DCIT, CIR-5, KOLKATA, Kolkata V. M/s HSIL Ltd., Kolkata

ITA 495/KOL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1746 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 21-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S BISWAS
• Keywords: Bad and doubtful debts

Judgement Text

1 ITA NO.495/KOL/2014 & CO NO.49/KOL/2014 M/S. HSIL LTD., AY 2010-11 , A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE .., /AND . , ) [BEFORE SHRI A. T. VARKEY, JM & SHRI M. BALAGANESH , AM] I.T.A. NO. 495/KOL/2014 ASSESSMENT YEAR: 2010-11 DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-5, KOLKATA VS. M/S. HSIL LTD., (PAN: AAACH7564H) APPELLANT RESPONDENT & C.O. NO.49/KOL/2014 IN I.T.A. NO. 495/KOL/2014 ASSESSMENT YEAR: 2010-11 M/S. HSIL LTD., VS. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-5, KOLKATA CROSS OBJECTOR RESPONDENT DATE OF HEARING 13.06.2017 DATE OF PRONOUNCEMENT 03.08.2017 FOR THE REVENUE SHRI R. S. BISWAS, CIT FOR THE ASSESSEE/CROSS OBJECTOR SHRI P. K. SANGHAI , CA ORDER PER SHRI A.T.VARKEY, JM THE APPEAL PREFERRED BY THE REVENUE AND THE CROSS O BJECTION PREFERRED BY THE ASSESSEE ARE AGAINST THE ORDER OF LD. CIT(A)-VI, KO LKATA DATED 04.12.2013 FOR AY 2010-11. 2. FIRST WE TAKE UP REVENUES APPEAL. THE SOLE ISS UE RAISED BY THE REVENUE IS AGAINST THE ACTION OF LD. CIT(A) IN HOLDING THAT THE AMOUNT OF RS.3672.28 LACS WHICH WAS CREDITED TO THE P&L ACCOUNT ON ACCOUNT OF TRANSFER FROM BUSINES S RECONSTRUCTION RESERVE ( IN SHORT BRR ), WHICH, IN TURN, HAD ARISEN FROM REVALUATION OF L AND AND BUILDING OF THE COMPANY TO THIS EXTENT ADJUSTMENT IN ACCOUNT WAS ALLOWABLE. 3. BRIEF FACTS OF THE CASE AS NOTED BY THE LD. CIT( A) AT PARA 8 ARE THAT THE ASSESSEE IN ITS AUDITED P&L ACCOUNT CREDITED AN AMOUNT OF RS.3732.6 3 LACS ON ACCOUNT OF ADJUSTMENT IN 2 ITA NO.495/KOL/2014 & CO NO.49/KOL/2014 M/S. HSIL LTD., AY 2010-11 BRR AND IN THE COMPUTATION OF INCOME, AN AMOUNT OF RS.3672.87 LACS WAS REDUCED. IT WAS EXPLAINED BEFORE THE AUTHORITIES BELOW THAT A SCHEM E HAS BEEN SANCTIONED BY THE HONBLE CALCUTTA HIGH COURT FOR FINANCIAL RESTRUCTURING OF THE COMPANY AND AS PER THE SAID SCHEME, THE IMMOVABLE PROPERTIES OF THE ASSESSEE WERE REVAL UED AND ADJUSTMENT ON ACCOUNT OF SUCH REVALUATION WAS REFLECTED IN BRR OF THE COMPANY. T HIS AMOUNT WAS UTILIZED FOR WRITING OFF OF OLD, NON-RECOVERABLE DEBTS AND ADVANCES, NON-MOV ING STOCK, NON-MOVING INVENTORIES ETC. IN OTHER WORDS, AN AMOUNT OF RS.3732.63 LAKHS WAS W ITHDRAWN FROM THE REVALUATION RESERVE AND SPENT TOWARDS WRITE OFF OF BAD DEBTS, INVENTORY SCHEME EXPENSES AND ASSETS WRITE OFF. THESE EXPENSES, OTHER THAN WRITE OFF OF FIXED ASSET S, ACCORDING TO THE ASSESSEE, WERE ALLOWABLE FOR INCOME TAX PURPOSE AND HENCE, A CLAIM WAS MADE BY THE ASSESSEE. HOWEVER, THE AO DID NOT ACCEPT THIS PLEA AND WITHOUT ASSIGNI NG ANY REASON IN HIS ORDER MADE AN ADDITION OF RS.3672.87 LACS. AGGRIEVED, THE ASSESS EE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO WAS PLEASED TO DELETE THE ADDITION. AG GRIEVED BY THE SAID DECISION OF THE LD. CIT(A), THE REVENUE IS BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE COMPANY SINCE LAST FIFTY YEARS WAS IN THE MANUFACTURING ACTIVITIES OF SANITARY WARES AND GLASS WARES. DURI NG THESE YEARS, THE ASSESSEE COMPANY HAD VARIOUS OBSOLETE INVENTORIES DUE TO THE VARIATION I N THE MARKET DEMAND AND TEST ETC. THERE WERE HUGE BAD DEBTS WHICH WERE UNRECOVERABLE ALSO. IN THE LIGHT OF THE SAID DEVELOPMENT, THE BOARD OF THE COMPANY WAS ADVISED TO WRITE OFF T HE OBSOLETE INVENTORIES AND BAD DEBTS AND THE COMPANY DID SO. SINCE THE WRITE OFF OF SUC H HUGE AMOUNT WOULD DISTURB THE ANNUAL RESULTS OF THE COMPANY, IT WAS ADVISED TO SET OFF T HE SAME WITH THE BRR WHICH NEEDED TO BE CREATED BY REVALUATION OF ITS LAND. SINCE THE ASSE SSEE IS A LISTED COMPANY, A SCHEME OF ARRANGEMENT ACCORDINGLY NEEDED FOR SUCH CREATION OF BRR AND SETTING THE SAME AS PER APPROVAL OF HONBLE HIGH COURT. THEREFORE, THE ASS ESSEE COMPANY HAS MADE AN APPLICATION BEFORE THE HONBLE HIGH COURT AT CALCUTTA FOR APPRO VAL OF ITS SCHEME FOR FINANCIAL RECONSTRUCTION OF THE COMPANY. THE SCHEME WAS APPR OVED BY THE HONBLE HIGH COURT VIDE ORDER DATED 26.03.2010 W.E.F. 01.04.2009. AS PER T HE SCHEME, THE PROPERTIES OF THE ASSESSEE IN TERM OF LAND AND BUILDING WERE REVALUED AND SURP LUS ARISING OUT OF SUCH REVALUATION WAS TRANSFERRED TO A RESERVE CALLED BRR WITH RS.235 CR. WHICH WAS WITHDRAWN FROM THE RESERVE AND CREATED TO THE P&L ACCOUNT AND TO BE UTILIZED T O SET OFF OF BAD DEBTS, OBSOLETE STOCK, 3 ITA NO.495/KOL/2014 & CO NO.49/KOL/2014 M/S. HSIL LTD., AY 2010-11 FIXED ASSETS AND TO MEET SCHEME EXPENSES ETC. AS P ER PARA 15.1 OF THE SCHEME APPROVED BY THE HONBLE HIGH COURT. DURING THIS YEAR, THE ASSES SEE COMPANY HAD WRITTEN OFF ITS OBSOLETE STOCK, NON-MOVING STOCK, BAD DEBTS, RAW MATERIALS E TC. TO THE EXTENT OF RS.3732.63 LACS. THESE ITEMS WERE DEBITED TO THE P&L ACCOUNT. SINCE THE ITEMS WHICH HAVE BEEN WRITTEN OFF WERE OF REVENUE IN NATURE, THE ASSESSEE CLAIMED IT AS ALLOWABLE DEDUCTION. IT WAS BROUGHT TO OUR NOTICE THAT AS PER THE INCOME-TAX ACT, ONLY WRI TE OFF OF FIXED ASSETS IS CAPITAL IN NATURE AND IS NOT ALLOWABLE AS DEDUCTION IN THE COMPUTATIO N OF TOTAL INCOME BECAUSE OF BLOCK CONCEPT AND ACCORDINGLY, THE SAME WAS NOT CLAIMED B Y THE ASSESSEE. IT WAS BROUGHT TO OUR NOTICE THAT THE ASSESSEE HAD ITSELF EXCLUDED AN AMO UNT OF RS.59.76 LACS RELATING TO WRITING OFF OF FIXED ASSETS AND SINCE THE REMAINING DEBITED ITEMS ARE OF REVENUE NATURE AND RELATED TO BUSINESS OF THE ASSESSEE IT WAS CLAIMED AS ALLOWABL E DEDUCTION. IT WAS BROUGHT TO THE KNOWLEDGE OF THE AO THAT THIS IS ONLY A BOOK ENTRY RESULTING INTO NO ACTUAL MONETARY TRANSACTION OR ANY REAL INCOME AS THE SAME HAS BEEN REDUCED FROM THE INCOME TO THE EXTENT OF RS.3672.87 LACS. HOWEVER, THE AO WITHOUT ASSIGN ING ANY REASON HAS DISALLOWED THE CLAIM MADE BY THE ASSESSEE WHICH IS ERRONEOUS. THE LD. CIT(A), HOWEVER, CLEARLY HELD THAT THE AMOUNT OF RS.3732.63 LACS CREDITED TO THE P&L A CCOUNT WAS ON ACCOUNT OF TRANSFER FROM BRR WHICH, IN TURN, HAS ARISEN FROM REVALUATION OF LAND AND BUILDING OF THE ASSESSEE COMPANY. THUS, THE LD. CIT(A) HAS RIGHTLY HELD THA T IT DID NOT REPRESENT ANY ACTUAL RECEIPT OF INCOME BUT WAS MERELY AN ADJUSTMENT ENTRY TO SH OW EFFECT OF REVALUATION OF THE ASSETS. HENCE, THE LD. CIT(A) HELD THAT NO REAL INCOME ACC RUED WHICH CAN BE CHARGED TO TAX AND SINCE IT WAS MERELY A BOOK ENTRY, THEREFORE, ADDITI ON WAS NOT WARRANTED AND THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION, WHICH WE UPHOLD A ND THEREBY DISMISS THE APPEAL OF THE REVENUE. 5. NOW, WE ARE COMING TO THE CROSS OBJECTION. GROU ND NO. 1 OF ASSESSEES CO WAS NOT PRESSED AND HENCE, THE SAME IS DISMISSED AS NOT PRE SSED. 6. GROUND NO. 2 OF ASSESSEES CO IS AGAINST THE ACT ION OF LD. CIT(A) IN CONFIRMING THE ACTION OF AO IN DISALLOWING A SUM OF RS.29,26,927/- AS CLAIMED BY THE ASSESSEE IN THE COMPUTATION OF INCOME ON ACCOUNT OF PROVISION FOR B AD AND DOUBTFUL DEBTS WRITTEN OFF. 7. BRIEF FACTS OF THE ISSUE IS THAT THE AO MADE AN ADDITION OF RS.29,26,927/- IN RESPECT OF PROVISIONS FOR BAD AND DOUBTFUL DEBTS WRITTEN BA CK IN THE NORMAL COMPUTATION AS WELL AS 4 ITA NO.495/KOL/2014 & CO NO.49/KOL/2014 M/S. HSIL LTD., AY 2010-11 BOOK PROFIT. THE AO OBSERVED THAT THE ASSESSEE HAD IN THE AUDITED ACCOUNTS SHOWN AN AMOUNT OF RS.1.5 CR. AS PROVISIONS FOR DOUBTFUL DEB TS AND ADVANCES WRITTEN BACK UNDER THE HEAD OF OTHER INCOME. IT WAS TAKEN NOTE BY THE AO T HAT THE ASSESSEE IN ITS COMPUTATION OF INCOME HAS DEDUCTED AN AMOUNT OF RS.1,79,26,927/- I N PLACE OF RS.1.5 CR. IN THE AUDITED ACCOUNTS. SINCE THE ASSESSEE COULD NOT PROPERLY EX PLAIN THE DIFFERENCE OF RS.29,26,927/-THE AO MADE THE ADDITION OF THE SAID AMOUNT OF RS.29,26 ,927/-. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). BEFORE THE LD. CIT(A) THE ASSESSEE MADE THE FOLLOWING SUBMISSIONS: THE ASSESSEE COMPANY HAD PROVISION OF BAD AND DOUB TFUL DEBTS SINCE EARLIER YEARS OUT OF WHICH 1.50 CRORE WAS WRITTEN OFF AS EITHER MONEY WA S RECEIVED OR THE DEBTORS TO THAT EXTENT WERE DETERMINED NOT TO BE DOUBTFUL. ACCORDINGLY RS .1,50 CRORE WAS SHOWN IN INCOME SIDE AS EXCESS PROVISION FOR BAD AND DOUBTFUL DEBTS WRIT TEN OFF. SINCE PROVISION FOR BAD AND DOUBTFUL DEBTS WHEN DEBITED IN THE PROFIT AND LOSS ACCOUNT IS ADDED BACK IN THE COMPUTATION OF TOTAL INCOME. SIMILARLY THE SAME IS REDUCED FRO M THE TOTAL INCOME WHEN SUCH PROVISION IS WRITTEN BACK AND CREDITED IN P/L ACCOUNT. FURTH ER OUT OF OLD PROVISION FOR BAD AND DOUBTFUL DEBTS, A SUM OF RS.29,26,927/- RESULTED IN TO BAD DEBTS AND THEREFORE DIRECTLY REDUCED FROM DEBTORS. DUE TO THIS POSITION RS.29,2 6,927/- WAS REDUCED FROM THE COMPUTATION. WE HAD ALREADY SUBMITTED THE DETAILS OF SUCH PROVISION, AMOUNT WRITTEN BACK, DIRECT REDUCTION FROM DEBTORS AND CLOSING PROVISION . A WRITTEN EXPLANATION WAS ALSO GIVEN IN THIS REGARD AT THE TIME OF HEARING. FOR THE ABOVE REASON THE AFORESAID AMOUNT OF RS.29, 26,927/- WAS REDUCED FROM THE COMPUTATION. THIS WAS WITHOUT ANY MALAFIDE INTENTI ON. IT WAS FOR THE REASON OF NON CLARITY ON THE MATTER WHILE MAKING COMPUTATION OF THE TOTAL INCOME BY THE PERSON AT HO. THEREFORE, THIS RESULTED INTO A TECHNICAL ERROR ONL Y. 8. THE LD. CIT(A) OBSERVED THAT IT IS NOT CLEAR THA T WHETHER THE SAID DEBTS HAVE BEEN REDUCED DIRECTLY FROM THE DEBTORS BALANCE AND ACCO RDINGLY CONFIRMED THE ACTION OF THE DISALLOWANCE MADE BY THE AO TO THE TUNE OF RS.29,26 ,927/- TOWARDS PROVISIONS FOR BAD AND DOUBTFUL DEBTS. THE LD. AR PRAYED BEFORE US THAT L ET THIS ISSUE BE EXAMINED BY THE AO IN THE LIGHT OF SUBMISSIONS MADE BEFORE THE LD. CIT(A) AND ON THE MATERIALS AVAILABLE ON RECORD. IN RESPONSE TO THIS, THE LD. DR DID NOT PL ACE ANY OBJECTION FOR SETTING ASIDE OF THE ISSUE. 9. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DEEM IT FIT TO REMAND THIS ISSUE TO THE FILE OF THE AO FOR DE NOVO ADJUDICATION OF THIS ISS UE BASED ON THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE IN THE BOOKS OF ACCOUNT AND ALSO TH E TREATMENT OF PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE RETURN OF INCOME. ACCORDINGL Y, GROUND NO. 2 OF THE CROSS OBJECTION 5 ITA NO.495/KOL/2014 & CO NO.49/KOL/2014 M/S. HSIL LTD., AY 2010-11 PREFERRED BY THE ASSESSEE IS REMITTED FOR DE NOVO A DJUDICATION AND THIS GROUND OF ASSESSEES CROSS OBJECTION IS ALLOWED FOR STATISTICAL PURPOSES . 10. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED A ND THE CO OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER IS PRONOUNCED IN THE OPEN COURT ON 03.08.2017 . SD/- SD/- (M. BALAGANESH) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 3 RD AUGUST, 2017 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT DCIT, CIRCLE-5, KOLKATA. 2 RESPONDENT M/S. HSIL LTD., 2, RED CROSS PLACE, KO LKATA-700 001. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, SR. PVT. SECRETARY