Flex Foods Ltd., New Delhi V. DCIT, New Delhi

ITA 4800/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86547 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 03-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAMESH CHANDER
• Assessee Lawyers: SURESH ANANTHARAMAN
• Keywords: Business income; Search and seizure; Retrospective amendment; Question of law; Bad and doubtful debts
• Section: 115JB; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B : NEW DELHI BEFORE SHRI S.V. MEHROTRA, AM AND SHRI A.T. VARKEY, JM ITA NO.4800/DEL/2011 ASSESSMENT YEAR : 2007-08 FLEX FOODS LTD., 305, 3 RD FLOOR, BHANOT CORNER, POMPOSH ENCLAVE, GREATER KAILASH, NEW DELHI. PAN : AAACF0108K VS. DCIT, CENTRAL CIRCLE-18, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SURESH ANANTHARAMAN, CA DEPARTMENT BY : SHRI RAMESH CHANDER, CIT, DR ORDER PER S.V. MEHROTRA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE CIT(A) 12.09.2011 IN RELATION TO THE ASSESSMENT YEA R 2007-08. 2. BRIEF FACTS OF THE CASE ARE THAT THE COMPANY, A 100% EOU, IN THE RELEVANT ASSESSMENT YEAR, WAS PRIMARILY ENGAGED IN GROWING A ND PROCESSING OF MUSHROOMS, CULINARY HERBS AND OTHER FRUITS AND VEGETABLES. A SEARCH AND SEIZURE OPERATION U/S 132 WAS CARRIED OUT ON 10 TH MAY, 2007 IN M/S UFLEX GROUP OF CASES. THE ASSESSE ES CASE WAS ALSO COVERED U/S 132(1). IN RESPONSE TO N OTICE U/S 153A, THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS . 40,20,864/-. BOOK PROFIT U/S 115JB WAS DECLARED AT RS. 49,22,980/-. THE TOTAL TURNOVER DECLARED WAS RS. 34.21 ITA NO. 4800/DEL/2011 2 CRORES. BUSINESS INCOME WAS DECLARED AT RS. 3.75 CRORES AND INCOME FROM OTHER SOURCES AT RS. 47.36 LAC. THE GROSS TOTAL INCOME DECLARED WAS RS. 4.23 CRORES FROM WHICH DEDUCTION U/S 80IC HAD BEEN CLAIMED FOR RS. 3 .75 CRORES. THE RELEVANT ASSESSMENT YEAR WAS THE THIRD YEAR FOR CLAIM OF DED UCTION U/S 80IC. THE ASSESSEE, ACCORDINGLY, DECLARED THE TOTAL INCOME AT RS. 47.3 6 LAC. THE ASSESSMENT UNDER NORMAL PROVISIONS WAS COMPLETED AT RS. 78,41,945/-, INTER ALIA, MAKING ADDITION OF RS. 27,00,483/- ON ACCOUNT OF DENIAL OF DEDUCTION U /S 80IC IN RESPECT OF INTEREST INCOME EARNED FROM BANK OF RS. 26,08,881/- AND RS. 91,002/- IN RESPECT OF DEDUCTION U/S 80IC CLAIMED IN RESPECT OF DUTY DRAWB ACK RECEIPT. THE TOTAL BOOK PROFIT U/S 115JB WAS DETERMINED AT RS. 5,00,32,212/ -, AFTER MAKING AN ADDITION IN RESPECT OF PROVISION FOR DOUBTFUL DEBTS OF RS. 40,4 7,232/-. THE LD. CIT(A) PARTLY ALLOWED THE ASSESSEES APPEAL. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US AND HAS TAKEN THE F OLLOWING GROUNDS OF APPEAL:- A. THE LOWER AUTHORITIES HAVE ERRED IN DISALLOWING THE CLAIM OF THE ASSESSEE U/S 80-IC FOR RS 26,08,881/- ON ACCOUNT OF INTEREST INCOME. B. THE LOWER AUTHORITIES HAVE ERRED IN HOLDING THAT DELHI HIGH COURT DECISION ON SECTION 80-IB IN THE CASE OF CIT V. ELTEK SGS PVT. LTD. (2008) 300 ITR 6 (DELHI), IS NOT GOOD LAW HOLD ING THE DIFFERENCE BETWEEN THE LANGUAGE USED IN SECTION 80-HH (PANDIAN CHEMICALS LTD. 262 ITR 278 (SC) AND SECTION 80-IB. C. IT IS CONTENDED THAT THE LANGUAGE USED IN SECTIO N 80LC (AKIN TO SECTION 80-IB) IS DIFFERENT FROM THE LANGUAGE USED IN SECTION 80HH & 80-I. HON'BLE SUPREME COURT JUDGMENT IN CASE OF LIB ERTY INDIA LTD IS NOT APPLICABLE TO THE APPELLANT. D. THE LOWER AUTHORITIES HAVE ERRED IN HOLDING THAT ONLY RS 50,000/- IS ATTRIBUTABLE TO EARNING OF GROSS INTERE ST INCOME OF RS 26,08,881/- OUT OF ADMINISTRATIVE EXPENSES OF RS 6. 33 CRORE AND SALARY EXPENSES OF RS 4.33 CRORE AGGREGATING RS.10. 66 CRORE. ITA NO. 4800/DEL/2011 3 E. THE LOWER AUTHORITIES HAVE ERRED IN ADDING BACK 40,47,2321- UNDER SECTION 115JB BEING THE PROVISION FOR DOUBTFU L DEBTS. THE PROVISION IS THE ACTUAL WRITTEN OFF OF DEBTORS. WRI TE OFF OF DEBTORS THROUGH PROVISION IS NOT COVERED UNDER THE CLAUSES OF EXPLANATION 1 TO SECTION 11JB. RATIO OF HON'BLE SUPREME COURT JUD GMENT IN THE CASE OF VIJAYA BANK VS. CIT 323 ITR 166 IS DIRECTLY APPL ICABLE TO THE CASE. F. THE LOWER AUTHORITIES ERRED IN ADDING PROVISION FOR DOUBTFUL DEBTS OF RS.40,47,232/- UNDER NORMAL PROVISIONS OF THE ACT. HON'BLE SUPREME COURT JUDGMENT IN THE CASE OF VIJAY A BANK VS. CLT 323 ITR 166 IS DIRECTLY APPLICABLE TO THE CASE. G. THE ASSESSEE CRAVES THE RIGHT TO ADD, ALTER, AME ND, REDUCE DELETE OR WITHDRAW ANY GROUNDS OF APPEAL ARISING OU T OF THIS ORDER. 3. BRIEF FACTS APROPOS GROUND NOS. A, B, C AND D AR E THAT WHILE CLAIMING DEDUCTION U/S 80IC, THE ASSESSEE HAD INCLUDED THE I NTEREST EARNED FROM BANK FOR RS. 26,08,881/-. THE AO DID NOT ALLOW THIS CLAIM OBSER VING THAT ITS INCOME COULD NOT BE SAID TO BE DERIVED FROM BUSINESS OF THE UNDERTAKING OR ENTERPRISE. HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F PANDIAN CHEMICALS VS. CIT 262 ITR 278 (SC). BEFORE THE LD.CIT(A), THE ASSESSEE H AD, INTER ALIA, SUBMITTED THAT THERE IS MATERIAL DIFFERENCE IN THE WORDINGS OF SEC TION 80IC AND 80HH AS NOTED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF ELTEK S GS PVT. LTD., 2008-TIOL-156-HC- DEL. IT WAS SUBMITTED THAT THE DECISION IN THE CASE OF PANDYAN CHEMICALS (SUPRA) WAS DELIVERED WITH REFERENCE TO SECTION 80HH WHERE THE WORDS USED ARE DERIVED FROM INDUSTRIAL UNDERTAKING AS OPPOSED TO THE INC OME DERIVED FROM BUSINESS U/S 80IC. HOWEVER, THE LD.CIT(A) RELIED ON THE DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD. VS. CIT, WHEREIN IT HAS BEEN HELD THAT DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY THE CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOMS ACT, 1 962, HENCE, INCENTIVES PROFITS ARE NOT PROFITS DERIVED FROM THE ELIGIBLE BUSINESS U/S 80IB. THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKING. THE LD.CIT(A) POINTED OUT THAT THE ITA NO. 4800/DEL/2011 4 OBSERVATIONS OF HONBLE SUPREME COURT ARE SQUARELY APPLICABLE WITH REFERENCE TO SECTION 80IC WHICH IS IDENTICALLY WORDED AS SECTION 80IA AND 80IB. HOWEVER, THE LD.CIT(A) ACCEPTED THE ASSESSEES ALTERNATIVE CONTE NTION THAT ONLY THE NET INTEREST AFTER EXCLUDING EXPENDITURE INCURRED IN EARNING THE GROSS INTEREST SHOULD BE EXCLUDED. HE, ACCORDINGLY, DIRECTED THE AO TO EXCLU DE RS. 50,000/- BEING ATTRIBUTABLE TO EARNING OF THE GROSS INTEREST INCOME ON ESTIMATE BASIS. 4. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORD OF THE CASE. AS FAR AS ALLOWABILITY OF DEDUCTION U/S 80IC IN RESPECT OF INTEREST EARNED FROM BANK IS CONCERNED, WE DO NOT F IND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) IN VIEW OF THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF LIBERTY INDIA LTD. (SUPRA). THE HONBLE SUPREME COURT HAS, INTER ALIA, HELD THAT THE WORDS DERIVED FROM ARE NARROWER IN CONNOTATION AS COMPA RED TO THE WORDS ATTRIBUTABLE TO. THE INTEREST INCOME DERIVED FROM BANK CANNOT B E HELD TO COME WITHIN FIRST DEGREE SOURCE AS PER THE TEST LAID DOWN BY THE HON BLE SUPREME COURT IN LIBERTY INDIA LTD. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN LIBERTY INDIA LTD., (SUPRA), GROUND NOS.A, B AND C RAISED BY THE ASSESSEE ARE DISMISSED. 5. APROPOS GROUND NO.D, THE LD. COUNSEL SUBMITTED T HAT AS AGAINST THE TOTAL ADMINISTRATIVE EXPENSES AND SALARY EXPENSES AGGREGA TING TO `10.66 CRORES, LD.CIT(A) HAS ESTIMATED A VERY MEAGER AMOUNT TOWARDS EXPENSES INCURRED FOR EARNING OF INTEREST INCOME WHICH IS APPROXIMATELY ABOUT 2% OF THE INTEREST INCOME. HE SUBMITTED THAT AT LEAST 5% OF INTEREST INCOME MAY B E ESTIMATED TOWARDS EXPENSES FOR EARNING OF THE INTEREST INCOME. WE FIND CONSID ERABLE MERIT IN THE ARGUMENT OF ITA NO. 4800/DEL/2011 5 THE LD. COUNSEL FOR THE ASSESSEE THAT CONSIDERING T HE OVERALL ADMINISTRATIVE AND SALARY EXPENSES, THE ESTIMATE MADE BY THE LD.CIT(A) WAS QUITE MEAGRE. WE, THEREFORE, HOLD THAT RS.1 LAC BE TREATED AS ATTRIBU TABLE TO EARNING OF THE GROSS INTEREST INCOME. WE DIRECT ACCORDINGLY. 6. IN THE RESULT, THIS GROUND IS PARTLY ALLOWED. 7. BRIEF FACTS APROPOS GROUND NO. E AND F ARE THAT FROM THE PROFIT & LOSS ACCOUNT, THE AO NOTICED THAT A SUM OF RS.40,47,232/ - HAD BEEN DEBITED AS PROVISIONS FOR DOUBTFUL DEBTS. HE NOTED THAT THIS SUM HAD BEEN ADDED BACK IN THE COMPUTATION OF INCOME UNDER THE NORMAL PROVISIONS O F THE ACT BY THE ASSESSEE ITSELF, BUT THE SAME HAD NOT BEEN ADDED IN THE COMPUTATION OF BOOK PROFIT U/S 115JB. HE POINTED OUT THAT IN VIEW OF THE AMENDED PROVISIONS U/S 115JB BY THE FINANCE ACT, 2009 WITH RETROSPECTIVE EFFECT FROM 01.04.2001, THE BOOK PROFIT IS TO BE INCREASED BY THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISIONS FOR DIMINUTION IN THE VALUE OF ANY ASSETS. HE, THEREFORE, CONCLUDED THAT SINCE THE P ROVISIONS FOR DOUBTFUL DEBTS IS THE DIMINUTION IN THE VALUE OF ASSET, THEREFORE, THE SA ME WAS REQUIRED TO BE ADDED BACK TO THE BOOK PROFIT U/S 115JB. HE, ACCORDINGLY, MAD E THE ADDITION OF RS. 40,47,232/- FOR THE PURPOSES OF COMPUTATION OF BOOK PROFIT U/S 115JB. BEFORE THE LD.CIT(A), THE ASSESSEE HAD, INTER ALIA, RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK VS. CIT 323 ITR 166, WHEREIN IT WAS HELD THAT AFTER 1 ST APRIL, 1989, A MERE PROVISION FOR BAD DEBT WILL NOT BE ENTITLED TO DEDUCTION U/S 36(1)(VII). HOWEVER, IF THE ASSESSEE DEBITS PROVISIONS FOR DOUB TFUL DEBTS TO THE PROFITS & LOSS ACCOUNT AND MAKES THE CORRESPONDING CREDIT TO ASSET S ACCOUNT LIKE SUNDRY DEBTORS ACCOUNT INSTEAD OF CURRENT LIABILITY AND PROVISIONS ON THE LIABILITY SIDE OF THE BALANCE ITA NO. 4800/DEL/2011 6 SHEET, THEN, THAT WOULD CONSTITUTE A WRITE OFF OF A N ACTUAL DEBT. THE CONTENTION OF THE ASSESSEE WAS THAT THE ENTRIES PASSED IN BOOKS O F ACCOUNT BY THE ASSESSEE WERE IN LINE WITH THE DECISION OF THE HONBLE SUPREME CO URT IN VIJAYA BANK (SUPRA) AND, THEREFORE, IT WAS NOT A PROVISION FOR DOUBTFUL DEBT S. THE LD.CIT(A) OBSERVED THAT THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF VI JAYA BANK LTD. (SUPRA) WAS DELIVERED IN RESPECT OF SECTION 36(1)(VII). HE REL IED ON THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF ITO, WARD 3 (3), MUMBAI VS. TCFC FINANCE LTD ., 2011-TIOL- 184-ITAT-MUM AND HELD THAT SINCE THE ASSESSEE HAD SUO MOTU ADDED BACK THE PROVISION FOR DOUBTFUL DEBTS WHILE COMPUTING INCOME UNDER THE NORMAL PROVISIONS OF THE ACT, THE LOGICAL AND NATURAL CONSEQUENCE WAS TH AT SUCH PROVISION FOR DOUBTFUL DEBT LEADS TO DIMINUTION IN VALUE OF ASSET AND, THE REFORE, REJECTED THE ASSESSEES GROUND OF APPEAL. 8. LD. COUNSEL REITERATED THE SUBMISSIONS MAD E BEFORE LD. CIT(A) AND SUBMITTED THAT SINCE THE ENTRIES MADE IN THE BOOKS OF ACCOUNT REGARDING PROVISION OF BAD DEBT WERE BY WAY OF REDUCING THE SUNDRY DEBTORS, THEREFO RE, THE SAID ENTRIES WERE IN CONFORMITY WITH THE DECISION OF HONBLE SUPREME COU RT IN THE CASE OF VIJAYA BANK (SUPRA) AND, ACCORDINGLY, RESULTED IN THE WRITE OFF OF BAD DEBTS. HE REFERRED TO PAGE 6 OF PAPER BOOK WHEREIN THE DECISION OF HONBLE KAR NATAKA HIGH COURT IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD. (2012) 17 TAXMANN COM. 15 (KAR.) IS CONTAINED IN WHICH IT HAS BEEN ,INTER-ALIA, HELD THAT IF THE BA D OR DOUBTFUL DEBT IS REDUCED FROM THE LOANS AND ADVANCES OR THE DEBTORS FROM THE ASSE T SIDE OF THE BALANCE SHEET, THE EXPLANATION TO SECTION 115JA AND 115JB IS NOT AT A LL ATTRACTED. LD. COUNSEL SUBMITTED THAT LD. CIT(A) HAS RELIED ON THE DECISI ON OF TRIBUNAL IN THE CASE OF ITO VS. M/S. TCFC FINANCE LIMITED DATED 9 TH MARCH, 2011 WHEREAS THE DECISION IN THE ITA NO. 4800/DEL/2011 7 CASE OF CIT VS. YOKOGAWA INDIA LTD. (SUPRA) IS DATE D AUGUST 29, 2011. HE, THEREFORE, SUBMITTED THAT THE DECISION IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD. IS TO BE FOLLOWED. LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE DECISION OF ITAT AHMEDABAD BENCH IN THE CASE OF ACIT VS. VODAFONE ESSAR GUJARA T LTD. 2012-TIOL-318-ITAT- AMH WHEREIN VIDE ORDER DATED 11 TH MAY, 2012 TRIBUNAL HAS FOLLOWED THE DECISION OF KARNATAKA HIGH COURT IN THE CASE YOKOGAWA INDIA LTD .. LD. LD. COUNSEL ALSO RELIED ON THE DECISION OF M/S. MURUGAPPA MORGAN THERMAL CERAM ICS LTD. VS. ACIT 2013-TIOL- 477-ITAT-MAD WHEREIN ALSO THE SIMILAR VIEW HAS BEEN TAKEN. 9. LD. CIT(DR) SUBMITTED THAT GROUND (F) RAISED BY THE ASSESSEE IS IN THE FORM OF ADDITIONAL GROUND AS NO SUCH ISSUE WAS RAISED BE FORE THE AO. HE POINTED OUT THAT IN THE COMPUTATION OF INCOME, UNDER THE NORMAL PROV ISIONS OF ACT, THE ASSESSEE ITSELF HAD ADDED THIS AMOUNT BUT DID NOT ADD THE SAME IN T HE COMPUTATION OF BOOK PROFIT U/S 115JB. HE REFERRED TO PAGE 8 OF PAPER BOOK WHE REIN THE QUESTION RAISED BEFORE THE HONBLE KARNATAKA HIGH COURT IS CONTAINED WHICH READS AS UNDER :- THE APPEAL WAS ADMITTED TO CONSIDER THE FOLLOWING SUBSTANTIAL QUESTION OF LAW : WHETHER THE APPELLATE AUTHORITIES WERE CORRECT IN HOLDING THAT THE PROVISIONS MADE FOR BAD AND DOUBTFUL DEBTS CANNOT BE ADDED BAC K IN ACCORDANCE WITH THE EXPLANATION (C) TO SECTION 115JB(1) OF THE ACT AS THE SAME IS NOT AN ASCERTAINED LIABILITY WHEN COMPUTING THE BOOK PROFI TS UNDER SECTION 115JB OF THE ACT? 10. WITH REFERENCE TO ABOVE QUESTION HE SUBMI TTED THAT THE SAME WAS IN CONTEXT OF CLAUSE (C) AND NOT CLAUSE (I) TO EXPLANATION TO SECTION 115JB AND, THEREFORE, THE SAID DECISION CANNOT BE APPLIED PARTICULARLY BECAUS E SECTION 115JB IS A DEEMING PROVISION. ITA NO. 4800/DEL/2011 8 11. WE HAVE CONSIDERED BOTH THE PARTIES AND H AVE PERUSED THE RECORD. AS FAR AS LD. CIT(DR)S PLEA THAT GROUND (F) RAISED BY THE AS SESSEE IS AN ADDITIONAL GROUND, WE DO NOT FIND ANY SUBSTANCE IN THE SAME BECAUSE THE A O HAS SPECIFICALLY NOTED IN PARA 5 OF HIS ORDER THAT THOUGH IN THE COMPUTATION OF IN COME UNDER THE NORMAL PROVISIONS OF ACT THE ASSESSEE ITSELF HAD ADDED THE IMPUGNED AMOUNT IN THE COMPUTATION OF INCOME BUT THE SAME HAD NOT BEEN ADDED IN THE COMPU TATION OF BOOK PROFIT U/S 115JB . THE ASSESSEES CLAIM WAS DENIED BY AO BY MA KING THE ADDITION OF RS. 40,47,232/- TO THE BOOK PROFIT, AS COMPUTED BY ASSE SSEE. THEREFORE, IT CANNOT BE SAID THAT ASESSEE NOW IS RAISING SOME NEW ISSUES. T HE CLAIM WAS REJECTED BY THE AO AND THE ASSTT. ORDER WAS ALSO CONFIRMED BY THE LD. CIT(A). 12. ON MERITS LD. COUNSEL HAS RELIED ON THE DECI SION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD. ( SUPRA). IT IS TRUE THAT THE GROUND RAISED BEFORE HONBLE HIGH COURT WAS WITH REFERENCE TO EXPLANATION (C) TO SECTION 115JB(2) BUT WHEN THE REVENUES PLEA WITH REFERENCE TO CLAUSE (C) WAS NOT FOUND ACCEPTABLE TO COURT THEN REVENUE ALSO REFERRED TO C LAUSE (I) TO THE EXPLANATION WHICH HAD COME INTO EFFECT FROM 1.4.2001. THE SUBMISSIONS ADVANCED BY LD. COUNSEL FOR THE REVENUE ARE REPRODUCED HEREUNDER : 7. THE LEARNED COUNSEL FOR THE REVENUE SUBMITTED THAT CLAUSE (I) STANDS ADDED TO THE SAID EXPLANATION WHICH HAS COME INTO E FFECT FROM 1.4.2001 AND THEREFORE AS THE SAID AMOUNTS ARE SET ASIDE AS PROV ISION FOR DIMINISHING IN THE VALUE OF ASSETS BY VIRTUE OF RETROSPECTIVE OPERATIO N, THE SAID AMOUNTS HAVE TO BE ADDED ONLY TO ARRIVE AT THE BOOK PROFIT AND THER EFORE THE ORDER PASSED BY THE TRIBUNAL IS ILLEGAL AND REQUIRES TO BE SET ASID E. IN THAT CONTEXT, HE ALSO RELIED ON THE JUDGMENT OF THE APEX COURT IN THE CAS E OF VIJAYA BANK VS CIT (2010) 323 ITR 166 / 190 TAXMAN 257 AND CIT VS. HCL . COMNET SYSTEMS & SERVICES LTD. (2008) 305 ITR 409 / 174 TAXMAN 118. AFTER REFERRING TO ITEMS (A) TO (F) AS PROVIDED IN THE EXPLANATION IT WAS HE LD THAT EVEN DOUBTFUL DEBTS CAN BE ADDED BACK TO THE NET PROFIT IF ITEM (C) STA NDS ATTRACTED. ITEM (C) DEALS WITH AMOUNTS SET ASIDE AS PROVISIONS MADE FOR MEETING THE LIABILITIES, ITA NO. 4800/DEL/2011 9 OTHER THAN ASCERTAINED LIABILITIES. THE ASSESSEES CASE WOULD, THEREFORE, FALL WITHIN THE AMBIT OF ITEM (C) ONLY IF THE AMOUNT IS SET ASIDE AS PROVISION, THE PROVISION IS MADE FOR MEETING A LIABILITY AND THE P ROVISION SHOULD BE FOR OTHER THAN ASCERTAINED LIABILITY, THAT IS, IT SHOULD BE F OR UNASCERTAINED LIABILITY. IN OTHER WORDS, ALL THE INGREDIENTS SHOULD BE SATISFIE D TO ATTRACT ITEM (C) OF EXPLANATION TO SECTION 115JA. IT WAS FURTHER HELD T HAT THERE ARE TWO TYPES OF DEBT. A DEBT IS PAYABLE BY THE ASSESSEE IS DIFFEREN T FROM A DEBT RECEIVABLE BY THE ASSESSEE. A DEBT IS PAYABLE BY THE ASSESSEE WHE RE THE ASSESSE HAS TO PAY THE AMOUNT TO OTHERS WHEREAS THE DEBT RECEIVABLE BY THE ASSESSEE IS AN AMOUNT WHICH THE ASSESSEE HAS TO RECEIVE FROM OTHER S. IN THE PRESENT CASE THE DEBT UNDER CONSIDERATION IS DEBT RECEIVABLE BY THE ASSESSEE. THE PROVISION FOR BAD AND DOUBTFUL DEBT, THEREFORE, IS MADE TO CO VER UP PROBABLY THE DIMINUTION IN THE VALUE OF ASSETS THAT IS DEBT WHIC H IS AN AMOUNT RECEIVABLE BY THE ASSESSEE. THEREFORE, SUCH A PROVISION CANNOT BE SAID TO BE A PROVISION FOR LIABILITY, BECAUSE EVEN IF A DEBT IS NOT RECOVE RABLE NO LIABILITY COULD BE FASTENED UPON THE ASSESSEE. AFTER CONSIDERING THE AFOREMENTIONED ARGUMENTS HO NBLE HIGH COURT IN PARA 8 OBSERVED AS UNDER :- 8. IN THE PRESENT CASE, THE DEBT IS AN AMOUNT REC EIVABLE BY THE ASSESSEE AND NOT ANY LIABILITY PAYABLE BY THE ASSESSEE AND, THEREFORE, ANY PROVISION MADE TOWARDS IRRECOVERABILITY OF THE DEBT CANNOT BE SAID TO BE A PROVISION FOR LIABILITY. THEREFORE, IT WAS HELD THAT ITEM (C ) OF THE EXPLANATION IS NOT ATTRACTED TO THE FACTS OF THE CASE. ITEM (C) IN SEC TION 115JA AND 115JB(1) ARE IDENTICAL. IN ORDER TO ATTRACT THE EXPLANATION THE DEBT WHICH IS DOUBTFUL OR BAD SHOULD SATISFY THE REQUIREMENT CONTEMPLATED IN ITEM (C) OF THE EXPLANATION. IT IS THE AMOUNT OR AMOUNTS SET ASIDE, AS PROVISIONS MADE FOR MEETING THE LIABILITY OTHER THAN THE ASCERTAINED LI ABILITIES. IN THE INSTANT CASE ALSO THE BAD AND DOUBTFUL DEBT FOR WHICH A PRO VISION IS MADE WHICH IS IN THE NATURE OF DIMINUTION IN THE VALUE OF ANY ASS ET WOULD NOT FALL WITHIN ITEM (C) OF EXPLANATION (I). IT IS IN THAT CONTEXT THE APPELLATE COMMISSIONER AS WELL AS THE TRIBUNAL HAS GRANTED RELIEF TO THE A SSESSEE. REALISING THE FATALITY OF THE SAID ARGUMENT, IT IS CONTENDED NOW THAT ITEM (I) CANNOT AMOUNT TO SATISFACTION AS PROVISION FOR DIMINISHIN G IN THE VALUE OF ASSETS IS SUBSTITUTED, IN CASE OF THE ASSESSEE FALLS UNDER IT EM (C). IN MEETING THE AFORESAID CASE, THE LEARNED COUNSEL FOR THE ASSESSE E BROUGHT TO OUR NOTICE THE JUDGMENT OF THE APEX COURT IN THE CASE OF VIJAY A BANK VS. CIT (SUPRA) WHERE THE APEX COURT HAD AN OCCASION TO CONSIDER HI S EXPLANATION. IT ACCEPTED THE ARGUMENT ON BEHALF OF THE REVENUE TO THE EFFECT THAT THE EXPLANATION MAKES IT VERY CLEAR THAT THERE IS A DIC HOTOMY BETWEEN ACTUAL WRITE OFF ON THE ONE HAND AND PROVISION FOR BAD AND DOUBTFUL DEBT ON THE OTHER. A MERE DEBIT TO THE PROFIT AND LOSS ACCOUNT WOULD CONSTITUTE A BAD AND DOUBTFUL DEBT, BUT IT COULD NOT CONSTITUTE ACTU AL WRITE OFF AND THAT WAS THE VERY REASON WHY THE EXPLANATION STOOD INSERTED. PRIOR TO THE FINANCE ITA NO. 4800/DEL/2011 10 ACT, 2001 MANY ASSESSES USED TO TAKE THE BENEFIT OF DEDUCTION UNDER SECTION 36(1)(VII) OF THE 1961 ACT BY MERELY DEBITI NG THE IMPUGNED BAD DEBT TO THE PROFIT AND LOSS ACCOUNT AND, THEREFORE, THE PARLIAMENT STEPPED IN BY WAY OF EXPLANATION TO SAY THAT A MERE REDUCTI ON OF PROFITS BY DEBITING THE AMOUNT TO THE PROFIT AND LOSS ACCOUNT PER SE WO ULD NOT CONSTITUTE ACTUAL WRITE OFF. THE APEX COURT ACCEPTED THE SAID LEGAL POSITION. HOWEVER IT WAS CLARIFIED THAT BESIDES DEBITING THE PROFIT A ND LOSS ACCOUNT AND CREATING A PROVISION FOR BAD AND DOUBTFUL DEBT, THE ASSESSEE CORRESPONDINGLY /SIMULTANEOUSLY OBLITERATED THE SAI D PROVISION FROM ITS ACCOUNTS BY REDUCING THE CORRESPONDING AMOUNT FROM LOANS AND ADVANCES/DEBTORS ON THE ASSETS SIDE OF THE BALANCE SHEET AND CONSEQUENTIALLY, AT THE END OF THE YEAR, THE FIGURE IN THE LOANS AND ADVANCES OR THE DEBTORS ON THE ASSETS SIDE OF THE B ALANCE SHEET WAS SHOWN AS NET OF THE PROVISION FOR THE IMPUGNED BAD DEBT. THEN THE SAID AMOUNT REPRESENTING BAD DEBT OR DOUBTFUL DEBT CANNOT BE AD DED IN ORDER TO COMPUTE BOOK PROFIT. THEREFORE, AFTER THE EXPLANATI ON THE ASSESSEE IS NOW REQUIRED NOT ONLY TO DEBIT THE PROFIT AND LOSS ACCO UNT BUT SIMULTANEOUSLY ALSO REDUCE THE LOANS AND ADVANCES OR THE DEBTORS F ROM THE ASSETS SIDE OF THE BALANCE SHEET TO THE EXTENT OF THE CORRESPONDIN G AMOUNT SO THAT, AT THE END OF THE YEAR, THE AMOUNT OF LOANS AND ADVANCES/D EBTORS IS SHOWN AS NET OF THE PROVISIONS FOR THE IMPUGNED BAD DEBT. THEREF ORE, IN THE FIRST PLACE IF THE BAD DEBT OR DOUBTFUL DEBT IS REDUCED FROM THE L OANS AND ADVANCES OR THE DEBTORS FROM THE ASSETS SIDE OF THE BALANCE SHE ET THE EXPLANATION TO SECTION 115JA OR JB IS NOT AT ALL ATTRACTED. IN THA T CONTEXT EVEN IF AMENDMENT WHICH IS MADE RETROSPECTIVE THE BENEFIT G IVEN BY THE TRIBUNAL AND THE APPELLATE COMMISSIONER TO THE ASSESSEE IS I N NO WAY AFFECTED. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY MERIT IN THIS APPEAL. 13. THEREFORE, IT CANNOT BE SAID THAT THE JUDGM ENT RENDERED BY HONBLE KARNATAKA HIGH COURT WAS ONLY AFTER CONSIDERATION OF ITEM (C) OF EXPLANATION TO SECTION 115JA AND NOT AFTER CONSIDERING ITEM (I) OF EXPLANATION T O SECTION 115JB. HONBLE HIGH COURT HAS HELD THAT THE EXPLANATION PER SE TO SECTI ONS 115JA OR 115JB(1) IS NOT ATTRACTED WHERE THE AMOUNT HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT AS PER THE DECISION OF HONBLE APEX COURT IN THE CASE OF VIJAY A BANK VS. CIT (SUPRA). IT IS NOT DISPUTED THAT IN THE PRESENT CASE PROVISION FOR BAD DEBT HAS BEEN REDUCED FROM ITA NO. 4800/DEL/2011 11 SUNDRY DEBTORS FROM THE ASSET SIDE OF THE BALANCE S HEET AND, CONSEQUENTLY, THE DEBTORS FROM THE ASSET SIDE ON THE BALANCE SHEET WA S SHOWN AT NET OF PROVISION FOR THE IMPUGNED BAD DEBTS. THIS IS IN CONFORMITY WITH THE DECISION OF HONBLE APEX COURT IN THE CASE OF VIJAYA BANK V. CIT (SUPRA). T HEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF HONBLE KARNATAKA HIGH COURT GROUND NO . (E) AND (F) RAISED BY THE ASSESSEE ARE ALLOWED. IN THE RESULT THE ASSESSEES APPEAL IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 6 TH JANUARY, 2015. SD/- SD/- (A.T. VARKEY) ( S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE 16 TH JANUARY, 2015 VEENA COPY OF ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER DEPUTY REGISTRAR, ITAT