ACIT, Circle-1, Warangal, Warangal V. Northern Power Distribution Company of AP Ltd., Warangal, Warangal

ITA 1215/HYD/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6039 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 23-02-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 16-10-2015
• Court: TRIBUNAL
• Department Lawyers: K MYTHILI RANI
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Bad and doubtful debts
• Section: 115JB; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH ES B , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 1214/HYD/2015 2008 - 09 ASST. COMMISSIONER OF INCOME TAX, CIRCLE - I, WARANGAL M/S. NORTHERN POWER DISTRIBUTION COMPANY OF AP LTD., WARANGAL [PAN: AABCN2875L] 1215/HYD/2015 2011 - 12 1216/HYD/2015 2012 - 13 FOR REVENUE : S MT. K. MYTHILI RANI, CIT - DR FOR ASSESSEE : SHRI V. SIVA KUMAR, AR DATE OF HE ARING : 23 - 0 2 - 201 6 DATE OF PRONOUNCEMENT : 29 - 0 2 - 201 6 O R D E R PER B. RAMAKOTAIAH, A.M. : THE SE ARE REVENUE APPEAL S AGAINST THE ORDER S OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 3, HYDERABAD FOR THE IMPUGNED ASSESSMENT YEAR S, WHEREIN TH E PROVISION TOWARDS BAD AND DOUBTFUL DEBTS WERE ADDED BACK WHILE COMPUTING THE PROFITS U/S. 115JB OF THE INCOME TAX ACT [ACT] . IT WAS CONTENDED BEFORE THE LD. CIT(A) THAT THE PROVISIONS TOWARDS BAD AND DOUBTFUL DEBTS WAS DEBITED TO P&L A/C AND WAS REDUCED FROM THE SUNDRY DEBTORS FROM THE BALANCE SHEET ALSO. ASSESSEE RELIED ON THE DECISION OF CIT VS. YOKOGAWA INDIA LTD., [204 TAXMAN 305] (K AR ) IN SUPPORT OF THE CONTENTIONS. IT WAS ALSO SUBMITTED THAT ASSESSEE IS NOT COVERED BY THE PROVISIONS OF SECTION 11 5JB BASED ON THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF KERALA STATE ELECTRICITY BOARD I.T.A. NO S . 1214 , 1215 & 1216/HYD/15 M/S. NORTHERN POWER DISTRIBUTION COMPANY OF AP LTD : - 2 - : VS. DCIT [329 ITR 921] (KER) . LD. CIT(A) AFTER CONSIDERING THE DETAILED SUBMISSIONS HAS HELD AS UNDER: 8. SECTION 211 OF COMPANIES ACT, 1956 READ AS UNDER: 'SEC.211 FORM AND CONTENTS OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT:(1) EVERY BALANCE SHEET OF A COMPANY SHALL GIVE A TRUE AND FAIR VIEW OF THE STATE OF AFFAIRS OF THE COMPANY AS AT THE END OF THE FINANCIAL YEAR AND SHALL, SUBJECT TO THE PROV ISIONS OF THIS S ECTION, BE IN THE FORM SET OUT IN PART I OF SCHEDULE VI, OR AS NEAR THERETO AS CIRCUMSTANCES ADMIT OR IN SUCH OTHER FORM AS MAY BE APPROVED BY THE CENTRAL GOVERNMENT EITHER GENERALLY OR IN ANY PARTICULAR CASE; AND IN PREPARING THE BALANCE S HEET DUE REGARD SHALL BE HAD, AS FAR AS MAY BE, TO THE GENERAL INSTRUCTIONS FOR PREPARATION OF BALANCE SHEET UNDER THE HEARING 'NOTES' AT THE END OF THAT PART: PROVIDED THAT NOTHING CONTAINED IN THIS SUB SECTION SHALL APPLY TO ANY INSURANCE OR BANKING CO MPANY OR ANY COMPANY ENGAGED IN THE GENERATION OR SUPPLY OF ELECTRICITY OR TO ANY OTHER CLASS OF COMPANY FOR WHICH A FORM OF BALANCE SHEET HAS BEEN SPECIFIED IN OR UNDER THE ACT GOVERNING SUCH CLASS OF COMPANY. (2) EVERY PROFIT AND LOSS ACCOUNT OF A COMP ANY SHALL GIVE A TRUE AND FAIR VIEW OF THE PROFIT OR LOSS OF THE COMPANY FOR THE FINANCIAL YEAR AND SHALL, SUBJECT AS AFORESAID, COMPLY WITH THE REQUIREMENTS OF PART II OF SCHEDULE VI, SO FAR AS THEY ARE APPLICABLE THERETO: PROVIDED THAT NOTHING CONTAINE D IN THIS SUB SECTION SHALL APPLY TO ANY INSURANCE OR BANKING COMPANY [OR ANY COMPANY ENGAGED IN THE GENERATION OR SUPPLY OF ELECTRICITY], OR TO ANY OTHER CLASS OF COMPANY FOR WHICH A FORM OF PROFIT AND LOSS ACCOUNT HAS BEEN SPECIFIED IN OR UNDER THE ACT G OVERNING SUCH CLASS OF COMPANY. ' 9. DURING THE COURSE OF APPEAL PROCEEDINGS, THE AR SUBMITTED A COPY OF CIT(A), TIRUPATI ORDER IN APPEAL NO.115 / 2013 - 14 / CIT(A)/TIRUPATI DATED 31.03.2015 IN CASE OF SOUTHERN POWER DISTRIBUTION OF A.P. LTD FOR AY 2010 - 11 WHE REIN THE CIT(A) HELD THAT PROVISIONS OF SEC 115J8 ARE NOT APPLICABLE TO THE APPELLANT COMPANY BEING ENGAGED IN THE BUSINESS OF POWER DISTRIBUTION. FURTHER, THE AR ALSO RELIED ON THE DECISION OF KERALA STATE ELECTRICITY BOARD V . DCIT 329 ITR 91 (KER) WHEREI N THE KERALA HIGH COURT HELD AS UNDER: (I) SEC.115JB OF THE INCOME TAX ACT, 1961 CREATES A LEGAL FICTION REGARDING TOTAL INCOME OF ASSESSES WHICH ARE COMPANIES. THOUGH THE KERALA STATE ELECTRICITY BOARD, A STATUTORY CORPORATION CONSTITUTED BY VIRTUE OF S EC.5 OF THE ELECTRICITY (SUPPLY) ACT, 1948 ANSWERS THE DESCRIPTION OF AN INDIAN COMPANY AND THEREFORE A COMPANY WITHIN THE MEANING OF SEC. 2(17) OF THE INCOME TAX ACT, I.T.A. NO S . 1214 , 1215 & 1216/HYD/15 M/S. NORTHERN POWER DISTRIBUTION COMPANY OF AP LTD : - 3 - : 1961, IT IS NOT A COMPANY FOR THE PURPOSE OF THE COMPANIES ACT, 1956. (II) AT THE EARL IEST POINT OF TIME WHEN SEC.115J WAS INTRODUCED, THE SECTION EXPRESSLY EXCLUDED FROM ITS OPERATION BODIES LIKE THE ELECTRICITY BOARD. THOUGH SUCH EXPRESS EXCLUSION IS ABSENT IN SEC. 115JA, THE CBOT ISSUED CIRCULAR NO. 762, DATED 18.02.1998 EXCLUDING BODIES LIKE THE ELECTRICITY BOARD FROM OPERATION OF THE SECTION. SUCH AN UNDERSTANDING OF THE CBOT IS BINDING ON THE DEPARTMENT. SEC. 115JB, WHICH IS SUBSTANTIALLY SIMILAR TO SEC.115JA CANNOT HAVE A DIFFERENT PURPOSE AND NEED NOT BE INTERPRETED IN A MANNER DIFFE RENT FROM THE UNDERSTANDING OF THE CBDT OF SEC.115JA. (III) THE ELECTRICITY BOARD OR BODIES SIMILAR TO IT, WHICH ARE TOTALLY OWNED BY THE GOVERNMENT, EITHER STATE OR CENTRAL, HAVE NO SHAREHOLDERS. PROFIT, IF AT ALL, MADE WOULD BE FOR THE BENEFIT OF ENTIR E BODY POLITIC OF THE STATE. THEREFORE THE ENQUIRY AS TO THE MISCHIEF SOUGHT TO BE REMEDIED BY THE AMENDMENT BECOMES IRRELEVANT. THEREFORE, THE FICTION FIXED BY SEC. 115JB CANNOT BE PRESSED INTO SERVICE AGAINST THE ELECTRICITY BOARD WHILE 'MAKING THE ASSES SMENT OF TAX PAYABLE UNDER THE INCOME TAX. 9. IT IS ALSO PERTINENT TO MENTION THAT THE KARNATAKA HIGH COURT IN THE CASE OF CIT V. YOKOGAWA INDIA LTD (2012) 204 TAXMAN 305 (KAR) (HC) WITH THIS ISSUE AT LENGTH AND HELD THAT: A. IN CASES WHERE THE PROVISIO N TOWARDS BAD AND DOUBTFUL DEBTS WAS DEBITED TO P&L ALE AND NO CORRESPONDING REDUCTION WAS MADE FROM THE DEBTORS IN BALANCE SHEET, IN SUCH A CASE, THE PROVISION HAS TO BE CONSIDERED FOR THE PURPOSE OF SEC.115JB. HOWEVER, B. IN CASES WHERE PROVISION FOR BAD AND DOUBTFUL DEBTS WAS DEBITED TO P&L A /C , SIMULTANEOUSLY SUCH AMOUNT WAS REDUCED FROM THE DEBTORS IN BALANCE SHEET, THE PROVISION NEED NOT BE CONSIDERED FOR THE PURPOSE OF SEC.115JB. THE RELEVANT PARA OF HON'BLE KARNATAKA HIGH COURT DECISION IN THE C ASE OF YOKOGAWA INDIA LTD CITED SUPRA READ AS UNDER: 'IN MEETING THE AFORESAID CASE, THE LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THE JUDGMENT OF THE APEX COURT IN THE CASE OF VIJAYA BANK (SUPRA) WHERE THE APEX COURT HAD AN OCCASION TO CONS IDER HIS EXPLANATION. IT ACCEPTED THE ARGUMENT ON BEHALF OF THE REVENUE TO THE EFFECT THAT THE EXPLANATION MAKES IT VERY CLEAR THAT THERE IS A DICHOTOMY BETWEEN ACTUAL WRITE OFF ON THE ONE HAND AND PROVISION FOR BAD AND DOUBTFUL DEBT ON THE OTHER. A MERE D EBIT TO THE PROFIT AND LOSS ACCOUNT WOULD CONSTITUTE A BAD AND DOUBTFUL DEBT, BUT IT WOULD NOT CONSTITUTE ACTUAL WRITE OFF AND THAT WAS THE VERY REASON WHY THE EXPLANATION STOOD INSERTED. PRIOR TO THE FINANCE ACT, 2001 MANY ASSESSEE USED TO TAKE THE BENEFI T OF DEDUCTION U/S I.T.A. NO S . 1214 , 1215 & 1216/HYD/15 M/S. NORTHERN POWER DISTRIBUTION COMPANY OF AP LTD : - 4 - : 36(L)(VII) OF THE 1961 ACT BY MERELY DEBITING THE IMPUGNED BAD DEBT TO THE PROFIT AND LOSS ACCOUNT AND, THEREFORE, THE PARLIAMENT STEPPED IN BY WAY OF EXPLANATION TO SAY THAT A MERE REDUCTION OF PROFITS BY DEBITING THE AMOUNT TO THE PROF IT AND LOSS ACCOUNT PER SE WOULD NOT CONSTITUTE ACTUAL WRITE OFF. THE APEX COURT ACCEPTED THE SAID LEGAL POSITION. HOWEVER, IT WAS CLARIFIED THAT BESIDES DEBITING THE PROFIT AND LOSS ACCOUNT AND CREATING A PROVISION FOR BAD AND DOUBTFUL DEBT, THE ASSESSEE CORRESPONDING / SIMULTANEOUSLY OBLITERATED THE SAID PROVISION FROM ITS ACCOUNTS BY REDUCING THE CORRESPONDING AMOUNT FROM LOANS AND ADVANCES / DEBTORS ON THE ASSETS SIDE OF THE BALANCE SHEET AND CONSEQUENTIALLY, AT THE END OF THE YEAR, THE FIGURE IN THE L OANS AND ADVANCES OR THE DEBTORS ON THE ASSETS SIDE OF THE BALANCE 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, AF TER THE EXPLANATION THE ASSESSEE IS NOW REQUIRED NOT ONLY TO DEBIT THE PROFIT AND LOSS ACCOUNT BUT SIMULTANEOUSLY ALSO REDUCE THE LOANS AND ADVANCES OR THE DEBTORS FROM THE ASSETS SIDE OF THE BALANCE SHEET TO THE EXTENT OF THE CORRESPONDING AMOUNT SO THAT, AT THE END OF THE YEAR, THE AMOUNT OF LOANS AND ADVANCES/DEBTORS IS SHOWN AS NET OF THE PROVISIONS FOR THE IMPUGNED BAD DEBT. THEREFORE, IN THE FIRST PLACE IF THE BAD DEBT OR DOUBTFUL DEBT IS REDUCED FROM THE LOANS AND ADVANCES OR THE DEBTORS FROM THE ASS ETS SIDE OF THE BALANCE SHEET THE EXPLANATION TO SECTION 115JA OR JB IS NOT AT ALL ATTRACTED. IN THAT CONTEXT EVEN IF AMENDMENT WHICH IS MADE RETROSPECTIVE THE BENEFIT GIVEN BY THE TRIBUNAL AND THE APPELLATE COMMISSIONER TO THE ASSESSEE IS IN NO WAY AFFECT ED. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY MERIT IN THIS APPEAL. ' 10. IN SUMMARY, WHERE THE PROVISION IS DEBITED TO P&L ETC, AND SIMILARLY REDUCED FROM DEBTORS IN BALANCE SHEET, IT PRACTICALLY AMOUNTS TO BAD DEBTS BEING WRITTEN OFF, IN SUCH EVENTU ALITY THE AMOUNTS DEBITED TO P&L A / C IS NO MORE A PROVISION AND IT REPRESENTS THE ACTUAL AMOUNTS WRITTEN OFF. THEREFORE THE PROVISION OF SECTION 115JB(1)(I) CANNOT BE INVOKED. 11. AS EVIDENT FROM THE ANNUAL REPORTS S U BMITTED BY THE AR THE FOLLOWING AMOUN TS WERE REDUCED FROM THE DEBTORS IN THE BALANCE SHEET AY AMOUNT 2008 - 09 114,09,97,393 2011 - 12 183,11,03,467 2012 - 13 98,71,94,668 IT WAS FURTHER CLARIFIED BY THE AR THAT THE AMOUNTS REDUCED FROM THE D EBTORS INCLUDE THE PROVISION MADE FOR THE CURRENT YEAR AS WELL AS FOR EARLIER YEARS. IN VIEW OF THE ABOVE DISCUSSION, RELYING ON THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD (CITED SUPRA), THE PROVISION TOWARDS BAD AND DOU BTFUL DEBTS WHICH WAS DEBITED TO P&L A/C , WHICH WAS REDUCED FROM THE DEBTORS IN BALANCE SHEET CANNOT BE CONSIDERED FOR THE PURPOSE OF 115JB. I.T.A. NO S . 1214 , 1215 & 1216/HYD/15 M/S. NORTHERN POWER DISTRIBUTION COMPANY OF AP LTD : - 5 - : FURTHER, SINCE THE PROVISION IS REDUCED FROM THE DEBTORS, IT CAN NO MORE, BE MERE PROVISION AND IT REPRESENTS BAD DEBTS WRITTEN OFF . 2. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). BOTH ON FACTS AND ON LAW, THE ISSUE RAISED BY THE ASSESSING OFFICER (AO) CANNOT BE SUSTAINED. AS FAR AS FACTS ARE CO NCERNED, THE PROVISION TO BAD DEBTS IS DEBITED TO P&L A/C AND THEREFORE TO THAT EXTENT, AMOUNTS IN BALANCE SHEET HAVE BEEN REDUCED. THIS ISSUE IS COVERED BY THE VARIOUS DECISIONS AS RELIED ON BY THE LD. CIT(A). IN VIEW OF THAT, WE DO NOT SEE ANY REASON T O INTERFERE WITH THE WELL REASONED ORDER OF THE CIT(A). WITH REFERENCE TO REVENUE G ROUND NO. 2, THE LD. CIT(A) HELD THAT THESE COMPANIES ARE NOT COVERED BY THE PROVISIONS OF SECTION 115J2. WE NOTICE THAT GROUND IS NOT CORRECTLY RAISED AS LD. CIT(A) HAS N OT ADJUDICATED THE ISSUE EVEN THOUGH OBJECTION OF ASSESSEE IS RECORDED. MOREOVER, ASSESSEE ALSO HAS NOT RAISED ANY CROSS - OBJECTION SO AS TO CONTEND THAT ASSESSEE IS NOT COVERED BY THE PROVISIONS OF SECTION 115JB. THEREFORE, THERE IS NO NEED TO ADJUDICATE THE ISSUE IN THE PRESENT ORDERS. ACCORDINGLY, GROUND NO.2 RAISED BY REVENUE IN ALL THE APPEALS IS REJECTED ALONG WITH OTHER GROUNDS ON MERITS. 3. IN THE RESULT, ALL THE REVENUE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH FEBRU ARY , 201 6 SD/ - SD/ - (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 29 TH FEBRUARY, 2016 TNMM I.T.A. NO S . 1214 , 1215 & 1216/HYD/15 M/S. NORTHERN POWER DISTRIBUTION COMPANY OF AP LTD : - 6 - : COPY TO : 1. ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 1, AAYAKAR BHAVAN, STATION ROAD, W ARANGAL. 2. M/S . NORTHERN POWER DISTRIBUTION COMPANY OF AP LTD., H.NO. 2 - 5 - 31/2, VIDYUTH BHAVAN, NAKKALAGUTTA, HANAMKONDA, WARANGAL. 3 . CIT (APPEALS) - 3 , HYDERABAD. 4 . THE PR. CIT - 3 , HYDERABAD. 5 . D.R. ITAT, HYDERABAD. 6 . GUARD FILE.