JCIT (OSD) 1(3), MUMBAI V. THIRUMALAI CHEMICALS LTD, MUMBAI

ITA 1675/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55214 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 26-05-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 04-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B JAYA KUMAR
• Keywords: Bad and doubtful debts
• Section: 143(3); 115JB

Judgement Text

1 ITA 304/ M/10 & 1675/M/10 THIRUMALAI CHEMICAL S LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E BEFORE SHRI N.V. VASUDEVAN, J.M. AND SHRI R.K. PAND A, A.M. ITA NO. 304/MUM/2010 ASSESSMENT YEAR 2003-04 THIRUMALAI CHEMICALS LIMITED, THIRUMALAI HOUSE, ROAD NO. 29, SION (E), MUMBAI -400 022. PAN AAACT2015M VS. ACIT - 1 (3), MUMBAI. APPELLANT RESPONDENT ITA NO. 1675/MUM/2010 ASSESSMENT YEAR 2003-04 ACIT 1(3), MUMBAI. VS. THIRUMALAI CHEMICALS LIMITED, THIRUMALAI HOUSE, ROAD NO. 29, SION (E), MUMBAI -400 022. PAN AAACT2015M APPELLANT RESPONDENT ASSESSEE BY SHRI HIRO RAI RESPONDENT BY SHRI B. JAYA KUMAR DATE OF HEARING 07.09.2011 DATE OF PRONOUNCEMENT 09.09.2011 ORDER PER R.K. PANDA A.M. THESE ARE CROSS APPEALS, THE FIRST ONE FILED BY THE ASSESSEE AND THE SECOND ONE FILED BY THE REVENUE AND ARE DIRECTED AGAINST T HE ORDER DT. 16.12.2009 OF THE CIT(A)- 2, MUMBAI RELATING TO A.Y. 2003-04. THE SE APPEALS WERE HEARD 2 ITA 304/ M/10 & 1675/M/10 THIRUMALAI CHEMICAL S LTD. TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. 2 . FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE DE RIVES INCOME FROM MANUFACTURING, DEALING AND EXPORT OF CHEMICALS. IN THE ASSESSEE FILED ITS RETURN OF INCOME ON 31.10.03 DECLARING TOTAL INCOME AT NI L. HOWEVER, TAX PAYABLE U/S 115JB ON BOOK PROFITS HAS BEEN SHOWN AT ` 98,20,556/-. IN THE ASSESSMENT COMPLETED U/S 143(3), THE A.O. DISALLOWE D PRIOR PERIOD EXPENSES OF ` 5,09,529/-, STAFF WELFARE EXPENSES ` 50,000/-, BAD DEBTS OF ` 1,65,08,264/-. FURTHER, THE A.O. RESTRICTED THE DEDUCTION U/S 80 M TO ` 21,91,310/- AS AGAINST ` 22,36,030/- CLAIMED BY THE ASSESSEE. SIMILARLY, H E ALSO DISALLOWED AN AMOUNT OF ` 1,87,633/- BEING EARLIER YEARS BONUS NOT PAYABLE W RITTEN BACK. AFTER RE-WORKING THE DEDUCTION U/S 80HHC, THE A.O. DETERMINED THE TOTAL INCOME AT ` 6,56,030/- UNDER THE NORMAL PROVISIONS. SIMILARLY , HE ALSO DETERMINED THE BOOK PROFIT U/S 115 JB AT ` 13,58,82,130/-. 2.1 IN APPEAL, THE LD. CIT(A) DELETED THE ADDITION MADE ON BOOK PROFIT BY THE A.O. THEREFORE THE FIGURE OF RETURNED BOOK PROFIT A ND ASSESSED BOOK PROFIT WERE SAME. HOWEVER, SINCE SEVERAL ADDITIONS MADE IN THE QUANTUM ASSESSMENT WERE CONFIRMED BY THE LD. CIT(A), THE A.O. INITIATED PEN ALTY PROCEEDINGS U/S 271(1)(C) AND LEVIED PENALTY OF ` 63,57,804/-. 2.2 IN APPEAL, THE LD. CIT(A) DELETED THE PENALTY L EVIED BY THE A.O. ON ACCOUNT OF ADDITION OF BAD DEBTS TO THE TUNE OF ` 1,65,08,264/-. HOWEVER, HE CONFIRMED THE PENALTY LEVIED BY THE A.O. ON ACCOUNT OF VARIOU S OTHER ADDITIONS U/S 143(3). AGGRIEVED WITH SUCH PART RELIEF, BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS:- GROUNDS OF APPEAL BY THE ASSESSEE: 3 ITA 304/ M/10 & 1675/M/10 THIRUMALAI CHEMICAL S LTD. 1. THE LD. CIT (APPEALS) WAS NOT JUSTIFIED IN HOLDI NG THAT IN A CASE WHERE THE APPELLANT WAS ASSESSED U/S 115JB AND THER E WAS NO DIFFERENCE BETWEEN THE ASSESSED BOOK PROFIT AND THE RETURNED BOOK PROFIT, PENALTY FOR CONCEALMENT U/S 271(1)(C) COULD NOT BE LEVIED IN RESPECT OF THE ADDITIONS/DISALLOWANCES MADE WHILE C OMPUTING THE NORMAL INCOME UNDER THE ACT. 2. THE LEARNED CIT (APPEALS) WAS NOT JUSTIFIED IN C ONFIRMING THE LEVY OF PENALTY U/S 271(1)(C) IN RESPECT OF: I. DISALLOWANCE OF PRIOR PERIOD EXPENSES II. DISALLOWANCE OUT OF STAFF WELFARE EXPENSES III. DISALLOWANCE OF ESTIMATED EXPENSES INCURRED I N EARNING DIVIDEND IV. EARLIER YEARS CLAIM NOT PAYABLE AND WRITTEN BA CK. GROUNDS OF APPEAL BY THE REVENUE: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT TO THE EXTENT OF ` 60,66,787/- RELATED TO THE CLAIM OF BAD DEBTS WHICH THE ASSESSEE HAS NOT BEEN ABLE TO PROVE TO BE A BONAFIDE CLAIM. 3. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET S UBMITTED THAT WHEN THE TOTAL INCOME COMPUTED UNDER REGULAR PROVISIONS IS L ESS THAN THE BOOK PROFIT DETERMINED U/S 115JB PENALTY U/S 271(1)(C) CANNOT B E LEVIED IN VIEW OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. NALWA SONS INVESTMENTS LTD. REPORTED IN [2010] 327 ITR 543 (DE LHI). HE ALSO RELIED ON THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL I N THE CASE OF DCIT VS. USSADEV INTERNATIONAL LTD. REPORTED IN 129 ITD 167. HE ACCORDINGLY SUBMITTED THAT NO PENALTY IS LEVIABLE U/S 271(1)(C) OF THE AC T. 4. THE LD. D.R., ON THE OTHER HAND, VEHEMENTLY OPPO SED THE ABOVE ARGUMENT ADVANCED BY THE LD. COUNSEL FOR THE ASSESSEE. HE SU BMITTED THAT IRRESPECTIVE OF THE INCOME DETERMINED U/S 115JB BEING HIGHER THAN T HE INCOME DETERMINED UNDER THE NORMAL PROVISIONS, PENALTY U/S 271(1)(C) IS LEVIABLE ON ACCOUNT OF VARIOUS ADDITIONS MADE IN THE 143(3) ORDER. HE ACCO RDINGLY SUBMITTED THAT THE PENALTY LEVIED BY THE A.O. SHOULD BE UPHELD. 4 ITA 304/ M/10 & 1675/M/10 THIRUMALAI CHEMICAL S LTD. 5. AFTER HEARING BOTH THE SIDES, WE FIND THE A.O. DETERMINED THE INCOME OF THE ASSESSE AT ` 6,56,030/- UNDER THE NORMAL PROVISIONS AND DETERMI NED THE BOOK PROFIT U/S 115JB AT ` 13,58,82,130/- AS AGAINST NIL RETURNED INCOME AN D THE INCOME U/S 115JB DECLARED AT ` 12,47,05,479/- DECLARED BY THE ASSESSEE. WE FIND AFTER THE ORDER OF THE LD. CIT(A) THE BOOK PROFIT DECLARED BY THE ASSESSEE U/S 115 JB AND DETERMINED BY THE A.O. U/S 115JB REM AINS SAME. EVEN AFTER THE VARIOUS ADDITIONS MADE BY THE A.O. IN THE ORDER PASSED U/S 143(3), THE INCOME DETERMINED U/S 115JB IS MUCH MORE THAN THE I NCOME DETERMINED BY THE A.O. UNDER THE NORMAL PROVISIONS OF THE ACT. WE FIND THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NALWA SONS INVESTMENTS LTD. (SUPRA) HAS HELD AS UNDER:- UNDER THE SCHEME OF THE INCOME-TAX ACT, 1961, THE T OTAL INCOME OF THE ASSESSEE IS FIRST COMPUTED UNDER THE NORMAL PROVISI ONS OF THE ACT AND TAX PAYABLE ON SUCH TOTAL INCOME IS COMPARED WITH T HE PRESCRIBED PERCENTAGE OF THE BOOK PROFITS COMPUTED UNDER SECTI ON 115JB OF THE ACT. THE HIGHER OF THE TWO AMOUNTS IS REGARDED AS TOTAL INCOME AND TAX IS PAYABLE WITH REFERENCE TO SUCH TOTAL INCOME. IF THE TAX PAYABLE UNDER THE NORMAL PROVISIONS IS HIGHER, SUCH AMOUNT IS THE TOTAL INCOME OF THE ASSESSEE, OTHERWISE, THE BOOK PROFITS ARE DE EMED AS THE TOTAL INCOME OF THE ASSESSEE IN TERMS OF SECTION 115JB OF THE ACT. WHERE THE INCOME COMPUTED IN ACCORDANCE WITH THE NORMAL PROCE DURE IS LESS THAN THE INCOME DETERMINED BY LEGAL FICTION, NAMELY THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT AND THE INCOME OF THE ASSE SSEE IS ASSESSED UNDER SECTION 115JB AND NOT UNDER THE NORMAL PROVIS IONS, THE TAX IS PAID ON THE INCOME ASSESSED UNDER SECTION 115JB OF THE ACT. CONCEALMENT OF INCOME WOULD HAVE NO ROLE TO PLAY AN D WOULD NOT LEAD TO TAX EVASION. THEREFORE, PENALTY CANNOT BE IMPOS ED ON THE BASIS OF DISALLOWANCE OR ADDITIONS MADE UNDER THE REGULAR PR OVISIONS. 5.1 SINCE THERE IS NO DIFFERENCE BETWEEN THE INCOME DETERMINED U/S 115JB BY THE ASSESSEE AND THE A.O. AND SINCE THE INCOME D ETERMINED U/S 115JB IS HIGHER THAN THE INCOME DETERMINED UNDER THE NORMAL PROVISIONS OF THE ACT, THEREFORE, IN VIEW OF THE DECISION OF THE HONBLE D ELHI HIGH COURT IN THE CASE OF NALWA SONS INVESTMENTS LTD. (SUPRA), NO PENALTY U/S 271(1)(C) IS LEVIABLE. 5 ITA 304/ M/10 & 1675/M/10 THIRUMALAI CHEMICAL S LTD. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 6. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 09.09.2011. SD/- SD/- (N.V. VASUDEVAN) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED : 09.09.2011 RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 2, MUMBAI 4. THE CIT 1, MUMBAI 5. THE DR BENCH, E 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI