TORM SHIPPING INDIA P.LTD ( FORMERLY KNOWN AS ORINOCO MARINE CONSULTANCY INDIA P.LTD), MUMBAI V. DCIT RG 3(3), MUMBAI

ITA 1272/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2445 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2016
• Appeal Filed By: Assessee
• Bench Allotted: E
• Next Hearing Date: 28-05-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 14-02-2013
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Depreciation; Deemed to accrue or arise in india; Question of law; Tangible material; Valuation report; Reason to believe; Reassessment proceedings
• Section: 43B; 143(3); 142(1); 133A; 115JB; 148; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A. NO.1272 & 1273/MUM/2013 (ASSESSMENT YEARS: 2006-07 & 2007-08) TORM SHIPPING INDIA PVT LTD (FORMERLY KNOWN AS ORINOCO MARINE CONSULTANCY INDIA PVT LTD) II FLOOR, LEELA BUSINESS PARK ANDHERI KURLA ROAD,ANDHERI (E), MUMBAI 400 059 VS ITO, 93)(4), MUMBAI PAN : AACO1884D (ASSESSEE) (RESPONDENT) ASSESSEE BY SHRI GIRISH DAVE RESPONDENT BY SHRI MALLIKARJUN UTTURE DATE OF HEARING : 10-10-2016 DATE OF PRONOUNCEMENT : 14 -10-2016 O R D E R PER ASHWANI TANEJA, AM: THERE ARE TWO APPEALS FILED BY THE ASSESSEE FOR AS SESSMENT YEARS 2006-07 AND 2007-08. FIRST WE SHALL TAKE UP THE A PPEAL FOR A.Y. 2006-07 IN ITA NO.1272/MUM/2013. FIRST WE SHALL TAKE UP APPEAL FOR AY 2006-07 IN ITA 1272/MUM/2013: 2. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-7, MUMBAI [HER EINAFTER CALLED 2 I.T.A. NO.1272/MUM/2013 CIT(A)] DATED 26-09-2012 PASSED AGAINST THE ASSESSM ENT ORDER U/S 143(3) R.W.S. 147 DATED 30-12-2009 ON THE FOLLOWING GROUND S: THE ASSESSEE OBJECTS TO THE ORDER DATED 26 SEPTEMBE R 2012 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) - 7, MUMBA I ('CIT(A)') FOR THE ASSESSMENT YEAR 2006-07 ON THE FOLLOWING AMONG OTHER GROUNDS: 1. THE CIT(A) ERRED IN HOLDING THAT THE DY. COMMIS SIONER OF INCOME TAX- 3(3) ('DCIT') WAS JUSTIFIED IN REOPENING THE A SSESSMENT UNDER SECTION 147 OF THE ACT. 2. THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.1,16,50,971 AS DEEMED INCOME UNDER SECTIONS 69B/69C OF THE ACT. 3. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 9,00,000 BEING PROFESSIONAL FEES PAID TO CONSULTANTS. 4. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 7,65,120 TOWARDS RENT PAID TO OMCI MARINE SERVICES PRIVATE LIMITED BY INVOKING PROVISIONS OF SECTION 40A(2)(B) OF THE ACT . 5. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EAC H OTHER. 3. DURING THE COURSE OF HEARING, IT WAS STATED AT THE VERY OUTSET BY THE LD. COUNSEL APPEARING ON BEHALF OF THE ASSESSEE THA T IN THIS CASE, THE IMPUGNED ORDER PASSED U/S 147 OF THE ACT IS ILLEGAL IN THE EYES OF LAW. OUR ATTENTION WAS DRAWN TO THE ADDITIONAL GROUNDS FILED BY THE ASSESSEE VIDE ITS PETITION DATED 21-06-2016, WHICH ARE AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED ASSESSING OFFICER ERRED IN NOT FOLLOWING THE PROCED URE FOR REASSESSMENT AS LAID DOWN BY THE SUPREME COURT IN I TS DECISION IN GKN DRIVESHAFTS (INDIA) PVT LTD VS. ITO (259 ITR 19 ). 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN AFFIR MING THE REASSESSMENT PROCEEDINGS WHEN NO ADDITION IS MADE B Y THE ASSESSING OFFICER FOR THE ISSUE ON WHICH REASSESSME NT PROCEEDINGS WERE INITIATED. THE REASSESSMENT ORDER DATED 30 .12 .2009 IS CONTRARY TO JURISDICTIONAL BOMBAY HIGH COURT DECISION IN THE CASE OF CIT VS. JET AIRWAYS (331 ITR 236). THEREFORE, THE REASSESSMENT PROCEEDING ON OTHER INCOME DESERVES TO BE QUASHED AS BAD IN LAW. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSMENT PROCEEDINGS WERE INITIATED WITH THE ISSUE OF NOTICE UNDER SECTION 143(2) AND 142(1) OF THE ACT ON 24.07.2008 WITHOUT DISPOSING THE 3 I.T.A. NO.1272/MUM/2013 OBJECTION FILED BY THE ASSESSEE FOR REOPENING OF AS SESSMENT. THEREFORE, THE REASSESSMENT ORDER DATED 30.12.2009 PASSED DESERVES TO BE SET ASIDE. 4. DURING THE COURSE OF HEARING IT WAS ARGUED THAT ADD ITIONAL GROUNDS ARE PURELY LEGAL GROUNDS AND GO TO THE ROOT OF THE MATTER AND DO NOT REQUIRE ANY INVESTIGATION OF FRESH FACTS AND, THERE FORE, THEY SHOULD BE ADMITTED IN THE INTEREST OF JUSTICE AND FAIRNESS. 5. PER CONTRA, THE LD. DR DID NOT RAISE ANY OBJECTION WITH REGARD TO THE ADDITIONAL GROUNDS RAISED AND, THEREFORE, THE ADDIT IONAL GROUNDS ARE ADMITTED FOR ADJUDICATION. 6. IT WAS STATED AT THE VERY OUTSET BY THE LD. SENIOR COUNSEL APPEARING ON BEHALF OF THE ASSESSEE THAT IN THIS CASE, THERE HAS BEEN A GROSS FAILURE ON THE PART OF THE ASSESSING OFFICER IN NOT FOLLOWI NG THE MANDATE OF THE LAW WHILE FRAMING ASSESSMENT ORDER U/S 147. IT WAS SUBMITTED THAT THOUGH THE REASONS WERE FURNISHED BY THE ASSESSING OFFICER IN RESPONSE TO THE REQUEST OF THE ASSESSEE AND THE OBJECTIONS WERE RAISED BY THE ASSESSEE WITH REGARD TO REOPENING OF THE CASE BUT T HE OBJECTIONS RAISED BY THE ASSESSEE WERE NOT DISPOSED OF BY THE ASSESSING OFFICER BEFORE FRAMING THE ASSESSMENT ORDER. IT WAS EXPLAINED TO THE ASSE SSING OFFICER THAT THE INCOME ALLEGED TO HAVE BEEN ESCAPED IN THE REASONS HAD ALREADY BEEN INCLUDED BY THE ASSESSEE IN ITS RETURN OF INCOME FI LED ORIGINALLY. IT WAS ALSO REQUESTED TO THE ASSESSING OFFICER TO DROP THE REAS SESSMENT PROCEEDINGS AS THERE WAS NO ESCAPEMENT OF INCOME. THE ASSESSIN G OFFICER WAS SATISFIED WITH THE REPLY OF THE ASSESSEE AND, THERE FORE, HE DID NOT MAKE ANY ADDITION IN THE RE-ASSESSMENT ORDER IN RESPECT OF THE INCOME ALLEGED TO HAVE BEEN ESCAPED IN THE REASONS RECORDED. BUT THE ASSESSING OFFICER DID NOT ACCEPT THE REQUEST OF THE ASSESSEE FOR DROP PING THE PROCEEDINGS 4 I.T.A. NO.1272/MUM/2013 AND FRAMED THE ASSESSMENT ORDER MAKING ADDITIONS ON OTHER ISSUES WHICH WERE NOT RAISED IN THE REASONS RECORDED. IT WAS SU BMITTED THAT THE ASSESSMENT ORDER FRAMED BY THE ASSESSING OFFICER IS NOT PERMISSIBLE UNDER THE LAW IN VIEW OF THE JUDGMENT OF THE HONBLE BOMB AY HIGH COURT IN THE CASE OF CIT(A) VS JET AIRWAYS LTD 331 ITR 236 (BOM) . RELIANCE WAS ALSO PLACED ON ANOTHER JUDGMENT OF THE HONBLE BOMBAY HI GH COURT IN THE CASE OF V.M. SALGAONKAR SALES INTERNATIONAL VS ACIT 59 T AXMAN.COM FOR THE PROPOSITION THAT THE ASSESSING OFFICER COULD NOT HA VE COMPLETED THE REASSESSMENT PROCEEDINGS WITHOUT DISPOSING OF THE O BJECTIONS RAISED BY THE ASSESSEE. RELIANCE WAS ALSO PLACED IN THIS REG ARD ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF GKN DRIVES HAFTS (INDIA) LTD 259 ITR 19 (SC). 7. PER CONTRA, THE LD. DR SUBMITTED THAT ON PERUSAL OF THE ASSESSMENT ORDER, ADMITTEDLY, IN THIS CASE THE OBJECTIONS WERE NOT DISPOSED OF BY THE ASSESSING OFFICER AND ADMITTEDLY NO ADDITION HAS BE EN MADE IN THE REASSESSMENT ORDER FRAMED BY THE ASSESSING OFFICER WITH REGARD TO THE INCOME WHICH WAS ALLEGED TO HAVE BEEN ESCAPED IN TH E REASONS RECORDED BY THE ASSESSING OFFICER. BUT IN VIEW OF JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF N GOVINDRAJU VS ITO ITA N O. 504/2013, THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER WA S NOT BAD IN LAW. 8. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH T HE SIDES, DETAILS AND EVIDENCES BROUGHT BEFORE US AS WELL AS JUDGMENTS PLACED BEFORE US BY BOTH SIDES. THE BRIEF BACKGROUND AND FACTS OF THE CASE AS NOTED FROM THE ORDERS OF LOWER AUTHORITIES ARE THAT EARLIER A SURVEY ACTION U/S 133A WAS CARRIED OUT BY THE DEPARTMENT ON THE P REMISES OF THE ASSESSEE COMPANY ON 23-08-2005. IN THE SAID SURVEY PROCEEDINGS, THE SURVEY OFFICERS NOTICED THAT THE COMPANY HAD RENDER ED CERTAIN SERVICES 5 I.T.A. NO.1272/MUM/2013 TO M/S. BELMONT SHIP MANAGEMENT B.V. DURING THE F.Y .2005-06 WHICH WAS NOT RECORDED IN THE BOOKS OF ACCOUNTS TILL THE DATE OF SURVEY. CONSEQUENT TO THAT, THE MANAGING DIRECTOR OF THE COMPANY OFFERED THE AFORESAID SUM AS INCOME TO BE TAXED IN THE SURVEY PROCEEDINGS. SUBSE QUENT TO THAT, WHEN THE ASSESSEE'S RETURNED INCOME WAS FILED ON 18/11/2 006 DECLARING TOTAL INCOME OF RS.1,57,70,538/- , BUT FROM THE PERUSAL O F THE COMPUTATION OF INCOME OF THE ASSESSEE, THE AO COULD NOT FIND MENTI ON OF THE DISCLOSURE WHICH WAS MADE BY THE MANAGING DIRECTOR OF THE ASSE SSEE COMPANY DURING THE SURVEY PROCEEDINGS CONDUCTED IN OFFICE P REMISES OF THE ASSESSEE COMPANY ON 23/08/2005. THEREFORE TAKING N OTE OF THE AFORESAID NON-DISCLOSURE OF ADDITIONAL INCOME WHICH WAS OFFER ED TO TAX BY THE ASSESSEE COMPANY DURING THE SURVEY PROCEEDINGS, THE AO ISSUED NOTICE DATED 2/6/2008 U/S 148 OF THE ACT ASKING THE ASSESS EE TO FILE THE RETURN OF INCOME FOR REASSESSMENT FOR THE ESCAPEMENT OF INCOM E WHICH WAS NOT DISCLOSED. 9. IN RESPONSE, THE ASSESSEE FILED ITS RETURN OF INCO ME AND REQUESTED FOR SUPPLYING COPY OF REASONS. ACCORDINGLY, THE AS SESSING OFFICER SUPPLIED COPY OF REASONS RECORDED TO THE ASSESSEE WHICH READ S AS UNDER: A SURVEY UNDER SECTION 133A OF THE ACT WAS CARRIED OUT ON 23.08.2005 AT THE OFFICE PREMISES OF THE ASSESSEE A T LEELA BUSINESS PARK, ANDHERI (E), MUMBAI 400059. DURING THE COURSE OF SURVEY A STATEMENT OF CAPT. SH RIDHAR BHARALHAN, MANAGING DIRECTOR WAS RECORDED. IN ANSWE R TO QUESTION NO.25 OF HIS STATEMENT, THE MD HAS ADMITTE D UNDISCLOSED INCOME AT RS.50,00,000/-. THE ASSESSEE HAS FILED RETURN OF INCOME ON 18.11.20 06, A PAPER COPY OF WHICH WAS FURNISHED ON 21.11.2006. IN THE R ETURN OF INCOME THE ASSESSEE HAS NOT SHOWN ANY INCOME FROM OTHER SO URCES. THE ADDITIONAL INCOME DISCLOSED DURING SURVEY SHOUL D HAVE BEEN DISCLOSED IN THE RETURN AS INCOME FROM OTHER SOURCE S. THE RETURN FLED DOES NOT INDICATE THAT THE ADDITIONAL INCOME O F RS. 6 I.T.A. NO.1272/MUM/2013 50,00,000/- ADMITTED DURING THE COURSE OF SURVEY, H AS BEEN INCLUDED IN THE TOTAL INCOME. I HAVE, THEREFORE, REASON TO BELIEVE THAT THE INCOM E OF RS.50,00,000/- HAS ESCAPED ASSESSMENT. 10. IN RESPONSE, THE ASSESSEE FILED DETAILED REPLY CLAR IFYING THAT THE INCOME ALLEGED TO HAVE BEEN ESCAPED IN THE REASONS HAS ALREADY BEEN INCLUDED BY THE ASSESSEE WHILE FILING ITS ORIGINAL RETURN AND, THEREFORE, THERE WAS NO ESCAPEMENT OF INCOME, THEREFORE, THE P ROCEEDINGS SHOULD BE DROPPED. RELEVANT PART OF ASSESSEES REPLY DATED 2 3-08-2008 READS AS FOLLOWS: THE INCOME REFERRED TO DURING THE SURVEY U/S 133A IS CONTAINED IN THE HEAD MANAGEMENT FEES' AND THE AMOU NT OF USD 100.0001- DUE FROM M/S BELMONT SHIP MANAGEMENT B V. HAS BEEN INCLUDED IN THE INCOME OF THE COMPANY AND CONTAINED IN THE PROFIT OF THE COMPANY. THE SAME HAS BEEN CON SIDERED FOR COMPUTATION OF THE TOTAL INCOME IN THE RETURN OF IN COME FILED WITH THE DEPARTMENT. 11. AGAIN, VIDE LETTER DATED 09-10-2009 IT WAS SUBMITT ED BY THE ASSESSEE THAT THE AMOUNT OF SO CALLED RS.50 LACS WAS IN FACT AN AMOUNT OF USD 1,00,000 WHICH HAS ALREADY BEEN INCLUDED IN THE INC OME OF THE IMPUGNED ASSESSMENT ORDER AND OFFERED TO TAX BY THE ASSESSEE AND, THEREFORE, THE SAME CANNOT BE ADDED AGAIN. IT WAS REQUESTED BY TH E ASSESSEE TO DROP THE RE-ASSESSMENT PROCEEDINGS. BUT THE ASSESSING O FFICER WENT ON WITH THE REASSESSMENT PROCEEDINGS AND COMPLETED THE SAME AND FRAMED IMPUGNED REASSESSMENT ORDER. IT IS NOTED THAT THE INCOME ALLEGED TO HAVE BEEN ESCAPED IN THE REASONS RECORDED BY THE AS SESSING OFFICER WAS NOT ADDED BY THE ASSESSING OFFICER IN THE REASSESSM ENT ORDER. SUBSEQUENTLY, DURING THE COURSE OF APPELLATE PROCEE DINGS BEFORE THE LD. CIT(A), A REMAND REPORT WAS CALLED FOR. IN THE REM AND REPORT, IT WAS ADMITTED BY THE ASSESSING OFFICER THAT THE IMPUGNED INCOME HAS BEEN INCLUDED BY THE ASSESSEE IN THE RETURN OF INCOME FI LED ON 21-11-2006 FOR 7 I.T.A. NO.1272/MUM/2013 A.Y. 2006-07, BUT THE RE-ASSESSMENT PROCEEDINGS WER E INITIATED BECAUSE THE ASSESSING OFFICER WAS NOT ABLE TO MAKE OUT FROM THE PERUSAL OF RETURN FILED BY THE ASSESSEE WHETHER IMPUGNED INCOME HAS B EEN INCLUDED IN THE RETURN OR NOT. 12. WE HAVE GONE THROUGH THE ASSESSMENT ORDER, REMAND R EPORT OF THE ASSESSING OFFICER AND THE ORDER OF LD. CIT(A). IT IS AN ADMITTED FACT THAT THE IMPUGNED INCOME HAS ALREADY BEEN INCLUDED BY TH E ASSESSEE IN THE RETURN FILED ORIGINALLY. THE ONLY DIFFICULTY WITH THE ASSESSING OFFICER WAS THAT FROM PERUSAL OF THE RETURN HE WAS NOT ABLE TO MAKE OUT WHETHER THE IMPUGNED INCOME HAS BEEN INCLUDED IN THE RETURN OR NOT. EVEN IF WE APPRECIATE THE DIFFICULTY FACED BY THE ASSESSING OF FICER, THEN ALSO, THE SAME WAS CLARIFIED BY THE ASSESSEE BY WAY OF HIS RE PLY SUBMITTED DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS. THE FACTS AND EVIDENCES WERE BROUGHT ON RECORD SHOWING THAT THE IMPUGNED INCOME HAS BEEN INCLUDED IN THE RETURN FILED BY THE ASSESSEE. THEREAFTER, N O DOUBT WAS LEFT AND, THEREFORE, NO FURTHER QUERY WAS ASKED BY THE ASSESS ING OFFICER IN THIS REGARD. IT WAS SO CONFIRMED BY THE AO WHEN HE MADE NO ADDITION IN THIS REGARD IN THE ASSESSMENT ORDER. THIS FACTUAL SITUAT ION HAS BEEN ACCEPTED BY THE ASSESSING OFFICER IN HIS REMAND REPORT ALSO. UNDER THESE CIRCUMSTANCES, THE ASSESSING OFFICER WAS OBLIGED UN DER THE LAW TO DROP THE RE-ASSESSMENT PROCEEDINGS AS PER THE MANDATE GI VEN UNDER THE LAW AS ALSO EXPLAINED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS JET AIRWAYS LTD (SUPRA) OBSERVING AS UNDER:- 14. THE SECOND LINE OF PRECEDENT IS REFLECTED IN A JUDGMENT OF THE RAJASTHAN HIGH COURT IN (CIT V. SHRI RAM SINGH 306 ITR 343. THE RAJASTHAN HIGH COURT CONSTRUED THE WORDS USED B Y PARLIAMENT IN SECTION 147 PARTICULARLY THE WORDS TH AT THE ASSESSING OFFICER 'MAY ASSESS OR REASSESS SUCH INCO ME AND 8 I.T.A. NO.1272/MUM/2013 ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS E SCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENT LY IN THE COURSE OF THE PROCEEDINGS' UNDER SECTION 147. THE R AJASTHAN HIGH COURT HELD AS FOLLOWS: '. . . IF IS ONLY WHEN, IN PROCEEDINGS UNDER SECTIO N 147 THE ASSESSING OFFICER, ASSESSES OR REASSESSES ANY INCOM E CHARGEABLE TO TAX, WHICH HAS ESCAPED ASSESSMENT FOR ANY ASSESS MENT YEAR, WITH RESPECT TO WHICH HE HAD 'REASON TO BELIEVE' TO BE SO, THEN, ONLY IN ADDITION, HE CAN ALSO PUT TO TAX, THE OTHER INCOME, CHARGEABLE TO TAX, WHICH HAS ESCAPED ASSESSMENT, AN D WHICH HAS COME TO HIS NOTICE SUBSEQUENTLY, IN THE COURSE OF P ROCEEDINGS UNDER SECTION 147. TO CLARIFY IT FURTHER, OR TO PUT IT IN OTHER WORDS, IN OUR OPINION, IF IN THE COURSE OF PROCEEDINGS UNDER SECT ION 147, THE ASSESSING OFFICER WERE TO COME TO THE CONCLUSION, T HAT ANY INCOME CHARGEABLE TO TAX, WHICH, ACCORDING TO HIS ' REASON TO BELIEVE', HAD ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, DID NOT ESCAPE ASSESSMENT, THEN, THE MERE FACT THAT THE ASS ESSING OFFICER ENTERTAINED A REASON TO BELIEVE, ALBEIT EVEN A GENU INE REASON TO BELIEVE, WOULD NOT CONTINUE TO VEST HIM WITH THE JU RISDICTION, TO SUBJECT TO TAX, ANY OTHER INCOME, CHARGEABLE TO TAX , WHICH THE ASSESSING OFFICER MAY FIND TO HAVE ESCAPED ASSESSME NT, AND WHICH MAY COME TO HIS NOTICE SUBSEQUENTLY, IN THE C OURSE OF PROCEEDINGS UNDER SECTION 147.' 15. PARLIAMENT, WHEN IT ENACTED THE EXPLANATION (3) TO SECTION 147 BY THE FINANCE (NO. 2) ACT, 2009 CLEARLY HAD BEFORE IT BOTH THE LINES OF PRECEDENT ON THE SUBJECT. THE PRECEDENT DE ALT WITH TWO SEPARATE QUESTIONS. WHEN IT EFFECTED THE AMENDMENT BY BRINGING IN EXPLANATION 3 TO SECTION 147, PARLIAMEN T STEPPED IN TO CORRECT WHAT IT REGARDED AS AN INTERPRETATIONAL ERROR IN THE VIEW WHICH WAS TAKEN BY CERTAIN COURTS THAT THE ASS ESSING OFFICER HAS TO RESTRICT THE ASSESSMENT OR REASSESSMENT PROC EEDINGS ONLY TO THE ISSUES IN RESPECT OF WHICH REASONS WERE RECO RDED FOR REOPENING THE ASSESSMENT. THE CORRECTIVE EXERCISE E MBARKED UPON BY 'PARLIAMENT IN THE FORM OF EXPLANATION 3 CO NSEQUENTLY PROVIDES THAT THE ASSESSING OFFICER MAY ASSESS OR R EASSESS THE INCOME IN RESPECT OF ANY ISSUE WHICH COMES TO HIS N OTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS THOUG H THE REASONS FOR SUCH ISSUE WERE NOT INCLUDED IN THE NOT ICE UNDER 9 I.T.A. NO.1272/MUM/2013 SECTION 148 (2). THE DECISIONS OF THE KERALA HIGH C OURT IN TRAVANCORE CEMENTS LID. 'S CASE (SUPRA) AND OF THE PUNJAB & HA RYANA HIGH COURT IN VIPAN KHANNAS CASE (SUPRA) WOULD, THEREFO RE, NO LONGER HOLD THE FIELD. HOWEVER, INSOFAR AS THE SECOND LINE OF AUTHORITY IS CONCERNED, WHICH IS REFLECTED IN THE JUDGMENT OF TH E RAJASTHAN HIGH COURT IN SHRI RAM SINGH'S CASE (SUPRA), EXPLANATION 3 AS INSERTED BY PARLIAMENT WOULD NOT TAKE AWAY THE BASIS OF THAT DE CISION. THE VIEW WHICH WAS TAKEN BY THE RAJASTHAN HIGH COURT WA S ALSO TAKEN IN ANOTHER JUDGMENT OF THE PUNJAB & HARYANA HIGH CO URT IN CIT V. ATLAS CYCLE INDUSTRIES [19891 180 IJR 319 1 . THE DECISION IN ATLAS CYCLE INDUSTRIES' CASE (SUPRA) HELD THAT THE ASSESS ING OFFICER DID NOT HAVE JURISDICTION TO PROCEED WITH THE REASSESSMENT, ONCE HE FOUND THAT THE TWO GROUNDS MENTIONED IN THE NOTICE UNDER SECTION 148 WERE INCORRECT OR NON-EXISTENT. THE DECISIONS OF TH E PUNJAB & HARYANA HIGH COURT IN ATLAS CYCLE INDUSTRIES' CASE (SUPRA) AND OF THE RAJASTHAN HIGH COURT IN SHRI RAM SINGH'S CASE ( SUPRA) WOULD NOT BE AFFECTED BY THE AMENDMENT BROUGHT IN BY THE INSERTION OF EXPLANATION 3 TO SECTION 147. EXPLANATION 3 LIFTS T HE EMBARGO, WHICH WAS INSERTED BY JUDICIAL INTERPRETATION, ON T HE MAKING OF AN ASSESSMENT OR REASSESSMENT ON GROUNDS OTHER THAN TH OSE ON THE BASIS OF WHICH A NOTICE WAS ISSUED UNDER SECTION 14 8 SETTING OUT THE REASONS FOR THE BELIEF THAT INCOME HAD ESCAPED ASSESSMENT. THOSE JUDICIAL DECISIONS HAD HELD THAT WHEN THE ASS ESSMENT WAS SOUGHT TO BE REOPENED ON THE GROUND THAT INCOME HAD ESCAPED ASSESSMENT ON A CERTAIN ISSUE, THE ASSESSING OFFICE R COULD NOT MAKE AN ASSESSMENT OR REASSESSMENT ON ANOTHER ISSUE WHICH CAME TO HIS NOTICE DURING THE PROCEEDINGS. THIS INTERPRE TATION WILL NO LONGER HOLD THE FIELD AFTER THE INSERTION OF EXPLAN ATION 3 BY THE FINANCE ACT (NO. 2) OF 2009. HOWEVER, EXPLANATION 3 DOES NOT AND CANNOT OVERRIDE THE NECESSITY OF FULFILLING THE CON DITIONS SET OUT IN THE SUBSTANTIVE PART OF SECTION 147. AN EXPLANATION TO A STATUTORY PROVISION IS INTENDED TO EXPLAIN ITS CONTENTS AND C ANNOT BE CONSTRUED TO OVERRIDE IT OR RENDER THE SUBSTANCE AN D CORE NUGATORY. SECTION 147 HAS THIS EFFECT THAT THE ASSE SSING OFFICER HAS TO ASSESS OR REASSESS THE INCOME ('SUCH INCOME' ) WHICH ESCAPED ASSESSMENT AND WHICH WAS THE BASIS OF THE F ORMATION OF BELIEF AND IF HE DOES SO, HE CAN ALSO ASSESS OR REA SSESS ANY OTHER INCOME WHICH HAS ESCAPED ASSESSMENT AND WHICH, COME S TO HIS NOTICE DURING THE COURSE OF THE PROCEEDINGS. HOWEVE R, IF AFTER ISSUING A NOTICE UNDER SECTION 148, HE ACCEPTED THE CONTENTION OF 10 I.T.A. NO.1272/MUM/2013 THE ASSESSEE AND HOLDS THAT THE INCOME WHICH HE HAS INITIALLY FORMED A REASON TO BELIEVE HAD ESCAPED ASSESSMENT, HAS AS A MATTER OF FACT NOT ESCAPED ASSESSMENT, IT IS NOT OP EN TO HIM INDEPENDENTLY TO ASSESS SOME OTHER INCOME. IF HE IN TENDS TO DO SO, A FRESH NOTICE UNDER SECTION 148 WOULD BE NECES SARY, THE LEGALITY OF WHICH WOULD BE TESTED IN THE EVENT OF A CHALLENGE BY THE ASSESSEE. 16. WE HAVE APPROACHED THE ISSUE OF INTERPRETATION THAT HAS ARISEN FOR DECISION IN THESE APPEALS, BOTH AS A MATTER OF FIRST PRINCIPLE, BASED ON THE LANGUAGE USED IN SECTION 147(1) AND ON THE BASIS OF THE PRECEDENT ON THE SUBJECT. WE AGREE WITH THE SUB MISSION WHICH HAS BEEN URGED ON BEHALF OF THE ASSESSEE THAT SECTI ON 147(1) AS IT STANDS POSTULATES THAT UPON THE FORMATION OF A REAS ON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMEN T FOR ANY ASSESSMENT YEAR, THE ASSESSING OFFICER MAY ASSESS O R REASSESS SUCH INCOME 'AND ALSO' ANY OTHER INCOME CHARGEABLE TO TAX WHICH COMES TO HIS NOTICE SUBSEQUENTLY DURING THE PROCEED INGS AS HAVING ESCAPED ASSESSMENT. THE WORDS 'AND ALSO' ARE USED IN A CUMULATIVE AND CONJUNCTIVE SENSE. TO READ THESE WOR DS AS BEING IN THE ALTERNATIVE WOULD BE TO REWRITE THE LANGUAGE USED BY PARLIAMENT. OUR VIEW HAS BEEN SUPPORTED BY THE BACK GROUND WHICH LED TO THE INSERTION OF EXPLANATION 3 TO SECTION 14 7. PARLIAMENT MUST BE REGARDED AS BEING AWARE OF THE INTERPRETATI ON THAT WAS PLACED ON THE WORDS 'AND ALSO' BY THE RAJASTHAN HIG H COURT IN SHRI RAM SINGH CASE (SUPRA). PARLIAMENT HAS NOT TAK EN AWAY THE BASIS OF THAT DECISION. WHILE IT IS OPEN TO PARLIAM ENT, HAVING REGARD TO THE PLENITUDE OF ITS LEGISLATIVE POWERS TO DO SO , THE PROVISIONS OF SECTION 147(1) AS THEY STOOD AFTER THE AMENDMENT OF 1-4-1989 CONTINUE TO HOLD THE FIELD. IN THAT VIEW OF THE MATTER AND FOR THE REASONS THAT WE HAVE INDICATED, WE DO NOT REGARD THE DECISION OF THE TRI BUNAL IN THE PRESENT CASE AS BEING IN ERROR. THE QUESTION OF LAW SHALL, ACCORDINGLY, STAND ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. THE APPEAL IS, ACCORDINGLY, DISMIS SED. THERE SHALL BE NO ORDER AS TO COSTS. 13. IT IS WELL ACCEPTED LEGAL POSITION THAT THE JUDGME NT OF JURISDICTIONAL HIGH COURT IS BINDING UPON ALL THE AUTHORITIES WORK ING UNDER THE JURISDICTION OF THE HIGH COURT. IT IS FURTHER NOTE D BY US THAT IDENTICAL VIEW 11 I.T.A. NO.1272/MUM/2013 HAS BEEN TAKEN BY HONBLE DELHI COURT IN THE CASE O F RANBAXY LABORATORIES LTD VS CIT 12 TAXMANN.COM 74 (DELHI), WHEREIN IT WAS HELD THAT WHERE REASONS FOR INITIATION OF REASSESSMENT P ROCEEDINGS CEASED TO SURVIVE THEN THE AO HAD NO JURISDICTION TO REASSESS ISSUES OTHER THAN THE ISSUES IN RESPECT OF WHICH PROCEEDINGS WERE INITIAT ED. THIS JUDGMENT WAS FOLLOWED BY HONBLE DELHI HIGH COURT IN ITS RECENT JUDGMENT IN THE CASE OF ORIENTAL BANK OF COMMERCE VS ADDNL. CIT 49 TAXMANN.C OM 485 (DELHI) . 13.1. HONBLE GUJRAT HIGH COURT IN THE CASE OF CIT VS MOHMED JUNED DADANI 30 TAXMANN.COM 1(GUJARAT) HELD THAT WHEN ON GROUND ON WHICH REOPENING OF ASSESSMENT WAS BASED, NO ADDITION WAS MADE BY THE AO IN THE ORDER OF REASSESSMENT, THEN HE COULD NOT HAVE M ADE ADDITIONS ON SOME OTHER GROUNDS WHICH DID NOT FORM PART OF REASO NS RECORDED BY HIM. 13.2. IN THE CASE OF DCIT V. TAKSHILA EDUCATION SOCIETY 378 ITR 520 (PAT ), IT WAS OBSERVED BY THE HONBLE PATNA HIGH COURT THA T IF IN THE COURSE OF PROCEEDINGS UNDER SECTION 147 OF THE INCOME TAX ACT , 1961, THE ASSESSING OFFICER COMES TO THE CONCLUSION THAT ANY INCOME CHA RGEABLE TO TAX WHICH, ACCORDING TO HIS REASON TO BELIEVE HAD ESCAPED AS SESSMENT FOR ANY ASSESSMENT YEAR, DID NOT ESCAPE ASSESSMENT, THEN TH E MERE FACT THAT THE ASSESSING OFFICER ENTERTAINED A REASON TO BELIEVE, ALBEIT EVEN A GENUINE REASON TO BELIEVE, WOULD NOT CONTINUE TO VEST HIM W ITH THE JURISDICTION TO SUBJECT TO TAX ANY OTHER INCOME CHARGEABLE TO TAX W HICH THE ASSESSING OFFICER MAY FIND TO HAVE ESCAPED ASSESSMENT AND WHI CH MAY COME TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF PROCEEDINGS UN DER SECTION 147. HONBLE PATNA HIGH COURT DISCUSSED IN DETAIL AND F OLLOWED THE RATIO LAID DOWN BY THE HONBLE RAJASTHAN HIGH COURT IN THE CAS E OF CIT V. SHRI RAM SINGH 306 ITR 340 WHEREIN IT WAS HELD BY THE HONBLE RAJASTHAN HIGH COURT THAT ONCE ASSESSING OFFICER COMES TO CONCLUSI ON THAT INCOME WITH 12 I.T.A. NO.1272/MUM/2013 RESPECT TO WHICH HE HAD ENTERTAINED REASON TO BELI EVE TO HAVE ESCAPED ASSESSMENT, WAS FOUND TO HAVE BEEN EXPLAINED, HIS J URISDICTION COME TO A STOP AT THAT, AND HE DOES NOT CONTINUE TO POSSESS J URISDICTION TO PUT TO TAX ANY OTHER INCOME WHICH SUBSEQUENTLY COMES TO HIS NO TICE IN COURSE OF PROCEEDINGS, WHICH WAS FOUND BY HIM TO HAVE ESCAPED ASSESSMENT. 13.3. HONBLE CHATTISGARH HIGH COURT IN THE CASE OF ACIT V. MAJOR DEEPAK MEHTA 344 ITR 641 HELD THAT IF AO FINALLY FOUND THAT THERE WAS NO ESCAPEMENT OF INCOME IN RESPECT OF THE HEAD WHICH F ORM REASON TO BELIEVE IN NOTICE ISSUED U/S 148, THEN IMPUGNED RE ASSESSMENT ORDER WAS TO BE SET ASIDE. 13.4. UNDER THESE CIRCUMSTANCES, WE FIND THAT THE RE-ASS ESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS NOT VALID IN THE EYES OF LAW. THE ASSESSING OFFICER WAS BOUND TO DROP THE RE-ASSESSME NT PROCEEDINGS. THE ASSESSING OFFICER WAS OF COURSE AT LIBERTY TO RECOR D FRESH REASONS AND INITIATE RE-ASSESSMENT PROCEEDINGS IN CASE ANY ANOT HER ESCAPED INCOME WAS FOUND BY HIM, AS PERMITTED UNDER THE LAW. BUT ONCE THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ESCAPED INCOME AS ALLEGED IN THE REASONS RECORDED BY HIM WAS NOT THE INCOME ACTUALLY ESCAPED , BUT ALREADY INCLUDED IN ITS TAXABLE INCOME AND OFFERED TO TAX B Y THE ASSESSEE, IT WAS NOT LEGALLY PERMISSIBLE FOR HIM TO CONTINUE WITH TH E REASSESSMENT PROCEEDINGS. 14. IT IS FURTHER NOTED BY US FROM THE PERUSAL OF THE REASONS RECORDED THAT REASONS HAVE BEEN RECORDED ON THE BASIS OF MERE DOU BTS. THERE WERE NO BASES WITH THE AO TO ALLEGE THAT TOO WITH THE SUPPO RT OF ANY COGENT MATERIAL THAT IMPUGNED INCOME WAS NOT INCLUDED BY T HE ASSESSEE IN ITS INCOME OFFERED TO TAX. REOPENING OF AN ASSESSMENT I S NOT PERMITTED MERELY ON THE BASIS OF SOME NOTIONS OR PRESUMPTIONS . NOR IT IS ALLOWED 13 I.T.A. NO.1272/MUM/2013 MERELY FOR MAKING VERIFICATION OF SOME BASIC FACTS. THERE MUST BE EXISTENCE OF SOME TANGIBLE MATERIAL INDICATING ESCA PEMENT OF INCOME. THEN ONLY, AN AO IS PERMITTED TO RESORT TO PROVISIO NS OF REOPENING CONTAINED IN SECTIONS 147 TO 151 OF THE ACT. BECAUS E, ONCE AN ASSESSMENT IS REOPENED ON VALID BASIS, ENTIRE PANDARAS BOX IS OPEN BEFORE THE AO. THEREFORE THE AO MAY THEN BRING TO TAX NOT ONLY INC OME ESCAPED FROM TAX WHICH WAS MENTIONED IN THE REASONS RECORDED, BUT AL SO ANY OTHER ESCAPED INCOME THAT MAY COME TO HIS NOTICE DURING T HE COURSE OF REASSESSMENT PROCEEDINGS. REOPENING OF AN ASSESSMEN T ATTACKS AND PIERCES THE CONCEPT OF FINALITY OF LITIGATION. THER EFORE, AN INVALID REOPENING DONE IN THE CASUAL MANNER AND WITHOUT FOLLOWING PAR AMETERS OF LAW MAY CAUSE UNDUE HARDSHIP TO THE TAXPAYERS. THUS, IN VIE W OF THE AFORESAID LEGAL DISCUSSION AND FACTS OF THE CASE BEFORE US, W E FIND THAT AOS ACTION OF CONTINUING WITH THE REASSESSMENT PROCEEDINGS AND FR AMING OF THE IMPUGNED REASSESSMENT ORDER IS CONTRARY TO LAW AND FACTS AND, THEREFORE, THE SAME IS HEREBY QUASHED. 15. SINCE WE HAVE QUASHED THE RE-ASSESSMENT ORDER ON T HE JURISDICTIONAL ASPECT, WE DO NOT FIND IT NECESSARY TO GO INTO THE MERITS OF THE CASE. NOW WE SHALL TAKE UP APPEAL FOR AY 2007-08 IN ITA NO . 1273/MUM/2013: 16. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-7, MUMBAI [HER EINAFTER CALLED CIT(A)] DATED 06-09-2012 PASSED AGAINST THE ASSESSM ENT ORDER U/S 143(3) DATED 06-12-2009 ON THE FOLLOWING GROUNDS: THE APPELLANT OBJECTS TO THE ORDER DATED 6 SEPTEMB ER 2012 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) - 7, MU MBAI ('CIT(A)') 14 I.T.A. NO.1272/MUM/2013 FOR THE ASSESSMENT YEAR 2007-08 ON THE FOLLOWING AM ONG OTHER GROUNDS: 1. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 7,83,672 BEING PROFESSIONAL FEES PAID TO CONSULTANTS. 2.THE LEANED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE DY. COMMISSIONER OF INCOME TAX - 3(3) ('DCIT') IN MAKIN G AN ADDITION OF RS. 38,33,170 TOWARDS PROVISION FOR LEAVE ENCASHMEN T WHILE COMPUTING INCOME UNDER SECTION I15JB OF THE INCOME- TAX ACT. 3.THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. 17. GROUND 1: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE A CTION OF LD. CIT(A) IN CONFIRMING THE AGGREGATE DISALLOWANCE OF RSA.7,83,672 MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THESE E XPENSES REPRESENT THE AMOUNT OF PROFESSIONAL FEES PAID BY THE ASSESSEE F OR ISSUING FRESH SHARES AND, THEREFORE, THESE ARE CAPITAL IN NATURE. 18. THE BRIEF FACTS ARE THAT DURING THE YEAR, THE ASSES SEE PAID A SUM OF RS.7,50,000 TO M/S DM HARISH & CO AND A SUM OF RS.3 3,672 TO M/S LODHA & CO ON ACCOUNT OF PROFESSIONAL FEES FOR CONSULTANC Y IN VARIOUS MATTERS. THE ASSESSING OFFICER DISALLOWED THE SAME ON THE GR OUND THAT THIS CONSULTANCY WAS GIVEN FOR VALUATION OF SHARES CARRI ED OUT FOR ISSUANCE OF SHARES OF THE COMPANY AND, THEREFORE, THESE ARE NOT ALLOWABLE AS REVENUE EXPENSES. BEING AGGRIEVED, THE ASSESSEE FILED APPE AL BEFORE THE LD. CIT(A) AND SUBMITTED THAT THESE EXPENSES ARE REVENUE IN NA TURE IN AS MUCH AS THE EXPENDITURE HAS BEEN INCURRED FOR VALUATION OF SHARES. IT WAS ALTERNATIVELY ARGUED THAT IN ANY CASE, THE ENTIRE A MOUNT OF PROFESSIONAL FEES IS NOT CONNECTED WITH VALUATION OF SHARES. BU T, LD. CIT(A) WAS NOT SATISFIED WITH THE SUBMISSIONS OF THE ASSESSEE AND, THEREFORE, HE CONFIRMED THE DISALLOWANCE. 19. DURING THE COURSE OF HEARING BEFORE US, THE LD. SEN IOR COUNSEL OF THE ASSESSEE FAIRLY SUBMITTED THAT EVEN IF SOME PAR T OF ITS EXPENSES MAY 15 I.T.A. NO.1272/MUM/2013 NOT BE ALLOWABLE AS REVENUE EXPENSES, BUT THE ENTIR E PROFESSIONAL CONSULTANCY WAS NOT RENDERED IN CONNECTION WITH VAL UATION / ISSUANCE OF SHARES OF THE COMPANY ONLY, AND, THEREFORE, THE DIS ALLOWANCE MADE IS FACTUALLY INCORRECT. 19.1. PER CONTRA, THE LD. DR RELIED UPON THE ORDERS OF T HE LOWER AUTHORITIES. 20. WE HAVE GONE THROUGH THE ORDERS OF LOWER AUTHORITI ES. IT IS NOTED BY US THAT THE LD. CIT(A) HAS NOT CAREFULLY ANALYSE D THE ALTERNATE SUBMISSION OF THE LD. SENIOR COUNSEL WHEREIN IT WAS SUBMITTED THAT THE ENTIRE AMOUNT OF FEE PAID DID NOT BELONG TO CONSULT ANCY RENDERED FOR VALUATION / ISSUANCE OF SHARES. IT WAS REITERATED BEFORE US THAT THE ASSESSEE COMPANY REGULARLY SEEKS INFORMATION ON VAR IOUS MATTERS AND EXPENSES INCURRED FOR OTHER ROUTINE MATTERS WOULD F ALL IN THE REVENUE FIELD AND, THEREFORE, WRONGLY DISALLOWED. WE FIND FORCE IN THE ARGUMENT OF THE LD. SENIOR COUNSEL AND, THEREFORE, WE SEND THIS ISS UE BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIFYING THESE FACTS. T HE ASSESSEE SHALL SUBMIT REQUISITE DETAILS TO SHOW FOR WHAT PURPOSES CONSULT ANCY FEES WAS PAID BY THE ASSESSEE. THE CONSULTANCY FEE PAID BY THE ASS ESSEE IN CONNECTION WITH DAY TO DAY LEGAL MATTERS AND OTHER MATTERS WHI CH ARE NOT CONNECTED WITH ISSUANCE OF SHARES SHOULD BE ALLOWED AS REVENU E EXPENSES. THUS, THIS ISSUE IS SENT BACK TO THE FILE OF THE ASSESSING OFF ICER. THIS GROUND MAY BE TREATED AS ALLOWED, FOR STATISTICAL PURPOSE. 21. GROUND 2 : IN THIS GROUND, THE ASSESSEE HAS CONTESTED THE AC TION OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF THE ASSE SSING OFFICER IN MAKING AN ADDITION OF RS.38,33,170 ON ACCOUNT OF PROVISION FOR LEAVE ENCASHMENT WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. 22. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER 16 I.T.A. NO.1272/MUM/2013 ADDED PROVISION ON ACCOUNT OF LEAVE ENCASHMENT U/S 115JB ON THE GROUND THAT THE PROVISION REPRESENTS UNASCERTAINED LIABILI TIES. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) AND SUBMITTED THAT THE PROVISION OF LEAVE ENCASHMENT HAS BEEN MADE ON THE BASIS OF ACTUARIAL VALUATION REPORT AND KEEPING IN VIEWS THE REQUIREM ENTS OF ACCOUNTING STANDARD-15. THE ASSESSEE FILED DETAILED SUBMISSIO N BEFORE THE LD. CIT(A) ATTACKING THE ADDITION MADE BY THE ASSESSING OFFICE R. RELEVANT PART OF THE SAME IS REPRODUCED HEREUNDER FOR THE SAKE OF READY REFERENCE:- 5.1 THE RELEVANT PORTION OF SECTION 115JB OF THE AC T IS REPRODUCED HEREWITH FOR YOUR GOOD SELFS READY REFE RENCE: 115JB EXPLANATION [1].FOR THE PURPOSES OF THIS SECTION, 'BOOK PROFIT' MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOS S ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION ( 2), AS INCREASED BY (A) THE AMOUNT OF INCOME-TAX PAID OR PAYABLE, AND THE PROVISION THEREOF, OR (B) THE AMOUNTS CARRIED TO AN Y RESERVES, BY WHATEVER NAME CALLED OTHER THAN A RESERVE SPECIFIED UNDER SECTION 33.4C; OR (C) THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILI TIES; OR (D) THE AMOUNT BY WA Y OF PROVISION FOR LOSSES OF SUBSIDIARY COMPANIES; OR (E) THE AMOUNT OR AMOUNTS OF DIVIDENDS PAID OR PROPOSED ; OR (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABL E TO ANY INCOME TO WHICH SECTION 10 (OTHER THAN THE PROVISIO NS CONTAINED IN CLAUSE (38) THEREOF) OR SECTION 11 OR SECTION 12 AP PLY; OR (G) THE AMOUNT OF DEPRECIATION, H) THE AMOUNT OF DEFERRED INS AND THE PROVISION THE REFORE, (I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION F OR 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........ 17 I.T.A. NO.1272/MUM/2013 5.2 IT MAY BE NOTED THAT THE LEAVE ENCASHMENT COULD ONLY FALL UNDER CLAUSE (C) OF THE EXPLANATION I TO SECTION 115./B OF THE ACT. CLAUSE (C) CATEGORICALLY STATES THAT ASCERTA INED LIABILITIES SHOULD NOT BE CONSIDERED WHILE INCREASING THE BOOK PROFITS OF THE COMPANY. 5.3 THE DCIT HAS ALSO RIGHTLY ACCEPTED THAT IF THE LIAB ILITY IS ASCERTAINED, IT CAN BE CLAIMED UNDER 115JB OF THE A CT. 5.4 THE COMPANY WOULD LIKE TO INVITE YOUR ATTENTION TO THE NOTE NO. 10 OF THE SCHEDULE 14 FORMING PART OF THE AUDITED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT OF THE CO MPANY FOR THE YEAR ENDING 31 MARCH 2007 (REFER PAGE 19 & 20 OF THE COMPILATION). IN NOTE NO. 10, IT IS DEARLY STATED T HAT THE PROVISION OF THE LEAVE ENCASHMENT AS PER AS 15 HAS BEEN DONE BY ACTUARIAL VALUATION. 5.5 HOWEVER, THE LEARNED DCIT FAILED TO APPRECIATE THAT THE VALUATION DONE BY THE COMPANY IS BY ACTUARIAL VALUA TION AND AS THE SAID PRO VISION IS FOR AN ASCERTAINED LIABILITY , THE PROVISION FOR LEAVE ENCASHMENT OUGHT NOT TO ADDED TO THE BOOK PRO FITS OF THE APPELLANT COMPANY UNDER SECTION 115/B OF THE AC T. 5.6 RELIANCE IN THIS CONNECTION IS PLACED IN THE RU LING OF MUMBAI TRIBUNAL IN THE CASE OF ACJT V/S PIRAMAL HOLDINGS LTD (ITA NO. 3224/M/200) (REFER PAGE 170-175 OF THE COM PILATION) WHEREIN THE TRIBUNAL HAS HELD AS UNDER: '...WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ADDITION OF RS. 4,40,526/- BEING THE PROVISION FOR LEAVE ENCASHMENT WHILE COMP UTING THE BOOK PROFIT UNDER SECTION 115/B. IT IS A SETTLED LE GAL POSITION THAT WHILE COMPUTING THE BOOK PROFIT ONLY THE SPECIFIED ADJUSTMENTS AS MENTIONED IN EXPLANATION 1 TO SECTION 115JB(2) C AN BE MADE. CLAUSE (C) OF USE EXPLANATION 1 PROVIDES FOR ADJUST MENT OF AMOUNT SET ASIDE AS PROVISION FOR MEETING LIABILITY OTHER THAN ASCERTAINED LIABILITIES. THE PROVISION FOR LEAVE ENCASHMENT CALCULATED AS PER THE SCHEME IS AN ASCERTAINED LIAB ILITY ACTUALLY INCURRED BY THE ASSESSEE IN VIEW OF THE JUDGMENT OF HON'BLE SUPREME COURT IN CASE OF BHARAT EARTHMOVERS (SUPRA) . THEREFORE IN OUR VIEW NO ADJUSTMENTS COULD BE MADE ON THIS AC COUNT 18 I.T.A. NO.1272/MUM/2013 WHILE COMPUTING THE BOOK PROFIT. THE ORDER OF CIT(A ) DELETING THE ADDITION IS ACCORDINGLY UPHELD' TREATMENT UNDER NORMAL PROVISIONS OF THE ACT AND UNDER SECTION 115JB ARE NOT COMPARABLE 5.7 AT PARA 7.5 OF THE ASSESSMENT ORDER THE DCIT ALSO OBSERVED AS UNDER: THE TWO DIFFERENT STANDS OF THE ASSESSEE ON THE SAM E ISSUE IS CONTRADICTORY. WHILE COMPUTING THE PROFIT U/S 115JB, THE PROVISIONS OF THE AD CANNOT CHANGE. A PROVISION CANNOT BECOME ASCERTAINED LIABILITY IF THE TAXES ARE PAID ACCORDI NG TO PROVISIONS OF SECTION 115JB.. 5.8 THE RELEVANT PORTION OF SECTION 43B OF THE ACT IS REPRODUCED HERE UNDER FOR YOUR HONOUR'S READY REFERENCE: 43B. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PR OVISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THI S ACT IN RESPECT OF (A) (F) ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER IN LIEU OF ANY LEAVE AT THE CREDIT OF HIS EMPLOYEE, SHALL BE ALLOWED (IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSES SEE ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY H IM) ONLY IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF T HAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM' 5.10 UNDER PROVISIONS OF THE ACT, SECTION 43B PROVI DES FOR ALLOWABIITY OF CERTAIN EXPENDITURE ONLY ON PAYMENT BASIS. AS PER CLAUSE (7) OF SECTION 43B OF THE ACT, ANY SUM P AYABLE AS AN EMPLOYER IN LIEU OF ANY LEAVE AT HIS CREDIT TO E MPLOYEE IS ALLOWED ONLY IN THE YEAR IN WHICH SUCH SUM IS ACTUA LLY PAID. 5.9 THE RELEVANT PORTION OF SECTION 115JB OF THE AC T HAS BEEN REPRODUCED ABOVE IN PARA 5.2. 5.10. UNDER SECTION I15JB, EXPLANATION (1) TO THE S ECTION PROVIDES THAT THE BOOK PROFITS SHOULD BE INCREASED BY THE AMOUNT SET ASIDE TO PROVISIONS MADE FOR MEETING LIA BILITIES OTHER THAN ASCERTAINED LIABILITIES. 5.11 THUS, THE APPELLANT SUBMITS THAT IT IS CLEAR F ROM THE ABOVE THAT THE TREATMENT AS REQUIRED BY THE LEGISLATURE U NDER NORMAL PROVISIONS IS FOR ALLOWABILITY OF LEAVE ENCASHMENT ON PAYMENT 19 I.T.A. NO.1272/MUM/2013 BASIS WHEREAS UNDER SECTION 115JB THE BOOK PROFITS SHOULD BE INCREASED BY THE LEAVE ENCASHMENT IF THE LIABILITY IS NOT AN ASCERTAINED LIABILITY. 5.12 ACCORDINGLY, THE APPELLANT SUBMITS THAT TREATM ENT OF LEAVE ENCASHMENT AS REQUIRED BY THE LEGISLATURE UND ER NORMAL PROVISIONS AND UNDER SECTION 115JB ARE DIFFERENT AN D NOT COMPARABLE WITH EACH OTHER AND THE OBSERVATION MADE BY THE LEARNED DCIT IS INCORRECT. 5.13 FURTHER, THE APPELLANT SUBMITS THAT WHILE COMP UTING THE INCOME UNDER SECTION 115JB OF THE ACT, THE LEARNED DCIT CANNOT MAKE ANY ADDITIONS OR DELETIONS TO THE BOOK PROFIT OTHER THAN THOSE SPECIFICALLY MENTIONED IN THE EXPLANATION TO SECTIO N 115JB OF THE ACT. 5.14 RELIANCE IN THIS CONNECTION IS PLACED ON THE D ECISION OF THE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. (255 ITR 273) (REFER 176- 186 OF THE COMPILATION) WHEREIN THE APEX COURT HAS HELD : ----- WE NOTICE THAT THE USE OF THE WORDS 'IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO TH E COMPANIES ACT' WAS MADE FOR THE LIMITED PURPOSE OF EMPOWERING THE ASSESSING AUTHORITY TO RELY UPON THE AUTHENTIC STATEMENT OF A CCOUNTS OF THE COMPANY. THEREFORE, WE ARE OF THE OPINION, THE ASSESSING OFF ICER WHILE COMPUTING THE INCOME UNDER SECTION 1 15J HAS ONLY T HE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIE D BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. TH E ASSESSING OFFICER THEREAFTER HAS THE LIMITED POWER OF MAKING INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXP LANATION TO THE SAID SECTION. TO PUT IT DIFFERENTLY THE ASSESSI NG OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION TO SECTION 115....... 5.15. IN VIEW OF THE ABOVE, THE COMPANY SUBMITS BOO K PROFITS UNDER SECTION 115JB OUGHT NOT TO BE INCREAS ED BY THE LEAVE ENCASHMENT PROVISION. 23. PER CONTRA, THE LD. DR RELIED UPON THE ORDERS OF TH E LOWER AUTHORITIES. IT IS NOTED THAT IT IS AN ADMITTED FA CT THAT PROVISION FOR LEAVE ENCASHMENT HAS BEEN MADE ON THE BASIS OF ACTUARIAL VALUATION REPORT. 20 I.T.A. NO.1272/MUM/2013 RELEVANT NOTES IN THIS REGARD HAVE ALSO BEEN GIVEN BY THE ASSESSEE IN ITS ANNUAL FINANCIAL STATEMENTS. THESE FACTS HAVE NOT BEEN DISPUTED BY THE LOWER AUTHORITIES. UNDER THESE CIRCUMSTANCES, IT C ANNOT BE SAID THAT PROVISION FOR LEAVE ENCASHMENT IS AN UNASCERTAINED LIABILITY. WE FIND FORCE IN THE SUBMISSIONS OF THE ASSESSEE MADE BEFORE THE LD. CIT(A) WHEREIN RELYING UPON THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS (SUPRA) AS WELL AS THE DECISIO N OF THE TRIBUNAL IN THE CASE OF ACIT VS PIRAMAL HOLDINGS LTD IN ITA NO.32 24/MUM/2007, IT WAS ARGUED THAT WHILE COMPUTING THE BOOK PROFITS, THE P ROVISION FOR LEAVE ENCASHMENT (IF CALCULATED ON SCIENTIFIC BASIS AS PE R THE ACTUARIAL VALUATION) IS NOT REQUIRED TO BE ADDED BACK AS IT CANNOT BE SA ID TO BE AN UNASCERTAINED LIABILITY. FURTHER, IT IS NOT THE CA SE OF THE LOWER AUTHORITIES THAT PROFIT & LOSS ACCOUNT OF THE ASSESSEE COMPANY HAS NOT BEEN PREPARED IN ACCORDANCE WITH PROVISIONS OF PARTS II & III OF SCHEDULE VI OF THE COMPANIES ACT, 1956. UNDER THESE CIRCUMSTANCES , THE ASSESSING OFFICER IS NOT PERMITTED TO MAKE ANY ADJUSTMENT IN VIEW OF WELL SETTLED POSITION OF LAW AS HAS BEEN CLARIFIED BY HONBLE SU PREME COURT IN THE CASE OF APOLLO TYRES LTD 255 ITR 273 (SC). IT IS NOTED THAT RELIANCE BY THE LOWER AUTHORITIES UPON THE PROVISIONS OF SECTION 43B IS M ISPLACED HERE. THUS, THE LOWER AUTHORITIES HAVE MISUNDERSTOOD AND MISAPP LIED THE PROVISIONS OF LAW ON THE FACTS OF THE CASE BEFORE US. IN OUR VIEW, PROVISION FOR LEAVE ENCASHMENT DEBITED BY THE ASSESSEE IN ITS P&L ACCOU NT CANNOT BE ADDED WHILE COMPUTING BOOK PROFITS U/S 115JB IN THE GIVEN FACTS OF THE CASE AND, THEREFORE, THE SAME IS DIRECTED TO BE DELETED. THE ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE THE INCOME U/S 115JB AFTER E XCLUDING THE AFORESAID AMOUNT . THIS GROUND IS ALLOWED. 21 I.T.A. NO.1272/MUM/2013 24. IN THE RESULT, APPEAL FOR A.Y. 2006-07 IS ALLOWED A ND APPEAL FOR A.Y. 2007-08 IS PARTLY ALLOWED. ORDER PRONOUNCED WAS PRONOUNCED IN THE OPEN COURT A T THE CONCLUSION OF THE HEARING. SD/- SD/- (JOGINDER SINGH) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 14TH OCTOBER, 2016 PK/- COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , E-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES