A.C.I.T., Cir-II, Kolkata, Kolkata V. M/s. Philips Electronics India Ltd., Kolkata

ITA 1928/KOL/2008

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3132 (ITAT-KOLKATA)
• Duration Of Justice: 7 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 1999-2000
• Appeal Filed On: 06-10-2008
• Court: TRIBUNAL
• Department Lawyers: S SRIVASTAV A CIT LD
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Reopening of assessment; Depreciation; Opportunity of being heard; Additional depreciation; Earning of tax free income; Retrospective amendment; Bad and doubtful debts; Revised return; Reassessment proceedings
• Section: 143(3); 14A; 147; 148

Judgement Text

ITA NOS. 1928 & 1815/KOL/2008-C-AM M/S. PHILIPS ELECTRONICS INDIA LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, KOLKATA BEFORE : SHRI N.V. VASUDEVAN, JUDICIAL MEMBER, AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER I.T.A NO. 1928/KOL/2008 A.Y 1999-2000 A.C.I.T, CIR-11, KOLKATA VS. M/S. PHILIPS ELEC TRONICS INDIA LTD (FORMERLY KNOWN AS PHILIPS ELECTRONICS INDIA LTD.) PAN: AABCP 7706L (APPELLANT/DEPARTMENT) (RESP ONDENT/ASSESSEE) I.T.A NO. 1815/KOL/2008 A.Y 1999-2000 M/S. PHILIPS ELECTRONICS INDIA LTD VS. D.C.I.T, CIR-11, KOLKATA (APPELLANT) (RE SPONDENT) FOR THE APPELLANT/DEPARTMENT: SHRI S. SRIVAS TAVA, CIT/ LD.DR FOR THE RESPONDENT/ ASSESSEE:SH RI K.R VASUDEVAN, ADVOCATE, LD.AR DATE OF HEARING: 12-01-2016 DATE OF PRONOUNCEMENT: 03-02-20 16 ORDER SHRI M.BALAGANESH, AM THESE APPEALS OF THE ASSESSEE AS WELL AS THE REVENU E ARISE OUT OF THE ORDER OF THE LEARNED CIT(A)-XI, KOLKATA IN APPEAL NO. 68/CIT(A)- XI/CIR-11/07-08 DATED JULY 23, 2008 FOR THE ASST YEAR 1999-2000 AGAINST THE ORDER OF ASSESSMENT FRAMED BY THE LEARNED AO U/S 143(3) OF THE INCOME TAX ACT, 1961 ( HEREINAFTER REFERRED TO AS THE ACT). BOTH THESE APPEALS ARE DISPOSED OFF BY TH IS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS. 1928 & 1815/KOL/2008-C-AM M/S. PHILIPS ELECTRONICS INDIA LTD. 2 2. THE ASSESSEE HAS RAISED CERTAIN ADDITIONAL G ROUNDS ON 22.7.2011 AND 12.6.2012 AS FOLLOWS:- DATED 22 JULY, 2011. 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, WITHOUT PREJUDICE TO THE GROUND NO. 2.1 & 2.2 FILED BY THE APPELLANT IN THE ORIGINAL APPEAL, IF THE DEDUCTION FOR PURCHASES AMOUNTING TO RS. 2,86,10,000/- IS NOT ALLOWED TO THE APPELLANT WHILE COMPUTING BOOK PROFI T U/S 115JA IN AY 1999-00, THE SAME MAY PLEASE BE ALLOWED IN AY 2000- 01, BEING THE YEAR IN WHICH SUCH AMOUNT BAS ACTUALLY BEEN DEBITED TO THE P/L ACCOUNT AND HAS BEEN SUO-MOTO OFFERED BY THE APPELLANT IN THE COMPU TATION OF BOOK PROFIT U/S 115JA. 2. THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, IN COMPUTING BOOK PROFIT UNDER THE PROVISIONS OF SECTION 115JA, THE A PPELLANT IS ENTITLED TO A DEDUCTION OF RS. 2,53,87,000/- AS PER CLAUSE (I) OF THE EXPLANATION BELOW SECOND PROVISO TO SECTION 115JA BEING AMOUNT WITHDR AWN FROM PROVISION FOR BAD AND DOUBTFUL DEBTS AND ADVANCES, FOR UTILIZ ATION AGAINST DEBTS PROVEN TO BE BAD AND WRITTEN OFF DURING THE RELEVAN T PREVIOUS YEAR. 3. THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE ABOVE ADDITIONAL CLAIM FOR DEDUCTION OF RS.2,86,10,000/- ON ACCOUNT OF PURCHASES DEBITED TO P/L ACCOUNT IN AY 200-01 AND RS.2,53,87,000/- ON A CCOUNT OF AMOUNT WITHDRAWN FROM PROVISION FOR BAD AND DOUBTFUL DEBTS AND ADVANCES MAY PLEASE BE ALLOWED IN COMPUTING BOOK PROFIT U/S. 115 JA FOLLOWING THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF NATIONAL THERMAL POWER CORPORATION LIMITED REPORTED IN 229 ITR 383 (SC). 4. THAT THE APPELLANT CRAVES LEAVE TO AMEND, ALTER, MODIFY, ADD TO, ABRIDGE AND/ OR RESCIND ANY OR ALL OF THE ABOVE GRO UNDS BEFORE OR AT THE HEARING OF THE APPEAL. DATED 12 JUNE, 2012 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE ORDER DATED 14 NOVEMBER, 2007 PASSED BY THE LEARNED ASSESSING OFFICER ('THE AO') UNDER SECTION 115JA/254/147 OF THE INCOM E TAX ACT, 1961('THE ACT') IS BAD IN LAW AND VOID-AB-INITIO SINCE NO ADD ITION HAS BEEN MADE BY THE AO IN THE SAID ORDER ON THE TWO SPECIFIC ITEMS MENTIONED IN THE REASONS FOR INITIATING THE PROCEEDINGS UNDER SECTION 147 OF THE ACT, AND ACCORDINGLY, THE ADDITIONS MADE TO BOOK PROFIT UNDE R SECTION 115JA OF THE ACT BY THE LEARNED AO SHOULD BE DELETED. ITA NOS. 1928 & 1815/KOL/2008-C-AM M/S. PHILIPS ELECTRONICS INDIA LTD. 3 THESE ADDITIONAL GROUNDS ARE HEREBY ADMITTED FOR AD JUDICATION AS THEY GO INTO THE ROOT OF THE MATTER AND DOES NOT REQUIRE ANY FRESH EXAMIN ATION OF FACTS IN THAT REGARD, IN THE LIGHT OF THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF N TPC LTD REPORTED IN 229 ITR 383 (SC). 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF ELECTRONIC AND ELECTRICAL G OODS. THE ASSESSEE FILED ITS RETURN OF INCOME BY DECLARING INCOME BOTH UNDER NORMAL PRO VISIONS OF THE ACT AND AS WELL AS UNDER BOOK PROFITS COMPUTED U/S 115JA OF THE ACT. THE LEARNED AO FOUND THAT THE BOOK PROFITS COMPUTED U/S 115JA OF THE ACT IS MORE THAN THE INCOME COMPUTED UNDER THE NORMAL PROVISIONS OF THE ACT. WHILE COMPUTING T HE BOOK PROFITS U/S 115JA OF THE ACT, THE FOLLOWING ITEMS WERE ADDED BY THE LEARNED AO TREATING THE SAME AS PROVISION MADE FOR UNASCERTAINED LIABILITIES VIDE ORDER DATED 11.3.2005 :- PROVISION FOR DOUBTFUL DEBTS AND ADVANCES RS. 5,35,63,000/- PROVISION FOR WAGES RS. 14,78,000/- PROVISION FOR ESTIMATED LOSS IN WRITING DOWN THE VA LUE OF SALT LAKE FACTORY TO REALIZABLE VALUE RS. 6,8 4,79,000/- MATERIAL PURCHASES ERRONEOUSLY OMITTED IN P&L A/C B UT ACTUALLY DEBITED DURING FIN YEAR 1999-2000 RS. 2,86,10,000/- UNDEPRECIATED VALUE OF FIXED ASSETS WRITTEN OFF RS. 1,13,69,000/- SALES TAX SURCHARGE RS. 8,19,15,000/- ON FIRST APPEAL, THE LEARNED CIT(A) GRANTED PARTIAL RELIEF TO THE ASSESSEE. ON FURTHER APPEAL TO TRIBUNAL BOTH BY ASSESSEE AS WELL AS BY R EVENUE, THE TRIBUNAL IN ITA NO. 2444/KOL/2005 AND ITA NO. 2625/KOL/2005 HAD RESTORE D THE MATTER BACK TO THE FILE OF THE LEARNED AO FOR RE-VERIFICATION OF THE ISSUES AD DED IN THE ASSESSMENT. 3.1. IN THE SECOND ROUND, THE LEARNED AO MADE ADDI TIONS TO BOOK PROFITS COMPUTED U/S 115JA OF THE ACT VIDE HIS ORDER U/S 115JA / 254 / 147 DATED 14.11.2007 IN RESPECT OF THE FOLLOWING ITEMS :- ITA NOS. 1928 & 1815/KOL/2008-C-AM M/S. PHILIPS ELECTRONICS INDIA LTD. 4 PROVISION FOR DOUBTFUL DEBTS AND ADVANCES RS. 5,35,63,000/- PROVISION FOR WAGES RS. 14,78,000/- PROVISION FOR ESTIMATED LOSS IN WRITING DOWN THE VA LUE OF SALT LAKE FACTORY TO REALIZABLE VALUE RS. 6,8 4,79,000/- MATERIAL PURCHASES ERRONEOUSLY OMITTED IN P&L A/C B UT ACTUALLY DEBITED DURING FIN YEAR 1999-2000 RS. 2,86,10,000/- ON APPEAL BEFORE LEARNED CIT(A), PARTIAL RELIEF WA S GRANTED TO THE ASSESSEE AND AGAINST WHICH, BOTH ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US ON VARIOUS ISSUES WHICH ARE HEREBY ADJUDICATED INDEPENDENTLY. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE DEEM IT FIT AND APPROPRIATE TO GIVE INDEPENDENT FINDING ON VARIOUS ISSUES RAISED BY ASSESSEE AND THE REVENUE. 4.1 VALIDITY OF RE-OPENING OF ASSESSMENT U/S 147 OF THE ACT (ADDITIONAL GROUND NO. 1 DATED 12.6.2012 RAISED BY THE ASSESSEE) THE ASSESSEE HAS RAISED THE FOLLOWING ADDITIONAL GR OUND ON 12.6.2012 :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE ORDER DATED 14 NOVEMBER, 2007 PASSED BY THE LEARNED ASSESSING OFFICER ('THE AO') UNDER SECTION 115JA/254/147 OF THE INCO ME TAX ACT, 1961('THE ACT') IS BAD IN LAW AND VOID-AB-INITIO SINCE NO ADD ITION HAS BEEN MADE BY THE AO IN THE SAID ORDER ON THE TWO SPECIFIC ITEMS MENTIONED IN THE REASONS FOR INITIATING THE PROCEEDINGS UNDER SECTION 147 OF THE ACT, AND ACCORDINGLY, THE ADDITIONS MADE TO BOOK PROFIT UNDE R SECTION 115JA OF THE ACT BY THE LEARNED AO SHOULD BE DELETED. WE FIND THAT THE ASSESSEE HAD QUESTIONED THE VALIDI TY OF REOPENING THE ASSESSMENT U/S 147 OF THE ACT IN VIEW OF THE FACT THAT THE ASSESSM ENT WAS REOPENED TO MAKE ADDITIONS TOWARDS SALES TAX SURCHARGE OF RS. 8,19,15,000/- AN D WRITE OFF OF UNDEPRECIATED VALUE OF FIXED ASSETS TO THE TUNE OF RS. 1,13,69,000/-. THE LEARNED AO FOUND THAT THE AUDITOR IN THE NOTE GIVEN IN THE FINANCIAL STATEMENTS HAD S TATED AS MISCELLANEOUS EXPENSES ITA NOS. 1928 & 1815/KOL/2008-C-AM M/S. PHILIPS ELECTRONICS INDIA LTD. 5 INCLUDED PROVISION FOR CONTINGENCY WHEREIN THESE IT EMS WERE INCLUDED IN MISCELLANEOUS EXPENSES. ACCORDINGLY THE LEARNED AO FORMED A PRIMA FACIE BELIEF THAT INCOME HAD ESCAPED ASSESSMENT AS THEY ARE PROVISION FOR CONTINGENCIES REQUIRED TO BE ADDED BACK TO THE BOOK PROFITS COMPUTED U/S 115JA O F THE ACT AND ACCORDINGLY REOPENED THE ASSESSMENT. THE LEARNED AO FRAMED TH E REASSESSMENT ORDER U/S 147 OF THE ACT ON 11.3.2005 BY MAKING TOTALLY SIX ADDITION S INCLUDING THE TWO ADDITIONS FOR WHICH REASONS WERE RECORDED BY THE LEARNED AO. WH EN THIS WAS CHALLENGED IN THE FIRST ROUND OF APPELLATE PROCEEDINGS, THIS TRIBUNAL IN ITA NO. 2444/KOL/2005 AND ITA NO. 2625/KOL/2005 DATED 25.6.2007 HAD UPHELD THE VA LIDITY OF THE REASSESSMENT PROCEEDINGS ON ASSUMPTION OF JURISDICTION AND ON ME RITS OF THE CASE, THE ISSUES WERE RESTORED BACK TO THE FILE OF LEARNED AO FOR RE-VERI FICATION. IN SECOND ROUND OF PROCEEDINGS, THE LEARNED AO VIDE ORDER DATED 14.11. 2007 RETAINED FOUR ADDITIONS AND AGREED TO THE VIEWS OF THE ASSESSEE IN RESPECT OF T WO ISSUES WHICH WERE SUBJECT MATTER OF REASONS RECORDED BY HIM FOR REOPENING THE ASSESS MENT. ACCORDINGLY, THE ASSESSEE HAS NOW RAISED THE AFORESAID ADDITIONAL GROUND ARGU ING THAT THE ENTIRE REASSESSMENT NEEDS TO BE QUASHED. 4.1.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND WE HOLD THAT WHILE ADJUDICATING WHETHER THE REOPENING OF ASSESSMENT IS VALID OR NOT WHAT IS REQUIRED TO BE SEEN IS WHETHER THE LEARNED AO HAD ANY MATERIAL AT THE STAG E OF ISSUE OF NOTICE ON WHICH A REASONABLE PERSON COULD HAVE FORMED THE REQUISITE B ELIEF OF ESCAPEMENT OF INCOME. A SUBJECTIVE SATISFACTION OF THE LEARNED AO ON THE BA SIS OF RELEVANT MATERIAL WOULD BE SUFFICIENT TO UPHOLD THE REOPENING OF ASSESSMENT. IT IS NOT NECESSARY AT THAT STAGE OF ISSUE OF NOTICE OF ESCAPEMENT OF INCOME U/S 148, T HE LEARNED AO SHOULD FINALLY ASCERTAIN THE FACT AND ARRIVE AT A DEFINITE CONCLUS ION OF ESCAPEMENT OF INCOME. CONSIDERING THE FACTS OF THE CASE AND THE NOTE GIVE N BY THE AUDITOR AND THAT THERE WAS NO ORIGINAL REGULAR ASSESSMENT U/S 143(3) OF THE AC T, WE ARE OF THE OPINION THAT THE LEARNED AO HAD MATERIAL AVAILABLE ON RECORD TO REAC H TO A SUBJECTIVE SATISFACTION OF ITA NOS. 1928 & 1815/KOL/2008-C-AM M/S. PHILIPS ELECTRONICS INDIA LTD. 6 ESCAPEMENT OF INCOME AT THE STAGE OF ISSUE OF NOTIC E U/S 148 OF THE ACT. ACCORDINGLY, WE DISMISS THE ADDITIONAL GROUND NO. 1 RAISED BY T HE ASSESSEE ON 12.6.2012 . 4.2. PROVISION FOR DOUBTFUL DEBTS AND ADVANCES RS. 5,3 5,63,000/- (GROUND NO. 1 & 2 RAISED BY THE REVENUE AND ADDITIONAL GROUND NO. 2 DATED 22.7.2011 RAISED BY THE ASSESSEE) THE REVENUE HAD RAISED THE FOLLOWING GROUNDS BEFORE US:- 1. THAT THE LD CIT(A) ERRED IN FACTS AS WELL AS L AW IN NOT CONSIDERING THE PROVISIONS OF SECTION 115JA WHEREBY PROVISIONS MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES ARE TO BE ADDED BACK TO THE NET PROFIT. 2. THAT THE LD CIT(A) ERRED IN FACTS AS WELL AS LA W BY HOLDING THAT PROVISION FOR DOUBTFUL DEBTS./ AND ADVANCES AMOUNTI NG TO RS.5,35,63,000/- IS ALLOWABLE AS A DEDUCTION UNDER MAT WHEN IT IS AN UNASCERTAINED LIABILITY AND WAS CORRECTLY ADDED BACK AS SUCH TO ARRIVE AT B OOK PROFIT. THE ASSESSEE HAD RAISED THE FOLLOWING ADDITIONAL GR OUND IN THIS REGARD BEFORE US ON 22.7.2011:- 1. THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE, IN COMPUTING BOOK PROFIT UNDER THE PROVISIONS OF SECTION 115JA, THE APPELLANT IS ENTITLED TO A DEDUCTION OF RS. 2,53,87,000/- AS PER CLAUSE ( I) OF THE EXPLANATION BELOW SECOND PROVISO TO SECTION 115JA BEING AMOUNT WITHDRAWN FROM PROVISION FOR BAD AND DOUBTFUL DEBTS AND ADVANCES FOR UTILIZATION AGAINST DEBTS PROVEN TO BE BAD AND WRITTEN OFF DURING THE RELEVANT PREVIOUS YEAR. WE FIND THAT THE DECISION RELIED UPON BY THE LEARN ED AR RENDERED BY THE HONBLE APEX COURT IN THE CASE OF CIT VS HCL COMNET SYSTEMS & SERVICES LTD REPORTED IN 305 ITR 409 (SC) DOES NOT HOLD GOOD IN VIEW OF THE RETROSPECTIVE AME NDMENT IN THE STATUTE. FOR THE SAKE OF CONVENIENCE, THE RELEVAN T PROVISION IN CLAUSE (G) IN THE EXPLANATION TO SECTION 115JA OF THE ACT INTRODUCED IN THE STATUTE VIDE FINANCE (NO.2) ACT 2009 WITH RETROSPECTIVE EFFECT FROM 1.4.1998 IS REPRODUCED BELOW:- ITA NOS. 1928 & 1815/KOL/2008-C-AM M/S. PHILIPS ELECTRONICS INDIA LTD. 7 EXPLANATION FOR THE PURPOSES OF THIS SECTION, BO OK PROFITMEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND OSS ACCOUNT FOR T HE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2) , AS INCREASED BY (G) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FO R DIMINUTION IN THE VALUE OF ANY ASSET. WE FIND THAT PURSUANT TO THE AFORESAID RETROSPECTIV E AMENDMENT IN SECTION 115JA OF THE ACT, THE PROVISION FOR DOUBTFUL DEBTS AND ADVAN CES AMOUNTING TO RS. 5,35,63,000/- REQUIRES TO BE ADDED BACK TO THE BOOK PROFITS U/S 1 15JA OF THE ACT. ACCORDINGLY, THE GROUND NOS. 1 & 2 RAISED BY THE REVENUE ARE ALLOWED . 4.2.1. APROPOS THE ADDITIONAL GROUND NO. 2 RAISED BY THE ASSESSEE ON 22.7.2011 IN RESPECT OF AMOUNTS WITHDRAWN FROM PROVISION FOR BAD AND DOUBTFUL DEBTS AND ADVANCES AMOUNTING TO RS. 2,53,87,000/- TO BE ELIGIBLE FOR D EDUCTION FROM BOOK PROFITS U/S 115JA OF THE ACT, WE HOLD THAT THERE IS NO EVIDENCE THAT IS BROUGHT ON RECORD BY THE LEARNED AO OR BY THE ASSESSEE AS TO WHETHER THE SAM E WAS ADDED BACK TO BOOK PROFITS IN THE EARLIER YEARS IN THE YEAR OF MAKING PROVISIO N FOR BAD AND DOUBTFUL ADVANCES. WE ALSO FIND THAT THIS CLAIM OF SEEKING DEDUCTION OF R S. 2,53,87,000/- FROM BOOK PROFITS IS MADE BY THE ASSESSEE BEFORE US FOR THE FIRST TIME. ACCORDINGLY, WE DEEM IT FIT AND APPROPRIATE, IN THE INTEREST OF JUSTICE AND FAIR PL AY, TO SET ASIDE THIS ADDITIONAL GROUND NO. 2 RAISED BY THE ASSESSEE TO THE FILE OF THE LEA RNED AO TO VERIFY THE VERACITY OF THIS CLAIM OF THE ASSESSEE AFRESH. NEEDLESS TO MENTION THAT THE ASSESSEE BE GIVEN REASONABLE OPPORTUNITY OF BEING HEARD IN THIS REGAR D. THE ASSESSEE IS GIVEN LIBERTY TO FILE ALL THE NECESSARY DOCUMENTS AND EVIDENCES BEFO RE THE LEARNED AO IN SUPPORT OF HIS CLAIM IN THIS REGARD. ACCORDINGLY, THE ADDITIONAL GROUND NO. 2 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 4.3. PROVISION FOR WAGES RS. 14,78,000/- (GROUND NO. 1 .1 & 1.2 RAISED BY THE ASSESSEE) ITA NOS. 1928 & 1815/KOL/2008-C-AM M/S. PHILIPS ELECTRONICS INDIA LTD. 8 THE ASSESSEE HAD RAISED THE FOLLOWING GROUNDS BEFOR E US:- 1.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) ERRED IN HOLDING THAT THE PROVISION FOR WAGES P ROVIDED BY THE ASSESSE COMPANY IS IN NATURE OF PROVISIONS FOR UNASCERTAINE D LIABILITY, 1.2. THE CIT (A) FAILED TO CONSIDER THAT CERTAINTY OF LIABILITY IS SUFFICIENT FOR CONSIDERING THE SAME AS 'PROVISION FOR ASCERTAI NED LIABILITY' FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JA OF THE I NCOME TAX ACT. THE LEARNED AO FOUND THAT THE ASSESSEE HAD MADE PRO VISION FOR INCREMENTAL WAGES IN ITS BOOKS OF ACCOUNTS BY DEBITING THE PROFIT AND LO SS ACCOUNT AMOUNTING TO RS. 14,78,000/- . THIS PROVISION FOR INCREMENTAL WAGES OFFERED FOR THE EMPLOYEES WOULD GET CRYSTALLIZED SUBJECT TO SUCCESSFUL NEGOTIATION WITH THE LABOUR UNION. THE ASSESSEE FELT THAT THE SAME IS AN ASCERTAINED LIABILITY. ON THE CONTRARY, THE LEARNED AO FELT THAT SINCE THE INCREMENTAL WAGES WOULD BE PAYABLE ONLY O N SUCCESSFUL NEGOTIATION WITH THE LABOUR UNION, IT ONLY REMAINS AS AN UNASCERTAINED L IABILITY ON THE BALANCE SHEET DATE RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL AND AC CORDINGLY SOUGHT TO ADD BACK THE SAME TO BOOK PROFIT TREATING THE SAME AS PROVISION FOR UNASCERTAINED LIABILITIES WHICH WAS UPHELD BY THE LEARNED CIT(A). WE FIND THAT TH E LEARNED CIT(A) HAD FOUND THAT THE ASSESSEE WAS NOT ABLE TO GIVEN ANY CONCRETE EVI DENCE WITH REGARD TO THE SUBSEQUENT DEVELOPMENTS THAT HAD HAPPENED WITH REGARD TO THE C RYSTALLIZATION OF THE NEGOTIATIONS WITH THE LABOUR UNION FOR THE INCREMENTAL WAGES. FROM THE BASIC FACTS OF THE CASE, WE FIND THAT THE ASSESSEE HAD MADE PROVISION FOR M INIMUM INCREMENTAL WAGES , BEING THE MINIMUM LIABILITY, WHICH THE ASSESSEE COMPANY H AD ALREADY ACCEPTED TO PAY. WE FIND THAT THE FINAL QUANTIFICATION OF THE INCREMENT AL WAGES ALONE WERE PENDING SUBJECT TO THE OUTCOME OF THE NEGOTIATIONS WITH THE LABOUR UNION. HENCE WE HOLD THAT THE SAID PROVISION FOR INCREMENTAL WAGES HAS BEEN MADE ON A SCIENTIFIC BASIS BY THE ASSESSEE BASED ON SOME RATIONALE AND THE SAME WOULD NOT FALL UNDER THE UNASCERTAINED LIABILITIES. THE INTENTION BEHIND ADDING BACK THE PROVISION FOR UNASCERTAINED LIABILITIES TO THE BOOK PROFITS COMPUTED U/S 115JA OF THE ACT I S THAT THE ASSESSES SHOULD NOT MAKE ADHOC PROVISION IN THEIR BOOKS BY DEBITING THEIR PR OFIT AND LOSS ACCOUNT IN ORDER TO REDUCE THE BOOK PROFITS HAVING CONSEQUENTIAL IMPACT IN PAYMENT OF TAXES. WHEREAS IN ITA NOS. 1928 & 1815/KOL/2008-C-AM M/S. PHILIPS ELECTRONICS INDIA LTD. 9 THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAD DUL Y MADE PROVISION FOR INCREMENTAL WAGES BASED ON ACTUAL WORKINGS AND BASED ON THE MIN IMUM LIABILITY THAT HAS ALREADY BEEN AGREED BY THE MANAGEMENT WITH THE LABOUR UNION . THE NEGOTIATIONS WITH THE LABOUR UNION WOULD ONLY RESULT IN PAYMENT OF HIGHER WAGES OR RESULT IN WAGES ALREADY PROVIDED BY THE ASSESSEE IN ITS BOOKS. HENCE THERE IS NO SCOPE FOR REDUCTION IN THE PAYMENT OF WAGES ALREADY PROVIDED BY THE ASSESSEE I N ITS BOOKS. IN VIEW OF THESE, THE DECISION RELIED ON BY THE LEARNED AR OF THE HONBLE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS LTD VS CIT REPORTED IN (2000) 2 45 ITR 428 (SC) WOULD BE SQUARELY APPLICABLE. WE ALSO PLACE RELIANCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS UNITED MOTORS (IND IA) LTD REPORTED IN (1990) 181 ITR 347 (BOM) WHEREIN IT WAS HELD THAT :- WHEN THE ASSESSEE COMPANY MADE A PROVISION FOR A SU M OF RS. 1 LAKH IN RESPECT OF THE IMPENDING LIABILITY THAT AROSE ON AC COUNT OF THE REVISION IN THE SERVICE CONDITIONS OF ITS WORKMEN, IT WAS DO NE IN THE MANNER OF A PRUDENT BUSINESSMAN WHO KNEW THAT THE SERVICE CONDI TIONS WOULD HAVE TO BE BETTERED. THE PROVISION ITSELF WOULD HAVE BE EN ALLOWABLE AS A DEDUCTION WHEREAS THE ASSESSEE HAD CLAIMED ONLY THE QUANTIFIED LIABILITY WHICH WERE DISCHARGED. THE EXPENDITURE AS SUCH WAS INCURRED FOR THE PURPOSE OF EARNING THE INCOME OF T HE PREVIOUS YEAR AND WAS, THEREFORE, DEDUCTIBLE. PROVISION FOR ADDITIONA L REMUNERATION PAYABLE TO EMPLOYEES ON ACCOUNT OF NEGOTIATED SETTL EMENT WITH EMPLOYEES PROVIDED FOR ALLOWABLE AS BUSINESS EXPEND ITURE. HENCE WE HOLD THAT THE PROVISION MADE FOR INCREMENT AL WAGES REMAINS AN ASCERTAINED LIABILITY AND NOT A CONTINGENT LIABILITY IN THE FAC TS AND CIRCUMSTANCES OF THIS CASE AND ACCORDINGLY DOES NOT REQUIRES TO BE ADDED BACK AS P ER CLAUSE (C ) OF EXPLANATION TO SECTION 115JA(2) OF THE ACT. ACCORDINGLY, THE GROUND NOS. 1.1 & 1.2 RAISED BY TH E ASSESSEE ARE ALLOWED. 4.4. ADDITION IN RESPECT OF ADJUSTMENT OF PURCHAS E OF MATERIALS RS. 2,86,10,000/- (GROUND NOS. 2.1 & 2.2 OF ASSESSEE AN D ADDITIONAL GROUND NO. 1 RAISED BY THE ASSESSEE ON 22.7.2011) ITA NOS. 1928 & 1815/KOL/2008-C-AM M/S. PHILIPS ELECTRONICS INDIA LTD. 10 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN TH IS REGARD :- 2.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN NOT REDUCING THE BOOK PROFIT OF THE ASSESSEE BY RS. 2,86,10,000/- ON ACCOUNT OF ADJUSTMENT OF PURCHASE ACCOUNT RELATING TO EARLIER YEAR. 2.2. THE CIT(A) FAILED TO APPRECIATE THAT THE ASSES SE COMPANY HAS NOT CLAIMED THE SAID PURCHASES IN THE A.Y.2000- 01 IN WHICH THE SAID PURCHASES WAS WRONGLY ACCOUNTED FOR. THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUND N O. 1 ON 22.7.2011 IN THIS REGARD AS BELOW:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, WITHOUT PREJUDICE TO THE GROUND NO. 2.1 & 2.2 FILED BY THE APPELLANT IN THE ORIGINAL APPEAL, IF THE DEDUCTION FOR PURCHASES AMOUNTING TO RS. 2,86,10,000/- IS NOT ALLOWED TO THE APPELLANT WHILE COMPUTING BOOK PROFI T U/S 115JA IN AY 1999-00, THE SAME MAY PLEASE BE ALLOWED IN AY 2000- 01, BEING THE YEAR IN WHICH SUCH AMOUNT BAS ACTUALLY BEEN DEBITED TO THE P/L ACCOUNT AND HAS BEEN SUO-MOTO OFFERED BY THE APPELLANT IN THE COMPU TATION OF BOOK PROFIT U/S 115JA. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESSEE HAD PURCHASED MATERIALS DURING THE FINANCIAL YEAR 1998-99 RELEVANT TO ASST YEAR 1999-2 000 AMOUNTING TO RS. 2,86,10,000/-. THE ASSESSEE INADVERTENTLY OMITTED TO DEBIT THE PURCHASES ACCOUNT IN ITS BOOKS FOR THE ASST YEAR 1999-2000 BUT HAD DEBITED T HE SAME IN ASST YEAR 2000-2001. THE ASSESSEE FILED A REVISED RETURN MAKING THIS CLA IM OF DEDUCTION BOTH UNDER NORMAL PROVISIONS OF THE ACT AND UNDER SECTION 115JA OF TH E ACT. CORRESPONDINGLY THE ASSESSEE ALSO FAIRLY FILED REVISED RETURN FOR THE A SST YEAR 2000-2001 AND OFFERED THE SAID AMOUNT OF RS. 2,86,10,000/- IN ORDER TO AVOID DOUBLE CLAIM OF DEDUCTION. THE LEARNED AO ALLOWED THE CLAIM OF DEDUCTION UNDER NOR MAL PROVISIONS OF THE ACT FOR THE ASST YEAR 1999-2000 BUT DENIED THE SAME BENEFIT FOR COMPUTATION OF BOOK PROFITS U/S 115JA OF THE ACT IN VIEW OF THE FACT THAT THE ACCOU NTS WERE AUDITED AND WERE SUBJECTED TO APPROVAL BY THE SHAREHOLDERS IN THE ANNUAL GENER AL MEETING OF THE COMPANY AND IN VIEW OF THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF APOLLO TYRES LTD ITA NOS. 1928 & 1815/KOL/2008-C-AM M/S. PHILIPS ELECTRONICS INDIA LTD. 11 REPORTED IN 255 ITR 273(SC). THIS ACTION OF THE LEARNED AO WAS UPHELD BY THE LEARNED CIT(A). 4.4.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PER USED THE MATERIALS AVAILABLE ON RECORD. THE FACTS STATED HEREINABOVE REMAIN UNDISP UTED ARE NOT REITERATED HEREIN FOR THE SAKE OF BREVITY. THE LEARNED AR RELIED ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF K.J.FRANCIS VS CIT REPORTED IN (1999) 236 ITR 308 (SC) I N SUPPORT OF HIS CONTENTIONS THAT THE SAID CLAIM OF P URCHASES ARE TO BE ALLOWED AS DEDUCTION. WE FIND THAT THE CASE LAW RELIED UPON B Y THE LEARNED AR DOES NOT APPLY TO THE FACTS OF THE INSTANT CASE AS THE ISSUE BEFORE U S IS WITH REGARD TO COMPUTATION OF BOOK PROFITS U/S 115JA OF THE ACT AND HENCE WE HOLD THAT THE IMPUGNED ISSUE IS GOVERNED BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF A POLLO TYRES LTD REPORTED IN 255 ITR 273 (SC) . WE HOLD THAT SINCE THE PURCHASES WERE NOT DEBITED IN THE PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR 1998-99 RELEVANT TO ASST YEAR 1999- 2000, THE SAME IS NOT ELIGIBLE FOR DEDUCTION FROM C OMPUTATION OF BOOK PROFITS U/S 115JA OF THE ACT. HOWEVER, WE HOLD THAT THE SAME I S LIABLE TO BE GRANTED DEDUCTION IN ASST YEAR 2000-2001 , BEING THE YEAR IN WHICH THE P URCHASES WERE DEBITED BY THE ASSESSEE, WHILE COMPUTING BOOK PROFITS U/S 115JA OF THE ACT. THE LEARNED AO IS DIRECTED TO GRANT RELIEF FOR THE SAME IN ASST YEAR 2000-2001 IN SECTION 115JA COMPUTATION IN ORDER TO AVOID DOUBLE DISALLOWANCE O F GENUINE EXPENDITURE INCURRED BY THE ASSESSEE. ACCORDINGLY, THE GROUND NOS. 2.1 & 2.2 RAISED BY TH E ASSESSEE ARE DISMISSED AND ADDITIONAL GROUND NO. 1 RAISED BY THE ASSESSEE ON 22.7.2011 IS ALLOWED SUBJECT TO DIRECTIONS CONTAINED HEREINABOVE . 4.5. PROVISION FOR ESTIMATED LOSS IN WRITING DOWN THE VA LUE OF SALT LAKE FACTORY TO REALIZABLE VALUE RS. 6,84,79,000/- - GROUND N O. 3 TO 5 RAISED BY THE REVENUE THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN THI S REGARD:- 3. THAT THE LD CIT(A) ERRED IN FACTS AS WELL AS L AW IN DELETING THE AMOUNT OF RS.6,84,79,OOO/-CLAIMED ON ACCOUNT OF PROVISIONS FOR DIMINUTION IN THE ITA NOS. 1928 & 1815/KOL/2008-C-AM M/S. PHILIPS ELECTRONICS INDIA LTD. 12 VALUE OF W.D.V. OF SALT LAKE FACTORY CONTEMPLATED T O BE SOLD AS GOING CONCERN IN NEAR FUTURE AND ADDED TO ARRIVE AT THE B OOK PROFIT BY HOLDING THAT ASSESSEE HAD RESTATED THE VALUE OF FIXED ASSET AND THIS IS NOT A PROVISION AND THEREFORE, IS NOT COVERED BY SEC. 115JA. 4. THAT THE LD CIT(A) ERRED IN FACTS AS WELL AS LAW BY NOT CONSIDERING THAT THE ASSESSEE HIMSELF HAD SUBMITTED THAT APPLICATION BEFORE THE HON'BLE CALCUTTA HIGH COURT HAD BEEN MADE FOR THE SALE OF S ALT LAKE FACTORY UNIT AS A GOING CONCERN AND THE CASE WAS PENDING BEFORE HON'BLE CALCUTTA HIGH COURT ON THE DATE OF PREPARATION OF BALANCE SHEET A ND ACCORDINGLY THEREFORE THE FATE OF THE TRANSACTION WAS NOT KNOWN AND THEREFORE, IT CANNOT BE HELD TO BE ASCERTAINED IN NATURE. 5. THAT THE LD CIT(A) ERRED BY ACCEPTING THE SUBMI SSION THAT IN THE SUBSEQUENT YEAR THE UNIT WAS SOLD AT A FIGURE CLOSE TO THE VALUE ON WHICH THE ASSET HAS BEEN RESTATED AND CAPITAL GAINS TAX O N SLUMP SALE WAS PAID IN THE NEXT YEAR WHEN THE TRANSACTION TOOK PLACE WHICH DOES NOT NEGATE THE FACT THAT IN THE YEAR UNDER CONSIDERATION, THIS WAS AN UNASCERTAINED LIABILITY AND CORRECTLY ADDED BACK BY THE A.O SINCE FUTURE OC CURRENCES DOES NOT JUSTIFY THE PRESENT UNASCERTAINED AND UNCERTAIN SIT UATION . THE LEARNED AR ARGUED THAT DURING THE ASSESSMENT Y EAR UNDER APPEAL, THE ASSESSEE DECIDED TO RESTRUCTURE ITS MANUFACTURING ACTIVITY I N CONSUMER ELECTRONICS TO FOCUS ON TECHNOLOGY INTENSIVE CORE PROCESSES AND OFFLOAD TO THIRD PARTIES LOW ADDED VALUE ASSEMBLY OPERATIONS. ACCORDINGLY, THE ASSESSEE ENT ERED INTO AN AGREEMENT WITH M/S KITCHEN APPLIANCES INDIA LIMITED (A VIDEOCON GROUP COMPANY) FOR SALE OF ITS CONSUMER ELECTRONICS FACTORY AT CALCUTTA AS A GOING CONCERN FOR A LUMP SUM CONSIDERATION WHICH WAS SUBJECT TO OBTAINING APPROV ALS / PERMISSIONS FROM VARIOUS REGULATORY AUTHORITIES AND THE DECISION OF THE HON BLE HIGH COURT. THE LEARNED AR ARGUED THAT PURSUANT TO ENTERING OF ABOVE SUCH AGRE EMENT, SINCE THE ASSESSEE WAS ALREADY AWARE OF THE EXPECTED SALE CONSIDERATION RE ALIZABLE ON SALE OF ITS UNIT, THE LOSS ARISING ON ACCOUNT OF DIFFERENCE BETWEEN THE NET WO RTH OF THE FACTORY AND THE EXPECTED REALIZABLE VALUE WAS WORKED OUT AT RS. 6,84,79,000/ - AND THE SAME WAS CHARGED TO PROFIT AND LOSS ACCOUNT AND CLAIMED AS DEDUCTION IN THE RETURN OF INCOME. THE LEARNED AO DID NOT AGREE WITH THE VIEW OF THE ASSESSEE ON T HE CONTENTION THAT THE ASSESSEE WAS ITA NOS. 1928 & 1815/KOL/2008-C-AM M/S. PHILIPS ELECTRONICS INDIA LTD. 13 AWAITING THE ORDERS OF THE HONBLE CALCUTTA HIGH CO URT FOR SALE OF SALT LAKE FACTORY UNIT AS A GOING CONCERN AS ON THE DATE OF PREPARATION OF BALANCE SHEET AND ACCORDINGLY THE PROVISION FOR LOSS ON PROPOSED RESTRUCTURING WAS NO T A PROVISION FOR ASCERTAINED LIABILITY AND HENCE ADDED BACK THE SAME TO THE BOOK PROFITS COMPUTED U/S 115JA OF THE ACT IN TERMS OF CLAUSE(C ) OF EXPLANATION. ON FIRS T APPEAL, RELIEF WAS GRANTED BY THE LEARNED CIT(A) TO THE ASSESSEE. 4.5.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PER USED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE PROVISION FOR RESTRUCTURIN G OF SALT LAKE FACTORY BASED ON THE DIFFERENCE BETWEEN NET WORTH OF THE SAID UNIT AND I TS EXPECTED REALIZABLE VALUE WAS MADE AS PER THE MANDATE PRESCRIBED IN PARAGRAPH 14 OF ACCOUNTING STANDARD (AS IN SHORT) 10 ISSUED BY THE INSTITUTE OF CHARTERED ACCO UNTANTS OF INDIA (ICAI IN SHORT) RELATING TO DISCLOSURE OF INFORMATION, WHEREIN, I N CASE OF RETIREMENT / DISPOSAL OF FIXED ASSETS, ANY EXPECTED LOSS IS RECOGNIZED IMMEDIATELY IN THE PROFIT AND LOSS ACCOUNT AND TO BE SHOWN SEPARATELY IN THE FINANCIAL STATEMENTS. THE LEARNED CIT(A) HAD STATED THAT THE SALT LAKE FACTORY HAS BEEN SUSPENDED FROM PRODUCTION BUT NOT CLOSED DOWN AS IT WAS AWAITING APPROVALS FROM VARIOUS REGULATORY AUTH ORITIES AND APPROVAL OF THE HONBLE CALCUTTA HIGH COURT WAS IN PROCESS. THE L EARNED CIT(A) HAD STATED THAT AS AGAINST THE BOOK VALUE OF RS. 15,14,79,000/- , THE REALIZABLE BOOK VALUE WAS ONLY RS. 8,30,00,000/- AND ACCORDINGLY THE DIMINUTION IN VAL UE WAS RS. 6,84,79,000/- WAS WRITTEN OFF IN THE PROFIT AND LOSS ACCOUNT OF THE A SSESSEE. IT IS ALSO UNDISPUTED THAT THE SAID UNIT WAS ACTUALLY SOLD IN THE NEXT YEAR AT A F IGURE CLOSE TO THE VALUE ON WHICH THE ASSET HAS BEEN RESTATED AND CAPITAL GAINS TAX ON SL UMP SALE WAS PAID IN THE NEXT YEAR BY THE ASSESSEE. THESE FACTS ARE NOT CONTROVERTED BY THE LEARNED DR BEFORE US. HENCE WE HOLD THAT THE CHARGE IS ONLY ON ACCOUNT OF RESTA TEMENT OF THE VALUE OF FIXED ASSETS IN THE FORM OF ADDITIONAL DEPRECIATION WHICH IS ALSO C OVERED IN AS 6 ISSUED BY ICAI. HENCE WE HOLD THAT IT NOT A PROVISION BUT ONLY AMOU NT ACTUALLY RESTATED IN THE BOOKS OF ACCOUNTS BY BRINGING THE VALUE OF FIXED ASSETS TO T HE EXTENT OF ITS REALIZABLE VALUE. WE ALSO HOLD THAT THE AMOUNT OF RS. 6,84,79,000/- CHAR GED IN THE PROFIT AND LOSS ACCOUNT IS ITA NOS. 1928 & 1815/KOL/2008-C-AM M/S. PHILIPS ELECTRONICS INDIA LTD. 14 TO RECOGNIZE AN ANTICIPATED LOSS AND NOT A MERE PRO VISION FOR DIMINUTION IN THE VALUE OF ASSET. HENCE IT DOES NOT FALL IN ANY OF THE EXPLAN ATIONS (A) TO (G) AND HENCE DOES NOT REQUIRE TO BE ADDED BACK TO BOOK PROFITS COMPUTED U /S 115JA OF THE ACT. WE PLACE RELIANCE ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF APOLLO TYRES LTD REPORTED IN 255 ITR 273 (SC) WHEREIN IT WAS HELD TH AT THE LEARNED AO DOES NOT HAVE THE JURISDICTION TO GO BEYOND THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN EXPLANATION TO SECTION 11 5JA OF THE ACT. ACCORDINGLY, THE GROUND NOS. 3 TO 5 RAISED BY THE REVENUE ARE DISMIS SED. 4.6. DISALLOWANCE U/S 14A OF THE ACT IN COMPUTING BOOK PROFITS U/S 115JA OF THE ACT RS. 17,71,201/- (GROUND NOS. 3.1 TO 3.4 R AISED BY THE ASSESSEE) THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN TH IS REGARD:- 3.1. THE ENHANCEMENT OF THE ASSESSED INCOME BY RS. 17,71,201/- U/S 14A READ WITH RULE 8D IS ARBITRARY AND BAD IN LAW. 3.2. THE CIT (A) FAILED TO CONSIDER THE PROVISO TO SECTION 14A WHICH IS RESTRICTING THE ASSESSING OFFICER FOR ENHANCEMENT O F ASSESSED INCOME U S 147 OR 154 OF THE INCOME TAX ACT, 1961 FOR THE CASE S PERTAINING TO ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1 S1 DAY OF APRIL, 2001.. 3.3. THE CIT(A) FAILED TO APPRECIATE THAT NO EXPEND ITURE IN RELATION TO EXEMPT INCOME HAS BEEN INCURRED AND CLAIMED BY THE ASSESSE. 3.4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) ERRED IN NOT PROVIDING THE ADEQUATE OPPORTUNITY TO THE APPELLANT . THE LEARNED AO WHILE COMPLETING THE ASSESSMENT U/S 115JA / 254 / 147 DATED 14.11.2007 DID NOT MAKE ANY DISALLOWANCE U/S 14A OF THE ACT. IN RESPECT OF OTHER ADDITIONS, ASSESSEE PREFERRED FIRST APPEAL BEFORE T HE LEARNED CIT(A). DURING THE FIRST APPELLATE PROCEEDINGS, THE LEARNED CIT(A) FOUND THA T THE ASSESSEE HAD DERIVED DIVIDEND INCOME OF RS. 43,94,663/- AND CLAIMED EXEM PTION U/S 10 OF THE ACT FOR THE SAME AND ACCORDINGLY SOUGHT TO INVOKE THE DISALLOWA NCE U/S 14A OF THE ACT. THE LEARNED CITA SOUGHT TO ENHANCE THE ASSESSMENT BY AP PLYING RULE 8D OF THE IT RULES ITA NOS. 1928 & 1815/KOL/2008-C-AM M/S. PHILIPS ELECTRONICS INDIA LTD. 15 AND ARRIVED AT THE FIGURE OF DISALLOWANCE U/S 14A O F THE ACT TO THE TUNE OF RS. 17,71,201/- AND THE SAME WAS ADDED TO THE BOOK PROF ITS U/S 115JA OF THE ACT BY APPLYING CLAUSE (F) OF EXPLANATION TO SECTION 115JA OF THE ACT. THE LEARNED AR ARGUED THAT THE LEARNED CIT(A) ERRED IN MAKING DISALLOWANCE U/S 14A OF THE ACT FOR THE ASSESSMENT YEAR UNDER APPEAL BY IGNORING THE PROVISO TO SECTION 14A OF THE ACT WHEREIN THE LEARNED AO IS PREVENTED FROM MAKING THIS ADDITION IN A REOPENED ASSESSMENT FOR ANY ASSESSMENT YEAR BEGINNI NG ON OR BEFORE 1.4.2001. IN ANY CASE, HE ARGUED THAT THIS SUM WAS NOT DEBITED BY TH E ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT AND HENCE THE SAME CANNOT BE ADDED TO THE B OOK PROFITS U/S 115JA OF THE ACT. THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF TH E LEARNED CIT(A) IN THIS REGARD. 4.6.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PER USED THE MATERIALS AVAILABLE ON RECORD. WE FEEL THAT THE BASIC OBJECTION OF THE LE ARNED AR THAT NO DISALLOWANCE U/S 14A OF THE ACT COULD BE MADE IN THE FACTS OF THE CA SE IS TO BE ADDRESSED FIRST. THE PROVISIONS OF SECTION 14A OF THE ACT HAS BEEN INTRO DUCED IN THE STATUTE VIDE FINANCE ACT, 2001 WITH RETROSPECTIVE EFFECT FROM 1.4.1962. WE FIND THAT THE PROVISO HAS BEEN INTRODUCED IN SECTION 14A OF THE ACT VIDE FINANCE A CT, 2002 WITH RETROSPECTIVE EFFECT FROM 11.5.2001, WHICH READS AS UNDER:- PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHA LL EMPOWER THE ASSESSING OFFICER EITHER TO REASSESS UNDER SECTION 147 OR PASS AN ORDER ENHANCING THE ASSESSMENT OR REDUCING A REFUND ALREA DY MADE OR OTHERWISE INCREASING THE LIABILITY OF THE ASSESSEE UNDER SECT ION 154, FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1 ST DAY OF APRIL, 2001. WE FIND THAT AFTER THE FINANCE BILL GOT THE APPROVA L OF THE PARLIAMENT AND ASSENT OF PRESIDENT WAS GIVEN TO THE ACT, CIRCULAR NO. 14 OF 2001 DATED 22.11.2001, CONTAINING EXPLANATORY NOTES ON PROVISIONS RELATING TO DIRECT TAXES (FINANCE ACT, 2001), WAS ITA NOS. 1928 & 1815/KOL/2008-C-AM M/S. PHILIPS ELECTRONICS INDIA LTD. 16 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES RELATIN G TO THE PROVISIONS OF FINANCE ACT, 2001 REPORTED IN 252 ITR (ST.) 65 ON THE ISSUE OF S ECTION 14A OF THE ACT AS UNDER:- 25. NO DEDUCTION FOR EXPENDITURE INCURRED IN RESPE CT OF EXEMPT INCOME AGAINST TAXABLE INCOME 25.1. CERTAIN INCOMES ARE NOT INCLUDIBLE WHILE COMP UTING THE TOTAL INCOME, AS THESE ARE EXEMPT UNDER VARIOUS PROVISIONS OF THE ACT. THERE HAVE BEEN CASES WHERE DEDUCTIONS HAVE BEEN CLAIMED IN RESPECT OF SUCH EXEMPT INCOME. THIS IN EFFECT MEANS THAT THE TAX INCENTIV E GIVEN BY WAY OF EXEMPTIONS TO CERTAIN CATEGORIES OF INCOME, IS BEIN G USED TO REDUCE ALSO THE TAX PAYABLE ON THE NON-EXEMPT INCOME BY DEBITING TH E EXPENSES INCURRED TO EARN THE EXEMPT INCOME AGAINST TAXABLE INCOME. THI S IS AGAINST THE BASIC PRINCIPLES OF TAXATION WHEREBY ONLY THE NET INCOME, I.E GROSS INCOME, MINUS THE EXPENDITURE, IS TAXED. ON THE SAME ANALOGY, THE EXEMPTION IS ALSO IN RESPECT OF THE NET INCOME. EXPENSES INCURRED CAN B E ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME. 25.2. THROUGH FINANCE ACT, 2001, A NEW SECTION 14A HAS BEEN INSERTED SO AS TO CLARIFY THE INTENTION OF THE LEGISLATURE SINC E THE INCEPTION OF THE INCOME TAX ACT, 1961, THAT NO DEDUCTION SHALL BE MA DE IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE INCOME TAX ACT. 25.3. VIDE CIRCULAR NO. 11/2001 DATED 23 RD JULY, 2001, [PUBLISHED AT (2001) 169 CTR (ST) 1], A DIRECTION WAS ISSUED BY T HE CENTRAL BOARD OF DIRECT TAXES THAT THE ASSESSMENTS WHERE THE PROCEED INGS HAVE BECOME FINAL BEFORE THE FIRST DAY OF APRIL, 2001 SHOULD NOT BE R EOPENED UNDER SECTION 147 OF THE ACT TO DISALLOW EXPENDITURE RELATABLE TO THE EXEMPT INCOME BY APPLYING THE PROVISIONS OF SECTION 14A OF THE ACT. THIS CIRCULAR HAS BEEN ISSUED BY THE BOARD BY EXERCISING ITS POWERS TO ISS UE BENEFICIAL CIRCULAR UNDER SECTION 119(2)(A) OF THE INCOME TAX ACT. 25.4. THIS AMENDMENT TAKES EFFECT RETROSPECTIVELY F ROM 1 ST APRIL, 1962, AND ACCORDINGLY, APPLIES IN RELATION TO THE ASSESSMENT YEAR 1962-63 AND SUBSEQUENT ASSESSMENT YEARS. FROM THE ABOVE, IT COULD BE SAFELY CONCLUDED THAT N O ASSESSMENT SHALL BE REOPENED FOR THE LIMITED PURPOSE OF MAKING DISALLOWANCE U/S 14A OF THE ACT FOR ASSESSMENT YEARS BEGINNING ON OR BEFORE 1.4.2001. . BUT IF THE ASSE SSMENT FOR EARLIER YEARS ARE REOPENED FOR MAKING SOME OTHER ADDITIONS AND WHERE REOPENING HAS BEEN UPHELD TO BE VALID, ITA NOS. 1928 & 1815/KOL/2008-C-AM M/S. PHILIPS ELECTRONICS INDIA LTD. 17 THEN THE DISALLOWANCE U/S 14A OF THE ACT COULD ALSO BE MADE IN THAT REOPENED ASSESSMENT YEAR EVEN IF IT IS FOR ASSESSMENT YEAR B EGINNING ON OR BEFORE 1.4.2001. MOREOVER, THE ASSESSMENT FOR ASST YEAR 1999-2000 HA D NOT ATTAINED FINALITY AS THE SAME HAS BEEN REOPENED ON SOME OTHER GROUNDS BY THE LEARNED AO. HENCE THE ARGUMENT ADVANCED BY THE LEARNED AR ON THIS GROUND IS REJECTED. 4.6.2. ON MERITS, THE LEARNED AR ARGUED THAT INVES TMENTS WHICH YIELDED DIVIDEND INCOME WERE VERY OLD AND NO MANAGEMENT EXPENDITURE WERE ACTUALLY INCURRED IN EARNING SUCH DIVIDEND INCOME AND HENCE NO DISALLOWA NCE U/S 14A OF THE ACT COULD BE MADE IN THE FACTS OF THE CASE. THE LEARNED AR ARGUE D THAT THE ASSESSEE HAD DERIVED DIVIDEND INCOME OF RS. 43,94,663/- AND OUT OF THIS, A SUM OF RS. 37,20,000/- WAS RECEIVED FROM INVESTMENTS IN SHARES OF PUNJAB ANAND LAMP INDUSTRIES LTD WHICH WAS INVESTED WITH AN INTENTION TO ACQUIRE CONTROLLING I NTEREST IN THE SAID COMPANY AND NOT FOR EARNING DIVIDEND INCOME AND SUBSEQUENTLY IN ASS T YEAR 2003-04, THE SAID COMPANY WAS MERGED WITH THE ASSESSEE COMPANY. THE DIVIDEND INCOME EARNED THEREON WAS ONLY INCIDENTAL INCOME DERIVED BY THE ASSESSEE. HE PLACED RELIANCE ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS RAJEEVA LACHAN KANORIA REPORTED IN (1994) 208 ITR 616 (CAL) IN THIS REGARD. THESE FACTS ARGUED BY THE LEARNED AR ARE NOT CONTROVERTED BY THE REVENUE BEFORE US. THE NEXT ARGUMENT ADVANCED BY THE LEARNED AR IS THAT THE SAID DISALLO WANCE U/S 14A OF THE ACT AMOUNTING TO RS. 17,71,201/- WAS NOT DEBITED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT, HENCE THE PROVISIONS OF CLAUSE (F) OF EXPL ANATION TO SECTION 115JA OF THE ACT CANNOT BE INVOKED IN THE FACTS OF THE PRESENT CASE. WE HOLD THAT UNLESS AN ITEM IS DEBITED IN THE PROFIT AND LOSS ACCOUNT, THE SAME CA NNOT BE THE SUBJECT MATTER OF ADDITION TO BOOK PROFITS UNDER CLAUSE (F) OF EXPLANATION TO SECTION 115JA OF THE ACT. THE DISALLOWANCE MADE U/S 14A OF THE ACT READ WITH RULE 8D IS ONLY ARTIFICIAL DISALLOWANCE AND OBVIOUSLY THE SAME IS NOT DEBITED IN THE PROFIT AND LOSS ACCOUNT AND THE SAME CANNOT BE IMPORTED INTO CLAUSE (F) OF EXPL ANATION TO SECTION 115JA OF THE ACT. RELIANCE IN THIS REGARD IS PLACED ON THE FOL LOWING DECISIONS:- ITA NOS. 1928 & 1815/KOL/2008-C-AM M/S. PHILIPS ELECTRONICS INDIA LTD. 18 A) DECISION OF DELHI TRIBUNAL IN THE CASE OF QUIPPO TELECOM INFRASTRUCTURE LTD VS ACIT IN ITA NO. 4931/DEL/2010 FOR ASST YEAR 2007 -08 DATED 18.2.2011 (PARA 11 OF JUDGEMENT) B) DECISION OF DELHI TRIBUNAL IN THE CASE OF GOETZE (INDIA) LTD VS CIT REPORTED IN (2009) 32 SOT 101 (DEL) DATED 20.5.2009 FOR ASST YEAR 2000-01 (PARA 4.6 OF JUDGEMENT) IN VIEW OF THE AFORESAID JUDICIAL PRECEDENTS, WE HO LD THAT NO DISALLOWANCE U/S 14A OF THE ACT COULD BE MADE FOR THE PURPOSE OF COMPUTING BOOK PROFITS U/S 115JA OF THE ACT. ACCORDINGLY, THE GROUND NOS. 3.1 TO 3.4 RAISED BY T HE ASSESSEE ARE ALLOWED. 5. IN THE RESULT, BOTH THE APPEALS OF THE ASSE SSEE AS WELL AS THE REVENUE ARE PARTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 03-02-2 016 1.. THE APPELLANT: THE ACIT/DCIT, CIR-11, AAYKAR B HAWAN, P-7 CHOWRINGHEE SQ., KOL-69. 2 THE RESPONDENT- M/S. PHILIPS ELECTRONICS INDIA L TD 7, JUSTICE CHANDRA MADHAB ROAD, KOLKATA-700 020. 3 /THE CIT, 4.THE CIT(A ) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR **PRADIP SPS SD/- ( N.V. VASUDEVAN, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE: DATE 03-02-2016 COPY OF THE ORDER FORWARDED TO:-