M/S CHAMBAL FERTILISERS & CHEMICALS LTD., Kota V. ADD. CIT, Kota

ITA 459/JPR/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4945 (ITAT-JAIPUR)
• Duration Of Justice: 4 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 14-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D S KOTHARI CIT DHK
• Assessee Lawyers: RITU G P DAS
• Keywords: Capital asset; Recovery proceedings; Business income; Depreciation; Transfer pricing; Business expenditure; Search and seizure; Cost of acquisition; Corroborative evidences; Notional interest; Capital receipt; Onus to prove; Revenue expenditure
• Section: 43B; 10AA; 260A; 115JB; 133(6); 37(1); 10B; 131; 27; 37; 28

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOE FLAG ;KNO ] YS[KK LNL; ,OA JH YFYR DQEKJ] U;KF;D LNL; DS LE{K BEFORE: SHRI VIKRAM SINGH YADAV, AM & SHRI LALIET K UMAR, JM VK;DJ VIHY LA- @ ITA NO. 459/JP/2012 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2008-09 M/S CHAMBAL FERTILIZERS & CHEMICALS LIMITED, GADEPAN, DISTRICT- KOTA. CUKE VS. ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-2, KOTA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.:AAACC 9762 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 558/JP/2012 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2008-09 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2, KOTA. CUKE VS. M/S CHAMBAL FERTILIZERS & CHEMICALS LIMITED, GADEPAN, DISTRICT- KOTA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.:AAACC 9762 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI PERCY PARDIWALLA, SHRI M.L. PATODI (ADV) & SMT. RITU GP DAS (FCA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI D.S. KOTHARI (CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 05/08/2016 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT: 28/10/2016 ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 2 VKNS'K@ ORDER PER BENCH: THESE ARE THE CROSS APPEALS, ONE BY THE ASSESSEE A ND ANOTHER BY THE REVENUE FILED AGAINST THE ORDER DATED 30/03/201 2 PASSED BY THE LD. CIT(A), KOTA FOR THE A.Y. 2008-09. THE GROUNDS RAISED BY THE ASSESSEE AS WELL AS BY THE REVENUE ARE REPRODUCED H EREUNDER:- GROUNDS OF ASSESSEES APPEAL: 1. THAT THE LD. CIT (APPEALS) ERRED IN MAINTAINING THE DISALLOWANCE OF RS. 3,62,55,540/- OUT OF AMOUNT CLAIMED U/S 80IA IN RESPECT OF CAPTIVE POWER PLANT INDUSTRIAL UNDERTAKING ON THE G ROUND OF EXCESS PRICE OF SALE OF POWER RS. 64,02,938/-, UNDE RSTATED COST OF GAS RS.20,83,589/- AND PRESUMED EXPENSES OF RS. 2,7 7,69,013/- RELATED TO RECOVERY IN HRSG. UNDER THE FACTS AND CI RCUMSTANCES, THE DISALLOWANCES MADE DESERVE TO BE DELETED AND CL AIM MADE BY THE APPELLANT DESERVES TO BE ALLOWED. 2. THAT THE LD. ASSESSING OFFICER ERRED IN DISALLOW ING THE CLAIM OF RS. 28,12,000/- ON THE GROUND OF NOTIONAL INTEREST IN RESPECT OF INVESTMENT IN SUBSIDIARY COMPANIES WITHOUT PROVING ANY NEXUS BETWEEN INVESTMENTS AND LOANS AND THE LD. CIT (APPE ALS) FURTHER ERRED IN CONFIRMING THE SAME. HENCE THE DISALLOWANC E MADE ON THIS ACCOUNT SHOULD BE DELETED. 3. THAT THE LD. ADDITIONAL COMMISSIONER ERRED IN NO T ALLOWING THE EXPENDITURE OF EDUCATION CESS OF RS. 2,41,59,485/- FROM INCOME CLAIMED BY THE APPELLANT AND THE LD. CIT(APPEALS) E RRED IN CONFIRMING THE SAME. THE EDUCATION CESS WAS ACTUALL Y PAID ON INCOME TAX AND IS NOT A PART OF INCOME TAX AS PER T HE PROVISIONS OF SECTION 40(A)(II) AND IS HENCE AN ALLOWABLE EXPE NDITURE. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 3 THEREFORE THE CLAIM FOR DEDUCTION FROM INCOME FOR E XPENDITURE OF EDUCATION CESS SHOULD BE ALLOWED. GROUNDS OF REVENUES APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A), KOTA HAS ERRED IN:- I) ALLOWING DEDUCTIONS U/S 80IA ON CAPTIVE POWER PL ANT CLAIMED BY THE ASSESSEE AT RS.41,59,57,420/-; II) TREATING INCENTIVE OF RS.2,48,82,876/- RECEIVED ON PRE-PAYMENT OF DEFERRED SALES TAX LIABILITY AS INCOME FOR A.Y. 2005-06 AND NOT FOR A.Y. 2008-09 IN SPITE OF THE FACT THAT THE INCE NTIVE WAS NOTIFIED AND ALLOWED BY THE STATE GOVERNMENT IN THE A.Y. 2008- 09, THEREFORE, IT IS TAXABLE IN THE A.Y. 2008-09; III) ALLOWING CLUB EXPENSES OF RS. 10,16,659/- PAID BY ASSESSEE FOR MEMBERSHIP OF ITS EMPLOYEES; IV) HOLDING THAT THE DONATION MADE BY THE ASSESSEE TO DAV TRUST WAS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE; V) DELETING ADDITION OF RS. 11,71,382/- ON ACCOUNT OF DEPRECIATION DISALLOWED ON CATALYST; VI) DELETING DISALLOWANCE OF RS.3,49,57,657/- SINCE THE ASSESSEE HAD FAILED TO PROVE THAT LEAVE ENCASHMENT, WATER CESS, BONUS, GRATUITY ETC. ON WHICH DEDUCTION U/S 43B HAD BEEN C LAIMED ON PAYMENT BASIS HAD BEEN DISALLOWED IN EARLIER YEARS; VII) ALLOWING RENT PAID FOR FLAT OF RS. 10,80,000/- TO A PERSON SPECIFIED U/S 40A(2)(B); VIII) DELETING THE EXPENSES OF RS.89,41,361/-FOR PA YMENT MADE TO ZUARI INVESTMENT LTD. WITHOUT APPRECIATING THE FACT THAT THESE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 4 EXPENSES ARE W.R.T. SHIPPING DIVISION WHOSE INCOME WAS OFFERED ON THE BASIS OF TONNAGE SCHEME, HENCE NO EXPENDITUR E OF THIS DIVISION CAN BE SEPARATELY ALLOWED. OTHERWISE ALSO THESE EXPENSES WERE FALLING UNDER THE MISCHIEF OF SECTION 35D OF THE I.T. ACT AND SHOULD HAVE BEEN ACCORDINGLY ALLOWED; IX) DELETING THE EXPENSES OF RS.24,39,596/- FOR PAY MENT MADE TO M/S ISG NOVASOFT TECHNOLOGY WITHOUT APPRECIATING TH E FACT THAT THESE EXPENSES ARE W.R.T. SHIPPING DIVISION WHOSE I NCOME WAS OFFERED ON THE BASIS OF TONNAGE SCHEME, HENCE NO EX PENDITURE OF THIS DIVISION CAN BE SEPARATELY ALLOWED. OTHERWI SE ALSO THESE EXPENSES WERE ATTRACTING MISCHIEF OF SECTION 35D OF THE I.T. ACT AND SHOULD HAVE BEEN ACCORDINGLY ALLOWED; X) DELETING ADDITION OF RS. 1148.87 LAC ON SLUMP SA LE OF FOOD PROCESSING UNIT U/S 50B IN SPITE OF THE FACT THAT T HE ASSESSEE HAS FAILED TO PROVE THE SALE CONSIDERATION WHILE PURCHA SER HAS INTIMATED THE SALE CONSIDERATION OF RS.2359.15 LAKH S INSTEAD OF 2263.18 LAKHS CLAIMED BY THE ASSESSEE. 2. FIRSTLY WE WILL TAKE UP THE REVENUES APPEAL:- THE GROUND NO. 2 OF THE REVENUES APPEAL IS AGAINST TREATING INCENTIVE OF RS. 2,48,82,876/- RECEIVED ON PRE-PAYMENT OF DEF ERRED SALES TAX LIABILITY AS INCOME FOR A.Y. 2005-06 AND NOT FOR A. Y. 2008-09. THE ASSESSING OFFICER HAS OBSERVED THAT IT IS SEEN FROM THE COMPUTATION OF INCOME THAT A SUM OF RS. 2,48,82,876/- HAD BEEN CLAIMED AS DEDUCTION ON ACCOUNT OF INCENTIVE ON PREPAYMENT OF DEFERRED SALES TAX LIABILITIES ALLOWED AGAINST FIXED CAPITAL INVESTMEN T OF UNIT GADEPAN-I. THE ASSESSEE WAS REQUESTED TO FURNISH ITS REPLY. VI DE LETTER DATED ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 5 13.12.2010, IT IS SUBMITTED THAT AS REGARD TO THE P REPAYMENT OF SALES TAX LIABILITY WHICH IS IN ACCORDANCE WITH THE NOTIF IED SCHEME OF RAJASTHAN GOVT., IS A CAPITAL RECEIPT AND HENCE NOT TAXABLE AS REVENUE RECEIPT. THE ASSESSEE HAS FILED ITS SUBMISSION BUT NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER FOR THE FOLLOWING REASONS: (I) SINCE THE ASSESSEE HAS COLLECTED THE AMOUNT OF SALES TAX BUT THE PAYMENT HAS BEEN MADE AFTER AVAILING INCENT IVE BENEFIT AS PER THE SCHEME OF THE STATE GOVERNMENT AS CLAIMED, THE INCENTIVE RECEIVED IS A BUSINESS RECEIPT AND THE SAME HAS TO BE TREATE D ACCORDINGLY. (II) NO DETAILS OF SCHEME OF THE STATE GOVERNMENT HAVE BEEN FURNISHED SO AS TO VERIFY THE CLAIM OF THE ASSESSEE WITH REGARD CONVERSION OF THIS AMOUNT INTO AN INTEREST FREE LOA N. (III) NOTWITHSTANDING THE NOMENCLATURE GIVEN BY TH E ASSESSEE, FROM THE FACTS IT APPEAR THAT THE STATE GOVERNMENT HAS GIVEN A KIND OF DISCOUNT TO THE ASSESSEE IN THE FORM OF AN INCENTIV E. THUS, FOR ALL PURPOSES, IT HAS TO BE TREATED AS INCOME OF THE ASS ESSEE. (IV) NO CAPITAL ASSET AS SUCH HAS ALSO BEEN ACQUIR ED OUT OF THE INCENTIVE RECEIVED FROM THE GOVERNMENT BY THE ASSES SEE. THUS, THE AMOUNT OF RS. 2,48,82,876/- CLAIMED AS DE DUCTION ON ACCOUNT OF INCENTIVE ON PREPAYMENT OF DEFERRED SALES TAX LI ABILITY WAS ADDED TO ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 6 THE TOTAL INCOME OF THE ASSESSEE BY TREATING IT AS INCOME OF THE ASSESSEE COMPANY FOR THE RELEVANT PERIOD UNDER CONS IDERATION. 3. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), WHO HAD DELETED BY THE ADDITION BY OBSERVING AS UNDER:- IN THIS CASE, THE ASSESSEE AVAILED BENEFIT UNDER S ALES TAX DEFERMENT SCHEME, 1989 ACCORDING TO WHICH THE ASSESSEE WAS RE QUIRED TO PAY THE SALES TAX COLLECTED IN TEN EQUAL INSTALLMENTS. SUBS EQUENTLY, THE STATE GOVERNMENT NOTIFIED AND ALLOWED INCENTIVE ON PRE-PA YMENT OF THE SAME. THE ASSESSEE MADE PRE-PAYMENT OF DEFERRED SAL ES TAX WHICH RESULTED IN BENEFIT OF RS. 2,48,82,876/-. THE PRE-P AYMENT WAS MADE IN THE YEAR RELATED TO A.Y. 2005-06. IN MY VIEW, BENEFIT (IF ANY) DUE TO REMISSION OF LI ABILITY ACCRUED IN A.Y. 2005-06 AND NOT IN A.Y. 2008-09. IN VIEW OF THE ABOVE, ADDITION OF RS. 2,48,82,876/- IS DIRECTED TO BE DELETED. 4. NOW THE REVENUES IS IN APPEAL BEFORE US. THE LD CIT DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFF ICER. 5. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS SUB MITTED THAT THIS ISSUE IS COVERED IS FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE HONBLE ITAT JAIPUR BENCHES DECISION IN ASSESSEES OWN CASE PASSED IN ITA NO. 445/JP/2009 ORDER DATED 09/09/2011 FOR A.Y. 2005-06 AND ITA NO. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 7 374/JP/2010 ORDER DATED 31/10/2011 FOR A.Y. 2007-08 . THEREFORE, HE PRAYED TO UPHOLD THE ORDER OF THE LD. CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON THE RECORD AND THE EARLIE R ORDERS PASSED BY THE COORDINATE BENCH. IN ASSESSEES OWN CASE FOR T HE A.Y. 2005-06, THE COORDINATE BENCH HAS HELD AS UNDER:- 2.19 IT IS TRUE THAT IN NOTIFICATION DATED 27.3.20 03, THE STATE GOVT. PROVIDED A SCHEME FOR THE DEALERS WHO AVAILED THE D EFERMENT OF SALES TAX TO DEPOSIT THE AMOUNT OF DEFERRED TAX EVE N BEFORE THE STIPULATED DUE DATE OF DEPOSIT. THE PAYMENT IS TO B E ON THE BASIS OF NET PRESENT VALUE AS SPECIFIED IN THAT NOT IFICATION. NET PRESENT VALUE HAS BEEN MENTIONED AS PERCENTAGE OF A MOUNT PAYABLE AND SUCH PERCENTAGE VARIES AS PER THE PERIO D OF MONTH BETWEEN THE ACTUAL DATE OF PAYMENT AND THE EXTENDED DATE OF PAYMENT. HOWEVER BOARD CIRCULAR 496 DATED 25.9.87 S TATED THAT STATUTORY LIABILITY IS TO BE TREATED AS PAID IN CAS E THE STATE GOVT. MAKES AN AMENDMENT THAT SALES TAX DEFERRED UNDER TH E SCHEME IS TO BE TREATED AS ACTUALLY PAID. BENOVELENT CIRCU LAR OF BOARD ARE MANDATORY. THE LIABILITY IS NOT THAT OF SALES T AX BUT IT IS A LIABILITY OF LOAN. HENCE THE DECISION OF SPECIAL BE NCH IN THE CASE SULZER INDIA LTD. IS SQUARELY APPLICABLE. IT WILL B E USEFUL TO REPRODUCE HEAD NOTE IN THE CASE OF SULZER INDIA LTD . BUSINESS INCOME-PROFITS CHARGEABLE TO TAX UNDER S. 41(1)- PAYMENT OF NET PRESENT VALUE AGAINST DEFERRED SALES -TAX LIABILITY- ASSESSEE COMPANY OBTAINED INCENTIVE BY WAY OF SALES -TAX ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 8 DEFERRAL SCHEMES OF 1983 AND 1988 NOTIFIED BY THE G OVERNMENT OF MAHARASHTRA-AS PER THE SAID SCHEMES, THE SALES-T AX COLLECTED BY THE ASSESSEE DURING THE PERIOD FROM 1 ST NOV., 1989 TO 31 ST OCT., 1996, WAS TO BE PAID AFTER 12 YEARS IN SIX EQ UAL ANNUAL INSTALMENTS-FOURTH PROVISO TO S. 38(4) OF BOMBAY SA LES-TAX ACT, 1959 PROVIDES THAT WHERE AN ENTITLEMENT CERTIFICATE HAS BEEN GRANTED TO THE ELIGIBLE UNIT FOR AVAILING OF THE IN CENTIVES BY WAY OF DEFERMENT OF SALES-TAX, ETC. SUCH UNIT MAY, AT I TS OPTION PREMATURELY PAY AN AMOUNT EQUAL TO THE NPV OF THE D EFERRED TAX AND ON MAKING SUCH PAYMENTS, THE DEFERRED TAX SHALL BE DEEMED TO HAVE BEEN PAID- ASSESSEE PAID AN AMOUNT OF RS.3, 37,13,393 AGAINST THE AGGREGATE DEFERRAL AMOUNT OF RS.7,52,01 ,338 TO SICOM, THE IMPLEMENTING AGENCY, WHICH REPRESENTED T HE NPV AS DETERMINED BY THE LATTER-IT CANNOT BE SAID THAT THE ASSESSEE HAS OBTAINED THE BENEFIT OF DEDUCTION OF SALES-TAX LIAB ILITY SIMPLY BECAUSE DEDUCTION WAS ALLOWED FOR THE PURPOSE OF S. 43B BY APPLYING CIRCULAR NO.496, DT. 25 TH SEPT., 1987-SAID CIRCULAR CLEARLY STATES THAT THE STATUTORY LIABILITY SHALL BE TREATE D TO HAVE BEEN DISCHARGED FOR THE PURCHASES OF S. 43B- THUS, THE FIRST REQUIREMENT OF S. 41(1) IS NOT FULFILLED-NPV IS EQU IVALENT TO THE PRESENT VALUE OF FUTURE SUM-WHAT THE ASSESSEE WAS R EQUIRED TO PAY AFTER 12 YEARS IN SIX EQUAL INSTALLMENTS HAS BE EN PAID AS NPV-THERE IS NO IOTA OF EVIDENCE OF SHOW THAT THERE HAS BEEN ANY REMISSION OR CESSATION OF LIABILITY-THUS, FURTH ER REQUIREMENT FOR THE APPLICABILITY OF S. 41(1) IS ALSO NOT FULFI LLED- ASSESSEE HAS PASSED NECESSARY ENTRIES IN ITS BOOKS OF ACCOUNT SH OWING THE DIFFERENCE AS CAPITAL RECEIPT MERELY BECAUSE THE SA LES TAX AUTHORITIES HAVE NOT ISSUED MODIFIED ELIGIBILITY CE RTIFICATE, IT DOES NOT MEAN THAT THE PAYMENT MADE BY THE ASSESSEE CANN OT BE ACCEPTED AS THE PAYMENT OF NPV OF THE FUTURE SUM TO WARDS DISCHARGE OF FULL LIABILITY-AMOUNT WHICH WAS PAYABL E FROM 1ST MAY, 2003 TO 1ST MAY, 2008 HAS BEEN PAID ON 30 TH DEC., 2002- THIS DOES NOT SATISFY THE CONDITION OF ACTUAL REMIS SION IN PRASENTI- AMOUNT HAS BEEN PAID AS PER THE FORMULA FOR COLLECT ING THE NPV GIVEN BY SICOM-THEREFORE, SUCH PAYMENT OF NPV OF TH E FUTURE LIABILITY CANNOT BE TREATED AS REMISSION OR CESSATI ON OF LIABILITY SO AS TO ATTRACT THE PROVISIONS OF S. 41(1) ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 9 2.20 THE SPECIAL BENCH IN RESPECT OF APPLICABILITY OF SECTION 28 (IV) HAS HELD THAT IT WILL NOT BE APPLICABLE. THE SPECIA L BENCH OBSERVED AS UNDER. SEC.28(IV) SEEKS TO CHARGE THE VALUE OF ANY BENEFI T OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION, AS PROFITS AND GAINS OF BUSINESS OR PROFESSION. THEREFORE, WHAT IS TO BE EXAMINED IS WH ETHER THE WAIVER OF LOAN WOULD AMOUNT TO A PERQUISITE SO AS T O BE TAXABLE, AS SUCH, UNDER S. 28. THE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. VS. CIT (2003) 182 CTR (BO M) 34 : (2003) 261 ITR 501(BOM) : (2003) 128 TAXMAN 394 (BO M), HAS EXPLAINED THAT S. 28(IV) SEEKS TO CHARGE THE VALUE OF ANY BENEFIT OR PERQUISITE, MEANING THEREBY THAT THE BENEFIT MUS T BE IN KIND; THE COURT FURTHER HELD THAT WAIVER OF LOAN IS IN RE SPECT OF MONEY TRANSACTION AND, THEREFORE, WOULD NOT BE IN NATURE OF ANY BENEFIT OR PERQUISITE AS CONSTRUED IN S. 28(IV). 2.21 THE ARGUMENT OF THE LD. DR THAT SCHEME OF RAJA STHAN GOVT IS DIFFERENT IS NOT OF RELEVANCE. IN THE CASE OF MAHAR ASHTRA, THE SCHEME OF RECEIPT OF PREPAYMENT OF LOAN WAS BY A ST ATE CORPORATION WHILE IN RAJASTHAN IT HAS BEEN IMPLEMEN TED BY STATE GOVT. THE IMPLEMENTING AGENCY MAY BE DIFFEREN T BUT THE NATURE OF THE SCHEME IS THE SAME 2.22 WE THEREFORE HOLD THAT LD.CIT(A) WAS NOT JUSTI FIED IN CONFIRMING THE ADDITION OF RS.12,06,33,254/- AS PRO VISIONS OF SECTION 41(1) ARE NOT APPLICABLE. FOR THE CASE OF A.Y. 2007-08, THE COORDINATE BENCH IN ITA NO. 374/JP/2010 HAS HELD AS UNDER:- ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 10 16.2 FOLLOWING OUR ORDER FOR THE ASSESSMENT YEAR 2 005-06 (SUPRA) WE HOLD THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN HO LDING THE RECEIPT OF RS. 1,74,49,093/- AS CAPITAL RECEIPT. DURING THE COURSE OF HEARING, THE LD AR SUBMITTED T HE YEAR-WISE BREAKUP OF AMOUNT OF DEFERRED SALES TAX PAYABLE, IT S NPV AND THE RESULTANT DIFFERENCE TREATED AS CAPITAL RECEIPT. F OR THE YEAR UNDER CONSIDERATION, AS AGAINST THE DEFERRED SALES TAX LI ABILITY OF RS 90,692,932, THE ASSESSEE HAS PAID ITS NPV AMOUNTING TO RS 65,810,057 RESULTING IN DIFFERENCE OF RS 24,882,876 WHICH HAS BEEN TREATED AS CAPITAL RECEIPT AND NOT OFFERED TO TAX. FURTHER, IT IS NOTED THAT THE PRE-PAYMENT OF DEFERRED SALES TAX LIABILIT Y FOR THE ALL THE YEARS TOGETHER (INCLUDING THE IMPUNGED ASSESSMENT YEAR) H AS BEEN MADE IN THE AY 2005-06 WHEREIN THE COORDINATE BENCH HAS DEL ETED THE ADDITION OF RS.12,06,33,254/- (WHICH INCLUDES THE A MOUNT OF 24,882,876) AS PROVISIONS OF SECTION 41(1) WERE HEL D NOT APPLICABLE. BY RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINA TE BENCH IN ASSESSEES OWN CASE FOR THE A.Y. 2005-06 AND 2007-0 8, WE UPHOLD THE ORDER OF THE LD. CIT(A) FOR THE IMPUNGED ASSESSMENT YEAR. ACCORDINGLY, THIS GROUND OF THE REVENUES APPEAL IS DISMISSED. 7. THE 3 RD GROUND OF THE REVENUES APPEAL IS AGAINST ALLOWING CLUB EXPENSES OF RS. 10,16,659/- PAID BY ASSESSEE FOR ME MBERSHIP OF ITS EMPLOYEES. THE ASSESSING OFFICER OBSERVED THAT COM PANY BEING AN ARTIFICIAL ENTITY AND NOT BEING A LIVING BEING, THE BENEFIT OF MEMBERSHIP FEES OF CLUBS CANNOT BE ENJOYED BY IT BUT BY THE PE RSONS ASSOCIATED WITH ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 11 IT. THEREFORE, THESE ARE HELD TO BE EXPENSES INCURR ED FOR THE PERSONAL BENEFITS OF DIRECTORS/EXECUTIVES OF THE COMPANY AND THE EXPENDITURE INCURRED OF RS. 10,16,659/- WAS DISALLOWED AND ADDE D BACK TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. 8. BEING AGGRIEVED BY THE ORDER PASSED BY THE ASSES SING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), WHO HAD DELETED THE ADDITION BY FOLLOWING THE EARLIER ORDERS OF THE ITA T BY OBSERVING THAT THE CLUB EXPENSES HAVE BEEN DISALLOWED BY THE ASSES SING OFFICER IN THE ASSESSMENT YEARS 2005-06, 2006-07 AND 2007-08 BUT T HE ASSESSEE HAS GOT RELIEF FROM THE LD. CIT(A) AND ALSO FROM THE HO NBLE ITAT IN ASSESSMENT YEARS 2005-06 AND 2007-08 AND CLUB EXPEN SES HAVE BEEN ALLOWED AS BUSINESS EXPENSES. THE HONBLE ITAT WHIL E DECIDING THE APPEALS FOR A.Y. 2006-07 AND 2007-08 IN ITA NO. 268 /JP/2010 AND 374, 536/JP/2010 HAS HELD THAT THE CLUB EXPENSES WERE AL LOWABLE. THE HONBLE ITAT RELIED ON ITS OWN ORDER IN A.Y. 2005-0 6. ACCORDINGLY, THE LD. CIT(A) HAD DELETED THE ADDITION OF RS. 10,16,65 9/-. 9. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD C IT DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFF ICER BUT ADMITTED THAT THE HONBLE ITAT IN EARLIER YEARS HAD DELETED THE ADDITION MADE BY THE ASSESSING OFFICER WITH REGARD TO CLUB EXPENSES. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 12 10. AT THE OUTSET, THE LD AR HAS VEHEMENTLY SUPPORT ED THE ORDER OF THE LD. CIT(A) AND PRAYED TO UPHOLD THE ORDER. 11. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON THE RECORD AND THE EARLIE R ORDERS PASSED BY THE COORDINATE BENCH. IN ASSESSEES OWN CASE FOR TH E A.Y. 2005-06 PASSED IN ITA NO. 445/JP/2009 ORDER DATED 09/09/201 1, THE COORDINATE BENCH HAS HELD AS UNDER:- 10.2 THE DETAILS OF PAYMENTS MADE TO CLUB EXPENSES ARE AVAILABLE AT PAGES 158 TO 161 OF THE PAPER BOOK. IN THESE DETAIL S, THE ASSESSEE HAS GIVEN THE NAME OF THE EMPLOYEES, DATE, AMOUNT, NAME OF THE CLUB, NATURE OF PAYMENT AND PERIOD. THE CLUB MEMBERSHIP HAS BEEN PAID IN RESPECT OF 28 EMPLOYEES . IT IS NOTICED FROM THE PERIOD MENTIONED IN THE CHART THAT PAYMENTS ARE ANNUAL SUBSCRIPTION OR SUBSCRIPTION FOR PART OF THE YEAR. IT IS NOT A CASE WHERE THE ASSESSEE HAS PAID CORPORATE FE E TO THE CLUB. THERE IS NO PAYMENT FOR THE PERIOD EXCEEDING ONE YEAR SO THAT THE BENEFIT MAY BE GIVEN TO THE EMPLOYEES FOR MORE THAN A YEAR. THE EXPENDITURE AS CLUB MEMBERSHIP FEE IS AN EXPENDITURE FOR THE PURPOSE OF THE BUSINESS. HENCE, THE EXPENDI TURE IS ALLOWABLE U/S 37 OF THE ACT. THEREFORE, THE LD. CIT (A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS. 6,70, 422/-. ADMITTEDLY, THERE IS NO CHANGE IN THE FACTS AND CIR CUMSTANCES OF THE CASE AS COMPARED TO EARLIER YEARS WHERE THE MATTER HAS BEEN DECIDED IN ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 13 FAVOUR OF THE ASSESSEE COMPANY. BY RESPECTFULLY FO LLOWING THE ORDER OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR THE A.Y. 2005-06, WE UPHOLD THE ORDER OF THE LD. CIT(A) FOR THE IMPUNGED ASSESSMENT YEAR. ACCORDINGLY, THIS GROUND OF THE REVENUES APPEAL IS DISMISSED. 12. GROUND NO. 4 OF THE REVENUES APPEAL IS AGAINST HOLDING THAT THE DONATION MADE BY THE ASSESSEE TO DAV TRUST WAS EXPE NDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HA D CLAIMED DEDUCTION ON ACCOUNT OF DONATION OF RS. 22,93,923/- PAID TO D AV TRUST MANAGEMENT SOCIETY TOWARDS RUNNING OF SCHOOL AND CL AIMED IT AS BUSINESS EXPENDITURE. THE ASSESSING OFFICER HAS FUR THER OBSERVED THAT THE SIMILAR ISSUE WAS INVOLVED IN THE PRECEDING YEA R AND IT WAS NOTICED THAT THE EXPENDITURE/DONATION IS BEING MADE IN VIEW OF THE AGREEMENT ENTERED INTO BETWEEN THE COMPANY AND THE TRUST EARL IER. HOWEVER, THE AGREEMENT THOUGH WAS CREATING A LIABILITYBORNE BY T HE ASSESSEE, NOWHERE DID IT PIN POINT AS TO HOW THE PAYMENT OF D ONATION HAS ALSO NEXUS WITH THE PURPOSE OF BUSINESS. THE AGREEMENT N OWHERE STIPULATES ANY SORT OF OBLIGATION ON THE PART OF THE TRUST TO ADMIT OR TO GIVE PRIORITY IN ADMISSION IN SCHOOL TO THE CHILDREN OF THE EMPLOYEES/OFFICERS OF THE COMPANY. HENCE, IT WAS HELD THAT THE EXPENDI TURE INCURRED BY THE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 14 COMPANY IS NOT AN ALLOWABLE EXPENDITURE. THE FACTS OF THIS YEAR ARE IN CONSONANCE WITH THOSE OF THE PRECEDING YEARS AND AR E FOUND TO BE IN PARI MATERIA WITH THE POSITION IN THE CURRENT YEAR. THUS, THE FINDINGS GIVEN IN THOSE YEARS APPLY MUTATIS MUTANDIS IN THE CURRENT YEAR AS WELL. THE DECISION OF APPELLATE AUTHORITIES ON THIS ISSUE IS BEING DISPUTED FURTHER AND THUS HAVE NOT REACHED FINALITY. THEREFO RE, DONATION MADE TO DAV TRUST IS DISALLOWED AND ADDED TO THE TOTAL INCO ME OF THE ASSESSEE COMPANY. 13. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), WHO HAD DELETED THE ADDITION BY FOLLOWING THE EARLIER ORDERS OF THE HON BLE ITAT BY OBSERVING THAT THE HONBLE ITAT WHILE DECIDING THE APPEALS FO R A.Y. 2006-07 AND 2007-08 IN ITA NO. 268/JP/2010 AND 374, 536/JP/2010 HAS HELD THAT PAYMENT TO DAV TRUST FOR RUNNING OF SCHOOL WAS ALLO WABLE EXPENDITURE. ACCORDINGLY, THE LD. CIT(A) HAD DELETED THE ADDITIO N OF RS. 22,93,923/-. 14. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD CIT DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFF ICER BUT ADMITTED THAT THE HONBLE ITAT IN EARLIER YEARS HAD DELETED THE ADDITION MADE BY THE ASSESSING OFFICER WITH REGARD TO DAV TRUST. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 15 15. AT THE OUTSET, THE LD AR HAS VEHEMENTLY SUPPORT ED THE ORDER OF THE LD. CIT(A) AND PRAYED TO UPHOLD THE ORDER. 16. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON THE RECORD AND THE EARLIE R ORDERS PASSED BY THE COORDINATE BENCH. IN ASSESSEES OWN CASE FOR TH E A.Y. 2006-07 PASSED IN ITA NO. 268/JP/2010 ORDER DATED 31/10/201 1, THE COORDINATE BENCH HAS HELD AS UNDER:- 2.7 WE HAVE HEARD BOTH THE PARTIES. THIS ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN THE CASE OF THE ASSES SEE FOR THE ASSESSMENT YEARS 2003-04 TO 2005-06. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS PAID THE CONTRIBUTION TO THE TRUST. THE CLAIM OF THE ASSESSEE IS THAT IT HAS REI MBURSED THE EXPENDITURE AND HENCE THE PROVISIONS OF SECTION 40A (9) MAY NOT BE APPLICABLE. THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. RAJASTHAN SPINNING & WEAVING MILLS LTD., 281 ITR 408 HAD AN OCCASION TO CONSIDER THE ALLOWABILIT Y OF EXPENDITURE RELATING TO THE DONATION OF BUS TO SCHO OL. IN THAT CASE, THE AO WAS OF THE VIEW THAT THE SCHOOL IS NOT OWNED BY THE COMPANY AND THE ENTRY IN THE SCHOOL IS ALSO NOT RESTRICTED TO THE WARDS OF THE WORKMEN AND STAFF MEMBERS OF TH E COMPANY. THE EXPENDITURE WAS TREATED AS DONATION. T HE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE CIT V S. RAJASTHAN SPINNING & WEAVING MILLS LTD.,(SUPRA) OBSERVED THAT THE QUESTION OF CLAIM TO DEDUCTION OF ANY AMOUNT SPENT BY THE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 16 ASSESSEE AS EXPENDITURE LAID OUT WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF ASSESSEE'S BUSINESS IS NOT TO BE DECIDED IN THE LIGHT THAT THE ASSESSEE MUST BE ENTITLED TO THE WHOLE BEN EFIT ACCRUING FROM SUCH EXPENSES AND NOBODY ELSE SHOULD BE SHARING THIS BENEFIT AS IS DERIVED BY THE ASSESSEE BY DINT OF SUCH EXPENSES. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. B.C. SHIRKE & CO., 264 ITR 83 HAD AN OCCASI ON TO CONSIDER THE ALLOWABILITY OF CONTRIBUTION TO THE TH REE TRUSTS FORMULATED FOR THE WELFARE OF THE EMPLOYEES. THE HO N'BLE BOMBAY HIGH COURT IN THIS CASE HAS OBSERVED AS UNDE R:- VOLUNTARY PAYMENTS MADE BY AN EMPLOYER FOR THE GE NERAL WELFARE AND BENEFIT OF THE EMPLOYEES ON GROUNDS OF COMMERCIAL E XPEDIENCY ARE REVENUE EXPENDITURE, DEDUCTIBLE UNDER SECTION 37 OF THE INCOME- TAX ACT. SUCH EXPENDITURE HAS NEXUS WITH THE CONDUCT OF BUSI NESS AND THE EXPENDITURE INCURRED FOR MAINTAINING INDUSTRIAL PEA CE AND CORDIAL RELATIONS WITH THE EMPLOYEES IS AN EXPENDITURE FOR THE CARRYI NG ON OF THE BUSINESS. IN THIS VIEW OF THE MATTER, IN THE FACTS OF THIS CA SE, WHERE THERE IS NO DISPUTE ABOUT THE BONA FIDES IN CREATION OF THE TRU STS OR UTILISATION OF THE FUNDS CONTRIBUTED BY THE ASSESSEE TO THE TRUSTS, WE HAVE NO HESITATION IN HOLDING THAT THE EXPENDITURE INCURRED BY THE ASSESS EE BY WAY OF CONTRIBUTION TO THE WELFARE TRUST OF THE EMPLOYEES WAS RIGHTLY HELD TO BE DEDUCTIBLE UNDER SECTION 37 OF THE INCOME- TAX ACT. BY RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINA TE BENCH IN ASSESSEES OWN CASE FOR THE A.Y. 2006-07, WE UPHOLD THE ORDER OF THE LD. CIT(A) FOR THIS ASSESSMENT YEAR. ACCORDINGLY, T HIS GROUND OF THE REVENUES APPEAL IS DISMISSED. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 17 17. GROUND NO. 5 OF THE REVENUES APPEAL IS AGAINST DELETING THE ADDITION OF RS. 11,71,382/- ON ACCOUNT OF DEPRECIAT ION DISALLOWED ON CATALYST. THIS ISSUE CAME UP FOR DISCUSSION/DELIBER ATION DURING THE ASSESSMENT PROCEEDINGS FOR THE EARLIER ASSESSMENT Y EARS WHERE THE FACTS ARE FOUND TO BE SIMILAR TO THOSE OF THE ASSES SMENT YEAR UNDER CONSIDERATION. THE ASSESSEES APPEAL FOR EARLIER YE ARS HAS BEEN ALLOWED BY THE CIT (A) AND THE DEPARTMENT IS IN FURTHER APP EAL BEFORE THE HONBLE ITAT AND THE ORDER IS STILL AWAITED. THIS B EING SO, THE CLAIM OF DEPRECIATION AND ADDITIONAL CLAIM AS WELL ON THE CA TALYST IS HEREBY DISALLOWED AT RS. 11,71,382/- AND ADDED TO THE TOT AL INCOME OF THE ASSESSEE COMPANY. 18. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), WHO HAD DELETED THE ADDITION BY FOLLOWING THE EARLIER ORDERS OF THE HON BLE ITAT BY OBSERVING THAT THE ADDITIONS ON THIS GROUND WERE MADE IN THE ASSESSMENT YEARS 2002-03 TO 2007-08. THE HONBLE ITAT, JAIPUR HAS FO R A.YS 2002-03 TO 2007-08 ALSO ALLOWED THE CLAIM OF DEPRECIATION ON C ATALYST. THE HONBLE ITAT WHILE DECIDING THE APPEALS FOR A.Y. 2006-07 AN D 2007-08 IN ITA NO. 268/JP/2010 AND 374, 536/JP/2010 HAS DELETED TH E ADDITION IN ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 18 RELATION TO DEPRECIATION ON CATALYST. ACCORDINGLY, THE LD. CIT(A) HAD DELETED THE ADDITION OF RS. 11,71,382/-. 19. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD CIT DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFF ICER BUT ADMITTED THAT THE HONBLE ITAT IN EARLIER YEARS CASES HAD DE LETED THE ADDITION MADE BY THE ASSESSING OFFICER WITH REGARD TO DEPREC IATION ON CATALYST. 20. AT THE OUTSET, THE LD AR HAS VEHEMENTLY SUPPORT ED THE ORDER OF THE LD. CIT(A) AND PRAYED TO UPHOLD THE ORDER. 21. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON THE RECORD AND THE EARLIE R ORDERS PASSED BY THE COORDINATE BENCH. IN ASSESSEES OWN CASE FOR TH E A.Y. 2006-07 PASSED IN ITA NO. 268/JP/2010 ORDER DATED 31/10/201 1, THE COORDINATE BENCH HAS HELD AS UNDER:- 3.3 THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL WH ILE DECIDING THE APPEAL OF THE ASSESSEE FOR THE ASSESSM ENT YEAR 2002-03 TO 2005-06. FOLLOWING OUR FINDINGS, W E HOLD THAT THE LD CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS 74,64,626. BY RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINA TE BENCH IN ASSESSEES OWN CASE FOR THE A.Y. 2006-07, WE UPHOLD THE ORDER OF THE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 19 LD. CIT(A) FOR THIS ASSESSMENT YEAR. ACCORDINGLY, T HIS GROUND OF THE REVENUES APPEAL IS DISMISSED. 22. GROUND NO. 6 OF THE REVENUES APPEAL IS AGAINST DELETING THE DISALLOWANCE OF RS. 3,49,57,657/- WITH REGARD TO LE AVE ENCASHMENT, WATER CESS, BONUS, GRATUITY ETC. ON WHICH DEDUCTION U/S 43B HAD BEEN CLAIMED. THE ASSESSING OFFICER HAS OBSERVED THAT AS PER THE COMPUTATION OF INCOME, THE ASSESSEE HAS CLAIMED DED UCTION OF RS. 3,49,57,657/- ON ACCOUNT OF LEAVE ENCASHMENT, W ATER CESS AND GRATUITY. HOWEVER, FROM PERUSAL OF COPY OF LEDGER A CCOUNT, IT IS NOT POSSIBLE TO LINK WHETHER THE CLAIM SO MADE HAS BEEN DISALLOWED IN THE EARLIER YEARS AND NATURE OF REASON FOR DISALLOWING THE SAME DURING THE COURSE OF ASSESSMENT. THUS, IN ABSENCE OF RELEVANT AND PROPER DETAILS, THIS CLAIM OF THE ASSESSEE IS NOT VERIFIABLE, THERE FORE, THE SAME IS DISALLOWED WHICH WORKS OUT TO RS. 3,49,57,657/- AND ADDED TO THE TOTAL INCOME. 23. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), WHO HAD DELETED THE ADDITION BY OBSERVING AS UNDER:- THE ASSESSEE VIDE LETTER DATED 19.09.2011 SUBMITTED AS UNDER: OUR SUBMISSION IN THIS REGARD IS AS UNDER:- ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 20 THE DEDUCTION FOR CERTAIN STATUTORY LIABILITIES COV ERED U/S 43B IS ALLOWABLE ON PAYMENT BASIS ONLY, SO ABOVE REFERR ED AMOUNT WAS DISALLOWED IN RESPECTIVE EARLIER YEARS D UE TO NON-PAYMENT. THERE ARE MULTIPLE DATES OF PAYMENT IN CASE OF LEAVE ENCASHMENT AND BONUS. WE HAVE ENCLOSED A YEAR WISE BREAK UP OF UNPAID STATUTORY LIABILITIES COVERED U/ S 43B AS ON 01.04.2007 AND THE SAME WAS NOT ALLOWED IN THE RESP ECTIVE YEARS AS CERTIFIED BY THE AUDITORS. AS THE ASSESSEE HAS PAID / SET OFF RS. 3,47,70,861/- DURING THE YEAR UNDER CON SIDERATION AND WRITTEN BACK RS. 1,86,796/- (TOWARDS BONUS) DUR ING THE YEAR UNDER CONSIDERATION, SO WE HAVE CLAIMED DEDUCT ION OF RS. 3,49,57,657/- U/S 43B DURING THE YEAR UNDER CONSIDERATION. WE WISH TO CLARIFY THAT THE AMOUNT O F RS. 1,86,796/- IN RESPECT OF BONUS IS THE SAME AS IN GR OUND 8 ABOVE. THE A.O. DISALLOWED DEDUCTION OF RS. 3,49,57,657/- U/S 43B ON THE GROUND THAT IT WAS NOT POSSIBLE TO LINK THE PAYMENTS MADE IN THE CURRENT YEAR AND DISALLOWANCES IN EARLI ER YEARS AND THE CLAIM IS NOT VERIFIABLE. I HAVE GONE THROUGH THE DETAILS FILED BY ASSESSEE A ND IT WAS SEEN THAT ASSESSEE HAS MADE PROVISIONS IN EARLIER Y EARS WHICH WERE NOT CLAIMED AS EXPENDITURE IN VIEW OF SE CTION 43B. THE SAME WAS CLAIMED IN THE CURRENT YEAR ON PA YMENT BASIS AND THE DETAILS WERE GIVEN IN TAX AUDIT REPOR T ALSO. THE ASSESSEE ALSO FILED RECONCILIATION OF THE AMOUNT PA ID BY THE ASSESSEE. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 21 WHEN THE DETAILS WERE CERTIFIED BY TAX AUDITOR, THE SAME SHOULD HAVE BEEN BELIEVED BY A.O. THE A.O. WITHOUT POINTING OUT ANY DEFECT SIMPLY BRUSHED ASIDE THE CLAIM OF AS SESSEE. IT WAS SEEN THAT ASSESSEE DID NOT CLAIM THESE EXPENDIT URE AND MADE PAYMENT OF PART OF THE EXPENDITURE IN THE CURR ENT YEAR AND ALSO WRITTEN BACK PART OF THE EXPENDITURE AS DI SCUSSED IN GROUND NO. 7. THE SAME IS HELD TO BE ALLOWABLE ON P AYMENT BASIS AS PER SECTION 43B OF THE I.T. ACT. THE A.O. IS THEREFORE DIRECTED TO DELETE ADDITION OF RS. 3,49,57,657/-. 24. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD CIT DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFF ICER. 25. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS SU PPORTED THE ORDER OF THE LD. CIT(A). 26. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE LD CIT(A) HAS GIVEN A FINDING THAT HE HAS GONE THROUGH THE DETAILS FILED BY ASSESSEE AND IT WAS SEEN THAT ASSESSEE HAS MADE PROVISIONS IN EARLI ER YEARS WHICH WERE NOT CLAIMED AS EXPENDITURE IN VIEW OF SECTION 43B. THE SAME WAS CLAIMED IN THE CURRENT YEAR ON PAYMENT BASIS AND TH E DETAILS WERE GIVEN IN TAX AUDIT REPORT ALSO. THE ASSESSEE ALSO FILED R ECONCILIATION OF THE AMOUNT PAID BY THE ASSESSEE. WHEN THE DETAILS WERE CERTIFIED BY TAX ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 22 AUDITOR, THE SAME SHOULD HAVE BEEN BELIEVED BY A.O. THE A.O. WITHOUT POINTING OUT ANY DEFECT SIMPLY BRUSHED ASIDE THE CL AIM OF ASSESSEE. IT WAS SEEN THAT ASSESSEE DID NOT CLAIM THESE EXPENDIT URE AND MADE PAYMENT OF PART OF THE EXPENDITURE IN THE CURRENT Y EAR AND ALSO WRITTEN BACK PART OF THE EXPENDITURE AS DISCUSSED IN GROUND NO. 7. THE SAID FINDINGS OF THE LD CIT(A) REMAIN UNCONTROVERTED BEF ORE US. THE LD CIT(A) HAS CARRIED OUT THE NECESSARY VERIFICATION O F THE ASSESSEES CLAIM WHICH IS ALSO CERTIFIED BY THE TAX AUDITOR. WE THER EFORE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD CIT(A) AND ACCORDINGLY UPHOLD THE SAID ORDER. ACCORDINGLY, THIS GROUND OF THE REVENUES APPEAL IS DISMISSED. 27. GROUND NO. 7 OF THE REVENUES APPEAL IS AGAINST ALLOWING RENT PAID FOR FLAT OF RS. 10,80,000/- TO A PERSON SPECIF IED U/S 40A(2)(B), THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE CO MPANY HAS PAID RENT @ RS. 90,000/- PER MONTH TO THE SPECIFIED PERS ON U/S 40A(2)(B). VIDE PARA NO. 10 OF THIS OFFICE LETTER DATED 06.12. 2010, THE ASSESSEE WAS ASKED TO GIVE THE DETAILS. IN RESPONSE TO ABOVE , THE ASSESSEE HAS FILED REPLY AS PER POINT NO. 10 VIDE LETTER DATED 1 3.12.2010, WHICH IS REPRODUCED AS UNDER:- IN THIS REGARD WE WISH TO SUBMIT BEFORE YOUR GOODS ELF THAT REFERRED ACCOMMODATION IS USED EXCLUSIVELY AS GUEST HOUSE OF THE ASSESSEE. BEING ARTIFICIAL ENTITY, THE ASSESSEE ITSELF CANNOT ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 23 USE THE GUEST HOUSE FOR ITS RESIDENCE BUT ITS EMPLO YEES WHO VISIT DELHI FOR PURPOSE OF BUSINESS OF THE ASSESSEE USE THE GUEST HOUSE FOR THEIR RESIDENCE PURPOSE ONLY. INSTE AD OF STAYING IN HOTEL WHICH INCURS COST TO THE ASSESSEE, THE EMPLOYEES STAY IN THE GUEST HOUSE WHILE ON TOUR TO DELHI OFFICE. THE RENT PAID IS REASONABLE LOOKING TO THE EXISTING MARKET RATE FOR THE SIMILAR ACCOMMODATION IN THE GK-II AREA. IT IS THEREFORE REQUESTED TO ALLOW THE RENT PAID TO MRS. VEENA BAWA . THE REPLY OF THE ASSESSEE IS NOT CONVINCING AS MRS. VEENA BAWA IS A RELATIVE OF VICE CHAIRMAN OF THE ASSESSEE COMPANY I S THE LAND LORD. AS PER LEASE DEED, THE POSSESSION IS TAKEN FOR RESIDEN TIAL PURPOSES. IN THE LEASE DEED, IT IS MENTIONED THAT I). THE DEMISED PREMISE SHALL BE EXCLUSIVELY USED BY THE COMPANY FOR RESIDENTIAL PURPOSES, II) THAT THE LESSEE WILL NOT USE THE DEMISED PREMI SES FOR OFFICE PURPOSE FOR ANY TRADE OR BUSINESS. AS PER THE LEASE DEED THE RENT PAID FOR FLAT NO. 5 COMPRISING OF ONE DRAWING ROOM, ONE DINNING ROOM, 3 BED ROOMS, 3 BATH ROOMS, ONE KITCHEN PLUS BALCONY IN FRONT AND ALSO LOBBY, SERVA NT QUARTER. SINCE THE PROPERTY HAS BEEN ALLOTTED FOR RESIDENTIAL PURPOSES AFTER TAKING ON RENT FROM SMT. VEENA BAWA, RELATIVE OF VICE CHAIRMAN AND NO BUSINESS ACTIVITIES HAVE TAKEN PLACE AT THE SAID PREMISES AN D THE ASSESSEE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 24 COMPANY HAS NOT PRODUCED ANY EVIDENCE REGARDING THE USE OF THIS HOUSE FOR COMPANY PURPOSE, THE RENT PAID OF RS. 10, 80,000/- IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASS ESSEE COMPANY. 28. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), WHO HAD DELETED THE ADDITION CONFIRMED BY THE ASSESSING OFFICER BY OBSE RVING AS UNDER:- I HAVE GONE THROUGH THE DETAILS FILED AND IT WAS S EEN THAT EMPLOYEES OF ASSESSEE WERE STAYING IN THE GUEST HOUSE DURING OFF ICIAL VISITS. IT IS THEREFORE HELD THAT EXPENDITURE ON GUEST HOUSE WAS INCURRED FOR BUSINESS PURPOSES. THE ASSESSING OFFICER IS THEREFO RE DIRECTED TO DELETE ADDITION OF RS. 10,80,000/-. 29. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD CIT DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFF ICER. 30. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS RE LIED ON THE ORDER OF THE LD. CIT(A). 31. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE LD CIT(A) HAS GIVEN A FINDING THAT THE EMPLOYEES OF THE ASSESSEE COMPANY STAYED AT THE GUEST HOUSE IN RESPECT OF WHICH AN AMOUNT OF RS 10, 80,000 HAS BEEN PAID AS RENT. FURTHER, THE REVENUE HAS NOT BROUGHT ON RECORD ANY MATERIAL EVIDENCE TO SUGGEST THAT THE RENT PAID WAS EXCESSIVE VIS--VIS ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 25 AN ACCOMMODATION OF SAME SIZE AND FACILITY IN THE S AME LOCALITY. WE THEREFORE CONFIRM THE ORDER OF THE LD CIT(A) WHO HA S ALLOWED THE RENT PAYMENT AS INCURRED FOR THE PURPOSES OF THE ASSESSE ES BUSINESS. ACCORDINGLY, THIS GROUND OF THE REVENUES APPEAL IS DISMISSED. 32. GROUND NO. 8 OF THE REVENUES APPEAL IS AGAINST DELETING THE EXPENSES OF RS. 89,41,361/- FOR PAYMENT MADE TO ZUA RI INVESTMENT LTD. THE ASSESSING OFFICER HAS MADE A TABLE REGARDING PA YMENT TO THE DIFFERENT COMPANIES, WHICH IS REPRODUCED HEREUNDER: - VOUCHER NO. DATE AMOUNT REMARKS 1900006179 31.08.2007 28,09,000/- CONSULTANCY CHARGES TO ZIL FOR ENHANCING WC LIMIT 1900011258 19.12.2007 6,06,702/- BROKERAGE CHARGES FROM 03.04 TO 19.11.2007 1900011534 27.12.2007 56,18,000/- PROFESSIONAL CHARGES FOR ARRANGING OF TERMAL. 1900012152 08.01.2008 61,798/- BROKERAGE CHARGES FR OM RTA DT. 11.12.2007 1900015652 17.03.2008 1,79,776/- BROKERAGE CHARGES M/O FEB.- MARCH 2008 1900016314 26.03.2008 67,416/- REDEMPTION AND ALLOT MENTS CHARGES M/O FEB.-MARCH 2008 1900016535 26.03.2008 5,33,710/- CHARGES OF MAINTAI N SHAREHOLDERS A/C (APR-MARCH 2008) 1900017005 28.03.2008 28,090/- BROKERAGE CHARGES OF REDEMPTION ISIN M/O MARCH 1900018338 31.03.2008 30,208/- BROKERAGE CHARGES 50 00 PER CA 1900018447 31.03.2008 145/- BROKERAGE CHARGES ON FD OF CHAMBAL FERTILIZERS & CHEM ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 26 TOTAL 99,34,845/- THE ASSESSING OFFICER FURTHER OBSERVED THAT ON PERU SAL OF DETAILS FILED, IT IS SEEN THAT THE EXPENDITURE CLAIMED FOR BROKERAGE AND CONSULTANCY CHARGES IS COVERED BY THE PROVISIONS OF SECTION 35D . THEREFORE, OUT OF EXPENDITURE CLAIMED, 1/10 TH IS ALLOWED AND REMAINING AMOUNT I.E. RS. 89,41,361/- IS DISALLOWED. 33. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), WHO HAD DELETED THE ADDITION BY OBSERVING AS UNDER:- 4.101 THE ASSESSEE VIDE LETTER DATED 19.09.2011 S UBMITTED AS UNDER: THE ZUARI INVESTMENTS LIMITED HAS GIVEN VARIOUS KI NDS OF SERVICES TO THE ASSESSEE SUCH AS PROFESSIONAL CHARG ES FOR ARRANGING OF TERM LOAN, CONSULTANCY CHARGES FOR ENH ANCING WORKING CAPITAL LIMIT, CHARGES TO MAINTAIN SHAREHOL DERS ACCOUNTS ETC. PLEASE FIND ATTACHED HEREWITH DETAILS OF PAYMENT MADE TO ZUARI INVESTMENTS LIMITED. THE PAYM ENTS ARE IN THE NATURE OF ROUTINE EXPENSES ALLOWABLE UND ER SECTION 37. THE LD. ASSESSING OFFICER HAS ACCEPTED THAT THE EXPENSES ARE OF REVENUE NATURE BUT HAS ALLEGED THAT THE EXPE NSES ARE DEFERRED REVENUE COVERED UNDER SECTION 35D AND ALLO WED A DEDUCTION OF 1/10TH ACCORDING TO THE PROVISIONS OF THAT SECTION. WE HUMBLY SUBMIT THAT THE LD. AO ERRED IN APPLYING SECTION 35D. SECTION 35D READS AS FOLLOWS:- ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 27 // SECTION 35D : AMORTISATION OF PRELIMINARY EXPENS ES (1) WHERE AN ASSESSEE, BEING AN INDIAN COMPANY OR A PERSON (OTHER THAN A COMPANY) WHO IS RESIDENT IN INDIA, INCURS, AFTER THE 31ST DAY OF MARCH, 1970, A NY EXPENDITURE SPECIFIED IN SUB-SECTION (2),- (I) BEFORE THE COMMENCEMENT OF HIS BUSINESS, OR (II) AFTER THE COMMENCEMENT OF HIS BUSINESS IN CONNECTION WITH THE EXTENSION OF HIS INDUSTRIAL UNDERTAKING OR IN CONNECTION WITH HIS SETTING UP A NEW INDUSTRIAL UNIT, THE ASSESSEE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED A DEDUCT ION OF AN AMOUNT EQUAL TO ONE-TENTH OF SUCH EXPENDITURE FO R EACH OF THE TEN SUCCESSIVE PREVIOUS YEARS BEGINNING WITH THE PREVIOUS YEAR IN WHICH THE BUSINESS COMMENCES OR, AS THE CASE MAY BE, THE PREVIOUS YEAR IN WHICH THE EXTENSION OF THE INDUSTRIAL UNDERTAKIN G IS COMPLETED OR THE NEW INDUSTRIAL UNIT COMMENCES PRODUCTION OR OPERATION. PROVIDED THAT WHERE AN ASSESSEE INCURS AFTER THE 31 ST DAY OF MARCH, 1998, ANY EXPENDITURE SPECIFIED IN SU B- SECTION (2), THE PROVISIONS OF THIS SUB-SECTION SHA LL HAVE EFFECT AS IF FOR THE WORDS 'AN AMOUNT EQUAL TO ONE- TENTH OF SUCH EXPENDITURE FOR EACH OF THE TEN SUCCESSIVE PREVIOUS YEARS', THE WORDS 'AN AMOUNT EQUAL TO ONE-FIFTH OF SUCH EXPENDITURE FOR EACH OF THE FIVE SUCCESSIVE PREVIOUS YEARS' HAD BEEN SUBSTITUTE D. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 28 (2) THE EXPENDITURE REFERRED TO IN SUB-SECTION (1) SHALL BE THE EXPENDITURE SPECIFIED IN ANY ONE OR MORE OF THE FOLLOWING CLAUSES, NAMELY:- (A) EXPENDITURE IN CONNECTION WITH (I) PREPARATION OF FEASIBILITY REPORT; (II) PREPARATION OF PROJECT REPORT; (III) CONDUCTING MARKET SURVEY OR ANY OTHER SURVEY NECESSARY FOR THE BUSINESS OF THE ASSESSEE; (IV) ENGINEERING SERVICES RELATING TO THE BUSINESS OF THE ASSESSEE : PROVIDED THAT THE WORK IN CONNECTION WITH THE PREPARATION OF THE FEASIBILITY REPORT OR THE PROJEC T REPORT OR THE CONDUCTING OF MARKET SURVEY OR OF ANY OTHER SURVEY OR THE ENGINEERING SERVICES REFERRED T O IN THIS CLAUSE IS CARRIED OUT BY THE ASSESSEE HIMSELF OR BY A CONCERN WHICH IS FOR THE TIME BEING APPROVED IN T HIS BEHALF BY THE BOARD; (B) LEGAL CHARGES FOR DRAFTING ANY AGREEMENT BETWEE N THE ASSESSEE AND ANY OTHER PERSON FOR ANY PURPOSE RELATING TO THE SETTING UP OR CONDUCT OF THE BUSINE SS OF THE ASSESSEE; (C) WHERE THE ASSESSEE IS A COMPANY, ALSO EXPENDITU RE (I) BY WAY OF LEGAL CHARGES FOR DRAFTING THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPANY; (II) ON PRINTING OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION; ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 29 (III) BY WAY OF FEES FOR REGISTERING THE COMPANY UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 (1 OF 1956); (IV) IN CONNECTION WITH THE ISSUE, FOR PUBLIC SUBSCRIPTION, OF SHARES IN OR DEBENTURES OF THE COMPANY, BEING UNDERWRITING COMMISSION, BROKERAGE AND CHARGES FOR DRAFTING, TYPING, PRINTING AND ADVERTISEMENT OF THE PROSPECTUS; (D) SUCH OTHER ITEMS OF EXPENDITURE (NOT BEING EXPENDITURE ELIGIBLE FOR ANY ALLOWANCE OR DEDUCTION UNDER ANY OTHER PROVISION OF THIS ACT) AS MAY BE PRESCRIBED. (3) .. AS CAN BE SEEN FROM THE ABOVE, SECTION 35 D ONLY SP EAKS OF EXPENSES RELATING TO THE PERIOD BEFORE COMMENCEM ENT OF BUSINESS OR AFTER COMMENCEMENT IN RELATION TO EXPANSION OR SETTING UP A NEW UNIT, WHICH IS NOT TH E ASSESSEES CASE. HENCE THE DISALLOWANCE OF RS 89,41 ,361/- U/S 35D DESERVES TO BE DELETED. 4.102. I HAVE GONE THROUGH THE AOS FINDINGS AND A SSESSEES SUBMISSION. THE A.O. DISALLOWED THE EXPENDITURE ON THE GROUND THAT THE EXPENSES WERE COVERED U/S 35D AND THEREFORE ONLY 10% WAS ALLOWED IN THE CURRENT YEAR. THE ASSESSEE ON THE OTHER HAND THAT THE EXPENDITURE WER E PAID TO ZUARI INVESTMENT FOR VARIOUS KIND OF SERVIC ES ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 30 (ARRANGING TERM LOAN, CONSULTANCY FOR ENHANCING WOR KING CAPITAL ETC.). SECTION 35D APPLIES ON EXPENDITURE IN RELATION TO EXTENSION OF INDUSTRIAL UNDERTAKING OR EXPENDITURE INCURRED BEFORE COMMENCEMENT OF BUSINESS FOR SETTIN G UP NEW UNIT. THE A.O. DID NOT BRING ANYTHING ON RECORD TO SHOW THAT THESE EXPENDITURES WERE INCURRED BEFORE COMMENCEMEN T OF BUSINESS OR AFTER COMMENCEMENT OF BUSINESS IN RELATION TO EXTENSION OF INDUSTRIAL UNDERTAKING OR FOR SETTING UP NEW UNIT. IN VIEW OF THE ABOVE, THE A.O. IS DIRECTED TO DELE TE ADDITION OF RS. 89,41,361/-. 34. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD. CIT DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFF ICER. 35. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS SU PPORTED THE ORDER OF THE LD. CIT(A) AND REITERATED THE SUBMISSIONS MA DE BEFORE THE LD CIT(A). 36. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. FOR THE PURPOSES OF INVOCATION OF SECTION 35D, TWO CONDITIONS ARE PRESC RIBED. FIRSTLY, THE NATURE OF EXPENDITURE SHOULD BE AS SPECIFIED IN SEC TION 35(2) AND SECONDLY, THE EXPENDITURE SHOULD BE INCURRED EITHER BEFORE THE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 31 COMMENCEMENT OF THE BUSINESS, OR WHERE THE BUSINESS HAS BEEN COMMENCED, IN CONNECTION WITH THE EXTENSION OF THE UNDERTAKING OR IN CONNECTION WITH THE SET UP OF A NEW UNIT. NOTHING HAS BEEN BROUGHT ON RECORD TO SATISFY THE ABOVE TWO CONDITIONS. FURTHE R, THE REVENUE HAS TAKEN THE GROUND THAT THESE EXPENSES ARE WITH RESPE CT TO THE SHIPPING DIVISION WHOSE INCOME WAS OFFERED ON THE BASIS OF T ONNAGE SCHEME. HOWEVER, THERE IS NOTHING ON RECORD AND WHICH HAS B EEN BROUGHT TO OUR NOTICE WHICH SUGGEST THAT THESE EXPENSES ARE WITH R ESPECT TO THE SHIPPING BUSINESS SUBJECT TO TONNAGE TAX SCHEME. I N LIGHT OF THESE, WE ARE UNABLE TO ACCEDE TO THE POSITION OF THE REVENUE THAT THE EXPENSES ARE COVERED BY THE PROVISIONS OF SECTION 35D OF THE ACT. HENCE, THE GROUND OF THE REVENUE IS DISMISSED. 37. GROUND NO. 9 OF THE REVENUES APPEAL IS AGAINST DELETING THE EXPENSES OF RS. 24,39,596/- FOR PAYMENT MADE TO M/S ISG NOVASOFT TECHNOLOGY. THE ASSESSING OFFICER OBSERVED THAT ON GOING THROUGH THE SUPPORTING DOCUMENTS, IT IS SEEN THAT THE PAYMENT P AID BY THE ASSESSEE COMPANY RELATED TO SOFTWARE CONSULTANCY CHARGES. TH E PAYMENT IS NOT VERIFIABLE AS NO SUPPORTING DETAILS FILED ALONGWITH THE COPY OF BILLS AND NEITHER SPECIFICATION OF SOFTWARE PREPARED IS ALSO MENTIONED IN THE BILL. THE PAYMENT MADE COVERED U/S 35D. THEREFORE, OUT OF EXPENDITURE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 32 CLAIMED 1/10 TH IS ALLOWED AND REMAINING AMOUNT I.E. RS. 24,39,596 /- IS DISALLOWED. 38. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), WHO HAD DELETED THE ADDITION BY OBSERVING AS UNDER:- 4.112 THE ASSESSEE VIDE LETTER DATED 19.09.2011 S UBMITTED AS UNDER: THE ISG NOVASOFT TECHNOLOGIES LIMITED HAS PROVIDED SOFTWARE CONSULTANCY SERVICES TO THE ASSESSEE AT DE LHI. THE LD AO HAS ALLEGED THAT NO DETAILS REGARDING THIS P AYMENT HAVE BEEN FILED. HOWEVER DURING THE COURSE OF ASSES SMENT PROCEEDINGS THE ASSESSEE HAS PROVIDED COPIES OF VOU CHERS AND BILLS VIDE ITS REPLY DATED 29.10.2010 . FOR REA DY REFERENCE THE COPIES OF BILLS AND VOUCHERS ARE ONCE AGAIN ANN EXED HEREWITH. AS PER THE COPIES OF BILLS ANNEXED (WHICH INCIDENTALLY ARE THE SUPPORTING DOCUMENTS TO THE V OUCHER) IT IS EVIDENT THAT THE PAYMENT IS FOR THE SOFTWARE CON SULTANCY CHARGES. THE LD AO HAS ALLEGED THAT NO SUPPORTING DOCUMENTS HAVE BEEN PROVIDED BUT HAS YET COME TO TH E CONCLUSION THAT THE PAYMENT IS COVERED BY SECTION 3 5D. 4.122 I HAVE GONE THROUGH THE AOS FINDINGS AND AS SESSEES SUBMISSION. THE A.O. DISALLOWED THE EXPENDITURE ON THE GROUND THAT THE EXPENSES WERE COVERED U/S 35D AND THEREFORE ONLY 10% WAS ALLOWED IN THE CURRENT YEAR. THE ASSESSEE ON THE OTHER HAND THAT THE EXPENDITURE WER E PAID ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 33 TO ISG NOVASOFT TECHNOLOGY FOR SOFTWARE CONSULTANCY SERVICES. THE A.O. MENTIONED IN HIS ORDER THAT NO SUPPORTING VOUCHERS WERE PRODUCED. I FAIL TO UNDERSTAND HOW HE REACHED TO THE CONCLUSION THAT THE SAME WAS COVERED BY SECTION 35D. SECTION 35D APPLIES ON EXPENDITURE IN RELATION TO EXTENSION OF INDUSTRIAL UNDERTAKING OR EXPENDITURE INCURRED B EFORE COMMENCEMENT OF BUSINESS OR FOR SETTING UP NEW UNIT . THE A.O. DID NOT BRING ANYTHING ON RECORD TO SHOW THAT THESE EXPENDITURE WERE INCURRED BEFORE COMMENCEMENT OF BUSINESS OR AFTER COMMENCEMENT OF BUSINESS IN RELAT ION TO EXTENSION OF INDUSTRIAL UNDERTAKING OR FOR SETTING UP NEW UNIT. IN VIEW OF THE ABOVE, THE A.O. IS DIRECTED TO DELE TE ADDITION OF RS. 24,39,596/-. 39. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD CIT DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFF ICER. 40. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS RE LIED ON THE ORDER OF THE LD. CIT(A). 41. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. OUR DIRECTIONS IN RESPECT OF GROUND NO. 8 SHALL APPLY MUTATIS MUTANDIS TO THI S GROUND AS WELL. THE GROUND OF THE REVENUE IS ACCORDINGLY DISMISSED. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 34 42. GROUND NO. 10 OF THE REVENUES APPEAL IS AGAINS T DELETING THE ADDITION OF RS. 1148.87 LACS ON SLUMP SALE OF FOOD PROCESSING UNIT U/S 50B IN SPITE OF THE FACT THAT THE ASSESSEE HAS FAIL ED TO PROVE THE SALE CONSIDERATION WHILE PURCHASER HAS INTIMATED THE SAL E CONSIDERATION OF RS. 2359.15 LACS INSTEAD OF 2263.18 LACS CLAIMED BY THE ASSESSEE. THE LD AR TOOK US THROUGH THE SUBMISSIONS MADE BEFO RE THE LD CIT(A) TO APPRECIATE THE FACTS OF THE CASE AND SUBMITTED T HAT THE ASSESSEE (CFCL) HAD HIVED OFF ITS FOOD PROCESSING UNIT (FPU) TOM/S TEMPTATION FOODS LTD. (TFL) IN NOVEMBER 2007 AND AN AGREEMENT WAS SIGNED ON NOVEMBER 7, 2007. THERE WAS NO OPEN TENDER FOR SALE OF FPU. M/S TEMPTATION FOODS LTD. IS A LISTED COMPANY AT STOCK EXCHANGES IN INDIA AND THERE IS NO COMMON PROMOTER SHAREHOLDING BETWEE N BOTH THE COMPANIES (CFCL & TFL). CFCL SOLD ALL ITS ASSETS (I NCLUDING FIXED ASSETS) AND LIABILITIES OF FPU TO TFL. THE FIXED ASSETS ALS O INCLUDED THE LAND AND THE FACTORY BUILDING LOCATED AT SONEPAT (HARYANA). THE SALE CONSIDERATION ON THE SLUMP SALE WAS TO BE COMPUTED BASED ON THE NET CURRENT ASSET (NCA) OF FOOD PROCESSING UNIT AS ON THE DATE OF SALE. AS THE FPU WAS IN OPERATION EVEN ON THE DATE OF ITS SA LE TO TFL, THE FINAL DETERMINATION OF NCA COULD NOT BE COMPLET ED ON THE DATE OF SALE AS ON NOVEMBER 7, 2007. THEREFORE, PROVISIONAL NCA WAS WORKED ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 35 OUT AS ON THE DATE OF SALE. THIS WAS BASED ON THE I NFORMATION AVAILABLE (I.E. FINISHED GOODS AS AT OCTOBER 31, 2007 AND OTH ER CURRENT ASSETS AND LIABILITIES AS AT SEPTEMBER 30, 2007) AND THE S ALE CONSIDERATION OF RS.23,59,15,000/- WAS DETERMINED BASED ON THE PROVI SIONAL NCA AS PER THE AGREEMENT SIGNED ON NOVEMBER 7, 2007. FOR THE PURPOSE OF VERIFICATION OF THE ACCOUNTS OF FPU AS ON NOVEMBER 7, 2007, CFCL AND TFL APPOINTED PROFESSIONAL ACCOUN TING FIRMS M/S V. SANKAR AIYAR & CO. AND GRANT THORNTON RESPECTIVELY AND ADVISED THEM TO SUBMIT A JOINT REPORT ON THE ASSETS AND LIABILIT IES OF FPU ON THE DATE OF SALE TRANSACTION. AS PER THE JOINT REPORT SUBMIT TED BY THEM, THE DETAILS OF CURRENT ASSETS AND CURRENT LIABILITIES W ERE PROVIDED AND NCA WAS WORKED OUT ON THE DATE OF SALE I.E. NOVEMBER 7, 2007. THERE WAS A REDUCTION IN NCA BY RS. 93,77,295/- AS AGAINST THE PROVISIONAL NCA, WHICH WAS CONSIDERED AT THE TIME OF AGREEMENT SIGNI NG ON NOVEMBER 7, 2007. A COPY OF THE REPORT SUBMITTED BY M/S V SANKA R AIYAR & CO. AND M/S GRANT THORNTON WAS PROVIDED DURING THE COURSE O F ASSESSMENT HEARING. FURTHER, ONE MORE ADJUSTMENT OF RS.2,19,25 0/- IN NCA WAS AGREED BY BOTH THE PARTIES TOWARDS ADDITIONAL EX-GR ATIA LIABILITY TOWARDS FPU EMPLOYEES. BASED ON THE ABOVE CHANGES IN NCA, A SUPPLEMENTARY AGREEMENT DATED MARCH 04, 2008 WAS ENTERED BETWEEN CFCL AND TFL ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 36 TOWARDS FINAL DETERMINATION OF THE SALE CONSIDERATI ON OF RS 22,63,18,455/-. THE PROVISIONS OF SECTION 50B OF THE IT ACT ARE APP LICABLE FOR COMPUTATION OF CAPITAL GAINS IN THE CASE OF SLUMP S ALE. AS REQUIRED BY THE PROVISIONS OF SECTION 50B, THE ASSESSEE HAS SUB MITTED A REPORT OF CHARTERED ACCOUNTANT IN THE FORM NO. 3CEA CERTIFYIN G THE COMPUTATION OF THE NET WORTH OF THE FOOD PROCESSING DIVISION AN D ITS CORRECTNESS.THE WORKING OF SHORT TERM CAPITAL GAIN OF RS. 1,35,21,4 15/- COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 50B OF TH E IT ACT IS AS UNDER:- PARTICULARS AMOUNT AMOUNT SALE CONSIDERATION AS PER BUSINESS PURCHASE AGREEMENT DATED 07.11.2007 23,59,15,000 FINAL SALE CONSIDERATION AS PER SUPPLEMENTARY AGREEMENT DATED 04.03.2008 A 22,63,18,455 LESS: AS PER FORM NO. 3CEA SUBMITTED VIDE LETTER DATED 29.10.2010 NET FIXED ASSETS AS PER DEPRECIATION CHART B 10,83,77,497 NET CURRENT ASSETS: I) LOANS AND ADVANCES 21,30,804 II) DEBTORS 38,11,632 III) INVENTORIES 11,42,37,621 TOTAL CURRENT ASSETS 12,01,80,057 LESS: CURRENT LIABILITIES (1,36,71,428) LESS: PROVISIONS (20,89,086) NET CURRENT ASSETS C 10,44,19,543 NET WORTH (B+C) D 21,27,97,040 ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 37 SHORT TERM CAPITAL GAIN (A-D) E 1,35,21,415 THE ASSESSEE THEREFORE SUBMITS BEFORE YOUR GOOD SEL F THAT THEY HAVE CORRECTLY COMPUTED SHORT TERM CAPITAL GAIN OF RS. 1 ,35,21,415/- ON SLUMP SALE OF FPU DIVISION IN ACCORDANCE WITH THE P ROVISIONS OF SECTION 50B OF THE IT ACT AS DESCRIBED ABOVE AND THE SAME H AS BEEN OFFERED FOR TAX AT REGULAR RATES. AS MENTIONED EARLIER, THE SALES CONSIDERATION WAS O RIGINALLY DECIDED AT RS.23,59,15,000/- IN PURSUANCE TO THE BUSINESS PURC HASE AGREEMENT DATED 07.11.2007. THE CONSIDERATION WAS SUBSEQUENTL Y REVISED TO RS.22,63,18,455/- VIDE SUPPLEMENTARY AGREEMENT DATE D 04.03.2008. HOWEVER, IN THE ASSESSMENT ORDER DATED 31.12.2010 T HE TOTAL SALE CONSIDERATION WAS TAKEN AT RS. 2359.15 LAC (AS PER ORIGINAL BUSINESS PURCHASE AGREEMENT), WHICH SHOULD HAVE BEEN RS. 226 3.18 LAC. THE ASSESSEE HAD PROVIDED COPIES OF BOTH THE AGREEMENTS VIZ. BUSINESS PURCHASE AGREEMENT DATED 07.11.2007 AND SUPPLEMENTA RY AGREEMENT DATED 04.03.2008 DURING THE ASSESSMENT PROCEEDINGS BUT DUE COGNIZANCE OF THE SECOND AGREEMENT WAS NOT TAKEN. FURTHER, THE BUSINESS OF FOOD PROCESSING UNIT WAS S OLD AS A GOING CONCERN ON A SLUMP SALE BASIS. ALL THE ASSETS (MOVA BLE AS WELL AS ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 38 IMMOVABLE) AND LIABILITIES RELATED TO THE SAID UNIT WERE SOLD TO THE M/S TEMPTATION FOODS LIMITED AND THE NET WORTH WAS COMP UTED AS PER THE PROVISIONS OF SECTION 50B OF THE INCOME TAX ACT, 19 61 (AS DETAILED OUT ABOVE). WHEREAS, FIXED ASSETS WHICH AS PER DEPRECIA TION CHART WERE RS. 1083.77 LAC WERE DEDUCTED WHILE COMPUTING CAPITAL G AIN IN THE ASSESSMENT ORDER BUT NO DEDUCTION WAS ALLOWED FOR N ET CURRENT ASSETS WHICH AGAIN IS AGAINST THE PROVISIONS OF LAW. THUS IN THE ASSESSMENT ORDER AND PROFIT ON SLUMP SA LE HAS BEEN WORKED OUT AS UNDER:- PARTICULARS AMOUNT IN RS. TOTAL SALES CONSIDERATION AS RECEIVED (AS PER ORIGINAL AGREEMENT) 2359.15 LACS LESS: WDV OF FIXED ASSETS AS PER DEPRECIATION CHART 1083. 77 LACS PROFIT ON SALE 1275.38 LACS IN THE ASSESSMENT ORDER, THE LD. ASSESSING OFFICER HAS MADE AN ADDITION OF RS. 11,48,87,000 COMPUTED AS UNDER:- RS.1275.38 LACS - RS.126.51 LACS (WRONGLY CONSIDERE D INSTEAD OF RS. 135.21 LACS) = RS. 1148.87 LACS. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 39 IT IS THUS HUMBLY SUBMITTED THAT THE ADDITION OF RS .1148.87 LACS MADE BY THE LD. ASSESSING OFFICER WHICH IS CLEARLY AGAIN ST THE PROVISIONS OF SECTION 50B MAY KINDLY BE DELETED. 43. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), WHO HAD DELETED THE ADDITION OF RS. 11,48,87,000/- BY OBSERVING AS UNDE R:- THE ASSESSEE DURING THE YEAR SOLD ITS FOOD PROCESS ING UNIT (FPU) ON SLUMP SALE BASIS AND COMPUTED THE CAPITAL GAIN U/S 50B. THE A.O. COMPUTED THE CAPITAL GAIN ON THE SAME AS UNDER:- I) TOTAL SALE CONSIDERATION AS RECEIVED RS. 2359.15 L ACS II) LESS: NET ASSETS OF FPU AS PER DEPRECIATION CHA RT RS. 1083.76 LACS III) PROFIT RS. 1275.38 LACS IV) LESS: CAPITAL GAIN ALREADY SHOWN RS. 126.51 L ACS V) ADDITION RS. 1148.87 LACS THE DIFFERENCE WAS DUE TO THE FACT THAT ASSESSEE TO OK SALE CONSIDERATION AT RS. 2263.18 LACS WHEREAS A.O. TOOK AT RS. 2359.15 LACS, SECONDLY, THE A.O. DID NOT ALLOW DEDU CTION OF NET CURRENT ASSETS. I HAVE GONE THROUGH THE ASSESSING OFFICERS ORDER A ND ASSESSEES SUBMISSION AND IT WAS SEEN THAT THE SALE CONSIDERATION WAS REVISED BY SUPPLEMENTARY AGREEMEN T DATED 04.03.2008 AND ACCORDINGLY THE SALE CONSIDERA TION HAS TO BE TAKEN AT RS. 2263.18 LACS, SECONDLY, AS P ER THE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 40 PROVISIONS OF SECTION 50B DEDUCTION FOR ALL OTHER A SSETS HAS TO BE ALLOWED AS PER BOOK VALUE. THE A.O. FAILED TO DO SO. IN VIEW OF THE ABOVE, THE A.O. IS DIRECTED TO DELET E THE ADDITION OF RS.11,48,87,000/-. 44. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD CIT DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFF ICER. 45. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS RE LIED ON THE ORDER OF THE LD. CIT(A). 46. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT I S NOT IN DISPUTE THAT THE ASSESSEE COMPANY HAS SOLD ITS FOOD PROCESSING U NIT SITUATED AT SONEPAT, HARYANA AS A GOING CONCERN ON A SLUMP SALE BASIS TO M/S TEMPTATION FOOD LTD. FURTHER, IT IS ALSO NOT DISPU TED THAT THE PROVISIONS OF SECTION 50B ARE APPLICABLE TO DETERMINE THE CAPI TAL GAINS ON THE SAID TRANSACTION. WHAT IS BEING DISPUTED IS THE VALUE O F SALE CONSIDERATION WHICH HAS BEEN AGREED BETWEEN THE TWO PARTIES. IN THIS REGARD, IT IS APPARENT FROM THE RECORDS THAT THE ASSESSEE HAS ENT ERED INTO TWO AGREEMENTS THE BUSINESS PURCHASE AGREEMENT DATED 07.11.2007 AND SUPPLEMENTARY AGREEMENT DATED 04.03.2008. AS PER T HE ASSESSEE, THE SALE CONSIDERATION ON THE SLUMP SALE WAS TO BE COMP UTED BASED ON THE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 41 NET CURRENT ASSET (NCA) OF FOOD PROCESSING UNIT AS ON THE DATE OF SALE. AS THE FPU WAS IN OPERATION EVEN ON THE DATE OF ITS SA LE TO TFL, THE FINAL DETERMINATION OF NCA COULD NOT BE COMPLETED O N THE DATE OF SALE AS ON NOVEMBER 7, 2007. THEREFORE, PROVISIONAL NCA WAS WORKED OUT AS ON THE DATE OF SALE AND SALE CONSIDERATION OF RS.23 ,59,15,000/- WAS DETERMINED BASED ON THE PROVISIONAL NCA AS PER THE AGREEMENT SIGNED ON NOVEMBER 7, 2007. SUBSEQUENTLY, AS PER THE JOINT REPORT SUBMITTED BY M/S V. SANKAR AIYAR & CO. AND GRANT THORNTON RES PECTIVELY ON THE ASSETS AND LIABILITIES OF FPU ON THE DATE OF SALE T RANSACTION, THERE WAS A REDUCTION IN NCA BY RS. 93,77,295/- AS AGAINST THE PROVISIONAL NCA, WHICH WAS CONSIDERED AT THE TIME OF ORIGINAL AGREEM ENT SIGNING ON NOVEMBER 7, 2007. FURTHER, ONE MORE ADJUSTMENT OF R S.2,19,250/- IN NCA WAS AGREED BY BOTH THE PARTIES TOWARDS ADDITION AL EX-GRATIA LIABILITY TOWARDS FPU EMPLOYEES. BASED ON THE ABOVE CHANGES I N NCA, A SUPPLEMENTARY AGREEMENT DATED MARCH 04, 2008 WAS EN TERED BETWEEN CFCL AND TFL TOWARDS FINAL DETERMINATION OF THE SAL E CONSIDERATION OF RS 22,63,18,455/-. THE ASSESSING OFFICER HAS TAKEN COGNIZANCE OF THE SUPPLEMENTARY AGREEMENT AND NOTED THAT PARA 4 OF TH E SAID AGREEMENT STATES THAT AFTER CONSIDERING THE FINAL VALUE OF N CA, THE SLUMP SALE CONSIDERATION WORKS OUT TO RS 22,63,18,455 AGAINST RS 23,59,15,000 AS ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 42 STATED IN THE BPA. ACCORDINGLY, THERE IS DIFFERENT IAL AMOUNT OF RS 95,96,545 PAYABLE IN FAVOUR OF THE PURCHASER. HAVI NG TAKEN COGNIZANCE OF THE SUPPLEMENTARY AGREEMENT, THE AO NOTED THAT S INCE INFORMATION COLLECTED U/S 133(6) FROM M/S TEMPTATION FOOD LIMIT ED TALKS ABOUT THE BUSINESS PURCHASE AGREEMENT EXECUTED ON 7 NOVEMBER 2007 FOR A SALE CONSIDERATION OF RS 23,59,15,000, HE PROCEEDED AND BROUGHT TO TAX THE ORIGINAL SALE CONSIDERATION OF RS 23,59,15,000 IGNO RING THE SALE CONSIDERATION OF RS 22,63,18,455 AS PER SUPPLEMENTA RY AGREEMENT. THE LD CIT(A) HAS ALSO GIVEN A FINDING THAT THE SALE CONSIDERATION WAS REVISED BY SUPPLEMENTARY AGREEMENT DATED 04.03.2008 AND ACCORDINGLY THE SALE CONSIDERATION HAS TO BE TAKEN AT RS. 2263. 18 LACS. THE QUESTION THAT ARISES FOR CONSIDERATION IS WHETHER THE EXISTENCE AND GENUINENESS OF THE SUPPLEMENTARY AGREEMENT CAN BE D OUBTED ON ACCOUNT OF THE REASON THAT THE PURCHASER HAS NOT IN DEPENDENTLY CONFIRMED THE SAME. IN OUR VIEW, IT IS ADVISABLE T O SEEK AN INDEPENDENT CONFIRMATION AND WE DONOT SEE ANYTHING WRONG IN THE ACTION OF THE AO IN SEEKING AN INDEPENDENT CONFIRMATION FROM THE PAR TY CONCERNED WHO HAS EXECUTED THE SUPPLEMENTARY AGREEMENT. HAVING S AID THAT WHERE THE AO WAS CEASED OF THE INFORMATION THAT ASSESSEE HAS ENTERED INTO A SUPPLEMENTARY AGREEMENT AND THE BUYER HAS ONLY CONF IRMED THE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 43 EXISTENCE OF THE ORIGINAL BUSINESS PURCHASE AGREEME NT, THE BURDEN OF PROOF LIES ON WHOM. IN OUR VIEW, THE AO SHOULD HAV E CONFRONTED THE ASSESSEE ABOUT THE INFORMATION COLLECTED U/S 133(6) FROM THE BUYER AND SECONDLY, THE AO SHOULD HAVE SOUGHT FURTHER INFORMA TION FROM THE BUYER SPECIFICALLY ASKING ABOUT THE EXISTENCE OF THE SUPP LEMENTARY AGREEMENT. THERE IS NOTHING ON RECORD TO SUGGEST SUCH DISCHARG E OF BURDEN BY THE REVENUE. FURTHER, THERE IS NOTHING ON RECORD TO SUG GEST THAT LD CIT(A) HAS CALLED FOR A REMAND REPORT FROM THE AO IN THIS REGARD OR THE ASSESSEE COMPANY HAS SUBMITTED ANY CONFIRMATION FRO M THE BUYER ABOUT THE EXISTENCE OF THE SUPPLEMENTARY AGREEMENT OR SUBMITTED THAT THE AGREEMENT IS REGISTERED. WE ACCORDINGLY SET-ASI DE THE MATTER TO THE FILE OF THE AO FOR A LIMITED PURPOSE OF EXAMINATION OF EXISTENCE OF THE SUPPLEMENTARY AGREEMENT ENTERED INTO BETWEEN THE AS SESSEE COMPANY AND M/S TEMPTATION FOOD LIMITED. THE SECOND AREA OF DISPUTE RELATES TO WHETHER FOR C OMPUTATION OF CAPITAL GAINS UNDER SECTION 50B, WHETHER VALUE OF N ET CURRENT ASSETS WHICH HAVE BEEN TRANSFERRED TO BE CONSIDERED OR NOT . UNDISPUTEDLY, THE FOOD PROCESSING UNIT HAS BEEN SOLD AS A GOING CONCE RN ON A SLUMP SALE BASIS AND THE APPLICABILITY OF SECTION 50B HAS NOT BEEN DISPUTED BY THE REVENUE. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 44 AS PER THE PROVISIONS OF SECTION 50B, ANY PROFIT OR GAINS ARISING FROM THE SLUMP SALE EFFECTED IN THE PREVIOUS YEAR SHALL BE C HARGEABLE AS LONG TERM CAPITAL GAINS OR SHORT TERM CAPITAL GAIN, AS T HE CASE MAY BE DEPENDING ON THE HOLDING PERIOD, AND SHALL BE DEEME D TO BE THE INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER TOOK PLA CE. IN A SLUMP SALE THE NET WORTH OF THE UNDERTAKING OR THE DIVISION IS TO BE TAKEN AS COST OF ACQUISITION. AS PER EXPLANATION 2, THE NET WORTH FOR THIS PURP OSE IS THE AGGREGATE VALUE OF THE TOTAL ASSETS OF THE UNDERTAKING/DIVISI ON AS REDUCED BY THE VALUE OF LIABILITIES OF SUCH UNDERTAKING/DIVISION A S APPEARING IN THE BOOKS OF ACCOUNT. THE AGGREGATE VALUE OF TOTAL ASSE TS OF SUCH UNDERTAKING/DIVISION SHALL BE: (A) WRITTEN DOWN VALUE OF BLOCK OF ASSETS DETERMIN ED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SUB-ITEM (C) OF SE CTION 43(6)(C)(I) IN THE CASE OF DEPRECIABLE ASSETS AND (B) THE BOOK VALUE FOR ALL OTHER ASSETS. IN LIGHT OF THIS, WE CONFIRM THE FINDING OF LD CIT( A) THAT AS PER THE PROVISIONS OF SECTION 50B DEDUCTION FOR ALL OTHER A SSETS HAS TO BE ALLOWED AS PER BOOK VALUE AND DIRECT THE AO TO ALL OW RS 10,44,19,543 ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 45 AS COST OF ACQUISITION WHILE WORKING OUT THE CAPITA L GAINS IN THE HANDS OF THE ASSESSEE. THE GROUND OF THE REVENUE IS THUS PARTLY ALLOWED FO R STATISTICAL PURPOSES. 47. NOW WE TAKE THE ASSESSEES APPEAL AS WELL AS ON E OF THE GROUND OF THE REVENUES APPEAL. THE 1 ST GROUND OF THE ASSESSEES APPEAL IS AGAINST MAINTAI NING THE DISALLOWANCE OF RS. 3,62,55,540/- OUT OF AMOUNT CLA IMED U/S 80IA IN RESPECT OF CAPTIVE POWER PLANT INDUSTRIAL UNDERTAKI NG ON THE GROUND OF EXCESS PRICE OF SALE OF POWER RS. 64,02,938/-, UNDE RSTATED COST OF GAS RS.20,83,589/- AND PRESUMED EXPENSES OF RS. 2,77,69 ,013/- RELATED TO RECOVERY IN HRSG. THE REVENUES GROUND IS AGAINST THE ACTION OF THE LD CIT(A) IN ALLOWING DEDUCTIONS U/S 80IA ON CAPTIVE P OWER PLANT CLAIMED BY THE ASSESSEE AT RS.41,59,57,420/-. THE ASSESSING OFFICER HAS OBSERVED THAT IN THE COMP UTATION OF INCOME FILED ALONGWITH THE RETURN OF INCOME, THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION U/S 80IA OF THE ACT ON THE CAPTIVE POWER PLANT AT RS. 41,59,57,420/-. THE ASSESSEE COMPANY WAS REQUESTED TO FURNISH THE DETAILS, FOR WHICH THE ASSESSEE COMPANY HAS FURNISH ED REPLY VIDE POINT NO. 7 OF LETTER DATED 29/10/2010 AND 30/12/2010, WH ICH IS REPRODUCED ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 46 AT PAGE NO. 6 TO 13 OF THE ASSESSMENT ORDER. THE AS SESSING OFFICER HAS FURTHER OBSERVED THAT ON PERUSAL OF THE RETURN OF I NCOME FILED, IT IS SEEN THAT THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION @ 1 00% OF THE INCOME ATTRIBUTABLE TO THE POWER GENERATION PLANT. IT IS CLAIMED THAT THE POWER GENERATION PLANT HAS BEEN INSTALLED TO GENERA TE POWER TO BE CONSUMED ENTIRELY BY THE ASSESSEE COMPANY ITSELF ON CAPTIVE BASIS IN THE MANUFACTURING ACTIVITIES I.E. FOR RUNNING THE F ERTILIZERS PLANT. THE ASSESSEE HAS CLAIMED DEDUCTION BY AVERRING THAT EVE N IN RESPECT OF A PLANT OF WHICH THE PRODUCTION IS ENTIRELY CONSUMED, THE DEDUCTION CAN BE CLAIMED, AS THERE IS NO EXPRESS BAR IN THE ACT. AS PER THE REPLY OF THE ASSESSEE COMPANY, THE POWER PLANT IS A SEPARATE UNIT AND HAS STARTED GENERATION OF POWER DURING THE F.Y. 1993-94 RELEVANT TO THE A.Y. 1994-95. THERE IS NO INDICATIO N IN ANY OF THE RETURNS OF INCOME STARTING FROM A.Y. 1994-95 THAT CAPTIVE P OWER PLANT WAS EVER A SEPARATE POWER PLANT. NO SEPARATE BOOKS OF ACCOUN TS ARE BEING MAINTAINED FOR THIS UNIT SO THAT THE GROSS TOTAL IN COME OF THE UNIT COULD BE VERIFIED. THE WORKING OF THE PROFIT ATTRIBUTABLE TO THE PLANT HAS BEEN MADE ON THE BASIS OF THE MARKET VALUE COMPUTED AS P ER JWNL INVOICES. APPARENTLY THE ASSESSEE WAS NOT DERIVING ANY INCOME FROM THE INDUSTRIAL UNDERTAKING (THE CAPTIVE POWER PLANT) TO BE ENTITLED FOR THE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 47 CLAIM OF DEDUCTION U/S 80IA. THEREFORE, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY WAS AS KED TO JUSTIFY ITS CLAIM IN THE FIGHT OF THE PROVISIONS OF THE INCOME TAX ACT. THE ASSESSEE FURTHER ARGUED THAT AS PER SECTION 80IA(2), THIS CL AIM IS CORRECT FOR WHICH IT HAS ALSO FILED SEPARATE WORKING OF PROFIT AS REQUIRED. ALL THE ARGUMENTS OF THE ASSESSEE COMPANY HAVE BEEN CONSIDERED CAREFULLY BUT ARE NOT FOUND TO BE CORRECT FOR THE REASONS THAT THE ISSUE OF DEDUCTION U/S 80IA HAS BEEN VERIFIED M ACCORDANC E TO THE LEGAL AS WELL AS FACTUAL ASPECT OF THE CLAIM AND IT HAS BEEN HELD THAT NEITHER THE ASSESSEES CAPTIVE POWER PLANT CAN BE SAID TO BE AN INDEPENDENT INDUSTRIAL UNDERTAKING ENTITLED FOR THE DEDUCTION N OR HAS ANY PROFIT BEEN DERIVED FROM IT SO AS TO BE ENTITLED FOR THE DEDUCT ION U/S 80IA OF THE IT ACT. FURTHER, EARNING OF INCOME, IF ANY, CAN BE FRO M OTHERS AND NO INCOME CAN BE EARNED BY DEALING WITH ONE SELF AS HE LD IN NUMEROUS CASES BY VARIOUS COURTS. IT MAY AT THE MOST BE A SA VING ONLY OR HELPFUL IN SMOOTH AND EFFICIENT RUNNING OF PLANT AS OTHER P ARTS OF THE PLANT. THIS ISSUE HAS BEEN DISCUSSED IN VERY DETAIL DURING THE A.Y. 2003-04. THE FACTUAL AND LEGAL POSITION, AS FOUND DURING THE ASS ESSMENT PROCEEDINGS FOR THE A.Y. 2003-04 EXCEPT FOR THAT DURING THE YEA R AN ATTEMPT HAS BEEN MADE BY FILING SEPARATE P&L ACCOUNT AND BALANC E SHEET FOR THIS ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 48 PLANT. SALES OF POWER PLANT HAS BEEN BASED ON THE R ATE OF POWER PURCHASED FROM JAIPUR VIDHYUT VITRAN NIGAM LTD. (NE T OF DUTIES) MULTIPLIED BY NUMBER OF OWN GENERATED UNITS AVAILAB LE FOR DISTRIBUTION FOR THE YEAR. MOREOVER, IF THE PRODUCTION OF UNIT W AS SEPARATELY CONSIDERED, THEN IT WAS LIABLE FOR DUTIES & OTHER T AXES APPLICABLE FOR SUCH GENERATION OF POWER WHICH IS ADMITTEDLY NOT FO UND TO BE PAID. THUS, THE FACTS ARE IN PARI MATERIA WITH THE POSITION IN THE CURRENT YEAR AS WELL AND HENCE THE FINDINGS GIVEN THERE APPLY MUTATIS MUTANDIS IN THE YEAR UNDER CONSIDERATION ALSO. IN THIS REGARD, THOUGH THE CIT(A) HAS ALLOWED THE DEDUCTION UNDER SECTION 80IA IN THE ASS ESSMENT YEAR 2004- 05 BUT THE DEPARTMENT HAS GONE IN FURTHER APPEAL BE FORE HONBLE ITAT ON THIS ISSUE. IT IS ALSO NOTED THAT THE HONBLE IT AT HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE COMPANY FOR THE ASS ESSMENT YEARS 1999-00 & 2000-01, HOWEVER THE DEPARTMENT HAS PREFE RRED FURTHER APPEAL U/S 260A ON THIS ISSUE WITH THE HIGH COURT. THEREFORE IN VIEW OF THE ABOVE FACTS, THE CLAIM OF RS.41,59,57,420/- U/S 80IA IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 48. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), WHO HAD RESTRICTED ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 49 THE DEDUCTION TO RS. 37,97,01,880/- INSTEAD OF RS. 41,59,57,420/- BY OBSERVING AS UNDER:- 4.22 THE A.O. DISALLOWED CLAIM OF RS. 41,59,57,420 /- U/S 80IA ON THE GROUND THAT ASSESSEE CANNOT EARNED INCOME FR OM ITSELF AND ALSO FOLLOWING THE PAST HISTORY OF THE C ASE. IN THIS CASE, THE ISSUE HAS BEEN ANALYZED BY HONB LE ITAT AND IN EARLIER YEARS THE ISSUE WAS DECIDED IN FAVOUR OF ASSESSEE. FROM THE LANGUAGE OF SECTION 80IA(8), IT IS CLEAR THAT SECTION 80IA(8) CONTEMPLATES A SITUATION WHERE ONE UNIT OF ASSESSEE IS DOING ELIGIBLE BUSINESS AND THE GOODS/SERVICES ARE SUPPLIED TO OTHER UNIT. IN SUCH SITUATION, SECTION 80IA(8) PROVIDES THAT PROFITS OF THE UNIT SHALL BE COMPUTED AS IF THE TRANSFER HAD BEEN MADE AT THE MARKET VALUE OF SUCH GOODS. IN VIEW OF THE ABOVE, IT IS HELD THAT ASSESSEE WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA. I HAVE EXAMINED THE FACTS AND I HAVE ALREADY HELD THAT ASSESSEE WAS ENTITLED FOR DEDUCTION U/S 80IA, HOWEV ER, IN MY OPINION, THE QUANTUM OF DEDUCTION U/S 80IA NEEDED DETAILED EXAMINATION FOR THE REASON THAT ASSESSEE HAS CLAIMED PROFIT OF RS. 41,59,57,420/- O N SALE [DEEMED SALE U/S 80IA(8)] OF RS. 71.54 CRORE GIVING NET PROFIT RATE OF 58.14%. ACCORDINGLY, I EXAMINED THE DETAILS IN RELATION TO PROFIT OF CAPTIVE POWER PLAN T AND THE SAME IS DISCUSSED HEREUNDER:- MARKET VALUE OF GOODS (ELECTRICITY) SUPPLIED BY ASS ESSEE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 50 AS PER EXPLANATION TO SECTION 801 A(8), THE MARKET VALUE IN RELATION TO GOODS OR SERVICES MEANS THE PRICE TH AT SUCH GOODS OR SERVICES WOULD FETCH IN THE OPEN MARKET. T HE ASSESSEE TOOK THIS VALUE EQUAL TO RS. 4.52 PER UNIT ON THE BASIS THAT ASSESSEE WAS PURCHASING POWER FROM JAIPU R VIDHYUT VITRAN NIGAM LTD. AT THIS PRICE (EXCLUDING TAXES). HOWEVER, THIS PRICE CANNOT BE TREATED AS MARKET VAL UE AS THIS REPRESENTS PURCHASE PRICE BY THE ASSESSEE BUT DOES NOT REPRESENT SALE PRICE IN THE OPEN MARKET AS CONTEMPLATED IN SECTION 80IA(8). ACCORDINGLY, THE ASSESSEE WAS ASKED WHY THE SALE P RICE BE NOT TAKEN AT LONG TERM POWER SUPPLY PRICE GIVEN BY VARIOUS PROMINENT SUPPLIERS (ADANI, GMR, INDIA BULL S ETC.). THE ASSESSEE IN HIS REPLY EXPLAINED THAT CENTRAL ELECTRICITY REGULATORY COMMISSION (CERC) PROMOTES TRADING OF ELECTRICITY AND AS PER THE ANNUAL REPORT OF CERC AVERAGE SALE PRICE OF ELECTRICITY WAS RS. 4.52 PER KWH. HOWEVER, IT WAS SEEN THAT AS PER THE SAME DOCUMENT THE AVERAGE PURCHASE PRICE WAS RS. 4.48 PE R KWH. CONSIDERING THE ABOVE, THE AVERAGE PURCHASE PRICE OF ELECTRICITY AS PER THE ANNUAL REPORT OF CERC CAN BE TAKEN AS SALE PRICE IN OPEN MARKET. ACCORDINGLY, FOR CALC ULATING PROFITS OF CAPTIVE POWER PLANT THE TRANSFER PRICE O F ELECTRICITY U/S 80IA(8) IS TAKEN AT RS. 4.48 PER KW H. THIS ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 51 RESULTED IN EXCESS CLAIM OF SALE PRICE OF POWER BY RS. 64,02,938/-. COST OF GAS CONSUMED IT WAS SEEN THAT IN THE ANNUAL REPORT FOR THE F.Y. 2007- 08, THE ASSESSEE HAS SHOWN THE FOLLOWING FIGURES:- ELECTRICITY GENERATED THROUGH STREAM TURBINE / GEN ERATOR QUALITY 160073.44 MWH UNIT PER SM 3 OF GAS 2.57 KWH/ SM 3 COST PER UNIT 2.62 RS./KWH FROM THE ABOVE, THE ASSESSEE WAS ASKED TO THE FOLL OWING DISCREPANCIES:- (I). (A). 1 UNIT OF GAS IN SM 3 PRODUCES =2.57 KWH OF POWER (B). SO 1 KWH OF POWER IS GENERATED = 1 SM 3 OFGAS 2.57 (C). SO FOR 1,60,073,440.KWH = 160073440 WILL REQUIRE 2.57 = 6,22,85,385 SM 3 OF GAS (D). COST OF GAS = 62285385 X 6837.76 1000 = RS. 42,58,92,514/- SO AS PER ANNUAL REPORT, THE CONSUMPTION OF GAS SHO ULD HAVE BEEN RS. 42.59 CRORES AS AGAINST THIS IN THE P ROFIT & LOSS ACCOUNT OF CAPTIVE POWER PLANT. IT WAS SHOWN A T RS. 24,07,65,759/-. THUS, PROFIT OF CAPTIVE POWER PLANT APPEARED TO BE OVER-STATED BY RS. 18,51,26,755/- [R S. 42,58,92,514 - RS. 24,07,65,759], THE ASSESSEE WAS ASKED TO EXPLAIN THE SAME. THE ASSESSEE IN HIS REPLY SUBMITTED THAT THE GAS CONSUMPTION SHOWN IS THE TOTAL GAS CONSUMED IN PRODUCING THE ELECTRICITY AND EXHAUST GASES, AND TH E ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 52 ASSESSEE RECOVERS ENERGY FROM THE EXHAUST GASES BY USING HRSG (HEAT RECOVERY STEAM GENERATOR). THE ASSESSEE THAT ASSESSEE RECOVERS 240971.49 MKCAL FRO M HRSG WHICH IS EQUAL TO 27106164 SM 3 OF NATURAL GAS. HOWEVER, AS PER THE DETAILS FURNISHED BY ASSESSEE B Y RECONCILING THE ENERGY CONSUMED ON STEAM GENERATION AND RECOVERY FROM CAPITAL POWER PLANT / HRSG THE RECOVERY FROM HRSG WAS EQUIVALENT TO 26801446 SM 3 OF NATURAL GAS. THUS, ASSESSEE HAS OVER CALCULATED THE RECOVERY FROM HRSG BY 304718 SM 3 OF NATURAL GAS THIS RESULTED IN UNDERSTATEMENT OF COST OF GAS CONSUMED IN CAPTIVE POWER PLANT BY RS. 20,83,589/- (DETAILED WO RKING OF PROCESS IS PLACED ON RECORD WHICH IS HIGHLY TECH NICAL). THE ASSESSEE CLAIMED THAT STEAM WORTH RS. 18,51,26,755/- WAS GENERATED THROUGH HRSG BY RECOVERING ENERGY FROM EXHAUST OF TURBINE OF CAPTIV E POWER PLANT, HOWEVER, NO EXPENDITURE OF HRSG WAS ATTRIBUTED TO THE SAME. IN MY OPINION, FOR RECOVERY OF ENERGY IN HRSG SUM EXPENDITURE MUST HAVE BEEN INCURRED TO RECOVER SUCH HUGE AMOUNT OF ENERGY. IN MY OPINION AT LEAST 15% OF THE ABOVE AMOUNT CAN BE ATTRIBUTED TO RECOVERY OF ENERGY WORTH RS. 18,51,26,755/-. THIS AMOUNT COMES TO RS. 2,77,69,01 3/-. IT IS HELD THAT ASSESSEE HAS UNDER STATED THE EXPEN DITURE BY THIS AMOUNT ALSO. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 53 CONCLUSION THE ASSESSEE CLAIMED EXCESS PRICE OF SALE OF POWER BY RS. 64,02,938/- AND UNDER STATED THE COST OF GAS BY RS. 20,83,589/- AND EXPENSES OF RS. 2,77,69,013/- RELAT ED TO RECOVERY IN HRSG WERE NOT PROVIDED. THIS RESULTED I N EXCESS CLAIM OF 80IA BY RS. 3,62,55,540/-. ACCORDINGLY, THE DEDUCTION U/S 80IA IS RESTRICTED T O RS. 37,97,01,880/-. THIS GROUND OF APPEAL IS THEREFORE PARTLY ALLOWED. 49. NOW THE ASSESSEE AS WELL AS THE REVENUE IS IN APPEA L BEFORE US. THE LD. AR OF THE ASSESSEE HAS REITERATED THE ARGUM ENTS MADE BEFORE THE LD. CIT(A) AND SUBMITTED THAT THIS IS THE TENTH YEAR OF CLAIM AND THE HONBLE ITAT, JAIPUR BENCH IN ASSESSEES OWN CASE F OR THE ASSESSMENT YEAR 1999-2000 AND FOR THE SUBSEQUENT ASSESSMENT YE ARS UP TO A.Y. 2007-08 HAS HELD THAT THE DEDUCTION U/S 80IA WOULD BE ALLOWABLE TO THE APPELLANT IN RESPECT OF THE CAPTIVE POWER PLANT. TH EREFORE, HE PRAYED TO ALLOW THE APPEAL ON THIS GROUND. FURTHER, IN RESPECT OF DETERMINATION OF MARKET VALU E OF ELECTRICITY CAPTIVELY SUPPLIED, THE LD AR REFERRED TO THE DECIS ION OF THE COORDINATE BENCH OF THE TRIBUNAL IN CASE OF ADDITIONAL CIT VS JINDAL STEEL AND POWER LTD (16 SOT 509) WHERE IT WAS HELD AS UNDER: ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 54 15. THEREFORE, FROM THE AFORESAID, IT CAN BE DEDUC ED THAT MARKET VALUE IS AN EXPRESSION WHICH DENOTES A PRICE ARRIVED AT BETWEEN THE BUYER AND THE SELLER IN THE OPEN MARKET WHEREIN THE TRANSACTIONS TAKE PL ACE IN THE NORMAL COURSE OF TRADING AND COMPETITION IN CONTRAST TO A SITUATI ON WHERE THE PRICE IS FIXED BETWEEN A BUYER AND A SELLER IN A NEGOTIATION DONE UNDER THE SHADOW OF LEGISLATIVELY MANDATED COMPULSION. IN THE CASE OF T HE FORMER, THE PRICE FIXED BETWEEN THE BUYER AND SELLER CAN BE UNDERSTOOD AS D ENOTING MARKET PRICE SINCE THE ELEMENTS OF TRADING AND COMPETITION EXIST . WHEREAS IN THE CASE OF THE LATTER SITUATION, THE PRICE FIXED BETWEEN THE B UYER AND SELLER CANNOT BE UNDERSTOOD AS DENOTING THE MARKET PRICE SINCE THE E LEMENTS OF TRADE AND COMPETITION ARE CONSPICUOUS BY THEIR ABSENCE. 16. TO UNDERSTAND THE CONTRASTING SITUATIONS, LET U S ANALYZE THE SITUATION ON HAND. IN THIS CASE, THE ASSESSEE RECEIVED CONSENT U NDER SECTION 44A OF THE ELECTRICITY (SUPPLY) ACT, 1948 TO ESTABLISH AND OPE RATE THE CAPTIVE POWER PLANT IN TERMS OF A POWER PURCHASE-CUM-WHEELING OF POWER AGREEMENT DATED 15-7- 1999 ENTERED BETWEEN THE STATE ELECTRICITY BOARD AN D THE ASSESSEE. A COPY OF THE SAID AGREEMENT HAS BEEN PLACED IN THE PAPER BOO K. NOW, IN TERMS OF THE ELECTRICITY (SUPPLY) ACT, 1948, THE LEGISLATURE HAS PUT RESTRICTIONS ON ESTABLISHMENT OF POWER GENERATING UNITS AND THEIR F UNCTIONING. THE POWER GENERATING UNITS ARE ALLOWED TO USE POWER FOR CAPTI VE CONSUMPTION AND THE SURPLUS AVAILABLE, IF ANY, IS TO BE SOLD TRANSFERRE D TO THE STATE ELECTRICITY BOARDS. SECTION 43 OF THE ELECTRICITY (SUPPLY) ACT, 1948 ONLY AUTHORIZES THE STATE ELECTRICITY BOARD TO ENTER INTO ARRANGEMENTS FOR PURCHASE AND SALE OF ELECTRICITY UNDER CERTAIN CONDITIONS. SECTION 43A O F THE ELECTRICITY (SUPPLY) ACT, 1948 ALSO LAYS DOWN RULES AND CONDITIONS FOR DETERM INING THE TARIFF FOR THE SALE OF ELECTRICITY BY A GENERATING COMPANY TO THE STATE ELECTRICITY BOARDS. A PERUSAL OF THE SAME REVEALS THAT THE TARIFF IS DETE RMINED ON THE BASIS OF VARIOUS PARAMETERS CONTAINED THEREIN. FROM THE AFOR ESAID, IT IS EVIDENT THAT ON ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 55 ONE HAND IT IS ONLY UPON GRANTING OF SPECIFIC CONSE NT THAT A PRIVATE PERSON CAN SET UP A POWER GENERATING UNIT HAVING RESTRICTIONS ON THE USE OF POWER GENERATED AND AT THE SAME TIME THE TARIFF AT WHICH A POWER GENERATING UNIT CAN SUPPLY POWER TO THE ELECTRICITY BOARD IS ALSO L IABLE TO BE DETERMINED IN ACCORDANCE WITH THE STATUTORY REQUIREMENTS. IN THIS CONTEXT IT CAN BE SAFELY DEDUCED THAT DETERMINATION OF TARIFF BETWEEN THE AS SESSEE AND THE BOARD CAN BE SAID TO BE AN EXERCISE BETWEEN A BUYER AND SELLE R NEITHER IN A COMPETITIVE ENVIRONMENT AND NOR IN THE ORDINARY COURSE OF TRADE AND BUSINESS. IT IS AN ENVIRONMENT WHERE ONE OF THE PLAYERS HAS THE COMPUL SIVE LEGISLATIVE MANDATE NOT ONLY IN THE REALM OF ENFORCING BUYING BUT ALSO TO SET THE BUYING TARIFF IN TERMS OF PRESET STATUTORY GUIDELINES. THEREFORE, TH E PRICE DETERMINED IN SUCH A SCENARIO CANNOT BE EQUATED WITH A SITUATION WHERE THE PRICE IS DETERMINED IN THE NORMAL COURSE OF TRADE AND COMPETITION. THER EFORE, THE PRICE DETERMINED AS PER THE POWER PURCHASE AGREEMENT CANN OT BE EQUATED WITH MARKET VALUE AS UNDERSTOOD IN COMMON PARLANCE. WE S EE NO REASON FOR NOT HOLDING SO FOR THE PURPOSES OF SECTION 80-IA(8) ALS O. 17. IN THIS BACKGROUND, WE MAY MAKE A GAINFUL REFERENC E TO THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CAIT V.MANMATHA NATH MUKHERJEE [1958] 34 ITR 567, WHICH HAS BEEN RELIED ON BY THE ASSESSEE BEFORE US. THE ISSUE BEFORE THE HONBLE CALCUTTA HI GH COURT WAS IN THE CONTEXT OF THE BENGAL AGRICULTURAL INCOME-TAX ACT, 1944. SHORN OF OTHER DETAILS, THE QUESTION CONSIDERED BY THE HONBLE HIG H COURT, RELEVANT FOR THE PRESENT, WAS WHETHER THE PROCUREMENT RATE OF PADDY OFFERED BY THE STATE COULD BE CONSIDERED TO BE THE MARKET VALUE OF PADDY . IN THIS BACKGROUND, THE FOLLOWING OBSERVATIONS OF THE HONBLE HIGH COURT AR E WORTHY OF NOTICE: 'A MARKET CONNOTES FREEDOM OF BARGAIN. THERE MAY BE A MARKET, COMPLETELY CIRCUMSCRIBED AS REGARDS THE RATES BY PRICE CONTROL , BUT WITHIN THE LIMIT SET BY ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 56 THE RELEVANT RULE OR ORDER, THE AREA OF OPERATION W OULD STILL BE A COMMERCIALLY FREE AREA. EVEN WHERE A CONTROL PRICE IS FIXED, IT IS GENERALLY THE CEILING WHICH IS FIXED AND NOT AN INVARIABLE PRICE. BE THAT AS IT MAY, TO SAY THAT WHEN AGENTS OF THE STATE SEIZE PADDY GROWN BY SUBJECTS UNDER TH E AUTHORITY OF SOME LAW OR REGULATION AND PAY FOR IT AT SOME RATE FIXED BY THEMSELVES AND MUCH BELOW THE RATE IN THE OPEN MARKET, THEY CREATE A REGULATE D OR ANY KIND OF MARKET AT ALL, IS IF I MAY BE PERMITTED TO USE THE STRONG EXP RESSION, A MISUSE OF LANGUAGE. THE TRIBUNAL EVEN SPEAK OF THE PERSONS WH OSE PADDY IS SEIZED AS 'OPERATING' IN THE REGULATED MARKET. HOW ANY PERSON WHO IS SEIZED BY THE NECK AND COMPELLED TO DELIVER HIS PADDY AND THEN DI SMISSED WITH A TRIVIAL SUM AS ITS PRICE CAN BE SAID TO OPERATE IN THE MARKET I S BEYOND MY COMPREHENSION.' FROM THE AFORESAID, AN ANALOGY THAT CAN BE SAFELY D EDUCED IS THAT THE MARKET VALUE CANNOT BE THE RESULT OF A TRANSACTION WHICH H AS BEEN ENTERED INTO BETWEEN A BUYER AND A SELLER IN A SITUATION WHERE O NE OF THE PARTIES IS CARRYING THE COMPULSIVE MANDATE OF THE LEGISLATURE. THE SITUATION BEFORE US IS SUCH WHEREIN THE AFORESAID ANALOGY CAN BE USEFULLY APPLIED. AS WE HAVE SEEN EARLIER, THE PRICE AT WHICH THE POWER IS SUPPLIED B Y THE ASSESSEE TO THE BOARD IS DETERMINED ENTIRELY BY THE BOARD IN TERMS OF THE STATUTORY REGULATIONS. SUCH A PRICE CANNOT BE EQUATED WITH THE MARKET VALUE AS UNDERSTOOD FOR THE PURPOSES OF SECTION 80-IA(8) OF THE ACT. THE STAND OF THE REVENUE TO THE AFORESAID EFFECT CANNOT BE APPROVED. 18. HAVING HELD SO, THE NATURAL COROLLARY IS TO ASC ERTAIN WHETHER THE PRICE RECORDED BY THE ASSESSEE AT RS. 3.72 PET UNIT CAN B E CONSIDERED TO BE THE MARKET VALUE FOR THE PURPOSES OF SECTION 80-IA(8) O F THE ACT. THE ANSWER, TO OUR MIND, IS IN THE AFFIRMATIVE. THIS IS FOR THE RE ASON THAT THE ASSESSEE AS AN INDUSTRIAL CONSUMER IS ALSO BUYING POWER FROM THE B OARD AND THE BOARD ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 57 SUPPLIES SUCH POWER AT THE RATE OF RS. 3.72 PER UNI T TO ITS CONSUMERS. THIS IS THE PRICE AT WHICH THE CONSUMERS ARE ABLE TO PROCUR E THE POWER. WE MAY CONSIDER HYPOTHETICAL SITUATION AS WELL. HAD THE AS SESSEE NOT BEEN SADDLED WITH RESTRICTIONS OF SUPPLYING SURPLUS POWER TO THE STATE ELECTRICITY BOARD, IT WOULD HAVE SUPPLIED POWER TO THE ULTIMATE CONSUMERS AT RATES SIMILAR TO THOSE OF THE BOARD OR SUCH OTHER COMPETITIVE RATES, MEANING THEREBY THAT PRICE RECEIVED BY THE ASSESSEE WOULD BE IN THE VICI NITY OF RS. 3.72 PER UNIT I.E. CHARGED BY THE BOARD FROM ITS INDUSTRIAL CONSUMERS/ USERS. THUS, UNDER THE GIVEN CIRCUMSTANCES, IT WOULD BE IN THE FITNESS OF THINGS TO HOLD THAT THE CONSIDERATION RECORDED BY THE ASSESSEES UNDERTAKIN G GENERATING ELECTRIC POWER FOR TRANSFER OF POWER FOR CAPTIVE CONSUMPTION AT THE RATE OF RS. 3.72 PER UNIT CORRESPONDS TO THE MARKET VALUE OF POWER. THEREFORE, ON THIS ASPECT, WE UPHOLD THE STAND OF THE ASSESSEE AND SET ASIDE O RDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW RELIEF TO THE ASSESSEE UNDER SECTION 80-IA AS CLAIMED. ASSESSEE SUCCEEDS ON THIS GROUND. THE LD AR FURTHER REFERRED TO THE DECISION OF THE C OORDINATE BENCH OF THE TRIBUNAL IN CASE OF WEST COAST PAPER MILLS LTD VS A DDITIONAL CIT (33 ITR(TRIB) 560) WHERE IT WAS HELD AS UNDER: 32. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUS ED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAS WORKED OUT THE NOTIONAL SALE OF POWER SUPPLIED BY ITS POWER UNIT TO ITS PAPER DIVISION AT RS. 5.80 PER UNIT. THIS WA S ON THE BASIS OF AVERAGE ACTUAL GRID CHARGES CHARGED BY THE KARNATAKA ELECTR ICITY BOARD FOR SUPPLYING THE ELECTRICITY TO THE ASSESSEE. THIS WAS SHOWN FRO M THE AMOUNT OF THE BILL AND THE TOTAL NUMBER OF UNITS CONSUMED. FROM THE SA ID BILLS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE IS PAYING FUEL EXCA VATION CHARGES, TAXES, ETC., WHICH SHOULD BE REDUCED FOR WORKING OUT THE AVERAGE PRICE PER UNIT FOR ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 58 WORKING OUT THE SALE PRICE OF THE ELECTRICITY SUPPL IED BY ITS POWER UNIT TO THE PAPER DIVISION. BESIDES THIS, HE HAS ALSO APPORTION ED INDIRECT EXPENSES ON THE BASIS OF THE TOTAL TURNOVER FOR QUANTIFYING THE DED UCTION UNDER SECTION 80-IA CLAIMED BY THE ASSESSEE IN RESPECT OF POWER UNITS N OS.3, 4 AND 5. THIS APPORTIONMENT OF INDIRECT EXPENSES IS A SEPARATE GR OUND WHICH IS GROUND NO. 9 AND THE SAME SHALL BE DISCUSSED SUBSEQUENTLY. THE BASIC ISSUE IN GROUND NO. 8 IS WHAT SHOULD BE THE TRANSFER PRICE FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER SECTION 80-IA WITHIN THE AMBIT AND PARAMETER OF SUB-SECTION (8) OF SECTION 80-IA. SECTION 80-IA(8), PROVIDES TH AT, WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSES OF ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE, THE CONSIDERAT ION IF ANY, FOR TRANSFER, DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOO DS OR SERVICES AS ON THE DATE OF TRANSFER, THEN THE ASSESSING OFFICER CAN MA KE ADJUSTMENTS IN THE PROFITS AFTER DETERMINING THE MARKET VALUE OF SUCH TRANSFER. THE SAID SECTION IN OTHER WORDS, EMPOWERS THE ASSESSING OFFICER WHERE T HE TRANSFER OF GOODS AND SERVICES AS RECORDED IN THE ACCOUNTS OF THE ELIGIBL E BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE, THEN THE PROFITS DE CLARED FOR THE ELIGIBLE BUSINESS CAN BE ADJUSTED BY THE ASSESSING OFFICER O N SUCH BASIS SO AS TO ENSURE THAT THE GOODS AND SERVICES ARE TRANSFERRED TO ITS OWN UNIT AT THE MARKET VALUE OF SUCH GOODS AND SERVICES. IN THE EXP LANATION TO SECTION 80- IA(8), THE 'MARKET VALUE' HAS BEEN DEFINED AS A PRI CE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPEN MARKET. FETCHING OF THE PRICE IN THE OPEN MARKET HAS TO BE SEEN FROM THE FACTORS WHICH A RE DETERMINED THROUGH NEGOTIATION BETWEEN THE PARTIES AND MUTUAL AGREEMEN T AS ARRIVED AT A PRICE WHICH IS ACCEPTABLE BETWEEN THE BUYER AND THE SELLE R IN THE OPEN MARKET CONDITION I.E., IN AN UNRELATED AND UNCONTROLLED TR ANSACTIONS. OPEN MARKET CONDITIONS REFERS TO THE CONDITIONS AND PRICE AVAIL ABLE FOR THE PUBLIC AT LARGE. IN THE PRESENT CASE, THE MARKET VALUE OF SUPPLY OF ELECTRICITY BY POWER UNIT OF THE ASSESSEE TO THE PAPER DIVISION OF THE ASSESSEE HAS TO BE SEEN FROM THE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 59 ANGLE, IF THE PAPER UNIT HAS TO PURCHASE THE ELECTR ICITY DIRECTLY FROM THE KARNATAKA ELECTRICITY BOARD (AS BOTH THE POWER UNIT S AS WELL AS THE PAPER UNITS ARE SITUATED IN KARNATAKA), THEN WHAT IS THE PRICE WHICH WOULD BE PAID BY THE PAPER UNIT TO THE KARNATAKA ELECTRICITY BOARD. THE TRANSFER OF THE PRICE AS CONTEMPLATED IN SECTION 80-IA(8) HAS TO BE SEEN HAV ING REGARD TO THE ARM'S LENGTH CONDITION, I.E., WHAT WOULD BE THE PRICE UND ER UNCONTROLLED TRANSACTIONS IN THE OPEN MARKET. IF THE PAPER DIVISION HAS BEEN PURCHASING THE ELECTRICITY FORM THE KARNATAKA ELECTRICITY BOARD AT AN AVERAGE COST OF RS. 5.80, WHICH FACT IS NOT IN DISPUTE, THEN THE SAME PRICE SHOULD BE CONSIDERED AS MARKET VALUE FOR BENCHMARKING THE PRICE AT WHICH POWER UNI TS ARE SUPPLYING THE ELECTRICITY TO THE PAPER DIVISION. IF THE TAXES AND DUTIES ARE PART OF THE PRICE AT WHICH THE POWER/ELECTRICITY IS SUPPLIED BY THE KARN ATAKA ELECTRICITY BOARD TO THE PAPER DIVISION, THEN THE SAME PRICE IS THE INDI CATOR OF THE MARKET VALUE WHICH IS FETCHABLE IN THE OPEN MARKET. WE DO NOT FI ND ANY REASON FOR EXCLUDING THE ELEMENT OF TAX AND DUTY WHILE DETERMI NING THE 'MARKET VALUE' OF THE ELECTRICITY PRICE PER UNIT SUPPLIED BY THE P OWER UNIT TO THE ASSESSEE AS CONTEMPLATED IN SUB-SECTION (8) OF SECTION 80-IA. 33. COMING TO THE ARGUMENTS OF THE LEARNED DEPARTMENTA L REPRESENTATIVE, WHICH IS MOSTLY BASED ON THE FINDINGS OF THE ASSESS ING OFFICER IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2005-06, T HE SAME CANNOT BE ACCEPTED FOR THE REASON THAT FIRSTLY, THE PRICE OF ELECTRICITY PER UNIT SUPPLIED BY THE TAMIL NADU AND PRIVATE PARTIES TO THE MAHARASHT RA GOVERNMENT, CANNOT BE HELD TO BE APPLICABLE IN KARNATAKA AND, SECONDLY , THE RATE AT WHICH PRIVATE PARTIES ARE SELLING THE POWER TO THE KARNATAKA ELEC TRICITY BOARD CANNOT BE THE BENCHMARK FOR DETERMINING THE MARKET PRICE BECAUSE THE TERMS AND CONDITIONS IN WHICH THE KARNATAKA ELECTRICITY BOARD IS PROCURING THE ELECTRICITY FROM SUCH PARTIES IS NOT KNOWN. FURTHER THE MARKET PRICE HAS TO BE SEEN AS A PRICE AT WHICH THE CUSTOMERS ARE GETTING THE ELECTR ICITY IN THE OPEN MARKET. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 60 THAT SHOULD BE THE CRITERIA FOR BENCHMARKING THE 'M ARKET PRICE' UNDER SECTION 80-IA(8). AS POINTED OUT BY LEARNED COUNSEL THAT IN THE EARLIER YEARS, THERE ARE TWO DIFFERENT OPINIONS AND CONCLUSIONS DRAWN BY THE TRIBUNAL. FIRST, IN THE ASSESSMENT YEARS 1997-98 AND 1998-99 WHICH ARE IN F AVOUR OF THE ASSESSEE AND HAS ATTAINED FINALITY AS NO FURTHER APPEAL HAS BEEN FILED BY THE DEPARTMENT AND OTHER IN THE ASSESSMENT YEARS 1999-2 000 AND 2000-01. IN THE SUBSEQUENT ORDERS, THE TRIBUNAL HAS NOT TAKEN N OTE OF THE DECISION OF THE EARLIER ORDERS. FURTHER, THE PROVISIONS OF SECTION 80-IA(8) HAS ALSO NOT BEEN CONSIDERED FOR ARRIVING AT A DIFFERENT CONCLUSION. UNDER THESE FACTS AND CIRCUMSTANCES, WE ARE RENDERING OUR DECISION PURELY ON THE BASIS OF OUR INTERPRETATION OF STATUTORY PROVISIONS, SANS GOING BY ANY EARLIER YEAR PRECEDENCE. THUS, IN OUR OPINION, WE HAVE TO FOLLOW THE PROVISIONS AS CONTAINED IN SECTION 80-IA(8) FOR DETERMINING THE M ARKET PRICE, WHICH CANNOT BE ARRIVED AT BY REDUCING THE PRICE BY ANY OTHER FA CTORS LIKE TAXES, DUTIES, ETC., AS THE SAME ARE EMBEDDED IN THE PRICE. THUS, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER ( APPEALS) ON THIS ISSUE AND ALLOW GROUND NO. 8, IS TREATED AS ALLOWED. THE LD AR FURTHER REFERRED TO THE DECISION OF THE C OORDINATE BENCH OF THE TRIBUNAL IN CASE OF EVERREADY SPINNING MILLS PVT LT D VS. ASSISTANT CIT (145 TTJ 393) WHERE IT WAS HELD AS UNDER: 6 . WE HAVE PERUSED THE ORDERS AND HEARD THE CONTENTION OF LEARNED D.R. THE SHORT QUESTION ARISING HERE IS WHETHER THE PER UNIT RATE OF ELECTRICITY, FOR THE PURPOSE OF COMPUTING THE PROFITS OF THE WINDMILLS O F THE ASSESSEE, HAS TO BE TAKEN AT RS. 2.70 OR AT RS. 3.50. RS. 2.70 WAS THE PRICE GIVEN BY ELECTRICITY BOARD TO THE ASSESSEE FOR THE ELECTRICITY GENERATED BY THE WINDMILLS BUT, SUCH ELECTRICITY WHEN SUPPLIED BY THE ELECTRICITY BOARD TO THE YARN MANUFACTURING UNIT OF THE ASSESSEE, THEY HAD CHARGED FROM THE ASS ESSEE RS. 3.50 PER UNIT. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 61 THERE IS NO DISPUTE THAT THE POWER MANUFACTURED BY THE ASSESSEE FROM ITS WINDMILLS THOUGH MEANT FOR THE USE OF CAPTIVE CONSU MPTION IN ITS YARN MANUFACTURING UNIT, WAS NOT PHYSICALLY THE SAME AS WAS ACTUALLY USED BY THE YARN MANUFACTURING UNITS. THE WINDMILLS WERE DISPAR ATELY SITUATED VIS- -VIS THE YARN MANUFACTURING UNIT. ASSESSEE WAS LEFT WITH NO GO OTHER THAN SUPPLY THE ELECTRICITY TO THE ELECTRICITY BOARD. IT IS NOT THAT THE SAME POWER THAT WAS PRODUCED BY THE ASSESSEE WAS SUPPLIED BY THE ELECTR ICITY BOARD TO ITS YARN MANUFACTURING UNIT. THE ADJUSTMENT IN THE BILLS AS A BARTER ARRANGEMENT WAS, THEREFORE, ONLY FOR THE CONVENIENCE OF THE ELECTRIC ITY BOARD. SUB-SECTION (8) OF SECTION 80-IA PROVIDES THAT WHERE AN ASSESSEE, WHIC H IS ELIGIBLE FOR 80-IA BENEFITS, TRANSFERRED ITS GOODS OR SERVICE TO ITS B USINESS OTHER THAN THE ELIGIBLE BUSINESS, THE CONSIDERATION IF ANY RECORDED FOR SUC H TRANSFER IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS, SHOULD CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES. OSTENSIBLY, IN THIS CASE, THE A.O. WAS OF THE OPINION THAT THE CONSIDERATION FOR TRANSFER OF POWER TO CAPTIVE CONS UMPTION TO THE YARN MANUFACTURING UNIT WAS RECORDED AT A CONSIDERATION WHICH DID NOT CORRESPOND TO ITS MARKET VALUE. IN OTHER WORDS, A.O. PERCEIVED RS. 2.70 AS THE MARKET VALUE, BEING THE PRICE AT WHICH ASSESSEE SOLD POWER TO ELECTRICITY BOARD AND NOT RS. 3.50 PER UNIT AT WHICH ASSESSEE, IN TURN, P URCHASED THE POWER FROM THE ELECTRICITY BOARD FOR ITS YARN MANUFACTURING UN IT. IN TERMS OF ELECTRICITY (SUPPLY) ACT, 1948, LEGISLATURE HAS PUT RESTRICTION S ON ESTABLISHMENT OF POWER GENERATING UNITS AND THEIR FUNCTIONING. POWER GENER ATING CONCERNS ARE ALLOWED TO USE POWER FOR CAPTIVE CONSUMPTION OF THEIR OTHER UNITS, AND THE SURPLUS, IF ANY, HAS TO BE SUPPLIED OR TRANSFERRED TO STATE ELE CTRICITY BOARDS. SECTION 43 OF ELECTRICITY (SUPPLY) ACT, 1948 AUTHORIZES STATE ELECTRICITY BOARD TO ENTER INTO ARRANGEMENTS FOR PURCHASE AND SALE OF ELECTRICITY U NDER CERTAIN CONDITIONS MENTIONED THEREIN. SECTION 43A OF THE SAID ACT ALSO LAYS DOWN RULES AND CONDITIONS FOR DETERMINING TARIFF FOR THE SALE OF E LECTRICITY BY A GENERATING COMPANY TO STATE ELECTRICITY BOARDS. THE TARIFF IS DETERMINED ON THE BASIS OF ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 62 VARIOUS PARAMETERS MENTIONED THEREIN. A PRIVATE PER SON REQUIRES A SPECIFIC CONSENT TO SET UP A POWER GENERATING UNIT AND IT HA S TO COMPLY WITH THE RESTRICTIONS FOR USE OF POWER GENERATED AND THE TAR IFF AT WHICH THE POWER CAN BE SUPPLIED TO ELECTRICITY BOARD. THUS THE DETERMIN ING OF TARIFF BETWEEN ASSESSEE AND ELECTRICITY BOARD CANNOT BE CONSIDERED AS AN EXERCISE UNDERTAKEN IN A COMPETITIVE ENVIRONMENT AND UNDER M ARKET CONDITIONS. PRICE DETERMINED IN SUCH A SCENARIO CANNOT BE EQUATED WIT H A SITUATION WHERE THE PRICE IS DETERMINED IN THE NORMAL COURSE OF COMPETI TIVE ENVIRONMENT. THUS, THE PRICE AT WHICH ASSESSEE SOLD ITS POWER TO THE E LECTRICITY BOARD CANNOT BE EQUATED WITH MARKET RATE AS UNDERSTOOD FOR THE PURP OSE OF SECTION 80-IA(8) OF THE ACT. NOW THE QUESTION THAT REMAINS IS WHETHE R THE PRICE RECORDED BY THE ASSESSEE AT RS. 3.50 PER UNIT FOR PURCHASING PO WER FROM THE ELECTRICITY BOARD FOR ITS YARN MANUFACTURING UNIT CAN BE CONSID ERED THE MARKET VALUE. ASSESSEE UNDOUBTEDLY IS AN INDUSTRIAL CONSUMER AND THE BOARD SUPPLIES POWER TO SUCH INDUSTRIAL CONSUMERS AT THE RATE OF RS. 3.5 0 PER UNIT. HAD THE ASSESSEE NOT BEEN SADDLED WITH THE RESTRICTIONS OF SUPPLYING SURPLUS POWER TO THE STATE ELECTRICITY BOARD, IT WOULD HAVE SUPPLIED THE POWER TO ULTIMATE CUSTOMERS AT A PRICE NOT LESS THAN RS. 3.50 PER UNI T, BEING THE RATE CHARGED BY THE BOARD FROM ITS INDUSTRIAL CONSUMERS. THUS, U NDER THE GIVEN CIRCUMSTANCES, IT WOULD BE APPROPRIATE TO HOLD THAT THE CONSIDERATION RECORDED BY THE ASSESSEE FOR TRANSFER OF POWER FOR CAPTIVE C ONSUMPTION, WHICH IS AT THE RATE OF RS. 3.50 PER UNIT, CORRESPONDS TO THE MARKE T VALUE OF SUCH POWER. THOUGH THE LD. CIT(APPEALS) HAD UPHELD ORDER OF THE A.O. RELYING ON THE DECISION OF DELHI BENCH OF THIS TRIBUNAL IN THE CAS E OF ADDL. CIT V. JINDAL STEEL & POWER LTD. [2007] 16 SOT 509, WE ARE OF THE OPINI ON THAT THIS DECISION BETTER SUPPORTS THE CASE OF THE ASSESSEE. IN TAKING THIS, WE ARE ALSO ROBORANTED BY THE DECISION OF MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF WEST COAST PAPER MILLS LTD. V. JT. CIT [2006] 100 T TJ 833. WE ARE, THEREFORE, OF THE OPINION THAT ASSESSEE HAS TO SUCCEED IN ITS APPEAL AND PROFITS OF ELIGIBLE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 63 UNDERTAKING HAS TO BE DETERMINED ON THE BASIS OF AN NUAL LANDING COST OF ELECTRICITY PURCHASED BY THE ASSESSEE FROM TNEB. 50. AT THE OUTSET, THE LD CIT DR HAS VEHEMENTLY SUP PORTED THE ORDER OF THE ASSESSING OFFICER AND PRAYED THAT ORDER OF T HE ASSESSING OFFICER MAY BE UPHELD. 51. THE RELEVANT FINDINGS OF THE COORDINATE BENCH I N ITA NO. FOR AY 2007-08 AS UNDER: 9.2 THIS ISSUE IS COVERED BY OUR FINDINGS IN THE C ASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-07 AS ABOVE WHILE DISP OSING OFF THE GROUND OF APPEAL NO. 3 RELATING TO CAPTIVE POWER PL ANT. FOLLOWING THAT ORDER, WE HOLD THAT LD CIT(A) WAS JUSTIFIED IN DELE TING THE DISALLOWANCE OF DEDUCTION U/S 80IA OF THE ACT. 52. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. FIRS TLY, AS REGARDS THE ELIGIBILITY TO CLAIM OF DEDUCTION UNDER SECTION 80I A IN RESPECT OF THE CAPTIVE POWER PLANT, THE SAME IS COVERED IN FAVOUR OF THE ASSESSEE BY THE EARLIER ORDERS OF THE COORDINATE BENCH INCLUDIN G THAT OF AY 2007-08 AS REFERRED SUPRA. 52.1 NOW, COMING TO THE QUANTUM OF DEDUCTION CLAIME D UNDER SECTION 80IA, THE LD CIT(A) HAS STATED THAT THE ASSESSEE CL AIMED EXCESS PRICE OF SALE OF POWER BY RS. 64,02,938/- AND UNDER STATED T HE COST OF GAS BY ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 64 RS. 20,83,589/- AND EXPENSES OF RS. 2,77,69,013/- R ELATED TO RECOVERY IN HRSG WERE NOT PROVIDED WHICH HAS RESULTED IN EXC ESS CLAIM OF 80IA BY RS. 3,62,55,540/-. FIRSTLY, REGARDING EXPENSES OF RS. 2,77,69,013/-, T HE ASSESSEE HAS CLAIMED THAT STEAM WORTH RS. 18,51,26,755/- WAS GEN ERATED THROUGH HRSG BY RECOVERING ENERGY FROM EXHAUST OF TURBINE O F CAPTIVE POWER PLANT, HOWEVER, NO EXPENDITURE OF HRSG WAS ATTRIBUT ED TO THE SAME. IN THE OPINION OF LD CIT(A), FOR RECOVERY OF ENERGY IN HRSG, THE ASSESSEE MUST HAVE INCURRED CERTAIN EXPENDITURE TO RECOVER S UCH HUGE AMOUNT OF ENERGY AND HE THEREFORE ESTIMATED 15% OF THE ABOVE AMOUNT CAN BE ATTRIBUTED TO RECOVERY OF ENERGY WORTH RS. 18,51,26 ,755/- WHICH COMES TO RS. 2,77,69,013/-. IN OUR VIEW, WHAT IS RELEVANT TO DETERMINE IS THE TREATMENT OF STEAM WORTH RS. 18,51,26,755/- AND HOW THE SAME HAS BEEN ACCOUNTED FOR WHILE COMPUTING THE DEDUCTION UN DER SECTION 80IA. SECONDLY, THE ASSESSEE HAS IDENTIFIED BOTH DIRECT A ND INDIRECT EXPENSES WHICH HAVE BEEN ALLOCATED TO CAPTIVE POWER PLANT FO LLOWING CERTAIN ALLOCATION METHODOLOGY WHICH HAS BEEN ACCEPTED BY T HE REVENUE. FOLLOWING THE SAME METHODOLOGY, THE EXPENSES IN REL ATION TO GENERATION OF STEAM NEEDS TO BE IDENTIFIED AND PROPERLY ACCOUN TED FOR. THE LD CIT(A) HAS NOT GIVEN ANY BASIS AS TO HOW HE HAS DET ERMINED 15% AN AN APPROPRIATE BASIS. SIMILAR IS THE CASE WHERE THE L D CIT(A) HAS HELD THAT THE COST OF GAS CONSUMPTION HAS BEEN UNDERSTATED BY RS. 20,83,589/- IN OUR VIEW, THE MATTER REQUIRE A FRESH EXAMINATION AND WE ACCORDINGLY SET ASIDE THESE TWO MATTERS TO THE FILE OF THE AO. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 65 52.2 NOW, COMING TO DETERMINATION OF THE MARKET VAL UE OF THE ELECTRICITY GENERATED AND SUPPLIED BY THE CAPTIVE P OWER PLANT, THE ASSESSEE TOOK THIS VALUE EQUAL TO RS. 4.52 PER UNIT ON THE BASIS THAT ASSESSEE WAS PURCHASING POWER FROM JAIPUR VIDHYUT V ITRAN NIGAM LTD. AT THIS PRICE (EXCLUDING TAXES). EVEN AS PER THE AN NUAL REPORT OF CERC, AVERAGE SALE PRICE OF ELECTRICITY WAS RS. 4.52 PER KWH. HOWEVER, AS PER LD CIT(A), THE AVERAGE PURCHASE PRICE OF ELECTRICIT Y AT RS. 4.48 PER KWHAS PER THE ANNUAL REPORT OF CERC CAN BE TAKEN AS SALE PRICE IN OPEN MARKET. IN ORDER TO APPRECIATE THE MATTER IN RIGHT PERSPECT IVE, IT WOULD BE RELEVANT TO REFER TO THE PROVISIONS OF SECTION 80IA (8) AND THE EXPLANATION THERETO WHICH READS AS UNDER: (8) WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOS ES OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARR IED ON BY THE ASSESSEE, OR WHERE ANY GOODS OR SERVICES HELD FOR T HE PURPOSES OF ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE ARE TRANS FERRED TO THE ELIGIBLE BUSINESS AND, IN EITHER CASE, THE CONSIDERATION, IF ANY, FOR SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINES S DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF THE TRANSFER, THEN, FOR THE PURPOSES OF THE DEDUCTION U NDER THIS SECTION, THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS SHALL B E COMPUTED AS IF THE TRANSFER, IN EITHER CASE, HAD BEEN MADE AT THE MARK ET VALUE OF SUCH GOODS OR SERVICES AS ON THAT DATE : PROVIDED THAT WHERE, IN THE OPINION OF THE ASSESSIN G OFFICER, THE COMPUTATION OF THE PROFITS AND GAINS OF THE ELIGIBL E BUSINESS IN THE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 66 MANNER HEREINBEFORE SPECIFIED PRESENTS EXCEPTIONAL DIFFICULTIES, THE ASSESSING OFFICER MAY COMPUTE SUCH PROFITS AND GAIN S ON SUCH REASONABLE BASIS AS HE MAY DEEM FIT. EXPLANATION.FOR THE PURPOSES OF THIS SUB-SECTION, 'MARKET VALUE', IN RELATION TO ANY GOODS OR SERVICES, MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPEN MARKET WE ALSO REFER TO THE AMENDMENT BROUGHT IN BY THE FI NANCE ACT, 2009 IN SECTION 80A OF THE ACT WHERE SUB-SECTION 6 HAS BEEN SPECIFICALLY BROUGHT ON THE STATUE BOOK BY THE LEGISLATION WHICH READS AS UNDER: AMENDMENT OF SECTION 80A. 29. IN SECTION 80A OF THE INCOME-TAX ACT, (A) AFTER SUB-SECTION (3), THE FOLLOWING SUB-SECTI ONS SHALL BE INSERTED, AND SHALL BE DEEMED TO HAVE BEEN INSERTED WITH EFFECT FROM THE 1ST DAY OF APRIL, 2003, NAMELY: (4) NOTWITHSTANDING ANYTHING TO THE CONTRARY CON TAINED IN SECTION 10A OR SECTION 10AA OR SECTION 10B OR SECTI ON 10BA OR IN ANY PROVISIONS OF THIS CHAPTER UNDER THE HEADING C-DED UCTIONS IN RESPECT OF CERTAIN INCOMES, WHERE, IN THE CASE OF AN ASSES SEE, ANY AMOUNT OF PROFITS AND GAINS OF AN UNDERTAKING OR UNIT OR ENTE RPRISE OR ELIGIBLE BUSINESS IS CLAIMED AND ALLOWED AS A DEDUCTION UNDE R ANY OF THOSE PROVISIONS FOR ANY ASSESSMENT YEAR, DEDUCTION IN RE SPECT OF, AND TO THE EXTENT OF, SUCH PROFITS AND GAINS SHALL NOT BE ALLO WED UNDER ANY OTHER PROVISIONS OF THIS ACT FOR SUCH ASSESSMENT YEAR AND SHALL IN NO CASE EXCEED THE PROFITS AND GAINS OF SUCH UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS, AS THE CASE MAY BE. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 67 (5) WHERE THE ASSESSEE FAILS TO MAKE A CLAIM IN H IS RETURN OF INCOME FOR ANY DEDUCTION UNDER SECTION 10A OR SE CTION 10AA OR SECTION 10B OR SECTION 10BA OR UNDER ANY PROVISION OF THIS CHAPTER UNDER THE HEADING C.DEDUCTIONS IN RESPECT OF CERT AIN INCOMES, NO DEDUCTION SHALL BE ALLOWED TO HIM THEREUNDER.; (B) AFTER SUB-SECTION (5) AS SO INSERTED, THE FOLL OWING SUB- SECTION SHALL BE INSERTED, NAMELY: (6) NOTWITHSTANDING ANYTHING TO THE CONTRARY CON TAINED IN SECTION 10A OR SECTION 10AA OR SECTION 10B OR SECTI ON 10BA OR IN ANY PROVISIONS OF THIS CHAPTER UNDER THE HEADING C-DED UCTIONS IN RESPECT OF CERTAIN INCOMES, WHERE ANY GOODS OR SERVICES HE LD FOR THE PURPOSES OF THE UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBL E BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE OR WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSES OF ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE ARE TRANSFERRED TO THE U NDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS AND, THE CONSIDERAT ION, IF ANY, FOR SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF THE UNDERTA KING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF THE TRA NSFER, THEN, FOR THE PURPOSES OF ANY DEDUCTION UNDER THIS CHAPTER, THE P ROFITS AND GAINS OF SUCH UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF THE TRANSFER, IN EITHER CASE, HAD BE EN MADE AT THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THAT D ATE. EXPLANATION.FOR THE PURPOSES OF THIS SUB-SECTION , THE EXPRESSION MARKET VALUE (I) IN RELATION TO ANY GOODS OR SERVICES SOLD OR S UPPLIED, MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD FETCH I F THESE WERE SOLD BY ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 68 THE UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE B USINESS IN THE OPEN MARKET, SUBJECT TO STATUTORY OR REGULATORY RESTRICT IONS, IF ANY; (II) IN RELATION TO ANY GOODS OR SERVICES ACQUIRED , MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD COST IF THE SE WERE ACQUIRED BY THE UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE B USINESS FROM THE OPEN MARKET, SUBJECT TO STATUTORY OR REGULATORY RESTRICT IONS, IF ANY. WE NOW REFER TO THE NOTES TO THE CLAUSES TO THE FIN ANCE BILL 2009 AND THE RELEVANT NOTES IN RELATING TO SECTION 80A(6) RE ADS AS UNDER: THE PROPOSED SUB-SECTION (6) PROVIDES THAT NOTWITH STANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 10A OR SECTION 10AA OR SECTION 10B OR SECTION 10BA OR IN ANY PROVISIONS OF CHAPTER VIA UNDER THE HEADING C-DEDUCTIONS IN RESPECT OF CERTAIN INCOMES, WHERE ANY GOODS OR SERVICES HELD FOR THE PURPOSES OF THE UNDERTAKING O R UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER B USINESS CARRIED ON BY THE ASSESSEE OR WHERE ANY GOODS OR SERVICES HELD FO R THE PURPOSES OF ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE ARE T RANSFERRED TO THE UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSIN ESS AND, THE CONSIDERATION, IF ANY, FOR SUCH TRANSFER AS RECORDE D IN THE ACCOUNTS OF THE UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE B USINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SER VICES AS ON THE DATE OF THE TRANSFER, THEN, FOR THE PURPOSES OF ANY DEDUCTION UNDER THIS CHAPTER, THE PROFITS AND GAINS OF SUCH UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF THE TR ANSFER, IN EITHER CASE, HAD BEEN MADE AT THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THAT DATE. THE EXPLANATION AS PROPOSED IN THE SAID SUB-SECTION PROVIDES ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 69 THAT (I) IN RELATION TO ANY GOODS OR SERVICES SOLD OR SUPPLIED, MARKET VALUE MEANS THE PRICE THAT SUCH GOODS OR SERVICES W OULD FETCH IF THESE WERE SOLD BY THE UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS IN THE OPEN MARKET, SUBJECT TO STATUTORY OR REGULATORY RESTRICTIONS, IF ANY; (II) IN RELATION TO ANY GOODS OR SERVICES ACQUIRED, MARKET VALUE MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD COST IF THESE WERE ACQUIRED BY THE UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBL E BUSINESS FROM THE OPEN MARKET, SUBJECT TO STATUTORY OR REGULATORY RES TRICTIONS, IF ANY. THE SAID EXPLANATION IS CLARIFICATORY IN NATURE. THIS A MENDMENT WILL TAKE EFFECT RETROSPECTIVELY FROM 1ST APRIL, 2009. WE NOW REFER TO THE MEMORANDUM EXPLAINING THE FINAN CE BILL 2009 AND IN PARTICULAR, INTRODUCTION OF SECTION 80A(6) OF TH E ACT WHICH READS AS UNDER: AMENDMENT IN CHAPTER VIA TO PREVENT ABUSE OF TAX I NCENTIVES: THE PROFIT LINKED DEDUCTIONS IN CHAPTER VIA ARE PRO NE TO CONSIDERABLE MISUSE. FURTHER, SINCE THE SCOPE OF THE DEDUCTIONS UNDER VARIOUS PROVISIONS OF CHAPTER VIA OVERLAP, THE TAXPAYERS, A T TIMES, CLAIM MULTIPLE DEDUCTIONS FOR THE SAME PROFITS. WITH A VIEW TO PREVENTING SUCH MISUSE, IT IS PROPOS ED TO AMEND THE PROVISIONS OF SECTION 80A OF THE INCOME-TAX ACT TO PROVIDE THE FOLLOWING, NAMELY : (I) DEDUCTION IN RESPECT OF PROFITS AND GAINS SHAL L NOT BE ALLOWED UNDER ANY PROVISIONS OF SECTION 10A OR SECT ION 10AA OR SECTION 10B OR SECTION 10BA OR UNDER ANY PROVISIONS OF CHAP TER VIA UNDER THE HEADING C.-DEDUCTIONS IN RESPECT OF CERTAIN INCOME S IN ANY ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 70 ASSESSMENT YEAR, IF A DEDUCTION IN RESPECT OF SAME AMOUNT UNDER ANY OF THE AFORESAID HAS BEEN ALLOWED IN THE SAME ASSES SMENT YEAR; (II) THE AGGREGATE OF THE DEDUCTIONS UNDER THE VAR IOUS PROVISIONS REFERRED TO IN (I) ABOVE, SHALL NOT EXCE ED THE PROFITS AND GAINS OF THE UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBL E BUSINESS, AS THE CASE MAY BE; (III) NO DEDUCTIONS UNDER THE VARIOUS PROVISIONS R EFERRED TO IN (I) ABOVE, SHALL BE ALLOWED IF THE DEDUCTION HAS NOT BE EN CLAIMED IN THE RETURN OF INCOME; THESE AMENDMENTS WILL TAKE EFFECT RETROSPECTIVELY F ROM THE 1ST APRIL, 2003, AND WILL ACCORDINGLY APPLY IN RELATION TO ASS ESSMENT YEAR 2003-04 AND SUBSEQUENT YEARS. FURTHER IT IS ALSO PROPOSED TO AMEND SECTION 80A TO PROVIDE THAT THE TRANSFER PRICE OF GOODS AND SERVICES BETWEEN THE UN DERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE BUSINESS AND ANY OTHER UNDER TAKING OR UNIT OR ENTERPRISE OR BUSINESS OF THE ASSESSEE SHALL BE DET ERMINED AT THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DA TE OF TRANSFER. FURTHER, THE EXPRESSION MARKET VALUE HAS BEEN DEF INED TO MEAN, (A) IN RELATION TO ANY GOODS OR SERVICES SOLD OR S UPPLIED, MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD FETCH I F THESE WERE SOLD BY THE UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE B USINESS IN THE OPEN MARKET, SUBJECT TO STATUTORY OR REGULATORY RESTRICT IONS, IF ANY; (B) IN RELATION TO ANY GOODS OR SERVICES ACQUIRED, MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD COST IF THE SE WERE ACQUIRED BY ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 71 THE UNDERTAKING OR UNIT OR ENTERPRISE OR ELIGIBLE B USINESS FROM THE OPEN MARKET, SUBJECT TO STATUTORY OR REGULATORY RESTRICT IONS, IF ANY. THIS AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL, 200 9 AND WILL ACCORDINGLY APPLY TO ALL CASES WHERE THE PROCEEDING S ARE PENDING BEFORE ANY AUTHORITY ON OR AFTER SUCH DATE. FURTHER, WITH A VIEW TO PREVENTING THE MISUSE OF TH E TAX HOLIDAY UNDER SECTION 80-IA OF THE INCOME-TAX ACT, IT IS PROPOSED TO AMEND THE EXPLANATION TO THE SAID SECTION TO CLARIFY THAT NOT HING CONTAINED IN THE SAID SECTION SHALL APPLY IN RELATION TO A BUSINESS REFERRED TO IN SUB- SECTION (4) OF THE SAID SECTION WHICH IS IN THE NAT URE OF A WORKS CONTRACT AWARDED BY ANY PERSON (INCLUDING THE CENTRAL OR STA TE GOVERNMENT) AND EXECUTED BY AN UNDERTAKING OR ENTERPRISE REFERR ED TO IN SUB-SECTION (1) THEREOF. THIS AMENDMENT WILL TAKE EFFECT RETROSPECTIVELY FRO M 1ST APRIL, 2000 AND WILL, ACCORDINGLY, APPLY IN RELATION TO ASSESSMENT YEAR 2000-01 AND SUBSEQUENT YEARS. THE PROVISIONS OF SECTION 80A(6) PROVIDES THAT NOTW ITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 10A OR SECTION 10AA OR SECTION 10B OR SECTION 10BA OR IN ANY PROVISIONS OF THIS CHAPTE R UNDER THE HEADING C-DEDUCTIONS IN RESPECT OF CERTAIN INCOMES, THE P ROVISIONS OF SECTION 80A(6) WILL APPLY. IN THE INSTANT CASE, IT WILL THU S OVERRIDE THE PROVISIONS OF SECTION 80IA(8) READ WITH THE EXPLANATION. SECO NDLY, IT IS PROVIDED THAT THE SAID AMENDMENT HAS BEEN BROUGHT ON THE STA TUE BOOKS WITH ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 72 EFFECT FROM 1ST APRIL, 2009 AND WILL ACCORDINGLY AP PLY TO ALL CASES WHERE THE PROCEEDINGS ARE PENDING BEFORE ANY AUTHORITY ON OR AFTER SUCH DATE. UNLIKE OTHER AMENDMENTS SUCH AS AMENDMENT BY WAY OF INSERTION OF SECTION 80A(4) AND SECTION 80A(5) WHICH HAS BEEN MA DE EFFECTIVE FROM THE 1ST APRIL, 2003, AND WILL ACCORDINGLY APPLY IN RELATION TO ASSESSMENT YEAR 2003-04 AND SUBSEQUENT YEARS, THE AMENDMENT BY WAY OF INSERTION OF SUB-SECTION 6 TO SECTION 80A HAS BEEN MADE EFFECTIVE FROM 1ST APRIL, 2009 AND IT WILL APPLY TO ALL CASES WHER E THE PROCEEDINGS ARE PENDING BEFORE ANY AUTHORITY ON OR AFTER SUCH DATE. IN THE INSTANT CASE, THE RETURN OF INCOME WAS ORIGINALLY FILED ON 30.09. 2008, NOTICE U/S 143(2) WAS ISSUED ON 3.9.2009, ASSESSMENT ORDER WAS THEREAFTER PASSED ON 31.12.2010 AND SUBSEQUENTLY, THE ORDER OF THE LD CIT(A) WAS PASSED ON 30.03.2012. ACCORDINGLY, THE PROCEEDINGS FOR THE IMPUNGED ASSESSMENT YEAR WERE PENDING BEFORE THE ASSESSING O FFICER AND THE PROVISIONS OF SECTION 80 A(6) WILL APPLY IN THE INS TANT CASE. IT IS HOWEVER NOTED THAT THE AUTHORITIES BELOW HAVE NOT EXAMINED THE MATTER AFTER TAKING INTO CONSIDERATION THE PROVISIO NS OF SECTION 80A(6) OF THE ACT. AS WE HAVE STATED ABOVE, THE PROVISIONS O F SECTION 80A(6) WILL OVERRIDE THE PROVISIONS OF SECTION 80IA(8) READ WIT H THE EXPLANATION THERETO. IF WE EXAMINE AND COMPARE THE PROVISIONS OF SECTION 80IA(8) AND 80A(6), IT IS NOTED ARE AS FOLLOWS: 1) UNLIKE SECTION 80 IA(8), SECTION 80A(6) STARTS W ITH NON OBSTANTE CLAUSE AND PROVIDES THAT NOTWITHSTANDING ANYTHING C ONTRARY CONTAINED IN CHAPTER VI-A, APPLICATION OF ARMS LENGTH PRICE IS MANDATORY FOR COMPUTING PROFITS ELIGIBLE FOR DEDUCTION, OF THE EL IGIBLE UNIT. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 73 2) MARKET VALUE, IN SECTION 80-IA(8) IS DEFINED CO MMONLY BOTH FOR TRANSFER AND ACQUISITION BY THE ELIGIBLE UNIT. SECTION 80A(6) PROVIDES FOR SEPARATE MARKET VALUE WITH REFERENCE TO TRANSFE R OR ACQUISITION BY THE ELIGIBLE UNIT. 3) DETERMINATION OF MARKET VALUE IS MADE SUBJECT TO STATUTORY OR REGULATORY RESTRICTIONS, IF ANY. IN THIS CONTEXT, IT WOULD BE RELEVANT TO REFER TO D ECISION OF THE HONBLE HIGH COURT OF CALCUTTA IN CASE OF COMMISSIONER OF INCOME-TAX, KOLKATA - III VS.ITC LTD [2016] 7 ITR OL 166 (CAL) WHERE TH E HONBLE HIGH COURT HAS HELD AS UNDER: 17. WE HAVE CONSIDERED THE SUBMISSION ADVANCED BY MR. KHAITAN BUT WE ARE UNABLE TO AGREE WITH HIM. THE BENEFIT UNDER SECTION 80-IA WAS INTENDED TO ENCOURAGE THE BUSINESS OF GENERATING PO WER. AN ENTREPRENEUR WHO WANTS TO AVAIL THE BENEFIT OF SECT ION 80IA CANNOT HOPE TO GET ANY BENEFIT MORE THAN WHAT HAS BEEN CON TEMPLATED BY THE ACT. IT WAS A FORTUITOUS CIRCUMSTANCE THAT THE ENTR EPRENEUR IN THIS CASE HAS A HOME CONSUMPTION OF ELECTRICITY WHICH ANY OTH ER ENTREPRENEUR ENGAGED IN THE GENERATION OF ELECTRICITY WOULD NOT HAVE. BUT THAT CANNOT BE A REASON WHY TWO ENTREPRENEURS ENGAGED IN THE SA ME BUSINESS WILL GET BENEFIT AT RATES COMPUTED DIFFERENTLY. IN ORDER TO AVOID ANY SUCH DISCRIMINATION, THE LEGISLATURE HAS TAKEN CARE TO P ROVIDE THAT THE PRICE WHICH CAN BE CHARGED HAS TO BE THE SAME, WHICH ELEC TRICITY WOULD FETCH IN THE OPEN MARKET. IT IS TRUE THAT AT THE RELEVANT POINT OF TIME THE EXPLANATION ADDED TO SUB-SECTION 8 OF SECTION 80-IA QUOTED ABOVE WAS NOT THERE IN THE STATUTE. BUT THIS FACT BY ITSELF D OES NOT ADVANCE THE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 74 CASE OF THE ASSESSEE BECAUSE WHAT WAS ALREADY THERE DURING THE RELEVANT ASSESSMENT YEAR READS AS FOLLOWS: 'EXPLANATION.-FOR THE PURPOSES OF THIS SUB-SECTION, 'MARKET VALUE', IN RELATION TO ANY GOODS OR SERVICES, MEANS THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPEN MARKET. ' CLAUSE 2 TO THE EXPLANATION HAS BEEN ADDED TO CLARI FY WHAT WAS OBVIOUS ALREADY. THE ASSESSING OFFICER WAS CORRECT IN THE V IEW HE TOOK THAT THE ASSESSEE CAN COMPUTE THE PRICE OF THE ELECTRICITY S OLD TO THE PAPER UNIT AT THE MARKET RATE AND FOR THAT PURPOSE HE ALSO GAV E AN OPPORTUNITY TO ADDUCE EVIDENCE TO THE ASSESSEE. THE ASSESSEE DID N OT, HOWEVER, AVAIL THE SAME AND CONTENTED ITSELF BY DISCLOSING THE PRI CE AT WHICH POWER WAS PURCHASED BY THE PAPER UNIT OF THE ASSESSEE FRO M THE ANDHRA PRADESH STATE ELECTRICITY BOARD. THE RATE AT WHICH ELECTRICITY WAS PURCHASED FROM ANDHRA PRADESH STATE ELECTRICITY BOA RD BY THE PAPER UNIT OF THE ASSESSEE CAN BY NO MEANS BE THE MARKET RATE AT WHICH THE POWER PLANT OF THE ASSESSEE COULD HAVE SOLD ITS PRO DUCTION IN THE OPEN MARKET. IN THE OPEN MARKET THE BUYER WOULD OBVIOUSL Y BE A DISTRIBUTION COMPANY OR A COMPANY ENGAGED BOTH IN GENERATION AND DISTRIBUTION. THEREFORE, THE RATE AT WHICH ELECTRICITY IS SOLD TO ANY SUCH COMPANY CAN ONLY BE THE MARKET RATE CONTEMPLATED BY THE SECTION . THE JUDGMENT IN THE CASE OF THIRU AROORAN SUGARS LTD. (SUPRA) HAS N O MANNER OF APPLICATION FOR THE SIMPLE REASON THAT THE COURT IN THAT CASE WAS CONCERNED WITH THE QUESTION AS TO THE MARKET VALUE OF SUGARCANE GROWN BY THE ASSESSEE AT HOME. THE SUPREME COURT WAS OF T HE OPINION THAT THE SUGARCANE GROWN AT HOME WOULD BE DEEMED TO HAVE BEEN SOLD TO THE SUGAR MILL AT THE SAME RATE AT WHICH SUGAR CANE WAS PURCHASED BY THE SUGAR MILL. THAT OBVIOUSLY IS CORRECT BECAUSE I F THE SUGARCANE GROWN ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 75 AT HOME HAD NOT BEEN SOLD TO THE SUGAR MILL OF THE ASSESSEE ITSELF, THE SUGARCANE WOULD HAVE BEEN SOLD IN THE OPEN MARKET. THE RATE OF SALE IN THE OPEN MARKET WOULD BE THE SAME AT WHICH SUGARCAN E WAS PURCHASED BY THE SUGAR MILL OF THE ASSESSEE. BUT IN THE CASE BEFORE US THE ELECTRICITY GENERATED BY THE ASSESSEE COULD NOT BE SOLD TO ANYONE OTHER THAN A DISTRIBUTION COMPANY OR A COMPANY WHICH IS E NGAGED BOTH IN GENERATION AND DISTRIBUTION. THE RATE AT WHICH ELEC TRICITY COULD HAVE BEEN SOLD TO ANY SUCH COMPANY IS NOT THE SAME AT WH ICH SUCH COMPANIES SALE ELECTRICITY TO THE CONSUMERS. THE RA TE AT WHICH ELECTRICITY CAN BE SUPPLIED TO A CONSUMER BY THE DI STRIBUTION LICENSEE AND THE RATE AT WHICH THE GENERATING COMPANIES CAN SELL ELECTRICITY TO THE DISTRIBUTION LICENSEE ARE GOVERNED RESPECTIVELY BY SECTIONS 61 AND 62 OF THE ELECTRICITY ACT 2003. THERE IS TARIFF REG ULATORY COMMISSION WHICH FIXES BOTH THE RATES FOR SALE AND PURCHASE OF ELECTRICITY BY THE DISTRIBUTION LICENSEE. THERE ARE PROVISIONS IN SECT ION 62 SO THAT THE GENERATING COMPANIES CAN RECOVER EXPECTED REVENUE O N THE BASIS OF THE TARIFF FIXED BY THE COMMISSION. THERE ARE SIMILARLY PROVISIONS IN SECTION 61 SO THAT THE DISTRIBUTION LICENSEE CAN DERIVE REA SONABLE RETURN. THERE IS THUS AN IN-BUILT MECHANISM TO ENSURE PERMISSIBLE PROFIT BOTH TO THE GENERATING COMPANIES AND THE DISTRIBUTION LICENSEES . THE ASSESSEE'S GENERATING UNIT CANNOT AS SUCH CLAIM ANY BENEFIT UN DER SECTION 80-IA OF THE I. T. ACT COMPUTED ON THE BASIS OF RATES CHARGE ABLE BY THE DISTRIBUTION LICENSEE FROM THE CONSUMER. THE BENEFI T CAN ONLY BE CLAIMED ON THE BASIS OF THE RATES FIXED BY THE TARI FF REGULATION COMMISSION FOR SALE OF ELECTRICITY BY THE GENERATIN G COMPANIES. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 76 THE ABOVE DECISION OF THE HONBLE HIGH COURT THOUGH HAS BEEN RENDERED IN THE CONTEXT OF SECTION 80IA(8) READ WIT H THE EXPLANATION, TO OUR MIND, IT RESONATES THE INTENT BEHIND INTRODUCTI ON OF SECTION 80A(6) OF THE ACT AND ELECTRICITY ACT, 2003, AND SHOULD TH EREFORE BE CONSIDERED AS A GUIDING PRECEDENT WHILE DETERMINING THE ARMS LENGTH PRICING IN THE CONTEXT OF ELECTRICITY GENERATED BY THE CAPTIVE POW ER PLANT WHICH ARE SUBJECT TO TARIFF REGULATIONS. THE DECISIONS CITED BY THE LD AR HAVE BEEN RENDERED PRIOR TO INTRODUCTION OF SECTION 80A(6) AND PRIOR TO ELECTRI CITY ACT, 2003, AND IN ANY CASE, THE DECISION OF THE HONBLE CALCUTTA HIGH COURT (SUPRA) LAYS DOWN THE CURRENT PROPOSITION OF LAW WHICH IS BINDIN G ON US IN ABSENCE OF ANY CONTRARY DECISION. AS WE HAVE STATED ABOVE, THE AUTHORITIES BELOW HAVE NOT EXAMINED THE MATTER AFTER TAKING INTO CONSIDERATION THE PROVISIO NS OF SECTION 80A(6) OF THE ACT. IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE DEEM IT APPROPRIATE TO REFER THE MATTER BACK TO THE FILE OF THE AO TO E XAMINE THE MATTER A FRESH TAKING INTO CONSIDERATION THE ABOVE DISCUSSIO NS. 52.3 IN LIGHT OF ABOVE DISCUSSIONS, COMMON GROUND N O. 1 OF THE REVENUES APPEAL AS WELL AS ASSESSEES APPEAL ARE P ARTLY ALLOWED FOR STATISTICAL PURPOSES. 53. THE 2 ND GROUND OF THE ASSESSEE APPEAL IS AGAINST DISALLOW ING THE CLAIM OF RS. 28,12,000/- ON THE GROUND OF NOTIONAL INTEREST IN RESPECT OF ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 77 INVESTMENT IN SUBSIDIARY COMPANIES WITHOUT PROVIDIN G ANY NEXUS BETWEEN INVESTMENTS AND LOANS. THE ASSESSING OFFIC ER HAS OBSERVED THAT AS PER DETAILS FILED, IT IS SEEN THAT THE ASSE SSEE COMPANY HAS MADE HUGE INVESTMENT WITH SUBSIDIARY COMPANY. THE ASSES SEE SUBMITTED THAT THE INVESTMENT DURING THE YEAR WERE MADE OUT O F CASH SURPLUS EARNED BY THE COMPANY DURING THE YEAR AND HAS BEEN SHOWN AS INVESTMENT. IN SUPPORT OF ABOVE CONTENTION, THE AS SESSEE HAS FILED COPY OF ANNUAL ACCOUNTS OF ALL THE THREE COMPANIES. THE REPLY OF THE ASSESSEE WAS CONSIDERED BY THE AO AND HE OBSERVED THAT THE ASSESSEE COMPANY HAS MADE FURTHER INVESTME NT WITH SUBSIDIARY COMPANY. AS THE SUBSIDIARY COMPANY IS A SEPARATE EN TITY AND DOING ITS OWN BUSINESS THE INVESTMENT MADE BY ASSESSEE COMPAN Y WITHOUT CHARGING ANY INTEREST IS NOT ALLOWABLE IN NATURE. T HE ASSESSEE COMPANY HAS PAID INTEREST TO THE BANK/OTHERS AND CLAIMED EX PENSES AT RS. 9185.77 LAKHS IN THE P&L ACCOUNT. CONSIDERING THIS FACT, ON THE INVESTMENT MADE AT RS.2343.35 LAKHS WITH THE ABOVE SUBSIDIARY COMPANIES INTEREST CHARGED @12% WHICH COMES TO RS. 28.12 LAKHS AND THE SAME IS ADDED TO THE TOTAL INCOME. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 78 54. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), WHO HAD CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSER VING AS UNDER:- THE A.O. DISALLOWED INTEREST RELATED TO INVESTMENT IN SUBSIDIARY. ON ONE HAND, ASSESSEE WAS PAYING INTERE ST ON THE LOANS TAKEN AND ON THE OTHER HAND, MADE INVESTMENTS IN SUBSIDIARY COMPANY. THE INCOME FROM SUBSIDIARY COMP ANY (DIVIDEND) IS EXEMPT UNDER INCOME TAX ACT AND IN VI EW OF SECTION 14 OF THE I.T. ACT, NO EXPENDITURE CAN BE A LLOWED IN RELATION TO SUCH INVESTMENT. THE ASSESSEE CLAIMED THAT THESE INVESTMENTS WERE MADE OUT OF SURPLUS FUNDS AVAILABL E WITH THE ASSESSEE, HOWEVER, NO SUPPORTING EVIDENCE WAS FURNI SHED. THEREFORE, DISALLOWANCE OF INTEREST AMOUNTING TO RS . 28,12,000/- IS CONFIRMED. 55. NOW THE ASSESSEE IS IN APPEAL BEFORE US. THE LD . AR OF THE ASSESSEE HAS REITERATED THE ARGUMENTS MADE BEFORE T HE LD. CIT(A) AND PRAYED TO ALLOW THE APPEAL ON THIS GROUND. 56. AT THE OUTSET, THE LD CIT DR HAS VEHEMENTLY SUP PORTED THE ORDERS OF THE LOWER AUTHORITIES. 57. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE LD CIT(A) HAS GIVEN A FINDING THAT THE ASSESSEE CLAIMED THAT THESE INVES TMENTS WERE MADE OUT OF SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE, H OWEVER, NO SUPPORTING EVIDENCE WAS FURNISHED. THE ONUS TO E STABLISH THAT THE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 79 INVESTMENTS ARE MADE OUT OF SURPLUS FUNDS AND NOT B ORROWED FUNDS IS ON THE ASSESSEE AND THE SAME HAS NOT BEEN DISCHARGE D IN THE INSTANT CASE. WE ACCORDINGLY SET-ASIDE THE MATTER TO THE F ILE OF THE AO TO EXAMINE THE MATTER AFRESH. ACCORDINGLY, THIS GROUN D OF APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 58. GROUND NO. 3 OF THE ASSESSEES APPEAL IS AGAINS T NOT ALLOWING THE EXPENDITURE OF EDUCATION CESS OF RS. 2,41,59,485/- FROM INCOME CLAIMED BY THE APPELLANT AND THE LD. CIT(APPEALS) ERRED IN CONFIRMING THE SAME. THE EDUCATION CESS WAS ACTUALLY PAID ON INCOME TAX AND IS NOT A PART OF INCOME TAX AS PER THE PROVISIONS OF SECTION 40(A)(I I) OF THE ACT. THE FACTS AND THE SUBMISSIONS OF THE ASSESSEE BEFORE TH E LD. CIT(A) IS AS UNDER:- THAT THE ASSESSEE HAS DEBITED THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED ON 31.03.2008 BY AN AMOUNT OF RS. 94 90.53 LAC UNDER THE HEAD INCOME TAX, THE BREAK-UP OF WHICH IS AS UNDER:- SL. NO. DESCRIPTION INCOME TAX SURCHARGE EDUCATION CESS SECONDARY & HIGHER EDUCATION CESS TOTAL EDUCATION CESS GRANT TOTAL (TAX SURCHARGE & CESS) (1) (2) (3) (4) (5) (6) 7=(5)+(6) (8)=(3)+(4)+(7) 1 CURRENT TAX 8331.61 833.16 183.29 91.65 274.94 9439.71 2 TONNAGE TAX 44.85 4.49 0.99 0.49 1.48 50.82 3 TOTAL 8376.46 837.65 184.28 92.14 276.42 9490.53 ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 80 THE ASSESSEE IS OF THE CONSIDERED OPINION THAT THE EDUCATION CESS AND SECONDARY & HIGHER EDUCATION CESS (COLLECT IVELY CALLED AS EDUCATION CESS) ARE NOT A TAX AND HENCE NOT DISALLOWABLE U/S 40(A)(II) OF THE ACT ON THE BASIS OF FOLLOWING SUBMISSION:- (1) THAT ON A PLAIN READING OF THE ABOVE PROVISION OF SECTION 40(A) (II), IT IS EVIDENT THAT A SUM PAID OF ANY RA TE OR TAX IS EXPRESSLY DISALLOWED BY THIS SUB-CLAUSE IN TWO CASE S : (I) WHERE THE RATE IS LEVIED ON THE PROFIT OR GAINS OF ANY BU SINESS ORPROFESSION, AND (II) WHERE THE RATE OR TAX IS ASS ESSED AT A PROPORTION OF OR OTHERWISE ON THE BASIS OF ANY SUCH PROFITS OR GAINS. IT IS EVIDENT THAT NOWHERE IN THE SAID SECTI ON IT HAS BEEN MENTIONED THAT EDUCATION CESS IS NOT ALLOWABLE. EDU CATION CESS IS NEITHER LEVIED ON THE PROFITS OR GAINS OF ANY BUSIN ESS OR PROFESSION NOR ASSESSED AT A PROPORTION OF, OR OTHE RWISE ON THE BASIS OF, ANY SUCH PROFITS OR GAINS. (2) THAT IN CBDT CIRCULAR NO. 91/58/66 ITJ (19), DATED MAY 18, 1967 IT HAS BEEN CLARIFIED THAT THE EFFECT OF T HE OMISSION OF THE WORD CESS FROM SECTION 40(A)(II) IS THAT ONLY TAXES PAID ARE TO BE DISALLOWED IN THE ASSESSMENT FOR THE YEARS 19 62-63 ONWARDS. THUS, AS PER THE SAID CIRCULAR, EDUCATION CESS CANNOT BE DISALLOWED; THERE CANNOT BE A CONTRADICTION AS T HE CIRCULARS BIND THE TAX AUTHORITIES. (3) THAT EDUCATION CESS CANNOT BE TREATED AT PAR WI TH ANY RATE OR TAX WITHIN THE MEANING OF SECTION 40(A) (II) ESPECIALLY WHEN THE SAME IS ONLY A CESS AS MAY ALSO BE SEEN FROM THE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 81 SPEECH OF THE HONBLE FINANCE MINISTER WHILE PLACIN G BEFORE THE PARLIAMENT THE BUDGET FOR THE YEAR 2004-05 ([2004] 268 ITR (ST.) 1,6). EDUCATION. 22. IN MY SCHEME OF THINGS, NO ISSUE ENJOYS A HIGHE R PRIORITY THAN PROVIDING BASIC EDUCATION TO ALL CHILDREN. THE NCMP MANDATES GOVERNMENT TO LEVY AN EDUCATION CESS. I PR OPOSE TO LEVY A CESS OF 2 PER CENT. THE NEW CESS WILL YIELD ABOUT RS. 4000- 5000 CRORE IN A FULL YEAR. THE WHOLE OF THE AMOUNT COLLECTED AS CESS WILL BE EARMARKED FOR EDUCATION, WHICH WILL NA TURALLY INCLUDE PROVIDING A NUTRITIOUS COOKED MIDDAY MEAL. IF PRIMA RY EDUCATION AND THE NUTRITIOUS COOKED MEALS SCHEME CAN WORK HAN D-IN-HAND, I BELIEVE THERE WILL BE A NEW DAWN FOR THE POOR CHI LDREN OF INDIA (4) THAT SECTION 43B OF THE IT ACT, 1961 SAYS THAT NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PRO VISIONS OF THE INCOME-TAX ACT, ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX, DUTY, CESS OR FEE BY WHATEVER NAMED CALLED UND ER ANY LAW, IS DEDUCTIBLE UPON ACTUAL PAYMENT. HENCE, EDUCATION CESS CAN BE DEDUCTED ON PAYMENT BASIS ONLY IRRESPECTIVE OF THE YEAR TO WHICH IT RELATES. FURTHER SECTION 43B STARTS WITH A NON O BSTANTE CLAUSE NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PRO VISION OF THIS ACT A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RESPECT OF (A) ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX, DUTY, CESS OR FEE ...., WHICH MAKES IT VERY CLEAR THAT THE CE SS IS ALLOWABLE. HOWEVER, IT IS ALLOWABLE ON PAYMENT BASIS AS PRESCR IBED. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 82 (5) THAT THE WORK CESS IS GENERALLY USED WHEN THE LEVY IS FOR SOME SPECIAL PURPOSE, WHICH MAY BE NAMED AS HEALTH CESS, EDUCATION CESS, ROAD CESS ETC. (6) THAT THE TERM TAX' HAS BEEN DEFINED IN SECTION 2(4 3) OF THE ACT TO INCLUDE INCOME TAX AND FROM THE ASSESSME NT YEAR 2006-07 ALSO FRINGE BENEFIT TAX PAYABLE UNDER SECTI ON 11 5W. SECTION 4 DEALS WITH CHARGE OF INCOME TAX AND IT SA YS THAT WHERE ANY CENTRAL TAX ENACTS THAT INCOME-TAX SHALL BE CHA RGED FOR ANY ASSESSMENT YEAR AT ANY RATE OR RATES, INCOME-TAX AT THAT RATE OR THOSE RATES SHALL BE CHARGED FOR THAT YEAR IN ACCOR DANCE WITH, AND SUBJECT TO THE PROVISIONS (INCLUDING PROVISIONS FOR THE LEVY OF ADDITIONAL INCOME-TAX) OF THIS ACT IN RESPECT OF TH E TOTAL INCOME. APPARENTLY, EDUCATION CESS CANNOT BE SAID TO BE IN THE NATURE OF INCOME TAX OR ADDITIONAL INCOME-TAX FOR THE PURPOSE OF THE ACT FOR THE PURPOSE OF SECTION 40(A)(II). (7) THAT EDUCATION CESS IS A LEVY UNDER THE FINANCE ACTS FOR THE SPECIFIC PURPOSE OF PROVIDING BETTER EDUCATION. IT MAY ALSO BE NOTED THAT IN RESPECT OF SURCHARGE THERE IS NO MENT ION OF THE PURPOSE FOR WHICH THE SURCHARGE IS TO BE USED. IN T HE CASE OF EDUCATION CESS, IT HAS BEEN SAID THAT IT HAS TO B E EARMARKED FOR EDUCATION AND NUTRITIOUS COOKED MID-DAY MEALS. (8) THAT IT MAY BE MENTIONED THAT WHERE THE LEGISLA TURE WANTED CERTAIN TAXES TO BE EXCLUDED FOR THE PURPOSE OF COMPUTATION OF TAXABLE INCOME, IT HAS SPECIFICALLY PROVIDED FOR THIS. THE INSTANCES ARE AMOUNTS PAID AS SECURITIES TRANSACTION TAX ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 83 AND FRINGE BENEFIT TAX IN SECTION 40 OF THE INCOME- TAX ACT. FOR EXAMPLE, IF FRINGE BENEFIT TAX IS ALSO A TAX WITHIN THE MEANING OF SECTION 40(A)(II), THEN THERE WAS NO NECESSITY OF S PECIFICALLY MENTIONING IT FOR DISALLOWANCE IN SECTION 40(A)(IC) . LIKEWISE SECURITY TRANSACTION TAX WAS DISALLOWABLE UNDER THE PROVISION OF SECTION 40(A)(IB). HAD THERE BEEN ANY INTENTION OF DISALLOWING EDUCATION CESS, SUCH PROVISION WOULD HAVE BEEN SPEC IFICALLY BEEN CARVED OUT IN THE INCOME-TAX ACT, WHICH HAS NOT BEE N DONE. (9) EDUCATION CESS IN CONSONANCE WITH FINANCE MIN ISTERS SPEECH MENTIONED SUPRA, IS NOT ONLY LEVIED ON DIREC T TAXES BUT ALSO ON INDIRECT TAXES SUCH AS CUSTOMS DUTY AND EXC ISE DUTY AND SERVICE TAX. IN THE ABSENCE OF SPECIFIC PROVISIONS IN THE INCOME- TAX ACT, THE SAME IS NOT DISALLOWABLE AS EDUCATION CESS ON INDIRECT TAXES IS ALSO ALLOWED. (10) WHILE INCOME-TAX AND SURCHARGE ON INCOME-TAX FOR THE PURPOSE OF UNION LEVIES FALL UNDER TAX IN THE FIR ST SCHEDULE, EDUCATION CESS DOES NOT FIND PLACE IN THE SAME SC HEDULE AS IT IS NOT A TAX'. EDUCATION CESS FOR THE SPECIFIC PURP OSE FINDS PLACE IN THE FINANCE ACT AS OBVIOUSLY NOT A TAX' BUT A S EPARATE LEVY. SECTION 2(1) OF THE FINANCE ACT, 2006 PROVIDES THAT SUBJECT TO THE PROVISIONS OF SUBSECTION (2) AND (3) FOR THE AS SESSMENT YEAR COMMENCING ON THE FIRST DAY OF APRIL, INCOME-TAX SH ALL BE CHARGED AT THE RATES SPECIFIED IN PART I OF THE FIR ST SCHEDULE AND SUCH TAX SHALL BE INCREASED BY A SURCHARGE FOR THE PURPOSE OF THE UNION CALCULATED IN EACH CASE IN THE MANNER PROVIDE D THEREIN. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 84 NOW, IT MAY BE NOTED THAT SUB-SECTION (2) AND (3) O F SECTION 2 OF THE FINANCE ACT AS ALSO PART I OF THE FIRST SCHEDUL E DO NOT DEAL WITH EDUCATION CESS ON INCOME-TAX. IN FACT, IT IS T HE FIRST SCHEDULE WHICH PRESCRIBES THE RATE OF INCOME-TAX AS ALSO SURCHARGE. EDUCATION CESS IS DEALT SEPARATELY IN SUB-SECTION ( 11) OF SECTION 2 OF THE FINANCE ACT, 2006 [2006] 282ITR (ST.) 14 AT PAGE 20, WHICH READS AS UNDER: (11) THE AMOUNT OF INCOME-TAX AS SPECIFIED IN SUB- SECTION (1) TO (10) AND AS INCREASED BY A SURCHARGE FOR PURPOSE OF THE UNION CALCULATED IN THE MANNER PROVIDED THEREIN, SHALL BE FURTHER INCREASED BY AN ADDITIONAL INCOME-TAX, SO AS TO FU LFILL THE COMMITMENT OF THE GOVERNMENT TO PROVIDE AND FINANCE UNIVERSALIZED QUALITY BASIC EDUCATION, CALCULATED A T THE RATE OF TWO PER CENT OF SUCH INCOME-TAX AND SURCHARGE. IT MAY BE NOTED THAT THE SURCHARGE ON INCOME-TAX FI NDS PLACE IN THE FIRST SCHEDULE [2006] 282 ITR (ST.) 14 AT PAGE 67, BUT THAT IS NOT THE CASE SO FAR EDUCATION CESS IS CONCERNED. TH EREFORE, EDUCATION CESS ON THIS REASONING ALSO CANNOT BE TRE ATED AS TAX. IT CANNOT AT ALL BE TREATED AS TAX LEVIABLE ON THE BAS IS OF THE PROFIT OF THE BUSINESS WITHIN THE MEANING OF SECTION 40(A) (II). BASED ON THE ABOVE DISCUSSION THE ASSESSEES CLAIM FOR DEDUCTION OF EDUCATION CESS OF RS. 2,41,59,485/- COMPUTED AS UNDER SHOULD BE ALLOWED AS A DEDUCTION FROM TOTAL INCOME: - SL. DESCRIPTION AMOUNT IN RS. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 85 NO. 1. TOTAL INCOME 2440351979 2 INCOME TAX @ 30% 732105594 3. SURCHARGE @ 10% 73210559 4. EDUCATION CESS @ 2% 16106323 5. SECONDARY & HIGHER EDUCATION CESS @ 1% 8053162 6. TOTAL EDUCATION CESS (4+5) 24159485 7. GROSS TAX LIABILITY INCLUDING SURCHARGE AND CESS 829475638 59. THE LD. CIT(A) IN 1 ST APPEAL HAS DISMISSED THE APPEAL ON THIS GROUND BY HOLDING THAT THE EDUCATION CESS ON INCOME TAX IS PART OF INCOME TAX AND THE SAME CANNOT BE ALLOWED AS EXPEND ITURE. IN VIEW OF THE SPECIFIC PROVISIONS OF SECTION 40(A)(II) OF THE ACT. 60. NOW THE ASSESSEE IS IN APPEAL BEFORE US. THE LD AR OF THE ASSESSEE HAS SUBMITTED AS UNDER: 1. PROVISIONS OF SECTION 40(A) (II) : AT THE OUTSET IT IS SUBMITTED THAT THERE IS NO DISPUTE THAT THE PAYMENT BY WAY OF EDUCATION CESS IS A DEDUCTIBLE EX PENDITURE UNDER SECTION 37(1) AS THE ONLY REASON GIVEN FOR DISALLOW ING THE SAME IS BY INVOKING SECTION 40(A)(II). IT IS SUBMITTED THAT SE CTION 40(A) (II) READS THUS, NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIO NS 30 TO 38 THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BU SINESS OR PROFESSION, A) (I), (IA), ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 86 (IB), (IC) (II) ANY SUM PAID ON ACCOUNT OF ANY RATE O R TAX LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION OR A SSESSED AT A PROPORTION OF, OR OTHERWISE ON THE BASIS OF, ANY SU CH PROFITS OR GAINS. ON A PLAIN READING OF SECTION 40(A)(II), IT IS EVID ENT THAT A SUM PAID ON ACCOUNT OF ANY RATE OR TAX IS EXPRESSLY DISAL LOWED BY THIS SUB- CLAUSE IN TWO CASES: (I) WHERE THE RATE OR TAX IS LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION, AND (II) WHERE THE RATE OR TAX IS ASSESSED AT A PROPORT ION OF OR OTHERWISE ON THE BASIS OF ANY SUCH PROFITS OR GAINS. THEREFORE, A CESS SUCH AS THE EDUCATION CESS CAN NE VER BE DISALLOWED UNDER SECTION 40(A)(II) AS IT IS NOT A TAX OR A RAT E AND IN ANY EVENT IS NOT LEVIED ON THE BASIS OF THE PROFITS OF A BUSINES S. THIS IS FURTHER BORNE OUT BY THE FACT THAT UNDER THE INDIAN INCOME- TAX ACT 1922 SECTION 10(4), WHICH WAS THE EQUIVALENT PROVISION T O SECTION 40(A)(II) SPECIFICALLY INCLUDED WITHIN ITS AMBIT NOT ONLY RAT ES AND TAXES BUT ALSO A CESS. THE LEGISLATIVE HISTORY, THUS, SUPPORTS THE INTERPRETATION THAT A CESS CANNOT BE DISALLOWED BY INVOKING SECTION 40(A) (II). IF THERE WAS ANY DOUBT, THE SAME IS SET AT REST BY CBDT CIRCUL AR NO.91/58/66 ITJ(19) DT. 18-5-1967 WHEREIN IT HAS BEEN CLARIFIED THAT THE EFFECT OF THE OMISSION OF THE WORD CESS FROM SEC. 40(A)(II) IS THAT ONLY TAXES ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 87 PAID ARE TO BE DISALLOWED IN THE ASSESSMENT FOR THE YEARS 1962-63 ONWARDS. THUS, AS PER THE SAID CIRCULAR, THE EDUCAT ION CESS CANNOT BE DISALLOWED AND AS THE CIRCULAR BINDS THE TAX AUTHOR ITIES A POSITION CONTRARY THERETO COULD NOT HAVE BEEN TAKEN BY THE R EVENUE. 2. CASE OF DUNCANS INDUSTRIES LTD. VS. JOINT COMMISSIO NER OF INCOME-TAX [2003] 87 ITD 457 (KOL.): IN THE ABOVE CASE, THE KOLKATA BENCH OF HONBLE TRI BUNAL HELD THAT A CESS DOES NOT FALL WITHIN THE PROHIBITORY ITEMS O F DEDUCTION UNDER SECTION 40(A)(II) AND ALSO THAT A CESS LEVIED UNDER THE WEST BENGAL RURAL EMPLOYMENT PRODUCTION ACT, 1976 AND THE WEST BENGAL PRIMARY EDUCATION ACT, 1973 IS PERMISSIBLE AS A DED UCTION IN COMPUTING THE INCOME FROM BUSINESS. THE TRIBUNAL IN THE SAID DECISION HAS DEALT WITH THE ISSUE IN GREAT DETAILS WITH REFERENCE TO SECTION 10(4) OF THE 1922 ACT, THE CIRCULAR BEING F . NO. 91/58/66/- ITJ(19), DATED 18-5-1967 OF THE BOARD AS ALSO VARIO US DECISIONS AND IN PARAS 19 TO 21 IT IS HELD AS UNDER, 19. A PROVISION ANALOGOUS TO SECTION 10(4) OF THE 1922 ACT WAS PROPOSED TO BE INCORPORATED AS SECTION 40(II) OF TH E INCOME-TAX ACT, 1961 AS UNDER: 40(II) ANY SUM PAID ON ACCOUNT OF ANY CESS, RATE OR TAX LEVIED ON THE PROFITS OR GAINS OF ANY B USINESS OR PROFESSION OR ASSESSED AT A PROPORTION OF, OR OTHER WISE ON THE BASIS OF, ANY SUCH PROFITS OR GAINS; WHEN THE MATTER CAM E UP BEFORE THE SELECT COMMITTEE, IT WAS DECIDED TO OMIT THE WORD CESS FROM THE PROPOSED CLAUSE. THE EFFECT OF THE OMISSION OF THE WORD CESS IS THAT ONLY THE TAXES PAID ARE TO BE DISALLOWED IN AS SESSMENT YEARS 1962-63 AND ONWARDS. FOR THE SAKE OF REFERENCE SECT ION 40(A)(II) AS APPROVED IS REPRODUCED HEREUNDER: 40(A)(II) AN Y SUM PAID ON ACCOUNT OF ANY RATE OR TAX LEVIED ON THE PROFITS OR GAINS OF ANY ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 88 BUSINESS OR PROFESSION OR ASSESSED AT A PROPORTION OF, OR OTHERWISE ON THE BASIS OF, ANY SUCH PROFITS OR GAINS; 20. THE C.B.D.T. HAVE ALSO CLARIFIED THE EFFECT OF OMISSION OF WORD CESS FROM SECTION 40(II). DEPARTMENTAL CIRCULAR B EING F. NO. 91/58/66/-ITJ(19), DATED 18-5-1967 RELATING TO APPL ICABILITY OF PROVISIONS OF SECTION 40(A)(II) OF THE I.T. ACT, 19 61 IS REPRODUCED HEREUNDER: INTERPRETATION OF PROVISION OF SECTION 40(A)(II) O F THE INCOME-TAX ACT, 1961 CLARIFICATION REGARDING: RECENTLY A CA SE HAS COME TO THE NOTICE OF THE BOARD WHERE THE INCOME- TAX OFFIC ER HAS DISALLOWED THE CESS PAID BY THE ASSESSEE ON THE G ROUND THAT THERE HAS BEEN NO MATERIAL CHANGE IN THE PROVISIONS OF SE CTION 10(4) OF THE OLD ACT AND SECTION 40(A)(II) OF THE NEW ACT. 2 . THE VIEW OF INCOME-TAX OFFICER IS NOT CORRECT. CLAUSE 40(A)(II) OF THE INCOME- TAX BILL, 1961, AS INTRODUCED IN PARLIAMENT STOOD A S UNDER: (II) ANY SUM PAID ON ACCOUNT OF ANY CESS, RATE OR TAX LE VIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION OR A SSESSED AT A PROPORTION OF, OTHERWISE ON THE BASIS, OF ANY SUCH PROFITS OR GAINS. WHEN THE MATTER CAME UP BEFORE THE SELECT COMMITTEE , IT WAS DECIDED TO OMIT THE WORD CESS FROM THE CLAUSE. TH E EFFECT OF THE OMISSION OF THE WORD CESS IS THAT ONLY TAXES PAID ARE TO BE DISALLOWED IN THE ASSESSMENT FOR THE YEARS 1962-63 AND ONWARDS. 21. IT IS ALSO PERTINENT TO REFER TO SECTION 43B OF THE INCOME-TAX ACT, 1961. SECTION 43B PROVIDES MECHANISM FOR ALLOW ANCE OF DEDUCTION IN RESPECT OF PAYMENT OF TAX, DUTY, CESS OR FEE BY WHATEVER NAME CALLED. THIS SECTION READS AS UNDER: 43B. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PRO VISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RESPECT OF (A) ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX, DUTY, CESS OR FEE, BY WHATEVER NAME CALLED, UNDER ANY LAW FOR THE TIME BEING IN FORCE, OR (B) TO (F) ** ** ** SHALL BE ALLOWED (IRR ESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SU M WAS INCURRED BY THE ASSESSEE ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 89 EMPLOYED BY HIM) ONLY IN COMPUTING THE INCOME REFER RED TO IN SECTION 28 OF THAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM: SINCE UNDER SECTION 43B THE PAYMENT OF CES S IS ALSO PROVIDED TO BE ALLOWED AS A DEDUCTION IN THE YEAR O F PAYMENT, BY IMPLICATION IT BECOMES ABUNDANTLY CLEAR THAT CESS I S PERMISSIBLE AS A DEDUCTION IN COMPUTING THE PROFITS AND GAINS OF B USINESS OF WHICH DEDUCTION IS REGULATED UNDER SECTION 43B. IN PARA 17 OF THE SAID DECISION IT HAS BEEN STATED 17. THE ISSUE AS TO WHETHER THE TAX IS LEVIED BY THE STATE GOVERN MENT IN RESPECT OF THE TEA GROWN IN THE TEA GARDENS IS ALLOWABLE AS AN EXPENDITURE FOR THE PURPOSE OF COMPUTATION OF INCOME UNDER THE PROVISIONS OF THE INCOME-TAX ACT, 1922 ALSO CAME UP FOR CONSIDERA TION OF THE SUPREME COURT IN THE CASE OF JAIPURIA SAMLA AMALGAM ATED COLLIERIES LTD. (SUPRA, I.E. 82 ITR 580 SC ). IN TH IS CASE IT WAS HELD THAT CESS LEVIED BY THE STATE GOVERNMENT IN RESPECT OF THE COAL MINES IS ALLOWABLE AS A DEDUCTION. THE WORDS PROFI TS AND GAINS OF ANY BUSINESS, PROFESSION OR VOCATION IN SECTION 10 (4) CAN, IN THE CONTEXT, HAVE REFERENCE ONLY TO PROFITS OR GAINS AS DETERMINED UNDER SECTION 10 AND CANNOT COVER THE NET PROFITS O R GAINS ARRIVED AT OR DETERMINED IN A MANNER OTHER THAN THAT PROVID ED BY SECTION 10. IN OTHER WORDS, SECTION 10(4) EXCLUDES ONLY A T AX OR CESS OR RATE, THE ASSESSMENT OF WHICH WOULD FOLLOW THE DETE RMINATION OR ASSESSMENT OF PROFITS OR GAINS OF ANY BUSINESS, PRO FESSION OR VOCATION IN ACCORDANCE WITH THE PROVISIONS OF SECTI ON 10 OF THE ACT. IT MAY BE NOTED THAT THE AFOREMENTIONED DECISION OF THE SUPREME COURT IS BASED ON PROVISIONS OF SECTION 10 OF 1922 ACT AND THAT UNLIKE THE PROVISION FOR DISALLOWANCE OF CESS LEVIE D ON THE PROFITS OR GAINS OF ANY BUSINESS, PROFESSION OR VOCATION IN CE RTAIN CASES UNDER THE 1922 ACT, THERE IS NO PROVISION UNDER THE 1961 ACT. FROM THE ABOVE IT IS CLEAR THAT THE CESS DOES NOT F ALL WITHIN THE PROHIBITORY ITEMS OF DEDUCTION UNDER SECTION 40(A)( II). 3. EDUCATION CESS NOT AT PAR WITH ANY RATE OR TAX, : ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 90 THE TERMS CESS, RATE, TAX, FEE ALL HAVE DIFFERE NT CONNOTATIONS IN LAW. THE EDUCATION CESS CANNOT BE TREATED AT PAR WITH AN Y RATE OR TAX, WITHIN THE MEANING OF SECTION 40(A)(II) ESPECIALLY WHEN THE SAME IS ONLY A CESS AS IS EVIDENT FROM THE SPEECH OF THE HONBLE FINANCE MINISTER WHILE PLACING THE BUDGET FOR THE YEAR 2004 -05 BEFORE THE PARLIAMENT. EDUCATION 22. IN MY SCHEME OF THINGS, NO ISSUE ENJOYS A HIGHER PRIORITY THAN PROVIDING BASIC EDUCATION TO A LL CHILDREN. THE NCMP MANDATES GOVERNMENT TO LEVY AN EDUCATION CESS. I PROPOSE TO LEVY A CESS OF 2 PER CENT. THE NEW CESS WILL YIELD ABOUT RS. 4000- 5000 CRORE IN A FULL YEAR. THE WHOLE OF THE AMOUNT COLLECTED AS CESS WILL BE EARMARKED FOR EDUCATION, WHICH WILL NATURAL LY INCLUDE PROVIDING A NUTRITIOUS COOKED MIDDAY MEAL. IF PRIMARY EDUCATI ON AND THE NUTRITIOUS COOKED MEALS SCHEME CAN WORK HAND IN HAN D, I BELIEVE THERE WILL BE A NEW DAWN FOR THE POOR CHILDREN OF I NDIA. ATTRIBUTING A DIFFERENT INTENT OTHER THAN WHAT HAD ALREADY BEEN S PECIFIED BY FINANCE MINISTER WITH GREAT RESPECT IS NOT CORRECT. 4. SECTION 43B: THE AMENDMENT BROUGHT ABOUT IN SECTION 43B IS A LSO INDICATIVE OF THE DISTINCTION THE ACT MAKES BETWEEN A TAX AND A CESS. SECTION 43B OF THE IT ACT, 1961 (ACT) AS IT NOW STANDS PROVIDES THAT NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PRO VISION OF THE ACT, ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX, DUTY , CESS OR FEE BY WHATEVER NAME CALLED UNDER ANY LAW, IS DEDUCTIBLE U PON ACTUAL PAYMENT. HENCE, EDUCATION CESS CAN BE DEDUCTED ON P AYMENT BASIS ONLY IRRESPECTIVE OF THE YEAR TO WHICH IT RELATES. FURTHER SECTION 43B STARTS WITH A NON-OBSTANTE CLAUSE NOTWITHSTANDING A NYTHING CONTAINED ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 91 IN ANY OTHER PROVISION OF THIS ACT A DEDUCTION OTHE RWISE ALLOWABLE UNDER THIS ACT IN RESPECT OF (A) ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX, DUTY, CESS OR FEE WHICH MAKES IT VER Y CLEAR THAT A CESS IS ALLOWABLE AS A DEDUCTION IN COMPUTING THE BUSINE SS INCOME. HOWEVER IT IS NOW ALLOWABLE ONLY ON A PAYMENT BASIS . WHEN THE SECTION WAS INSERTED BY THE FINANCE ACT 1983, IT ON LY PROVIDED FOR AN ALLOWANCE ON A CASH BASIS OF A PAYMENT BY WAY OF TA X OR DUTY AND IT WAS ONLY BY THE FINANCE ACT 1988 THAT CLAUSE (A) WA S SUBSTITUTED TO INCLUDE INTER ALIA CESS. 5. THE LANGUAGE OF SECTION 115 JB ALSO DEMONSTRATES THAT THE EDUCATION CESS IS NOT AN INCOME-TAX FOR THE PURPOSE OF SECTIO N 40(A)(II). CLAUSE (A) OF THE EXPLANATION BELOW SECTION 115JB (2) REQU IRES THE AMOUNT OF INCOME-TAX DEBITED TO THE PROFIT AND LOSS ACCOUN T TO BE ADDED BACK FOR THE PURPOSE OF DETERMINING THE BOOK PROFIT . EXPLANATION 2 SPECIFICALLY INCLUDES WITHIN THE AMBIT OF INCOME-TA X THE EDUCATION CESS ON INCOME-TAX, WHICH DISCLOSES THAT IN THE ABSENCE OF ANY SUCH INCLUSION THE EDUCATION CESS IS NOT A TAX FOR THE P URPOSE OF SECTION 40(A)(II). 6. SPECIFIC PURPOSE: THE TERM CESS IS GENERALLY USED WHEN THE LEVY IS FOR SOME SPECIAL PURPOSE: THE WORD CESS IS GENERALLY USED WHEN THE LEVY IS FOR SOME SPECIAL PURPOSE WHICH MAY BE NAMED AS HEALTH CESS, EDUCATION CESS, ROAD CESS, ETC. (SEE SHINDE BROTHERS VS. DY. COMMIS SIONER, RAICHUR, AIR 1967 SC 1512, 1525, [MATTER RELATING TO MYSORE HEALTH CESS ACT (28 OF 1962), S.3] LAW LEXICON RAMANATH IYER REPR INT 2002.) A CESS IS RECOVERED FOR A SPECIFIC PURPOSE WHEREAS A TAX NEED NOT BE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 92 FOR ANY SPECIFIC PURPOSE. THEREFORE, UNDER GENERAL LAW TOO THERE IS A DISTINCTION BETWEEN A CESS AND A TAX OR A RATE AND THIS DISTINCTION WOULD BE EQUALLY APPLICABLE WHILST CONSTRUING SECTI ON 40(A)(II). 7. TAX DEFINED IN SECTION 2(43) : THE TERM TAX HAS BEEN DEFINED IN SECTION 2(43 ) OF THE ACT TO INCLUDE INCOME TAX AND FROM THE ASSESSMENT YEAR 2006-07 ALS O FRINGE BENEFIT TAX PAYABLE UNDER SECTION 115W. THERE IS NOTHING IN THE LANGUAGE OF SECTION 40(A)(II), WHICH WOULD JUSTIFY A DIFFERENT MEANING TO BE GIVEN TO THE WORD TAX APPEARING THEREIN. 8. HARSHAD SHANTILAL MEHTAS THE FULL BENCH DECISION OF THE SUPREME COURT IN HARSHAD SHANTILAL MEHTA VS.CUSTODI AN 231 ITR 871 (SC) HELD THAT THE DEFINITION OF TAX UNDER SECTION 2(43) OF THE ACT DOES NOT INCLUDE A PENALTY OR INTEREST AND THEREFOR E, IT FOLLOWS THAT INTEREST LEVIABLE UNDER THE ACT IS NOT COVERED BY S ECTION 40(A)(II). THE DECISION IN THE SAID CASE INDICATES THAT THE DEFINI TION OF THE TERM TAX CANNOT BE STRETCHED. LIKEWISE SECTION 40(A)(II) HAS TO OPERATE WITHIN ITS AMBIT AND NOT BEYOND. 9. GURUPRADA DATTAS CASE : IN CIT VS. GURUPRADA DATTA 14 ITR 100, 105 (PC ), A UNION RATE WAS IMPOSED UNDER A VILLAGE SELF GOVERNMENT ACT UPON TH E ASSESSEE AS THE OWNER OR OCCUPIER OF BUSINESS PREMISES, AND THE QUANTUM OF THE RATE WAS FIXED AFTER CONSIDERATION OF THE CIRCUMSTA NCES OF THE ASSESSEE, INCLUDING HIS BUSINESS INCOME. THE PRIVY COUNCIL HELD THAT THE RATE WAS NOT ASSESSED ON THE BASIS OF PROFITS A ND WAS ALLOWABLE AS A BUSINESS EXPENSE. FOLLOWING THIS DECISION, THE SUPREME COURT ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 93 HELD IN JAIPURIA SAMLA AMALGAMATED COLLIERIES LTD V S. CIT 82 ITR 580 (SC) THAT THE EXPRESSION PROFITS OR GAINS OF ANY BU SINESS HAS REFERENCE ONLY TO PROFITS AND GAINS AS DETERMINED I N ACCORDANCE WITH SECTION 29 OF THIS ACT AND THAT ANY RATE OR TAX LEV IED UPON PROFITS CALCULATED IN A MANNER OTHER THAN THAT PROVIDED BY THAT SECTION COULD NOT BE DISALLOWED UNDER THE SUB-CLAUSE. SIMILARLY T HIS SUB-CLAUSE IS INAPPLICABLE AND A DEDUCTION SHOULD BE ALLOWED, WHE RE A TAX IS IMPOSED BY A DISTRICT BOARD ON BUSINESS WITH REFERE NCE TO ESTIMATED INCOME OR BY A MUNICIPALITY WITH REFERENCE TO GRO SS INCOME. BESIDES, UNLIKE SECTION 10(4) OF THE INCOME-TAX ACT , 1922, THIS SUB- CLAUSE DOES NOT REFER TO CESS AND, THEREFORE, EVEN IF A CESS IS LEVIED UPON OR CALCULATED ON THE BASIS OF BUSINESS PROFITS MAY BE ALLOWED IN COMPUTING SUCH PROFITS UNDER THIS ACT. (THOUGH THE EDUCATION CESS IS NOT LEVIED ON BUSINESS PROFITS, SO THERE IS NO QUES TION OF ITS DISALLOWANCE]. 10. SECTION 40(A)(II) OPERATES ONLY WHERE A TAX OR A CESS IS LEVIED UPON OR CALCULATED ON THE BASIS OF BUSINESS PROFITS : FROM VARIOUS DECISIONS IT IS CLEAR THAT SECTION 40(A)(II) OPERAT ES ONLY WHERE A TAX OR A CESS IS LEVIED UPON OR CALCULATED ON THE BASIS OF BUSINESS PROFITS. A FORTIORI, RATES AND TAXES WHICH ARE PAYABLE IRRESPE CTIVE OF ANY PROFITS OF BEING EARNED ARE ADMISSIBLE ALLOWANCES UNDER SEC TION 37 AND THE SUB-CLAUSE DOES NOT APPLY TO THEM. THUS, PROFESSION TAX LEVIED BY THE STATE GOVERNMENT IS OBVIOUSLY NOT COVERED BY THIS S ECTION. A COMPULSORY TOLL OR IMPOST LEVIED UNDER MUNICIPAL AC T ON A COMPANY BEFORE BEING ALLOWED TO CARRY ON BUSINESS WITHIN TH E MUNICIPAL LIMITS IS DEDUCTIBLE UNDER SECTION 37 AS A TRADE EXPENSE, FOR SUCH A TAX IS ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 94 ANALOGOUS TO LICENSE FEE AND IS NOT A TAX ON PROFIT S BUT A NECESSARY CONDITION PRECEDENT TO THE EARNING OF PROFITS. [CIT VS. NEDUNGADI 1 ITC 355; GREAVES COTTON VS. CIT 70 ITR 181]. SIMILA RLY, A RATE IMPOSED ON THE ANNUAL OUTPUT OF A COAL MINE OR ON T HE ANNUAL DESPATCHES OF COAL FROM THE MINE, IRRESPECTIVE OF A NY PROFIT BEING EARNED IS DEDUCTIBLE UNDER SECTION 37. [RE KM COAL 1 ITC 281] 11. SECTION 37: THE EXPRESSION USED IN SECTION 37 IS FOR THE P URPOSE OF BUSINESS. THIS EXPRESSION IS WIDER IN SCOPE THAN THE EXPRESSI ON FOR THE PURPOSE OF EARNING PROFITS. IT MAY TAKE IN NOT ONLY THE DA Y-TO-DAY RUNNING OF A BUSINESS BUT ALSO INCLUDE MEASURES FOR THE PRESER VATION OF THE BUSINESS AND FOR THE PROTECTION OF ITS ASSETS AND P ROPERTY FROM EXPROPRIATION, IT MAY ALSO COMPREHEND PAYMENT OF ST ATUTORY DUES AND TAXES. IF EDUCATION CESS IS NOT PAID, IT CAN LEAD T O RECOVERY PROCEEDINGS RESULTING IN EXPROPRIATION OF THE ASSET S OF THE TAXPAYERS. ACTUALLY, THE CESS IS IN THE NATURE OF CONTRIBUTION FOR SPECIFIC OBJECTIVES FROM THE TAXPAYERS SIDE, WHICH OBJECTIV ES ARE TO BE MET BY THE GOVERNMENT AND, HENCE WOULD BE ALLOWABLE UNDER SECTION 37(1). 12. WHERE THE LEGISLATURE WANTED CERTAIN TAXES TO BE EX CLUDED FOR THE PURPOSES OF COMPUTATION OF TAXABLE INCOME, IT HAS SPECIALLY PROVIDED SO : IT MAY BE MENTIONED THAT WHERE THE LEGISLATURE WANTED CERTAIN TAXES OTHER THAN INCOME-TAX TO BE EXCLUDED FOR THE PURPOS ES OF COMPUTATION OF TAXABLE INCOME, IT HAS SPECIALLY PRO VIDED FOR THE SAME. THE INSTANCES ARE AMOUNTS PAID AS WEALTH-TAX, SECURITIES TRANSACTION TAX AND FRINGE BENEFIT TAX IN SECTION 4 0 OF THE IT ACT. FOR ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 95 EXAMPLE IF FRINGE BENEFIT TAX IS ALSO A TAX WITHIN THE MEANING OF SECTION 40(A)(II), THEN THERE WAS NO NECESSITY OF S PECIFICALLY MENTIONING IT FOR DISALLOWANCE IN SECTION 40(A)(IC) . LIKEWISE SECURITY TRANSACTION TAX IS DISALLOWABLE UNDER THE SPECIFIC PROVISIONS OF SECTION 40(A)(IB). HAD THERE BEEN ANY INTENTION OF DISALLOW ING EDUCATION CESS, SUCH PROVISION WOULD HAVE BEEN SPECIFICALLY BEEN EN ACTED WHICH HAS NOT BEEN DONE. 13. EDUCATION CESS IS ALSO ON INDIRECT TAXES AND IS ALS O ALLOWED: EDUCATION CESS IN CONSONANCE WITH FINANCE MIN STERS SPEECH MENTIONED SUPRA IN PARA 6 ABOVE, IS NOT ONLY RECOVE RED BASED ON THE INCOME-TAX COMPUTED ON THE TOTAL INCOME BUT ALSO ON INDIRECT TAXES SUCH AS CUSTOMS DUTY, EXCISE DUTY AND SERVICE TAX. IN THE ABSENCE OF SPECIFIC PROVISIONS IN THE INCOME-TAX ACT, THE EDUC ATION CESS COMPUTED AS A PERCENTAGE OF THE INCOME-TAX IS NOT D ISALLOWABLE AS THE EDUCATION CESS ON INDIRECT TAXES IS ALSO ALLOWE D. 14. SEPARATE PAYMENT DETAILS OF EDUCATION CESS ARE TO B E MENTIONED IN THE CHALLANS: SEPARATE ROWS AND COLUMNS ARE PROVIDED IN THE C HALLAN TO INDICATE THE EDUCATION CESS AMOUNT SEPARATELY. SEPARATE PAYM ENT DETAILS OF EDUCATION CESS ARE NOT ONLY TO BE MENTIONED IN THE CHALLAN OF INCOME TAX AND OTHER INDIRECT TAXES AS STATED ABOVE. FURTH ER, CREDIT OF EDUCATION CESS ON INPUT /CAPITAL GOODS, CAN BE SET OFF ONLY AGAINST OUTPUT EDUCATION CESS. 15. MEETING OF CENTRAL DIRECT TAXES ADVISORY COMMITTEE: ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 96 IT WAS POINTED OUT IN THE 16TH MEETING OF CDTAC HELD ON 2-2-1972 THAT WHILE EDUCATION CESS WAS ALLOWED AS A BUSINESS EXPENDITURE IN OTHER STATES, THE SAME WAS NOT BEING ALLOWED AS A D EDUCTION BY THE INCOME-TAX OFFICERS IN GUJARAT CHARGE. THE COMMITTE E WAS INFORMED THAT IN VIEW OF THE SUPREME COURTS DECISION IN THE CASE OF JAIPURIA SAMLA AMALGAMATED COLLIERIES LTD. VS. CIT [1971] 82 ITR 580, EDUCATION CESS WAS ALLOWABLE AS A DEDUCTION AND SUI TABLE INSTRUCTIONS TO THAT EFFECT HAD ALREADY BEEN ISSUED BY THE BOARD . 16. EDUCATION CESS IS NOT IN THE FIRST SCHEDULE AS IT IS NOT A TAX : WHILE INCOME-TAX AND SURCHARGE ON INCOME-TAX FOR THE PURPOSES OF UNION ARE SPECIFICALLY REFERRED TO IN PART 1 OF THE FIRST SCHEDULE, WHICH PROVIDES FOR THE RATES AT WHICH INCOME-TAX IS TO BE LEVIED WHEREAS THE EDUCATION CESS IS NOT FINDING PLACE IN THE SAME S CHEDULE AS IT IS NOT A TAX. THE LEVY OF EDUCATION CESS IS TO BE FOUN D IN SUB-SECTIONS (11) AND (12) OF SECTION 2 OF THE FINANCE ACT WHICH OBVI OUSLY IS INDICATIVE OF THE FACT THAT IT IS NOT A TAX BUT A SEPARATE L EVY. 17. SECTION 2(1) OF THE FINANCE ACT, 2006: AS PER SECTION 2(1) OF THE FINANCE ACT, 2006: S UBJECT TO THE PROVISIONS OF SUB-SECTIONS (2) AND (3) FOR THE ASSE SSMENT YEAR COMMENCING ON THE FIRST DAY OF APRIL, 2006, INCOME- TAX SHALL BE CHARGED AT THE RATES SPECIFIED IN PART I OF THE FIR ST SCHEDULE AND SUCH TAX AS REDUCED BY THE REBATE OF INCOME TAX CALCULAT ED UNDER CHAPTER VIIIA OF THE INCOME-TAX ACT, 1961 (43 OF 1961) (HER EINAFTER REFERRED TO AS THE INCOME-TAX ACT), SHALL BE INCREASED BY A SURCHARGE FOR PURPOSES OF THE UNION CALCULATED IN EACH CASE I N THE MANNER ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 97 PROVIDED THEREIN. EDUCATION CESS IS NOT AT ALL MENT IONED IN THE FIRST SCHEDULE TO THE FINANCE ACT, 2006 [282 ITR (ST.) 14 ]. SECTION 2(1) OF THE FINANCE ACT, 2006 PROVIDES T HAT TAX SHALL BE INCREASED BY A SURCHARGE FOR THE PURPOSES OF THE UN ION SUBJECT TO THE PROVISIONS OF SUB SECTIONS (2) AND ( 3): SECTION 2 (1) OF THE FINANCE ACT, 2006 PROVIDES THAT SUBJECT TO THE PROVISIONS OF SUB- SECTIONS (2) & (3) FOR THE ASSESSMENT YEAR COMMENCI NG ON THE FIRST DAY OF APRIL INCOME-TAX SHALL BE CHARGED AT THE RAT ES SPECIFIED IN PART I OF THE FIRST SCHEDULE AND SUCH TAX SHALL BE INCREASED BY A SURCHARGE FOR THE PURPOSES OF THE UNION CALCULATED IN EACH CASE IN THE MANNER PROVIDED THEREIN. NOW IT MAY BE NOTED THAT SUB- SECTIONS (2) AND (3) OF SECTION 2 OF THE FINANCE AC T AS ALSO PART I OF THE FIRST SCHEDULE DO NOT DEAL WITH EDUCATION CESS ON INCOME-TAX. IN FACT IT IS THE FIRST SCHEDULE WHICH PRESCRIBES THE RATE OF INCOME TAX AS ALSO SURCHARGE. THE EDUCATION CESS IS DEALT SEPARAT ELY IN SUB SECTIONS (11) OF SECTION 2 OF THE FINANCE ACT, 2006 [282 ITR (ST.) 14 AT PAGE 20], WHICH READS AS UNDER : (11) THE AMOUNT OF INC OME-TAX AS SPECIFIED IN SUB-SECTIONS (1) TO (10) AND AS INCREA SED BY A SURCHARGE FOR PURPOSES OF THE UNION CALCULATED IN THE MANNER PROVIDED THEREIN, SHALL BE FURTHER INCREASED BY AN ADDITIONAL SURCHAR GE FOR PURPOSES OF THE UNION, TO BE CALLED THE EDUCATION CESS ON INCO ME TAX, SO AS TO FULFIL THE COMMITMENT OF THE GOVERNMENT TO PROVIDE AND FINANCE UNIVERSALISED QUALITY BASIC EDUCATION, CALCULATED A T THE RATE OF TWO PER CENT OF SUCH INCOME-TAX AND SURCHARGE. IT MAY BE N OTED THAT THE SURCHARGE ON INCOME-TAX FINDS PLACE IN THE FIRST SC HEDULE [282 ITR (ST.) 14 AT PAGE 67], BUT THAT IS NOT THE CASE SO F AR AS EDUCATION CESS ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 98 IS CONCERNED. THEREFORE, THE EDUCATION CESS ON THIS REASONING ALSO CANNOT BE TREATED AS TAX. AND IN ANY EVENT IT CANNO T AT ALL BE TREATED AS TAX LEVIABLE ON THE BASIS OF THE PROFITS OF THE BUSINESS WITHIN THE MEANING OF SECTION 40(A) (II). CIRCULAR NO. 14 OF 2006 CONTAINING THE EXPLANATO RY NOTES ON THE PROVISIONS OF THE FINANCE ACT, 2006: IT WILL BE REL EVANT TO REFER TO THE EXPLANATORY NOTES ON PROVISIONS OF THE FINANCE ACT, 2006 AS CONTAINED IN CIRCULAR NO. 14 OF 2006 DATED 28-12-2006 REPORTE D IN 288 ITR (ST.) 9. IN ITS PARA 3-1-2010 AT 288 ITR (ST.) 9 AT PAGE 11 IT IS STATED 3.1-10 COMPANIES IN THE CASE OF A COMPANY, THE R ATE OF INCOME- TAX HAS BEEN SPECIFIED IN PARAGRAPH E OF PART I OF THE FIRST SCHEDULE TO THE ACT. IN CASE OF A DOMESTIC COMPANY, THE RATE OF INCOME TAX IS THIRTY PER CENT OF THE TOTAL INCOME. THE TAX COMPUT ED SHALL BE ENHANCED BY A SURCHARGE OF TEN PER CENT. EDUCATION CESS IS TO BE LEVIED AT THE RATE OF TWO PER CENT ON THE AMOUNT OF TAX COMPUTED, INCLUSIVE OF SURCHARGE. FROM THE ABOVE CIRCULAR ALS O IT IS CLEAR THAT EDUCATION CESS IS TO BE SEPARATELY LEVIED. THEREFOR E, IT NOT BEING PART OF PARAGRAPH E OF PART I OF THE FIRST SCHEDULE TO T HE ACT, CANNOT BE TREATED AS INCOME TAX. 18. SPEECH MADE BY THE MINISTER OR THE MOVER OF THE BILL CAN BE TAKEN INTO CONSIDERATION: WE WOULD LIKE TO STATE THAT IN ORDER TO FIND OUT LEGISLATIVE INTENT OR TO ASCERTAIN THE OBJECT OR PU RPOSE BEHIND THE LEGISLATION THE SPEECH MADE BY THE MINISTER OR THE MOVER OF THE BILL CAN BE TAKEN INTO CONSIDERATION. IN THIS RESPECT ON E MAY RELY ON THE DECISIONS IN THE CASES OF CIT VS. ACHAL DAS 217 ITR 799; KERALA SIDC VS. CIT 259 ITR 51(SC); SOORAJMULL NAGARMULL VS. CI T 190 ITR 418; ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 99 CIT VS. VAIDYA 224 ITR 186; LOKASHIKSHANA TRUST VS. CIT 101 ITR 234 (SC); ASSAM FRONTIER TEA VS. UOI 190 ITR 361. I T WAS HELD IN CP BANK VS. CIT 14 ITR 479, 481 AND CIT VS. SHIVARUDRA PPA 200 ITR 1 THAT IF THE INTERPRETATION OF A FISCAL ENACTMENT IS OPEN TO DOUBT THE CONSTRUCTION MOST BENEFICIAL OR FAVOURABLE TO THE A SSESSEE SHOULD BE ADOPTED EVEN IF IT RESULTS IN HIS OBTAINING A DOUBL E ADVANTAGE. CONCLUSION: BASED ON THE ABOVE, WE ARE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE IN RESPECT OF EDUCATION CESS IS ALLOWA BLE WHILE COMPUTING THE TAXABLE INCOME. IT IS NOT A TAX BUT A SPECIAL LEVY FOR EDUCATION AND HENCE CANNOT BE DISALLOWED. 61. AT THE OUTSET, THE LD. CIT DR HAS SUBMITTED AS UNDER:- 1. REGARDING THE ASSESSEE'S GROUND THAT THE AMOUNT OF EDUCATION CESS IS DEDUCTIBLE, IT IS HUMBLY STATED T HAT THE BACKGROUND RELATING TO INTRODUCTION OF THE SAID CES S NEEDS TO BE EXAMINED. THE SAID CESS WAS INTRODUCED BY FIN ANCE BILL, 2004-05, THE RELEVANT PORTION OF WHICH IS AS FOLLOWS: CHAPTER VI EDUCATION CESS '81.1 WITHONT PREJUDICE TO THE PROVISIONS OF SUB-SE CTION (11) OF SECTION!, THERE SHALL BE LEVIED AND COLLECTED, IN A CCORDANCE WITH THE PROVISIONS OF THIS CHAPTER AS SURCHARGE FOR PURPOSE S OF THE UNION, A CESS TO BE CALLED THE EDUCATION CESS, TO FULFILL TH E COMMITMENT OF THE GOVERNMENT TO PROVIDE AND FINANCE UNIVERSALIZED QUALITY BASIC EDUCATION.' IT IS CLEAR THAT THE SAID CESS IS INTRODUCED AS A S URCHARGE, WHICH IS ADMITTEDLY NOT DEDUCTIBLE. COPY OF RELEVAN T PORTION OF THE FINANCE BILL IS ENCLOSED AS ANNEXURE-A. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 100 2. THE PROVISIONS OF SEC 40A(II) ARE AS UNDER: ANY SUM PAID ON ACCOUNT OF ANY RATE OR TAX LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS PROFESSION OR ASSESSED AT A PROPORTION OF, OR OTHERWISE ON THE BASIS OF ANY SUCH PROFITS O R GAINS.' THE DEFINITION IS WIDE ENOUGH TO COVER ANY SUM PAID ON ACCOUNT OF ANY RATE OR TAX ON THE PROFITS OR ASSESS ED AT A PROPORTION OF SUCH PROFITS. EDUCATION CESS BEING CA LCULATED AT A PROPORTION (2% OR 1%) TO INCOME TAX, WHICH IN TURN, IS IN PROPORTION TO PROFITS OF BUSINESS, WOULD CERT AINLY QUALIFY AS A SUM ASSESSED AT A PROPORTION TO SUCH P ROFITS. IN SHORT, IF EDUCATION CESS IS CONSIDERED DEDUCTIBL E, THEN BY THE SAME LOGIC INCOME-TAX OR ANY SURCHARGE WOULD AL SO BECOME DEDUCTIBLE, WHICH WOULD BE AN ABSURD PROPORT ION. 3. FURTHER, IF EDUCATION CESS WERE TO BE DEDUCTIBL E, THEN IT WOULD NOT BE POSSIBLE TO COMPUTE IT, E.G. IF PROFIT IS RS. 100, INCOME TAX IS RS. 30 AND EDUCATION CESS IS RS. 0.90 AND IF EDUCATION CESS WERE TO BE DEDUCTIBLE FROM PR OFIT, SUCH PROFIT (AFTER SUCH DEDUCTION) WOULD BECOME RS. 99.1 (100-0.9) WHICH WOULD AGAIN NECESSITATE RECOMPUTATI ON OF INCOME-TAX WHICH WOULD NOW BE 30% OF RS. 99.1 I.E. RS. 29.73 AND ALSO RECOMPUTATION OF EDUCATION CESS WHIC H WOULD BE RS. 0.89. THE VICIOUS CIRCLE OF SUCH RECOM PUTATION WOULD CONTINUE, WHICH IS WHY LEGISLATURE IN ITS WIS DOM HAS NOT ALLOWED DEDUCTIBILITY OF AMOUNTS CALCULATED AT A PROPORTION OF PROFITS. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 101 4. MECHANISM OF RECOVERY OF UNPAID EDUCATION CESS: IN CASE OF UNPAID EDUCATION CESS, ASSESSING OFFICE R WILL RAISE DEMAND OF INCOME TAX AND CONVEY THE SAME TO 'ASSESSEE' VIDE NOTICE OF DEMAND U/S 156. IN CASE, THE SAID DEMAND IS NOT PAID DURING THE NOTICE PERIOD OF 30 D AYS OF SERVICE OF NOTICE U/S 156, INTEREST ON SUCH DEMAND IS CHARGEABLE U/S 220(2). IN ADDITION, THE ASSESSEE IS ALSO LIABLE FOR IMPOSITION OF PENALTY U/ S 221. THE WORD INGS OF SEC 221(1) ARE AS FOLLOWS: 'WHEN AN ASSESSEE IS IN DEFAULT OR IS DEEMED TO BE IN DEFAULT IN MAKING A PAYMENT OF TAX, HE SHALL, IN ADDITION TO T HE AMOUNT OF THE ARREARS AND THE AMOUNT OF INTEREST PAYABLE UNDE R SUBSECTION (2) OF SECTION 220,BE LIABLE, BY WAY OF PENALTY, TO PAY SUCH AMOUNT AS THE ASSESSING OFFICER MAY DIRECT AND IN T HE CASE OF A CONTINUING DEFAULT, SUCH FURTHER AMOUNT OR AMOUNTS AS THE ASSESSING OFFICER MAY, FROM TIME TO TIME, DIRECT, O R, HOWEVER, THAT THE TOTAL AMOUNT OF PENALTY DOES NOT EXCEED TH E AMOUNT OF TAX IN ARREARS.' THE ABOVE SAID PROVISION MAKES IT CLEAR THAT PENAL TY IS LEVIABLE IN CASE OF DEFAULT IN PAYMENT OF 'TAX'. SU CH TAX INCLUDES ANY DEMAND RELATING TO UNPAID CESS ALSO, INDICATING THAT UNPAID CESS IS TREATED AS UNPAID TA X AND IS VISITED WITH ALL CONSEQUENCES OF NON-PAYMENT OF DEM AND. THERE IS NO SEPARATE MACHINERY IN THE ACT FOR RECOV ERY OF UNPAID CESS AND IMPOSITION OF INTEREST AND PENALTY IN CASE OF DEFAULT IN PAYMENT OF UNPAID CESS. THIS INDICATE S THAT CESS IS A PART OF TAX AND ALL RECOVERY MECHANISMS & CONSEQUENCES PERTAINING TO RECOVERY OF TAX APPLY TO ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 102 RECOVERY OF CESS ALSO WITHOUT EXPLICIT MENTION OF T HE WORD 'CESS' IN THE FOREGOING PROVISIONS. HENCE, DRAWING A PARALLEL, NO EXPLICIT MENTION OF 'CESS' IS REQUIRED IN SEC. 40A(II) FOR MAKING DISALLOWANCE THEREOF. 5. IN VIEW OF THE ABOVE SUBMISSIONS, IT IS HUMBLY R EQUESTED NOT TO ALLOW THE APPELLANT'S PLEA FOR DEDUCTION OF THE AMOUNT OF EDUCATION CESS. 62. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN O RDER TO APPRECIATE THE ALTERNATE CONTENTIONS RAISED BY BOTH THE PARTIES, W E REFER TO THE PROVISIONS OF SECTION 40(A)(II) OF THE ACT WHICH IS THE SUBJECT MATTER OF EXAMINATION BEFORE US WHICH READS AS UNDER: SECTION 40(A)(II) AMOUNTS NOT DEDUCTIBLE. 40. AMOUNTS NOT DEDUCTIBLE. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION S 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION, (A) IN THE CASE OF ANY ASSESSEE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 103 (II) ANY SUM PAID ON ACCOUNT OF ANY RATE OR TAX LEV IED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION OR ASSESSED AT A PROPORTION OF, OR OTHERWISE ON THE BASIS OF, ANY SUCH PROFITS OR GAIN S. EXPLANATION 1.FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT FOR THE PURPOSES OF THIS SUB-CLAUSE, ANY SUM PAID ON AC COUNT OF ANY RATE OR TAX LEVIED INCLUDES AND SHALL BE DEEMED ALWAYS TO H AVE INCLUDED ANY SUM ELIGIBLE FOR RELIEF OF TAX UNDER SECTION 90 OR, AS THE CASE MAY BE, DEDUCTION FROM THE INDIAN INCOME-TAX PAYABLE UNDER SECTION 91. EXPLANATION 2.FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT FOR THE PURPOSES OF THIS SUB-CLAUSE, ANY SUM PAID ON AC COUNT OF ANY RATE OR TAX LEVIED INCLUDES ANY SUM ELIGIBLE FOR RELIEF OF TAX UNDER SECTION 90A; FROM THE PERUSAL OF THE AFORESAID PROVISIONS OF SEC TION 40(A)(II), IT IS CLEAR THAT : 1) WHERE ANY SUM IS PAID ON ACCOUNT OF ANY RATE OR TAX LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION; OR 2) WHERE ANY SUM IS ASSESSED AS PROPORTION OF, OR OTHE RWISE ON THE BASIS OF ANY SUCH PROFITS AND GAINS, IT WILL NOT BE ALLOWABLE AS A DEDUCTION IN THE COMP UTATION OF INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 104 THE QUESTION THAT ARISES FOR CONSIDERATION IS WHAT IS THE EXACT NATURE OF EDUCATION CESS. FOR THE PURPOSES, IT WOULD BE RELE VANT TO REFER TO THE FINANCE BILL (NO. 2) 2004 THROUGH WHICH THE EDUCATI ON CESS WAS FIRST INTRODUCED IN THE LEGISLATION. CHAPTER II RATES OF INCOME-TAX INCOME-TAX (1) SUBJECT TO THE PROVISIONS OF SUB-SECTIONS (2) A ND (3), FOR THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 2004, INCOME-TAX SHALL BE CHARGED AT THE RATES SPECIFIED IN PART I O F THE FIRST SCHEDULE AND SUCH TAX AS REDUCED BY THE REBATE OF INCOME-TAX CALCULATED UNDER CHAPTER VIII-A OF THE INCOME-TAX ACT, 1961 (43 OF 1 961) (HEREINAFTER REFERRED TO AS THE INCOME-TAX ACT) SHALL BE INCREAS ED BY A SURCHARGE FOR PURPOSES OF THE UNION CALCULATED IN EACH CASE IN TH E MANNER PROVIDED THEREIN. (2) IN THE CASES TO WHICH PARAGRAPH A OF PART I OF THE FIRST SCHEDULE APPLIES, WHERE THE ASSESSEE HAS, IN THE PREVIOUS YE AR, ANY NET AGRICULTURAL INCOME EXCEEDING FIVE THOUSAND RUPEES, IN ADDITION TO TOTAL INCOME, AND THE TOTAL INCOME EXCEEDS FIFTY THOUSAND RUPEES, THEN, ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 105 (A) THE NET AGRICULTURAL INCOME SHALL BE TAKEN INT O ACCOUNT, IN THE MANNER PROVIDED IN CLAUSE (B) [THAT IS TO SAY, AS IF THE NET AGRICULTURAL INCOME WERE COMPRISED IN THE TOTAL INC OME AFTER THE FIRST FIFTY THOUSAND RUPEES OF THE TOTAL INCOME BUT WITHO UT BEING LIABLE TO TAX], ONLY FOR THE PURPOSE OF CHARGING INCOME-TAX I N RESPECT OF THE TOTAL INCOME; AND (B) THE INCOME-TAX CHARGEABLE SHALL BE CALCULATED AS FOLLOWS: (I) THE TOTAL INCOME AND THE NET AGRICULTURAL INCO ME SHALL BE AGGREGATED AND THE AMOUNT OF INCOME-TAX SHALL BE DE TERMINED IN RESPECT OF THE AGGREGATE INCOME AT THE RATES SPECIF IED IN THE SAID PARAGRAPH A, AS IF SUCH AGGREGATE INCOME WERE THE T OTAL INCOME; (II) THE NET AGRICULTURAL INCOME SHALL BE INCREASE D BY A SUM OF FIFTY THOUSAND RUPEES, AND THE AMOUNT OF INCOME-TAX SHALL BE DETERMINED IN RESPECT OF THE NET AGRICULTURAL INCOM E AS SO INCREASED AT THE RATES SPECIFIED IN THE SAID PARAGRAPH A, AS IF THE NET AGRICULTURAL INCOME AS SO INCREASED WERE THE TOTAL INCOME; (III) THE AMOUNT OF INCOME-TAX DETERMINED IN ACCOR DANCE WITH SUB-CLAUSE (I) SHALL BE REDUCED BY THE AMOUNT OF IN COME-TAX DETERMINED IN ACCORDANCE WITH SUB-CLAUSE (II) AND THE SUM SO A RRIVED AT SHALL BE THE INCOME-TAX IN RESPECT OF THE TOTAL INCOME: ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 106 PROVIDED THAT THE AMOUNT OF INCOME-TAX SO ARRIVED A T, AS REDUCED BY THE AMOUNT OF REBATE OF INCOME-TAX CALCULATED UNDER CHAPTER VIII-A, SHALL BE INCREASED BY A SURCHARGE FOR PURPOSES OF T HE UNION CALCULATED IN EACH CASE IN THE MANNER PROVIDED IN THAT PARAGRA PH AND THE SUM SO ARRIVED AT SHALL BE THE INCOME-TAX IN RESPECT OF TH E TOTAL INCOME. IN CASES TO WHICH THE PROVISIONS OF CHAPTER XII OR CHAPTER XII-A OR SECTION 115JB OR SUB-SECTION (1A) OF SECTION 161 OR SECTION 164 OR SECTION 164A OR SECTION 167B OF THE INCOME-TAX ACT APPLY, THE TAX CHARGEABLE SHALL BE DETERMINED AS PROVIDED IN THAT CHAPTER OR THAT SECTION, AND WITH REFERENCE TO THE RATES IMPOSED BY SUB-SECTION (1) OR THE RATES AS SPECIFIED IN THAT CHAPTER OR SECTION, AS THE CASE MAY BE: PROVIDED THAT THE AMOUNT OF INCOME-TAX COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 112 SHALL BE INCREASED BY A SURCHARGE FOR PURPOSES OF THE UNION AS PROVIDED IN PARAGRAPH A, B , C, D OR E, AS THE CASE MAY BE, OF PART I OF THE FIRST SCHEDULE: ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 107 PROVIDED FURTHER THAT IN RESPECT OF ANY INCOME CHAR GEABLE TO TAX UNDER SECTIONS 115A, 115AB, 115AC, 115ACA, 115AD, 115B, 1 15BB, 115BBA, 115E AND 115JB OF THE INCOME-TAX ACT, THE AMOUNT OF INCOME-TAX COMPUTED UNDER THIS SUB-SECTION SHALL BE INCREASED BY A SURCHARGE FOR PURPOSES OF THE UNION, CALCULATED, (A) IN THE CASE OF EVERY INDIVIDUAL, HINDU UNDIVID ED FAMILY, ASSOCIATION OF PERSONS AND BODY OF INDIVIDUALS, WHE THER INCORPORATED OR NOT, AT THE RATE OF TEN PER CENT OF SUCH INCOME-TAX WHERE THE TOTAL INCOME EXCEEDS EIGHT HUNDRED AND FIFTY THOUSAND RUP EES; (B) IN THE CASE OF EVER Y CO-OPERATIVE SOCIETY, FI RM, LOCAL AUTHORITY AND COMPANY, AT THE RATE OF TWO AND ONE-H ALF PER CENT OF SUCH INCOME-TAX; (C) IN THE CASE OF EVERY ARTIFICIAL JURIDICAL PERS ON REFERRED TO IN SUB-CLAUSE (VII) OF CLAUSE (31) OF SECTION 2 OF THE INCOME-TAX ACT, AT THE RATE OF TEN PER CENT OF SUCH INCOME-TAX. IN CASES IN WHICH TAX HAS TO BE CHARGED AND PAID UN DER SECTION 115-O OR SUB-SECTION (2) OF SECTION 115R OF THE INCOME-TA X ACT, THE TAX SHALL BE CHARGED AND PAID AT THE RATE AS SPECIFIED IN THO SE SECTIONS AND SHALL ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 108 BE INCREASED BY A SURCHARGE FOR PURPOSES OF THE UNI ON, CALCULATED AT THE RATE OF TWO AND ONE-HALF PER CENT OF SUCH TAX. IN CASES IN WHICH TAX HAS TO BE DEDUCTED UNDER SECT IONS 193, 194, 194A, 194B, 194BB, 194D AND 195 OF THE INCOME-TAX A CT, AT THE RATES IN FORCE, THE DEDUCTIONS SHALL BE MADE AT THE RATES SPECIFIED IN PART II OF THE FIRST SCHEDULE AND SHALL BE INCREASED, BY A SUR CHARGE FOR PURPOSES OF THE UNION, CALCULATED IN EACH CASE, IN THE MANNE R PROVIDED THEREIN. (6) IN CASES IN WHICH TAX HAS TO BE DEDUCTED UNDER SECTIONS 194C, 194E, 194EE, 194F, 194G, 194H, 194-I, 194J, 194LA, 196B, 196C AND 196D OF THE INCOME-TAX ACT, THE DEDUCTIONS SHALL BE MADE AT THE RATES SPECIFIED IN THOSE SECTIONS AND SHALL BE INCREASED BY A SURCHARGE FOR PURPOSES OF THE UNION, CALCULATED, (A) IN THE CASE OF EVERY INDIVIDUAL, HINDU UNDIVID ED FAMILY, ASSOCIATION OF PERSONS AND BODY OF INDIVIDUALS, WHE THER INCORPORATED OR NOT, AT THE RATE OF TEN PER CENT OF SUCH TAX WHERE THE INCOME OR THE AGGREGATE OF SUCH INCOMES PAID OR LIKELY TO BE PAID AND SUBJECT TO THE DEDUCTION EXCEEDS EIGHT HUNDRED AND FIFTY THOUSAND RUPEES; ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 109 (B) IN THE CASE OF EVERY CO-OPERATIVE SOCIETY, FIR M, LOCAL AUTHORITY AND COMPANY, AT THE RATE OF TWO AND ONE-H ALF PER CENT OF SUCH TAX; (C) IN THE CASE OF EVERY ARTIFICIAL JURIDICAL PERS ON REFERRED TO IN SUB-CLAUSE (VII) OF CLAUSE (31) OF SECTION 2 OF THE INCOME-TAX ACT, AT THE RATE OF TEN PER CENT OF SUCH TAX. (7) IN CASES IN WHICH TAX HAS TO BE COLLECTED UNDER THE PROVISO TO SECTION 194B OF THE INCOME-TAX ACT, THE COLLECTION SHALL BE MADE AT THE RATES SPECIFIED IN PART II OF THE FIRST SCHEDULE, A ND SHALL BE INCREASED, BY A SURCHARGE FOR PURPOSES OF THE UNION, CALCULATE D IN THE MANNER PROVIDED THEREIN. (8) IN CASES IN WHICH TAX HAS TO BE COLLECTED UNDER SECTION 206C OF THE INCOME-TAX ACT, THE COLLECTION SHALL BE MADE AT THE RATES SPECIFIED IN THAT SECTION AND SHALL BE INCREASED BY A SURCHARGE FOR PURPOSES OF THE UNION, CALCULATED, (A) IN THE CASE OF EVERY INDIVIDUAL, HINDU UNDIVID ED FAMILY, ASSOCIATION OF PERSONS AND BODY OF INDIVIDUALS, WHE THER INCORPORATED OR NOT, AT THE RATE OF TEN PER CENT OF SUCH TAX WHERE THE AMOUNT OR THE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 110 AGGREGATE OF SUCH AMOUNTS COLLECTED, AND SUBJECT TO THE COLLECTION, EXCEEDS EIGHT HUNDRED AND FIFTY THOUSAND RUPEES; (B) IN THE CASE OF EVER Y CO-OPERATIVE SOCIETY, FI RM, LOCAL AUTHORITY AND COMPANY, AT THE RATE OF TWO AND ONE-H ALF PER CENT OF SUCH TAX; (C) IN THE CASE OF EVERY ARTIFICIAL JURIDICAL PERS ON REFERRED TO IN SUB-CLAUSE (VII) OF CLAUSE (31) OF SECTION 2 OF THE INCOME-TAX ACT, AT THE RATE OF TEN PER CENT OF SUCH TAX. (9) SUBJECT TO THE PROVISIONS OF SUB-SECTION (10), IN CASES IN WHICH INCOME-TAX HAS TO BE CHARGED UNDER SUB-SECTION (4) OF SECTION 172 OR SUB-SECTION (2) OF SECTION 174 OR SECTION 174A OR S ECTION 175 OR SUB- SECTION (2) OF SECTION 176 OF THE INCOME-TAX ACT OR DEDUCTED FROM, OR PAID ON, INCOME CHARGEABLE UNDER THE HEAD SALARIES UNDER SECTION 192 OF THE SAID ACT OR IN WHICH THE ADVANCE TAX PAYAB LE UNDER CHAPTER XVII-C OF THE SAID ACT HAS TO BE COMPUTED AT THE RA TE OR RATES IN FORCE, SUCH INCOME-TAX OR, AS THE CASE MAY BE, ADVANCE TA X SHALL BE SO CHARGED, DEDUCTED OR COMPUTED AT THE RATE OR RATES SPECIFIED IN PART III OF THE FIRST SCHEDULE AND SUCH TAX AS REDUCED BY TH E REBATE OF INCOME- TAX CALCULATED UNDER CHAPTER VIII-A OF THE SAID ACT SHALL BE INCREASED BY ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 111 A SURCHARGE FOR PURPOSES OF THE UNION, CALCULATED I N EACH CASE IN THE MANNER PROVIDED THEREIN: PROVIDED THAT IN CASES TO WHICH THE PROVISIONS OF C HAPTER XII OR CHAPTER XII-A OR SECTION 115JB OR SUB-SECTION (1A) OF SECTI ON 161 OR SECTION 164 OR SECTION 164A OR SECTION 167B OF THE INCOME-TAX A CT APPLY, ADVANCE TAX SHALL BE COMPUTED WITH REFERENCE TO THE RATES IMPOSED BY THIS SUB- SECTION OR THE RATES AS SPECIFIED IN THAT CHAPTER O R SECTION, AS THE CASE MAY BE: PROVIDED FURTHER THAT THE AMOUNT OF ADVANCE TAX C OMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 111A OR S ECTION 112 OF THE INCOME-TAX ACT SHALL BE INCREASED BY A SURCHARGE FO R PURPOSES OF THE UNION AS PROVIDED IN PARAGRAPH A, B, C, D OR E, AS THE CASE MAY BE, OF PART III OF THE FIRST SCHEDULE: PROVIDED ALSO THAT IN RESPECT OF ANY INCOME CHARGEA BLE TO TAX UNDER SECTIONS 115A, 115AB, 115AC, 115ACA, 115AD, 115B, 1 15BB, 115BBA, 115E AND 115JB OF THE INCOME-TAX ACT, ADVANCE TAX COMPUTED UNDER ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 112 THE FIRST PROVISO SHALL BE INCREASED BY A SURCHARGE FOR PURPOSES OF THE UNION, CALCULATED, (A) IN THE CASE OF EVERY INDIVIDUAL, HINDU UNDIVID ED FAMILY, ASSOCIATION OF PERSONS AND BODY OF INDIVIDUALS, WHE THER INCORPORATED OR NOT, AT THE RATE OF TEN PER CENT OF ADVANCE TAX W HERE THE TOTAL INCOME EXCEEDS EIGHT HUNDRED AND FIFTY THOUSAND RUPEES; (B) IN THE CASE OF EVERY CO-OPERATIVE SOCIETY, FIR M, LOCAL AUTHORITY AND COMPANY, AT THE RATE OF TWO AND ONE-H ALF PER CENT OF SUCH ADVANCE TAX; (C) IN THE CASE OF EVERY ARTIFICIAL JURIDICAL PERS ON REFERRED TO IN SUB-CLAUSE (VII) OF CLAUSE (31) OF SECTION 2 OF THE INCOME-TAX ACT, AT THE RATE OF TEN PER CENT OF SUCH ADVANCE TAX. (10) IN CASES TO WHICH, PARAGRAPH A OF PART III OF THE FIRST SCHEDULE APPLIES, WHERE THE ASSESSEE HAS, IN THE PREVIOUS YE AR OR, IF BY VIRTUE OF ANY PROVISION OF THE INCOME-TAX ACT, INCOME-TAX IS TO BE CHARGED IN RESPECT OF THE INCOME OF A PERIOD OTHER THAN THE PR EVIOUS YEAR, IN SUCH OTHER PERIOD, ANY NET AGRICULTURAL INCOME EXCEEDING FIVE THOUSAND RUPEES, IN ADDITION TO TOTAL INCOME AND THE TOTAL I NCOME EXCEEDS FIFTY THOUSAND RUPEES, THEN, IN CHARGING INCOME-TAX UNDER SUB-SECTION (2) OF ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 113 SECTION 174 OR SECTION 174A OR SECTION 175 OR SUB-S ECTION (2) OF SECTION 176 OF THE SAID ACT OR IN COMPUTING THE ADVANCE TA X PAYABLE UNDER CHAPTER XVII-C OF THE SAID ACT, AT THE RATE OR RATE S IN FORCE, (A) THE NET AGRICULTURAL INCOME SHALL BE TAKEN INT O ACCOUNT, IN THE MANNER PROVIDED IN CLAUSE (B) [THAT IS TO SAY, AS IF THE NET AGRICULTURAL INCOME WERE COMPRISED IN THE TOTAL INC OME AFTER THE FIRST FIFTY THOUSAND RUPEES OF THE TOTAL INCOME BUT WITHO UT BEING LIABLE TO TAX], ONLY FOR THE PURPOSE OF CHARGING OR COMPUTING SUCH INCOME-TAX OR, AS THE CASE MAY BE, ADVANCE TAX IN RESPECT OF THE TOTAL INCOME; AND (B) SUCH INCOME-TAX OR, AS THE CASE MAY BE, ADVAN CE TAX SHALL BE SO CHARGED OR COMPUTED AS FOLLOWS: (I) THE TOTAL INCOME AND THE NET AGRICULTURAL INCO ME SHALL BE AGGREGATED AND THE AMOUNT OF INCOME-TAX OR ADVANCE TAX SHALL BE DETERMINED IN RESPECT OF THE AGGREGATE INCOME AT TH E RATES SPECIFIED IN THE SAID PARAGRAPH A, AS IF SUCH AGGREGATE INCOME W ERE THE TOTAL INCOME; (II) THE NET AGRICULTURAL INCOME SHALL BE INCREASE D BY A SUM OF FIFTY THOUSAND RUPEES, AND THE AMOUNT OF INCOME-TAX OR ADVANCE TAX SHALL BE DETERMINED IN RESPECT OF THE NET AGRICULTU RAL INCOME AS SO ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 114 INCREASED AT THE RATES SPECIFIED IN THE SAID PARAGR APH A, AS IF THE NET AGRICULTURAL INCOME WERE THE TOTAL INCOME; (III) THE AMOUNT OF INCOME-TAX OR ADVANCE TAX DE TERMINED IN ACCORDANCE WITH SUB-CLAUSE (I) SHALL BE REDUCED BY THE AMOUNT OF INCOME-TAX OR, AS THE CASE MAY BE, ADVANCE TAX DE TERMINED IN ACCORDANCE WITH SUB-CLAUSE (II) AND THE SUM SO ARRI VED AT SHALL BE THE INCOME-TAX OR, AS THE CASE MAY BE, ADVANCE TAX IN RESPECT OF THE TOTAL INCOME: PROVIDED THAT THE AMOUNT OF INCOME-TAX OR ADVANCE TAX SO ARRIVED AT, AS REDUCED BY THE REBATE OF INCOME-TAX CALCULATED U NDER CHAPTER VIII-A OF THE SAID ACT, SHALL BE INCREASED BY A SURCHARGE FOR PURPOSES OF THE UNION CALCULATED IN EACH CASE, IN THE MANNER PROVID ED THEREIN. (11) THE AMOUNT OF INCOME-TAX AS SPECIFIED IN SUB-S ECTIONS (4) TO (10) AND AS INCREASED BY A SURCHARGE FOR PURPOSES OF THE UNION CALCULATED IN THE MANNER PROVIDED THEREIN, SHALL BE FURTHER INCRE ASED BY AN ADDITIONAL SURCHARGE FOR PURPOSES OF THE UNION, TO BE CALLED T HE EDUCATION CESS ON INCOME-TAX, SO AS TO FULFILL THE COMMITMENT OF THE GOVERNMENT TO PROVIDE AND FINANCE UNIVERSALISED QUALITY BASIC EDU CATION, CALCULATED AT THE RATE OF TWO PER CENT OF SUCH INCOME-TAX AND SUR CHARGE. ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 115 WE NOW REFER TO THE NOTES TO CLAUSES OF THE FINANCE BILL 2004 WHICH PROVIDES AS UNDER : IT IS ALSO PROPOSED THAT THE AMOUNT OF INCOME-TAX AS SPECIFIED IN SUB- CLAUSES (4) TO (10) OF CLAUSE 2 OF THE FINANCE (NO. 2) BILL, 2004 AND AS INCREASED BY A SURCHARGE FOR PURPOSES OF THE UNION CALCULATED IN THE MANNER PROVIDED THEREIN, SHALL BE FURTHER INCREASED BY AN ADDITIONAL SURCHARGE FOR PURPOSES OF THE UNION, TO BE CALLED T HE EDUCATION CESS ON INCOME-TAX SO AS TO FULFIL THE COMMITMENT OF GO VERNMENT TO PROVIDE AND FINANCE UNIVERSALISED QUALITY BASIC EDU CATION, CALCULATED AT THE RATE OF TWO PER CENT, OF SUCH INCOME-TAX AND SU RCHARGE. THE EDUCATION CESS ON INCOME-TAX SHALL BE PAYABLE DURIN G THE PREVIOUS YEAR BEGINNING ON 1ST APRIL, 2004. WE NOW REFER TO THE MEMORANDUM EXPLAINING THE FINAN CE BILL 2004: 2. SUBJECT TO CERTAIN EXCEPTIONS, WHICH HAVE BEEN INDICATED WHILE DEALING WITH THE RELEVANT PROVISIONS, THE BILL FOLL OWS THE PRINCIPLE THAT CHANGES IN THE PROVISIONS OF THE TAX LAWS, SHOULD O RDINARILY BE MADE OPERATIVE PROSPECTIVELY IN RELATION TO THE CURRENT INCOMES AND NOT IN RELATION TO THE INCOMES OF PAST YEARS. THE SUBSTANC E OF THE MAIN ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 116 PROVISIONS IN THE BILL RELATING TO DIRECT TAXES IS EXPLAINED IN THE FOLLOWING PARAGRAPHS: INCOME-TAX I. RATES OF INCOME-TAX IN RESPECT OF INCOMES LIABLE TO TAX FOR THE ASSESSMENT YEAR 2004-2005 IN RESPECT OF INCOMES OF ALL CATEGORIES OF TAXPAYER S (CORPORATE AS WELL AS NON-CORPORATE) LIABLE TO TAX FOR THE ASSESSMENT YEAR 2004-2005, THE RATES OF INCOME-TAX HAVE BEEN SPECIFIED IN PART I O F THE FIRST SCHEDULE TO THE BILL AND ARE THE SAME AS THOSE LAID DOWN IN PART III OF THE FIRST SCHEDULE TO THE FINANCE ACT, 2003, FOR THE PURPOSES OF COMPUTATION OF ADVANCE TAX, DEDUCTION OF TAX AT SOURCE FROM SAL ARIES AND CHARGING OF TAX PAYABLE IN CERTAIN CASES DURING THE FINANCIA L YEAR 2003-2004. IT HAS ALSO BEEN SPECIFIED THAT IN THE CASE OF INDIVID UALS, HINDU UNDIVIDED FAMILIES, ASSOCIATION OF PERSONS AND BODY OF INDIVI DUALS HAVING TOTAL INCOME EXCEEDING RS. 8,50,000, THE TAX SO COMPUTED AFTER REBATE UNDER CHAPTER VLLL-A SHALL BE ENHANCED BY A SURCHARGE OF TEN PER CENT, FOR PURPOSES OF THE UNION. IN THE CASE OF EVERY ARTIFIC IAL JURIDICAL PERSON, THE TAX SO COMPUTED SHALL BE INCREASED BY A SURCHAR GE OF TEN PER CENT, FOR PURPOSES OF THE UNION. FURTHER, IN CASE OF A FI RM, A LOCAL AUTHORITY, A CO-OPERATIVE SOCIETY AND A COMPANY, THE TAX SO COMP UTED SHALL BE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 117 ENHANCED BY A SURCHARGE OF TWO AND ONE-HALF PER CEN T FOR PURPOSES OF THE UNION. II. RATES FOR DEDUCTION OF INCOME-TAX AT SOURCE DUR ING THE FINANCIAL YEAR 2004-05 FROM INCOME OTHER THAN SALARIES THE RATES FOR DEDUCTION OF INCOME-TAX AT SOURCE DUR ING THE FINANCIAL YEAR 2004-05 FROM INCOMES OTHER THAN SALARIES HAV E BEEN SPECIFIED IN PART II OF THE FIRST SCHEDULE TO THE BILL AND APPLY TO INCOME BY WAY OF INTEREST ON SECURITIES, INTEREST OTHER THAN INTERE ST ON SECURITIES, INSURANCE COMMISSION, WINNINGS FROM LOTTERIES OR CR OSSWORD PUZZLES, WINNINGS FROM HORSE RACES AND INCOME OF NON-RESIDEN TS (INCLUDING NON- RESIDENT INDIANS). THE RATES ARE THE SAME AS THOSE SPECIFIED IN PART II OF THE FIRST SCHEDULE TO THE FINANCE ACT, 2003. THE TA X DEDUCTED AT SOURCE IN EACH CASE SHALL BE INCREASED BY A SURCHARGE FOR PURPOSES OF THE UNION TO BE CALCULATED AS FOLLOWS: (I) IN THE CASE OF EVERY INDIVIDUAL, HINDU UNDIVID ED FAMILY, ASSOCIATION OF PERSONS AND BODY OF INDIVIDUALS AT T HE RATE OF TEN PER CENT, OF SUCH TAX WHERE THE INCOME OR THE AGGREGATE OF SUCH INCOMES PAID OR LIKELY TO BE PAID EXCEEDS RS. 8,50,000; ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 118 (II) IN THE CASE OF EVERY CO-OPERATIVE SOCIETY, FI RM, LOCAL AUTHORITY AND COMPANY, AT THE RATE OF TWO AND ONE-H ALF PER CENT, OF SUCH TAX; AND (III) IN THE CASE OF EVERY ARTIFICIAL JURIDICAL PE RSON, AT THE RATE OF TEN PER CENT, OF SUCH TAX. AN ADDITIONAL SURCHARGE, TO BE CALLED THE EDUCATION CESS TO FINANCE THE GOVERNMENTS COMMITMENT TO UNIVERSALISE QUALITY BAS IC EDUCATION, IS PROPOSED TO BE LEVIED AT THE RATE OF TWO PER CENT O N THE AMOUNT OF TAX DEDUCTED OR ADVANCE TAX PAID, INCLUSIVE OF SURCHARG E. III. RATES FOR DEDUCTION OF INCOME-TAX AT SOURCE FR OM SALARIES, COMPUTATION OF ADVANCE TAX AND CHARGING OF INCOME -TAX IN SPECIAL CASES DURING THE FINANCIAL YEAR 2004-2005 THE RATES FOR DEDUCTION OF INCOME-TAX AT SOURCE FR OM SALARIES DURING THE FINANCIAL YEAR 2004-2005 AND ALSO FOR CO MPUTATION OF ADVANCE TAX PAYABLE DURING THAT YEAR IN THE CASE OF ALL CATEGORIES OF TAXPAYERS HAVE BEEN SPECIFIED IN PART III OF THE FI RST SCHEDULE TO THE BILL. THESE RATES ARE ALSO APPLICABLE FOR CHARGING INCOME-TAX DURING THE FINANCIAL YEAR 2004-2005 ON CURRENT INCOMES IN CASE S WHERE ACCELERATED ASSESSMENTS HAVE TO BE MADE, E.G., PROVISIONAL ASSE SSMENT OF SHIPPING ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 119 PROFITS ARISING IN INDIA TO NON-RESIDENTS, ASSESSME NT OF PERSONS LEAVING INDIA FOR GOOD DURING THAT FINANCIAL YEAR, ASSESSME NT OF PERSONS WHO ARE LIKELY TO TRANSFER PROPERTY TO AVOID TAX, OR AS SESSMENT OF BODIES FORMED FOR SHORT DURATION, ETC. AN ADDITIONAL SURCHARGE, TO BE CALLED THE EDUCATION CESS TO FINANCE THE GOVERNMENTS COMMITMENT TO UNIVERSALISE QUALITY BAS IC EDUCATION, IS PROPOSED TO BE LEVIED AT THE RATE OF TWO PER CENT O N THE AMOUNT OF TAX DEDUCTED INCLUSIVE OF SURCHARGE. WE NOW REFER TO CHAPTER VI OF THE FINANCE BILL 2004 WHICH TALKS ABOUT EDUCATION CESS: 81. (1) WITHOUT PREJUDICE TO THE PROVISIONS OF SUB -SECTION (11) OF SECTION 2, THERE SHALL BE LEVIED AND COLLECTED, IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER AS SURCHARGE FOR PURPOSE S OF THE UNION, A CESS TO BE CALLED THE EDUCATION CESS, TO FULFIL THE COMMITMENT OF THE GOVERNMENT TO PROVIDE AND FINANCE UNIVERSALISED QUA LITY BASIC EDUCATION. (2) THE CENTRAL GOVERNMENT MAY, AFTER DUE APPROPRIA TION MADE BY PARLIAMENT BY LAW IN THIS BEHALF, UTILISE, SUCH SUM S OF MONEY OF THE EDUCATION CESS LEVIED UNDER SUB-SECTION (11) OF SEC TION 2 AND THIS ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 120 CHAPTER FOR THE PURPOSES SPECIFIED IN SUB-SECTION ( 1), AS IT MAY CONSIDER NECESSARY. EDUCATION CESS ON EXCISABLE GOODS. 83. (1) THE EDUCATION CESS LEVIED UNDER SECTION 81, IN THE CASE OF GOODS SPECIFIED IN THE FIRST SCHEDULE TO THE CENTRA L EXCISE TARIFF ACT, 1985 (5 OF 1986), BEING GOODS MANUFACTURED OR PRODU CED, SHALL BE A DUTY OF EXCISE (IN THIS SECTION REFERRED TO AS THE EDUCATION CESS ON EXCISABLE GOODS), AT THE RATE OF TWO PER CENT, CALC ULATED ON THE AGGREGATE OF ALL DUTIES OF EXCISE (INCLUDING SPECIA L DUTY OF EXCISE OR ANY OTHER DUTY OF EXCISE BUT EXCLUDING EDUCATION CESS O N EXCISABLE GOODS) WHICH ARE LEVIED AND COLLECTED BY THE CENTRAL GOVER NMENT IN THE MINISTRY OF FINANCE (DEPARTMENT OF REVENUE), UNDER THE PROVISIONS OF THE CENTRAL EXCISE ACT, 1944 (1 OF 1944) OR UNDER A NY OTHER LAW FOR THE TIME BEING IN FORCE. (2) THE EDUCATION CESS ON EXCISABLE GOODS SHALL BE IN ADDITION TO ANY OTHER DUTIES OF EXCISE CHARGEABLE ON SUCH GOODS, UN DER THE CENTRAL EXCISE ACT, 1944 (1 OF 1944) OR ANY OTHER LAW FOR T HE TIME BEING IN FORCE. (3) THE PROVISIONS OF THE CENTRAL EXCISE ACT, 1944 (1 OF 1944) AND THE RULES MADE THEREUNDER, INCLUDING THOSE RELATING TO REFUNDS AND ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 121 EXEMPTIONS FROM DUTIES AND IMPOSITION OF PENALTY SH ALL, AS FAR AS MAY BE, APPLY IN RELATION TO THE LEVY AND COLLECTION OF THE EDUCATION CESS ON EXCISABLE GOODS AS THEY APPLY IN RELATION TO THE LE VY AND COLLECTION OF THE DUTIES OF EXCISE ON SUCH GOODS UNDER THE CENTRA L EXCISE ACT, 1944 OR THE RULES, AS THE CASE MAY BE. EDUCATION CESS ON IMPORTED GOODS 84. (1) THE EDUCATION CESS LEVIED UNDER SECTION 81, IN THE CASE OF GOODS SPECIFIED IN THE FIRST SCHEDULE TO THE CUSTOM S TARIFF ACT, 1975 (51 OF 1975), BEING GOODS IMPORTED INTO INDIA, SHAL L BE A DUTY OF CUSTOMS (IN THIS SECTION REFERRED TO AS THE EDUCATI ON CESS ON IMPORTED GOODS), AT THE RATE OF TWO PER CENT CALCULATED ON T HE AGGREGATE OF DUTIES OF CUSTOMS WHICH ARE LEVIED AND COLLECTED BY THE CENTRAL GOVERNMENT IN THE MINISTRY OF FINANCE (DEPARTMENT O F REVENUE), UNDER SECTION 12 OF THE CUSTOMS ACT, 1962 (52 OF 1962) AN D ANY SUM CHARGEABLE ON SUCH GOODS UNDER ANY OTHER LAW FOR TH E TIME BEING IN FORCE, AS AN ADDITION TO, AND IN THE SAME MANNER AS , A DUTY OF CUSTOMS, BUT NOT INCLUDING (A) THE SAFEGUARD DUTY REFERRED TO IN SECTIONS 8B AND 8C OF THE CUSTOMS TARIFF ACT, 1975 (51 OF 1975); ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 1 22 (B) THE COUNTERVAILING DUTY REFERRED TO IN SECTION 9 OF THE CUSTOMS TARIFF ACT, 1975 (51 OF 1975); (C) THE ANTI-DUMPING DUTY REFERRED TO IN SECTION 9 A OF THE CUSTOMS TARIFF ACT, 1975 (51 OF 1975); AND (D) THE EDUCATION CESS ON IMPORTED GOODS. (2) THE EDUCATION CESS ON IMPORTED GOODS SHALL BE I N ADDITION TO ANY OTHER DUTIES OF CUSTOMS CHARGEABLE ON SUCH GOODS, U NDER THE CUSTOMS ACT, 1962 (52 OF 1962) OR ANY OTHER LAW FOR THE TIM E BEING IN FORCE. (3) THE PROVISIONS OF THE CUSTOMS ACT, 1962 (52 OF 1962) AND THE RULES AND REGULATIONS MADE THEREUNDER, INCLUDING THOSE RE LATING TO REFUNDS AND EXEMPTIONS FROM DUTIES AND IMPOSITION OF PENALT Y SHALL, AS FAR AS MAY BE, APPLY IN RELATION TO THE LEVY AND COLLECTIO N OF THE EDUCATION CESS ON IMPORTED GOODS AS THEY APPLY IN RELATION TO THE LEVY AND COLLECTION OF THE DUTIES OF CUSTOMS ON SUCH GOODS U NDER THE CUSTOMS ACT, 1962 OR THE RULES OR THE REGULATIONS, AS THE C ASE MAY BE. EDUCATION CESS ON TAXABLE SERVICES. 85. (1) THE EDUCATION CESS LEVIED UNDER SECTION 81, IN THE CASE OF ALL SERVICES WHICH ARE TAXABLE SERVICES, SHALL BE A TAX (IN THIS SECTION REFERRED TO AS THE EDUCATION CESS ON TAXABLE SERVIC ES) AT THE RATE OF TWO ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 123 PER CENT, CALCULATED ON THE TAX WHICH IS LEVIED AND COLLECTED UNDER SECTION 66 OF THE FINANCE ACT, 1994 (32 OF 1994). (2) THE EDUCATION CESS ON TAXABLE SERVICES SHALL BE IN ADDITION TO THE TAX CHARGEABLE ON SUCH TAXABLE SERVICES, UNDER CHAP TER V OF THE FINANCE ACT, 1994 (32 OF 1994). (3) THE PROVISIONS OF CHAPTER V OF THE FINANCE ACT, 1994 (32 OF 1994) AND THE RULES MADE THEREUNDER, INCLUDING THOSE RELA TING TO REFUNDS AND EXEMPTIONS FROM TAX AND IMPOSITION OF PENALTY SHALL , AS FAR AS MAY BE, APPLY IN RELATION TO THE LEVY AND COLLECTION OF THE EDUCATION CESS ON TAXABLE SERVICES, AS THEY APPLY IN RELATION TO THE LEVY AND COLLECTION OF TAX ON SUCH TAXABLE SERVICES UNDER CHAPTER V OF THE FINANCE ACT, 1994 OR THE RULES, AS THE CASE MAY BE. WE NOW REFER TO THE HONBLE FINANCE MINISTERS SPEE CH WHILE INTRODUCING THE FINANCE BILL 2004 IN THE PARLIAMENT: 22. IN MY SCHEME OF THINGS, NO ISSUE ENJOYS A HIGH ER PRIORITY THAN PROVIDING BASIC EDUCATION TO ALL CHILDREN. THE NCMP MANDATES GOVERNMENT TO LEVY AN EDUCATION CESS. I PROPOSE TO LEVY A CESS OF 2 PER CENT. THE NEW CESS WILL YIELD ABOUT RS. 4000 - 5000 CRORE IN A FULL YEAR. THE WHOLE OF THE AMOUNT COLLECTED AS CESS WILL BE E ARMARKED FOR ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 124 EDUCATION, WHICH WILL NATURALLY INCLUDE PROVIDING A NUTRITIOUS COOKED MIDDAY MEAL. IF PRIMARY EDUCATION AND THE NUTRITIOU S COOKED MEAL SCHEME CAN WORK HAND IN HAND, I BELIEVE THERE WILL BE A NEW DAWN FOR THE POOR CHILDREN OF INDIA. ON PERUSAL OF THE FINANCE BILL AND THE RELATES NOTE S TO THE CLAUSES AND THE MEMORANDUM EXPLAINING THE FINANCE BILL, IT IS C LEAR THAT INCOME-TAX SHALL BE CHARGED AT THE RATES SPECIFIED IN PART I O F THE FIRST SCHEDULE AND SUCH TAX SHALL BE INCREASED BY A SURCHARGE FOR THE PURPOSES OF THE UNION. FURTHER, AS PER SECTION 2(11), THE AMOUNT O F INCOME-TAX SHALL BE FURTHER INCREASED BY AN ADDITIONAL SURCHARGE FOR TH E PURPOSES OF THE UNION TO BE CALLED THE EDUCATION CESS ON INCOME-TA X. WE HAVE ALSO GONE THROUGH THE FINANCE ACT 2004 AND FOUND THAT TH E PROVISIONS THEREIN REGARDING EDUCATION CESS ARE PARI-MATERIA T O THE PROVISIONS CONTAINED IN THE FINANCE BILL 2004. EVEN THE SUBSEQ UENT FINANCE ACTS CONTAINS IDENTICAL PROVISIONS EXCEPT THE FACT THAT ANOTHER ADDITIONAL SURCHARGE FOR THE PURPOSES OF UNION, TO BE CALLED T HE SECONDARY AND HIGHER EDUCATION CESS ON INCOME TAX HAS BEEN INTRO DUCED WHICH HAS THE SAME CHARACTER AS THAT OF EDUCATION CESS. THE N ATURE OF EDUCATION ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 125 CESS IS THEREFORE CLEARLY ADDITIONAL SURCHARGE FOR THE PURPOSES OF THE UNION AND BEING A SURCHARGE, IT PARTAKE THE NATURE AND CHARACTER OF TAX. SIMILARLY, UNDER CHAPTER VI OF THE FINANCE BILL 200 4 WHICH CONTAINS DETAIL PROVISIONS ON LEVY OF EDUCATION CESS, CLAUSE 81 (1) PROVIDES THAT WITHOUT PREJUDICE TO THE PROVISIONS OF SUB-SECTION (11) OF SECTION 2, THERE SHALL BE LEVIED AND COLLECTED, IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER AS SURCHARGE FOR PURPOSES OF THE UNION , A CESS TO BE CALLED THE EDUCATION CESS. FURTHER, CLAUSE 83 (1) PROVIDE S THAT THE EDUCATION CESS LEVIED UNDER SECTION 81, IN THE CASE OF GOODS SPECIFIED IN THE FIRST SCHEDULE TO THE CENTRAL EXCISE TARIFF ACT, 1985 , B EING GOODS MANUFACTURED OR PRODUCED, SHALL BE A DUTY OF EXCISE (IN THIS SECTION REFERRED TO AS THE EDUCATION CESS ON EXCISABLE GOOD S), AT THE RATE OF TWO PER CENT. SIMILAR IS THE POSITION IN RESPECT O F EDUCATION CESS LEVIED ON IMPORT OF GOODS WHERE IT IS HELD AS DUTY OF CUST OMS AND EDUCATION CESS ON TAXABLE SERVICE WHERE IT IS HELD AS SERVICE TAX. IT IS THEREFORE CLEAR THAT ACROSS ALL TAX LEGISLATI ON DIRECT TAXES AS WELL AS INDIRECT TAXES ON GOODS AND SERVICES, EDUCATION CESS HAS BEEN DEFINED AS TAX. THE SPEECH OF THE FINANCE MINISTER THEREFORE HAS TO BE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 126 READ AND UNDERSTOOD IN THE CONTEXT OF THE FINANCE B ILL WHICH WE HAVE DISCUSSED ABOVE. THOUGH THE LEVY HAS BEEN TERMED A S A EDUCATION CESS, WHAT IS RELEVANT TO DETERMINE IS ITS EXACT NA TURE RATHER THAN ITS NOMENCLATURE. THE NATURE OF EDUCATION CESS IS CLE ARLY TAX AND NOTHING ELSE. NOW LOOKING AT THE ISSUE FROM THE ANGLE OF RECOVERY OF EDUCATION CESS, THERE IS NO SEPARATE MACHINERY IN THE INCOME TAX AC T FOR RECOVERY OF UNPAID EDUCATION CESS AND IMPOSITION OF INTEREST AN D PENALTY IN CASE OF DEFAULT IN PAYMENT OF UNPAID CESS. THIS ALSO CLEARL Y INDICATES THAT CESS IS A PART OF TAX AND ALL RECOVERY MECHANISMS & CONS EQUENCES PERTAINING TO RECOVERY OF TAX APPLY TO RECOVERY OF CESS ALSO W ITHOUT EXPLICIT MENTION OF THE WORD 'EDUCATION CESS'. INFACT, CLAU SE 83 (3) OF THE FINANCE BILL 2004 MAKES THIS POSITION CRYSTAL CLEAR WHEN IT STATES THAT THE PROVISIONS OF THE CENTRAL EXCISE ACT, 1944 AND THE RULES MADE THEREUNDER, INCLUDING THOSE RELATING TO REFUNDS AND EXEMPTIONS FROM DUTIES AND IMPOSITION OF PENALTY SHALL, AS FAR AS M AY BE, APPLY IN RELATION TO THE LEVY AND COLLECTION OF THE EDUCATIO N CESS ON EXCISABLE GOODS AS THEY APPLY IN RELATION TO THE LEVY AND COL LECTION OF THE DUTIES OF EXCISE ON SUCH GOODS UNDER THE CENTRAL EXCISE ACT, 1944 OR THE RULES, AS THE CASE MAY BE. THOUGH THE SAME HAS BEEN STATED I N THE CONTEXT OF ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 127 CENTRAL EXCISE ACT, IN OUR VIEW, THE SAME EQUALLY A PPLIES IN THE CONTEXT OF THE INCOME TAX ACT GIVEN THAT THE NATURE AND CHA RACTER OF LEVY OF EDUCATION CESS IS IDENTICAL ACROSS ALL TAX LEGISLAT IONS. WE NOW REFER TO THE JUDGEMENT OF THE HONBLE SUPREM E COURT IN THE CASE OF JAIPURIA SAMLA AMALGAMATED COLLIERIES LTD V S CIT [1971] 82 ITR 580 (SC). IN THIS CASE, THE ASSESSEE WHO CARRIED O N THE BUSINESS OF RAISING COAL FROM COAL MINES AND SELLING IT, PAID R OAD AND PUBLIC WORKS CESS UNDER THE BENGAL CESS ACT, 1880 AND EDUCATION CESS UNDER THE BENGAL (RURAL) PRIMARY TAX ACT, 1930,IN RELATION TO THE COAL MINES, WHICH IT HAD TAKEN ON LEASE. THE CESS WAS LEVIABLE UNDER THE RESPECTIVE STATUTES ON THE ANNUAL NET PROFITS TO BE CALCULATED ON THE AVERAGE ANNUAL NET PROFITS FOR THE LAST THREE YEARS, FOR WH ICH THE ACCOUNTS HAD BEEN MADE UP. THE QUESTION WAS WHETHER THESE CESSES PAID BY THE ASSESSEE UNDER THE AFORESAID BENGAL ACTS FELL WITHI N THE MISCHIEF OF SECTION 10(4) OF THE INCOME-TAX ACT, 1922 AND IT WA S HELD AS UNDER: NOW IT IS QUITE CLEAR THAT THE AFORESAID CESSES WO ULD BE ALLOWABLE DEDUCTIONS EITHER UNDER CLAUSE (IX) OR CLAUSE (XV) OF SUB-SECTION (2) OF SECTION 10 UNLESS THEY FELL WITHIN SECTION 10(4). W E HAVE ALREADY REFERRED TO THE PROVISIONS OF BOTH ACTS UNDER WHICH THE CESSES ARE ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 128 LEVIED WHICH SHOW THAT THEIR ASSESSMENT IS NOT MADE AT A PROPORTION OF THE PROFITS OF THE ASSESSEE'S BUSINESS. WHAT HAS TO BE DETERMINED IS WHETHER THE ASSESSMENT OF THE CESSES IS MADE ON THE BASIS OF ANY SUCH PROFITS. THE WORDS 'PROFITS AND GAINS OF ANY BUSINE SS, PROFESSION OR VOCATION' WHICH ARE EMPLOYED IN SECTION 10(4) CAN, IN THE CONTEXT, HAVE REFERENCE ONLY TO PROFITS OR GAINS AS DETERMINED UN DER SECTION 10 AND CANNOT COVER THE NET PROFITS OR GAINS ARRIVED AT OR DETERMINED IN A MANNER OTHER THAN THAT PROVIDED BY SECTION 10. THE WHOLE PURPOSE OF ENACTING SUB-SECTION (4) OF SECTION 10 APPEARS TO B E TO EXCLUDE FROM THE PERMISSIBLE DEDUCTIONS UNDER CLAUSES (IX) AND ( XV) OF SUB-SECTION (2) SUCH CESS, RATE OR TAX WHICH IS LEVIED ON THE P ROFITS OR GAINS OF ANY BUSINESS, PROFESSION OR VOCATION OR IS ASSESSED AT A PROPORTION OF OR ON THE BASIS OF SUCH PROFITS OR GAINS. IN OTHER WORDS, SUB-SECTION (4) WAS MEANT TO EXCLUDE A TAX OR A CESS OR RATE THE ASSESS MENT OF WHICH WOULD FOLLOW THE DETERMINATION OR ASSESSMENT OF PROFITS O R GAINS OF ANY BUSINESS, PROFESSION OR VOCATION IN ACCORDANCE WITH THE PROVISIONS OF SECTION 10 OF THE ACT. THE ROAD CESS AND PUBLIC WORKS CESS ARE TO BE ASSE SSED ON THE ANNUAL NET PROFITS UNDER SECTIONS 72 TO 76 OF THE CESS ACT , 1880. THE NET ANNUAL PROFITS HAVE TO BE CALCULATED ON THE AVERAGE OF THE NET PROFITS ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 129 FOR THE LAST THREE YEARS OF THE MINE OR THE QUARRY AND IF THE ANNUAL NET PROFITS OF THE PROPERTY CANNOT BE ASCERTAINED IN TH E AFORESAID MANNER THEN IT IS LEFT TO THE COLLECTOR TO DETERMINE THE V ALUE OF THE PROPERTY FIRST IN SUCH MANNER AS HE CONSIDERS EXPEDIENT AND DETERM INE 6 PER CENT. ON THAT VALUE WHICH WOULD BE DEEMED TO BE THE ANNUAL N ET PROFITS. THE CESS ACT OF 1930 FOLLOWS THE SAME PATTERN SO FAR AS THE ASCERTAINMENT OF ANNUAL NET PROFITS IS CONCERNED. THESE PROFITS A RRIVED AT ACCORDING TO THE PROVISIONS OF THE TWO CESS ACTS CAN BY NO STRET CH OF REASONING BE EQUATED TO THE PROFITS WHICH ARE DETERMINED UNDER S ECTION 10 OF THE ACT. IT IS NOT POSSIBLE TO SEE, THEREFORE, HOW SECT ION 10(4) COULD BE APPLICABLE AT ALL IN THE PRESENT CASE. THUS, ON THE LANGUAGE OF THE PROVISIONS BOTH OF THE ACT AND THE TWO CESS ACTS TH E APPLICABILITY OF SECTION 10(4) CANNOT BE ATTRACTED. BUT EVEN ACCORDI NG TO THE DECIDED CASES SUCH CESSES CANNOT FALL WITHIN SECTION 10(4). IT IS THUS CLEAR THAT SECTION 10(4) OF THE 1922 ACT EXCLUDES ONLY CESS, RATE OR TAX WHICH IS LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS, PROFESSION OR VOCATION, OR IS ASSESSED AT A PROPORT ION OF OR ON THE BASIS OF SUCH PROFITS OR GAINS, IN ACCORDANCE WITH THE PR OVISIONS OF SECTION 10 OF THE ACT. THE ROAD AND PUBLIC WORKS CESS LEVIE D UNDER THE BENGAL ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 130 CESS ACT, 1880 AND EDUCATION CESS LEVIED UNDER TH E BENGAL (RURAL) PRIMARY TAX ACT, 1930 WAS THUS HELD AS NOT A CESS L EVIED AS PART OF THE TAX UNDER THE INCOME-TAX ACT AND ACCORDINGLY, IT WA S ALLOWED AS A PERMISSIBLE DEDUCTION. IF WE WERE TO READ THE PROV ISIONS OF SECTION 10(4) BEING PARI-MATERIA WITH THE PROVISIONS OF SEC TION 40(A)(II) AND APPLY THE RATIO OF THE AFORESAID SUPREME COURT JUDG EMENT IN THE CONTEXT OF EDUCATION CESS, IT WILL SUPPORTS THE VIE W THAT THE EDUCATION CESS PRESENTLY LEVIED UNDER THE INCOME-TAX ACT, 196 1 COULD NOT BE ALLOWED AS A DEDUCTION UNDER SECTION 40(A)(II) OF T HE ACT. THE REASON FOR THE SAME IS THAT AS WE HAVE ALREADY HELD ABOVE THAT THE BASIC CHARACTER OF EDUCATION CESS IS NOTHING BUT LE VY OF TAX. SUCH LEVY OF EDUCATION CESS IS ON THE PROFITS/GAINS OF THE BU SINESS OF THE ASSESSEE. WHERE THERE ARE NO PROFITS/GAINS IN A PARTICULAR YE AR, THERE WOULD NOT BE ANY LEVY OF EDUCATION CESS. THE LEVY OF EDUCATI ON CESS IS THUS CLEARLY ON THE PROFITS OR GAINS OF THE BUSINESS. FURTHER, EVEN THOUGH MEASUREMENT AND CALCULATION OF SUCH LEVY OF EDUCATI ON CESS IS AS A PERCENTAGE OF INCOME TAX, THE BASIS OF MEASUREMENT OF SUCH LEVY WILL NOT DETERMINE OR ALTER THE BASIC CHARACTER OF SUCH LEVY WHICH CONTINUES TO REMAIN AS TAX. IT SATISFIES BOTH THE FIRST AND THE SECOND LIMB OF ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 131 SECTION 40(A)(II). THE FIRST LIMB TALKS ABOUT THE PAYMENT OF TAX LEVIED ON THE PROFITS OR GAINS BY THE ASSESSEE AND THE SEC OND LIMB TALKS ABOUT THE DETERMINATION AND ASSESSMENT THEREOF BY THE ASS ESSING OFFICER ON THE BASIS OF SUCH PROFITS OR GAINS. IT IS, THUS, C LEAR THAT THE AFORESAID JUDGEMENT OF THE HONBLE SUPREME COURT SUPPORT THE CASE OF THE REVENUE THAT EDUCATION CESS WHOSE DETERMINATION AND ASSESSMENT IS BASED ON THE PROFITS OR GAINS OF BUSINESS, COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX ACT, COULD NOT BE ALLOWED AS A DEDUCTION UNDER SECTION 40(A)(II) OF THE ACT. THE ABOVE VIEW ALSO FIND SUPPORTS FROM THE DECISION OF THE COORDINATE BENCH IN CASE OF SESA GOA LTD VS JCIT [2013] 60 SOT 121 (PANAJI) WHEREIN IT WAS HELD AS UNDER: 35. WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY C ONSIDERED THE SAME. IN OUR OPINION, EDUCATION CESS AND SECONDARY HIGHER EDUCATION CESS LEVIED BY THE ASSESSEE HAS BEEN COLLECTED AS PART O F THE INCOME-TAX AND THE PROVISIONS OF SECTION 40(A)(IC) & (II) ARE CLEA RLY APPLICABLE AND THE ASSESSEE IS NOT ENTITLED FOR THE DEDUCTION. THE SAI D PAYMENT IS NOT A FEE BUT IS A TAX. IN CASE OF FEES, PAYMENT IS MADE AGAI NST GETTING CERTAIN BENEFIT OR SERVICES WHILE TAX IS IMPOSED BY THE GOV ERNMENT AND IS LEVIED FOR WHICH THE PERSON WHO PAY THE TAX IS NOT PROMISE D IN RETURN TO GET ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 132 ANY BENEFIT OR SERVICE. THE ASSESSEE IS NOT GETTING ANY BENEFIT OR SERVICES IN RETURN BY MAKING THE PAYMENT TOWARDS TH E EDUCATION CESS AND SECONDARY HIGHER EDUCATION CESS. THEREFORE, IT CANNOT BE SAID THAT IT IS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF THE BUSINESS AND IS NOT PART OF TAX. WE DO NOT FIND ANY INFIRMITY OR ILLEGALITY IN THE ORDER OF THE CIT(A) WHILE CONFIRM ING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THIS REGARD. THUS, DISALLOWANCE OF RS.19,72,00,814/-IS HEREBY CONFIRMED. THUS, THIS GR OUND STAND DISMISSED. AS REGARDS THE CIRCULAR NO.91 / 58 / 66 ITJ (19), DT.18.5.1967, THE EFFECT OF OMISSION OF THE WORD CESS FROM SECTION 40(A)(II) IS THAT ONLY TAXES PAID ARE TO BE DISALLOWED IN THE ASSESSMENTS FOR THE YEARS 1962- 63, ONWARDS. IN THIS REGARD, IN THE FIRST PLACE, IT HAS TO BE SEEN THAT CESS, AS CONTEMPLATED IN THE AFORESAID CIRCULAR, RELATES TO THE CESS WHICH IS LEVIABLE UNDER SOME OTHER STATUTES AND WHI CH IS A CHARGE ON THE PROFITS OF THE ASSESSEE, AS IN THE AFORESAID CA SE OF JAIPURIA SAMLA AMALGAMATED COLLIERIES LTD VS CIT [1971] 82 ITR 580 (SC). SECONDLY, THE PRESENT EDUCATION CESS HAS BEEN LEVIED MUCH AFT ER THE DATE OF THE AFORESAID CIRCULAR AND MORE IMPORTANTLY, THE EDUCAT ION CESS, AS CONTEMPLATED UNDER THE FINANCE ACT, IS NOTHING BUT A PART OF INCOME- ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 133 TAX, CHARGEABLE UNDER THE PROVISIONS OF THE ACT. TH EREFORE, THE AFORESAID CIRCULAR IS NOT RELEVANT IN THE PRESENT C ONTEXT. THE CASE OF DUNCANS INDUSTRIES LTD RENDERED IN THE CONTEXT OF CESS LEVIED UNDER THE WEST BENGAL RURAL EMPLOYMENT PRODU CTION ACT, 1976 AND THE WEST BENGAL PRIMARY EDUCATION ACT, 1973 AND NOT IN THE CONTEXT OF CESS LEVIED ON THE PROFITS OR GAINS OF T HE BUSINESS OF THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF THE I NCOME TAX ACT, DOESNT SUPPORT THE CASE OF THE ASSESSEE FOR THE RE ASONS AS DISCUSSED ABOVE. 63. NOW COMING TO THE CONTENTION OF THE LD AR THAT THE LANGUAGE OF SECTION 115JB ESPECIALLY EXPLANATION 2 WHICH SPECIF ICALLY INCLUDES EDUCATION CESS WITHIN THE AMBIT OF INCOME TAX AND I N ABSENCE OF SUCH INCLUSION IN SECTION 40(A)(II), THE EDUCATION CESS IS NOT A TAX FOR THE PURPOSES OF SECTION 40(A)(II). AS WE HAVE ALREADY HELD ABOVE THAT THE BASIC CHARACTER OF EDUCATION CESS IS TAX. GIVEN TH AT, WE DONOT SEE A NECESSITY FOR A SPECIFIC INCLUSION OF EDUCATION CES S IN SECTION 40(A)(II). AS FAR AS SECTION 115JB IS CONCERNED, THE SPECIFIC INCLUSION OF EDUCATION CESS IS BY WAY OF AN EXPLANATION AND AN EXPLANATION IS ALWAYS UNDERSTOOD TO MEAN WHAT IS INTENDED ORIGINALLY AT T HE TIME OF ENACTMENT. IN OUR VIEW, THE SAID EXPLICIT DEFINITI ON OF INCOME TAX TO ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 134 INCLUDE EDUCATION CESS IS CLARIFICATORY IN NATURE A ND THE SAME CANNOT BE TAKEN AS A BASIS OF ARGUMENT TO CONTEND THAT IN ABS ENCE OF SUCH CLARIFICATION IN CONTEXT OF SECTION 40(A)(II), EDUC ATION CESS IS NOT PART OF TAX. 63.1. NOW COMING TO THE CONTENTION OF THE AR THAT W HERE THE LEGISLATURE WANTED CERTAIN TAXES OTHER THAN INCOME- TAX TO BE EXCLUDED FOR THE PURPOSES OF COMPUTATION OF TAXABLE INCOME, IT HAS SPECIALLY PROVIDED FOR THE SAME. THE INSTANCES ARE AMOUNTS PA ID AS WEALTH-TAX, SECURITIES TRANSACTION TAX AND FRINGE BENEFIT TAX I N SECTION 40 OF THE IT ACT. HAD THERE BEEN ANY INTENTION OF DISALLOWING ED UCATION CESS, SUCH PROVISION WOULD HAVE BEEN SPECIFICALLY BEEN ENACTED WHICH HAS NOT BEEN DONE. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE AFORESAID CONTENTION OF THE LD AR BUT WE ARE AFRAID WE ARE UN ABLE TO ACCEDE TO THE SAME. AS WE HAVE ALREADY HELD ABOVE, THE BASIS CHARACTER OF EDUCATION CESS AS INTENDED BY THE LEGISLATURE IS TA X WHICH IS LEVIED ON THE PROFITS OR GAINS OF THE BUSINESS AND GIVEN THAT SUCH TAX HAS ALREADY BEEN PROVIDED IN SECTION 40(A)(II) AS NOT AN ALLOWA BLE DEDUCTION, THERE WAS NOTHING MORE THAT WAS REQUIRED OR EXPECTED FROM THE LEGISLATURE. THE LEVY OF WEALTH TAX, SECURITIES TRANSACTION TAX AND FRINGE BENEFIT TAX ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 135 ARE NOT ON THE PROFITS OR GAINS OF BUSINESS OR PROF ESSION, HENCE, THERE WAS A NECESSITY FELT BY THE LEGISLATURE AND WHICH W AS SPECIFICALLY PROVIDED FOR. 64. IN LIGHT OF ABOVE DISCUSSIONS AND THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT LD CIT(A) HAS RIG HTLY DISALLOWED THE CLAIM OF EDUCATION CESS AS AN ALLOWABLE DEDUCTION U NDER SECTION 40(A)(II) OF THE ACT. IN THE RESULT, GROUND TAKEN BY THE ASSESSEE IS DISMISSED. WITH THE ABOVE, GROUNDS TAKEN BY THE REVENUE AND AS SESSEE ARE DISPOSED OFF. ORDER PRONOUNCED IN THE OPEN COURT ON 28.10.2016. SD/- SD/- YFYR DQEKJ FOE FLAG ;KNO (LALIET KUMAR) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 28/10/2016 *RANJAN ITA 459 & 558/JP/2012_ M/S CHAMBAL FERTILIZERS & CHEMICALS LTD. VS ADDL.CI T 136 VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S CHAMBAL FERTILIZERS & CHEMICALS LIMITED, KOTA. 2. IZR;FKHZ @ THE RESPONDENT- THE ADDL.CIT/DCIT, RANGE/CIRCLE-2, KOTA. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ / DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NOS. 459 & 558/JP/2012) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR