The DCIT, Circle-1, Surat V. M/s. J.K. Paper Ltd., Surat

ITA 4027/AHD/2008

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2150 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-10-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 12-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHELLEY JINDAL
• Assessee Lawyers: S N SOPARKAR SRDR
• Keywords: Unexplained cash credit; Capital asset; Depreciation; Business expenditure; Question of law; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 234B; 14A; 115JB; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI A.N.PHAUJA, ACCOUNTANT MEMBER ITA NO.4027 & 4080/AHD/2008 ASSESSMENT YEAR:2005-06 DATE OF HEARING:10.12.10 DRAFTED:3.2.11 DY. COMMISSIONER OF INCOME-TAX, CIRCLE-1, ROOM NO.108, AAYAKAR BHAVANA, MAJURA GATE, SURAT J.K.PAPER LTD., FORT SONGADH, DIST. SURAT V/S. V/S. M/S. J.K. PAPER LTD., P.O. CENTRAL PULP MILLS, FORT SONGADH 394660 PAN NO.AAACT6350N JOINT COMMISSIONER OF INCOME-TAX, RANGE-1, SURAT (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI S.N. SOPARKAR, SR-DR REVENUE BY:- SHRI SHELLEY JINDAL, CIT-DR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THESE CROSS-APPEALS BY REVENUE AND ASSESSEE ARE AR ISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX(APPEALS)-I, SUR AT IN APPEAL NO.CAS-I/ 280/07-08 DATED 10-10-2008. THE ASSESSMENT WAS FRAM ED BY THE JCIT, RANGE-1, SURAT U/S.143(3) OF THE INCOME-TAX ACT, 19 61 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 24-12-2007 FOR T HE ASSESSMENT YEAR 2005- 06. ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 2 FIRST WE WILL DEAL WITH REVENUES APPEAL IN ITA NO. 4027/AHD/2008. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF THE CIT(A), DELETING THE ADDITION MADE BY ASSESSING OFF ICER U/S 41(1) OF THE ACT AMOUNTING TO RS.19,56,645/-. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT ASSESSMENT WAS FINALIZED U/S 143(3) OF THE ACT ON 24-12-2007. THE ASSESSING OFFICER MADE AN ADDITION OF RS.19,56,645/- U/S 41)1 ON THE BASIS TH AT THE ASSESSEE HAD REDUCED A SUM OF RS.19,56,645/- WHICH REPRESENTS TH E LIABILITY FOR PROVISION WRITTEN BACK IN THE BOOKS OF ACCOUNTS CLAIMING THAT PROVISIONS OF SECTION 41(1) OF THE ACT ARE NOT APPLICABLE IN VIEW OF THE ORDER OF THE BIFR DATED 13.05.1992. THE ASSESSING OFFICER NOTED THAT IN ASS ESSMENT YEARS 2002-03 AND 2003-04 ALSO THE ASSESSEE HAD MADE SIMILAR CLAI M WHICH WAS EXAMINED IN DETAIL AND REJECTED AFTER RECORDING THE REASONS IN THE ASSESSMENT ORDER AGAINST WHICH APPEAL OF THE REVENUE IS PENDING BEFO RE THE HONBLE ITAT. ACCORDING TO HIM THE ORDER OF THE BIFR IS TIME BOUN D RELIEF WHICH CANNOT BE STRETCHED INDEFINITELY AND SEEMS TO BE OUT OF PLACE AFTER A LAPSE OF 12 YEARS WHEN THE COMPANY TURNED INTO PROFITABLE COMPANY AND DURING THE YEAR UNDER CONSIDERATION, THE COMPANY WAS NOT A SICK COMPANY . AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO DELETED ADDITI ON MADE BY ASSESSING OFFICER ON THE FOLLOWING GROUNDS:- I) SIMILAR ISSUE WAS INVOLVED IN THE CASE OF THE AS SESSEE FOR A.YS 2002-03, 2003-04 AND 2004-05 AND THE SAME WAS DECID ED BY THE CIT(A) IN FAVOUR OF THE ASSESSEE. AGGRIEVED, REVENUE CAME IN SECOND APPEAL BEFORE TRI BUNAL. 4. BEFORE US, LD. CIT-DR, SHRI SHELLEY JINDAL STATE D THAT THE DECISION OF THE CIT(A) IS NOT ACCEPTABLE AS REVENUE HAS PREFERR ED AN APPEAL BEFORE HONBLE HIGH COURT WHICH ARE PENDING FOR DISPOSAL AND WITH A VIEW TO KEEP THE ISSUE ALIVE THE ORDER OF THE TRIBUNAL IS CHALLE NGED. ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 3 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. LD. CIT-DR, STATED THAT THIS ISSUE OF THE REVENUES APPEAL WAS REJECTED IN EARLIER YEAR IN REVENUES AP PEAL IN ITA NO.790/AHD/2006 FOR ASSESSMENT YEAR 2002-03 DATED 07-09-2009, WHER EIN THE TRIBUNAL HAS HELD IN PARA-13.2.2 TO 13.2.5 , WHICH IS BEING REPRODUCED AS UNDER:- 13.2.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AN D PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW, THE LEA RNED CIT(A) HAS RIGHTLY RELIED ON THE CIRCULAR ISSUED BY THE CBDT D T. 22.4.1999. A COPY OF THIS ORDER HAS BEEN FURNISHED BY THE ASSESSEE IN ITS PAPER BOOK. THE SAID CIRCULAR READS AS UNDER: ORDER U/S.119(2) OF THE I.T. ACT, 1961 IN EXERCISE OF ITS POWE4RS UNDER SECTION 119(2)(A) OF THE INCOME-TAX ACT, 1961, THE CENTRAL BOARD OF DIRECT TAXES HEREBY DIRECTS THAT EFFECT TO ALL ORDERS PASSED BY THE BOARD FOR INDUSTRIAL AN D FINANCIAL RECONSTRUCTION (BIFR) IN APPROVED SCHEME OF RECONST RUCTION/ REHABILITATION BE GIVEN DURING THE COURSE OF AN ASS ESSMENT AFTER GRANTING ALL THE RELIEFS UNDER THE INCOME-TAX ACT, 1961. WHERE THE ABOVE SAID ORDER OF THE BOARD FOR INDUSTRIAL AND FINANCIA L RECONSTRUCTION (BIFR) CONTAINS A RECOMMENDATION THAT CERTAIN RELIE FS UNDER THE I.T. ACT BE CONSIDERED BY THE CENTRAL GOVERNMENT, IT MEANS T HAT ALL THOSE RELIEFS BE GRANTED BY THE ASSESSING OFFICER IN VIEW OF THE OVERRIDING NATURE OF THE SICK INDUSTRIAL COMPANIES ACT (SICA) EVEN IN TH E ABSENCE OF ANY ENABLING PROVISION UNDER THE INCOME-TAX ACT, 1961 T O THAT EFFECT. 13.2.3 THE BIFR VIDE ITS ORDER DT. 123.5.1992 IN TH E CASE OF THIS CPML (FORMER NAME OF THE ASSESSEE) PASSED THE FOLLOWING ORDER. THE RELEVANT PORTION OF THE SAID ORDER READS AS UNDER: I) TO SANCTION EXCISE LOAN AS APPLICABLE TO SICK I NDUSTRIAL UNITS AS PER THE SCHEME OF CENTRAL GOVERNMENT. II) TO EXEMPT CPML FROM THE APPLICATION OF THE PROV ISION OF SECTION 4(A) OF PAYMENT OF GRATUITY ACT IN RESPECT OF ARREA RS OF GRATUITY; III) TO EXEMPT CPML UNDER SECTION 41(1) OF THE INCOME TA X ACT, 1961; IV) TO EXEMPT J.K. INDUSTRIES AND ASSOCIATES FROM P ROVISIONS OF MRTP ACT, 1969 AND SECTION 10BA,K 370, 372 AND OTHE R APPLICABLE PROVISIONS OF THE COMPANIES ACT, 1956 FO R ACQUISITION OF SHARES IN CPML OR FOR ADVANCING LOANS TO CPML OR FOR FURNISHING GUARANTEE(S) ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 4 13.2.4 ABOVE IS A BENEFICIAL CIRCULAR AND HAS BEEN PROVIDED TO REDUCE THE FURNISH FROM THE RIGOURS OF LAW. HONBLE SUPREM E COURT IN UCO BANK VS. COMMISSIONER OF INCOME-TAX & TAMIL NADU IN DUSTRIAL INVESTMENT CORPORATION LTD. VS. COMMISSIONER OF INC OME-TAX (1999) 237 ITR 889 (SC) HAS HELD THAT THE CENTRAL BOARD OF DIRECT TAXES UNDER SECTION 119 OF THE INCOME-TAX ACT, 1961, HAS POWER, INTER ALIA, TO TONE DOWN THE RIGOUR OF THE LAW AND ENSURE A FAIR ENFORC EMENT OF ITS PROVISIONS, BY ISSUING CIRCULARS IN EXERCISE OF ITS STATUTORY POWERS UNDER SECTION 119 OF THE ACT WHICH ARE BINDING ON THE AUT HORITIES IN THE ADMINISTRATION OF THE ACT. IT IS HELD THEREIN AS UN DER: UNDER SECTION 119(2)(A),HOWEVER, THE CIRCULARS AS CONTEMPLATED THEREIN CANNOT BE ADVERSE TO THE ASSESSEE. THE POWER IS GIV EN FOR THE PURPOSE OF JUST, PROPER AND EFFICIENT MANAGEMENT OF THE WOR K OF ASSESSMENT AND IN PUBLIC INTEREST. IT IS A BENEFICIAL POWER GIVEN TO THE BOARD FOR PROPER ADMINISTRATION OF FISCAL LAW SO THAT UNDUE HARDSHIP MAY NOT BE CAUSED TO THE ASSESSEE AND THE FISCAL LAWS MAY BE CORRECTL Y APPLIED. HARD CASES WHICH CAN BE PROPERLY CATEGORIZED AS BELONGIN G TO A CLASS, CAN THUS BE GIVEN THE BENEFIT OF RELAXATION OF LAW BY I SSUING CIRCULARS BINDING ON THE TAXING AUTHORITIES. IN ORDER TO AID PROPER DETERMINATION OF THE INCOM E OF MONEY LENDERS AND BANKS, THE CENTRAL BOARD OF DIRECT TAXES ISSUED A CIRCULAR DATED OCTOBER 6, 1952, PROVIDING THAT WHERE INTEREST ACCR UING ON DOUBTFUL DEBTS IS CREDITED TO A SUSPENSE ACCOUNT, IT NEED NO T BE INCLUDED IN THE ASSESSEES TAXABLE INCOME, PROVIDED THE INCOME-[TAX OFFICER IS SATISFIED THAT RECOVERY IS PRACTICALLY IMPROBABLE. TWENTY-SIX YEARS LATER, ON JUNEE20,1978, IN VIEW OF THE JUDGEMENT OF THE KERAL A HIGH COURT IN SATE BANK OF TRAVANCORE V CIT [1997] 110 ITR 336, THE BOARD BY ANOTHER CIRCULAR, WITHDREW WITH IMMEDIATE EFFECT TH E EARLIER CIRCULAR. HOWEVER, BY CIRCULAR DATED OCTOBER 9, 1984, THE BOA RD DECIDED THAT INTEREST IN RESPECT OF DOUBTFUL DEBTS CREDITED TO S USPENSE ACCOUNT BY BANKING COMPANIES WOULD BE SUBJECTED TO TAX BUT INT EREST CHARGED IN AN ACCOUNT WHERE THERE HAS BEEN NO RECOVERY FOR THREE CONSECUTIVE ACCOUNTING YEARS WOULD NOT BE SUBJECTED TO TAX I TH E FORTH YEAR AND ONWARDS. THE CIRCULAR ALSO STATED THAT IF THERE IS ANY RECOVERY IN THE FOURTH YEAR OR LATER, THE ACTUAL AMOUNT RECOVERED O NLY WOULD BE SUBJECTED TO TAX IN THE RESPECTIVE YEARS. THIS PROC EDURE WOULD APPLY TO ASSESSMENT YEAR 1979-80 AND ONWARDS. UNDER THE ACCOUNTING PRACTICE, INTEREST WHICH IS TRANSFERRED TO THE SUSPENSE ACCOUNT AND NOT BROUGHT TO THE PROFIT AND LOSS ACCOUNT OF THE COMPANY IS NOT TREATED AS INCOME. THE QUESTION WHET HER IN A GIVEN CASE SUCH ACCRUAL OF INTEREST IS DOUBTFUL OR NOT, MAY ALSO BE PROBLEMATIC. IF, THEREFORE, THE BOARD HAS CONSIDERE D IT NECESSARY TO LAY DOWN A GENERAL TEST FOR DECIDING WHAT IS A DOUBTFUL DEBT, AND DIRECTED ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 5 THAT ALL INCOME-AX OFFICERS SHOULD TREAT SUCH ACCOU NTS AS NOT FORMING PART OF THE INCOME OF THE ASSESSEE UNTIL REALIZED, THIS DIRECTION BY WAY OF A CIRCULAR CANNOT BE CONSIDERED AS TRAVELING BEYOND THE POWERS OF THE BOARD UNDER SECTION 119 OF THE INCOME-TAX ACT. SUCH A CIRCULAR IS BINDING UNDER SECTION 119 . SUCH CIRCULARS ARE MEANT FOR ENSURING PROPER ADMINISTRATION OF THE STATUTE AND, THEY ARE DESIGNED TO MITIGATE THE RIGOURS OF THE APPLICATION OF A PARTICULAR PROV ISION OF THE STATUTE IN CERTAIN SITUATIONS BY APPLYING A BENEFICIAL INTERPR ETATION TO THE PROVISION IN QUESTION. 13.2.5 THUS THE CIRCULAR ISSUED BY THE CBDT ALLOWIN G TAX PAYERS NOT TO BE TAXED UNDER SECTION 41(1) IF THEY ARE BIFR COMPA NIES IS A BENEFICIAL CIRCULAR AND IS BINDING ON THE INCOME TAX AUTHORITI ES. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY CASE FOR SUSTAINING THE A DDITION MADE BY THE A.O U/S.41(1). THE LEARNED CIT(A) IS JUSTIFIED IN D ELETING THE SAME. THIS GROUND OF REVENUE IS, THEREFORE, REJECTED. 6. WE FIND THAT THE ISSUE IS EXACTLY SAME AND FACTS ARE IDENTICAL IN THIS YEAR ALSO. HERE, ADMITTED FACTS ARE THAT THE ASSESSEE HA S WRITTEN OFF THE LIABILITIES U/S.41(1) OF THE ACT AND IT IS NOT THE CASE OF THE REVENUE THAT HE HAS INTRODUCED BACK THIS AMOUNTS IN THIS VERY YEAR. AS THE ISSUE IS SQUARELY COVERED, WE UPHOLD THE ORDER OF CIT(A) AND THIS ISS UE OF REVENUES APPEAL IS DISMISSED. 7. THE NEXT ISSUE IN THIS APPEAL OR REVENUE IS AGAI NST THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF UNEXPLAINED CREDITS AMOUNTING TO RS.2,73,501/-. 8. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT THE ASSESSING OFFICER HAD MADE THE ADDITION OF RS.2,73,501/- ON ACCOUNT O F UNEXPLAINED CREDITOR BY STATING THAT IN RESPECT OF CERTAIN CREDITORS, THESE WERE OUTSTANDING BALANCES OF RS.2,73,501/- FOR MORE THAN THREE YEARS AND THE ASS ESSEE HAD FAILED TO FURNISH ANY CONFIRMATION FOR THE SAME IN SPITE OF SPECIFIC REQUEST, MADE TO HIM. IN THE ABSENCE OF ANY EVIDENCE, THE ASSESSEE HAS FAILED TO SUBSTANTIATE ITS CLAIM AND FAILED TO PROVE THE GENUINENESS OF THE CREDIT ENTRY AND ONUS IS ON THE ASSESSEE TO PROVE THE GENUINENESS OF EACH AND EVERY ENTRY APPEARING IN ITS ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 6 BOOKS OF ACCOUNT WITH NECESSARY EVIDENCE TO THE SAT ISFACTION OF THE ASSESSING OFFICER. HOWEVER, THE ASSESSEE HAD FAILED TO DO SO. IF THE CREDITORS ARE BOGUS AND THE SAME CAN BE ADDED ONLY IN THE YEAR IN WHICH THEY AROSE BY REOPENING THE ASSESSMENT OF THE RELEVANT YEAR, HAS NO RELEVAN CE IN THIS CASE BECAUSE DESPITE SUFFICIENT OPPORTUNITIES AFFORDED, THE ASSE SSEE HAS FAILED TO FURNISH ANY CONFIRMATION IN RESPECT OF THE CREDITORS AMOUNTING TO RS.2,73,501/- AND THEREBY FAILED TO EXPLANATION THE SAID CREDITORS AP PEARING IN ITS BALANCE SHEET FOR THE YEAR UNDER CONSIDERATION. ACCORDINGLY, ASSE SSING OFFICER MADE ADDITION OF RS.2,73,501/-. AGGRIEVED, ASSESSEE PREF ERRED APPEAL BEFORE CIT(A). THE CIT(A) DELETED THE ADDITION MADE BY ASS ESSING OFFICER ON THE GROUND THAT THE CREDITORS ARE OLD IN RESPECT OF WHI CH PURCHASES WERE MADE IN EARLIER YEARS AND, THEREFORE, IF THE CREDITORS ARE BOGUS, THE SAME CAN BE ADDED ONLY IN THE YEAR IN WHICH THEY ARE INTRODUCED BY RE OPENING THE ASSESSMENT OF THE RELEVANT YEAR. WITH REGARD TO CESSATION OF LIAB ILITY, APPLICATION OF SECTION 41(1) OF THE ACT THE BASIS ON NON-SERVICE OF NOTIC E U/S 133(6) IS NOT ENOUGH. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE THE TRIBUN AL. 9. BEFORE US, LD CIT-DR STATED THAT DECISION OF THE CIT(A) IS SNOT ACCEPTABLE DUE TO REASONS THAT THE CIT(A) HAS NOT A PPRECIATED IN PLACING RELIANCE ON THE DECISION OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF AMBICA MILLS LTD. V. CIT (1964) 54 ITR 176 (GUJ) AND CIT T.V. SUNDARAM IYENGAR & SONS LTD (1996) 222 ITR 344 (SC) AS THE FACT OF THE CASE ARE DIFFERENT FROM THE FACTS OF THE CASE OF THE ASSESSE E. IN THE CASE OF AMBICA MILLS LTD. (SUPRA), THE QUESTION REFERRED TO THE HO NBLE COURT WAS WHETHER THE EXPENDITURE CLAIMED WAS CAPITAL EXPENDITURE OR REVE NUE EXPENDITURE. SIMILARLY, IN THE CASE OF T.V.SUNDARAM IYENGAR & SONS LTD. (SUPRA) THE QUESTION REFERRED TO THE COURT WAS WHETHER THE DEPO SIT RECEIVED IN THE COURSE OF BUSINESS WHICH WERE ORIGINALLY TREATED AS CAPITA L RECEIPT CAN BE TREATED AS TRADING RECEIPT IN THE YEAR IN WHICH THE AMOUNT CHA NGES ITS CHARACTER WHEN THE AMOUNT BECOMES THE ASSESSEES OWN MONEY BECAUSE OF LIMITATION OR BY ANY OTHER STATUTORY OR CONTRACTUAL RIGHT. FROM THE ABOV E, IT CAN BE SEEN THAT THE ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 7 DECISIONS IN THE CASE OF AMBICA MILLS LTD. (SUPRA) AND T.V. SUNDARAM IYENGAR & SONS LTD. (SUPRA) RELIED ON BY THE CIT(A) ARE NOT APPLICABLE TO THE CASE OF THE ASSESSEE. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT, ADMITTEDLY , CREDITOR ARE OLD AND PERTAINS TO EARLIER YEARS. IN THE EVENTUALITY OF TH E CREDITOR ARE BOGUS THE SAME CAN BE ADDED ONLY IN THE YEAR OF ARISEN NOT IN ANY OTHER YEAR. WE FIND THE FINDINGS OF CIT(A) QUITE REASONABLE AND UPHOLD THE SAME. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 11. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF INTEREST LIABILITY ON TERM LOAN AMOUNTING TO RS.5.82 LAKH. 12. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT ASSESSING OFFICER HAD MADE THE ADDITION OF RS.5.82 CRORES ON ACCOUNT OF I NTEREST LIABILITY ON TERM LOAN ON GROUNDS THAT DURING THE YEAR UNDER CONSIDER ATION THE ASSESSEE HAS UNDERTAKEN A FINANCIAL STRUCTURING WHEREBY THE ASSE SSEE HAS CONVERTED RS.97 CRORES, 10% CUMULATIVE REDEEMABLE PREFERENCE SHARES OF FACE VALUE OF RS.100/- EACH INTO 8% TERMS LOANS/NONCONVERTIBLE DE BENTURES. SINCE THE NEW INSTRUMENT HAD INTEREST LIABILITY, ON BEING ASKED, THE ASSESSEE STATED THAT THE SHARE CAPITAL REDUCTION WAS EFFECTED DURING THE YEA R UNDER CONSIDERATION WHICH HAS SUBSTANTIALLY REDUCED THE CASH OUTFLOW AN D HAD FAVOURABLE EFFECT ON THE BUSINESS OPERATION/PROFITABILITY. THE FINANCIAL RESTRUCTURING INTER ALIA, INCLUDED CONVERSION OF 10% CRPS OF RS.97 CRORE INTO TERM LOANS/NCD. ACCORDING TO ASSESSING OFFICER IT IS A SETTLED POSI TION THAT THE SOURCE OF RAISING THE FUNDS WHICH INTER ALIA COULD BE CONVERSION OF C APITAL INTO INTEREST BEARING FUNDS IS NOT THE CRITERIA FOR DETERMINING THE LIABI LITY AND WHERE INTEREST BEARING LOAN FUNDS WOULD BE CONVERTED INTO CAPITAL, THE RET URN ON CAPITAL BAY WAY OF DIVIDEND IS NOT AN ALLOWABLE EXPENDITURE. HE FOUND THAT THE ASSESSEE- ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 8 COMPANY HAS NOT INTRODUCED NEW FUNDS FOR UTILIZATIO N IN ITS BUSINESS BUT THE FUNDS AVAILABLE IN THE BASKET OF SHARE CAPITAL HAS BEEN SHIFTED INTO TERM LOAN/NCD. IN THIS WAY, WITHOUT, INTRODUCING NEW FUN DS, THE COMPANY HAS CREATED INTEREST LIABILITY OUT OF ITS OWN AVAILABLE FUNDS AND IT HAS NOT JUSTIFIED THE CLAIM AND HAS ALSO NOT PROVED THE UTILITY FOR T HE PURPOSE OF BUSINESS BY CHANGING THE FINANCIAL STRUCTURE. ACCORDING TO HIM, NO DETAILS OF PROFITABILITY ATTRIBUTED TO THIS FINANCIAL RESTRUCTURING HAVE BEE N GIVEN AND ADDITIONAL BURDEN CREATED IN THE FORM OF INTEREST ON TERM LOAN/NCD IS NOT ALLOWABLE EXPENDITURE U/S 36(1)(III). SINCE NO CAPITAL BORROWED AND NO NE W FUND INTRODUCED FOR THE PURPOSE OF BUSINESS, CONVERSION OF 10% CRPS TO TERM LOAN/NCD WAS W.E.F. 01/.07.2004, THE INTEREST BURDEN FOR NINE MONTHS @ 8% ON RS.97 CRORES OF TERM LOAN/NCD WHICH WORKED OUT TO RS.5.82 CRORES IS DISALLOWED. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 13 THE CIT(A) DELETED THE ADDITION ON THE GROUNDS T HAT HONBLE SUPREME COURT IN THE CASE OF INDIA CEMENTS LTD. V. CIT (1966) 60 ITR 52 (SC), HELD IF THE LOANS ARE USED FOR THE PURPOSE OF BUSINESS, THE INTEREST HAS TO BE ALLOWED. LD. CIT-DR STATED THAT CIT(A) HAS NOT APPRECIATED T HAT THE ASSESSEE- COMPANY HAS CREATED INTEREST LIABILITY OUT OF ITS O WN AVAILABLE FUNDS AND THERE IS NO NEW LOAN BORROWED AND THERE IS A CREATION OF ADDITIONAL BURDEN IN THE FORM OF INTEREST ON TERM LOAN WHICH IS NOT AN ALL OWABLE DEDUCTION U/S.36(1)(III) OF THE ACT. 14. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE CLAIM O F THE ASSESSEE IS THAT ENTIRE FINANCIAL RESTRUCTURING PERTAINS TO CONVERTI NG 10% CUMULATIVE REDEEMABLE PREFERENCE SHARES OF RS. 100/- FACE VALU E TO TERM LOAN/NCD AND IT WAS DONE FOR THE PURPOSE OF BUSINESS AS IT WOULD SU BSTANTIALLY REDUCE LIABILITY OF THE COMPANY. THE CIT(A) ALLOWED THE CLAIM BY HOL DING THAT 10% PREFERENCE SHARES ALSO PUTS A LIABILITY ON ASSESSEE COMPANY TO GIVE A FIXED AMOUNT OF DIVIDEND EVERY YEAR FAILING WHICH, IF THE PREFERENC E SHAREHOLDERS ARE NOT GIVEN ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 9 FIXED AMOUNT OF DIVIDEND CONTINUOUSLY FOR TWO YEARS THEN PREFERENCE SHAREHOLDERS GET VOTING RIGHT EQUAL TO EQUITY SHARE S. THAT MEANS THE ASSESSEE HAD ACTUALLY REDUCED ITS LIABILITY AND THIS ISSUE I S COVERED BY THE DECISION OF HONBLE APEX COURT IN THE CASE OF INDIA CEMENTS LTD . (SUPRA), WHEREIN IT IS HELD THAT IF LOANS ARE USED FOR THE PURPOSE OF BUSI NESS CONSEQUENTIAL INTEREST IS TO BE ALLOWED. WE FIND THAT THE ASSESSEE HAS CA RRIED OUT FINANCIAL RESTRUCTURING DUE TO THE REASON THAT THERE WILL BE SUBSTANTIAL REDUCTION OF INTEREST LIABILITY AND THAT HAS BEEN DONE WITH THE BUSINESS CONCERN IN MIND. ACCORDINGLY, WE FULLY AGREE WITH THE VIEW OF CIT(A) AND WE UPHOLD THE SAME. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. COMING TO ASSESSEES APPEAL IN ITA NO.4080/AHD/2008 . 15. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS A GAINST THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE MADE BY ASSESSING OF FICER. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.1 :- 1. UPHOLDING THE DISALLOWANCE OF RS.280835 WITHOUT APPRECIATING THAT THE SAID EXPENDITURE WAS FULLY ALLOWABLE IN THE YEA R UNDER CONSIDERATION IN VIEW OF APPELLANTS CASE FACTS. 16. THE BRIEF FACTS LEADING TO THE ABOVE CASE ARE T HAT THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE OF EXPENSES OF RS.2,80,835/- BEING CASH DISCOUNT SET OFF AGAINST PROVISIONS OF EARLIER YEAR S. THE CIT(A) ALSO CONFIRMED THE ACTION OF ASSESSING OFFICER BY GIVING FOLLOWING FINDINGS IN PARA 2.3 OF HIS APPELLATE ORDER:- 2.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND THE OBSERVATION OF THE A.O. THE APPELLANT HAS NOT BEEN ABLE TO SHOW THAT THIS CASH DISCOUNT PERTAINED TO THE CURRENT YEAR. T HE APPELLANT HAS STATED THAT THESE ARE IN RESPECT OF SALES OF A.Y. 2 0004-05. THE APPELLANT HAS ALSO SATED THAT THE SALES AMOUNT WAS RECEIVABLE AFTER 01.04.2004 BUT DUE TO PROMPT PAYMENT A CASH DISCOUNT WAS ALLOW ED. THE SALES PERTAINED TO A.Y. 2004-05 THEN THE CASH DISCOUNT WO ULD PERTAIN TO A.Y. 2004-05 ONLY AS NORMALLY CASH DISCOUNTS ARE EITHER SUBTRACTED FROM THE SALES OR DEBITED TO THE PROFIT & LOSS ACCOUNT SEPAR ATELY BUT THE ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 10 EXPENDITURE WOULD BELONG TO A.Y. 2004-05. IN VIEW O F THIS REASON, THE CLAIM DISALLOWED BY THE A.O. IS CONFIRMED AND THIS GROUND OF APPEAL IS DISMISSED. WE FIND FROM THE FINDINGS OF CIT(A) AS WELL AS ASSE SSING OFFICER AND THE ARGUMENTS OF BOTH THE SIDES THAT SALES IN RESPECT O F WHICH DISCOUNT WAS GIVEN PERTAINS TO ASSESSMENT YEAR 2004-05 AND THIS DISCOU NT WAS DUE TO PROMPT PAYMENT OF CASH, THIS DISCOUNT CANNOT BE ALLOWED IN THE PRESENT A I.E. 2005- 06. ACCORDINGLY, WE AGREE WITH THE FINDINGS OF CIT( A) AND THIS ISSUE OF ASSESSEES APPEAL IS DISMISSED. 17. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE OF EXPENSE INCLUDING DEPRECIATION. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.2 :- 2. UPHOLDING THE DISALLOWANCE OF RS.7147539 [INCLU DING DEPRECIATION OF RS.324285] AND IN NOT APPRECIATING THAT THE SAID EX PENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND THAT THESE WERE NOT RELATED TO AGRICULTURAL ACTIVITIES. 18. AT THE OUTSET LD. COUNSEL FOR ASSESSEE, SHRI SO PARKAR STATED THAT THIS ISSUE AROSE FOR THE FIRST TIME IN ASSESSEES OWN CA SE FOR ASSESSMENT YEAR 2002-03 AND THE TRIBUNAL IN ITS ORDER DATED 04-09-2 009 AFTER DETAILED DISCUSSION STARTING FROM PARA 8 HELD THAT EXPENSES INCURRED ON GROWING SAPLINGS ON LAND ON OPERATIONS ON GROWING SAPLINGS AFTER THEIR REMOVAL FROM LAND/GROWING SAPLINGS IN POTS AND POLYTHENE BAGS AF TER PLUCKING THEM FROM GROUND AND PLANTING THEM IN SUCH POTS IS AN INTEGRA TED ACTIVITY WHICH IS IN CONJUNCTION WITH AND IN CONTINUATION OF GROWING SAP LINGS ON THE LAND IS AGRICULTURAL EXPENSES WHICH HAS TO BE DISALLOWED. T HESE PRINCIPLES WERE FOLLOWED IN APPEAL FOR ASSESSMENT YEAR 2003-043 AT PARA 18 AND APPEAL FOR ASSESSMENT YEAR 2004-05 AT PARA 28.LD. COUNSEL FOR ASSESSEE STATED THAT THE ASSESSEE HAS WORKED OUT ON THE BASIS OF ABOVE PRINC IPLE, THE AMOUNT TO BE DISALLOWABLE IN THE APPEAL UNDER CONSIDERATION, WHI CH WORKS OUT TO RS.3.24 LAKH. THE ASSESSEE HAS ENCLOSED THE WORKING IN THE PAPER BOOK AT PAGE-B-1 . ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 11 19. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE TRIBUNALS DECISION IN ITA NO.979/AHD/2006 FOR ASSESSMENT YEAR 2002-03 VIDE ORDER DATED 04-09 - 2009, WHEREIN THE TRIBUNAL IN PARA-8.8. 10 HELD AS UNDER:- 8.8.10 ON THE BASIS OF DISCUSSION MADE ABOVE WHEN WE APPLY ABOVE PRINCIPLES WE FIND THAT THE EXPENSES OF RS.249.13 L AKHS BEING EXPENSES INCURRED ON FOREST, SUPERVISION OF GROWING TREES BY FARMERS, CONVEYANCE SALARY OF THE STAFF ENGAGED IN THAT PURPOSE COULD N OT BE TREATED AS EXPENDITURE ON AGRICULTURAL OPERATION AND THEREFORE SHOULD BE ALLOWED AS BUSINESS EXPENSES. SIMILARLY EXPENDITURE OF RS.1 3.40 LAKHS INCURRED BY THE ASSESSEE ON GROWING COPPICE SEEDS WITHOUT US ING THE LAND BY PRIMARY OPERATION CANNOT BE DISALLOWED. THE ONLY EX PENDITURE WHICH CAN BE CONSIDERED FOR DISALLOWANCE IS THE SUM OF RS .53.59 LAKHS WHICH INCLUDED A SUM OF RS.8.03 LAKSH INCURRED ON GROWING SAPLINGS ON LAND AND RS.45.56 LAKHS INCURRED ON OPERATIONS ON GROWIN G SAPLINGS AFTER THEIR REMOVAL FROM THE LAND. IN OUR CONSIDERED VIEW GROWING SAPLINGS IN THE POTS/POLYTHENE BAGS AFTER PLUCKING THEM FROM GR OUND AND PLANTING THEM IN SUCH POTS IS AN INTEGRATED ACTIVITY WHICH I S IN CONJUNCTION WITH AND IN CONTINUATION OF GROWING SAPLINGS ON THE LAND AND THEREFORE, EXPENDITURE INCURRED THERE UPON WOULD BE TREATED AS AGRICULTURAL EXPENSES AND THEREFORE HAS TOO BE DISALLOWED. ACCOR DINGLY, ONLY THE EXPENSES TO THE EXTENT ON RS.53.59 LACS WOULD BE CO NSIDERED AS AGRICULTURAL EXPENSES OUT OF TOTAL CLAIM OF EXPANSE S AT RS.316.12 LACS AND WOULD NOT BE ALLOWED. AGAINST THIS THE ASSESSEE HAS SHOWN SALE OF AGRICULTURE PRODUCE (RELATABLE COVERING OF SAPLINGS THROUGH LAND) AT RS.36.42 LACS AND SALE OF SAPLINGS IS RELATABLE TO AGRICULTURAL OPERATIONS AT RS.9.10 LACS. THEREFORE AGRICULTURAL LOSS WOULD BE ONLY RS.53.59 36.42 = 17.17 LACS. THE SALE OF SAPLINGS AT RS.9.10 LACS WOULD BE NON- AGRICULTURAL RECEIPTS AND THEREFORE CANNOT BE ALLOW ED TO BE ADJUSTED AGAINST AGRICULTURE EXPENSES. SO FAR AS THE DEPRECI ATION OF RS.7.69 LACS (AS PER ASSESSMENT ORDER PAGE 16) IS CONCERNED THE SAME HAS BEEN CLAIMED ON MIST CHAMBERS AND OTHER ASSETS USED IN GROWING SAPLINGS THROUGH CLONAL ROUTES WHICH HAS BEEN TREATED AS NON -AGRICULTURAL OPERATION IN OUR DISCUSSION MADE ABOVE. THUS THE DI SALLOWANCE SIS RESTRICTED TO RS.17.17 LACS AND ACCORDINGLY ASSESSE E GETS RELIEF OF RS.(278.29 17.17) = 261.12 LACS. IN VIEW OF THE ABOVE DECISION OF THIS TRIBUNAL IN A SSESSEES OWN CASE (SUPRA), WE DIRECT THE ASSESSING OFFICER TO DISALLOW THE EXP ENSE RELATING TO GROWING OF SAPLINGS THROUGH CLONAL ROUTES WHICH ARE NON-AGRICU LTURAL OPERATION EXPENSES. THE ASSESSEE HAS ALSO FIELD DETAILS AND AS PER HIM, THE DISALLOWANCE WILL BE TO THE TUNE OF RS.3.24 LAKHS. THE ASSESSING OFFICER WI LL VERIFY THE DETAILS AND ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 12 RESTRICT THE DISALLOWANCE TO THE SAME. ACCORDINGLY, THIS ISSUE OF THE ASSESSEE IS ALLOWED PARTLY BUT FOR STATISTICAL PURPOSES. 20. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) IN CONFIRMING THE ACTION OF ASSESSING OFFICER U/S.1 45A OF THE ACT. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.3 :- 3. UPHOLDING THE ADDITION OF RS.10255663 WHICH WAS MADE BY THE ASSESSING OFFICER BY MAKING REFERENCE TO SEC. 145A AND IN NOT APPRECIATING THAT THE FIGURE OF RS.15787255 SINCE R EPRESENTS EXCISE DUTY ON CLOSING STOCK OF RAW MATERIALS THE SAME IS NOT COMPARABLE WITH RS.5531592 WHICH REPRESENTS THE CLOSING BALANCE OF MODVAT RECOVERABLE AND THAT IN VIEW OF APPELLANTS FACTS / CWAS GUIDANCE NOTE, SEC.145A HAS NO IMPACT ON THE PROFIT AS SHOWN IN THE PROFIT & LOSS ACCOUNT. 21. AT THE OUTSET, WE FIND THAT THIS TRIBUNAL IN CR OSS-APPEAL OF REVENUE AND ASSESSEE IN ITA NO.979 & 790/AHD/2006 FOR ASSESSMENT YEAR 2002-03 ORDER DATED 04-09-2009, WHEREIN THE TRIBUNAL HAS HELD IN PARA-9.4 & 9.5 , AS UNDER:- 9.4 HAVING CONSIDERED THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE MATERIALS ON RECORD IN OUR CONSIDERED VIEW, PROVISI ONS OF SECTION 145A ARE REQUIRED TO BE GIVEN EFFECT IRRESPECTIVE OF CON SEQUENCES. WE AGREE WITH THE LEARNED DR THAT IF THE QUANTITIES OF RAW M ATERIALS IN OPENING STOCK AND CLOSING STOCK ARE DIFFERENT, THEN EFFECT OF INCLUSION OF EXCISE DUTY IN RE-OPENING AND CLOSING STOCK WOULD NOT BE Z ERO. ACCORDINGLY, AS PER SECTION 145A THE EXCISE DUTY PAID ON RAW MATERI AL WOULD BE INCLUDED IN THE OPENING STOCK AS WELL AS IN THE CLO SING STOCK AND CONSEQUENTLY OPENING STOCK OF SUBSEQUENT WERE IS NE EDED TO BE REVISED FOR ARRIVING AT THE CORRECT PROFIT IN THE S UBSEQUENT YEAR AS WELL. HONBLE DELHI HIGH COURT IN COMMISSIONER OF INCOME-TAX VS. MAHAVIR ALUMINUM LTD. (2008) 297 ITR 77 (DEL) REFERRING TO GUIDANCE NOTE ON TAX AUDIT ISSUED BY ICAI, PARAS 23.8, 23.13, 23.14 HELD THAT WHENEVER THERE IS A CHANGE IN THE VALUATION AT ONE END, THEN THERE MUST NECESSARILY BE A CORRESPONDING CHANGE AT THE OTHER END, OTHERWISE, THE TRUE PROFIT WOULD NOT BE REFLECTED. IN THOSE GUIDEL INES FOLLOWING STEPS ARE SUGGESTED FOR VALUATION OF CLOSING STOCK: 23.8 SECTION 145A HAS BEEN ENACTED BY THE FINANCE (NO.2) ACT, 1998, AND HAS COME INTO FORCE FROM THE ACCOUNTING Y EAR 1-4-1998 TO 31-3-1999 (ASSESSMENT YEAR 1999-2000). THIS SECT ION PROVIDES THAT THE VALUATION OF PURCHASE AND SALE OF GOODS AN D INVENTORY FOR THE PURPOSE OF COMPUTATION OF INCOME FROM BUSINESS OR ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 13 PROFESSION SHALL BE MADE ON THE BASIS OF THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE BUT T HIS SHALL BE SUBJECT TO CERTAIN ADJUSTMENTS. THEREFORE, IT IS NO T NECESSARY TO CHANGE THE METHOD OF VALUATION OF PURCHASE, SALE AN D INVENTORY REGULARLY IN THE BOOKS OF ACCOUNT. THE ADJUSTMENTS PROVIDED IN THIS SECTION CAN BE MADE WHILE COMPUTING THE INCOME FOR THE PURPOSE OF PREPARING THE RETURN OF INCOME. THESE AD JUSTMENTS ARE AS FOLLOWS: (A) ANY TAX, DUTY CESS OR FEE ACTUALLY PAID OR INCU RRED ON INPUTS SHOULD BE ADDED TO THE COST OF INPUTS (RAW MATERIALS, STORES, ETC.) IF NOT ALREADY ADDED IN TH E BOOKS OF ACCOUNT (B) ANY TAX, DUTY CESS OR FEE ACTUALLY PAID OR INCU RRED ON SALE OF GOODS SHOULD BE ADDED TO THE SALES, IF NOT ALREADY ADDED IN THE BOOKS OF ACCOUNT. (C) ANY TAX DUTY, CESS OR FEE ACTUALLY PAID OR INCU RRED ON THE INVENTORY (FINISHED GOODS, WORK-IN-PROGRESS, RA W MATERIALS, ETC.) SHOULD BE ADDED TO THE INVENTORIES , IF NOT ALREADY ADDED WHILE VALUING THE INVENTORY IN TH E ACCOUNTS. 23.13 IT MAY BE NOTED THAT WHEN THE ADJUSTMENTS ARE MADE IN THE VALUATION OF INVENTORIES, THIS WILL AFFECT BOTH THE OPENING AS WELL AS CLOSING STOCK. WHATEVER ADJUSTMENT IS MADE IN THE V ALUATION OF CLOSING STOCK, THE SAME WILL BE REFLECTED I THE OPE NING STOCK ALSO. 9.5 WE ACCORDINGLY UPHOLD THE ADDITION MADE BY THE ASSESSING OFFICER, HOWEVER WITH THE OBSERVATION THAT THE ASSESSMENT OF SUBSEQUENT YEARS BE REVISED DIN ACCORDANCE WITH THE PROVISIONS OF SE CTION 145A, AND OBSERVATION MADE ABOVE I.E. MODIFIED VALUE OF CLOSI NG STOCK OF THIS YEAR BE TAKEN AS OPENING STOCK OF THE NEXT YEAR. 22. WE, RESPECTFULLY FOLLOWING THE TRIBUNALS ORDER FOR ASSESSMENT YEAR 2002-03 IN ASSESSEES OWN CASE (SUPRA), DECIDE THE ISSUE BY FOLLOWING THE SAME OBSERVATIONS AND DIRECTING THE ASSESSING OFFIC ER THAT THE ASSESSMENT OF SUBSEQUENT YEARS BE REVISED DIN ACCORDANCE WITH THE PROVISIONS OF SECTION 145A, AND OBSERVATION MADE ABOVE I.E. MODIFIED VALU E OF CLOSING STOCK OF THIS YEAR BE TAKEN AS OPENING STOCK OF THE NEXT YEAR. TH IS ISSUE OF ASSESSEES APPEAL IS SET ASIDE SUBJECT TO ABOVE OBSERVATIONS. ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 14 23. THE ISSUES RAISED IN THIS APPEAL OF ASSESSEE BY WAY OF GROUND NO.4, 6, 7 & 10 IS AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE AC TION OF ASSESSING OFFICER. 24. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE STAT ED THAT HE HAS INSTRUCTION FROM THE ASSESSEE NOT TO PRESS ABOVE ISSUES. ACCORD INGLY, WE DISMISS THE SAME AS NOT PRESSED. 25. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) IN CONFIRMING THE ADDITION OF CLOSING PROCESS STOCK DECLARED TO THE BANK. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.5 :- 5. UPHOLDING ADD BACK OF RS.950069 AS INCOME OF TH E APPELLANTS AND IN IGNORING THAT THE CLOSING PROCESS STOCK DECLARED TO BANK WAS VALUED ON THE THEN AVAILABLE COST (OF IMMEDIATELY PRECEDIN G MONTH) WHEREAS FOR BOOKS IT WAS ON ACTUAL COST WHICH BECOMES AVAIL ABLE BY THE TIME ACCOUNTS ARE FINALIZED. 26. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE STAT ED THAT TRIBUNAL EARLIER IN ASSESSEES OWN CASE IN ITA NO.346/AHD/2008 FOR ASSESSMENT YEAR 2004-05, WHEREIN THE TRIBUNAL HAS SET ASIDE THIS ISSUE TO TH E FILE OF ASSESSING OFFICER IN PARA-31.5 , WHICH READS AS UNDER:- 31.5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS NOT KNOWN ON WHAT BASIS T HE ASSESSING OFFICER AND THE LD. CIT(A) HAVE GIVEN A FINDING THAT THERE IS A DIFFERENCE IN TERMS OF QUANTITY IN THE STOCK STATEMENT SUBMITTED TO THE BANK AND WHAT IS RECORDED IN THE BOOKS. WE HOWEVER, RESTORE THE MATT ER TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE STATEMENTS J-1, J-4 & J-7 AND ANY OTHER STATEMENT WHICH IS IN POSSESSION OF THE A.O POINTIN G OUT DIFFERENCE IN STOCK IN TERMS OF QUANTITY. IF THERE IS NO SUCH STA TEMENT DEPICTING DIFFERENCE IN TERMS OF QUANTITIES, NO ADDITION IS C ALLED FOR BUT WHERE THERE IS ANY DOCUMENT IN POSSESSION OF THE A.O SHOWING ST OCK IN QUANTITY ON A PARTICULAR DATE AND ON COMPARISON WITH THE BOOKS IT RESULTS IN UNFAVOURABLE DIFFERENCE AGAINST THE ASSESSEE, THE S AME WILL BE SHOWN TO THE ASSESSEE AND AFTER CONFRONTING HIM THE DIFFE RENCE IN QUANTITIES WILL BE WORKED OUT. STOCK IN TERMS OF QUANTITY WILL BE COMPARED AS O THE SAME DATE. THERE AFTER, THE DIFFERENCE IF ANY WILL BE VALUED AT COST OR MARKET PRICE WHICHEVER IS LOW AS PER ACCOUNTING POL ICY FOLLOWED BY THE ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 15 ASSESSEE FOR VALUATION OF STOCK. WITH THESE REMARKS , WE SET ASIDE THIS GROUND TO THE FILE OF THE A.O. 27. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT SI MILAR ISSUE AROSE IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2004-05 AND T HE TRIBUNAL AFTER LAYING DOWN PRINCIPLE IN PARA-31.5 RESTORED THE MATTER TO THE FILE OF ASSESSING OFFIC ER FOR RE-EXAMINATION AS NOTED ABOVE. WE, TAKING A CONSISTENT VIEW, AS THE FACTS OF THE P RESENT CASE ARE SIMILAR, WE SET ASIDE THIS ISSUE TO THE FILE OF ASSESSING OFFIC ER AS INDICATED ABOVE AND THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED FOR STATISTIC AL PURPOSES. 28. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) IN CONFIRMING THE PAYMENT MADE TO UTI, VARIOUS BANK S TOWARDS SYNDICATE, UPFRONT FEES FOR REPLACEMENT OF HIGH COST LOANS WIT H LOW COST LOANS. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.8 :- 8. HOLDING THAT THE EXPENDITURE OF RS.30908839 BEI NG PAYMENTS MADE TO UTI, VARIOUS BANKS TOWARDS SYNDICATE, UPFRONT FE ES IN CONNECTION WITH REPLACEMENT OF HIGH COST LOANS WITH LOW COST L OANS PERTAINED TO EARLIER YEARS / THE APPELLANTS HAD DERIVED BENEFIT OF ENDURING NATURE AND THEREFORE IS A CAPITAL EXPENDITURE. 29. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT THE ASSESSING OFFICER DURING ASSESSMENT YEAR NOTED THAT DURING THE YEAR U NDER CONSIDERATION THE ASSESSEE HAS CLAIMED A DEDUCTION OF RS.3,09,08,839/ - ON ACCOUNT OF SYNDICATE FEES. THE ASSESSEE STATED THAT A SUM OF R S.2,11,33,839/- WAS PAID TO UTI, AT RS.5 LAKH TO STATE BANK OF BIKANER & JAI PUR OF RS.5 LAKH TO THE JAMMU & KASHMIR BANK LTD. OF RS.5 LAKH TO SYNDICATE BANK OF RS.4 LAKH TO SATE BANK OF PATIALA OF RS. 3,.75 LAKH TO STATE BAN K OF INDIA AND ANOTHER RS.5 LAKH TO STATE BANK OF INDIA AS UPFRONT FEES FOR COO RDINATING WITH VARIOUS BANKS FOR SANCTION OF LOANS FOR UTILIZING PER-PAYMENT OF EXISTING HIGH COST TERM LOANS TAKEN FROM IDBI, ETC. AND ANOTHER RS.70 LAKH TO UTI AS RE-SET OF COUPON RATE. IN THE BOOKS OF ACCOUNT, THE EXPENDITURE WAS TREATE D AS DEFERRED EXPENDITURE ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 16 AND ONLY RS.55,64,954/- WAS CHARGED TO THE PROFIT A ND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION AND AN EQUIVALENT AMOUNT W AS DECIDED TO AMORTIZE IN THE SUBSEQUENT YEARS. IT WAS STATED THAT THIS EX PENDITURE WAS PURELY FOR BUSINESS PURPOSE AND HAS HELPED THE ASSESSEE TO REP LACE HIGH COST LOANS WITH LOWER COST LOANS. BY INCURRING THIS EXPENDITUR E NO CAPITAL ASST HAS BEEN CREATED. THE ENTIRE AMOUNT IS ALLOWABLE BECAUSE THE TREATMENT IN THE BOOKS OF ACCOUNT IS NOT CONCLUSIVE AS PER THE DECISION OF TH E HOBLE SUPREME COURT DECIDED IN THE CASE OF KEDARNATH JUTE MFG. CO. LTD. VS. CIT (1971) 82 ITR 363 (SC). THE ASSESSING OFFICER DID NOT ACCEPT THIS EXP LANATION AND STATED THAT THE PAYMENT IS TREATED AS DIFFERED REVENUE EXPENDITURE AND HENCE HE DISALLOWED IT. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT (A). THE CIT(A) ALSO CONFIRMED THE ACTION OF ASSESSING OFFICER BY GIVING FOLLOWING FINDINGS IN PARA- 12.3 OF HIS APPELLATE ORDER:- 12.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND THE OBSERVATION OF THE A.O. THE SYNDICATE FEE IS FOR RE STRUCTURE OF FINANCIAL LIABILITIES. PERUSAL OF THE CALCULATIONS OF ONE TIM E ADDITIONAL INTEREST PAID TO VARIOUS FINANCIAL INSTITUTIONS SHOW THAT THE INT EREST AMOUNT PERTAINS TO JULY 2000 TILL OCTOBER 2004 IN RESPECT OF LOAN OF I DBI LTD., ICICI LTD., FROM JULY 2000 TO SEPTEMBER 2004 TO NOVEMBER 2004 F OR IFCI LTD. FROM JULY 2000 TO SEPTEMBER 2004 FOR NIA, STATE BANK OF INDIA, GENERAL INSURANCE CORPORATION. THIS CLEARLY SHOWS THAT THE INTEREST PERTAINS TO EARLIER YEARS. FURTHER, ADMITTEDLY IT IS A ONE TIME ADDITIONAL INTEREST PAID FOR RESTRUCTURING THE LOAN TO DERIVE A BENEFIT OVER A VERY LONG PERIOD. THE SYNDICATE FEE PAID IS IN RESPECT OF THIS FINANCIAL RESTRUCTURING WHERE THE ASSESSEE HAS CLEARLY DERIVED BENEFIT OF ENDURING NA TURE AND HENCE THIS EXPENDITURE IS A CAPITAL EXPENDITURE AS THE ASSESSE E HAS DERIVED BENEFIT OF AN ENDURING NATURE. THEREFORE, THE DISAL LOWANCE MADE BY THE A.O IS CONFIRMED AND THIS GROUND OF APPEAL IS DISMI SSED. AGGRIEVED, ASSESSEE CAME IN SECOND APPEAL BEFORE US . 30. BEFORE US THE LD. COUNSEL, SHRI SOPARKAR STATED THAT A SUM OF RS.2,11,33,839/- WAS PAID TO UTI, RS.5 LAKH TO STA TE BANK OF BIKANER & JAIPUR, RS.5 LAKH TO THE JAMMU & KASHMIR BANK LTD, RS.5 LAKH TO SYNDICATE BANK, RS.4 LAKH TO STATE BANK OF PATIALA, RS. 3,.75 LAKH STATE BANK OF INDIA AND ANOTHER RS.5 LAKH TO STATE BANK OF INDIA AS UPF RONT FEES FOR COORDINATING ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 17 WITH VARIOUS BANKS FOR SANCTION OF LOANS FOR UTILIZ ING PER-PAYMENT OF EXISTING HIGH COST TERM LOANS TAKEN FROM IDBI, ETC. AND ANOT HER RS.70 LAKH TO UTI AS RE-SET OF COUPON RATE. ACCORDING TO HIM, THE ASSESS EE CLAIMED IN THE BOOKS OF ACCOUNT THE SAME AS EXPENDITURE, WHICH WAS TREATED AS DEFERRED EXPENDITURE AND ONLY RS.55,64,954/- WAS CHARGED TO THE PROFIT A ND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION AND AN EQUIVALENT AMOUNT W AS DECIDED TO AMORTIZE IN THE SUBSEQUENT YEARS. IT WAS STATED THAT THIS EX PENDITURE WAS PURELY FOR BUSINESS PURPOSE AND HAS HELPED THE ASSESSEE TO REP LACE HIGH COST LOANS WITH LOWER COST LOANS. HE STATED THAT THE ASSESSEE HAS NOT CREATED ANY CAPITAL ASSET BY INCURRING THIS EXPENDITURE. HE RELIED ON A DIRECT DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. SRI MEENAKSHI MILLS LTD. (2007) 290 ITR 107 (MAD). 31. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. IN VIEW OF THE ABOVE FAC TS, NOW WE HAVE TO DECIDE WHETHER THE UPFRONT FEE AND SYNDICATE FEE PAID BY A SSESSEE TO THE BANKS IS CAPITAL OR REVENUE EXPENDITURE. THIS QUESTION HAS B EEN ANSWERED BY HONBLE MADRAS HIGH COURT IN THE CASE OF SRI MEENAKSHI MILLS LTD. (SUPRA), WHEREIN THE QUESTION WAS PUT AS UNDER:- 3. LET US NOW DEAL WITH THE FIRST QUESTION OF LAW, VIZ., WHETHER THE UPFRONT FEE PAID TO THE BANK FOR AVAILING OF LOAN I S A CAPITAL OR REVENUE EXPENDITURE. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS PAID A SUM OF RS.4.4 LAKHS TOWARDS 1 PER CENT UPFRONT FEE PAID TO THE IFCI FOR AVAILING OF LOAN FOR PURCHASE OF MACHINERIES. BUT, THE AO, H OLDING THAT SINCE THE LOAN BORROWED FROM THE BANK WAS USED FOR PURCHASE O F PLANT AND MACHINERY, THE UPFRONT FEE SPENT BY THE ASSESSEE FO R AVAILING OF THE SAID LOAN SHOULD BE TREATED AS CAPITAL EXPENDITURE AND N OT AS REVENUE EXPENDITURE, AS IT WAS MEANT FOR CAPITALIZING THE P LANT AND MACHINERY AND THEREFORE TO BE HELD AS CAPITAL IN NATURE. 4. BUT, THE CIT(A) BY ORDER DT. 12 TH MAY, 2003, AND THE TRIBUNAL, BY ORDER DT. 30 TH DEC,., 2005, HAVE CONCURRENTLY FOUND THAT THE SUM OF RS.4.4 LAKHS, BEING 1 PER CENT OF UPFRONT FEE, PAID BY THE ASSESSEE TO THE BANK, IS NOTHING BUT THE BANK CHARGES AND THE S AME CANNOT BE CONDUCTED AS A CAPITAL EXPENDITURE. IN OUR CONSIDER ED OPINION, THE LAW ON THE POINT, VIZ., WHETHER THE EXPENDITURE INCURRE D BY THE ASSESSEE WHILE AVAILING OF LOAN, ASSUMING IT IS FOR PURCHASE OF PLANT AND ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 18 MACHINERY, IS A CAPITAL EXPENDITURE OR REVENUE EXPE NDITURE, WAS LONG BACK DECIDED BY THE APEX COURT AS WELL AS BY SEVERA L OTHER HIGH COURTS, INCLUDING THIS COURT, IN FAVOUR OF THE ASSESSEE, HO LDING THAT SUCH. 32. WE FIND FROM THE FACTS OF THE PRESENT CASE THAT THE SYNDICATE FEE IS PAID FOR THE RESTRUCTURE OF FINANCIAL LIABILITIES AND TH IS IS ONE TIME ADDITIONAL PAYMENT OF SYNDICATE FEE AND UPFRONT FEE IN CONNECTION REPL ACEMENT OF HIGH COST LOANS WITH LOW COST LOAN PERTAINING TO EARLIER YEARS AND THE ASSESSEE HAS NOT DERIVED ANY BENEFIT OF ENDURING NATURE AND EVEN THERE IS NO CAPITAL ASSET CAME INTO EXISTENCE, WHICH GIVE ENDURING BENEFIT TO THE ASSES SEE. THE UPFRONT FEE AND SYNDICATE FEE PAID BY THE ASSESSEE TO THE BANK, AS ONE TIME PAYMENT, IS NOTHING BUT BANK CHARGES AND SAME CANNOT BE CONSTRU ED AS CAPITAL EXPENDITURE. EVEN THE HONBLE MADRAS HIGH COURT IN THE CASE OF SIVAKAMI MILLS LTD. VS. CIT (1979) 120 ITR 211 (MAD) HELD THAT THE GUARANTEE COMMISSION PAID TO THE BANK WAS A REVENUE EXPENDITU RE AND WAS ALLOWABLE AS DEDUCTION IN COMPUTING THE TOTAL INCOME OF THE A SSESSEE AND THE SAME WAS AFFIRMED BY HONBLE APEX COURT IN REVENUES APPEAL REPORTED IN (1997) 227 ITR 465 (SC). ACCORDINGLY, THE UPFRONT FEE AND SYND ICATE FEE PAID BY THE ASSESSEE TO VARIOUS BANKS FOR IMPLEMENTING RESTRUCT URING PLANT FOR REPLACEMENT OF HIGH COST LOANS WITH LOW COST LOANS, EVEN THOUGH PERTAINING TO EARLIER YEARS WHICH ARE CRYSTALLIZED DURING THE YEA R, IS ALLOWABLE AS REVENUE EXPENDITURE. ACCORDINGLY, THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. 33. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE OF ADDITIONAL INTERE ST PAID TO FINANCIAL INSTITUTION AND BANKS TOWARDS LOWER INTEREST CHARGED IN EARLIER YEARS. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.9 :- 9. UPHOLDING THE DISALLOWANCE OF RS.206643839 BEING ONE TIME ADDITIONAL INTEREST PAID TO COMPENSATE FINANCIAL IN STITUTIONS AND BANKS TOWARDS LOWER INTEREST CHARGED IN EARLIER YEARS AS PER STEP-UP INTEREST SCHEDULE UNDER A COURT APPROVED SCHEME PURSUANT TO REPLACEMENT OF RS.16302 LAC HIGH COST LOANS WITH LOWER COST LOANS AND IN UPHOLDING THAT RS.206643839 WAS PRIOR PERIOD EXPENSE AND IN PROCEE DING TO HOLD THAT ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 19 THE APPELLANTS DERIVED BENEFIT OF ENDURING NATURE AND THEREFORE IS A CAPITAL EXPENDITURE. 34. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT THE ASSESSING OFFICER STATED THAT THE COMPUTATION OF BOOK PROFIT U/S.115J B SHOWS THAT THE ASSESSEE HAS REDUCED AN AMOUNT OF RS.20,66,43,839/- BEING TR ANSFER FROM GENERAL RESERVE FROM THE BOOK PROFIT. THE A.O ISSUED A SHOW -CAUSE NOTICE ASKING THE ASSESSEE AS TO WHY THE SAME BE NOT ADDED BACK AS TH E SAME HAS NOT BEEN CREDITED IN THE PROFIT AND LOSS ACCOUNT AS REQUIRED BY CLAUSE (I) UNDER EXPLANATION BELOW SECTION 115JB(1). THE ASSESSEE ST ATED THAT THE AMOUNT OF RS.20,66,43,839/- WAS CREDITED TO THE PROFIT AND LO SS ACCOUNT BECAUSE OF WHICH THE PROFIT IS SHOWN AT RS.34,29,21,531/- IN T HE PROFIT & LOSS ACCOUNT OTHERWISE THE PROFIT WOULD HAVE BEEN ONLY RS.13,52, 77,692/-. THE ASSESSEE STATED, THAT PURSUANT TO THE TRANSFER OF THIS AMOUN T FROM GENERAL RESERVE TO PROFIT & LOSS ACCOUNT, THE GENERAL RESERVE WAS DEBI TED BY THE SAID AMOUNT AND HENCE NO ADDITION SHOULD BE MADE AS PROPOSED. THE A .O DID NOT ACCEPT THIS EXPLANATION AND STATED THAT THE FIGURE OF RS.20,66, 43,839/- BEING THE AMOUNT WITHDRAWN FROM GENERAL RESERVE DOES NOT AFFECT THE PROFIT OF THE COMPANY AS THE SAME HAS BEEN CREDITED TO THE PROFIT & LOSS ACC OUNT JUST TO SET OFF THE PRIOR PERIOD EXPENSES OF RS.20,66,43,839/- AND, THE REFORE, THIS CANNOT BE REDUCED FROM THE BOOK PROFIT AS IT DOES NOT EFFECT THE BOOKS OF ACCOUNT. THIS ADJUSTMENT ENTRY HAS BEEN PASSED TO TRANSFER THE GE NERAL RESERVE TO MEET OUT PRIOR PERIOD EXTRAORDINARY EXPENSES AND HENCE BOOK PROFIT CANNOT BE ALLOWED TO SET OFF AGAINST THE PROFIT OF CURRENT YEAR FOR T HE EXPENSES OF THE EARLIER YEARS. ACCORDING TO THE ASSESSEE, THE PURPOSE OF TR ANSFER FOR GENERAL RESERVE TO MEET OUT THE EXTRAORDINARY PRIOR PERIOD RELATED INTEREST AND THE COST FOR RESTRUCTURING AND REORGANIZATION OF LOAN AMOUNT AS PER THE APPROVAL OF THE HIGH COURT. ACCORDING TO THE ASSESSEE, THE COMPANY HAS REPLACED RS.163.02 CRORES OF HIGH COST LOANS WITH LOWER COST LOANS AND HAS PAID ONE TIME ADDITIONAL INTEREST OF RS.20.66 CRORES TO COMPENSAT E THE FINANCIAL INSTITUTIONS AND BANKS TOWARDS LOWER INTEREST CHARGED IN THE EAR LIER YEARS AS PER STEP-UP INTEREST SCHEDULE APPROVED UNDER THIS SCHEME. HE AS SESSEE STATED THAT IN ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 20 VIEW OF THIS REASONS THE ONE TIME ADDITIONAL INTERE ST OF RS.20.66 CRORES HAS BEEN CHARGED TO THE PROFIT AND LOSS ACCOUNT AS EXCE PTIONAL ITEM AND EQUIVALENT AMOUNT HAS BEEN TRANSFERRED FROM GENERAL RESERVE. ACCORDING TO AO, THIS EXPENDITURE IS NOT AT ALL RELATED TO THE C URRENT YEARS PROFIT AND HENCE THE WITHDRAWAL FROM GENERAL RESERVE TO MEET OUT SPE CIFIC EXPENSES NOT INCURRED FOR PROFIT OF CURRENT YEAR CANNOT BE ALLOW ED. IN VIEW OF THIS REASON, THE A.O HELD THAT FOR THE PURPOSE OF BOOK PROFIT CALCUL ATING TRANSFER FROM GENERAL RESERVE IS NOT JUSTIFIED AND, THEREFORE, THIS ADJUS TMENT ENTRY DOES NOT FORM PART OF THE PROFIT AND LOSS ACCOUNT AND ACTUALLY IT FORM S PART OF PROFIT & LOSS APPROPRIATION ACCOUNT. THE AO FURTHER STATED THAT T HE EFFECT OF PRIOR PERIOD EXPENDITURE HAS ALSO BEEN CLAIMED IN COMPUTATION OF INCOME AS EXPENDITURE OF CURRENT YEAR AND, THEREFORE, THE SAME IS NOT ALL OWABLE AND ADDED BACK TO THE TOTAL INCOME. AGGRIEVED, ASSESSEE PREFERRED APP EAL BEFORE CIT(A). 35. THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSIN G OFFICER AND DISMISSED THE ASSESSEES GROUND VIDE PARA-14.3 OF HIS APPELLATE ORDER AS UNDER:- 14.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND THE OBSERVATION OF THE A.O PERUSAL OF THE CALCULATIONS OF ONE TIME ADDITIONAL INTEREST PAID TO VARIOUS FINANCIAL INSTITUTION SHOW THAT THE INTEREST AMOUNT PERTAINS TO JULY 2000 TILL OCTOBER 2004 IN RESPECT OF LOAN OF IDBI LTD, ICICI LTD., FROM JULY 2000 TO SEPTEMBER 2004 FOR NI A, STATE BANK OF INDIA, GENERAL INSURANCE CORPORATION. THIS CLEARLY SHOWS THAT THE INTEREST PERTAINS TO EARLIER YEARS. THESE INTEREST EXPENDITURES HAVE NOT CRYSTALLIZED DURING THE YEAR. THE PAYMENT IS MADE A ND LIABILITY AROSE DUE TO RESTRUCTURING PLAN WHICH GAVE BENEFIT OF END URING NATURE. FURTHER, ADMITTEDLY IT IS A ONE TIME ADDITIONAL INTEREST PAI D FOR RESTRUCTURING THE LOAN TO DERIVE A BENEFIT OVER A VERY LONG PERIOD. T HE ONE TIME ADDITIONAL INTEREST PAID IS IN RESPECT OF EARLIER YEARS AS STA TED ABOVE AND DOS NOT PERTAIN TO CURRENT YEAR. BUT MOST IMPORTANT ISSUE I S THAT AS RESULT OF FINANCIAL RESTRUCTURING DONE BY THE APPROVAL OF THE HONBLE HIGH COURT, THE ASSESSEE HAS CLEARLY DERIVED BENEFIT OF ENDURIN G NATURE AND HENCE THIS EXPENDITURE IS A CAPITAL EXPENDITURE AS THE AS SESSEE HAS DERIVED BENEFIT OF AN ENDURING NATURE. THEREFORE IN VIEW OF THESE REASONS THE DISALLOWANCE MADE BY THE AO IS CONFIRMED AND THIS G ROUND OF APPEAL IS DISMISSED. AGGRIEVED, NOW ASSESSEE CAME IN SECOND APPEAL BEFOR E US. ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 21 36. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT BEFORE CIT( A) THE ASSESSEE CONTENDED THAT THE PROPOSAL TO THE FINANCIAL INSTIT UTIONS/BANKS FOR PRE- PAYMENT OF LOANS AS NOT ONLY MADE IN THE CURRENT YE AR BUT THE CONSENT OF FINANCIAL INSTITUTIONS AND BANKS TO THE ASSESSEES PROPOSAL WAS ALSO RECEIVED DURING THE CURRENT YEAR AND THEREFORE ONE TIME ADDI TIONAL INTEREST PAYMENT CRYSTALLIZED DURING THE CURRENT YEAR. THE ASSESSEE CONTENDED THAT ASSESSING OFFICER WAS NOT WRITE IN HOLDING THAT THE CLAIM OF THE ASSESSEE IS NOT ALLOWABLE BEING PRIOR PERIOD EXPENSES AND THE ARGUMENT THAT T HE SAME CAPITAL IN NATURE, THE PAYMENT OF RS.20.66 CRORES BEING ONE TIME ADDIT IONAL TIME INTEREST WAS MADE AS ONE TIME SETTLEMENT TO COMPENSATE FINANCIAL INSTITUTIONS AND BANKS TOWARDS LOWER INTEREST CHARGED AS PER THE RESTRUCTU RING AND RECONSTRUCTION SCHEDULE OF INTEREST. THE ASSESSEE CONTENDED THAT T HERE WAS NO BENEFIT OF ENDURING NATURE AS THE PREPAYMENT AMOUNTS TO BENEFI T OF CONCESSIONAL/LOWER INTEREST RATES ENJOYED IN EARLIER YEARS. THE PAYMEN T OF THIS INTEREST, ACCORDING TO THE ASSESSEE WAS FOR THE PURPOSE OF BUSINESS AND THERE IS NO CREATION OF ANY CAPITAL ASSET. THE ASSESSEE RELIED ON THE DECIS ION OF HONBLE APEX COURT IN THE CASE OF EMPIRE JUTE CO. LTD. V CIT (1980) 124 ITR 1 (SC) FOR THE PROPOSITION THAT EVEN THOUGH SUCH EXPENDITURE RESUL TS INTO BENEFIT WHICH ACCRUES OVER A PERIOD EXCEEDING THE YEAR UNDER CONS IDERATION STILL IT DOES NOT ACCRUE IN THE CAPITAL FIELD BUT IT IS IN THE REVENU E FIELD. WE FIND FROM THE ABOVE ARGUMENTS, FACTS OF THE CASE THAT THE ASSESSEE HAS MADE PAYMENTS PREPAYMENTS OF LOANS IN THE CURRENT YEAR BUT EVEN T HE CONSENT OF FINANCIAL INSTITUTIONS AND BANKS TO THE ASSESSEES PROPOSAL W AS RECEIVED DURING THE CURRENT YEAR AND THEREFORE THE LIABILITY HAS BEEN C RYSTALLIZED, I.E. FOR THE PAYMENT OF ONE TIME PAYMENT OF ADDITIONAL INTEREST, DURING THE YEAR UNDER CONSIDERATION. THIS FACT IS CLEAR FROM THE LETTER I SSUED BY IDBI DATED 15-10- 2004, THE RELEVANT OF WHICH READS AS UNDER:- JK PAPER LTD.(JKPL)- PROPOSAL FOR PREPAYMENT OF INTERES T BEARING LOANS ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 22 WE REFER TO YOUR PROPOSAL FOR PREPAYMENT OF RTL I, RTL II,RFTL-I AND RFTL-II TO US AND THE VARIOUS CORRESPONDENCE AN D DISCUSSIONS WE HAD WITH YOU IN THIS CONNECTION. IN RESPECT TO THE ABOVE, WE ADVICE THAT YOUR PROPOS AL FOR PREPAYMENT OF RTL-I, RTL-II, RFTL-I AND RFTL-II HAS BEEN EXAMINED BY US AND THE SAME IS ACCEPTABLE TO US SUBJECT TO FOLLOWING CONDI TIONS:- (I) PAYMENT OF YIELD EQUALIZATION AMOUNT IN RESPECT OF THE ABOVE MENTIONED FOUR LOANS; (II) PAYMENT OF ACCRUED INTEREST TILL THE DATE OF P AYMENT IN RESPECT OF THE ABOVE MENTIONED FOUR LOANS; AND (III) PREPAYMENT OF 10% OF THE OUTSTANDING AMOUNT O F NON- INTEREST BEARING LOANS (I.E. RTL-III & IV) AT PAR, WITHIN ONE MONTH FROM THE DATE OF FIRST PREPAYMENT, TO BE ADJU STED IN THE INVERSE ORDER OF MATURITY. THIS LETTER IS BEING ISSUED IN DUPLICATE. YOU MAY P LEASE RETURN THE DUPLICATE OF THIS LETTER DULY SIGNED BY AN AUTHORIZ E DIRECTOR OF THE COMPANY AS A TOKEN OF YOUR ACCEPTANCE. PLEASE ACKNOWLEDGE RECEIPT. 37. FURTHER, HONBLE DELHI HIGH COURT EXACTLY IN SI MILAR SITUATION, IN THE CASE OF CIT V. GUJARAT GUARDIAN LTD. (2009) 177 TAXMAN 434 (DEL) HAS HELD AS UNDER:- 17. IN VIEW OF THE FACT THAT THE TRIBUNAL HAS RETU RNED A FINDING THAT THE LUMP SUM PRE-PAYMENT PREMIUM OF RS. 8 CRORES REPRES ENTED THE PRESENT VALUE OF THE DIFFERENTIAL RATE OF INTEREST THAT WOULD HAVE BEEN PAYABLE BY THE ASSESSEE IF NO RESTRUCTURING OF LOAN HAD TAKEN PLACE, THEN IN TERMS OF SECTION 36(1)(II) READ WITH SECTIO N 2(28A) OF THE ACT THE ASSESSEES CLAIM FOR DEDUCTION HAD TO BE ALLOWED. T HE QUESTION THEN IS WHETHER THE DEDUCTION TOWARDS INTEREST BE ALLOWED I N ONE LUMP SUM AS CLAIMED BY THE ASSESSEE OR DEFERRED OVER A PERIOD O F TIME AS SOUGHT TO BE DONE BY THE REVENUE. 17.1 ACCORDING TO US, AS CORRECTLY HELD BY THE TRIB UNAL, THE ASSESSEES CLAIM FOR DEDUCTION HAD TO BE ALLOWED, IN ONE LUMP SUM, KEEPING IN VIEW THE PROVISIONS OF SECTION 43B)(D) WHICH PROVIDES TH AT ANY SUM PAYABLE BY THE ASSESSEE AS INTEREST ON ANY LOAN OR BORROWIN G FROM ANY FINANCIAL INSTITUTION SHALL BE ALLOWED TO THE ASSESSEE IN THE YEAR IN WHICH THE SAME IS PAID IRRESPECTIVE OF THE PROVISIONS IN WHIC H THE LIABILITY TO PAY SUCH SUM IS INCURRED BY THE ASSESSEE ACCORDING TO T HE METHOD OF ACCOUNTING REGULARLY APPLIED BY THE ASSESSEE. SINCE THE AUTHORITIES ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 23 BELOW HAVE NOT DISPUTED THAT PRE-PAYMENT PREMIUM PA ID TO IDBI, IN THE INSTANT CASE, IS NOTHING BUT INTEREST OR THAT IT WAS PAID TO A PUBLIC FINANCIAL INSTITUTION I.E. IDBI THEN, IN TERMS OF; SECTION 43B(D) THE ASSESSEES CLAIM FOR DEDUCTION COULD ONLY HAVE BEEN ALLOWED IN THE YEAR IN WHICH THE PAYMENT HAD ACTUALLY BEEN MADE. I T IS NOT DISPUTED THAT PAYMENT HAS BEEN MADE IN THE PREVIOUS YEAR REL EVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 1996-97. THEREFORE, THERE IS NO SCOPE FOR SPREADING OVER THE LIABILITY OVER A PERIOD OF 10 YEARS AS WAS SOUGHT TO BE DONE BY THE ASSESSI NG OFFICER WHICH WAS, ACCORDING TO US, ERRONEOUSLY SUSTAINED BY THE CIT(A). THE RATIO OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPN. LTD. (SUPRA) IS NOT APPLICABLE TO THE PRESENT CASE. THE FACTS OF THE INSTANT CASE ARE DIFFERENT. MADRAS INDUSTRIAL INVESTMENT CORPN. LTD.S CASE (SUPRA) PERTAINS TO TREATMENT OF DISCOUNT ON DEBENTURE ISSUED BY THE ASSESSEE. THE SUPREME COURT S OBSERVATIONS THAT A CLAIM FOR DEDUCTION BY AN ASSESSEE BE SPREAD OVER AS DEDUCTION IN ONE YEAR WOULD DISTORT THE PICTURE OF PROFITS, C ANNOT BE APPLIED TO THE INSTANT CASE, AS THE MECHANISM FOR CLAIMING DEDUCTI ON ON ACCOUNT OF INTEREST PAID ON LOANS OBTAINED BY THE ASSESSEE F ROM A PUBLIC FINANCIAL INSTITUTION, IS SPECIFICALLY PROVIDED FOR IN THE ST ATUTE UNDER SECTION 43B(D) OF THE ACT. THEREFORE IN TERMS OF SECTION 43B(D) ON CE IT IS ASCERTAINED THAT THE PAYMENT IS IN THE NATURE OF INTEREST IN TERMS OF SECTION 36(1)(III) READ WITH SECTION 2(28A) OF THE ACT AND THE ASSESSE E FULFILS THE CONDITIONS PROVIDED IN SECTION 43B(D),THAT IS, IT I S THE INTEREST PAID IN RESPECT OF LOANS OBTAINED FROM PUBLIC INSTITUTION, IT FOLLOWS THAT, THE INTEREST WILL HAVE TO BE ALLOWED AS A DEDUCTION ONL Y IN THE YEAR OF PAYMENT, NOTWITHSTANDING THE FACT THAT, THE LIABILI TY TO PAY SUCH SUM WAS INCURRED IN AN EARLIER YEAR BASED ON THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. IN THESE CIRCUMSTANCES, I N OUR OPINION THE ASSESSING OFFICER FAILED TO APPRECIATE THE RATIO OF THE JUDGMENT OF THE SUPREME COURT IN MADRAS INDUSTRIAL INVESTMENT CORPN. LTDS CASE (SUPRA), WHICH IS, REALLY AN APPLICABLE OF THE PRIN CIPLE OF ACCOUNTANCY OF MATCHING INCOME WITH EXPENDITURE, WHERE THE ACT MAK ES NO SPECIFIC PROVISION FOR CLAIM OF DEDUCTION. THE SAID PRINCIPL E ENUNCIATED BY THE SUPREME COURT WAS NOT CONTEMPLATED TO APPLY TO SITU ATIONS WHERE THE ACT MAKES A DISTINCT AND SPECIFIC PROVISION. SEE OB SERVATIONS MADE BY THE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V CIT [1997] 227 ITR 172 AT PAGES 183-184. IN THE RESULT, NO FAULT CAN BE FOUND WITH THE APPROACH OF THE TRIBUNAL IN RESPECT OF THIS ISSUE. 38. WE FIND THAT THE SAID PAYMENT INCURRED BY ASSES SEE-COMPANY WAS PURELY FOR BUSINESS PURPOSES AND BY INCURRING THE S AID EXPENDITURE NO CAPITAL ASSET WAS CREATED. THE SAID PAYMENT IS FULLY ALLOWA BLE U/S.37((1) IT BEING A REVENUE EXPENDITURE INCURRED FULLY AND EXCLUSIVELY FOR THE PURPOSE OF ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 24 APPELLANTS BUSINESS AND NOT FOR CREATING ANY CAPIT AL ASSET. EVEN THOUGH SUCH EXPENDITURE RESULTS INTO A BENEFIT WHICH ACCRUES TO THE ASSESSEE-COMPANY OVER A PERIOD EXCEEDING THE YEAR UNDER CONSIDERATIO N, SUCH BENEFIT DOES NOT ACCRUE IN THE CAPITAL FIELD BUT THE SAME ACCRUES IN THE REVENUE FIELD. THE TEST OF ENDURING BENEFIT ALONE IS NOT CONCLUSIVE FOR TRE ATING ANY EXPENDITURE AS CAPITAL EXPENDITURE AND IT IS RELEVANT TO FIND OUT WHETHER SUCH EXPENDITURE RESULTS INTO AN ADVANTAGE OF ENDURING NATURE OF THE ASSESSEE IN THE CAPITAL FIELD OR REVENUE FIELD SO AS TO DECIDE THE EXACT NA TURE OF THE SAID EXPENDITURE AND ALLOWABILITY OF THE SAME UNDER THE INCOME TAX A CT. THE EXPENDITURE IN QUESTION WAS INCURRED TOWARDS IMPROVEMENT OF PROFIT ABILITY AND WAS REVENUE IN NATURE. FOR THIS PROPOSITION, LD. COUNSEL FOR THE A SSESSEE CITED THE CASE LAW OF HONBLE SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. LTD. VS. CIT (1980) 124 ITR (SC) OBSERVED AS UNDER:- :THERE MAYBE CASES WHERE EXPENDITURE EVEN IF INCURR ED FOR OBTAINING AN ADVANTAGE OF ENDURING BENEFIT, MAY, NONETHELESS, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. IT IS NOT EVERY ADVANTAGE OF ENDURING NATURE ACQUIRED BY AN ASSESSE E THAT BRINGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN THIS TEST. W HAT IS MATERIAL TO CONSIDER IS NATURE OF THE PRINCIPLE LAID DOWN IN TH IS TEST. WHAT IS MATERIAL TO CONSIDER IS NATURE OF THE ADVANTAGE IN A COMMERC IAL SENSE AND IT IS ONLY WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD TH AT THE EXPENDITURE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TES T. IF THE ADVANTAGE CONSISTS MERELY IS FACILITATING THE ASSESSEES TRAD ING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEE S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY W HILE LEAVING THE FIXED CAPITAL EMPLOYED, THE EXPENDITURE WOULD BE OF REVEN UE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE F UTURE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LEGAL POSITION, AS ENUMERATED BY HONBLE APEX COURT AND D ELHI HIGH COURT IN THE CASE LAWS CITED ABOVE, WE ALLOW THE CLAIM OF ASSESS EE AND THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. 39. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) IN CONFIRMING THE ACTION OF ASSESSING OFFICER ON CO MPUTATION OF BOOK PROFIT ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 25 U/S.115JB OF THE ACT. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.11(A) :- 11. UPHOLDING THE ASSESSING OFFICERS ACTION ON THE COMPUTATION OF BOOK PROFIT FOR THE PURPOSES OF SEC.115JB OF THE ACT AND IN IGNORING THAT:- A) RS.14194731 AMORTIZED IN THE ACCOUNTS WAS NOT RE LATABLE TO THE INCOME EXEMPT U/S.10 OF THE ACT. 40. AT THE OUTSET THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS ISSUE AROSE FOR THE FIRST TIME IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002-03 AND THE TRIBUNAL IN ORDER DATED 04-09-2009 AFTER DE TAILED DISCUSSION STARTING FROM PARA 10.3.1 DECIDED IN ASSESSEES FAVOUR VIDE PARA-10.3.8 TO 10.3.9 AS UNDER:- 10.3,8 THE ONLY ARGUMENT RAISED BY THE REVENUE IN THIS REGARD IS THAT SUB SECTION-5 OR SECTION 115JB PROVIDES THE APPLICA BILITY OF ALL THE PROVISIONS OF THE ACT AND THEREFORE PROVISION OF SE CTION 14A WOULD ALSO APPLY AND CONSEQUENTLY EXPENDITURE RELATING TO EXEM PTED INCOME WOULD BE REQUIRED DO BE ADDED TO THE BOOK PROFIT. IN OUR CONSIDERED VIEW, THIS ARGUMENT IS NOT TENABLE. SUB SECTION 5 STARTS WITH SAVE AS OTHERWISE PROVIDED IN THE SECTION IT MEANS THAT WHEREVER SECTION 115JB HAS PROVIDED AND OTHER PROVISIONS OF THE ACT ALSO P ROVIDE ON THE SAME POINT THEN WHAT IS PROVIDED IN SECTION 11JB WOULD B E APPLICABLE AND NOT THE OTHER PROVISIONS OF THE ACT. IN OUR CONSIDERED VIEW SECTION 115JB IS A COMPLETE CODE IN ITSELF FOR THE PURPOSES OF COMPU TING BOOK PROFIT. NO ADDITIONAL ITEM OF ADJUSTMENT IS REQUIRED TO BE BOR ROWED EVEN IF IT IS SO PROVIDED IN OTHER PROVISIONS OF THE ACT. FOR THE PU RPOSES OF COMPUTING BOOK PROFIT ONLY THOSE ADJUSTMENTS WHICH ARE SPECIF ICALLY PROVIDED DIN SECTION 115JB ARE REQUIRED TO BE MADE AND NO OTHER. THIS IS ALSO THE RATIO OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN APOLLO TYRES CASE (SUPRA) AND OTHER JUDGMENTS RENDERED FOLLOWING APOLLO TYRES. IN OTHER WORDS, WHAT IS TO BE COMPUTED UNDER VARIOUS H EADS OF INCOME AS PER SECTION 14 TO 59 IS REPLACED BY BOOK PROFIT AS PER SCHEDULE-VI OF THE COMPANIES ACT. THEREFORE, NO PROVISION COMPRISING B ETWEEN SECTION 14 TO 59 AND ALSO OTHER PROVISION IN THE ACT PROVIDING FOR ADDITION INTO INCOME WILL AFFECT BOOK PROFIT EXCEPT THE STATUARY ADJUSTMENTS PROVIDED UNDER SECTION115JB. THE INITIAL WORDINGS IN SECTION 115JB(1) ALSO MAKES IT CLEAR. IT STARTS WITH NOTWITHSTANDING ANY THING CONTAINED IN ANY OTHER PROVISION OF THIS ACT.. THIS NON-OBSTANTE CL AUSE PROHIBITS OPERATION OF ANY OTHER PROVISION OF THE ACT WHICH M AY HAVE EFFECT ON THE BOOK PROFIT. SUB SECTION 5 OF SECTION 115JB ENABLES THE ASSESSING OFFICER TO INVOKE OTHER PROVISIONS OF THE ACT RELAT ING TO THE FIELD NOT PROVIDED IN SECTION 115JB. THE COMPUTATION OF BOOK PROFIT, WHICH IS ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 26 TREATED AS TOTAL INCOME IS PROVIDED IN THIS SECTION , THEREFORE, OTHER PROVISIONS RELATING TO COMPUTATION OF INCOME IN OTH ER SECTIONS OF THE ACT WILL NOT BE OPERATIVE IN THIS FIELD. PROVISIONS REL ATING TO OTHER FIELD SUCH AS, PROCEDURE FOR ASSESSMENT, COLLECTION AND RECOVE RY, APPEALS AND REVISION ETC. NOT PROVIDED IN SECTION 115JB WOULD A PPLY IN CASE OF ADOPTING ADJUSTED BOOK PROFIT AS TOTAL INCOME. THER EFORE, DISALLOWANCE OF EXPENDITURE RELATING TO EXEMPTED INCOME AS PER S ECTION 14A, EVEN THOUGH DEBITED BY THE ASSESSEE IN THE PROFIT AND LO SS ACCOUNT, BUT AUDITORS HAVE CERTIFIED IT AS FOR BUSINESS PURPOSES CANNOT BE MADE. 10.3.9 IN VIEW OF ABOVE, WE ARE OF THE CONSIDERED V IEW THAT EXPENDITURE RELATING TO GROWING OF SAPLINGS, AND SUPERVISION OF GROWING TREES BY THE FARMERS AND DEBITED BY THE ASSESSEE IN THE PROFIT A ND LOSS ACCOUNT AND A PART OF WHICH HAS BEEN CONSIDERED AS RELATING TO AGRICULTURE OPERATIONS IN OUR DISCUSSIONS ABOVE CANNOT BE ADDED BACK WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB. WE FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVO UR OF THE ASSESSEE BY THIS TRIBUNALS DECISION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002-03, RESPECTFULLY FOLLOWING THE SAME WE ALLOW THE CLAIM OF ASSESSEE. THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. 41. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) IN CONFIRMING THE ACTION OF ASSESSING OFFICER ON DE DUCTION UNDER EXPLANATION TO SEC. 115JB(2) OF THE ACT. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.11(B):- B) APPELLANTS CLAIM FOR DEDUCTION OF RS.206643839 WAS PERMISSIBLE UNDER CLAUSE (I) UNDER EXPLANATION TO S EC.115JB(2) AND IN UPHOLDING THE DISALLOWANCE AFTER MAKING INCO RRECT OBSERVATIONS WITH REGARD TO HONBLE HIGH COURTS DIR ECTIONS AND HOLDING THAT BOTH THE DEBIT / CREDIT ENTRIES EFFECT ING PROFIT & LOSS ACCOUNT SHOULD HAVE BEEN DONE IN THE APPROPRIATION ACCOUNT. 42. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT CIT(A) HAS NOT GONE INTO THE DIRECTIONS OF THE HONBLE HIGH COURT AND THE CLAIM OF THE ASSESSEE WAS THAT THE DEDUCTION OF RS.20,66,43,839/- WAS PERMISSIBLE UNDER CLAUSE (I) UNDER EXPLANATION TO SECTION 115JB(2) OF THE ACT AND THE CIT(A) ERRED IN UPHOLDING ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 27 THE DISALLOWANCE AFTER MAKING INCORRECT OBSERVATION S WITH REGARD TO HONBLE HIGH COURTS DIRECTIONS AND HOLDING THAT BOTH THE D EBIT/CREDIT ENTRIES EFFECTING PROFIT AND LOSS ACCOUNT SHOULD HAVE BEEN DONE IN TH E APPROPRIATION ACCOUNT. WE FIND FROM THE FACTS OF THE CASE THAT SCHEME OF C OMPUTATION OF BOOK PROFIT WHICH SHALL BE DEEMED AS TOTAL INCOME OF THE ASSESS EE. THE BASE FOR COMPUTATION OF BOOK PROFIT IS TAKEN AS THE PROFIT D ETERMINED IN THE PROFIT AND LOSS ACCOUNT PREPARED FOR THE RELEVANT PREVIOUS YEA R IN ACCORDANCE WITH THE PROVISIONS OF PART-II AND III OF SCHEDULE-I OF THE COMPANIES ACT, 1956 AND AFTER TAKING INTO ACCOUNT THE ACCOUNTING POLICIES, ACCOUN TING STANDARDS AND METHOD AND RATES FOR CALCULATING THE DEPRECIATION PROVIDED THEM. SUCH BOOK PROFIT, BEING NET PROFIT AS PER PROFIT AND LOSS ACCOUNT WOU LD BE ADJUSTED BY SEVERAL ITEMS AS PROVIDED IN EXPLANATION WHICH IS ENUMERATE D ABOVE IN THE SECTION. THE EXPENDITURE RELATING TO EXEMPTED INCOME AS PROV IDED IN SECTION 10, 11 AND 12, IF DEBITED IN PROFIT AND LOSS ACCOUNT, ARE REQUIRED TO BE ADDED BY VIRTUE OF CLAUSE-F TO EXPLANATION. THIS CLAUSE DOES NOT ME NTION SECTION 14A THOUGH IT ALSO RELATES TO DISALLOWANCE OF EXPENDITURE RELATIN G TO EXEMPTED INCOME. IF LEGISLATURE HAD INTENDED TO INCREASE THE PROFIT BY THE EXPENDITURE RELATING TO EXEMPTED INCOME AS PROVIDED IN SECTION 14A, THEY WO ULD HAVE SO PROVIDED IN CLAUSE F TO EXPLANATION. THE FACT THAT SECTION 10 , 11, AND 12 ARE MENTIONED IN CLAUSE-F OF EXPLANATION, BUT NOT SECTION 14A EVEN T HOUGH THEY DEAL WITH SIMILAR TYPE OF EXPENDITURE I.E. RELATING TO EXEMPT ED INCOME, GIVES CLEAR INDICATION THAT LEGISLATURES HAVE NOT INTENDED TO D ISALLOW AND CONSEQUENTLY ADD TO THE BOOK PROFIT, EXPENDITURE RELATING TO EXE MPTED INCOME, AND DEBITED IN PROFIT AND LOSS ACCOUNT PREPARED AS PER COMPANIE S ACT. BUT IN THE PRESENT CASE NEITHER ASSESSING OFFICER NOR CIT(A) HAS EXAMI NED EXPLANATION TO SECTION 115JB OF THE ACT WITH THE FACTS OF THIS CAS E, HENCE THIS REQUIRE VERIFICATION AT THE LEVEL OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. THIS IS SUE OF ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 28 43. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) NOT ALLOWING THE PAY INTEREST U/S 234B AND 234C OF THE ACT. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.12 :- 12. NOT APPRECIATING THAT THE TAX PAYABLE WAS COMPU TED UNDER SEC.115JB OF THE ACT AND THEREFORE THERE WAS NO LIA BILITY TO PAY INTEREST U/S.234B AND U/S.234C. 44. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE STAT ED THAT THIS ISSUE IS DECIDED AGAINST THE ASSESSEE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002-03 BY THIS TRIBUNAL VIDE PARA-11.1 11.1 IT RELATES TO CHARGING OF INTEREST UNDER SECT ION 234B IN RESPECT OF INCOME COMPUTED UNDER SECTION 115JB. HEARD BOTH THE PARTIES. IN OUR CONSIDERED CHARGING OF INTEREST U/S.234B IS CONSEQU ENTIAL AND WOULD BE ON THE TAX DETERMINED U/S.115JB. HONBLE KARNATAKA HIGH COURT HELD IN THE CASE OF JINDAL THERMAL POWER CO. LTD. VS. DCIT (2006) 286 ITR 182 (KAR) THAT THE PROVISIONS OF SECTION 115JB AS INTRO DUCED BY THE FINANCE ACT, 2000, IMPOSED LIABILITY FOR PAYMENT OF ADVANCE TAX AND THE RETROSPECTIVE OPERATION OF SECTION 115JB(1) WITH EF FECT FROM APRIL 1, 2001 COULD NOT BE SAID TO BE UNREASONABLE, EXCESSIV E OR HARSH SO AS TO DECLARE IT UNCONSTITUTIONAL. IT WAS ALSO HELD THAT SUB-SECTION (5) SPECIFIES THAT SAVE AS OTHERWISE PROVIDED IN THIS SECTION, AL L OTHER PROVISIONS OF THIS ACT SHALL APPLY TO EVERY ASSESSEE, BEING A COM PANY MENTIONED IN THAT SECTION. IN OTHER WORDS, EXCEPT FOR SUBSTITUTI ON OF THE TAX PAYABLE UNDER THE PROVISION AND THE MANNER OF COMPUTATION O F BOOK PROFITS, ALL THE PROVISIONS OF THE TAX INCLUDING THE PROVISION R ELATING TO CHARGE, DEFINITIONS, RECOVERIES, PAYMENT, ASSESSMENT, ETC. WOULD APPLY IN RESPECT OF THE PROVISIONS OF THIS SECTION AND IN VI EW OF THE SCHEME OF THE INCOME-TAX ACT. SECTION 4 OF THE ACT CHARGES TO TAX THE INCOME AT ANY RATE OR RATES WHICH MAY BE PRESCRIBED BY THE FINANC E ACT EVERY YEAR, SECTION 207 DEALS WITH LIABILITY FOR PAYMENT OF ADV ANCE TAX, SECTION 209 DEALS WITH ITS COMPUTATION BASED ON THE RATES IN FO RCE FOR THE FINANCIAL YEAR, AS ARE CONTAINED IN THE FINANCE ACT AND THE F IRST PROVISO TO SECTION 2(8) OF THE FINANCE ACT, 2001, PROVIDES THAT THE TA X PAYABLE BY WAY OF ADVANCE TAX IN RESPECT OF INCOME CHARGEABLE UNDER S ECTION 115JB AS INTRODUCED BY THE FINANCE ACT, 2000, SHALL BE INCRE ASED BY A SURCHARGE OF 2 PER CENT. CONSEQUENTLY THE PROVISIONS OF SECTI ONS 234B AND 234C FOR INTEREST ON DEFAULTS IN PAYMENT OF ADVANCE TAX AND DEFERMENT OF ADVANCE TAX WOULD ALSO BE APPLICABLE TO COMPANIES G OVERNED BY SECTION 115JB, WHERE THE FACTS OF THE CASE WARRANT. ITA 4027 & 4080/AHD/2008 A.Y.2005-06 DCIT CIR-1, SRT V. M/S. J.K. PAPER LTD. PAGE 29 11.2 HOWEVER A.R. HAS REFERRED TO THE JUDGMENT OF H ONBLE BOMBAY HIGH COURT IN THE CASES OF SNOWCEM INDIA LTD. V. DC IT (2009) 313 ITR 170 (BOM). IN OUR CONSIDERED VIEW THIS JUDGMENT WAS RENDERED IN THE CONTEXT OF SECTION 115JA WHICH WAS TREATED AS PARI MATERIA WITH SECTION 115J. IN THE CONTEXT OF SECTION 115JB THE ONLY AUTH ORITY AVAILABLE IS THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE CAS E OF JINDAL THERMAL POWER CO. LTD. VS. DCIT (2006) 286 ITR 182 (KAR). N O CONTRARY JUDGMENT ON SECTION 115JB REGARDING CHARGING OF INT EREST U/S.234B HAS BEEN REFERRED. HENCE WE RESPECTFULLY FOLLOW JUDGMEN T OF HONBLE KARNATA HIGH COURT JINDAL THERMAL POWER CO. LTD. (S UPRA). WE THEREFORE, DECLINE TO INTERFERE. WE FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVO UR OF REVENUE AND AGAINST THE ASSESSEE IN ASSESSEES OWN CASE BY THIS TRIBUNA LS DECISION, RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THIS ISSUE OF THE AS SESSEES APPEAL. 45. IN THE RESULT, REVENUES APPEAL IS DISMISSED AND T HAT OF ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 04/02/2011 SD/- SD/- (A.N.PHAUJA) (MAHAVIR SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED : 04/02/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-I, SURAT 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD