ACIT, Kota V. M/S CHAMBLE FERTILIZERS & CHEMICALS LTD., Kota

ITA 268/JPR/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54258 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-12-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 24-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RITU G P; P J PARDIWALA SHRI M L PAT ODI
• Keywords: Business income; Depreciation; Business expenditure; Capital receipt; Commercial expediency; Revised return; TDS
• Section: 43B; 10B; 80IA; 37; 28; 154

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ) ITA NO. 268/JP/2010 ASSESSMENT YEAR : 2006-07 PAN : AAACC 9762 A THE ACIT VS. M/S. CHAMBAL FERTILIZERS & CHEMICAL S LTD. CIRCLE- 2, KOTA GADEPAN, DISTT KOTA (APPELLANT) (RESPONDENT) ITA NO. 374/JP/2010 ASSESSMENT YEAR : 2007-08 PAN : AAACC 9762 A M/S. CHAMBAL FERTILIZERS & CHEMICALS LTD. VS. THE ITO GADEPAN, DISTT KOTA WARD- 1 (1), KOTA (APPELLANT) (RESPONDENT) ITA NO. 536/JP/2010 ASSESSMENT YEAR : 2007-08 PAN : AAACC 9762 A THE ACIT VS. M/S. CHAMBAL FERTILIZERS & CHEMIC ALS LTD. CIRCLE- 2 KOTA GADEPAN, DISTT KOTA (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI SUNIL MATHUR ASSESSEE BY : SHRI P.J. PARDIWALA, SHRI M.L. PAT ODI AND SMT. RITU G.P. DAS DATE OF HEARING: 30-09-2011 DATE OF PRONOUNCEMENT: 31-10-2011 ORDER PER N.L. KALRA, AM:- THE REVENUE HAS FILED APPEALS AGAINST TWO DIFFERE NT ORDERS OF THE LD. CIT(A), DATED 22 ND DEC. 2009 AND 11TH MARCH 10 FOR THE ASSESSMENT YEA R 2006-07 AND 2007-08 RESPECTIVELY. THE ASSESSEE HAS FILED THE CROSS APPEAL FOR THE ASSESSMENT YEAR 2007-08. 2 2.0 FIRST OF ALL, WE TAKE UP THE APPEAL OF THE REVE NUE FOR THE ASSESSMENT YEAR 2006-07. 2.1 THE FIRST GROUND OF APPEAL OF THE REVENUE IS TH AT THE LD. CIT(A) HAS ERRED IN HOLDING THAT PAYMENT OF RS. 20,77,107/- TO DAV TRUST BEING REIMBURSEMENT FOR RUNNING SCHOOL IN THE PREMISES OF THE ASSESSEE IS ALLOWABLE AS STAFF WELFARE EXPENSES U/S 37 OF THE A CT. IT IS FURTHER MENTIONED IN THE GROUND OF APPEAL THAT DECISION OF THE LD. CI T(A) IS BASED ON THE DECISION GIVEN IN EARLIER YEARS AND FINDING OF THE LD. CIT(A) HAS NOT BEEN ACCEPTED BY THE REVENUE IN EARLIER YEARS. 2.2 THE AO NOTICED FROM THE AUDIT REPORT THAT THE A SSESSEE HAS PAID A SUM OF RS. 20,77,107/ - TO DAV TRUST MANAGEMENT SOCIETY TOWARDS RUNNING OF SCHOOL AND CLAIMED IT AS BUSINESS EXPENDITURE IN VI EW OF TRIBUNALS DECISION IN THE CASE OF RASSI CEMENT VS. ITO, 45 ITD 233 (HY DERABAD). ACCORDING TO THE AO, THE DECISION IN THE CASE OF RASSSI CEMENT VS. ITO, SUPRA IS DISTINGUISHABLE AS IN THAT CASE THE DRAFT DEED WAS PREPARED IN WHICH ROLE OF BOTH THE PARTIES WAS SPECIFIED. IN THE INSTANT CASE , THE CONTENTS OF THE TRUST DEED DID NOT STIPULATE ANY CONDITIONS WHEREIN ROLE OF THE ASSESSEE COMPANY IN MAINTAINING THE SCHOOL IS DEFINED. THE TRUST IS NOT OBLIGED TO ADMIT OR GIVES PRIORITY IN ADMISSION TO THE CHILDREN OF COMP ANYS EMPLOYEES. IT HAS BEEN ADMITTED THAT CHILDREN OF NEARBY AREA ARE FAR MORE IN NUMBERS THAN THOSE OF THE EMPLOYEES. ACCORDING TO THE AO, THE D ECISION OF SHREE SARASWATHI MILLS LTD. IS APPLICABLE. THE FACTS FOR THE ASSESSMENT YEAR UNDER 3 CONSIDERATION ARE IN CONSONANCE WITH THOSE OF THE P RECEDING YEARS AND ARE FOUND TO BE IN PARI MATERIA WITH THE POSITION OF TH E CURRENT YEAR. THE AO THEREFORE, GAVE THE SAME FINDINGS WHICH HAS BEEN G IVEN BY HIS PREDECESSOR IN EARLIER YEARS. 2.3 BEFORE LD. CIT(A), IT WAS SUBMITTED THAT THE PA YMENT WAS MADE TO DAV TRUST THAT RUNS THE PRIMARY SCHOOL SITUATED AT THE PROJECT SITE. THE PROJECT IS SITUATED AT A DISTANCE OF 35 KM FROM THE CITY OF KOTA. IT WAS NECESSARY TO RUN THE SCHOOL FOR THE BENEFIT OF THE EMPLOYEES. THE AGREEMENT WITH DAV CLEARLY SPELT OUT THE ENTERPRISE IS DESI ROUS OF SETTING UP AN ENGLISH MEDIUM SCHOOL IN THE AREA OF ITS TOWNSHIP A T GADEPAN FOR THE BENEFIT OF CHILDREN OF THE EMPLOYEES OF THE PROJECT AND OTHERS IN THE VICINITY. THE ASSESSEE HAS MADE CONTRIBUTION TOWA RDS REIMBURSEMENT OF THE EXPENSES AND SUCH EXPENDITURE IS IN THE NATURE OF S TAFF WELFARE EXPENSES. THE PAYMENTS DID NOT FALL WITHIN THE AMBIT OF SECTION 4 0A(9). 2.4 THE LD. CIT(A) HAS FOLLOWED THE FINDINGS FOR EA RLIER ASSESSMENT YEARS AND HELD THAT THE EXPENDITURE IS ALLOWABLE U/S 37 O F THE ACT. 2.5 BEFORE US, THE LD. DR IN HIS WRITTEN SUBMISSION HAS STATED THAT EXPENDITURE IS NOT ALLOWABLE ON ACCOUNT OF FOLLOWI NG REASONS. (I) THIS EXPENDITURE IS MADE IN THE NATURE OF A C ONTRIBUTION TO THE DAV TRUST WHICH RUNS A SCHOOL NEAR ASSESSEE S PLANT AT GADEPAN. THIS CONTRIBUTION IS MADE BY THE ASSESSEE AS AN EMPLOYER. AS PER SECTION 40A(9) ANY CONTRIBUTION MADE BY THE ASSESSEE AS AN 4 EMPLOYER TO ANY TRUST IS TO BE DISALLOWED U/S 40A(9 ). THEREFORE, THIS CONTRIBUTION MADE BY THE ASSESSEE TO DAV TRUST SHOU LD NOT BE ALLOWED AS A DEDUCTION. (II) THIS EXPENDITURE CANNOT BE ALLOWED EVEN UNDER THE GENERAL PROVISIONS OF SEC. 37 OF THE I.T. ACT ALSO. IN THE RECENT DECISION OF SOUTHERN TECHNOLOGIES LTD. VS. JCIT COI MBATORE(2010) 320 ITR 577(SC). HON. SUPREME COURT HAS CLEARLY LAI D DOWN THE PRINCIPLE IN THIS REGARD. AS PER THIS DECISION OF H ON. SUPREME COURT, IF ANY EXPENDITURE IS NOT ALLOWABLE TO THE ASSESSEE UN DER ANY SPECIFIC PROVISION OF THE I.T. ACT 1961 THEN IT CANNOT BE AL LOWED UNDER THE GENERAL PROVISIONS OF SEC. 37 UNDER THE GUISE OF BE ING AN EXPENDITURE INCURRED FOR BUSINESS PURPOSES. HERE ALSO AS PER T HE SPECIFIC PROVISIONS OF SEC. 40A(9) THE CONTRIBUTION TO THE D AV TRUST CANNOT BE ALLOWED TO THE ASSESSEE UNDER SEC. 40A(9) AND THERE FORE IT CANNOT BE ALLOWED UNDER THE GENERAL PROVISIONS OF SEC. 37 ALS O. IN THIS RESPECT IT MAY BE NOTED THAT ALL THE CASE LAWS RELIED UPON BY THE ASSESSEE FOR ALLOWING THIS DEDUCTION U/S 37 WERE RENDERED BY VAR IOUS COURTS BEFORE THE DECISION OF HON. SUPREME COURT IN THE CASE OF S OUTHERN TECHNOLOGIES LTD. (SUPRA). THEREFORE, AFTER THIS DE CISION OF HON. APEX COURT ALL THESE DECISIONS STAND NULLIFIED AND ARE N O MORE GOOD LAW. (III) IN THE ASSESSMENT ORDER THE AO HAS GIVEN A C LEAR CUT FINDING THAT IN THE ABOVE SCHOOL THE NUMBER OF STUD ENTS OF NEARBY AREAS ARE FAR MORE THAN THE CHILDREN OF THE EMPLOYE ES OF THE ASSESSEE. THE SCHOOL IS NOT OBLIGED TO GIVE PRIORITY TO THE C HILDREN OF THE EMPLOYEES OF THE ASSESSEE. THESE FINDINGS OF THE AO HAVE NOT BEEN CONTRADICTED BY THE ASSESSEE ANYWHERE. THIS IS A CA SE OF GENERAL CONTRIBUTION MADE BY THE ASSESSEE COMPANY TO THE TR UST. THE ASSESSEE IS NOT UNDER ANY CONTRACTUAL LIABILITY TO PAY THIS AMOUNT TO THE TRUST. THEREFORE, IT CANNOT BE SAID THAT THESE EXPENSES AR E INCURRED WHOLLY 5 AND EXCLUSIVELY IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE AND HENCE THEY ARE NOT ALLOWABLE. (IV) IT IS CLAIMED BY THE ASSESSEE THAT IT IS A REI MBURSEMENT OF THE EXPENSES TO THE SCHOOL FOR THE EDUCATION OF THE CHILDREN OF THE ASSESSEE. IT IS SUBMITTED THAT IT IS NOT A REIMBURS EMENT BECAUSE THERE ARE NO DETAILS AS TO FOR WHICH STUDENT HOW MUCH FEE S WAS DUE AND HOW MUCH WAS REIMBURSED. FURTHER, THERE IS NO CONTRACTU AL AGREEMENT BETWEEN THE ASSESSEE AND ITS EMPLOYEES FOR REIMBURS EMENT OF THE FEES OF THEIR CHILDREN. HAD THERE BEEN ANY SUCH CONTRACT THE REIMBURSEMENT OF FEES WOULD HAVE BEEN SHOWN BY THE EMPLOYEES AS P ERQUISITE IN THEIR INCOME, WHICH THEY HAVE NOT DONE. THIS SHOWS THAT I T IS A GENERAL CONTRIBUTION MADE TO THE DAV SCHOOL TRUST, WHICH CA NNOT BE ALLOWED AS A DEDUCTION U/S 40A(9). IT CANNOT BE ALLOWED U/S 37 ALSO BECAUSE IT IS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSI NESS OF THE ASSESSEE AS THE ASSESSEE DID NOT HAVE ANY OBLIGATION TO INCU R SUCH EXPENDITURE. 2.6 ON THE OTHER HAND, THE LD. AR HAS ALSO FILED WR ITTEN NOTE IN RESPECT OF ALLOWABILITY OF EXPENDITURE. THE WRITTEN NOTE IS RE PRODUCED AS UNDER:- IT IS SEEN THAT DURING THE YEAR UNDER CONSIDERATI ON, THE ASSESSEE COMPANY HAD PAID AN AMOUNT OF RS.20,73,099 /- TO THE DAV TRUST AND HAS CLAIMED IT AS DEDUCTIBLE EXPENDIT URE. THIS ISSUE WAS ALSO DEALT WITH IN THE ASSESSMENT YEARS 2 003-04 & 2004- 05 AND IT WAS NOTICED THAT THE EXPENDITURE/ DONATIO N IS BEING MADE IN VIEW OF THE AGREEMENT ENTERED INTO BETWEEN THE C OMPANY AND THE TRUST EARLIER, HOWEVER, THE AGREEMENT THROUGH W AS CREATING A LIABILITY TO BE BORNE BY THE ASSESSEE, NOWHERE DID IT PIN POINT AS TO HOW THE PAYMENT OF DONATION HAS ALSO NEXUS WITH THE PURPOSE OF BUSINESS. THE AGREEMENT NOWHERE STIPULATES ANY SORT OF OBLIGATION ON THE PART OF THE TRUST TO ADMIT OR TO GIVE PRIORI TY IN ADMISSION IN SCHOOL TO THE CHILDREN OF THE EMPLOYEES/OFFICERS OF THE COMPANY. 6 HENCE, IT WAS HELD THAT THE EXPENDITURE INCURRED BY THE COMPANY IS NOT AN ALLOWABLE EXPENDITURE. THE FACTS OF THIS YEA R ARE IN CONSONANCE WITH THOSE OF THE PRECEDING YEARS AND AR E FOUND TO BE IN PARIMATERIA WITH THE POSITION IN THE CURRENT YEA R. THUS, THE FINDINGS GIVEN IN THOSE YEARS APPLY MUTATIS MUNTAND IS IN THE CURRENT YEAR AS WELL. FURTHER, THE SCHOOL IS NOT BE ING MAINTAINED BY THE ASSESSEE. THE AGREEMENT BETWEEN THE ASSESSEE AN D THE TRUST DOES NOT STIPULATE THAT THE ASSESSEE WILL MAINTAIN OR ASSIST IN MAINTAINING THE SCHOOL FOR THE EDUCATION OF THE CHI LDREN OF THE EMPLOYEES OF THE COMPANY. THE CONTRIBUTION MADE CAN AT BEST BE TREATED AS A CONTRIBUTION IN THE NATURE OF CHARITY AS IT IS AN EXGRATIA PAYMENT MADE BY THE COMPANY TO ASSIST IT WITHOUT AN Y OBLIGATION TOWARDS THE SCHOOL OR ITS EMPLOYEES. IT IS AGREED T HAT SOME OF THE CHILDREN OF THE EMPLOYEES ARE STUDYING THERE BUT TH E EXPENDITURE CANNOT BE TREATED AS WHOLLY & EXCLUSIVELY FOR THE P URPOSE OF BUSINESS ACTIVITIES. FURTHER MORE, NO SUCH DEDUCTIO N IS ALLOWABLE AS PER EXPRESS PROVISIONS OF SECTION 40A(9) WHICH ARE AS UNDER:- NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER TOWARDS THE SETTING UP OR FORMATION OF OR AS CONTRIBUTION TO, A NY FUND. TRUST, COMPANY, ASSOCIATION OF PERSONS, BODY OF INDIVIDUALS, SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, 1860(21 OF 1860), OR OTHER INSTIT UTION FOR ANY PURPOSE, EXCEPT WHERE SUCH SUM IS SO PAID, FOR THE PURPOSE AND TO THE EXTENT PROVIDED BY OR UNDER CLAU SE (IV) OR CLAUSE (V) OF SUB-SECTION (1) OF SECTION 36, OR, AS REQUIRED BY OR UNDER ANY OTHER LAW FOR THE TIME BEING IN FOR CE . IN THIS REGARD, IT IS PERTINENT TO MENTION HERE THA T THOUGH THE CIT(A) HAS DELETED THE ADDITION , BUT THE DEPARTMEN T HAS GONE IN FURTHER APPEAL BEFORE HONBLE ITAT. AFTER CONSIDERI NG THESE FACTS, THE PAYMENT OF RS.20,73,099/- MADE TO THE DAV TRUST IS HELD TO BE NOT ALLOWABLE AND IS BEING ADDED TO THE TOTAL INCOM E OF THE ASSESSEE. 7 2.7 WE HAVE HEARD BOTH THE PARTIES. THIS ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR THE ASSES SMENT YEARS 2003-04 TO 2005-06. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS PAID THE CONTRIBUTION TO THE TRUST. THE CLAIM OF THE ASSESSE E IS THAT IT HAS REIMBURSED THE EXPENDITURE AND HENCE THE PROVISIONS OF SECTION 40A(9) MAY NOT BE APPLICABLE. THE HON'BLE RAJASTHAN HIGH COURT IN TH E CASE OF CIT VS. RAJASTHAN SPINNING & WEAVING MILLS LTD., 281 ITR 40 8 HAD AN OCCASION TO CONSIDER THE ALLOWABILITY OF EXPENDITURE RELATING T O THE DONATION OF BUS TO SCHOOL. IN THAT CASE, THE AO WAS OF THE VIEW THAT T HE SCHOOL IS NOT OWNED BY THE COMPANY AND THE ENTRY IN THE SCHOOL IS ALSO NOT RESTRICTED TO THE WARDS OF THE WORKMEN AND STAFF MEMBERS OF THE COMPANY. THE E XPENDITURE WAS TREATED AS DONATION. THE HON'BLE JURISDICTIONAL HIG H COURT IN THE CASE CIT VS. RAJASTHAN SPINNING & WEAVING MILLS LTD.,(SUPRA) OBSERVED THAT THE QUESTION OF CLAIM TO DEDUCTION OF ANY AMOUNT SPENT BY THE ASSESSEE AS EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR TH E PURPOSE OF ASSESSEE'S BUSINESS IS NOT TO BE DECIDED IN THE LIGHT THAT THE ASSESSEE MUST BE ENTITLED TO THE WHOLE BENEFIT ACCRUING FROM SUCH EXPENSES AND N OBODY ELSE SHOULD BE SHARING THIS BENEFIT AS IS DERIVED BY THE ASSESSEE BY DINT OF SUCH EXPENSES. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V S. B.G. SHIRKE & CO. , 264 ITR 83 HAD AN OCCASION TO CONSIDER THE ALLOWABI LITY OF CONTRIBUTION TO THE THREE TRUSTS FORMULATED FOR THE WELFARE OF THE EMPLOYEES. THE HON'BLE BOMBAY HIGH COURT IN THIS CASE HAS OBSERVED AS UNDE R:- 8 VOLUNTARY PAYMENTS MADE BY AN EMPLOYER FOR THE GENERAL WELFARE AND BENEFIT OF THE EMPLOYEES O N GROUNDS OF COMMERCIAL EXPEDIENCY ARE REVEUE EXPENDITURE, DEDUCTIBLE UNDER SECTION 37 OF THE INC OME- TAX ACT. SUCH EXPENDITURE HAS NEXUS WITH THE CONDU CT OF BUSINESS AND THE EXPENDITURE INCURRED FOR MAINTAIN ING INDUSTRIAL PEACE AND CORDIAL RELATIONS WITH THE EM PLOYEES IS AN EXPENDITURE FOR THE CARRYING ON OF THE BUSINE SS. IN THIS VIEW OF THE MATTER, IN THE FACTS OF THIS CASE , WHERE THERE IS NO DISPUTE ABOUT THE BONA FIDES IN CREATI ON OF THE TRUSTS OR UTILISATION OF THE FUNDS CONTRIBUTED BY T HE ASSESSEE TO THE TRUSTS, WE HAVE NO HESITATION IN HO LDING THAT THE EXPENDITURE INCURRED BY THE ASSESSEE BY W AY OF CONTRIBUTION TO THE WELFARE TRUST OF THE EMPLOYEES WAS RIGHTLY HELD TO BE DEDUCTIBLE UNDER SECTION 37 OF T HE INCOME- TAX ACT. 2.8 WE THEREFORE, FOLLOWING OUR FINDINGS FOR EARLIE R YEARS HOLD THAT LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. WE A LSO HOLD THAT THE AMOUNT SO PAID IS NOT COVERED U/S 40A(9) OF THE ACT. 3.1 THE SECOND GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSEE IS ENTITLED TO C LAIM OF DEPRECIATION ON CATALYST. 3.2 DURING THE COURSE OF PROCEEDING BEFORE US, THE LD. DR IN HIS WRITTEN SUBMISSION HAS STATED THAT THIS GROUND OF APPEAL IS COVERED BY THE DECISION OF TRIBUNAL IN THE CASE OF THE ASSESSEE IN EARLIER YEA RS. 9 3.3 THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL WH ILE DECIDING THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2002-03 TO 2005-06. FOLLOWING OUR FINDINGS, WE HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS. 74,64,626/-. 4.1 THE THIRD GROUND OF APPEAL OF THE REVENUE IS T HAT THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSEE IS ENTITLED TO D EDUCTION U/S 80IA IN RESPECT OF ITS CAPTIVE POWER PLANT AND THEREBY DELETING TH E DISALLOWANCE OF RS. 38,66,79,931/-. 4.2 THE AO HAS NOT ALLOWED THE CLAIM OF DEDUCTION U /S 80IA IN RESPECT OF CAPTIVE POWER PLANT. ACCORDING TO THE AO, THE ARGU MENTS OF THE ASSESSEE COMPANY ARE ALMOST ON THE SAME LINES AS SUBMITTED I N THE PAST. THESE HAVE BEEN CONSIDERED IN THE LIGHT OF THE FACTS, LEGAL PR OVISIONS AND JUDICIAL INTERPRETATION THEREOF BUT ARE NOT FOUND TO BE ACCE PTABLE IN VIEW OF THE DISCUSSIONS MADE IN ANNEXURE B ANNEXED WITH THE ASS ESSMENT ORDER APART FROM THE ARGUMENTS GIVEN IN PRECEDING YEARS WHICH A RE AS PER PARA 3 OF ANNEXURE A TO THE ASSESSMENT ORDER. 4.3 THE LD. CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON THE BASIS OF THE ORDER OF THE TRIBUNAL IN THE CASE OF T HE ASSESSEE FOR EARLIER ASSESSMENT YEARS. 4.4 BEFORE US, THE LD. DR HAS MADE FOLLOWING SUBMIS SIONS. 