Manali Petrochemicals Limited, CHENNAI V. DCIT, CHENNAI

ITA 1388/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9739 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 29-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 19-05-2014
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Reopening of assessment; Depreciation; Retrospective amendment; Reasonable cause; Bad and doubtful debts; Unabsorbed depreciation
• Section: 143(3); 14A; 115JB; 147; 148; 154

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , . !' , # $ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NOS.1388, 1389 & 1391/MDS/2014 / ASSESSMENT YEARS : 2008-09, 2004-05 & 2004-05 M/S MANALI PETROCHEMICALS LTD SPIC HOUSE 88, MOUNT ROAD CHENNAI 600 032 VS. THE DY. COMMISSIONER OF INCOME-TAX LARGE TAXPAYER UNIT CHENNAI [PAN AAACM ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SHRI R.VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : SHRI A. B KOLI, JCIT / DATE OF HEARING : 29 - 02 - 2016 ! / DATE OF PRONOUNCEMENT : 01 - 04 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER ALL THE THREE APPEALS OF THE ASSESSEE ARE DIRECTE D AGAINST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS) FOR ASSESSMENT YEARS 2008-09 AND 2004-05. THEREFORE, W E HEARD THEM TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON O RDER. 2. LET US FIRST TAKE UP I.T.A.NO. 1388/MDS/2014 FOR AS SESSMENT YEAR 2008-09. ITA NO.1388, 1389 & 1391/14 :- 2 -: 3. SHRI R.VIJAYARAGHAVAN, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS DECLARED A SUM OF ` 2,18,89,817/- AS DIVIDEND INCOME AND CLAIMED EXEMPTION U/S 10(35) O F THE ACT. THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR EARNI NG THE INCOME AND THEREFORE, NO EXPENDITURE WAS CLAIMED. ACCORDING T O THE LD. COUNSEL, THE ENTIRE INVESTMENTS WERE MADE OUT OF THE SURPLUS FUNDS OF THE COMPANY. THE ASSESSEE HAS NOT BORROWED ANY FUNDS FOR MAKING INVESTMENTS. THE ENTIRE DIVIDEND INCOME WAS RECEIV ED THROUGH BANKING CHANNEL, THEREFORE, NO EXPENDITURE WAS INCU RRED IN EARNING THE DIVIDEND INCOME. HOWEVER, THE ASSESSING OFFICER DI SALLOWED A SUM OF ` 24,61,662/- BY APPLYING THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RULES. ACCORDING TO THE LD. COUNSEL, WHEN THE ASS ESSEE HAS NOT INCURRED ANY EXPENDITURE, THERE IS NO REASON FOR MA KING THE DISALLOWANCE. 4. ON THE CONTRARY, SHRI A.B KOLI, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THOUGH THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED AND THE SURPLUS FUNDS WERE USED FOR MAKING INVESTMENTS, RULE 8D PROVIDES FOR COMPUTATION OF E XPENDITURE FOR EARNING THE EXEMPTED INCOME. WHEN THE ASSESSEE HAS INCURRED EXPENDITURE INDIRECTLY WHICH IS NOT ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT AND NO SUCH EXPENDITURE WAS ALSO ATTRIBU TABLE TO EARNING OF THE EXEMPTED INCOME, THE RULE PROVIDES FOR COMPUTAT ION OF ITA NO.1388, 1389 & 1391/14 :- 3 -: EXPENDITURE FOR DISALLOWANCE BY APPLYING RULE 8D(2) . THE ASSESSING OFFICER COMPUTED THE DISALLOWANCE BY APPLYING THIRD LIMB OF RULE 8D. IN THE ABSENCE OF ANY EVIDENCE THAT NO MONEY WAS BO RROWED FOR BUSINESS PURPOSE, ACCORDING TO THE LD. DR, THE CIT( A) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO CAREFULLY GONE THROUGH THE PROVISIONS OF SEC. 14A OF THE ACT AND RULE 8D OF THE INCOME-TAX RULES. SEC. 14A OF THE ACT PROVIDES FOR DISALLOWANCE OF EXPENDITURE FOR EARNING THE EXEMPTED INCOME WHEN TH E ASSESSING OFFICER IS NOT SATISFIED THAT THE EXPENDITURE WAS N OT CLAIMED BY THE ASSESSEE. IN THE CASE BEFORE US, THE ASSESSEE CLA IMS THAT SURPLUS FUNDS WERE USED FOR MAKING INVESTMENTS. THE ASSES SEE ALSO CLAIMS THAT NO BORROWED FUNDS WERE USED FOR MAKING THE INV ESTMENTS. IT IS NOT THE CASE OF THE ASSESSEE THAT NO FUNDS WERE BO RROWED FOR BUSINESS PURPOSES. WHEN THE ASSESSEE PAYS INTERES T WHICH IS NOT ATTRIBUTABLE TO ANY PART OF THE INCOME OR RECEIPT O F THE ASSESSEE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT SECOND L IMB OF RULE 8D WOULD COME INTO OPERATION. EVEN IN CASE NO EXPENDI TURE WAS INCURRED, THIRD LIMB OF RULE 8D PROVIDES FOR COMPUTATION OF E XPENDITURE. IN THE CASE BEFORE US, THE ASSESSING OFFICER HAS APPLIED T HE PROVISIONS OF RULE 8D AND COMPUTED THE DISALLOWANCE AT ` 24,61,662/-. THERE IS NO ITA NO.1388, 1389 & 1391/14 :- 4 -: DISPUTE ABOUT THE COMPUTATION OF EXPENDITURE AS MAD E BY THE ASSESSING OFFICER. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). ACCORDINGL Y, THE SAME IS CONFIRMED. 6. NOW, COMING TO I.T.A.NO.1389/MDS/2014 FOR ASSESSMEN T YEAR 2004-05, THE FIRST GROUND OF APPEAL IS WITH RE GARD TO REOPENING OF ASSESSMENT U/S 147 OF THE ACT. 7. SHRI R.VIJAYARAGHAVAN, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE FILED THE RETURN OF IN COME ON 24.10.2004. THE ASSESSING OFFICER REOPENED THE ASSESSMENT BY IS SUING NOTICE U/S 148 OF THE ACT ON 25.2.2011 AFTER THE EXPIRY OF FOU R YEARS FROM THE END OF ASSESSMENT YEAR IN WHICH THE RETURN OF INCOME WA S FILED. THEREFORE, ACCORDING TO THE LD. COUNSEL, REOPENING OF ASSESSMENT IS NOT JUSTIFIED. 8. ON THE CONTRARY, SHRI A.B KOLI, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE RETURN WAS ORIGIN ALLY FILED ON 24.10.2004. THE SAME WAS PROCESSED U/S 143(1) OF THE ACT. THE RETURN WAS NOT TAKEN UP FOR SCRUTINY AND NO ASSESSM ENT ORDER WAS PASSED U/S 143(3) OF THE ACT. SUBSEQUENTLY, THE A SSESSING OFFICER FOUND THAT THE PROVISION MADE FOR BAD DEBT TO THE EXTENT OF ` 3.5 CRORES WAS NOT ADDED FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT ITA NO.1388, 1389 & 1391/14 :- 5 -: U/S 115JB OF THE ACT. THEREFORE, THE ASSESSING OFF ICER ISSUED NOTICE U/S 148 AND REOPENED THE ASSESSMENT. SINCE NO ASSE SSMENT ORDER WAS PASSED U/S 143(3), PROVISO TO SECTION 147 OF T HE ACT IS NOT APPLICABLE. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT NO ASSESSMENT ORDER WAS PASSED U/S 143(3) OF THE A CT. THE RETURN FILED BY THE ASSESSEE ON 24.10.2004 WAS PROCESSED U/S 143(1) ONLY. THEREFORE, AS RIGHTLY SUBMITTED BY THE LD. DR, PROV ISO TO SEC. 147 IS NOT APPLICABLE AT ALL. THE ASSESSING OFFICER FOUND THA T A SUM OF ` 3.5 CRORES WAS NOT ADDED TO THE BOOK PROFIT U/S 115 JB OF THE ACT. IN THOSE CIRCUMSTANCES, THIS TRIBUNAL IS OF THE CONSI DERED OPINION THAT THE ASSESSING OFFICER HAS RIGHTLY REOPENED THE ASSE SSMENT BY ISSUING NOTICE U/S 148 OF THE ACT. THEREFORE, THIS TRIBUN AL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUT HORITY. ACCORDINGLY, THE SAME IS CONFIRMED. 10. NOW COMING TO THE MERIT OF THE ADDITION MADE BY THE ASSESSING OFFICER, SHRI R.VIJAYARAGHAVAN, LD. COUNS EL FOR THE ASSESSEE SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION A PROVISION WAS MADE TO THE EXTENT OF ` 3,50,72,000/- FOR BAD AND DOUBTFUL DEBTS AND THE SAME WAS ADDED IN THE COMPUTATION OF TOTAL INCO ME UNDER THE ITA NO.1388, 1389 & 1391/14 :- 6 -: NORMAL PROVISIONS OF THE INCOME-TAX ACT, 1961. HOW EVER, WHILE COMPUTING PROFIT U/S 115JB OF THE ACT, NO ADJUSTME NT WAS MADE. REFERRING TO CLAUSE(I) OF SEC. 115JB(2) OF THE ACT, THE LD. COUNSEL SUBMITTED THAT EXPLANATION 1 TO SEC. 115JB OF THE A CT WAS INSERTED BY FINANCE ACT, 2008, THEREFORE, THE SAME IS NOT APPLI CABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. EX PLANATION 1 TO SEC. 115JB OF THE ACT WAS INTRODUCED BY FINANCE ACT 2008 WITH RETROSPECTIVE EFFECT FROM 1.4.2001. THEREFORE, THE BOOK PROFIT COMPUTED SHALL BE INCREASED BY THE PROVISION MADE F OR MEETING THE LIABILITIES. IN THIS CASE, ADMITTEDLY, THE ASSESS EE HAS MADE A PROVISION TO THE EXTENT OF ` 3,50,72,000/-. THOUGH THE ASSESSEE ADDED THE SAME IN THE NORMAL COMPUTATION, NO ADJUSTMENT WAS M ADE AS PROVIDED IN EXPLANATION 1 TO SEC. 115JB(2) OF THE ACT. THE ONLY CONTENTION OF THE ASSESSEE BEFORE THIS TRIBUNAL IS THAT EXPLANAT ION 1 TO SEC. 115JB(2) IS NOT APPLICABLE DURING THE YEAR UNDER CO NSIDERATION. NO DOUBT, EXPLANATION 1 TO SEC. 115JB(2) OF THE ACT W AS INTRODUCED B FINANCE ACT 2008 WITH RETROSPECTIVE EFFECT FROM 1.4 .2001. THEREFORE, IT IS VERY MUCH APPLICABLE FOR THE YEAR UNDER CONSI DERATION. THERE MAY BE A REASONABLE CAUSE ON THE PART OF THE ASSESSEE FOR NOT MAKING ADJUSTMENT ON THE DATE OF FILING THE RETURN OF INCO ME. IT DOES NOT ITA NO.1388, 1389 & 1391/14 :- 7 -: MEAN THAT THE PROVISION MADE FOR BAD AND DOUBTFUL D EBT CANNOT BE ADDED BACK TO THE BOOK PROFIT AS PROVIDED IN EXPLAN ATION 1 TO SEC. 115JB(2) OF THE ACT. THIS TRIBUNAL IS OF THE CONS IDERED OPINION THAT SINCE EXPLANATION 1 TO SEC. 115JB(2) OF THE ACT IS APPLICABLE RETROSPECTIVELY WITH EFFECT FROM 1.4.2001, THE PROV ISION FOR BAD AND DOUBTFUL DEBT HAS TO BE INCREASED AS PROVIDED THERE IN. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH T HE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, THE SAME IS CONFIRMED. 12. NOW COMING TO I.T.A.NO.1391/MDS/2014 FOR ASSESSMENT YEAR 2004-05, THIS APPEAL OF THE ASSESSEE IS AGAINST TH E ORDER PASSED BY THE ASSESSING OFFICER IN THE PROCEEDINGS U/S 154 O F THE ACT. 13. SHRI R.VIJAYARAGHAVAN, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE ASSESSMENT MADE AFTER REOPENI NG OF ASSESSMENT ON 19.12.2011, AN AMOUNT OF ` 4,31,68,928/- WAS SHOWN AS BROUGHT FORWARD BOOK LOSS AND THE SAME WAS REDUCED FROM THE PROFIT AS PER THE PROFIT & LOSS ACCOUNT TO ARRIVE AT THE TAXABLE PROFIT OF ` 1,04,79,974/- U/S 115JB OF THE ACT. SUBSEQUENTLY, THE ASSESSING OFFICER FOUND THAT THE UNABSORBED DEPRECIATION OF S PIC ORGANICS LTD U/S 32(2) OF THE ACT FOR THE ASSESSMENT YEAR 2000-0 1 WAS ONLY ` 3,57,07,000/-. THEREFORE, THE ASSESSING OFFICER CA ME TO KNOW THAT THE EXCESS LOSS WAS SET OFF AGAINST THE BOOK PROFIT WHICH IS A MISTAKE ITA NO.1388, 1389 & 1391/14 :- 8 -: APPARENT FROM THE RECORD. ACCORDINGLY, HE RECTIFIE D THE SAME. ACCORDING TO THE LD. COUNSEL, THERE IS NO MISTAKE A PPARENT ON THE RECORD WHICH WARRANTS RECTIFICATION OF THE ORDER DA TED 19.12.2011. THE LD. COUNSEL FURTHER SUBMITTED THAT THE SET OFF OF L OSS U/S 115JB IS A DEBATABLE ONE, THEREFORE, SUCH ADJUSTMENT CANNOT BE MADE IN THE PROCEEDINGS U/S 154 OF THE ACT. THE ADJUSTMENT OF LOSS OR DEPRECIATION IS A LONG DRAWN PROCESS OF INVESTIGATI ON AND DUE TO DIVERGENT VIEWS POSSIBLE, THE SAME CANNOT BE SUBJEC T MATTER OF PROCEEDINGS U/S 154 OF THE ACT. 14. ON THE CONTRARY, SHRI A.B KOLI, LD. DR SUBMITTED TH AT THERE IS NO DEBATABLE OR LONG DRAWN PROCESS INVOLVED IN THIS CASE. THE MISTAKE WAS IN SETTING OFF THE BROUGHT FORWARD LOSSES. ACC ORDING TO THE LD. DR, THE TOTAL PEAK LOSS AVAILABLE TO THE ASSESSEE-COMPA NY WAS CARRIED FORWARD AND SET OFF THE BOOK PROFIT FOR THE ASSESSM ENT YEAR 2004-05 IS ONLY ` 3,57,07,000/-. AS AGAINST THIS, AN AMOUNT OF ` 4,31,68928- WAS WRONGLY ADJUSTED AGAINST THE BOOK PROFIT IN THE ASS ESSMENT ORDER DATED 19.12.2011. THIS IS ONLY AN ARITHMETICAL MIS TAKE, THEREFORE, TWO VIEWS ARE NOT POSSIBLE. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT I S NOT IN DISPUTE THAT THE TOTAL BOOK LOSS AVAILABLE TO THE ASSESSEE-COMPA NY FOR CARRY FORWARD ITA NO.1388, 1389 & 1391/14 :- 9 -: AND SET OFF FOR ASSESSMENT YEAR 2004-05 IS ONLY ` 3,57,07,000/- AND NOT ` 4,31,68,928/-. THE ASSESSING OFFICER HAS RECTIFIE D ONLY THIS APPARENT MISTAKE ON RECORD. THEREFORE, THIS TRIBUN AL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS CONFIRMED. 16. IN THE RESULT, ALL THE THREE APPEALS OF THE ASSESS EE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST APRIL, AT CHENNAI. SD/- SD/- ( . !' ) (A. MOHAN ALANKAMONY) # / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 1 ST APRIL, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF