ITAT DELHI BENCH ‘B’
Eastern India Power tech Ltd.
versus
Additional Commissioner of Income-tax
IT Appeal Nos. 4463 (Delhi) of 2009 & 192 & 4471 (Delhi) of 2010
[ASSESSMENT YEARS 2005-06 TO 2007-08]
NOVEMBER 9, 2012
ORDER
B.C. Meena, Accountant Member
These three appeals emanate from the three orders of CIT (A) dated 02.09.2009 for Assessment Year 2005-06, dated 03.11.2009 for Assessment Year 2006-07 and dated 10.08.2010 for Assessment Year 2007-08. Grounds of appeal are same except difference in figures of addition, hence, being decided by this common order.
2. The grounds of appeal in ITA No. 4463/Del/2009 for Assessment Year 2005-06 read as under :-
“1. That the CIT(A) has erred on facts and in law in confirming the order of the assessing officer, assessing the income of the appellant at Rs. 19,25,37,634 under section 115JB of the Income-tax Act, 1961 (the Act), against income of Rs. 7,33,22,716 declared by the appellant under that section.
2. That the CIT(A) has erred on facts and in law in confirming the order of the assessing officer making addition of provision for doubtful debts amounting to Rs. 11,92,14,918, while computing ‘book profits’ under section 115JB of the Act.
2.1 That the CIT(A) has erred on facts and in law in confirming the addition of Rs. 11,92,14,918 without appreciating that clause (i) of Explanation 1 to section 115JB of the Act was not applicable since the provision made by the appellant was not ‘provision for diminution in value of any asset.’
2.2 That the CIT(A) erred in observing that there is no dispute regarding calculation of ‘book profit’ under section 115JB of the Act.
3. That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in charging interest under section 234B of the Act.
3.1 That the CIT(A) erred in not deleting interest levied under section 234B of the Act, instead directing that the appellant should file waiver petition before CIT instead of.
The appellant craves leave to add, alter, amend or vary from the aforesaid grounds of appeal at or before the time of hearing.”
3. In all these appeals, common issue involved against sustaining addition made on account of provision for doubtful debts u/s 115JB and charging the interest u/s 234B of the Income-tax Act, 1961.
4. The assessee company is engaged in the business of generation of power and executing turnkey power plants as an Engineering, Procurement and Construction (EPC) Contractors. The company has entered into power purchase agreements with Coal India Ltd. and Assam State Electricity Board to build, own, operate and maintain power plants. The assessee has made provision for bad and doubtful debts which was not added to the profit as per the profit and loss account for computing book profit u/s 115JB of the Act. In Assessing Officer’s contention, this was a provision for an unascertained liability as litigation was going on between the assessee and CCL over the power tariff. It was also held that provision for doubtful debits is also covered by the amendment in the Act by the Finance Act, 2009 Clause (i) of Explanation 1 to section 115JB which has been made effective from 01.04.2001. In the Assessment Year 2005-06, the CIT(A) has decided the issue against the assessee by holding as under :-
“During the appellant proceedings, the appellant company, made the written submissions vide its letter dated 27-8-2009 as under:
“In fairness, it was further pointed out during the course of hearing on 18-8-2009 and also in the supplementary submissions filed on that date that in view of recent insertion of clause (i) in Explanation 1 to section 115JB of the Act by the Finance (No.2) Act, 2009 w.r.e.f. 1-4-2001 the aforesaid issue is prima facie, covered against the appellant.
It may, in this regard, be further pointed out that the management of the appellant is, however, still advised that despite the aforesaid amendment by way of insertion of clause (i) in Explanation 1 to section 115JB of the Act, provisions for bad and doubtful debts debited by the appellant to the profit and loss account cannot be adjusted since the same could not be regarded as ‘provisions for diminution in the value of an asset’. The management is also seeking further legal advise in the matter and is also contemplating challenging the validity of the aforesaid retrospective amendment in law.
After going through the assessment order and appellant’s written submissions and Finance Act, 2009 which become part of I.T. Act, 1961 it is quite clear that on account of retrospective amendments to section 115JB, there is no dispute regarding calculation of book profit u/s 115JB as far as provisions for doubtful debts are concerned. For the sake of clarity the amendment is reproduced as below
“(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 15 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 substituted with effect from the 1st day of April, 2001, namely:-
(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,-“.
Therefore, on account of above reasons this ground of appeal is dismissed and issue is decided in favour of revenue.”
5. While pleading on behalf of the assessee, Ld. AR submitted that assessee is a public limited company engaged in the business of generation of power and executing turnkey projects. The assessee had made provision for the financial year 2004-05 relevant to Assessment Year 2005-06 for bad and doubtful debts amounting to Rs. 11,92,14,918/-.
Project-wise details are as under :-
