OCL India, V. DCIT Cir-13(1),

ITA 4588/DEL/2003

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6380 (ITAT-DELHI)
• Duration Of Justice: 10 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 01-05-2017
• Assessment Year: 1999-2000
• Appeal Filed On: 08-10-2003
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y S KAKKAR
• Assessee Lawyers: R M MEHTA
• Keywords: Business income; Depreciation; Opportunity of being heard; Bad and doubtful debts; Capital expenditure
• Section: 43B; 234B; 14A; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G: NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI I. C. SUDHIR, JUDICIAL MEMBER ITA NO.4588/DEL/03 ASSESSMENT YEAR 1999-2000 OCL INDIA LTD. VS. DCIT B-47, CONNAUGHT PLACE, COMPANY CI RCLE=13(1) NEW DELHI 110 001. C.R. BUILDIN G, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.M. MEHTA, ADVOCATE DEPARTMENT BY : MS. Y.S. KAKKAR, SR. DR ORDER PER I.C. SUDHIR, JUDICIAL MEMBER THE ASSESSEE HAS QUESTIONED FIRST APPELLA TE ORDER ON SEVERAL GROUNDS WHICH ARE 14 IN NOS. 2. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY THE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW MATERIAL MA DE AVAILABLE BEFORE US AND THE DECISIONS RELIED UPON. GROUND NO. 1 IT IS CONTENDED THAT THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF RS. 4,64,825/- MADE BY THE ASSESSING OFFICER U/S 14A OF THE INCOME TAX ACT, ON ESTIMATED BASIS, OUT OF THE SALARY AND WAGES PAI D TO THE EMPLOYEES, ASSUMING THE SAME AS RELATABLE TO EARNING OF DIVIDE ND INCOME WHEN ADMITTEDLY NO EXPENSES WERE INCURRED BY THE ASSESSEE COMPANY F OR EARNING OF DIVIDEND INCOME. THE DISALLOWANCE MADE IS IMAGINARY, ARBITRA RY, WITHOUT ANY BASIS AND VITIATED IN LAW. ITA NO. 4588/D/03 2 3. THE RELEVANT FACTS ARE THAT THE ASSESSEE EN GAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF CEMENT AND REFRACTORIES F ROM ITS PLANTS SITUATED AT RAJGANGPUR IN ORISSA STATE HAD RETURNED INCOME U/S 115JA AT RS. 1,09,76,770/-. THE AO HOWEVER FRAMED ASSESSMENT AT THE TOTAL INCOM E OF RS. 1,31,69,260/-. THE LD. CIT(A) HAS GIVEN PART RELIEF AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 3.1 THE AO MADE DISALLOWANCE OF RS. 4,64,825/- O UT OF SALARY & WAGES PAID TO THE EMPLOYEES ON ESTIMATED BASIS TREATING THE SAME AS RELATABLE TO EARNING OF DIVIDEND. THE CONTENTION OF THE ASSESSEE REMAINED T HAT WHEN ADMITTEDLY NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE DIVID END INCOME, THERE WAS NO QUESTION OF DISALLOWANCE MADE IN THIS REGARD. 3.2. IT WAS CONTENDED FURTHER THAT THE SALARY AND WAGES PAID TO THE EMPLOYEES ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSIN ESS. LD. CIT(A) DID NOT AGREE WITH THIS CONTENTION OF THE ASSESSEE AND HAS UPHELD THE ACTION OF THE AO. 3.3. IN SUPPORT OF THE GROUND THE LD. AR SUBMITTE D THAT ONUS IS ON THE AO TO PROVE NEXUS BETWEEN EXPENDITURE AND TAX EXEMPT INCO ME; DISALLOWANCE CAN NOT BE MADE IN THE ABSENCE OF ACTUAL EXPENDITURE WHICH THE AO IS REQUIRED TO ESTABLISH AND DISALLOWANCE CANNOT BE MADE ON PRESUM PTIONS AND OR ON ESTIMATED BASIS. HE PLACED RELIANCE ON THE FOLLOWING DECISION S :- I) CIT VS. METALMAN AUTO (P) LTD. (2011) 11 TAXMAN.COM (P&H) II) DCIT VS. JINDAL PHOTO LTD. IN ITA NO. 4539/DEL/2010 RELYING UPON CIT VS. HERO CYCLES, 323 ITR 51 8 (P&H). ITA NO. 4588/D/03 3 III) COMMISSIONER OF INCOME TAX. V. UN ITED COLLIERIES LIMITED. 203 ITR 857 IV) COMMISSIONER OF INCOME-TAX V. KANO RIA INVETMENTS (P.) LTD. 232 ITR 7 HE ALSO REFERRED CBDT CIRCULAR 14, 252 I TR 65 (STATUTE) 3.4. LD. DR ON THE OTHER HAND TRIED TO JUSTIFY T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ISSUE INVOLVED IS NOW FULLY COVERED WITH THE DECISION OF HONBLE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. & OTHERS VS. CIT (2012) 247 CTR(D) /162. HE ACCORDINGLY REQUESTED THAT THE MATTERS SHOULD BE SET ASIDE TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH IN VIEW OF THE ABOVE DECISION OF HONBLE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF MAXO PP INVESTMENT LTD. 3.5. HAVING GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW WE FIND THAT DURING THE YEAR THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS. 57,22,207/-. THE CONTENTION OF THE ASSESEE BEFORE THE AO REMAINE D THAT NO EXPENSES HAVE BEEN INCURRED FOR EARNING DIVIDEND INCOME AS THE AS SESSEE HAD ENOUGH RESERVES & SURPLUS FOR MAKING INVESTMENT FOR EARNING DIVIDEN D INCOME. THE AO HOWEVER WAS OF THE VIEW THAT EXPENSES INCURRED FOR EARNING THE DIVIDEND CANNOT BE RULED OUT AND THEREFORE HE DISALLOWED PROPORTIONATE EXPEN SES OUT OF SALARY PAID AND WAGES WHICH WAS TREATED AS ATTRIBUTABLE TO EARNING OF DIVIDEND. THE CONTENTION OF THE APPELLANT REMAINED THAT NO EXPENDITURE HAS B EEN INCURRED BY THE ASSESSEE COMPANY FOR EARNING DIVIDEND DURING THE PREVIOUS YE AR AS NO FRESH INVESTMENT ITA NO. 4588/D/03 4 WAS MADE IN THE SHARE CAPITAL OF THE COMPANY FROM W HOM DIVIDEND WAS RECEIVED. IT WAS SUBMITTED FURTHER BY THE ASSESEE T HAT THE MAJOR AMOUNT OF DIVIDEND HAS BEEN RECEIVED FROM SUBSIDIARY COMPANI ES IN WHICH THE INVESTMENT WAS MADE DURING THE PERIOD 1974-1980 AND THE INVEST MENT IN SHARES AND OTHER DOMESTIC COMPANIES WAS ALSO MADE LONG TIME AGO IN E ARLIER YEARS AND SALARY AND WAGES PAID TO THE EMPLOYEES DURING THE PERIOD HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE COMPANY AND NO PART OF IT CAN BE TREATED AS RELATABLE TO THE EARNING OF EXEMP T DIVIDEND INCOME AS THERE WAS NO NEXUS BETWEEN EARNING OF ESTIMATED DIVIDEND INCOME AND THE SALARY AND WAGES PAID TO THE EMPLOYEES OF THE COMPANY. LD. CIT (A) DID NOT AGREE WITH THIS SUBMISSION OF THE ASSESSEE WITH THIS OBSERVATION OF HIM THAT INSPITE OF THE FACT THAT INVESTMENTS HAVE BEEN DONE IN EARLIER YEARS, T HE INVESTMENTS WILL HAVE TO BE MANAGED AND ADMINISTERED EVERY YEAR PROPERLY TO EAR N THE DIVIDEND INCOME AND FUND WILL HAVE TO BE MANAGED BY THE EMPLOYEES OF TH E ASSESSEE ONLY. HE WAS OF THE VIEW THAT IT CANNOT BE SAID THAT DIVIDEND INCOM E IS WINDFALL AND NO TIME OR ENERGY IS SPENT IN MANAGING THE DIVIDEND YIELDING F UND. WE FIND THAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE HONBLE JURISDICTIOAN L HIGH COURT OF DELHI IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT(SUPRA) AFTE R DETAILED DELIBERATION ON THE RELATED PROVISION OF SECTION 14A AS WELL AS RULE 8 D (IN AMENDMENT) WHICH CAME INTO EFFECT FROM ASSTT. YEAR 2007-08 ONWARDS. THE H ONBLE HIGH COURT HAS BEEN PLEASED TO HOLD THAT SECTION 14A EVEN PRIOR TO THE INTRODUCTION OF SUB SECTIONS (2) AND (3) THEREIN WOULD REQUIRE THE AO TO FIRST REJECT THE CLAIM OF THE ASSESSEE ITA NO. 4588/D/03 5 WITH REGARD TO THE EXTENT OF SUCH EXPENDITURE AND S UCH DEDUCTION MUST BE FOR DISCLOSED COGENT REASONS. IT IS THEN THAT THE QUEST ION OF DETERMINATION OF OTHER EXPENDITURE BY THE AO WOULD ARISE. IT HAS BEEN HELD THAT A SPECIFIC METHOD OF DETERMINING OF SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF SUB SECTION (2) OF SECTION 14A . PRIOR TO THAT THE AO WAS TO ADOP T ANY REASONABLE AND ACCEPTABLE METHOD. THE FACT THAT SUB SECTIONS (2) A ND (3) OF SECTION 14A AND RULE 8D WOULD OPERATE PROSPECTIVELY (AND NOT RETROS PECTIVELY ) DOES NOT MEAN THAT THE AO IS NOT TO SATISFY HIMSELF WITH THE CORR ECTNESS OF THE CLAIM OF THE ASSESSEE WITH REGARD TO SUCH EXPENDITURE . IF HE IS SATISFIED THAT THE ASSESSEE HAS CORRECTLY REFLECTED THE AMOUNT OF SUCH EXPENDIT URE HE HAS TO DO NOTHING FURTHER. ON THE OTHER HAND IF HE IS SATISFIED ON AN OBJECTION AND WITH COGENT REASONS THAT AN AMOUNT OF SUCH EXPENDITURE AS CLAIM ED BY THE ASSESEE IS NOT CORRECT, HE IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ON THE BASIS OF REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMEN T. WE FIND THAT IN THE PRESENT CASE BEFORE US THE AO WHILE DENYING THE SUB MISSION OF THE ASSESSEE HAS NOT DEALT WITH THE ISSUE AS PER THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT L TD. VS. CIT (SUPRA). WE THUS SET ASIDE THE MATTER TO THE FILE OF THE AO TO DECID E THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE IN VIEW OF THE ABOVE CITED DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT (SUPRA). GROUND NO. 1 IS ALLOWED FOR STATISTICA L PURPOSES. GROUND NO. 2 ITA NO. 4588/D/03 6 A. IT IS CONTENDED THAT THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCES OF RS. 1,46,50,442/- BEING BAD DEBTS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNTS/DURING THE P REVIOUS YEAR. B. IT IS CONTENDED THAT THE LEARNED CIT()A HAS GRIEVOUSLY ERRED IN NOT ALLOWING DEDUCTION U/S 36(1)(VII) IN RESPECT OF THE AMOUNTS AGGREGATING TO RS. 1,46,50,442/- WHICH HAVE BECOME IRRECOVERABLE F ROM ULTIMATE CUSTOMERS TO WHOM REFRACTORIES WERE SOLD THROUGH ITS DEALER M/S. S.K. TULSIAN TRADING CO. (P) LTD., WRITTEN OFF DURING TH E PREVIOUS YEAR AS BAD DEBTS WHEN ALL THE CONDITONS U/S 36(2) HAVE BEEN FU LLY MET. C. IT IS CONTENDED THAT THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT IN TERMS OF MOU DATED 10.10.19990 WITH ITS DEALER, THE ASSESEE COMPANY IS FULLY RESPONSIBLE FOR BAD DEBTS ARISING OUT OF SALE S EFFECTED THROUGH THE DEALER. D. IT IS CONTENDED THAT ALTERNATIVELY WHEN ADM ITTEDLY THE AMOUNT DUE FROM DEALER WHICH REPRESENT THE IRRECOVERABLE DEBTS FROM ULTIMATE/ACTUAL USERS OF REFRACTORIES, COULD NOT BE RECOVERED AND HENCE W RITTEN OFF AS BAD DEBTS, THE SAME SHOULD HAVE BEE ALLOWED AS DEDUCTIO N IN COMPUTING BUSINESS INCOME. E. IT IS CONTENDED THAT SECTION 36(1)(VII) & 36 (2) AFTER AMENDMENT W.E.F. 1.4.1989, DOES NOT REQUIRE THE ASSESEE TO PROVE OR ESTABLISH THAT THE DEBTS HAVE BECOME IRRECOVERABLE DURING THE PREVIOUS YEAR. WHEN ALL THE REQUIREMENTS OF SEC. 36(1)(VII) AND SECTION 36(2) H AVE BEEN FULLY MET, THE LEARNED CIT(A) HAS FAILED TO ALLOW THE DEDUCTION ON IRRELEVANT CONSIDERATIONS. F. WITHOUT PREJUDICE TO THE ABOVE, IT IS CONT ENDED TAH THE DEDUCTION FOR RS.1,46,50,442 BEING DEBTS WRITTEN OFF DURING THE P REVIOUS YEAR IS ALLOWABLE U/S 37 IN COMPUTING THE BUSINESS INCOME . G. WITHOUT PREJUDICE TO THE ABOVE, IT IS CONT ENDED THAT THE DEBTS AGGREGATING TO RS. 1,46,50,442/- WRITTEN OFF IN THE BOOKS OF AC COUNTS DUE TO THESE BECOMING IRRECOVERABLE, IS ALLOWABLE AS BUSINESS LO SS U/S 28. 4. THE AO MADE ADDITION OF RS. 1,46,50,442/- O N ACCOUNT OF NOT ALLOWING DEDUCTION FOR THE BAD DEBTS. THE AO NOTED THAT VIDE ENTRIES DATED 31.3.99 THE ASSESSEE HAD WRITTEN OFF A SUM OF RS. 1,46,50,442/- AS BAD DEBT DURING THE YEAR. ITA NO. 4588/D/03 7 THE SUBMISSION OF THE ASSESSEE REMAINED THAT THESE ARE THE DEBTS OF THE ASSESSEES DEALER M/S SKT WHICH HAD BECOME BAD TOWA RDS CUSTOMERS. THE BAD DEBT OF M/S. SKT HAD BEEN PASSED ON TO THE ASSESSEE UNDER AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND M/S. SKT AND THEREFOR E THE ASSESSEE HAD WRITTEN OFF THE SAME IN ITS BOOKS OF ACCOUNTS. THE AO DID N OT AGREE WITH THESE SUBMISSIONS OF THE ASSESSEE ON THE BASIS THAT M/S. SKT WAS PURCHASING THE REFRACTORIES MANUFACTURED BY THE ASSESSEE AS AN IND EPENDENT TRADER AND M/S. SKT WAS THE ONLY DEBTOR IN THE BOOKS OF ASSESSEE. T HE AO WAS OF THE VIEW THAT THE DEBT OF M/S. SKT CANNOT BE TREATED AS ASSESSEE S DEBT MERELY BECAUSE THE ASSESEE HAD ENTERED INTO AN AGREEMENT WHEN THE RELA TIONSHIP BETWEEN THE TWO IS THAT OF SELLER AND BUYER AND NOT OF PRINCIPAL AN D AGENT. THE AO THUS DISALLOWED THE CLAIMED BAD DEBT OF THE ASSESSEE. THE LD. CIT(A ) HAS JUSTIFIED THIS ACTION OF THE AO ALSO ON THE BASIS THAT THE ASSESSEE HAS NOT BROUGHT ANYTHING ON RECORD TO JUSTIFY THAT THE DEBT IS NOT RECOVERABLE FROM M/S. SKT. HE OBSERVED THAT IT IS THE LIABILITY OF M/S. SKT TO RECOVER THESE AMOUNT FROM THE ULTIMATE USERS OF THE REFRACTORIES AND PASS IT ON THE ASSESSEE COMPANY. 4.1. IN SUPPORT OF THE GROUND THE LD. AR HAS REI TERATED THE SUBMISSIONS MADE IN THIS REGARD BEFORE THE AUTHORITIES BELOW. HE SUB MITTED THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT IN TERMS OF MOU DATED 10. 10.90 BETWEEN THE ASSESEE AND ITS DEALER M/S. SKT, THE ASSESSEE COMPANY IS FU LLY RESPONSIBLE FOR BAD DEBT ARISING OUT OF THE SALE EFFECTED TO THE DEALER. IN ALTERNATIVE IT WAS SUBMITTED THAT WHEN ADMITTEDLY THE AMOUNT DUE FROM DEALER REPRESE NT THE DEBTS WHICH COULD ITA NO. 4588/D/03 8 NOT BE RECOVERED AND HENCE WRITTEN OFF AS BAD DEBT THE SAME SHOULD HAVE BEEN ALLOWED AS DEDUCTION IN COMPUTING BUSINESS INCOME. HE SUBMITTED THAT SECTION 36(1) (VII) AND 36(2) AFTER AMENDMENT W.E.F. 1.4.8 9, DOES NOT REQUIRE THE ASSESSEE TO PROVE OR ESTABLISH THAT THE DEBTS HAVE BECOME IRRECOVERABLE DURING THE PREVIOUS YEAR. HE SUBMITTED THAT WHEN ALL THE R EQUIREMENTS OF SECTION 36(1)((VII) AND 36(2) HAVE BEEN FULLY COMPLIED WITH THE LD. CIT(A) HAS FAILED TO ALLOW THE DEDUCTION ON RELEVANT CONSIDERATIONS. WIT HOUT PREJUDICE TO THE ABOVE SUBMISSIONS THE LD. AR CONTENDED THAT THE DEDUCTION AMOUNT IN QUESTION BEING WRITTEN OFF DURING THE PREVIOUS YEAR IS ALSO ALLOW ABLE U/S 37 IN COMPUTING THE BUSINESS INCOME AND FURTHER THAT THE DEBT AGGREGATI NG TO THE AMOUNT IN QUESTION WRITTEN OFF IN THE BOOKS OF ACCOUNTS DUE TO THESE B ECOMING THE IRRECOVERABLE IS ALLOWABLE AS BUSINESS LOSS U/S 28 OF THE ACT. THE L D. AR ALSO REFERRED CONTENTS OF PAGE NOS. 41 TO 44 AND PAGE NO. 13 TO 15, 20 TO 22, 39 & 40 AND 81 OF THE PAPER BOOK. THESE ARE THE COPIES OF DOCUMENTS / COR RESPONDENCE SUPPORTING THE CASE OF THE ASSESSEE. LD. AR ALSO PLACED RELIANCE O N THE FOLLOWING DECISIONS :- 1. T.R.F. LTD. VS CIT 323 ITR 397 (SC) 2. COMMISSIONER OF INCOME-TAX V. MORGAN SEC URITIES AND CREDITS (P) LTD. [2007] 292 ITR 339 (DEL) 3. COMMISSIONER OF INCOME-TAX V. AUTOMETERS LTD. [2007] 292 ITR 345 (DEL) 4.2 THE LD. DR ON THE OTHER HAND TRIED TO JUSTIF Y THE ORDERS OF THE AUTHORITIES BELOW. ITA NO. 4588/D/03 9 4.3. HAVING GONE THROUGH THE DECISIONS RELIED UP ON BY THE LD. AR WE FIND THAT THERE IS NO DISPUTE THAT IN CASE OF BAD DEBT KEEPIN G IN VIEW THE AMENDMENT IN SECTION 36(1)(VII) W.E.F. 1.4.1989 ASSESSEE IS ONLY TO WRITE THE BAD DEBT OFF AS IRRECOVERABLE IN ITS ACCOUNT. THE ASSESSEE IS NEITH ER REQUIRED TO PROVE THAT DEBT HAD BECOME BAD NOR THE GENUINENESS OF TRANSACTION I S QUESTIONABLE. IN THE PRESENT CASE BEFORE US THE AO HAS DISALLOWED THE CL AIMED BAD DEBT ON THE BASIS THAT M/S. SKT IS PURCHASING THE REFRACTORIES MANUFA CTURED BY ASSESSEE AS AN INDEPENDENT TRADER. M/S. SKT IS THE ONLY DEBTOR IN THE BOOKS OF ASSESSEE. THE DEBT OF M/S SKT CANNOT BE TREATED AS ASSESSEES DEB T MERELY BECAUSE ASSESSEE HAS ENTERED INTO AN AGREEMENT WHEN THE RELATIONSHIP BETWEEN THE TWO IS THAT OF SELLER AND THE BUYER AND NOT OF PRINCIPAL AND AGENT . LD. CIT(A) HAS UPHELD THIS ACTION OF THE AO WITH FURTHER OBSERVATION THAT THE ASSESSEE COMPANY HAS NOT MAINTAINED ANY ACCOUNT OF THE VARIOUS COMPANIES TO WHOM REFRACTORIES HAVE BEEN SOLD. IN THE BOOKS OF ACCOUNTS ONLY ONE ACCOUN T OF M/S SKT HAS BEEN MAINTAINED. THEREFORE THE DEBT WHICH IS REPRESENTIN G IN THE BOOKS OF ACCOUNT IS OF M/S. SKT AND NOT OF VARIOUS OTHER COMPANIES TO W HOM REFRACTORIES HAVE BEEN SOLD. THEREFORE AS PER THE BOOKS OF ACCOUNTS THE AM OUNT RECOVERABLE FROM M/S, SKT TO WHOM THE REFRACTORIES HAVE BEEN SOLD BY THE ASSESSEE AND THE ASSESSEE HAS NOT BROUGHT ANYTHING ON RECORD TO JUSTIFY THAT THE DEBT IS NOT RECOVERABLE FROM M/S. SKT HELD THE AUTHORITIES BELOW. IN VIEW O F THE CITED DECISIONS AND THE PROVISIONS OF LAW WE HOWEVER HOLD THAT THE ASSESEE WAS NOT REQUIRED TO BRING ANYTHING ON RECORD TO JUSTIFY THAT DEBT IS NOT RECO VERABLE FROM M/S SKT. THE ONLY ITA NO. 4588/D/03 10 ISSUE BEFORE US IS AS TO WHETHER AS PER THE TERMS O F THE AGREEMENT BETWEEN THE ASSESSEE AND MS/S SKT THE ASSESSEE WAS RESPONSIBLE TO COMPENSATE THE LIABILITY OF M/S. SKT TO RECOVER THE ULTIMATE USERS OF REFRAC TORIES AND TO PASS IT ON TO THE ASSESSEE. IN CRUX AS TO WHETHER THE ASSESSEE WAS EN TITLED TO CLAIM BAD DEBT OF M/S. SKT IN ITS BOOKS OF ACCOUNTS. THE CONTENTION O F THE ASSESSEE REMAINED THAT AS PER THE MEMORANDUM OF UNDERSTANDING ENTERED INTO ON 10.10.90 BETWEEN ASSESSEE AND SK TULSYAN TRADING COMPANY PVT. LTD. ( SKT), A COPY THEREOF HAS BEEN MADE AVAILABLE ON PAGE NO. 41 TO 44 OF THE PAP ER BOOK, IT WAS AGREED UPON THAT M/S. SKT SHALL NOT BE RESPONSIBLE FOR BAD DEBIT, IF ANY, ARISING OUT OF THE EXECUTION OF ORDERS BOOKED BY THEM IN RESPECT O F WHICH THE DESPATCHES ARE EFFECTED BY THE ASSESSEE ON OR AFTER DATED 1.12.90. BAD DEBT, IF ANY, SHALL BE SOLELY TO THE ACCOUNT OF THE ASSESSEE. THIS TERM HA S BEEN EXTRACTED FORM PAGE NO. 43 OF THE MOU. IN THE SUCCEEDING PARAGRAPH OF THE ABOVE SAID CLAUSE IT HAS BEEN ALSO CLEARLY UNDERSTOOD BETWEEN THE PARTIES TH AT IT SHALL BE THE FULL RESPONSIBILITY OF M/S. SKT TO CONTINUE TO MAINTAIN ALL NECESSARY CLOSE FOLLOW UP WITH THE CUSTOMERS FOR RECOVERY OF ACCOUNTS DUE AG AINST SUPPLIES EFFECTED TO THEM. IN VIEW OF THESE MATERIAL FACTS WE FIND IT PR OPER TO SET ASIDE THE MATTER TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH KEEPI NG IN VIEW THE TERMS AND CONDITIONS LAID DOWN IN THE MOU BETWEEN THE PARTIES AS WELL AS OTHER RELEVANT MATERIAL ALREADY AVAILABLE ON RECORD AFTER AFFORDIN G OPPORTUNITY OF BEING HEARD TO THE ASSESEE. THE GROUND NO. 2 IS ACCORDINGLY SET AS IDE FOR STATISTICAL PURPOSES. GROUND NO. 3 ITA NO. 4588/D/03 11 A. IT IS CONTENDED THAT THE LEARNED CIT(A) HAS ERR ED IN CONFIRMING THE DISALLOWANCE OF RS. 39,07,926/- BEING REBATE ALLOWE D IN RESPECT OF SALES THROUGH THE DEALER M/S. S.K. TULSIAN TRADING CO. (P) LTD. D UE TO DEFECT, FAILURE OR POOR QUALITY OF REFRACTORY SOLD THROUGH THE DEALER. B. IT IS CONTENDED THAT THE LEARNED CIT(A) HAS FA ILED TO APPRECIATE THAT WHEN ADMITTEDLY REBATE HAS BEEN ALLOWED TO THE ULTIMATE CUSTOMER/USERS BASED ON THEIR CLAIMS RECEIVED BY THE ASSESSEE COMPANY FOR D EFECT, FAILURE OR POOR QUALITY OF REFRACTORIES, THE DEDUCTION FOR THE SAME SHOULD HAVE BEEN ALLOWED IN COMPUTING THE BUSINESS INCOME. IT IS CONTENDED THAT THE DISALLOWANCE OF REBATE ALLOWED TO CUSTOMER/DEALER HAS BEEN UPHELD ON IRREL EVANT CONSIDERATIONS. C. WITHOUT PREJUDICE TO THE ABOVE, ALTERNATIVELY I T IS CONTENDED THAT THE REBATE ALLOWED TO THE DEALER IN RESPECT OF REFRACTORIES SO LD THROUGH THEM IS ALLOWABLE AS BUSINESS LOSS U/S 28 OF I.T. ACT 1961. 5. THE ASSESSEE IS AGGRIEVED BY THE ACTION O F THE LD. CIT(A) WHEREBY HE HAS SUSTAINED A DISALLOWANCE OF RS. 38,07,926/- BEI NG REBATE ALLOWED IN RESPECT OF SALES THROUGH THE DEALER M/S SKT DUE TO DEFECT, FAILURE AND POOR QUALITY OF REFRACTORIES SUPPLIED BY THE ASSESSEE AND SOLD THR OUGH THE DEALER. 5.1. IN SUPPORT OF THE GROUND THE LD. AR R EITERATED THE CONTENTS OF THE GROUNDS THAT ULTIMATE ALTERNATIVE PLEA MENTIONED TH EREIN IS THAT IN CASE OF DISALLOWANCE THE REBATE ALLOWED TO THE DEALER IN RE SPECT OF REFRACTORIES SOLD TO THEM IS ALLOWABLE U/S 28 OF THE ACT. LD. AR ALSO RE FERRED PAGE NOS. 81 TO 85 OF THE PAPER BOOK I.E. COPY OF LETTER DATED 26.3.2002 SUBMITTED TO THE AO AS WELL AS VOUCHER NOTE DATED 29.3.1999 OF THE PLANT COMMITTEE RECOMMENDING THE REBATE. LD. AR SUBMITTED FURTHER THAT THE DEFECTIVE STOCK REDUCED IN VALUE HAS BEEN INCLUDED IN CLOSING STOCK. HE ALSO PLACED RELIANCE ON THE DECISION IN THE CASE OF SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES LIMITED. V.COMMISSIONER OF INCOME ITA NO. 4588/D/03 12 TAX. 213 ITR 523. 5.2. LD. DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD. 5.3. HE SUBMITTED THAT THE TERMS AND CONDITION I N THE MEMORANDUM OF UNDERSTANDING DO NOT MAKE IT CLEAR THAT THE ASSESSE E WAS TO PAY THE LIABILITY TO SKT. IN THIS REGARD HE REFERRED PAGE NO. 43 OF THE PAPER BOOK (ASSESSEE) I.E RELEVANT PORTION OF THE MEMORANDUM OF UNDERSTANDING BETWEEN THE ASSESSEE AND SKT. HE SUBMITTED THAT THE ASSESSEE IS SELLING THE PRODUCTS TO SKT AND NOT TO THE USER COMPANIES DIRECTLY. THE PURCHASES ARE B EING MADE BY SKT WHO IN TURN IS SELLING THEM TO THE ULTIMATE USERS. THEREFO RE, THE PRODUCTS SPECIFICATIONS AND CUSTOMERS SATISFACTION IS THE DUTY OF THE PURCH ASER OF GOODS FROM THE ASSESSEE COMPANY AND IF AT ALL GOODS ARE NOT OF SAT ISFACTORY NATURE IT WAS THE LIABILITY OF SKT AND NOT OF THE ASSESSEE COMPANY. 5.4. CONSIDERING THE ABOVE SUBMISSION WE FIND THAT THE CLAIM OF THE ASSESSEE IS THAT AS PER THE TERMS OF THE SALE AGREEMENT THE ASSESEE IS FULLY RESPONSIBLE FOR THE QUALITY OF THE MATERIAL SUPPLIED AND IN THE COU RSE OF BUSINESS, IF ANY MATERIAL SUPPLIED BY IT IS FOUND TO BE DEFECTIVE OR OF INFER IOR QUALITY, THE ASSESSEE IS LIABLE TO TAKE BACK THE MATERIAL AND REFUND THE AMOUNT PAI D BY THE CUSTOMER/ DEALER AGAINST SUCH DEFECTIVE SUPPLY. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT (SUPRA) HAS HELD THAT MERELY BECA USE AN EXPENSE RELATE TO A TRANSACTION OF AN EARLIER YEAR IT DOES NOT BECOME A LIABILITY PAYABLE IN THE EARLIER YEAR UNLESS IT CAN BE SAID THAT THE LIABILITY WAS D ETERMINED AND CRYSTALISED IN THE ITA NO. 4588/D/03 13 YEAR IN QUESTION ON THE BASIS OF MAINTAINING ACCOUN TS ON MERCANTILE BASIS. CONSIDERING THESE SUBMISSIONS WE ARE OF THE VIEW TH AT THE REBATE ALLOWED TO DEALER DURING THE PREVIOUS YEAR IN RESPECT OF SALE OF REFRACTORIES CRYSTALISED DURING THE PREVIOUS YEAR IS ALLOWABLE DEDUCTION U/S 37 OF THE ACT IN THE ASSTT, YEAR UNDER CONSIDERATION. THE ASSESEE ALSO SUBMITTE D THAT SIMILAR REBATE HAS BEEN ALLOWED TO THE CUSTOMERS / DEALERS BY THE AO I N EARLIER YEARS AS DEDUCTION AND THE DECISION OF THE APPELLATE AUTHORITY HAS BE EN ACCEPTED BY THE REVENUE. WE THUS PRIMA FACIE DO NOT FIND INFIRMITY IN THE CL AIMED DEDUCTION OF RS. 38,07,926/- BEING REBATE ALLOWED IN RESPECT OF SALE S THROUGH SKT DUE TO THE DEFECT , FAILURE OR POOR QUALITY O REFRACTOR MANUFA CTURED BY THE ASSESSEE AND SOLD THROUGH THE SAID DEALER SKT. WE THUS SET ASIDE THE MATTER TO THE FILE OF THE AO TO VERIFY THE ABOVE FACTS, AND IF HE FINDS IT CORRE CT THUS ALLOW THE CLAIM WHILE DOING SO HE WILL AFFORD OPPORTUNITY OF BEING HEARD TO THE ASSESEE. DIRECT THE AO TO ALLOW THE CLAIMED REBATE. THE GROUND NO. 3 IS AC CORDINGLY ALLOWED. GROUND NO.4. IT IS CONTENDED THAT THE LEARNED CIT(A) HAS ERRED I N NOT ALLOWING DEPRECIATION ON WDV OF THE AMOUNT OF INTEREST/COMMITMENT CHARGES TR EATED AS CAPITAL EXPENDITURE AND INCLUDED IN THE COST OF ASSETS IN T HE EARLIER ASSESSMENT YEARS. 6. DURING THE COURSE OF HEARING THE LD. AR D ID NOT PRESS THIS GROUND. THIS GROUND IS ACCORDINGLY REJECTED AS WITHDRAWN. GROUND NO. 5 ITA NO. 4588/D/03 14 IT IS CONTENDED THAT THE LEARNED CIT(A) HAS ERRED O N FACTS AND IN LAW IN TREATING THE AMOUNT OF RS. 5,69,580/- PAID UNDER VOLUNTARY R ETIREMENT SCHEME TO THE EMPLOYEES/WORKERS, AS CAPITAL EXPENDITURE. 7. DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE AO OBSERVED THAT THE ASSESSEE HAD DEBITED A SUM OF RS. 5,80,000/- IN IT S PROFIT AND LOSS ACCOUNT FOR PREVIOUS YEAR ON ACCOUNT OF VOLUNTARY RETIREMENT OF EMPLOYEE. IT WAS SUBMITTED BY THE ASSESSEE THAT THE SAID AMOUNT WAS PAID TO EM PLOYEES OF SAHUPURI UNIT ON THEIR OPTING FOR THE VOLUNTARY RETIREMENT FROM THE SERVICES OF THE ASSESSEE COMPANY WHICH HAS BEEN CLAIMED AS REVENUE EXPENDITU RE. IT WAS SUBMITTED THAT THE EXPENDITURE INCURRED ON PAYMENT UNDER VOLUNTARY RETIREMENT WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND DEDUCTI BLE IN COMPUTING THE BUSINESS INCOME OF THE ASSESSEE COMPANY. THE AO HOWEVER REFE RRING CBDT CIRCULAR NO. 200/79/2000 ITAJ DATED 23.1.2001 FOR ISSUING DIRECT IONS THAT THE PAYMENTS UNDER VOLUNTARY RETIREMENT WAS IN THE NATURE OF CAP ITAL EXPENDITURE AND THUS CANNOT BE ALLOWED AS DEDUCTION, DISALLOWED RS.5,80, 000/- PAID BY THE ASSESEE TO ITS WORKERS UNDER VRS BEING IN THE NATURE OF CAPITA L EXPENDITURE. THIS ACTION OF THE AO HAS BEEN UPHELD BY THE LD. CIT(A), 7.1. LD. AR POINTED OUT THAT THE ISSUE RAISED I N THE GROUND IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBU NAL IN THE CASE OF ASSESSEE ITSELF FOR THE ASSESSMENT YEAR 1985-86 IN ITA NO. 3 764/D/91 VIDE ORDER DATED 29.2.2000. THE LD. AR POINTED OUT FURTHER THAT THE SAID ORDER OF THE TRIBUNAL HAS ITA NO. 4588/D/03 15 ALSO BEEN UPHELD BY THE HONBLE JURISDICTIONAL DELH I HIGH COURT VIDE ITS JUDGMENT DATED 24.7.87 IN IIC300/83. 7.2. LD. DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 7.3. SINCE THE ISSUE IS COVERED BY THE ABOVE CI TED DECISION OF THE TRIBUNAL , WE SET ASIDE THE MATTER TO THE FILE OF THE AO TO VERIF Y THE ABOVE FACTS AND DECIDE THE ISSUE AFRESH IN VIEW OF THE RATIO LAID DOWN IN THE ABOVE CITED DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT. GROUND NO. 5 IS THUS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 6 IT IS CONTENDED THAT THE LEARNED CIT(A) HAS ERRED I N CONFIRMING THE DISALLOWANCE FOR RS. 3,88,093/- PAID TO M/S. EICHER CONSULTANCY S ERVICES LIMITED AS CONSULTANCY CHARGES FOR IMPLEMENTING TOTAL QUALITY MANAGEMENT (TQM) AND IMPROVING HR ACTIVITIES IN APPELLANT COMPANY TREATI NG AS CAPITAL EXPENDITURE. 8. THE LD. AR SUBMITTED THAT THE ISSUE RAISED IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN THE CAS E OF ASSESSEE ITSELF FOR THE ASSESSMENT YEARS 1997-98 AND 1998-99 AND REFERRED C ONTENTS OF PARA NOS. 18 ONWARDS AND 17 ONWARDS AT PAGE NOS. 39 AND 48 RESPE CTIVELY OF THE PAPER BOOK (CITATIONS). 8.1. THE LD. DR ON THE OTHER HAND PLACED RELIANCE O N THE ORDERS OF THE AUTHORITIES BELOW. 8.2. HAVING GONE THROUGH THE CITED DECISIONS W E FIND THAT SIMILAR ARE THE FACTS OF THE CASE IN THE ASSTT. YEARS 1997-98 AN 1998-99 AS IN THOSE YEARS ALSO, THE ITA NO. 4588/D/03 16 ASSESSEE HAD OBJECTED THE DISALLOWANCE MADE BY THE AO BEING FEES PAID TO M/S. EICHER CONSULTANCY SERVICES LTD. TREATING THE SAME AS CAPITAL EXPENDITURE. THIS FEE WAS PAID FOR IMPLEMENTING TOTAL QUALITY MANAGE MENT (TQM) AND FOR IMPROVING HR ACTIVITIES IN THE ASSESSEE COMPANY. EIC HER CONSULTANCY SERVICES HAD ALSO BEEN PROVING MANAGEMENT CONSULTANCY TO REO RGANIZING THE OPERATION OF THE ASSESSEE BY ACHIEVING OPTIMUM LEVEL OF PRODUCTI ON AND ALSO TO MOTIVATE THE EMPLOYEES. THE TRIBUNAL IN ITA NO. 2077/D/01 (ASSTT . YEAR 1997-98) ORDER DATED 31.8.2006 AND IN ITA NO. 1229/D/03 (ASSTT. YEAR 19 98-99) ETC. VIDE ORDER DATED 24.10.2006 HAS DECIDED THE ISSUES IN FAVOUR OF THE ASSESSEE, WITH THIS FINDING THAT BY INCURRING THE EXPENDITURE NO NEW ASSET HAS COME INTO EXISTENCE NOR A NEW SOURCE OF INCOME HAS BEEN CREATED WHICH WOULD E NABLE THE ASSEEE TO REGULARLY EARN INCOME FOR A NUMBER OF YEARS FROM SU CH SOURCE AND HELD THAT EXPENDITURE IS INCURRED SOLELY AND PURELY TO INCREA SE THE EFFICIENCY OF BUSINESS WHICH IS ALREADY IN QUESTION. FOLLOWING THE SAME WE DIRECT THE AO TO DELETE THE ADDITION IN QUESTION. GROUND NO. 6 IS ACCORDINGLY A LLOWED. GROUND NO. 7 A. IT IS CONTENDED THAT THE LEARNED CIT(A) HAS ER RED IN CONFIRMING THE DISALLOWANCE OF RS. 44,74,651/- BEING THE GROSS EXP ENDITURE INCURRED BY ITS UNDERTAKING HARI FERTILIZERS AT SAHUPURI. THE GR OSS INCOME OF THE UNDERTAKING HARI FERTILIZERS AT SAHUPURI. THE GROSS INCOME OF THE UNDERTAKING HARI FERTILIZERS RS. 25,08,454/- HAS BEEN INCLUDED IN BUSINESS INCOME AND DEDUCTION AT 25% OF INCOME I.E. RS. 6,27,114/- HAS BEEN ALLOW ED BY CIT(A) ON ESTIMATED BASIS AS EXPENSES INCURRED FOR EARNING THE AFORESAI D INCOME. B. IT IS CONTENDED THAT THE UNDERTAKING HARI FERT ILIZERS AT SAHUPURI AND OTHER UNDERTAKINGS OF THE ASSESSEE COMPANY CONSTITUTE SA ME BUSINESS AND THE ITA NO. 4588/D/03 17 BUSINESS CARRIED ON BY THE ASSESSEE COMPANY HAS NOT CEASED AND THEREFORE NO EXPENDITURE INCURRED AT HARI FERTILIZERS CAN BE DIS ALLOWED. C. WITHOUT PREJUDICE TO THE ABOVE IT IS CONTENDED THAT ONLY THE MANUFACTURING ACTIVITY AT HARI FERTILIZERS WAS SUSPENDED AND AS O THER BUSINESS ACTIVITIES WERE CARRIED ON, THE INCOME FROM WHICH HAS BEEN ASSESSED UNDER THE HEAD PROFIT AND GAINES OF BUSINESS THE ENTIRE EXPENDITURE SHOULD H AVE BEEN ALLOWED INSTEAD OF ESTIMATING THE ALLOWABLE EXPENDITURE AT 25% OF INCO ME EARNED. THE EXCESS OF EXPENDITURE OVER INCOME EARNED SHOULD BE ALLOWED TO BE SET OFF U/S 70, AGAINST BUSINESS INCOME FROM OTHER UNDERTAKINGS OF THE ASSE SSEE COMPANY. 9. THE LD. AR SUBMITTED THAT THE ISSUE RAISED IN THIS GROUND HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESEE BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF PRESENT ASSESSEE ITSELF FOR THE ASSTT. YEARS 2000-0 1, 2001-02., 2002-03 AND 2004-05. HE POINTED OUT THAT THE LD. CIT(A) HAS HOW EVER ACCEPTED THE AMOUNT AS BUSINESS INCOME AGAINST WHICH DEPARTMENT IS NOT IN APPEAL. 9.1 LD. DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 9.2. THE RELEVANT FACTS ARE THAT THE ASSESEE HAD CLAIMED EXPENSES OF RS. 4474651/- RELATING TO HARI FERTILISERS, SAHUPURI. I T WAS SUBMITTED THAT IN THE UNDERTAKING FROM HARI FERTILISERS AND OTHER UNDERT AKINGS, THE ASSESSEE COMPANY CONSTITUTES THE SAME BUSINESS AND THE BUSINESS CARR IED OUT BY ASSESSEE COMPANY HAD NOT CEASED AND THEREFORE NO EXPENDITURE INCURRE D AT HARI FERTILISERS CAN BE DISALLOWED. IT WAS SUBMITTED THAT EVEN IF HARI FERT ILISERS IS TREATED AS SEPARATE BUSINESS THE EXPENSES ARE REQUIRED TO BE REDUCED F ROM THE INCOME CARRIED BY HARI FERTILISERS SAHUPURI AND ONLY NET INCOME IS I NCLUDIBLE IN PROFIT AND GAINS OF BUSINESS. THE AO DID NOT AGREE WITH THE ASSESEE AND DISALLOWED THE CLAIMED ITA NO. 4588/D/03 18 EXPENSES ON THE BASIS THAT HARI FERRTILISERS WAS CLOSED DOWN IN THE YEAR 1989 AND THE EXPENDITURE IN THE NATURE OF ELECTRICITY, R EPAIRS TO THE MACHINERY, RENT, INSURANCE CHARGES AND LEGAL EXPENSES WERE CLAIMED I N RESPECT OF THE SAID UNIT. SIMILAR ISSUE WAS RAISED BEFORE THE TRIBUNAL IN THE ASSTT. YEAR 2000-01 , 2001-02, 2002-03 AND 2004-05 VIDE ITA NO. 4655/D/2004 ETC. O RDER DATED 21.9.2007, ITA NO. 1600/D/2006 ORDER DATED 28.3.20008 AND ITA NO. 339/D/2008 ORDER DATED 20.11.2009 RESPECTIVELY. THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. IN VIEW OF THE ABOVE DECISIONS OF THE TRIBUNAL ON A N IDENTICAL ISSUE WE SET ASIDE THE MATTER TO THE FILE OF THE AO TO DECIDE THE ISSU E AFRESH KEEPING IN MIND THE ABOVE STATED DECISIONS OF THE TRIBUNAL IN THIS REGA RD AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESEE. GROUND NO. 7 IS ACCO RDINGLY ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 8 IT IS CONTENDED THAT THE LEARNED CIT(A) HAS ERRED I N UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING DEDUCTION FOR GRA TUITY OF RS. 11,220/- PAID TO THE EMPLOYEES OF THE UNDERTAKING HARI FERTILIZERS, SAHU PURI. 10. DISALLOWANCE OF RS. 11,220/- BEING THE AM OUNT OF GRATUITY PAID TO THE EMPLOYEES OF ITS UNIT UPHELD BY THE LD. CIT(A) HAS BEEN QUESTIONED. IN SUPPORT OF THE GROUND THE LD. AR SUBMITTED THAT THE ASSESSEE COMPANY HAD PURCHASED A CHEMICAL AND FERTILISER UNIT AT SAHUPUR I AS A GOING CONCERN FROM M/S. NEW CENTRAL JUTE MILLS CO. LTD. AS PER THE AGREEM ENT ASSETS AND CERTAIN LIABILITIES PERTAINING TO THE CHEMICAL AND FERTILIZ ER UNIT WERE TAKEN OVER. THE PROVISION OF GRATUITY PAYABLE AMOUNTING TO RS. 28,5 3,397/- WAS TAKEN OVER IN ITA NO. 4588/D/03 19 RESPECT OF THE EMPLOYEES ON THE PAY ROLL ON THE DA TE OF TAKE OVER OF THIS UNIT. THE AMOUNT PAID OUT OF THE ABOVE PROVISIONS MADE WA S CLAIMED AS A DEDUCTION IN THE ASSTT. YEAR IN WHICH THE SAME IS PAID AS NO DEDUCTION WAS ALLOWED TO M/S. NEW CENTRAL JUTE MILLS CO. LTD. FOR THE PROVISION F OR GRATUITY MADE IN THEIR BOOKS OF ACCOUNTS. IT WAS SUBMITTED THAT THE DEDUCTION F OR GRATUITY PAID TO THE EMPLOYEES UPTO 1988-89 AND DEBITED TO PROVISION FOR GRATUITY ACCOUNT WAS ALLOWED AS DEDUCTION FROM COMPUTATION OF TOTAL INCO ME IN THE RESPECTIVE ASSTT. YEARS. THE ASSESSEE SUBMITTED THAT THE ASSESSEE COM PANY HAS PAID RS. 11,219/- TOWARDS GRATUITY PAID TO THE EMPLOYEES AND DEBITED TO THE PROVISION FOR GRATUITY ACCOUNT. THE GRATUITY PAID TO THE EMPLOYEES OF THE SAHUPURI UNIT DURING THE PREVIOUS YEAR WAS CLAIMED AS DEDUCTION. IT WAS SUBM ITTED THAT THE PAYMENT OF GRATUITY TO THE EMPLOYEES WAS ALLOWABLE IN RESPECT OF THE CLOSURE OF THE FACTORY AT SAHUPURI. THE LIABILITY FOR GRATUITY TO THE EMPL OYEES WAS INCURRED FOR THE SERVICES RENDERED BY THE EMPLOYEES DURING THEIR EMP LOYMENT IN THE COURSE OF BUSINESS OF THE COMPANY, HE SUBMITTED THAT THE LIAB ILITY FOR PAYMENT OF GRATUITY DOES NOT ARISE ON CLOSURE OF THE FACTORY BUT IT IS DUE TO PRE EXISTING DEFINITE OBLIGATIONS. SINCE THE PAYMENT OF GRATUITY WAS DUE TO THE SERVICES RENDERED BY THE EMPLOYEES EARLIER TO THE DATE OF CLOSURE THE PA YMENT OF GRATUITY WAS AN ALLOWABLE DEDUCTION. LD. AR SUBMITTED FURTHER THAT THE ASSESEE HAD NOT DEBITED THE AFORESAID AMOUNT TO PROFIT AND LOSS ACCOUNT AS THE AMOUNT OF GRATUITY WAS PAID OUT OF THE PROVISION MADE IN EARLIER YEARS DED UCTION FOR WHICH WAS NOT ALLOWED IN THE YEAR IN WHICH SUCH PROVISION WAS MAD E. HE PLACED RELIANCE ON THE ITA NO. 4588/D/03 20 DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T VS. T. VEERABHADRA RAO, 155 ITR 152 (SC) AND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TATA CHEMICALS LTD. 256 ITR 395 (BOMBAY). 10.1. OPPOSING THE SUBMISSION OF THE LD. AR THE LD. DR SUBMITTED THAT THE GRATUITY WAS PAID TO THE EMPLOYEES OF SAHUPURI UNI T WHICH CLOSED DOWN ITS MAIN BUSINESS. THE GRATUITY WAS PAID TO THE EARLIER EMPL OYEES OF THE SAHUPURI UNIT FOR SERVICES RENDERED TO EARLIER UNIT. THIS AMOUNT WAS NOT PAID WHOLLY AND EXCLUSIVELY FOR THE EXISTING BUSINESS OF THE ASSESE E THEREFORE THE AUTHORITIES BELOW WERE RIGHT IN NOT ALLOWING THE CLAIMED AMOUNT U/S 37 (1) OF THE ACT TO THE ASSESSEE. HE POINTED OUT THAT IN EARLIER YEARS THE FIRST APPELLATE AUTHORITY HAS CONFIRMED THE ADDITION. 10.2. HAVING GONE THROUGH THE DECISIONS RELI ED UPON BY THE LD. AR, WE FIND THAT THE RATIO LAID DOWN THERERIN SUPPORTS THE ABOV E CONTENTION MADE BY HIM. IN THE CASE OF CIT VS. T. VEERABHADRA RAO, AND ANOTHER (SUPRA) THE ASSESEE HAD SUCCEEDED TO THE BUSINESS OF THE PREDECESSOR FIRM AND TOOK OV ER ALL ITS ASSETS AND LIABILITIES, INCLUDING THE DEBT DUE FROM THEM. THE BUSINESS CARRIED ON BY THE PREDECESSOR FIRM WAS NOW CARRIED ON BY THE ASSESSEE FOR THE ASSESSMENT YEAR 1963-64. THE ASSESSEE PAID INCOME TAX ON THE INTERE ST ACCRUING ON THE DATE DUE FROM THEM. THE PARTIES EFFECTED A SETTLEMENT ON MA RCH 31, 1965, WHEREBY A SUM OF RS. 25,000/- WAS ACCEPTED BY THE ASSESSEE A ND THE BALANCE OF RS. 15,100/- WAS WRITTEN OFF BY THE ASSESSEE AS IRRECOV ERABLE. THE QUESTION WAS WHETHER THE ASSESSEE WAS ELIGIBLE FOR THE CLAIMED BAD DEBT U/S. 36 OF THE I.T. ITA NO. 4588/D/03 21 ACT, 1961 IN THE ASSTT. YEAR 1965-66. THE HONBLE SUPREME COURT WAS PLEASED TO HOLD THE CONDITIONS OF SECTION 36(2) WERE SUBSCRIBE D AND THE ASSESEE WAS ENTITLED TO CLAIM DEDUCTION OF THE SUM OF RS. 15100 /- AS BAD DEBT. IT WAS HELD FURTHER THAT EVEN IF THE DEBT HAD BEEN TAKEN INTO A CCOUNT IN COMPUTING THE INCOME OF THE PREDECESSOR FIRM ONLY AND HAD SUBSEQU ENTLY BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE, THE ASSESSEE WOULD STILL HAVE BEEN ENTITLED TO A DEDUCTION OF THE AMOUNT WRITTEN OFF A S A BAD DEBT. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE SUPREM E COURT IN THE CITED CASE WE HOLD THAT THE ASSESEE WAS VERY MUCH RELATABLE FOR T HE CLAIMED DEDUCTION. WE ORDER ACCORDINGLY. GROUND NO. 8 IS THUS ALLOWED. GROUND NO. 9 IT IS CONTENDED THAT THE LEARNED CIT(A) HAS ERRED I N NOT ALLOWING DEPRECIATION ON ASSETS OF THE UNDERTAKING HARI FERTILIZERS, AT SAHU PURI, COMMERCIALLY EXPLOITED BY THE ASSESEE, INCOME FROM WHICH HAS BEEN ASSESSED AS BUSINESS INCOME. 11. IT IS REGARDING THE DISALLOWANCE OF TH E CLAIMED DEPRECIATION ON ASSETS OF THE UNDERTAKING HARI FERTILISER AT SAHUPURI. SUB MISSION OF THE ASSESSEE REMAINED THAT THE SAID UNIT WAS COMMERCIALLY EXPLOI TED BY THE ASSESSEE AND INCOME FROM WHICH HAS BEEN ASSESSED AS BUSINESS INC OME. AT THE OUTSET OF HEARING THE LD. AR POINTED OUT THAT THE ISSUE RAISE D IN THIS GROUND IS FULLY COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FOR THE ASSTT. YEAR 1997-98 IN ITA NO. 1418/DEL/2001 ORDER DATED 31.7.2006. 11.1. LD. DR ON THE OTHER HAND PLACED RELIANC E ON THE ORDERS OF THE AUTHORITIES BELOW. ITA NO. 4588/D/03 22 11.2. HAVING GONE THROUGH THE DECISION OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FOR THE ASSTT. YEAR 1997-98 (SUPRA) ON THE ISSUE, WE FIND THAT THE ISSUE RAISED IN THE GROUND IS FULLY COVERED BY THI S DECISION. WE ACCORDINGLY WHILE SETTING ASIDE ORDERS OF THE AUTHORITIES BELOW IN TH IS REGARD DIRECT THE AO TO ALLOW THE CLAIMED DEPRECIATION ON THE ASSETS OF SAHUPURI UNIT, GROUND NO. 9 IS ACCORDINGLY ALLOWED. GROUND N.10 IT IS CONTENDED THAT THE SUM OF RS. 59,36,233/- BEI NG THE LIABILITY FOR PAYMENT OF INTEREST FOR PREVIOUS YEAR PAYABLE TO CEMENT CONTRO LLER ON PROVISIONAL AMOUNT RECEIVED/RETAINED BY THE ASSESSEE COMPANY ON FURNI SHING THE BANK GUARANTEE AS PER AD INTERIM ORDER OF THE HONBLE DELHI HIGH C OURT DATED 16 TH OCTOBER, 1981 IS ALLOWABLE DEDUCTION IN COMPUTING THE TOTAL INCOM E FOR THE ASSESSMENT YEAR 1999-2000. 12. LD. AR DID NOT PRESS THIS GROUND. THE SAME IS ACCORDINGLY REJECTED AS WITHDRAWN. GROUND NO. 11 A. IT IS CONTENDED THAT THE LEARNED CIT(A) HAS E RRED IN HOLDING LIABILITY FOR LEAVE ENCASHMENT TO EMPLOYEES, PROVIDED ON THE BASIS OF A CTUARIAL VALUATION, AS CONTINGENT LIABILITY, AND THEREFORE NOT ALLOWING RS . 43,29,279/- AS DEDUCTION IN COMPUTING BUSINESS INCOME OF THE ASSESSEE. B. IT IS CONTENDED THAT THE ASSESSEE COMPANY IS F OLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND ACCORDINGLY, THE LIABILITY PROVIDED FOR LEAVE ENCASHMENT TO THE EMPLOYEES OF THE COMPANY ON THE BASIS OF THE ACTUAR IAL VALUATION IS AN ALLOWABLE DEDUCTION. 13. THE ASSESSEE CLAIMED THAT THE LIABILITY F OR LEAVE ENCASHMENT PROVIDED IN THE BOOKS OF ACCOUNTS ON THE BASIS OF ACTUARIAL RE PRESENT ASCERTAINED LIABILITY AND IS ALLOWABLE DEDUCTION OF REFERENCE OF PROVISIO NS UNDER SECTION 43B MADE BY ITA NO. 4588/D/03 23 THE FINANCE ACT 2001 EFFECTIVE FROM 1.4.2012 I.E F ROM ASSTT. YEAR 2002-03 WAS MADE WITH THIS SUBMISSION THAT IT IS NOT APPLICABLE TO THE ASSESSMENT YEAR 1999- 2000 UNDER CONSIDERATION. THE ASSESSEE CLAIMED DEDU CTION FOR RS. 4349279/- IN THIS REGARD BEING THE ACTUARIAL VALUATION OF LIABIL ITY FOR LEAVE ENCASHMENT TO EMPLOYEES PROVIDED IN THE BOOKS OF ACCOUNTS. THIS C LAIM HAS BEEN DENIED AND UPHELD BY THE AUTHORITIES BELOW. 13.1. REITERATING THE ABOVE SUBMISSION THE LD. AR PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BH ARAT EARTH MOVERS VS. CIT 112 TAXMAN 61 (SC) 13.2. HE ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS :- 1. CIT VS. OSWAL WOOLEN MILLS LTD. 254 ITR 666 (P&H) 2. CIT VS. PANASONIC HOME APPLIANCES 32 3 ITR 344 (MADRAS) 13.3. LD. AR POINTED OUT FURTHER THAT THE ISS UE RAISED IN THE GROUND HAS ALSO BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE CASE OF ASSESSEE ITSELF FOR THE ASSESSMENT YEAR 2000-01 BY THE DELHI BENCH OF THE T RIBUNAL IN ITA NO. 4655/D/2004 AND OTHER ORDER DATED 21 ST SEPTEMBER 2007. 13.4. THE LD. DR ON THE OTHER HAND RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 13.5 HAVING GONE THROUGH THE CITED DECISIONS, WE FIND THAT AN IDENTICAL ISSUE UNDER SIMILAR SET OF FACTS HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN THE CASE OF PRESENT ASSESSEE ITSELF FOR THE ASSTT. YEAR 2000-01 WITH THIS FINDING THAT THE CLAIM OF THE ASSESSEE IS BASED ON ACCRUAL VALUATION AND D ESERVES TO BE ALLOWED SINCE ITA NO. 4588/D/03 24 THE LIABILITY HAD DEFINITELY ARISEN. IN THIS REGARD THE TRIBUNAL HAS FOLLOWED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS VS. CIT LAYING DOWN THAT WHERE A BUSINESS LIABILITY HAS DEF INITELY ARISEN IN THE ACCOUNTING YEAR, DEDUCTION SHOULD BE ALLOWED ALTHOUGH LIABILIT Y MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. FOLLOWING THIS DE CISION WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD WITH DIRECT ION TO DELETE THE DISALLOWANCE. GROUND NO 11 IS ACCORDINGLY ALLOWED. GROUND NO. 12 IT IS CONTENDED THAT THE LEARNED CIT(A) HAS ERRED I N CONFIRMING THE DECISION OF THE ASSESSING OFFICER IN REJECTING THE CLAIM OF THE ASSESSEE TO INCREASE THE VALUE OF THE OPENING STOCK BY AMOUNT OF EXCISE DUTY LIABI LITY, AS PER THE PROVISIONS OF SECTION 145A OF THE ACT. 14. IN SUPPORT OF THE GROUND LD. AR SUBMITTED THAT SECTION 145A INSERTED BY THE FINANCE ACT 1998 W.E.F 1.4.99 TO PROVIDE THAT T HE VALUATION OF INVENTORY SHALL BE MADE IN ACCORDANCE WITH METHOD OF ACCOUNTING REG ULARLY EMPLOYED BY THE ASSESSEE AND FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF TAX DUTY ETC. ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION. HE SUBMI TTED THAT THE ASSESSEE HAD INCREASED THE VALUE OF CLOSING STOCK BY RS. 8,89,43 ,216/- BEING ESTIMATED AMOUNT OF EXCISE DUTY OF CLOSING STOCK OF FINISHED PRODUCTS. THE STATEMENT OF THE ASSESEE BEFORE THE AO REMAINED THAT SINCE THE VALUE OF CLOSING STOCK OF FINISHED GOODS HAS BEEN INCREASED WITH THE ESTIMATED LIABILI TY OF EXCISE DUTY PAYABLE ON THE SAME AS PER THE PROVISION OF SECTION 145A OF TH E ACT, CORRESPONDING INCREASE ITA NO. 4588/D/03 25 IN THE OPENING STOCK OF THE FINISHED STOCK SHOULD B E MADE BY INCLUDING EXCISE DUTY PAYABLE ON SUCH OPENING STOCK OF FINISHED GOOD S WHICH ACCORDING TO THE ASSESSEE WORKED OUT TO RS. 5,21,08,480/- AFTER ALLO WING CREDIT FOR DEDUCTION ALLOWABLE. HE SUBMITTED THAT SECTION 145A PROVIDES THAT THE VALUATION OF INVENTORY SHALL BE MADE IN ACCORDANCE WITH METHOD O F ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE AND FURTHER ADJUSTED TO IN CLUDE THE AMOUNT OF TAX DUTY ETC ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF THE VALUATION. IN VIEW OF THE AMENDMENT THE ASSESSEE INCLUDED THE AMOUNT OF MODVA T CREDIT AVAILED ON RAW MATERIAL AND OTHER INPUTS AND THE AMOUNT OF EXCISE DUTY ON THE CLOSING STOCK ON FINISHED GOODS AS ON 31.3.99. HE PLACED RELIANCE ON THE FOLLOWING DECISIONS :- 1. CIT VS. MAHAVIR ALUMINIUM LTD. 297 ITR 77 (DELHI) 2. SLP REJECTED (2008) 307 ITR (ST ATUTE)4 3. DCIT VS. GANDHAR OIL REFINERY (I ) LTD. (2006) 9 SOT 608 (MUMBAI) 14.1. LD. DR ON THE OTHER HAND PLACED RELIANCE O N THE ORDERS OF THE AUTHORITIES BELOW. 14.2. HAVING GONE THROUGH THE ABOVE DECISIONS REL IED UPON, WE AGREE WITH THE ARGUMENTS OF THE LD. AR THAT WHENEVER THERE IS A CH ANGE IN THE VALUATION AT ONE END, THERE MUST NECESSARILY BE A CORRESPONDING CHAN GE AT THE OTHER END OTHERWISE THE TRUE PROFIT COULD NOT BE REFLECTED. SIMILAR ARE THE FACTS BEFORE THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. CO MMISSIONER OF INCOME-TAX V. ITA NO. 4588/D/03 26 MAHAVIR ALLUMINIUM LTD. (SUPRA) WHEREIN THE ASSESEE IN ITS CLOSING STOCK FOR THE PREVIOUS YEAR RELEVANT TO THE ASSTT. YEAR 1999-2000 HAD CHARGED MODAVAT CREDIT ON CERTAIN GOODS AND MADE AN ADJUSTMENT TO THE EXTE NT TO RS. 54,84,272/- IN THE OPENING STOCK AS ON 1.4.1998. ACCORDING TO THE AO T HE SECTION 145A OF THE ACT DID NOT PERMIT THE ASSESSEE TO MAKE A CHANGE IN THE VALUATION OF THE OPENING STOCK AS ON 1.4.1998 ALTHOUGH HE PERMITTED A CHANGE ON THE CLOSING STOCK ON MARCH 31, 1999. THE LD. CIT(A) DID NOT ADMIT THE CL AIM OF THE ASSESSE TO THE EXTENT OF THE AMOUNT ADJUSTED BY THE ASSESEE. THE T RIBUNAL HELD THAT THE ADJUSTMENT ON ACCOUNT OF MODAVAT CREDIT AND EXCISE DUTY COULD BE MADE IN THE OPENING STOCK ALSO. ON APPEAL THE HONBLE HIGH COUR T DISPOSING THE APPEAL HELD THAT PARAGRAPH 23.13 OF THE GUIDANCE NOTE ON TAX AU DIT UNDER SECTION 44AB OF THE ACT ISSUED BY THE INSTITUTE OF CHARTERED ACCOUN TANTS OF INDIA, NEW DELHI MADE IT CLEAR THAT WHENEVER ANY ADJUSTMENT IS MADE IN THE VALUATION OF INVENTORY THIS WILL AFFECT BOTH THE OPENING AS WELL AS CLOSING STOCK. IF ANY ADJUSTMENT WAS REQUIRED TO BE MADE BY A STATUTE, EF FECT SHOULD BE GIVEN TO IT IRRESPECTIVE OF ANY CONSEQUENCES ON THE COMPUTATION OF INCOME FOR TAX PURPOSES. SECTION 145A OF THE ACT BEGINS WITH A NON-OBSTANTE CLAUSE, AND THEREFORE, TO GIVE EFFECT TO SECTION 145A OF THE ACT, IF THERE IS A CH ANGE IN THE CLOSING STOCK AS ON MARCH 31, 1999, THERE MUST NECESSARILY BE A CORRESP ONDING ADJUSTMENT MADE IN THE OPENING STOCK AS ON APRIL 1, 1998. THUS THE QUE STION OF DOUBLE DEDUCTION DID NOT ARISE, SINCE NO ADJUSTMENT WAS MADE BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING MARCH 31, 1998. WE THUS SET ASIDE THE MATTER TO ITA NO. 4588/D/03 27 THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH IN VI EW OF THE DECISIONS RELIED UPON BY THE LD. AR AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESEE. THE GROUND NO. 12 IS ACCORDINGLY ALLOWED FOR STATISTICA L PURPOSES. GROUND NO. 13 A. IT IS CONTENDED THAT THE LEARNED CIT(A) HAS ER RED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN INCREASING THE BOOK PROFIT U/S 115JA OF THE ACT, BY A SUM OF RS. 46,93,637/- BEING THE AMOUNT OF INTEREST PAI D U/S 234B OF THE ACT, AND DEBITED TO PROFIT & LOSS ACCOUNT OF THE PREVIOUS YE AR RELEVANT TO THE ASSESSMENT YEAR 1999-2000. IT IS CONTENDED THAT PROFIT AS PER PROFIT AND LOS S A/C PREPARED AS PER SCHEDULE VI TO THE COMPANIES ACT, 1956 DULY AUDITED IS TO BE TAKEN AS BOOK PROFIT U/S 115JA. THE AMOUNT OF INTEREST PAID AND DEBITED TO T HE PROFIT AND LOSS A/C IS NOT COVERED BY EXPLANATION TO SEC. 115JA AND HENCE CANN OT BE ADDED TO BOOK PROFIT U/S 115JA. 15. THE AO INCREASED THE BOOK PROFITS COMPUTED U/S 115J A OF THE ACT BY ADDING THE FOLLOWING EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT :- A) INTEREST CHARGED U/S 234B OF RS. 4 6,93,637/- B) INTEREST ON FUNDS BORROWED FOR MODERNIZATIO N OF EXISTING CEMENT FACTORY OF RS. 11,92,186/-. C) AMOUNT PAID TO EICHER CONSULTANCY S ERVICES LTD. FOR IMPLEMENTATION OF TQM ETC. OF RS. 3,88,093/- D) EXPENSES INCURRED ON VRS OF RS. 5,69,580/- E) A PART OF SALARY & WAGES PAID TO T HE EMPLOYEES DISALLOWED ON ESTIMATED BASIS TREATING THE SAME AS RELATABLE T O DIVIDEND RECEIVED U/S 14A-RS. 4,64,825/- THIS ACTION OF THE AO HAS BEEN UPHELD BY THE LD. CIT(A). ITA NO. 4588/D/03 28 15.1. IN SUPPORT OF THE GROUND THE LD. AR SUBM ITTED THAT SECTION 115JA IS SPECIFIC CODE BY ITSELF. FOR LEVY OF TAX U/S 115JA THE AO IS BOUND TO PROCEED WITH THE COMPUTATION OF BOOK PROFIT ON THE NET PROFIT SH OWN IN THE PROFIT AND LOSS ACCOUNT OF THE COMPANY PREPARED IN ACCORDANCE WITH SCHEDULE VI OF THE COMPANIES ACT AND THEN MAKE ADJUSTMENT GIVEN UNDER EXPLANATION TO SECTION 115JA. HE SUBMITTED THAT THE HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT 255 ITR 273(SC) HAS CLEARLY LAID DOWN THAT THE AO DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION TO SECTION 115JA. LD. AR SUBMITTED FURTHER THAT AN IDENTICAL ISSUE WAS RAISE D BEFORE THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FOR THE ASSTT. YEARS 2001-0 2, 1998-99 WHICH HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ITA NO. 2116 AND 1026/D/2005 (FOR ASSTT. YEAR 2001-02 ) AND ITA NO. 1229/D/2003 (1998-99). 15.2. LD. DR ON THE OTHER HAND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW WITH THIS SUBMISSION THAT AS PER EXPLANATION T O SECTION 115JA, THE AO WAS VERY MUCH IN JURISDICTION TO MAKE THE ADJUSTMENT PR OVIDED THEREIN. 15.3. HAVING GONE THROUGH THE DECISIONS RELIED UPON WE FIND THAT AN IDENTICAL ISSUE UNDER SIMILAR SET OF FACTS HAS ALREADY BEEN D ECIDED IN THE CASE OF ASSESEE ITSELF BY THE TRIBUNAL FOR THE ASSTT. YEARS 1998-99 AND 2001-02 (SUPRA). THE TRIBUNAL IN THE ASSTT. YEAR 1998-99 FOLLOWING THE D ECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. FERTILIZERS AND CHEMIC ALS TRAVENCORE LTD. (2002) ITA NO. 4588/D/03 29 261 ITR 484 (KERALA) AS WELL AS THE DECISION OF DEL HI BENCH OF THE TRIBUNAL IN THE CASE OF INSILCO LTD. VS. JCIT 92004) 85 TTJ (DEL.) 538 HAS HELD THAT THE ACTION OF THE AO TO INCREASE THE PROFIT BY THE AMOUNT OF INTE REST PAID TO THE DEPARTMENT WHILE DETERMINING THE BOOK PROFIT CAN NOT BE UPHELD . WE THUS DIRECT THE AO TO DECIDE THE ISSUE AFRESH ACCORDINGLY AFTER HEARING T HE ASSESSEE WHILE ALLOWING THE GROUND IN FAVOUR OF THE ASSESEE FOR STATISTICAL PUR POSE. GROUND NO. 14 IT IS CONTENDED THAT THE FOLLOWING AMOUNTS WITHDRAW N FROM RESERVES AND PROVISIONS AND CREDITED TO THE PROFIT AND LOSS ACCO UNT SHOULD HAVE BEEN REDUCED FORM NET PROFIT AS PER PROFIT AND LOSS ACCOUNT FOR COMPUTING BOOK PROFIT U./S 115 JA(1) OF THE I.TAX ACT : A) AMOUNT TRANSFERRED FROM REVALUATION RE SERVE RS. 48,58,475/- B) EXCESS PROVISION WRITTEN BACK AND CREDI TED TO PROFIT & LOSS A/C RS. 74,39,244/ - 16. IN SUPPORT OF THIS GROUND THE LD. AR SUBMITTED THAT THE AMOUNT WITHDRAWN FROM RESERVES AND PROVISIONS AND CREDITED TO THE PROFIT AND LOSS ACCOUNT SHOULD HAVE BEEN REDUCED FROM THE NET PROFI T WHILE COMPUTING THE BOOK PROFIT U/S 115JA. 17. HE SUBMITTED THAT AMOUNT WITHDRAWN FROM T HE RESERVES OR PROVISIONS CREDITED BEFORE 1.4.88 IS TO BE REDUCED FROM THE BO OKS PROFIT. IN THE RELEVANT ASSTT. YEAR THE ASSESSEE COMPANY HAD WITHDRAWN RS. 48,58,475/- ON ACCOUNT OF THE AMOUNT TRANSFERRED FROM VALUATION RESERVE AND R S. 74,39,244/- AS EXCESS ITA NO. 4588/D/03 30 PROVISION WRITTEN BACK AND CREDITED TO PROFIT AND L OSS ACCOUNT, FROM THE RESERVES AND PROVISION AND CREDITED TO PROFIT AND LOSS ACCOU NT WHICH WERE REQUIRED TOBE REDUCED WHILE COMPUTING THE BOOK PROFIT. IT WAS SUB MITTED THAT REVALUATION RESERVES WAS CREDITED IN THE YEAR 1985 OUT OF WHICH THE AFORESAID AMOUNT WAS WITHDRAWN AND CREDITED TO PROFIT AND LOSS ACCOUNT. SIMILARLY THE AMOUNT OF REVALUATION RESERVE WITHDRAWN BY CREDIT TO PROFIT A ND LOSS ACCOUNT OUGHT TO HAVE BEEN REDUCED FROM THE PROFIT FOR THE PURPOSE OF COM PUTING OF BOOK PROFIT U/S 115JA OF THE ACT. 17.1. HE POINTED OUT FURTHER THAT AN IDENTI CAL ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL I N THE CASE OF ASSESSEE ITSELF FOR THE ASSTT. YEAR 2000-01 AND 2001-02 IN ITA NO. 4655/D/2004 AND OTHERS VIDE ORDER DATED 21 ST SEPTEMBER, 2007. 17.2. THE LD. DR ON THE OTHER HAND PLACED R ELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 17.3. HAVING GONE THROUGH THE CITED DECIS ION OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF ON AN IDENTICAL ISSUE FOR THE AS STT. YEAR 200-01 AND 2001-02 (SUPRA) WE FIND THAT THE SAME HAS BEEN DECIDED IN F AVOUR OF THE ASSESSEE FOR STATISTICAL PURPOSE. THE TRIBUNAL HAS SET ASIDE THE MATTER TO THE FILE OF THE AO TO CONSIDER IT AFRESH IN THE LIGHT OF THE PROVISO TO S UB SECTION (2) EXPLANATION (I) TO SECTION 115JA OF THE ACT. RESPECTFULLY FOLLOWING TH E SAID DECISION WE SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR FRESH CONSIDERA TION IN THE LIGHT OF PROVISO TO SUB SECTION (2) EXPLANATION (I) TO SECTION 115JA OF THE ACT. HE WILL EXAMINE THE ITA NO. 4588/D/03 31 QUESTION OF REDUCING THE AMOUNT IN DISPUTE IN THE L IGHT OF THE SAID PROVISO AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. GROUND NO. 14 IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 18. IN THE RESULT APPEAL IS PARTLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 23 RD MAY, 2014. SD/- SD/- (G.D. AGRAWAL) ( I.C. SUDHIR ) VICE PRESIDENT JUDICIAL MEMBER DATE 23 RD MAY, 2014 VEENA COPY OF ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT. REGISTRAR, ITAT