M/s Southern Petrochemical Industries Corporation Ltd., CHENNAI V. JCIT, CHENNAI

ITA 2292/CHNY/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5218 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 23-12-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Retrospective amendment; Bad and doubtful debts
• Section: 80HHC; 115JB; 263; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI (BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER) .. I.T.A. NO. 2292/MDS/2008 ASSESSMENT YEAR : 2004-05 M/S SOUTHERN PETROCHEMICAL INDUSTRIES CORPORATION LTD., 88, MOUNT ROAD, GUINDY, CHENNAI 600 032. PAN : AAACS4668K (APPELLANT) V. THE JOINT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V, CHENNAI 600 034. (RESPONDENT) APPELLANT BY : SHRI R. VIJAYARAGHAVAN RESPONDENT BY : SHRI P.B. S EKARAN O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL, ASSESSEE ASSAILS THE ASSUMPTION OF JURISDICTION BY CIT, UNDER SECTION 263 OF THE INCOME-TAX ACT, 19 61 (HEREINAFTER CALLED THE ACT), CONSIDERING THE ASSESSMENT ORDER DATED 19.12.2006 FOR THE IMPUGNED ASSESSMENT YEAR AS ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF THE REVENUE. 2. GROUNDS RAISED BY THE ASSESSEE CAN BE GROUPED IN TO TWO. FIRST GROUP ASSAILS THE ORDER OF THE CIT IN RELATION TO C OMPUTATION OF BOOK I.T.A. NO. 2292/MDS/08 2 PROFITS FOR THE PURPOSE OF SECTION 115JB OF THE ACT . SECOND GROUP ASSAILS THE ORDER OF THE CIT IN RELATION TO CERTAIN ITEMS NOT CONSIDERED BY A.O., WHILE COMPUTING THE INCOME OF THE ASSESSEE UNDER NORMAL PROVISIONS. 3. OF THE ABOVE, GROUNDS RELATING TO ASPECTS CONCER NING BOOK PROFIT COMPUTATION UNDER SECTION 115JB OF THE ACT C AN BE SUMMARIZED AS UNDER:- (I) PROVISION FOR BAD AND DOUBTFUL DEBTS AN ADVANCE OF ` 16,03,61,290/- TO ONE M/S SICAL SHIPS (INDIA) LTD. (II) PROVISION FOR BAD AND DOUBTFUL ` 86,48,265.68 RELATING TO VARIOUS OTHER PARTIES. (III) DEPOSIT OF ` 2,00,00,000/- AGAINST ELECTRICITY TAX DEMAND OF ` 10.51 CRORES FOR CAPTIVE POWER CONSUMPTION, CONSIDERED AS CONTINGENT LIABILITY. (IV) ELECTRICITY TAX DEMAND OF ` 98,67,181/- AS PER TAMIL NADU TAX ON CONSUMPTION OR SALE OF ELECTRICITY ACT, AGAIN CONSIDERED AS CONTINGENT LIABILITY. 4. LD. CIT IN HIS SHOW CAUSE NOTICE UNDER SECTION 2 63 OF THE ACT CONVEYED TO THE ASSESSEE THAT NONE OF THE ABOVE ITE MS WERE CONSIDERED BY THE ASSESSING OFFICER FOR THE PURPOSE OF COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB OF THE ACT. RE PLY OF THE ASSESSEE VIS--VIS ITEM NO.(I) WAS THAT THE SAID AM OUNT REPRESENTED AN ADVANCE GIVEN TO ONE M/S SICAL SHIPS (INDIA) LTD ., WHICH WAS ENGAGED BY THE ASSESSEE-COMPANY TO TRANSPORT IMPORT ED RAW I.T.A. NO. 2292/MDS/08 3 MATERIAL FROM OTHER COUNTRIES FOR USE IN ITS MANUFA CTURE OF CHEMICAL FERTILIZERS AND THE SAID SICAL SHIPS (INDIA) LTD. W AS UNDER WINDING UP. ACCORDING TO ASSESSEE, A PETITION WAS ALREADY FILED BEFORE HON'BLE HIGH COURT JUDICATURE AT MADRAS IN THIS REGARD AND HON'BLE HIGH COURT VIDE ITS ORDER DATED 4.9.2003 HAD DIRECTED TH AT THE SAID COMPANY BE WOUND UP. THEREFORE, AS PER THE ASSESSE E, THE PROVISION MADE WAS AGAINST AN ASCERTAINED LIABILITY AND WOULD NOT COME WITHIN THE PURVIEW OF EXPLANATION 1 TO SECTION 115JB(2) OF THE ACT. VIS--VIS THE SECOND ITEM REPLY OF THE ASSESS EE WAS THAT IT HAD CONSIDERED THE AMOUNTS DUE FROM VARIOUS PARTIES DOU BTFUL OF RECOVERY AND HENCE, MADE A PROVISION. ACCORDING TO ASSESSEE , THIS WAS ALSO AN ASCERTAINED LIABILITY. ASSESSEE ALSO POINTED OU T THAT WHOLE OF THE PROVISION TOTALLING TO ` 16,90,09,556/- WAS ADDED BACK IN ITS MEMO OF INCOME WHILE COMPUTING TOTAL INCOME UNDER NORMAL PR OVISIONS OF THE ACT AND THE ASSESSING OFFICER HAD, THEREFORE, CONSI DERED EACH OF THE ITEMS AND CAME TO A CONCLUSION THAT THESE COULD NOT BE CONSIDERED AS UNASCERTAINED LIABILITY WHICH WOULD CALL FOR APP LICATION OF EXPLANATION 1 TO SECOND PROVISO TO SECTION 115JB(2) OF THE ACT. 5. ON THE THIRD ITEM MENTIONED IN THE NOTICE UNDER SECTION 263, REPLY OF THE ASSESSEE WAS THAT THE TAMIL NADU ELECT RICITY BOARD HAD I.T.A. NO. 2292/MDS/08 4 IMPOSED A DEMAND OF ` 10.51 CRORES ON CAPTIVE CONSUMPTION OF POWER FOR THE PERIOD JANUARY 1986 TO MARCH 1994 WHI CH WAS DISPUTED BY THE ASSESSEE BEFORE THE HON'BLE MADRAS HIGH COUR T IN A WRIT PETITION. ACCORDING TO ASSESSEE, AN AMOUNT OF ` 2,00,00,000/- WAS DEPOSITED AS PER THE DIRECTIONS OF THE HON'BLE HIGH COURT GIVEN WHILE ADMITTING THE WRIT PETITION. THEREFORE, IT WAS ARG UED THAT THIS WAS ALSO A CRYSTALLIZED LIABILITY. 6. ON THE FOURTH ITEM, REPLY OF THE ASSESSEE WAS TH AT AN ACT CALLED TAMIL NADU TAX ON CONSUMPTION OR SALE OF ELECTRICI TY ACT, 2003 IMPOSED ON IT AN ELECTRICITY TAX OF 5% OF POWER COS T AND 10 PAISE PER UNIT ON CAPTIVE POWER. ACCORDING TO THE ASSESSEE, SUCH DEMAND OF ` 98,67,181/- WAS ALSO A CRYSTALLIZED LIABILITY. ASS ESSEE BROUGHT TO THE ATTENTION OF CIT THE WRIT PETITION MOVED BY IT CHAL LENGING THE ACT WHEREIN AN INTERIM INJUNCTION WAS GRANTED AGAINST R ECOVERY OF DEMAND. 7. AS PER THE ASSESSEE, FOR EACH OF THE ABOVE ITEMS , IT HAD PROVIDED BREAK-UP DETAILS VIDE ITS LETTER DATED 23. 11.2006 ADDRESSED TO A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS . ACCORDING TO ASSESSEE, THE A.O. HAD TAKEN A VIEW THAT ALL THE AB OVE PROVISIONS WERE AGAINST ASCERTAINED LIABILITIES AND WOULD NOT BE SUSCEPTIBLE FOR I.T.A. NO. 2292/MDS/08 5 ADDITION WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT. RELIANCE WAS ALSO PLACED ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. CIT (200 0) 243 ITR 83 (SC) IN SUPPORT OF ITS ARGUMENT THAT THE CIT COULD NOT T AKE A DIFFERENT VIEW WHEN LAWFUL VIEW WAS TAKEN BY THE ASSESSING OFFICER . 8. CIT AFTER CONSIDERING THE ABOVE SUBMISSION WAS O F THE OPINION THAT NONE OF THE ABOVE MERITED ANY POSITIVE CONSIDE RATION. ACCORDING TO HIM, THE PROVISIONS MENTIONED AT (I) AND (II) AB OVE WERE AGAINST UNASCERTAINED LIABILITIES. ACCORDING TO CIT, IN SO FAR AS THE DUES FROM M/S SICAL SHIPS (INDIA) LTD. WAS CONCERNED, HON'BLE HIGH COURT HAD ORDERED WINDING UP OF THE SAID COMPANY ON 4.9.2003 AND ASSESSEE DESPITE HAVING SUCH ORDER WITH IT, WHICH WAS PASSED DURING THE CURRENCY OF THE RELEVANT FINANCIAL YEAR, HAD DECIDE D ONLY TO MAKE A PROVISION. AS PER THE CIT, ASSESSEE HAD EFFECTED A N ACTUAL WRITE OFF ONLY IN THE NEXT ASSESSMENT AND THIS BY ITSELF CLEA RLY SHOWED THAT THE SUM OF ` 16,03,61,290/- REPRESENTED UNASCERTAINED LIABILITY . IN SO FAR AS ITEM NO.(II) WAS CONCERNED, CIT NOTED THAT THESE WERE AMOUNTS DUE FROM VARIOUS GOVERNMENT DEPARTMENTS AND COULD N OT BE CONSIDERED AS BAD OR DOUBTFUL. VIS--VIS THE THIRD ITEM, LD. CIT NOTED THAT IT WAS ONLY A DEPOSIT MADE PURSUANT TO HIGH CO URT DIRECTION AND WAS ONLY A CONTINGENT LIABILITY. VIS--VIS ITEM NO .(IV), LD. CIT WAS I.T.A. NO. 2292/MDS/08 6 AGAIN OF THE OPINION THAT IT REPRESENTED ONLY A CON TINGENT LIABILITY. HE, THEREFORE, DIRECTED THE A.O. TO DISALLOW ALL THESE AMOUNTS FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 9. NOW BEFORE US, LEARNED A.R. STRONGLY ASSAILING T HE ORDER OF CIT, SUBMITTED THAT HON'BLE APEX COURT IN THE CASE OF CI T V. HCL COMNET SYSTEMS AND SERVICES LTD. (2008) 305 ITR 409 (SC) V IDE ITS ORDER DATED 23 RD SEPTEMBER, 2008, HAD HELD THAT PROVISION FOR BAD A ND DOUBTFUL DEBTS COULD NOT BE CONSIDERED FOR ADDITION WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JA OF THE ACT. ACCORD ING TO THE LEARNED A.R., SUCH PROVISION WAS MADE TO COVER UP PROBABLE DIMINUTION IN THE VALUE OF ASSETS AND DID NOT REPRESENT ANY PROVISION FOR LIABILITY. AS PER THE LEARNED A.R., HON'BLE APEX COURT CLEARLY HE LD THAT PROVISION MADE TOWARDS IRRECOVERABILITY OF A DEBT COULD NOT B E SAID TO BE A PROVISION FOR LIABILITY. ACCORDING TO HIM, WHEN TH E CIT PASSED THE ORDER UNDER SECTION 263 OF THE ACT ON 17.10.2008, T HE ORDER OF THE HON'BLE APEX COURT WAS ALREADY AVAILABLE. IT WAS A RGUED THAT EVEN, OTHERWISE, THERE WERE TWO VIEWS SUBSISTING REGARDIN G TREATMENT OF PROVISIONS FOR DEBTS WHEN THE A.O. CONSIDERED THE I SSUE. THE A.O. HAD TAKEN A LAWFUL VIEW IN NOT MAKING ANY ADDITION OF THESE AMOUNTS FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB OF I.T.A. NO. 2292/MDS/08 7 THE ACT. RELIANCE WAS PLACED ON THE DECISION OF HO N'BLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. (SUPRA) IN SUPPORT OF THIS CONTENTION. ACCORDING TO HIM, THE CIT WAS TRYING T O SUBSTITUTE HIS VIEW WITH THE LAWFUL VIEW TAKEN BY THE A.O. LEARNE D A.R. FURTHER ARGUED THAT THOUGH EXPLANATION 1 TO SECOND PROVISO TO SECTION 115JB(2) WAS AMENDED BY FINANCE (NO.2) ACT, 2009 AN D CLAUSE (I) ADDED TO IT WITH RETROSPECTIVE EFFECT FROM 1.4.2001 , AS PER THE DECISION OF HON'BLE APEX COURT IN THE CASE OF CIT V. MAX IND IA LTD. (2007) 295 ITR 282 (SC), RETROSPECTIVE AMENDMENT COULD NOT BE A GROUND FOR INVOKING POWERS UNDER SECTION 263 OF THE ACT. ACCO RDING TO LEARNED A.R., THE CIT WAS OBLIGED TO CONSIDER ONLY THE LAW AS IT STOOD WHEN HE WAS PASSING THE ORDER AND THE RETROSPECTIVELY AM ENDED PROVISIONS COULD NOT CURE THE INAPPROPRIATE JURISDICTION EXERC ISED BY THE CIT. IN SO FAR AS DUES ON ELECTRICITY TAX WAS CONCERNED, LE ARNED A.R. TOOK US THROUGH PARA 5 OF THE ORDER OF THE ASSESSING OFFICE R FOR ARGUING THAT THE LIABILITY ARISING TO ASSESSEE ON ACCOUNT OF SUC H TAXES WAS PROPERLY CONSIDERED BY THE A.O. ACCORDING TO HIM, THE ASSES SING OFFICER HAD MADE A DISALLOWANCE OF THE CLAIM OF ` 2,98,67,181/- UNDER THE NORMAL PROVISIONS OF THE ACT DESPITE ASSESSEES ARGUMENT T HAT THESE WERE CRYSTALLIZED LIABILITIES. IN OTHER WORDS, ACCORDIN G TO HIM, THE ASSESSING OFFICER HAD DULY CONSIDERED THE ISSUE REGARDING ALL OWANCE OF SUCH I.T.A. NO. 2292/MDS/08 8 AMOUNTS AND AFTER HAVING CONSIDERED SUCH ISSUE, CAM E TO A CONCLUSION THAT NO ADDITION WAS CALLED FOR UNDER EX PLANATION 1 TO SECOND PROVISO TO SECTION 115JB(2) OF THE ACT. IN ANY CASE, ACCORDING TO HIM, THE PROVISION FOR BAD DEBTS OF ` 16.04 CRORES RELATING TO M/S SICAL SHIPS WAS ALREADY DEDUCTED FR OM ITS LOANS AND ADVANCES APPEARING IN THE BALANCE SHEET. FOR THIS CONTENTION, HE PLACED RELIANCE ON AUDITED ACCOUNTS STATEMENT OF TH E ASSESSEE- COMPANY FOR THE RELEVANT PREVIOUS YEAR AND SCHEDULE X THERETO. SIMILARLY, ACCORDING TO HIM, THE OTHER AMOUNT OF ` 86.48 LAKHS WAS ALSO DEDUCTED FROM ITS SUNDRY DEBTORS BALANCE AND S CHEDULE VII TO THE AUDITED ACCOUNTS WOULD SUBSTANTIATE THIS. THER EFORE, AS PER THE LEARNED A.R., THE WHOLE OF THE PROVISION FOR BAD AN D DOUBTFUL DEBTS THOUGH IT WAS CALLED A PROVISION, STOOD ACTUALLY DE DUCTED FROM THE BALANCES DUE TO THE DEBTORS AND THEREFORE, IT CLEAR LY IMPLIED THAT THESE WERE ASCERTAINED LIABILITIES ONLY. IN ANY CA SE, ACCORDING TO HIM, THE CIT IN EACH OF THE ABOVE ITEM HAD GIVEN A DIREC TION TO THE ASSESSING OFFICER TO DISALLOW THE AMOUNTS UNDER SEC TION 115JB OF THE ACT AND THE CIT HAD NO POWERS TO GIVE ANY DIRECTION S UNDER SECTION 263 OF THE ACT TO DO AN ASSESSMENT IN A PARTICULAR MANNER. I.T.A. NO. 2292/MDS/08 9 10. PER CONTRA, THE LEARNED D.R. SUPPORTING THE ORD ER OF THE CIT, SUBMITTED THAT THE QUESTION OF CONSIDERATION OF A C OMPUTATION MADE UNDER SECTION 115JB OF THE ACT, WHETHER CORRECTLY D ONE BY THE ASSESSING OFFICER, WOULD HAVE ARISEN ONLY IF THERE WAS AN APPLICATION OF MIND BY THE A.O. IN THIS RESPECT. ACCORDING TO LEARNED D.R., THE A.O. HAD SIMPLY NOT MADE ANY COMPUTATION OF BOOK PR OFIT IN THE ASSESSMENT ORDER AT ALL. THUS, THERE WAS NON-APPLI CATION OF MIND BY THE A.O. ON ALL ASPECTS RELATING TO COMPUTATION OF BOOK PROFITS. WHEN THE A.O. HAD NOT COMPUTED THE BOOK PROFITS UNDER SE CTION 115JB OF THE ACT BUT ONLY THE TOTAL INCOME UNDER NORMAL PROV ISIONS OF THE ACT, ACCORDING TO LEARNED D.R., IT WOULD BE FOOLHARDY TO ARGUE THAT THERE WAS ANY APPLICATION OF MIND BY THE A.O. ON THE FORM ER. ACCORDING TO HIM, IRRESPECTIVE OF THE FACT WHETHER ANY OF THE IT EMS WERE ALLOWABLE OR NOT, THE A.O. OUGHT HAVE CONSIDERED EACH OF SUCH ITEMS AND MADE A COMPUTATION UNDER SECTION 115JB OF THE ACT, AS TO THE BOOK PROFITS AND THE A.O. HAVING NOT DONE SO, THE CIT WAS JUSTIF IED IN TREATING THE ORDER OF THE A.O. TO BE ERRONEOUS IN SO FAR AS IT W AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 11. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. IN THE FIRST PLACE, WE NOTE THAT THE COMPUTATION OF IN COME FILED BY THE I.T.A. NO. 2292/MDS/08 10 ASSESSEE ALONG WITH ITS RETURN FOR THE IMPUGNED ASS ESSMENT YEAR DID NOT CONSIDER, ANY COMPUTATION OF ITS BOOK PROFIT UN DER SECTION 115JB OF THE ACT. ASSESSEES COMPUTATION AS WELL AS ITS RETURN OF INCOME MENTIONED ITEMS RELEVANT TO COMPUTATIONS OF TOTAL I NCOME, WITHOUT CONSIDERING THE BOOK PROFIT. IF WE LOOK AT THE ASS ESSMENT ORDER PASSED BY THE A.O. FOR THE IMPUGNED ASSESSMENT YEAR , NO DOUBT, HE HAS MADE A DISCUSSION IN IT REGARDING THE ALLOWABIL ITY OF ELECTRICITY TAX OF ` 298.67 LAKHS CHARGED TO THE PROFIT AND LOSS ACCOUN T AND MADE AN ADDITION THEREOF, UNDER NORMAL PROVISIONS, CONSIDER ING IT TO BE NOT ALLOWABLE. BUT, NEVERTHELESS, THE ARGUMENT OF THE ASSESSEE WITH REGARD TO ELECTRICITY TAX WAS THAT IT WAS AN ASCERT AINED LIABILITY WHEREAS THE A.O. CONSIDERED IT TO BE A CONTINGENT L IABILITY. SUCH DISALLOWANCE AS WELL AS ALL OTHER DISALLOWANCES MAD E BY THE A.O. WERE ONLY FOR THE PURPOSE OF COMPUTING THE TOTAL IN COME OF THE ASSESSEE UNDER THE NORMAL PROVISIONS OF THE ACT. T HERE IS NOT EVEN A WHISPER IN THE ASSESSMENT ORDER REGARDING ANY COMPU TATION OF BOOK PROFITS UNDER SECTION 115JB OF THE ACT. A.O. HAS N OT DISCUSSED ANYTHING REGARDING THE PROVISION FOR BAD AND DOUBTF UL DEBTS, MADE BY THE ASSESSEE, WHICH IT HAD BY ITSELF ADDED BACK IN ITS NORMAL COMPUTATION. OBVIOUSLY, ASSESSING OFFICER WOULD NO T HAVE FOUND ANY NEED OF DISCUSSION ON THESE ITEMS SINCE ASSESSEE HA D MADE A SUO- I.T.A. NO. 2292/MDS/08 11 MOTU DISALLOWANCE. NO DOUBT, JUST BECAUSE THE ORDE R OF ASSESSING OFFICER WAS CRYPTIC, WE CANNOT CONSIDER IT AS ERRON EOUS. BUT, WHERE THERE IS A TOTAL LACK OF ENQUIRY, WE CANNOT SAY THA T THE ORDER IS NOT ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. ALL THE DISCUSSIONS IN THE ASSESSMENT ORDER WERE ONLY REGAR DING APPLICATION OF NORMAL PROVISIONS OF THE ACT. MAY BE, IT IS TRU E THAT RETROSPECTIVE AMENDMENT TO THE ACT WOULD NOT BE A GROUND FOR INVO KING JURISDICTION UNDER SECTION 263 OF THE ACT IN EVERY CASE AS PER T HE LAW LAID DOWN BY HON'BLE APEX COURT IN THE CASE OF MAX INDIA LTD. (SUPRA), BUT IT IS ALSO TO BE MENTIONED THAT THE LAW SO LAID DOWN BY T HE APEX COURT CANNOT BE CONSIDERED DIVORCED FROM THE CIRCUMSTANCE S IN WHICH HON'BLE APEX COURT GAVE SUCH A RULING. IN THE CASE OF MAX INDIA LTD. (SUPRA) HON'BLE APEX COURT WAS DEALING WITH AN ISSU E REGARDING AMENDMENTS RETROSPECTIVELY MADE TO SECTION 80HHC OF THE ACT. IT IS PERTINENT TO NOTE THAT IN PARA 4 OF THE SAID ORDER, HON'BLE APEX COURT HAD SPECIFICALLY MENTIONED THAT MECHANICS OF THE SA ID SECTION HAD BECOME SO COMPLICATED OVER THE YEARS DUE TO INNUMER ABLE AMENDMENTS. IT IS BECAUSE OF THE COMPLICATION ARIS ING OUT OF INNUMERABLE AMENDMENTS THAT HON'BLE APEX COURT HELD RETROSPECTIVE AMENDMENT TO THE SAID SECTION, WOULD NOT ATTRACT TH E PROVISIONS OF SECTION 263 OF THE ACT. IT IS NOT THAT IN EVERY CA SE WHERE THERE IS A I.T.A. NO. 2292/MDS/08 12 RETROSPECTIVE AMENDMENT, A CIT WOULD BE DEPRIVED OF INVOKING POWERS VESTED ON HIM UNDER SECTION 263 OF THE ACT. IN THE GIVEN CASE BEFORE US, THERE WAS NO SUCH COMPLICATED SUCCE SSIVE AMENDMENTS TO SECTION 115JB OF THE ACT, AKIN TO THO SE MADE IN SECTION 80HHC OF THE ACT. IN ANY CASE, LD. CIT HAD PASSED THE ORDER UNDER SECTION 263 OF THE ACT, NOT BASED ON THE RETR OSPECTIVE AMENDMENT TO EXPLANATION 1 TO SECOND PROVISO TO SEC TION 115JB(2) OF THE ACT. HE HAD BASED HIMSELF ON A REASON WHICH IS CLEAR FROM PARA 12 OF HIS ORDER WHICH READS AS UNDER:- 12. IT IS SEEN FROM THE RECORDS THAT THE ASSESSING OFFICER HAD ONLY EXAMINED THE ISSUES FOR THE PURPOSE OF COMP UTING THE TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT OTHER THAN SEC.115JB OF THE ACT. THE ASSESSING OFFICER HAD OM ITTED TO EXAMINE THE CASE IN THE LIGHT OF SEC.115JB AND OBVI OUSLY HAD NOT TAKEN ANY VIEW IN THE MATTER. THEREFORE THE RATIO O F THE DECISION OF THE SUPREME COURT IN THE CASE OF MALABA R INDUSTRIAL CO. LTD. VS. CIT (2000) (109 TAXMAN 66) RELIED ON B Y THE ASSESSEE DOES NOT APPLY TO THE FACTS OF THE CASE. HE DEEMED THE ORDER TO BE ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE FOR A REASON THAT THE A .O. HAD OMITTED TO EXAMINE EACH OF THE ITEMS IN THE LIGHT OF SECTION 1 15JB OF THE ACT. IN OUR OPINION, DECISION OF HON'BLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. (SUPRA) WOULD COME TO THE AID O F THE REVENUE HERE. THE ORDER OF THE A.O. WAS WITHOUT APPLICATIO N OF MIND ON I.T.A. NO. 2292/MDS/08 13 SECTION 115JB OF THE ACT. SUB-SECTION (1) OF SECTI ON 115JB STARTS WITH A NON OBSTANTE CLAUSE AND IT RUNS AS UNDER:- 115JB. (1) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, WHERE IN THE CASE OF AN ASSE SSEE, BEING A COMPANY, THE INCOME-TAX, PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THIS ACT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER [ THE 1 ST DAY OF APRIL, [2010] ] , IS LESS THAN [FIFTEEN PER CENT] OF ITS BOOK PROFI T, [SUCH BOOK PROFIT SHALL BE DEEMED TO BE THE TOTAL I NCOME OF THE ASSESSEE AND THE TAX PAYABLE BY THE ASSESSEE ON SUCH TOTAL INCOME SHALL BE THE AMOUNT OF INCOME-TAX AT THE RAT E OF [FIFTEEN PERCENT]. A DUTY IS THUS CAST ON AN ASSESSING OFFICER TO WORK OUT BOOK PROFIT AS DEFINED UNDER SUBSEQUENT SUB-SECTION, AND APPLY 7.5 % THEREON, AND MAKE A COMPARISON THEREOF WITH TOTAL INCOME UNDER N ORMAL PROVISIONS OF THE ACT. THE ASSESSING OFFICER HAD FAILED TO DI SCHARGE THIS DUTY CAST ON HIM. IN SO FAR IT RELATES TO THE ELECTRICI TY TAX, UNDOUBTEDLY, THE TAX AUDIT REPORT OF THE ASSESSEE CLEARLY MENTIONED THE AMOUNT TO BE CONTINGENT IN NATURE. IT IS FOR THIS REASON THAT T HE A.O. HELD IT AS NOT ALLOWABLE WHILE COMPUTING THE TOTAL INCOME UNDER TH E NORMAL PROVISIONS OF THE ACT. EVEN AT THAT POINT, THE ASS ESSING OFFICER NEVER MADE ANY EFFORT TO MAKE A BOOK PROFIT COMPUTATION A S MANDATED UNDER SECTION 115JB OF THE ACT. THE SIMPLE REASON FOR NOT DOING SO WAS THAT SUCH AN ASPECT NEVER CAME TO HIS MIND AT A LL WHEN HE PASSED THE ASSESSMENT ORDER. NON CONSIDERATION OF LAW AND NOT I.T.A. NO. 2292/MDS/08 14 MAKING A COMPUTATION PRESCRIBED UNDER LAW WOULD DEF INITELY RENDER THE ORDER OF THE A.O. ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN SO FAR AS THE DIRECTION OF THE CIT TO DISALLOW ALL THE ABOVE ITEMS UNDER SECTION 115JB OF THE ACT, NO DOUB T, SUCH A DIRECTION TO DO AN ASSESSMENT IN A PARTICULAR MANNE R WOULD BE BEYOND THE POWERS OF A CIT UNDER SECTION 263. BUT, THIS BY ITSELF COULD NOT BE A REASON TO STRIKE OFF THE CITS ORDER AS A WHOLE SINCE THE BASIC CONCLUSION WHICH HE REACHED, THAT THE ASS ESSMENT ORDER WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO TH E INTEREST OF THE REVENUE IS CORRECT. THE ORDER OF THE CIT IN THIS R EGARD WOULD STAND BUT WE WOULD MODIFY IT, SO AS TO GIVE THE A.O. A FR EE HAND IN MAKING THE FRESH ASSESSMENT. THE ORDER OF THE CIT WOULD T HUS STAND MODIFIED TO THE EFFECT THAT THE ASSESSING OFFICER S HALL EXAMINE EACH OF THE ABOVE ISSUE RELATING TO EACH OF THE ABOVE FO UR ITEMS AND PROCEED IN ACCORDANCE WITH LAW. 12. NOW COMING TO SECOND GROUP OF GROUNDS WHICH ASS AILS THE ORDER OF THE CIT WHEREBY HE CONSIDERED CERTAIN ADDI TIONS/ DISALLOWANCES MADE BY THE A.O. TO BE ERRONEOUS IN S O FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE CAN SUMMARIZE THESE ITEMS INTO FOLLOWING TWO ITEMS:- I.T.A. NO. 2292/MDS/08 15 (I) CLAIM OF DEPRECIATION MADE BY THE ASSESSEE ` 2,78,000/- IN RESPECT OF A LET OUT PROPERTY AT TUTI CORIN. (II) CLAIM OF BAD DEBTS ` 84.09 LAKHS WHICH WAS ALREADY INCLUDED IN A SUM OF ` 1321.73 LAKHS FALLING UNDER THE HEAD MISCELLANEOUS EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT. 13. THE CIT IN ITS NOTICE UNDER SECTION 263 OF THE ACT, CONVEYED TO THE ASSESSEE THAT THE PROPERTY AT TUTICORIN WAS CON SIDERED BY THE A.O. UNDER THE HEAD HOUSE PROPERTY AND THEREFORE, DEPRECIATION OF ` 2.78 LAKHS WHICH WAS ALLOWED WAS ERRONEOUS AND PRE JUDICIAL TO THE INTEREST OF THE REVENUE. IN SO FAR AS THE CLAIM OF BAD DEBTS WAS CONCERNED, CIT WAS OF THE OPINION THAT THE SAID AMO UNT WAS PART OF MISCELLANEOUS EXPENSES AND FURTHER DEDUCTION MADE A S CLAIMED BY THE ASSESSEE AND ALLOWED BY THE A.O. RESULTED IN DO UBLE DEDUCTION. REPLY OF THE ASSESSEE IN THIS REGARD WAS THAT DEPRE CIATION OF ` 6.40 LAKHS ON LET OUT PROPERTY, WAS ALREADY ADDED BACK B Y THE ASSESSING OFFICER IN THE ASSESSMENT AND THE SAID DISALLOWANCE WAS UNDER CHALLENGE BEFORE THE CIT(APPEALS). THEREFORE, ACCO RDING TO ASSESSEE, THE CIT HAD NO JURISDICTION TO REVISE THE ORDER OF THE A.O. ON AN ISSUE IN APPEAL BEFORE THE CIT(APPEALS). VIS --VIS THE DOUBLE CLAIM FOR BAD DEBTS, EXPLANATION OF THE ASSESSEE WA S THAT THERE WAS NO SUCH DOUBLE CLAIM. ACCORDING TO ASSESSEE, IT WA S FOLLOWING AN ACCOUNTING PRACTICE WHEREBY PARTY-WISE RECEIVABLES WERE CONSIDERED I.T.A. NO. 2292/MDS/08 16 AND PROVISIONS MADE TO THE EXTENT IT HAD BECOME DOU BTFUL BY CHARGING THE SAME TO THE PROFIT AND LOSS ACCOUNT. NEVERTHEL ESS, AS PER THE ASSESSEE, WHEN THE AMOUNTS REALLY BECOME IRRECOVERA BLE, THERE WAS A REVERSAL OF THE AMOUNTS EARLIER CHARGED FROM THE PROVISION AND EQUIVALENT WRITE-OFF THEREAFTER EFFECTED. THEREFOR E, AS PER THE ASSESSEE, THERE WAS NO DOUBLE DEDUCTION. 14. LD. CIT WAS HOWEVER NOT IMPRESSED. ACCORDING T O HIM, JUST BECAUSE AN ISSUE WAS IN APPEAL, DID NOT PRECLUDE HI M FROM EXERCISING HIS JURISDICTION UNDER SECTION 263 OF THE ACT. ACC ORDING TO HIM, THE INCOME FROM LET OUT PROPERTY HAVING BEEN COMPUTED U NDER THE HEAD INCOME FROM HOUSE PROPERTY, THE CLAIM OF DEPRECIA TION COULD NOT BE ALLOWED. VIS--VIS THE DOUBLE CLAIM OF BAD DEBTS, LD. CIT WAS OF THE OPINION THAT THE ASSESSEE WAS NOT ABLE TO EXPLAIN H OW THE CHARGE TO PROFIT AND LOSS ACCOUNT WAS REVERSED IN THE SUBSEQU ENT YEAR, AND ASSESSEE NEVER FURNISHED COPIES OF LEDGER ACCOUNTS AND DETAILS OF ACTUAL ENTRIES PASSED IN SUPPORT. ACCORDING TO CIT , THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT HAD NOT EXA MINED THESE ASPECTS. HE, THEREFORE, DIRECTED THE A.O. TO DISAL LOW THE CLAIM OF DEPRECIATION ON THE HOUSE PROPERTY AND TO EXAMINE T HE CONTENTION OF THE ASSESSEE VIS--VIS ITS CLAIM FOR BAD DEBTS. I.T.A. NO. 2292/MDS/08 17 15. NOW BEFORE US, THE LEARNED A.R. ASSAILING THE O RDER OF CIT, SUBMITTED THAT THERE WAS ALREADY DISALLOWANCE OF DE PRECIATION ` 6,40,000/- ON LET OUT PROPERTY MADE BY THE A.O. TH IS WAS UNDER CHALLENGE BEFORE CIT(APPEALS). THEREFORE, ACCORDIN G TO HIM, DIRECTION OF CIT FOR MAKING FURTHER DISALLOWANCE WA S UNCALLED FOR AND BEYOND HIS POWERS. IN ANY CASE, AS PER THE LEARNED A.R., THE CIT FELL IN ERROR TO GIVE SUCH DIRECTION UNDER SECTION 263 O F THE ACT. VIS--VIS THE CLAIM OF BAD DEBTS, THE LEARNED A.R. SUBMITTED THAT ASSESSEE WAS FOLLOWING A CONSISTENT ACCOUNTING PRACTICE WHEREBY PROVISIONS WERE BEING MADE EVERY YEAR AND SUCH PROVISIONS REVERSED TO THE EXTENT THE AMOUNT HAD ACTUALLY BECOME BAD, AND A WRITE-OFF EFFECTED. THEREFORE, ACCORDING TO HIM, THERE WAS NO DOUBLE CL AIM. 16. PER CONTRA, LEARNED D.R. SUPPORTED THE ORDER OF CIT ON BOTH THESE ASPECTS. 17. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. NO DOUBT, VIS--VIS THE ISSUE OF DEPRECIATION THERE WAS A DISALLOWANCE OF ` 6,40,000/- MADE BY THE A.O. AT PARA 10.3 OF THE AS SESSMENT ORDER. CASE OF THE ASSESSEE IS THAT ` 2,78,000/- CONSIDERED BY THE CIT WAS INCLUDED IN THE ABOVE AMOUNT OF ` 6,40,000/-. WE FIND THAT I.T.A. NO. 2292/MDS/08 18 THE A.O. HAD NOT EXAMINED THE CLAIM OF DEPRECIATION OF THE ASSESSEE VIS--VIS EACH OF THE LET OUT PROPERTY OWNED BY IT. THERE IS NOTHING IN THE ASSESSMENT ORDER WHICH GIVES A BREAK-UP OF THE DISALLOWANCE OF ` 6,40,000/- MADE BY THE A.O. HENCE, THERE IS A CLEA R OMISSION BY THE A.O. IN MAKING A SCRUTINY OF EACH OF THE CLAIM OF D EPRECIATION OF THE ASSESSEE. WE CANNOT FIND ANY ERROR IN THE ORDER OF THE CIT IN CONSIDERING SUCH NON-APPLICATION OF MIND TO BE ERRO NEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. NEVERT HELESS, WE CANNOT ALSO ACCEPT THE ORDER OF CIT THAT THE A.O. SHALL DI SALLOW THE CLAIM OF THE ASSESSEE. HENCE, VIS--VIS THE DEPRECIATION CL AIM, WE MODIFY THE ORDER OF CIT AND DIRECT THE A.O. TO VERIFY THE CLAI M OF THE ASSESSEE AND DEAL WITH IT IN ACCORDANCE WITH LAW. 18. COMING TO THE CLAIM OF DEDUCTION OF BAD DEBTS ` 84.09 LAKHS, THOUGH THE ASSESSEE HAD ARGUED THAT THERE WAS NO DO UBLE DEDUCTION, AS MENTIONED BY THE LEARNED CIT, NOTHING WAS PRODUC ED BY THE ASSESSEE TO PROVE THAT IT CONSISTENTLY FOLLOWED AN ACCOUNTING PRACTICE WHEREBY PROVISION MADE IN ONE YEAR WAS REVERSED IT TO THE EXTENT DEBTS WERE CONSIDERED BAD, IN A SUBSEQUENT YEAR AND A WRITE-OFF EFFECTED FOR SUCH BAD DEBTS. IN ANY CASE, NOTHING IS THERE IN THE ASSESSMENT ORDER WHICH WOULD SHOW THAT THERE WAS AN Y APPLICATION I.T.A. NO. 2292/MDS/08 19 OF MIND BY THE ASSESSING OFFICER IN THIS REGARD. T HEREFORE, WE CANNOT FIND ANY LACUNAE IN THE ORDER OF CIT IN DIRECTING T HE ASSESSING OFFICER TO EXAMINE THE CONTENTION OF THE ASSESSEE AND DEAL WITH IT IN ACCORDANCE WITH LAW. OBVIOUSLY, THERE WAS AN ERROR BY SHEER NON- APPLICATION OF MIND OF THE A.O. IN THIS REGARD. 19. BEFORE PARTING IT, IT WOULD BE INAPPROPRIATE IF WE DO NOT DEAL WITH ONE OF THE ARGUMENTS TAKEN BY THE LEARNED A.R. THAT THIS TRIBUNAL DID NOT HAVE ANY POWER UNDER SECTION 254 OF THE ACT TO MODIFY AN ORDER OF CIT UNDER SECTION 263 OF THE ACT. WE CANNOT ACC EPT THIS CONTENTION SINCE SUB-SECTION (1) OF SECTION 254 OF THE ACT, EMPOWERS THIS TRIBUNAL TO PASS SUCH ORDERS AS IT THINKS FIT. AS ALREADY MENTIONED BY US WHERE THE ORDER OF THE A.O. WAS PAL PABLY ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, JUS T BECAUSE THE CIT SLIGHTLY OVERSTEPPED HIS POWERS, WOULD NOT BE A SUF FICIENT REASON TO QUASH HIS ORDER IN TOTO, BUT IT IS THE DUTY OF THE TRIBUNAL TO PROPERLY MODIFY IT SO AS TO EFFECTUATE THE PURPOSE OF SECTIO N 263. THEREFORE, WE DO NOT FIND ANY MERIT IN THIS APPEAL OF THE ASSE SSEE AGAINST THE ORDER OF THE CIT UNDER SECTION 263 OF THE ACT. NEV ERTHELESS, AS OBSERVED BY US, THE ORDER OF CIT SHALL STAND MODIFI ED TO THE EXTENT THAT THE A.O. CAN CONSIDER EACH OF THE ISSUE RAISED BY THE CIT IN HIS I.T.A. NO. 2292/MDS/08 20 ORDER, IN ACCORDANCE WITH LAW AFTER GIVING THE ASSE SSEE AN OPPORTUNITY TO REPRESENT ITS CASE. 20. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 21 ST APRIL, 2011. SD/- SD/- (U.B.S. BEDI) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 21 ST APRIL, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT, CHENNAI-III, CHENNAI (4) D.R. (5) GUARD FILE