The Dy. Commissioner of Income Tax Circle-1(1)(2), Ahmedabad V. M/s. D.B. Corp. Ltd., Ahmedabad

ITA 2880/AHD/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9151 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 01-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Retrospective amendment; Bad and doubtful debts
• Section: 271(1)(c); 143(3); 115JB

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMEBR ./ I.T.A. NO. 2880/AHD/2016 ( ASSESSMENT YEAR : 2007-08) DCIT CIRCLE- 1(1)(2), AHMEDABAD / VS. M/S D.B. CORP. LTD. 280, SARKHEJ GANDHINAGAR HIGHWAY, NR. YMCA CLUB, MAKARBA AHMEDABAD ./ ./ PAN/GIR NO. : AACCM5772G ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI MUDIT NAGPAL, SR. D.R. / RESPONDENT BY : SHRI DHINAL SHAH, A.R. DATE OF HEARING 20/11/2018 !'# / DATE OF PRONOUNCEMENT 19/12/2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF IN COME TAX (APPEALS)-1, AHMEDABAD (CIT(A) IN SHORT), DATED 3 0.08.2016 ARISING IN THE PENALTY ORDER DATED 28.05.2015 PASSE D BY THE ITA NO.2880/AHD/16 [DCIT VS. M/S D.B. CORP. LTD.] A.Y. 2007-08 - 2 - ASSESSING OFFICER (AO) WHEREBY PENALTY IMPOSED BY T HE AO AMOUNTING TO RS. 1,03,66,151/- LEVIED UNDER S. 271( 1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING ASSESSMEN T YEAR 2007- 08. 2. BRIEFLY STATED, THE ASSESSEE FILED ITS RETURN OF INCOME FOR AY 2007-08 DECLARING LOSS AS PER THE NORMAL PROVISIONS OF THE ACT AT RS.84,99,417/- BUT HOWEVER, COMPUTED BOOK PROFIT AT RS.67,29,80,215/- UNDER THE PROVISIONS OF SECTION 1 15JB OF THE ACT. THE ASSESSMENT WAS COMPLETED UNDER S.143(3) O F THE ACT DETERMINING THE BOOK PROFIT UNDER S.115JB OF THE AC T AT RS.74,67,04,328/- AFTER MAKING FOLLOWING ADJUSTMENT S TO THE BOOK PROFIT: 1 ADJUSTMENT OF DEFERRED TAX LIABILITY 2,16,37,588 2 PROVISION FOR DOUBTFUL DEBTS 6,84,79,558 3 PROVISION FOR DOUBTFUL ADVANCES 22,72,803 4 PROVISION FOR DOUBTFUL ENCASHMENT 29,71,752 3. THE ADDITION TOWARDS THE PROVISION FOR LEAVE ENC ASHMENT WAS DELETED IN THE QUANTUM APPEAL. THE AO HOWEVER IMPO SED PENALTY FOR ADDITION TO THE BOOK PROFITS IN RESPECT OF OTHE R THREE ADJUSTMENTS LISTED ABOVE AND DETERMINED THE PENALTY AT RS.1,03,66,151/-. ITA NO.2880/AHD/16 [DCIT VS. M/S D.B. CORP. LTD.] A.Y. 2007-08 - 3 - 4. IN THE FIRST APPEAL, THE CIT(A) FOUND MERIT IN T HE CASE OF THE ASSESSEE AND CANCELLED THE PENALTY. THE RELEVANT O PERATIVE PARA OF THE ORDER OF THE CIT(A) READS AS UNDER: 2.3. I HAVE CAREFULLY CONSIDERED THE PENALTY ORDER AND SUBMISSION FILED BY THE APPELLANT. THE COMPANY HAS FILED RETUR N OF INCOME FOR AY 2007-2008 ON 31 OCTOBER 2007 DECLARING A LOSS AS PER NORMAL COMPUTATION OF RS 84,99,417/- AND INCOME UNDER SECT ION 115JB AT RS 67,29,80,215/-. THE RETURN OF INCOME WAS REVISED ON 26 DECEMBER 2007, WHEREIN THE INCOME WAS DECLARED SAME AS PER O RIGINAL RETURN OF INCOME; HOWEVER THE INCOME AS PER SECTION 115JB WAS REDUCED TO RS.65,13,42,627/-.THE ASSESSING OFFICER WHILE PASSI NG THE ASSESSMENT ORDER MADE THE FOLLOWING ADJUSTMENTS TO BOOK PROFIT S AND DETERMINED THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT AS RS 74,67,04,328:- ADDITION OF DEFERRED TAX LIABILITY- RS 2,16,37,58 8 ADDITION OF PROVISION OF DOUBTFUL DEBTS - RS 6,84 ,79,588 ADDITION OF PROVISION OF DOUBTFUL ADVANCES - RS 2 2,72,803 HOWEVER, THE FINANCE ACT 2008 HAS AMENDED THE EXPLA NATION 1 TO SECTION 115JB WITH RETROSPECTIVE EFFECT FROM 1 APRI L 2001 TO PROVIDE THAT BOOK PROFIT SHOULD BE INCREASED BY DEFERRED TA X AND PROVISION THEREOF. FURTHER FINANCE (NO 2) ACT, 2009 ALSO AMEN DED EXPLANATION 1 TO SECTION 115JB RETROSPECTIVE EFFECT FROM 1 APRI L 2001 TO PROVIDE THAT BOOK PROFITS SHOULD BE INCREASED BY AMOUNT SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET. ACCORDINGLY, WHILE PASSING THE ASSESSMENT ORDER UNDER THE PROVISIONS O F SECTION 143(3) OF THE ACT THE AMOUNTS OF DEFERRED TAX LIABILITY PR OVISIONS, PROVISIONS OF DOUBTFUL DEBTS AND PROVISION OF DOUBTFUL ADVANCE S WERE ADDED TO THE BOOK PROFITS AS PER THE CLAUSE (H) AND CLAUSE ( I) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT (INSERTED VIDE FINANCE ACT, 2008 AND VIDE FINANCE (NO 2) ACT, 2009 RESPECTIVELY WITH RETROSPE CTIVE EFFECT FROM 1 APRIL 2001). 2.4. IN VIEW OF THE ABOVE FACTS, THE A.O. HAS STAT ED THAT THE ASSESSEE HAS NOT ADDED BACK THE ABOVE PROVISIONS WHILE WORKI NG OUT THE BOOK PROFITS. AS THE PROVISIONS HAS TO BE ADDED BACK WHI LE WORKING OUT THE BOOK PROFIT, THE SAME WERE ADDED TO THE BOOK PROFIT AND PENALTY PROCEEDINGS FOR FURNISHING INACCURATE PARTICULARS O F INCOME WAS INITIATED. IT IS WORTHWHILE TO NOTE THAT IN VIEW OF EXPLANATION 1 TO SECTION 115JB, IT HAS BEEN CATEGORICALLY MENTIONED UNDER CLAUSE (C) AND CLAUSE (I) THAT AMOUNT OF PROVISION IS TO BE IN CREASED WHILE COMPUTING BOOK PROFIT. IN VIEW OF LEGAL POSITION DI SCUSSED, THE ASSESSEE IS HELD TO HAVE FURNISHED INACCURATE PARTI CULARS OF INCOME IN THE RETURN OF INCOME FILED BY HIM AND AS PER DEC ISION OF HON'BLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCT (P) LTD., THE ITA NO.2880/AHD/16 [DCIT VS. M/S D.B. CORP. LTD.] A.Y. 2007-08 - 4 - LIABILITY OF PENALTY ARISES. IN VIEW OF THE ABOVE F ACTS THE A.O. WAS SATISFIED THAT THE ASSESSEE HAD FURNISHED INACCURAT E PARTICULARS OF INCOME AND WAS LIABLE FOR PENALTY U/S 271(1)(C) OF THE ACT. THEREFORE, PENALTY @100% THE AMOUNT OF TAX SOUGHT T O BE EVADED ON ACCOUNT OF FILING OF INACCURATE PARTICULARS OF INCO ME, WHICH WORKS OUT OF RS.1,03,66,151/- AGAINST THE MAXIMUM PENALTY OF RS. 3,70,98,453/- ON THE ASSESSEE, WAS LEVIED BY THE A. O. 2.5. ON THE OTHER HAND, THE APPELLANT HAS SUBMITTED THAT THE DEMAND RAISED BY THE AO VIDE THE PENALTY ORDER ARIS ES OUT OF THE FOLLOWING RETROSPECTIVE AMENDMENT MADE TO SECTION 1 15JB OF THE ACT:- THE AMOUNT OF DEFERRED TAX AND PROVISION THEREFO RE [INSERTED VIDE FINANCE ACT 2008 WITH RETROSPECTIVE EFFECT FROM 1 APRIL 2001]; THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION F OR DIMINUTION IN THE VALUE OF ANY ASSET [INSERTED VIDE FINANCE ACT [NO.2] OF 2009 WITH RETROSPECTIVE EFFEC T FROM 1 APRIL 2001] IT IS NOTEWORTHY THAT PRIOR TO SUCH AMENDMENTS AND AS PER LAW WHICH STOOD AT THE TIME OF FILING OF THE RETURN FOR THE A .Y. 07-08, NO ADJUSTMENT WITH RESPECT TO (I) PROVISION FOR DEFERR ED TAX LIABILITY AND (II) PROVISION FOR DOUBTFUL DEBTS AND/OR DOUBTFUL A DVANCES WERE REQUIRED TO BE MADE. THE AFORE-MENTIONED POSITION I S SUPPORTED BY THE FOLLOWING JUDICIAL PRECEDENTS: C. IN RESPECT OF PROVISION FOR DEFERRED TAX LIABI LITY [ILLUSTRATIVE]: CIT V BALARAMPUR CHINI MILLS LIMITED [316 ITR 374] [CAL] D. IN RESPECT OF PROVISION FOR DOUBTFUL DEBTS/ADVAN CES [ILLUSTRATIVE]: HCL COMNET SYSTEMS [305 ITR 409] [SC]; EICHER LTD [159 TAXMAN 293] [DEL]; CIT V HEWLETT PACKARD INDIA PRIVATE LIMITED [314 IT R 55] [DEL] AT THE OUTSET, IT IS SUBMITTED THAT THE AO HAS NOT CHALLENGED/DISALLOWED THE (I) PROVISION FOR DEFERRE D TAX (II) PROVISION FOR DOUBTFUL DEBTS AND (III) PROVISION FO R DOUBTFUL ADVANCES ON MERITS I.E. THE ADDITIONS/ADJUSTMENTS TO THE BOO K PROFIT COMPUTED UNDER SECTION 115JB OF THE ACT HAVE BEEN MADE ONLY BY RELYING UPON THE RETROSPECTIVE AMENDMENTS MADE UNDER THE ACT. 2.6 THE APPELLANT HAS FURTHER SUBMITTED THAT THERE IS A FAIR CLARITY THAT THERE CAN BE NO RETROSPECTIVE LEVY OF A PENALT Y, NOR CAN AN INGREDIENT OF OFFENCE BE CREATED RETROSPECTIVELY. I N THIS REGARD, ARTICLE 20(1) OF THE CONSTITUTION OF INDIA PROVIDES AS UNDER: ITA NO.2880/AHD/16 [DCIT VS. M/S D.B. CORP. LTD.] A.Y. 2007-08 - 5 - 'NO PERSON SHALL BE CONVICTED OF ANY OFFENCE EXCEPT FOR VIOLATION OF THE LAW IN FORCE AT THE TIME OF THE CO MMISSION OF THE ACT CHARGED AS AN OFFENCE, NOR BE SUBJECTED TO A PENALTY GREATER THAN THAT WHICH MIGHT HAVE BEEN INFLICTED U NDER THE LAW IN FORCE AT THE \IRNE OF THE COMMISSION OF THE OFFENCE' FURTHER, IT IS RESPECTFULLY SUBMITTED THAT PENALTY UNDER SECTION 271(1)(C) CANNOT BE LEVIED IN CASES WHICH INVOLVE A DEBATABLE ISSUE OR ARE EFFECTED BY RETROSPECTIVE AMENDMENTS MADE TO THE ACT. THE LAW IN THIS REGARD IS WELL SETTLED AND RELIANCE IN THIS REGARD IS PLACED BY APPELLANT ON THE FOLLOWING JUDICIAL PRECEDENTS:- I) CIT VS. HINDUSTAN ELECTRO GRAPHITES LTD. (243 IT R 48) WHEREIN THE HON'BLE SUPREME COURT HAS HELD THAT NO PENAL ACTION CAN BE BROUGHT AGAINST AN ASSESSEE AS A RESU LT OF ANY RETROSPECTIVE AMENDMENT IN LAW, ESPECIALLY WHEN THE ASSESSEE COULD NOT FORESEE SUCH LAW AT THE TIME OF FILING OF RETURN OF INCOME. THE RELEVANT EXTRACT OF THE JUDGMENT \HAS B EEN REPRODUCED BELOW:- 'AN ASSESSEE CANNOT BE IMPUTED WITH CLAIRVOYANCE. W HEN THE RETURN WAS FILED, THE ASSESSEE COULD NOT POSSIB LY HAVE KNOWN THAT THE DECISION ON THE BASIS OF WHICH CASH COMPENSATORY SUPPORT HAD BEEN CLAIMED AS NOT AMOUNTING TO THE ASSESSEE'S INCOME CEASED TO BE OPERATIVE BY REASON OF RETROSPECTIVE LEGISLATION. ' II) THE HON'BLE AHMEDABAD INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF SUN PETROCHEMICALS PVT. LTD V ITO [ITA NO. 1010/AHD/2009] HAVE HELD THAT NO INTEREST CAN BE CHARGED WHEN THERE IS RETROSPECTIVE AMENDMENT IN THE ACT. I F NO INTEREST CAN BE CHARGED THEN THE QUESTION OF LEVY O F PENALTY DOES NOT ARISE IN VIEW OF RETROSPECTIVE AMENDMENT. III) CIT V YAHOO INDIA PVT. LTD (ITA 2014 OF 2012) WHEREIN THE HON'BLE BOMBAY HIGH COURT HAS RECENTLY HELD THAT A RETROSPECTIVE AMENDMENT TO THE ACT IS AN INDICATOR OF THE FACT THAT THE CONCERNED ISSUE WAS DEBATABLE AND THEREFOR E, THERE CAN BE NO LEVY OF PENALTY UNDER SECTION 271(1)(C) I N SUCH CASES. IV) THE HON'BLE AHMEDABAD INCOME TAX APPELLATE TRIBUNAL IN ITS VERY RECENT RULING PRONOUNCED ON 2 MAY 2016 IN THE CASE OF ITO V N.K. INDUSTRIES LTD [ITA NO. 1910/AHD/2011] HAVE HELD THAT PENALTY CANNOT BE LEVIED UNDER SECTION 271(1)(C) OF THE ACT DUE TO ADDITIONS MADE BY VIRTUE OF RETROSPECTIVE AMENDMENTS IN THE ACT. 2.7. IT IS SEEN THAT DEMAND RAISED BY THE PENALTY O RDER ARISES OUT OF THE FOLLOWING RETROSPECTIVE AMENDMENT MADE TO SECTI ON 115JB OF THE ACT ON I), THE AMOUNT OF DEFERRED TAX AND PROVISION THEREFORE ITA NO.2880/AHD/16 [DCIT VS. M/S D.B. CORP. LTD.] A.Y. 2007-08 - 6 - [INSERTED VIDE FINANCE ACT 2008 WITH RETROSPECTIVE EFFECT FROM 1 APRIL 2001]; II) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET [INSERTED VIDE FINANCE ACT [NO.2] OF 2009 WITH RETROSPECTIVE EFFECT FROM 1 APR IL 2001]. IT IS SEEN THAT PRIOR TO SUCH AMENDMENTS AND AS PER LAW W HICH STOOD AT THE TIME OF FILING OF THE RETURN, FOR THE SUBJECT A Y, NO ADJUSTMENT WITH RESPECT TO (I) PROVISION FOR DEFERRED TAX LIABILITY AND (II) PROVISION FOR DOUBTFUL DEBTS AND/OR DOUBTFUL ADVANCES WERE RE QUIRED TO BE MADE. THIS FACT IS ALSO SUPPORTED BY THE JUDICIAL P RONOUNCEMENTS (AS SUPRA). THERE CAN BE NO RETROSPECTIVE LEVY OF A PENALTY, NO R CAN AN INGREDIENT OF OFFENCE BE CREATED RETROSPECTIVELY AS PROVIDED IN ARTICLE 20(1) OF THE CONSTITUTION OF INDIA. CIT VS. HINDUSTAN ELECTRO GRAPHITES LTD. (243 ITR 48) WHEREIN THE HON'BLE SUP REME COURT HAS HELD THAT NO PENAL ACTION CAN BE BROUGHT AGAINST AN ASSESSEE AS A RESULT OF ANY RETROSPECTIVE AMENDMENT IN LAW, ESPEC IALLY WHEN THE ASSESSEE COULD NOT FORESEE SUCH LAW AT THE TIME OF FILING OF RETURN OF INCOME. CIT V YAHOO INDIA PVT. LTD (ITA 2014 OF 201 2) WHEREIN THE HON'BLE BOMBAY HIGH COURT HAS RECENTLY HELD THAT A RETROSPECTIVE AMENDMENT TO THE ACT IS AN INDICATOR OF THE FACT TH AT THE CONCERNED ISSUE WAS DEBATABLE AND THEREFORE, THERE CAN BE NO LEVY OF PENALTY UNDER SECTION 27(1)(C) IN SUCH CASES. THE HON'BLE AHMEDABAD INCOME TAX APPELLATE TRIBUNAL IN ITS VERY RECENT RULING PRONOUNCED ON 2 MAY 2016 IN THE CASE OF ITO V N.K. INDUSTRIES LTD [ITANO. 1910/AHD/2011] HAVE HELD THAT PENALTY CANNOT BE LEVIED UNDER SECTION 271 (1)(C) OF THE ACT DUE TO ADDITIONS MADE BY VIRTUE OF RETROSPECTIVE AMENDMENTS IN THE ACT. THE RATIO OF H ON'BLE SUPREME COURT IN THE CASE OF CIT, AHMEDABAD VS. RELIANCE PE TROPRODUCT (P) LTD. (322 ITR 158) IS NOT APPLICABLE IN THE INSTANT CASE AS CITED BY THE A.O. THIS CASE IS ON DIFFERENT FOOTINGS AND THE A.O. HAS MISSED THIS POINT. IN VIEW OF THE ABOVE FACTS OF THE CASE AND THE JUDI CIAL RATIOS OF THE COURTS, IT IS SEEN THAT IN ALL THE CASES, IT HA S BEEN HELD THAT A RETROSPECTIVE AMENDMENT TO THE ACT IS AN INDICATOR OF THE FACT THAT THE CONCERNED ISSUE WAS DEBATABLE AND THEREFORE, TH ERE CAN BE NO LEVY OF PENALTY UNDER SECTION 271(1)(C) IN SUCH CAS ES. THE A.O. IS DIRECTED TO DELETE THE PENALTY LEVIED OF RS.1,03,66 ,151/-. THE GROUND OF THE APPELLANT IS ALLOWED. 4. WE HAVE HEARD RIVAL SUBMISSIONS ON THE ISSUE. 5. THE SHORT CONTROVERSY IN THE PRESENT CASE IS WHE THER PENALTY CAN BE IMPOSED ON VARIOUS ADJUSTMENTS MADE TO THE B OOK PROFIT ITA NO.2880/AHD/16 [DCIT VS. M/S D.B. CORP. LTD.] A.Y. 2007-08 - 7 - CONSEQUENT UPON RETROSPECTIVE AMENDMENT IN THE ACT. IT IS NOTICED THAT THE RETURN OF INCOME WAS FILED ON 31.1 0.2007. THEREAFTER, BY VIRTUE OF FINANCE ACT, 2008, THE EXP LANATION 1 TO SECTION 115JB OF THE ACT WAS AMENDED WITH RETROSPEC TIVE EFFECT FROM 01.04.2001 TO PROVIDE BOOK PROFIT UNDER S.115J B OF THE ACT SHOULD BE INCREASED BY THE DEFERRED TAX LIABILITY A S WELL AS TOWARDS PROVISIONS FOR DIMINUTION IN THE VALUE OF A NY ASSET INCLUDING PROVISIONS FOR DOUBTFUL DEBTS AND PROVISI ON FOR DOUBTFUL ADVANCES. THE RETROSPECTIVE AMENDMENT RESULTED IN INCREASE IN THE BOOK PROFIT DETERMINED BY THE ASSESSEE AS PER THE PRE- EXISTING LAW PREVAILING AT THE TIME OF FILING RETUR N OF INCOME. IT IS OSTENSIBLE IN THE CIRCUMSTANCES, WHERE ADDITIONAL T AX LIABILITY IS FASTENED UPON THE ASSESSEE OWING TO A RETROSPECTIVE AMENDMENT OF LAW, THE PENALTY ON SUM FLOWING FROM RETROSPECTIVE AMENDMENT UNDER S.271(1)(C) OF THE ACT IS INCONCEIVABLE AND C ANNOT BE COMPREHENDED BY ANY STRETCH OF IMAGINATION. THE CI T(A) IN ITS DETAILED ORDER HAS RIGHTLY HELD THAT THE ACTION OF THE AO HAS NO SEMBLANCE OF ACCEPTABILITY. 6. IT IS ONLY ELEMENTARY TO SAY THAT IN THE ABSENCE OF ANY CULPABILITY ON THE PART OF THE ASSESSEE, THE ACTION OF THE AO IS ITA NO.2880/AHD/16 [DCIT VS. M/S D.B. CORP. LTD.] A.Y. 2007-08 - 8 - OVERTLY UNJUSTIFIED. WE THUS DECLINE TO INTERFERE WITH THE ORDER OF THE CIT(A). 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 19/12/2018 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 19/12/ 2018