JK Lakshmi Cement Ltd., Kolkata V. ACIT, Central Circle - VI, Kolkata, Kolkata

ITA 1275/KOL/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7219 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-04-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 21-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M P AGARWAL
• Assessee Lawyers: R SALARPURIA; J P KHAITAN
• Keywords: Capital asset; Depreciation; Rule of consistency; Bad and doubtful debts; Notional interest; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 234B; 115JB; 32; 263; 154

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE , /AND , . ! . '# ) [BEFORE HONBLE SRI MAHAVIR SINGH, JM & HONBLE SHR I C. D. RAO, AM] $ $ $ $ / I.T.A NO. 1275/KOL/2010 %& '( %& '( %& '( %& '(/ // / ASSESSMENT YEAR: 2007-08 J. K. LAKSHMI CEMENT LTD. VS. ASSISTANT COMMISS IONER OF INCOME-TAX, ( PAN-AAACJ 6715 G) CENTRAL CIRCLE-VI, KOLKATA (*+ /APPELLANT ) (,-*+/ RESPONDENT ) & $ $ $ $ / I.T.A NO. 1417/KOL/2010 %& '( %& '( %& '( %& '(/ // / ASSESSMENT YEAR: 2007-08 DEPUTY COMMISSIONER OF INCOME-TAX, VS. J. K. LAKS HMI CEMENT LTD. CENTRAL CIRCLE-VI, KOLKATA (*+ /APPELLANT ) (,-*+/ RESPONDENT ) & $ $ $ $ / I.T.A NO. 1470/KOL/2009 %& '( %& '( %& '( %& '(/ // / ASSESSMENT YEAR: 2006-07 ASSISTANT COMMISSIONER OF INCOME-TAX, VS. J. K. LA KSHMI CEMENT LTD. CENTRAL CIRCLE-VI, KOLKATA (*+ /APPELLANT ) (,-*+/ RESPONDENT ) & C.O. NO.69/KOL/2009 IN $ $ $ $ / I.T.A NO.1470/KOL/2009 %& '( %& '( %& '( %& '(/ // / ASSESSMENT YEAR: 2006-07 J. K. LAKSHMI CEMENT LTD. VS. ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-VI, KOLKATA (CROSS OBJECTOR) (RESPONDENT) FOR THE ASSESSEE: S/SHRI J. P. KHAITAN & R. SA LARPURIA FOR THE RESPONDENT: SHRI M. P. AGARWAL '. / ORDER PER MAHAVIR SINGH, JM/ ( , , , , ): 2 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 OUT OF ABOVE, CROSS APPEALS BEING ITA NO1275/K/2010 AND ITA NO1417/K/2010 ARE ARISING OUT OF ORDER OF CIT(A), CENTRAL-1, KOLKATA IN APPEAL NO.70/CIT(A)C-1/CC-VI/09-10 DATED 7.4.2010 FOR THE ASSESSMENT YEAR 2007-08 AND APPEAL BEING ITA NO.1470/K/2009 FILED BY REVENUE AND CO 69/KOL/2009 BY ASSESSEE ARE ARISI NG OUT OF ORDER OF CIT(A), CENTRAL-1, KOLKATA IN APPEAL N.314/CC-VI/CIT(A),C-1/08-09 DATE D 10.6.2009FOR THE ASSESSMENT YEAR 2006-07. ASSESSMENTS WERE FRAMED BY ACIT, CC-VI, KO LKATA FOR ASSESSMENT YEAR 2007-08 U/S. 143(3) OF THE INCOME TAX ACT, 1961(HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 19.11.2009 AND FOR ASSESSMENT YEAR 2006-07 U/ S. 143(3) R.W.S.115JB OF THE ACT VIDE HIS ORDER DATED 5.12.2008. FOR THE SAKE OF BREVITY AND CLARITY, WE DISPOSE OF BOTH THESE APPEALS AND CROSS OBJECTIONS BY THIS CONSOLIDATED ORDER AS ISSU ES ARE COMMON. 2. THE FIRST COMMON ISSUE IN REVENUES APPEAL IN I TA NO 1470/K/2009 FOR ASSESSMENT YEAR 2006-07 AND ASSESSEES APPEAL IN ITA NO.1275/K /2010 FOR ASSESSMENT YEAR 2007-08 IS AS REGARDS TO COMPUTATION OF INCOME U/S. 115JB OF T HE ACT FOR BOTH YEARS. FOR THIS, ASSESSEE AS WELL AS REVENUE HAVE RAISED FOLLOWING GROUNDS: GROUNDS IN ASSESSEES APPEAL IN ITA NO 1275/K/2010 : 1.0. CONFIRMING THE ACTION OF ASSESSING OFFICER IN DETERMINING THE BOOK PROFIT U/S. 115JB OF THE ACT FOR THE YEAR UNDER APPEAL AT RS.18 23380456 AS AGAINST RS. NIL DECLARED IN THE RETURN ON THE ALLEGED GROUND THAT T HERE WAS NO BROUGHT FORWARD BUSINESS LOSS & DEPRECIATION AS PER BOOKS OF ACCOUN T AVAILABLE FOR REDUCING FROM THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT UNDER CLAUSE (III) OF EXPLANATION 1 TO SEC. 115JB(1). 1.1. HOLDING THAT THE ADJUSTMENT OF RS.381.55 CR. BEING THE LOSS INCURRED BY THE APPELLANT COMPANY IN THE EARLIER YEARS, AGAINST THE SHARE PREMIUM ACCOUNT/REVALUATION RESERVE, PURSUANT TO SCHEME SAN CTIONED BY THE HIGH COURTS IS NOT IN CONTRAVENTION TO THE PROVISIONS OF COMPANIES ACT . 1.2. NOT APPRECIATING THAT SET OFF OF BROUGHT FORW ARD LOSS AMOUNTING TO RS.1823380456 WAS AVAILABLE THIS BEING PART OF RS.2 465335924 DETERMINED IN ORDER U/S. 143(3) FOR THE ASSTT. YEAR 2005-06. GROUNDS IN REVENUES APPEAL IN ITA NO 1470/K/2009: 1. THAT LD. CIT(A) HAS ERRED IN DELETING ADDITION MADE U/S. 40A(9) OF THE ACT OF RS.11,92,645/- ON ACCOUNT OF EXPENDITURE INCURRED F OR RUNNING SCHOOL AND OTHER FACILITIES. 2.I) THAT, THE LD. CIT(A), CENTRAL-1, KOL HAS ERRE D IN ALLOWING THE ASSESSEES APPEAL AGAINST ASSESSMENT OF BOOK PROFIT OF RS.56,24,31,71 5/- BY THE A.O. AS PER PROVISION OF SECTION 115JB OF THE ACT AND AS PER THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES 255 ITR 273. II) THAT, IN DOING SO, LD. CIT(A) HAS ERRED IN HOLD ING THAT THE A.O. CANNOT REVISE AUDITOR CERTIFICATE FOR REVERSAL OF THE LOSS INCOR RECTLY REMOVED/ADJUSTED IN F.Y. 1999- 2000 IN REVALUATION RESERVE AND SHARE PREMIUM A/C, TO IMPLEMENT H.CS ORDER, AND HAS ALSO ERRED IN OBSERVING THAT IF THE RATIO OF AP OLLO TYRES IS TO BE FOLLOWED, THE AUDITORS VIEW SHOULD PREVAIL AND SHOULD NOT BE CHA LLENGEABLE BY THE A.O. 3 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 III) THAT, IN DOING SO, LD. CIT(A) HAS ERRED IN RE LYING ON THE ASSESSMENT ORDER FOR THE A.Y. 2005-06 FOR WHICH PROPOSAL U/S. 263 HAS AL READY BEEN SUBMITTED TO LD. CIT BY THE A.O. 3. THE BRIEF FACTS IN ASSESSMENT YEAR 2006-07 ARE T HAT ASSESSEES GROSS TOTAL INCOME UNDER NORMAL COMPUTATION OF INCOME WAS NIL AND BALANCE CARRIED FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION WAS AT RS.800,95,43,604/-. ACCORDINGLY, ASSESSING OFFICER NOTICED FROM COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE A CT FILED BY ASSESSEE IN ITS RETURN OF INCOME AS UNDER: PROFIT AFTER DEPRECIATION RS.56,25,04,996/- ADJUSTMENT VIDE EXPLANATION TO SECTION 115JB RS. 56,25,04,996/- NET EFFECT (-) RS.56,25,04,996/- BALANCE I.E. ADJUSTED BOOK PROFIT U/S. 115JB NIL TAX PAYABLE U/S. 115JB NIL THE ASSESSING OFFICER REQUIRED ASSESSEE COMPANY TO EXPLAIN AS TO WHY BOOK PROFIT RS.56,25,04,996/- SHOULD NOT BE TAKEN FOR THE PURPO SE OF COMPUTATION OF INCOME UNDER SECTION 115JB OF THE ACT AND ASSESSEE REPLIED VIDE LETTER D ATED 12.11.2008 AS UNDER: THE NET PROFIT OF THE COMPANY FOR THE YEAR AS PER P&L A/C IS RS.56,25,04,996/-. IN THE RETURN VIDE SCHEDULE-15, AN EQUAL AMOUNT HAS BEEN D EDUCTED AS ADJUSTMENT VIDE EXPLANATION TO SECTION 115JB AND BOTH THE BOOK PROF IT AND THE TAX PAYABLE THEREOF HAVE BEEN SHOWN AT NIL. THE ASSESSING OFFICER GONE THROUGH CLAUSE (III) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT, AS AMENDED AND EFFECTIVE FROM 1.4.2001, AND NOTED T HAT AUDITED ACCOUNTS OF ASSESSEE REVEALS THAT BALANCE BROUGHT FORWARD IS RS.34.90 CR. WHICH IS UNABSORBED DEPRECIATION. ACCORDING TO AO, AS PER BOOKS OF ACCOUNT, BROUGHT FORWARD UNABSO RBED DEPRECIATION IS RS.34.90 CR. AND BROUGHT FORWARD LOSSES ARE NIL, THEREFORE, AS PER C LAUSE (III) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT NO AMOUNT IS REQUIRED TO BE REDUCED FOR THE PURPOSE OF COMPUTING BOOK PROFIT ON THIS ACCOUNT. THE ASSESSING OFFICER COMPUTED THE BOOK P ROFIT AT RS.56,24,31,715/- BY GIVING FOLLOWING FINDING: IT IS APPARENT FROM THE SUBMISSION OF THE ASSESSEE THAT THE ASSESSEES CLAIM IS TO REVERSE THE ADJUSTMENTS OF LOSS WITH THE REVALUATIO N RESERVE AND SHARE PREMIUM A/C MADE IN F Y 1999-2000, FOR THE PURPOSE OF COMPUTATI ON OF BOOK PROFIT OF THE COMPANY FOR THIS A.Y. 2006-07. BUT THERE IS NO PROVISION IN THE RELEVANT SECTION 115JB WHICH PERMITS SUCH ADJUSTMENT FOR THIS A.Y.2006-07. PROVI SIONS OF THE RELEVANT CLAUSE (III) OF EXPLANATION-1 TO SECTION 115JB, AS AMENDED W.E.F. 1 .4.2001, AND AS REPRODUCED IN THE SHOW-CAUSE NOTICE QUOTED ABOVE, PERMITS REDUCTION O F THE AMOUNT OF BROUGHT FORWARD LOSS OR UNABSORBED LOSS, WHICHEVER IS LESS, AS PER BOOK OF A/C. THE PROVISION IS CLEAR 4 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 AND THERE IS NO SCOPE FOR GOING BEYOND THE FIGURES OF BROUGHT FORWARD LOSS OR UNABSORBED DEPRECIATION, AS PER BOOKS OF A/C OF THE ASSESSEE. THERE IS NO PROVISION IN SECTION 115JB EITHER TO RE SORT TO ANY PROVISION OF THE COMPANIES ACT, SO FAR AS THE REDUCTION AS PER CLAUSE (III) SU PRA IS CONCERNED. AS REGARDS THE CLAIM OF THE ASSESSEE THAT THE NET PROFIT IS TO BE RECALC ULATED AS PROVIDED IN SUB-SECTION(2) OF SECTION 115JB IS ALSO NOT TENABLE SINCE THE ACCOUNT S OF THE ASSESSEE COMPANY ARE AUDITED AND CERTIFIED BY THE AUDITORS AND THE SAME HAS BEEN ADOPTED BY THE GENERAL MEETING. IN THIS RESPECT, DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF CIT VS. APOLLO TYRES LTD. [2002] 255 ITR 273(SC) IS RELIED UPON. REGARDING THE ASSESSEES CLAIM OF COMPUTATION OF BO OK PROFIT U/S.115JB FOR A.Y.2005- 06 AND LOSS/DEPRECIATION BROUGHT FORWARD AS PER REW ORKING, THERE IS NO PROVISION FOR BROUGHT FORWARD OF ANY LOSS OR UNABSORBED DEPRECIAT ION IF ANY DETERMINED U/S.115JB, AND THIS YEARS ASSESSMENT FOR BLOCK PERIOD IS SEPA RATE AND RES-JUDICATE IS NOT APPLICABLE. BESIDES, ANY ERROR IN EARLIER ASSESSMEN T CAN BE SUBJECTED TO REMEDIAL MEASURES. IN FACT, REMEDIAL MEASURE IS BEING TAKEN FOR THE A.Y. 2005-06. 4. AGGRIEVED AGAINST ACTION OF AO, ASSESSEE PREFERR ED APPEAL BEFORE CIT(A), WHO ALLOWED THE CLAIM OF ASSESSEE BY GOING THROUGH AUDITORS CER TIFICATE VIDE PARA 6.1 TO 7.6 AS UNDER: 6.1. THE SUBMISSIONS ARE CAREFULLY CONSIDERED. IT IS SEEN THAT THERE IS AN ORDER ON THE PETITION UNDER SEC. 391(2) AND 394 OF THE COMPANIES ACT BY THE HIGH COURT OF ORISSA AT CUTTACK. IT SANCTIONED THE SCHEME OF COMPROMISE AND /OR ARRANGEMENT APPROVED BY THE CREDITORS OF LONG TERM DEBTS AND THE EQUITY SHAREHO LDERS. 6.2. SECTION 391(2) IS REPRODUCED FOR READY REFEREN CE: (2) IF A MAJORITY IN NUMBER REPRESENTING THREE-FOU RTHS IN VALUE OF THE CREDITORS, OR CLASS OF CREDITORS, OR MEMBERS, OR CLASS OF MEMB ERS AS THE CASE MAY BE, PRESENT AND VOTING EITHER IN PERSON OR, WHERE PROXI ES ARE ALLOWED [UNDER THE RULES MADE UNDER SECTION 643], BY PROXY, AT THE MEE TING, AGREE TO ANY COMPROMISE OR ARRANGEMENT, THE COMPROMISE OR ARRANG EMENT SHALL, IF SANCTIONED BY THE COURT, BE BINDING ON ALL THE CREDITORS, ALL THE CREDITORS OF THE CLASS, ALL THE MEMBERS, OR ALL THE MEMBERS OF THE CLASS, AS THE CA SE MAY HE, AND ALSO ON THE COMPANY, OR, IN THE CASE OF A COMPANY WHICH IS BEIN G WOUND UP, ON THE LIQUIDATOR AND CONTRIBUTORIES OF THE COMPANY: THE HIGH COURT HAS APPROVED A SCHEME OF COMPROMISE ARRIVED AT WITH THE CREDITORS AND EQUITY SHAREHOLDERS. ARTICLE 9 OF THE SCHEME HAS THE FOLLOWING SENTENCE. THE DEBIT BALANCE IN THE PROFIT AND LOSS ACCOUNT A S ON 30 9 2000 OF JKCL SHALL STAND ADJUSTED AGAINST THE SHARE PREMIUM ACCOUNT AN D/OR REVALUATION RESERVE ACCOUNT OF JKCL IT IS IN TERMS OF THIS AGREEMENT THAT THE NORMAL AC COUNTING OF BROUGHT FORWARD LOSS OF RS 391 CRORE IS GIVEN THE EXTRA-ORDINARY TREATMENT OF SET OFF AGAINST THE BALANCE IN THE SHARE PREMIUM A/C AND REVALUATION RESERVE ACCOUNT. 5 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 6.3. WHILE GIVING EFFECT TO THIS DEBT RE-STRUCTURI NG EXERCISE, THE AUDITORS REPORTED TO THE COMPANY AS FOLLOWS IN THE ANNUAL REPORT FOR FIN ANCIAL YEAR 1999-2000: REGARDING ADJUSTMENT OF DEBIT BALANCE IN PROFIT A ND LOSS ACCOUNT, ATTENTION IS INVITED TO NOTE 1 - SCHEME 20, ACCORDING TO WHICH T HE DEBIT BALANCE IN PROFIT AND LOSS ACCOUNT HAS BEEN ADJUSTED AGAINST SHARE PREMIUM AND REVALUATION RESERVE AMOUNTING TO RS 281.55 CRORES AND RS.100.00 CRORES RESPECTIVE LY PURSUANT TO THE SANCTION OF SCHEME OF COMPROMISE AND/OR ARRANGEMENT BY HONBLE HIGH COURTS OF ORISSA AND GUJARAT, WHICH THOUGH NOT IN LINE WITH THE GENERALL Y ACCEPTED ACCOUNTING PRACTICES, HAS BEEN CARRIED OUT AS PER THE ORDERS OF THE SAID HIG H COURTS, IMPLEMENTATION WHEREOF IS BINDING ON THE COMPANY. THIS WAS FURTHER NOTED IN NOTES ACCOUNTS NO. 1: PURSUANT TO THE SCHEME SANCTIONED BY THE HONBLE H IGH COURTS OF ORISSA AND GUJARAT, DEBIT BALANCE OF PROFIT AND LOSS ACCOUNT A S ON 30TH SEPTEMBER 2000 AMOUNTING TO RS. 381 55 CRORES TRANSFERRED TO BALAN CE SHEET AND STANDS ADJUSTED TO THE EXTENT OF RS. 281.55 CRORES AGAINST SHARE PREMIUM A CCOUNT AND RS.100.00 CRORES AGAINST REVALUATION RESERVE. THESE ADJUSTMENTS HAVE BEEN CARRIED OUT AS PER THE ORDERS OF THE SAID HIGH COURTS, IMPLEMENTATION WHER EOF IS BINDING ON THE COMPANY. THE COMPROMISE IS AN AGREEMENT WITH THE CREDITORS, WITH STATUTORY BACKING NEVERTHELESS, IT WAS REMARKED THAT THE COMPROMISE P ROVISION WAS NOT IN LINE WITH THE GENERALLY PREVAILING ACCOUNTING PRACTICES. THIS IS CONTEMPORARY EVIDENCE OF THE VIEW TAKEN BY THE AUDITORS ABOUT THE ACCOUNTING TREATMEN T OF DEBIT BALANCE AS ON THE DATE OF COMPROMISE BY ORDERS OF THE HIGH COURT. 6.4. THEREAFTER, ITEM 5 OF NOTES ON ACCOUNTS , PART B IN SCHEDULE 19 OF AUDITORS REPORT FOR FINANCIAL YEAR 2006-07 REFERS TO PROVISI ON FOR TAXATION INCLUDING THE MAT AS FOLLOWS: NO PROVISION FOR TAXATION INCLUDING MAT IS CONSIDE RED NECESSARY SINCE THE LOSS IS BEING CARRIED OVER FOR TAXATION PURPOSE (ADJUSTE D RS. 281. 55 CRORES IN SHARE PREMIUM AND RS. 100.00 CRORE IN REVA1UATION RESERVE PURSUANT TO THE SCHEME FOR THE PURPOSE OF ACCOUNTS IN EARLIER YEAR). THERE IS NO REFERENCE TO THE ACCOUNTING ADJUSTMENT IN ANY INTERVENING YEARS. 6.5. IT IS CLAIMED BOTH IN THE YEAR OF ADJUSTMENT ( FY. 2000-01) AND IN THE YEAR OF THE MAT LIABILITY (F. Y. 2005-06) THAT NET PROFIT ACCOR DING TO NORMAL ACCOUNTING PRACTICE AND ACCORDING TO COMPANY LAW PROVISIONS OF PARTS II & III OF SCHEDULE VI OF COMPANIES ACT WAS DIFFERENT FROM THE NET PROFIT IN CONSEQUENCE OF GIVING EFFECT IN F Y 99-2000 TO THE ORDER OF THE HIGH COURT UNDER SEC. 3 91(2) OF THE COMPANIES ACT. DEBIT BALANCE OF RS.381.55 CRORES IN THE PROFIT & LOSS AC COUNT FOR FINANCIAL YEAR 1999-2000 WOULD NOT BE ADJUSTABLE AGAINST SHARE PREMIUM AND R EVALUATION RESERVE ACCORDING TO THE GENERALLY ACCEPTED ACCOUNTING PRACTICES. IT HAD TO BE DONE ON ACCOUNT OF THE OVERRIDING EFFECT OF THE HIGH COURT ORDERS. NEVERTH ELESS THE DEBIT BALANCE ACCORDING TO THE PRINCIPLES OF THE THEORY OF REAL INCOME, CONTIN UES TO EXIST AS REAL LOSS. ITS ADJUSTMENT BY THE ORDER OF THE COURT IS A NOTIONAL ADJUSTMENT IN THE SPECIALITY OF THE SITUATION. THE APPELLANTS CLAIMS ABOUT THE REALITY OF THE LOS S ADJUSTED NOTIONALLY AGAINST REVALUATION RESERVE A/C AND SHARE PREMIUM A/C IS NO T A CLAIM TO REVERSE THE 6 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 ADJUSTMENT BUT TO ACKNOWLEDGE THE CONTINUED EXISTEN CE OF BROUGHT FORWARD LOSS IN ACCOUNTS IN LINE WITH GENERALLY ACCEPTED ACCOUNTING PRACTICES. THE ARGUMENT OF THE ASSESSING OFFICER IS THAT THE A UDITED PROFIT AND LOSS ACCOUNT DOES NOT REFER TO BROUGHT FORWARD LOSS. AUDITED ACCOUNTS CANNOT HE TAMPERED WITH FOR THE PURPOSE OF THE MAT. THIS IS SAID ON THE AUTHORITY OF THE SUPREME COURT JUDGEMENT IN THE CASE OF APOLLO TYRES (SUPRA). 6.6 BUT IN MY OPINION, THE GENERAL PROPOSITION IN THAT JUDGEMENT IS THAT THE ASSESSING OFFICER CANNOT LOOK INTO AND REEXAMINE TH E CORRECTNESS OF THE ENTRIES IN THE AUDITED PROFIT & LOSS ACCOUNT. THE LIMITATION IS ON THE POWERS OF THE ASSESSING OFFICER. IN THE PRESENT CASE, IT IS THE AUDITORS WHO HAVE EX PRESSED CERTAIN OPINION ABOUT THE NATURE OF ADJUSTMENTS OF DEBIT BALANCE IN PROFIT & LOSS ACCOUNT OF FINANCIAL YEAR 1999- 2000 BY TRANSFERRING THEM TO BALANCE SHEET GIVING E FFECT TO THE HIGH COURT ORDER AND THE AVAILABILITY OF SUCH ARTIFICIALLY ADJUSTED LOSS IN FINANCIAL YEAR 2005-06 AND 2006-07 IN COMPUTATION OF BOOK PROFIT FOR DETERMINATION OF THE MAT LIABILITY. THE ASSESSING OFFICER CANNOT REVISE THE AUDITORS VERSION OF PROF IT & LOSS ACCOUNT. BUT THE AUDITOR HIMSELF HAS PROPOSED TWO SETS OF PROFIT & LOSS A/C : ONE INCORPORATING THE DIRECTIONS OF THE ORDER OF THE HIGH COURT U/S 391(2) OF THE COMPA NIES ACT AND THE OTHER WITHOUT SUCH DIRECTIONS BUT UNDER NORMAL ACCOUNTING PRACTICE. TH E AUDITORS REPORT THAT THE LATTER MUST BE ADOPTED FOR THE PURPOSE OF PROFIT U/S 115JB . THE ASSESSING OFFICER WOULD NOT REVISE THE AUDITED ACCOUNTS FOLLOWING THE SUPREME COURT JUDGMENT. BUT ACCORDING TO THE ASSESSING OFFICER, FOLLOWING THE SAME JUDGMENT THE AUDITOR ALSO WOULD NOT HE PERMITTED TO COMMENT ON THE PROFIT & LOSS A/C PREPA RED BY IT. IN MY OPINION, THE SUPREME COURT JUDGMENT DENIES THE RIGHT OF REWRITIN G THE ACCOUNTS TO THE ASSESSING OFFICER EVEN ON THE GROUND THAT THEY ARE NOT IN CON FORMITY WITH PARTS II & III OF SCHEDULE VI OF THE COMPANIES ACT SINCE AUDITORS ARE EXPECTED TO TAKE CARE OF THIS. BUT THE JUDGMENT DOES NOT DENY THE AUDITORS THE RIGHT T O OBSERVE THAT CERTAIN ADJUSTMENTS ENTRIES IN THE PROFIT & LOSS A/C AND BALANCE SHEET ARE NOT IN CONFORMITY WITH THE NORMAL ACCOUNTING PRACTICE AND BY IMPLICATION, WITH PARTS II & III OF SCHEDULE VI OF THE COMPANIES ACT, THAT THEY WERE FOLLOWING HIGH CO URT ORDER IN MAKING DEPARTURE FROM NORMAL PRACTICE. THE ASSESSING OFFICER, FOLLOW ING THE SAME SUPREME COURT JUDGMENT, MUST ACCEPT THE AUDITORS OBSERVATION ON THE ACCOUNTING TREATMENT TO DEBIT BALANCE IN THE PROFIT & LOSS ACCOUNT IN FINANCIAL Y EAR 1999-2000. IF THEY ARE ACCEPTED, THE ARGUMENT THAT SUCH LOSS WAS AVAILABLE FOR ADJUS TMENT AGAINST REAL PROFIT ALSO HAS TO B CONSIDERED ON MERITS. WHILE THE ASSESSING OFFICER CANNOT SAY THAT CERTAIN ENTRIES IN THE AUDITED ACCOUNTS ARE NOT IN ACCORDANCE WITH PAR TS II & II OF SCHEDULE VI OF COMPANIES ACT, THE AUDITORS THEMSELVES CAN CERTAINL Y SAY SO AND HAVE SAID SO. AND WHEN THEY SAY SO, THE ASSESSING OFFICER MUST DEAL W ITH THOSE OBSERVATIONS. 7.1. THE BOOK PROFIT U/S 115JB IS COMPUTED IN THE F OLLOWING MANNER IN A.Y. 2005-06. BOOK PROFIT U/S 115JB 1. NET PROFIT AS PER P&L A/C (RS. 256L9886 + RS. 4 263000) 260461886 2. ADD: (A) UNASCERTAINED LIABILITIES (NET) PROVISION FOR DOUBTFUL DEBTS 31300193 IMPAIRMENT OF ASSETS 6272114 DIMINUTION IN VALUE OF INVESTMENTS (35713560) 3. LESS: (A) DIVIDEND INCOME 10870255 (B) DEFERRED TAX 4263000 7 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 (C) LOWER OF LOSS B/F (RS.2721534810) OR UNABSORB ED DEPRECIATION (RS.3314300127) PER BOOKS OF ACCOUNT AS CERTIFIED BY STATUTORY AUDITORS FILED VIDE ANN EX 13 OF LETTER DT. 7.12.2007 4. BOOK PROFIT (1+2-3) _________ (2736668065) (2474347432) 5. LOSS C/F (RS.2721534810 -RS.256198886) [ASSESSE ES 2465335924 CLAIM THAT C/F WORKS OUT TO RS. 260601576 NADE ON PAGE 3 OF LETTER DT. 7.12.2007 BEING NOR IN ACCORD ANCE WITH I. TAX PROVISIONS IS REJECTED] IT WILL BE SEEN THAT FOR THE PURPOSE OF EXPLANATION 1(III) TO SECTION 115JB, THE LOWER OF THE LOSS BROUGHT FORWARD (RS.2,72,15,34,810/-) OR U NABSORBED DEPRECIATION (33,43,00,127/-) IS THE AMOUNT OF BROUGHT FORWARD L OSS. IT IS NOT NIL. IT IS BASED ON THE CERTIFICATE OF STATUTORY AUDITORS AS PER BOOKS OF A CCOUNT. THE AUDITORS CERTIFICATE IS REPRODUCED HERE: T() WHOMSOEVER IT MAT CONCERN WE LODHA & CO. CHARTERED ACCOUNTANTS, THE STATUTORY AUDITORS OF J K LAKSHMI CEMENT LTD., FORMERLY J K CORP. LTD. (THE COMPANY) HAVE CH ECKED UP BOOKS OF ACCOUNTS AND OTHER DOCUMENTS OF THE COMPANY. BASED ON OUR CHECKI NG WE CERTIFY CHAT THE COMPANY HAD DEBIT BALANCE OF RS.381.55 CRORES AS ON 30.09.2 000 IN PROFIT AND LOSS ACCOUNT OF THE COMPANY, WHICH PURSUANT TO THE SCHEME OF COMPRO MISE AND/OR ARRANGEMENTS SANCTIONED BY THE HONBLE HIGH COURTS OF ORISSA AND GUJARAT WAS TRANSFERRED TO BALANCE SHEET AND STOOD ADJUSTED AGAINST BALANCE IN SHARE PREMIUM ACCOUNT AND REVALUATION RESERVE. WE HAVE BEEN ASKED BY THE COMPANY TO WORK OUT STATU S OF LOSSES AND UNABSORBED DEPRECIATION WITHOUT CONSIDERING ABOVE ADJUSTMENT, ADJUSTMENT OF DEBIT BALANCE IN PROFIT & LOSS ACCOUNT MADE AGAINST BALANCE AVAILABL E IN GENERAL RESERVE, TRANSFER OF OTHER RESERVES AS AVAILABLE TO/FROM PROFIT & LOSS A CCOUNT AND DEFERRED TAX CREDIT, ACCORDINGLY THE POSITION OF LOSSES AND UNABSORBED DEPRECIATION AS ON 31-3-2004 IS AS UNDER:- FINANCIAL YEAR (APRIL-MARCH) ASSTT. YEAR LOSSES CR./RS. UNABSERBED DEP. CR./RS. TOTAL CR./RS. 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 34.07 114.02 - 111.22 12.84 - - 45.58 61.81 63.99 48.62 50.36 36.39 24.68 79.65 175.83 63.99 159.84 63.20 36.39 24.68 272.15 331.43 603.58 FOR LODHA & CO. CHARTERED ACCOUNTANTS WHILE PRINCIPLE OF RES JUDCATA IS NOT APPLICABLE TO THE DECISIONS OF THE ASSESSING OFFICERS, THERE ARE CERTAIN OBVIOUS.. TO THE OPERATION OF TH IS DOCTRINE. ACCORDING TO BOMBAY HIGH COURT JUDGMENT IN SHAH & C (H.A) VS CIT (30 IT R 618, 624-26) TAX AUTHORITIES 8 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 WOULD NOT BE ENTITLED TO UNSETTLE THE EARLIER FINDI NG WHERE THE EARLIER FINDING IS NOT ARBITRARY OR PERVERSE, AND IS ARRIVED AT AFTER MAKI NG DUE ENQUIRIES, WHERE, SUBSEQUENT TO THE EARLIER FINDING NO FRESH FACTS ARE PLACED FOR C ONSIDERATION, WHERE THE EARLIER DECISION HAS CONSIDERED ALL THE RELEVANT MATERIAL. DEPARTURE FROM AN EARLIER DECISION MUST BE JUSTIFIED ON THE GROUND OF FRESH MATERIAL FOR CONSI DERATION, OR OBVIOUS ERRORS IN THE EARLIER DECISION. IN MY VIEW THE BOOK PROFIT DETERM INED FOR SECTION 115JB IN A.Y 2005- 06 IS BASED ON THE CERTIFICATE FROM THE STATUTORY AUDITORS, IS NOT ARBITRARY OR PERVERSE AND HAS CONSIDERED ALL RELEVANT MATERIAL. FOR A.Y. 2006-07 A DIFFERENT VIEW ABOUT THE ADJUSTMENT OF BROUGHT FORWARD LOSS IN TERMS OF EXPL ANATION 1(III) OF SECTION 115JB WAS NOT JUSTIFIED. 7.2. THE ASSESSING OFFICER WAS AWARE THAT THIS DECI SION ABOUT ADJUSTMENT OF BROUGHT FORWARD LOSS WAS DIFFERENT FROM THAT OF HIS PREDECE SSOR IN IDENTICAL CASE AND IDENTICAL CIRCUMSTANCES. ACCORDING TO HIM THERE IS AN ERROR I N THE ORDER OF EARLIER AY. IT ACCEPTED THE CLAIM OF THE ASSESSEE TO REVERSE ADJUSTMENT OF LOSS WITH REVALUATION, RESERVE AND SHARE PREMIUM A/C IN F.Y 99-2000 FOR THE PURPOSE 11 5JB IN THIS YEAR. BUT THE FIGURES OF BROUGHT FORWARD LOSS CANNOT BE OTHER THAN WHAT IS R EFLECTED IN THE AUDITED ACCOUNTS. NO AUTHORITY CAN MODIFY THE AUDITED PROFIT & LOSS ACCO UNT ON ANY GROUND. THIS IS FINALLY SETTLED BY THE SUPREME COURT JUDGMENT IN CIT VS. AP OLLO TYRES LTD. (255 ITR 273). 7.3. IN MY VIEW THIS IS NOT EXACTLY A ASE WHERE TH IS JUDGMENT IS REQUIRED TO BE PRESSED INTO SERVICE, IN THAT JUDGMENT, THE ASSESSI NG OFFICER IS PRECLUDED FROM REWRITING P & L A/C WHEN AUDITORS HAVE DONE THEIR JOB. IN THE PRESENT CASE, IT IS AUDITORS WHO POINT OUT THAT THERE IS A PROFIT & LOSS A/C NOT PRE PARED IN LINE WITH THE GENERALLY ACCEPTED ACCOUNTING PRACTICES IN F.Y 99-2000, WHIC H THEY HAD CERTIFIED IN IMPLEMENTATION OF A HIGH COURT ORDER. THE AUDITORS FURTHER CERTIFY TO THE ASSESSING OFFICER IN A.Y. 2005-06 THAT THERE IS BROUGHT FORWA RD LOSS AVAILABLE FOR SET OFF IN A.Y. 2005-06 IF THE P & I. ACCOUNTS OF AY. 2000-01 TO 20 05-06 ARE RECAST IN ACCORDANCE WITH NORMAL ACCOUNTING PRINCIPLES & PRACTICES. THE VIEW IN .THE CASE OF THE: APOLLO TYRES IS THAT THE PROFIT & LOSS ACCOUNT CERTIFIED BY THE AUD ITORS CANNOT BE REVISED BY THE ASSESSING OFFICER SINCE IT IS PRESUMED THAT AUDITOR S PREPARE THE ANNUAL ACCOUNTS IN CONFORMITY WITH PART II & III SCHEDULE VI OF THE CO MPANIES ACT. BUT AUDITORS THEMSELVES TESTIFY THAT A CERTAIN PROFIT AND LOSS ACCOUNT IN T HE EARLIER ASSESSMENT YEAR INCORRECTLY REMOVED THE DEBIT BALANCE FROM THE PROFIT & LOSS AC COUNT. IT WAS NECESSARY FOR THE PURPOSE IMPLEMENTING THE HIGH COURT ORDER. BUT IT N EED NOT DETERMINE THE LOSS TO BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEARS. THE LOSSES TO BROUGHT FORWARD YEAR AFTER YEAR FOR THE PURPOSE OF THE MAT PROVISIONS, SHOULD DISREGARD THE SET OFF OF DEBIT BALANCE IN THE P & L ACCOUNTS OF FY. 99 - 2000 AS I T WAS FOR A SPECIFIC PURPOSE. NOW THIS IS THE VIEW OF THE STATUTORY AUDITORS. IF THE RATIO OF THE APOLLO TYRES IS TO BE FOLLOWED, THE AUDITORS VIEW SHOULD PREVAIL & SHOULD NOT BE CH ALLENGEABLE BY THE ASSESSING OFFICER. 7.4. THE CASE OF APOLLO TYRES SUPPORTS THE FINALIT Y OF THE AUDITORS OPINION AND CONSEQUENTLY THE CASE OF THE APPELLANT. AS A RESULT , THE ASSESSING OFFICERS ONLY REASON FOR MAKING A DEPARTURE FROM THE EARLIER ASSESSMENT YEAR IS NOT SUPPORTED BY THE REASONING OF THE SUPREME COURT JUDGMENT AS ARGUED IN THE ASSESSMENT ORDER. 7.5. BUT MORE IMPORTANT THAN THIS TECHNICAL ARGUMEN T IS THE NEED TO ACKNOWLEDGE THAT REAL LOSS INCURRED BY THE APPELLANT COMPANY IN A.Y 2000-01 WAS ARTIFICIALLY REMOVED FROM THE PROFIT & LOSS A/C AND BALANCE SHEET BY ACC OUNTING ENTRIES. THESE ENTRIES WERE DECLARED TO BE EXTRAORDINARY AID OUT OF HARMONY WIT H THE ACCEPTED ACCOUNTING PRACTICES OR WITH THE RELEVANT PROVISIONS OF THE COMPANIES AC T BY THE AUDITORS IN THAT YEARS REPORT ITSELF. THE AUDITORS DO NOT ISSUE A CERTIFI CATE TO ACCOMMODATE THE APPELLANT COMPANY IN TAX DISPUTE. THE CERTIFICATE ABOUT BROUG HT FORWARD LOSS GIVEN BY AUDITORS IN A.Y. 2005-06 IS IN LINE WITH THEIR VIEWS IN THE ANN UAL REPORT FOR F.Y. 99-2000. 9 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 7.6. IN MY VIEW THE ASSESSMENT ORDER FOR AY. 2005- 06 IS THE CORRECT POSITION IN COMPUTING THE BOOK PROFIT U/S 115JB. THE DEPARTURE FROM THIS IN A.Y. 2006-07 IS NOT SUPPORTED BY THE RATIO OF THE SUPREME COURT JUDGMEN T IN THE CASE OF APOLLO TYRES. GROUND NO. 3 IS ALLOWED. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 5. THIS DEPARTMENTAL APPEAL FOR ASSESSMENT YEAR 200 6-07 AND ASSESSEES APPEAL FOR ASSESSMENT YEAR 2007-08 INVOLVES COMMON QUESTION TO BE ADJUDICATED WITH REFERENCE TO THE PROVISIONS OF SECTION 115JB OF THE ACT. IN ASSESSM ENT YEAR 2006-07, AS IS SEEN ABOVE, ASSESSEE SUCCEEDED BEFORE CIT(A) AND REVENUE IS IN APPEAL, W HEREAS IN ASSESSMENT YEAR 2007-08, THE CLAIM OF THE ASSESSEE WAS DISMISSED BY CIT(A) BY AF FIRMING THE ACTION OF AO AND ASSESSEE IS IN APPEAL. THE CIT(A) WHILE DISMISSING THE APPEAL OF THE ASSESSEE FOR AY 2007-08, HELD AS UNDER: 8. I HAVE CAREFULLY CONSIDERED THE FACT OF THE CAS E AND THE SUBMISSION OF THE LD. A.R. THERE CANNOT BE TWO OPINION THAT SECTION 391 I S A COMPLETE CODE IN ITSELF AND ANY SCHEME SANCTIONED UNDER THIS SECTION WILL HAVE OVER RIDING EFFECT. FURTHER IF ANY OF THE CONDITIONS OR DIRECTIONS STIPULATED IN THE SCHEME W AS PREJUDICIAL TO THE INTEREST OF ANY PARTY IT COULD HAVE BEEN PUT UP FOR RECONSIDERATION BEFORE THE HONBLE COURTS ITSELF. HOWEVER ONCE THE SCHEME IS APPROVED IT IS BINDING O N ALL CONCERNS AND HAS TO BE IMPLEMENTED IN TOTALLY FURTHER WHETHER THE SCHEME O F SANCTIONED BY THE HONBLE HIGH COURTS OF ORISSA AND GUJARAT WAS IN ACCORDANCE WITH THE PROVISION OF THE COMPANY LAW OR NOT IS NOT AT ALL RELEVANCE FOR DETERMINING THE ISSUE IN QUESTION. ONCE THE EFFECT TO THE HIGH COURT ORDER HAS BEEN GIVEN AND NECESSAR Y ADJUSTMENTS HAS BEEN MADE IN THE BOOKS OF ACCOUNTS MAINTAINED AS PER REQUIREMENT OF COMPANY LAW, THE BOOK PROFIT OF THE COMPANY FOR THE PURPOSE OF SECTION 115JB OF THE ACT HAS TO BE CALCULATED ON THE BASIS OF THE BALANCE SHEET AND P& L A/C SUBSEQUENTL Y PREPARED ON THE BASIS OF THE RELEVANT BOOKS OF ACCOUNTS. 8.1 THE DECISION OF THE APEX COURT RELIED BY THE A SSESSEE IS NOT APPLICABLE AS THE FACT OF THE CASE IS TOTALLY DIFFERENT. MOREOVER THE PRINCIPLE LAID IN THE CASE THAT NEITHER ANY FRESH ENQUIRY CAN BE MADE IN REGARD TO THE ENTR IES MADE IN THE BOOKS OF THE ACCOUNTS OF THE COMPANY NOR THE AUDITED ACCOUNTS CERTIFIED B Y STATUTORY AUDITORS AND APPROVED BY THE REGISTRAR OF THE COMPANIES CAN BE RECASTED FOR THE PURPOSE OF CALCULATING BOOK PROFIT OF THE COMPANY IS AGAINST THE CLAIM OF THE C OMPANY. IN THE CASE OF THE ASSESSEE COMPANY, IT HAS BEEN DULY CERTIFIED BY THE AUDITORS THAT THE BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED AS PER REQUIREMENT OF THE COMPANY LAW AN D THE COMPANY DOES NOT HAVE ACCUMULATED LOSSES AT THE END OF THE FINANCIAL YEAR . 8.2 THE SUBMISSION MADE BY THE LD. A.R THAT, SINCE THE A.O HAS QUANTIFIED THE LOSS IN THE ASSESSMENT ORDER FOR A.Y 2005-06, HENCE THE SAME SHOULD BE FOLLOWED IN THE SUBSEQUENT YEARS WAS CONSIDERED AND FOUND TO HAVE N O MERIT. UNDER THE PROVISIONS OF THE INCOME TAX ACT 1961, THE A.O IS ONLY REQUIRED T O QUANTIFY THE LOSS AS PER PROVISION OF SECTION 72 OF THE ACT. FOR THE PURPOSE OF SECTIO N 115JB THE LOSS HAS ALREADY BEEN QUANTIFIED IN THE BOOKS OF ACCOUNTS OF THE COMPANY AND NO FURTHER QUANTIFICATION IS PERMISSIBLE. IN THE ORDER UNDER SECTION 143(3) WHIL E CALCULATING THE BOOK PROFIT U/S 115JB OF THE ACT, THE A.O HAS NOT TAKEN LOSS AS PER BOOKS AS ON 31.03.2005 AS CERTIFIED BY THE AUDITORS. IN THE AUDIT REPORT FOR THE YEAR E NDING 31.03.2005 THE AUDITOR HAS DULY 10 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 REPORTED THAT AS PER BOOKS OF ACCOUNTS THE COMPANY DOES NOT HAVE ACCUMULATED LOSS. IT HAS BEEN CLEARLY MENTIONED THAT WHAT EVER LOSS WAS THERE HAS BEEN ALREADY ADJUSTED IN PURSUANT TO THE SCHEME SANCTIONED BY THE HONBLE HI GH COURTS OF ORISSA AND GUJARAT. IT HAS BEEN FURTHER SPECIFIED BY AUDITORS THAT, TH ESE ADJUSTMENT HAS BEEN CARRIED OUT AS PER THE ORDERS OF THE SAID HIGH COURTS, IMPLEMENTAT ION WHEREOF IS BINDING ON COMPANY . HOWEVER IT APPEARS THAT THE A.O IN THE A SSESSMENT ORDER FORM AY 2005-06 HAS TAKEN THE LOSS AS PER BOOKS ON 30.09.2000 CALCU LATED BY LODHA & CO CHARTERED ACCOUNTANTS ON REQUEST OF THE ASSESSEE COMPANY. THE LETTER ISSUED DT 03.10.2007 ISSUED BY THE SAID PARTNER OF THE SAID C.A FIRM READS AS U NDER- TO WHOMSOEVER IT MAY CONCERN WE LODHA & CO. CHARTERED ACCOUNTANTS, THE STATUTORY AUDITORS OF J K LAKSHMI CEMENT LTD., FORMERLY J K CORP. LTD. (THE COMPANY) HAVE CH ECKED UP BOOKS OF ACCOUNTS AND OTHER DOCUMENTS OF THE COMPANY. BASED ON OUR CHECKI NG WE CERTIFY CHAT THE COMPANY HAD DEBIT BALANCE OF RS.381.55 CRORES AS ON 30.09.2 000 IN PROFIT AND LOSS ACCOUNT OF THE COMPANY, WHICH PURSUANT TO THE SCHEME OF COMPRO MISE AND/OR ARRANGEMENTS SANCTIONED BY THE HONBLE HIGH COURTS OF ORISSA AND GUJARAT WAS TRANSFERRED TO BALANCE SHEET AND STOOD ADJUSTED AGAINST BALANCE IN SHARE PREMIUM ACCOUNT AND REVALUATION RESERVE. WE HAVE BEEN ASKED BY THE COMPANY TO WORK OUT STATU S OF LOSSES AND UNABSORBED DEPRECIATION WITHOUT CONSIDERING ABOVE ADJUSTMENT, ADJUSTMENT OF DEBIT BALANCE IN PROFIT & LOSS ACCOUNT MADE AGAINST BALANCE AVAILABL E IN GENERAL RESERVE, TRANSFER OF OTHER RESERVES AS AVAILABLE TO/FROM PROFIT & LOSS A CCOUNT AND DEFERRED TAX CREDIT, ACCORDINGLY THE POSITION OF LOSSES AND UNABSORBED DEPRECIATION AS ON 31-3-2004 IS AS UNDER:- FINANCIAL YEAR (APRIL-MARCH) ASSTT. YEAR LOSSES CR./RS. UNABSERBED DEP. CR./RS. TOTAL CR./RS. 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 34.07 114.02 - 111.22 12.84 - - 45.58 61.81 63.99 48.62 50.36 36.39 24.68 79.65 175.83 63.99 159.84 63.20 36.39 24.68 272.15 331.43 603.58 8.3. FROM THE PERUSAL OF THE SAID LETTER IT IS CLE AR, THAT IT HAS NOT BEEN ISSUED BY THE STATUTORY AUDITORS UNDER REQUIREMENT OF ANY STATUTO RY ACT OR RULE. IT IS A GENERAL CALCULATION OF STATUS OF LOSSES AND UNABSORBED DEPR ECIATION AS ON 30.09.2000 MADE BY A ACCOUNTANT ON INSTRUCTION OF THE CLIENT. FURTHER IT IS A PURE STATEMENT OF FACT OF DEBIT BALANCE IN THE BOOKS OF THE COMPANY PRIOR TO THE SC HEME SANCTIONED BY THE HONBLE HIGH COURTS OF ORISSA AND GUJARAT AND MAKING NECESSARY A DJUSTMENTS IN THE PROFIT AND LOSS A/C. THEREOF. MOREOVER IN THE ORDER UNDER SECTION 1 43(3), THE A.O HAS NOT DISCUSSED THE ISSUE IN QUESTION. WHILE CALCULATING BOOK PROFIT UN DER SECTION 115JB THE A.O, HAS DEDUCTED RS. 2721534810/ WITH FOLLOWING NARRATION LOWER OF LOSS B/F (RS. 2721534810) OR UNABSORBED DEPRECIATION (RS. 3314300127) AS PER BOOKS OF ACCOUNTS AS CERTIFIED BY STATUTORY AUDITORS FILED VIDE ANXEE 13 OF LETTER DT . 7.12.2007. NO WHERE IN THE ABOVE MENTIONED LETTER, IT HAS BEEN CERTIFIED BY THE AUDI TOR THAT LOSS B/F AS PER BOOKS OF ACCOUNTS FOR THE PURPOSE OF SECTION 115JB IS RS. 2721534810/ . MOREOVER FOR THE YEAR ENDING 31.03.2005 THE AUDITOR HAS DULY REPORTED THAT AS PE R BOOKS OF ACCOUNTS THE COMPANY DOES 11 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 NOT HAVE ACCUMULATED LOSS. HENCE THE LOSS TAKEN BY THE A.O WHILE CALCULATING THE BOOK PROFIT IN A.Y 2005-06 IS NOT THE LOSS AS PER BOOKS OF THE COMPANY, HENCE IT WILL NOT HELP THE ASSESSEE TO TAKE A GROUND FOR FURTHER ALLOWANCE OF THE LOSS IN THE YEAR UNDER CONSIDERATION. 8.3 CONSIDERING ABOVE FACTS AND THE PROVISIONS OF THE ACT IT IS HELD THAT THE AMOUNT OF LOSS BROUGHT FORWARD AS PER BOOKS OF THE COMPANY IS NIL AND THE A.O HAS RIGHTLY CALCULATED THE BOOK PROFIT UNDER SECTION 115JB. ACC ORDINGLY THE GROUND NO 5 TAKEN BY THE APPELLANT IS DISMISSED. 6. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. THE FACTS GIVING RISE TO ABOVE CONTROVERSY FOR TWO YEARS ARE THAT HONBLE HIGH COURTS OF ORISSA AND GUJARAT SANCTIONED A SCHEME OF COMPROMISE AND/O R ARRANGEMENT BETWEEN ASSESSEE AND ITS LENDERS, BANKERS AND SHAREHOLDERS AND CENTRAL PULP MILLS LIMITED AND ITS SHAREHOLDERS FOR RESTRUCTURING OF DEBTS OF ASSESSEE DUE TO ITS LENDE RS AND BANKERS AND FOR RECONSTRUCTION OF SAID TWO COMPANIES BY TRANSFER OF PAPER UNDERTAKING OF A SSESSEE TO CENTRAL PULP MILLS LIMITED. CLAUSE 10 OF PART II OF THE SANCTIONED SCHEME PROVI DED THAT DEBIT BALANCE IN THE PROFIT AND LOSS ACCOUNT AS ON SEPTEMBER 30, 2000 OF THE ASSESSEE SH ALL STAND ADJUSTED AGAINST SHARE PREMIUM ACCOUNT AND/OR REVALUATION RESERVE ACCOUNT AND FOR THIS RELEVANT FINANCIAL YEAR WAS 2000-01. ACCORDINGLY, IN FINANCIAL YEAR 2000-01 RELEVANT TO ASSESSMENT YEAR 2001-02, DEBIT BALANCE OF RS.381.55 CRORE IN ASSESSEES PROFIT AND LOSS ACCOU NT AS ON SEPTEMBER 30, 2000 WAS ADJUSTED TO THE EXTENT OF RS.281.55 CRORE AGAINST SHARE PREM IUM ACCOUNT AND REMAINING RS.100 CRORE WAS ADJUSTED AGAINST REVALUATION RESERVE WITH APPRO PRIATE DISCLOSURE IN THE ACCOUNTS INCLUDING BY WAY OF NOTES ON ACCOUNTS. IN FINAL ACCOUNTS OF A SSESSEE COMPANY IN RESPECT OF SAID ADJUSTMENT, STATUTORY AUDITORS IN THEIR REPORT DATE D SEPTEMBER 29, 2001 TO THE SHAREHOLDERS OF THE ASSESSEE, STATED AS UNDER:- REGARDING ADJUSTMENT OF DEBIT BALANCE IN PROFIT AN D LOSS ACCOUNT, ATTENTION IS INVITED TO NOTE 1 - SCHEDULE 20, ACCORDING TO WHICH THE DEB IT BALANCE IN PROFIT AND LOSS ACCOUNT HAS BEEN ADJUSTED AGAINST SHARE PREMIUM AND REVALUATION RESERVE AMOUNTING TO RS.281.55 CRORES AND RS.100.00 CRORES RESPECTIVE LY PURSUANT TO THE SANCTION OF SCHEME OF COMPROMISE AND/OR ARRANGEMENT BY HONBLE HIGH COURTS OF ORISSA AND GUJARAT WHICH THOUGH NOT IN LINE WITH THE GENERALLY ACCEPTED ACCOUNTING PRACTICES HAS BEEN CARRIED OUT AS PER THE ORDERS OF THE SAID HIGH COURTS, IMPLEMENTATION WHEREOF IS BINDING ON THE COMPANY. (EMPHASIS ADDED ) THE ASSESSEE DURING ASSESSMENT PROCEEDINGS FOR AY 2 005-06 TOOK A STAND THAT SAID ADJUSTMENT WAS MADE ON SEPTEMBER 30, 2000, WHICH WAS NOT IN AC CORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRACTICES AS OPINED BY ITS AUDITORS, WAS NOT TO BE CONSIDERED IN COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT AND ACCORDING LY, COMPUTATION U/S. 115JB OF THE ACT 12 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 COMPUTING BOOK PROFIT WAS FILED ALONG WITH RETURN O F INCOME. AO WHILE MAKING COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT FOR ASSE SSMENT YEAR 2005-06 U/S. 143(3) OF THE ACT, MADE COMPUTATION, WHICH IS AS UNDER :- BOOK PROFIT U/S 115JB 1. NET PROFIT AS PER P&L A/C (RS.256198886 + RS.4 263000) 260461886 2. ADD : A) UNASCERTAINED LIABILITIES (NET) PROVISION FOR DOUBTFUL DEBTS 31300193 IMPAIRMENT OF ASSETS 6272114 DIMINUTION IN VALUE OF INVESTMENTS (35713560) 1858747 3. LESS : A) DIVIDEND INCOM E 10870255 B) DEFERRED TAX 4263000 C) LOWER OF LOSS B/F (RS.2721534810) OR 2721534810 UNABSORBED DEPRECIATION (RS.331430012 7) PER BOOKS OF ACCOUNT AS CERTIFIED BY STATUTORY AUDITORS FILED VIDE ANNEX 13 OF LETTER DATED 7.12.2007 _ __________ (2736668065) 4. BOOK PROFIT (1+2-3) (2474347432) 5. LOSS C/F(RS.2721534810 - RS.2561988 86) 2465335924 [ASSESSEES CLAIM THAT C/F WORKS OUT TO RS.260601576 MADE ON PAGE 3 OF LETTER DT.7.12.2007 BEING NOT IN ACCORDANCE WITH I. TAX PROVISIONS IS REJECTED] 7. THE AO WHILE FRAMING ASSESSMENT U/S. 143(3) OF T HE ACT FOR AY 2005-06 AGREED WITH SUBMISSIONS OF ASSESSEE THAT ADJUSTMENT MADE ON SEP TEMBER, 30, 2000 OF DEBIT BALANCE IN P&L ACCOUNT AGAINST SHARE PREMIUM ACCOUNT AND REVALUATI ON RESERVE WILL NOT BE CONSIDERED WHILE COMPUTING BOOK PROFIT AND ALLOWED DEDUCTION OF BROU GHT FORWARD LOSSES OF RS.272.15 CRORE, WHICH WAS LOWER THAN UNABSORBED DEPRECIATION. AO CO NSIDERED STATUTORY AUDITORS CERTIFICATE DATED DECEMBER 3, 2007, WHICH IS TO THE EFFECT, THA T WITHOUT CONSIDERING ADJUSTMENT MADE ON SEPTEMBER 30, 2000 OF DEBIT BALANCE IN THE PROFIT A ND LOSS ACCOUNT AGAINST SHARE PREMIUM ACCOUNT AND REVALUATION RESERVE, BROUGHT FORWARD LO SS AS ON MARCH 31, 2004 WAS RS.272.15 CRORE AND UNABSORBED DEPRECIATION WAS RS.331.43 CRO RE. FOR ASSESSMENT YEAR 2006-07 ISSUE INVOLVED HEREIN, THAT ASSESSEE PERSISTED WITH SAME STAND AND IN ITS COMPUTATION OF BOOK PROFIT, ADJUSTED THE PROFIT AFTER DEPRECIATION OF RS.56.25 CRORE BY IDENTICAL AMOUNT CLAIMING IT TO BE AN ADJUSTMENT IN TERMS OF CLAUSE (III) OF EXPLANATION TO SECTION 115JB(2) OF THE ACT ON ACCOUNT OF BROUGHT FORWARD LOSS. THE ASSESSEE CLAIMED THAT BRO UGHT FORWARD LOSS WAS RS.246.53 CRORE WHICH WAS LOWER THAN THE AMOUNT OF UNABSORBED DEPRE CIATION AND AS SUCH THE PROFIT OF RS.56.25 13 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 CRORE FOR THE ASSESSMENT YEAR 2006-07 WAS CORRECTLY REDUCED BY BROUGHT FORWARD LOSS. IN SUPPORT OF ITS STAND, ASSESSEE DREW ATTENTION OF AO TO QUALIFIED AUDITORS REPORT IN RESPECT OF ACCOUNTS AS ON SEPTEMBER 30, 2000 WITH REGARD TO AD JUSTMENT MADE IN TERMS OF SANCTIONED SCHEME AND EXPLAINED REASONS FOR STATUTORY AUDITORS QUALIFICATION. ASSESSEE CONTENDED THAT THE ADJUSTMENT OF DEBIT BALANCE IN PROFIT AND LOSS ACCO UNT WITH SHARE PREMIUM ACCOUNT AND REVALUATION RESERVE WAS CONTRARY TO ACCOUNTING STAN DARDS/PRINCIPLES AND WAS NOT TO BE TAKEN INTO ACCOUNT IN COMPUTING THE BOOK PROFIT UNDER SEC TION 115JB OF THE ACT. IT WAS CONTENDED THAT PROVISIONS OF SANCTIONED SCHEME DID NOT BIND COMPUT ATION UNDER THE ACT AND THE COMPUTATION HAD TO BE MADE IN ACCORDANCE WITH PROVISIONS OF SEC TION 115JB OF THE ACT WHICH ASSESSEE HAD FOLLOWED. AO, HOWEVER, DID NOT AGREE AND HELD THAT ASSESSEE WAS SEEKING AN ADJUSTMENT WHICH WAS NOT PERMITTED FOR ASSESSMENT YEAR 2006-07 AND T HAT THERE WAS NO SCOPE FOR GOING BEYOND FIGURES OF BROUGHT FORWARD LOSS OR UNABSORBED DEPRE CIATION AS PER BOOKS OF ACCOUNT OF ASSESSEE. AO COULD NOT REVERSE ADJUSTMENT OF LOSS WITH REVALU ATION RESERVE AND SHARE PREMIUM ACCOUNT MADE IN F.Y. 1999-2000. ACCORDING TO AO, SE CTION 115JB OF THE ACT DID NOT ENABLE AO TO RESORT TO ANY PROVISION OF THE COMPANIES ACT, 1956 AND TO THE AUDITED ACCOUNTS AND HELD THAT ASSESSEE HAD ONLY UNABSORBED DEPRECIATION OF R S.34.09 CRORE AND THERE WAS NO BROUGHT FORWARD LOSS AND AS SUCH NO ADJUSTMENT IN TERMS OF CLAUSE (III) OF THE EXPLANATION TO SECTION 115JB (2)OF THE ACT COULD BE MADE. THE ASSESSEES A CCOUNTS WERE AUDITED AND CERTIFIED BY AUDITORS AND SAME WERE ADOPTED BY ANNUAL GENERAL ME ETING OF ASSESSEE-COMPANY APPROVING FINAL ACCOUNTS. AO HELD THAT NO RECALCULATION IN TE RMS OF SUB-SECTION (2) OF SECTION 115JB OF THE ACT COULD BE MADE IN VIEW OF THE DECISION OF THE HO NBLE SUPREME COURT IN CIT V APOLLO TYRES LTD (2002) 255 ITR 273 (SC). HE FURTHER HELD THAT COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT FOR ASSESSMENT YEAR 2005-0 6 AND LOSS/DEPRECIATION SHOWN AS CARRIED FORWARD THEREIN WAS NOT BINDING UPON HIM. HE STATED THAT PRINCIPLE OF RES JUDICATA WILL NOT BE APPLICABLE TO INCOME TAX PROCEEDINGS AND OBSERVED T HAT REMEDIAL MEASURE WAS BEING TAKEN FOR ASSESSMENT YEAR 2005-06. SIMILAR ARE OBSERVATIONS MADE BY AO IN ASSESSMENT YEAR 2007-08. AS OBSERVED ABOVE, THE CIT(A) IN AY 2006-07 ALLOWED THE CLAIM OF THE ASSESSEE AND IN AY 2007-08 CONFIRMED THE ACTION OF AO. 8. LD. SENIOR COUNSEL APPEARING FOR REVENUE SHRI M. P. AGARWAL ARGUED ON BEHALF OF REVENUE, SUPPORTED ORDERS PASSED BY AO FOR TWO YEAR S AND ORDER OF CIT(A) FOR ASSESSMENT YEAR 2007-08. HE ARGUED THAT THE SCHEME WAS SANCTIONED B Y HONBLE HIGH COURTS AND WAS BINDING ON ALL CONCERNED AND BOOK PROFIT UNDER SECTION 115J B OF THE ACT COULD NOT BE COMPUTED CONTRARY TO ORDERS PASSED BY HONBLE HIGH COURTS AS THAT WOULD AMOUNT TO CONTEMPT OF COURT. 14 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 HE FURTHER STATED THAT BOOKS OF ACCOUNT DID NOT SHO W ANY BROUGHT FORWARD LOSS AND NO ADJUSTMENT IN TERMS OF CLAUSE (III) OF THE EXPLANAT ION TO SECTION 115JB(2) OF THE ACT WAS CALLED FOR. HE HEAVILY RELIED ON DECISIONS OF HONBLE SUPR EME COURT IN THE CASE OF APOLLO TYRES (SUPRA) AND ALSO IN THE CASE OF MALAYALA MANORAMA C O. LTD. VS. CIT (2008) 300 ITR 251 (SC) AND STATED THAT AO HAD ONLY POWER OF EXAMINING WHET HER THE BOOKS OF ACCOUNT WERE CERTIFIED BY THE AUTHORITIES UNDER COMPANIES ACT AS HAVING BE EN PROPERLY MAINTAINED IN ACCORDANCE WITH COMPANIES ACT. HE STATED THAT IN INSTANT CASE, BOOK S OF ACCOUNT WERE SO CERTIFIED AND AS SUCH, AO HAD NO JURISDICTION TO GO BEYOND THE NET PROFIT SHOWN IN PROFIT AND LOSS ACCOUNT OR TO MAKE ANY ADJUSTMENT NOT PROVIDED FOR BY EXPLANATION TO SECTION 115JB(2) OF THE ACT. LD. COUNSEL SHRI M. P. AGARWAL CITED SEVERAL DECISIONS IN SUPPORT OF PROPOSITION THAT RES JUDICATA WAS NOT APPLICABLE IN TAXATION MATTERS AND DETERMIN ATION MADE BY AO FOR ASSESSMENT YEAR 2005-06 WAS NOT BINDING IN ANY SUBSEQUENT YEAR. HE FURTHER ARGUED THAT, IN ANY EVENT, SUCH DETERMINATION WAS ERRONEOUSLY MADE AND HAD SINCE BE EN RECTIFIED UNDER SECTION 154 OF THE ACT BY AN ORDER DATED APRIL 18, 2011. IN SUPPORT OF CO NTEMPT OF COURT SHRI M. P. AGARWAL CITED THE CASE LAW OF HONBLE SUPREME COURT OF R. L. KAPUR VS . STATE OF T. N. AIR 1972 SC 858 AND REFERRED THAT JURISDICTION CONFERRED ON HIGH COURTS UNDER ART. 215 TO PUNISH FOR CONTEMPT ITSELF IS A SPECIAL ONE, NOT ARISING OR DERIVED FROM CONTE MPT OF COURT ACT, 1952 AND THEREFORE, NOT WITHIN THE PURVIEW OF PENAL CODE. SUCH A POSITION IS ALSO CLEAR FROM PROVISIONS OF CONTEMPT OF COURTS ACT. THE EFFECT OF SEC. 5 OF THAT ACT IS ON LY TO WIDEN THE SCOPE OF EXISTING JURISDICTION OF A SPECIAL KIND AND NOT CONFERRING A NEW JURISDICTIO N. SO FAR AS CONTEMPT OF THE HIGH COURT ITSELF IS CONCERNED, AS DISTINGUISHED FROM THAT OF A COURT SUBORDINATE TO IT, THE CONSTITUTION VESTS THESE RIGHTS IN EVERY HIGH COURT, AND SO NO ACT OF A LEGI SLATURE COULD TAKE AWAY THAT JURISDICTION AND CONFER IT AFRESH BY VIRTUE OF ITS OWN AUTHORITY. TH AT BEING THE POSITION, S. 25, GENERAL CLAUSES ACT CANNOT APPLY. FURTHER, HIGH COURT, AS A COURT O F RECORD, BEING CLOTHED WITH A SPECIAL JURISDICTION, HAS ALSO ALL INCIDENTAL AND NECESSARY POWERS TO EFFECTUATE THAT JURISDICTION. CONSEQUENTLY, IT CAN ORDER SATISFACTION OF FILE IMP OSED BY IT FROM OUT OF AN INDIVIDUAL FUND DEPOSITED BY OR ON BEHALF OF OR FOR THE BENEFIT OF THE ACCUSED. IN VIEW OF THESE ARGUMENTS, LD. COUNSEL SHRI M. P. AGARWAL STATED THAT ORDERS OF AO IN BOTH ASSESSMENT YEARS BE RESTORED. 9. THE LEARNED SENIOR COUNSEL APPEARING ON BEHALF O F THE ASSESSEE SHRI J. P. KHAITAN ALONG WITH SHRI R. SALARPURIA, ON THE OTHER HAND, ARGUED THAT THE VIEW TAKEN BY CIT(A) FOR ASSESSMENT YEAR 2006-07 WAS THE CORRECT VIEW. HE ARGUED THAT S CHEME SANCTIONED BY HONBLE HIGH COURTS WAS PRIMARILY ONE OF COMPROMISE BETWEEN ASSESSEE AN D ITS LENDERS AND BANKERS FOR ADJUSTMENT OR RESCHEDULING OF ASSESSEES DEBTS AND RATIONALIZA TION OF INTEREST ON WORKING CAPITAL FACILITIES 15 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 PROVIDED BY BANKS. HE STATED THAT AS PART OF ASSESS EES DEBT RESTRUCTURING EXERCISE, HONBLE HIGH COURTS PERMITTED ADJUSTMENT OF DEBIT IN PROFIT AND LOSS ACCOUNT AGAINST SHARE PREMIUM ACCOUNT AND REVALUATION RESERVE. THE STATUTORY AUDI TORS OF ASSESSEE HAD CLEARLY MENTIONED IN THEIR REPORT TO SHAREHOLDERS THAT THE ADJUSTMENT, T HOUGH MADE AS PER ORDERS OF HONBLE HIGH COURTS, WAS NOT IN ACCORDANCE WITH GENERALLY ACCEPT ED ACCOUNTING PRACTICES. HE ARGUED THAT ACCOUNTING STANDARDS DID NOT PERMIT ADJUSTMENT OF D EBIT BALANCE IN PROFIT AND LOSS ACCOUNT AGAINST REVALUATION RESERVE OR SHARE PREMIUM ACCOUN T. FOR THIS ARGUMENT LD. COUNSEL DREW ATTENTION TO GUIDANCE NOTES ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ON TREATMENT OF RESERVE CREATED ON REVALUATION OF FIXED ASSETS A ND ACCOUNTING STANDARD 10 RELATING TO ACCOUNTING FOR FIXED ASSETS. HE ELABORATED THAT A CCORDING TO SUB-SECTION (1) OF SECTION 78 OF COMPANIES ACT, 1956, PROVISIONS RELATING TO REDUCTI ON OF SHARE CAPITAL WERE APPLICABLE IN RESPECT OF SHARE PREMIUM ACCOUNT AS IF SHARE PREMIU M ACCOUNT WERE PAID UP SHARE CAPITAL OF THE COMPANY. ACCORDING TO HIM, SCHEME OF ARRANGEMEN T NEITHER PROVIDES FOR REDUCTION OF SHARE CAPITAL OF ASSESSEE NOR PROVISIONS OF COMPANIES ACT , 1956 IN THAT BEHALF FOLLOWED AND FURTHER, ASSESSEES CASE DID NOT FALL WITHIN ANY OF EXCEPTIO NS SPECIFIED IN SUB-SECTION (2) OF SECTION 78 OF COMPANIES ACT, 1956. THUS, ADJUSTMENT OF DEBIT BALA NCE IN PROFIT AND LOSS ACCOUNT AGAINST SHARE PREMIUM ACCOUNT DID NOT HAVE STATUTORY BACKIN G THOUGH PERMITTED BY SANCTIONED SCHEME AS PART OF DEBT RESTRUCTURING EXERCISE. MERELY BECA USE HONBLE HIGH COURTS HAD PERMITTED SUCH ADJUSTMENT, IT DID NOT IMPLY THAT THE SAME WAS IN A CCORDANCE WITH ACCOUNTING STANDARDS OR THAT BOOKS OF ACCOUNT CONTAINING SUCH ADJUSTMENT WERE IN CONFORMITY WITH THE REQUIREMENTS OF COMPANY LAW. THE SCHEME SANCTIONED BY HONBLE HIGH COURTS, UNLIKE A SCHEME SANCTIONED BY BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION U NDER PROVISIONS OF SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 (BY VIRTUE OF SECTION 32 OF THAT ACT), DID NOT HAVE ANY OVER-RIDING EFFECT. A SCHEME OF COMPROMISE AND/ OR ARRANGEMENT UNDER SECTIONS 391 AND 394 OF THE COMPANIES ACT, 1956 DID NOT OVER-RIDE OR DISPENSE WITH PROVISIONS OF ANY OTHER LAW INCLUDING COMPANIES ACT. COMPUTATION OF BOOK PROFIT WAS REQUIRED TO BE MADE STRICTLY IN ACCORDANCE WITH SECTION 115JB OF THE ACT. IN VIEW O F THESE LD. COUNSEL STATED THAT MAKING SUCH COMPUTATION, ADJUSTMENT MADE IN TERMS OF SANCTIONED SCHEME WAS NOT CONCLUSIVE OR BINDING. IF, AS IN THE INSTANT CASE, ADJUSTMENT MADE IN THE BOOK S OF ACCOUNT WAS NOT IN ACCORDANCE WITH THE ACCOUNTING STANDARDS/PRINCIPLES AND/OR THE PROVISIO NS OF THE COMPANIES ACT, 1956, THOUGH PERMITTED BY SCHEME, THE SAME WAS REQUIRED TO BE EX CLUDED FROM CONSIDERATION FOR ARRIVING AT CORRECT AMOUNT OF BOOK PROFIT. AND HE ARGUED THAT S TATUTORY AUDITORS OPINION THAT ADJUSTMENT WAS NOT IN ACCORDANCE WITH THE GENERALLY ACCEPTED A CCOUNTING PRACTICES COULD NOT BE IGNORED, 16 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 HENCE, CIT(A) IN HIS ORDER FOR ASSESSMENT YEAR 2007 -08 FAILED TO TAKE NOTE OF AUDITORS OPINION AS REGARDS TO ADJUSTMENT. CLAUSE (III) OF THE EXPLA NATION TO SECTION 115JB(2) OF THE ACT REQUIRED THAT ANY PROFIT AS SHOWN IN PROFIT AND LOSS ACCOUNT PREPARED UNDER 115JB (2) SHALL BE REDUCED BY THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION, WHICHEVER IS LESS AS PER BOOKS OF ACCOUNT. SUB-SECTION (2) OF SECTION 115JB OF THE ACT REQUIRED THAT PROFIT AND LOSS ACCOUNT SHOULD BE PREPARED IN ACCORDANCE WITH PROVI SIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956. THE BOOKS OF ACCOUNT ADVER TED TO IN CLAUSE (III) MUST BE PROPER BOOKS OF ACCOUNT IN CONFORMITY WITH THE LAW AND ACC OUNTING STANDARDS/PRINCIPLES WITHIN THE MEANING OF THE COMPANIES ACT, 1956. SINCE ADJUSTMEN T IN TERMS OF CLAUSE (III) WAS TO BE MADE IN RESPECT OF LOSSES/DEPRECIATION FOR PAST PERIOD, IT WAS INCUMBENT UPON AO TO TAKE INTO CONSIDERATION ACCOUNTS FOR THE PAST PERIOD. IF ANY ADJUSTMENT IN THE ACCOUNTS OF AN EARLIER YEAR AFFECTING THE AMOUNT OF LOSS OR DEPRECIATION HAD BE EN STATED TO BE NOT AS PER GENERALLY ACCEPTED ACCOUNTING PRACTICES BY THE STATUTORY AUDITORS, IT WAS INCUMBENT UPON AO TO DETERMINE CORRECT AMOUNT OF LOSS/DEPRECIATION FOR THE PURPOSES OF RED UCTION IN TERMS OF CLAUSE (III) OF EXPLANATION ON THE BASIS OF STATUTORY AUDITORS OPINION. IN TER MS OF SUB-SECTION (6) OF SECTION 211 OF THE COMPANIES, 1956, THE BALANCE SHEET AND PROFIT AND L OSS ACCOUNT INCLUDED NOTES THEREON AND DOCUMENTS ANNEXED THERETO AND SUCH NOTES AND DOCUME NTS COULD NOT BE IGNORED BY AO IN COMPUTING BOOK PROFIT UNDER SECTION 115JB. LD. COUN SEL SH J.P. KAITHAN PLACED RELIANCE ON JUDGMENT OF HONBLE DELHI HIGH COURT IN CIT V SAIN PROCESSING AND WEAVING MILLS P LTD (2010) 325 ITR 565 (DEL) AND ON THE DECISION OF MUM BAI BENCH OF TRIBUNAL IN DCIT V BOMBAY DIAMOND COMPANY LTD (2010) 33 DTR 59(MUMBAI) (TRIB) IN SUPPORT OF PROPOSITION THAT WHERE ACCOUNTS WERE NOT PREPARED IN ACCORDANCE WITH PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956, AO HAD POWERS TO GO BEYOND BOO K PROFIT AS PER AUDITED ACCOUNTS. IT WAS ARGUED THAT THOUGH PRINCIPLE OF RES JUDICATA WAS NO T APPLICABLE IN TAXATION MATTERS, BUT RULE OF CONSISTENCY REQUIRED THAT A DIFFERENT VIEW SHOULD N OT BE TAKEN IN A SUBSEQUENT YEAR ON THE SELF- SAME FACTS AND LAW. RELYING UPON THE SAID PRINCIPLE , IT WAS ARGUED THAT AO SHOULD NOT HAVE FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08 DEPARTED F ROM THE VIEW TAKEN BY HIM IN ASSESSMENT YEAR 2005-06, WHICH WAS A REASONABLE ONE. IT WAS FU RTHER STATED THAT RECTIFICATION SUBSEQUENTLY MADE FOR ASSESSMENT YEAR 2005-06 WAS WITHOUT JURISD ICTION AND HAD BEEN APPEALED AGAINST BY ASSESSEE. 10. ASSESSEE ALSO FILED ITS RETURN FOR ASSESSMENT YEAR 2007-08 COMPUTING ITS BOOK PROFIT FOLLOWING SAME BASIS AS IN PRECEDING YEARS. THE PRO FIT FOR ASSESSMENT YEAR 2007-08 OF RS.182.34 CRORE WAS ADJUSTED AGAINST THE CARRIED FO RWARD LOSS OF RS.190.37 CRORE AND BOOK 17 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 PROFIT WAS RETURNED AS NIL. BEFORE AO, ASSESSEE C ITED THE DECISION OF CIT(A) FOR ASSESSMENT YEAR 2006-07. HOWEVER, AO REITERATED THE VIEW TAKEN BY HIM IN ASSESSMENT YEAR 2006-07 WAS SUBJECT MATTER OF APPEAL BEFORE TRIBUNAL. ASSESSEE PREFERRED AN APPEAL BEFORE CIT(A) WHO DID NOT AGREE WITH HIS PREDECESSOR AND TOOK THE VIEW TH AT SANCTIONED SCHEME HAD OVER-RIDING EFFECT AND WAS BINDING ON ALL CONCERNED AND HAD TO BE TOTA LLY IMPLEMENTED. WHETHER THE SCHEME WAS IN ACCORDANCE WITH THE PROVISIONS OF COMPANY LAW WA S NOT RELEVANT. ONCE EFFECT WAS GIVEN TO SANCTIONED SCHEME AND ADJUSTMENT HAD BEEN MADE, BOO K PROFIT HAD TO BE COMPUTED WITH REFERENCE TO THE ADJUSTED FIGURES AS APPEARING IN T HE BOOKS OF ACCOUNT AND ADJUSTMENT COULD NOT BE IGNORED. HE FURTHER HELD THAT THE BOOKS OF ACCOU NT OF ASSESSEE FOR THE PREVIOUS YEAR 2006-07 WERE DULY AUDITED AND THE AUDITED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT OF ASSESSEE AS ON MARCH 31, 2007 WERE CERTIFIED BY AUDITORS TO BE IN AGREEMENT WITH BOOKS OF ACCOUNT ACCORDING TO WHICH ASSESSEE DID NOT HAVE ANY ACCUMULATED LOSS ES AND ITS BOOK PROFIT WAS RS.182.34 CRORE. HE THEREFORE HELD THAT NO FURTHER QUANTIFICATION WA S REQUIRED TO BE MADE AND SINCE THERE WAS NO BROUGHT FORWARD LOSS AS PER BOOKS, NO DEDUCTION WAS TO BE MADE. 11. THE FACTS ARE NOT IN DISPUTE AND BOTH PARTIES A GREED ON FACTS. THE PRINCIPAL QUESTIONS ARE AS TO (I) WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES OF T HE CASE, ASSESSEE IS ENTITLED TO DEDUCTION OF BROUGHT FORWARD LOSSES FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE ACT IN RELEVANT ASSESSMENT YEAR 2006-07 AS ADJUSTED BY AO IN ASSESSMENT YEAR 2005-06, EVEN THOUGH THE LOSS ES HAVE BEEN LIQUIDATED BY ADJUSTING DEBIT BALANCE AGAINST SHARE PREMIUM AND R EVALUATION RESERVE PURSUANT TO SCHEME OF COMPROMISE SANCTIONED BY HONBLE HIGH COURTS OF ORISSA AND GUJARAT AS ON SEPTEMBER 30, 2000 IN THE NORMAL COMP UTATION OF PROFIT AS PER PROFIT AND LOSS ACCOUNT OF ASSESSEE. (II) WHETHER, IN THE GIVEN FACTS AND CIRCUMSTANCES OF TH E CASE, FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT ADJUSTMENT UNDER EXPLANA TION (III) OF SECTION 115JB OF THE ACT BOOKS OF ACCOUNT ARE TO BE ADJUSTED AS P ER ADDITIONAL INFORMATION IN ACCORDANCE WITH THE PROVISIONS OF PART II & III OF SCHEDULE VI OF COMPANIES ACT, 1956. THE PROVISIONS ENACTED IN CHAPTER XII-B I.E SPECIAL PROVISIONS RELATING TO CERTAIN COMPANIES ARE THAT IF THE ASSESSEE BE A COMPANY AND ITS TOTAL INC OME DETERMINED UNDER THE ACT IN RESPECT OF PREVIOUS YEAR IS LESS THAN SPECIFIED BOOK PROFIT, F ICTIONALLY IT WILL BE DEEMED THAT THE TOTAL 18 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 INCOME IS CHARGEABLE TO TAX WILL BE SUCH BOOK PRO FIT. THIS NEW CHAPTER XII-B, CONTAINING SECTION 115J HAS BEEN INSERTED BY THE FINANCE ACT 1 987 W.E.F 1 ST APRIL 1988 AND THIS NEW SECTION MAKES PROVISION FOR LEVY OF MINIMUM TAX ON BOOK PRO FIT OF CERTAIN COMPANIES. THIS PROVISION WAS ENACTED AS A MEASURE OF EQUITY, AS CERTAIN COMP ANIES WHICH HAVE, IN FACT, LARGE PROFITS IN ITS BOOKS BUT, FOR THE PURPOSE OF THE ACT, BY VIRTUE OF VARIOUS DEDUCTIONS WHICH HAVE BEEN CLAIMED, VERY LITTLE TAXABLE INCOME IS DISCLOSED. IT IS AN E FFORT TO BRING SUCH TYPE OF COMPANIES WITHIN THE TAXABLE NET THAT SECTION 115J OF THE ACT WAS INSERT ED BY PARLIAMENT. THIS IS A DEEMING PROVISION AND FICTIONALLY IT WILL BE DEEMED TOTAL INCOME CHAR GEABLE TO TAX AS PER SECTION 115J OF THE ACT. TIME TO TIME AFTER SECTION 115J, THE SAME WAS SUBST ITUTED BY SECTION 115JA, 115JAA OF THE ACT AND FINALLY BY SECTION 115JB OF THE ACT. WE, AFTER READING PROVISIONS OF SUB-SECTION (2) OF SECTION 115JB OF THE ACT, ARE OF THE VIEW THAT THIS PROVISION MANDATES THAT THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR SHOULD BE PR EPARED IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES AC T, 1956. IN TERMS OF CLAUSE (III) OF EXPLANATION TO THE SUB-SECTION, NET PROFIT AS SHOWN IN SUCH PROFIT AND LOSS ACCOUNT IS REQUIRED TO BE REDUCED BY THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION, WHICHEVER IS LESS AS PER BOOKS OF ACCOUNT. THE BOOKS OF ACCOUNT ADVERTED TO IN CLAUSE (III) MUST BE PROPER BOOKS OF ACCOUNT WHICH GIVE TRUE AND FAIR VIEW AS R EQUIRED BY SECTION 209 OF THE COMPANIES ACT, 1956. THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET HAVE TO BE IN AGREEMENT WITH THE BOOKS OF ACCOUNT. THE PROFIT AND LOSS ACCOUNT AND B ALANCE SHEET HAVE TO COMPLY WITH THE ACCOUNTING STANDARDS. PROFIT AND LOSS ACCOUNT PREPA RED ON THE BASIS OF BOOKS OF ACCOUNT WHICH ARE NOT PROPER BOOKS OF ACCOUNT WITHIN THE MEANING OF THE COMPANIES ACT, 1956 OR WHICH IS NOT IN COMPLIANCE WITH THE ACCOUNTING STANDARDS CANNOT BE SAID TO HAVE BEEN PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT . IF SUCH ACCOUNTS HAVE BEEN COMMENTED UPON BY THE STATUTORY AUDITORS AND ANY ENTRY THEREI N IS REPORTED TO BE NOT IN ACCORDANCE WITH THE ACCOUNTING STANDARDS/PRINCIPLES OR NOT IN ACCORDANC E WITH THE PROVISIONS OF THE COMPANIES ACT, THE COMPUTATION OF THE BOOK PROFIT UNDER SECTION 11 5JB MUST TAKE NOTE OF IT AND APPROPRIATELY ADJUST BOOK FIGURES. THE STATUTORY AUDITORS REPORT WOULD NATURALLY MENTION THE FACT SINCE SUCH ACCOUNTING WOULD BE CONTRARY TO GENERALLY ACCEPTED ACCOUNTING PRACTICES. WE ARE OF THE VIEW THAT ASSESSEE WOULD BE FULLY WITHIN PROVISION OF LA W TO TAKE NOTE OF AUDITORS REPORT AND ADJUST BOOK FIGURES SO THAT THEY ARE IN CONFORMITY WITH TH E ACCOUNTING STANDARDS AND PROVISIONS OF COMPANIES ACT AND TO DETERMINE THE CORRECT AMOUNT O F LOSS. EVEN HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES (SUPRA), HAS LAID DOWN THE PRINCIPLE THAT WHETHER BOOKS OF ACCOUNTS ARE CERTIFIED BY AUTHORITIES UNDER COMPANIES ACT AS HAVING BEEN PROPERLY MAINTAINED IN 19 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 ACCORDANCE WITH COMPANIES ACT. HONBLE SUPREME COU RT IN APOLLO TYRES (SUPRA) AT PAGE 280 OF 255 ITR HELD AS UNDER: THEREFORE, WE ARE OF THE OPINION, THE ASSESSING OF FICER WHILE COMPUTING THE INCOME UNDER SECTION 115J HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES AC T AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. THE ASSESSING OFFICER THEREAFTER HAS THE LIMITED POWER OF MAKING INCREASES AND REDUCTIONS AS PROVIDE D FOR IN THE EXPLANATION TO THE SAID SECTION. TO PUT IT DIFFERENTLY, THE ASSESSING OFFIC ER 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 115J. (EMPHASIS ADDED) BUT WHAT IF BOOKS OF ACCOUNT ARE NOT SO CERTIFIED A ND STATUTORY AUDITORS HAVE GIVEN A QUALIFIED REPORT ADVERSELY COMMENTING UPON SOME ACCOUNTING MA DE BY THE COMPANY, ASSESSEE MUST THEN TAKE NOTE OF AUDITORS QUALIFICATION AND MAKE SUCH WORKING AS IS REQUIRED SO AS TO ARRIVE AT CORRECT FIGURES FOR THE PURPOSE OF COMPUTING BOOK P ROFIT. EVEN IT IS NOT DISPUTED BY DEPARTMENT THAT DEBIT BALANCE IN PROFIT AND LOSS ACCOUNT CANNO T BE ADJUSTED AGAINST REVALUATION RESERVE OR SHARE PREMIUM ACCOUNT AND THAT SUCH ADJUSTMENT IS N OT IN ACCORDANCE WITH ACCOUNTING STANDARDS/PRINCIPLES AND PROVISIONS OF THE COMPANIE S ACT, 1956. IN THE INSTANT CASE, WE ARE CONCERNED WITH CLAUSE (III) OF THE EXPLANATION WHIC H REFERS TO AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION, WHICHEVER IS LESS AS PER B OOKS OF ACCOUNT, STATUTORY AUDITORS OF ASSESSEE IN THEIR REPORT TO SHAREHOLDERS IN RESPECT OF THE ACCOUNTS FOR 1999-2000 EXPRESSLY STATED THAT ADJUSTMENT OF DEBIT BALANCE IN PROFIT AND LOSS ACCOUNT AGAINST SHARE PREMIUM ACCOUNT AND REVALUATION RESERVE WAS NOT IN LINE WITH GENERA LLY ACCEPTED ACCOUNTING PRACTICES AND THEREBY QUALIFIED THEIR REPORT. BECAUSE OF SAID ADJ USTMENT, ACCUMULATED LOSSES OF RS.381.55 CRORE GOT REDUCED TO NIL THOUGH IN NORMAL COURSE AN D IN ACCORDANCE WITH THE GENERALLY ACCEPTED ACCOUNTING PRACTICES, BOOKS OF ACCOUNT SHOULD HAVE CONTINUED TO REFLECT SAID LOSSES. NOW, CAN AO COMPUTING BOOK PROFIT FOR ASSESSMENT YEARS 2006- 07 AND 2007-08 IGNORE STATUTORY AUDITORS QUALIFICATION IN THEIR REPORT TO SHAREHOLDERS ON TH E GROUND THAT SUCH QUALIFICATION WAS CONTAINED IN REPORT FOR THE YEAR 1999-2000 AND WAS NOT REPEAT ED IN ACCOUNTS FOR RELEVANT PREVIOUS YEARS 2005-06 AND 2006-07? IN OUR VIEW, SINCE IN TERMS OF CLAUSE (III), AO IS REQUIRED TO LOOK AT AMOUNT OF LOSS BROUGHT FORWARD AND UNABSORBED DEPRE CIATION AS PER BOOKS OF ACCOUNT, HE MUST TAKE INTO ACCOUNT AUDITORS QUALIFICATION EVEN IF E XPRESSED WITH REFERENCE TO ACCOUNTS OF EARLIER YEAR, WHERE SUCH QUALIFICATION HAS A DIRECT AND IMM EDIATE BEARING UPON THE AMOUNT OF LOSS BROUGHT FORWARD AND UNABSORBED DEPRECIATION REFLECT ED OR NOT REFLECTED IN BOOKS OF ACCOUNT FOR RELEVANT PREVIOUS YEARS UNDER CONSIDERATION BEFORE AO. FACT THAT AUDITORS QUALIFICATION IS NOT REPEATED IN THEIR REPORTS IN RESPECT OF ACCOUNTS FO R RELEVANT PREVIOUS YEARS UNDER CONSIDERATION 20 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 BEFORE THE AO CANNOT BE A REASON FOR IGNORING IT PA RTICULARLY WHEN IT REFLECTS UPON THE CORRECTNESS OF THE AMOUNT OF LOSS/UNABSORBED DEPREC IATION APPEARING IN BOOKS OF ACCOUNT FOR RELEVANT PREVIOUS YEARS. NO DOUBT, IN THE INSTANT C ASE, ASSESSEE WANTS THE AO TO TAKE INTO ACCOUNT THE AUDITORS OPINION IN THE EARLIER YEAR F OR OBTAINING A TAX ADVANTAGE FOR ITSELF. THAT HOWEVER CANNOT MAKE THE PRINCIPLE TO BE APPLIED ANY DIFFERENT IRRESPECTIVE OF WHO STANDS TO GAIN, IF AUDITORS OPINION IN AN EARLIER YEAR REFLE CTS UPON CORRECTNESS OF AMOUNT OF LOSS/UNABSORBED DEPRECIATION APPEARING IN THE BOOKS OF ACCOUNT OF A SUBSEQUENT YEAR, THE AO MUST TAKE INTO CONSIDERATION SUCH OPINION AND DETER MINE CORRECT AMOUNT OF BROUGHT FORWARD LOSS/UNABSORBED DEPRECIATION IN COMPUTING THE BOOK PROFIT OF SUCH SUBSEQUENT YEAR. 12. ANOTHER FACET OF ARGUMENT IS AS REGARDS THE EFF ECT OF ORDERS OF HONBLE HIGH COURTS SANCTIONING THE SCHEME OF COMPROMISE/ARRANGEMENT WH ICH PROVIDED FOR ADJUSTMENT. IN OUR VIEW, COMPANY COURT WHILST SANCTIONING SCHEME UNDER SECTIONS 391 AND 394 OF COMPANIES ACT, 1956 DOES NOT DETERMINE HOW COMPANY BEFORE IT SHOULD BE ASSESSED UNDER PROVISIONS OF THE ACT CONSEQUENT TO IMPLEMENTATION OF SUCH SCHEME. TH AT IS A MATTER WHICH CAN ONLY BE DECIDED IN APPROPRIATE PROCEEDINGS UNDER THE ACT. A SCHEME SANCTIONED UNDER SECTIONS 391 AND 394 OF COMPANIES ACT DOES NOT HAVE ANY OVER-RIDING EFFECT OR DISPENSE WITH PROVISIONS OF ANY OTHER LAW INCLUDING COMPANIES ACT. SUCH A SCHEME, UNLIKE A SCHEME SANCTIONED BY BIFR UNDER PROVISIONS OF SICA, IS NOT CONCLUSIVE OR BINDING IN AN INCOME TAX ASSESSMENT. THE EFFECT OF ANY ACCOUNTING MADE ON THE BASIS OF SCHEME OF COMPROMIS E/ARRANGEMENT UNDER COMPANIES ACT, 1956 WILL HAVE TO BE INDEPENDENTLY JUDGED IN ACCORD ANCE WITH PROVISIONS OF THE ACT IN ASSESSMENT AND SUBSEQUENT PROCEEDINGS. SUPPOSING SA NCTIONED SCHEME PERMITS AN ASSESSEE TO ACCOUNT FOR EXPENDITURE ON CAPITAL ACCOUNT AS A REV ENUE EXPENSE AND RESULT IS THAT BOOK LOSSES STAND INCREASED AND STATUTORY AUDITORS ADVERSELY CO MMENT ON SUCH ACCOUNTING IN THEIR REPORT, CAN AO STILL COMPUTE BOOK PROFIT FOR MAKING INCOME TAX ASSESSMENT NOT TAKING VIEW THAT HAVING REGARD TO AUDITORS OPINION, HE WILL CONSIDER ONLY LOSS AS PER BOOKS OF ACCOUNT EXCLUDING CAPITAL ITEM PERMITTED TO BE TREATED AS REVENUE EXPENSE? IN OUR VIEW, AO MUST TAKE SUCH A VIEW. THE PRIMARY DUTY OF AO WHILST COMPUTING BOOK PROFIT IS TO SEE THAT ACCOUNTS HAVE BEEN MAINTAINED IN ACCORDANCE WITH THE REQUIREMENTS OF COMPANIES AC T AND HE WOULD BE FAILING IN SUCH DUTY IF, INSPITE OF THE AUDITORS OPINION, HE DOES NOT APPRO PRIATELY ADJUST BOOK FIGURES TO BRING THEM IN LINE WITH REQUIREMENTS OF COMPANIES ACT. 13. WE FIND THAT EVEN HONBLE APEX COURT IN THE CAS E OF INDO RAMA SYNTHETICS (I) LTD. VS. CIT (2011) 330 ITR 363 (SC) HELD THAT THE ADJUSTMEN T MADE IN THE P&L ACCOUNT WAS PRIMARILY 21 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 IN THE NATURE OF CONTRA-ADJUSTMENT IN THE P&L ACCOU NT AND NOT A CASE OF EFFECTIVE CREDIT IN THE P&L ACCOUNT. ACCORDING TO HONBLE COURT THE AMOUNT WITHDRAWN FROM ANY RESERVE MUST IN EFFECT IMPACT THE NET PROFIT AS SHOWN IN P&L ACCOUN T AND UNLESS AN ADJUSTMENT HAS THE EFFECT OF INCREASING NET PROFIT AS SHOWN IN P&L ACCOUNT, THAT ENTRY CANNOT BE SAID TO BE A CREDIT TO P&L ACCOUNT AND, THEREFORE, THOUGH THE AMOUNT HAS BEEN LITERALLY CREDITED TO P&L ACCOUNT BUT IN SUBSTANCE THERE WAS NO CREDIT TO P&L ACCOUNT. HON BLE COURT NOTED THAT THOUGH PROFIT WAS NOT IMPACTED, DEPRECIATION AS THE HEAD OF ACCOUNT WAS I MPACTED AND BY INTERPLAY OF BALANCE SHEET ITEMS WITH P&L ACCOUNT ITEMS, ASSESSEE HAD SOUGHT T O PROJECT THE LOSS AS PROFIT. HENCE, HONBLE COURT RULED THAT AS THE AMOUNT OF REVALUATI ON RESERVE HAD NOT GONE TO INCREASE THE BOOK PROFIT AT THE TIME IT WAS CREATED, REDUCTION SOUGHT BY ASSESSEE UNDER CLAUSE (I) TO EXPLANATION U/S. 115JB(2) OF THE ACT IN RESPECT OF DEPRECIATION HAD RIGHTLY BEEN REJECTED BY AO. HONBLE SUPREME COURT IN INDO RAMA SYNTHETICS (I) LTD (SUPR A) HELD AS UNDER:- WE AGREE WITH THE ASSESSING OFFICER. UNDER THE PR OVISIONS, AS THEY THEN EXISTED, CERTAIN ADJUSTMENTS WERE REQUIRED TO BE MADE TO THE NET PRO FIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT. ONE SUCH ADJUSTMENT STIPULATED THAT THE NE T PROFIT SHALL BE REDUCED BY THE AMOUNT(S) WITHDRAWN FROM ANY RESERVES, IF ANY SUC H AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT. THUS, IF THE RESERVES CREATED HAD G ONE TO INCREASE THE BOOK PROFITS IN ANY YEAR WHEN THE PROVISIONS OF SECTION 115JB WERE AP PLICABLE, THE ASSESSEE BECAME ENTITLED TO REDUCE THE AMOUNT WITHDRAWN FROM SUCH RESERVES IF SUCH WITHDRAWAL IS CREDITED TO THE PROFIT AND LOSS ACCOUNT. NOW, FROM THE ABOVE FA CTS, IT IS CLEAR THAT NEITHER THE SAID AMOUNT OF RS. 288,58,19,000 NOR RS. 26,11,74,000 HA D EVER GONE TO INCREASE THE BOOK PROFITS IN THE SAID YEAR ENDING MARCH 31, 2000 (B EING THE FINANCIAL YEAR). THUS, WHEN SUCH AMOUNT(S) HAS NOT GONE TO INCREASE THE BOOK VALUE AT THE TIME OF CREATION OF RESERVE(S), THERE IS NO QUESTION OF REDUCING THE AMOUNT TRANSFERRED FROM SUCH REVALUATION RESERVES TO THE PROFIT AND LOSS ACCOUNT. THUS, THE PROVISO TO CLAUSE (I) OF THE EXPLANATION TO SECTION 115JB(2) COMES IN THE WAY OF THE CLAIM F OR REDUCTION MADE BY THE ASSESSEE. IN OUR VIEW, THE REDUCTION UNDER CLAUSE (I) TO THE E XPLANATION COULD HAVE BEEN AVAILED OF ONLY IF SUCH REVALUATION RESERVE HAD GONE TO INCR EASE THE BOOK PROFITS. AS THE AMOUNT OF REVALUATION RESERVES HAD NOT GONE TO INCREASE THE BOOK PROFITS AT THE TIME IT WAS CREATED, THE BENEFIT OF REDUCTION CANNOT BE ALLOWED. ONE MOR E FACT NEEDS TO BE HIGH- LIGHTED. IN THIS CASE, AS INDICATED ABOVE, THE REVALUATION RESERVE S TOOD CREATED DURING THE EARLIER ASSESSMENT YEAR 2000-01. IT HAS BEEN VEHEMENTLY ARG UED ON BEHALF OF THE ASSESSEE THAT CREATION OF SUCH RESERVE DID NOT IMPACT THE PROFITS OF THAT YEAR. THE FACTS ENUMERATED HEREINABOVE SHOWS THAT THOUGH THE PROFIT WAS NOT IM PACTED, DEPRECIATION AS THE HEAD OF ACCOUNT WAS IMPACTED. BY INTER PLAY OF THE BALANCE- SHEET ITEMS WITH THE PROFIT AND LOSS ACCOUNT ITEMS THE ASSESSEE, AS STATED ABOVE, HAS SO UGHT TO PROJECT THE LOSS OF RS. 7,38,09,000 AS PROFIT OF RS. 18,73,65,000. CONCLUSION FOR THE ABOVE REASONS, WE SEE NO REASON TO INTERFER E, HENCE, THE CIVIL APPEAL FILED BY THE ASSESSEE SHALL STAND DISMISSED WITH NO ORDER AS TO COSTS. BUT FACTS, IN PRESENT CASE BEFORE US, ARE REVERSE T HAT ASSESSEE LIQUIDATED LOSSES BY ADJUSTING DEBIT BALANCE AGAINST SHARE PREMIUM AND REVALUATION RESER VE PURSUANT TO SCHEME OF COMPROMISE 22 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 SANCTIONED BY HONBLE HIGH COURTS OF ORISSA AND GUJ ARAT AS ON SEPTEMBER 30, 2000 IN THE NORMAL COMPUTATION OF PROFIT OF THE ASSESSEE AND NO W FOR COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE ACT IT HAS CLAIMED REDUCTION OF BROUGH T FORWARD LOSSES EARLIER LIQUIDATED BY DEBITING AGAINST SHARE PREMIUM AND REVALUATION RESE RVE. IN VIEW OF THIS FACT, WE ARE OF THE VIEW THAT FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT FOR THE PURPOSE OF ADJUSTMENT UNDER EXPLANATION (III) OF SECTION 115JB OF THE ACT, BOOK S OF ACCOUNT ARE TO BE ADJUSTED IN VIEW OF LOSS LIQUIDATED BY ADJUSTING DEBIT BALANCE AGAINST SHARE PREMIUM AND REVALUATION RESERVE IN ACCORDANCE WITH PROVISIONS OF PART II & III OF SCHE DULE VI OF COMPANIES ACT, 1956. TRIBUNAL IN THE CASE OF BOMBAY DIAMOND CO. LTD. (SUPRA) IN SIMI LAR CIRCUMSTANCES HAS HELD AS UNDER: 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE C1T(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BE FORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE IN THE IMPUGNED ASSESSMENT Y EAR HAS EARNED GROSS PROFIT OF RS. 10,38,13,765 ON ACCOUNT OF SALE OF ITS RIGHTS IN AN IMMOVABLE PROPERTY. THERE IS ALSO NO DISPUTE TO THE FACT THAT THIS INCOME HAS NOT BEEN P ASSED THROUGH THE P&L A/C BUT HAS DIRECTLY BEEN TAKEN TO THE BALANCE SHEET AS CAPITAL RESERVE. ACCORDING TO THE AO SINCE THE ASSESSEE HAS NOT PREPARED ITS ACCOUNTS IN THE M ANNER PROVIDED IN PART II AND PART III OF SCH. VI TO THE COMPANIES ACT, THEREFORE, THE AMO UNT OF RS. 10,38,13,765 HAVING NOT ROUTED THROUGH THE P&L A/C HAS TO BE ADDED TO THE B OOK PROFIT FOR THE PURPOSE OF PROVISIONS OF S. 115JB. IT IS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN TH E CASE OF APOLLO TYRES LTD. (SUPRA), THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF KINETIC MOTOR CO. LTD. (SUPRA) AND THE DECISION OF THE CO-ORDINATE BENCH O F THE TRIBUNAL IN THE CASE OF ORSON TRADING (P) LTD. (SUPRA) THE AO HAS NO POWER TO GO BEYOND THE ACCOUNTS ADOPTED IN THE AGM. 17. WE FIND PART II AND PART III OF SCH. VI TO THE COMPANIES ACT READ AS UNDER: PART II REQUIREMENTS AS TO P&L A/C 1. THE PROVISIONS OF THIS PART SHALL APPLY TO THE I NCOME AND EXPENDITURE ACCOUNT REFERRED TO IN SUB OF S. ( ) OF S. 210 OF THE ACT, IN LIKE MANNER AS THEY APPLY TO A P&L A/C, BUT SUBJECT TO THE MODIFICATION OF REFERENCES AS SP ECIFIED IN THAT SUB-SECTION. 2. THE P&L A/C (A) SHALL BE SO MADE OUT AS CLEARLY TO DISCLOSE THE RESULT OF THE WORKING OF THE COMPANY DURING THE PERIOD COVERED BY THE ACCOUNT; AND (B) SHALL DISCLOSE EVERY MATERIAL FEATURE, INCLUDIN G CREDITS OR RECEIPTS AND DEBITS OR EXPENSES IN RESPECT OF NON-RECURRING TRANSACTIONS O R TRANSACTIONS OF AN EXCEPTIONAL NATURE. 3. THE P&L A/C SHALL SET OUT THE VARIOUS ITEMS RELA TING TO THE INCOME AND EXPENDITURE OF THE COMPANY ARRANGED UNDER THE MOST CONVENIENT HEAD S; AND IN PARTICULAR, SHALL DISCLOSE THE FOLLOWING INFORMATION IN RESPECT OF TH E PERIOD COVERED BY THE ACCOUNT: (I). (II). (XI) (A) THE AMOUNT OF INCOME FROM INVESTMENTS, DIS TINGUISHING BETWEEN TRADE INVESTMENTS AND OTHER INVESTMENTS. (B) OTHER INCOME BY WAY OF INTEREST, SPECIFYING THE NATURE OF THE INCOME. (C) THE AMOUNT OF INCOME-TAX DEDUCTED IF THE GROSS INCOME IS STATED UNDER SUB-PARAS (A) AND (B) ABOVE. 23 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 (XII) (A) PROFITS OR LOSSES ON INVESTMENTS SHOWING DISTINCTLY THE EXTENT OF THE PROFITS OR LOSSES EARNED OR INCURRED ON ACCOUNT OF MEMBERSHIP OF A PARTNERSHIP FIRM TO THE EXTENT NOT ADJUSTED FROM ANY PREVIOUS PROVISION OR RESERVE . NOTE : INFORMATION IN RESPECT OF THIS ITEM SHOULD A LSO BE GIVEN IN THE BALANCE SHEET UNDER THE RELEVANT PROVISION OR RESERVE ACCOUNT. (B) PROFITS OR LOSSES IN RESPECT OF TRANSACTIONS OF A KIND, NOT USUALLY UNDERTAKEN BY THE COMPANY OR UNDERTAKEN IN CIRCUMSTANCES OF AN EXCEPT IONAL OR NON-RECURRING NATURE, IF MATERIAL IN AMOUNT. (C) MISCELLANEOUS INCOME. (XIII) (A). (B). (XIV) .. (XV) .. 18. FROM A BARE READING OF THE ABOVE IT IS CLEAR TH AT THE P&L A/C OF A COMPANY SHALL DISCLOSE EVERY MATERIAL FEATURE INCLUDING CREDITS O R RECEIPTS AND DEBITS OR EXPENSES IN RESPECT OF NON-RECURRING TRANSACTIONS OR TRANSACTIO NS OF EXCEPTIONAL NATURE ALSO. FURTHER THE COMPANY IS ALSO REQUIRED TO SET OUT THE VARIOUS ITEMS RELATING TO THE INCOME AND EXPENDITURE OF THE COMPANY ARRANGED UNDER MOST CONVENIENT HEADS AND DISCLOSING PROFIT OR LOSS IN RESPECT OF TRANSACTIONS OF A KIND NOT USUALLY UNDERTAKEN BY THE COMPANY OR UNDERTAKEN IN CIRCUMSTANCES OF EXCEPTIONAL OR NO N-RECURRING NATURE IN AMOUNT. 19. HOWEVER, IN THE INSTANT CASE WE FIND ALTHOUGH T HE ASSESSEE HAS EARNED A PROFIT OF RS.10,38,13,765 FROM THE SALE OF RIGHTS IN AN IMMOV ABLE PROPERTY THE SAME HAS NOT BEEN ROUTED THROUGH THE P&L A/C AND HAS DIRECTLY BEEN CR EDITED TO THE BALANCE SHEET. THEREFORE, IN OUR OPINION, ACCOUNTS ARE NOT PREPARE D IN ACCORDANCE WITH THE MANNER PROVIDED IN PART II AND PART III OF VI TO THE COMPA NIES ACT. 20. THE VARIOUS DECISIONS RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THE CASE OF APOLLO TYRES LTD. (SUPRA) THE QUESTION NO. (I) BEFORE THE HONBLE SUPREME COURT W AS AS UNDER: (I) CAN AN AO WHILE ASSESSING A COMPANY FOR INCOME -TAX UNDER S. 115J OF THE IT ACT QUESTION THE CORRECTNESS OF THE P&L A/C PREPARED BY THE ASSESSEE COMPANY AND CERTIFIED BY THE STATUTORY AUDITORS OF THE COMPANY AS HAVING BEEN PREPARED IN ACCORDANCE WITH THE REQUIREMENTS OF PARTS II AND III OF SCH. VI TO THE COMPANIES ACT ? 21. FROM THE ABOVE IT IS CLEAR THAT THE ISSUE BEFOR E THE HONBLE SUPREME COURT WAS UNDER THE PROVISIONS OF S. 115IJ AND WHEN THE ACCOU NTS OF THE COMPANY ARE PREPARED IN ACCORDANCE WITH THE REQUIREMENTS OF PART II AND PAR T III OF SCH. VI TO THE COMPANIES ACT. HOWEVER, IN THE INSTANT CASE THE ISSUE IS RELA TING TO THE PROVISIONS OF S. 115JB AND THE ACCOUNTS ARE NOT PREPARED IN ACCORDANCE WITH TH E PROVISIONS OF PART II AND PART III OF SCH. VI TO THE COMPANIES ACT. MERELY BECAUSE THE AUDITORS HAVE CERTIFIED THE ACCOUNTS WHICH APPARENTLY ARE NOT PREPARED IN ACCOR DANCE WITH PART II AND PART III OF SCH. VI TO THE COMPANIES ACT, THEREFORE, THE DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. (SUPRA), IN OUR OPINION I S NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 22. SIMILARLY IN THE CASE OF KINETIC MOTOR CO. LTD. (SUPRA) THE ASSESSEE HAD DEBITED AN AMOUNT OF RS. 6,32,65,430 ON ACCOUNT OF DEPRECIATIO N ON THE BASIS OF WDV WHICH IS ONE OF THE PERMISSIBLE METHODS UNDER THE COMPANIES ACT ALTHOUGH THE ASSESSEE USED TO PROVIDE THE DEPRECIATION ON THE STRAIGHT-LINE METHO D IN ITS CORPORATE ACCOUNTS. THE ABOVE RESULTED IN A BOOK LOSS OF RS. 1,64,49,937. T HESE ACCOUNTS WERE CERTIFIED TO BE TRUE AND FAIR BY THE AUDITORS. THE AO TOOK THE VIEW THAT THERE WAS NO JUSTIFICATION FOR THE ASSESSEE TO CHANGE THE BASIS OF PROVIDING DEPRECIAT ION AND REWORKED THE DEPRECIATION 24 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 AND ARRIVED AT A BOOK PROFIT OF RS. 2,22,10,525 AS AGAINST THE BOOK LOSS OF RS. 1,64,49,937 WHICH WAS CONFIRMED BY THE TRIBUNAL. ON FURTHER APPEAL TO THE HIGH COURT, THE HONBLE HIGH COURT HAD HELD THAT UNDER THE COMP ANIES ACT BOTH STRAIGHT-LINE METHOD AND WRITTEN DOWN METHOD ARE RECOGNISED, THER EFORE, ONCE THE AMOUNT OF DEPRECIATION ACTUALLY DEBITED TO THE P&L A/C AND WA S CERTIFIED BY THE AUDITORS IT WAS NOT PERMISSIBLE FOR THE AO TO MAKE BOOK ADJUSTMENTS. 23. THUS FROM THE ABOVE IT IS CLEAR THAT THE ASSESS EE HAS DEBITED THE DEPRECIATION IN THE P&L A/C AS PER ONE OF THE RECOGNISED METHODS. FURTH ER THE ISSUE BEFORE THE HONBLE HIGH COURT WAS UNDER THE PROVISIONS OF S. 115J OF T HE ACT. HOWEVER, IN THE INSTANT CASE THE ASSESSEE HAS BYPASSED THE PROVISIONS OF PART II AND PART III OF SCH. VI OF THE COMPANIES ACT AND DIRECTLY CREDITED THE PROFIT TO T HE RESERVE ACCOUNT. THEREFORE, THE DECISION OF THE JURISDICTIONAL HIGH COURT IS ALSO N OT APPLICABLE TO THE FACTS OF THE PRESENT CASE. SIMILARLY THE DECISION OF THE CO-ORDINATE BEN CH OF THE TRIBUNAL IN THE CASE OF ORSON TRADING (P) LTD. (SUPRA) IS ALSO DISTINGUISHA BLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE SINCE IT RELATES TO THE PROVISIONS OF S. 115JA AND IT HAS NOT BEEN HELD THAT EVEN IF THE ACCOUNTS ARE NOT PREPARED IN THE M ANNER PRESCRIBED AS PER PART II AND PART III OF SCH. VI OF THE COMPANIES ACT, 1956, THE AO HAS NO POWER TO DISTURB THE BOOK PROFIT DECLARED BY THE ASSESSEE. 24. THE VARIOUS OTHER DECISIONS RELIED ON BY THE LE ARNED CIT(A) IN HIS ORDER ARE ALSO NOT APPLICABLE. IN NONE OF THE CASE IT HAS BEEN HELD TH AT EVEN WHERE THE ACCOUNTS ARE NOT PREPARED IN THE MANNER PROVIDED AS PER PART II AND PART III OF SCH. VI TO THE COMPANIES ACT, 1956 THE AO HAS NO POWER TO GO BEYOND THE BOOK PROFIT AS PER THE AUDITED ACCOUNTS. IN OUR OPINION, THE AO CANNOT GO BEYOND THE BOOK PR OFITS AS PER THE AUDITED ACCOUNTS PROVIDED THEY ARE PREPARED AS PER THE MANNER IN PAR T II AND PART III OF SCH. VI TO THE COMPANIES ACT, 1956 AND ARE ADOPTED IN THE AGM. HO WEVER, IN THE INSTANT CASE, ADMITTEDLY THE ACCOUNTS ARE NOT PREPARED IN THE MAN NER PROVIDED IN PART II AND PART III OF SCH. VI TO THE COMPANIES ACT, 1956 SINCE THE PRO FIT ON SALE OF INVESTMENTS AMOUNTING TO RS. 10,38,13,765 WHICH IS A MATERIAL AMOUNT, HAS NOT BEEN ROUTED THROUGH THE P&L A/C. THEREFORE, THE AO, IN OUR OPINION HAS THE POWE R TO RE-WORK THE BOOK PROFIT BY RECASTING THE ACCOUNTS IN THE MANNER PROVIDED AS PE R PART II AND PART III OF SCH. VI TO THE COMPANIES ACT, 1956. IN THIS VIEW OF THE MATTE R, THE ORDER OF THE CIT(A) ON THIS ISSUE IS SET ASIDE AND THAT OF THE AO IS RESTORED. 14. TO SUM UP, IN OUR VIEW, IN COMPUTING THE BOOK P ROFIT FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08, THE ASSESSEE WAS ENTITLED TO DEDUCTION IN TERMS OF CLAUSE (III) OF THE EXPLANATION TO SECTION 115JB(2) OF THE ACT THE ADJUSTMENT OF DEBIT BALANCE IN THE PROFIT AND LOSS ACCOUNT WITH SHARE PREMIUM ACCOUNT AND REVALUATION RESERVE MADE ON SEPTEMBER 30, 2000, WHICH IS REQUIRED TO BE EXCLUDED FROM CONSIDERATION AND ACCO RDINGLY, AO IS REQUIRED TO DETERMINE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPREC IATION FOR EACH OF YEARS WITHOUT TAKING SAID ADJUSTMENT INTO CONSIDERATION AND ALLOW DEDUCT ION IN RESPECT OF LESSER OF TWO AMOUNTS. HENCE, BOTH QUESTIONS FRAMED BY US ARE ANSWERED IN FAVOUR OF ASSESSEE ON THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE. IN VIEW OF THE ABOVE FAC TS AND CIRCUMSTANCES, WE ALLOW THIS ISSUE IN FAVOUR OF ASSESSEE AND AGAINST REVENUE. 25 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 15. THE NEXT COMMON ISSUE IN THESE APPEALS OF REVEN UE IN ITA NO.1470/K/2009 FOR ASSESSMENT YEAR 2006-07 AND ITA NO.1417/K/2010 FOR ASSESSMENT YEAR 2007-08 IS AS REGARDS TO THE ORDER OF CIT(A) DELETING THE ADDITIO N MADE U/S. 40A(9) OF THE ACT ON ACCOUNT OF EXPENDITURE INCURRED FOR RUNNING SCHOOL AND OTHER F ACILITIES. FOR THIS, REVENUE HAS RAISED THE FOLLOWING GROUND NO.1 IN ASSESSMENT YEARS 2006-07 A ND 2007-08: A.Y. 2006-07: 1. THAT LD. CIT(A) HAS ERRED IN DELETING ADDITION M ADE U/S. 40A(9) OF THE ACT OF RS.11,92,645/- ON ACCOUNT OF EXPENDITURE INCURRED F OR RUNNING SCHOOL AND OTHER FACILITIES. A.Y. 2007-08 1)(I) THAT, THE LD. CIT(A),C-1, KOL HAS ERRED IN D ELETING DISALLOWANCE OF RS.12,25,190/- MADE U/S. 40A(9) WHEN THE ASSESSEE HAS FAILED TO SP ECIFY ITS BUSINESS INTEREST BY MAKING SAID DONATIONS. II) THAT THE LD. CIT(A) HAS NOT CONSIDERED THAT THE ASSESSEE INTENDED TO DIVERSE ITS PROFIT BY MAKING SUCH DONATION TO SCHOOL AND THE SCHOOLS A RE RUN BY THE SAME GROUP FOR MAKING PROFIT. 16. SINCE FACTS ARE IDENTICAL AND GROUNDS ARE COMMO N EXCEPT VARIANCE IN AMOUNT, WE DEAL THE ISSUE BY TAKING THE FACTS IN ASSESSMENT YEAR 20 06-07. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT ASSESSEE MADE CONTRIBUTION TO CLUBS AND ALSO CONTRIBUTED TO SCHOOL FUNDS IN RUNNING SCHOOL WHICH WAS INCLUDED IN EMPLOYEES WEL FARE EXPENSES. THE DETAILS OF SUCH EXPENSES ARE AS UNDER: 1. EXPENSES & SUBSIDY TO STAFF WORKERS CLUB AT JAYK AYPURA RS. 1,35,170 2. EXPENSES & SUBSIDY TO LADIES CLUB AT JAYKAYPURAM , SIROHI RS. 32,105 3. EXPENSES FOR RUNNING SCHOOL AT JAYKAYPURAM R S.10,25,370 RS.11,92,645 17. THE ASSESSEE BEFORE ASSESSING OFFICER CONTENDED THAT MAJOR PAYMENT TO SCHOOL WAS IN THE NATURE OF SUBSIDY TO EMPLOYEES AS THE SCHOOL IS RUN BEING NEAR TO ASSESSEES CEMENT MANUFACTURING UNIT AT JAYKAYPURAM, RAJASTHAN. ACCO RDING TO ASSESSING OFFICER, THESE EXPENSES ARE DIRECTLY FALLING UNDER MISCHIEF OF SECTION 40A( 9) OF THE ACT AND ACCORDINGLY, HE DISALLOWED THE SAME. ANOTHER REASON FOR DISALLOWANCE WAS THAT ASSESSEE WAS REQUESTED TO SUBMIT DETAILS OF STUDENTS OF SCHOOL, SCHOOL RUNNING EXPENSES, NUMBER OF EMPLOYEES CHILDREN ADMITTED IN SCHOOL ETC. BUT ASSESSEE COULD NOT SUBMIT ANY DETAILS. HEN CE, ENTIRE EXPENDITURE WAS DISALLOWED BY ASSESSING OFFICER. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO RELYING ON ITATS ORDER FOR ASSESSMENT YEAR 1999-2000 ALLOWED THE CLAIM OF ASSESSEE VIDE PARA 2.2 OF HIS APPELLATE ORDER AS UNDER: 26 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 2.2. IT WAS POINTED OUT IN THE COURSE OF APPEAL PR OCEEDINGS THAT IDENTICAL DISPUTE IN ASSESSMENT YEAR 2005-06 IN APPELLANTS OWN CASE WAS DECIDED IN FAVOUR OF THE ASSESSEE FOLLOWING ITATS ORDER IN ITS OWN CASE IN ASSESSMENT YEAR 1999-2000, WHICH RELIED UPON KERALA HIGH COURT JUDGMENT REPORTED IN 243 ITR 284. THIS GROUND OF APPEAL IS ALLOWED CONSISTENT WITH THE APPELLATE ORD ER IN THE EARLIER ASSESSMENT YEARS. 18. BEFORE US, LD. SR. COUNSEL SHRI M. P. AGGARWAL APPEARING FOR REVENUE STATED THAT TRIBUNALS ORDER FOR ASSESSMENT YEAR 1999-2000 IS C HALLENGED BEFORE HONBLE HIGH COURT AND THE SAME IS PENDING FOR DISPOSAL. HENCE, HE STATED THAT EVEN ASSESSEE COULD NOT SUBMIT DETAILS, THE CIT(A) WRONGLY ALLOWED CLAIM OF ASSESSEE. ON T HE OTHER HAND, LD. SR. COUNSEL FOR THE ASSESSEE SHRI J. P. KHAITAN STATED THAT CIT(A) HAS ALLOWED ASSESSEES CLAIM RELYING ON TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR ASSESSM ENT YEAR 1999-2000 IN ITA NO.1315/K/2006 DATED 19.3.2008 BY DISMISSING REVENU ES APPEAL RELYING ON HONBLE KERALA HIGH COURT DECISION IN THE CASE OF P. BALAKRISHNAN VS. TRAVANCORE COCHIN CHEMICALS LTD. (2000) 243 ITR 284. WE IN PRINCIPLE ARE IN AGREEME NT WITH ARGUMENTS OF ASSESSEE AND ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY TRIBUNALS DEC ISION IN ASSESSEES OWN CASE, BUT KEEPING IN VIEW THE FACT THAT ASSESSEE COULD NOT FURNISH DETAI LS OF EXPENDITURE BEFORE ASSESSING OFFICER AND EVEN NOW BEFORE US, ARE OF THE VIEW THAT LET THIS I SSUE BE EXAMINED BY ASSESSING OFFICER ON FACTS. THE ASSESSEE WILL PRODUCE DETAILS AS REQUIR ED BY ASSESSING OFFICER AND ASSESSING OFFICER AFTER CONSIDERING THE DETAILS, WHETHER ACTUALLY THE ASSESSEE HAS INCURRED EXPENDITURE ON SCHOOL AND CLUB, WILL CONSIDER THE CLAIM. THIS ISSUE OF R EVENUES APPEALS FOR BOTH ASSESSMENT YEARS IS ALLOWED FOR STATISTICAL PURPOSES. 19. FIRST ISSUE IN ASSESSEES C.O. FOR ASSESSMENT Y EAR 2006-07 IS AS REGARDS TO THE ORDER OF CIT(A) UPHOLDING THE ACTION OF ASSESSING OFFICER IN ADDING NOTIONAL INTEREST. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.1: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE LD. CIT(A) ERRED IN UPHOLDING LD. ASSESSING OFFICERS UNJUSTIFIED ACTION IN ADDING NO TIONAL INTEREST OF RS.3,82,500 AND RS.5,00,000 AND TREATING IT AS INCOME OF THE APPELL ANT. 20. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT ASSESSING OFFICER WHILE MAKING ADDITIO N OF NOTIONAL INTEREST OF RS.3,82,500/- AND RS.5,00,000/- HAVE LISTED FOLLOWING FACTS AND REASO NS: THE ASSESSEE COMPANY HAD MADE DEPOSIT OF RS.40 LAC S. THE ASSESSEE HAS SUBMITTED THAT THIS REPRESENTS DEPOSIT OF RS.1500000 GIVEN TO M/S OSWAL FOOD LIMITED WHICH CARRIED INTEREST RATE OF 25.5% AND RS.2500000 TO M/S HMG FI NANCIAL SERVICES LIMITED WHICH CARRIED INTEREST RATE OF 20%. THE TWO PARTIES DEFAU LTED IN REPAYMENT OF THE AMOUNT 27 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 DEPOSITED AND THE LEGAL CASE WAS FILED BY US. IN VI EW OF THE FACT THAT PRINCIPAL DEPOSIT AMOUNT RECOVERY ITSELF WAS DOUBTFUL, WE HAD NOT PRO VIDED FOR THE NOTIONAL INTEREST ON THE SAID DEPOSIT IN THE ACCOUNTS UNDER CONSIDERATION AN D THE AMOUNT PRINCIPAL WAS WRITTEN OFF IN THE PREVIOUS YEAR RELEVANT TO ASSTT YEAR 200 6-07. THE FACTS/ STATUS IS THE SAME WHICH WAS RECORDED UN DER PARA 4 OF SEC.143(3) ORDER DT.29.12.2006 FOR ASSTT. YEAR 2005-06 (T PAGE 672 O F PAPER BOOK DT.10.05.2010) WHICH IS AS UNDER: INTEREST BEARING INTER-CORPORATE DEPOSITS AMOUNT LAC/RS. OSWAL FOODS LTD. (LEGAL SUIT FILED) INTEREST ON I CD WAS @ 25.50% P.A. NOTIONAL INTEREST WORKS-OUT TO RS.382500 FOR FINANCIAL YEAR 3.82 ENDING MARCH 2004. HMG FINANCIAL SERVICES LTD.(LEGAL SUIT FILED) INT EREST ON ICD WAS 5.00 @20% P.A. NOTIONAL INTEREST WORKS-OUT TO RS.50000 0 FOR FINANCIAL YEAR ENDING MARCH 2004 THE FOLLOWING IS THE STATUS OF LEGAL CASES FILED IN RESPECT OF THE ABOVE REFERRED TWO INTEREST BEARING INTER-CORPORATE DEPOSITS: 1) OSWAL FOODS LIMITED ON OUR FILING LEGAL CASE AGAINST THE COMPANY THE AL LAHABAD HIGH COURT PASSED AN EX PARTE ORDER IN MAY 2001 FOR WINDING-UP OF THE COMPA NY AND OFFICIAL LIQUIDATOR WAS ORDERED TO BE APPOINTED. OSWAL FOOD LTD ON KNOWING ABOUT THE ORDER PASSED BY THE ALLAHABAD HIGH COURT MADE A RECALL APPLICATION FOR STAY OF THE EX PARTE ORDER AND THE MATTER HAS YET TO BE TAKEN UP BY THE HIGH COURT. II) HMG FINANCIAL SERVICES LTD. (NOW KNOWN AS M/S E NSOURCES PVT. LTD.) WE HAD FILED A PETITION FOR WINDING UP OF THE COMPA NY. HIGH COURT PASSED A CONDITIONAL ORDER IN MARCH 2001 DIRECTING HMG FINANCIAL SERVICE S TO DEPOSIT RS.40 LACS WITHIN 4 WEEKS FROM 9TH MARCH 2001. THE SAID COMPANY DID NOT DEPOSIT THE ABOVE AMOUNT BUT PREFERRED AN APPEAL BEFORE THE DIVISION BENCH OF BO MBAY HIGH COURT. THE DIVISION BENCH GRANTED STAY FOR DEPOSIT OF RS.40 LACS AND THE MATT ER WAS REMANDED BACK TO SINGLE JUDGE FOR FURTHER ADJUDICATION. THE CASE IS PENDING FOR A DJUDICATION. THE ASSESSEE SUBMITTED THAT THE FACTS OF LEGAL CASE S IN RESPECT OF ABOVE REFERRED TWO INTEREST BEARING INTER CORPORATE DEPOSITS CLEARLY S HOW THAT IT WAS RIGHTLY CONSIDERED DESIRABLE BY THE MANAGEMENT NOT AN ACCOUNT FOR INTE REST FOR THE 12 MONTHS ENDING ON 31.03.2006. FURTHER THAT THIS METHOD OF ACCOUNTING IS ALSO IN LINE WITH AS-9 WHICH PROVIDES THAT WHERE THE ABILITY TO ASSESS THE ULTIM ATE COLLECTION WITH REASONABLE CERTAINTY IS LACKING AT THE TIME OF ANY RECEIPT, REVENUE RECO GNITION IS TO BE POSTPONED TO THE EXTENT OF UNCERTAINTY INVOLVED. THE CASE FACTS CLEARLY DEM ONSTRATE THAT IN VIEW OF LEGAL CASES PENDING IT WAS UNCERTAIN WHETHER THE INTEREST ON TH E SAID INTER- CORPORATE DEPOSITS WOULD ULTIMATELY BE RECEIVED OR NOT. THEREFORE, THERE IS NO JUSTIFICATION FOR BRINGING TO THE TAX THE NOTIONAL INTEREST AS AN INCOME FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2006-07. 28 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 SINCE THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACC OUNTS THE INTEREST OF RS.382500/- ON ICD OF RS.15 LACS GIVEN TO M/S OSWAL FOOD PRODUCTS LTD. AND RS.500000/- ON ICD OF RS.25 LACS GIVEN TO M/S H.M.G.FINANCIAL SERVICES PV T. LTD. DEFINITELY ACCRUED AT THE YEAR END ESPECIALLY BECAUSE ASSESSEE HAD LEGAL RIGHT IN ENFORCING THE COLLECTION OF ACCRUED AMOUNT. AS SUCH INTEREST OF RS.882500/- IS TREATED AS INCOME ON ACCRUAL BASIS. WE FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVO UR OF ASSESSEE AND AGAINST THE REVENUE BY TRIBUNALS DECISION IN EARLIER FOUR YEARS IN ASSESS EES APPEAL STARTING FROM ASSESSMENT YEARS 2001-02 TO 2005-06 IN ITA NO759/K/2007, ITA NO.2074 /K/2007, ITA NO.530/K/2008, ITA NO. 531/K/2008 AND ITA NO.2124/K/2008. RESPECTFULL Y FOLLOWING THE TRIBUNALS DECISION IN EARLIER YEARS AS CITED ABOVE, WE FIND THAT THE FACT S ARE EXACTLY IDENTICAL, HENCE THIS GROUND OF ASSESSEES CO IS ALLOWED. 21. NEXT COMMON ISSUE IN THIS C.O. OF ASSESSEE AND GROUND NO.2 OF ASSESSEES APPEAL IN ITA NO.1275/K/2010 IS AGAINST THE ORDER OF CIT(A) IN NO T ADOPTING THE OPENING WDV AS COMPUTED FOR THE PURPOSE OF ALLOWANCE OF DEPRECIATION. FOR THIS ASSESSEE HAS RAISED FOLLOWING GROUND NO.2 IN ITS CO AND GROUND NOS. 2 AND 2.1 IN ITS APP EAL BEING ITA NO.1275/K/2010: C.O 69/K/2009 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E LD. CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER THAT FOR THE PURPOSE OF COMPU TING THE DEPRECIATION ADMISSIBLE FOR THE ASSESSMENT YEAR 2006-07, THE OPENING WDV (AS ON 01.04.2005) SHOULD BE THE SAME WHICH WAS THE CLOSING WDV OF THE ASSTT. YEAR 2005-0 6 (AS ON 31.3.2005) DETERMINED IN SECTION 143(3) ORDER FOR THE ASSTT. YEAR 2005-06 WH ICH INTER ALIA INCLUDES WDV OF THE EXPENDITURE HELD TO BE CAPITAL IN NATURE IN VARIOUS YEARS PRIOR TO THE ASSTT. YEAR 2005- 06. ITA NO.1275/K/2010 2.0. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, LD. COMMISSIONER OF INCOME TAX (APPEALS) CENTRAL-1, KOLKATA ERRED IN NO T APPRECIATING THAT THE DEPRECIATION OF RS.8552528 @ 15% ON THE WDV OF RS.5 7016850 AS ON 31.03.2006/01.04.2006 IS AVAILABLE TO THE APPELLANT COMPANY, BEING THE EXPENDITURE ON ACCOUNT OF INTEREST ETC. INCURRED IN EARLIER YEARS FOR ACQUISITION OF CAPITAL ASSETS, WHEN SUCH EXPENDITURE WAS HELD AS CAPITAL EXPENDITURE IN THE EARLIER ASSESSMENT YEARS. 2.1 NOT APPRECIATING THE FACT THAT IN EARLIER ASSES SMENT YEARS, DEPRECIATION ON SAME WAS ALLOWED BY THE ASSESSING OFFICER. 22. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT LD. COUNSEL FOR THE ASSESSEE STA TED THAT IN THE RETURN OF INCOME FOR EARLIER YEARS INTEREST, FOR THE PURPOSE OF ACQUISITION OF C APITAL ASSETS HAD BEEN CLAIMED AS REVENUE EXPENDITURE WHICH WAS HELD AS CAPITAL EXPENDITURE I N THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT. THE HONBLE ITAT ALSO UPHELD THE VIEW OF A SSESSING OFFICER TO TREATING THE SAME AS 29 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 CAPITAL EXPENDITURE. NO FURTHER APPEAL AGAINST THE ORDER OF HONBLE ITAT HAS BEEN PREFERRED BY THE ASSESSEE COMPANY. CONSEQUENTIAL TO SUCH TREATME NT, ASSESSING OFFICER HAS CONSISTENTLY ALLOWED DEPRECIATION ON SUCH EXPENDITURE AS PER RUL ES UPTO ASSESSMENT YEAR 2005-06 IN ORDERS PASSED U/S 143(3) OF THE ACT. HOWEVER, FOR AY 2006- 07, INSTEAD OF ALLOWING DEPRECIATION ON W.D.V AS ON 31.03.2005 AS PER ASSESSMENT ORDER FOR AY 2005-06, ASSESSING OFFICER ERRED IN ALLOWING DEPRECIATION AS PER RETURN WHICH DOES NOT FACTOR THE ABOVE MENTIONED TREATMENT OF INTEREST CAPITALIZATION. HENCE, LD. COUNSEL STATED THAT SUITABLE DIRECTIONS MAY BE GIVEN TO THE ASSESSING OFFICER TO RECTIFY THE DEPRECIATION AMOUN T IN ASSESSMENT ORDER FOR AY 2006-07. WE ARE OF THE VIEW THAT OPENING WDV FOR A.Y 2006-07 (I .E. AS ON 31.03.06) HAS NECESSARILY TO BE THE CLOSING WDV OF THE IMMEDIATELY PRECEDING YEAR ( I.E. AS ON 01.04.06) WHICH THE A.O. IN HIS ORDER DATED 19,12,2007 FOR A.Y 2005-06 HAS RECORDED AT RS.1557645289. THE A.O WILL RECOMPUTE THE DEPRECIATION ALLOWABLE FOR A.Y 2006-0 7 BY ADOPTING THE OPENING WDV AT RS.1557645289. ACCORDINGLY, THIS ISSUE OF THE ASSES SEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 23. THE NEXT COMMON ISSUE IN THIS C.O. AND ITA NO.1 275/K/2010 OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) UPHOLDING THE ACTION OF ASSESSING O FFICER CHARGING INTEREST U/S. 234B OF THE ACT. FOR THIS, THE ASSESSEE HAS RAISED FOLLOWING GR OUND NO.3 IN ITS CO AND FOLLOWING GROUND NO.3.0 IN ITS ITA NO.1275/K/2010 : C.O. NO.69/K/2009 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE LD. CIT(A) ERRED IN NOT HOLDING THAT THE PROVISIONS OF SEC. 234B OF THE ACT ARE NOT APPL ICABLE SINCE IN THE IMPUGNED ORDER DT. 05.12.2008 PASSED U/S. 143(3), THE TAX PAYABLE WAS COMPUTED U/S. 115JB OF THE ACT. ITA NO. 1275/K/2010 3.0. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, LD. CIT(A), CENTRAL-1, KOLKATA ERRED IN NOT DIRECTING THE ASSESSING OFFICE R NOT TO CHARGE INTEREST U/S. 234B AND U/S. 234D OF THE ACT ON TAX COMPUTED U/S. 115JB OF THE ACT AS THE PROVISIONS OF THESE SECTIONS ARE NOT ATTRACTED IN A CASE WHERE TOTAL IN COME IS COMPUTED AND DETERMINED U/S. 115JB OF THE ACT. 24. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF REVE NUE AND AGAINST THE ASSESSEE BY THE DECISION OF HONBLE APEX COURT IN THE CASE OF JCIT VS. ROLTA INDIA LTD. (2011) 330 ITR 470 (SC), WHEREIN HONBLE COURT HAS HELD THAT IT IS CLEAR FRO M READING SECTIONS 115JA AND 115JB OF THE ACT THAT THE QUESTION WHETHER A COMPANY WHICH IS LI ABLE TO PAY TAX UNDER EITHER PROVISION DOES NOT ASSUME IMPORTANCE BECAUSE SPECIFIC PROVISION IS MADE IN THE SECTION SAYING THAT ALL OTHER PROVISIONS OF THE ACT SHALL APPLY TO A MAT COMPANY (SECTION 115JA(4) AND SECTION 115JB(5) ). 30 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 IT WAS FURTHER HELD THAT AMENDMENTS HAVE BEEN MADE IN THE RELEVANT FINANCE ACTS PROVIDING FOR PAYMENT OF ADVANCE TAX UNDER SECTIONS 115JA AND 115 JB OF THE ACT AND SECTION 234B OF THE ACT IS CLEAR THAT IT APPLIES TO ALL COMPANIES AND FURTHER PRE-REQUISITE CONDITION FOR APPLICABILITY OF SECTION 234B OF THE ACT IS THAT THE ASSESSEE IS LIABLE TO PAY TAX UNDER SECTION 208 AND THE EXPRESSION 'ASSESSED TAX' IS DEFINED TO MEAN THE TA X ON THE TOTAL INCOME DETERMINED UNDER SECTION 143(1) OF THE ACT OR UNDER SECTION 143(3) O F THE ACT AS REDUCED BY THE AMOUNT OF TAX DEDUCTED OR COLLECTED AT SOURCE. THUS, HONBLE APEX COURT HELD THAT THERE IS NO EXCLUSION OF SECTION 115J / 115JA OF THE ACT IN THE LEVY OF INTE REST UNDER SECTION 234B OF THE ACT OF THE ACT AND THE EXPRESSION 'ASSESSED TAX' IS DEFINED TO MEA N THE TAX ASSESSED ON REGULAR ASSESSMENT WHICH MEANS THE TAX DETERMINED ON THE APPLICATION O F SECTION 115J / 115JA OF THE ACT IN THE REGULAR ASSESSMENT AND INTEREST UNDER SECTION 234B OF THE ACT OF THE ACT IS PAYABLE ON FAILURE TO PAY ADVANCE TAX IN RESPECT OF TAX PAYABLE UNDER SEC TION 115JA OF THE ACT. SIMILAR IS THE VIEW IN RESPECT TO CHARGEABILITY OF INTEREST U/S. 234C OF T HE ACT. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF HONBLE APEX COURT IN THE CASE OF ROLTA INDIA LTD. (SUPRA), WE DO FIND INFIRMITY IN THE ORDER OF CIT(A) AND THE SAME IS HEREBY UPHELD. GROUNDS OF APPEAL AND C.O. OF ASSESSEE ARE DISMISSED. 25. THE NEXT ISSUE IN THIS CO OF ASSESSEE IS AGAINS T THE ORDER OF CIT(A) IN NOT ALLOWING CREDIT AVAILABLE FOR EARLIER YEARS U/S. 115JAA OF T HE ACT. FOR THIS, THE ASSESSEE HAS RAISED FOLLOWING GROUND NO.4: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE LD. CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER THAT THE TAX COMPUTED AS PAYA BLE U/S. 115JB IN THE IMPUGNED ORDER DT. 05.12.2008 PASSED U/S. 143(3) SHOULD HAVE BEEN QUANTIFIED AS AVAILABLE FOR CREDIT U/S. 115JAA OF THE ACT AND IS TO BE CARRIED FORWARD/SET OFF IN ACCORDANCE WITH PROVISIONS OF SEC. 115JAA OF THE ACT. 26. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROU GH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE CIT(A) HAS DISMISSED THE ISSUE BY STATING AS UNDER: SINCE GROUND NO.3 IS ALLOWED, GROUND NO. 5 AND 6 D O NOT REMAIN RELEVANT. THEY ARE TREATED AS DISMISSED. BUT WE ARE OF THE VIEW THAT MAT CREDIT QUANTIFICATI ON AS MADE IN THE ORDER U/S. 143(3), WHICH IS TO BE CARRIED FORWARD/SET OFF IN ACCORDANCE WITH THE PROVISIONS OF SECTION 115JAA OF THE ACT, IS TO BE FURTHER CARRIED FORWARD ACCORDINGLY. ACCO RDINGLY, WE DIRECT THE AO TO MAKE QUANTIFICATION OF THE SAME AS PER THE PROVISIONS OF SECTION 115JAA OF THE ACT. ACCORDINGLY, AO WILL QUANTIFY THE MAT CREDIT. 31 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 27. THE NEXT ISSUE IN ITA NO.1417/K/2010 OF REVENUE S APPEAL IS AGAINST THE ORDER OF CIT(A) DELETING THE ADDITION OF NOTIONAL INTEREST I N RESPECT OF H. M. CO. FINANCIAL SERVICES LTD. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.2: 2.I) THAT THE LD. CIT(A) HAS ERRED IN DELETING ADD ITION ON ACCOUNT OF NOTIONAL INTEREST OF RS.88,25,000/- WHEN HONBLE HIGH COURT HAS DIREC TED M/S. H. M. COMPANY FINANCIAL SERVICES LTD., A DEBTOR TO MAKE PAYMENT TO THE ASSE SSEE. II) THAT, THE LD. CIT(A)-C-1, KOL HAS NOT CONSIDE RED THAT EVEN IF BIFR PROCEEDINGS ARE GOING ON IN RESPECT OF BOTH THE DEBTORS, THERE IS H OPE OF RECOVERY. 28. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THIS ISSUE WAS DECIDED BY TRIBUNAL IN ITA NO.1759/K/2007 VIDE ORDER DATED 9.10.2009 FOR ASSESSMENT YEAR 2001-02 AND WHICH WAS FOLLOWED IN SUBSEQUENT FOUR ASSESSMENT YEARS AND HELD AS UNDER: 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND MATERI AL AVAILABLE ON RECORD. HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. ABBAS W AZIR (P) LTD. (274 ITR 448) HELD AS UNDER: HELD, THAT THE TRIBUNAL FROM THE EVIDENCE AND MATE RIAL ON RECORD HAD FOUND THAT THE FINANCIAL POSITION OF THE DEBTORS HAD DETE RIORATED TO SUCH AN EXTENT THAT EVEN THE CHANCE OF THE PRINCIPAL AMOUNT BEING RECOV ERED WAS VERY DIM. THE TRIBUNAL WAS JUSTIFIED IN DELETING THE ADDITIONS. HONBLE ALLAHABAD HIGH COURT IN THE CASE OF JWALA P RASAD RADHA KRISHNA VS CIT [198 ITR 415) HELD AS UNDER:- HELD, THAT THE MATERIAL ON RECORD SHOWED THAT THE ASSESSEE AND THE DEBTOR- COMPANIES WERE SISTER CONCERNS AND THAT THE ASSESSE E HAD STOPPED CHARGING INTEREST FROM THE DEBTOR-COMPANIES WITH EFFECT FROM JUNE 30, 1969, FOR THE SIMPLE REASON THAT THE DEBTOR-COMPANIES HAD RUN INTO FINAN CIAL STRAITS AND THE DEBTOR- COMPANIES HAD ALSO STOPPED CLAIMING DEDUCTION OF IN TEREST. FURTHER, THE FACT THAT THE ASSESSEE HAD BEEN PAID INTEREST BY THE DEBTOR-C OMPANIES FOR A FEW YEARS COULD NOT BY ITSELF AND WITHOUT ANYTHING MORE JUSTIFY THE INFERENCE THAT THERE WAS SOME AGREEMENT BETWEEN THE PARTIES FOR PAYMENT OF INTERE ST. HENCE, THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT NO INTEREST ACCRUED TO TH E ASSESSEE IN THE ASSESSMENT YEAR 1974-75. HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. BANSWARA FABRICS LTD. [267 ITR 398] CONFIRMED THE ORDER OF THE TRIBUNAL IN WHICH C .I.T.(A) FOUND IN FAVOUR OF THE ASSESSEE THAT BOTH THE PARTIES, IN WHOSE NAMES THE DEBIT BLANCES WERE SHOWN IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, HAD INCURRED LOS SES AND CASES WERE PENDING BEFORE THE BIFR SUGGESTING THAT BOTH THE PARTIES HAD NEGATIVE NET WORTH OF CAPITAL. THE LD. COMMISSIONER (APPEALS) CAME TO THE CONCLUSION THAT WHEN THE RECOVERY OF PRINCIPAL ITSELF WAS IN DOUBT, THE WAIVER OF INTEREST COULD BE CONSI DERED TO BE IN THE INTEREST OF BUSINESS AND NOT CONFERRING ANY FAVOUR BY TRANSFERRING PROFI TS TO THE DEBTORS. THE DEPARTMENTAL 32 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 APPEAL WAS DISMISSED. HONBLE DELHI HIGH COURT IN T HE CASE OF CIT VS. GOYAL MG GASES P. LTD. [303 ITR 159] HELD - WHEN PRINCIPAL AMOUNT ITSELF NOT RECOVERABLE AND INTEREST AMOUNT NOT RECORDED IN THE BOOKS OF ACCOUNT, NO REA L INCOME ACCRUED TO THE ASSESSEE BY WAY OF INTEREST EVEN IF ASSESSEE WAS FOLLOWING MERC ANTILE SYSTEM OF ACCOUNTING. HONBLE SUPREME COURT IN THE CASE OF MERCANTILE BANK LTD. V S. CIT [283 ITR 84] HELD THAT WHERE, FOR THE ASSESSMENT YEAR 1978-79, THE ASSESSEE, WHIC H WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, HAD CREDITED INTEREST ON DOUBTFUL AD VANCES TO THE INTEREST SUSPENSE ACCOUNT, THE INTEREST COULD NOT BE BROUGHT TO TAX. 7. CONSIDERING THE FACTS AND CIRCUMSTANCES IN THE LIGHT OF VARIOUS JUDGMENTS CITED BY BOTH THE PARTIES AT BAR AS WELL AS NOTED ABOVE, IT IS CLEAR THAT THE PROCEEDINGS OF WINDING UP AS WELL AS BIFR WERE GOING ON AGAINST BOTH THE P ARTIES IN DIFFERENT FORUM. DESPITE ORDER BY THE HIGH COURT, THE PRINCIPAL AMOUNT ITSEL F WAS NOT PAID TO THE ASSESSEE, WHAT TO SAY OF THE INTEREST. THE ABOVE FACTS CLEARLY SUGGES T THAT IN THE ASSESSMENT YEAR IN QUESTION AS WELL AS IN THE SUBSEQUENT ASSESSMENT YEARS, THE PRINCIPAL AMOUNT ITSELF WAS IN DOUBT FOR RECOVERY. THEREFORE, THERE WAS NO QUESTION OF A CCRUING ANY INTEREST IN FAVOUR OF THE ASSESSEE. LEARNED COUNSEL FOR THE ASSESSEE ON THE B ASIS OF THE FINDINGS OF VARIOUS AUTHORITIES HAS BEEN ABLE TO POINT OUT THAT EVEN TH E ASSETS OF THE VARIOUS PARTIES HAVE WIPED OUT. THEREFORE, THERE WAS NO REAL ACCRUAL OF INTEREST TO THE ASSESSEE. THE ABOVE FACTS CLEARLY PROVE THAT THE FINANCIAL POSITION OF THE DEBTORS HAD DETERIORATED TO SUCH AN EXTENT THAT EVEN THE CHANGE OF PRINCIPAL AMOUNT BEI NG RECOVERED WAS VERY DIM. DESPITE ORDERS OF VARIOUS AUTHORITIES, THE PRINCIPAL AMOUNT AS WELL AS INTEREST IS NOT PAID TO THE ASSESSEE. NO MATERIAL IS BROUGHT ON RECORD TO SHOW IF ASSESSEE HAS BEEN ABLE TO RECOVER ANY AMOUNT OF INTEREST FROM THE ABOVE PARTIES. THE AUTHORITIES BELOW HAVE HEAVILY RELIED UPON THE NOTES ON ANNUAL ACCOUNT FILED WITH THE RET URN OF INCOME IN WHICH THE ASSESSEE APART FROM WHAT IS RECORDED BY THE A.O. HAS ALSO ME NTIONED THAT FOR RECOVERY OF ADVANCE, LEGAL AND OTHER ACTIONS HAVE BEEN TAKEN. IT WOULD, THEREFORE; SHOW THAT THERE WAS NO QUESTION OF ANY HOPE OF RECOVERY OF PRINCIPAL AMOUN T AS WELL AS INTEREST ON SUCH LOANS. SINCE BOTH THE DEBTOR-PARTIES HAVE DEFAULTED IN MAK ING PAYMENT OF LOANS AS WELL AS INTEREST TO THE ASSESSEE NOT ONLY IN THE ASSESSMENT YEAR IN QUESTION BUT IN SUBSEQUENT ASSESSMENT YEAR ALSO, THEREFORE, ASSESSEE WAS JUSTI FIED IN NOT DECLARING INTEREST INCOME IN THE ASSESSMENT YEAR IN QUESTION HAVING REGARD TO PR INCIPLE OF REAL INCOME. OUR FINDINGS ARE SUPPORTED BY VARIOUS DECISIONS REFERRED TO ABOV E. 8. IN THIS VIEW OF THE MATTER, WE DO NOT JUSTIFY A CTION OF THE AUTHORITIES BELOW IN SUSTAINING THE ADDITIONS IN THE HANDS OF THE ASSESS EE. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELETE THE ENTIRE A DDITION ON THIS ISSUE. AS A RESULT, ITA NO.1759 (KOL)/2007 IS ALLOWED. SINCE THE ISSUE IS COVERED BY TRIBUNALS ORDER EXA CTLY ON SAME FACTS, WE CONFIRM THE ORDER OF CIT(A) DELETING THE ADDITION OF NOTIONAL INTEREST. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 29. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IN ITA NO.1417/K/2010 IS REGARDING THE ORDER OF CIT(A) ALLOWING DEDUCTION U/S. 35(1)(II). FOR T HIS, REVENUE HAS RAISED FOLLOWING GROUND NO.3: 3.I) THAT, THE LD. CIT(A),C-1, KOL HAS ERRED IN AL LOWING DEDUCTION CLAIMED U/S. 35(1)(II) BY THE ASSESSEE ON ACCOUNT OF DONATION MADE TO PUSH PAWATI SINGHANIA RESEARCH INSTITUTE (PSRI). 33 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 II) THAT THE LD. CIT(A) HAS FAILED TO CONSIDER THAT SUCH ASSOCIATIONS REQUIRES TO BE NOTIFIED AND ALSO TO BE APPROVED FOR THE TIME BEING BY THE APPROPRIATE AUTHORITY. MERE NOTIFICATION IS NOT SUFFICIENT FOR GETTING THE ALLO WANCE U/S. 35(1)(II). III) THAT, THE LD. CIT(A) HAS ERRED IN GIVING RELIE F TO THE ASSESSEE IN VIOLATION OF RULE 46A OF THE ACT. 30. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT, ACCORDING TO LD. COUNSEL FOR ASSESSEE , IN THE PAPER BOOK ASSESSEE HAS ENCLOSED CBDTS NOTIFICATION DATED.12.04.2007, WHICH NOTIFIE D THE DONEE I.E. PUSHPAWATI SINGHANIA RESEARCH INSTITUTE UNDER SECTION 35(1)(II) OF THE A CT AND THIS CERTIFICATE WAS MADE EFFECTIVE RETROSPECTIVELY FROM 1.4.2001 WHICH COVERS THE YEAR UNDER APPEAL. THERE IS NO REQUIREMENT THAT ONCE THE NOTIFICATION IS ISSUED BY THE CBDT THE SAI D INSTITUTE HAS TO BE APPROVED BY ANY OTHER AUTHORITY. ONCE NOTIFICATION IS ISSUED DONOR IS QUA LIFIED FOR WEIGHTED DEDUCTION REFERRED IN SEC.35 OF THE ACT. HE FURTHER SUBMITTED THAT THERE IS NO VIOLATION OF RULE 46A SINCE THE RELEVANT CBDTS NOTIFICATION DATED.12.04.2007 WAS PRODUCED B EFORE THE ASSESSING OFFICER AS RECORDED IN POINT NO.9 OF THE ASSESSEES LETTER DATED.22.07. 2009 WRITTEN TO THE AO AND WHICH HAS ALSO BEEN AVAILABLE IN ASSESSEES PAPER BOOK. SINCE CBDT S NOTIFICATION DATED.12.04.2007, WHICH APPROVES DONEE I.E. PUSHPAWATI SINGHANIA RESEARCH INSTITUTE FOR THE PURPOSE OF CLAUSE (II) OF SECTION 35(1) OF THE ACT AND SAME WAS FURNISHED BY ASSESSEE DURING ASSESSMENT PROCEEDINGS, THE CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE AS MADE BY ASSESSING OFFICER. ACCORDINGLY, THIS GROUND OF REVENUES APPEAL IS DISMISSED. 31. IN THE RESULT, ALL THE APPEALS AS WELL AS CROSS OBJECTION ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 32. ORDER PRONOUNCED IN OPEN COURT ON 30.08.2011. SD/- SD/- . ! . , '# , (C. D. RAO) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( !# !# !# !#) )) ) DATED 30TH AUGUST, 2011 /0 %12 3 JD.(SR.P.S.) 34 ITA 1275&1417/K/2010 &ITA 1470/K/09 CO 60/K/2009 J. K. LAKSHMI CEMENT LTD, .A.Y.06-07 & 07-08 '. 4 ,5 6'5'7- COPY OF THE ORDER FORWARDED TO: 1 . *+ / APPELLANT J. K. LAKSHMI CEMENT LTD., 7, COUNCIL H OUSE STREET, KOLKATA-700 001. 2 ,-*+ / RESPONDENT, ACIT, CENTRAL CIRCLE-VI, KOLKATA. 3 . .% ( )/ THE CIT(A), KOLKATA 4. .% / CIT, KOLKATA 5 . >? ,% / DR, KOLKATA BENCHES, KOLKATA -5 ,/ TRUE COPY, '.%@/ BY ORDER, 2 /ASSTT. REGISTRAR .