Edwards Life Sciences India (P) Ltd, V. ACIT circle 11 (1),

ITA 2129/DEL/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3562 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 17-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 27-04-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JATIN JINDAL
• Assessee Lawyers: MANISH GUPTA
• Keywords: Retrospective amendment; Bad and doubtful debts; Set aside
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI K.G. BANSAL ITA NO. 2129/DEL/07 A.Y. 2003-04 EDWARD LIFESCIENES (INDIA) PVT. LTD. VS. ACIT, CI R. 11(1), 204-206, TOLSTOY HOUSE, NEW DELHI. TOLSTOY MARG, NEW DELHI. PAN/ GIR NO. AAACB4203F ITA NO. 2349/DEL/07 A.Y. 2003-04 ACIT, CIR. 11(1), VS. EDWARD LIFESCIENES (INDIA) PVT. LTD. NEW DELHI. 204-206, TOLSTOY HOUSE, TOLSTOY MARG, NEW DELHI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI JATIN JINDAL CA ASSESSEE BY : SHRI MANISH GUPTA CA O R D E R PER R.P. TOLANI , J.M : THESE ARE CROSS APPEALS, ONE BY THE ASSESSEE AND TH E OTHER BY THE REVENUE. THESE APPEALS HAVE BEEN SET ASIDE BY HONB LE DELHI HIGH COURT VIDE ORDER DATED 19-12-2008 IN ITA NO. 118/09. THE HONBLE HIGH COURTS ORDER READS AS UNDER: NOTICE WAS ISSUED FOR 24-11-2009, WHICH WAS DULY S ERVED. HOWEVER, NOBODY APPEARED ON BEHALF OF THE RESPONDENT ON THAT DAY. IN THE INTEREST OF JUSTICE, WE DEFERRED THE MATTER FOR TODAY. EVEN TOD AY, THERE IS NO APPEARANCE ON BEHALF OF THE RESPONDENT. IN THESE CI RCUMSTANCES, WE HAVE HEARD THE LEARNED COUNSEL FOR THE APPELLANT. 2129 & 2349-D-07 EDWARDS LIFE SCIENCES INDIA LTD. 2 THE FIRST QUESTION WHICH IS RAISED IN THIS APPEAL I S AS UNDER: WHETHER THE ITAT WAS CORRECT IN LAW IN UPHOLDING T HE CIT(APPEALS) ORDER AND DELETING THE ADDITION OF RS. 39,32,730/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF GRATUITY AND DOUBTFUL DEBTS FOR WORKING OUT ADJUSTE D BOOK PROFITS UNDER SECTION 115JB? THE ADDITIONS WERE MADE ON ACCOUNT OF GRATUITY AS W ELL AS DOUBTFUL DEBTS. IT IS STATED THAT THE ADDITION INCURRED TO D OUBTFUL DEBTS IS RS. 2,804,762/-. THOUGH IN OUR ORDERS DATED 14,07,2009, WE HAD MENTIONED THAT THIS QUESTION IS COVERED BY THE JUDGMENT OF TH IS COURT IN THE CASE OF [305 ITR 409], WE FIND THAT INSOFAR AS DOUBTFUL DEB TS FOR WORKING OUT ADJUSTED BOOKS PROFITS UNDER SECTION 115JB ARE CONC ERNED, THERE IS AN AMENDMENT TO THIS PROVISION BY THE FINANCE ACT, 200 9 WITH RETROSPECTIVE EFFECT FROM 01-04-2001. IN VIEW OF THIS AMENDMENT, THE QUESTIONS REGARDING DOUBTFUL DEBTS FOR WORKING OUT ADJUSTED B OOKS PROFITS UNDER SECTION 115JB SHALL HAVE TO BE RECONSIDERED BY THE TRIBUNAL. SIMILAR IS THE POSITION IN RESPECT OF SLOW MOVING INVENTORY. THUS, WE SET ASIDE THE ORDER OF THE TRIBUNAL ON THE SE TWO ASPECTS, VIZ, ADDITION OF DOUBTFUL DEBTS AS WELL AS ADDITION ON ACCOUNT OF SLOW MOVING INVENTORY FOR WORKING ADJUSTED BOOK PROFITS UNDER SECTION 115JB. THE TRIBUNAL SHALL RECONSIDER THESE ASPECTS IN THE LIGHT OF THE AMENDMENT MADE WITH RETROSPECTIVE EFFECT AS MENTIONED ABOVE. 2. REVENUES GROUND IS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE AO TO EXCLUDE THE PROVISIONS FOR GRATUITY AND DOUBTFUL DEBTS AMOUNTING TO RS. 39,32,730/- IN CALC ULATING THE BOOK PROFIT U/S 115JB, BY MISCONSTRUING THE PROVISIONS OF CLAUS E (C OF THE EXPLANATION BELOW SUB SECTION (2) OF SECTION 115JB 3. THE ASSESSEES APPEAL RAISED VARIOUS ISSUES ON O NE GROUND, WHICH IS AS UNDER: THAT THE LD. CIT(A) GROSSLY ERRED IN LAW IN CONFIR MING THE ACTION OF THE AO IN ADDING BACK AN AMOUNT OF RS. 56,40,416/- BEIN G PROVISION FOR SLOW MOVING INVENTORY WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961 (ACT). 4. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDS TH AT BY FINANCE ACT, 2009, SECTION 115JB HAS BEEN AMENDED RETROSPECTIVEL Y W.E.F. 1-4-2001 TO THE EFFECT THAT THE BOOK PROFIT MEANS THE NET PROFIT AS INCREASED BY (I) THE 2129 & 2349-D-07 EDWARDS LIFE SCIENCES INDIA LTD. 3 AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINU TION IN THE VALUE OF ANY ASSET. CONSEQUENTLY, ANY PROVISION MADE FOR BAD DEB TS OR DIMINISHING OF VALUE OF SLOW MOVING ITEMS WILL NOT BE ALLOWED AS A DEDUCTION WHILE WORKING OUT PROFITS U/S 115JB. IN THIS BACKDROP, IT WAS CONTENDED THAT THE CLAIM ABOUT BAD DEBTS MADE BY THE ASSESSEE CONTAINS TWO ITEMS I.E. ACTUAL WRITING OFF OF BAD DEBTS MADE IN LEDGER ACCOUNT AND PROVISION FOR BAD DEBT. IN VIEW OF RETROSPECTIVE AMENDMENT, IN RESPECT OF BAD DEBTS, THE CLAIM ONLY TO THE ACTUAL WRITING OFF OF BAD DEBT IS TO BE ALLO WED, FOR WHICH THE MATTER MAY BE REFERRED BACK TO THE FILE OF AO TO VERIFY TH E ACCOUNTS IN THIS BEHALF AND PASS ORDER IN ACCORDANCE WITH THE AMENDMENT. 4.1. ON THE ISSUE OF ADDING BACK OF SLOW MOVING IT EMS OF MACHINERY THE LEARNED COUNSEL CONCEDES THAT NOTHING IS TO BE ALLO WED IN VIEW OF THE ABOVE AMENDMENT. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND CAREFULLY CO NSIDERED THE ENTIRE MATERIAL ON RECORD. IN VIEW OF THE ABOVE RETROSPECT IVE AMENDMENT, THE ASSESSEES P&L A/C HAS TO BE ADDED BACK WITH THE AM OUNT OF SLOW MOVING MACHINERY ITEMS AND PROVISION FOR BAD DEBT. THE AO WILL VERIFY BAD DEBTS ACCORDINGLY AND PASS ORDER IN ACCORDANCE WITH LAW. 6. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWE D ON ABOVE TERMS AND ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 17-6-2010. SD/- SD/- (K.G. BANSAL ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 17-6-2010. MP COPY TO : (3) CIT 1. ASSESSEE (4) CIT(A) 2. AO (5) DR 2129 & 2349-D-07 EDWARDS LIFE SCIENCES INDIA LTD. 4 3. CIT 4. CIT(A) 5. DR 2129 & 2349-D-07 EDWARDS LIFE SCIENCES INDIA LTD. 5