ACIT, CHENNAI V. M/s. State Engineering and Servicing Co. of Tamil Nadu, CHENNAI

ITA 1664/CHNY/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4998 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 24-05-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 22-10-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B SRINIVAS
• Assessee Lawyers: N MUTHUKUMARAN
• Keywords: Retrospective amendment; Bad and doubtful debts
• Section: 43B; 115JB; 147

Judgement Text

INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI (BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER) .. I.T.A. NO. 1664/MDS/2009 ASSESSMENT YEAR : 2001-02 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(4), CHENNAI 600 034. (APPELLANT) V. M/S STATE ENGINEERING AND SERVICING CO. OF TAMIL NADU, THIRU-VI-KA INDUSTRIAL ESTATE, GUINDY, CHENNAI 600 032. PAN : AAACS9901P (RESPONDENT) APPELLANT BY : SHRI B. SRINIVAS RESPONDENT BY : SHRI N. MU THUKUMARAN O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, THERE ARE FIV E GROUNDS IN TOTAL OUT OF WHICH, 1 AND 5 ARE GENERAL IN NATURE N EEDING NO ADJUDICATION. VIDE ITS GROUND NOS. 2 AND 3, REVENU E HAS RAISED TWO GRIEVANCES BOTH RELATING TO DELETION OF AN ADDITION OF ` 58 LAKHS. I.T.A. NO. 1664/MDS/09 2 2. FIRST GRIEVANCE IS REGARDING DELETION MADE UNDER NORMAL PROVISIONS OF INCOME-TAX ACT, 1961 (HEREINAFTER CAL LED THE ACT) AND SECOND GRIEVANCE IS REGARDING DELETION OF ADDITION MADE BY THE A.O. WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE ACT. 3. SHORT FACTS APROPOS ARE THAT ASSESSEE, AN ENGINE ERING SERVICE COMPANY, HAD ITS ASSESSMENT REOPENED UNDER SECTION 147 OF THE ACT FOR THE IMPUGNED ASSESSMENT YEAR BASED ON THE FOLLO WING INFORMATION:- AS PER THE A.O., THE ABOVE WERE NOT CONSIDERED WHEN THE RETURN WAS ORIGINALLY PROCESSED UNDER SECTION 143(1) OF THE AC T. THE A.O. AFTER GOING THROUGH THE PROFIT AND LOSS ACCOUNT FILED BY THE ASSESSEE, NOTED THAT A SUM OF ` 58 LAKHS GRANTED TO THE ASSESSEE FOR PAYING OF ITS SALES TAX ARREARS WAS NOT ENTERED THEREIN. ASSESSE E HAD ALSO FILED A REWORKED INCOME AND EXPENDITURE ACCOUNT. HOWEVER, AS PER THE A.O., THE SALES TAX ARREARS WAS ALREADY IN BALANCE SHEET AND WHAT (I) WRITE OFF OF GOVERNMENT LOAN AMOUNTING TO ` 1184.39 AGAINST THE ACCUMULATED LOSSES. (II) WAIVER OF INTEREST LIABILITY ON THE GOVERNMENT LOAN OF ` 20 LAKHS. (III) GRANT OF ` 58 LAKHS TO PAY SALES TAX ARREARS. (IV) SANCTION OF ` 49.71 LAKHS TO REPAY THE SHARE CAPITAL OF TANSI. I.T.A. NO. 1664/MDS/09 3 WAS OMITTED WAS ONLY THE GRANT AMOUNT OF ` 58 LAKHS RECEIVED FROM THE GOVERNMENT. HE, THEREFORE, MADE AN ADDITION OF SUCH AMOUNT. SIMILARLY, FOR WORKING OUT THE BOOK PROFITS UNDER S ECTION 115JB OF THE ACT, ALSO THE SAME ADDITION WAS MADE BY THE A.O. 4. IN ITS APPEAL BEFORE THE CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT THE SALES TAX GRANT WAS GIVEN TO MEET THE SALES TAX ARREARS AND WAS DULY PAID BY IT. ACCORDING TO ASSESSEE, SINCE THE SALES TAX WAS DULY PAID, IT WAS ENTITLED TO DEDUCTI ON OF THE AMOUNT ON PAYMENT BASIS UNDER SECTION 43B OF THE ACT. FURTHE R, AS PER THE ASSESSEE, IN THE EARLIER YEARS, SALES TAX WAS NOT A LLOWED AS DEDUCTION SINCE IT WAS NOT PAID, VIDE SECTION 43B OF THE ACT. AS PER THE ASSESSEE, EVEN IF THIS AMOUNT WAS SHOWN IN THE PROF IT AND LOSS ACCOUNT, THERE WOULD BE CONTRA ENTRIES, IN INCOME A ND EXPENDITURE ACCOUNT AND HENCE, NO EFFECT WHATSOEVER ON THE WORK ING RESULT FOR THE RELEVANT PREVIOUS YEAR. LD. CIT(APPEALS) WAS APPRE CIATIVE OF THIS CONTENTION. ACCORDING TO HIM, EVEN IF THE SAID AMO UNT OF ` 58 LAKHS WAS CONSIDERED AS INCOME, THE PAYMENT OF SALES TAX ` 58 LAKHS EFFECTED DURING THE YEAR HAD TO BE ALLOWED AS DEDUC TION AND NET I.T.A. NO. 1664/MDS/09 4 EFFECT WOULD BE NIL. BASED ON THIS REASONING, LD. CIT(APPEALS) DELETED THE ADDITION MADE BY THE A.O. UNDER THE NOR MAL COMPUTATION AS WELL AS IN THE COMPUTATION UNDER SECTION 115JB O F THE ACT. 5. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF THE CIT(APPEALS), SUBMITTED THAT THE SUM OF ` 58 LAKHS WAS SHOWN AS LIABILITY BY THE ASSESSEE IN ITS BALANCE SHEET. AC CORDING TO LEARNED D.R., NOTHING COMES OUT OF THE RECORDS TO SHOW THAT SUCH SALES TAX ARREARS OF ` 58 LAKHS WAS PAID DURING THE RELEVANT PREVIOUS YEA R AFTER THE RECEIPT OF THE GRANT FROM THE GOVERNMENT. FURT HER, AS PER THE LEARNED D.R., THERE WAS NOTHING ON RECORD TO SHOW T HAT THE SALES TAX ARREARS ARISING OUT OF THE SALES TAX DUES FOR THE E ARLIER YEARS WERE NOT ALLOWED AS DEDUCTION ON ACCOUNT OF SECTION 43B OF T HE ACT. THEREFORE, ACCORDING TO LEARNED D.R., A.O. WAS JUST IFIED IN MAKING THE ADDITION WHILE COMPUTING THE TOTAL INCOME OF THE AS SESSEE AS PER THE NORMAL PROVISIONS AS WELL AS THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT. 6. PER CONTRA, LEARNED A.R. SUBMITTED THAT THE ASSE SSEE WAS NOT READILY HAVING ANY RECORD TO SHOW HOW THE ENTRIES W ERE MADE IN PROFIT I.T.A. NO. 1664/MDS/09 5 AND LOSS ACCOUNT FOR SALES TAX DUES OF EARLIER YEAR S AND PAYMENTS DURING THE RELEVANT PREVIOUS YEAR. NEVERTHELESS, L EARNED A.R. SUBMITTED THAT THE MATTER MAY BE REMITTED BACK TO T HE A.O. FOR RECONSIDERATION BASED ON ENTRIES PASSED BY THE ASSE SSEE IN THIS REGARD AND ALLOWANCES GIVEN IN THE EARLIER YEARS. 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. AS PER THE A.O., A SUM OF ` 58 LAKHS RECEIVED AS GRANT FROM GOVERNMENT HAD NOT ENTERED THE PROFIT AND LOSS ACCO UNT. WE CANNOT FIND ANYTHING ON RECORD TO SHOW HOW THE DUES OF ` 58 LAKHS HAD COME ABOUT IN THE BALANCE SHEET OF THE ASSESSEE AS SALES TAX ARREARS. THERE IS NOTHING ON RECORD TO SHOW WHETHER THE SALE S TAX ARREARS WERE EARLIER CLAIMED AND WHETHER ALLOWED OR DISALLO WED BY THE A.O. NO DOUBT, THE SUM OF ` 58 LAKHS WOULD BE A TRADING INCOME FOR THE ASSESSEE SINCE IT WAS RECEIVED FOR PAYMENT OF SALES TAX ARREARS. NEVERTHELESS, SINCE THE FACTS ARE NOT ON RECORD AND THE CIT(APPEALS) HAD SIMPLY GONE BY THE AVERMENT OF THE ASSESSEE IN THIS REGARD, WE ARE OF THE OPINION THAT THE MATTER REQUIRES A REVIS IT BY THE A.O. WE, THEREFORE, SET ASIDE THE ORDERS OF LD. CIT(APPEALS) AS WELL AS OF A.O. I.T.A. NO. 1664/MDS/09 6 IN THIS REGARD AND DIRECT THE A.O. TO CONSIDER THE ISSUE AFRESH, BOTH WITH REGARD TO NORMAL COMPUTATION AS WELL AS WITH R EGARD TO COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB OF THE ACT. ASSESSEE HAS TO BE GIVEN AN OPPORTUNITY TO SUPPORT AND EXPLAIN ITS CLAIM. 8. GROUNDS NOS.2 AND 3 ARE THEREFORE ALLOWED FOR ST ATISTICAL PURPOSES. 9. VIDE GROUND NO.4, GRIEVANCE OF THE REVENUE IS TH AT CIT(APPEALS) DELETED THE ADDITION MADE BY THE A.O. WHILE COMPUTING BOOK PROFITS OF THE ASSESSEE FOR THE PROVISION MADE BY THE ASSESSEE FOR BAD DEBTS. ACCORDING TO REVENUE, THOUGH IN THE DECISION OF HON'BLE APEX COURT IN THE CASE OF CIT V. HCL COMNET SYSTEMS AND SERVICES LTD. (305 ITR 409) IT WAS HELD THAT PROVIS ION FOR BAD DEBTS WAS A PROVISION FOR DIMINUTION OF VALUE OF ASSET AN D THEREFORE, NOT AMENABLE TO AN ADDITION WHILE WORKING OUT BOOK PROF IT UNDER SECTION 115JB OF THE ACT, THERE WAS AN AMENDMENT TO SECTION 115JB WHEREBY CLAUSE (I) WAS INTRODUCED IN EXPLANATION 1 BY FINANCE (NO.2) ACT, 2009 WITH RETROSPECTIVE EFFECT FROM THE ASSESS MENT YEAR 2001- I.T.A. NO. 1664/MDS/09 7 02. FURTHER, AS PER THE LEARNED D.R., BECAUSE OF T HIS AMENDMENT, THE ADDITION MADE BY THE A.O. WHILE COMPUTING BOOK PROF IT STOOD JUSTIFIED. 10. PER CONTRA, LEARNED A.R. FAIRLY ADMITTED THAT T HE AMENDED PROVISION OF THE ACT CAME TO THE HELP OF THE REVENU E. 11. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. HON'BLE APEX COURT IN THE CASE OF HCL COMNET SYSTEM S AND SERVICES LTD. (SUPRA) HELD THAT A PROVISION FOR BAD DEBTS IS PROVISION FOR DIMINUTION OF VALUE OF ASSETS AND WOULD NOT FAL L UNDER ANY OF THE CLAUSES IN EXPLANATION 1 TO SECTION 115JB OF THE AC T. THE PARLIAMENT IN ITS WISDOM CHOSE TO INTRODUCE NEW CLAUSE (I) TO SUCH EXPLANATION WHICH, NEVERTHELESS, NULLIFIED THE LAW LAID DOWN BY HON'BLE APEX COURT IN THE CASE OF HCL COMNET SYSTEMS AND SERVICE S LTD. (SUPRA) RETROSPECTIVELY. THIS EXPLANATION, NOW MAKES IT MA NDATORY TO ADD THE PROVISION TO BAD DEBTS WHILE COMPUTING BOOK PROFITS . WE ARE, THEREFORE, OF THE OPINION THAT THE ASSESSING OFFICE R WAS JUSTIFIED IN MAKING SUCH AN ADDITION. WE, THEREFORE, SET ASIDE THE ORDER OF LD. CIT(APPEALS) AND REINSTATE THE ADDITION MADE BY THE A.O. IN THIS REGARD. I.T.A. NO. 1664/MDS/09 8 12. GROUND NO.4 STANDS ALLOWED. 13. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED PRO TANTO . THE ORDER WAS PRONOUNCED IN THE COURT ON 31 ST MAY, 2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 31 ST MAY, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-V, CHENNAI-34 (4) CIT, CHENNAI-III, CHENNAI (5) D.R. (6) GUARD FILE