AMARRTARA PLASTICS P. LTD, MUMBAI v. ITO 8(1)(1), MUMBAI

ITA 1813/MUM/2009 | 2005-2006
Pronouncement Date: 19-01-2011 | Result: Allowed

Appeal Details

RSA Number 181319914 RSA 2009
Assessee PAN AAACA9050D
Bench Mumbai
Appeal Number ITA 1813/MUM/2009
Duration Of Justice 1 year(s) 9 month(s) 30 day(s)
Appellant AMARRTARA PLASTICS P. LTD, MUMBAI
Respondent ITO 8(1)(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 19-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 19-01-2011
Assessment Year 2005-2006
Appeal Filed On 20-03-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: MUMBAI BEFORE SHRI R.S. SYAL ACCOUNTANT MEMBER AND SHRI R. S. PADVEKAR JUDICIAL MEMBER ITA NO.1813/MUM/2009 (ASSESSMENT YEAR: 2005-06) M/S. AMARTARA PLASTICS PRIVATE LIMITED . ASSESSEE INDIAN CORK MILLS COMPOUND SAKI VIHAR ROAD POWAI MUMBAI -400 072 VS ACIT 8(1)(1) ..REVENUE MUMBAI -400 023 PAN: AAACA 9050 D ASSESSEE BY: SHRI SANJAY PARIKH REVENUE BY: SHRI S.K. PAHWA O R D E R PER R. S. PADVEKAR JM IN THIS APPEAL THE ASSESSEE HAS CHALLENGED THE IMPU GNED ORDER OF THE LD. CIT MUMBAI DATED 10.2.2009 FOR THE A.Y. 20 04-06. THE ASSESSEE HAS TAKEN THE MULTIPLE GROUNDS BUT FOLLOW ING ARE THE EFFECTIVE GROUNDS:- 2. THE CIT ERRED ON FACTS AND IN LAWS IN DIRECTING THE AO TO REFRAME THE ASSESSMENT. ITA 1813/MUM/2009 AMARTARA PLASTICS PRIVATE LIMITED 2 3. THE CIT ERRED ON FACTS AND IN LAW IN HOLDING THA T A.O. SHOULD HAVE DISALLOWS THE PROVISIONS FOR DOUBTFUL DEBTS AM OUNTING TO ` 35 95 508 WHILE COMPUTING THE BOOK PROFIT UNDER SE CTION 115JB OF THE INCOME TAX ACT 1961. 4. THE CIT ERRED ON FACTS AND IN LAW IN HOLDING THA T THE PROVISIONS FOR DOUBTFUL DEBTS ARE COVERED BY EXPLAN ATION (1) TO SECTION 115JB OF THE INCOME TAX ACT 1961. 2. THE FACTS RELEVANT TO DECIDE THE ISSUE BEFORE US ARE AS UNDER. THE ASSESSEE FILED THE RETURN OF INCOME FOR THE A.Y. 20 05-06 ON 31.10.2005 DECLARING THE TOTAL INCOME AS NIL. THE RETURN FI LED BY THE ASSESSEE WAS SELECTED FOR THE SCRUTINY AND ASSESSMENT WAS COMPLE TED U/S.143(3) OF THE ACT. THE A.O. DETERMINED THE TOTAL INCOME OF T HE ASSESSEE UNDER NORMAL PROVISIONS OF THE ACT AS NIL AND ALSO COMP UTED THE BOOK PROFIT U/S.115JB WHICH WAS (-) ` 26 71 922/-. THE LD. CIT-III MUMBAI EXERCISED HIS REVISIONARY POWERS U/S.263 OF THE ACT AND SET ASIDE THE ASSESSMENT MADE BY THE A.O. AS ERRONEOUS AND ALSO P RE-JUDICIAL TO THE INTEREST OF THE REVENUE WITH A DIRECTION TO RE-COMP UTE THE BOOK PROFITS AFTER ADDING BACK THE PROVISIONS FOR BAD DEBTS. TH E LD. CIT HAS OBSERVED THAT WHILE COMPUTING THE BOOK PROFIT THE A.O. HAS NOT ADDED BACK THE PROVISIONS FOR DOUBTFUL DEBT AMOUNTING TO ` 35 95 508/- WHICH WAS DISALLOWED WHILE COMPUTING INCOME UNDER THE HEAD M ANUFACTURE AND OTHER EXPENSES. THE LD. CIT HAS FURTHER OBSERVED THAT THE ORDER NOTING MAINTAINED BY THE A.O. HAS BEEN PERUSED AND NO QUES TION HAS BEEN RAISED BY THE A.O. WHETHER THE PROVISIONS ON ACCOUN T OF BAD DEBTS HAS BEEN EXAMINED FOR DISALLOWANCE TO COMPUTE THE BOOK PROFITS. THE LD. CIT HELD THAT THE A.O. HAS NOT APPLIED HIS MIND WHILE C OMPUTING THE BOOK PROFITS AND HAS IGNORED THE CLEAR PROVISIONS OF SEC TION 115JB(2) OF THE ACT. ITA 1813/MUM/2009 AMARTARA PLASTICS PRIVATE LIMITED 3 3. WE HAVE HEARD THE RIVAL SUBMISSION OF THE PARTIE S AND PERUSED THE RECORDS. THE LD. COUNSEL VEHEMENTLY ARGUED THAT WH ILE COMPLETING THE ASSESSMENT U/S.143(3) THE A.O. HAS ALREADY CONSIDE RED THE COMPUTATION OF THE TOTAL INCOME FILED BY THE ASSESSEE IN WHICH THE ASSESSEE HAS MADE DISALLOWANCE IN RESPECT OF THE PROVISION FOR DOUBTF UL DEBTS WHILE COMPUTING INCOME UNDER THE NORMAL PROVISIONS OF THE ACT. IT IS ARGUED THAT AT THE TIME WHEN THE ASSESSMENT ORDER WAS PASS ED NO AMENDMENT WAS BROUGHT ON THE STATUTE BOOK TO SECTION 115JB M ORE PARTICULARLY CLAUSE (I) TO EXPLANATION 1 TO SECTION 115JB WHICH WAS SUBSEQUENTLY INSERTED BY THE FINANCE ACT (NO.2) OF 2009 WITH RET ROSPECTIVE EFFECT 1.4.2001. HE FURTHER ARGUES THAT EVEN WHEN THE LD . CIT PASSED THE ORDER U/S.263 THE SAID PROVISO WAS NOT IN THE ACT A ND MOREOVER AS PER DECISIONS OF THE HIGH COURT AS WELL AS THE OTHER CO -ORDINATE BENCHES AT THAT TIME SAID ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. THE LD. COUNSEL RELIED ON THE FOLLOWING DECISIONS:- (I) CIT VS. DLF POWERS LTD. -229 CTR 27 (DEL.) (II) ACIT CIR.9(1) NEW DELHI VS. SRF LTD.- 21 SOT 122 (DEL.) (III) PIM HOTELS LTD. VS. DCIT - 45 DTR 313 (MUM) WE HAVE ALSO HEARD THE LD. D.R. 4. THE SHORT CONTROVERSY IS WHETHER THE LD. CIT JUS TIFIED IN EXERCISING HIS POWERS U/S.263 AGAINST THE ORDER PASSED BY THE A.O. U/S.143(3) OF THE ACT. SOMEWHAT IDENTICAL ISSUE HAS BEEN CONSIDE RED BY THE HONBLE HIGH COURT OF DELHI IN THE CASE OF DLF POWER LTD. ( SUPRA). IN THE SAID CASE WHILE COMPLETING THE ASSESSMENT THE A.O. HAS NOT ADDED BACK THE PROVISIONS FOR DOUBTFUL DEBTS WHILE COMPUTING THE B OOK PROFIT U/S.115JB WHILE QUASHING THE ORDER OF THE LD. CIT THEIR LORD SHIPS HAS HELD AS UNDER:- ITA 1813/MUM/2009 AMARTARA PLASTICS PRIVATE LIMITED 4 18. FURTHER EVEN IF TWO VIEWS WERE POSSIBLE AND THE VIEW TAKEN BY THE AO WAS PLAUSIBLE ONE IT BY THE CIT THAT WO ULD NOT PROVIDE SUFFICIENT GROUND FOR THE CIT TO ASSUME JURISDICTIO N UNDER S. 263 OF THE ACT MERELY BECAUSE HE HAD A DIFFERENT VIEW IN M ALABAR INDUSTRIAL CO. LTD. (SUPRA) THE SUPREME COURT GAVE THE FOLLOW ING INTERPRETATION TO THIS PROVISION: A BARE READING OF THIS PROVISION MAKES IT CLEAR TH AT THE PREREQUISITE TO EXERCISE OF JURISDICTION BY THE CIT SUO MOTU UND ER IT IS THAT THE ORDER OF THE ITO IS ERRONEOUS INSOFAR AS IT IS PREJ UDICIAL TO THE INTERESTS OF THE REVENUE. THE CIT HAS TO BE SATISF IED OF TWIN CONDITIONS NAMELY (I) THE ORDER OF THE AO SOUGHT T O BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERE STS OF THE REVENUE. IF ONE OF THEM IS ABSENT IF THE ORDER OF THE ITO IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOU S BUT IS PREJUDICIAL TO THE REVENUE RECOURSE CANNOT BE HAD TO S. 263(1) OF THE ACT. THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVE RY TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO IT IS ONLY WHE N AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN I NCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SA TISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL J USTICE OF THE REVENUE IS NOT AN EXPRESSION OF ART AND IS NOT DEFI NED IN THE ACT. UNDERSTOOD IN ITS ORDINARY MEANING IT IS OF WIDE IM PORT AND IS NOT CONFERRED TO LOSS OF TAX. THE SCHEME OF THE ACT IS TO LEVY AND COLLECT TAX IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AN D THIS TASK IS ENTRUSTED TO THE REVENUE. IF DUE TO AN ERRONEOUS O RDER OF THE ITO THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY A PER SON IT WILL CERTAINLY BE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE. THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE REVENUE HAS T O BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE A O. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF AO CANNO T BE TREATED AS ITA 1813/MUM/2009 AMARTARA PLASTICS PRIVATE LIMITED 5 PREJUDICIAL TO THE INTERESTS OF THE REVENUE FOR EX AMPLE WHEN AN ITO ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND I T HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTA INABLE IN LAW. 5. SECTION 115JB PROVIDES FOR PAYMENT OF MAT ON THE BOOK PROFITS OF THE COMPANIES. THE CONCEPT OF THE BOOK PROFIT WAS BROUGHT ON THE STATUTE BOOK BY THE INSERTION OF S.115J INITIALLY. SUBSEQUENTLY S.115JA AND NOW THE PRESENT SECTION JB WERE INTRODUCED IN T HE INCOME-TAX ACT BY THE PARLIAMENT. THE TAX LIABILITY OF THE ASSESSEE BEING COMPANY U/S.115JB DEPENDS ON THE BOOK PROFIT WORKED OUT AS PER SUB-SECTION (2) OF SECTION 115JB. EXPLANATION 1 IS ADDED WHIC H DEFINES MODE RATHER TO SAY GIVES THE FORMULA TO WORK OUT THE BOOK PROFI T. THERE ARE TWO PARTS OF THE EXPLANATION 1 AND CLAUSES (A) TO (I) PROVIDE FOR INCREASING THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT BY C ERTAIN AMOUNTS AND CLAUSES (I) TO (VIII) WHICH ARE IN PART 2 OF THE EX PLANATION 1 PROVIDE FOR REDUCING CERTAIN AMOUNTS FROM THE NET PROFIT IF THE SAME IS CREDITED TO THE PROFIT AND LOSS ACCOUNT. CLAUSE (I) IN THE FIR ST PART TO EXPLANATION 1 WAS INSERTED BY THE FINANCE (NO.2) ACT 2009 WITH R ETROSPECTIVE EFFECT FROM 1.4.2008. EARLIER THERE WAS CONTROVERSY IN R ESPECT OF TREATMENT OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS. AS PER T HE REVENUE THE PROVISION MADE FOR BAD AND DOUBTFUL DEBT WAS IN THE NATURE OF UNASCERTAINED LIABILITIES AND WAS COVERED BY CLAUSE (C) TO EXPLANATION 1 AND HENCE THE SAME WAS TO BE ADDED IN THE NET PROFI T FOR THE PURPOSE OF COMPUTING THE BOOK PROFIT. 6. THE SAID ISSUE IN CONTROVERSY HAS REACHED BEFOR E THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. HCL COMNET SYS TEMS & SERVICES ITA 1813/MUM/2009 AMARTARA PLASTICS PRIVATE LIMITED 6 LTD. 305 ITR 409 AND IT WAS HELD THAT THE PROVISION MADE FOR THE DOUBTFUL DEBTS CANNOT BE EQUATED WITH THE LIABILITY . MOREOVER THE HONBLE SPECIAL BENCH OF THE ITAT KOLKOTA ALSO HELD THAT THE PROVISION FOR BAD AND DOUBTFUL DEBT CANNOT BE EQUATED WITH THE LI ABILITY. IN THE CASE OF CIT VS. USHA MARTIN INDUSTRIES LTD. 105 TTJ (KOL )(SB) 543. WHEN THE A.O. PASSED THE ASSESSMENT ORDER I.E. ON 30.11.2007 CLAUSE (I) TO EXPLANATION 1 WAS NOT ON THE STATUTE BOOK. IT IS S EEN THAT EVEN WHEN THE LD. CIT PASSED THE ORDER U/S.263 ON 10.2.2009 THE S AID CLAUSE WAS INSERTED ONLY AFTER THE DATE OF THE ORDER U/S.263. IN OUR OPINION WHEN THE A.O. PASSED THE ASSESSMENT ORDER AT THAT TIME T HE ISSUE WAS DEBATABLE AND MOREOVER SUBSEQUENTLY SETTLED BY THE DECISION OF THE HONBLE SUPREME COURT IN FAVOUR OF THE ASSESSEE. H ENCE THE ORDER PASSED BY THE A.O. CANNOT BE SAID TO BE ERRONEOUS O NE. IT IS WELL SETTLED PRINCIPLES OF LAW THAT FOR EXERCISING JURISDICTION U/S.263 BOTH THE CONDITIONS MUST BE FULFILLED THAT (I) THE ORDER MUS T BE ERRONEOUS AND (II) IT ALSO SHOULD BE PRE-JUDICIAL TO THE INTEREST OF THE REVENUE AND THIS PROPOSITION IS WELL SETTLED BY THE HONBLE SUPREME COURT IN THE CASES OF MALABAR INDUSTRIAL CO. LTD. VS. CIT 243 ITR 83 AND CIT VS. MAX INDIA LTD. 295 ITR 282. IN OUR OPINION THE LD. CIT HAS WRONGLY EXERCISED HIS JURISDICTION U/S.263. WE HAVE NO OPTION BUT TO QUA SH THE ORDER PASSED U/S.263 AND WE ACCORDINGLY DO SO. 7. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19TH DAY OF J ANUARY 2011. SD/- SD/- (R.S. SYAL) ACCOUNTANT MEMBER (R. S. PADVEKAR) JUDICIAL MEMBER MUMBAI DATE: 19TH JANUARY 2011 ITA 1813/MUM/2009 AMARTARA PLASTICS PRIVATE LIMITED 7 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT -8 MUMBAI. 4) THE CIT/ADDL CIT-RANGE-8(1)/ CONCERNED MUMBAI 5) THE D.R. A BENCH ITAT MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR *CHAVAN I.T.A.T. MUMBAI ITA 1813/MUM/2009 AMARTARA PLASTICS PRIVATE LIMITED 8 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 06.01.2010 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 07.01.2010 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS 7 FILE SENT TO THE BENCH CLERK SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER