The ACIT, Circle-8, Ahmedabad V. M/s. Torrent Pvt. Ltd., Ahmedabad

ITA 3906/AHD/2008

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89323 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-04-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 28-11-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROOP CHAND
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Retrospective amendment; Bad and doubtful debts
• Section: 14A; 115JB; 6; 10

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD 00 , ! ' #$, % & BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER !./ ITA NO. 3906/AHD/2008 % ) *)/ ASSESSMENT YEAR: 2005-2006 ACIT, CIR.NO.8 AHMEDABAD. VS TORRENT PVT. LTD. TORRENT HOUSE, OFF ASHRAM ROAD NR. DINESH HALL AHMEDABAD. !./ ITA NO. 1370/AHD/2009 WITH CO NO.107/AHD/2009 % ) *)/ ASSESSMENT YEAR: 2006-2007 ACIT, CIR.NO.8 AHMEDABAD. VS TORRENT PVT. LTD. TORRENT HOUSE, OFF ASHRAM ROAD NR. DINESH HALL AHMEDABAD. +, / (APPELLANT) -. +, / (RESPONDENT) REVENUE BY : SHRI ROOPCHAND, DR ASSESSEE(S) BY : SHRI S.N. SOPARKAR / DATE OF HEARING : 28/04/2015 / DATE OF PRONOUNCEMENT: 08/05/2015 // O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER: 1. ITA NO.3906/AHD/2008 IS FILED BY THE REVENUE AGA INST THE ORDER OF THE CIT(A)-XIV, AHMEDABAD DATED 25.9.2008 FOR TH E ASSTT.YEAR 2005-06. ITA NO.3906/AHD/2008 (3 APPEALS) 2 ITA NO.1370/AHD/2009 IS THE APPEAL FILED BY THE REV ENUE AND CROSS OBJECTION NO.107/AHD/2009 FILED BY THE ASSESS EE AGAINST THE ORDER OF THE CIT(A)-XIV, AHMEDABAD DATED 25.2.2009 FOR THE ASSTT.YEAR 2006-07. 2. THE GROUND NO.1 OF THE APPEAL OF THE REVENUE FOR THE ASSTT.YEAR 2005-06 IS DIRECTED AGAINST THE ORDER OF THE CIT(A) DELETING THE DISALLOWANCE OF RS.4,50,000/- OUT OF TOTAL DISALLOW ANCE OF RS.5,00,000/- MADE BY THE AO UNDER SECTION 14A OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE IN THE ASST T.YEAR 2005-06, THE AO OBSERVED THAT THE ASSESSEE HAS EARNED EXEMPT DIV IDEND INCOME OF RS.15,47,57,591/-. THE BUSINESS OF THE ASSESSEE I S OF INVESTMENT IN SHARES, DEBENTURES AND SECURITIES OF COMPANIES ETC. THEREFORE, THE STAFF EMPLOYED BY THE ASSESSEE WAS UTILIZED FOR THE PURPOSE OF INVESTMENT PORTFOLIO AND SHARE TRADING PORTFOLIO OF THE COMPANY. THE ASSESSEE SUBMITTED BEFORE THE AO THAT MOST OF INVES TMENTS WERE MADE IN THE EARLIER YEARS AND NO MAJOR EFFORTS WERE REQU IRED FOR EARNING DIVIDEND INCOME, AND THESE INVESTMENTS HAVE BEEN MA DE OUT OF LARGE AMOUNT OF INTEREST FREE FUNDS AVAILABLE WITH THE CO MPANY IN THE FORM OF SHARE CAPITAL AND RESERVE. HOWEVER, THE AO OBSERV ED THAT THE PART OF THE EMPLOYEES COST AND ADMINISTRATIVE EXPENSES IS ATTRIBUTABLE TO EARNING OF DIVIDEND INCOME, AND THEREFORE, MADE A L UMPSUM DISALLOWANCE OF RS.5,00,000/-. 4. ON APPEAL, THE CIT(A) IN THE ASSTT.YEAR 2005-06 OBSERVED THAT THE AO HAS MADE THE ADDITION MERELY ON ESTIMATION. THE CIT(A) OBSERVED THAT THE EXPENSES INCURRED ON ACCOUNT OF S ALARY TO STAFF, STAMP DUTY, TRANSFER FEE AND OTHER SUCH EXPENSES DO RELATE TO EARNING OF DIVIDEND, AND THEREFORE, PART OF SUCH EXPENSES N EEDED TO BE APPORTIONED TO EARNING OF DIVIDEND INCOME ON THE AS SUMPTION THAT THE ASSESSEE MIGHT HAVE INCURRED SUCH EXPENDITURE FOR E ARNING DIVIDEND ITA NO.3906/AHD/2008 (3 APPEALS) 3 INCOME. THE CIT(A) HELD THAT IN VIEW OF THE FACTS , IT IS HELD THAT AN AD HOC DISALLOWANCE OF RS.50,000/- WOULD BE PROPER IN THE FACTS OF THE CASE, AND ACCORDINGLY RESTRICTED THE DISALLOWANCE T O RS.50,000/- IN PLACE OF RS.5,00,000/- MADE BY THE AO. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON REC ORD. WE FIND THAT THE DISALLOWANCE OF RS.5,00,000/- MADE BY THE AO WAS ON AD HOC ESTIMATE BASIS, AND THE CIT(A) ALSO SUSTAINED RS.50,000/- OU T OF THE SAME ON AD HOC ESTIMATE BASIS. THE DR COULD NOT BRING ANY MATERIA L BEFORE US TO SHOW THAT ANY AMOUNT MORE THAN RS.50,000/- WAS INCU RRED BY THE ASSESSEE FOR EARNING OF DIVIDEND INCOME. THEREFORE , WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ESTIMATE MADE BY THE CIT(A). THUS, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 6. THE GROUND NO.2 OF THE CROSS OBJECTION OF THE AS SESSEE FOR THE ASSTT.YEAR 2006-07 IS DIRECTED AGAINST THE ORDER OF THE CIT(A) CONFIRMING THE DISALLOWANCE UNDER SECTION 14A OF RS .6,79,897/-. 7. FOR THE VERY SAME REASONS AS IN ASSTT.YEAR 2005- 06, THE AO MADE DISALLOWANCE UNDER SECTION 14A IN THE ASSTT.YEAR 20 06-07. IN THE ASSTT.YEAR 2005-06, THE AO HAD MADE A LUMPSUM DISAL LOWANCE OF RS.5,00,000/- WHEREAS IN THE ASSTT.YEAR 2006-07, TH E AO HAS MADE DISALLOWANCE AT THE RATE OF 5% OF THE EXPENDITURE O F RS.1,35,97,939/-. 8. THE CIT(A) HELD THAT THE EXPENDITURE INCURRED ON ACCOUNT OF SALARY TO STAFF, STAMP DUTY, TRANSFER FEE AND SUCH OTHER EXPENSES DO RELATE TO EARNING OF DIVIDEND INCOME, AND THEREFORE , A PART OF SUCH EXPENSE NEEDS TO BE APPORTIONED TO EARNING OF DIVID END INCOME, AND IN VIEW OF THAT HE HELD THAT THE DISALLOWANCE MADE UND ER SECTION 14A AMOUNTING TO RS.6,79,897/- WAS JUSTIFIED AND NO INT ERFERENCE WAS CALLED FOR. ITA NO.3906/AHD/2008 (3 APPEALS) 4 9. AFTER HEARING BOTH THE SIDES, AND PERUSING OF TH E ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE AO MADE DISALLOWANCE UNDER SECTION 14A AT THE RATE 5% OF THE DIVIDEND INCOME EARNED DURING THE YEAR BY THE ASSESSEE. THE RATE 5% IS AN AD HOC ESTIMATE WITHOUT ANY BASIS. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE AO. 10. WE FIND THAT IN SIMILAR CIRCUMSTANCES, THE HON BLE MADRAS HIGH COURT IN THE CASE OF M/S.SIMPSON AND CO. LTD. VS. D CIT, TAX CASE (APPEAL) NO.2621 OF 2006 ORDER DATED 15.10.2012 CON FIRMED THE DISALLOWANCE MADE AT THE RATE 2% OF DIVIDEND INCOME EARNED DURING THE YEAR AS FAIR AND REASONABLE. WE, THEREFORE, FOLLOW ING THE SAME, ARE OF THE CONSIDERED OPINION THAT IT SHALL MEET ENDS OF J USTICE TO RESTRICT THE DISALLOWANCE UNDER SECTION 14A AT THE RATE OF 2% OF THE DIVIDEND INCOME EARNED DURING THE YEAR BY THE ASSESSEE. WE, THEREFORE, SET ASIDE THE ORDER OF THE LOWER AUTHORITIES ON THIS IS SUE, AND DIRECT THE AO TO DISALLOW 2% OF THE DIVIDEND INCOME EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION UNDER SECTION 14A, AS EXPENDITURE INCURRED FOR EARNING OF DIVIDEND INCOME. THUS, THI S GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 11. THE GROUND NO.1 IN THE ASSTT.YEAR 2006-07 IS DI RECTED AGAINST THE ORDER OF THE CIT(A), DIRECTING THE AO TO ACCEPT THE GAIN AS SHORT TERM CAPITAL GAINS AND NOT BUSINESS INCOME AS TREATED BY THE AO OF AN AMOUNT OF RS.3,36 ,66,893/-. THE GROUND NO.2 OF THE APPEAL OF THE REVENUE IN TH E ASSTT.YEAR 2005-06 IS DIRECTED AGAINST THE ORDER OF THE CIT(A) ACCEPTING THE GAIN AS SHORT TERM CAPITAL GAIN AND NOT BUSINESS INCOME AS TREATED BY THE AO OF AN AMOUNT OF RS.30,65,299/- U/S.111A OF THE ACT. 12. BRIEF FACTS OF THE CASE ARE THAT THE AO ASSTT.Y EAR 2005-06, OBSERVED THAT THE ASSESSEE HAS SHOWN SHORT TERM CAP ITAL GAIN OF ITA NO.3906/AHD/2008 (3 APPEALS) 5 RS.30,65,299/- AND RS.3,39,98,565/-. THE AO OBSERV ED THAT THE BUSINESS OF THE ASSESSEE WAS OF DEALING IN SHARES A ND SECURITIES AND DEBENTURES AND IS ENGAGED IN FREQUENT BUYING AND SE LLING OF SECURITIES AND THE QUANTUM OF PURCHASE AND REDEMPTION WAS RS.1 97.81 CRORES AND RS.200.75 CRORES. THE AO ALSO OBSERVED THAT THE AS SESSEE HAD EXPLAINED THAT SHARES AND MUTUAL FUND INVESTMENTS W ERE NOT BY WAY OF STOCK-IN-TRADE. IT WAS EXPLAINED THAT MERELY BECAU SE OF FREQUENCY OF TRANSACTION, THE INCOME CANNOT BE CATEGORIZED AS BU SINESS INCOME. THE AO OBSERVED THAT THE CONTENTIONS OF THE ASSESSEE WE RE NOT ACCEPTABLE FOR THE REASON THAT A PERUSAL OF THE SCHEDULE-5 OF THE BALANCE SHEET SHOWS THAT ALMOST ENTIRE STOCK-IN-TRADE COMPRISES O F SHARES OF SAME SUBSIDIARY COMPANY WHICH WERE APPEARING IN THE INVE STMENT PORTFOLIO, AND THERE WAS LARGE TRANSACTIONS IN MUTUAL FUNDS IN VOLVING SUBSTANTIAL SUMS OF MONEY, AND THEREFORE, IN VIEW OF THE FACT T HAT THE BUSINESS OF THE ASSESSEE IS DEALING IS SHARES AND SECURITIES, A ND THE ASSESSEE IS ENGAGED IN LARGE VOLUME OF TRANSACTIONS IN SHARES A ND SECURITIES, THE SHORT TERM CAPITAL GAINS SHOWN BY THE ASSESSEE IS B USINESS INCOME. 13. ON APPEAL, THE CIT(A) OBSERVED THAT IT IS SEEN FROM THE BALANCE SHEET OF THE ASSESSEE THAT THE ASSESSEE HAS SHOWN S HARES AND UNITS OF MUTUAL FUND HELD AS INVESTMENT IN SCHEDULE-IV TO BA LANCE SHEET. THE SAME SET OF SHARES AND UNITS IN MUTUAL FUNDS HAS BE EN SHOWN AS INVESTMENT FROM EARLIER YEARS CONSISTENTLY. THE OTHER SHARES WHICH THE ASSESSEE HAS TRADED AND HELD AS STOCK IN-TRADE HAVE BEEN SHOWN AS STOCK-IN-TRADE IN SCHEDULE-V TO BALANCE SHEET. THE INTENTION OF THE ASSESSEE IN HOLDING SHARES AND UNITS OF MUTUAL FUND S AS PER SCHEDULE-IV AS INVESTMENT WAS CLEAR. IN VIEW OF THE ABOVE STA TED FACTS, AND THE FACT THAT THE ASSESSEE HAS SHOWN THE SAID INCOME ON SALE OF SHARES AS CAPITAL GAIN IN EARLIER YEARS, WHICH HAS BEEN ACCEP TED BY THE DEPARTMENT, RELYING ON THE CASE LAW CITED BY AUTHOR IZED REPRESENTATIVES OF THE ASSESSEE, HE WAS OF THE OPINION THAT MOTIVE OF THE ASSESSEE WAS CLEAR AND IS CERTAINLY NOT TO CARRY OUT BUSINESS OF TRADING IN SHARES AND ITA NO.3906/AHD/2008 (3 APPEALS) 6 SECURITIES, AND UNITS OF MUTUAL FUNDS IN RESPECT OF SHARES AND MUTUAL FUND INVESTMENTS, AS SHOWN IN SCHEDULE-IV TO BALANC E SHEET, AND HENCE, THE AO WAS NOT JUSTIFIED IN TREATING THE SHO RT TERM CAPITAL GAINS AS BUSINESS INCOME. 14. SIMILARLY, IN THE ASSTT.YEAR 2006-07, THE AO OB SERVED THAT THE ASSESSEE IS ENGAGED IN FREQUENT BUYING AND SELLING OF SECURITIES, AND QUANTUM OF PURCHASE AND REDEMPTION WAS RS.85.56 CRO RES AND RS.88.94 CRORES, AND IN REPLY TO SHOW CAUSE NOTICE ISSUED BY THE AO, THE ASSESSEE REPLIED THAT ITS MAJOR INVESTMENT WER E IN THE FORM OF SHARE OF SUBSIDIARY COMPANIES, WHICH WERE NOT IN TH E NATURE OF STOCK-IN- TRADE AND THE FREQUENCY OF TRANSACTION WAS NOT VERY HIGH, AND THAT THE FREQUENCY OF THE BUYING AND SELLING COULD NOT BE US ED TO CATEGORISE THE INCOME AS BUSINESS INCOME. HOWEVER, THE AO DID NO T ACCEPT THE EXPLANATION OF THE ASSESSEE AND OBSERVED THAT ALMOS T ENTIRE STOCK-IN- TRADE COMPRISES OF SAME SUBSIDIARY COMPANIES, WHICH WERE APPEARING IN THE INVESTMENT PORTFOLIO, AND THERE WERE LARGE TRAN SACTIONS IN SHARES AND SECURITIES INVOLVING SUBSTANTIAL SUM OF MONEY, THEREFORE, THE AO HELD THAT SHORT TERM CAPITAL GAINS SHOWN BY THE ASS ESSEE WAS IN FACT BUSINESS INCOME OF THE ASSESSEE. 15. ON APPEAL, THE CIT(A) OBSERVED THAT IT IS SEEN FROM THE BALANCE SHEET FILED BY THE ASSESSEE THAT THE ASSESSEE HAS S HOWN THE SHARES AND UNITS OF MUTUAL FUND HELD AS INVESTMENT AS PER SCHE DULE-5 TO THE BALANCE SHEET. THE CIT(A) ALSO OBSERVED THAT THE SAME SET OF SHARES AND UNITS IN MUTUAL FUNDS HAVE BEEN SHOWN AS INVEST MENTS FROM EARLIER YEARS CONSISTENTLY. THE OTHER SHARES WHICH THE ASS ESSEE HAD TRADED AND HELD AS STOCK-IN-TRADE HAVE BEEN SHOW AS STOCK IN TRADE IN SCHEDULE-VI TO THE BALANCE SHEET. THE INTENTION OF THE ASSESSEE IN HOLDING SHARES AND UNITS OF MUTUAL FUNDS AS PER SCH EDULE-V AS INVESTMENT IS CLEAR. FURTHER, CIT(A) OBSERVED THA T SIMILAR ISSUE CAME UP BEFORE HIM IN THE IMMEDIATELY PRECEDING ASSESSME NT YEAR, AND IT ITA NO.3906/AHD/2008 (3 APPEALS) 7 WAS HELD THAT THE AO WAS NOT JUSTIFIED IN TREATING THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME, SINCE THE FACTS ARE IDENTI CAL TO THE FACTS FOR THE ASSTT.YEAR 2005-06, HE DIRECTED TO THE AO TO ACCEPT THE INCOME AS SHORT TERM CAPITAL GAIN. 16. THE DR SUPPORTED THE ORDER OF THE AO, WHEREAS, THE AR OF THE ASSESSEE SUBMITTED THAT THE VOLUME OF SHARES PURCHA SE AND SALE WAS INSIGNIFICANT. THE ASSESSEE HAS PURCHASED AND SOLD VIEW SCRIPTS. NO BORROWED FUNDS HAVE BEEN UTILIZED BY THE ASSESSEE F OR THE PURCHASE AND SALE OF SHARES. FURTHER, IT HAS BEEN CONSISTENTLY SHOWN BY THE ASSESSEE AS CAPITAL GAINS. 17. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CSE, THE ASSESSEE IS HOLDING AN INVESTMENT COMPANY. THE ASSESSEE IN ITS BALANCE SHEET DISCLOSED CERTAIN ACQUISITION OF SHAR ES AS STOCK-IN-TRADE, AND CERTAIN SHARES OF MUTUAL FUNDS AS INVESTMENT. I N OTHER WORDS, THE ASSESSEE CLAIMED ITSELF AS A TRADER IN SHARES AS WE LL AS, AS AN INVESTOR IN SHARES. THE ASSESSEE CLAMED PROFIT FROM SALE OF SHARES AND MUTUAL FUND, WHICH WERE DISCLOSED BY IT AS INVESTMENT AS S HORT TERM CAPITAL GAINS, WHICH WAS TO THE TUNE OF RS.30,65,299/- IN T HE ASSTT.YEAR 2005- 06 AND TO THE TUNE OF RS.3,36,66,893/- IN THE ASSTT .YEAR 2006-07. ACCORDING TO THE AO, THE FREQUENCY AND VOLUME OF TR ANSACTION ON WHICH THE ASSESSEE CLAIMED TO HAVE EARNED SHORT TERM CAPI TAL GAINS WERE VERY HIGH, AND THEREFORE, HELD THAT THE SAID INCOME IS A SSESSABLE AS BUSINESS INCOME IN THE HANDS OF THE ASSESSEE. 18. ON APPEAL, THE CIT(A) HELD THAT MERELY THE VOLU ME CANNOT DETERMINE THE CHARACTER OF THE INCOME, AND HE CONSI DERED THAT THE FREQUENCY WERE NOT VERY HIGH AND THE INTENTION OF T HE ASSESSEE TO HOLD SHARES AND UNITS AS INVESTMENT WAS CLEAR FROM THE F ACT THAT THESE SHARES AND MUTUAL FUNDS WERE REFLECTED AS INVESTMEN T IN THE AUDITED BALANCE SHEET OF THE ASSESSEE. THE CIT(A), THEREFO RE, ALLOWED THE CLAIM ITA NO.3906/AHD/2008 (3 APPEALS) 8 OF THE ASSESSEE AND ACCEPTED THE INCOME SHOWN AS SH ORT TERM CAPITAL GAINS. 19. BEFORE US, THE DR RELIED UPON THE ORDER OF THE AO. 20. WE FIND THAT NO MATERIAL HAS BEEN BROUGHT BEFOR E US TO SHOW, WHAT WAS THE FREQUENCY OF THE TRANSACTION IN QUESTI ON. IT IS NOT THE CASE OF THE REVENUE THAT ANY BORROWED FUND WAS UTIL IZED FOR ACQUIRING SHARES OR UNITS OF MUTUAL FUNDS UNDER CONSIDERATION . IN OUR CONSIDERED VIEW, THE INTENTION OF THE ASSESSEE AT THE TIME OF ACQUIRING SHARES OF MUTUAL FUND HAS TO BE ASCERTAINED BY TAKING INTO CO NSIDERATION ALL THE RELEVANT FACTORS, LIKE UTILIZATION OF BORROWED FUND S, FREQUENCY OF TRANSACTION, VOLUME OF TRANSACTION, MANNER IN WHICH THE ACQUISITION IS REFLECTED IN THE FINANCIAL STATEMENTS ETC. NO SING LE FACTOR IS DETERMINATIVE OF ACTUAL NATURE OF THE TRANSACTION. IN THE ABSENCE OF ANY MATERIAL BROUGHT BEFORE US BY THE REVENUE TO SHOW T HAT SAME SHARES OR THE UNITS OF MUTUAL FUNDS WERE FREQUENTLY PURCHASED AND SOLD, ON WHICH SHORT TERM CAPITAL GAIN WAS CLAIMED BY THE ASSESSEE , OR THAT NO BORROWED FUNDS WAS UTILIZED BY THE ASSESSEE IN ACQU IRING THE SHARES AND UNITS IN QUESTION, WE DO NOT FIND ANY GOOD REASON T O INTERFERE WITH THE ORDER OF THE CIT(A), THEREFORE, THIS GROUND OF THE APPEAL OF THE REVENUE IS DISMISSED IN BOTH THE YEARS UNDER CONSIDERATION. 21. THE GROUND NO.3 OF THE APPEAL IN THE ASSTT.YEAR 2005-06 AND GROUNDS NO.2 OF THE APPEAL FOR THE ASSTT.YEAR 2006- 07 ARE DIRECTED AGAINST THE ORDER OF THE CIT(A) DIRECTING THE AO TO ALLOW DEDUCTION OF PRELIMINARY EXPENSES OF RS.7,93,340/- UNDER SECTION 35D OF THE ACT. 22. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.8,03,445/- AS PRELIMINA RY EXPENDITURE IN THE COMPUTATION OF INCOME. FROM A PERUSAL OF THE D ETAILS FILED BY THE ASSESSEE IT S SEEN THAT AN AMOUNT OF RS.7,93,340/- WAS PAID ON ACCOUNT OF ROC FEES FOR INCREASE IN AUTHORISZED CAPITAL. A S PER THE PROVISION OF ITA NO.3906/AHD/2008 (3 APPEALS) 9 SECTION 35D, SUCH PAYMENT OF ROC FEES FOR INCREASE IN THE AUTHORIZED CAPITAL IS NOT A DEDUCTIBLE EXPENDITURE. THE AO A LSO OBSERVED THAT IN REPLY TO SHOW CAUSE NOTICE DATED 27.11.2007, THE AS SESSEE REPLIED VIDE LETTER DATED 3.12.2007, WHEREIN, IT IS SUBMITTED TH AT THE ASSESSEE HAD INCURRED SAID EXPENDITURE IN THE YEAR 1999-2000. A CCORDING TO THE PROVISION OF SECTION 35D, THE ASSESSEE IS ALLOWED T HE DEDUCTION OF 1/10 TH OF TOTAL PRELIMINARY EXPENDITURE FOR 10 YEARS. SI NCE THIS IS THE SIXTH YEAR, THE ASSESSEE HAD CLAIMED 1/10 TH OF THE SAID EXPENSES IN THE RETURN OF INCOME. THE ASSESSEE HAS FURTHER SUBMITTED THAT THE ALLOWABILITY OR OTHERWISE OF THE EXPENDITURE HAS BEEN DECIDED IN TH E FIRST YEAR, AND THE DEDUCTION WAS ALLOWED IN THE SUBSEQUENT YEAR ON THE BASIS OF THE AMOUNT DETERMINED IN THE FIRST YEAR. THEREFORE, NO DISALLOWANCE SHOULD BE MADE. 23. THE AO OBSERVED THAT THE REPLY OF THE ASSESSEE IS NOT ACCEPTABLE. EVEN IF THE EXPENDITURE HAS BEEN ALLOWED IN EARLIER YEARS, THE AO IS NOT BOUND TO ACCEPT SUCH ALLOWANCE IN SUBSEQUENT YEAR A LSO. THE PROCEEDINGS UNDER THE INCOME TAX ACT ARE NOT COVERE D BY THE PRINCIPLE OF RES JUDICATA . IT HAS BEEN HELD THAT IN THE CASE OF CIT VS. FOS S ELECTRONICS, 263 ITR 125 (RAJ) THAT IF THE MISTAKE COMMITTED BY ONE AO HAS NOT BEEN CHALLENGED, IT DOES NOT CONFER ANY LEG AL AUTHORITY IN FAVOUR OF THE ASSESSEE THAT IN SUBSEQUENT YEARS ALSO THE M ISTAKE SHOULD PERPETUATED. THEREFORE, THE CONTENTION OF THE ASS ESSEE OF NOT DISALLOWING THE EXPENDITURE, AS IT HAS BEEN ALLOWED IN EARLIER YEARS, WAS REJECTED. THE AO FURTHER OBSERVED THAT IT IS ALSO SEEN THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE AS ROC FEES FOR INCREASE IN AUTHORIZED CAPITAL WAS NOT ALLOWABLE UNDER SECTION3 5D AS HELD IN THE CASE OF CIT VS. HINDUSTAN INSPECTICIDES LTD., 250 I TR 338 (DELHI). HE, THEREFORE, DISALLOWED DEDUCTION OF RS.7,93,340/- AN D ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. ITA NO.3906/AHD/2008 (3 APPEALS) 10 24. ON APPEAL, THE CIT(A) HELD THAT THE ASSESSEE HA D SUBMITTED THAT IT HAD INCURRED EXPENDITURE IN THE YEAR 1999-2000, AND THIS IS THE SIXTH YEAR, AND ACCORDING TO THE PROVISION OF SECTION 35D , IT SHOULD BE ALLOWED 1/10 TH OF TOTAL PRELIMINARY EXPENSES. THE ASSESSEE HAS S UBMITTED BEFORE THE AO THAT THE ALLOWABILITY OF SUCH EXPENDI TURE HAS BEEN DECIDED IN THE FIRST YEAR AND DEDUCTION HAS BEEN AL LOWED IN SUBSEQUENT YEARS. THE AO DID NOT ACCEPT THE SAID REPLY STATIN G THAT THERE WAS NO PRINCIPLE OF RES JUDICATA IN PROCEEDINGS UNDER THE INCOME TAX ACT. THE AR HAS REITERATED THE SAME SUBMISSIONS, AND THAT, A FTER CONSIDERING THE FACTS OF THE CASE, THE CIT(A) DIRECTED THE AO TO AL LOW THE SAME, IF SIMILAR CLAIM HAS BEEN ALLOWED IN ASSESSMENTS OF EA RLIER YEARS. 25. THE DR SUPPORTED THE ORDER OF THE AO, WHEREAS, THE AR OF THE ASSESSEE SUBMITTED THAT THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE IN THE INCOME TAX PROCEEDINGS, BUT CONSISTENCY SHOULD BE MAINTAINED IN THE INCOME-TAX PROCEEDINGS. HE RELIED ON THE DECIS ION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. EXCEL INDUSTRI ES LTD. 358 ITR 295. THEREFORE, HE SUBMITTED THAT THE ORDER OF THE CIT(A ) SHOULD BE CONFIRMED THE GROUND OF THE APPEAL OF THE REVENUE S HOULD BE DISMISSED. 26. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE ASSESSEE HAS CLAIMED THAT IT HAS INCURRED PRELIMINARY EXPENSES UNDER SECTION 35D OF THE ACT OF RS.79,33,4 00/- IN THE PREVIOUS YEAR RELEVANT TO THE ASSTT.YEAR 2000-01. ACCORDINGLY, IT CLAIMED 1/10 TH OF THE SAID EXPENDITURE I.E. RS.7,93,340/- AS DEDU CTION IN THE ASSTT.YEAR 2005-06 BEING 6 TH YEAR AND OF THE SAME AMOUNT IN THE ASSTT.YEAR 2006-07 BEING 7 TH YEAR. 27. ON APPEAL, THE AO DISALLOWED THIS EXPENDITURE F OR BOTH THE YEARS UNDER CONSIDERATION ON THE GROUND THAT THE EXPENDIT URE INCURRED WAS ON ITA NO.3906/AHD/2008 (3 APPEALS) 11 ACCOUNT OF FILING FEES PAID TO REGISTRAR OF COMPANI ES WHICH DOES NOT QUALIFY AS PRELIMINARY EXPENDITURE UNDER SECTION 35 D(2) OF THE ACT. 28. ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOR BOTH THE YEARS ON THE GROUND THAT SIMILAR DEDUCTION WAS ALLOWED TO THE ASSESSEE IN THE EARLIER YEARS. 29. WE FIND THAT FIRST PROVISO TO SECTION 35D(1) RE ADS AS UNDER: PROVIDED THAT WHERE AN ASSESSEE INCURS AFTER THE 3 1ST DAY OF MARCH, 1998, ANY EXPENDITURE SPECIFIED IN SUB-SECTI ON (2), THE PROVISIONS OF THIS SUB-SECTION SHALL HAVE EFFECT AS IF FOR THE WORDS AN AMOUNT EQUAL TO ONE-TENTH OF SUCH EXPENDI TURE FOR EACH OF THE TEN SUCCESSIVE PREVIOUS YEARS, THE WOR DS AN AMOUNT EQUAL TO ONE-FIFTH OF SUCH EXPENDITURE FOR E ACH OF THE FIVE SUCCESSIVE PREVIOUS YEARS HAD BEEN SUBSTITUTE D. 30. IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE EXPENDITURE IN RESPECT OF WHICH THE DEDUCTION WAS CLAIMED BY THE A SSESSEE UNDER SECTION 35D WAS INCURRED AFTER 31 ST MARCH, 1998. THUS, IN ANY VIEW OF THE MATTER, THE DEDUCTION IS TO BE ALLOWED TO THE A SSESSEE FOR FIVE YEARS ONLY. THE ASSESSEE HAS SUBMITTED THAT DEDUCTION HA S ALREADY BEEN ALLOWED FOR FIVE YEARS TO IT, AND OF COURSE AT THE RATE OF 10% AND NOT AT THE RATE OF 20%. BE THAT AS IT MAY, THE YEAR UNDER CONSIDERATION BEING 6 TH AND 7 TH YEAR, THE DEDUCTION UNDER SECTION 35D IS NOT ALLOW ABLE TO THE ASSESSEE IN VIEW OF THE PROVISO QUOTED ABOVE. THER EFORE, THIS GROUND OF THE APPEAL OF THE REVENUE IS ALLOWED. 31. IN THE ASSTT.YEAR 2005-06, THE REVENUE HAS TAKE N THE ADDITION GROUND OF APPEAL, WHICH READS AS UNDER: THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.11,00,00,000/- MADE ON ACCOUNT OF PR OVISION FOR DOUBTFUL LOANS WHILE COMPUTING BOOK PROFIT U/S.115J B OF THE ACT. 32. BRIEF FACTS OF THE CASE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS CALCULATED BOOK PROFIT UNDER SECTION 115JB AFTER DEDUCTING THE SHAR E IN PROFIT OF TORRENT ITA NO.3906/AHD/2008 (3 APPEALS) 12 FINANCIERS AND SHARE OF DIVIDEND EARNED AND NO ADJU STMENT TO BOOK PROFIT HAS BEEN MADE IN RESPECT OF PROVISION FOR DO UBTFUL LOANS DEBITED BY THE ASSESSEE IN PROFIT & LOSS ACCOUNT. THE AO S HOW CAUSED THE ASSESSEE AS TO WHY THE SAID PROVISION, AMOUNTING TO RS.11 CRORES SHOULD NOT BE ADDED TO THE BOOK PROFIT, AND IN, RES PONSE TO THE SAME, IT WAS EXPLAINED BY THE ASSESSEE THAT THE PROVISION FO R DOUBTFUL ADVANCES ARE NOT FOR MAKING LIABILITIES AND ARE NOT COVERED BY CLAUSE (C) OF EXPLANATION BELOW SECTION 11JB(2), FOR WHICH THE ASSESSEE PLACE D RELIANCE ON THE DECISION OF PUNA BENCH OF THE TRIBU NAL IN THE CASE OF ACIT VS. J.G. VACCUM FLASK PVT. LTD., 83 ITD 242 (P UNE) AND MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MSEB VS. JCIT, 82 ITD 422 (MUM). THE ASSESSEE FURTHER RELIED ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF APOLLO TYRES VS. CIT, 255 ITR 273, AND CONTENDED BEFORE THE AO THAT HE HAS LIMITED POWER OF INCREASE OR DEC REASING THE BOOK PROFIT, AND HE HAS NO JURISDICTION GO BEHIND THE NE T PROFIT SHOWN IN THE PROFIT & LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION. THE AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESS EE BY OBSERVING THAT THE AO CAN ADJUST THE BOOK PROFIT AS PER EXPLANATION TO SECTION 115JB(2), AND THE ADDITION OF PROVISION FOR DOUBTFU L LOANS TO BOOK PROFIT IS PROPOSED TO BE MADE AS PER CLAUSE (C) UNDER THE EXPLANATION TO SECTION 115JB(2). THE AO RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. BEARDSELL LTD., 244 IT R 256 AND HELD THAT THE PROVISION FOR BAD AND DOUBTFUL DEBTS IS AN UNAS CERTAINED LIABILITY AND IS LIABLE TO BE ADDED TO BOOK PROFIT, AND THE ASSES SEE VERY WELL COULD HAVE CLAIMED THE SAME BY WRITING IT OFF IN THE PROF IT & LOSS ACCOUNT, RATHER THAN MAKING A PROVISION FOR SUCH LOAN. TH E AO, THEREFORE, ADDED RS.11 CRORES TO THE BOOK PROFIT OF THE ASSESS EE. 33. ON APPEAL, THE CIT(A) HELD THAT THE PROVISION F OR BAD DEBT HAS MADE IN ORDER TO REFLECT THE TRUE STATE OF AFFAIRS OF THE COMPANY. THE COMPANY HAS NOT PROVIDED FOR A CONTINGENT LIABILITY BUT IN FACT IT HAS PROVIDED FOR DIMINUTION IN THE VALUE OF AN ASSET I. E. PROVISION FOR ITA NO.3906/AHD/2008 (3 APPEALS) 13 DOUBTFUL ADVANCES. FURTHER, IF THE PROVISIONS MAD E BY THE ASSESSEE IS FOR THE DIMINUTION IN THE VALUE OF THE ASSETS, IT W OULD NOT BE COVERED BY CLAUSE (C) OF THE EXPLANATION BELOW SECTION 115JB(2). THE CIT(A) OBSERVED THAT THIS VIEW IS ALSO SUPPORTED BY THE DE CISIONS OF THE JCIT VS. USHA MARTIN INDUSTRIES LTD., 288 ITR (AT) 63 (C AL)(SB). HENCE, HE DELETED THE ADDITION MADE TO THE BOOK PROFIT ON ACC OUNT OF PROVISION FOR BAD DEBTS. 34. DR SUPPORTED THE ORDER OF THE AO. 35. ON THE OTHER HAND, THE AR OF THE ASSESSEE RELIE D ON THE DECISION OF THE HONBLE KARNTAKA HIGH COURT IN THE CASE OF C IT VS. YOKOGAWA INDIA LTD., 17 TAXMANN.COM 15 (KAR.) AND SUBMITTED THAT THE HONBLE KARNATAKA HIGH COURT AFTER TAKING INTO CONSIDERATIO N THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF VIJAYA BANK VS. C IT, 323 ITR 166 AND CIT VS. HCL COMNET SYSTEMS & SERVICES LTD. 305 ITR 409 AND HELD AS UNDER: IN THE INSTANT CASE, THE DEBT IS AN AMOUNT RECEIVA BLE BY THE ASSESSEE AND NOT ANY LIABILITY PAYABLE BY THE ASSESSEE AND, THEREFORE, ANY PROVISION MADE TOWARDS IRRECOVERABIL ITY OF THE DEBT CANNOT BE SAID TO BE A PROVISION FOR LIABILITY. THE REFORE, ITEM (C ) OF THE EXPLANATION IS NOT ATTRACTED TO THE FACTS OF THE CASE. ITEM (C) IN SECTION 115JA AND 115JB(1) ARE IDENTICAL. IN ORDER TO ATTRACT THE EXPLANATION THE DEBT WHICH IS DOUBTFUL OR BAD S HOULD SATISFY THE REQUIREMENT CONTEMPLATED IN ITEM (C ) OF THE EX PLANATION. IT IS THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISIONS MADE FOR MEETING THE LIABILITY OTHER THAN THE ASCERTAINED LIABILITIE S. IN THE INSTANT CASE ALSO THE BAD AND DOUBTFUL DEBT FOR WHICH A PRO VISION IS MADE WHICH IS IN THE NATURE OF DIMINUTION IN THE VALUE O F ANY ASSET WOULD NOT FALL WITHIN ITEM (C) OF EXPLANATION (1). IT IS IN THAT CONTEXT THE APPELLATE COMMISSIONER AS WELL AS THE T RIBUNAL HAS GRANTED RELIEF TO THE ASSESSEE. REALISING THE FATAL ITY OF THE SAID ARGUMENT, IT IS CONTENDED NOW THAT ITEM (I) CANNOT AMOUNT TO SATISFACTION AS PROVISION FOR DIMINISHING IN THE VA LUE OF ASSETS IS SUBSTITUTED, IF CASE OF THE ASSESSEE FALLS UNDER IT EM (C). IN MEETING THE AFORESAID CASE, THE ASSESSEE BROUGHT ON RECORD THE JUDGMENT OF THE APEX COURT IN THE CASE OF VIJAYA BANK V. CIT [2010] 323 ITR 166 / 190 TAXMAN 257 WHE RE THE APEX COURT HAD AN OCCASION TO CONSIDER THIS EXPLANA TION . IT ACCEPTED THE ARGUMENT ON BEHALF OF THE REVENUE TO T HE EFFECT THAT ITA NO.3906/AHD/2008 (3 APPEALS) 14 THE EXPLANATION MAKES IT VERY CLEAR THAT THERE IS A DICHOTOMY BETWEEN ACTUAL WRITE OFF ON THE ONE HAND AND PROVIS ION FOR BAD AND DOUBTFUL DEBT ON THE OTHER. A MERE DEBIT TO THE PROFIT AND LOSS ACCOUNT WOULD CONSTITUTE A BAD AND DOUBTFUL DEBT, B UT IT WOULD NOT CONSTITUTE ACTUAL WRITE OFF AND THAT WAS THE VE RY REASON WHY THE EXPLANATION STOOD INSERTED. PRIOR TO THE FINANC E ACT, 2001 MANY ASSESSEES USED TO TAKE THE BENEFIT OF DEDUCTIO N UNDER SECTION 36(1)(VII ) BY MERELY DEBITING THE IMPUGNED BAD DEBT TO THE PROFIT AND LOSS ACCOUNT AND, THEREFORE, THE PAR LIAMENT STEPPED IN BY WAY OF EXPLANATION TO SAY THAT A MERE REDUCTI ON OF PROFITS BY DEBITING THE AMOUNT TO THE PROFIT AND LOSS ACCOUNT PER SE WOULD NOT CONSTITUTE ACTUAL WRITE OFF. THE APEX COURT ACC EPTED THE SAID LEGAL POSITION. HOWEVER, IT WAS CLARIFIED THAT BESI DES DEBITING THE PROFIT AND LOSS ACCOUNT AND CREATING A PROVISION FO R BAD AND DOUBTFUL DEBT, THE ASSESSEE CORRESPONDINGLY/SIMULTA NEOUSLY OBLITERATED THE SAID PROVISION FROM ITS ACCOUNTS BY REDUCING THE CORRESPONDING AMOUNT FROM LOANS AND ADVANCES/DEBTOR S ON THE ASSETS SIDE OF THE BALANCE SHEET AND CONSEQUENTLY, AT THE END OF THE YEAR, THE FIGURE IN THE LOANS AND ADVANCES OR T HE DEBTORS ON THE ASSETS SIDE OF THE BALANCE SHEET WAS SHOWN AS N ET OF THE PROVISION FOR THE IMPUGNED BAD DEBT. THEN THE SAID AMOUNT REPRESENTING BAD DEBT OR DOUBTFUL DEBT CANNOT BE AD DED IN ORDER TO COMPUTE BOOK PROFIT. THEREFORE, AFTER THE EXPLAN ATION THE ASSESSEE IS NOW REQUIRED NOT ONLY TO DEBIT THE PROF IT AND LOSS ACCOUNT BUT SIMULTANEOUSLY ALSO REDUCE THE LOANS AN D ADVANCES OR THE DEBTORS FROM THE ASSETS SIDE OF THE BALANCE SHE ET TO THE EXTENT OF THE CORRESPONDING AMOUNT SO THAT, AT THE END OF THE YEAR, THE AMOUNT OF LOANS AND ADVANCES/DEBTORS IS S HOWN AS NET OF THE PROVISIONS FOR THE IMPUGNED BAD DEBT. THEREF ORE, IN THE FIRST PLACE IF THE BAD DEBT OR DOUBTFUL DEBT IS RED UCED FROM THE LOANS AND ADVANCES OR THE DEBTORS FROM THE ASSETS S IDE OF THE BALANCE SHEET THE EXPLANATION TO SECTION 115JA OR 1 15JB IS NOT AT ALL ATTRACTED. IN THAT CONTEXT EVEN IF AMENDMENT WH ICH IS MADE RETROSPECTIVE THE BENEFIT GIVEN BY THE TRIBUNAL AND THE APPELLATE COMMISSIONER TO THE ASSESSEE IS IN NO WAY AFFECTED. IN THAT VIEW OF THE MATTER, THERE IS NOT MERIT IN THIS APPEAL. 36. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE DEBITED RS.11 CRORES IN ITS PROFIT & L OSS ACCOUNT UNDER THE HEAD PROVISION FOR BAD DEBTS. THE AO WHILE COMPU TING THE BOOK PROFIT OF THE ASSESSEE UNDER SECTION 115JB OF THE ACT ADDE D BACK THE AFORESAID PROVISION BY INVOKING THE PROVISION OF CLAUSE (C) O F EXPLANATION (1) OF ITA NO.3906/AHD/2008 (3 APPEALS) 15 SECTION 115JB OF THE ACT. THE SAID CLAUSE (C) PROV IDES FOR AMOUNT SET ASIDE AS PROVISION FOR MEETING LIABILITIES OTHER TH AN ASCERTAINED LIABILITY. 37. ON APPEAL, THE CIT(A) DELETED THE ABOVE ADDITIO N BY OBSERVING THAT THE SAID PROVISION WAS NOT MADE IN RESPECT OF ANY LIABILITY, AND THEREFORE, THE CLAUSE (C) OF EXPLANATION (1) TO SECTION 115JB IS NOT ATTRACTED. WE FIND THAT THE CLAUSE (I) HAS BEEN IN SERTED IN EXPLANATION (1) TO SECTION 115JB BY THE FINANCE (2) ACT, 2009 WITH RETROSPECTIVE EFFECT FROM 1.4.2001 AND THE SAID CLAUSE PROVIDES F OR INCREASE OF NET PROFIT BY THE AMOUNT SET ASIDE AS PROVISION FOR DIM INUTION IN THE VALUE OF ANY ASSETS FOR CALCULATING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. THE HONBLE KARNATAKA HIGH COURT HAD AN OCCAS ION TO INTERPRET THE SCOPE OF ABOVE CITED CLAUSE (I) IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD. (SUPRA) WHEREIN IT WAS HELD AS UNDER: IN THE INSTANT CASE, THE DEBT IS AN AMOUNT RECEIVA BLE BY THE ASSESSEE AND NOT ANY LIABILITY PAYABLE BY THE ASSESSEE AND, THEREFORE, ANY PROVISION MADE TOWARDS IRRECOVERABIL ITY OF THE DEBT CANNOT BE SAID TO BE A PROVISION FOR LIABILITY. THE REFORE, ITEM (C ) OF THE EXPLANATION IS NOT ATTRACTED TO THE FACTS OF THE CASE. ITEM (C) IN SECTION 115JA AND 115JB(1) ARE IDENTICAL. IN ORDER TO ATTRACT THE EXPLANATION THE DEBT WHICH IS DOUBTFUL OR BAD S HOULD SATISFY THE REQUIREMENT CONTEMPLATED IN ITEM (C ) OF THE EX PLANATION. IT IS THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISIONS MADE FOR MEETING THE LIABILITY OTHER THAN THE ASCERTAINED LIABILITIE S. IN THE INSTANT CASE ALSO THE BAD AND DOUBTFUL DEBT FOR WHICH A PRO VISION IS MADE WHICH IS IN THE NATURE OF DIMINUTION IN THE VALUE O F ANY ASSET WOULD NOT FALL WITHIN ITEM (C) OF EXPLANATION (1). IT IS IN THAT CONTEXT THE APPELLATE COMMISSIONER AS WELL AS THE T RIBUNAL HAS GRANTED RELIEF TO THE ASSESSEE. REALISING THE FATAL ITY OF THE SAID ARGUMENT, IT IS CONTENDED NOW THAT ITEM (I) CANNOT AMOUNT TO SATISFACTION AS PROVISION FOR DIMINISHING IN THE VA LUE OF ASSETS IS SUBSTITUTED, IF CASE OF THE ASSESSEE FALLS UNDER IT EM (C). IN MEETING THE AFORESAID CASE, THE ASSESSEE BROUGHT ON RECORD THE JUDGMENT OF THE APEX COURT IN THE CASE OF VIJAYA BANK V. CIT [2010] 323 ITR 166 / 190 TAXMAN 257 WHE RE THE APEX COURT HAD AN OCCASION TO CONSIDER THIS EXPLANA TION . IT ACCEPTED THE ARGUMENT ON BEHALF OF THE REVENUE TO T HE EFFECT THAT THE EXPLANATION MAKES IT VERY CLEAR THAT THERE IS A DICHOTOMY BETWEEN ACTUAL WRITE OFF ON THE ONE HAND AND PROVIS ION FOR BAD AND DOUBTFUL DEBT ON THE OTHER. A MERE DEBIT TO THE PROFIT AND LOSS ITA NO.3906/AHD/2008 (3 APPEALS) 16 ACCOUNT WOULD CONSTITUTE A BAD AND DOUBTFUL DEBT, B UT IT WOULD NOT CONSTITUTE ACTUAL WRITE OFF AND THAT WAS THE VE RY REASON WHY THE EXPLANATION STOOD INSERTED. PRIOR TO THE FINANC E ACT, 2001 MANY ASSESSEES USED TO TAKE THE BENEFIT OF DEDUCTIO N UNDER SECTION 36(1)(VII ) BY MERELY DEBITING THE IMPUGNED BAD DEBT TO THE PROFIT AND LOSS ACCOUNT AND, THEREFORE, THE PAR LIAMENT STEPPED IN BY WAY OF EXPLANATION TO SAY THAT A MERE REDUCTI ON OF PROFITS BY DEBITING THE AMOUNT TO THE PROFIT AND LOSS ACCOUNT PER SE WOULD NOT CONSTITUTE ACTUAL WRITE OFF. THE APEX COURT ACC EPTED THE SAID LEGAL POSITION. HOWEVER, IT WAS CLARIFIED THAT BESI DES DEBITING THE PROFIT AND LOSS ACCOUNT AND CREATING A PROVISION FO R BAD AND DOUBTFUL DEBT, THE ASSESSEE CORRESPONDINGLY/SIMULTA NEOUSLY OBLITERATED THE SAID PROVISION FROM ITS ACCOUNTS BY REDUCING THE CORRESPONDING AMOUNT FROM LOANS AND ADVANCES/DEBTOR S ON THE ASSETS SIDE OF THE BALANCE SHEET AND CONSEQUENTLY, AT THE END OF THE YEAR, THE FIGURE IN THE LOANS AND ADVANCES OR T HE DEBTORS ON THE ASSETS SIDE OF THE BALANCE SHEET WAS SHOWN AS N ET OF THE PROVISION FOR THE IMPUGNED BAD DEBT. THEN THE SAID AMOUNT REPRESENTING BAD DEBT OR DOUBTFUL DEBT CANNOT BE AD DED IN ORDER TO COMPUTE BOOK PROFIT. THEREFORE, AFTER THE EXPLAN ATION THE ASSESSEE IS NOW REQUIRED NOT ONLY TO DEBIT THE PROF IT AND LOSS ACCOUNT BUT SIMULTANEOUSLY ALSO REDUCE THE LOANS AN D ADVANCES OR THE DEBTORS FROM THE ASSETS SIDE OF THE BALANCE SHE ET TO THE EXTENT OF THE CORRESPONDING AMOUNT SO THAT, AT THE END OF THE YEAR, THE AMOUNT OF LOANS AND ADVANCES/DEBTORS IS S HOWN AS NET OF THE PROVISIONS FOR THE IMPUGNED BAD DEBT. THEREF ORE, IN THE FIRST PLACE IF THE BAD DEBT OR DOUBTFUL DEBT IS RED UCED FROM THE LOANS AND ADVANCES OR THE DEBTORS FROM THE ASSETS S IDE OF THE BALANCE SHEET THE EXPLANATION TO SECTION 115JA OR 1 15JB IS NOT AT ALL ATTRACTED. IN THAT CONTEXT EVEN IF AMENDMENT WH ICH IS MADE RETROSPECTIVE THE BENEFIT GIVEN BY THE TRIBUNAL AND THE APPELLATE COMMISSIONER TO THE ASSESSEE IS IN NO WAY AFFECTED. IN THAT VIEW OF THE MATTER, THERE IS NOT MERIT IN THIS APPEAL. 38. WE FIND THAT THE COMPLETE FACTS FOR APPLYING TH E ABOVE DECISION ARE NOT AVAILABLE BEFORE US. WE, THEREFORE, SET AS IDE THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE, AND REMIT THE MATT ER BACK TO THE FILE OF AO FOR DECIDING THE ISSUE AFRESH IN THE LIGHT OF TH E ABOVE CITED DECISION OF THE HONBLE KARNATAKA HIGH COURT AFTER VERIFYING THE FACTS OF THE INSTANT CASE. IT IS NEEDLESS TO MENTION THAT THE A O SHALL ALLOW REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE B EFORE DECIDING THE ITA NO.3906/AHD/2008 (3 APPEALS) 17 ISSUE AFRESH. THEREFORE, THE GROUND OF THE APPEAL OF THE REVENUE IS TO BE TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 39. IN THE RESULT, THE APPEALS OF THE REVENUE FOR T HE ASSTT.YEAR 2005- 06 AND 2006-07 ARE PARTLY ALLOWED AS ABOVE, AND THE CROSS OBJECTION OF THE ASSESSEE IS ALSO PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON FRIDAY THE 8 TH MAY, 2015 AT AHMEDABAD. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 08/05/2015 / 0 -%$12 32*$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! / CONCERNED CIT 4. ! ( ) / THE CIT(A)-III 5. $%& '' , / DR, ITAT, 6. &)* + / GUARD FILE. / ' / BY ORDER, 4/ !5 ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD