Air Liquide India Holding Pvt. Ltd, New Delhi V. ITO, New Delhi

ITA 4614/DEL/2009

• Counselvise Citation: 461420114 RSA 2009
• Duration Of Justice: 5 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-12-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 07-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A MISHRA
• Assessee Lawyers: BHAVITA
• Keywords: Depreciation; Opportunity of being heard; Additional depreciation; Additional evidence; Fair market value; Revised return
• Section: 115JB

Judgement Text

IN TH E INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : A : NEW DELHI BEFORE SHRI I.C. SUDHIR , JUDICIAL MEMBER AND SHRI T.S. KAPOOR , ACCOUNTANT MEMBER ITA NO . 4614 / DEL / 20 09 ASSESSMENT YEAR : 200 5 - 0 6 AIR LIQUIDE INDIA HOLDING P. LTD. A - 24/9, MOHAN COOPERATIVE INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI - 110044 VS. INCOME TAX OFFICER, WARD 1(3), C.R. BUILDING, NEW DELHI 110044 (PAN AA ACA 9121 F ) (APPELLANT ) (RESPONDENT) DATE OF HEARING : 19.05.2015 DATE OF PRONOUNCEMENT 29. 05.2015 APPELLANT BY : SHRI AJAY VOHRA, SR. ADVOCATE AND MS. BHAVITA , ADVOCATE RESPONDENT BY: SMT. A. MISHRA , CIT, DR . ORDER PER SHRI I.C. SUDHIR, J M : 1. THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS: - 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [ LTD. CIT(A) ] HAS ERRED IN SUSTAINING DISALLOWANCE OF 25 PER CENT OF THE TOTAL INCREASE IN THE SALARY OF THE MANAGING DIRECTOR UNDER SECTI ON 40A(2). 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF MANAGEMENT ITA NO. 4614 /DEL /20 09 2 SUPPORT EXPENSES OF RS.43,32,025/ - BY HOLDING THAT SUCH EXPENSES FALLS WITHIN THE DEFINITION OF FEE FOR TECHNICAL SERVICES AND ACCORDINGLY TAX IS REQUIRED TO BE DEDUCTED ON THE SAME UNDER THE ACT. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF MANAGEMENT SUPPORT EXPENSES OF RS .43,32,025/ - ON THE ALTERNATIVE GROUND THAT SUCH EXPENSES HAVE NOT BEEN JUSTIFIED TO HAVE BEEN MADE WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THA T IN COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT, THE CLAIM OF ADDITIONAL DEPRECIATION OF RS.12,84,985/ - , ARISEN AS A RESULT OF CHANGE IN THE METHOD OF DEPRECIATION FROM STRAIGHT LINE METHOD TO WRITTEN DOWN VALUE, IS NOT JUSTIFIED. 2. AT THE OUTSET OF HEARING, THE LD. AR SUBMITTED THAT AN APPLICATION DATED 23.03.2012 UNDER RULE 29 OF THE INCOME TAX APPELLATE TRIBUNAL, RULE 1963 FOR ADMISSION OF ADDITIONAL EVIDENCE HAS BEEN MOVED BY THE ASSESSEE WITH REQUEST TO PLACE ON RECORD CERTAIN EMAILS M ADE AVAILABLE AT PAGE 199 TO 408 OF THE PAPER BOOK FILED BY THE ASSESSEE, WHICH DEMONSTRATE THE NATURE OF SERVICE. HE SUBMITTED THAT THESE DOCUMENTS C OULD NOT BE FURNISHED BEFORE THE AUTHORI TIES BELOW ON ACCOUNT OF TECHNICAL PROBLEM IN RETRIEVING THE SAME. 3. THE LD. AR SUBMITTED THAT VIDE IMPUGNED ORDER THE LD. CIT(A) HAS UPHELD THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING PAYMENTS AMOUNTING TO RS.43,32,025/ - MADE BY THE ASSESSEE TO AIR LIQUID E ASIA PVT. LTD., SINGAPORE (ALAP) U/S 40(A)(I) OF THE I. T. ACT ON THE GROUND THAT THE SAME CONSTITUTED FEE FOR TECHNICAL SERVICES ON WHICH TAX WAS TO BE DEDUCTED AT SOURCE AND THERE WAS FAILURE ON PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE FROM THE ABOVE PAYMENTS. ITA NO. 4614 /DEL /20 09 3 THE LD. AR SUBMITTED THAT IN ARRIVING AFORE SAID CONCLUSION, THE LD. CIT(A) HAS OBSERVED THAT THE ASSESSEE COULD NOT ESTABLISH NATURE OF SERVICES RENDERED BY ALAP TO THE ASSESSEE. IN ORDER TO REBUT THE ADVERSE INFERENCES DRAWN BY THE CIT(A) , ON THE BASIS OF WHICH THE ABOVE DISALLOWANCES HAVE BEEN MA DE AND IN ORDER TO ESTABLISH THAT THE SERVICES RENDERED BY ALAP TO THE ASSESSEE DID NOT CONSTITUTE FEE FOR TECHNICAL SERVICES THE ASSESSEE SEEKS TO PLACE ON RECORD THE ABOVE SAID CERTAIN EMAILS WHICH DEMONSTRATE THE NATURE OF SERVICE S RECEIVED. 4. THE L D. AR FURTHER SUBMITTED THAT THE PAYMENT IN QUESTION HAD BEEN MADE IN CONSIDERATION OF SERVICES RENDERED BY ALAP TO THE ASSESSEE PURSUANT TO M ANAGEMENT SUPPORT A GREEMENT DATED 01.10.2004 ( THE AGREEMENT ) ENTERED INTO BETWEEN THE SAID COMPANIES. HE SUBMITT ED THAT THE SAID AGREEMENT WAS MADE AVAILABLE BEFORE THE ASSESSING OFFICER AS WELL AS LD. CIT(A). NEITHER THE ASSESSING OFFICER NOR THE LD. CIT(A) HAS DOUBTED THE GENUINENESS OR VALIDITY OF THE AGREEMENT. THE EMAILS , BEING PRESENT LY FILED AS ADDITIONAL EVI DENCE S , MERELY ELABORATE THE NATURE OF SERVICES LISTED IN THE AGREEMENT. 5. THE LD. AR FURTHER SUBMITTED THAT UNDER ALMOST SIMILAR FACTS AND CIRCUMSTANCES THE HON BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CIT VS. TEXT HUNDRED INDIA P. LTD. 239 CTR 263 (DELHI) HAS UPHELD THE ORDER OF THE TRIBUNAL IN ADMITTING ADDITIONAL EVIDENCE IN THE FORM OF EMAIL S WHICH C OULD NOT BE PRODUCED EARLIER ON ACCOUNT OF TECHNICAL DIFFICULTIES. THE LD. AR ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS: ITA NO. 4614 /DEL /20 09 4 I) CIT VS. VIRGIN SECURITIES AND CREDITS (P) 332 ITR 396 (DEL) II) CIT VS. HEWLETT PACKARD INDIA : 314 ITR 55 (DEL). III) CIT VS. CHITTOSOH MOTORS: 11 TAXMAN N . C OM 81 (P&H) 6. THE LD. DR ON THE OTHER HAND, OPPOSE D THE APPLICATION WITH THE SUBMISSION THAT BEFORE THE AUTHORITIES BELOW THE ASSESSEE HAD NOT SHOWN ITS DIFFICULTIES IN RETRIEVAL OF EMAILS TO DEMONSTRATE THE NATURE OF SERVICE RECEIVED. SUFFICIENT OPPORTUNITIES WERE AFFORDED TO THE ASSESSEE BEFORE DISALLOWING THE PAYMENT S MADE BY THE ASSESSEE TO ALAP U/S 40(A)(I) OF THE ACT. THE AUTHORITIES BELOW ON SEVERAL OCCASIONS REQUIRED THE ASSESSEE TO FURNISH THE DETAILS TO WH I CH THE ASSESSEE FAILED TO WITHOUT ASSIGNING ANY REASON PARTICULARLY THE REASON OF NON RETRIEVAL OF THE EMAILS , WHICH THE ASSESSEE HAS NOW RAISED. IN SUPPORT THE LD. DR REFERRED PAGE NO. 149 OF THE PAPER BOOK I.E. COPY OF THE SUBMISSION FILED BY THE ASSESSEE B EFORE THE ASSESSING OFFICER VIDE LETTER DATED 27.12.2007 WHEREIN UNDER THE HEADING DETAILS OF SERVICES ALONG WITH DOCUMENTARY EVIDENCE, THE ASSESSEE IS TALKING ABOUT FEW OFFICIALS OF ALA P VISITS TO ASSESSEE TO SUPPORT THE M ANAGEMENT S UPPORT S ERVICES AND TH E ASSESSEE HAS NOT TALKED ABOUT ANY EMAIL WHICH WAS NON RETRIEVAL. IN THIS REGARD, HE ALSO REFERRED CONTENTS OF PAGE NO.3 OF THE ASSESSMENT ORDER AND PAGE S 128 TO 132 OF THE PAPER BOOK , WHICH IS COPY OF THE SUBMISSIONS OF THE ASSESSEE FILED BEFORE THE LD. CIT(A). 7. THE LD. AR REJOINED WITH THE SUBMISSION THAT PAYMENT OF RS.4 3 ,32,025/ - WAS MADE BY THE ASSESSEE TO ALA P ON ACCOUNT OF SERVICES RECEIVED. HE SUBMITTED THAT THE AUTHORI TIES BELOW HAVE DENIED THE CLAIM ON THE BASIS THAT THE ASSESSEE HAS ITA NO. 4614 /DEL /20 09 5 NOT PROVID ED THE DETAILS OF THE ACTUAL NATURE OF THE SERVICES RECEIVED. THE LD. AR REFERRED PAGE NOS. 310, 312, 292, 297, 298 AND 301 OF THE PAPER BOOK TO SUPPORT HIS SUBMISSION THAT THE DOCUMENTS , WHICH ARE COPIES OF CERTAIN EMAILS ADMISSION OF WHICH HAS BEEN SOUGH T AS ADDITIONAL EVIDENCE , DEMONSTRATE THE NATURE OF SERVICE RECEIVED. THESE DOCUMENTS ARE THUS RELEVANT TO DECIDE THE ISSUE RAISED IN GROUNDS NO. 2 AND 3 OF THE APPEAL AND FOR MAKING THE JUST ASSESSMENT. THE LD. AR DREW OUR ATTENTION TO THE RELEVANT OBSERV ATIONS AND FINDING OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. TAX HUNDRED INDIA PVT. LTD. (SUPRA) WHEREIN UNDER THE SIMILAR CIRCUMSTANCES THE APPLICATION FOR ALLOWING THE ADDITIONAL EVIDENCE HAS BEEN ACCEPTED. 8. HAVING GONE THROUGH THE CITED DECISIONS OF THE HON BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF TAX HUNDRED INDIA PVT. LTD. (SUPRA) , WE FIND THAT UNDER SIMILAR CIRCUMSTANCES THE HON BLE HIGH COURT HAS BEEN PLEASED TO APPROVE THE ORDER OF THE TRIBUNAL TO ALLOW SUCH DOCUMENTS T O BE PRODUCED FOR SUBSTANTIAL CAUSE. THE RELEVANT PARAS 15 THEREOF IS REPRODUCED HEREUNDER: 15. IN THE PRESENT CASE THE REASON WHICH WAS GIVEN BY THE ASSESSEE IN SUPPORT OF ITS PLEA FOR ADMISSION OF ADDITIONAL EVIDENCE WAS THAT THE ASSESSEE COULD NOT PROD UCE THESE RECORDS BEFORE THE LOWER AUTHORITIES DUE TO NON RETRIEVABILITY OF E - MAIL ON THE DATE BECAUSE OF TECHNOLOGICAL DIFFICULTIES. THIS REASON WAS SPECIFICALLY MENTIONED IN THE APPLICATION FILED. NO REPLY TO THIS APPLICATION WAS FILED REFUTING THIS AVER MENT, THOUGH THE DEPARTMENTAL REPRESENTATIVE HAD OPPOSED THE ADMISSION OF THE ADDITIONAL EVIDENCE. THE GROUND PLEADED BY THE ASSESSEE WAS NOT CONFRONTED. IN THIS BACKDROP, THE TRIBUNAL LOOKED INTO THE ENTIRE MATTER AND ARRIVED AT A CONCLUSION THAT THE ADDI TIONAL EVIDENCE WAS NECESSARY FOR DECIDING THE ISSUE AT HAND. IT IS, THUS, CLEAR THAT THE TRIBUNAL FOUND THE REQUIREMENT OF THE SAID EVIDENCE FOR PROPER ADJUDICATION OF THE MATTER AND ITA NO. 4614 /DEL /20 09 6 IN THE INTEREST OF SUBSTANTIAL CAUSE. RULE 29 OF THE INCOME TAX (APPELLA TE TRIBUNAL) RULES CATEGORICALLY PERMITS THE TRIBUNAL TO ALLOW SUCH DOCUMENTS TO BE PRODUCED FOR ANY SUBSTANTIAL CAUSE. ONCE THE TRIBUNAL HAS PREDICATED ITS DECISION ON THAT BASIS, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE SAME. AS A RESULT, THE QUES TIONS OF LAW ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE RESULTING INTO DISMISSAL OF THESE APPEAL S. NO COSTS. 9. IN PARA NO. 5 THE HON BLE HIGH COURT HAS OBSERVED FURTHER THAT AS PER RULE 29 PARTIES ARE NOT ENTITLED TO PRODUCE ADDITIONAL EVIDENCE. IT IS ONLY WHEN THE TRIBUNAL REQUIRES SUCH ADDITIONAL EVIDENCE IN THE FORM OF ANY DOCUMENTS OR AFFIDAVIT OR EXAMINATION OF WITNESS OR THROUGH A WITNESS IT WOULD CALL FOR THE SAME OR DIRECT ANY EVIDENCE TO BE FILED THAT TO O IN THE CIRCU MSTANCES (A) WHEN THE TRIBUNAL FEELS THAT IT IS NECESSARY TO ENABLE IT TO PASS ORDERS ; OR (B) FOR ANY SUBSTANTIAL CAUSE; OR (C) WHERE THE INCOME TAX AUTHORITIES DID NOT PROVIDE SUFFIC I ENT OPPORTUNIT Y TO THE ASSESSEE TO ADDUCE EVIDENCE. 10. IN THE PRESENT CASE BEFORE US, IT HAS NOT BEEN SERIOUSLY DISPUTED THAT THE ADDITIONAL EVIDENCE FOR WHICH THE ASSESSEE SEEKING PERMISSION FOR CONSIDERATION ARE RELEVANT TO DECIDE THE ISSUE RAISED IN GROUNDS NO. 2 AND 3 TO ASCERTAIN THE NATURE OF THE SERVICES RENDERED FOR WHICH PAYMENT WAS MADE AND THERE IS NO REASON TO DISBELIEVE THE EXPLANATION OF THE ASSESSEE THAT THESE DOCUMENTS COULD NOT BE FILED BEFORE THE AUTHORITIES BELOW DUE TO TECHNICAL PROBLEM I.E. NON RETRIEVAL OF THESE ADDITIONAL EVIDENCE IN THE SHAPE OF EMAILS IN THE FORM OF CORRESPONDENCES IN FURTHERANCE TO THE AGREEMENT BETWEEN THE PARTIES, SHOWING NATURE OF THE SERVICES RENDERED TO THE ASSESSEE BY THE OTHER PARTS OF THE AGREEMENT . ITA NO. 4614 /DEL /20 09 7 UNDER THESE CIRCUMSTA NCES AND TO MEET THE END OF JUSTICE, WE ALLOW THE APPLICA TION AND SET ASIDE THE MATTER TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH AS PER LAW, AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND CONSIDERING THE DOCUMENTS AVAILABLE ON RECORD INCLUDING THOSE WHICH HAVE BEEN MADE AVAILABLE AT PAGE N OS. 199 TO 408 OF THE PAPER BOOK IN THE SHAPE OF ADDITIONAL EVIDENCE. 11. THE GROUND NOS. 2 AND 3 ARE THUS ALLOWED FOR STATISTICAL PURPOSES. 12. THE RELEVANT FACTS ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF VARIOUS INDUSTRIAL GASES. THE ASSESSING OFFICER NOTED THAT DURING THE YEAR SALARY OF THE MANAGING DIRECTOR WAS INCREASED BY RS.9,39,323 AND ADDITIONAL AMOUNT OF RS.10,41,172 HAD BEEN PAID FOR SCHOOL FEES OF HIS CHILDREN. IN ABSENCE OF EXPLANATION OF THE ASSESSEE IN THIS REGARD, THE ASSESSING OFFICER OBSERVED THAT EFFECTIVE REMUNERATION OF THE MANAGING DIRECTOR INCREASED BY RS.19,80,495 IS COVERED UNDER SEC. 40A (2)(B) OF THE INCOME - TAX ACT, 1961. THE ASSESSING OFFICER DISALLOWED 50% OF INCREASE IN SALARY (INCLUDING SCHOOL FEE) WITH THIS NOTING THAT THE ASSESSEE COMPANY DID NOT PROVIDE ANY JUSTIFICATION AND EXPLANATION FOR THE UNUSUAL INCREASE IN THE SALARY AND PERKS OF THE MANAGING DIRECTOR. THE SAME WAS QUESTIONED BEFORE THE LEARNED CIT(APPEALS) BUT THE ASSESSEE COULD NOT SUCCEED. 13. IN SUPPORT OF THE GROUND, THE LEARNED AR SUBMITTED THAT THE ASSESSING OFFICER HAD NOT GIVEN ANY COMPARABLE INSTANCES BEFORE COMING TO THE CONCLUSION ITA NO. 4614 /DEL /20 09 8 THAT THE SALARY AND PERKS OF THE MANAGING DIRECTOR PAID DURING THE YEAR W AS EXCESSIVE AND UNREASONABLE. THE LEARNED CIT(APPEALS) HAS ALSO FAILED TO APPRECIATE THIS MATERIAL ASPECT OF THE ISSUE. HE SUBMITTED FURTHER THAT THE EMPLOYEE HAD PAID TAX ON ENTIRE SALARY. IN THIS REGARD, HE REFERRED PAGE NOS. 1 TO 91 OF THE PAPER BOOK I .E. COPIES REVISED RETURN OF THE ASSESSEE, AUDIT REPORT AND AUDITED FINANCIAL ACCOUNTS OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THE LEARNED AR SUBMITTED THAT PAYMENT OF SCHOOL FEE WAS PART OF THE APPOINTMENT LETTER AND HE REFERRED PAGE NO. 146 OF THE PAPER BOOK IN SUPPORT. HE PLACED RELIANCE ON THE FOLLOWING DECISIONS: 1 . RECON MACHINE TOOLS (P)LTD. VS. CIT 286 ITR 637 (MAD.); 2 . CIT VS. GIRNAR CONSTRUCTION CO. 261 ITR 463 (RAJ.); 3 . ABBAS WAZIR (P) LTD. VS. CIT 265 ITR 77 (ALL.); 4 . DCIT VS. SPARK HOTELS (P) LTD. 52 SOT 395 (DEL.); 5 . JAGDAMBA ROLLER FLOOR MILLS LTD. VS. ACIT 121 TTJ 761 (NAGPUR); 14. THE LEARNED CIT(DR) ON THE OTHER HAND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW ON THE ISSUE. SHE SUBMITTED THAT THE ONUS IS NOT UPON THE ASSESSING OFFICER TO JUSTIFY TO ENHANCEMENT OF PAYMENT OF SALARY AND PERKS TO THE MANAGING DIRECTOR DURING THE YEAR. DESPITE OPPORTUNITIES AFFORDED BY THE ASSESSING OFFICER, THE ASSESSEE DID NOT FURNISH ANY EXPLANATION FOR THE SAID ENHANCEMENT. THE ENHANCEMENT WAS EXCESSIVE AND UNREASONABLE. ITA NO. 4614 /DEL /20 09 9 15. CONSIDERING THE ABOVE SUBMISSION, WE FIND THAT IN THE APPOINTMEN T LETTER OF THE EMPLOYEE, THERE IS PROVISION OF BEARING OF SCHOOL FEE OF THE TWO CHILDREN OF PRIMARY AND SECONDARY SCHOOLING BY THE ASSESSEE COMPANY TO THE LIMIT OF 36,000 US $ PER YEAR. THE DISPUTE HOWEVER IS REGARDING JUSTIFIABILITY OF PAYMENT OF HIGHER SALARY AND SCHOOL FEE OF THE CHILDREN DURING THE YEAR AT RS.19,80,495 IN TOTAL. A PLAIN READING OF THE PROVISIONS OF SEC. 40A(2) OF THE ACT, SUGGEST THAT FOR MAKING THE DISALLOWANCE UNDER THE PROVISIONS, THE ASSESSING OFFICER IS REQUIRED TO FORM AN OPINION THAT THE CLAIMED EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO (A) FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE; OR (B) THE LEGITIMATE NEED OF THE BUSINESS OF THE ASSESSEE; OR (C) THE BENEFITS DERIVED BY OR ACCRUING TO THE ASSESSEE ON RECEIPT OF SUCH GOODS, SERVICES OR FACILITIES, THEN THE ASSESSING OFFICER SHALL NOT ALLOW A DEDUCTION SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY THE ASSESSING OFFICER TO BE EXCESSIVE OR UNREASONABLE. IN THE PRESENT CA SE BEFORE US, WHEN THE ASSESSING OFFICER HAD ASKED FOR EXPLANATION OF THE ASSESSEE TO JUSTIFY THE PAYMENT IN DISPUTE IN VIEW OF THE PROVISIONS UNDER SEC. 40A(2) OF THE ACT, IT WAS DUTY OF THE ASSESSEE TO COOPERATE THE ASSESSING OFFICER TO ARRIVE AT A JUST CONCLUSION BY FURNISHING THE REQUIRED EXPLANATION TO THE ASSESSING OFFICER. EVEN BEFORE THE LEARNED CIT(APPEALS), IT DOES NOT APPEAR THAT THE ASSESSEE HAD FURNISHED THE REQUIRED EXPLANATION TO JUSTIFY THE PAYMENT. IN SUCH A SITUATION, THE ONLY OPTION LEFT WITH ASSESSING OFFICER WAS TO ESTIMATE THE DISALLOWANCE TAKING NOTE OF SOME ITA NO. 4614 /DEL /20 09 10 COMPARABLE INSTANCES. NO SUCH EFFORT HAS BEEN MADE BY THE ASSESSING OFFICER. THE LEARNED CIT(APPEALS) WHILE ESTIMATING THE DISALLOWANCE BY 25% OF THE TOTAL INCREASE HAS NOTED THAT IT WAS ALSO NOT CLEAR AS TO WHETHER THE TOTAL TURNOVER AND THE PROFITS OF THE COMPANY HAVE GONE UP SUBSTANTIALLY, WHICH CAN BE ATTRIBUTED TO THE MANAGING DIRECTOR OF THE COMPANY FOR INCREASING HIS SALARY AND EMOLUMENTS. UNDER THE CIRCUMSTANCES AND TO THE I NTEREST OF JUSTICE, WE FIND IT PROPER TO SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH AS DISCUSSED ABOVE AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND NO.1 IS ACCORDINGLY ALLOWED FOR STATISTI CAL PURPOSES. 16. GROUND NO.4 : THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAD CLAIMED EXCESS DEPRECIATION OF RS.12,84,985. THE ASSESSEE TRIED TO JUSTIFY THE CLAIM ON THE BASIS THAT THERE WAS CHANGE IN THE METHOD OF COMPUTATION OF DEPRECIATION IN ORDER TO FOLLOW UNIFORM METHOD OF PROVIDING DEPRECIATION KEEPING IN VIEW THE ACCOUNTING STANDARD ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE LEARNED CIT(APPEALS) DID NOT AGREE AND HAS UPHELD THE ADDITION WITH THIS FINDING THAT THE AS SESSING OFFICER HAD RELIED UPON THE OBSERVATIONS OF THE STATUTORY AUDITOR WHO HAD CLEARLY STATED THAT PROFIT HAD BEEN UNDER VALUED TO THE EXTENT OF RS.12,84,985 DUE TO CHANGE IN THE METHOD OF DEPRECIATION. 17. IN SUPPORT OF THE GROUND, THE LEARNED AR SUBM ITTED THAT AS PER THE PROVISIONS OF SEC. 211 OF THE COMPANIES ACT, THE ACCOUNT IS TO BE PREPARED AS PER ITA NO. 4614 /DEL /20 09 11 ACCOUNTING STANDARD (AS6). IN SUPPORT, HE PLACED RELIANCE ON THE FOLLOWING DECISIONS: I) APOLLO TYRES VS. CIT 255 ITR 273 (S.C); II) CIT VS. TIDEL PA RK LTD. 334 ITR 126 (MAD.) - (SLP FILED BY THE REVENUE DISMISSED BY THE HON'BLE SUPREME COURT IN CC 2936/2010 VIDE ORDER DATED 8.3.2010. III) GARDEN SILK MILLS LTD. VS. ACIT ITA NO. 220/AHD/2008 & 651/AHD/2009. IV ) CIT VS. HINDUSTAN PIPE UDYOG LTD. (2014) 360 ITR 437 (ALL.). V ) DCIT VS. FARMSON PHARMACEUTICALS GUJ.LTD. - 347 ITR 394 (GUJARAT) 18. THE LEARNED CIT(DR) ON THE OTHER HAND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW. SHE PLACED RELIANCE ON THE DECISION OF HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF GILT PACK LTD. VS. CIT ( COPY SUPPLIED ), WHEREIN IT HAS BEEN HELD THAT THE DEPRECIATION, UPON CHANGE OF METHOD, CAN BE CLAIMED PROSPECTIVELY ONLY FROM THE DATE THE CHANGE HAS BEEN EFFECTED. 19. THE LEARNED AR REJOINED WI TH THE SUBMISSION THAT THE DECISION OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. HINDUSTAN PIPE UDYOG LTD. (SUPRA) AND OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF DCIT VS.FARMSON PHARMACEUTICALS GUJ. LTD. (SUPRA) ARE LATER DATED THAN THE DECISIO N OF HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF GUILT PACK LTD. VS. CIT (SUPRA), HENCE, THE LATER DECISIONS WILL PREVAIL. HE SUBMITTED FURTHER THAT IT IS ALSO A TRITE LAW THAT IN ABSENCE OF THE DECISION OF JURISDICTIONAL HIGH COURT ON AN ISSUE, THE F AVOURABLE ITA NO. 4614 /DEL /20 09 12 DECISION TO THE ASSESSEE OF OTHER HON'BLE HIGH COURTS WILL BE FOLLOWED. IN THIS REGARD, HE CITED THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD. - 88 ITR 192 (S.C). 20. IN OUR OPINION, IT IS NOW AN ESTABLIS HED POSITION OF LAW THAT WHEN ON AN IDENTICAL ISSUE, DIFFERENT VIEWS OF DIFFERENT HON'BLE HIGH COURTS EXCEPT THE HON'BLE JURISDICTIONAL HIGH COURT ARE AVAILABLE, THE VIEW FAVOURABLE TO THE ASSESSEE IS FOLLOWED. THE ACCOUNTING STANDARD (AS) - 6 (REVISED 1994 ) ON CHANGING FROM ONE METHOD OF PROVIDING DEPRECIATION TO ANOTHER, SPEAKS AS UNDER: 15. THE METHOD OF DEPRECIATION IS APPLIED CONSISTENTLY TO PROVIDE COMPARABILITY OF THE RESULTS OF THE OPERATIONS OF THE ENTERPRISE FROM PERIOD TO PERIOD. A CHANGE FROM ON E METHOD OF PROVIDING DEPRECIATION TO ANOTHER IS MADE ONLY IF THE ADOPTION OF THE NEW METHOD IS REQUIRED BY STATUTE OR FOR COMPLIANCE WITH AN ACCOUNTING STANDARD OR IF IT IS CONSIDERED THAT THE CHANGE WOULD RESULT IN A MORE APPROPRIATE PREPARATION OR PRESE NTATION OF THE FINANCIAL STATEMENTS OF THE ENTERPRISE. WHEN SUCH A CHANGE IN THE METHOD OF DEPRECIATION IS MADE, DEPRECIATION IS RECALCULATED IN ACCORDANCE WITH THE NEW METHOD FROM THE DATE OF THE ASSET COMING INTO USE. THE DEFICIENCY OR SURPLUS ARISING FR OM RETROSPECTIVE RECOMPUTATION OF DEPRECIATION IN ACCORDANCE WITH THE NEW METHOD IS ADJUSTED IN THE ACCOUNTS IN THE YEAR IN WHICH THE METHOD OF DEPRECIATION IS CHANGED,. IN CASE THE CHANGE IN THE METHOD RESULTS IN DEFICIENCY IN DEPRECIATION IN RESPECT OF P AST YEARS, THE DEFICIENCY IS CHARGED IN THE STATEMENT OF PROFIT AND LOSS. IN CASE THE CHANGE IN THE METHOD RESULTS IN SURPLUS, THE SURPLUS IS CREDITED TO THE ITA NO. 4614 /DEL /20 09 13 STATEMENT OF PROFIT AND LOSS. SUCH A CHANGE IS TREATED AS A CHANGE IN ACCOUNTING POLICY AND ITS EF FECT IS QUANTIFIED AND DISCLOSED. 21. THE LEARNED CIT(DR) HAS CITED THE DECISION OF HON'BLE MADHYA PRADESH HIGH COURT ON THE ISSUE IN THE CASE OF GILT PACK LTD. VS. CIT (SUPRA). THE HON'BLE HIGH COURT HAS RECORDED ITS DEVIATION FROM THE RATIOS LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF KINETIC MOTORS CO. LTD. VS. DCIT (2003) 262 ITR 330 (BOM.) , ONLY TO THE EXTENT THAT, THE CHANGE FROM ONE METHOD TO ANOTHER HAS TO BE PROSPECTIVE. THE HON'BLE MADHYA PRADESH HIGH COURT THUS HAS BEEN PLEASED TO HOLD THAT THE DEPRECIATION, UPON C HANGE OF METHOD, CAN BE CLAIMED PROSPECTIVELY ONLY FROM THE DATE THE CHANGE HAS BEEN EFFECTED. ON THE ISSUE AS TO WHETHER IN VIEW OF SPECIFIC DEFINITION OF EXPRESSION BOOK PROFIT GIVEN IN EXPLANATION TO SECTION 115J (1) OF THE INCOME - TAX ACT, 1961, IT IS PERMISSIBLE FOR THE ASSESSING OFFICER TO MAKE ADJUSTMENT TO THE BOOK PROFIT BEYOND THOSE AUTHORIZED BY THE DEFINITION AND TO RECAST THE PROFIT AND LOSS ACCOUNT?, BOTH THE HON'BLE HIGH COURTS ARE IN AGREEMENT THAT UNDER THE COMPANIES ACT, 1956, BOTH STRAIG HT LINE METHOD AND WDV METHOD WERE RECOGNIZED. 22. ON THE ISSUE AS TO WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DEPARTMENTAL AUTHORITIES AND THE ITAT WERE JUSTIFIED IN REJECTING THE AMOUNT OF DEPRECIATION ACTUALLY DEBITED TO THE PROF IT AND LOSS ACCOUNT ADMITTEDLY PREPARED IN ACCORDANCE WITH PARTS - II AND III OF SCHEDULE - VI TO THE COMPANIES ITA NO. 4614 /DEL /20 09 14 ACT, 1956, AND IN HOLDING THAT THE ASSESSEE OUGHT TO HAVE PROVIDED DEPRECIATION ON THE SAME BASIS AS ADOPTED IN THE EARLIER YEARS?, THE HON'BLE BOMB AY HIGH COURT ANSWERED THE ISSUE IN FAVOUR OF THE ASSESSEE, WHICH HAS BEEN DEVIATED FROM BY THE HON'BLE MADHYA PRADESH HIGH COURT AS DISCUSSED ABOVE TO THE EXTENT THAT THE DEPRECIATION UPON CHANGE OF METHOD CAN BE CLAIMED PROSPECTIVELY ONLY FROM THE DATE T HE CHANGE HAS BEEN EFFECTED. 23. THE HON'BLE ALLAHABAD HIGH COURT IN ITS RECENT DECISION IN THE CASE CIT VS. HINDUSTAN PIPE UDYOG LTD. (SUPRA) HAS ANSWERED THE ISSUE AS TO WHETHER IT IS OPENED TO THE ASSESSING OFFICER TO MAKE ADJUSTMENT TO THE BOOK PROFIT S BEYOND WHAT IS AUTHORIZED BY THE DEFINITION GIVEN IN EXPLANATION TO SECTION 115J OF THE INCOME - TAX ACT, 1961, IF THE ACCOUNTS ARE PREPARED AND CERTIFIED TO BE IN ACCORDANCE WITH PARTS - II AND III OF SCHEDULE - VI TO THE COMPANIES ACT, 1956?, IN FAVOUR OF TH E ASSESSEE. IN THIS REGARD, THE HON'BLE ALLAHABAD HIGH COURT HAS DISCUSSED THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF KINETIC MOTOR CO. LTD. (SUPRA) AND FOLLOWED THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRE LTD. (SUPRA) H OLDING THAT WHILE COMPUTING THE INCOME UNDER SEC. 115J OF THE ACT, THE ASSESSING OFFICER HAS ONLY POWER TO EXAMINE WHETHER THE BOOKS OF ACCOUNT WERE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. IT IS FURTHER HELD THAT THE ASSESSING OFFICER THEREAFTER HAS LIMITED POWERS OF MAKING INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO ITA NO. 4614 /DEL /20 09 15 THE SAID SECTION. IT WAS FURTHER HELD THAT THE ASSESSING OFFICER DOES NOT HAVE THE JURIS DICTION TO GO BEYOND THE NET PROFITS SHOWN IN THE PROFIT AND LOSS ACCOUNT, EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION TO SEC. 115J OF THE INCOME - TAX ACT, 1961. IN THAT CASE BEFORE THE HON'BLE ALLAHABAD HIGH COURT, THE ACCOUNTS MAINTAINED BY THE ASS ESSEE WERE CERTIFIED BY THE AUDITORS. THE HON'BLE HIGH COURT THUS HELD THAT THE BOOKS ADJUSTMENT MADE BY THE ASSESSING OFFICER BEING CONTRARY TO THE DECISION OF HON'BLE SUPREME COURT, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. THE HON'BLE HIGH COURT HELD FURTHER THAT IT IS NOT IN DISPUTE THAT UNDER THE COMPANIES ACT, 1956, BOTH STRAIGHT LINE METHOD AND WRITTEN DOWN METHOD ARE RECOGNIZED, THEREFORE, ONCE THE AMOUNT OF DEPRECIATION ACTUALLY DEBITED TO THE PROFIT AND LOSS ACCOUNT IS CERTIFIED BY THE AUDI TORS, THEN, THE ISSUE HAS TO BE ANSWERED IN FAVOUR OF THE ASSESSEE. 23.1 SIMILAR VIEW HAS BEEN EXPRESSED BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF DCIT VS. FARMSON PHARMACEUTICALS GUJ. LTD. (SUPRA). 24. SINCE THE RATIOS LAID DOWN ON THE ISSUE B Y THE HON'BLE BOMBAY HIGH COURT HON'BLE ALLAHABAD HIGH COURT AND HON'BLE GUJARAT HIGH COURT IN THE ABOVE CITED CASES ARE FAVOURABLE TO THE ASSESSEE, WE SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH FOLLOWING THESE DEC ISIONS AFTER AFFORDING PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND NO. 4 IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 4614 /DEL /20 09 16 25. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. TH E ORDER IS PRONOUNCED IN THE OPEN COURT ON 2 9 TH MAY , 201 5 . SD/ - SD/ - ( T.S. KAPOOR ) (I.C. SUDHIR) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 2 9 TH MAY , 201 5 . AKS/ - COPY FORWARDED TO 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST . REGISTRAR, ITAT, NEW DELHI