SHAKTI INSULATED WIRES P. LTD`, MUMBAI V. ITO 9(3), MUMBAI

ITA 5814/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75442 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 12-02-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 17-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHOK SURI
• Assessee Lawyers: DIVYESH I SHAH
• Keywords: Reopening of assessment; Retrospective amendment; Bad and doubtful debts
• Section: 143(3); 234B; 115JB; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENC H, MUMBAI .. , %, BEFORE S/SHRI B. R. BASKARAN, AM & AMIT SHUKLA, JM ./ ITA NO. 5814/MUM/2011 ( ' ' ' ' ' ' ' ' / / / / ASSESSMENT YEAR 2005-06 ) SHAKTI INSULATED WIRES P LTD DATTAPADA ROAD BORIVALI (E) MUMBAI 66 / VS. THE INCOME TAX OFFICER WARD 9(3), MUMBAI ./PAN : AAACS7202B ( * /APPELLANT ) ( +,* / RESPONDENT ) * - / APPELLANT BY : SH DIVYESH I SHAH +,* - / RESPONDENT BY : SH ASHOK SURI, DR - / /DATE OF HEARING : 12 TH FEB 2014 - / / DATE OF PRONOUNCEMENT : 14 TH FEB2014 / O R D E R PER B R BASKARAN,AM : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 20.6.2011 PASSED BY THE LD CIT(A)-20, MUMBAI AND IT RELATES TO THE A Y 2005-06. 2 AT THE TIME OF HEARING, THE LD COUNSEL FOR THE AS SESSEE DID NOT PRESS GROUND NO.3 AND IN THAT REGARD BE HAS ALSO MADE NECESSARY ENDORSEME NT IN THE GROUNDS OF APPEAL BY AFFIXING HIS SIGNATURE. ACCORDINGLY, THE SAID GROUND IS DISM ISSED AS NOT PRESSED. GROUND NO.5 IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICA TION. THE REMAINING GROUNDS RELATE TO THE FOLLOWING THREE ISSUES: I) VALIDITY OF REOPENING OF ASSESSMENT U/S 147 OF THE ACT II) VALIDITY OF ADDING THE PROVISION FOR DOUBTFUL DEBTS TO THE BOOK PROFIT COMPUTED SHAKTI INSULATED WIRES LTD 2 U/S 115JB OF THE ACT, AND III) CORRECTNESS OF THE COMPUTATION OF INTEREST U/ S 234B AND 234C OF THE ACT. 3 THE FACTS RELATING TO THE CASE ARE STATED IN BRIE F: THE ASSESSEE FILED ITS ORIGINAL RETURN OF INCOME ON 31.10.2005 DECLARING NIL INCOME. THE R ETURN WAS PROCESSED U/S 143(1) OF THE ACT ON 14.3.2006. SUBSEQUENTLY, THE AO HAS NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.86,70,954/- UNDER THE HEAD PROVISI ON FOR BAD AND DOUBTFUL DEBTS AND DID NOT DISALLOW THE SAME. THE ASSESSEE ALSO DID NOT A DD THE SAME TO THE NET PROFIT, WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. HE NCE, THE AO REOPENED THE ASSESSMENT BY ISSUING NOTICE U/S 148 OF THE ACT ON 23.3.2010. I N THE REOPENED ASSESSMENT, THE AO ADDED THE AMOUNT OF RS.86,70,954/- CLAIMED UNDER THE HEAD PROVISION FOR BAD AND DOUBTFUL DEBTS TO THE TOTAL INCOME AS WELL AS TO THE BOOK PROFIT C OMPUTED U/S 115JB OF THE ACT. THE ASSESSEE WAS AGGRIEVED BY THE DECISION OF THE AO IN INCREASING THE BOOK PROFIT U/S 115 JB OF THE ACT BY THE AMOUNT CLAIMED AS PROVISION FOR BAD AND DOUBTFUL DEBTS. HENCE, IT FILED APPEAL BEFORE LD CIT(A) CHALLENGING THE SAID DECISI ON OF THE AO, BESIDES CHALLENGING THE VALIDITY OF REOPENING AND ALSO COMPUTATION OF INTER EST U/S 234B AND 234C OF THE ACT. HOWEVER, THE ASSESSEE DID NOT GET ANY RELIEF FROM L D CIT(A) AND HENCE, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. 4 THE FIRST ISSUE RELATES TO THE VALIDITY OF REOPEN ING OF THE ASSESSMENT. ACCORDING TO LD A.R, THE AO HAS RE-OPENED THE ASSESSMENT ONLY BY VI RTUE OF A RETROSPECTIVE AMENDMENT BROUGHT INTO THE ACT BY FINANCE (NO.2) ACT, 2009 IN SECTION 115JB OF THE ACT, WHERE BY THE PROVISION MADE FOR DIMINUTION IN THE VALUE OF ASSET S IS ALSO REQUIRED TO BE ADDED TO THE NET PROFIT WHILE COMPUTING BOOK PROFIT U/S 115JB OF T HE ACT. THE LD A.R SUBMITTED THAT THE ASSESSEE DID NOT ADD THE PROVISION MADE FOR BAD AN D DOUBTFUL DEBTS WHILE COMPUTING THE SHAKTI INSULATED WIRES LTD 3 BOOK PROFIT, SINCE THE PROVISION FOR DIMINUTION IN THE VALUE OF ASSETS WAS NOT REQUIRED TO BE ADDED TO THE BOOK PROFIT AT THE TIME, WHEN IT FILED THE RETURN OF INCOME. HOWEVER, THE ASSESSEE HAS DULY DISCLOSED THE DETAILS ABOUT THE PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE RETURN OF INCOME AND HENCE THERE IS NO FAILURE ON THE PART OF THE ASSESSEE. ACCORDINGLY, BY PLACING RELIANCE ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF VODAFONE WEST LTD REPORTED IN (2013) 33 TAXMANN.COM. 67(GUJ) AND ALSO IN THE CASE OF DENISH INDUSTRIES LTD VS ITO REPORTED IN 271 ITR 340, THE LD A.R CONTENDED THAT THE REOPENING CANNOT BE DONE ON THE BASIS OF RETROSPECTIVE AMENDM ENT BROUGHT IN TO THE ACT SUBSEQUENT TO THE COMPLETION OF THE ORIGINAL ASSESSMENT. 4.1 WE HEARD LD D.R ALSO ON THIS ISSUE. IT IS AN UNDISPUTED FACT THAT THE RETURN OF INCOME ORIGINALLY FILED BY THE ASSESSEE WAS PROCESSED U/S 143(1) OF THE ACT. THE FACTS PREVAILING IN BOTH THE CASES RELIED UPON BY THE ASSESSEE CLEARLY SHOW THAT THE ORIGINAL ASSESSMENTS OF THOSE ASSESSEES WERE COMPLETED U/S 143(3) OF THE AC T AND HENCE, IN OUR VIEW, THE ASSESSEE CANNOT DERIVE SUPPORT OF THE ABOVE CITED TWO DECISI ONS. 4.2 ON THE CONTRARY, WE NOTICE THAT THE LD CIT(A) H AS PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RAJESH JH AVERI STOCK BROKERS VS DCIT REPORTED IN 291 ITR 500 AND ALSO IN THE CASE OF INDIAN & EASTER N NEWSPAPER SOCIETY VS CIT REPORTED IN 119 ITR 996 TO COME TO THE CONCLUSION THAT THE REOP ENING OF ASSESSMENT WAS VALID IN THE INSTANT CASE; SINCE THE ORIGINAL RETURN OF INCOME W AS PROCESSED ONLY U/S 143(1) OF THE ACT. WE ALSO NOTICE THAT THE LD CIT(A) ALSO PLACED RELIA NCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RALLIES INDIA LTD (CITAT ION NOT GIVEN). SHAKTI INSULATED WIRES LTD 4 4.3 IN THE INSTANT CASE, WE HAVE ALREADY NOTICE D THAT THE RETURN OF INCOME HAS BEEN PROCESSED ONLY U/S 143(1) OF THE ACT. HENCE, IN O UR VIEW, THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK B ROKERS (SUPRA) SQUARELY APPLIES IN THE INSTANT CASE. THE LD A.R PLACED RELIANCE ON THE DE CISION OF CO-ORDINATE MUMBAI BENCH IN THE CASE OF AIPITIA MARKETING (P) LTD TO CONTEND THAT T HE RE-OPENING OF ASSESSMENT IS NOT VALID, EVEN IF THE RETURN HAD BEEN PROCESSED U/S 143(1) OF THE ACE, IF THERE IS NO FRESH MATERIAL BEFORE THE AO. IN OUR VIEW, THE SAID DECISION IS N OT APPLICABLE IN THE INSTANT CASE, SINCE THE REASSESSMENT IS WARRANTED DUE TO THE RETROSPECTIVE AMENDMENT BROUGHT IN THE ACT. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF THE LD CIT(A) IN UPHOLDING THE REOPENING OF THE ASSESSMENT. ACCORDINGLY, WE UPHOLD HIS ORDER ON TH IS ISSUE. 5. THE NEXT ISSUE RELATES TO THE ADDITION OF P ROVISION FOR BAD AND DOUBTFUL DEBTS IN COMPUTING THE BOOK PROFIT. THE LD COUNSEL PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK (3 23 ITR 166) AND SUBMITTED THAT THE PROVISION FOR BAD AND DOUBTFUL DEBTS SHOULD BE CO NSIDERED AS EQUIVALENT TO ACTUAL WRITE OFF OF BAD DEBTS. ACCORDINGLY HE CONTENDED THAT THERE IS NO NECESSITY TO ADD THE SAME TO THE NET PROFIT WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. THE LD A.R ALSO PLACED RELIANCE ON THE DECISION OF CO-ORDINATE BENCH OF MUMBAI TRIB UNAL IN THE CASE OF TAINWALA CHEMICALS & PLASTICS INDIA LTD VS. ACIT (2011)(13 TAXMANN.COM 211)(MUM). 5.1 WE HEARD LD D.R ON THIS ISSUE WHO CONTENDED THAT THE PROVISION FOR BAD AND DOUBTFUL IS NECESSARILY TO BE ADDED IN VIEW OF THE STATUTORY PROVISION CONTAINED IN SEC. 115JB OF THE ACT. ON CONSIDERATION OF RIVAL SUBMISSIONS, WE AR E UNABLE TO AGREE WITH THE CONTENTIONS OF LD A.R. THE DECISION IN THE CASE OF M/S VIJAYA BAN K (SUPRA) HAS BEEN RENDERED IN THE CONTEXT OF SEC. 36(1)(III) OF THE ACT, WHICH IS REQ UIRED TO BE CONSIDERED WHILE COMPUTING TOTAL SHAKTI INSULATED WIRES LTD 5 INCOME UNDER NORMAL PROVISIONS OF THE ACT. IN THE INSTANT CASE, WE ARE CONCERNED WITH THE PROVISIONS OF SEC. 115JB, WHEREIN THE BOOK PROF IT IS REQUIRED TO BE COMPUTED FROM THE AUDITED ACCOUNTS PREPARED UNDER THE PROVISIONS OF T HE COMPANIES ACT. UNDER THE ACCOUNTING PRINCIPLES, ON THE BASIS OF WHICH THE ACCOUNTS ARE PREPARED UNDER THE COMPANIES ACT, THE TERMS BAD DEBTS AND THE PROVISION FOR BAD AND DO UBTFUL DEBTS HAVE DISTINCT MEANING AND HAS GOT DIFFERENT ACCOUNTING TREATMENT. HENCE, IN OUR VIEW, THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK (S UPRA) UNDER THE NORMAL PROVISIONS OF INCOME TAX ACT, CANNOT BE APPLIED TO THE PROVISIONS OF SEC. 115JB OF THE ACT. WE NOTICE THAT THE CO-ORDINATE BENCH IN THE CASE OF TAINWALA CHEMI CALS & PLASTICS INDIA LTD., DID NOT CONSIDER THE APPLICABILITY OF THE COMPANIES ACT TO THE BOOK PROFIT COMPUTED UNDER SEC. 115JB ACT. IN VIEW OF THE FOREGOING, IN OUR VIEW, THE L D CIT WAS JUSTIFIED IN UPHOLDING THE ADDITION OF PROVISION FOR BAD AND DOUBTFUL DEBTS TO THE BO OK PROFIT. ACCORDINGLY, WE UPHOLD HIS ORDER ON THIS ISSUE. 6. THE NEXT ISSUE RELATES TO THE COMPUTATION OF INTEREST U/S 234B AND 234C OF THE ACT. THE LD AR SUBMITTED THAT CLAUSE (I) TO EXPLANATION 1 TO SEC. 115JB WAS INSERTED BY FINANCE (NO.2) ACT 2009 WERE RETROSPECTIVE EFFECT FROM 1.4. 2001. THE LD A.R FURTHER SUBMITTED THAT THE ASSESSEE, WHILE COMPUTING THE CURRENT INCOME FOR THE PURPOSE OF COMPUTING THE ADVANCE TAX TO BE PAID, COULD NOT HAVE FORESEEN THE AMENDMENT THAT WILL BE MADE IN FUTURE WITH RETROSPECTIVE EFFECT. HENCE, THE ADVANCE TAX PAID BY THE ASSESSEE FELL SHORT. ACCORDINGLY HE SUBMITTED THAT THE INTEREST U/S 234B AND 234C CO ULD NOT BE LEVIED ON THE TAX COMPONENT ATTRIBUTABLE TO THE ADDITION OF PROVISION FOR BAD AND DOUBTFUL DEBTS. IN THIS REGARD, HE PLACED RELIANCE ON THE DECISION OF CO-ORDINATE BENC H OF TRIBUNAL, WHEREIN ONE OF US WAS THE PARTY, IN THE CASE OF GARWARE POLYESTER LTD (2013)( 33 TAXMANN.COM 164)(MUM). THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF DE LHI BENCH OF TRIBUNAL IN THE CASE OF DCIT VS. UTTAM SUGAR MILLS LTD (2012)(20 TAXMANN.COM 223 ). SHAKTI INSULATED WIRES LTD 6 6.1 WE HEARD LD D.R AND ALSO HAVE GONE THROUGH T HE DECISION RELIED UPON BY THE LD A.R. WE NOTICE THE CO-ORDINATE BENCHES HAVE TAKEN THE VI EW THAT THE INTEREST U/S 234B AND 234C CANNOT BE CHARGED FOR DEFAULT IN PAYMENT OF ADVANCE TAX AND FOR DEFERMENT OF ADVANCE TAX WHERE PAYMENT OF TAX BECAME DUE ONLY BECAUSE OF RET ROSPECTIVE AMENDMENT. THE FOLLOWING OBSERVATIONS MADE BY THE DELHI BENCH OF TRIBUNAL IN THE CASE OF UTTAM SUGAR MILLS ARE EXTRACTED, FOR THE SAKE OF CONVENIENCE:- 7. THE QUESTION IS AS TO WHETHER INTEREST U/S 234 B AND 234C OF THE ACT CAN BE CHARGED FOR DEFAULT IN PAYMENT OF ADVANCE TAX AND F OR DEFERMENT OF ADVANCE TAX, RESPECTIVELY, WHERE THE PAYMENT OF TAX BECAME DUE O NLY BECAUSE OF THE AMENDMENT BY WAY OF INSERTION OF EXPLANATION 1(H) TO SEC. 115J B(2) OF THE ACT, THE AMENDMENT HAVING BEEN MADE OPERATIVE RETROSPECTIVELY. IT WAS DUE T THE FILING OF REVISED STATEMENT OF ASSESSABLE INCOME, THAT THE BOOK PROFI T WAS INCREASED BY THE AMOUNT OF THE DEFERRED TAX. BUT FOR THE RETROSPECTIVE AMENDM ENT, THE ASSESSEE WAS NOT LIABLE TO BE TAXED ON ACCOUNT OF ADJUSTMENT OF DEFERRED TAX. UNDENIABLE, THIS IS THE OBTAINING LEGAL POSITION AS PER APOLLO TYRES LTD VS. CIT (200 2)(174 CTR (SC) 521; (2002)(255 ITR 273)(SC) AND ASST. CIT VS. BALARAMPUR CHINI MIL LS LTD (2007)(111 TTJ (KOL) 230. NOW, THE AMENDMENT HAVING COME ABOUT ONLY BY VIRTUE OF FINANCE ACT, 2008, OBVIOUSLY THERE WAS NO MALAFIDE INTENTION ON THE PA RT OF THE ASSESSEE, AS HAS BEEN RECOGNIZED IN PRIYANKA OVERSEAS LTD VS. DY. CIT (20 02)(75 TTJ (DELHI) 783) : (2001)(79 ITD 353)(DELHI), IN A SIMILAR FACT SITUAT ION. IT WAS NOTED THEREIN THAT FROM CBDT ORDER NO. F 400/234/95-IT (B) DT. 21 ST MAY, 1996, IT WAS CLEAR THAT THE INTENTION OF THE TAX AUTHORITIES WAS NOT TO LEVY INTEREST WHE RE ANY AMENDMENT CAME WITH RETROSPECTIVE EFFECT. .. IN OUR VIEW, THE RATIO OF THE ABOVE SAID DECISION S HALL SQUARELY APPLY TO THE FACTS OF THE INSTANT CASE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO CO MPUTE THE INTEREST U/S 234B AND 234C OF THE ACT BY EXCLUDING THE ADDITION RELATING TO PROV ISION FOR BAD AND DOUBTFUL DEBTS FROM THE AMOUNT OF BOOK PROFIT. SHAKTI INSULATED WIRES LTD 7 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 2 '2 - - ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH FEB 2014 . - 8 14 TH FEB 2014 - SD/- SD/- ( AMIT SHUKLA ) ( B R BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 8 DATED 14 TH , FEB 2014 .../ RAJ , SR. PS - +> ?> - +> ?> - +> ?> - +> ?>/ COPY OF THE ORDER FORWARDED TO : 1. * / THE APPELLANT 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