D.C.I.T., Circle-4, Kolkata, Kolkata V. M/s Hindustan Heavy Chemicals Ltd., Kolkata

ITA 2816/KOL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9311 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 04-10-2016
• Assessment Year: 1990-1991
• Appeal Filed On: 19-12-2013
• Court: TRIBUNAL
• Department Lawyers: MD GHAYAS UDDIN
• Assessee Lawyers: D S DAMLE
• Keywords: Depreciation; Question of law; Bad and doubtful debts; Revised return; Unabsorbed depreciation
• Section: 143(3); 154; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI M. BALAGANESH, AM & SHRI PARTHA SARAT HI CHAUDHURY, JM] I.T.A NO.2815/KOL/2013 ASSESSMENT YEAR: 1990-91 KESORAM INDUSTRIES LIMITED VS. ASSISTANT COMMI SSIONER OF INCOME-TAX (SUCCESSOR OF HINDUSTAN HEAVY CENTRAL CIRCLE-X, KOLKATA. CHEMICALS LTD.) (PAN: AAACH9426L) ( APPELLANT ) ( RESPONDENT ) & I.T.A NO.2816/KOL/2013 ASSESSMENT YEAR: 1990-91 DEPUTY COMMISSIONER OF INCOME-TAX, VS. KESORAM IN DUSTRIES LTD. (SUCCESSOR OF CIRCLE-4, KOLKATA. HINDUSTAN HEAVY CHEMICALS L TD.) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 27.02.2017 DATE OF PRONOUNCEMENT: 03.03.2017 FOR THE ASSESSEE: SHRI D. S. DAMLE, FCA FOR THE REVENUE: MD. GHAYAS UDDIN, JCIT, SR. DR ORDER PER SHRI PARTHA SARATHI CHAUDHURY,, JM: BOTH THESE CROSS APPEALS BY ASSESSEE AND REVENUE AR ISE OUT OF THE ORDER OF CIT(A), CENTRAL-II, KOLKATA VIDE APPEAL NO. 82/CC-X/CIT(A)C -II/04-05 DATED 30.09.2013. SINCE FACTS ARE COMMON AND BOTH THE APPEALS ARE ARISEN OU T OF THE SAME ORDER OF LD. CIT(A), WE DISPOSE OF BOTH THESE APPEALS BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE TAKE UP REVENUES APPEAL I.E. ITA NO.28 16/KOL/2013. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) ERRED IN LAW THAT PROVISIONS FOR GRATUITY IS NOT TO BE ADDED TO BOOK PROFIT, IGNORING THE FACT THAT THE PROVISION FOR GRATUITY IS UNASCERTAINED LIABILITY NOT ALLOWED TO BE DEDUCTED WHILE COMPUTING BOOK PROFIT. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) ERRED IN HOLDING THAT LIABILITY OF INTEREST ON TURNOVER TAX IS ALLOWABLE EXPENDITURE FOR COMPUTING BOOK PROFIT, IGNORING THE FACT THAT PROVISION FOR INTEREST ON TU RNOVER TAX IS UNASCERTAINED LIABILITY. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN HOLDING THAT PROVISION FOR DOUBTFUL DEBT IS ALLOWABLE EXPENDITUR E FOR COMPUTING BOOK PROFIT, IGNORING THE 2 ITA NOS.2815-2816/K/2013 M/S. KESORAM INDUSTRIES LTD., AY 1990-91 FACT THAT PROVISION FOR DOUBTFUL DEBT IS NOT ASCERT AINABLE, HENCE NOT ALLOWED TO BE DEDUCTED WHILE COMPUTING BOOK PROFIT. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COM PANY FILED ITS RETURN OF INCOME FOR AY 1990-91 ON 31.12.1990 DECLARING NIL INCOME. THE BOOK PROFIT U/S. 115J OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E ACT) WAS ALSO SHOWN AT NIL. THE REVISED RETURN OF INCOME WAS FILED ON 27.05.1991. HOWEVER, IN THIS RETURN ALSO THE INCOME UNDER THE NORMAL PROVISIONS AS WELL AS BOOK PROFIT U/S. 115J OF THE ACT WAS SHOWN AT NIL. THE AO PROCESSED THE RETURN OF INCOME U/S. 143(1)(A ) OF THE ACT, ISSUED INTIMATION DATED 12.03.1991 WHEREIN HE COMPUTED THE BOOK PROFIT U/S. 115J OF THE ACT AT RS.42,86,748/- BEING 30% OF RS.1,42,89,160/- AS AGAINST THE BOOK P ROFIT AT NIL DECLARED BY THE ASSESSEE COMPANY. WHILE PROCESSING THE RETURN U/S. 143(1)(A ) OF THE ACT, THE AO MADE PRIMA FACIE ADJUSTMENT OF RS.8,70,932/- ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS, RS.36,93,429/- ON ACCOUNT OF PROVISION FOR GRATUITY AND RS.37,56,330/ - ON ACCOUNT OF PROVISION FOR INTEREST ON TURNOVER TAX. THE AO DID NOT ALLOW DEDUCTION OF BUSINESS LOSS OR DEPRECIATION WHICHEVER IS LOWER AS PROVIDED U/S. 115J OF THE ACT . ON RECEIPT OF INTIMATION U/S. 143(1)(A) THE ASSESSEE COMPANY FILED A RECTIFICATION PETITION U/S. 154 OF THE ACT BEFORE THE AO ON 20.03.1991 OBJECTING PRIMA FACIE ADDITIONS MADE WHI LE COMPUTING BOOK PROFIT U/S. 115J OF THE ACT AND NOT ALLOWING DEDUCTION ON ACCOUNT OF BU SINESS LOSS OR DEPRECIATION WHICHEVER IS LOWER. THE AO PASSED AN ORDER U/S. 154 OF THE A CT ON 20.05.1991 BUT DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE ABOUT THE ADJUSTMENT MAD E AND ALLOWANCE OF BUSINESS LOSS OR DEPRECIATION. AGGRIEVED BY THE ORDER OF THE AO U/S . 154 OF THE ACT, THE ASSESSEE COMPANY FILED AN APPEAL BEFORE THE LD. CIT(A), WHICH WAS DE CIDED VIDE APPEAL NO. 286/CC- X/CIT(A)C-I/91-92 DATED 18.02.1992. THE LD. CIT(A) SET ASIDE THE MATTER BACK TO THE FILE OF AO WITH THE DIRECTION TO CONSIDER ALL THE I SSUES RAISED IN THE RECTIFICATION APPLICATION AND GIVE FINDING ON THEM STATING REASONS THEREFOR. THE ASSESSEE COMPANY FILED ITS SUBMISSION AND EXPLANATION WITH RESPECT TO EACH ISS UE BEFORE THE AO. THE AO PASSED AN ORDER U/S. 251/154 OF THE ACT ON 25.05.1992 BUT DID NOT ACCEPT THE SUBMISSION MADE BY THE ASSESSEE AGAINST THE ADJUSTMENT MADE BY THE ASSESSE E TO COMPUTE BOOK PROFIT U/S. 115J OF THE ACT AND ALLOWED DEDUCTION ON ACCOUNT OF LOSS OR DEPRECIATION. 4. AGGRIEVED, THE ASSESSEE COMPANY FILED AN APPEAL AGAINST THE ORDER U/S. 251/154 OF THE ACT DATED 25.05.1992. THE SAID APPEAL WAS CLAI MED TO BE DECIDED IN FAVOUR OF THE ASSESSEE BY LD. CIT(A) VIDE ORDER DATED 23.03.1993. IN THE MEANTIME, THE AO PASSED AN 3 ITA NOS.2815-2816/K/2013 M/S. KESORAM INDUSTRIES LTD., AY 1990-91 ORDER U/S. 143(3) OF THE ACT ON 31.03.1993. IN THE SAID ORDER, THE AO COMPUTED BOOK PROFIT U/S. 115J OF THE ACT AT RS.41,62,753/- BEING 30% OF RS.1,38,75,842/- AS PER ORDER DATED 25.05.1992 PASSED BY THE AO U/S. 251/154/143( 1) OF THE ACT. HOWEVER, IN THE ORDER PASSED U/S. 143(3) OF THE ACT, THE AO DID NOT GIVE ANY REASON AS TO WHY HE WAS ADOPTING THE COMPUTATION OF INCOME U/S. 115J OF THE ACT AS P ER THE ORDER U/S. 251/154 OF THE ACT. THE INSTANT APPEAL IS FILED AGAINST THE SAID COMPUT ATION OF BOOK PROFIT U/S. 115J OF THE ACT. 5. THE FIRST GROUND OF APPEAL RELATES TO THE POSITI ON OF LAW THAT PROVISIONS FOR GRATUITY IS NOT TO BE ADDED TO BOOK PROFIT. THE AO MADE AN ADDITION OF RS.36,93,429/- ON ACCOUNT OF PROVISION MADE BY THE ASSESSEE ON ACCOUNT OF GRA TUITY. IT WAS CONTENDED BEFORE THE AO THAT THE PROVISION MADE FOR GRATUITY IS NOT AN UNAS CERTAINED LIABILITY AND, THEREFORE, THE SAME CANNOT BE ADDED TO COMPUTE THE BOO PROFIT U/S. 115J OF THE ACT THAT THE LIABILITY HAD BEEN CALCULATED ON THE BASIS OF ACTUARIAL VALUATION TOWARDS FUTURE PAYMENTS TO THE EMPLOYEES. THE ASSESSEE SUBMITTED A COPY OF ACTUAR IAL VALUATION CERTIFICATE ISSUED BY THE ADVOCATE AND REGISTERED VALUER. HOWEVER, THE CONTE NTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO FOR THE REASON THAT THERE WAS CHANGE IN T HE METHOD OF ACCOUNTING FROM CASH BASIS TO LOWER THE BOOK PROFITS FOR THE YEAR UNDER CONSIDERATION. ON CAREFUL CONSIDERATION OF FACTS AND LAW, THE LD. CIT(A) IN HIS ORDER ON RE CORD, HAS STATED THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE C OMPANY FOR THE REASON THAT THERE WAS CHANGE IN THE METHOD OF ACCOUNTING IN RESPECT OF GR ATUITY LIABILITY BECAUSE THE CHANGE MADE BY THE ASSESSEE WAS NOT PROVED TO BE MALAFIDE. THE CHANGE WAS MADE ON THE BASIS OF ACCEPTED PRINCIPLES OF ACCOUNTING AND IT IS NOT CORRECT TO SAY THAT THE CHANGE WAS MADE TO REDUCE THE PROFIT OF THE YEAR UNDER APPEAL. THA T THE LD. CIT(A) FURTHER OBSERVED THAT THE PROVISIONS FOR GRATUITY OF RS.36,93,429/- WAS M ADE ON THE BAISS OF ACTUARIAL VALUATION FOR FUTURE PAYMENTS TO THE EMPLOYEES AND SUCH A LIA BILITY CANNOT BE HELD TO BE AN UNASCERTAINED OR CONTINGENT LIABILITY AS HELD BY TH E HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS LTD. VS. CIT 245 ITR 428 (SC). THE SIMILAR VIEW WAS TAKEN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. EC HJAY FORGING PVT. LTD. 251 ITR 15 (BOM) AND ALSO BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DCIT VS. INOX LEISURE LTD. 351 ITR 314 (GUJ.). THE LD. CIT(A) HELD THAT IN VIEW OF THE ABOVE FACTUAL POSITION, ACCOUNTING PRINCIPLES AND JUDICIAL DECISIONS, THE A O WAS NOT JUSTIFIED IN MAKING ADDITION OF RS.36,93,429/- ON ACCOUNT OF PROVISIONS FOR GRAT UITY WHILE COMPUTING THE BOOK PROFIT 4 ITA NOS.2815-2816/K/2013 M/S. KESORAM INDUSTRIES LTD., AY 1990-91 U/S. 115J OF THE ACT AND, THEREFORE, THE LD. CIT(A) DIRECTED THE AO TO DELETE THE SAID ADDITION. THAT BEING FURTHER AGGRIEVED, THE REVENU E HAS PREFERRED THIS APPEAL BEFORE US. 6. THE LD. DR RELIED ON THE ORDER OF AO. THE LD. A R REITERATED THE SUBMISSIONS AS MADE BEFORE THE SUBORDINATE AUTHORITIES AND RELIED ON THE ORDER OF LD. CIT(A). 7. WE HAVE PERUSED THE CASE RECORDS, FACTS AND CIRC UMSTANCES AND HEARD THE RIVAL CONTENTIONS AND HAVE ARRIVED AT OUR CONSIDERED VIEW THAT HERE THE LIABILITY HAD BEEN CALCULATED ON THE BASIS OF ACTUARIAL VALUATION TOWA RDS FUTURE PAYMENT TO THE EMPLOYEES. THE ASSESSEE HAD SUBMITTED A COPY OF THE ACTUARIAL VALUATION CERTIFICATE ISSUED BY THE ADVOCATE AND REGISTERED VALUER WHICH IS ON RECORD. WE FURTHER OBSERVE THAT WHEN THE PROVISIONS FOR GRATUITY IS MADE ON THE BASIS OF ACT UARIAL VALUATION FOR FUTURE PAYMENTS TO EMPLOYEES SUCH A LIABILITY CANNOT BE HELD AS CONTIN GENT LIABILITY AS HELD BY THE HONBLE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS LTD., SUPRA. WE ALSO OBSERVE THAT THE GROUND OF THE AO FOR REJECTING THE CLAIM OF THE ASS ESSEE THAT THERE WAS A CHANGE IN THE METHOD OF ACCOUNTING IN RESPECT OF GRATUITY LIABILI TY IS NOT CORRECT BECAUSE THE CHANGE MADE BY THE ASSESSEE WAS NOT PROVED TO BE MALA FIDE AS IT IS ON RECORD AND THE CHANGE WAS MADE ON THE BASIS OF ACCEPTED ACCOUNTING PRINCIPLES . ON THAT BASIS OF THIS FINDING, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) O N THIS ISSUE, AND, THEREFORE, THE RELIEF GRANTED TO THE ASSESSEE BY THE LD. CIT(A) IS SUSTAI NED . THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 8. THE NEXT GROUND OF APPEAL RELATES TO THE LIABILI TY OF INTEREST ON TURNOVER TAX WHETHER AN ALLOWABLE EXPENDITURE FOR COMPUTING BOOK PROFIT. 9. THE AO HAD MADE AN ADDITION OF RS.37,56,330/- ON ACCOUNT OF PROVISION FOR INTEREST ON TURNOVER TAX IN THE COMPUTATION MADE U/ S. 115J OF THE ACT. IT WAS SUBMITTED BEFORE THE AO THAT THE PROVISION FOR INTEREST ON TU RNOVER TAX IS AN ASCERTAINED LIABILITY AND, THEREFORE, SAME CANNOT BE ADDED TO THE BOOK PROFIT. IT WAS SUBMITTED THAT THE LIABILITY FOR INTEREST ON TURNOVER TAX IS STATUTORY LIABILITY U/S . 10A OF BENGAL FINANCE (ST) ACT, 1941, WHICH IS NOT DISCRETIONARY OR OPTIONAL UNDER THE A CT. IT WAS SUBMITTED BEORE THE AO THAT THE PROVISIONS OF SECTION 10A WAS INSERTED IN THE B ENGAL FINANCE (ST) ACT, 1941 W.E.F. 01.10.1983. ACCORDING TO THE PROVISIONS OF THE SAI D BENGAL FINANCE (ST) ACT, 1941, INTEREST FOR DELAYED PAYMENT ON TURNOVER TAX IS PAY ABLE @ 2% BY EACH ENGLISH CALENDAR 5 ITA NOS.2815-2816/K/2013 M/S. KESORAM INDUSTRIES LTD., AY 1990-91 MONTH OF DEFAULT FROM THE 1 ST DAY OF SUCH MONTH NEXT FOLLOWING THE PRESCRIBED DA TE UP TO THE MONTH PRECEDING THE MONTH OF FULL PAYMENT OF SU CH TAX OR UP TO THE MONTH PRIOR TO THE MONTH OF ASSESSMENT U/S. 11 IN RESPECT OF SUCH PERI OD, WHICHEVER IS EARLIER. IN TERMS OF SUCH PROVISIONS OF SEC. 10A, THE LIABILITY OF RS.37 ,56,330/- WAS ASCERTAIN. IT WAS FURTHER SUBMITTED BEFORE THE AO THAT THE LIABILITY ON ACCOU NT OF INTEREST ON TURNOVER TAX WAS ACCRUED IN THE YEAR UNDER CONSIDERATION AFTER THE C ASE REGARDING PAYMENT OF INTEREST ON TURNOVER TAX FOR DELAYED/NON PAYMENT OF TURNOVER TA X WAS DECIDED ON 11.07.1989 BY THE WEST BENGAL TAXATION TRIBUNAL (WHICH IS THE SUBSTIT UTE FOR HIGH COURT FOR SALES TAX MATTERS) IN THE CASE OF KINGSWAY & COMPANY & ORS. V S. COMMERCIAL TAX OFFICER, CENTRAL SECTION (A.W) & ORS. IN THE SAID DECISION IT WAS HELD AS UNDER: THE LIABILITY TO PAY INTEREST IS CREATED BY THE S TATUTE AND NOT BY THE JUDGMENT. CONSEQUENT, THE CONTENTION THAT THE INTEREST MAY IF AT ALL BE C LAIMED FROM 24.02.1988, ON WHICH DATE THE APPEALS WERE DISPOSED OF, CANNOT THEREFORE BE ACCEP TED. TO ACCEPT SUCH A POSITION WOULD ONLY ENCOURAGE DILATORY TACTIC ON THE PART OF THOSE WHO ARE LIKELY TO BENEFIT FROM THE DELAY IN THE DISPOSAL OF CASES AND LIFTING OF PROHIBITORY ORDERS . SUCH AN INTERPRETATION WOULD NOT ONLY BE AGAINST LAW BUT AGAINST PUBLIC POLICY AS WELL. WE HAVE ALREADY INDICATED THAT A PARTY OBTAINING A STAY ORDER AT HIS OWN CHOICE DOES SO AT HIS OWN RISK. THE LIABILITY TO PAY INTEREST ACCRUED FROM 01.10.1983 (I.E. THE DATE OF INSERTION OF SECTION 10A) AND HAS BECOME PAYABLE WITH EFFECT FROM THAT DATE IRRESPECTIVE OF THE DATE OF DISPOSAL OF THE APPEALS. 10. THAT BEFORE THE AO IT WAS SUBMITTED IN CONSEQU ENCE OF THE AFORESAID JUDGMENT STATUTORY INTEREST U/S. 10A IS COMPULSORY AND CANNO T BE REDUCED OR WAIVED BY ANY AUTHORITY. THEREFORE, THE LIABILITY OF INTEREST ON TURNOVER TAX FOR DELAYED PAYMENT OF THE SAME IS AN ASCERTAINED LIABILITY. THIS STATUTORY L IABILITY ACCRUES WITHOUT COMMUNICATION OF ANY SUCH DEMAND. THUS, PROVISION OF INTEREST ON TU RNOVER TAX OF RS.37,56,330/- WAS IN RESPECT OF ASCERTAINED STATUTORY LIABILITY AND THE SAME CANNOT BE ADDED TO THE BOOK PROFIT PURSUANT TO EXPLANATION TO SEC. 115J(1) AND (1A). HOWEVER, THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO FOR THE REASON THAT THE LIABILITY WAS NOT ACCRUED IN THE YEAR UNDER CONSIDERATION BUT IN EARLIER YEARS. THE LD. CIT(A) IN HIS ORDER HELD THAT THE AO WAS NOT JUSTIFIED IN HOLDING THAT THE LIABILITY ON ACCOUNT OF INTEREST ON TURNOVER TAX WAS NOT ACCRUED IN THE YEAR UNDER CONSIDERATION. THE F ACT REMAINS THAT THE LIABILITY OF RS.37,56,330/- WAS AN ASCERTAINED LIABILITY AND THI S FACT HAS ALSO NOT BEEN DISPUTED BY THE AO. THE ASSESSEE HAD MADE PROVISION FOR INTEREST O N TURNOVER TAX AFTER THE DECISION IN THE CASE OF KINGSWAY & CO. SUPRA AND SINCE IT IS AN ASC ERTAINED LIABILITY, THEREFORE, SAME CANNOT BE ADDED TO THE BOOK PROFIT U/S. 115J OF TH E ACT. THE LD. CIT(A), THEREFORE, DIRECTED THAT THE AO TO DELETE THE SAID ADDITION. 6 ITA NOS.2815-2816/K/2013 M/S. KESORAM INDUSTRIES LTD., AY 1990-91 11. WE HAVE PERUSED THE CASE RECORDS AND ARRIVED AT OUR CONSIDERED VIEW THAT THE LD. CIT(A) IN HIS DETAILED ORDER PROVIDED THE REASONS C AREFULLY AS TO WHY THE CLAIM OF ASSESSEE IS JUSTIFIED HEREIN. AT THE SAME TIME WE ALSO OBSE RVE THE DECISION OF THE WEST BENGAL TRIBUNAL IN THE CASE OF KINGSWAY & CO., SUPRA WHERE IN THE PROVISIONS FOR INTEREST ON TURNOVER TAX IS DETERMINED AS AN ASCERTAINED LIABIL ITY AND ONCE IT IS SO, THE SAME CANNOT BE ADDED TO THE BOOK PROFIT U/S. 115J OF THE ACT. WE AGREE WITH THE FINDINGS OF THE LD. CIT(A) AND THE RELIEF GIVEN TO THE ASSESSEE ON THIS ISSUE IS, THEREFORE, SUSTAINED. THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 12. THE THIRD GROUND OF REVENUES APPEAL RELATES TO THE PROVISION OF DOUBTFUL DEBT WHETHER AN ALLOWABLE EXPENDITURE FOR COMPUTING BOOK PROFIT. 13. THE AO HAS MADE AN ADDITION OF RS.8,70,932/- ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS. IT WAS SUBMITTED BEFORE THE AO THAT THE DEB TS IN RESPECT OF TWO PAPER MANUFACTURING COMPANIES BECAME IRRECOVERABLE BECAUS E THEY HAD GONE INTO LIQUIDATION. IT WAS ALSO CONTENDED BEFORE THE AO THAT THE AFORESAID PROVISION WAS NOT ON ACCOUNT OF LIABILITY BUT FOR DIMINUTION IN THE VALUE OF ASSET S AND, THEREFORE, THE SAME CANNOT BE ADDED TO THE BOOK PROFIT U/S. 115J OF THE ACT. HOWEVER, THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO FOR THE REASON THAT THE PROVISIO NS FOR BAD DEBTS IS NOT AN ASCERTAINED LIABILITY AND THE MOMENT THE DEBT BECOMES BAD, IT B ECOMES ASCERTAINED LIABILITY AND HAS TO BE WRITTEN OFF. IN THIS CASE, THE DEBT HAS NOT BECO ME BAD YET. HENCE, THE PROVISION IS MERELY A CONTINGENT ONE AND HAS TO BE ADDED TO THE BOOK PROFIT. THE LD. CIT(A) IN HIS ORDER HELD THAT THE ISSUE IS DECIDED IN FAVOUR OF T HE ASSESSEE COMPANY BY THE JURISDICTIONAL HIGH COURT OF KOLKATA IN THE CASE OF ICI (INDIA) L TD. VS. CIT 347 ITR 442 (CAL) IN WHICH THE DECISION OF HONBLE APEX COURT IN THE CASE OF C IT VS. COMNET SYSTEMS & SERVICES LTD. 305 ITR 409 (SC) WAS FOLLOWED BY THE HONBLE C ALCUTTA HIGH COURT. THE LD. CIT(A) HELD ON THE BASIS OF THE JUDICIAL PRINCIPLES AND DECISIONS THAT THE AO IS DIRECTED TO DELETE THE ADDITION OF RS.8,70,932/- FROM THE COMPU TATION U/S. 115J OF THE ACT ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS. 14. WE HAVE PERUSED THE CASE RECORDS AND HEARD THE RIVAL CONTENTIONS AND ARRIVED AT OUR CONSIDERED VIEW THAT THERE IS NO INFIRMITY IN THE O RDER OF THE LD. CIT(A) AND HIS FINDINGS ARE BASED ON THE DECISION OF THE JURISDICTIONAL HIG H COURT IN THE CASE OF ICI LTD., SUPRA 7 ITA NOS.2815-2816/K/2013 M/S. KESORAM INDUSTRIES LTD., AY 1990-91 WHICH IS IN TURN FOLLOWED THE DECISION OF HONBLE S UPREME COURT IN THE CASE OF COMNET SYSTEMS & SERVICES LTD., SUPRA AND HENCE, THE RELIE F GRANTED BY THE LD. CIT(A) ON THIS ISSUE TO THE ASSESSEE IS SUSTAINED. THIS GROUND OF APPEAL BY THE REVENUE IS DISMISSED. 15. NOW, WE TAKE UP THE APPEAL PREFERRED BY THE ASS ESSEE VIDE ITA NO. 2815/KOL/2013. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL : 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.20,479,843/- IN COMPUTING ADJUST ED BOOK PROFIT FOR THE PURPOSE OF SECTION 115J OF THE ACT CLAIMED BY THE APPELLANT ON ACCOUNT OF UNABSORBED LOSS BEING LOWER THAN BROUGHT FORWARD BUSINESS LOSS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN PROCEEDING ON A WRONG INTERPRETATION OF THE EXPRESS PROVISIONS OF THE ACT AND THEREFORE, NOT TAKING INTO CONSIDERATION THE DETAILS OF BUSINESS LOSS SUFFERED AND DEPRECIAT ION INCURRED BY THE APPELLANT, THE EVIDENCE OF WHICH WERE FILED BY THE APPELLANT. 16. THE CRUX OF THE GROUNDS OF APPEAL OF THE ASSESS EE IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.20,479,843/- IN C OMPUTING ADJUSTED BOOK PROFIT FOR THE PURPOSE OF SECTION 115J OF THE ACT CLAIMED BY THE A SSESSEE ON ACCOUNT OF UNABSORBED LOSS IS BEING LOWER THAN BROUGHT FORWARD BUSINESS LOSS. THE AO DID NOT ALLOW DEDUCTION OF LOWER OF BUSINESS LOSS OR UNABSORBED DEPRECIATION WHILE COMPUTING THE BOOK PROFIT U/S. 115J OF THE ACT. ON THE OTHER HAND, THE ASSESSEE H AS CLAIMED THAT THERE WAS BUSINESS LOSS OF RS.2,32,03,893/- WHEREAS THE UNABSORBED DEPRECIA TION WAS RS.2,04,79,543/-, THEREFORE, THE AO SHOULD HAVE ALLOWED THE DEDUCTION OF LOWER O F TWO I.E. 2,04,79,543/- TO COMPUTE BOOK PROFIT U/S. 115J OF THE ACT. IN SUPPORT OF TH E CLAIM THAT THERE WAS A BUSINESS LOSS AND UNABSORBED DEPRECIATION THE ASSESSEE SUBMITTED COP IES OF DIRECTORS REPORT FOR THE YEAR ENDED 31.12.1984, 31.12.1985, 31.12.1986, 31.12.198 7 AND 31.03.1989. FURTHER, THE ASSESSEE RELIED ON PROVISIONS OF SECTION 205(1)(B) OF THE COMPANIES ACT, 1956. IT WAS FURTHER ARGUED BY THE ASSESSEE THAT THE FIGURES OF BUSINESS LOSS OR DEPRECIATION ARE DISTINCTLY EVIDENT FROM THE AUDITED FINANCIALS OF T HE ASSESSEE AND MERE SETTING OFF THESE LOSSES FROM THE GENERAL RESERVES OF THE COMPANY SHO ULD NOT BE A GROUND FOR DISALLOWING SUCH DEDUCTION TO THE ASSESSEE. FURTHER, THE ASSES SEE IS ELIGIBLE TO BENEFIT OR NOT IS DEPENDENT UPON THE PROVISIONS OF THE ACT AND NOT ON THE ACCOUNTING ENTRIES PASSED IN THE BOOKS OF ACCOUNT. FURTHER, THE LD. CIT(A) WENT ON TO ANALYSE THE PROVISIONS OF SECTION 205 OF THE COMPANIES ACT, 1956 AND OBSERVED IN HIS ORDER THAT THERE IS NO DISPUTE THAT THE ASSESSEE COMPANY HAS CLAIMED TO HAVE PREPARED ITS A CCOUNT AND FINANCIAL STATEMENT AS PER PROVISIONS OF COMPANIES ACT. THE LD. CIT(A) HELD T HAT THERE IS ALSO NO DISPUTE ON THE 8 ITA NOS.2815-2816/K/2013 M/S. KESORAM INDUSTRIES LTD., AY 1990-91 POINT THAT IN THE ORDER UNDER APPEAL THE ASSESSEE H AD DECLARED AND PAID DIVIDEND ON THE PREFERENCE AND EQUITY SHARES THEN IT IS PRESUMED TH AT THE ASSESSEE HAD DECLARED AND PAID DIVIDEND COMPLYING THE PROVISIONS OF SECTION 205(1) (B) OF THE COMPANIES ACT, 1956. IF IT IS SO, THEN THE ASSESSEE WAS NOT HAVING ANY LOSS OR UNABSORBED DEPRECIATION FOR SET OFF OR DEDUCTION AS PER EXPLANATION (IV) TO SEC. 115J(1A) OF THE ACT BECAUSE THE LOSS OR DEPRECIATION WAS ALREADY SET OFF BEFORE DECLARATION OF DIVIDEND AND THERE WAS NO FURTHER LOSS OR DEPRECIATION AS PER BOOKS WHICH WAS REQUIRE D TO BE SET OFF FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S. 115J OF THE ACT. T HE LD. CIT(A) GOES ON TO SAY IN HIS ORDER THAT HIS DECISION IS SUPPORTED BY THE DIRECTO RS REPORT FOR THE YEAR ENDED 31.03.1990 AS WELL AS THE BALANCE SHEET AS AT 31.03.1990. IN VIEW OF THESE FINDINGS THE LD. CIT(A) HELD THAT THE AO WAS JUSTIFIED IN NOT ALLOWING DEDU CTION OF LOWER OF BUSINESS LOSS OR DEPRECIATION TO COMPUTE THE BOOK PROFIT U/S. 115J O F THE ACT AS CLAIMED BY THE ASSESSEE. THAT BEING FURTHER AGGRIEVED, THE ASSESSEE IS IN AP PEAL BEFORE US ON THIS ISSUE. 17. AT THE TIME OF HEARING BEFORE US, THE LD. AR BR OUGHT TO OUR NOTICE THE FOLLOWING CHART : FY ENDING ON BUSINESS LOSS BUSINESS LOSS AFTER ADJUSTMENTS DEPRECIATION DEBITED IN P&L A/C DEPRECIATION REQUIRED TO BE SET OFF U/S. 205 12/31/1984 5,691,124 5,281,104 4,573,136 4,573,136 12/31/1985 4,157,785 3,760,109 3,313,732 3,313,732 12/31/1986 3,407,665 1,938,244 4,176,873 1,938,244 12/31/1987 5,019,047 2,659,153 3,628,301 2,659,153 3/31/1989 4,928,272 3,301,526 4,787,501 3,301,526 TOTAL 23,203,893 16,940,136 20,479,543 1 5,785,791 THAT AS PER THE SAID CHART ASSESSEE HAS CLAIMED SET OFF OF LOSS OF RS.1,57,85,791/- AND NOT RS.2,04,79,843/- AS APPEARING IN THE GROUNDS OF APP EAL. THAT IN SUPPORT OF THE SET OFF OF LOSS OF RS.1,57,85,791/- THE AR REFERRED TO THE DEC ISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. PIECO ELECTRONICS & ELECT RICALS LTD. (NOW KNOWN AS PHILIPS INDIA LTD.) VS. CIT, WB-4 & ANR, ITA NO.353 OF 2004 DT. 1 2.08.2011. THE LD. AR FURTHER STATED THAT THE FACTS IN THIS CASE IS SUBSTANTIALLY SIMILAR TO THAT OF THE ASSESSEES CASE UNDER CONSIDERATION AND THAT THE HONBLE CALCUTTA HIGH CO URT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE SUBSTANTIAL QUESTION OF LAW FORM ULATED BY THE COURT IN THE CASE WERE (I) 9 ITA NOS.2815-2816/K/2013 M/S. KESORAM INDUSTRIES LTD., AY 1990-91 WHETHER ON A TRUE AND PROPER INTERPRETATION OF SEC. 115J(1A) AND CLAUSE (IV) OF EXPLANATION TO SECTION 115J OF THE ACT IN DETERMINING THE AMOUN T OF LOSS OR DEPRECIATION WHAT IS REQUIRED TO BE SET OFF AGAINST THE PROFIT FOR THE R ELEVANT PREVIOUS YEAR IS THE AMOUNT WHICH ACCORDING TO THE PROVISIONS OF CLAUSE (B) OF THE FI RST PROVISO TO SUBSECTION (1) OF SECTION 205 OF THE COMPANIES ACT, 1956 IS APPLICABLE IN ACC ORDANCE WITH THE ALTERNATIVE MODES FOR SUCH DETERMINATION PROVIDED UNDER THE COMPANIES ACT , (II) WHETHER IN VIEW OF THE ADMITTED POSITION THAT FOR THE PREVIOUS YEAR OF THE FIFTEEN MONTHS PERIOD ENDING ON 31.03.1989 LOSS OF THE ASSESSEE IS RS.16,48,78,073/ - AND FOR THE SAME PERIOD THE DEPRECIATION IS RS.13,85,66,473/- THE AMOUNT OF DEP RECIATION, THEREFORE, BEING LESS THAN THE QUANTUM OF LOSS SHOULD BE REQUIRED TO BE SET OFF IN VIEW OF CLAUSE (IV) OF EXPLANATION TO SEC. 115J OF THE ACT. THEREAFTER THE HONBLE HIGH COURT WENT ON TO ANALYSE SECTION 115J OF THE ACT AS WELL AS SECTION 205 OF THE COMPANIES ACT, 1956. THEREAFTER THE HONBLE CALCUTTA HIGH COURT REFERRED TO THE CASES OF APOLLO TYRES LTD. VS. CIT AIR 2002 SC 2131 AND SURANA STEEL (P) LTD. VS. DCIT (1999) 237 ITR 7 77 (SC) HELD THAT THE ADMITTED POSITION IS FOR THE PREVIOUS YEAR ENDING ON 31.03.1 989 THE LOSS OF THE ASSESSEE WAS SHOWN AS RS.16,48,74,073/- FOR THE SELF SAME PERIOD THE A MOUNT OF DEPRECIATION CLAIMED WAS RS.138,56,66,473/-. THE QUESTION BEFORE THE BENCH WAS WHETHER THE AMOUNT OF DEPRECIATION BEING LESS THAN THE AMOUNT OF LOSS SHO ULD BE REQUIRED TO BE SET OFF IN TERMS OF CLAUSE (IV) OF THE EXPLANATION TO SEC. 115J OF THE ACT. THE HONBLE CALCUTTA HIGH COURT OBSERVED THAT THE ANSWER TO THE AFORESAID QUESTION IS CLEARLY GIVEN BY THE TWO DECISIONS OF THE HONBLE SUPREME COURT AS STATED ABOVE. ONCE LO SS IS HELD TO BE ARRIVED AT AFTER TAKING INTO ACCOUNT DEPRECIATION, THERE IS NO SCOPE OF DIS PUTING THE CONTENTION OF THE ASSESSEE THAT THE AMOUNT OF DEPRECIATION OF RS.13,85,66,473/- IS TO BE SET OFF IN TERMS OF CLAUSE (IV) OF THE EXPLANATION TO SECTION 115J OF THE ACT. THUS, IT WAS A DUTY OF THE AO TO SET OFF THE SAID AMOUNT AS THE SAID DUTY FALLS WITHIN THE PURVI EW OF THE LIMITED POWER OF MAKING INCREASES AND DEDUCTIONS PROVIDED FOR IN THE EXPLAN ATION TO THE SAID SECTION. 18. THE LD. DR, ON THE OTHER HAND, REFERRED TO THE CASE OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. MADRAS FERTILIZERS LTD. (201 3) 33 TAXMAN.COM 623 (MAD) WHEREIN THE ISSUE WAS DECIDED IN FAVOUR OF THE REVENUE. TH E MADRAS HIGH COURT HAD HELD THAT A PERUSAL OF P&L ACCOUNT FOR THE YEAR 1988-89 SHOWED THAT THE ENTIRE LOSS INCLUDING THE DEPRECIATION FOR THE YEAR WAS DULY SET OFF AS AGAIN ST THE PROFITS AVAILABLE IN THE YEAR 1987- 88 BY TAKING THE DEPRECIATION AND LOSS FROM THE GEN ERAL RESERVE FOR AN ADJUSTMENT. AFTER 10 ITA NOS.2815-2816/K/2013 M/S. KESORAM INDUSTRIES LTD., AY 1990-91 ADJUSTING THE UNABSORBED DEPRECIATION AS AGAINST TH E GENERAL RESERVE THERE REMAINED NOTHING FOR THE ASSESSEE TO CARRY FORWARD TO THE NE XT YEAR FOR THE PURPOSE OF COMPUTING THE PROFIT, AS GIVEN U/S. 205(1(B) OF THE COMPANIES ACT . SINCE THE ACCOUNTS OF THE ASSESSEE SHOWED NIL AS REGARDS THE CARRY FORWARD OF LOSS AND UNABSORBED DEPRECIATION, THE COMMISSIONER RIGHTLY REVISED THE ORDER OF THE ASSES SING OFFICER TO TAKE THE ENTIRE BOOK PROFIT WITHOUT ANY FURTHER ADJUSTMENTS FOR THE PURP OSE OF WORKING OUT 30 PER CENT PROFIT U/S. 115J. THE HONBLE MADRA HIGH COURT FURTHER OP INED THAT EVEN THOUGH, THE ASSESSEE CONTENDED THAT MERE ADJUSTMENT AS AGAINST THE GENER AL RESERVE BY ITSELF WOULD NOT DEFEAT THE CLAIM OF THE ASSESSEE FOR CONSIDERING THE UNABS ORBED DEPRECIATION IN COMPUTATION OF THE PROFIT FOR THE NEXT YEAR IN TERMS OF SECTION 20 5(1)(B) OF THE COMPANIES ACT, YET, THE FACT REMAINS THAT WHEN THE ACCOUNTS WERE MADE UP FO R THE ASSESSMENT YEAR 1989-90, THE LOSS AND UNABSORBED DEPRECIATION REMAINED NIL. ON THE FACTUAL POSITION THAT THE ASSESSEE HAD NO UNABSORBED LOSS OR UNABSORBED DEPRECIATION TO BE CARRIED FORWARD FOR ANY CONSIDERATION IN THE YEAR UNDER CONSIDERATION, RIGH TLY, THE COMMISSIONER OF INCOME TAX GAVE THE DIRECTION WHICH IS IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AS WELL AS THE INCOME TAX ACT, 1961. 19. WE HAVE PERUSED THE CASE RECORDS, HEARD THE RIV AL SUBMISSIONS AND ARRIVED AT A CONSIDERED VIEW THAT THE CASE REFERRED TO BY THE LD . AR IS SUBSTANTIALLY SIMILAR IN FACTS WITH REGARD TO THE ASSESSEES CASE HEREIN AND MORE SO, THE JURISDICTIONAL HIGH COURT HAS RULED THE ISSUE IN FAVOUR OF THE ASSESSEE. THEREFO RE, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT OF CALCUTTA T HIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND THE DISALLOWANCE OF RS.1,57,85,791/- IN COMPUTING ADJUSTED BOOK PROFIT FOR PURPOSE OF SECTION 115J OF THE ACT IS DELETED. THE REFORE, ALL THE GROUNDS OF APPEAL OF ASSESSEE ARE ALLOWED. 20. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISS ED AND THAT OF THE ASSESSEE IS ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 03.03.201 7 SD/- SD/- (M. BALAGANESH) (PARTHA SARATHI CHAUDHURY ,) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 3 RD MARCH, 2017 JD.(SR.P.S.) 11 ITA NOS.2815-2816/K/2013 M/S. KESORAM INDUSTRIES LTD., AY 1990-91 COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT DCIT, CIRCLE-4, KOLKATA 2 RESPONDENT M/S. KESORM INDUSTRIES LTD., (SUCCESS OR OF HINDUSTAN HEAVY CHEMICALS LTD.), BIRLA BUILDING, 9/1, R. N. M UKHERJEE ROAD, 8 TH FLOOR, KOLKATA-700 001 3. THE CIT(A), KOLKATA 4. 5. DCIT/ACIT , KOLKATA. DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .