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Income Tax Appellate Tribunal - Ahmedabad

Torrent Cables Ltd.,, Ahmedabad vs Acit.,Circle-8,, Ahmedabad on 2 January, 2017

        आयकर अपील
य अ धकरण, अहमदाबाद  यायपीठ 'डी', अहमदाबाद ।
       IN THE INCOME TAX APPELLATE TRIBUNAL
               " D " BENCH, AHMEDABAD

 सव  ी राजपाल यादव,  या यक सद य एवं  द प कुमार के डया, लेखा सद य के सम ।
     BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
 And SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER

               आयकर अपील सं./I.T.A.No.3178/Ahd/2011
           (  नधा रण वष  / Assessment Year : 2008-09)
Torrent Cable Ltd.                 बनाम/ The Asst.CIT
(Formerly known as Torrent          Vs. Circlwe-8
Gujart Biotech Ltd.)                     Ahmedabad
 th
6 Floor, Pelican Building
GCCI Compound
Ahmedabad

 थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAACT 5457 B
       (अपीलाथ% /Appellant)               ..        ( &यथ% / Respondent)
     अपीलाथ% ओर से /   Appellant by   :   Shri S.N. Soparkar, AR
      &यथ% क( ओर से/Respondent    by :    Ms. Anita Hardasani, Sr.DR

      ु वाई क( तार ख /
     सन                Date of Hearing                19/10/2016
     घोषणा क( तार ख /Date of Pronounce ment           02/01/2017

                                आदे श / O R D E R

PER PRADIP KUMAR KEDIA, AM:

This appeal by the Assessee is directed against the order of the Commissioner of Income Tax(Appeals)-XIV, Ahmedabad [CIT(A) in short] dated 05/10/2011 for the Assessment Year(AY) 2008-09.

Torrent Cable Ltd. vs. ACIT Asst.Year - 2008-09 -2-

2. As per the grounds of appeal filed, the assessee has raised mainly two-fold objections. The first objection is towards confirming disallowance of Rs.5,68,828/- out of administrative expenses under section 14A of the Income Tax Act, 1961 (hereinafter referred to as "the Act") read with Rule-8 of the Income Tax Rules, 1962 while computing the book profit under section115JB of the Act. The second objection of the assessee is that the Assessing Officer (AO) has erred in not deducting towards write back of diminution in the value of Rs.4,50,000/- and bad debts of Rs.9,53,624/- as credited to Profit & Loss Account while computing the book profit under section 115JB of the Act.

3. Briefly stated, the assessee-company in the relevant AY 2008-09 filed return of income declaring total income of Rs.NIL after setting off of the business loss and depreciation under normal provisions of the Act. The book profit of the company was declared at Rs.45,06,92,683/- under section 115JB of the Act. In the course of scrutiny proceedings, it was noticed by the AO with the assessee had received exempt income during the year. He accordingly, proceeded to disallow expenditure incurred in relation to the exempt income in terms of section 14A of the Act. In terms of Rule 8D(2)(iii) of the IT Rules. The administrative expenses amounting to Rs.5,68,828/- was computed for disallowance. The book profit under section 115JB of the Act was inflated to this extend by the AO. In the first appeal, the CIT(A) confirmed the action of the AO.

Torrent Cable Ltd. vs. ACIT Asst.Year - 2008-09 -3- Aggrieved thereto, the assessee has challenged the impugned adjustment while computing the book profit under section 115JB of the Act.

4. The Ld.AR for the assessee submitted that the Revenue was not justified in making adjustment on account of disallowance made under section 14A of the Act in the computation of book profit under section 115JB of the Act. The Ld.AR for the assessee submitted that the computation of book profit under section 115JB of the Act operates on a different footing vis-à-vis computation of income under the normal provisions of the Act. The Ld.AR relied upon the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Alembic Ltd. in Tax appeal No.1249 of 2014 dated 20/07/2016.

5. The Ld.DR relied upon the order of the CIT(A).

6. We have carefully considered the rival submissions on the issue involved. The assessee has relied upon the judgement of the Hon'ble Gujarat High Court in the case of Alembic Ltd.(supra). The relevant operative para of the order of the Hon'ble Gujarat High Court is reproduced hereunder:-

8. Taking into consideration the evidence on record and considering the decision of this court in the case of Commissioner of Income-tax-I vs. Gujarat State Fertilizers & Chemicals Ltd.

(supra), we are of the opinion that issue Nos. (iii) and (iv) required ITA No.3178/Ahd/2011 Torrent Cable Ltd. vs. ACIT Asst.Year - 2008-09 -4- to be answered in favour of the assessee and against the revenue. In that view of the matter, we answer questions (iii) and (iv) referred to us in favour of the assessee and against the revenue. The appeal of revenue is dismissed.

7. Seen on the anvil of the aforesaid decision of the Hon'ble Gujarat High Court squarely on the issue, we find merit contention on behalf of the assessee and direct the AO to delete the adjustment made on account of estimated disallowance determined under section 14A r.w.Rule 8 D of the I.T.Rules, 1962 while computing book profit under section 115JB of the Act.

8. The second substantive ground of the assessee concerns denial of relief claimed under 115JB towards provisions to write off on account of diminution in the value of investment and bad debts written back during the year as per statement of facts filed before the CIT(A). It is the case of the assessee-company that it has computed the book profit at Rs.45,06,92,683/- calculated as per the provisions of section 115JB of the Act as prevailing at the time of filing the return of income. Subsequent to the filing of the return of income, the Finance (No.2) Act, 2009 as amended the Explanation-1 to section 115JB(1) whereby clause(i) has been added to Explanation-1 to the said section. As per the said clause, computing the book profit, the Net Profit as per Profit & Loss Account is to be increased by "the amount or amounts set aside as provision for ITA No.3178/Ahd/2011 Torrent Cable Ltd. vs. ACIT Asst.Year - 2008-09 -5- diminution in the value of any asset". The said amendment to section 115 JB is effective from Asst.Year 2001-02 respectively. It is the case of the assessee that the aforesaid amount written back towards provision for doubtful debts made in the assessment year which are no longer required amounting to Rs.9,53,624/- and provision for diminution in investment of Rs.4,50,000/- reversed during the year and included in the income of the assessee while computing the book profits are required to be deducted. The AO and CIT(A) did not pay need to the request of the Assessee.

9. We have carefully considered the rival submissions. It is the case of the assessee that after the filing of the return of income the provisions of section 115JB was amended to include a new clause(i) in Explanation-1 after sub-section(2) of sub-section with retrospective effect from AY 2001-02 onwards. In view of the amendment, the assessee requested the AO to reduce the book profit by the amount of write backs of Rs.4,50,000/- being provision for diminution in the value of investment and Rs.9,53,624/- being provision for diminution in the value of investment and Rs.9,53,624/- being provision for doubtful debts. It is the case of the assessee that in view of the retrospective amendment book profit declared is required to be reworked. The assessee has relied upon the decision of the Hon'ble Coordinate Bench of the Tribunal in the case of Kochi Refineries Ltd. vs. Dy.CIT reported in (2010) 4 ITR ITA No.3178/Ahd/2011 Torrent Cable Ltd. vs. ACIT Asst.Year - 2008-09 -6- (Trib.)) 95 (Mum.). The relevant para of the order of the Coordinate Bench reads as under:-

"31. It was the submission of the assessee-counsel that under Expln. (i) any amount withdrawn from the provisions or reserve is to be excluded from the book profit but with the further requirement as per proviso to this Explanation, that if provisions was made after first April, 1997 it should have been added back in computing the book profit in the year in which the provision was made. Therefore it has to be seen whether in the year in which provision was made, viz. asst. yr. 1998-99-this amount of Rs. 6,34,74,000 being provision for bad debt was added back in computing the book profit for that year. From the records, it would appear for the asst. yr. 1998-99 no computation of book profit has been made under s. 115JA (which was applicable to that year). By this it cannot be assumed or presumed that the provision made for bad debt has been deducted while computing book profit for the asst. yr. 1998-99. On the other hand, by means of Expln. (g) introduced to s. 115JA, by the Finance Act, 2009, w.e.f. 1st April, 1998, the provision made for diminution in value of assets (which includes provision for bad and doubtful debts) has to be added back in computing book profit. Thus, after the amendment by the Finance Act, 2009, the provision made for bad and doubtful debts has to be added back to the book profit and therefore complies with the requirements of the proviso to Expln. (i) to s. 115JB that in the year of making the provision the same has to be added back to the book profits. In view of the statutory provision it has to be presumed, unless provided to the contrary, the provision has been added back while computing the book profits. Hence the provision for bad and doubtful debts withdrawn and credited to the P&L a/c has to be excluded from the book profits to be computed under s. 115JB under Expln. (i) thereto.

32. The learned Departmental Representative in reply submitted that the assessee should not be permitted to withdraw the amount when the same was not originally offered to tax and accordingly the AO's orders are correct. He relied on the decision of the Hon'ble Delhi High Court in the case of Indo Rama Synthetics (I) Ltd. vs. CIT (2009) 31 DTR (Del) 45 : (2010) 320 ITR 340 (Del) to submit that for the purpose of computing book profit under s. 115JB the amount withdrawn from revaluation reserve created after 1st April, 1997 and credited to the P&L a/c is not to be reduced from net profit as per P&L a/c unless book profit had been increased by amount of reserve in year of creation of such reserve.

Torrent Cable Ltd. vs. ACIT Asst.Year - 2008-09 -7-

33. We have considered the arguments of learned counsel and the learned Departmental Representative. It is an admitted fact that the provision for bad and doubtful debts was made in the financial year relevant to the asst. yr. 1998-99 and the same amount was added back in the regular computation. By virtue of law, it is the duty of the AO to compute the normal total income and also the book profit under s. 115JA in that year and then compare and decide to invoke the normal provisions of the Act or special provisions of book profit under s. 115JB. Once the AO invokes the normal provisions of tax, it indirectly means that he has compared the computation under s. 115JA and decided that the income under normal provisions was more. In that situation it is to be presumed that the provision was added back to the book profit of that year. Even by means of Expln. (g) introduced to s. 115JA by the Finance (No. 2) Act, 2009, with retrospective effect from 1st April, 1998 the provision for bad and doubtful debts would be deemed to have been added back in computing the book profit in that year and so the amount, now credited to the P&L a/c, is to be reduced by virtue of the provision of s. 115JB. In view of this there is justification in the assessee's contention in claiming the provision as deduction in the computation of book profit in this year. On the fact that the assessee had been disallowed in that year under the normal computation and by virtue of the amendment now brought with retrospective effect from 1st April, 1998, the provision for bad debt is deemed to have been added back in that year withdrawal and crediting into the P&L a/c now results in double taxation. Consequently, the assessee is correct in excluding the amount while computing the income under s. 115JB. Accordingly the ground is allowed.

34. Ground No. 5 pertains to levy of interest under s. 234D of Rs. 2,84,775. Reliance is placed on the Delhi Special Bench decision on ITO vs. Ekta Promoters (P) Ltd. (2008) 117 TTJ (Del)(SB) 289 : (2008) 10 DTR (Del)(SB)(Trib) 563 : (2008) 305 ITR 1 (Del)(SB)(AT) wherein it was held that the provisions of s. 234D are applicable from 1st June, 2003 and not with retrospective effect, hence, the same should not be applicable in the assessee's case for the asst. yr. 2001-02 wherein the refund was issued before 1st June, 2003. In line with the decision of the Special Bench the assessee's ground is allowed. The AO is directed to work out the interest under s. 234D, if any, in line with the decision of the Special Bench (supra). Ground is considered allowed for statistical purposes. The appeal is partly allowed.

35. In the result, all the appeals are partly allowed."

Torrent Cable Ltd. vs. ACIT Asst.Year - 2008-09 -8-

10. We note that the AO appears to have not examined the issue and factual aspects arising therein. Accordingly, the issue requires to be decided afresh at the end of the AO in the light of the decision of the Tribunal of Mumbai Bench in the case of Kochi Refineries Ltd.(supra) in accordance with law after giving an opportunity of being heard to the assessee. The issue is accordingly set aside and remitted back to the file of AO for fresh decision in accordance with law.

11. In the result, Assessee's appeal is allowed.

This Order pronounced in Open Court on                                      02 /01/2017


               Sd/-                                                    Sd/-
         (राजपाल यादव)                                            ( द प कुमार के डया)
          या यक सद य                                                  लेखा सद य
  (RAJPAL YADAV)                                        ( PRADIP KUMAR KEDIA )
JUDICIAL MEMBER                                           ACCOUNTANT MEMBER
Ahmedabad;  Dated                       02/ 01 /2017
ट .सी.नायर, व. न.स./T.C. NAIR, Sr. PS

आदे श क ! त#ल$प अ%े$षत/Copy of the Order forwarded to :

1. अपीलाथ% / The Appellant

2. &यथ% / The Respondent.

3. संबं5धत आयकर आयु7त / Concerned CIT

4. आयकर आय7 ु त(अपील) / The CIT(A)-XIV, Ahmedabad

5. 8वभागीय त न5ध, आयकर अपील य अ5धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड फाईल / Guard file.

आदे शानुसार/ BY ORDER, स&या8पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad