DCIT, CIR-10, KOLKATA, Kolkata V. M/s Vesuvius India Ltd., Kolkata

ITA 648/KOL/2008

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5046 (ITAT-KOLKATA)
• Duration Of Justice: 7 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 1998-1999
• Appeal Filed On: 28-04-2008
• Court: TRIBUNAL
• Department Lawyers: DEBASHISH BANERJEE
• Assessee Lawyers: HARISH AGARWAL
• Keywords: Depreciation; Retrospective amendment; Bad and doubtful debts; Revenue expenditure
• Section: 68

Judgement Text

I.T.A. NO. 648/KOL./2008 ASSESSMENT YEAR: 1998-1999 PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA C BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 648/KOL/ 2008 ASSESSMENT YEAR: 1998-1999 DEPUTY COMMISSIONER OF INCOME TAX,................. ................APPELLANT CIRCLE-10, KOLKATA, 3, GOVERNMENT PLACE (WEST), KOLKATA-700 001 -VS.- M/S. VESUVIUS INDIA LIMITED,....................... ......................RESPONDENT P-104, TARATALA ROAD, KOLKATA-700 088 APPEARANCES BY: SHRI DEBASHISH BANERJEE, JCIT, D.R., FOR THE DEPARTMENT SHRI SOUMEN ADAK, FCA & SHRI HARISH AGARWAL, FCA, F OR THE ASSESSEE DATE OF CONCLUDING THE HEARING : JANUARY 27, 2016 DATE OF PRONOUNCING THE ORDER : APRIL 06, 2016 O R D E R PER SHRI P.M. JAGTAP :- THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XIII, KOLKATA DATED 08.01.2008 FOR THE ASSESSMENT YEAR 1998-99. 2. IN GROUND NO. 1, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF PROVISION FOR LEAVE ENCASHMENT OF RS.18, 10,000/- WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE AS PER T HE NORMAL PROVISION OF THE ACT AS WELL AS IN COMPUTING BOOK PROFIT UNDER S ECTION 115JA. I.T.A. NO. 648/KOL./2008 ASSESSMENT YEAR: 1998-1999 PAGE 2 OF 8 3. THE ASSESESE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF REFRACTORIES. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 31. 03.2000 DECLARING TOTAL INCOME OF RS.3,31,76,624/- ON THE BASIS OF BOOK PRO FIT AS PER THE PROVISIONS OF SECTION 115JA. IN THE PROFIT & LOSS A CCOUNT FILED ALONG WITH THE SAID RETURN, A SUM OF RS.18,10,000/- WAS DEBITE D BY THE ASSESSEE ON ACCOUNT OF PROVISION FOR LEAVE ENCASHMENT. ACCORDIN G TO THE ASSESSING OFFICER, THE SAID PROVISION MADE BY THE ASSESSEE WA S FOR UNASCERTAINED LIABILITY AND ACCORDINGLY THE SAME WAS DISALLOWED B Y HIM. ON APPEAL, THE LD. CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF PROVISIONS FOR LEAVE ENCASHMENT BY RELYI NG ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS.- BHARAT EARTH MOVERS REPORTED IN 245 ITR 428, WHEREIN IT WAS HELD THAT I F A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE RELEVANT YEAR, THE DED UCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANT IFIED AND DISCHARGED AT A FUTURE DATE. IT WAS HELD THAT WHAT SHOULD BE C ERTAIN IS THE INCURRING OF THE LIABILITY, WHICH IS CAPABLE OF BEING ESTIMAT ED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. THE LD. D.R. HAS CONTENDED THAT EVEN THOUGH THE PROVISION FOR LEAVE ENCASHMENT IS ALLOWABLE AS DEDUCTION IN PRINCIPLE AS PER THE DECI SION OF THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS (S UPRA), IT IS REQUIRED TO BE SEEN AS TO WHETHER SUCH PROVISION IS MADE ON SOME REASONABLE AND SCIENTIFIC BASIS. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS CONTENDED THAT EVEN THOUGH THE PROVISION FOR LEAVE ENCASHMENT MADE BY THE ASSESSEE IS NOT BASED ON ANY ACTUARIAL VALUATIO N, THE SAME IS MADE ON SCIENTIFIC BASIS. KEEPING IN VIEW THE SUBMISSIONS M ADE BY BOTH THE SIDES, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS ) ON THIS ISSUE IN I.T.A. NO. 648/KOL./2008 ASSESSMENT YEAR: 1998-1999 PAGE 3 OF 8 PRINCIPLE BUT RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSE OF VERIFYING AS TO WHETHER THE PROV ISION FOR LEAVE ENCASHMENT IS MADE BY THE ASSESSEE ON SOME REASONAB LE AND SCIENTIFIC BASIS. GROUND NO. 1 OF THE REVENUES APPEAL IS ACCO RDINGLY TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 5. IN GROUND NO. 2, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN ALLOWING THE AMOUNT OF TOOLINGS CON SUMED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 6. DURING THE YEAR UNDER CONSIDERATION, THE EXPENDI TURE OF RS.1,35,98,000/- WAS INCURRED BY THE ASSESSEE ON AC COUNT OF PURCHASE OF TOOLING AND THE SAME WAS ENTIRELY CLAIMED AS DEDUCT ION BEING REVENUE EXPENDITURE. IN THE ASSESSMENTS COMPLETED IN THE CA SE OF THE ASSESESE FOR A.YS. 1995-96, 1996-97 AND 1997-98, DEDUCTION IN RE SPECT OF EXPENDITURE INCURRED ON PURCHASE OF TOOLINGS WAS ALLOWED BY THE ASSESSING OFFICER ON THE BASIS OF AMORTISATION OVER A PERIOD OF 36 MONTH S. FOLLOWING THE SAID VIEW, THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF RS .1,35,98,000/- WAS RESTRICTED BY THE ASSESSING OFFICER TO RS.86,16,000 /-. ON APPEAL, THE LD. CIT(APPEALS) FOLLOWED THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR A.YS. 1995-96, 1996-97 AND 1997-98 AND DIRECTED THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE CLAIMED BY THE ASSESSEE ON THIS ISSUE ON THE BASIS OF TOOLING ACTUALLY CONSUMED DUR ING THE YEAR UNDER CONSIDERATION. AT THE TIME OF HEARING BEFORE US, TH E LD. REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUAR ELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS, I.E. A.YS. 1995-96, 1996-97 AND 1997-98 AND RESPECTFULLY FOLLO WING THE SAME, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) D IRECTING THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE INCURRED BY THE ASSESSEE ON TOOLING ON THE BASIS OF ACTUAL CONSUMPTION. GROUND NO. 2 IS ACCORDINGLY DISMISSED. I.T.A. NO. 648/KOL./2008 ASSESSMENT YEAR: 1998-1999 PAGE 4 OF 8 7. IN GROUND NO. 3, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS AMOUNTING T O RS.14,48,000/- WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JA . 8. THE PROVISION FOR DOUBTFUL DEBTS AMOUNTING TO RS .14,48,000/- DEBITED TO THE PROFIT AND LOSS ACCOUNT WAS NOT ADDE D BACK BY THE ASSESSEE WHILE COMPUTING THE BOOK PROFIT UNDER SECT ION 115JA ON THE GROUND THAT THE SAID PROVISION WAS NOT CREATED AGAI NST ANY LIABILITY AND THE SAME, THEREFORE, WAS OUTSIDE THE PURVIEW OF CLA USE (C) OF EXPLANATION TO SECTION 115JA(2). THE ASSESSING OFFICER, HOWEVER , ADDED THE SAID PROVISION BY RELYING ON CLAUSE (C) OF EXPLANATION T O SECTION 115JA(2). ON APPEAL, THE LD. CIT(APPEALS) DELETED THE ADDITION M ADE BY THE ASSESSING OFFICER ON THIS ISSUE BY RELYING ON THE DECISION OF THE KOLKATA SPECIAL BENCH OF ITAT IN THE CASE OF JCIT VS.- USHA MARTIN INDUSTRIES LIMITED REPORTED IN 288 ITR (AT) 63 (SB)(KOL.), WHEREIN IT WAS HELD THAT THE PROVISION MADE FOR BAD AND DOUBTFUL DEBTS BEING IN THE NATURE OF DIMINUTION IN THE VALUE OF ASSETS, CLAUSE (C) OF EX PLANATION TO SECTION 115JA(2) WOULD NOT BE APPLICABLE. 9. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. IT IS OBSERVED THAT THE DECISION OF THE SPECIAL BENCH OF ITAT IN THE CA SE OF USHA MARTIN INDUSTRIES LIMITED (SUPRA) HAS BEEN NULLIFIED BY TH E FINANCE (NO. 2) ACT, 2009, WHEREBY CLAUSE (G) HAS BEEN INSERTED IN EXPLA NATION TO SECTION 115JA WITH RETROSPECTIVE EFFECT OF 01.04.1998 THERE BY MAKING THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET LIABLE TO BE ADDED BACK WHILE COMPUTING THE BOOK PR OFIT UNDER SECTION 115JA. AT THE TIME OF HEARING BEFORE US, THE LD. CO UNSEL FOR THE ASSESSEE, I.T.A. NO. 648/KOL./2008 ASSESSMENT YEAR: 1998-1999 PAGE 5 OF 8 HOWEVER, HAS RAISED A NEW CONTENTION THAT THE AMOUN T IN QUESTION ALTHOUGH TERMED AS PROVISION FOR BAD AND DOUBTFUL D EBTS, ACTUALLY REPRESENTS DEBTS WRITTEN OFF BY THE ASSESSEE FROM I TS BOOKS OF ACCOUNT AND THE SAME, THEREFORE, CANNOT BE ADDED WHILE COMP UTING THE BOOK PROFIT UNDER SECTION 115JA. THE LD. D.R. HAS CONTENDED THA T THIS NEW STAND TAKEN BY THE LD. COUNSEL FOR THE ASSESESE FOR THE FIRST T IME BEFORE THE TRIBUNAL REQUIRES VERIFICATION BY THE ASSESSING OFFICER. WE FIND MERIT IN THIS CONTENTION OF THE LD. D.R. AND SINCE THE LD. COUNSE L FOR THE ASSESESE ALSO HAS NO OBJECTION FOR SENDING BACK FOR SUCH VERIFICA TION BY THE ASSESSING OFFICER, WE RESTORE THIS ISSUE TO THE FILE OF THE A SSESSING OFFICER FOR VERIFYING THE NEW CONTENTION RAISED BY THE ASSESSEE AND TO DECIDE THE ISSUE ACCORDINGLY. GROUND NO. 3 IS ACCORDINGLY TREA TED AS ALLOWED FOR STATISTICAL PURPOSES. 10. IN GROUND NO. 4, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN ALLOWING INTEREST ON SHARE APPLICAT ION MONEY AMOUNTING TO RS.1,33,25,109/- AS DEDUCTION WHILE COMPUTING BO OK PROFIT UNDER SECTION 115JA OF THE ACT. 11. DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 1994- 95, THE ASSESSEE- COMPANY HAD RECEIVED INTEREST OF RS.1,33,25,109/- O N SHARE APPLICATION MONEY. THE SAME, HOWEVER, WAS NOT OFFERED TO TAX IN THAT YEAR ON THE BASIS OF CERTAIN JUDICIAL PRONOUNCEMENTS PREVALENT AT THE RELEVANT TIME. SUBSEQUENTLY, KEEPING IN VIEW THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILI ZERS LIMITED VS.- CIT REPORTED IN 227 ITR 172, THE ASSESSEE OFFERED THE I NTEREST ON SHARE APPLICATION TO TAX UNDER THE VOLUNTARY DISCLOSURE O F THE INCOME SCHEME (VDIS). AS PER THE PROVISIONS OF SECTION 68 OF THE FINANCE ACT, 1997 READ WITH CBDT INSTRUCTION NO. 754 DATED 10.06.1997, THE AMOUNT OF SUCH INTEREST OFFERED UNDER VDIS WAS CREDITED BY THE ASS ESSEE-COMPANY TO ITS PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED ON 31.03.1 998. FOR THE PURPOSE I.T.A. NO. 648/KOL./2008 ASSESSMENT YEAR: 1998-1999 PAGE 6 OF 8 OF COMPUTING THE BOOK PROFIT UNDER SECTION 115JA, T HE ASSESSEE, HOWEVER, REDUCED THE SAID AMOUNT ON THE GROUND THAT THE SAME HAVING BEEN ALREADY OFFERED TO TAX UNDER VDIS, 1997, IT COULD NOT BE CO NSIDERED IN COMPUTING BOOK PROFIT UNDER SECTION 115JA. THIS CLAIM OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER. ACCORDING TO H IM, THE AMOUNTS TO BE REDUCED WHILE COMPUTING BOOK PROFIT UNDER SECTION 1 15JA WERE SPECIFICALLY MENTIONED IN THE CLAUSE (I) TO CLAUSE (IX) OF EXPLANATION TO SECTION 115JA AND SINCE THE AMOUNT OF INTEREST IN Q UESTION OFFERED BY THE ASSESSEE UNDER VDIS WAS NOT COVERED THEREIN, THE AS SESSEE WAS NOT ENTITLED TO REDUCE THE SAME WHILE COMPUTING THE BOO K PROFIT UNDER SECTION 115JA. 12. ON APPEAL, THE LD. CIT(APPEALS) ALLOWED THE CLA IM OF THE ASSESSEE MAINLY ON THE GROUND THAT THE INTEREST ON SHARE APP LICATION MONEY HAVING BEEN ALREADY TAXED IN A.Y. 1994-95 UNDER VDIS, THE SAME COULD NOT BE TAXED AGAIN IN THE YEAR UNDER CONSIDERATION IN THE FORM OF BOOK PROFIT UNDER SECTION 115JA. 13. THE LD. D.R. SUBMITTED THAT EVEN THOUGH THE INT EREST ON SHARE APPLICATION WAS OFFERED TO TAX BY THE ASSEESSEE IN A.Y. 1994-95 UNDER VDIS, THE SAME HAVING BEEN CREDITED TO THE PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION AND THERE BEING NO DEDUCTI ON ALLOWABLE FOR THE SAME UNDER ANY CLAUSE OF EXPLANATION TO SECTION 115 JA(2), THE ASSESSEE WAS NOT ENTITLED TO CLAIM DEDUCTION ON ACCOUNT OF S UCH INTEREST WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JA. HE C ONTENDED THAT THE LD. CIT(APPEALS), HOWEVER, OVERLOOKED THIS VITAL ASPECT WHILE ALLOWING THE CLAIM OF THE ASSESSEE ON THIS ISSUE. 14. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, RELIED ON THE RELEVANT PROVISIONS OF THE FINANCE ACT, 1997 DEALIN G WITH VDIS AND I.T.A. NO. 648/KOL./2008 ASSESSMENT YEAR: 1998-1999 PAGE 7 OF 8 POINTED OUT THAT AS PER SECTION 68 OF THE FINANCE A CT, 1997, THE AMOUNT OF INCOME DISCLOSED VOLUNTARILY CANNOT BE INCLUDED IN THE TOTAL INCOME OF THE DECLARANT ASSESSEE FOR ANY ASSESSMENT YEAR UNDER TH E INCOME TAX ACT. HE ALSO INVITED OUR ATTENTION TO THE COPY OF CERTIFICA TE ISSUED BY THE CONCERNED CIT UNDER SECTION 68(2) OF THE VDIS, 1997 TO SHOW THAT THE DECLARATION FILED BY THE ASSESSEE UNDER VDIS OFFERI NG INTEREST ON SHARE APPLICATION TO TAX IN A.Y. 1994-95 WAS DULY ACCEPTE D. HE CONTENDED THAT THE DECLARATION UNDER VDIS HAVING BEEN ACCEPTED BY THE DEPARTMENT AND THE INTEREST ON SHARE APPLICATION HAVING BEEN TAXED IN THE HANDS OF THE ASSESSEE FOR A.Y. 1994-95 UNDER VDIS, THE SAME COUL D NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE FOR ANY ASSESSMENT YEAR UNDER THE INCOME TAX ACT AS PER THIS SPECIFIC PROVISION CONTA INED IN SECTION 68 OF THE FINANCE ACT, 1997 AND SINCE THE PROVISIONS OF S ECTION 115JA ALSO TALK ABOUT TOTAL INCOME OF THE ASSESSEE CHARGEABLE TO TA X FOR THE RELEVANT PREVIOUS YEAR, THE INTEREST INCOME OFFERED UNDER VD IS FOR A.Y. 1994-95 CANNOT BE INCLUDED IN THE BOOK PROFIT FOR THE YEAR UNDER CONSIDERATION AS COMPUTED UNDER SECTION 115JA. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE INTEREST ON SHARE APPLICATION WAS OFFERED BY THE ASSESSEE AS INCOME VOLUNTARILY FOR A.Y. 1994-95 UNDER VDIS, 1997 AND THE DECLARATI ON FILED OFFERING SUCH INCOME UNDER VDIS WAS DULY ACCEPTED BY THE DEPARTME NT. AS PER THE PROVISIONS OF SECTION 68 OF THE FINANCE ACT, 1997, THE AMOUNT OF INCOME VOLUNTARILY DISCLOSED UNDER VDIS SHALL NOT BE INCLU DED IN THE TOTAL INCOME OF THE DECLARANT ASSESSEE FOR ANY ASSESSMENT YEAR U NDER THE INCOME TAX ACT AND SINCE THE SAID PROVISIONS ARE OVERRIDING AS A RESULT OF NON- OBSTANTE CLAUSE CONTAINED IN SECTION 64 OF THE FINA NCE ACT, 1997, WE FIND MERIT IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE INTEREST ON SHARE APPLICATION VOLUNTARILY DISCLOSED AS INCOME BY THE ASSESSEE UNDER VDIS FOR A.Y. 1994-95 COULD NOT BE I NCLUDED IN THE TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERA TION EVEN FOR THE I.T.A. NO. 648/KOL./2008 ASSESSMENT YEAR: 1998-1999 PAGE 8 OF 8 PURPOSE OF COMPUTING BOOK PROFIT UNDER SECTION 115J A OF THE INCOME TAX ACT, WHEREBY AN AMOUNT EQUAL TO 30% OF THE BOOK PRO FIT IS DEEMED TO BE THE TOTAL INCOME OF THE ASSESSEE CHARGEABLE TO TAX FOR THE RELEVANT PREVIOUS YEAR. WE, THEREFORE, FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(APPEALS) DELETING THE INTEREST ON SHARE APPLICA TION WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JA AND UPHOLDING THE S AME, WE DISMISS GROUND NO. 4 OF THE REVENUES APPEAL. 16. IN THE RESULT, THE APPEAL OF THE REVENUE IS TRE ATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON APRIL 06, 201 6. SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER KOLKATA, THE 6 TH DAY OF APRIL, 2016 COPIES TO : (1) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-10, KOLKATA, 3, GOVERNMENT PLACE (WEST), KOLKATA-700 001 (2) M/S. VESUVIUS INDIA LIMITED, P-104, TARATALA ROAD, KOLKATA-700 088 (3) COMMISSIONER OF INCOME-TAX (APPEALS)-XIII, KOL KATA (4) COMMISSIONER OF INCOME TAX, KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.