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Before: SHRI A. T. VARKEY, & SHRI PRASHANT
Page 2 of 11 PER PRASHANT MAHARISHI, A. M. 1. These are the appeals filed by the assesseeon similar grounds and therefore the same are disposed off by this common order. 2. In
1. That no justification subsisted on the part of the authorities below to hold that prOVISIOnfor bad and doubtful debts amounting to Rs 1027504/- was to be added back while working out the profit under section 115 JB of the income tax act.
2. That the income declared by the Appellant u/s 115JB of the income tax act ought to have been accepted and made the basis of assessment. At any rate without prejudice, the income assessed under section 115 JB is very excessive. 3. That the interest income of Rs. 8924317 ought to have been assessed as income from business and the authorities below were not justify to tax such income under the head other sources. At any rate without prejudice the interest income assessed under the head other sources is very excessive. 4. That without prejudice to ground No.3 above, if the interest income is treated as income from other sources, the same deserves to be adjusted first against the business loss of this year and therefore, from this angle also, the income tax levied on interest income was duly illegal. 5. That the levy of interest under section 234B is illegal and at any rate, without prejudice wary excessive. 6. That the appellant reserves its right to add, amend/modify the grounds of appeal.
Page 3 of 11 3. In the assessee has raised the following grounds:-
That no justification subsisted on the part of the authorities below to hold that provision for bad and doubtful debts amounting to Rs 599044/-- was to be added back while working out the profit u/s 115JB of the income tax act.
That the income declared by the salons u/s 115 JB of the income tax act ought to have been accepted and made the basis of assessment. At any rate without prejudice, the income assessed ix]« 115JB is very excessive. 3. That the interest income of Rs. 1009641/ - ought to have been assessed as income from business and the authorities below were not justify to tax such income under the head other sources. At any rate without prejudice the interest income assessed under the head other sources IS very excessive. 4. That without prejudice to ground No.3 above, if the interest income is treated as income from other sources, the same deserves to be adjusted first against the business loss of this year and therefore, from this angle also, the income tax levied on interest income was duly illegal. 5. That the levy of interest under section 234B is illegal and at any rate, without prejudice wary excessive. 6. That the appellant reserves its right to add, amend/modify the grounds of appeal
4. First we take up the appeal No.3063/Del/2012.
5. The assessee is a company which is engaged in the business of FM Radio Broadcasting under the channel identity of 93.5 Radio Page4 of 11 FM. The assessee filed its return of income declared NILincome under the normal provision of the Income Tax Act and income was shown u/s 115JB of the Act on Rs.l,91,11,225/-. The assessment was completed u/s 143(3) of the Act and adjustment were made to the book profit of the assessee on account of provision of bad doubtful debts of Rs.I027504/-. In the normal computation of the total income interest income of Rs.8924317 1- shown by the assessee under the head income from business whereas the AO had treated it as income from other sources.
The first ground of appeal
is against adjustment of book profit by increasing it by Rs.I027504I- on account of provision for bad and doubtful debts. The AO has made this addition because of amendment under the provision of section 115JB(2) of Finance Act, 2009 with retrospective effect 01.04.2001. Therefore the AO was of the view that book profit is required to be increased by the amount set aside as provision for diminution in the value of any asset. He was also of the view that provision of bad and doubtful debt is falling within that clause. Hence he adjusted the book profit.
7. Aggrieved by the order of AO the assessee preferred an appeal before the learned Commissioner of Incom\:~ (Appeals), who in turn rejected the contention of the At.,;despite the assessee relying on the decision of the Karnataka High Court in the case of CIT Vs. Yokogawa India Ltd 17 Taxmann.com
15. Therefore the assessee is in appeal before us. 8. . The ld AR of the assessee submitted that the assessee has debited to profit and loss account Rs.I0275041 - and has also reduced this amount from sundry debtors. For this he drew our attention to Page 8 of the Paper book wherein under the head "Administrative and other cost" same is reflected. He also •• Page5 of 11 submitted that in Schedule E of the Annual Account shows that this amount has been reduced from the sundry debtors. He further submitted that now the issue is squarely covered in favour of the assessee by decision of the Hon'ble Karnataka High Court in the case of CITVs. Yokogawa India Ltd.
9. Against this the ld DR relied on the orders of the lower authorities and submitted that as the language of law is very clear the amount is rightly added by the AO and confirmed by the learned Commissioner of Income-tax (Appeals).
We have carefully considered the rival contention. Accordingly with retrospective effect from 1-4-2001 the clause (i) to explanation [1] of section 115JB (2) has been inserted which provided for increasing the book profit of the assessee by amount or amounts set aside as provision for diminution in value of any assets.
It was contended before us that the issue is now squarely covered by the decision of honourable Karnataka High court in case of CIT V Yokogawa India Ltd [17 taxmann.com15[kar]. We have carefully perused the decision and we found that the issue before Honourable Karnataka High court was whether the provision of bad and doubtful debts is covered under clause © of explanation 1 to section 115 JB (2) or not. In that decision honourable high court has decided the issue in favor of the assessee holding that provision for bad and doubtful debts is not covered in clause (c). Honorable high court was not seized of the issue that whether to provision of bad and doubtful debts is covered by clause (i) or not. Therefore reliance on that decision by the assessee is misplaced.
Page 6 of 11 12. Honorable Delhi high court has decided the issue about the validity of retrospective applicability of clause ( i) of that section which provides about addition to the book profit amount or amounts set aside as provisions for diminution in the value of assets in 355 ITR 51 (Del) in whirlpool of India limited V Union of India and others. Though this decision is regarding validity of retrospective applicability of the introduction of clause (i) w.e.f 1-4-2001 but it has given some insight about this provision introduced. Hon high court has held that:-
"3. It may be noticed that under clause (c) "the amount or amounts set aside to provisions made for meeting liabilities, other than the ascertained liabilities" was/were to be added to the book profit as shown in the profit and loss account. A controversy arose as to whether the provision for bad and doubtful debts made in the profit and loss account can be added to the book profit under the aforesaid clause. The Income-tax authorities took the view that such a provision was made for meeting a liability other than an ascertained liability and, therefore, the book profit had to be increased by the amount of the provision. The case of the companies which were liable to tax under section 115JB was that a provision for bad and doubtful debts cannot be regarded as a provision made for meeting a liability, let alone an unascertained liability, because a debt is not a liability but is an asset of the company and what in effect the company does, when making the provision for bad and doubtful debts, is only to provide for a possible non-recovery of the debt; according to the companies, a provision made for the diminution in the value of the debt due to possible non-recovery or the debt going bad cannot be treated as a provision made for meeting an unascertained liability. The matter ultimately reached various Benches of the Income-tax Appellate Tribunal and on account of the importance of the issue, a Special Bench of the Tribunal was constituted which ruled in Joint CIT v. Usha Ltd. [2006J 105 ITJ (Kol.) 543 (SB) ; [2007J 288ITR (AT) 63 Martin Industries (Kol) [SBJ that such a provision cannot be considered as a provision for meeting an unascertained liability and that in truth and substance it was a provision for the diminution of the value of the debt and, therefore, it fell outside clause (e) of the Explanation and the book profit cannot be increased by the amount of the provision. This view of the Special Bench of the Tribunal was upheld by the Delhi High Court in a case where a similar issue had arisen and this judgment is reported as CIT v. Eicher Ltd. [2006J 287ITR J 70 (Delhi). The controversy was eventually resolved by the Supreme Court in the judgment reported as CIT v. HCL Comnet Systems and Services Ltd. [2008J 305 ITR 409 (SC). This judgment was rendered on September 23, 2008. It was observed as under (page 413) : "For the purposes of section 115JA, the Assessing Officer can increase the net profit determined as per the profit and loss account prepared as per Parts II and III of Schedule VI to the Companies Act only to the extent permissible under the Explanation thereto.
As stated above, the said Explanation has provided six items, i.e., item Nos. (a) to (f) which if debited to the profit and loss account can be added back to the net profit for computing the book profit. In this case, we are concerned with item No. (c) which refers to the provision for bad and doubtful debts. The provision for bad and doubtful debts can be added back to the net profit only if item (c) stands attracted. Item (c) deals with amount(s) set aside as provision made for meeting liabilities, other than ascertained liabilities. The assessee's case would, therefore, fall within the ambit of item (c) only if the amount is set aside as provision; the provision is made for meeting a liability ; and the provision should be for other than an ascertained liability, i.e., it should be for an unascertained liability. In other words, all the ingredients should be satisfied to attract item (c) of the Explanation to section 115JA. In our view, item (c) is not attracted. There are two types of 'debt'. 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 is a others. In the present case, the 'debt' under consideration 'debt receivable' by the assessee. The provision for bad and doubtful debt, in the value of the therefore, is made to cover up the probable diminution asset, i.e., debt which is an amount receivable by the assessee. Therefore, such a provision cannot be said to be a provision for a liability, because even if a debt is not recoverable no liability could be fastened upon the assessee. In the present case, the debt is the amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. " of the Supreme Court was rendered in favour of the 4. After the judgment company-assessees, the Finance (No.2) Bill, 2009, was introduced in the Lok Sabha on July 6, 2009, to give effect to the financial proposals of the Central Government for the financial year 2009-10. The Bill proposed an amendment to section 115JB as follows (see page 85 of 314 ITR (St.) ; of section 115JB of the Income-tax "45. Amendment 115JB-In section Act,- (a) in sub-section (1), with effect from the 1st day of April, 2010, (i) for the words, figures and letters 'the 1st day of April, 2007', the words, figures and letters 'the 1st day of April, 2010' shall be substituted; (ii) for the words 'ten per cent.', at both the places where they occur, the words 'fifteen per cent. ' shall be substituted; (b) in sub-section (2), after the second proviso, in Explanation 1, after clause (h), for the words, brackets and letters 'if any amount referred to in clauses (a) to (h) is debited to the profit and loss account, and as reduced by', the following shall be substituted and shall be deemed to have been with effect from the 1st day of April, 2001, namely ;- substituted '(i) the amount or amounts set aside as provision for diminution in the value of any asset, if any amount referred to in clauses (a) to (i) is debited to the profit and loss account, and as reduced by,-'."
The Notes on Clauses appended to the Bill provided as follows (See page 156 of 314 ITR (St.) : "Clause 45 of the Bill seeks to amend section 115)B of the Act relating to special provision for payment of tax by certain companies. Under the existing provisions contained in the said section 115)B, in case of a company, if the tax payable on the total income as computed under the Income-tax Act in respect of any previous year relevant to the assessment year commencing on or after the 1st April, 2007, is less than ten per cent. of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable for the relevant previous year shall be ten per cent. of such book profit. It is proposed to amend sub-section (1) of said section 115)B to provide that if the Income-tax payable on the total income as computed under the Income-tax Act in respect of any previous year relevant to the assessment year commencing on or after 1st April, 2010, is less than fifteen per cent. of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable for the relevant previous year shall be fifteen per cent. of such book profit. will take effect from April 1, 2010, and will, accordingly, This amendment apply in relation to the assessment year 2010-11 and subsequent years. It is further proposed to insert a new clause (i) after clause (h) in the Explanation 1 to sub-section (2) of the said section so as to provide that any provision for diminution in the value of any asset will also be included in the computation of book profit under the said section. from April 1, 2001, and will, This amendment will take effect retrospectively accordingly, apply in relation to the assessment year 2001-02 and subsequent assessment years. "
In the Memorandum Explaining the Provisions in the Finance (No.2) Bill, 2009, the Central Board of Direct Taxes stated as follows (see page 213 of 314ITR (St.)) : "Clarification regarding add back of 'provision for diminution in the value of asset', while computing book profits Section 115)B of the Income-tax Act provides for levy of minimum alternate tax (MAT) on the basis of book profits of a company. As per Explanation 1 after sub-section (2), the expression 'book profit' means net profit as shown in the profit and loss account prepared in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act, 1956, as increased or reduced by certain adjustments, as specified in that section.
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Page 9 of 11 It is proposed to insert a new clause (i) in Explanation 1 after sub- section (2) of the said section so as to provide that if any provision for diminution in the value of any asset has been debited to the profit and loss account, it shall be added to the net profit as shown in the profit and loss account for the purpose of computation of book profit. Similar amendment is also proposed in section 115JA of the Income-tax Act by way of insertion of a new clause (g) in the Explanation after sub-section (2) of the said section. The amendment to section 115JA is proposed to be made effective from 1st day of April, 1998, and will, accordingly, retrospectively apply in relation to the assessment year 1998-99 and subsequent years. The amendment to section 115J8 is proposed to be made effective retrospectively from 1st day of April, 2001, and will, accordingly, apply in relation to the assessment year 2001-02 and subsequent assessment years. "
From reading of above decision it is clear that clause (i) covers the amount debited to the profit and loss account which are set aside as provision for diminution in the value of any assets. Provision of bad and doubtful debts also results diminution in the value of its assets i.e. debt. Therefore in our view the provision for bad and doubtful debts are required to be added to book profit as per clause (i)of explanation [1] to subsection [2] of section 115JB of the Act. In view of this we confirm the decision of CIT (A) on this count. In the result ground no 1 & 2 of the appeal are dismissed.
Ground No 3 of the appeal IS regarding taxing the amount of interest of Rs 8924317/ -being amount offered by assessee as business income and against that AO has taxed the same as income from other sources. On appeal before CIT (A),he upheld the action of AO. 15. Both the parties have agreed that identical issue has been decided by the co-ordinate bench of this Tribunal in ITANo. ITA No. 1720/Del/2011, ITA No. 1317/Del/2011, ITA No. 1721/Del/2011, ITA No.
Page 10 of 11 5081/Del/2011, dated 24.11.2015, wherein this issue is set aside to the file of AO.- 16. We have carefully considered the rival contentions and found that identical issue has been decided by us in those appeals as under :-
"30. Ground No 3 of the appeal of assessee is against interest income as declared at Rs 38,41,383/- ought to have been assessed as business income and not under the head -income from other sources. Before us LD AR submitted that part of the income of the interest is earned because of the amount was necessarily required to be kept by the assessee under lien of issuing bank guarantee to the Ministry of Information and Broadcasting. Ld. DR submitted that bank interest is chargeable to tax in the hands of the assessee under the head of =other sources' only.
We have considered the rival submission as well as a the orders of lower authorities on the issue. Before eIT (A) the details of such interest income was not furnished by AR of the assessee and same was no such details have been furnished before us. In the assessment order also, AD has not mentioned the reason for changing the head of bank interest income from +-Business Income -offered by assessee to =income from other sources '. Therefore in the interest of justice we set aside this ground of appeal of the assessee back to the file of AD to decide the same on merit after affording reasonable opportunity of hearing to assessee. Therefore ground no 3 of the appeal of the assessee is allowed for statistical purposes. "
We also set aside this issue to the file of AO with the same direction ..
In the result the ground No.3 of the appeal is allowed. 19. Ground No.4 and 5 raised by the assessee was not pressed therefore the same is dismissed. 20. In the result we partly allow the appeal of the assessee in ITAno 3063/Del/2012. 21. Nowwe take up the appeal in ITAno 3064/Del/2012.