Appeal Details
Counselvise Citation
[2011] 134 COUNSELVISE.COM (IT) 5240 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
12-04-2011
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
D
Next Hearing Date
12-04-2011
Assessment Year
2002-2003
Appeal Filed On
19-03-2009
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D CHENNAI (BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER) .. I.T.A. NOS. 359 & 360/MDS/2009 ASSESSMENT YEARS : 2002-03 & 2003-04 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE III, SALEM. (APPELLANT) V. M/S THE SALEM DISTRICT CONSUMER CO-OPERATIVE WHOLESALE STORES LTD., SEETHARAMAN ROAD, SALEM - 636 009. PAN : AAATT2048K (RESPONDENT) APPELLANT BY : SHRI K.E.B. RENGARAJAN JUNIOR STANDING COUNSEL RESPONDENT BY : SHRI S. SRI DHAR O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS FILED BY THE REVENUE AGAINST THE ORDERS DATED 29.12.2008 OF COMMISSIONER OF INCOME TAX (APP EALS), SALEM, FOR THE IMPUGNED ASSESSMENT YEARS. LD. CIT(APPEALS ) HAD, THROUGH THESE ORDERS, HELD THAT RECTIFICATION CARRIED OUT B Y THE A.O. UNDER SECTION 154 OF INCOME-TAX ACT, 1961 (HEREINAFTER CA LLED THE ACT), FOR I.T.A. NOS. 359 & 360/MDS/09 2 MAKING ADDITIONS ON PROVISION FOR BAD DEBTS AND PRO VISION FOR STOCK DEFICIT, WAS NOT CALLED FOR. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE, A CO-OPER ATIVE SOCIETY ENGAGED IN THE BUSINESS OF TRADING AND MARKETING IN CONSUMABLE PRODUCTS, HAD FILED ITS RETURNS FOR THE IMPUGNED AS SESSMENT YEARS, WHICH WERE PROCESSED UNDER SECTION 143(1) OF THE AC T. ON 27.03.2007, A RECTIFICATION ORDER WAS PASSED BY THE A.O. UNDER SECTION 154 OF THE ACT, FOR BOTH THE IMPUGNED ASSES SMENT YEARS. THROUGH THESE RECTIFICATION ORDERS, FOR ASSESSMENT YEAR 2002-03, THE A.O. MADE ADDITIONS OF ` 15,55,942/- AND ` 17,90,208/- BEING PROVISIONS FOR STOCK DEFICIT AND BAD DEBTS RESPECTI VELY. FOR ASSESSMENT YEAR 2003-04, THE ADDITION WAS CONFINED TO ` 9,77,321/- BEING PROVISION FOR BAD DEBTS. AS PER THE RECTIFIC ATION ORDER, ASSESSEE, DESPITE NOTICE, FAILED TO PRODUCE ANY DET AILS IN SUPPORT OF ITS CLAIM FOR THE ABOVE PROVISIONS. 3. IN ITS APPEALS BEFORE THE CIT(APPEALS), ARGUMENT OF THE ASSESSEE FOR ASSESSMENT YEAR 2002-03 WAS THAT THE P ROVISION FOR STOCK DEFICIT WAS MADE IN ACCORDANCE WITH RECOMMEND ATIONS OF STATE GOVERNMENT OFFICIALS WHO CARRIED OUT CO-OPERATIVE A UDIT AND SUCH I.T.A. NOS. 359 & 360/MDS/09 3 PROVISIONS AS PER BYE-LAW OF THE SOCIETY, REQUIRED SANCTION OF THE REGISTRAR OF SOCIETIES. AS PER THE ASSESSEE, AS SO ON AS THE SANCTION WAS RECEIVED FROM REGISTRAR, THE ACTUAL BAD DEBTS W RITE-OFF WAS EFFECTED AND THE PROVISIONS MADE IN THE EARLIER YEA R ADJUSTED TO REFLECT SUCH WRITE-OFF. FOR ASSESSMENT YEAR 2003-0 4, CLAIM OF THE ASSESSEE WAS THAT THE SUM CONSIDERED BY THE A.O. AS PROVISION FOR BAD DEBTS WAS ACTUALLY PROVISION FOR STOCK DEFICIT ONLY AND IT WAS DUE TO AN ACCOUNTING CODE ERROR, SUCH PROVISION WAS SHO WN AS PROVISION FOR BAD DEBTS IN ITS PROFIT AND LOSS ACCOUNT. LD. CIT(APPEALS) WAS APPRECIATIVE OF THESE CONTENTIONS OF THE ASSESSEE. ACCORDING TO HIM, ASSESSEE COULD ESTABLISH THAT IT WAS FOLLOWING THE SAME PRACTICE OF MAKING PROVISIONS AND WRITE-OFFS IN EARLIER YEARS A ND SUCH PROVISIONS WHICH WERE IN EXCESS WERE ALWAYS OFFERED BY THE ASS ESSEE IN LATER YEARS WHENEVER THERE WERE ANY SUCH EXCESS. AS PER THE LD. CIT(APPEALS), SUCH PROVISIONS WHICH WERE MADE BASED ON RECOMMENDATIONS OF THE CO-OPERATIVE SOCIETY AUDITOR S WAS HELD AS ALLOWABLE BY THIS TRIBUNAL IN ASSESSEES OWN CASE F OR ASSESSMENT YEAR 1982-83 IN I.T.A. NO. 2168/MDS/89. IN SO FAR AS CLAIM OF THE ASSESSEE THAT THE PROVISION FOR BAD DEBTS FOR ASSES SMENT YEAR 2003- 04 WAS ONLY PROVISION FOR STOCK DEFICIT, LD. CIT(AP PEALS) AFTER VERIFYING I.T.A. NOS. 359 & 360/MDS/09 4 THE CLOSING AND OPENING BALANCE OF PROVISION FOR ST OCK DEFICIT, ACCEPTED THE CONTENTION OF THE ASSESSEE. HE, THERE FORE, HELD THAT THERE WAS NO JUSTIFICATION FOR CARRYING OUT THE REC TIFICATION IN THESE RESPECTS FOR BOTH THE ASSESSMENT YEARS. 4. NOW BEFORE US, THE LEARNED D.R. STRONGLY ASSAILI NG THE ORDERS OF THE CIT(APPEALS), SUBMITTED THAT THE PROVISIONS COU LD NOT BE ALLOWED AS EXPENSES, AND THE RETURNS HAVING BEEN PROCESSED UNDER SECTION 143(1) OF THE ACT ORIGINALLY, THE A.O. WAS WELL WIT HIN HIS POWERS TO INVOKE THE PROVISIONS OF SECTION 154 OF THE ACT FOR MAKING THE ADDITIONS OF THE PROVISIONS CLAIMED AS EXPENSES BY THE ASSESSEE. AGAINST RELIANCE PLACED BY THE CIT(APPEALS) ON THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1982-83, RELIANCE WAS PLACED BY THE LEARNED D.R. ON THE DECI SION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF NORTH ARCO T DISTRICT CO- OPERATIVE SUPPLY & MARKETING SOCIETY LTD. V. CIT (1 987) 165 ITR 623 (MAD.). 5. PER CONTRA, THE LEARNED A.R. SUBMITTED THAT THE ADDITIONS WERE NOT SOMETHING WHICH COULD HAVE BEEN CONSIDERED IN A RECTIFICATION PROCEEDINGS UNDER SECTION 154 OF THE ACT. ACCORDIN G TO LEARNED A.R., I.T.A. NOS. 359 & 360/MDS/09 5 THERE WAS A DECISION IN FAVOUR OF ASSESSEE RELIED O N BY THE CIT(APPEALS) AND THIS BY ITSELF PROVED THAT THE ISS UE WAS DEBATABLE ONE AND NOT AMENABLE TO RECTIFICATORY PROCEEDINGS. RELIANCE WAS PLACED ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF T.S. BALARAM. V. VOLKART BROS. (1971) 82 ITR 50 (SC). 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. WE NOTE IN THE FIRST PLACE THAT THE A.O. HAD INVOKE D SECTION 154 OF THE ACT FOR MAKING ADDITIONS ON PROVISION FOR STOCK DEFICIT AND PROVISION FOR BAD DEBTS. NO DOUBT, LD. CIT(APPEALS ) WAS OF THE OPINION THAT THESE ADDITIONS COULD NOT HAVE BEEN MA DE IN A RECTIFICATORY PROCEEDINGS. CONTENTION OF THE ASSES SEE BEFORE THE CIT(APPEALS) WAS THAT PROVISION FOR BAD DEBTS WERE MADE IN ACCORDANCE WITH RECOMMENDATIONS OF AUDITORS WHO WER E CONDUCTING CO-OPERATIVE SOCIETY AUDIT AND WRITE-OFFS WERE ACTU ALLY EFFECTED ONCE SANCTION FROM REGISTRAR OF SOCIETIES WAS RECEIVED. IN SO FAR AS CLAIM OF PROVISION FOR STOCK ALSO ASSESSEE ARGUED THAT IT IS FOLLOWING THE SAME PROCEDURE AS IN EARLIER YEARS WHICH OUGHT NOT HAVE BEEN DISTURBED BY THE ASSESSING OFFICER. WE FIND THAT T HERE IS AN ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A. NO. 2168/MDS/89 (SUPRA) WHEREIN THIS TRIBUNAL HAD HELD THAT ASSESSE E BEING A CO- I.T.A. NOS. 359 & 360/MDS/09 6 OPERATIVE SOCIETY WHOSE ACCOUNTS WERE AUDITED BY TH E GOVERNMENT, AN A.O. SHOULD NOT HAVE HELD ANY DIFFERENCE OF OPIN ION ON THE METHOD OF ACCOUNTING FOLLOWED FOR THE PURPOSE OF PROVISION ING OF CERTAIN ITEMS WHICH WERE PROPERLY CONSIDERED BY THE ASSESSEE AS A CCRUED LIABILITIES. THEREFORE, WITHOUT DOUBT THERE WAS A DECISION WHICH WAS IN FAVOUR OF ASSESSEE ON THE ISSUES RAISED. NO DOUBT, THE LEARNED D.R. HAS RELIED ON THE DECISION OF HON'BLE JURISDICTIONA L HIGH COURT IN THE CASE OF NORTH ARCOT DISTRICT CO-OPERATIVE SUPPLY & MARKETING SOCIETY LTD. (SUPRA). BUT THERE, IT WAS NOT A PROVISION, B UT A RESERVE FOR DEFICIT STOCK AND HON'BLE JURISDICTIONAL HIGH COURT HAD TAK EN A VIEW THAT RESERVES MADE COULD NOT BE ALLOWED AS DEDUCTION UNL ESS THERE HAS BEEN A WRITE-OFF OF THE DEFICIENCY IN STOCK. HERE, ON THE OTHER HAND, IT WAS A PROVISION AND NOT A RESERVE. IN ANY CASE, TH E ISSUE WAS VERY MUCH DEBATABLE ONE AND COULD NEVER BE CONSIDERED AS A MISTAKE APPARENT FROM RECORD. AS HELD BY HON'BLE APEX COUR T IN THE CASE OF VOLKART BROS. (SUPRA), A MISTAKE APPARENT ON RECORD MUST BE AN OBVIOUS AND PATENT MISTAKE AND NOT SOMETHING WHICH COULD HAVE BEEN ESTABLISHED BY A LONG DRAWN PROCESS OF REASONI NG ON POINTS ON WHICH THERE MIGHT BE CONCEIVABLY TWO OPINIONS. THU S, THE ISSUES RAISED WERE NOT AMENABLE FOR A RECTIFICATORY PROCEE DING UNDER SECTION I.T.A. NOS. 359 & 360/MDS/09 7 154 OF THE ACT. LD. CIT(APPEALS) HAD TAKEN A CORRE CT VIEW IN QUASHING SUCH RECTIFICATION ORDERS. WE DO NOT FIND ANY REASON TO INTERFERE. 7. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON THE TWELFTH DAY OF APRIL, 2011. SD/- SD/- (U.B.S. BEDI) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 12 TH APRIL, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A), SALEM (4) CIT, SALEM (5) D.R. (6) GUARD FILE
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