Citation: –
The Commissioner of Income Tax vs. M/s. Salgaonkar Mining Industries Pvt. Ltd,
(Goa High Court) Income Tax
Appeal no 37/2007, Date of Pronouncement 23.04.2015
Brief
of the case
In the case
of The Commissioner of Income Tax vs. M/s. Salgaonkar Mining Industries Pvt.
Ltd High Court of Goa has held that provision for doubtful debt is not required
to add back while arriving book profit u/s 115JA.
Facts
of the case
1. Assessee’s income, under the normal
provisions of the Act, was less than 30 % of its book profits, the Assessing
Officer invoked Section 115JA of the Act and in terms of the explanation
therein, added a sum of Rs.20.5 lakhs to the book profits, to compute the
income at Rs.2.76 crores. Besides, as the respondent assessee had not computed
advance tax, interest under Sections 234B and 234C of the Act was also imposed
aggregating to Rs.30.71 lakhs, while computing the amount payable to the
Revenue by the respondent assessee.
2. Assessee
filed appeal before CIT(A) and CIT(A) CIT(A) upheld the order of the Assessing
Officer on both counts and so far as the
adjustment of book profits in terms of
explanation (c) to Section 115JA(2) of the Act, it was noted that the provision
represented advances made by the respondent assessee to its sister concern and
the non-recovery of the same was provided as provision for bad debts on
an adhoc basis. The CIT(A) held the same to be covered by clause (c) of
explanation to Section 115JA(2) of the Act as being in the nature of
unascertained liability. So far as interest payable under Section 234B and 234C
of the Act as default and delay of advance tax payment was concerned, the order
of the Assessing Officer was upheld.
3. Assessee
thereafter filed appeal before Tribunal and Tribunal held that the provision in
respect of doubtful debts is
not a liability much less an ascertained liability for the purposes of
application of clause (c) of the explanation to Section 115JA(2) of the Act.
Thus, the impugned order held that the book profits cannot be increased by
Rs.20.05 lakhs being a provision for doubtful debts to determine book profits
in accordance with Section 115JA of the Act. So far as interest payable in
respect of the default and delay in payments of advance tax under Section 234B
and 234C of the Act is concerned, the Tribunal held that the same was not
payable in view of the decision of the Karnataka High Court in Kwality
Biscuits Ltd. Vs. CIT , reported in
243 ITR 519 and subsequent dismissal of
the Revenue’s Appeal by the Apex Court.
Aggrieved by the order of the tribunal assessee
filed an appeal
Issue
A) Whether on
the facts and in the circumstances of the case the ITAT was justified in deleting the addition of Rs.20,05,744/-
being provision for doubtful debt on the ground, that the provision for
doubtful debt are doubtful for recovery and therefore cannot be equated with
liability, which is contrary to provisions of Section 115JA, by ignoring the
finding of the CIT(A) that the entire provision represented advances towards
sister concern and not trade debts and that it was an adhoc provision made
towards advances of doubtful recovery and therefore cannot be treated as
unascertained liability u/s 115JA ?
B)
Whether on the facts and in the circumstances of the case the ITAT erred in law
by deleting the interest u/s 234B&C of the IT Act, by relying on the
decision of the Hon’ble Karnataka High Court in “Kwality Biscuit Ltd. V/s CIT
(243 ITR 519) and Hon’ble Supreme Court in dismissing the Appeal filed by the
Department against the said decision, in “284 ITR 434(SC)” which is not
applicable to the Assessee’s case in view of sub-section (4) of Section 115JA
of the IT Act? .
Revenue
contention
That an amount of Rs.20.5 lakhs, which has been
debited to the profit and loss account under the head provision for doubtful
debts, would stand covered by clause (c) of the explanation to Section 115JA(2)
of the Act. It is further submitted that in the present facts, there is no
justification for the Tribunal to delete the addition of provision for doubtful
debts made to the book profits of Rs.20.5 lakhs under Section 115JA of the Act.
Assessee’s Contention
1. Assessee’s relied upon order of Tribunal viz.
that the provision in respect of doubtful debts is not a liability much less an
ascertained liability for the purposes of application of clause (c) of the
explanation to Section 115JA(2) of the Act.
2. interest payable in respect of the default
and delay in payments of advance tax under Section 234B and 234C of the Act is
concerned, the Tribunal held that the same was not payable in view of the
decision of the Karnataka High Court in Kwality Biscuits Ltd. Vs. CIT, reported
in 243 ITR 519 and subsequent dismissal of the Revenue’s Appeal by the Apex
Court.
High
Court decision / observations
1. It is very clear from the language of clause
(c) of the explanation to Section 115JA(2) of the Act that it only refers to
the amount set aside for provisions made for meeting liabilities, which are not
ascertained. In the present case, indisputably, the amount of Rs.20.5 lakhs
sought to be added to the book profits, is in fact a provision made in respect
of unlikely recovery of an advance made by the respondent to its sister
concern. Thus, the same is not in the nature of a liability of the respondent
assessee, but is in the nature of a recoverable from its sister concern. Such a
provision causes a possible diminution in the value of asset i.e. amount
recoverable.
2. Thus, on
the plain reading, clause (c) of the explanation to Section 115JA(2) of the
Act, would have no application to the present facts. In any case, the aforesaid
issue now stands concluded in favour of
the respondent assesee, by the decisions of the Apex Court in CIT V. HCL
Connect Systems and Services Ltd, reported in 305 ITR 405. In this case, the
Court, in respect of assessment year 1997-1998 (same in this case), has held
that a provision for bad and doubtful debts would not be covered by clause (c)
of the explanation to Section 115JA(2) of the Act. This is so because even if
debt is not recoverable by an assessee, it cannot become as liability of the
assessee.
3. Similarly, the Apex Court in Joint Commissioner
of Income Tax Vs. M/s. Rolta India Ltd, reported in 330 ITR 470, wherein it
held that where the provision has not been made for meeting liability, no
occasion to apply clause (c) of the explanation to Section 115JA(2) of the Act
can arise. The Apex Court observed that :
“A
debt payable by the assessee is different from a debt receivable by the
assessee. A debt is payable by the assessee where the assessee has to pay the
amount to others whereas the debt receivable by the assessee is an amount which
the assessee has to receive from others. In the present case “debt” under
consideration is “debt receivable” by the assessee.”
In this case
also, there is no debt payable by the respondent assessee, but it is a debt
receivable and would not stand covered by clause (c) of the explanation to
Section 115JA(2) of the Act. Thus, the issue stands concluded in favour of the
respondent by the decision of the Apex Court in HCL Connect System and Services
Ltd ( supra ) and Rolta India Ltd (supra). Hence ,
appeal file by revenue on this count is dismissed.
4. On
question B- The Counsel for both sides are
agreed that this question stands concluded in favour of the Revenue, by the
decision of the Apex Court in Joint Commissioner of Income Tax Vs. Rolta India
Ltd. Wherein it was held that:
“Section
115JA was inserted by the Finance Act, 1996 with effect from 1-4-1997.
After insertion of section 115JA, section 115JB was inserted by the
Finance Act, 2000 with effect from 1-4-2001. It is clear from reading of
sections 115JA and 115JB that the question, whether a company is liable to pay
tax under either provision, does not assume importance because specific
provision(s) is/are made in the section saying that all other provisions of the
Act shall apply to the MAT company. Similarly, amendments have been made in the
relevant Finance Act providing for payment of advance tax under sections 115JA
and 115JB. So far as interest leviable under section 234B is concerned, the
section is clear that it applies to all companies. The pre-requisite condition
for applicability of section 234B is that the assessee is liable to pay tax
under section 208 and the expression ‘assessed tax’ is defined to mean the tax
on the total income determined under section 143(1) or under section 143(3) as
reduced by the amount of tax deducted or collected at source. Thus, there is no
exclusion of section 115J/115JA in the levy of interest under section 234B. The
expression ‘assessed tax’ is defined to mean the tax assessed on regular
assessment which means the tax determined on the application of section
115J/115JA in the regular assessment.
The
Karnataka High Court had in the case of Jindal Thermal Power Co.
Ltd. v. Dy. CIT [2006] 154 Taxman 547 has held that
section 115JB is a self-contained code pertaining to MAT, which imposed
liability for payment of advance tax on MAT companies and, therefore, where
such companies defaulted in payment of advance tax in respect of tax payable
under section 115JB, they were liable to pay interest under sections 234B and
234C. Thus, it can be concluded that interest under sections 234B and 234C
shall be payable on failure to pay advance tax in respect of tax payable under
sections 115JA and 115JB. For the aforestated reasons, Circular No. 13 of 2001,
dated 9-11-2001, issued by the CBDT has no application. Moreover, in any event,
para 2 of that circular itself indicates that a large number of companies
liable to be taxed under MAT provisions of section 115JB were not making
advance tax payments. In the said circular, it has been clarified that section
115JB is a self-contained code and, thus, all companies were liable for payment
of advance tax under section 115JB and, consequently, provisions of sections
234B and 234C imposing interest on default in payment of advance tax were also
applicable”
Therefore, in view of above decision of apex
court, Revenue appeal is allowed regarding charging of interest u/s 234
B &
C.
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