ADDL CIT RG 1(1), MUMBAI V. ACC LTD, MUMBAI

ITA 3787/MUM/2009

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93354 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2015
• Appeal Filed By: Department
• Bench Allotted: H
• Next Hearing Date: 09-10-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 11-06-2009
• Court: TRIBUNAL
• Department Lawyers: RUPINDER BRAR
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Depreciation; Earning of tax free income; Retrospective amendment; Cost of acquisition; Bad and doubtful debts; Difference of opinion; Capital receipt; Revised return; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 80HHC; 234B; 115JB; 92

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI H BENCH , , , BEFORE S/SH. JOGINDER SINGH,JUDICIAL MEMBER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.3787 / MUM/2009, / ASSESSMENT YEAR - 2002 - 03 DCIT - 1(1) ROOM NO.579, AAYAKAR BHAVAN MUMBAI - 400 020. VS M/S. ACC LTD. CEMENT HOUSE 121, M.K. ROAD , MUMBAI - 400 020. PAN: AAACT 1507 C ( / APPELLANT ) ( / RESPONDENT ) /. ITA NO.4241/MUM/2007, / ASSESSMENT YEAR - 2002 - 03 M/S. ACC LTD. CEMENT HOUSE 121, M.K. ROAD , MUMBAI - 400 020. PAN: AAACT 1507 C VS DCIT - 1(1) ROOM NO.579, AAYAKAR BHAVAN MUMBAI - 400 020. ( / APPELLANT ) ( / RESPONDENT ) /. ITA NO. /4987 MUM/2009, / ASSESSMENT YEAR - 200 3 - 04 DCIT - 1(1) ROOM NO.579, AAYAKAR BHAV AN MUMBAI - 400 020. VS M/S. ACC LTD. CEMENT HOUSE 121, M.K. ROAD , MUMBAI - 400 020. PAN: AAACT 1507 C /ASSESSEE BY :SHRI SOUMEN ADAK/ SHRI ASHISH JHAWAR/ SHRI KUNAL JAIN/SHRI ALPESH T. DHAROD / REVENUE BY : MS. RUPINDER BRAR - CIT - DR / DATE OF HEARING : 02 - 07 - 2015 / DATE OF PRO NOUNCEMENT : 29 - 07 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 04. 05.2007 OF THE CIT(A) - I,MUMBAI ,THE ASSESSING OFFICER(AO) AND THE ASSESSEE HAVE FIL ED CROSS APPEALS FOR AY.2002 - 03, RAISING VARIOUS GROUNDS OF APPEAL/ ADDITIONAL GROUND OF APPEAL: ITA NO.3787/MUM/2009(02 - 03) REVENUESAPPEAL: ON THE FACTS AND THE CIRCUMSTAN CES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING ONLY THE ADDITION OF RS.8,88,04,704/ TO CLOSING STOCK ON ACCOUNT OF UNUTILISED MODVAT CREDIT WITHOUT CONSIDERING THE FACT THAT SIMILAR ADDITION WAS MADE IN OPENING STOCK ALSO AND IN THE ASSESSMENT O RDER ONLY NET EFFECT IS GIVEN WHEREBY CLOSING STOCK VALUE IS REDUCED BY RS.46,62,319/ . ITA NO.4987/MUM/2007(02 - 03) REVENUESAPPEAL 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE IN RESP ECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS AT RS. 11,91,81,266/ IN COMPUTATION OF BOOK PROFIT U/S 115JB OF THE I. T ACT. ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 2 2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE IN RESPECT OF PRO VISION FOR DIRECTOR'S RETIREMENT BENEFIT AT RS. 2,84,53,850/ IN COMPUTATION OF BOOK PROFIT U/S 115JB OF THE ACT. 3.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE IN RESPECT OF EXCESS EXPEND ITURE ON VOLUNTARY RETIREMENT OF RS. 2,96,00,000/ IN COMPUTATION OF BOOK PROFIT U/S 115JB OF THE I TACT;' 4.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE IN RESPECT OF EXPENSES ON VRS PERTAI NING TO EARLIER YEARS OF RS. 17,97,32,434/ IN COMPUTATION OF BOOK PROFIT U/S 115JB OF THE I T ACT. 5.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE IN RESPECT OF EXPENSES CAPITAL EXPENDIT URE DEBITED TO P&L ACCOUNT OF RS.30,17,77,030/ IN COMPUTATION OF BOOK PROFIT U/S 115JB OF THE I T ACT. 6.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE IN RESPECT OF REVENUE GENERATED FROM TRIAL RUN PRODUCTION AT RS. 73,48,69,876/ IN COMPUTATION OF BOOK PROFIT U/S 115JB OF THE I T ACT. 7) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE IN RESPECT OF REVENUE EXPENDITURE O N TEMPORARY STRUCTURES AT CUSTOMER'S SITE OF RS. 49,94,501/ . 8) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE IN RESPECT OF SECTION 43B OF RS. 5,01,292/ . 9) ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF CAPITAL INVESTMENT OF RS. 12,10,000/ RECEIVED FROM THE GOVT. OF WEST BENGA1. 10) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, TH E LD. CIT(A) ERRED IN DELETING THE ADDITION IN RESPECT OF PROVISION FOR DEFERRED TAX OF RS. 20,50,00,000/ . 11) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DISCARDED CAPITAL ASSETS AND COST OF DISMANTLING AT RS. 1,33,95,494/ . 12) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE INTEREST LEVIED U] S 234D OF THE ACT AT RS. 52,74,381/ . 13) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE IN RESPECT OF NON COMPETE FEES OF RS. 75,00,000/ AND COMPENSATION FOR TERMINATION OF CONTRACT OF RS. 2,30,00,000/ RECEIVED ON SALE OF SH WERE S. 14) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF PROVISIONS FOR CONTINGENCIES OF RS. 11,00,00,000/ IN COMPUTATION OF BOOK PROFIT U/S 11SJB OF THE ACT.' 15)ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF PROFIT ON SALE OF FIXED ASSETS OF RS. 2,74,14,074/ IN COMPUTATION OF BOOK PROFIT U/S 115JB OF THE ACT.' 16)ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOW ING THE ASSESSEE'S CLAIM OF ADDITIONAL GRATUITY AMOUNTING TO RS. 1,93,13,467/ .' 17)ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE LEVIED U/S 234B OF THE I TACT. I8) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF PROVISION OF DIRECTOR'S RETIREMENT BENEFIT OF RS.2,84,53,850/ . 19) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT TH E SALES TAX SUBSIDY IS NOT TAXABLE IN COMPUTING THE TOTAL INCOME UNDER NORMAL PROVISIONS AS WELL AS IN COMPUTING THE TOTAL INCOME UNDER NORMAL PROVISIONS AS WELL AS IN COMPUTING BOOK PROFIT U/S 11SJB OF THE ACT, THEREBY ALLOWING ASSESSEE'S CLAIM OF SALES T AX EXEMPTION OFRS.S4,73,17,391/ . ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 3 20) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE ASSESSEE'S CLAIM OF THE DEDUCTION U/S 35DDA TO THE ASSESSEE AMOUNTING TO RS.1, 5 3,00,536/ ; THE APPELLANT PRAYS THAT T HE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ADDITIONAL GROUNDS OF APPEAL 1. 'ON THE FACTS AND IN THE CIRCUMSTA NCES OF THE CASE AND IN VIEW OF THE SUPREME COURT DECISION IN THE CASE OF GOETZ INDIA, THE LD. CIT(A) ERRED IN GIVING SUCH A DIRECTION TO THE ASSESSING OFFICER, THE EFFECT OF WHICH HAD REDUCED THE TOTAL INCOME TO LESS THAN THE RETURNED INCOME.' 2 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN VIEW OF THE DECISION OF THE APEX COURT IN THE CASE OF M/ S APPOLLO TYRES LTD. VS. CIT [2002] [255 ITR 273] [SC] , THE LD. CIT(A) ERRED IN DIRECTING TO DEDUCT EXEMPTED SALES TAX FOR COMPUTATION OF BOOK PROFI T U/S 115JB OF THE ACT.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) OUGHT NOT TO HAVE GRANTED THE RELIEF ON THE BASIS OF THE DECISION IN THE CASE OF RELIANCE INDUSTRIES LTD. AS THE FACTS OF THE APPELLANT CASE IS DIFFERENT FROM TH AT OF THE FACTS OF THE CASE RELIED ON BY THE LD. CIT(A) AS THE CASE : OF RELIANCE INDUSTRIES RELATES TO STATE OF MAHARASHTRA, WHEREAS IN THE ASSESSEE'S CASE THE SCHEMES RELATING TO OTHER STATES WERE DIFFERENT WHERE THE INCOME IS REVENUE IN NATURE.' 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN VIEW OF THE EXPRESS PROVISIONS OF SECTION 115JB OF THE ACT, THE ID. CIT(A) ERRED IN DIRECTING TO EXCLUDE TRANSFER TO DEBENTURE REDEMPTION RESERVE OF RS. 50 CRORES IN COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT.' THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO BE RESTORED. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ITA NO.4241/MUM/2007(02 - 03) AS SESSEES APPEAL : 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) ERRED IN CONFIRMING THE ADDITION OF DEFERRED TAX LIABILITY OF RS. 20,50,00,000/ IN COMPUTING BOOK PROFIT U/ S 115JB OF THE ACT. 2. THAT ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) GROSSLY ERRED IN NOT EXCLUDING PROFIT ON SALE OF INVESTMENTS OF RS. 9,12,95,418/ IN COMPUTATION OF BOOK PROFIT U/ S 115JB. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPE ALS) GROSSLY ERRED IN NOT EXCLUDING DEFERRED TAX LIABILITY(NET) OF RS. 212.49 CRORES, CREATED BY ADJUSTING AGAINST GENERAL RESERVE, IN COMPUTING BOOK PROFIT U/ S 115JB. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(APPEALS) GROSSLY ERRED IN INVOKING THE PROVISIONS OF SECTION 115JB, WHILE TAX PAYABLE UNDER NORMAL PROVISION OF THE ACT IS NIL. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF RAILWAYS / INSURANCE CLAIM S WRITTEN OFF IN THE PROFIT & LOSS ACCOUNT OF RS. 50,01,000/ IN COMPUTING TOTAL INCOME UNDER NORMAL PROVISIONS OF THE ACT. 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (APPEALS) ERRED IN CONFIRMING ALLOWANCE OF DEPRECIATION ALLO WED ON THE WRITTEN DOWN VALUE OF BLOCK OF ASSETS AS ON 01 04 2001 AS PER THE DEPARTMENT'S RECORD WITHOUT CONSIDERING THE FACT THAT THE APPELLANT HAD DISCLAIMED DEPRECIATION IN EARLIER YEARS. 7. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) ERRED IN ALLOWING DEPRECIATION ON CAPTIVE POWER PLANT ON WRITTEN DOWN VALUE METHOD INSTEAD OF ALLOWING THE SAME ON STRAIGHT LINE METHOD. 8. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. ERR (APPEALS) ERRED IN DISALLOWING THE DIVIDEND CHARGED TO THE PROFIT AND LOSS ACCOUNT OF RS. 51,23,59,905/ IN COMPUTING TOTAL INCOME UNDER NORMAL PROVISIONS OF THE ACT. 9. THAT THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND, MODIFY, RESCIND, SUPPLEMENT OR ALTER ANY OF THE GROUNDS STATED HER E IN ABOVE, EITHER BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 4 ASSESSEE - COMPANY,ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF CEMENT, FILED ITS RETURN OF INCOME ON 31.10.2002, DECLARING ITS INCOME AT RS. ( - )99.48CRORES. THE ASSESSING OFFICER (AO) FINALISED THE ASSESSMENT ON U/S.143(3)OF THE ACT ON DETERMINING ITS INCOME AT RS. ( - )8,11,61,032 / - UNDER THE NORMAL PROVISIONS AND AT RS.2,95,81,62,995/ - UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT. 2. FIRST GROUND OF APPEAL IS ABOUT D ELETION OF ADDITI ON IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS IN COMPUTING BOOK PROFIT U/S. 115IB OF THE ACT,AMOUNTING TO RS. 11,91,81,266/ - .WHILE COMPUTING THE INCOME U/S . 143(3)OF THE ACT THE AO ADDED THE PROVISION IN NORMAL COMPUTATION. HE ALSO MADE THE ADDITION ON ACCOUNT OF PROVISIONS WHILE COMPUTING THE BOOK PROFIT. THE AO HELD THAT T HE ASSESSEE HAD ADDED BACK PROVISION FOR INCOME - TAX, CONTINGENCIES AND EMPLOYEES INCENTIVES, MOUNT CARRIED TO GENERAL, AMORTIZATION AND DEBENTURE REDEMPTION RESERVE AND THE AMOUNT OF DIVIDEND PROVIDED WHILE CALCULATING THE INCOME FOR THE YEAR UNDER APPEAL . ON PERUSAL OF THE COMPUTATION OF INCOME U/S. 115JB OF THE ACT,HE FOUND THAT IT HA D NOT ADDED BACK THE FOLLOWING INCOMES/EXPENDITURE TO THE BOOK PROFIT .THE AO OBSERVED THAT THE FOL LOWING ITEM WERE EITHER NOT ASCERTAINED OR THEY D ID NOT PERTAIN TO THE PERIOD UNDER CONSIDERATION, THAT SAME NEEDED TO BE ADDED TO THE BOOK PROFIT TO BE DETERMINED UNDER THE PROVISIONS O F THE SECTION 115JB OF THE ACT.THE ITEMS IDENTIFIED BY THE AO WERE - 1. P ROVIS ION FOR BAD AND DOUBTFUL DEBTS ( 11.92 CRORES ), 2. PROVISION FOR DIRECTOR'S RETIREMENT BENEFITS ( 2.8 5 CRORES ),3: EXCESS EXPENDITURE ON VRS ( 2.96 CRORES ),4. VR S PERTAINING TO EARLIER YEARS(17.97 CRORES ),5.CAPITAL EXPENDITURE DEBITED( 30.18 CRORES )AND 6. REVEN UE GENE RATED FROM TRIAL RUN PRODUCTION( 73.49 CRORES ).AFTER CONSIDERING THE REPLY OF THE ASSESSEE ,THE AO FINALLY MADE AN ADDITION OF RS. 11,91,81,266/ - TO THE ITS TOTAL INCOME,WHILE COMPUTING THE INCOME UNDER THE MAT PROVISIONS. 2.1. AGGRIEVED BY THE ORDER O F THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORTIY(FAA).AFTER CONSIDERING THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE ASSESSEE ,THE FAA HELD THAT PROVISION FOR BAD AND DOUBTFUL DEBT WAS DIMINUTION IN THE VALUE OF ASSETS AND N OT LIABILITY ,THAT ADDITION MADE IN COMPUTING TOTAL INCOME UNDE R NORMAL PROVISIONS OF THE ACT WA S NOT RELEVANT FOR THE PURPOSE OF BOOK PROFIT COMPUTATION U/S 115JB. RELYING UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT DELIVERED IN THE CASE OF ECHJAY FO RGINGS (P) LTD. (251 ITR 15) , HE DELETED THE ADDITION MADE BY THE AO. 2.2. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE AO .AUTHORISED REPRESENTATIVE(AR) RELIED UPON THE ORDER OF THE FAA AND REFERRED TO THE JUDGMENT OF ECHJAY FORGI NGS (P) LTD. (SUPRA). WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT IN THE FACTS OF THE CASE OF ECHJAY FORGINGS(SUPRA) WERE THAT I N COMPUTING THE BOOK PROFITS OF THE ASSESSEE - COMPANY UNDER SECTION 115J OF THE ACT,THE A O HAD DISALLOWED THE DEDUCTIONS CLAIMED BY THE ASSESSEE ON ACCOUNT OF PAYMENT OF WEALTH - TAX,PROVISIONS FOR DOUBTFUL DEBTS, GRATUITY, BONUS AND AMOUNTS DEBITED TO THE PROFIT AND LOSS ACCOUNT IN RESPECT OF FOREIGN EXCHANGE RATE DIFFERENCE, ON THE GROUND THAT THE ABOVE ITEMS WERE TO BE ADDED BACK TO THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT UNDER THE EX PLANATION TO SECTION 115J(1A) . THE TRIBUNAL HELD THAT THE DISALLOWANCES MADE BY THE DEPARTMENT UNDER SECTION 115J WERE IMPERMISSIBLE.DECIDING THE A PPEAL FILED BY THE DEPARTMENT,THE HONBLE COURT HELD AS UNDER: (I) THAT SINCE CLAUSE (A) OF THE EXPLANATION DOES NOT CONTEMPLATE WEALTH TAX, THE NET PROFITS COULD NOT BE INCREASED BY THE AMOUNT OF WEALTH TAX PAID BY THE ASSESSEE. (II) THAT THERE WAS NO MAT ERIAL BEFORE THE COURT IN SUPPORT OF THE CONCLUSIONS DRAWN BY THE ASSESSING OFFICER THAT THE PROVISION FOR DOUBTFUL DEBTS MADE BY THE ASSESSEE WAS IN RESPECT OF AN ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 5 UNASCERTAINED LIABILITY, NOR HAD THE DEPARTMENT DISPUTED THE ASSESSEES CLAIM THAT IT WAS AN ASCERTAINED LIABILITY. THE AMOUNT COULD NOT BE INCLUDED IN THE NET PROFITS. (III) THAT SINCE THE PROVISION FOR GRATUITY WAS MADE ON THE BASIS OF ACTUARIAL CALCULATIONS, IT WAS AN ASCERTAINED LIABILITY AND THE SAID AMOUNTS COULD NOT BE ADDED TO THE NET PROF ITS. (IV) THAT THE PROVISION FOR PAYMENT OF BONUS TO THE EMPLOYEES IN ACCORDANCE WITH THEPAYMENT OF BONUS ACT WAS AN ASCERTAINED LIABILITY AND, THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE SAME WAS NOT LIABLE FOR INCLUSION WHILE WORKING OUT TH E BOOK PROFITS UNDER SECTION115J. (V) THAT ALTHOUGH, NORMALLY, UNDER THE PROVISIONS OF THEINCOME TAX ACT THE INCREASE IN THE LIABILITY FOR PURCHASE PRICE OF PLANT AND MACHINERY DUE TO FLUCTUATIONS IN THE FOREIGN EXCHANGE RATES IS TAKEN AS ON CAPITAL ACCOUN T, THE SAME IS DEBITED TO THE PROFIT AND LOSS ACCOUNT UNDER THECOMPANIES ACT. WHILE APPLYING SECTION115J, THE ASSESSING OFFICER HAD TO GO BY THE COMPUTATION OF BOOK PROFITS AS PERMITTED UNDER THECOMPANIES ACT. BOOK PRO FITS WERE THE NET PROFITS AS SHOWN IN THE PROFIT AND LOSS ACCOUNT PREPARED IN ACCORDANCE WITH SCHEDULE VI TO THECOMPANIES ACTSUBJECT TO CERTAIN ADJUSTMENTS. SINCE THE AMOUNT ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIONS HAD BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH THECOMPA NIES ACT, THE SAME COULD NOT BE ADDED BACK TO THE NET PROFIT OF THE ASSESSEE. 3 .NEXT GROUND OF APPEAL DEALS WITH D ELETION OF ADDITION IN RESPECT OF PROVISION FOR DIRECTOR'S RETIREMENT BENEFIT IN COMPUTING BO OK PROFIT U/S.115JB OF THE ACT,AMOUNTING TO RS. 2.84 CRORES. FOLLOWING THE JUDGMENT OF ECHJAY FORGINGS (P) LTD. ( SUPRA ) ,THE FAA DELETED THE ADDITION MADE BY THE AO. 3.1. BEFORE US,THE AR STATED THAT ADDITION OF PROVISION FOR DISCRETIONARY TERMINAL BENEFITS IN THE FORM OF ADDITIONAL GRATU ITY IN COMPUTING BOOK PROFIT U/ S 115J HAD BEEN DELETED BY THE TRIBUNAL IN ASSESSEE'S OWN CASE IN AY. 1990 - 91( ITA NO. 2361/MUM./95 ).HE FURTHER RELIED UPON THE CASES OF NATIONAL H YDRO ELECTRIC POWER CORPORATION (45 DTR 117 ) , HEWLETT PACKARD INDIA (P.) LTD. ( 314 ITR 55 L) ,BECHTEL INDIA (P) LTD. ( 2 DTR 145 ) AND DRESSER VALVE INDIA (P) LTD. (30 SOT 495 ) WE HAVE PERUSED THE MATERIAL AND FOLLOWING OUR ORDER FOR GROUND NO.1 WE UPHOLD THE ORDER OF THE FAA WHO HAD DECIDED THE ISSUE IN PURSUANCE OF THE JUDGMENT OF THE JURISDICTIONAL HIGH C OURT. GROUND NO.2 ,RAISED BY THE AO,STANDS DISMISSED. 4. GROUND NO.3 ALSO IS ABOUT COMPUTING OF BOOK PROFIT U/S. 115JB OF THE ACT WITH REGARD TO EXPEN - DITURE INCURRED BY THE ASSESSEE ON VOLUNTARY RETIREMENT IN OF RS . 2,96,00,000/ - .DURING THE ASSESSMENT PR OCEEDINGS,THE AO FOUND THAT THE T HE ASSESSEE HAD ADDED EXPENDITURE O N VOLUNTARY RETIREMENT SCHEME FOR THE AY.S. 2001 - 02 & 2002 - 03 D EBITED TO THE PROFIT AND LOSS A CCOUNT IN COMPUTING TOTAL INCOME UNDER NORMAL PROVISIONS.SINCE IT W AS ADDED IN NORMAL COMPUT ATI ON, THE ADDITION WAS ALSO MADE BY THE AO WHILE COMPUTING THE BOOK PROFIT . RELYING ON THE DECISION OF THE APEX COURT, DELIVERED IN THE CASE OF APOLLO TYRES LTD.(255 ITR 273),THE FAA DELETED THE ADDITI ON MADE BY THE AO. 4.1. BEFORE US,THE AR RELIED UPON THE CASE THAT FIND PLACE IN THE EARLIER PARAGRAPHS OF OUR ORDER.HE ALSO REFERRED TO THE MATTERS OF USHA MARTIN INDUSTRIES LTD. ( 104 ITD 249) AND NICHOLAS PIRAMAL INDIA LTD. ( 147 ITD 675). WE FIND THAT THE ORDER OF THE FAA IS BASED ON THE JUDGMENT OF THE HONBL E SUPREME COURT AND THE TRIBUNAL HAS IN THE CASE OF NICHOLAS PIRAMAL INDIA LTD. ( SUPRA)HAS DECIDED THE ISSUE OF VRS IN FAVOUR OF THE ASSESSEE . S O,IN OUR OPINION,HIS ORDER DOES NOT SUFFER FROM ANY LEGA L INFIRMITY.UPHOLDING HIS ORDER, WE DECIDE GROUND NO.3 AGAI NST THE AO. 5. DELETING THE ADDITION MADE IN RESPECT OF VRS EXPENDITURE PERTAINING TO EARLIER YEARS IN COMPUTING BOOK PROFIT U/S. 115IB OF THE ACT OF RS. 17 . 97 CRORES IS THE NEXT GROUND OF ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 6 APPEAL FILED BY THE AO.THE ASSESSEE HAD DEBITED L/5 TH OF THE EXPENDIT URE ON V RS AY.S. 1998 - 99 TO 2000 - 01 AND HAD ADDED THE SAME IN COMPUTING TOTAL INCOME UNDER NORMAL PROVISIONS.SINCE IT W AS ADDED IN NORMAL COMPUTATION, THE ADDITION WAS ALSO MADE IN COMPUTING BOOK PROFIT . AS THE FACTS WITH REGARDING THE GROUND ARE SIMILAR TO THE EARLIER GROUND,SO,FOLLOWING IT WE DECIDE GROUND NO.4 AGAINST THE AO. 6. NEXT GROUND PERTAINS TO D ELETION OF ADDITION MADE IN RESPECT OF CA PITAL EXPENDITURE DEBITED TO P&L ACCOUNT IN COMPUTING B OOK PROFIT U/S 115JB OF THE ACT AMOUNTING TO RS. 30,17,7 7,030 .THE ASSESSEE HAD INCURRED FOLLOWING CAPITAL EXPENDITURE, DEBITED TO PROFIT & LOSS A/C. PARTICULARS AMOUNT ( RS. ) ASSETS WRITTEN OFF 76,14,747 WRITE DOWN IN VALUE OF ASSETS 25,00,71,405 EXPENDITURE ON ASSETS NOT OWNED BY THE COMPANY 1,07,302 LOSS ON SALE OF ASSETS 8,50,734 LOSS ON SALE OF INVESTMENTS 4,30,02,282/ - STAMP DUTY ON LAND 1,30,020 TOTAL 30,17,77,030 THE ABOVE EXPENDITURE HAD BEEN DISCLOSED IN CLAUSE 17(A) OF THE TAX AUDIT REPORT AND SAME WERE ADDED TO TOTAL INCOME WHILE COMPUTING INC OME UNDER THE NORMAL PROVISIONS OF THE ACT.THE AO MADE THE ADDITION OF THE ABOVE ITEMS UNDER THE MAT PROVISIONS.THE FAA DELETED THE ADDITION R ELYING ON THE DECISION OF THE APEX COURT IN APOLLO TYRES LTD. ( SUPRA ) . FOLLOWING OUR ORDERS FOR THE EARLIER GROUND S , WE DISMISS THIS GROUND ALSO,AS IT ALSO DEALS WITH COMPUTATION OF INCOME U/S.115JB OF THE ACT. 7. DELETION OF ADDITI ON MADE IN RESPECT OF REVENUE GENERATED FROM TRIAL RUN PRODUCTION IN COMPUTATION OF BOOK PROFITS U/S .115JB OF THE ACT OF RS.73,48,69,876/ - IS THE SUBJECT MATTER OF THE GROUND NO.6.THE AO NOTED THAT THE S ALES DURING TRIAL RUN PRODUCTION OF N EW WADI PLANT OF THE ASSESSEE WAS RE DUCED FROM ASSETS CAPITALIS ED IN THE BOOKS OF ACCOUNTS. IN COMPUT - ING TOTAL INCOME, THE SAME WAS CLAIMED BY ADDING IT IN THE BLOCK OF ASSETS.SINCE IT WAS ADDED IN NORMAL COMPUTATION, SO THE ADDITION WAS ALSO MADE IN BOOK PROFIT BY THE AO. 7.1. IN THE APPELLATE PROCEEDINGS,THE FAA HELD THAT THE TREATMENT IN THE BOOKS OF ACCOUNTS WAS IS AS PER GUIDANCE NOTE ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, THAT SAME WAS NOT DISPUTED BY THE AO,THAT THE ADDITION MADE BY HIM WAS NOT TENABLE IN VIEW OF THE DECISION OF THE APEX COURT IN THE CASE OF APOLLO TYRES LTD. ( SUPRA ). WE FIND THAT T HE ADDITION MADE BY THE AO DOES NOT FALL UNDER ANY OF THE CLAUSES SPECIFIED UNDER THE EXPLANATI ON TO SECTION 115JB OF THE ACT. THEREFORE, IN VIEW OF THE DECISION OF THE APOLLO TYRES LTD.( SUPRA ), WE DISMISS THE GROUND RAISED BY THE AO. 8. NEXT GROUND DEALS WITH ALLOWAN CE OF EXPENDITURE ON TEMPORARY STRUCTURES AT CUSTOMERS SITE , AMOUNTING TO RS. 49,94,501/ - .DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD INCURRED EXPENDITURE IN SETTING UP TEMPORARY STRUCTURES AT CLIENT SITE FOR MANUFACTURE OF READY MIX CONCRETE (RMC) ,THAT T HE EXPENDITURE IS CHARGED OFF IN THE BOOKS PROPORTIONATE TO THE NUMBER OF M 3 PRODUCED TO THE TOTAL NO. OF M 3 AWARDED IN THE CONTRACT ,THAT T HE AMOUNT DEBITED WAS CLAIMED AS ALLOWABLE EXPENDITURE .HE HELD THAT T HE EXPENDITURE OF RMC PL ANTS REPRESENT ED CAPITAL EXPENSE ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 7 AND WAS ELIGIBLE FOR DEPRECIATION. 8.1. IN THE APPELLATE PROCEEDINGS THE FAA HELD THAT T HE EXPENDITURE HAD BEEN INCURRED FOR SETTING UP TEMPORARY ARRANGEMENT FOR PROVIDING RMC TO THE CONTRACTORS AT THEIR LOCATION ,THAT IT WA S S REVENUE IN NATURE AND WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 8.2. BEFORE US,THE DR SUPPORTED THE ORDER OF THE AO.THE AR CONTENDED THAT R EVENUES APPEAL ON IDENTICAL ISSUE HAD BEEN REJECTED BY THE ITAT, WHILE DECIDING THE APPEAL FOR THE AY .S.20 00 - 01 AND 01 - 02.(ITA/ 9570/M/04 AND ITA / 4562/M/07 )HE ALSO REFERRED TO THE DECISIONS OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF HIND CONSTRUCTION AND ENGINEERING CO. LTD. ( 147ITR513 ) AND INDUST RIAL CABLES(INDIA)LTD.( 254 ITR 267 ). 8.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE TRIBUNAL HAS DEALT THE ISSUE WHILE DECIDING THE APPEALS FOR THE AY.2000 - 01 IN FOLLOWING MANNER: 18.THE THIRD DISPUTE IS REGARDING ALLOWABILITY OF CLAIM OF EXPENDITURE IN RESPE CT OF TEMPORARY STRUCTURES AMOUNTING TO RS.52,07,469/ . THE ASSESSEE HAD INCURRED EXPENDITURE ON SETTING UP OF TEMPORARY STRUCTURES AT CLIENT SITES FOR MANUFACTURE OF READY MIX CONCRETE (RMC). THE ASSESSEE HAD CLAIMED EXPENDITURE AS REVENUE IS NATURE. THE AO HOWEVER HELD THAT TEMPORARY STRUCTURES WERE IN EXISTENCE FOR MORE THAN 12 MONTHS AND WERE OF THE NATURE OF PLANT AND MACHINERY. HE, THEREFORE, TREATED THE SAME AS CAPITAL IN NATURE AND ALLOWED DEPRECIATION @ 25% CIT(A) HOWEVER HELD THAT THE EXPENDITURE HAD BEEN INCURRED FOR SETTING UP OF TEMPORARY ARRANGEMENT FOR PROVIDING RMC TO CONTRACTORS AT THE CLIENTS SITES. IT WAS ALSO OBSERVED BY HIM THAT EXPENDITURE HAD BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. CIT(A) THEREFORE ALLOWED TH E CLAIM AS REVENUE EXPENDITURE AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 7. THE NEXT GROUND PERTAINS TO DISALLOWANCE OF EXPENDITURE ON TEMPORARY STRUCTURE AT CUSTOMER SITE. WE NOTE THAT CAPITAL COST OF RMC PLANT HAS BEEN DULY CAPITAL IZED IN THE BOOKS AND THE TEMPORARY STRUCTURES ON SITE, WHICH IS NOT OWNED BY THE ASSESSEE HAS NO RELEVANCE ONCE THE JOB AT THE SITE IS OVER/COMPLETED. IDENTICAL VIEW WAS TAKEN FOR ASSESSMENT YEAR 2000 01, THUS, IN THE ABSENCE OF ANY CONTRARY FACTS WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. CIT(A). RESPECTFULLY,FOLLOWING THE ABOVE WE DECIDE GROUND NO.7AGAINST THE AO. 9. NEXT GROUND OF APPEAL IS WITH REGARD TO D ELETION OF THE DISALLOWANCE MADE IN RESPECT OF 43B OF THE ACT OF RS.5,01,292/ - .DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD DEPOSITED EMPLOYEE'S CO NTRIBUTION TO ESIC OF RS.502/ - FOR THE MONTH OF MA RCH'02 WITH A DELAY OF 12 DAYS,THAT IT HAD DEPOSITED EMPLOYER'S CONTRIBUTION TO PENSION FUND OF RS. 5,00,790/ - FOR THE M ONTH OF APRIL 0L ON 14 - 05 - 2001 AND THAT THE CHEQUE WAS REALIZED ON 09 - 06 - 2001 .CONSIDERING THESE FACTS THE MADE A D ISALLOWANCE OF THE DISPUTED SUM ON THE GROUND THAT THERE HAD BEEN DELAY IN PAYMENT OF THE AMOUNT BY THE ASSESSEE. 9. 1.IN THE APPELLATE PROCEED INGS,THE FAA DELETED THE DISALLOWANCE OF EMPLOYER'S CONTRIBUTION TO PENSION FUND OF RS. 5,00,790/ - IN VIEW OF SEE. 43B. HOWEVER, DISALLOWANCE ON ACCOUNT OF DELAY IN EMPLOYEE'S CONTRIBUTION TO ESIC WAS CONFIRMED. 9.2. BEFORE US,THE DR SUPPORTED THE ORDER OF THE AO.THE AR CONTENDED THAT T HE SECOND PROVISO TO SEC.43B, WHICH PROVIDED FOR DISALLOWANCE OF EMPLOYER'S CONTRIBUTION TO ANY FUND FOR THE WELF WERE OF EMPLOYEES IF NOT PAID BEFORE THE DUE DATE SPECIFIED IN SEC .36(1)(VA) WAS D ELETED BY THE FINANCE AC, 2003,T HAT THE ISSUE WA S FAVOURABLY COVERED BY THE DECISION OF HON'BLE APEX COURT DELIVERED IN THE CASE OF ALOM EXTRUSIONS LTD. ( 319ITR306 )WHEREIN IT WAS HELD THAT OMISSION OF SECOND PROVISO AND THE CORRESPONDING AMENDMENT OF FIRST PROVISO BY FINANCE ACT, 2003,WER E CURATIVE IN NATURE AND WERE EFFECTIVE RETROSPECTIVELY W.E.F. 1ST APRIL, 1988, THAT THE CONTRIBUTION OF RS. 5, 00, 790/ - HAD BEEN DEPOSITED BEFORE THE DUE DATE OF FILLING OF RETURN OF INCOME U/ S 139(1), DEDUCTION SHOULD BE ALLOWED IN COMPUTING TAXABLE INC OME .HE REFERRED TO THE CASES OF VINAY CEMENT ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 8 LTD. ( 213CTR268), B.D.P.S SOFTW WERE LTD. ( 340 ITR 375 ) , DEVIDAYAL (SALES) PVT. LTD. ( 3 SOT 814 ) . AFTER HEARING THE RIVAL SIDES WE ARE OF THE OPINION THAT THE ISSUE IS SQUARELY COVERED AGAINST THE AO BY THE CASES CIT ED BY THE AR.RESPECTFULLY,FOLLOWING THE ABOVE WE DECIDE GROUND NO.8 AGAINST THE AO. 10. GROUND NO.9 IS ABOUT S UBSIDY RECEIVED FROM GOVERNMENT OF WEST BENGAL OF RS.12,10,000/ - . THE AO FOUND THAT THE ASSESSEE HAD RECEIVED CAPITAL INVESTMENT SUBSIDY FROM THE GOVERNMENT OF WEST BENGAL FOR SETTING UP MANUFACTURING UNIT UNDER THE WEST BENGAL INCENTIVE SCHEME, 1993. HE HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE WA S NOT ALLOCABLE TOWARDS ANY CAPITAL ASSET AND WA S IN THE NA TURE OF INCENTIVE WHICH WA S A TAXABLE RECE IPT . 10.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA. DURING THE COURSE OF THE APPELLATE PROCEEDINGS,THE ASSESSEE ARGUED THAT THE AFORESAID SUBSIDY IS IN THE NATURE OF CAPITAL RECEIPTS IN ITS HAND S,BEING GRANTED UNDER ' WEST BENGAL INCENTIVE SCHEME, 1993' FOR THE PURPOSE OF SETTING UP OF INDUSTRIES ,THAT THE ISSUE IN DISPUTE WA S COVERED IN ITS FAVOUR BY THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF P.I. CHEMICALS L TD. ( 210ITR830) WHEREIN IT HAS BEEN HELD THAT WHERE G OVERNMENT SUBSIDY WA S INTENDED AS AN INCENTIVE TO ENCOURAGE ENTREPR ENEURS TO ESTABLISH INDUSTRIES, THE SPECIFIED PERCEN TAGE OF THE FIXED CAPITAL COST,WHICH WA S THE BASIS OF DETERMINING THE SUBSIDY, BEING ONLY A MEASURE ADOPTED UNDER THE SCHEME TO QUANTIFY T HE FINANCIAL A ID,IS NOT A PAYMENT, DIRECTLY OR INDIRECTLY, TO MEET ANY PORTION OF THE 'ACTUAL COST'. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISIONS IN THE CASE OF RELIANCE INDUSTRIES LTD. ( 88 ITD 273 MUM . SB) WHEREIN IT HAS BEEN HELD THAT THE OBJECT FOR W HICH THE SUBSIDY IS GIVEN IS DECISIVE. THE ASSESSEE ALSO REFERRED TO THE CASE OF M/S AMBUJA CEMENT EASTERN LTD. ( ITA NO. 2293/KOL/2005 ) . AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER,THE FAA HELD THAT THE SUBSIDY SO RECEIVED WAS O N CAPITAL ACCOUNT AND WAS AN INCENTIVE FOR INDUSTRIALIS ATION. THE SAID CONTENTION IS ALSO SUPPORTED BY THE DECISION IN THE CASE OF P.I. CHEMICALS LTD. (SURA) RELIANCE INDUSTRIES LTD. (SUPR A) AND M/S AMBUJA CEMENT EASTERN LTD.(SUPRA).FURTHER, SIMILAR ISSUE HAS BEEN ALLOWED IN FAVOUR OF THE APPELLAN T BY MY OWN ORDER IN APPEAL NO.CIT(A) - I/IT/87 /04 - 05 FOR AY . 2001 - 02.HENCE, THE ADDITION MADE BY THE A.O. IS DELETED AND THIS GROUND OF APPEAL IS ALLOWED. 10.2. THE DR SUPPORTED THE ORDER OF THE AO AND STATED THAT NAT URE OF THE SUBSIDY WAS NOT LOOKED IN TO PROPERLY BY THE FAA. .THE AR STATED THAT THE AOS APPEAL ON IDENTICAL ISSUE HAD BEEN REJECTED BY THE ITAT, WHILE DECIDING THE APPEAL FOR THE AY.20 01 - 02 ( ITA NO. 4562/M/07 ). HE ALSO RELIED UPON THE ORDER OF THE KOLKATA ITAT DELIVERED IN THE CASE OF ANKIT INDIA LIMITED [ITA / 330/KOL/2010 ) WHEREIN SALES TAX REMISSION GRANTED UNDER THE SAME SCHEME OF STATE OF WEST BENGAL HAD BE EN HELD TO BE CAPITAL IN NATURE, THAT THE HONBLE KOLKATA HIGH COURT HAD DISMISSED THE APPEAL OF THE REVENUE AND HAD HELD THAT INCENTIVE OF SALES TAX REMISSION GRANTED UNDER T HE SCHEME IS CAPITAL IN NATURE. AR RELIED UPON THE CIRCULAR NO. 142 DATED 01 - 08 - 1974 ISSUED BY CBDT AND THE CASES OF RASOI LTD. ( 245CTR 667 ), P.I.CHEMICALS LTD. (210 ITR 830 ), PO NN ANI S UGARS & CHEMICALS LTD. ( 306 ITR 392 ) . 10.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE DISPUTED AMOUNT WAS RECEIVED BY THE ASSESSEE UNDER A PARTICULAR SCHEME - I.E. WEST BENGAL INCENTIVE SCHEME,1993.WE FIND THAT THE FAA HAD RELIED UPON VARIOUS CASE LAWS AND DECIDED THE ISSUE WITHOUT EXAMINING THE WHOLE SCHEME.ON A QUERY BY THE BENCH THE AR INFORMED THAT THE MATTER OF RELIANCE INDUSTRIES LTD.WAS SENT BACK BY THE HONBLE SUPREME COURT TO THE HONBLE BOMBAY HIGH COURT T O DECIDE AFRESH AFTER CONSIDERING THE PROVISIONS OF THE SCHEME.IN OUR OPINION,ANY SCHEME IN ITSELF CANNOT BE TREATED REVENUE OR CAPITAL IN NATURE - TO ARRIVE AT A ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 9 DEFINITE CONCLUSION ONE HAS TO CONSIDER THE SCHEME IN ENTIRETY.WE FEEL THAT THE ISSUE NEEDS FUR THER INVESTIGATION.THEREFORE,IN THE INTEREST OF JUSTICE,THE ISSUE IS RESTORED BACK TO THE FILE OF THE AO WHO WOULD DECIDE THE MATTER AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE AND AFTER ANALYSING THE SCHEME.GROUND NO.9 IS DECIDED I N FAVOUR OF THE AO,IN PART. 11. DELETION OF ADDITION MADE IN RESPECT OF PROVISION FOR DEFERRED TAX(RS. 20.50CRORES) IS THE SUBJECT MATTER OF THE NEXT GROUND.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT T HE ASSESSEE HAD ADDED PROVISION FOR DEFERRED TAX IN COMPUTING TOTAL INCOME UNDER NORMAL PROVI SIONS AS AMOUNT DISALLOWABLE U/ S . 40(A) OF THE ACT . ON VERIFICATION OF T HE FACT OF DOUBLE DISALLOWANCE, THE FAA DELETED THE ADDITION OF PROVISION FOR DEFERRED TAX. 11.1. THE AR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH.THE AR STATED THAT A S PER THE ANNEXURE - 10 OF THE TAX AUDIT REPORT AGGREGATE DISALLOWANCE U/S 40(A) OF RS.35,82,33,019/ - [RS. 36,04,35,860/ - LESS RS. 22,02,841/ - ] WAS ARRIVED AFTER INCLUDING PROVISION FOR DEFERRED TAX LIABILITY OF RS. 20,50,00,00 0/ - ,THAT I N COMPUTATION OF TOTAL INCOME THE ASSESSEE HAD ADDED BACK THE ENTIRE DISALLOW ANCE U/ S .40(A) OF RS.35,82,33,019/ - , THAT WHILE FRAMING THE ASSESSMENT ORDER THE AO HAD AGAIN ADDED BACK THE DEFERRED TAX LIABILITY RESULT ING INTO DOUBLE DISALLOWANCE. W E FIND THAT THE FAA HAD,AFTER VERIFYING THE FACT,DELETED THE ADDITION AND THEREFORE IN OUR OPINION THERE IS NO INFIRMITY IN HIS ORDER.SO,CONFIRMING HIS ORDER GROUND RAISED BY THE AO IS REJECTED. 12. NEXT GROUND DEALS WITH D ELETION OF THE DISALLOWANCE OF DI SCARDED CAPITAL ASSETS AND COST OF DISMANTLING ( RS.1,33,95,494/ - ).THE AO FOUND THAT THE ASSESSEE HAD OFFERED THE RECEIPTS FROM SCRAPED OLD AND UNSERVICEABLE ASSETS TO TAX AND HAD CLAIM ED THE EXPENDITURE INCURRED TO FACILITATE SUCH EARNINGS.HE DISALLOWED TH E EXPENDITURE CLAIMED BY THE ASSESSEE . FOLLOWING THE ORDER OF EARLIER YEARS, FA A DELETED THE ADDITIONS MADE BY THE AO. 12.1. BEFORE US,REPRESENTATIVES OF BOTH THE SIDES AGREED THAT THE IDENTICAL C LAIM FOR EARLIER YEARS IN ASSESSEES OWN CASE HAD BEEN ALLOWED BY ITAT IN AY. S. 1991 - 92 - (ITA/ 1 1 05/MUM/97 ), 1992 - 93 - (ITA/ 3961/MUM/97 ), 1996 - ( I TA/ 3783/MUM/00 ), 1997 - 98 (ITA/ 3298/M/0L )AND1999 - 00 , ( ITA 7594/M/04 )AND THAT THE DECISIONS OF THE ITAT IN A Y . S . 91 - 92 TO 92 - 93 ,96 - 97, 97 - 98 & 99 - 00 HAD NOT BEEN CHALLENGED BEFORE THE H ONBLE H IGH C OURT. AS THE ORDERS FOR THE EARLIER AY.S. OF THE TRIBUNAL HAVE ATTAINED FINALITY ,SO,R ESPECT FULLY FOLLOWING THE SAME, WE DECIDE GROUND NO.11AGAISNT THE AO. 13 .GROUND NO.12PERTAINS TO D ELETION OF INTE REST LEVIED U/S.234D OF THE ACT ( RS.52. 74 LAKHS ) . WHILE COMPLETING THE ASSESSMENT O RDER ,THE AO LEVIED INTEREST U/ S . 234D OF THE ACT. IN THE APPELLATE PROCEEDINGS THE FAA,F OLLOWING THE DECISION OF WEST COST PAPER MILLS LTD. (ITA NO. 275/MUM/05) DELETED THE OF INTEREST LEVIED U/ S . 234D OF THE ACT. THE DR LEFT T HE ISSUE TO THE DISCRETION OF THE BENCH AND THE AR SUPPORTED THE ORDER OF THE FAA.WE FIND THAT THE ISSUE IS CONSEQUENTIAL IN NATURE AND HENCE NEEDS NO INTERFERENCE FROM OUR SIDE. 14. NO COMPETE FEES(RS.75,LAKHS)AND COMPENSATION F OR TERMINATION OF CONTRACT( RS. 2,30, 00, 000/ - ) RECEIVED ON SALE OF SH WERE S IS THE SUBJECT MATTER OF NEXT GROUND . DURING THE ASSESSMENT PROCEEDINGS,T HE ASSESSEE HAD CLAIMED EXCLUSION OF NON COMPETE FEES AND COMPENSATION OF TERMINATION OF CONTRACT RECEIVED ON SALE OF SHWERES OF FLOAT G LASS LTD. AS CAPITAL RECEIPT AND HENCE NOT PART OF SALES CONSIDERATION IN COMPUTING LONG TERM CAPITAL GAIN .THE AO REJECTED THE CLAIM MADE BY THE ASSESSEE . ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 10 14.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.AFTER CONSID ERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER,HE HELD THAT CONSIDERATION RECEIVED IS ON ACCOUNT OF TRANSFER OF RIGHT TO CARRYON ANY BUSINESS WAS TAXABLE, UNDER SECTION 55(2)(A) AND SECTION 28(VA) W.E.F. 01 - 04 - 2003 , I.E. FROM AY 2003 - 04 ONWARD S ,THAT PROVISIONS OF THE SAID SECTIONS WERE NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. 14.2. BEFORE US,THE DR SUPPORTED THE ORDER OF THE AO.THE DR RELIED UPON THE CASES OF GUFFIC CHEM(P)LTD. (33 2ITR602 ) , WINTAC LTD ( 360ITR614 ) , N WERENDRA D.DE SAI ( 214CTR190), REAL IMAGE PVT. LTD.( 359ITR 606 ) K.CHANDRAKANTH KINI ( 347 ITR 388 ) AND STATED THAT THE PAYMENT RECEIVED AS NON - COMPETE FEES HAD TO BE TREATED AS A CAPITAL RECEIPT TILL AY. 2003 - 04. 14.3. WE FIND THAT IN THE CASE OF WINTAC LTD.(SUPRA)THE KARNATAKA HI GH COURT HAD, FOLLOWING THE JUDGMENT OF GUFFIC CHEM(SUPRA)HELD THAT THE COMPENSATION RECEIVED FOR RESTRAINING THE ASSESSEE FROM CARRYING ON COMPETITIVE BUSINESS WAS A CAPITAL RECEIPT. WE ALSO FIND THAT THE HONBLE APEX COURT HAD IN THE MATTER OF GUFFIC CHEM HAS HELD AS UNDER: PAYMENT RECEIVED AS NON COMPETITION FEE UNDER A NEGATIVE COVENANT WAS ALWAYS TREATED AS A CAPITAL RECEIPT TILL THE ASSESSMENT YEAR 2003 04. IT IS ONLY VIDE THE FINANCE ACT, 2002 WITH EFFECT FROM APRIL 1, 2003 THAT THE SAID CAPITAL RECE IPT IS NOW MADE TAXABLE (SEE SECTION 28(VA)). THE FINANCE ACT, 2002 ITSELF INDICATES THAT DURING THE RELEVANT ASSESSMENT YEAR COMPENSATION RECEIVED BY THE ASSESSEE UNDER NON COMPETITION AGREEMENT WAS A CAPITAL RECEIPT, NOT TAXABLE UNDER THE 1961 ACT. IT BE CAME TAXABLE ONLY WITH EFFECT FROM APRIL 1, 2003. IT IS WELL SETTLED THAT A LIABILITY CANNOT BE CREATED RETROSPECTIVELY. IN THE PRESENT CASE, COMPENSATION RECEIVED UNDER THE NON COMPETITION AGREEMENT BECAME TAXABLE AS A CAPITAL RECEIPT AND NOT AS A REVENUE RECEIPT BY SPECIFIC LEGISLATIVE MANDATE VIDE SECTION 28(VA) AND THAT TOO WITH EFFECT FROM APRIL 1, 2003. HENCE, THE SAID SECTION 28(VA) IS AMENDATORY AND NOT CLARIFICATORY. RESPECTFULLY,FOLLOWING THE ABOVE DECISIONS,WE DECIDE THE OF NON COMPETE FEE AGAIN ST THE AO. NOW,WE WOULD TAKE UP THE ISSUE OF COMPENSATION FOR TERMINATION OF THE CONTRACT .BEFORE US, THE AR STATED THAT THE C OMPENSATIO N FOR TERMINATION OF CONTRACT WAS AKIN TO CONSIDERATION RECEIVED FOR TRANSFER OF RIGHT TO CARRY ON THE BUSINESS ,THAT RIGH T TO CARRY ON ANY BUSINESS WAS TAXABLE AS CAPITAL GAIN W.E.F A.Y. 2003 - 04 ,THAT THE ABOVE RECEIPT SHOULD BE TREATED AS CAPITAL RECEIPT. HE RELIED UPON THE CASES OF H.L. TANEJA ( 7SOT387 ) ,T.S. MANOCHA( 5SOT277 ) ,N. SANDEEP REDDY ( 95ITD 33 ) .WE FIND THAT THE PROVISIO NS OF SECTION 55(2)(A)AND SECTION 28(VA) WERE NOT APPLICABLE DURING THE YEAR UNDER APPEAL.THEREFORE,CONFIRMING THE ORDER OF THE FAA,WE DECIDE GROUND NO.14 AGAINST THE AO. 15. NEXT GROUND OF APPEAL PERTAINS TO PROVISION FOR CONTINGENCIES IN COMPUTATION OF B OOK PROFIT U/S 115JB RS.11,00,00,000/ - .DURING THE COURSE OF HEARING BEFORE US,THE AR FAIRLY CONCEDED THAT T HE ISSUE WA S COVERED AGAINST IT DUE TO INS ERTION OF CLAUSE (I) TO EXPL.1 TO SE C . 115 JB VIDE FINANCE ACT, 2009 W.R.E.F.01 - 04 - 2001. CONSIDERING THE ABO VE,WE DECIDE GROUND NO.14 IN FAVOUR OF THE AO. 16. GROUND NO.15 IS ABOUT P ROFIT ON SALE OF FIXED ASSETS IN COMPUTATION OF BOOK PROFIT U/S 115JB OF THE ACT OF RS.2,74,14,074/ - .BEFORE THE AO,THE A SSESSEE HAD CLAIMED EXCLUSION OF PROFIT ON SALE OF FIXED ASSE TS (NET) IN COMPUTING BOOK PROFIT. WHILE COMPLETING THE ASSESSMENT.HOWEVER, THE FAA ALLOWED THE APPEAL OF THE ASSESSEE . 16.1. THE DR SUPPORTED THE ORDER OF THE AO.THE AR REFERRED TO THE JUDGMENTS OF NORTHERN INDIA THEATERS(P)LTD. ( 133CTR 326 ) , INDIA DISCOUNT CO .L TD. (75ITR 191 ) , SHOORJI VALLABHDAS & CO . ( 46 ITR144 ) .HOWEVER, HE FAIRLY CONCEDED THAT THE ISSUE BEFORE US WAS DECIDED AGAINST THE ASSESSEE IN AY.S.1998 - 99 TO 2001 - 02 ,THAT THE TRIBUNAL HAD FOLLOWED THE DECISION OF RAIN COMMODITIES LTD. ( 41DTR449 ). ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 11 WE FIND THAT THE TRIBUNAL HAS DEALT THE ISSUE IN EARLIER YEARS AND HAS DECIDED THE ISSUE AGAINST THE ASSESSEE .HERE WE WOULD LIKE TO REPRODUCE THE RELEVANT PART OF THE DECISION OF RAIN COMMODITIES LTD.OF HYDERABAD TRIBUNAL (SUPRA)AND SAME READS AS UNDER: 18. WE HAVE CO NSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD AND THE CASE LAWS RELIED UPON BY BOTH THE PARTIES. WE HAVE TAKEN INTO CONSIDERATION THE RATIO DECIDENDI OF ALL THE DECISIONS RELIED UPON BY THE RIVAL PARTIES. THE OMISSION OF REFE RENCE TO SOME OF THE CASES IN THE ORDER IS EITHER DUE TO THEIR IRRELEVANCE OR TO RELIEVE THE ORDER FROM THE REPETITIVE NATURE OF THE DECISIONS. UNDER MINIMUM ALTERNATE TAX (MAT) PROVISIONS, THE AO IS CONCERNED WITH THE ADJUSTMENTS TO BE MADE WITH THE NET P ROFIT AS SHOWN IN THE P&L A/C. ONE OF THE MOOT QUESTIONS RELEVANT TO THE ISSUE BEFORE US IS WHETHER THE AO HAS POWER TO ALTER THE NET PROFIT ? IN OUR CONSIDERED OPINION, YES. WE AGREE THAT IT IS SETTLED LAW THAT AO HAS THE POWER TO ALTER THE NET PROFIT. IN THE FOLLOWING TWO CASES, THE AO CAN REWRITE THE P&L A/C I.E. TO SAY THAT AO SHOULD RECALCULATE THE NET PROFIT AND THEN FOLLOW THE ADJUSTMENTS OF MAT AS USUAL : (1) IF IT IS DISCOVERED THAT P&L A/C IS NOT DRAWN UP IN ACCORDANCE WITH PART II AND PART III OF SCH. VI OF THE COMPANIES ACT. HOWEVER, THE AO CANNOT DISTURB THE NET PROFIT AS SHOWN BY THE ASSESSEE WHERE THERE ARE NO SUCH ALLEGATIONS, FRAUD OR MISREPRESENTATION BUT ONLY A DIFFERENCE OF OPINION AS TO WHETHER A PARTICULAR AMOUNT SHOULD BE PROPERLY SHOW N IN THE P&L A/C OR IN THE BALANCE SHEET, (2) IF ACCOUNTING POLICIES, ACCOUNTING STANDARDS ARE NOT ADOPTED FOR PREPARING SUCH ACCOUNTS AND METHOD, RATES OF DEPRECIATION WHICH HAS BEEN INCORRECTLY ADOPTED FOR PREPARATION OF P&L A/C LAID BEFORE THE ANNUAL GE NERAL MEETING. EXCEPT FOR THE ABOVE TWO CASES, THE AO HAS NO POWER TO ALTER THE NET PROFIT SHOWN BY THE COMPANIES FOR THE PURPOSE OF COMPUTING THE BOOK PROFIT. THUS IT IS CLEAR THAT UNDER MAT, THE AO SHOULD TAKE THE NET PROFIT AS COMPUTED BY THE ASSESSEE A ND THEN MAKE THE ADJUSTMENTS UNDER S. 115JB OF THE ACT. IT IS COMMON THAT SOME COMPANIES FOLLOW AN ACCOUNTING YEAR UNDER THE COMPANIES ACT, 1956 WHICH IS DIFFERENT FROM THE FINANCIAL YEAR UNDER IT ACT, 1961. THESE COMPANIES GENERALLY PREPARE TWO SETS OF AC COUNTS'ONE FOR COMPANIES ACT AND ANOTHER FOR IT ACT. THE REASON BEING DIFFERENT ACCOUNTING POLICIES, STANDARDS, DEPRECIATION METHODS AND RATES ARE ADOPTED IN TWO SETS OF ACCOUNT SO THAT HIGHER PROFIT IS REPORTED TO SHAREHOLDERS AND LOWER PROFIT FOR THE IT AUTHORITIES. TO CURB THE ABOVE PRACTICE ONLY THIS RECALCULATION OF NET PROFIT UNDER MAT WAS INCORPORATED SO THAT THERE SHOULD BE A CONSISTENCY IN ACCOUNTING POLICIES, STANDARDS, METHODS AND RATES OF DEPRECIATION WITHIN THE KNOWLEDGE OF IT AUTHORITIES. 20. IT IS EVIDENT FROM ABOVE THAT, THE MOOT QUESTION THAT NEEDS TO BE DECIDED IS WHETHER PARTS II AND III OF SCH. VI TO THE COMPANIES ACT PERMIT THE EXCLUSION OF THE CAPITAL GAIN FROM THE P&L A/C OR NOT ? IN OTHER WORDS, CAN A P&L A/C DRAWN UP WITHOUT CONSIDE RING THE CAPITAL GAIN SAID TO BE IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCH. VI TO THE COMPANIES ACT OR NOT ? XXXXXXX 22. THE ISSUE WHETHER CAPITAL GAINS HAD TO BE INCLUDED IN BOOK PRO FITS AROSE BEFORE THE BOMBAY HIGH COURT IN THE CASE OF VEEKAYLAL INVESTMENT (SUPRA). IN THAT CASE, THE COURT HELD THAT IF FOR COMPUTING THE TOTAL INCOME UNDER THE NORMAL PROVISIONS, THE CAPITAL GAIN COMPUTED UNDER S. 45 OF THE ACT HAS TO BE TAKEN INTO ACCO UNT, IT WAS NOT UNDERSTOOD HOW IN COMPUTING THE BOOK PROFITS UNDER S. 115J OF THE ACT, THE ASSESSEE COULD EXCLUDE CAPITAL GAIN. THE ASSESSEE IS REQUIRED TO TAKE INTO ACCOUNT INCOME BY WAY OF CAPITAL GAIN UNDER S. 45 OF THE ACT. IN THE CIRCUMSTANCES, WHILE COMPUTING THE BOOK PROFITS UNDER THE COMPANIES ACT, THE ASSESSEE HAS TO INCLUDE CAPITAL GAIN FOR COMPUTING THE BOOK PROFITS UNDER S. 115J. EVEN UNDER CL. 3(XII) OF PART II OF SCH. VI TO THE COMPANIES ACT, 1956, PROFITS OR LOSSES IN RESPECT OF TRANSACTIONS OR TRANSACTIONS OF AN EXCEPTIONAL OR NON RECURRING NATURE ARE TO BE DISCLOSED. THIS SHOWS CLEARLY THAT CAPITAL GAIN SHOULD BE INCLUDED FOR THE PURPOSES OF COMPUTING BOOK PROFITS. IN THE CASE OF APOLLO TYRES (SUPRA) THE APEX COURT HELD THAT THE WORDS 'IN AC CORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCH. VI TO THE COMPANIES ACT' WERE MADE FOR THE PURPOSE OF EMPOWERING THE ASSESSING AUTHORITY TO RELY UPON THE AUTHENTIC STATEMENTS OF ACCOUNTS OF THE COMPANY. IT WAS HELD THAT WHILE DOING SO, LOOKING INT O THE ACCOUNTS OF THE COMPANY, THE AO HAS TO ACCEPT THE AUTHENTICITY OF THE ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 12 ACCOUNTS WITH REFERENCE TO THE PROVISIONS OF THE COMPANIES ACT WHICH OBLIGATES THE COMPANY TO MAINTAIN ITS ACCOUNTS IN A MANNER PROVIDED BY THE COMPANIES ACT AND THE SAME TO BE SCR UTINIZED AND CERTIFIED BY THE STATUTORY AUDITORS AND WILL HAVE TO BE APPROVED BY THE COMPANY IN ITS GENERAL MEETING AND THEREAFTER TO BE FILED BEFORE THE ROC WHICH HAS A STATUTORY OBLIGATION ALSO TO EXAMINE AND SATISFY THAT THE ACCOUNTS OF THE COMPANY ARE MAINTAINED IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIES ACT. IT WAS HELD THAT IF THESE PROCEDURES WERE COMPLIED WITH, IT WAS NOT OPEN TO THE AO TO RE SCRUTINIZE THIS ACCOUNT AND SATISFY HIMSELF THAT THESE ACCOUNTS HAVE BEEN MAINTAINED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT. THE SAME VIEW WAS REITERATED IN THE CASE OF MALAYALA MANORAMA CO. LTD. VS. CIT (2008) 216 CTR (SC) 102 : (2008) 6 DTR (SC) 1 : (2008) 300 ITR 251 (SC) BY THE APEX COURT. XXXXXXXXXXXX 24. IT IS UNDISPUTED FACT THAT THE LONG TERM CAPITAL GAIN EARNED BY THE ASSESSEE IS INCLUDED IN THE NET PRO FIT DETERMINED AS PER P&L A/C PREPARED AS PER PART II AND PART III OF SCH. VI TO THE COMPANIES ACT. IN OTHER WORDS, IT IS NOT THE CASE OF THE ASSESSEE THAT THE CAPITAL GAIN EARNED BY THE ASSESSEE WAS NOT INCLUDED IN THE NET PROFIT DETERMINED AS PER P&L A/C OF THE ASSESSEE PREPARED UNDER THE COMPANIES ACT. AS PER THE AUDITED ACCOUNTS OF THE ASSESSEE, THE STATUTORY AUDITORS HAVE REPORTED THAT AMONGST OTHERS, THAT IN THEIR OPINION, THE P&L A/C AND THE BALANCE SHEET ARE IN COMPLIANCE WITH THE ACCOUNTING STANDAR DS REFERRED TO IN SUB S. (3C) OF S. 211 OF THE COMPANIES ACT, AND FURTHER REPORTED THAT THE BALANCE SHEET AND P&L A/C READ TOGETHER WITH THE NOTES THEREON, GIVE THE INFORMATION REQUIRED BY THE COMPANIES ACT, 1956 IN THE MANNER SO REQUIRED AND GIVE A TRUE A ND FAIR VIEW IN CONFORMITY WITH THE ACCOUNTING PRINCIPLES GENERALLY ACCEPTED. AS PER AUDITED P&L A/C, THE ASSESSEE HAS INCLUDED LONG TERM CAPITAL GAIN. IN THE NOTES ON ACCOUNTS, IT IS NOWHERE MENTIONED AND CLAIMED THAT THOUGH THE LONG TERM CAPITAL GAIN IS INCLUDED IN THE P&L A/C BUT IT IS NOT INCLUDIBLE IN THE NET PROFIT IN TERMS OF PROVISIONS OF PART II AND PART III OF SCH. VI TO THE COMPANIES ACT OR THE ACCOUNTING PRINCIPLES ACCEPTED UNDER THE COMPANIES ACT. HENCE, IT IS NOT A CASE OF THE ASSESSEE THAT TH E LONG TERM CAPITAL GAIN WAS NOT INCLUDIBLE IN THE P&L A/C PREPARED IN TERMS OF SCH. VI TO THE COMPANIES ACT. ONLY IN THE COMPUTATION OF BOOK PROFIT UNDER S. 115JB OF THE ACT, THE ASSESSEE CLAIMED EXCLUSION OF LONG TERM CAPITAL GAIN WHICH IS EXEMPT UNDER S . 47(IV) OF THE ACT. IT IS DUE TO FACT THAT THE ASSESSEE CLAIMED DEDUCTION OF LONG TERM CAPITAL GAIN FROM BOOK PROFIT BY VIRTUE OF BEING EXEMPTED INCOME IN THE NORMAL PROVISIONS OF THE ACT AND NOT BECAUSE OF THE REASON THAT THE SAME WAS NOT INCLUDIBLE IN P &L A/C PREPARED UNDER PART II AND PART III OF SCH. VI TO THE COMPANIES ACT. IN THE CIRCUMSTANCES, WHEN THE ASSESSEES THEMSELVES HAVE INCLUDED THE CAPITAL GAINS ARISING FROM SALE OF SUBSIDIARY IN THE PROFIT AND LOSS, THE SAME CANNOT BE EXCLUDED UNDER ANY OF THE EXPLANATIONS UNDER S. 115JB. AT THIS POINT IT IS NOT NECESSARY FOR US TO DWELL UPON THE SITUATION, WHERE THE ASSESSEE HAS DIRECTLY CREDITED THE PROFIT ON SALE OF ASSET TO A RESERVE ACCOUNT. THE PROVISO TO S. 115JB PRESCRIBES THAT THE ACCOUNTING POLICI ES, ACCOUNTING STANDARDS AND THE METHOD AND RATES OF DEPRECIATION ADOPTED FOR PREPARING THE BOOK PROFITS UNDER S. 115JB SHALL BE THE SAME AS ADOPTED FOR THE PURPOSE OF PREPARING SUCH ACCOUNTS INCLUDING P&L A/C AND LAID BEFORE THE COMPANY AT ITS ANNUAL GENE RAL MEETING. THEREFORE WHATEVER ACCOUNTING POLICY ADOPTED FOR THE PURPOSE OF PREPARING THE P&L A/C LAID BEFORE THE COMPANY SHOULD BE ADOPTED FOR COMPUTING BOOK PROFITS UNDER S. 115JB. CAPITAL GAINS ON SALE OF SHARES WERE INCLUDED IN COMPUTING THE PROFITS P RESENTED BEFORE THE SHAREHOLDERS AND THE SAME SHOULD ALSO BE INCLUDED IN COMPUTING BOOK PROFITS UNDER S. 115JB. THE KERALA HIGH COURT IN THE CASE OF N.J. JOSE & CO. (P) LTD. VS. ASSTT. CIT (SUPRA) HAS HELD THAT CAPITAL GAINS, EVEN THOUGH EXEMPT UNDER THE NORMAL PROVISIONS OF INCOME TAX UNDER S. 54E CANNOT BE EXCLUDED WHILE COMPUTING BOOK PROFITS. THEY HAVE OBSERVED : '.. WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE ASSESSEE, BECAUSE THE ASSESSMENT UNDER CHAPTER XII B ON BOOK PROFITS IS A SELF CONTAINED CODE. THE SCHEME THEREUNDER IS TO ADOPT THE P&L A/C OF THE ASSESSEE PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCH. VI TO THE ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 13 COMPANIES ACT, 1956 AND TO TREAT THE NET PROFIT SHOWN THEREIN AS BOOK PROFIT. THE PERMISSIBLE ADJUSTMENTS I N THE FORM OF ADDITIONS AND DEDUCTIONS ARE PROVIDED UNDER EXPLANATION TO S. 115J(1A) OF THE ACT. NO MORE DEDUCTIONS, REBATES OR ALLOWANCES OTHER THAN WHAT IS STATED IN THE SAID EXPLANATION ARE AVAILABLE FOR THE COMPUTATION OF BOOK PROFIT. IN FACT, IT IS VE RY CLEAR FROM THE NON OBSTANTE CLAUSE IN S. 115J(1) THAT THE ASSESSMENT UNDER S. 115J OVERRIDES OTHER PROVISIONS OF THE ACT. IN FACT, ONLY WHEN THE TOTAL INCOME COMPUTED UNDER THE PROVISIONS OF THE ACT IS BELOW 30 PER CENT OF THE BOOK PROFIT OF THE ASSESSE E AS CONTEMPLATED UNDER THE SAID SECTION. WHILE DEDUCTIONS, REBATES AND ALLOWANCES ARE AVAILABLE IN THE COMPUTATION OF INCOME FOR NORMAL ASSESSMENT, ADDITIONS, DEDUCTIONS AND ADJUSTMENTS EXCEPT TO THE EXTENT COVERED BY THE EXPLANATION TO S. 115J(1A) ARE NO T AVAILABLE IN THE COMPUTATION OF BOOK PROFIT. IN OTHER WORDS, ONCE THE AO FINDS THAT TOTAL INCOME AS COMPUTED UNDER THE PROVISIONS OF THE ACT IS LESS THAN 30 PER CENT OF THE BOOK PROFIT, HE HAS TO GIVE UP NORMAL ASSESSMENT AND PROCEED TO MAKE ASSESSMENT. THE AO HAS TO OPT FOR THE ASSESSMENT UNDER S. 115J WHICH DOES NOT PROVIDE FOR ANY DEDUCTION IN TERMS OF S. 54E OF THE ACT. THE ASSESSEE HAS NO CASE THAT THE LONG TERM CAPITAL GAIN IS NOT PROFIT INCLUDIBLE IN THE P&L A/C PREPARED IN TERMS OF SCH. VI OF THE COMPANIES ACT. SINCE THERE IS NO PROVISION IN CHAPTER XII B FOR DEDUCTION OF CAPITAL GAINS IN THE COMPUTATION OF BOOK PROFIT, THE ASSESSEE IS NOT ENTITLED TO THE DEDUCTION CLAIMED. THE BOMBAY HIGH COURT IN THE DECISION IN CIT VS. VEEKAYLAL INVESTMENT CO. ( P) LTD. (2001) 166 CTR (BOM) 96 : (2001) 249 ITR 597 (BOM) ALSO TOOK THE VIEW THAT CAPITAL GAINS IS PART OF PROFIT WHICH CANNOT BE EXCLUDED IN THE COMPUTATION OF BOOK P ROFIT. EVEN THOUGH LEARNED SENIOR COUNSEL FOR THE ASSESSEE CONTENDED THAT THE CASE DECIDED BY THE BOMBAY HIGH COURT DID NOT INVOLVE CLAIM OF EXEMPTION ON CAPITAL GAINS UNDER S. 54E OF THE ACT, WE DO NOT THINK THIS DISTINCTION MAKES ANY DIFFERENCE BECAUSE S O LONG AS LONG TERM CAPITAL GAINS IS PART OF PROFIT INCLUDED IN THE P&L A/C PREPARED UNDER CHAPTER VI OF THE COMPANIES ACT, IT CANNOT BE EXCLUDED UNLESS SO PROVIDED UNDER EXPLANATION TO S. 115J(1A) OF THE ACT. IN THE ABSENCE OF ANY PROVISION FOR EXCLUSION OF CAPITAL GAINS IN COMPUTATION OF BOOK PROFIT UNDER THE ABOVE PROVISION, ASSESSEE IS NOT ENTITLED TO THE EXCLUSION CLAIMED. IN OTHER WORDS, S. 54E HAS NO APPLICATION IN THE COMPUTATION OF BOOK PROFIT UNDER S. 115J.' XXXXXXXXX THE DELHI COURT IN THE CASE CIT VS. SAIN PROCESSING & WEAVING MILLS (P) LTD. (2009) 221 CTR (DEL) 493 : (2009) 17 DTR (DEL) 215 HAS HELD THAT 'COMPANY 'BOOK PROFIT UNDER S.115J'DEPRECIATION NOT DEBITED TO P&L A/C'IT IS OBLIGATORY UNDER CL. 3(IV) OF PART II OF SCH. VI TO THE COMPANIES ACT TO GIVE INFORMATION WITH REGARD TO DEPRECIATION WHICH HAS NOT BEEN PROVIDED FOR, ALONG WITH THE QUANTUM OF ARREARS'ONC E THIS INFORMATION IS DISCLOSED IN THE NOTES TO THE ACCOUNTS, IT WOULD CLEARLY FALL WITHIN THE AMBIT OF THE EXPLANATION TO S. 115J'NOTES TO THE ACCOUNTS FORM PART OF THE P&L A/C BY VIRTUE OF SUB S. (6) OF S. 211 OF THE COMPANIES ACT AND THUS THE DEPRECIATI ON WHICH IS NOT CHARGED TO P&L A/C BUT IS DISCLOSED IN THE NOTES TO THE ACCOUNTS WOULD COME WITHIN THE AMBIT OF THE EXPRESSION 'SHOW IN THE P&L A/C' OCCURRING IN EXPLANATION TO S. 115J'FURTHER, THE NET PROFIT OF A COMPANY CANNOT BE DETERMINED TILL ALL THE ITEMS OF INCOME AND EXPENSES AS WELL AS DEPRECIATION ARE TAKEN INTO ACCOUNT'DEPRECIATION, EVEN IF NOT DEBITED TO THE P&L A/C HAS TO BE TAKEN INTO ACCOUNT WHILE DETERMINING 'BOOK PROFIT' UNDER S. 115J AS LONG AS IT FORMS PART OF THE PRESCRIBED ACCOUNTS'THAT APART, S. 205(1), PROVISO (B) OF THE COMPANIES ACT R/W CL. (IV) OF EXPLANATION TO S. 115J PERMITS REDUCTION OF NET PROFIT TO THE EXTENT OF PAST LOSSES OR UNABSORBED DEPRECIATION, WHICHEVER IS LESS'IF UNABSORBED DEPRECIATION CAN BE REDUCED FROM THE NET PRO FIT TO ARRIVE AT BOOK PROFIT, THERE IS NO REASON WHY CURRENT YEAR'S DEPRECIATION WHICH IS NOT CHARGED TO THE P&L A/C CANNOT BE DEDUCTED FROM THE NET PROFIT IN DETERMINING BOOK PROFIT.' XXXXXXX 25. IT I S TO BE NOTED THAT THE ASSESSEE HAS NOT MADE ANY CLAIM OF DEDUCTION OF LONG TERM CAPITAL GAIN FROM THE BOOK PROFIT, WHICH GOES TO SHOW THAT CAPITAL GAIN AS SUCH IS NOT DEDUCTIBLE FROM THE NET PROFIT PREPARED IN ACCORDANCE WITH PARTS II AND III OF SCH. VI T O THE COMPANIES ACT. MOREOVER, THE TAXABILITY OF CAPITAL GAIN IS RELEVANT ONLY FOR THE PURPOSE OF COMPUTATION OF INCOME UNDER THE NORMAL PROVISIONS OF IT ACT, AND HAS NOTHING TO DO WITH THE PREPARATION OF P&L A/C IN ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 14 ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCH. VI TO THE COMPANIES ACT. UNDER THESE CIRCUMSTANCES, AS LONG AS LONG TERM CAPITAL GAIN IS PART OF PROFIT INCLUDED IN THE P&L A/C PREPARED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN PARTS II AND III OF SCH. VI TO THE COMPANIES ACT, IT CANNOT BE EXCLUDED FROM THE NET PROFIT UNLESS SO PROVIDED UNDER EXPLANATION TO S. 115JB OF THE ACT FOR THE PURPOSE OF COMPUTING BOOK PROFIT UNDER S. 115JB OF THE ACT. IN THE ABSENCE OF ANY PROVISION FOR EXCLUSION OF CAPITAL GAINS IN THE COMPUTATION OF BOOK PROFIT UNDER THE ABOVE PROVISION, THE ASSESSEE IS NOT ENTITLED TO THE EXCLUSION CLAIMED. IN OTHER WORDS, S. 47(IV) OF THE ACT HAS NO APPLICATION IN THE COMPUTATION OF BOOK PROFIT UNDER S. 115JB OF THE ACT WHEREAS SECTION LIKE 80HHC ETC., FINDS PLACE IN TH E EXCLUSION ITEM. 26. IT IS THE CASE OF THE ASSESSEE THAT SINCE THE CAPITAL GAIN ARISING FROM THE TRANSFER OF A LONG TERM CAPITAL ASSET WAS EXEMPT TO THE ASSESSEE IT SHALL NOT BE CHARGED TO TAX AS SO PROVIDED IN S. 47(IV) OF THE ACT, AND AS SUCH THE SAME IS TO BE REDUCED FROM THE NET PROFIT DETERMINED IN THE P&L A/C PREPARED THE ASSESSEE WHILE COMPUTING 'BOOK PROFIT' WITHIN THE MEANING OF S. 115JB OF THE ACT. THE LEARNED COUNSEL FOR THE ASSESSEE STRONGLY CONTENDED THAT THE PROVISIONS CONTAINED IN SUB S. (5 ) OF S. 115JB OF THE ACT TO CONTEND THAT SINCE ALL OTHER PROVISIONS OF THIS ACT SHALL ALSO APPLY TO EVERY ASSESSEE, BEING A COMPANY, MENTIONED IN THE S. 115JB OF THE ACT, THE ASSESSEE IS ENTITLED TO REDUCE THE LONG TERM CAPITAL GAIN EXEMPTED UNDER S. 47(IV ) OF THE ACT. FOR THIS PROPOSITION THE ASSESSEE RELIES ON THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF FRIGSALES (SUPRA). IN THAT CASE, IT IS NOTED BY THE TRIBUNAL IN PARA 3.2 OF ITS ORDER THAT THE CAPITAL GAIN EARNED BY THE ASSESSEE BEING EXEMPT UND ER S. 50 OF THE ACT WILL NOT FORM PART OF THE NORMAL TAXABLE INCOME, AND WHEN THE RECEIPT IS NOT IN THE NATURE OF TAXABLE INCOME, IT CANNOT BE TAXED AS INCOME UNDER S. 115JA OF THE ACT. THE TRIBUNAL APPLIED THE PROVISIONS OF SUB S. (4) OF S. 115JA, WHICH P ROVIDES THAT 'SAVE AS OTHERWISE PROVIDED IN THIS SECTION (S. 115JA), ALL OTHER PROVISIONS OF THE ACT SHALL APPLY', IN TAKING A VIEW THAT ALL OTHER PROVISIONS OF THE ACT WOULD CONTINUE TO OPERATE AND, THEREFORE, THE EXEMPT INCOME UNDER S. 50 WOULD REMAIN EX EMPTED AS PER THE PROVISIONS OF SUB S. (4) OF S. 115JA. THE TRIBUNAL FURTHER OBSERVED THAT IN S. 115JA, A NEW SUB S. (4) HAS BEEN BROUGHT ON THE STATUTE, WHICH WAS NOT THERE IN S. 115J, AND SUB S. (4) HAS BEEN INTRODUCED FIRST TIME IN S. 115JA. THE TRIBUNA L, THEREFORE, HAD TAKEN A VIEW THAT THE OPERATION OF NON OBSTANTE CLAUSE IS NOW LIMITED ONLY TO DETERMINE BOOK PROFITS AND THE BOOK PROFITS SO DETERMINED HAVE TO BE TAXED TAKING INTO CONSIDERATION THE OTHER PROVISIONS OF THE ACT. IN OTHER WORDS, THE TRIBUN AL HELD THAT S. 115JA IS A PART OF THE ACT NOW AND THE EXEMPTION ALLOWED BY ONE PROVISION OF THE ACT CANNOT BE TAKEN AWAY BY ANOTHER PROVISION OF THE ACT, AND, THUS, IN THAT CASE, THE TRIBUNAL HELD THAT IF THE EXEMPTION ALLOWED UNDER S. 50 WAS TAKEN AWAY W HILE TAXING THE BOOK PROFITS UNDER S. 115JA, IT WOULD MAKE THE PROVISION OF S. 50 REDUNDANT. IN THIS DECISION, A REFERENCE TO THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. VEEKAYLAL INVESTMENT CO. (P) LTD. (SUPRA) WAS MADE BUT THE SAME W AS NOT DISCUSSED OR DELIBERATED UPON OR RELIED UPON BY THE TRIBUNAL BY OBSERVING THAT THIS DECISION WAS RENDERED AS PER THE PROVISIONS OF S. 115J, WHICH IS A SELF CONTAINED CODE, THOUGH A NEW SUB S. (4) HAS BEEN INSERTED FIRST TIME IN S. 115JA OF THE ACT. WE HAVE CAREFULLY GONE THROUGH THE AFORESAID DECISION OF THE TRIBUNAL IN THE CASE OF ITO VS. FRIGSALES (INDIA) LTD. (SUPRA). WE HAVE ALSO PERUSED THE PROVISIONS OF SS. 115J, 115JA AND 115JB OF THE ACT. ALL THESE SECTIONS ARE DEEMING PROVISIONS. SEC. 115J H AS OVERRIDING EFFECT OVER ALL OTHER PROVISIONS OF THE ACT. SECS. 115JA AND 115JB HAVE ALSO OVERRIDING EFFECT OVER ALL OTHER PROVISIONS OF THE ACT TO THE EXTENT OF MATTER PROVIDED IN THESE SECTIONS. SUB S. (4) WAS INSERTED IN S. 115JA OF THE ACT. A PROVISIO N SIMILAR TO SUB S. (4) OF S. 115JA WAS NOT THERE IN S. 115J OF THE ACT. SUB S. (4) OF S. 115JA READS AS 'SAVE AS OTHERWISE PROVIDED IN THIS SECTION, ALL OTHER PROVISIONS OF THE ACT SHALL APPLY'. IT IS, THUS, CLEAR THAT ALL OTHER PROVISIONS OF THE ACT SHAL L APPLY BUT SUBJECT TO THE PROVISIONS OTHERWISE PROVIDED IN S. 115JA OF THE ACT. IN OTHER WORDS, THE PROVISIONS SPECIFICALLY PROVIDED IN S. 115JA SHALL HAVE OVERRIDING EFFECT OVER ALL OTHER PROVISIONS OF THE ACT. THE PROVISION FOR COMPUTING BOOK PROFIT BY INCREASING OR REDUCING THE NET PROFIT AS SHOWN IN THE P&L A/C PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PART II AND PART III OF SCH. VI OF THE COMPANIES ACT ARE SPECIFICALLY PROVIDED IN S. 115J OR 115JA OR 115JB ITSELF AS THE CASE ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 15 MAY BE, AND CONSEQUEN TLY ALL OTHER PROVISIONS OF THE ACT PROVIDING THE MANNER OF COMPUTATION OF TOTAL INCOME UNDER NORMAL PROVISIONS OF THE ACT CANNOT BE APPLIED WHILE COMPUTING BOOK PROFIT UNDER S. 115J OR 115JA OR 115JB, AS THE CASE MAY BE. WE DO NOT FIND ANY DIFFERENCE BETW EEN S. 115J OR 115JA OR 115JB INSOFAR AS METHODS OF COMPUTATION OF BOOK PROFIT AS PROVIDED IN EXPLANATION APPENDED THERETO ARE CONCERNED. THE TRIBUNAL IN THE CASE OF ITO VS. FRIGSALES (INDIA) LTD. (SUPRA) HAS NOT APPLIED THE RATIO OF DECISION OF HON'BLE SU PREME COURT IN THE CASE OF APOLLO TYRES LTD. (SUPRA) AND HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. VEEKAYLAL INVESTMENT CO. (P) LTD. (SUPRA) FOR THE REASON THAT THESE DECISIONS WERE RENDERED IN THE CONTEXT OF PROVISIONS OF S. 115J OF THE ACT, BUT TH E FACT REMAINS THAT THE PROPOSITIONS LAID DOWN BY HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES (SUPRA) HAVE BEEN REITERATED AND RELIED UPON BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. HCL COMNET SYSTEMS & SERVICES LTD. (SUPRA) WHICH HAS BEEN R ENDERED IN THE CONTEXT OF S. 115JA OF THE ACT. AS PER SUB S. (5) OF S. 115JB OF THE ACT, WHICH READS AS 'SAVE AS OTHERWISE PROVIDED IN THIS SECTION, ALL OTHER PROVISIONS OF THIS ACT SHALL APPLY TO EVERY ASSESSEE, BEING A COMPANY, MENTIONED IN THIS SECTION' . HAVING REGARD TO EXPRESSION 'SAVE AS OTHERWISE PROVIDED IN THIS SECTION' USED IN THIS SUB S. (5) OF S. 115JB OF THE ACT, WE ARE OF THE CONSIDERED OPINION THAT THE EXPRESSION 'SAVE AS OTHERWISE PROVIDED IN THIS S. 115JB' CLEARLY MEANS THAT WHAT IS PROVIDE D IN S. 115JB SHOULD BE RELIGIOUSLY FOLLOWED AND ANYTHING OVER AND ABOVE THE MATTER PROVIDED IN S. 115JB WILL BE SUBJECT TO OTHER PROVISIONS OF THE ACT. THE PROVISIONS OF S. 115JB HAVE AN OVERRIDING EFFECT UPON OTHER PROVISIONS OF THE ACT AS IS EVIDENT FRO M THE SECTION ITSELF. THE METHOD OF COMPUTATION OF BOOK PROFIT PROVIDED IN EXPLANATION TO S. 115JB SHOULD BE FOLLOWED WHILE COMPUTING THE BOOK PROFIT AND THE NORMAL PROVISIONS OF COMPUTATION OF PROFIT UNDER ANY HEAD OF THE ACT SHALL NOT BE APPLICABLE. IT I S ALSO HELD BY KARNATAKA HIGH COURT IN THE CASE OF JINDAL THERMAL POWER CO. LTD. VS. DY. CIT (2006) 203 CTR (KAR) 381 : (2006) 286 ITR 182 (KAR), THAT EXCEPT FOR SUBSTI TUTION OF THE TAX PAYABLE UNDER THE PROVISIONS AND MANNER OF COMPUTATION OF BOOK PROFITS, ALL THE PROVISIONS OF THE TAX INCLUDING THE PROVISION RELATING TO CHARGE, DEFINITIONS, RECOVERIES, PAYMENT, ASSESSMENT, ETC., WOULD APPLY IN RESPECT OF THE PROVISIONS OF THIS SECTION AND IN VIEW OF THE SCHEME OF THE IT ACT. 27. IT IS NOT THE INTENSION OF THE LEGISLATURE TO SUBSTITUTE THE OTHER PROVISIONS OF THE ACT IN PLACE OF WHAT IS SPECIFICALLY MADE AVAILABLE IN S. 115JB INSOFAR AS THE COMPUTATION OF BOOK PROFIT UN DER S. 115JB OF THE ACT IS CONCERNED. THE ENTIRE MECHANISM FOR THE COMPUTATION OF BOOK PROFIT IS CLEARLY SET OUT IN SUB S. (1) OF S. 115JB READ WITH EXPLANATION THERETO. THE STARTING POINT BEING THE NET PROFIT AS SHOWN IN THE P&L A/C PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCH. VI TO THE COMPANIES ACT BUT ALSO THE ITEMS, WHICH ARE TO BE INCREASED AS STIPULATED IN CLS. (A) TO (H), AND THE ITEMS, WHICH ARE TO BE REDUCED AS SPECIFIED IN CLS. (I) TO (VII), FIND SEPARATE MENTION IN THE SCHEME OF THE SECTION ITSELF. SO, THE COMPUTATION OF BOOK PROFIT IS TO BE DONE STRICTLY AS PER THE EXPLANATION TO S. 115JB OF THE ACT AND HENCE, NO ASSISTANCE FROM ANY OTHER SECTION OF THE ACT CAN BE TAKEN FOR THAT PURPOSE. THE CASE LAW RELIED UPON BY LEAR NED DEPARTMENTAL REPRESENTATIVE IN THE CASES OF APOLLO TYRES LTD. (SUPRA) AND HCL COMNET SYSTEMS & SERVICES LTD. (SUPRA) HAD CLEARLY LAID DOWN A LAW THAT THE AO HAS ONLY LIMITED POWER OF MAKING INCREASES AND REDUCTIONS TO THE NET PROFIT SHOWN IN THE P&L A/ C EXCEPT AS PROVIDED FOR IN THE EXPLANATION TO S. 115J OR 115JA OF THE ACT. IN THE LIGHT OF THE DISCUSSIONS MADE ABOVE, IT IS CLEAR THAT THE AO, WHILE COMPUTING THE BOOK PROFIT OF A COMPANY UNDER S. 115JB OF THE ACT, HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEING PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT, AND THE AO THEREAFTER HAS THE LIMITED POWER OF MAKING INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE E XPLANATION TO S. 115J OF THE ACT. THE CAPITAL GAIN IN QUESTION IS EXEMPT UNDER S. 47(IV) OF THE ACT BUT THE SAME IS NOT COVERED BY ANY OF THE CLS. (I) TO (VII) OF EXPLN. (1) TO S. 115JB OF THE ACT. XXXXXXXXXXXXX 29. THE NEXT ISSUE FOR CONSIDERATION IS THE CHARACTER OF EXEMPTION GRANTED UNDER SS. 47(IV), 47(V) AND 50. THESE ARE NOT TOTAL EXEMPTIONS BUT IN THE NATURE OF DEFERMENT OF TAX. THE EXEMPTION GRANTED UNDER S. 47(IV)/47(V), IN RESPECT OF TRANSFER FROM/TO HOLDING COMPANY TO/FROM ITS WHOLLY ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 16 OWNED SUBSI DIARY IS NOT A COMPLETE EXEMPTION FROM TAXATION BUT ONLY A DEFERMENT. FOR EXAMPLE, IF WITHIN 7 YEARS OF TRANSFER, THE HOLDING COMPANY CEASES TO HOLD 100 PER CENT OF SHARES OF SUBSIDIARY, THEN THE CAPITAL GAINS NOT TAXED IN VIEW OF S. 47(IV)/ 47(V) GET TAXE D UNDER S. 47A. FURTHER WHEN THE TRANSFEREE SELLS THE ASSET, THE COST OF ACQUISITION IS TAKEN AS THE COST OF ACQUISITION OF THE TRANSFEROR. THUS THE CAPITAL GAINS IN RESPECT OF THE FIRST TRANSACTION BETWEEN THE HOLDING COMPANY AND THE SUBSIDIARY, GETS INCL UDED IN THE CAPITAL GAINS ARISING FROM THE SALE OF THE ASSET BY THE TRANSFEREE. THERE CAN BE NO SUCH ADJUSTMENTS IN COMPUTING BOOK PROFITS. FURTHER THE CAPITAL GAINS EXEMPT UNDER SS. 47(IV)/47(V) IS COMPUTED BY TAKING COST OF ACQUISITION (AND IN SOME CASES NOTIONAL MARKET VALUE AS ON 1ST APRIL, 1984) AS INDEXED. BUT IN THE CASE OF BOOK PROFITS, THE PROFITS ARE THE SIMPLE DIFFERENCE BETWEEN THE SALE PRICE AND COST OF ACQUISITION. HENCE THE CAPITAL GAINS EXCLUDED UNDER THE INCOME TAX AND THAT AS PER BOOKS ARE DIFFERENT. SIMILARLY UNDER S. 50, IT CANNOT BE SAID THAT PROFIT ON SALE OF ASSETS IS TOTALLY EXEMPTED FROM TAXATION. THE SALE PRICE OF A DEPRECIABLE ASSET IS CREDITED THE BLOCK OF ASSETS HAVING THE SAME RATE OF DEPRECIATION. IF THE BLOCK OF ASSETS CONTAIN S ONLY THE ASSET SOLD THEN THE DIFFERENCE BETWEEN THE SALE CONSIDERATION AND THE WDV IS ASSESSED AS SHORT TERM CAPITAL GAINS. IF THE BLOCK OF ASSETS INCLUDE ASSETS NOT SOLD THEN THE SALE CONSIDERATION REDUCES THE WDV OF THOSE ASSETS ALSO, RESULTING IN A LO WER DEPRECIATION AND HIGHER PROFITS. THUS TAXATION OF THE PROFITS DEFERRED AND EXEMPTED. FURTHER THE RATE OF DEPRECIATION AND CONSEQUENTLY THE WDV OF THE ASSET SOLD WILL BE DIFFERENT UNDER THE IT ACT FROM THAT IN THE BOOKS. THEN THE PROFITS ON SALE OF ASSE TS AS PER BOOKS WILL NOT BE THE SAME AS CAPITAL GAINS COMPUTED UNDER S. 50. WE THEREFORE DO NOT FIND ANY FORCE IN THE ARGUMENT; PROFITS EXEMPT UNDER S. 50 SHOULD BE EXCLUDED IN COMPUTING THE BOOK PROFITS. FURTHER WHENEVER THE LEGISLATURE WANTED INCOME EXEM PTED UNDER THE NORMAL PROVISIONS OF THE ACT TO BE EXCLUDED FROM THE COMPUTATION OF BOOK PROFITS, THEY HAVE PROVIDED SO. UNDER EXPLN. (II) AND EXPLN. (F) TO S. 115JB, THE INCOME AND EXPENDITURE TO WHICH PROVISIONS OF SS. 10, 11 AND 12 APPLY ARE TO BE EXCLUD ED FROM THE COMPUTATION OF BOOK PROFITS. SIMILARLY, IF ANY DEDUCTIONS PERMITTED UNDER THE NORMAL PROVISIONS OF THE ACT ARE INTENDED TO BE DEDUCTED FROM THE BOOK PROFITS ALSO THE SAME IS SPECIFICALLY PROVIDED. DEDUCTIONS UNDER SS. 80HHC, 80HHD, 80HHE,80HHF AND DEDUCTIONS UNDER SS. 80 IA, 80 IB WERE SPECIFICALLY EXCLUDED FROM THE COMPUTATION OF BOOK PROFITS AT VARIOUS TIMES. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED ABOVE AND IN VIEW OF THE ABOVE REASONS, WE UPHELD THE O RDER OF LEARNED CIT IN HOLDING THAT THE LONG TERM CAPITAL GAIN IS TO BE INCLUDED IN THE NET PROFIT PREPARED UNDER THE COMPANIES ACT AND THE SAME IS NOT DEDUCTIBLE FROM THE NET PROFIT FOR THE PURPOSE OF COMPUTING BOOK PROFIT UNDER S. 115JB OF THE ACT. WE FU RTHER HOLD THAT MERELY BECAUSE THE LONG TERM CAPITAL GAIN IS EXEMPT UNDER S. 47(IV) OF THE ACT UNDER THE NORMAL PROVISION OF THE ACT, IT IS NOT CORRECT TO SAY THAT IT IS ALSO TO BE REDUCED FROM THE NET PROFIT FOR THE PURPOSE OF COMPUTING BOOK PROFIT UNDER S. 115JB OF THE ACT WHEN THE EXPLANATION TO S. 115JB DOES NOT PROVIDE FOR ANY DEDUCTION IN TERMS OF S. 47(IV) OF THE ACT. IN OTHER WORDS, WE HOLD THAT S. 47(IV) OF THE ACT HAS NO APPLICATION IN THE COMPUTATION OF BOOK PROFIT UNDER S. 115JB OF THE ACT. THUS FROM A READING OF THE S. 115JB AS WELL AS THE ANALYSES OF VARIOUS HIGH COURTS AND SUPREME COURT DECISIONS, THE INESCAPABLE CONCLUSION IS THAT THE BOOK PROFITS HAVE TO BE CALCULATED ON THE NET PROFITS COMPUTED AS PER PARTS II AND III OF SCH. VI TO THE COMP ANIES ACT, 1956 AND AS ADJUSTED BY THE AMOUNTS MENTIONED IN THE EXPLANATION. NO FURTHER REBATES OR DEDUCTIONS AFTER SUCH ADJUSTMENTS, NOTWITHSTANDING THE FACT WHETHER ANY INCOME IS TAXABLE OR NOT UNDER THE NORMAL PROVISIONS OF THE IT ACT. COMPUTATION OF IN COME UNDER THE NORMAL PROVISIONS AND THE BOOK PROFITS ARE TWO PARALLEL COMPUTATIONS. WHILE NORMALLY FOLLOWED METHOD OF ACCOUNTING IN THE BOOKS MAY ALSO BE TAKEN FOR THE PURPOSE OF COMPUTING INCOME UNDER THE IT ACT, THE ACTUAL COMPUTATION OF BOOK PROFITS WI LL NOT AFFECT OR BE GOVERNED BY THE COMPUTATION OF INCOME UNDER THE NORMAL PROVISIONS OF THE IT ACT. IN FACT ONLY BECAUSE THE GOVERNMENT FELT THAT COMPANIES AVAILING OF VARIOUS DEDUCTIONS PERMITTED UNDER THE IT ACT SHOWED A LOW INCOME FOR THE PURPOSE OF IN COME TAX BUT WAS ABLE TO SHOW HEALTHY PROFITS AS PER BOOKS ON THE BASIS OF WHICH DIVIDENDS WERE DISTRIBUTED AND TO TAX THESE TYPE OF COMPANIES THAT TAX ON BOOK PROFITS WERE INTRODUCED. BY AGAIN IMPORTING DEDUCTIONS ALLOWED UNDER THE NORMAL ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 17 PROVISIONS OF IN COME TAX INTO COMPUTATION OF BOOK PROFITS, WE WILL BE NEGATING THE VERY PURPOSE FOR WHICH THESE SECTIONS WERE INTRODUCED. TO SUM UP, WE HOLD THAT IN THE ABSENCE OF ANY PROVISION FOR EXCLUSION OF CAPITAL GAINS EXEMPTED IN THE COMPUTATION OF BOOK PROFIT UNDE R THE PROVISIONS CONTAINED IN EXPLANATION TO S. 115JB OF THE ACT, THE ASSESSEE IS NOT ENTITLED TO THE EXCLUSION THEREOF AS CLAIMED. 30. WE, THEREFORE, ANSWER THE QUESTION REFERRED TO US AGAINST THE ASSESSEE AND HOLD THAT IN THE ABSENCE OF ANY PROVISION FO R EXCLUSION OF EXEMPTED CAPITAL GAIN IN THE COMPUTATION OF BOOK PROFIT UNDER THE PROVISIONS CONTAINED IN EXPLANATION TO S. 115JB OF THE ACT, THE ASSESSEE IS NOT ENTITLED TO THE EXCL USION THEREOF AS CLAIMED. RESPECTFULLY,FOLLOWING THE ABOVE,WE DECIDE THE G ROUND NO.15 IN FAVOUR OF THE AO. 17. NEX T GROUND IS ABOUT C LAIM OF ADDITIONAL GRATUITY ON PROVISION BASIS AMOUNTING TO RS. 1, 93,13,467/ - . IN THE RETURN, FOLLOWING THE STAND ADOPTED BY THE AO IN EARLIER YEARS, THE ASSESSEE OFFERED PROVISION FOR ADDITIONAL GRA TUITY FOR EMPLOYEES RETIRED DURING THE YEAR . BUT, IT MADE A CLAIM BEFORE THE FAA,CONSIDERING THE FAVORABLE DECISIONS OF THE TRIBUNAL DELIVER - ED IN THE EARLIER YEARS. FOLLOW ING THOSE ORDER S, THE FAA ALLOWED THE CLAIM MADE BY IT WITH REGARD TO ADDITIONAL GRA TUITY ON PROVISION BASIS. 17.1 .BEFORE US,REPRESENTATIVES OF BOTH THE SIDES AGREED THAT THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE IN THE EARLIER AY.S.WE FIND THAT THE TRIBUNAL HAD DISMISSED THE APPEAL FILED BY THE AO WITH REGARD TO THE IDENTICAL GROU ND(AY. 90 - 91 - ITA / 2361/M/95 ,AY.92 - 93 - ITA/ 3961/M/ 97, AY .93 - 94 - ITA/ 6901/M/97 , AY . 96 - 97 - ITA / 3783/M/00 ,AY.97 - 8/ ITA/ 3298 / /0L ,AY. 1998 - 99,ITA/ 6289/M/03 ,AY.99 - 00 - ITA/7594/M/04, AY . 00 - 01 - ITA/ 9613/M/04 ) .IT I S ALSO FOUND THAT THE DECISION S OF THE ITAT IN AYS 90 - 91 TO 93 - 94, AYS 96 - 97,AY. 1998 - 99, AY . 1999 - 00 & A Y . 2000 - 01WERE NOT CHALLENGED BEFORE THE H IGH COURT AND HENCE SAME ATTAINED FAINALTY.CONSIDERING THE ABOVE, WE DECIDE GROUND NO.16 AGAINST THE AO. 18 . GROUND NO.17 IS DEALS WITH D ELETION OF INTEREST LEVIED U/S 234B O F THE ACT .THE AO HAD LEVIED INTEREST U/ S . 234B ON SHORT PAYMENT OF ADVANCE TAX OVER ASSESSED TAX. THE FAA,IN THE APPELLATE PROCEEDINGS,GRANTED RELIEF TO THE ASSESSEE . BEFORE US,THE DR STATED THAT ISSUE COULD BE DECIDED ON MERITS.THE AR RELIED UPON THE CASE OF JUPITER BIO - SCIENCE LTD. ( 352ITR113 ) OF THE HONBLE KARNATAKA HIGH COURT AND ARGU ED THAT THE AMENDMENT WITH RETROSPECTIVE EFFECT BECAME PART OF THE ACT AFTER THE ASSESSEE HAD FILED ITS RETURN OF INCOME,THAT AT THE TIME OF FILING OF RETURN THE ASSESSEE WA S NOT LIABLE TO PAY ADVANCE TAX. WE FIND THAT THE IDENTICAL ISSUE HAS BEEN DEALT AND DECIDED BY THE KARNATAKA HIGH COURT IN THE CASE OF JUPITOR BIO SCIENCE IN FOLLOWING MANNER: THE SUPREME COURT HAS LAID DOWN THAT THE PAYMENT OF INTEREST FOR DELAYED PAYME NT OF TAX IS COMPENSATORY IN NATURE. THOUGH SUCH A LIABILITY COULD BE CREATED RETROSPECTIVELY, WHEN SUCH A LIABILITY IS RETROSPECTIVELY CREATED, THE ASSESSEE CANNOT BE ACCUSED OF COMMITTING DEFAULT AND HE CANNOT BE CHARGED INTEREST FOR SUCH DEFAULT. SECTIO N 115JB OF THE INCOME TAX ACT, 1961, WAS INTRODUCED BY THE FINANCE ACT, 2000, WHICH CAME INTO EFFECT FROM APRIL 1, 2001. SUBSEQUENTLY, SECTION 115JB WAS AMENDED BY THE FINANCE ACT, 2002, WITH RETROSPECTIVE EFFECT FROM APRIL 1, 2001. PRIOR TO THE AMENDMENT, ADVANCE TAX WAS PAYABLE ON THE TOTAL INCOME WHEREAS AFTER THIS AMENDMENT ADVANCE TAX IS PAYABLE ON BOOK PROFIT WHICH IS DEEMED TO BE THE TOTAL INCOME. THE ASSESSEE WAS LIABLE TO PAY ADVANCE TAX IN ACCORDANCE WITH THE AMENDED PROVISIONS OF SECTION 115JB FOR THE RELEVANT PERIOD. HOWEVER, IT WAS NOT LIABLE TO PAY INTEREST ON THE AMOUNT DUE UNDER THE AMENDED PROVISION. IF IT HAD NO T PAID THE ADVANCE TAX IN ACCOR DANCE WITH THE PROVISION EXISTING PRIOR TO THE AMENDMENT, IT WAS LIABLE TO PAY INTEREST ON THE AM OUNT. IT HAD NO LIABILITY TO PAY INTEREST ON THE DIFFERENCE IN THE TAX PAID. RESPECTFULLY,FOLLOWING THE ABOVE JUDGMENT,WE DECIDE GROUND NO.17 AGAINST THE AO. 19. DELETION OF ADDITION IN RESPECT OF PROVISION FOR DIRECTOR'S RETIREMENT BENEFIT IN COMPUT ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 18 - IN G INCOME UNDER NORMAL PROVISIONS OF THE ACT OF RS. 2,84,53,850/ IS THE SUBJECT MATTER OF THE NEXT GROUND.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD CREATED PROVISION FOR DIRECTOR'S RETIREMENT BENEFIT ON THE BASIS OF ACTUARIAL VALUA TION AND IT WAS ADDED IN COMPUTING TOTAL INCOME. SUBSEQUENTLY, EXCLUSION WAS CLAIMED BEFORE THE FAA. AS THE SIMILAR ADDITION WAS DELETED IN MAT COMPUTATION,SO,HE ALLOWED THE CLAIM MADE BY THE ASSESSEE . 19.1. BEFORE US,THE DR ARGUED THAT THE FAA ALLOWED THE CL AIM THAT WAS NOT BEFORE THE AO. THE DR CONTENDED THAT P ROVISION MADE FOR DIRECTOR'S RETIREMENT BENEFIT WAS MADE ON THE BASIS OF AC TUARIAL VALUATION,THAT IT REPRESENTED A LIABILITY IN PRAESENTI THAT WAS TO BE DISCHARGED AT FUTURE DATE. HE REFERRED TO THE CAS E OF BHARAT EARTH MOVERS ( 245ITR 428 ) .HE ALSO STATED THAT SIMILAR CLAIM WAS ALLOWED BY THE TRIBUNAL WHILE DECIDING THE APPEAL FOR THE AY.1990 - 91. 19.2. WE FIND THAT THE ISSUE OF A CERTAIN BUSINESS LIABILITY WAS DELIBERATED UPON AND ADJUDICATED BY THE HONBLE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS AND IT WAS HELD THAT IF A BUSINESS LIABILITY HAD DEFINITELY ARISEN IN THE ACCOUNTING YEAR AND WAS CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINTY, THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. FOLLOWING THE PRINCIPLE LAID DOWN BY THE APEX COURT IN THE ABOVE CASE AND THE DECISION OF THE TRIBUNAL DELIVERED FOR THE AY.1990 - 91,WE DECIDE GROUND NO.18 AGAINST THE AO. 20. NEXT GROUND OF APPEAL ABOU T SALES TAX SUBSIDY IN COMPUTATION OF BOOK PROFIT U/S 115JB AS WELL AS IN COMPUTING TOTAL INCOME UNDER NORMAL PROVISIONS OF THE ACT AND THE AMOUNT INVOLVED IS RS.84,73,17,391/ - . DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE FOLLOWING UNITS OF THE ASSESSEE HAD RECEIVED VARIOUS INCENTIVES : SL NO. UNIT STATE INCENTIVE POLICY AMOUNT ( RS. ) 1. TIKARIA UTTAR PRADESH 15,29,63,561 2. SINDRI BIHAR /JHARKHAND 11,04,03,555 3. KYMORE MADHYA PRADESH 1,66,33,472 4. GAGAL HIMACHAL P RADESH 9,04,81,224 5. CHANDA MAHARASHTRA 15,13,55,476 6. WADI KARNATAKA 32,54,80,103 TOTAL 84,73,17,391 THE AO HELD THAT THE AMOUNTS RECEIVED BY IT HAD TO BE TAXED AS REVENUE RECEIPTS. ACCORDING - LY,HE ADDED RS.84.73 CRORES TO THE INCOME OF THE ASSESSEE UNDER THE NORMAL PROVISIONS AND THE MAT PROVISIONS.IN THE APPELLATE PROCEEDINGS,THE FAA HELD THAT THE SALES TAX SUBSIDY BEING CAPITAL IN NATURE CANNOT BE THE PART OF THE TOTAL INCOME UNDER EITHER OF THE PROVIS IONS. 20.1. BEFORE US,THE DR MADE THE SAME ARGUMENTS THAT WERE MADE FOR THE GROUND NO.9.THE AR RELIED UPON THE CASES OF RELIANCE INDUSTRIES LTD. (SUPRA),EVEREST INDUSTRIES LTD. (SUPRA), INDO RAMA TEXTILES L TD.(53SOT515 - DEL),INDO RAMA SYNTHETICS(I)LTD.(33CCH 5 26 DEL.) , PONNI SUGARS & CHEMICALS LTD. ( SUPRA), RASOI LTD. (SUPRA), SHREE BALAJI ALLOYS ( 333 ITR 225 ) SIYA RAM GARG HUF ( 49 DTR 126 ) , KIRLOSKAR OIL ENGINES LTD. ( 364 ITR 88 ) , CHAPHALKAR BROTHERS (351 ITR 309 ) . 20.2. WE HAVE HEARD THE RIVAL SUBMISSIONS.AS FAR AS ADDITION UNDER THE MAT PROVISIONS IS CONCERNED WE ARE OF THE OPINION THAT IN VIEW OF THE JUDGMENT OF APOLLO TYRES(SUPRA)THE AO IS NOT AUTHORISED TO DISTURB THE BOOK RESULTS.THEREFORE,WE CONFIRM THE ORDER OF THE FAA TO THAT EXTENT. BUT,THE ISSUE OF ADDITION OF VARIO US SUBSIDIES/INCENTIVES,WE ARE OF THE OPINION THAT SAME NEEDS FURTHER VARIFACTION.WHILE DECIDING GROUND NO.9,WE HAVE HELD THAT THE AO SHOULD ANALYSE THE SCHEME AND THEN ONLY ADJUDICATE IT.FOLLOWING THE SAME,WE ARE RESTORING BACK THE MATTER TO THE FILE OF T HE AO FOR FRESH ADJUDICATION ,WHO WOULD DECIDE THE ISSUE AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE .GROUND NO.19 IS DECIDED IN ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 19 FAVOUR OF THE AO,IN PART. 21. LAST GROUND OF APPEAL DEALS WITH CLAIM OF THE DEDUCTION U/S 35DDA TO THE ASSESSEE AMOUNTING TO RS.1, 53,00,536/ - .WHILE FILING THE RETURN OF INCOME THE ASSESSEE HAD NOT MADE A CLAIM ABOUT 1/5 TH DEDUCTION OF THE AMOUNT INCURRED ON ACCOUNT OF VRS.THE ASSESSEE RAISED AN ADDITIONAL GROUND BEFORE THE FAA IN THAT REGARD AND CONTENDED T HAT THE CLAIM WAS DULY MADE IN AY.2001 - 02 TO 2005 - 06 EXCEPT FOR THE AY.2002 - 03,THAT DUE TO INADVERTENT MISTAKE IT COULD NOT MAKE THE CLAIM.CONSIDERING THE ABOVE FACTS THE FAA ALLOWED THE CLAIM. 21.1. BEFORE US,THE DR ARGUED THAT THE ASSESSEE ITSELF HAD ADM ITTED THAT CLAIM WAS NOT MADE IN THE ORIGINAL RETURN FILED.THE AR STATED THAT BY WAY OF AN ADDITIONAL GROUND THE ASSESSEE HAD REQUESTED THE FAA TO ALLOW THE DEDUCTION THAT WAS OTHERWISE ALLOWABLE. THERE IS NO DOUBT THAT THE ASSESSEE WAS ENTITLED TO THE DEDUCTION AND IT HAD NOT CLAIMED THE SAME IN THE RETURN.IT IS ALSO A FACT THAT BEFORE THE FAA IT LODGED ITS CLAIM.THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PRUTHIVI BROKERS AND S HAREHOLDERS P . L TD. (349ITR336)HAS HELD AS UNDER: AN ASSESSEE IS EN TITLED TO RAISE NOT MERELY ADDITIONAL LEGAL SUBMISSIONS BEFORE THE APPELLATE AUTHORITIES BUT IS ALSO ENTITLED TO RAISE ADDITIONAL CLAIMS BEFORE THEM. THE APPELLATE AUTHORITIES HAVE THE DISCRETION TO PERMIT SUCH ADDITIONAL CLAIMS TO BE RAISED. THE APPELLATE AUTHORITIES HAVE JURISDICTION TO DEAL NOT MERELY WITH ADDITIONAL GROUNDS, WHICH BECAME AVAILABLE ON ACCOUNT OF CHANGE OF CIRCUMSTANCES OR LAW, BUT WITH ADDITIONAL GROUNDS WHICH WERE AVAILABLE WHEN THE RETURN WAS FILED. THE WORDS COULD NOT HAVE BEEN RAISE D MUST BE CONSTRUED LIBERALLY AND NOT STRICTLY. THERE MAY BE SEVERAL FACTORS JUSTIFYING THE RAISING OF A NEW PLEA IN AN APPEAL AND EACH CASE MUST BE CONSIDERED ON ITS OWN FACTS. IN LIGHT OF THE ABOVE DECISION,WE ARE OF THE OPINION THAT THE FAA HAD RIGHT LY ALLOWED THE CLAIM RAISED BY THE ASSESSEE .GROUND NO.20 IS DECIDED AGAINST THE AO. 22 .ADDITIONAL GROUND NO.1,RAISED BY THE AO,IS ABOUT THE DIRECTIONS GIVEN BY THE FAA IN LIGHT OF THE DECISION OF THE JUDGMENT OF GOETZE INDIA LTD. ( 284 ITR 32 3 ) THAT HAD RESUL TED IN REDUCING THE TOTAL INCOME TO LESS THAN RETURNED INCOME. 22.1. DURING THE COURSE OF HEARING BEFORE US,THE DR CONTENDED THAT BECAUSE OF THE DIRECT IO - NS GIVEN BY THE FAA TOTAL INCOME OF THE ASSESSEE HAD REDUCED TO LESS THAN THE RETURNED INCOME,THAT THE HIS ORDER TILL THAT EXTENT WAS INVALID.THE AR CONTENDED THAT IN THE MATTER OF GOETZE(INDIA) LTD. ( SUPRA ) C LAIM WAS LODGED BEFORE THE AO OTHER THAN BY WAY OF REVISED RETURN OF INCOME ,THAT THE ASSESSEE HAD MADE CLAIM BY WAY OF ADDITIONAL GROUNDS BEFORE THE FA A,THAT HE HAD DULY ADMITTED THE ADDITIONAL GROUNDS AFTER OBTAINING NECESSARY REMAND REPORT FROM THE AO .HE STATED THAT THE MATTER WAS COVERED IN THE FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBUNAL DELIVERED IN THE CASE OF EVEREST INDUSTRIES LTD. (MA NO.4 73/MUM/ 2009),WHEREIN IT WAS HELD THAT THE AO WA S TO ASSES S THE CORRECT TAX LIABILITY IN ACCORDANCE WITH LAW AND EVEN THAT IF THERE WAS WRONG ADMISSION OF INCOME BY THE ASSESSEE , IT WOULD NOT BINDING ON THE ASSESSEE.HE RELIED UPON THE JUDGMENT OF HONBLE GUJA RAT HIGH COURT IN THE CASE OF GUJARAT GAS CO. LTD. (245 ITR 84 ),WHEREIN IT HAD BEEN HELD THAT CBDT CIRCULAR NO. 549 DATED 31 ST OCT, 1989 PROVIDING THAT THE ASSESSED INCOME SHOULD NOT BE LESS THAN RE TURNED INCOME WA S ULTRA VIRES THE BOARD'S POWERS AND THAT THE A O WA S NOT BOUND BY TH E SAME. HE ALSO REFERRED TO THE CASE OF MILTON LAMINATES LTD. ( TAX APPEAL NO. 1022 OF 2010 ) OF THE HONBLE GUJ ARAT HIGH COURT. 22.2. AFTER CONSIDERING THE RIVAL CONTENTIONS,WE ARE OF THE OPINION THAT THE ISSUE IS DIRECTLY COVERED BY THE JUDGMENT OF GUJARAT GAS CO.LTD.THE HONBLE GUJARAT HIGH COURT(SUPRA). FACTS OF THE CASE WERE THAT F OR THE ASSESSMENT YEAR 1996 - 97, THE PETITIONER FILED ITS RETURN SHOWING TAXABLE INCOME OF RS. 5,13,86,320. THE RETURN WAS PROCESSED UNDER SECTION 143(1)(A) OF THE ACT AFTER MAKING SOME PRIMA FACIE ADJUSTMENT ON 0 7 .10. 1997. THEREAFTER, NOTICES UNDER SECTIONS 143(1) AND 142(2) OF THE ACT CAME TO BE ISSUED AND THE PETITIONER CAME TO BE ASSESSED UNDER SECTION 143(3) OF THE ACT BY ORDER DATED 31.03. 1999. THE A O BY H IS ORDER HELD THAT THOUGH ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 20 THE TOTAL INCOME OF THE ASSESSEE WAS RS. 2,11,81,620, THE ASSESSEE WAS LIABLE TO PAY TAX ON THE TOTAL INCOME OF RS. 5,13,86,320 ON THE GROUND THAT IN ACCORDANCE WIT H CIRCULAR NO. 549, PARA. 5.12, DATED 31 .10. 1989 THE ASSESSED INCOM E SHALL NOT BE LESS THAN THE RETURNED INCOME. THE ASSESSEE CHALLENGED THE ORDER BEFORE THE HONBLE HIGH COURT.DECIDING THE WRIT PETI TION THE HONBLE COURT HELD AS UNDER: THE CIRCULAR IN QUESTION REFERS TO ASSESSMENTS WHICH ARE TO BE MADE UNDER SECTION 143 (3) OF THE ACT. THE CIRCULAR DIRECTS THAT IN A PARTICULAR TYPE OF CASES, I.E., IN SCRUTINY CASES UNDER SECTION 143(3) OF THE ACT, THE INCOME CAN NEITHER BE ASSESSED AT A FIGURE LOWER THAN THE RETURNED INCOME NOR THE LOSS ASSESSED AT A FIGURE HIGHER THAN TH E LOSS NOR FURTHER REFUND GIVEN EXCEPT WHAT WAS DUE ON THE BASIS OF THE RETURNED INCOME. THUS, BY ISSUANCE OF THE CIRCULAR, THE QUASI JUDICIAL OFFICER IS DIRECTED TO ASSESS CASES OF PARTICULAR NATURE IN A PARTICULAR MANNER. THE ASSESSING OFFICER BEING BOUN D BY IT HAD ABDICATED HIS FUNCTION AND DID NOT ACT INDEPENDENTLY AND, THEREFORE, THERE WAS NO QUESTION OF ALTERNATIVE REMEDY WHICH WAS A FUTILE REMEDY. IN FACT, THE JURISDICTION HAD BEEN EXERCISED BY THE CENTRAL BOARD OF DIRECT TAXES BY ISSUING THE CIRCULA R AND, THEREFORE, THE ORDER OF THE ASSESSING OFFICER WAS WITHOUT JURISDICTION. THE COURT HAD TO EXERCISE ITS JURISDICTION UNDER ARTICLE 226 . THE ORDER OF THE ASSESSING OFFICER TO THE EXTENT IT STATED THAT THE TOTAL INCOME WOULD BE THE RETURNED INCOME, WAS TO BE SET ASIDE, WITH A DIRECTION TO THE ASSESSING OFFICER TO MAKE ASSESSMENT WITHOUT KEEPING IN MIND THE CENTRAL BOARD OF DIRECT TAXES CIRCULAR DATED OCTOBER 31, 1989. RESPECTFULLY,FOLLOWING THE ABOVE DECISIONS,WE DECIDE ADDITIONAL GROUND NO.1 AGAINST TH E AO. 23. ADDITIONAL GROUND 2 PERTAINS TO SALES TAX SUBSIDY IN COMPUTING GRO UP PROFIT U/S.115JB OF THE ACT, AMOUNTING TO RS.84,73,00,000/ - WHILE DECIDIN G GROUND NO.19 FILED BY THE AO. WE HAVE UPHELD THE ORDER OF THE FAA.FOLLOWING THE JUDGMENT OF APOLLO TYRES (SUPRA) , WE HOLD THAT THE AO CANNOT DISTURB THE WORKING MADE BY THE ASSESSEE,WHILE DETERMINING INCOME UNDER MAT PROVISONS.ADDITIONONL GROUND 2 STANDS DISMISSED. 24. ADDITIONAL GROUND NO.3 IS ABOUT SALES TAX SUBSIDY IN COMPUTING THE TOTAL INCOME UNDER NORMAL PROVISIONS. FOLLOWING OU R ORDER FOR THE GROUND NO.9 AND 19, WE RESTORE BACK THE ISSUE TO THE FILE OF THE AO.ADDL.GR.3 IS PARTLY DECIDED IN FAVOUR OF THE AO. 25. ADDITIONAL GROUND NO.4 IS ABOUT EXCLUSION OF AMOUNT TRANSFERRED TO DEBENTURE REDEMPTION RESERVED IN COMPUTING GROUP PROFIT OF PROVISIONS OF SECTION 115JB OF RS.50 CRORES. 25.1. DURING T HE COURSE OF HEARING BEFORE US, REPRE SENTATIVES OF BOTH THE SIDES AGREE D THAT IDENTICAL ISSUE HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE , BY THE TRIBUNAL WHILE A DJUDICA T I - NG THE APPEALS FOR A Y. S. 1997 - 98 (ITA / 3298/MUM/01), 1998 - 99(ITA/639/M/03 ) , 1999 - 00 (ITA/ 7594/MUM/04) ,2000 - 01(ITA/ 9570/MUM / 04 ) . WE FIND THAT THE DECISION OF THE TRIBUNAL FOR AY. 1998 - 99 FOR EXCLUSION DEBENTURE REDEMPTION RESERVED HAD NOT BEEN CHALLENGED BY THE DEPARTMEN T BEFORE THE HONBLE HIGH COURT AND THUS THE ORDER HAS ATTAINED FINAL ITY.IT IS ALSO FOUND THAT T HE HONBLE BOMBAY HIGH COURT OF BOMBAY HAD DISMISSED THE DEPARTMENTAL APPEAL WITH REGARD TO THE ISSUE WHILE DECIDING THE APPEAL FOR AY 1999 - 00. CONS IDERING THE ABOVE FACTS WE DECIDE THE LAST ADDITIONAL GROUND AGAINST THE AO. ITA NO. / 3787 /MUM/ 2009 : 26. EFFECTIVE GROUND IS ABOUT D ELETION OF UNUTILIS ED MODVAT CREDIT ADDED TO THE CLOSING STOCK WITHOUT MAKING SIMILAR ADDITION IN OPENING STOCK. WHILE PASSING O RDER U/S . 143(3) OF THE ACT,T HE AO ADDED BACK THE MODVAT CREDIT ATTRIBUTE ABLE TO THE CLOSING STOCK OF RS. 8 , 88 , 04,704 / - BY APPLYING THE PROVISIONS OF SECTION 145A OF THE ACT.HE ALSO INCREASED THE OPENING STOCK BY RS. 9,34,67,023 / - . IN THE APPELLATE PROCEEDING S,THE FAA DIRECTED THE AO TO DELETE THE ADDITION OF CLOSING MODVAT OF RS . 8. 88 CRORES. IN APPEAL AGAINST THE SAID ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 21 ORDER, THE DEPARTMENT DID NOT CHALLENGE THE DIRECTION GIVEN BY THE FAA TO THE AO,WHILE FILING APPEAL BEFORE THE TRIBUNAL.THE AO DID NOT GRANT REL IEF TO THE ASSESSEE ,W HILE GIVING EFFECT TO THE ORDER FAA,IN RESPECT OF ISSUE OF MODV AT .THE ASSESSEE CHALLENGED THE ORDER OF THE AO AGAIN BEFORE THE FAA.CONSIDERING THE FACTS OF THE CASE THE FAA AGAIN DIRECTED THE AO TO DELETE THE ADDITION OF MODVAT ATTRIBU TABLE TO CLOSING STOCK.IN THE PRESENT APPEAL BEFORE US,THE AO HAS CHALLENGED THE DIRECTION OF THE FAA GIVEN IN THE SECOND ROUND. 26.1. DURING THE COURSE OF HEARING BEFORE US,THE DR FAIRLY CONCEDED THAT WHILE GIVING EFFECT TO THE FIRST ORDER OF THE FAA THE AO SHOULD HAVE DELETED THE ADDITION OF MODVAT AND THAT THE DEPARTMENT HAD NOT CHALLENGED THE ISSUE OF MODVAT BEFORE THE TRIBUNAL WHILE FILING THE ORIGINAL APPEAL FOR THE YEAR UNDER CONSIDERATION.THE AR REFERRED TO THE ORIGINAL ORDER OF THE FAA,THAT ORDER O F THE AO GIVING APPEAL EFFECT TO THE ORDER OF THE FAA,THE SECOND ORDER OF THE FAA AND THE GROUNDS OF APPEAL FILED BY THE AO BEFORE THE TRIBUNAL IN THE FIRST ROUND OF APPEAL. 26.2. WE HAVE PERUSED THE MATERIAL BEFORE US.WE ARE UNABLE TO UNDERSTAND THE LOGIC BEHIND FILING THE APPEAL BY THE AO AND ITS AUTHORISATION BY THE CIT CONCERNED.THE AO HAS NOT ONLY REFUSED TO FOLLOW THE DIRECTIONS OF THE FAA BUT ALSO CHOOSE NOT TO FILE APPEAL BEFORE THE TRIBUNAL AGAINST THE DIRECTION.THUS,THE ISSUE HAD ATTAINED FINALITY. WHEN THE ASSESSEE FOUND THAT THE AO HAD NOT FOLLOWED THE DIRECTIONS OF THE FAA HE WAS COMPELLED TO FILE APPEAL BEFORE THE FAA FOR THE SAME ISSUE FOR THE SECOND TIME.THE FAA RIGHTLY HELD THAT MODVAT CREDIT ATTRIBUTABLE TO CLOSING STOCK SHOULD BE DELETED.AT THAT STAGE ALSO IF THE AO AND THE CIT HAD STOPPED,THE UNWANTED AND FRIVOLOUS LITIGATION WOULD HAVE NOT TAKEN PLACE. IN OUR OPINION, IT IS A SERIOUS LAPSE ON PART OF THE AO AND HIS SUPERVISORY AUTHORITIES.THE FAA BEING VERY SENIOR OFFICER OF THE DEPARTMENT I S ALSO PERFORMING QUASI JUDICIAL FUNCTIONS.THE AO BEING HIS SUBORDINATE IS DUTY BOUND TO FOLLOW HIS INSTRUCTION.THE AO HAS ALL THE RIGHTS TO CHALLENGE THE ORDER OF THE FAA BEFORE THE APPROPRIATE JUDICIAL FORUM, BUT HE IS NOT AUTHORISED TO DISOBEY THE DIREC TIONS GIVEN BY THE FAA.JUDICIAL PROPRIETARY AND DEPARTMENTAL HIERARCHY DEMANDS THAT THE AOS AND THEIR SUPERVISORY OFFICERS GIVE DUE RESPECT TO THE ORDERS OF THE FAA.WE WOULD LIKE TO REFER TO THE JUDGMENT OF THE HON'BLE APEX COURT DELIVERED IN THE MATTER OF BHOPAL SUGAR INDUSTRIES LTD.(40 ITR 618 ).IN THAT MATTER T HE ASSESSEE COMPANY, WH ICH MANUFACTURED AND SOLD SUGAR, USED SUGARCANE PURCHASED FROM OTHER CULTIVATORS AS WELL AS GROWN IN ITS OWN FARMS. IT CLAIMED DEDUCTION OF AGRICULTURAL INCOME FROM ITS TOTAL IN COME BY VALUING THE SUGARCANE GROWN IN ITS OWN FARMS AT MARKET VALUE AND DEDUCTING THEREFROM THE AGRICULTURAL EXPENSES. IN ITS ORDER IN APPEAL THE APPELLATE TRIBUNAL DIRECTED THE AO TO ASCERTAIN THE AVERAGE TRANSPORT CHARGES PER MAUND FROM THE PURCHASING C ENTRES TO THE ASSESSEE'S FACTORY AND TO ADD IT TO THE RATE OF RS. 1 - 4 - 6 PER MAUND IN ORDER TO ASCERTAIN THE MARKET VALUE AND GIVE ANY RELIEF THAT MAY BE DUE TO THE ASSESSEE. AN APPLICATION UNDER SECTION 66(1) FOR A REFERENCE WAS MADE BUT IT WAS WITHDRAWN A ND THE ORDER OF THE TRIBUNAL BECAME FINAL. THE ASSESSEE APPLIED TO THE AO TO GIVE EFFECT TO THE DIRECTIONS OF THE TRIBUNAL, BUT THE OFFICER IN HIS LETTER DATED 24.03. 1955, HELD THAT NO RELIEF COULD BE GIVEN TO IT . IGNORING THE CLEAR DIRECTIONS OF THE TRIBU NAL ,THE AO DID NOT ASCERTAIN THE COST OF TRANSPORTATION FROM THE FARMS TO THE FACTORY INSTEAD OF THE AVERAGE TRANSPORT CHARGES FROM THE CENTRES TO THE FACTORY . THE ASSESSEE APPLIED TO THE JUDICIAL COMMISSIONER OF BHOPAL FOR THE ISSUE OF A WRIT TO COMPEL THE OFFICER TO CARRY OUT THE DIRECTIONS OF THE APPELLATE TRIBUNAL. THE JUDICIAL COMMISSIONER FOUND THAT THE OFFICER HAD ACTED ARBITRARILY AND IN CLEAR VIOLATION OF THE DIRECTIONS GIVEN BY THE TRIBUNAL, BUT PROCEEDED TO CONSIDER THE CORRECTNESS OF THE TRIBUNAL 'S ORDER AND HELD THAT THERE WAS NO MANIFEST INJUSTICE DONE TO THE ASSESSEE. ON APPEAL TO THE SUPREME COURT HELD AS UNDER: BY HIS LETTER DATED MARCH 24, 1955, THE INCOME TAX OFFICER VIRTUALLY REFUSED TO CARRY OUT THE DIRECTIONS WHICH A SUPERIOR TRIBUNAL HAD GIVEN HIM IN EXERCISE OF ITS APPELLATE POWERS IN RESPECT OF AN ORDER OF ASSESSMENT MADE BY HIM. SUCH REFUSAL WAS IN EFFECT A DENIAL OF JUSTICE. THE ORDER ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 22 OF THE APPELLATE TRIBUNAL HAVING BECOME FINAL, IT WAS NOT OPEN TO THE JUDICIAL COMMISSIONER TO HOL D THAT THE ORDER WAS WRONG. AS THE INCOME - TAX OFFICER HAD FAILED TO CARRY OUT A LEGAL DUTY IMPOSED ON HIM AND SUCH FAILURE WAS DESTRUCTIVE OF A BASIC PRINCIPLE OF JUSTICE ,(EMPHASIS BY US)A WRIT OF MANDAMUS SHOULD ISSUE EX DEBITO JUSTITIAE TO COMPEL HIM TO CARRY OUT THE DIRECTIONS GIVEN BY THE APPELLATE TRIBUNAL. IN THE MATTER OF UNION OF INDIA V. KAMLAKSHI FINANCE CORPORATION LTD., AIR 1992 SC 711, THE SUPREME COURT HELD AMONGST OTHER AS FOLLOWS (PAGE 712) : THE ORDER OF THE APPELLATE COLLECTOR IS BINDI NG ON THE ASSISTANT COLLECTORS WORKING WITHIN HIS JURISDICTION AND THE ORDER OF THE TRIBUNAL IS BINDING UPON THE ASSISTANT COLLECTORS AND THE APPELLATE COLLECTORS WHO FUNCTION UNDER THE JURISDICTION OF THE TRIBUNAL. THE PRINCIPLES OF JUDICIAL DISCIPLINE RE QUIRE THAT THE ORDERS OF THE HIGHER APPELLATE AUTHORITIES SHOULD BE FOLLOWED UNRESERVEDLY BY THE SUBORDINATE AUTHORITIES. THE MERE FACT THAT THE ORDER OF THE APPELLATE AUTHORITY IS NOT ACCEPTABLE TO THE DEPARTMENT IN ITSELF AN OBJECTIONABLE PHRASE AND IS THE SUBJECT MATTER OF AN APPEAL CAN FURNISH NO GROUND FOR NOT FOLLOWING IT UNLESS ITS OPERATION HAS BEEN SUSPENDED BY A COMPETENT COURT. IF THIS HEALTHY RULE IS NOT FOLLOWED, THE RESULT WILL ONLY BE UNDUE HARASSMENT TO ASSESSEES AND CHAOS IN ADMINISTRATIO N OF TAX LAWS. IN THE CASE OF NICCO CORPORATION LTD.( 251ITR791 ) ,THE HONBLE CALCUTTA HIGH COURT HAS HELD AS FOLLOW: THE PRINCIPLES OF JUDICIAL DISCIPLINE REQUIRE THAT THE ORDERS OF THE HIGHER APPELLATE AUTHORITIES BE FOLLOWED UNRESE RVEDLY BY THE SUBORDIN ATE AUTHORI TIES. THE MERE FACT THAT THE ORDER OF THE APP ELLATE AUTHORITY IS NOT ACCEPT ABLE TO THE DEPARTMEN IN I TSELF AN OBJECTIONABLE PHRAS AND IS THE SUBJECT MATTER OF AN APPEAL CAN FURNISH NO GROUND FOR NOT FOLLOWING IT UNLESS ITS OPE RATION HAS BEEN S USPENDED BY A COMPETENT COURT. FROM THE ABOVE,IT IS CLEAR THAT THE AO HAS NOT BEEN GIVEN UNFETTERED POWERS THE UNDER THE ACT TO IGNORE THE DIRECTION GIVEN BY THE APPELLATE AUTHORITIES WHILE PASSING A CONSEQUEN TI - AL ORDER. IF HE IS NOT SATISFIED WITH THE O RDER OF AN APPELLATE AUTHORITY, HE MUST RAISE THE ISSUE IN THE HIGHER FORUM UNDER THE PROVISIONS OF THE LAW ,BUT HE CANNOT REFUSE TO/FOLLOW THE DIRECTIONS . CONSIDERING THE ABOVE FACTS,WE ARE OF THE OPINION THAT THE APPEAL FILED BY THE AO IS DEVOID OF ANY MER IT AND HE HAS TAKEN UNDUE ADVANTAGE OF THE JUDICIAL PROCESS. WE ARE ALSO OF THE OPINION THAT THERE WAS UTTER FAILURE ON THE PART OF THE SUPERVISORY AUTHORITIES IN WHOLE EPISODE.REGISTRY IS DIRECTED TO FORWARD A COPY OF THE ORDER TO THE PRINCIPLE CHIEF COMM ISSIONER OF INCOME TAX,MUMBAI,SO THAT THE DIRECTIONS OF THE FAA ARE GIVEN DUE RESPECT BY THE OFFICERS OF THE FIELD FORMATION AND THAT SUCH FRIVOLOUS APPEALS ARE NOT FILED IN FUTURE . ITA NO./4987MUM/2009: DURING THE COURSE OF HEARING BEFORE US,THE AR DID NO T PRESS GROUNDS NO.1,3,4,6,7 AND 8.HENCE, SAME STAND DISMISSED. 27. GROUND NO 2.DEALS WITH NON EXCLUSION OF PROFIT ON SALE OF INVESTMENTS IN COMPUTING BOOK PROFIT U/S.115JB OF THE ACT,AMOUNTING TO RS.9.12 CRORES.DURING THE YEAR UNDER APPEAL THE ASSESSEE HA D EARNED NET PROFIT ON SALE OF INVESTMENT AND HAD CREDITED IT TO P & L A/C.IT RAISED AN ADDITIONAL GROUND BEFORE THE FAA,WHO DISMISSED THE APPEAL OF THE ASSESSEE. 27.1. BEFORE US,THE AR FAIRLY CONCEDED THAT THE TRIBUNAL DECIDED THE ISSUE AGAINST THE ASSESSE E WHILE ADJUDICATING THE APPEALS FOR THE AY.S.1998 - 99,99 - 2000,2001 - 01.WE FIND THAT THE HONBLE BOMBAY HIGH COURT HAS DEALT THE ISSUE OF NON EXCLUSION OF PROFIT ON SALE OF INVESTMENTS IN COMPUTING BOOK PROFIT U/S.115JB OF THE ACT,IN THE CASE OF VEEKAYLAL I NVESTMENT C O. P . L TD. (249ITR597)AS UNDER: ACCORDING TO SECTION 115J OF THE ACT, IN THE CASE OF AN ASSESSEE BEING A COMPANY, IF THE TOTAL INCOME IS LESS THAN 30 PER CENT. OF ITS BOOK PROFITS THEN THE TOTAL INCOME OF SUCH COMPANY SHALL BE DEEMED TO BE AN AMOUNT EQUAL TO 30 PER CENT. OF SUCH BOOK PROFIT AND SUCH INCOME SHALL BE CHARGEABLE TO TAX. THE IMPORTANT THING TO BE NOTED IS THAT WHILE CALCULATING THE TOTAL INCOME ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 23 UNDER THE INCOME TAX ACT, THE ASSESSEE IS REQUIRED TO TAKE INTO ACCOUNT INCOME BY WAY OF CAPITAL GAINS UNDER SECTION 45 OF THE INCOME TAX ACT. IN THE CIRCUMSTANCES, WHILE COMPUTING THE BOOK PROFITS UNDER THE COMPANIES ACT, THE ASSESSEE HAS TO INCLUDE CAPITAL GAINS FOR COMPUTING THE BOOK PROFITS UNDER SECTION 115J . EVEN UNDER CLAUSE 3(XII)(B) OF PART II OF SCHE DULE VI TO THE COMPANIES ACT, 1956,PROFITS OR LOSSES IN RESPECT OF TRANSACTIONS OR TRANSACTIONS OF AN EXCEPTIONAL OR NON RECURRING NATURE ARE TO BE DISCLOSED. THIS SHOWS CLEARLY THAT CAPITAL GAINS SHOULD BE INCLUDED FOR THE PURPOSES OF COMPUTING BOOK PROFITS. RESPECTFULLY,FOLLOWING THE ABOVE WE DECIDE SECOND GROUND OF APPEAL AGAINST THE ASSESSEE. 28. GROUND NO.5 PERTAINS TO WRITTEN OFF INSURANCE AND RAILWAYS CLAIMS OF RS.50,01,000/ - .DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD W RITTEN OFF UNSETTLED RAILWAY AND INSURANCE CLAIMS AS SAME WERE NOT RECOVERABLE FROM THE AUTHTORITIES.THE AO HELD THAT THE SETTLEMENT OF CLAIMS HAD BEEN FINALISED IN THE EARLIER YEARS,THAT THE CLAIM WAS NOT ADMISSIBLE FOR THE YEAR UNDER APPEAL,THAT THE CLAI M DID NOT RELATE TO THE YEAR BEFORE HIM.FINALLY,HE DISALLOWED THE CLAIM MADE BY THE ASSESSEE.IN THE APPELLATE PROCEEDINGS,THE CONFIRMED THE DISALLOWANCE FOLLOWING THE ORDER OF THE THEN FAA DELIVERED FOR THE AY.2001 - 02. 28.1. BEFORE US,THE AR CONTENDED THAT THE MATTE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF MORGAN SECURITIES & CREDITORS(P.)LTD.OF THE HONBLE DELHI HIGH COURT (292 ITR 339).HE STATED THAT THE ASSESSEE WAS ENTITLED TO THE DEDUCTION ON ACCOUNT OF BAD DEBTS IN THE PREVIOUS YEAR IN W HICH IT HAD BEEN WRITTEN OFF IN THE BOOKS.HE ALSO RELIED UPON THE CASES OF TRF LIMITED(323ITR397),SAURASHTRA CEMENT & CHEMICALS INDUSTRIES LTD.(213 ITR 523). HOWEVER,HE FAIRLY CONCEDED THAT THE IDENTICAL ISSUE HAD BEEN SENT BACK TO THE FILE OF THE AO BY TH E TRIBUNAL WHILE DECIDING THE APPEALS FOR THE AY.S.2000 - 01 AND 2001 - 02. 28.2. FOLLOWING THE DECISIONS OF THE TRIBUNAL FOR THE EARLIER AY.S.,WE ARE RESTORING BACK THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION,WHO WILL DECIDE THE ISSUE AFTER CONSIDE RING THE CASES RELIED UPON BY THE ASSESSEE AND MENTIONED BY US IN THE EARLIER PARAGRAPH.GROUND NO.5 IS DECIDED IN FAVOUR OF THE ASSESSEE ,IN PART. AS A RESULT,APPEAL NO. 3787 FILED BY THE AO STANDS DISMISSED.A PPEAL NO .4987 OF THE AO AND T HE APPEAL NO.4241 OF THE ASSESSEE STAND PARTLY ALLOWED. 3787 . . . . 4987 . 4241 . ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JULY,2015. 29 TH 2015 S D/ - SD/ - ( /JOGINDER SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMB AI, /D ATE: 29 .07. 2015 . . . JV. SR.PS. ITA/3787 & OTHERS/MUM/2009 - AY.2002 - 03,ACC 24 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./AS ST. REGISTRAR , / ITAT, MUMBAI .