THE COMMISSIONER OF INCOME TAX V. M/S.MANIPAL FINANCE CORPORATION LTD

ITA/756/2009

AI Insights

The case involves two appeals by the revenue against the orders of the Tribunal which had favored the assessee, M/s. Manipal Finance Corporation Ltd., in matters concerning the addition of provisions for non-performing assets and lease equalization fund to book profits, and the disallowance of provision for bad and doubtful debts. The Tribunal had set aside the Assessing Authority's decisions, which the revenue challenged in these appeals. The High Court's decision was based on precedents and interpretations of relevant sections of the Income Tax Act, 1961, particularly Sections 115JA and 36.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 728922 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 25-11-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax, Mysore Vs. M/s. ICDS Ltd., Apollo Tyres Ltd., Vs. Commissioner of Income-Tax, The Commissioner of Income Tax Vs. Weizmann Homes
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: PARTHASARATHI
• Assessee Lawyers: K V ARAVIND
• Keywords: Assessment year 1999-2000; Bad and doubtful debts; Book Profits; Income Tax; Non-performing assets; Lease Equalization Fund
• Section: 36(1)(vii); 36(2); 260-A; 115JA(2); 116JA

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA, BANGALORE DATED THIS THE 25TH DAY OF NOVEMBER, 2014 PRESENT: THE HON'BLE Mr.JUSTICE N.KUMAR AND THE HON'BLE Mr.JUSTICE B.MANOHAR INCOME TAX APPEAL NO.756 OF 2009 C/W INCOME TAX APPEAL NO.757 OF 2009 IN I.T.A.NO.756/2009 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX C.R.BUILDING, ATTAVARA MANGALORE. 2. THE ASST. COMMISSIONER OF INCOME-TAX CIRCLE-I UDUPI. ...APPELLANTS (BY SRI.K.V.ARAVIND, ADV.) AND: M/S.MANIPAL FINANCE CORPORATION LTD., MANIPAL HOUSE MANIPAL. ...RESPONDENT (BY SRI.PARTHASARATHI, ADV.,) THIS APPEAL IS FILED UNDER 260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 10/7/2009 PASSED IN ITA NO.297/BNG/2009, FOR THE ASSESSMENT YEAR 1999-2000, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: 2 i. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, ii. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO.297/BNG/2009 DATED 10-07-2009, CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, UDUPI IN THE INTEREST OF JUSTICE. IN I.T.A.NO.757/2009 BETWEEN: 1. THE COMMISSIONMER OF INCOME-TAX C.R.BUILDING, QUEENS ROAD BANGALORE. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-I UDUPI. ...APPELLANTS (BY SRI.K.V.ARAVIND, ADV.) AND: M/S.MANIPAL FINANCE CORPORATION LTD., MANIPAL HOUSE MANIPAL. ...RESPONDENT (BY SRI.PARTHASARATHI, ADV.,) THIS APPEAL IS FILED UNDER 260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 10/7/2009 PASSED IN ITA NO.296/BNG/2009, FOR THE ASSESSMENT YEAR 1999-2000, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: i. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, 3 ii. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO.296/BNG/2009 DATED 10-07-2009, CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, UDUPI IN THE INTEREST OF JUSTICE. THESE APPEALS COMING ON FOR HEARING, THIS DAY, N.KUMAR, J., DELIVERED THE FOLLOWING: J U D G M E N T The revenue has preferred these appeals challenging the order passed by the Tribunal. 2. These two appeals relate to two assessment years in respect of the very same assessee and in respect of which, a common order has been passed by the Tribunal and therefore, they are taken up for consideration together and disposed of by this common order. 3. The assessee is carrying on the business in finance. The assessment was completed under Section 116JA of the Income Tax Act, 1961. The provision for non- performing assets and lease equalization fund was added back to the book profits as per explanation to Section 4 115JA(2) of the Act. Further, the provision for bad and doubtful debts which was claimed as an expenditure was disallowed as a condition contemplated in Section 36(2) r/w Section 36(1)(vii) of the Act had not been complied with. Aggrieved by the said order, the asssessee preferred an appeal. 4. The First Appellate Authority held that the provision for non-performing assets and lease equalization fund cannot be added back to the book profits as per explanation under Section 115JA(2) of the Act. Even the finding of the Assessing Authority regarding provision for bad and doubtful debts was set-aside. Aggrieved by the said order, the revenue preferred an appeal to the Tribunal. The Tribunal upheld the order passed by the First Appellate Authority and dismissed the appeal. Aggrieved by the said order, these two appeals are filed by the revenue. 5. The two substantial questions of law which arise for our consideration are as under: 1. Whether the Appellate Authorities were correct in holding that the provision for non- 5 performing assets and lease equalization fund cannot be added back to the book profits as per explanation to Section 115JA(2) of the Act. 2. Whether the Appellate Authorities were correct in holding that the finding of the Assessing Officer that the provision for bad and doubtful debts which was claimed as an expenditure was disallowed as a condition contemplated in Section 36(2) read with Section 36(1)(vii) of the Act had not been complied with was set-aside without assigning any cogent reasons and consequently recorded a perverse finding. 6. This Court in the case of the Commissioner of Income Tax, Mysore Vs. M/s. ICDS Ltd., in ITA No.342/2001 decided on 31st October 2007, following the judgment of the Apex Court in Appollo Tyres Ltd., Vs. Commissioner of Income-Tax reported in 255 ITR page 273 has answered the said questions in favour of the assessee and against the revenue. 6 7. Following the said judgment, we also answer the first substantial question of law in favour of the assessee and against the revenue. We do not find any justification to interfere with the order passed by the Tribunal. 8. Insofar as the second substantial question of law is concerned, that was also a subject matter of the appeal in the case of The Commissioner of Income Tax Vs. Weizmann Homes reported in (2013) 357 ITR 74 (Karn) wherein, it was held that by Finance Act No.2 of 2009 with effect from 01.04.1998, the Clause (g) had been substituted by including the amount or amounts set-aside as provisions for diminution in the value of the said asset. It was held to be retrospective in operation and therefore, the amount or amounts set-aside as provisions for diminution and any value of the assessment needs to be added back to book profits as per explanation to Section 115JA(2) of the Act. 8. In view of the aforesaid judgment, the finding of the Tribunal and the First Appellate Authority requires to be set-aside and the order of the Assessing Authority is to 7 be restored. Therefore, the second substantial question of law is answered in favour of the revenue and against the assessee. For the aforesaid reasons, the appeals are partly allowed. Sd/- JUDGE Sd/- JUDGE GH "