CMI FPE LIMITED, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX LTU, MUMBAI

ITA 2777/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9865 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 15-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts
• Section: 142(1); 115JB; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , AM AND SHRI AMARJIT SINGH , JM I.T.A. NO S . 2777 /M/ 20 1 6 & 2778 /M/201 6 ( ASSESSMENT YEAR S : 2010 - 11 & 2011 - 12 ) CMI FPE LIMITED MEHTA HOUSE, PLOT NO.64, ROAD NO.13, MIDC, ANDHERI (E) MUMBAI - 400093 VS. ACIT LTU, MUMBAI WORLD TRADE CENTRE - 1 28 TH FLOOR, CUFFE PARADE, MUMBAI - 400005 ./ ./ PAN/GIR NO. : AAACF 0252 G ( APPELLANT ) .. ( RESPONDENT ) DATE OF HEARING : 19.02 .201 8 DATE OF PRONOUNCEMENT : 07. 0 3 . 2018 O R D E R PER AMARJIT SINGH, JM: THE ASSESSEE HAS FILED THE ABOVE MENTIONED APPEA LS AGAINST THE ORDER DATED 18 . 0 2.201 6 PASSED BY THE COMMIS S IONER OF INCOME TAX (APPEALS) - 1 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE ASSESSMENT YEAR 2010 - 11 . ITA NO.2777 /M/201 6 : - 2. THE ASSESSEE HAS FILED THE PRESENT A PPEAL AGAINST THE ORDER DATED 18.0 2 .201 6 PASSED BY THE COMMISS IONER OF INCOME TAX (APPEALS) - 1 , ASSESSEE BY: SHRI KETAN VED (AR) DEPARTMENT BY: SHRI H.N. SINGH (CIT AR) & RAJAT MITTAL (DR) ITA NOS. 2777 /MUM/201 6 2778/MUM/2016 A.Y. 2010 - 11 & 2011 - 12 2 MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO THE ASSESSMENT YEAR 2010 - 11 . 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - THE APPELLANT OBJECTS TO T HE ORDER DATED 18 FEBRUARY 2016 PASSED BY THE COMMISSIONER OF INCOME - LAX (APPEALS ) - 1 MUMBAI ON THE FOLLOWING AMONG OTHER GROUNDS: DISALLOWANCE OF PROVISION FOR LOSS ON CONTRACT 1. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF AN AMOUNT OF RS. 63,95.102 TOWARDS PROVISION FOR LOSS ON CONTRACT. 2. THE LEARNED COMMISSIONER (APPEALS) ERRED IN NOT APPRECIATING THAT PROVISION FOR LOSS ON CONTRACT HAD BEEN MADE ON (HE BASIS OF TECHNICAL ASSESSMENT OF THE INDIVIDUAL PROJECTS UNDERTAKEN BY T HE APPELLANT CONSIDERING THE POSSIBLE COST ESCALATIONS OR EVENT INEFFICIENCY IN RELATION TO THE CONTRACTS AGREED TO BE EXECUTED BY THE APPELLANT WITH THE LIKELY COSTS FOR CORRECTING SUCH DEFECTS OR FAILURES. 3. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ACTT IN ADDING BACK THE PROVISION FOR ES TIMATED LOSS ON CONTRACT OF RS. 63,95,102 WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE ACT PROVISION FOR DOUBTFUL DEBTS 4. THE LEARNED COMMISSIONER (APP EALS) ERRED IN CONFIRMING THE AC TION OF THE ACIT IN ADDING BACK THE PROVISION FOR DOUBTFUL DEBTS OF RS. 15,30,51,618 WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE ACT. GENERAL 5. EACH ONE OF ABOVE GROUNDS OF APPEAL IS WITHOUT PREJUDICE TO THE OTHER. 6. THE APPELLANT CRAVES LEAVE TO ADD. ALTER OR AMEN D TO THE ABOVE GROUNDS OF APPEAL. 4 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 20 . 0 9 .20 10 DECLARING TOTAL INCOME TO THE TUN E OF RS.46,04,77,470 / - UNDER NORMAL PROVISIONS OF THE ACT AND BOOK PROFIT OF RS.43,15,37,756/ - U/S 115JB OF THE ACT. THE CASE WAS SELECTED FOR ITA NOS. 2777 /MUM/201 6 2778/MUM/2016 A.Y. 2010 - 11 & 2011 - 12 3 SCRUTINY AND NOTICE U/S 143(2) OF THE ACT DATED 20.09.2011 WAS ISSUED AND SERVED UPON THE ASSESSEE. SUBSEQUENTLY, NOTICE U/S 142(1) OF THE ACT DATE 11.11.2013 ALONG WITH QUESTIONNAIRE WAS ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF COLD R OLLING MILLS AND ITS EQUIPMENT . ON VERIFICATION , IT WAS FOUND THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.63,95,103/ - UNDER THE HEAD PROVISION FOR ESTIMATED LOSS ON CONTRACTS. THE NOTICE WAS GIVEN TO THE ASSESSEE AND AFTER THE REPLY OF THE ASSESSEE , THE CLAIM OF THE ASSESSEE TO THE TUNE OF RS.63,95,103/ - WAS DISALLOWED AND ADDED TO THE INCOME OF T HE ASSESSEE UNDER NORMAL PROVISION OF THE ACT AS WELL AS BOOK PROFIT U/S 115JB OF THE ACT. THE A SSESSEE HAS NOT ADDED BACK THE PROVISION FOR DOUBTFUL DEBTS OF RS. 15,30,51,618/ - . THIS PROVISION WAS ALREADY ADDED BACK IN THE COMPUTATION OF TOTAL INCOME AS PE R THE NORMAL PROVISION OF THE ACT. THEREFORE, THE SAID PROVISION WAS ALSO DISALLOWED AND ADDED BACK TO THE BOOK PROFIT U/S 115JB OF THE ACT AND THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS.46,6784,100/ - AND BOOK PROFIT U/S 115JB OF THE A CT TO THE TUNE OF RS. 62,35,14,920/ - AND TAX @ 9,35,27,238/ - / - . FEELING AGGRIEVED, T HE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A ) WHO DISALLOWED THE CLAIM OF THE ASSESSEE IS IN CONNECTION WITH THE PROVISION FOR ESTIMATED LOSS ON CONTRACTS AND PROVISION FROM DOUBTFUL DEBTS , THEREFORE, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. ITA NOS. 2777 /MUM/201 6 2778/MUM/2016 A.Y. 2010 - 11 & 2011 - 12 4 ISSUE NO . 1 : - 5. WE HAVE HEARD THE ARGUMENT ADVANCED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THIS ISSUE HAS ALREADY BEEN REMANDED BEFORE THE AO WHILE DECIDING THE CASE BY THE MUMBAI ITAT IN ITA. NO.2334/M/2013 FOR THE A.Y. 2009 - 10 BY V IRTUE OF ORDER DATED 10.06.2016, T HEREFORE, ACCORDINGLY, T HIS ISSUE IS BEING LIABLE TO BE RESTORED BEFORE THE AO TO EXAMINE AND DECIDE AFRESH. COPY OF ORDER DATED 10.06.2016 IN ITA. NO. 2334/M/2013 FOR THE A.Y. 2009 - 10 IN THE ASSESSEES OWN CASE IS ON THE FILE IN WHICH THE ISSUE HAS ALREADY REMANDED BEFORE THE AO TO DECIDE AFRESH BY GIVING AN OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE IN ACCORDANCE WITH LAW. SINCE, THIS ISSUE IS PENDING BEFORE THE AO FOR THE A.Y. 2009 - 10, THEREFORE, WE SET ASIDE THE FINDING OF THE CIT(A) ON THIS ISSUE AND REMAND THIS ISSUE BEFORE T HE AO TO DECIDE THE MATTER OF CONTROVERSY AFRESH IN VIEW OF THE DIRECTION RAISED BY THE HONBLE ITAT IN ITA. NO. 2334/M/2013 FOR THE A.Y. 2009 - 10 DATED 10.06.2016. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NO . 2 : - 6 . UNDER THIS ISSUE THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF THE ACTION OF THE AO IN ADDING BACK THE PROVISION FOR DOUBTFUL DEBTS ITA NOS. 2777 /MUM/201 6 2778/MUM/2016 A.Y. 2010 - 11 & 2011 - 12 5 OF RS. 15,30,51,618/ - WHILE COMPUTING BOOK PROFITS U/S 115JB OF THE ACT. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS A RGUED THAT THIS ISSUE HAS ALREADY BEEN COVERED BY THE HONBLE ITAT IN ITA. NO. 1073/M/2005 DATED 18.05.2012. THE COPY OF ORDER IN ITA. NO.1073/M/2005 DATED 18.05.2012 IS ON THE FILE, WE NOTICED THAT THE SIMILAR TYPE OF PROVISION I.E., PROVISION FOR DOUBTFUL DEBTS HAS ALREADY BEEN ALLOWED BY THE HONBLE ITAT BY RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK VS. CIT, 323 ITR 166 (SC) AND IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD., (2012) 204 TAXMAN 305 (KAR.) . BEFORE GOING FUR THER, WE DEEMED IT NECESSARY TO ADVERT THE FINDING OF THE TRIBUNAL ON RECORD: - 10. ON GROUND NO.2, THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAS MADE A PROVISION FOR DOUBTFUL DEBT AND REDUCED THE SAID PROVISION FROM CURRENT ASSETS DISCLOSED IN THE BALANCE SHEET. ON THESE FACTS, IT IS ARGUED THAT CLAUSE (I) OF EXPLANATION (1) OF SECTION 115JB OF THE ACT, CANNOT BE APPLIED IN VIEW OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN VIJAYA BANK V/S CIT, 323 ITR 166 (SC), AS INTERPRETED BY THE HONBLE KARNA TAKA HIGH COURT IN CIT V/S YOKOGAWA INDIA LTD., [20 12] 204 TAXMAN 305 (KAR.). 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE, WHILE AGREEING WITH THE PROPOSITIONS LAID DOWN BY THE HONBLE KARNATAKA HIGH COURT, IN ITS JUDGMENT CITED SUPRA WHEREIN THE HONBLE C OURT HAS DEALT WITH AN IDENTICAL ISSUE AND THE SAME WAS DECIDED IN FAVOUR OF THE REVENUE, RELIED ON THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT, AND SUBMITTED THAT THE INTERPRETATION REQUIRES RE - CONSIDERATION. HE FURTHER RELIED ON PAGE - 30, OF THE ASSES SEES PAPER BOOK AND SUBMITTED THAT FOR THE PURPOSE OF COMPUTATION OF MANAGERIAL REMUNERATION, THE ASSESSEE HAS ADDED BACK THE PROVISION FOR DOUBTFUL DEBTS AND ADVANCES TO ARRIVE AT THE PROFITS. 12. IN REPLY, THE LEARNED COUNSEL RELIED ON THE PROVISIONS OF SECTION 309 OF COMPANIES ACT, 1956, AND SUBMITTED THAT THE MANNER IN WHICH THE NET PROFITS ARE TO BE COMPUTED FOR THE PURPOSE OF CALCULATION OF ITA NOS. 2777 /MUM/201 6 2778/MUM/2016 A.Y. 2010 - 11 & 2011 - 12 6 REMUNERATION OF DIRECTORS IS SPECIFIED AND HENCE, THE ARGUMENT OF THE LEARNED DEPARTMENTAL REPRESENTATIVE IS WR ONG. 13. AFTER HEARING RIVAL CONTENTIONS, WE FIND THAT THE ASSESSEE HAS DEBITED THE PROFIT & LOSS ACCOUNT BY THE AMOUNT OF PROVISIONS FOR DOUBTFUL DEBTS / ADVANCES. THIS APPEARS IN SCHEDULE - I/ITEM - 4(P) UNDER THE HEAD GENERAL EXPENSES. THEREAFTER, THE ASS ESSEE HAS REDUCED THE PROVISIONS FROM THE LOANS AND ADVANCES APPEARED IN SCHEDULE - I OF THE BALANCE SHEET AND FROM SUNDRY DEBTORS APPEARING IN SCHEDULE - G OF THE BALANCE SHEET. THE HONBLE SUPREME COURT IN VIJAYA BANK V/S CIT, [2010] 323 ITR 166 (SC), HELD A S FOLLOWS: - HOWEVER, IF AN ASSESSEE DEBITS PROVISION FOR DOUBTFUL DEBTS 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 P ROVISION FOR DOUBTFUL DEBT. IN THE LATTER CASE, THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTION AFTER APRIL 1, 1989. 14. THE HONBLE KARNATAKA HIGH COURT IN YOKOGAWA INDIA LTD. (SUPRA) HAS RELIED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN VIJAYA BANK (SU PRA), AND AT PAGE - 310, THE HON'BLE SUPREME COURT HELD AS FOLLOWS: - 5 HOWEVER, IT WAS CLARIFIED THAT BESIDES DEBITING THE PROFIT AND LOSS ACCOUNT AND CREATING A PROVISION FOR BAD AND DOUBTFUL DEBT, THE ASSESSEE CORRESPONDINGLY/SIMULTANEOUSLY OBLITERATED TH E SAID PROVISION FROM ITS ACCOUNTS BY REDUCING THE CORRESPONDING AMOUNT FROM LOANS AND ADVANCES/DEBTORS ON THE ASSETS SIDE OF THE BALANCE SHEET AND, CONSEQUENTIALLY, AT THE END OF THE YEAR, THE FIGURE IN THE LOANS AND ADVANCES OR THE DEBTORS ON THE ASSETS SIDE OF THE BALANCE SHEET WAS SHOWN AS NET OF THE PROVISION FOR THE IMPUGNED BAD DEBT. THEN THE SAID AMOUNT REPRESENTING BAD DEBT OR DOUBTFUL DEBT CANNOT BE ADDED IN ORDER TO COMPUTE BOOK PROFIT. THEREFORE, AFTER THE EXPLANATION THE ASSESSEE IS NOW REQUIRE D NOT ONLY TO DEBIT THE PROFIT AND LOSS ACCOUNT BUT SIMULTANEOUSLY ALSO REDUCE THE LOANS AND ADVANCES OR THE DEBTORS FROM THE ASSETS SIDE OF THE BALANCE SHEET TO THE EXTENT OF THE CORRESPONDING AMOUNT SO THAT, AT THE END OF THE YEAR, THE AMOUNT OF LOANS AN D ADVANCES/DEBTORS IS SHOWN AS NET OF THE PROVISIONS FOR THE IMPUGNED BAD DEBT. THEREFORE, IN THE FIRST PLACE IF THE BAD DEBT OR DOUBTFUL DEBT IS REDUCED FROM THE LOANS AND ADVANCES OR THE DEBTORS FROM THE ASSETS SIDE OF THE BALANCE SHEET THE EXPLANATION T O SECTION ITA NOS. 2777 /MUM/201 6 2778/MUM/2016 A.Y. 2010 - 11 & 2011 - 12 7 115JA OR JB IS NOT AT ALL ATTRACTED. IN THAT CONTEXT EVEN IF AMENDMENT WHICH IS MADE RETROSPECTIVE THE BENEFIT GIVEN BY THE TRIBUNAL AND THE APPELLATE COMMISSIONER TO THE ASSESSEE IS IN NO WAY AFFECTED. IN THAT VIEW OF THE MATTER, WE DO NOT SEE A NY MERIT IN THIS APPEAL. 7 . IN VIEW OF THE FINDING OF THE HONBLE ITAT, WE ARE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE IS LIABLE TO BE ALLOWED IN THE INTEREST OF JUSTICE. NO DISTINGUISHABLE MATERIAL HAS BEEN PRODUCED BEFORE US. THE FACTUAL SITUATION IS ALSO NOT THE DIFFERENT OF THE CASE DECIDED BY HONBLE ITAT (SUPRA). T HE CLAIM OF THE ASSESSEE HAS BEEN DECIDED BY THE HONBLE ITAT BY FOLLOWING THE LAW SETTLED BY HONBLE SUPREME COURT (SUPRA) AND BY THE HONBLE HIGH COURT OF KARNATAKA (SUPRA). TAKING INTO ACCOUNT, ALL THE FACT S AND CIRCUMSTANCES OF THE CASE, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. IN RESULT APPEAL FILED BY THE ASSESSEE IS HEREBY ORDERED TO BE PARTL Y ALLOWED. I TA NO.2778 /M/201 6 : - 8 . THE ASSESSEE HAS FILED THE PRESENT A PPEAL AGAINST THE ORDER DATED 18 . 02 .201 6 PASSED BY THE COMMISS IONER OF INCOME TAX (APPEALS) - 1 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE ASSESSMENT YEAR 2011 - 12 . 9 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - ITA NOS. 2777 /MUM/201 6 2778/MUM/2016 A.Y. 2010 - 11 & 2011 - 12 8 THE APPELLANT OBJECTS TO T HE ORDER DATED 18 FEBRUARY 2016 PASSED BY THE COMMISSIONER OF INCOME - LAX (APPEALS ) - 1 MUMBAI ON THE FOLLOWING AMONG OTHER GROUNDS: DISALLOWANCE OF PROVISION FOR LOSS ON CONTRACT 1. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF AN AMOUNT OF RS.8,06,67,254/ - TOWARDS PROVISION FOR LOSS ON CONTRACT. 2. THE LEARNED COMMISSIONER (APPEALS) ERRED IN NOT APPRECIATING THAT PROVISION FOR LOSS ON CONTRACT HAD BEEN MADE ON (HE BASIS OF TECHNICAL ASSESSMENT OF THE INDIVIDUAL PROJECTS UNDERTAKEN BY T HE APPELLANT CONSIDERING THE POSSIBLE COST ESCALATIONS OR EVENT INEFFICIENCY IN RELATION TO THE CONTRACTS AGREED TO BE EXECUTED BY THE APPELLANT WITH THE LIKELY CO STS FOR CORRECTING SUCH DEFECTS OR FAILURES. 3. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ACTT IN ADDING BACK THE PROVISION FOR ES TIMATED LOSS ON CONTRACT OF RS.8,06,67,254/ - WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE ACT PROVISION FOR DOUBTFUL DEBTS 4. THE LEARNED COMMISSIONER (APP EALS) ERRED IN CONFIRMING THE AC TION OF THE ACIT IN ADDING BACK THE PROVISION FOR DOUBTFUL DEBTS OF RS.1,61,30,226/ - WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE ACT. GENERAL 5. EACH ONE OF ABOVE GROUNDS OF APPEAL IS WITHOUT PREJUDICE TO THE OTHER. 6. THE APPELLANT CRAVES LEAVE TO ADD. ALTER OR AMEND TO THE ABOVE GROUNDS OF APPEAL. 10 . THE FACTS OF THE PRESENT CASE ARE THE SAME AS MENTIONED IN TH E ABOVE IN THE APPEAL NO 2777 /M/201 6 , T HEREFORE , THERE IS NO NEED TO REPEAT THE SAME. ISSUE NOS.1 & 2 : - 11 . BOTH THE ISSUES ARE SIMILAR IN NATURE TO THE ISSUES WHICH HAS BEEN RAISED BY THE ASSESSEE IN ITA. NO.2777/M/2016. BOTH THE ISSUES ITA NOS. 2777 /MUM/201 6 2778/MUM/2016 A.Y. 2010 - 11 & 2011 - 12 9 ARE DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE ON SIMILAR LINES AS DISCUSSED WHILE DECIDING THESE ISSUES IN ITA. NO.2777/M/2016. 12 . IN THE RESULT ALL THE APPEALS FILED BY THE ASSESSEE ARE HEREBY ORDERED TO BE PARTLY ALLOWED . ORDER P RONOUNCED IN THE OPEN COURT ON 07. 03 . 201 8 SD/ - SD/ - ( SHAMIM YAHYA ) (AMARJIT SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 07. 0 3 . 2 018 V IJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI