Ashley Holdings Limited, CHENNAI V. DCIT, CHENNAI

ITA 432/CHNY/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6163 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 22-05-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 29-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRAMOD NANGIA IRS
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Reopening of assessment; Rectification of order; Retrospective amendment; Bad and doubtful debts
• Section: 143(3); 234B; 14A; 115JB; 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , ! '# $% , & #'$ #( BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENTAND SHRI VIKAS AWASTHY, JUDICIAL MEMBER # ./ ITA NO. 432/MDS/2012 & ) *) / ASSESSMENT YEAR : 2007-08 M/S ASHOK LEYLAND LIMITED (FORMERLY KNOWN AS ASHLEY SERVICES LIMITED), 1, SARDAR PATEL ROAD, GUINDY, CHENNAI - 600 032. PAN : AAACA 9326 J V. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1), CHENNAI - 600 034. (%,/ APPELLANT) (./%,/ RESPONDENT) %, 0 # / APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE ./%, 0 # / RESPONDENT BY : SHRI PRAMOD NANGIA, IRS, CIT # 1 0 23 / DATE OF HEARING : 22 ND MAY, 2014 45* 0 23 / DATE OF PRONOUNCEMENT : 22 ND MAY, 2014 / O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2007-08. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I II AT CHENNAI, PASSED ON 15.12.2011. THE APPEAL ARISES OUT OF THE ASSESSMENT 2 I.T.A. NO. 432/MDS/12 COMPLETED UNDER SECTION 143(3) READ WITH SECTION 14 7 OF THE INCOME-TAX ACT, 1961. 2. THIS APPEAL WAS EARLIER HEARD AND DISPOSED OF BY THE TRIBUNAL THROUGH ITS ORDER DATED 19 TH JULY, 2012. THE APPEAL WAS HEARD ALONG WITH TWO OTHER APPEALS IN I.T.A. NO. 43 0(MDS)/2012 AND I.T.A. NO. 431(MDS)/2012. THOSE TWO APPEALS RELATE D TO THE ASSESSMENT YEAR 2003-04. THE APPEAL IN I.T.A. NO. 430/MDS/2012 WAS FILED BY M/S ASHLEY INVESTMENTS LTD. AND THE AP PEAL IN I.T.A. NO. 431/MDS/2012 WAS FILED BY THE ASSESSEE. ALL TH E THREE APPEALS WERE DISPOSED OF THROUGH A COMMON ORDER DATED 19 TH JULY, 2012. 3. IN ALL THE THREE APPEALS, COMMON GROUND RAISED B Y THE ASSESSEE WAS AGAINST THE REOPENING OF ASSESSMENTS U NDER SECTION 147. THE TRIBUNAL HELD IN THE TWO APPEALS FILED FO R THE ASSESSMENT YEAR 2003-04 THAT THE REASSESSMENT WAS BAD IN LAW. ACCORDINGLY, THE INCOME ESCAPING ASSESSMENTS WERE SET ASIDE IN T HOSE TWO CASES. 4. BUT, AS FAR AS THE IMPUGNED APPEAL WAS CONCERNED , THE TRIBUNAL HELD THAT THE REOPENING WAS JUSTIFIED AND THEREFORE, THE INCOME ESCAPING ASSESSMENT PASSED BY THE ASSESSING OFFICER IS SUSTAINABLE IN LAW. ACCORDINGLY, THE SAID GROUND W AS DISMISSED IN THE CASE OF THE IMPUGNED APPEAL. 3 I.T.A. NO. 432/MDS/12 5. BUT, WHILE DISMISSING THE GROUND RELATING TO THE REOPENING OF ASSESSMENT, THE TRIBUNAL DID NOT CONSIDER THE REMAI NING GROUNDS RAISED BY THE ASSESSEE. THOSE GROUNDS WERE RAISED ON MERITS OF THE ISSUE. THE FIRST SUCH ISSUE WAS THAT THE COMMI SSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NOT ALLOWING THE DEDUCTION OF PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT FOR THE ASSESSMENT YEAR 2008-09 AND HAS NOT BEEN DEDUCTED FROM THE PRO FITS ARRIVED AT UNDER SECTION 115JB. THE SECOND ISSUE WAS REGARDIN G DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 14A AND THE THIRD ISSUE RELATED TO THE LEVY OF INTEREST UND ER SECTIONS 234B AND 234C OF THE INCOME-TAX ACT, 1961. 6. IN THE LIGHT OF THE ABOVE, THE ASSESSEE FILED A MISCELLANEOUS PETITION PRAYING FOR RECTIFICATION OF MISTAKE COMMI TTED BY THE TRIBUNAL IN NOT CONSIDERING AND ADJUDICATING THE PO INTS RAISED BY THE ASSESSEE ON MERITS. THE SAID MISCELLANEOUS PETITIO N NO.227/MDS/2012 WAS ALLOWED BY THE TRIBUNAL THROUGH ITS ORDER PASSED ON 1 ST FEBRUARY, 2013. WE FOUND THAT WE DISMISSED THE APPEAL OF THE ASSESSEE ON THE GROUND OF JURISDICTIO N BUT FAILED TO ADJUDICATE OTHER GROUNDS RAISED IN THE APPEAL. ACC ORDINGLY, WE RECALLED THE ORDER PASSED IN I.T.A. NO. 432/MDS/201 2 DATED 19 TH JULY, 2012 TO HEAR AND DISPOSE OF THE APPEAL ON MER ITS. IT IS THUS 4 I.T.A. NO. 432/MDS/12 THIS APPEAL HAS COME UP FOR HEARING BEFORE THIS BEN CH FOR THE SECOND TIME. 7. THE FIRST ISSUE RAISED BY THE ASSESSEE IS REGARD ING THE DEDUCTION OF PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENT WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB. THI S DEDUCTION MADE BY THE ASSESSEE WAS SUPPORTED BY THE JUDGMENT OF THE HONBLE SUPREME COURT RENDERED IN THE CASE OF CIT V . HCL COMNET SYSTEMS AND SERVICES LTD. (305 ITR 409). IN THE SA ID JUDGMENT, THE HONBLE SUPREME COURT HAS HELD THAT PROVISION MADE BY AN ASSESSEE FOR BAD AND DOUBTFUL DEBTS CANNOT BE ADDED BACK FOR THE PURPOSE OF SECTION 115JA. BUT, THE ASSESSING OFFIC ER HELD THAT THE FINANCE ACT, 2009 HAS AMENDED THE PROVISIONS OF REL EVANT SECTION 115JB WITH RETROSPECTIVE EFFECT FROM 1.4.2001 BY IN CLUDING CLAUSE (I) TO EXPLANATION 1 OF THE SAID SECTION. BY VIRTUE OF WHICH, ANY AMOUNT SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ASSET IS TO BE ADDED BACK TO THE BOOK PROFITS. THUS HE HAS ADDED BACK THE SAID AMOUNT TO THE BOOK PROFIT. 8. THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE F IRST OF ALL CONTENDED THAT THE AMENDMENT BROUGHT IN SUBSTANTIVE PROVISION OF LAW CAN BE ONLY PERSPECTIVE AND NOT RETROSPECTIVE A ND THEREFORE, THE ASSESSING OFFICER HAS ERRED IN RELYING ON THE RETRO SPECTIVE 5 I.T.A. NO. 432/MDS/12 AMENDMENT TO ADD BACK THE PROVISION FOR DIMINUTION IN THE VALUE OF THE ASSET FOR THE PURPOSE OF COMPUTING THE BOOK PRO FITS UNDER SECTION 115JB. THE LEARNED COUNSEL FURTHER EXPLAIN ED THAT THE ASSESSEE HAS NOT CREATED ANY PROVISION FOR DIMINUTI ON IN THE VALUE OF THE ASSET AND AS SUCH, THE ASSESSEE HAS NOT CLAI MED DEDUCTION OF ANY SUCH PROVISION FOR COMPUTING THE BOOK PROFIT UNDER SECTION 115JB. IT IS THE CASE OF THE LEARNED COUNSEL THAT THE ASSESSEE HAS REDUCED THE DIMINUTION IN THE VALUE OF THE ASSET FR OM THE VALUE OF THE CURRENT ASSETS AND THIS CANNOT BE TREATED AS A PROVISION AND THEREFORE, ON MERITS, THE DEDUCTION NEEDS TO BE ALL OWED. HE HAS PLACED RELIANCE ON CERTAIN JUDGMENTS OF THE COURTS. 9. WE CONSIDERED THIS ISSUE IN DETAIL. WE FIND THA T THE AMENDMENT BROUGHT IN BY FINANCE ACT, 2009 CANNOT BE HELD TO BE PROSPECTIVE AS THE ACT HAS MADE IT CLEAR THAT THE A MENDMENT IS TO TAKE RETROSPECTIVE EFFECT FROM 1 ST APRIL, 2001. IT IS SEEN IN THE ASSESSMENT ORDER THAT IN FACT THE ASSESSEE HAS NOT OBJECTED TO THE ACTION OF THE ASSESSING OFFICER ADDING BACK THIS AM OUNT TO THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB. 10. HOWEVER, WE ARE CONSIDERING THE ISSUE ON ITS ME RIT. THE CONTENTION OF THE ASSESSEE IS THAT THE DIMINUTION IN THE VALUE OF THE ASSET HAS BEEN REDUCED BY THE ASSESSEE FROM THE CU RRENT ASSETS 6 I.T.A. NO. 432/MDS/12 VALUE AND IT HAS NOT CREATED ANY SEPARATE PROVISION IN RESPECT OF DIMINUTION IN THE VALUE OF ASSET. IN OUR OPINION, THIS DOES NOT MAKE ANY CHANGE. THE CRUX OF THE ISSUE IS THAT THE DIMI NUTION IN THE VALUE OF ASSETS IS NOT AN ADMISSIBLE EXPENDITURE FOR COMP UTING THE INCOME OF THE ASSESSEE WHEN THE ASSETS ARE HELD AS INVESTM ENTS. THE QUESTION OF DIMINUTION IN THE VALUE ARISES ONLY IN THE CASE OF ASSETS HELD BY AN ASSESSEE IN THE FORM OF STOCK-IN-TRADE. IN THE PRESENT CASE, THE ASSESSEE HAS HELD THE ASSETS AS INVESTMEN TS. WHETHER THE ASSESSEE CLAIMS THE DIMINUTION IN THE VALUE IN A SEPARATE PROVISION MADE FOR THAT PURPOSE OR THE ASSESSEE RED UCES THE DIMINUTION IN VALUE FROM THE CURRENT ASSETS VALUE, THE INCOME EFFECT IS THE SAME. DIFFERENCE IS ONLY IN THE FORMAT. IN THE CASE OF PROVISION MADE FOR DIMINUTION IN THE VALUE OF ASSET S, THE LIABILITY SIDE OF THE BALANCE SHEET WILL BE INCREASED AND CORRESPO NDINGLY THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE SHALL BE DEBI TED TO THAT EXTENT THEREBY RESULTING IN REDUCING THE PROFIT OR INCREAS ING THE LOSS OF THE ASSESSEE. IN A CASE WHERE THE ASSESSEE IS REDUCING THE DIMINUTION IN THE VALUE FROM THE CURRENT ASSETS VALUE OF THE COMPANY, THEN ALSO CREDIT ENTRIES ARE PASSED IN THE ACCOUNT OF TH E CURRENT ASSETS TO REDUCE THE VALUE AND THERE ALSO THE CORRESPONDING D EBIT IS MADE TO THE PROFIT & LOSS ACCOUNT THEREBY REDUCING THE PROF IT OR INCREASE THE LOSS OF THE COMPANY. WHETHER IT IS SHOWN AS A SEPA RATE PROVISION 7 I.T.A. NO. 432/MDS/12 OR IT IS REDUCED FROM THE CURRENT ASSETS VALUE, TH E CORRESPONDING AND CONSEQUENTIAL EFFECT IS TO REDUCE THE PROFIT OF THE ASSESSEE OR INCREASE THE LOSS OF THE ASSESSEE BY DEBITING TO PR OFIT & LOSS ACCOUNT. AS FAR AS THE CREDIT ENTRY IS CONCERNED, IT CAN EITHER BE SHOWN AS A SEPARATE PROVISION ON THE LIABILITY SIDE OF THE BALANCE SHEET OR REDUCE FROM THE CURRENT ASSETS VALUE SHOW N IN THE ASSET SIDE OF THE BALANCE SHEET. THIS IS ONLY AN ACCOUNT ING FORMAT. IT DOES NOT CHANGE THE CHARACTER OF THE AMOUNT SOUGHT TO BE DEDUCTED BY THE ASSESSEE. IT DOES NOT AFFECT THE ACCOUNTING /FINANCIAL RESULT. IT ALWAYS AFFECTS THE INCOME OR LOSS ASPECT OF THE ASSESSEE. 11. THEREFORE, ONLY FOR THE REASON THAT THE ASSESSE E HAS NOT CREATED A SEPARATE PROVISION, BUT ONLY REDUCED THE DIMINUTION IN THE VALUE OF INVESTMENT FROM THE CURRENT ASSETS VALUE, DOES NOT MAKE ANY DIFFERENCE AND THE ADJUSTMENT MADE BY THE ASSES SEE IS EQUALLY COVERED BY THE RETROSPECTIVE AMENDMENT BROUGHT IN B Y THE FINANCE ACT, 2009. 12. THEREFORE, THE COMMISSIONER OF INCOME TAX (APPE ALS) IS JUSTIFIED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER FOR ADDING BACK THE DIMINUTION IN THE VALUE OF INVESTMENT TO T HE BOOK PROFIT OF THE ASSESSEE FOR THE PURPOSE OF SECTION 115JB. 8 I.T.A. NO. 432/MDS/12 13. THE SECOND ISSUE ON MERIT RAISED BY THE ASSESSE E IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFI ED IN DISALLOWING INTEREST EXPENDITURE AND OPERATING EXPENDITURE UNDE R SECTION 14A OF THE INCOME-TAX ACT, 1961. THESE GROUNDS ARE DIS MISSED AS NOT PRESSED. 14. THE THIRD ISSUE RAISED BY THE ASSESSEE ON MERIT IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN C ONFIRMING THE LEVY OF INTEREST UNDER SECTIONS 234B AND 234C, WHIC H WERE WORKED OUT ON THE BASIS OF THE TAX DETERMINED IN THE INCOM E ESCAPING ASSESSMENT. WE ARE INCLINED TO ALLOW THIS GROUND R AISED BY THE ASSESSEE. THE HONBLE MADRAS HIGH COURT IN THE CAS E OF CIT V. REVATHI EQUIPMENT LTD. (298 ITR 67) HAS HELD THAT W HEN AN ASSESSEE COULD NOT HAVE FORESEEN LIABILITY CAUSED O N ACCOUNT OF A SUBSEQUENT LEGISLATIVE AMENDMENT, THE ASSESSEE CANN OT BE LIABLE FOR INTEREST ON THE DIFFERENTIAL AMOUNT OF TAX IN T HE REASON THAT THE ASSESSEE COULD NOT HAVE PAID THE DIFFERENTIAL AMOUN T OF TAX FOR THE RELEVANT PREVIOUS YEAR. HERE ALSO, THE INCOME ESCA PING ASSESSMENT WAS PASSED BECAUSE OF THE RETROSPECTIVE AMENDMENT BROUGHT IN BY FINANCE ACT, 2009. THE ADDITIONAL LI ABILITY HAS BEEN GENERATED ONLY IN THE ASSESSMENT. IT WAS NOT POSSI BLE FOR THE ASSESSEE TO FORESEE THE RETROSPECTIVE AMENDMENT. S O, IT WAS NOT 9 I.T.A. NO. 432/MDS/12 POSSIBLE FOR THE ASSESSEE TO PAY ADVANCE TAX FOR TH E RELEVANT PREVIOUS YEAR AGAINST THE DIFFERENTIAL DEMAND OF TA X THAT WOULD ARISE IN FUTURE. THEREFORE, WE DELETE THE LIABILITY OF I NTEREST MADE UNDER SECTION 234B AND 234C OF THE INCOME-TAX ACT, 1961. 15. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE . 16. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THURSDAY, T HE 22 ND OF MAY, 2014 AT CHENNAI. SD/- SD/- ( '# $% ) ( ... ) (VIKAS AWASTHY) (DR. O.K. NARAYANAN) & #'$ /JUDICIAL MEMBER /VICE-PRESIDENT /CHENNAI, H' /DATED, THE 22ND MAY, 2014. KRI. 'I 0 .&2J' K'*2 /COPY TO: 1. %, /APPELLANT 2. ./%, /RESPONDENT 3. 1 L2 () /CIT(A)-III, CHENNAI 4. 1 L2 /CIT, CHENNAI-I, CHENNAI 5. 'MN .&2& /DR 6. N) O /GF.