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TMI Blog2011 (9) TMI 466X X X X Extracts X X X X X X X X Extracts X X X X ..... , despite the retrospective amendment by Finance Act, 2001, w.e.f. 1st April 1989, wherein an explanation has been inserted clarifying that a provision for bad and doubtful debts made in the accounts of the assessee shall not be a part of any bad debt or part thereof written-off as irrecoverable in the books of account of the assessee. - Penalty Justified. Provisions for diminution in the value of investments - The undisputed facts are that, the assessee has not sold the shares in question and has claimed a notional loss. The loss was claimed on re-valuation of an asset. By no stretch of imagination, this can be called as a debatable issue. - Penalty justified. Provisions for premium on debenture - When the option to redeem the debenture is not exercised, the question of liability to pay premium does not arise. When an event has not occurred, there is no crystallization of liability and no loss can be allowed under the Act. Penalty justified. - ITA NO. 5178 (MUM.) OF 2010 - - - Dated:- 30-9-2011 - SHRI J. SUDHAKAR REDDY, AND SHRI VIJAY PAL RAO, JJ. Represented by: Shri H.P. Mahajani for the Appellant. Shri Pradeep Sharma for the Respondent. ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issues in question are not debatable issues. He concluded that the assessee has filed incorrect particulars of income and levied a minimum penalty of 100% of the tax sought to be evaded on the income. 4. Aggrieved, the assessee carried the matter before the first appellate authority, wherein the Commissioner (Appeals) rejected various contentions made by the assessee and confirmed the penalty. Further aggrieved, the assessee is in appeal before the Tribunal, on the following grounds:- "1. On the facts and in the circumstances of the case and in law, the order passed by the Learned CIT(A), in so far as it holds that the order passed by the learned AO levying penalty u/s 271(1)(c) is within period of limitation, is bad in law, as it is contrary to the provisions of the Proviso to section 275(1)(a) and the Circular issued by CBDT which circular was binding on the learned CIT(A). 2. On the facts and in the circumstances of the case and in law and without prejudice to the merits of the matter, the learned CIT(A) ought to have cancelled the order passed by the learned Assessing Officer levying penalty of Rs. 3,63,09,319/- u/s 271(1)(c) of the Income tax Act 1961 as bad in law b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch circumstances, no penalty is leviable. He further submitted that in case of claim for provision of doubt debts, the issue that is debatable, is the year of grant of deduction. He submitted that in the assessment year 2003-04, certain deductions were granted and similarly deductions were granted in other years also. He pointed out that the entire claim of more than Rs. 7,87,95,496, was allowed in subsequent years and hence the allowability is not in question. He argued that the assessee furnished full details, of this amount of provision for doubtful debts and that it has also demonstrated the factum of loss and the irrecoverable nature of the balance. He claimed that the issue is debatable and that the assessee was entitled to claim a deduction, even in cases where a simple provision is made in the accounts, instead of writing-off the same. For this proposition, he relied on the judgments of Hon'ble Calcutta High Court High Court in Hongkong Shanghai Banking Corpn. v. CIT [1955] 28 ITR 199 (Cal.) and Hon'ble Jurisdictional High Court in CIT v. Jwala Prasad Tiwari [1953] 24 ITR 537 (Bom.). He further relied on certain decisions to buttress his argument that in the process of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the High Court. He argued that this is also a debatable issue and relied on the following case laws in support of his claim for deduction. Patnaik Co. Ltd. v. CIT [1986] 161 ITR 365 (SC); and Indian Commerce Industries Co. (P.) Ltd. v. CIT [1995] 213 ITR 533 (Mad.). 8. On the provisions made for premium on debenture, he submitted that the limited issue is the year of allowability. He submitted that this is also a debatable issue as the Department had taken a view that the liability has not crystallised in the year. Such disallowance, as per the assessee, does not result in furnishing inaccurate particulars of income. 9. On 4th issue on the claim for depreciation on intangible assets, the learned Counsel submitted that various intangible assets could not be identified as the transfer took place by way of a slump sale. He submitted that the amount paid for the transfer in excess of net asset value, was treated as payment for intangible assets. On a query from the Bench with reference to Schedule-XIII to the annual accounts audited on 31st March 2000, under the head "Significant Accounting Policy" followed by the company read with Schedule-IV - "Fixed Assets" - the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iso does not apply to appeals which were pending before the Tribunal. He submitted that the proviso only expands the time of limitation from six months to twelve months, in cases where an order is passed by the Commissioner (Appeals). He relied upon the judgment of Hon'ble Madras High Court in Rayala Corpn. (P.) Ltd. v. Union of India [2007] 288 ITR 452 (Mad.) and submitted that the section has been interpreted in this judgment and the same should be applied. On the case laws relied upon by the learned Counsel, the learned Departmental Representative submitted that in both the judgments i.e., Tarlochan Singh Sons (HUF) (supra) and Bloosom Floriculture (supra), the judgment of Hon'ble Madras High Court in Rayala Corpn. (P.) Ltd. (supra) was not considered. He submitted that the finding of the Commissioner (Appeals), that the order under section 271(1)(c) was passed by the Assessing Officer was within the period of limitation, has to be upheld. 12. On merits, the learned Departmental Representative submitted that the claims of the assessee are prima facie not admissible and were not bona fide. Referring to the provisions of doubtful debts, he submitted that the preponderance of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the absence of such particulars, depreciation could not be allowed. He emphasized that if the assessee wanted to make a genuine claim, which is debatable, it should have paid the taxes and then made the claim but in this case, the assessee has not divulged any details and simply reduced its taxable income by making vague and inadmissible deductions from the income. Thus, he prayed that the order passed by the Commissioner (Appeals), be upheld. He relied on certain case laws which we would be dealing in due course. 15. In reply, the learned Counsel for the assessee submitted that the learned Departmental Representative is traveling beyond the penalty order which is not permissible. On intangible assets, he submitted that the entries or descriptions in the annual accounts, does not define the exact nature of the assets and the claim of the assessee cannot be said to be wrong. He submitted that paying taxes and then making a claim is not a relevant consideration for the purpose of levy of penalty. He submitted that the details were furnished in the annexure to the rejoinder and it is wrong to say that the details were not furnished by the assessee. He pointed out that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the Commissioner (Appeals) is received by the Chief Commissioner or Commissioner, whichever is later." 18. A plain reading of this section shows that under section 275(1)(a), the requirement of the main section is that, when an assessment order is a subject matter of appeal before the Commissioner (Appeals), then the penalty order should be passed, within a period of six months from the end of the month in which the order of the Commissioner (Appeals) is received by the Chief Commissioner / Commissioner. The proviso to this section was inserted w.e.f 1-06-2003, to expand this time period of six months to one year, in cases wherein the Commissioner (Appeals) passes an order on/after 1st June 2003 and no appeal is filed before the tribunal. The proviso does not deal with cases where the appeals are pending before the ITAT under section 253 of the Act. That limb of section 275(1)(a), which fixes the time limit of six months from the date of receipt of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be out of place to mention that where the claim in the return of income in respect of "Provision for Doubtful Debts" was to the extent of Rs. 10,36,07,753, a sum of Rs. 2,48,11,807 forming part thereof was voluntarily offered to tax vide letter ref. no. TAX: MIL dt. 2.1.2003 in view of the amendment to section 36(1)(vii) by the Finance Act, 2001, with retrospective effect from 1.4.1989 (A.Y. 1989-90). This also establishes the bona fide conduct of the assessee." 22. From the above, it is clear that the assessee has made a conscious claim under section 36(1)(vii), despite the retrospective amendment by Finance Act, 2001, w.e.f. 1st April 1989, wherein an explanation has been inserted clarifying that a provision for bad and doubtful debts made in the accounts of the assessee shall not be a part of any bad debt or part thereof written-off as irrecoverable in the books of account of the assessee. We do not understand as to why the assessee has withdrawn only the claim for Rs. 2,48,11,807 and still continue to claim the balance amount of Rs. 7,10,09,070. No explanation is forthcoming. A provision is made and claimed as a deduction. 23. The undisputed fact in this case is that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Govt. floated loan. This is a case where there was a sale and the question was whether the loss was in the capital field or in the revenue field. In the case on hand, it is a mere provision. The Hon'ble Madras High Court, in Indian Commerce Industries Co. (P.) Ltd. (supra), was considering a case where the company has sold the shares acquired by it and incurred a loss. Here also, it is not a case of a provision. On the other hand, we find that the Commissioner (Appeals) has rightly relied on the judgment of Hon'ble Jurisdictional High Court in Salem Mangnesite (P.) Ltd. v. CIT (Bom.) which considered the case of write-off of a part of loan given to a subsidiary company, wherein the assessee was not in a money lending / finance business and, hence held that the loss was not allowable. 26. Though, the first appellate authority relied on certain other judgments, it would not be suffice to say that this claim was not prima-facie admissible for the reason that (i) the conditions under section 36(2) were not satisfied and, hence, no allowance can be made under section 36(1)(vii) irrespective of the insertion of the proviso to Sec. 36(1)(vii); (ii) as admittedly, the loss has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ast issue is the disallowance of claim for depreciation on what the assessee calls intangible assets. The assessee entered into agreement with Mahindra Mahindra on 1st September 1999, for the purchase of intertrade division of Mahindra Mahindra as a going concern basis. The purchase consideration was over and above the net asset's value of the concern. The assessee, in its annual accounts, treated this amount as goodwill. In Schedule-XIII, under the head "Significant accounting policy followed by the company" under the sub-head "fixed asset", it is stated as follows:- "Goodwill arising on acquisition of business is being amortized over a period of 10 year" 31. In Schedule-IV, which gives fixed assets, the entire value has been shown as intangible and 10% claimed as amortized expenditure. No details on intangible assets have been given at any stage of the proceeding. The assessee in the submissions and explanations states that the intangible assets in question consists of technical knowhow (technical and commercial information, trademark, brand name, franchise, patient, etc.). These submissions are contrary to the understanding of the management of the assessee company, as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dhanam (supra) for the following reason. The term, 'substantial question of law' as seen under section 100 Code of Civil Procedure in respect of filing of second appeal came to be explained by the Supreme Court in Santosh Hazari v. Purushottam Tiwari [2001] 251 ITR 84 and the relevant portion is as follows: "The word "substantial" as qualifying "question of law", means having substance, essential, real, of sound worth, important or considerable. It is to be understood as something in contra distinction with technical, of no substance or consequence, or academic merely. The expression "substantial question of law" has not been suffixed by the words "of general importance" as has been done in other provisions such as section 109 of the Code of Civil Procedure or article 133(1)(a) of the Constitution of India. The substantial question of law, on which a second appeal shall be heard, need not necessarily be a substantial question of law of general importance." The term substantial question of law does not necessarily mean that the issue is debatable. The issue may be an important issue but not necessarily debatable. In this case, on facts, we have come to a conclusion that the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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