Torrent Cables Ltd., Ahmedabad V. The ACIT.,Circle-8, Ahmedabad

ITA 3178/AHD/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9555 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 19-10-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 15-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANITA HARDASANI
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Opportunity of being heard; Earning of tax free income; Retrospective amendment; Bad and doubtful debts
• Section: 14A; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD , , BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.3178/AHD/2011 ( / ASSESSMENT YEAR : 2008-09) TORRENT CABLE LTD. (FORMERLY KNOWN AS TORRENT GUJART BIOTECH LTD.) 6 TH FLOOR, PELICAN BUILDING GCCI COMPOUND AHMEDABAD / VS. THE ASST.CIT CIRCLWE-8 AHMEDABAD # ./ ./ PAN/GIR NO. : AAACT 5457 B ( #% / APPELLANT ) .. ( &#% / RESPONDENT ) #% / APPELLANT BY : SHRI S.N. SOPARKAR, AR &#%( / RESPONDENT BY : MS. ANITA HARDASANI, SR.DR )*(+ / DATE OF HEARING 19/10/2016 ,-./(+ / DATE OF PRONOUNCEMENT 02/01/2017 / O R D E R PER PRADIP KUMAR KEDIA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-XIV, AHMEDABAD [CIT(A) IN SHORT] DATED 05/10/2011 FOR THE ASSESSMENT YEAR(AY) 2008-09. ITA NO.3178/AHD /2011 TORRENT CABLE LTD. VS. ACIT ASST.YEAR 2008-09 - 2 - 2. AS PER THE GROUNDS OF APPEAL FILED, THE ASSESSE E HAS RAISED MAINLY TWO-FOLD OBJECTIONS. THE FIRST OBJECTION IS TOWARD S CONFIRMING DISALLOWANCE OF RS.5,68,828/- OUT OF ADMINISTRATIVE EXPENSES UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTE R REFERRED TO AS 'THE ACT') READ WITH RULE-8 OF THE INCOME TAX RULES, 196 2 WHILE COMPUTING THE BOOK PROFIT UNDER SECTION115JB OF THE ACT. THE SECOND OBJECTION OF THE ASSESSEE IS THAT THE ASSESSING OFFICER (AO) HAS ERRED IN NOT DEDUCTING TOWARDS WRITE BACK OF DIMINUTION IN THE VALUE OF R S.4,50,000/- AND BAD DEBTS OF RS.9,53,624/- AS CREDITED TO PROFIT & LOSS ACCOUNT WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF TH E ACT. 3. BRIEFLY STATED, THE ASSESSEE-COMPANY IN THE RELE VANT AY 2008-09 FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS .NIL AFTER SETTING OFF OF THE BUSINESS LOSS AND DEPRECIATION UNDER NORMAL PROVISIONS OF THE ACT. THE BOOK PROFIT OF THE COMPANY WAS DECLARED AT RS.4 5,06,92,683/- UNDER SECTION 115JB OF THE ACT. IN THE COURSE OF SCRUTIN Y PROCEEDINGS, IT WAS NOTICED BY THE AO WITH THE ASSESSEE HAD RECEIVED EX EMPT INCOME DURING THE YEAR. HE ACCORDINGLY, PROCEEDED TO DISALLOW EX PENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME IN TERMS OF SECTION 1 4A OF THE ACT. IN TERMS OF RULE 8D(2)(III) OF THE IT RULES. THE ADMIN ISTRATIVE EXPENSES AMOUNTING TO RS.5,68,828/- WAS COMPUTED FOR DISALLO WANCE. THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT WAS INFLATED TO THIS EXTEND BY THE AO. IN THE FIRST APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE AO. ITA NO.3178/AHD /2011 TORRENT CABLE LTD. VS. ACIT ASST.YEAR 2008-09 - 3 - AGGRIEVED THERETO, THE ASSESSEE HAS CHALLENGED THE IMPUGNED ADJUSTMENT WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 4. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE RE VENUE WAS NOT JUSTIFIED IN MAKING ADJUSTMENT ON ACCOUNT OF DISALL OWANCE MADE UNDER SECTION 14A OF THE ACT IN THE COMPUTATION OF BOOK P ROFIT UNDER SECTION 115JB OF THE ACT. THE LD.AR FOR THE ASSESSEE SUBMI TTED THAT THE COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB OF T HE ACT OPERATES ON A DIFFERENT FOOTING VIS--VIS COMPUTATION OF INCOME UNDER THE NORMAL PROVISIONS OF THE ACT. THE LD.AR RELIED UPON THE D ECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. A LEMBIC LTD. IN TAX APPEAL NO.1249 OF 2014 DATED 20/07/2016. 5. THE LD.DR RELIED UPON THE ORDER OF THE CIT(A). 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS ON THE ISSUE INVOLVED. THE ASSESSEE HAS RELIED UPON THE JUDGEME NT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF ALEMBIC LTD.(SUPR A). THE RELEVANT OPERATIVE PARA OF THE ORDER OF THE HONBLE GUJARAT HIGH COURT IS REPRODUCED HEREUNDER:- 8. TAKING INTO CONSIDERATION THE EVIDENCE ON RECORD AND CONSIDERING THE DECISION OF THIS COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX-I VS. GUJARAT STATE FERTILIZERS & CHE MICALS LTD. (SUPRA), WE ARE OF THE OPINION THAT ISSUE NOS. (III ) AND (IV) REQUIRED ITA NO.3178/AHD /2011 TORRENT CABLE LTD. VS. ACIT ASST.YEAR 2008-09 - 4 - TO BE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINS T THE REVENUE. IN THAT VIEW OF THE MATTER, WE ANSWER QUESTIONS (II I) AND (IV) REFERRED TO US IN FAVOUR OF THE ASSESSEE AND AGAINS T THE REVENUE. THE APPEAL OF REVENUE IS DISMISSED. 7. SEEN ON THE ANVIL OF THE AFORESAID DECISION OF THE HONBLE GUJARAT HIGH COURT SQUARELY ON THE ISSUE, WE FIND MERIT CON TENTION ON BEHALF OF THE ASSESSEE AND DIRECT THE AO TO DELETE THE ADJUST MENT MADE ON ACCOUNT OF ESTIMATED DISALLOWANCE DETERMINED UNDER SECTION 14A R.W.RULE 8 D OF THE I.T.RULES, 1962 WHILE COMPUTING BOOK PROFIT UND ER SECTION 115JB OF THE ACT. 8. THE SECOND SUBSTANTIVE GROUND OF THE ASSESSEE CO NCERNS DENIAL OF RELIEF CLAIMED UNDER 115JB TOWARDS PROVISIONS TO W RITE OFF ON ACCOUNT OF DIMINUTION IN THE VALUE OF INVESTMENT AND BAD DEBTS WRITTEN BACK DURING THE YEAR AS PER STATEMENT OF FACTS FILED BEFORE THE CIT(A). IT IS THE CASE OF THE ASSESSEE-COMPANY THAT IT HAS COMPUTED THE BOOK PROFIT AT RS.45,06,92,683/- CALCULATED AS PER THE PROVISIONS OF SECTION 115JB OF THE ACT AS PREVAILING AT THE TIME OF FILING THE RETURN OF INCOME. SUBSEQUENT TO THE FILING OF THE RETURN OF INCOME, THE FINANCE (NO.2) ACT, 2009 AS AMENDED THE EXPLANATION-1 TO SECTION 115JB(1) WHERE BY CLAUSE(I) HAS BEEN ADDED TO EXPLANATION-1 TO THE SAID SECTION. A S PER THE SAID CLAUSE, COMPUTING THE BOOK PROFIT, THE NET PROFIT AS PER PR OFIT & LOSS ACCOUNT IS TO BE INCREASED BY THE AMOUNT OR AMOUNTS SET ASID E AS PROVISION FOR ITA NO.3178/AHD /2011 TORRENT CABLE LTD. VS. ACIT ASST.YEAR 2008-09 - 5 - DIMINUTION IN THE VALUE OF ANY ASSET. THE SAID AM ENDMENT TO SECTION 115 JB IS EFFECTIVE FROM ASST.YEAR 2001-02 RESPECTI VELY. IT IS THE CASE OF THE ASSESSEE THAT THE AFORESAID AMOUNT WRITTEN BACK TOWARDS PROVISION FOR DOUBTFUL DEBTS MADE IN THE ASSESSMENT YEAR WHICH AR E NO LONGER REQUIRED AMOUNTING TO RS.9,53,624/- AND PROVISION FOR DIMINU TION IN INVESTMENT OF RS.4,50,000/- REVERSED DURING THE YEAR AND INCLUDED IN THE INCOME OF THE ASSESSEE WHILE COMPUTING THE BOOK PROFITS ARE REQUI RED TO BE DEDUCTED. THE AO AND CIT(A) DID NOT PAY NEED TO THE REQUEST O F THE ASSESSEE. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. IT IS THE CASE OF THE ASSESSEE THAT AFTER THE FILING OF THE RETURN OF INCOME THE PROVISIONS OF SECTION 115JB WAS AMENDED TO INCLUDE A NEW CLAUS E(I) IN EXPLANATION-1 AFTER SUB-SECTION(2) OF SUB-SECTION W ITH RETROSPECTIVE EFFECT FROM AY 2001-02 ONWARDS. IN VIEW OF THE AME NDMENT, THE ASSESSEE REQUESTED THE AO TO REDUCE THE BOOK PROFIT BY THE AMOUNT OF WRITE BACKS OF RS.4,50,000/- BEING PROVISION FOR DI MINUTION IN THE VALUE OF INVESTMENT AND RS.9,53,624/- BEING PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENT AND RS.9,53,624/- BEING PROVISI ON FOR DOUBTFUL DEBTS. IT IS THE CASE OF THE ASSESSEE THAT IN VIEW OF THE RETROSPECTIVE AMENDMENT BOOK PROFIT DECLARED IS REQUIRED TO BE REWORKED. T HE ASSESSEE HAS RELIED UPON THE DECISION OF THE HONBLE COORDINATE BENCH O F THE TRIBUNAL IN THE CASE OF KOCHI REFINERIES LTD. VS. DY.CIT REPORTED I N (2010) 4 ITR ITA NO.3178/AHD /2011 TORRENT CABLE LTD. VS. ACIT ASST.YEAR 2008-09 - 6 - (TRIB.)) 95 (MUM.). THE RELEVANT PARA OF THE ORDER OF THE COORDINATE BENCH READS AS UNDER:- 31. IT WAS THE SUBMISSION OF THE ASSESSEE-COUNSEL THAT UNDER EXPLN. (I) ANY AMOUNT WITHDRAWN FROM THE PROVISIONS OR RESERVE IS TO BE EXCLUDED FROM THE BOOK PROFIT BUT WITH THE FURTHER REQUIREMENT AS PER PROVISO TO THIS EXPLANATION, THAT IF PROVISIONS WAS MADE AFTER FIRS T APRIL, 1997 IT SHOULD HAVE BEEN ADDED BACK IN COMPUTING THE BOOK PROFIT IN THE YEAR IN WHICH THE PROVISION WAS MADE. THEREFORE IT HAS TO BE SEEN WHE THER IN THE YEAR IN WHICH PROVISION WAS MADE, VIZ. ASST. YR. 1998-99-THIS AMO UNT OF RS. 6,34,74,000 BEING PROVISION FOR BAD DEBT WAS ADDED BACK IN COMP UTING THE BOOK PROFIT FOR THAT YEAR. FROM THE RECORDS, IT WOULD APPEAR FOR TH E ASST. YR. 1998-99 NO COMPUTATION OF BOOK PROFIT HAS BEEN MADE UNDER S. 1 15JA (WHICH WAS APPLICABLE TO THAT YEAR). BY THIS IT CANNOT BE ASSU MED OR PRESUMED THAT THE PROVISION MADE FOR BAD DEBT HAS BEEN DEDUCTED WHILE COMPUTING BOOK PROFIT FOR THE ASST. YR. 1998-99. ON THE OTHER HAND, BY ME ANS OF EXPLN. (G) INTRODUCED TO S. 115JA, BY THE FINANCE ACT, 2009, W .E.F. 1ST APRIL, 1998, THE PROVISION MADE FOR DIMINUTION IN VALUE OF ASSETS (W HICH INCLUDES PROVISION FOR BAD AND DOUBTFUL DEBTS) HAS TO BE ADDED BACK IN COM PUTING BOOK PROFIT. THUS, AFTER THE AMENDMENT BY THE FINANCE ACT, 2009, THE P ROVISION MADE FOR BAD AND DOUBTFUL DEBTS HAS TO BE ADDED BACK TO THE BOOK PROFIT AND THEREFORE COMPLIES WITH THE REQUIREMENTS OF THE PROVISO TO EX PLN. (I) TO S. 115JB THAT IN THE YEAR OF MAKING THE PROVISION THE SAME HAS TO BE ADDED BACK TO THE BOOK PROFITS. IN VIEW OF THE STATUTORY PROVISION IT HAS TO BE PRESUMED, UNLESS PROVIDED TO THE CONTRARY, THE PROVISION HAS BEEN AD DED BACK WHILE COMPUTING THE BOOK PROFITS. HENCE THE PROVISION FOR BAD AND D OUBTFUL DEBTS WITHDRAWN AND CREDITED TO THE P&L A/C HAS TO BE EXCLUDED FROM THE BOOK PROFITS TO BE COMPUTED UNDER S. 115JB UNDER EXPLN. (I) THERETO. 32. THE LEARNED DEPARTMENTAL REPRESENTATIVE IN REPLY SU BMITTED THAT THE ASSESSEE SHOULD NOT BE PERMITTED TO WITHDRAW THE AM OUNT WHEN THE SAME WAS NOT ORIGINALLY OFFERED TO TAX AND ACCORDINGLY THE A OS ORDERS ARE CORRECT. HE RELIED ON THE DECISION OF THE HONBLE DELHI HIGH CO URT IN THE CASE OF INDO RAMA SYNTHETICS (I) LTD. VS. CIT (2009) 31 DTR (DEL ) 45 : (2010) 320 ITR 340 (DEL) TO SUBMIT THAT FOR THE PURPOSE OF COMPUTI NG BOOK PROFIT UNDER S. 115JB THE AMOUNT WITHDRAWN FROM REVALUATION RESERVE CREATED AFTER 1ST APRIL, 1997 AND CREDITED TO THE P&L A/C IS NOT TO BE REDUC ED FROM NET PROFIT AS PER P&L A/C UNLESS BOOK PROFIT HAD BEEN INCREASED BY AM OUNT OF RESERVE IN YEAR OF CREATION OF SUCH RESERVE. ITA NO.3178/AHD /2011 TORRENT CABLE LTD. VS. ACIT ASST.YEAR 2008-09 - 7 - 33. WE HAVE CONSIDERED THE ARGUMENTS OF LEARNED COUNSEL AND THE LEARNED DEPARTMENTAL REPRESENTATIVE. IT IS AN ADMITTED FACT THAT THE PROVISION FOR BAD AND DOUBTFUL DEBTS WAS MADE IN THE FINANCIAL YEAR R ELEVANT TO THE ASST. YR. 1998-99 AND THE SAME AMOUNT WAS ADDED BACK IN THE R EGULAR COMPUTATION. BY VIRTUE OF LAW, IT IS THE DUTY OF THE AO TO COMPUTE THE NORMAL TOTAL INCOME AND ALSO THE BOOK PROFIT UNDER S. 115JA IN THAT YEAR AN D THEN COMPARE AND DECIDE TO INVOKE THE NORMAL PROVISIONS OF THE ACT OR SPECI AL PROVISIONS OF BOOK PROFIT UNDER S. 115JB. ONCE THE AO INVOKES THE NORMAL PROV ISIONS OF TAX, IT INDIRECTLY MEANS THAT HE HAS COMPARED THE COMPUTATI ON UNDER S. 115JA AND DECIDED THAT THE INCOME UNDER NORMAL PROVISIONS WAS MORE. IN THAT SITUATION IT IS TO BE PRESUMED THAT THE PROVISION WAS ADDED B ACK TO THE BOOK PROFIT OF THAT YEAR. EVEN BY MEANS OF EXPLN. (G) INTRODUCED T O S. 115JA BY THE FINANCE (NO. 2) ACT, 2009, WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL, 1998 THE PROVISION FOR BAD AND DOUBTFUL DEBTS WOULD BE DEEMED TO HAVE BEEN ADDED BACK IN COMPUTING THE BOOK PROFIT IN THAT YEAR AND SO THE A MOUNT, NOW CREDITED TO THE P&L A/C, IS TO BE REDUCED BY VIRTUE OF THE PROVISIO N OF S. 115JB. IN VIEW OF THIS THERE IS JUSTIFICATION IN THE ASSESSEES CONTENTION IN CLAIMING THE PROVISION AS DEDUCTION IN THE COMPUTATION OF BOOK PROFIT IN THIS YEAR. ON THE FACT THAT THE ASSESSEE HAD BEEN DISALLOWED IN THAT YEAR UNDER THE NORMAL COMPUTATION AND BY VIRTUE OF THE AMENDMENT NOW BROUGHT WITH RETROSP ECTIVE EFFECT FROM 1ST APRIL, 1998, THE PROVISION FOR BAD DEBT IS DEEMED T O HAVE BEEN ADDED BACK IN THAT YEAR WITHDRAWAL AND CREDITING INTO THE P&L A/C NOW RESULTS IN DOUBLE TAXATION. CONSEQUENTLY, THE ASSESSEE IS CORRECT IN EXCLUDING THE AMOUNT WHILE COMPUTING THE INCOME UNDER S. 115JB. ACCORDINGLY TH E GROUND IS ALLOWED. 34. GROUND NO. 5 PERTAINS TO LEVY OF INTEREST UNDER S. 234D OF RS. 2,84,775. RELIANCE IS PLACED ON THE DELHI SPECIAL BENCH DECIS ION ON ITO VS. EKTA PROMOTERS (P) LTD. (2008) 117 TTJ (DEL)(SB) 289 : ( 2008) 10 DTR (DEL)(SB)(TRIB) 563 : (2008) 305 ITR 1 (DEL)(SB)(AT ) WHEREIN IT WAS HELD THAT THE PROVISIONS OF S. 234D ARE APPLICABLE FROM 1ST JUNE, 2003 AND NOT WITH RETROSPECTIVE EFFECT, HENCE, THE SAME SHOULD NOT BE APPLICABLE IN THE ASSESSEES CASE FOR THE ASST. YR. 2001-02 WHEREIN T HE REFUND WAS ISSUED BEFORE 1ST JUNE, 2003. IN LINE WITH THE DECISION OF THE SP ECIAL BENCH THE ASSESSEES GROUND IS ALLOWED. THE AO IS DIRECTED TO WORK OUT T HE INTEREST UNDER S. 234D, IF ANY, IN LINE WITH THE DECISION OF THE SPECIAL BE NCH (SUPRA). GROUND IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. THE AP PEAL IS PARTLY ALLOWED. 35. IN THE RESULT, ALL THE APPEALS ARE PARTLY ALLOWED. ITA NO.3178/AHD /2011 TORRENT CABLE LTD. VS. ACIT ASST.YEAR 2008-09 - 8 - 10. WE NOTE THAT THE AO APPEARS TO HAVE NOT EXAMINE D THE ISSUE AND FACTUAL ASPECTS ARISING THEREIN. ACCORDINGLY, THE ISSUE REQUIRES TO BE DECIDED AFRESH AT THE END OF THE AO IN THE LIGHT OF THE DECISION OF THE TRIBUNAL OF MUMBAI BENCH IN THE CASE OF KOCHI REFIN ERIES LTD.(SUPRA) IN ACCORDANCE WITH LAW AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ISSUE IS ACCORDINGLY SET ASIDE AND R EMITTED BACK TO THE FILE OF AO FOR FRESH DECISION IN ACCORDANCE WITH LAW. 11. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 02 /01/2017 SD/- SD/- () ( ) (RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 02/ 01 /2017 3..),.)../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. #% / THE APPELLANT 2. &#% / THE RESPONDENT. 3. 456+ 7+ / CONCERNED CIT 4. 7+ ( ) / THE CIT(A)-XIV, AHMEDABAD 5. 89:+)56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. :<* / GUARD FILE. / BY ORDER, &8++ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD