DCIT, Circle - 6, Kolkata V. NICCO UCO Alliance Credit Ltd., Kolkata

ITA 1868/KOL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9341 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 28-04-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 06-11-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S S GAUTAM
• Assessee Lawyers: S L KOCHAR
• Keywords: Retrospective amendment; Bad and doubtful debts
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH-B: KO LKATA [BEFORE HONBLE SHRI B.R. MITTAL, J.M. & HONBLE SH RI C.D. RAO, A.M] I.T.A. NO. 1868/KOL./2009 ASSESSMENT YEAR : 2002-2003 DEPUTY COMMISSIONER OF INCOME TAX, -VS.- NICCO UCO ALLIANCE CREDIT LTD., CIRCLE-6, KOLKATA. KOLKATA (PAN : AA BCN 5012 H) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.S. GAUTAM, CIT, D.R. RESPONDENT BY : SHRI S.L. KOCHAR, A.R. O R D E R PER SHRI B. R. MITTAL, JUDICIAL MEMBER : THE DEPARTMENT HAS FILED THIS APPEAL FOR THE ASSES SMENT YEAR 2002-03 AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-VI, KOL KATA DATED 10.08.2009 ON THE FOLLOWING GROUNDS :- (1) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A.) HAS ERRED IN LAW IN DELETING THE DISALLOWANCE OF RS.2,8 0,40,048/- WHICH WAS CLAIMED BY THE ASSESSEE AS PROVISION FOR NPA. (2) THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A.) HAS ERRED IN NOT CONSIDERING THE FACT THAT THERE IS NO PROVISION UNDER THE I.T. ACT, 1961 TO ALLOW THE DEDUCTION CLAIMED AS P ROVISION FOR NPA. (3) THAT THE APPELLANT CRAVES FOR LEAVE TO ADD, DEL ETE OR MODIFY ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 2. THE ASSESSEE MADE A PROVISION FOR NON-PERFORMING ASSETS AMOUNTING TO RS.2,80,40,048/- WHICH WAS ADDED BACK TO INCOME BY THE ASSESSEE IN I TS OWN COMPUTATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE FILED A WRITTE N SUBMISSION STATING THAT THE CLAIM WAS ALLOWABLE AND RELIED ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF EQUIPMENT LEASING ASSOCIATION (INDIA) AND DECISION OF HONBLE ITAT, KOLKATA BENCH, KOLKATA IN ITA NO. 11/KOL./2004 DATED 08.09.2004 IN THE CAS E OF ITO VS.- ALLIANCE CREDIT & INVESTMENT LIMITED FOR ASSESSMENT YEAR 1998-99 AND ALSO THE DECISION OF HONBLE ITAT, MADRAS BENCH IN THE CASE OF OVERSEAS SANMAR FINANCI AL SERVICES LTD. [86 ITD 602]. HOWEVER, THE ASSESSING OFFICER STATED THAT THE ASSESSEE IS N OT ENTITLED TO DEDUCTION OF PROVISION FOR NON- ITA NO.1868/KOL./2009 2 PERFORMING ASSETS AND ACCORDINGLY NOT ACCEPTED THE CONTENTION OF THE ASSESSEE TO ALLOW THE PROVISION FOR NON-PERFORMING ASSETS. BEING AGGRIEVE D, THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 3. LD. COMMISSIONER OF INCOME TAX (APPEALS) REVERSE D THE FINDING OF THE ASSESSING OFFICER VIDE PARA 7, WHICH IS AS UNDER :- GROUND NO. 5 : DURING THE ASSESSMENT YEAR THE APPELLANT HAS MADE A PROVISION OF RS.2,80,40,048/- AGAINST NON-PERFORMANCE ASSETS (NPA). REGARDING THE PROVISIONS FOR NPA THE APPELLANT HAD RECEIVED O RDERS FROM HONBLE ITAT IN FAVOUR OF THE APPELLANT FOR THE ASS ESSMENT YEARS 1997-98 AND 1998-99 IN ITA NOS. 1254 AND 1216 OF 20 03. SUBSEQUENTLY, THE DEPARTMENT PREFERRED AN APPEAL BE FORE THE HONBLE CALCUTTA HIGH COURT AND IT WAS DISMISSED IN FAVOUR OF THE APPELLANT. RESPECTFULLY FOLLOWING THE TRIBUNAL ORDER IN APPELL ANTS OWN CASE FOR EARLIER ASSESSMENT YEARS I DIRECT THE ASSESSING OFF ICER TO DELETE THE ADDITION MADE ON ACCOUNT OF PROVISIONS FOR NPA. HENCE, DEPARTMENT IS IN FURTHER APPEAL BEFORE THE T RIBUNAL. 4. AT THE TIME OF HEARING, THE LD. D.R. SUBMITTED T HAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF S OUTHERN TECHNOLOGIES LIMITED VS.- JOINT COMMISSIONER OF INCOME TAX [(2010) 320 ITR 577], WH EREIN IT WAS HELD, INTER ALIA, THAT RESERVE BANK DISCLOSURE NORMS HAVE NOTHING TO DO WI TH COMPUTATION OF TAXABLE INCOME UNDER THE INCOME TAX ACT. THE COMPANIES ACT ALLOWS A NON- BANKING FINANCIAL COMPANY TO ADJUST A PROVISION FOR POSSIBLE DIMINUTION IN THE VALUE OF A N ASSET OR PROVISION FOR DOUBTFUL DEBTS AGAINST THE ASSETS AND ONLY THE NET FIGURE IS ALLOWED TO BE SHOWN IN THE BALANCE-SHEET AS A MATTER OF DISCLOSURE. THE DIRECTIONS OF RESERVE BANK OF INDIA OF 1998 MANDATE ALL NON-BANKING FINANCIAL COMPANIES TO SHOW THE SAID PROVISIONS SEPARATELY ON THE LIABILITIES SIDE OF THE BALANCE-SHEET UNDER THE HEAD CURRENT LIABILITIES AND PROVISIONS . THE HONBLE APEX COURT HELD THAT NATURE OF EXPENDITURE UNDER THE INCOME TAX ACT CANNOT BE CONC LUSIVELY DETERMINED BY THE MANNER IN WHICH ACCOUNTS ARE PRESENTED IN TERMS OF THE RBI 19 98 DIRECTIONS. THOUGH THEY DEVIATE FROM ACCOUNTING PRACTICE AS PROVIDED IN THE COMPANIES AC T, THEY DO NOT OVERRIDE THE PROVISIONS OF THE INCOME TAX ACT. PROVISION FOR NON-PERFORMING AS SETS IN TERMS OF THE DIRECTIONS OF 1998 DOES NOT CONSTITUTE EXPENSE ON THE BASIS OF WHICH D EDUCTION CAN BE CLAIMED UNDER SECTION 36(1)(VII) OF THE INCOME TAX ACT. ITA NO.1868/KOL./2009 3 5. ON THE OTHER HAND, THE LD. AUTHORIZED REPRESENTA TIVE OF THE ASSESSEE REFERRED THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF C IT VS.- HCL COMNET SYSTEMS & SERVICES LIMITED [305 ITR 409] AND SUBMITTED THAT FOR THE PU RPOSE OF COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT, THE PROVISION FOR DOUBTFU L DEBTS TO THE NET PROFIT COULD NOT BE ADDED AS PER CLAUSE (C) OF THE EXPLANATION TO SECTION115J B(2) OF THE INCOME TAX ACT. 6. ON CONSIDERATION OF THE ABOVE ORDERS OF THE HON BLE APEX COURT (SUPRA) CITED BY THE LD. REPRESENTATIVES OF THE PARTIES, WE OBSERVE THAT THE CASE OF HCL COMNET SYSTEMS & SERVICES LIMITED RELATES TO ASSESSMENT YEAR 1997-98, WHEREIN THE HONBLE APEX COURT HELD THAT DEBT WHICH IS AN AMOUNT RECEIVABLE BY THE ASSESSEE AND I T CANNOT BE TERMED AS LIABILITY PAYABLE BY THE ASSESSEE AND, THEREFORE, ANY PROVISION MADE TOW ARDS IRRECOVERABILITY OF THE DEBT CANNOT BE SAID TO BE A PROVISION OF LIABILITY. IT IS A PROVIS ION OF DIMINUTION OF AN ASSET. THEREFORE, IT WAS HELD THAT WHILE COMPUTING BOOK PROFIT FOR THE PURPO SE OF SECTION 115JA/ 115JB, THE PROVISIONS MADE FOR DIMINUTION OF LIABILITY ARE NOT TO BE INCR EASED. WE MAY STATE THAT THE SAID DECISION IS NO LONGER A GOOD LAW IN VIEW OF THE AMENDMENT MADE BY FINANCE (NO.2) ACT, 2009 WITH RETROSPECTIVE EFFECT FROM 01.04.2001 BY INSERTING C LAUSE (I) TO EXPLANATION (1) OF SECTION 115JB(2) OF THE ACT AS UNDER :- THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR D IMINUTION IN THE VALUE OF ANY ASSET IS TO BE INCREASED FOR THE PURP OSE OF BOOK PROFIT. 7. MOREOVER, WE ARE OF THE CONSIDERED VIEW THAT IN THE CASE BEFORE US, THE ASSESSING OFFICER HAS MADE THE ADDITION OF THE PROVISION FOR NON-PERFORMING ASSETS WHILE MAKING NORMAL COMPUTATION. IN THIS REGARD, THE DECISION OF THE H ONBLE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) CITED BY THE LD. D.R. SQU ARELY APPLIES TO THE ISSUE BEFORE US. THE DECISION CITED BY THE LD. COMMISSIONER OF INCOME TA X (APPEALS) IN ITS PARA 7 (SUPRA) DO NOT HOLD GOOD IN VIEW OF THE ABOVE DECISION OF THE HON BLE APEX COURT AND ALSO CONSIDERING THE AMENDMENT MADE BY FINANCE ACT, 2001 WITH RETROSPECT IVE EFFECT FROM 01.04.1989 BY INSERTING EXPLANATION TO SECTION 36(1)(VII) OF THE ACT, WHICH IS AS UNDER :- SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECOVERAB LE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR : PROVIDED THAT IN THE CASE OF AN ASSESSEE TO WHICH C LAUSE (VIIA) APPLIES, THE AMOUNT OF THE DEDUCTION RELATING TO ANY SUCH DEBT O R PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHICH SUCH DEBT OR PART TH EREOF EXCEEDS THE CREDIT ITA NO.1868/KOL./2009 4 BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE. EXPLANATION FOR THE PURPOSES OF THIS CLAUSE, ANY BAD DEBT OR PART THEREOF WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT S OF THE ASSESSEE SHALL NOT INCLUDE ANY PROVISION FOR BAD AND DOUBTFUL DEBT S MADE IN THE ACCOUNTS OF THE ASSESSEE. IN VIEW OF THE ABOVE, WE REVERSE THE ORDER OF LD. C OMMISSIONER OF INCOME TAX (APPEALS) BY ALLOWING GROUNDS OF APPEAL TAKEN BY THE DEPARTMENT. 8. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMEN T IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.02. 2011. SD/- SD/- [ C. D. RAO ] [ B.R. MITTAL ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 18/ 02/ 2011 COPY OF THE ORDER FORWARDED TO: 1. M/S. NICCO UCO ALLIANCE CREDIT LTD., NICCO HOUSE, 2 , HARE STREET, KOLKATA-1. 2 ACIT, CIRCLE-6, P-7, CHOWRINGHEE SQUARE, KOLKATA-69 3. CIT(A)- ,KOLKATA 4. CIT- , KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA (TRUE COPY) BY ORDER ASSISTANT REGISTRAR I.T.A.T., KOLKATA. LAHA, SR. P.S.