ACIT, Circle-2(1), Tirupathi V. M/s. Lanco Industries Ltd., Chittoor

ITA 947/HYD/2012

• Counselvise Citation: 94722514 RSA 2012
• Duration Of Justice: 2 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 15-06-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S RAMA RAO
• Keywords: Retrospective amendment; Bad and doubtful debts
• Section: 115JB; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 947/HYD/2012 ASSESSMENT YEAR 2008-09 THE ASST. CIT CIRCLE-2(1) TIRUPATI VS. M/S. LANCO INDUSTRIES LTD., LANCO NAGAR PAN: AAACL4108M APPELLANT RESPONDENT APPELLANT BY: SRI R. MOHAN REDDY RESPONDENT BY: SRI S. RAMA RAO DATE OF HEARING: 0 5 .0 8 .2014 DATE OF PRONOUNCEMENT: 17 . 1 0.2014 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A), GUNTUR DATED 27.07.2011 FOR A. Y. 200-09. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS BOTH N LAW AND FACTS OF THE LAW. 2. (I) THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO FOLLOW THE PROCEDURE IN VOGUE AS IN EARLIER YEARS WITH REFERENCE TO DETERMINATION OF BOOK PROFIT U/S. 115JB. (II) THE LEARNED CIT(A) ERRED IN ACCEPTING THE ORAL SUBMISSIONS OF THE APPELLANT WITHOUT CALLING FOR ANY DOCUMENTARY PROOF. 3. THE LEARNED CIT(A) ERRED IN VIRTUALLY SETTING ASIDE THE MATTER TO THE FILE OF THE AO WITHOUT HAVING SUCH POWERS UNDER THE ACT. 2 ITA NO. 947/HYD/2012 M/S. LANCO INDUSTRIES LTD. ===================== 3. THE A O WHILE COMPUTING THE BOOK PROFITS HELD THAT PROV I SION FOR LEAVE TRAVEL ALLOWANCE (RS. 16,00,390) AND P ROVISION FOR BAD AND DOUBTFUL DEBTS (RS. 7,05,894) WERE NOT ADDED BACK WHILE COMPUTING BOOK PROFITS U/S 115 J B AN D P ROPOSED TO ADD THE SAME. THE A SSESSEE THEN SUBMITTED THAT IF R S. 7,05,894 BEING PROVISION FOR B AD AND DOUBTFUL DEBTS IS TO BE WRITTEN OFF THEN RS. 4,74,4 8,771 BEI NG PROVISION FOR BAD AND DOUBTFUL DEBTS CREATED IN THE EARLIER YEARS AND WITHDRAWN THIS YEAR, HAS TO BE RE DUCED FROM THE BOOK PROFITS, AS THE SAME HAD BEEN WRITTEN OFF AS BAD DEBTS. THE AO REJECTED THE SAME OBSERVING AS UNDER: ' REGARDING PROVISION FOR BAD AND DOUBTFUL DEBTS, THE ASSESSEE SUBMITTED THAT THE FINANCE ACT, 2009 HAD AMENDED SECTION 115JB OF THE ACT AND PROVIDED IN THE EXPLANATION (1) OF SECTION 115JB, THAT THE AMOUNT/AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET HAVE ALSO TO BE ADDED TO THE BOOK PROFITS. WHEN THIS WAS BROUGHT TO THE NOTICE OF THE ASSESSEE'S AR THEY STATED THAT THEY HAVE NO OBJECTION TO THE ADDITION OF RS. 7,05,894/- TO THE BOOK PROFITS UNDER SECTION 115JB. AT THE SAME TIME, THE ASSESSEE SUBMITTED THAT THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PROVISION DURING THE YEAR HAS TO BE REDUCED FROM THE BOOK PROFITS. CONSEQUENTLY THE AMOUNT OF RS. 4,74,48,771 HAVE TO BE REDUCED FROM THE BOOK PROFITS. AS IN EARLIER YEAR, THIS IS NOT ACCEPTED. ' 4. AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THE CIT(A) DISPOSED OF THE APPEAL OBSERVING AS UNDER: ' I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND ALSO GONE THROUGH THE ORDER OF THE AO. IT MAY BE NOTED HERE THAT AT PAGE NO. 3 OF THE ASSESSMENT ORDER DATED 31.03.2010; THIS ISSUE WAS ELABORATELY DEALT WITH BY THE AO. IT TRANSPIRES THAT WHEN THE AO HAS PROPOSED WRITING BACK OF PROVISION FOR BAD AND DOUBTFUL DEBTS AT RS. 7,05,894 FOR THE 3 ITA NO. 947/HYD/2012 M/S. LANCO INDUSTRIES LTD. ===================== PURPOSE OF COMPUTATION AS PER THE PROVISIONS OF SECTION 115JB, THERE WAS A PROPOSAL FROM THE APPELLANT THAT IN SUCH AN EVENT, AS IN EARLIER YEARS, REDUCTION HAS TO BE ALLOWED OR RS. 4,74,48,771 WHICH WAS WITHDRAWN FROM RESERVES FOR PROVISION FOR BAD AND DOUBTFUL DEBTS, WHICH THE AO HAS NOT ACCEPTED. IT IS NOT CLEAR FROM THE MATERIAL AVAILABLE ON RECORD AS TO THE CIRCUMSTANCES IN THE EARLIER YEARS AND AS TO HOW IT IS DIFFERENT THIS YEAR. HENCE THE AO IS DIRECTED TO FOLLOW THE PROCEDURE IN VOGUE AS IN EARLIER YEARS IN AS MUCH AS PROVISION FOR BAD AND DOUBTFUL DEBTS AND WITHDRAWAL OF RESERVE FOR BAD AND DOUBTFUL DEBTS ARE CONCERNED. IN CASE THE SAME OLD PROCEDURE IS NOT POSSIBLE TO BE FOLLOWED THIS YEAR, THEN THE AO WOULD DO WELL IN GIVING COGENT REASONS AS TO HOW IT IS NOT APPLICABLE THIS YEAR. WITH THESE COMMENTS, THIS GROUND TREATED AS DISPOSED OFF ACCORDINGLY.' 5. AGGRIEVED, THE REVENUE IS ON APPEAL BEFORE US. 6. WE HAVE HEARD BOTH PARTIES. 7. WE FIND THAT WITHOUT DECIDING THE ISSUE, THE CIT(A) HAS DIRECTED THE AO TO FOLLOW PROCEDURE FOLLOWED IN THE EARLIER YEAR. HE HAS NOT EXAMINED AS TO WHAT PROCED URE WAS FOLLOWED IN THE EARLIER YEAR AND WHETHER IT IS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 115JB. T O THAT EXTENT THE ORDER OF THE CIT(A) CANNOT BE ACCEPTED A S THE CIT(A) HAS NOT GIVEN ANY REASONS FOR ALLOWING THIS GROUND RAISED BY THE ASSESSEE. 8. THE ISSUE IS REGARDING THE TREATMENT OF PROVISION F OR BAD AND DOUBTFUL DEBTS IN COMPUTING BOOK PROFITS U/ S 115JB. WHILE EARLIER, IT HAS BEEN HELD (COMMISSIONE R OF INCOME TAX VS. HCL COMNET SYSTEMS & SERVICES LTD. 3 05 ITR 409 SC) THAT PROVISION FOR BAD AND DOUBTFUL DEB TS CANNOT BE EXCLUDED WHILE COMPUTING THE BOOK PROFITS ON 4 ITA NO. 947/HYD/2012 M/S. LANCO INDUSTRIES LTD. ===================== THE GROUND THAT IT REPRESENTS UNASCERTAINED LIABILI TY, BECAUSE SUCH A PROVISION ACTUALLY REPRESENTS PROVIS IONS FOR DIMINUTION IN VALUE OF ASSETS, TO GET OVER THIS DECISION, A NEW EXPLANATION (I) HAS BEEN INTRODUCED TO SEC 11 5JB WITH RETROSPECTIVE EFFECT FROM 1.4.2001, WHICH READ S AS UNDER: '(I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET'. 9. IN VIEW OF THE RETROSPECTIVE AMENDMENT, THE AO WAS RIGHT IN ADDING BACK THE AMOUNT OF RS. 7,05,894/- B EING PROVISION FOR BAD AND DOUBTFUL DEBTS UNDER EXPLANAT ION (I) UNDER SEC. 115JB(2). 10. AS REGARDS THE SUBMISSION OF THE ASSESSEE REGARDING EXCLUSION OF THE PROVISION FOR BAD DEBTS OF RS. 4,7 4,48,771 BEING WITHDRAWAL FROM PROVISION FOR BAD DEBTS, DURI NG THE YEAR THE ASSESSEE HAD WRITTEN OFF DEBTS TO THE EXTE NT OF RS. 4,74,48,771 AS BAD. THIS AMOUNT WAS ADJUSTED AGAINST A SIMILAR AMOUNT WITHDRAWN FROM PROVISION F OR BAD AND DOUBTFUL DEBTS (ANNEXURE 18 TO THE P&L AS P ER THE PRINTED ACCOUNTS FOR THE YEAR ENDED 31.3.2008). THIS ENTRY WILL AMOUNT TO RS. 4,74,48,771 BEING WRITTEN OFF AS BAD DEBTS BY DEBIT TO P&L ACCOUNT AND A CORRESPONDI NG AMOUNT BEING WITHDRAWN FROM PROVISION FOR BAD DEBTS BEING CREDITED TO THE P&L. 11. WHILE THE AMOUNT OF RS. 4,74,48,771 BEING BAD DEBT WRITTEN OFF IS AN ADMISSIBLE DEDUCTION IN COMPUTING THE BOOK PROFITS U/S 115JB, THE ISSUE FOR CONSIDERATION IS WHETHER THE AMOUNT OF RS. 4,74,48,771 WITHDRAWN FROM PROVISION FOR BAD AND 5 ITA NO. 947/HYD/2012 M/S. LANCO INDUSTRIES LTD. ===================== DOUBTFUL AND TAKEN TO THE P&L SHOULD BE ASSESSED AS INCOME. EXPLANATION (I) TO SEC 115JB WHICH IS RELEV ANT FOR THE ISSUE, READS AS UNDER: '(I) THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PROVISION (EXCLUDING A RESERVE CREATED BEFORE THE 1ST DAY OF APRIL, 1997 OTHERWISE THAN BY WAY OF A DEBIT TO THE PROFIT AND LOSS ACCOUNT), IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT: PROVIDED THAT WHERE THIS SECTION IS APPLICABLE TO AN ASSESSEE IN ANY PREVIOUS YEAR, THE AMOUNT WITHDRAWN FROM RESERVES CREATED OR PROVISIONS MADE IN A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 1997 SHALL NOT BE REDUCED FROM THE BOOK PROFIT UNLESS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RESERVES OR PROVISIONS (OUT OF WHICH THE SAID AMOUNT WAS WITHDRAWN) UNDER THIS EXPLANATION OR EXPLANATION BELOW SECOND PROVISO TO SECTION 115JA, AS THE CASE MAY BE;' 12. IN THESE CIRCUMSTANCES, WE REMAND THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTI ON TO RE- WORK THE REDUCTION FROM BOOK PROFITS KEEPING IN MIN D EXPLANATION (1) TO SECTION 115JB AFTER GIVING THE A SSESSEE REASONABLE OPPORTUNITY TO EXPLAIN ITS CASE. 13. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 17 TH OCTOBER, 2014 SD/ - (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD, DATED THE 17 TH OCTOBER, 2014 TPRAO 6 ITA NO. 947/HYD/2012 M/S. LANCO INDUSTRIES LTD. ===================== COPY TO: 1. THE ASST. CIT, CIRCLE - 2(1), D. NO. 6 - 1 - 75E, RAJASWA BHAVAN, VARADARAJA NAGAR, TIRUPATI. 2. M/S. LANCO INDUSTRIES LTD., LANCO NAGAR, RACHAGUNNERI, SRIKALAHASTHI (M), CHITTOOR (DIST.) 3 . THE CIT(A), GUNTUR . 4 . THE CIT, TIRUPATI . 5 . THE DR, A - BENCH, ITAT, HYDERABAD.