SREI Equipment Finance Pvt. Ltd.(Formerly known as SREI Infrastructure Development Finance Pvt. Ltd.), Kolkata V. DCIT, Circle - 11, Kolkata, Kolkata

ITA 424/KOL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83141 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-07-2011
• Assessment Year: 2008-2009
• Appeal Filed On: 11-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAVI JAIN
• Assessee Lawyers: AMIT AGARWALACA
• Section: 234B; 115JB; 37; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA BEFORE SHRI P.K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, HONBLE JUDICIAL MEMBER ITA NO. 424/KOL/2011 : (ASST. YEAR :2008-09) SREI EQUIPMENT FINANCE PVT. LTD., (FORMERLY KNOWN AS SREI INFRASTRUCTURE DEVELOPMENT FINANCE PVT. LTD.) 86C, TOPSIA ROAD (SOUTH), VISHWAKARMA, KOLKATA-700046. PAN : AAKCS3431L. (APPELLANT) VS. DY.COMMISSIONER OF INCOME TAX, CIRCLE-11, KOLKATA. (RESPONDENT) APPELLANT BY : SHRI AMIT AGARWAL,ACA. RESPONDENT BY : SHRI RAVI JAIN, CIT. DATE OF HEARI NG : 31/07/2014 DATE OF PRONO UNCEMENT :12/09/2014 O R D E R PER P.K. BANSAL THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A), KOLKATA DATED 28.02.2011 FOR THE ASSESSMENT YEAR 2 008-09 BY TAKING THE FOLLOWING GROUNDS OF APPEAL :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED AND GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF THE PROVISION FOR NON-PERFORMING AS SETS OF RS.366,00,000/- PROVIDED IN THE ACCOUNTS IN ACCORDA NCE WITH THE PRUDENTIAL NORMS OF THE RBI. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED AND GROSSLY ERRED IN CONFIRMING THE ADDITION OF RS.4,80,00,000/-, BEING THE AMOUNT TRAN SFERRED TO SPECIAL RESERVE, IN COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED AND GROSSLY ERRED IN CONFIRMING THE ADDITION OF RS. 16,30,00,000/- BEING THE AMOUNT TRA NSFERRED TO 2 ITA NO. 424/KOL/2011 (ASST. YEAR: 2008-09) DEBENTURE REDEMPTION RESERVE, IN COMPUTING BOOK PRO FIT U/S 115JB OF THE ACT. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED AND GROSSLY ERRED IN CONFIRMING THE ADDITION OF PROVISION FOR NON-PERFORMING ASSETS (NP A)OF RS. 3,66,00,000/- IN COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED RATHER GROSSLY ERRED IN CONFIRMING IMPOSITION OF INTEREST OF U/S 234C OF RS. 8,09,930 /-. 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED RATHER GROSSLY ERRED IN CONFIRMING IMPOSITION OF INTEREST OF U/S 234C OF RS.8,09,930/- . 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A NON-BANKING FINANCIAL COMPANY. IT HAD FILED ITS RETURN AT A LOS S OF RS.46,36,77,437/- AS PER THE NORMAL PROVISIONS OF INCOME TAX ACT. THE ASSESSEE C OMPUTED BOOK PROFIT U/S 115JB AT RS.14,16,70,686/- ON WHICH TAX AMOUNTED TO RS.1,60,51,289/-. THE ASSESSMENT WAS COMPLETED DETERMINING LOSS OF RS.42, 64,55,890/- AFTER MAKING FOLLOWING DISALLOWANCES :- A. PROVISION FOR NPA RS. 3,66,00,000/- B. MISCELLANEOUS EXPENSES RETURNED OFF RS.6,21,547 /- 3. AS PER SECTION 115JB THE ASSESSING OFFICER COMP UTED BOOK PROFIT AT RS. 38,92,70,686/-. THE TAX PAYABLE WAS DETERMINED AT RS. 3,89,27,069/-. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT( A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. THE FIRST GROUND RELATES TO THE CLAIM OF THE AS SESSEE IN RESPECT OF THE PROVISION OF NON-PERFORMING ASSETS AMOUNTING TO RS. 3,66,00,000/- ADDED BY THE ASSESSING OFFICER IN THE COMPUTATION OF INCOME AS PER THE NORMAL PROVISIONS. AFTER HEARING THE RIVAL SUBMISSIONS, WE NOTED THAT THIS ISSUE IS NO MORE RES- INTEGRA IN VIEW OF THE DECISION OF HONBLE SUPRME COURT IN THE CASE OF 3 ITA NO. 424/KOL/2011 (ASST. YEAR: 2008-09) SOUTHERN TECHNOLOGIES LTD VS JCIT, 320 ITR 577 (SC ) IN WHICH HONBLE SUPREME COURT HAS HELD AS UNDER:- ANALYSIS OF SECTION 36(1)(VIIA) SECTION 36(1) (VII) PROVIDES FOR A DEDUCTION IN THE COMPUTATION OF TAXABLE PROFITS FOR THE DEBT ESTABLISHED TO B E A BAD DEBT. SECTION 36(1)(VIIA) PROVIDES FOR A DEDUCTION I N RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBT MADE BY A S CHEDULED BANK OR NON-SCHEDULED BANK IN RELATION TO ADVANCES MADE BY ITS RURAL BRANCHES, OF A SUM NOT EXCEEDING A SPECIFIED PER CENTAGE OF THE AGGREGATE AVERAGE ADVANCES BY SUCH BRANCHES. HAVIN G REGARD TO THE INCREASING SOCIAL COMMITMENT, SECTION 36(1)(V IIA) HAS BEEN AMENDED TO PROVIDE THAT IN RESPECT OF PROVISION FO R BAD AND DOUBTFUL DEBT MADE BY A SCHEDULED BANK OR A NON-SC HEDULED BANK, AN AMOUNT NOT EXCEEDING A SPECIFIED PER CENT OF T HE TOTAL INCOME OR A SPECIFIED PER CENT OF THE AGGREGATE AVERAGE A DVANCES MADE BY RURAL BRANCHES, WHICHEVER IS HIGHER, SHALL BE A LLOWED AS DEDUCTION IN COMPUTING THE TAXABLE PROFITS. EVEN SECTION 36(1) (VII) HAS BEEN AMENDED TO PR OVIDE THAT IN THE CASE OF A BANK WHICH SECT ION 36(1)(VIIA) APPLIES, THE AMOUNT OF BAD AND DOUBTFUL DEBT SHA LL BE DEBITED TO THE PROVISION FOR BAD AND DOUBTFUL DEBT ACCOUNT A ND THAT THE DEDUCTION SHALL BE LIMITED TO THE AMOUNT BY WHICH SUCH D EBT EXCEEDS THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFU L DEBT ACCOUNT. THE POINT TO BE HIGHLIGHTED IS THAT IN THE CASE OF BANKS, BY WAY OF INCENTIVE, A PROVISION FOR BAD AND DOUBTFUL DEBT IS GIVEN THE BENEFIT OF DEDUCTION, HOWEVE R, SUBJECT TO THE CEILING PRESCRIBED AS STATED ABOVE. LASTLY, THE PROV ISION FOR NPA CREATED BY A SCHEDULED BANK IS ADDED BACK AND ONLY THEREAFTER IS DEDUCTION MADE PERMISSIBLE UNDER SECTION 36(1 )(VIIA) AS CLAIMED. WHETHER PROVISION ON NPA IS ALLOWABLE UNDER SECTION 37(1)? AS STATED ABOVE, SECTIO N 36(1) (VII) AFTER APRIL 1, 1989 DRAWS A DISTINCTION BETWEEN WRITE OFF AND PR OVISION FOR DOUBTFUL DEBT. THE INCOME -TAX ACT DEALS ONLY WITH D OUBTFUL DEBT. IT IS FOR THE ASSESSEE TO ESTABLISH THAT THE PROVISION IS MADE AS THE LOAN IS IRRECOVERABLE. HOWEVER, IN VIEW OF THE EXPLANATION WHICH KEEPS SUCH A PROVISION OUTSIDE THE SCOP E OF WRITTEN OFF BAD DEBT,SECTION 37 CANNOT COME IN. IF AN ITEM FALLS UND ER SECTIONS 30 TO 36, BUT IS EXCLUDED BY THE EXPLANATION TO SECTION 36(1)(VII) THEN SECTION 37 CANNOT COME IN. SECTION 37 APPLIES ONLY TO IT EMS WHICH DO NOT FALL IN SECTIONS 30 TO 36. IF A PROVISION FO R DOUBTFUL DEBT IS EXPRESSLY EXCLUDED FROM SECTION 36(1)(VII) THEN SUCH A PROVISION CANNOT CLAIM 4 ITA NO. 424/KOL/2011 (ASST. YEAR: 2008-09) DEDUCTION UNDER SECTION 37 OF THE INCOME-TAX ACT EVEN ON THE BASIS OF REAL INCOME THEORY AS EXPLAINED ABOVE. 5. WE THEREFORE CONFIRM THE ORDER OF THE CIT (A) SUSTAINING THE DISALLOWANCE OF RS. 3,66,00,000/- FOR PROVISION FO R NON-PERFORMING ASSETS. 6. THE GROUND NO. 2, RELATES TO THE ADDITION OF RS . 4,80,00,000/- IN THE COMPUTATION OF THE BOOK PROFIT U/S 115JB. WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE NOTED AS PER PROVISION OF SECTION 45 IC OF THE RBI ACT 1934 THE ASSESSEE HAS CREATED THIS RESERVE OUT OF THE NET PROFIT OF THE YEAR BEFORE DECLARING ANY DIVIDEND. THE CONTENTION OF THE ASSESSEE THAT THE AMOUNTS SO CREATED IS NOT A RESERVE WHICH CAN BE ADDED UNDER EXPLANATION 1(B) I N THE BOOK PROFIT U/S 115JB(2). IT IS ALSO NOT A PROVISION FOR MEETING UN ASCERTAINED LIABILITIES. IT IS A PROVISION WHICH THE ASSESSEE HAS TO MAKE AS PER THE PROVISION OF RBI ACT. THEREFORE, IT IS A PROVISION WHICH IS STATUTORILY R EQUIRED TO BE MADE. IN OUR OPINION, THE SUBMISSION OF THE ASSESSEE DOES NOT HA VE ANY LEG TO STAND. CLAUSE B OF EXPLANATION 1 TO SECTION 115JB(2) IS EXPLICITLY CLEAR. ACCORDING TO THIS PROVISION, THE AMOUNTS CARRIED TO ANY RESERVES BY W HATEVER NAMED CALLED OTHER THAN A RESERVE SPECIFIED U/S 35AC HAS TO BE ADDED W HILE COMPUTING THE BOOK PROFIT. MERELY THE RESERVE HAS TO BE CREATED UNDER A SEPARATE STATUTE, IT CANNOT BE CONVERTED INTO A PROVISION FOR ASCERTAINED LIABILIT IES. UNDER SUB-CLAUSE C OF EXPLANATION 1 TO SECTION 115JB(2), THE AMOUNT / AMO UNTS SET ASIDE TO PROVISIONS MADE FOR MEETING LIABILITIES, OTHER THAN THE ASCERT AINED LIABILITIES ARE ALSO TO BE ADDED FOR COMPUTING THE BOOK PROFIT. NO DOUBT THE P ROVISIONS MADE FOR ASCERTAINED LIABILITIES HAS NOT TO BE ADDED. THE LD . A.R EVEN THOUGH VEHEMENTLY CONTENDED THAT THE RESERVE HAS TO BE CREATED AS P ER THE PROVISION OF RBI ACT BUT COULD NOT CONVINCE US AGAINST WHAT ASCERTAINED LIABILITY IT HAS BEEN CREATED. THE RESERVE CREATED AS PER THE RBI IN OUR OPINION CANNOT BE CONVERTED INTO A PROVISION UNLESS IT IS PROVED IT IS AGAINST A LIAB ILITY. THE RESERVE IS ALWAYS CREATED IN ORDER TO MEET FUTURE EXIGENCIES. THIS RE SERVE IN OUR OPINION CANNOT BE 5 ITA NO. 424/KOL/2011 (ASST. YEAR: 2008-09) REGARDED TO HAVE BEEN CREATED AGAINST A PARTICULAR LIABILITY. WE THEREFORE DO NOT FIND ANY ILLEGALITY OR INFIRMITY IN THE ORDER OF TH E CIT(A) IN SUSTAINING THE ADDITION U/S 115JB. THUS THIS GROUND STANDS DISMISS ED. 7. THE THIRD GROUND RELATE TO THE SUSTAINANCE OF AD DITION OF RS.16,30,00,000/- WHILE COMPUTING THE BOOK PROFIT U /S 115JB BEING THE AMOUNT TRANSFERRED TO DEBENTURE REDEMPTION RESERVE. THE FA CTS RELATING TO THIS ADDITION ARE THAT THE ASSESSING OFFICER NOTED THAT THE ASSES SEE HAS MADE A PROVISION FOR DEBENTURE REDEMPTION RESERVE FOR RS.16,30,00,000/-. THE ASSESSING OFFICER ADDED THE SAME FOR COMPUTING THE BOOK PROFIT U/S 11 5JB OF THE ACT. WHEN THE MATTER WENT BEFORE THE CIT(A). THE CIT(A) CONFIRMED THE DISALLOWANCE RELYING ON THE DECISION OF D BENCH OF THE KOLKATA BENCH OF THE TRIBUNAL IN ITA NO.1317/KOL/2006 DATED 11.12.2009 FOR ASSESSMENT Y EAR 2009-10. WE HEARD THE RIVAL SUBMISSION AND CAREFULLY CONSIDERED THE S AME WE NOTED THAT THE ASSESSEE HAS CREATED THIS PROVISION FOR MEETING A S PECIFIC LIABILITY ARISING AT THE TIME OF REDEMPTION OF DEBENTURES. THE AMOUNT SO TRA NSFERRED THEREFORE CANNOT BE REGARDED TO BE THE RESERVE OR PROVISION MADE F OR MEETING THE LIABILITIES OTHER THAN ASCERTAIN LIABILITIES. OUR AFORESAID VIEW IS D ULY SUPPORTED BY THE DECISION OF MUMBAI HIGH COURT IN THE CASE OF CIT VS RAYMOND LTD, 21 TAXMANN.COM (MUM).NO CONTRARY DECISION TAKEN BY ANY OTHER HIGH COURT WAS BROUGHT TO OUR KNOWLEDGE BY THE LD. D.R. THE DECISION OF RAYON COR PORATION VS CIT, 227 ITR 764 (SC) RATHER SUPPORT THE CASE OF THE ASSESSEE T HAT IT IS A PROVISION FOR A KNOWN LIABILITY. WE THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND ALLOW THE GROUND NO.3 TAKEN BY THE ASSESSEE. 8. GROUND NO.4 RELATES TO THE PROVISION FOR NPA ADD ED IN THE COMPUTATION OF BOOK PROFIT. THIS ISSUE IN OUR OPINI ON IS TO BE DECIDED IN FAVOUR OF THE REVENUE IN VIEW OF CLAUSE (I) INSERTED TO E XPLANATION 1 TO SECTION 115JB(2) BY THE FINANCE ACT, 2009 W.E.F. 1.4.2001 . THEREFORE, AFTER HEARING THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERING THE SAME THE ADDITION MADE BY THE ASSESSING OFFICER HAS TO BE SUSTAINED. THE PRO VISION FOR NPA ACCOUNT IS 6 ITA NO. 424/KOL/2011 (ASST. YEAR: 2008-09) CREATED FOR DIMINUTION IN THE VALUE OF THE ASSET. THIS FACT CANNOT BE DENIED. THE LD. A.R EVEN THOUGH VEHEMENTLY CONTENDED BUT COULD NOT CONVINCE US HOW THE PROVISION SO MADE DOES NOT REPRESENT DIMINUTION IN THE VALUE OF THE ASSETS. WE THEREFORE, DISMISS THIS GROUND. 9. THE LAST GROUNDS RELATE TO THE LEVY OF THE INTER EST U/S 234B AND 234C OF THE INCOME TAX ACT. AFTER HEARING THE RIVAL SUBMISSIONS, WE NOTED THAT THE BOOK PROFIT WERE TO BE INCREASED IN RESPECT OF THE PROVISION FOR NON- PERFORMING ASSETS AMOUNTING TO RS. 3,66,00,000/- DU E TO THE INSERTION OF CLAUSE(I) IN EXPLANATION 1 TO SECTION 115JB BY THE FINANCE ACT 2009 W.E.F.1.4.2001. THEREFORE IN OUR OPINION WHILE ES TIMATING THE ADVANCE TAX A PRUDENT PERSON WOULD HAVE NOT VISUALIZE OR FORESEE N THAT SUCH AMENDMENT WOULD COME. THE INTEREST U/S 234B AND 234C IS LEVIA BLE EVEN THOUGH AUTOMATIC ONLY WHEN THE LIABILITY TO PAY THE ADVANCE TAX U/S 208, 209 OR 210 ARISE. THIS ADDITION COULD HAVE NOT BEEN SUBJECT TO ADVANCE TAX AT THE TIME WHEN THE LIABILITY TO PAY THE ADVANCE TAX ARISE. THE IMPUGNE D ASSESSMENT YEAR IS ASSESSMENT 2008-09 AND THEREFORE DUE TO THE RETROSP ECTIVE AMENDMENT IN OUR OPINION INTEREST U/S 234B AND 234C CANNOT BE IMPOSE D DUE TO THE NON-ADDITION OF RS. 3,66,00,000/- IN THE BOOK PROFIT OF THE ASS ESSEE WHILE ESTIMATING THE LIABILITY FOR ADVANCE TAX. TO THAT EXTENT, WE SET A SIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER NOT TO INCLUDE PRO VISION FOR NPA FOR THE PURPOSE OF CALCULATION OF THE INTEREST U/S 234B AND 234C. T HUS THIS GROUND IS PARTLY ALLOWED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED. 11. ORDER PRONOUNCED IN PURSUANCE OF RULE 34(4) OF ITAT RULES, 1963 BY PUTTING ON THE NOTICE BOARD OF THE BENCH AT KOL KATA ON 12.09.2014. SD/- (MAHAVIR SINGH) JUDICIAL MEMBER SD/- (P.K. BANSAL) ACCOUNTANT MEMBER DATED : 12.09.2014 7 ITA NO. 424/KOL/2011 (ASST. YEAR: 2008-09) *A* COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT CONCERNED (4) CIT(A) CONCERNED (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER ASSISTANT REGISTRAR ITAT, KOLKATA BENCHES.