RELIANCE INDUSTRIES LTD, MUMBAI V. ASST CIT LTU, MUMBAI

ITA 5247/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3389 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 18-08-2014
• Court: TRIBUNAL
• Department Lawyers: A K SRIVASTAVA
• Assessee Lawyers: ARVIND SONDE
• Keywords: Rectification of order; Period of limitation; Retrospective amendment; Bad and doubtful debts
• Section: 234B; 115JB; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R. BASKARAN (AM) & RAMLAL NEGI (JM) I.T.A. NO. 5247 /MUM/ 2014 (ASSESSMENT YEAR 2005 - 06 ) RELIANCE INDUSTRIES LIMITED 3 RD FLOOR MAKER CHAMBER - IV 222, NARIMAN POINT MUMBAI - 400 021. V S. A SST. C I T LARGE TAX PAYER UNIT 29 TH FLOOR, CENTRE NO. 1, WORLD TRADE CENTRE CUFFE PARADE MUMBAI - 400 005. ( APPELLANT ) ( RESPONDENT ) PAN NO . AAACR5055K ASSESSEE BY SHRI ARVIND SONDE DEPARTMENT BY SHRI A.K. SRIVASTAVA DATE OF HEARING 10.3 . 2 01 6 DATE OF PRONOUNCEMENT 03 . 6 . 201 6 O R D E R PER B.R. BASKARAN, A M : - THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 14.7.2014 PASSED BY LEARNED CIT(A) - 24, MUMBAI AND IT RELATES TO A.Y. 2005 - 06 . 2. THE ASSESSEE IS AGGRIEV ED BY THE DECISION OF LEARNED CIT(A) IN PASSING THE RECTIFICATION ORDER IN PURSUANCE OF APPLICATION FILED BY THE AO IN ORDER TO GIVE EFFECT TO THE AMENDMENT BROUGHT IN TO SECTION 115JB OF THE ACT SUBSEQUENT TO THE DATE OF ORDER OF LEARNED CIT(A). 3. FACTS RELATING TO THE ISSUE ARE STATED IN BRIEF. THE A SSESSMENT ORDER FOR THE YEAR UNDER CONSIDERATION WAS PASSED BY THE ASSESSING OFFICER ON 22.2.2008. THE LEARNED CIT(A) PASSED THE APPELLATE ORDER ON 31.10.2008 ON THE APPEAL FILED BY THE ASSESSEE . IN THE ASSE SSMENT ORDER , THE ASSESSING OFFICER HAD ADDED P ROVISION FOR DOUBTFUL DEBT S CREATED BY THE ASSESSEE TO THE BOOK PROFIT COMPUTED U/S. 115JB OF THE ACT. THE LEARNED CIT(A), HOWEVER, DELETED THE SAME BY FOLLOWING THE DECISION RENDERED BY HON'BLE SUPREME RELIANCE INDUSTRIES LTD. 2 CO URT IN THE CASE OF HCL COMET SYSTEM & SERVICES LTD. (CIVIL APPEAL NO. 5800 OF 2008 DATED 23.9.2008). 4. SUBSEQUENTLY FINANCE (NO.2) ACT OF 2009 AMENDED EXPLANATION 1 TO SECTION 115JB WITH RETROSPECTIVE EFFECT FROM 1.4.2001 BY INSERTING CLAUSE (I). TH E ABOVE SAID CLAUSE PROVIDE D THAT THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET IS REQUIRED TO BE ADDED TO THE NET PROFIT DISCLOSED IN THE PROFIT AND LOSS ACCOUNT. IN VIEW OF THIS AMENDMENT, THE PROVISION FOR DOUBTF UL DEBTS CREATED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS REQUIRED TO BE ADDED, SINCE THE ABOVE SAID AMENDMENT WAS RETROSPECTIVE EFFECT FROM 1.4.2001. HENCE T HE ASSESSING OFFICER FILED A PETITION DATED 22.4.2010 WITH THE LEARNED CIT(A) WITH A REQUEST TO AMEND THE ORDER PASSED BY HIM ON THIS ISSUE. ACCORDINGLY LEARNED CIT(A) PASSED A RECTIFICATION ORDER ON 27.3.2014 CONFIRMING THE ADDITION OF PROVISION FOR DOUBTFUL DEBTS MADE BY THE ASSESSING OFFICER TO THE BOOK PROFIT COMPUTED U/S 115JB OF T HE ACT. IN THE RECTIFICATION ORDER, CERTAIN OBSERVATIONS MADE BY LEARNED CIT(A) WERE FOUND TO BE CONTRARY TO THE FACTS AVAILABLE AND HENCE THE ASSESSEE ALSO MOVED A RECTIFICATION PETITION BEFORE LEARNED CIT(A). ACCORDIN GLY, LEARNED CIT(A) PASSED ANOTHER O RDER U/S. 154 OF THE ACT ON 14.7.2014 , WHEREIN HE RECTIFIED THE MISTAKES POINTED OUT BY THE ASSESSEE AND AGAIN DEALT WITH THE PETITION FILED BY THE ASSESSING OFFICER . IN EFFECT, THE LD CIT(A) CONFIRMED THE ADDITION RELATING TO PROVISION FOR DOUBTFUL DEBT TO THE NET PROFIT WHILE COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. AGGRIEVED BY THE SAID ORDER, ASSESSEE HAS FILED THIS APPEAL BEFORE US. 5. THE LD COUNSEL APPEARING FOR THE ASSESSEE CHALLENGED THE RECTIFICATION ORDER PASSED BY LD CIT(A) ON SEVERAL G ROUNDS. HE SUBMITTED THAT THE FIRST RECTIFICATION ORDER DATED 27.3.2014 PASSED BY LD CIT(A) IS BARRED BY LIMITATION, SINCE HE HAS PASSED THE ORDER AFTER EXPIRY OF FOUR YEARS FROM THE DATE OF PASSING OF ORIGINAL ORDER. IT WAS SUBMITTED THAT THE ORIGINAL O RDER WAS PASSED BY LD CIT(A) ON 31.10.2008 AND HENCE THE FIRST RECTIFICATION ORDER PASSED ON 27.3.14 WAS AFTER EXPIRY OF FOUR YEARS AND HENCE IT IS BARRED BY LIMITATION. HE RELIANCE INDUSTRIES LTD. 3 FURTHER SUBMITTED THAT THE REVENUE SHOULD HAVE FILED APPEAL BEFORE THE TRIBUNAL, I F THEY FELT AGGRIEVED BY THE ORDER PASSED BY LD CIT(A). HE SUBMITTED THAT THE REVENUE HAS CIRCUMVENTED THE APPELLATE REMEDY BY FILING THE RECTIFICA TION PETITION BEFORE THE LD CIT(A). 6. THE LD D.R SUBMITTED THAT THE ASSESSING OFFICER HAS MOVED THE RECTIF ICATION PETITION ON 22.4.2010, I.E., WITHIN FOUR YEARS FROM THE DATE OF PASSING OF THE ORDER BY LD CIT(A). HE SUBMITTED THAT THE LD CIT(A) HAS TAKEN HIS OWN TIME TO PASS THE ORDER, ON WHICH THE AO DOES NOT HAVE ANY CONTROL. ACCORDINGLY HE SUBMITTED THAT THE RECTIFICATION ORDER PASSED BY LD CIT(A) CANNOT BE CONSIDERED TO HAVE BECOME TIME BARRED, SINCE THE PETITION HAS BEEN FILED WITHIN THE TIME. HE FURTHER SUBMITTED THAT THE ASSESSEE HIMSELF HAS MOVED A PETITION U/S 154 OF THE ACT WITHOUT PROTESTING THE F IRST RECTIFICATION ORDER AS BARRED BY LIMITATION. 7. WE HEARD THE PARTIES ON THIS LEGAL ISSUE. ADMITTEDLY, THE AO HAS MOVED THE APPLICATION WITHIN FOUR YEARS FROM THE DATE OF ORIGINAL ORDER. HENCE WE FIND MERIT IN THE CONTENTIONS OF THE REVENUE THAT THE AO CANNOT BE FOUND FAULT WITH, WHEN THE LD CIT(A) HAS TAKEN HIS OWN TIME TO DISPOSE OF THE PETITION FILED BY THE AO. SINCE THE ASSESSING OFFICER HAS FILED THE PETITION WITHIN FOUR YEARS FROM THE DATE OF ORIGINAL ORDER PASSED BY LD CIT(A), WE ARE OF THE V IEW THAT THE FIRST RECTIFICATION ORDER PASSED BY LD CIT(A) CANNOT BE CONSIDERED TO BE BARRED BY LIMITATION. 8. THE LD A.R ALSO URGED ANOTHER CONTENTION THAT THE REVENUE HAS CIRCUMVENTED THE APPELLATE PROVISIONS BY FILING THE RECTIFICATION PETITION , I. E., ACCORDING TO HIM, THE REVENUE SHOULD HAVE FILED APPEAL BEFORE THE TRIBUNAL, WHEN THEY FELT AGGRIEVED BY THE ORDER PASSED BY LD CIT(A) IN RESPECT OF ADDITION OF PROVISION FOR DOUBTFUL DEBTS TO THE BOOK PROFIT. HOWEVER, WE NOTICE THAT THERE WAS NO OCC ASION FOR THE REVENUE TO FILE APPEAL IN THE ITAT, SINCE THE LD CIT(A) HAS PASSED THE ORDER ON THE IMPUGNED ISSUE BY FOLLOWING TH E DECISION RENDERED BY HONBLE SUPREME COURT . THE AO HAS MOVED THE PETITION ON THE RELIANCE INDUSTRIES LTD. 4 BASIS OF SUBSEQUENT AMENDMENT BROUGHT INTO S EC. 115JB BY FINANCE (NO.2) ACT OF 2009 WITH RETROSPECTIVE EFFECT . HENCE WE DO NOT AGREE WITH THE ABOVE SAID CONTENTIONS OF THE ASSESSEE. 9. THE LD A.R CONTENDED THAT THE QUESTION WHETHER THE LD CIT(A) COULD RECTIFY HIS ORDER U/S 154 OF THE ACT ON TH E BASIS OF THE AMENDMENT BROUGHT INTO THE ACT SUBSEQUENT TO PASSING OF THE ORDER IS A DEBATABLE ONE AND HENCE THE LD CIT(A) WAS NOT JUSTIFIED IN PASSING THE RECTIFICATION ORDER. HE CONTENDED THAT THE LD CIT(A) HAD RENDERED HIS DECISION ON THE BASIS OF DEC ISION OF HONBLE SUPREME COURT, WHICH WAS PREVAILING THE FIELD. 10. THE LD D.R, ON THE CONTRARY, STRONGLY SUPPORTED THE ACTION OF LD CIT(A). HE SUBMITTED THAT THE SUBSEQUENT AMENDMENT BROUGHT INTO THE ACT WITH RETROSPECTIVE EFFECT CONSTITUTES MISTAK E APPARENT FROM RECORD AND HENCE THE LD CIT(A) WAS JUSTIFIED IN PASSING THE IMPUGNED RECTIFICATION ORDERS. HE SUBMITTED THAT THIS QUESTION IS NO LONGER A DEBATABLE IN VIEW OF THE FOLLOWING DECISIONS: - (A) J.M. BHATIA, AAC VS. J.M. SHAH (1985)(159 ITR 474)( SC) (B) M.K.VENKATACHALAM VS. BOMBAY DYEING & MFG. CO. LTD (1958)(34 ITR 143) (C) GTC INDUSTRIES LTD VS. DCIT (2007)(104 ITD 86)(MUM)(TM) . 11. THE LD A.R, IN THE REJOINDER, SUBMITTED THAT THE HONBLE SUPREME COURT IN THE CASE OF J.M.BHATIA, AAC VS. J.M . SHAH DID NOT CONSIDER THE QUESTION AS TO WHETHER THE ISSUE BEFORE IT WAS DEBATABLE ONE OR NOT. HE FURTHER SUBMITTED THAT THE AAC, IN THE CASE BEFORE HONBLE SUPREME COURT, HAS PASSED THE ORDER WITHIN FOUR YEARS. 12. WE HEARD THE PARTIES ON THIS LEGA L ISSUE. WE NOTICE THAT THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF J.M. BHATIA, AAC VS. J.M.SHAH (SUPRA) ANSWERS THIS QUESTION. THE HEAD NOTES OF THE ABOVE SAID CASE READS AS UNDER: - RELIANCE INDUSTRIES LTD. 5 SECTION 35(7) OF THE WEALTH TAX ACT, 1957 RECTIFI CATION OF MISTAKES APPARENT FROM RECORD - FOR ASSESSMENT YEAR 1969 - 70, AAC BY HIS ORDER DATED 26 - 6 - 1970 ALLOWED EXEMPTION TO ASSESSEE QUA JEWELLERY AND ORNAMENTS UNDER SECTION 591)(VIII) HOLDING THAT THEY WERE INTENDED FOR PERSONAL USE - NEITHER SIDE FILED A PPEAL AGAINST THIS ORDER AND PERIOD PROVIDED FOR APPEAL EXPIRED - SUBSEQUENTLY FOLLOWING AMENDMENT OF SECTION 5(1)(VIII) IN 1971 WITH RETROSPECTIVE EFFECT FROM 1.4.1963, EXCLUDING JEWELLERY FROM EXEMPTION CLAUSE, AAC RECTIFIED HIS PREDECESSOR AACS ORDER ON 22.2.1972 AND WITHDREW EXEMPTION GRANTED EARLIER - HIGH COURT HELD THAT QUESTION WHETHER AMENDING ACT APPLIED TO ASSESSMENT WHICH WERE ALREADY COMPLETED WAS A HIGHLY DEBATABLE QUESTION AND, THEREFORE, IT WAS NOT A CASE OF AN ERROR APPARENT ON THE FACE OF TH E RECORD WHICH ENTITLED AAC TO RECTIFY HIS PREDECESSORS ORDER WHETHER AACS RECTIFICATION ORDER HAVING PASSED WITHIN FOUR YEAR PERIOD OF LIMITATION UNDER SECTION 35, AACS ORDER DATED 26.6.1970 COULD NOT BE SAID TO HAVE BECOME FINAL HELD YES_ WHETHER, THEREFORE, AAC WAS JUSTIFIED IN RECTIFYING EARLIER ORDER AND IT WAS UNNECESSARY TO CONSIDER WHETHER A DEBATABLE QUESTION WAS INVOLVED AS HELD BY HIGH COURT HELD, ON FACTS, YES. IDENTICAL VIEWS HAVE BEEN TAKEN IN THE TWO OTHER CASES RELIED UPON THE L D D.R. WHEN THE HONBLE SUPREME COURT HELD THAT THE RECTIFICATION WAS JUSTIFIED ON THE BASIS OF SUBSEQUENT AMENDMENT BROUGHT INTO THE ACT WITH RETROSPECTIVE EFFECT, THE SAID ANSWER ALSO SHOWS THAT THE ISSUE WAS NOT A DEBATABLE ONE. FOLLOWING THE ABOVE SAI D DECISIONS, WE REJECT THE CONTENTIONS OF THE ASSESSEE AND HOLD THAT THE RECTIFICATION ORDERS PASSED BY LD CIT(A) WERE WITHIN THE PURVIEW OF THE PROVISIONS OF THE ACT. SINCE WE HAVE RENDERED THIS DECISION ON THE BASIS OF THE DECISION RENDERED BY HONBLE SUPREME COURT, WE DO NOT FIND IT NECESSARY TO CONSIDER OTHER CASE LAWS RELIED UPON BY THE ASSESSEE ON THIS ISSUE. 13. ON MERITS, THE LD A.R SUBMITTED THAT THE AMOUNT RELATING TO PROVISION FOR DOUBTFUL DEBTS DEBITED TO THE PROFIT AND LOSS ACCOUNT HAS BEEN DEDUCTED FROM THE SUNDRY DEBTORS BALANCE IN THE BALANCE SHEET. BY PLACING RELIANCE ON THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK (323 ITR 166), THE LD A.R SUBMITTED THAT SUCH KIND OF ACCOUNTING TREATMENT AMOUNTS TO ACT UAL WRITE OFF OF DEBTS. ACCORDINGLY HE CONTENDED THAT THE AMOUNT DEBITED TO PROVISION FOR DOUBTFUL DEBTS SHOULD BE CONSIDERED AS RELIANCE INDUSTRIES LTD. 6 ACTUAL WRITE OFF OF DEBTS AND HENCE THE SAME CANNOT BE CONSTRUED AS A PROVISION MADE FOR DIMINUTION IN THE VALUE OF ASSETS W ARRANTING ADDITION OF THE SAME TO THE NET PROFIT, WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. HE DREW SUPPORT FOR THIS PROPOSITION FROM THE DECISION RENDERED BY HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD (2012)(204 TAXMAN 305)(KAR) AND CIT VS. M/S KRILOSKAR SYSTEMS LTD (ITA NO.188/2013 DATED 28 - 10 - 2013). 14. WE HEARD LD D.R ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THE HONBLE SUPREME COURT, IN THE CASE OF VIJAYA BANK (SUPRA) HAS CONSIDERED THE ISSUE WHET HER THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE WOULD COMPLY WITH THE CONDITION PRESCRIBED IN SEC. 36(1)(VII) OF THE ACT THAT THE DEBTS CLAIMED AS BAD SHOULD HAVE BEEN WRITTEN IN THE BOOKS AS BAD. ON THE FACTS OF THAT CASE, THE HONBLE SUPREME COURT HE LD THAT THE ACCOUNTING TREATMENT ADOPTED BY THE ASSESSEE THEREIN COMPLIES WITH THE SAID CONDITION. THE DECISION OF HONBLE SUPREME COURT WAS RENDERED IN THE CONTEXT OF SEC. 36(1)(VII) OF THE INCOME TAX ACT. ON THE CONTRARY, THE BOOK PROFIT IS COMPUTED U/S 115JB OF THE ACT ON THE BASIS OF ACCOUNTS PREPARED UNDER THE COMPANIES ACT. IT IS IN THE KNOWLEDGE OF EVERY ONE THAT THE ACCOUNTS ARE PREPARED UNDER THE COMPANIES ACT IN ACCORDANCE WITH THE PRINCIPLES OF ACCOUNTING BY FOLLOWING VARIOUS ACCOUNTING STAN DARDS AND PRACTICES. UNDER THE ACCOUNTING TERMINOLOG IES PROVISION FOR DOUBTFUL DEBTS AND WRITING OF BAD DEBTS HAS GOT DISTINCT MEANING. BOTH THE TERMS STAND ON DIFFERENT FOOTING AND THE A CCOUNTING WORLD ALSO UNDERSTAND THEIR MEANING DIFFERENTLY. ACCORD INGLY, IN OUR CONSIDERED VIEW, THE MEANING OF THE ABOVE SAID EXPRESSIONS SHOULD BE UNDERSTOOD AND APPLIED IN THE SAME MANNER WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. ACCORDINGLY, THE PROVISION FOR DOUBTFUL DEBTS SHALL REPRESENT A PROVISION MADE T O TAKE CARE OF THE DIMINUTION IN THE VALUE OF SUNDRY DEBTORS AND THE SAME CANNOT BE UNDERSTOOD AS ACTUAL WRITE OFF AS BAD DEBTS. IT IS WELL SETTLED PROPOSITION OF LAW THAT THE DECISION RENDERED BY NON - JURISDICTIONAL HIGH COURT HAS GOT PERSUASIVE VALUE ONLY. ACCORDINGLY, WE ARE RELIANCE INDUSTRIES LTD. 7 OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN CONFIRMING THE ADDITION OF PROVISION FOR DOUBTFUL DEBTS TO THE BOOK PROFIT. 15. THE ASSESSEE HAS MOVED AN ADDITIONAL GROUND WITH REGARD TO CHARGEABILITY OF INTEREST U/S 234 B OF THE ACT ON THE ADDITION SO MADE BY LD CIT(A) ON THE BASIS OF SUBSEQUENT AMENDMENT. THE SUBMISSION OF THE ASSESSEE IS THAT THE ASSESSEE COULD NOT HAVE VISUALISED THE SUBSEQUENT AMENDMENTS THAT MAY BE MADE IN THE ACT WHILE ESTIMATING THE AMOUNT OF ADVA NCE TAX PAYABLE BY IT. ACCORDINGLY IT WAS CONTENDED THAT THE INTEREST U/S 234B OF THE ACT ON THE ADDITION RELATING TO PROVISION FOR DOUBTFUL DEBTS MADE TO THE BOOK PROFIT. THE ASSESSEE HAS ALSO PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE KARNAT AKA HIGH COURT IN THE CASE OF M/S KIRLOSKAR SYSTEMS LTD (SUPRA), THE DECISION RENDERED BY HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. REVATHI EQUIPMENT LTD (2008)(298 ITR 67) AND ALSO ON HOST OF OTHER DECISIONS. 16. WE HEARD LD D.R ON THIS ISSUE A ND PERUSE D THE CASE LAWS RELIED UPON BY THE ASSESSEE. THE VARIOUS DECISIONS RELIED UPON BY THE ASSESSEE EXPRESSES THE VIEW THAT THE ASSESSEE SHOULD BE FASTENED WITH INTEREST LIABILITY IN RESPECT OF THE ADDITION MADE ON THE BASIS OF SUBSEQUENT AMENDMENT, S INCE THE ASSESSEE COULD NOT HAVE FORESEEN THE LIABILITY AT THE TIME OF ESTIMATING HIS INCOME FOR THE PURPOSE OF PAYMENT OF ADVANCE TAX. HENCE, WE FIND MERIT IN THE ADDITIONAL GROUND URGED BY THE ASSESSEE. ACCORDINGLY, WE DIRECT THE AO NOT TO LEVY INTERES T U/S 234B OF THE ACT ON THE ADDITION RELATING TO PROVISION FOR DOUBTFUL DEBTS MADE WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER HAS BEEN PRONOU NCED IN THE OPEN COU RT ON 3 .6 .2016 . SD/ - SD/ - (RAMLAL NEGI ) (B.R.BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 03 / 6/ 20 1 6 RELIANCE INDUSTRIES LTD. 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLAN T 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS