The Fertilisers & Chemicals Travancore ltd, V. DCIT, Aluva

ITA 289/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58261 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 21-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 29-04-2010
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA; S R SENAPATI
• Assessee Lawyers: V SATHYANARAYANAN
• Keywords: Depreciation; Revised return; Set aside
• Section: 143(3); 234B; 115JB; 250; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND SANJAY AROR A, AM I.T.A NOS. 289 & 106/COCH/2010 ASSESSMENT YEARS: 2005-06 & 2006-07 THE FERTILIZERS & CHEMICALS TRAVANCORE LTD., UDYOGMANDAL. [PAN: AAACT 6204C] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, ALUVA. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI V.SATHYANARAYANAN, CA REVENUE BY SHRI S.R.SENAPATI, SR. DR AND MS. S. VIJAYAPRABHA, JR. DR DATE OF HEARING 21/11/2011 DATE OF PRONOUNCEMENT 31/01/2012 O R D E R PER SANJAY ARORA, AM: THESE ARE A SET OF TWO APPEALS BY THE ASSESSEE ARI SING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME-TAX, KOCHI (CIT FOR SHORT) DATED 19-02-2010 FOR THE ASSESSMENT YEAR (A.Y.) 2005-06 AND BY THE COMMISSIO NER OF INCOME-TAX (APPEALS)-II, KOCHI (CIT(A) FOR SHORT) DATED 30-11-2009 FOR TH E A.Y. 2006-07. 2. THE PRINCIPAL ISSUE ARISING IN THE SAID APPEALS BEING COMMON, THESE WERE HEARD TOGETHER, AND ARE BEING DISPOSED OF VIDE A COMMON, CONSOLIDATED ORDER. THE FACTS AND CIRCUMSTANCES OF THE CASE WOULD BEAR NARRATION BEFO RE WE MAY PROCEED TO CONSIDER THE GROUNDS RAISED FOR ADJUDICATION. THE ASSESSEE-COMPA NY (`FACT FOR SHORT) IS A GOVERNMENT OF INDIA - WHICH HOLDS 99.15% EQUITY SHA RES THEREIN UNDERTAKING. IT OPERATES IN A HIGHLY COMPLEX, COMPETITIVE AS WELL A S REGULATED, FERTILIZER MARKET. DUE TO STIFF COMPETITION FROM CHEAPER IMPORTS, PARTICULARL Y IN THE RECENT YEARS; THE STEEP INCREASE I.T.A. NOS. 289 &106/COCH/2010 FACT LTD VS. DCIT, ALUVA. 2 IN THE RAW MATERIALS PRICES, ACCOMPANIED BY HIGH OP ERATING COSTS, IT INCURRED CONTINUED OPERATIONAL LOSSES, LEADING TO THE EROSION OF ITS E NTIRE NET WORTH, WHICH STOOD AT (-) ` 176.42 CRORES AS ON 31/3/2005. THE ASSESSEE WAS ACC ORDINGLY REFERRED TO THE BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION (BIFR) TO E XAMINE ITS FINANCIAL VIABILITY AND ECONOMIC FEASIBILITY OF CONTINUING ITS OPERATIONS A S A GOING CONCERN. APART FROM CAPITAL CONTRIBUTION, THE GOVERNMENT OF INDIA (GOI) HAD EXT ENDED EXTENSIVE UNSECURED LOANS TO THE ASSESSEE-COMPANY, ITS ACCOUNTS REVEALING AN OUT STANDING OF ` 574.46 CRORES AND ` 619.40 CRORES IN ITS RESPECT AS ON 31-03-2004 AND 3 1-03-2005 RESPECTIVELY. THE QUESTION OF WAIVER OF INTEREST ON THESE LOANS, AS ALSO PARTI AL/TOTAL CONVERSION OF THE UNSECURED LOANS INTO EQUITY, WAS IN CONSIDERATION BY THE GOI FROM A N EARLIER DATE, WHICH VIDE ITS ORDER NO. 14012/8/2002/FB DATED 31-10-2003 APPROVED DEFER MENT OF INTEREST OUTSTANDING AS ON 31-03-2003 ( ` 3480.40 LAKHS). ACCORDINGLY, NO PROVISION FOR PAYME NT OF INTEREST WAS MADE IN THE ACCOUNTS FOR THE FINANCIAL (ACCOUNTING) YEAR ENDING 31-03-2004. FOR THE FOLLOWING YEAR, I.E., ENDING 31-03-2005, THE ASSESS EE PROVIDED INTEREST IN ITS ACCOUNTS FOR THE PERIOD 01-04-2003 ONWARDS, AS UNDER:- FOR F.Y. 2003-04: ` 34,80,40,000 (DEBITED AS PRIOR PERIOD EXPENSES) FOR F.Y. 2004-05: ` 50,97,23,074 (DEBITED AS INTEREST ON LOANS) TOTAL DEBITED TO P&L: ` 85,77,63,074 A/C FOR 2004-05 THE ASSESSEE WAS, HOWEVER, NOT SATISFIED WITH THE DEFERMENT, AND REQUESTED FOR WAIVER OF THE INTEREST, AT LEAST FOR THE PERIOD OF TWO YEA RS ENDING 31/3/2005. VIDE LETTER DATED 15- 03-2005 (PB PG. 9) , THE INITIAL RESTRUCTURING PROPOSALS WERE ACCORDIN GLY FORWARDED BY THE CONCERNED MINISTRY, I.E., MINISTRY OF CHEMICALS AND FERTILIZERS, TO THE BOARD FOR RECONSTRUCTION OF PUBLIC SECTOR ENTERPRISES (BRPSE) . THE MATTER, AFTER PASSING THROUGH ADMINISTRATIVE CHANNELS, FINALLY GOT CLEARANCE FROM GOI, WHICH VIDE ITS LETTER DATED 22-04- 2006 INTIMATED THE APPROVAL OF THE CABINET COMMITTE E ON ECONOMIC AFFAIRS, WAIVING THE ENTIRE OUTSTANDING INTEREST AS ON 31-03-2005 AMOUNT ING TO ` 85.77 CRORES, BESIDES OTHER RELIEFS (PB PG. 22 ). I.T.A. NOS. 289 &106/COCH/2010 FACT LTD VS. DCIT, ALUVA. 3 3. THE ASSESSEE-COMPANY HAD RETURNED A LOSS OF ` 100.44 CRORES FOR THE A.Y. 2005-06 VIDE RETURN FILED ON 31-10-2005. IN VIEW OF THE SA ID WAIVER BY THE GOI, IT REVISED THE SAME BY THE LIABILITY WAIVED, REDUCING THE RETURNED LOSS TO ` 49.47 CRORES, WHILE THE BOOK PROFIT U/S. 115JB OF THE INCOME-TAX ACT, 1961 ('THE ACT' HEREINAFTER), WHICH HAD NOT BEEN RETURNED EARLIER (THE PROFIT AND LOSS ACCOUNT EXHIB ITING A LOSS AT ` 167.76 CRORES), WAS RETURNED AT A LOSS OF ` 81.97 CRORES. THE REVISED RETURN, FILED ON 20/7/20 06, STOOD ACCEPTED AS SUCH VIDE ORDER U/S. 143(3) OF THE ACT DATED 30- 10-2007. THE RETURN OF INCOME FOR A.Y. 2006-07 WAS FURNISHED ON 22-11-2006, DECLARING A LOSS OF ` 73.09 CRORES, WHILE ADMITTING THE BOOK PROFIT U/S. 115JB AT NIL. IN CO MPUTING THE SAME (BOOK PROFIT), THE ASSESSEE HAD REDUCED THE NET PROFIT AS PER THE PROF IT AND LOSS ACCOUNT BY ` 85,77,63,074/-. THE BASIS FOR THE SAID REDUCTION WAS ITS CORRESPOND ING ADDITION TO THE BOOK PROFIT FOR THE IMMEDIATELY PRECEDING YEAR, I.E., A.Y. 2005-06, SO THAT THE SAID REDUCTION WAS IN ACCORDANCE WITH CLAUSE (I) OF EXPLANATION (1) TO S. 115JB(2). THE ASSESSEES STAND WAS COUNTERED BY THE DEPARTMENT FOR BOTH THE ASSESSMENT YEARS. FOR THE FIRST ASSESSMENT YEAR (A.Y. 2005-06), THE LD. CIT WAS OF THE VIEW THAT TH E ADDITION TO THE `BOOK PROFIT HAD BEEN MADE BY THE ASSESSEE WITH A VIEW TO CLAIM CORR ESPONDING DEDUCTION FOR THE FOLLOWING ASSESSMENT YEAR, I.E., A.Y. 2006-07, BUT FOR WHICH THE BOOK PROFIT WAS AT A POSITIVE FIGURE OF OVER ` 40 CRORES, AND WHICH STOOD TO BE CONVERTED TO A LOS S AFTER DEDUCTING THIS SUM OF ` 85.77 CRORES. THE SAME IS NOT WARRANTED IN LAW IN-A S-MUCH AS THE PROVISION DOES NOT REPRESENT THE WRITE BACK OF AN U NASCERTAINED LIABILITY. THE MATTER HAD IN ANY CASE NOT BEEN EXAMINED BY THE ASSESSING OFFI CER (AO), SO THAT IT WOULD NEED TO TRAVEL BACK TO HIS FILE FOR EXAMINATION, WHICH HAD NOT BEEN MADE AT ALL, MUCH LESS IN LIGHT OF THE CLAIM FOR DEDUCTION THEREOF MADE FOR THE FOL LOWING YEAR, AND WHICH MADE THE ASSESSMENT AS FRAMED AS ERRONEOUS AND PREJUDICIAL T O THE INTEREST OF THE REVENUE. RELIANCE WAS PLACED BY HIM ON THE DECISIONS IN THE CASE OF CIT VS. THALIBAI S. JAIN (1975) 101 ITR 1 (KAR.); CIT VS. ACTIVE TRADERS (P) LTD. (1995) 214 ITR 583 (CAL.); CIT VS. ENGLISH INDIAN CLAYS LTD. (2011) 331 ITR 219 (KER.), BESIDES RAJALAKSHMI MILLS LTD. VS. ITO (2009) 25 DTR (CHENNAI) (SB) (TRIB.) 258 [121 ITD 343], QUOTING THERE-FROM IN HIS ORDER. ON THE SAME BASIS, THE CLAIM OF THE ASS ESSEE FOR REDUCTION IN ITS BOOK PROFIT FOR A.Y. 2006-07 WAS NOT ALLOWED BY THE AO, VIDE ASSESS MENT U/S. 143(3) DATED 30-12-2008. I.T.A. NOS. 289 &106/COCH/2010 FACT LTD VS. DCIT, ALUVA. 4 THE LIABILITY WAIVED, REPRESENTING THE INTEREST FOR THE PERIOD COMPRISING F.Y. 2003-04 AND F.Y. 2004-05, HAD ACCRUED IN TERMS OF THE UNDERLYIN G LOAN AGREEMENT; THE LOAN SANCTION LETTER PROVIDING FOR THE RATE OF INTEREST, SO THAT THERE WAS NO AMBIGUITY WHATSOEVER. THE RESTRUCTURING PROPOSAL UNDER CONSIDERATION WAS ONLY TOWARD THE WAIVER OF INTEREST ON THE SAID CLAIM, AND WHICH WOULD NOT BY ITSELF CONVERT T HE LIABILITY ON ACCOUNT OF INTEREST INTO EITHER AN UNASCERTAINED OR A CONTINGENT LIABILITY. IN FACT, THERE WAS NO DISCLOSURE IN THE ANNUAL REPORT TO THIS EFFECT IN THE ANNUAL ACCOUNTS /REPORT FOR THE TWO YEARS. THE ASSESSEE HAD ALSO NOT ADDED BACK THE WAIVED INTEREST IN COMP UTING ITS INCOME UNDER THE NORMAL PROVISIONS OF THE ACT , AND ONLY ON THE SAME BASIS, I.E., THAT IT WAS NEI THER UNASCERTAINED NOR A CONTINGENT LIABILITY. THE MEANING OF THE WORD UNASCERTAINED IS NOT CERTAIN, WHEREAS WHAT WAS NOT CERTAIN, OR UNASCERTAINED, AS ON 31-03-2005, OR EVEN AS ON THE DATE OF FINALISATION OF THE ACCOUNTS FOR THAT YEAR, IS T HE EXTENT OF WAIVER OF INTEREST, WHICH COULD RANGE ANYWHERE FROM 0% TO 100% OF THE INTERES T ACCRUED, AND THE LIABILITY IN PRAESENTI HAD INURED IN SPITE OF THE FACT THAT IT WAS NOT DI SCHARGED, AND WOULD BE SO ONLY ON A FUTURE DATE, ON ACCOUNT OF IT HAVING BEEN DEFE RRED FOR PAYMENT OR OTHERWISE. THE CONSIDERATION OF THE PROPOSAL, WHICH WAS NO DOUBT P ENDING ON THE RELEVANT DATE/S, WOULD NOT IN ANY MANNER MAKE THE LIABILITY UNASCERTAINED OR NOT ACCRUED. THE SAME FOUND FAVOUR WITH THE LD. CIT(A) FOR THE SAME REASONS; TH ERE BEING NO DISPUTE WITH REGARD TO THE PRIMARY FACTS. THE QUESTION OF CHARGE OF INTEREST U/S. 234B ON THE AMOUNT OF TAX ASSESSED ON THE BOOK PROFIT WAS CONFIRMED BY HIM ON THE BASI S THAT THE SAID LEVY IS MANDATORY. RELIANCE WAS PLACED ON THE DECISIONS AS IN THE CASE OF ITARSI OILS & FLOURS (P) LTD. VS. CIT , 250 ITR 686 (M.P.); CIT VS. HOLIDAY TRAVELS P. LTD. , 263 ITR 307 (MAD.) AND CIT VS. UPPER INDIA STEEL MFG. & ENGG. CO. LTD ., 279 ITR 123 (P&H). AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. LIKE SUBMISSIONS WERE RAISED BEFORE US DURING HE ARING. THE LD. AR, THE ASSESSEES COUNSEL, SOUGHT TO EMPHASIZE THE FACT THAT IN VIEW OF THE ACTIVE CONSIDERATION BY THE GOVERNMENT OF ITS PROPOSALS, THE LIABILITY COULD NO T BE SAID TO HAVE BEEN ACCRUED AS ON 31-03-2005, SEEKING TO SUPPORT ITS CASE WITH REFERE NCE TO CASE LAW (REFER PART III OF ITS NOTES OF SUBMISSIONS). THE SAME HAVE BEEN CATEGORIZ ED INTO FOUR CATEGORIES: I.T.A. NOS. 289 &106/COCH/2010 FACT LTD VS. DCIT, ALUVA. 5 A) WHEN REQUEST FOR WAIVER IS PENDING, LIABILITY HA S NOT BEEN ACCRUED; B) THE DOCTRINE OF RELATING BACK; C) LIABILITY IS ASCERTAINED ONLY WHEN DETERMINED AN D DISPUTE IS SETTLED; D) INTEREST WAIVER IS A CONTINGENT LIABILITY. FINALLY, IT ALSO MAKES OUT A CASE IN RESPECT TO S. 263 ORDER, ON THE BASIS THAT WHERE TWO VIEWS ARE REASONABLY POSSIBLE, ACTION U/S. 263 WOUL D NOT LIE, PLACING RELIANCE FOR THE PURPOSE ON THE DECISION IN THE CASE OF CIT VS. MAX INDIA LTD. (2007) 295 ITR 282 (SC) AND AJIT GUPTA VS. ITO 108 TTJ (DEL.) 301. THE GRIEVANCE OF THE REVENUE, ON THE OTHER HAND, WAS THAT S. 263 BECOMES APPLICABLE WHERE NO P ROPER ENQUIRY IS MADE, AND WHICH WOULD MAKE THE RESULTANT ASSESSMENT PER SE ERRONEOUS IN-SO-FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE ASSESSEE MAY HAVE A ST RONG CASE FOR WAIVER; THE MATTER BEING REPORTEDLY UNDER CONSIDERATION AND SUBJECT TO NEGOT IATION, BUT THAT WOULD NOT BY ITSELF REMOVE THE LEGAL BASIS FOR THE ACCRUAL OF LIABILITY . RELIANCE WAS PLACED ON THE DECISIONS IN THE CASE OF RAMPYARI DEVI SAROGI V. CIT (1968) 67 ITR 84 (SC); CIT V. MCMILLAN & CO . (1957) 33 ITR 182 (SC). IN FACT, REVISION WOULD L IE ON THAT BASIS EVEN IF THE ASSESSEE HAD OFFERED THE SAME TO TAX, EVEN AS HELD IN LAJJA WATI SINGHAL V. CIT , 226 ITR 527 (ALL.). THE ASSESSEE HAD CLEARLY INDULGED IN A COLO URABLE DEVICE TO AVOID PAYMENT OF TAX ON ACCOUNT OF THE SAID LIABILITY. THE LD. AR, IN RE JOINDER, WOULD SUBMIT THAT NO CASE OF COLOURABLE DEVICE HAS BEEN MADE OUT, AND THE ONLY I SSUE FOR CONSIDERATION IS WHETHER THE LIABILITY HAD IN FACT ACCRUED OR NOT IN THE GIVEN S ET OF FACTS AND CIRCUMSTANCES OF THE CASE. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD, AS ALSO THE CASE LAW CITED. 5.1 AT THE VERY OUTSET, WE MAY CLARIFY THAT EVE N THOUGH THE LD. CIT HAS SET ASIDE THE ASSESSMENT (FOR A.Y. 2005-06) WITH A DIRECTION TO R E-DO THE SAME IN ACCORDANCE WITH LAW AFTER MAKING PROPER ENQUIRIES AND ALLOWING OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE; SO THAT OUR PURVIEW IN APPEAL THERE-AGAINST WOULD NORM ALLY EXTEND ONLY TO ASCERTAIN THE VALIDITY OF HIS ACTION QUA EACH OF THE GROUNDS ON WHICH HE HAS SO DIRECTED TH E AO, THE ISSUE REGARDING DETERMINATION OF BOOK PROFIT U/S. 1 15JB BEING COMMON FOR BOTH THE YEARS, IT WOULD NECESSARILY ENTAIL A FINDING FOR THE SECON D YEAR IN APPEAL (A.Y.2006-07), I.E., I.T.A. NOS. 289 &106/COCH/2010 FACT LTD VS. DCIT, ALUVA. 6 DECIDING THE ISSUE ON MERITS, AND WHICH WOULD EQUAL LY APPLY FOR THE FIRST (PRECEDING) YEAR (A.Y. 2005-06) AS WELL. 5.2 WE WOULD NEVERTHELESS FIRST EXAMINE THE VALIDIT Y OF THE ORDER U/S. 263 ( QUA THE AFORESAID ISSUE). THE ASSESSEE CLAIMS NON-MAINTAIN ABILITY AS, IN ANY CASE, THE AO HAS ADOPTED ONE OF THE TWO PERMISSIBLE VIEWS, SO THAT R EVISION U/S. 263 WOULD NOT ARISE. NO DOUBT, THE SAME IS TRITE LAW, BUT WE ARE UNABLE TO SEE AS TO HOW THE SAME IS APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE. TH E AO HAS, AND WHICH FORMS THE SUB- STRATUM OF THE REVENUES CASE, NOT EXAMINED THE ISS UE AT ALL, MUCH LESS IN THE MANNER HE OUGHT TO HAVE. IT IS ONLY WHEN UPON EXAMINATION, HE ISSUES A FINDING, EXPRESSING A VIEW IN THE MATTER, COULD IT BE SAID THAT HE HAS ADOPTED ON E OF THE VIEWS PERMISSIBLE, AND WHICH BEING REASONABLE, HIS ORDER CANNOT BE INTERFERED WI TH UNDER REVISIONARY JURISDICTION MERELY BECAUSE THE REVISIONARY AUTHORITY HOLDS A DI FFERENT VIEW. THE ASSESSEES CHALLENGE IS, THUS, WITHOUT BASIS WHATSOEVER AND, ACCORDINGLY , FAILS. 5.3 COMING, NEXT, TO THE ISSUE ON MERITS. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE MATTER. THE ISSUE, AS IT WOULD APPEAR, CONCERNS THE ACCRUAL OR OTHERWISE OF THE IMPUGNED LIABILITY TO INTEREST OF ` 85.77 CRORES AS ON 31/03/2005, BEING ADMITTEDLY IN RESPECT OF THE PERIOD COVERING THE FINANCIAL (ACCOU NTING) YEAR 2003-04 ( ` 34.80 CRORES) AND FINANCIAL YEAR 2004-05 ( ` 50.97 CRORES). THEREFORE, AGAIN, THE VERY FIRST THI NG WE OBSERVE, AND WHICH IS IRRESPECTIVE AND INDEPENDENT OF THE FACT THAT THE ASSESSEE HAS ACCOUNTED FOR THE SAID LIABILITY IN ITS BOOKS OF AC COUNTS AS ON 31-03-2005, AS THAT CANNOT BY ITSELF BE SAID TO BE OR CONSIDERED AS CONCLUSIVE OF THE MATTER, IS THAT, IF NOT ACCRUED, WHAT DOES THE WAIVER SIGNIFY OR IS ABOUT? IN OTHER WORDS, IF NO RIGHTS IN THIS FURTHER AMOUNT OR SUM, I.E., OVER AND ABOVE THE PRINCIPAL S UM LOANED, HAS INURED OR ARISEN TO THE LENDER (GOI), WHERE IS THE QUESTION OF SEEKING WAIV ER IN ITS RESPECT THEREFROM ? WAIVER, IT IS TRITE, WOULD COME INTO EFFECT ONLY FROM THE DATE IT IS GRANTED (REFER: CIT V. SHIV PRAKASH JANAK RAJ & CO. (P.) LTD . (1996) 222 ITR 583 (SC)). RATHER, AS WE SEE IT, T HE INTEREST FOR THE FIRST ACCOUNTING YEAR (F.Y. 2003-04) (OR UNPAID INTEREST FOR AN EARLIER PERIOD) STANDS MERGED WITH THE PRINCIPAL SUM OF LOAN, AND ON WHICH INTEREST FOR THE SUBSEQUENT PERIOD I.T.A. NOS. 289 &106/COCH/2010 FACT LTD VS. DCIT, ALUVA. 7 (F.Y. 2004-05) STANDS PROVIDED. THIS IS AS THE INTE REST FOR THE SECOND YEAR IS SIGNIFICANTLY HIGHER THAN THAT FOR THE FIRST YEAR, EVEN AS THERE HAS BEEN NO ADDITIONAL INDUCTION OF BORROWED CAPITAL BY THE LENDER AND, IN ANY CASE, IS NOT WARRANTED BY THE DIFFERENTIAL IN THE LOAN AMOUNT OUTSTANDING AS ON 31/3/2004 AND 31/3/20 05 (REFER PARA 2). SECTION 211 (3A) OF THE COMPANIES ACT, 1956, MANDATES THAT THE ACCOU NTS OF A COMPANY SHALL BE PREPARED IN ACCORDANCE WITH THE ACCOUNTING STANDARDS (ASS). AS 1 ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI), WHICH WOULD APPLY IN THE ABSENCE OF ANY ACCOUNTING STANDARD BEING NOTIFIED BY THE CENTRAL G OVERNMENT (SEC. 211(3C)), SUBSCRIBES TO THE FUNDAMENTAL ACCOUNTING ASSUMPTION OF, INTER ALIA , CONSERVATISM AND PRUDENCE, POSTULATING PROVISIONING FOR ALL KNOWN LIABILITIES (AT AMOUNTS REASONABLY ESTIMATED ON THE BASIS OF THE BEST AVAILABLE INFORMATION), AND NON-A SSUMPTION OF ANY CREDIT, WHERE UNASCERTAINED. IN FACT, THIS CONSTITUTES ONE OF THE CARDINAL PRINCIPLES THAT ATTEND AND GOVERN THE PREPARATION OF ALL ACCOUNTING STATEMENTS . THE INTEREST PROVIDED IS ONLY IN TERMS OF THE LOAN AGREEMENT/SANCTION LETTER. FURTHER, THE SAME STANDS SUBSEQUENTLY WAIVED AT THE SAME AMOUNT, I.E., AS PROVIDED FOR BY THE ASSES SEE IN ITS BOOKS, ESTABLISHING THE LIABILITY AS CORRECTLY ASCERTAINED . THE PROVISION OF THE IMPUGNED INTEREST IS, THUS, IN ACCORDANCE AND IN CONSONANCE WITH THE BASIC ACCOUNT ING FRAMEWORK AS WELL AS THE LEGAL MANDATE IN ITS RESPECT, AND NO PART OF IT CAN BE SA ID TO BE UNASCERTAINED. ALSO, THERE IS NO TINGE OF ANY DISPUTE; THE ASSESSEE RATHER HAVING RE QUESTED WAIVER (OF THE INTEREST LIABILITY) TO THE LENDER ITSELF, AND WHO HAPPENS TO BE THE PRI NCIPAL SHAREHOLDER AS WELL. 5.4 SO, HOWEVER, IN OUR VIEW, THE SAME, I.E., THE ACCRUAL OF THE INTEREST LIABILITY, CANNOT BY ITSELF BE CONSIDERED AS CONCLUSIVE OR DETERMINAT IVE OF THE MATTER. WE ARE CONSCIOUS, WHEN WE SAY SO, THAT THE ASSESSEE ITSELF STATES OF THE IMPUGNED LIABILITY TO INTEREST AS HAVING NOT ACCRUED, SO THAT IT BASES ITS CASE ON TH AT PROPOSITION. HOWEVER, FIRSTLY, WHAT IS RELEVANT IS THE CORRECT LEGAL POSITION, AND NOT THE VIEW THAT THE PARTIES MAY TAKE OF THEIR RIGHTS IN THE MATTER [ CIT V. C. PARAKH & CO. (INDIA )LTD . (1956) 29 ITR 661 (SC); KEDARNATH JUTE MFG. CO. LTD. V. CIT (1971) 82 ITR 363 (SC)]. SECONDLY, NON-ACCEPTANCE OF ONE ARGUMENT DOES NOT AMOUNT TO NON-ACCEPTANCE O F THE CASE OF A LITIGANT. THE ASSESSEES CASE IN SUBSTANCE, CONSTITUTING ITS PRIN CIPAL CONTENTION, IS THAT ITS CLAIM FOR THE I.T.A. NOS. 289 &106/COCH/2010 FACT LTD VS. DCIT, ALUVA. 8 REDUCTION OF THE IMPUGNED LIABILITY TO INTEREST (FR OM THE NET PROFIT FOR THE SECOND YEAR) IS IN AGREEMENT WITH AND IN TERMS OF CLAUSE (I) OF EXPLANATION 1 TO S. 115JB(2), AND WHICH IS THE PRINCIPAL ISSUE BEFORE US. THE RELEVANT PART OF THE SAID PROVISION READS AS UNDER: EXPLANATION (1) - FOR THE PURPOSES OF THIS SECTION , BOOK PROFIT MEANS NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEV ANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2), AS INCREASED BY (A) ; OR (B); OR (C) THE AMOUNT OR AMOUNTS SET ASIDE TO P ROVISIONS MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES; OR (D) TO (I), IF ANY AMOUNT REFERRED TO IN CLAUSE (A) TO (I) IS D EBITED TO THE PROFIT AND LOSS ACCOUNT, AND AS REDUCED BY - (I) THE AMOUNT WITHDRAWN FROM ANY RESERV E OR PROVISION (EXCLUDING A RESERVE CREATED BEFORE THE 1ST DAY OF APRIL, 1997 OTHERWIS E THAN BY WAY OF A DEBIT TO THE PROFIT AND LOSS ACCOUNT), IF ANY SUCH AMOUNT IS CR EDITED TO THE PROFIT AND LOSS ACCOUNT. PROVIDED THAT WHERE THIS AMOUNT IS APPLICABLE TO AN ASSESSE E IN ANY PREVIOUS YEAR, THE AMOUNT WITHDRAWN FROM RESERVES CREATED OR PROVI SIONS MADE IN A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 1997 SHALL NOT BE REDUCED FROM THE BOOK PROFIT UNLE SS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RESERVES OR PROVISIONS (OUT OF WHICH THE SAID AMOUNT WAS WITHDRAWN) UNDER THIS EXPLANATION OR EXPLANATION BELOW THE SECOND PROVISO TO SECTION 115JA, AS THE CASE MAY BE; OR 5.5 IT WOULD AT THIS STAGE BE RELEVANT TO NAVI GATE THROUGH THE HISTORY OF THE PROVISION, SO AS TO UNDERSTAND ITS IMPORT AND PURPORT. THE SAM E, IN ALMOST SAME TERMS, ALSO FORMS PART OF SECTIONS 115J AND 115JA, I.E., THE PROVISIO NS SEEKING TO SUBJECT `BOOK PROFIT, SIMILARLY DEFINED, TO TAX, AS IN FORCE PRIOR TO THE INSERTION OF S. 115JB ON THE STATUTE BY FINANCE ACT, 2000 W.E.F. 1/4/2001. THAT THE SAME CO NSTITUTES A CONTINUUM WOULD ALSO BE APPARENT FROM THE REFERENCE TO S. 115JA IN THE PROVISO TO THE CLAUSE. CLEARLY, THE CLAUSE SEEKS TO NEUTRALIZE THE INFLATION THAT MAY ATTEND T HE PROFIT FOR THE YEAR ON ACCOUNT OF ANY I.T.A. NOS. 289 &106/COCH/2010 FACT LTD VS. DCIT, ALUVA. 9 SUM WHICH DOES NOT HAVE A RELATION WITH OR BEARING ON THE PROFIT FOR THE YEAR, FORMING ON THE OTHER HAND A PART OF THE PROFIT OR PROFIT DETER MINATION OF AN EARLIER YEAR. NOT ALLOWING SUCH A DEDUCTION WOULD AMOUNT TO THE PROFIT OF AN E ARLIER YEAR, OR A SUM WHICH OUGHT TO IN ANY CASE INCREASE THE PROFIT OF AN EARLIER YEAR, HA VING ADMITTEDLY NO RELATION WITH THE PROFIT FOR THE CURRENT YEAR, AS BEING BROUGHT TO TA X AS A PART OF ITS BOOK PROFIT. HOWEVER, AS EXPLAINED BY THE BOARD VIDE ITS CIRCULAR NO. 550 DA TED 1/1/1990, CERTAIN COMPANIES, IN ORDER TO TAKE BENEFIT OF THE SAID PROVISION, WITHDR EW AMOUNTS FROM THE RESERVES CREATED OR PROVISIONS MADE IN THE SAME YEAR ITSELF, I.E., IN T HE YEAR OF ITS CREATION OR MAKING, AS THE CASE MAY BE. WHILE THE PROVISION WOULD LEAD TO A RE DUCTION IN THE PROFIT FOR THE YEAR, ITS WITHDRAWAL WOULD AGAIN STAND TO BE REDUCED (FROM TH E REDUCED PROFIT), SO THAT THE BOOK PROFIT WOULD STAND TO DECREASE BY THE AMOUNT OF PRO VISION, EVEN AS THE NET EFFECT OF THE PROVISION AND ITS WITHDRAWAL ON THE PROFIT FOR THE YEAR IS NIL. THIS WAS SOUGHT TO BE CHECKED PER THE PROVISO TO THE RELEVANT CLAUSE, BROUGHT ON THE STATUTE FOR THE FIRST TIME BY FINANCE ACT, 1989 W.R.E.F. 01/4/1988 (IN SECTION 11 5J, BEING IN FORCE AT THE RELEVANT TIME). 5.6 THE TERM `PROVISION IS A TERM OF DEFINITE S COPE AND WELL UNDERSTOOD BOTH IN ACCOUNTANCY AS WELL AS IN LAW. CLAUSE 7(1) OF PART III TO SCHEDULE VI TO THE COMPANIES ACT, 1956 [IN ACCORDANCE WITH WHICH THE PROFIT AND LOSS ACCOUNT IS TO BE PREPARED U/S. 115JB] DEFINES `PROVISION AS: ` THE EXPRESSION PROVISION SHALL, SUBJECT TO SUB-CLAUSE (2) OF THIS CLAUSE, MEAN ANY AMOUNT WRITTEN OFF OR RETA INED BY WAY OF PROVIDING FOR DEPRECIATION RENEWALS OR DIMINUTION IN VALUE OF ASS ETS, OR RETAINED BY WAY OF PROVIDING FOR ANY KNOWN LIABILITY OF WHICH THE AMOUNT CANNOT BE DETERMINED WITH SUBSTANTIAL ACCURACY . THE EXPRESSION `LIABILITY IS FURTHER STATED TO INCLUDE ALL LIABILITIES IN RESPECT OF EXPENDITURE CONTRACTED FOR AND ALL DISPUTED OR CONT INGENT LIABILITIES (OF COURSE EXPLAINING THE NATURE OF THE DISPUTE AND CONTINGENCY BY WAY OF NOTES TO THE ACCOUNTS). FURTHER, SUB- CLAUSE (2) CLARIFIES THAT WHERE THE AMOUNT OF PROVI SION IS IN THE OPINION OF THE DIRECTORS OF THE COMPANY IN EXCESS OF THAT REASONABLY NECESSARY FOR THE PURPOSE, THE EXCESS SHALL BE TREATED FOR THE PURPOSE OF THE SCHEDULE AS A `RESER VE AND NOT A `PROVISION. FOR OUR PURPOSES THOUGH, THE REQUIREMENT PER S. 115JB BEING PARI MATERIA WITH REGARD TO A `RESERVE OR `PROVISION, IT IS IRRELEVANT WHETHER THE AMOUNT WITHDRAWN IS FROM A `RESERVE I.T.A. NOS. 289 &106/COCH/2010 FACT LTD VS. DCIT, ALUVA. 10 OR A `PROVISION. IN ANY CASE, A `RESERVE IS ONLY A `PROVISION MADE IN EXCESS OF THAT REASONABLY REQUIRED, OR A DIRECT APPROPRIATION OF P ROFITS (IN WHICH CASE THOUGH THERE IS NO QUESTION OF ANY REDUCTION IN THE PROFIT ON ITS CREA TION). THERE IS, IT MAY BE NOTED, NO REFERENCE TO THE WORD `RESERVE IN CLAUSE (C) OF EXPLANATION 1 , POINTING TO A MATERIAL DIFFERENCE BETWEEN THE TWO PROVISIONS, I.E., CLAUSE (C) AND CLAUSE (I) OF EXPLANATION 1 BELOW S. 115JB(2). THE SAME WOULD CLEARLY INDICATE THE FUTILITY OR THE IRRELEVANCY OF THE DEBATE THAT HAS ARISEN IN THE INSTANT CASE, I.E., A S TO WHETHER THE LIABILITY WRITTEN BACK, REDUCTION OF WHICH IS BEING SOUGHT, REPRESENTS AN A SCERTAINED OR AN UNASCERTAINED LIABILITY. WE HAVE ALREADY NOTED THAT A PROVISION INCLUDES A L IABILITY THAT MAY BE DISPUTED OR CONTINGENT, BOTH OF WHICH WOULD FALL IN THE CATEGOR Y OF UNASCERTAINED LIABILITIES. FURTHER ON, TO THE EXTENT PROVIDED IN EXCESS, OR FOUND TO H AVE BEEN SO, THE SAME ASSUMES THE NATURE OF A RESERVE, TO WHICH CLAUSE (I) OF EXPLANATION 1 IS EQUALLY APPLICABLE. THAT IS, THE SAID CLAUSE (I) IS APPLICABLE WHETHER THE SUM CREDI TED TO THE PROFIT AND LOSS ACCOUNT REPRESENTS A PROVISION, ASCERTAINED OR UNASCERTAINE D, OR A RESERVE, AS LONG AS THE SAME HAD GONE TO REDUCE THE PROFIT OF THE YEAR OF ITS MAKING OR CREATION WHERE MADE ON OR AFTER 01/4/1997. SO WHAT IS THE DISPUTE ABOUT ? THERE IS NOTHING IN THE LANGUAGE OF THE CLAUSE WARRANTING A RESTRICTION IN ITS APPLICATION TO ONLY UNASCERTAINED OR CONTINGENT LIABILITIES, OR TO RESERVES, WHICH IS WHAT THE REVENUE, IN EFFECT, CONTENDS. A `PROVISION MAY BE A VALID PROVISION AT THE TIME IT WAS MADE, AND THE SUBSEQUE NT EVENTS MAY PROVE IT TO BE IN EXCESS, WARRANTING ITS WRITE BACK IN ACCOUNTS; ITS NATURE E VEN OTHERWISE HAVING BEEN ALTERED THUS TO THAT OF A `RESERVE. HOWEVER, HAVING STOOD REDUC ED FROM THE BOOK PROFIT OF THE YEAR IN WHICH THE SAME WAS MADE, THE LAW PROVIDES FOR THE N EUTRALIZATION OF THE INFLATION IN PROFIT FOR THE YEAR OF WRITE BACK SUBJECT TO ITS ADD BACK TO THE PROFIT OF THE YEAR OF PROVISION. WE ARE UNABLE TO READ ANYTHING FURTHER IN THE SAID PRO VISION. IN FACT, AN UNASCERTAINED LIABILITY OR A RESERVE WOULD NOT STAND TO BE EXCLUDED IN THE COMPUTATION OF BOOK PROFIT OF THE YEAR IN WHICH THE SAME IS PROVIDED OR CREATED, SO THAT T HE REVENUES INSISTENCE ON THE CLAUSE (I) OF EXPLANATION 1 BEING APPLICABLE ONLY THERETO IS SELF CONTRADICTOR Y. THE CONFUSION PERHAPS ARISES BECAUSE OF THE WORDS ` UNDER THIS EXPLANATION OR EXPLANATION BELOW THE SECOND PROVISO TO SECTION 115JA, AS THE CASE MAY BE OCCURRING AT THE END OF THE PROVISO TO CLAUSE (I) OF EXPLANATION 1 . THE SAME ARE ONLY FACILITATIVE IN I.T.A. NOS. 289 &106/COCH/2010 FACT LTD VS. DCIT, ALUVA. 11 NATURE, I.E., ENABLE THE ADD-BACK OF THE PROVISION WRITTEN BACK IN THE COMPUTATION OF THE BOOK PROFIT OF THE RELEVANT, PRECEDING YEAR. THE SA ID ADD-BACK, IT MAY BE APPRECIATED, HAS NECESSARILY TO BE WITH REFERENCE TO EXPLANATION 1 (OR EXPLANATION BELOW SECOND PROVISO TO S. 115JA), AND CANNOT BE DE HORS THE SAME, AS THE NET PROFIT AS PER THE PROFIT AND LOSS ACCOUNT (PREPARED IN ACCORDANCE WITH PART II & III OF SCHEDULE VI TO THE COMPANIES ACT, 1956) CANNOT BE INTERFERED WITH IN ANY OTHER MANNER . TWO, THE ADD-BACK WOULD ENSUE ONLY IF THE PROVISION OR THE RESERVE STOOD MADE OR CREATED BY WAY OF DEBIT TO THE PROFIT AND LOSS ACCOUNT IN THE FIRST PLACE, AND NOT OTHERW ISE. IN FACT, REFERENCE TO THE EXPLANATION 1 OR THE EXPLANATION IN SEC. 115JA IN THE PROVISO CONFIRMS THIS; THE ADJUSTMENTS FOR INCREASE THERE-UNDER BEING ONLY WHERE DEBITED TO TH E PROFIT AND LOSS ACCOUNT. THE WORDS `UNDER THIS EXPLANATION OR EXPLANATION BELOW THE SECOND PROVISO TO SECTION 115JA QUALIFY, OR ARE WITH REFERENCE TO, THE INCREASE IN THE BOOK PROFIT (OF THE YEAR OF MAKING OF PROVISION OR CREATION OF RESERVE). AS SUCH, THE NAT URE OF THE LIABILITY AS AN UNASCERTAINED ONE, ENABLING ITS ADDITION TO BOOK PROFIT, IS TO BE RECKONED AT THE TIME OF ITS ADD BACK (INCREASE) UNDER THE EXPLANATION AND NOT AT THE TIME OF ITS CREATION. THIS IS AS IT IS ONLY IN THAT CASE THAT IT WOULD QUALIFY FOR AN ADD-BACK. TH E SAID WORDS, THUS, RATHER THAN BEING RESTRICTIVE, AS SOUGHT TO BE INFERRED, ARE IN FACT ONLY ENABLING. IN THE INSTANT CASE, THE PROVISION SOUGHT TO BE ADDED BACK CLEARLY FALLS UND ER CLAUSE (C) TO EXPLANATION 1 BELOW SEC. 115JB(2). IT NEEDS TO BE APPRECIATED THAT ONCE A PROVISION IS, THOUGH SUBSEQUENTLY, FOUND TO BE IN EXCESS, AND FOR WHATEVER REASON, IT CANNOT BE DENIED THAT THERE IS A CHANGE IN ITS CHARACTER, SO THAT THE PROFIT AND LOSS OF TH E YEAR WHICH BEARS THE CHARGE IN ITS RESPECT STANDS DEFLATED OR REDUCED IN EXCESS BY THAT AMOUNT . THOUGH THE DIFFERENCE IN TIMING CANNOT BE DENIED OR NEGATED; THE WAIVER OCCURRING O NLY AT A LATER POINT IN TIME (AND MAY IN CERTAIN SITUATIONS/CIRCUMSTANCES EVEN FACTOR IN EVENTS OCCURRING SUBSEQUENT TO THE DATE TO WHICH THE LIABILITY PERTAINS), AND WHICH IS ESSE NTIALLY WHAT THE CONTROVERSY BETWEEN THE ASSESSEE AND THE REVENUE CENTRES AROUND, BUT THEN T HAT IS EXACTLY WHAT THE PROVISION SEEKS TO RECTIFY/MEET BY PROVIDING FOR, FIRSTLY, TH E REDUCTION OF THE LIABILITY WRITTEN BACK AND, SECONDLY, A CORRESPONDING ADD-BACK FOR THE YEA R TO WHICH THE PROVISION RELATES. A `PROVISION IS BY DEFINITION NOT INFORMED WITH SUBS TANTIAL ACCURACY, ESTIMATE AS TO WHICH WOULD ALSO DEPEND ON THE INFORMATION AVAILABLE, BES IDES THE EXTENT TO WHICH IT IS I.T.A. NOS. 289 &106/COCH/2010 FACT LTD VS. DCIT, ALUVA. 12 CONSIDERED, EVEN AS THERE MAY BE SUPERVENING CIRCUM STANCES LEADING TO THE PROVISION BEING DETERMINED AS IN EXCESS. HOWEVER, THE REASON/ S FOR OR LEADING TO THE WRITE BACK, I.E., WAIVER OR OTHERWISE, IS OF LITTLE MOMENT, AND IS AN D CAN NOT BE A SUBJECT MATTER OF CONSIDERATION AT THE STAGE OF ALLOWING REDUCTION U/ C (I) OF EXPLANATION 1 . THE SAME CONFERS A RIGHT, AND IS TO BE READ IN A MANNER THAT MAKES THE PROVISION WORKABLE. AS IS TRITE LAW, WHILE CONSTRUCTING A PROVISION WHICH CRE ATES A RIGHT, THE COURT WILL ALWAYS LEAN IN FAVOUR OF A CONSTRUCTION WHICH SAVES THE RIGHT R ATHER THAN THE ONE WHICH DEFEATS IT [REFER: CWT V. SRI JAGDISH PRASAD CHOUDHARY , 211 ITR 472 (PATNA)(FB)]. OF COURSE, THE OPTION TO CHOOSE OR GO IN FOR THE SAID ADJUSTMENT A S PROVIDED BY THE SAID CLAUSE IS WITH THE ASSESSEE. THIS IS AS THE REDUCTION FOR THE YEAR OF WRITE BACK IS SUBJECT TO THE SAID ADD- BACK, SO THAT IN ITS ABSENCE THE SAME WOULD NOT BE LIABLE FOR REDUCTION (REFER: STERLING STEELS & WIRES LTD. V. DY. CIT , 271 ITR 260 (P&H); INDO RAMA SYNTHETIC (I) LTD. V. CIT , 320 ITR 40 (DEL.)], EFFECTIVELY PROVIDING THE OPTIO N IN THE MATTER OF CHOOSING THE YEAR FOR WHICH THE AMOUNT WRITTEN BACK MAY BE SUBJECT TO BOO K PROFIT TAX TO THE ASSESSEE. THE SAME (WRITE BACK) BECOMES INEVITABLE UNDER SOME CIR CUMSTANCES, AS WHERE THE SUBSEQUENT DEVELOPMENTS, AS IN THE INSTANT CASE, LE AD TO THE DETERMINATION OF THE EXCESS. SO, HOWEVER, AT THE SAME TIME, THE SAME CANNOT OPER ATE AS AN ALIBI , OR AS A TOOL OR A DEVICE TO TRANSFER THE PROFITS OF A YEAR TO ANOTHER YEAR, AND WHERE NOT SHOWN TO BE IN A REASONABLE SUM, THE ASSESSING AUTHORITY WOULD BE PE RFECTLY WITHIN HIS JURISDICTION TO DISALLOW ITS REDUCTION FOR THE YEAR OF ITS PROVISIO N ITSELF UNDER CLAUSE (C) OF EXPLANATION 1 BELOW SEC. 115JB(2) [REFER: CIT (ASSTT.) V. SRINIVAS SYNTHETIC PACKERS (P.) LTD ., 122 TTJ (AGRA) 832]. IN THE INSTANT CASE, THE WRITE BACK IS , WITH DOUBT, BONA FIDE AND GENUINE, WITH THE REVENUE ITSELF CONTENDING THAT THE LIABILITY HA D IN FACT ACCRUED, AND WHICH BEING ANTECEDENT WOULD NOT BE IMPACTED BY THE SUBSEQUENT WAIVER OF INTEREST BY THE LENDER. FURTHER, THE QUESTION OF SAME REPRESENTING NOT A BONA FIDE ADJUSTMENT, OR THE QUESTION OF IT BEING MISUSED FOR TRANSFER OF PROFITS AS AFORESA ID, ARISES ONLY WHERE THE ASSESSEE OPTS NOT TO AVAIL OF THE BENEFIT OF CLAUSE (I), AND NOT, AS IN THE INSTANT CASE, WHERE IT DOES. THIS IS AS THOUGH THE REVENUE MAY FIND THE ASSESSEES CL AIM FOR DEDUCTION OF A PROVISION MADE FOR AN EARLIER YEAR INVALID FOR THE REASON OF THE S AME NOT REPRESENTING AN ACTUAL LIABILITY, OR (SAY) TO A PARTICULAR EXTENT, THAT IS PRECISELY WHAT THE SUBSEQUENT WRITE BACK OF A I.T.A. NOS. 289 &106/COCH/2010 FACT LTD VS. DCIT, ALUVA. 13 PROVISION IN ACCOUNTS, REQUIRING THE ADJUSTMENT TO THE FIGURE OF NET PROFIT FOR THE RELEVANT YEARS, TANTAMOUNTS TO. IN OTHER WORDS, IT IS THE P ROVISION OF LAW (SEC. 115JB IN THE INSTANT CASE), AND NOT THE ASSESSEES ACCOUNTS, THAT SEEKS TO MITIGATE THE TIMING IMPACT OF A WAIVER (OR SUCH LIKE SUBSEQUENT EVENTS, FOR THAT MA TTER) ON THE BOOK PROFITS OF THE DIFFERENT YEARS INVOLVED. 5.7 THOUGH WE HAVE DECIDED THE PRINCIPAL ISSUE IN FAVOUR OF THE ASSESSEE, THOUGH ON A DIFFERENT GROUND THAN THAT URGED BEFORE US, IT MAY NOT BE NECESSARY TO DEAL WITH THE SEVERAL CASE LAWS RELIED UPON BY THE ASSESSEE IN SU PPORT OF ITS CASE. SO, HOWEVER, WE MAY, IF ONLY FOR THE SAKE OF THE COMPLETENESS OF OUR ORD ER, ADVERT THERETO. IN THE DECISION IN THE CASE OF HITKARI FIBRES LTD. V. JT. CIT , 84 TTJ 956 (MUM.) [A CASE FALLING UNDER CATEGORY (D) MENTIONED IN PARA 4 SUPRA] , THE TRIBUNAL CAME TO A FINDING THAT THE LIABILITY WRITTEN BACK SUBSEQUENTLY WAS IN FACT AN UNASCERTAINED LIAB ILITY, AND ITS DECISION STOOD RENDERED ON THAT BASIS. WE, ON THE OTHER HAND, HAVE COME TO A DEFINITE FINDING OF FACT THAT THE LIABILITY TO INTEREST HAD IN FACT ACCRUED (REFER PA RA 5.3 ABOVE). THE DEFERMENT FOR PAYMENT BY THE GOI FOR THE INTEREST FOR THE ACCOUNTING (FIN ANCIAL) YEAR 2003-04 ( ` 34.80 CRORES), RATHER, SUPPORTS THE FINDING OF IT HAVING IN FACT A CCRUED. THE SAID DECISION WOULD THEREFORE NOT BE OF MUCH ASSISTANCE TO THE ASSESSEE. THE LIAB ILITY IN THE INSTANT CASE IS NEITHER DISPUTED NOR CONTINGENT, BUT ONLY A CASE OF DEBITUM IN PRAESENTI AND SOLVENDUM IN FUTURO . NO DOUBT, IT WAS PENDING CONSIDERATION FOR WAIVER B Y THE LENDER, BUT THAT LIES IN THE WOMB OF FUTURE, AND MAY OR MAY NOT HAVE MATERIALIZED IN FUTURE. IN FACT, THE CONSIDERATION OF THE WAIVER APPLICATION/PROPOSAL ITSELF CONFIRMS; RATHER , ONLY IMPLIES AND AFFIRMS THE ACCRUAL, AS, IF NOT SO, WHAT IS THE WAIVER FOR AND OF? INTER EST, IT IS AGAIN WELL SETTLED, IS A FUNCTION OF TIME, BEING - BY DEFINITION - THE TIME (OPPORTUN ITY) COST OF FUNDS (RESOURCE), AND ACCRUES FROM DAY TO DAY (REFER: SMT. RAMA BAI V. CIT (1990) 181 ITR 400 (SC)). FURTHER, QUA WAIVER, FOR ALL WE KNOW, THE COMPLETE WAIVER, AS R EQUESTED FOR, MAY NOT HAVE BEEN ACCEDED TO, AND THE LENDER MAY HAVE DECIDED TO DEFE R ITS PAYMENT (AS IT IN FACT DID FOR THE FIRST YEAR (F.Y. 2003-04) INITIALLY) OR CHOSE TO CO NVERT IT INTO FUNDED INTEREST. THE CONVERSION OF (A PART OF THE) LOAN INTO EQUITY VIDE THE COMMUNICATION DATED 22/4/2006, AGAIN, EFFECTIVE 1/4/2005, BEING WITH RESPECT TO TH E LOAN AS OUTSTANDING AS ON 31/3/2005, I.T.A. NOS. 289 &106/COCH/2010 FACT LTD VS. DCIT, ALUVA. 14 THEREBY FURTHER CONFIRMS THE STATUS OF THE UNDERLYI NG LIABILITY AS AN INTEREST BEARING LOAN AS ON 31/3/2005. STATING THE LIABILITY TO BE, UNDER THE CIRCUMSTANCES, CONTINGENT AMOUNTS TO ANTICIPATING THE FUTURE OR, RATHER, THE FATE OF THE WAIVER APPLICATION. THE DECISIONS IN RESPECT OF DISPUTED LIABILITIES WOULD ALSO NOT BE A PPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE (REFER PARA 18.1 & 18.3 OF THE NOTES OF SUBMISSIONS). SO WOULD BE THE CASE IN RESPECT OF DECISIONS CITED UNDER THE CATEGO RY `DOCTRINE OF RELATING BACK, WHICH AGAIN ARE LARGELY IN RELATION TO CONTESTED/DISPUTED LIABILITIES. A COURT/TRIBUNAL, WHILE SETTLING A DISPUTE BETWEEN PARTIES, DOES NOT CREATE ANY NEW RIGHTS, B UT ONLY ADJUDICATES ON THE BASIS OF THE EXISTING RIGHTS; HENCE, THE SAID D OCTRINE OF `RELATING BACK. A TAX DISPUTE WOULD RELATE BACK TO THE YEAR TO WHICH THE TRANSACT ION WHICH GIVES RISE TO A, OR CONSTITUTES, THE TAXABLE EVENT OCCURS (REFER: KEDARNATH JUTE MFG. CO. LTD. V. CIT (SUPRA)). IN FACT, QUA OTHER DISPUTES, IT HAS ALSO BEEN EQUALLY HELD THAT THE LIABILITY CRYSTALLIZES ON THE SETTLEMENT OF THE DISPUTE, AND TOWARD WHICH THE ASSESSEE HAS I TSELF CITED SOME CASE LAW. WE MAY AGAIN REITERATE THAT IT IS NOT A CASE OF ANY DISPUT E, BUT OF AN IMPENDING REQUEST FOR WAIVER. IN FACT, THERE IS A HOST OF CASE LAW ON THE SUBJECT OF WAIVER OF LIABILITY OR RIGHT, WHICH HAS NOT BEEN CITED BY EITHER THE ASSESSEE OR THE REVENU E. 5.8 COMING, NEXT, TO THE OTHER TWO GROUNDS ON WHI CH THE LD. CIT HAS SET ASIDE THE ASSESSMENT FOR AY 2005-06, DIRECTING THE AO TO REDO THE SAME IN ACCORDANCE WITH LAW AFTER AFFORDING THE ASSESSEE PROPER HEARING. FOR T HE SAME REASONS AS LISTED AT PARA 5.2 OF THIS ORDER, WE FIND HIS ORDER AS SUSTAINABLE IN LAW ; THERE BEING RATHER A COMPLETE ABSENCE OF ANY INQUIRY BY THE AO IN THE MATTER, EVEN AS A PRIMA FACIE CASE FOR INQUIRY IN THE MATTER STANDS DEFINITELY MADE OUT BY THE LD. CIT. W HILE THE ASSESSEE STATES THAT HE HAS ASSIGNED NO SPECIFIC REASON FOR THE SAME BEING REQU IRED TO BE INQUIRED INTO, WE FIND IT AS NOT SO. IN THE FIRST CASE, THE CLAIM FOR ITS ALLOWA BILITY IS REQUIRED TO MEET THE TEST OF SECTION 40A(9). FOR THE SECOND, THE SAME APPARENTLY MERITS DISALLOWANCE U/S. 36(1)(VA) R/W S. 2(24)(X) OF THE ACT. THOUGH THE ASSESSEE REFERS TO BEING ENTITLED TO A GRACE PERIOD FOR PAYMENT UNDER THE RELEVANT ACT, THE SAME OUGHT TO H AVE BEEN EXAMINED BY THE ASSESSING AUTHORITY, AND WHICH HAS ADMITTEDLY NOT BEEN. EVEN NO SUCH STAND WAS TAKEN BEFORE THE REVISIONARY AUTHORITY, WHO WOULD IN THAT CASE ISSUE DEFINITE FINDING/S, DROPPING THE SAID I.T.A. NOS. 289 &106/COCH/2010 FACT LTD VS. DCIT, ALUVA. 15 GROUND, IF FOUND VALID, OR STATING HIS REASONS FOR NON-SATISFACTION OR NON-ISSUE OF ANY FINDING, AS THE CASE MAY BE. THE DIRECTION FOR VERI FICATION AND A DECISION ON MERITS, UNDER THE CIRCUMSTANCES, CAN NOT BE FAULTED WITH. WE DECI DE ACCORDINGLY. 6. IN THE RESULT, THE ASSESSEES APPEAL FOR A.Y. 20 05-06 IS PARTLY ALLOWED AND FOR A.Y. 2006-07 IS ALLOWED. SD/- SD/- (N.R.S.GANESAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 31ST JANUARY, 2012 GJ COPY TO: 1. THE FERTILIZERS & CHEMICALS TRAVANCORE LTD. UDYO GMANDAL. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, ALUVA. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOC HI. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE . BY ORDER (ASSISTANT REGISTRAR) ITAT, COCHIN BENCH