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2015 (7) TMI 493 - ITAT BANGALORE

2015 (7) TMI 493 - ITAT BANGALORE - TMI - Addition of Provision for doubtful debts and the provision for loss of assets required to be added back to the book profit as required under section 115JA - CIT(A) deleted the addition - Held that:- CIT(A) had followed the judgment of the Hon’ble Supreme Court in the case of HCL Comnet Systems & Services Ltd.(2008 (9) TMI 18 - SUPREME COURT ) to hold that the provision made for bad and doubtful debts cannot be added back in computing book profits u/s 115 .....

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isdictional High Court in the assessee’s own case for the earlier assessment year. Therefore we set aside the issue to the file of the AO for verification of the accounts and for re-computation. It is further observed that the ground raised by the revenue is that the assessee itself has added the said sum in its computation sheet. According to us this is not relevant as the assessee had added the said amount in the regular computation and not under the computation u/s 115JA of the Act - Decided .....

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ot in the computation u/s 115J of the Act. We find that the decision of the jurisdictional High Court in the assessee’s own case applies to this ground also. Therefore, for the reasons given above, this issue also is set aside to the file of the AO for verification as directed the jurisdictional High Court. - Decided in favour of revenue for statistical purposes.

Interest u/s 244A - Held that:- Section 244 refers to the liability fastened on the Central Government in case of failure t .....

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our of assessee.

- ITA Nos.1700 to 1704/Bang/2013 - Dated:- 30-6-2015 - Smt. P. Madhavi Devi and Shri Abraham P George, JJ. For the Petitioner : Shri Farhat Hussain Qureshi, CIT(DR) For the Respondent : Smt. Lalitha Rameswaran. ORDER Per BENCH : All these are revenue s appeals for the assessment years 1990-91, 2004-05 to 2007-08 respectively. Since the issues involved are common, all the appeals are heard together and this common and consolidated order is passed hereunder for the sake .....

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CIT(A). The Assessing Officer (AO), while giving effect to the said order of CIT(A) had made various adjustments against which the present appeal has been filed. The various issues involved in this appeal are discussed as under. 3. ITA No.1700/Bang/2003 (Assessment year 1990-91): The Revenue has raised as many as 8 grounds of appeal. Ground Nos.1, 7 and 8 are general in nature and therefore, need no adjudication. Ground of appeal No.2 is that the CIT(A) failed to appreciate that the assessee its .....

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above amount represented provision made for diminution in the value of an asset. However, AO added the same to the book profits u/s 115J of the Act against which the assessee preferred an appeal before the CIT(A) stating that the same cannot be added back to the book profit, as there is no provision in the explanation requiring such addition. The assessee relied upon the judgment of the Hon ble Apex Court in the case of HCL Comnet Systems and Services Ltd. (305 ITR 409). It was further contended .....

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dered the facts of the case and the submissions made by the appellant. As submitted by the AR, the Hon ble Supreme Court in the case of HCL Comnet Systems and Services Ltd. (supra) had held that the provision made towards bad and doubtful debts cannot be added back in computing the book profits. Even though an amendment was made by Finance (No.2) Act, 2009, with retrospective effect from 01/04/2001, that the provision made for diminution in the value of an asset will not be allowed as deduction, .....

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given by the CIT(A), the revenue is in appeal before us. 5. The learned Departmental Representative supported the orders of the AO giving effect to the orders of the CIT(A), while the assessee has relied upon the order of the CIT(A) and also the decision of the jurisdictional High Court in the assessee s own case for the assessment year 1999-2000. On a perusal of the judgment of the Hon ble High Court in ITA No.1041 of 2008 dated 14/10/2014, we find that the Hon ble High Court has set aside the .....

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s of Explanation to section 115JA of the Act, in particular clauses (c) and (g) 4. This Court had an occasion to consider the said question in the case of Commissioner of Income-tax -vs- Yokogawa India Ltd., reported in (2012) 204 Taxman 305 wherein it was held as under:- In the present case, the debt is an 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 li .....

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made which is in the nature of diminution in the value of any asset would not fall within item (c) of Explanation (i). It is in that context the CIT(A) as well as the Tribunal has granted relief to the assessee, Realizing the fatality of the said argument, it is contended now that Item (i) cannot amount to satisfaction as provision for diminishing in the value of assets is substituted, in case of the assessee falls under Item (c). In meeting the aforesaid case, the learned counsel for the asses .....

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itute actual write off and that was the very reason why the explanation stood Inserted. Prior to the Finance Act, 2001 many assessees used to take the benefit of deduction under s. 36(1)(vii) of the 1961 Act by merely debiting the impugned bad debt to the profit and loss account and, therefore, the Parliament stepped in by way of Explanation to say that a mere reduction of profits by debiting the amount to the profit and loss account per se would not constitute actual write off. The apex Court a .....

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net of the provision for the impugned bad debt. Then the said amount representing bad debt or doubtful debt cannot be added in order to compute book profit. Therefore, after the Explanation the assessee is now required not only to debit the P&L as/c but simultaneously also reduce the loans and advances or the debtors from the assets side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of .....

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dgment it is clear if the bad debt or doubtful debt is reduced from the loss and advances from the debtors on the assets side of the balance sheet, the Explanation to section 115JA or 115JB of the Act is not at all attracted. If it is not reduced, section 115JA of the Act is attracted. It is purely a question of fact. From the material on record it is not possible to make out whether the aforesaid bad and doubtful debts are reduced from the loss and advances of the debtors from the assets side o .....

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answered. 5. Accordingly, we pass the following ORDER i) Appeal is partly allowed. ii) Impugned orders passed by both the Appellate Authorities are set aside and the matter is remitted back to the First Appellate Authority for fresh consideration in the light of the judgment and pass appropriate orders. We find that the CIT(A) had followed the judgment of the Hon ble Supreme Court in the case of HCL Comnet Systems & Services Ltd.(305 ITR 409) to hold that the provision made for bad and doub .....

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the light of the judgment of the Hon ble jurisdictional High Court in the assessee s own case for the earlier assessment year. Therefore, respectfully following the decision of the jurisdictional High Court in the assessee s own case, we set aside the issue to the file of the AO for verification of the accounts and for re-computation in accordance with the directions of the Hon ble High Court of Karnataka. It is further observed that the ground raised by the revenue is that the assessee itself .....

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T(A), assessee had submitted that the said amount represented exchange loss on account of exchange fluctuation relating to the assets and liabilities of its London branch and therefore the above loss has been incurred in the normal course of carrying on business and further that in the absence of any provision in the Explanation to sec.115J, the same cannot be added in computing the book profits. The CIT(A) holding that the addition can be made only of the items provided for under the Explanatio .....

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ounsel for the assessee advanced the same arguments as in the case of the provisions made for bad and doubtful debts and it is stated that the assessee had added the said amount in its computation sheet under the regular computation and not in the computation u/s 115J of the Act. We find that the decision of the jurisdictional High Court in the assessee s own case applies to this ground also. Therefore, for the reasons given above, this issue also is set aside to the file of the AO for verificat .....

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s contended that where there was a refund due to the assessee together with interest and a part of the said refund was granted, the entire refund granted was adjusted against the tax refund due leaving aside the interest due on such refund for which no further interest was granted. It was argued that on the contrary where there was a demand due and a portion of the same had been paid by the assessee, the department first adjusts the amounts paid against interest and thereafter against the tax du .....

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efund granted which also had resulted in the difference in interest. It was submitted that as per the clear provisions of rule 119A, the AO ought to have granted interest for the month of payment/adjustment of tax/granting of refund also. The AR also submitted that this issue was decided in favour of the assessee in CIT(A) s order in 47/UDP/CIT(A)/MNG/11-12 dated 20/12/2012. 8. The CIT(A) held as under: 6.3 I have carefully considered the facts of the case and the submissions made by the appella .....

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or this purpose may take into consideration the working furnished by the appellant along with the grounds of appeal and a copy of which may be furnished by the appellant to the AO. 6.4 With regard to the contention of the appellant that interest is to be granted for the month of payment/adjustment of tax/granting of refund. I had in my order cited supra held that as per the provisions of Rule 119A, interest is to be granted for the month of payment/refund of tax. The AO is accordingly directed t .....

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the Apex Court in the case of CIT vs. Gujarat Fluoro Chemicals reported in 358 ITR 291 (SC). The learned counsel for the assessee, on the other hand, submitted that the judgment of the Hon ble Supreme Court in the case of Sandvik Asia Ltd., (cited supra) was on sec.214 and not on sec.244A of the Act. He therefore submitted that the said judgment may not be applicable to the facts of the case before us. However, he relied upon the judgment of the Hon ble Supreme Court in the case of CIT vs. HEG .....

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also filed before us. The earned counsel for the assessee has also filed copies of the orders giving effect to the order of the CIT(A) wherein we find that the AO has granted relief to the assessee. 9. Having regard to the rival contentions, we find that the assessee had claimed interest u/s 244A of the Act on refund due to the assessee. The CIT(A) had relied upon the judgment of the Apex Court in the case of Sandvik Asia Ltd., (cited supra) which has been set aside by the larger bench of the A .....

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ex Court in the case of Gujarat Fluoro Chemicals (cited supra) wherein taking note of the insertion of sec.244A of the Act by the Finance Act 4 of 1988 which clarified that it was only that interest provided for under statute which may be claimed by an assessee from revenue and no other interest on such statutory interest, the Hon ble Court held that the decision in the case of Sandvik Asia Ltd., (cited supra) was misquoted and misinterpreted by the assessees and also the revenue. It was submitt .....

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urt in the case of HEG Ltd. (cited supra). Before applying the said judgment to the case before us, the provision of sec.244A is reproduced hereunder for ready reference: 244A. (1) Where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely:- (a) where the refund is out of any tax paid under section 115WJ or col .....

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etermined under sub-section (1) of section 115WE or sub-section (1) of section 143 or on regular assessment; ......................................... It can be seen that the sub-section starts with the phrase where refund of any amount becomes due to the assessee . Therefore, it is necessary to understand the amount due to the assessee . The Hon ble Apex Court in HEG Ltd. (cited supra) has considered the meaning of the above words and has held as under: 5. In the synopsis to the civil appeal ar .....

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,528. The tax paid after original assessment was ₹ 1,71,00,320. The total of TDS amounting to ₹ 45,73,528 plus tax paid after original assessment of ₹ 1,71,00,320 stood at ₹ 2,16,73,848. In other words, the total tax paid had two components, viz., TDS + tax paid after original assessment. The respondent was entitled to the refund of ₹ 2,16,73,848 (consisting of ₹ 1,71,00,320 and ₹ 45,73,523 which payment was made after 57 months and which is the only ite .....

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to the assessee" in s. 244A ? In the present case, as stated above, there are two components of the tax paid by the assessee for which the assessee was granted refund, namely, TDS of ₹ 45,73,523 and tax paid after original assessment of ₹ 1,71,00,320. The Department contends that the words "any amount" will not include the interest which accrued to the respondent for not refunding ₹ 45,73,528 for 57 months. We see no merit in this argument. The interest component .....

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onths on ₹ 45,73,528. The principal amount of ₹ 45,73,528 has been paid on 31st Dec., 1997 but net of interest which, as stated above, partook the character of "amount due" under s. 244A. 10. For the aforestated reasons, the civil appeal arising out of SLP (C) No. 18045 of 2008 filed by the Department fails and is dismissed, with no order as to costs. We find that the above judgment as well as the judgments in the case of Sandvik Asia Ltd., (cited supra) and Gujarat Fluoro .....

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but in reality payment of interest on the said amount occurs because of non-payment of the total amount refundable, which is due and payable to the assessee, inter alia, consisting of the tax, which had to be refunded and the interest accrued on the delayed refund of the tax. It is not uncommon and in the commercial world and even in civil suits while computing interest under Section 34 of the Code of Civil Procedure, 1908 the principal amount and the interest due are added and treated as the p .....

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whether under the Act, interest is payable. Section 244A with effect from 1st April, 1989 reads as under:- Interest on refunds. 244A. (1) Where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely:- (a) where the refund is out of any tax paid under section 115WJ or collected at source under section 206C or pai .....

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115WE or sub-section (1) of section 143 or on regular assessment; (b) in any other case, such interest shall be calculated at the rate of one-half per cent for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of the tax or penalty to the date on which the refund is granted. Explanation.-For the purposes of this clause, date of payment of tax or penalty means the date on and from which the amount of tax or penalty specified .....

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a result of an order under sub- section (3) of section 115WE or section 115WF or section 115WG or sub-section (3) of section 143 or section 144 or section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount on which interest was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be incr .....

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1st day of April, 1989, and subsequent assessment years: Provided that in respect of assessment of fringe benefits, the provisions of this sub-section shall have effect as if for the figures 1989 , the figures 2006 had been substituted. 9. The words used in the Section 244A are where refund of any amount becomes due and payable to the assessee under the Act , the assessee shall be entitled to receive in addition to the said amount simple interest calculated in the manner stipulated. The Legisla .....

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on the balance outstanding amount. The balance outstanding amount may consist of the tax paid or the interest, which is payable till the payment of the part amount and interest payable on the principal amount, which remained outstanding thereafter. 10. The Delhi High Court in the case of Commissioner of Income Tax versus Goodyear India Limited, 2001 (249) ITR 527 (Delhi) had occasion to examine the earlier provisions of refund under Sections 240 and 244 of the Act and had observed as under:- Sec .....

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peal or other proceedings under this Act, refund of any amount becomes due to the assessee, the Assessing Officer shall, except as otherwise provided in this Act, refund the amount to the assessed without his having to make any claim in that behalf. The crucial expressions in Section 240 are "any amount which becomes due to the assessee as a result of any order passed in any appeal or other proceedings under the Act" and the "amount becomes due to the assessee". Section 244 r .....

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s of an order passed under Section 240 of the Act. Merely because this was inclusive of an amount which was payable under Section 214 of the Act, that would not make the position any different. It is an amount which became due to the assessee on the basis of the appellate order. Therefore, the assessee was entitled to interest in terms of Section 244 of the Act. A similar view has been taken by the Gujarat High Court in D. J. Works v. Deputy CIT (1992) 195 ITR 227and Chiman Lal S. Patel v. CIT ( .....

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id refund. Recently in Motor and General Finance Limited versus Commissioner of Income Tax and other cases reported in (2010) 320 ITR 88 (Delhi) reference was made to the decision of the Supreme Court in Sandvik Asia Limited versus CIT, (2006) 280 ITR 643 (SC) and Narendra Doshi (supra) and it was observed as under:- 20. It is, thus, manifest that at both the stages, namely, while passing intimation under Section 143(1)(a) of the Act, refund along with interest under Section 244A was given of th .....

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calculated as per Section 244 of the Act. If that interest is paid along with the excess tax, no further payment is to be made. It is only when the excess amount of tax is refunded but the interest is not refunded along therewith, the retention of interest amount would become unjustified and interest on interest would also become payable. The reason is simple. It is the tax which was paid in excess by the assessee which became refundable. The assessee would be compensated by paying interest the .....

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issioner of Income Tax and Another, (2010) 329 ITR 69 (P&H) and Gujarat High Court in Commissioner of Income Tax versus Hynoup Food and Oil Industries Limited, (2010) 320 ITR 365 (Guj.) and Gujarat Flourochemicals Limited versus Commissioner of Income Tax and Others, (2008) 300 ITR 328 (Guj.). The said cases refer to the principle of compensation when money, which is due and payable and refundable, is not paid. 13. Madhya Pradesh High Court had the occasion to deal with the similar issue in .....

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of the Supreme Court in Narender Doshi (supra) and Sandvik Asia Limited (supra). Decision of the Madras High Court in CIT versus Needle Industries Private Limited, (1998) 233 ITR 370 (Mad) reflected upon and it was held that the words or the phrase any amount would include the amount refundable plus the interest due and payable on the tax amount refunded. Thus, in view of the express provisions of Section 244A, interest was directed to be paid by the Revenue. 14. Matter was taken by the Revenue .....

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ue to the assessee in Section 244A? In the present case, as stated above, there are two components of the tax paid by the assessee for which the assessee was granted refund, namely TDS of ₹ 45,73,528 and tax paid after original assessment of ₹ 1,71,00,320. The Department contends that the words any amount will not include the interest which accrued to the respondent for not refunding ₹ 45,73,528 for 57 months. We see no merit in this argument. The interest component will partak .....

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on ₹ 45,73,528/-. The principal amount of ₹ 45,73,528 has been paid on December 31, 1997 but net of interest which, as stated above, partook of the character of amount due under Section 244A. 15. A reading of the aforesaid passage from the decision of the Supreme Court in HEG Limited (supra) indicates that it would be incorrect and improper to regard payment of interest when part payment is made as interest on interest. What has been elucidated and clarified by the Supreme Court is t .....

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effect from 1st April, 2010, the said amount is refunded along with interest due and payable under Section 244A on 31st March, 2013, then no further interest is payable. However, if only ₹ 1 lac is refunded by the Revenue on 31st March, 2013 and the interest accrued on ₹ 1 lac under Section 244A is not refunded, the Revenue would be liable to pay interest on the amount due and payable but not refunded. Interest will not be due and payable on the amount refunded but only on the amount .....

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arch, 2013 and on this amount, i.e., interest amount quantified, Revenue would be liable to pay interest under Section 244A till payment is made. 16. The aforesaid manner of computation is not only applicable to cases where Revenue has to pay interest on refund, but is equally applied when an assessee is in default and interest is payable under Section 220(2) of the Act. Interest payable under Section 234B and 234C become part of the demand notice issued under Section 156 and it is on this amoun .....

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owards the tax payable. The interpretation given by us follows the same principle, when Revenue defaults and makes part payment of the amount refundable. The aforesaid interpretation also ensures that the Assessing Officer/Revenue refund the entire amount, which is due and payable, including interest payable under Section 244A. It discourages part payment. There is no other provision under the Act under which an Assessing Officer/Revenue can be made liable to pay interest when part payment is ma .....

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