The DCIT, Circle-1(1), Baroda V. M/s. Alembic Limited, Baroda

ITA 1928/AHD/2010

• Counselvise Citation: 192820514 RSA 2010
• Duration Of Justice: 3 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 06-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 04-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIMALENDU VERMA
• Assessee Lawyers: SN SOPARKARAR
• Keywords: Opportunity of being heard; Earning of tax free income; Retrospective amendment; Bad and doubtful debts
• Section: 80HHC; 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMADABAD , , , , BEFORE SHRI MUKUL KR. SHRAWAT , JUDICIAL MEMBER AND , SHRI T.R. MEENA, ACCOUNTANT MEMBER .. , ! ' ! ' ! ' ! ' ITA NO. 1928 /AHD/2010 ASSESSMENT YEAR :2007-08 DCIT, CIRCLE 1 (1), BARODA. V/S . ALEMBIC LTD. ALEMBIC ROAD, BARODA. PAN NO. AA B C A7950P (APPELLANT) .. (RESPONDENT) C.O. NO. 204/AHD/2010 ASSESSMENT YEAR :2007-08 ALEMBIC LTD. ALEMBIC ROAD, BARODA. V/S . DCIT, CIRCLE 1 (1), BARODA. (APPELLANT) (RESPONDENT) # $ % / BY REVENUE SHRI VIMALENDU VERMA, CIT D.R. $ % /BY ASSESSEE SHRI S. N. SOPARKAR, A.R. &' $ /DATE OF HEARING 06.03.2014 ()* $ /DATE OF PRONOUNCEMENT 27.03.2014 O R D E R PER : SHRI T. R. MEENA, ACCOUNTANT MEMBER THIS APPEAL AT THE BEHEST OF REVENUE AND C.O. AT TH E BEHEST OF ASSESSEE FILED, WHICH HAVE EMANATED FROM THE ORDERS OF CIT(A)-I, BARODA, DATED 16.03.2010 FOR A.Y. 07-08. BOTH WERE HEARD T OGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAK E OF CONVENIENCE. ITA NO. 1928/AHD/10 & C.O. NO. 204/AHD/10 IN CASE OF DCIT VS. ALEMBIC LTD. FOR A.Y. 07-08 PAGE 2 2. GROUNDS OF ITA NO. 1928/AHD/2010 (REVENUE'S APPEAL) 1(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID.CIT(APPEALS) ERRED IN DELETING THE ADDITION OF R S.10,08,27,649/- ON ACCOUNT OF DISALLOWANCE OF CLAIM OF DEDUCTION U/S.8 0IA(4) ON THE ELECTRICITY PRODUCED FOR CAPTIVE CONSUMPTION IN COGEN PLANTS . THE ID.CIT(A) ERRED IN DELETING THE ADDITION RELYING ON THE DECISION OF THE HON.ITAT IN THE CASE OF ALEMBIC LTD, FOR A.Y.2003-04 BEARING NO.3594/AHD /2007 DATED 06.06.2008 WHEREIN THE HON.ITAT ALLOWED THE APPEAL OF THE ASSESSEE IN RESPECT OF CLAIM OF THE ASSESSEE U/S.80IA(4) BY TAK ING THE PRICE OF ELECTRICITY SUPPLIED BY GEB. 1(B) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E ID.CIT(APPEALS) AS WELL AS THE HON.ITAT DID NOT RELY ON THE DECISION I N THE CASE OF CHETTINAD CEMENT CORPORATION LTD. IN ITA NO.1026 (MDS)/2005 F OR A.Y.2001-Q2 ON THE GROUND THAT THE ASSESSEE HAD CAPTIVE POWER GENE RATION PLANT AND THEREFORE THE CLAIM WAS NOT ALLOWABLE. 2(A). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID.CIT(APPEALS) ERRED IN DELETING THE DISALLOWANCE OF RS.14.91 LACS U/S. 14A TOWARDS INTEREST AND OTHER EXPENSES INCURRED IN RELATION TO EXEMPTED INCOME OF DIVIDEND AND TAX-FREE INTEREST WITHOUT TA KING NOTE OF LANDMARK DECISION IN THE CASE OF CIT(APPEALS) VS ABHISHEK INDUSTRIES LTD., 286 ITR 01 (P & H), LAYING DOWN THAT, IN VIEW OF SECTION 106 OF THE IND IAN EVIDENCE ACT, THE FACTS BEING IN THE SPECIAL KNOWLE DGE OF THE ASSESSEE, IT WAS UP TO HIM TO ADDUCE EVIDENCED THAT ALL THE BORR OWINGS WERE USED FOR THE PURPOSES OF BUSINESS AND ITS IS ASSESSEE'S OWN SURPLUS FUNDS THAT WERE INVESTED IN THE SHARES AND DEPOSITS EARNING EX EMPTED INCOME AND, EVEN IN CASE OF MIXED FUNDS, THE DISALLOWANCE OF IN TEREST COULD BE MADE. 2(B). THE ID.CIT(APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT ASSESSEE'S OWN FUNDS ALREADY STOOD INVESTED IN FIXE D ASSETS OR AS WORKING CAPITAL WHEN THE BORROWINGS WERE MADE; OTHERWISE, T HERE WAS NO NEED FOR SUCH BORROWINGS AND HENCE IT IS THESE BORROWINGS WH ICH WERE UTILIZED TO EARN EXEMPTED INCOME. ITA NO. 1928/AHD/10 & C.O. NO. 204/AHD/10 IN CASE OF DCIT VS. ALEMBIC LTD. FOR A.Y. 07-08 PAGE 3 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN NEGATING THE ADJUSTMENT OF WEALTH-TAX LIAB ILITY OF RS.7.50 LACS UNDER CLAUSE (C) OF THE EXPLANATION BELOW SECTION 1 15JB, WITHOUT APPRECIATING THAT THIS LIABILITY WAS NOT BASED ON A NY WORKING OF NET WEALTH AND WAS PURELY UNASCERTAINED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ID.CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE ASSESSEE'S CLAIM OF DEDUCTION U/S.80HHC OF RS.12,56,36,909/- F ROM THE BOOK PROFIT U/S.115JB WITHOUT APPRECIATING THAT NO DEDUCTION SH ALL BE ALLOWED IN RESPECT OF ASSESSMENT YEAR BEGINNING 1 ST DAY OF APRIL, 2005 AND IN SUBSEQUENT YEARS IN VIEW OF SUB-SECTION 1B INSERTED IN SECTION 80HHC W.E.F.10.04.2001. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN DIRECTING TO ALLOW THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER U/S.14A OF THE ACT FOR THE PURPOS E OF COMPUTING BOOK PROFIT U/S.115JB OF THE ACT WITHOUT APPRECIATING TH E THAT THAT THE ASSESSING OFFICER HAD MADE THE ADDITION U/S.14A R.W.RULE 8D O F THE ACT AS THOSE EXPENSES INCURRED WERE FOR INTEREST AND OTHER INCOM E IN RELATION TO EXEMPTED INCOME OF DIVIDEND AND TAX-FREE INTEREST. FIRST WE TAKE ITA NO. 428/AHD/2010 (ASSESSEE'S APPE AL) 2. THE REVENUES GROUND NO.1 IS AGAINST DELETING TH E ADDITION OF RS.10,08,27,649/- ON ACCOUNT OF DISALLOWANCE OF CLA IM OF DEDUCTION U/S.80IA(4) OF THE IT ACT. THE A.O. OBSERVED THAT ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IA(4) ON COGEN UNIT I OF RS.10,08, 27,649/-, COGEN UNIT II OF RS.9,09,81,526/-, & COGEN UNIT III OF RS.36,24,2 32/-. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSEE WAS ASKED TO SU BSTANTIATE HIS CLAIM FOR DEDUCTION U/S. 80IA(4) IN RESPECT OF COGEN - I, COG EN - II & COGEN - III. THE ASSESSEE WAS ASKED TO JUSTIFY NOT IN RESPECT OF THE CLAIM DEDUCTION U/S. ITA NO. 1928/AHD/10 & C.O. NO. 204/AHD/10 IN CASE OF DCIT VS. ALEMBIC LTD. FOR A.Y. 07-08 PAGE 4 80IA OF RS.19,54,33,407/- IN RESPECT OF POWER GENER ATING PLANTS USED FOR CAPTIVE CONSUMPTION IN VIEW OF THE DECISION OF THE HONBLE ITAT, CHENNAI IN CASE OF M/S. CHETTINAD CEMENT CORPORATION LTD. VS. ACIT IN ITA NO. 1029 (MADS.) 2005 FOR A.Y. 2001-02, WHEREIN IT HAS BEEN HELD THAT THE DEDUCTION U/S. 80IA IS NOT AVAILABLE IN RESPECT OF CAPTIVE PO WER PLANT TO MEET IN HOUSE REQUIREMENT AND RATE OF SUPPLY. FURTHER, THE ASSES SEE WAS REQUESTED TO SHOW CAUSE AS TO WHY FOR CALCULATING THE ELIGIBLE PROFIT S OF COGEN I, COGEN -II & COGEN UNIT III FOR THE PURPOSE OF COMPUTATION OF D EDUCTION U/S. 80IA, THE AVERAGE SALE RATE OF RS.2.36 PER UNIT SHOULD NOT BE TAKEN BY INVOKING THE PROVISIONS OF SECTION 80IA(8) R.W.S. 80IA(10) OF TH E ACT. THE ASSESSEE SUBMITTED HIS REPLY ON 16.03.2009 AND AFTER CONSIDE RING THE ASSESSEES REPLY, THE LD. A.O. HELD THAT THE DEDUCTION UNDER THIS PRO VISION IS NOT ALLOWABLE FOR REASONS THAT ASSESSEE HAS GENERATED THE POWER FOR C APTIVE USE ONLY. AS PER HONBLE ITAT, CHENNAI BENCH IN CASE OF M/S. CHETTINAD CEMENT CORPORATION LTD. VS. ACIT (SUPRA), THE ASSESSEE HAS NOT ENTITLED TO DEDUCTION U/S. 80I A(4) OF THE IT ACT. THE ASSESSEE RELIED UPON THE DECISI ON OF CIT VS. DCM SHRIRAM CONSOLIDATED LTD. 221 CTR 519 OF DELHI HIGH COURT, WHICH WAS NOT FOUND APPLICABLE BY THE A.O. FOR DEDUCTION U/S. 80IA. AL TERNATIVELY, IT WAS ALSO HELD THAT MARKET RATE OF THE POWER UNIT OF THE ELECTRICI TY IS RS.2.36 PER UNIT, WHEREAS ASSESSEE HAS CALCULATED THE PROFIT ON THE BASIS OF PRICE ADOPTED BY GUJARAT ELECTRICITY BOARD FOR THE CONSUMER. HE WORKED OUT THAT ASSESSEE HAD CLAIMED DEDUCTION U/S.80IA(4) EXCESS TO CERTAIN PERCENTAGE. THE LD. A.O. MADE DETAILED DISCUSSION ON THIS ISSUE FROM PAGE NO.4 TO 10. HE ALSO COMPARED THE UNIT PRICE WITH OTHER COMPANIES AT PAGE NOS. 8 & 9. HE FINALLY APPLIED PER UNIT ITA NO. 1928/AHD/10 & C.O. NO. 204/AHD/10 IN CASE OF DCIT VS. ALEMBIC LTD. FOR A.Y. 07-08 PAGE 5 RATE 2.36% AND CALCULATED EXCESS DEDUCTION TAKEN BY THE ASSESSEE. LD. A.O. ALLOWED DEDUCTION IN RESPECT OF COGEN - I, COGEN - II AT RS.3,48,55,182/- AND 31,56,134/- RESPECTIVELY AS AGAINST THE CLAIM O F THE ASSESSEE AT RS.10,08,27,649/- AND RS.9,09,81,526/- RESPECTIVELY . 3. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE AS SESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD ALLOWED THE APPEAL BY OBSERVING AS UNDER: 8.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE ID. AR AND THE FACTS OF THE CASE. THE ISSUE REGARDING DEDUCTIBILITY U/S 80HHC F OR THE PURPOSES OF COMPUTING BOOK PROFIT U/S 115.IB HAS BEEN DECIDED B Y THE ITAT AHMEDABAD BENCH IN APPELLANT'S OWN CASE VIDE ORDER DT. 6.6.2008, IN FAVOUR OF THE APPELLANT. HOWEVER, SUBSEQUENTLY THE SAME ISSUE CAME UP FOR CONSIDERATION BEFORE THE MADRAS HIGH COURT IN C IT V MAGNA ELECTRO CASTING LTD, (2009) TAX CASE APPEAL NO 247. IN THAT JUDGEMENT DT. 15.4.2009, THE HIGH COURT HELD THAT THE DEDUCTION U /S 80HHC IN MAT SCHEME IS FROM THE TAXABLE INCOME, WHICH IS OTHERWI SE THE ADJUSTED BOOK PROFIT. 'IF NO DEDUCTION IS AVAILABLE FOR ASSESSEE THE GROSS TOTAL INCOME ITSELF IS THE TAXABLE INCOME OF THE ASSESSEE. MAT S CHEME DOES NOT PROVIDE FOR DEDUCTIONS. THEREFORE, THE INTERPRETATI ON IS THAT THE HOOK PROFIT OF THE COMPANY ITSELF IS THE GROSS TOTAL INCOME OF THAT ASSESSEE COMPANY.' HENCE AS PER THE MADRAS HIGH COURT THE BOOK PROFITS FOR MAT ARE TO BE COMPUTED AFTER ALLOWING DEDUCTION U/S 80HHC, SINCE THERE IS NOTHING IN THE SECTION TO INDICATE THAT THE DEDUCTION WOULD NO T BE AVAILABLE EVEN THOUGH IT MAY BE REQUIRED TO BE SCALED DOWN IN TERM S OF SECTION 80HHC(1B). 4. NOW THE REVENUE IS BEFORE US. THE LD. CIT D.R. FAIRLY ACCEPTED THAT THIS ISSUE IS COVERED AGAINST THE REVENUE BY THE OR DER OF THE ITAT FOR A.Y. 03- 04 & 06-07. THE LD. A.R. ALSO SUPPORTED THE ORDER OF THE CIT(A) AND ARGUED THAT THIS ISSUE HAS BEEN DECIDED BY THE HONBLE ITA T IN A.Y. 03-04 AS WELL AS A.Y. 06-07. THE A.R. SUBMITTED THAT HONBLE D BE NCH IN ITA NO. ITA NO. 1928/AHD/10 & C.O. NO. 204/AHD/10 IN CASE OF DCIT VS. ALEMBIC LTD. FOR A.Y. 07-08 PAGE 6 3530/AHD/2008 FOR A.Y. 06-07 AT PAGE NO.2 AGAINST T HE GROUND NO.1 HAD CONFIRMED THE ORDER OF THE CIT(A) WHO HAS ALLOWED T HE DEDUCTION U/S.80IA(4) ON CAPTIVE POWER PLANT, WHERE THE PROFIT WAS CALCUL ATED ON THE BASIS OF MARKET RATE OF POWER UNIT ON CAPTIVE POWER PLANT PRODUCTIO N OF UNIT. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE CO-ORDINATE B BENCH VIDE ITS ORDER D ATED 15.02.2011 HAS SET ASIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE CO -ORDINATE BENCH HAS CONFIRMED THE ORDER OF THE CIT(A) WHO HAD ALLOWED T HE 80IA DEDUCTION ON THE BASIS OF MARKET RATE OF POWER UNIT COMPUTING THE PR OFIT FROM THE ELIGIBLE UNIT U/S. 80IA(4). ACCORDINGLY, WE CONFIRM THE ORDER OF THE CIT(A) IN APPEAL BEFORE US. GROUND NO.1 IS ALLOWED. 6. GROUND NO.2 IS AGAINST DELETING THE DISALLOWANCE OF RS.14,91,000/- U/S. 14A TOWARDS INTEREST AND OTHER EXPENSES INCURRED IN RELATION TO EXEMPTED INCOME OF DIVIDEND AND TAX-FREE INTEREST. THE A.O. OBSERVED THAT DURING THE FINANCIAL YEAR UNDER CONSIDERATION, THE ASSESSEE HA D RECEIVED EXEMPT INCOME IN THE FORM OF DIVIDEND OF RS.1,32,82,469/- AND TAX -FREE INTEREST OF RS. 9,17,325/-. THE A.O. GAVE REASONABLE OPPORTUNITY OF BEING HEARD, WHICH WAS AFFORDED BY THE ASSESSEE. AFTER CONSIDERING THE ASS ESSEES REPLY, THE LD. A.O. HELD THAT ARGUMENT OF THE ASSESSEE THAT IT HAS SHAR E CAPITAL AND RESERVE AND SURPLUS AS ON 31.03.2007 OF RS.38,492/- LACS WHICH COVERS THE TAX-FREE INVESTMENT BUT A.O. WAS NOT SATISFIED BECAUSE ASSES SEE HAD HUGE BORROWINGS DURING THE YEAR & PAID INTEREST ON IT. THIS INTERES T BEARING BORROWINGS HAVE BEEN UTILIZED BY THE ASSESSEE FOR NON BUSINESS PURP OSES I.E. ACQUIRING OF THE SHARE. THE ASSESSEE HAD NOT GIVEN DETAILS AS TO WHE N SHARES WERE ACQUIRED ITA NO. 1928/AHD/10 & C.O. NO. 204/AHD/10 IN CASE OF DCIT VS. ALEMBIC LTD. FOR A.Y. 07-08 PAGE 7 AND WHAT WAS THE SOURCE OF FINANCING COST OF ACQUIS ITION OF SHARES IN EARLIER YEARS DESPITE VARIOUS OPPORTUNITIES GIVEN BY THE LD . A.O. THE A.O. RELIED UPON THE DECISION OF HONBLE PUNJAB AND HARYANA HIGH COU RT IN CASE OF CIT VS. ABHISHEK LAND P LTD. (286 ITR 01), WHEREIN IT WAS HELD THAT THE ONUS WAS ENTIRELY ON THE ASSESSEE TO PROVE THAT ALL THE BORR OWED FUNDS WERE USED FOR BUSINESS PURPOSES. HE FURTHER HELD THAT RULE 8D HA S BEEN INSERTED BY THE FINANCE ACT, 2006 AS PER ITAT, SPECIAL BENCH, MUMBA I, DECISION IN CASE OF M/S. DURGA CAPITAL MANAGEMENT PVT. LTD. IN ITA NO. 8057/MUM/2003 FOR A.Y. 2001-02, WHEREIN IT WAS HELD THAT THE PROVISIONS OF SECTION 14A(2) & 14A(3) ARE CLARIFICATORY IN NATURE AND APPLICABLE RETROSPE CTIVELY BY THE FINANCE ACT, 2001 W.E.F. 01.04.1962. ACCORDINGLY, RULE 8D IS AL SO APPLICABLE RETROSPECTIVELY. THE LD. A.O. DISALLOWED RS.14,91, 000/- U/S. 14A OF THE IT ACT. 7. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE AS SESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD ALLOWED THE APPEAL IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION IN A.Y. 06-07 ON IDENTICAL ISSUE. 8. NOW THE REVENUE IS BEFORE US. BOTH SIDES HAD FA IRLY ACCEPTED THE IN PRECEDING YEARS, THIS ISSUE HAS BEEN SET ASIDE TO T HE A.O. FOR RE-CALCULATION OF DISALLOWANCE. HOWEVER, LD. A.R. CONTENDED THAT HON BLE BOMBAY HIGH COURT IN CASE OF GODREJ AND BOYCE MFG CO. LTD. (328 ITR 81), HAS HELD THAT RULE 8D IS NOT APPLICABLE RETROSPECTIVELY AND APPLICABLE FO R A.Y. 08-09. BUT IT WAS HELD THAT REASONABLE DISALLOWANCE IS TO BE MADE BY THE A .O. AFTER ANALYZING THE BORROWED FUND USED FOR THE BUSINESS PURPOSES, NON B USINESS PURPOSES AND INTEREST PAID AND ALSO OTHER DISALLOWANCE FOR UNDER THE ADMINISTRATIVE HEAD. THE LD. A.O. HAD TO SATISFY BEFORE MAKING DISALLOWA NCE U/S. 14A OF THE IT ACT ITA NO. 1928/AHD/10 & C.O. NO. 204/AHD/10 IN CASE OF DCIT VS. ALEMBIC LTD. FOR A.Y. 07-08 PAGE 8 BY RELYING UPON VARIOUS CASE LAWS. HE FURTHER RELI ED IN CASE OF UTI BANK LIMITED (2013) 215 TAXMAN 8 (GUJARAT HC) AND IT WAS ARGUED THAT HONBLE GUJARAT HIGH COURT HELD THAT IF ANY FUND OF THE ASS ESSEE ARE SUFFICIENT TO COVER THE INVESTMENT THEN NO ANY DISALLOWANCE NEEDS TO BE MADE U/S. 14A. HE ALSO RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COU RT IN CASE OF RELIANCE UTILITIES & POWER LTD. 18 DTR 1 AND ARGUED THAT THIS ISSUE MAY BE DECIDED BY THE HONBLE BENCH ITSELF. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE DID NOT SUPPLY THE INFORMATIO N CALLED FOR BY THE A.O. AT THE TIME OF ASSESSMENT. THEREFORE, WE CANNOT DECID E THE ISSUE AT THIS LEVEL. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE A.O. AN D DIRECT HIM TO TAKE DECISION AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEA RD TO THE ASSESSEE. GROUND NO.2 IS ALLOWED FOR STATISTICAL PURPOSE. 10. GROUND NO.3 OF REVENUES APPEAL IS AGAINST ALLO WING THE ADJUSTMENT OF WEALTH-TAX LIABILITY OF RS.7.50 LACS OF THE EXPLANA TION BELOW SECTION 115JB. THE A.O. OBSERVED THAT AS PER COMPUTATION OF BOOK P ROFIT U/S. 115JB, THE ASSESSEE HAD NOT ADDED BACK WEALTH-TAX OF RS.7,50,0 00/- FOR THE PURPOSES OF COMPUTATION OF ITS BOOK PROFIT U/S. 115JB. IN VIEW OF THE EXPLANATION TO SECTION 115JB OF THE IT ACT, THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THIS PROVISION SHOULD NOT BE ADDED BACK FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S. 115JB. AFTER CONSIDERING THE ASSE SSEES REPLY, THE A.O. HELD THAT PROVISION FOR WEALTH-TAX IS COVERED BY THE EXP LANATION (A) & (C) TO SECTION 115JB OF THE IT ACT. ACCORDINGLY, HE MADE ADJUSTME NT IN BOOK PROFIT. ITA NO. 1928/AHD/10 & C.O. NO. 204/AHD/10 IN CASE OF DCIT VS. ALEMBIC LTD. FOR A.Y. 07-08 PAGE 9 11. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE A SSESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD ALLOWED THE APPEAL ON THE BASIS OF HIS PREDECESSORS ORDER IN A.Y. 06-07, WHEREIN LD. CIT( A) RELIED UPON ITAT KOLKATA SPECIAL BENCH IN CASE OF USHA MARTIN INDUSTRIAL LTD. 12. NOW THE REVENUE IS BEFORE US. LD. CIT D.R. REL IED UPON THE ORDER OF THE A.O. AT THE OUTSET, LD. A.R. FOR THE ASSESSEE ARGUED THAT THIS ISSUE COVERED BY THE HONBLE ITATS DECISION FOR A.Y. 06- 07 IN ITA NO.3530/AHD/2008 IN GROUND NO.6 AT PAGE NO. 12 & 13 AND FINAL FINDINGS ON PAGE NO.14 OF THE ITAT ORDER. THE HONBLE BENCH RE LIED UPON THE ASSESSEES OWN CASE FOR 2000-01, 01-02 AND ALSO ITAT, KOLKATA SPECIAL BENCH IN CASE OF JCIT VS. USHA MARTIN INDUSTRIAL LTD [2007] 288 ITR (A.T.) 0063-(SB) (KOL). THE ISSUE IS IDENTICAL. THEREFORE, BY FOLLOWING TH E CO-ORDINATE D BENCH DECISION ORDER DATED 15.02.2011 FOR A.Y. 06-07, WE CONFIRM THE ORDER OF THE CIT(A) ON IDENTICAL ISSUE. ACCORDINGLY, REVENUES APPEAL IS DISMISSED ON THIS GROUND. 13. GROUND NO.4 IS AGAINST DIRECTING THE A.O. TO AL LOW THE ASSESSEES CLAIM OF DEDUCTION IN RESPECT OF 80HHC OF RS.12,56,36,909 /- FROM THE BOOK PROFIT U/S. 115JB. THE A.O. OBSERVED THAT ASSESSEE HAD CL AIMED RS.12,56,909/- DEDUCTION U/S. 80HHC WHILE CALCULATING ITS BOOK PRO FIT U/S. 115JB BY FILING REVISED E-RETURN. IT WAS ALSO NOTICED THAT DEDUCTI ON U/S.80HHC WAS NOT AVAILABLE UNDER THE NORMAL PROVISIONS OF THE IT ACT W.E.F. 01.04.2005. THE ASSESSEE GAVE REASONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE, WHICH WAS AFFORDED BY THE ASSESSEE. AFTER CONSIDERING TH E ASSESSEES REPLY, THE A.O. HELD THAT W.E.F. 01.04.2005 UNDER SUB-SECTION 1B OF SECTION 80HHC, NO ITA NO. 1928/AHD/10 & C.O. NO. 204/AHD/10 IN CASE OF DCIT VS. ALEMBIC LTD. FOR A.Y. 07-08 PAGE 10 DEDUCTION SHALL BE ALLOWED AND IN SUBSEQUENT YEAR A LSO. THEREFORE, HE MADE ADJUSTMENT OF RS.12,56,36,906/- U/S. 115JB OF THE I T ACT. GIST 14. BEING AGGRIEVED BY THE ORDER OF THE A.O., ASSES SEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD SET ASIDE THE ISSUE TO TH E A.O., AFTER CONSIDERING THE VARIOUS CASE LAWS ON THIS ISSUE ON PAGE NOS. 19 TO 22 AND HELD AS UNDER: 8.7 HAVING REGARD TO THE TOTALITY OF THE CIRCUMSTA NCES AS MENTIONED ABOVE, THE JURISDICTIONAL INTERPRETATION ON THE ISS UE BY MADRAS AND MUMBAI HIGH COURTS, AS WELL AS THAT OF ITAT, AHMADABAD BEN CH, AND THE COURSE OF ACTION SUGGESTED BY THE HON. SUPREME COURT IN SU CH A SITUATION, IT IS HELD THAT THE AO WAS NOT JUSTIFIED IN DENYING THE C LAIM OF DEDUCTION U/S 80HHC WHILE COMPUTING PROFITS U/S.115JB. THE AO IS DIRECTED TO RECOMPUTED THE BOOK PROFIT U/S 115JB AND ALLOW THE DEDUCTION OF PROFIT U/S 80HHC AND THE SAME IS TO BE WORKED OUT ON THE BASIS OF ADJUSTED BOOK PROFIT AND NOT ON THE BASIS OF PROFIT AS COMPUTED B Y REGULAR PROVISIONS. FURTHER, THE AO IS ALSO DIRECTED NOT TO REDUCE OR S CALE DOWN THE PROFIT AS PER SECTION 80HHC(1B). 15. NOW THE REVENUE IS BEFORE US. LD. CIT D.R. VEH EMENTLY ARGUED THAT NOW SECTION 115JB HAS BEEN AMENDED W.E.F. 01.04.200 5. AS PER CLAUSE IV, THE AMOUNT OF PROFITS ELIGIBLE FOR DEDUCTION U/S. 8 0HHC, COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF SUB-SECTI ON (3) OR SUB-SECTION (3A), AS THE CASE MAY BE, OF THAT SECTIONS, AND SUBJECT TO T HE CONDITIONS SPECIFIED IN THAT SECTION IS TO BE REDUCED. THEREFORE, THE A.O. HAS RIGHTLY MADE ADDITION UNDER SECTION 115JB. LD. A.R. FAIRLY ACCEPTED THAT THIS AMENDMENT IS RETROSPECTIVE AND AGAINST THE ASSESSE. 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE AMENDMENT MADE UNDER SECTION 115JB IS EFFECTIVE FROM 01.04.2005 AND AS PER ITEM NO. IV OF EXPLANATION 1, THE DEDUCTION U/S. 80HHC ITA NO. 1928/AHD/10 & C.O. NO. 204/AHD/10 IN CASE OF DCIT VS. ALEMBIC LTD. FOR A.Y. 07-08 PAGE 11 IS NOT ALLOWED AND IS TO BE REDUCED FROM 115JB PROF IT. THEREFORE, WE CONFIRM THE ORDER OF THE A.O. ON THIS ISSUE, THE REVENUES APPEAL IS ALLOWED. 16. GROUND NO.5 IS AGAINST ALLOWING DISALLOWANCE MA DE BY THE ASSESSING OFFICER U/S. 14A COMPUTING PROFIT U/S. 115JB. THE A.O. OBSERVED THAT DISALLOWANCE MADE U/S. 14A IS REQUIRED TO BE ADDED BACK IN COMPUTING OF BOOK PROFIT U/S. 115JB AS PER CLAUSE (F) OF EXPLANA TION 1 OF SUB-SECTION 2 OF SECTION 115JB AT RS. 14,91,000/-. WHEN LD. CIT(A) DELETED THE ADDITION U/S. 14A AND ALLOWED THE APPEAL IN FAVOUR OF THE ASSESSE E, THEREFORE, THIS ISSUE WAS ACCORDINGLY, NOT IN EXISTENCE. THUS, IT WAS TR EATED TO BE ALLOWED IN FAVOUR OF THE ASSESSEE. LD. SR. D.R. VEHEMENTLY RELIED IN CLAUSE (F) OF EXPLANATION 1 OF SUB-SECTION 2 OF 115JB. AS PER THIS CLAUSE, THE BOOK PROFIT U/S. 115JB IS TO BE INCREASED BY EXPENDITURE RELATABLE TO ANY INCOME OF EXEMPTED U/S. 10. AT THE OUTSET, LD. A.R. ARGUED THAT NO ACTUAL EXPENDIT URE WAS DEBITED IN THE P&L ACCOUNT RELATING TO EARNING OF THE EXEMPT INCOME. HE RELIED UPON IN CASE OF M/S. ESSAR TELEHOLDINGS LTD. VS. DCIT IN ITA NO. 38 50/MUM/2010 FOR A.Y. 2005-06, FOR RELATING TO EARNING OF EXEMPT INCOME. THEREFOR E, PROVISIONS OF SECTION 14A CANNOT BE IMPORTED INTO WHILE COMPUTING THE BOOK PROFIT U/S. 115JB OF THE ACT INASMUCH AS CLAUSE (F) OF EXPLANAT ION TO SECTION 115JB REFERS TO THE AMOUNT DEBITED TO THE P&L ACCOUNT, WH ICH CAN BE ADDED BACK TO THE BOOK PROFIT WHILE COMPUTING BOOK PROFIT U/S. 11 5JB OF THE ACT. HE FURTHER RELIED UPON IN CASE OF GOETZE(INDIA) LIMITED, 32 SOT 101 (DELHI ITAT) & QUIPPO TELECOM INFRASTRUCTURE LIMITED IN ITA NO. 49 31/DEL/2010. 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. AS THIS ISSUE HAS BEEN SET ASIDE TO THE A. O. FOR RE-COMPUTATION OF ITA NO. 1928/AHD/10 & C.O. NO. 204/AHD/10 IN CASE OF DCIT VS. ALEMBIC LTD. FOR A.Y. 07-08 PAGE 12 DISALLOWANCE U/S. 14A, HOWEVER, FOR MAKING ADJUSTME NT U/S. 115JB, THE ITAT, MUMBAI BENCH IN CASE OF M/S. ESSAR TELEHOLDINGS LIM ITED (SUPRA) HELD THAT PROVISIONS OF SUB-SECTION 2 & 3 OF SECTION 14B CANN OT BE IMPORTED INTO CLAUSE (F) OF THE EXPLANATION TO SECTION 115JB OF T HE ACT. AS PER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB REFERS TO AMOUNT DEB ITED TO THE P&L ACCOUNT, WHICH CAN BE ADDED BACK TO THE BOOK PROFIT WHILE CO MPUTING THE BOOK PROFIT U/S. 115JB. SIMILAR VIEWS HAVE BEEN TAKEN BY THE I TAT, DELHI BENCH IN CASE OF GOETZE(INDIA) LTD. (SUPRA). THEREFORE, WE HELD THAT ADJUSTMENT MADE BY THE A.O. IS NOT AS PER LAW. ACCORDINGLY, WE DISMISS TH E REVENUES APPEAL ON THIS GROUND. 18. REVENUES APPEAL IS PARTLY ALLOWED. NOW WE TAKE C. O. NO. 204/AHD/2010 (ASSESSEE'S C.O. ) 19. ASSESSEE'S C.O. IS AGAINST THE ADDITION OF PROV ISION FOR DOUBTFUL DEBT OF RS.3,00,51,177/- FOR COMPUTING THE BOOK PROFITS U/S . 115JB. THE A.O. OBSERVED THAT ASSESSEE HAD NOT ADDED PROVISION FOR BAD DEBT AND LEAVE ENCASHMENT. THE A.O. GAVE REASONABLE OPPORTUNITY T O THE ASSESSEE OF BEING HEARD ON THIS ISSUE. THE ASSESSEE HAS REPLIED AND AFTER CONSIDERING THE ASSESSEES REPLY, LD. A.O. OBSERVED THAT THE PROVIS IONS MADE BY THE ASSESSEE AS PER ACCOUNTING STANDARD IN RESPECT OF LIABILITY CAN NOT MAKE AT ASCERTAINED LIABILITY. IT IS MERELY A PROVISION. SUCH TYPES O F LIABILITIES ARE COVERED BY THE EXPLANATION (C) OF SECTION 115JB OF THE IT ACT AND SAME IS REQUIRED TO BE ADDED AS PER THE EXPLANATION TO SECTION 115JB FOR C OMPUTATION OF BOOK PROFIT OF THE ASSESSEE. THE ASSESSEE HAS DEBITED THE CLAI M OF BAD DOUBTFUL DEBT IN ITA NO. 1928/AHD/10 & C.O. NO. 204/AHD/10 IN CASE OF DCIT VS. ALEMBIC LTD. FOR A.Y. 07-08 PAGE 13 PROFIT AND LOSS ACCOUNT. BUT IT IS ALWAYS PROVISION FOR BAD DEBT. THUS, HE MADE ADJUSTMENT OF RS. 3,00,51,177/- IN COMPUTING BOOK P ROFIT U/S. 115JB ALSO. 20. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT( A) WHO HAD CONFIRMED THE ADDITION BY OBSERVING AS UNDER: 6.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE ID. A R AND THE FACTS OF THE CASE. BY AMENDMENT THROUGH FINANCE (NO. 2) ACT, 200 9 AND WITH RETROSPECTIVE EFFECT FROM 1.4.2001, CLAUSE (I) HAS BEEN INSERTED WHICH MANDATES THAT 'THE AMOUNT OR AMOUNTS SET-ASIDE AS P ROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET' SHALL BE ADDE D TO THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT WHILE DETERMIN ING THE 'BOOK PROFIT' FOR THE PURPOSES OF SECTION 115JB. THE LANGUAGE OF THE PROVISION IS CLEAR. THE DEBTS IN QUESTION PERTAINED TO RECEIVABLES BY THE A SSESSEE AND WERE THEREFORE IN THE CATEGORY OF 'ASSET'. SUCH DEBTS HA D A REALIZABLE VALUE. BY MAKING PROVISION FOR WRITE-OFF OF CERTAIN PORTION O F THE DEBT, THE ASSESSEE IN FACT REDUCED THE VALUE OF THE ASSET IN AS MUCH A S THE REALIZABLE VALUE STOOD REDUCED IN ITS OWN BOOKS. THUS, THIS WAS CLEA RLY A CASE OF DIMINUTION IN THE REALIZABLE VALUE OF AN ASSET (DEB T). THE PROVISIONS OF CLAUSE (C) MAY NOT BE APPLICABLE BUT THE PROVISIONS OF CLAUSE (I) WOULD CERTAINLY BE APPLICABLE TO THE INSTANT CASE. HERE I T WOULD NOT BE OUT OF PLACE TO MENTION THAT THE APPELLANT'S ARGUMENT THAT THE DEBT WAS NOT AN ASSET CAPABLE OF BEING VALUED, IS NOT CORRECT. DEBT S ARE NOW SECURITIZED, BUNDLED, SLICED, TRADED. THEY CAN BE DISCOUNTED ALS O. THIS CLEARLY SHOWS THAT DEBTS DO HAVE VALUE, AND ARE CAPABLE OF UNDERG OING CHANGES IN VALUE. PROVISION FOR WRITE-OFF OF A DEBT WOULD CERT AINLY RESULT IN DIMINUTION IN THE VALUE OF THE ASSET. ACCORDINGLY, IT IS HELD THAT THE AO HAS CORRECTLY ENHANCED THE BOOK PROFITS BY THE PROVISION FOR DOUB TFUL DEBTS. THE ACTION OF THE AO IS CONFIRMED. 21. NOW THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE ASSESSEE ARGUED THAT THE AMENDMENT MADE IN SECTION 115JB IS RETROSP ECTIVE W.E.F. 01.04.2001 AND EXPLANATION 1 WAS ADDED IN SECTION 115JB. AS P ER CLAUSE (C) OF ITA NO. 1928/AHD/10 & C.O. NO. 204/AHD/10 IN CASE OF DCIT VS. ALEMBIC LTD. FOR A.Y. 07-08 PAGE 14 EXPLANATION 1, THE AMOUNT OR AMOUNTS SET ASIDE TO T HE PROVISION FOR LIABILITY OTHER THAN ASCERTAIN LIABILITY IS TO BE CONSIDERED IN INCREASING BOOK PROFIT AS PER EXPLANATION 1. THE HONBLE KARNATAKA HIGH COURT HA S DECIDED THIS ISSUE IN CASE OF CIT VS. YOKOGAWA INDIA LTD., [2012] 17 TAXMANN.COM 15 (KAR.), THAT PROVISION MADE FOR BAD DEBT CANNOT BE ADDED BACK IN ACCORDANCE WITH EXPLANATION (C) TO SECTION 115JB(1) AS SAME IS NOT AN ASCERTAINED LIABILITY. LD. A.R. FURTHER RELIED IN CASE OF HONBLE A BENC H, ITAT, AHMADABAD, IN CASE OF ACIT VS. VODAFONE ESSAR GUJARAT LTD. IN ITA NO. 199 9/AHD/2008, WHEREIN IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE BY CONSIDERING THE HONBLE KARNATAKA HIGH COURT DECISION IN CASE OF CI T VS. YOKOGAWA INDIA LTD. (SUPRA). LD. COUNSEL ARGUED THAT IN A.Y. 06-07, HO NBLE ITAT D BENCH IN ASSESSEES OWN CASE HAS SET ASIDE THIS ISSUE ON THE BASIS OF FINDING GIVEN IN A.Y. 03-04 & 05-06 VIDE ORDER DATED 15 TH FEBRUARY, 2011 IN A.Y. 06-07. THE OPERATIVE PORTION IS REPRODUCED AS UNDER: 16. WE FIND THAT THE TRIBUNAL WHILE DECIDING THE ISSUE HAS HELD AS UNDER:- '14. GROUND NO.5 RELATES TO DELETING ADDITION TOWAR DS PROVISIONS FOR DOUBTFUL DEBTS AT RS.3,76,27,965/-. THE LD. CIT(A) HAS DIRECTED TO ADD AMOUNT OF PROVISION IN THE BOOK PROFIT FOR THE PURPOSE OF COMPUTING TAX PAYABLE UNDER SECTION 115JB. SIMILAR ISSUE HAD ARISEN BEFORE THE TRIBUNAL IN ASST. YEAR 2002-03 AN D IT WAS DECIDED IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF HON. SUPREME COURT IN THE CASE OF CIT VS.HCL COMNET SYST EMS AND SERVICES LTD. 305 ITR 409 (SC). AMENDMENT WITH RETR OSPECTIVE EFFECT HAS TAKEN PLACE WHEREIN ANY AMOUNT OF PROVIS ION FOR BAD AND DOUBTFUL DEBT WILL NOT BE ALLOWED AS DEDUCTION WHIL E COMPUTING BOOK PROFITS. ACCORDINGLY THE DECISION OF HON. SUPR EME COURT IN CIT VS. HCL COMNET SYSTEMS AND SERVICES LTD. (SUPRA ) WAS ITA NO. 1928/AHD/10 & C.O. NO. 204/AHD/10 IN CASE OF DCIT VS. ALEMBIC LTD. FOR A.Y. 07-08 PAGE 15 NEUTRALIZED. THE RESULT IS THAT PROVISION FOR BAD A ND DOUBTFUL DEBT WILL NOT BE ALLOWED WHILE COMPUTING BOOK PROFIT FOR THE PURPOSE AND COMPUTING TAX UNDER SECTION 115 JB. THE LD. AR, HOW EVER, SUBMITTED THAT ASSESSEE HAS BEEN CLAIMING BAD DEBTS BY ADOPTING PROVISIONS OF BAD AND DOUBTFUL DEBTS. IN CASE OF PR OVISION OF BAD AND DOUBTFUL DEBTS IS NOT ALLOWED AS DEDUCTION THEN ACTUAL AMOUNT OF BAD DEBTS CLAIMED DURING THIS YEAR SHOULD BE ALL OWED AS DEDUCTION WHILE COMPUTING BOOK PROFITS. CONSIDERING THE ARGUMENT OF LD. AR WE RESTORE THE MATTER TO THE FILE OF AO S O AS TO CONSIDER THE ALLOWABILITY OF DEDUCTION OF ACTUAL AMOUNT OF B AD DEBT CLAIMED AND TO BE ALLOWED AS DEDUCTION WHILE COMPUTING PROF ITS UNDER SECTION 115JB. THIS IS ALSO THE PART OF THE CROSS O BJECTION RAISED BY THE ASSESSEE. BOTH ARE DISPOSED OF ACCORDINGLY. HOWEVER, GROUND OF REVENUE IS ALLOWED WHILE GROUND RELATING TO THE CO IS ALSO ALLOWED BUT FOR STATISTICAL PURPOSES.' 17. RESPECTFULLY FOLLOWING THE ABOVE QUOTED DECISIO N OF THE TRIBUNAL WE RESTORE THIS ISSUE BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER TO READJUDICATE THE SAME IN THE LIGHT OF THE ABOVE QUO TED DECISION OF THE TRIBUNAL AFTER ALLOWING REASONABLE AND PROPER OPPOR TUNITY OF HEARING TO THE ASSESSEE. THUS, THESE GROUNDS OF APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. AT THE OUTSET, LD. CIT D.R. SUPPORTED THE ORDER OF CIT(A). 22. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE HONBLE KARNATAKA HIGH COURT HAD DECID ED THIS ISSUE BY ANALYZING THE PROVISION FOR BAD DEBT AND HELD THAT AS PER SECTION 36(1)(VII), THE ASSESSEE HAS TO SHOW NET OF THE PROVISION FOR BAD D EBT IN THE BALANCE SHEET. EVEN EXPLANATION (C) HAS BEEN INSERTED RETROSPECTIV ELY, THEN NO INCREASE CAN BE MADE U/S. 115JB OR 115JA. THE AMENDMENT CAME BY THE FINANCE ACT, 2008 W.E.F. 01.04.2001. THE ASSESSEE HAD MADE PROV ISIONS FOR BAD DEBT IN EARLIER YEAR AND ADDED BACK IN THE COMPUTATION OF I NCOME OF THAT YEAR AND ITA NO. 1928/AHD/10 & C.O. NO. 204/AHD/10 IN CASE OF DCIT VS. ALEMBIC LTD. FOR A.Y. 07-08 PAGE 16 ACTUAL BAD DEBT HAD BEEN CLAIMED BY DEBITED THE PRO VISION FOR BAD DEBT AND CLAIMED U/S. 36(1)(VII) OF IT ACT. THEREFORE, WE S ET ASIDE THIS ISSUE TO THE A.O. AND IS DIRECTED TO DECIDE THIS AS PER THE DECISIONS OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS. YOKOGAWA INDIA LTD. (SUPRA ). ACCORDINGLY, THIS GROUND OF APPEAL IS SET ASIDE AND ALLOWED FOR STATI STICAL PURPOSE. 23. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOW ED AND ASSESSEES C.O. IS ALLOWED FOR STATISTICAL PURPOSE. THESE ORDERS PRONOUNCED IN OPEN COURT ON 27.03.2014 SD/- SD/- ( MUKUL KR. SHRAWAT ) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER S.K.SINHA + + + + $ $$ $ ,- ,- ,- ,- .-* .-* .-* .-* / COPY OF ORDER FORWARDED TO:- 1. # / REVENUE 2. / ASSESSEE 3. 22 3 / CONCERNED CIT 4. 3- / CIT (A) 5. -78 ,& , , / DR, ITAT, AHMEDABAD 6. 8: ;< / GUARD FILE. BY ORDER/ + , =/ 2# , '