Gujarat High Court
Principal Commissioner Of Income-Tax, ... vs Narmada Chematur Petrochemicals Ltd. on 14 July, 2021
Author: Bela M. Trivedi
Bench: Bela M. Trivedi, Ashokkumar C. Joshi
C/TAXAP/165/2021 ORDER DATED: 14/07/2021
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 165 of 2021
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PRINCIPAL COMMISSIONER OF INCOME-TAX, VADODARA-3
Versus
NARMADA CHEMATUR PETROCHEMICALS LTD.
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Appearance:
MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1
MR MANISH J SHAH(1320) for the Opponent(s) No. 1
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CORAM:HONOURABLE MS. JUSTICE BELA M. TRIVEDI
and
HONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHI
Date : 14/07/2021
ORAL ORDER
(PER : HONOURABLE MS. JUSTICE BELA M. TRIVEDI)
1. The present Appeal has been filed by the appellant Principal Commissioner of Income Tax, Vadodara-3 under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as "the said Act") being aggrieved by the order dated 04.10.2019 passed by the Income Tax Appellate Tribunal (hereinafter referred as "the ITAT") in ITA No. 855/AHD/2008 for the assessment year 2004-05. The Appeal has been filed proposing the following substantial questions of law:
"(a) Whether the ITAT has committed the gross error of law in not upholding the addition on account of the provision for doubtful debt of Rs. 2,52,36,800/- made by the assessing officer to the book profit u/s. 115JB of the Income Tax Act?
(b) Whether the ITAT while passing the impugned order Page 1 of 10 Downloaded on : Fri Jul 16 21:23:56 IST 2021 C/TAXAP/165/2021 ORDER DATED: 14/07/2021 has committed the gross error of law in applying the decision of this Hon'ble Court in case of Vodafone Essar Gujarat Ltd. - (2017) 397 ITR 55 (Guj.) since the assessee in the present case had debited the provision for doubtful debt to the P&L Account under one head (i.e. Administrative and Marketing expense relating to Sundry Debtor) and reduced the corresponding amount from asset under different head (i.e. "Loans and Advances")?"
2. The short facts giving rise to the present Appeal are that the respondent-assessee Company had filed its Return of Income for the Assessment year 2004-05 on 29.10.2004, declaring the total income as 'NIL', after setting off unabsorbed loss and depreciation of Rs. 21,53,66,975/- of the preceding years. The book profits under the provisions of Section 115JB (MAT) was declared at Rs.19,68,66,005/- after claiming deduction under Section 80HHC of the said Act of Rs. 23,08,865/-. The case of the respondent-assessee having been selected for scrutiny, after granting opportunity of hearing to the respondent assessee, an order of assessment was passed by the Assessing Officer, on 29.12.2006 making various dis-allowances. Being aggrieved by the same the respondent- assessee had filed an Appeal being No. CAB/VI-399/ 06-07 before the CIT (Appeals) Baroda who vide order dated 06.12.2007 partly allowed the Appeal. The CIT (Appeals) while partly allowing the Appeal of the Assessee deleted the addition made on account of bad and doubtful debts of Rs. 2,52,36,800/- holding that the provision for bad and doubtful debt is not a provision for the liability but it is a provision for diminution in value of assets and thus Clause- C of the Explanation to Section 115JB would not be applicable. The respondent-assessee being aggrieved by that part of the said order which was against it, had preferred an Appeal Page 2 of 10 Downloaded on : Fri Jul 16 21:23:56 IST 2021 C/TAXAP/165/2021 ORDER DATED: 14/07/2021 before the ITAT being ITA No. 738 of 2008 and the appellant- Revenue had preferred an Appeal being ITA No. 855 of 2008 and also an Appeal being ITA No. 117 of 2010. The ITAT vide the impugned common order dated 04.10.2019, partly allowed the ITA No. 738 of 2008 filed by the respondent assessee and dismissed the ITA No. 855 of 2008 and ITA No. 117 of 2010 filed by the Revenue.
3. It is sought to be submitted by learned Standing Counsel Mr.Varun K Patel for the appellant-Department that the ITAT had committed an error on the face of the record in not upholding the order of the Assessing Officer making addition on the issue of provision for doubtful debts to the extent of Rs. 2,52,36,800/- to book profit, inasmuch as the assessee on one hand had debited the provision for doubtful debts i.e. administration and marketing expenses relating to sundry debtors, and on the other hand the assessee had reduced the corresponding amount in asset side under the different head i.e. loans and advances, and therefore the assessee's claim of provision for doubtful debt did not match to the non-recovery of loans/advances given by the assessee and consequently write-off of such amount would be hit by the clause
(c) of Explanation below Section 115JB of the said Act. Learned Advocate Mr. Patel further submitted that as per the contentions of the assessee it had supplied 'Aniline' to Camox Laboratories Limited during the financial year 1996-97 and 1997-98 amounting to Rs. 374 lacs which was credited to Profit & Loss Account and in respect of which dispute was pending in the High Court and therefore it could not be said that the provision made for bad and doubtful debt was irrecoverable. The said provision for bad and doubtful debt was not in the nature of sundry debtors. He further submitted that the ITAT had committed an error in applying the decision of the Full Bench in case of CIT versus Vodafone Essar Page 3 of 10 Downloaded on : Fri Jul 16 21:23:56 IST 2021 C/TAXAP/165/2021 ORDER DATED: 14/07/2021 Gujarat Limited in (2017) 397 ITR 55, where the facts were totally different.
4. Learned Advocate Mr. M.J. Shah appearing for the respondent on Caveat drew the attention of the Court to the findings recorded by the ITAT more particularly in para. no. 38 of the impugned order to submit that the assessee had not merely debited the Profit & Loss account and credited the provision for bad and doubtful debts but had simultaneously obliterated such provision from loans and advances on the asset side of the Balance Sheet and therefore, at the end of the year had shown the loans and advances on the asset side of the Balance Sheet as a net of the provision for bad debt, amounting to write off, and such write off was not hit by Clause (i) of the Explanation to Section 115JB, in light of the ratio laid down by the full bench in case of Vodafone Essar Gujarat Limited (supra).
5. Before adverting to the contentions raised by the learned Advocates appearing for the parties, it would be beneficial to refer to the ratio of judgment laid down by the Full Bench in case of Vodafone Essar Gujarat Limited (supra) relied upon by the ITAT in the impugned order, wherein the issue with regard to the bad and doubtful debts to the book profits for computation of MAT liability in the light of the Explanation (1) to section 115JB of the Act was considered. The Full Bench after considering the decisions of the Supreme Court, of this Court and of other High Courts, held as under in para. no. 23:-
"23. By way of culmination of above judicial pronouncements and statutory provisions, the situation that arises is that prior to the introduction of clause(i) of the explanation to section 115JB, as held by the Supreme Court in case of HCL Comnet Systems and Services Ltd. (supra), Page 4 of 10 Downloaded on : Fri Jul 16 21:23:56 IST 2021 C/TAXAP/165/2021 ORDER DATED: 14/07/2021 the then existing clause (c) did not cover a case where the assessee made a provision for bad or doubtful debt. With insertion of clause (i) of the Explanation with retrospective effect, any amount or amounts set aside for provision for diminution in the value of the asset made by the assessee, would be added back for computation of book profit under section 115JB of the Act. However, if this was not a mere provision made by the assessee by merely debiting the Profit and Loss Account and crediting the provision for bad and doubtful debt, but by simultaneously obliterating such provision from its accounts by reducing the corresponding amount from the loans and advances on the asset side of the balance sheet and consequently, at the end of the year showing the loans and advances on the asset aside of the balance sheet as net of the provision for bad debt, it would amount to a write off and such actual write off would not be hit by clause (i) of Explanation (1) to section 115JB. The judgment in case of Deepak Nitrite Limited(supra) fell in the former category whereas from the brief discussion available in the judgment it appears that case of Indian Petrochemicals Corporation Ltd. (supra), fell in the later category."
6. The ITAT vide the impugned order considering the said Judgment of Full Bench in case of Vodafone Essar Gujarat Limited (supra) held as under in para No. 38:
"38. The learned counsel for the assessee took us through Schedule-8 (PB-13) for sundry debtors wherein an amount of Rs. 377.37 lacs has been written off and not merely provisions. The amount of Rs. 252.37 lacs provisions for bad and doubtful debts has been debited as per the Schedule 17(PB-12) being Administration and Marketing expenses forming part of Profit & Loss Account. The amount has been of Rs. 1313 lacs (PB-10) has been shown in debit side of balance sheet as per schedule-8 of balance sheet showing the loans and advances of balance sheet as on 31.03.2004. Thus, the assessee not merely debiting the Profit and Loss Account and crediting the provision for bad and doubtful debt, but by simultaneously obliterating such provision from its accounts by reducing the corresponding amount from the loans and advances on the asset side of the balance sheet and consequently, at the end of the year showing the loans and advances on the asset side of the balance sheet as net of the provision for bad debt, it would amount to a write off and such actual write off would not be hit by clause (i) of the explanation to Section 115JB, in the light of the above full Bench decision of Hon'ble Gujarat High Court in the case of Page 5 of 10 Downloaded on : Fri Jul 16 21:23:56 IST 2021 C/TAXAP/165/2021 ORDER DATED: 14/07/2021 Vodafone Essar Gujarat Ltd., (supra). Therefore, the case of the assessee is squarely covered in favour of the assessee. Therefore, respectfully following same this additional ground of appeal of the Revenue is accordingly dismissed."
7. In view of the above, the issue having already been duly considered by the ITAT following the decision of the Full bench of this Court, the Court is of the opinion that the question proposed by the appellant in the present Appeal could not be said to be substantial question of law within the meaning of Section 260A of the said Act. It may be noted that the Appeal under Section 260A could be admitted only on the High Court being satisfied that the case involves a substantial question of law. The Supreme Court in the case of M. Janardhana Rao versus Joint Commissioner of Income Tax reported in (2005) 2 SCC 324, while dealing with the scope of Section 260A of the Income Tax Act, 1961, observed as under : -
"14. Without insisting on the statement of substantial question of law in the memorandum of appeal and formulating the same at the time of admission, the High Court is not empowered to generally decide the appeal under Section 260A without adhering to the procedure prescribed under Section 260A. Further, the High Court must make every effort to distinguish between a question of law and a substantial question of law. In exercise of powers under Section 260A, the findings of fact of the Tribunal cannot be disturbed. It has to be kept in mind that the right of appeal is neither a natural nor an inherent right attached to the litigation. Being a substantive statutory right, it has to be regulated in accordance with law in force at the relevant time. The conditions mentioned in Section 260A must be strictly fulfilled before an appeal can be maintained under Section 260A. Such appeal cannot be decided on merely equitable grounds.
15. An appeal under Section 260A can be only in respect of a 'substantial question of law'. The expression 'substantial question of law' has not been defined anywhere in the statute. But it has acquired a definite connotation through various judicial pronouncements. In Sir Chunilal V. Mehta & Page 6 of 10 Downloaded on : Fri Jul 16 21:23:56 IST 2021 C/TAXAP/165/2021 ORDER DATED: 14/07/2021 Sons Ltd. v. Century Spinning & Mfg. Co. Ltd., AIR (1962) SC 1314, this court laid down the following tests to determine whether a substantial question of law is involved. The tests are: (1) whether directly or indirectly it affects substantial rights of the parties, or (2) the question is of general public importance, or (3) whether it is an open question in the sense that issue is not settled by pronouncement of this Court or Privy Council or by the Federal Court, or (4) the issue is not free from difficulty, and (5) it calls for a discussion for alternative view. There is no scope for interference by the High Court with a finding recorded when such finding could be treated to be a finding of fact."
8. Again the Supreme Court in case of Vijay Kumar Talwar versus Commissioner of Income Tax in (2011) 330 ITR 1 considered the issue of substantial question in context of Section 260A of the IT Act and observed as under:
"18. It is manifest from a bare reading of the Section that an appeal to the High Court from a decision of the Tribunal lies only when a substantial question of law is involved, and where the High Court comes to the conclusion that a substantial question of law arises from the said order, it is mandatory that such question(s) must be formulated. The expression "substantial question of law" is not defined in the Act. Nevertheless, it has acquired a definite connotation through various judicial pronouncements. In Sir Chunilal V. Mehta & Sons, Ltd. Vs. Century Spinning and Manufacturing Co. Ltd., AIR 1962 SC 1314 a Constitution Bench of this Court, while explaining the import of the said expression, observed that:
"The proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be whether it is of general public importance or whether it directly and substantially affects the rights of the Page 7 of 10 Downloaded on : Fri Jul 16 21:23:56 IST 2021 C/TAXAP/165/2021 ORDER DATED: 14/07/2021 parties and if so whether it is either an open question in the sense that it is not finally settled by this Court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative views. If the question is settled by the highest Court or the general principles to be applied in determining the question are well settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law."
19. Similarly, in Santosh Hazari Vs. Purushottam Tiwari (2001)3 SCC 179 a three judge Bench of this Court observed that:
"A point of law which admits of no two opinions may be a proposition of law but cannot be a substantial question of law. To be "substantial" a question of law must be debatable, not previously settled by law of the land or a binding precedent,AIR 1962 SC 1314 (2001) 3 SCC 179 and must have a material bearing on the decision of the case, if answered either way, insofar as the rights of the parties before it are concerned. To be a question of law "involving in the case" there must be first a foundation for it laid in the pleadings and the question should emerge from the sustainable findings of fact arrived at by court of facts and it must be necessary to decide that question of law for a just and proper decision of the case. An entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstance of each case whether a question of law Page 8 of 10 Downloaded on : Fri Jul 16 21:23:56 IST 2021 C/TAXAP/165/2021 ORDER DATED: 14/07/2021 is a substantial one and involved in the case, or not; the paramount overall consideration being the need for striking a judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis."
20. In Hero Vinoth (Minor) Vs. Seshammal (2006) 5 SCC 545, 556, this Court has observed that:
"The general rule is that High Court will not interfere with the concurrent findings of the courts below. But it is not an absolute rule. Some of the well-recognised exceptions are where (i) the courts below have ignored material evidence or acted on no evidence; (ii) the courts have drawn wrong inferences from proved facts by applying the law erroneously; or (iii) the courts have wrongly cast the burden of proof. When we refer to "decision based on no evidence", it not only refers to cases where there is a total dearth of evidence, but also refers to any case, where the evidence, taken as a whole, is not reasonably capable of supporting the finding.
21. A finding of fact may give rise to a substantial question of law, inter alia, in the event the findings are based on no evidence and/or while arriving at the said finding, relevant admissible evidence has not been (2006) 5 SCC 545 taken into consideration or inadmissible evidence has been taken into consideration or legal principles have not been applied in appreciating the evidence, or when the evidence has been misread. (See: Madan Lal Vs. Mst. Gopi & Anr. (1980) 4 SCC 855; Narendra Gopal Vidyarthi Vs. Rajat Vidyarthi (2009) 3 Page 9 of 10 Downloaded on : Fri Jul 16 21:23:56 IST 2021 C/TAXAP/165/2021 ORDER DATED: 14/07/2021 SCC 287; Commissioner of Customs (Preventive) Vs. Vijay Dasharath Patel (2007) 4 SCC 118; Metroark Ltd. Vs. Commissioner of Central Excise, Calcutta (2004) 12 SCC 505; West Bengal Electricity Regulatory Commission Vs. CESC Ltd. (2002) 8 SCC 715)"
9. If the facts of the present appeal are examined on the touchstone of the aforestated legal position, the Court is of the opinion that the Appeal does not involve any substantial question of law and hence deserves to be dismissed. In that view of the matter, the Appeal is dismissed.
(BELA M. TRIVEDI, J) (A. C. JOSHI,J) SINDHU NAIR Page 10 of 10 Downloaded on : Fri Jul 16 21:23:56 IST 2021