D.C.I.T.CC - XXVIII,Kol., Kolkata V. M/s Binani Industries Ltd., Kolkata

ITA 144/KOL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4924 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 18-01-2013
• Court: TRIBUNAL
• Department Lawyers: RAJAT SU BHRA BISWAS CIT LD
• Assessee Lawyers: K V BESWAL FCA VIJAY
• Keywords: Capital asset; Depreciation; Business expenditure; Earning of tax free income; Retrospective amendment; Wholly owned subsidiary; Capital receipt; Revised return; Unabsorbed depreciation
• Section: 143(3); 14A; 115JB; 139(5); 15

Judgement Text

ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, K OLKATA BEFORE : SHRI N.V.VASUDEVAN, JUDICIAL MEMBER, AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA NO. 144/KOL/2013 A.Y 2009-10 D.C.I.T, C.C-XXVIII, KOLKATA VS. M/S. BINANI INDU STRIES LTD PAN: AABCB0979C (APPELLANT) (RESPONDENT) FOR THE APPELLANT/DEPARTMENT: SHRI RAJAT SUB HRA BISWAS, CIT, LD.DR FOR THE RESPONDENT/ASSESSEE: S/ SHRI K. V. BESWAL, FCA VIJAY MEHTA, LD.ARS DATE OF HEARING: 15-02-2016 DATE OF PRONOUNCEMENT: 02-03-20 16 ORDER SHRI M.BALAGANESH, AM : THIS APPEAL OF THE REVENUE ARISES OUT OF THE ORDER OF THE LEARNED CIT(A), CENTRAL-1, KOLKATA IN APPEAL NO. 158/CC-XXVIII/CIT (A)C-I/11-12 DATED 26 TH NOVEMBER, 2012 FOR THE ASST YEAR 2009-10 PASSED AG AINST THE ORDER OF ASSESSMENT FRAMED BY THE LEARNED AO U/S 143(3) OF THE INCOME T AX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER AN ADDITION U/S 14A OF THE ACT IN THE SUM OF RS. 4,69,87,450/- COULD BE MA DE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASS ESSEE FILED ITS ORIGINAL RETURN OF INCOME ON 30.9.2009 DISCLOSING TOTAL INCOME AT RS NIL UNDE R NORMAL PROVISIONS OF THE ACT AND ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 2 DECLARING BOOK PROFITS U/S 115JB OF THE ACT AT RS. 21,24,72,340/-. LATER THE ASSESSEE FILED REVISED RETURN OF INCOME ON 31.3.2011 DISCLOS ING TOTAL INCOME AT RS. NIL UNDER NORMAL PROVISIONS OF THE ACT AND DECLARING BOOK PRO FITS U/S 115JB OF THE ACT AT RS. 33,90,47,340/-. IN THE SAID REVISED COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT, AN EXTRAORDINARY ITEM OF RECEIPT TO THE TUNE OF RS. 12,65,75,000/- REPRESENTING FORFEITURE OF SHARE WARRANTS WAS INCLUDED BY THE AS SESSEE. THE ASSESSEE ALSO SOUGHT TO DISALLOW A SUM OF RS. 1,37,12,550/- TOWARDS SECT ION 14A VOLUNTARILY UNDER THE NORMAL PROVISIONS OF THE ACT IN THE REVISED RETURN FILED BY IT ON 31.3.2011. ADMITTEDLY, THIS REVISED RETURN WAS FILED WITHIN TH E PRESCRIBED TIME LIMIT U/S 139(5) OF THE ACT. BEFORE THE LEARNED AO, THE SUBMISSIONS OF THE ASSESSEE WERE AS UNDER:- A) THAT ONLY THE THIRD LIMB OF RULE 8D(II) WOULD BE APPLICABLE VIZ. 0.5% OF AVERAGE VALUE OF INVESTMENTS FOR THE PURPOSE OF DIS ALLOWANCE U/S 14A OF THE ACT AND ACCORDINGLY WORKED OUT THE DISALLOWANCE AT RS. 1,37,12,550/- AND DISALLOWED THE SAME UNDER THE NORMAL PROVISIONS OF THE ACT IN THE REVISED RETURN FILED. B) THAT SINCE THE INVESTMENTS WERE MADE BY THE ASSE SSEE SINCE 1997-98 ONWARDS OUT OF OWN FUNDS IN THE FORM OF SHARE CAPITAL , FRE E RESERVES AND INTERNAL ACCRUALS , THE SECOND LIMB OF RULE 8D(II) WOULD NOT COME INTO OPERATION FOR THE PURPOSE OF MAKING DISALLOWANCE U/S 14A OF THE ACT. C) THAT NO DISALLOWANCE U/S 14A OF THE ACT WAS MADE BY THE REVENUE PRIOR TO ASST YEAR 2009-10 ON THE SUBJECT MENTIONED INVESTMENTS. D) THAT THE MAJOR INVESTMENTS IN QUESTION ARE THE I NVESTMENTS MADE BY THE ASSESSEE IN ITS SUBSIDIARY COMPANIES LIKE BINANI CE MENT LTD (BCL) ; GOA GLASS FIBRE LTD (GGFL) AND BINANI ZINC LTD (BZL) . ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 3 E) THAT OUT OF TOTAL DIVIDEND RECEIVED OF RS. 34.13 CRORES, RS. 32.95 CRORES REPRESENTS DIVIDEND RECEIVED FROM ITS SUBSIDIARY CO MPANY VIZ. BINANI CEMENT LTD . F) THAT AT ONE POINT OF TIME, ALL THESE UNITS VIZ B CL , GGFL AND BZL WERE PART OF THE COMPOSITE BUSINESS OF THE ASSESSEE COMPANY AND AFTER APPROVAL OF THE APPROPRIATE AUTHORITIES IN THE RESPECTIVE YEARS, TH ESE UNITS WERE HIVED OFF TO THE SUBSIDIARY COMPANIES NAMELY BINANI CEMENT LTD , GO A GLASS FIBRE LTD AND BINANI ZINC LTD IN THE YEAR 1997 , 1998 AND 2003 RE SPECTIVELY. G) THAT THE STATUS OF PAID UP CAPITAL, FREE RESERVE S AND INTERNAL ACCRUALS DURING ASST YEAR 2002-03 WERE AS UNDER :- RS. IN LAKHS INTERNAL GENERATION 24708.68 PUBLIC ISSUE FOR CEMENTS & GLASS FIBRE DIVISION 230 00.00 INTEREST FREE LOANS AS ON 31.3.2002 1873.28 -------------- 49581.96 INVESTMENTS AS ON 31.3.2002 WERE AS UNDER:- BINANI CEMENT LTD 40000.83 GOA GLASS FIBRE LTD 7417.74 BT COMPOSITES LTD 928.85 BINANI LEAD LTD 590.01 BANK OF INDIA EQUITY 3.60 RBW MINERALS INDUSTRIES LTD 49.84 UDAIPUR URBAN CO-OP BANK EQUITY 0.05 -------------- 48990.92 THE LEARNED AO, HOWEVER, SIMPLY RESORTED TO MAKE DI SALLOWANCE U/S 14A OF THE ACT BY APPLYING THE SECOND LIMB AND THIRD LIMB OF RULE 8D(II) OF IT RULES BY REJECTING ALL THE CONTENTIONS OF THE ASSESSEE WITHOUT ADDUCING AN Y COGENT REASONS. ON FIRST APPEAL, APART FROM THE AFORESAID FACTS , THE ASSESSEE STATE D THAT THE INTEREST EXPENDITURE AMOUNTING TO RS. 7.02 CRORES WAS NOT ATTRIBUTABLE T O THE ACQUISITION OF SHARES WHICH ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 4 WERE ACQUIRED DUE TO THE HIVE OFF OF THE COMPANIES AS STATED SUPRA. IN THIS REGARD, IT RELIED ON THE UNREPORTED DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS RAHEJA CORPORATION PVT LTD AND THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWE R LTD REPORTED IN 313 ITR 340 (BOM) FOR THE PROPOSITION THAT THE LEARNED AO HAVING FAI LED TO ESTABLISH THAT BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF ACQ UIRING THE SHARES AND IN VIEW OF AVAILABILITY OF OWN FUNDS WITH THE ASSESSEE, NO EXP ENDITURE OUGHT TO HAVE BEEN DISALLOWED U/S 14A OF THE ACT READ WITH RULE 8D OF IT RULES. THE LEARNED CIT(A) DULY APPRECIATED ALL THE CONTENTIONS OF THE ASSESSE E AND DELETED THE DISALLOWANCE MADE U/S 14A OF THE ACT BOTH UNDER NORMAL PROVISIONS OF THE ACT AS WELL AS FOR THE COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- (I) THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL A S IN FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE DISALLOWA NCE OF RS. 4,69,87,450/- MADE U/S 14A OF THE INCOME-TAX ACT, 1961 READ WITH RULE 8D(2)(II) OF THE INCOME-TAX RULES, 1962, 2.2. THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED AO. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ENTIRE INVESTMENTS WERE M ADE LONG BACK BY THE ASSESSEE. WE HOLD THAT THE ASSESSEE WAS HAVING SUFFICIENT OWN FU NDS TO MAKE THOSE INVESTMENTS IN THE EARLIER YEARS. WE HOLD THAT THE LEARNED AO HA D NOT BROUGHT ON RECORD ANY NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENT IN SH ARES OF VARIOUS COMPANIES. WE FIND THAT THE FOLLOWING CASE LAWS RELIED UPON BY TH E LEARNED CIT(A) IN HIS ORDER ARE WELL PLACED AND ARE SQUARELY APPLICABLE TO THE FACT S OF THE INSTANT CASE :- CIT VS RELIANCE UTILITIES & POWER LTD ( 313 ITR 340 ) (BOM) INTEREST ON BORROWED CAPITAL INVESTMENTS BY ASSES SEE FINDING THAT INVESTMENTS WERE FROM INTEREST FREE FUNDS AVAILABLE WITH ASSESSEE - BORROWED CAPITAL USED FOR PURPOSES OF BUSINESS INTEREST DE DUCTIBLE UNDER INCOME TAX ACT, S. 36(1)(III). ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 5 G.D.METSTEEL PVT LTD VS ACIT REPORTED IN 142 TTJ 64 1 (MUM ITAT) HELD THAT THE INVESTMENTS ARE MADE BY THE ASSESSEE S OWN FUNDS AND HAVE BEEN MADE IN THE EARLIER YEARS, NO DISALLOWANCE U/S 14A IS REQUIRED TO BE MADE. THE HEAD NOTE READS AS UNDER:- BUSINESS EXPENDITURE DISALLOWANCE UNDER SECTION 14A APPORTIONMENT OF EXPENDITURE WHEN INVESTMENTS ARE MADE FROM OWN FUNDS, MERELY BECAUSE THE ASSESSEE HAD TO SUBSEQUENTLY BORROW THE FUNDS FOR BUSINESS USE, IT CANNOT BE SAID THAT THE BORROWED FUNDS HAVE BEEN USED FOR THE PURPOSES OF INVESTMENTS. 2.4. WE ALSO HOLD THAT THE INVESTMENTS MADE IN SUB SIDIARY COMPANIES ARE TO BE TREATED AS STRATEGIC INVESTMENTS AND HENCE THE DISALLOWANCE U/S 14A OF THE ACT WOULD NOT OPERATE AT ALL AS THE INVESTMENT MADE THEREON IS NO T WITH AN INTENTION TO EARN ANY EXEMPT INCOME IN THE FORM OF DIVIDEND BUT ONLY FOR OBTAINING CONTROLLING INTEREST IN THE SAID COMPANIES AND TO FURTHER THE BUSINESS INTE RESTS OF THE ASSESSEE IN THE SAID COMPANY. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF THE CO-ORDINATE BENCH OF DELHI TRIBUNAL IN THE CASE OF INTERGLOBE ENTERPRISES LTD VS DCIT REPORTED IN (2014) 40 CCH 0022 DELTRIB IN ITA NO. 1362 & 1032 / DEL/ 2013 , ITA NO. 1580/DEL/2013 DATED 4.4.2014 FOR ASST YEARS 2008-09 & 2009-10, WHEREIN IT WAS HELD THAT : 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH TH E PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. FIRST, WE TAKE UP THE APPEAL FOR ASSESSMENT YEAR 2008-09. IN THIS YEAR, THE ASSESSEE HAD THREE TYPE OF INVESTMENTS ONE RELATING TO INVESTMENT IN SUBSIDIAR Y COMPANIES THE AMOUNT OF WHICH IS RS.101.74 CRORES. THE SECOND CATEGORY R ELATES TO LONG TERM UNQUOTED SHARES THE AMOUNT OF WHICH IS RS.31.53 CRO RES. THE THIRD CATEGORY IS OF EQUITY SHARES THE VALUE OF WHICH IS RS.14.88 LAKHS AND THE LAST CATEGORY IS INVESTMENT IN UNITS OF MUTUAL FUNDS AMOUNTING TO RS.10.15 CRORES. THESE FACTS AND FIGURES ARE VERIFIABLE FROM PAPER BOOK PA GE 204A. AS REGARDS THE FIRST CATEGORY OF SHARES IN THE FORM OF INVESTMENT INTO SUBSIDIARY COMPANIES WE FIND THAT INVESTMENT INTO THIS CATEGORY OF SHARE S HAD INCREASED FROM RS.78.17 LAKHS TO RS.101.74 CRORES WHICH IS DUE TO INCREASE IN INVESTMENT IN ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 6 PREFERENCE SHARES AND OTHER EQUITY SHARES. DURING T HIS PERIOD, THE INTEREST BEARING FUNDS HAD DECREASED FROM RS.1.49 CRORES TO RS.87,30 LAKHS AS IS APPARENT FROM PAPER BOOK PAGE 203 AND FURTHER MOST OF THE INTEREST BEARING LOANS ARE FOR VEHICLE LOANS AS MENTIONED IN PAPER B OOK PAGE 203. DURING THIS YEAR UNDER CONSIDERATION, THE ASSESSEE HAS EAR NED A CASH PROFIT OF RS.11 CRORES. THE CASH FLOW STATEMENT AT PAPER BOOK PAGE 200 REFLECTS CASH FROM OPERATING ACTIVITIES INCLUDING CASH PROFITS OF RS.49.28 CRORES. THE ASSESSEE HAS ALSO RAISED AN AMOUNT OF RS.50.80 CROR ES BY ISSUE OF FRESH PREFERENCE SHARES AS IS APPARENT FROM PAPER BOOK PA GE 200. IN VIEW OF THE ABOVE FACTS AND FIGURES IT IS APPARENT THAT ASSESSE E HAD UTILIZED INTEREST FREE FUNDS FOR MAKING FRESH INVESTMENTS AND THAT TOO INT O ITS SUBSIDIARIES WHICH IS NOT FOR THE PURPOSE OF EARNING EXEMPT INCOME AND WHICH ARE FOR STRATEGIC PURPOSES ONLY. 8. IN VIEW OF THE ABOVE FACTS, WE HOLD THAT NO DISA LLOWANCE OF INTEREST IS REQUIRED TO BE MADE UNDER RULE 8D(I) & 8D (II) AS N O DIRECT OR INDIRECT INTEREST EXPENDITURE HAS INCURRED FOR MAKING INVEST MENTS. 9. AS REGARDS DISALLOWANCE UNDER RULE 8D(III) WE FI ND THAT ASSESSEE HAD INVESTED IN FOUR DEBT ORIENTED SCHEMES OF DSP MERIL E LYNCH, RELIANCE LIQUID PLUS, RELIANCE MONTHLY INTERVAL MUTUAL FUNDS AND SBI LIQUID PLUS FUNDS. WE FIND THAT THESE ARE NOT REALLY INVESTMENT S AND THESE ARE IN FACT PARKING OF SURPLUS FUNDS IN A MORE TAX EFFICIENT MA NNER. HOWEVER, SINCE THESE GIVES RISE TO EXEMPT INCOME IN THE FORM OF DI VIDEND SECTION 14A READ WITH RULE 8D IS APPLICABLE AS HELD BY HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENTS. THE HON'BLE DELHI HIGH COURT HAD HELD AS UNDER:- 24. WE DO NOT AGREE WITH THE SUBMISSION OF THE LEA RNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEES THAT A NARROW MEANING OU GHT TO BE ASCRIBED TO THE EXPRESSION 'IN RELATION TO' APPEARING IN SECTIO N 14A OF THE SAID ACT. THE CONTEXT DOES NOT SUGGEST THAT A NARROW MEANING OUGH T TO BE GIVEN TO THE SAID EXPRESSION. IT IS PERTINENT TO NOTE THAT THE P ROVISION WAS INSERTED BY VIRTUE OF THE FINANCE ACT, 2001 WITH RETROSPECTIVE EFFECT FROM 01/04/1962. IN OTHER WORDS, IT WAS THE INTENTION OF PARLIAMENT THAT IT SHOULD APPEAR IN THE STATUTE BOOK, FROM ITS INCEPTION, THAT EXPENDIT URE INCURRED IN CONNECTION WITH INCOME WHICH DOES NOT FORM PART OF TOTAL INCOM E OUGHT NOT TO BE ALLOWED AS A DEDUCTION. THE FACTUM OF MAKING THE SA ID PROVISION RETROSPECTIVE MAKES IT CLEAR THAT PARLIAMENT WANTED THAT IT SHOULD BE UNDERSTOOD BY ALL THAT FROM THE VERY BEGINNING, SUC H EXPENDITURE WAS NOT ALLOWABLE AS A DEDUCTION. OF COURSE, BY INTRODUCING THE PROVISO IT MADE IT CLEAR THAT THERE WAS NO INTENTION TO REOPEN FINALIZ ED ASSESSMENTS PRIOR TO THE ASSESSMENT YEAR BEGINNING ON 01/04/2001. FURTHE RMORE, AS OBSERVED BY THE SUPREME COURT IN WALFORT (SUPRA), THE BASIC PRI NCIPLE OF TAXATION IS TO ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 7 TAX THE NET INCOME, I.E., GROSS INCOME MINUS THE EX PENDITURE AND ON THE SAME ANALOGY THE EXEMPTION IS ALSO IN RESPECT OF NE T INCOME. IN OTHER WORDS, WHERE THE GROSS INCOME WOULD NOT FORM PART O F TOTAL INCOME, IT'S ASSOCIATED OR RELATED EXPENDITURE WOULD ALSO NOT BE PERMITTED TO BE DEBITED AGAINST OTHER TAXABLE INCOME. 25. WE ARE OF THE VIEW THAT THE EXPRESSION 'IN RELA TION TO' APPEARING IN SECTION 14 A OF THE SAID ACT CANNOT BE ASCRIBED A N ARROW OR CONSTRICTED MEANING. IF WE WERE TO ACCEPT THE SUBMISSION MADE O N BEHALF OF THE ASSESSEES THEN SUB-SECTION (1) WOULD HAVE TO BE REA D AS FOLLOWS:- 'FOR THE PURPOSES OF COMPUTING THE TOTAL INCO ME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED BY THE ASSESSEE WITH THE MAIN OBJECT OF EARNING INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THAT IS CERTAINLY NOT THE PURPORT OF THE SAID PROVISION. THE EXPRESSION IN RELATION TO DOES NOT HAVE ANY EMBEDDED OBJECT. IT SIMPLY MEANS IN CONNECTION WITH OR PERTAINING TO. IF THE EXPENDI TURE IN QUESTION HAS A RELATION OR CONNECTION WITH OR PERTAINS TO EXEMPT I NCOME, IT CANNOT BE ALLOWED AS A DEDUCTION EVEN IF IT OTHERWISE QUALIFI ES UNDER THE OTHER PROVISIONS OF THE SAID ACT. IN WALFORT (SUPRA), THE SUPREME COURT MADE IT VERY CLEAR THAT THE PERMISSIBLE DEDUCTIONS ENUMERAT ED IN SECTIONS 15 TO 59 ARE NOW TO BE ALLOWED ONLY WITH REFERENCE TO INCOME WHICH IS BROUGHT UNDER ONE OF THE HEADS OF INCOME AND IS CHARGEABLE TO TAX. THE SUPREME COURT FURTHER CLARIFIED THAT IF AN INCOME LIKE DIVI DEND INCOME IS NOT PART OF THE TOTAL INCOME, THE EXPENDITURE/DEDUCTION RELATED TO SUCH INCOME, THOUGH OF THE NATURE SPECIFIED IN SECTIONS 15 TO 59, CANNO T BE ALLOWED AGAINST OTHER INCOME WHICH IS INCLUDABLE IN THE TOTAL INCOME FOR THE PURPOSE OF CHARGEABILITY TO TAX. SIMILARLY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. OBSERVED AS UNDER:- IN ORDER TO DETERMINE THE QUANTUM OF THE DIS ALLOWANCE THERE MUST BE A PROXIMATE RELATIONSHIP BETWEEN THE EXPENDITURE AND THE INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. ONCE SUCH A PROXIMAT E RELATIONSHIP EXISTS THE DISALLOWANCE HAS TO BE AFFECTED., ALL EXPENDITURE I NCURRED IN THE EARNING OF INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME HAS TO BE DISALLOWANCE SUBJECT TO COMPLIANCE WITH THE TEST ADOPTED BY SUPR EME COURT IN WALFORT AND IT WOULD NOT BE PERMISSIBLE TO RESTRICT THE PRO VISION OF SECTION 14A BY AN ARTIFICIAL METHOD OF INTERPRETATION. ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 8 HOWEVER, WE FIND THAT THE CALCULATION OF DISALLOWAN CE UNDER RULE 8D(III) MADE BY THE ASSESSING OFFICER AND UPHELD BY LD CIT( A) IS NOT CORRECT IN VIEW OF THE FACT THAT ASSESSING OFFICER HAD INCLUDE D THE VALUE OF TOTAL INVESTMENTS FOR CALCULATION OF DISALLOWANCE WHEREAS IN OUR OPINION THE VALUE OF THOSE INVESTMENTS SHOULD HAVE BEEN INCLUDE D WHICH WERE MADE FOR THE PURPOSE OF EARNING EXEMPT INCOME. THE ASSESSEE HAD MADE SIGNIFICANT INVESTMENTS IN THE SHARES OF SUBSIDIARY COMPANIES W HICH ARE DEFINITELY NOT FOR THE PURPOSE OF EARNING EXEMPT INCOME. THE HON'B LE TRIBUNAL IN I.T.A. NO.3349/DEL/2011 IN THE CASE OF PROMAIN LTD., AFTER RELYING UPON A KOLKATTA JUDGMENT OF TRIBUNAL IN I.T.A. NO.1331 HAS HELD THAT STRATEGIC INVESTMENT HAS TO BE EXCLUDED FOR THE PURPOSE OF AR RIVING AT DISALLOWANCE UNDER RULE 8D(III). THE TRIBUNAL HAD RELIED UPON TH E FINDINGS OF KOLKATTA TRIBUNAL IN THE CASE OF REI AGRO LTD. V. DCIT IN I. T.A. NO./1331/DEL/2011 DATED 29.7.2011. THE RELEVANT PORTION OF TRIBUNAL F INDINGS AS CONTAINED IN THE KOLKATTA TRIBUNAL ARE REPRODUCED BELOW:- (III) FURTHER IN RULE 8D(2)(II), THE WORDS U SED IN NUMERATOR B ARE THE AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT FORM OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN T HE BALANCE SHEET AS ON THE FIRST DAY AND IN THE LAST DAY OF THE PREVIOUS Y EAR. THE ASSESSING OFFICER WAS WRONG IN TAKING INTO CONSIDERATION THE INVESTME NT OF RS.103 CRORES MADE DURING THE YEAR WHICH HAS NOT EARNED ANY DIVID END OR EXEMPT INCOME. IT IS ONLY THE AVERAGE OF THE VALUE OF THE INVESTME NT FROM WHICH THE INCOME HAS BEEN EARNED WHICH IS NOT FALLING WITHIN THE PAR T OF THE TOTAL INCOME THAT IS TO BE CONSIDERED. THUS,. IT IS NOT THE TOTAL INV ESTMENT AT ALL BEGINNING OF THE YEAR AND AT THE END OF THE YEAR, WHICH IS TO BE CONSIDERED BUT IT IS THE AVERAGE OF THE VALUE OF INVESTMENTS WHICH HAS GIVEN RISE TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME WHICH IS TO BE CONSIDERED. THE TERM AVERAGE OF THE VALUE OF INVESTMENT IS USED T O TAKE CARE OF CASES WHERE THERE IS THE ISSUE OF DIVIDEND STRIPING. IV) UNDER RULE 8D(2)(III), WHAT IS DISALLOWAB LE IS AN AMOUNT EQUAL TO PERCENTAGE OF THE AVERAGE VALUE OF INVESTMENT THE I NCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME/. TH US, UNDER SUB CLAUSE (III), WHAT IS DISALLOWED IS PERCENTAGE OF THE NUMERATOR B IN RULE 8D(2)III). THIS HAS TO BE CALCULATED ON THE SAME LINES AS MENT IONED EARLIER IN RESPECT OF NUMERATOR B IN THE RULE 8D(2)(II). THUS, NOT ALL INVESTMENTS BECOME THE SUBJECT MATTER OF CONSIDERATION WHEN COMPUTING DISA LLOWANCE U/S 14A READ WITH RULE 8D. THE DISALLOWANCE U/S 14A READ WITH RU LE 8D IS TO BE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DONE ONLY BY TAKING INTO CONSIDERATION THE I NVESTMENT WHICH HAS GIVEN RISE TO THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. (A.Y.) (I.T.A. NO.1331/KOL/2011 DATED 29.7.2011. ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 9 FOLLOWING THE ABOVE JUDICIAL PRECEDENTS, WE HELD TH AT VALUE OF STRATEGIC INVESTMENTS SHOULD BE EXCLUDED FOR THE PURPOSE OF D ISALLOWANCE UNDER RULE 8D)III) FACTS, WE DIRECT THE ASSESSING OFFICER TO C ALCULATE THE DISALLOWANCE UNDER RULE8D(III) BY EXCLUDING THE VALUE OF STRATEG IC INVESTMENTS IN THE CALCULATION OF DISALLOWANCE. AS REGARDS DISALLOWANC E UNDER RULE 8D(I) AND 8D(II) WE HAVE ALREADY HELD THAT NO DISALLOWANCE IS WARRANTED. 2.5. WE HOLD THAT THE LEARNED AO WITHOUT APPRECIAT ING THE VARIOUS CONTENTIONS RAISED BY THE ASSESSEE HAD MECHANICALLY APPLIED THE PROVIS IONS OF RULE 8D(2)(II) OF THE IT RULES WITHOUT RECORDING HIS SATISFACTION IN TERMS OF RULE 8D(1) OF IT RULES AS TO WHY THE DISALLOWANCE MADE VOLUNTARILY BY THE ASSESSEE U /S 14A OF THE ACT IS INCORRECT. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD VOLUNTARILY DISALLOWED A SUM OF RS. 1,37,12,550/- U/S 14A OF THE ACT TOWARDS 0.5% OF AV ERAGE VALUE OF INVESTMENTS APPLYING THE THIRD LIMB OF RULE 8D(2) OF THE IT RUL ES. THE LANGUAGE OF RULE 8D(1) IS VERY CLEAR IN THIS REGARD. WE PLACE RELIANCE ON T HE FOLLOWING DECISIONS IN THIS REGARD:- (A) DECISION OF THE CO-ORDINATE BENCH OF MUMBAI TRI BUNAL IN THE CASE OF FALI S NARIMAN VS ADDL. CIT REPORTED IN (2015) 56 TAXMAN N.COM 155 (MUMBAI TRIB) DATED 30.1.2015, WHEREIN IT WAS HELD THAT : 4. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD. WE ARE WHOLLY UNIMPRESSED WITH THE ASSESSEES ARGUMENT SUP PORTING HIS WORKING OF THE EXPENDITURE RELATABLE TO INCOME NOT FORMING PAR T OF TOTAL INCOME UNDER THE ACT ON THE GROUND THAT MIND IS HIS PRINCIPAL ASSET. SO BE IT; EVERY ECONOMIC ACTIVITY, PARTICULARLY IN TODAYS EXTREMEL Y COMPETITIVE ENVIRONMENT, ENTAILS SOME DEGREE OF CEREBRAL ACTIVI TY. THERE IS, HOWEVER, NO CORRESPONDING EXPENDITURE, OR CLAIM IN ITS RESPE CT, WHILE THE ISSUE AT HAND IS THE APPORTIONMENT OF SUCH EXPENDITURE. INC OME, WHICH MAY OR MAY NOT ARISE ON INCURRING EXPENDITURE, AND AGAIN WITH NO CERTAINTY AS TO ITS QUANTUM, CANNOT BY ITSELF FORM THE BASIS OF EITHER INCURRING OR ALLOCATION OF EXPENDITURE. SO HOWEVER, WE CONSIDER THE REVENUES READING OF R. 8D AS EQUALLY MISPLACED. THE ESTIMATE PER R. 8D(2) IS ONLY QUA EXPENDITURE RELATABLE TO TAX EXEMPT INCOME/S. THE EXPENDITURE CLAIMED STAND S DEBITED IN THE ASSESSEES ACCOUNTS, WHICH COULD BE INQUIRED INTO A S TO THEIR PURPOSE. FOR ALL WE KNOW, THE ASSESSEE MAY BE MANAGING HIS INVES TMENTS IN INSTRUMENTS ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 10 YIELDING TAX EXEMPT INCOMES, WHICH ARE AT A HEALTHY SUM OF RS. 21.71 CR. I.E ON AN AVERAGE FOR THE YEAR, ON HIS OWN, OR COULD AL SO BE ASSISTED BY PERSONNEL, WHO STAND REMUNERATED. NO INQUIRY IN TH IS REGARD STANDS MADE, WHILE THE ASSESSEE HAS MAINTAINED PROPER ACCOUNTS, DULY AUDITED AND, FURTHER, BASES HIS CLAIM OF HAVING INCURRED A LOWER EXPENDITURE THAN THAT PER THE STATUTORY PRESCRIPTION OF R. 8D, THEREON. THE EXPENDITURE OBSERVED AS RELATABLE TO THE INCOME NOT FORMING PART OF THE TOTAL INCOME BY THE REVENUE ARE : SALARY (RS. 3.54 LACS); PRINTING AND STATIONERY (RS. 0.11 LACS); AND BANK CHARGES (RS. 0.10 LACS), WITHOUT S PECIFYING THE RELATIONSHIP, SO THAT THE SAME IS INFERABLY CASUAL. EVEN THE CLAIM OF DEPRECIATION (RS. 7.26 LACS) WE OBSERVE AS PRINCIPA LLY ON LAW BOOKS. THE INGREDIENTS OF S. 14A(2) R/W R.8D(1) ARE CLEARL Y NOT SATISFIED IN THE INSTANT CASE. WE ACCORDINGLY FIND NO INFIRMITY IN THE ASSESSEES CLAIM OF DISALLOWANCE U/S 14A(1) AT RS. 1,00,000/- . WE DEC IDE ACCORDINGLY. ' (B) DECISION OF THE CO-ORDINATE BENCH OF KOLKATA TR IBUNAL IN THE CASE OF REI AGRO LTD , KOLKATA VS DCIT IN ITA NO. 1331 / KOL / 2011 DATED 19.6.2013 REPORTED IN (2013) 35 TAXMANN.COM 404 (KOLKATA-TRIB .) WHEREIN IT WAS HELD THAT : 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE PROVISIONS OF SECTION 14A, MORE SPECIFICALLY SU B-SECTION (2), SHOWS THAT IF THE AO IS NOT SATISFIED WITH THE CORR ECTNESS OF THE CLAIM OF THE ASSESSEE, THEN THE AO SHALL DETERMINE THE A MOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME, WH ICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT. FOR THIS T HE METHOD IS PRESCRIBED IN RULE 8D. THE PROVISION OF SECTION 14A , SUB-SECTION (3) SPECIFIES THE PROVISION OF 14A(2) WOULD ALSO APPLY WHERE THE ASSESSEE MAKES A CLAIM THAT THERE IS NO EXPENDITURE INCURRED. THIS IS BECAUSE IF THE ASSESSEE DOES NOT MAKE A DISALLOWANC E UNDER SECTION 14A IN ITS COMPUTATION OF TOTAL INCOME, WHEN FILING THE RETURN, THEN IF SUBSECTION (3) WAS NOT AVAILABLE, THE AO MIGHT NOT BE ABLE TO MAKE A DISALLOWANCE UNDER SECTION 14A. THUS, WHERE THE ASS ESSEE MAKES A CLAIM THAT ONLY A PARTICULAR AMOUNT IS TO BE DISALL OWED UNDER SECTION 14A OR WHERE THE ASSESSEE DOES NOT MAKE A D ISALLOWANCE UNDER SECTION 14A, IF THE AO PROPOSES TO INVOKE THE SECTION 14A, HE IS TO RECORD A SATISFACTION ON THAT ISSUE. THIS SAT ISFACTION CANNOT BE A PLAIN SATISFACTION OR A SIMPLE NOTE. IT IS TO BE DO NE WITH REGARD TO ACCOUNTS OF THE ASSESSEE. IN THE PRESENT CASE, THER E IS NO SATISFACTION BY THE AO AND CONSEQUENTLY, IN VIEW OF THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF BA LARAMPUR CHINI ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 11 MILLS LTD. REFERRED TO SUPRA, NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE. 7. NOW COMING TO THE MERITS OF THE ISSUE. A PERUS AL OF THE PROVISION OF SECTION 14A(1) CLEARLY SHOWS THE WORDINGS, IN R ELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. IN THE PRESENT CASE, THIS INCOME, WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THE ACT, IS THE DIVIDEND INCOME OF RS.1,32,638/-. THEREFORE, IF ANY DISALLOWANCE IS TO BE MADE IN RES PECT OF EXPENDITURE INCURRED, IT SHOULD BE IN RELATION TO T HIS DIVIDEND INCOME OF RS.1,32,638/-. IF AN ASSESSEE HAS INVESTED IN SH ARES, WHICH COULD GET DIVIDEND OR THERE IS INVESTMENT WHICH GENERATES DIVIDEND INCOME OR EXEMPT INCOME AS ALSO INVESTMENT WHICH DOES NOT GENERATE EXEMPT INCOME, IT IS ONLY SUCH INVESTMENTS IN RESPE CT OF WHICH THE DIVIDEND INCOME OR EXEMPTED INCOME HAS BEEN EARNED WHICH CAN BE CONSIDERED WHEN COMPUTING THE DISALLOWANCE UNDER SE CTION 14A READ WITH RULE 8D. A PERUSAL OF THE PROVISIONS OF RULE 8D ALSO TALKS OF SATISFACTION IN SUB-RULE (1). RULE 8D(2) HAS THR EE SUB-PARTS. THE FIRST SUB-PART I.E. (I) DEALS WITH THE AMOUNT OF EX PENDITURE DIRECTLY RELATING TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THAT ISSUE IS NOT IN DISPUTE HERE AND THEREFORE, WE DO NOT GO INTO IT IN THIS CASE. IN SECOND SUB-PART I.E.(II), IT IS A COM PUTATION PROVIDED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTR IBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. THIS CLEARLY MEANS TH AT IF THERE IS ANY INTEREST EXPENDITURE, WHICH IS DIRECTLY RELATABLE T O ANY PARTICULAR INCOME OR RECEIPT, SUCH INTEREST EXPENDITURE IS NOT TO BE CONSIDERED UNDER RULE 8D(2)(II). IN THE ASSESSEES CASE HERE T HE INTEREST HAS BEEN PAID BY THE ASSESSEE ON THE LOANS TAKEN FROM T HE BANKS FOR ITS BUSINESS PURPOSE. THERE IS NO ALLEGATION FROM THE B ANKS NOR THE AO THAT THE LOAN FUNDS HAVE BEEN DIVERTED FOR MAKING T HE INVESTMENT IN SHARES OR FOR NON-BUSINESS PURPOSES. FURTHER RULE 8 D(2)(II) CLEARLY IS WORDED IN THE NEGATIVE WITH THE WORDS NOT DIREC TLY ATTRIBUTABLE. THUS FOR BRINGING ANY INTEREST EXPENDITURE, CLAIMED BY THE ASSESSEE, UNDER THE AMBIT OF RULE 8D(2)(II) IT WILL HAVE TO B E SHOWN BY THE AO THAT THE SAID INTEREST IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. WHY WE SAY HERE THAT IT IS TO BE SHOWN BY THE AO IS ON ACCOUNT OF THE WORDS IN RULE 8D(1) BEING WHE RE THE ASSESSING OFFICER, IS NOT SATISFIED WITH. (A) .. (B) .. ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 12 IN RELATION TO INCOME., HE SHALL DETERMINE THE AM OUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANC E WITH THE PROVISIONS OF SUB-RULE (2). IN THE ASSESSEES CASE, ADMITTEDLY, THE ASSESSEE HA S SUBSTANTIAL CAPITAL. THE INCREASE IN THE CAPITAL ITSELF IS TO A N EXTENT OF RS.4 CRORES AND IN RESPECT OF RESERVES AND SURPLUS, THE INCREASE IS RS.112 CRORES. THE LOANS TAKEN DURING THE YEAR ADMITTEDLY ARE FOR THE LETTER S OF CREDIT AND THE ASSESSEE IS BOUND TO PROVIDE THE BANK STOCK STATEM ENT AND OTHER DETAILS TO SHOW THE UTILIZATION OF THE LOANS. NO BANK WOULD PE RMIT THE LOAN GIVEN FOR ONE PURPOSE TO BE USED FOR MAKING ANY INVESTMENT IN SHARES. THE LD. CIT(A), IT IS NOTICED THAT AFTER CONSIDERING THESE FACTS THAT THE ASSESSEE HAD NOT USED ANY OF ITS BORROWINGS FOR PURCHASING THE S HARES, HAS DELETED THE DISALLOWANCE. ON THIS GROUND ITSELF, THE DELETION A S MADE BY THE LD. CIT(A) IS LIABLE TO BE CONFIRMED AND WE DO SO. (C ) DECISION OF HONBLE DELHI HIGH COURT IN THE CA SE OF JOINT INVESTMENTS (P) LTD VS CIT REPORTED IN 372 ITR 694 (DELHI), WHEREIN IT WAS HELD THAT : 9. IN THE PRESENT CASE, THE AO HAS NOT FIRSTLY DI SCLOSED WHY THE APPELLANT/ASSESSEES CLAIM FOR ATTRIBUTING `2,97,44 0/- AS A DISALLOWANCE UNDER SECTION 14A HAD TO BE REJECTED. TAIKISHA SAY S THAT THE JURISDICTION TO PROCEED FURTHER AND DETERMINE AMOUN TS IS DERIVED AFTER EXAMINATION OF THE ACCOUNTS AND REJECTION IF ANY OF THE ASSESSEES CLAIM OR EXPLANATION. THE SECOND ASPECT IS THERE APPEARS TO HAVE BEEN NO SCRUTINY OF THE ACCOUNTS BY THE AO - AN ASPECT WHIC H IS COMPLETELY UNNOTICED BY THE CIT (A) AND THE ITAT. THE THIRD, A ND IN THE OPINION OF THIS COURT, IMPORTANT ANOMALY WHICH WE CANNOT BE UN MINDFUL IS THAT WHEREAS THE ENTIRE TAX EXEMPT INCOME IS `48,90,000/ -, THE DISALLOWANCE ULTIMATELY DIRECTED WORKS OUT TO NEARLY 110% OF THA T SUM, I.E., `52,56,197/-. BY NO STRETCH OF IMAGINATION CAN SECT ION 14A OR RULE 8D BE INTERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EX EMPT INCOME IS TO BE DISALLOWED. THE WINDOW FOR DISALLOWANCE IS INDICATE D IN SECTION 14A, AND IS ONLY TO THE EXTENT OF DISALLOWING EXPENDITUR E INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME. THI S PROPORTION OR PORTION OF THE TAX EXEMPT INCOME SURELY CANNOT SWAL LOW THE ENTIRE AMOUNT AS HAS HAPPENED IN THIS CASE. IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES A ND RESPECTFULLY FOLLOWING THE VARIOUS JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE , WE HOLD THAT THE ADDITION U/S 14A ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 13 OF THE ACT DELETED BY THE LEARNED CITA DOES NOT REQ UIRE ANY INTERFERENCE. ACCORDINGLY, THE GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 3. THE SECOND ISSUE TO BE DECIDED IN THIS APPEAL I S AS TO WHETHER THE ASSESSEE IS ENTITLED FOR REDUCTION OF RS. 2,18,09,000/- BEING T HE LOWER OF UNABSORBED DEPRECIATION OR BUSINESS LOSS AS PER BOOKS OF ACCOUNTS FROM THE COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT IN THE FACTS OF THE CASE. 3.1. THE LEARNED AO HELD THAT THERE WAS NO LOSS AV AILABLE FOR REDUCTION FROM THE BOOK PROFITS U/S 115JB OF THE ACT AND HENCE THE SUM OF R S. 2,18,0,9000/- REDUCED BY THE ASSESSEE WAS NOT CONSIDERED FOR REDUCTION BY THE LE ARNED AO. ON FIRST APPEAL, THE SAID REDUCTION WAS GRANTED BY THE LEARNED CITA BY R ELYING ON CERTAIN CASE LAWS. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON TH E FOLLOWING GROUND:- (II) THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL A S IN FACTS AND CIRCUMSTANCES OF THE CASE IN DIRECTING TO REDUCE TH E BOOK PROFIT U/S 115JB BY AN AMOUNT OF RS.2,18,09,000/- WHEN THE ADMISSIBL E AMOUNT, I.E., LOWER OF 'UNABSORBED DEPRECIATION' OR 'BUSINESS LOSS' WAS AC TUALLY 'NIL', 3.2. THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED AO. IN RESPONSE TO THIS, THE LEARNED AR ARGUED THAT THE FINDING GIV EN BY THE LEARNED AO THAT THE LOSS AS PER BOOKS OF ACCOUNTS ONCE REDUCED FROM BOOK PRO FITS IN EARLIER YEARS WOULD NOT BE AVAILABLE FOR REDUCTION IN THE SUBSEQUENT YEARS. H E STATED THAT THE LOSSES WOULD CONTINUE TO REMAIN IN THE BOOKS OF ACCOUNTS TILL IT IS WIPED OUT BY PROFITS DERIVED BY THE ASSESSEE. ACCORDINGLY, HE ARGUED THAT THE ASSESSEE COMPANY IS VERY MUCH ENTITLED FOR REDUCTION OF LEAST OF THE CASH LOSS OR DEPRECIATION LOSS AS PER BOOKS OF ACCOUNTS FROM BOOK PROFITS FOR COMPUTATION U/S 115JB OF THE ACT. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. WE ARE IN AGREEMENT WITH THE ARGUMENTS OF THE LEARNED AR THAT THE LOSSES ( BOTH CASH LOSS AND DEPRECIATION LOSS) WOULD CONTINU E TO REMAIN IN THE BOOKS OF ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 14 ACCOUNTS TILL IT IS WIPED OFF BY EARNING PROFITS BY THE ASSESSEE COMPANY AND ACCORDINGLY THE SAME WOULD BE AVAILABLE FOR REDUCTI ON FROM BOOK PROFITS U/S 115JB OF THE ACT. WE HOLD THAT THE LEAST OF THE CASH LOSS OR DEPRECIATION LOSS ONCE ADJUSTED / REDUCED FROM BOOK PROFITS IN EARLIER ASSESSMENT YEA RS, DO NOT VANISH OUT OF THE BOOKS UNTIL IT IS WIPED OUT BY PROFITS IN SUBSEQUENT YEAR S. TILL SUCH TIME, THE LOSSES WOULD ONLY CONTINUE TO REMAIN IN THE BOOKS. WE HOLD THAT FOR THE PURPOSE OF COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT, EVERY YEAR THE S ITUATION OF LEAST OF CASH LOSS AND DEPRECIATION LOSS NEEDS TO BE WORKED OUT AND REVIEW ED AND ACCORDINGLY THE UNDERSTANDING OF THE LEARNED AO THAT SUCH LOSS ONCE ADJUSTED IN EARLIER YEAR IS NO LONGER AVAILABLE FOR SET OFF IS MISCONCEIVED. HEN CE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) IN THIS REGARD. THE GR OUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 4. THE LAST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER, THE FORFEITURE OF SHARE WARRANTS AMOUNTING TO RS. 12,65,75,000/-, BEING A C APITAL RECEIPT, WOULD BE LIABLE FOR TAXATION U/S 115JB OF THE ACT JUST BECAUSE IT HAS B EEN CREDITED IN THE PROFIT AND LOSS ACCOUNT AS AN EXTRAORDINARY ITEM, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4.1. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE AS SESSEE FILED ITS ORIGINAL RETURN OF INCOME ON 30.9.2009 DISCLOSING TOTAL INCOME AT RS NIL UNDE R NORMAL PROVISIONS OF THE ACT AND DECLARING BOOK PROFITS U/S 115JB OF THE ACT AT RS. 21,24,72,340/-. LATER THE ASSESSEE FILED REVISED RETURN OF INCOME ON 31.3.2011 DISCLOS ING TOTAL INCOME AT RS. NIL UNDER NORMAL PROVISIONS OF THE ACT AND DECLARING BOOK PRO FITS U/S 115JB OF THE ACT AT RS. 33,90,47,340/-. IN THE SAID REVISED COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT, AN EXTRAORDINARY ITEM OF RECEIPT TO THE TUNE OF RS. 12,65,75,000/- REPRESENTING FORFEITURE OF SHARE WARRANTS WAS INCLUDED BY THE AS SESSEE. LATER THE ASSESSEE VIDE LETTER DATED 27.12.2011 AT ASSESSMENT STAGE STATED THAT THE SAID EXTRAORDINARY RECEIPT OF RS. 12,65,75,000/- WAS ERRONEOUSLY INCLUDED IN THE COMPUTATION OF BOOK PROFITS REPORTED IN THE REVISED RETURN AND PLEADED FOR EXCL USION OF THE SAME ON THE GROUND THAT ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 15 IT IS CAPITAL RECEIPT. HOWEVER, THE LEARNED AO CON SIDERED THE BOOK PROFITS AT RS. 33,90,47,340/- AS PER THE REVISED RETURN OF THE ASS ESSEE AND PROCEEDED WITH THE ASSESSMENT BY RELYING ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF APOLLO TYRES LTD REPORTED IN 255 ITR 273 (SC) AND A LSO THE PROVISIONS OF SECTION 115JB WHICH STATED THAT THE PROFIT AND LOSS ACCOUNT (A) SHALL BE MADE OUT SO AS CLEARLY TO DISCLOSE THE RESULT OF THE WORKING OF THE COMPAN Y DURING THE PERIOD COVERED BY THE ACCOUNT AND (B) SHALL DISCLOSE EVERY MATERIAL FEATU RE, INCLUDING CREDITS OR RECEIPTS AND DEBITS OR EXPENSES IN RESPECT OF NON-RECURRING TRAN SACTIONS OR TRANSACTIONS OF AN EXCEPTIONAL NATURE. BEFORE THE LEARNED CIT(A), THE ASSESSEE PLEADED THAT THE LEARNED AO HAD NOT DISPUTED THE FACT THAT THE ACCOUNTS HAVE BEEN PREPARED IN ACCORDANCE WITH THE PROVISIONS OF COMPANIES ACT, 1956 AND THE PROVI SIONS OF COMPANIES ACT MANDATES THE SUBJECT MENTIONED RECEIPT OF FORFEITURE OF SHAR E WARRANTS AMOUNTING TO RS. 12,65,75,000/- TO BE ROUTED THROUGH PROFIT AND LOSS ACCOUNT AS AN EXTRAORDINARY ITEM. IT WAS FURTHER ARGUED BEFORE THE LEARNED CIT(A) BY THE ASSESSEE THAT THE LEARNED AO HAD RIGHTLY NOT TAXED THE SAID RECEIPT OF RS. 12,6 5,75,000/- AS INCOME UNDER THE NORMAL PROVISIONS OF THE ACT DESPITE THE FACT THAT THE SAME IS CREDITED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE. IT WAS FURTHER PLEAD ED BEFORE THE LEARNED CIT(A) THAT THE SAID RECEIPT WAS NOT TAXED BY THE LEARNED AO UNDER NORMAL PROVISIONS OF THE ACT ON THE REASON THAT IT IS ONLY A CAPITAL RECEIPT AND FU RTHER ON THE REASONING THAT WHAT IS NOT TAXABLE AS PER LAW CANNOT BE TAXED BY THE LEARNED A O JUST BECAUSE THE SAME IS OFFERED ERRONEOUSLY BY THE ASSESSEE. THE LEARNED CIT(A) A PPRECIATED THE CONTENTIONS OF THE ASSESSEE IN THIS REGARD AND DIRECTED THE LEARNED AO TO START THE BOOK PROFITS COMPUTATION AS PER ORIGINAL RETURN OF INCOME FILED BY THE ASSESSEE. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GRO UND :- (III) THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN DIRECTING TO TREAT THE NET PROFIT AT RS.21 ,24,72,340/- FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT INSTEAD OF RS.33,90,47,340/- OFFERED BY THE ASSESSEE IN ITS RE VISED RETURN OF INCOME; ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 16 4.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK CONTAINING THE AUDITED FINANCIAL STATEMENTS TOGETHER WITH NOTES ON ACCOUNTS THEREON FOR THE YEA R ENDED 31.3.2009, COPY OF RETURN ACKNOWLEDGEMENTS (BOTH ORIGINAL AND REVISED RETURNS ), AMONG OTHERS. AT THE OUTSET, WE FIND FROM NOTE NO. 6 TO SCHEDULE 11 OF THE FINAN CIAL STATEMENTS FOR THE YEAR ENDED 31.3.2009, THE ASSESSEE HAD STATED AS BELOW:- 6. AS PER RESOLUTION PASSED BY THE MEMBERS AT THE E XTRA ORDINARY GENERAL MEETING HELD ON 15 TH FEBRUARY, 2008, THE COMPANY HAD ALLOTTED 50,00,000 WARRANTS ON 18 TH MARCH , 2008 TO M/S K.B.VYAPAR PVT LTD ., A PROMOT ER GROUP COMPANY, CONVERTIBLE INTO EQUAL NUMBER OF EQU ITY SHARES WITHIN 18 MONTHS AT A PRICE OF RS. 253.15 PER SHARE AS PER SE BI GUIDELINES. THE COMPANY HAD RECEIVED 10% AS UPFRONT DEPOSIT AMOUNTI NG TO RS. 1265.75 LAKHS WHICH WAS SHOWN AS SHARE CAPITAL SUSPENSE ( REFER SCHEDULE 1A). VIDE LETTER DATED 28 TH JANUARY, 2009, M/S K.B.VYAPAR PRIVATE LIMITED HAD EXPRESSED ITS UNWILLINGNESS TO ACQUIRE THE EQUITY S HARES AGAINST WHICH IT HAD DEPOSITED RS. 1265.75 LAKHS AS UPFRONT DEPOSIT AND HAD REQUESTED THE COMPANY TO TREAT THE SAID CONVERTIBLE WARRANTS AS C ANCELLED IN ACCORDANCE WITH THE SEBI (DIP) GUIDELINES, 2000. ACCORDINGLY, THE FORFEITED WARRANTS WERE CANCELLED AND THE AMOUNT OF UPFRONT DEPOSIT OF RS. 1265.75 LAKHS HAS BEEN FORFE ITED AND CREDITED TO PROFIT AND LOSS ACCOUNT AS AN EXTRAORDINARY INCOME. 4.3. IT IS NOT IN DISPUTE BEFORE US THAT THE SUBJE CT MENTIONED RECEIPT OF RS. 12,65,75,000/- REPRESENTING FORFEITURE OF SHARE WAR RANTS IS ONLY A CAPITAL RECEIPT BY ITS NATURE NOT CHARGEABLE TO TAX. HOWEVER, THE SAME HA S BEEN DULY CREDITED IN THE PROFIT AND LOSS ACCOUNT AS AN EXTRAORDINARY ITEM AND THE S AID PROFITS AFTER SUCH EXTRAORDINARY ITEMS HAS BEEN APPROVED BY THE SHAREHOLDERS IN THE ANNUAL GENERAL MEETING OF THE ASSESSEE COMPANY. 4.3.1. THE LEARNED AR SUBMITTED BEFORE US THAT THE BASIC INTENTION BEHIND INTRODUCTION OF THE PROVISIONS OF SECTION 115J OF T HE ACT HAS BEEN EXPLAINED BY THE ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 17 HONBLE KERALA HIGH COURT . THE CONSTITUTIONAL VAL IDITY OF THE PROVISIONS OF SECTION 115J OF THE ACT WAS TESTED BY THE HONBLE KERALA HIGH COURT IN THE CASE OF KARIMTHARUVI TEA ESTATES LTD AND ANOTHER VS DCIT AN D OTHERS REPORTED IN 247 ITR 22 (KER) , WHEREIN IT WAS HELD THAT :- THE OBJECT OF THE INSERTION OF SECTION 115J OF THE INCOME TAX ACT, 1961, WAS TO ENSURE LEVY OF MINIMUM TAX ON WHAT ARE KNOWN AS PROSPEROUS ZERO TAX COMPANIES. UNDER THE SCHEME OF THE SECTION, WHERE THE TOTAL INCOME OF COMPANIES AS COMPUTED UNDER THE PROVISIONS OF THE I NCOME TAX ACT, IN RESPECT OF THE PREVIOUS YEAR RELEVANT TO THE ASSESS MENT YEAR IS LESS THAN 30 PERCENT OF THEIR BOOK PROFITS, THE TOTAL ICNOME OF SUCH COMPANIES CHARGEABLE TO INCOME TAX FOR THE RELEVANT PREVIOUS YEAR IS TREATED AS INCOME EQUAL TO 30 PERCENT OF SUCH BOOK PROFITS AND IS TAXED ACCORDINGLY. IT ALSO PROVIDES FOR CERTAIN ADJUSTMENTS BY WAY OF ADDING AMOUNTS AND GRANTING DEDUCTIONS FOR COMPUTING THE CHARGEABLE IN COME UNDER SECTION 115J(1) . SUB-SECTION (2) PROVIDES THAT DETERMINAT ION OF THE AMOUNTS IN RELATION TO THE RELEVANT PREVIOUS YEAR TO BE CARRIE D FORWARD TO THE SUBSEQUENT YEAR OR YEARS WILL HAVE TO BE MADE UNAFF ECTED BY THE PROVISIONS IN SUB-SECTION(1) OF SECTION 115J. THE VERY OBJECT OF THE PROVISIONS OF SECTION 115J IS TO TAX SUCH COMPANIES WHICH ARE MAK ING HUGE PROFITS AND ALSO DECLARING SUBSTANTIAL DIVIDENDS, BUT ARE MANAG ING THEIR AFFAIRS IN SUCH A WAY AS TO AVOID PAYMENT OF INCOME TAX, AS A RESUL T OF VARIOUS TAX CONCESSIONS AND INCENTIVES AND FOR THAT PURPOSE, TH E TAXABLE INCOME IS DETERMINED UNDER SUB-SECTION (1) OF SECTION 115J. AN ASSESSEE IS ENABLED TO CLAIM CARRY FORWARD AND SET OFF OF LOSSES , UNAB SORBED ALLOWANCE IN VIEW OF THE SPECIFIC PROVISIONS OF THE INCOME TAX ACT EN ABLING AN ASSESSEE TO CLAIM THEM. BUT BECAUSE OF THIS PROVISION A COMPAN Y WILL HAVE TO PAY TAX ON AT LEAST 30 PERCENT OF ITS BOOK PROFIT. THEREFO RE, WHAT IS TAXED IS NOT FICTIONAL OR HYPOTHETICAL INCOME. UNDER LAW, THOUG HT IT IS PERMISSIBLE TO BRING TO TAX HYPOTHETICAL INCOME, WHAT IS REALLY DO NE UNDER SECTION 115J IS NOT EXACTLY BRINGING TO TAX HYPOTHETICAL INCOME. W HAT IS REALLY DONE IS TO LIMIT OR RESTRICT OR CURTAIL DEDUCTION, CARRY FORWA RD AND SET OFF OF LOSSES, UNABSORBED DEPRECIATION, UNABSORBED ALLOWANCE, ETC. , ETC. ORDINARILY, THESE DEDUCTIONS ARE PERMISSIBLE IN VIEW OF THE PRO VISIONS INTRODUCED IN THE STATUTE BY PARLIAMENT AND PARLIAMENT IS EQUALLY COM PETENT TO TAKE AWAY OR RESTRICT OR LIMIT SUCH ALLOWANCES FOR A DEFINITE PU RPOSE. VARIOUS CONCESSIONS AND ALLOWANCES ARE GIVEN AS PER VARIOUS PROVISIONS ENABLING THE COMPANIES TO ARRANGE THEIR TAX AFFAIRS IN SUCH A WAY AS TO BECOME ZERO TAX COMPANIES AND THE LEGISLATURE BY THIS SECTION ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 18 RESTRICTED OR CURTAILED OR LIMITED SUCH CONCESSIONS TO THE EXTENT AS PROVIDED IN SECTION 115J SO THAT THEY CAN PAY SOME TAX . THIS IS NOT UNREASONABLE SO AS TO MAKE IT VIOLATIVE OF ARTICLE 14 OR 19 OF THE CONSTITUTION OF INDIA. WHAT IS DONE BY THE LEGISLATURE IS TO LIMIT THE ALLOWANC ES AND NOTHING ELSE. THE LEARNED AR SUBMITTED THAT THE ABOVE PRINCIPLE W OULD APPLY WITH EQUAL FORCE FOR COMPANIES FALLING UNDER THE AMBIT OF PROVISIONS OF SECTION 115JA / 115JB OF THE ACT AS THE CASE MAY BE. 4.3.2. IT WAS FURTHER CONTENDED BY HIM THAT THE RU LE OF PURPOSIVE CONSTRUCTION TO BE FOLLOWED. HE POINTED OUT THAT THE FACTS IN THE INS TANT CASE WAS THAT THE ASSESSEE ISSUED SHARE WARRANTS FOR WHICH PAYMENTS WERE RECEIVED BY IT IN SEVERAL PHASES. THE APPLICANT REFUSED TO PAY THE INSTALMENTS AS AGREED UPON AND ACCORDINGLY THE ASSESSEE COMPANY CHOSE TO FORFEIT THE AMOUNTS ALREADY PAID B Y HIM. THE ASSESSEE HAD CREDITED THE SAME IN ITS PROFIT AND LOSS ACCOUNT AS AN EXTRA ORDINARY ITEM AND DERIVED THE CURRENT YEAR PROFITS UNDER THE COMPANIES ACT. THE ASSESSE E SOUGHT TO REDUCE THE SAME FROM THE COMPUTATION OF BOOK PROFITS U/S 115JB OF THE AC T AS THE SAME IS NOT THE REAL PROFIT OF THE ASSESSEE. ACCORDING TO HIM, WHAT IS TO BE SE EN IS THAT WHETHER THE FORFEITURE OF SHARE WARRANTS AMOUNTING TO RS. 12,65,75,000/- WOUL D ENTER THE STREAM OF INCOME DEFINITION WHICH IS AN INCLUSIVE DEFINITION U/S 2(2 4) OF THE ACT. ACCORDING TO HIM WHEN IT IS NOT DISPUTED THAT FORFEITURE OF SHARE WA RRANTS IS A CAPITAL RECEIPT AND CANNOT BE SUBJECTED TO TAX AND THERE IS NO PROVISION TO TA X THE SAME UNDER THE PROVISIONS OF THE ACT, IT WOULD BE JUST AND FAIR TO HOLD THAT WHAT IS NOT INCOME AS PER THE DEFINITION OF THE WORD INCOME IN THE ACT CANNOT BE BROUGHT TO TAX UND ER ANY OTHER PROVISION OF THE ACT. IN THIS REGARD, HE DREW OUR ATTENTION FROM THE DECI SION OF CO-ORDINATE BENCH OF DELHI TRIBUNAL IN THE CASE OF VASUNDHARA LPG (P) LTD VS I TO REPORTED IN (2005) 146 TAXMAN 23 (DELHI) (MAG.) DATED 8.4.2004 WHEREIN IT WAS HELD THAT : IT IS AN ELEMENTARY PRINCIPLE OF INTERPRETATION OF STATUTES THAT STATUTE SHOULD BE GIVEN WHAT HAS COME TO BE KNOWN AS PURPOSIVE CON STRUCTION , I.E., THE COURT SHOULD IDENTIFY THE MISCHIEF WHICH EXISTED BE FORE PASSING OF THE ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 19 STATUTE AND THEN PROCEEDED TO INTERPRET THE STATUTE SO AS TO SUPPRESS THE MISCHIEF AND ADVANCE THE REMEDY. THERE IS NO DOUBT ING THE VIEW THAT SUBTLE INVENTIONS AND DEVICES RESORTED TO BY ANY PERSON FO R CONTINUANCE OF THE MISCHIEF SHOULD BE SUPPRESSED. HOWEVER, THE PROPOSI TION CANNOT BE EXTENDED BEYOND THE INTENDED PURPOSE AND OBJECT OF THE LAW MAKERS AND CAUSE HARDSHIP, SERIOUS INCONVENIENCE, INJUSTICE AN D ABSURDITY . REFERENCE WAS ALSO MADE TO THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF SAIL DSP VR EMPLOYEES ASSOCIATION 1998 VS UNION OF INDIA AND OTHERS REPORTED IN 262 ITR 638 (CAL) , WHEREIN THE HONBLE CALCUTTA HIGH COURT AFTER PLACING RELIANCE ON THE TWO APEX COURT DECISIONS IN (1988) 170 ITR 137 (SC) AND (1981) 131 ITR 597 (SC) HAD HELD THAT :- IF A PLAIN LITERAL INTERPRETATION OF STATUTORY PROV ISION PRODUCES A MANIFESTLY ABSURD AND UNJUST RESULT, WHICH THE LEGISLATURE COU LD NOT HAVE INTENDED, THE COURT IS SUPPOSED TO MODIFY THE LANGUAGE USED B Y THE LEGISLATURE, EVEN TO DO SOME VIOLENCE TO IT SO AS TO ACHIEVE THE OBVI OUS INTENTION OF THE LEGISLATURE AND PRODUCE A RATIONAL CONSTRUCTION. A N EXPRESSION USED IN THE STATUTE IS NOT ALWAYS TO BE INTERPRETED LITERALLY O R GRAMMATICALLY. SOMETIMES IT HAS TO BE INTERPRETED HAVING REGARD TO THE CONTEXT IN WHICH THE EXPRESSION IS USED AND HAVING REGARD TO THE OBJECT AND PURPOSE FOR WHICH THE SAME IS ENACTED. ACCORDING TO HIM THEREFORE THE INTENTION OF SECTION 115J AND THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE ACT AND GIVING PUR POSIVE CONSTRUCTION TO THE SAME, IT COULD BE SAFELY CONCLUDED THAT THE LEGISLA TURE NEVER INTENDED TO BRING TO TAX SUCH RECEIPT WHICH OTHERWISE IS NOT TAXABLE UND ER THE PROVISIONS OF THE ACT. IT ONLY INTENDED TO BRING TO TAX ZERO TAX COMPANIES PA Y SOME TAX DUE TO AVAILING OF VARIOUS CONCESSIONS AND INCENTIVES WHICH ARE PROVID ED IN THE STATUTE. HENCE THE RULE OF PURPOSIVE CONSTRUCTION SHOULD BE GIVEN TO T HE INTENTION BEHIND INTRODUCTION OF PROVISIONS OF SECTION 115J / 115JA / 115JB OF THE ACT SO THAT IT DOESNT GETS DEFEATED. ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 20 4.4. IT WAS SUBMITTED THAT THE SUBJECT MENTIONED R ECEIPT COMPRISING OF FORFEITURE OF SHARE WARRANTS AMOUNTING TO RS. 12,65,75,000/- I S NOT CHARGEABLE TO TAX AS IT IS UNDISPUTABLY A CAPITAL RECEIPT, THE SAME WOULD NOT BE LIABLE TO BE TAXED U/S 115JB OF THE ACT MERELY BECAUSE IT IS CREDITED IN THE PRO FIT AND LOSS ACCOUNT BY THE ASSESSEE. IN THIS REGARD, HE POINTED OUT THE TWO DI FFERENT NATURE OF RECEIPTS THAT MIGHT ARISE TO AN ASSESSEE. ACCORDING TO HIM THERE IS A BASIC DICHOTOMY BETWEEN RECEIPTS WHICH ARE NOT TAXABLE AT ALL AND RECEIPTS WHICH ARE TAXABLE BUT SUBJECT TO EXEMPTION / DEDUCTION ON FULFILLING CERTAIN CONDITI ONS. THE RECEIPT STATED IN THE FORMER CASE WOULD NEVER ENTER THE STREAM OF TAXATIO N EVEN UNDER THE BOOK PROFITS U/S 115J / 115JA / 115JB OF THE ACT GOING BY THE IN TENTION OF THE SAID PROVISIONS. HOWEVER, THE RECEIPT STATED IN THE LATTER CASE WOUL D DEFINITELY BE LIABLE TO BE TAXED U/S 115JB OF THE ACT AS PER THE INTENTION OF THE SA ID PROVISION. ACCORDING TO HIM, APPLYING THIS PRINCIPLE, IT COULD BE SAFELY CONCLUD ED THAT THE SUBJECT MENTIONED RECEIPT OF FORFEITURE OF SHARE WARRANTS , WHICH IS ADMITTEDLY NOT INCOME, WOULD FALL IN THE FORMER CATEGORY AND ACCORDINGLY NOT LIABLE T O BE TAXED U/S 115JB OF THE ACT. HE ALSO MADE REFERENCE TO THE PROVISIONS OF SECTION 115JB (5) OF THE ACT WHICH IS REPRODUCED HEREIN BELOW:- 115JB(5) SAVE AS OTHERWISE PROVIDED IN THIS SECTI ON, ALL OTHER PROVISIONS OF THIS ACT SHALL APPLY TO EVERY ASSESSEE , BEING A COMPANY , MENTIONED IN THIS SECTION. APPLYING THE AFORESAID PROVISION TO THE FACTS OF TH E INSTANT CASE, ACCORDING TO HIM, IT COULD BE SAFELY CONCLUDED THAT WHEN THE FORFEITU RE OF SHARE WARRANTS IS NOT TAXABLE UNDER ANY OTHER PROVISIONS OF THIS ACT, THE N THE SAME WOULD NOT BE TAXABLE UNDER BOOK PROFITS U/S 115JB OF THE ACT. 4.4.1. THE LEARNED AR ALSO REFERRED TO THE DECISION OF THE SPECIAL BENCH OF CALCUTTA TRIBUNAL IN THE CASE OF SUTLEJ COTTON MILLS LTD VS ACIT REPORTED IN (1993) 45 ITD 22 (CAL) (SB) DATED 26.10.1992 WHEREIN IT WAS HELD THAT A PARTICULAR RECEIPT WHICH IS ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 21 ADMITTEDLY NOT AN INCOME CANNOT BE BROUGHT TO TAX U NDER THE DEEMING PROVISIONS OF SECTION 115J OF THE ACT AS IT DEFIES THE BASIC INTE NTION BEHIND INTRODUCTION OF PROVISIONS OF SECTION 115J OF THE ACT. FURTHER IT WAS HELD THAT THE RULE OF PURPOSIVE CONSTRUCTION SHOULD BE INVOKED TO DECIDE THE APPLIC ABILITY OF MAT PROVISIONS. 4.5. HE THEN ADE A REFERENCE TO THE DECISION OF TH E SPECIAL BENCH OF HYDERABAD TRIBUNAL IN THE CASE OF RAIN COMMODITIES LTD VS DCI T REPORTED IN (2010) 131 TTJ (HYD)(SB) 514 DATED 2.7.2010 , WHEREIN IT WAS HELD THE CAPITAL GAIN WHICH IS EXEM PT U/S 47(IV) OF THE ACT WHICH IS CREDITED TO THE PROF IT AND LOSS ACCOUNT OF THE ASSESSEE CANNOT BE REDUCED FOR COMPUTATION OF BOOK PROFITS U /S 115JB OF THE ACT AS IT IS NOT COVERED BY ANY OF THE CLAUSES (I) TO (VII) OF THE E XPLANATION TO SECTION 115JB OF THE ACT. ACCORDINGLY IT HELD THAT MAT IS APPLICABLE FO R RECEIPT OF CAPITAL GAINS EVENTHOUGH THE SAME IS EXEMPT U/S 47(IV) OF THE ACT . IT WAS SUBMITTED BY HIM THAT THE DECISION OF RAIN COMMODITIES LTD HAS TO BE UNDE RSTOOD IN THE PROPER PERSPECTIVE. IT WAS SUBMITTED BY HIM THAT THE RAIN COMMODITIES ( SUPRA) DID NOT SAY THAT THE RECEIPT ( A NON-TAXABLE RECEIPT SUCH AS CAPITAL RECEIPT) WH ICH IS PER SE NOT TAXABLE UNDER THE ACT WOULD ENTER THE STREAM OF TAXATION U/S 115JB OF THE ACT. IT ONLY SAID THAT THE CAPITAL GAINS DERIVED BY THE ASSESSEE WERE SUBJECTE D TO EXEMPTION U/S 47(IV) OF THE ACT WHICH WOULD BE LIABLE FOR TAXATION U/S 115JB OF THE ACT AND MORE SO IT IS CREDITED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE. IT WA S SUBMITTED THAT HERE THE RULE OF HARMONIOUS CONSTRUCTION WOULD ALSO COME INTO PLAY. FIRST OF ALL, THE RECEIPT SHOULD PER SE BE TAXABLE UNDER THE ACT. IT DOES NOT MATTER IF THE SAME IS ELIGIBLE FOR DEDUCTION / EXEMPTION UNDER ANY OTHER PROVISIONS SUCH AS SECTIO N 47(IV) OF THE ACT. IN SUCH A SCENARIO, THE CAPITAL GAINS WHICH IS EXEMPT WOULD B E LIABLE FOR MAT. THIS GOES IN CONSONANCE WITH THE TRUE INTENTION BEHIND INTRODUCT ION OF PROVISIONS OF SECTION 115J OF THE ACT AS ENUMERATED SUPRA. ACCORDING TO HIM, T HEREFORE, THIS DECISION DOES NOT IN ANY WAY EVEN REMOTELY CONTEMPLATE TO BRING TO TAX A NY RECEIPT WHICH IS NOT CHARGEABLE AT ALL TO TAX UNDER THE PROVISIONS OF THE ACT. HE NCE A THIN LINE OF DIFFERENCE NEEDS TO BE DRAWN BETWEEN A RECEIPT WHICH IS NOT TAXABLE FRO M ITS INCEPTION AND THAT WHICH IS ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 22 NOT TAXABLE PURSUANT TO CLAIM OF DEDUCTION / EXEMPT ION. AS STATED EARLIER, THE FORMER CASE WOULD BE OUTSIDE THE AMBIT OF BOOK PROFITS TAX U/S 115JB OF THE ACT WHILE THE LATTER WOULD DEFINITELY BE TAXED UNDER MAT. HENCE ACCORDING TO HIM THE DECISION OF RAIN COMMODITIES (SUPRA) DOES NOT STAND IN THE WAY OF ASSESSEE SEEKING TO KEEP THE SUBJECT MENTIONED RECEIPT OF FORFEITURE OF SHARE WA RRANTS OUTSIDE THE AMBIT OF BOOK PROFITS TAX U/S 115JB OF THE ACT. 4.6. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO TH RIVAL SUBMISSIONS. WE FIND THE FOLLOWING DECISIONS IN SUPPORT OF OUR PROPOSITION THAT A CAPITAL RECEIPT WHICH IS NOT CHARGEABLE TO TAX UNDER ANY PROVISIONS OF THE ACT W OULD NOT BE LIABLE FOR BOOK PROFITS TAX U/S 115JB OF THE ACT WHICH WAS RENDERED AFTER C ONSIDERING THE DECISIONS OF HYDERABAD SPECIAL BENCH IN RAIN COMMODITIES (SUPRA) AND THE DECISION OF HONBLE APEX COURT IN APOLLO TYRES (SUPRA) :- (A) DECISION OF LUCKNOW TRIBUNAL IN THE CASE OF ACI T VS L.H.SUGAR FACTORY LTD AND VICE VERSA IN ITA NOS. 417 , 418 & 339/LKW /2013 DATED 9.2.2016 , WHEREIN IT WAS HELD THAT :- 49. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT THIS ASPECT HAS BEEN ALREADY DECIDED BY US AS TO WHETHER RECEIPT ON ACCOUNT OF TRANSFER OF CARBON CREDIT IS A CAPITAL RECEIPT NOT LIABLE TO TA X OR NOT. NOW, IN THE LIGHT OF THIS FACTUAL POSITION, WE EXAMINE THE APPLICABIL ITY OF THIS TRIBUNALS ORDER RENDERED IN THE CASE OF ACIT VS M/S SHREE CEM ENT LTD FOR ASSESSMENT YEAR 2004-05 TO 2006-07. THE RELEVANT P ARAS OF THIS TRIBUNALS ORDER ARE PARA 13 TO 13.11 OF THIS TRIBUNALS ORDER AND THE SAME ARE REPRODUCED HEREIN BELOW FOR THE SAKE OF READY REFER ENCE :- 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSID ERED THEM CAREFULLY. WE HAVE ALSO PERUSED THE ORDERS OF AUTH ORITIES BELOW AS WELL AS OTHER MATERIAL ON WHICH OUR ATTENTION HAS B EEN DRAWN. WE HAVE TAKEN INTO CONSIDERATION THE RATIO DECIDENDI O F ALL THE DECISIONS RELIED UPON BY THE RIVAL PARTIES. ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 23 13.1. AT THE OUTSET, THE ISSUE IN HAND IS COVERED IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE FOR A.Y. 2003-04 VIDE ORD ER DATED 23-12- 2009 IN ITA NO. 942/JP/08. THE ABOVE DECISION OF TRIBUNAL HAS BEEN APPEALED BEFORE THE HONBLE JURISDICTIONAL RAJ ASTHAN HIGH COURT AND HONBLE JURISDICTIONAL HIGH COURT VIDE OR DER DATED 01- 10-2010 HAS ADMITTED ONLY ONE GROUND WHICH IS REPRO DUCED BELOW: WHETHER ON THE FACTS & CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE SALES TA X SUBSIDY RECEIVED BY THE ASSESSEE OF RS. 18,48,85,506 IN THE FORM OF SALES TAX EXEMPTION WAS A CAPITAL RECEIPT & NOT A R EVENUE RECEIPT, IGNORING THE BASIC PURPOSE FOR WHICH THE S AME WAS GIVEN WHICH ITSELF PROVIDES THAT THE SUBSIDY WAS GI VEN TO THE ASSESSEE TO ENHANCE THE PRODUCTION, EMPLOYMENT & SA LES IN THE STATE OF RAJASTHAN, WHICH ARE ALL POST OPERATIO NAL ACTVITIES. FROM THE ABVOEM IT COULD BE CLEARLY SEEN THAT HONB LE HIGH COURT ADMITTED ONLY THE GROUND AS TO WHETHER THE IMPUGNED SUBSIDY WAS A CAPITAL RECEIPT OR A REVENUE RECEIPT. HONBLE HIGH COURT HAS NOT ADMITTED THE GROUND OF THE REVENUE AGAINST RELIEF G RANTED BY TRIBUNAL UNDER SECTION 115JB OF THE ACT ON ABOVE CA PITAL RECEIPT. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF J URISDICTIONAL HIGH COURT AND THE TRIBUNAL IN ASSESSEES OWN CASE FOR A Y 2003-04 WE SEE NO REASONS TO TAKE ANY OTHER VIEW ON THE MATTER DIFFERENT FROM THE CONCLUSIONS ARRIVED AT BY THIS BENCH IN FAVOUR OF THE ASSESSEE, AS FAR AS EXCLUSION FROM BOOK PROFIT UNDER SECTION 115 JB IS CONCERNED, THAT NOW STANDS AFFIRMED BY THE HONBLE RAJASTHAN H IGH COURT AND WE ARE IN RESPECTFUL AGREEMENT WITH THE SAME. 13.2. OUR ABOVE VIEW ALSO FINDS SUPPORT FROM THE DE CISION OF HONBLE APEX COURT IN THE CASE OF PADMARAJE R. KADA MBANDE VS CIT (1992) 195 ITR 877 (SC) , WHEREIN IT HAS BEEN H ELD BY THE APEX COURT THAT CAPITAL RECEIPTS ARE NOT INCOME WITHIN T HE DEFINITION OF SECTION 2(24)OF THE ACT AND HENCE ARE NOT AT ALL CH ARGEABLE UNDER THE I.T.ACT. A RECEIPT WHICH IS NEITHER PROFIT NOR INCOME AND WHICH DOES NOT HAVE ANY ELEMENT THEREOF EMBEDDED THEREIN, CANNOT BE PART OF PROFIT AS PER PROFIT & LOSS ACCOUNT PREPARED I N TERMS OF PART II OF SCHEDULE VI TO COMPANIES ACT. 13.3. AS FAR AS THE DECISIONS RELIED UPON BY THE LD D/R ARE CONCERNED, WE ARE UNABLE TO FOLLOW THE SAME IN THE PRESENT CASE, AS ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 24 THE FACTS OF THE SAID DECISIONS ARE CLEARLY DIFFERE NT FROM THE FACTS IN THE PRESENT CASE. IT IS A SETTLED PRINCIPLE OF LAW AS LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF PADMASUNDRA RAO ( DECD) VS STATE OF TAMIL NADU (2002) 255 ITR 147 (SC) THAT CO URTS SHOULD NOT PLACE RELIANCE ON THE DECISIONS WITHOUT DISCUSSING AS TO HOW THE FACTUAL SITUATION FITS IN WITH THE FACT SITUATION O F THE DECISION ON WHICH RELIANCE IS PLACED. 13.4. FROM PERUSAL OF THE DECISIONS OF RAIN COMMOD ITIES (SUPRA) AND GROWTH AVENUES (SUPRA) , WE NOTICE THAT BOTH TH E DECISION DEALT WITH THE ISSUE OF TAXABILITY OF CAPITAL GAINS IN CO MPUTING BOOK PROFIT U/S 115JB OF THE ACT. THESE CAPITAL GAINS WERE OTH ERWISE INCOME U/S 2(24) OF THE ACT AND EXCLUSION WAS CLAIMED IN COMPU TING BOOK PROFIT U/S 115JB ON THE GROUND THAT THE SAID CAPITAL GAINS WAS EXEMPT EITHER U/S 47(IV) OR U/S 54EC OF THE ACT, WHICH THE TRIBUNAL DID NOT AGREE. IN THE PRESENT CASE, HOWEVER, WE ARE DEALIN G NOT WITH CAPITAL GAINS BUT WITH PURE CAPITAL RECEIPT, WHICH DOES NOT EVEN HAVE ANY INCOME , PROFITS OR, GAINS EMBEDDED THEREIN. T HE IMPUGNED INCENTIVE GRANTED TO THE ASSESSEE IS PURE AND SIMPL E CAPITAL RECEIPT, IN TERMS OF OUR DECISION ON GROUND NO. 1 AT PARA 10 HEREINABOVE, WHICH IN TURN IS SUPPORTED BY THE PRINCIPLES LAID D OWN BY THE APEX COURT, VARIOUS HIGH COURTS & SPECIAL BENCH OF THE T RIBUNAL. THAT BEING THE CASE, IT DOES NOT HAVE ANY INCOME OR PROF IT ELEMENT EMBEDDED IN IT, SINCE THE INCENTIVE WAS GRANTED TO ENCOURAGE INDUSTRIAL GROWTH OF INDUSTRIALLY NON DEVELOPED ARE A. NO ONE CAN MAKE PROFIT OUT OF THE SUBSIDY OR INCENTIVE GRANTED TO IT. HENCE, IT IS NOT CHARGEABLE TO TAX UNDER THE INCOME TAX ACT AS H ELD BY THE APEX COURT IN THE CASE OF PADMARAJE (SUPRA) AND IN THE L IGHT OF OUR FACT FINDING AS ABOVE, CLEARLY NOT INCLUDIBLE IN P&L ACC OUNT PREPARED UNDER PART II & PART III OF SCHEDULE VI TO THE COMP ANIES ACT. 13.5. THE GENESIS OF SEC 115J, THEREAFTER SECTION 1 15JA AND NOW SECTION 115JB WAS TO ENSURE THAT THE ASSESSEE , WHI LE MAKING PROFIT FROM OPERATIONS, SHOULD NOT ENJOY TAX FREE STATUS D UE TO VARIOUS DEDUCTIONS AVAILABLE UNDER THE INCOME TAX ACT. THE RE WAS NEVER ANY INTENTION OF THE LEGISLATURE TO TAX WHAT IS NOT INCOME AT ALL. IN A RECENT DECISION, THE HONBLE APEX COURT IN THE CASE OF INDO RAMA SYNTHETICS (I) LTD VS CIT (2011) 330 ITR 363 (SC) H AS HELD THAT THE OBJECT OF MAT PROVISIONS IS TO BRING OUT THE REAL P ROFIT OF THE COMPANIES. THE THRUST IS TO FIND OUT THE REAL WORK ING RESULTS OF THE COMPANY. INCLUSION OF RECEIPT IN THE COMPUTATION O F MAT WOULD DEFEAT TWO FUNDAMENTAL PRINCIPLES, IT WOULD LEVY TA X ON RECEIPT WHICH IS NOT IN THE NATURE OF INCOME AT ALL AND SECONDLY IT WOULD NOT RESULT ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 25 IN ARRIVING AT REAL WORKING RESULTS OF THE COMPANY. THE REAL WORKING RESULT CAN BE ARRIVED AT ONLY AFTER EXCLUDING THIS RECEIPT WHICH HAS BEEN CREDITED TO P&L A/C AND NOT OTHERWISE. 13.6. FOR BETTER UNDERSTANDING OF THE ISSUE, LET U S ALSO EXTRACT DOWN RELEVANT PROVISION OF SEC. 115JB AS UNDER . EVERY ASSESSEE, BEING A COMPANY, SHALL FOR THE PUR POSE OF THIS SECTION, PREPARE ITS PROFIT AND LOSS ACCOUNT F OR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVI SIONS OF PART II AND PART III OF SCHEDULE VI TO THE COMPANIE S ACT, 1956 (1 OF 1956). 13.7. ON CONSIDERATION OF THE ABOVE, IT IS APPAREN T THAT FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB PROFIT A ND LOSS A/C SHALL BE PREPARED AS PER PART II AND III OF SCHEDUL E VI TO THE COMPANIES ACT. PART II OF SCHEDULE VI PRESCRIBES T HE REQUIREMENTS AS TO PROFIT AND LOSS A/C. CLAUSE 2(A) OF PART II CLEARLY SPELLS THAT THE PROFIT AND LOSS A/C SHALL BE SO MADE OUT AS CLE ARLY TO DISCLOSE THE RESULT OF THE WORKING OF THE COMPANY DURING THE PER IOD COVERED BY THE ACCOUNTS. HENCE, IN OUR VIEW, P&L ACCOUNTS DO NOT REFLECT THE TRUE RESULT OF THE WORKING OF THE COMPANY FOR THE Y EAR, IT CANNOT BE SAID TO BE AS PER SCHEDULE VI, PART II & III OF THE COMPANIES ACT AND IT WOULD NECESSITATE CORRECTIVE ADJUSTMENT IN T HAT SITUATION SO AS TO COMPLY WITH SCHEDULE VI , PART II & III. 13.8. WITH THE ABOVE DISCUSSIONS, THE ONLY ISSUE L EFT TO BE CONSIDERED IS WHETHER EXCLUSION OF THE ABOVE CAPITAL RECEIPT I S IN LINE WITH THE PRINCIPLES AS LAID DOWN BY HONBLE APEX COURT IN TH E CASE OF APOLLO TYRES (SUPRA). IN THE CASE OF APOLLO TYRES (SUPRA ), THE QUESTION BEFORE THE APEX COURT WAS WHETHER AN AO CAN, WHILE ASSESSING A COMPANY FOR INCOME TAX U/S 115J OF THE IT ACT, QUES TION THE CORRECTNESS OF THE P&L A/C PREPARED IN ACCORDANCE W ITH REQUIREMENTS OF PART II AND III OF SCH. VI TO THE C OMPANIES ACT. FROM THE QUESTION AS FRAMED BEFORE THE APEX COURT I T IS CLEAR THAT THE ISSUE BEFORE THE HONBLE COURT WAS WITH REGARD TO POWER OF THE AO TO RECAST AUDITED ACCOUNTS PREPARED IN ACCORDANC E WITH PART II AND PART III OF SCH.VI TO THE COMPANIES ACT. THERE FORE, FOR APPLICABILITY OF THE DECISION OF THE APEX COURT THE PREREQUISITE IS THAT THE ACCOUNTS ARE PREPARED IN ACCORDANCE WITH P ART II AND PART III TO SCH.VI OF THE COMPANIES ACT. IF HOWEVER THE P&L ACCOUNTS ARE NOT IN ACCORDANCE WITH PART II AND III OF SCH. VI TO THE ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 26 COMPANIES ACT, THE SAID DECISION CANNOT BE APPLIED AND IN THAT SITUATION IT DOES NOT PROHIBIT THE NEEDFUL ADJUSTME NT. 13.9. OUR VIEW AS ABOVE IS SUPPORTED BY THE DECISI ON OF THE SPECIAL BENCH IN THE CASE OF RAIN COMMODITIES (SUPRA), WHIC H INCIDENTALLY HAS BEEN RELIED UPON BY DR. ON EXAMINATION OF THE SAID ORDER, WE FIND THAT AT PARA 17 (LAST SUB-PARA) & PARA 18, AFT ER CONSIDERING THE DECISION OF SUPREME COURT IN APOLLO TYRES LTD (SUPR A), SPECIAL BENCH HAVE HELD THAT IF PROFIT & LOSS ACCOUNT IS NO T IN ACCORDANCE WITH PART II & III OF SCHEDULE VI TO THE COMPANIES ACT, IT IS PERMISSIBLE TO ALTER THE NET PROFIT SO AS TO MAKE I T IN ACCORDANCE WITH PART II & III OF SCHEDULE VI, WHICH IS THE STARTING POINT FOR COMPUTATION OF BOOK PROFIT IN TERMS OF SECTION 11 5JB. WE HAVE CONCLUDED IN PARA 13.4 ABOVE, THAT INCLUSION OF SA LES TAX SUBSIDY IN THE PROFIT AND LOSS IS NOT IN ACCORDANCE WITH SCHED ULE VI, PART II & III. HENCE IT IMPLIES THAT NEEDFUL ADJUSTMENT TO E XCLUDE THE SAME IS NOT ONLY PERMISSIBLE, BUT IS MANDATORY SO AS TO MAK E THE PROFIT & LOSS ACCOUNT COMPLIANT , WITH THE BASIC REQUIREMENT OF SECTION 115JB. 13.10. OUR VIEW PER PARA 13.8 ABOVE IS ALSO SUPPOR TED BY, THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF BOMBAY D IAMOND (SUPRA) & THAT OF BANGALORE TRIBUNAL IN THE CASE OF SYNDICATE BANK (SUPRA) [BOTH ANALYSED IN PARA 12.1 ABOVE], WHERE A LSO TRIBUNAL, AFTER CONSIDERING THE DECISION OF SUPREME COURT IN THE CASE OF APOLLO TYRES (SUPRA) AND EXPLAINING THE SAME, HAVE PERMITTED ADJUSTMENT TO THE PROFIT AS PER P&L ACCOUNT, SO AS TO COMPLY WITH SCHEDULE VI , PART II & PART III OF THE COMPANIES A CT, WHICH IS A PREREQUISITE FOR SECTION 115JB. 13.11. IN THE LIGHT OF THE AFORESAID, THE ADDITION AL GROUND FILED BY THE DEPARTMENT IS REJECTED AND WE HOLD THAT CAPITAL RECEIPT IN THE FORM OF SALES TAX INCENTIVE NEEDS TO BE EXCLUDED FR OM PROFIT AS PER P&L ACCOUNT FOR THE YEAR IN COMPUTING BOOK PROFIT U /S 115JB OF THE ACT. THIS GROUND OF THE DEPARTMENT IS THUS DISMISS ED. 50. FROM THE ABOVE PARAS, WE FIND THAT THE TRIBUNA L HAS DULY CONSIDERED THE JUDGEMENT OF THE HONBLE APEX COURT RENDERED IN THE CASE OF APOLLO TYRES LTD (SUPRA) AND THEREAFTER, IT WAS NOTED BY T HE TRIBUNAL IN THIS CASE THAT AS PER THE DECISION OF SPECIAL BENCH OF THE TR IBUNAL RENDERED IN THE CASE OF RAIN COMMODITIES LTD VS DCIT, 41 DTR 449, I F PROFIT AND LOSS ACCOUNT IS NOT IN ACCORDANCE WITH PART II & PART II I OF SCHEDULE VI TO THE COMPANIES ACT, 1956 BECAUSE IT IS PREREQUISITE FOR SECTION 115JB OF THE ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 27 ACT. THE TRIBUNAL IN THIS CASE ALSO CONSIDERED TWO ANOTHER TRIBUNALS ORDERS RENDERED IN THE CASE OF DCIT VS BOMBAY DIAMO ND COMPANY LTD (33 DTR 59) AND SYNDICATE BANK VS ACIT , 7 SOT 51 BANGA LORE, WHERE IT WAS HELD BY THE TRIBUNAL AFTER CONSIDERING THE DECISION OF HONBLE APEX COURT RENDERED IN THE CASE OF APOLLO TYRES LTD (SUPRA), A ND AFTER EXPLAINING THE SAME THAT ADJUSTMENT OF PROFIT AND LOSS ACCOUNT IS POSSIBLE TO MAKE IT COMPLIANT WITH SCHEDULE VI PART II AND PART III OF THE COMPANIES ACT, 1956 WHICH IS PREREQUISITE OF SECTION 115JB OF THE ACT. ON THIS BASIS, THE TRIBUNAL IN THE CASE OF SHREE CEMENT LTD (SUPRA0 DE CIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND IT WAS HELD THAT CAPITAL RECEIPT IN THE FORM OF SALES TAX SUBSIDY NEEDS TO BE EXCLUDED FROM PROFIT AS PER P&L ACCOUNT FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB OF T HE ACT. BY RESPECTFULLY FOLLOWING THESE TRIBUNALS ORDERS, WE HOLD THAT IN THE PRESENT CASE ALSO, THE RECEIPT ON ACCOUNT OF TRANSFER OF CARBON CREDIT WHI CH IS HELD TO BE A CAPITAL RECEIPT NEEDS TO BE EXCLUDED FROM PROFIT AS PER P&L ACCOUNT FOR THE PRESENT YEAR WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF T HE ACT. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND ACCORDINGLY G ROUND NOS. 1 TO 5 ARE ALLOWED. THE ASSESSEE GETS RELIEF OF RS. 27,70,88 0/- AND CONSEQUENT INTEREST BEING 10% OF THE AMOUNT RECEIVED BY THE AS SESSEE ON SALE OF CARBON CREDIT OF RS. 2,77,08,800/-. (B) DECISION OF MUMBAI TRIBUNAL IN THE CASE OF SHIV ALIK VENTURE (P) LTD VS DCIT REPORTED IN (2015) 173 TTJ (MUMBAI) 238 DATED 19.8.2015 , WHEREIN IT WAS HELD THAT : 23. WE SHALL NOW EXAMINE THE SECOND CONTENTION URGED B Y THE ASSESSEE, VIZ., SINCE THE PROFIT ARISING ON TRANSFER OF A CAPITAL A SSET BY A COMPANY TO ITS WHOLLY OWNED SUBSIDIARY COMPANY IS NOT TREATED AS I NCOME' U/S 2(24) OF THE ACT AND SINCE IT DOES NOT ENTER INTO COMPUTATION PR OVISION AT ALL UNDER THE NORMAL PROVISIONS OF THE ACT, THE SAME SHOULD NOT B E CONSIDERED FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB OF THE A CT. 26. WE SHALL NOW EXAMINE THE SCHEME OF THE PROVISIONS OF SEC. 115JB OF THE ACT. IT IS PERTINENT TO NOTE THAT THE PROVISIONS OF SEC. 10 LISTS OUT VARIOUS TYPES OF INCOME, WHICH DO NOT FORM PART OF TOTAL IN COME. ALL THOSE ITEMS OF RECEIPTS SHALL OTHERWISE FALL UNDER THE DEFINITION OF THE TERM 'INCOME' AS DEFINED IN SEC. 2(24) OF THE ACT, BUT THEY ARE NOT INCLUDED IN TOTAL INCOME IN VIEW OF THE PROVISIONS OF SEC. 10 OF THE ACT. SINCE THEY ARE CONSIDERED AS 'INCOMES NOT INCLUDED IN TOTAL INCOME' FOR SOME POL ICY REASONS, THE LEGISLATURE, IN ITS WISDOM, HAS DECIDED NOT TO SUBJ ECT THEM TO TAX U/S 115JB ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 28 OF THE ACT ALSO, EXCEPT OTHERWISE SPECIFICALLY PROV IDED FOR. CLAUSE (II) OF EXPLANATION 1 TO SEC.115JB SPECIFICALLY PROVIDES TH AT THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIONS OF SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF) IS TO BE REDUCED FROM THE NET PROFIT, IF THEY ARE CREDITED TO THE PROFIT AND LOSS ACCOUNT. THE LO GIC OF THESE PROVISIONS, IN OUR VIEW, IS THAT AN ITEM OF RECEIPT WHICH FALLS UNDER THE DEFINITION OF 'INCOME', ARE EXCLUDED FOR THE PURPOSE OF COMPUTING 'BOOK PROFIT', SINCE THE SAID RECEIPTS ARE EXEMPTED U/S 10 OF THE ACT WH ILE COMPUTING TOTAL INCOME. THUS, IT IS SEEN THAT THE LEGISLATURE SEEKS TO MAINTAIN PARITY BETWEEN THE COMPUTATION OF 'TOTAL INCOME' AND 'BOOK PROFIT', IN RESPECT OF EXEMPTED CATEGORY OF INCOME. IF THE SAID LOGIC IS E XTENDED FURTHER, AN ITEM OF RECEIPT WHICH DOES NOT FALL UNDER THE DEFINITION OF 'INCOME' AT ALL AND HENCE FALLS OUTSIDE THE PURVIEW OF THE COMPUTATION PROVISIONS OF INCOME TAX ACT, CANNOT ALSO BE INCLUDED IN 'BOOK PROFIT' U/S 1 15JB OF THE ACT. HENCE, WE FIND MERIT IN THE SUBMISSIONS MADE BY THE ASSESS EE ON THIS LEGAL POINT. 27. A CAREFUL PERUSAL OF THE DECISION RENDERED BY THE SPECIAL BENCH IN THE CASE OF RAIN COMMODITIES LTD. (SUPRA) WOULD SHOW TH AT THE ABOVE SAID LEGAL CONTENTIONS WERE NOT CONSIDERED BY THE SPECIA L BENCH. WE NOTICE THAT THE SPECIAL BENCH CONSIDERED THE FOLLOWING DECISION S: (A) MALAYALA MANORAMA CO. LTD V.CIT [2008] 300 ITR 251/169 TAXMAN 471 (SC) (B) N.J. JOSE & CO. (P) LTD V. ACIT [2010] 321 ITR 132/[2008] 174 TAXMAN 141 (KER.) (C) CIT V. VEEKAYLAL INVESTMENT CO.(P) LTD [2001] 249 ITR 597/116 TAXMAN 104 (BOM.) IN ALL THESE CASES, THE COURTS WERE DEALING WITH TH E ISSUE OF INCLUSION OF CAPITAL GAINS IN THE COMPUTATION OF 'BOOK PROFITS', BUT SUCH CAPITAL GAINS WERE OTHERWISE CHARGEABLE TO CAPITAL GAIN TAX U/S 4 5 OF THE ACT UNDER THE NORMAL PROVISIONS OF THE ACT. HOWEVER, HERE IS THE CASE THAT THE PROFITS AND GAINS ARISING ON TRANSFER OF CAPITAL IS NOT FALLING UNDER THE DEFINITION OF 'TRANSFER' AND HENCE UNDER THE DEFINITION OF 'CAPIT AL GAINS CHARGEABLE U/S 45' AND CONSEQUENTLY, THE SAME DOES NOT FALL WITHIN THE PURVIEW OF THE DEFINITION OF 'INCOME' GIVEN U/S 2(24) OF THE ACT. FURTHER, WE NOTICE THAT THE SPECIAL BENCH DID NOT HAVE OCCASION TO CONSIDER THE ARGUMENT URGED BEFORE US THAT THE PROFITS AND GAINS ARISING ON TRANSFER O F A CAPITAL ASSET BY A HOLDING COMPANY TO ITS WHOLLY OWNED INDIAN COMPANY DOES NOT FALL UNDER THE DEFINITION OF 'INCOME' AT ALL U/S 2(24) OF THE ACT AND HENCE THE SAME DOES NOT ENTER INTO THE COMPUTATION PROVISIONS OF T HE ACT AT ALL. WE ARE IMPRESSED BY THE ARGUMENTS ADVANCED IN THIS REGARD AND WE HAVE ALSO EXTENSIVELY DEALT WITH THE RELEVANT PROVISIONS AND ALSO ABOUT THE SCHEME OF THE PROVISIONS OF SEC. 115JB OF THE ACT. WE ARE OF THE VIEW THAT THE SAID CONTENTIONS DISTINGUISH THE DECISION RENDERED BY TH E SPECIAL BENCH IN THE CASE OF RAIN COMMODITIES LTD. (SUPRA). ON MERITS AL SO, WE HAVE EARLIER ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 29 SEEN THAT THE ASSESSEE HEREIN HAS ATTACHED A NOTE I N THE NOTES FORMING PART OF ACCOUNTS AND IN THE CASE BEFORE THE SPECIAL BENC H, NO SUCH NOTES HAS BEEN INSERTED, WHICH FACT WAS SPECIFICALLY NOTED BY THE SPECIAL BENCH. HENCE ON THIS FACTUAL ASPECT ALSO, THE DECISION REN DERED BY THE SPECIAL BENCH IS DISTINGUISHABLE. 28. IN VIEW OF THE FOREGOING DISCUSSIONS, WE FIND ME RIT IN THE CONTENTIONS OF THE ASSESSEE THAT THE PROFIT ARISING ON TRANSFER OF CAPITAL ASSET TO ITS WHOLLY OWNED INDIAN SUBSIDIARY COMPANY IS LIABLE TO BE EXCLUDED FROM THE NET PROFIT., I.E., THE NET PROFIT DISCLOSED IN THE PROFIT AND LOSS ACCOUNT SHOULD BE REDUCED BY THE AMOUNT OF PROFIT ARISING O N TRANSFER OF CAPITAL ASSET AND THE AMOUNT SO ARRIVED AT SHALL BE TAKEN A S 'NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT' FOR THE PURPOSE OF COM PUTATION OF BOOK PROFIT UNDER EXPLANATION 1 TO SEC. 115JB OF THE ACT. ALTER NATIVELY, SINCE THE SAID PROFIT DOES NOT FALL UNDER THE DEFINITION OF 'INCOM E' AT ALL AND SINCE IT DOES NOT ENTER INTO THE COMPUTATION PROVISIONS AT ALL, T HERE IS NO QUESTION OF INCLUDING THE SAME IN THE BOOK PROFIT AS PER THE SC HEME OF THE PROVISIONS OF SEC. 115JB OF THE ACT. ACCORDINGLY, WE SET ASIDE TH E ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO EXCLUDE T HE ABOVE SAID PROFIT FROM THE COMPUTATION OF 'BOOK PROFIT' FOR THE REASONS DI SCUSSED ABOVE. IN THE INSTANT CASE, THE ASSESSEE ALSO HAS DULY DIS CLOSED THE FACT OF FORFEITURE OF SHARE WARRANTS AMOUNTING TO RS. 12,65,75,000/- IN ITS NOT ES ON ACCOUNTS VIDE NOTE NO. 6 TO SCHEDULE 11 OF FINANCIAL STATEMENTS FOR THE YEAR EN DED 31.3.2009. HENCE RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE MUMBAI TRIB UNAL, THE PROFIT AND LOSS ACCOUNT PREPARED IN ACCORDANCE WITH PART II AND III OF SCHE DULE VI OF COMPANIES ACT 1956, INCLUDES NOTES ON ACCOUNTS THEREON AND ACCORDINGLY IN ORDER TO DETERMINE THE REAL PROFIT OF THE ASSESSEE AS LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF INDO RAMA SYNTHETICS (I) LTD VS CIT REPORTED IN (2011) 3 30 ITR 363 (SC) , ADJUSTMENT NEED TO BE MADE TO THE DISCLOSURES MADE IN THE NOTE S ON ACCOUNTS FORMING PART OF THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE AND THE PRO FITS ARRIVED AFTER SUCH ADJUSTMENT , SHOULD BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT AND THEREAFTER, THE LEARNED AO HAS TO MAKE ADJU STMENTS FOR ADDITIONS / DELETIONS CONTEMPLATED IN EXPLANATION TO SECTION 115JB OF THE ACT. ITA NO.144/KOL/2013-A-AM M/S. BINANI INDUSTRIES LTD 30 5. IN VIEW OF THE AFORESAID FACTS AND RESPECTFULLY FOLLOWING THE VARIOUS JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE, WE FIND NO INF IRMITY IN THE ORDER PASSED BY THE LEARNED CIT(A) IN THIS REGARD AND ACCORDINGLY, THE GROUND NO. 3 RAISED BY THE REVENUE IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS D ISMISSED. ORDER PRONOUNCED ON 02-03-2016 1. THE APPELLANT: THE DCIT, CC-XXVIII, 110 SHANTI PALLY, AAYKAR POORVA, EM-BYE PASS, 4 TH FL., KOL-107. 2 THE RESPONDENT-M/S. BINANI INDUSTRIES LTD 37/2 C HINAR PARK, NEW TOWN, RAJARHAT MAIN ROAD, P.O HATIARA, KOL-157. 3 /THE CIT, 4.THE CIT(A ) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR SD/- ( N.V.VASUDEVAN, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE 02/03 /2016 COPY OF THE ORDER FORWARDED TO: