The ACIT, Circle-1, Bhavnagar V. Shri Jadavbhai R.Patel, Bhavnagar

ITA 3163/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6639 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 26-11-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Assessee Lawyers: TUSHAR HEMANIAR
• Keywords: Depreciation; Principle of natural justice; Source of fund; Deemed to accrue or arise in india; Deemed dividend; Unabsorbed depreciation
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI BHAVNESH SAINI,JM & SHRI A N PAHUJA,AM ITA NO.3163/AHD/2009 (ASSESSMENT YEAR:-2006-07) ASSISTANT COMMISSIONER OF INCOME TAX,CIRCLE-1, BHAVNAGAR . V/S SHRI JADAVBHAI R. PATEL, 2701, SACHIDANAND NIWAS, NEAR PATEL PARK, BHAVNAGAR. PAN: AFDPP0148L [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI TUSHAR HEMANI,AR REVENUE BY:- SHRI R.K. DHANESTA, DR O R D E R A N PAHUJA: THIS APPEAL FILED BY THE REVENUE ON 26.11.2009 AGA INST AN ORDER DATED 7-8-2009 OF LD. C.I.T.(A)-XX, AHMEDABAD, RAIS ES THE FOLLOWING GROUNDS :- 1. THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND O N FACTS IN HOLDING THAT FOR THE PURPOSE OF WORKING OUT THE AMO UNT OF DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT, THE SUM OF RS.8,74,117/- APPEARING AS GENERAL RESERVE AND THE CURRENT YEARS PROFIT TO THE EXTENT OF RS.72,327/- WERE REQUIRED TO BE EXCLUDED FROM THE AMOUNT OF ACCUMULA TED PROFIT. 1.2. IN DOING SO, THE LD. CIT(A) HAS NOT PROPE RLY APPRECIATED THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY T HE ASSESSING OFFICER. 1.3. IN DOING SO, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ACCEPTING THE PLEA OF THE ASSESSEE THAT THE GENERA L RESERVE CONSISTED OF DEFERRED TAX ASSETS OF THE FIRM AND NO COGNIZANCE C OULD BE TAKEN OF THE SAME, WITHOUT APPRECIATING THAT THE DEFERRED TAX AS SETS/DEFERRED TAX LIABILITY ARE REQUIRED TO BE DISCLOSED SEPARATELY I N THE BALANCE SHEET AS PER THE DISCLOSURE REQUIREMENT OF COMPANIES ACT,1956 A ND THEREFORE, THE GENERAL RESERVE CANNOT BE TREATED AS REPRESENTING T HE DEFERRED TAX ASSETS/DEFERRED TAX LIABILITY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. ITA.NO.3163/AHD/2009 2 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THAT OF AO BE RESTORED TO ABOVE EXTENT. 2. FACTS, IN BRIEF, AS PER THE RELEVANT ORDE RS ARE THAT RETURN DECLARING INCOME OF RS.17,92,770/- FILED ON 16-11-2006 WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE INCOME-TAX ACT,1961( HEREINAFTER REFERRED TO AS THEACT) ON 30-11-2007. DURING THE COURSE OF THE A SSESSMENT PROCEEDINGS, THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT M/S. MA DHAV ENTERPRISE PVT. LTD., BHAVNAGAR HAD ADVANCED LOAN OF RS.38,49,895/- TO T HEIR DIRECTORS VIZ. THE ASSESSEE AND RS.5,89,574/- TO ONE SHRI TULSIBHAI RA MJIBHAI PATEL, HAVING SHAREHOLDING OF 15.11% EACH IN THE SAID COMPANY. SI NCE THE SAID COMPANY HAD RESERVES AND SURPLUS OF RS. 20,42,011/, THE AO SHOW CAUSED THE ASSESSEE AS TO WHY THE AMOUNT OF LOAN ADVANCED TO THE ASSESSEE BE NOT TREATED AS DEEMED DIVIDEND IN TERMS OF THE PROVISIONS OF SECTION 2(2 2)(E) OF THE ACT. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE COMPANY HAD ACCUMUL ATED PROFITS OF RS.11,67,894/- AND GENERAL RESERVES OF RS.8,74,117/ - AS ON 31-3-2006. SINCE THE GENERAL RESERVES COMPRISED DEFERRED TAX OF THE COMP ANY AND NOT THE ACCUMULATED PROFITS, THE ASSESSEE PLEADED THAT AMOU NT SHOULD BE TREATED AS DEEMED DIVIDEND TO THE EXTENT OF ACCUMULATED PROFIT S ALONE. INTER ALIA, THE ASSESSEE RELIED UPON THE DECISION IN THE CASE OF M. B. STOCK HOLDING (P) LTD., VS. ACIT, 75 TTJ 898. HOWEVER, THE A.O. DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND BROUGHT TO TAX AN AMOUNT OF RS.17,70,8 26/- IN THE HANDS OF THE ASSESSEE IN TERMS OF PROVISIONS OF THE SECTION 2(22 ) (E) OF THE ACT. 3. ON APPEAL, THE LD. CIT (A) ADJUDICATED THE ISSUE IN THE FOLLOWING MANNER:- 2.4. I HAVE CAREFULLY CONSIDE RED THE ASSESSMENT ORDER, THE WRITTEN SUBMISSIONS AS WELL AS THE ORAL ARGUMENTS PUT FORTH BY THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT. THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE CLEARLY ATTRACTED IN THE FACTS OF THE PRESE NT CASE, AND THEREFORE, THE AMOUNT RECEIVED BY THE APPELLANT HAS TO BE TREA TED AS DEEMED INCOME IN THE HANDS OF THE APPELLANT. HOWEVER, IN S O FAR AS THE QUANTIFICATION OF SUCH DEEMED DIVIDEND IN THE HANDS OF THE APPELLANT IS CONCERNED, I HOLD THAT ONLY THE BALANCE IN THE PROF IT AND LOSS ACCOUNT IN ITA.NO.3163/AHD/2009 3 THE HANDS OF THE COMPANY CAN BE CONSIDERED AS ACCUM ULATED PROFITS. A PLAIN READING OF THE SAID SECTION LEAVES NO DOUBT T HAT WHAT CAN BE TAXED AS DEEMED DIVIDEND IN THE HANDS OF THE RECIPIENT OF THE PAYMENTS IS ONLY THE ACCUMULATED PROFITS OF THE COMPANY WHICH HAS MA DE THE PAYMENTS. THE SAID ACCUMULATED PROFITS AS PER TRUE SPIRIT OF SECTION 2(22) (E) CANNOT INCLUDE GENERAL RESERVE MORE SO WHEN THE SAME HAS B EEN CREATED IN ACCORDANCE WITH ACCOUNTING STANDARD 22 ACCOUNTING FOR TAX ON INCOME ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. UNDER THE CIRCUMSTANCES, WHILE CALCULATING AND QUANTIFYING TH E DEEMED DIVIDEND IN THE HANDS OF THE APPELLANT, A SUM OF RS.8,74,117/- APPEARING AS GENERAL RESERVE CANNOT BE TAKEN INTO CONSIDERATION. THE APP ELLANT HAS RAISED ONE MORE ARGUMENT TO THE EFFECT THAT WHILE CALCULAT ING THE ACCUMULATED PROFITS, THE PROFITS FOR THE CURRENT YEAR CANNOT BE TAKEN INTO CONSIDERATION. FOR THAT PURPOSE A DIRECT DECISION OF THE JURISDICT IONAL TRIBUNAL IN THE CASE OF M. B. STOCK HOLDING PVT. LTD., VS. ACIT (SU PRA) WAS ALSO CITED. I FIND THAT THE SAID DECISION IS DIRECTLY APPLICABLE TO THE FACTS OF THE PRESENT CASE, AND THEREFORE, THE CURRENT YEARS PROFIT TO T HE EXTENT OF RS.72,327/- HAS TO BE EXCLUDED FROM THE PROFIT AND LOSS ACCOUNT BALANCE APPEARING IN THE BALANCE SHEET. THUS, THE NET AMOUNT OF PROFITS UP TO THE DATE OF PAYMENT OF LOANS AND ADVANCES, WHICH CAN BE CONSIDE RED AS DEEMED DIVIDEND IN THE HANDS OF THE APPELLANT WOULD BE A S UM OF RS.10,95,567/- .THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO R ESTRICT THE ADDITION BY TAKING THE SAID SUM OF RS.10,95,567/- AS ACCUMULATE D PROFIT AND RECALCULATE THE DEEMED DIVIDEND IN THE HANDS OF THE APPELLANT. THIS GROUND IS THUS DECIDED ACCORDINGLY AND IS PARTLY AL LOWED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT (A). THE LD. DR WHILE SUPPORTING THE F INDINGS OF THE AO CONTENDED THAT THE ASSESSEE DID NOT FINE ANY DETAILS AS TO WH EN THE LOAN WAS RECEIVED BY THE ASSESSEE AND WHAT WERE THE COMMERCIAL ACCUMULAT ED PROFITS AVAILABLE WITH THE AFORESAID COMPANY AS ON THE DATE OF ADVANCING L OAN. ON THE OTHER HAND, THE LD. AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FIND INGS OF THE LD. CIT (A) AND RELIED UPON DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF J. K. INDUSTRIES LIMITED AND ANOTHER. VS UNION OF INDIA AND OTHERS,2 97 ITR 176(SC) FOR THE EXCLUSION OF GENERAL RESERVE COMPRISING DEFERRED TA X ASSETS .AS REGARDS EXCLUSION OF CURRENT YEARS PROFITS , HE RELIED UPO N DECISION IN OF M.B. STOCK HOLDING (P) LTD., VS. ACIT, 84 ITD 592(AHD.) TO A QUERY BY THE BENCH THE LD. AR. INFORMED THAT THE ASSESSEE DID NOT FILE ANY APPEAL AGAINST THE FINDINGS OF THE LD. CIT(A). ITA.NO.3163/AHD/2009 4 5. WE HAVE HEARD BOTH THE PARTIES AND GON E THROUGH THE FACTS OF THE CASE. AT THE OUTSET, WE FIND THAT THE APPLICABILITY OF PR OVISIONS OF SECTION 2(22)(E) IN THE INSTANT CASE IS NOT IN DISPUTE BEFORE US. THE ONLY DISPUTE IS REGARDING EXTENT OF ACCUMULATED PROFITS AVAILABLE IN THE BOOKS OF THE C OMPANY FOR DISTRIBUTION AS DIVIDEND. THE AO INCLUDED EVEN THE AMOUNT OF GENERA L RESERVES OF RS.8,74,117/- AS ON 31-3-2006. AND CURRENT YEARS PROFIT OF RS.72 ,327/- WHILE THE LD. CIT(A) EXCLUDED THESE ON THE GROUND THAT CURRENT YEARS PROFITS CANNOT BE TAKEN INTO CONSIDERATION IN VIEW OF DECISION OF THE JURISDICTI ONAL TRIBUNAL IN THE CASE OF M. B. STOCK HOLDING PVT. LTD., VS. ACIT (SUPRA) AND THE G ENERAL RESERVES REPRESENTING THE DEFERRED TAX ASSETS WERE ALSO REQUIRED TO BE EX CLUDED .BEFORE PROCEEDING FURTHER, WE MAY HAVE A LOOK AT THE RELEVANT PROVIS IONS OF S. 2(22)(E) OF THE ACT, WHICH READ AS UNDER: '(E) ANY PAYMENT BY A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, OF ANY SUM (WHETHER AS RE PRESENTING A PART OF THE ASSETS OF THE COMPANY OR OTHERWISE) MADE AFTER THE 31ST DA Y OF MAY, 1987, BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER, BEING A PERSON WH O IS THE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE O F DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN PROFITS) HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, OR TO ANY CONCERN IN WHICH SUCH SHARE HOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A SUBSTANTIAL INTEREST (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE SAID CONCERN) OR ANY PAYMENT BY ANY SUCH COMPANY ON BEHALF, OR FOR THE INDIVIDUAL BENEFIT, OF ANY SUCH SHAREHOL DER, TO THE EXTENT TO WHICH THE COMPANY IN EITHER CASE POSSESSES ACCUMULATED PROFIT S; BUT 'DIVIDEND' DOES NOT INCLUDE- (I) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CLAU SE (C) OR SUB-CLAUSE (D) IN RESPECT OF ANY SHARE ISSUED FOR FULL CASH CONSID ERATION, WHERE THE HOLDER OF THE SHARE IS NOT ENTITLED IN THE EVENT OF LIQUID ATION TO PARTICIPATE IN THE SURPLUS ASSETS; (IA) A DISTRIBUTION MADE IN ACCORDANCE WITH SUB-CLA USE (C) OR SUB-CLAUSE (D) IN SO FAR AS SUCH DISTRIBUTION IS ATTRIBUTABLE TO THE CAPITALISED PROFITS OF THE COMPANY REPRESENTING BONUS SHARES ALLOTTED TO I TS EQUITY SHAREHOLDERS AFTER THE 31ST DAY OF MARCH, 1964, AND BEFORE THE 1 ST DAY OF APRIL, 1965; (II) ANY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR T HE SAID CONCERN BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHE RE THE LENDING OF MONEY IS A SUBSTANTIAL PART OF THE BUSINESS OF THE COMPANY; ITA.NO.3163/AHD/2009 5 (III) ANY DIVIDEND PAID BY A COMPANY WHICH IS SET O FF BY THE COMPANY AGAINST THE WHOLE OR ANY PART OF ANY SUM PREVIOUSLY PAID BY IT AND TREATED AS A DIVIDEND WITHIN THE MEANING OF SUB-CLAUSE (E), TO THE EXTENT TO WHICH IT IS SO SET OFF; (IV) ANY PAYMENT MADE BY A COMPANY ON PURCHASE OF I TS OWN SHARES FROM A SHAREHOLDER IN ACCORDANCE WITH THE PROVISIONS OF SECTION 77A OF THE COMPANIES ACT, 1956 (1 OF 1956); (V) ANY DISTRIBUTION OF SHARES PURSUANT TO A DEMERG ER BY THE RESULTING COMPANY TO THE SHAREHOLDERS OF THE DEMERGED COMPANY (WHETHER OR NOT THERE IS A REDUCTION OF CAPITAL IN THE DEMERGED COM PANY). EXPLANATION 1.- THE EXPRESSION 'ACCUMULATED PROFITS ', WHEREVER IT OCCURS IN THIS CLAUSE, SHALL NOT INCLUDE CAPITAL GAINS ARI SING BEFORE THE 1ST DAY OF APRIL, 1946, OR AFTER THE 31ST DAY OF MARCH, 1948, AND BEFORE THE 1ST DAY OF APRIL, 1956. EXPLANATION 2.- THE EXPRESSION 'ACCUMULATED PROFITS ' IN SUB-CLAUSES (A), (B), (D), AND (E), SHALL INCLUDE ALL PROFITS OF THE COMPANY UP TO THE DATE OF DISTRIBUTION OR PAYMENT REFERRED TO IN THOSE SUB-CL AUSES, AND IN SUB- CLAUSE(C) SHALL INCLUDE ALL PROFITS OF THE COMPANY UP TO THE DATE OF LIQUIDATION, BUT SHALL NOT, WHERE THE LIQUIDATION I S CONSEQUENT ON THE COMPULSORY ACQUISITION OF ITS UNDERTAKING BY THE GO VERNMENT OR A CORPORATION OWNED OR CONTROLLED BY THE GOVERNMENT U NDER ANY LAW FOR THE TIME BEING IN FORCE, INCLUDE ANY PROFITS OF THE COM PANY PRIOR TO THREE SUCCESSIVE PREVIOUS YEARS IMMEDIATELY PRECEDING THE PREVIOUS YEAR IN WHICH SUCH ACQUISITION TOOK PLACE. 5.1 AS IS EVIDENT FROM THE AFORESAID EXPLANATI ON 2 TO SECTION 2(22)(E) OF THE ACT, ALL THE PROFITS OF THE COMPANY UP TO THE DATE OF PAYMENT OF LOAN IS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSES OF ACCUMULATED PROFIT S WITHIN THE MEANING OF PROVISIONS OF SECTION 2(22)(E) OF THE ACT. HERE IT MAY BE POINTED OUT THAT NEITHER IN THE ASSESSMENT ORDER NOR IN THE IMPUGNED ORDER A ND NOR EVEN BEFORE US THE REPRESENTATIVE OF THE RESPECTIVE PARTIES SUBMITTED THE DATE WHEN THE AMOUNT OF RS.38,49,895/- WAS LOANED TO THE AFORESAID ASSESSEE AND WHAT WERE THE AMOUNT OF ACCUMULATED PROFITS OF THE COMPANY UP TO THE DA TE OF SUCH LOAN TO THE AFORESAID ASSESSEE DIRECTOR . EVEN IN THE DECISION RELIED UPON BY THE LD. CIT(A) IN THE CASE M. B. STOCK HOLDING PVT. LTD., IT WAS HELD AS UNDER: ITA.NO.3163/AHD/2009 6 IF SECTION 2(22)(E) WERE TO BE CONSIDERED WITHOUT E XPLANATION 2, THEN THERE DOES NOT SEEM TO BE ANY DIFFICULTY IN AP PRECIATING THAT THE ACCUMULATED PROFITS DO NOT INCLUDE THE PROFITS OF THE YEAR IN W HICH THE LOAN IS ADVANCED TO THE SHAREHOLDER. THIS IS WELL-SETTLED BY THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF V. DAMODARAN. IT IS IN THE LIGHT OF THE EXPLANATION 2 TO SECTION 2(22)(E) THAT A DOUBT ARISES AS TO WHETHER THE EXPL ANATION SUPERCEDES THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F V. DAMODARAN. IN ORDER TO APPRECIATE THE ISSUE IN PROPER PERSPECTIVE, IT WOUL D BE RELEVANT TO REFER TO THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CI T V. MRS. MAYA B. RAMCHAND [1986] 162 ITR 460 WHERE THERE LORDSHIPS HAVE HELD THAT FOR PURPOSES OF SECTION 2(22)(E), THE ACCUMULATED PROFITS ARE TO BE CALCULA TED UP TO THE DATE OF PAYMENT OF EACH LOAN. REFERENCE TO THE DECISION OF THE HON' BLE SUPREME COURT IN THE CASE OF SMT. TARULATA SHYAM V. CIT [1977] 108 ITR 345 WHICH AFFIRMS THE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF TARULATA SHY AM V. CIT [1971] 82 ITR 485 IS ALSO PERTINENT. IN THE AFOREMENTIONED CASES IT W AS HELD THAT FOR PURPOSES OF SECTION 2(22)(E), THE ACCUMULATED PROFITS ARE TO BE SEEN AS ON THE DATE OF PAYMENT AND ANY REPAYMENT DURING THE SAME YEAR AFTE R THE ADVANCEMENT OF THE LOAN WILL NOT AFFECT THE WORKING OF THE ACCUMULATED PROFITS ON THE DATE OF LOAN. IN OTHER WORDS, THE REPAYMENT OF LOAN DURING THE YEAR OF ADVANCEMENT OF LOAN IS NOT TO BE DEDUCTED FROM THE ACCUMULATED PROFITS. 23. THEIR LORDSHIPS OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. ASHOKBHAI CHIMANBHAI [1965] 56 ITR 42 HELD THAT PROFITS DO NOT ACCRUE FROM DAY TO DAY OR EVEN FROM MONTH TO MONTH AND HAVE TO BE A SCERTAINED BY A COMPARISON OF ASSETS AT TWO STATED POINTS. UNLESS THE RIGHT TO PROFITS COMES INTO EXISTENCE THERE IS NO ACCRUAL OF PROFITS AND THE DESTINATION OF PROFITS MUST BE DETERMINED BY THE TITLE THERETO ON THE DAY ON WHICH THEY ARISE. T HEIR LORDSHIPS FURTHER HELD THAT THE PROFITS DO NOT ARISE UNTIL THE CONTINGENCY, WHI CH BY OPERATION OF LAW OR UNDER A COVENANT OF THE PARTNERSHIP DEED, GIVES RISE TO THA T RIGHT. 24. THE INTENTION OF THE LEGISLATURE IN INCORPORATI NG SECTION 2(22)(E) IS EVIDENT FROM THE DECISION OF THE HON'BLE SUPREME COURT IN T HE CASE OF NAVNIT LAL C JAVERI. IN THIS CASE, THEIR LORDSHIPS OF THE HON'BL E SUPREME COURT HELD AS UNDER:- - '(V) IF THE LEGISLATURE REALISES THAT PRIVATE CONTR OLLED COMPANIES GENERALLY ADOPT THE DEVICE OF MAKING ADVANCES OR GIVING LOANS TO TH EIR SHAREHOLDERS WITH THE OBJECT OF EVADING PAYMENT OF TAX, IT CAN STEP IN TO MEET THIS MISCHIEF AND CREATE A FICTION BY WHICH THE AMOUNT OSTENSIBLY AND NOMINALL Y ADVANCED TO A SHAREHOLDER AS A LOAN IS TREATED IN REALITY FOR TAX PURPOSES AS THE PAYMENT OF DIVIDEND TO HIM. IN MAKING THE FICTION THE LEGISLATURE DOES NOT TRAV EL BEYOND THE LEGISLATIVE FIELD ASSIGNED TO IT BY ENTRY 82 IN LIST I.' THEIR LORDSHIPS OF THE HON'BLE SUPREME COURT IN THE CASE OF P.K. BADIANI HELD THAT SECTION 2(6A)(E) OF 1922 ACT [CORRESPONDING TO SECTION 2(22)(E) OF THE I.T. ACT, 1961] MUST BE SO INTERPRETED THAT ONCE AN AMOU NT GOES OUT OF THE ITA.NO.3163/AHD/2009 7 ACCUMULATED PROFITS AS A LOAN AND THE LOAN IS DEEME D TO BE DIVIDEND, THE SAME AMOUNT WHEN REPAID CANNOT AGAIN BE CAPABLE OF ATTRA CTING THE FICTION AND BE DEEMED TO BE DIVIDEND. TO AVOID THE HAPPENING OF SU CH EVENTUALITY, THE 'ACCUMULATED PROFITS' MUST BE NOTIONALLY REDUCED BY THE AMOUNT OF ALL LOANS, ETC. WHICH ARE TO BE DEEMED TO BE DIVIDEND UNDER SECTION 2(6A)(E). THEIR LORDSHIPS FURTHER HELD THAT 'WHAT HAS TO BE CONSIDERED IS NOT THE BALANCE IN THE ACCOUNTS BUT THE POSITION OF EVERY PAYMENT AND, THEREFORE, T HE DEBIT BALANCE OF THE ASSESSEE WITH THE COMPANY AT ANY POINT OF TIME COUL D NOT BE TAKEN TO REPRESENT AN ADVANCE OR LOAN OF A COMPANY TO THE ASSESSEE; NO R COULD THE AMOUNT OUTSTANDING AT THE END OF THE ACCOUNTING YEAR BE TA KEN AS LOAN WITHIN THE MEANING OF SECTION 2(6A)(E).' IN THE CASE OF THE SU PREME COURT SMT. TARULATA SHYAM THEIR LORDSHIPS HELD AS UNDER:-- 'THE LANGUAGE OF SECTIONS 2(6A)(E) AND 12(1B) IS CL EAR AND UNAMBIGUOUS. THERE IS NO SCOPE FOR IMPORTING INTO THE STATUTE WORDS WH ICH ARE NOT THERE. SUCH IMPORTATION WOULD BE NOT TO CONSTRUE, BUT TO AMEND, THE STATUTE. EVEN IF THERE BE A CASUS OMISSUS THE DEFECT CAN BE REMEDIED ONLY BY LEGISLATION AND NOT BY JUDICIAL INTERPRETATION.' KEEPING IN VIEW THE ABOVE INTERPRETATION OF LAW, IT CANNOT BE SAID THAT THE EXPLANATION 2 TO SECTION 2(22)(E) IS REDUNDANT. IT IS BOUND TO BE FOR A SPECIFIC PURPOSE. THE QUESTION FOR DETERMINATION IS AS TO WH AT IS THE PURPOSE FOR WHICH THIS EXPLANATION HAS BEEN INCORPORATED WHEN THE HON 'BLE SUPREME COURT IN THE CASE OF ASHOKBHAI CHIMANBHAI HAVE HELD THAT THE PRO FITS OF BUSINESS DO NOT ACCRUE FROM DAY-TO-DAY OR EVEN FROM MONTH TO MONTH. IN OUR CONSIDERED VIEW, THE LEGISLATURE HAS TAKEN INTO ACCOUNT THE FACT THAT WH EREAS THE PROFITS FROM BUSINESS FOR THE CURRENT YEAR MAY NOT BE DETERMINABLE IN THE MIDDLE OF THE YEAR, THERE ARE CERTAIN SOURCES OF INCOME, THE INCOME FROM WHICH IS CAPABLE OF DETERMINATION WHICH, ACCORDING TO THE LEGISLATIVE INTENT, SHOULD ALSO BE TAKEN INTO ACCOUNT WHILE DETERMINING THE ACCUMULATED PROFITS ON THE DAY OF A DVANCING THE LOAN. THE COMPANY IS A PERSON. IT MAY CARRY ON BUSINESS AND M AY ALSO DERIVE INCOME FROM VARIOUS OTHER SOURCES. FOR EXAMPLE, THE COMPANY MAY SELL AN ASSET FROM WHICH CAPITAL GAINS ARE DERIVED. IF THE CAPITAL GAIN IS D ERIVED BEFORE THE DATE OF ADVANCEMENT OF THE LOAN THAT PROFIT SHALL HAVE TO B E TAKEN INTO ACCOUNT IN DETERMINING THE ACCUMULATED PROFITS NOTWITHSTANDING THE FACT THAT SUCH AN EVENT HAS TAKEN PLACE IN THE MIDDLE OF THE YEAR. IT IS SO THE DETERMINATION OF CAPITAL GAINS IS NOT TO WAIT FOR THE END OF THE PREVIOUS YE AR. SIMILARLY, THERE CAN BE INCOME FROM OTHER SOURCES ALSO SUCH AS RECEIPT OF O R DIVIDEND INCOME OR INTEREST WHICH MAY NOT HAVE TO WAIT FOR DETERMINATION AT THE END OF THE YEAR. SIMILARLY, SOME SUBSIDY MAY BE RECEIVED FROM THE GOVERNMENT WH ICH MAY BE TAXABLE ON RECEIPT BASIS. SUCH INCOME SHALL ALSO HAVE TO BE TA KEN INTO ACCOUNT IN DETERMINING THE ACCUMULATED PROFITS AS IT HAS NOT T O WAIT FOR DETERMINATION OF INCOME AT THE CLOSE OF THE YEAR. 25. THEIR LORDSHIPS OF THE HON'BLE SUPREME COURT IN THE CASE OF V. DAMODARAN, HAVE SPECIFICALLY HELD THAT THERE IS DISTINCTION BE TWEEN THE 'ACCUMULATED PROFITS' ITA.NO.3163/AHD/2009 8 AND THE 'CURRENT YEAR'S BUSINESS PROFITS' AND, THER EFORE, TO HOLD THAT CURRENT YEAR'S BUSINESS PROFITS ARE TO BE INCLUDED IN THE ACCUMULA TED PROFITS WOULD BE CONTRARY TO THE AFOREMENTIONED DECISION OF THE HON'BLE SUPRE ME COURT. 26. TAKING THE TOTALITY OF THE FACTS AND CIRCUMSTAN CES OF THIS CASE INTO CONSIDERATION, WE ARE OF THE VIEW THAT THE INTENTIO N OF THE LEGISLATURE IN INCORPORATING EXPLANATION 2 TO SECTION 2(22)(E) WAS NOT TO OVERRIDE THE DECISION OF THE HON'BLE SUPREME COURT BUT TO PROVIDE FOR ADJUST MENTS FOR ALL OTHER PROFITS ACCRUED UP TO THE DATE OF PAYMENT OF THE LOAN IN WO RKING OUT THE ACCUMULATED PROFITS. THEIR LORDSHIPS OF THE HON'BLE SUPREME COU RT IN THE CASE OF NAVNIT LAL C. JAVERI HAVING HELD THAT THE BUSINESS PROFITS ACCRUE ONLY AT THE END OF THE YEAR, IT IS INCONCEIVABLE THAT FOR PURPOSES OF APPLICATION O F SECTION 2(22)(E), AN EXERCISE SHALL HAVE TO BE TAKEN TO WORK OUT THE BUSINESS PRO FITS OF THE COMPANY ON EACH DAY THE LOAN IS ADVANCED. WORKING OUT THE PROFITS I N THE MIDDLE OF THE YEAR IS A COMPLICATED AFFAIR IN CONTRAST TO WORKING OUT THE A CCUMULATED PROFITS ON THE DATE OF LOAN WITH REFERENCE TO THE ACCUMULATED PROFITS O F THE PRECEDING YEAR WITH CERTAIN ADJUSTMENTS EXPLAINED IN PARA 30 OF THIS OR DER. 32. THEREFORE, WHEREAS THE AFOREMENTIONED ADJUSTMEN TS AND OTHER ADJUSTMENTS AS MAY BE PERMISSIBLE IN LAW ARE TO BE MADE AND, AC CORDINGLY, ACCUMULATED PROFITS WORKED OUT ON EACH DAY OF LOAN OR ADVANCE I S MADE TO THE SHAREHOLDER, WE ARE OF THE FIRM VIEW THAT ALL THE PROFITS THAT H AVE ACCRUED TO THE COMPANY ADVANCING THE LOAN UPTO THE EACH DAY OF ADVANCE/LOA N HAVE TO BE TAKEN INTO ACCOUNT IN WORKING THE ACCUMULATED PROFITS WITHIN T HE MEANING OF SECTION 2(22)(E). BUT SINCE THE BUSINESS PROFITS OF THE COM PANY ACCRUE ONLY AT THE END OF THE YEAR, THE CURRENT YEAR'S BUSINESS PROFITS ARE N OT TO BE INCLUDED. WE WOULD, THEREFORE, IN THE INTEREST OF JUSTICE, RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR THE PURPOSE OF WORKING OUT THE ACCUMULA TED PROFITS ON EACH DAY OF ADVANCING THE LOAN TO THE APPELLANT AND APPLY SECTI ON 2(22)(E) TO SUCH LOANS SUBJECT TO THE MAXIMUM OF ACCUMULATED PROFITS UP TO THE DATE OF ADVANCEMENT OF THE LOAN. 5.2 HON'BLE SUPREME COURT IN THE CASE OF P.K. BADIANI V. CIT [1976] 105 ITR 642 , HELD THE EXPRESSION 'ACCUMULATED PROFITS' OCCURRI NG IN CLAUSE (E) OF SECTION 2(22), OR AS A MATTER OF FACT IN ANY OF THE OTHER C LAUSES, UNDOUBTEDLY MEANS PROFITS IN THE COMMERCIAL SENSE AND NOT ASSESSABLE OR TAXABLE PROFITS LIABLE TO TAX AS INCOME UNDER THE ACT. IN THIS DECISION IT WAS HE LD THAT THE DEVELOPMENT REBATE RESERVE CREATED BY THE COMPANY BY DULY CHARGING THE AMOUNT OF PROFIT AND LOSS ACCOUNT, ALTHOUGH LIABLE AS A DEDUCTION UNDER THE 1 922 ACT, CONSTITUTED ACCUMULATED PROFITS OF THE COMPANY WITHIN THE MEANI NG OF SECTION ITA.NO.3163/AHD/2009 9 2(6)(E)[CORRESPONDING TO SEC. 2(22)(E)] OF THE ACT. THE HONBLE MADRAS HIGH COURT HAS POINTED OUT IN COMMISSIONER OF INCOME-TAX V. K. SRINIVASAN,50 ITR 788(MAD.) TO QUOTE THE PLACITUM ONLY : 'FOR THE PURPOSES OF SECTION 2(6A)(E) OF THE INDIAN INCOME-TAX ACT, 1922, 'ACCUMULATED PROFITS' INCLUDE GENERAL RESERVES. UNL ESS THE PROFIT IS CAPITALISED IN SOME FORM OR OTHER MERE TRANSFER OF THE PROFITS TO ANY RESERVE ACCOUNT WILL NOT TAKE AWAY FROM PROFITS THE CHARACTER OF ACCUMULATED PROFITS.' 5.3 HON'BLE APEX COURT IN THE CASE OF SMT. TARULA TA SHYAM & ORS.,108 ITR 345(SC) HELD THAT, 'THE STATUTORY FICTION CREATED BY S. 2 (6A)(E) OF T HE INDIAN IT ACT, 1922, WOULD COME INTO OPERATION AT THE TIME OF THE PAYMENT OF A DVANCE OR LOAN TO A SHAREHOLDER BY A COMPANY IN WHICH THE PUBLIC ARE NO T SUBSTANTIALLY INTERESTED AND TAX IS ATTRACTED TO THE LOAN OR ADVANCE TO THE EXTENT TO WHICH THE COMPANY POSSESSES ACCUMULATED PROFITS THE MOMENT THE LOAN O R ADVANCE IS RECEIVED . 5.4 IN THE INSTANT CASE, WE FIND THAT THE L D. CIT(A) OR THE AO DID NOT DETERMINE COMMERCIAL PROFITS AS ON THE DATE OF ADV ANCE/LOAN TO THE ASSESSEE. EVEN THE DATE OF ADVANCE/LOAN IS NOT EVIDENT FROM T HE IMPUGNED ORDERS NOR EVEN HAVE BEEN PLACED BEFORE US. MOREOVER, THE AS-22 RE LATING TO DEFERRED TAX ASSETS/LIABILITIES PROVIDES THAT TAX EXPENSE FOR TH E PERIOD, COMPRISING CURRENT TAX AND DEFERRED TAX, SHOULD BE INCLUDED IN THE DETERMI NATION OF THE NET PROFIT OR LOSS FOR THE PERIOD. DEFERRED TAX SHOULD BE RECOGNISED F OR ALL THE TIMING DIFFERENCES, SUBJECT TO THE CONSIDERATION OF PRUDENCE IN RESPECT OF DEFERRED TAX ASSETS AS SET OUT IN PARAGRAPHS 15-18.PARA 15 OF THE AS-22 PROVI DES THAT EXCEPT IN THE SITUATIONS STATED IN PARAGRAPH 17, DEFERRED TAX ASS ETS SHOULD BE RECOGNISED AND CARRIED FORWARD ONLY TO THE EXTENT THAT THERE IS A REASONABLE CERTAINTY THAT SUFFICIENT FUTURE TAXABLE INCOME WILL BE AVAILABLE AGAINST WHICH SUCH DEFERRED TAX ASSETS CAN BE REALISED.SIMILARLY PARA 17 PROVIDES T HAT WHERE AN ENTERPRISE HAS UNABSORBED DEPRECIATION OR CARRY FORWARD OF LOSSES UNDER TAX LAWS, DEFERRED TAX ASSETS SHOULD BE RECOGNISED ONLY TO THE EXTENT THAT THERE IS VIRTUAL CERTAINTY SUPPORTED BY CONVINCING EVIDENCE THAT SUFFICIENT FU TURE TAXABLE INCOME WILL BE AVAILABLE AGAINST WHICH SUCH DEFERRED TAX ASSETS CA N BE REALISED. IN THE CASE ITA.NO.3163/AHD/2009 10 BEFORE US,THERE IS NO FINDING OF THE LD. CIT(A) AS TO WHETHER OR NOT GENERAL RESERVE COMPRISING DEFERRED ASSETS HAS BEEN CREATED OUT OF PROFIT AND LOSS ACCOUNT NOR THE AO EXAMINED THIS ASPECT. 5.41 AS REGARDS THE DECISION IN THE CASE OF J.K. INDUSTRIES LIMITED AND ANOTHER(SUPRA) RELIED UPON BY THE LD. AR , WE FIND THAT THE SAID DECISION IS NOT RELEVANT TO THE FACTS AND CIRCUMSTANCES OF THE CASE UNDER CONSIDERATION. IN THAT DECISION, ISSUE WAS AS TO WHETHER THE CENTRAL GOVE RNMENT HAS POWER TO ADOPT ACCOUNTING STANDARDS BY FRAMING THE RULES AND MAKIN G THEM MANDATORY FOR THE PURPOSE THE COMPANIES ACT,1956? HONBLE APEX COURT HELD THAT ACCOUNTING STANDARD 22, WHICH IS MADE MANDATORY, PROVIDES AN I NTERNAL LEGITIMATE AID TO THE MEANING OF THE WORDS IN THE COMPANIES ACT, INCLUDIN G SCH. VI, NAMELY, LIABILITY, PROVISION FOR TAXES ON INCOME, BOOK PROFIT, NET PRO FIT, DEPRECIATION, AMORTIZATION ETC. THEREFORE, IT CANNOT BE SAID THAT THE IMPUGNED RULES FRAMED UNDER S. 642(1) CONSTITUTE AN ACT ON THE PART OF THE RULE MAKING AU THORITY, NAMELY, THE CENTRAL GOVERNMENT, IN EXCESS OF ITS POWERS UNDER S. 642(1) OF THE COMPANIES ACT. THE IMPUGNED RULE/NOTIFICATION IS VALID. IT HAS NEXUS W ITH THE MATTERS ENTRUSTED TO THE CENTRAL GOVERNMENT TO BE COVERED BY APPROPRIATE RUL ES. THEREFORE, THE IMPUGNED RULE IS VALID AS IT HAS NEXUS WITH STATUTORY FUNCTI ONS ENTRUSTED TO CENTRAL GOVERNMENT WHICH IS THE RULE MAKING AUTHORITY UNDER THE ACT. APPARENTLY, THE SAID DECISION RENDERED IN THE CONTEXT OF PROVISIO NS OF THE COMPANIES ACT,1956, HAS NO RELEVANCE TO THE ISSUE BEFORE US. IN THIS CO NTEXT ,HONBLE SUPREME COURT IN THE CASE OF CIT VS. SUN ENGINEERING WORKS PVT. LTD., 198 ITR 257 OBSERVED: IT IS NEITHER DESIRABLE NOR PERMISSIBLE TO PICK OU T A WORD OR A SENTENCE FROM THE JUDGMENT OF THIS COURT, DIVORCED FROM THE CONTEXT O F THE QUESTION UNDER CONSIDERATION AND TREAT IT TO BE THE COMPLETE ' LAW ' DECLARED BY THIS COURT. THE JUDGMENT MUST BE READ AS A WHOLE AND THE OBSERVATIO NS FROM THE JUDGMENT HAVE TO BE CONSIDERED IN THE LIGHT OF THE QUESTIONS WHIC H WERE BEFORE THIS COURT. A DECISION OF THIS COURT TAKES ITS COLOUR FROM THE QU ESTIONS INVOLVED IN THE CASE IN WHICH IT IS RENDERED AND, WHILE APPLYING THE DECISI ON TO A LATER CASE, THE COURTS MUST CAREFULLY TRY TO ASCERTAIN THE TRUE PRINCIPLE LAID DOWN BY THE DECISION OF THIS COURT AND NOT TO PICK OUT WORDS OR SENTENCES FROM T HE JUDGMENT, DIVORCED FROM THE CONTEXT OF THE QUESTIONS UNDER CONSIDERATION BY THIS COURT, TO SUPPORT THEIR ITA.NO.3163/AHD/2009 11 REASONINGS. IN MADHAV RAO JIVAJI RAO SCINDIA BAHADU R V. UNION OF INDIA [1971] 3 SCR 9; AIR 1971 SC 530, THIS COURT CAUTIONED (AT PA GE 578 OF AIR 1971 SC). 5.42 MOREOVER ,HONBLE SUPREME COURT CAUTIONED IN THEIR DECISION DATED 6.3.2009 IN THE CASE OF STATE OF AP VS. M.RA DHA KRISHNA MURTHY,[CRIMINAL APPEAL NO. 386 OF 2002] 6. COURTS SHOULD NOT PLACE RELIANCE ON DECI SIONS WITHOUT DISCUSSING AS TO HOW THE FACTUAL SITUATION FITS IN WITH THE FACT SIT UATION OF THE DECISION ON WHICH RELIANCE IS PLACED. OBSERVATIONS OF COURTS ARE NEIT HER TO BE READ AS EUCLID'S THEOREMS NOR AS PROVISIONS OF THE STATUTE AND THAT TOO TAKEN OUT OF THEIR CONTEXT. THESE OBSERVATIONS MUST BE READ IN THE CONTEXT IN W HICH THEY APPEAR TO HAVE BEEN STATED. JUDGMENTS OF COURTS ARE NOT TO BE CONS TRUED AS STATUTES. TO INTERPRET WORDS, PHRASES AND PROVISIONS OF A STATUT E, IT MAY BECOME NECESSARY FOR JUDGES TO EMBARK INTO LENGTHY DISCUSSIONS BUT T HE DISCUSSION IS MEANT TO EXPLAIN AND NOT TO DEFINE. JUDGES INTERPRET STATUTE S, THEY DO NOT INTERPRET JUDGMENTS. THEY INTERPRET WORDS OF STATUTES; THEIR WORDS ARE NOT TO BE INTERPRETED AS STATUTES . 8. CIRCUMSTANTIAL FLEXIBILITY, ONE ADDITIONAL OR DIFFERENT FACT MAY MAKE A WORLD OF DIFFERENCE BETWEEN CONCLUSIONS IN TWO CASES. DISPOS AL OF CASES BY BLINDLY PLACING RELIANCE ON A DECISION IS NOT PROPER. 9. THE FOLLOWING WORDS OF LORD DENNING IN THE MA TTER OF APPLYING PRECEDENTS HAVE BECOME LOCUS CLASSICUS: 'EACH CASE DEPENDS ON ITS OWN FACTS AND A CLOSE SIMILARITY BETWEEN ONE CASE AND ANOTHER IS NOT ENOUGH BECAUSE EVEN A SING LE SIGNIFICANT DETAIL MAY ALTER THE ENTIRE ASPECT, IN DECIDING SUCH CASE S, ONE SHOULD AVOID THE TEMPTATION TO DECIDE CASES (AS SAID BY CORDOZO) BY MATCHING THE COLOUR OF ONE CASE AGAINST THE COLOUR OF ANOTHER. TO DECIDE THER EFORE, ON WHICH SIDE OF THE LINE A CASE FALLS, THE BROAD RESEMBLANCE TO ANOTHER CASE IS NOT AT ALL DECISIVE.' *** *** *** 'PRECEDENT SHOULD BE FOLLOWED ONLY SO FAR AS IT MARKS THE PATH OF JUSTICE, BUT YOU MUST CUT THE DEAD WOOD AND TRIM OFF THE SIDE B RANCHES ELSE YOU WILL FIND YOURSELF LOST IN THICKETS AND BRANCHES. MY PLEA I S TO KEEP THE PATH TO JUSTICE CLEAR OF OBSTRUCTIONS WHICH COULD IMPEDE IT.' 5.43 IN THE LIGHT OF AFORESAID OBSERVATIONS OF THE HONB LE APEX COURT, WE ARE OF THE THAT RELIANCE ON THE AFORESAID DECISION IN THE CASE OF J.K. INDUSTRIES LIMITED AND ANOTHER(SUPRA)), RENDERED ON A DIFFERENT SET OF FACTS, IS TOTALLY MISPLACED. WE MAY, AT THE COST OF REPETITION POINT OUT THAT IN OR DER TO COMPUTE THE QUANTUM OF ACCUMULATED PROFITS AS ON THE DATE OF EACH OF THE A DVANCES OR LOANS MADE BY THE COMPANY TO THE SHAREHOLDER, IT IS BUT NECESSARY TO TAKE COGNIZANCE OF THE GENERAL ITA.NO.3163/AHD/2009 12 RESERVES AND SURPLUS AS AT THE BEGINNING OF THE YEA R AND TO SEE WHETHER ANY EXCEPTIONAL CIRCUMSTANCE OR EVENT HAS TAKEN PLACE I N BETWEEN THE BEGINNING OF THE ACCOUNT YEAR AND THE DATES AT WHICH THE ADVANCE S HAVE BEEN MADE WITH A NEGATIVE IMPACT ON SUCH RESERVE AND SURPLUS, I.E., THE ACCUMULATED PROFITS. 5.5 IN THE LIGHT OF AFORESAID DISCUSSION, ESPECIALLY WHEN THE LD. CIT(A) NEITHER ASCERTAINED THE DATE OF ADVANCE/LO AN NOR DETERMINED COMMERCIAL ACCUMULATED PROFITS AS ON THE DATE OF SU CH ADVANCE/LOAN AND FURTHER DID NOT RECORD ANY FINDING AS TO WHETHER OR NOT G ENERAL RESERVE COMPRISING DEFERRED ASSETS HAS BEEN CREATED OUT OF PROFIT AND LOSS ACCOUNT, WE ARE OF THE OPINION THAT THE MATTER REQUIRES RECONSIDERATION BY THE LD. CIT(A).A MERE GLANCE AT THE IMPUGNED ORDER REVEALS THAT THE ORDER PASSED BY THE LD. CIT(A) IS CRYPTIC AND GROSSLY VIOLATIVE OF ONE OF THE FACETS OF THE RULES OF NATURAL JUSTICE, NAMELY, THAT EVERY JUDICIAL/QUASI-JUDICIAL BODY/AUTHORITY MUST PASS REASONED ORDER, WHICH SHOULD REFLECT APPLICATION OF MIND BY THE CONCERNED AUTHORITY TO THE ISSUES/POINTS RAISED BEFORE IT. TH E APPLICATION OF MIND TO THE MATERIAL FACTS AND THE ARGUMENTS SHOULD MANIFEST IT SELF IN THE ORDER. SECTION 250(6) OF THE INCOME TAX ACT ,1961 MANDATES THAT TH E ORDER OF THE CIT(A) WHILE DISPOSING OF THE APPEAL SHALL BE IN WRITING AND SHA LL STATE THE POINTS FOR DETERMINATION, THE DECISION THEREON AND THE REASON FOR THE DECISION. THE REQUIREMENT OF RECORDING OF REASONS AND COMMUNICATI ON THEREOF HAS BEEN READ AS AN INTEGRAL PART OF THE CONCEPT OF FAIR PROCEDUR E. THE REQUIREMENT OF RECORDING OF REASONS BY THE QUASI-JUDICIAL AUTHORITIES IS AN IMPORTANT SAFEGUARD TO ENSURE OBSERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARIT Y, CHECKS THE INTRODUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZ ES ARBITRARINESS IN THE DECISION-MAKING PROCESS. WE MAY REITERATE THAT A D ECISION DOES NOT MERELY MEAN THE CONCLUSION. IT EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE CONCLUSION.[MUKHTIAR SINGH VS. STATE OF PUNJAB, (1995)1SCC 760(SC)]. AS IS APPARENT, THE IMPUGNED ORDER SUFFERS FROM LACK OF R EASONING AND IS NOT A SPEAKING ORDER. IN VIEW OF THE FOREGOING, ESPECIA LLY WHEN THE LD. CIT(A) HAS NOT PASSED A SPEAKING ORDER ON THE ISSUES RAISED IN G ROUND NOS. 1,1.2 & 1.3 IN THIS ITA.NO.3163/AHD/2009 13 APPEAL, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO HER FILE FOR DECIDING THE SE ISSUES AFRESH IN ACCORDANCE WITH LAW IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCE MENTS, INCLUDING THOSE REFERRED TO ABOVE AND OF COURSE, AFTER ALLOWING SUFFICIENT O PPORTUNITY TO BOTH THE PARTIES. NEEDLESS TO SAY THAT WHILE REDECIDING THE APPEAL, T HE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MA NDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT . WITH THESE OBSERVATIONS, GROUND NOS. 1,1.2 & 1.3 IN THE APPEAL ARE DISPOSED OF. 6. GROUND NOS. 2 & 3 ,BEING MERE PRAYER AND NO SUB MISSIONS HAVING BEEN MADE ON THESE GROUNDS, DO NOT REQUIRE A NY SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMISSED. 7. IN THE RESULT, APPEAL IS ALLOWED ,BUT FOR STATIS TICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 13-05-2011 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 13 -05-2011 COPY OF THE ORDER FORWARDED TO: 1. SHRI JADAVBHAI R. PATEL,2701, SACHIDANAND NIWAS, NEAR PATEL PARK, BHAVNAGAR. 2. ASSISTANT COMMISSIONER OFINCOME TAX,CIRCLE-1,BHA VNAGAR . 3. CIT CONCERNED 4. C.I.T.(A)-XX, AHMEDABAD 5. DR, ITAT, AHMEDABAD BENCH-A, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD ITA.NO.3163/AHD/2009 14