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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA & SHRI LALIET KUMAR
O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee and the same is directed against the order of ld. CIT-LTU, Bangalore dated 04.01.2017 for Assessment Year 2012-13 u/s. 263 of IT Act.
The grounds raised
by the assessee are as under. “1. The Order of the Learned Commissioner is not justified in law and on facts and in circumstances of the case.
2. As regards jurisdiction of the Learned Commissioner to invoke revisionary proceeding under section 263: 2.1. The Learned Commissioner is not justified in invoking revisionary proceedings under section 263 when the essential conditions for invoking the said section did not exist. 2.2. The Learned Commissioner has erred in holding that the assessment order passed under section 143(3) is erroneous and prejudicial to the interest of the revenue without establishing the same.
3. As regards adding back provisions for bad debts amounting to Rs.50,22,576/- while computing book profits under Section 115JB: 3.1. The Learned Commissioner has erred in regarding the impugned sum as provision when the same was actually written off as held by the Apex Court and the jurisdictional High Court. 3.2. Without prejudice to the above, the Learned Commissioner has erred in directing the add back of the impugned sum when the issue is IT(TP)A No. 424/Bang/2017 Page 2 of 9 highly contentious and open to debate.
4. As regards adding back disallowance of Rs.89,98,661/- made under Section 14A while computing book profits under Section 115JB: 4.1. The Learned Commissioner is not justified in invoking Section 14A for the purpose of Clause (f) of Explanation 1 to Section 115JB i.e. "the amount or amounts of expenditure relatable to any income to which section 10... or Section 11 or Section 12 apply" when section 14A does not apply to computation of book profits under Section 115JB which is a complete code by itself. 4.2. The Learned Commissioner has failed to appreciate that while determining the expenditure to be added back as provided in clause (f) to Explanation 1, only direct expenditure if any should be considered and there is no warrant/ mandate for importing of provisions of section 14A whether by letter or by spirit. 4.3. Without prejudice to the above, the Learned Commissioner has erred in directing the add back of the impugned sum when the issue is highly contentious and two views are possible in the light of conflicting decisions available in the field. For the above reasons and for such other reasons which may be allowed by the Honourable Members to be urged at the time of hearing, it is prayed that the aforesaid appeal be allowed.”
Brief relevant facts are that the assessee filed return of income for this Assessment Year on 28.09.2012 declaring an income of Rs. 101,12,19,490/- after claiming deduction u/s. 10A/10AA of IT Act. The assessee’s case was selected for scrutiny under CASS and notice u/s. 143(2) was issued by the AO to the assessee on 07.08.2013. Notice u/s. 142(1) was also issued calling for various information. As per para no. 4 of the written submissions filed by assessee before the Tribunal, this is stated that in the statement of computation of normal income, the assessee had added back Rs. 50,22,576/- towards provision for doubtful debts and Rs. 89,98,661/- towards disallowance u/s. 14A of IT Act. But in the computation of book profits, the assessee did not add back these two amounts. In Para 5 of the written submission, it has been submitted that subsequently, the AO passed the assessment order u/s. 143(3) on 24.03.2015 and in the assessment order, the AO accepted the computation made by the assessee subject to three additions being i) disallowance of depreciation of Rs. 50,97,324/- claimed on good will, ii) disallowance of Rs. 1,73,026/- in respect of deduction claimed by assessee u/s. 10AA and iii) disallowance of Rs. 1,50,000/- on account of club expenses. Being aggrieved, the assessee IT(TP)A No. 424/Bang/2017 Page 3 of 9 filed an appeal before CIT(A) and ld. CIT(A) partly allowed the appeal of the assessee vide its order in dated 24.11.2016. In Para no. 9 of the written submissions, it is submitted that in the meanwhile, vide a notice dated 11.05.2015, the AO sought to rectify the book profits by adding Rs. 50,22,576/- towards provisions for bad debts. The assessee furnished written reply on 20.05.2015 and the AO dropped the proceedings u/s.
154. He also submitted that vide another notice u/s 154 dated 01.01.2016, the AO sought to again rectify the book profits by adding Rs. 50,22,576/- towards provisions for bad debts and Rs. 89,98,661/- towards disallowance u/s. 14A and after considering the reply of the assessee filed on 21.01.2016, the AO again dropped the proceedings u/s.
After that, the ld. CIT-LTU, Bangalore initiated the revisionary proceeding by issuing notice u/s. 263 of IT Act dated 11.07.2016. In response to the said notice, the assessee filed submissions dated 25.07.2016. But ld. CIT was not satisfied and he passed revisionary order u/s. 263 which is the impugned order against which the present appeal is filed by the assessee before the Tribunal.
In course of hearing of this appeal, it is submitted by ld. AR of assessee that the AO has taken a plausible view and therefore, ld. CIT has no jurisdiction to pass revisionary order u/s.
He submitted that in the impugned order on page no. 18, ld. CIT has noted about the judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. Yokogawa India Ltd. as reported in [2012] 204 Taxman 305 (Kar.) dated 29.08.2011. He pointed out that this judgment is in favour of the assessee because in this judgment, it was held by Hon'ble Karnataka High Court that while computing book profits, provisions made for bad and doubtful debts cannot be added back u/s. 115JB as same is not an ascertained liability. He further pointed out that this judgment was not followed by CIT by stating that SLP filed by the revenue against this judgment of Hon'ble Karnataka High Court filed before Hon’ble Apex Court is pending and therefore, this judgment has not reached its finality. He pointed out that ld. CIT has referred to a judgment of Hon’ble Apex Court rendered in the case of CIT Vs. HCL Comnet Systems & Services Ltd. as reported in 174 Taxman 118 and it is IT(TP)A No. 424/Bang/2017 Page 4 of 9 noted by CIT that in this case, it was held by Hon’ble Apex Court that provision for doubtful debts is not a liability and the provision for doubtful debt is a provision made in anticipation of irrecoverability of any money advanced by the assessee and it cannot be considered as a liability and in view of the amendment of provision of IT Act by insertion of clause (i) in section 115JB by Finance Act, 2009 w.e.f. 01.04.2001, the amount or amounts set aside as provision for diminution in the value of any asset has to be added back to net profits u/s. 115JB if this amount was debited to P&L account. He submitted that as per the audited accounts of the assessee, provision for doubtful debts of Rs. 40 millions was reduced from the amount of trade receivables. He placed reliance on the judgment of Hon’ble Gujarat High Court rendered in the case of CIT Vs. Vodafone Essar Gujarat Ltd. as reported in [2017] 85 taxmann.com 32 (Gujarat). He submitted a copy of this judgment and pointed out that in para no. 23 of this judgment, Hon’ble Gujarat High Court has duly considered the judgment of Hon’ble Apex Court rendered in the case of CIT Vs. HCL Comnet Systems & Services Ltd. (supra) and also considered the judgment of Hon’ble Gujarat High Court rendered in the case of CIT Vs. Deepak Nitrite Ltd. in Tax Appeal No. 1918/2009, order dated 17.08.2011 and also the judgment of Hon’ble Gujarat High Court rendered in the case of CIT Vs. Indian Petrochemicals Corpn. Ltd. as reported in [2016] 74 taxmann.com 163 and it was held that both these judgments are operating in different category. As per this Para no. 23 of this judgment of Hon’ble Gujarat High Court, it was held that if there is mere provision for bad and doubtful debts, after the insertion of clause (i) of the explanation to section 115JB, the same has to be added back for computing book profit u/s. 115JB but this was not a mere provision made by the assessee and if it was reduced from loans and advances on the asset side of the balance sheet, then it will amount to write off of bad debts and in that situation, it will be a second category for which no addition is justified u/s. 115JB. He submitted that in the present case also, since the assessee has reduced the provision for bad and doubtful debts from the trade receivables, it falls in the second category and therefore, the same cannot be added back to book profit. In respect of the second issue i.e.
IT(TP)A No. 424/Bang/2017 Page 5 of 9 addition on account of disallowance u/s. 14A, the ld. AR of assessee placed reliance on the decision of special bench of the Tribunal rendered in the case of ACIT Vs. Vireet Investment (P.) Ltd. as reported in [2017] 82 taxmann.com 415 (Delhi-Trib.) (SB). He submitted a copy of this Tribunal order and drawn our attention to para no. 6.22 and pointed out that in this paras, it is held by the special bench of the Tribunal that computation under clause (f) of Explanation 1 to section 115JB (2) is to be made without resorting to the computation as contemplated u/s. 14A read with Rule 8D of Income Tax Rules, 1962. He submitted that as per this order of special bench of the Tribunal, disallowance cannot be added back for computation of book profit u/s. 115JB.
As against this, the ld. DR of revenue supported the impugned order of CIT. She placed reliance on the judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. Infosys Technologies Ltd. as reported in [2012] 341 ITR 293 (Karnataka). She drawn our attention to Para nos. 26 to 28 of this judgment and pointed out that if any relief is allowed by the AO without any discussion or reasoning in the assessment order, then such an assessment order is not merely erroneous but also prejudicial to the interest of the revenue and under these facts, the CIT was justified in exercising the jurisdiction u/s. 263 of IT Act. Thereafter she submitted copy of Tribunal order rendered in the case of Shri S.S. Sathish Vs. CIT in dated 23.10.2017 and pointed out that in this case, the Tribunal has followed the judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. Infosys Technologies Ltd. (supra) and decided the issue in favour of the revenue and against the assessee. She further submitted that main issue to be decided in this appeal is this as to whether the CIT was having jurisdiction u/s. 263 of IT Act or not because on merit, he has not decided the issue and he remitted the matter back to AO for considering these two items afresh after giving due opportunity of hearing to assessee.
We have considered the rival submissions. First of all, this is not the case of the assessee that there is any discussion in the assessment order passed by the AO or that reasoning is given by AO in the assessment order IT(TP)A No. 424/Bang/2017 Page 6 of 9 for accepting the claim of the assessee that these two items of disallowance in normal computation are not required to be added for computing book profit u/s. 115JB of IT Act. In the light of these facts, we first examine the applicability of judgment of Hon'ble Karnataka High Court cited by ld. DR of revenue having been rendered in the case of CIT Vs. Infosys Technologies Ltd. (supra) and also the Tribunal order rendered in the case of Shri S.S. Sathish Vs. CIT (supra). For the sake of ready reference, we reproduce Para no. 6 of this Tribunal order because in this para, the Tribunal has reproduced the relevant paras of this judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. Infosys Technologies Ltd. (supra). Para 6 of this Tribunal order reads as under. “6. We have considered the rival submissions as well as the relevant material on record. The CIT has proposed to revise the assessment order passed under Section 143(3) dt.27.12.2011 on the ground that the Assessing Officer has not verified and examined the two issues i.e. (i) disallowance under Section 40(a)(ia) in respect of the amount debited towards lorry hire charges and (ii) the source of the credit to the capital and current account of the assessee. We find that there is nothing in the assessment order to show that the Assessing Officer has conducted any enquiry in respect of these two issues so that it can be inferred that there was an application of mind on the part of the Assessing Officer on these two issues. Further it is apparent from the assessment order that though the Assessing! Officer, has issued Notice under Section 142(1) on 23.06.2011 to which the assessee filed reply on 27.12.2011 and on the same date the assessment order was passed by the Assessing Officer. This itself shows that the assessment order was passed by the Assessing Officer in a summary manner without conducting a proper enquiry on these issues. It is also manifest from the, record that the assessment order does not exhibit any application of mind or thought process on the part of the Assessing Officer on these two issues. It is settled 'proposition of law that the lack of enquiry on the part of the Assessing Officer renders the assessment Order 'erroneous so far as it is prejudicial to the interest of revenue. Though the learned Counsel for the assessee has referred to the reply dt.27.12.2011 however, when the assessment order was passed on the same day and without discussing any of the details and explanation of the assessee then even if the assessee filed the reply on the last date when the assessment order was passed it will not lead to the conclusion that the Assessing Officer has applied his mind and conducted a proper enquiry. Further the learned Authorised Representative of the assessee has relied upon decision in the case of CIT Vs. Bhagavathi Steels (supra) as well as in the case of CIT Vs. United Rice Land Limited (supra) however, those decisions are on the IT(TP)A No. 424/Bang/2017 Page 7 of 9 merits of applicability of Section 194C when there was no contract or transport between the assessee and the transporter therefore, to apply those decisions the fact of hiring any transporter is to be examined and investigated. Therefore, to the extent of invoking the provisions of Section 263 in the case of assessee these two decisions relied upon by the learned Authorised Representative will not help the case of the assessee these two decisions relied upon by the ld. AR will not help the case of the assessee. We further note that the CIT has not expressed any view, or given any finding on the merits of these two issues and the assessment order was set aside for adjudication of these two issues on the part of the Assessing Officer as per law. Thus in the absence any view expressed by the CIT in the impugned revision order it was open for the Assessing Officer to decide these two issues as per law on the basis of the outcome of the enquiry. Thus in this appeal when the CIT has not expressed any opinion on merits we are not called upon to examine and decide the issue on merits. The Hon’ble jurisdictional High Court in the case of CIT Vs. Infosys Limited (supra) while dealing with an issue of validity of invoking the provisions of Section 263 in the case of lack of enquiry on the part of the Assessing Officer held in paras 26 to 29 as under : 26. We are also not in a position to accept the submission that the materials had been placed before the assessing authority and therefore there should be a conclusion that the authority has applied his mind to the same and there was no question of the commissioner interfering by taking a different view etc.
Assessing authority performs a quasi-judicial function and the reasons for his conclusions and findings should be forthcoming in the assessment order. Though it is urged on behalf of the assessee by its learned counsel that reasons should be spelt out only in a situation where the assessing authority passes an order against the assessee or adverse to the interest of the assessee and no need for the assessing authority to spell out reasons when the order is accepting the claim of the assessee and the learned counsel submit that this is the legal position on authority, we are afraid that to accept a submission of this nature would be to give a free hand to the assessing authority, just to pass orders without reasoning and to spell out reasons only in a situation where the finding is to be against the assessee or any claim put forth by the assessee is denied.
We are of the clear opinion that there cannot be any dichotomy of this nature, as every conclusion and finding by the assessing authority should be supported by reasons, however brief it may be, and in a situation where it is only a question of computation in accordance with relevant articles of a double taxation avoidance agreements and that should be clearly indicated in the order of the assessing authority, whether or not the assessee had given particulars or details of it. It is the duty of the assessing authority IT(TP)A No. 424/Bang/2017 Page 8 of 9 to do that and if the assessing authority had failed in that, more so in extending a tax relief to the assessee, the order definitely constitutes an order not merely erroneous but also prejudicial to the interest of the revenue and therefore while the commissioner was justified in exercising the jurisdiction under Section 263 of the Act, the tribunal was definitely not justified in interfering with this order of the commissioner in its appellate jurisdiction.
Therefore, we answer the question posed for our answer in the negative and against the assessee. Both appeal are allowed. Parties to bear their respective cost. It is clear that the Hon'ble jurisdictional High Court has observed that finding of the assessing authority should be supported by reasons howsoever brief it may be. It is the duty of the assessing authority to do so and if the assessing authority has failed in this aspect that the order definitely constitute an order not merely erroneous but also prejudicial to the interest of revenue if the assessing authority extending a tax relief to the assessee. The Hon'ble High Court has held that the CIT was justified in exercising the jurisdiction under Section 263 of the Act. In view of the facts and circumstances of the case as discussed above as well as the binding precedence of the Hon'ble jurisdictional High Court, we do not find any error or illegality in the impugned order passed under Section 263 of the Act. We make it clear that when the CIT has not expressed any opinion on the merits of the issue taken up for revision then the Assessing Officer in the consequential order as well as the CIT (Appeals) is having its full discretion to decide these issued on merits as per law.”
As per the combined reading of this Tribunal order and this judgment of Hon'ble Karnataka High Court, it comes out that the finding of AO should be supported by reasons howsoever brief it may be. In the present case, it could not be shown by assessee that in the assessment order passed by the AO in which the AO has accepted the assessee’s claim that these two amounts of Rs. 50,22,576/- being provision for doubtful debts and Rs. 89,98,661/- being disallowance u/s. 14A although added back for the purpose of normal computation of income but not added back for the purpose of computing book profit u/s. 115JB of IT Act. Under these facts, this Tribunal order and the judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. Infosys Technologies Ltd. (supra) are squarely applicable in the present case and respectfully following the same, we hold that we do not find any error or illegality in the impugned order
IT(TP)A No. 424/Bang/2017 Page 9 of 9 passed by CIT u/s. 263 of IT Act. We also make it clear when the CIT has not given any opinion on the merits of the issue taken up for revision then the AO in the consequential order as well as the CIT(A) if any appeal is filed against the consequential order to be passed u/s 143 (3) r.w.s.263 are having full discretion to decide the issues on merit as per law and therefore, in respect of various judgments on merit cited by ld. AR of assessee do not require any discussion at the present stage for deciding the issue on merit. These judgments cited by the learned AR of the assessee are not relevant for deciding this aspect as to whether the CIT gets jurisdiction u/s 263 or not because this aspect is decided by us by following a binding judgment of Hon’ble Karnataka High Court and the judgments cited by the learned AR of the assessee are either of the special bench of the tribunal or of Hon’ble Gujarat High Court.
In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open court on the date mentioned on the caption page.