DCIT 9(2)(2), MUMBAI V. CREST PAPER MILLS LTD., MUMBAI

ITA 2579/MUM/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8859 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 07-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABI RAMA KARTIKEYAN
• Assessee Lawyers: PRADEEP SHARMA
• Keywords: Capital asset; Business income; Depreciation; Bad and doubtful debts; Corroborative evidences; Capital receipt; Sham transactions; Set aside
• Section: 44AD; 143(3); 115JB; 133(6); 32; 131; 145

Judgement Text

1 CREST PAPER MILLS LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI SHRI G MANJUNATHA (ACCOUNTANT MEMBER) AND BEFORE SHRI RAVISH SOOD(JUDICIAL MEMBER) ITA NO 2579/MUM/2016 (ASSESSMENT YEAR 2010-11) DCIT 9(2)(2), MUMBAI VS CREST PAPER MILLS LTD 2 ND FLOOR, TARUN PLASTIC COMPOUND, MOGRA VILLA, ANDHERI (E), MUMBAI-400 069 PAN : AAACC4143D APPELLANT RESPONDEDNT ITA NO 3044/MUM/2016 (ASSESSMENT YEAR 2010-11) CREST PAPER MILLS LTD 2 ND FLOOR, TARUN PLASTIC COMPOUND, MOGRA VILLA, ANDHERI (E), MUMBAI-400 069 PAN : AAACC4143D VS DCIT 8(1), MUMBAI APPELLANT RESPONDEDNT REVENUE BY SHRI ABI RAMA KARTIKEYAN ASSESSEE BY SHRI PRADEEP SHARMA DATE OF HEARING 10-10-2018 DATE OF PRONOUNCEMENT 19-12-2018 2 CREST PAPER MILLS LTD O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE REVENUE AS WELL AS THE AS SESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-16, MUMBAI DATED 0 4-01-2016 FOR THE ASSESSMENT YEAR 2010-11. SINCE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD T OGETHER AND ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF DUPLEX BOAR D AND TRADING ACTIVITIES, FILED ITS RETURN OF INCOME FOR AY 2010-11 ON 11-10- 2010 DECLARING TOTAL INCOME AT NIL, AFTER CLAIMING SET OFF OF BROUGHT FORWARD B USINESS LOSS OF RS.1,76,60,305. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSME NT HAS BEEN COMPLETED U/S 143(3) OF THE I.T. ACT, 1961, DETERMINING THE TOTAL INCOME AT RS.14,19,97,500, BY MAKING ADDITION TOWARDS ESTIMATED NET PROFIT OF 8% ON TOTAL SALES TURNOVER BY REJECTING BOOKS OF ACCOUNT U/S 145 OF THE I.T. A CT, 1961 FOR RS.9,18,70,062, ADDITION TOWARDS WAIVER OF SECURED LOANS BY BANKS A ND FINANCIAL INSTITUTIONS ON ACCOUNT OF ONE TIME SETTLEMENT U/S 41(1) OF THE INC OME-TAX ACT, 1961 FOR RS.5,01,27,439 AND ADDITION TOWARDS WAIVER OF INTER EST CREDITED TO P&L ACCOUNT BY DISALLOWING VARIOUS EXPENDITURE INCLUDIN G DEPRECIATION, BAD DEBTS WRITTEN OFF, WRITE OFF OF OBSOLETE INVENTORIES AND OTHER EXPENSES AGAINST SUCH INTEREST INCOME. THE ASSESSING OFFICER ALSO RECOMP UTED BOOK PROFIT BY TAKING 3 CREST PAPER MILLS LTD INTO ACCOUNT NET PROFIT ESTIMATED ON SALES TURNOVER AND THEN BY ADDING ADDITION MADE U/S 41(1) OF THE ACT IN RESPECT OF RE MISSION / CESSATION OF LIABILITY TOWARDS WAIVER OF LOAN BY BANKS AND FINAN CIAL INSTITUTIONS. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS CH ALLENGED REJECTION OF BOOKS OF ACCOUNT AND ESTIMATION OF NET PROFIT AT 8% OF TOTAL TURNOVER ON THE GROUND THAT IN ABSENCE OF ANY INCORRECTNESS IN BOOKS OF ACCOUNT , THE AO WAS ERRED IN REJECTING BOOKS U/S 145 OF THE ACT, AND ESTIMATION OF NET PROFIT OF 8% MERELY FOR THE REASON THAT THE ASSESSEE COULD NOT FILE COM PLETE DETAILS OF PURCHASE AND SALES FROM THE PARTIES. THE ASSESSEE ALSO CHAL LENGED OTHER ADDITIONS MADE BY THE AO TOWARDS WAIVER OF LOANS BY BANKS AS REMIS SION OR CESSATION OF LIABILITY U/S 41(1) TO ARGUE THAT WAIVER OF LOAN BY BANKS IS A CAPITAL RECEIPT WHICH COULD NOT BE TREATED AS REMISSION / CESSATION OF LIABILITY U/S 41(1) OF THE ACT, AS THE ASSESSEE NEVER DERIVED ANY BENEFIT OR N EVER CLAIMED DEDUCTION TOWARDS SAID LOAN IN THE PAST. INSOFAR AS ADDITION TOWARDS INTEREST CREDITED TO P&L ACCOUNT BY REJECTING EXPENSES, THE ASSESSEE CLA IMED THAT IT HAS DEBITED VARIOUS EXPENSES INCLUDING DEPRECIATION ON PLANT & MACHINERY AGAINST INCOME CREDITED TO P&L ACCOUNT BEING WAIVER OF INTEREST, B UT THE AO HAS IGNORED ALL THESE FACTS AND MADE ADDITION WITHOUT ASSIGNING ANY REASON AS TO HOW DEDUCTION CLAIMED TOWARDS VARIOUS EXPENSES COULD NO T BE ALLOWED AS 4 CREST PAPER MILLS LTD DEDUCTION. THE ASSESSEE HAS FILED ELABORATE WRITTE N SUBMISSIONS ON EACH AND EVERY GROUND TAKEN BEFORE THE CIT(A) WHICH HAS BEEN REPRODUCED AT PARA 5 ON PAGES 3 TO 19 OF THE ORDER OF LD.CIT(A). THE ASSES SEE HAS RELIED UPON PLETHORA OF JUDICIAL PRECEDENTS IN SUPPORT OF HIS ARGUMENTS. 4. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMIS SIONS OF THE ASSESSEE AND ALSO BY RELYING UPON CERTAIN JUDICIAL PRECEDENTS, D ELETED ADDITION MADE BY THE AO TOWARDS ESTIMATION OF NET PROFIT ON SALES TURNOV ER BY HOLDING THAT THE AO HAD NOT BROUGHT ANY EVIDENCE ON RECORD REGARDING EA RNING OF 8% NET PROFIT ON SALES TURNOVER OR THAT THE ASSESSEE HAD EARNED PROF IT MORE THAN WHAT HAS BEEN REFLECTED IN THE BOOKS OF ACCOUNT. THE BOOKS OF AC COUNT CAN BE REJECTED WHEN TRUE PROFIT COULD NOT BE DEDUCED WITH THE HELP OF R ECORDS MAINTAINED BY THE ASSESSEE. WHEN ASSESSEE HAD FILED COMPLETE DETAILS OF ACCOUNTS, MERELY FOR THE REASON THAT NO SUPPORTING EVIDENCE INCLUDING LO RRY RECEIPTS WERE FILED FOR PURCHASES AND SALES, BOOKS OF ACCOUNT COULD NOT BE REJECTED AND PROFIT FROM SALES ALSO CANNOT BE ESTIMATED EXORBITANTLY. THE L D.CIT(A), WHILE DELETING ADDITION MADE BY THE AO, HAS RELIED UPON THE DECISI ON OF ITAT IN THE CASE OF GOLD STAR FIN VEST (P) LTD VS ITO 33 TAXMANN 129. INSOFAR AS ADDITION TOWARDS CESSATION / REMISSION OF LIABILITY U/S 41(1) OF THE ACT, THE LD.CIT(A) OBSERVED THAT THE AO HAS BROUGHT ON RECORD CLEAR FACTS TO TH E EFFECT THAT WAIVER OF LOAN GIVEN BY THE BANKS ON ACCOUNT OF WORKING CAPITAL LO AN TAKEN BY THE ASSESSEE 5 CREST PAPER MILLS LTD AGAINST HYPOTHECATION OF STOCKS AND RECEIVABLES; TH EREFORE, WHEN BENEFIT DERIVED BY WAY OF REMISSION OR CESSATION OF LIABILI TY ON ACCOUNT OF WORKING CAPITAL LOAN BORROWED FOR THE PURPOSE OF BUSINESS O F THE ASSESSEE, SUCH WAIVER OF LOAN BY THE LENDERS AMOUNTS TO BUSINESS PROFITS TAXABLE UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. HOWEVER, THE LD.CIT(A) HAS ALLOWED PARTIAL RELIEF OF RS.17,99,653 OUT OF TOTAL ADDITIO N MADE BY THE AO OF RS.5,01,27,439 ON THE GROUND THAT AN AMOUNT OF RS.1 7,99,653 REPRESENTS WAIVER OF TERM LOAN GIVEN BY THE BANKS FOR ACQUIRIN G CAPITAL ASSETS. INSOFAR AS ADDITION TOWARDS DISALLOWANCE OF EXPENSES, THE LD.C IT(A) HAS ALLOWED PARTIAL RELIEF IN RESPECT OF BAD DEBTS WRITTEN OFF AMOUNTIN G TO RS.1,41,96,836 AND ALSO ALLOWED FURTHER RELIEF IN RESPECT OF AMOUNT DEBITED TO P&L ACCOUNT TOWARDS DIRECT EXPENSES, INTEREST ON LOAN BY HOLDING THAT W HEN INTEREST ON LOAN HAS BEEN PAID FOR LOANS TAKEN TO REPAY EARLIER LOANS, T HE SAID INTEREST COULD NOT BE DISALLOWED. SIMILARLY, OUT OF OTHER EXPENSES AMOUN TING TO RS.1,42,66,261, THE LD.CIT(A) HAS ALLOWED ADHOC DEDUCTION OF RS.25 LAKH S AND CONFIRMED THE BALANCE AMOUNT BY HOLDING THAT THE ASSESSEE FAILED TO FILE COMPLETE DETAILS OF EXPENSES WITH SUPPORTING EVIDENCES. AS REGARDS GRO UND TAKEN BY THE ASSESSEE TO CHALLENGE RE-COMPUTATION OF BOOK PROFIT, THE LD. CIT(A) OBSERVED THAT SINCE THE ASSESSEE HAS NOT PRESSED GROUND, THE SAME HAS B EEN DISMISSED, AS INFRUCTUOUS. 6 CREST PAPER MILLS LTD 5. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. 6. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM REVENUE APPEAL IS ADDITION TOWARDS ESTIMATION OF NET PROFIT OF 8% ON TOTAL TURNOVER. THE FACTUAL MATRIX OF THE IMPUGNED DISPUTE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE SHOWN TO HAVE PURCHASES T OTALLING RS.114,57,97,730 FROM BRAND HOUSE RETAILS LTD AND ALSO CLAIMED TO HA VE MADE SALES TOTALLING RS.114,83,73,779 TO SARASWATI TRADE CENTRE PVT LTD . THE AO, FURTHER OBSERVED THAT THE ASSESSEES BUSINESS WAS UNDER LOCK OUT SIN CE SEVEN YEARS AND THERE WAS HARDLY ANY STAFF TO DO ANY BUSINESS ACTIVITIES. THEREFORE, IN ORDER TO ASCERTAIN CORRECTNESS OF PURCHASES AND SALES CLAIME D TO HAVE MADE BY THE ASSESSEE, CALLED UPON THE ASSESSEE TO FILE EVIDENCE S INCLUDING PURCHASE BILLS AND SALE BILLS ALONGWITH SUPPORTING EVIDENCES. IN RESPONSE, THE ASSESSEE HAS FILED CERTAIN DETAILS INCLUDING PURCHASE AND SALES BILLS TO JUSTIFY THE TRANSACTIONS RECORDED IN BOOKS OF ACCOUNT. THE AO, ON THE BASIS OF INFORMATION FURNISHED BY THE ASSESSEE OBSERVED THAT THOUGH THE ASSESSEE H AS RECORDED HUGE PURCHASES AS WELL AS SALES TRANSACTIONS, NO TRANSPO RTATION EXPENSES HAD BEEN SHOWN IN THE BOOKS OF ACCOUNT. HE FURTHER OBSERVED THAT THERE WAS NO DEBTORS AND CREDITORS IN THE BOOKS OF ACCOUNT, EVEN THOUGH SUCH A HUGE MAGNITUDE OF PURCHASES AND SALES TRANSACTIONS WERE MADE AND ACCO RDINGLY ISSUED NOTICES U/S 7 CREST PAPER MILLS LTD 133(6) TO BOTH THE CREDITORS AND DEBTORS CALLING FO R DETAILS OF PURCHASES. IN RESPONSE TO NOTICE, THE CREDITORS, M/S BRAND HOUSE RETAILS LTD FURNISHED MONTHWISE SALES AND ANNUAL ACCOUNTS OF THE COMPANY; HOWEVER, NO OTHER DETAILS WERE SUBMITTED. FURTHER NOTICE ISSUED U/S 133(6) TO SARASWATI TRADE CENTRE PVT LTD WHICH WAS RETURNED BY THE POSTAL AUT HORITIES WITH REMARK NOT KNOWN. SUBSEQUENTLY, SUMMONS U/S 131 OF THE ACT, WERE ISSUED TO BOTH SELLER AND PURCHASERS WHICH WERE ALSO RETURNED BY THE POST AL AUTHORITIES WITH THE REMARK, NOT KNOWN. WHEN THESE FACTS WERE BROUGHT TO THE NOTICE OF THE ASSESSEE, THE ASSESSEE HAS FILED CERTAIN DETAILS AN D FINANCIAL STATEMENTS OF SARASWATI TRADE CENTRE PVT LTD. SINCE, THE ASSESSE E HAS FAILED TO FILE COMPLETE DETAILS OF PURCHASES AND SALES RECORDED IN THE BOOK S OF ACCOUNT AND ALSO THE PARTIES FAILED TO APPEAR BEFORE THE AO IN RESPONSE TO SUMMONS ISSUED U/S 131, THE AO CAME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY, BUT HAS TAKEN ACCOMMODATION ENTR IES. ACCORDINGLY, HE CAME TO THE CONCLUSION THAT THE TRANSACTIONS RECORDED BY THE ASSESSEE INCLUDING PURCHASES AND SALES WERE SHAM TRANSACTIONS. THE AO FURTHER OBSERVED THAT WHEN THE ASSESSEE WAS NOT CARRYING OUT ANY BUSINESS ACTIVITY SINCE LAST SEVEN YEARS, SHOWING PURCHASE / SALES TRANSACTIONS OF MAT ERIALS WHICH IS DIFFERENT FROM THE PRODUCTS DEALT IN BY THE ASSESSEE COULD NO T BE CONSIDERED AS GENUINE, HENCE OPINED THAT THE ASSESSEE HAS OBTAINED ACCOMMO DATION ENTRIES IN THE 8 CREST PAPER MILLS LTD NATURE OF PURCHASE AND SALES USING A COLOURABLE DEV ICE. ACCORDINGLY, REJECTED BOOKS OF ACCOUNT U/S 145 OF THE ACT AND ESTIMATED 8 % NET PROFIT ON TOTAL SALES TURNOVER. 7. THE LD.DR SUBMITTED THAT THE LD.CIT(A) WAS ERRED IN NOT CONSIDERING THE FACTS BROUGHT OUT BY THE AO TO MAKE ADDITION TOWARD S ESTIMATION OF 8% PROFIT ON TOTAL SALES TURNOVER INCLUDING NON-COOPERATION O F THE PARTIES IN RESPONSE TO NOTICE ISSUED U/S 133(6) AND ALSO TO SUMMONS ISSUED U/S 131 OF THE INCOME-TAX ACT, 1961. THE LD.DR FURTHER SUBMITTED THAT THE AO HAS BROUGHT OUT CLEAR FACTS TO THE EFFECT THAT THE ASSESSEE COULD NOT PROVE THE GENUINENESS AND IDENTITY OF THE PURPORTED SELLERS AS WELL AS BUYERS, BUT THE LD .CIT(A) NEGATED ALL OBSERVATIONS MADE BY THE AO WITHOUT ASSIGNING ANY R EASONS. THE LD.DR FURTHER SUBMITTED THAT THE LD.CIT(A) WHILE DELETING ADDITION HAS RELIED UPON THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF G OLD STAR FIN VEST (SUPRA) WITHOUT CONSIDERING THE FACT THAT THE SAID CASE LAW IS NOT APPLICABLE TO THE FACTS OF ASSESSEES CASE. THE LD.DR FURTHER SUBMITTED TH AT THE ISSUE BEFORE THE HONBLE ITAT IN THE SAID CASE IS ESTIMATION OF NET PROFIT ON SALES TRANSACTIONS OF A SHARE BROKER, WHERE BY CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE, THE ITAT HAS COME TO THE CONCLUSION THAT ESTIMATING A HUGE PROFIT IS INCORRECT. IN THIS CASE, THE AO HAS APPLIED 8% PROFIT ON TOTAL SALES TURNOVER, WHICH IS IN ACCORDANCE WITH THE PRESCRIBED RATE AS PER THE STAT UTE IN RESPECT OF A TRADER 9 CREST PAPER MILLS LTD INVOLVED IN RETAIL BUSINESS AS PER PROVISIONS OF SE CTION 44AD OF THE ACT. IN THIS CASE, SINCE THE ASSESSEE IS INVOLVED IN TRADING ACT IVITY, THE AO HAS RIGHTLY APPLIED PROFIT PERCENTAGE PRESCRIBED UNDER THE ACT BUT THE LD.CIT(A) HAS DELETED ADDITION MADE BY THE AO WITHOUT RECORDING A NY REASONS AS TO HOW THE ASSESSEE HAS PROVED THAT THE TRANSACTIONS ARE GENUI NE. 8. THE LD.AR FOR THE ASSESSEE, ON THE OTHER HAND, S TRONGLY SUPPORTING THE ORDER OF THE LD.CIT(A) SUBMITTED THAT THE LD.CIT(A) HAS APPRISED THE FACTS IN RIGHT PERSPECTIVE IN THE LIGHT OF EVIDENCE FILED BY THE ASSESSEE WHICH CLEARLY SUGGESTS THAT THE TRANSACTIONS ARE GENUINE, BUT THE AO MERELY FOR THE REASON THAT THE PARTIES HAVE NOT RESPONDED TO NOTICES ISSU ED U/S 133(6) AND SUMMONS U/S 131 CAME TO THE CONCLUSION THAT THESE ARE SHAM TRANSACTIONS IGNORING COMPLETE EVIDENCES FILED BY THE ASSESSEE. THE LD.A R FURTHER SUBMITTED THAT WHEN THE AO HAS ACCEPTED THE FACT THAT THESE ARE SH AM TRANSACTIONS, WAS WRONG IN ESTIMATING NET PROFIT OF 8% IGNORING THE F ACT THAT THE ASSESSEE HAS DERIVED A PROFIT WHICH HAS BEEN CLEARLY RECORDED IN THE BOOKS OF ACCOUNT. THE LD.AR FURTHER SUBMITTED THAT BEFORE REJECTION OF BO OKS OF ACCOUNT THE AO HAS TO POINT OUT DESCREPANCIES WHICH RENDER THE BOOKS O F ACCOUNT NOT CAPABLE OF DEDUCING THE TRUE AND CORRECT PROFIT OF THE BUSINES S, BUT WITHOUT RECORDING ANY REASONS AS TO INCORRECTNESS IN BOOKS OF ACCOUNT MER ELY FOR NON RECEIPT OF 10 CREST PAPER MILLS LTD INFORMATION FROM THE PARTIES, BOOKS OF ACCOUNT CANN OT BE REJECTED AND PROFIT CANNOT BE ESTIMATED. 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. WE HAVE ALSO CONSIDERED THE CASE LAWS RELIED UPON BY THE PARTIES . IT IS AN ADMITTED FACT THAT THE ASSESSEE IS A SICK COMPANY NOT CARRYING OUT ANY BUSINESS ACTIVITIES SINCE LAST SEVEN YEARS. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE IS SHOWING TRADING RESULTS OF PURCHASE AND SALES IN TEXTILES. THE ASS ESSEE CLAIMS TO HAVE PURCHASED GOODS FROM A SINGLE PARTY AND ALSO CLAIME D TO HAVE SOLD THE GOODS TO A SINGLE PARTY. EXCEPT PURCHASE AND SALES, NEIT HER OPENING STOCK NOR CLOSING STOCK WAS SHOWN IN THE BOOKS OF ACCOUNT. NO RECEIV ABLES AND PAYABLES ARE ALSO SHOWN IN THE BOOKS OF ACCOUNT. IT IS ALSO AN ADMIT TED FACT THAT THE ASSESSEE HAS NOT CLAIMED ANY EXPENSES LIKE TRANSPORTATION AND OT HER EXPENSES WHICH IS DIRECTLY RELATABLE TO TRADING ACTIVITY. THE AO EST IMATED NET PROFIT BY REJECTING BOOKS OF ACCOUNT U/S 145 OF THE INCOME-TAX ACT, 196 1 ON THE GROUND THAT THE ASSESSEE FAILED TO PROVE THE TRANSACTION WITH NECES SARY EVIDENCES, THEREFORE, HE CAME TO THE CONCLUSION THAT THESE ARE SHAM TRANS ACTIONS. IT IS THE CONTENTION OF THE ASSESSEE THAT MERELY FOR THE REAS ON THAT THE PARTIES DID NOT RESPOND TO THE NOTICES ISSUED U/S 133(6) OR SUMMONS ISSUED U/S 131, THE GENUINENESS OF TRANSACTIONS WHICH ARE SUPPORTED BY VALID DOCUMENTS COULD NOT 11 CREST PAPER MILLS LTD BE TREATED AS SHAM TRANSACTIONS. THE ASSESSEE FURT HER CONTENDED THAT REJECTION OF BOOKS OF ACCOUNT U/S 145 OF THE INCOME -TAX ACT, 1961 COULD BE MADE ONLY WHEN THE AO RECORDS A CATEGORICAL FINDING THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ARE NOT TRUE AND CORRECT AND WHICH DOES NOT GIVE CORRECT PROFIT FROM THE BUSINESS. IN ABSENCE OF AN Y FINDING AS TO INCORRECTNESS IN BOOKS OF ACCOUNT, MERELY FOR THE REASON THAT PAR TIES WERE NOT RESPONDED, THE BOOKS OF ACCOUNT COULD NOT BE REJECTED AND PROF IT CANNOT BE ESTIMATED. 10. HAVING HEARD BOTH THE SIDES, WE FIND THAT THE A O HAS BROUGHT OUT CATEGORICAL FACTS IN HIS ASSESSMENT ORDER TO THE EF FECT THAT THE TRANSACTIONS RECORDED BY THE ASSESSEE IN RESPECT OF PURCHASES AN D SALES WERE NOT SUPPORTED BY REQUISITE DOCUMENTS. THE AO ALSO RECORDED A FIN DING OF FACT THAT THE PURCHASERS AND SELLERS FROM / TO WHOM THE ASSESSEE CLAIMS TO HAVE MADE PURCHASES AND SALES DID NOT RESPOND TO THE NOTICES ISSUED U/S 133(6) AND SUMMONS ISSUED U/S 131 OF THE ACT. UNDER THESE FAC TS, THE AO CAME TO THE CONCLUSION THAT THE ASSESSEE HAS OBTAINED ACCOMMODA TION ENTRIES OF PURCHASE AND SALES BY USING COLOURABLE DEVICE SO AS TO SHOW CERTAIN BUSINESS ACTIVITIES EVEN THOUGH THE BUSINESS OF THE ASSESSEE WAS SHUT D OWN FOR ALMOST SEVEN YEARS. THE LD.CIT(A) NEGATED ALL OBSERVATIONS MADE BY THE AO SO AS TO DELETE ADDITIONS MADE TOWARDS ESTIMATION OF PROFIT FOR THE SOLE REASON THAT THE PURCHASES WERE SUPPORTED BY CERTAIN DOCUMENTS. THE LD.CIT(A) DID NOT 12 CREST PAPER MILLS LTD CONTROVERT THE FINDINGS OF FACT RECORDED BY THE AO IN RESPECT OF NON APPEARANCE OF PARTIES TO THE NOTICES ISSUED BY THE AO. THE LD.CIT(A) ALSO FAILED TO CONTROVERT THE FINDINGS OF THE AO IN RESPECT OF SHORTCOMING IN THE DOCUMENTS MAINTAINED BY THE ASSESSEE IN RESPECT OF SALES AND PURCHASES. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE A O WAS RIGHT IN REJECTION OF BOOKS OF ACCOUNT U/S 145 OF THE I.T. ACT, 1961, WHE N THE ASSESSEE HAS FAILED TO FILE COMPLETE DETAILS OF EVIDENCES IN SUPPORT OF PU RCHASE AND SALES TRANSACTIONS RECORDED IN THE BOOKS OF ACCOUNT. 11. HAVING SAID SO, LET US EXAMINE THE RATE OF NET PROFIT APPLIED BY THE AO TO DETERMINE THE PROFIT FROM THE BUSINESS. THE AO HAS ADOPTED 8% PROFIT ON TOTAL SALES TURNOVER. BUT, THE LD.CIT(A) HAS DELETED EST IMATION OF NET PROFIT BY FOLLOWING THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF GOLD STAR FIN VEST LTD VS ITO (SUPRA) BY HOLDING THAT THE AO HAS NOT B ROUGHT ON RECORD ANY EVIDENCE TO PROVE THAT ASSESSEE HAS EARNED 8% PROFI T OR THAT THE ASSESSEE HAD EARNED PROFIT MORE THAN WHAT WAS REFLECTED IN THE B OOKS OF ACCOUNT. WE HAVE GONE THROUGH THE CASE LAWS RELIED UPON BY THE LD.CI T(A) IN THE LIGHT OF FACTS AND FIND THAT THE FACTS OF THE CASE CONSIDERED BY T HE LD.CIT(A) ARE ENTIRELY DIFFERENT FROM THE FACTS OF THE PRESENT CASE. IN T HE CASE BEFORE THE ITAT, THE ISSUE WAS ESTIMATION OF PROFIT IN RESPECT OF A SHAR E BROKER INVOLVED IN DEALING IN SHARES AND SECURITIES. UNDER THESE FACTS, THE ITAT CAME TO THE CONCLUSION THAT 13 CREST PAPER MILLS LTD THE STOCK BROKERS ARE DEALING IN SHARES AND SECURIT IES ON BEHALF OF THEIR CUSTOMERS BY CHARGING NOMINAL COMMISSION OF 0.15% A ND THE SAID FINDING OF THE ITAT IS SUPPORTED BY ANOTHER DECISION OF CO-ORD INATE BENCH IN THE CASE OF ITO VS PARLESH & CO. IN THIS CASE, ADMITTEDLY, THE ASSESSEE WAS IN THE BUSINESS OF TRADING IN TEXTILES. THE ASSESSEE CLAIMED TO HA VE TRADED IN TEXTILES. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE L D.CIT(A) WAS ERRED IN APPLYING THE RATIO OF DECISION IN THE CASE OF GOLD STAR FIN VEST LTD VS ITO (SUPRA) TO DELETE ADDITION MADE BY THE AO AT 8% OF NET PROF IT. 12. HAVING SAID SO, WHAT IS APPROPRIATE PERCENTAGE OF PROFIT NEEDS TO BE ESTIMATED, IN CASE BOOKS OF ACCOUNT ARE REJECTED U/ S 145 OF THE INCOME-TAX ACT, 1961. THERE IS NO HARD AND FAST RULE OR STAGGERING FORMULA FOR ESTIMATION OF NET PROFIT AND WHICH DEPENDS UPON FACTS AND NATURE OF BUSINESS CARRIED OUT BY THE ASSESSEE. BUT WHAT IS RELEVANT IS THE ESTIMATI ON MADE BY THE ASSESSING AUTHORITY SHOULD BE REASONABLE HAVING REGARD TO THE NATURE OF BUSINESS OF THE ASSESSEE OR IT SHOULD BE BASED ON A COMPARABLE CASE OF A SIMILAR NATURE OF BUSINESS. IN CASE, THERE IS NO COMPARABLE CASES, O NE CAN GO TO PROVISIONS OF SECTION 44AD. THE STATUTE HAS PROVIDED A SPECIFIC PROVISION FOR ESTIMATION OF NET PROFIT, IN CASE OF ASSESSEES INVOLVED IN RETAIL BUSINESS. AS PER THE PROVISIONS OF SECTION 44AF OF THE I.T. ACT, IF THE TURNOVER OF A SPECIFIC ASSESSEE IS LESS THAN THE PRESCRIBED LIMIT AND ALSO IF THE P ROFIT DECLARED BY THE ASSESSEE IS 14 CREST PAPER MILLS LTD IN LINE WITH THE PRESCRIBED PERCENTAGE, THEN THE AO NEEDS TO ACCEPT THE BOOK RESULTS DECLARED BY THE ASSESSEE. AS PER THE PROVI SIONS OF SECTION 44AF, STATUTE HAS PRESCRIBED ESTIMATION OF NET PROFIT OF 5% IN CA SE OF ASSESSES ENGAGED IN RETAIL TRADING. IN THIS CASE, THE ASSESSEE IS ENGA GED IN TRADING IN TEXTILES. THE BOOKS OF ACCOUNT OF THE ASSESSEE HAS BEEN REJECTED BY THE AO U/S 145 OF THE I.T. ACT, 1961. THEREFORE, WHEN BOOKS OF ACCOUNT A RE REJECTED, THE BOOKS RESULTS OF THE ASSESSEE COULD NOT BE RELIED UPON TO DETERMINE THE TRUE AND CORRECT PROFITS FROM THE BUSINESS. THE AO HAS TO B RING ON RECORD SOME COMPARABLE CASES OF SIMILAR NATURE OR ESTIMATE A RE ASONABLE NET PROFIT WHICH IS IN LINE WITH THE PROFIT IN SIMILAR LINE OF BUSINESS . IN THIS CASE, THE AO HAS ADOPTED 8% PROFIT, BUT THE SAID ESTIMATION IS NOT S UPPORTED BY ANY COMPARABLE CASE OF SIMILAR NATURE. THE AO HAS ADOPTED 8% PROF IT, WHICH IS APPLICABLE FOR SPECIFIED ASSESSEE AS PER SECTION 44AD. IN CASE OF RETAIL TRADERS, THE STATUTE PROVIDES FOR 5% PROFIT ON TOTAL SALES. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT NET PROFIT OF 5% WOULD MEET ENDS OF JUSTICE. THEREFORE , WE REVERSE THE FINDINGS OF THE LD.CIT(A) AND UPHOLD ESTIMATION OF NET PROFIT OF 5% ON TOTAL SALES TURNOVER. 13. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESSEES APPEAL IS ADDITION TOWARDS WAIVER OF LOANS OF BANKS UNDER ONE TIME SETTLEMENT SCHEME. THE ASSESSEE HAS TREATED WAIVER OF LOANS B Y THE BANKS AS CAPITAL 15 CREST PAPER MILLS LTD RECEIPT AND CREDITED TO RESERVES AND SURPLUS ACCOUN T. THE AO HAS ADDED LOAN WAIVER U/S 41(1) OF THE ACT AS REMISSION / CESSATIO N OF LIABILITY FOR THE REASON THAT THE ASSESSEE HAS GOT BENEFIT OF WAIVER OF LOAN BORROWED FOR THE PURPOSE OF BUSINESS. ACCORDING TO THE AO, ALL WORKING CAPI TAL LOAN BORROWED FOR THE PURPOSE OF BUSINESS SHALL BE TREATED AS BUSINESS RE CEIPTS IN CASE ANY BENEFIT DERIVED BY THE ASSESSEE ON ACCOUNT OF LOAN WAIVER S CHEME. IT IS THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE DOES NOT GET ANY BENEFIT ON ACCOUNT OF WAIVER OF LOAN AND THE SAME CANNOT BE TREATED AS RE MISSION OF LIABILITY U/S 41(1) AS THE SAME HAS NOT BEEN CONSIDERED AS DEDUCT ION IN THE EARLIER YEARS AND ALSO NO BENEFIT HAS BEEN DERIVED BY THE ASSESSE E. THE ASSESSEE FURTHER CONTENDED THAT IN ORDER TO FIX A PARTICULAR LOAN UN DER THE PROVISIONS OF SECTION 41(1), THERE HAS TO BE REMISSION / CESSATION OF LIA BILITY AND THERE HAS TO BE RECOVERY OF ANY LOSS IN THE SUBSEQUENT YEAR ON ACCO UNT OF REMISSION, BUT IN THIS CASE, THE ASSESSEE HAS GOT THE BENEFIT OF LOAN WAIV ER. THEREFORE, THE SAID LIABILITY CANNOT BE TREATED AS REMISSION OR CESSATI ON OF LIABILITY U/S 41(1) OF THE ACT. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE AO HAS BROUGHT OUT CLEAR FACTS TO THE EFFECT THAT THE ASSESSEE HAS DERIVED BENEFIT OUT OF WAIVER OF WORKING CAPITAL LO AN BORROWED BY THE ASSESSEE FROM BANKS BY WAY OF HYPOTHECATION OF STOCKS AND RE CEIVABLES. FROM THE 16 CREST PAPER MILLS LTD FINDINGS OF THE LD.AO, IT IS VERY CLEAR THAT THE AS SESSEE HAS NOT BORROWED THE LOAN FOR THE PURPOSE OF ACQUIRING ANY CAPITAL ASSET . WHEN A LOAN IS BORROWED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, THE PR INCIPAL AMOUNT OF LOAN INCLUDING ANY INTEREST WAIVED WOULD CONSTITUTE INCO ME CHARGEABLE TO TAX UNDER THE ACT. SINCE THE ASSESSEE HAS FAILED TO CONTROVE RT THE FINDING OF FACTS RECORDED BY THE LOWER AUTHORITIES THAT THE SAID LOA N HAS BEEN TAKEN FOR THE PURPOSE OF ACQUIRING CAPITAL ASSET, WE FIND NO REAS ON TO INTERFERE WITH THE FINDINGS OF THE LOWER AUTHORITIES THAT THE BENEFIT DERIVED BY THE ASSESSEE BY WAY OF WAIVER OF LOAN CONSTITUTE BUSINESS PROFIT WH ICH IS TAXABLE UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. THIS LE GAL PROPOSITION IS SUPPORTED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD VS DCIT (2009) 308 ITR 470 (BOM) WHEREIN IT WAS HELD THAT IF AN AMOUNT IS RECEIVED IN COURSE OF A TRADING TRANSACTION EVEN TH OUGH IT IS NOT TAXABLE IN THE YEAR OF RECEIPT IS BEING OF CAPITAL CHARACTER, THAT THE AMOUNT CHANGES ITS CHARACTER WHEN THE AMOUNT BECOMES ASSESSEES OWN MO NEY BECAUSE OF LIMITATION OR BY WAY OF OTHER STATUTORY OR CONTRACT UAL RIGHT. WHEN SUCH A THING HAPPENS, COMMON SENSE DEMANDS THAT THE AMOUNT SHOUL D BE TREATED AS INCOME OF THE ASSESSEE. THIS LEGAL PROPOSITION IS FURTHER STRENGTHENED BY THE DECISION OF ITAT, DELHI BENCHES IN THE CASE OF DCIT VS LOGISTRONICS PVT LTD 127 ITD 16 (DEL) WHEREIN THE TRIBUNAL HELD THAT THE PRI NCIPAL AMOUNT OF LOAN WHICH 17 CREST PAPER MILLS LTD WAS TAKEN FOR THE PURPOSE OF BUSINESS ARE TRADING L IABILITY; ON ITS WAIVER BY THE CREDITOR WOULD CONSTITUTE INCOME CHARGEABLE TO TAX UNDER THE ACT. IT WAS FURTHER OBSERVED THAT IF THE LOAN WAS UTILISED FOR THE PURPOSE OF ACQUIRING ANY CAPITAL ASSET, THE SAME ON ITS WAIVER, WOULD NOT CO NSTITUTE INCOME CHARGEABLE TO TAX EITHER U/S 41(1) OR U/S 28(IV) OF THE INCOME -TAX ACT, 1961. IN THIS CASE, ON PERUSAL OF FACTS, WE FIND NOTICED THAT THE ASSES SEE HAS BORROWED WORKING CAPITAL LOAN FROM BANKS BY WAY OF HYPOTHECATION OF STOCKS AND RECEIVABLES. WHEN A WORKING CAPITAL LOAN IS WAIVED BY BANKS, THE SAME CONSTITUTE BUSINESS RECEIPTS CHARGEABLE TO TAX. THE LD.CIT(A), AFTER C ONSIDERING RELEVANT FACTS, HAS RIGHTLY ALLOWED PARTIAL RELIEF OF RS.17,99,653 WHIC H IS ON ACCOUNT OF WAIVER OF TERM LOAN AND CONFIRMED BALANCE AMOUNT BEING WAIVER OF WORKING CAPITAL LOAN. WE DO NOT FIND ANY ERROR IN THE FINDINGS OF THE LD. CIT(A) AND HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LD.CIT(A) AN D REJECT GROUND TAKEN BY THE ASSESSEE. 15. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF EXPENSES AMOUNTING TO RS.5,66,26,527. THE FACTUAL MATRIX OF THE IMPUGNED DISPUTE ARE THAT THE ASSESSEE HAS CREDITED INTEREST WAIVER BY THE BANKS TO P&L ACCOUNT. AGAINST SUCH INTEREST WAIVER, THE ASSESSE E HAS CLAIMED VARIOUS EXPENSES INCLUDING DEPRECIATION ON PLANT AND MACHIN ERY, BAD DEBT WRITTEN OFF, WRITE OFF OF OBSOLETE INVENTORIES, DEBIT BALANCES W RITTEN OFF, WRITE OFF OF 18 CREST PAPER MILLS LTD OBSOLETE STORES & SPARES AND ALSO CLAIMED DIRECT AN D ADMINISTRATIVE EXPENSES INCLUDING INTEREST PAID ON LOAN. THE AO HAS DISALL OWED EXPENSES CLAIMED AGAINST INTEREST INCOME CREDITED TO P&L ACCOUNT INC LUDING DEPRECIATION ON THE GROUND THAT THE ASSESSEE HAS NOT USED THE PLANT & M ACHINERY FOR THE MANUFACTURING ACTIVITIES. THEREFORE, DEPRECIATION AS ENVISAGED U/S 32 CANNOT BE ALLOWED. THE AO ALSO DISALLOWED BAD DEBTS WRITE OFF CLAIMED BY THE ASSESSEE AND OTHER EXPENSES ON THE GROUND THAT THE ASSESSEE WANTS TO NULLIFY THE TAX INVOLVED IN AMOUNT CREDITED TO P&L ACCOUNT ON ACCOUNT OF INTEREST WAIVER BY THE BANKS. THE AO FURTHER OBSERVED THAT THE ASSESSEE NEITHER HOLDS ANY INVENTORY IN THE OPENING STOCK NOR IN THE CLOSI NG STOCK. THE ASSESSEE HAS SHOWN PURCHASES AND SALES WHICH IS ALMOST SIMILAR A ND REASON FOR OBSOLETE INVENTORIES WROTE OFF IS NOT EXPLAINED WITH NECESSA RY EVIDENCE. THEREFORE, HE CAME TO THE CONCLUSION THAT EXPENSES HAVE BEEN CLAI MED TO SET OFF THE INCOME CREDITED TO THE P&L ACCOUNT BEING INTEREST WAIVER C ANNOT BE ALLOWED AS DEDUCTION AND ACCORDINGLY, THE TOTAL INCOME CREDITE D TO P&L ACCOUNT TO THE TUNE OF RS.5,66,26,527 HAS BEEN TAXED U/S 41(1) OF THE INCOME-TAX ACT, 1961. 16. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT ALTHO UGH THE ASSESSEE DID NOT CLAIM DEPRECIATION ON PLANT & MACHINERY FOR PAST SE VEN YEARS DUE TO THE FACT THAT THE SAID MACHINERY WAS UNDER THE CONTROL OF BA NKS, BUT DURING THE YEAR UNDER CONSIDERATION, I.E. IN JUNE, 2009 AFTER ONE T IME SETTLEMENT WITH BANKS, 19 CREST PAPER MILLS LTD THE ASSESSEE GOT BACK THE ASSETS, THEREFORE, IT HAS CLAIMED DEPRECIATION AS PER THE PROVISIONS OF LAW. MERELY FOR THE REASON THAT THERE WAS NO DEPRECIATION IN EARLIER YEARS, DEPRECIATION CLAIMED ON PLANT & MACH INERY WHICH WERE USED IN THE BUSINESS COULD NOT BE DISALLOWED. SIMILARLY, T HE ASSESSEE HAS CONTENDED THAT IN RESPECT OF BAD DEBTS WRITTEN OFF AND WRITE OFF OF DEBIT BALANCE IN ADVANCE ACCOUNT, THE ASSESSEE HAS PASSED NECESSARY ENTRIES IN THE BOOKS OF ACCOUNT TO WRITE OFF OF THE DEBTS WHICH WERE IRRECO VERABLE. THEREFORE, THE AO WAS INCORRECT IN REJECTING THE CLAIM MERELY FOR THE REASON THAT NO EVIDENCE HAS BEEN FILED. IN RESPECT OF WRITE OFF OF OBSOLETE IN VENTORY, STORES AND SPARES, THE LD.AR SUBMITTED THAT THE ASSESSEE HAS FILED COMPLET E DETAILS BEFORE THE AO; HOWEVER, THE AO HAS REJECTED THE EVIDENCE FILED BY THE ASSESSEE ONLY FOR THE REASON THAT THERE WAS NO BUSINESS ACTIVITY IN THE Y EAR AND ALSO THERE WAS NO OPENING AND CLOSING STOCK. AS REGARDS ADMINISTRATI VE EXPENSES, INTEREST PAID AND OTHER DIRECT EXPENSE, THE LD.AR HAS SUBMITTED T HAT THE ASSESSEE HAS PAID INTEREST ON LOAN BORROWED TO REPAY THE EXISTING LOA N WHICH WERE BORROWED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND HENCE, WHATEVER INTEREST PAID ON LOAN HAS NECESSARILY TO BE ALLOWED AS DEDUCTION. I NSOFAR AS EXPENSES, WHETHER THE ASSESSEE IS CARRYING OUT ITS BUSINESS OR NOT, T O MAINTAIN THE CORPORATE STATUS OF THE ASSESSEE, IT NEEDS TO INCUR VARIOUS E XPENSES. THEREFORE, THERE WAS NO REASON FOR THE AO TO DISALLOW EXPENDITURE. 20 CREST PAPER MILLS LTD 17. THE LD.DR, ON THE OTHER HAND, STRONGLY SUPPORTE D THE ORDER OF THE LD.CIT(A). THE LD.DR FURTHER SUBMITTED THAT THE LD .CIT(A) HAS APPRISED THE FACTS IN THE LIGHT OF EVIDENCES PRODUCED BY THE ASS ESSEE TO COME TO THE CONCLUSION THAT THERE IS NO REASON TO ALLOW DEPRECI ATION AS THE ASSESSEE NEITHER CARRIED OUT ANY BUSINESS ACTIVITY NOR PROVE D THE EXISTENCE OF ASSETS WHICH IS PRE-CONDITION FOR CLAIMING DEPRECATION U/S 32 OF THE ACT. SIMILARLY, IN RESPECT OF OTHER EXPENSES, NO DETAILS HAS BEEN FILE D BEFORE THE AO EXCEPT STATING THAT IT HAS INCURRED VARIOUS EXPENDITURE. THEREFORE, THE LD.CIT(A) WAS RIGHT IN DISALLOWING EXPENSES CLAIMED BY THE ASSESS EE BY ALLOWING ADHOC AMOUNT OF RS.25 LAKHS FOR ADMINISTRATIVE & OTHER EX PENSE. 18. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS SHUT DOWN ITS BUSINESS O PERATIONS SINCE 2002, WHEN THE BANKS HAVE TAKEN POSSESSION AND CONTROL OF ITS ASSETS INCLUDING PLANT & MACHINERY FOR NON PAYMENT OF LOANS. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HAS GONE INTO A ONE TIME SETTLEMENT WITH B ANKS AND SETTLED ITS DUES IN THE YEAR 2009. FROM 2002 TO 2009 THERE WAS NO B USINESS OPERATIONS. EVEN DURING THE YEAR UNDER CONSIDERATION, EXCEPT FOR A T RADING ACTIVITY OF A DIFFERENT PRODUCT, THE ASSESSEE DID NOT CARRY OUT ANY BUSINES S ACTIVITY INCLUDING MANUFACTURE OF ITS OWN PRODUCT. THEREFORE, THE QUE STION OF USE OF PLANT & 21 CREST PAPER MILLS LTD MACHINERY IN ITS BUSINESS IS RULED OUT. WE FURTHER NOTICE THAT IN ORDER TO CLAIM DEPRECIATION AS PER PROVISIONS OF SECTION 32, THE A SSESSEE HAS TO PROVE THAT THE SAID PLANT & MACHINERY OWNED BY THE ASSESSEE HAS BE EN USED FOR THE PURPOSE OF BUSINESS OR PROFESSION IN THE YEAR UNDER CONSIDE RATION. IN THIS CASE, SINCE THE ASSESSEE HAS FAILED TO PROVE USE OF ITS PLANT & MACHINERY FOR ITS BUSINESS, THE LOWER AUTHORITIES WERE RIGHT IN REJECTING DEPRE CIATION CLAIMED BY THE ASSESSEE. THIS LEGAL PROPOSITION IS SUPPORTED BY T HE DECISION OF JURISDICTIONAL HIGH COURT OF NAGPUR BENCH IN THE CASE OF DINESHKUM AR GULABCHAND AGARWAL VS CIT 267 ITR 768 (BOM)(NAGPUR BENCH) WHERE IT WAS OBSERVED THAT THE WORD USED IN SECTION 32 DENOTES ACTUAL USE FOR THE PURPO SE OF BUSINESS. THE LD.CIT(A), AFTER APPRISING RELEVANT FACTS AND ALSO BY FOLLOWING JURISDICTIONAL HIGH COURT DECISION IN THE ABOVE CASE, HAS COME TO THE C ONCLUSION THAT DEPRECIATION WAS RIGHTLY DISALLOWED BY THE AO. WE DO NOT FIND A NY ERROR IN THE FINDINGS OF THE LD.CIT(A); HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF LD.CIT(A) AND REJECT GROUND TAKEN BY THE ASSESSEE. 19. COMING TO OTHER DISALLOWANCES INCLUDING DISALLO WANCE OF INVENTORIES WRITTEN OFF OF STORES & SPARES, DIRECT EXPENSES, IN TEREST PAID AND ADMINISTRATIVE EXPENSES TOTALLING TO RS.1,90,20,078. AS REGARDS I NTEREST PAID, THE LD. CIT(A) HAS ALLOWED THE CLAIM BY HOLDING THAT THE ASSESSEE HAS PROVED PAYMENT OF INTEREST ON BORROWING LOAN FOR THE PURPOSE OF BUSIN ESS. IN REGARD TO THE OTHER 22 CREST PAPER MILLS LTD EXPENSES, THE LD.CIT(A) HAS OBSERVED THAT THE ASSES SEE HAS FAILED TO FILE ANY EVIDENCE INCLUDING BILLS AND VOUCHERS TO PROVE THAT SAID EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE. THE L D.CIT(A) FURTHER OBSERVED THAT EVEN THOUGH THE ASSESSEE HAS FAILED TO PROVE T HE NECESSITY OF INCURRING SAID EXPENDITURE, KEEPING IN VIEW THE FACT THAT THE ASSESSEE HAS REGAINED CONTROL OVER PLANT & MACHINERY, IT HAS TO INCUR CER TAIN EXPENDITURE ON REPAIRS AND MAINTENANCE AND SECURITY AND ALSO TO INCUR CERT AIN ADMINISTRATIVE EXPENDITURE IN ORDER TO MAINTAIN ITS CORPORATE STAT US, HAS ALLOWED AN AMOUNT OF RS.25 LAKHS TOWARDS EXPENSES AND BALANCE AMOUNT OF RS.1,17,66,261 HAS BEEN CONFIRMED. FACTS REMAIN UNCHANGED. THE ASSES SEE FAILED TO BRING ON RECORD ANY EVIDENCE TO COUNTER THE FACTS OF FINDING RECORDED BY THE LD.CIT(A). HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF L D.CIT(A) AND REJECT GROUND TAKEN BY THE ASSESSEE. 20. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS NOT ALLOWING SET OFF OF BROUGHT FORWARD LOSSES OF EARLIER YEARS. THE LD .AR FOR THE ASSESSEE SUBMITTED THAT THE LD.CIT(A) WAS NOT DISCUSSED THE ISSUE OF CARRY FOWARD OF SET OFF OF VARIOUS LOSSES AGGREGATING TO RS.2,18,78,078 EVEN THOUGH THE ASSESSEE HAS FILED COMPLETE DETAILS OF LOSSES CLAIMED IN THE RETURNS AND ALLOWABILITY OF SUCH LOSSES. 23 CREST PAPER MILLS LTD 21. HAVING HEARD BOTH THE PARTIES, WE FIND THAT THE LD.CIT(A) DID NOT ADJUDICATE THE GROUND TAKEN BY THE ASSESSEE IN RESP ECT OF CARRY FORWARD AND SET OFF OF LOSSES . THE ASSESSEE CLAIMS THAT LOSS CLAIMED IS ALLOWABLE AS IT HAS FULFILLED THE CONDITIONS PRESCRIBED U/S 72 OF THE I NCOME-TAX ACT, 1961. THEREFORE, WE SET ASIDE THE ISSUE TO THE FILE OF TH E AO AND DIRECT THE AO TO VERIFY THE DETAILS FILED BY THE ASSESSEE TO ASCERTA IN WHETHER CARRY FORWARD AND SET OFF OF LOSSES IS ALLOWABLE OR NOT. IN CASE, TH E AO FOUND THAT THE ASSESSEE HAS FULFILLED ALL THE CONDITIONS PRESCRIBED UNDER T HE ACT, TO ALLOW THE BENEFIT OF CARRY FORWARD AND SET OFF OF LOSSES, THEN, THE AO I S DIRECTED TO ALLOW LOSSES CLAIMED BY THE ASSESSEE. 22. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESSEES APPEAL IS RE-COMPUTATION OF BOOK PROFIT U/S 115JB O F THE ACT. 23. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE A SSESSEE HAS NOT PRESSED THE GROUND AT THE TIME OF APPELLATE PROCEEDINGS BEF ORE CIT(A), HOWEVER, DETAILED SUBMISSIONS WERE FILED BEFORE THE LD.CIT(A ) TO EXPLAIN HOW ADDITION MADE U/S 41(1) COULD NOT BE ADDED TO BOOK PROFIT CO MPUTED U/S 115JB. WE FIND THAT THE LD.CIT(A) HAS REJECTED THE GROUND TAK EN BY THE ASSESSEE BY HOLDING THAT THE ASSESSEE DID NOT PRESS THE GROUND, BUT ON VERIFICATION OF DETAILS FILED BY THE ASSESSEE WE FIND THAT THE ASSE SSEE HAS FILED A DETAILED NOTE ON RE-COMPUTATION OF BOOK PROFIT U/S 115JB OF THE A CT. WE FURTHER NOTICE THAT 24 CREST PAPER MILLS LTD WHETHER THE ADDITION MADE BY THE AO TOWARDS REMISSI ON OR CESSATION OF LIABILITY U/S 41(1) COULD BE A SUBJECT MATTER OF AD DITION TO BOOK PROFIT COMPUTED U/S 115JB HAS TO BE EXAMINED IN THE LIGHT OF PROVISIONS OF EXPLANATION 1 TO SECTION 115JB . THE REMISSION / C ESSATION OF LIABILITY U/S 41(1) OF THE ACT IS AN ITEM OF INCOME TO BE CREDITED TO T HE P&L ACCOUNT AS AND WHEN THE ASSESSEE GOT BENEFIT BY WAY OF REMISSION / CESS ATION OF LIABILITY. IN THIS CASE, EVEN THOUGH THE ASSESSEE HAS DERIVED BENEFIT OUT OF ONE TIME SETTLEMENT GIVEN BY BANKS ON ACCOUNT OF WAIVER OF WORKING CAPI TAL LOAN, THE ASSESSEE HAS DIRECTLY CREDITED THE SAID BENEFIT TO CAPITAL RESER VES ACCOUNT WITHOUT ROUTING IT THROUGH P&L ACCOUNT. THE AO HAS MADE ADDITION OF T HE AMOUNT OF WAIVER OF WORKING CAPITAL LOAN BY THE BANKS U/S 41(1) OF THE INCOME-TAX ACT. WHEN AN ITEM OF INCOME IS PART OF P&L ACCOUNT AND THE ASSES SEE HAS NOT ROUTED THE SAID ITEM THROUGH P&L ACCOUNT, THE AO HAS EVERY RIGHT TO MAKE ADDITION OF THE SAID AMOUNT UNDER THE NORMAL PROVISIONS OF THE ACT TO TH E BOOK PROFIT COMPUTED U/S 115JB OF THE ACT. ALTHOUGH THE ASSESSEE HAS RE LIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES L TD VS CIT TO ARGUE THAT BOOK PROFIT COMPUTED U/S 115JB COULD NOT BE ALTERED EXCEPT AS PROVIDED IN EXPLANATION 1 TO SECTION 115JB, BUT FACT REMAINS TH AT THE ASSESSEE HAS NOT PREPARED ITS ACCOUNT IN ACCORDANCE WITH PARTS II & III OF SCHEDULE VI TO THE COMPANIES ACT AND SUCH ACCOUNTS ARE NOT IN ACCORDA NCE WITH THE PROVISIONS OF 25 CREST PAPER MILLS LTD SECTION 211(C) OF COMPANIES ACT, 1956. IN SUCH CAS ES, THE AO HAS EVERY RIGHT TO MAKE ADJUSTMENT TOWARDS BOOK PROFIT COMPUTED U/S 11 5JB OF THE ACT. IN THIS CASE, SINCE THE ASSESSEE HAS NOT ROUTED THE BENEFIT GOT OUT OF ONETIME SETTLEMENT OF LOAN FROM THE BANKS THROUGH P&L ACCOU NT, THE AO HAS RIGHTLY MADE ADDITION TO BOOK PROFIT COMPUTED U/S 115JB IN RESPECT OF ADDITION MADE U/S 41(1) OF THE ACT. THEREFORE, WE ARE OF THE CON SIDERED VIEW THAT THERE IS NO ERROR IN THE ADJUSTMENT MADE BY THE AO AND ACCORDIN GLY, WE UPHOLD THE AOS FINDING AND REJECT GROUND TAKEN BY THE ASSESSEE. 24. IN THE RESULT, APPEAL FILED BY THE REVENUE IN I TA NO.2579/MUM/2016 IS PARTLY ALLOWED AND APPEAL FILED BY THE ASSESSEE IN ITA NO.3044/MUM/2016 IS PARTLY ALLOWED, FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 19 -12-2018 . SD/- SD/- (RAVISH SOOD) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 19 TH DECEMBER, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI