Asst. Commissioner of Income Tax, Circle-16(1), Hyderabad V. Nagarjuna Agrichem Limited , Hyderabad

ITA 1680/Hyd/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1535 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 16-05-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 03-10-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DINESH PADUCHURI
• Assessee Lawyers: C S SUBRAMANYAM
• Section: 143(3); 115JB; 154; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A ', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO. 1680 HYD/201 7 ASSESSMENT YEAR: 20 1 2 - 1 3 ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 16(1) , HYDERABAD. VS. NAGARJUNA AGRICHEM LTD., HYDERABAD. PAN AAACN 6932 H A PPELLANT RESPONDENT REVENUE BY: S H RI DINESH PADUCHURI ASSESSEE BY: S HRI C.S. SUBRAMANYAM DATE OF HEARING: 1 6 / 0 5 / 201 9 DATE OF PRONOUNCEMENT: 14 / 0 6 /201 9 O R D E R PER S. RIFAUR RAHMAN , AM: T H IS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A) 4 , HYDERABAD DATED, 28 /0 7 /201 7 FOR AY 20 1 2 - 1 3 . 2. BRIEF FACTS OF THE CASE ARE, T HE A SSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE A.Y.2012 - 13 ADMITTING TOTAL INCOME AT NIL AND BOOK PROFITS U/S 115JB AT RS.14,25,15,299/ - ORIGINALLY THE ASSESSMENT WAS COMPLETED U/S 143(3) BY MAKING AN ADDITION OF RS. 25 ,00,000/ - TOWARDS NON - MAINTENANCE OF PROPER VOUCHERS TOWARDS VARIOUS EXPENDITURE AND DETERMINED THE TOTAL INCOME AT NIL AFTER SETTING OFF BROUGHT FORWARD LOSSES OF EARLIER YEARS AND BOOK PROFIT U/ S 115JB AT RS. 14,25,15,299/ - . THE ASSESSING OFFICER OBSERVE D THAT WHILE ARRIVING BOOK PROFIT U/S 115JB, A MISTAKE WAS CREPT I.E., IN THE P & L ACCOUNT, AN AMOUNT OF RS. 1,12,22,587/ - WAS DEBITED I.T.A. NO. 1680 /HYD/1 7 NAGARJUNA AGRICHEM LTD., HYD. 2 TOWARDS PROVISION FOR INTEREST FOR DELAYED PAYMENTS AND THE SAME WAS NOT ADDED BACK FOR ARRIVING BOOK PROFIT U/S 115JB, WHICH NEEDS TO BE RECTIFIED U/S 154. HENCE, THE ASSESSING OFFICER ISSUED A NOTICE U/S 154 BUT THERE WAS NO RESPONSE FROM THE A SSESSEE . THEREFORE, THE ASSESSING OFFICER PASSED ORDER U/S 154 BY RECTIFYING THE ABOVE BY ADDING THE PROVISIONS OF RS. 1,12,22,587 / - TO THE NET PROFIT WHILE COMPUTING THE BOOK PROFIT U/S 115JB AND ASSESSED THE BOOK PROFIT AT RS. 15,37,37,886/ - . 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 4. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT INTEREST LIABILITY IS AS PER THE TERMS OF CONTRACT AND THE LIABILITY GOT ACCRUED. HOWEVER, DISCHARGE OF SUCH LIABILITY IS F OR THE PAYMENT OF THE ACCRUED LIABILITY AND DOES NOT AFFECT THE ACCRUAL LIABILITY IN THE CURRENT PERIOD. THE COMPANY REGULARLY REVERSES THE EXCESS PROVISION OF INTEREST IN THE SUBSEQUENT YEARS. THIS IS INCLUDED AS PART OF OTHER INCOME AND CREDITED TO P&L A /C. FURTHER, IT WAS SUBMITTED THAT THE ASSESSEE FOLLOWS SIMILAR PROCEDURE OF CREATION OF LIABILITY AND REVERSAL OF THE EXCESS LIABILITY IN THE LATER YEAR AFTER NEGOTIATING WITH THE VENDORS. HENCE, IN THE CURRENT YEAR, PROFIT AND LOSS ACCOUNT WAS CREDITED WITH THE EARLIER YEARS LIABILITY WHICH WAS NOT PAID. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE , THE CIT(A) DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: 5.3. I HAVE CAREFULLY CONSIDERED THE ORDER U / S 154 AND THE SUBMISSIONS OF THE APPELLANT. THE ASSESSING OFFICER ADDED PROVISION FOR INTEREST FOR DELAYED PAYMENT OF RS. 1,12,22,587 / - U / S 154 OF THE I. T. ACT. IN THIS REGARD, THE I.T.A. NO. 1680 /HYD/1 7 NAGARJUNA AGRICHEM LTD., HYD. 3 APPELLANT'S SUBMISSION THAT IT IS NOT APPARENT MISTAKE TO RECTIFY, SINCE IT IS NOT A MISTAKE APPARENT FR OM RECORDS, WAS ACCEPTED. EVEN OTHERWISE ON MERITS ALSO, FROM THE DETAILS SUBMITTED BY THE APPELLANT IT IS SEEN THAT THE INTEREST WAS ALREADY DEBITED AND CREATED THAT NOT PAID FOR EARLIER YEAR AS OTHER INCOME AFTER CALCULATION OF BOOK PROFIT U / S 11 5JB. SINCE, IT IS ALREADY COVERED IN PROFIT AS PER SECTION 115JB, SO ADDITION NOT WARRANTED AND THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER DELETED. 6. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE C I T(A) ERRED IN DELETING THE ADDITION OF 'PROVISION FOR INTEREST ON DELAYED PAYMENTS TO SUPPLIERS' OF RS.1,12,22,587/ - UNDER EXPLANATION 1(C) OF SECTION 115 JB (2) OF THE ACT. 2. THE C I T(A) ERRED IN HOLDING THAT THE MISTAKE WAS N OT APPARENT FROM RECORD. 3. THE C I T(A) ERRED IN HOLDING THAT ON MERITS ALSO THE ADDITION WAS NOT WARRANTED. 4. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 7. BEFORE US, THE LD. DR FILED WRITTEN SUBMISSIONS WHICH ARE AS UNDER: 3. IN T HIS REGARD, IT IS SUBMITTED THAT THE COMPUTATION OF MAT INCOME IS REQUIRED TO BE DONE BY THE ASSESSEE AS PER THE PROVISION OF THE 115JB AND IS TO BE REPORTED IN FORM 29B AS CERTIFIED BY THE CHARTERED ACCOUNTANT. THE FORM 29B SUBMITTED BY THE ASSESSEE FOR T HE ASSESSMENT YEAR UNDER CONSIDERATION IS ATTACHED IN THIS PAPER BOOK FROM PAGE 4 TO 6. AS SEEN FROM PAGE 6 OF THE PAPER BOOK, THE BOOK PROFIT REPORTED BY THE ASSE S SEE IS RS. 14,25,15,299/ - . WHEREAS IN THE AMOUNTS ADDED TO THE PROFIT AS PER COMPANIES ACT W HILE COMPUTING THE BOOK PROFIT UNDER 115JB, DOES NOT INCLUDE THE PROVISION FOR INTEREST ON DELAYED PAYMENTS. HENCE, IT IS SUBMITTED THAT OBSERVATION/CONCLUSION OF THE CIT(A) IN PARA 5.3 OF HER ORDER, WHICH IS A VERY BASIS OF THE RELIEF GRANTED BY THE CIT(A ), THAT THE PROVISION IS ALREADY COVERED IN THE PROFIT AS PER 115JB WHILE CALCULATING BOOK PROFIT IS FACTUALLY INCORRECT. I.T.A. NO. 1680 /HYD/1 7 NAGARJUNA AGRICHEM LTD., HYD. 4 4. ON THE ISSUE OF WHETHER THE 'PROVISION OF INTEREST ON DELAYED PAYMENTS' IS AN ASCERTAINED OR UNASCERTAINED LIABILITY, KIND REFERE NCE IS INVITED TO THE ASSESS E E'S LETTER DATED 11.11.2014 SUBMITTED TO THE A.O DURING THE COURSE OF ASSESSMENT PROCEEDINGS (PAGE NO. 7 TO 10 OF THIS PAPER BOOK). IN PAGE NO.10, IN RESPONSE TO THE A.O'S REQUEST FOR SUBMISSION OF THE DETAILS ON 'INTEREST - OTH ERS', THE ASSESSEE SUBMITTED THE SAME AS ANNEXURE - 2 IN THE SAID LETTER WHICH SHOWS THE INTEREST ON THE DELAYED PAYMENTS TO SUPPLIER FOR THE F.Y. 2011 - 12. IT IS EVIDENT FROM THIS SUBMISSION THAT WHERE THE INTEREST ON DELAYED PAYMENTS IS ASCERTAINED, THE SAM E IS CREDITED TO THE RESPECTIVE PARTIES AS DONE IN THE CASE OF FIRST 4 PARTIES OF THE TABLE IN PAGE NO. 10: - NAME OF THE VENDOR INTEREST AMT BASF INDIA LIMITED 28,007 DOW AGRO SCIENCES LLC 2,046,828 KRISHI RASA YAN EXPORTS PVT. LTD. 78,14,329 PARAS DYES & CHEMICHALS PVT. LTD. 73,303 WHEREAS THERE IS A LUMSUM 'PROVISION OF INTEREST ON DELAYED PAYMENTS' TO SUPPLIERS OF RS. 1 ,12,22,587/ - WHICH IS EVIDENTLY AN UNASCERTAINED LIABILITY AS IT I S A LUMSUM AMOUNT FOR WHICH PROVISION IS CREATED AND NOT CREDITED TO THE SPECIFIC PARTIES. FURTHER, IN THE ASSESSEE'S SUBMISSIONS TO THE A.O VIDE UNDATED LETTER ATTACHED IN THIS PAPER BOOK AS PAGE NOS. 11 TO 12 AND WHICH ALSO FORMING PART OF THE AS S ESSEE'S PAPER BOOKS SUBMITTED BEFORE THE HON'BLE ITAT AT PAGE 90 & 91, AT POINT NO.3, THE ASSESSEE EXPLAINED THAT AN AMOUNT OF RS. 3.39 CRORES IS PAID AS INTEREST TO CUSTOMERS BY DEBITING THE P&L ACCOUNT AND CREDITING TO THE RESPECTIVE CUSTOMER ACCOUNTS. FURTHER, IN PAGE 12 OF THIS PAPER BOOK, THE ASSESSEE ALSO EXPLAINED AT ON POINT NO. II THAT OUT OF THE TOTAL INTEREST ON DELAYED PAYMENTS TO SUPPLIERS OF RS. 2,11,85,054, AN AMOUNT OF RS. 1 ,12,22,587/ - IS THE PROVISION FOR INTEREST ON DELAYED PAYMENT TO SUPPLIERS. B ASED ON SUBSEQUENT NEGOTIATIONS WITH THE SUPPLIERS AND AS AGREED, THIS AMOUNT WAS NOT PAID TO THEM AND HENCE WAS WRITTEN BACK IN A SUBSEQUENT YEAR. 5. IT IS SUBMITTED IN THIS REGARD, THAT THE VERY FACT THAT OUT OF THE TOTAL INTEREST ON DELAYED PAYMENTS, PART OF THE INTEREST WHICH ARE ASCERTAINED ARE CREDITED TO THE RESPECTIVE CUSTOMERS ACCOUNTS AND A LUMSUM PROVISION I.T.A. NO. 1680 /HYD/1 7 NAGARJUNA AGRICHEM LTD., HYD. 5 IS ONLY MADE WHICH IS NOT CREDITED TO ANY SPECIFIC CUSTOMERS ACCOUNTS SHOWS THAT THE LUMSUM PROVISION IS AN UNASCERTAINED LIABILITY AND THE AMOUNTS CREDITED TO THE CUSTOMERS ACCOUNT ARE ASCERTAINED LIABILITIES. BOTH PUT TOGETHER, THE TOTAL TO THE INTEREST ON DELAYED PAYMENTS IS RS. 2,11,85,050 AND OUT OF THIS ONLY THE UNASCERTAINED LIABILITY PORTION HAS BEEN ADDED TO THE BOOK PROFIT AS REQUIRE D UNDER 115JB OF THE ACT. THE ASSESSE E 'S EXPLANATION THAT THERE WERE SUBSEQUENT NEGOTIATIONS WITH THE SUPPLIERS AND THIS AMOUNTS WERE NOT PAID TO THEM IS YET ANOTHER PROOF THAT THE VERY PROVISION IS UNASCERTAINED. FURTHER, THE PARTIES SHOWN IN PAGE 21 OF T HE ASSESSEE'S PAPER BOOK DATED 06.05.2019 ONLY SHOWS THE BREAK UP OF THE PROVISIONS MADE DURING THE YEAR BUT IN NO WAY PROVES THAT INTEREST IS CREDITED TO THE RESPECTIVE PARTY ACCOUNT. WHEREVER THE INTEREST IS CREDITED TO THE RESPECTIVE PARTY ACCOUNT AS IN THE CASE OF FIRST 4 PARTIES IN PAGE 10 OF THIS PAPER BOOK, THE CORRESPONDING INTEREST IS NOT TREATED AS ASCERTAINED LIABILITY AND NOT ADDED TO THE 115JB PROFIT. THE INVOICES ATTACHED AT PAGE 24&25 OF THE ASSESSEE'S PAPER BOOK CORRESPOND TO THE SUPPLIER DO W AGRO SCIENCES LLC AND THE INTEREST CREDITED TO THIS PARTY IS IN ANY CASE NOT ADDED TO THE 115JB PROFIT. 6. ON THE ISSUE WHETHER WRONG COMPUTATION OF BOOK PROFIT IS A MISTAKE APPARENT FROM RECORD OR NOT IT IS HUMBLY SUBMITTED THAT DURING THE COURSE ASSE SSMENT PROCEEDING THE ASSESSING OFFICER CALLED FOR THE DETAILS OF THE INTEREST DEBITED FROM THE P&L AND IN RESPONSE THE ASSESSEE SUBMITTED THE SAME VIDE LETTER DATED 11.11.2004 IN WHICH THE PROVISION FOR INTEREST ON DELAYED PAYMENTS HAS BEEN REFLECTED. THE A.O, HOWEVER, WHILE PASSING THE ASSESSMENT ORDER OUGHT TO HAVE ADDED THIS TO THE BOOK PROFIT UNDER 115JB AS THE SAME IS AN UNASCERTAINED LIABILITY AS APPARENT FROM THE ASSESSEE'S OWN SUBMISSIONS WHICH ARE PART OF THE RECORD. HOWEVER, A MISTAKE HAS CREPT I N THE COMPUTATION BY NOT ADDING SO. THERE WAS NO OPINION EXPRESSED BY THE A.O AT ANY POINT OF TIME THAT IT IS AN ASCERTAINED LIABILITY. HENCE, THE MISTAKE CAN BE TREATED AS AN APPARENT FROM THE RECORD AND RECTIFIABLE U/S 154 OF THE ACT. 7. CONSIDERING TH E ABOVE SUBMISSIONS, IT IS RESPECTFULLY AND HUMBLY PRAYED THAT THE ADDITION MADE U/S 154 BY THE A.O IS UPHELD AND THE IMPUGNED ORDER OF THE CIT (A) MAY BE QUASHED. I.T.A. NO. 1680 /HYD/1 7 NAGARJUNA AGRICHEM LTD., HYD. 6 8. LD. AR, ON THE OTHER HAND, RELIED ON THE ORDER OF CIT(A) AND SUBMITTED THAT ASSESSEE IS FOLLOWING THIS METHOD OF ACCOUNTING OVER THE YEARS. HE BROUGHT TO OUR NOTICE THE THREE YEARS DETAILS OF PROVISION OF INTEREST AND SETTLEMENT. HE EXPLAINED THAT ASSESSEE CREATES PROVISION OF INTEREST ON DELAYED PAYMENTS TO ITS SUPPLIERS. ASSESSEE HAS A SYSTEM OF CALCULATING INTEREST DUE ON PARTY - WISE, WHICH IS BEFORE NEGOTIATION WITH THE RESPECTIVE PARTIES BUT MAINTAINS ALL THE RELEVANT INFORMATION OF DELAYED PAYMENT PART Y - WISE. ASSESSEE FOLLOWS A SYSTEM AS PER WHICH, IT NEGOTIATES WITH THE SUPPLIERS AND THE ISSUES WHICH ARE SETTLED BEFORE COMPLETION OF FINANCIAL STATEMENT, IT IS CONSIDERED AS ASCERTAINED LIABILITY AND UNNEGOTIATED ISSUES ARE CARRIED FORWARD TO NEXT YEAR. THIS PROCESS IS REGULARLY FOLLOWED BY THE ASSESSEE AT THE END OF EACH YEAR. IN THIS REGARD, HE BROUGHT TO OUR NOTICE THREE YEARS DELAYED INTEREST PROVISION AND ITS SETTLEMENT, WHICH IS PLACED AT PAGES 19 - 23 OF THE PAPER BOOK. HE PRAYED THAT THE PROVISION I S NOTHING BUT ASCERTAINED LIABILITY AND ONLY ADJUSTMENTS ARE MADE IN THE SUBSEQUENT YEAR. 9. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD . WE NOTICE THAT ASSESSEE HAS MADE PROVISION OF INTEREST ON DELAYED PAYMENT, WHICH HAS TWO SEG MENTS, FIRST SEGMENT IS THE PART OF THE PROVISION, WHICH ASSESSEE HAS NEGOTIATED AND FINALIZED THE LIABILITY AND OTHER SEGMENT IS PART OF THE PROVISION, FOR WHICH ASSESSEE HAS DETERMINED THE GROSS LIABILITY, WHICH WAS NOT NEGOTIATED OR FINALIZED DURING THI S AY. ASSESSEE FOLLOWS THIS PROCEDURE REGULARLY OVER THE YEARS. THE GROSS LIABILITY OF INTEREST IS ADJUSTED IN THE SUBSEQUENT YEAR AND THE EXCESS OR SHORT OF LIABILITY ARE ADJUSTED IN THE SUBSEQUENT P&L A/C, WHICH HAS AN IMPACT IN THE SUBSEQUENT AY. SIMILA RLY, CURRENT AY ALSO, ASSESSEE MAKES SIMILAR ADJUSTMENTS. I.T.A. NO. 1680 /HYD/1 7 NAGARJUNA AGRICHEM LTD., HYD. 7 9.1 CONSIDERING THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE AND ALSO THE SUBMISSION OF LD. DR, IN OUR VIEW, ASSESSEE SHOULD DISCLOSE THE ABOVE TRANSACTIONS IN THE MANNER IN WHICH THE CORRECT B OOK PROFIT IS DETERMINED AS PER THE PROVISIONS OF SECTION 115JB. THEREFORE, WE DIRECT THE AO TO DETERMINE THE BOOK PROFIT OF THE ASSESSEE AS BELOW: PROFIT AND LOSS AS PER P&L A/C XX ADD: UNASCERTAINED LIABILITY I.E. PROVISION OF INTEREST AAA_____ AX LESS: ACTUAL SETTLEMENT OF LIABILI TY OF PREVIOUS AY BBB AX - B BB ACTUAL BOOK PROFIT XX WE NOTICED THAT AO HAS ONLY DISALLOWED THE ASCERTAINED LIABILITY WITHOUT GIVING EFFECT TO THE ACTUAL SETTLEMENT OF ASCERTAINED LIABILITY OF EARLIER YEAR. IT WILL GIVE CLEAR AND PROPER BOOK PROFIT. HENCE, WE DIRECT THE AO TO FOLLOW THE ABOVE DIRECTION AND DETERMINE THE ACTUAL BOOK PROFIT. ACCOR DINGLY, GROUND RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT, APPEAL OF THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 14 TH JUNE , 201 9. SD/ - ( P. MADHAVI DEVI ) JUDICIAL MEMBER SD/ - ( S. RIFAUR RAHMAN ) ACCOUNTANT MEMBER HYDERABAD, DATED 14 TH JUNE , 201 9. KV I.T.A. NO. 1680 /HYD/1 7 NAGARJUNA AGRICHEM LTD., HYD. 8 COPY FORWARDED TO: 1. ACIT, CIRCLE 16(1), ROOM NO. 121, 1 ST FLOOR, BLOCK - B, IT TOWER, MASAB TANK, HYD. 2 . M/S NAGARJUNA AGRICHEM L TD., PLOT NO. 12 - A, C - BLOCK, LAKSHMI TOWERS, NAGARJUNA HILLS, PUNJAGUTTA, HYDERABAD. 3 . CIT (A) - 4 , HYDERABAD 4. PR. CIT 4, HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE