BOC India Limited, Kolkata V. DCIT, Circle - 12, Kolkata, Kolkata

ITA 131/KOL/2010

• Counselvise Citation: 13123514 RSA 2010
• Duration Of Justice: 5 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 06-04-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 21-01-2010
• Court: TRIBUNAL
• Department Lawyers: SHR; RAJAT SUBHRA BISWAS
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Capital asset; Business income; Depreciation; Cost of acquisition; Revenue expenditure
• Section: 37(1); 28

Judgement Text

1 ITA NO.131&372/KOL/2010 M/S.BOC INDIA LTD. A.Y.20 05-051 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH B KOL KATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI M.B ALAGANESH, AM ] ITA NOS.131/KOL/2010 ASSESSMENT YEARS : 2004-05 BOC INDIA LTD.. -VERSUS- D.C.I.T., CIRCLE-12, OXYGEN HOUSE, P-43, KOLKATA TARATALA ROAD, KOLKATA-700 088 (PAN:AAACB2528H) (APPELLANT) (RESPONDENT) ITA NOS.372/KOL/2010 ASSESSMENT YEARS : 2004-05 D.C.I.T., CIRCLE-12, BOC INDIA LTD.. KOLKATA OXYGEN HOUSE, P-43, KOLKATA TARATALA ROAD, KOLKATA-700 088 (PAN:AAACB2528H) (APPELLANT) (RESPONDENT) FOR THE ASSESSEE : SHRI K.R.VASUDEVAN., ADVOCAT E FOR THE RESPONDENT : SHRI RAJAT SUBHRA BISWAS CIT D R & SHRI PINAKI MUKHERJEE, JCIT SR.DR. DATE OF HEARING : 12.10.2015. DATE OF PRONOUNCEMENT :16.10.2015. ORDER PER N.V.VASUDEVAN, JM: ITA NO.131/KOL/2010 IS AN APPEAL BY THE ASSESSEE W HILE ITA NO.372/KOL/2010 IS AN APPEAL BY THE REVENUE. BOTH THESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 15.9.2009 OF CIT(A)-XXXII, KOLKATA, RELATING TO AY 2004-05. 2. ITA NO.131/KOL/2010: ASSESSEES APPEAL: THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN ITS APPEAL READS AS FOLLOWS: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN DISALLOWING THE CLAIM OF THE APPELLANT FOR DEDUCTION OF A SUM OF RS.4,15,63,688 REPRESENTING BAD ADVANCES WRITTEN OFF IN ITS PROFIT & LOSS A/C FOR THE YEAR UNDER APP EAL. 2 ITA NO.131&372/KOL/2010 M/S.BOC INDIA LTD. A.Y.20 05-052 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DI SALLOWING THE APPELLANTS CLAIM FOR DEDUCTION OF A SUM OF RS.2,73,866 BEING BAD OTHER C URRENT ASSETS WRITTEN OFF IN ITS PROFIT & LOSS A/C FOR THE YEAR UNDER CONSIDERATION. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(APPEALS) ERRED IN NOT APPRECIATING THAT THE AFORESAID AMOUNT S OF RS.4,15,63,688 AND RS.2,73,866 WRITTEN OFF IN ITS PROFIT & LOSS A/C REPRESENT TRAD ING LOSS INCURRED BY THE APPELLANT IN THE COURSE OF CARRYING ON ITS BUSINESS AND ARE THUS DEDUCTIBLE UNDER SECTION 28 OF THE INCOME-TAX ACT, 1961 WHILE COMPUTING ITS TOTAL INCO ME FOR THE SUBJECT YEAR. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR AMEND, ALTER, MODIFY OR RESCIND THE GROUNDS HEREINABOVE BEFORE OR AT THE HEARING OF THE APPEAL. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINE SS OF MANUFACTURING AND SALE OF VARIOUS INDUSTRIAL AND MEDICAL GASES. THE ASSESSEE CLAIMED DEDUCTION OF A SUM OF RS.4,15,63,688 ON ACCOUNT OF BAD ADVANCES WRITTEN O FF AND ANOTHER SUM OF RS.2,73,866 ON ACCOUNT OF BAD OTHER CURRENT ASSETS WRITTEN OFF. THE ASSESSEE EXPLAINED THE NATURE OF THE AFORESAID SUMS WRITTEN OFF IN THE BOOKS OF ACCOUNTS AND CLAIMED AS A DEDUCTION AS COMPRISING OF THE FOLLOWI NG: - ADVANCES TO VENDORS FOR VARIOUS ENCLOSED VIZ. , ENCLOSURE 27, THAT THE AMOUNTS WRITTEN & UPKEEP OF THE PLANT & MACHINERY; - ADVANCES GIVEN TO SUPPLIERS FOR SUPPLY OF RAW MATER IALS ETC REQUIRED IN THE COULD OF MANUFACTURING ACTIVITIES ; - ROUTINE ADVANCES TO STAFF FOR VARIOUS PETTY CASH EX PENSES FOR BUSINESS PURPOSE, ADVANCES TO VENDORS FOR EXPENSES, ETC; - ADVANCES TOWARDS PURCHASE OF MATERIALS & FREIGHT CH ARGES PAID IN CONNECTION THEREWITH; - AMOUNT RECOVERABLE FROM EMPLOYEES ON ACCOUNT OF ADV ANCES GRANTED TO TRAVEL, FESTIVAL, VEHICLE LOAN, ETC.; - REIMBURSEMENT TOWARDS HOSPITALISATION EXPENSES SUBS EQUENTLY RECOVERABLE FROM THE INSURER; - ADVANCES TO TRANSPORTERS, INSURER, ETC.; - UNRECONCILED BALANCE IN HEAD OFFICE/BRANCH RECONCIL IATION ACCOUNT RELATING TO REVENUE EXPENSES INCURRED BY HO/BRANCH OR VICE VERSA PENDIN G CHARGING OFF IN THE HO/UNITS BOOKS. - SECURITY DEPOSITS GIVEN FOR ELECTRICITY, TELEPHONE CONNECTIONS, ETC. THE ASSESSEE SUBMITTED THAT DUE TO LACK OF PROPER I NFORMATION TRAIL, ALL THE AFORESAID AMOUNTS THAT WERE OF REVENUE NATURE WERE LYING UNAD JUSTED FOR A LONG PERIOD AND HAD ACCUMULATED OVER MANY YEARS. THE ASSESSEE UNDERTOOK PERIODIC REVIEWS OF THE BOOKS OF ACCOUNTS AND CONSEQUENTLY AFTER DUE DILIGENCE & DISCUSSION WITH THE STATUTORY 3 ITA NO.131&372/KOL/2010 M/S.BOC INDIA LTD. A.Y.20 05-053 AUDITORS, CAME TO THE CONCLUSION THAT DETAILED RECO NCILIATION AND ACCOUNTING ADJUSTMENTS OF THESE ADVANCES WAS NO LONGER POSSIBL E DUE TO LACK OF INFORMATION AND NON-AVAILABILITY OF OLD RECORDS & HENCE DECIDED TO MAKE ONE-OFF PROVISION TOWARDS DOUBTFUL ADVANCES ETC. IN THE YEAR ENDED 31/3/2000 FOR RS.70,940,000/-. OUT OF THE PROVISION SO MADE IN THE BOOKS OF ACCOUNTS, A SUM O F RS.41,837,554/- WAS WRITTEN OFF IN THE ACCOUNTS DURING THE YEAR ENDED 31/3/2004 TOW ARDS BAD ADVANCES AND BAD OTHER CURRENT ASSETS OUT OF THE BULK PROVISION MADE IN TH E YEAR 2000 (WITH CORRESPONDING WRITE-BACK OF EQUIVALENT AMOUNT OF RS.41,837,554/- FROM THE PROVISION MADE EARLIER NETTED AGAINST FRESH PROVISIONS DURING THE YEAR IN THE ACCOUNTS). IT WAS SUBMITTED THAT SUCH WRITE OFF OF AMOUNTS TOWARDS BAD ADVANCES AND BAD OTHER CURRENT ASSETS, AS MENTIONED ABOVE, WAS A LOSS DIRECTLY CONNECTED WITH THE BUSINESS OPERATIONS & IS INCIDENTAL TO THE CARRYING ON OF THE BUSINESS BY TH E ASSESSEE. ACCORDINGLY, IT WAS SUBMITTED THAT SUCH LOSS AGGREGATING TO RS.41,837,5 54/- WAS LEGALLY TO BE TREATED AS A PART OF THE TRADING LOSS AND IS DEDUCTIBLE AS SUCH UNDER THE PROVISIONS OF SECTION 28 OF THE INCOME TAX ACT IN ARRIVING AT THE TRUE PROFITS. 4. THE AO DID NOT DISPUTE THE FACT THAT THE LOSS I N QUESTION WAS DIRECTLY CONNECTED WITH THE BUSINESS OPERATIONS AND INCIDENTAL TO THE CARRYING ON OF THE BUSINESS OF THE ASSESSEE. ACCORDING TO HIM SUCH LOSSES COULD BE AL LOWED ONLY WHEN THE AMOUNTS WRITTEN OFF AS LOSS HAVE BECOME IRRECOVERABLE. HE WAS OF THE VIEW THAT THE ASSESSEE HAD WRITTEN OFF THESE LOSSES IN THE BOOKS OF ACCOUN TS ONLY FOR THE REASON OF LACK OF INFORMATION AND NON-AVAILABILITY OF OLD RECORDS AND THEREFORE THE LOSS IN QUESTION CANNOT BE ALLOWED. HE WAS OF THE VIEW THAT THE LOS S IN QUESTION HAD OCCASIONED OWING TO NEGLIGENCE OF THE ASSESSEE AND POOR RECORD KEEPI NG AND CANNOT THEREFORE BE CONSIDERED AS INCIDENTAL TO THE CARRYING ON OF BUSI NESS. THE DEDUCTION CLAIMED WAS NOT ALLOWED BY THE AO. 5. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ACTION OF THE AO AGREEING WITH THE REASONS GIVEN BY THE AO FOR NOT ALLOWING T HE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE LOSS IN QUESTION. AGGRIEVED BY TH E ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4 ITA NO.131&372/KOL/2010 M/S.BOC INDIA LTD. A.Y.20 05-054 6. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED CO UNSEL FOR THE ASSESSEE AND THE LEARNED DR. THE LEARNED COUNSEL FOR THE ASSESSEE R EITERATED SUBMISSIONS MADE BEFORE THE AO/CIT(A). THE LEARNED DR RELIED ON THE ORDER OF THE CIT(A). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT I S NOT IN DISPUTE THAT THE SUM OF RS.4,18,37,554 (RS.4,15,63,688 + RS.2,73,866) WAS P ART OF A SUM OF RS.7,09,40,000 WHICH WAS REVENUE EXPENDITURE WHICH WAS LYING UNADJ USTED FOR A LONG PERIOD AND HAD ACCUMULATED OVER MANY YEARS. THE COMPANY AFTER REV IEW OF THE BOOKS OF ACCOUNTS AND AFTER DUE DILIGENCE AND DISCUSSION WITH THE STA TUTORY AUDITORS CAME TO THE CONCLUSION THAT DETAILED RECONCILIATION AND ACCOUNT ING ADJUSTMENTS OF THESE ADVANCES WAS NO LONGER POSSIBLE DUE TO LACK OF INFORMATION A ND NON-AVAILABILITY OF OLD RECORDS AND THEREFORE MADE A PROVISION TOWARDS DOUBTFUL ADV ANCES IN THE YEAR ENDED 31.3.2000. IN THE PREVIOUS YEAR THE ASSESSEE DECID ED TO WRITE OF THE AMOUNTS DISPUTED IN THIS APPEAL AS IRRECOVERABLE ADVANCES. THE FACT THAT THESE SUMS ARE ALLOWABLE AS DEDUCTION U/S.28 OF THE ACT AS LOSS INCIDENTAL TO T HE BUSINESS OF THE ASSESSEE IS NOT DISPUTED BY THE REVENUE. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE ASSESSEE HAS NOT ESTABLISHED THAT THESE OUTSTANDING WERE IRRECOV ERABLE. IT IS NO DOUBT TRUE AS A LEGAL REQUIREMENT THAT THE ASSESSEE IN ORDER TO CLAIM DED UCTION OF A SUM AS LOSS INCIDENTAL TO BUSINESS HAS TO PROVE THAT THE LOSSES WERE INCID ENTAL TO THE BUSINESS AND CONNECTED WITH THE CARRYING OF BUSINESS OF THE ASSESSEE AND A LSO PROVE THAT THE SUM CLAIMED AS LOSS HAVE BECOME IRRECOVERABLE. A COPY OF THE DETA ILS OF BAD ADVANCES AND BAD OTHER CURRENT ASSETS IS GIVEN AS ANNEXURE TO THIS ORDER. A PERUSAL OF THE DETAILS IN ANNEXURE SHOWS THAT THESE WERE ADVANCES TO RAW MATERIAL SUP PLIERS, ADVANCES TO STAFF FOR VARIOUS PETTY CASH EXPENSES, ADVANCE TO SUPPLIERS, INTER BRANCH SUSPENSE, SUSPENSE PURCHASES, SUSPENSE-STAFF TRAVEL ETC. AS FAR AS TH E SUM OF RS.2,73,866 WRITTEN OFF IS CONCERNED, THE SAME WAS SECURITY DEPOSITS FOR ELECT RICITY, TELEPHONE CONNECTION AND OTHERS. THE ASSESSEE SWITCHED OVER IN THE YEAR 19 98 TO NEW SAP SYSTEM AND THESE DEPOSITS WERE FOR PERIOD PRIOR TO 1998 WHICH WERE O MITTED TO BE UPDATED. HENCE, THE ASSESSEE COULD NOT CLAIM THESE DEPOSITS. 5 ITA NO.131&372/KOL/2010 M/S.BOC INDIA LTD. A.Y.20 05-055 8. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO S UBMITTED BEFORE US IN THE COURSE OF HEARING THAT THE GHATKOPAR UNIT OF THE ASSESSEE WAS SOLD DURING THE PREVIOUS YEAR DUE TO SEVERAL PROBLEMS INCLUDING LABOUR PROBLEMS AND T HE ADVANCES AND EXPENSES WRITTEN OFF RELATED TO THIS UNIT AND THIS UNIT REMAINED CLO SED FOR A LONG TIME PRIOR TO ITS CLOSURE. WE ARE SATISFIED THAT ON THE FACTS AS PLEADED BY TH E ASSESSEE BEFORE THE AO WHICH WERE NOT CONTROVERTED BY THE AO/CIT(A), THE LOSS IN QUESTION WAS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. THE REASON ASSIGNED BY T HE AO WAS THAT THERE WAS NEGLIGENCE ON THE PART OF THE ASSESSEE IN NOT KEEPI NG PROPER RECORDS AND THIS FACT INFLUENCED HIS DECISION IN NOT ALLOWING THE CLAIM O F THE ASSESSEE. IN OUR VIEW ONCE THE FACT THAT THE LOSS IS INCIDENTAL TO ASSESSEES BUSINESS IS ACCEPTED THAN THE STRICT EVIDENCE OF IRRECOVERABILITY OF THE LOSSES IN QUEST ION CANNOT BE INSISTED UPON. THE CIRCUMSTANCES OF THE CASE SHOW THAT THE ASSESSEE MA DE A PROVISION IN THE BOOKS OF ACCOUNTS IN THE YEAR 2000 AND CLAIMED THE LOSS ONLY IN THE YEAR 2004. THE COMPANY AFTER REVIEW OF THE BOOKS OF ACCOUNTS AND AFTER DUE DILIGENCE AND DISCUSSION WITH THE STATUTORY AUDITORS CAME TO THE CONCLUSION THAT DETA ILED RECONCILIATION AND ACCOUNTING ADJUSTMENTS OF THESE ADVANCES WAS NO LONGER POSSIBL E DUE TO LACK OF INFORMATION AND NON-AVAILABILITY OF OLD RECORDS IN THE YEAR 2000 IT SELF BUT WAITED FOR 4 YEARS BEFORE WRITING OFF THE LOSS IN THE YEAR 2004-05. WE ARE O F THE VIEW IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, THE DEDUCTION CLAIMED OU GHT TO HAVE BEEN ALLOWED. WE HOLD AND DIRECT ACCORDINGLY. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ACCEPTED. 9. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED. 10. ITA NO. 372/KOL/2010: REVENUES APPEAL: THE FIRST GROUND OF APPEAL OF THE REVENUE READS AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, LD. CIT(A) HAS ERRED IN DELETING THE EXCESS PROVISION OF RS.10,29,375/- THOUGH THE A SSESEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. 11. THE ASSESSEE DURING THE PREVIOUS YEAR SOLD LA ND AT GHATKOPAR, MUMBAI DURING THE PREVIOUS YEAR TO ONE KALPATARU HOMES LIMITED. OUT OF TOTAL CONSIDERATION OF 6 ITA NO.131&372/KOL/2010 M/S.BOC INDIA LTD. A.Y.20 05-056 RS.305,00,000/- TOWARDS SALE OF GHATKOPAL LAND, RS. 167,750,000/- WAS RECEIVED ON EXECUTION OF THE CONTRACT & THE BALANCE CONSIDERATI ON AGGREGATING TO RS.137,250,000/- WAS RECEIVABLE IN INSTALMENTS ON DATES MENTIONED BELOW (IN TERMS OF CLAUSE 5(A) OF THE AGREEMENT FOR DEVELOPMENT DATED 31/10/2003 BETW EEN THE ASSESSEE AND KALPATARU HOMES LIMITED): 1) RS.30,500,000 RECEIVABLE ON OR BEFORE 1/4/2004 2) RS.61,000,000 RECEIVABLE ON OR BEFORE 1/10/2004 3) RS.45,750,000 RECEIVABLE ON OR BEFORE 1/4/2005 RS.137,250,000 THE ASSESSEE DECIDED TO ENCASH THE AFORESAID RECEIV ABLES AGGREGATING TO RS.137,250,000/- WITH RECOURSE AT A DISCOUNT & APPR OACHED CITI BANK NA IN THIS CONNECTION. FOR THE PURPOSE, AN AMOUNT OF RS.9,039, 197/- WAS PROVIDED IN THE BOOKS ON A MERCANTILE BASIS TOWARDS DISCOUNTING CHARGES D URING THE RELEVANT YEAR ENDED 31/3/2004, WHICH WAS CLAIMED BY THE ASSESSEE AS AN ALLOWABLE EXPENDITURE U/S 37(1) OF THE INCOME TAX ACT. IN DUE COURSE, THE DISCOUNT ING WAS CARRIED OUT WITH CITI BANK NA ON 22/10/2003 AND AN AMOUNT OF RS.8,009,822 WAS ACTUALLY INCURRED TOWARDS DISCOUNTING CHARGES. THUS, AN AMOUNT OF RS.1,029,37 5/- (RS.9,039,197/- MINUS RS.8,009,822) BEING IN EXCESS OF THE LIABILITY ACTU ALLY INCURRED TOWARDS DISCOUNTING CHARGES OF THE RECEIVABLES AND NO LONGER REQUIRED, WAS WRITTEN BACK & CREDITED IN THE BOOKS OF ACCOUNTS DURING THE SUBSEQUENT FINANCIAL Y EAR ENDED 31/3/2005 BY ADJUSTING/NETTING WITH GENERAL CHARGES A/C, THUS IN EFFECT OFFERING TO TAX THE AMOUNT OF RS.1,029,375/- IN THE SUBSEQUENT FINANCIAL YEAR. 12. ON THE ABOVE FACTS, THE QUESTION BEFORE THE AO WAS AS TO WHETHER THE SUM OF RS.10,29,375 WHICH WAS EXCESS LIABILITY CLAIMED IN THE PRESENT ASSESSMENT YEAR CAN BE ALLOWED AS A DEDUCTION. THE AO WAS OF THE VIEW THAT THE AMOUNT OF RS.10,29,375 WAS NOT A LIABILITY OF THE ASSESSEE DURING THE PREV IOUS YEAR RELEVANT TO AY 04-05 AND THEREFORE OUGHT NOT TO HAVE BEEN CLAIMED AS A DEDUC TION IN AY 04-05. THE DISCOUNTING WITH CITI BANK NA TOOK PLACE ON 22.10.2 003 AND AS ON THAT DATE THE ASSESSEE OUGHT TO HAVE WRITTEN BACK THE SUM OF RS.1 0,29,375 WHICH WAS LIABILITY 7 ITA NO.131&372/KOL/2010 M/S.BOC INDIA LTD. A.Y.20 05-057 PROVIDED IN EXCESS IN THE BOOKS OF ACCOUNTS. HE TH EREFORE DISALLOWED A SUM OF RS.10,29,375. 13. ON APPEAL BY THE ASSESSEE, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE OBSERVING AS FOLLOWS: I HAVE GONE THROUGH THE DOCUMENTS SUBMITTED BY THE APPELLANT IN REGARD TO THE REVERSAL MADE IN THE BOOKS IN THE SUBSEQUENT FINANCIAL YEAR OF THE EXCESS AMOUNT OF RS.10,29,375/- PROVIDED. I HAVE ALSO PERUSED THE AS SESSMENT ORDER OF THE SUBSEQUENT ASSESSMENT YEAR, I.E. 2005-06 AND FOUND THAT THE AM OUNT OF RS.10,29,375/- HAS BEEN OFFERED TO TAX BY THE APPELLANT IN THAT ASSESSMENT YEAR. SINCE THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND THE SAID AM OUNT OF RS.10,29,375/- HAS BEEN OFFERED TO TAX IN THE SUBSEQUENT ASSESSMENT YEAR, T HE A.O. IS DIRECTED TO ALLOW THE DISALLOWANCE OF RS.10,29,375/- MADE BY HIM FOR THE YEAR UNDER CONSIDERATION. THUS, THE GROUND IS, THEREFORE, ALLOWED. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE CI T(A) HAS ALLOWED RELIEF TO THE ASSESSEE ONLY ON THE BASIS THAT THE DIFFERENCE IN D ISCOUNTING CHARGES ACTUALLY INCURRED BY THE ASSESSEE AND THAT PROVIDED IN THE BOOKS OF A CCOUNTS FOR AY 04-05 WERE OFFERED TO TAX BY THE ASSESSEE IN AY 05-06. THIS CANNOT BE A SOUND BASIS TO ALLOW RELIEF TO THE ASSESSEE. THE ASSESSEE IS FOLLOWING MERCANTILE SYS TEM OF ACCOUNTING. LAW IS WELL SETTLED THAT UNDER THE MERCANTILE SYSTEM OF ACCOUNT ING IT IS ONLY EXPENDITURE WHICH HAS ACCRUED TO THE ASSESSEE DURING THE PREVIOUS YEAR TH AT CAN BE ALLOWED AS A DEDUCTION. ORIGINALLY THE BILL DISCOUNTING CHARGES WERE ESTIMA TED AT RS.90,39,137. ON THIS BASIS THE ASSESSEE WAS JUSTIFIED IN CONSIDERING THE EXPEN DITURE ON ACCOUNT OF BILL DISCOUNTING CHARGES AT RS.90,39,137. HOWEVER DURIN G THE PREVIOUS YEAR RELEVANT TO AY 04-05 I.E., ON 22.10.2003, IT TURNED OUT THAT TH E ACTUAL LIABILITY TOWARDS BILL DISCOUNTING CHARGES WAS ONLY RS10,29,375. THEREFOR E IN ITS BOOKS OF ACCOUNTS FOR THE PREVIOUS YEAR, THE ASSESSEE OUGHT TO HAVE REVERSED THE EXCESS PROVISION FOR LIABILITY MADE. IN OTHER WORDS THE ACTUAL LIABILITY AT RS.80 ,09,822 CRYSTALIZED DURING THE PREVIOUS YEAR RELEVANT TO AY 04-05 ITSELF AND THE A SSESSEE THEREFORE COULD NOT HAVE CLAIMED OVER AND ABOVE THIS SUM AS DEDUCTION IN COM PUTING ITS INCOME FROM BUSINESS. IT IS A DIFFERENT ISSUE THAT THE ASSESSEE OFFERED T O TAX THE SUM OF RS.10,29,375 IN AY 05-06. WE THEREFORE RESTORE THE ORDER OF THE AO IN THIS REGARD. WE HOWEVER DIRECT THAT THE SUM OF RS.10,29,375 SHOULD BE EXCLUDED FRO M THE TAXABLE INCOME OF AY 05- 8 ITA NO.131&372/KOL/2010 M/S.BOC INDIA LTD. A.Y.20 05-058 06, AS NOT DOING SO WOULD AMOUNT TO DOUBLE TAXATION OF SAME INCOME, WHICH IS IMPERMISSIBLE IN LAW. WE HOLD AND DIRECT ACCORDING LY AND ALLOW GROUND NO.1 RAISED BY THE REVENUE. 15. AS FAR AS GROUND NO.2 RAISED BY THE REVENUE IS CONCERNED, THE SAME READS AS FOLLOWS: 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) ERRED IN DIRECTING NOT TO CONSIDER THE SALE OF PROPERTY AT GHATKOPAR AS A SLU M SALE U/S 50B WITHOUT APPRECIATING THE FACTS. 16. THE FACTS RELEVANT FOR DECISION ON GROUND NO.2 ARE THE ASSESSEE HAD A FACTORY AT GHATKOPAR WHICH WAS SITUATED AT LAL BAHADUR SHASTRI MARG, GHATKOPAR, GREATER MUMBAI. THIS WAS CLOSED DOWN ON 1/4/1999. THERE WA S NO ONGOING BUSINESS ACTIVITY & THE FACTORY WAS NOT IN OPERATION. SUBSEQUENTLY TH E ASSESSEE DECIDED TO SELL THE GHATKOPAR LAND TO KALPATARU HOMES LTD AND ENTERED I NTO AN AGREEMENT FOR DEVELOPMENT DATED 31 ST OCTOBER 2003 WHEREBY THE LAND AT GHATKOPAR WAS TRA NSFERRED TO KALPATARU HOMES LIMITED FOR A TOTAL CONSIDERATIO N OF RS.305,000,000/- (RUPEES THIRTY CRORES FIFTY LACS ONLY). NO OTHER ASSETS OR LIABILITIES OF THE ERSTWHILE GHATKOPAR FACTORY WERE TRANSFERRED TO THEM. THE OLD SCRQAPPED AND JUNDED PLANT & MACHINERY, FURNITURE & FIXTURES & STORES ITEMS LYING IN THE SA ID GHATKOPAR PROPERTY WERE REMOVED & DISPOSED OFF FOR A CONSIDERATION OF RS.5,480,769/ - TO M/S ASIAD TRADING & MFG. CO., SANTACRUZ, MUMBAI. THIS AMOUNT WAS GROUPED, TO GETHER WITH SALE OF VARIOUS SCRAP MATERIALS (OTHER THAN RELATING OT GHATKOPAR P ROPERTY) AND CONSIDERED AS INCOME AGGREGATING TO RS.5,486,966/- UNDER THE HEAD MISCE LLANEOUS INCOME IN THE ACCOUNTS AND OFFERED TO TAX ALSO. ACCORDING TO THE ASSESSEE IT SOLD ONLY LAND WITH IRREVOCABLE RIGHTS AND MARKETABLE TITLE TO THE DEVELOPERS FOR T HE DEVELOPMENT OF THE SAID PROPERTY BY CONSTRUCTING THEREON NEW BUILDINGS & STRUCTURES, WITH A COVENANT FOR ULTIMATE TRANSFER THEREOF, IN FAVOUR OF NOMINEES OF THE DEVE LOPERS (REFER PARA E OF THE AGREEMENT FOR DEVELOPMENT DATED 31/10/2003). HENCE, NO CONSIDERATION FOR BUILDINGS WAS REALISED FROM THE BUYER. THE EXISTING BUILDING S & STRUCTURES WERE OF NO USE TO THE BUYER, WHO WERE TO DEVELOP THE LAND FOR MAKING NEW CONSTRUCTIONS ON THE LAND. ALTHOUGH AN AMOUNT OF RS.7,189,140/- WAS APPEARING IN THE BOOKS AS NET BOOK VALUE 9 ITA NO.131&372/KOL/2010 M/S.BOC INDIA LTD. A.Y.20 05-059 IN REGARD TO BUILDINGS AT THE TIME OF SALE YET NOTH ING WAS REALISED TOWARDS BUILDING & HENCE THE WHOLE CONSIDERATION WAS CONSIDERED TOWARD S THE SALE OF LAND, IN ACCORDANCE WITH THE AGREEMENT DATED 30/10/2003, WHILE COMPUTIN G THE TAXABLE CAPITAL GAINS FROM SALE OF GHATKOPAR PROPERTY. 17. THE AO HOWEVER HELD THAT WHAT WAS SOLD BY THE ASSESSEE WAS THE LAND, PLANT AND MACHINERY AND OTHER ASSETS OF THE CLOSED GHATKOPAR FACTORY AND THEREFORE THE SALE IN QUESTION WAS A SLUMP SALE WITHIN THE MEANING OF SEC .50B OF THE ACT. THE AO ACCORDINGLY COMPUTED CAPITAL GAIN AT RS.28,89,06,66 5 U/S.50B OF THE ACT, AS AGAINST THE CLAIM OF ASSESSEE THAT THE CAPITAL GAIN IN QUES TION WAS A LONG TERM CAPITAL GAIN COMPUTED BY THE ASSESSEE AT RS.13,44,33,876. 18. THERE IS A DIFFERENCE IN COMPUTATION OF CAPITA L GAIN U/S.45 R.W.S.48 OF THE ACT AND THE COMPUTATION OF CAPITAL GAIN IN THE CASE OF SLUM SALE. IN THE CASE OF SLUMP SALE COMPUTATION OF CAPITAL GAIN HAS TO BE DONE IN ACCOR DANCE WITH SEC.50B(2) OF THE ACT. THE DEFINITION OF SLUM SALE IS GIVEN IN SEC.2(42C) OF THE ACT AND THE METHOD OF COMPUTATION OF CAPITAL GAIN ON SLUMP SALE IS GIVEN IN SEC.50B OF THE ACT. THOSE PROVISIONS READ THUS: SEC.2 (42C) 'SLUMP SALE' MEANS THE TRANSFER OF ONE OR MORE UNDERTAKINGS AS A RESULT OF THE SALE FOR A LUMP SUM CONSIDERATION WIT HOUT VALUES BEING ASSIGNED TO THE INDIVIDUAL ASSETS AND LIABILITIES IN SUCH SALES. EXPLANATION 1 : FOR THE PURPOSES OF THIS CLAUSE, 'U NDERTAKING' SHALL HAVE THE MEANING ASSIGNED TO IT IN EXPLANATION 1 TO CLAUSE ( 19AA). EXPLANATION 2 : FOR THE REMOVAL OF DOUBTS, IT IS HE REBY DECLARED THAT THE DETERMINATION OF THE VALUE OF AN ASSET OR LIABILITY FOR THE SOLE PURPOSE OF PAYMENT OF STAMP DUTY, REGISTRATION FEES OR OTHER SIMILAR TAXE S OR FEES SHALL NOT BE REGARDED AS ASSIGNMENT OF VALUES TO INDIVIDUAL ASSETS OR LIABIL ITIES. 50B: SPECIAL PROVISION FOR COMPUTATION OF CAPITAL GAINS IN CASE OF SLUMP SALE. (1) ANY PROFITS OR GAINS ARISING FROM THE SLUMP SAL E EFFECTED IN THE PREVIOUS YEAR SHALL BE CHARGEABLE TO INCOME-TAX AS CAPITAL GAINS ARISIN G FROM THE TRANSFER OF LONG-TERM CAPITAL ASSETS AND SHALL BE DEEMED TO BE THE INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER TOOK PLACE : 10 ITA NO.131&372/KOL/2010 M/S.BOC INDIA LTD. A.Y.20 05-0510 PROVIDED THAT ANY PROFITS OR GAINS ARISING FROM THE TRANSFER UNDER THE SLUMP SALE OF ANY CAPITAL ASSET BEING ONE OR MORE UNDERTAKINGS OW NED AND HELD BY AN ASSESSEE FOR NOT MORE THAN THIRTY-SIX MONTHS IMMEDIATELY PRECEDI NG THE DATE OF ITS TRANSFER SHALL BE DEEMED TO BE THE CAPITAL GAINS ARISING FROM THE TRA NSFER OF SHORT-TERM CAPITAL ASSETS. (2) IN RELATION TO CAPITAL ASSETS BEING AN UNDERTAK ING OR DIVISION TRANSFERRED BY WAY OF SUCH SALE, THE 'NET WORTH' OF THE UNDERTAKING OR TH E DIVISION, AS THE CASE MAY BE, SHALL BE DEEMED TO BE THE COST OF ACQUISITION AND THE COS T OF IMPROVEMENT FOR THE PURPOSES OF SECTIONS 48 AND 49 AND NO REGARD SHALL BE GIVEN TO THE PROVISIONS CONTAINED IN THE SECOND PROVISO TO SECTION 48. (3) EVERY ASSESSEE, IN THE CASE OF SLUMP SALE, SHAL L FURNISH IN THE PRESCRIBED FORM ALONG WITH THE RETURN OF INCOME, A REPORT OF AN ACC OUNTANT AS DEFINED IN THE EXPLANATION BELOW SUB-SECTION (2) OF SECTION 288 IN DICATING THE COMPUTATION OF THE NET WORTH OF THE UNDERTAKING OR DIVISION, AS THE CASE M AY BE, AND CERTIFYING THAT THE NET WORTH OF THE UNDERTAKING OR DIVISION, AS THE CASE M AY BE, HAS BEEN CORRECTLY ARRIVED AT IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION. EXPLANATION 1 : FOR THE PURPOSES OF THIS SECTION, 'NET WORTH' SHAL L BE THE AGGREGATE VALUE OF TOTAL ASSETS OF THE UNDERTAKING OR DIVISIO N AS REDUCED BY THE VALUE OF LIABILITIES OF SUCH UNDERTAKING OR DIVISION AS APPE ARING IN ITS BOOKS OF ACCOUNT : PROVIDED THAT ANY CHANGE IN THE VALUE OF ASSETS ON ACCOUNT OF REVALUATION OF ASSETS SHALL BE IGNORED FOR THE PURPOSES OF COMPUTING THE NET WORTH. EXPLANATION 2 : FOR COMPUTING THE NET WORTH, THE AGGREGATE VALUE O F TOTAL ASSETS SHALL BE, (A) IN THE CASE OF DEPRECIABLE ASSETS, THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS DETERMINED IN ACCORDANCE WITH THE PROVISIONS CONTAI NED IN SUB-ITEM (C) OF ITEM (I) OF SUB-CLAUSE (C) OF CLAUSE (6) OF SECTION 43; (B) IN THE CASE OF CAPITAL ASSETS IN RESPECT OF WHI CH THE WHOLE OF THE EXPENDITURE HAS BEEN ALLOWED OR IS ALLOWABLE AS A DEDUCTION UND ER SECTION 35AD, NIL; AND (C) IN THE CASE OF OTHER ASSETS, THE BOOK VALUE OF SUCH ASSETS. 19. THE QUESTION THEREFORE BEFORE THE CIT(A) WAS A S TO WHETHER THE SALE OF THE LAND BY THE ASSESSEE AT GHATKOPAR WAS A SLUMP SALE OR NO T. THE CIT(A) ON THIS ISSUE HELD AS FOLLOWS: I HAVE GONE THROUGH THE RIVAL CONTENTIONS. THE BA SIC TEST WHICH ONE MUST APPLY TO ASCERTAIN WHETHER THERE EXISTED A SLUMP SALE OR NOT IS THE CONTINUITY OF BUSINESS. THE QUESTION TO BE ASKED IS WHETHER THERE WAS TRANSFER OF BUSINESS AS A WHOLE. WHETHER THERE WAS A TRANSFER OF LAND, BUILDING, PLANT AND MACHINE RY AS A WHOLE OR WHETHER THERE WAS A TRANSFER OF LAND, BUILDING OR PLANT AND MACHINERY S EPARATELY AND INDIVIDUALLY? FOR THAT 11 ITA NO.131&372/KOL/2010 M/S.BOC INDIA LTD. A.Y.20 05-0511 PURPOSE, ONE HAS TO READ THE TERMS AND CONDITIONS O F THE ENTIRE ARRANGEMENT AND UNDERSTAND & ASCERTAIN THE TRUE INTENTION OF THE PA RTIES. I HAVE GONE THROUGH THE FACTS AND SUBMISSIONS MADE BY THE APPELLANT THOROUGHLY. ON PERUSAL OF THE AGREEMENT IT IS CLEAR THAT ONLY SALE OF LAND IS COVERED WITH IRREVOCABLE RIGHTS AND MARKETABLE TITLE TO THE DEVELOPERS. IT I S ALSO EVIDENT ON REVIEW OF THE DOCUMENTS SUBMITTED BY THE APPELLANT, THAT THE OLD SCRAPPED & JUNKED ITEMS OF PLANT & MACHINERY, FURNITURE & FIXTURES AND STORES ITEMS OF THE ERSTWHILE GHATKOPAR UNIT WERE SOLD TO A THIRD PARTY AND NOT TO KALPATARU HOMES LI MITED. ACCORDINGLY, THE CONSIDERATION OF RS.30,50,00,000 DOES NOT INCLUDE A MOUNT OF RS.54,80,769/- RECEIVED FROM M/S. ASIAD TRADING & MFG. CO. TOWARDS SALE OF OLD SCRAPPED & JUNKED ITEMS OF PLANT & MACHINERY, FURNITURE & FIXTURES AND STORES ITEMS, AS HELD BY A.O. THE ACTION OF THE APPELLANT IN NOT REDUCING SUCH SALE PROCEEDS OF RS.54,80,769/- FROM THE W.D.V. OF THE BLOCK OF CAPITAL ASSETS IS NOT DETRIMENTAL TO R EVENUE, AS THE APPELLANT AHS OFFERED THE ENTIRE SALE PROCEEDS OF RS.54,80,769/- TO TAX UNDER BUSINESS INCOME. MORE IMPORTANTLY, FROM THE FACTS OF THE APPELLANTS CASE IT IS ABUNDANTLY CLEAR THAT NO BUSINESS ACTIVITY WAS CARRIED ON AT THE GHATKOPAR PREMISES A T THE TIME OF SALE IN OCTOBER 2003. THE FACTORY WAS CLOSED W.E.F. 1/4/99 AND THE APPELL ANT WAS NOT CLAIMING ANY INCOME-TAX DEPRECIATION ALSO ON THE CAPITAL ASSETS THEREAFTER. BASED ON THE FACTS & CIRCUMSTANCES OF THE APPELLANTS CASE, THE A.O. WAS NOT CORRECT IN C ONSIDERING THE SALE OF LAND TO KALPATARU HOMES LIMITED, AS PER THE AGREEMENT DATED 31/10/2003, AS A SLUMP SALE U/S 50B OF THE INCOME TAX ACT. THE TREATMENT EFFECTED B Y THE APPELLANT IN REGARD TO THE TAXABILITY OF CAPITAL GAINS FROM SALE OF LAND LOCAT ED AT GHATKOPAR IS IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME-TAX ACT. THUS, THE GRO UND IS ALLOWED AND THE A.O. IS DIRECTED TO ALLOW RELIEF TO THE APPELLANT BY CONSID ERING THE AMOUNT OF LONG-TERM GAINS COMPUTED BY THE APPELLANT AT RS.13,44,33,876/-. 20. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVE NUE HAS RAISED GROUND NO.2 BEFORE THE TRIBUNAL. 21. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LEAR NED DR RELIED ON THE ORDER OF THE AO. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT(A). 22. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS. WE HAVE PERUSED THE AGREEMENTS BY WHICH THE ASSESSEE SOLD THE PROPE RTY AT GHATKOPAR TO KALAPATARU HOMES LTD. IT IS CLEAR FROM THE READING OF THOSE A GREEMENTS AND SCHEDULE OR PROPERTY TRANSFERRED REFERRED TO IN THOSE AGREEMENTS THAT WH AT WAS SOLD WAS LAND AND THERE WAS NEITHER ANY PLANT, MACHINERY, FURNITURE & FIXTURES ETC. THERE WAS NEITHER BUILDING IN EXISTENCE AT THE TIME WHEN THE LAND WAS SOLD BY TH E ASSESSEE. THE EVIDENCE ON RECORD CLEARLY SHOWS THAT RS.54,80,769/- WAS RECEIVED FROM M/S. ASIAD TRADING & MFG. CO. TOWARDS SALE OF OLD SCRAPPED & JUNKED ITEMS OF PLAN T & MACHINERY, FURNITURE & 12 ITA NO.131&372/KOL/2010 M/S.BOC INDIA LTD. A.Y.20 05-0512 FIXTURES AND STORES ITEMS THAT WERE LYING IN THE LA ND AT GHATKOPAR. THE VALUE OF THE BUILDING THAT EXISTED AT ONE POINT OF TIME PRIOR TO THE TRANSFER OF THE LAND BY THE ASSESSEE DURING THE PREVIOUS YEAR, WAS NOT SUBJECT MATTER NOR COULD BE SUBJECT MATTER OF TRANSFER BY THE ASSESSEE, AS THE BUILDING DID NO T EXIST. THE FINDINGS OF THE AO TO THE CONTRARY ARE WITHOUT ANY BASIS AND CONTRARY TO THE MATERIAL ON RECORD. WE THEREFORE HOLD THAT THE CIT(A) WAS JUSTIFIED IN HIS CONCLUSIONS. ACCORDINGLY, GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 23. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS A LLOWED AND THAT BY THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 16.10.2015. SD/- SD/- [ M.BALAGANESH ] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 16.10.2015. [RG PS] COPY OF THE ORDER FORWARDED TO: 1.M/S.BOC INDIA LTD., OXYGEN HOUSE, P-43, TARATALA ROAD, KOLKATA-700088. 2. D.C.I.T., CIRCLE-12, KOLKATA. 3. CIT(A)-XXXII, KOLKATA 4. CIT-CENTRAL-IV, KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER, DEPUTY /ASST. REGISTRAR, ITAT, KOLKATA BENCHES 13 ITA NO.131&372/KOL/2010 M/S.BOC INDIA LTD. A.Y.20 05-0513