JT. CIT (OSD) Rg. - 3(3), MUMBAI V. M/s. RELIANCE INDUSTRIES P. LTD., MUMBAI

ITA 1645/MUM/2006

• Counselvise Citation: 164519914 RSA 2006
• Duration Of Justice: 5 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 11-05-2011
• Assessment Year: 1997-1998
• Appeal Filed On: 09-03-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SENTHIL KUMAR
• Assessee Lawyers: ARVIND SONDE
• Keywords: Depreciation; Additional depreciation; Retrospective amendment; Cost of acquisition; Bad and doubtful debts; Revenue expenditure; Reassessment proceedings; Capital expenditure; Set aside
• Section: 69; 56; 80IA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI P.M. JAGTAP (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NOS.1645 & 1646/MUM/2006 ASSESSMENT YEARS-1997-98 & 1999-2000 A N D ITA NO. 2394/MUM/2007 ASSESSMENT YEAR 1998-99 THE DCIT , CIRCLE-3(3), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. RELIANCE INDUSTRIES LTD., MAKER CHAMBERS IV, 3 RD FLOOR, 222, NARIMAN POINT, MUMBAI-400 021 PAN-AAACR 5055K (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SENTHIL KUMAR RESPONDENT BY: SHRI ARVIND SONDE O R D E R PER ASHA VIJAYARAGHAVAN (JM) THESE THREE APPEALS FILED BY THE REVENUE ARE DIRECT ED AGAINST THE ORDERS PASSED BY THE LD. CIT(A)-III FOR THE ASSESSM ENT YEARS 1997-98 TO 1999-2000. ITA NO. 1645/M/06 A.Y. 1997-98 2. THE FIRST GROUND OF APPEAL BY THE REVENUE IS AGA INST DELETION BY THE LD. CIT(A) OF THE ADDITION OF RS 2613.46 LAKHS BEIN G DEPRECIATION @ 25% CLAIMED ON RS 10453.83 LAKHS DECLARED UNDER VDIS SC HEME. RELIANCE INDUSTRIES 2 3. THE ASSESSEE CLAIMED DEPRECIATION OF RS 26,13,46 ,000/- BEING 25% OF CAPITALIZED PRE OPERATIVE EXPENSES OF RS 104,53, 83,000/- OF RELIANCE PETROCHEMICALS LTD (RPCL) WHICH SUBSEQUENTLY MERGED WITH THE ASSESSEE. THE FACTS RELATING TO THE ISSUE ARE THAT DURING THE CONSTRUCTION PERIOD RPCL HAD EARNED INTEREST AND OTHER INCOME FR OM VARIOUS DEPOSITS MADE, IN A.Y 1989-90 TO 1992-93 THIS INTEREST ETC I NCOME WAS REDUCED FROM PRE OPERATIVE EXPENSES AND ONLY THE NET AMOUNT OF PRE OPERATIVE EXPENSES (AFTER REDUCTION OF INTEREST ETC INCOME) W AS CAPITALIZED IN THE BOOKS OF ACCOUNT IN THE ASSESSMENT OF RPCL, HOWEVER THE ASSESSING OFFICER HELD THAT INTEREST ETC INCOME SHOULD BE ASS ESSED AS INCOME FROM OTHER SOURCES. THE HONBLE ITAT AFTER CONSIDERING THE DECISION OF THE APEX COURT IN THE CASE OF TUTICORIN ALKALI CHEMICAL S AND FERTILIZERS LTD (227 ITR 172) SET ASIDE THE ASSESSMENT ORDERS WITH DIRECTION TO THE AO TO FRAME THE ASSESSMENTS DE NOVO. IN THE CASE OF TUTIC ORIN ALKALI CHEMICALS AND FERTILIZERS LTD (227 ITR 172), THE HONBLE SUPR EME COURT HAD HELD THAT INTEREST ON FUNDS DEPLOYED BEFORE COMMENCEMENT OF BUSINESS CANNOT BE SET OFF AGAINST CAPITAL EXPENDITURE AND H AS TO BE ASSESSED AS INCOME FROM OTHER SOURCES. IN THE MEAN WHILE RPCL A MALGAMATED WITH RELIANCE INDUSTRIES LTD WITH EFFECT FROM 1.3.1992. WHILE ASSESSMENTS OF RPCL SET ASIDE BY THE TRIBUNAL WERE PENDING THE VOL UNTARY DISCLOSURE OF INCOME SCHEME 1997 (VDIS) WAS INTRODUCED. CONSIDER ING THE LAW LAID DOWN IN TUTICORIN ALKALIS CASE AND AVAILING THE BE NEFIT OF THE VDIS, THE APPELLANT COMPANY OFFERED TO TAX THE INTEREST ETC I NCOME WHICH HAD BEEN NETTED OFF AGAINST THE PRE OPERATIVE EXPENSES OF RP CL. IN ANNEXURE VII TO THE VDIS DECLARATION FILED THE APPELLANT COMPANY IN TER ALIA STATED THUS: THE DECLARANT WITHOUT PREJUDICE TO ITS CONTENTIONS AND IN ORDER TO BUY PEACE AND BRING TO AN END TO ALL LITIGATIONS HA S OFFERED FOR TAX AN AMOUNT OF RS 104,53,83,202/ UNDER VDIS 1997. NO FU RTHER ACCOUNTING ENTRY IS REQUIRED TO BE PASSED IN THIS R EGARD CONSIDERING THE GUIDANCE NOTE ISSUED BY THE INSTITUTE OF CHARTE RED ACCOUNTANTS OF INDIA ON THE SUBJECT. THE ABOVE AMOUNT WILL BE ADDED TO THE COST OF VARIOUS PROJECTS FOR THE PURPOSE OF WORKING OUT DEPRECIATION. RELIANCE INDUSTRIES 3 SINCE THE AFORESAID INCOME OFFERED TO TAX UNDER VDI S 1997 DOES NOT RESULT IN CREATION OF ANY ASSET COLUMN 4,5 & 6 OF TABLE 5 OF THE FORM OF VOLUNTARY DISCLOSURE OF INCOME IS NOT FILLED. 4. IT WAS CONTENDED BY THE APPELLANT THAT SINCE IN TEREST ETC INCOME OF RS 104.53 CRORE SET OFF AGAINST PRE OPERATIVE EXPEN SES IN THE BOOKS OF RPCL WAS OFFERED TO TAX UNDER VDIS, THE PRE OPERATI VE EXPENSES CAPITALIZED WOULD AUTOMATICALLY STAND INCREASED BY THE SAID AMOUNT OF RS 104.53 CRORE. ACCORDING DEPRECIATION ON THIS AMO UNT WAS CLAIMED AND THE SAME WAS ALLOWED IN THE ORIGINAL ASSESSMENT. HO WEVER IN THE REASSESSMENT ORDER THE AO HAS DISALLOWED THIS CLAIM FOR DEPRECIATION ON THE GROUND THAT: I. THE AMOUNT DECLARED HAD NOT BEEN CREDITED IN THE B OOKS OF ACCOUNT AND THE APPELLANT DID NOT PASS NECESSARY EN TRIES FOR THE SAME. II. INTEREST EARNED DURING CONSTRUCTION PERIOD IS INCOM E FROM OTHER SOURCES. RELIEF CLAIMED ON THIS INCOME BY WAY OF DEPRECIATION CANNOT BE ALLOWED AS PER PROVISIONS OF SEC 69 OF VDIS 1997. 4.1 ON APPEAL BEFORE THE LD. CIT(A) THE ASSESSEE CO NTENDED THAT DEPRECIATION IS NOT CLAIMED ON THE INCOME DECLARED UNDER VDIS. RATHER DEPRECIATION IS CLAIMED ON THAT PART OF THE PRE OPE RATIVE EXPENSES WHICH HAD BEEN REDUCED BY THE INTEREST INCOME IN THE BOOK S OF RPCL. IT IS ARGUED THAT SINCE THE INTEREST INCOME SET OFF AGAIN ST PRE OPERATIVE EXPENSES HAS BEEN SUBJECTED TO TAX THE ENTIRE (GROS S) PRE OPERATIVE EXPENSES CAPITALIZED BY THE APPELLANT IS ELIGIBLE F OR DEPRECIATION, AS REGARDS THE CONTENTION OF THE AO THAT NO ENTRIES AR E PASSED IN THE BOOKS FOR THE INCOME DECLARED UNDER VDIS, IT IS SUBMITTED THAT RPCL HAS MERGED WITH THE APPELLANT COMPANY AND IN ACCORDANCE WITH THE SCHEME RELIANCE INDUSTRIES 4 OF AMALGAMATION AS APPROVED BY THE COURT ALL ASSETS AND LIABILITIES (AS PER BOOKS) OF RPCL STOOD TRANSFERRED TO THE APPELLA NT COMPANY. HENCE IT WAS NOT PERMISSIBLE TO PASS ANY ENTRIES IN THE BOOK S FOR THAT WOULD VIOLATE THE ORDER OF THE COURT AND ALSO THE TERMS A ND CONDITIONS OF THE SCHEME OF MERGER. AS REGARDS THE AOS CONTENTION TH AT THE INTEREST INCOME IN QUESTION IS TAXABLE UNDER THE HEAD OTHER SOURCES IT IS URGED THAT THIS VIEW ACTUALLY SUPPORTS THE STAND OF THE A PPELLANT. FOR IF THE INTEREST INCOME IS TAXABLE THEN THE CAPITALIZED PRE OPERATIVE EXPENSES EARLIER REDUCED BY THE INTEREST INCOME WOULD AUTOMA TICALLY STAND INCREASED BY THE INTEREST AMOUNT. CONSEQUENTLY THE ACTUAL COST WDV OF THE ASSETS WOULD STAND ENHANCED RESULTING IN CORRES PONDING INCREASE IN DEPRECIATION. 5. IT IS FURTHER CONTENDED THAT ENTRIES IN THE BOOK S OF ACCOUNT ARE NOT DETERMINATIVE. CLAIMS FOR DEDUCTION HAVE TO BE DECI DED AS PER THE APPLICABLE PROVISIONS OF LAW. RELIANCE FOR THIS PRO POSITION IS PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F KEDARNATH JUTE MFG. CO. LTD VS CIT 82 ITR 363-SC. IT IS ASSERTED T HAT THERE IS NO DISPUTE THAT THE CAPITALISED PRE OPERATIVE EXPENDITURE IS E LIGIBLE FOR DEPRECIATION AND THAT THE SAME HAD BEEN REDUCED BY THE INTEREST INCOME. SO WHEN THE SAID INTEREST INCOME WAS OFFERED FOR TAX THE HITHER TO REDUCED AMOUNT OF PRE OPERATIVE EXPENSES WOULD STAND INCREASED AND DE PRECIATION ON THE SAME WOULD BE ALLOWABLE AS PER LAW. 6. THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE OBSERVING AS UNDER: I HAVE CAREFULLY CONSIDERED THE MATTER AND AM UNAB LE TO AGREE WITH THE REASONS GIVEN BY THE AO FOR NOT ALLOWING DEPRE CIATION. IT APPEARS THAT THE AO LABORED UNDER THE MISCONCEPTION THAT THE APPELLANT WAS CLAIMING DEPRECIATION ON THE INTEREST INCOME DECLARED UNDER VDIS. THE FACTS OF THE CASE DO NOT SUPPORT S UCH INFERENCE. RELIANCE INDUSTRIES 5 THERE IS NO DISPUTE THAT THE PREOPERATIVE EXPENSES HAD BEEN CAPITALISED. FROM THIS CAPITALISED VALUE WAS REDUCE D THE AMOUNT OF INTEREST ETC INCOME EARNED DURING THE CONSTRUCTION PERIOD. AS PER THE SUPREME COURT DECISION IN TUTICORINS CASE THE SAID INTEREST WAS REQUIRED TO BE ASSESSED TO TAX AS A REVENUE RECEIPT UNDER THE HEAD INCOME FROM OTHER SOURCES. THEREFORE UNDER THE LAW THE SAID INCOME COULD NOT BE SET OFF AGAINST PREOPERATIVE INTEREST EXPENDITURE. WHERE SUCH SET OFF HAD BEEN DONE THE UNDOING OF THE SET O FF WOULD RESULT IN THE QUANTUM OF PREOPERATIVE EXPENSES INCREASING TO THE EXTENT OF INTEREST INCOME CHARGED TO TAX. IN THE INSTANT CASE THE INTEREST INCOME OF RS 104.54 CRORES SET OFF AGAINST PRE OPER ATIVE EXPENSES IN THE BOOKS HAS BEEN CHARGED TO TAX, THE UNDOING OF T HE SET OFF WILL AUTOMATICALLY RESULT IN INCREASING THE PRE OPERATIV E EXPENSES TO THE EXTENT OF RS 104.54 CRORES. THE FACT THAT THE SAID INTEREST INCOME WAS CHARGED TO TAX UNDER THE VDIS 1997 IS TO MY MIN D IMMATERIAL. THE CONSEQUENTIAL EFFECT OF CHARGING THE INTEREST I NCOME TO TAX UNDER VDIS WILL BE NO DIFFERENT THAN IF THE SAME HAD BEEN CHARGED TO TAX UNDER SEC 56 OF THE ACT. IN EITHER CASE THE EFFECT WOULD BE TO UNDO THE SET OFF OF INTEREST INCOME AGAINST PRE OPERATIV E EXPENSES RESULTING IN CORRESPONDING INCREASE IN THE PRE OPER ATIVE EXPENSES CAPITALIZED. I AM THEREFORE ONE WITH THE APPELLANT THAT DEPRECIATION ON THE INCREASE IN CAPITALIZED PRE OPERATIVE EXPENS ES HAS NOT BEEN CLAIMED ON THE INCOME DECLARED UNDER VDIS> DEPRECI ATION ATTACHES TO THE COST OF ASSETS AND NOT TO INCOME . THEREFORE DEPRECIATION CANNOT IN ANY CASE BE CLAIMED ON INCOME. I FURTHER AGREE WITH THE APPELLANT THAT ENTRIES OR LACK OF THEM IN THE BOOKS OF ACCOUNTS CANNOT AFFECT THE DETERMINATION OF SUBSTANTIVE ISSU ES AS PER THE LAW. THEREFORE THOUGH THE APPELLANT HAD ADEQUATE REASONS FOR NOT BEING ABLE TO GIVE EFFECT TO THE VDIS DECLARATION IN THE BOOKS OF ACCOUNT THAT CANNOT PREJUDICE CLAIMS OF THE ASSESSEE WHICH HAVE NO DIRECT NEXUS WITH THE SUBJECT OF THE DECLARATION UNDER VDI S. BESIDES IN THE INSTANT CASE ENTRIES OF BOTH THE PRE OPERATIVE EXPE NSES AND INTEREST INCOME OBTAINED IN THE ACCOUNTS. THE VDIS DECLARAT ION MERELY HAD THE EFFECT OF UNDOING THE SET OFF OF INTEREST INCOM E AGAINST THE PRE OPERATIVE EXPENSES. AS MENTIONED ABOVE EVEN IF TH E INTEREST INCOME HAD BEEN BROUGHT TO TAX U/S 56 THE EFFECT WOULD BE THE SAME. THE FACT THAT THE APPELLANT CHOSE TO AVAIL THE OPPORTUN ITY OFFERED BY THE VDIS CANNOT ALTER ITS OTHER RIGHTS UNDER THE LAW FO R THESE REASONS I HOLD THAT UPON CHARGING OF THE SAID INTEREST AMOUNT TO TAX THE PRE OPERATIVE EXPENSES WOULD STAND INCREASED CORRESPOND INGLY. CONSEQUENTLY THE ACTUAL COST OF THOSE ASSETS TO WHI CH THE PREOPERATIVE EXPENSES HAD BEEN ALLOCATED WOULD ALSO STAND INCREASED WITHIN THE MEANING OF SEC 43(1). THIS IS AS PER THE DECISIONS OF THE BOMBAY HIGH COURT IN THE CASES OF CIT VS BSES, 142 ITR 298 AND AHMEDABAD ELECTRICITY CO. VS CIT 19 0 ITR 413 (BOM) AND DECISION OF THE HONBLE APEX COURT IN THE CASE OF RELIANCE INDUSTRIES 6 SAHARANPUR ELECTRIC SUPPLY CO. LTD VS CIT 194 ITR 2 94 WHERE IT WAS HELD THAT ACTUAL COST HAS TO BE DETERMINED EVERY YE AR. SUCH DETERMINATION CANNOT BE PREVENTED BECAUSE ACTUAL CO ST HAS ALREADY BEEN DETERMINED IN ONE OR MORE EARLIER YEARS . THE COURT FURTHER HELD THAT U/S 4391) READ WITH SEC 43(6) THE AO HAS TO DETERMINE THE ACTUAL COST FOR ALL ASSETS NEW AND OLD. FOR THESE REASONS I AM INCLINED TO HOLD THAT THE DI SALLOWANCE OF THE CLAIM OF DEPRECIATION OF RS 26,13,46,000 IS NOT COR RECT. THE AO IS DIRECTED TO ALLOW DEPRECIATION OF RS 26,13,46,000 A S ALLOWED IN THE ORIGINAL ASSESSMENT. 7. THE REVENUE IS ON APPEAL AGAINST THE ALLOWANCE O F DEPRECIATION. THE FACTS ARE AS EXTRACTED BY THE LD. CIT(A) IS THA T M/S. RELIANCE PETROCHEMICALS LTD (RPCL) THE ASSESSEE DURING THE P RE-OPERATIVE PERIOD HAD EARNED AN INCOME OF RS.1045383202/- THEY HAVE REDUCED THE SAME FROM THE PRE-OPERATIVE EXPENSES WHICH HAD BEEN CAPI TALIZED IN ARRIVING AT THE COST OF ASSETS ON WHICH DEPRECIATION WAS CLAIME D. THE ASSESSING OFFICER HAD ASSESSED THE INCOME AS INCOME FROM OTHE R SOURCES. ON APPEAL THE TRIBUNAL HAD SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE MATTER AFRESH AFTER CONSIDERI NG THE DECISION OF THE APEX COURT IN THE CASE OF TUTICORIN ALKALI AND CHEM ICALS LIMITED REPORTED IN 227 ITR 172. MEANWHILE RPCL AMALGAMATED WITH THE ASSESSEE WITH EFFECT FROM 1.3.1992.BEFORE THE ASSES SING OFFICER COULD REFRAME THE ASSESSMENT PURSUANT TO THE ORDER OF THE ITAT, THE ASSESSEE HAD OFFERED VDIS, 1997. IN THEIR DECLARATION UNDER VDIS IT HAS BEEN SPECIFICALLY MENTIONED THAT AS THE AFORESAID INCOME DOES NOT RESULT IN CREATION OF ANY ASSETS REQUISITE COLUMN NO.4,5 AND 6 OF TABLE 5 OF THE FORM OF VOLUNTARY DISCLOSURE INCOME IS NOT FILLED. THE ASSESSEE THEREAFTER CONTENTED THAT THE INCOME OFFERED UNDER VDIS HAS ORIGINALLY GONE TO REDUCE THE COST OF ACQUISITION OF ASSETS ON WHICH DEPRECIATION HAS BEEN CLAIMED. NOW THAT INCOME HAS BEEN SEPARATELY TAXED THE COST OF ACQUISITION OF ASSETS SHOULD CORRESPONDINGLY BE INC REASED. THE AO REJECTED THIS CLAIM ON THE GROUND THAT THE NO FURTH ER BENEFIT OBTAINED FROM THE RELIANCE INDUSTRIES 7 ASSESSEE IN RESPECT OF INCOME OFFERED UNDER VDIS AN D FURTHER NO ENTRIES HAVE BEEN MADE IN THE BOOKS FOR INCREASE IN COST OF ACQU ISITION OF ASSETS. 8. THE LD. CIT(A) HAD HELD CLAIM OF THE ASSESSEE TH AT ONCE THE INCOME WHICH IS GIVEN TO REDUCE THE COST OF ACQUISITION HAS SEPA RATELY TAXED THEN THE CORRESPONDINGLY AND AS A CONSEQUENCE THE COST OF AC QUISITION OF THE ASSETS SHOULD ALSO BE INCREASED. MERE ENTRIES OR LACK OF THEM IN THE BOOKS OF ACCOUNT CANNOT AFFECT THE DETERMINATION OF SUBSTANTIVE ISSU E AS PER LAW. FURTHER, THE CIT(A) ALSO RELIED ON VARIOUS DECISIONS WHEREIN THE WDV HAS TO BE DETERMINED BASED ON THE ACTUAL COST THAT MAY BE WORKED OUT EVE RY YEAR AND THE WDV SHOULD BE ARRIVED AT AFTER DEDUCTING THEREFROM THE DEPRECIATION ACTUALLY ALLOWED. THE CIT(A) DIRECTED THE ALLOWANCE OR DEPRE CIATION AT 25% RELATING TO THE ABOVE INCOME OF RS.1045383201/-. 9. THE CONTENTION OF THE REVENUE IS THAT UNDER VDIS THE DECLARANT SHALL NOT BE ENTITLED IN RESPECT OF VDIS TO REOPEN ANY ISSUE OR REASSESSMENT MADE IN THE INCOME TAX ACT OR CLAIM ANY SET OR RELIEF ON APPEAL , REFERENCE OR OTHER PROCEEDINGS. THEREFORE, THE ASSESSEE WHO HAD OFFER ED THE INCOME DURING THE PRE-OPERATIVE PERIOD CANNOT CLAIM BENEFIT OF DEPREC IATION ON THE SAME AMOUNT. 9.1 THE LD. DR SUBMITTED AS FOLLOWS: THE DECLARANT SHALL NOT BE ENTITLED IN RESPECT OF THE VOLUNTARILY DISCLOSED INCOME OR ANY AMOUNT OF TAX PAID THEREON, TO REOPEN ANY ASSESSMENT OR REASSESSMENT MADE UNDER THE I.T.ACT O R THE WEALTH TAX ACT OR CLAIM ANY SET-OFF OR RELIEF IN ANY APPEA L, REFERENCE OR OTHER PROCEEDING IN RELATION TO ANY SUCH ASSESSMENT OR RE ASSESSMENT. 10. WE HEARD BOTH THE PARTIES. THE FACTS OF THE MAT TER IS THAT THE ASSESSEE HAD INCURRED CERTAIN EXPENSES ON SETTING UP ITS PLA NT AND MACHINERY. THE PREOPERATIVE EXPENSES WERE ADDED TO THE COST OF ACQ UISITION AND DEPRECIATION CLAIMED. HOWEVER, ON THE BASIS OF ACCOUNTING STAND ARD PRE-OPERATIVE INCOME WERE REDUCED FROM THE COST OF THE ASSETS AND THE DE PRECIATION WAS CLAIMED ON THE LOWER AMOUNT. ONCE THE PRE-OPERATIVE INCOME AS PER THE DIRECTIONS OF THE ITAT ARE ASSESSED SEPARATELY AS INCOME, THEY CANNOT BE REDUCED FROM THE CAPITALIZED COST OF ACQUISITION OF THE ASSETS. THER EFORE THEN AS A RELIANCE INDUSTRIES 8 CONSEQUENCE, THE COST OF ACQUISITION OF THE PLANT A ND MACHINERY WOULD ALSO BE ENHANCED BY THAT AMOUNT. THUS ONCE THE PREO PERATIVE INCOME WHICH HAD GONE TO REDUCE THE COST OF ACQUISITION OF THE ASSETS IS TAXED SEPARATELY, THEN CORRESPONDINGLY THE COST OF ACQUIS ITION WOULD GET ENHANCED TO THEIR ORIGINAL LEVEL I.E PRIOR TO REDUC TION OF THE SAME BY THE PREOPERATIVE INCOME. 11. IT IS ON THIS ENHANCED COST OF ACQUISITION THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION. EVERY YEAR THE WDV OF THE ASSETS ON WHICH THE DEPRECIATION IS TO BE GRANTED, HAVE TO BE COMPUTED ON THE CORRECT COST OF ACQUISITION AS REDUCED BY THE ACTUAL DEPRECIATION A LLOWED IN COMPUTING THE TAXABLE INCOME OF THE EARLIER YEARS. (CIT V DOO M DOOMA INDIA LTD 310 ITR 392 (SC). THIS INCREASE IN COST OF ACQUISIT ION OF PLANT AND MACHINERY DOES NOT DEPEND ON WHETHER PRE-OPERATIVE INCOME WAS ASSESSED IN THE REGULAR ASSESSMENT PROCEEDING OR WA S ASSESSED ON THE BASIS OF DECLARATION UNDER THE VDIS. THE ADDITIONAL DEPRECIATION CLAIMED IS NOT A RELIEF CLAIMED ON THE PREOPERATIVE INCOME OFFERED UNDER VDIS, BUT ON THE CORRECT COST OF ACQUISITION. IT IS NOT A RELIEF CLAIMED ON THE INCOME OFFERED UNDER VDIS. 12. IN THE INSTANT CASE, THE ASSESSEE IS NOT CLAIMI NG ANY RELIEF IN RESPECT OF THE INCOME OFFERED UNDER VDIS. AS POINT ED THIS INCOME WOULD HAVE BEEN TAXED UNDER THE NORMAL ASSESSMENT GIVING EFFECT TO THE ORDER OF THE ITAT AND CORRESPONDINGLY THE COST OF ACQUISI TION AND THE DEPRECIATION WOULD HAVE BEEN ENHANCED. IT IS THIS I NCOME WHICH WOULD HAVE BECOME TAXED IN THE REGULAR ASSESSMENT WAS DEC LARED UNDER THE VDIS. THEREFORE THE ASSESSEE IS NOT CLAIMING ANY F URTHER RELIEF BY CLAIMING DEPRECIATION ON THE CORRECT COST OF ACQUIS ITION WITHOUT REDUCTION OF PRE-OPERATIVE INCOME. THEREFORE, WE AGREE WITH T HE CONCLUSION OF THE RELIANCE INDUSTRIES 9 CIT(A) THAT THE ASSESSEE IS ENTITLED TO DEPRECIATIO N ON THE TOTAL COST OF ACQUISITION WITHOUT REDUCING THE PRE-OPERATIVE INCO ME OF RS.1045383201/- WHICH HAS BEEN EXCLUDED AND TAXED S EPARATELY. THE REVENUES APPEAL ON THIS ISSUE IS DISMISSED. 13. THE SECOND ISSUE IS AGAINST THE CIT(A) ALLOWING EXPENDITURE OF RS 2500.99 LAKHS TOWARDS WELL HEAD PLATFORM, U/S 42(1) (B) OF THE ACT. THE ASSESSEE CLAIMED TOTAL EXPENDITURE OF RS 13717.10 L AKHS AS DEDUCTION U/S 42(1)(B), IN RESPECT OF OIL AND GAS DIVISION FO R EXTRACTION AND PRODUCTION OF OIL AND GAS FROM PANNA, MUKTA AND TAP TI FIELDS. AS PER DETAILS OF THIS EXPENDITURE FURNISHED BEFORE THE AO , THE EXPENDITURE ON PRODUCTION FACILITIES AT PANNA MUKTA FIELD INCLUDES RS 25.00 CRORE INCURRED ON WELL HEAD PLATFORMS WHICH WAS CLAIMED D EDUCTIBLE U/S 42(1)(B) AS EXPENDITURE INCURRED ON DRILLING AND EX PLORATION,. THE AO HAS DISALLOWED THE CLAIM ON THE GROUND THAT THE EXPENDI TURE ON PRODUCTION FACILITIES IS NOT RELATED TO DRILLING AND EXPLORATI ON ACTIVITIES AND IS THEREFORE NOT ELIGIBLE FOR DEDUCTION U/S 42(1)(B) O F THE ACT. 14. THE LD, AR OF THE APPELLANT EXPLAINED THAT THE APPELLANT COMPANY IS UNDERTAKING THE ACTIVITIES OF EXPLORATION EXTRAC TION AND PRODUCTION OF OIL AND GAS FROM THE PANNA, MUKTA AND TAPTI FIELDS IN A JOINT VENTURE. THE APPELLANT INCURS VARIOUS EXPENSES ON DRILLING E XPLORATION EXTRACTION AND PRODUCTION ACTIVITIES. THE AR FURTHER EXPLAINED THAT THE EXPENDITURE IN EXPLORATION AND PRODUCTION (HEREINAFTER REFERRED TO AS E&P) IS CLASSIFIED BASED ON THE NATURE OF ACTIVITIES PERFOR MED UNDERTAKEN AS UNDER: ACQUISITION ACTIVITIES: I. COST OF ACQUIRING EXPLORATION DEVELOPMENT AND PRODU CTION RIGHTS. RELIANCE INDUSTRIES 10 II. INCLUDES LEASE BONUS BROKERS, FEES, LEGAL COSTS TO ACQUIRE EXPLORATION EIGHTS. EXPLORATION ACTIVITIES: I. COST OF AERIAL, GEOLOGICAL. GEOPHYSICAL, GEOCHEMICA L, PALAENTOLOGICAL , TOPOGRAPHICAL AND SEISMIC SURVEYS , STUDIES, ANALYSIS AND INTERPRETATION INVESTIGATIONS RELATING TO SUBSURFACE GEOLOGY. II. COST OF STRUCTURAL DRILLING EXPLORATORY TYPE, ST RATIGRAPHIC, TEST DRILLING DRILLING OF EXPLORATION AND APPRAISAL WELL S. III. COST OF CARRYING AND RETAINING UNDEVELOPED PROPERT IES, SUCH AS DELAY RENTAL LEGAL COST FOR TITLE DEFENCE MAINTENAN CE OF LAND AND LEASE RECORDS. IV. DRY HOLE CONTRIBUTIONS AND BOTTOM HOLE CONTRIBUTION . DEVELOPMENTS ACTIVITIES (A) DEVELOPMENT DRILLING. (B) COST OF PREPARING WELL LOCATIONS FOR DRILLING INCLU DING SURVEYING WELL LOCATIONS FOR DETERMINING DEVELOPMENT DRILLING SITE S CLEANING GROUND DRAINING ROAD BUILDING GAS LINES AND POWER L INES NECESSARY TO DEVELOP PROVED OIL AND GAS RESERVES. (C) COS OF DRILLING AND EQUIPPING DEVELOPMENT WELLS. DEVELOPMENT TYPE STRATIGRAPHIC TESTS WELLS AND SE RVICE WELLS. D. COST OF WELL EQUIPMENTS SUCH AS CASING TUBING P UMPING EQUIPMENT. PRODUCTION FACILITIES: I. COST OF PLATFORMS WELL HEAD ASSEMBLY II. COST OF INSTALLATION OF LEASE FLOW LINES SEPARATORS TREATERS HEATERS, MANIFOLDS MEASURING DEVICE AND PRODUCTION STORAGE RELIANCE INDUSTRIES 11 TANKS, NATURAL GAS CYCLING AND PROCESSING PLANTS AN D UTILITY AND WASTE DISPOSAL SYSTEMS. PRODUCTION ACTIVITIES: (A) PRE WELL HEAD COST: (I) COST OF LABOUR REPAIRS AND MAINTENANCES MATERIALS S UPPLIES FUEL AND POWER PROPERTY TAXES INSURANCE SEVERANCE TAXES, ROYALTY AND OTHER COSTS INCURRED FOR LIFTING THE OIL AND GA S TO THE SURFACE. (II) WORK OVER OF WELLS. B. PRE WELL HEAD COST: COST OF GATHERING TREATING FIELD TRANSPORTATION FIE LD PROCESSING ETC. 15. THE AR CONTENDED THAT THE EXPENDITURE INCURRED UNDER THE ABOVE HEADS FOR E& P ARE ACCOUNTED UNDER THE HEADS CAPITA L EXPENDITURE OR REVENUE EXPENDITURE DEPENDING UPON THE NATURE OF AC TIVITY PERFORMED. THE AR HAS SUBMITTED A DETAILED TECHNICAL NOTE TO J USTIFY AS TO HOW THE EXPENSES INCURRED IN WELLHEAD PLATFORMS ARE ACTUALL Y FOR DRILLING OR EXPLORATION ACTIVITIES. THE SAID NOTE IS REPRODUCE D AS UNDER: JUSTIFICATION FOR CLAIMING WELLHEAD PLATFORMS UNDER SECTION 42 : EXPLORATION ACTIVITIES INCLUDE ACQUISITION PROCESSI NG AND INTERPRETATION OF GEOLOGICAL & GEOPHYSICAL DATA VAR IOUS ANALYSIS STUDIES AND INVESTIGATIONS SUCH AS GEO CHEM./BIOSTR AT ANALYSIS. PVT FLUID ANALYSIS CORE ANALYSIS AND DRILLING OF WELLS FOR PROSPECTING FOR HYDROCARBONS. PRODUCTION FACILITIES INCLUDES WELLHEAD PLATFORMS P ROCESSING PLATFORMS INFIELD PIPELINES AND EXPORT PIPELINES. P ART OF THESE FACILITIES WELLHEAD PLATFORMS (VIZ PLATFORM PC,PF A ND PG) HOUSES EQUIPMENTS ESSENTIAL FOR DRILLING OF WELLS. THESE WELLHEAD PLATFORMS ARE NECESSARY TO BE INSTAL LED BEFORE THE DRILLING OF WELLS AND THE UTILITY OF THESE PLATFORM S ARE AS FOLLOWS: RELIANCE INDUSTRIES 12 FACILITATE DRILLING OF DRILL MULTIPLE WELLS FROM A SINGLE LOCATION. ON COMPLETION OF EACH WELL THE WELLHEAD PLATFORM ON LY HOLDS THE ASSEMBLY OF VALVES FOR MANUAL AND AUTOMATIC WELL CL OSURE AND CONTROL OF PRODUCTION RATE HAS TO BE INSTALLED. AFTER A WELL HAS BEEN DRILLED AND PERFORMED THE WEL L HAS TO BE TESTED TO DETERMINE WELL PRODUCTIVITY AND COLLECT OTHER PR ODUCTION AND RESERVOIR DATA. DURING THESE WELL TESTS HYDROCARBON S ALONG WITH DRILLING AND COMPLETION FLUIDS THAT ARE POTENTIALLY HAZARDOUS TO THE ENVIRONMENT ARE PRODUCED. THESE FLUIDS HAVE TO BE H ANDLED VERY CAREFULLY WITHOUT CAUSING ANY ENVIRONMENTAL DAMAGE. THE FACILITIES ON THE WELLHEAD PLATFORM LIKE TEST SEPARATOR, MANIF OLDS AND SUMPS ARE USED TO CARRY OUT WELL TESTING WITHOUT VIOLATIN G ANY ENVIRONMENTAL REGULATIONS. THE WELLHEAD PLATFORM PROVIDES THE NECESSARY SUPPOR T FOR THE WELL CONDUCTORS AND THEREFORE HAS TO BE INSTALLED BEFORE THE WELLS ARE IN PLACE. CATHODIC PROTECTION IS REQUIRED FOR THE WELL CONDUC TORS SO THAT THEY CAN BE USED AS LONG AS THE WELL IS CAPABLE OF PRODU CING. THE HARDWARE REQUIRED FOR CATHODIC PROTECTION IS PROVID ED AT THE WELLHEAD PLATFORM. THUS THE WELLHEAD PLATFORM AND THE ASSOCIATED EQUIP MENT AS AFORESAID ARE PART AND PARCEL OF DRILLING OPERATION S IN OFFSHORE AREAS. THE PRODUCTION SHARING CONTRACT (PSC) SIGNED WITH T HE GOVERNMENT OF INDIA SPECIFICALLY ALLOWS THE PROSPECTORS TO CLAIM SECTION 42 DEDUCTION IN RESPECT OF THE PHYSICAL ASSETS USED IN DRILLING OR EXPLORATION ACTIVITIES OR SERVICES. SINCE WELLHEAD PLATFORM ARE VERY MUCH AN ASSET USED IN DRILLING IT IS RIGHTLY ALLOWA BLE FOR DEDUCTION UNDER SECTION 42. IN RESPECT TO THE OTHER FACILITIES SUCH PROCESSING PLATFORMS INFIELD PIPELINES AND EXPORT PIPELINES ARE RELATED TO TRANS PORTATION AND PROCESSING OF HYDROCARBONS AND THEREFORE CLASSIFIED AS FIXED ASSET AND DEPRECIATION IS CLAIMED ON THE SAME. IT IS SUBMITTED THAT SINCE WELLHEAD PLATFORM ARE ES SENTIAL FOR CONDUCT OF EXPLORATION ACTIVITIES THE EXPENDITURE INCURRED ON THE SAME SHOULD BE CONSIDERED AS AN ALLOWABLE EXPENSE UNDER SEC 42 OF THE ACT. IT IS URGED THAT SECTION 42(1)(B) OF THE ACT ALLOWS DEDUC TION ON EXPENDITURE INCURRED IN RESPECT OF DRILLING OR EXPL ORATION ACTIVITIES OR IN RESPECT OF PHYSICAL ASSETS USED FOR THAT PURPOSE . IT IS SUBJECTED RELIANCE INDUSTRIES 13 THAT SINCE A PART OF CAPITAL EXPENDITURE INCURRED AND CLUBBED UNDER THE HEAD PRODUCTION ACTIVITY IS DIRECTLY ATTRIBUTAB LE TO DRILLING AND EXPLORATION ACTIVITY THE SAME IS CLEARLY ALLOWABLE AS DEDUCTION WHILE COMPUTING THE TOTAL INCOME UNDER SEC 42 OF THE ACT AS CLAIMED. 16. BEFORE THE CIT(A) THE AR ASSERTED THAT THE DETA ILS OF EXPLORATION DRILLING AND PRODUCTION EXPENDITURE WERE FILED DURI NG THE COURSE OF ASSESSMENT, THESE DETAILS CLEARLY SHOW THAT EXPENDI TURE ON PRODUCTION FACILITIES INCLUDES RS 25.00 CRORE INCURRED ON PLA TFORMS AT PANNA, MUKTA SITE. THIS EXPENSE THOUGH CLASSIFIED UNDER THE EXPE NSES HEAD PRODUCTION FACILITIES IS ACTUALLY IN THE NATURE OF EXPENSES IN CURRED ON DRILLING OR EXPLORATION ACTIVITIES AND SO HAS BEEN RIGHTLY CLAI MED AS DEDUCTION UNDER SECTION 42(1)(B) OF THE ACT. 17. IN THE ALTERNATIVE THE AR SUBMITTED THAT THE AS SESSEE IS ELIGIBLE FOR DEPRECIATION ON THE CAPITAL EXPENDITURE RELATING TO THE DRILLING EXTRACTION AND PRODUCTION FACILITIES. 18. THE LD. CIT(A) ACCEPTED THE CONTENTION OF THE A SSESSEE OBSERVING AS UNDER: I HAVE CAREFULLY CONSIDERED THE MATTER THE AO HAS DISALLOWED THE CLAIM OF THE APPELLANT MERELY BY STATING THAT THE A PPELLANT COULD NOT SUBSTANTIATE ITS CLAIM THAT THE EXPENDITURE ON PROD UCTION FACILITIES IS RELATED TO THE DRILLING AND EXPLORATION ACTIVITIES FOR WHICH THE DEDUCTION U/S 42(1)(B) IS ALLOWABLE. NO OTHER INFIR MITY IN THE CLAIM WAS POINTED OUT BY THE AO. ON A CONSIDERATION OF T HE NOTE EXPLAINING THE NECESSITY OF WELLHEAD PLATFORMS FOR EXPLORATION AND DRILLING OPERATIONS. I AM OF THE VIEW THAT INSTALLA TION OF WELLHEAD PLATFORMS IS AN INTEGRAL PART OF THE DRILLING AND E XPLORATION PROCESS. IT APPEARS THAT THE AO ALSO MAY HAVE NO QUARREL WITH THIS POSITION BECAUSE SIMILAR EXPENSES ON WELL HEAD PLATFORMS HAV E BEEN ALLOWED AS DEDUCTION IN THE PRECEDING AS WELL IN SUBSEQUENT YEARS U/S 42(1)(B). EVEN DURING THE YEAR UNDER CONSIDERATION EXPENSES OF RS.5.20 CRORE INCURRED ON THE WELLHEAD PLATFORMS AT TAPTI FIELD HAS BEEN ALLOWED AS DEDUCTION U/S 42(1)(B) ON THE FACTS OF THE CASE THEREFORE, I AM INCLINED TO AGREE WITH THE APPELLAN T THAT INSTALLATION OF WELLHEAD PLATFORM FORMS PART OF DRILLING AND EXP LORATION ACTIVITIES RELIANCE INDUSTRIES 14 AND EXPENSES INCURRED ON THE SAME WILL BE ELIGIBLE FOR DEDUCTION U/S 42(1)(B) OF THE IT ACT. THIS GROUND OF APPEAL IS T HEREFORE ALLOWED. 19. AGGRIEVED THE REVENUE IS ON APPEAL BEFORE US. W E HEARD BOTH THE PARTIES. THE ISSUE PERTAINS TO ALLOWANCE OF EXPENSE S OF RS.25 CRORES (OUT OF THE TOTAL EXPENSES OF RS.13717.70 LAKHS) TOWARDS WELL HEAD PLATFORM WHICH WAS CLAIMED U/S.42(1)(B) AS EXPENDITURE INCUR RED ON DRILLING AND EXPLORATION. THE ASSESSING OFFICER DISALLOWED THE CLAIM ON THE GROUND THAT EXPENDITURE ON PRODUCTION FACILITY IS NOT RELA TED TO DRILLING AND EXPLORATION ACTIVITIES AND IS THEREFORE NOT ELIGIBL E FOR DEDUCTION U/S.42(1)(B) OF THE ACT. 20. BEFORE THE CIT(A), THE ASSESSEE HAD GIVEN DETAI LS/PARTICULARS OF ACTIVITIES AND THE NECESSITY OF WELL HEAD PLATFORM FOR CARRYING OUT THE DRAWING AD EXPLORATION ETC., ACTIVITIES. CONSIDERIN G THE DETAILED EXPLANATION BY THE ASSESSEE, THE CIT(A) HAS DIRECTE D THE ALLOWANCE OF RS.25 CRORES AS DEDUCTION UNDER SECTION 42(1)(B). 21. SECTION 42(1)(B) PROVIDES FOR DEDUCTION, AFTER BEGINNING OF COMMERCIAL PRODUCTION EXPENSES INCURRED IN RESPECT OF DRILLING AND EXPLORATION ACTIVITIES ON THE BASIS OF AGREEMENT EN TERED INTO BETWEEN THE GOVERNMENT OF INDIA AND THE ASSESSEE. THE ISSUE FO R CONSIDERATION IS WHETHER THE EXPENDITURE OF WELLHEAD PLATFORM WILL C ONSTITUTE EXPENDITURE IN RESPECT OF DRILLING AND EXPLORATION ACTIVITIES A S WELL AS IN RESPECT OF PHYSICAL ASSETS USED IN THAT CONNECTION. 22. AS POINTED OUT BY THE LD.CIT(A), THE WELLHEAD P LATFORM IS NECESSARY FOR CARRYING OUT DRILLING AND EXPLORATION ACTIVITIES. FOR THE SAKE OF CONVENIENCE THE PART PLAYED BY WELL HEAD IN DRILLING AND EXPLORATION AS EXPLAINED BY THE ASSESSEE IS REPRODU CED BELOW: RELIANCE INDUSTRIES 15 EXPLORATION ACTIVITIES INCLUDE ACQUISITION PROCESSI NG AND INTERPRETATION OF GEOLOGICAL & GEOPHYSICAL DATA VAR IOUS ANALYSIS STUDIES AND INVESTIGATIONS SUCH AS GEO CHEMICAL/BIO STRATA ANALYSIS. PVT FLUID ANALYSIS CORE ANALYSIS AND DRILLING OF WE LLS FOR PROSPECTING FOR HYDROCARBONS. PRODUCTION FACILITIES INCLUDES WELLHEAD PLATFORMS P ROCESSING PLATFORMS INFIELD PIPELINES AND EXPORT PIPELINES. P ART OF THESE FACILITIES WELLHEAD PLATFORMS (VIZ PLATFORM PC,PF A ND PG) HOUSES EQUIPMENTS ESSENTIAL FOR DRILLING OF WELLS. THESE WELLHEAD PLATFORMS ARE NECESSARY TO BE INSTAL LED BEFORE THE DRILLING OF WELLS AND THE UTILITY OF THESE PLATFORM S ARE AS FOLLOWS: FACILITATE DRILLING OF DRILL MULTIPLE WELLS FROM A SINGLE LOCATION. ON COMPLETION OF EACH WELL THE WELLHEAD PLATFORM ON LY HOLDS THE ASSEMBLY OF VALVES FOR MANUAL AND AUTOMATIC WELL CL OSURE AND CONTROL OF PRODUCTION RATE HAS TO BE INSTALLED AFTER A WELL HAS BEEN DRILLED AND PERFORMED THE WEL L HAS TO BE TESTED TO DETERMINE WELL PRODUCTIVITY AND COLLECT OTHER PR ODUCTION AND RESERVOIR DATA. DURING THESE WELL TESTS HYDROCARBON S ALONG WITH DRILLING AND COMPLETION FLUIDS THAT ARE POTENTIALLY HAZARDOUS TO THE ENVIRONMENT ARE PRODUCED. THESE FLUIDS HAVE TO BE H ANDLED VERY CAREFULLY WITHOUT CAUSING ANY ENVIRONMENTAL DAMAGE. THE FACILITIES ON THE WELLHEAD PLATFORM LIKE TEST SEPARATOR, MANIF OLDS AND SUMPS ARE USED TO CARRY OUT WELL TESTING WITHOUT VIOLATIN G ANY ENVIRONMENTAL REGULATIONS. THE WELLHEAD PLATFORM PROVIDES THE NECESSARY SUPPOR T FOR THE WELL CONDUCTORS AND THEREFORE HAS TO BE INSTALLED BEFORE THE WELLS ARE IN PLACE. CATHODIC PROTECTION IS REQUIRED FOR THE WELL CONDUCTORS SO THAT THEY CAN BE USED AS LONG AS THE WELL IS CAPABLE OF PRODUCING. THE HARDWARE REQUIRED FOR CATHODIC PROTECTION IS PROVID ED AT THE WELLHEAD PLATFORM. THUS THE WELLHEAD PLATFORM AND THE ASSOCIATED EQUIP MENT AS AFORESAID ARE PART AND PARCEL OF DRILLING OPERATION S IN OFFSHORE AREAS. 23. THIS TECHNICAL EXPLANATION ABOUT THE PURPOSE AN D NECESSITY OF WELL HEADS SUBMITTED BY THE ASSESSEE HAS NOT BEEN SERIOU SLY CONTESTED BY THE DEPARTMENT. WELLHEAD PLATFORM HAS PROVIDED NECESSAR Y SUPPORT FOR DRILLING AND EXPLORATION WHICH IS CARRIED OUT. SECT ION 42(1)(B) SPECIFICALLY ALLOWED THE EXPENDITURE INCURRED AFTER COMMERCIAL P RODUCTION, RELIANCE INDUSTRIES 16 EXPENDITURE INCURRED IN RESPECT OF DRILLING OR EXPL ORATION ACTIVITIES OR IN RESPECT OF PHYSICAL ASSETS USED IN CONNECTION WITH DRILLING AND EXPLORATION. THEREFORE EXPENDITURE IN CONNECTION WI TH DRILL HEADS WILL CERTAINLY FALL WITHIN EXPENDITURE INCURRED IN CONNE CTION WITH DRILLING AND EXPLORATION CONTEMPLATED U/S 42(1)(B). WE ARE THERE FORE OF THE VIEW THAT THE LD. CIT(A) WAS CORRECT IN HOLDING THAT EXPENDIT URE OF RS.25 CRORES INCURRED IN CONNECTION WITH WELLHEAD PLATFORM ARE A LLOWABLE EXPENSES UNDER SECTION 42(1)(B).IT HAS BEEN SUBMITTED BY THE ASSESSEE THAT SIMILAR EXPENDITURE HAS BEEN ALLOWED BY THE ASSESSING OFFIC ER HIMSELF IN OTHER FIELDS. IN THE CIRCUMSTANCES, WE UPHOLD THE ORDER O F THE LD.CIT(A) ALLOWING THE EXPENDITURE OF RS. 2500.99 LAKHS INCUR RED IN CONNECTION WITH WELL HEAD, AND DISMISS THE DEPARTMENTAL APPEAL ON THIS ISSUE. 24. THE NEXT GROUND OF APPEAL BY THE REVENUE IS AGA INST THE LD. CIT(A) DELETING THE ADDITION MADE TO BOOK PROFIT U/S 115JA OF RS 391,17,724/- BEING PROVISION OF DOUBTFUL DEBTS. THE AO INCREASED THE BOOK PROFIT U/S 115JAOF THE IT ACT BY PROVISION FOR DOUBTFUL DEBTS OF RS 3,91,17,724/-. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THOUGH TH IS PROVISION HAD BEEN ADDED BACK BY THE ASSESSEE WHILE COMPUTING INCOME U NDER THE NORMAL PROVISIONS THE SAID PROVISION HAD NOT BEEN ADDED BA CK TO THE BOOK PROFIT U/S 115JA. THE ASSESSING OFFICER TOOK THE VIEW THAT IN TERMS OF CLAUSE (C) OF EXPLANATION TO SEC 115JA (2) THE ASSESSEE COMPAN Y AS REQUIRED TO ADD BACK THE SAID PROVISION FOR COMPUTING THE BOOK PROF IT. IT WAS EXPLAINED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT T HE PROVISION HAD BEEN MADE FOR DEBTS WHICH WERE CONSIDERED BY THE MANAGEM ENT AS DOUBTFUL OF RECOVERY AFTER EVALUATING EACH DEBT. SINCE EACH DEB T HAD BEEN EVALUATED FOR ITS SOUNDNESS IT WAS CONTENDED THAT THE PROVISI ON WAS FOR ASCERTAINED LIABILITY. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES CONTENTION AND ADDED THE PROVISION FOR DOUBTFUL DEBTS TO THE B OOK PROFITS U/S 115JA. RELIANCE INDUSTRIES 17 25. ON APPEAL THE CIT(A) ALLOWED THE CLAIM OF THE A SSESSEE THAT THE PROVISION FOR DOUBTFUL DEBTS REPRESENTS PROVISION F OR DIMINUTION IN VALUE OF ASSETS AND HENCE CANNOT BE ADDED BACK IN COMPUTI NG BOOK PROFITS U/S 115JA. ACCORDINGLY HE DELETED THE ADDITION OF RS 1, 17,355,317/- MADE BY THE ASSESSING OFFICER TO THE INCOME U/S 115JA ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS 26. AGGRIEVED THE REVENUE IS ON APPEAL. ON THIS ISS UE OF EXCLUSION OF PROVISION FOR BAD AND DOUBTFUL DEBTS IN COMPUTING B OOK PROFITS , EVEN THOUGH THE DECISION OF THE SUPREME COURT IN THE CAS E OF CIT VS HCL COMNET SERVICES AND SYSTEMS LTD REPORTED IN 305 ITR 409 IS IN FAVOUR OF THE ASSESSEE, WE FIND THAT SECTION 115JA HAS BEEN S UBSEQUENTLY AMENDED BY FINANCE ACT NO.2 OF 2009 WITH RETROSPECT IVE EFFECT FROM 01.04.1998 (AY: 1998-99) INCLUDING EXPLANATION (G ) WHEREBY ANY AMOUNT SET ASIDE TOWARDS PROVISION FOR DIMINUTION O F ASSETS IS TO BE ADDED BACK IN COMPUTING THE BOOK PROFITS U/S 115JA. AS HELD BY THE APEX COURT IN THE CASE OF CIT VS HCL COMNET SERVICE S AND SYSTEMS LTD REPORTED IN 305 ITR 409, ANY PROVISIONS MADE TOWARD S BAD AND DOUBTFUL IS NOTHING BUT PROVISIONS MADE IN DIMINUTION IN VAL UE OF ASSETS AND IN RESPECT OF SUCH PROVISIONS EXPLANATION (G) WOULD AP PLY AND HENCE SUCH PROVISIONS ARE TO BE ADDED BACK IN COMPUTING THE BO OK PROFITS U/S 115JA. 27. IN THIS VIEW OF THE MATTER HAVING REGARD TO THE AMENDMENT TO SECTION 115JA BY WAY OF INTRODUCTION OF EXPLANATION (G), WE UPHOLD THE CLAIM OF THE REVENUE AND SET ASIDE THE ORDER OF THE CIT(A) AND CONFIRM THE ORDER OF THE ASSESSING OFFICER THAT THE PROVISIONS FOR BAD AND DOUBTFUL DEBTS SHOULD NOT BE DEDUCTED WHILE COMPUTING BOOK P ROFIT UNDER SECTION 115JA. THE APPEAL OF THE REVENUE ON THIS ISSUE IS A LLOWED. THE APPEAL OF THE REVENUE IN ITA NO. 1645/M/2006 FOR ASST. YEAR 1 997-98 IS PARTLY ALLOWED. RELIANCE INDUSTRIES 18 I.T.A. NO. 2394/M/2007: ASST. YEAR: 1998-99 28. THE FIRST GROUND OF APPEAL BY THE REVENUE READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO ALLOW T HE DEPRECIATION OF RS.87,70,401/- ON OPENING WDV OF RS. 3,50,81,605/- WITHOUT APPRECIATING THAT THE DEPRECIATION WAS CLAIMED ON E NHANCED VALUE OF THE ASSET AND AS PER SECTION 69 THE DEPRECIATION CA NNOT BE ALLOWED ON INCOME DECLARED UNDER VDIS. . 29. THE AO IN NOT ALLOWING DEPRECIATION OF RS.87,70 ,401/- ON OPENING WDV OF RS. 3,50,81,605/-. THE FACTS OF THE CASE ARE THAT M/S RELIANCE PETROCHEMICALS LTD (RPCL), WHICH LATER ON MERGED WI TH RELIANCE INDUSTRIES LTD., HAD EARNED INTEREST AND OTHER INCO ME DURING THE CONSTRUCTION PERIOD. THIS INCOME WAS SET OFF AGAIN ST THE PRE-OPERATIVE EXPENSES AND ONLY THE NET AMOUNT WAS CAPITALIZED. L ATER ON, IT WAS HELD BY THE SUPREME COURT IN THE CASE OF TUTICORIN ALKAL I CHEMICALS & FERTILIZERS LTD., 227 ITR 172 THAT THE INTEREST ON FUNDS BEFORE THE COMMENCEMENT OF BUSINESS CANNOT BE SET OFF AGAINST THE CAPITAL EXPENDITURE AND HAS TO BE ASSESSED AS INCOME FROM O THER SOURCES. IN THE MEANTIME, THE DEPARTMENT CAME OUT WITH VOLUNTARY DI SCLOSURE OF INCOME SCHEME (VDIS). THE INTEREST INCOME EARLIER SET OFF BY THE APPELLANT AGAINST PRE-OPERATIVE EXPENSES WAS OFFERED TO TAX U NDER VDIS. ACCORDINGLY, THE APPELLANT INCREASED THE CAPITALIZA TION OF PREOPERATIVE EXPENSES TO THIS EXTENT. THE APPELLANT CLAIMED DEP RECIATION TAKING INTO ACCOUNT THE INCREASED VALUE OF FIXED ASSETS ON ASST . YEAR 1997-98. HOWEVER, THE AO DID NOT ALLOW THE DEPRECIATION ON T HE ENHANCED VALUE OF ASSETS ON THE GROUND THAT, AS PER SECTION 69 OF VDI S, INCOME DECLARED UNDER VDIS CANNOT BE CONSIDERED FOR ANY OTHER RELIE F. HOWEVER, THE CIT(A) ACCEPTED THE CLAIM OF THE APPELLANT VIDE HIS ORDER DATED RELIANCE INDUSTRIES 19 26.12.2005. FOR THE YEAR UNDER CONSIDERATION, THE A PPELLANT CLAIMED DEPRECIATION OF RS 87,70,401/- TAKING INTO CONSIDER ATION THE WDV OF THE ASSETS WORKED OUT AFTER GIVING EFFECT TO THE ORDER OF CIT(A) FOR THE PRECEDING YEAR. THE AO REFUSED TO ALLOW DEPRECIATIO N ON THE INCREASED VALUE OF THE ASSETS ON THE SAME GROUND THAT THE AMO UNT OFFERED UNDER VDIS IS NOT ENTITLED TO ANY OTHER RELIEF UNDER IT A CT. IT IS OBSERVED THAT NO FRESH CLAIM OF DEPRECIATION IS MADE IN THE YEAR ON ACCOUNT OF ANY AMOUNT OFFERED UNDER VDIS DURING THE YEAR. DEPRECI ATION CLAIMED BY THE APPELLANT IS JUST CONSEQUENTIAL TO THE EFFECT GIVEN TO THE ORDER OF CIT(A) FOR THE PRECEDING YEAR. THE CIT(A) ALLOWED THE CLAI M OF DEPRECIATION BY THE ASSESSEE. 30. THE REVENUE IS ON APPEAL. WE FIND THAT WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE THAT THEY ARE ENTITLED TO DEPRECIATION ON THE TOTAL COST OF ACQUISITION WITHOUT REDUCING THE PRE- OPERATIVE INCOME OF RS.1045383201/- WHICH HAS BEEN EXCLUDED AND TAXED S EPARATELY. AS THIS YEAR, THE ASSESSEE HAS CLAIMED DEPRECIATION ON THE WDV OF THE ADDITIONAL AMOUNT OF PREOPERATIVE EXPENSES ADDED TO THE COST O F ACQUISITION, FOLLOWING OUR DECISION IN THE ASSESSEES CASE FOR T HE A.Y 1997-98 IN ITA NO 1645/M/2006 (SUPRA), WE UPHOLD THE CLAIM OF DEPR ECIATION ON THIS AMOUNT AND DISMISS THE APPEAL OF THE REVENUE. 31. THE NEXT GROUND OF APPEAL BY THE REVENUE IS AGA INST THE CIT(A) DELETING THE ADDITION MADE TO BOOK PROFIT U/S 115JA OF RS 12,85,77,140/- BEING PROVISION OF DOUBTFUL DEBTS. T HE AO INCREASED THE BOOK PROFIT BY PROVISION FOR DOUBTFUL DEBTS OF RS 1 2,85,77,140/-, UNDER EXPLANATION (C) TO 115JA THE I.T ACT, TREATING IT A S AN UNASCERTAINED LIABILITY. 32. ON APPEAL THE LD. CIT(A) ALLOWED THE ASSESSEES CLAIM HOLDING THAT PROVISION FOR DOUBTFUL DEBTS IS NOT A PROVISION FOR UNASCERTAINED LIABILITY RELIANCE INDUSTRIES 20 AND HENCE SHOULD NOT BE ADDED BACK WHILE COMPUTING THE BOOK PROFITS U/S 115JA. 33. AGGRIEVED THE REVENUE IS ON APPEAL. ON THIS IS SUE OF EXCLUSION OF PROVISION FOR BAD AND DOUBTFUL DEBTS IN COMPUTING B OOK PROFITS , EVEN THOUGH THE DECISION OF THE SUPREME COURT IN THE CAS E OF CIT VS HCL COMNET SERVICES AND SYSTEMS LTD REPORTED IN 305 ITR 409 IS IN FAVOUR OF THE ASSESSEE, WE FIND THAT SUBSEQUENTLY SECTION 115 JA HAS BEEN AMENDED BY FINANCE ACT NO.2 OF 2009 WITH RETROSPECT IVE EFFECT FROM 01.04.1998 (AY: 1998-99) INCLUDING EXPLANATION (G ) WHEREBY ANY AMOUNT SET ASIDE TOWARDS PROVISION FOR DIMINUTION O F ASSETS IS TO BE ADDED BACK IN COMPUTING THE BOOK PROFITS U/S 115JA. AS HELD BY THE APEX COURT IN THE CASE OF CIT VS HCL COMNET SERVICE S AND SYSTEMS LTD REPORTED IN 305 ITR 409, ANY PROVISIONS MADE TOWARD S BAD AND DOUBTFUL DEBTS IS NOTHING BUT PROVISIONS MADE IN DIMINUTION IN VALUE OF ASSETS AND HENCE EXPLANATION (G) TO SEC 115JA WOULD BE APP LICABLE TO PROVISIONS FOR BAD AND DOUBTFUL DEBTS. HENCE THE PROVISION FOR BAD AND DOUBTFUL DEBTS ARE TO BE ADDED BACK IN COMPUTING THE BOOK PR OFITS U/S 115JA IN VIEW OF EXPLANATION (G) TO SEC 115JA INTRODUCED BY FINANCE ACT (NO.2) OF 2009 WITH RETROSPECTIVE EFFECT FROM 01.04.1998. 34. IN THIS VIEW OF THE MATTER HAVING REGARD TO THE AMENDMENT TO SECTION 115JA BY WAY OF INTRODUCTION OF EXPLANATION (G), WE UPHOLD THE CLAIM OF THE REVENUE AND SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE ORDER OF THE ASSESSING OFFICER HOLDING THAT THE PROVISIONS FOR BAD AND DOUBTFUL DEBTS SHOULD NOT BE DEDUCTED IN COMPUTING BOOK PROFIT UNDER SECTION 115JA. THE APPEAL OF THE REVENUE ON THIS IS SUE IS ALLOWED. 35. THE APPEAL BY THE REVENUE IN I.T.A. NO. 2394/M/ 2007 FOR ASST. YEAR: 1998-99 IS PARTLY ALLOWED. RELIANCE INDUSTRIES 21 ITA NO. 1646/M/2006. ASST. YEAR: 1999-2000 36. THE FIRST GROUND IN THE REVENUES APPEAL IS AGA INST THE LD. CIT(A) DELETING THE ADDITION OF RS 1,32,78,051/- MADE BY T HE A.O. IN COMPUTING BOOK PROFITS U/S 115JA OF THE ACT. DURING THE COUR SE OF REASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT WHI LE COMPUTING THE BOOK PROFIT U/S 115JA THE ASSESSEE HAD BEEN ALLOWED DEDUCTION OF RS 113.62 CRORES U/S 80IA IN RESPECT OF INFRASTRUCTURE PROFITS OF SINGLE BUOY MOORING (SBM) UNIT. HOWEVER, ACCORDING TO THE ASSE SSING OFFICER, THE ACTUAL INFRASTRUCTURE PROFIT OF THE SAID UNIT WAS O NLY RS 109.20 CRORES, BECAUSE DEPRECIATION OF RS. 4.42 CRORES IN RESPECT OF THE SAME, NOT BEEN CLAIMED BY THE ASSESSEE, HAD TO BE GRANTED TO IT. I T WAS EXPLAINED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT SINCE TH E DEDUCTION ADMISSIBLE U/S 80IA WORKED OUT TO RS 113.62 CRORES, THE SAME H AD TO BE TAKEN AS IT IS, IN TERMS OF CLAUSE (VI) OF SECTION 115JA, FOR C OMPUTING BOOK PROFIT UNDER THAT PROVISION. ACCORDINGLY, IT WAS CONTENDE D THAT THE AMOUNT OF RS 113.62 CLAIMED AS DEDUCTION U/S 80IA WHILE COMPU TING BOOK PROFITS WAS CORRECT. 37. THE ASSESSING OFFICER WAS NOT CONVINCED AND HE HELD THAT PROFIT OF THE SBM UNIT HAD TO BE REDUCED BY THE DEPRECIATION IN RESPECT OF THE SAME. ACCORDINGLY, DEPRECIATION OF RS. 4.42 CRORES WAS REDUCED FROM THE PROFITS OF THE SBM UNIT WHICH RESULTED IN CORRESPON DING INCREASE IN THE BOOK PROFIT. THE NET ADDITION TO TAXABLE PROFITS ON THIS ACCOUNT TO INCOME U/S 115JA CAME TO RS 1,32,78,051/- 38. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED T HAT THE DEPRECIATION CANNOT BE THRUST UPON THE ASSESSEE. IN SUPPORT OF THIS PROPOSITION RELIANCE HAS BEEN PLACED ON DECISION OF THE HONBLE MUMBAI TRIBUNAL IN THE CASE OF M/S PLASTIBLENDS INDIA LTD., VS ITO (95 TTJ 1062) (MUM). IN THIS CASE, HONBLE ITAT FOLLOWING THE DECISION OF T HE SUPREME COURT IN RELIANCE INDUSTRIES 22 THE CASE OF MAHINDRA MILLS (2000) 243 ITR 56(SC) AN D VARIOUS TRIBUNAL DECISIONS ON THE SUBJECT HELD THAT DEPRECIATION, IF NOT CLAIMED BY THE ASSESSEE, CANNOT BE THRUST UPON IT FOR COMPUTING DE DUCTION U/S 80IA . IN SO HOLDING, THE HONBLE TRIBUNAL DISTINGUISHED THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF INDIAN RAYON CORPO RATION LTD VS CIT 92003) 182 CTR (BOM) 247. 39. RELIANCE IS FURTHER PLACED BY THE APPELLANT ON ANOTHER RECENT DECISION OF MUMBAI TRIBUNAL IN THE CASE OF SHREE RA JASTHAN TEXCHEM LTD., DATED 22.7.2005 REPORTED AT (2005)97 TTJ (MUM ) 91. IN THIS CASE, ALSO IT WAS HELD THAT DEPRECIATION IF NOT CLAIMED B Y THE ASSESSEE, CANNOT BE THRUST UPON HIM FOR PURPOSES OF COMPUTING DEDUCT ION U/S 80IA. 40. THE ASSESSEE FURTHER SUBMITTED THAT ON THE FACT S OF THE INSTANT CASE DEPRECIATION ON THE SBM UNIT CANNOT EVEN BE CL AIMED BY THE ASSESSEE. IT IS POINTED OUT THAT THE APPELLANT COMP ANY HAD ENTERED INTO AN AGREEMENT FOR CONSTRUCTION OF CAPTIVE JETTY WITH GUJARAT MARITIME BOARD (GMB) VIDE AGREEMENT DATED 1.12.1996. GMB GAV E THE APPELLANT COMPANY LICENSE TO CONSTRUCT SINGLE BUOY MOORING (S BM) FACILITY ALONG WITH SERVICE JETTY. THE SBM FACILITY WAS CONSTRUCT ED BY THE ASSESSEE COMPANY FOR THE PURPOSE OF HANDLING, STORAGE AND TR ANSPORTATION OF MATERIALS MANUFACTURED BY THE APPELLANT COMPANY AND ALSO FOR USE BY THE PUBLIC. SINCE THE SBM UNIT WAS TO BE HANDED OV ER TO GMB, THE APPELLANT COMPANY CLAIMED THE ENTIRE COST OF THE IN FRASTRUCTURE UNIT AS DEDUCTION WHILE COMPUTING ITS TOTAL INCOME FOR THE RELEVANT YEAR. HOWEVER, IN THE BOOKS OF ACCOUNT THE COST OF THE SB M UNIT WAS CAPITALIZED AND DEPRECIATION AT THE APPLICABLE RATE WAS DEBITED IN THE BOOKS YEAR AFTER YEAR. IT IS SUBMITTED THAT SINCE THE ENTIRE COST OF THE SBM HAD BEEN CLAIMED AS REVENUE EXPENDITURE, NO DEP RECIATION IN RESPECT OF THE SAME WAS CLAIMED IN ANY YEAR IN COMP UTING THE TOTAL INCOME AS PER THE NORMAL PROVISIONS OF THE ACT. AC CORDINGLY, RELIANCE INDUSTRIES 23 DEPRECIATION ON THE SAID UNIT WAS ALSO NOT CLAIMED WHILE COMPUTING THE PROFIT U/S 80IA ELIGIBLE FOR DEDUCTION FROM THE BOO K PROFIT IN TERMS OF CLAUSE (VI) OF EXPLANATION TO SEC 115JA. ON THESE F ACTS, IT IS CONTENDED THAT SINCE DEPRECIATION IN RESPECT OF SUCH SBM UNIT CANNOT EVEN BE CLAIMED BY THE ASSESSEE, THERE CAN BE NO QUESTION O F THRUSTING THE SAME UPON THE ASSESSEE. FOR THESE REASONS IT IS CONTENDE D THAT THE APPELLANT COMPANY CORRECTLY COMPUTED THE DEDUCTION ADMISSIBLE U/S 80IA AT RS 113.62 CRORES AND THE ACTION OF THE ASSESSING OFFIC ER IN REDUCING THE DEPRECIATION OF RS. 4.42 CRORES FROM THE ADMISSIBLE DEDUCTION U/S 80IA IS NOT CORRECT. 41. THE CIT(A) ALLOWED THE ASSESSEES CLAIM HOLDING AS UNDER: ON CONSIDERATION OF THE MATTER, I AM INCLINED TO AGREE WITH THE APPELLANT. THE MUMBAI TRIBUNAL DECISIONS CITED BY T HE APPELLANT DO SUPPORT ITS CASE THAT DEPRECIATION, IF NOT CLAIMED, CANNOT BE THRUST UPON THE ASSESSEE FOR PURPOSES OF COMPUTING THE DED UCTION U/S 80IA. HOWEVER THAT MAY BE, IN THE INSTANT CASE DEP RECIATION ON THE SBM UNIT COULD NOT EVEN HAVE BEEN CLAIMED WHILE COM PUTING EITHER THE GROSS TOTAL INCOME OR THE PROFITS AND GAINS DER IVED FROM THE INDUSTRIAL UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 8 0IA. ACCORDINGLY, THE QUANTUM OF DEDUCTION U/S 80IA TO BE REDUCED FRO M THE BOOK PROFITS WOULD CORRECTLY BE RS 113.62 CRORES. IN TH IS VIEW OF THE MATER, THE ADDITION OF RS 132,78,051/- MADE BY THE ASSESSING OFFICER TO INCOME U/S 115JA IS DIRECTED TO BE DELET ED. 42. AGGRIEVED THE REVENUE IS ON APPEAL. THE ISSUE I S REGARDING THE RELIEF TO BE GRANTED UNDER EXPLANATION (VI) TO SEC 115JA IN RESPECT OF PROFITS ATTRIBUTABLE TO INFRASTRUCTURE FACILITY AS DEFINED UNDER EXPLANATION TO SEC 80 IA(4). IN THE ORIGINAL ASSESSMENT THE RELIEF UND ER SEC 80IA IN RESPECT OF THE SBM UNIT WAS COMPUTED AT RS 113.62 CRORES AND T HE SAME WAS DEDUCTED UNDER EXPLANATION (VI) TO SEC 115JA WHILE COMPUTING THE BOOK PROFITS UNDER THAT SECTION. IN THE REOPENING, THE A O HAS STATED THAT THE RELIEF UNDER SEC 80 IA SHOULD BE REDUCED BY THE DEP RECIATION OF RS.4.42 CRORES ATTRIBUTABLE TO THAT UNDERTAKING BUT NOT CLA IMED BY THE ASSESSEE. RELIANCE INDUSTRIES 24 BUT AS FOUND BY THE CIT(A), THE ASSESSEE COULD NOT HAVE CLAIMED DEPRECIATION ON THE ASSETS USED IN THE SBM, SINCE T HE SBM UNIT WAS TO BE HANDED OVER TO GUJARATH MARITIME BOARD, THE ASSE SSEE HAD CLAIMED THE ENTIRE COST OF THE INFRASTRUCTURE UNIT AS DEDUC TION WHILE COMPUTING ITS TOTAL INCOME FOR THE RELEVANT YEAR. HOWEVER, I N THE BOOKS OF ACCOUNT THE COST OF THE SBM UNIT WAS CAPITALIZED AND DEPREC IATION AT THE APPLICABLE RATE WAS DEBITED IN THE BOOKS YEAR AFTER YEAR. IN THE CIRCUMSTANCES THERE IS NO QUESTION OF DEDUCTING DEP RECIATION OF RS 4.42. CRORES, WHILE COMPUTING THE RELIEF U/S 80 IA(4) OR FROM THE DEDUCTION TO BE MADE UNDER EXPLANATION (VI) TO SEC 115JA. WE UPH OLD THE ORDER OF THE CIT(A) ON THIS ISSUE AND DISMISS THE DEPARTMENTAL A PPEAL ON THIS ISSUE. 43. THE NEXT GROUND OF THE REVENUE IS AGAINST THE O RDER OF THE CIT(A) HOLDING THAT PROVISION FOR DOUBTFUL DEBTS AND ADVAN CE OF RS. 23,00,01,065/- SHOULD NOT BE ADDED BACK WHILE COMPU TING THE BOOK PROFITS U/S 115JA. SIMILAR ISSUE HAS BEEN CONSIDERE D BY US, IN THE REVENUES APPEALS FOR AY 1997-98 AND 1998-99 SUPRA. 44. ON THIS ISSUE OF EXCLUSION OF PROVISION FOR BAD AND DOUBTFUL DEBTS IN COMPUTING BOOK PROFITS , EVEN THOUGH THE DECISIO N OF THE SUPREME COURT IN THE CASE OF CIT VS HCL COMNET SERVICES AND SYSTEMS LTD REPORTED IN 305 ITR 409 IS IN FAVOUR OF THE ASSESSE E, WE FIND THAT SUBSEQUENTLY SECTION 115JA HAS BEEN AMENDED BY FINA NCE ACT NO.2 OF 2009 WITH RETROSPECTIVE EFFECT FROM 01.04.1998 (AY : 1998-99) INCLUDING EXPLANATION (G) WHEREBY ANY AMOUNT SET ASIDE TOWARD S PROVISION FOR DIMINUTION OF ASSETS IS TO BE ADDED BACK IN COMPUTI NG THE BOOK PROFITS U/S 115JA. AS HELD BY THE APEX COURT IN THE CASE OF CIT VS HCL COMNET SERVICES AND SYSTEMS LTD REPORTED IN 305 ITR 409, A NY PROVISIONS MADE TOWARDS BAD AND DOUBTFUL DEBTS IS NOTHING BUT PROVI SIONS MADE IN DIMINUTION IN VALUE OF ASSETS AND HENCE EXPLANATION (G) TO SEC 115JA WOULD BE APPLICABLE TO PROVISIONS FOR BAD AND DOUBT FUL DEBTS. HENCE THE RELIANCE INDUSTRIES 25 PROVISION FOR BAD AND DOUBTFUL DEBTS ARE TO BE ADDE D BACK IN COMPUTING THE BOOK PROFITS U/S 115JA IN VIEW OF EXPLANATION ( G) TO SEC 115JA INTRODUCED BY FINANCE ACT (NO.2) OF 2009 WITH RETRO SPECTIVE EFFECT FROM 01.04.1998. 45. IN THIS VIEW OF THE MATTER HAVING REGARD TO THE AMENDMENT TO SECTION 115JA BY WAY OF INTRODUCTION OF EXPLANATION (G), WE UPHOLD THE CLAIM OF THE REVENUE AND SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE ORDER OF THE ASSESSING OFFICER HOLDING THAT THE PRO VISIONS FOR BAD AND DOUBTFUL DEBTS SHOULD NOT BE DEDUCTED IN COMPUTING BOOK PROFIT UNDER SECTION 115JA. THE APPEAL OF THE REVENUE ON THIS IS SUE IS ALLOWED. THE APPEAL OF THE REVENUE IN ITA NO 1646/M/06 FOR A.Y 1 999-00 IS PARTLY ALLOWED. 46. IN THE RESULT THE APPEALS BY THE REVENUE IN ITA NO. 1645/M/06 FOR A.Y 1997-98, ITA NO 2394/M/07 FOR THE A.Y 1998-99 A ND ITA NO 1646/M/06 FOR THE A.Y 1999-2000 ARE ALL PARTLY ALLO WED. ORDER PRONOUNCED ON THIS 30 TH DAY OF JUNE, 2011 SD/- SD/- (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICI AL MEMBER MUMBAI, DATED 30 TH JUNE, 2011 RJ RELIANCE INDUSTRIES 26 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR D BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI RELIANCE INDUSTRIES 27 DATE INITIALS 1 DRAFT DICTATED ON: 9 .0 6 .2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 14 .0 6 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10. DATE OF DISPATCH OF ORDER: _________ ______