DCIT CIR 6(3), MUMBAI V. GREAVES COTTON LTD, MUMBAI

ITA 2575/MUM/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1483 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 09-03-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 05-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS ARTI VISSANJI
• Assessee Lawyers: VIKASH KUMAR AGARWAL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Depreciation; Transfer pricing; Principle of natural justice; International transaction; Earning of tax free income; Fair market value; Capital receipt; Unabsorbed depreciation; Rule 8D; Set aside
• Section: 92C; 50C; 14A; 115JB; 40(a)(ia); 10B; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K , MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO. A.Y. APPELLANT RESPONDENT 2482/MUM/15 2005-06 GREAVES COTTON LIMITED, UNIT NO. 701, 7 TH FLOOR, TOWER 3, EQUINOX BUSINESS PARK, LBS MARG, KURLA (W), MUMBAI [PAN: AAACG2062M] ASST. COMMISSIONER OF INCOME TAX, CIRCLE-6(3), MUMBAI (BEFORE RESTRUCTURING) ASST. COMMISSIONER OF INCOME TAX, CIRCLE-7(1)(1), MUMBAI (AFTER RESTRUCTURING) 2575/MUM/15 2005-06 DCIT, CIR. 7(1)(1), MUMBAI GREAVES COTTON LIMITED, UNIT NO. 701, 7 TH FLOOR, TOWER 3, EQUINOX BUSINESS PARK, LBS MARG, KURLA (W), MUMBAI [PAN: AAACG2062M] APPELLANT BY : MRS. ARTI VISSANJI, RESPONDENT BY : SHRI VIKASH KUMAR AGARWAL, DATE OF HEARING : 12 - 03 - 201 9 DATE OF PRONOUNCEMENT : 15 - 03 - 201 9 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER D ATED 24-02-2015 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-56, MUMBAI AND THEY RELATE TO THE AY. 2005-0 6. ITA NOS. 2482 & 2575/MUM/15 : 2 : 2. THE FACTS RELATING TO THE ISSUE ARE STATED IN BRIEF. T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF MARINE AND INDUSTRIAL GEARBOXES, DIESEL ENGINES AND GENERATING SETS ETC. THE ASSESSEE FILED ITS RETURN OF I NCOME FOR THE YEAR UNDER CONSIDERATION DECLARING TOTAL INCOME AT N IL UNDER THE NORMAL PROVISIONS OF THE INCOME TAX ACT (AC T) AND DECLARING RS. 8484.51 LAKHS AS BOOK PROFITS U/S. 115 JB OF THE ACT. THE AO COMPLETED THE ASSESSMENT BY MAKING VARIO US ADDITIONS. 3. IN THE APPEAL FILED BY THE ASSESSEE BEFORE THE LD. CIT(A), THE ASSESSEE GOT PARTIAL RELIEF. 4. AGGRIEVED BY THE ORDER PASSED BY THE LD. CIT(A), B OTH THE PARTIES ARE IN APPEAL BEFORE US. WE SHALL FIRST TAKE UP THE COMMON ISSUES IN THE APPEALS OF BOTH THE PARTIES. 5. THE FIRST COMMON ISSUE RELATES TO DISALLOWANCE MADE U/S. 14A OF THE ACT WHILE COMPUTING TOTAL INCOME: 5.1. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS. 306.46 LAKHS AND CL AIMED THE SAME AS EXEMPT. THE ASSESSEE DID NOT MAKE ANY DISALL OWANCE ITA NOS. 2482 & 2575/MUM/15 : 3 : U/S. 14A OF THE ACT. THE AO, HOWEVER, COMPUTED THE DISALLOWANCE BY APPLYING THE PROVISIONS OF RULE 8D A ND ACCORDINGLY, DISALLOWED A SUM OF RS. 351.06 LAKHS, WHICH CONSISTED OF DISALLOWANCE MADE OUT OF INTEREST EXPENDITU RE OF RS.331.54 LAKHS AND DISALLOWANCE MADE OUT OF ADMINISTRATIVE EXPENSES OF RS.19.51 LAKHS. 5.2. DURING THE APPELLATE PROCEEDINGS, THE LD. CIT(A) TOOK SUPPORT OF THE DECISION RENDERED BY THE HON'BLE BOMBA Y HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LTD., [328 ITR 81] AND HELD THAT THE PROVISIONS OF RULE 8D CANNOT BE APPLIED TO THE YEAR UNDER CONSIDERATI ON, BEING THE YEAR PRIOR TO AY 2008-09. THE HON'BLE BOMB AY HIGH COURT IN THE ABOVE SAID CASE HAD EXPRESSED THE VIEW THA T THE DISALLOWANCE U/S. 14A FOR THE AYS. 2007-08 AND EARLI ER YEARS SHOULD BE WORKED OUT ON A REASONABLE BASIS AND NOT U NDER RULE 8D. ACCORDINGLY, LD. CIT(A) CONFIRMED THE DISA LLOWANCE TO THE EXTENT OF RS. 19.48 LAKHS, AS HE CONSIDERED THE SAME TO BE A REASONABLE AMOUNT OF DISALLOWANCE. BOTH THE PART IES ARE AGGRIEVED BY THE DECISION RENDERED BY THE LD. CIT(A) ON THIS ISSUE. ITA NOS. 2482 & 2575/MUM/15 : 4 : 5.3. LD. AR SUBMITTED THAT THE TRIBUNAL HAS BEEN CONSISTENTLY FOLLOWING THE DECISION RENDERED BY THE HON 'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GODREJ AGROV ET LTD (ITA NO. 934/2011, DT. 08-01-2013), WHEREIN THE HON'B LE BOMBAY HIGH COURT HAS CONFIRMED THE ORDER PASSED BY THE ITAT IN CONFIRMING THE DISALLOWANCE U/S. 14A OF THE ACT AT 2% OF THE DIVIDEND INCOME. HE FURTHER SUBMITTED THAT THE AB OVE SAID DECISION WAS RENDERED BY THE HON'BLE BOMBAY HIG H COURT FOR THE AY. 2005-06 ONLY. ACCORDINGLY, THE LD. AR SU BMITTED THAT THE DISALLOWANCE MAY BE RESTRICTED TO 2% OF THE DIVI DEND INCOME. 5.4. ON THE CONTRARY, LD. DR SUPPORTED THE ORDER PASS ED BY THE LD. CIT(A). 5.5. HAVING HEARD THE RIVAL SUBMISSIONS, WE ARE OF TH E VIEW THAT THERE IS MERIT IN THE CONTENTIONS OF LD. COUNSEL FOR THE ASSESSEE. ACCORDINGLY BY FOLLOWING THE DECISION REN DERED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GODREJ AGROVET LTD (SUPRA), WE MODIFY THE ORDER PASSED BY THE LD. CIT(A) AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE U/ S. 14A OF THE ACT TO 2% OF THE DIVIDEND INCOME EARNED BY THE ASSESSEE. ITA NOS. 2482 & 2575/MUM/15 : 5 : 6. THE NEXT COMMON ISSUE RELATES TO DISALLOWANCE OF EXPENDITURE RELATING TO EXEMPT INCOME FOR THE PURPO SE OF COMPUTING BOOK PROFITS U/S. 115JB OF THE ACT: 6.1. THE AO ADOPTED DISALLOWANCE MADE BY HIM U/S. 14 A OF THE ACT WHILE COMPUTING TOTAL INCOME, FOR THE PURPOSE OF COMPUTING THE BOOK PROFIT ALSO. THE LD. CIT(A) ALSO D IRECTED THE AO TO ADD THE AMOUNT OF DISALLOWANCE CONFIRMED BY HIM U/S 14A OF THE ACT, FOR THE PURPOSE OF COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 6.2. BOTH THE PARTIES ARE AGGRIEVED. 6.3. WE HEARD BOTH THE PARTIES ON THIS ISSUE. LD. AR P LACED RELIANCE ON THE DECISION RENDERED BY THE DELHI SPECIA L BENCH OF ITAT IN THE CASE OF VIREET INVESTMENT PVT. LTD., [165 ITD 27] AND CONTENDED THAT THE AMOUNT COMPUTED U/S. 14A OF THE ACT CANNOT BE ADOPTED FOR THE PURPOSE OF SECTION 115JB OF TH E ACT. 6.4. ON THE CONTRARY, LD. DR SUPPORTED THE ORDER PASS ED BY LD. CIT(A). 6.5. WE NOTICE THAT THE DELHI SPECIAL BENCH OF ITAT IN THE CASE OF VIREET INVESTMENT PVT. LTD., ((SUPRA)) HELD THAT THE ITA NOS. 2482 & 2575/MUM/15 : 6 : AMOUNT DISALLOWED U/S. 14A CANNOT BE IMPORTED FOR THE PURPOSE OF SECTION 115JB OF THE ACT, MEANING THEREBY, T HE AO IS REQUIRED TO COMPUTE DISALLOWANCE FOR THE PURPOSE OF CLAUSE(F) OF EXPLANATION (1) TO SECTION 115JB OF THE A CT IN AN INDEPENDENT MANNER. IN THE INSTANT CASE, THE LD. AR SUBMITTED THAT THE INVESTMENT HELD BY THE ASSESSEE HAD BEEN BROUGHT FORWARD FROM EARLIER YEARS AND MOST OF THE INVESTMENTS HAVE BEEN MADE LONG BACK. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS EARNED DIVIDEND INCOME AND HAS ALSO SOLD SOME OF ITS SHARES. THUS WE NOTICE THAT THERE IS NO MUCH OF ACTIVITY FOR THE PURPOSE OF EARNIN G EXEMPT INCOME. UNDER THESE SET OF FACTS, IN ORDER TO PUT THIS I SSUE AT REST, WE ARE OF THE VIEW THAT THE AMOUNT OF DISALLOWANCE COMPUTED U/S 14A OF THE ACT, IN THE FACTS AND CIRCUMSTAN CES OF THE CASE, WOULD MEET THE REQUIREMENTS OF CLAUSE (F) OF EXPLANATION 1 OF SEC.115JB OF THE ACT. WE MAKE IT CLEA R THAT WE HAVE HELD SO ONLY TO PUT THIS ISSUE AT REST FOR THE Y EAR UNDER CONSIDERATION, AS IT IS AN OLD MATTER. ACCORDING LY DIRECT THE AO TO ADOPT THE 2% OF THE DIVIDEND INCOME FOR THE PUR POSE OF COMPUTING DISALLOWANCE UNDER CLAUSE(F) OF EXPLAN ATION (1) TO SECTION 115JB OF THE ACT. WE ORDER ACCORDINGLY. ITA NOS. 2482 & 2575/MUM/15 : 7 : WE SHALL NOW TAKE UP THE OTHER ISSUES URGED BY THE ASSESSEE. 7. THE ASSESSEE IS OBJECTING TO THE TP ADJUSTMENT MAD E BY THE TPO AND CONFIRMED BY THE LD. CIT(A). 7.1. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HA S IMPORTED KITS AND SPARES FROM TWO OF ITS ASSOCIATED ENTERPRISES (AES) AND ALSO PAID ROYALTY TO TWO OF ITS AES. THE ASSESSEE ADOPTED RE-SALE PRICE METHOD AS MOST APPROP RIATE METHOD FOR BENCHMARKING THE IMPORT TRANSACTIONS. THE T PO, HOWEVER, ADOPTED TRANSACTIONAL NET MARGIN METHOD (TNMM) AND ACCORDINGLY ASKED THE ASSESSEE TO FURNISH THE COMPARABLES. THE ASSESSEE FURNISHED THREE COMPARABLE S, OUT OF WHICH THE TPO ACCEPTED TWO COMPARABLES VIZ., I) I NGERSOL RAND LTD., AND II) LARSEN & TOUBRO LTD. HE REJECTED THE THIRD COMPARABLE, M/S. ESCORTS LTD., ON THE GROUND THAT THE R ESULTS OF M/S. ESCORTS LTD. ARE AVAILABLE FOR THE YEAR ENDIN G 30-09- 2005, WHILE THE FINANCIAL YEAR OF THE ASSESSEE HAS EN DED ON 31.3.2005. ACCORDINGLY, THE TPO MADE AN ADJUSTMENT OF 122.41 LAKHS. LD. CIT(A) ALSO CONFIRMED THE SAME. 7.2. LD. AR SUBMITTED THAT M/S. ESCORTS LTD., IS FUNCTIONA LLY COMPARABLE COMPANY AND ONLY REASON GIVEN BY THE TPO FOR ITA NOS. 2482 & 2575/MUM/15 : 8 : REJECTING THE SAME IS NON-AVAILABILITY OF DATA FOR TH E PERIOD UNDER CONSIDERATION. 7.3. LD. AR SUBMITTED THAT M/S. ESCORTS LTD., WAS ACCEPTE D AS A COMPARABLE BY THE TRIBUNAL IN ASSESSEES OWN CA SE FOR THE AY. 2004-05 AND THE MATTER WAS RESTORED TO THE FILE OF AO FOR EXAMINING THE SAME AFRESH. LD. AR FURTHER SUBMITTED T HAT THE AO/TPO IN THE ORDER GIVING EFFECT TO THE ORDER OF ITAT , DID NOT MAKE ANY ADJUSTMENT. ACCORDINGLY, LD. AR SUBMITTED TH AT M/S. ESCORTS LTD., ALSO BE DIRECTED TO BE ACCEPTED AS COMPARABLE. 7.4. LD. DR ON THE CONTRARY SUPPORTED THE ORDER PASSE D BY THE LD. CIT(A). 7.5. WE NOTICED THAT THE ISSUE RELATING TO M/S. ESCORTS L TD., WAS EXAMINED BY THE CO-ORDINATE BENCH IN ASSESSEES O WN CASE IN ITA NO. 7356/MUM/2011 RELATING TO AY. 2004-0 5, WHEREIN THE MATTER HAS BEEN RESTORED TO THE FILE OF AO/T PO FOR EXAMINING THE SAME. WE FURTHER NOTICED THAT THE TPO HA S REJECTED M/S. ESCORTS LTD., ONLY FOR THE REASON THAT THE DATA WAS NOT AVAILABLE FOR THE PERIOD UNDER CONSIDERATION, SINCE M/S. ESCORTS LTD., WAS FOLLOWING DIFFERENT FINANCIAL YEAR. SINCE M/S. ESCORTS LTD., IS A LISTED COMPANY, THE QUARTERLY R ESULTS ITA NOS. 2482 & 2575/MUM/15 : 9 : PUBLISHED BY THE SAID COMPANY SHOULD BE AVAILABLE IN THE PUBLIC DOMAIN AND IT SHOULD BE POSSIBLE TO COLLATE THE FIGURES RELATING TO THE FINANCIAL YEAR UNDER CONSIDERATION. I N ANY CASE THIS ISSUE HAS BEEN RESTORED TO THE FILE OF AO/TPO IN T HE IMMEDIATELY PRECEDING YEAR BY THE TRIBUNAL. FOLLOWIN G THE SAME, WE SET ASIDE THE ORDER PASSED BY THE CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF AO/TPO FOR EX AMINING IT AFRESH. 8. NEXT ISSUE RELATES TO TP ADJUSTMENT MADE IN RESPEC T OF ROYALTY PAYMENT. 8.1. THOUGH THE TPO MADE ADJUSTMENT IN RESPECT OF ROYAL TY PAYMENT, NO SEPARATE ADDITION WAS MADE AS THE ASSESSEE ITSELF HAS DISALLOWED THE SAME U/S. 40(A)(IA) OF THE ACT. 8.2. BEFORE THE LD. CIT(A), ASSESSEE SUBMITTED THAT IT HA D CREATED PROVISION FOR PAYMENT OF ROYALTY AS PER THE M ERCANTILE SYSTEM OF ACCOUNTING ON ESTIMATED BASIS. SINCE IT DID NOT DEDUCT TAX AT SOURCE, IT HAS DISALLOWED THE SAME U/S 40( A)(IA) OF THE ACT. SUBSEQUENTLY, THE ASSESSEE OBTAINED AN OPIN ION FROM A CHARTERED ACCOUNTANT, WHO GAVE OPINION THAT NO AMOUNT IS REQUIRED TO BE DISALLOWED U/S. 40(A)(IA) OF THE ACT. ACCORDINGLY, IT WAS PLEADED BEFORE THE LD. CIT(A) THA T SUO ITA NOS. 2482 & 2575/MUM/15 : 10 : MOTTO DISALLOWANCE MADE BY THE ASSESSEE U/S. 40(A)(IA) OF THE ACT SHOULD BE DELETED. HOWEVER, LD. CIT(A) RESTORED THE ISSUE TO THE FILE OF AO, AS THE AO HAS NOT EXAMINED THIS ISSUE AT ALL IN THE ASSESSMENT ORDER. 8.3. LD. AR SUBMITTED THAT THE LD. CIT(A) DID NOT DISCUS S THE TP ADJUSTMENT MADE IN RESPECT OF ROYALTY PAYMENT AS THE SAME HAD BEEN DISALLOWED U/S. 40(A)(IA) OF THE ACT. SINCE THE MATTER RELATING TO DISALLOWANCE U/S. 40(A)(IA) HAS BE EN RESTORED TO THE FILE OF AO AND IN THE RESTORED PROCEEDIN GS IF THE AO DELETES THE DISALLOWANCE MADE U/S. 40(A)(IA) OF T HE ACT, THEN, THE TP ADJUSTMENT MADE FOR ROYALTY PAYMENT WOULD BECOME RELEVANT. LD. AR FURTHER SUBMITTED THAT THE ISSUE RELATING TO ROYALTY PAYMENT HAS BEEN CONSIDERED BY TH E CO- ORDINATE BENCH IN ASSESSEES OWN CASE FOR THE AY. 200 4-05 (REFERRED SUPRA) AND THE MATTER HAS BEEN RESTORED BACK TO THE FILE OF AO/TPO. 8.4. WE HAVE HEARD LD. DR AND PERUSED THE RECORD. FOR THE REASONS STATED IN THE PRECEDING PARAGRAPH, WE PREFER TO RESTORE THE ISSUE BACK TO THE FILE OF AO. WE NOTICED THA T CO- ORDINATE BENCH HAS RESTORED THE IDENTICAL ISSUE IN ASSE SSEES OWN CASE FOR THE AY. 2004-05 WITH THE FOLLOWING DIREC TIONS: ITA NOS. 2482 & 2575/MUM/15 : 11 : 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE ISSUE INVOLVED IN THE PRESENT CASE IS RELATING TO THE DETERMINATION OF ARM'S LENG TH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS INVOLVING PAYMENT OF ROYALTY BY THE ASSESSEE COMPANY TO ITS ASSOCIATED ENTERPRISES. AS PROVIDED IN SECTION 92C OF THE ACT, SUCH ARMS'S LENGTH PRICE IS TO BE DETERMINED BY ONE OF THE METHODS PRESCRIBED, WHICH IS FOUND TO BE THE MOST APPROPRIATE METHOD HAVING REGARD TO THE NATURE OF T RANSACTION OR CLASS OF TRANSACTION OR CLASS OF ASSOCIATED PERSONS OR FUNCTIONS PERFORMED BY SUCH PERSONS OR SUCH OTHER RELEVANT FA CTORS AS MAY BE PRESCRIBED. THE MANNER IN WHICH SUCH MOST APPROPRIA TE METHOD IS TO BE APPLIED FOR DETERMINATION OF ARM'S LENGTH PRICE IS PRESCRIBED IN RULE 10B OF INCOME-TAX RULES, 1962. IN THE PRESENT CASE, IT APPEARS FROM THE TP REPORT SUBMITTED BY THE ASSESSEE AS WEL L AS THE ORDERS OF THE AUTHORITIES BELOW THAT NEITHER THE ASSESSEE NOR THE TPO OR EVEN THE LEARNED CIT(APPEALS) HAS FOLLOWED THIS PROCEDUR E PRESCRIBED IN SECTION 92C OF THE ACT AND RULE 10B OF THE INCOME-T AX RULES. 1962 TO DETERMINE THE ARM'S LENGTH PRICE IN RELATION TO THE ROYALTY PAYMENT MADE BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES AND THIS BEING SO, WE FIND MERIT IN THE CONTENTION OF THE LEARNED DR T HAT THIS MATTER SHOULD GO BACK TO THE AO/TPO TO DO SUCH EXERCISE. T HE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT PAYMENT OF SIMILAR ROYALTY MADE BY THE ASSESSEE TO ITS ASSOCIATED ENTE RPRISES IN THE SUBSEQUENT YEAR HAS BEEN ACCEPTED BY THE DRP. SHE, HOWEVER, HAS NOT PLACED ON RECORD THE COPIES OF THE RELEVANT ORD ERS PASSED IN THE SAID YEARS TO ASCERTAIN WHETHER THE ARM'S LENGTH PR ICE OF THE ROYALTY WAS DETERMINED IN THE SAID YEARS BY FOLLOWING THE P ROPER PROCEDURE. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF TH E AO WITH A DIRECTION TO VERIFY WHETHER THE SIMILAR PAYMENT OF ROYALTY HA S BEEN ACCEPTED IN THE SUBSEQUENT YEARS AS AT ARM'S LENGTH AFTER UNDER TAKING THE EXERCISE AS PRESCRIBED IN SECTION 92C READ WITH RUL E 10B. IF IT IS FOUND THAT SUCH EXERCISE HAS BEEN DONE IN THE SUBSE QUENT YEARS, THE AO IS DIRECTED TO ACCEPT THE SIMILAR PAYMENT OF ROY ALTY MADE BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AS AT ARM 'S LENGTH. HOWEVER, IF IT IS FOUND THAT SUCH AN EXERCISE HAS N OT BEEN DONE EVEN IN THE SUBSEQUENT YEAR, THE AO/TPO IS DIRECTED TO D O THE SAME IN THE YEAR UNDER CONSIDERATION TO DETERMINE THE ARM'S LEN GTH PRICE IN RELATION TO THE ROYALTY PAID BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES. GROUND NO. 2 OF THE REVENUE'S APPEAL I S ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF AO/TP O WITH THE SIMILAR DIRECTIONS. ITA NOS. 2482 & 2575/MUM/15 : 12 : 9. THE NEXT ISSUE URGED BY THE ASSESSEE RELATES TO THE ADDITION OF UNUTILISED CENVAT CREDIT. 9.1. THE AO ADDED THE UNUTILISED CENTVAT CREDIT OF RS.1 42.05 LAKHS FOLLOWING HIS ORDER PASSED FOR THE EARLIER YEA R. THE LD CIT(A) PRIMARILY UPHELD THE ADDITION MADE. HOWEVER, H E ACCEPTED THE ALTERNATIVE PLEA OF THE ASSESSEE THAT THE OP ENING STOCK SHOULD BE INCREASED BY THE AMOUNT ADDED IN THE EA RLIER YEAR AND ACCORDINGLY DIRECTED THE AO TO DO THE SAME. 9.2. BEFORE US, THE LD A.R SUBMITTED THAT THE ASSESSEE HA S BEEN FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING FOR ACC OUNTING CENTVAT AMOUNT. SHE SUBMITTED THAT THERE WILL BE NO IMPACT ON PROFIT, EVEN IF INCLUSIVE METHOD IS FOLLOWED, I.E. , EVEN IF THE CENVAT AMOUNT IS INCLUDED IN THE OPENING STOCK, PURCHA SES, SALES AND CLOSING STOCK AS PER THE PROVISIONS OF SEC. 145A, THERE WOULD BE NO IMPACT ON THE PROFIT. ACCORDINGLY SHE SUBMITTED THAT IMPUGNED ADDITION SHOULD BE DELETED. THE LD A.R ALSO REFERRED TO THE WORKINGS GIVEN IN PAGE NO.8 0 OF THE PAPER BOOK TO SUPPORT HER CONTENTIONS. 9.3. WE HAVE HEARD LD D.R AND PERUSED THE RECORD. TH E PROVISIONS OF SEC.145A REQUIRE FOLLOWING OF INCLUSI VE METHOD OF ACCOUNTING THE DUTIES AND TAXES FOR THE PURPOSE OF TAXATI ON. ITA NOS. 2482 & 2575/MUM/15 : 13 : THE ASSESSEE HAS FOLLOWED EXCLUSIVE METHOD, BY WHICH THE CENVAT WAS ACCOUNTED SEPARATELY WITHOUT INCLUDING THE SA ME WITH PURCHASES, SALES, STOCK. BOTH ARE RECOGNISED M ETHODS OF ACCOUNTING. THE QUESTION OF MAKING ANY ADDITION WOULD ARISE ONLY IF THE METHOD EMPLOYED BY THE ASSESSEE IS HAVING ANY EFFECT ON PROFIT. THE ASSESSEE HAS DEMONSTRATED THAT THE N ET PROFIT AMOUNT DOES NOT CHANGE, EVEN IF THE INCLUSIVE ME THOD OF ACCOUNTING IS FOLLOWED. HENCE THE IMPUGNED ADDITION IS NOT WARRANTED. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. HOWEVER, THE COMPUTATIONS GIVEN B Y THE ASSESSEE REQUIRES VERIFICATION. ACCORDINGLY WE RESTOR E THIS ISSUE TO THE FILE OF THE AO FOR THE LIMITED PURPOSE OF EXAMINING AND SATISFYING HIMSELF WITH THE FIGURES FURNISHED IN THE RECONCILIATION STATEMENT FILED BY THE ASSESSEE. IN CA SE OF VARIATION, THE AO MAY MAKE THE ADDITION TO THE EXTENT OF VARIATION. 10. THE NEXT ISSUE URGED BY THE ASSESSEE RELATES TO THE ADDITION MADE U/S. 50C OF THE ACT. 10.1. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E SOLD A LAND LOCATED IN CHENNAI FOR A CONSIDERATION OF RS. 52 8.99 LAKHS TO M/S. ZIRCON SOFT TECH. LTD. IT WAS NOTICED TH AT THE ITA NOS. 2482 & 2575/MUM/15 : 14 : STAMP VALUE OF THE LAND WAS FIXED AT RS. 654.18 LAKHS . HOWEVER, THE ASSESSEE HAD COMPUTED CAPITAL GAIN BY TAKI NG THE SALE CONSIDERATION AT RS. 528.99 LAKHS, WHILE THE PROVISIONS OF SECTION 50C MANDATES ADOPTING OF STAMP DU TY VALUATION IF IT IS MORE THAN THE SALE CONSIDERATION. AC CORDINGLY, THE AO ADOPTED THE SALE CONSIDERATION AS RS. 654.18 LA KHS AND COMPUTED THE CAPITAL GAIN. 10.2. BEFORE THE LD. CIT(A), ASSESSEE QUESTIONED THE VALUE ADOPTED BY THE AO AND HENCE THE MATTER OF VALUATION WAS REFERRED TO THE DEPARTMENTAL VALUATION OFFICER (DVO) FOR DETERMINING FAIR MARKET VALUE, WHO DETERMINED THE SAM E AT RS. 646.02 LAKHS. ACCORDINGLY, THE LD. CIT(A) DIREC TED THE AO TO COMPUTE THE CAPITAL GAINS BY ADOPTING THE SALE CONSIDERATION AS RS. 646.02 LAKHS. 10.3. BEFORE US, LD. AR SUBMITTED THAT THE DVO HAS ADOPTE D THE STAMP DUTY VALUE (REFERRED AS GUIDELINE VALUE I N TAMIL NADU) APPLICABLE TO OLD MAHABALIPURAM ROAD, SINCE THE ADDRESS OF THE PROPERTY WAS HAVING DOOR NUMBER OF OL D MAHABALIPURAM ROAD. LD. AR SUBMITTED THAT THE PORTION O F LAND WHICH WAS SOLD BY THE ASSESSEE DOES NOT HAVE ACC ESS FROM OLD MAHABALIPURAM ROAD, BUT HAVE ACCESS FROM A LANE ITA NOS. 2482 & 2575/MUM/15 : 15 : CALLED PILLAIYAR KOIL STREET. THE LD. AR SUBMITTED THAT STAMP DUTY VALUATION FOR PILLAIYAR KOIL STREET IS FAR LESS THAN THE VALUE ASSIGNED TO OLD MAHABALIPURAM ROAD. THE LD. A R SUBMITTED THAT THE DVO HAS ADOPTED THE VALUE ASSIGNED TO OLD MAHABALIPURAM ROAD FOR THE PURPOSE OF VALUING THE PROPERTY, WITHOUT CONSIDERING THIS IMPORTANT ASPECT. TH E LD. AR ALSO FURNISHED A COPY OF STAMP DUTY VALUATION DOWN LOADED FROM THE WEBSITE OF REGISTRATION DEPARTMENT OF GOVERNMEN T OF TAMIL NADU TO SHOW THAT THERE IS DIFFERENCE IN VALUATION FOR OLD MAHABALIPURAM ROAD AND PILLAYAR KOIL STREET. TH E LD. AR ALSO INVITED OUR ATTENTION TO THE MAP PLACED AT PG. NO. 118 OF THE PAPER BOOK IN ORDER TO DEMONSTRATE THAT THE PORTION O F LAND SOLD BY THE ASSESSEE IS ACCESSIBLE ONLY FROM PI LLAIYAR KOIL STREET. 10.4. WE HAVE HEARD THE LD. DR AND PERUSED THE RECO RD. SINCE THE SUBMISSIONS MADE BY ASSESSEE RELATE TO FACTU AL ASPECTS, WE ARE OF THE VIEW THAT THE SAME REQUIRES VERIF ICATION AT THE END OF THE AO, SINCE THE DVO HAS OMITTED TO CONSIDE R IMPORTANT ASPECT THAT THE STAMP DUTY VALUATION IS DIFFEREN T FOR PILLAIYAR KOIL STREET AND OLD MAHABALIPURAM ROAD. WHE N QUESTION AS TO WHETHER THIS DIFFERENCE WAS NOT BROUGHT TO THE ITA NOS. 2482 & 2575/MUM/15 : 16 : NOTICE OF STAMP VALUATION AUTHORITY, SINCE THE STAMP VALUATION AUTHORITY ALSO APPEARS TO HAVE ADOPTED THE V ALUATION APPLICABLE TO OLD MAHABALIPURAM ROAD, THE LD A.R SUBM ITTED THAT THE STAMP DUTY WAS PAID BY THE PURCHASER AND FURTHER THE PURCHASER, BEING A SOFTWARE COMPANY, IT WAS GETTING CONCESSION OF STAMP DUTY ALSO. SINCE THE ASSESSEE I S BRINGING NEW FACTS, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES F RESH EXAMINATION AT THE END OF THE AO. ACCORDINGLY, WE SET A SIDE THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE AND RES TORE THE SAME TO THE FILE OF AO FOR EXAMINING THE SAME AFRESH B Y DULY REFERRING THE MATTER TO DVO IN ORDER TO CONSIDER THE CONTENTIONS OF ASSESSEE IN THE MATTER OF VALUATION OF THE PROPERTY. AFTER AFFORDING ADEQUATE OPPORTUNITY OF BE ING HEARD TO ASSESSEE, AO MADE TAKE APPROPRIATE DECISION IN ACC ORDANCE WITH LAW. 11. THE NEXT ISSUE URGED BY THE ASSESSEE RELATES TO THE ADDITION MADE U/S 28(IV)/41(1) OF THE ACT IN RESPECT OF WAIVER OF LOAN. A COMPANY NAMED M/S RAJASTHAN POLYMERS AND REISINS LTD WAS AMALGAMATED WITH THE ASSESSEE COMPANY. THE ABOVE SAID COMPANY HAD TAKEN LOAN FROM BANK OF B ARODA. POST AMALGAMATION, THE ASSESSEE COMPANY BECAME SICK AN D ITA NOS. 2482 & 2575/MUM/15 : 17 : HENCE, UNDER REVIVAL PACKAGE, THE BANK OF BARODA WAI VED LOAN TO THE TUNE OF RS.192.50 LAKHS. THE ASSESSEE DID NOT O FFER THE SAME FOR TAXATION ON THE PLEA THAT THE WAIVER WAS IN RESP ECT OF TERM LOAN AND HENCE THE SAME IS A CAPITAL RECEIPT. TH E AO, HOWEVER, TOOK THE VIEW THAT THE WAIVER HAS ENRICHED THE ASSESSEE AND ACCORDINGLY, BY FOLLOWING THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASES OF CIT VS. KARA MCHAND THAPPER & OTHERS (222 ITR 112) AND T.V. SUNDARAM IYE NGAR AND SONS LTD (222 ITR 344), HELD THAT THE AMOUNT OF RS.192.50 LAKHS IS ASSESSABLE U/S 41(1) OF THE ACT. ALTERNATIVELY, THE AO HELD THAT THE SAME IS TAXABLE U/S 28 (IV) OF THE ACT. 11.1. THE LD CIT(A) OBSERVED THAT THE HONBLE DELHI HI GH COURT HAS LAID DOWN PRINCIPLES FOR ASSESSING THE WAIV ER OF LOAN AS INCOME IN THE CASE OF ROLLATAINERS LTD (339 ITR 54) , ACCORDING TO WHICH THE WAIVER OF TERM LOAN IS NOT TAXA BLE, WHILE THE WAIVER OF LOAN TAKEN FOR TRADING TRANSACTION IS ASSESSABLE TO TAX. THE LD CIT(A) NOTICED THAT THE ASSESS EE HAS CLAIMED THE LOANS AS TERM LOANS, BUT DID NOT SHOW THAT THE SAME WAS USED ONLY FOR ACQUISITION OF CAPITAL ASSETS. FURTHER, THE ASSESSEE HAS CREDITED THE WAIVED AMOUNT TO PROFIT AN D LOSS ITA NOS. 2482 & 2575/MUM/15 : 18 : ACCOUNT. HENCE THE LD CIT(A) UPHELD THE ADDITION MADE BY THE AO. 11.2. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED TH E RECORD. THE LD A.R SUBMITTED THAT THE PROVISIONS OF SEC .28(IV) WOULD NOT APPLY TO THE IMPUGNED TRANSACTION, SINCE THE PROVISIONS OF SEC.28(IV) HAS BEEN HELD TO BE APPLICA BLE ONLY WHEN THE BENEFIT IS RECEIVED OTHERWISE THAN IN CASH AS PER THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE CAS E OF CIT VS. MAFATLAL GAGALBHAI & CO. (219 ITR 644). WE AGRE E WITH THE CONTENTIONS OF THE LD A.R. THOUGH THE AO HAS STATED THAT THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA AND MAHINDRA (261 ITR 501) IS BASED ON THE FACTS OF THAT CASE, YET THE HONBLE BOMBAY HIGH COURT HAS HEL D IN CLEAR TERMS THAT SECTION 28(IV) DOES NOT APPLY TO BENEFITS IN CASH OR MONEY (SEE CIT V. ALCHEMIC PVT. LTD.) . 11.3. THE LD A.R FURTHER SUBMITTED THAT THE PROVISIONS O F SEC.41(1) ALSO WOULD NOT APPLY, SINCE THE WAIVER RELA TES TO THE TERM LOAN AND FURTHER THE ASSESSEE HAS NOT CLAIMED CORRESPONDING AMOUNT AS DEDUCTION. HOWEVER, FROM THE OBSERVATIONS MADE BY LD CIT(A), WE NOTICE THAT THE ASSE SSEE HAS FAILED TO DEMONSTRATE THE USER OF THE LOANS TAKEN FRO M ITA NOS. 2482 & 2575/MUM/15 : 19 : BANK OF BARODA, I.E., IT WAS NOT SHOWN THAT THE LOAN AMO UNT WAS USED FOR ACQUIRING CAPITAL ASSETS. FURTHER IT IS N OT CLEAR AS TO WHETHER THE AMOUNT SO WAIVED WAS RELATED TO PRINCI PAL PORTION OF LOAN ONLY. IF THE WAIVED AMOUNT WAS RELATED TO INTEREST PORTION OF LOAN AND THE SAID INTEREST HAD BEEN ALLOWED AS DEDUCTION IN THE EARLIER YEARS, THEN THE PROVISIONS OF SEC.41(1) SHALL APPLY. SIMILARLY IF THE LOAN TAKEN HA S BEEN USED FOR TRADING TRANSACTIONS, THEN ALSO THE PROVISIONS OF S EC.41(1) SHALL APPLY. SINCE THE RELEVANT DETAILS ARE NOT AVAILA BLE, IN THE INTEREST OF NATURAL JUSTICE, WE ARE OF THE VIEW THAT THE A SSESSEE MAY BE PROVIDED WITH AN OPPORTUNITY TO PRODUCE THE S AME. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT( A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO FOR EXAMINING IT AFRESH IN THE LIGHT OF DISCUSSIONS MADE SUPRA. THE ASSESSEE IS ALSO DIRECTED TO FURNISH RELEVANT DETAILS TO SUBSTANT IATE ITS CONTENTIONS. 12. THE NEXT ISSUE RELATES TO THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT. AS NOTICED EARLIER, THE ASSESSEE HAD SUO- MOTU DISALLOWED THE PROVISION FOR ROYALTY PAYMENT, AS IT DID NOT DEDUCT TAX AT SOURCE. HENCE THERE WAS NO OCCASION F OR THE AO TO EXAMINE THIS ISSUE. BEFORE LD CIT(A), THE ASSE SSEE ITA NOS. 2482 & 2575/MUM/15 : 20 : CONTENDED THAT THE SUO-MOTU DISALLOWANCE MADE BY IT SHOU LD BE DELETED, AS IT HAS OBTAINED A LEGAL OPINION THAT THER E IS NO REQUIREMENT TO MAKE ANY DISALLOWANCE U/S40(A)(IA) OF THE ACT. SINCE THE MATTER WAS NOT EXAMINED BY THE AO, THE LD CIT( A) RESTORED THIS ISSUE TO THE FILE OF THE AO. SINCE THE MATT ER REQUIRES EXAMINATION AT THE END OF THE AO, WE ALSO RES TORE THE SAME TO THE FILE OF THE AO. 13. THE NEXT TWO ISSUES RELATES TO THE CLAIM OF THE ASS ESSEE TO REDUCE REVALUATION RESERVE FROM THE BOOK PROFIT AND THE CLAIM FOR REDUCING THE LEAST OF BROUGHT FORWARD LOSS O R UNABSORBED DEPRECIATION, WHICHEVER IS LESS FROM BOOK PROFIT. WE NOTICE THAT THIS ISSUE DOES NOT FIND PLACE IN THE ASSESSMENT ORDER. HOWEVER THE ASSESSEE HAS RAISED THE SE TWO GROUNDS BEFORE LD CIT(A), BUT THE FIRST APPELLATE AUTHO RITY HAS NOT ADJUDICATED THEM. 13.1. THE LD A.R SUBMITTED BOTH THE ABOVE SAID ISSUES H AVE BEEN DECIDED BY THE CO-ORDINATE BENCH IN THE ASSESSEE S OWN CASE RELATING TO AY 2004-05 (REFERRED SUPRA). 13.2. WE HEARD LD D.R AND PERUSED THE RECORD. SINCE BOTH THE ISSUES HAVE NOT BEEN EXAMINED BY THE AO, WE RESTORE BOTH THESE ISSUES TO THE FILE OF THE AO WITH THE DIRECTION TO FO LLOW ITA NOS. 2482 & 2575/MUM/15 : 21 : THE ORDER PASSED BY THE TRIBUNAL IN AY 2004-05 AFTER EXAMINING THE NECESSARY DETAILS. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATE D AS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH DAY OF MARCH, 2019 SD/- SD/- (AMARJIT SINGH) (B.R. BASKARAN) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /MUMBAI; /DATED : 15 TH MARCH, 2019 TNMM ITA NOS. 2482 & 2575/MUM/15 : 22 : / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT 2. #!' / THE RESPONDENT 3. $ % ( ) / THE CIT(A), MUMBAI 4. $ % / CIT, MUMBAI 5. ()* +, , $ .+,$/ , / DR, ITAT, MUMBAI 6. *012 / GUARD FILE $ / BY ORDER, # //TRUE COPY// / $ (DY./ASST. REGISTRAR) $ .+,$/, / ITAT, MUMBAI