ACIT 7(3), MUMBAI V. M/s. TATA TELECOM LTD., MUMBAI

ITA 4722/MUM/2005

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75729 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 05-02-2014
• Assessment Year: 1998-1999
• Appeal Filed On: 29-06-2005
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Retrospective amendment; Question of law; Bad and doubtful debts
• Section: 115JB; 147

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUM BAI BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 4722/MUM/2005 ASSESSMENT YEAR. 1998-99 ASSISTANT COMMISSIONER OF INCOME TAX-7(3), MUMBAI, ROOM NO. 615, 6 TH FLOOR, AAYAKAR BHAVAN. M.K. ROAD, MUMBAI 400 020. VS. AGC NETWORK LIMITED (FORMERLY KNOWN AS AVAYA GLOBAL CONNECT LTD.), EQUINOX BUSINESS PARK, TOWER 1 (PENINSULA TECHNO PARK), OFF BANDRA KURLA COMPLEX, LBS MARG, KURLA (WEST) MUMBAI - 400 070. APPELLANT RESPONDENT RE VENUE BY SANJEEV JAIN A SSESSEE BY NONE ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A) DATED 20 TH MARCH 2005, FOR ASSESSMENT YEAR 1998-99. THE REVEN UE HAS RAISED THE FOLLOWING GROUNDS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE TO BOOK PROFIT IN RESPECT OF PROVISIONS FOR ABD AND DOUBTFUL DEBTS HOLDING TH AT THE PROVISIONS ARE MADE AGAINST HE ASCERTAINED LIABILITY IGNORING THE FACT THAT EXPLANATION TO SUB-SECTION 2(B) OF SECTION 115JA IS VERY CLEAR THAT THE AMOUNT CARRIED TO ANY RESERVE BY WHATEVER NAME CALL ED IS TO BE DATE OF HEARING 05.02.2014 DATE OF PRONOUNCEMENT 0 7 - 03 - 2014 2 ADDED TO THE NET PROFIT TO ARRIVE AT THE FIGURE OF BOOK PROFIT. THE LD. CIT(A) HAD ALSO CONFIRMED SIMILAR ADDITIONS IN EARL IER YEARS 2. THE APPEAL OF THE REVENUE WAS DECIDED BY THIS TR IBUNAL VIDE ORDER DATED 9 TH SEPTEMBER 2008 BY FOLLOWING THE DECISION OF SPECIA L BENCH, IN THE CASE OF JOINT COMMISSIONER OF INCOME TAX VS. USHA MARTIN INDUSTRI ES LTD (104 ITD 249). THE REVENUE CHALLENGED THE ORDER OF TRIBUNAL BEFORE THE HONBLE HIGH COURT BY FILING INCOME TAX APPEAL NO. 505 OF 2009. THE HONBLE HIGH COURT VIDE ITS ORDER DATED 25-06-2012 HAS SET ASIDE THE ORDER OF THE TRIBUNAL FOR RECONSIDERATION OF THIS GROUND AFRESH IN VIEW OF THE AMENDMENT IN CLAUSE (G) OF EXPLANATION (2) TO SECT ION 115JA, WHICH HAS BEEN INTRODUCED WITH RETROSPECTIVE EFFECT FROM 01. 04.1998 BY THE FINANCE ACT 2009. THE OBSERVATION AND DIRECTION OF THE HON BLE HIGH COURT AS UNDER:- 1. THE QUESTION OF LAW SOUGHT TO BE RAISED IN THIS AP PEAL MAY NOT HAVE ARISEN FOR CONSIDERATION IN VIEW OF THE JUDGMENT OF THE SUP REME COURT IN COMMISSIONER OF INCOME-TAX VERSUS HCL COMNET SYSTEM S & SERVICES LTD., (2008) 305 ITR 409(SC). HOWEVER IN VIEW OF CLAUSE (G) OF EXPLANATION (2) TO SECTION 115JA, WHICH HAS BEEN INTRODUCED WITH RET ROSPECTIVE EFFECT FROM 01.04.1998 OF THE FINANCE NO.2 ACT, 2009, THE MATTE R WOULD HAVE TO BE CONSIDERED AFRESH BY THE INCOME TAX APPELLATE TRIBU NAL (ITAT)/ 2. THE APPEAL IS THEREFORE, DISPOSED OF BY SETTING ASI DE THE ORDER OF THE ITAT DATED 09.09.2008 ON THIS ISSUE ALONE AND WITH A REQU EST TO THE TRIBUNAL TO RE-CONSIDER THIS GROUND . 3. NOW AS PER THE DIRECTION OF THE HONBLE HIGH COU RT THIS APPEAL HAS BEEN PLACED BEFORE US FOR HEARING AND TO DECIDE THE ISSUE IN THE LIGHT OF AMENDMENT IN CLAUSE (G) OF EXPLANATION (2) TO SECT ION 115JA. 4. NONE HAS APPEARED ON BEHALF OF THE ASSESSEE RESP ONDENT AT THE TIME OF HEARING OF THE APPEAL, DESPITE THE NOTICE OF HEA RING ISSUED TO THE ASSESSEE. ACCORDINGLY WE PROPOSE TO HEAR AND DECIDE THIS APPEAL EX PARTE . 5. WE HAVE HEARD LD. DR AND CAREFULLY PERUSED THE R ELEVANT MATERIAL ON RECORD. THE LD. DR HAS RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF WHILRLPOOL OF INDIA LIMITED AND ANOT EHR VS. UNION OF INDIA 3 AND OTHERS. (355 ITR 51) AND SUBMITTED THAT THE ISS UE HAS BEEN DECIDED BY THE HONBLE HIGH COURT OF DELHI IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. WE NOTE THAT THE HONBLE HIGH COURT A FTER CONSIDERING THE VARIOUS DECISIONS OF HONBLE SUPREME COURT INCLUDIN G THE DECISION IN THE CASE OF COMMISSIONER OF INCOME-TAX VERSUS HCL COMNET SYSTEM S & SERVICES LTD., (2008) 305 ITR 409(SC) AS WELL AS DECISION OF SPECIAL BENCH OF TRIBUNAL IN THE CASE OF COMMISSIONER OF INCOME TAX VS. USHA MARTIN INDUSTRI ES LTD (SUPRA) HAS ARRIVED AT THE CONCLUSION IN PARA 25, 34 AND 35 AS UNDER:- 25. IT WOULD BE INCORRECT TO TREAT THE PROVISIONS OF SECTION 80J AND THE PROVISIONS OF SECTION 115JB ON PAR AND REQUIRE THE SAME STANDA RDS TO BE FULFILLED TO ENACT A VALID LEGISLATIVE AMENDMENT WITH RETROSPECTIVE EFFE CT IN BOTH OF THEM. IT IS APPARENT FROM SECTION 115JB THAT THE OBJECT WAS TO TAX THE SO-CALLED ZERO-TAX COMPANIES WHO DID NOT PAY ANY INCOME TAX THOUGH THE Y EARNED HUGE PROFITS AND EVEN DISTRIBUTED DIVIDENDS. BY IMPOSING SUCH A TAX ON THE BOOK PROFIT OF SUCH COMPANIES, PARLIAMENT WAS WIDENING ITS REVENUE COLL ECTION AND IT CAN HARDLY BE SUGGESTED THAT IT WAS GRANTING ANY BENEFIT TO THOSE COMPANIES. ON THE CONTRARY, WHATEVER BENEFITS SUCH COMPANIES WERE EARLIER ENJOY ING WERE SOUGHT TO BE WITHDRAWN OR SEVERELY CURTAILED BY THE INTRODUCTION OF CHAPTER XII B AND THE MINIMUM ALTERNATE TAX PROVISIONS. IT WOULD BE ERRON EOUS AND INACCURATE TO CONSIDER ANY DEDUCTION ALLOWED WHILE COMPUTING THE BOOK PROFIT OF THE COMPANY AS A WP(C) 3126/2010 PAGE 39 OF 61 BENEFIT OR RELIE F GRANTED TO IT IN THE SAME MANNER IN WHICH SECTION 80J CONFERRED A BENEFIT UPO N AN ASSESSEE WHO SET UP AN INDUSTRIAL UNDERTAKING IN A NOTIFIED BACKWARD AREA. THE SCHEME AND PURPOSE ARE SO DIFFERENT THAT A COMPARISON OF BOTH THE PROVISIO NS WOULD BE TOTALLY OFF THE MARK. EXPLANATION 1 PROVIDED FOR COMPUTATION OF THE BOOK PROFIT AND INITIALLY THERE WAS ADMITTEDLY NO PROVISION TO ADD BACK THE P ROVISION MADE IN THE PROFIT AND LOSS ACCOUNT FOR DIMINUTION IN THE VALUE OF AN ASSET. IT WAS WRONGLY ASSUMED BY THE TAX AUTHORITIES THAT A PROVISION FOR BAD AND DOUBTFUL DEBTS WAS A PROVISION FOR MEETING AN UNASCERTAINED LIABILITY. THE TRUE PO SITION IN LAW WAS POINTED OUT BY THE SUPREME COURT IN ITS JUDGMENT IN HCL COMNET (SUPRA); THEREAFTER THE LEGISLATURE STEPPED IN BY INTRODUCING CLAUSE (I). T HE REASON WAS TO TAKE A LESSON OUT OF THE JUDGMENT OF THE SUPREME COURT AND TO DEN Y THE DEDUCTION OF A PROVISION MADE NOT ONLY FOR BAD AND DOUBTFUL DEBTS BUT ALSO FOR THE DIMINUTION IN THE VALUE OF ANY ASSET. IT MUST BE RECALLED THAT TH E ARGUMENT OF THE COMPANIES, ACCEPTED BY THE SUPREME COURT, WAS THAT A PROVISION FOR DOUBTFUL DEBTS IS NOT A PROVISION FOR MEETING AN UNASCERTAINED LIABILITY BU T WAS A PROVISION FOR DIMINUTION IN THE VALUE OF THE DEBT DUE TO NON- WP( C) 3126/2010 PAGE 40 OF 61 RECOVERY OR THE DEBT BECOMING BAD. IT IS OF SOME SI GNIFICANCE THAT THE RETROSPECTIVE AMENDMENT DID NOT CONFINE ITSELF TO A DDING BACK THE PROVISION FOR BAD AND DOUBTFUL DEBTS; IT AUTHORIZED THE ASSESSING OFFICER TO ADD BACK THE PROVISIONS MADE FOR THE DIMINUTION IN THE VALUE OF ANY ASSET. THIS REFLECTS THE 4 ANXIETY OF THE LEGISLATURE TO CURB THE TENDENCY OF COMPANIES TO MAKE DOWNWARD REVISIONS IN THE VALUE OF THEIR ASSETS - BOTH MOVAB LE AND IMMOVABLE - SO AS TO NEUTRALISE OR REDUCE THE BOOK PROFIT. THE AMENDMENT IS THUS AN ATTEMPT TO PREVENT COMPANIES FROM MAKING USE OF THE ABSENCE OF ANY PROVISION IN SECTION 115JB PERMITTING THE ADDING BACK OF A PROVISION MAD E FOR DIMINUTION IN THE VALUE OF ANY ASSET IN ORDER TO OFFSET OR REDUCE THE BOOK PROFIT. THE AMENDMENT MUST BE VISUALIZED IN THE LARGER PERSPECTIVE I.E. THAT THE LEGISLATURE THOUGHT IT INEQUITABLE THAT COMPANIES EARNING HUGE PROFITS AND EVEN DECLAR ING DIVIDENDS WERE NOT PAYING ANY INCOME TAX. THE BASIS OF COMPUTING THE T OTAL INCOME OF SUCH COMPANIES WAS CHANGED. THEY WERE NO LONGER ENTITLED TO COMPUTE THEIR TOTAL INCOME IN ACCORDANCE WITH THE OTHER PROVISIONS OF T HE INCOME TAX ACT, WHICH ARE NORMALLY APPLICABLE. THEY WERE TO PAY TAX ON THEIR BOOK PROFIT WHICH WAS DEEMED TO BE THE TOTAL INCOME. IF REGARD IS HAD TO THE WP( C) 3126/2010 PAGE 41 OF 61 BROADER CANVASS OF CHAPTER XII B, AS WE MUST, IT WO ULD BE DIFFICULT TO HOLD THAT THE ABSENCE OF ANY PROVISION IN EXPLANATION 1 TO AD D BACK THE PROVISION FOR DOUBTFUL DEBTS (ON THE FOOTING THAT IT WAS A PROVIS ION FOR MEETING AN ASCERTAINED LIABILITY) WAS NOT AN INCENTIVE OR RELIEF CONSCIOUS LY ALLOWED TO THE ZERO-TAX COMPANIES IN THE SAME MANNER IN WHICH THE RELIEF UN DER SECTION 80J WAS ALLOWED. THE SEQUITUR OF THIS CONCLUSION IS THAT THE VERY WE IGHTY OBSERVATIONS OF A.N. SEN, J, MADE IN THE CONTEXT OF SECTION 80J AND THE RETRO SPECTIVE AMENDMENT MADE BY THE FINANCE (NO.2) ACT, 1980 WITH EFFECT FROM 1.4.1 972, WOULD BE OUT OF PLACE IN THE CONTEXT OF CHAPTER XII B OF THE INCOME TAX ACT. IF IT IS NOT A BENEFIT, DEDUCTION OR RELIEF ALLOWED BY THE LEGISLATURE, THERE IS NO Q UESTION OF APPLYING THOSE OBSERVATIONS BY SAYING THAT THE BENEFIT ETC. CANNOT BE TAKEN AWAY RETROSPECTIVELY. ================================================= 34. IN VIEW OF THE FORGOING DISCUSSION, WE HOLD THAT TH E AMENDMENT MADE TO EXPLANATION 1 TO SECTION 115JB OF THE INCOME TAX AC T, 1961 BY WP(C) 3126/2010 PAGE 55 OF 61 THE FINANCE (NO.2) ACT, 2009 BY INSER TION OF CLAUSE (I) WITH RETROSPECTIVE EFFECT FROM 1.4.2001 IS NOT ULTRA VIR ES OR UNCONSTITUTIONAL. 35. THE ONLY OTHER CONTENTION WHICH CALLS FOR OUR A TTENTION IS THE ONE BASED ON DIFFERENT TREATMENT GIVEN TO DIFFERENT ASSESSMENT Y EARS. IT IS POINTED THAT THE AMENDED PROVISION COULD NOT EVEN BE APPLIED IN THE ORDINARY COURSE IN RESPECT OF THE ASSESSMENT YEARS 2001-02 AND 2002-03 FOR THE RE ASON THAT THE TIME LIMIT FOR REOPENING THESE ASSESSMENTS ENDED ON 31.3.2008 AND 31.3.2009 RESPECTIVELY. IT IS FURTHER POINTED OUT THAT THE AMENDMENT WAS INTRODUC ED AFTER THESE DATES AND ONLY AFFECTS ASSESSEES IN WHOSE CASE SOME REASSESSMENT O R APPELLATE PROCEEDINGS WERE PENDING AT THE TIME OF INTRODUCTION OF THE BILL. ON THIS BASIS, IT IS ARGUED THAT THE SOLE REASON FOR THE AMENDMENT 'APPEARS TO ARM SOME ASSESSING OFFICERS WITH A TOOL TO SUPPORT A PRIMA FACE ERRONEOUS ACTION OF ADDING THE PROVISION FOR BAD AND 5 DOUBTFUL DEBTS TO THE BOOK PROFIT WITHOUT ANY STATU TORY SUPPORT FOR THE SAME'. THIS ASPECT OF THE MATTER HAS BEEN DEALT WITH IN THE JUD GMENT OF SUPREME COURT IN NATIONAL AGRICULTURAL CO-OPERATIVE MARKETING FEDERA TION OF INDIA LTD. (SUPRA). THE FOLLOWING PASSAGE FROM THE JUDGMENT IS RELEVANT :- WP(C) 3126/2010 PAGE 56 OF 61 IT IS HARDLY LIKELY ON THE GIVEN FACTS, THAT ASSESSMENTS HAD BEEN CONCLUDED ON THE BASIS OF THE DECISION IN KERALA MARKETING CASE MANU/SC/2021/1998 : [1998]231ITR814(SC) AND TH E PERIOD FOR REOPENING SUCH ASSESSMENTS HAD BECOME TIME BARRED. IN ANY EVE NT THE 1998 AMENDMENT CANNOT BE CONSTRUED AS AUTHORIZING THE REVENUE AUTH ORITIES TO REOPEN ASSESSMENTS WHEN THE REOPENING IS ALREADY BARRED BY LIMITATION. THE AMENDMENT DOES NOT SEEK TO TOUCH ON THE PERIODS OF LIMITATION PROVIDED IN T HE ACT, AND IN THE ABSENCE OF ANY SUCH EXPRESS PROVISION OR CLEAR IMPLICATION, TH E LEGISLATURE CLEARLY COULD NOT BE TAKEN TO INTEND THAT THE AMENDING PROVISION AUTH ORISES THE INCOME TAX OFFICER TO COMMENCE PROCEEDINGS WHICH BEFORE THE NEW ACT CA ME INTO FORCE, HAD, BY THE EXPIRY OF THE PERIOD PROVIDED BECOME BARRED-S.S. GA DGIL V. LAL & CO. MANU/SC/0122/1964 : [1964]53ITR231(SC) ; SEE ALSO J.P. JANI, ITO V. INDUPRASAD DEVSHANKER BHAT T (SUPRA); K. M. SHARMA V. ITO MANU/SC/0312/2002 : [2002]254ITR772(SC) . DIFFERENT CONSIDERATIONS WOULD ARISE IF, BY THE AMENDMENT EVEN FINAL ASSESSMENTS W ERE UNAMBIGUOUSLY SOUGHT TO BE OPENED- COMMERCIAL TAX OFFICER V. BISWANATH JHUNJHUNWALLA, MANU/SC/0097/1997 : AIR1997SC357 . THAT IS NOT THE CASE HERE. THESE OBSERVATIONS ARE A RECOGNITION OF THE CONSEQU ENCE THAT IS INEVITABLE IN THE CASE OF ALL RETROSPECTIVE AMENDMENTS, WHICH BY THEI R VERY NATURE, CAN BE LAWFULLY APPLIED ONLY TO ASSESSMENTS THAT ARE OPEN AND PENDI NG WP(C) 3126/2010 PAGE 57 OF 61 EITHER BEFORE THE ASSESSING OFFICER OR IN APP EAL PROCEEDINGS. IN THE CASE OF COMPLETED ASSESSMENTS THE AMENDMENT CAN BE INVOKED ONLY IF REOPENING OF THE ASSESSMENTS UNDER SECTION 147 OF THE ACT OR MODIFIC ATION OF THE ASSESSMENTS UNDER ANY OTHER PROVISION OF THE ACT IS PERMISSIBLE . THE PROVISIONS RELATING TO LIMITATION AND FINALITY OF ASSESSMENTS CANNOT BE DI STURBED, AS THEY ARE ALSO THE RESULT OF LEGISLATION BY PARLIAMENT AS THE SUPREME COURT ITSELF HAS RECOGNISED. DIFFERENT CONSIDERATIONS WOULD, THEREFORE, ARISE IF BY THE AMENDMENT EVEN FINAL ASSESSMENTS ARE SOUGHT TO BE REOPENED. THE PETITION ER CAN HAVE A GRIEVANCE AND IT CAN BE SUCCESSFULLY VENTILATED, ONLY IF THE REVENUE AUTHORITIES SEEK TO DISTURB THE FINALITY OF A COMPLETED ASSESSMENT, OVERLOOKING THE PROVISIONS OF THE ACT RELATING TO REOPENING OF ASSESSMENTS. WE, THEREFORE, DO NOT THINK THAT THERE IS ANY SUBSTANCE IN THE CONTENTION OF THE PETITIONER. 5. FOLLOWING THE DECISION OF HONBLE HIGH COURT OF DELHI IN THE CASE OF WHILRLPOOL OF INDIA LIMITED AND ANOTEHR VS. UNION OF INDIA AND OTHERS (SUPRA) AND IN VIEW OF THE RETROSPECTIVE AMENDMENT IN CLAUSE (G) OF EXPLANATION (2) TO SECTION 115JA, WE DECIDE THIS IS SUE IN FAVOUR OF THE 6 REVENUE AND AGAINST THE ASSESSEE. THE IMPUGNED ORD ER OF CIT(A) QUA THIS ISSUE IS SET ASIDE AND THE ORDER OF AO IS RESTORED. 6. IN THE RESULT APPEAL OF THE REVENUE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 07 /03/20 14 SD/- SD/- (SANJAY ARORA) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 07/03/2014 SKS SR. P.S COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI