ACIT, Pune V. Kailash Vahan Udyog Ltd, Pune

ITA 1713/PUN/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1301 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 17-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANURADHA RAVI
• Assessee Lawyers: NILESH KHANDELWAL
• Keywords: Depreciation; Earning of tax free income; Retrospective amendment; Advance ruling; Scheme of amalgamation; Unabsorbed depreciation
• Section: 14A; 115JB; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NO. 1322/PN/2011 %' ( ')( / ASSESSMENT YEAR : 2007-08 M/S. KAILASH VAHAN UDYOG LTD., ALANDI MARKAL ROAD, VILLAGE DHANORE, TAL.-KHED, PUNE-412105 PAN : AACK7302G ....... / APPELLANT ' / V/S. DY. COMMISSIONER OF INCOME TAX, CIRCLE 9, PUNE / RESPONDENT / ITA NO. 1675/PN/2012 %' ( ')( / ASSESSMENT YEAR : 2008-09 KAILASH VAHAN UDYOG LTD., MZSK & ASSOCIATES, (FORMERLY SHAH KHANDELWAL JAIN & ASSOCIATES), CHARTERED ACCOUNTANTS, LEVEL 3, BUSINESS BAY, PLOT NO. 84, WELLESLEY ROAD, NEAR RTO, PUNE 411001 PAN : AACK7302G ....... / APPELLANT ' / V/S. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 9, PUNE / RESPONDENT 2 ITA NO. 1322/PN/2011 AND ITA NOS. 1675 & 1713/PN/20 12 A.YS. 2007-08, 2008-09 / ITA NO. 1713/PN/2012 %' ( ')( / ASSESSMENT YEAR : 2008-09 ASST. COMMISSIONER OF INCOME TAX, CIRCLE 9, PUNE ....... / APPELLANT ' / V/S. KAILASH VAHAN UDYOG LTD., VILLAGE DHANORE, ALANDI MARKAL ROAD, TAL.-KHED, DT.-PUNE, PUNE-412105 PAN : AACK7302G / RESPONDENT ASSESSEE BY : SHRI NILESH KHANDELWAL REVENUE BY : SMT. ANURADHA RAVI / DATE OF HEARING : 16-06-2015 / DATE OF PRONOUNCEMENT : 14-08-2015 * / ORDER PER VIKAS AWASTHY, JM : ITA NO. 1322/PN/2011 FOR ASSESSMENT YEAR 2007-08 AND ITA NO. 1675/PN/2012 FOR ASSESSMENT YEAR 2008-09 HAVE BEEN FIL ED BY THE ASSESSEE IMPUGNING THE ORDER OF COMMISSIONER OF INCOME TA X (APPEALS)-V, PUNE FOR THE RESPECTIVE ASSESSMENT YEARS. THE REVENUE HAS FILED CROSS APPEAL IN ITA NO. 1713/PN/2012 AGAINST TH E ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-V, PUNE DATED 30-05- 2012 FOR ASSESSMENT YEAR 2008-09. 3 ITA NO. 1322/PN/2011 AND ITA NOS. 1675 & 1713/PN/20 12 A.YS. 2007-08, 2008-09 2. THE BRIEF FACTS OF THE CASE ARE : THE ASSESSEE COM PANY IS ENGAGED IN MANUFACTURING AND SALE OF TIPPERS AND OTHER LOAD BODIES . THE ASSESSEE FILED ITS RETURN OF INCOME COMPUTING TAXABLE INCOME UNDER NORMAL PROVISIONS AS WELL AS UNDER MAT PROVISIONS (I.E. U/S. 11 5JB). THE ASSESSEE IN ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08, AS WELL AS, ASSESSMENT YEAR 2008-09 CLAIMED SET OFF OF CARRIED FORWARD LOSS AND UNABSORBED DEPRECIATION OF PREVIOUS YEARS UNDER MAT PROVISIONS. THE ASSESSING OFFICER IN SCRUTINY ASSESSMENT DISALLOWED THE SAME BY FOLLOWING THE DECISION OF THE AUTHORITY FOR ADVANCE RULINGS (AA R) IN THE CASE OF RASHTRIYA ISPAT NIGAM LTD. REPORTED AS 285 ITR 1 (AAR). IN ASSESSMENT YEAR 2008-09, THE ASSESSING OFFICER FURTHER INC LUDED THE BOOK PROFITS AMOUNTING TO RS.4,24,21,240/- OF BANGALORE AND PUNE UNITS OF M/S. KAILASH AUTO BUILDERS LTD. (KABL) THAT WERE MER GED WITH THE ASSESSEE COMPANY IN PURSUANCE OF ORDER FROM BIFR. APART FROM ABOVE ADDITIONS, THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.1,40,820/- U/S. 14A R.W. RULE 8D OF THE INCOME TAX RULE. AGGRIEVED BY THE ASSESSMENT ORDERS, THE ASSESSEE FILED A PPEALS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) FOR THE RES PECTIVE ASSESSMENT YEARS. IN ASSESSMENT YEAR 2007-08, THE CO MMISSIONER OF INCOME TAX (APPEALS) UPHELD THE FINDINGS OF ASSESSING OFFICER WITH RESPECT TO DISALLOWANCE OF CARRIED FORWARD BUSINESS LOSS AN D UNABSORBED DEPRECIATION IN COMPUTING BOOK PROFITS U/S. 115 JB. IN ASSESSMENT YEAR 2008-09, THE COMMISSIONER OF INCOME TAX (APPEALS) ACCEPTED THE CLAIM OF THE ASSESSEE AND PERMITTED THE SE T OFF OF BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION FOR COM PUTATION U/S. 115JB, IN LIGHT OF THE ORDER OF TRIBUNAL IN THE CASE OF KIRLOSKAR FERROUS INDUSTRIES LTD. VS. ADDL. CIT IN ITA NO. 519/PN/20 09 FOR ASSESSMENT YEAR 2005-06 DECIDED ON 30-11-2011. THE C OMMISSIONER 4 ITA NO. 1322/PN/2011 AND ITA NOS. 1675 & 1713/PN/20 12 A.YS. 2007-08, 2008-09 OF INCOME TAX (APPEALS) OBSERVED THAT IN THE SAID ORDER, T HE PUNE BENCH OF THE TRIBUNAL HAD ALSO CONSIDERED THE RULING IN THE CASE OF RASHTRIYA ISPAT NIGAM LTD. (SUPRA). HOWEVER, AS REGARDS ADDITION OF PROFITS OF BANGALORE AND PUNE UNITS FOR COMPUTATION OF BOOK PROFITS U/S. 115JB AND DISALLOWANCE U/S. 14A R.W. RULE 8D, THE COMM ISSIONER OF INCOME TAX (APPEALS) UPHELD THE FINDINGS OF THE ASSESSING OFFICER. AGAINST THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) DATED 12-08-2011 FOR ASSESSMENT YEAR 2007-08, THE ASS ESSEE HAS COME IN SECOND APPEAL BEFORE THE TRIBUNAL. AND AGAINST THE ORD ERS OF COMMISSIONER OF INCOME TAX (APPEALS) DATED 30-05-2012 FOR ASSESSMENT YEAR 2008-09, BOTH, THE ASSESSEE AND THE R EVENUE ARE IN APPEAL. 3. SHRI NILESH KHANDELWAL APPEARING ON BEHALF OF THE ASSESS EE SUBMITTED THAT THE APPEAL OF THE ASSESSEE FOR ASSESSMEN T YEAR 2007-08 AND THE APPEAL OF THE REVENUE IN ASSESSMENT YEAR 200 8-09 ARE ON SAME ISSUE I.E. MANNER IN WHICH BROUGHT FORWARD BUSINESS LOS S AND UNABSORBED DEPRECIATION IS TO BE DEALT WITH UNDER MAT PR OVISIONS. THE ASSESSEE HAS APPLIED FIFO METHOD FOR SET OFF OF LOSS AGAINS T BOOK PROFITS. THE ASSESSING OFFICER HAS ERRED IN CONSIDERING ENTIR E ACCUMULATED BUSINESS/DEPRECIATION LOSS FOR SET OFF AGAINST B OOK PROFITS. IN ASSESSMENT YEAR 2007-08, THE COMMISSIONER OF INCOME TAX (APPEALS) HAD DISALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOW ING THE DECISION IN THE CASE OF RASHTRIYA ISPAT NIGAM LTD. (SUPRA) . IN ASSESSMENT YEAR 2008-09, THE ASSESSEE PLACED RELIANCE O N THE DECISION RENDERED BY THE PUNE BENCH OF TRIBUNAL IN THE CASE OF KIR LOSKAR FERROUS INDUSTRIES LTD. VS. ADDL. CIT (SUPRA) WHEREIN, THE RULING IN THE CASE OF RASHTRIYA ISPAT NIGAM LTD. (SUPRA) WAS ALSO CONS IDERED. THE 5 ITA NO. 1322/PN/2011 AND ITA NOS. 1675 & 1713/PN/20 12 A.YS. 2007-08, 2008-09 COMMISSIONER OF INCOME TAX (APPEALS) DECIDED THE ISSUE IN FA VOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF TRIBUNAL. 3.1 THE LD. AR FURTHER SUBMITTED THAT IN APPEAL FOR ASSESSM ENT YEAR 2008-09, THE ASSESSEE HAS RAISED TWO GROUNDS. THE FIRST GROUND RELATES TO DISALLOWANCE U/S. 14A R.W. RULE 8D. THE ASSESSING OFFICE R MADE DISALLOWANCE ON TAX FREE DIVIDEND INCOME AND CAPITAL GAINS FRO M SALE OF MUTUAL FUNDS, WHICH ARE EXEMPT FROM TAX. THE ASSESSEE HA D MADE INVESTMENT IN MUTUAL FUNDS IN THE YEAR 1994 FROM ITS CAPITA L AND RESERVES AND NO INTEREST BEARING FUNDS WERE UTILIZED. DU RING THE YEAR THERE WERE ONLY 18 TRANSACTIONS WITH RESPECT TO REDEM PTION OF MUTUAL FUNDS. AS FAR AS DIVIDEND IS CONCERNED, THE SAME WAS DIREC TLY CREDITED IN THE BANK ACCOUNT OF THE ASSESSEE THROUGH ECS. THUS , NO DISALLOWANCE WAS REQUIRED TO BE MADE ON EARNING INTEREST FREE INCOME DURING THE IMPUGNED ASSESSMENT YEAR. 3.2 THE LD. AR SUBMITTED THAT THE SECOND GROUND RAISED BY THE ASSESSEE IN APPEAL FOR ASSESSMENT YEAR 2008-09 IS WITH RESPECT TO INCLUSION OF PROFITS OF BANGALORE AND PUNE UNITS FOR COMPUTAT ION OF BOOK PROFIT U/S. 115JB. THE BOOKS OF ACCOUNT FOR THE PER IOD RELEVANT TO THE ASSESSMENT YEAR 2008-09 WERE FINALIZED ON 28-06-20 08. THE BIFR PASSED ORDER FOR MERGER OF BANGALORE AND PUNE UNITS ON 18-08-2008 AND THE SAME WAS RECEIVED ON 01-10-2008. THE ASSESSE E FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2008-09 ON 21-08- 2008. THE ANNUAL GENERAL MEETING OF THE ASSESSEE COMPANY WAS HELD ON 29-09-2008. AN APPEAL WAS FILED AGAINST THE ORDER OF BIF R BEFORE THE APPELLATE AUTHORITY FOR INDUSTRIAL AND FINANCIAL RECONSTR UCTION (AAIFR) BY THE DIRECTOR GENERAL OF INCOME TAX (A). THE SAME WAS DECIDED BY 6 ITA NO. 1322/PN/2011 AND ITA NOS. 1675 & 1713/PN/20 12 A.YS. 2007-08, 2008-09 AAIFR ON 18-03-2009. THUS, SEQUENCE OF EVENTS NARRAT ED ABOVE WOULD CLEARLY SHOW THAT THE ORDER OF BIFR WAS RECEIVED AFTER THE FINALIZATION OF ACCOUNTS AND ADOPTION OF ANNUAL ACCOUNTS FOR THE YEAR E NDED ON 31-03-2008 IN ANNUAL GENERAL MEETING OF THE ASSESSEE COM PANY. THEREFORE, BY NO STRETCH OF IMAGINATION THE PROFITS OF BANGA LORE AND PUNE UNITS COULD HAVE BEEN CONSIDERED BY THE ASSESSEE IN ITS ACCOUNTING YEAR ENDING ON 31-03-2008. IT IS A WELL SETTLE D LAW THAT THE BOOKS OF ACCOUNT FINALIZED CANNOT BE REDRAFTED FOR THE PU RPOSE OF SECTION 115JB. IN SUPPORT OF HIS SUBMISSIONS, THE LD. AR PLA CED RELIANCE ON THE DECISIONS OF HON'BLE SUPREME COURT OF INDIA IN THE CASE OF APOLLO TYRES LTD. VS. CIT REPORTED AS 122 TAXMAN 562 (SC) AND IN THE CASE OF MALYALAM MANORAMA VS. CIT 169 TAXMAN 471(SC ). THE LD. AR MADE AN ALTERNATE SUBMISSIONS THAT AGAINST THE ORDER OF BIFR, THE DEPARTMENT FILED APPEAL BEFORE AAIFR. ACCORDING TO THE ORD ER OF AAIFR, THE ASSESSEE IS EXEMPT FROM THE PROVISIONS OF SECTION 11 5JB IN RESPECT OF BANGALORE AND PUNE UNITS MERGED WITH THE ASSESSEE CO MPANY. THE DEPARTMENT DID NOT FILE ANY APPEAL AGAINST THE ORDER OF AA IFR, THEREFORE, IT IS BINDING ON THE TAX AUTHORITY. TO BUTTRE SS HIS SUBMISSIONS, THE LD. AR PLACED RELIANCE ON THE DECISION OF P UNE BENCH OF THE TRIBUNAL IN THE CASE OF KIRLOSKAR OIL ENGINES LTD. VS. D CIT REPORTED AS 24 TAXMANN.COM 110 (PUNE). 4. SMT. ANURADHA RAVI REPRESENTING THE DEPARTMENT VEHE MENTLY SUPPORTED THE FINDINGS OF ASSESSING OFFICER FOR ASSESSMENT Y EAR 2007-08 AS WELL AS ASSESSMENT YEAR 2008-09. THE LD. DR ALSO DEFENDED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) WITH REGA RD TO DISALLOWANCE MADE U/S. 14A AND INCLUSION OF PROFITS OF BANGALOR E AND PUNE UNITS WHILE COMPUTING THE BOOK PROFITS UNDER THE PRO VISIONS OF 7 ITA NO. 1322/PN/2011 AND ITA NOS. 1675 & 1713/PN/20 12 A.YS. 2007-08, 2008-09 SECTION 115JB. THE LD. DR SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) IN ASSESSMENT YEAR 2007-08 HAD DISALLOWED TH E SET OFF OF BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATIO N BY FOLLOWING THE DECISION OF AAR IN THE CASE OF RASHTRIYA ISPAT NIGAM LTD. (SUPRA). THE COMMISSIONER OF INCOME TAX (APPEALS) SHOULD HAV E FOLLOWED THE SAME IN SUBSEQUENT YEAR AS WELL. AS FAR AS D ISALLOWANCE U/S. 14A , THE LD. DR SUBMITTED THAT IT IS AN UNDISPUTED FAC T THAT THE ASSESSEE HAS EARNED TAX FREE INCOME FOR WHICH NO DISALLOW ANCE WAS MADE BY THE ASSESSEE ON ITS OWN. DISALLOWANCE WAS REQU IRED TO BE MADE U/S. 14A R.W. RULE 8D. AS REGARDS SECOND GROUND IN APPEAL OF ASSESSEE FOR ASSESSMENT YEAR 2008-09, THE LD. DR SUBMITT ED THAT THE ASSESSEE HAS INCLUDED THE PROFITS OF BANGALORE AND PUNE U NITS UNDER NORMAL COMPUTATION BUT IGNORED THE SAME FOR COMPUTATION OF BOOK PROFITS U/S. 115JB. ONCE, THE ASSESSEE IS INCLUDING PROFITS O F THE ABOVE SAID TWO UNITS WHILE COMPUTING PROFITS UNDER NORMAL COMPUTA TION THE SAME SHOULD HAVE BEEN CONSIDERED FOR COMPUTATION OF BOOK PROFITS U/S. 115JB AS WELL. ALTHOUGH, THE ORDER OF AAIFR WAS PASSED AFTER THE PREPARATION OF BOOKS OF ACCOUNT, HOWEVER THERE IS NO BAR IN RECASTING THE BOOKS AFTER CONSIDERING OF PROFITS OF TWO AMALGAMATED U NITS. TO SUPPORT HIS SUBMISSIONS, THE LD. DR REFERRED TO THE DECISION OF MUMBAI BENCH OF TRIBUNAL IN THE CASE OF DCIT VS. BECK INDIA LTD. REPORTED AS 127 TTJ 410 (MUMBAI). 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF BOTH THE SIDES AND HAVE EXAMINED THE ORDERS OF THE AUT HORITIES BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH BOTH THE SIDES HAVE PLACED RELIANCE. 8 ITA NO. 1322/PN/2011 AND ITA NOS. 1675 & 1713/PN/20 12 A.YS. 2007-08, 2008-09 FOR THE SAKE OF CONVENIENCE, WE WILL FIRST TAKE UP THE APPE AL OF THE ASSESSEE IN ITA NO. 1322/PN/2011 FOR ASSESSMENT YE AR 2007-08 AND APPEAL OF THE REVENUE IN ITA NO. 1713/PN/2012 FOR A SSESSMENT YEAR 2008-09. AS IN BOTH THE APPEALS THE ISSUE INVOLVED IS COMMON. IN THE AFORESAID IMPUGNED ASSESSMENT YEARS, THE ASSESSEE C OMPUTED INCOME U/S. 115JB AFTER SET OFF OF BROUGHT FORWARD UNABS ORBED DEPRECIATION. THE ASSESSING OFFICER IN BOTH THE ASSESSMENT YEARS HELD THAT WHILE COMPUTING BOOK PROFITS U/S. 115JB SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION CANNOT BE ALLOWED. WHILE COMING TO SUCH A CONCLUSION THE ASSESSING OFFICER RELIED ON THE DECISION IN THE CASE OF RASHTRIYA ISPAT NIGAM LTD. (SUPRA). IN APPEAL, THE COMMISS IONER OF INCOME TAX (APPEALS) UPHELD THE FINDINGS OF THE ASSESSING O FFICER IN ASSESSMENT YEAR 2007-08. HOWEVER, IN ASSESSMENT YEAR 2008-09, THE COMMISSIONER OF INCOME TAX (APPEALS) FOLLOWED THE DECISION OF THE TRIBUNAL IN KIRLOSKAR FERROUS INDUSTRIES LTD. VS. ADDL. CIT (SUPRA) AND ACCEPTED THE CLAIM OF THE ASSESSEE AND ALLOWED SET OFF OF BROUGHT FORWARD BUSINESS LOSS/UNABSORBED DEPRECIATION WHILE COMPUT ING BOOK PROFIT U/S. 115JB OF THE ACT. THE RELEVANT EXTRACT OF TH E ORDER OF CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF KIRLOSKAR FE RROUS INDUSTRIES LTD. VS. ADDL. CIT (SUPRA) IS AS UNDER: 19. IN THIS MANNER, THE ASSESSING OFFICER COMPUTED BOOK PROFITS FOR SECTION 115JB AT RS 20,24,35,238/- AS AGAINST NIL D ETERMINED BY THE ASSESSEE. WE HAVE EXAMINED THE POSITION SET-UP BY T HE ASSESSING OFFICER. QUITE CLEARLY, CLAUSE (III) OF EXPLANATION 1 TO SECTION 115JB ENVISAGES ADJUSTMENT FOR THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION, WHICHEVER IS LESS AS PER B OOKS OF ACCOUNT. IT IS QUITE CLEAR THAT THE LOSS DEPICTED IN THE ACCOUNT B OOKS WHICH COMPRISES OF BUSINESS LOSSES AND DEPRECIATION IS REQUIRED TO BE SPLIT UP FOR THE PURPOSES OF CLAUSE (III) OF EXPLANATION 1 TO SECTIO N 115JB(2). SO, HOWEVER, THE MANNER OF DETERMINING THE INDIVIDUAL FIGURES OF LOSS AND DEPRECIATION IS NOT INDICATED IN SECTION 115JB INASMUCH AS THE M ANNER IN WHICH THE LOSSES AND DEPRECIATION ARE SET OFF AGAINST THE PRO FITS HAS NOT BEEN SPELT 9 ITA NO. 1322/PN/2011 AND ITA NOS. 1675 & 1713/PN/20 12 A.YS. 2007-08, 2008-09 OUT. HOWEVER, AN INDICATION WHICH IS MANIFESTED IN SECTION 115JB ITSELF IS A SAFE PREMISE TO FOLLOW IN SUCH A SITUATION. CLAUS E (III) SPEAKS OF ADJUSTMENT FOR THE LOWER OF BROUGHT FORWARD LOSS OR UNABSORBED DEPRECIATION. THEREFORE, THE LEGISLATURE ENVISAGED THAT WHILE COMPUTING BOOK PROFITS FOR 115JB, REDUCTION BE ALLOWED FOR TH E LOWER OF CARRIED FORWARD LOSSES OR UNABSORBED DEPRECIATION OF THE PA ST YEARS. THEREFORE, THE DETERMINATION OF SUCH LOSSES OR DEPRECIATION IN THE PAST YEARS BE ALSO MADE ON SIMILAR PROPOSITION, IN THE ABSENCE OF ANY SPECIFIC PROVISION IN THE STATUTE. EVEN IN THE PAST YEARS, THE LOSSES AND DEPRECIATION TO BE CARRIED FORWARD BE DETERMINED ON THE SIMILAR PRINCIP LES, I.E. AFTER SETTING OFF OF THE LOWER OF DEPRECIATION OR LOSSES. APART F ROM THE FACT THAT THERE IS NO SPECIFIC PROVISION IN THE STATUTE, WE ARE ALSO G UIDED BY THE SPIRIT OF SECTION 205(1)(B) OF THE COMPANIES ACT, 1956. IN TE RMS OF SECTION 205(1)(B) ALSO, THE SURPLUS IS TO BE DETERMINED AFT ER REDUCING LOWER OF THE LOSS OR DEPRECIATION. THOUGH STRICTLY SPEAKING THE RULE OF SECTION 205(1)(B) OF THE COMPANIES ACT IS NOT APPLICABLE, INASMUCH AS FOR THE PURPOSES OF THE SAID SECTION THE EXPRESSION LOSS INCLUDES DEP RECIATION, WHEREAS FOR THE PURPOSES OF SECTION 115JB IT IS SPECIFICALLY PR OVIDED THAT FOR CLAUSE (III) OF EXPLANATION 1 THE EXPRESSION LOSS SHALL NOT INCLUDE DEPRECIATION. SO, HOWEVER, WE WANT TO EMPHASIS ON THE BASIC PRINC IPLE ENSHRINED IN SECTION 115JB WHEREBY THE LOWER OF LOSS OR DEPRECIA TION IS REDUCIBLE TO ARRIVE AT THE SURPLUS. SECTION 115JB(2) ITSELF REFE RS TO A PROFIT & LOSS ACCOUNT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF COMPANIES ACT, 1956 AND THEREFORE, IN OUR VIEW, THE PROPOSITION IN SECTION 205(1)(B) BECOMES RELEVANT. FOR THE AFORESAID TWIN REASONS, I N OUR VIEW, IN ORDER TO DETERMINE THE LOSSES CARRIED FORWARD AND UNABSORBED DEPRECIATION IN THE PAST YEARS ALSO, IT WOULD BE APPROPRIATE TO REDUCE THE LOWER OF THE TWO AND THEREAFTER, ASCERTAIN THE AMOUNT OF LOSSES BROU GHT FORWARD AND UNABSORBED DEPRECIATION. 20. CONSIDERED IN THE AFORESAID MANNER, IN OUR VIEW , THE METHODOLOGY ADOPTED BY THE ASSESSING OFFICER HAS TO FAIL. THIS IS FOR THE REASON THAT HE HAS PROCEEDED TO ADJUST THE UNABSORBED DEPRECIAT ION AS ON 31.3.2003, WHEREAS THE CORRECT APPROACH WOULD HAVE BEEN TO COMPARE AND DETERMINE THE LOSSES IN EACH OF THE FINANCIAL Y EARS STARTING FROM THE FINANCIAL YEAR 1996-97 AND DETERMINE THE LOSS OR DE PRECIATION WHICH IS REQUIRED TO BE CARRIED FORWARD IN ACCORDANCE WITH T HE AFORESAID DISCUSSION. IN FACT, WE FIND THAT EVEN THE WORKING ADOPTED BY THE ASSESSEE IN THE RETURN OF INCOME ALSO DOES NOT CORR ESPOND TO THE AFORESAID PRINCIPLES. UNDER THESE CIRCUMSTANCES, WE , THEREFORE, DEEM IT FIT AND PROPER TO SET-ASIDE THE ORDER OF THE COMMISS IONER OF INCOME-TAX 10 ITA NO. 1322/PN/2011 AND ITA NOS. 1675 & 1713/PN/20 12 A.YS. 2007-08, 2008-09 (APPEALS) AND TO REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER, WHO SHALL REVISIT THE WORKING OF BOOK PROFIT FOR TH E PURPOSES OF SECTION 115JB IN SO FAR AS IT RELATES TO CLAUSE (III) OF EX PLANATION 1 TO SECTION 115JB(2) OF THE ACT. THE ASSESSING OFFICER SHALL CA RRY OUT THE AFORESAID LIMITED EXERCISE IN ACCORDANCE WITH OUR AFORESAID DI SCUSSION AND AFTER ALLOWING THE ASSESSEE A REASONABLE OPPORTUNITY OF B EING HEARD AS PER LAW. 5.1 ACCORDING TO THE PROVISIONS OF SECTION 115JB EXPLANATIO N 1 CLAUSE (III) WHILE COMPUTING BOOK PROFIT, THE AMOUNT OF LOSS BROU GHT FORWARD (BEFORE DEPRECIATION) OR UNABSORBED DEPRECIATION, WH ICHEVER IS LESS (AS PER BOOKS OF ACCOUNT), SHALL BE REDUCED FROM NET P ROFIT. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN A VERY EXPLICIT MANNE R HAS EXPLAINED THE METHOD IN WHICH BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION HAS TO BE DEALT WITH WHILE COMPUTING BOOK PRO FITS U/S. 115JB OF THE ACT. WE FIND THAT IN THE PRESENT CASE, THE ISSUE INVOLVED IS IDE NTICAL. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF COMMISSIONER OF I NCOME TAX (APPEALS) FOR ASSESSMENT YEAR 2008-09 IN ALLOWING THE CLAIM OF THE ASSESSEE IN THE LIGHT OF ORDER OF TRIBUNAL RENDERED IN THE CASE OF KIRLOSKAR FERROUS INDUSTRIES LTD. VS. ADDL. CIT (SUPRA). AFTE R PERUSAL OF THE ORDER OF THE TRIBUNAL, WE ALSO FIND THAT RULING IN THE CA SE OF RASHTRIYA ISPAT NIGAM LTD. (SUPRA) WAS CONSIDERED BY THE CO-ORDINATE BENCH. WE CONCUR WITH THE FINDINGS OF THE ORDER OF COMM ISSIONER OF INCOME TAX (APPEALS) IN ASSESSMENT YEAR 2008-09 IN DIREC TING THE ASSESSING OFFICER TO CALCULATE BOOK PROFITS IN ACCORDANCE WIT H THE METHOD DETAILED BY THE TRIBUNAL IN AFORESAID CASE. ACCORD INGLY, THE APPEAL OF REVENUE IS DISMISSED. 11 ITA NO. 1322/PN/2011 AND ITA NOS. 1675 & 1713/PN/20 12 A.YS. 2007-08, 2008-09 5.2 SINCE, THE ISSUE INVOLVED IN THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2007-08 IS IDENTICAL, THE SAME HAS TO B E ALLOWED FOR THE REASONS STATED ABOVE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE I.E. ITA NO. 1322/PN/2011 FOR ASSESSMENT YEAR 2007-08 IS ALLOWED AND THE APPEAL OF THE REVENUE I.E. ITA NO. 1713/PN/2012 FOR ASSESSMENT YEAR 200 8-09 IS DISMISSED. ITA NO. 1675/PN/2012 (A.Y. 2008-09) 7. NOW, WE PROCEED TO DECIDE THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2008-09. THE FIRST GROUND RAISED BY TH E ASSESSEE IN APPEAL IS DISALLOWANCE MADE U/S. 14A R.W. RULE 8D. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS EARNED EXEMPT D IVIDEND INCOME OF RS.1,94,493/- AND CAPITAL GAIN OF RS.1,61,815/- ON SALE OF M UTUAL FUNDS EXEMPT FROM TAX, DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR IN APPEAL. THE ASSESSING OFFICER APPLIED RULE 8D(2)(II)&(III) A ND MADE DISALLOWANCE OF RS.1,40,820/-. THE CONTENTION OF THE AS SESSEE IS THAT THE INVESTMENT IN MUTUAL FUNDS WAS MADE IN THE YEAR 1994 FROM INTEREST FREE FUNDS. THE BORROWED FUNDS WERE NOT UTILIZED FOR MAKING ANY SUCH INVESTMENT. THERE WERE TOTAL 18 TRANSACTIONS RELATING TO REDEMPTION OF MUTUAL FUNDS OUT WHICH 7 TRANSACTIONS WERE IN RESPE CT OF LONG TERM GAINS, EXEMPT FROM TAX. DURING THE PERIOD UND ER APPEAL, THE ASSESSEE HAD PAID INTEREST ON BORROWING RS.1,00,81,717/-. THE BORROWED FUNDS WERE ENTIRELY USED FOR BUSINESS PURPOSES AND THUS, INTEREST PAID THEREON IS ALLOWABLE U/S. 36(1)(III). THE DIVIDEND DURING THE RELEVANT PERIOD WAS DIRECTLY CREDITED IN THE BANK AC COUNT OF THE ASSESSEE THROUGH ECS, THEREFORE, THE ASSESSEE HAD NOT INCURRED ANY 12 ITA NO. 1322/PN/2011 AND ITA NOS. 1675 & 1713/PN/20 12 A.YS. 2007-08, 2008-09 EXPENDITURE ON MANAGING AND DEPOSIT OF DIVIDEND INCOME. BE FORE THE FIRST APPELLATE AUTHORITY, THE ASSESSEE HAD OFFERED AN AMO UNT OF RS.3,000/- AS EXPENDITURE ON EARNING INTEREST FREE INCOME, HOWEVER, THE SAME WAS REJECTED AND THE ORDER OF ASSESSING OFFICER WAS CONFIRMED. THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF A SSESSING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) ON THE ISSUE. 7.1 IT IS A WELL SETTLED LAW THAT THE APPLICATION OF PROVISION S OF RULE 8D ARE NOT AUTOMATIC. THE ASSESSING OFFICER CANNOT STRA IGHT AWAY PROCEED TO APPLY RULE 8D, WITHOUT CONSIDERING THE CORREC TNESS OF THE CLAIM MADE BY THE ASSESSEE, IN RESPECT OF EXPENDITURE INC URRED IN RELATION TO EXEMPT INCOME. IN THE PRESENT CASE THE ASS ESSEE IN ITS RETURN OF INCOME DID NOT MAKE ANY DISALLOWANCE WITH RESPE CT TO EXEMPT INCOME. THE STAND OF ASSESSEE IS THAT NO EXPENDITURE WA S INCURRED FOR EARNING TAX FREE INCOME. HOWEVER, THE ASSESSING OFFICER MAD E DISALLOWANCE OF RS.1,48,820/- WITHOUT ASSIGNING COGENT REASON S. THE BURDEN LIES ON THE ASSESSING OFFICER TO PROVE THE NEXUS B ETWEEN THE EXPENDITURE TO BE DISALLOWED AND NON-TAXABLE INCOME. THE ASSESSING OFFICER CANNOT SIMPLY BRUSH ASIDE THE CLAIM OF ASSESSEE, IN RESPECT OF DISALLOWANCE U/S. 14A OF THE ACT. THE ROAD LEADING TO THE APPLICATION OF RULE 8D GOES THROUGH SECTION 14A(2) OF THE ACT. THE PRO VISIONS OF SUB- SECTION (2) OF SECTION 14A ARE AS UNDER: SECTION 14A(1) XXXXXXXXXXXX (2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUN T OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHO D AS MAY BE PRESCRIBED56, IF THE ASSESSING OFFICER, HAVING REGA RD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT . 13 ITA NO. 1322/PN/2011 AND ITA NOS. 1675 & 1713/PN/20 12 A.YS. 2007-08, 2008-09 THUS, A BARE PERUSAL OF ABOVE PROVISIONS WOULD SHOW THAT A DUTY IS CAST UPON THE ASSESSING OFFICER TO GIVE REASONED FINDINGS THAT THE EXPENDITURE OR EVEN NO EXPENDITURE DISALLOWED BY THE ASSESSEE IS INCORRECT BEFORE RESORTING TO THE PROVISIONS OF RULE 8D. 7.2 THE ASSESSING OFFICER HAS NOT REFUTED THE CLAIM OF ASSES SEE THAT THERE WAS DIRECT CREDIT OF DIVIDEND THROUGH ECS AND NO IN TEREST BEARING FUNDS WERE UTILIZED FOR MAKING INVESTMENT. A PERUSAL OF ASS ESSMENT ORDER SHOWS THAT THE ASSESSING OFFICER HAS MECHANICALLY A PPLIED THE PROVISIONS OF RULE 8D WITHOUT GIVING REASONS FOR REJECTING T HE ASSERTIONS FOR MAKING NO DISALLOWANCE BY THE ASSESSEE. 7.3 THE TRIBUNAL IN THE CASE OF J.K. INVESTORS (BOMBAY) LTD. VS. ACIT IN ITA NO. 7858/MUM/2011 FOR ASSESSMENT YEAR 2008-09 D ECIDED ON 13-03-2013 HAD OCCASION TO DEAL WITH THE ISSUE OF DISALLOWA NCE U/S. 14A R.W. RULE 8D. THE CO-ORDINATE BENCH AFTER THOROUGH ANALYSIS OF JUDGMENTS RENDERED BY THE HON'BLE APEX COURT, VARIOUS HON'BLE HIGH COURTS AND THE TRIBUNAL WHICH INTER ALIA INCLUDE JUDGMENTS RENDERED IN THE CASE OF : 1. CIT VS. WALFORT SHARE & STOCK BROKERS PVT. LTD.; 326 ITR 1 (SC). 2. GODREJ & BOYCE COMPANY LTD. VS. DCIT; 328 ITR 81 (BOM). 3. MAXOPP INVESTMENT LTD. VS. CIT; 247 CTR 162 (DELHI). 4. CIT VS. HERO CYLES LTD.; 323 ITR 518 (P&H). HELD THAT RULE 8D CANNOT BE INVOKED DIRECTLY WITHOUT SAT ISFYING THE CLAIMS OF ASSESSEE. THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL READ AS UNDER: 18. AFTER CONSIDERING THE PRINCIPLES LAID DOWN BY VARIOUS JUDGMENTS, IT IS IMPERATIVE THAT THE ASSESSING OFFICER CAN INVOKE RULE 8D ONLY WHEN HE 14 ITA NO. 1322/PN/2011 AND ITA NOS. 1675 & 1713/PN/20 12 A.YS. 2007-08, 2008-09 RECORDS SATISFACTION IN REGARD TO THE CORRECTNESS O F THE CLAIM OF THE ASSESSEE, HAVING REGARD TO THE ACCOUNTS OF THE ASSE SSEE. THE CONDITION PRECEDENT FOR THE ASSESSING OFFICER ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO E XEMPT INCOME IS THAT THE ASSESSING OFFICER MUST RECORD THAT HE IS NOT SA TISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGA RD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPT INCOME, THE ASSESSING OFFICER WOULD HAVE TO INDICATE COGENT REA SONS FOR THE SAME. THEREFORE, IT IS ALL THE MORE NECESSARY THAT AO HAS TO EXAMINE THE ACCOUNTS OF ASSESSEE FIRST AND THEN IF HE IS NOT SA TISFIED WITH THE CORRECTNESS OF THE CLAIM, ONLY HE CAN INVOKE RULE 8 D. NO SUCH EXAMINATION WAS MADE OR SATISFACTION WAS RECORDED B Y AO IN THIS CASE. IT WAS NOTICED THAT THE ASSESSING OFFICER HAS NOT C ONSIDERED THE CLAIM OF THE ASSESSEE AT ALL AND HE HAS STRAIGHTWAY EMBARKED UPON COMPUTING DISALLOWANCE UNDER RULE 8D ON THE PRESUMPTION THAT PORT FOLIO MANAGEMENT INVOLVES ATLEAST 2% OF CHARGES. DISALLOW ANCE UNDER SECTION 14A REQUIRED FINDING OF INCURRING OF EXPENDITURE AN D WHERE IT WAS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAD BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A COULD NOT STAND. WE NOTICE THAT ASSESSEE ITSELF DISALLOWED THE INTEREST WHICH IS DIRECTLY AP PLICABLE, DMAT CHARGES AND ADMINISTRATIVE EXP ON ESTIMATION TOTALING TO RS .1,55,44,610. ASSESSEE IS A HUNDRED CRORE TURNOVER COMPANY. AO HA S NOT EXAMINED ANY EXPENDITURE CLAIMED IN P& L ACCOUNT SO AS TO RE LATE TO EXEMPT INCOME, NOR GAVE A FINDING THAT ASSESSEE CLAIM IS N OT CORRECT FOR ANY REASON. RULE 8D CANNOT BE INVOKED DIRECTLY WITHOUT SATISFYING ABOUT THE CLAIMS OR OTHERWISE. CONSEQUENTLY, THE DISALLOWANCE WAS NOT PERMISSIBLE. WE THEREFORE, ALLOW THE GROUND OF APPE AL. 7.4 THUS, IN VIEW OF WELL SETTLED LAW AND THE FACTS OF THE CA SE THE DISALLOWANCE MADE U/S. 14A R.W. RULE 8D IS DELETED. WE ACCE PT THIS GROUND OF APPEAL OF THE ASSESSEE. 8. THE SECOND GROUND IN APPEAL OF THE ASSESSEE IS, WHETH ER THE PROFITS OF BANGALORE AND PUNE UNITS THAT HAVE BEEN MERGE D WITH THE ASSESSEE COMPANY ARE TO CONSIDER FOR THE PURPOSE OF CO MPUTATION OF BOOK PROFITS U/S. 115JB? DURING THE COURSE OF ASSESSME NT 15 ITA NO. 1322/PN/2011 AND ITA NOS. 1675 & 1713/PN/20 12 A.YS. 2007-08, 2008-09 PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT AN AMOUN T OF RS.4,24,21,240/- REPRESENTING PROFITS OF BANGALORE AND PUNE UNITS W ERE INCLUDED IN THE NORMAL COMPUTATION OF THE INCOME, BUT WHILE COMPUTING BOOK PROFITS U/S. 115JB THE SAME WERE NOT CON SIDERED. THE ASSESSING OFFICER IN FINALIZING SCRUTINY ASSESSMENT INCLUDED THE SAME WHILE COMPUTING BOOK PROFITS U/S. 115JB. IN FIRST APPEAL, TH E ACTION OF ASSESSING OFFICER WAS SUSTAINED BY THE COMMISSIONER OF INCO ME TAX (APPEALS). 8.1 THE LD. AR OF THE ASSESSEE HAS MADE TWO FOLD SUBMISSIO NS. THE LD. AR SUBMITTED THAT IN THE FIRST INSTANCE THE PROFITS OF BA NGALORE AND PUNE UNITS ARE NOT TO BE INCLUDED WHILE COMPUTING THE BOOK PROFITS U/ S. 115JB AS THE ORDERS OF BIFR AND AAIFR IN PURSUANCE OF WHICH BANGALORE AND PUNE UNITS WERE MERGED WITH THE ASSESSEE WERE RECEIVED AFTER THE FINALIZATION OF THE ACCOUNTS OF THE ASSESSEE COMP ANY. THE BOOKS OF ACCOUNT ONCE FINALIZED CANNOT BE REDRAFTED FOR TH E PURPOSE OF SECTION 115JB. THE LD. AR OF ASSESSEE MADE AN ALTERNATE PLEA THAT IN APPEAL BY THE DEPARTMENT BEFORE THE AAIFR, THE AAIFR V IDE ORDER DATED 18-03-2009 HAD SPECIFICALLY DIRECTED TO EXEMPT THE PROFITS OF THE AMALGAMATING UNITS FROM THE PROVISIONS OF SECTION 115JB. AG AINST THE ORDER OF AAIFR NO APPEAL WAS FILED BY THE DEPARTMENT. TH US, THE SAME ATTAINED FINALITY AND IS BINDING ON THE DEPARTMENT. THE LD. DR REBUTTING THE CONTENTIONS OF LD. AR HAS SUBMITT ED THAT THE JUDGMENTS OF THE HON'BLE SUPREME COURT OF INDIA RELIE D UPON BY ASSESSEE ARE NOT APPLICABLE IN THE PRESENT CASE AS THOS E JUDGMENTS WERE RENDERED IN RESPECT OF PROVISIONS OF SECTION 115J. H OWEVER, IN SECTION 115JB THERE IS NO BAR IN REDRAFTING OF THE BOOKS OF ACCOUNT IN CASE OF AMALGAMATION, PROVIDED THE ACCOUNTING POLICIES AND M ETHODS TO 16 ITA NO. 1322/PN/2011 AND ITA NOS. 1675 & 1713/PN/20 12 A.YS. 2007-08, 2008-09 BE ADOPTED FOR REDRAFTING BOOKS SHOULD REMAIN THE SAME. THERE IS NO DISPUTE WITH RESPECT TO ACCOUNTING PRINCIPLES FOLLOWED BY TH E ASSESSEE IN THE PRESENT CASE. 8.2 BEFORE WE PROCEED TO DECIDE THIS ISSUE IT WOULD BE ES SENTIAL TO RECAPITULATE SOME IMPORTANT DATES: SR. NO. DATE EVENTS 1 28 - 06 - 2008 B OOKS OF ACCOUNT OF THE ASSESSEE WERE FINALIZED. 2 18 - 08 - 2008 THE ORDER WAS PASSED BY BIFR . 3 21 - 08 - 2008 A SSESSEE FILED ITS RETURN OF INCOME . 4 29 - 09 - 2008 ANNUAL GENERAL MEETING OF THE ASSESSEE HELD , ANNUAL ACCOUNTS FOR THE YEAR ENDING 31-03-2008 WERE ADOPTED. 5 01 - 10 - 2008 ORDER OF BIFR ISSUED . 6 07 - 11 - 2008 COPY OF BIFR ORDER FILED WITH ROC. 7 18 - 03 - 2009 ORDER BY AAIFR ON APPEAL BY THE DEPARTMENT. THE AFORESAID SEQUENCES OF EVENTS HAVE NOT BEEN REBUTT ED BY THE DEPARTMENT. THUS, IT IS EVIDENT THAT THE ORDER OF BIFR A ND THE ORDER OF THE APPELLATE AUTHORITY WERE RECEIVED AFTER THE ACCOUNTS OF THE ASSESSEE WERE FINALIZED AND ADOPTED IN THE ANNUAL GENERAL MEETING OF THE ASSESSEE COMPANY. HERE IT WOULD BE RELEVANT TO REFER TO THE ORDER OF BIFR AND SCHEME OF ARRANGEMENT TO DETERMINE THE EFFECTIV E DATE OF IMPLEMENTATION OF MERGER. THE ASSESSEE HAS PLACED ON REC ORD IN THE FORM OF PAPER BOOK, THE ORDER OF BIFR AT PAGES 52 TO 62 AND THE SCHEME OF ARRANGEMENT BETWEEN KAILASH AUTO BUILDERS PVT. LTD. AND ASSESSEE AT PAGES 147 TO 178. A PERUSAL OF BIFR ORDER SHOWS THAT THE SANCTIONED SCHE ME FINALLY ACCEPTED BY THE BIFR IS TO BE IMPLEMENTED FROM THE DATE OF ORDER I.E. 18-08-2008. 17 ITA NO. 1322/PN/2011 AND ITA NOS. 1675 & 1713/PN/20 12 A.YS. 2007-08, 2008-09 IN THE SCHEME OF ARRANGEMENT SANCTIONED BY BIFR THE EFFECTIVE DATE HAS BEEN GIVEN IN CLAUSE 31. THE SAME READS AS UNDER: 31. THE SCHEME WILL BECOME EFFECTIVE ON THE RECEIP T OF THE LAST OF THE FOLLOWING: A) SANCTION BY THE HON'BLE BIFR AT NEW DELHI AS PRO VIDED IN SECTION 394 AND OTHER APPLICABLE PROVISIONS OF THE ACT AND, B) ANY REQUISITE CONSENT, APPROVAL OR PERMISSION OF THE CENTRAL GOVERNMENT OR ANY OTHER AUTHORITY, WHICH BY LAW OR OTHERWISE MAY BE NECESSARY FOR THE IMPLEMENTATION OF THIS SCH EME AND WHEN THE CERTIFIED COPY OF THE ORDER OF THE HON'BLE BIFR HAVE BEEN FILED WITH THE REGISTRAR OF COMPANIES, KANPUR AND M UMBAI RESPECTIVELY UNDER THE PROVISIONS OF THE ACT. AS PER CLAUSE 31 THE SCHEME IS TO BE EFFECTIVE ON COMP LYING WITH TWO CONDITIONS, I.E. (I) SANCTION OF SCHEME BY BIFR AND (II) FILING OF CERTIFIED COPY OF ORDER OF BIFR WITH REGISTRAR OF COMPANIES (ROC), KANPUR AND MUMBAI. THE ASSESSEE HAS PLACED ON RECORD A COPY OF CHALLAN/RECEIPT (AT PAGES 48 AND 50) TO SHOW THAT THE BI FR ORDER WAS FILED WITH ROC ON 07-11-2008. THUS, FROM THE ANALYSIS OF TH E ABOVE IT IS EVIDENT THAT BOTH THE CONDITIONS AS SET OUT IN SCHEME OF ARRANGEM ENT WERE COMPLIED ON 07-11-2008, THEREFORE, SCHEME OF ARRANGE MENT WAS TO BE IMPLEMENTED W.E.F. 07-11-2008. THEREFORE, BY NO STRETCH OF IMAGINATION THE PROFITS OF AMALGAMATING UNITS COULD HAVE BEEN INCLUDED IN FINANCIAL YEAR ENDING ON 31-03-2008. 8.3 THE FACTS OF THE CASE DCIT VS. BECK INDIA LTD. (SUPRA) ON WHICH THE REVENUE HAS PLACED RELIANCE ARE ENTIRELY DIFFERENT. I N THE SAID CASE, THE SCHEME OF AMALGAMATION WAS SANCTIONED BY THE HON'BLE HIGH COURT ON 20-09-2001. THE APPOINTED DATE OF AMALGAMATION AS SE T OUT IN SCHEME WAS 01-01-2001. IT WAS ARGUED THAT THE DATE OF SANCTION OF SCHEME DATES BACK TO 01-01-2001, THEREFORE, EFFECT OF AMA LGAMATION 18 ITA NO. 1322/PN/2011 AND ITA NOS. 1675 & 1713/PN/20 12 A.YS. 2007-08, 2008-09 HAD TO BE GIVEN IN FINANCIAL YEAR 2000-01. HOWEVER, BY THE TIME SCHEME WAS SANCTIONED BY THE HON'BLE HIGH COURT, THE CO MPANY HAD FINALIZED THE ACCOUNTS AND ADOPTED THE SAME IN ITS ANNUAL GENERAL MEETING. THE CO-ORDINATE BENCH OF TRIBUNAL IN THE BACK DR OP OF THESE FACTS AND IN THE LIGHT OF PROVISO TO SECTION 115JB(2) HELD: A BARE READING OF THIS SUB-SECTION BRINGS OUT THE POSITION THAT AN ASSESSEE IS BOUND TO PREPARE ITS ACCOUNT IN ACCORDA NCE WITH PROVISIONS OF PARTS II AND III OF SCH. VI TO THE COMPANIES ACT. P ROVISO ALSO SAYS THAT WHILE PREPARING SUCH ANNUAL ACCOUNTS INCLUDING P&L ACCOUNT, IT HAS TO ADOPT THE SAME ACCOUNTING POLICIES, ACCOUNTING STAN DARDS, METHOD AND RATES FOR DEPRECIATION WHICH IT HAD ADOPTED FOR THE PURPOSE OF PREPARING SUCH ACCOUNTS WHICH IT HAD LAID BEFORE ITS ANNUAL G ENERAL MEETING. THIS PROVISO IS CONSPICUOUSLY MISSING IN S. 115J WHERE S UB-S. (1A) DEALS WITH THE SAME ISSUE. APOLLO TYRES LTD.S CASE (SUPRA) OF THE APEX COURT, REFERRED SUPRA, WAS ONE UNDER THE PROVISIONS OF SEC TION 115J, WHERE A PROVISO SIMILAR TO ONE GIVEN UNDER SUB-SECTION (2) OF SECTION 115JB WAS ABSENT. THEREFORE, WE ARE OF THE OPINION THAT APPLI CATION OF THE SAME RATIO IN A CASE TO WHICH S. 115JB APPLIES, FOR THE PURPOS E OF CONSIDERING THE ALLOWABILITY OR OTHERWISE OF A SECOND SET OF FINAL ACCOUNTS WOULD NOT BE RELEVANT. SUB-SECTION (2) OF SECTION 115JB, THROUGH ITS PROVISO SIMPLY MANDATES THAT AN ASSESSEE HAS TO ADOPT THE SAME ACC OUNTING POLICIES, STANDARDS, ETC. WHEN PREPARING ITS ANNUAL ACCOUNTS FOR THE PURPOSE OF SECTION 115JB, WHICH OF COURSE, HAS TO BE IN ACCORD ANCE WITH THE PROVISIONS OF PARTS II AND III OF SCH. VI TO THE CO MPANIES ACT, 1956. NOWHERE IN THIS SECTION IS THERE A BAN ON AN ASSESS EE FROM DOING SUCH AN EXERCISE, WHEN IT CAN DO SO LEGITIMATELY, ON ACC OUNT OF A SCHEME OF AMALGAMATION, WHICH HAS RETROSPECTIVE EFFECT. HENCE , THE ONLY QUESTION REMAINING IS WHETHER SUCH ACCOUNTS, POST-AMALGAMATI ON, WERE PREPARED IN ACCORDANCE WITH THE MANDATE UNDER SUB-SECTION (2 ) OF SECTION 115JB. NEITHER THE AO NOR THE LEARNED CIT(A) HAS CAST ANY DOUBT ON THIS ASPECT. ASSESSEE HAD INDEED FILED FULL SET OF AUDITED ACCOU NTS AS PER THE POST- AMALGAMATED SCENARIO AND THIS WAS DONE IN ACCORDANC E WITH THE PROVISIONS OF THE COMPANIES ACT. THUS, IT IS EVIDENT THAT THE RATIO OF DECISION IN THE CASE OF DCIT VS. BECK INDIA LTD. (SUPRA) WOULD NOT BE APPLICABLE IN THE F ACTS OF THE PRESENT CASE. 19 ITA NO. 1322/PN/2011 AND ITA NOS. 1675 & 1713/PN/20 12 A.YS. 2007-08, 2008-09 8.4 IN VIEW OF THE FACTS DISCUSSED ABOVE, WE ARE OF CONSIDE RED VIEW THAT THE AUTHORITIES BELOW HAVE ERRED IN INCLUDING PROFITS O F BANGALORE AND PUNE UNITS WHILE COMPUTING BOOK PROFITS U/S. 115JB FOR THE PERIOD RELEVANT TO ASSESSMENT YEAR 2008-09. ACCORDINGLY, WE A CCEPT THE SECOND GROUND OF APPEAL OF THE ASSESSEE. 9. IN THE RESULT, THE APPEALS OF THE ASSESSEE IN ITA NO. 1322/PN/2011 AND ITA NO. 1675/PN/2012 ARE ALLOWED AND APPEAL OF THE REVENUE IN ITA NO. 1713/PN/2012 IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 14 TH DAY OF AUGUST, 2015. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 14 TH AUGUST, 2015 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-V, PUNE 4. ' / THE CIT-V, PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- / ITAT, PUNE