TaxTMI 
TaxTMI 
2016 (2) TMI 676
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....r working out book profit tax u/s 115JB of the act by invoking clause ( c) of the Explanation (1) to that section. Aggrieved by this order Assessee preferred appeal before CIT (A) who in turn deleted the addition on account of provision for bad and doubtful debts in all the years. Subsequently by The Finance Act 2009 there is retrospective amendment with effect from 1-4-2001 for increasing the book profit for provision on account of diminution in the value of any assets as per clause (i) to Explanation 1. Therefore Ld AO initiated action u/s 154 of the act and made addition to the book profit of the assessee on account of provision for bad and doubtful debts by applying that clause (i) holding that the amounts set aside as provision for diminution in value of the assets covers this item of expenditure debited and is required to be added. Assessee carried the matter before CIT (A) and argued that order u/s 154 is invalid. Ld. CIT (A) upheld the action of AO holding that rectification is because of retrospective amendment and this amendment was not available when CIT (A) decided the issue and further the original addition was under clause (c) of the explanation of Section 115JB and n....
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....as erred both on facts and in law in rejecting the contention of the assessee that the order passed by the ld. Assessing Officer under Section 154 of the Act is bad in law and liable to be quashed as the same is barred by limitation. iv. On the facts and circumstances of the case, the ld. CIT(A) has erred both on facts and in law in confirming the action of the Assessing Officer in charging interest of Rs. 3,11,509/- under Section 234D of the Act. v. On the facts and circumstances of the case, the ld. CIT(A) has erred both on facts and in law in confirming the action of the Assessing Officer withdrawing interest of Rs. 10,78,208/- under section 244A of the Act. vi. On the facts and circumstances of the case, the ld. CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the Assessing Officer has erred both on facts and in law in charging interest despite an amount of Rs. 11,40,99,330/- being pending for refund for the assessment year under consideration. vii. That the appellant craves leave to add, amend or alter any of the grounds of appeal. 5. The first to third grounds of appeal is against the validity an....
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....rd. The revenue authority has got power to rectify any mistake apparent on the record and amend any order passed by it under the provisions of the Act. In doing so, certain constraints have been placed on the authority of AO in the matter of rectification which are contained in section 154(1A) of the act as under :- "(1A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided." 9. The constraint is that, where any matter is considered and decided in any proceeding by way of appeal or revision relating to an order referred to under sub-section (1), i.e., the order that is sought to be rectified, the authority passing such order may amend the order under sub-section (1) in relation to any matter other than the matter, which has been considered and decided. The powers of the Assessing Officer under sec. 154 of the Act flow from the provisions o....
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....ses from different parties and those purchases have not been disclosed in the account books. These parchas related to concealed or suppressed purchases of zeera. However, ultimately the Additional Judge (Revision) as well as High Court in the sales tax matter recorded a finding that parcha Nos. 4, 5, 6 and 7 did not conclusively prove to have been purchases of the assessee firm. The judgment of the High Court was available and was placed before the Appellate Assistant Commissioner during the course of hearing of the appeal before him by the assessee. The Appellate Assistant Commissioner in the light of the judgment of the High Court and finding of the Additional Judge (Revision) recorded in sales tax proceedings directed the ITO to apply a rate of 3.2 per cent on the enhanced turnover of Rs. 1,90,000. The order of the AAC has been quoted in extenso above. Therefore, the matter of determination of the total income of the assessee on account of parcha Nos. 4, 5, 6 and 7 found in the survey by the sales tax authorities was very much under consideration of the Appellate Assistant Commissioner. Even if while computing the total income, the ITO on account of some omission did not include....
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....ection 251 it has been provided that in an appeal against an order of assessment the Appellate Assistant Commissioner may enhance the assessment. The appellate powers of the Appellate Assistant Commissioner are as wide and as extensive as those of Assessing Officer, barring that the Appellate Assistant Commissioner cannot go outside the record and so he cannot discover new source of income, which are not disclosed either in the return of the assessee or in the assessment order as pointed out by the Supreme Court in CIT v. Shapporgi Pallongai Mistry [1962] 43 ITR 891. 13. Thus it is apparent that the Appellate Authority can look into and adjudicate upon findings recorded by the Income-tax Officer not only against the assessee, which may expressly be the subject-matter of the appeal but also those which have gone in favour of the assessee and which may not have been challenged by the assessee. In the present case, the entire assessment order qua the undisclosed turnover of zeera was the subject-matter of appeal before the Appellate Assistant Commissioner and as such the original assessment order stands merged with the order of the Appellate Assistant Commissioner and it was ....
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.... to decision of Hon'ble Authority, for Advance Ruling whereby 'advance against depreciation' amounting to Rs. 1,38,34,00,000/- was added to book profit and the book profit liable for MAT was determined at Rs. 4,22,55,60,970/-. This was later on revised to Rs. 3,74,06,15,970/- u/s 154 on 16-02-2006. While further examining the computation of book profit, it was noticed that following provisions, through added back in computing the taxable income under the head 'income from business and profession' under chapter IV D of the I.T. Act, were not considered for addition while computing book profit: (i) Provision for Gratuity Rs.11,77,03,897/- (ii) Provision for Leave Encashment Rs. 8,35,81,430/- (iii) Provision for post retirement medical scheme Rs. 4,17,03,884/- (iv) Provision for doubtful debts created during the year Rs. 28,28,14,257/- Rs. 52,58,03,468/- Less: Provisions for Doubtful Debts written back/ adjusted Balance, Rs. 19,51,55,078/- Balance Rs. 33,06.48,390/- 5.1 The assessee was accordingly required to show cause. By two separate replies it has been contended as under: 1. That the above prov....
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....nfluence an accountant"s casting of statement of affairs as well as ingenuity of human nature to devise ways to circumvent the law. Therefore, in adopting accountant's book profit, it attached some riders to block its understatement (Clauses a to f of Explanation) and also loosened strings so as to ensure the bounties and benedictions to spheres targeted under the normal provision are not undone Clause (i) to (vii) of Explanation. The additions and reductions of these adjustments are very critical for reaching 'at "MAT Profit". The guiding forces for achieving this delicate balance are the legislative behind MAT, (to tax zero tax paying prosperous companies), the 'low MAT ' vis-a-vis normal tax rate (only partially offsetting the operation of normal giving fillip to investments without postponing current accretions to exchequer in entirety) and allowing credit for MAT payment in future (to be just and fair by not taxing the same income twice). All these factors when combined with 'the non-obstante' clause make the provisions of section 115JB a self contained code which in turn also implies that the provisions have to be given strict interpretation to ensure ....
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....include any amount written off or retained by way of providing for depreciation, renewals or diminution in the value of assets or retained by way of providing for any known liability:" And in the same breath for the purposes of above sub-clause it defines 'liability to Include alt liabilities in respect of expenditure contracted for and all disputed or contingent liabilities. (2) "The schedule, however, qualifies the above meanings of terms' Provisions & Reserve as under: , "Where " (a) Any amount written off or retained by way of providing for depreciation, diminution in value of assets or retained by way of providing for any known liability; or (b) Any amount retained by way of providing for any known liability Is in excess of the amount which in the opinion of the directors is reasonably necessary for the purposes, the excess shall be treated for the purposes of this Schedule as a reserve and not as a provision." 5.6 The above discussion broadly conceptualize following inter relationship between 'Provision and 'Reserve', 1. Provision and reserves both are tools to set apart certain amounts out of ....
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.... amount carried to any reserve by whatever name called." The amount set apart might have been labeled as 'provision', but being a 'reserve' in essence squarely falls within the mischief of this explanation and, therefore, is liable to be added back. 5.8 Without prejudice to what is 'discussed above, even if it be presumed that provisions for 'doubtful debts' is a provision, can it be said that the decline does not lead to creation of any liability. It is contended that any fall in the value of debtors appearing on the 'asset side' does not lead to creation of any liability. But what is a liability? In the guidance note of ICAI, liability is defined as "all claims" involving financial obligations' which in other words means 'out flow of funds'. The contention that decrease in the value of debts or for that matter any asset does not lead to creation of any liability is basically flawed. Both assets and liabilities are two sides of the same coin - one representing sources of funds and the other application thereof - and are necessary corollaries of the system of Double Entry System of Book Keeping. Any change in one side has to ....
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....and vertical forms, 'provisions' are classed under the head liabilities' and are clubbed together with current liabilities and various types of provisions are described as under:- "Provisions: (i) Provision for taxation. (ii) Proposed dividends. (iii) For contingencies. (iv) For provident fund scheme. (v) For insurance, pension and similar staff benefit schemes. (vi) Other provisions." The above classification and grouping sufficiently indicates that 'provisions for doubtful debts' is a kind of liability only. 5.11 Coming to the last limb of the contention that even if this 'provision1 be a provision for a liability, it is on, account of ascertained liability. The word 'ascertained' in context of tax laws connotes two things - certainly of happening and it's amenability to quantification. If either of the two ingredients is absent, the liability cannot be called as an 'ascertained' one. In the case under consideration, the event, sustenance of loss on account of bad debt, or incurrence of liability on account of payment of Gratuity etc. have not taken place o....
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....hedule VI of the Companies Act, 1956. Provisions with regard to the doubtful debts, provisions for project expenses and provision for ex-gratia and other employee provisions were made as per accounting standard prescribed by the Institute of Chartered Accountants to prepare accounts as per schedule VI of the Companies Act. - Provision of Doubtful debt is an anticipatory diminution in value of assets and such amount is provided to present true & fair view of the Affairs in the Balance Sheet of the assessee. As per Companies Act, Schedule-VI Provision for Doubtful debts is to reduced from Current Assets/Debtors and as such cannot form Part of Reserve as observed by A.O. Thus assessee company has duly compiled the applicable law while finalizing the annual accounts and Section 115JB no where requires to add the above liabilities to calculate the taxable 'book profits'. Whereas, the above mentioned provision is made in the books in compliance with the accounting principles and as mandated by other Statues towards anticipated losses. As such these items may not fall u/s 115JB(2). This view is supported by the decision of the Calcutta Tribunal in case o....
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....s under: "Provision for bad and doubtful debts made by the assessee being a provision for an ascertained liability, clause (C) of Explanation to 115JA is not applicable and therefore, book profit could not be increased by the amount of provision for Bad and Doubtful Debts." Similarly in case of CIT Vs. HCL Comnet Systems and Services Ltd.(292 ITR 299) Delhi it was held: "Provision for Bad and Doubtful debts is to be treated as on ascertained Liability and therefore, it cannot be included in the Book Profit under Section 115JA." It is requested to please delete the above additions as the same is uncalled for and against the expressed provisions of Section 115JB of Income Tax Act", 9.4 I have carefully considered the submissions of the Id. AR and perused the order of assessment. It is found from the assessment order that the AO has at length developed a thesis or theory of "provisions", which is not found to be relevant for the obvious interpretation of the provisions of bad I'd doubtful debts, which have been held by various judicial pronouncements o be an ascertained liability and not otherwise, as held to be so by the Assessing Offi....
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.... sub-section (1A) of section 154 specifically provides that any matter which has not been considered and decided in any proceeding by way of appeal or revision, may be amended by the authority passing such an order in exercise of its power under section 154(1). Their Lordships further came to hold that the doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there are two orders, one by an inferior Tribunal and the other by a superior Tribunal passed in an appeal or revision, there is a fusion or merger of the two orders irrespective of the subject matter of the appeal. The order of assessment made by the Income-tax Officer merges in the order of the Commissioner in so far as it relates to items considered and decided by the Commissioner. That part of the order of assessment, which relates to items not forming the subject-matter of the appellate order and left untouched does not merge in the order of the Commissioner. Even after an appeal from an order of assessment is decided by the Commissioner, a mistake in that part of the order of assessment which was not the subject-matter of the appeal and was thereafter left untouched b....
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....ly liable for any interest under section 234B under the orders passed against it under section 143(1). Thereafter, when the regular assessment under section 143(3) was initiated and the income of the assessee was enhanced and "additional Income-tax" became payable, no question of levy of interest for "non-payment of advanced tax" could arise. This is obviously so since such determination of additional income-tax was the consequence of regular assessment and determination of additional Income-tax payable. This aspect is also purely academic since the additions effected by the Income-tax Officer were ultimately deleted by the Commissioner of Income-tax (Appeals) in appeal. Therefore, in our view no question of payment of interest under section 234B arises in the present case and non-charging of the same in the present case cannot be accepted as a "mistake capable of rectification" by initiating a proceeding under section 154 of the Income-tax Act. 13. In so far as the second issue is concerned, i.e., excess deduction allowed on account of depreciation, on a perusal of the original order of assessment under section 143(3) (annexure 5) clearly indicates that the Assessing Offi....
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....wal u/s 244A of the act are consequential in nature and accordingly they are if arising out of order u/s 154 of the act of the AO same would also be decided accordingly in favour of the assessee. Therefore ground no 4 & 5 of the appeal is also allowed. 16. Ground No 6 and 7 of the appeal are not arising from the order challenged before us and hence we do not adjudicate on them and hence are treated as dismissed. 17. In view of the above facts, the appeal of the assessee for assessment year 2004-05 is allowed partly wherein we have quashed that the order passed under Section 154 is not valid in view of the provisions of Section 154(1A) of the Act. 18. The appeals of the assessee for assessment years 2005-06 and 2006-07 are also having identical facts and circumstances that of the appeal for assessment year 2004-05, therefore, following our own decision in appeal no. 433/Del/2013, we also held that the orders passed under Section 154 of the Act by the Assessing Officer is invalid as per the provisions of Section 154 (1A) of the Act. Identically, we also held so in the appeal of the assessee for assessment years 2005-06 and 2006-07 and allow the appeal of the assessee partly.....
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.... profit and in terms of explanation to section 115JB of the I.T. Act, that explanation has been brought on the statute book and with retrospective effect from 1st April, 2001, therefore, this calculation of the tribunal is erroneous in law. 12. However, Mr. Kaka, learned senior counsel invited our attention to section 234B of the I.T. Act to submit that this is provision to recover interest for default in payment of advance tax. It directs payment of simple interest and in terms of this provision provided any assessee who is liable to pay advance tax under section 208 has failed to pay such tax or where the advance tax paid is less than 90% of the assessed tax. Thus, this is a provision whereunder interest could be recovered wherein advance tax for the assessment year fails to take note of the amendment to the Income Tax Act which is brought in subsequently. When the Parliament stepped into to amend the Act though with retrospective effect but in 2008, then, there is no default in payment of advance tax for the assessment year 2006-07. The computation of income based on which the advance tax was paid was in tune with the law prevailing on the date on which tax was due and ....
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.... effect from 1st April, 2001. 17. In the present case, what the assessee has pointed out is that some of the amounts included in the book profits as per Explanation (h) to section 115JB were brought in by the Finance Act, 2008 with retrospective effect from 1st April, 2001. The assessee cannot be held to be liable for failing to make a provision for payment of advance tax which was not possible on the last date as per the law then prevailing. Thus, clause (h) which is reproduced above having been brought in with retrospective effect but by Finance Act 2008, the advance tax computation by the assessee for the year 2006-07 cannot be faulted and it cannot be said that the assessee is in default and therefore, there is any liability to pay interest in terms of section 234B of the Income Tax Act, 1961. 18. In the case of Star India (P.) Ltd. v. CCE[2006] 280 ITR 321/150 Taxman 128 the Hon'ble Supreme Court held that the service of "broadcasting" was made a taxable service with effect from July 16, 2001, by the Finance Act, 2001. The appellant disputed its liability to make any payment for service tax on the ground that it did not broadcast. The Commissioner, howeve....