Commissioner Of Income Taxchennai v. M/S.saint Gobain Glass India Ltd.,Plot No.a1,Sipcot Industrial Park,Sriperumbudur 601 106

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM: THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE R.SURESH KUMAR Tax Case (Appeal) No.8 of 2013 Commissioner of Income TaxChennai ...Appellant /Respondent Vs. M/s.Saint Gobain Glass India Ltd.,Plot NO.A1,SIPCOT Industrial Park,Sriperumbudur 601 106. ...Respondent/Appellant Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax AppellateTribunal, 'C' Bench, Chennai, dated 18.05.2012 in ITANo.276/Mds/2012,against the Order passed by the Commissioner ofIncome Tax (Appellate), Chennai, made in ITA Tr.No.3/10-11/LTU(A) dated 18/11/2011 and against the the order passed by theAssistant commissioner of Income Tax Company circle VI (1)Chennai-34 made in GIR No./PAN dated 29/12/2009. For Appellant : Mr.T.Ravikumar For Respondent : Mr.Vikram Vijayaragavan for Mr.Subbaraya Aiyar Padmanabhan (Delivered by DR.VINEET KOTHARI, J.) The Revenue has filed this Appeal under Section 260A of theIncome Tax Act calling in question the correctness of the orderpassed by the Income Tax Appellate Tribunal, Chennai “C” Bench,Chennai, dated 18 May 2012, in I.T.A.No.276/MDS/2012, for theAssessment Year 2003-04. 2. The present appeal was admitted by a Coordinate Bench ofthis Court on 6 February 2013 by framing the followingsubstantial Questions of Law for consideration :- 1.Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in holding that https://hcservices.ecourts.gov.in/hcservices/ the reassessment proceedings was bad in lawand consequently cancelling the impugnedorder is proper? 2.Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in applying thejudgment of the Supreme Court in the case ofHCL Comnet Systems and Services Ltd.especially when the amendment to explanation(1) to Section 115JB was brought by Finance(No.2) Act, 2009 with retrospective effectfrom 01.04.2001? 3.Whether the reasoning of the Tribunalis proper by setting aside the impugnedorder especially when there was propermaterial to show that the income had escapedassessment and it was not a change ofopinion? 3. The learned Counsel for the Revenue Mr.T.Ravi Kumarsubmitted that the learned Income Tax Appellate Tribunal haserred in holding that re-assessment made by the AssessingOfficer for the Assessment Year 2003-04 was not justified on theground that amendment of Section 115JB of the Act was brought bythe Finance Act, 2009 with retrospective effect from 1 April2001, by amendment to Explanation-1 to Section 115JB of the Act,which disallowed the “Provision for Bad and Doubtful Debt” forthe purpose of computing Book Profits under section 115JB of theAct for imposition of tax. He submitted that though reassessmentnotice under Section 148 of the Act was issued for theAssessment year 2003-04 on 31 March 2008 and the Explanation-1to Section 115JB of the Act was amended by the Finance Act 2009,but since it was given retrospective effect with effect from 1April 2001, the deduction of the said “Provision for Bad andDoubtful Debt” in the subject case to the extent ofRs.1,49,46,022/- was justified and therefore, the order of theAppellate Tribunal deserves to be interfered with and theQuestions of Law have to be decided against the Assessee. 4. Per Contra, the learned counsel for the AssesseeMr.Vikram Vijayaragavan submitted that the decision of theHon'ble Supreme Court in the case of Commissioner of Income Taxvs. HCL Comnet Systems & Services Ltd., (2008) 305 ITR 0409delivered on 23 September 2008 has in clear terms stated thatthe provision made for bad and doubtful debts can be added backto the net profit only if clause (c) of the Explanation toSection 115JA stands attracted and therefore, on the date when 4. Per Contra, the learned counsel for the AssesseeMr.Vikram Vijayaragavan submitted that the decision of theHon'ble Supreme Court in the case of Commissioner of Income Taxvs. HCL Comnet Systems & Services Ltd., (2008) 305 ITR 0409delivered on 23 September 2008 has in clear terms stated thatthe provision made for bad and doubtful debts can be added backto the net profit only if clause (c) of the Explanation toSection 115JA stands attracted and therefore, on the date when https://hcservices.ecourts.gov.in/hcservices/ the amended reassessment notice under section 147/148 of the Actwas issued by the Assessing Authority on 31 March 2008, theSupreme Court's decision in HCL Comnet Systems & Services Ltd.held the field and therefore, the learned Assessing Officercould not take a contrary view for disallowing the bad anddoubtful debt and therefore, the learned Income Tax AppellateTribunal was justified in setting aside the said impugnedassessment order. 5. The learned counsel further submitted that even on theallowability on the merits of the “Provision for Bad andDoubtful Debt”, the Hon’ble Supreme court in Vijaya Bank vs.Commissioner of Income Tax & Anr, (2010) 323 ITR 166 has heldthat if the provision for bad and doubtful debt is created byway of debit to the Profit and Loss Account, then such deductionis a lawful deduction for the purpose of Section 36(1) (vii) ofthe Act. Similarly, the same would be a lawful deduction fortax provided under Section 115JA of the Act. 6. The learned Counsel further relied upon a judgment ofthe Bombay High court in Rallis India Ltd. vs. AssistantCommissioner of Income Tax and Anr. (2010) 323 ITR 54, which hasalso been referred to and relied upon by the learned Income TaxAppellate Tribunal in its order, and submitted that merelybecause amendment to Explanation-1 to Section 115JB of the Actwas brought in later on in 2009, with retrospective effect from1 April 2001, it would not ipso facto be justified for issuanceof reassessment notice under Section 147/148 of the Act on 31March 2008. He further submitted that the learned Income TaxAppellate Tribunal was justified in holding that thereassessment in the present case was not justified. 7. Having heard the learned counsel for the parties, we aresatisfied that there is no merit in the present appeal filed bythe Revenue for the following reasons :- (a) The Hon’ble Supreme Court in HCL Comnet Systems &Services Ltd., supra had held as under:-Company – book profit underSection 115JA – Provision fordoubtful debts – provision for badand doubtful debts can be addedback to the net profit only ifitem (c) of the Explanation toSection 115JA stands attrackted –Item (c) deals with amount setaside as provision made formeeting liabilities other than–ascertainedliabilitiesProvision for bad and doubtful debts is made to cover up theprobable diminution in the valueof asset i.e. Debt receivable bythe assessee – such a provisioncannot be said to be a provisionfor liability – therefore, item(c) of the explanation is notattracted and the provision fordoubtful debts cannot be addedback under clause (c) of theExplanation. debts is made to cover up theprobable diminution in the valueof asset i.e. Debt receivable bythe assessee – such a provisioncannot be said to be a provisionfor liability – therefore, item(c) of the explanation is notattracted and the provision fordoubtful debts cannot be addedback under clause (c) of theExplanation. Held :-For the purposes of Section115JA, the AO can increase the netprofit determined as per the P&La/c prepared as per Parts II andIII of Sch.VI to the Companies Actonly to the extent permissibleunder the Explanation thereto. Thesaid Explanation has provided sixitems, i.e. Item nos.(a) to (f)which if debited to the P&L A/ccan be added back to the netprofit for computing the bookprofit. The provision for bad anddoubtful debt can be added back tothe net profit only if item (c)stands attracted. Item (c) dealswith amount(s) set aside asprovisionmadeformeetingliabilities,otherthanascertainedlibailities.Theassessee's case would, therefore,fall within the ambit of item (c)only if the amount is set aside asprovision; the provision is madefor meeting a liability; and theprovision should be for other thanascertained liability, ie., itshould be for an unascertainedliability. In other words, all theingredients should be satisfied toattractitem(c)oftheExplanation to s.115JA. Item (c)is however not attracted in thiscase. The provision for bad anddoubtful debt is made to cover upthe probable diminution in thevalue of asset, i.e. Debt which isan amount receivable by the assessee. Therefore,suchaprovision cannot be said to be aprovision for liability, becauseeven if a debt is not recoverable,not liability could be fastenedupon the assessee. In the presentcase, the debt is the amountreceivable by the assessee and notany liability payable by theassessee and, therefore, anyprovisionmadetowardsirrecoverability of the debtcannot be said to be a provisionfor liability. Therefore, item (c)of the explanation is notattracted to the facts of thepresentcase.Inthecircumstances, the AO was notjustified in adding back theprovision for doubtful debts undercl.(c) of the explanation tos.115JA – CIT Vs HCL ComnetSystems & Services Ltd. (2008)2019 CTR (Del) 226 Affirmed.Conclusion:- Provision for bad and doubtfuldebts being a provision made tocover up the probable diminutionin the value of asset i.e. Debtreceivable by the assessee, itcannot be said to be a provisionfor liability and, therefore, item(c) of the Explanation to S.115JAis not attracted and the provisionfor doubtful debts cannot be addedback under Cl.(c). 8. The aforesaid position of law declared by the Hon’bleSupreme Court made it clear that the “Provision for Bad andDoubtful Debt” was clearly a deductible amount for the purposeof Section 115JA of the Act. This position of law was undoneonly by the Finance Amendment Act, 2009 with retrospectiveeffect from 1 April 2001. But the fact remains that the saidamendment in law was effected in the year 2009 and it was notavailable on the date when the reassessment notice was issued inthe present case on 31 March 2008. 9. Similar issue was dealt with by the Division Bench of theBombay High Court in the case of Rallis India Ltd. and theDivision Bench held that subsequent to the decision of the https://hcservices.ecourts.gov.in/hcservices/ Hon’ble Supreme Court in HCL Comnet Systems & Services Ltd., theParliament stepped in to amend Explanation (1) to Section 115JBby the Finance Act, 2009. But that amendment would not beavailable for the Assessing Authority to exercise the power toreopen the assessment. The Bombay High Court decided RallisIndia Ltd. case on 16 April 2008. The relevant paragraphs 17 and18 of the said judgment are also quoted below for readyreference. 9. Similar issue was dealt with by the Division Bench of theBombay High Court in the case of Rallis India Ltd. and theDivision Bench held that subsequent to the decision of the https://hcservices.ecourts.gov.in/hcservices/ Hon’ble Supreme Court in HCL Comnet Systems & Services Ltd., theParliament stepped in to amend Explanation (1) to Section 115JBby the Finance Act, 2009. But that amendment would not beavailable for the Assessing Authority to exercise the power toreopen the assessment. The Bombay High Court decided RallisIndia Ltd. case on 16 April 2008. The relevant paragraphs 17 and18 of the said judgment are also quoted below for readyreference. 17. Subsequent to the decisionof the Supreme Court in HCL(supra), Parliament stepped in toamend Explanation (1) to Section115JB by the Finance Act of 2009.As a result of the amendment,clause (i) came to be inserted inExplanation (1) so as to providefor the amount or amounts setaside as provision for diminutionin the value of an asset. Thoughthe amendment was made withretrospective effect from 1[st] Apri2001, it was enacted into lawafter the AssessingOfficer hadexercised the power to re open theassessment in the present case byhis notice dated 16[th] July 2008.Consequently, on the date on whichthe Assessing Officer exercisedhis jurisdiction under Section148, the amendment which wasbrought in subsequently by theFinance Act of 2009 was not inexistence. 18. A legislative amendment,though made with retrospectiveeffect has been held not tojustify a recourse to therevisionalpoweroftheCommissioner under Section 26 ofthe Income Tax Act in Commissionerof Income Tax V/s. Max IndiaLimited. Counsel for the Revenuesought to distinguish the judgmentin Max India (supra) on the groundthat it dealt with Section 80HHCand one of the grounds whichweighed with the Supreme Court wasthat the Section had been amendedseveral times. The judgment ofthe Supreme Court cannot be distinguished for the reasons assuggested by the Counsel for theRevenue. The principle which hasbeen laid down in the judgment ofthe Supreme Court cannot beconfined to Section 80HHC. In thatcase, the revisional authority hadsought to exercise its revisionaljurisdiction under Section 263.The exercise of power waschallenged firstly on the groundthattwoviewsontheinterpretation of the provisionwere possible and hence, recoursetoSection263wasnotpermissible. Moreover, the secondground which appears to have beenurged was that the retrospectiveamendmenttothestatutoryprovision in question would nothave a bearing on the correctnessof the recourse to Section 263since on the date on which thepower was exercised by theCommissioner,thelegislativeamendment had not been broughtinto force. The judgment of theSupreme Court notes firstly thaton the date on which theCommissioner passed his order, twoviews on the word “profit” underSection 80HHC were possible andthe provision itself had beenamended on several occasions. Thesecond ground which weighed withthe Supreme Court was that thesubsequent amendment in 2005 ofthe provisions of Section 80HHC,even though retrospective, wouldnot attract the provisions ofSection 263, particularly when theCourt would have to take intoaccount the position of law as itstood on the date when theCommissioner passed his order inpurported exercise of his powersunder Section 263. (d) The allowability of the “Provision for Bad and DoubtfulDebt” for the purpose of Section 36(1)(vii) of the Act was dealt with by the Hon’ble Supreme Court in the case of Vijaya Bank vs.CID (2010) 323 ITR 166, in the following manner.“7. One point needs to be (d) The allowability of the “Provision for Bad and DoubtfulDebt” for the purpose of Section 36(1)(vii) of the Act was dealt with by the Hon’ble Supreme Court in the case of Vijaya Bank vs.CID (2010) 323 ITR 166, in the following manner.“7. One point needs to be clarified. According to ShriBishwajit Bhattacharya, learnedAdditionalSolicitorGeneralappearing for the Department, theview expressed by the Gujarat HighCourt in the case of Vithaldas H.Dhanjibhai Bardanwala [supra] wasprior to the insertion of theExplanation vide Finance Act,2001, with effect from 1st April,1989, hence, that law is no more agood law. According to the learnedcounsel, in view of the insertionof the said Explanation in Section36(1)(vii) with effect from 1stApril, 1989, a mere debit of theimpugned amount of bad debt to theProfit and Loss Account would notamount to actual write off.According to him, the Explanationmakes it very clear that there isa dichotomy between actual writeoff on the one hand and aprovision for bad and doubtfuldebt on the other. He submittedthat a mere debit to the Profitand Loss Account would constitutea provision for bad and doubtfuldebt, it would not constituteactual write off and that was thevery reason why the Explanationstood inserted. According to him,prior to Finance Act, 2001, manyassessees used to take the benefitof deduction under Section 36(1)(vii) of 1961 Act by merelydebiting the impugned bad debt tothe Profit and Loss Account and,therefore, the Parliament steppedin by way of Explanation to saythat mere reduction of profits bydebiting the amount to the Profitand Loss Account per se would notconstitute actual write off. Tothis extent, we agree with thecontentions of Shri Bhattacharya.However, as stated by the Tribunal, in the present case,besides debiting the Profit andLoss Account and creating aprovision for bad and doubtfuldebt,theassessee-Bankhadcorrespondingly/simultaneouslyobliterated the said provisionfrom it's accounts by reducing thecorresponding amount from Loansand Advances/debtors on the assetside of the Balance Sheet and,consequently, at the end of theyear, the figure in the loans andadvances or the debtors on theasset side of the Balance Sheetwas shown as net of the provision"for impugned bad debt". In thejudgement of the Gujarat HighCourt in the case of Vithaldas H.Dhanjibhai Bardanwala [supra], amere debit to the Profit and LossAccountwassufficienttoconstituteactualwriteoffwhereas, after the Explanation,the assessee(s) is now requirednot only to debit the Profit andLoss Account but simultaneouslyalso reduce loans and advances orthe debtors from the asset side ofthe Balance Sheet to the extent ofthe corresponding amount so that,at the end of the year, the amountof loans and advances/debtors isshown as net of provisions forimpugned bad debt. This aspect islost sight of by the High Court init's impugned judgement. In thecircumstances, we hold, on thefirst question, that the assesseewas entitled to the benefit ofdeductionunder Section36(1)(vii) of 1961 Act as there was anactual write off by the assesseein it's Books, as indicated above.8. Coming to the secondquestion, we may reiterate that itis not in dispute that Section 36(1)(vii) of 1961 Act applies bothtoBankingandNon-Bankingbusinesses. The manner in which the write off is to be carried outhas been explained hereinabove. Itis important to note that theassessee-Bank has not only beendebiting the Profit and LossAccount to the extent of theimpugnedbaddebt,itissimultaneously reducing the amountof loans and advances or thedebtors at the year-end, as statedhereinabove. In other words, theamount of loans and advances orthe debtors at the year-end in thebalance-sheet is shown as net ofthe provisions for impugned debt.However, what is being insistedupon by the Assessing Officer isthat mere reduction of the amountof loans and advances or thedebtors at the year-end would notsuffice and, in the interest oftransparency,itwouldbedesirable for the assessee-Bank toclose each and every individualaccount of loans and advances ordebtors as a pre-condition forclaiming deduction under Section36(1)(vii) of 1961 Act. This viewhas been taken by the AssessingOfficer because the AssessingOfficer apprehended that theassessee-Bank might be taking thebenefit of deduction under Section36(1)(vii) of 1961 Act, twiceover. [See Order of CIT (A) atPages 66, 67 and 72 of the PaperBook, which refers to theapprehensions of the AssessingOfficer]. In this context, it maybe noted that there is no findingof the Assessing Officer that theassesseehadunauthorisedlyclaimed the benefit of deductionunder Section 36(1)(vii), twiceover. The Order of the AssessingOfficerisbasedonanapprehension that, if the assesseefails to close each and everyindividual account of it's debtor,it may result in assessee claiming deduction twice over. In thiscase, we are concerned with theinterpretation of Section 36(1)(vii) of 1961 Act. We cannotdecide the matter on the basis ofapprehensions/desirability. It isalways open to the AssessingOfficer to call for details ofindividual debtor's account if theAssessing Officer has reasonablegrounds to believe that assesseehas claimed deduction, twice over.In fact, that exercise has beenundertaken in subsequent years.There is also a flip- side to theargumentoftheDepartment.Assessee has instituted recoverysuits in Courts against it'sdebtors. If individual accountsare to be closed, then theDebtor/Defendant in each of thosesuits would rely upon the Bankstatement and contend that noamount is due and payable in whichevent the suit would be dismissed. 10. In view of the aforesaid settled legal position,reference to the judgments on the side of the learned counselfor the Revenue to CIT Vs. Tamil Nadu Small IndustriesDevelopment, (2015) 370 ITR 449, Commissioner of Income Tax vs.ILPEA Paramount (P)Ltd., (2010) 78 CCH 192 Delhi HC and DeputyCommissioner of Income Tax vs. Beardsell Ltd., (2000) 244 ITC256, are of little help to the Revenue because they do not dealwith the question relating to reassessment on the basis of theretrospective amendment effected in Explanation-1 to Section115JB of the Act. 11. Therefore, we are of the clear opinion that the issueraised by the Revenue in this appeal was not at all in issue,when the reassessment notice for the assessment year 2003-04 wasissued on 31 March 2008 for disallowing the “Provision for Badand Doubtful Debt” to the extent of Rs.1,49,46,022/-. Merelybecause the law came to be amended in 2009, when suchreassessment proceedings were pending before the AssessingAuthority, the Assessing Authority could not be held justifiedretrospectively in issuing the reassessment notice on 31 March2008. It is well settled legal position that even otherwise,reassessment cannot be initiated on a mere change of opinion.The relevant particulars and details on the basis of which suchclaim was made by the Assessing authority for the assessment https://hcservices.ecourts.gov.in/hcservices/ https://hcservices.ecourts.gov.in/hcservices/ year 2003-04 were very much available at the time of originalassessement order passed by the Assessing Authority on 10 March2006. Therefore, on 31 March 2008, the learned AssessingAuthority could not have issued the imgpuned reassessmentnotice. Therefore, in our opinion, the learned Income TaxAppellate Tribunal was justified in holding that thereassessment in the present case was without any reason andtherefore, it is liable to be quashed and set aside. 12. It is not the case of the Revenue that reassessmentproceedings were initiated after the amendment of law. They wereadmittedly initiated on 31 March 2008, and as on that date, thejudgment of the Supreme Court in the case of HCL Comnet Systems& Services Ltd., which was delivered on 23 September 2008, washolding the field. 13. Therefore, in our opinion, the Questions of Law framedabove deserve to be answered against the Revenue and in favourof the Assessee and we hereby do so. 14. In the result, the appeal filed by the Revenue deservesto be dismissed and the same is accordingly dismissed. No costs. Sd/- Assistant Registrar(CS VI) //True Copy// Sub Assistant Registrar To 1. The Income Tax Appellate Tribunal, 'C' Bench, Chennai 2. The Commissioner of Income Tax (Appeals), Chennai. 3.The Assistant Commissioner of Income Tax Company Circle VI (1), Chennai-34. Chennai-34. +1cc to Mr.T.Ravikumar, Advocate Sr.101055+1cc to M/s.Subbaraya Aiyar, Advocate Sr.100692 T.C.(A) No.8 of 2013 bs[co]srg 22/01/2020