANS AND ADVANCES APPEARED IN SCHEDULE-I OF THE BA LANCE SHEET AND FROM SUNDRY DEBTORS APPEARING IN SCHEDULE-G OF THE BALAN CE SHEET. THE HONBLE SUPREME COURT IN VIJAYA BANK V/S CIT, [2010] 323 IT R 166 (SC), HELD AS FOLLOWS:- HOWEVER, IF AN ASSESSEE DEBITS PROVISION FOR DOUBTF UL DEBTS TO THE PROFIT AND LOSS ACCOUNT AND MAKES A CORRESPONDING C REDIT TO THE CURRENT LIABILITIES AND PROVISIONS ON THE LIABILI TIES SIDE OF THE BALANCE SHEET, THEN IT WOULD CONSTITUTE A PROVISION FOR DOU BTFUL DEBT. IN THE LATER CASE, THE ASSESSEE WOULD NOT BE ENTITLED TO D EDUCTION AFTER APRIL 1, 1989 . 14. THE HONBLE KARNATAKA HIGH COURT IN YOKOGAWA INDIA LTD. (SUPRA) HAS RELIED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN VIJAYA BANK (SUPRA), AND AT PAGE-310, THE HON'BLE SUPREME COURT HELD AS FOLLOWS:- M/S. TRENT LIMITED 5 .. HOWEVER, IT WAS CLARIFIED THAT BESIDES DEBITING THE PROFIT AND LOSS ACCOUNT AND CREATING A PROVISION FOR BAD AND D OUBTFUL DEBT, THE ASSESSEE CORRESPONDINGLY/SIMULTANEOUSLY OBLITERATED THE SAID PROVISION FROM ITS ACCOUNTS BY REDUCING THE CORRESPONDING AMO UNT FROM LOANS AND ADVANCES/DEBTORS ON THE ASSETS SIDE OF THE BALA NCE SHEET AND, CONSEQUENTIALLY, AT THE END OF THE YEAR, THE FIGURE IN THE LOANS AND ADVANCES OR THE DEBTORS ON THE ASSETS SIDE OF THE B ALANCE SHEET WAS SHOWN AS NET OF THE PROVISION FOR THE IMPUGNED BAD DEBT. THEN THE SAID AMOUNT REPRESENTING BAD DEBT OR DOUBTFUL DEBT CANNOT BE ADDED IN ORDER TO COMPUTE BOOK PROFIT. THEREFORE, AFTER T HE EXPLANATION THE ASSESSEE IS NOW REQUIRED NOT ONLY TO DEBIT THE PROF IT AND LOSS ACCOUNT BUT SIMULTANEOUSLY ALSO REDUCE THE LOANS AND ADVANC ES OR THE DEBTORS FROM THE ASSETS SIDE OF THE BALANCE SHEET TO THE EX TENT OF THE CORRESPONDING AMOUNT SO THAT, AT THE END OF THE YEA R, THE AMOUNT OF LOANS AND ADVANCES/DEBTORS IS SHOWN AS NET OF THE P ROVISIONS FOR THE IMPUGNED BAD DEBT. THEREFORE, IN THE FIRST PLACE IF THE BAD DEBT OR DOUBTFUL DEBT IS REDUCED FROM THE LOANS AND ADVANCE S OR THE DEBTORS FROM THE ASSETS SIDE OF THE BALANCE SHEET THE EXPLA NATION TO SECTION 115JA OR JB IS NOT AT ALL ATTRACTED. IN THAT CONTEX T EVEN IF AMENDMENT WHICH IS MADE RETROSPECTIVE THE BENEFIT GIVEN BY TH E TRIBUNAL AND THE APPELLATE COMMISSIONER TO THE ASSESSEE IS IN NO WAY AFFECTED. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY MERIT IN THIS APPEAL. 2. RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENT OF TH E HONBLE KARNATAKA HIGH COURT IN YOKOGAWA INDIA LTD. (SUPRA), WE ALLOW THIS GROUND OF THE ASSESSEE. WE NOW CONSIDER ADMISSION OF ADDITIONAL GROUNDS. 15. LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY OPPOSE D THE ADMISSION OF ADDITIONAL GROUNDS, AS THE RELEVANT FACTS ARE NO T AVAILABLE ON RECORD. IT WAS SUBMITTED THAT THE ISSUES REQUIRE INVESTIGATION OF FACTS. 16. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ANNUAL REPORT IS ON RECORD INSOFAR AS ADDITIONAL GROUND NO.1 IS CONC ERNED AND THAT THE ASSESSING OFFICER CONSIDERED THE ISSUE OF TAXABILIT Y OF RENTAL INCOME BASED ON WRITTEN SUBMISSION GIVEN BY THE ASSESSEE AND, HENCE , THE FACTS ARE ON RECORD. 17. ON CAREFUL CONSIDERATION OF THE CONTENTIONS OF THE RIVAL PARTIES, WE ARE OF THE CONSIDERED OPINION THAT BOTH THESE ADDITIONA L GROUNDS CANNOT BE ADMITTED FOR THE FOLLOWING REASONS:- M/S. TRENT LIMITED 6 18. THE FACTS PERTAINING TO ISSUE NO.1, I.E., COMPUTATI ON OF INCOME UNDER SECTION 115JB, IN RELATION TO THE PROVISIONS FOR DI MINUTION IN THE VALUE OF LONG TERM INVESTMENTS HAVE NOT BEEN INVESTIGATED OR LOOK ED INTO BY THE ASSESSING OFFICER. THE ASSESSEE SUBMITTED THAT ON VERIFICATIO N OF THE ANNUAL REPORT, THE FACTS CAN BE FOUND. IN OUR VIEW, JUST BECAUSE CERTA IN FACTS CAN BE GATHERED FROM THE ANNUAL ACCOUNT OF THE ASSESSEE, IT CANNOT BE SAID THAT ALL THE FACTS ARE ON RECORD. THE CONTENTION RAISED BY THE ASSESSE E DEFINITELY REQUIRE ENQUIRY INTO FACTS. THUS, IN OUR OPINION, THIS ADDI TIONAL GROUND NO.1, CANNOT BE ADMITTED. 19. COMING TO THE SECOND ADDITIONAL GROUND, WE FIND THA T THE ASSESSEE HAS DECLARED THE INCOME IN QUESTION UNDER THE HEAD INCOME FROM BUSINESS . THE ASSESSING OFFICER QUESTIONED THE SAME IN PROCEE DINGS UNDER SECTION 143(3) OF THE ACT. ELABORATE SUBMISSIONS WERE MADE BY THE ASSESSEE AND THE ASSESSING OFFICER ACCEPTED THE SUBMISSIONS AND DID NOT DISTURB THE CLAIM OF THE ASSESSEE THAT THE INCOME IN QUESTION IS TO BE T AXED ONLY UNDER THE HEAD INCOME FROM BUSINESS . WE ARE INFORMED THAT FOR EARLIER ASSESSMENT YEARS ALSO, SIMILAR TREATMENT WAS GIVEN TO THIS INCOME. O N THESE FACTS, WE ARE UNABLE TO APPRECIATE THE CONTENTIONS OF THE ASSESSE E THAT THE INCOME SHOULD RIGHTLY BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY . THE ASSESSEE CANNOT TAKE A U TURN BY FILING AN ADDITI ONAL GROUND. TO DECIDE AS TO WHETHER AN INCOME HAS TO BE ASSESSED UNDER THE H EAD INCOME FROM BUSINESS OR UNDER THE HEAD INCOME FROM HOUSE PROPERTY , CERTAIN MATERIAL FACTS HAVE TO BE EXAMINED. THE AGREEMENTS, THE FUNC TIONS OF THE PARTIES, ETC., HAVE TO BE SEEN. AS THESE FACTS ARE NOT ON RE CORD, WE REFUSE TO ADMIT THIS ADDITIONAL GROUND. CONSEQUENTLY, ADDITIONAL GR OUNDS NO.3 AND 4, RAISED BY THE ASSESSEE ARE DISMISSED. 20. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH MAY 2012 SD/- R.S. PADVEKAR JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 18 TH MAY 2012 M/S. TRENT LIMITED 7 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, I BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI DATE INITIAL 1. DRAFT DICTATED ON 9.5.2012 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 14.5.2012 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 16.5.2012 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 16.5.2012 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 16.5.2012 SR.PS 6. DATE OF PRONOUNCEMENT 18.5.2012 SR.PS 7. FILE SENT TO THE BENCH CLERK 22.5.2012 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER