THE ACIT RG 9(1), MUMBAI V. M/S. GHARDA CHEMICALS LTD, MUMBAI

ITA 4405/MUM/2007

• Counselvise Citation: 440519914 RSA 2007
• Duration Of Justice: 7 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 12-01-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 08-06-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: P B CHHAPGAR; KETAN VED
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Proportionate interest; Additional evidence; Wholly owned subsidiary; Bad and doubtful debts; Avoidance of tax; Reason to believe; Unabsorbed depreciation; Capital expenditure
• Section: 11; 43B; 143(3); 92E; 80HHC; 115JB

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUM BAI - K BENCH. . . , , BEFORE S/SH.I.P.BANSAL, JUDICIAL M EMBER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.4405/MUM/2007, ! ! ! ! / ASSESSMENT YEAR-2003-04 ACIT RG. 9(1), R.NO. 223, AAYAKAAR BHAVAN, MUMBAI-20 V/S. GHARDA CHEMICALS LTD. 5 JER MENTION, W.P. WARDE ROAD, BANDRA(W), MUMBAI-400050. ' ' ' ' . . . /PAN:AAACG1255E ( '# / APPELLANT) ( $%'# / RESPONDENT) /. ITA NO.4246/MUM/2007, ! ! ! ! / ASSESSMENT YEAR-2003-04 GHARDA CHEMICALS LTD. 5/6 JER MENTION, W.P. WARDE MARG, OFF TURNER ROAD, MUMBAI-400050. ' ' ' ' . . . /PAN:AAACG1255E V/S. JCIT (OSD) 9(1), (NOW ASSESSED DCIT-9(1) MUMBAI-20 ( '# / APPELLANT) ( $%'# / RESPONDENT) & ' / REVENUE BY : SHRI N.K.CHAND () () () () ' ' ' ' / ASSESSEE BY : SHRI P.B. CHHAPGAR & SHRI KETAN VED. & && & )* )* )* )* / DATE OF HEARING : 12-01-2015 +,! & )* / DATE OF PRONOUNCEMENT : 16-01-2015 , 1961 & && & 254 )1 ( )-) )-) )-) )-) . . . . ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM : CROSS-APPEALS HAVE BEEN FILED BY THE ASSESSEE-COMPA NY AND THE ASSESSING OFFICER (AO) CHALLENGING THE ORDER DATED 12.03.2007 OF THE CIT(A )-9, MUMBAI. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ['CIT(A)']LEGALLY ERRED IN NOT DIRECTING THE LEARNED ASSESSING OFFICER ('AO') TO DELETE THE ADDITION OF RS. 2,60,65,427 MADE TO THE VALUE OF CL OSING STOCK ON ACCOUNT OF UNUTILISED MODVAT CREDIT. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO DEL ETE THE ADDITION OF RS. 2,60,65,427 MADE TO THE VALUE OF CLOSING STOCK. 2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LEARNED CIT(A) LEGALLY ERRED IN NOT DIRECTING THE LEARNED AO TO INCREASE THE VALUE OF O PENING STOCK BY RS.6,06,70,534 IN VIEW OF THE ORDER OF THE LEARNED CIT(A) FOR ASSESSMENT YEAR 200 2-03 CONFIRMING THE ADDITION OF RS.6,06,70,534, BEING UNUTILISED MODVAT CREDIT AS O N MARCH 31,2002, TO THE VALUE OF CLOSING STOCK. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO INC REASE THE VALUE OF OPENING STOCK BY UNUTILISED MODVAT CREDIT OF RS.6,06,70,534 ADDED TO THE CLOSIN G STOCK IN ASSESSMENT YEAR 2002-03. 3.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LEARNED CIT(A) LEGALLY ERRED IN CONFIRMING THE DISALLOWANCE OF DEDUCTION UNDER SECTION 80HHC. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO ALL OW DEDUCTION UNDER SECTION 80HHC AS CLAIMED BY THE APPELLANT COMPANY. 2 ITA NO. 4405 & 4246/M/2007 DHARDA CHEMICALS LTD. 4.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LEARNED CIT(A) LEGALLY ERRED IN NOT DELETING THE ADDITION MADE BY THE LEARNED AO ON ACC OUNT OF PROVISION FOR DOUBTFUL DEBTS FOR THE PURPOSE OF COMPUTING THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO DEL ETE THE ADDITION OF PROVISION FOR DOUBTFUL DEBTS WHILE COMPUTING THE BOOK PROFITS UNDER SECTION 115J B OF THE ACT. REFERENCE TO THE TPO - MECHANICAL IN NATURE 5.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LEARNED CIT(A) HAS LEGALLY ERRED IN CONFIRMING THE LEARNED AO'S ACTION OF MAKING A REFE RENCE TO THE TRANSFER PRICING OFFICER (TPO'), WHICH IS NOT IN ACCORDANCE WITH THE PROVISIONS OF S ECTION 92CA(1) OF THE ACT. IT IS PRAYED THAT THE PROCEEDINGS INITIATED BY THE LEARNED TPO UNDER SECTION 92CA OF THE ACT ON THE BASIS OF THE SAID REFERENCE BE HELD AS VOID AB INITIO AND THUS THE ORDER PASSED BY THE LEARNED TPO UNDER SECTION 92CA(3) OF THE ACT AND THE CONSEQ UENT ACTION OF THE AO BE CANCELLED. ADJUSTMENT MADE ON ACCOUNT OF EXPORT OF DICAMBA 6.WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS LEGALLY ERRED IN NOT DELETING THE ENTIR E ADJUSTMENT MADE BY THE AO BASED ON THE FACT THAT THE APPELLANT'S ASSOCIATED ENTERPRISE ('AE') ( TO WHOM DICAMBA WAS EXPORTED) HAS INCURRED LOSSES AND THEREBY THERE IS NO AVOIDANCE OF TAX BY THE APPELLANT IN RESPECT OF THE SAID TRANSACTION. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO DEL ETE THE ADDITION OF RS. 1,30,80,722. 7.WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS LEGALLY ERRED IN DETERMINING THE ARM'S LENGTH PRICE ('ALP') OF THE INTERNATIONAL TRANSACTION OF EXPORT OF DICAMBA ('THE SAID TRANSAC TION') AT RS. 15,00,49,190 AS AGAINST THAT DETERMINED BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER X OF THE ACT AT RS. 13,69,68,468. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO DEL ETE THE ADDITION OF RS. 1,30,80,722. 8.WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, WHILE DETERMINING THE ALP, THE LEARNED CIT(A) HAS LEGALLY ERRED BY INCORRECTLY APPLYING THE PROVISIONS OF PROVISO TO SECTION 92C(2) OF THE ACT. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO ALL OW THE BENEFIT OF 5% TO THE ALP DETERMINED BY THE LEARNED CIT(A). 9. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS LEGALLY ERRED IN CONFIRMING THE LEARNED AO'S ACTION OF UPHOLDING THE ORDER PASSED BY THE TPO AND THEREBY SUSTAINING / CONFIRMING THE ADJ USTMENT OF RS. 1,30,80,722 MADE BY THE LEARNED TPO, WITHOUT MAKING ANY INDEPENDENT / FURTH ER ENQUIRIES TO SATISFY HIMSELF THAT WHETHER THE SAID ADJUSTMENT (MADE ON ACCOUNT OF EXPORT OF D ICAMBA) WAS WARRANTED. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO DEL ETE THE ADDITION OF RS. 1,30,80,722 MADE UNDER SECTION 143(3) OF THE ACT ON THE BASIS OF THE ORDER PASSED BY THE TPO UNDER SECTION 92CA(3) OF THE ACT. 10. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AN D IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS LEGALLY ERRED IN CONFIRMING THE LEARNED AO'S ACTION OF UPHOLDING THE ADJUSTMENT MADE BY THE LEARNED TPO WITHOUT APPRECIATING THAT NONE O F THE CONDITIONS SET OUT IN SECTION 92C(3) OF THE ACT SUPPORTED BY CIRCULAR 12 ARE SATISFIED IN T HE INSTANT CASE OF EXPORT OF DICAMBA BY THE APPELLANT. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO DEL ETE THE ADDITION OF RS. 1,30,80,722. 11. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AN D IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE LEARNED AO'S ACTION OF UPHOLDING THE ADJUSTMENT MADE BY THE LEARNED TPO WITHOUT APPRECIATING THE FACT THAT THE SAID ADDITION (MADE IN RESPECT OF EXPORT OF DICAMBA) CANNOT BE CONSIDERED AS INCOME OF THE APPE LLANT. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO DEL ETE THE ADDITION OF RS. 1,30,80,722. DISALLOWANCE OF PAYMENT OF USAGE CHARGES 12. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AN D IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS LEGALLY ERRED IN NOT DELETING THE DISALL OWANCE OF RS. 31,12,541 MADE FOR PAYMENT OF USAGE CHARGES FOR REGISTRATION RIGHTS. IT IS PRAYED THAT THE DISALLOWANCE OF RS. 31,12,541 BE DELETED. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL HEREIN AND TO SUBMIT SUCH STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE THE APPEAL HEARING. THE ASSESSEE HAS ALSO FILED BELOW MENTIONED ADDITIO NAL GROUNDS OF APPEAL: 3 ITA NO. 4405 & 4246/M/2007 DHARDA CHEMICALS LTD. 1.THE APPELLANT SUBMITS THAT THE LEARNED COMMISSIO NER (APPEALS) OUGHT TO HAVE ALLOWED AN ADDITIONAL DEDUCTION UNDER SECTION 35(2AB) OF RS.3, 49,93,461, BEING 50% OF THE TOTAL IN-HOUSE RESEARCH AND DEVELOPMENT EXPENDITURE OF RS.6,99,86, 922 INCURRED BY THE APPELLANT DURING THE PREVIOUS YEAR. WE HAVE GONE THROUGH THE ADDITIONAL GROUND AND FIND THAT IT IS A PURE LEGAL ISSUE AND DOES NOT REQUIRE EXAMINATION OF FACTS.THEREFORE,ADDITIONAL G ROUND IS TAKEN ON RECORD. ITA NO.4405/MUM/2007: AO HAD FILED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF INTEREST EXPENSES AMOUNTING TO RS.4 4,06,055/-. 2.WITHOUT PREJUDICE TO GROUND NO. 1, THE CIT(A) ERR ED IN NOT HOLDING THAT THE CLARIFICATORY AMENDMENT TO SECTION 36(1)(III) BY INSERTING A PROV ISO THERETO BY FINANCE ACT, 2003 WOULD HAVE APPLICATION TO ASSESSMENT YEARS PRIOR TO A.Y. 2004- 05. 3.WITHOUT PREJUDICE TO GROUND NO. 1, THE CIT(A) ERR ED IN NOT HOLDING THAT THE CLARIFICATORY AMENDMENT TO SECTION 36(1)(III) BY INSERTING A PROV ISO THERETO BY FINANCE ACT, 2003 WOULD HAVE APPLICATION TO ASSESSMENT YEARS PRIOR TO A.Y. 2004- 05. WITHOUT PREJUDICE TO GROUND NO. 1 & 2,THE CIT(A) ERRED IN NOT CONFIRMING THE DISALLOW ANCE OUT OF INTEREST OF RS.44, 06, 055/- EVEN THOUGH IN VIEW OF CONVERSE OPERATION OF EXPLANATION 8 TO SECTION 43(1) OF THE INCOME TAX ACT, 1961, THE INTEREST PAID BEFORE THE ASSET I S FIRST PUT TO USE IS TO BE TREATED AS CAPITAL EXPENDITURE. 4.ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DIRECTING THE A.O. TO ALLOW DEDUCTION U/S 4. B IN RESPECT OF EMPL OYERS CONTRIBUTION TO P.F. PAID AFTER DUE DATE AND BEFORE FILING OF RETURN OF INCOME. 5.ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DIRECTING THE A.O. TO ALLOW DEDUCTION U/S. 36(1)(VA) OF THE ACT O F EMPLOYEES CONTRIBUTION TO P.F. PAID WITHIN THE GRACE PERIOD WITHOUT APPRECIATING THE FACT THAT DUE DATE IS WELL DEFINED IN SEC.36(1)(VA) AND DOES NOT INCLUDE GRACE PERIOD. 6.ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN NOT CONFIRMING THE ADDITION OF RS. 2,60,65,427/4- MADE BY THE A.O. TOWARDS INCREASE IN THE VALUATION OF CLOSING STOCK TO INCLUDE MODVAT EXPENSES 7.ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DIRECTING THE A.O. TO REDUCE THE PROFITS ELIGIBLE FOR DEDUCTION U /S 80 HHC OF THE ACT IN COMPUTING THE BOOK PROFIT U/S 1 15JB WITHOUT APPRECIATING THE FACT THA T IN THE REGULAR COMPUTATION, THE CIT(A) HAS CONFIRMED THE A.O'S FINDING THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCT ION U/S 80HCC OF THE ACT. 8.ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW CJT(A) ERRED IN NOT CONFIRMING THE DISALLOWANCE OF PROVISION FOR DOUBTFUL DEBTS AMOUNT ING TO RS.1 ,46,43,8161- MADE BY THE A.O. WHILE COMPUTING BOOK PROFIT U/S 11 5JB OF THE ACT. 9.ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW CIT(A) ERRED IN RESTRICTING TO 40% THE ADJUSTMENT U/S 92CA FO RS.3,27,01,804/MADE BY T HE A.O. WITHOUT APPRECIATING THE FACTS OF THE CASE. 10.ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AN D IN LAW THE CIT(A) ERRED IN NOT CONFIRMING THE ACTION OF THE A.O. IN MAKING DISALLO WANCE OF PAYMENT OF USAGE RIGHTS OF REGISTRATION CHARGES PAID AT RS.31,12,541/ON ACCOUN T OF TRANSFER PRICING ADJUSTMENTS AS PER TPOS ORDER AND IN GIVING DIRECTIONS TO A.O.REGARDIN G DELETION OF THE ADDITION WITHOUT COMPLYING WITH RULE 46A OF INCOME TAX RULES 1962. 11.THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ITO/AC/DC BE RESTORED. 12.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURER OF AGRO CHEMICALS AND POLYMER, FILED ITS RETURN OF INCOME ON 01.12.2003 DECLARING TOTAL INCOME AT RS. 24,37,07,329/- UNDER THE REGULAR PROVISIONS OF THE ACT AND THE SAME WAS REDUCED TO N IL,AFTER SETTING OFF THE BROUGHT FORWARD UNABSORBED DEPRECIATION.THE AO COMPLETED THE ASSESS MENT U/S 143(3) OF THE ACT ON 27.02.2006 DETERMINING THE INCOME OF THE ASSESSEE AT RS. 3,58, 14,345/- . 4 ITA NO. 4405 & 4246/M/2007 DHARDA CHEMICALS LTD. 2. THE FIRST GROUND OF APPEAL FILED BY THE ASSESSEE IS ABOUT ADDITION OF RS. 2.60 CRORES OF UNUTILISED MODVAT CREDIT TO CLOSING STOCK.DURING THE ASSESSMEN T PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE WAS ACCOUNTING FOR PURCHASES ON NET OF MOD VAT CREDIT BASIS,THAT THE UNUTILISED MODVAT CREDIT BALANCE AS ON 31.03.2003 WAS RS.2,60,65,427/ -,THAT THE AMOUNT WAS NOT INCLUDED IN THE VALUATION OF CLOSING STOCK.THE AO WAS OF THE OPINIO N THAT THE METHOD FOLLOWED BY THE ASSESSEE WOULD REQUIRE THE CLOSING BALANCE OF UNAVAILED MODV AT TO BE ADDED TO TUNE OF CLOSING STOCK IN ORDER TO DETERMINE THE EXACT VALUE OF THE STOCK AS PER THE PROVISIONS OF SEC.145A OF THE ACT.HE DIRECTED THE ASSESSEE TO EXPLAIN WHY THE SAME SHOUL D NOT BE INCLUDED IN THE VALUATION OF CLOSING STOCK. IT WAS EXPLAINED BY THE ASSESSEE THAT NO ADD ITION WAS REQUIRED TO BE MADE AS THE PURCHASES WERE ALSO ACCOUNTED FOR ON NET OF MODVAT BASIS,THAT SAME WAS POINTED OUT IN THE TAX AUDIT REPORT AND IT DID NOT HAVE AN IMPACT ON THE NET PROFIT.THE AO HELD THAT THE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTABLE IN VIEW OF THE EXPRESS PROVISION S OF SECTION 145A,THAT THE CORRECT VALUATION OF THE CLOSING STOCK COULD BE OBTAINED ONLY UPON CONSI DERING THE UNUTILISED MODVAT CREDIT AS PER OF THE VALUE OF STOCK.AS A RESULT,AN AMOUNT OF RS. 2.6 0 CRORES WAS ADDED TO THE VALUE OF CLOSING STOCK. 2.1. AGGRIVED BY THE ORDER OF THE AO,THE ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).HE HELD THAT THE ASSESSEE HAD ARGUE D THAT IT HAD BEEN FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING FOR ELEMENT OF EXCISE DUTY,THA T CLOSING STOCK SHOULD NOT BE INCREASED BY EXCISE ELEMENT,THAT THE ABOVE ARGUMENT ADVANCED BY THE ASSESSEE COULD NOT BE ACCEPTED,THAT LAW IN TERMS OF SECTION 145A OF THE ACT PROVIDED FOR SP ECIFIE ADJUSTMENTS IN RESPECT OF DUTIES AND TAXES AND TO INCLUDE DUTUES ETC.FOR PURPOSE OF VALU ING INVENTORIES AS WELL.HE FURTHER HELD THAT THE AO HAD MADE ADJUSTMENT ONLY IN RESPECT OF CLOSING S TOCK TO INCLUDE DUTY AND TAXES WITHOUT GIVING DUE EFFECT TO SALES AND PURCHASES. FOR THE PURPOSE OF DETERMINING THE CORRECT INCOME AS PER THE SECTION 145A,HE DIRECTED THE AO TO RE-COMPUTE THE I NCOME OF THE ASSESSEE AFTER VALUING THE PURCHASES,SALES AND INVENTORIES IN LINE WITH THE SE CTION 145A OF THE ACT. 2.2. BEFORE US,AUTHORISED REPRESENTATIVE(AR)STATED THAT THE TRIBUNAL VIDE ORDER DATED 30.11.2009 (ITA2242/MUM/2006/-AY.2002-03)HAD RESTORED BACK THE MATTER TO THE FILE OF THE AO,THAT THE AO DID NOT GIVE EFFECT TO THE ORDER OF THE TRIBUNAL IN THE MANNER IT WAS ARGUED,THAT THE ASSESSEE HAD APPROACHED THE FAA,THAT HE ALLOWED THE RELIEF S OUGHT FOR,THAT THE AO HAD CHALLENGED THE ORDER OF THE FAA BEFORE THE TRIBUNAL,THAT THE TRIBU NAL HAD DISMISSED THE APPEAL OF THE AO ON 22. 05.2013,THAT MATTER COULD BE RESTORED TO THE FILE O F THE AO FOR THE YEAR UNDER APPEAL ALSO.HE RELIED UPON THE DECISION OF JURISDICTIONAL HIGH COURT DELI VERED IN THE CASE OF MAHALAKSHMI GLASS WORKS(P)LTD.(381ITR116).HE REFERRED TO PAGE NO.1 TO 4 OF THE PAPER BOOK.DEPARTMENTAL REPRESE -NTATIVE(DR)STATED THAT HE HAD NO OBJECTION IF THE MATTER WAS SENT BACK TO THE AO. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT AT PAGE NO.4 OF THE PAPER BOOK, THE ASSESSEE HAS GIVEN THE IMPACT OF THE ADJUSTMENT OF MODVAT CREDIT TO THE PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSID ERATION.IN OUR OPINION, IN THE INTEREST OF JUSTICE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION.HE IS DIRECTED TO DECIDE THE ISSUE AFTER CONSIDERING THE ORDER OF THE TRIBUNAL DATED 22.05.2013 AND THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F MAHALAKSHMI GLASS WORKS (P) LTD.(SUPRA). GROUND NO.1 IS DECIDED IN FAVOUR OF THE ASSESSEE, I N PART. 3. SECOND GROUND OF APPEAL ALSO DEALS WITH UNUTILISED MODVAT CREDIT AS ON 31.03.2002.BEFORE US,THE AR STATED THAT IF THE GROUND NO.1 IS RESTORE D BACK TO THE FILE OF THE AO,GROUND NO.2 WOULD BECOME INFRUCTUOUS.AS WE HAVE ALREADY REMITTED THE ISSUE RAISED IN GROUND NO.1 TO THE FILE OF THE ASSESSEE,SO,WE ARE DISMISSING GROUND NO.2 AS INFRUC TUOUS. 4. GROUND NO.3 IS ABOUT DISALLOWANCE OF DEDUCTION U/S. 80HHC OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD MADE CLAIMED DEDUCTION U/S.80HHCOF RS.10,22, 55,280/-AGAINST THE GROSS TOTAL INCOME OF RS.34,59, 62,609/-,THAT IT HAD ALSO MADE A CLAIM OF BROUGHT FORWARD LOSSES AND DEPRECIATION OF RS.93,08 ,73,001/-,THAT THE GROSS TOTAL INCOME HAD BEEN CONSIDERED BEFORE THE SET OFF OF BROUGHT FORWARD LO SSES AND DEPRECIATION. AS PER THE AO IT WAS AN INCORRECT METHOD,THAT THE ASSESSEE WAS REQUIRED TO SET OFF THE BROUGHT FORWARD LOSSES AND 5 ITA NO. 4405 & 4246/M/2007 DHARDA CHEMICALS LTD. DEPRECIATION FROM THE GROSS TOTAL INCOME BEFORE THE CLAIM OF DEDUCTION UNDER CHAPTER VIA IN VIEW OF PROVISIONS OF SECTION 32(2) R.W.S.72(2)OF THE AC T,WHEREIN THE SAME WAS TO BE CONSIDERED FIRST BEFORE ALLOWING ANY DEDUCTION U/S.80HHC.HE REFERRED TO THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF IPCA LABORATORIES LIMITED(266 ITR 521)AND HELD THAT WHILE COMPUTING DEDUCTION U/S.80HHC BROUGHT FORWARD LOSS IS TO BE R EDUCED BEFORE CLAIMING DEDUCTION,THAT THE ASSESSEE'S INCOME BECAME NIL AFTER CONSIDERING THE UNABSORBED BROUGHT FORWARD DEPRECIATION IT WOULD NOT BE ENTITLED TO ANY DEDUCTION U/S. 80HHC.I N SHORT,THE CLAIM OF DEDUCTION U/S 80HHC WAS DISALLOWED.HE FURTHER HELD THAT THE EXPORTERS H AVING EXPORT TURNOVER EXCEEDING RS. 10 CRORES DURING THE PREVIOUS YEAR HAD AN OPTION TO CHOOSE EI THER DUTY DRAW BACK OR DUTY FREE REPLENISHME CERTIFICATE BEING DUTY REMISSION SCHEME,THAT THE AS SESSEE'S EXPORT TURNOVER EXCEEDED RS.10 CRORES,THAT IT DID NOT FULFILL THE ABOVE MENTIONED CONDITIONS,THAT DEPB BENEFIT COULD NOT BE CONSIDERED FOR WORKING OUT DEDUCTION U/S. 80HHC.AS SUCH IN VIEW OF NIL PROFIT AS DISCUSSED ABOVE THE ASSESSEE COMPANY IS NOT ENTITLED FOR DEDU CTION U/S. 80HHC. 4.1. IN THE APPELLATE PROCEEDINGS,THE FAA HELD THAT IN L IGHT OF THE JUDGMENT OF IPCA LABORATORIES LTD.(SUPRA),ORDER OF THE AO HAD TO BE UPHELD. 4.2. BEFORE US,THE AR FAIRLY CONCEDED THAT THE ISSUE IS DECIDED AGAINST THE ASSESSEE BY THE ORDER OF THE TRIBUNAL DATED 30.11.2009(SUPRA).WE FIND THAT T HE TRIBUNAL HAS,AT PAGE 2 PARA 4 OF THE ORDER, HELD AS UNDER: 4.GROUND NO.2 IS AGAINST CONFIRMATION OF DISALLOWAN CE OF DEDUCTON UNDER SECTION 80HHC. AT THE VERY OUTSET,THE LD.COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED THAT IN THE ABSENCE OF ANY PROFIT AVAILABLE TO THE ASSESSEE FROM EXPORTS,THE B ENEFIT OF DEDUCTION UNDER SECTION80 HHC WAS RIGHTLY NOT AVAILABLE.IN OUR CONSIDERED OPINION THE LD CIT(A)WAS JUSTIFIED IN REJECTING THE GROUND OF THE ASSESSEE ON THE CLAIM OF DEDUCTION UNDER SEC TION 80HHC IN THE ABSENCE OF ANY EHGIHLE PROFIT.THIS GROUND IS THEREFORE,NOT ALLOWED. RESPECTFULLY,FOLLOWING THE ABOVE,WE DISMISS THE GRO UND NO.3 AGAINST THE ASSESSEE. 5. GROUND NO.4 DEALS WITH PROVISION FOR DOUBTFUL DEBTS FOR PURPOSE OF CALCULATING BOOK PROFIT U/S. 115 JB OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD PAID TAX ON THE BOOK PROFIT DETERMINED U/S 115JB AT RS.19,86 ,70,972/-,THAT THE BOOK PROFIT HAD BEEN DETERMINED BY REDUCING THE CLAIM OF DEDUCTION U/S.8 0HHC FROM THE NET PROFIT.THE AO HELD THAT THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION U/S.80H HC AS THE GROSS TOTAL INCOME WAS NIL AFTER SET OFF OF BROUGHT FORWARD LOSSES AND DEPRECIATION,THAT DEDUCTION U/S.80HHC R.W.S.115JB OF THE ACT HAD BEEN WRONGLY CALCULATED,REFERRING TO EXPLANATIO N (IV) TO SECTION 115J B OF THE ACT,HE HELD THAT DEDUCTION U/S. 80HHC R.W.S. 115JB WAS TO BE CO NSIDERED AS PER ACTUAL DEDUCTION ALLOWED UNDER THE SAME SECTION,THAT DEDUCTION U/S. 80HHC R. W.S. 115JB COULD NOT BE ALLOWED AS THERE WAS NO INCOME FROM THE BUSINESS.HE FURTHER OBSERVED THA T THE ASSESSEE HAD DEBITED EXPENDITURE OF RS.1.46 CRORES UNDER THE HEAD PROVISION FOR DOUBTFU L DEBTS,THAT THE SAID AMOUNT WAS NOT ADDED BACK TO THE BOOK PROFIT.HE HELD THAT THE PROVISION FOR DOUBTFUL DEBTS WAS NOT ASCERTAINED LIABILITY,THAT IT WAS BASED ON ESTIMATION,THAT AMOU NT WAS TO BE ADDED BACK TO THE INCOME OF THE ASSESSEE.THE AO REWORKED THE BOOK PROFIT AT RS.31,5 5,70,068/- ADDING THE PROVISION FOR DOUBTFUL DEBTS AND DETERMINED THE TAX PAYABLE U/S.115JB AT RS.2,48,51,143/-. 5.1. IN THE APPELLATE PROCEEDINGS,THE FAA HELD THAT THE ASSESSEE HAD GIVEN THE DETAILS OF PARTIES IN RESPECT OF WHOM SUCH PROVISIONS HAD BEEN MADE,THAT THE AO HAD MADE ADDITION ON WRONG APPRECIATION OF FACTS.HE DIRECTED THE AO TO VERIFY THE DETAILS OF PROVISIONS FOR DOUBTFUL DEBTS AND TAKE A DECISION ACCORDINGLY.HE PARTLY ALLOWED THE A PPEAL FILED BY THE ASSESSEE. 5.2. BEFORE US,THE AR STATED THAT THE ISSUE WAS DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN THE AY.2002-03(ITA2747/MUM/2006/DATED 16.07.2010).BUT,H E PLACED RELIANCE ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT DELIVERED IN THE CASE OF YOKOGAWA INDIA LTD.(204TAXMAN305).HE ALSO REFERRED TO ORDER OF THE TRIBUNAL DECIDED IN T HE CASE OF TRENT LTD.(ITA1073&1708/MUM /2005). WE FIND THAT THE FAA HAD DIRECTED THE AO MAKE VERIF ICATION ABOUT THE LIABILITIES CLAIMED BY THE ASSESSEE.HE HELD THAT IF THE LIABILITIES WERE ASCER TAINABLE,HE SHOULD ALLOW THE DEDUCTION AND NOT OTHERWISE.WE ARE OF THE OPINION,THAT THERE IS PERVE RSITY IN THE ORDER OF THE FAA.IT WAS DUTY OF THE 6 ITA NO. 4405 & 4246/M/2007 DHARDA CHEMICALS LTD. ASSESSEE TO PROVE BEFORE THE AO THAT THE LIABILITIE S IN QUESTION WERE NOT UNASCERTAINABLE.THE ASSESSEE BEFORE US HAS NOT DEMONSTRATED AS TO HOW H E PROVED HIS CLAIM BEFORE THE AO.SO,WE ARE OF THE OPINION THAT THE ORDER OF THE FAA DOES NOT S UFFER FROM ANY LEGAL INFIRMITY. AS FAR AS CASES RELIED UPON BY THE ASSESSEE ARE CON SIDERED,WE WANT TO STATE THAT THEY LAY DOWN GENERAL PRINCIPLES.THE ASSESSEE HAS NOT PROVED THAT THE FACTS OF CASE UNDER APPEAL WERE IDENTICAL TO THE FACTS OF THE CASES RELIED UPON BY IT.THEREFORE, FOLLOWING THE ABOVE MENTIONED ORDER OF THE TRIBUNAL I.E.-ITA2747/MUM/2006/DATED 16.07.2010-WE DECIDE GROUND NO.4 AGAINST THE ASSESSEE. 6. GROUNDS NO.5 TO 11 PERTAIN TO TRANSFER PRICING(TP)A DJUSTMENT.BEFORE US,THE AR DID NOT PRESS GROUND ON 5,HENCE SAME IS DISMISSED AS NOT PRESSED. HE FURTHER STATED THAT GROUNDS NO.6 TO 10 WERE ARGUMENTS SUPPORT OF THE EFFECTIVE GROUND AND DO N OT REQUIRE SEPARATE ADJUDICATION,THAT EFFECTIVE GROUND WAS GROUND NO.11 AND SAME WAS TO BE DECIDED. ACCORDINGLY,WE ARE DELIBERATING UPON THE GROUND NO.11. 6.1. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD FILED REPORT-IN FORM NO.3CEB ALONGWITH THE RETURN DETAILING THE INTERNAT IONAL TRANSACTION(IT)COVERED BY THE PROVISIONS OF SECTION 92E OF THE ACT.A REFERENCE WAS MADE TO T HE TRANSFER PRICING OFFICER (TPO),FOR COMPUTATION OF ARMS LENGTH PRICE(ALP)OF THE ITS.IN PERSUANCES OF THE ORDER OF THE TPO,THE AO MADE ADJUSTMENT OF RS.3,58,14,345/-TO THE TOTAL INC OME OF THE ASSESSEE. 6.2. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FAA.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER THE FAA HELD THAT THAT ASSESSEE-COMPANY HAD ENTERED INTO TRANSACTIONS WITH ASSOCIATED ENTERPRISE VIZ. GHARDA USA WHICH WAS ITS 100% SUBSIDIARY,THAT IT HAD ALSO ENTE RED INTO TRANSACTION OF SALES OF ITS PRODUCTS TO INDEPENDENT PARTIES TO WHOM IT HAD CHARGED PRICES W HICH WERE MORE THAN THE PRICE AT WHICH IT HAD SOLD GOODS TO ITS SUBSIDIARY IN USA,THAT IT WAS MAT ERIAL TO CONSIDER AS TO WHEN THE ASSESSEE COMPANY COULD SOLD THE GOODS TO PARTIES IN NON USA COUNTRIES AT MUCH HIGHER PRICE THERE WAS NO REASON TO BELIEVE THAT IT WOULD EVER PREFER TO SALE GOODS AT LOWER PRICES,THAT THE AE COULD SELL THE SAME PRODUCT IN US MARKET AT THE SAME OR SIMILAR PR ICE AT WHICH IT HAD EXPORTED GOODS TO NON USA COUNTRIES,THAT IT INDICATED THAT UNCONTROLLED P RICE OF THE PRODUCT EVEN IN US MARKET WAS NO DIFFERENT THAN THE SAME SOLD IN OTHER MARKET,THAT T HE ASSESSEE'S ARGUMENT THAT THE PRICE AT WHICH PRODUCT WAS SOLD TO SUBSIDIARY WAS COMPARABLE WITH UNCONTROLLED PRICE COULD NOT BE ACCEPTED, THAT IT COULD SELL ITS PRODUCT THROUGH SUBSIDIARY AT HIG HER PRICE INDICATED THAT REPORT OF MR. BUHN WAS ONLY AN EYE WASH AND COULD NOT BE RELIED UPON,THAT NON USA SALES WAS AFFECTED THROUGH LONDON BRANCH,THAT EXPENSES OF THE SAID BRANCH WERE INCURR ED BY THE ASSESSEE COMPANY,THAT AE HAD INCURRED ALL THE EXPENSES RELATED WITH SALE,THAT TH E TPO SHOULD HAVE CONSIDERED THE FACTOR AFFECTING SUCH PRICE,THAT THE METHOD ADOPTED BY THE TPO IN COMING TO THE CONCLUSION THAT PRICE SHOULD HAVE BEEN THE SAME AS THAT OF NON USA SALES DID NOT REST ON SOUND FOOTINGS,THAT GEOGRAPHICAL TERRITORY AND QUANTITY OF SALES ALSO H AD A BEARING ON SUCH PRICING,THAT WITHOUT CONSIDERING SUCH FACTORS SIMPLY MAKING COMPARISON O F TWO PRICES SUFFERED INBORN INFIRMITY AND HAD TO BE CORRECTED,THAT RESALE PRICE METHOD WAS ON E OF THE APPROVED METHOD OF DETERMINING THE ALP,THAT IT COULD NOT BE OUT RIGHTLY REJECTED,THAT THE AO SHOULD ALSO HAVE CONSIDERED THE RESALE PRICE METHOD.FINALLY,PARTLY ALLOWING THE APPEAL,THE FAA DIRECTED THE AO TO RESTRICT RESTRICT THE ADDITION TO 40% OF RS,3,27, 01,804/-. 6.3. BEFORE US,THE AR STATED THAT THE ASSESSEE HAD APPLI ED THE EXTERNAL CUP METHOD FOR BENCHMARK -ING THE PARTICULAR TRANSACTION WITH THE AE,THAT IT HAS USED THE BHUN DATABASE,THAT THE TPO HAD REJECTED THE METHOD ADOPTED BY THE ASSESSEE,THAT HE APPLIED THE INTERNAL CUP METHOD TO DETERMINE THE ALP,THAT THE TRIBUNAL HAD REJECTED THE INTERNAL CUP METHOD APPLIED BY THE AO AND HAD RESTORED BACK THE MATTER TO HIS FILE.DR STATED THAT MATTER COULD BE SENT TO THE AO FOR DECIDING THE ISSUE OF TP ADJUSTMENT. 6.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT WHILE DECIDING THE TP ADJUSTMENT ISSUE,THE TRIBUNAL HAD R ESTORED BACK THE MATTER TO THE FILE OF THE AO ON 30.11.2009(ITA2242/MUM/2006/-AY.2002-03)WE WOULD LIKE TO MENTION THAT IN THE AY. 2002 -03,IDENTICAL ISSUE HAD ARISEN AND THE TRIBUNAL HAD AFTER CONSIDERING THE ISSUE AT LENGTH AND AFTER DELIBERATING THE ARGUMENTS OF BOTH THE SIDES HAD HE LD AS UNDER: 7 ITA NO. 4405 & 4246/M/2007 DHARDA CHEMICALS LTD. 18.THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED ON THE RECORD ONE PAPER BOOK CONTAINING ADDITIONAL EVIDENCE,WHICH IN HIS OPINION HAS CERTAIN DATA FROM THE GOVERNMENT OF USA AGENCY RELEVANT FOR DETERMINING ALP OF DICAMBA. SIN CE THE AUTHORITIES BELOW HAVE GONE BY THE DETERMINATION OF ALP ON THE BASIS OF IN TERNAL CUP METHOD, WHICH IN OUR CONSIDERED OPINION IS NOT APPROPRIATE IN THE GIVEN CIRCUMSTANCES. IT WILL HE IN THE INTEREST OF JUSTICE IF IMPUGNED ORDER IS SET ASIDE ON THIS S CORE AND THE MATTER IS RESTORED TO THE FILE OF AO. WE ORDER ACCORDINGLY AND DIRECT HIM TO GET THE FRESH A LP DETERMINED FROM THE TPO IN THE LIGHT OF OUR FOREGOING DISCUSSION. N EEDLESS TO SAY THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF BEING HEARD AND WILL ALSO HE ENTITLED TO LEAD FRESH EVIDENCE IN SUPPORT OF ITS CASE. WE FIND THAT IN THE YEAR CONSIDERATION THE BASIC FA CTS REMAIN SAME I.E.THE ASSESSEE HAS ADOPTED THAT EXTERNAL CUP METHOD,THAT IT RELIED UPON THE BHUN DA TABASE,THAT THE FAA HAD PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE.CONSIDERING THE PECULI AR FACTS AND CIRCUMSTANCES OF THE CASE,WE ARE REMITTING THE ISSUE OF TP ADJUSTMENT TO THE FILE OF THE AO FOR FRESH ADJUDICATION.HE WOULD FOLLOW THE DIRECTIONS GIVEN BY THE TRIBUNAL WHILE DECIDING THE APPEAL FOR THE AY.2002-03(SUPRA).HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEA RING TO THE ASSESSEE. 7. LAST GROUND OF APPEAL IS ABOUT USAGES CHARGES OF RE GISTRATION RIGHTS.THIS GROUND IS ALSO RELATED TO TP ADJUSTMENT.THE TPO HAD DETERMINED THE ALP OF THE AMOUNT IN QUESTION AT RS.NIL.HE OBSERVED THAT THE ASSESSEE HAD NOT FILED DETAILS IN THIS REGARD.BUT,HE HELD THAT IF THE ASSESSEE SUBMITTED EVIDENCES,ALP WOULD BE MODIFIED.THE AO HA D PASSED THE ORDER AS SUGGESTED BY THE TPO.IN THE APPELLATE PROCEEDINGS,THE FAA DIRECTED T HE AO TO VERIFY THE DETAILS OF SALES AND PAYMENT MADE ON THE BASIS OF THE DETAILS GIVEN BY T HE ASSESSEE. 7.1. BEFORE US,THE AR STATED THAT WHILE GIVING EFFECT TO THE ORDER OF THE FAA ,THE AO HAD VERIFIED THE CLAIM MADE BY IT AND HAD ALLOWED IT.WE HAVE GON E THROUGH THE ORDER OF THE AO DATED .WE FIND THAT HE HAS IN THE ORDER GIVING EFFECT TO THE ORDER OF THE ALLOWED THE CLAIM.THEREFORE,THERE I S NO REASON FOR GRIEVANCE BY THE ASSESSEE.IN THESE CI RCUMSTANCES,GROUND NO. IS ALLOWED FOR STATISTICAL PURPOSES. 8.ADDITIONAL GROUND OF APPEAL FILED BY THE ASSESSEE,IS ABOUT CLAIM MADE BY THE ASSESSEE U/S.35(2AB)OF THE ACT. IN THE RETURN OF INCOME FILE D BY IT FOR THE YEAR IT CLAIMED A DEDUCTION FOR 100% OF THE EXPENDITURE INCURRED BY IT WHICH QUALIF IED FOR DEDUCTION U/S. 35(2AB) OF THE ACT. IT WAS ARGUED BEFORE US,THAT ALL DETAILS RELATING T O THE SAID EXPENDITURE WERE AVAILABLE IN THE TAX AUDIT REPORT FILED BY IT,THAT DEDUCTION WAS ALLOWAB LE AT THE RATE OF 150% OF THE EXPENDITURE FOR THE YEAR UNDER CONSIDERATION,THAT THE AO SHOULD BE DIRECTED TO ALLOW THE DIFFERENCE. AFTER GOING THROUGH THE SUBMISSIONS MADE BY THEASSE SSEE,WE ARE OF THE OPINION THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO.HE IS DIRECTED TO DECIDE THE ALLOWABILITY OF THE CLAIM MADE BY THE ASSESSEE AFTER AFFORDING A REASONALBE O PPROTUNITY OF HEARING TO IT.ADDITIONAL GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE,IN P ART. ITA/4405/MUM/2007-AY.2003-04(APPEAL FILED BY THE AO ) 9. GROUND NO.1-3 RAISED BY THE AO,DEAL WITH INTEREST E XPENSES OF RS.44,06,055/-.FROM THE OBSERVA -TION OF THE BALANCE SHEET,THE AO FOUND THAT AN AMO UNT OF RS.2,93,73,699/- WAS SHOWN AS CAPITAL WORK-IN-PROGRESS(WIP)AS ON 31.3.2003,THAT THE ASSES SEE HAD CHARGED A SUM OF RS.27,04,86,000/- TOWARDS INTEREST ON FUNDS BORROWED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE WAS DIRECTED TO SHOW CAUSE AS TO WHY PROPORTIONATE INTEREST RELATAB LE TO THE WIP SHOULD NOT BE DISALLOWED.ON A REASONABLE ESTIMATED INTEREST RATE OF 15% P.A. INTE REST APPORTION ABLE TO WIP WAS CALCULATED AT RS. 44,06,055/-.THE ASSESSEE,VIDE ITS LETTER DATED 18/0 1/2006 OBJECTED TO THE DISALLOWANCE OF INTEREST ON ACCOUNT OF INTEREST CHARGEABLE TO CAPITAL WIP.RE JECTING THE CLAIM MADE BY THE ASSESSEE,THE AO HELD THAT THE ASSESSEE HAD BORROWED FUNDS AND USED THOSE FUNDS BUSINESS PURPOSE AS WELL AS FOR CAPITAL WIP FROM YEAR TO YEAR,THAT INTEREST COST WA S THEREFORE APPORTIONABLE TO CAPITAL WIP FOR BUSINESS,THAT A PORTION OF CAPITAL WIP WAS FUNDED B Y INTEREST-BEARING BORROWINGS,THAT THE 8 ITA NO. 4405 & 4246/M/2007 DHARDA CHEMICALS LTD. BORROWINGS HAD BEEN USED FOR EXPANSION OF THE INCOM E GENERATING APPARATUS OF THE COMPANY AND NOT FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE THE INTEREST ON THE BORROWINGS TO THE EXTENT THE SAME HAD BEEN APPLIED FOR INVESTMENT IN CAPITAL WIP ,WAS NOT ALLOWABLE U/S.36(1)(III) OF THE ACT, THAT INTEREST WAS ALSO NOT ALLOWABLE IN VIEW OF EXP LANATION 8 TO SECTION 43(1),THAT THE ASSESSEE DID NOT FILE ANY MATERIAL FACTS WHICH WOULD REVEAL THE APPLICATION OF THE BORROWED FUNDS FOR THE PURPOSE OF THE BUSINESS ONLY.FINALLY,HE DISALLOWED INTEREST AMOUNTING TO RS.44.06 LAKHS @ 15% OF CAPITAL WIP OF RS.2.93 CRORES. 9.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE FILED AN APPEAL BEFORE THE FAA.FOLLIWNG THE ORDER FOR THE AY.2001-02 OF HIS PREDECSSOR,THE FAA DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 9.2. BEFORE US,REPRESENTATIVES OF BOTH THE SIDES AGREED THAT THE ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL FOR THE EARLIER YEARS.(ITA/2146-47/M/2007/ -DATED 12.12.2008,AY.2000-01,2001-02.).WE HAVE HEARD THE RIVAL SUBMISSION.WE FIND THAT IN THE EARLIER YEARS IDENTICAL ISSUE HAD ARISEN IN THE APPEAL FILED BY THE AO AND THE TRIBUANL HAD HELD AS UNDER: 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD.WE FIND THAT THE ISSUE IS SQUARELY COVERED B Y THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CORE HEALTH LTD.(SUPRA ),ON WHICH THE ASSESSEE HAS PLACED RELIANCE. WE RESPECTFULLY FOLLOW THE LAW LAI D DOWN BY THE HON'BE SUPREME COURT IN THE SAID CASE AND IN THE LIGHT OF THAT WE CONFIRM THE ORDERS OF THE CIT(A) IN BOTH THE ASSESSMENT YEARS 2000-01 AND 2001- 02. RESPECTFULLY FOLLOWING THE ABOVE,WE DECIDE GROUND.N O.1-3 AGAINST THE AO. 10. GROUND NO.4-5 ARE ABOUT DELAY IN DEPOSITING CONTRIB UTION TO PROVIDENT FUND(PF)ACCOUNT UNDER BOTH THE CATEGORIES-I.E.EMPLOYERS CONTRIBUTION AND EMPLOYEES CONTRIBUTION.A PERUSAL OF THE TAX AUDIT REPORT BY THE AO REVEALED THAT THE ASSESSEE H AD DELAYED THE PAYMENT OF EMPLOYER'S AND EMPLOYEES' CONTRIBUTION TO P.F.TO THE EXTENT OF RS 31,67,767/- EACH.HE HELD THAT IF THE EMPLOYEE CONTRIBUTION TO PF WAS NOT DEPOSITED INTO THE RESPE CTIVE FUNDS BEFORE THE STIPULATED DUE DATES SAME WAS NOT ALLOWABLE AS DEDUCTION AND WAS TAXABLE AS INCOME IN THE HANDS OF THE EMPLOYER AS PER THE PROVISIONS OF SECTION 36(1)(VA) R.W.S.2(24) (X) OF THE ACT.SIMILARLY AS PER THE PROVISIONS OF SECTION 43B OF THE ACT,THE EMPLOYER'S CONTRIBUTION TO THE PF WAS ALLOWABLE AS EXPENDITURE ONLY IF THE SAID AMOUNT WAS PAID WITHIN THE STIPULATED DUE DATES.HE RELIED UPON THE DECISIONS HITEK INDIA P.LTD.(227ITR446)AND SOUTH INDIA CORPORATION (242IT R 114),WHEREIN SUCH DISALLOWANCES WERE CONFIRMED.HE FURTHER MENTIONED THAT HE HAD EXAMINED THE ISSUE OF PROVIDENT FUND CONTRIBUTION PAID AFTER THE CLOSE OF THE FINANCIAL YEAR BEYOND T HE DUE DATES BUT WITHIN THE GRACE PERIOD AS PER THE PROVIDENT FUND AND HELD THAT THE GRACE PERIOD W AS BASICALLY ALLOWED FOR NOT INVOKING THE PENAL PROVISIONS UNDER THE PROVIDENT FUND ACT,THAT THE GRACE PERIOD OF FIVE DAYS WAS SOLELY FOR THE PURPOSE OF DETERMINING THE AMOUNT OF DAMAGES FO R NONCOMPLIANCE WITH THE PROVIDENT FUND ACT,THAT IT DID NOT AUTOMATICALLY GIVE IMMUNITY OR RELAXATION TO THE ASSESSEE WITH REGARD TO DEFAULT UNDER THE PROVISIONS OF ACT.HE WORKED THE DELAYED P AYMENTS TOWARDS EMPLOYER'S AND EMPLOYEES' CONTRIBUTION TO P.F.AT RS 31,67,767/- EACH AND DISA LLOWED RS.63,35, 534/- UNDER SECTION 43B & U/S.36(1 )(VA) AND ADDED BACK TO THE TOTAL INCOME O F THE ASSESSEE. 10.1. IN THE APPELLATE PROCEEDINGS,THE FAA HELD THAT EVEN IF SOME OF THE PAYMENTS WERE MADE LATE BUT WITHIN THE GRACE PERIOD NO DISALLOWANCE SHOULD BE MADE.HE RELIED UPON THE DECISION OF THE SPECIAL BENCH OF THE CHENNAI TRIBUNAL(284 ITR-AT 89 )DELIVERED IN THE CASE OF KWALITY MILK FOODS LTD.HE DIRECTED THE AO TO VERIFY THE DUE DATE S AND THE GRACE PERIOD DATES BEFORE ALLOWING THE CLAIM OF THE ASSESSEE. 10.2. BEFORE US,THE AR ARGUED THAT THE TRIBUNAL HAD,ON 16 .07.2010,DECIDED THE ISSUE AGAINST THE AO,WHILE DECIDING THE APPEAL FOR THE AY.2002-03(SUP RA).HE REFERRED TO THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT DELIVERED IN THE MATTER O F GHATGE PATIL TRANSPORT LTD.(ITA 1002 OF 2012 DATED 14.10.2014).DR LEFT THE MATTER TO THE DI SCRETION OF THE BENCH. 10.3. WE HAVE HEARD THE RIVAL SUBMISSIONS.WE FIND THAT IN THE MATTER OF GHATGE PATIL TRANSPORT LTD. THE HONBLE BOMBAY HIGH COURT HAS HELD THAT TH E DECISION OF ALOM EXTRUSION(319ITR 306) DELIVERED BY THE HONBLE SUPREME COURT WAS APPLICAB LE OF EMPLOYERS CONTRIBUTION AS WELL AS TO THE EMPLOYEES CONTRIBUNTION.WE FIND THAT THE HONB LE GUJARAT HIGH COURT IN THE MATTER OF 9 ITA NO. 4405 & 4246/M/2007 DHARDA CHEMICALS LTD. GUJARAT STATE ROAD TRANSPORT CORPORATION,AFTER EXTE NSIVELY CONSIDERING THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF ALOM EXTRUSION(S UPRA),HAS HELD IF THE ASSESSEE HAD NOT CREDITED THE EMPLOYEES CONTRIBUTION TO THE EMPLOYE ES ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE MENTIONED IN THE EXPLANATION TO SECTION 36(1)(VA) ,THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTION OF SUCH AMOUNT IN COMPUTING T HE INCOME REFERRED TO IN SEC.28(366 ITR 170). IT WAS SUBMITTED BY LD DR THAT THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT WAS NOT BROUGHT TO THE NOTICE OF THE HONBLE BOMBAY HIGH COURT WHEN THE APPEAL IN THE CASE OF GHATGE PATIL TRANSPORT LTD. WAS BEING HEARD. BUT,AS ON TODAY WE ARE BOUND BY THE ORDER OF THE JURISDICTIONAL HIGH COURT. THEREFORE,RESPECTFULLY,FOLLOWING THE OR DER OF GHATGE PATIL TRANSPORT LTD.(SUPRA),WE DECIDE GROUND NO. 4-5 AGAINST THE AO. 11. GROUND NO.6 IS ABOUT ADDITION OF RS.2.60 CRORES OF UNUTILISED MODVAT CREDIT TO CLOSING STOCK. WHILE DEALING WITH THE GROUND NO.1 OF THE APPEAL FI LED BY THE ASSESSEE,WE HAVE RESTORED BACK THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION .FOLLOWING THE SAME,WE DECIDED GROUND NO.6 IN FAVOUR OF THE AO,IN PART. 12. NEXT GROUND OF APPEAL PERTAINS TO DEDUCTION U/S.80 HHC OF THE ACT FOR PURPOSE OF CALCULATING BOOK PROFITS U/S.115JB OF THE ACT.WHILE DECIDING GO A NO.4 FILED BY THE ASSESSEE,WE HAVE NARRATED THE FACTS RELATED WITH THE QUESTION UNDER CONSIDERATION. 12.1. BEFORE US,REPRESENTATIVE OF BOTH THE SIDES CONCEDED THAT ISSUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE.WE FIND THAT ORIGINALLY T HE QUESTION WAS DECIDED AGAISNT THE ASSESSEE. BUT,LATER ON AN APPLIACTION WAS FILED BY THE ASSESS EE U/S.254(2)OF THE ACT BEFORE THE TRIBUNAL,WHO RECALLED ITS ORDER.BY ITS ORDER DATED 25.01.2012,TH E TRIBUANL RELYING UPON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF BHARI INFORMATION TECHNOLOGY SYMSTEMS PTV. LTD. (17 TAXMANN.COM.62),DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 12.2. RESECTFULLY FOLLOWING THE ABOVE,WE ALSO HOLD THAT D EDUCTION CLAIMED U/S.80HHC HAD TO BE WORKED OUT ON THE BASIS OF ADJUSTED BOOK PROFIT U/S .115JA AND NOT ON THE BASIS OF PROFITS COMPUTED UNDER REGULAR PROVISIONS OF LAW APPLICABLE TO COMPUTATION OF PROFITS AND GAINS OF BUSINESS. 13. GROUND NO.8 DEALS WITH PROVISIONS FOR DOUBTFUL DEBT S OF RS.1,46,43,816/- FOR PURPOSE OF CALCULATING BOOK PROFITS U/S.115JB OF THE ACT.WHILE DECIDING THE ISSUE OF DOUBTFUL DEBTS AT PARAGRAPH NO.5.2.OF OUR ORDER,WE HAVE HELD THAT IN ABSENCE OF EVIDENCES ISSUE IS TO BE DECIDED AGAISNT THE ASSESSEE.THEREFORE,WE ALLOW THE GROUND RAISED BY THE AO. 14. NEXT GROUND IS ABOUT TP ADJUSTMENT ON ACCOUNT OF EX PORT OF DICAMBA TO THE AE OF THE ASSESSEE.AT PARAGRAPH NO. OF OUR ORDER WE HAVE REST ORED BACK THE ISSUE OF TP ADJUSTMENT TO THE FILE OF THE AO. CONSIDERING THE ABOVE,GROUND OF APP EAL FILED BY THE AO STANDS PARTLY ALLOWED. 15. LAST GROUND OF APPEAL PERTAINS TO DISALLOWANCE OF U SAGE CHARGES OF REGISTRATION RIGHT.WHILE DECIDING LAST GROUND OF APPEAL FILED BY THE ASSESSE E WE FOUND THAT THE AO HAD AFTER VERIFYING THE FACTS, ALLOWED THE CLAIM MADE BY THE ASSESSEE,AMOUN TING TO RS.31.12 LAKHS.AS THE AO HIMSELF IS SATISFIED ABOUT THE GENUINENESS OF THE CLAIM FILED BY THE ASSESSEE,THEREFORE IN OUR OPINION GROUND RAISED BY HIM HAS TO BE DISMISSED AS INFRUCTUOUS. AS A RESULT,APPEALS FIELD BY THE ASSESSEE AND THE A O STAND PARTLY ALLOWED. 0)1 () 2 () * 3 4 5 . 6 & ) 78 . ORDER PRONOUNCED IN TH E OPEN COURT ON 26TH JANUARY, 2015 . . & +,! 5 9 26 TUOJH TUOJH TUOJH TUOJH , 201 5 , & - : SD/- SD/- ( . . / I.P. BANSAL) ( / RAJENDRA) 10 ITA NO. 4405 & 4246/M/2007 DHARDA CHEMICALS LTD. / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 9 /DATE: 26.01 . 2015. . . . . & && & $); $); $); $); < ;!) < ;!) < ;!) < ;!) / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '# 2. RESPONDENT / $%'# 3. THE CONCERNED CIT(A)/ = > , 4. THE CONCERNED CIT / = > 5. DR K BENCH, ITAT, MUMBAI / ;?- $) DS DSDS DS , . . . 6. GUARD FILE/ - 0 %;) %;) %;) %;) $) $)$) $) //TRUE COPY// . / BY ORDER, @ / 7 DY./ASST. REGISTRAR , /ITAT, MUMBAI