ACIT, CHENNAI V. M/s. Indian Potash Ltd., CHENNAI

ITA 1413/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1204 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2013
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 25-02-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 29-06-2012
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Bad and doubtful debts; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 143(3); 148

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL D BENCH, CHENNAI. BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER & SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NOS.1412 AND 1413/MDS/2012 ASSESSMENT YEARS: 2004-05 & 2005-06 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(3), NO. 121, UTHAMAR GANDHI SALAI, CHENNAI 600 034. VS. M/S. INDIAN POTASH LTD., AMBAL BUILDING, 727, ANNA SALAI, CHENNAI 600 006. [PAN:AAACI0888H] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIRUDH RAI, CIT-DR RESPONDENT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE DATE OF HEARING : 2 5 . 0 2 .201 3 DATE OF PRONOUNCEMENT : 05.03.2013 ORDER PER S.S. GODARA, JUDICIAL MEMBER THESE TWO APPEALS HAVE BEEN FILED BY THE REVENUE A RE DIRECTED AGAINST DIFFERENT ORDERS OF THE COMMISSIONER OF INC OME TAX (APPEALS)-XII, CHENNAI DATED 26.03.2012 IN ITA NO. 125/2011-12 FOR THE ASSESSMENT YEAR 2004-05 AND DATED 27.03.2012 IN ITA NO. 77/2011-12 FOR THE ASSESSMENT YEAR 2005-06 RESPECTIVELY; IN PROCEEDINGS UNDER SEC TION 143(3) R.W.S. 147 OF THE INCOME TAX ACT 1961 [IN SHORT THE ACT]. 2. IN I.T.A. NO. 1412/MDS/2012, THE SOLE SUBSTANTI VE GRIEVANCE OF THE REVENUE HAS BEEN PLACED AS UNDER: I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1412 & 1413 412 & 1413 412 & 1413 412 & 1413/M/ /M/ /M/ /M/1 11 12 22 2 2 2. THE LEARNED CIT(A) ERRED IN DELETING THE ADDIT ION MADE TOWARDS DISCOUNTS WRITTEN OFF OF ` . 9.04 CRORES. SIMILARLY, THE SUBSTANTIVE GROUND IN I.T.A. NO. 141 3/MDS/2012 IS AS FOLLOWS: 2. THE LEARNED CIT(A) ERRED IN DELETING THE ADDIT ION MADE TOWARDS BAD DEBTS WRITTEN OFF OF ` . 9.63 CRORES. 3. IN SUPPORT OF THE GROUND RAISED IN BOTH CASES, THE DR REPRESENTING THE REVENUE VEHEMENTLY ARGUES THAT THE CIT(A) HAS ERRED IN INTERFERING WITH THE FINDINGS OF THE ASSESSING OFFICER QUA RESPECTIVE B AD DEBTS WRITTEN OFF BY THE ASSESSEE. IN THE LIGHT OF PLEADINGS RAISED IN THE G ROUNDS, HE PRAYS FOR ACCEPTANCE OF THE APPEALS. 4. PER CONTRA, THE ASSESSEE DEFENDS BOTH ORDERS OF THE CIT(A) UNDER CHALLENGE AS WELL AS REASONS CONTAINED THEREIN. IN SUPPORT OF THE SAME, IT HAS ALSO FILED A SHORT PAPER BOOK IN CASE I.T.A. NO . 1413/MDS/2012 AND PRAYS FOR UPHOLDING CIT(A)S ORDERS UNDER CHALLENGE . 5. BRIEF FACTS OF THE CASE IN I.T.A. NO. 1412/MDS/ 2012 ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF FE RTILIZER TRADING. ON 12.10.2004, IT HAD RETURNED ITS INCOME OF ` .20,52,82,360/-, WHICH WAS SUMMARILY PROCESSED. THEREAFTER, THE ASSESSING OF FICER REOPENED THE ASSESSMENT ON THE BASIS OF REASONS TO BELIEVE THAT THE ASSESSEE HAD CLAIMED DISCOUNT EXPENDITURE OF ` .9,04,37,000/- AS OTHER EXPENSES PERTAINING TO PREVIOUS ASSESSMENT YEAR. HE ISSUED N OTICE UNDER SECTION 148 I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1412 & 1413 412 & 1413 412 & 1413 412 & 1413/M/ /M/ /M/ /M/1 11 12 22 2 3 OF THE ACT DATED 11.09.2007 TO THE ASSESSEE. 6. IN REASSESSMENT PROCEEDINGS, THE ASSESSING OFFI CER NOTICED FROM ASSESSEES PROFIT AND LOSS ACCOUNT THAT AN AMOUNT O F ` .2822.63 LAKHS DEBITED UNDER THE HEAD OTHER EXPENSES INCLUDING A SUM OF ` .904.37 LAKHS IN THE SHAPE OF DISCOUNT. IN SUPPORT THEREOF, THE AS SESSEE PLEADED THAT THE SAME WAS NON-REALIZABLE AMOUNT, WHICH DESPITE BEING WRITTEN OFF HAD BEEN CLARIFIED AS DISCOUNT. TO BUTTRESS ITS PLEA, IT PRO DUCED ITS LEDGER BOOKS BEFORE THE ASSESSING OFFICER WHICH COULD NOT CONVINCE HIM. IN THE ASSESSMENT ORDER DATED 30.12.2008, HE DISALLOWED/ADDED BACK TH E AFORESAID AMOUNT OF ` .904.37 LAKHS, HOLDING THEREIN THAT IT RELATED TO E ARLIER ASSESSMENT YEAR AND THAT THE ASSESSEE HAD NOT WRITTEN OFF THE SAME IN I TS BOOKS OF ACCOUNT. THE ASSESSING OFFICER ALSO TOOK INTO CONSIDERATION THE RELEVANT STATUTORY PROVISION I.E. SECTION 36(1)(VII) AND HELD THAT SIN CE THE ASSESSEE HAD CLARIFIED THAT THE CLAIM IN ITS ENTRIES AS BEING DISCOUNT AL LOWED TO THE PARTIES IN THE FINANCIAL YEAR 2003-04 , THE ASSESSEE DID NOT FULFILL THE CONDITIONS OF TH E PROVISION. 7. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN A PPEAL. VIDE ORDER UNDER CHALLENGE, THE CIT(A) HAS DELETED THE AFORESA ID ADDITION BY HOLDING THAT THE ABOVE SAID DEBIT INSTANCE IN QUESTION WERE DEBT ACTUALLY WRITTEN OFF IN FURTHERANCE TO ASSESSEES NEGOTIATIONS WITH ITS CREDITORS LEADING TO A FINAL SETTLEMENT; WHEREIN, THE BALANCES WERE SHOWN AS DIS COUNT AND CREDITED IN I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1412 & 1413 412 & 1413 412 & 1413 412 & 1413/M/ /M/ /M/ /M/1 11 12 22 2 4 CREDITORS RESPECTIVE ACCOUNTS. THE CIT(A) HAS ALSO OBSERVED THAT OWING TO THE LINE OF BUSINESS OF THE ASSESSEE INVOLVING CRED IT SALES LEADING TO DIFFICULTIES IN RECOVERING THE SAME, IT HAD NEGOTIA TED AND SETTLED FOR SUMS LESSER THAN ACTUALLY RECEIVABLE WHICH REPRESENTED I RRECOVERABLE DEBTS/ DISCOUNTS AND THEREAFTER, IT HAD WRITTEN THEM OFF. COMING TO THE TERMINOLOGY ADOPTED BY THE ASSESSEE REPRODUCED HEREINABOVE (SUP RA) , THE CIT(A) HOLDS IT AS LANGUAGE OF CONVENIENCE REPRESENTING THE TRAN SACTION. PER CIT(A), THE ASSESSEE HAD FULFILLED ALL CONDITIONS MANDATED IN T HE RELEVANT STATUTORY PROVISION I.E. SECTION 36(1)(VII) OF THE ACT SO A S TO WRITE OFF THE BAD DEBTS IN QUESTION. THEREFORE, THE REVENUE IS AGGRIEVED AND RAISES THE INSTANT GROUND. 8. WE HAVE HEARD BOTH PARTIES IN DETAIL AND ALSO P ERUSED THE ASSESSMENT ORDER AS WELL AS ORDER OF THE CIT(A). TH E ONLY QUESTION WHICH ARISES FOR OUR CONSIDERATION IS AS TO WHETHER THE A MOUNT IN QUESTION HAS BEEN ACTUALLY WRITTEN OFF OR NOT AND WHETHER IT COM ES WITHIN THE PURVIEW OF BAD DEBTS UNDER SECTION 36(1)(VII) OF THE ACT. AS ALREADY STATED HEREINABOVE, THE FACTS ARE NOT IN DISPUTE. THE ASSE SSEE BEING A COMPANY INVOLVED IN FERTILIZER TRADING FOLLOWED BUSINESS PR ACTICE OF CREDIT SALES. IT HAD SOLD THE FERTILIZER TO VARIOUS PARTIES/CREDITORS WH O DID NOT PAY FULL AMOUNT PROMOTING IT TO ENTER INTO NEGOTIATIONS WITH THE SA ID CREDITORS RESULTING IN THE FINAL SETTLEMENT IN QUESTION. AS A CONSEQUENCE THER ETO, IT RECEIVED A PART OF I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1412 & 1413 412 & 1413 412 & 1413 412 & 1413/M/ /M/ /M/ /M/1 11 12 22 2 5 THE MONEY IN QUESTION IN ITS BOOKS OF ACCOUNT. THE ASSESSEE HAD SHOWN THE AMOUNT FORGONE AS DISCOUNT OFFERED TO THE SAID CRED ITORS AGAINST THEIR NAMES. THE REVENUE, NOWHERE DISPUTES THE AMOUNT IN QUESTION AS WELL AS THE FINDINGS OF THE CIT(A) THAT THE ASSESSEE HAD CR EDITED THE AMOUNTS OVER AND ABOVE RECEIVED IN ITS CREDIT ACCOUNTS AND MENTI ONED CREDIT IN THE SHAPE OF DISCOUNT. THIS IN OUR OPINION IS ONLY A PRACTICE ADOPTED BY THE ASSESSEE BY FOLLOWING BUSINESS PRUDENCE IT HAS CHOSEN TO TRE AT THE AMOUNTS NON- RECOVERABLE AS DISCOUNT ONLY INSTEAD OF CATEGORIZIN G THEM AS DEFAULTS, TO MAINTAIN ITS TRADING TIES WITH ITS CREDITORS. IT IS NOT THE CASE OF THE REVENUE THAT THE ACCOUNTS SUBMITTED BY THE ASSESSEE DO NOT REFLECT THE ACTUAL STATE OF AFFAIRS. THE DISPUTE BETWEEN THE PARTIES IS THAT PE R REVENUE, THE TERMINOLOGY USED (SUPRA) DOES NOT AMOUNT TO A CASE OF WRITING O FF BAD DEBTS. IN OUR VIEW, ONCE THE AMOUNTS ARE WRITTEN OFF, THE LANGUAGE USED BY THE CONCERN ASSESSEE IN THE ABSENCE OF ANY MISREPRESENTATION IN ACTUAL OR IN BOOKS OF ACCOUNT HARDLY CARRIES ANY SIGNIFICANCE. WE REITERA TE THAT NO PAPER BOOK, ETC. HAS BEEN FILED BY THE REVENUE TO DISPEL THE FINDING S OF THE CIT(A) UNDER CHALLENGE THAT THE ASSESSEE HAD NOT WRITTEN OFF THE AMOUNTS IN QUESTION. IN THIS VIEW OF THE MATTER, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE CIT(A). 9. COMING TO I.T.A. NO. 1413/MDS/2012, FACTS APROP OS ARE THAT QUA THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE HAD RETURNE D INCOME OF I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1412 & 1413 412 & 1413 412 & 1413 412 & 1413/M/ /M/ /M/ /M/1 11 12 22 2 6 ` .39,77,46,830/- ON 28.10.2005. ON 31.08.2007, THE A SSESSING OFFICER HAD COMPLETED REGULAR ASSESSMENT COMPUTING TOTAL INCO ME AS ` .40,12,11,920/-. THEREAFTER, HE REOPENED THE ASSESSMENT. IN RESPONSE THEREOF, THE ASSESSEE PERSISTED THAT THE RETURN ALREADY SUBMITTED AND CO NTESTED THE VALIDITY OF REOPENING BY TERMING IT AS CHANGE OF OPINION. REJ ECTING ASSESSEES OBJECTION, THE ASSESSING OFFICER VIDE ASSESSMENT OR DER DATED 23.12.2010 HELD THAT THE REOPENING HAD OCCURRED FOR ESCAPEMENT OF INCOME OF THE ASSESSEE SINCE IT HAD FAILED TO COMPUTE THE PROFITS AFTER TAKING INTO ACCOUNT PRIOR PERIOD EXPENDITURE BEING INVENTORY CARRYING C OST. 10. ON MERITS, THE ASSESSING OFFICER EXAMINED ASSE SSEES FORM 3CD FILED ALONG WITH THE RETURN. IN CLAUSE 22(B) THEREOF, T HE ASSESSEE HAD SHOWN PRIOR PERIOD EXPENDITURE DETAILS UNDER THE HEAD INVENTOR Y CARRYING COST OF EARLIER YEARS WRITTEN OFF AMOUNTING TO ` .963.28 LAKHS. IN SUPPORT, IT WOULD SUBMIT THAT OWING TO DEREGULATION OF FERTILIZER PRICE LEAD ING TO INPUT COST AND SOLE PRICE, THE STOCK COULD NOT SOLD IN MARKET. PER ASSE SSEE ANOTHER DEREGULATION ALSO CAME. IT CLAIMED TO HAVE RAISED THE ISSUE OF I NVENTORY CARRYING COST I.E. COST OF INTEREST AND STORAGE IN ADDITION TO SUBSIDY OFFERED AS INCOME IN ASSESSMENT YEAR 1997-98. IT FURTHER CONTENDED THAT SINCE THE GOVERNMENT HAD NOT PAID THE AMOUNT ABOVE SAID, IT HAD WRITTEN OFF THE SAME. THE ASSESSEE HAD ALSO CLARIFIED THAT THE AMOUNT IN QUES TION OF ` .963.28 LAKHS PERTAINED TO ASSESSMENT YEAR 1992-93 WHICH WAS ALSO OFFERED AS ITS INCOME I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1412 & 1413 412 & 1413 412 & 1413 412 & 1413/M/ /M/ /M/ /M/1 11 12 22 2 7 IN THE ASSESSMENT YEAR 1997-98. 11. ON BEING PUT UP TO FURTHER NOTICE BY THE ASSES SING OFFICER, THE ASSESSEE STATED IN SUPPORT OF THE CLAIM ABOVE SAID THAT AS PER ITS ANNUAL ACCOUNT FOR THE ASSESSMENT YEAR 1996-97, AN AMOUNT OF ` .17.97 CRORES MENTIONED THEREIN INCLUDED THE AMOUNT IN QUESTION O F ` .963.28 LAKHS IN THE NATURE OF CLAIM AGAINST GOVERNMENT OF INDIA AS INVE NTORY CARRYING COSTS. 12. AS WE FIND FROM THE ASSESSMENT ORDER DATED 23. 12.2010, THE ASSESSING OFFICER REPELLED THE EXPLANATION ABOVE SA ID TENDERED AT THE BEHEST OF THE ASSESSEE AND OBSERVED THAT NEITHER TH ERE WAS ANY EVIDENCE THAT THE AFORESAID DEBT HAD CRYSTALLIZED DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR NOR THERE WAS ANY EVID ENCE THAT IT HAD BECOME REALLY BAD. PER ASSESSING OFFICER, THE ASS ESSEE HAD LED NO CONCLUSIVE EVIDENCE THAT THE AMOUNT HAS BEEN OFFERE D AS INCOME IN THE EARLIER ASSESSMENT YEARS. THEREFORE, HE ADDED ` .963.28 LAKHS (SUPRA) IN ASSESSEES TOTAL INCOME. 13. THE ASSESSEE CARRIED THE ISSUE IN APPEAL AND C HALLENGED THE LEGALITY OF REOPENING AS WELL AS ADDITION ON MERITS AS MADE BY THE ASSESSING OFFICER. WE NOTICE FROM THE CIT(A)S ORDER UNDER CHALLENGE T HAT ASSESSEES GROUND CHALLENGING VALIDITY OF REOPENING HAS BEEN REJECTED , WHEREAS, ON MERITS, ITS ARGUMENTS STAND ACCEPTED. THE CIT(A) HAS PLACED REL IANCE ON ASSESSEES I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1412 & 1413 412 & 1413 412 & 1413 412 & 1413/M/ /M/ /M/ /M/1 11 12 22 2 8 ACCOUNTS FOR THE FINANCIAL YEAR 1996-97 AND HELD TH AT THE AMOUNT IN QUESTION HAD BEEN DULY OFFERED AS INCOME AND THEREAFTER IN T HE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR, IT HAD CHOSEN TO W RITE IT OFF FOR WANT OF SANCTION FROM THE GOVERNMENT. IN THIS MANNER, THE A SSESSEES APPEAL STANDS ACCEPTED ON MERITS. THEREFORE, THE REVENUE IS AGGRIEVED. 14. WE HAVE HEARD BOTH PARTIES AND PERUSED ASSESSM ENT ORDER, CIT(A)S ORDER AS WELL AS SHORT PAPER BOOK FILED BY THE ASSE SSEE. IT COMES TO OUR NOTICE THAT THE ASSESSEE HAD FILED A PETITION UNDER RULE 27 OF INCOME TAX RULES SEEKING PERMISSIONS TO RAISE AN ISSUE QUA REO PENING IN QUESTION. HOWEVER, THE AR HAS NOT CONTESTED THE PETITION IN T HE COURSE OF HEARING. IT TRANSPIRES FROM THE CASE FILE THAT THE ASSESSEE HAD RAISED A CLAIM OF BAD DEBTS QUA ITS INVENTORY CARRYING COST (SUPRA) IN T HE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR. PER ASSESSEE IT HAD D ULY OFFERED THE AMOUNT IN QUESTION AS INCOME FOR THE ASSESSMENT YEA R 1997-98. AS PER ASSESSMENT ORDER, THE ASSESSEE HAD OFFERED AN AMOUN T OF ` .17.97 CRORES AS ITS INCOME DURING THE SAID ASSESSMENT YEAR WHICH WA S DECLINED BY THE ASSESSING OFFICER. THE CIT(A) HAS ACCEPTED THIS CON TENTION WITHOUT ESTABLISHING ANY CORRELATION BETWEEN THE SAID AMOUN T OF ` .17.97 CRORES AND THAT INVOLVED IN THE INSTANT APPEAL OF ` .963.28 LAKHS. WE ALSO FIND FROM THE ORDER UNDER CHALLENGE THAT IN THE LOWER APPELLATE P ROCEEDINGS, THE ASSESSEE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 1412 & 1413 412 & 1413 412 & 1413 412 & 1413/M/ /M/ /M/ /M/1 11 12 22 2 9 HAD PLACED ON RECORD A LETTER ISSUED BY THE GOVERNM ENT OF INDIA DATED 27.03.2012 STATING THEREIN THAT ASSESSEES CLAIM OF ` .12.81 CRORES TOWARDS INVENTORY CARRYING COST COULD NOT BE CONSIDERED FOR PAYMENT. AGAIN THE CIT(A) NOWHERE RETURNS A FINDING AS TO WHETHER THE AMOUNT HEREIN FORMS PART OF THE SAID SUM OF ` .12.81 CRORES OR NOT. FACED WITH THIS SITUATION, WE DEEM IT APPROPRIATE THAT THE MATTER REQUIRES RECONSIDERATIO N BY THE ASSESSING OFFICER. ACCORDINGLY, WE RESTORE THE CASE FILE BACK TO THE ASSESSING OFFICER WHO SHALL DECIDE THE ISSUE RAISED HEREINABOVE IN AC CORDANCE WITH LAW AFTER AFFORDING ADEQUATE OPPORTUNITY OF HEARING TO THE AS SESSEE WHO WOULD BE AT LIBERTY TO PROVE ITS CASE BY WAY OF LEADING FURTHER EVIDENCE, IF ANY, IN THE INTEREST OF JUSTICE. 15. TO SUM UP, I.T.A. NO. 1412/MDS/2012 IS DISMISS ED AND I.T.A. NO. 1413/MDS/2012 IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON TUESDAY, THE 5 TH OF MARCH, 2013 AT CHENNAI. SD/- SD/- (ABRAHAM P. GEORGE) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER CHENNAI, DATED, THE 05.03.2013 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.