GRAHAM FIRTH STEEL PRODUCTS (I) LTD, MUMBAI V. DCIT CIR 9(1), MUMBAI

ITA 2317/MUM/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6624 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 09-04-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 24-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS ABHA KALA CHANDA
• Assessee Lawyers: ARVIND SONDE
• Keywords: Depreciation; Capital receipt; Revised return
• Section: 43B; 115JB; 37(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G B ENCH, MUMBAI , , ! '# $ $ $ $ % & ' '# ) BEFORE SHRI N.K. BILLAIYA, AM AND SHRI AMIT SHUK LA, JM ./ I.T.A. NO.1426/MUM/2010 ( * * * * / ASSESSMENT YEAR :2006-07 THE DCIT, CIRCLE 9(1), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S. GRAHAM FIRTH STEEL PRODUCTS (I) LTD., B-212 SHREYASH INDUSTRIAL ESTATE, NEAR JAI COACH, WESTERN EXPRESS, HIGHWAY GOREGAON (E), MUMBAI-400 063 ./ I.T.A. NO.2317/MUM/20102 ( * * * * / ASSESSMENT YEAR :2006-07 M/S. GRAHAM FIRTH STEEL PRODUCTS (I) LTD., B-212 SHREYASH INDUSTRIAL ESTATE, NEAR JAI COACH, WESTERN EXPRESS, HIGHWAY GOREGAON (E), MUMBAI-400 063 / VS. THE DCIT, CIRCLE 9(1), AAYAKAR BHAVAN, MUMBAI-400 020 #+ ! ./ , ./ PAN/GIR NO. : AAACG 1719P ( +- / APPELLANT ) .. ( ./+- / RESPONDENT ) +- 0 / APPELLANT BY: SHRI ARVIND SONDE ./+- 1 0 / RESPONDENT BY: MRS. ABHAKALA CHANDA 1 %2! / DATE OF HEARING :09.04.2014 34* 1 %2! / DATE OF PRONOUNCEMENT : .04.2014 '& / O R D E R 2317 & 1426/M/2010 2 PER N.K. BILLAIYA, AM: THESE CROSS APPEALS BY THE REVENUE AND THE ASSES SEE ARE DIRECTED AGAINST THE VERY SAME ORDER OF THE LD. CIT(A)-19, M UMBAI DT.22.12.2010 PERTAINING TO A.Y. 2006-07. AS BOTH THESE APPEALS W ERE HEARD TOGETHER, THEY ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO. 1426/M/2010 REVENUES APPEAL 2. THE REVENUE HAS RAISED 5 SUBSTANTIVE GROUNDS OF APPEAL WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD.CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEE IN RESPECT OF TRAVELLING EXPE NSES OF RS. 3,39739/- AND ALLOW SUCH CLAIM WHICH IS REQUIRED FO R THE SURVIVAL OF THE ASSESSEES BUSINESS IGNORING THE FACT THAT A SSESSEE HAD NOT CONDUCTED ANY BUSINESS ACTIVITY DURING THE PREVIOUS YEAR. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.CIT(A) ERRED IN DIRECTING ASSESSING OFFICER TO V ERIFY THE CLAIM OF PROFESSIONAL CHARGES OF RS. 9,93,354/- AND ALLOW ONLY SUCH EXPENSES WHICH HAD BEEN CRYSTALLISED DURING THE YEA R UNDER CONSIDERATION IGNORING THE FACT THAT ASSESSEE HAD N OT CONDUCTED ANY BUSINESS ACTIVITY DURING THE PREVIOUS YEAR. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEE IN RESPECT OF TELEPHONE EXPEN SES OF RS. 97,630/- AND ALLOW SUCH CLAIM WHICH IS REQUIRED TO THE SURVIVAL OF THE ASSESSEES BUSINESS IGNORING THE FACT THAT ASSE SSEE HAD NOT CONDUCTED ANY BUSINESS ACTIVITY DURING THE PREVIOUS YEAR. 2317 & 1426/M/2010 3 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEES OTHER EXPENSES TOTALLING TO RS. 26,74,830/- AND ALLOW SUCH CLAIM WHICH IS REQUIRED FOR THE SURV IVAL OF THE ASSESSEES BUSINESS IGNORING THE FACT THAT ASSESSEE HAD NOT CONDUCTED ANY BUSINESS ACTIVITY DURING THE PREVIOUS YEAR. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO MAKE ONLY SPECIFIC ADJUSTMENTS IN COMPUTING BOOK PROFIT U/S. 115JB IGNORING THE FACT THAT THE ASSESSING OFFICER HAD RIGHTLY MAD E THE ADJUSTMENTS BUT THE ASSESSEE HAD WRONG ADJUSTMENT SINCE IT HAS NOT DERIVED PROFIT FROM SICK INDUSTRIAL COMPANY AND HENCE NO DE DUCTION IS ALLOWABLE ON THIS COUNT. 3. GROUND NO. 1 TO 4 RELATE TO THE DELETION OF ADDI TION MADE BY THE AO ON ACCOUNT OF: 1) TRAVELLING EXPENSES RS. 2,39.729/- 2) PROFESSIONAL CHARGES RS. 9,93,354/- 3) TELEPHONE EXPENSES RS. 97,630/- 4) OTHER EXPENSES RS.26,74,830/- 4. THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF COLD ROLLED STEEL. ON ACCOUNT OF HUGE LOSSES, INCURRED IN THE PAST SEVERAL YEARS, THE COMPANY WAS DECLARED AS SIC K UNIT AND BROUGHT WITHIN THE PURVIEW OF BIFR. ON 28.1.2003, A SHOW C AUSE NOTICE WAS ISSUED FOR WINDING UP OF BUSINESS, A COMPROMISE PRO POSAL WAS SUBMITTED, BY ONE OF THE DIRECTORS, FOR REVIVAL OF THE COMPANY AND A REHABILITATION PLAN WAS SUBMITTED WHICH WAS ULTIMATELY APPROVED W ITH CERTAIN AMENDMENTS. AS PER THE SCHEME SANCTIONED UNDER BIF R REGULATIONS, THE COMPANY WAS GIVEN A CHANCE TO REVIVE ITSELF, VIDE O RDER DT. 26.12.2007 WHEREIN THE COMPANY COULD NOT CARRY ON ITS MAIN ACT IVITY SINCE IT WAS ENGAGED IN THE PROCESS OF PREPARING THE REVIVAL AND REHABILITATION PLANS TO 2317 & 1426/M/2010 4 THE SATISFACTION OF THE AUTHORITIES CONCERNED UNDER BIFR. FINALLY, FROM A.Y 2007-08 ONWARDS, THE ASSESSEE COMPANY RESUMED I TS BUSINESS. 5. THOUGH THE MANUFACTURING ACTIVITIES COULD NOT TA KE PLACE DURING THE ASSESSMENT YEARS UNDER CONSIDERATION AS WAS THE CASE IN PREVIOUS ASSESSMENT YEARS, THE ASSESSEE HAD TO INCUR CERTAIN EXPENDITURE NECESSARY FOR THE PURPOSE OF SUSTAINING THE COMPANY AND ALSO FOR MAKING EFFORTS TO REVIVE ITS BUSINESS. IN THIS REGARD, THE ASSESSEE CLAIMED DEDUCTION TOWARDS TRAVELLING EXPENSES, PROFESSIONAL CHARGES, CONVEYANCE EXPENSES, TELEPHONE EXPENSES AND DEPRECIATION IN LINE WITH IT S CLAIM IN EARLIER ASSESSMENT YEARS. 6. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE MAIN LY ON THE GROUND THAT THE ASSESSEE WAS NOT CARRYING ON ANY BUSINESS ACTIVITY AND HENCE THE EXPENDITURE CANNOT BE TREATED AS REVENUE IN NATURE. THE AO ALSO STATED THAT THE EXISTENCE AND SURVIVAL OF THE COMPANY CANN OT BE TERMED AS FOR THE PURPOSE OF BUSINESS ESPECIALLY IN THE SCENARIO OF ITS BEING DEFUNCT. THE AO DISALLOWED TRAVELLING EXPENSES AT RS.2,29,73 1/-, PROFESSIONAL CHARGES AT RS. 9,92,354/-, CONVEYANCE EXPENSES AT R S. 1,31,999/-, TELEPHONE EXPENSES RS. 97,362/- AND OTHER EXPENSES AT RS. 26,74,830/-. 7. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A). THE LD. CIT(A) AFTER CONSIDERING THE FACTS AND THE SUBMISS IONS OBSERVED THAT DURING THE RELEVANT YEAR UNDER CONSIDERATION A SCHE ME FOR REVIVAL WAS UNDER ACTIVE CONSIDERATION FOR THE REVIVAL OF BUS INESS OF THE COMPANY. THE LD. CIT(A) FOUND MERIT IN THE CONTENTION OF THE ASSESSEE THAT THE EXPENSES WERE NECESSARILY INCURRED FOR ENSURING THE SURVIVAL AND EXISTENCE OF THE COMPANY AND IS THEREFORE ALLOWABL E UNDER THE PROVISIONS OF SEC. 37(1) OF THE ACT. 2317 & 1426/M/2010 5 8. REGARDING THE CLAIM OF TRAVELLING EXPENSES, THE LD. CIT(A) DIRECTED THE AO TO VERIFY THE CLAIM MADE UNDER THE HEAD TRAVELLING EXPENSES AND TO ALLOW SUCH EXPENSES AS HAVE BEEN IN CURRED BY THE EMPLOYEES/CONSULTANTS FOR ATTENDING TO VARIOUS MAT TERS IN CONNECTION WITH PRESERVING AND KEEPING THE BUSINESS ALIVE SO AS TO ENSURE ITS SURVIVAL. 9. REGARDING PROFESSIONAL CHARGES, THE LD. CIT(A) D IRECTED THE AO TO ALLOW THE CLAIM OF PROFESSIONAL CHARGES EXCEPT THO SE EXPENSES IN CONNECTION WITH DISPUTES/CASES PERTAINING TO EARLIE R YEARS. THE LD. CIT(A) FURTHER DIRECTED THAT IN RESPECT OF SUCH EXP ENSES PERTAINING TO DISPUTES/CASES OF EARLIER YEARS, THE EXPENSES SHALL BE ALLOWED ONLY IF THE LIABILITY CRYSTALLIZED DURING THE YEAR UNDER CONSID ERATION. 10. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OF CO NVEYANCE CHARGES OF RS. 1,31,999/-. TELEPHONE EXPENSES WERE ALLOWED AND IN RESPECT OF DISALLOWANCE OF OTHER EXPENSES , THE LD. CIT(A) DI RECTED THE AO TO ALLOW THE CLAIM OF OPERATING EXPENSES AMOUNTING TO RS. 2,84,666/- AND ALSO TO ALLOW PROVISION PAYMENT TO EMPLOYEES AMOUNT ING TO RS. 68,742/-. HOWEVER, WITH REFERENCE TO OTHER EXPENSES, THE LD. CIT(A) DIRECTED THE AO TO SCRUTINIZE THE CLAIM AND ALLOW ONLY THOSE WHI CH HAVE BEEN INCURRED FOR THE SURVIVAL OF THE COMPANY. 11. AGGRIEVED BY THIS, REVENUE IS BEFORE US. THE L D. DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE FINDINGS GI VEN IN THE ASSESSMENT ORDER. 2317 & 1426/M/2010 6 12. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ON IDENTICAL FACTS, THE TRIBUNAL IN EARLIER ASSESSMENT YEARS I.E. A.Y. 2004-05 AND 2005-06 HAS CONFIRMED THE ORDER OF THE LD. CIT(A) DISMISSIN G THE APPEALS FILED BY THE REVENUE. IT IS THE SAY OF THE LD. COUNSEL THAT THERE BEING NO DIFFERENCE IN THE FACTS AND CIRCUMSTANCES, THE SAME VIEW SHOULD BE FOLLOWED. 13. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOW ER AUTHORITIES AND THE ORDER OF THE TRIBUNAL FOR A.Y. 2004-05 IN ITA N OS. 6252/M/10 AND 6253/M/10 FOR A.Y. 2005-06. IT IS NOT IN DISPUTE T HAT FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAD MADE BONAFI DE EFFORTS TO REVIVE ITS BUSINESS WHICH IS SUPPORTED BY THE FACT THAT TH E BIFR SANCTIONED THE REHABILITATION SCHEME. IT IS ALSO AN UNDISPUTED FA CT THAT THE ASSESSEE COMPANY COMMENCED ITS ACTIVITIES IN SUBSEQUENT YEAR S AND HAS ACHIEVED SUBSTANTIAL TURNOVER WHICH GO TO PROVE THAT THE ASS ESSEE NEVER INTENDED TO WINDUP ITS ACTIVITY. IN OTHER WORDS, IT CAN BE SAI D THAT THERE WERE ONLY A TEMPORARY LULL IN THE BUSINESS. SINCE THE LD. CI T(A) HAS TAKEN INTO CONSIDERATION THE OVERALL CIRCUMSTANCES OF THE CASE , WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CI T(A). WE, THEREFORE, AFFIRM THE ORDER OF THE LD. CIT(A). GROUND NO. 1 T O 4 ARE ACCORDINGLY DISMISSED. 14. GROUND NO. 5 RELATES TO THE DIRECTIONS OF THE L D. CIT(A) TO THE AO TO MAKE ONLY SPECIFIC ADJUSTMENTS IN COMPUTING BOOK PROFIT U/S. 115JB. 15. THIS ISSUE HAS BEEN DISCUSSED BY THE LD. CIT(A) AT PARA-11 ON PAGE 14 OF HIS ORDER WHEREIN THE LD. CIT(A) ACCEPTE D THE CONTENTION OF THE ASSESSEE THAT FOR THE DETERMINATION OF INCOME U/S. 115JB, NO ADJUSTMENT CAN BE CARRIED OUT EXCEPT THOSE SPECIFIC ALLY REQUIRED TO IN THE 2317 & 1426/M/2010 7 SAID SECTION. THE LD. CIT(A) DIRECTED THE AO TO ST RICTLY FOLLOW THE PROVISIONS OF SEC. 115JB IN THE LIGHT OF THE DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. VS C IT 255 ITR 273. 16. IN OUR CONSIDERED VIEW WHILE DETERMINING THE IN COME U/S. 115JB, THE COMPUTATION HAS TO START FROM THE BOOK PROFIT A S SHOWN IN THE P&L ACCOUNT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PART-II AND III OF SCHEDULE VI OF THE COMPANIES ACT, 1956 AND AS REDUC ED BY THE ADJUSTMENTS AS SPECIFIED IN THE SAID SECTION. THE HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. (SUPRA) HAS HELD T HAT THE AO IS BOUND TO MAKE ONLY SUCH ADJUSTMENTS AS HAS BEEN SPECIFIED IN THE SAID SECTION TO ARRIVE AT A MAT INCOME. THEREFORE, WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A), WE AFFIRM THE SA ME. GROUND NO. 5 IS ACCORDINGLY DISMISSED. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NO. 2317/MUM/2010 ASSESSEES APPEAL 17. THE ASSESSEE HAS RAISED 3 SUBSTANTIVE GROUNDS O F APPEAL WITH SUB GROUNDS. GROUND NO. 1 RELATES TO UPHOLDING THE DIS ALLOWANCE OF CONVEYANCE EXPENSES OF RS. 1,31,999/-. 18. IN REVENUES APPEAL IN ITA NO. 1426/M/2010 WHIL E DECIDING GROUND NO. 1 TO 4, WE HAVE ELABORATELY DISCUSSED TH E NATURE OF THE BUSINESS OF THE ASSESSEE AND OTHER RELATED FACTS AN D HAVE ALLOWED THE EXPENSES UNDER THE HEAD TELEPHONE EXPENSES, TRAVELL ING EXPENSES, PROFESSIONAL EXPENSES AND OTHER EXPENSES. FOR SIMI LAR REASONS AND ALSO FOLLOWING THE FINDINGS OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR A.YRS 2317 & 1426/M/2010 8 2004-05 AND 2005-06, WE DIRECT THE AO TO ALLOW THE CLAIM OF CONVEYANCE EXPENSES OF RS. 1,31,999/-. GROUND NO. 1 AND ITS S UB GROUNDS ARE ACCORDINGLY ALLOWED. 19. GROUND NO. 2 RELATES TO UPHOLDING THE DISALLO WANCE OF DEPRECIATION OF RS. 74,04,808/- WHICH INCLUDES DEPR ECIATION ON ACCOUNT OF GOODWILL AMOUNTING TO RS. 69,26,452/-. 20. THE AO HAS DISCUSSED THIS DISALLOWANCE AT PARA- 3 OF HIS ORDER. AFTER DISCUSSING THE FACTS OF THE CASE, THE AO WAS OF THE FIRM BELIEF THAT SINCE THERE WAS NO BUSINESS CARRIED ON BY THE ASSES SEE, THE CLAIMS OF DEPRECIATION ARE NOT ALLOWABLE AS THE ASSETS HAVE N OT BEEN USED FOR THE PURPOSE OF THE BUSINESS DURING THE YEAR. THE AO FU RTHER OBSERVED THAT DEPRECIATION ON GOODWILL IS NOT ALLOWABLE UNDER INC OME TAX PROVISIONS SINCE THE SAME IS NOT COVERED WITHIN THE DEFINITION OF INTANGIBLE ASSETS U/S. 32(1)(II) OF THE ACT. 21. THE CLAIM OF DEPRECIATION WAS CONSIDERED BY THE LD. CIT(A) QUA GROUND NO. 6 OF THE APPEAL BEFORE HIM AT PARA-9 OF HIS ORDER AND AT PARA- 9.2 THE LD. CIT(A) OBSERVED THAT THE AO IS CORRECT IN HOLDING THAT THE GOODWILL IS NOT ELIGIBLE FOR DEPRECIATION. THE LD. CIT(A) FURTHER OBSERVED THAT THE ASSESSEE HAS NOT BEEN ABLE TO PR OVE WITH ANY COGENT MATERIAL THE FACTUAL PASSIVE USE OF MACHINERY. T HE DISALLOWANCE WAS SUSTAINED. 22. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STR ONGLY SUBMITTED THAT DUE TO THE CIRCUMSTANCES EXPLAINED FOR THE CLAIM OF EXPENSES, THE ASSETS OF THE ASSESSEE WERE READY TO USE. IT IS THE SAY O F THE LD. COUNSEL THAT CONSIDERING THE FACTS AND SURROUNDING CIRCUMSTANCES , THERE WAS A PASSIVE USE OF ASSETS AND THEREFORE THE CLAIM OF DEPRECIATI ON DESERVES TO BE 2317 & 1426/M/2010 9 ALLOWED. IN SO FAR AS THE DEPRECIATION OF GOODWILL IS CONCERNED, THE LD. COUNSEL STATED THAT THIS ISSUE HAS BEEN SETTLED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS SMIFS SECURITIES LTD 3 48 ITR 302. 23. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SU PPORTED THE FINDINGS OF THE LD. CIT(A). 24. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOW ER AUTHORITIES. WE HAVE ALSO THE BENEFIT OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2004-05 AND 2005-06 IN ITA NO. 6252 & 6253 /M/2010 WHEREIN THE TRIBUNAL HAS ALLOWED THE CLAIM OF DEPRECIATION HOLDING THAT THE ASSETS SAID TO HAVE BEEN PUT TO USE AS THE CLAIM OF DEPREC IATION ALLOWED IN EARLIER YEARS AND THERE ARE NO DIFFERENT FACTS DURING THE Y EAR UNDER CONSIDERATION, THE DEPRECIATION ON ASSETS IS DIRECTED TO BE ALLOWE D. 25. IN SO FAR AS CLAIM OF DEPRECIATION ON GOODWILL IS CONCERNED, THIS ISSUE IS NO MORE RES INTEGRA BECAUSE OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SMIFS SECURITIES (SUPR A) WHEREIN THE HONBLE SUPREME COURT HAS HELD THAT GOODWILL IS AN ASSET ELIGIBLE FOR DEPRECIATION. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT, WE DIRECT THE AO TO ALLOW THE CLAIM OF DEPRECIATION ON GOODWILL. GROUND NO. 2 AND ITS SUB GROUNDS ARE ALL OWED. 26. GROUND NO. 3 READS AS UNDER: TREATING OF SURPLUS ON REORGANIZATION/DEMERGER AS PER BIFR OF RS. 19,43,73,928/- AS TAXABLE INCOME. 1. THE LD. CIT(A) ERRED IN CONFIRMING THE TREATMENT OF SURPLUS ON REORGANIZATION/DEMERGER AS PER BIFR OF R S. 19,43,73,928/- (RS. 8,36,99,463 BEING SURPLUS DUE T O OTS WITH BANK ON ACCOUNT OF PRINCIPAL AMOUNT OF LOAN & RS. 2317 & 1426/M/2010 10 11,07,74,465 BEING INCREASE IN VALUE OF LAND HIVED OFF) AS TAXABLE INCOME. 2. THE LD. CIT(A) ERRED IN NOT ADJUDICATING ON THE ADD ITION OF RS. 11,07,74,465 BEING INCREASE IN VALUE OF LAND HIVED OFF. 3. THE LD. CIT(A) OUGHT NOT TO HAVE TREATED SURPLUS ON REORGANIZATION/DEMERGER AS PER BIFR OF RS. 19,43,73 ,928 AS TAXABLE INCOME. 27. THE ASSESSEE FILED THE ORIGINAL RETURN OF INCOM E ON 29.11.2006 DECLARING TOTAL LOSS AT RS. 1,22,04,360/-. ON 31.1 0.2007 REVISED RETURN OF INCOME WAS FILED. AS PER THE REVISED RETURN OF INCO ME, IN THE COMPUTATION OF INCOME FOR BUSINESS AND PROFESSION, THE ASSESSEE HAS SHOWN NET PROFIT AT RS. 29,08,56,591/- FROM WHICH THE ADJUSTMENTS ON ACCOUNT OF DEPRECIATION AND OTHER EXPENSES WERE MADE AND THE I NCOME CHARGEABLE UNDER THE HEAD PROFIT AND GAINS WAS COMPUTED AT RS. 18,58,95,081/- FROM WHICH BROUGHT FORWARD LOSSES WERE SET OFF AND THE TOTAL INCOME WAS REDUCED TO NIL. DURING THE COURSE OF THE ASSESSMEN T PROCEEDINGS, THE ASSESSEE CLAIMED ADDITIONAL DEDUCTIONS AMOUNTING TO RS.19,43,73,928/- ON ACCOUNT OF FOLLOWING: A) SURPLUS ON ONE TIME STATEMENT WITH BANKS BY WAY OF WAIVER OF PRINCIPAL AMOUNT OF LOAN RS. 8,36,99,463/- B) INCREASE IN VALUE OF LAND HIVE OFF RS.11,07,7 4,465/- 28. THE AO OUT-RIGHTLY REJECTED THE CLAIM OF THE AS SESSEE HOLDING THAT CLAIM FOR ADDITIONAL DEDUCTION, OTHERWISE THAN FILI NG REVISED RETURN OF INCOME CANNOT BE ENTERTAINED IN ASSESSMENT PROCEEDI NGS AS HELD BY HONBLE SUPREME COURT IN THE CASE OF GOETZ (INDIA) LTD VS CIT 284 ITR 2317 & 1426/M/2010 11 323. HOWEVER, THE AO FURTHER OBSERVED THAT THE ASS ESSEE HAS CREDITED THE WAIVER OF BANK AND FINANCIAL INSTITUTIONS PRINCIPAL AND INTEREST OF RS. 17,34,01,111/- IN THE PROFIT AND LOSS ACCOUNT AND I N THE COMPUTATION OF INCOME REDUCED THE SAME. THE AO FURTHER OBSERVED TH AT THE INTEREST AMOUNT TO RS. 8,97,01,648/- WAS DISALLOWED UNDER TH E PROVISIONS OF SEC. 43B IN THE EARLIER YEARS. 29. AS REGARDS COMPONENT OF PRINCIPAL AMOUNT OF RS. 8,36,99,463/-, THE AO OBSERVED THAT THIS HAS BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT AND ALSO SHOWN IN THE REVISED RETURN OF INCOME BUT SUBSEQUENTLY DEDUCTED FROM TOTAL INCOME BY WAY OF A LETTER FIL ED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. WHEN QUESTIONED ABOUT T HE PRACTICABILITY OF THIS WAIVER OF LOAN, THE ASSESSEE CONTENDED THAT TH E REMISSION IS A CAPITAL RECEIPT SINCE IT IS REMISSION OF LOAN LIABILITY. . THE AO DID NOT ACCEPT THIS CONTENTION OF THE ASSESSEE. THE AO WAS OF THE FIR M BELIEF THAT PROVISIONS OF SEC. 28(IV) ALONG WITH THE PROVISIONS OF SEC. 41 SQUARELY APPLY ON THE FACTS OF THE CASE. CONSIDERING THE PROVISIONS OF S EC. 28(IV) AND SEC. 41(1) AND THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZ (INDIA) LTD. (SUPRA), THE ADDITIONAL CLAIM OF DEDUC TION OF RS. 19,43,73,928/- WAS DISALLOWED. THE AO FURTHER DISA LLOWED THE CLAIM OF THE ASSESSEE THAT INCREASE IN VALUE OF LAND HIVE OF F IS NOT CHARGEABLE TO CAPITAL GAIN TAX BY VIRTUE OF THE PROVISIONS OF SEC . 47(VIA) OF THE ACT. 30. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). BUT LD. CIT(A) AT PARA 10.4 OF HIS ORDER OBSERVED THAT THE ADDITIONAL CLAIM FOR DEDUCTION HAD BEEN MADE BY MEANS OF A LETTER. THE LD. CIT(A) FURTHER OBSERVED THAT THE ASSESSMENT IS MADE ON THE BASIS OF THE REVISED RETURN FILED. IT IS ON THE BASIS OF THE REVISED RETURN TH AT INCOME IS ASSESSED AND ONCE A REVISED RETURN IS FILED, IT TAKES PLACE OF THE ORIGINAL RETURN AND THE 2317 & 1426/M/2010 12 ORIGINAL RETURN AS FILED IS TO BE DEEMED AS WITHDRA WN. THUS, THE EFFECTIVE RETURN FOR THE PURPOSE OF ASSESSMENT IS THE RETURN WHICH IS ULTIMATELY FILED ON THE BASIS OF WHICH THE ASSESSEE REQUIRES TO BE A SSESSED. THE LD. CIT(A) CONCLUDED THAT A LETTER FILED SEEKING TO CLA IM DEDUCTIONS OF LARGE SUMS EARLIER OFFERED TO TAX CANNOT TAKE THE PLACE O F A REVISED RETURN. IF OMISSION OR ERROR HAD BEEN NOTICED, THE PROPER COUR SE OF ACTION WAS TO FILE A REVISED RETURN VERIFIED AND SIGNED BY THE PERSONS AUTHORIZED TO SIGN THE SAID DECLARATION. THE LD. CIT(A) DID NOT FIND ANY ERROR IN THE FINDINGS OF THE AO WHO RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZ (INDIA) LTD (SUPRA). ON MERIT OF THE CASE, THE LD. CIT(A) CONFIRMED THE FINDINGS OF THE AO RELYING ON THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS T.V. SUNDRAM I YENGAR & SONS LTD 222 ITR 344 AND ON THE DECISION OF THE HONBLE BOMB AY HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD. VS DCIT 30 ITR 41 7. 31. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STA TED THAT THE REMISSION OF BANK PRINCIPLE LOAN AMOUNTED TO CAPITA L RECEIPT AND THEREFORE WAS CLAIMED AS DEDUCTION , THOUGH , THROUGH A LETTE R. THE LD. COUNSEL STATED THAT SUCH A CLAIM CAN BE MADE AS HAS BEEN HE LD BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS P RUTHIVI BROKERS & SHARE HOLDERS PVT. LTD. 349 ITR 336. THE LD. COUN SEL FURTHER SUBMITTED THAT RELIANCE ON THE DECISION OF T.V. SUNDRAM IYE NGAR & SONS (SUPRA) AND SOLID CONTAINERS LTD.(SUPRA) BY THE LD. CIT(A) IS MISPLACED. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY RELIED UPON T HE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS SHREE PIPES LTD 301 ITR 240 WHEREIN THE CASES RELIED UPON BY THE LD . CIT(A) HAVE BEEN DULY CONSIDERED AND DISTINGUISHED. THE LD. COUNSEL ALSO RELIED UPON THE DECISION OF THE TRIBUNAL MUMBAI BENCH IN THE CASE O F RAMA PULP & PAPER LTD. IN ITA NO. 3573/M/ 2011, M/S. PRISM CEM ENT LTD. VS JCIT 2317 & 1426/M/2010 13 101 ITD 103 (MUM), BOMBAY GAS COMPANY LTD. VS ACIT 54 SO6T 13 (MUM) AND ITO VS ARISTO REALTY DEVELOPERS LTD., IN ITA NO. 7052/M/08. 32. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED T HE FINDINGS OF THE LOWER AUTHORITIES. 33. WE HAVE CAREFULLY PERUSED THE ORDER OF THE LOWE R AUTHORITIES AND THE RELEVANT MATERIAL EVIDENCES BROUGHT ON RECORD. WE HAVE ALSO CONSIDERED THE DECISIONS RELIED UPON BY BOTH SIDES . AT THE VERY OUTSET, THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF GOETZ (INDIA) (SUPRA) RESTRICTS THE AO FOR CONSIDERING ANY CLAIM OTHERWISE THAN BY A REVISED RETURN. THE SAID BAR IS NOT APPLICABLE TO APPELLATE AUTHORITIES. OUR VIEW IS FORTIFIED BY THE DECISION OF THE HONBLE J URISDICTIONAL HIGH COURT IN THE CASE OF PRUTHIVI BROKERS & SHARE HOLDERS PVT . LTD. (SUPRA) AT PARA- 23 OF ITS ORDER, THE HONBLE BOMBAY HIGH COURT THUS HELD AS UNDER: IT IS CLEAR TO US THAT THE SUPREME COURT DID NOT H OLD ANYTHING CONTRARY TO WHAT WAS HELD IN THE PREVIOUS JUDGMENTS TO THE EFFECT THAT EVEN IF A CLAIM IS NOT MADE BEFORE THE AO, IT CAN BE MADE BEFORE THE APPELLATE AUTHORITIES. THE JURISDICTION OF THE APPELLATE AUT HORITIES TO ENTERTAIN SUCH A CLAIM HAS NOT BEEN NEGATED BY THE SUPREME COURT IN THIS JUDGEMENT. IN FACT, THE SUPREME COUR T MADE IT CLEAR THAT THE ISSUE IN THE CASE WAS LIMITED TO THE POWER OF THE ASSESSING AUTHORITY AND THAT THE JUDGEMENT DOES NOT IMPINGE ON THE POWER OF THE TRIBUNAL U/S. 254. 34. COMING TO THE MERIT OF THE ADDITIONAL CLAIM MAD E BY THE ASSESSEE , IS ON ACCOUNT OF THE SURPLUS ON ONE TIME SETTLEMENT WITH BANKS BY WAY OF WAIVER OF PRINCIPAL AMOUNT OF LOAN RS. 8,36,9 9,463/- AND INCREASE IN VALUE OF LAND HIVE OFF RS.11,07,74,465/-, THE HONB LE RAJASTHAN HIGH 2317 & 1426/M/2010 14 COURT IN THE CASE OF SHREE PIPES (SUPRA) HAS HELD T HAT MERELY DEALING WITH SUCH WAIVER WITH THE ASSESSEE IN ITS BOOKS OF ACCOU NT COULD NOT ALTER THE EFFECT OF THE ORDER OF BIFR. NO REMISSION OR CESSA TION OF LIABILITY TOWARDS INTEREST NOR THE ASSESSEE BECAME ENTITLED T O WAIVER OF INTEREST THEREFORE SEC. 41(1) COULD NOT BE INVOKED TO AT A W AIVED AMOUNT. IT WAS FURTHER OBSERVED BY THE HONBLE COURT THAT UNDER SE CTION 41(1) REMISSION CAN BE ONLY BY AN ACT OF CREDITOR AND CESSATION OF LIABILITY CAN COME BY AGREEMENT OR BY LAW. 35. IN THE CASE BEFORE US, THE ISSUE RELATES TO THE WAIVER OF THE PRINCIPLE AMOUNT OF LOAN. WE FIND THAT THE HONBLE RAJASTHAN HIGH COURT HAS CONSIDERED THE DECISION OF THE HONBLE SUPREME COUR T IN THE CASE OF T.V. SUNDRAM IYENGAR & SONS (SUPRA). A SIMILAR ISSUE WA S ALSO CONSIDERED BY THE TRIBUNAL MUMBAI BENCH IN THE CASE OF RAMA PUL P (SUPRA) WHEREIN THE TRIBUNAL HAS CONSIDERED THE DECISION RELIED UPO N BY THE LD. CIT(A) AND FINALLY HELD THAT THE LIABILITY WAS REDUCED UND ER THE SCHEME OF BIFR AND THE ASSESSEE HAS NOT ENJOYED ANY ACTUAL BENEFIT OF REMISSION OF LIABILITY IN THE NATURE OF TRADING. CONSIDERING TH E FACTS OF THE CASE IN THE LIGHT OF THE DECISIONS DISCUSSED HEREINABOVE, IN OU R UNDERSTANDING OF LAW, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE FINDINGS OF THE AO. WE, ACCORDINGLY, REVERSE THE FINDINGS OF THE CIT[A] AND DIRECT THE AO TO ALLOW THE CLAIM OF DEDUCTION IN RESPECT OF THE WAIV ER OF LOAN AMOUNTING TO RS. 8,36,99,463/-. A PERUSAL OF THE ORDER OF TH E LD. CIT(A) SHOWS THAT HE HAS NOT ADJUDICATED ON THE ADDITION OF RS. 11,07 ,74,465/- BEING INCREASE IN VALUE OF LAND HIVE OFF. WE, ACCORDINGL Y RESTORE THIS LIMITED ISSUE BACK TO THE FILES OF THE LD. CIT(A). THE LD. CIT(A) IS DIRECTED TO ADJUDICATE THIS GRIEVANCE OF THE ASSESSEE IN THE LI GHT OF THE PROVISIONS OF SEC. 47(VI) OF THE ACT. THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 2317 & 1426/M/2010 15 38. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THE APPEAL FILED BY THE REV ENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD APRIL, 2014 . '& 1 4* ! 5 6'7 23.4.2014 4 1 8 SD/- SD/- (AMIT SHUKLA ) (N.K. BILLAIYA) '# /JUDICIAL MEMBER ! '# / ACCOUNTANT MEMBER MUMBAI; 6' DATED 23.4.2014 . . ./ RJ , SR. PS '& '& '& '& 1 11 1 .% .% .% .% 9*% 9*% 9*% 9*% / COPY OF THE ORDER FORWARDED TO : 1. +- / THE APPELLANT 2. ./+- / THE RESPONDENT. 3. : ( ) / THE CIT(A)- 4. : / CIT 5. ;8 .% , , / DR, ITAT, MUMBAI 6. 8< = / GUARD FILE. '& '& '& '& / BY ORDER, /% .% //TRUE COPY// > >> > / ? ? ? ? (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI