M/s. Banswara Syntex Ltd., JAIPUR V. CIT, UDAIPUR

ITA 37/JODH/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3024 (ITAT-JODHPUR)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-03-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 16-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR DEEPAK SEHGAL
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Additional depreciation; Retrospective amendment; Bad and doubtful debts; Unabsorbed depreciation
• Section: 143(3); 115JB; 32; 263; 154

Judgement Text

1 IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 37JODH/2013 ASSESSMENT YEAR 2008-09 M/S. BANSWARA SYNTEX LTD. VS CIT, C/O. M/S. KALANI & CO., UDAIPUR. CHARTERED ACCOUNTANTS 5 TH FLOOR, MILESTONE, GANDHINAGAR TURN, BAPUNAGAR, JAIPUR. PAN NO. AAACB8103F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.C. PARWAL. DEPARTMENT BY : DR. DEEPAK SEHGAL CIT-DR. DATE OF HEARING : 19/03/2013. DATE OF PRONOUNCEMENT : 06/05/2013. PER HARI OM MARATHA: J.M. THIS APPEAL OF THE ASSESSEE FOR A.Y. 2008-09 IS DI RECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX, JODHPU R DATED 23.12.2011 PASSED U/S 263 OF THE I.T. ACT 1961 (TH E ACT FOR SHORT). 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE MANUFACTURING OF YARN, READY MADE GARMENTS, CLOTH ETC. DURING THE YEAR UNDER CON SIDERATION, THE 2 ASSESSEE COMPANY DECLARED A LOSS OF RS. 12,98,19,33 7/- ON ACCOUNT OF UNABSORBED DEPRECIATION FOR THE CURRENT YEAR AND HA S PAID TAX U/S 155 JB ON IT BOOK PROFIT OF RS. 5,38,67,552/-. THE ASSE SSMENT ORDER WAS PASSED U/S 143(3) ON 09/12/2010 AT A TOTAL LOSS OF RS. 12,90,95,661/-. IN DOING SO, THE A.O. HAS DISALLOWED RS. 1 LAKH OU T OF GENERAL EXPENSES, RS. 50,000/- OUT OF OFFICE MAINTENANCE EX PENSES, RS. 78,235/- DISALLOWED U/S 40(A)(IA) AND RS. 4,91,952/ - DISALLOWED US/ 36(10(VA) OF THE ACT. THEREAFTER, THE COMMISSIONER CALLED FOR THE RECORDS OF THIS ASSESSMENT ORDER AND NOTICED THAT T HIS ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE IN RESPECT OF SOME ASPECTS OF DETERMINATION OF TAXABLE INCOME OF THE ASSESSEE. CONSEQUENTLY, HE ISSUED A SHOW CAUSE NOTI CE U/S 263 OF THE ACT ON 13.07.2011 WHICH WAS RESPONDED BY THE ASSESS EE AND FILED WRITTEN SUBMISSION ON 29/07/2011. 3. THE SHOW CAUSE ISSUED BY THE COMMISSIONER READS AS UNDER :- THE ASSESSMENT FOR THE A.Y. 2008-09 WAS COMPLETED U /S 143(3) ON 09.12.2010 AT THE TOTAL LOSS OF RS. 12,90,95,66 1/-. THE PERUSAL OF RECORDS REVEALS THE FOLLOWING : 1. WHILE COMPUTING THE TAX U/S 115JB OF THE I.T./ ACT. , THE MAT CREDIT OF RS. 65,23,000/- HAS BEEN WRONGLY ALLOWED. 3 2. THE PROVISION FOR DOUBTFUL DEBTS OF RS. 37,62,000/- UNDER THE HEAD SELLING EXPENSES IS ALSO NOT ALLOWAB LE AS PER EXPLANATION (1) BELOW THE SECTION115JB(1) INTRODUCE D BY FINANCE ACT, 2009 WITH RETROSPECTIVE EFFECT FROM 01.04.2001. 3. THE ADDITIONAL DEPRECIATION ON CAPTIVE THERMAL POWER PLANT IS NOT ALLOWABLE BUT IT HAS BEEN WRONGL Y ALLOWED BY THE AO. 4. FURTHER, THE SUBSIDY GRANTED UNDER TUF SCHEME HAS N OT BEEN REDUCED FROM THE COST OF NEW ASSETS INTRODUCED DURING THE YEAR. 5. THE MODVAT CREDIT ON CAPITA! GOODS HAS ALSO NOT BEE N REDUCED FROM THE COST OF CAPITAL GOODS TO ARRIVE AT THE ACTUAL COST FOR THE PURPOSE OF DEPRECIATION. 6. THE SUSPICIOUS TRANSACTIONS RELATED TO SHRI RAJENDR A KUMAR JAIN, THE THEN ACCOUNTANT OF THE COMPANY, HAV E NOT BEEN EXAMINED WHILE PASSING THE ORDER U/S 143(3) OF THE I.T. ACT. DATED 09.12.2010. 7. THE COMPANY PURCHASED VISCOSE FIBER @ OF RS. 133 .18 PER KG. AND HAS SOLD THE SAME @ OF RS. 128.05 PER K G. AND THEREBY A TRADING LOSS @ OF RS. 5.13 PER KG. HA S BEEN INCURRED. THE AO HAS NOT EXAMINED THE GENUINENESS AND CIRCUMSTANCES OF SUCH TRADING LOSS. 4 IN VIEW OF THE ABOVE FACTS, THE ASSESSMENT ORDER PA SSED U/S 143(3) OF THE I.T. ACT. ON 09.12.2010 IS ERRONE OUS AS WELL PREJUDICIAL TO THE INTEREST OF REVENUE AND PRO POSED TO BE SUITABLY MODIFIED / ENHANCED / CANCELLED BY INVOKING THE PROVISIONS OF SECTION 263 OF THE I.T. ACT. BEFORE DOING SO, AN OPPORTUNITY OF BEING HEARD IS G IVEN ON 29.07.2011 AT 11.00 A.M. IN THE OFFICE OF THE COMMISSIONER OF INCOME TAX, UDAIPUR AT 16, MOOMAL TOWER, SAHELI MARG, UDAIPUR. ON THIS DATE, YOU ARE REQUIRED TO ATTEND EITHER PERSONALLY OR THR OUGH AN AUTHORIZED REPRESENTATIVE ALONGWITH WRITTEN SUBMISSION. THE DOCUMENTS, IF ANY, WHICH YOU WISH T O FURNISH IN THIS REGARD, SHOULD BE PAGE-NUMBERED IN AN INDEXED PAPER BOOK FORM DULY MAKING CROSS REFERENCE IN THE WRITTEN SUBMISSION. 4. THE WRITTEN SUBMISSIONS ON BEHALF OF THE ASSESSE E FILED IN RESPONSE TO ABOVE NOTICE IS AS UNDER :- COPY OF THE PROFIT & LOSS ACCOUNT IS ENCLOSED AS ANNEXURE NO.-L FROM WHICH YOUR GOODSELF WILL FIND THAT PROVISION FOR TAX ON INCOME HAS BEEN MADE FOR RS.12 5.04 LACS INCLUDING PROVISION FOR FRINGE BENEFIT TAX OF RS.28.75 LACS. INCOME U/S 115JB HAS BEEN CALCULATED AS UNDER:- 5 PROFIT AS PER PROFIT & LOSS ACCOUNT 4,42,32,552/- ADD: PROVISION OF INCOME TAX - 96,29,000/- (EXCLUDING PROVISION FOR FBT RS.28.75 LAKHS) INCOME UNDER SECTION 115JB 5,38,61,552/- EXPLANATION (1) TO SUB SECTION (2) OF SECTION 115 J B READS AS UNDER:- EXPLANATION (I) FOR THE PURPOSES OF THIS SECTION, ' BOOK PROFIT' MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARE D UNDER SUB-SECTION (2) AS INCREASED BY - (A) THE AMOUNT OF INCOME-TAX PAID OR PAYABLE AND TH E PROVISION THEREFOR; IT IS VERY CLEAR FROM THE PROVISION OF SECTION 115J B THAT TO ARRIVE AT THE BOOK PROFIT FOR THE PURPOSE OF THI S SECTION, THE PROFIT SHOWN IN THE PROFIT & LOSS ACCO UNT IS TO BE INCREASED BY WHATEVER AMOUNT OF INCOME TAX PA ID OR PAYABLE AND THE PROVISION THEREOF. IN THIS CASE IT IS APPARENT THAT THE INCOME TAX PRO VISION MADE IN THE BOOKS OF ACCOUNTS IS ONLY RS.125.04 LACS LES S RS.28.75 LACS FOR FRINGE BENEFIT TAX I.E. RS.96.29 LAKHS HAS BEEN ADDED BACK TO THE PROFIT FOR THE YEAR FOR THE PURPOSE OF LEVYING THE MINIMUM ALTERNATIVE TAX, THIS POSITION IS CORRECT AS PER TH E LAW. THE POINTING OUT OF MAT CREDIT ENTITLEMENT RS.65.23 LACS HAS BEEN WRONGLY CONSIDERED WHILE CALCULATING THE BOOKE D PROFIT, THIS IS ONLY METHOD OF MAKING PROVISION FOR TAX AND DISC LOSURE 6 THEREOF. AS FAR AS LAW IS CONCERNED, IT IS VERY CLE AR THAT WHATEVER THE AMOUNT OF PROVISION IS CONCERNED IS TO BE ADDED BACK AND THE ASSESSEE HAS CORRECTLY DONE AS PER THE PROVISIONS OF THE LAW. ONE CANNOT CONSIDER MAT CREDIT LONELY .TAX PROVISION SHOULD BE CONSIDERED IN AGGREGATE I.E. HOW MUCH DEB ITED TO PROFIT AND LOSS ACCOUNT. 2. THE PROVISION FOR DOUBTFUL DEBTS OF RS.37,62,000/- UNDER THE HEAD SELLING EXPENSES IS ALSO NOT ALLOWABLE AS PER EXPLANATION (1) BELOW THE SECTION 115JB(1) INTROD UCED BY FINANCE ACT, 2009 WITH RETROSPECTIVE EFFECT FROM 01.04.2001 SUBMISSION : YES, BY THE FINANCE ACT 2009 SUCH AMENDMENT HAS COM E WITH RETROSPECTIVE EFFECT. ACCORDINGLY THE BOOK PRO FIT SHOULD BE INCREASED BY RS.37.62 LACS. THIS SUCH CORRECTION CAN BE DONE U/S 154 OF THE ACT AS THIS IS THE MISTAKE APPARENT FROM THE RECORD BEING LAW IS AMENDED RETROSPECTIVELY . 3 . THE ADDITIONAL DEPRECIATION ON CAPTIVE THERMAL PO WER PLANT IS NOT ALLOWABLE BUT IT HAS BEEN WRONGLY ALLO WED BY THE AO. SUBMISSION : FOR THE PURPOSE OF ADDITIONAL DEPRECIATION WE H AVE TO EXAMINE THE PROVISION OF SECTION 32 RELEVANT IN TH E MATTER WHICH IS AS UNDER:- 7 32. (1) IN RESPECT OF DEPRECIATION OF (I) BUILDINGS, MACHINERY, PLANT OR FURNITURE, BEING TANGIBLE ASSETS; (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LI CENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGH TS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1 ST DAY OF APRIL, 1998, OWNED, WHOLLY OR PARTLY, BY TH E ASSESSEE AND USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION, THE FOLLOWING DEDUCTIONS SHALL BE ALLOW ED. (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OT HER THAN SHIPS AND AIRCRAFT) WHICH HAS BEEN ACQUIRED AND INSTALLED AFTER THE 31 ST DAY OF MARCH, 2005 BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM EQUAL TO TWENTY PERCENT OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF - (A) ANY MACHINERY OR PLANT WHICH, BEFORE IT S INSTALLATION BY THE ASSESSEE, WAS USED EITHER W ITHIN OR OUTSIDE INDIA BY ANY OTHER PERSON OR (B) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDING ACCOMMODATION IN THE NATURE OF A GUEST-HOUSE: OR 8 (C) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES; O R (D) ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL COST OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIATION OR OTHERWISE) IN COMPUTING THE INCOM E- CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION' OF ANY ONE PREVIOUS YEAR;]. ON EXAMINATION OF THE ABOVE PROVISION, YOUR GOODSEL F WILL FIND THAT:- 1. FIRST CONDITION IS, NEW MACHINERY OR PLANT SHOULD B E ACQUIRED AND INSTALLED AFTER 31 ST DAY OF MARCH, 2005. IN THIS CASE SUCH PLANT & MACHINERY REFERRED IN THE QUERRY HAS BEEN ACQUIRED AFTER 31 ST MARCH, 2005. 2. SUCH PLANT & MACHINERY SHOULD BE ACQUIR ED BY AN ASSESSEE ENGAGED IN BUSINESS OF MANUFACTURE OR PROD UCTION OF ANY ARTICLE OR THING. THE ASSESSEE BANSWARA SYNTEX LIMITED IS ENGAGED IN PRODUCTION AND MANUFACT URING OF YARN, CLOTH, GARMENTS WHICH ARE ARTICLE AND THINGS AND THIS CONDITION IS VERY WELL FULFILLED BY THE ASSESSEE FO R THE ENTITLEMENT OF THE ADDITIONAL DEPRECIATION REFERRED AS ABOVE. FURTHER (A) THE PLANT & MACHINERY INSTALLED BY THE ASSESSEE SHOULD BE USED WITHIN INDIA BY THE ASSESSEE HIMSELF AND NO T BY ANY OTHER PERSON. 9 (B) THE PLANT & MACHINERY ON WHICH ADDITIONAL DEPRECIAT ION IS CLAIMED ARE NOT BEING INSTALLED IN OFFI CE REMISES OR ANY RESIDENTIAL ACCOMMODATION OR GUEST HOUSE. (C) THE ASSESSEE HAS NOT CLAIMED ANY ADDITIONAL DEPRECI ATION ON OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLE. (D) THE COST OF THE PLANT & MACHINERY ACQUIRED BY THE A SSESSEE HAS NEVER BEEN ALLOWED AS THE DEDUCTION IN COMPUT ING THE INCOME CHARGEABLE UNDER THE HEAD PROFIT A ND GAIN OF BUSINESS OR PROFESSION IN EARLIER YEARS. THE ASSESSEE HAS FULFILLED ALL THE CONDITIONS MENTI ONED U/S 32 FOR THE PURPOSE OF ALLOWING ADDITIONAL DEPRECIATION AND THE ASSESSING OFFICER HAS CORRECTL Y ALLOWED THE ADDITIONAL DEPRECIATION AS PER THE PROV ISIONS OF THE LAW. YOUR GOOD SELF WILL APPRECIATE THE PROV ISION OF LAW AND ALLOWABILITY OF THE DEPRECIATION AS MENTIONED ABOVE NEED NO REVISION. 4. FURTHER THE SUBSIDY GRANTED UNDER TUF SCHEME HAS NOT BEEN REDUCED FROM THE COST OF NEW ASSETS INTRODUCED DURING THE YEAR. SUBMISSION : WE WOULD LIKE TO INFORM THAT NO CAPITAL SUBSIDY IS RECEIVED WHICH IS REQUIRED TO BE REDUCED OUT OF THE COST OF PLANT & 10 MACHINERY IN THE RELEVANT PREVIOUS YEAR TO THE ASSE SSMENT YEAR 2008-09. WE MAY POINT OUT THAT SUCH CAPITAL SU BSIDY HAS BEEN RECEIVED IN THE NEXT YEAR I.E. F.Y. 2008-09 RE LEVANT TO THE ASSESSMENT YEAR 2009-10 AND DEDUCTION HAS BEEN MADE FROM THE COST FOR THE PURPOSE OF COMPUTING THE DEPR ECIATION. THE DEPRECIATION CHART FOR THE ASSESSMENT YEAR 2009 -10 IS ENCLOSED WITH DETAILS OF DEDUCTION AS ANNEXURE NO.-2. ACCORDINGLY WE REQUEST YOUR GOODSELF THAT NO CHANGE IS REQUIRED IN ALLOWABILITY OF THE DEPRECIATION AS PER THE PROVISION OF THE SECTION 32 OF THE INCOME TAX ACT. 5. THE MODVAT CREDIT ON CAPITAL GOODS HAS ALSO NOT BEEN REDUCED FROM THE COST OF CAPITAL GOODS TO ARRIVE AT THE ACTUAL COST FOR THE PURPOSE OF DEPRECIATION. SUBMISSION : THE ASSESSEE HAS THE ACCOUNTING SYSTEM THAT THE MOD VAT (CENVAT) FOR WHICH ASSESSEE IS ENTITLED TO HAVE CRE DIT UNDER EXCISE LAW IS BEING ACCOUNTED FOR AT THE TIME OF PU RCHASE OF SUCH CAPITAL ITEM. SUCH ACCOUNTING IS BEING DONE ON TRANSACTION TO TRANSACTION BASIS AND FULL ACCOUNT T HEREOF IS BEING KEPT BY THE ASSESSEE. WE MAY ALSO SUBMIT THAT FOR THE PURPOSE OF AVAILING THE CREDIT UNDER THE EXCISE LAW , ASSESSEE ALSO SUBMITTED ALL THE RELEVANT RECORDS TO THE EXCI SE AUTHORITIES. WHILE ARRIVING AT THE COST OF THE PLAN T AND MACHINERY, NO PART OF THE CENVAT IS BEING INCLUDED BY THE ASSESSEE FOR THE PURPOSE OF CLAIMING THE DEPRECIATI ON. WE ARE ENCLOSING HEREWITH COPY OF THE CAPITAL MODVAT RECEI VABLE 11 ACCOUNT FOR THE MONTH OF APRIL, 2007 AND FOR THE MO NTH OF MARCH, 2008 WHICH SHOWS ENTRY WISE RECORD AT ANNEXURE NO. - 3. MOREOVER, WE ARE ALSO ENCLOSING HEREWITH MONTH WISE SUMMARY OF THE REGISTER KEPT UNDER THE EXCISE LAW K NOWN AS RG23(C) FOR THE F.Y. 2007-08 (RELEVANT TO THE ASSES SMENT YEAR 2008-09) AS ANNEXURE NO. -4. FURTHER WE ARE ALSO ENCLOSING HEREWITH STATEMENT SHOWING THE PROVISION OF SECTION 145A WHICH ALSO HAS THE SUMMARY OF WHOLE OF THE YEAR FOR THE CENVAT AVAILED AND UTILIZED ON THE CAPITAL ITEMS WH ILE CALCULATING THE EFFECT U/S 145A. ALL THESE EVIDENC ES SHOW THAT ASSESSEE DOES NOT INCLUDE ANY PART OF THE MODVAT ON CAPITAL ITEM FOR THE PURPOSE OF ARRIVING THE ACTUAL COST AS DEFINED U/S 43 OF THE ACT. 6. THE SUSPICIOUS TRANSACTIONS RELATED TO SHRI RAJE NDRA KUMAR JAIN, THE THEN ACCOUNTANT OF THE COMPANY, HAVE NOT BEEN EXAMINED WHILE PASSING THE ORDER U/S 143(3) OF. THE I.T. ACT DATED 09.12.2010 SUBMISSION: THE FRAUD COMMITTED BY SHRI RAJENDRA KUMAR JAIN AMO UNTING TO RS.43.25 LAKHS WAS DETECTED ONLY IN THE FINANCIAL Y EAR 2009- 10, OF COURSE THIS AMOUNT RELATES TO MANY OF THE YE ARS BUT THE ASSESSEE COULD FIND OUT SUCH FRAUD BY INVESTIGATING THE RECORDS OF THE COMPANY SINCE 2005. IT DOES NOT MEAN THAT ANY OF THE TRANSACTION WHICH FORMS PART OF THE FRAUD ARE OF TH E NATURE THAT ANYTHING HAS BEEN WRONGLY CLAIMED BY THE ASSES SEE. FURTHER, IMMEDIATELY AFTER KNOWING THE FRAUD AND QU ANTIFYING 12 THE SAME, THE AMOUNT HAS BEEN RECOVERED BY THE ASSE SSEE AMOUNTING TO RS.43.25 LACS AND THE SAME HAS BEEN IN CLUDED IN THE INCOME FOR THE F.Y. 2008-09 RELEVANT TO THE ASS ESSMENT YEAR 2009-10. THIS FACT CAN BE EXAMINED FROM THE DETAILS OF THE OTHER INCOME CREDITED TO THE PROFIT AND LOSS ACCOUNT AMOUNTING TO RS.58.93 LACS WHICH INCLUDES RS.43.25 LACS RECOVERED ON THE ACCOUNT OF FRAUD COMMITTED BY SHRI RAJENDRA KUMAR JAIN. RELEVANT DOCUMENTS ARE ENCLOSED AS ANNEXURE NO. - 5. ACCORDINGLY SUCH AMOUNT CAN NOT FORM PART OF INC OME OF EARLIER YEAR AS ASSESSED BY AO SHOULD NOT BE CHAN GED. 7. THE COMPANY PURCHASED VISCOSE FIBER @ RS.133.18 PER KG. AND HAS SOLD THE SAME @ RS.128.05 PER KG. AND THERE BY A TRADING LOSS @ RS.5.I3 PER KG. HAS BEEN INCURRED. T HE AO HAS NOT EXAMINED THE GENUINENESS AND CIRCUMSTANCES OF S UCH TRADING LOSS. SUBMISSION : THE SALE OF VISCOSE FIBER REFERRED ABOVE IS LEFT OU T QUANTITY OUT OF THE QUANTITY PURCHASED FROM GRASIM LTD., NAG DA. FOR THE PURPOSE OF MANUFACTURING BY THE ASSESSEE, MANY TIMES MINIMUM QUANTITIES ARE TO BE LIFTED BY THE ASSESSEE AS IT BECOMES NECESSARY FOR THE PURPOSE OF BUSINESS AND M OREOVER, MANUFACTURERS ALSO PUT THE CONDITIONS TO LIFT THE M INIMUM QUANTITY. ON THE OTHER HAND MANUFACTURERS NEED SMAL L QUANTITIES. ACCORDINGLY THE ASSESSEE SOLD SUCH QUAN TITY ON ACTUAL REIMBURSEMENT BASIS. WE ARE ENCLOSING HEREWI TH THE STATEMENT AS ANNEXURE NO. - 6 SHOWING THE FULL DETAILS OF THE 13 PURCHASE AND SALE OF THE VISCOSE FIBER. YOU WILL NO TICE THAT IN THE COST OF RS.5913185/- AND SALE PRICE OF RS.56857 69/- THERE IS DIFFERENCE OF RS.227416/- I.E. FOR CST ACC OUNTS. THESE TRANSACTIONS ARE ON THE COST TO COST BASIS, N O LOSS IS INCURRED BY THE ASSESSEE. THE PURCHASES ARE BOOKED INCLUDING THE AMOUNT PAID FOR EXCISE DUTY ACCOUNTED FOR SEPARATELY IN THE ACCOUNTS. THESE TRANSACTIONS ARE ON COST AS WELL AS CST TO THE MANUFACTURERS I.E. GRASIM LTD. W HEREAS THE SALE IS BOOKED INCLUDING EXCISE DUTY BUT EXCLUDING CST RECEIVED. CST IS BEING ACCOUNTED FOR TAX PAYABLE UN DER THE TAX PAYABLE TO THE GOVERNMENT AND THIS AMOUNT IS PA ID LEVIABLE UNDER THE CENTRAL SALES TAX LAW. ACCORDING LY WE FIND THAT TRANSACTION IS DONE AS A NEED OF THE BUSINESS AND NOT FOR ANY TYPE OF CONCESSION GIVEN TO ANY OF THE BUYER. A CCORDINGLY YOUR GOODSELF WILL APPRECIATE THAT NO INTERFERENCE IS REQUIRED IN THE ORDER OF THE AO. 5. AFTER CONSIDERING THE ABOVE OBJECTIONS THE LD. C OMMISSIONER HAS FOUND THE ASSESSMENT ORDER LEVIABLE IN RESPECT OF T HE FOLLOWING GROUND:- (I) ALLOWANCE OF MAT CREDIT OF RS. 65,23,000/- WHILE COMPUTING TAX U/S 115 JB OF THE ACT. (II) THE PROVISION FOR DOUBTFUL DEBTS OF RS. 37,62,000/- UNDER THE HEAD SELLING EXPENSES IN VIEW OF EXPLANATION (1) BELOW SECTION 115 JB (1) INTRODUCED BY THE FINANCE ACT, 14 2009, WITH RETROSPECTIVE EFFECT OF 1.4.2001WHICH PR OVIDES THAT THE PROFIT HAS TO BE INCREASED BY THE AMOUNT O R AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN TH E VALUE OF ANY ASSET. (III) THE ADDITIONAL DEPRECIATION ON CAPTIVE THERMAL POWE R PLANT WRONGLY ALLOWED. (IV) SUBSIDY GRANTED UNDER TECHNOLOGICAL UPGRADATION FUN D (JUF) SCHEME AHS NOT BEEN REDUCED FROM THE COST OF THE NEW ASSETS INTRODUCED DURING THE YEAR. (V) MODVAT CREDIT ON CAPITAL GOODS HAS NOT BEEN REDUCED FROM THE COST OF CAPITAL GOODS TO ARRIVE AT THE ACTUAL C OST FOR THE PURPOSE OF DEPRECIATION. THEREFORE, HE AHS REVISED AND SET ASIDE ALL THE ABOVE ISSUES WITH A DIRECTION TO THE AO THAT HE SHALL VERIFY AND DECIDE AFRESH AFTER ACCORDINGLY OP PORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. AGGRIEVED AGAINST THE ABOVE THE ASSESSEE HAS FI LED THIS APPEAL BY RAISING THE FOLLOWING GROUNDS :- 1. THE ID. COMMISSIONER OF INCOME TAX HAS ERRED ON FACTS AND IN LAW IN DIRECTING THE A O TO RE-COMPUTE THE BOOK PROFIT U/S 1 15JB WITHOUT DEDUCTING THE AMOUNT OF RS. 65. 23.0 00/ ON ACCOUNT OF MAT CREDIT ENTITLEMENT. 15 1.1. THE ID. COMMISSIONER OF INCOME TAX HAS ERRED O N FACTS AND IN LAW IN GIVING THE SAID DIRECTION IGNORING THE FA CT THAT IN EFFECT NO PROVISION FOR INCOME TAX IS CHARGED TO PR OFIT & LOSS ACCOUNT WHILE PREPARING THE ACCOUNTS AS PER PART II OF SCHEDULE VI OF THE COMPANIES ACT, 1956 AND THEREFOR E QUESTION OF MAKING ANY ADJUSTMENT TO BOOK PROFIT ON ACCOUNT OF PROVISION FOR INCOME TAX OR FOR ENTITLEMENT OF MAT CREDIT DOES NOT ARISES. 2. THE ID. COMMISSIONER OF INCOME TAX HAS ERRED ON FAC TS AND IN LAW IN DIRECTING THE A O TO ADD THE PROVISION FO R DOUBTFUL DEBTS OF RS. 37,62,000/- IN COMPUTING THE BOOK PROF IT IN VIEW OF AMENDMENT MADE BY FINANCE ACT 2009 W.R.E.F. 1.4.2001 IGNORING THAT WHEN THE A O PASSED THE ORDE R NO SUCH ADJUSTMENT WAS REQUIRED AND THEREFORE ORDER PA SSED BY A O WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE IN TEREST OF REVENUE. 3. THE ID. COMMISSIONER OF INCOME TAX HAS ERRED ON FAC TS AND IN LAW IN HOLDING THAT ASSESSEE IS NOT ENTITLED FOR AD DITIONAL DEPRECIATION U/S 32(L)(IIA) ON NEW PLANT & MACHINER Y INSTALLED IN ITS CAPTIVE THERMAL POWER PLANT. 3.1. THE ID. COMMISSIONER OF INCOME TAX HAS ERRED ON FAC TS AND IN LAW IN DIRECTING TO DISALLOW ADDITIONAL DEPR ECIATION BY OBSERVING THAT THERE IS NEITHER ANY MANUFACTURE NOR PRODUCTION OF ANY ARTICLE OR THING FROM THE THERMAL POWER PLANT IGNORING THE FACT THAT SECTION 32 (L)(IIA) RE QUIRES THAT ASSESSEE ACQUIRING NEW PLANT & MACHINERY IS ENGAGED IN 16 BUSINESS OF MANUFACTURING OR PROCESS OF ARTICLE OR THING AND NOT THAT THE NEW PLANT & MACHINERY ACQUIR ED SHOULD MANUFACTURE OR PRODUCE ARTICLE OR THING. 3.2. THE ID. COMMISSIONER OF INCOME TAX HAS ERRED ON FAC TS AND IN LAW IN DIRECTING TO DISALLOW ADDITIONAL DEPR ECIATION IGNORING THAT THE ELECTRICITY PRODUCED BY THE ASSES SEE IS ARTICLE OR THING AS HELD BY SUPREME COURT IN CASE O F STATE OF ANDHRA PRADESH VS. NTPC LTD. (2002) 5 SCC 203. 4. THE ID. COMMISSIONER OF INCOME TAX HAS ERRED ON FACTS AND IN LAW IN DIRECTING THE A O TO RECOMPUTE THE CLAIM OF DEPRECIATION ON FIXED ASSETS ACQUIRED UNDER TUF SCH EME IGNORING THE FACT THAT INTEREST SUBSIDY ACCRUED TO ASSESSEE UNDER THE SCHEME DURING THE YEAR IS ALREADY REDUCED FROM THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE AND TH E CAPITAL SUBSIDY RECEIVED IN A.Y. 2009-10 IS REDUCED FROM THE COST OF ASSET IN THAT YEAR AND THEREFORE ORDER OF AO IS NOT ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE IN THIS REGARD. 7. WE HAVE HEARD RIVAL SUBMISSIONS. BEFORE WE PROCE ED TO DECIDE THE ISSUES BEFORE US IN THIS APPEAL IT WOULD BE APT AND PROPER TO DISCUSS THE LAW RELATING TO REVISIONS AS PROVIDED IN SECTIO N 263 OF THE ACT. IT IS TRITE THAT AN ORDER CAN BE REVISED ONLY AND ONLY IF TWIN CONDITIONS OF ERROR IN THE ORDER AND PREJUDICE CAUSED TO THE R EVENUE CO-EXIST. THE SUBJECT OF REVISION UNDER SECTION 263 HAS BEE N VASTLY EXAMINED 17 AND ANALYZED BY VARIOUS COURTS INCLUDING THAT OF HO NBLE APEX COURT. THE REVISIONAL POWER CONFERRED ON THE CIT VIDE SECT ION 263 IS OF VIDE AMPLITUDE. IT ENABLES THE CIT TO CALL FOR AND EXAM INE THE RECORDS OF ANY PROCEEDING UNDER THE ACT. IT EMPOWERS THE CIT TO MAKE OR CAUSE TO BE MADE SUCH AN ENQUIRY AS HE DEEMS NECESSARY IN ORDER TO FIND OUT IF ANY ORDER PASSED BY ASSESSING OFFICER IS ERRONEO US IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE O NLY LIMITATION ON HIS POWERS IS THAT HE MUST HAVE SOME MATERIAL(S) WHICH WOULD ENABLE HIM TO FORM A PRIMA FACIE OPINION THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. ONCE HE COMES TO THE ABOVE CONCLUSION ON THE BASIS OF THE MATERIAL THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE CI T IS EMPOWERED TO PASS AN ORDER AS THE CIRCUMSTANCES OF THE CASE MAY WARRANT. HE MAY PASS AN ORDER ENHANCING THE ASSESSMENT OR HE MAY MO DIFY THE ASSESSMENT. HE IS ALSO EMPOWERED TO CANCEL THE ASS ESSMENT AND DIRECT TO FRAME A FRESH ASSESSMENT. HE IS EMPOWERED TO TA KE RECOURSE TO ANY OF THE THREE COURSES INDICATED IN SECTION 263. SO, IT IS CLEAR THAT THE CIT DOES NOT HAVE UNFETTERED AND UNCHEQURED DISCRET ION TO REVISE AN ORDER. THE CIT IS REQUIRED TO EXERCISE REVISIONAL POWER WITHIN THE BOUNDS OF THE LAW AND HAS TO SATISFY THE NEED OF FA IRNESS IN 18 ADMINISTRATIVE ACTION AND FAIR PLAY WITH DUE RESPEC T TO THE PRINCIPLE OF AUDI ALTERAM PARTEM AS ENVISAGED IN THE CONSTITUTIO N OF INDIA AS WELL AS IN SECTION 263. AN ORDER CAN BE TREATED AS ERR ONEOUS IF IT WAS PASSED IN UTTER IGNORANCE OR IN VIOLATION OF ANY LA W; OR PASSED WITHOUT TAKING INTO CONSIDERATION ALL THE RELEVANT FACTS OR BY TAKING INTO CONSIDERATION IRRELEVANT FACTS. THE PREJUDICE TH AT IS CONTEMPLATED UNDER SECTION 263 IS THE PREJUDICE TO THE INCOME TA X ADMINISTRATION AS A WHOLE. THE REVISION HAS TO BE DONE FOR THE PURPO SE OF SETTING RIGHT DISTORTIONS AND PREJUDICES CAUSED TO THE REVENUE IN THE ABOVE CONTEXT. THE FUNDAMENTAL PRINCIPLES WHICH EMERGE FROM THE SE VERAL CASES REGARDING THE POWERS OF THE CIT UNDER SECTION 263 M AY BE SUMMARIZED BELOW: (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDE R OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO T HE INTERESTS OF THE REVENUE. BOTH THE CONDITIONS MUS T BE FULFILLED. (II) SECTION 263 CANNOT BE INVOKED TO CORRECT EAC H AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS, THAT THE SECTION WILL BE ATTRACTED. 19 (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORR ECT APPLICATION OF LAW WILL SUFFICE FOR THE REQUIREME NT OR ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORD ER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND IF THE ASSESSING OF FICER HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LA W OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFI CER HAS TAKEN ONE VIEW UNDER WITH WHICH THE CIT DOES NO T AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAI NABLE UNDER THE LAW. (VI) IF WHILE MAKING THE ASSESSMENT, THE ASSES SING OFFICER EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME, THE CIT, WHILE EXERCISING HI S POWER UNDER SECTION 263, IS NOT PERMITTED TO SUBSTI TUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIM ATED BY THE ASSESSING OFFICER. (VII) THE ASSESSING OFFICER EXERCISE QUASI-JUDICIA L POWER VESTED IN HIM AND IF HE EXERCISE SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVES AS A CONCLUSION, SUCH CONCLUSION CA NNOT 20 BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DO ES NOT FEEL SATISFIED WITH THE CONCLUSION. (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER SECTION 263, MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. (IX) IF THE ASSESSING OFFICER HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT IS SUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATION BE A LETTER IN WRITING AND THE ASSESSING OFFICER ALLOWED THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF TH E ASSESSEE, THE DECISION OF THE ASSESSING OFFICER CAN NOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 8. ADVERTING TO THE FACTS OF THE GIVEN CASE, WE WOU LD LIKE TO EXTRACT THE CHART PREPARED BY THE LD. AR AND INCORPORATED I N HIS WRITE-UP FROM WHICH IT WOULD BE EASIER TO UNDERSTAND THE CONTROVE RSIAL ISSUE AND THE REAL CONTROVERSY REGARDING THEM, IN SO FAR AS PROVI SIONS OF SECTION 263 OF THE ACT ARE CONCERNED. THE CHART IS ARE UNDER :- 21 MAT CREDIT WRONGLY ALLOWED DIRECTED TO RECOMPUTE BOOK PROFITS U/S 115JB WITHOUT REDUCING RS. 65,23,000/- ON ACCOUNT OF MAT CREDIT ENTITLEMENT PROVISION FOR DOUBTFUL DEBTS NOT ADDED IN COMPUTING BOOK PROFITS U/S 1 1 5 JB DIRECTED TO ADD RS. 37,62,000/- ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS IN VIEW OF THE AMENDMENT MADE BY FINANCE ACT, 2009 W.E.F. 01.04.2001 ADDITIONAL DEPRECIATION ON CAPTIVE THERMAL POWER PLANT ASSESSEE IS NOT ENTITLED TO ADDITIONAL DEPRECIATION SINCE GENERATION OF ELECTRICITY IS NEITHER ANY MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING SUBSIDY GRANTED UNDER TUF SCHEME IS NOF REDUCED FROM THE COST OF NEW ASSETS PURCHASED DURING THE YEAR AO TO VERIFY THE CLAIM OF THE ASSESSEE THAT NO SUBSIDY WAS RECEIVED DURING THE YEAR, BUT THE SAME WAS RECEIVED IN THE NEXT YEAR WHEN IT WAS REDUCED FROM THE COST OF THE ASSETS MODVAT CREDIT ON CAPITAL GOODS HAS NOT BEEN REDUCED FROM THE COST OF ASSETS ISSUE IS SET ASIDE TO AO FOR ADJUDICATION AFRESH TRANSACTION RELATED TO SH. RAJENDRA KUMAR JAIN HAS NOT BEEN EXAMINED THE TRANSACTION RELATES TO MANY YEARS AND THE ASSESSMENT OF THE EARLIER TWO YEARS HAS ALREADY BEEN REOPENED AND THEREFORE THE MATTER IS SET ASIDE TO AO TO DECIDE THE SAME IN TOTALITY THE GENUINENESS AND CIRCUMSTANCES OF LOSS ON TRADING OF VISCOSE FIBRE IS NOT EXAMINED BY THE AO. AO IS DIRECTED TO EXAMINE THE GENUINENESS AND THE CIRCUMSTANCES OF THE TRADING LOSS. 9. NOW, WE WILL TAKE UP EACH GROUNDS ONE BY ONE. F IRST GROUND OF REVISION IS REGARDING THE DIRECTION OF THE LD. CIT( A) GIVEN TO THE A.O. TO RECOMPUTE THE BOOK PROFIT U/S 115JB WITHOUT DEDUCT ING THE AMOUNT OF RS. 65,23,000/- ON ACCOUNT OF MAT CREDIT ENTITLEMEN T. 10. AFTER HEARING BOTH THE SIDES WE HAVE FOUND THAT FROM THE STATEMENT OF TOTAL INCOME, IT CAN BE NOTICED THAT T HE ASSESSEE HAS NO LIABILITY TO PAY TAX UNDER THE NORMAL COMPUTATION B UT LIABILITY TO PAY 22 TAX UNDER MAT WHICH IS TO BE CARRIED FORWARD U/S 11 5JAA OF THE ACT. THE ASSESSEE HAS SHOWN CURRENT TAX AT RS. 65,23,000 /- BUT SAME HAS BEEN NULLIFIED BY A CONTRA-ENTRY TOWARDS MAT CREDIT ENTITLEMENT IN THE PROFIT AND LOSS ACCOUNT. THUS, IN FACT, NO PROVISI ON HAS BEEN MADE IN RESPECT OF CURRENT INCOME TAX PAID OR PAYABLE OR PR OVISION THEREOF. IN FACT, THIS IS A MODE OF PRESENTATION OF THE ACCOUNT S USED BY THE ASSESSEE. THE ASSESSEE MADE PROVISION ONLY FOR DEF ERRED TAX OF RS. 96,29,000/- WHICH HAS BEEN ADDED BACK WHILE COMPUTI NG THE BOOK PROFITS. HENCE, NO ADJUDICATION IS REQUIRED TO BE M ADE IN RESPECT OF THE AMOUNT OF INCOME-TAX PAID OR PAYABLE. PROVISIO N UNDER CLAUSE (A) OF EXPLANATION 1 APPENDED U/S 115JB NO PROVISION F OR INCOME-TAX PAID OR PAYABLE HAS BEEN CLAIMED IN THE PROFIT AND LOSS ACCOUNT. IN FACT, THE MAT CREDIT ENTITLEMENT IS REFLECTED IN THE BALA NCE SHEET UNDER THE HEAD LOANS AND ADVANCES IN SCHEDULE 10 WHICH DEPI CTS THAT NEITHER PROVISION OF INCOME-TAX HAS BEEN CHALLENGED TO PRO FIT AND LOSS ACCOUNT NOR IN ACCOUNT OF MAT CREDIT ENTITLEMENT HAS BEEN C REATED TO PROFIT AND LOSS ACCOUNT BUT ONLY AS A MATTER OF PRESENTATI ON IT IS REFLECTED IN IT. THEREFORE, IN OUR CONSIDERED OPINION, DIRECTIO N GIVEN BY LD. CIT TO ADDITION BACK THE AMOUNT OF RS. 65,23,000/- IN COMP UTING THE BOOK PROFIT IS NOT BASED ON FACTS OF THIS CASE. THE A.O . HAS EXAMINED THIS PROFIT AND LOSS ACCOUNT AT THE TIME OF FRAMING OF A SSESSMENT ORDER. 23 THESE ENTRIES ARE FOUND REFLECTED ON THE FACE OF PR OFIT AND LOSS ACCOUNT. THE A.O. HAS CONSIDERED THIS AMOUNT UNDER THE CURRENT TAX WHICH IS OFF-SET BY MAT CREDIT ENTITLEMENT DULY REF LECTED IN THE PROFIT AND LOSS ACCOUNT AND HAS FOUND THAT NO PROVISION F OR INCOME-TAX HAS BEEN MADE AND CONSEQUENTLY NO ADJUDICATION WAS REQU IRED FOR COMPUTING THE BOOK PROFITS. THUS THE FINDING OF TH E A.O. ON THIS ISSUE CANNOT BE SAID TO BE ERRONEOUS AND THEREFORE IT IS ALSO NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE AND ON THIS ISSUE OR DER CANNOT REVISED IN VIEW OF THE AFORE-MENTIONED LEGAL POSITION APPLICAB LE TO REVISION BY LD. CIT U/S 263 OF THE ACT. 11. SECOND GROUND OF REVISION IS REGARDING PROVISIO N FOR DOUBTFUL DEBTS OF RS. 37,62,000/- IN COMPUTING BOOK PROFIT I N VIEW OF AMENDMENT MADE BY FINANCE ACT, 2009 W.E.F 1.4.2009, REGARDING WHICH THE LD. CIT HAS GIVEN DIRECTION TO A.O. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CA REFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. WE HAVE FOUND THAT T HE ASSESSEE HAD FILED RETURN AND AT THAT TIME NO ADJUDICATION WAS R EQUIRED. AMENDMENT HAS COME W.R.E.F SUBSEQUENTLY AND THUS TH IS CANNOT BE SAID TO BE AN ERROR IN THE ASSESSMENT ORDER. RELIA NCE ON THE DECISION 24 OF VIJAY BANK LIMITED VS. CIT REPORTED IN 323 ITR 166 [SC] WHEREIN IT HAS BEEN HELD THAT WHERE AMOUNT OF BAD AND DOUBTFUL DEBTS HAVING BEEN DEBITED TO PROFIT AND LOSS ACCOUNT BY CREATING A PROVISION AND SIMULTANEOUSLY THE SAID PROVISION IS OBLITERATED F ROM THE ACCOUNTS BY REDUCING IT FROM LOANS/ADVANCES/DEBTORS ON THE ASSE T SIDE OF THE BALANCE SHEET CONDITION OF WRITE OFF U/S 36(1)(VII) IS SATISFIED, SUBSTANTIATES ASSESSEES VERSION. OUT OF THE AMOUN T OF RS. 37.62 LAKHS, AN AMOUNT OF 2.32 LAKHS IS TOWARDS BAD DEBTS WRITTE N OFF AND BAD DEBTS RECOVERED AND RS. 35.30 LAKHS IS TOWARDS PROVISION FOR BAD DEBTS. THEREFORE, IN OUR CONSIDERED OPINION, DIRECTION GIV EN BY THE LD. CIT TO ADD ENTIRE AMOUNT OF RS. 37.62 IS INCORRECT. WHEN T HE ASSESSEE FILED RETURN ON 26.9.2008, THERE WAS DIRECT DECISION OF T HE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. HCL CONMET SYSTEMS AND SERVICES LTD. REPORTED IN 305 ITR 409 IN WHICH IT HAS BEEN HELD T HAT WHEN PROVISION MADE FOR BAD AND DOUBTFUL DEBTS IS TO COVER UP PROB ABLE DIMUNITION IN THE VALUE OF ASSET AND SUCH PROVISION IS NOT A PRO VISION FOR RELIABILITY AND THEREFORE, IT CANNOT BE ADDED TO THE BOOK PROFI T IN TERMS OF EXPLANATION 1 TO SECTION 115JA. THEREAFTER, AMENDM ENT WAS MADE IN EXPLANATION 1 W.E.F. 1.4.2001 AS STATED ABOVE PROVI DING FOR ADJUSTMENT FOR THE AMOUNT SET ASIDE AS PROVISION FOR DIMINUTI ON IN THE VALUE OF THE ASSET. OTHERWISE ALSO, WHEN ON ACCOUNT OF RETROSPEC TIVE AMENDMENT IN 25 LAW, AN AMOUNT IS REQUIRED TO BE ADDED. THE SAME C AN BE DONE BY PASSING ORDER U/S 154 OF THE AC AS HAS BEEN HELD IN THE CASE OF CIT VS. J.S. SABHAVALLA REPORTED IN 171 ITR 191 [MUM]. THE REFORE, THIS CANOT BE TREATED AS AN ERROR IN THE ASSESSMENT ORDER GIVI NG JURISDICTION TO LD. CIT TO REVISE ORDER U/S 263 OF THE ACT. 13. NEXT ISSUE OF REVISION IS REGARDING HOLDING THE ASSESSEE TO BE NOT ENTITLED FOR ADDITIONAL DEPRECIATION U/S 32(1)(IIA) ON THE NEW PLANT AND MACHINERY. 14. WE HAVE FOUND THAT THE ASSESSEE IS ENGAGED IN T HE PRODUCTION AND MANUFACTURING OF YARN CLOTH GARMENTS ETC. FOR THE PURPOSE OF GETTING UNINTERRUPTED POWER SUPPLY THE ASSESSEE INS TALLED A NEW PLANT AND MACHINERY FOR PRODUCTION OF ELECTRICITY FOR CAP TIVE CONSUMPTION AND HAS CLAIMED ADDITIONAL DEPRECIATION OF RS. 10,2 4,85,247/- U/S 32(1)(IIA) OF THE ACT. 15. AS PER THE LD. CIT, THE ASSESSEE IS NOT ENTITLE D TO ADDITIONAL DEPRECIATION BECAUSE THIS PLANT AND MACHINERY HAS N OT MANUFACTURED OR PRODUCED ANY ARTICLE OR THING. HE HAS FOUND THE ORDER ERRONEOUS ON THIS COUNT. AFTER COGITATING THE RIVAL STANDS, WE HAVE FOUND THAT THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF THE 26 HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. VT M LTD. 319 ITR 336 WHEREIN THE ADDITIONAL DEPRECIATION ON THE PLANT AN D MACHINERY INSTALLED FOR SETTING UP A WINDMILL BY THE ASSESSEE MANUFACTURING TEXTILE GOODS WAS ALLOWED. THIS DECISION WAS AVAIL ABLE BEFORE THE A.O. AS WELL AS THE LD. CIT(A). THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE IS ENTITLED TO ADDITIONAL DEPRECIATION EQU AL TO 20% OF ACTUAL COST OF SUCH CAPITAL MACHINERY OR PLANT. RATHER, T HE GENERATION OF ELECTRIC POWER IS STATED AS GOODS AND THE ASSESSEE BECOMES ENTITLED AND ELIGIBLE FOR ADDITIONAL DEPRECIATION U/S 32(1)( IIA). IN THIS REGARD, DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F STATE OF A.P. VS. NTPC 5 SCC 203 IS RELEVANT. THUS, WE FIND NO ERROR IN THIS DECISION OF THE A.O. AND SET ASIDE THE DIRECTION OF THE LD. CIT GIVEN U/S 263 OF THE ACT. 16. NEXT GROUND OF REVISION IS REGARDING CLAIM OF D EPRECIATION ON FIXED ASSETS ACQUIRED UNDER TUF SCHEME. 17. AS PER THE LD. CIT, THE ASSESSEE HAS RECEIVED S UBSIDY UNDER THIS SCHEME WHICH IS NOT REDUCED FROM THE COST OF NEW AS SETS PURCHASED DURING THE YEAR. THEREFORE, THE ORDER OF THE A.O. BECOMES ERRONEOUS ON THIS COUNT. THE CASE OF THE ASSESSEE IS THAT NO CAPITAL SUBSIDY WAS 27 RECEIVED DURING THE YEAR AND THEREFORE, NOTHING IS TO BE REDUCED FROM THE COST OF PLANT AND MACHINERY ACQUIRED DURING THE YEAR. IT IS STATED THAT IN THE NEXT A.Y. 2009-10 CAPITAL SUBSIDY OF RS . 18,84,199 WHICH HAS BEEN REDUCED FROM THE COST OF PLANT AND MACHINE RY IN THAT YEAR. BUT THE CASE OF THE LD. CIT IS THAT IN VIEW OF SCHE DULE 11 OF THE BALANCE SHEET SATED THAT THE AMOUNT RECEIVABLE UNDER THE TU F SCHEME HAS INCREASED TO RS. 1,174,.10 LAKHS FROM RS. 455.84 LA KHS OF LAST YEAR. THUS A FURTHER BENEFIT OF RS. 718.26 LAKHS HAS ACCR UED TO THE ASSESSEE DURING THE YEAR. THIS IS A SUBSIDY FROM THE GOVERN MENT WHICH IS NOT REDUCED FROM THE COST OF PLANT AND MACHINERY AND TH EREFORE HE DIRECTED THE A.O. TO VERIFY THE CLAIM OF THE ASSESS EE. 18. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE HAVE FOUND THAT UNDER TUF SCHEME, THE ASSESSEE RECEIVES INTEREST SUBSIDY WHICH IS ALREADY REDUCED FROM THE INTEREST EXPENDITURE CLAIMED DURIN G THE YEAR. THE ASSESSEE HAS, UPTO THE LAST YEAR, RECEIVED INTEREST SUBSIDY UNDER TUF SCHEME UNDER RS. 455.84 LAKHS. THIS CLAIM HAS BEEN RAISED DURING THE YEAR TO RS. 922.41 LAKHS, OUT OF WHICH RS. 211.15 L AKHS WAS RECEIVED LEAVING CLOSING BALANCE OF RS. 1174.10 LAKHS [REFER PB PAGE 53]. THE INTEREST SUBSIDY OF RS. 922.41 LAKHS HAS BEEN REDUC ED FROM THE INTEREST EXPENDITURE OF RS. 2155.39 LAKHS LEAVING THE INTERE ST EXPENDITURE OF 28 1225.98 LAKHS. OUT OF IT, RS. 223.62 LAKHS WAS CAP ITALIZED AND THE REMAINING AMOUNT OF RS. 1002.36 LAKHS WAS CLAIMED I N THE PROFIT AND LOSS ACCOUNT [REFER TO PAPER BOOK PAGES 33,54 & 55] . THUS IT IS MANIFESTLY CLEAR THAT NO CAPITAL SUBSIDY WAS RECEIV ED UNDER TUF SCHEME DURING THE YEAR. CAPITAL SUBSIDY OF RS. 18, 84,199/- WAS RECEIVED IN THE A.Y. 2009-10 AND REDUCED FROM COST OF PLANT AND MACHINERY IN THAT YEAR. WE ARE CONVINCED THAT THER E IS NO LAW THAT ANY SUBSIDY RECEIVED FROM GOVERNMENT NEEDS TO BE RE DUCED FROM COST OF ASSET FOR WORKING OUT DEPRECIATION AS HAS BEEN O BSERVED BY THE LD. CIT. IN OUR CONSIDERED OPINION, ONLY THOSE SUBSIDI ES WHICH ARE TOWARDS COST OF ASSETS ARE REQUIRED TO BE REDUCED FOR CLAIM ING DEPRECIATION WHICH HAS ALSO BEEN DONE BY THE ASSESSEE. THEREFOR E, WE DO NOT FIND ANY ERROR IN THE ASSESSMENT ORDER ON THIS COUNT AS WELL. 19. IN THIS GROUND , THE LD. CIT HAS OBSERVED THAT MODVAT CREDIT ON CAPITAL GOODS HAS NOT BEEN REDUCED FROM THE COST OF CAPITAL GOODS TO ACTUAL COST FOR THE PURPOSE OF DEPRECIATION. THE C ASE OF THE ASSESSEE IS THAT IT IS FOLLOWING THE SYSTEM OF ACCOUNT WHERE CENVAT CHARGED ON CAPITAL GOODS IS NOT DEBITED TO THE COST OF PLANT A ND MACHINERY BUT IS TAKEN TO THE CAPITAL MADVAT RECEIVABLE ACCOUNT ON T RANSACTION TO TRANSACTION BASIS. BUT WITH REFERENCE TO ANNEXURE 3 TO FORM 3CD 29 WHERE IT IS STATED THAT THE ASSESSEE HAS UTILIZED T HE CREDIT OF EXCISE DUTY FOR CAPITAL GOODS AMOUNTING TO RS. 30,48,288/- OBSERVED THAT HE SAME IS REQUIRED TO BE REDUCED FROM THE CAPITAL REC EIPT BUT FROM THAT DETAIL OF ADDITION TO THE CAPITAL ASSET IT IS FOUND THAT THE SAID EXCISE DUTY HAS NOT BE REDUCED FROM COST OF ASSET BEFORE A LLOWING DEPRECIATION. 20. AFTER CONSIDERING THE RIVAL SUBMISSIONS ON THIS ISSUE WE HAVE NOTICED THAT WHEN CAPITAL GOODS IS PURCHASED IN WHI CH CENVAT IS CHARGED, COST OF CAPITAL GOODS IS DEBITED TO THE PL ANT AND MACHINERY AND CENVAT AMOUNT IS DEBITED TO CAPITAL MODVAT RECE IVABLE ACCOUNT. THE COST OF CAPITAL ASSET DOES NOT INCLUDE THE AMOU NT OF CENVAT AND THEREFORE, QUESTION OF REDUCING THE SAME FROM ITS C OST WOULD NOT ARISE. HENCE THE AMOUNT LYING IN THE CAPITAL MODVAT RECEIV ABLE ACCOUNT IS UTILIZED AGAINST THE PAYMENT OF EXCISE DUTY. THERE FORE, THIS AMOUNT IS NOT REQUIRED TO BE REDUCED BECAUSE IT IS NOT INCLUD ED TO THE FIXED ASSETS. THUS WE DO NOT FIND MERIT IN THIS FINDING OF THE A.O. AS WELL. 21. GROUND NO 6 OF REVISION PERTAINS TO DIRECTION G IVEN TO EXAMINE THE CLAIM OF LOSS ON ACCOUNT OF FRAUD AMOUNTING TO RS. 43.25 LAKHS IN THE EARLIER YEARS AND DETECTED DURING A.Y. 2009-10 AND RECOVERED AND 30 OFFERED IN INCOME IN THAT YEAR. ACCORDING TO THE L D. CIT, THIS ISSUE WAS NOT EXAMINED BY THE A.O. WHILE PASSING HIS ORDER. ACCORDING TO THE ASSESSEE, THE ACCOUNTANT OF THE ASSESSEE COMPANY SH RI RAJENDRA KUMAR JAIN COMMITTED FRAUD AMOUNTING TO RS. 43.25 LAKHS W HICH RELATED TO EARLIER YEARS BUT DETECTED ONLY IN A.Y. 2009-10 WHE N THIS AMOUNT WAS RECOVERED FROM HIM AND OFFERED FOR TAXATION. THE L D. CIT HAS OBSERVED THAT THE A.O. HAS ALREADY REOPENED ASSESSMENT OF TW O EARLIER YEARS ON THIS ISSUE AND THEREFORE, HE SET ASIDE THE MATTER T O THE FILE OF THE A.O. TO DECIDE THE SAME IN TOTALITY. IT WAS FOUND THAT FRAUD AMOUNT RELATES TO VARIOUS YEARS. BUT IN OUR CONSIDERED OPINION, T HIS CANNOT BE AN ERROR IN THE ASSESSMENT ORDER. 22. GROUND NO. 7 TAKEN FOR REVISION IS REGARDING AL LEGATION THAT THE A.O. HAS NOT EXAMINED THE GENUINENESS OF TRADING LO SS. 23. THE LD. CIT HAS NOTICED THAT THE ASSESSEE HAS I NCURRED LOSS IN TRADING OF VISCOSE FIBRE BUT THE A.O. HAS NOT EXAMI NED THE GENUINENESS AND CIRCUMSTANCES OF SUCH TRADING LOSS. CASE OF THE ASSESSEE IS THAT THESE TRANSACTIONS ARE ON COST TO COST BASIS AND NO LOSS HAS INCURRED THEREIN. AS PER THE LD. CIT(A) NO PRUDENT BUSINESS MAN WOULD ENTER THE TRANSACTION INCURRING LOSS OR YIELDING NO PROFI T TO HIM. THEREFORE, 31 HE HAS FOUND THAT THIS AS AN ERROR IN THE ASSESSMEN T ORDER. IT WAS NOTICED THAT THE ASSESSEE HAD FURNISHED THE STATEME NT OF PURCHASE AND SALE IN RESPECT OF TRADED GOODS. THE A.O. HAS EXAM INED THE SAME AND HAS ACCEPTED THE SAME. THE ASSESSEE ALSO EXPLAINED THIS FACT BEFORE THE LD. CIT(A). THE TOTAL AMOUNT INVOLVED IN THIS TRANSACTION IS ONLY RS. 59.13 LAKHS WHEREAS THE TOTAL TURNOVER OF THE ASSES SEE IS RS. 44,983.42 LAKHS. WE HAVE FOUND THAT THE A.O. HAS EXAMINED TH IS ISSUE IN DETAIL IN HIS ORDER AND HAS REACHED ONE DECISION BY ADOPTING ONE OF THE TWO POSSIBLE VIEWS. THEREFORE, THIS CANNOT AMOUNT TO A N ERROR IN THE ORDER. THEREFORE, IN VIEW OF OUR FOREGOING DISCUSS ION IN THE LIGHT OF LEGAL POSITION, WE DO NOT FIND ANY OF THE GROUNDS T AKEN BY THE LD. CIT FOR REVISION TO LEAD TO ESTABLISH TWIN CONDITIONS A S LAID DOWN IN SECTION 263 OF THE ACT AS HAS BEEN DISCUSSED ABOVE. ACCORD INGLY, WE DO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THAT OF THE A.O. 24. IN THE RESULT THE APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 6 TH MAY 2013. SD/- SD [N.K. SAINI] [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 6 TH MAY, 2013. VL 32 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR ASSISTANT REGISTRAR