ASST CIT 5(3)(2), MUMBAI V. TEKSONS P.LTD, THANE

ITA 4440/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9895 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 27-06-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Keywords: Bad and doubtful debts
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI C NAGENDRA PRASAD, JUDICIAL MEMBER & RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO. 4440/MUM/2016 ASSESSMENT YEAR : 2011-12 ASSISTANT CIT 5(3)(2) MUMBAI VS. M/S TEKSONS PVT LTD., KOLSHET ROAD, P B NO. 20, THANE 400 601 PAN AABCT0522A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M C OMI NINGSHEN (DR) RESPONDENT BY : MS DINKLE HARIYA (AR) DATE OF HEARING : 01 .0 3 .201 8 DATE OF PRONOUNCEMENT : 07 .03. 201 8 O R D E R PER C NAGENDRA PRASAD, JUDICIAL MEMBER THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF THE LEARNED CIT(A)-10, MUMBAI, DATED 16.03.2016, FOR A. Y. 2011-12. THE ONLY GRIEVANCE OF THE REVENUE IN THIS APPEAL IS THAT THE CIT(A) ERRED IN DELETING THE ADDITION MADE TOWARDS PROVISIONS FOR DOUBTFUL D EBTS WHILE COMPUTING THE BOOK PROFITS U/S. 115JB OF THE ACT. 2. BRIEFLY STATED THE FACTS ARE THAT DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE DID NOT ADD BACK PROVISION FOR DOUBTFUL DEBTS AMOUNTING TO ` 58,13,597/- TO THE BOOK PROFIT COMPUTED U/S. 115JB. THE ASSESSING OFFICER REQUIRE D THE ASSESSEE TO EXPLAIN AS TO WHY THE SAME SHOULD NOT BE ADDED BACK TO THE BOOK PROFITS OF THE ASSESSEE. THE ASSESSEE IN ITS REPLY STATED THAT TH E INVESTMENTS IN MUTUAL ITA NO.4440/MUM/2016 M/S.TEKSONS P LTD. 2 FUNDS REFLECTED IN AIR REPORT ARE ALSO REFLECTED IN THE SCHEDULE OF INVESTMENTS IN THE AUDITED BALANCE SHEET. THE ASSESSING OFFICER OBSERVING THAT AS PER CLAUSE (C) OF EXPLANATION TO SECTION 115JB THE AMOU NT OR AMOUNTS SET ASIDE TO PROVISIONS MADE FOR MEETING LIABILITIES, OTHER T HAN ASCERTAINED LIABILITIES, HELD THAT THE PROVISION MADE BY THE ASSESSEE TOWARD S DOUBTFUL DEBTS IS AN UNASCERTAINED LIABILITY AND, THEREFORE, ADDED IT TO THE BOOK PROFITS U/S. 115JB OF THE ACT. 3. ON APPEAL BY THE ASSESSEE, THE LEARNED CIT(A) OB SERVING THAT THE PROVISION FOR DOUBTFUL DEBTS WILL NOT FALL UNDER UN ASCERTAINED LIABILITY UNDER CLAUSE (C) TO EXPLANATION 1 TO SECTION 115JB, DELET ED THE ADDITION MADE BY THE ASSESSING OFFICER. 4. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE P LACING RELIANCE ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CAS E OF CIT VS. YOKOGAWA INDIA LTD. 17 TAXMANN.COM 15 AND THAT OF HONBLE GU JARAT HIGH COURT IN THE CASE OF CIT VS. VODAFORE ESSAR GUJARAT LTD. 397 I TR 55 SUBMITTED THAT WHEN THE ASSESSEE REDUCES THE AMOUNT OF PROVISION MADE F OR DOUBTFUL DEBTS FROM THE DEBTORS ACCOUNT, IT AMOUNTS TO ACTUAL WRITE OFF AND IN SUCH CIRCUMSTANCES, IT IS NOT MERE PROVISION FOR BAD DEBTS AND THEREFOR E, IT SHOULD NOT BE TREATED AS PROVISION FOR DOUBTFUL DEBTS FALLING UNCDER CLAU SE (C) OF EXPLANATION TO SECTION 115JB OF THE ACT. THE LEARNED COUNSEL FURT HER FURNISHED COPY OF BALANCE SHEET AS AT 31.03.2011 AND REFERRING TO SCH EDULE 8 OF SUNDRY DEBTORS SUBMITTED THAT PROVISION FOR DOUBTFUL DEBTS HAVE BEEN REDUCED FROM THE SUNDRY DEBTORS ACCOUNT. 5. THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAS N OT PROVIDED ANY DETAILS BEFORE THE ASSESSING OFFICER TO SHOW THAT T HE PROVISIONS MADE FOR DOUBTFUL DEBTS HAVE BEEN REDUCED FROM THE DEBTORS A CCOUNT. THEREFORE, HE ITA NO.4440/MUM/2016 M/S.TEKSONS P LTD. 3 SUBMITTED THAT THE MATER MAY BE RESTORED TO THE ASS ESSING OFFICER FOR EXAMINING AFRESH. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS ALSO THE DECISIONS RELIED ON. THE ASSESSING OFFICER IN THIS CASE WHILE COMPLETING THE ASSESSMENT NOTICED THAT T HE ASSESSEE DID NOT ADD BACK PROVISION FOR DOUBTFUL DEBTS TO THE BOOK PROFI T COMPUTED U/S. 115JB AND, SINCE, THE PROVISION MADE BY THE ASSESSEE ACCORDING TO THE ASSESSING OFFICER FALLS WITHIN CLAUSE (C) OF EXPLANATION1 TO SECTION 115JB I.E. THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MADE FOR MEETING LI ABILITIES, OTHER THAN ASCERTAINED LIABILITIES, HE WAS OF THE VIEW THAT TH E PROVISION MADE FOR BAD AND DOUBTFUL DEBTS SHOULD BE ADDED BACK WHILE COMPUTING THE BOOK PROFITS U/S. 115JB. HOWEVER, THE LEARNED CIT(A) HELD THAT SUB C LAUSE (C) OF SECTION 115JB HAS NOT APPLICATION FOR PROVISION OF BAD AND DOUBTFUL DEBTS. IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD. (SUPRA), THE HO NBLE KARNATAKA HIGH COURT CONSIDERED WHETHER THE PROVISION MADE FOR BAD AND DOUBTFUL DEBTS CAN BE ADDED BACK WHILE COMPUTING BOOK PROFITS IN ACCOR DANCE WITH CLAUSE (C) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT AS UNASCE RTAINED LIABILITIES. THE HONBLE HIGH COURT AFTER CONSIDERING THE DECISION O F HONBLE APEX COURT IN THE CASE OF VIJAYA BANK 323 ITR 166 HELD THAT IF THE BA D DEBT OR THE DOUBTFUL DEBT IS REDUCED FROM THE LOANS AND ADVANCES OR DEBT S FROM THE ASSET SIDE OF THE BALANCE SHEET, THE EXPLANATION TO SECTION 115JA OR JB IS NOT AT ALL ATTRACTED. THE RELEVANT PORTION IS AS UNDER: 8. IN THE PRESENT CASE, THE DEBT IS AN AMOUNT RECE IVABLE BY THE ASSESSEE AND NOT ANY LIABILITY PAYABLE BY THE ASSES SEE AND, THEREFORE, ANY PROVISION MADE TOWARDS IRRECOVERABIL ITY OF THE DEBT CANNOT BE SAID TO BE A PROVISION FOR LIABILITY. THE REFORE IT WAS HELD THAT ITEM (C) OF THE EXPLANATION IS NOT ATTRACTED T O THE FACTS OF THE CASE. ITEM (C) IN SECTION 115JA AND 115-JB(1) ARE I DENTICAL. IN ORDER TO ATTRACT THE EXPLANATION THE DEBT WHICH IS DOUBTFUL OR BAD SHOULD SATISFY THE REQUIREMENT CONTEMPLATED IN ITEM (C) OF THE ITA NO.4440/MUM/2016 M/S.TEKSONS P LTD. 4 EXPLANATION. IT IS THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISIONS MADE FOR MEETING THE LIABILITY OTHER THAN THE ASCER TAINED LIABILITIES. IN THE INSTANT CASE ALSO THE BAD AND DOUBTFUL DEBT FOR WHICH A PROVISION IS MADE WHICH IS IN THE NATURE OF DIMINUT ION IN THE VALUE OF ANY ASSET WOULD NOT FALL WITHIN ITEM (C) OF EXPL ANATION (I). IT IS IN THAT CONTEXT THE APPELLATE COMMISSIONER AS WELL AS THE TRIBUNAL HAS GRANTED RELIEF TO THE ASSESSEE. REALISING THE FATAL ITY OF THE SAID ARGUMENT, IT IS CONTENDED NOW THAT ITEM (I) CANNOT AMOUNT TO SATISFACTION AS PROVISION FOR DIMINISHING IN THE VA LUE OF ASSETS IS SUBSTITUTED, IN CASE OF THE ASSESSEE FALLS UNDER IT EM (C). IN MEETING THE AFORESAID CASE, THE LEARNED COUNSEL FOR THE ASS ESSEE BROUGHT TO OUR NOTICE THE JUDGMENT OF THE APEX COURT IN THE CA SE OF VIJAYA BANK ( SUPRA) WHERE THE APEX COURT HAD AN OCCASION TO CONSIDER HIS EXPLANATION. IT ACCEPTED THE ARGUMENT ON BEHALF OF THE REVENUE TO THE EFFECT THAT THE EXPLANATION MAKES IT VERY CLEAR THAT THERE IS A DICHOTOMY BETWEEN ACTUAL WRITE OFF ON THE ONE HAND AND PROVISION FOR BAD AND DOUBTFUL DEBT ON THE OTHER. A MERE DEBI T TO THE PROFIT AND LOSS ACCOUNT WOULD CONSTITUTE A BAD AND DOUBTFU L DEBT, BUT IT WOULD NOT CONSTITUTE ACTUAL WRITE OFF AND THAT WAS THE VERY REASON WHY THE EXPLANATION STOOD INSERTED. PRIOR TO THE FI NANCE ACT, 2001 MANY ASSESSEES USED TO TAKE THE BENEFIT OF DEDUCTIO N UNDER SECTION 36(L)(VII) OF THE 1961 ACT BY MERELY DEBITING THE I MPUGNED BAD DEBT TO THE PROFIT AND LOSS ACCOUNT AND, THEREFORE, THE PARLIAMENT STEPPED IN BY WAY OF EXPLANATION TO SAY THAT A MERE REDUCTION OF PROFITS BY DEBITING THE AMOUNT TO THE PROFIT AND LO SS ACCOUNT PER SE WOULD NOT CONSTITUTE ACTUAL WRITE OFF. THE APEX COU RT ACCEPTED THE SAID LEGAL POSITION. HOWEVER IT WAS CLARIFIED THAT BESIDES DEBITING THE PROFIT AND LOSS ACCOUNT AND CREATING A PROVISIO N FOR BAD AND DOUBTFUL DEBT, THE ASSESSEE CORRESPONDINGLY/SIMULTA NEOUSLY OBLITERATED THE SAID PROVISION FROM ITS ACCOUNTS BY REDUCING THE CORRESPONDING AMOUNT FROM LOANS AND ADVANCES/DEBTOR S ON THE ASSETS SIDE OF THE BALANCE SHEET AND, CONSEQUENTIAL LY, AT THE END OF THE YEAR, THE FIGURE IN THE LOANS AND ADVANCES OR T HE DEBTORS ON THE ASSETS SIDE OF THE BALANCE SHEET WAS SHOWN AS NET O F THE PROVISION FOR THE IMPUGNED BAD DEBT.' THEN THE SAID AMOUNT RE PRESENTING BAD DEBT OR DOUBTFUL DEBT CANNOT BE ADDED IN ORDER TO COMPUTE BOOK PROFIT. THEREFORE, AFTER THE EXPLANATION THE A SSESSEE IS NOW REQUIRED NOT ONLY TO DEBIT THE PROFIT AND LOSS ACCO UNT BUT SIMULTANEOUSLY ALSO REDUCE THE LOANS AND ADVANCES O R THE DEBTORS FROM THE ASSETS SIDE OF THE BALANCE SHEET TO THE EX TENT OF THE CORRESPONDING AMOUNT SO THAT, AT THE END OF THE YEA R, THE AMOUNT OF LOANS AND ADVANCES/DEBTORS IS SHOWN AS NET OF TH E PROVISIONS FOR ITA NO.4440/MUM/2016 M/S.TEKSONS P LTD. 5 THE IMPUGNED BAD DEBT. THEREFORE, IN THE FIRST PLAC E IF THE BAD DEBT OR DOUBTFUL DEBT IS REDUCED FROM THE LOANS AND ADVA NCES OR THE DEBTORS FROM THE ASSETS SIDE OF THE BALANCE SHEET T HE EXPLANATION TO SECTION 115JA OR JB IS NOT AT ALL ATTRACTED. IN THAT CONTEXT EVEN IF AMENDMENT WHICH IS MADE RETROSPECTIVE THE BENEFIT G IVEN BY THE TRIBUNAL AND THE APPELLATE COMMISSIONER TO THE ASSE SSEE IS IN NO WAY AFFECTED. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY MERIT IN THIS APPEAL 7. SIMILAR VIEW HAS BEEN TAKEN BY HONBLE GUJARAT H IGH COURT IN THE CASE OF CIT VS. VODAFORE ESSAR GUJARAT LTD. (SUPRA), WHE REIN IT HAS OBSERVED AS UNDER: 23. BY WAY OF CULMINATION OF ABOVE JUDICIAL PRONOUN CEMENTS AND STATUTORY PROVISIONS, THE SITUATION THAT ARISES IS THAT PRIOR TO THE INTRODUCTION OF CLAUSE(I) TO THE EXPLANATION TO SEC TION 115JB, AS HELD BY THE SUPREME COURT IN CASE OF HCL COMNET SYSTEMS & SERVICES LTD. (SUPRA), THE THEN EXISTING CLAUSE (C) DID NOT COVER A CASE WHERE THE ASSESSEE MADE A PROVISION FOR BAD OR DOUBTFUL D EBT. WITH INSERTION OF CLAUSE (I) TO THE EXPLANATION WITH RET ROSPECTIVE EFFECT, ANY AMOUNT OR AMOUNTS SET ASIDE FOR PROVISION FOR D IMINUTION, IN THE VALUE OF THE ASSET MADE BY THE ASSESSEE, WOULD BE ADDED BACK FOR COMPUTATION OF BOOK PROFIT UNDER/ SECTION 115JB OF THE ACT. HOWEVER, IF THIS WAS NOT A MERE PROVISION MADE BY T HE ASSESSEE BY MERELY DEBITING THE PROFIT AND LOSS ACCOUNT AND CRE DITING THE PROVISION FOR BAD AND DOUBTFUL DEBT, BUT BY SIMULTA NEOUSLY OBLITERATING SUCH PROVISION FROM ITS ACCOUNTS BY RE DUCING THE CORRESPONDING AMOUNT FROM THE LOANS AND ADVANCES ON THE ASSET SIDE OF THE BALANCE SHEET AND CONSEQUENTLY, AT THE END OF THE YEAR SHOWING THE LOANS AND ADVANCES ON THE ASSET ASIDE O F THE BALANCE SHEET AS NET OF THE PROVISION FOR BAD DEBT IT WOULD AMOUNT TO A WRITE OFF AND SUCH ACTUAL WRITE OFF WOULD NOT BE HI T BY CLAUSE (1) OF THE EXPLANATION TO SECTION 115JB. THE JUDGMENT IN C ASE OF DEEPAK NITRITE LTD. (SUPRA) FELL IN THE FORMER CATEGORY WH EREAS FROM THE BRIEF DISCUSSION AVAILABLE IN THE JUDGMENT IT APPEA RS THAT CASE OF INDIAN PETROCHEMICALS CORPN. LTD. (SUPRA), FELL IN THE LATER CATEGORY. ITA NO.4440/MUM/2016 M/S.TEKSONS P LTD. 6 8. RESPECTFULLY FOLLOWING THE SAID DECISIONS, WE HO LD THAT IF THE PROVISIONS FOR BAD AND DOUBTFUL DEBTS IS REDUCED FROM THE LOAN S AND ADVANCES OR THE DEBTORS ACCOUNT, IT AMOUNTS TO ACTUAL WRITE OFF AND THE PROVISIONS OF CLAUSE (C) OF EXPLANATION 1 TO SECTION 115JB HAVE NO APPLI CATION. HOWEVER, THIS ASPECT OF THE MATTER HAS TO BE EXAMINED BY THE LEAR NED ASSESSING OFFICER. UNDER THESE CIRCUMSTANCES, WE SET ASIDE THE ISSUE T O THE ASSESSING OFFICER FOR VERIFICATION OF THIS FACT AND ALLOW THE CLAIM ACCOR DINGLY. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH DAY OF MARCH, 2018. SD/- SD/- (RAJESH KUMAR) ( C NAGENDRA PRASAD) ACCOUNTANT MEMBER JU DICIAL MEMBER MUMBAI; DATED: 7 TH MARCH, 2018 SA COPY OF THE ORDER FORWARDED TO : 1. THE APP ELL ANT. 2. THE RESPONDENT. 3. T HE CIT(A), MUMBAI 4. THE CIT 5. DR, H BENCH, ITAT, MUMBAI BY ORDER, #TRUE COPY # ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI