Parry & Co. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2413/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9033 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 31-03-2016
• Assessment Year: 2000-2001
• Appeal Filed On: 25-09-2014
• Court: TRIBUNAL
• Department Lawyers: AJIT KUMAR VERMA
• Keywords: Reopening of assessment; Capital asset; Business income; Depreciation; Deemed to accrue or arise in india; Question of law; Difference of opinion; Capital receipt; Commercial expediency; Reason to believe; Change of opinion; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 142(1); 115JB; 147; 148; 37

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER I.T.A.NO. 2370 /MDS/2014 ASSESSMENT YEAR :200 0 - 0 1 THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT II , CHENNAI - 600 101. VS. M/S. E.I.D. PARRY (INDIA) LTD., [FORMERLY PARRY & CO. LTD.] DARE HOUSE, 234 NSC BOSE ROAD, CHENNAI 6 00 0 01. [PAN: AA A C E0702C ] ( APPELLANT ) ( R ESPONDENT / ) I.T.A.NO. 2414/MDS/2014 ASSESSMENT YEAR :2000 - 01 M/S. E.I.D. PARRY (INDIA) LTD., [FORMERLY PARRY & CO. LTD.] DARE HOUSE, 234 NSC BOSE ROAD, CHENNAI 600 001. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(1), CHENNAI. ( APPELLANT ) ( R ESPONDENT / ) I.T.A.NO. 2413/MDS/2014 ASSESSMENT YEAR :2000 - 01 M/S. PARRY & CO. LTD. , NOW MERGED WITH AND KNOWN AS E.I.D. PARRY (INDIA) LTD., #234 NSC BOSE ROAD, CHENNAI 600 001. [PAN: AAACP1641H] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(1), CHENNAI. ( APPELLANT ) ( R ESPONDENT / ) DEPARTMENT BY : SHRI AJIT KUMAR VERMA, CIT ASSESSEE BY : SHRI PHILIP GEORGE, ADVOCATE / DATE OF HEARING : 31 . 03 .201 6 / DATE OF P RONOUNCEMENT : 28 .0 6 .201 6 I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 2 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : T HE CROSS APPEALS FILED BY THE REVENUE AS WELL AS THE ASSESSEE ARE DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) LTU , CHENNAI DATED 2 0 .0 6 .201 4 FOR THE ASSESSMENT YEAR 200 0 - 0 1 AND ANOTHER APPEAL FILED BY ASSESSEE FOR THE ASSESSMENT YEAR 2000 - 0 1 IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) LTU, CHENNAI DATED 30 .06 .2014 . THE FIRST COMMON ISSUE RAISED IN BOTH THE APPEALS OF THE ASSESSEE IS WITH REGARD TO REOPENING OF ASSESSMENT. HENCE WE SHALL TAKE UP APPEAL NO. 2413/MDS/2014 PERTAINING TO THE ASSESSEE M/S. PARRY & CO. LTD. FOR THE ASSESSMENT YEAR 2000 - 01, WHEREIN THE FIRST GROUND RAISED IS WITH REGARD TO REOPENING OF ASSESSMENT . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE , M/S. PARRY & C O . LTD., PRIOR TO MERGING WITH M/S. E.I.D. PARRY (INDIA) LTD. WA S ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING IN NETLON AND FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2000 - 01 ON 29.11.2000 DECLARING A LOSS OF .6,06,340/ - UNDER NORMAL PROVISIONS. THE ASSESSEE S DEEMED INCOME UNDER SECTION 115JA OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] WAS .3,04,974/ - . N OTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED ON 28.11.2001. THE ORDER UNDER SECTION 143(1) OF THE ACT WAS PASSED ON 28.03.2002 ACCEPTING THE RETURNED LOSS. SUBSEQUENTLY, NOTICE UNDER SECTION I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 3 143(2) AND 142(1) OF THE ACT AND THE ASSESSEE FILED ALL DETAI LS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND AFTER VERIFYING THE DETAILS, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT ON 17.02.2003 BY COMPUT ING THE TOTAL RETURNED INCOME OF THE ASSESSEE AT . 2,48,46,621/ - AND THE LONG TERM CAPITAL LOSS AT .2,42,40,282/ - AS CLAIMED BY THE ASSESSEE UNDER NORMAL PROVISIONS AND BOOK PROFIT UNDER SECTION 115JA OF THE ACT AT .71,34,536/ - . 3. THEREAFTER, SINCE THE ASSESSING OFFICER H AS REASONS TO BELIEVE THAT THE ASSESSEE HAS EMPLOYED A COLOURABLE DEVICE TO BOOK LONG TERM CAPITAL LOSS AND TO EVADE TAX IN SUBSEQUENT YEARS. CORPORATE VEIL HAS TO BE LIFTED TO ASCERTAIN TRUE NATURE OF TRANSACTION AND THEREFORE THE ASSESSMENT WAS REO PENED UNDER SECTION 147 BY ISSUING NOTICE UNDER SECTION 148 OF THE ACT ON 28.03.2005. IN RESPONSE THERETO, THE ASSESSEE FILED REPLY DATED 25.04.2005 AND REQUESTED THAT THE RETURN FILED EARLIER ON 29.11.2000 MAY BE TREATED AS RETURNED FILED IN RESPONSE TO NOTICE UNDER SECTION 148 OF THE ACT. FURTHER, THE ASSESSEE HAS REQUESTED FOR REASONS LEADING TO REOPENING OF ASSESSMENT AND ACCORDINGLY REASONS FOR REOPENING OF ASSESSMENT WERE COMMUNICATED TO THE ASSESSEE AND NOTICE UNDER SECTION 143(2)/142(1) OF THE ACT WAS ISS UED ON 16.02.2005 CALLING FOR PARTICULARS. AFTER CONSIDERING VARIOUS SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER HAS COMPLETED I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 4 THE ASSESSMENT UNDER SECTION 143(3) R.W.S. 147 OF THE ACT ON 16.01.2006 BY DISALLOWING THE LONG TERM CA PITAL LOSS OF .2,42,40,282/ - . 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND CHALLENGED THE JURISDICTION OF REOPENING OF ASSESSMENT UNDER SECTION 147 OF THE ACT . AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY RELYING ON VARIOUS CASE LAW, THE LD. CIT(A) HAS DISMISSED THE GROUND RAISED BY THE ASSESSEE. 5. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS SUBMITTED ALL PARTICULARS BEF ORE THE ASSESSING OFFICER AND AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND VERIFYING THE DETAILS FILED BY THE ASSESSEE, THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED ON 17.02.2003 BY THE ASSESSING OFFICER. THEREAFTER, THE ASSESSMENT WAS REOPENED BY ISSUING NOTICE UNDER SECTIO N 148 OF THE ACT ON 28.03.2005 . THE LD. COUNSEL FOR THE ASSESSEE HAS STRONGLY CONTENDED THAT NO VALID NOTICE UNDER SECTION 143(2) OF THE ACT WAS SERVED ON THE ASSESSEE AFTER INTIMATING THE ASSESSING OFFICER TO TR EAT THE ORIGINAL RETURN OF INCOME AS FILED IN RESPONSE TO THE NOTICE UNDER SECTION 148 OF THE ACT. FURTHER, HE HAS SUBMITTED THAT ALL THE FACTS RELATING TO THE ISSUE IN THE RETURN OF INCOME AND THAT THE ASSESSEE HAD DISCLOSED FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR THE RELEVANT ASSESSMENT, THE REOPENING OF 143(3) ASSESSMENT IS A MERE I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 5 CHANGE OF OPINION AND PRAYED THAT THE ORDER PASSED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT SHOULD BE QUASHED. 6. ON THE OTHER HAND, THE LD. DR HAS STRONGLY SUPPO RTED THE ORDERS OF THE LD. CIT(A) AND SUBMITTED THAT THE RELEVANT ASSESSMENT YEAR IS 2000 - 01 AND NOTICE UNDER SECTION 148 OF TH E ACT WAS ISSUED ON 28.03.2005, WHICH IS WITHIN 4 YEARS. THE ASSESSEE HAS REQUESTED FOR REASONS LEADING TO REOPENING OF ASSESSMEN T AND THE SAME WERE COMMUNICATED TO ASSESSEE AND NOTICES UNDER SECTION 143(2)/142(1) WERE ALSO ISSUED AND THEREAFTER, BY CONSIDERING VARIOUS DETAILS FILED BY THE ASSESSEE, THE ASSESSMENT UNDER SECTION 143(3) R.W.S. 147 OF THE ACT HAS BEEN VALIDLY COMPLETED . 7. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WITH REGARD TO REOPENING OF ASSESSMENT, THE ASSESSEE HAS RAISED THE FOLLOWING SUB - GROUNDS: 2.1 THE CIT(A) ERRED IN UPHOLDING THE REOPEN ING OF ASSESSMENT U/S 147. 2.2 THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE REOPENING OF ASSESSMENT IS BASED ON MERE CHANGE OF OPINION BASED ON THE SAME MATERIALS AVAILABLE ON RECORD. 2.3 THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE 143(2) NOTICE WAS NOT ISSUED WITH THE STIPULATED PERIOD. 7.1 WITH REGARD TO REOPENING OF ASSESSMENT [AS RAISED IN 2.1 & 2.2], WE OBSERVED THAT A FTER THE INTRODUCTION OF CHANGES W.E.F. 1 ST APRIL, 1989, T HE SCOPE OF REASSESSMENT WAS WIDENED VIS A VIS THE POSITION OF LAW AS IT STOOD I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 6 EARLIER. AFTER THE AMENDMENT, THE MAIN RESTRICTION PUT IN THE SECTION IS REASON TO BELIEVE . THE CASES OF NON - ASSESSMENT OF AN ITEM OF INCOME CHARGEABLE TO TAX WOULD WARRANT FORMATION OF REQUISITE BELIEF TO INITIATE THE PROCEEDINGS WITHIN FOUR YE ARS OF THE END OF THE RELEVANT ASSESSMENT YEAR, EVEN WHERE FULL DISCLOSURE WERE MADE AND YET AN INCOME CHARGEABLE TO TAX HAD ESCAPED FROM BEING INCLUDED IN THE FINAL ASSESSMENT ORDER IN WHICH TAXABLE INCOME WAS WORKED OUT. IN SUCH CASES, THE ASSESSING OFFI CER HAS, IN FACT, A DUTY TO EXERCISE HIS JURISDICTION. THE ASSESSEE IN SUCH CASES CANNOT DEFEND THE INITIATION OF ACTION ON THE GROUND THAT THE FACTS WERE ALREADY PLACED ON RECORD. IT IS TRUE THAT THE ASSESSEE HA S FURNISHED ALL DETAILS BEFORE THE ASSESSING OFFICER WHO ASSESSED UNDER SECTION 143(3) OF THE ACT. HOWEVER, IT CANNOT BE SAID THAT MERE PRODUCTION OF THE ACCOUNT BOOKS BEFORE THE ASSESSING OFFICER WOULD AMOUNT TO DISCLOSURE AS PER EXPLANATION 1 TO SECTION 147 OF THE ACT. EXPLANATION 2 TO SECTION 147 ENACTS CERTAIN DEEMING PROVISIONS WHERE IN ANY OF THE CIRCUMSTANCES STATED THEREIN, INCOME IS DEEMED TO HAVE ESCAPED ASSESSMENT GIVING JURISDICTION TO THE ASSESSING OFFICER TO ACT UNDER SECTION 147 OF THE ACT. THE FACT THAT THE ASSESSING OFFICER COULD HAV E FOUND OUT THE CORRECT POSITION BY FURTHER PROBING THE MATTER DOES NOT EXONERATE THE ASSESSEE FROM THE DUTY TO MAKE A FULL AND TRUE DISCLOSURE OF THE MATERIAL FACTS. THEREFORE, W E ARE OF THE CONSIDERED OPINION THAT IF ANY ITEM HAS ESCAPED FROM ASSESSMENT WHICH OTHERWISE INCLUDIBLE WITHIN THE ASSESSMENT AND THE ASSESSING OFFICER NOTICES IT I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 7 SUBSEQUENTLY BY HIS OWN INVESTIGATION OR BY REASON OF SOME FORMATION RECEIVED BY HIM, ONE CANNOT SAY THAT IT CONSTITUTES CHANGE OF OPINION. 7.2 HOWEVER, THE ASSESSEE H AS ALSO RAISED A GROUND WITH REGARD TO SERVICE OF NOTICE UNDER SECTION 143(2) OF THE ACT IN GROUND NO. 2.3, O NCE THE ORIGINAL RETURN FILED BY THE ASSESSEE WAS SUBJECT TO PROCESSING UNDER SECTION 143(1) OF THE ACT, THE PROCEDURE OF ASSESSMENT PURSUANT TO SU CH A RETURN, IN OUR OPINION CAME TO AN END, SINCE THE ASSESSING OFFICER DID NOT ISSUE ANY NOTICE WITHIN THE 6 MONTHS PERIOD MENTIONED IN PROVISO TO SECTION 143(2)(II). NO DOUBT, IF THE INCOME HAS BEEN UNDERSTATED OR THE INCOME HAS ESCAPED ASSESSMENT, AN AS SESSING OFFICER IS HAVING THE POWER TO ISSUE NOTICE UNDER SECTION 148 OF THE IT ACT. IN THIS CASE, NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED ON 28.03.2005. THE ASSESSEE FILED REPLY DATED 25.04.2005 AND REQUESTED THAT THE RETURN FILED EARLIER ON 29.11. 2000 MAY BE TREATED AS RETURNED FILED IN RESPONSE TO NOTICE UNDER SECTION 148 OF THE ACT. FURTHER, THE ASSESSEE HAS REQUESTED FOR REASONS LEADING TO REOPENING OF ASSESSMENT AND ACCORDINGLY REASONS FOR REOPENING OF ASSESSMENT WERE COMMUNICATED TO THE ASSESS EE. AFTER ISSUANCE OF NOTICE UNDER SECTION 148 OF THE ACT ON 28.03.2005, WHETHER THE ASSESSING OFFICER HAS ISSUED ANY VALID NOTICE UNDER SECTION 143(2)/142(1) OF THE ACT IS TO BE SEEN. I T IS OBLIGATORY TO ISSUE NOTICE UNDER SECTION 143(2) OF THE ACT AFTER THE REQUEST BY THE ASSESSEE TO TREAT HIS ORIGINAL RETURN AS FILED IN PURSUANCE TO NOTICES UNDER SECTION 148 OF THE ACT I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 8 WAS RECEIVED. THIS REQUEST, IN THE GIVEN CASE, HAS BEEN MADE ONLY ON 25. 0 4. 200 5 . ANY ISSUE OF NOTICE PRIOR TO THAT DATE CANNOT BE TREATED AS A NOTICE ON A RETURN FILED BY THE ASSESSEE PURSUANT TO A NOTICE UNDER SECTION 148 OF THE ACT. OR IN OTHER WORDS, THERE WAS NO VALID ISSUE OF NOTICE UNDER SECTION 143(2) OF THE IT ACT, AND THE ASSESSMENTS WERE DONE WITHOUT FOLLOWING THE MANDATORY REQUIR EMENT UNDER SECTION 143(2) OF THE IT ACT. THIS , IN OUR OPINION, RENDERS THE SUBSEQUENT PROCEEDINGS ALL INVALID. IN PARA 2 OF THE ASSESSMENT ORDER DATED 16.01.2006, THE ASSESSING OFFICER HAS MENTIONED THAT NOTICE U/S 143(2)/142(1) WAS ISSUED ON 16.2.2005 C ALLING FOR PARTICULARS AS UNDER: . THIS IS QUITE CONTRARY SINCE THE ASSESSEE VIDE ITS REPLY DATED 25.04.2005 REQUESTED THAT THE RETURN FILED EARLIER I.E. ON 29.11.2000 MAY BE TREATED AS RETURN FILED IN RESPONSE TO THE NOTICE DATED 28.03.2005 UNDER SECTION 148 AND ANY NOTICE ISSUED PRIOR TO 25.04.2005 CANNOT BE TREATED AS A NOTICE ON A RETURN FILED BY THE ASSESSEE PURSUANT TO A NOTICE UNDER SECTION 148 OF THE ACT. HOWEVER, IN THE APPELLATE ORDER, THE LD. CIT(A) HAS MENTIONED AT PARA 4.2.1 THAT SUBSEQUENTLY, THE AO HAS ISSUED NOTICE U/S 142(1) & 143(2) DATED 16.6.2005 SEEKING CERTAIN DETAILS FROM THE APPELLANT . IN THE ABSENCE OF FILING OF COPY OF THE NOTICE 143(2)/142(1) OF THE ACT, AND SINCE THE ISSUANCE AND SERVICE OF NOTICE UNDER SECTION 143 (2) OF THE AC T IS MANDATORY IN VIEW OF THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF ACIT & ANR. VS. HOTEL BLUE MOON: [(2010) 321 ITR 362 (SC)] , WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 9 DIRECT THE LD. CIT(A) TO VERIFY AS TO WHETHER NOTICE 1 43(2) OF THE ACT IS ISSUED AND SERVED ON THE ASSESSEE AFTER SERVICE OF NOTICE UNDER SECTION 148 OF THE ACT AND ASSESSEE S REPLY THEREON AND IF NO NOTICE UNDER SECTION 143(2) OF THE ACT IS ISSUED, THEN THE ORDER PASSED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT SHOULD BE TREATED AS NOT LEGALLY VALID AND LIABLE TO BE QUASHED IN VIEW OF THE RATIO LAID DOWN BY THE DELHI BENCHES OF ITAT IN THE CASE OF MEENAKSHI AGARWAL & ORS V. ITO IN I.T.A. NOS. 4171 TO 4175/DEL/2015 FOR THE ASSESSMENT YEAR 2003 - 04 VIDE ORDER DATED 16.10.2015 . WITH THE ABOVE OBSERVATION, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE LD. CIT(A) TO DECIDE THE ISSUE AFRESH. SINCE THE EXISTENCE/VALIDITY OF THE ORDER PASSED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT IS TO BE DECIDED AFRESH BY THE LD. CIT(A), THE ISSUE RAISED ON MERIT REQUIRES NO ADJUDICATION. THUS, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 8. NOW, WE SHALL TAKE CROSS APPEALS FOR ADJUDICATION IN THE CASE OF THE ASSESSEE M/S. E .I.D. PARRY (INDIA) LTD. [I.T.A. NO. 2414/MDS/2014 AY 2000 - 01]. THE FIRST GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN UPHOLDING THE REOPENING OF ASSESSMENT UNDER SECTION 147 OF THE ACT. 8.1 THE ASSESSEE HAS FURNISHED THE R ETURN OF INCOME ON 27.11.2000 DECLARING INCOME OF .1,31,74,657/ - UNDER NORMAL COMPUTATION AND BOOK I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 10 PROFIT OF .16,44,17,840/ - UNDER SECTION 115JB OF THE ACT. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE ACT ON 28.11 .2001 AND REFUND OF .37,20,905/ - WAS GRANTED. 8.2 ON VERIFICATION OF RETURN OF INCOME, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS UNDER STATED THE INCOME OR HAS CLAIMED EXCESS LOSS AND DEPRECIATION AS DETAILED BELOW: (1) CAPITAL EXPENDITURE CLAIM ED TO BE INCURRED FOR MODERNISATION OF SUGAR MILLS AT NELLIKUPPAM SUGAR FACTORY AMOUNTING TO .6,50,52,353/ - , RIGHT ISSUE EXPENSES OF .5,88,670/ - , EURO ISSUE EXPENSES OF .46,24,786/ - , INCENTIVE RECEIVED FROM GOVERNMENT OF .39,28,729/ - , WHICH ARE CLAIMED AS REVENUE EXPENDITURE NOT ALLOWABLE. (2) CONSULTING CHARGES AND REGISTRATION CHARGES OF .50,13,750/ - WHICH WAS CONSIDERED WHILE COMPUTING THE CAPITAL GAINS AND AGAIN DEBITED TO P&L ACCOUNT IS NOT IN ORDER AND HENCE INADMISSIBLE. (3) SALES TAX PENALTY OF .23,26,597/ - IS NOT ADMISSIBLE BEING EXPENDITURE INCURRED FOR INTRACTION OF LAW. (4) EXCESS CLAIM OF DEPRECIATION ON THE RCC FLOORING OF A BUILDING. (5) CONTRIBUTION TO BENEVOLENT FUND OF .2,53,903/ - AND SOCIAL SECURITIES FUND OF .13,81,603/ - AR E NOT ADMISSIBLE AS PER SEC. 40(A)(A) OF THE ACT. (6) WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB, THE PROVISION OF DOUBTFUL DEBT AND ADVANCES OF .3,31,28,694/ - AND PROVISION FOR WEALTH TAX OF .15 LAKHS WHICH ARE FOUND TO BE CONTINGENT LIABILIT IES WHICH ARE ADMITTED TO BE ADDED T O THE NET PROFIT AS PER P&L A/C. 8.3 AS THE INCOME CHARGEABLE TO TAX FOR THE REASON STATED ABOVE HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT, A NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED ON 25.08.2003. ON 27.05.2004, A I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 11 NOTICE UNDER SECTION 142(1) OF THE ACT WAS ISSUED AND ALSO ISSUED A LETTER ON 25.05.2005 EXPLAINING THE REASON FOR REOPENING OF ASSESSMENT. THE ASSESSEE OBJECTED THE PROPOSAL OF REOPENING OF ASSESSMENT UNDER SECTION 147 OF THE ACT SINCE THE ENTIRE FACT AND DETAILS HAVE BEEN FURNISHED ALONG WITH THE RETURN OF INCOME AND ALSO ARGUED THAT REOPENING OF ASSESSMENT IS FRESH APPLICATION OF MIND ON SAME SET OF FACTS IS NOT PERMISSIBLE. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND BY RELYING ON VARIOUS DECISIONS, THE ASSESSING OFFICER HAS HELD THAT THE REOPENING OF ASSESSMENT HAS BEEN VALID DONE AND ACCORDINGLY COMPLETED THE ASSESSMENT UNDER SECTION 143(3) R.W.S. 147 OF THE ACT BY MAKING VARIOUS ADDITIONS. 8.4 THE ASSESSEE CARR IED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING VARIOUS DECISIONS, THE LD. CIT(A) HAS CONFIRMED THE ORDER OF THE ASSESSING OFFICER WITH REGARD TO VALIDITY OF REOPENING OF ASSESSMENT UNDER S ECTION 147 OF THE ACT. 8.5 ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 8.6 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THIS CASE, SCRUTINY ASSESSMENT UNDER 143(1) OF THE ACT WAS COMPLETED ON 28.11.2001 AND REFUND WAS ALSO GRANTED. HOWEVER, ON VERIFICATION OF THE RETURN OF INCOME, THE ASSESSING I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 12 OFFICER HAS NOTICED THAT THE INCOME CHARGEABLE TO TAX FOR VARIOUS REASONS, AS REPRODUCED HEREINABOVE AT PARA 8.2, HAS ESCAP ED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT. THEREFORE, NOTICE UNDER SECTION 148 OF THE ACT HAS BEEN ISSUED TO THE ASSESSEE AND THEREAFTER, NOTICE UNDER SECTION 142(1) OF THE ACT HAS ISSUED TO THE ASSESSEE. THE REASONS FOR REOPENING OF ASSES SMENT WERE ALSO COMMUNICATED TO THE ASSESSEE. 8.7. BEFORE US, THE CONTENTION OF THE AR IS THAT THE REASSESSMENT WAS DONE ONLY ON THE BASIS OF SAME SET OF FACTS, WHICH WERE ALREADY AVAILABLE ON RECORD AND IT CANNOT BE A GROUND FOR REOPENING OF THE ASSESS MENT. IT IS A SETTLED LAW THAT ON THE BASIS OF MATERIAL, PRIMA FACIE, AVAILABLE BEFORE THE ASSESSING OFFICER, OPINED THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT CAN BE FORMED. THE WORD REASON IN THE PHRASE REASON TO BELIEVE WOULD MEAN CAUSE OR JUSTIFICATION. IN CASE THE ASSESSING OFFICER HAS A CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE THAT INCOME HAS ESCAPED ASSESSMENT, ACTION U NDER SECTION 148 OF THE ACT CAN BE TAKEN. BUT OBVIOUSLY, THERE SHOULD BE RELEVANT MATERIAL ON WHICH A REASONABLE MAN C OULD HAVE FORMED A REQUISITE BELIEF. WHETHER THIS MATERIAL(S) WOULD CONCLUSIVELY PROVE THE ESCAPEMENT OF INCOME IS NOT THE CONCERN AT THAT PARTICULAR STAGE. SO WHAT IS REQUIRED IS THE SUBJECTIVE SATISFACTION OF THE ASSESSING OFFICER BASED ON OBJECTIVE MATE RIAL EVIDENCE. IN THE GIVEN CAS E, THE SCRUTINY ASSESSMENT UNDER SECTION 143(1) OF THE ACT WAS COMPLETED ON I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 13 28 . 11 .20 01 . THE REASON FOR REOPENING WAS RECORDED AS DISCUSSED ABOVE. THE ARGUMENT OF THE LD. AR IS THAT UNDER SECTION 147 OF THE ACT IN CASE THE ASS ESSMENT ORDER IS COMPLETED, AS HAS BEEN DONE IN THIS CASE, NO ACTION COULD BE TAKEN UNLESS THE ASSESSEE HAS DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT FOR THAT ASSESSMENT YEAR, INTER ALIA. 8.8 FURTHER, T HE LD. AR CONTENDED T HAT IN THIS CASE, THE ASSESSING OFFICER DO NOT HAVE ANY TANGIBLE FRESH MATERIAL FOR THE REASSESSMENT FOR THAT ASSESSMENT YEAR. AS SEEN FROM THE REASONS RECORDED WHICH GIVES A CLEAR PICTURE THAT THE ASSESSING OFFICER HAS GOT MATERIAL EVIDENCE TO FORM HIS OP INION THAT INCOME HAS ESCAPED ASSESSMENT THAT IS WHY HE REOPENED THE ASSESSMENT AND ISSUED NOTICE UNDER SECTION 148 OF THE ACT. THERE CANNOT BE TWO OPINIONS. AT THAT POINT OF TIME OF REOPENING WHEN THE REASONS ARE RECORDED AFTER FORMING OPINION OF ESCAPE MENT OF INCOME IS ONLY RELEVANT. HENCE, THE PLEA OF THE LD. AR IS NOT TENABLE IN THE EYES OF LAW. UNDER SECTION 147, THE ASSESSING OFFICER CAN EITHER ASSESS OR RE - ASSESS BUT FOR TAKING ACTION THERE UNDER, HE HAS TO RECORD REASONS THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IT IS ALSO MANDATED BY SECTION 148(2) TO RECORD REASONS IN WRITING. THE REASSESSMENT PROCEEDINGS UNDER SECTION 147 OF THE A CT ARE FURTHER SUBJECT TO SECTIONS 148,149,150,151,152 AND 153 OF THE ACT . BUT IN THE PRESENT CASE, WE A RE REQUIRED TO DECIDE THE LIMITED ISSUE REGARDING THE VALIDITY OF PROCEEDINGS UNDERTAKEN WITHIN FOUR YEARS OF THE I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 14 ASSESSMENT YEAR IN QUESTION. THE ASSESSING OFFICER IS REQUIRED TO SEE IF THE CONDITIONS LAID IN EXPLANATION 2(C) BECAUSE IN THIS CASE THE SCRU TINY ASSESSMENT WAS COMPLETED U/S 14 3 ( 1 ) OF THE ACT ARE SATISFIED OR NOT. IN CASE, (I) INCOME CHARGEABLE TO TAX HAS BEEN UNDER ASSESSED; OR (II) SUCH INCOME HAS BEEN ASSESSED AT TOO LOW RATE; OR(III) SUCH INCOME HAS BEEN MADE THE SUBJECTIVE OF EXCESS RELIE F UNDER THIS ACT; OR (IV) EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTED, THE ASSESSING OFFICER WOULD HAVE VALID COGNIZANCE U/S 147 OF THE ACT. THE REASONS RECORDED BY THE ASSESSING OFFICER CLEARLY DEMONSTR ATES THAT THOUGH THE ASSESSEE PRODUCED BOOKS OF ACCOUNT, THE DISCREPANCY NOTICED BY THE ASSESSING OFFICER CAN ONLY BE POINTED OUT THAT DUE DILIGENT OF ASSESSING OFFICER. AS SUCH, THE PRODUCTION OF BOOKS ITSELF CANNOT CONSTITUTE FULL DISCLOSURE OF ALL MATER IAL FACTS FOR THE PURPOSE OF ASSESSMENT. BEING SO, WE ARE SATISFIED THAT THE ASSESSING OFFICER HAS REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. THIS FACT CONFERS JURISDICTION ON THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT. THE POWER UNDER SE CTION 147 TO RE - ASSESS THE INCOME POST 1ST APRIL, 1989 ARE MUCH WIDER THAN THESE USED TO BE BEFORE. BUT STILL THE SCHEMATIC INTERPRETATION OF THE WORDS REASON TO BELIEVE FAILING WHICH SECTION 147 WOULD GIVE ARBITRARILY POWERS TO THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT ON THE POWER TO AN ASSESSING OFFICER TO REOPEN ANY AND EVERY ASSESSMENT ORDER WHICH WOULD SIMPLY AMOUNT TO A REVIEW. THE CONCEPT CHANGE OF OPINION IS AN IN - BUILT TEST TO I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 15 CHECK THE ABUSE OF POWER BY THE ASSESSING OFFICER. ON THE BASI S OF CHANGE OF OPINION , WHICH CANNOT BE PER SE A REASON TO REOPEN THE ASSESSMENT. IN OUR OPINION, AS SEEN FROM THE ABOVE REASONS RECORDED, THE ASSESSING OFFICER WOULD HAVE ASCERTAINED THE ESCAPEMENT OF INCOME AT THE TIME OF ORIGINAL ASSESSMENT ALSO ONLY WITH DUE DILIGENT. HENCE, THE REOPENING IS HELD TO BE VALID. EVEN OTHERWISE, IT IS THE DUTY OF THE ASSESSEE TO BRING ALL THE FACTS TO THE KNOWLEDGE OF THE ASSESSING OFFICER AT THE TIME OF ORIGINAL ASSESSMENT AND ONLY JUST FILING OF DOCUMENTS AT THE TIME OF ASSESSMENT IS NOT ENOUGH AND HE SHOULD BE DREW THE ATTENTION OF THE ASSESSING OFFICER TO ALL NECESSARY MATERIAL. CONSEQUENTLY, WE HOLD THAT THE ENTIRE ASSESSMENT IN THIS CASE IS VALID AND THEREFORE, THE REOPENING OF ASSESSMENT IS UPHELD. THUS, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 9. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE EXPENSES TOWARDS MILL MODERNISATIONS SHOULD BE TREATED AS CAPITAL IN NATURE. 9.1 DURING THE COURSE OF REAS SESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS DEBITED A SUM OF .6,50,52,353/ - IN THE NAME OF MILL MODERNISATION EXPENSES AND HE CALLED FOR THE REASON AS TO WHY SUCH EXPENDITURE SHOULD NOT BE TREATED AS A CAPITAL EXPENDITURE. THE ASSESSEE REPLIED TO THE ASSESSING OFFICER STATING THAT THERE WAS A REPLACEMENT OF MILLS W HICH WERE FUNCTIONING IN THE FACTORY FOR MORE THAN 20 I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 16 YEARS WHICH NECESSITATED REPLACEMENT IN ORDER TO STABILIZE THE EXISTING CRASHING RATE OF 5000 TCD AND TO IMPROVE THE EFFICIENCY OF THE PLANT BY REDUCING THE DOWN FIRE AND MAINTENANCE FIRE. IT FURTHER ST ATED BEFORE THE ASSESSING OFFICER THAT THE RESULT OF REPLACEMENT DID NOT BRING OF NEW ASSET OF ENDURING NATURE AND SUPPORTED THE CLAIM OF EXPENDITURE AS REVENUE EXPENDITURE. 9.2 HOWEVER, THE ASSESSING OFFICER HAS OPINED THAT THE CLAIM OF THE ASSESSEE THA T THE REPLACEMENT OF MACHINERY AS CURRENT REPAIRS UNDER SECTION 37 OF THE ACT AND RENOVATION OF MACHINERY DESIGNED TO INCREASE ITS VALUE OF RUNNING CAPACITY WILL NOT CONSTITUTE CURRENT REPAIRS. THEREFORE, HE CONCLUDED IT AS CAPITAL EXPENDITURE BY STATING T HAT THE REPLACEMENT OF ENTIRE MACHINERY WILL INCREASE ITS VALUE AND ITS RUNNING CAPACITY WITH EFFICIENCY WHICH WILL CERTAINLY HAVE ENDURING BENEFIT AND DISALLOWED THE SUM OF .6,50,52,353/ - AS CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE. 9.3 THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 9.4 AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 9.5 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE LD. COUNSEL FOR THE ASSESSEE, I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 17 WHILE REITERATING THE SUBMISSIONS AS MADE BEFORE THE AUTHORITIES BELOW, HAS STRONGLY CONTENDED THAT THERE WAS NO CHANGE IN THE CRUSHING CAPACITY OF THE SUGAR PLANT CONSEQUENT UPON THE REPLACEMENT OF THE MILLS. AS A RESULT OF REPLACEMENT, NO NEW ASSETS OF ENDURING NATURE CAME INTO EXISTENCE . THE MILLS WERE REPLACED AGAINST THE EXISTING MILLS AND THERE WAS NO INCREASE IN THE CAPACITY OF THE SUGAR PLANT AT ALL, HENCE THE CLAIM OF THE EXPENDITURE AS REVENUE EXPENDITURE UNDER SECTION 37 OF THE ACT BE UPHELD. IT RELIED ON THE FOLLOWING DECISIONS: (I) CIT V. CO - OPERATIVE SUGARS LTD, 235 ITR 343 (1999) (KERALA HC) (SUPREME COURT HAS DISMISSED THE SPECIAL LEAVE PETITION FILED BY THE D EPARTMENT AGAINST THIS JUDGMENT REPORTED IN 234 ITR (ST.) 31 - ED. (II) ALEMBIC CHEMICALS WORKS CO LTD V. CIT, 177 ITR 0377 (SC) IT DISTINGUISHED THE DECISION OF BALLIMAL NAVAL KISHORE V. CIT, 224 ITR 0141 (SC) REFERRED BY THE AO IN THE NOTICE U/S 148. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED AS UNDER: 5.2 I HAVE CAREFULLY C ONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE ID.AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE ID.AR AND THE AO. THE EXPENDITURE INCURRED FOR MILL MODERNIZATION IS IN THE FORM OF REPLACING THE EXISTING OLD MILLS BY NEW MILLS. THE FUNCTIONING OF NEW MILLS ARE EXACTLY THE SAME AS THAT OF THE OLD ONES. WHEN THE OLD MILLS WERE TAKEN AS CAPITAL EXPENDITURE SINCE THEY ARE PART OF PLANT AND MACHINERY OF THE COMPANY, THE NEW MILLS WHICH HAVE REPLACED THE OLD ONES SHOULD ALSO PARTAKE THE C HARACTER THE PLANT AND MACHINERY WHICH IS CAPITAL IN NATURE. THEREFORE, IN MY OPINION, THE EXPENDITURE INCURRED IN ACQUIRING NEW MILLS IS CAPITAL IN NATURE. THE GROUND RAISED BY THE APPELLANT IS DISMISSED. 9.6 THE LD. DR HAS RELIED ON THE DECISION THE CAS E OF CIT V. SRI MANGAYARKARASI MILLS P. LTD. [2009] 315 ITR 114 (SC), WHEREIN, THE HON BLE SUPREME COURT HAS HELD AS UNDER: I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 18 THE ENTIRE TEXTILE MILL MACHINERY FOR SPINNING YARN CANNOT BE REGARDED AS A SINGLE ASSET, REPLACEMENT OF PARTS OF WHICH CAN BE CONS IDERED TO BE FOR THE MERE PURPOSE OF 'PRESERVING OR MAINTAINING' THE ASSET. ALL PARTS PUT TOGETHER CONSTITUTE THE PRODUCTION PROCESS AND EACH SEPARATE MACHINE PART IS AN INDEPENDENT ENTITY. REPLACEMENT OF SUCH AN OLD MACHINE PART WITH A NEW ONE WOULD CONST ITUTE THE BRINGING INTO EXISTENCE OF A NEW ASSET IN PLACE OF THE OLD ONE AND NOT REPAIR OF THE OLD EXISTING MACHINE. IN THE CASE OF TEXTILE MACHINERY REPAIR OF A MACHINE CAN AT BEST AMOUNT TO A REPAIR MADE TO THE PROCESS OF MANUFACTURE OF YARN AND CANNOT B E SAID TO BE 'CURRENT REPAIRS' WITHIN THE MEANING OF SECTION 31 OF THE INCOME - TAX ACT, 1961. 9. 7 AS PER THE ABOVE RATIO LAID DOWN BY THE HON BLE SUPREME COURT, WE ARE OF THE CONSIDERED OPINION THAT THE REPLACEMENT OF ENTIRE MILL CANNOT BE CLAIMED AS CUR RENT REPAIRS IN TERMS OF SECTION 37 OF THE ACT. ACQUIRING NEW MILL BY REPLACING THE EXISTING MILL SHALL DEFINITELY INCREASE THE EFFICIENCY AND RUNNING CAPACITY AND TO ENJOY ENDURING BENEFIT, THE ASSESSEE HAS REPLACED THE ENTIRE MILL FOR WHICH THE ASSESSEE HAS INCURRED EXPENDITURE CANNOT BE TREATED AS REVENUE EXPENDITURE. THE ASSESSEE HAS ACQUIRED NEW ASSET UNDER THE BANNER OF MODERNISATION WHICH IS IN THE NATURE OF CAPITAL ASSET AND THE EXPENDITURE SO INCURRED SHOULD BE TREATED AS CAPITAL EXPENDITURE. THU S, THE GROUND RAISED BY THE ASSESSEE CANNOT STAND BEFORE THE EYES OF LAW OR THE LAW LAID DOWN BY THE HON BLE SUPREME COURT IN THE CASE OF CIT V. SRI MANGAYARKARASI MILLS P. LTD. (SUPRA), WHICH SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 19 10. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN HOLDING THAT RCC FLOORING IN ETP PLANT IS NOT ENTITLED TO 100% DEPRECIATION. 10. 1 THE ASSESSEE HAS CLAIMED DEP RECIATION ON RCC FLOORING IN ETP PLANT OF .25,17,823/ - . THE ASSESSING OFFICER HAS OBSERVED THAT THE CLAIM OF THE ASSESSEE ON DEPRECIATION @ 100% ON RCC FLOORING OF 11000 SQ.MTRS WAS EXCESSIVE AND IMPROPER, AND THEREFORE CALLED FOR EXPLANATION FROM THE ASS ESSEE. THE ASSESSEE EXPLAINED THAT THE CAPITAL EXPENDITURE WAS INCURRED FOR THE PURPOSE OF SPECIAL NATURE OF RCC FLOORING FOR DISPOSING OFF EFFLUENT AS PER THE REQUIREMENT OF TAMILNADU POLLUTION CONTROL BOARD AND CENTRAL POLLUTION CONTROL BOARD. SINCE THE ASSESSEE COULD NOT FURNISH ANY EVIDENCE FOR THE SPECIAL NATURE OF RCC FLOORING AND THE RCC FLOORING ITSELF CANNOT BE A WATER POLLUTION CONTROL EQUIPMENT IN ORDER TO QUALIFY 100% DEPRECIATION AND MOREOVER THE CLAIM OF 100% DEPRECIATION ON RCC FLOORING IS NO T LISTED IN THE IT RULES, BY ALLOWING 10% DEPRECIATION, THE ASSESSING OFFICER DISALLOWED THE BALANCE CLAIM OF THE ASSESSEE. 10.2 THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. C IT(A) HAS OBSERVED THAT THE EFFLUENT TERMED AS 'SPENT WASH' IS MIXED WITH 'PRESSMUD' ON THE CONCRETE FLOOR AND KEPT FOR 45 DAYS SO AS TO REDUCE THE POLLUTION CONTENT OF THE EFFLUENT. THIS PROCESS IS FOLLOWED AS PER THE TAMILNADU POLLUTION CONTROL I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 20 BOARD AND CENTRAL POLLUTION CONTROL BOARD. HOWEVER, THIS PROCESS HAS NOTHING TO DO WITH THE CONSTRUCTION OF RCC FLOOR SINCE THE RCC FLOOR IS NOT A PART OF POLLUTION CONTROL MACHINERY OR INSTRUMENT WHICH CAN ENTAIL FOR 100% DEPRECIATION FORMING PART OF WATER POLLUTI ON EQUIPMENT. ACCORDINGLY, HE DISMISSED THE GROUND RAISED BY THE ASSESSEE. 10.3 THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 10.4 WE HAVE HEARD RIVAL CONTENTIONS AND OBSERVED THAT IT MAY BE TRUE THAT THE EFFLUENT TERMED AS 'SPENT WASH' IS MIXED WITH 'P RESSMUD' ON THE CONCRETE FLOOR AND KEPT FOR 45 DAYS SO AS TO REDUCE THE POLLUTION CONTENT OF THE EFFLUENT, WHICH MAY BE REQUIREMENT OF THE TAMILNADU POLLUTION CONTROL BOARD AND CENTRAL POLLUTION CONTROL BOARD. BUT, WE ARE OF THE OPINION THAT THIS PROCESS H AS NOTHING TO DO WITH THE CONSTRUCTION OF RCC FLOOR OR IT IS A PART OF POLLUTION CONTROL MACHINERY OR INSTRUMENT, WHICH CAN ENTAIL FOR 100% DEPRECIATION FORMING PART OF POLLUTION EQUIPMENT. FURTHER, THE ASSESSEE COULD PRODUCE ANY EVIDENCE FOR THE SPECIAL N ATURE OF RCC FLOORING AND THE RCC FLOORING ITSELF CAN BE A POLLUTION CONTROL EQUIPMENT IN ORDER TO QUALIFY 100% DEPRECIATION . MOREOVER, THE CLAIM OF 100% DEPRECIATION ON RCC FLOORING IS NOT LISTED IN THE IT RULES, THE ASSESSING OFFICER HAS ALLOWED 10% DEPR ECIATION AND THE BALANCE CLAIM OF THE ASSESSEE WAS DISALLOWED, THUS, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS VALIDLY CONFIRMED BY I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 21 THE LD. CIT(A) AND REQUIRES NO INTERFERENCE FROM OUR SIDE. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS DISMIS SED. 11. COMING TO THE REVENUE S APPEAL IN I.T.A. NO. 2370/MDS/2014, THE FIRST GROUND RAISED IS THAT THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE SUGAR INCENTIVE RECEIVED BY THE ASSESSEE AS CAPITAL RECEIPT AS AGAINST THE REVE NUE RECEIPT TREATED BY THE ASSESSING OFFICER. 11.1 IN THE REASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE COMPANY HAS RECEIVED SUGAR INCENTIVE OF .39,28,729 FROM THE GOVERNMENT OF INDIA FOR THE SUGAR FACTORY AT PUGALUR AND CLAIMED IT AS CAPITAL RECEIPT. IT WAS THE SUBMISSION BEFORE THE ASSESSING OFFICER THAT THE DIFFERENCE AMOUNT BETWEEN THE ACTUAL FREE MARKET REALIZATION PRICE AND THE LEVY PRICE ON THE INCENTIVE QUOTA OF SUGAR IS RECEIVED IN THE FORM OF SUGAR INCENTIVE WHICH WAS UTILIZED FOR REPAYMENT OF LOAN TAKEN FOR EXPAN SION OF THE FACTORY AND IN SUPPORT OF THAT, THE ASSESSEE RELIED ON THE DECISION OF CALCUTTA HIGH COURT IN THE CASE OF BALARPUR CHINNI MILLS LTD V. CIT, 238 ITR 445 AND CHENNAI ITATS DECISION IN THE CASE OF TAMILNADU SUGARS CORPN LTD. V. ITO, 48 ITR 345. HO WEVER, THE ASSESSING OFFICER HAS OBSERVED THAT THIS INCENTIVE GRANTED BY THE GOVERNMENT OF INDIA ARE TO BE UTILIZED FOR THE REPAYMENT OF LOAN FOR SETTING UP OF NEW SUGAR FACTORY OR FOR EXPANSION OF THE PROJECT FOR WHICH INDUSTRIAL LICENCE WAS OBTAINED'. S INCE NO SUCH EVENT HAS TAKEN PLACE AND THE ASSESSEE HAS FAILED TO ADDUCE ANY SORT OF EVIDENCE TO PROVE ITS I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 22 CONTENTION, THE ASSESSING OFFICER TREATED THE SUGAR INCENTIVE RECEIVED FROM GOVERNMENT AS REVENUE RECEIPT AND BROUGHT TO TAX. 11.2 ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY RELYING ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT V. PONNI SUGARS & CHEMICALS LTD. IN CIVIL APPEAL NO. 5694 OF 2008 AND IN A BATCH OF APPEALS CIVIL APPEAL NO. 571/08 IN THE CASE OF E ID PARRY INDIA LTD., THE LD. CIT(A) TREATED THE SUGAR INCENTIVE RECEIVED FROM THE GOVERNMENT AS CAPITAL RECEIPT. 11.3 AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 11.4 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROU GH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSING OFFICER TREATED THE SUGAR INCENTIVE RECEIVED FROM GOVERNMENT BY THE ASSESSEE AS REVENUE RECEIPT. BY RELYING ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT V. PONNI SUGARS & CHEMICALS LTD. ( SUPRA) , THE LD. CIT(A) HELD THAT THE SUGAR INCENTIVE RECEIVED BY THE ASSESSEE IS CAPITAL RECEIPT. HOWEVER, WE FIND THAT THE RELIANCE PLACED BY THE LD. CIT(A) IN THE CASE OF CIT V. PONNI SUGARS & CHEMICALS LTD. 260 ITR 605 PERTAINS TO THE ASSESSMENT YEAR 19 89 - 90, WHICH IS PRIOR TO INSERTION OF EXPLANATION 10 TO SECTION 43(1) OF THE ACT WHICH ARE APPLICABLE FROM THE ASSESSMENT YEAR 1999 - 2000. MOREOVER, THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 23 ASSESSMENT YEAR 2004 - 05 IN I.T.A. NO. 70 5/MDS/2010 DATED 02.08.2011, WHEREIN, THE TRIBUNAL HAS OBSERVED THAT THE SUGAR INCENTIVE RECEIVED FROM GOVERNMENT SHOULD BE REVENUE IN NATURE BY RELYING ON THE DECISION OF THE HON BLE SUPREME COURT IN THE SAHNEY STEEL AND PRESS WORKS LTD. V. CIT 228 ITR 25 3. HOWEVER, THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISION IN THE CASE OF CIT V. BANNARI AMMAN SUGARS LTD. [2012] 349 ITR 708 , WHEREIN, THE HON BLE SUPREME COURT HAS OBSERVED AS UNDER: 5. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF SUGAR. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 1997 - 98. IN ITS RETURN OF INCOME, CONFINED TO ITS KARNATAKA UNIT, THE ASSESSEE VALUED THE CLOSING STOCK OF INCENTIVE SUGAR (FREE SUGAR) AT LEVY PRICE. THE DEPAR TMENT VALUED THE CLOSING STOCK OF INCENTIVE SUGAR AT COST WHEREAS THE ASSESSEE CLAIMED THAT THE SAID STOCK SHOULD BE VALUED AT LEVY PRICE WHICH WAS LESS THAN THE COST. THIS IS THE BASIC CONTROVERSY WHICH ARISES FOR DETERMINATION IN THESE CIVIL APPEALS. 6. TO ANSWER THE ABOVE CONTROVERSY, THE FOLLOWING FACTS ARE REQUIRED TO BE NOTED. BY VIRTUE OF THE PROVISIONS OF THE ESSENTIAL COMMODITIES ACT, 1955, AND THE SUGAR CONTROL ORDER READ WITH THE NOTIFICATION ISSUED THEREUNDER, A SUGAR MANUFACTURER (ASSESSEE IN THIS CASE) WAS REQUIRED TO SELL 40 PER CENT. OF HIS SUGAR PRODUCTION AT THE NOTIFIED LEVY PRICE TO THE PUBLIC DISTRIBUTION SYSTEM. AT THE RELEVANT TIME, ON AN AVERAGE, THE LEVY PRICE CAME TO BE LESS THAN THE MANUFACTURERS' COST OF PRODUCTION. CONSEQUENTLY , IT WAS FOUND BY THE MANUFACTURERS THAT UNDER THE ABOVE PRICE CONTROL REGIME, THE ESTABLISHMENT OF NEW SUGAR MANUFACTURING UNITS WAS NOT VIABLE. IT WAS FOUND THAT EVEN THE EXISTING SUGAR MANUFACTURING UNITS HAD BECOME UNVIABLE AND UNECONOMICAL. THEREFORE, AN INCENTIVE SCHEME WAS FRAMED, AS SUGGESTED BY THE SAMPAT COMMITTEE, WHICH COMMITTEE WAS SET UP TO EXAMINE THE ECONOMIC VIABILITY OF ESTABLISHING NEW SUGAR FACTORIES AND EXPANDING THE EXISTING FACTORIES. THE SAMPAT COMMITTEE GAVE ITS REPORT. UNDER THE RE PORT, AN INCENTIVE SCHEME WAS EVOLVED. THE SAID INCENTIVE SCHEME PROVIDED FOR AN INDUCEMENT FOR PERSONS TO SET UP NEW SUGAR FACTORIES OR TO EXPAND THE EXISTING ONE. UNDER THE SCHEME, 40 PER CENT. OF THE TOTAL SUGAR PRODUCTION WAS PERMITTED TO BE SOLD AT MA RKET PRICE ('INCENTIVE SUGAR' FOR SHORT). HOWEVER, THE SCHEME PROVIDED THAT EXCESS AMOUNT REALIZED BY THE MANUFACTURER OVER THE LEVY PRICE BY SALE OF INCENTIVE SUGAR WOULD BE UTILIZED ONLY FOR REPAYMENT OF LOANS TAKEN FROM THE BANKS/ FINANCIAL INSTITUTIONS FOR ESTABLISHING THE NEW UNIT(S). IN REGARD TO UTILIZATION OF EXCESS REALIZATION TOWARDS REPAYMENT OF LOANS, THE SUGAR MILLS I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 24 WERE DIRECTED TO FILE CERTIFICATE OF CHARTERED ACCOUNTANT SUBJECT TO WHICH FURTHER RELEASE ORDERS WOULD BE ISSUED BY THE DIRECTORA TE OF SUGAR. THIS SCHEME CAME UP FOR CONSIDERATION BEFORE THIS COURT IN THE CASE OF CIT V. PONNI SUGARS AND CHEMICALS LTD. [2008] 306 ITR 392 (SC) IN WHICH THIS COURT HELD THAT THE EXCESS AMOUNT REALIZED BY THE MANUFACTURER OVER THE LEVY PRICE BY SALE OF I NCENTIVE SUGAR SHOULD BE TREATED AS A CAPITAL RECEIPT WHICH WAS NOT TAXABLE UNDER THE INCOME - TAX ACT, 1961. IN THAT CASE, ONE OF THE ARGUMENTS ADVANCED ON BEHALF OF THE DEPARTMENT, AS IN THIS CASE, WAS THAT THE EXCESS AMOUNT REALIZED BY THE MANUFACTURER OV ER THE LEVY PRICE SHOULD BE TREATED AS A REVENUE RECEIPT. HOWEVER, THAT CONTENTION OF THE DEPARTMENT IN PONNI SUGARS AND CHEMICALS LTD. (SUPRA) WAS NEGATIVED ALTHOUGH IN THE CONTEXT OF ANOTHER SCHEME THIS COURT AFTER EXAMINING THE SCHEME IN THE CASE OF SAH NEY STEEL AND PRESS WORKS LTD. V. CIT [1997] 228 ITR 253 (SC) HELD THAT THE EXCESS AMOUNT REALIZED WAS A REVENUE RECEIPT. THE JUDGMENT IN SAHNEY STEEL AND PRESS WARKS LTD. (SUPRA) WAS CONSIDERED IN PONNI SUGARS AND CHEMICALS LTD. (SUPRA). APPLYING THE 'PUR POSE TEST' THIS COURT HELD IN PONNI SUGARS AND CHEMICALS LTD. (SUPRA) THAT THERE IS NO STRAIT JACKET PRINCIPLE FOR COMING TO THE CONCLUSION AS TO WHETHER THE EXCESS AMOUNT WAS A REVENUE RECEIPT OR A CAPITAL RECEIPT. THE COURT HELD THAT IT WOULD DEPEND ON T HE SCHEME. THE COURT ALSO HELD IN PONNI SUGARS AND CHEMICALS LTD. (SUPRA) THAT THE PURPOSE TEST SHOULD BE APPLIED ON CASE TO CASE BASIS. THE COURT HELD THAT IT WOULD DEPEND ON THE PURPOSE OF THE INCENTIVE SCHEME. AS STATED, THE PRESENT CASE, RELATES TO THE VALUATION OF THE RESPONDENT'S CLOSING STOCK OF INCENTIVE SUGAR AS ON MARCH 31, 1997, CORRESPONDING TO THE ASSESSMENT YEAR 1997 - 98. 7. VALUATION OF OPENING AND CLOSING STOCK IS A VERY IMPORTANT ASPECT OF ASCERTAINMENT OF TRUE PROFITS. AN IMPROPER VALUAT ION COULD RESULT IN REJECTION OF BOOKS OF ACCOUNT THOUGH ALL THAT IS NEEDED FOR RECTIFYING IT, IS TO MAKE AN ADDITION OR NECESSARY ADJUSTMENT BASED ON PROPER VALUATION. VALUATION OF STOCK, WHATEVER BE THE METHOD, SHOULD BE CONSISTENTLY FOLLOWED. METHOD OF VALUATION IS GENERALLY AT COST OR THE MARKET VALUE, WHICHEVER OF THE TWO IS LOWER. HOWEVER, IT IS OPEN TO THE ASSESSING OFFICER TO PROBE THE ACCOUNTS, SO AS TO ARRIVE AT THE REAL INCOME (SEE CHAINRUP SAMPATRAM V. CIT [1953] 24 ITR 481). 8. PROFITS OF TH E BUSINESS COULD ONLY BE ASCERTAINED BY COMPARISON OF ASSETS AND LIABILITIES OF THE BUSINESS AT THE OPENING AND CLOSING OF THE ACCOUNTING YEAR. THE METHOD THAT AN ASSESSEE ADOPTS FOR CLOSING IS AN INTEGRAL PART OF ACCOUNTING, WITHIN THE MEANING OF SECTION 145. THERE ARE DIFFERENT METHODS OF VALUATION OF CLOSING STOCK. THE POPULAR SYSTEM IS COST OR MARKET, WHICHEVER IS LOWER. HOWEVER, ADJUSTMENTS MAY HAVE TO BE MADE IN THE PRINCIPLE HAVING REGARD TO THE SPECIAL CHARACTER OF ASSETS, THE NATURE OF THE BUSINESS , THE APPROPRIATE ALLOWANCES PERMITTED, ETC., TO ARRIVE AT TAXABLE PROFITS. IN THE PRESENT CASE, IT IS THE CASE OF THE ASSESSEE, THAT FOLLOWING THE JUDGMENT OF THIS COURT IN PONNI SUGARS AND CHEMICALS LTD. (SUPRA) THE I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 25 CLOSING STOCK OF INCENTIVE SUGAR SHOUL D BE ALLOWED TO BE VALUED AT LEVY PRICE, WHICH ON FACTS, IS FOUND TO BE LESS THAN THE COST OF MANUFACTURE OF SUGAR (COST PRICE). WE FIND MERIT IN THIS CONTENTION. IN PONNI SUGARS AND CHEMICALS LTD. (SUPRA), THIS COURT, ON EXAMINATION OF THE SCHEME, HELD TH AT, THE EXCESS REALIZATION WAS A CAPITAL RECEIPT, NOT LIABLE TO BE TAXED AND IN VIEW OF THE SAID JUDGMENT, WE HOLD, THAT THE ASSESSEE IS RIGHT IN VALUING THE CLOSING STOCK AT LEVY PRICE. AS STATED, IN CERTAIN CASES, ADJUSTMENTS MAY HAVE TO BE MADE HAVING REGARD TO THE SPECIAL CHARACTER OF ASSETS, THE NATURE OF THE BUSINESS, THE APPROPRIATE ALLOWANCES PERMITTED, ETC., IN ORDER TO ARRIVE AT TAXABLE PROFITS. THE POSITION WOULD HAVE BEEN DIFFERENT, IF AS IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. (SUPRA) THIS COURT ON EXAMINATION OF THE RELEVANT SCHEME IN QUESTION HELD THAT SUCH EXCESS AMOUNT WAS A REVENUE RECEIPT. THIS JUDGMENT, THEREFORE, IS CONFINED TO THE SAMPAT COMMITTEE REPORT WHICH HAS PROVIDED INCENTIVES IN THE FORM OF PRICE AND DUTY DIFFERENTIALS (SEE PARA. 13 OF THE JUDGMENT IN PONNI SUGARS AND CHEMICALS LTD. (SUPRA). IN THE PRESENT CASE, IF THE CLOSING STOCK OF INCENTIVE SUGAR WAS TO BE VALUED AT ANY FIGURE, ABOVE THE LEVY PRICE, THE DIRECT CONSEQUENCE OF SUCH A VALUATION WOULD HAVE BEEN THAT TH E EXCESS AMOUNT OVER THE LEVY PRICE WOULD BE REFLECTED AS PART OF BUSINESS INCOME WHICH WOULD RUN COUNTER TO THE JUDGMENT OF THIS COURT IN PONNI SUGARS AND CHEMICALS LTD. (SUPRA). WE MUST KEEP IN MIND THAT THE STOCK VALUATION OF INCENTIVE SUGAR HAS A DIREC T IMPACT ON THE MANUFACTURER'S REVENUE OR BUSINESS PROFITS. IF WE WERE TO ACCEPT THE CASE OF THE DEPARTMENT THAT THE EXCESS AMOUNT REALIZED BY THE MANUFACTURER(S) OVER THE LEVY PRICE WAS A REVENUE RECEIPT TAXABLE UNDER THE ACT THEN THE VERY PURPOSE OF THE INCENTIVE SCHEME FORMULATED BY THE SAMPAT COMMITTEE WOULD HAVE BEEN DEFEATED. ONE CANNOT HAVE A STOCK VALUATION WHICH CONVERTS A CAPITAL RECEIPT INTO REVENUE INCOME. 9. FOR THE ABOVE REASONS, THE CIVIL APPEALS FILED BY THE DEPARTMENT ARE HEREBY DISMISSED WITH NO ORDER AS TO COSTS. 11.5 RESPECTFULLY FOLLOWING THE ABOVE RATIO LAID DOWN IN THE DECISION OF THE HON BLE SUPREME COURT, WE HOLD THAT THE SUGAR INCENTIVE RECEIVED BY THE ASSESSEE SHOULD BE CAPITAL RECEIPT AND NOT REVENUE RECEIPT. THUS, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 12. THE NEXT GROUND RAISED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE EXPENDITURE OF I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 26 .20 LAKHS FOR THE NEGOTIATION OF ACQUISITION OF JOHNSON PEDDAR LTD. AS REVENUE EXPENDITURE. 12.1 IN THE REASS ESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS DEBITED A SUM OF .50,13,750/ - TOWARDS CONSULTING CHARGES. THIS EXPENDITURE WAS CLAIMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF NEGOTIATION OF ACQUISITION OF ANOTHER CERAMIC DIV ISION JOHNSON PEDDAR LTD. TO THE EXTENT OF .20 LAKHS AND FOR THE PURCHASE OF TILES UNIT OF .30,13,750/ - . IT WAS ALSO OBSERVED BY THE ASSESSING OFFICER THAT THE AMOUNT OF .50,13,750/ - WAS REDUCED FROM THE SALE CONSIDERATION WHILE COMPUTING THE SALE CONSI DERATION FOR THE PURPOSE OF CAPITAL GAINS. SINCE THE ASSESSEE HAS STATED THAT THE EXPENDITURE ARE CAPITAL IN NATURE, THE CLAIM OF SUCH EXPENDITURE AS REVENUE EXPENDITURE WAS NOT ACCEPTED BY THE ASSESSING OFFICER AND THUS, THE CONSULTATION CHARGES PAID OF .50,13,750/ - WAS DISALLOWED. 12.2 ON APPEAL, BY FOLLOWING THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. CARBORANDUM UNIVERSAL LTD. [2008 - TIOL - 344 - HC - MAD - IT] DATED 18.06.2008, THE LD. CIT(A) HAS HELD THAT THE CONSULTATION CHA RGES SHOULD BE TAKEN AS REVENUE EXPENDITURE. 12.3 AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 27 12.4 WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE BEFORE US FOR ADJUDICATION IS WHETHER THE CONSULTAN CY CHARGES PAID BY THE ASSESSEE IS WHETHER REVENUE EXPENDITURE OR CAPITAL EXPENDITURE. THE ASSESSING OFFICER TREATED THE CONSULTANCY CHARGES AS CAPITAL EXPENDITURE. THE LD. CIT(A) HAS HELD THAT THE CONSULTANCY CHARGES PAID BY THE ASSESSEE SHOULD BE TREATED AS REVENUE EXPENDITURE B Y FOLLOWING THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. CARBORANDUM UNIVERSAL LTD.(SUPRA), WHEREIN, BY FOLLOWING ITS OWN DECISION IN THE CASE OF CIT V. CROMPTON ENGINEERING CO. LTD. [2000] 242 ITR 31 7, THE HON BLE HIGH COURT HAS OBSERVED AS UNDER: 2. THE FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS A COMPANY ENGAGED IN THE MANUFACTURE AND SALE OF INDUSTRIAL CERAMICS. THE ASSESSEE, FOR THE RELEVANT ASSESSMENT YEARS, HAD CLAIMED A SUM OF RS.75 L AKHS BEING FEES PAID TO M/S. MCKINSEY & CO., MANAGEMENT CONSULTANTS. THE CLAIM WAS MADE ON THE GROUND THAT THE SAID AMOUNT WAS PAID TOWARDS PROFESSIONAL FEES FOR ASSESSMENT OF MARKET ATTRACTIVENESS OF ASSESSEE'S BUSINESS IN TERMS OF GAINING GLOBAL MARKET, REPUTISE ON DEALING WITH GLOBAL MARKETS, EVALUATION OF ASSESSEE'S BUSINESS ABILITY TO COMPETE, ANALYSIS OF BUSINESS'S FUTURE GROWTH TREND, DEVELOPMENT DETAILED BUSINESS STRATEGIES FOR ASSESSEE TO GROW IN THE DYNAMIC BUSINESS ENVIRONMENT. THE ASSESSING OFFI CER WAS OF THE OPINION THAT THE AMOUNT WAS PAID TOWARDS REORGANIZATION OF BUSINESS WHICH WOULD HAVE LONG - TERM BENEFITS AND THEREFORE, THE SAME SHOULD BE ALLOWED ONLY IN FIVE EQUAL INSTALMENTS OVER A PERIOD OF FIVE YEARS. THUS, HE ALLOWED A SUM OF RS. 15 LA KHS AND ADDED THE SUM OF RS. 60 LAKHS TO THE INCOME. THE ACTION OF THE ASSESSING OFFICER WAS CONFIRMED BY THE CIT(A) ON APPEAL BY THE ASSESSEE. AGAINST THAT ORDER THE ASSESSEE PREFERRED AN APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL HELD THAT NO NEW BUSINESS HAS BEEN STARTED BY THE ASSESSEE - COMPANY AND CONSULTANCY SERVICES WERE RECEIVED ONLY TOWARDS RESTRUCTURING OF THE BUSINESS. THEREFORE, IT CANNOT BE SAID THAT IT IS A CAPITAL EXPENDITURE. ON THAT I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 28 REASONING, THE TRIBUNAL SET ASIDE THE ORDER OF THE LOWER AUTH ORITIES AND ALLOWED THE ASSESSEE'S APPEAL. 3. IT IS THE FURTHER CASE OF THE REVENUE THAT THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS. 38,73,450 AS INTEREST PAID ON CAPITAL BORROWED FOR EXPANSION OF ASSESSEE'S BUSINESS. THE ASSESSING OFFICER ADDED THE ENTIRE INTEREST TO THE COST OF THE FIXED ASSET BY REJECTING THE CLAIM OF THE ASSESSEE THAT THE EXPENDITURE IS REVENUE IN NATURE. AGAINST THAT FINDING, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) SUSTAINED THE ORDER OF THE ASSESSING O FFICER. AGAINST THAT ORDER THE ASSESSEE PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL FOLLOWING THE DECISION OF THIS COURT IN THE CASE OF SAME ASSESSEE IN CIT V. CARBARANDUM UNIVERSAL LTD [2006] 205 CTR (MAD.) 498 SET ASIDE THE ORDER OF THE CIT( A) AND DELETED THE ADDITIONS AND ALLOWED THE ASSESSEE'S APPEAL. AGGRIEVED BY THE SAID ORDER, THE APPELLANT HAS PREFERRED THIS APPEAL. 4. HEARD THE LEARNED COUNSEL ON EITHER SIDE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. 5. IT IS WELL - SETTLED THA T IT IS NOT ONLY PERMISSIBLE, BUT IS ALSO NECESSARY FOR ANY BUSINESS TO UPDATE ITS OWN KNOWLEDGE AND ADOPT BETTER WAYS OF ORGANISING ITS BUSINESS, IF IT IS TO SURVIVE IN THE MARKET. THE EXPENDITURE INCURRED FOR SUCH PURPOSE CANNOT BE REGARDED AS CAPITAL EX PENDITURE AND IT IS ONLY A REVENUE EXPENDITURE. THE ASSESSEE, WITH AN INTENTION OF BRINGING ABOUT IMPROVEMENTS IN THE WAY IT DID ITS BUSINESS, HAD SOUGHT FOR AND OBTAINED REPORTS OF THE CONSULTANT FOR ASSESSMENT OF MARKET ATTRACTIVENESS IN TERMS OF GAINING GLOBAL MARKET, REPUTISE ON DEALING WITH GLOBAL MARKETS, EVALUATION OF ASSESSEE'S BUSINESS ABILITY TO COMPETE, ANALYSIS OF THE FUTURE GROWTH TREND OF THE BUSINESS, DEVELOPMENT OF DETAILED BUSINESS STRATEGIES FOR THE ASSESSEE TO GROW IN THE DYNAMIC BUSINESS ENVIRONMENT. THE FEES PAID TO THE CONSULTANT WAS DISALLOWED BY THE REVENUE OFFICIALS AS CAPITAL EXPENDITURE ON THE PREMISE THAT THE BENEFITS DERIVED FROM SUCH CONSULTANCIES WOULD ENURE TO THE FUTURE YEARS ALSO. ACCORDING TO THE LEARNED COUNSEL FOR THE ASS ESSEE, THIS QUESTION OF LAW IS COVERED AGAINST THE REVENUE BY THE DECISION OF THIS COURT IN THE CASE OF CIT V. CROMPTON ENGINEERING CO. LTD. [2000] 242 ITR 317 (MAD.), IN WHICH IT WAS HELD AS FOLLOWS: 'MERELY OBTAINING A REPORT FROM THE MANAGEMENT CONSUL TANT AND PAYING THE FEES THEREFOR, COULD NOT BE REGARDED AS CAPITAL EXPENDITURE AS SUCH REPORT WAS NOT OBTAINED AS PART OF DOCUMENTATION PACKAGES, BUT WAS OBTAINED IN A CONTRACT COVERING I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 29 COMPREHENSIVE RESTRUCTURING OF THE BUSINESS INVOLVED. NO NEW LINE OF BUSINESS WAS STARTED ON THE STRENGTH OF THE REPORT OF THE CONSULTANTS. THE REPORT WAS NOT REGARDED AS ESSENTIAL PART FOR ANY NEW BUSINESS THAT THE ASSESSEE COMMENCED THEREAFTER. IN THE CIRCUMSTANCES OF THE CASE, THE EXPENDITURE INCURRED BY THE ASSESSEE, IN OBTAINING THAT REPORT WAS CLEARLY AN EXPENDITURE OF THE REVENUE IN CHARACTER.' HENCE, THE FIRST QUESTION OF LAW IS COVERED AGAINST THE ASSESSEE (SIC - REVENUE). 12.5 BEFORE US, THE REVENUE HAS NOT FILED ANY MATERIAL TO CONTROVERT THE FINDINGS OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE ABOVE REFERRED CASE. WE FIND THAT THE FACTS OF THE PRESENT ARE SIMILAR TO THE CASE AS DECIDED BY THE HON BLE JURISDICTIONAL HIGH COURT. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE JURISDICTIONAL HI GH COURT, THE GROUND RAISED IN THE APPEAL OF THE REVENUE IS DISMISSED. 13. THE NEXT GROUND RAISED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE UNDER SECTION 40A(9) OF THE ACT IN RESPECT OF BENEVOLENT FUND OF .2,53,903/ - AND SOCIAL SECURITY BENEVOLENT FUND OF .13,81,603/ - . IN THE ASSESS MENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE ABOVE CONTRIBUTIONS MADE BY THE ASSESSEE ARE NOT COVERED WITHIN THE PURVIEW OF SECTION 40A(9) OF THE ACT AND ACCORDINGLY, HE DISALLOWED THE SAME. ON APPEAL, BY FOLLOWING THE DECISION OF THE TRIBUNAL I N ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2001 - 02 IN I.T.A. NO. 236/MDS/2005 & 150/MDS/2005, THE LD. CIT(A) REMITTED THE MATTER BACK TO THE ASSESSING OFFICER TO DECIDE AFRESH BY CONSIDERING THE DIRECTIONS OF THE I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 30 TRIBUNAL FOR THE ASSESSMENT YEAR 1994 - 95 AND 1995 - 96 IN I.T.A. NOS. 987 & 988/MDS/2002 DATED 31.03.2006. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT ADMITTEDLY, IN THE ASSESSMENT YEARS 2004 - 05 AND 2006 - 07 IN I.T.A. NOS. 705 & 706/MDS/2010 VIDE ORDER DATED 02.08.2011, THE COORDINATE BEN CH OF THE TRIBUNAL HAS CONSIDERED SIMILAR ISSUE AND DECIDED AGAINST THE ASSESSEE, WHEREIN, THE TRIBUNAL HAS OBSERVED AS UNDER: 12. THE NEXT ISSUE IS REGARDING DISALLOWANCE OF CONTRIBUTION TO EMPLOYEES RECREATION & SPORTS CLUB. THE FACTS OF THIS ISSUE ARE THAT THE ASSESSEE - COMPANY HAD MADE CONTRIBUTIONS TO THE FOLLOWING FUNDS: (I) CONTRIBUTION TO DEATH RELIEF SCHEME - . 17,617 (II) CONTRIBUTION TO BENEVOLENT SCHEME - . 99,714 (III) CONTRIBUTION TO SOCIAL SECURITY FUND - . 12,68,962 (IV) CONTRIBUTION TO EMPLOYEES RECREATION & SPORTS CLUB - . 1,70,255 13. THE ASSESSING OFFICER HAD DISALLOWED THESE CONTRIBUTIONS IN VIEW OF THE PROVISIONS OF SECTION 40A(9) OF THE ACT. THE CASE OF THE ASSESSEE IS THAT ALL THE CONTRIBUTIONS HAVE BEEN MADE BY THE COMPANY UNDER COMMERCIAL EXPEDIENCY IN THE COURSE OF BUSINESS HENCE, ARE ALLOWABLE U/S 37 AS BUSINESS DEDUCTION. THE ID. C IT(A) HAS ALLOWED ALL THESE CONTRIBUTIONS EXCEPT THE CONTRIBUTION TOWARDS EMPLOYEES RECREATION & SPORTS CLUB AMOUNTING TO RS. 1,70,255/ - . THE REASON FOR DISALLOWANCE OF THIS CONTRIBUTION IS BASED ON THE DECISION OF ITAT, AHMEDABAD IN THE CASE OF NATIONAL D AIRY DEVELOPMENT BOARD VS. ADDL. CIT, 310 ITR (AT) 325, IN WHICH IT HAS BEEN HELD THAT CONTRIBUTION MADE TO THE EMPLOYEES RECREATION CLUB IS NOT ALLOWABLE AS DEDUCTION U/S 40A(9) OF THE ACT. 14. BEFORE US IT WAS ARGUED BY THE ID.AR THAT TOWARDS THIS CON TRIBUTION SECTION 40A(9) IS NOT APPLICABLE. ON THE OTHER HAND, THE LD. DR HAS RELIED ON THE ORDER OF THE ID. CIT(A). 15. AFTER HEARING BOTH SIDES, WE HAVE FOUND THAT THIS ISSUE STANDS SQUARELY COVERED BY THE DECISION OF ITAT, AHMEDABAD IN THE CASE CITED SUPRA AGAINST THE ASSESSEE. THE ID.AR HAS NOT BEEN ABLE TO FURNISH ANY CONTRARY DECISION. THEREFORE, WE CANNOT ALLOW THIS ISSUE IN FAVOUR OF THE ASSESSEE AND THE SAME STANDS DISMISSED. I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 31 13.1 RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BEN CH OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR EARLIER ASSESSMENT YEARS, THE GROUND RAISED BY THE REVENUE IS ALLOWED. 14. THE NEXT GROUND RAISED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF .3,31,28,964/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBT AND ADVANCES WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JA OF THE ACT. 14.1 AT THE OF HEARING BOTH PARTIES HAVE AGREED THAT THE ABOVE ISSUE RAISED BY THE REVENU E IS COVERED AGAINST THE ASSESSEE IN VIEW OF THE ORDER OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2001 - 02 IN I.T.A. NOS. 236 & 150/MDS/2005 VIDE ORDER DATED 21.04.2006. WE HAVE PERUSED THE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL A ND THE TRIBUNAL, WHILE CONSIDERING SIMILAR ISSUE, HAS OBSERVED AS UNDER: 10. THE NEXT ISSUE ARISES FOR CONSIDERATION IN THE ASSESSEE S APPEAL IS REGARDING PROVISION FOR BAD DEBT WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JA OF THE INCOME TAX ACT. WE HE ARD THE LEARNED COUNSEL FOR THE ASSESSEE AND THE LEARNED D.R. THE MADRAS HIGH COURT IN THE CASE OF DCIT V. BEARDSELL LTD. (2000) (244 ITR 256) CONSIDERED THE ISSUE OF PROVISION FOR BAD DEBT IN THE CONTEXT OF BOOK PROFIT UNDER SECTION 115J. THE MADRAS HIGH COURT HELD THAT THE PROVISION FOR BAD DEBT CANNOT BE EXCLUDED FROM BOOK PROFIT. BY RESPECTFULLY FOLLOWING THE JUDGEMENT OF THE MADRAS HIGH COURT IN THE CASE OF BEARDSELL LTD. (SUPRA), WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE. I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 32 14.2 RESPECTFULLY, FO LLOWING THE ABOVE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, WE REVERSE THE FINDINGS OF THE LD. CIT(A) AND ALLOW THE GROUND RAISED BY THE REVENUE. 15. THE LAST GROUND RAISED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN HOLDING THAT WEALTH TAX PAID BY THE ASSESSEE CANNOT BE DEDUCTED IN THE COMPUTATION OF THE BOOK PROFITS. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE HAS MADE A PROVISION OF .15 LAKHS. SINCE INCOME TAX INCLUDE WEALTH TAX ALSO AS PER SECTION 40(A)(IIA) OF THE ACT, THE PROVISION FOR WEALTH TAX WA S ADDED UNDER S ECTION 115JA OF THE ACT AND RELIED ON THE DECISION IN THE CASE OF CIT V. FEHJOY FORGINGS PVT. LTD. 252 ITR 15. HOWEVER, THE ASSESSING OFFICER WAS OF THE OPINION THAT SINCE THE ASSESSEE HAS MERELY MADE A PROVISION FOR THE WEALTH TAX LIABILITY, HE HELD THAT THE CASE LAW RELIED ON BY THE ASSESSEE IS NOT APPLICABLE AND ACCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE. 15.1 O N APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING THE ORDER OF HIS PREDECESSOR FOR THE ASSESSMENT YEAR 2007 - 08, THE LD. CIT(A) ALLOWED THE GROUND RAISED BY THE ASSESSEE. 15.2 AFTER HEARING BOTH SIDES, WE FIND THAT THE WEALTH TA X LIABILITY, THOUGH IT IS AN ASCERTAINED LIABILITY, WHICH IS RELATED TO THE PROPERTIES ON WHICH NO INCOME/BOOK PROFIT HAS BEEN RECEIVED BY THE ASSESSEE AND THEREFORE, THE I.T.A. NO S . 2413, 2414 & 2370/MDS/2 014 33 WEALTH TAX IS NOT AN ALLOWABLE CLAIM IN THE COMPUTATION OF BOOK PROFIT. ACCORDINGLY, WE REVERSE THE FINDINGS OF THE LD. CIT(A) AND ALLOW THE GROUND RAISED BY THE ASSESSEE. 16. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE IN I.T.A. NO. 2413/MDS/2014 IS ALLOWED FOR STATISTICAL PURPOSES, I.T.A. NO. 2414/MDS/2014 IS DISMISSED AND THE APPEAL FILED BY THE REVENUE IN I.T.A. NO. 2370/MDS/2014 IS PARTLY ALLOWED. ORDER PRONOUNCED ON THE 28 TH JUNE, 201 6 AT CHENNAI. SD/ - SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 28 .0 6 .201 6 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.