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TMI Blog2016 (2) TMI 676X X X X Extracts X X X X X X X X Extracts X X X X ..... profit tax u/s 115JB of the Act has already been decided by CIT (A). Admittedly, in this case, the provisions of Section 154 have been invoked by the Assessing Officer, which he is not competent to do. Clarifying the facts that retrospective amendment made u/s 115JB of the act is no doubt a mistake apparent from the record but issue was whether AO can do that when on the same item of expenditure debited in the books of accounts CIT (A) has decided the issue. In our opinion it is only CIT (A) who is competent to assume jurisdiction u/s 154 of the act. Therefore, we are of the view that the rectification provisions invoked by the Assessing Officer are not correct. Therefore we reverse the order of CIT (A) on these count. - Decided in favour of assessee Charging of interest u/s 234D - withdrawal of interest u/s 244A - Held that:- As we have already held that AO is not empowered to invoke the provision of section 154 of the act on the matter already decided by CIT (A) u/s 154(1A) of the act and therefore interest u/s 234D as well as interest withdrawal u/s 244A of the act are consequential in nature and accordingly they are if arising out of order u/s 154 of the act of the AO same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and this amendment was not available when CIT (A) decided the issue and further the original addition was under clause (c) of the explanation of Section 115JB and now rectification is made by applying clause (i) of explanation (1) to section 115JB of the Act. Therefore assessee is in appeal before us on this count. Further while deciding the issue CIT (A) has held that interest u/s 234B of the Act is not payable by the assessee as the tax liability has arisen on it because of retrospective amendment to the Income tax act and assessee could not have visualized the amendment in past and therefore assessee could not be asked to pay interest u/s 234B of the act. Against this the revenue is in appeal for two years. Admittedly in third year ld AO himself did not charge any interest u/s 234B of the Act. 3. The facts are also tabulated as under :- A Y Amount of provision of bad debts Amount of interest charged u/s 234B of the act Relevant para of order of AO where provision of bad and doubtful debts added back for 115JB computation Relevant para of order of CIT (A) deleting the addition of bad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirming the action of the Assessing Officer withdrawing interest of ₹ 10,78,208/- under section 244A of the Act. vi. On the facts and circumstances of the case, the ld. CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the Assessing Officer has erred both on facts and in law in charging interest despite an amount of ₹ 11,40,99,330/- being pending for refund for the assessment year under consideration. vii. That the appellant craves leave to add, amend or alter any of the grounds of appeal. 5. The first to third grounds of appeal is against the validity and jurisdiction of order passed by learned Assessing Officer under Section 154 of the Income-tax Act, 1961 (for short the Act ). The brief facts of the ground are that the Assessing Officer has passed the order under Section 154 of the Act on 24thMarch 2011. The rectification has been made because of the retrospective amendment made under Section 115JB of the Act by the Finance Act, 2009 w.e.f. 1stApril 2001. According to this amendment, the amount(s) set aside as provision for diminution in the value of any asset which is adopted to the profit and loss account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided. 9. The constraint is that, where any matter is considered and decided in any proceeding by way of appeal or revision relating to an order referred to under sub-section (1), i.e., the order that is sought to be rectified, the authority passing such order may amend the order under sub-section (1) in relation to any matter other than the matter, which has been considered and decided. The powers of the Assessing Officer under sec. 154 of the Act flow from the provisions of that section only. The language of sec. 154(1A) of the Act makes it abundantly clear that the matter which is considered and decided by the appellate authority cannot be rectified by The Assessing officer but by that concerned authority who has passed an appeal order or revision order. If the appeal is filed relating to the matter and the same was considered and decided or be treated to have been considered or decided by the appellate authority, it is no longer open for the assessing authority to re-open or re-agitate or rectify the said issue or mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... late Assistant Commissioner in the light of the judgment of the High Court and finding of the Additional Judge (Revision) recorded in sales tax proceedings directed the ITO to apply a rate of 3.2 per cent on the enhanced turnover of ₹ 1,90,000. The order of the AAC has been quoted in extenso above. Therefore, the matter of determination of the total income of the assessee on account of parcha Nos. 4, 5, 6 and 7 found in the survey by the sales tax authorities was very much under consideration of the Appellate Assistant Commissioner. Even if while computing the total income, the ITO on account of some omission did not include the income of zeera amounting to ₹ 17,612 as mentioned in para 3 of the assessment order, the matter with regard to the turnover of zeera and the income generated from the turnover of zeera was very much in dispute and was subject-matter of appeal before the AAC. Therefore, the learned Standing Counsel is not correct in his submission that the undisclosed income of zeera as deducted by the ITO on the basis of parcha Nos. 4 and 5 was not the matter, which was not considered and decided by the AAC in appeal. The words any matter are of wide amplitud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 891. 13. Thus it is apparent that the Appellate Authority can look into and adjudicate upon findings recorded by the Income-tax Officer not only against the assessee, which may expressly be the subject-matter of the appeal but also those which have gone in favour of the assessee and which may not have been challenged by the assessee. In the present case, the entire assessment order qua the undisclosed turnover of zeera was the subject-matter of appeal before the Appellate Assistant Commissioner and as such the original assessment order stands merged with the order of the Appellate Assistant Commissioner and it was not open for the ITO to initiate the proceedings under section 154 of the Act. The test is whether or not the order of the ITO on a particular point was the subject-matter of appeal before the Appellate Assistant Commissioner. 14. The Kerala High Court in the case of K.P. Subbarama Sastrigal ( supra) on which strong reliance was placed by the learned Standing Counsel, we find that even in the said ruling it has been mentioned that the order of the assessment made by the ITO merges in the order of Appellate Assistant Commissioner only insofar as it relates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not considered for addition while computing book profit: (i) Provision for Gratuity Rs.11,77,03,897/- (ii) Provision for Leave Encashment ₹ 8,35,81,430/- (iii) Provision for post retirement medical scheme ₹ 4,17,03,884/- (iv) Provision for doubtful debts created during the year ₹ 28,28,14,257/- ₹ 52,58,03,468/- Less: Provisions for Doubtful Debts written back/ adjusted Balance, ₹ 19,51,55,078/- Balance ₹ 33,06.48,390/- 5.1 The assessee was accordingly required to show cause. By two separate replies it has been contended as under: 1. That the above provisions are created in accordance with accounting principles and standards; 2. That the valuation of liabilities is based on compilation of various details and by adopting actuarial valuation thereof; 3. That liabilities are 'ascertained in view of meani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trings so as to ensure the bounties and benedictions to spheres targeted under the normal provision are not undone Clause (i) to (vii) of Explanation. The additions and reductions of these adjustments are very critical for reaching 'at MAT Profit . The guiding forces for achieving this delicate balance are the legislative behind MAT, (to tax zero tax paying prosperous companies), the 'low MAT ' vis-a-vis normal tax rate (only partially offsetting the operation of normal giving fillip to investments without postponing current accretions to exchequer in entirety) and allowing credit for MAT payment in future (to be just and fair by not taxing the same income twice). All these factors when combined with 'the non-obstante' clause make the provisions of section 115JB a self contained code which in turn also implies that the provisions have to be given strict interpretation to ensure compliance on the dotted lines. 5.4. As stated above the bedrock of the defense put forward hangs around the dentity of terms 'provisions' and 'liabilities'. Are the terms to be under stood u/s 115JB in the same sense as in the accounting domain or differently in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies in respect of expenditure contracted for and all disputed or contingent liabilities. (2) The schedule, however, qualifies the above meanings of terms' Provisions Reserve as under: , Where (a) Any amount written off or retained by way of providing for depreciation, diminution in value of assets or retained by way of providing for any known liability; or (b) Any amount retained by way of providing for any known liability Is in excess of the amount which in the opinion of the directors is reasonably necessary for the purposes, the excess shall be treated for the purposes of this Schedule as a reserve and not as a provision. 5.6 The above discussion broadly conceptualize following inter relationship between 'Provision and 'Reserve', 1. Provision and reserves both are tools to set apart certain amounts out of profits. Their basic job is same -ear marking funds for a cause; 2. While both are ear makings, the provision is meant for consumption (to meet an incurred or expected liability), the reserve is meant to strengthen inner resources for investments or distributing largesse in the form of bonus shares etc to sharehol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be presumed that provisions for 'doubtful debts' is a provision, can it be said that the decline does not lead to creation of any liability. It is contended that any fall in the value of debtors appearing on the 'asset side' does not lead to creation of any liability. But what is a liability? In the guidance note of ICAI, liability is defined as all claims involving financial obligations' which in other words means 'out flow of funds'. The contention that decrease in the value of debts or for that matter any asset does not lead to creation of any liability is basically flawed. Both assets and liabilities are two sides of the same coin - one representing sources of funds and the other application thereof - and are necessary corollaries of the system of Double Entry System of Book Keeping. Any change in one side has to be necessarily followed up by changes on the other side too. Any consumption or loss of an asset -decrease, decay or loss - unaccompanied by increase in revenue would definitely involve out flow of funds in the form of decrease in capital or increase in liabilities. 5.9 There is another reason also for taking this view. As stated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (v) For insurance, pension and similar staff benefit schemes. (vi) Other provisions. The above classification and grouping sufficiently indicates that 'provisions for doubtful debts' is a kind of liability only. 5.11 Coming to the last limb of the contention that even if this 'provision1 be a provision for a liability, it is on, account of ascertained liability. The word 'ascertained' in context of tax laws connotes two things - certainly of happening and it's amenability to quantification. If either of the two ingredients is absent, the liability cannot be called as an 'ascertained' one. In the case under consideration, the event, sustenance of loss on account of bad debt, or incurrence of liability on account of payment of Gratuity etc. have not taken place on 31.03.2004 and it is not certain whether the same will at all happen, since the arbitrators may issue the award in the favour of assessee and assessee may not have to pay leave encashment etc, due to happening of certain events beyond its control. Therefore it cannot be said that the liabilities have crystallized and become 'ascertained'. Moreover the conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of assets and such amount is provided to present true fair view of the Affairs in the Balance Sheet of the assessee. As per Companies Act, Schedule-VI Provision for Doubtful debts is to reduced from Current Assets/Debtors and as such cannot form Part of Reserve as observed by A.O. Thus assessee company has duly compiled the applicable law while finalizing the annual accounts and Section 115JB no where requires to add the above liabilities to calculate the taxable 'book profits'. Whereas, the above mentioned provision is made in the books in compliance with the accounting principles and as mandated by other Statues towards anticipated losses. As such these items may not fall u/s 115JB(2). This view is supported by the decision of the Calcutta Tribunal in case of Sutlej Cotton Mills Limited Vs. ACIT (45/TD22.) That provisions for doubtful debts and obsolete surplus stores are against the assets of the assessee and not against the any liability and that the value of the assets have been reduced to the extent of the provision made. Provision of such nature have not been covered even under section 115JB . The above subject has been discussed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oubtful debts is to be treated as on ascertained Liability and therefore, it cannot be included in the Book Profit under Section 115JA. It is requested to please delete the above additions as the same is uncalled for and against the expressed provisions of Section 115JB of Income Tax Act , 9.4 I have carefully considered the submissions of the Id. AR and perused the order of assessment. It is found from the assessment order that the AO has at length developed a thesis or theory of provisions , which is not found to be relevant for the obvious interpretation of the provisions of bad I'd doubtful debts, which have been held by various judicial pronouncements o be an ascertained liability and not otherwise, as held to be so by the Assessing Officer in so many words relied upon by him in his assessment order. Apart from the learned Tribunal's decision in the case of National Fertilizers Vs Addl.CIT, Range-V (Supra) relied upon by the Id. ARs, the following decisions clearly point out that the provisions of bad and doubtful debts is a provision for diminution in the value of asset i.e. debt, and therefore, it cannot be a provision of liability as no liability would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erior Tribunal and the other by a superior Tribunal passed in an appeal or revision, there is a fusion or merger of the two orders irrespective of the subject matter of the appeal. The order of assessment made by the Income-tax Officer merges in the order of the Commissioner in so far as it relates to items considered and decided by the Commissioner. That part of the order of assessment, which relates to items not forming the subject-matter of the appellate order and left untouched does not merge in the order of the Commissioner. Even after an appeal from an order of assessment is decided by the Commissioner, a mistake in that part of the order of assessment which was not the subject-matter of the appeal and was thereafter left untouched by the Commissioner, can be rectified by the Income-tax Officer. 10. On consideration of the aforesaid judgments relied upon by learned standing counsel for the Revenue, it is clear that the aforesaid judicial pronouncements laid down the principle that the doctrine of merger does come to play in so far as items considered and decided by the Commissioner or in a case where a particular item is dealt with by the appellate/ revisional authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d determination of additional Income-tax payable. This aspect is also purely academic since the additions effected by the Income-tax Officer were ultimately deleted by the Commissioner of Income-tax (Appeals) in appeal. Therefore, in our view no question of payment of interest under section 234B arises in the present case and non-charging of the same in the present case cannot be accepted as a mistake capable of rectification by initiating a proceeding under section 154 of the Income-tax Act. 13. In so far as the second issue is concerned, i.e., excess deduction allowed on account of depreciation, on a perusal of the original order of assessment under section 143(3) (annexure 5) clearly indicates that the Assessing Officer at that stage had, in fact, applied his judicial mind and disallowed depreciation . Against the said order, the assessee carried an appeal in which an issue was raised regarding disallowance of depreciation. That issue was dealt with by the Commissioner in the appellate order by rejecting the same. Therefore, in so far as depreciation is concerned, it is clear that the appellate order merged with the original order under section 143(3) and since the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee for assessment year 2004-05 is allowed partly wherein we have quashed that the order passed under Section 154 is not valid in view of the provisions of Section 154(1A) of the Act. 18. The appeals of the assessee for assessment years 2005-06 and 2006-07 are also having identical facts and circumstances that of the appeal for assessment year 2004-05, therefore, following our own decision in appeal no. 433/Del/2013, we also held that the orders passed under Section 154 of the Act by the Assessing Officer is invalid as per the provisions of Section 154 (1A) of the Act. Identically, we also held so in the appeal of the assessee for assessment years 2005-06 and 2006-07 and allow the appeal of the assessee partly. 19. In the result all these three appeals are allowed partly. ITA Nos. 422/Del/2013 423/Del/2013 for AYs 2004-05 2005-06 20. The Revenue has also preferred an appeal, for assessment year 2004-05 and 2005-06 vide appeal nos. 422 423/Del/2013 raising following grounds :- 1) Whether the ld. CIT(A) was right in law in deleting the interest amounting to ₹ 76,52,089/- charged u/s 234B of the Act, since charging of interest u/s 234-B is cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest and in terms of this provision provided any assessee who is liable to pay advance tax under section 208 has failed to pay such tax or where the advance tax paid is less than 90% of the assessed tax. Thus, this is a provision whereunder interest could be recovered wherein advance tax for the assessment year fails to take note of the amendment to the Income Tax Act which is brought in subsequently. When the Parliament stepped into to amend the Act though with retrospective effect but in 2008, then, there is no default in payment of advance tax for the assessment year 2006-07. The computation of income based on which the advance tax was paid was in tune with the law prevailing on the date on which tax was due and payable. Any further addition in the income by way of amended provisions and which were incorporated subsequently, therefore, does not attract payment of interest as there is no default. 13. Mr. Kaka also invited our attention to section 115JB and particularly, insertion of clause (h) in Explanation (1). That clause reads as under : (h) The amount of deferred tax and the provision therefor. 14. This clause has been substituted by Finance Act, 2008 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving been brought in with retrospective effect but by Finance Act 2008, the advance tax computation by the assessee for the year 2006-07 cannot be faulted and it cannot be said that the assessee is in default and therefore, there is any liability to pay interest in terms of section 234B of the Income Tax Act, 1961. 18. In the case of Star India (P.) Ltd. v. CCE[2006] 280 ITR 321/150 Taxman 128 the Hon'ble Supreme Court held that the service of broadcasting was made a taxable service with effect from July 16, 2001, by the Finance Act, 2001. The appellant disputed its liability to make any payment for service tax on the ground that it did not broadcast. The Commissioner, however, held against the appellant. The matter was carried before the Commissioner of Income Tax (Appeals) and during pendency of appeal the Finance Act, 2001 was amended by the Finance Act, 2002. The effect of amendment, inter alia, was to make an agent, such as the appellant, before the Supreme Court, liable to pay service tax as broadcaster. 19. The Supreme Court noted that the Appellants' appeal pending before the Commissioner was rejected by him on the basis of this amendment. The tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X
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