M/s. Measurements & controls India Ltd., Bangalore V. CIT - III, Bangalore

ITA 182/BANG/2011

• Counselvise Citation: 18221114 RSA 2011
• Duration Of Justice: 1 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-06-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 22-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FARAHAT HUSSAIN QURESHI CITII
• Assessee Lawyers: D S VIVEK
• Keywords: Retrospective amendment; Bad and doubtful debts
• Section: 143(3); 80HHC; 115JB; 263; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRI BNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.182(BNG.)/2011 (ASSESSMENT YEAR : 2004-05) M/S MEASUREMENT & CONTRACTORS IND. LTD., THE COMM ISSIONER INCOME-TAX-III, NO.175, EAST END, A MAIN ROAD, B ANGALORE 36 TH CROSS, 9 TH BLOCK, JAYANAGAR, BANGALORE PAN NO. AACCM9793P VS APPELLANT RESPONDENT ASSESSEE BY : SHRI D.S. VIVEK, CA RESPONDENT BY : SHRI FARAHAT HUSSAIN QURESHI, CIT-I I DATE OF HEARING : 1 2-06-2012 DATE OF PRONOUNCEMENT : 29-06-2012 O R D E R PER SHRI N.V.VASUDEVAN, JM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 23-12-2010 OF CIT-III PASSED U/S 154 OF THE IT ACT RECTIFYING HIS ORDER DATED 31-03-2009 U/S 263 OF THE IT ACT, 1961. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINE SS OF MANUFACTURE OF TELECOM EQUIPMENTS HAVING UNITS AT BANGALORE AND PONDICHERRY. FOR ASSESSMENT YEAR 2004-05 THE RETURN OF INCOME WAS FI LED DECLARING BOOK PROFITS OF RS.16,48,05,949/- ON 28-12-2006. THE A O PASSED AN ORDER U/S 143(3) OF THE IT ACT ACCEPTING THE INCOME RETURNED BY THE ASSESSEE. 2.1 THEREAFTER, THE CIT IN EXERCISE OF HIS POWERS U/S 263 OF THE ACT ISSUED SHOW CAUSE NOTICE DATED 05-12-2009. ACCORD ING TO CIT, IN THE P & L ITA NO.182(B)/2011 2 ACCOUNT THERE WAS A DEBIT ENTRY ON ACCOUNT OF PROVI SION FOR BAD AND DOUBTFUL DEBTS AMOUNTING TO RS.1,32,94,610/-. ACCO RDING TO CIT, THIS WAS AN UNASCERTAINED LIABILITY THEREFORE, WHILE CONSIDE RING THE PROFIT UNDER P & L ACCOUNT THE AFORESAID AMOUNT SHOULD HAVE BEEN ADDED IN VIEW OF THE PROVISIONS OF EXPLANATION( C) TO SEC.115JB OF THE ACT. SINCE THE AO DID NOT COMPUTE THE BOOK PROFITS AS AFORESAID THE CIT WAS O F THE VIEW THAT THE ORDER OF THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTE RESTS OF REVENUE AND THEREFORE, SHOW CAUSE WAS ISSUED TO THE ASSESSEE. 4. IN REPLY TO THE AFORESAID SHOW CAUSE NOTICE, TH E ASSESSEEE POINTED OUT THAT PROVISION FOR BAD AND DOUBTFUL DEBTS ARE N OT IN THE NATURE OF UNASCERTAINED LIABILITIES. THE ASSESSEE FURTHER BR OUGHT TO THE NOTICE OF THE CIT THAT THE HONBLE SUPREME COURT IN THE CASE OF C IT VS HCL COMNET SYSTEMS & SERVICES LTD.,(2008) 305 ITR 409(SC) HAS TAKEN THE VIEW THAT THE PROVISION FOR BAD AND DOUBTFUL DEBTS IS MADE TO COV ER UP PROBABLE DIMUNITION IN THE VALUE OF ASSETS I.E. A DEBT WHICH IS AN AMOUNT RECEIVABLE BY THE ASSESSEE. THEREFORE, SUCH A PROVISION CANNO T BE SAID TO BE PROVISION FOR LIABILITY, BECAUSE EVEN IF THE DEBT IS NOT RECO VERABLE NO LIABILITY CAN BE FASTENED UPON THE ASSESSEE. THE ASSESSEE THEREFORE, SUBMITTED THAT THE PROPOSED REVISION U/S 263 SHOULD NOT BE MADE. 5. THE CIT AFTER CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE AGREED THAT IN THE LIGHT OF THE DECISOIN OF THE HON BLE SUPREME COURT IN THE CASE OF HCL COMNET SYSTEMS & SERVICES LTD.,(2008) 305 ITR 409(SC) SUPRA, PROVISION FOR BAD AND DOUBTFUL DEBTS CANNOT BE ADDE D TO THE NET PROFIT AS SHOWN IN THE P & L ACCOUNT. THE CIT HOWEVER, WAS O F THE VIEW THAT THE AMOUNT IN QUESTION CAN BE ADDED UNDER CLAUSE-(B) OF EXPLANATION TO SEC.115JB OF THE ACT I.E. THE AMOUNT CARRIED TO ANY RESERVES BY WHATEVER NAME CALLED. HE HELD THAT THE AO HAS NOT APPLIED HIS MIND TO THIS ASPECT AND DIRECTED THE AO TO CONSIDER THE APPLICABILITY O F THE AFORESAID PROVISION AFRESH. ITA NO.182(B)/2011 3 6. BY A NOTICE DATED 14-12-2005 ISSUED U/S 154 OF THE IT ACT, THE CIT PROPOSED TO RECTIFY HIS ORDER DATED 31-03-2009. TH E CIT IN HIS NOTICE POINTED OUT THAT IN THE FINANCE ACT(NO.2) OF 2009 H AD INSERTED CLAUSE (I) OF EXPLANATION(1) OF SUB-SECTION(1) OF SEC.115JB WHERE BY ANY AMOUNT SET ASIDE AS PROVISION FOR DIMUNITION OF VALUE OF ANY ASSET H AS TO BE ADDED TO THE PROFITS AS SHOWN IN THE P & L ACCOUNT FOR COMPUTATI ON OF BOOK PROFIT FOR THE PURPOSE OF SEC.115JB OF THE ACT. SINCE THE AMENDM ENT WAS MADE TO THE RETROSPECTIVE EFFECT FROM 01-04-2001, THE CIT WAS O F THE VIEW THAT HIS ORDER DATED 31-12-2009, WHEREBY HE DIRECTED THE AO TO EXA MINE THE APPLICABILITY F SUB-CLAUSE(B) OF EXPLANATION BELOW SUB-SECTION(2) O F SEC.115JB OF THE ACT HAD TO BE MODIFIED AND THE AO SHOULD BE DIRECTED TO EXAMINE THE ISSUE IN THE LIGHT OF THE AMENDED PROVISIONS REFERRED TO ABO VE. 7. IN REPLY TO THE AFORESAID SHOW CAUSE NOTICE, THE ASSESSEE HAS POINTED OUT THAT THE PROPOSED RECTIFICATION CANNOT BE SAID TO BE A MISTAKE APPARENT FROM THE RECORD, BECAUSE AS ON THE DATE WH EN THE ORDER U/S 263 OF THE IT ACT WAS PASSED THERE WAS NO AMENDMENT TO THE LAW. THE ASSESSEE POINTED OUT THAT SUBSEQUENT TO AMENDMENT TO THE LAW CANNOT GIVE RISE TO RESIDUARY POWERS U/S 263 OF THE ACT AND IN THIS REG ARD THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS MAX INDIA LTD.,(2007) 295 ITR 282(SC) WHEREIN THE HONB LE SUPREME COURT HELD THAT ONE HAS TO TAKE INTO ACCOUNT THE POSITION OF L AW AS IT STOOD WHEN THE COMMISSIONER PASSED THE ORDER IN EXERCISE OF HIS PO WERS U/S 263 OF THE ACT. 8. THE CIT HOWEVER, PASSED THE IMPUGNED ORDER WHERE BY HE DIRECTED THE AO TO ADD A SUM OF RS.1,32,94,610/-TO THE P & L ACCOUNT WHILE COMPUTING THE BOOK PROFITS IN VIEW OF CLAUSE-I OF E XPLANATION -1 OF SUB-SEC.1 OF SEC.115JB AS AMENDED BY THE FINANCE ACT 2009 WIT H RETROSPECTIVE EFFECT FROM 01-04-2001. ITA NO.182(B)/2011 4 9. AGGRIEVED BY THE AFORESAID ORDER OF CIT THE ASSE SSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 10. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED CO UNSEL FOR THE ASSESSEE AND THE LEARNED DR. THE LEARNED COUNSEL F OR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF CIT VS MAX INDIA LTD.,(2007) 295 ITR 282(SC) 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. I N MAX INDIA LTD., (SUPRA) THE AO PASSED AN ORDER OF ASSESSMENT GRANTI NG RELIEF UNDER SECTION 80HHC OF THE ACT WITH REFERENCE TO THE LAW PREVAILI NG AS ON THAT DATE. IN VIEW OF A RETROSPECTIVE AMENDMENT THE ORDER OF AO M ADE SUCH ORDER INCONSISTENT WITH THE LAW AS AMENDED. BUT THE ORD ER WAS RIGHT AT THE TIME WHEN THE ASSESSMENT WAS MADE. THE HONBLE SUPREME COURT HELD THAT NO PREJUDICE TO THE REVENUE COULD BE INFERRED, SO AS T O JUSTIFY THE EXERCISE OF REVISIONAL POWER FOR AMENDING THE ASSESSMENT INLINE WITH THE AMENDED LAW. IN THE PRESENT CASE, WHEN THE ORDER U/S 263 OF THE ACT WAS PASSED THE LAW AS INTERPRETED BY THE HONBLE SUPREME COURT WAS THA T PROVISION FOR BAD AND DOUBTFUL DEBTS CANNOT BE ADDED TO THE PROFIT AS PE R PROFIT AND LOSS ACCOUNT WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. T HE RETROSPECTIVE AMENDMENT TO THE PROVISIONS OF SEC.115JB OF THE ACT CANNOT GIVE POWER TO THE ACIT TO RECTIFY HIS ORDER U/S 263 OF THE ACT, W HICH AS ON THE DATE WHEN THE ORDER U/S 263 OF THE ACT WAS PASSED WAS IN ACCO RDANCE WITH LAW. WHAT COULD NOT HAVE BEEN DONE IN THE ORDER U/S 263 OF TH E ACT AS ON THE DATE WHEN IT WAS PASSED CANNOT BE DONE BY EXERCISE OF PO WERS OF RECTIFICATION U/S 154 OF THE ACT. IN THAT VIEW OF THE MATTER, WE ARE OF THE VIEW THAT THE IMPUGNED ORDER OF CIT RECTIFYING HIS ORDER U/S 263 OF THE ACT BY EXERCISING ITA NO.182(B)/2011 5 POWERS U/S 154 OF THE ACT CANNOT BE SUSTAINED. WE THEREFORE, QUASH THE ORDER U/S 263 OF THE ACT. THE APPEAL OF THE ASSES SEE IS ALLOWED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 29 TH JUNE, 2012. SD/- SD/- (JASON P BOAZ) (N.V.VASUD EVAN) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE: D A T E D : 29-06-012 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-IV, BANGALORE. 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE (1+1) SR. PRIVATE SECRETARY ITAT, BANGALORE