M/s. VINATI ORGANICS LTD., MUMBAI V. ACIT Rg. 8(3), MUMBAI

CO 23/MUM/2006

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 4935 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 15 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 25-05-2010
• Assessment Year: 1997-1998
• Appeal Filed On: 08-02-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRENDRA OJHA
• Assessee Lawyers: SHRI
• Keywords: Business income; Depreciation; Additional evidence; Bad and doubtful debts
• Section: 80HHC; 32; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI R.K. PANDA (AM) AND SMT. ASHA VIJAYARA GHAVAN (JM) ITA NO. 4844/MUM/2005 ASSESSMENT YEAR-1997-98 THE ACIT, RANGE 8(3), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. VINATI OGRANICS LTD., SHIV ASHISH, IIND FLOOR, ANDHERI KURLA ROAD, SAKINAKA, ANDHERI(E), MUMBAI (APPELLANT) (RESPONDENT) C.O. NO. 23/MUM/2006 (ARISING OUT OF ITA NO. 4844/MUM/2005) ASSESSMENT YEAR-1997-98 M/S. VINATI OGRANICS LTD., SHIV ASHISH, IIND FLOOR, ANDHERI KURLA ROAD, SAKINAKA, ANDHERI(E), MUMBAI VS. THE ACIT, RANGE 8(3), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) ITA NO. 4351/MUM/2005 ASSESSMENT YEAR-1999-2000 THE ACIT, RANGE 8(3), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. VINATI OGRANICS LTD., SHIV ASHISH, IIND FLOOR, ANDHERI KURLA ROAD, SAKINAKA, ANDHERI(E), MUMBAI (APPELLANT) (RESPONDENT) ITA NO. 4174/MUM/2005 ASSESSMENT YEAR-1999-2000 M/S. VINATI OGRANICS LTD., SHIV ASHISH, IIND FLOOR, ANDHERI KURLA ROAD, SAKINAKA, ANDHERI(E), MUMBAI VS. THE ACIT, RANGE 8(3)(4), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) ITA NO. 3457/MUM/2004 ASSESSMENT YEAR-2000-01 VINATI ORGANICS LTD., 2 M/S. VINATI OGRANICS LTD., SHIV ASHISH, IIND FLOOR, ANDHERI KURLA ROAD, SAKINAKA, ANDHERI(E), MUMBAI VS. THE ACIT, RANGE 8(3)(4), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI VIRENDRA OJHA ASSESSEE BY: SHRI PANKAJ TOPRANI & SHRI SUNIL HIRAWAT O R D E R PER BENCH THESE APPEALS AND CROSS APPEAL ARE PREFERRED BY THE REVENUE AND THE ASSESSEE AGAINST THE RESPECTIVE ORDERS OF THE L D. CIT(A). SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEALS, WE HEA RD THESE APPEALS TOGETHER AND PREFERRED TO ADJUDICATE THEM BY THE SI NGLE CONSOLIDATED ORDER. ITA NO. 4844/M/2005- A.Y. 1997-98 2. THE FIRST GROUND RAISED BY THE REVENUE READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION OF RS. 83 ,43,260/- BEING THE EARLIER YEARS DEPRECIATION FOR THE PURPOS E OF COMPUTING 30% OF THE BOOK PROFIT UNDER SPECIAL PROV ISIONS OF SEC. 115JA WITHOUT APPRECIATING THE FACTS OF THE CA SE. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE DURI NG THE YEAR HAS DEBITED AN AMOUNT OF RS. 83,43,260/- ON ACCOUNT OF EARLIER YEARS DEPRECIATION ON PLANT AND MACHINERY. HOWEVER, WHIL E COMPUTING BOOK PROFITS U/S. 115JA, THE ASSESSEE HAS NOT ADDED BACK THE AFORESAID DEPRECIATION FOR EARLIER YEARS. WHEN AO PROPOSED T O ADDED THE AFORESAID DEPRECIATION, THE ASSESSEE STATED BEFORE THE AO THA T COMPANY HAD PREPARED ITS PROFIT AND LOSS ACCOUNT STRICTLY IN AC CORDANCE WITH THE VINATI ORGANICS LTD., 3 PROVISIONS OF PART II AND PART III OF SCH-VI TO THE COMPANIES ACT, 1956 WHICH CORRESPONDS TO THE PROVISIONS OF SUB-SEC. (2) OF SEC. 115JA. THE ASSESSEE STATED THAT THE ONLY CONDITION WITH REGAR D TO DEPRECIATION IN SUB-SEC. (2) OF SEC. 115JA IS THAT THE DEPRECIATIO N SHALL BE CALCULATED ON THE SAME METHOD AND RATES WHICH HAVE BEEN ADOPTED F OR CALCULATING THE DEPRECIATION FOR THE PURPOSE OF PREPARING THE PROFI T AND LOSS ACCOUNT LAID BEFORE THE COMPANY AT ITS ANNUAL GENERAL MEETING (A GM) IN PROVISIONS OF SEC. 210 F THE COMPANIES ACT, 1956. SINCE THE ASSES SEE HAS FULFILLED THE CONDITIONS MENTIONED ABOVE, AO HAS NO JURISDICTION TO RECAST THE PROFIT AND LOSS ACCOUNT FOR THE PURPOSE OF SEC. 115JA. TH E ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF APOLLO TYRES LTD. VS CIT 255 UTR 273, 274(SC). THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF CIT(A)-XXV IN I TS OWN CASE FOR A.TY. 1998-99 WHERE SIMILAR ADDITION OF RS. 4,74,586/- MA DE ON ACCOUNT OF EARLIER YEARS DEPRECIATION TO THE BOOK PROFIT WAS DELETED. THE ABOVE SUBMISSIONS OF THE ASSESSEE WERE CONSIDERED BY THE AO BUT WAS NOT FOUND TENABLE. AO OBSERVED THAT ASSESSEE HAS PROVID ED DEPRECIATION ON FIXED ASSETS OTHER THAN MAIN PLANT AND MACHINERY O N SLM. ON THE MAIN PLANT AND MACHINERY, THE ASSESSEE HAS PROVIDED DEPR ECIATION ON WDVM AT THE RATES AND MANNER PRESCRIBED UNDER SCHEDULE-X IV OF THE COMPANIES ACT, 1956. 4. DURING THE YEAR, COMPANY HAS CHANGED THE METHOD OF PROVIDING DEPRECIATION ON MAIN PLANT AND MACHINERY FROM SLM T O WDVM. ACCORDINGLY, DEPRECIATION HAS BEEN REWORKED FROM TH E DATE OF PURCHASE/COMMISSIONING OF PLANT AND MACHINERY. CONS EQUENTLY DEPRECIATION AMOUNTING TO RS. 83,43,260/- RELATED T O EARLIER YEARS WAS PROVIDED IN THE CURRENT YEAR THEREBY RESULTING IN L OWER PROFITS BY RS. 83,43,260/- AND INCREASE IN DEPRECIATION BY THE SAM E AMOUNT. ACCORDING TO ACCOUNTING STANDARD 6 OF THE INSTITUTE OF CHARTE RED ACCOUNTANTS OF INDIA (ICAI) ON DEPRECIATION ACCOUNTING, CHANGE OVE R FROM SLM TO WDVM VINATI ORGANICS LTD., 4 OF CHARGING DEPRECIATION IN THE ACCOUNTS IN THE CON TEXT OF SEC. 115JA IS PERMISSIBLE IF THE ADOPTION OF THE NEW METHOD IS RE QUIRED BY THE STATUTE OR FOR COMPLIANCE OF AN ACCOUNTING STANDARD OR IF I T IS CONSIDERED THAT THE CHANGE WOULD RESULT IN A MORE APPROPRIATE PREPA RATION OR PRESENTATION OF THE FINANCIAL STATEMENTS OF THE ENT ERPRISE. THE DEFICIENCY OR SURPLUS ARISING FROM RETROSPECTIVE RECOMPUTATION OF DEPRECIATION IN ACCORDANCE WITH THE NEW METHOD SHOULD BE ADJUSTED I N THE ACCOUNTS IN THE YEAR IN WHICH THE METHOD OF DEPRECIATION IS CHA NGED. AO ABSERVED THAT ASSESSEE HAS NOT FURNISHED ANY BASIS FOR EFFEC TING SUCH A CHANGE IN CONFIRMATION OF ACCOUNTING STANDARD-6. FURTHER ASS ESSEE HAS CHANGED FROM SLM TO WDVM ONLY ON MAIN PLANT AND MACHINERY W HILE ON THE OTHERS THE SLM REMAINS UNCHANGED. ACCORDING TO AO ASSESSEE HAS ADOPTED A PIECE MEAL APPROACH IN THE METHOD OF CHAR GING DEPRECIATION. AS PER AS-6, A CHANGE OVER HAS TO BE EFFECTED IN TO TO I.E. ON ALL ASSETS AND THERE SHOULD BE UNIFORMITY IN CALCULATION OF DEPREC IATION FOR THE PURPOSES OF COMPUTING BOOK PROFITS, AS PER PROVISIONS OF SE C. 115JA AND IN THE INSTANT CASE THE ASSESSEE HAS NOT ADOPTED A SYSTEMA TIC APPROACH OF PROVIDING DEPRECIATION ON ALL ASSETS. AO OBSERVED THAT ASSESSEE HAS ADOPTED THIS PROCEDURE ONLY TO REDUCE ITS BOOK PROF ITS. FOR A.Y. 1999- 2000, ASSESSEE HAS ALSO CHARGED DEPRECIATION ON FIX ED ASSETS OTHER THAN PLANT AND MACHINERY ON SLM AND ON THE PLANT AND MAC HINERY ON WDVM. FOR A.Y. 2000-01, THE ASSESSEE HAS CHARGED DEPRECIA TION ON FIXED ASSETS OTHER THAN PLANT AND MACHINERY ON SLM AND ON THE PL ANT AND MACHINERY ON WDVM. FOR A.Y. 2001-02, THE ASSESSEE HAS WRITTE N BACK DEPRECIATION AMOUNTING TO RS. 4,59,57,498/- ON ACCOUNT OF CHANGE IN THE METHOD OF PROVIDING DEPRECIATION ON PLANT AND MACHINERY FROM WDVM TO SLM. AO HAS THUS OBSERVED THAT ASSESSEE HAS BEEN CHARGING D EPRECIATION TO THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF CHANGE OVER F ROM SLM TO WDVM FROM A.Y. 1997-98 UPTO A.Y. 2000-01. AGAIN FROM A .Y. 2001-02, THE ASSESSEE HAS CHARGED DEPRECIATION TO THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF CHANGE OVER FROM WDVM TO SLM. THEREFORE , THE ASSESSEE HAS VINATI ORGANICS LTD., 5 BEEN FREQUENTLY CHANGING THE METHOD OF CHARGING DEP RECIATION FROM ONE METHOD TO ANOTHER WITH THE ULTERIOR MOTIVE OF REDUC TION OF BOOK PROFITS. ON BEING ASKED FOR FREQUENT CHANGE OVER IN THE CHA RGING OF METHOD OF DEPRECIATION, THE ASSESSEE HAS CHOSEN TO REMAIN SIL ENT. THUS, THE INCONSISTENT AND NON-UNIFORM SWITCH OVER FROM SLM T O WDVM AND VICE VERSA FOR THE PURPOSES OF ADJUSTMENT OF DEPRECIATIO N WITH A RESULTANT REDUCTION OF BOOK PROFITS CANNOT BE ACCEPTED AS A B ONAFIDE CHANGE. THE AO OBSERVED THAT IF AT ALL THE ASSESSEE WANTED TO C HANGE FROM SLM TO WDVM, THE SAME OUGHT TO HAVE BEEN EFFECTED IN ONE G O AND IN TOTO AND CONSISTENTLY FOLLOWED THEREAFTER. THE REASON FOR N ECESSITATING THIS CHANGE ON THE BASIS OF ANY FINANCIAL OR TECHNICAL RECOMMEN DATION WAS NOT GIVEN. ACCORDING TO AO, FOR A CHANGE TO BE VALID AND BONAF IDE, THE CHANGE HAS TO BE BASED ON A TECHNICAL AND LEGAL EVALUATION BASED ON THE RECOMMENDATIONS O9F FINANCIAL AND TECHNICAL PERSONN EL. AO, THEREAFTER, HAS REFERRED TO THE PROVISIONS OF SEC. 115JA AND IN TENTION BEHIND INTRODUCING SUCH SECTION. ACCORDING TO AO, BONAFID E CLAIM BY THE ASSESSEE CAN BE FILED ONLY IN RESPECT OF COMPLETE C HANGE IN METHOD OF CHARGING DEPRECIATION CONSISTENTLY FOLLOWED. ACCOR DING TO PARA 2 OF PART II OF SCHEDULE RESULT OF WORKING OF A COMPANY DURIN G A PERIOD SHALL BE CLEARLY DISCLOSED. IN THE ACCOUNTS PREPARED IN ACC ORDANCE WITH THE SCHEDULE, EVERY MATERIAL FEATURE AS ALSO DEBITS OR CREDITS IN RESPECT OF NON-RECURRING OR EXCEPTIONAL NATURE ARE REQUIRED TO BE DISCLOSED. IN VIEW OF THE ABOVE DISCUSSION AND PLACING RELIANCE ON THE FOLLOWING DECISIONS, AO REJECTED THE ASSESSEES CONTENTION AND ARS RELI ANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES AND HELD THAT CHANGE FROM SLM TO WDVM WAS NOT A BONAFIDE CHANGE A CCORDING TO AS-6 IN SCH-VI OF THE COMPANIES ACT. (I) BOMBAY TYRES INTERNATIONAL LTD.VS DCIT 51 ITD 3 39 (II) DCIT VS U.P. STRAW & AGRO PRODUCTS LTD (79 IT D 372) VINATI ORGANICS LTD., 6 5. THE AO ALSO OBSERVED THAT THE DEPRECIATION METHO DS SELECTED HAS NOT BEEN APPLIED CONSISTENTLY FROM ONE A.Y. TO ANOT HER A.Y. AND HAVE BEEN EFFECTED WITH A VIEW TO REDUCE THE PROFITS. B Y NOT ADDING BACK THE EARLIER YEARS DEPRECIATION TO BOOK PROFITS ASSESSE E HAS NOT REFLECTED TRUE AND FAIR VIEW OF THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE IS NOT A ZERO TAX HIGHLY PROFITABLE COMPANY AND OUGHT TO HAVE HON OURED THE RATIONALE BEHIND THE TAXING OF SUCH COMPANIES AT MINIMUM RATE AND SHOULD NOT HAVE RESORTED TO CAMOUFLAGING ITS PROFITS BY FREQUE NT, PIECEMEAL, INCONSISTENT CHANGE IN DEPRECIATION METHODS. NOWHE RE IT HAS BEEN WRITTEN IN THE PROVISIONS OF SEC. 205 OF THE COMPAN IES ACT THAT FREQUENT PART CHANGE IN METHOD OF DEPRECIATION FROM ONE TO A NOTHER IS ALLOWED. IN VIEW OF THE ABOVE DISCUSSION, AO REJECTED THE ASSES SEES CONTENTION AND ADDED BACK THE EARLIER YEARS DEPRECIATION OF RS. 8 3,43,260/- AND COMPUTED BOOK PROFIT AT RS. 25,56,532/-. 6. THE LD. AR OF THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) AS FOLLOWS: AS REGARDS THE DISALLOWANCE OF EARLIER YEARS DEPR ECIATION FOR THE PURPOSE OF SEC. 115JA, THE SAID SUM OF RS. 83,4 3,260/- WAS NOT IN THE NATURE OF EARLIER YEARS DEPRECIATION BUT IN THE NATURE OF DEPRECIATION BACKLOG CONSEQUENT UPON THE CHANGE IN THE METHOD OF PROVIDING DEPRECIATION FROM SLM TO WDVM AND ACCORDI NGLY AS PER THE PRESCRIBED ACCOUNTING STANDARDS, THE SAID SUM O F RS. 83,43,260/- WAS A CHARGED UPON THE CURRENT YEARS P ROFITS. FURTHER, THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSE E BY THE HONBLE ITYAT DELHI BENCH IN THE CASE OF HINDUSTAN PIPE UDY OG LTD. (112 TAXMAN 66(DEL) AS REGARDS THE QUESTION AS TO WHETHER THE ASSESSEE COULD CHARGE DEPRECIATION AT A HIGHER RATE THAN PROVIDED FOR UNDER THE COMPANIES ACT, BY CHARGING THE DEPRECIATION ON THE BASIS OF THE WRITTEN-DOWN-VALUE METHOD IT WAS SEEN THAT THE RATE S APPLIED BY THE ASSESSEE WERE IN LINE WITH THE SCHEDULE OF DEPRECIA TION UNDER THE INCOME-TAX RULES READ WITH SECTION 32 OF THE ACT, A ND THERE COULD NOT BE ANY SERIOUS OBJECTION IN THIS REGARD. VINATI ORGANICS LTD., 7 AS TO THE CHARGE OF THE ARREARS OF DEPRECIATION, IT WAS SEEN THAT THIS ALSO WAS DONE IN ACCORDANCE WITH THE GUID E TO COMPANY AUDIT. IT WAS A NECESSARY CONDITION THAT ON CHANG ING THE METHOD, DEPRECIATION SHOULD BE RECALCULATED FROM THE DATE O F THE ASSETS COMING INTO USE. THIS PROVISION WAS MADE A CONDITI ON PRECEDENT FOR CHANGE OF METHOD OF DEPRECIATION. IT COULD, THEREF ORE, NOT BE DISPUTED. THE ASSESSEE, IN THE INSTANT CASE, CHA NGED ITS METHOD OF CHARGING DEPRECIATION. THE CLAIM OF ARREARS DEPREC ATION WAS MADE IN ACCORDANCE WITH THE REQUIREMENTS AS PRESCRIBED B Y THE GUIDE TO COMPANY AUDIT AND IN ACCORDANCE WITH THE GUIDANCE N OTES ISSUED BY THE ICAI SO AS TO GIVE A FAIR AND TRUE REPRESENT ATION OF THE WORKING OF THE COMPANY. THEREFORE, NO OBJECTION COULD BE RAISED BY THE REVENUE AUTHORITIES SO AS TO INTERFERE WITH THE COMPUTATION OF THE BOOK PROFITS AS PROVIDED U/S.115JA. ACCORDINGLY T HE APPEAL ON THIS POINT WAS ALSO TO BE ALLOWED. 7. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE D ECISION IN THE CASE OF KINETIC MOTOR CO. LTD. (262 ITR 330). IN THIS CONNECTION, WE ALSO DRAW THE KIND ATTENTIO N OF YOUR HONOUR TOWARDS THE DECISION OF HONBLE SUPREME COUR T IN THE CASE OF APPOLLO TYRES LTD. VS. CIT (225 ITR 273), THE RELEV ANT EXTRACT OF WHICH HAS ALSO BEEN REPRODUCED IN PARA 2.5 UNDER GR OUNDS OF APPEAL NO.2. THE BROAD RATIO OF THAT JUDGMENT IS THAT THE ACCOUNTS WHICH ARE PRESENTED BY A COMPANY TO ITS SHAREHOLDER S CANNOT BE DISTURBED BY ASSESSING OFFICER FOR DETERMINING MAT LIABILITY IF THE ACCOUNTS HAVE BEEN APPROVED BY SHAREHOLDERS, BY AUD ITORS AND BY THE REGISTRAR OF COMPANIES. ACCORDING TO THE SUP REME COURT, DETERMINATION OF BOOK PROFIT UNDER THE COMPANIES AC T IS THE FUNCTION OF AUTHORITIES UNDER THE COMPANIES ACT, VIZ. THE SH AREHOLDERS, THE AUDITORS AND THE REGISTRAR OF COMPANIES. ONCE THE ACCOUNTS HAVE BEEN APPROVED BY THESE THREE AUTHORITIES, IT IS NO BUSINESS OF THE ASSESSING OFFICER TO COMMENT ON WHAT SHOULD HAVE BE EN THE CORRECT BOOK PROFIT UNDER THE COMPANIES ACT. UNDER THE CIR CUMSTANCES, THE ADDITION OF THE SAID SUM OF RS.83,43,260/- IS NOT O NLY NOT CORRECT, BUT ALSO TOTALLY UNJUSTIFIED. IT IS NOTHING, BUT A CASE OF ARBITRARY ADDITION AND HENCE NOT SUSTAINABLE IN THE EYES OF L AW. IT IS, THEREFORE, REQUESTED THAT THE ADDITION OF RS.83,43, 260/- MADE BY THE ASSESSING OFFICER MAY KINDLY BE DELETED. AS REGARDS THE CHANGE IN THE METHOD OF PROVIDING DE PRECIATION FROM STRAIGHT LINE METHOD (SLM) TO WRITTEN DOWN VAL UE METHOD (WDVM), WE WOULD LIKE TO SUBMIT THAT THE SAID CHANG E IN THE METHOD OF PROVIDING DEPRECIATION FROM STRAIGHT LINE METHOD TO WRITTEN DOWN VINATI ORGANICS LTD., 8 VALUE METHOD HAD BEEN DONE BY THE APPELLANT UNDER T HE COMPANIES ACT (AND NOT UNDER THE INCOME-TAX ACT) AND PARA 21 OF ACCOUNTING STANDARD-6 (DEPRECIATION ACCOUNTING) STATES AS UNDE R:- A CHANGE FROM ONE METHOD OF PROVIDING DEPRECIATION TO ANOTHER SHOULD BE MADE ONLY IF THE ADOPTION OF THE NEW METH OD IS REQUIRED BY STATUE OR FOR COMPLIANCE WITH AN ACCOUNTING STAN DARD OR IF IT IS CONSIDERED THAT THE CHANGE WOULD RESULT IN A MORE A PPROPRIATE PREPARATION OR PRESENTATION OF THE FINANCIAL STATEM ENTS OF THE ENTERPRISE. PRIOR TO THE ASSESSMENT YEAR 1997-98, THE APPELLANT WAS PROVIDING DEPRECIATION ON STRAIGHT LINE METHOD (SLM ) BASIS @5.28% OF THE COST OF PLANT. AS PER SCHEDULE-XIV OF THE COMPANIES ACT, THE PLANT WHICH ANSWERS TO THE DESCRIPTION OF THE CONTI NUOUS PROCESS MACHINERY IS NOT ELIGIBLE FOR ANY EXTRA SHIFT DEPRE CIATION AND HENCE, THE APPELLANT DID NOT MAKE SPECIFIC PROVISION BEYON D 5.28% AS AFORESAID. IN THE YEAR 1996-97 (ASSESSMENT YEAR 1 997-98) THE MANAGEMENT OF THE APPELLANT COMPANY REVIEWED THE AD EQUACY OF PROVIDING DEPRECIATION AND AFTER CAREFUL CONSIDERAT ION, CAME TO THE BONAFIDE COMMERCIAL CONCISION THAT THE DEPRECIATION ALREADY BEING PROVIDED BY THE APPELLANT COMPANY @5.28% OF THE COS T OF PLANT, DOES NOT GIVE A REALISTIC RECOGNITION OF THE DEPLETION I N THE VALUE OF PLANT IN VIEW OF THE FACT THAT THE PLANT COMES INTO CONTACT WITH CORROSIVE CHEMICALS WHICH SERIOUSLY AFFECT THE LIFE OF THE PL ANT. UNDER THE CIRCUMSTANCES, THE APPELLANT COMPANY DECIDED TO CHA NGE THE METHOD OF PROVIDING DEPRECIATION FROM STRAIGHT LINE METHOD (SLM) @ 5.28% OF THE COST OF PLANT TO WRITTEN DOWN VALUE METHOD (WDV M) @15.33% ON THE WRITTEN DOWN VALUE WITH IMMEDIATE EFFECT WITH R EGARD TO THAT COMPONENT OF THE PLANT WHICH WAS CARRYING OUT REACT ION PROCESS BECAUSE THE RATE OF CORROSION IN THE CASE OF REACTI ON PLANT IS HIGHER THAN THE RATE OF CORROSION IN THE CASE OF DISTILLAT ION PLANT. IN THE YEAR 1998-99 (ASSESSMENT YEAR 1999-00), THE MANAGEMENT OF THE COMPANY AGAIN REVIEWED THE ADEQUA CY OF PROVIDING DEPRECIATION IN RESPECT OF DISTILLATION P LANT AND ARRIVE AT THE CONCLUSION THAT IT WOULD BE PROPER TO PROVIDE H IGHER RATE OF DEPRECIATION ON THE DISTILLATION PLANT ALSO FROM TH IS YEAR SO AS TO BRING IT AT PAR WITH THE REACTION PLANT BECAUSE BOT H THE REACTION PLANT AND THE DISTILLATION PLANT FORM AN INTEGRAL P ART OF THE MANUFACTURING PROCESS AND IN COMMERCIAL AND TECHNIC AL TERMS, THE DISTILLATION PLANT ALSO SUFFERS NEAR ABOUT THE SAME DEPLETION IN VALUE THOUGH SLIGHTLY TO A LESSER EXTENT THAN THE REACTIO N PLANT. ACCORDINGLY, THE METHOD OF DEPRECIATION FOR DISTILL ATION PLANT WAS ALSO CHANGED FROM SLM TO WDV METHOD TO BRING IT ON PAR WITH VINATI ORGANICS LTD., 9 CARRYING VALUE OF THE REACTION PLANT WITH EFFECT FR OM THE ASSESSMENT YEAR 1999-2000. AS PER THE ACCOUNTING STANDARD, IN EACH YEAR OF THE CHANGE OF METHOD, THE QUANTUM OF DEPRECIATION AS WOULD HAVE B EEN PROVIDED TILL THE END OF THE YEAR, HAD THE COMPANY ALWAYS FO LLOWED WDV BASIS OF DEPRECIATION AS ALREADY PROVIDED TILL THE END OF THE YEAR AS PER SLM METHOD. THE DIFFERENTIAL IS DEBITABLE TO THE PROFIT & LOSS ACCOUNT OF THE YEAR AS PER MANDATE OF PARA 21 OF AC COUNTING STANDARD-6. STATED ALTERNATIVELY, THE ACCOUNTING STANDARD MANDATES THAT THE CHANGE IN DEPRECIATION METHOD BE IMPLEMENTED SUCH THAT IT IS GIVEN RETROSPECTIVE IMPACT FROM THE YEAR OF INCEPTION OF THE PLANT OPERATION: THE DIFFERENTIAL BACKLOG IS MA NDATED TO BE CONSIDERED AS CHARGE ON THE PROFIT AND LOSS OF THE CURRENT PERIOD. ACCORDINGLY, IT WAS ONLY TO COMPLY WITH THE ACCOUNT ING STANDARD THAT THE SAID SUM OF RS.83,43,260/- BEING THE DEPRE CATION BACKLOG WAS DEBITED TO THE PROFIT & LOSS ACCOUNT AND TREATE D AS CHARGE ON THE CURRENT YEARS PROFIT. AS ALREADY STATED ABOVE, IT IS THE PRIMARY DUTY OF THE MANAGEMENT OF THE COMPANY TO PRESENT A TRUE AND FAI R PICTURE OF THE STATEMENT OF ACCOUNTS OF THE COMPANY. IT WAS ONLY TO PRESENT A TRUE AND FAIR PICTURE OF THE FINANCIAL STATEMENTS OF ACC OUNTS OF THE APPELLANT COMPANY THAT IT HAD CHANGED ITS METHOD OF PROVIDING DEPRECIATION ON REACTION PLANT FROM THE STRAIGHT LI NE METHOD TO WRITTEN DOWN VALUE METHOD BECAUSE THE STRAIGHT LINE METHOD WAS NOT GIVING DUE RECOGNITION TO THE DEPLETION IN THE VALUE OF THE PLANT. IT WAS A BONAFIDE DECISION TAKEN BY THE MANAGEMENT OF THE APPELLANT COMPANY WITH A VIEW TO PRESENTING A TRUE AND FAIR PICTURE OF THE STATEMENT OF ACCOUNTS OF THE APPELLANT COMPA NY WHICH DOES NOT CALL FOR ANY ADVERSE COMMENTS ON THE PART OF TH E ASSESSING OFFICER. CONSISTENT WITH THE ACCOUNTING STANDARD, WHENEVER T HERE IS A CHANGE IN THE METHOD OF ACCOUNTING, THE SAME IS REQ UIRED TO BE SHOWN BY WAY OF NOTE IN NOTES FORMING PART OF THE A CCOUNTS WHICH HAS BEEN DULY DONE BY THE APPELLANT COMPANY VIDE NO TE NO.3 OF THE NOTES FORMING PART OF THE ACCOUNTS (COPY OF BALANCE SHEET ENCLOSED). THESE STATEMENTS OF ACCOUNTS WERE PRESENTED BEFORE THE ANNUAL GENERAL MEETING OF THE SHAREHOLDERS OF THE COMPANY WHICH WAS ALSO DULY ADOPTED BY THEM ON 26.09.1997. THESE STATEMENT S OF ACCOUNTS WERE ALSO PRESENTED BEFORE THE REGISTRAR OF COMPANI ES WHO HAS ALSO ACCEPTED THE SAME. UNDER THE CIRCUMSTANCES, IT WA S TOTALLY INCORRECT ON THE PART OF THE ASSESSING OFFICER TO H AVE ASSUMED THAT THE APPELLANT COMPANY HAD NOT PREPARED ITS PROFIT & LOSS ACCOUNT IN VINATI ORGANICS LTD., 10 ACCORDANCE WITH THE PROVISIONS OF PARTS II & III OF SCHEDULE-VI OF THE COMPANIES ACT, 1956. 7.1 THE LD. CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMIS SION MADE BY AR OF APPELLANT. IN THIS REGARD, IT IS STATED T HAT SIMILAR ISSUE CAME UP FOR CONSIDERATION IN APPELLANTS OWN CASE F OR A.Y. 1999- 2000 WHERE CLAIM OF THE APPELLANT HAS BEEN ALLOWED. SINCE THE ISSUE IS IDENTICAL, FOR THE DETAILED REASONS DISCUS SED IN THE APPEAL ORDER NO. CIT(A)XXIX/RANGE-8(3)/IT.253/2004-05 DT. 30.3.2005 FOR A.Y. 1999-2000, APPELLANTS CLAIM IN THIS YEAR IS A LSO ALLOWED. ACCORDINGLY, ADDITION OF RS. 83,43,260/- IS DELETED . 7.2 AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 8. THE LD. COUNSEL FOR THE ASSESSEE SHRI PANKAJ TOP RANI PLACED BEFORE US THE ANNUAL REPORT FOR 1996-97 AND 1998-99 AND TH E PROFIT AND LOSS ACCOUNT FOR THE YEAR 1997. HE POINTED OUT AT PAGE 9 OF THE ANNUAL REPORT UNDER PROFIT BEFORE DEPRECIATION LESS DEPREC IATION AT RS. 1,89,80,070/-. AT PAGE 15 HE POINTED OUT THAT UN DER SIGNIFICANT ACCOUNTING POLICIES AND NOTES ON ACCOUNTS, IT HAS BEEN STATED AS FOLLOWS: DEPRECIATION ON FIXED ASSETS OTHER THAN PLANT AND MACHINERY IS PROVIDED ON STRAIGHT LINE METHOD AND ON THE PLAN T & MACHINERY ON WRITTEN DOWN VALUE METHOD AT THE RATES AND THE MANNER PRESCRIBED UNDER SCHEDULE XIV OF THE COMPANI ES ACT, 1956. 9. FURTHER AT PAGE 16 UNDER NOTES ON ACCOUNTS THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT DURING THE YEAR, THE COMPANY HAS CHANGED THE METHOD OF PROVIDING DEPRECIATION ON PLANT AND M ACHINERY (OTHERS) FROM STRAIGHT LINE METHOD TO WRITTEN DOWN VALUE MET HOD. ACCORDINGLY DEPRECIATION HAS BEEN REWORKED FROM THE DATE OF PURCHASE/COMMISSIONING OF PLANT AND MACHINERY. CON SEQUENTLY, DEPRECIATION AMOUNTING TO RS. 33,302,342/- RELATING TO EARLIER YEARS HAS ALSO BEEN PROVIDED IN THE CURRENT YEAR AND DUE TO T HE CHANGE OF METHOD, VINATI ORGANICS LTD., 11 THE DEPRECIATION FOR THE YEAR IS HIGHER BY RS. 2,86 2,655/- AND CONSEQUENTLY THE PROFIT FOR,164,997/-. 10. THE LD. COUNSEL SIMILARLY TOOK US THROUGH THE A NNUAL REPORT FOR THE ASSESSMENT YEAR 1998-99 AND POINTED OUT THE NOT ES ON ACCOUNTS AT PAGE-16. 11. FURTHER THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN THE CASE OF APOLLO TYRES LTD. VS CIT (255 ITR 273(SC) WHEREI N IT HAS BEEN HELD AS FOLLOWS: THE AO, WHILE COMPUTING THE BOOK PROFITS OF A COMP ANY U/S. 115J OF THE I.T. ACT, 1961, HAS ONLY THE POWER OF E XAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE A UTHORITIES UNDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAI NTAINED IN ACCORDANCE WITH THE COMPANIES ACT. THE AO, THER EAFTER, HAS THE LIMITED POWER OF MAKING INCREASES AND REDUC TIONS AS PROVIDED FOR IN THE EXPLANATION TO SEC. 115J. THE AO DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFITS SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVID ED IN THE EXPLANATION. THE USE OF THE WORDS IN ACCORDANCE W ITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO TH E COMPANIES ACT IN SEC. 115J WAS MADE FOR THE LIMITED PURPOSE OF EMPOWERING THE AO TO RELY UPON THE AUTHENTIC STATEM ENT OF ACCOUNTS OF THE COMPANY. WHILE SO LOOKING INTO THE ACCOUNTS OF THE COMPANY, THE AO HAS TO ACCEPT THE AUTHENTICI TY OF THE ACCOUNTS WITH REFERENCE TO THE PROVISIONS OF THE CO MPANIES ACT, WHICH OBLIGATE THE COMPANY TO MAINTAIN ITS ACCOUNTS IN A MANNER PROVIDED BY THAT ACT AND THE SAME TO BE SCRU TINIZED AND CERTIFIED BY STATUTORY AUDITORS AND APPROVED BY THE COMPANY IN GENERAL MEETING AND THEREAFTER TO BE FIL ED BEFORE THE REGISTRAR OF COMPANIES WHO HAS A STATUTORY OBLI GATION ALSO TO EXAMINE AND BE SATISFIED THAT THE ACCOUNTS OF THE COMPANY ARE MAINTAINED IN ACCORDANCE WITH THE REQUI REMENTS OF THE COMPANIES ACT. SUB-SEC. (1A) OF SEC. 115J D OES NOT EMPOWER THE AO TO EMBARK UPON A FRESH ENQUIRY IN RE GARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT OF THE COM PANY. RESPECTFULLY FOLLOWING THE ABOVE, WE DISMISS THE G ROUND RAISED BY THE REVENUE. VINATI ORGANICS LTD., 12 12. THE SECOND GROUND RAISED BY THE REVENUE READS A S FOLLOWS: CIT(A) ERRED IN ACCEPTING 30% OF THE BOOK PROFIT U NDER SPECIAL PROVISIONS OF SEC. 115JA RETURNED BY ASSESSEE AT RS .53,554/- IN THE RETURNED INCOME AS AGAINST INCOME DETERMINED BY THE AO U/S. 115JA OF THE ACT AT RS. 25,56,532/-. 13. THIS ISSUE IS CONSEQUENTIAL TO GROUND NO. 1. T HEREFORE IT IS DISMISSED. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. C.O. NO. 23/M/06- A.Y. 1997-98 15. THE FIRST 3 GROUNDS REGARDING UPHOLDING OF REAS SESSMENT HAVE NOT PRESSED BY THE ASSESSEE. THEREFORE IT IS DISMISSED AS NOT PRESSED. 16. GROUND NOS. 4 & 5 TH RAISED BY THE ASSESSEE READ AS FOLLOWS: THE LD. CIT(A) ERRED IN NOT ALLOWING RESEARCH & DEVELOPMENT EXPENSES AMOUNTING TO RS. 13,03,529/-WH ICH WERE INCURRED IN THE PREVIOUS YEAR RELATING TO THE A.Y. 1997-98 BUT WRONGLY CLAIMED IN PREVIOUS YEAR RELATING TO TH E A.Y. 2000-01. THE LD. CIT(A) ERRED IN NOT ALLOWING A SUM OF RS. 1 ,87,500/- BEING THE WEIGHTED DEDUCTION ALLOWABLE U/S. 35(2AA) ON A SUM OF RS. 7,50,000/- BEING THE CONTRIBUTION MADE T O THE RECOGNIZED INSTITUTION. 17. AT PAGES 25 TO 29 OF THE LD. CIT(A)S ORDER, TH E LD. CIT(A) HAS FOLLOWED HIS ORDER DT. 24.2.2004 FOR A.Y. 2000-01 WHEREIN HE HAS DISCUSSED ELABORATELY FROM PAGES 1-17 AND HAS REJE CTED THE CLAIM . 18. THE LD. COUNSEL FOR THE ASSESSEE SHRI PANKAJ TO PRANI HAS FILED A PETITION UNDER RULE 29 OF THE APPELLATE TRIBUNAL RU LES, 1963 FOR PRODUCTION OF ADDITIONAL EVIDENCE BEFORE US. VINATI ORGANICS LTD., 13 19. THE LD. DEPARTMENTAL REPRESENTATIVE OBJECTED TO ADMISSION OF ADDITIONAL EVIDENCE RELYING ON THE DECISION OF MANJ I DANA VS CIT 60 ITR 582(SC). HE CONTENDED THAT ONLY THOSE EVIDENCES CAN BE ADMITTED WHICH DO NOT REQUIRE ENQUIRY. 20. WE HEARD BOTH THE PARTIES. WE ADMIT THE ADDITIO NAL EVIDENCE RELYING IN THE CASE OF RAJNISH INDUSTRIES VS ITO 52 ITD 286 (AHD) AND PATNA BENCH OF ITAT IN THE CASE OF ABHAY SHROFF VS ITO 63 ITD 144). IT WAS THAT THE ASSESSEE AS A MATTER OF RIGHT COUL D NOT FILE OR FILED THEM BEFORE THE TRIBUNAL AS A MATTER OF COUR SE. IF THE ASSESSEE PRODUCES SOME DOCUMENTS AT THE APPROPRIATE TIME, THEY HAVE TO BE TAKEN INTO CONSIDERATION SUBJECT OF COURSE TO ALL JUST EXCEPTIONS, SUCH AS THEIR RELEVANCE, ETC. IF NOT DONE AT THE ASSESSMENT STAGE, THE ADMISSION OF DOCUMENTS HA S TO BE GOVERNED BY RULE 46A OF THE I.T. RULES, 1962, IF P RODUCED FOR THE FIRST TIME BEFORE THE FIRST APPELLATE AUTHORIT Y. HAVING MISSED THE BUS AND THE MATTER HAVING TRAVELLED TO T HE TRIBUNAL, THE ADMISSION OF DOCUMENTS IS TO BE GOVER NED BY RULE 29 OF THE APPELLATE TRIBUNAL RULES. HENCE, IF THE DOCUMENTS SOUGHT TO BE ADMITTED EVEN AT THE SECOND APPELLATE STAGE ARE OF A NATURE AND QUANTITATIVELY SUCH THAT THEY RENDER ASSISTANCE TO THE TRIBUNAL IN PASSING ORDERS OR A RE REQUIRED TO BE ADMITTED FOR ANY OTHER SUBSTANTIAL CAUSE, I T WOULD RATHER BE THE DUTY OF THE TRIBUNAL TO ADMIT THEM. THEREFORE, IF THE RECEIPT OR ADMISSION OF ADDITIONAL EVIDENCE IS VITAL AND ESSENTIAL FOR THE PURPOSE OF CONSIDERATION OF THE SUBJECT MATTER OF APPEAL AND TO ARRIVE AT A FINAL AND ULTIM ATE DECISION, THE TRIBUNAL IS AMPLY EMPOWERED TO ADMIT ADDITIONAL EVIDENCE UNDER RULE 29. THEREFORE, THE TRIBUNAL HAD TO ADMI T ADDITIONAL EVIDENCE PRODUCED BY THE ASSESSEE SINCE THAT WAS VI TAL AND ESSENTIAL FOR RENDERING JUSTICE AND IN DECIDING APP EALS. HOWEVER, IT WAS NECESSARY TO GIVE THE DEPARTMENT A REASONABLE OPPORTUNITY OF REBUTTING IT ACCORDING TO THE PRINCIPLE OF NATURE JUSTICE AND FOR THAT PURPOSE TH E MATTER WAS RESTORED TO THE FILE OF THE AO. 21. WE THEREFORE REMIT THE MATTER BACK TO THE FILE OF THE AO TO EXAMINE THE ADDITIONAL EVIDENCE FILED AND PASS THE ORDERS A FTER GIVING AN ADEQUATE OPPORTUNITY TO THE ASSESSEE TO BE HEARD. VINATI ORGANICS LTD., 14 22. IN THE RESULT, THE C.O. FILED BY THE ASSESSEE I S ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 4351/MUM/2005-A.Y-1999-2000 23. THE FIRST TWO GROUNDS RAISED BY THE REVENUE READ A S FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE AO TO ALLOW THE A SSESSEES CLAIM FOR DEDUCTION U/S. 80HHC AT RS.38,29,237/- IN SPITE OF THE FACT THAT THE ASSESSEE HAD NIL GROSS TOTAL INC OME. 2. THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE I S ENTITLED TO REDUCE THE DEDUCTION U/S. 80HHC WHILE W ORKING OUT THE BOOKS PROFIT U/S. 115JA OF THE I.T. ACT IGN ORING THE FACT THAT THE ASSESSEE HAS NIL GROSS TOTAL INCOME AND TH E ELIGIBLE DEDUCTION U/S. 80HHC WAS NIL 24. BOTH THE ISSUES ARE COVERED AGAINST THE ASSESSE E BY THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF AJANTA PHARMA LTD. 318 ITR 252. RESPECTFULLY FOLLOWING THE DECISION (SUPRA), WE ALL OW THE REVENUES APPEAL ON THIS ISSUE. 25. THE THIRD GROUND RAISED BY THE REVENUE READS AS FOLLOWS: THE LD. CIT(A) ERRED IN DIRECTING THE AO TO INCLUD E AN AMOUNT OF RS. 5,52,097 RECEIVED BY THE ASSESSEE ON ACCOUNT OF FOREIGN EXCHANGE RATE FLUCTUATION IN THE EXPORT TURNOVER BY CONSIDERING IT AS PART OF THE EXPORT TURNOVER. 26. WE FIND THAT THIS ISSUE IS COVERED BY THE DECIS ION OF THE MUMBAI SPECIAL BENCH IN THE CASE OF PRAKASH L. SHAH 306 IT R 01(AT)(SB). THEREFORE WE DIRECT THE AO TO REDO THE ASSESSMENT I N THE LIGHT OF THE DECISION IN THE CASE OF PRAKASH L. SHAH (SUPRA). 27. THE FOURTH GROUND RAISED BY THE REVENUE READS AS FOLLOWS: VINATI ORGANICS LTD., 15 THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF R S. 3,33,02,342/- BEING DEPRECIATION PERTAINING TO EARLIER YEARS FOR THE PURPOSE OF COMPUTING 30% OF THE BOOK PROFIT UNDER PROVISIONS O F SEC. 115JA OF THE ACT. 28. THIS ISSUE HAS ALREADY BEEN DISCUSSED AT PARA-1 1 IN REVENUES APPEAL IN ITA NO. 4844/M/05. 29. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ITA NO. 4174/MUM/2005-ASSESSEES APPEAL 30. THE FIRST 3 GROUNDS REGARDING UPHOLDING OF REAS SESSMENT HAVE NOT PRESSED BY THE ASSESSEE. THEREFORE IT IS DISMISSED AS NOT PRESSED. 31. GROUND NO. 4 RAISED BY THE ASSESSEE READS AS UN DER: THE LD. CIT(A) ERRED IN NOT ALLOWING THE BAD DEBTS OF RS. 63,71,127/- EVEN THOUGH THE DETAILS AS PER THE REQU IREMENTS OF SEC. 36(I)(VII)/36(2) WERE FORWARDED TO THE AO. 32 THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF DY. CIT VS OMA N INTERNATIONAL BANK 223 CTR 382 (BOM). 33. THE SUPREME COURT IN THE CASE OF TRF LTD. VS C IT, RANCHY (2010) TIO-15-SC-IT HAS HELD AS FOLLOWS: THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1ST AP RIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT TH E DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. 34. IN THE INSTANT CASE THERE IS NO CONTROVERSY ABO UT THE WRITE OFF. THEREFORE RESPECTFULLY FOLLOWING THE DECISION IN TH E CASE OF TRF LTD. (SUPRA), WE ALLOW ASSESSEES APPEAL ON THIS ISSUE. VINATI ORGANICS LTD., 16 35. THE FIFTH GROUND RAISED BY THE ASSESSEE READS A S FOLLOWS: THE CIT(A) ERRED IN HOLDING THAT FOR COMPUTING DED UCTION U/S. 80HHC BROUGHT FORWARD DEPRECIATION AGAINST CURRENT YEARS PROFIT SHOULD BE SET OFF. 36. THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY T HE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS SHIRKE CONSTRUC TION EQUIPMENT LTD. (291 ITR 380). RESPECTFULLY FOLLOWING DECISIO N (SUPRA), WE DISMISS THE ASSESSEES APPEAL. 37. THE SIXTH GROUND HAS NOT PRESSED BY THE ASSESSE E THEREFORE IT IS DISMISSED AS NOT PRESSED. 38. THE 7 TH GROUND RAISED BY THE ASSESSEE READS AS FOLLOWS: THE LD. CIT(A) ERRED IN DIRECTING THE AO TO REDUC E THE GROSS INTEREST UNDER CLAUSE (BAA) FOR COMPUTING DEDUCTIO N U/S. 80HHC. 39. THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY T HE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS ASIA STAR 37 DTR 209 WHICH HAS OVER RULED THE DECISION OF THE DELHI ITAT SPL. BENCH IN THE CASE OF LALSONS ENTERPRISES 89 ITD 25(SB)(DEL) WHICH ALLOW ED DEDUCTION ON NET. 40. THE 8 TH AND 9 TH GROUNDS ARE REGARDING RESEARCH & DEVELOPMENT EXPENSES OF RS. 7,89,767/- AND WEIGHTED DEDUCTION U /S. 35(2AA). THESE ISSUES HAVE ALREADY BEEN DISCUSSED IN PARA NOS. 17- 22 IN ASSESSEES C.O. NO. 23/M/06. THEREFORE, THIS ISSUE OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 41. THE 10 TH GROUND RELATES TO LEVY OF INTEREST U/S. 234B. THI S ISSUE IS CONSEQUENTIAL IN NATURE. VINATI ORGANICS LTD., 17 42. THE 11 TH GROUND RELATES OF UPHOLDING LEVY OF INTEREST U/S. 234D. WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF THE DELHI ITAT (SB) IN THE CASE OF ITO VS EKTA PROMOTERS (SB) (113 ITD 719) WHEREIN IT HAS BEEN HELD AS FOLLOWS: THEREFORE, IT WAS TO BE HELD THAT SECTION 234D, WH ICH HAS BEEN BROUGHT ON THE STATUTE FROM 1-6-2003, CANNOT B E APPLIED TO THE ASSESSMENT YEAR 2003-04 OR EARLIER YEARS, BU T IT WILL HAVE APPLICATION ONLY WITH EFFECT FROM THE ASSESSME NT YEAR 2004-05. [PARA 69] IN VIEW OF THE AFORESAID, IT WAS TO BE CONCLUDED TH AT INTEREST UNDER SECTION 234D WAS CHARGEABLE FROM THE ASSESSMENT YEAR 2004-05 AND IT COULD NOT BE CHARGED FOR EARLIER YEARS EVEN THOUGH REGULAR ASSESSMENTS FOR T HOSE YEARS WERE FRAMED AFTER 1-6-2003 OR THE REFUND WAS GRANTE D FOR THOSE YEARS AFTER THE SAID DATE. [PARA 71] RESPECTFULLY FOLLOWING THE ABOVE, WE ALLOW THIS GR OUND RAISED BY THE ASSESSEE. 43. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 3457/MUM/2004- ASSESSEES APPEAL 44. THE FIRST TWO GROUNDS I.E. 1.1. & 1.2 ARE REGARDING DISALLOWANCE OF RS. 67,23,582/- AND RS,. 38,89,968/- BY STATING THE SAME ARE CAPITAL IN NATURE. 45. GROUND NO.1.3 RELATES TO DISALLOWANCE OF A SUM OF RS. 11,61,362/- BEING THE WEIGHTED DEDUCTION CLAIMED U/S. 35(2AA) O F THE I.T. ACT 1961 ON A SUM OF RS. 46,45,450/-. VINATI ORGANICS LTD., 18 46. THIS ISSUES HAVE ALREADY BEEN DISCUSSED IN PARA NOS . 17-22 IN ASSESSEES C.O. NO. 23/M/06. THEREFORE, THIS ISSUE OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 47. GROUND NO. 2.1 IS REGARDING CONFIRMATION OF ADDITIO N OF RS. 1,84,880/-TO THE TOTAL INCOME OF THE APPELLANT ON A CCOUNT OF THE UNUTILIZED CREDIT. GROUND NO. 2.2. RELATES TO CONFIRMATION OF ADDITION OF RS. 7,01,631/- TO THE TOTAL INCOME OF THE APPELLANT BY INVOKING THE PROVISIONS OF SEC. 145A. 48. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THA T A SIMILAR ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE CO-ORDINATE BE NCH OF THIS TRIBUNAL IN THE CASE OF HAWKINS COOKERS LTD. VS. ITO AND REL YING ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MAHAVIR ALUMINIUM LTD., 168 TAXMAN 27, IT WAS HELD BY THE TRIBUNAL IN THE DECISION RENDERED IN ITA NO. 505/MUM/04 THAT WHEN THE ADJUST MENTS ARE TO BE MADE IN THE VALUATION OF INVENTORIES IN TERMS OF SE CTION 145A, THE SAME HAVE TO BE MADE BOTH IN THE OPENING STOCK AS WELL A S CLOSING STOCK. ACCORDINGLY, THE MATTER WAS SENT BACK BY THE TRIBUN AL TO THE A.O. TO MAKE SUCH ADJUSTMENTS ON ACCOUNT OF UNUTILISED MODV AT CREDIT IN THE VALUE OF OPENING AS WELL AS CLOSING STOCK AND WORK OUT THE ADDITION IF ANY WHICH IS LIABLE TO BE MADE TO THE TOTAL INCOME OF T HE ASSESSEE ON THIS ISSUE. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE TRIBUNAL ON THE SIMILAR ISSUE, WE SET ASIDE THE IMPUGNED ORDER OF T HE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF A.O. TO DECIDE TH E SAME AFRESH KEEPING IN VIEW THE DECISION OF THE TRIBUNAL IN THE CASE OF HA WKINS COOKERS LTD. (SUPRA). 49. THE ASSESSEES APPEAL ON THIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSES. VINATI ORGANICS LTD., 19 49.1. GROUND NO. 3 IS REGARDING EXPORT BENEFIT/IMPO RT ENTITLEMENTS OF RS. 26,37,538/- AND INTEREST RECEIVED OF RS, 2,17,1 85/- ARE NOT ELIGIBLE FOR DEDUCTION U/S. 80-IA. 50. THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY T HE DECISION OF THE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS CIT ( 317 ITR 218). THEREFORE, WE DISMISS THE GROUND RAISED BY THE ASSE SSEE. 51. GROUND NO. 4.1 RELATES TO UNABSORBED DEPRECIATI ON PERTAINING TO EARLIER YEARS OF RS. 1,80,14,404/- IS REQUIRED TO B E DEDUCTED FROM THE BUSINESS INCOME TO CALCULATE THE PROFIT OF THE BUS INESS FOR COMPUTING DEDUCTION U/S. 80HHC. 52. THIS ISSUE HAS ALREADY BEEN DISCUSSED AT PARA N O 36 IN ITA NO. 4174/MUM/2005 IN ASSESSEES APPEAL. RESPECTFULLY FO LLOWING THE DECISION (SUPRA), WE DISMISS THE ASSESSEES APPEAL. 53. GROUND NO. 4.2 IS REGARDING 90% OF THE INTEREST RECEIVED OF RS. 2,17,185/- IS REQUIRED TO BE EXCLUDED FROM THE PROF IT OF THE BUSINESS UNDER CLAUSE (BAA) OF THE EXPLANATION TO SEC. 80HHC . 54. THIS ISSUE HAS ALREADY BEEN DISCUSSED AT PARA N O. 39 IN ITA NO. 4174/MUM/2005 IN ASSESSEES APPEAL. THEREFORE, WE D ISMISS THE ASSESSEES APPEAL ON THIS ISSUE. 55. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 23 RD DAY OF JULY, 2010 SD/- SD/- (R.K. PANDA) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 23 RD JULY, 2010 VINATI ORGANICS LTD., 20 RJ COPY TO :` 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR H BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI VINATI ORGANICS LTD., 21 DATE INITIALS 1 DRAFT DICTATED ON: 8.7.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 1 3 . 7 .2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/ PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______