GOLDMAN SACHS (INDIA) PVT. LTD.,MUMBAI vs. DCIT 1 (1)(2), MUMBAI

The grounds of appeal read as under:

Brief facts of the case are that the assessee company is engaged in the business of Financial Services as NBFC. The Assessing Officer noted that the assessee has claimed write off bad debt, disallowed in earlier years at Rs.36,60,10,774/-. Upon the A.O.’s enquiry, the assessee explained that the entire bad debts written off of Rs.36,60,10,774/- during the year pertains to only one party i.e. Sanghi Industires Limited (SIL). A loan of Rs.66,60,00,000/- was granted by assessee to SIL in F.Y. 2008-09. Interest accrued on the loan given to SIL was credited to the profit and loss account for the years ended 31.03.2009, 31.03.2010, and 31.03.2011, and was offered to tax under the head “Income from business or profession”. Based on the Non – banking Financial Companies Prudential Norms (NBFC) (Reserve Bank) Directions, 2007 issued by RBI, where an asset has remained overdue for a period of six months or more, the asset shall be classified as a non-performing asset (NPA), a provision was created in the books of accounts of assessee in respect of the loan given to SIL from FY 2008-09 onwards.

The A.O. further made the following observation based upon his enquiry and the assessee’s reply: i) In F.Y. 2008-09 (A.Y. 2009-10), the assessee had shown Profit/(Loss) before tax at Rs.(16,83,85,897) after debiting Provision for Non Performing Loans at Rs.19,98,00,000/-. The said amount of Rs.19,98,00,000/- was added in Computation of Income, however not added back in the book profits. The Book Profit/(Loss) was computed at Rs.(16,84,76,331). ii) In F.Y. 2009-10 (A.Y. 2010-11), the assessee had shown Profit/(Loss) before tax at Rs.(6,57,42,330) after debiting Provision for Non Performing Loans at Rs.11,32,20,000/-. The said amount of Rs.11,32,20,000/- was added in Computation of Income, however not added back in the Book Profits. The Book/Profit/(Loss) was computed at Rs.(6,57,42,330). iii) In F.Y. 2010-11 (A.Y.2011-12), the assessee had shown Profit/(Loss) before tax at Rs.(1,49,35,520) after debiting Provision for Non Performing Loans at Rs.8,65,80,000/-. The said amount of Rs.8,65,80,000/- was added in Computation of Income, as well in book profits. iv) In F.Y. 2011-12 (A.Y. 2012-13), no provision was made for non performing assets.

The A.O. referred to explanation (1) of section 115JB and held as under: 5.7 A reference to the above provisions of IT Income Tax Act, 1961 makes it clear that the amount withdrawn from any provision made in earlier year can be reduced from book profits only if the book profits of such year had been increased by such provision

Against the above order, the assessee appealed before the ld. CIT(A). The ld. CIT(A) found the provision of section 115JB Explanation 1 to be fully applicable. He dislodged the submissions of the assessee as well as reliance upon Agra Bench of ITAT decision, which was found to be in a different context and not applicable. The ld. CIT(A) held as under:

Against the above order, the assessee is in appeal before us.

We have heard both the parties and perused the records.

The ld. Counsel of the assessee submitted that the authorities below have wrongly invoked the proviso, as the same is applicable when no tax is paid on book profit. The counsel of the assessee further submitted that the assessee has actually paid more taxes. He referred to Board Circular No. 530 dated 01.01.1990. He submitted a computation wherein it was shown that even if the provision were added back to the book profit in concerned assessment year, there would not have been any MAT payable on book profit. As the assessee has paid tax on normal profit, there is no impact. He placed reliance upon the following case laws: 1. Asst. CIT vs. Srinivas Synthetics Packers (P) Ltd. [2009] 122 TTJ 832 (Agra) 2. ACIT vs. M/s. Rational Handloom Co. Pvt. Ltd. (in vide order dated 23.07.2019) 3. UCO Bank vs. CIT 237 ITR 879

Per contra, the ld. Departmental Representative (ld. DR for short) relied upon the order of the authorities below.

We have carefully considered the submissions and perused the records. As per the undisputed facts in this case, the assessee has claimed write back/off to credit to the profit and loss account of the provision for bad debt amounting to Rs.36,60,10,774/-, made in earlier year.

The assessing officer has invoked the provisions of section 115JB explanation 1 which is reproduced as under:

Now while examining the claim of the assessee, the assessing officer found that in earlier year, i.e., assessment years 2009 -10 and 2010 -11, the provisions made were not added back to the book profit. Hence, he made the impugned addition of equivalent amount of Rs.31,30,020/- to the book profit. The assessee has contended before the learned CIT appeals as well as before us that this exercise in earlier years would have been futile and academic exercise. This was on the reasoning that the impugned amounts when added to the concerned assessment year's book profit would still not have called upon the assessee to pay any tax on the book profit, as the tax payable on normal computation of profits were much higher than the tax on book profits. This contention is duly recorded by the learned CIT appeals in his order. The learned counsel of the assessee has also submitted a chart before us to this effect.

The ld.CIT appeals has rejected the aforesaid argument on the premise that the provision of act has to be strictly construed and hence, he has rejected the aforesaid plea of the assessee. We find that the aforesaid view of the learned CIT appeals is not sustainable, if we apply the purposive test of the enactment being considered here. To recapitulate the provision of the act mandates that if assessee writes back provision for bad debt made in appeal years, the deduction of the same from the book profit is permissible if the provision created in the earlier year has been added back to the book

We are of the considered opinion that in this regard if the assessee is not called upon to pay any tax on book profit as taxes on normal computation are higher even after the aforesaid exercise of increase of the book profit by the amount of provision for the concerned year, the exercise would be an empty exercise and revenue neutral. This means that the assessee would not have been called upon to pay any extra tax whatsoever had this exercise been done. The Hon'ble Supreme Court had an occasion to expound in the case of CIT vs. Excel Industries vide order dated 09.10.2013 that when the exercise is revenue neutral, the action on the part of revenue authority is not sustainable. The Hon'ble Apex Court had observed that such an exercise is fruitless (on merits) but also it may not have added anything much to the public coffer. In this case, it is amply clear that such an exercise in earlier year would not have added anything to the public coffer.

Hence, from the above it is amply clear that the explanation invoked by the authorities below is not applicable on the facts of this case. Even for argument sake, we consider the view that there are two views possible, we are of the considered opinion that the view in favour of assessee is on an overwhelming higher side. In this view of the matter, as expounded by the Hon’ble Court’s Constitution bench in the case of Dilip Gandhi (supra), if two views are possible in a statutory tax provisions, the one in favour of the assessee should be adopted. Accordingly, in the background of the aforesaid discussion and precedent, we are of the considered opinion that the order of the ld. CIT(A) is not sustainable. Accordingly, we set aside the order of the ld. CIT(A) and decide the issue in favour of the assessee.

On this issue, the ld. Counsel of the assessee has been submitted that interest is leviable on returned income and not on assessed income. That this submission was made but not considered by the ld. CIT(A). Upon careful consideration we find that this issue is consequential, the A.O. shall consider the same as per law.