M/s.Lakeshore Hospital & Research Centre Ltd, Cochin V. The ACIT, Cochin

ITA 457/COCH/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8418 (ITAT-COCHIN)
• Duration Of Justice: 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 05-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 10-09-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHANTOM BOSE
• Assessee Lawyers: K GOPI
• Keywords: Bad and doubtful debts
• Section: 143(3); 263

Judgement Text

ITA NO . 457 /C/2015 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH KOCHI BEFORE S/ SHRI B P JAIN , AM & GEORGE GEORGE K, JM ITA NO 457/COCH/2015 (A SST YEAR 2010 - 11 ) LAKESHORE HOSPITAL & RESEARCHCENTRE LTD MARADU KOCHI 40 VS THE ASST COMMR OF INCOME TAX CIRCLE 1(2), KOC HI ( APPELLANT) (RESPONDENT) PAN NO. AAACL4923A ASSESSEE BY SH K GOPI REVENUE BY SH SHANTOM BOSE, CIT - DR DATE OF HEARING 5 TH JULY 2016 DATE OF PRONOUNCEMENT 18 TH JULY 2016 ORDER PER GEORGE GEORGE K, JM; THIS APPEAL, AT THE INSTANCE OF THE ASSESSEE , IS DIRECTED AGAINST THE CITS ORDER DATED 20 TH MARCH 2015 PASSED U/S 263 OF THE I T ACT. THE RELEVANT ASSESSMENT YEAR IS 2010 - 11. 2 THERE IS A DELAY OF 99 DAYS IN FILING THIS APPEAL. THE ASSESSEE HAS FILED A PETITION FOR CONDONING THE DE LAY AND ACCOMPANYING AFFIDAVIT OF THE MANAGING DIRECTOR STATING THE REASON FOR DELAY IN FILING THIS APPEAL. ON PERUSAL OF THE SAME, WE FIND THAT THERE IS SUFFICIENT CAUSE IN FILING THE APPEAL BELATEDLY. ACCORDINGLY, WE CONDONE THE DELAY IN FILING THIS APP EAL AND PROCEED TO DISPOSE OF F THE SAME ON MERITS. ITA NO . 457 /C/2015 2 3 THE ISSUE , THAT IS RAISED FOR OUR CONSIDERATION , IS WHETHER THE CIT IS JUSTIFY IN INVOKING HIS REVISIONARY POWERS U/S 263 OF THE ACT AND DIRECTING THE AO TO ADD BACK THE PROVISION OF BAD AND DOUBTFUL DE BTS ALLOWED IN THE ASSESSMENT COMPLETED U/S 143(3) OF THE ACT. 4 BRIEFLY STATED THE FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF RUNNING A HOSPITAL AND ALLIED SERVICES. THE RETURN OF INCOME WAS FILED ON 27.9.2010 DECLARING A TOTAL INCOME AT RS. 1,95,66,530/ - . THE SCRUTINY ASSESSMENT U/S 143(3) WAS COMPLETED VIDE ORDER DATED 28.3.2013 ACCEPTING THE RETURNED INCOME. 5 SUBSEQUENTLY, NOTICE U/S 263 WAS ISSUED (NOTICE DATE 26.2.2015) BY THE CIT. THE CIT WAS OF THE VIE W THAT AN AMOUNT OF RS. 25,72,309/ - DEBITED INTO THE P&L ACCOUNT TOWARDS PROVISION OF DOUBTFUL DEBTS OUGHT NOT TO HAVE BEEN ALLOWED AS DEDUCTION WHILE COMPLETING THE ASSESSMENT U/S 143(3) OF THE ACT. ACCORDING TO THE CIT, SECTION 36(1)(VII) OF THE I T A CT PROVIDES FOR DEDUCTION OF BAD DEBT , WHICH IS WRITTEN OFF , AS IRRECOVERABLE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THERE IS NO DEDUCTION ALLOWABLE FOR PROVISION FOR DOUBTFUL DEBTS. THE CIT HELD THAT THE OMISSION TO DISALLOW THE AMOUNT DEBITED IN THE P&L ACCOUNT TOWARDS PROVISION OF DOUBTFUL DEBTS RENDERS THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 6 IN RESPONSE TO THE NOTICE U/S 263 OF THE ACT, THE ASSESSEE FILED A LETTER DATED 11.7.2015 WHEREIN THE ASSESSEE H AS RE LIED ON THE JUDGMENT OF THE HONBLE ITA NO . 457 /C/2015 3 APEX COURT IN THE CASE OF VIJAYA BANK VS CIT (323 ITR 16 (SC). THE CIT, HOWEVER, DISTINGUISHED THE JUDGMENT OF THE HONBLE SUPREME COURT STATING THAT THE SAID JUDGMENT RELATES TO WRITING OFF OF BAD DEBTS AND NOT PROVISI ONS FOR BAD DEBTS. THE CIT PASSED ORDER U/S 263 OF THE ACT (ORDER DATED 23.3.2015) BY SETTING ASIDE THE ASSESSMENT ORDER AND DIRECTING THE AO TO PASS FRESH ORDERS IN LIGHT WITH THE DIRECTIONS PASSED IN THE IMPUGNED ORDER. THE RELEVANT FINDING OF THE CIT RE ADS AS UNDER: 5. PROVISION FOR DOUBTFUL DEBTS ARE NOT AN ALLOWABLE DEDUCTION UNDER THE INCOME TAX ACT UNLESS THE DEBT IS ACTUALLY WRITTEN OFF. IN THE LIGHT OF THE ABOVE, INVOKING THE PROVISIONS OF SECTION 263 OF THE INCOME TAX ACT, 1961, I DIRECT THE AO TO DO THE REASSESSMENT BY INCORPORATING THE ABOVE DIRECTION AND PASS A FRESH ASSESSMENT ORDER. 7 AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. THE LD COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE CIT. FURTHER, IT WAS SUBMITTED THAT THE AO , IN THE COURSE OF COMPLETION OF SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT , HAD EXAMINED WHETHER THE PROVISIONS FOR BAD AND DOUBTFUL IS AN ALLOWABLE DEDUCTION AND A CONSCIOUS DECISION WAS TAKEN BY THE AO TO ALLOW DEDUCTION FOR THE PROVISION OF DOU BTFUL DEBTS AMOUNTING TO RS. 25,72,309/ - . IT WAS FURTHER SUBMITTED THAT WHEN THE AO HAD TAKEN ONE OF THE POSSIBLE VIEWS, THE CIT IS NOT JUSTIFIED IN INVOKING HIS REVISIONARY POWERS U/S 263 OF THE ACT. FOR THE ABOVE PROPOSITION , THE LD COUNSEL RELIED ON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF CIT VS MAX INDIA LTD (295 ITR 282(SC) AND THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS HONDS SIEL POWER PRODUCTS LTD (194 TAXMAN 175(DEL). ON MERITS, IT WAS SUBMITTED THAT THE CI T HA D MADE ITA NO . 457 /C/2015 4 FACTUAL ERROR IN HOLDING THAT THE ASSESSEE HAS NOT WRITTEN O FF THE DOUBTFUL DEBTS FROM THE B OOKS BY REDUCING FROM SUNDRY DEBTORS. IT WAS SUBMITTED THAT ON FACTS, THE ASSESSEE HAS DEBITED THE PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE P&L ACCO UNT AND AT THE SAME TIME, OBLITERATED THE PROVISION FROM THE VALUE OF SUNDRY DEBTORS IN THE BALANCE SHEET. HENCE, IT WAS CONTENDED THAT THE ASSESSEE HAS FULFILLED THE CONDITIONS OF WRITE OFF OF BAD DEBTS . FO R TH IS PROPOSITION , THE LD AR RELIED ON THE JUD GMENT OF THE HONBLE APEX COURT IN THE CASE OF VIJAYA BANK (SUPRA ) AND IN THE CASE OF SOUTHERN TECHNOLOGIES LTD VS JCIT (320 ITR 577). 8 THE LD DR, ON THE OTHER HAND SUPPORTED THE ORDER OF THE CIT. 9 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. IT WAS SUBMITTED BY THE LD COUNSEL THAT THE ASSESSMENT U/S 143(3) WAS DULY COMPLETED AFTER VERIFYING THE RECORDS/DOCUMENTS. ACCORDING TO THE ASSESSEE , THE AO HAD TAKEN A CONSCIOUS DECISION TO ALLOW THE DEDUCTION U/S 36 (1)(VII) FOR PROVIS ION FOR BAD DEBTS. ON PERUSAL OF THE ASSESSMENT ORDER, WE NOTICE THAT THERE IS NO DISCUSSION BY THE AO ON THE SAID ISSUES . THE AO MERELY ACCEPTED THE RETURNED INCOME . THERE IS NOTHING ON RECORD TO SUGGEST THAT THE AO HAS CONSIDERED THE CLAIM OF DEDUC TION OF PROVISION FOR BAD AND DOUBTFUL DEBTS AND HA D TAKEN A CONSCIOUS DECISION TO ALLOW THE SAME. THEREFORE, IT CANNOT BE STATED THAT THE AO HAS TAKEN ONE OF THE POSSIBLE VIEW. ACCORDING TO US, THE AO HAS NOT TAKEN ANY VIEW ON THE ISSUE RAISED BEFORE US. THE ASSESSMENT ORDER ITA NO . 457 /C/2015 5 BEING VERY BRIEF AND HAVING MERELY ACCEPTED THE RETURNED INCOME WITHOUT ANY DISCUSSION , WE ARE OF THE VIEW THE SAME IS ERRONEOUS AND ALSO PREJUDICIAL TO THE INTEREST OF REVENUE WARRANTING INTERFERE NCE U/S 263 OF THE ACT. FOR THIS PROP OSITION, WE RELY ON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF TOYOTA MOTOR CORPORATION VS CIT REPORTED IN 218 CTR 0539 AND THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS INFOSYS TECHNOLOGIES LTD REPORTED IN 341 ITR 239( KAR). 10 NOW COMING TO THE MERITS OF THE CASE, WE FIND THAT THE ASSESSEE HAD DEBITED IN THE P&L ACCOUNT THE FOLLOWING AMOUNTS: I) BAD DEBTS WRITTEN OFF RS. 5,80,863/ - II) PROVISION FOR BAD DEBTS RS . 25,72,309/ - THERE IS NO DISPUTE WITH REGARD T O THE DEDUCTION OF RS. 5,80,863/ - BEING THE BAD DEBTS WRITTEN OFF. THE DISPUTE IN THE INSTANT CASE REVOLVES AROUND THE DEDUCTION OF RS. 25,72,309/ - BEING THE PROVISION FOR BAD DEBTS. IN THIS REGARD , WE FIND THAT THE ASSESSEE ITSELF HAD MADE A DISTINCTION BETWEEN THE ACTUAL WRITE OFF OF BAD DEBTS AND PROVISION FOR BAD DEBTS. UNDER SECTION 36 (1)(VII) , NO DEDUCTION CAN BE CLAIMED FOR PROVISION FOR BAD DEBTS . THE HONBLE APEX COURT IN THE CASE OF VIJAYA BANK (SUPRA) WAS CONSIDERING THE CASE OF ACTUAL WRITE OFF OF BAD DEBTS AND NOT A PROVISION FOR BAD DEBTS. MOREOVER, THE HONBLE APEX COURT WAS CONSIDERING THE CASE OF A SCHEDULED BANK WHERE CERTAIN PERCENTAGE OF PROVI SI ON FOR BAD DEBTS ARE ALSO AS A DEDUCTION U/S 36(1)(VIIA) OF THE ACT. AS ITA NO . 457 /C/2015 6 RIGHTLY POINTE D OUT BY THE CIT, THE APEX COURT JUDGMENT IS NOT APPLICABLE IN THE FACTS OF THE INSTANT CASE. AS MENTIONED EARLIER , A MERE PROVISION FOR BAD DEBTS WOULD NOT BE ENTITLED FOR DEDUCTION U/S 36(1)(VII). IF AN ASSESSEE DEBTS AN AMOUNT OF DOUBTFUL DEBTS TO THE P&L ACCOUNT AND CREDITS THE ASSET ACCOUNT LIKE SUNDRY DEBTORS ACCOUNT, IT WOULD CONSTITUTE A WRITE OFF OF AN ACTUAL DEBT. HOWEVER, IF AN ASSESSEE DEBITS PROVISION FOR DOUBTFUL DEBT TO THE P&L ACCOUNT AND MAKES A CORRESPONDING CREDIT TO THE CURRENT L IABILITIES AND PROVISIONS ON THE LIABILITIES SIDE OF THE BALANCE SHEET, THEN IT WOULD CONSTITUTE A PROVISION FOR DOUBTFUL DEBT. IN THE LATTER CASE THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTION. THERE IS NOTHING ON RECORD TO SUGGEST THAT THE ASSESSEE HA D DEBITED AN AMOUNT OF DOUBTFUL DEBTS TO THE P&L ACCOUNT AND MADE CORRESPONDING CREDIT TO THE ASSET ACCOUNT LIKE SUNDRY DEBTORS ACCOUNT WHICH CONSTITUTES AN ACTUAL WRITE OFF OF DEBTS. THEREFORE, IN VIEW OF THE ABOVE SAID REASONS, WE ARE OF THE VIEW THAT T HE CIT IS JUSTIFIED IN INVOKING HIS REVISIONARY POWERS U/S 263 OF THE ACT AND SETTING ASIDE THE ASSESSMENT ORDER DATED 28 . 3.2013. IT IS ORDERED ACCORDINGLY. 12 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COUR T ON THIS 18 TH DAY OF JULY 2016 . SD/ - SD/ - B P JAIN GEORGE GEORGE K (ACCOUNTANT MEMBER ) (JUDICIAL MEMBER ) COCHIN: DATED 18 TH JULY 2016 RAJ* ITA NO . 457 /C/2015 7 COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT, 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN