ACIT, New Delhi V. M/s. SMS Iron Technology Pvt. Ltd., New Delhi

ITA 1910/DEL/2012

• Counselvise Citation: 191020114 RSA 2012
• Duration Of Justice: 1 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 01-07-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 25-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMESH CHANDRA
• Keywords: Depreciation; Deemed to accrue or arise in india; Bad and doubtful debts; Unabsorbed depreciation
• Section: 234B; 115JB

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G : NEW DELHI BEFORE SHRI S. V MEHROTRA , ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ITA NO. 1910 /DEL/ 201 2 ( ASSESSMENT YEAR: 2005 - 06) ACIT, CIRCLE - 9(1) ROOM NO. 163, C. R. BUILDING NEW DELHI VS. SMS IRON TECHNOLOGY PVT. LTD, B - 402, SOMDUTT CHAMBERS - I, 5, KHIKAJI PLACE, NEW DELHI PAN AAACI1682F (APPELLANT) (RESPONDENT) ITA NO. 1814/DEL/201 0 ( ASSESSMENT YEAR: 2005 - 06) SMS DEMA G PVT. LTD. (NOW KNOWN AS SMS IRON TECHNOLOGY PVT. LTD.), B - 402, SOMDUTT CHAMBERS - I, 5, KHIKAJI PLACE, NEW DELHI 110066 PAN AAACI1682F VS. ACIT, CIRCLE - 9(1) ROOM NO. 163, C. R. BUILDING NEW DELHI (APPELLANT) (RESPONDENT) ITA NO. 1815/DEL/2010 ( ASSESSMENT YEAR: 2006 - 07) SMS DEMA G PVT. LTD. (NOW KNOWN AS SMS IRON TECHNOLOGY PVT. LTD.), B - 402, SOMDUTT CHAMBERS - I, 5, KHIKAJI PLACE, NEW DELHI 110066 PAN AAACI1682F VS. ACIT, CIRCLE - 9(1) ROOM NO. 163, C. R. BUILDING NEW DELHI (APPELLANT) (RESPONDENT) PAGE NO. 2 APPELLANT BY : SHRI RAMESH CHANDRA, CIT DR RESPONDENT BY : SHRI RAJAN BHATIA, ADVOCATE O R D E R PER BENCH THE ASSESSEES APPEAL S FOR ASSESSMENT YEAR S 2005 - 06 AND 2006 - 07 ARE AGAINST THE ORDER S OF THE LD. CIT(A), XII, NEW DELHI DATED 05.01.2010 AND 04.01.2010 RESPECTIVELY I N RESPECT OF ASSESSMENTS COMPLETED UNDER SECTION 143(3)OF THE INCOME TAX ACT, 1961. 2. THE DEPARTMENT HAS FILED THE APPEAL IN ASSESSMENT YEAR 2005 - 06 AGAINST THE ORDER DATED 24.01.2012 OF LD. CIT(A) X I I, NEW DELHI CANCELL ING THE PENALTY IMPOSED BY THE ASSESSING OFFICER. 3. WE FIRST TAKE THE ASSESSEES APPEAL VIDE ITA NO. 1814/DEL/2010 FOR ASSESSMENT YEAR 2005 - 06. 4 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY , IN THE RELEVANT ASSESSMENT YEAR, WAS ENGAGED IN SUPPLY OF ASSEMBLIES, METALLURGICAL EQUIPMENTS, PROVIDING CONSULTANCY AND TECHNICAL SERVICES IN DESIGN AND ENGINEERING RELATED TO STEEL INDUSTRY. THE ASSESSEE HAD FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS. NIL/ - . THE ASSESSMEN T WAS COMPLETED BY MAKING FOLLOWING ADDITIONS : I) PROVISION FOR CONTRACTUAL OBLIGATIONS OF RS. 64,692,683/ - . II) PROVISION FOR DOUBTFUL DEBTS IN THE P&L ACCOUNTS OF RS. 39,872,234/ - . PAGE NO. 3 5. THE ASSESSEES APPEAL AGAINST THE ABOVE NOTED ADDITIONS WAS DISMISSED BY LD. CIT(A). BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL : - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY LD. COMMISSIONER OF INCOME - TAX (AP PEALS) (CIT(A)) IS BAD IN LAW. 2.1 THAT THE LD. CIT(A), WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE & PROVISIONS OF THE ACT, HAS ERRED IN CONFIRMING THE DISALLOWANCE AMOUNTING TO RS. 6,46,92,683/ - IN RESPECT OF PROVISIONS FOR CONTRACTUAL OBLIGATIO NS AND TREATING THE SAME AS CONTINGENT LIABILITY. 2.2 WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) HAS ERRED IN NOT ADJUSTING/ REDUCING AN AMOUNT OF RS. 1,62,12,482/ - , BEING AMOUNT WRITTEN BACK TO THE PROFIT AND LOSS ACCOUNT AND SUO - MOTTU OFFERED TO TAX BY THE APPELLANT DURING THE RELEVANT YEAR ASSESSMENT YEAR. 2.3 THAT THE LD. CIT(A) HAS ERRED IN IGNORING THE FAVOURABLE RULING OF HONBLE MUMBAI ITAT IN THE APPELLANTS OWN CASE IN RESPECT OF PROVISION FOR CONTRACTUAL OBLIGATIONS. 3.1 THAT THE LD. CIT(A) WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE & PROVISIONS OF THE ACT ERRED IN CONFIRMING DISALLOWANCE REPRESENTING BAD AND DOUBTFUL DEBTS TO THE EXTENT OF RS. 37,995,597/ - . 3.2 WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) HAS ERRED IN NOT ADJUSTI NG/ REDUCING AN AMOUNT OF RS. 2,90,84,129/ - , BEING AMOUNT WRITTEN BACK TO THE PROFIT AND LOSS ACCOUNT AND SUO - MOTTU OFFERED TO TAX BY THE APPELLANT DURING THE RELEVANT YEAR ASSESSMENT YEAR. 4. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT GRANTI NG SET OFF OF BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION AS CLAIMED BY THE APPELLANT IN ITS RETURN OF INCOME. 5. THAT THE APPEAL WITHIN TIME SINCE THE ORDER WAS RECEIVED ON 24 TH FEBRUARY 2010. PAGE NO. 4 6. BRIEF FACTS APROPOS GROUND NO S . 2.1 TO 2.3 ARE THAT THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAD DEBITED AN AMOUNT OF RS. 6,46,92,683/ - AS PROVISION FOR CONTRACTUAL OBLIGATIONS. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE SAME SHOULD NOT BE DISALLOWED AS THE SAME WAS NOT DETERMINATE LIABILITY. AFTER CONSIDERING THE ASSESSEES SUBMISSION S , ASSESSING OFFICER CONCLUDED THAT THE PROVISI ON WAS IN THE NATURE OF CONTINGENT LIABILIT Y AND, THEREFORE, DISALLOWED THE ASSESSEES CLAIM . BEFORE LD. CIT(A) , THE ASSESSEE POINTED OUT THAT TH E AMOUNT PERTAIN ED TO CONTRACTUAL OBLIGATIONS WHICH WERE UNDER EXECUTION AND NOT COMPLETED AND THE AMOUNT WAS WORKED OUT ON ESTIMATE BASIS TO FULFILL CONTRACTUAL OBLIGATIONS. THE ASSESSEE FURTHER POINTED OUT THAT THE ISSUE WAS COVERED IN ASSESSEES OWN CASE VIDE ITA NO. 5367/MUMBAI/2001 FOR THE ASSESSMENT YEAR 1998 - 99 VIDE ORDER DATED 12.03.2008. LD. CIT(A) , HOWEVER, CONFIRMED THE ASSESSING OFFICER S ACTION. 7. LD. COUNSEL SUBMITTED THAT PROVISION WAS MADE FOR LIQUIDATED DAMAGES WHICH WAS ASCERTAIN ED LIABILITY. HE RELIED ON TRIBUNALS DECISION FOR THE ASSESSMENT YEAR 1998 - 99. 8 . LD. DR SUBMITTED THAT THE TRIBUNALS DECISION PERTAINS TO ASSESSMENT YEAR 1998 - 99 AND PRESENTLY WE ARE CONCERNED WITH THE ASSESSMENT YEAR 2005 - 06 . HE , THEREFORE, SUBMITTED THAT WITHOUT ASCERTAIN ING THE FACT S, THE TRIBUNALS ORDER CANNOT BE APPLIED. HE SUBMITTED THAT MATTER MAY BE RESTORED BACK TO THE FILE OF ASSESSING OFFICER FOR EXAMINING THE ISSUE IN THE LIGHT OF THE TRIBUNALS DECISION. LD DR FURTHE R SUBMITTED THAT THE DATE OF TRIBUNAL ORDER IS 12.03.2008 AND THE DATE OF ASSESSMENT ORDER IS 23.12.2008 . PAGE NO. 5 THEREFORE, THE ASSESSEE SHOULD HAVE BROUGHT THE TRIBUNALS ORDER TO THE NOTICE OF THE ASSESSING OFFICER INSTEAD OF PLACING THE SAME BEFORE LD. CIT(A). 9 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PERUSED THE RECORD OF THE CASE . WE FIND SUBSTANCE IN THE SUBMISSION OF THE LD DR THAT SINCE THE TRIBUNALS ORDER IS DATED 29.12.2008 THE SAME SHOULD HAVE BEEN BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER . LD COUNSEL IN THE COURSE OF HEARING SUBMITTED THAT THERE IS REFERENCE TO TRIBUNALS ORDER IN THE ASSESSMENT ORDER BUT WE DO NOT FIND ANY SUCH REFERENCE IN THE ASSESSMENT ORDER. FURT HER, LD CIT(A) HAS ALSO NOT TAKEN INTO CONSIDERATION THE EFFECT OF DECISION OF TRIBUNAL AND HAS MERELY CONFIRMED THE ASSESSING OFFICER S ACTION. UNDER SUCH CIRCUMSTANCES , IT WOULD BE IN THE INTEREST OF JUSTICE THAT THE MATTER BE RESTORED BACK TO THE FILE O F THE ASSESSING OFFICER TO EXAMINE THE ISSUE DE NOVO IN THE LIGHT OF THE TRIBUNALS DECISION FOR THE ASSESSMENT YEAR 1998 - 99 WHEREIN TRIBUNAL OBSERVED AS UNDER: 4.3 THE THIRD GROUND RAISED BY THE ASSESSEE IS THAT THE CIT(A) HAS ERRED WITHOUT APPRECIATIN G THE FACT OF THE CASE IN CONFIRMING THE DISALLOWANCE OF RS. 62,36,462/ - OUT OF PROVISION FOR CONTRACTUAL OBLIGATION CLAIMED BY THE ASSESSEE. 4.5 THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS. 2,63,71,552 ON ACCOUNT OF PROVISION FOR CONTRACTUAL OBLIGATION. THE AMOUNT REPRESENTED EXPENDITURE TO BE INCURRED IN RESPECT OF PROJECTS COMPLETED DURING THE YEAR UNDER CONSIDERATION. SUCH EXPENDITURE INCLUDES, LIQUIDATED DAMAGES, PROVISIONS FOR MATERIAL, LABOUR AND OTHER EXPENSES, WHICH ARE DUE TO BE SPEND BY THE ASSE SSEE - COMPANY IN VIEW OF PENDING CONTRACTUAL OBLIGATIONS. THE AMOUNT OF CLAIMS MADE BUT NOT ACCEPTED BY THE CUSTOMERS AS WELL AS LIQUIDATED PAGE NO. 6 DAMAGES DEDUCTED BY THE CUSTOMERS ARE ALSO COVERED UNDER THE PROVISIONS OF CONTRACTUAL OBLIGATIONS. 4.6 THE ASSESSI NG AUTHORITY IN FACT DISALLOWED AN AMOUNT OF RS. 62,36,462 FROM THE CLAIM MADE BY THE ASSESSEE. WHAT HAS BEEN ALLOWED BY THE ASSESSING AUTHORITY IS THE AMOUNT OF ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS THE CONTRACTUAL OBLIGATIONS. 4.7 THE FAC T THAT THE ASSESSEE HAD INCURRED A SIZABLE PORTION OF THE PROVISION AS EXPENDITURE AND THE SAME HAS BEEN ALLOWED BY THE ASSESSING AUTHORITY ITSELF IS SUPPORTING THE CLAIM OF THE ASSESSEE THAT THE EXPENSES ARE ACCRUED AND THE LIABILITY ASCERTAINED AND THE P ROVISIONS ARE MADE ON FACTUAL BASIS AND THEY WERE NOT IN THE NATURE OF ANY CONTINGENCY OF FUTURE EXPENSES. THE LEGAL CHARACTER OF THE PROVISION FOR CONTRACTUAL OBLIGATION IS IN A WAY SIMILAR TO THE PROVISION FOR WARRANT Y/ GUARANTEE . THEREFORE, THE DISCUSSION MADE IN RESPECT OF THE ISSUE REGARDING PROVISION OF WARRANTY EQUALLY APPLIES TO THE PROVISION FOR CONTRACTUAL OBLIGATIONS ALSO. THERE IS NO DOUBT THAT THE ASSESSEE HAS TO INCUR EXPENDITURE TOWARDS THE CONTRACTUAL OBLIGATIONS PER TAINING TO THE COMPLETED PROJECTS. THIS IS EVIDENT FROM THE FACT THAT THE ASSESSING OFFICER HIMSELF HAS DISALLOWED ONLY RS. 62,36,462 AS AGAINST THE TOTAL CLAIM OF RS. 2,63,71,552 MADE BY THE ASSESSEE - COMPANY. IT SHOWS THAT THE ASSESSEE HAS ALREADY INCURRE D A MAJOR PORTION OF THE PROVISION BY WAY OF ACTUAL EXPENDITURE. THEREFORE, WE DO NOT FIND ANY REASON TO DISALLOW THE BALANCE PORTION OF RS. 62,36,462. THE SAID DISALLOWANCE IS DELETED. THE ASSESSING AUTHORITY IS DIRECTED TO ALLOW THE AMOUNT IN FULL. 10. IN THE RESULT THIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSES. 11. THE SECOND ISSUE VIDE GROUND NO 3.1 AND 3.2. IS REGARDING DISALLOWANCE OF BAD AND DOUBTFUL DEBTS TO THE EXTENT OF RS. 37,995,597/ - ASSESSING OFFICER NOTED THAT ASSESSEE HAD DEBITED AN AMOUNT OF RS. 39,872,234/ - AS PROVISION FOR DOUBTFUL DEBTS IN PROFIT AND LOSS ACCOUNT . HE OBSERVED THAT THIS PROVISION WAS ALSO SIMILAR PAGE NO. 7 TO THE PROVISION FOR CONTRACTUAL OBLIGATIONS AND TREATING THE SAME CONTINGENT IN NATURE , DISALLOWED THE ASSESSEE S CLAIM. LD. CIT(A) DISMISSED THE ASSESSEE S APPEAL. 12. LD COUNSEL FOR THE ASSESSEE REFERRED TO THE BALANCE SHEET CONTAINED AT PAGE NO. 1 OF THE PAPER BOOK AND POINTED OUT THAT NO SEPARATE LIABILITY HAS BEEN SHOWN IN BALANCE SHEET IN REGARD TO THE PROVISION FOR BAD DEBTS AND THE ASSESSEE HAS SHOWN NET ASSET POSITION IN THIS REGARD. HE REFERRED TO THE DECISION OF THE HONBLE SUPREME COU RT IN VIJAYA BANK VS. COMMISSIONER OF INCOME - TAX (2010) 190 TAXMAN 257 (SC) WHEREIN HONBLE SUPREME COURT HAS CONSIDERED THE FOLLOWING QUESTIONS: - 2. WHETHER IT IS IMPERATIVE FOR THE ASSESSEE - BANK TO CLOSE THE INDIVIDUAL ACCOUNT OF EACH OF ITS DEBTORS IN ITS BOOKS OR A MERE REDUCTION IN THE LOANS AND ADVANCES OR DEBTORS ON THE ASSET SIDE OF ITS BALANCE SHEET TO THE EXTENT OF THE PROVISION FOR BAD DEBT WOULD BE SUFFICIENT TO CONSTITUTE A WRITE OFF IS THE QUESTION WHICH WE ARE REQUIRED TO ANSWER IN THESE CIV IL APPEALS? 13. HONBLE SUPREME COURT ANSWERED THE ABOVE QUESTION AS UNDER: - 5. AT THE OUTSET, WE MAY STATE THAT, IN THESE CIVIL APPEALS, BROADLY, TWO QUESTIONS ARISE FOR DETERMINATION. THE FIRST QUESTION WHICH ARISES FOR DETERMINATION CONCERNS THE MANN ER IN WHICH ACTUAL WRITE OFF TAKES PLACE UNDER THE ACCORDING PRINCIPLES. THE SECOND QUESTION WHICH ARISES FOR DETERMINATION IN THESE CIVIL APPEALS IS, WHETHER IT IS IMPERATIVE FOR THE ASSESSEE - BANK TO CLOSE THE INDIVIDUAL ACCOUNT OF EACH DEBTOR IN ITS BOOK S OR A MERE REDUCTION IN THE LOANS AND ADVANCES ACCOUNT OR DEBTORS TO THE EXTEND OF THE PROVISION FOD BAD AND DOUBTFUL DEBT IS SUFFICIENT. 6. THE FIRST QUESTION IS NO MORE RES INTEGRA. RECENTLY, A DIVISION BENCH OF THIS COURT IN THE CASE OF SOUTHERN TEC HNOLOGIES LTD. V. JT. CIT [2010] 320 ITR 5771 , [IN WHICH ONE OF US (S.H. KAPADIA, PAGE NO. 8 J.) WAS A PARTY] HAD AN OCCASION TO DEAL WITH THE FIRST QUESTION AND IT HAS BEEN ANSWERED, ACCORDINGLY, IN FAVOUR OF THE ASSESSEE VIDE PARAGRAPH (25), WHICH READS AS UNDER : 'PRIOR TO APRIL 1, 1989, THE LAW, AS IT THEN STOOD, TOOK THE VIEW THAT EVEN IN CASES IN WHICH THE ASSESSEE(S) MAKES ONLY A PROVISION IN ITS ACCOUNTS FOR BAD DEBTS AND INTEREST THEREON AND EVEN THOUGH THE AMOUNT IS NOT ACTUALLY WRITTEN OFF BY DEBITING THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE AND CREDITING THE AMOUNT TO THE ACCOUNT OF THE DEBTOR, THE ASSESSEE WAS STILL ENTITLED TO DEDUCTION UNDER SECTION 36(1) (VII). [ SEE CIT V. JWALA PRASAD TIWARI [1953] 24 ITR 537 (BOM.) AND VITHALDAS H. DHANJIBHAI BAR DANWALA V. CIT [1981] 130 ITR 95 (GUJ.)]. SUCH STATE OF LAW PREVAILED UP TO AND INCLUDING THE ASSESSMENT YEAR 1988 - 89. HOWEVER, BY INSERTION (WITH EFFECT FROM APRIL 1, 1989) OF A NEW EXPLANATION IN SECTION 36(1)(VII), IT HAS BEEN CLARIFIED THAT ANY BAD DEB T WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT OF THE ASSESSEE WILL NOT INCLUDE ANY PROVISION FOR BAD AND DOUBTFUL DEBT MADE IN THE ACCOUNTS OF THE ASSESSEE. THE SAID AMENDMENT INDICATES THAT BEFORE APRIL 1, 1989, EVEN A PROVISION COULD BE TREATED AS A WRIT E OFF. HOWEVER, AFTER APRIL 1, 1989, A DISTINCT DICHOTOMY IS BROUGHT IN BY WAY OF THE SAID EXPLANATION TO SECTION 36(1) (VII). CONSEQUENTLY, AFTER APRIL 1, 1989, A MERE PROVISION FOR BAD DEBT WOULD NOT BE ENTITLED TO DEDUCTION UNDER SECTION 36(1)(VII). TO UNDERSTAND THE ABOVE DICHOTOMY, ONE MUST UNDERSTAND `HOW TO WRITE OFF'. IF AN ASSESSEE DEBITS AN AMOUNT OF DOUBTFUL DEBT TO THE PROFIT AND LOSS ACCOUNT AND CREDITS THE ASSET ACCOUNT LIKE SUNDRY DEBTOR'S ACCOUNT, IT WOULD CONSTITUTE A WRITE OFF OF AN ACTUAL DEBT. HOWEVER, IF AN ASSESSEE DEBITS `PROVISION FOR DOUBTFUL DEBT' TO THE PROFIT AND LOSS ACCOUNT AND MAKES A CORRESPONDING CREDIT TO THE `CURRENT LIABILITIES AND PROVISIONS' ON THE LIABILITIES SIDE OF THE BALANCE - SHEET, THEN IT WOULD CONSTITUTE A PROVISI ON FOR DOUBTFUL DEBT. IN THE LATTER CASE, THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTION AFTER APRIL 1, 1989.' 1 4 . LD COUNSEL SUBMITTED THAT THE ASSESSEE HAD WRITTEN OFF THE BAD DEBTS AS PER THE DECISION OF SUPREME COURT IN THE CASE OF VIJAYA BANK (SUPRA) AND , THEREFORE , THE REQUIREMENT OF WRITING OFF OF BAD PAGE NO. 9 DEBTS WAS FULFILLED. LD. DR RELIED ON THE ORDER OF THE LOWER REVENUE AUTHORIT IES . 1 5 . WE HAVE CONSIDERED THE SUBMISSION S OF THE BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE . WE FIND THAT HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK (SUPRA) HAS ANSWERED THE AFOREMENTIONED QUESTION IN PARA 6 REPRODUCED EARLIER . WE FIND THAT BOTH THE LOWER REVENUE AUTHORITIES HA VE NOT EXAMINED THE ISSUE IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF THE VIJAYA BANK (SUPRA) AND, THEREFORE , IN THE INTEREST OF JUSTICE , THE MATTER IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING THE ISSUE DE - NOVO IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT. 16. IN THE RESULT THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 1 7 . IN THE RESULT THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 1 8 . NOW WE TAKE UP ASSESSEES APPEAL VIDE ITA NO. 1815/DEL/2010 FOR THE ASSESSMENT YEAR 2006 - 07. 1 9 . BRIEF FACTS OF THE CASE ARE THAT ASSESSING OFFICER HAD MADE FOLLOWING DISALLOWANCES: - A) PROVISION FOR CONTRACTUAL OBLIGATIONS RS. 15,00,000/ - B) PROVISION FOR DOUBTFUL DEBTS RS. 3,22,17,327/ - THE ASSE SSEES APPEAL WAS DISMISSED BY LD. CIT(A). 20. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL : - PAGE NO. 10 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY LD. COMMISSIONER OF INCOME - TAX (APPEALS) (CIT(A)) IS BAD IN LAW. 2.1 THAT THE LD. CIT(A), WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE & PROVISIONS OF THE ACT, HAS ERRED IN CONFIRMING THE DISALLOWANCE AMOUNTING TO RS. 15,00,000/ - IN RESPECT OF PROV ISIONS FOR CONTRACTUAL OBLIGATIONS AND TREATING THE SAME AS CONTINGENT LIABILITY. 2.2 WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) HAS ERRED IN NOT ADJUSTING/ REDUCING AN AMOUNT OF RS. 76,01,490/ - BEING AMOUNT WRITTEN BACK TO THE PROFIT AND LOSS ACCOUNT AND SUO - MOTTU OFFERED TO TAX BY THE APPELLANT DURING THE RELEVANT YEAR ASSESSMENT YEAR. 2.3 THAT THE LD. CIT(A) HAS ERRED IN IGNORING THE FAVOURABLE RULING OF HONBLE MUMBAI ITAT IN THE APPELLANTS OWN CASE IN RESPECT OF PROVISION FOR CONTRACTUAL OBLIGATIO NS. 3.1 THAT THE LD. CIT(A) WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE & PROVISIONS OF THE ACT ERRED IN CONFIRMING DISALLOWANCE REPRESENTING BAD AND DOUBTFUL DEBTS TO THE EXTENT OF RS. 3,22,17,327/ - . 3.2 WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT (A) HAS ERRED IN NOT ADJUSTING/ REDUCING AN AMOUNT OF RS. 61,83,775/ - BEING AMOUNT WRITTEN BACK TO THE PROFIT AND LOSS ACCOUNT AND SUO - MOTTU OFFERED TO TAX BY THE APPELLANT DURING THE RELEVANT YEAR ASSESSMENT YEAR. 4. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT GRANTING SET OFF OF BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION AS CLAIMED BY THE APPELLANT IN ITS RETURN OF INCOME. 5. THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE LEVY OF INTEREST U/S 234B OF THE ACT. 6. THAT THE APP EAL WITHIN TIME SINCE THE ORDER WAS RECEIVED ON 24 TH FEBRUARY 2010. 21 . THE FIRST ISSUE VIDE GROUND NOS. 2.1 TO 2.3 IS IN REGARD TO PROVISION FOR CONTRACTUAL OBLIGATIONS AND SECOND ISSUE VIDE GROUND NOS. 3.1 TO 3.3 IS IN REGARD TO PROVISION FOR BAD AND DOUBTFUL DEBTS. BOTH THESE ISSUES ARE IDENTICAL TO THE ISSUES CONSIDERED IN ASSESSMENT YEAR 2005 - 06 VIDE ITA NO. 1 8 14/DEL/2010. THEREFORE, PAGE NO. 11 FOR THE REASONS GIVEN IN THE ABOVE DECISION, BOTH GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSE. 22 . NOW WE TAKE UP T HE DEPARTMENTS APPEAL VIDE ITA NO. 1910/DEL/2012 FOR THE ASSESSMENT YEAR 2005 - 06 . 2 3 . THE DEPARTMENT HAS TAKEN FOLLOWING GROUNDS OF APPEAL: - 1. THE LD CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN CANCELLING THE PENALTY OF RS. 3,75,76,200/ - IMPOSED BY THE ASSESSING OFFICER U/S 271 (1)(C) OF THE ACT. 2. THE APPELLANT CRAVES TO AMEND MODIFY, ALTER, ADD OR FOREGO ANY GROUND OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2 4. THE ASSESSING OFFICER HAD INITIATED PENALTY PROCEEDINGS FOR THE ASSESSMENT YEAR 2005 - 06 IN RESPECT OF FOLLOWING ADDITION S : - I) PROVISION OF CONTRACTUAL OBLIGATIONS OF RS. 6,46,92,683/ - . II) PROVISIONS FOR DOUBTFUL DEBTS OF RS: 3,79,95,597/ - . 2 5 . AFTER CONSIDERING THE ASSESSEES SUBMISSION S, THE ASSESSING OFFICER LEVIED PENALTY OF RS. 3,75,76,200/ - BEING 100% OF THE TAX SOUGHT TO BE EVADED , INTER ALIA , OBSERVING THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF INCOME TO THE EXTENT OF RS. 10,26,88,280/ - 26 . LD CIT(A) DELET ED THE PENALTY FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT IN CIT VS. NALWA SONS INVESTMENTS LTD. (2010) 194 TAXMAN 387 ( DELHI) , WHEREIN IT HAS BEEN HELD THAT WHERE INCOME DETERMINED UNDER NORMAL PROVISION IS LESS THAN INCOME DETERMINE D UNDER SECTIO N 115JB , THE PENALTY WILL NOT BE LEVIABLE. 27. LD DR SUBMITTED THAT LD CIT(A) HAS NOT PASSED SPEAKING ORDER AND HAS MERELY RELIED ON THE DECISION OF HONB LE DELHI HIGH COURT WITHOUT PROPER APPRECIATION OF FACTS. PAGE NO. 12 2 8 . WE HAVE CONSIDERED THE SUBMISSIONS OF THE BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE . IT IS NOT DISPUTED THAT THE ASSESSEES INCOME HAD BEEN ASSESSED UNDER THE PROVISIONS OF SECTION 115JB AND TAX WAS PAID BY THE ASSESSEE ON BOOK PROFITS OF RS.37,73,880 / - . WE DO NOT FIND ANY SUBST ANCE IN THE SUBMISSIONS OF LD. DR AS THEY DO NOT MERIT ANY CONSIDERATION BY US . THE DECISION OF THE HONBLE DELHI HIGH COURT IN NALVA SONS INVESTMENTS LTD. (SUPRA) IS CLEARLY APPLICABLE TO THE FACTS OF THE CASE WHEREIN IT HAS BEEN HELD AS UNDER: 25. JUDG EMENT IN THE CASE OF GOLD COIN HEALTH FOOD (P) LTD. (SUPRA), OBVIOUSLY, DOES NOT DEAL WITH SUCH A SITUATION. WHAT IS HELD BY THE SUPREME COURT IN THAT CASE IS THAT EVEN IF IN THE INCOME - TAX RETURN FILED BY THE ASSESSEE LOSSES ARE SHOWN, PENALTY CAN STILL B E IMPOSED IN A CASE WHERE ON SETTING OFF THE CONCEALED INCOME AGAINST ANY LOSS INCURRED BY THE ASSESSEE UNDER OTHER HEAD OF INCOME OR BROUGHT FORWARD FROM EARLIER YEARS, THE TOTAL INCOME IS REDUCED TO A FIGURE LOWER THAN THE CONCEALED INCOME OR EVEN A MINU S FIGURE. THE COURT WAS OF THE OPINION THAT THE TAX SOUGHT TO BE EVADED WILL MEAN THE TAX CHARGEABLE NOT AS IF IT WERE THE TOTAL INCOME. ONCE, WE APPLY THIS RATIONALE TO EXPLANATION 4 GIVEN BY THE SURPEME COURT, IN THE PRESENT CASE, IT WILL BE DIFFICULT TO SUSTAIN THE PENALTY PROCEEDINGS. REASON IS SIMPLE. NO DOUBT, THRE WAS CONCEALMENT BUT THAT HAD ITS REPERCUSSIONS ONLY WHEN THE ASSESSMENT WAS DONE UNDER THE NORMAL PROCEDURE. THE ASSESSMENT AS PER THE NORMAL PROCEDURE WAS, HOWEVER, NOT ACTED UPON. ON T HE CONTRARY, IT IS THE DEEMED INCOME ASSESSED UNDER SECTION 115JB OF THE ACT WHICH HAS BECOME THE BASIS OF ASSESSMENT AS IT WAS HIGHER OF THE TWO. TAX IS THUS, PAID ON THE INCOME ASSESSED UNDER SECTION 115JB OF THE ACT. HENCE, WHEN THE COMPUTATION WAS MADE UNDER SECTION 115JB OF THE ACT, THE AFORESAID CONCEALMENT HAD NO ROLE TO PLAY AND WAS TOTALLY IRRELEVANT. THEREFORE, THE CONCEALMENT DID NOT LEAD TO TAX EVASION AT ALL. PAGE NO. 13 2 9 . RESPECTFULLY FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT , WE CONFIRM THE ORDER OF THE LD CIT(A). 30 . IN THE RESULT THE DEPARTMENTAL APPEAL IS DISMISSED. ORDER P RONOUNCED IN THE OPEN COURT ON 23. 08.2013. - SD/ - - SD/ - ( RAJPAL YADAV ) ( S. V MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED 23 / 08 /2013 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI