M/S. TOTALFINAELF INDIA LTD, MUMBAI V. THE DCIT 8(3),

ITA 6073/MUM/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48715 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 23-03-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 27-09-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUM EET KUMAR
• Assessee Lawyers: SANJEEV M SHAH
• Keywords: Gift; Retrospective amendment; Bad and doubtful debts
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J MUMBAI BEFORE SHRI D.K.AGARWAL, JUDICIAL MEMBER & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.6073 /MUM/2007 - A.Y 2003-04 M/S. TOTALFINAELF INDIA LTD., 3 RD FLOOR, THE LEELA GALLERIA, ANDHERI-KURLA ROAD, ANDHERI (E), MUMBAI 400 059 . PAN: AAACE 1877 C VS. DY. COMMISSIONER OF INCOME TAX 8(3), MUMBAI. AND I.T.A.NO.6249/MUM/2007 - A.Y 2003-04 DY. COMMISSIONER OF INCOME TAX 8(3), MUMBAI. VS. M/S. TOTALFINAELF INDIA LTD., MUMBAI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANJEEV M. SHAH. REVENUE BY : SHRI SUMEET KUMAR. O R D E R PER T.R.SOOD, AM: THESE CROSS APPEALS ARE HEARD TOGETHER AND ARE BEI NG DISPOSED OF BY THIS COMMON ORDER. 3. I.T.A.NO.6249/M/07[REVENUES APPEAL ]: IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT[A] ERRED IN DELETING THE DISALLOWANCE OF BA D DEBTS OF ` `` ` .69,50,411/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT[A] ERRED IN DELETING THE DISALLOWANCE OF AD VERTISEMENT EXPENSES OF ` `` ` .6.04.611/-. 2 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT[A] ERRED IN DELETING THE DISALLOWANCE O F ` `` ` .7,85,895/- OUT OF FOREIGN TRAVEL EXPENSES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT[A] ERRED IN DELETING THE DISALLOWANCE OF `.1,31,18,249/- WHILE COMPUTING BOOK PROFIT U/S.115JB ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS. 4. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD WRITTEN OFF BAD DEBTS AMOUNTING TO ` `` ` .69,50,411/-. THE ASSESSEE WAS ASKED TO SUBSTANTIATE THE CLAIM. IN RESPONSE, THE ASSESSEE C OMPANY FILED PARTY- WISE DETAILS OF BAD DEBTS WRITTEN OFF ALONG WITH NO TES AGAINST EACH PARTY IN WHICH NUMBER OF REASONS LIKE DISCOUNTS, FI NANCIAL DIFFICULTY AND PRICE DIFFERENCE ETC., WERE MENTIONED AS REASONS FO R WRITE OFF. THE AO OBSERVED THAT MERELY GIVING REASONS WITHOUT ESTABLI SHING THAT THE AMOUNTS UNDER REFERENCE HAVE BECOME BAD DURING THE YEAR, WOULD NOT ENTITLE THE ASSESSEE TO THE CLAIM OF BAD DEBTS. MOR EOVER, NO CORRESPONDENCE HAS BEEN PRODUCED TO ESTABLISH THAT THE DEBTS HAVE REALLY BECOME BAD. THE AO ALSO RELIED ON CERTAIN DE CISIONS AND DID NOT ALLOW THE CLAIM. 5. ON APPEAL, THE LD. CIT[A] FOLLOWING THE ORDER OF HIS PREDECESSOR FOR A.Y 2000-01 ALLOWED THE CLAIM. 6. AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE ISSUE IS NOW SQUARELY COVERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF TRF LTD. VS. CIT [323 ITR 397], WHEREIN IT WAS OBSERVED THAT AFT ER THE AMENDMENT OF SEC.36(1)(VII) W.E.F. 1.4.89, IT WAS NOT NECESSA RY TO ESTABLISH THAT 3 THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. RESPECTFULLY FOLLOWING THIS DECISION, WE CONFIRM TH E ORDER OF THE LD. CIT[A]. 7. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURING ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSES SEE HAD MADE A CLAIM OF ADVERTISEMENT AND PUBLICITY EXPENSES AT ` `` ` .12,13,04,491/-. HE OBSERVED THAT THE TURN OVER OF THE COMPANY HAS INCR EASED ONLY BY 7.84% WHEREAS THE ADVERTISEMENT EXPENSES HAVE INCRE ASED BY MORE THAN 100%. THEREFORE, HE ASKED THE ASSESSEE TO SUBS TANTIATE THE CLAIM ALONG WITH THE VOUCHERS FOR MORE THAN ` `` ` .50,000/-. IT WAS OBSERVED THAT THE FOLLOWING VOUCHERS WERE NOT SUPPORTED BY PROPER BILLS: SR. NO DATE PARTICULARS AMOUNT ( ` `` ` .) 1 23-12-02 TITAN INDUSTRIES LTD. 1522389 2 23-12-02 TITAN INDUSTRIES LTD. 1388314 3 23-12-02 TITAN INDUSTRIES LTD. 1156351 4 23-12-02 K.G.POPLEY & SONS 2627557 TOTAL 6694611 IT WAS ALSO OBSERVED THAT ASSESSEE HAS NOT SUBSTANT IATED THE CLAIM BY FILING THE LIST OF PERSONS TO WHOM THE SAME WERE GI VEN AND ACCORDINGLY HE DISALLOWED THE EXPENDITURE TO THE TUNE OF ` `` ` .66,94,611/-. 8. BEFORE THE CIT[A] IT WAS MAINLY SUBMITTED THAT A SSESSEE FOLLOWED THE TRADE PRACTICE AND HAS ISSUED CERTAIN COUPONS ALONG WITH THE PRODUCT SOLD TO THE CUSTOMERS AND THERE WAS A L OTTERY SYSTEM BY WHICH SOME OF THE CUSTOMERS WOULD WIN SILVER AND GO LD COINS. ALL OTHER DETAILS WERE FILED BEFORE THE AO, THEREFORE, THIS E XPENDITURE SHOULD 4 HAVE BEEN ALLOWED. THE LD. CIT[A] DECIDED THE ISSUE VIDE PARA 3.3 WHICH IS AS UNDER: 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISS ION MADE BY THE APPELLANT . IT HAS BEEN NOTED BY AO THAT APPELLANT HAS INCURR ED AN AMOUNT OF ` `` ` .12.13 CRORES UNDER THE HEAD ADVERTISEMENT EXPENDITURE. HE HAS NOTED THAT OUT OF ABOVE AN AMO UNT OF ` `` ` .66,94,611/- ARE NOT SUPPORTED BY PROPER BILLS AND AUTHENTIC DOCUMENT. THE BREAK UP OF THE SAID AMOUNT IS AS FOL LOWS: SR. NO DATE PARTICULARS AMOUNT ( ` `` ` .) 1 23-12-02 TITAN INDUSTRIES LTD. 1522389 2 23-12-02 TITAN INDUSTRIES LTD. 1388314 3 23-12-02 TITAN INDUSTRIES LTD. 1156351 4 23-12-02 K.G.POPLEY & SONS 2627557 TOTAL 6694611 THE AO HAS ALSO HELD THAT THE APPELLANT HAS NOT SUP PLY THE LIST OF PERSONS TO WHOM PROMOTIONAL GIFTS WERE GIVEN, HE TH EREFORE DISALLOWED THIS AMOUNT. APPELLANT ON THE OTHER HAND HAS ARGUED THAT QUANTUM OF ADVERTISEMENT EXPENDITURE IS MERELY 5.66% OF THE TO TAL TURNOVER OF ` `` ` .214 CRORE. IT IS FURTHER BEEN EXPLAINED THAT THE E XPENDITURE OF ` `` ` .66,94,611/- ARE VERIFIABLE THROUGH DOCUMENTARY EVI DENCE. IT HAS BEEN EXPLAINED THAT EXPENDITURE HAS BEEN INCURRED IN RES PECT OF PROMOTIONAL GIFTS GIVEN AT THE TIME OF SALE OF GOODS TO CUSTOME RS AND THERE IS LOTTERY SYSTEM BY WHICH WHOMSOEVERS NUMBER CHOSE BY THE CO MPUTERS WILL BE ELIGIBLE FOR THE TITAN WATCH. THE APPELLANT HAS FILED COMPLETE DETAILS IN RESPECT OF THE PURCHASE OF THESE ITEMS WHICH ARE PLACED ON RECORD. CONSIDERING THE FACTS OF THE CASE AND NATURE OF APP ELLANTS BUSINESS AND THE EVIDENCE BROUGHT ON RECORD I FIND NO MERIT IN D ISALLOWANCE MADE BY AO. AS NOTED ABOVE THE APPELLANT HAD LAUNCHED VA RIOUS PROMOTIONAL SCHEMES DURING THE YEAR TO ENHANCE ITS SALE. THE APPELLANT HAS FILED COMPLETE DETAILS OF SUCH PROMOTIONAL SCHE MES DURING THE YEAR TO ENHANCE ITS SALE. THE APPELLANT HAS FILED COMPLE TE DETAILS OF SUCH PROMOTIONAL SCHEME FOR THE PURPOSE OF WHICH THE APP ELLANT THE APPELLANT HAS PURCHASED GOLD AND SILVER COINS AND V ARIOUS OTHER GIFT ITEMS WHICH WERE GIVEN TO THE CUSTOMER THROUGH LOTT ERY SYSTEM. IT HAS BEEN EXPLAINED THAT SCHEME OF GOLD AND SILVER COINS WERE DISTRIBUTED FOR PURCHASE OF NEW PRODUCT BY THE CUSTOMER. THE CO INS WERE PURCHASED FROM M/S POPLEY & SONS MUMBAI AND PAYME NTS WERE MADE BY A/C. PAYEE CHEQUES. THESE COINS WERE DELIVE RED DIRECTLY TO THE MAHAPE PLANT AND PUT INSIDE THE CONTAINERS UNDE R THE SUPERVISION OF THE MARKETING PERSONNEL WHICH WERE THEN DISPATCH ED TO THE DISTRIBUTOR. IN RESPECT OF PAYMENT MADE TO M/S TITA N INDUSTRIES LTD., IT HAS BEEN STATED THAT GOLD COINS WERE PURCHASED FROM M/S TITAN INDUSTRIES LTD. WITH LOGO OF THE APPELLANT COMPANY WHICH WERE INSERTED IN OIL AND LUBE BUCKETS IN THE FACTORY PREMISES AND THEN SENT TO DISTRIBUTORS. THE APPELLANT HAS FILED COMPLETE SET OF DOCUMENT IN THIS REGARD. ALL THE PAYMENTS HAVE BEEN MADE A/C. PAYEE CHEQUES. THAT THE 5 APPELLANT HAD UNDERTAKEN A LARGE PROMOTIONAL SCHEME IS NOT IN DISPUTE. THEREFORE, UNLESS ANY SPECIFIC EVIDENCE IS BROUGHT ON RECORD, IT CANNOT BE HELD THAT EXPENSES WERE PERSONAL IN NATURE. I FI ND NO JUSTIFICATION MADE BY THE AO IN DISALLOWANCE, THEREFORE THIS GROU ND IS ALLOWED. 9. BEFORE US, LD. DR SUBMITTED THAT ASSESSEE HAS NO T BEEN ABLE TO SUBSTANTIATE ITS CLAIM BEFORE THE AO. THE AO HAS SP ECIFICALLY POINTED OUT THAT CERTAIN VOUCHERS DID NOT HAVE THE SUPPORTI NG EVIDENCE ETC. THOUGH CIT[A] HAS OBSERVED THAT ALL DETAILS WERE FI LED, BUT HE HAS NOT GIVEN ANY FINDING ABOUT THE REASONS FOR NOT PRODUCI NG THE BILLS BEFORE THE AO. 10. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ASSESSEE HAD MADE A SCHEME TO DISTRIBUTE CERTAIN SI LVER AND GOLD COINS ON LOTTERY BASIS TO THE CUSTOMERS FOR WHICH THE COI NS WERE PURCHASED FROM M/S TITAN INDUSTRIES AND M/S K.G.POPHALE & SON S. THE COINS WERE DIRECTLY DELIVERED TO THE FACTORY OF THE ASSESSEE A T MAHAPE PLANT TO PUT INSIDE THE CONTAINERS. HE ALSO REFERRED TO VARIOUS PAGES IN THE PAPER BOOK THROUGH WHICH FLOW CHART OF THE SCHEME AND INV OICES OF TITAN INDUSTRIES FURNISHED BEFORE THE AO ARE FILED. HE SU BMITTED THAT ALL THESE DETAILS WERE FILED AND, THEREFORE, EXPENDITUR E SHOULD NOT HAVE BEEN DISALLOWED. HOWEVER, ON A SPECIFIC QUERY THAT WHAT WAS THE NATURE OF THE SCHEME AND WHETHER ANY BROACHURE ETC. WAS MADE, HE REPLIED THAT A PROPER SCHEME WAS DRAFTED AND BROCHU RES WERE ALSO MADE BUT THEY ARE NOT READILY AVAILABLE AT THE TIME OF HEARING. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FI ND THAT COMPLETE DETAILS WERE NOT AVAILABLE BEFORE THE ASSE SSING OFFICER OR THE 6 LD. CIT[A]. TO UNDERSTAND THE ISSUE OF MAKING GIFTS TO THE CUSTOMERS, IT IS IMPORTANT TO EXAMINE THE SCHEME. HOWEVER, AS FAR AS BILLS ARE CONCERNED, THEY ARE ALREADY THERE IN THE PAPER BOOK . THEREFORE, IN THE INTERESTS OF JUSTICE, WE SET ASIDE THE ORDER OF THE LD. CIT[A] AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECT ION TO EXAMINE THE SCHEME OF DISTRIBUTION OF COINS ETC. TO THE CUSTOME RS AND THEN DECIDE THE ISSUE IN ACCORDANCE WITH THE LAW. 12. GROUND NO.3 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD CLAIMED EXPENDITURE ON FOREIGN TRAVEL AMOUNTING TO ` `` ` .31,39,580/- AND DETAILS OF THE SAME WERE ALSO FILED BEFORE HIM. HOWEVER, AO OB SERVED THAT IT WAS NOT POSSIBLE TO ASCERTAIN FROM THE DETAILS WHETHER THE VISIT WAS FOR THE BUSINESS PURPOSE OR PERSONAL PURPOSE AND, THEREFORE , HE MADE DISALLOWANCE OF 25% OF THE FOREIGN TRAVEL EXPENSES. 13. BEFORE THE CIT[A] IT WAS MAINLY SUBMITTED THAT VARIOUS FOREIGN VISITS WERE UNDERTAKEN BY THE DIRECTORS AND OTHER K EY MANAGERIAL PERSONNEL FOR THE PURPOSE OF BUSINESS AND FULL DETA ILS WERE FILED BEFORE THE AO, THEREFORE, THE ADDITION WAS NOT JUSTIFIED. THE LD. CIT[A] AFTER EXAMINING THE DETAILS WAS SATISFIED AND DELETED THE ADDITION. 14. BEFORE US, LD. DR SUPPORTED THE ORDER OF THE AO . 15. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE REFERRED TO PAGES 127 & 128 OF THE PAPER BOOK IN WHICH ALL DETA ILS OF FOREIGN TRAVELS WERE GIVEN. HE POINTED OUT THAT EVEN THE PU RPOSE OF VISIT HAS 7 BEEN MENTIONED IN THE LAST COLUMN, THEREFORE, THE D ISALLOWANCE WAS NOT JUSTIFIED. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT MOST OF THE VISITS HAVE TAKEN PLACE FOR ATTENDING T HE ASIA PACIFIC ZONE MEETINGS IN SINGAPORE AND THE MEETINGS IN THE COMPA NYS HEAD- QUARTERS AT PARIS. THEREFORE, IT CANNOT BE SAID THA T FOREIGN TRAVEL VISITS ARE OF PERSONAL NATURE. THE ADDITION HAS BEEN MADE BY THE AO ON AN ADHOC BASIS WITHOUT POINTING OUT ANY PARTICULAR VIS IT WHICH IS OF PERSONAL NATURE. ACCORDINGLY, WE ARE OF THE VIEW TH AT SUCH ADHOC ADDITION IS NOT MAINTAINABLE. THEREFORE, WE CONFIRM THE ORDER OF THE LD. CIT[A]. 17. GROUND NO.4 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT THE AMOUNT O F PROVISION FOR DOUBTFUL DEBT AMOUNTING TO ` `` ` .1,31,18,249/- WAS ADDED BACK TO THE INCOME OF THE ASSESSEE WHILE COMPUTING THE INCOME U NDER NORMAL PROVISIONS OF THE ACT. HOWEVER, WHILE WORKING OUT T HE BOOK PROFIT THIS AMOUNT WAS NOT ADDED, THEREFORE, HE INVOKED CLAUSE OF THE EXPLANATION TO SEC.115JB AND RELYING ON THE DECISIO N OF THE TRIBUNAL IN THE CASE OF M. J. EXPORTS LTD. VS. JCIT AS WELL AS THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN 244 ITR 256 IN THE CAS E OF DCIT VS. BEARDSELL LTD, HE ADDED THE AMOUNT OF PROVISION FOR DOUBTFUL DEBT TO THE BOOK PROFITS U/S.115JB. 18. BEFORE THE CIT[A] IT WAS SUBMITTED THAT THE BOO K PROFIT HAS BEEN ASCERTAINED IN ACCORDANCE WITH THE PROVISIONS OF PART II & III OF 8 THE SCHEDULE-VI OF THE COMPANIES ACT, 1956 AND, THE REFORE, THE SAME COULD NOT BE ADDED BACK. RELIANCE WAS ALSO PLACED O N THE DECISION OF THE CALCUTTA BENCH OF THE TRIBUNAL IN THE CASE OF U SHA MARTIN INDUSTRIES LTD. VS. CIT [81 TTJ (CAL) 518 AND CIT V S. ECHJAY FORGINGS (P) LTD. [116 TAXMAN 322] WHEREIN THE HON'BLE BOMBA Y HIGH COURT OBSERVED THAT THE PROVISION MADE IN ACCORDANCE WITH THE COMPANIES ACT COULD NOT BE ADDED BACK. AFTER CONSIDERING THE SUBMISSIONS, THE LD. CIT[A] OBSERVED THAT IT WAS A CASE OF DIMINUTION IN VALUE OF ASSETS, THEN SAME WAS NOT COVERED BY CLAUSE OF EXPLANATIO N TO SEC.115JB AND, HE ACCORDINGLY, DELETED THE ADDITION. 19. BEFORE US, LD. DR STRONGLY SUPPORTED THE ORDER OF THE AO AND SUBMITTED THAT EARLIER A VIEW WAS TAKEN BY VARIOUS TRIBUNAL BENCHES THAT PROVISION FOR DOUBTFUL DEBT CANNOT BE ADDED BA CK UNDER CLAUSE OF THE EXPLANATION TO SEC.115JB BECAUSE IT IS ONLY A DIMINUTION OF ASSETS AND THIS VIEW WAS CONFIRMED BY THE HON'BLE S UPREME COURT IN THE CASE OF CIT VS. HCL COMNET SYSTEMS AND SERVICES LTD. [305 ITR 409]. HOWEVER, LATER ON THE PARLIAMENT AMENDED THE ACT AND NOW CLAUSE (I) HAS BEEN INSERTED TO EXPLANATION 1 TO SE C.115JB BY FINANCE (NO.2) ACT, 2009 WITH RETROSPECTIVE EFFECT 1-4-2001 AND EVEN THE PROVISION FOR DIMINUTION IN THE VALUE OF ASSETS IS REQUIRED TO BE ADDED BACK TO THE BOOK PROFITS. THEREFORE, EVEN THE PROVI SION FOR DOUBTFUL DEBT HAS TO BE ADDED BACK TO THE BOOK PROFITS U/S.1 15JB. 20. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE REFERRED TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F VAZIR SULTAN 9 TOBACCO CO. LTD. VS. CIT [132 ITR 559], WHEREIN THE CONCEPT OF PROVISION AND RESERVE HAS BEEN DISCUSSED IN DET AIL. IT WAS OBSERVED THAT THE PROVISION IS BASICALLY A CHARGE AGAINST A PROFIT WHEREAS A RESERVE IS AN APPROPRIATION OF THE PROFITS AND THE CONCEPT OF PROVISION HAS TO BE DECIDED BY FINDING THE TRUE NATURE OF SUC H PROVISION. THEN HE REFERRED TO PAGE-89 OF THE PAPER BOOK WHICH IS A CO PY OF THE LIST OF CUSTOMERS AGAINST WHOM THE PROVISION FOR DOUBTFUL D EBT HAS BEEN CREATED. HE SUBMITTED THAT THE LIST CLEARLY SHOWS T HAT THE PROVISION HAS BEEN MADE ONLY AGAINST THOSE ITEMS WHERE SOME DISPU TES IN RESPECT OF SHORTAGE OR RATE DIFFERENCE OR OTHER LEGAL DISPUTES , TOOK PLACE AND, THEREFORE, IT CANNOT BE SAID THAT THIS IS DIMINUTIO N IN THE VALUE OF THE ASSETS AND, ACCORDINGLY, THE SAME CANNOT BE COVERED BY CLAUSE (I) OF EXPLANATION 1 TO SEC.115JB. 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. WE FIND THAT THE HON'BLE SUPREME COURT IN THE CASE OF IN THE CAS E OF CIT VS. HCL COMNET SYSTEMS AND SERVICES LTD. [SUPRA], HAS OBSER VED AS UNDER: ITEM (C) OF THE EXPLANATION TO SECTION 115JA IS NO T ATTRACTED TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS. THE PROVISION FOR BAD AND DOUBTFUL DEBT IS MADE TO COVER UP PROBABLE DIMINUTI ON IN THE VALUE OF THE ASSETS, I.E., A DEBT WHICH IS AN AMOUNT RECEIVA BLE BY THE ASSESSEE. SUCH A PROVISION CANNOT BE SAID TO BE A PROVISION F OR A LIABILITY, BECAUSE EVEN IF THE DEBT IS NOT IRRECOVERABLE NO LI ABILITY CAN BE FASTENED ON THE ASSESSEE. ANY PROVISION MADE TOWARDS IRRECOV ERABILITY OF A DEBT CANNOT BE SAID TO BE A PROVISION FOR LIABILITY. THUS, IT IS CLEAR THAT HON'BLE SUPREME COURT HAS CL EARLY LAID DOWN THAT PROVISION FOR DOUBTFUL DEBT WOULD AMOUNT TO DIMINUT ION IN THE VALUE OF ASSETS AND IT WAS FURTHER HELD THAT SAME IS NOT COV ERED BY CLAUSE OF 10 EXPLANATION 1 TO SEC.115JA WHICH IS SIMILAR TO SEC. 115JB. THE LEGISLATURE HAS INSERTED LATER ON CLAUSE (I) TO SEC .115JB BY FINANCE (NO.2) ACT, 2009 WITH RETROSPECTIVE EFFECT FROM 1-4 -2001. CLAUSE (I) OF EXPLANATION TO SEC.115JB READS AS UNDER: ( I ) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET, THEREFORE, THE PROVISION FOR DOUBTFUL DEBT WOULD BE HIT BY CLAUSE (I) AND IS REQUIRED TO BE ADDED BACK TO THE BOOK PROFIT S. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT[A] AND RESTORE THAT OF THE AO. 22. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOW ED. 23. I.T.A.NO.6073/M/07 [ASSESSEES APPEAL] : IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED CIT[A] ERRED ON FACTS AND IN LAW IN CON FIRMING THE ADDITION OF ` `` ` .84,80,000/- ON ACCOUNT OF PROVISION FOR DOUBTFUL ADVANCES, TO THE AMOUNT OF BOOK PROFIT, FOR THE PUR POSE OF ASCERTAINING THE TAX U/S.115JB. 1.1 THE LEARNED CIT[A] ERRED ON FACTS AND IN LAW IN GOING BEHIND THE NET PROFIT SHOWN IN THE AUDITED PROFIT & LOSS A CCOUNT, BEYOND THE EXTENT PROVIDED IN THE EXPLANATION TO SE CTION 115JB. 2. THE LEARNED CIT[A] ERRED ON FACTS AND IN LAW IN CON FIRMING THE ADDITION OF ` `` ` .11,359/- ON ACCOUNT OF SALES TAX PENALTY, TO THE AMOUNT OF BOOK PROFIT FOR THE PURPOSE OF ASCERTAINI NG TAX U/S.115JB. THE APPELLANT PRAYS THAT THE AMOUNT IS N OT REQUIRED TO BE ADDED AS THERE IS NO SPECIFIC CLAUSE IN THE E XPLANATION TO SECTION 115JB AND THEREFORE MAY BE DELETED. 24. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE ASSESSEE HAS ADDED PROVISION FOR DOUBTFUL ADVANCES AMOUNTING TO ` `` ` .84,80,000/- BUT THE SAME WAS NOT ADDED BACK TO THE BOOK PROFITS. THE AO, ACCORDINGLY, INVOKED CLAUSE OF EXPLANATIO N TO SEC.115JB AND ADDED THE SAME TO THE BOOK PROFITS. 11 25. BEFORE THE CIT[A] IT WAS MAINLY SUBMITTED THAT BOOK PROFITS WERE DETERMINED AS PER PROVISIONS OF PART II & PART III OF SCHEDULE VI OF THE COMPANIES ACT, 1956 AND, THEREFORE, SAME COU LD NOT BE FURTHER ADJUSTED. RELIANCE WAS AGAIN PLACED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ECHJAY FOR GINGS (P) LTD. [SUPRA]. THE LD. CIT[A] AFTER EXAMINING THE SUBMISS IONS, CONFIRMED THE ADDITION. 26. BEFORE US, LD. COUNSEL OF THE ASSESSEE SUBMITTE D THAT A SUM OF ` `` ` .64,80,000/- WAS GIVEN AS DEPOSIT TO APPLE CREDIT B UILDING. THE DEPOSIT WAS GIVEN FOR TAKING ON LEASE THE OFFICE PR EMISES. THEN SOME DISPUTE AROSE IN RESPECT OF THIS PROPERTY AND A REC EIVER WAS APPOINTED BY THE COURT IN RESPECT OF THIS PROPERTY AND THIS A MOUNT WAS PROVIDED AS A DOUBTFUL PROVISION. SIMILARLY, ANOTHER SUM OF ` `` ` .20 LACS WAS GIVEN AS DEPOSITS TO M/S KAMAT PAINTING WORKS FOR TAKING THE PROPERTY ON LEAVE AND LICENSE AGREEMENT AND IN THAT CASE ALSO S OME DISPUTE AROSE AND ASSESSEE FILED A CASE FOR RECOVERY OF THE AMOUN T. HE SUBMITTED THAT THE LD. CIT[A] HAS EXTRACTED THE ORDER OF THE HON'BLE HIGH COURT WHEREIN IT WAS OBSERVED THAT DEFENDANTS ARE NOT IN A POSITION TO REFUND THE AMOUNT WHICH THE PLAINTIFF HAD GIVEN THEM, BUT THE PLAINTIFF ARE IN POSSESSION OF THE PROPERTY, THEREFORE, THE PLAINTIF FS ARE SECURED. AFTER THIS OBSERVATION, CIT[A] CONCLUDED THAT THESE ADVAN CES COULD NOT HAVE GONE BAD THE ACTION OF THE ASSESSEE FOR WRITING OFF THIS AMOUNT WAS EXCESSIVE PROVISION AGAINST A PARTICULAR ADVANCE IN TERMS OF THE 12 COMPANIES ACT, THEREFORE, SAME COULD BE ADDED BACK TO THE BOOK PROFITS. 27. ON THE OTHER HAND, LD. DR REITERATED THE ARGUME NTS MADE IN RESPECT OF PROVISION FOR DOUBTFUL DEBT AND SUBMITTE D THAT, IN ANY CASE, THIS IS ALSO A CASE OF PROVISION BEING MADE FOR DIM INUTION OF ASSETS AND WAS, ACCORDINGLY, COVERED BY CLAUSE (I) OF EXPLANAT ION 1 TO SEC.115JB. 28. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. EVEN IF IT IS OBSERVED THAT SUCH PROVISION WAS GENUINE OR NOT, TH E FACT REMAINS THAT PROVISION AGAINST DOUBTFUL ADVANCE HAS BEEN MADE TO WARDS DIMINUTION OF ASSETS IN THE FORM OF SECURITY DEPOSITS GIVEN BY THE ASSESSEE COMPANY. SUCH DIMINUTION IN ASSETS IS CLEARLY HIT B Y CLAUSE (I) OF EXPLANATION 1 TO SEC.115JB AND, THEREFORE, WE ARE O F THE VIEW THAT THIS AMOUNT WAS CORRECTLY ADDED BACK TO THE BOOK PROFITS . ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD. CIT[A]. 29. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT PENALTY FOR INCOME TAX WAS THOUGH ADDED BACK TO THE PROFITS UNDER NORMAL P ROVISIONS OF THE ACT, BUT THE SAME WAS NOT ADDED BACK TO THE BOOK PR OFITS AND, THEREFORE, SAME WAS ADDED BACK TO THE BOOK PROFITS. 30. THE ACTION OF THE AO WAS CONFIRMED BY THE LD. C IT[A] VIDE PARA 4.4 WHICH IS AS UNDER: 4.4. IN RESPONSE OF ADDITION OF INCOME TAX PENALTY ` `` ` .11,359/-, IT HAS BEEN ARGUED BY THE APPELLANT THAT SUCH ADJUSTMENT I S NOT PROVIDED IN SECTION 115JB. HOWEVER, I DO NOT AGREE WITH THE APP ELLANT AS INCOME- TAX PENALTY FOR THE PURPOSE OF 115JB WOULD BE CONSI DERED AS INCOME- TAX, THE ADJUSTMENT OF WHICH IS PROVIDED IN THE PRO VISION OF SECTION 13 115JB. ACCORDINGLY, AO IS JUSTIFIED IN DISALLOWING THE SAME FOR THE PURPOSE OF BOOK PROFIT. THIS GROUND IS REJECTED. 31. BEFORE US, LD. COUNSEL OF THE ASSESSEE SUBMITTE D THAT IT WAS NOT INCOME TAX PENALTY BUT ONLY A SALES TAX PENALTY AND THERE WAS NO PROVISION FOR ADJUSTMENT OF THE SAME. 32. ON THE OTHER HAND, LD. DR STRONGLY SUPPORTED TH E ORDERS OF THE CIT[A] AND THE AO. 33. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT IN THE ASSESSMENT ORDER AS WELL AS CIT[A]S ORDER A REFERE NCE IS MADE TO THE INCOME TAX PENALTY. THE LD. COUNSEL OF THE ASSESSEE HAS NOT FILED ANY DOCUMENTARY EVIDENCE TO SHOW THAT THIS AMOUNT WAS D UE TO SALES TAX PENALTY. THEREFORE, WE ARE UNABLE TO AGREE WITH HIS ARGUMENTS AND CONFIRM THE ADDITION. 34. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. 35. IN SUM REVENUES APPEAL IS PARTLY ALLOWED AND A SSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 7/4/2011. SD/- SD/- (D.K.AGARWAL) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 27/4/2011. P/-*