Chinatrust Commercial Bank, New Delhi V. ADIT Circle 2 (2), New Delhi

MA 9/DEL/2011

• Counselvise Citation: [2011] 123 COUNSELVISE.COM (IT) 6393 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 17-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BANITA DEVI
• Keywords: Retrospective amendment; Bad and doubtful debts
• Section: 115JB; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH FRIDAY NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER MISCELLANEOUS APPLICATION NO.9/D/2011 (IN I.T.A. NO.2482/D/2008) ASSESSMENT YEAR : 2004-05 CHINATRUST COMMERCIAL BANK, VS. A.D.I.T., 604, 6 TH FLOOR, MERCANTILE HOUSE, INTT. TAXATION, 15, KG MARG, NEW DELHI NEW DELHI PAN NO.AAACC 4000B (APPLICANT) (RESPONDENT) APPLICANT BY : SHRI K.V.S. GUPTA, CA RESPONDENT BY : BANITA DEVI, DR ORDER PER K.G. BANSAL: AM: IN THIS CASE, THE TRIBUNAL HAD PASSED A CONSOLIDATED OR DER ON 19.11.2010 IN RESPECT OF THREE APPEALS FILED BY THE ASSESSEE FOR ASSESSMENT YEARS 2003-04 TO 2005-06. APPEAL FOR ASSESSMENT YEAR 2004-05 BEARING I .T.A. NO.2482/D/08 WAS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ASSESSEE HAS MOVED AN APPLICATION ON 08.02.2011 STATING THAT THERE IS A MIS TAKE APPARENT ON RECORD IN THE ORDER FOR THIS YEAR IN RESPECT OF ADDING THE PROVISION F OR BAD AND DOUBTFUL DEBTS FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB OF THE INCOME-TAX ACT, 1961. THIS PART OF THE ORDER READS AS UNDER:- 6. GROUND NO.3 IS AGAINST THE ADDITION OF THE PROVIS ION FOR BAD AND DOUBTFUL DEBTS TO THE BOOK PROFITS, IN COMPUTING MINI MUM ALTERNATE 2 TAX, AS PER CLAUSE (C) OF THE EXPLANATION TO SECTION 11 5JB OF THE ACT. IT IS THE COMMON CASE OF BOTH THE PARTIES THAT THIS GROUND STANDS COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CAS E OF CIT VS. HCL COMNET SYSTEMS AND SERVICES LIMITED (2008) 305 IT R 409. IN THIS CASE, IT WAS INTER ALIA HELD THAT A PROVISION IS DEDUCTIBLE ONLY IF IT IS MADE FOR MEETING AN ASCERTAINED LIABILITY. THE PR OVISION FOR BAD AND DOUBTFUL DEBTS IS NOT MADE FOR MEETING ANY LIABILI TY AND, THEREFORE, THE SAME HAS TO BE ADDED BACK FOR COMPUTING ADJ USTED BOOK PROFITS U/S 115JB. FOLLOWING THIS DECISION, TH E GROUND IS DECIDED IN FAVOUR OF REVENUE AND AGAINST THE ASSESSEE. 2. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE DECISIO N OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. HCL COMNET SYSTEMS A ND SERVICES LIMITED, (2008) 305 ITR 409, IS IN FAVOUR OF THE ASSESSEE AND NO T AGAINST THE ASSESSEE AS MADE OUT IN THE ORDER OF THE TRIBUNAL. HE RELIED ON THE F INDING OF THE COURT AT PAGE 414 IN PLACITUM 10, WHICH READS AS UNDER:- AS STATED ABOVE, THE SAID EXPLANATION HAS PROVIDED SIX ITEMS NOS. (A) TO (F) WHICH IF DEBITED TO THE PROFIT AND LOSS A CCOUNT CAN BE ADDED BACK TO THE NET PROFIT FOR COMPUTING /THE BOOK PROFIT. IN THIS CASE, WE ARE CONCERNED WITH ITEM NO. (C) WHICH REFERS TO THE PROVI SION FOR BAD AND DOUBTFUL DEBITS. THE PROVISION FOR BAD AND DOUBT FUL DEBTS CAN BE ADDED BACK TO THE NET PROFIT ONLY IF ITEM (C) STANDS AT TRACTED. ITEM (C) DEALS WITH AMOUNT(S) SET ASIDE AS PROVISION MADE FOR MEET ING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES. THE ASS ESSEES CASE WOULD, THEREFORE, FALL WITHIN THE AMBIT OF ITEM (C) ONLY IF THE AMOUNT IS SET ASIDE AS PROVISION; THE PROVISION IS MADE FOR MEETING A LIABILITY; AND THE PROVISION SHOULD BE FOR OTHER THAN AN ASCERTAIN ED LIABILITY, I.E., IT SHOULD BE FOR AN UNASCERTAINED LIABILITY. IN OTHER WORDS, ALL THE INGREDIENTS SHOULD BE SATISFIED TO ATTRACT ITEM (C) OF T HE EXPLANATION TO SECTION 115JB. IN OUR VIEW, ITEM (C) IS NOT ATTRACTED. THERE ARE TWO TYPES OF DEBT. A DEBT PAYABLE BY THE ASSESSEE IS DIFFERE NT FROM A DEBT RECEIVABLE BY THE ASSESSEE. A DEBT IS PAYABLE BY THE ASS ESSEE WHERE THE ASSESSEE HAS TO PAY THE AMOUNT TO OTHERS WHEREAS TH E DEBT RECEIVABLE BY THE ASSESSEE IS AN AMOUNT WHICH THE ASSESSEE HA S TO RECEIVE FROM OTHERS. IN THE PRESENT CASE, THE DEBT UNDER CONSIDERATION IS A DEBT RECEIVABLE BY THE ASSESSEE. THE PR OVISION 3 FOR BAD AND DOUBTFUL DEBT, THEREFORE, IS MADE TO COVER UP THE PROBABLE DIMINUTION IN THE VALUE OF THE ASSET, I.E., DEBT WHICH IS AN AMOUNT RECEIVABLE BY THE ASSESSEE. THEREFORE, SUCH A PROVIS ION CANNOT BE SAID TO BE A PROVISION FOR A LIABILITY, BECA USE EVEN IF A DEBT IS NOT RECOVERABLE NO LIABILITY COULD BE FASTENED UPON TH E ASSESSEE. IN THE PRESENT CASE, THE DEBT IS THE AMOUNT RECEIVABLE BY THE ASS ESSEE AND NOT ANY LIABILITY PAYABLE BY THE ASSESSEE AND, THEREF ORE, ANY PROVISION MADE TOWARDS IRRECOVERABILITY OF THE DEBT CANN OT BE SAID TO BE A PROVISION FOR LIABILITY. THEREFORE, IN OUR VIEW, I TEM (C) OF THE EXPLANATION IS NOT ATTRACTED TO THE FACTS OF THE PRESENT CASE. IN THE CIRCUMSTANCES, THE ASSESSING OFFICER WAS NOT JUSTIFIED I N ADDING BACK THE PROVISION FOR DOUBTFUL DEBTS OF `92,15,187/- UNDER CLAUSE (C) OF THE EXPLANATION TO SECTION 115JA OF THE 1961 ACT. 3. IN REPLY, THE LEARNED DR RELIED ON CLAUSE (I) OF EXPLA NATION 1 TO SECTION 115JB, INTRODUCED BY FINANCE NO.2 ACT, 2009, RETROSPECTIVELY W .E.F. 01.04.2001 AND ARGUED THAT THE PROVISION WAS NOT TAKEN INTO ACCOUNT W HILE PASSING THE ORDER. IF THE SAME IS TAKEN INTO ACCOUNT, THE PROFIT SHOWN IN THE PRO FIT AND LOSS ACCOUNT HAS TO BE INCREASED BY THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISIO N FOR DIMINUTION IN THE VALUE OF ANY ASSET. THEREFORE, IT IS ARGUED THAT THERE IS NO MISTAKE APPARENT FROM RECORD IN THE ORDER, WHICH REQUIRES CORRECTION. 4. IN THE REJOINDER, THE LEARNED COUNSEL SUBMITTED THAT TH E RETROSPECTIVE AMENDMENT WILL HAVE NO EFFECT ON THE ASSESSMENT OF THIS YE AR ALTHOUGH IT HAD COME INTO EFFECT ON THE DATE ON WHICH THE ORDER WAS PASSED BY THE TRIBUNAL. A NUMBER OF DECISIONS WERE SUBMITTED TO SUPPORT THIS VIEW. HOWEVER, IN THE COURSE OF ARGUMENTS, RELIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. GOLD COIN HEALTH FOOD (P) LIMITED, (20 08) 304 ITR 308. 4 5. IN THE CASE OF H.C.L. COMNET SYSTEMS & SERVICES LIMITED (SUPRA), DECIDED ON 23.09.2008, THE HONBLE COURT HELD THAT A PROVISION FO R BAD AND DOUBTFUL DEBTS CANNOT BE SAID TO BE A PROVISION FOR A LIABILITY, BEC AUSE EVEN IF A DEBT IS NOT RECOVERABLE, NO LIABILITY COULD BE FASTENED UPON THE ASSESS EE. THE DEBT IS THE AMOUNT RECEIVABLE BY THE ASSESSEE AND NOT ANY LIABILITY PA YABLE BY THE ASSESSEE AND, THEREFORE, ANY PROVISION MADE TOWARDS IRRECOVERABILI TY OF THE DEBT CANNOT BE SAID TO BE A PROVISION FOR LIABILITY. 5.1 THE FACTS IN THE CASE OF GOLD COIN HEALTH FOOD (P) LIMITED (SUPRA) ARE THAT AN AMENDMENT WAS MADE BY THE FINANCE ACT, 2002, IN THE ACT W.E.F. 01.04.2003, IN EXPLANATION 4 TO SECTION 271(1)(III). IN THE CASE OF VIRTUAL SOFT SYSTEMS LIMITED (2007), 9 SCC 665, THE REVENUE PLACED RELIANCE ON THE NOTES O N CLAUSES TO THE AMENDMENT TO SUBMIT THAT THE AMENDMENT WAS CLARIFICATOR Y IN NATURE AND CONSEQUENTIALLY IT WAS OPERATIVE RETROSPECTIVELY. THE DIVI SION BENCH WHILE MAKING REFERENCE WAS OF THE VIEW THAT THE TRUE EFFECT OF THE AMENDMENT WAS NOT CONSIDERED, AS IT WAS PRIMA FACIE OF THE VIEW THAT MERELY BECAUSE THE AMENDMENT WAS STATED TO TAKE EFFECT FROM 01.04.2003, THAT CANNOT BE A GROUND TO HOLD THAT THE SAME DID NOT HAVE RETROSPECTIVE EFFECT. THE HONBLE COURT CONSIDERED A NUMBER OF DECISIONS INCLUDING ITS OWN DECISION IN THE CASE OF CIT VS. PODAR CEMENT (P) LIMITED (1997) 5 SCC 482, IN WHICH IT WAS NOTED THAT THE CIRCU MSTANCES UNDER WHICH THE AMENDMENT WAS BROUGHT IN EXISTENCE AND THE CONSEQUENCES OF T HE AMENDMENT WILL 5 HAVE TO BE TAKEN CARE OF WHILE DECIDING THE ISSUE AS TO WH ETHER, THE AMENDMENT WAS CLARIFICATORY OR SUBSTANTIVE IN NATURE, AND WHETHER IT WILL HAVE RETROSPECTIVE EFFECT OR NOT? THE HONBLE COURT HELD THAT THE AMENDMENT IN SECTION 271(1)(C) IS CLARIFICATORY AND NOT SUBSTANTIVE, AND THE APPEAL WAS DECIDED ACCORDINGLY. IT MAY BE NOTED THAT THE AMENDMENT WAS MADE W.E.F. 01.04.2003, B UT IT WAS HELD THAT IT HAS RETROSPECTIVE EFFECT. FURTHER, THE AMENDMENT IN SECTION 115JB AS POINTED OUT BY THE LEARNED DR, HAS BEEN EXPRESSEDLY MADE RETROSPECTIVE W.E.F. 01.04.2001. THE AMENDMENT WAS MADE SUBSEQUENT TO THE RENDERING OF DECISION IN THE CASE OF HCL COMENET SYSTEMS AND SERVICES LIMITED (SUPRA). THE AMENDMENT HAD COME INTO FORCE BEFORE THE ORDER WAS PASSED BY THE TRIBUNAL ON 19.11 .2010. THE AMENDMENT WAS NOT CONSIDERED BY THE TRIBUNAL. IF THE SAME IS CONS IDERED, THE EFFECT WILL BE THAT THE AMOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBT IS TO BE ADDED TO THE BOOK PROFIT UNDER CLAUSE (C) OF THE EXPLANATION. 5.2 IN VIEW OF THE AFORESAID DISCUSSION, PARAGRAPH NO. 6 OF THE ORDER OF THE TRIBUNAL IS SUBSTITUTED BY THE FOLLOWING PARAGRAPH : GROUND NO.3 IS AGAINST THE ADDITION OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS TO THE BOOK PROFIT. THE ISSUE STANDS COVERED BY THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. HCL COMNET SYSTEMS & SERVICES LIMITED, (2008) 305 ITR 409. THIS DECISION WAS RENDERED ON 23.09.2008. SUB SEQUENTLY SECTION 115JB WAS AMENDED BY FINANCE ACT, 2009, RETROSPECTIVELY W.E.F. 01.04.2001 BY INSERTING CLAUSE (I) IN EXPLANATION 1 TO THE EFFECT THAT THE ANY A MOUNT SET ASIDE AS PROVISION FOR 6 DIMINUTION IN THE VALUE OF ANY ASSET SHALL BE ADDED TO THE BOOK PROFIT. THIS AMENDMENT IS APPLICABLE TO THE PROCEEDINGS OF THIS YEAR. THEREFORE, THE PROVISION HAS RIGHTLY BEEN ADDED TO THE BOOK PROFIT. ACCORDING LY, THE GROUND IS DECIDED IN FAVOUR OF REVENUE AND AGAINST THE ASSESSEE. THIS ORDER WAS ORDER PRONOUNCED IN OPEN COURT ON 21-04- 2011. SD/- SD/- ( RAJPAL YADAV ) ( K.G. BANSAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 21-04-11 NS COPY FORWARDED TO:- 1. CHINATRUST COMMERCIAL BANK, 604, 6 TH FLOOR, MERCANTILE HOUSE, 15, K.G. MARG, NEW DELHI. 2. ADIT, INTT. TAXATION, NEW DELHI. 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. BY ORDER (ITAT, NEW DELHI).