CIT vs. DLF Commercial Developers Ltd (Delhi High Court)
Exemption given in s. 43(5) to derivatives from being treated as "speculative transaction" not available to Expl to s. 73
In AY 2007-08 the assessee suffered a loss of Rs. 4.92 crore on account of transactions in derivatives. It claimed that as the Explanation to s. 43(5) inserted by the Finance Act 2005 w.e.f. 1.4.2006 exempted derivatives from the ambit of a "speculative transaction", the loss from trading of derivatives was not a speculative loss and could not be disallowed. The AO & CIT(A) rejected the contention and held that the Explanation to s. 73 was independent of s. 43(5) and the said loss had to be treated as a speculation loss. However, the Tribunal held that derivative transactions were separate from trading in shares and that the Explanation to s. 73 will not be applicable. On appeal by the department, HELD reversing the Tribunal:
Though the Explanation to s. 43 (5) excludes derivative transactions from the ambit of a "speculative transaction", there is nothing to show that derivative transactions are also excluded from the mischief of Explanation to s. 73 (4). S. 73 provides that the loss arising to a company out of purchase and sale of shares shall be deemed to be a "speculation loss". As derivatives are assets whose values are derived from the underlying assets, the loss on account of derivative transactions also constitutes a "speculation loss' (Bharat Ruia 337 ITR 452 (Bom) & Rajshree Sugars v. Axis Bank Ltd AIR 2011 Mad 144 referred)
Order passed u/s. 263 not sustainable if AO chosen one of the two views in respect of the claim of deduction u/s. 80IA(4)
A perusal of the provisions of section 80IA(4) of the Act shows that in the explanation 'infrastructure facility' has been specified to mean a road including a toll road, a bridge or a rail system. Admittedly, the assessee is doing the business of development of railway tracks and bridges thereof as also roads.
If, we are to accept the contention of the Ld. CIT that the provisions of section 80IA(4) of the Act after the substitution of the explanation to section 80IA of the Act was introduced was only for the purpose of giving the benefit to BOT contracts then, the explanation to section 80IA(4) of the Act becomes otiose. This is as explanation to section 80IA(4) of the Act specifically provides for the road to include a toll road, a bridge or a rail system. BOT contract in respect of the railway systemcan never exist. Further, a perusal of the provisions of section 80IA of the Act shows that the term 'works contract' is not defined in the said section. However, the terms 'works' and 'contract' is defined in the provisions of section 194C of the Act.
If a particular word or term is not defined in the specific section then, one could go to other sections in the said Act where the definition would be available to draw a meaning to the said terms. In the provisions of section 194C of the Act, work has been given an inclusive definition but in the subsequent portion it has excluded the manufacturing or supplying a product according to requirement or specification of a customer by using material purchased from a person other than such customer. As has been specified by the Ld. AR, the assessee is doing contract work but that work is according to the requirement and specification of the customer and the same has been done by using materials purchase from third parties other than the customers. Thus, though the assessee is doing a works contract the same would not fall within the meaning of the word 'works contract' for the purpose of the Act due to the exclusion provided in the meaning of 'work' in section 194C of the Act. The issue raised by the Ld. CIT that the assessee is not doing the development work but is only doing the contract also does not stand to test as the assessee admittedly is developing the roads and railway lines and the bridges thereof. Development encompasses within itself contract work. The agreement between the assessee and the customer being the government is for the development of the infrastructure facility being roads and rail systems and bridges by participating in the tenders. Under these circumstances, we are of the view that the AO was right in law in granting the assessee the benefit of deduction u/s. 80IA(4) of the Act. On this ground also, we are of the view that the Ld. CIT's order passed u/s. 263 of the Act is unsustainable and is liable to be quashed and we do so. Here, we may specifically mention that in view of the fact that the explanation to section 80IA(4) of the Act which has been substituted by the Finance, Act, 2009 with retrospective effect of 01.04.2000 is attempting to take away the statutory benefit granted to the assessee u/s. 80IA(4) of the Act without making any amendment to the explanation to section 80IA(4) of the Act, the said explanation substituted by the Finance Act, 2009 w.e.f. 01.04.2000 being an hindrance to the statutory deduction available to the assessee under the provisions of section 80IA(4), the said explanation would have to stand down in view of the decision of the Hon'ble Supreme Court in the case of S. Sundaram Pillai, referred to supra. Consequently, on this ground also the order passed u/s. 263 of the Act by the Ld. CIT for AY 2006-07 and 2007-08 stands quashed. Appeals of the assessee are allowed.
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH, CUTTTACK
ITA Nos.142 & 143/CTK/2010
Assessment Years: 2006-07 to & 2007-08
ITA Nos.483 & 484/CTK/2011
Assessment Years: 2006-07 to & 2007-08
ARSS INFRASTRUCTURE PROJECTS LTD
Vs
ASSISTANT COMMISSIONER OF INCOME TAX
CIRCLE-2(1), BHUBANESWAR
Dated: June 13, 2013
ORDER
Per Bench:
ITA Nos. 142 & 143/CTK/2010 filed by the assessee against the separate orders of CIT, Bhubaneswar passed u/s. 263 of the Income-tax Act, 1961 (hereinafter referred to as the Act) in Memo Nos. CIT/BBSR/Tech./263/13/2009-10/9089-91 and CIT/BBSR/Tech./263/13/2009-10/9086-77 both dated 18/23.03.2010 respectively. ITA Nos., 483 & 484/CTK/2011 filed by the assessee against the separate orders of CIT(A)-II, Bhubaneswar passed in Appeal No.0019/10-11 and 0155/09-10 both dated 14.09.2011 respectively.
2. S/Shri P. S. Panda and K. Agarwalla, ARs appeared for the assessee and Shri P. K. Dash, CIT, DR appeared for the revenue.
3. In both the appeals i.e. ITA Nos. 142 & 143/CTK/2010, the only issue is against the action of the Ld. CIT, Bhubaneswar in invoking his powers u/s. 263 of the Act to revise the assessment order passed u/s. 143(3) of the Act allowing the assessee's claim of deduction u/s. 80IA(4) of the Act. It was submitted by the Ld. AR that for the AY 2006-07, the original assessment order came to be passed u/s. 143(3) of the Act on 12.11.2008 and for AY 2007-08 on 02.12.2009. It was the submission that in the course of the original assessment, the AO had called for the explanation of the assessee along with proof in respect of its claim of deduction u/s. 80IA(4) of the Act. It was the submission that the assessee had replied vide its letter dated 12.11.2009 and 18.08.2008. It was the submission that discussion on the same had also been done in the course of the assessment as was evidenced in the order sheet noting. The Ld. AR drew our attention to pages 15 to 18 of the paper book and pages 34 to 42 of the paper book, which were the copies of the replies filed by the assessee before the AO in the course of the original assessment u/s. 143(3) of the Act for both the assessment years. He also drew our attention to the order sheet noting at pages 36 to 39 of the paper book. The Ld. AR further drew our attention to page 17 of the paper book, which was a copy of the requisition made by the AO vide his letter dated nil wherein the AO has directed the assessee to provide the details for examination the basis of the claim of deduction u/s. 80IA of the Act along with proof. It was the submission that the AO having verified the claim of deduction u/s. 80IA(4) of the Act and had allowed the assessee's claim of deduction u/s. 80IA(4) of the Act. The Ld. AR further drew our attention to the show cause notice issued u/s. 263 by the CIT, Bhubaneswar. In the said notice, Ld. CIT had invoked his powers u/s. 263 of the Act asking the assessee to show cause as to why deduction u/s. 80IA(4) of the Act was not liable to be withdrawn, as it was noticed that the assessee had not fulfilled all the conditions laid down u/s. 80IA(4) of the Act.
4. At this point, it was noticed by the Bench that the show cause notice was not signed by the Ld. CIT, Bhubaneswar but has been signed by the Income-tax Officer (Tech.) for the Ld. CIT, Bhubaneswar. When the Ld. CIT, DR was confronted as to why the show cause notice should not be quashed, it was submitted by the Ld. CIT, DR that in the Act no where it was provided that a show cause notice is to issue by the Ld. CIT u/s. 263 of the Act. It was the submission that the assessee should be informed of the proposal and the issue on which the Ld. CIT proposed to invoke his powers u/s. 263 of the Act. He also relied on the decision of the Hon'ble Delhi High Court in the case of Asish Rajpal reported in 320 ITR 674 (Del.).
5. It was further submitted by the Ld. AR that the Ld. CIT had passed his order u/s. 263 of the Act wherein in para 4 of his order the Ld. CIT had held that the assessee was doing a work contract and was consequently not eligible for the deduction u/s. 80IA(4) of the Act. It was further submission that the Ld. CIT had invoked the provisions of explanation to section 80IA which had been substituted by the Finance Act 2009 with retrospective effect from 01.04.2000. It was the submission that when the AO had passed his assessment order for AY 2007-08 the explanation was available in the statute still the AO had drawn a conclusion that the work done by the assessee was development of an infrastructure facility and was entitled to the deduction u/s. 80IA(4) of the Act. It was the submission that the AO had formed an opinion on the basis of the explanation given by the assessee and this information having not been shown to be wrong, a change of opinion by the Ld. CIT did not give the Ld. CIT the powers to invoke the provisions of section 263 to revise the assessment. The Ld. AR drew our attention to the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Gokuldas Exports & Ors. reported in (2011) 333 ITR 214 (Kar.) wherein it has been held that where two views are possible and one view has been adopted by the AO then the existence of another view alone would not be sufficient to exercise the powers u/s. 263 of the Act by the CIT. It was the submission that the AO had after examination drawn a conclusion that the assessee was entitled to the deduction u/s. 80IA(4) of the Act and this being one of the two views possible the Ld. CIT should not invoke his powers u/s. 263 just because he was of the opinion that another view was possible.
6. It was the submission that the assessee is doing the business of laying of railway tracks, bridges thereof as also building roads. It was the submission that as per the Explanation to section 80IA(4), the assessee was doing the business of developing infrastructure facilities. It was the submission that the assessee is using its own material and not the materials supplied by the Government or its customers. It was the further submission that the assessee was doing the work of development according to the requirements or specifications of the government or its customers. It was the submission that during the relevant assessment years under appeal, the assessee was doing only development of infrastructure facility as prescribed in the explanation to section 80IA(4) of the Act. The Ld. AR further submitted that the explanation to section 80IA of the Act wherein it has been declared that the said section would not apply in relation to the business referred to in sub-section (4) of section 80IA of the Act, which is in the nature of works contract could not survive in view of the fact that the Hon'ble Supreme Court has categorically held that an explanation added to a statutory provision is not a substantive provision and it cannot take away a statutory right with which any person under a statute has been cloaked or set at naught the working of the provision nor cause hindrance in the interpretation of the same. He relied on the decision of the Hon'ble Supreme Court in the case of S. Sundaram Pillai & Ors reported in AIR (1985) SC 582. It was the submission that the development work done by the assessee is works contract liable for deduction of TDS and that was why the TDS has also been deducted. Before us, it was the submission that the assessee was rightly held to be eligible for deduction u/s. 80IA(4) of the Act by the AO and consequently, order of the Ld. CIT passed u/s. 263 of the Act was liable to be quashed.
7. In reply, the Ld. CIT, DR submitted that the Act had been amended and the explanation has been introduced whereby works contract was held to be not eligible for deduction u/s. 80IA(4) of the Act. It was the submission that works contract for the said explanation meant any work taken on contract. It was the submission that the legislative intent was to give benefit only to Build, Operate and Transfer contracts (BOT). It was the submission that in view of the explanation to section 80IA of the Act, the AO had no option but to follow the provisions of section as controlled by the explanation to sec. 80IA. It was the submission that as this was not done by the AO, the order was erroneous and prejudicial to the interest of revenue and the order of the Ld. CIT in revising the order u/s. 263 of the Act was liable to be upheld.
8. We have heard rival submissions. At the out set, it may be mentioned here that the submissions by the Ld. CIT, DR that the Act does not provide in the provisions of section 263 that it is the CIT who has to give sign the show cause notice is accepted. This is because as per the provisions of section 263 the assessee needs only to be given intimation as to the issues on which the Ld. CIT is proposing to revise the order passed by the AO. The view that a show cause notice need not to be signed by the Ld. CIT u/s. 263 is supported by the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Asish Rajpal reported in (2010) 320 ITR 674 as also the Hon'ble Supreme Court in the case of reported in CIT Vs. Electro House (1971) 82 ITR 824 and in the case of reported in Gita Devi Aggarwal Vs. CIT (1970) 76 ITR 496.
9. Now, coming to the merits as also the submissions as made by the assessee. Admittedly, the AO in the course of original assessment proceedings u/s. 143(3) of the Act has called for the explanation of the assessee as also directed the assessee to prove its claim for deduction u/s. 80IA(4) of the Act. The assessee has responded to the AO. The AO after considering the explanation and the proofs as produced by the assessee found that the assessee was eligible for deduction u/s. 80IA(4) of the Act. A perusal of the order of the Ld. CIT u/s. 263 of the Act does not any where show as to what is the specific error that the AO has committed when granting the assessee the deduction u/s. 80IA(4) of the Act. It is true that the Ld. CIT has referred to the provisions of explanation substituted by the Finance Act, 2009 with retrospective effect from 01.04.2000. However, this explanation was available to the AO when the assessment for AY 2007-08 was being completed. Still the AO held that the assessee was entitled to the deduction u/s. 80IA(4) of the Act. The said explanation admittedly was not available when the assessment for AY 2006-07 was being completed u/s. 143(3) of the Act. For AY 2006-07, the order passed u/s. 263 of the Act could not be used for making order treating an assessment order erroneous on account of a subsequent amendment or substitution done to the provision. Under this circumstances, as it is noticed that the AO has chosen one of the two views in respect of the claim of deduction u/s. 80IA(4) of the Act and in view of the decision of the Hon'ble Karnataka High Court in the case of Gokuldas Exports & Ors., referred to supra, we are of the considered view that the order passed u/s. 263 of the Act is not sustainable in law and consequently, the same stands annulled. This view of ours also find support from the decision of the Hon'ble Bombay High Court in the case of Ranka Jewellers Vs. Addl. CIT (2010) 328 ITR 148 = (2010-TIOL-231-HC-MUM-IT).
10. Now coming to the merits of the deduction u/s. 80IA(4) of the Act. A perusal of the provisions of section 80IA(4) of the Act shows that in the explanation 'infrastructure facility' has been specified to mean a road including a toll road, a bridge or a rail system. Admittedly, the assessee is doing the business of development of railway tracks and bridges thereof as also roads. If, we are to accept the contention of the Ld. CIT that the provisions of section 80IA(4) of the Act after the substitution of the explanation to section 80IA of the Act was introduced was only for the purpose of giving the benefit to BOT contracts then, the explanation to section 80IA(4) of the Act becomes otiose. This is as explanation to section 80IA(4) of the Act specifically provides for the road to include a toll road, a bridge or a rail system. BOT contract in respect of the railway system can never exist. Further, a perusal of the provisions of section 80IA of the Act shows that the term 'works contract' is not defined in the said section. However, the terms 'works' and 'contract' is defined in the provisions of section 194C of the Act. If a particular word or term is not defined in the specific section then, one could go to other sections in the said Act where the definition would be available to draw a meaning to the said terms. In the provisions of section 194C of the Act, work has been given an inclusive definition but in the subsequent portion it has excluded the manufacturing or supplying a product according to requirement or specification of a customer by using material purchased from a person other than such customer. As has been specified by the Ld. AR, the assessee is doing contract work but that work is according to the requirement and specification of the customer and the same has been done by using materials purchase from third parties other than the customers. Thus, though the assessee is doing a works contract the same would not fall within the meaning of the word 'works contract' for the purpose of the Act due to the exclusion provided in the meaning of 'work' in section 194C of the Act. The issue raised by the Ld. CIT that the assessee is not doing the development work but is only doing the contract also does not stand to test as the assessee admittedly is developing the roads and railway lines and the bridges thereof. Development encompasses within itself contract work. The agreement between the assessee and the customer being the government is for the development of the infrastructure facility being roads and rail systems and bridges by participating in the tenders. Under these circumstances, we are of the view that the AO was right in law in granting the assessee the benefit of deduction u/s. 80IA(4) of the Act. On this ground also, we are of the view that the Ld. CIT's order passed u/s. 263 of the Act is unsustainable and is liable to be quashed and we do so. Here, we may specifically mention that in view of the fact that the explanation to section 80IA(4) of the Act which has been substituted by the Finance, Act, 2009 with retrospective effect of 01.04.2000 is attempting to take away the statutory benefit granted to the assessee u/s. 80IA(4) of the Act without making any amendment to the explanation to section 80IA(4) of the Act, the said explanation substituted by the Finance Act, 2009 w.e.f. 01.04.2000 being an hindrance to the statutory deduction available to the assessee under the provisions of section 80IA(4), the said explanation would have to stand down in view of the decision of the Hon'ble Supreme Court in the case of S. Sundaram Pillai, referred to supra. Consequently, on this ground also the order passed u/s. 263 of the Act by the Ld. CIT for AY 2006-07 and 2007-08 stands quashed. Appeals of the assessee are allowed.
11. As we have allowed the assessee's appeal in ITA Nos. 142 and 143/CTK/2010 the appeals filed by the assessee in ITA Nos. 483 & 484/CTK/2011 which has its foundation on the order giving effect to the order passed u/s. 263 of the Act by the Ld. CIT, which have been quashed in the appeals of the assessee in ITA No. 142 & 143/CTK/2010, the same stand allowed. The ITA No. 483 & 484/CTK/2011 is consequential in nature and stand allowed.
12. In the result, appeals of the assessee stand allowed.
13. Order is dictated and pronounced in the open court.
IT : Where Assessing Officer passed rectified order under section 154 on 31-3-2004, i.e., on last date of limitation, and served same on assessee dasti on 18-10-2005, since there was no explanation why order allegedly dated 31-3-2004 could be served on 18-10-2005, impugned order was in fact backdated and, therefore, barred by limitation
■■■
[2013] 35 taxmann.com 49 (Kolkata - Trib.)
IN THE ITAT KOLKATA BENCH 'A'
Deputy Commissioner of Income-tax, Circle - II
v.
Woodlands Hospital & Medical Research*
G.D. AGRAWAL, VICE-PRESIDENT
AND SMT. DIVA SINGH, JUDICIAL MEMBER
AND SMT. DIVA SINGH, JUDICIAL MEMBER
IT APPEAL NOS. 22 & 23 (KOL.) OF 2008
[ASSESSMENT YEARS 1998-99 & 1999-2000]
[ASSESSMENT YEARS 1998-99 & 1999-2000]
JULY 25, 2008
Section 154 of the Income-tax Act, 1961 - Rectification of mistake - Apparent from records [Limitation] - Assessment year 1998-99 - For assessment year 1998-99, Assessing Officer processed under section143(1)(a) return of income filed by assessee and served intimation on 12-5-2000 - Subsequently he issued on assessee a notice under section 154 on 18-1-2001 - Thereupon assessee appeared before Assessing Officer and hearing took place on 6-2-2001 - Thereafter Assessing Officer passed rectified order under section 154 on 31-3-2004 and served same on assessee dasti on 18-10-2005 - There was no explanation on record addressing why order allegedly dated 31-3-2004 could be served on 18-10-2005 - Whether impugned order was never passed on 31-3-2004 and was in fact backdated and, therefore, barred by limitation - Held, yes [Paras 6,6.1 and 6.2] [In favour of assessee]
FACTS
| ■ | The Assessing Officer vide his order dated 31-3-2004 made under section 154 had rectified the assessment order relating to the assessment year 1998-99, which was passed by him under section 143(1)(a) pursuant to the return filed by the assessee. | |
| ■ | On appeal, the assessee contended that (i) it had filed the return in time on 31-11-1998 and it was accepted under section 143(1)(a) on 21-3-2000 and intimation in regard thereto was served on 12-5-2000, (ii) subsequently notice under section 154 dated 18-1-2001 was issued and served upon it on 19-1-2001, (iii) hearing took place on 6-2-2001 and objections were filed as per records, (iv) the order under section 154 as per the date mentioned on it was passed on 31-3-2004, i.e., on the last date of limitation, (v) the said order was served on it on 18-10-2005 along with the similar order for the next assessment year 1999-2000, (vi) in the facts of the case the order under section 154 was barred by limitation, and (vii) the said order under section 154 had been made on an issue which was debatable. The Commissioner (Appeals) held that the order under section 154 though claimed to be made on 31-3-2004 was served dasti on 18-10-2005 along with the similar order for the next year. Clearly either the order was backdated, therefore, barred by limitation or that there was delay in service of order and the notice of demand by one year 6 months and 18 days. This delay vitiated the order on the ground of limitation. He also held that the order under section 154 was beyond the action under section 143(1). He also allowed the plea of the assessee that since the issue was debatable, it could not be rectified under section 154. He, therefore, quashed the order made under section 154. |
■ On second appeal:
HELD
| ■ | In the instant case hearing in rectification proceedings under section 154 took place on 6-2-2001. As per the undisputed facts on record the order under section 154 dated 31-3-2004 was served upon the assessee on 18-10-2005. No arguments have been advanced to contend that some other mode of service/services were adopted initially, which failed and on account of the failure of such attempts which ought to have been demonstrated the various modes were exhausted and the order finally could be served on 18-10-2005. No effort has been made on the part of the revenue to address the huge gap of time between the alleged date of the order and the date on which it was admittedly served that too by dasti. There is no explanation on record addressing why the order allegedly dated 31-3-2004 could be served on 18-10-2005. There is no doubt that the order was meant for the assessee to act upon. Why the same continued to remain with the department till 18-10-2005 is a very serious lapse. The inordinate delay between passing of order, which happens to be the last date on which the limitation expired, i.e., 31-3-2004, and 18-10-2005 the date on which the order was served by 'dasti' leads only to one conclusion that the order under section 154 is backdated which has been arrived at in the impugned order. The burden placed upon the department in support of the ground challenging the findings of facts has not been discharged. | |
| ■ | The issue may be examined from another angle, namely, unlike Courts and Tribunals, wherein pronouncements are made as guided by the Civil Procedure Code, under the Income-tax Act, 1961 for the Assessing Officer there is no procedure or requirement of pronouncement. Thus by and large the date given in the order by the said authority is accepted and is questioned only if challenged. Since after passing the order no fruitful purpose is served by keeping the order with itself, the conclusion of the Commissioner (Appeals) that the order was never passed on the alleged date, i.e., 31-3-2004 and is in fact backdated cannot be easily set aside. [Para 6] | |
| ■ | Accordingly the order under section 154 allegedly dated 31-3-2004 as per material available on record continued to remain with the said authority as it was communicated for the first time only on 18-10-2005. The said authority never become functus officio, since in the instant case it was not to be pronounced/published but communication necessarily and imperatively had to be made. No mode of communication by way of postal authority or otherwise prior to 18-10-2005 has been pressed into service on behalf of the department. [Para 6.1] | |
| ■ | Accordingly the order under section 154 dated 31-3-2004 passed by the Assessing Officer has rightly been quashed on the ground of limitation. Further the Commissioner (Appeals) was justified in quashing the order on the ground that on a debatable issue rectification is legally not sustainable. [Para 6.2] | |
| ■ | In the result, the appeal of the revenue was liable to be dismissed. [Para 7] |
CASE REVIEW
B.J. Shelat v. State of Gujarat AIR 1978 SC 1109 (para 6.1) and T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50 (SC) (para 6.2)followed.
CASES REFERRED TO
Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273/122 Taxman 562 (SC) (para 3.2), B.J. Shelat v. State of Gujarat AIR 1978 (SC) 1109 (para 5),State Bank of India v. S.N. Goyal 2008 Indian SC 798 (para 6) and T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50 (SC) (para 6).
P.K. Roy for the Appellant. Argha Mitra for the Respondent.
ORDER
Smt. Diva Singh, Judicial Member - These are two appeals filed by the revenue against separate orders dated 10.10.2007 by the ld. CIT(A)-XI. Kolkata pertaining to Assessment years 1998-99 and 1999-2000 respectively.
2. The following grounds have been raised by the revenue in ITA No.22/Kol/2008
| "1. | Ld. CIT(A) has erred in holding that the impugned order passed u/s 154 of the Act is time barred without appreciating the facts that notice u/s 154 was issued on 18.01.2001, that the same was duly served on 19.01.2001, that the assessee made compliance on 01.02.2001 and that only for demand raised per the impugned order was made in Demand and Collection Register for the year 2003-04. | |
| 2. | Ld. CIT (A) has erred in deleting the addition of Rs. 1.07,45,000- made in the assessment while computing the book profit without considering the Proviso to Explanation (i) of Section 115JA of the Act. | |
| 3. | Ld. CIT(A) has erred in not appreciating the fact that the assessee has created Reserve on account of revaluation of fixed assets amounting to Rs. 24,69,14,000/- but credited to Profit and Loss account only a part amount of Rs. 1,07,45,000/- which is contrary to the provision of the Proviso to Explanation 10 of section 115JA of the Act. | |
| 4. | Ld. CIT(A) ought to have considered making adjustment to book profit as per Explanation (i) of section 115JA of the Act by increasing the book profit by the whole amount of the said Reserve of Rs. 24,69,14,000/- and then reducing such increased book profit by the amount withdrawn of Rs 1,07, 45,000/- from the said Reserve created during the relevant previous year. | |
| 5. | In the facts and circumstances of the case, the order of CIT(A) deserves to be set aside. | |
| 6. | The appellant craves leave to add, amend, change or alter any grounds of appeal as aforesaid, during the course of hearing of the case. " |
3. The relevant facts of the case are that the AO vide his order u/s 154 dt.31.03.2004 in the case of the assessee held that there is a mistake apparent from record in the 343(1)(a) order passed pursuant to the return filed by the assessee for the following reasons:-
"The assessee Co. submitted return of income for the A.Yr. 1998-99 declaring total income of Rs. 1,34,000/- and had declared book loss as per provision of Sec. 115JA for Rs.(-) 61,19,000/-. It appears from the computation of book profit u/s 115JA that the assessee Co. had made an adjustment, being a transfer from Revaluation reserve adjusted against depreciation, by reducing an amount of Rs 1,07,45,000/- from the profit of the business of Rs. 45,76, 000/- and the same had resulted book loss for Rs.(-) 61,69,000/-
Since the assessee Co had not properly claimed the reduction from the profit of the business towards computation of book profit u/s 115JA of the I.T. Act, a notice u/s 154 was issued
The A.R. of the assessee appeared on 01.02.01 and filed a written submission.
The assessee's contention is not accepted. Adjustment had not been properly made from the profit of the business in accordance with the provision of law. So the adjustment made by the assessee on account of transfer from depreciation for Rs. 1,07,45,000/- is disallowed and book profit of the assessee and taxable income @ 30% thereon is determined as Rs. 45,76, 000/- and Rs 13,72, 800/ respectively. So, the tax payable by the assessee as per provision u/s 115JA will be Rs. 4,80,480/-. Now, since the tax payable under provision of Sec. 115JA is higher than the tax payable under normal provision, then 30% of the book profit is now considered as total income of the assessee for the tax purpose."
3.1 In appeal before the First Appellate Authority the action of the AO u/s 154 was challenged on various grounds. It was contented that the return declaring income of Rs. 1,34,000/- computed u/s 115JA was filed in time on 30.11.1998 and it was accepted u/s 143(1) (a) on 21.3.2000 and intimation in regard thereto was served on 12.5.2000. Subsequently, notice u/s 154 dated 18.1.2001 was issued and served upon the assessee on 19.1.2001. In this notice it was contended the details of what was to be rectified was not mentioned and the hearing took place on 6.2.2001 and objections dated February and March, 2001 were filed as per records. The order u/s 154 it was submitted as per the date mentioned on it was passed on 31.3.2004 i.e. on the last date of limitation. However, it was submitted the order was served on the assessee on 18.10.2005. It was submitted that order was served on the very same day i e. 18.10.2005 along with the similar order served for A.Yr. 1999-2000. Based on these facts the assessee challenged before the CIT(A) that the order u/s 154 was barred by limitation.
3.2 Moreover, the challenge was also posed on the ground that the said order was contrary to the principles laid down by the Apex Court in the case of Apollo lyres Ltd. v. CIT [2002] 255 ITR 273/122 Taxman 562 (SC).
3.3 It was also challenged on the ground that rectification order u/s 154 has been made on an issue which is debatable etc.
3.4The facts as appreciated by the CIT(A) on merits were as under :-
"The DCIT has made the order u/s 154 in the following terms:-
| Book loss as per P&L Account: | (-) Rs. 61,69,000/- |
Add: Disallowed adjustment —
| Transfer from revaluation reserve | Rs. 1,07,45,000/- | |
| Book Profit | Rs. 45,76,0007- | |
| 30% thereof | Rs. 13,72,800/- |
What the assessee has actually done is that it had some revalued assets of earlier years. It debited total depreciation of Rs.2, 17,21,000/- to the P& L Account, and reduced the same by an amount of Rs. 1,07,45.000/- being the amount of depreciation component on account of revaluation. Therefore, while it effectively credited the P&A A/c with the sum of Rs. 1,07,45.000/- (by way of deducting this amount on expenditure side from depreciation on revalued assets mentioned at 2,17,721,000/- on such revalued assets), what was debited to the P& L A/c was the net amount of depreciation Rs. 1,09,76,000/- without any component of revaluation. The revaluation reserve was also effectively reduced by the amount of Rs. 1,07,45,000/-. This amounts to sum withdrawn from revaluation reserve credited to the P&. L Account as the amount has been reduced from the depreciation claimed. Thus it comes within the ambit of an amount withdrawn from a reserve and credited to the P & L Account, an amount that falls within the meaning of amount mentioned in Explanation to section 115JA to be reduced from the book profits."
3.5 However, considering the fact that the assessee has not only challenged the assessment order on technical grounds but also had challenged the same on substantial grounds. The CIT(A) considering the arguments on limitation allowed the ground of the assessee as under :-
"IV. Firstly, the order though claimed to be made on 31.3.2004 was served dasti on 18.10.2005 along with the similar order for the next year. Clearly, either the order is backdated, therefore, barred by limitation, or that there was delay in service of order and the notice of demand by one year 6 months and 18 days. This delay vitiates the order on the ground of limitation."
3.6 Apart from that he also held that the order u/s 154 was beyond the action u/s 143(1).
3.7 The CIT(A) also allowed the plea of the assessee on the ground that since the issue is debatable as such it cannot be rectified u/s 154.
3.8 Accordingly he agreed with the submissions of the assessee that the rectification is not maintainable and not permissible u/s 115JA. Similarly interest u/s 220(2) sought to be charged u/s 154 order was held to be void.
4. At the time of hearing before the Tribunal the ld. DR placed reliance on order u/s 154. It was his contention that the AO was within his rights to pass rectification order and the said order dated 31.03.2004 is very much within the limitation as is evident from the dale of the order. However, the fact that it was served on the assessee after one year and six months was not disputed by him. The argument was also put for that the adjustment sought to be made by the AO is permissible under law.
5. The ld. AR, on the other hand, invited attention to the 154 order dated 31.3.2004 wherein it has been recorded that under 154 proceedings the assessee participated on 01.02.2001. It was his submission that the finding of fact recorded by the CIT(A) in the appellate proceedings based on the submissions of the assessee that 154 order was served upon the assessee on 18.10.2005 has not been disputed by the ld. DR. The undisputed fact it was argued is that it had been taken into consideration by the ld. CIT(A) to quash the 154 order as there was a delay in service of the order upon the assessee by 1 year 6 months and 18 days. Under this circumstances, it was argued the ld. CIT(A) was justified in concluding that the 154 order is back dated. It was reiterated by the ld. AR Shri Argha Mitra that these facts have not been disputed by the department and nothing has been placed before the Tribunal to come to a conclusion that the said order is not back dated. Inviting attention to the written submissions before the CIT(A) and synopsis of the issues filed before the Bench, reliance was placed upon the judgement of the Hon'bie Apex Court in the case ofB.J Shelat v. State of Gujarat AIR 1978 SC 1109. It was submitted that the CIT(A) relying upon the said judgement came to the conclusion in favour of the assessee. Relying on the same it was argued that the order under the Act is said to be complete and effective only if it is issued so as to be beyond the control of the authority concerned for any possible change or modification therein. This should be done within the prescribed period though the actual service of the order may be beyond that period. It was the submission that in the facts of the present case service has been made after 1 year 6 months and 18 days and there is nothing placed before the Bench to conclude that the 154 order was passed by the DCIT within time. No arguments it was submitted have been advanced to justify the inordinate delay in issuing of that order presuming it was passed what was the need to keep it with themselves, it was argued is a very serious issue which needs to be addressed. The finding that it has not been made within the time prescribed under law, it was argued can be upset on the basis of some cogent evidence or material and not on mere argument that it must have been made within time. In the facts of the present case it was argued the evidence and material in support of its case has not been brought on record by the Revenue.
5.1 It was also contended by the ld. AR that in the facts of the present case the assessee participated in the proceedings before the AO on 1.2.2001 and the AO passed this order dated 31.3.2004 as a result of change of incumbent obviously without giving any opportunity to the assessee of being heard. The fact was emphasized to show how the right vested in the assessee have been trampled upon. It was clarified that the assessee is not seeking an opportunity of being heard and is not arguing for that it was submitted that it is a departmental appeal and the findings of fact without any evidence cannot be easily set aside.
5.2 It was also contended by him on merits that the accounting procedures had been duly followed by the assessee and his action is fully in accordance with the Companies Act, 1956 and in accordance with the guidance and Accounting Standard 13 issued by the Institute of Chartered Accountants of India. The computation of the book profit u/s 115JA it was argued is in accordance with the Act relying upon the judgement of the Apex Court in the case of Apollo Tyres Ltd. (supra). It was also contended that the action of the AO is bad in law.
5.3 In support of the impugned order it was alternatively contended that it is a settled principle that 154 order for rectification cannot be passed on a debatable issue. As such the action of the CIT(A) in quashing the same on the ground and deserves to be upheld. Accordingly, heavy reliance was placed on the impugned order.
5.4 In reply the ld. DR contended that in the peculiar facts of the ease, where the 154 order has been passed without affording the assessee an opportunity of being heard by the AO who passed the order. It was his submission that the revenue would have no objection if the assessee is provided an opportunity of being heard and the issue is restored back to the AO if the Bench consider it appropriate. The said submissions was objected to on behalf of the assessee by the ld. AR contending that he had merely referred to the facts and there was no prayer on behalf of the assessee for affording an opportunity of being heard as it was the departmental appeal wherein the ld. DR on behalf of the department should lead evidence to unsettle the findings of fact recorded and not try to settle the issue by seeking a new life for the departmental case.
6. We have heard the rival submissions and perused the material available on record. On a careful consideration of the same, we find ourselves unable to agree with the submissions advanced by the ld. DR in support of the grounds raised that the issue may be restored for opportunity of being heard as the assessee as has clarified the assessee is not before the Tribunal on this issue it is the Revenue who is before the Tribunal as such no prayer for opportunity has been made instead it has been strongly opposed. The fact has been emphasized that arguments advanced before the authority on 1.1.2001 came to be decided by a new incumbent allegedly on 31.3.2004. This fact on record has not been pressed into service by the assessee praying for opportunity, the assessee has instead rested his case on various other issues praying for upholding the order. The ground that the order u/s 154 dated 31.3.2004 was not passed on the said date and was finalized subsequently. For this assertion he has pressed into service the fact available on record that the said order was served on the assessee on 18.10.2005, this fact has been taken into consideration by the CIT(A) who has come to a finding that the Order dated 31.3.2004 is back dated we have specifically taken note of this fact and seen that the hearing look place before the AO in 154 proceedings on 01 05.2001 and as per the undisputed fact on record the order dated 31st March, 2004 was served upon the assessee on 18.10.2005. This fact has not been disputed by the department. No arguments have been advanced to contend that some other mode of service/services were adopted initially which failed and on account of the failure of such attempts which ought to have been demonstrated the various modes were exhausted and the order finally could be served on 18.10.2005. No effort has been made on the part of the department to address the huge gap of time between the alleged date of the order and the date on which it was admittedly served that too by 'dasti'. Under these peculiar facts, we do not find much merit in the arguments of the department and find no rationale basis to draw a presumption in favour of the department without evidence to explain the same. There is no explanation on record addressing why the order allegedly dated 31.3.2004 could be served on 18.10. 2005. There is no doubt that the order was meant for the assessee to act upon why the same continued instead to remain with the department till it could be served i.e. on 18.10.2005 is a very serious lapse. The inordinate delay between passing of order which happens to be the last date on which the limitation expired i.e. 31.3.2004 and 18.10.2005 the date on which the order was served by dasti leads only to one conclusion that the order u/s 154 is back dated which has been arrived at in the impugned order. As such the conclusion suggested on behalf of the department cannot be accepted as no cogent material evidence has been brought to the notice of the Bench in order to come to the contrary findings. The burden placed upon the department in support of the ground challenging the findings of facts has not been discharged. The judgement of the Apex Court in the case of B.J. Shelat (supra) fully supports the view taken by the CIT(A) on which reliance has been placed by the CIT(A), we may also examine the issue from another angle namely unlike Courts and Tribunals wherein pronouncements are made as guided by the Civil Procedure Code under the Income Tax Act, 1961 for the AO there is no procedure or requirement of pronouncements. Thus by and large the date given in the order by the said authority is accepted and is questioned only if challenged. In the circumstances where it is challenged the mode of service and date of service of the order needs to be examined so as to adjudicate upon the issue where on facts there is no evidence of attempted failures of service of the order and the undisputed fact on record is that the specific order could be served after a gap of one and half year heavy onus lies on the authority to canvass that the said order which admittedly was never put in any of the modes of service till after one and a half year did not lie with the said authority since after passing the order no fruitful purpose is served by keeping the order with itself the conclusion of the CIT(A) that the order was never passed on the alleged date i.e.31.3 2004 and is in fact back dated cannot be easily set aside. We may refer to the judgement of the Apex Court in the case of State Bank of Indiav. S.N. Goyal 2008 INDIAN SC 798 delivered on 2nd May, 2008 wherein their Lordships examining amongst various other substantial question of law the following question set out herein under which is relevant for the issue at hand
"(iii) whether an order recorded by the Appointing Authority on an office note to impose the penalty of reduction in pay, which was neither pronounced. published or communicated, is a final decision which could not be reconsidered or altered, by the Appointing Authority?"
The said question was answered in the following manner by their Lordships :-
"Re Questions (iii) When did the Appointing Authority became functus officio
16. Ex.P24 is the note dated 18.1.1995 by which the Disciplinary Authority accepted the finding of guilt recorded arrived at by the Enquiry Officer in regard to the charge against the respondent that he temporarily misappropriated the funds of the customers of the Bank. The Disciplinary Authority though of the view that the respondent deserved a severe punishment felt that having regard to the length of his service, he should be shown leniency, and therefore, recommended imposition of a lesser punishment of reduction of pay by four stages in the time scale. The Appointing Authority made a note on the same day (18. 1.1995) agreeing with the said recommendation. But the said order was not communicated to the respondent. On the other hand, the Disciplinary Authority on reconsideration of the matter put up a fresh note dated 2.5.1995 recommending the penalty of removal and that was accepted by the Appointing Authority on 3.5.1995 and communicated to the respondent on 306.1995.
17. The learned counsel for respondent contended that the Appointing Authority became functus officio once he passed the order dated 18.1.1995 agreeing with the penalty proposed by the Disciplinary Authority and cannot thereafter revise/review/modify the said order. Reliance was placed on the English decision Re: VGM Holdings Ltd. reported in 1941 (3) All. ER page 417 wherein it was held that once a Judge has made an order which has been passed and entered, he becomes functus officio and cannot thereafter vary the terms of his order and only a higher court, tribunal can vary it. What is significant is that decision does not say that the Judge becomes functus officio when he passes the order, but only when the order passed is 'entered'. The term entering judgement' in English Law refers to the procedure in civil courts in which a judgement is formally recorded by court after it has been given.
18. It is true that once an Authority exercising quasi-judicial power, takes a final decision, it cannot review its decision unless the relevant statute or rules.' permit such review. But the question is as to at what stage, an Authority becomes functus officio in regard to an order made by him. P. Ramtmatha Aiyar's Advance Law Lexicon (3rd edition, Vol.2 Pages 1946-47) gives the following illustrative definition of the term functus officio '.
"Thus a Judge, when he has decided a question brought before him is functus officio, and cannot review his own decision "
Black's Law Dictionary (Sixth Edition Page 673) gives its meaning as follows
"Having fulfilled the function, discharged the office, or accomplished the purpose, and therefore, of no further force or authority".
19 We may first refer to the position with reference to civil courts Order XX of Code of Civil Procedure, 1908 deals with judgement and decree. Rule 1 explains when a judgement is pronounced. Sub-rule (1) provides that the Court after the case has been head, shall pronounce judgement in an open court either at once or as soon thereafter as may be practicable, and when the judgement is to be pronounced on some further day, the court shall fix a day for that purpose of which due notice shall be given to the parties to their pleaders Sub-rule (3) provides that the judgement may be pronounced by dictation in an open court to a shorthand writer (if the Judge is specially empowered m this behalf). The proviso thereto provides that where the judgement is pronounced by dictation in open court, the transcript of the judgement so pronounced shall after making such corrections as may be necessary, be signed by the Judge bear the date on which it was pronounced and form a part of the record Rule 3 provides that the judgement shall be dated and signed by the Judge in open court at the time of pronouncing it and when once signed, shall not afterwards he altered or added to save as provided by section 152 or on review. Thus where a judgement is reserved, mere dictation does not amount to pronouncement, but where the judgement is dictated in open court, that itself amounts to pronouncement. But even after such pronouncement by open court dictation, the Judge can make corrections before signing and dating the judgement. Therefore, a Judge becomes functus officio when he pronounces. signs and dales the judgement 'subject to section 152 and power of review' the position is different with reference to quasi judicial authorities. While some quasi - judicial tribunals fix a day for pronouncement and pronounce their orders on the day fixed, many quasi - judicial authorities do not pronounce their orders. Some publish or notify their orders. Some prepare and sign the orders and communicate the same to the party concerned. A quasi - judicial authority will become functus officio only when its order is pronounced or published or notified or communicated (put in the course of transmission) to the party concerned. When an order is made in an office noting in a file but is not pronounced, published or communicated, nothing prevents the Authority from. correcting it or altering it for valid reasons. But once the order is pronounced or published or notified or communicated, the Authority will become functus officio. The order doled 18.1.1995 made on an office note, was neither pronounced, nor published/notified nor communicated. Therefore, it cannot be said that the Appointing Authority became functus officio when he signed the note on dated 18.1.1995. "
6.1 Accordingly in the facts of the present case admittedly order u/s 154 allegedly dated 31.3.2004 as per material available on record continued to remain with the said authority as it was communicated for the first time only on 18.10.2005 the said authority never become functus officio as since in this case it was not to be pronounced/published but communication necessarily and imperatively had to be made. No mode of communication by way of postal authority or otherwise prior to 18.10.2005 has been pressed into service on behalf of the department. The view taken it is seen is fully supported by the judgement of the Apex Court in the case of B.J. Shelat (supra) also from which we readily quote as under :
"the order of any authority cannot be said to be passed unless it is in some way pronounced or published or the party affected has a means of knowing It is not enough if the order is made, signed and kept in the file because such order may be liable to change at the hands of the authority who may modify it or even destroy it, before it is made known, based on subsequent information, thinking or change of opinion. To make the order complete and effective it should by issued, so as to be beyond the control of the authority concerned, for any possible change or modification therein. This should be done within the prescribed period though the actual service of the order may be beyond that period. "
6.2 Accordingly, we hold for the reasons given herein above that the 154 order passed by the AO has rightly been quashed on the ground of limitation by the CIT(A) After having coming to such finding the other grounds do not need to be adjudicated upon. However, it is seen that before the Bench arguments have been advanced in support of the respective orders by the parties concerned. On a perusal of the same we also uphold the action of the CIT(A) in quashing the 154 order on the ground that on a debatable issue rectification is legally not sustainable. It is a settled principle of law that rectification can be passed only on the basis of errors apparent on record and the said powers cannot be invoked for reconsideration or reviewing the order. As such the judgement of the Hon'ble Apex Court in the case of T.S. Balaram, ITO. v. Volkart Bros.[1971] 82 ITR 50 has rightly been invoked by the CIT(A).
7. In the result the appeal of the department is dismissed for the reasons given herein above.
ITA.No.23/Kol/2008 (A.Yr. 1999-2000 :
8. The following grounds have been raised by the revenue in ITA No.23/Kol/2008;
| "1. | Ld. CIT(A) has erred in holding that the impugned order passed u/s 154 of the Act is time barred without appreciating the facts that notice u/s 154 was issued on 11.07.2002, that the same was duly served on 19 07.2002, that the assessee made compliance on 25.07.2002 and that only for demand raised per the impugned order was made in Demand and Collection Register for the year 2004-05. | |
| 2. | Ld. CIT(A) has erred in deleting the addition of Rs. 89, 15,000/- made in the assessment while computing the book profit without considering the Proviso to Explanation (i) of Section 115JA of the Act. | |
| 3. | Ld. CIT(A) has erred in not appreciating the fact that the amount withdrawn of Rs. 89, 15, 000/- is out of Reserve created on account of revaluation of fixed assets in the earlier year and that such amount of reserve created is neither credited to Profit and Loss account of the earlier year, nor the balance amount of Reserve is credited in the Profit and Loss account of the year under consideration, which is contrary to the provision of the Proviso to Explanation (i) of section 115JA of the Act. | |
| 4. | In the facts and circumstances of the case, the order of CIT(A) deserves to be set aside. | |
| 5. | The appellant craves leave to add, amend, change or alter any grounds of appeal as aforesaid, during the course of hearing of the case." |
8.1 The stand of both the parties before the Bench in regard to ground no. 1 was that herein also the 154 order dated 31.3.2005 was served upon the assessee on 18.10.2005
9. The relevant facts of the case are that the AO passed a rectification order u/s 154 which is reproduced here under ;-
'On scrutiny of the computation of total income submitted by the assessee along with the return of income for the A Yr 1999-2000, it appears that the assessee had done wrong adjustment against the profit of the business on account of bad debt written off adjusted against provision disallowed in earlier years for Rs 38,54,000/- and wrong amount of book depreciation had been added back with the profit of the business. For the purpose of computation of book profit u/s 115JA of the I T. Act the assessee Co. also had wrongly reduced the amount of Rs. 89,15 000/- being a transfer from revaluation resource adjusted against depreciation from the business profit as per P & L a/c.
As regard bad debt, it is seen that the same had not been routed through the P & L a/c, As regard depreciation, the depreciation as per Company's a/cs would be Rs 2,33,80,000'- instead of Rs 1,34,65,000/- claimed by the assessee after adjustment of reserve amount. As regard calculation of book profit u/s 115JA, the same had been wrongly claimed since adjustment was made against the revalued amount of depreciation.
In reply to notice issued u/s 154 dtd. 11.07.04 the assessee Co. submitted that all the adjustment on account of bad debt, depreciation and calculation of book profit u/s 115JA had been properly made by them as per provision of law.
The contention of the assessee is not accepted. Since the mistake is apparent form record, the same is very rectified as under:
| | Total loss claimed by the assessee as per return of income | (-) Rs. 16,43,450/- | ||
| Add: Following adjustment to be made in view of above | | |||
| (a) | Bad debt written off adjusted against provision Disallowed in earlier year | = Rs. 38,54,000/- | ||
| Book depreciation | ||||
| | (Rs 2,23,80,000/- - Rs 1,34.65,000/-] | =Rs.89,15,000/- | ||
| Rs. 1,27,69,000/- | ||||
| Revised Total Income | | = Rs. 1,11, 25, 550/- | ||
| | ...(A) | |||
| Computation of book profit u/s 115JA of the I.T. Act | ||||
| Book loss claimed by the assessee as per return of income | = (-) Rs. 44,00,000/- | |||
| Add: Transfer from revaluation resources adjusted against Depreciation | =Rs. 89,15,000/- | |||
| Revised Book Profit | = Rs. 45,15,000/- | |||
| | 30% of Book Profit | = Rs. 13,54,500/- | ||
| ...(B) | ||||
Since (A) is higher than (B), for the purpose of tax computation (A) is considered
| Revised Total Income | Rs. 1,11, 25,550/- | |
| Income Tax 35% | Rs. 38,93,942 |
M/s- Woodlands Hospital and Medical Research Centre Ltd.
A. Yr. 1999-2000
Order u/s 154 dtd. 31.3.2005
| Total/Income | Rs. 1,11,25,550/- | |
| Tax thereon @ 35% | = Rs. 38,93,913 | |
| Less-TDS | = Rs. 4,69,225/- | |
| Rs. 34,24,718/- | ||
| Less Advance Tax | = Rs. 8,93,390/ | |
| Rs. 25,31,328 | ||
| Add Interest u/s 234B | = Rs. 14.55.498/- | |
| Rs 39,86, 826/- | ||
| Add- Interest u/s 220(2) | =Rs. 14,15,314/- | |
| Payable | Rs. 54,02, 140/- |
9.1 Herein also the action of the AO was challenged by the assessee before the CIT(A) on the ground of limitation.
9.2 The arguments put forth before the CIT (A) arc reproduced here under :-
"The facts of the case are as follows -
The return of income was filed in time on 31.12.1999 declaring loss of Rs. 16,43,450/- And intimation u/s 143(1) (a) is not on record. Thereafter, a notice u/s 154/155 dated 11/7/2002 was issued and served on the assessee on 19/7/2002. An order u/s 154 was made on 31.3.2005. on the last date of limitation but the order was actually served on the appellant dasti on 18.10.2005 on the same day as a similar order was service dasti on the assessee for AY 1998-99 The appeal was partly heard by my predecessor but no order was passed
The DCIT has made the order u/s 154 in the following terms -
| | Total loss as per the return of income | (-) Rs. 16,43,450/- | ||
| Add: Disallowed adjustment- | | |||
| (a) | Bad debts written off adjusted against Provisions disallowed in earlier Year | Rs. 38,51,000 | | |
| (b) | Book depreciation | |||
| [Rs 2,23,80,000-1,31,65,000] | Rs 89,15,000 | Rs. 1,27,69,000/- | ||
| Revised total income | | Rs. 1,11,25,550/- | ||
| Book Profits u/s 115JA | ||||
| | Book Loss as per return of income (1) | Rs 44,00,000/- | ||
| Add. Transfer from revaluation reserve adjusted | ||||
| Against depreciation | Rs. 89,15,000/- | |||
| | Revised Book Profit | Rs 45,15,000/- | ||
| 30% thereof | | Rs. 13,54,500/- | ||
The tax demand was raised under the normal provisions of the Act, and not under section 115JA."
9.3 Considering these facts and the arguments advanced on behalf of the assessee the CIT(A) in regard to the claim of bad debt decided the issue in favour of the assessee by holding as under -
"The assessment records were called for and examined today. It is on record that Rs. 38,54,000/- written off as bad debts in the computation ware out of provisions made in the earlier years which had already been disallowed in the earlier years. In view of this, the action of the AO is not correct."
9.4 In regard to the depreciation, the issue was decided in favour of the assessee by holding as under:-
"In the computation of income, the depreciation claimed in the books of account amounting to Rs. 1,34,65,000/- was added back, and only depreciation of Rs 1,57.60,000/- was claimed as deduction. The figure actually mentioned in the annual accounts is debt of Rs. 2,23,80,000/- as per revalued assets which was reduced by a sum of Rs. 89,15,00/- being a component of depreciation on the quantum of revaluation alone, and this amounts to a credit to the P & L Account. Such an amount is to be reduced from the book profits as per section 115JA, an adjustment made by the AO as add back under the normal provision as well as u/s 115JA. On merits, the action of the AO is not sustainable A similar action was taken in respect of depreciation adjustment for A Y 1998-99 u/s 115JA also."
9.5 In regard to the challenge posed on the ground of limitation the CIT(A) on the basis of facts available on record conclude that the order u/s 154 is back dated in view of the fact that service of the said order was after a delay of 18 months that too by 'dasti'. He held that the delay vitiates the order of the limitation. He also, in the facts of the present case, took into consideration the basic fact that for the year under consideration there was no intimation u/s 113(1) also on record. As such the basic order which was attempted to be rectified by the AO in 154 proceedings was held to have not been in existence.
9.6 The CIT(A) after deciding the issue on merits, limitation proceeded to quash the 154 order also on the ground that the issue being debatable was legally also beyond the scope of section 154.
9.7 Aggrieved by this the revenue is in appeal before the Tribunal on the grounds set out herein above.
10. The ld DR placed reliance on the 154 order and the ld. AR relied upon the impugned order and the arguments advanced in the earlier appeal. Reliance placed upon the paper book filed before the Bench which had been filed before the CIT(A) also. Apart from that on behalf of the assessee it was specifically sought to be emphasized that finding of fact has been recorded that the very order which was sought to be rectified was not available on record.
11. Accordingly for the reasons given ITA No.22/Kol/2008 the departmental appeal is dismissed. Herein apart the aspect of inordinate delay in communicating the alleged order the 143(1)(a) intimation sought to be rectified is admittedly not available on record. Cognisance of which fact has been taken by the CIT (A) and no factual error on, the finding of fact has been pleaded by the Revenue before the Bench. In the aforementioned facts and circumstances for the detailed reasons given in the disposal of ITA No.22/K/2008 and the legal position addressed therein the departmental appeal is dismissed.
12. In the result both the appeals of the Revenue are dismissed.
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
Writing off a debt is enough to claim deductions; assessee isn't required to establish its irrecoverability
IT: For an assessee to claim deduction in relation to bad debts it is now no longer necessary for assessee to establish that debt had become irrecoverable; and it is sufficient if assessee forms such an opinion and writes off debt as irrecoverable in its accounts
■■■
[2013] 35 taxmann.com 79 (Delhi)
HIGH COURT OF DELHI
Commissioner of Income-tax-III
v.
Samara India (P.) Ltd.*
BADAR DURREZ AHMED AND VIBHU BAKHRU, JJ.
IT APPEAL NO. 45 OF 2013†
MAY 10, 2013
Section 36(1)(vi) of the Income-tax Act, 1961 - Bad debts [Writing off] - Whether for an assessee to claim deduction in relation to bad debts it is now no longer necessary for assessee to establish that debt had become irrecoverable; and it is sufficient if assessee forms such an opinion and writes off debt as irrecoverable in its accounts - Held, yes - Assessee had paid a sum as advance which was to be adjusted against lease rents - However, as premises was demolished by city development authority, assessee came to a conclusion that chances of recovery of amounts from lessors in near future were remote and had, therefore, written off amount as irrecoverable - Whether assessee was to be allowed deduction - Held, yes [Para 8] [In favour of assessee]
FACTS
| ■ | The assessee was, inter alia, engaged in the business of dealing and servicing motor vehicles and had taken certain plots on lease whereupon the lessors were required to build a warehouse cum workshop and hand over the same to the assessee. In this regard, the assessee advanced certain sums to the lessors which were liable to be adjusted against monthly rent. | |
| ■ | The workshop was demolished by the city development authority as the land which was subject matter of the lease agreement, in fact, belonged to the development authority and not the lessors. The assessee, filed a suit for recovery of the sums advanced by the assessee to the lessors and the amount expended by the assessee on development and interiors of the property. | |
| ■ | The assessee has written off a part of the sum as irrecoverable. | |
| ■ | The Assessing Officer disallowed the amount written off by the assessee in his profit and loss account. | |
| ■ | On appeal while the Commissioner (Appeals) upheld the decision of the Assessing Officer, the Tribunal granted relief to the assessee. | |
| ■ | On appeal to the High Court : |
HELD
| ■ | There is no infirmity in the view expressed by the Tribunal. It is not disputed that the assessee had paid a sum as advance which was to be adjusted against lease rents. The assessee had been carrying on business even prior to the lease agreement with respect to which advance had been made. The assessee had come to a conclusion that chances of recovery of amounts from lessors in near future, were remote and had, therefore, written off the amount as irrecoverable. For an assessee to claim deduction in relation to the bad debts it is now no longer necessary for the assessee to establish that the debt had become irrecoverable and it is sufficient if assessee forms such an opinion and writes off the debt as irrecoverable in its accounts [Para 8]. |
CASE REVIEW
T.R.F. Ltd. v. CIT[2010] 323 ITR 397/190 Taxman 391 (SC) (para 8) followed.
CASES REFERRED TO
Sauara India (P.) Ltd. v. Union of India [CS (OS) No. 2467 of 2001] (para 2) and T.R.F. Ltd. v.CIT[2010] 323 ITR 397/190 Taxman 391 (SC) (para 7).
Sanjeev Rajpal for the Appellant. S. Krishnan for the Respondent.
JUDGMENT
Vibhu Bakhru, J. - This is an appeal preferred by the revenue under Section 260A of the Income-tax Act, 1961 (hereinafter referred to as "the Act'') challenging the order dated 09-07-2012 passed by the Income-tax Appellate Tribunal, Delhi in ITA No.3692/Del/2009 in relation to the assessment year 2004-2005. The controversy in the present matter is limited to an amount of Rs 33,47,489/- which was paid as an advance rent by the assessee and had been written off as not recoverable in the previous year relevant to the assessment year 2004-2005.
2. The assessee is, inter alia, engaged in the business of dealing and servicing motor vehicles and had taken certain property on lease from three landowners (hereinafter referred to as "the lessors") for a period of three years renewable for two further periods of 3 years each. The property consisted of a plot of land whereupon the lessors were required to build a warehouse cum workshop and hand over the same to the assessee. In this regard, the assessee advanced certain sums to the lessors which were liable to be adjusted against monthly rent. The monthly rent for the property in question was agreed at Rs 32,400/- and the assessee was entitled to adjust a sum of Rs 17,400/- per month from the advance paid by the assessee to the lessors. In addition to the advance paid by the assessee to the lessors, the assessee also incurred substantial expenditure on the development and interiors of the property. However, the workshop was demolished by the Delhi Development Authority on 01-06-2000 as the land which was subject matter of the lease agreement, in fact, belonged to the Delhi Development Authority and not the lessors. The assessee, thereafter, filed a suit in this Court being suit titled as Samara India (P.) Ltd v. Union of India CS(OS) No.2467/2001. The said suit is still pending before this Court for recovery of the/sums advanced by the assesse to the lessors and the amount expended by the assesse on development and interiors of the property.
3. The assessee has written off a sum of Rs 64,60,707/- as irrecoverable in the previous year relevant to the assessment year 2004-2005. This amount is an aggregate of two components, namely, advance rent of Rs 33,82,289/- paid by the assessee to the lessors and Rs 30,78,418/- spent by the assessee on the property.
4. The Assessing Officer disallowed the entire amount of Rs 64,60,707/-, written off by the assessee in his profit and loss account, by holding that the amount represented capital expenditure and thus writing off the said amount was not allowable as a deduction from the taxable income of the assessee. Accordingly, the Assessing Officer passed an assessment order dated 30-11-2006 inter-aliadisallowing the amount written off by the assesse as irrecoverable and adding a sum of Rs 64,60,707/- to the income of the assessee. It is relevant to state that the genuineness of the expenditure was not doubted by the Assessing Officer and the Assessing Officer disallowed the amount written off on the ground that the amount incurred by the assesse was on development and improvement of the leasehold property and was of an enduring nature and thus could not be considered as revenue expenditure. The Assessing Officer held that in view of the Explanation to Section 32(1) of the Act, capital expenditure incurred by an assessee in respect of a building not owned by him, was required to be treated in the same manner as if the expenditure had been incurred on a building owned by the assessee.
5. The assessee preferred an appeal before the CIT (Appeals) challenging the addition Rs 64,60,707/- on account of advance rent paid to the lessors and the amount expended by the assessee on the workshop which was lost on account of demolition carriedout by the DDA. The CIT (Appeals) noted the fact that the assessee had filed a suit inter-alia claiming the said amount from the lessors. The CIT (Appeals) made a distinction between the amount spent by the assessee on carrying out the renovation and betterment of the workshop and the amount paid by the assessee as advance rent. The CIT (Appeals) upheld the decision of the Assessing Officer to disallow the write off of a sum of Rs 30,78,418/- spent by the assessee on the workshop. In respect of the sums advanced by the Assessee to the lessors, the CIT (Appeals) deleted the addition to the extent of Rs 34,800/-and upheld the addition of Rs 33,47,489/- to the income of the assessee. The CIT (Appeals) held that as the property was demolished on 01-06-2000 i.e. after a period of only two months from the commencement of the previous year 2000-2001, an amount of Rs 34,800/- (i.e. Rs. 17,400/- for each month) was liable to be adjusted from the advance rent in terms of the lease agreement entered into between the assessee and the lessors of the property. However, the addition of the balance amount of Rs 33,47,489/- was upheld by CIT (Appeals) not on the ground that the same was a capital expenditure but on basis that the same could not be allowed as a revenue loss as the assessee had filed a civil suit for recovery of that amount and the same was being pursued. The CIT (Appeals) held that as the assessee was pursuing its remedies before a Court by way of a civil suit for recovery of the amounts advanced to the lessors, it could not be held that the amounts had become bad debts. The relevant portion of the order passed by the CIT (Appeals) is quoted below:-
"8.5.5 It is noticed that the amount disallowed by the AO as loans and advances was Rs 64,60,707/-, under Explanation to section 32(1) of the Act and after disallowing capital loss of Rs 30,78,418/-, balance amount of Rs 33,82,289/- (Rs 64,60,707 - Rs. 30,78,418) was towards payment of advance rent by the assessee company to the lessor. The property was demolished on 1st June, 2000 and advance rent @ Rs 17,400/- per month (para 8.5.2.-2) for a period of two months amounting to Rs 34,800/- would be allowed. The balance amount of Rs 3,47,489/- is not being allowed as a revenue loss since the assessee company has filed a Civil Suit in the High Court of Delhi and claimed advance rent of Rs 33,82,289/- from the Defendants 3 to 9 (the lessor). Since this amount is outstanding to the assessee company which is being pursued by them by way of filing a Civil Suit, it cannot be called a bad debt at this stage and allowed as a revenue expenditure. The case laws referred to by the assessee are not applicable to the facts and circumstances of the case. In Lucent Technologies Hindustan Ltd. v. Joint CIT 106 TTJ (Bang.) 205 the case was of repair/renovation of a cinema hall taken on lease; in the instant case, a plot of land was converted into a warehouse cum workshop which is a capital expenditure. Similarly, Agra Color Lab (P.) Ltd. v. ITO 86 TTJ (Agra.) 836 andEscorts Ltd. v. Asstt. CIT102 TTJ (Delhi) 522 are not applicable as it was expenditure on furnishing, painting etc. and not on conversion of plot of land to a warehouse cum workshop.
Accordingly, a sum of Rs 33,47,489/- of advance rent and Rs 30,78,418/- of capital expenditure is confirmed, relief allowed is only Rs 34,800/- of advance rent adjusted till the demolition of building."
6. The revenue accepted this order and did not file an appeal before the Income-tax Appellate Tribunal. However, the assessee preferred an appeal from the decision of the CIT (Appeals). The Tribunal upheld the decision of the Assessing Officer and the CIT (Appeals) with regard to the amount of Rs 30,78,418/- spent by the assessee on the workshop as capital expenditure but granted relief to the assessee with regard to the addition made by the Assessing Officer in respect of the advance rent of Rs 33,82,289/- which had been written off by the assessee, in his profit and loss account, as irrecoverable.
7. Following the decision of the Supreme Court in the case of the T.R.F. Ltd. v. CIT[2010] 323 ITR 397/190 Taxman 391, the Tribunal held that pendency of the Civil Suit was not a bar on writing off the debt if in the opinion of the assessee its probability of recovery was remote. The Tribunal did not accept the view of the CIT (Appeals) that writing off advance rent was not permissible since the assessee was pursuing the suit for recovery of the said amount.
8. We find no infirmity in the view expressed by the Tribunal. It is not disputed that the assessee had paid a sum of Rs. 33,82,289/- as advance which was to be adjusted against lease rents. The assessee had been carrying on business even prior to the lease agreement with respect to which advance had been made. The assessee had come to a conclusion-that chances of recovery, of the amounts claimed from the lessors, in the near future were remote and had therefore written off the amount of Rs 64,60,707/- as irrecoverable in the previous year relevant to the assessment year 2004-2005. For an assessee to claim deduction in relation to the bad debts it is now no longer necessary for the assessee to establish that the debt had become irrecoverable and it is sufficient if the assessee forms such an opinion and writes off the debt as irrecoverable in its accounts. The decision of the Supreme Court in the case of the T.R.F Ltd. (supra)squarely covers the issue. The Supreme Court had examined the import of the amendment in Section 36(1)(vii) of the Income-tax Act w.e.f. 01-04-1989 and held as under:
"After the amendment of sec. 36(1)(vii) of the Income-tax Act, 1961, with effect from 1st April, 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable : it is enough if the bad debts is written off as irrecoverable in the accounts of the assessee."
9. Following the aforesaid decision in the case of T.R.F Ltd. (supra), we find that the appeal does not raise any substantial question of law for our consideration.
10. We accordingly, dismiss the present appeal and leave the parties to bear their own costs.
SBCA. Chiranjiv Sodhi
B.Com, FCA, DISA(ICA)
B.Com, FCA, DISA(ICA)
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