10 IN RESPECT OF A.YRS. 2004-05 AND 2005-06, FIRST OF ALL, IT WAS ARGUED BY THE DEPARTMENT THAT THIS DEDUCTION U/ S 80IA(4) FOR CAPTIVE POWER PLANT IS NOT ALLOWABLE TO THE ASSESSEE AS THE ASSESSEE DOES NOT FULFILL THE CONDITIONS U/S 80IA IN RESPECT OF THE CAPTIVE P OWER PLANT. SECONDLY, FOR THESE TWO A.YRS. IT WAS ALSO ARGUED THAT EVEN I F SUCH DEDUCTION IS CONSIDERED AS ALLOWABLE TO THE ASSESSEE ON MERIT S TILL IT CANNOT BE ALLOWED FROM A.YR. 2004-05 ONWARDS BECAUSE THE TIME PERIOD OF 10 YEARS FOR WHICH SUCH DEDUCTION WAS ALLOWABLE TO THE ASSESSEE EXPIRED IN A.YR. 2003-04. THE SECOND CONTENTION OF THE DEPARTMENT WA S NOT ACCEPTED IN THE DECISION FOR A.YR. 2004-05 AND ON THE BASIS OF THE SAME DECISION THIS CONTENTION WAS REJECTED IN A.YR. 2005-06 ALSO. IN T HE ASSESSMENT ORDER FOR A.YR. 2004-05, HON. TRIBUNAL HAS HELD THAT THE ASSE SSEE SHOULD BE CONSIDERED AS HAVING EXERCISED ITS OPTION U/S 80 IA (2) FOR THE FIRST TIME IN A.YR. 1999-2000 AND HENCE THE DEDUCTION U/S 80 IA W ILL BE ALLOWABLE TO IT FOR 10 CONSECUTIVE A.YRS. OUT OF THE 15 CONSECUTIVE A.YRS. STARTING FROM THE INITIAL A.YR. 4.2 IN THIS REGARD IT IS SUBMITTED THAT THIS DECISION I S NOT AS PER THE PROVISIONS OF LAW IN VIEW OF THE REASONS GIVEN BELO W AND SHOULD BE RECONSIDERED. 4.2.1. AT THE OUTSET IT IS SUBMITTED THAT SECTION 80 IA(2) , THROUGH WHICH THE FACILITY OF CHOOSING 10 A.YRS. OUT OF 15 YEARS WAS ALLOWED TO THE ASSESSEE, WAS INTRODUCED BY THE FINANCE ACT 1999 W. E.F. 01.04.2000 WHICH IS A.YR. 2000-01 ONLY. FOR A.YR. 1999-2000, THE ASS ESSEE JUST DID NOT HAVE THE LIBERTY TO CHOOSE 10 YEARS OUT OF 15 YEARS. IN THE CASES OF RELIANCE JUTE & INDUSTRIES LTD. VS. CIT 120 ITR 921(SC), MAHARAJA H OF PITHAPURAM VS. CIT MADRAS 13 ITR 221(PC), KARIMTHARUVI TEA ESTATE LTD. VS. STATE OF KERALA 60 ITR 262(SC) AND CIT VS. GOSLINO MARIO AND OTHERS 241 ITR 314(SC) HONBLE COURTS HAVE CLEARLY HELD THAT SUBS TANTIVE LAW HAS TO BE APPLIED FOR ANY ASSESSMENT YEAR AS IT STANDS ON THE FIRST DAY OF THE ASSESSMENT YEAR. 11 IN THE CASE OF RELIANCE JUTE & INDUSTRIES LTD. VS. CIT 120 ITR 921(SC ) THE APPELLANT CLAIMED SET OFF OF UNABSORBED LOSS OF THE ASSESSMENT YEAR 1950-51, AGAINST ITS INCOME FOR THE ASSESSMENT YEAR 1960-61, ON THE GROUND THAT BY VIRTUE OF SECTION 24(2)(III) OF THE INDIAN INCOME-TAX ACT, 1922, AS IT STOOD BEFORE ITS AMENDMENT BY THE FINAN CE (NO. 2) ACT, 1957, IT HAD A VESTED RIGHT TO HAVE THE UNABSORBED LOSS CARR IED FORWARD FROM YEAR TO YEAR UNTIL IT WAS COMPLETELY ABSORBED AND THE SU BSEQUENT AMENDMENT MADE BY THAT ACT LIMITING THE PERIOD FOR CARRYING F ORWARD TO EIGHT YEARS COULD NOT DIVEST THE APPELLANT OF THAT VESTED RIGHT WHICH HAD ACCRUED TO IT. HONBLE SUPREME COURT REJECTED THIS CLAIM OF THE AS SESSEE AND HELD AS UNDER: THE ASSESSEE CLAIMS A VESTED RIGHT U/S 24(2)(III), AS IT STOOD BEFORE ITS AMENDMENT IN 1957, TO HAVE THE UNABSORBE D LOSS OF 1950-51 CARRIED FORWARD FROM YEAR TO YEAR UNTIL THE LOSS IS COMPLETELY ABSORBED. THE CLAIMIS BASED ON A MISCONCEPTION OF THE FUNDAME NTAL BASIS UNDERLYING EVERY INCOME TAX ASSESSMENT. IT IS A CARDINAL PRINC IPAL OF THE TAX LAW THAT THE LAW TO BE APPLIED IS THAT IN FORCE IN THE ASSES SMENT YEAR UNLESS OTHERWISE PROVIDED EXPRESSLY OR BY NECESSARY IMPLIC ATION: CIT VS. ISTHMIAN STEAMSHIPLINES (1951) 20 ITR 572 (SC) AND KARIMTHARUVI TEA ESTATE LTD. VS. STATE OF KERALA (1966) 60 ITR 262(S C). ON THAT PRINCIPAL, IT IS ABUNDANTLY CLEAR THAT WHEN AN ASSESSMENT FOR THE A.YR. 1960-61 IS TO BE MADE AND SECTION 24(2) IS INVOKED, IT IS SECTION 24(2) AS IN FORCE IN THAT ASSESSMENT YEAR WHICH HAS TO BE APPLIED. THAT IS T HE PROVISION AS AMENDED BY THE FINANCE (NO. 2) ACT, 1957. THERE IS NO QUESTION OF THE ASSESSEE POSSESSING ANY VESTED RIGHT UNDER THE LAW AS IT STOOD BEFORE THE AMENDMENT. THE ASSESSMENT FOR ONE A.Y CANNOT, IN TH E ABSENCE OF A CONTRARY PROVISION, BE AFFECTED BY THE LAW IN FORCE IN ANOTHER A.Y. A RIGHT CLAIMED BY AN ASSESSEE UNDER THE LAW IN FORCE IN A PARTICULAR A.Y IS ORDINARILY AVAILABLE ONLY IN RELATION TO A PROCEEDI NG PERTAINING TO THAT YEAR. THEREFORE, IN AS MUSH AS THE PROVISIONS OF SE CTION 24(2), AS AMENDED IN 1957, GOVERN THE ASSESSMENT FOR THE A.YR 1960-61 , THE HIGH COURT IS RIGHT IN AFFIRMING THAT THE UNABSORBED LOSS OF RS. 15,50,189 OF THE A.YR. 12 1950-51 CANNOT BE CARRIED FORWARD FOR MORE THAN EIG HT AND CONSEQUENTLY, CANNOT BE SET OFF AGAINST THE BUSINESS INCOME OF TH E A.YR. 1960-61. IN THIS CASE FOR A.YR. 1999-2000, THE FIRST DAY OF A.YR. WAS 01.0.4.1999 BUT THE ABOVE PROVISION OF SECTION 80 I A(2) BECAME EFFECTIVE FROM 01.04.2000. THEREFORE THE QUESTION OF ALLOWING THE ASSESSEE TO CHOOSE A.YR. 1999-2000 AS THE 1 ST YEAR OF THE 10 A.YRS. FOR CLAIM OF DEDUCTION U/S 80 IA FOR THE CAPTIVE POWER PLANT DOE S NOT ARISE. IN VIEW OF THE LEGAL POSITION EXPLAINED ABOVE, THE ASSESSEE WA S NOT ENTITLED TO CHOOSE A.YR. 1999-2000 AS THE 1 ST YEAR OF THE 10 A.YRS. AS PROVIDED IN SECTION 80 IA(2). 4.2.2 AS REGARDS THE DECISION FOR A.YR. 2004-05 DTD. 28.07.2011 IT I S SUBMITTED THAT THIS DECISION IS ERRONEOUS IN VIEW O F THE DETAILED REASONS GIVEN BELOW AND MAY BE RECONSIDERED: (I) ON PAGE 52, HONBLE TRIBUNAL HAS OBSER VED THAT THE ASSESSEE HAS BEEN ALLOWED DEDUCTION U/S 80 IA FOR THE FIRST TIME FOR THE A.YR. 1990-2000. IT IS SUBMITTED THAT THIS OBSERVATION IS NOT CORREC T. DURING THE HEARING FOR A.YR. 2004-05 AND THE WRITTEN SUBMISSION MADE FOR T HIS YEAR, KIND ATTENTION OF THE HONBLE TRIBUNAL WAS INVITED TO NOTES MADE B Y THE ASSESSEE IN THE RETURNS OF INCOME FOR A.YR. 1997-98 AND 1998-99 WHI CH WERE AS FOLLOWS: FOR A.YR. 1997-98: THE COMPANY STARTED ITS COMMERCIAL PRODUCTION ON 1/01/1994 AND THE A.Y 1997-98 BEING THE 4 TH YEAR OF COMMENCEMENT OF COMMERCIAL PRODUCTION, CLAIM U/S 80 IA HAS NOT BEEN COMPUTED AS THERE IS N O TAXABLE INCOME. HOWEVER, IN CASE OF INCOME FOR YEAR BECOMES POSITIV E, FOR ANY REASON THE DEDUCTION U/S 80 IA MAY BE COMPUTED AND ALLOWED AS PER LAW FOR A.YR. 1998-99: THE COMPANY STARTED ITS COMMERCIAL PRODUCTION ON 1/04/1994 AND THE A.Y 1998-99 BEING THE 5 TH YEAR COMMENCEMENT OF COMMERCIAL PRODUCTION, CLAIM U/S 80 IB HAS NOT BEEN COMPUTED AS THERE IS NO TAXA BLE INCOME. HOWEVER, IN CASE THE INCOME FOR THE CURRENT YEAR BECOMES POSITI VE FOR ANY REASON, THE DEDUCTION U/S 80 IA MAY BE ALLOWED AS PER LAW. 13 FROM THESE NOTES, IT IS CLEAR THAT AS PER THE PROVI SIONS OF SECTION 80 IA PREVAILING THAT THE TIME THE ASSESSEE HAD CLAIMED D EDUCTION U/S 80 IA FOR A.YR. 1997-98 AS THE 4 TH YEAR AND A.YR. 1998-99 AS THE 5 TH YEAR OF CLAIM OF DEDUCTION U/S 80 IA. THIS CLAIM WAS MADE NOT ONLY F OR THE FERTILIZER UNIT BUT ALSO FOR THE CAPTIVE POWER PLANT SINCE THE ASSESSEE HAD NOT SPECIFIED THE TWO SEPARATELY AND HAD TREATED GADEPAN UNIT-I AS ONE UN DERTAKING INCLUDING THE CAPTIVE POWER PLANT. THESE TWO NOTES CLEARLY SHOW T HAT A.YR. 1999-2000 WAS THE 6 TH YEAR OF CLAIM OF DEDUCTION U/S 80 IA NOT ONLY IN R ESPECT OF THE FERTILIZER UNIT BUT ALSO IN RESPECT OF THE CAPTIVE POWER PLANT, IF IT IS TO BE TREATED AS A SEPARATE UNDERTAKING. IT WILL BE IMPOR TANT TO NOTE HERE THAT ORIGINALLY THE ASSESSEE ITSELF HAD TREATED A.YR. 19 99-2000 AS THE 6 TH YEAR OF CLAIM U/S 80 IA AND THAT IS WHY IT HAD CLAIMED DEDU CTION U/S 80 IA @ 30% OF THE PROFIT OF FERTILIZER UNIT AND CAPTIVE POWER PLANT TAKEN TOGETHER IN THE ORIGINAL RETURN FILED ON 28.12.1999. SIMILARLY, FOR A.YR. 2000-01 ALSO IN THE ORIGINAL RETURN FILED ON 30.11.2000.THE ASSESSEE CL AIMED THE DEDUCTION U/S 80 IA ON THE PROFITS OF THE COMBINED UNIT @ 30% ONL Y AND NOT AT 100%. IT MAY KINDLY BE NOTED THAT THESE RETURNS WERE FILED B Y THE ASSESSEE WELL AFTER ENACTMENT OF FINANCE ACT 1999 IN MAY-JUNE 1999. IF THE ASSESSEE BELIEVED THAT AS PER THE NEWLY INTRODUCED SECTION 80 IA(2) I T WAS ELIGIBLE TO CHOOSE A.YR. 1999-2000 AS THE 1 ST YEAR OF THE 10 A.YRS. OUT OF THE 15 YEARS IT SHOUL D HAVE DONE SO IN THE RETURNS FOR A.YRS. 1999-2000 AN D 2000-2001 FILED ON 28.12.1999 AND 30.11.2000. THE ASSESSEE IS A WELL K NOWN PUBLIC LIMITED COMPANY HAVING SUBSTANTIAL FINANCIAL AND PROFESSION AL RESOURCES AT ITS DISPOSAL WHICH SHOULD HAVE BEEN USED BY IT AT THE T IME OF FILING THE RETURN. HOWEVER, THE ASSESSEE DID NOT DO SO BECAUSE IT WAS CLEAR THAT AS PER THE AMENDED PROVISIONS INTRODUCED FROM 01.04.2000 IT WA S NOT ELIGIBLE FOR CHOOSING 10 A.YRS. OUT OF 15 YEARS U/S 80 IA(2). T HE CHOOSING OF A.YR. 1999-2000 WAS AN AFTERTHOUGHT WHICH WAS USED LONG A FTER THE FILING OF THE RETURN. FOR A.YR. 1999-2000, THE ASSESSEE IMPLEMENT ED THIS AFTERTHOUGHT BY FILING RECTIFICATION APPLICATION U/S 154 ON 30.03.2 004 AND FOR A.YR. 2000-01 BY TAKING AND ADDITIONAL GROUND BEFORE LD. CIT(A) D URING THE 1 ST APPELLATE PROCEEDINGS. 14 FURTHER, I DREW ATTENTION TO THE DECISION OF HONB LE DELHI HIGH COURT IN THE CASE OF GEO ENPRO PETROLEUM LTD. VS. D CIT 315 ITR 153 . IN THIS DECISION HONBLE HIGH COURT HAS REPRODUCED THE FINANCIAL STATEMENT OF THE ASSESSEE ON PAGE 161 AND 162 OF THE ITR IN WHIC H FOR A.YRS. 1996-97, 1998-99 AND 1999-2000. THE ASSESSEE HAS MENTIONED T HAT IN THE ABSENCE OF PROFIT, CLAIM UNDER SECTION 80 IA HAS NOT BEEN MADE . ON THE BASIS OF THESE FINANCIAL STATEMENTS, HONBLE COURT APPROVED THE FI NDING OF ITAT THAT COMMERCIAL PRODUCTION COMMENCED IN THE A.YR. 1996-9 7. THIS ISSUE OF THE YEAR OF COMMENCEMENT OF PRODUCTION WAS TO BE DECIDE D FOR DECIDING THE INITIAL YEAR IN TERMS OF SECTION 80 IB(9). THUS, IT CAN BE SEEN THAT HONBLE HIGH COURT HELD THAT THE MENTION OF THE SENTENCE I N THE ABSENCE OF PROFIT, CLAIM UNDER SECTION 80 IA HAS NOT BEEN MADE WOULD MEAN THAT THE DEDUCTION U/S 80 IA HAS BEEN CLAIMED. HERE, IN THE CASE OF THE ASSESSEE ALSO THE NOTES FOR A.YRS. 1997-98 REPRODUCED ABOVE CLEAR LY SHOW THAT THE DEDUCTION U/S 80 IA HAS BEEN CLAIMED FOR THESE YEAR S AS 4 TH YEAR AND 5 TH YEAR. THIS DEDUCTION WAS CLAIMED FOR THE WHOLE UNIT WHICH INCLUDED THE CAPTIVE POWER PLANT. THEREFORE, A.YR. 1999-2000 SHOULD BE TREATED AS THE 6 TH YEAR OF THE CLAIM OF DEDUCTION U/S 80 IA AND NOT THE 1 ST YEAR. (II) ON PAGE 53, HONBLE TRIBUNAL HAS REPRODUCED TH E NOTE OF THE ASSESSEE ATTACHED WITH RETURN OF INCOME FOR A.YR. 2 002-03. FROM THIS NOTE HONBLE TRIBUNAL HAS TAKEN COGNIZANCE THAT THE ASSE SSEE HAD OPTED TO TAKE A.YR. 1999-2000 AS 1 ST YEAR IN TERMS OF SECTION 80 IA(2). IN THIS REGARD, IT MAY KINDLY BE NOTED THAT THE A.Y R. 1999-2000 CANNOT BE ALLOWED TO BE CHOSEN AS THE 1 ST YEAR JUST BECAUSE THE ASSESSEE HAS MADE SUCH A CLAIM. IT HAS TO BE SEEN WHETHER AS PER THE LAW APPLICABLE FOR A.YR. 1999-2000, THE ASSESSEE HAS THE OPTION TO CHO OSE A.YR. 1999-2000 AS THE 1 ST YEAR OR NOT. AS DISCUSSED ABOVE IN PARA 3 WHEN THE PROVISIONS FOR CHOOSING 10 YEARS OUT OF 15 YEARS WAS INTRODUCED FR OM A.YR. 2000-2001, HOW CAN THE ASSESSEE BE ALLOWED TO DO SO FROM A.YR. 1999-2000 WHEN FOR THIS YEAR THE LAW DID NOT PERMIT THE SAME. SECONDLY, HONBLE TRIBUNAL HAS SELECTIVELY TAKEN CO GNIZANCE OF THE NOTE FOR A.YR. 2002-03 BUT HAS IGNORED THE NOTE S FOR A.YRS. 1997-98 & 15 1998-99 WHICH ARE REPRODUCED ABOVE AND IN WHICH THE SE YEARS ARE ACCEPTED AS 4 TH AND 5 TH YEARS OF CLAIM OF DEDUCTION U/S 80 IA ON THE WHOLE UNIT INCLUDING CAPTIVE POWER PLANT. (III) THIRDLY, IN PARA 22.7 OF THIS ORDER, HONBLE TRIBUNAL HAS OBSERVED THAT: EXEMPTION U/S 10B WAS EXTENDED FROM 5 YEARS TO 10 Y EARS AND IT WAS HELD BY ITAT MUMBAI BENCH IN THE CASE OF M/S CONS INDIA (P) LTD. VS. ITO (ITA NO. 8270/MUM/2004 DATED 29.01.2008 THAT BENEFIT IS ENTITLED TO THE EXISTING UNIT WHO H AVE NOT COMPLETED THE TAX HOLIDAY OF 10 YEARS . IN THIS REGARD, IT IS SUBMITTED THAT FIRST OF ALL T HIS DECISION IS RELATED TO SECTION 10 B AND NOT SECTION 80 IA. SECONDLY, IN THIS DECISION THE BENEFIT OF EXTENSION OF EXEMPTION FROM 5 YEARS TO 10 YEARS WAS ALLOWED FOR A.YRS. WHICH WERE AFTER THE A.YR. FROM WHICH THE EXTENSION OF PERIOD FROM 5 YEARS TO 10 YEARS WAS MADE EFFECTIVE. BUT HERE, THE BENEF IT OF CHOOSING 10 YEARS OUT OF 15 YEARS HAS BEEN CLAIMED BY THE ASSESSEE F OR AN A.YR. (1999-2000) WHICH IS PRIOR TO THE A.YR.(2000-01) FROM WHICH SUC H BENEFIT WAS EXTENDED BY THE LEGISLATURE. THIS AMOUNTS TO MAKING THE PROV ISIONS OF SECTION 80 IA(2) EFFECTIVE RETROSPECTIVELY WHEREAS THE LEGISLA TURE HAS MADE THIS PROVISIONS EFFECTIVE FROM A.YR. 2000-01, WHICH IS A GAINST LAW. (IV) FOURTHLY, IN PARA 22.7, HONBLE ITAT HAS ALSO OBSERVED THAT THE DECISION OF ACIT VS. VODAFONE ESSAR GUJARAT LTD. (I TA NO. 1878/AH. 2009) OF AHMADABAD BENCH DATED 29.01.10 IS SQUARELY APPL ICABLE IN THIS CASE. IN THIS REGARD, IT IS RESPECTFULLY SUBMITTED THAT T HE FACTS OF THE ABOVE CASE OF VODAFONE ESSAR ARE TOTALLY DIFFERENT FROM THOSE OF THE ASSESSEE. IT MAY KINDLY BE NOTED THAT IN THE ABOVE CASE OF ITAT, AHMADABAD BENCH, THE ASSESSEE COMPANY STARTED PROVIDING TELEC OM SERVICES FROM A.YR. 1997-98 BUT DID NOT CLAIM DEDUCTION U/S 80 IA TILL A.YR. 2004-05. THE DEDUCTION WAS CLAIMED FOR THE 1 ST TIME IN A.YR. 2005-06, WHICH WAS CLAIMED TO BE TREATED AS THE 1 ST A.YR. U/S 80 IA(2). IN THE ABOVE DECISION DATED 16 29.01.2010, THE A.YR. INVOLVED WAS A.YR. 2006-07. T HUS, IT CAN BE SEEN THAT IN THIS CASE THE A.YR. IN WHICH THE BENEFIT OF SECT ION 80 IA(2) WAS ALLOWED WAS FOR A.YRS. WHICH WERE AFTER THE A.YR. 2000-01 FROM WHICH THE BENEFIT OF SECTION 80 IA(2) WAS AVAILABLE TO THE ASSESSEES . BUT HERE, THE BENEFIT OF CHOOSING 10 YEARS OUT OF 15 YEARS IS BEING ALLOWED FOR AN A.YR. WHICH IS PRIOR TO THE A.YR. FROM WHICH SUCH BENEFIT WAS EXTE NDED BY THE LEGISLATURE. AS MENTIONED ABOVE, THIS AMOUNTS TO MAKING THE PROV ISIONS OF SECTION 80 IA(2) EFFECTIVE RETROSPECTIVELY WHEREAS THE LEGISLA TURE HAS MADE THIS PROVISION EFFECTIVE FROM A.YR. 2000-01 WHICH IS AGA INST LAW. (V) IN PARA 22.8 OF THE ABOVE ORDER, HONBLE TRIBUN AL HAS REPRODUCED THE RELEVANT MEMO EXPLAINING THE PROVISIONS OF FINA NCE BILL 1999 ON THE ISSUE OF ALLOWING THE BENEFIT OF SECTION 80 IA IN A NY 10 CONSECUTIVE YEARS OUT OF 1 ST 15 YEARS FROM THE YEAR IN WHICH OPERATION OR PRODU CTION IS STARTED. IN THIS MEMO AT THE END, IT IS MENTIONED AS FOLLOWS : THE PROPOSED AMENDMENT WILL TAKE EFFECT FROM THE 1 ST APRIL, 2000 AND WILL ACCORDINGLY APPLY IN RELATION TO THE ASSES SMENT YEAR 2000-01 FROM THE ABOVE NOTE, IT IS VERY CLEAR THAT THIS PR OVISION WILL BE APPLICABLE FROM A.YR. 2000-01 ONLY. WHEN THIS PROVI SION IS APPLICABLE FROM A.YR. 2000-01, HOW CAN IT BE ALLOWED TO THE ASSESSE E FOR A.YR. 1999-2000 ? 4.2.3 IN VIEW OF THE ABOVE DISCUSSION, IT IS SUBMITT ED THAT IN THE APPELLATE ORDER FOR A.YR. 2004-05 DATED 28.07.2011, HONBLE ITAT HAS WRONGLY HELD THAT THE A.YR. 1999-2000 CAN BE OPTED BY THE ASSESSEE AS ITS INITIAL YEAR OF CLAIM OF DEDUCTION U/S 80 IA FOR IT S CAPTIVE POWER PLANT AND THIS DEDUCTION WILL BE AVAILABLE TO IT FOR 10 YEARS STARTING FROM THIS INITIAL A.YR. SINCE, A.YR. 1999-2000 WAS THE 6 TH A.YR OF CLAIM OF DEDUCTION U/S 80 IA IN RESPECT OF THE CAPTIVE POWER PLANT, THEREFORE THE 10 YEARS FOR CLAIMING DEDUCTION U/S 80 IA EXPIRED IN A.YR. 2003-04. THERE FORE, THE ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION U/S 80 IA FOR A.YR. 200 4-05 ONWARDS. AS A RESULT DEDUCTION U/S 80 IA CANNOT BE ALLOWED TO THE ASSESS EE FOR A.YR. 2006-07. 4.2.4 IN RESPECT OF CORRECTION OF A MISTAKE COMMITTED B Y AN HONOURABLE COURT EARLIER, I WOULD LIKE TO REFER TO THE OBSERVA TION OF HONBLE SUPREME 17 COURT IN THE CASE OF DISTRIBUTORS (BARODA) PVT. LTD . 1985 AIR 1585, 1985 SCR SUPLL. (I) 778. IN THIS CASE, HONBLE APEX COUR T OBSERVED AS FOLLOWS: DATE OF JUDGMENT01/07/1985 BENCH: BHAGWATI, P.N.,CHANDRACHUD Y.V., SEN AMARENDRA NATH , MADON D.P., THAKKAR, M.P. (J) AN ISSUE RELATING TO THE INTERPRETATION OF PROVISIO N OF SEC 80 M, WHICH WAS ALREADY INTERPRETED BY THE HONABLE SC EAR LIER, CAME BEFORE THE COURT. INITIALLY IN THE JUDGEMENT THE PRINCIPAL OF THE CONTINUITY AND CONSISTENCY HAS BEEN DISCUSSED BY THE COURT: ORDINARILY THIS COURT WOULD BE RELUCTANT TO OVERTU RN A DECISION GIVEN BY A BENCH OF THIS COURT, BECAUSE IT IS ESSEN TIAL THAT THERE SHOULD BE CONTINUITY AND CONSISTENCY IN JUDICIAL DECISIONS, A ND LAW SHOULD BE CERTAIN AND DEFINITE. IT IS ALMOST AS IMPORTANT THAT THE LA W SHOULD BE SETTLED CORRECTLY. BUT THERE MAY BE CIRCUMSTANCES WHERE PUB LIC INTEREST DEMANDS THAT THE PREVIOUS DECISION BE REVIEWED AND RECONSID ERED. THE DOCTRINE OF STARE DECISIS SHOULD NOT DETER THE COURT FROM OVERR ULING AN EARLIER DECISION, IF IT IS SATISFIED THAT SUCH DECISION IS MANIFESTLY WRONG OR PROCEEDS UPON A MISTAKEN ASSUMPTION IN REGARD TO THE EXISTENCE OR C ONTINUANCE OF A STATUTORY PROVISION OR IS CONTRARY TO ANOTHER DECIS ION OF THE COURT. THEN AFTER DISCUSSING OVER-RIDING CONSIDERATIONS WH ICH COMPELLED RECONSIDERATION AND REVIEW OF THE EARLIER DECISION IN CLOTH TRADERS CASE, IT HAS BEEN HELD THAT: WE HAVE GIVEN OUR MOST ANXIOUS CONSIDERATION TO T HIS QUESTION, PARTICULARLY SINCE ONE OF US, NAMELY, P.N . BHAGWATI, J. WAS A PARTY TO THE DECISION IN CLOTH TRADERS CASE (SUPR A). BUT HAVING REGARD TO VARIOUS CONSIDERATIONS TO WHICH WE SHALL ADVERT IN DETAIL 18 WHEN WE EXAMINE THE ARGUMENTS ADVANCED ON BEHALF OF THE PARTIES, WE ARE COMPELLED TO REACH THE CONCLUSION THAT CLOTH TRADERS CASE MUST BE REGARDED AS WRONGLY DECIDED. THE VIEW TAKEN IN THAT CASE IN REGARD TO THE CONSTRUCTION OF SECTION 80M MUST BE H ELD TO BE ERRONEOUS AND IT MUST BE CORRECTED. TO PERPETUATE AN ERROR IS NO HEROISM. TO RECTIFY IT IS THE COMPULSION OF JUDICIAL CONSCIENCE . IN THIS WE DERIVE COMFORT AND STRENGTH FROM THE WI SE AND INSPIRING WORDS OF JUSTICE BRONSON IN PIERCE V. DELAMETER A.M.Y. AT PAGE 18: 'A JUDGE OUGHT TO BE WISE ENOUGH TO KNOW T HAT HE IS FALLIBLE THEREFORE EVERYDAY TO LEARN: GREAT AND HONEST ENOUG H TO DISCARD ALL MERE PRIDE OF OPINION AND FOLLOW TRUTH WHEREVER IT MAY L EAD: AND COURAGEOUS ENOUGH TO ACKNOWLEDGE HIS ERRORS'. 4.5 ON THE OTHER HAND, THE LD. AR STATED THAT THIS ISSUE STANDS DECIDED BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR EARLIE R YEARS. THE LD. AR PLACED RELIANCE ON THE ORDER OF THE TRIBUNAL FOR EARLIER A SSESSMENT YEARS. 4.6 WE HAVE HEARD BOTH THE PARTIES. WE HAD ALREADY DECIDED THE ISSUE WHILE DECIDING THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05 THAT THE ASSESSEE HAD MADE AN OPTION TO CLAIM DEDU CTION FOR 10 YEARS OUT OF 15 YEARS. ONCE THIS CLAIM HAS BEEN ACCEPTED IN EARL IER YEARS AND UNLESS THAT DECISION IS NOT CHANGED THEN THAT FINAL CONCLUSION CANNOT BE CONSIDERED IN THIS YEAR. THE ISSUE BECAME RELEVANT FOR THE ASSESS MENT YEAR 2004-05. THE REVENUE HAS ALSO FILED A MISCELLANEOUS APPLICATION AGAINST THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 1999-2000. THAT MI SCELLANEOUS APPLICATION HAS ALSO BEEN DISMISSED. HENCE, FOLLOWI NG OUR ORDER FOR THE 19 ASSESSMENT YEAR 2004-05 AN 2005-06, WE HOLD THAT TH E LD. CIT(A) WAS JUSTIFIED IN ALLOWING DEDUCTION U/S 80IA OF THE ACT . 5.1 THE FOURTH GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 12,23,670 /- MADE BY THE AO ON ACCOUNT OF CLUB EXPENSES WITHOUT APPRECIATING THE FACT THAT ASSESSEE COMPANY OR ITS SUBSIDIARIES ARE NOT HAVING CORPORAT E MEMBERSHIP OF CLUBS AND IN FACT THE EXPENSES CLAIMED ARE REIMBURSEMENT OF EXPENSES INCURRED BY INDIVIDUAL EMPLOYEES OF THE COMPANY. 5.2 THE LD. DR IN HIS WRITTEN SUBMISSION HAS MENTIO NED THAT THE ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL IN EARLIER YEA RS. 5.3 WE HAVE HEARD BOTH THE PARTIES. FOLLOWING OUR O RDER FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.458/JP/20/09 DATE D 09-09-2011 IN THE CASE OF THE ASSESSEE, THE ISSUE IS DECIDED IN FAVOU R OF THE ASSESSEE AFTER OBSERVING AS UNDER:- 10.1 THE 8TH GROUND OF APPEAL OF THE REVENUE IS TH AT THE LD. CIT(A) HAS ERRED IN NOT CONFIRMING THE DISALLOW ANCE OF RS. 6,70,422/- ON ACCOUNT OF CLUB EXPENSES WITHOUT APP RECIATING THE FACTS MENTIONED BY THE AO IN HIS ORDER. 10.2 THE DETAILS OF PAYMENTS MADE TO CLUB EXPENSES ARE AVAILABLE AT PAGES 158 TO 161 OF THE PAPER BOOK. IN THESE DETAILS, THE ASSESSEE HAS GIVEN THE NAME OF THE EMPLOYEES, D ATE, AMOUNT, NAME OF THE CLUB, NATURE OF PAYMENT AND PERIOD. THE CLUB MEMBERSHIP HAS BEEN PAID IN RESPECT OF 28 EMPLOYEE S. IT IS NOTICED FROM THE PERIOD MENTIONED IN THE CHART THAT PAYMENTS ARE ANNUAL SUBSCRIPTION OR SUBSCRIPTION FOR PART OF THE YEAR. IT IS NOT A 20 CASE WHERE THE ASSESSEE HAS PAID CORPORATE FEE TO T HE CLUB. THERE IS NO PAYMENT FOR THE PERIOD EXCEEDING ONE YEAR SO THA T THE BENEFIT MAY BE GIVEN TO THE EMPLOYEES FOR MORE THAN A YEAR. THE EXPENDITURE AS CLUB MEMBERSHIP FEE IS AN EXPENDITUR E FOR THE PURPOSE OF THE BUSINESS. HENCE, THE EXPENDITURE IS ALLOWABLE U/S 37 OF THE ACT. THEREFORE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS. 6,70,422/-. 5.4 HENCE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 6.1 THE FIFTH GROUND OF APPEAL OF THE REVENUE IS T HAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 2,52,255/ - MADE BY THE AO U/S 43B OF THE ACT. 6.2 BEFORE THE AO, IT WAS STATED THAT THE LIABILITY OF BONUS PAYABLE WAS ADDED BACK TO THE INCOME OF THE ASSESSEE FOR THE AS SESSMENT YEAR 2002-03 AND THEREFORE, WHEN THE SAME WAS WRITTEN OFF THROUG H PROFIT AND LOSS ACCOUNT THEN THE SAME WAS CLAIMED AS DEDUCTION. THE AO DID NOT ALLOW THE CLAIM BECAUSE THE COPY OF LEDGER ACCOUNT DOES NOT SHOW TH AT CLAIM WAS DISALLOWED IN EARLIER YEARS. 6.3 WE HAVE HEARD BOTH THE PARTIES. THIS ISSUE HAS BEEN CONSIDERED IN THE CASE OF THE ASSESSEE FOR THE EARLIER ASSESSMENT YE ARS. THE LD. CIT(A) HAS GIVEN THE RELIEF ON THE BASIS OF THE ADDITIONAL EVI DENCE. THE MATTER WAS THEREFORE, RESTORED BACK IN THE IMMEDIATELY PRECEDI NG YEAR. FOLLOWING OUR ORDER FOR THE ASSESSMENT YEAR 2005-06, THE DISALLOW ANCE OF RS. 2,52,455/- IS RESTORED BACK ON THE FILE OF THE AO. 21 7.1 THE SIXTH GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF LOSS OF RS. 5 8,36,741/- ON ACCOUNT OF SALE OF INVENTORY AND STORE ITEMS TO SISTER CONCERN MADE BY THE AO BY INVOKING THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT 7.2 THE ASSESSEE DEBITED A SUM OF 58,36,741/- REPRE SENTING SALE VALUE AND BOOK VALUE OF PRIMARY REFORMER CATALYST. SUCH CATAL YST WAS SOLD TO M/S. ZUARI INDUSTRIES LTD. THE SALE WAS MADE ON THE MARK ET RATE OF THE CATALYST. THE ASSESSEE INVITED QUOTATIONS FROM VARIOUS PARTIE S BUT THE MATTER DID NOT MATERALISE. THE COPIES OF LETTERS WERE FILED BEFORE THE AO FOR READY REFERENCE. SUCH CATALYST WAS LYING IN THEIR INVENTO RY FOR THE LAST SIX YEARS AND WAS NOT LIKELY TO BE CONSUMED. THE RATES WERE NEGOT IATED WITH M/S. ZUARI INDUSTRIES LTD. BUT THEY QUOTED THEIR FINAL RATES A T RS. 225.00 LACS INCLUSIVE OF TAXES. ACCORDINGLY THE CATALYST WAS SOLD FOR RS. 225.00 LACS INCLUSIVE OF CST. THE AO IN HIS ORDER HAS REFERRED TO THE NAMES OF SIX PARTIES TO WHOM THE ASSESSEE MADE ENQUIRY FOR SALE OF THE CATALYST. ACCORDING TO THE AO, THE ASSESSEE MADE THE ENQUIRIES FROM THE SELECTED PARTI ES. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE PRODUCT WAS TO BE SOLD TO THE INDUSTRY SPECIFIC. THEREFORE, A RECOURSE WAS ADOPTED TO MAK E ENQUIRIES FROM THE PARTIES WHICH ARE LIKELY TO PURCHASE SUCH CATALYST. ACCORDING TO THE AO, THE ASSESSEE SHOULD HAVE DECLARED ITS INTENTION THROUGH DISPLAY OF ADVERTISEMENT OR OTHERWISE OR SHOULD HAVE INVITED OPEN TENDER TO GET THE BETTER BARGAIN. THE SALE HAS BEEN MADE THROUGH THE SISTER CONCERN. THE PROVISIONS OF 22 SECTION 40A(2)(A) WERE INVOKED. THE ASSESSEE HAS OB LIGED THE SISTER CONCERN AND ACCORDINGLY THE AO DISALLOWED THE LOSS OF RS. 5 8,36,741/-. 7.3 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE DELETED THE DISALLOWANCE AFTER OBSERVING AS UNDER:- THE CASE OF THE APPELLANT IS THAT THE CATALYST IN QUESTION WAS LYING UNUSED IN THE STORE FOR SIX YEARS, FOR IT WAS NO LONGER REQUIRED DUE TO CHANGE IN THE PROCESS. BEING AN IND USTRY SPECIFIC PRODUCT THE APPELLANT MADE AN OFFER TO SEV ERAL COMPANIES (DUNCAN INDUSTRIES LTD., SHRIRAM FERTILIS ERS AND CHEMICALS, COROMANDEL FERTILISERS LTD., MADRAS FERT ILISERS LTD., MANGALORE CHEMICALS AND FERTILISERS LTD., SPIC, GUJ ARAT STATE FERTILISERS AND CHEMICALS LTD., IFFCO AND FACT) THA T COULD HAVE SOME USE FOR IT, THOUGH NONE RESPONDED. EVENTU ALLY, ZUARI INDUSTRIES LTD OFFERED TO PURCHASE AND THE CATALYST WAS SOLD FOR RS.2,16,34,615/-. THE DIFFERENCES IN ITS BOOK VALUE AND THE SALE PRICE OF RS.58,36,741/- WAS DEBITED TO PROFIT AND L OSS ACCOUNT. THE OBSERVATION OF THE ASSESSING OFFICER THAT REQ UEST TO THE .. SELECTIVE PERSONS IS JUST AN EYE WASH WITH A VIEW TO OBLIGE THE SISTER CONCERN IS A CONJECTURE THAT IGN ORES THE FACTS OF THE CASE. THE CATALYST HAD BECOME REDUNDANT DUE TO CHANGE IN MANUFACTURING PROCESS. IN MY VIEW, THE APPELLANT WAS THE BEST JUDGE ON THE MANNER OF ITS DISPOSAL. WHILE THE RE IS MERIT IN CLAIM OF THE APPELLANT THAT THE OFFER WAS MADE TO S ELECT FEW COMPANIES FOR IT WAS AN INDUSTRY SPECIFIC PRODUCT, TO MY KNOWLEDGE, THERE IS NO LAW MANDATING SALE THROUGH O PEN OFFER. EVEN WHILE THE ASSESSING OFFICER ACKNOWLEDGED THAT THERE IS NO EXCESSIVE PAYMENT BUT LESS RECEIPTS ON SALE OF S PECIFIC ITEM, 23 YET HE DID NOT SHOW HOW SECTION 40A(2)(A) OF THE IT ACT, 1961 WAS ATTRACTED, OR HOW THE RECEIPTS FROM SALE OF CAT ALYST TO ZUARI WERE LESS, BEFORE CONCLUDING THE SALE WAS AN EYE WASH WITH A VIEW TO OBLIGE THE SISTER CONCERN. HE REFERRED TO DECISIONS IN CASES OF SIDDHOMAL & SONS (122 ITR 839) AND MCDOWEL L & CO.(154 ITR 148), WITHOUT CARRYING OUT HIS DUTY TO LIFT THE VEIL.. GET TO THE TRUTH OR SUBSTANCE OF THE TRANS ACTION. IN GIVEN FACTS AND CIRCUMSTANCES, THE DECISION OF T HE ASSESSING OFFICER TO DISALLOW RS 58,36,741/- ON SAL E OF CATALYST TO ITS SISTER CONCERN, ZUARI, IS NOT CONFIRMED. GRO UND 8 OF THE APPEAL IS ACCEPTED. 7.4 DURING THE COURSE OF PROCEEDINGS BEFORE US, THE LD. DR IN HIS WRITTEN SUBMISSION HAS REFERRED TO THE ORDER OF THE AO. 7.5 ON THE OTHER HAND, THE LD. AR STATED THAT THE P ROVISIONS OF SECTION 40A(2)(A) ARE NOT APPLICABLE IN RESPECT OF THE EXP ENDITURE . IT IS NOT THE CASE OF EXPENDITURE. THE LD. AR RELIED UPON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF CIT VS. CALCUTTA DISCOUNT CO. LTD.91 ITR 08. IN THAT CASE, THE ASSESSEE COMPANY TRANSFERRED CERTAIN SHARES TO ITS SUBSIDIARY COMPANY AT A PRICE LESS THAN THE MARKET PRICE. THE TRANSACTION W AS BONAFIDE AND THE HON'BLE APEX COURT HELD THAT MARKET PRICE CANNOT BE SUBSTITUTED FOR REAL PRICE FETCHED. 7.6 WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE HA S DISCHARGED THE ONUS OF REFERRING TO THE ENQUIRES MADE BY IT FOR SALE OF CATALYST. THE COPIES OF THE 24 LETTERS WERE ALSO FILED. THE ASSESSEE STATED THAT I T NEGOTIATED WITH M/S. ZUARI INDUSTRIES LTD. FOR SALE OF THE CATALYST. IT IS NOT THE CASE OF THE REVENUE THAT MARKET PRICE RECEIVED BY THE ASSESSEE FROM SALE OF THE CATALYST WAS UNDER- STATED. NO ADDITION CAN BE MADE ON THE BASIS OF THE SUSPICION. THE TRANSACTIONS HAS NOT BEEN CONSIDERED AS SHAM. M/S. ZUARI INDUSTRIES LTD. IS ALSO A CONCERN IN WHICH PROFIT IS BEING SHOWN. HEN CE IT CANNOT BE A CASE OF EVASION/ AVOIDING OF TAX. WE THEREFORE, FEEL THAT T HE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS. 58,36,741/-.. 8.1 THE 7 TH GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. C IT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF LOSS OF RS. 4 2,38,664/- MADE BY THE AO ON ACCOUNT OF REVALUATION OF INVENTORY OF TWO IMPO RTED PUMPS. 8.2 THE ASSESSEE HAS IMPORTED TWO NOS. OF AUXILIARY OIL PUMPS (MECHANICAL SEALS) FROM JAPAN AT THE PRICE OF RS. 4 2,85,368/-. THESE PUMPS WERE LYING IN THE STORES. SUBSEQUENTLY, INDIGENOUS PUMPS BECAME AVAILABLE AT LOWER PRICE OF RS. 23,352/- EACH. KEEPING IN VIE W THE ACCOUNTING PRACTICES AND VALUATION OF STORES AT LOWER OR MONTHLY WEIGHTE D AVERAGE COST OR NET REALIZABLE VALUE, THE DIFFERENCE IN COST OF IMPORTE D PUMPS AND THE INDIGENOUS PUMPS TO THE EXTENT OF RS. 42,38,664/- W AS DEBITED TO THE PROFIT AND LOSS ACCOUNT. 8.3 THE LD. CIT(A) HAS ALLOWED THE DEDUCTION AFTER OBSERVING AS UNDER:- THE APPELLANT SUBMITTED THAT ACCOUNTING STANDARD AS 2 GOVERNS THE VALUATION OF INVENTORY ITEMS AND STIPUL ATES, 25 INVENTORIES SHOULD BE VALUED AT THE LOWER OF COST AND NET REALIZABLE VALUE. IT FURTHER STATES NET REALIZABL E VALUE IS THE ESTIMATED SELLING PRICE IN THE ORDINARY COURSE OF B USINESS LESS THE ESTIMATED COST OF COMPLETION AND THE ESTIMATED COST A NECESSARY TO MAKE THE SALE. THE APPELLANT RELIED ON THE DECISION IN CASES OF HO TLINE TELETUBE AND COMPONENTS LTD. ( 12 DTR (DEL) 211) AND NATIONAL ALUMINUM COMPANY LTD. ( 101 TTJ (CTK) 948), WHEREIN SIMILAR REDUCTIONS IN INVENTORY DUE TO OBSOLESCENCE/DIMINUTION IN VALUE OF STOCK WERE ALLO WED AS DEDUCTIBLE EXPENSES. IN MY OPINION, THE ASSESSING OFFICER DID NOT REFUTE ANY OF THE ABOVE SUBMISSIONS OF THE APPELLANT BEFORE MAKIN G THE DISALLOWANCE. IT IS NOT THE CASE OF THE APPELLANT T HAT THE IMPORTED PUMPS WERE OBSOLETE AND THESE WERE KEPT A PART JUST TO CLAIM THE LOSS ON ACCOUNT OF REVALUATION. IN VIEW OF ABOVE, THE DISALLOWANCE OF RS.42,38,664/ - BECAUSE OF REVALUATION OF INVENTORY OF TWO IMPORTED PUMPS IS NOT CONFIRMED. GROUND 9 OF THE APPEAL IS ACCEPTED. 8.4 THE LD. DR IN HIS WRITTEN SUBMISSION HAS STATED AS UNDER:- IN THIS REGARD IT IS SUBMITTED THAT IN THE CAS E OF HOTLINE TELETUBE (SUPRA) THE VALUE OF STOCK WAS RED UCED AS THE ASSESSEE HAD CARRIED THE INVENTORY FOR 3 YEA RS AND COULD NOT SELL IT. SIMILARLY IN CASE OF NATIONAL AL UMINUM (SUPRA) THE REDUCTION IN VALUE OR INVENTORY WAS DON E ON THE REPORT OF THE CAG ABOUT STOCK GETTING OBSOLETE. BUT 26 HERE THE ASSESSEE HAS REDUCED THE VALUE JUST BECAUS E IN INDIA THE PUMPS WERE AVAILABLE AT A LOWER PRICE. TH E PUMPS HAVE NOT BECOME OBSOLETE BECAUSE THE VALUE HA S BEEN REDUCED IN THE SAME YEAR. THUS, IT CAN BE SEEN THAT HERE THERE IS NO OBSOLESCENCE OF THE STOCK. HENCE T HE ABOVE CASES ARE NOT APPLICABLE. SECONDLY, IT IS WRONG ON THE PART OF THE ASSESSEE TO REDUCE THE VALUE OF INVENTORY BY COMPARING THE PROD UCTS MANUFACTURED IN JAPAN AND INDIA. THE QUALITY OF THE PRODUCTS MANUFACTURED IN THE TWO COUNTRIES IS BOUND TO BE DIFFERENT. THUS THE REDUCTION IN THE VALUE OF TH E STOCK IS TOTALLY UNJUSTIFIED AND THE ARTIFICIAL LOSS CLAI MED ON THIS ACCOUNT CANNOT BE ALLOWED AS A DEDUCTION. 8.5 DURING THE COURSE OF PROCEEDINGS BEFORE US, THE LD. AR HAS REFEREED TO THE ACCOUNTING PRINCIPLES OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. OUR ATTENTION WAS DRAWN TO THE FOLLOWING DECISIONS. OUR ATTENTION WAS DRAWN TO THE FOLLOWING DECISIONS. CIT VS. HOTLINE TELETUBE & COMPONENTS LTD. , 175 TA XMAN 286 (DEL.) IN THIS CASE, THE HON'BLE DELHI HIGH COURT UPHELD THE FINDING OF THE TRIBUNAL IN ALLOWING PROVISIONS FOR DIMINUTION IN THE VALUE OF THE STOCK. IN THAT CASE, THE STOCK BECAME OBSOLETE AND HAS NOT MOVED FOR OVER TH REE YEARS. NATIONAL ALUNIMIUM CO. LTD. VS. DCIT, 110 TTJ 948 (CUTTACK) 27 IN THIS CASE, THE LOSS OF NON-MOVING STORES AND SPARES WAS ALLOWED AS BUSINESS LOSS. 8.6 WE HAVE HEARD BOTH THE PARTIES. WE ALSO REQUIRE D THE ASSESSEE TO GIVE BRIEF NOTE IN RESPECT OF INVENTORY WRITTEN OFF. T HE BRIEF NOTE IS AS UNDER:- THE AUXILIARY OIL PUMPS (AOP) WERE PROCURED IN TH E YEAR 2000 IN PACKAGE UNDER THE EXPANSION PROJECT. THE CO ST OF MECHANICAL SALE OF THE IMPORTED AUXILIARY OIL PUMP WAS RS. 21, 42,684/- PER SEAL. THE OEM FOR THESE PUMPS WAS M/S. TAIKOKIKAI, JAPN. IN COURSE OF TIME THESE, AOPS WERE ALSO DEVELOPED INDIGENOUSLY. WE HAVE PROCURED FOUR INDIGENOUS PUMP S (ALONGWITH SEAL) FROM M/S. SHILPA TRADE LINKS (P) LTD. AGAINST PURCHASE ORDER NO. 45495 DATED 27-11-2002 WHICH WERE RECEIVED IN THE P LANT ON 05-03- 2003 UNDER INVOICE NO. 443 DATED 21-02-2003. THE TO TAL INVOICE VALUE WAS RS. 93,441/- FOR FOUR PUMPS (I.E. RS. 23,352/- PER PUMP). ONE SUCH PUMP WAS SUCCESSFULLY INSTALLED IN UREA-II PLA NT ON 27-01-2006 IN PLACE OF IMPORTED PUMP AND WAS OPERATING SMOOTHL Y. THE COST OF IMPORTED MECHANICAL SEALS OF THE IMPORT ED AOPS IS ROUGHLY HUNDRED TIMES THE COST OF COMPLETE INDIGENO US PUMP (INCLUDING SEAL). AS THESE IMPORTED PUMPS WERE LYIN G IN THE STORES AT THE CLOSING OF THE YEAR, THE VALUATION OF THE SAM E WAS TO BE MADE AS PER THE ACCOUNTING POLICIES FOLLOWED CONSISTENTLY I .E. AT MONTHLY WEIGHTED AVERAGE COST OR NET REALIZABLE VALUE, WHIC HEVER IS LOWER. HENCE, THE COST OF TWO IMPORTED MECHANICAL SEALS OF AOPS HAS BEEN REDUCED TO RS. 46,704/- AND DIFFERENCE OF RS. 42,38 ,664/- WAS CHARGED TO PROFIT AND LOSS ACCOUNT IN THE ASSESSMENT YEAR 2006-07. 28 8.7 FROM THE ABOVE NOTE, IT IS CLEAR THAT THE COST OF INDIGENOUS PUMPS WAS LESS AS APPARENT FROM PURCHASE ORDER DATED 27-11-0 2. FROM THIS, IT IS NOT CLEAR THAT THE PUMPS HAVE BECOME OBSOLETE DURING TH E YEAR UNDER REFERENCE. IT IS NOT THE CASE OF THE ASSESSEE THAT SUCH PUMPS HAVE BEEN DISCARDED DURING THE YEAR UNDER REFERENCE. THE ASSESSEE CANNOT BE GI VEN A CHOICE OF ADJUSTING THE BUSINESS LOSS. IT IS THAT THERE IS LOSS ON ACCO UNT OF REVALUATION BUT SUCH LOSS WAS EVIDENT IN THE EARLIER YEARS. WE THEREFOR E, RECORD THE FINDINGS THAT THE LOSS WILL BE ALLOWABLE AS AND WHEN THE PUMPS AR E TREATED AS SCRAP OR ARE SOLD. THEREFORE, THE DISALLOWANCE OF LOSS OF RS. 42 ,38,664/- DOES NOT RELATE TO THE YEAR UNDER CONSIDERATION AND THEREFORE, THE AO WAS JUSTIFIED IN DELETING THE DISALLOWANCE. 9.0 NOW WE TAKE UP THE CROSS APPEALS FOR THE ASSESS MENT YEAR 2007-08. 9.1 THE FIRST GROUND OF REVENUE IS AGAINST DISALLOW ANCE OF DEDUCTION U/S 80IA OF THE ACT. 9.2 THIS ISSUE IS COVERED BY OUR FINDINGS IN THE CA SE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-07 AS ABOVE WHILE DISPOSING O FF THE GROUND OF APPEAL NO. 3 RELATING TO CAPTIVE POWER PLANT.. FOLLOWING T HAT ORDER, WE HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWAN CE OF DEDUCTION U/S 80IA OF THE ACT. 29 10.1 THE SECOND GROUND OF APPEAL OF THE REVENUE IS AGAINST RELIEF OF RS. 6,99,281/- GIVEN BY THE LD. CIT(A) BY DELETING THE ADDITION OUT OF CLUB EXPENSES. 10.2 THIS ISSUE IS ALSO DECIDED BY US WHILE DISPOSI NG OFF THE APPEAL FOR THE ASSESSMENT YEAR 2006-07. FOLLOWING OUR ABOVE ORDER IN GROUND NO. 4 FOR THE ASSESSMENT YEAR 2006-07, WE HOLD THAT THE LD. C IT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 6,99,281/-. 11.1 THE THIRD GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUNT OF DONAT ION GIVEN TO THE DAV TRUST AMOUNTING TO RS. 20,95,726/-. 11.2 THIS ISSUE ALSO DECIDED BY US WHILE DISPOSING OFF THE APPEAL IN GROUND NO. 1 IN THE CASE OF THE ASSESSEE FOR THE ASSESSME NT YEAR 2006-07. FOLLOWING OUR FINDINGS, WE HOLD THAT THE LD. CIT(A) WAS JUSTI FIED IN DELETING THE DISALLOWANCE OF RS. 20,95,726/-. 12.1 THE FOURTH GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO ON AC COUNT OF DISALLOWANCE OF DEPRECIATION ON CATALYST AMOUNTING TO RS. 1,18,0 8,057/-. 12.2 THIS ISSUE HAS ALSO BEEN DECIDED IN THE CASE O F THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-07 WHILE DISPOSING OF THE GROU ND NO. 2. FOLLOWING OUR FINDINGS FOR THE ASSESSMENT YEAR 2006-07, WE HO LD THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF DEPRE CIATION ON CATALYST. 30 13.1 THE FIFTH THIRD GROUND OF APPEAL OF THE REVENU E IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO O N ACCOUNT OF CLAIM OF DEDUCTION U/S 43B OF THE ACT RELATING TO BONUS PAYM ENT AMOUNTING TO RS. 2,14,324/-. 13.2 FOLLOWING OUR FINDINGS FOR THE ASSESSMENT YEA R 2006-07 IN THE CASE OF THE ASSESSEE, WE RESTORE THIS ISSUE ON THE FILE OF THE AO. REFERENCE IS MADE TO OUR FINDINGS AGAINST GROUND OF APPEAL NO. 5 IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-07. 14.1 THE SIXTH GROUND OF APPEAL OF THE REVENUE IS T HAT THE LD. CIT(A) HAS ERRED IN ALLOWING THE CREDIT OF TDS ON RECEIPT FROM IMACID (MOROCCO). 14.2 THIS ISSUE STANDS COVERED BY THE DECISION OF T HE TRIBUNAL FOR THE ASSESSMENT YEAR 2004-05. IT WILL BE USEFUL TO REPRO DUCE PARA 21.1 AND 21.2 OF THE ORDER DATED 28-07-2011. 21.1 THE FOURTH GROUND OF APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN DIRECTING THE TO ALLOW THE CREDIT OF TDS OF RS. 7.34 LACS. 21.2 THE ABOVE REFERRED ISSUE HA BEEN CONSIDERED WH ILE DECIDING THE APPEAL OF THE REVENUE FOR THE ASSESSME NT YEAR 2003-04. FOLLOWING THAT FINDING, WE HOLD THAT THE L D. CIT(A) WAS JUSTIFIED IN DIRECTING THE AO TO ALLOW THE CRED IT OF TDS OF RS. 7.34 LACS.. 31 14.3 FOLLOWING OUR ORDER FOR THE ASSESSMENT YEAR 2004-05 , WE HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE AO TO ALL OW THE CREDIT OF TDS ON RECEIPT FROM IMACID (MOROCCO) 15.1 THE 7 TH GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CI T(A) HAS ERRED IN ALLOWING CREDIT OF TDS AMOUNTING TO RS. 36 ,23,108/-. 15.2 THE ASSESSEE CLAIMED CREDIT OF TAX DEDUCTED AT SOURCE OF RS. 32,23,769/- IN THE REVISED RETURN. THE INCOME IN RE SPECT OF TAX HAS BEEN OFFERED FOR THE ASSESSMENT YEAR 2007-08. 15.3 THE LD. CIT(A) THEREFORE, DIRECTED THE AO TO D O NECESSARY ACTION ON THE CLAIM FOR THE CREDIT OF TDS OF RS. 32,23,769/-. . 15.4 WE HAVE HEARD BOTH THE PARTIES. WE FIND NO INF IRMITY IN THE ORDER OF THE LD. CIT(A). THUS THIS GROUND OF APPEAL IS DISMI SSED. 16.0 NOW WE TAKE UP THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2007-08. 16.1 THE SOLITARY GROUND OF THE ASSESSEE IS THAT TH E LD. CIT(A) HAS ERRED IN HOLDING THAT AN AMOUNT OF RS. 1,74,49,093/- ON ACCO UNT OF PRE-PAYMENT OF DEFERRED SALES TAX LIABILITY IS CAPITAL IN NATURE A ND CANNOT BE ALLOWED AS A DEDUCTION. 16.2 THIS ISSUE HAS BEEN CONSIDERED BY US IN THE CA SE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 (ITA NO.445/JP/2009) . IT W ILL BE USEFUL TO REPRODUCE FOLLOWING PARA FROM THE ORDER OF THE TRIB UNAL. 32 2.11 WE HAVE HEARD BOTH THE PARTIES. SECTION 25(3) OF THE RAJASTHAN SALES TAX ACT 1994 AUTHORISES THE STATE G OVT. OF DEFER THE TAX BY MAKING A NOTIFICATION. SECTION 25(3) OF RAJASTHAN SALS TAX ACT 1994 IS AS UNDER : NOTWITHSTANDING ANYTHING CONTAINED IN SUB SECTION ( 1) & (2) WHERE THE STATE GOVT. IS OF OPINION THAT IT IS NECESSARY OR EXPEDIENT IN THE PUBLIC INTEREST SO AS TO DO, IT MA Y, BY NOTIFICATION IN THE OFFICIAL GAZETTE DEFER THE PAYMENT OF TAX PA YABLE BY ANY CL. OF DEALERS WITH OR WITHOUT INTEREST, FOR ANY PERIOD AS SUCH CONDITIONS AND UNDER SUCH CIRCUMSTANCES AS MAY BE S PECIFIED IN THE NOTIFICATION 2.12 SECOND PROVISO TO CLAUSE 4 (D)(I) OF RAJASTHAN SALES TAX NEW DEFERMENT SCHEME 1989 IS AS UNDER:- PROVIDED FURTHER THAT NOTWITHSTANDING ANYTHING CONT AINED IN THIS NOTIFICATION BUT SUBJECT TO SUCH CONDITIONS AS THE STATE GOVT. MAY, BY GENERAL OR SPECIAL ORDER SPECIFY, WHERE A D EALER TO WHOM INCENTIVE BY WAY OF DEFERMENT OF SALES TAX HAS BEEN GRANTED BY VIRTUE OF ELIGIBILITY CERTIFICATE ISSUED UNDER THIS NOTIFICATION AND WHERE A LOAN LIABILITY EQUAL TO THE AMOUNT OF ANY S UCH TAX PAYABLE BY SUCH DEALER HAS BEEN RAISED BY RIICO/RFC OR INDU STRIES DEPARTMNET, THEN SUCH TAX SHALL BE DEEMED IN THE PU BLIC INTEREST TO HAVE BEEN PAID. 2.13 SECTION 43B IS AS UNDER : 43B NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT A DEDUCTION OTHERWISE ALLOWA BLE UNDER THIS ACT IN RESPECT OF A) ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX B) C) D) E) F) 33 SHALL BE ALLOWED IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE A SSESSEE ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMP LOYED BY HIM ONLY IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF THE PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUAL LY PAID BY HIM. 2.14 SECTION 43B STARTS WITH A NON OBSTANTE CLAUSE. IN CASE OF CONFLICT, THE PROVISIONS IN SECTION STARTIN G WITH NON OBSTANTE CLAUSE WILL HAVE AN OVERRIDING EFFECT. EXCISE DUTY PAID IN ADVANCE IS NOT AN ALLOWABLE DEDUCTION AS PER THE NORMAL PRO VISION OF SECTION 37 OF I.T.ACT. SUCH ADVANCE EXCISE DUTY IS AN ALLOWABLE DEDUCTION U/S 43B OF THE I.T.ACT. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V MODI PON LTD (NO 2 ) 334 ITR 106 HELD THAT ADVANCE PAYMENT OF EXCISE DUTY IS ALLOWABLE U/S 43B OF I.T.ACT. 2.15 THE FIVE MEMBER SPECIAL BENCH IN THE CASE OF D CIT V GLAXO SMITHKLINE CONSUMER HEALTH CARE LTD. 299 IT R (TRIB) (CHANDIGARH) HELD THAT DEDUCTION IS TO BE ALLOWED O N THE BASIS OF PAYMENT IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH LIABILITY WAS INCURRED. ANY REFERENCE TO THE TIME OF INCURRING OR ACCRUING THE LIABILITY IS DISPENCED WITH BY THE STATUTE WHERE CO NCENTRATION IS MADE ON THE POINT OF ACTUAL PAYMENT. 2.16 WE THEREFORE DO NOT AGREE WITH THE CONTENTION OF THE LD.CIT(DR) THAT SPECIAL BENCH IN THE CASE OF SULZER INDIA LTD HAS TAKEN A WRONG VIEW THAT SALES TAX IS ALLOWABLE U/S 43B. SECTION 43B SPECIFIES AS TO WHEN LIABILITIES MENTIONED THER EIN ARE TO BE ALLOWED. IF SOME CONDITIONS ARE NOT SATISFIED THEN EXPENDITURE IS NOT ALLOWABLE. 2.17 WE HAD ALREADY MENTIONED THAT IN SALES TAX DEFERMENT SCHEME, IT IS PROVIDED THAT SALES TAX WIL L BE CONSIDRED AS PAID AND SUCH DEFERRED SALES TAX IS A LOAN. THE DEE MING PROVISION IS TO BE CONSTRUED FOR THE PURPOSE FOR WHICH IT IS ENACTED. THUS DEFERRED SALES TAX IS TO BE CONSIDRED AS PAID. THE REVENUE HAS 34 ALREADY ALLOWED SUCH DEDUCTION OF SALES TAX U/S 43B OF THE I.T.ACT. NOW THERE IS NO LIABILITY OF PAYMENT OF SALES TAX. 2.18 THE HONBLE BOMBAY HIGH COURT IN THE CASE OF S .I. GROUP INDIA LTD (SUPRA) HELD THAT SALES TAX BEING A TRADING LIABILITY IN RESPECT OF WHICH AN ALLOWANCE OR DEDUCTION HAS B EEN MADE U/S 43B. 2.19 IT IS TRUE THAT IN NOTIFICATION DATED 27.3.200 3, THE STATE GOVT. PROVIDED A SCHEME FOR THE DEALERS WHO A VAILED THE DEFERMENT OF SALES TAX TO DEPOSIT THE AMOUNT OF DEF ERRED TAX EVEN BEFORE THE STIPULATED DUE DATE OF DEPOSIT. THE PAYM ENT IS TO BE ON THE BASIS OF NET PRESENT VALUE AS SPECIFIED IN THAT NOTIFICATION. NET PRESENT VALUE HAS BEEN MENTIONED AS PERCENTAGE OF A MOUNT PAYABLE AND SUCH PERCENTAGE VARIES AS PER THE PERIOD OF MO NTH BETWEEN THE ACTUAL DATE OF PAYMENT AND THE EXTENDED DATE OF PAY MENT. HOWEVER BOARD CIRCULAR 496 DATED 25.9.87 STATED THAT STATUT ORY LIABILITY IS TO BE TREATED AS PAID IN CASE THE STATE GOVT. MAKES A N AMENDMENT THAT SALES TAX DEFERRED UNDER THE SCHEME IS TO BE T REATED AS ACTUALLY PAID. BENOVELENT CIRCULAR OF BOARD ARE MANDATORY. T HE LIABILITY IS NOT THAT OF SALES TAX BUT IT IS A LIABILITY OF LOAN . HENCE THE DECISION OF SPECIAL BENCH IN THE CASE SULZER INDIA LTD. IS S QUARELY APPLICABLE. IT WILL BE USEFUL TO REPRODUCE HEAD NOT E IN THE CASE OF SULZER INDIA LTD. BUSINESS INCOME-PROFITS CHARGEABLE TO TAX UNDER S. 41(1)- PAYMENT OF NET PRESENT VALUE AGAINST DEFERRED SALES -TAX LIABILITY- ASSESSEE COMPANY OBTAINED INCENTIVE BY WAY OF SALES -TAX DEFERRAL SCHEMES OF 1983 AND 1988 NOTIFIED BY THE GOVERNMENT OF MAHARASHTRA-AS PER THE SAID SCHEMES, THE SALES-TAX COLLECTED BY THE ASSESSEE DURING THE PERIOD FROM 1 ST NOV., 1989 TO 31 ST OCT., 1996, WAS TO BE PAID AFTER 12 YEARS IN SIX EQUAL AN NUAL INSTALMENTS-FOURTH PROVISO TO S. 38(4) OF BOMBAY SA LES-TAX ACT, 1959 PROVIDES THAT WHERE AN ENTITLEMENT CERTIFICATE HAS BEEN GRANTED TO THE ELIGIBLE UNIT FOR AVAILING OF THE IN CENTIVES BY WAY OF DEFERMENT OF SALES-TAX, ETC. SUCH UNIT MAY, AT ITS OPTION PREMATURELY PAY AN AMOUNT EQUAL TO THE NPV OF THE DEFERRED TAX AND ON MAKING SUCH PAYMENTS, THE DEFERRED TAX SHALL BE DEEMED TO HAVE BEEN PAID- ASSESSEE PAID AN AMOUNT OF RS.3,37,13,393 AGA INST THE AGGREGATE DEFERRAL AMOUNT OF RS.7,52,01,338 TO SICO M, THE IMPLEMENTING AGENCY, WHICH REPRESENTED THE NPV AS D ETERMINED BY THE LATTER-IT CANNOT BE SAID THAT THE ASSESSEE H AS OBTAINED THE 35 BENEFIT OF DEDUCTION OF SALES-TAX LIABILITY SIMPLY BECAUSE DEDUCTION WAS ALLOWED FOR THE PURPOSE OF S. 43B BY APPLYING C IRCULAR NO.496, DT. 25 TH SEPT., 1987-SAID CIRCULAR CLEARLY STATES THAT THE STATUTORY LIABILITY SHALL BE TREATED TO HAVE BEEN D ISCHARGED FOR THE PURCHASES OF S. 43B- THUS, THE FIRST REQUIREMENT O F S. 41(1) IS NOT FULFILLED-NPV IS EQUIVALENT TO THE PRESENT VALUE OF FUTURE SUM-WHAT THE ASSESSEE WAS REQUIRED TO PAY AFTER 12 YEARS IN SIX EQUAL INSTALMENTS HAS BEEN PAID AS NPV-THERE IS NO IOTA O F EVIDENCE OF SHOW THAT THERE HAS BEEN ANY REMISSION OR CESSATION OF LIABILITY- THUS, FURTHER REQUIREMENT FOR THE APPLICABILITY OF S. 41(1) IS ALSO NOT FULFILLED- ASSESSEE HAS PASSED NECESSARY ENTRIE S IN ITS BOOKS OF ACCOUNT SHOWING THE DIFFERENCE AS CAPITAL RECEIPT M ERELY BECAUSE THE SALES TAX AUTHORITIES HAVE NOT ISSUED MODIFIED ELEGIBILILTY CERTIFICATE, IT DOES NOT MEAN THAT THE PAYMENT MADE BY THE ASSESSEE CANNOT BE ACCEPTED AS THE PAYMENT OF NPV OF THE FUT URE SUM TOWARDS DISCHARGE OF FULL LIABILITY-AMOUNT WHICH WA S PAYABLE FROM IST MAY, 2003 TO IST MAY, 2008 HAS BEEN PAID ON 30 TH DEC., 2002- THIS DOES NOT SATISFY THE CONDITION OF ACTUAL REMIS SION IN PRAESENTI- AMOUNT HAS BEEN PAID AS PER THE FORMULA FOR COLLECT ING THE NPV GIVEN BY SICOM-THEREFORE, SUCH PAYMENT OF NPV OF TH E FUTURE LIABILITY CANNOT BE TREATED AS REMISSION OR CESSATI ON OF LIABILITY SO AS TO ATTRACT THE PROVISIONS OF S. 41(1) 2.20 THE SPECIAL BENCH IN RESPECT OF APPLICABILITY OF SECTION 28 (IV) HAS HELD THAT IT WILL NOT BE APPLICABLE. THE S PECIAL BENCH OBSERVED AS UNDER. SEC.28(IV) SEEKS TO CHARGE THE VALUE OF ANY BENEFI T OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION, AS PROFITS AND GAINS OF B USINESS OR PROFESSION. THEREFORE, WHAT IS TO BE EXAMINED IS WHETHER THE WA IVER OF LOAN WOULD AMOUNT TO A PERQUISITE SO AS TO BE TAXABLE, AS SUCH , UNDER S. 28. THE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDR A LTD. VS. CIT (2003) 182 CTR (BOM) 34 : (2003) 261 ITR 501(BOM) : (2003) 128 TAXMAN 394 (BOM), HAS EXPLAINED THAT S. 28(IV) SEEK S TO CHARGE THE VALUE OF ANY BENEFIT OR PERQUISITE, MEANING THEREBY THAT THE BENEFIT MOST BE IN KIND; THE COURT FURTHER HELD THAT WAIVER OF LOAN IS IN RESPECT OF MONEY TRANSACTION AND, THEREFORE, WOULD NOT BE IN NATURE OF ANY BENEFIT OR PERQUISITE AS CONSTRUED IN S. 28(IV). 2.21 THE ARGUMENT OF THE LD. DR THAT SCHEME OF RAJA STHAN GOVT IS DIFFERENT IS NOT OF RELEVANCE. IN THE CASE OF MA HARASHTRA, THE SCHEME OF 36 RECEIPT OF PREPAYMENT OF LOAN WAS BY A STATE CORPOR ATION WHILE IN RAJASTHAN IT HAS BEEN IMPLEMENTED BY STATE GOVT. TH E IMPLEMENTING AGENCY MAY BE DIFFERENT BUT THE NATURE OF THE SCHEM E IS THE SAME 2.22 WE THEREFORE HOLD THAT LD.CIT(A) WAS NOT JUSTI FIED IN CONFIRMING THE ADDITION OF RS.12,06,33,254/- AS PRO VISIONS OF SECTION 41(1) ARE NOT APPLICABLE. 16.2 FOLLOWING OUR ORDER FOR THE ASSESSMENT YEAR 20 05-06 (SUPRA) WE HOLD THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING TH E RECEIPT OF RS. 1,74,49,093/- AS CAPITAL RECEIPT 17. IN THE RESULT, THE APPEALS OF THE REVENUE ARE P ARTLY ALLOWED WHILE THE APPEAL OF THE ASSESSEE IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 31-10- 2011. SD/- SD/- ( R.K. GUPTA) (N.L.KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED: 31/10/2011 MISHRA COPY TO: 1.THE ACIT, CIRCLE- 2, KOTA / ITO WARD- 1 (1), KOTA 2. M/S. CHAMBAL FERTILIZERS & CHEMICALS LTD. KOTA 3.THE LD. CIT (A) 4.THE LD. CIT 5.THE LD. D/R 6.THE GUARD FILE (ITA NO.268,374 &536/ JP/10 NO.40 /JP/2011) BY ORDER AR: ITAT: JAIPUR