M/S. SITI CABLE NETWORK LTD (MERGED WITH DISH TV INDIA LTD), MUMBAI V. THE ACIT RG 11(1), MUMBAI

ITA 4060/MUM/2007

• Counselvise Citation: 406019914 RSA 2007
• Duration Of Justice: 4 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 08-08-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 25-05-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS MALATHI SRIDHARAN
• Assessee Lawyers: VIJAY MEHTA
• Keywords: Valuation report; Set aside
• Section: 37; 28; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO.4060/MUM./2007 (ASSESSMENT YEAR : 2004-05 ) SITI CABLE NETWORK LTD. (MERGED WITH DISH TV INDIA LTD.) MADHU INDUSTRIAL ESTATE, 4 TH FLOOR PANDURANG BUDHKAR MARG WORLI, MUMBAI 400 013 .. APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX RANGE-11(1), AAYAKAR BHAVAN M.K. ROAD, MUMBAI 400 020 .... RESPONDENT ITA NO.4533/MUM./2007 (ASSESSMENT YEAR : 2004-05 ) ASSTT. COMMISSIONER OF INCOME TAX RANGE-11(1), AAYAKAR BHAVAN M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S SITI CABLE NETWORK LTD. (MERGED WITH DISH TV INDIA LTD.) MADHU INDUSTRIAL ESTATE, 4 TH FLOOR PANDURANG BUDHKAR MARG WORLI, MUMBAI 400 013 .... RESPONDENT REVENUE BY : MRS. MALATHI SRIDHARAN ASSESSEE BY : MR. VIJAY MEHTA DATE OF HEARING 23.6.2011 DATE OF ORDER 12.8.2011 SITI CABLE NETWORK LTD. ITA NO.4060/M/2007 ITA NO.4533/M/2007 2 O R D E R PER J. SUDHAKAR REDDY, A.M. THESE CROSS APPEALS ARE DIRECTED AGAINST IMPUGNED O RDER DATED 23 RD MARCH 2007, PASSED BY THE COMMISSIONER (APPEALS)-XI , MUMBAI, FOR ASSESSMENT YEAR 2004-05. 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE, A C OMPANY, IS ENGAGED IN THE BUSINESS OF RENDERING CABLE NETWORK SERVICE (CA LLED MULTI SYSTEM OPERATOR (MSO) TO CABLE OPERATORS-SUBSCRIBERS, FRAN CHISEES AND AFFILIATES, ETC. ASSESSEES NETWORK IS SPREAD ACROSS THE COUNTR Y AND IS MAINTAINED AND MANAGED THROUGH LOCAL DISTRIBUTORS (MANAGEMENT JV C OMPANIES) MANAGED BY LOCAL JOINT VENTURE PARTNERS. THE PAY TV AND FTA CHANNELS AND OWN CABLE CHANNELS ARE DISTRIBUTED / REDISTRIBUTED THROUGH TH E NETWORK. THE CABLE OPERATORS ARE SHARING THE CABLE SUBSCRIPTION COLLEC TED FROM THE PUBLIC AS PER THE AGREEMENT ON THE DECLARED SUBSCRIBERS. THE ASSE SSEE PAYS SUBSCRIPTION TO PAY TV CHANNELS TO REDISTRIBUTE THEIR CHANNELS T O THE NETWORK SUBSCRIBERS WHEREVER THE BULK DEALS ARE ARRIVED AT. 3. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 31 ST OCTOBER 2004, DECLARING TOTAL LOSS OF ` 83,73,94,340. THE ASSESSING OFFICER, IN HIS ORDER DATED 22 ND DECEMBER 2006, PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ), DETERMINED THE INCOME AT ` 283,47,34,869, INTER-ALIA, MAKING ADDITION ON ACCOUNT OF ESTIMATED SUBSCRIPTION INCOME, DISALLOWANCE OF LOANS AND ADVANCES WRITTEN-OFF, DIS ALLOWANCE OF INCENTIVES WRITTEN-OFF, DISALLOWANCE OF BANDWIDTH CHARGES UNDE R SECTION 40(A)(I) OF THE ACT. 4. THE ASSESSEE, BEING AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFICER, CARRIED THE MATTER IN FIRST APPEAL, WHEREI N THE COMMISSIONER (APPEALS) UPHELD THE ORDER OF THE ASSESSING OFFICER ON THE ISSUE OF DISALLOWANCE OF CLAIM BEING WRITE-OFF OF ADVANCES G IVEN TO MANAGEMENT SITI CABLE NETWORK LTD. ITA NO.4060/M/2007 ITA NO.4533/M/2007 3 COMPANIES AND DISALLOWANCE MADE UNDER SECTION 40(A) (I). STILL AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUN AL RAISING THE VERY SAME ISSUE. 5. THE COMMISSIONER (APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE BY DELETING THE ADDITION OF ESTIMATED SUBSCRIPTION INC OME AND DELETING THE ADDITION RELATING TO WRITTEN-OFF OF INVENTORIES. ON THESE TWO ISSUES, THE REVENUE IS IN APPEAL. FIRST, WE TAKE UP ASSESSEES APPEAL IN ITA NO.4060/ MUM./2007. 6. BEFORE US, LEARNED COUNSEL, MR. VIJAY MEHTA, APPEAR ED ON BEHALF OF THE ASSESSEE, EXPLAINED THE NATURE OF BUSINESS BEIN G CARRIED ON BY THE ASSESSEE AND SUBMITTED THAT THE ASSESSEE HAS GIVEN ADVANCE TO THE MANAGEMENT COMPANIES WHO WERE MANAGING THE NETWORKS IN DIFFERENT PARTS OF THE COUNTRY. HE SUBMITS THAT THESE MANAGEMENT CO MPANIES HAD INCURRED LOSS AND AS THE AMOUNT WAS NOT RECOVERABLE, THE ASS ESSEE HAS WRITTEN-OFF THE SAME AND MADE THE CLAIM. HE SUBMITS THAT THE AS SESSING OFFICER WAS FACTUALLY INCORRECT WHEN HE RECORDED THAT THE RESOL UTION WAS PASSED BY THE BOARD OF DIRECTOR, WHICH STATED THAT ADVANCES WERE PROVIDED TO THE MANAGING COMPANY TO DEVELOP INFRASTRUCTURE AND TO M EET THEIR FUND REQUIREMENTS. HE ARGUED THAT THERE IS NO SUCH RESOL UTION OF THE BOARD AND IT IS NOT KNOWN FROM WHERE THE ASSESSING OFFICER PICKE D-UP THIS FACT. HE POINTED OUT THAT THE DISALLOWANCE WAS MADE ON THE G ROUND THAT THE LOSS WAS CAPITAL IN NATURE. LEARNED COUNSEL, REFERRING TO TH E ORDER OF THE COMMISSIONER (APPEALS), DISPUTED THE FINDING AND SU BMITS THAT THE ADVANCES WERE GIVEN FOR THE PURPOSE OF BUSINESS AND TO MEET THE EXIGENCIES OF BUSINESS AND IN THOSE CIRCUMSTANCES, THE LOSS WAS B USINESS LOSS. HE REFERRED TO ASSESSEES PAPER BOOK RUNNING INTO 86 PAGES AND DREW THE ATTENTION OF THE BENCH TO PAGE-7 AND SUBMITS THAT THE DETAILS WE RE FURNISHED BEFORE THE ASSESSING OFFICER. ON A QUERY FROM THE BENCH, LEARN ED COUNSEL SUBMITS THAT THE AGREEMENT ENTERED WITH THE MANAGEMENT COMPANIES IS NOT ON RECORD. HE FURTHER SUBMITS THAT THE CORRESPONDENCE BETWEEN THE ASSESSEE COMPANY AND SITI CABLE NETWORK LTD. ITA NO.4060/M/2007 ITA NO.4533/M/2007 4 THE MANAGEMENT COMPANIES, EVIDENCING THE PURPOSE FO R WHICH THE LOAN WAS GIVEN, IS NOT ON RECORD. NEVERTHELESS, HE ARGUES TH AT THE EXPENDITURE IS FOR THE PURPOSE OF BUSINESS AND THAT THIS IS NOT DISPUT ED BY THE REVENUE AND ALSO THAT EVEN IF IT IS GIVEN FOR INFRASTRUCTURE, I T IS THE INFRASTRUCTURE OF THE MANAGEMENT COMPANY AND IT CANNOT BE THE CAPITAL LOS S OF THE ASSESSEE. HE, ACCORDINGLY, PRAYED THAT THE ISSUE MAY BE RESTORED TO THE FILE OF ASSESSING OFFICER, SO AS TO ENABLE HIM TO VERIFY ALL THE AGRE EMENTS WITH THE MANAGEMENT COMPANIES AS WELL AS THE EVIDENCES INDIC ATING THE PURPOSE OF LOANS AND ADVANCES. 7. ON GROUND NO.2, THE LEARNED COUNSEL SUBMITS THAT TH E PAYMENT WAS MADE FOR BANDWIDTH AND IN SUCH CIRCUMSTANCES, NO DE DUCTION OF TAX NEED TO BE MADE UNDER SECTION 194J AND, HENCE, THERE CANNOT BE ANY DISALLOWANCE UNDER SECTION 40(A)(I). IN SUPPORT OF HIS ARGUMENTS , HE RELIED ON THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN CIT V/S EST EL COMMUNICATIONS P. LTD., (2008) 217 CTR DEL. 102. SPECIAL LEAVE PETITI ON FILED AGAINST THE SAID JUDGMENT, WAS DISMISSED BY THE HON'BLE SUPREME COUR T, VIDE JUDGMENT DATED 9 TH JANUARY 2009. HE ALSO RELIED ON THE FOLLOWING CASE LAWS:- PACIFIC INTERNET (I) P. LTD. V/S ITO, (2009) 27 SOT 523 (MUM.) INFOSYS TECHNOLOGIES LTD. V/S DCIT, (2011) 10 TAXMA N.COM 01, (BANG. - ITAT) 8. ON GROUND NO.2(II), LEARNED COUNSEL SUBMITS THAT TH IS GROUND IS ACADEMIC IN NATURE. 9. LEARNED DEPARTMENTAL REPRESENTATIVE, MRS. MALATHI S RIDHARAN, ON THE OTHER HAND, SUBMITS THAT THERE IS NO PROOF GIVEN TO THE ASSESSEE THAT LOANS AND ADVANCES IN QUESTION IS A TRADE DEBT. SHE POINT S OUT THAT THIS WAS NEVER TAKEN INTO ACCOUNT AND, HENCE, THE CONDITIONS OF SE CTION 36(2), ARE NOT SATISFIED. HENCE, SHE SUBMITS THAT THE CLAIM CAN BE EXAMINED ONLY AS THE BUSINESS LOSS. SHE VEHEMENTLY CONTENDED THAT THE AS SESSEE IS NOT IN THE BUSINESS OF PROVIDING LOANS AND ADVANCES AND, HENCE , IT CANNOT BE TERMED AS BUSINESS LOSS. SHE POINTED OUT THAT THE ASSESSEE HA S NOT LEAD ANY EVIDENCE SITI CABLE NETWORK LTD. ITA NO.4060/M/2007 ITA NO.4533/M/2007 5 TO PROVE THAT THE LOSSES HAVE BECOME BAD AND THAT O NLY A BOARD RESOLUTION WAS FILED. SHE POINTED OUT THAT THE WRITE-OFF WAS N OT MADE IN THE BOOKS OF ACCOUNT AND ONLY A STATEMENT WAS PREPARED AND ADJUS TED AGAINST SHARE PREMIUM ACCOUNT AND SUBMITS THAT UNDER THOSE CIRCUM STANCES, THE CLAIM CANNOT BE ALLOWED. SHE POINTS OUT THAT THE RECIPIEN T HAS NEVER TREATED WHICH IS THE RECEIPT AS ITS INCOME AND THE ASSESSEE NOW C LAIMS THE SAME AS IT IS EXPENDITURE AND THAT TOO WITHOUT FILING ANY EVIDENC E. 10. COMING TO GROUND NO.2, SHE SUBMITS THAT THE AGREEME NT HAS NOT BEEN FILED BY THE ASSESSEE AND, HENCE, IT WOULD NOT BE P OSSIBLE TO COME TO A CONCLUSION AS TO WHETHER THE FACTS ARE IDENTICAL WI TH THE FACTS OF THE CASE OF ESTEL COMMUNICATIONS P. LTD. (SUPRA). SHE POINTS OU T THAT IN ALL THOSE CASES, THE AGREEMENTS WERE EXAMINED. SHE DEFENDED THIS GRO UND BY SUBMITTING THAT THE PAYMENT WAS MADE TO NON-RESIDENT AND IT IS COVERED UNDER THE PROVISIONS OF SECTION 9(1) R/W EXPLANATION (2)(IVA) OF THE ACT. SHE CONTENDED THAT UNLESS THE AGREEMENT IS EXAMINED, NO DECISION CAN BE TAKEN ON THIS ISSUE. 11. NOW, COMING TO REVENUES APPEAL, ON GROUND NO.1, LE ARNED DEPARTMENTAL REPRESENTATIVE SUBMITS THAT THE ISSUE IS COVERED BY THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN ASSESSE ES OWN CASE CASE IN ITA NO.300/MUM./2007, FOR ASSESSMENT YEAR 2003-04, ORDE R DATED 26 TH MARCH 2007, AS WELL AS ITA NO.6178/MUM./2003, FOR ASSESSM ENT YEAR 1997-98, ORDER DATED 9 TH MARCH 2007. 12. ON GROUND NO.2, SHE SUBMITS THAT THE DEDUCTION IS W RONGLY CLAIMED ON THE GROUND THAT THE INVENTORIES ARE RE-VALUED. SHE TOOK THIS BENCH TO THE FINDINGS OF THE ASSESSING OFFICER AT PAGE-6, AND SU BMITS THAT IT WAS NOT CLEAR AS TO WHETHER IT WAS CAPITAL WHICH WAS WRITTEN-OFF OR WHETHER INVENTORIES WERE WRITTEN-OF. SHE REFERRED TO PAPER BOOK FILED B Y THE ASSESSEE AND POINTS OUT THAT AN AD-HOC EXERCISE HAS BEEN UNDERTAKEN TO RE-VALUE THE STOCKS AND SUCH LOSS ON RE-VALUATION WAS SET-OFF AGAINST SHARE PREMIUM ACCOUNT AND IS ALSO BEING CLAIMED AS EXPENDITURE. SHE REFERRED TO PAGE-2/PARA-3 OF THE SITI CABLE NETWORK LTD. ITA NO.4060/M/2007 ITA NO.4533/M/2007 6 ORDER PASSED BY THE COMMISSIONER (APPEALS) AND SUBM ITS THAT THE COMMISSIONER (APPEALS) SHOULD HAVE EXAMINED THE HIG H COURT ORDER BEFORE ALLOWING THE CLAIM OF THE ASSESSEE INSTEAD OF FINDI NG FAULT WITH THE ASSESSING OFFICER FOR NOT VERIFYING THE HIGH COURT ORDER ON T HE ISSUE. SHE SUBMITS THAT STOCKS ARE VALUED AT COST OR NET REALISABLE VALUE A T THE END OF THE YEAR AND RE-VALUATION LOSS CANNOT BE ALLOWED IN THE MIDDLE O F THE YEAR. SHE POINTS OUT THAT THE ENTIRE PURPOSE OF RE-VALUATION, WAS TO RED UCE THE SHARE PREMIUM ACCOUNT. SHE CONTENDS THAT THIS ISSUE WAS NEVER BEF ORE THE HIGH COURT AND THAT THE HIGH COURT WAS MERELY CONSIDERING RESTRUCT URING OF BUSINESS AS PROPOSED BY THE ASSESSEE. 13. IN REPLY, LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT ON GROUND NO.1, THE COMMISSIONER (APPEALS) HAD MERELY FOLLOWE D THE ORDERS OF HIS PREDECESSOR-IN-OFFICE IN THE EARLIER ASSESSMENT YEA R WHICH WERE UPHELD BY THE TRIBUNAL. HE FILED A COPY OF THE HON'BLE JURISD ICTIONAL HIGH COURT JUDGMENT RENDERED IN CIT V/S SITI CABLE NETWORK LTD ., VIDE INCOME TAX APPEALS NO.936/2007, 320/2004, ETC., JUDGMENT DATED 11 TH JANUARY 2011 AND SUBMITS THAT THE ORDER OF THE TRIBUNAL HAS BEEN UPHELD BY THE HIGH COURT. 14. COMING TO GROUND NO.2, LEARNED COUNSEL FOR THE ASSE SSEE SUBMITS THAT IN THE NOTES OF ACCOUNT, IT IS VERY CLEAR THAT WHAT HAS BEEN RE-VALUED IS ONLY STOCKS AND NO FIXED ASSETS ARE INVOLVED. REFERRING TO THE VALUATION REPORT OF CONSULTING ENGINEERS, WHICH IS AT PG.59 OF THE PAPE R BOOK, HE SUBMITS THAT THOUGH THE NAME OF THE REPORT IS GIVEN AS MACHINERY VALUATION REPORT , THE FACT REMAINS THAT WHAT WAS VALUED WAS VARIOUS STOCK ITEMS OF BUSINESS. HE REFERRED TO PREAMBLE OF THE REPORT AS WELL AS THE O PINION AND EMPHASIZED THAT ONLY STOCKS WERE INVOLVED. ON THE ARGUMENT THA T THIS WAS NEVER WRITTEN- OFF IN THE PROFIT & LOSS ACCOUNT, THE LEARNED COUNS EL CONTENDS THAT THIS IS A MATTER OF PRESENTATION AND IF THESE ITEMS ARE WRITT EN-OFF IN THE BOOKS OF ACCOUNT AS WELL AS IN THE PROFIT & LOSS ACCOUNT, TH EN ULTIMATELY IT WOULD HAVE SITI CABLE NETWORK LTD. ITA NO.4060/M/2007 ITA NO.4533/M/2007 7 GONE TO REDUCE THE RESERVES OF THE COMPANY WHICH CO NSISTED OF SHARE PREMIUM ACCOUNT. 15. RIVAL CONTENTIONS HEARD. WE FIRST TAKE UP ASSESSEE S APPEAL. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCE S OF THE CASE AND ON PERUSAL OF THE PAPERS ON RECORD, AS WELL AS THE CAS E LAWS CITED BEFORE US, INSOFAR AS GROUND NO.1 IS CONCERNED, WE FIND THAT T HE MANAGEMENT COMPANIES ARE IN THE NATURE OF DISTRIBUTING COMPANI ES FOR THE ASSESSEE. WE ARE OF THE OPINION THAT TO DETERMINE THE EXACT NATU RE OF THE TRANSACTION, IT IS NECESSARY TO EXAMINE THE AGREEMENT BETWEEN THE ASSE SSEE COMPANY AND ITS DISTRIBUTING COMPANIES WHICH ARE MANAGING COMPANIES . THE ASSESSEE SHOULD ALSO DEMONSTRATE WITH EVIDENCE THE PURPOSE FOR WHIC H THESE ADVANCES WERE GIVEN. THE CLAIM OF THE ASSESSEE CANNOT BE CONSIDER ED UNDER SECTION 36(1)(VII), AS IT DOES NOT FULFILL CRITERIA LAID DO WN UNDER SECTION 36(C). IF A CLAIM IS TO BE CONSIDERED UNDER THE PROVISIONS OF S ECTIONS 37 OR 28 ITSELF, IT IS FOR THE ASSESSEE TO LEAD EVIDENCE THAT THESE ADVANC ES WERE GIVEN IN THE NORMAL COURSE OF TRADE AND HAVE, IN FACT, BECOME BA D. THE ONUS LIES ON THE ASSESSEE TO PROVE THAT THE LOSS HAVE CRYSTALLISED I N THIS YEAR ONLY. A MERE STATEMENT PREPARED FOR THE PURPOSE OF RE-STRUCTURIN G DOES NOT ENTITLE THE ASSESSEE TO MAKE A CLAIM FOR BUSINESS LOSS. THE ASS ESSEE IS BOUND TO LEAD EVIDENCE, IF IT HAS TO MAKE A CLAIM UNDER THE ACT. WITH THESE OBSERVATIONS AND AS IN OUR OPINION, EXAMINATION OF THE AGREEMENT IS NECESSARY, WE SET ASIDE THE ORDER OF THE COMMISSIONER (APPEALS) AND R ESTORE THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR DENOVO ADJUDICATI ON AND IN ACCORDANCE WITH LAW. 16. COMING TO GROUND NO.2, THE HON'BLE DELHI HIGH COURT IN ESTEL COMMUNICATIONS P. LTD. (SUPRA), HAS HELD AS FOLLOWS :- HELD TRIBUNAL CONSIDERED THE AGREEMENT THAT HAD B EEN ENTERED INTO BY THE ASSESSEE WITH T AND COME TO THE CONCLUSION T HAT THERE WAS NO PRIVITY OF CONTRACT BETWEEN THE CUSTOMERS OF THE AS SESSEE AND T. IN FACT, THE ASSESSEE WAS MERELY PAYING FOR AN INTERNE T BANDWIDTH TO T AND THEN SELLING IT TO ITS CUSTOMERS. THE USE OF IN TERNET FACILITY MAY REQUIRE SOPHISTICATED EQUIPMENT BUT THAT DOES NOT M EAN THAT TECHNICAL SITI CABLE NETWORK LTD. ITA NO.4060/M/2007 ITA NO.4533/M/2007 8 SERVICES WERE RENDERED BY T TO THE ASSESSEE. IT WAS A SIMPLE CASE OF PURCHASE OF INTERNET BANDWIDTH BY THE ASSESSEE FROM T. UNDER THE CIRCUMSTANCES, THE TRIBUNAL CAME TO THE CONCLUSION THAT THERE WERE NO TECHNICAL SERVICES PROVIDED BY T TO THE ASSESSEE. I T WAS AS SIMPLE CASE OF PAYMENT FOR THE PROVISION OF A BANDWIDTH. NO TEC HNICAL SERVICES WERE RENDERED BY THE ASSESSEE. ON A CONSIDERATION O F THE MATERIAL ON RECORD, NO SUBSTANTIAL QUESTION ARISES IN THE MATTE R. 17. IN OUR CONSIDERED OPINION, THE AGREEMENT IN QUESTIO N HAS TO BE EXAMINED BEFORE COMING TO A CONCLUSION THAT THE FEE IN QUESTION HAS NOT BEEN PAID ONLY FOR PURCHASE OF BAND WIDTH. IF SO, N O DISALLOWANCE CAN BE MADE. AS, NEITHER THE ASSESSING OFFICER NOR THE COM MISSIONER (APPEALS) HAS EXAMINED THE ISSUE, WE SET ASIDE THE ORDER OF THE C OMMISSIONER (APPEALS) AND RESTORE THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR DENOVO ADJUDICATION IN ACCORDANCE WITH LAW. 18. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STA TISTICAL PURPOSES. 19. COMING TO REVENUES APPEAL, GROUND NO.1, WHICH IS O N THE ISSUE OF ADDITION MADE ON ESTIMATED BASIS OF SUBSCRIPTION AC COUNT, WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN ITS O WN CASE IN ITA NO.6178/MUM./2003, FOR ASSESSMENT YEAR 1997-98, ORD ER DATED 9 TH MARCH 2007, AS WELL AS THE ORDERS FOR ALL THE PREVIOUS YE ARS UP TO THE ASSESSMENT YEAR 2003-04. IN ITA NO.300/MUM./2007, ORDER DATED 26 TH MARCH 2008, THE HON'BLE JURISDICTIONAL HIGH COURT, VIDE JUDGMENT DA TED 11 TH JANUARY 2011, PASSED IN I.T. APPEAL NO.937 OF 2007, HAS UPHELD T HE ORDER OF THE TRIBUNAL. RESPECTFULLY FOLLOWING THE BINDING DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT, WE DISMISS THIS GROUND OF REVENUE. 20. COMING TO GROUND NO.2, WE FIND THAT THE ASSESSEE IS VALUING ITS CLOSING STOCK AT COST ON NET REALISABLE VALUE, WHICHEVER IS LESS AT THE END OF THE ACCOUNTING YEAR. ON EXAMINATION OF THE PAPER BOOK, WE FIND THAT THE ASSESSEE HAS UNDERTAKEN AN EXERCISE OF RE-STRUCTURI NG. A SCHEME OF ARRANGEMENT FOR REDUCTION AND ADJUSTMENT OF SHARE C APITAL AND SHARE PREMIUM ACCOUNT HAS BEEN FILED BEFORE THE HON'BLE J URISDICTIONAL HIGH COURT AND THE HONBLE HIGH COURT VIDE ITS JUDGMENT DATED 6 TH MAY 2004, APPROVED SITI CABLE NETWORK LTD. ITA NO.4060/M/2007 ITA NO.4533/M/2007 9 THE SAME. DURING THIS EXERCISE, THE STOCKS HAVE BEE N RE-VALUED. IN OUR OPINION, THE LOSS ARISING ON SUCH RE-VALUATION OF S TOCK FOR THE PURPOSE OF REDUCTION OF SHARE CAPITAL IS NOT ALLOWABLE. WHEN T HE ASSESSEE VALUES ITS STOCK AT COST AND NET REALISABLE VALUE, RE-VALUATIO N LOSS IN THE MIDDLE OF THE YEAR CANNOT BE CONSIDERED. WE ALSO NOTICE THAT ALL THESE LOSSES WRITTEN-OFF HAVE BEEN ADJUSTED AGAINST EQUITY SHARE CAPITAL OR SHARE PREMIUM ACCOUNT AND ARE NOT ROUTED THROUGH PROFIT & LOSS ACCOUNT. I N OUR OPINION, SUCH DEDUCTION, ON RE-VALUING THE STOCK THAT TOO ON AD-H OC BASIS, AS SEEN FROM THE REPORT OF THE VALUER, CANNOT BE ALLOWED AS EXPENDIT URE IN THE HANDS OF THE ASSESSEE. KEEPING IN VIEW THESE DISCUSSIONS, WE ALL OW GROUND NO.2 OF THE REVENUE. 21. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.8.2011 SD/- N.V. VASUDEVAN JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 12.8.2011 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, L BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI