M/s Mangal Tirth Estates Ltd., CHENNAI V. ACIT, CHENNAI

ITA 457/CHNY/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51779 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 03-08-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 06-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR I VIJAYAKUMAR
• Assessee Lawyers: M VISWANATHAN
• Keywords: Bad and doubtful debts
• Section: 143(3); 115JB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI (BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER) .. I.T.A. NO. 457/MDS/2009 ASSESSMENT YEAR : 2003-04 M/S MANGAL TIRTH ESTATES LTD., SPENCER PLAZA, 769, ANNA SALAI, CHENNAI 600 002. PAN : AAACM4614R (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(1), CHENNAI 600 034. (RESPONDENT) APPELLANT BY : SHRI M. VISWANATHAN RESPONDENT BY : DR. I. VI JAYAKUMAR, CIT-DR O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER : THIS APPEAL IS FILED BY ASSESSEE FOR THE ASSESSME NT YEAR 2003- 2004 AGAINST AN ORDER DATED 20.02.2008 OF COMMISSIO NER OF INCOME TAX, CHENNAI-III, CHENNAI. I.T.A. NO. 457/MDS/09 2 2. THE SOLE GROUND OF APPEAL TAKEN BY THE ASSESSEE IN THIS APPEAL IS THAT THE LD. CIT-III HAS ERRONEOUSLY REOPENED TH E ASSESSMENT U/S 263 OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE LD. CIT OBS ERVED THAT THE ASSESSEE HAD DEBITED A SUM OF RS. 1,85,85,216/- IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING 31.3.2003 UNDER TH E HEAD PROVISIONS FOR DOUBTFUL DEBTS [SCHEDULE XI] ADMI NISTRATION OVERHEADS. THE REGULAR ASSESSMENT FOR ASSESSMENT YEAR 2003-04 WAS COMPLETED BY THE ASSESSING OFFICER ON 31.3.2006 U/S 143(3) OF THE ACT. THE LOSS COMPUTED IN THIS ORDER UNDER NOR MAL PROVISIONS OF THE ACT WAS RS. 889.62 LAKHS AND COMPUTATION OF MA T U/S 115JB OF THE ACT WAS MADE ON BOOK PROFIT OF RS. 973.63 LAKH S WHICH WAS SAME AS NET PROFIT DISCLOSED IN THE PROFIT AND LOSS ACCOUNT. THE LD. CIT OBSERVED FROM THE RECORDS THAT THE DEBIT OF RS. 185.85 LAKHS TOWARDS PROVISION FOR DOUBTFUL DEBTS WAS OMITTED TO BE ADDED BACK TO THE BOOK PROFIT WHILE COMPUTING TAX U/S 115JB OF THE ACT. ACCORDING TO THE LD. CIT, THE PROVISIONS MADE IN TH E ACCOUNTS WERE ONLY AN AMOUNT SET ASIDE TO A PROVISION FOR MEETING THE LIABILITIES I.T.A. NO. 457/MDS/09 3 OTHER THAN ASCERTAINED LIABILITY. HE ALSO OBSERVED THAT HIS VIEW WAS SUPPORTED BY THE DECISION OF THE HON'BLE JURISDICTI ONAL HIGH COURT IN THE CASE OF DCIT VS. BEARDSELL LTD REPORTED IN 244 ITR 256. HENCE IT WAS HELD BY THE LD. CIT THAT THE OMISSION TO ADD BA CK TO THE ABOVE PROVISION TO THE BOOK PROFIT U/S 115JB OF THE ACT R ESULTED IN UNDER ASSESSMENT AND CONSEQUENT UNDER CHARGE OF TAX. 4. AS THE ASSESSING OFFICER HAD NOT CONSIDERED THE ABOVE ASPECT WHILE COMPLETING ASSESSMENT, THE ORDER OF ASSESSMEN T DATED 31.3.2006 WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDI CIAL TO THE INTEREST OF THE REVENUE. THEREFORE, THE SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE CALLING FOR ITS OBJECTION ON THE DIRECTION U/S 263 OF THE ACT SHOULD NOT BE ISSUED TO THE ASSESSIN G OFFICER TO REVISE THE ASSESSMENT ACCORDINGLY. 5. THE ASSESSEE, IN RESPONSE TO SHOW CAUSE NOTICE F ILED WRITTEN SUBMISSIONS WHEREIN IT WAS STATED THAT PROVISIONS M ADE FOR ASCERTAINED DEBITS ARE DIFFERENT FROM OTHER THAN AS CERTAINED LIABILITIES. IN OTHER WORDS, UNASCERTAINED LIABILI TIES ARE CONTINGENT I.T.A. NO. 457/MDS/09 4 LIABILITIES. IT POINTED OUT THAT ASSESSEE HAD MADE PROVISION FOR ASCERTAINED DEBTS ONLY AND THEREFORE, THERE WAS NO REVISION FOR MAT CALCULATIONS. THE DECISION IN THE CASE OF DCIT VS. BEARDSELL [SUPRA] HAD NO RELEVANCE TO THE ASSESSEES CASE. IT WAS FI NALLY SUBMITTED THAT AS THERE WAS NO MISTAKE IN THE ORDER PASSED BY THE ASSESSING OFFICER WHICH WAS NOT PREJUDICIAL TO THE INTEREST O F THE REVENUE, THE PROCEEDINGS MAY BE DROPPED. 6. THE LD. CIT, AFTER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE, HELD THAT THE HON'BLE MADRAS HIGH COURT IN THE CASE OF DCIT VS. BEARDSELL [SUPRA] HAS HELD THAT IF THE PROVISION WA S MADE FOR UNASCERTAINED LOANS, ASSESSEE WAS NOT ENTITLED TO A NY RELIEF CLAIMED BY HIM AND IF RESERVES HAVE BEEN MADE WITH REGARD T O ASCERTAINED LIABILITIES, SUCH RESERVES CAN BE EXCLUDED FROM BOO K PROFIT. IN THIS CASE, PROVISION MADE TO THE EXTENT OF RS. 46,64,75 0/- TOWARDS THE ALLEGED IRRECOVERABLE DEBT WAS NOT A ASCERTAINED ON E CANNOT BE EXCLUDED FROM BOOK PROFIT AS RIGHTLY DECIDED BY THE ASSESSING OFFICER AS WELL AS THE LD. CIT(A). THE LD. CIT(A) OBSERVED THAT THIS DECISION OF THE HON'BLE MADRAS HIGH COURT WAS BINDI NG ON THE I.T.A. NO. 457/MDS/09 5 ASSESSING OFFICER. HE FURTHER OBSERVED THAT NEITHE R IN THE PRINTED FINANCIAL STATEMENTS NOR DURING THE ASSESSMENT PROC EEDINGS HAS THE ASSESSEE EXPLAINED HOW THIS AMOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS WAS COMPUTED AND WHAT WERE THE DEBTS DUE TO THE ASSESSEE WITH REFERENCE TO WHICH IT WAS THOUGHT FIT TO MAKE THE ABOVE PROVISION. HE, THEREFORE, HELD THAT IT WAS A PROVISION MADE TO MEET A LIABILITY OF THE COMPANY OTHER THAN OF AS CERTAINED LIABILITY AND IT WAS SQUARELY COVERED BY CLAUSE (C) OF EXPLAN ATION TO SECTION 115JB OF THE ACT AND ACCORDINGLY, HE HELD THAT IN H IS CONSIDERED OPINION, THE ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDINGLY, HE DIRECTED THE ASSESSING OFFICER TO M ODIFY THE ASSESSMENT BY MAKING NECESSARY DISALLOWANCE WHILE C OMPUTING TAX U/S 115JB OF THE ACT AND ENHANCED THE ASSESSMENT AC CORDINGLY. 7. THE LD. A.R. OF THE ASSESSEE AT THE TIME OF HEAR ING SUBMITTED THAT THE ASSESSMENT WAS FRAMED U/S 143(3) ON 31.3.2 006. THE KOLKATA SPECIAL BENCH OF THE TRIBUNAL IN THE CASE O F JCIT, SPECIAL RANGE 5, KOLKATA VS. USHA MARTINE INDUSTRIES [200 7] 104 ITD 249 I.T.A. NO. 457/MDS/09 6 [KOL] [SB] VIDE ORDER DATED OCTOBER 6, 2006, HELD T HAT THE PROVISION FOR BAD AND DOUBTFUL DEBT, NOT BEING A PROVISION FO R LIABILITY BUT A PROVISION FOR DIMINUTION IN THE VALUE OF ASSETS, I. E. DEBTS, CLAUSE (C) OF EXPLANATION TO SECTION 115JA IS NOT APPLICABLE. HE FURTHER SUBMITTED THAT THE AMENDMENT IN SECTION 115JB OF TH E ACT WAS BROUGHT BY THE FINANCE [NO. 2] ACT, 2009 W.R.E.F. 1 .4.2001 WHEREBY IT WAS PROVIDED IN EXPLANATION 1 SECTION 115JB OF T HE ACT BY WAY OF CLAUSE (I) THAT THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET WAS TO BE ADDE D BACK FOR THE PURPOSES OF COMPUTING BOOK PROFIT. IT WAS, THEREFO RE, HIS SUBMISSION THAT THE ORDER PASSED BY THE ASSESSING O FFICER WAS IN CONFORMITY WITH THE VIEW OF THE KOLKATA SPECIAL BEN CH OF THE TRIBUNAL AND NO ADDITION WAS REQUIRED TO BE MADE FO R PROVISION FOR BAD AND DOUBTFUL DEBTS WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. HE ALSO RELIED ON THE DECISION OF THE HON 'BLE SUPREME COURT IN THE CASE OF CIT VS. MAX INDIA LTD [2007] 2 95 ITR 282 [SC] WHEREIN IT WAS HELD THAT SUBSEQUENT AMENDMENT, EVEN THOUGH RETROSPECTIVE, WILL NOT ATTRACT THE PROVISIONS OF S ECTION 263 OF THE ACT AND IT IS THE POSITION OF LAW AS IT STOOD ON TH E DATE WHEN THE I.T.A. NO. 457/MDS/09 7 COMMISSIONER PASSES THE ORDER IN PURPORTED EXERCISE OF HIS POWER U/S 263 OF THE ACT IS ONLY TO BE CONSIDERED. HENCE , HE SUBMITTED THAT THE LD. CIT PASSED ORDER ON 20.2.2008 ON WHICH DATE THE POSITION OF LAW WAS THAT THE PROVISION FOR BAD DEBT WAS NOT REQUIRED TO BE ADDED TO THE BOOK PROFIT FOR THE PURPOSES OF SECTION 115JB OF THE ACT AS HELD BY THE KOLKATA SPECIAL BENCH OF THE TRIBUNAL. HENCE THE ORDER PASSED U/S 263 OF THE ACT WAS WITHOUT JUR ISDICTION AND WAS REQUIRED TO BE QUASHED. 8. ON THE OTHER HAND, THE LD. D.R. SUPPORTED THE OR DERS OF THE LD. CIT(A). 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE ORDERS OF THE LD. CIT(A) AND MATERIAL AVAILABLE ON RECORD, WE FIND THAT IN THE INSTANT CASE, THE UNDISPUTED FACTS OF THE CASE ARE THAT IN THE ASSESSMENT FRAMED U/S 143(3) OF THE ACT ON 31.3.200 6, THE ASSESSING OFFICER COMPUTED BOOK PROFIT U/S 115JB OF THE ACT W ITHOUT ADDING RS. 185.85 LAKHS TOWARDS PROVISIONS FOR DOUBTFUL D EBTS. THE LD. CIT ISSUED NOTICE U/S 263 AND PASSED ORDER ON 20.2.2008 SETTING ASIDE I.T.A. NO. 457/MDS/09 8 THE ORDER OF THE ASSESSING OFFICER AND DIRECTING HI M TO COMPUTE THE BOOK PROFIT FOR THE PURPOSES OF SECTION 115JB OF TH E ACT AFTER ADDING PROVISION FOR DOUBTFUL DEBTS OF RS. 185.85 LAKHS A ND ACCORDINGLY ENHANCED THE ASSESSMENT OF THE ASSESSEE. WE FIND T HAT VIDE ORDER DATED 6.10.2006, THE KOLKATA SPECIAL BENCH OF THE T RIBUNAL IN THE CASE OF USHA MARTINE INDUSTRIES [SUPRA] HAS HELD TH AT PROVISION FOR BAD AND DOUBTFUL DEBT WAS NOT A PROVISION FOR LIABI LITY, BUT WAS A PROVISION FOR DIMINUTION OF VALUE IN ASSET AND THER EFORE, CLAUSE (C) TO EXPLANATION OF SECTION 115JA OF THE ACT WOULD NO T BE APPLICABLE IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS. THIS VIEW WAS LATER ON CONFIRMED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. HCL COMNET SYSTEMS AND SERVICES LTD [2008] 305 ITR 409. THUS, ON THE DATE OF PASSING OF ORDER BY THE LD. CIT ON 2 0.2.2008, IT WAS A DEBATABLE ISSUE WHETHER PROVISION FOR DOUBTFUL DEBT S WAS TO BE INCLUDED IN THE BOOK PROFIT FOR THE PURPOSES OF SEC TION 115JA OF THE ACT OR NOT. WE ALSO FIND THAT SECTION 115JB IS PAR A MATERIA WITH SECTION 115JA OF THE ACT. THEREFORE, THE LD. CIT C OULD NOT HAVE INVOKED THE PROVISIONS OF SECTION 263 OF THE ACT ON A DEBATABLE ISSUE. FURTHER, SECTION 115JB WAS AMENDED BY FINANC E [NO. 2] ACT, I.T.A. NO. 457/MDS/09 9 2009 W.R.E.F 1.4.2001, WHICH PROVIDED INSERTION OF CLAUSE (I) THAT THE AMOUNT OR AMOUNTS SET ASIDE FOR DIMINUTION OF V ALUE IN ANY ASSET WAS TO BE ADDED TO THE BOOK PROFIT FOR THE PU RPOSES OF SECTION 115JB OF THE ACT. WE ALSO FIND THAT THE HON'BLE SU PREME COURT IN THE CASE OF MAX INDIA LTD [SUPRA] HAS HELD THAT WHI LE INVOKING POWERS U/S 263 OF THE ACT, THE LD. CIT(A) HAS TO TA KE THE POSITION OF LAW AS IT STOOD ON THE DATE OF PASSING THE ORDER I. E. IN THIS CASE ON 20.2.2008. THE PRECONDITION FOR INVOKING PROVISION S OF SECTION 263 OF THE ACT IS THAT THE ORDER SOUGHT TO BE REVISED M UST BE BOTH ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. WHEN THERE WAS POSSIBILITY OF MORE THAN ONE VIEW AN D THE VIEW ADOPTED BY THE ASSESSING OFFICER CANNOT BE HELD AS UNSUSTAINABLE IN LAW, SUCH AN ORDER CANNOT BE HELD TO BE AN ERRONEO US ORDER. THEREFORE, THE PROVISIONS OF SECTION 263 OF THE ACT CANNOT BE INVOKED AGAINST SUCH ORDER MERELY TO TAKE ANOTHER P OSSIBLE VIEW. HENCE, FOR AFORESAID REASONS, WE CANCEL THE ORDER P ASSED U/S 263 OF THE ACT AND ALLOW THE APPEAL OF THE ASSESSEE. I.T.A. NO. 457/MDS/09 10 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 10 TH AUGUST, 2011. SD/- SD/- (HARI OM MARATHA) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 10 TH AUGUST, 2011. VL COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT, CHENNAI-III, CHENNAI (4) D.R. (5) GUARD FILE