M/S. ESSAR POWER LTD, V. THE ADDL. CIT RG 5(1), MUMBAI

ITA 5318/MUM/2007

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8381 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 01-11-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 07-08-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P K SHUKLA
• Assessee Lawyers: SOLI DASTUR; NEERAJ SETH
• Keywords: Presumptive income; Recovery proceedings; Business income; Depreciation; Opportunity of being heard; Proportionate interest; Retrospective amendment; Bad and doubtful debts
• Section: 80HHC; 234B; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I, MUMBAI BEFORE SHRI DINESH KUMAR AGARWAL (J.M.) AND SHRI N.K. BILLAIYA (A.M.) ITA NO. 5318/MUM /2007 ASSESSMENT YEAR : 2003-04 M/S ESSAR POWER LIMITED, ESSAR HOUSE, 11, KESHAVRAO KHADYE MARG, MAHALAXMI, MUMBAI 400 034. PAN AAACEO895J VS. ADDL. COMMISSIONER OF INCOME TAX RANGE 5(1), AAYAKAR BHAVAN, MUMBAI 400 020. (APPELLANT) (RESPONDENT) ITA NO. 5725/MUM /2007 ASSESSMENT YEAR : 2003-04 DY. COMMISSIONER OF INCOME TAX RANGE 5(1), ROOM NO. 568/525, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. VS. M/S ESSAR POWER LIMITED, ESSAR HOUSE, 11, KESHAVRAO KHADYE MARG, MAHALAXMI, MUMBAI 400 034. PAN AAACEO895J (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI SOLI DASTUR & NEERAJ SETH DEPARTMENT BY : SHRI P.K. SHUKLA DATE OF HEARING 01-11-2012 DATE OF PRONOUNCEMENT 09-11-2012 O R D E R PER DINESH KUMAR AGARWAL, J.M. THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENU E ARE DIRECTED AGAINST THE ORDER DTD. 22-6-2007 PASSED BY THE LD. CIT(A) V, MUMBAI ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 2 FOR THE A.Y. 2003-04. BOTH THESE APPEALS ARE DISPOS ED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE A. O. OBSERVED THAT THE ASSESSEE IS AN INFRASTRUCTURE COMPANY WHICH IS NOTI FIED BY THE GOVERNMENT OF INDIA, MINISTRY OF FINANCE VIDE THEIR NOTIFICATION DATED 11- 3-2004 AS CLAIMED BY THE ASSESSEE. THE COMPANY IS IN THE BUSINESS OF GENERATION AND SALE OF ELECTRICITY HAVING ITS 515 M W COMBINED CYCLE POWER PLANT AT HAZIRA, SURAT. THE COMPANY FILED RET URN DECLARING A LOSS FOR THE YEAR AT RS. 55,39,83,223/- AND THE BOOK PRO FIT U/S 115JB AT RS. 64,79,83,219/-. HOWEVER, THE ASSESSMENT WAS COMPLET ED AT A TOTAL LOSS OF RS. 24,76,00,058/- UNDER THE NORMAL PROVISIONS O F THE INCOME TAX ACT, 1961 (THE ACT) AND AT A BOOK PROFIT OF RS. 76, 12,67,288/- U/S 115JB OF THE ACT VIDE ORDER DTD. 31-01-2006 PASSED U/S 14 3(3) OF THE ACT. ON APPEAL, THE LD. CIT(A) PARTLY ALLOWED THE APPEAL. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE ASSESSEE AND REVENUE BOTH ARE IN APPEAL BEFORE US. ITA NO. 5318/MUM/2007 (BY ASSESSEE) 4. GROUND NO. 1 READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN NOT DIRECTING TO ALLOW THE DEDUCTION U/S 80IA ON THE NE T INTEREST INCOME VIZ A) INTEREST ON EMPLOYEE LOANS & ADVANCES , B) INTEREST ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 3 ON MARGIN MONEY AND C) INTEREST INCOME ON DUES TOWA RDS INCOME TAX REFUND ADJUSTMENT FROM ESSAR PROJECT LTD. 5. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE A.O. OBSERVED THAT THE ASSESSEE HAS DECLARED INCOME OF RS. 1,48,58,920/- U NDER THE HEAD INTEREST INCOME. FROM THE BREAK-UP OF THE SAME, THE A.O. OBSERVED THAT THE FOLLOWING ITEMS OF INTEREST INCOME REQUIRED TO BE ASSESSED AS INCOME FROM OTHER SOURCES AS THE SAME DO NOT RELATE TO ASS ESSEES POWER BUSINESS:- SR. NO. NATURE OF INTEREST INCOME AMOUNT (RS) 1 INTEREST INCOME ESSAR PROJECTS LTD. 58,40,165 2 INTEREST ON EMPLOYEES LOANS & ADVANCES 1,39,610 3 INTEREST BANK/MARGIN DEPOSITS 22,51,879 4 INTEREST INCOME ICD 1,26,198 5 INTEREST ON SALES TAX REFUND 18,59,835 THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE ABO VE INTEREST INCOME SHOULD NOT BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. IT WAS SUBMITTED BY THE ASSESSEE THAT ALL THESE ISSUES HAVE BEEN CONSIDERED EVEN IN THE EARLIER ASSESSMENT YEARS EXC EPT IN THE CASE OF INTEREST ON SALES TAX REFUND. IT WAS FURTHER SUBMI TTED THAT EVEN THOUGH THE A.O. HAS TREATED INTEREST INCOME UNDER INCOME FROM OTHER SOURCES, THE ASSESSEE HAS GOT RELIEF FROM THE LD. CIT(A) AND HENCE THE SAME VIEW SHOULD BE CONSIDERED FOR THE CURRENT ASSESSMENT YEA R ALSO. AS REGARDS ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 4 THE INTEREST ON SALES TAX REFUND THE ASSESSEE SUBMI TTED THAT SALES TAX IS A TAX PAYABLE IN THE COURSE OF THE ASSESSEES BUSINES S. THE INTEREST RECEIVED ON THESE REFUNDS DUE FROM SALES TAX DEPART MENT IS RECEIVED IN THE NORMAL COURSE OF BUSINESS, THEREFORE, INTEREST ON SALES TAX SHOULD NOT BE BROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. IT WAS ALSO SUBMITTED THAT THE SALES TAX PAID BY THE ASSES SEE WAS, IN FACT, SALES TAX ON THE LEASE RENTALS RECEIVED ON PLANT AND MACH INERY GIVEN ON LEASE IN EARLIER YEARS, THEREFORE, THE INTEREST FROM THIS REFUND HAVE BEEN EARNED IN THE NORMAL COURSE OF ASSESSEES BUSINESS AND TAX ABLE UNDER THE HEAD BUSINESS INCOME ONLY. HOWEVER, THE A.O. DID NOT ACC EPT THE ASSESSEES SUBMISSION. WITH REGARD TO THE INTEREST INCOME FRO M M/S ESSAR PROJECTS LIMITED, EMPLOYEES LOANS AND ADVANCES, BANK/MARGIN DEPOSITS, THE A.O. IN LINE WITH THE STAND OF THE DEPARTMENT AND IN AGR EEMENT WITH THE REASONS GIVEN IN THE PRECEDING ASSESSMENT YEARS I.E . A.Y. 2001-02 AND 2002-03 TREATED THE INTEREST RECEIVED FROM ESSAR PR OJECTS LTD., EMPLOYEES LOANS AND ADVANCES & BANK/MARGIN DEPOSITS AS INCOME FROM OTHER SOURCES. WITH REGARD TO INTEREST INCOME ICD , THE A.O. ASSESSED THE SAME UNDER THE HEAD INCOME FROM OTHER SOURCES . AS REGARDS INTEREST ON SALES TAX REFUND, THE A.O. OBSERVED THAT THE ASS ESEE IS IN THE BUSINESS OF GENERATION OF POWER AND INTEREST IS EARNED ON TH E SALES TAX REFUND, THEREFORE, THERE IS NO CO-RELATION WITH THE ASSESSE ES BUSINESS ACTIVITY AND, THEREFORE, IT CANNOT BE SAID THAT THIS AMOUNT IS ASSESSABLE UNDER THE HEAD BUSINESS INCOME AND, HENCE, HE TREATED THE SAID INTEREST ON ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 5 SALES TAX REFUND AS INCOME FROM OTHER SOURCES AND ACCORDINGLY THE A.O. ASSESSED THE FOLLOWING INTEREST INCOME UNDER THE HE AD INCOME FROM OTHER SOURCES:- SR. NO. NATURE OF INTEREST INCOME AMOUNT (RS) 1 INTEREST INCOME ESSAR PROJECTS LTD. 58,40,165 2 INTEREST ON EMPLOYEES LOANS & ADVANCES 1,39,610 3 INTEREST BANK/MARGIN DEPOSITS 22,51,879 4 INTEREST INCOME ICD 1,26,198 5 INTEREST ON SALES TAX REFUND 18,59,835 TOTAL 1,02,17,687 6. ON APPEAL, THE LD. CIT(A) FOLLOWING THE APPELLAT E ORDER FOR THE ASSESSMENT YEARS 2000-01 & 2001-02 HELD THAT (A) IN TEREST ON MARGIN MONEY DEPOSIT AND INTEREST ON EMPLOYEE LOANS ARE AS SESSABLE UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION, (B) INTERE ST FROM ESSAR PROJECTS LTD. AND ESSAR SERVICES LTD. IS ASSESSABLE AS INCOM E FROM OTHER SOURCES & (C) INTEREST ON SALES TAX REFUND IS ASSESSABLE AS INCOME FROM BUSINESS. HE FURTHER HELD THAT DEDUCTION U/S 80IA WOULD NOT B E AVAILABLE ON ANY OF THE ABOVE INTEREST INCOMES. 7. AT THE TIME OF HEARING THE LEARNED SR. COUNSEL F OR THE ASSESSEE, AT THE OUTSET, SUBMITS THAT THE TRIBUNAL IN ASSESSEES OWN CASE IN DCIT VS. ESSAR POWER LTD. AND VICE VERSA IN ITA NO. 6430/MUM /2003 & 439/MUM/2005 AND ITA NO. 6395/MUM/2003 & 4448/MUM/2 005 FOR ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 6 ASSESSMENT YEARS 2000-01 & 2001-02 ORDER DTD. 11-8- 2008 VIDE PARA 13 OF THE ORDER HAS UPHELD THE ORDER OF THE LD. CIT(A) ON THIS ACCOUNT. HE FURTHER SUBMITS THAT SINCE IT IS A CASE OF LOSS, TH EREFORE, THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS NOT ELIGIBLE FOR DE DUCTION U/S 80IA OF THE ACT. HE, THEREFORE, SUBMITS THAT THE ISSUE MAY BE DECIDED ACCORDINGLY. 8. ON THE OTHER HAND, THE LD. D.R. WHILE RELYING ON THE ORDER OF THE A.O. SUBMITS THAT IN VIEW OF THE DECISION IN THE CA SE OF LIBERTY INDIA VS. CIT (2009) 317 ITR 218 (SC) THE ASSESSEE IS NOT ENT ITLED TO THE DEDUCTION U/S 80IA OF THE ACT. 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE FACTS ARE NOT IN DISPUTE. ON THE QUESTION AS TO WHETHER THE A SSESSEE IS ENTITLED TO DEDUCTION U/S 80IA OF THE ACT ON THE NET INTEREST I NCOME ON EMPLOYEES LOANS & ADVANCES, INTEREST ON MARGIN MONEY AND INTE REST INCOME ON DUES TOWARDS INCOME TAX REFUND ADJUSTMENT FROM ESSA R PROJECT LTD., WE ARE OF THE OPINION THAT THE ISSUE INVOLVED IN THE P RESENT CASE IS NO MORE RES-INTEGRA AND IS COVERED BY THE DECISION OF THE H ONBLE APEX COURT IN THE CASE OF LIBERTY INDIA (SUPRA) WHEREIN IT HAS BE EN HELD THAT DUTY DRAWBACK, DEPB BENEFITS, REBATES, ETC., CANNOT BE C REDITED AGAINST THE COST OF MANUFACTURE OF GOODS DEBITED IN THE PROFIT AND LOSS ACCOUNT FOR PURPOSES OF SECTION 80-IA/80-IB AS SUCH REMISSIONS (CREDITS) WOULD ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 7 CONSTITUTE INDEPENDENT SOURCE OF INCOME BEYOND THE FIRST DEGREE NEXUS BETWEEN PROFITS AND THE INDUSTRIAL UNDERTAKING. IT WAS FURTHER HELD THAT DUTY DRAWBACK RECEIPT/DEPB BENEFITS DO NOT FORM PAR T OF THE NET PROFITS OF ELIGIBLE INDUSTRIAL UNDERTAKING FOR THE PURPOSES OF SECTION 80-I/80- IA/80-B OF THE ACT. IN THE ABSENCE OF ANY DISTINGUI SHING FEATURE BROUGHT ON RECORD BY THE LEARNED SR. COUNSEL FOR THE ASSESS EE, WE RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE APEX COURT (S UPRA) HOLD THAT THE ASSESSEE IS NOT ENTITLED TO THE DEDUCTION U/S 80IA OF THE ACT ON THE INTEREST ON EMPLOYEES LOAN AND ADVANCES, INTEREST O N MARGIN MONEY AND INTEREST INCOME DUES TOWARDS INCOME TAX REFUND ADJU STMENT FROM ESSAR POWER LTD. AND ACCORDINGLY THE GROUND TAKEN BY THE ASSESSEE IS REJECTED. 10. GROUND NO. 2 READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED CONFIRMING ADDITION MADE BY AO TOWARDS , PROVISION FOR INCOME TAX RECOVERABLE FROM GEB AND ESSAR STEEL LTD. WHILE MAKING COMPUTATION OF TOTAL INCOME UNDER NORMAL PRO VISIONS OF THE INCOME TAX ACT, 1961. 11. THE A.O. HAS DISCUSSED THE ABOVE ISSUE AT PAGE 5 OF THE ASSESSMENT ORDER AS UNDER:- 8. PROVISION FOR INCOME TAX RECOVERABLE RS.11.0 7 CRORES: THE ASSESSEE IS SUPPLYING POWER TO GUJARAT ELECTRIC ITY BOARD (GEB). AS PER THE POWER PURCHASE AGREEMENT BETWEEN THE ASSESSEE AND GEB, GEB IS SUPPOSED TO REIMBURSE THE INCOME TAX PAYABLE BY THE ASSESSEE. FOR THE YEAR UNDER CONSIDE RATION, ASSESSEE HAS SHOWN BELOW THE LINE IN PROFIT AND LOS S ACCOUNT 11.07 CRORE AS PROVISION FOR TAX RECOVERABLE. THIS AMOUNT HAS NOT BEEN INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 8 THE ASSESSEE HAS TAKEN A STAND THAT THIS AMOUNT REF LECTS THE INCOME TAX PAYABLE BY THE ASSESSEE WHICH IS REIMBUR SED BY GEB. THUS, IF THIS AMOUNT IS BROUGHT TO TAX IT WOULD AMO UNT TO DOUBLE TAXATION. THE ASSESSEE HAS ALSO SUBMITTED THAT THIS AMOUNT IS NOT RECEIVABLE IF NO INCOME TAX IS PAYABLE BY THE ASSES SEE. THUS, THIS IS NOT IN THE NATURE OF REVENUE. IT IS ALSO SUBMITT ED BY THE ASSESSEE THAT IT IS IN THE NATURE OF REIMBURSEMENT OF EXPENDITURE AND HENCE NOT INCOME IN THE ASSESSEES HAND. THE ABOVE STAND OF THE ASSESSEE IS NOT ACCEPTABLE A S THE SAID AMOUNT IS BEING RECEIVED WITH REGARD TO SALE OF POW ER TO GEB. THE METHOD FOLLOWED IN DECIDING THE AMOUNT PAYABLE BY G EB IS IMMATERIAL AS FAR AS THE NATURE OF RECEIPT IN THE A SSESSEES HANDS IS CONCERNED. WHETHER GEB PAYS THIS AMOUNT AS A REI MBURSEMENT OF EXPENDITURE OR BY WAY OF PAYMENT FOR SERVICES RE NDERED OR AS A RETURN ON INVESTMENT OF CAPITAL, THE NATURE OF SUCH RECEIPT CANNOT BE DIFFERENT IN THE HANDS OF THE ASSESSEE. ASSESSEE IS REQUIRED TO SHOW ALL THE RECEIPTS FROM GEB AS REVENUE AND CLAIM DEDUCTIONS APPLICABLE UNDER THE IT ACT. IN THE INSTANT CASE 11 .07 CRORES IS THEREFORE REQUIRED TO BE INCLUDED FROM REVENUE FROM GEB AND REDUCTIONS IF ANY SHALL BE ALLOWED AS PER THE ACT. THE SAID AMOUNT IS THEREFORE ADDED TO THE TOTAL INCOME. SINCE INCOM E TAX IS NOT A DEDUCTIBLE EXPENDITURE NO FURTHER DEDUCTION IS THER EFORE CONSIDERED. THE ADDITION COMES TO RS. 11.07 CRORES. SINCE RS.11.07 CRORE IS INCOME OF THE ASSESSEE AS H ELD ABOVE, THE SAME CONSIDERED AND ADDED TO THE BOOK PROFIT FOR CO MPUTATION U/S. 115JB ALSO. 12. ON APPEAL, THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE HAS HELD AS UNDER:- 3.5 I HAVE GONE THROUGH THE ABOVE SUBMISSIONS AS WELL A S THE FINDINGS OF THE ASSESSING OFFICER. I FIND THAT THE APPELLANTS ARGUMENT DOES NOT HOLD GOOD AS THIS REIMBURSEMENT I S NOTHING BUT A METHOD OF RAISING THE SALES INVOICES TOWARDS THE GENERATION AND SUPPLY OF POWER TO ITS CUSTOMERS, WHICH IS BASE D ON TERMS MUTUALLY AGREED BY BOTH THE PARTIES. THEREFORE, IN COME TAX RECOVERABLE IS A REVENUE RECEIPT AND CHARGEABLE TO INCOME-TAX. THEREFORE, GROUND NO. 4 IS REJECTED AND ORDER OF AS SESSING OFFICER IN THIS REGARD IS UPHELD. ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 9 13. THE LD. SR. COUNSEL FOR THE ASSESSEE SUBMITS TH AT THE ASSESSEE COMPANY IS ENGAGED IN THE GENERATION AND DISTRIBUTI ON OF POWER. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANY H AS SUPPLIED THE POWER TO GUJARAT ELECTRICITY GOARD(GEB) AND ESSAR S TEEL LTD. IN ACCORDANCE WITH THE AGREEMENT OF POWER GENERATION A ND SUPPLY THEREOF WITH GEB AND ESSAR STEEL LTD, TAX PAYABLE BY THE AS SESSEE COMPANY IS AGREED TO BE REIMBURSED BY BOTH THE COMPANIES AS PE R COPY OF AGREEMENT APPEARING AT PAGE 3 TO 146 OF THE ASSESSEES PAPER BOOK. DURING THE YEAR THE ASSESSEE COMPANY MADE PROVISION OF RS.11.07 CRO RES RECEIVABLE FROM GEB AND ESSAR STEEL LTD BELOW THE LINE. THIS IS TOW ARDS THE TAX PORTION RECOVERABLE FROM GEB AND ESSAR STEEL LTD. THE ASSES SEE COMPANY FIRST COMPUTES ITS TAXABLE INCOME. ON SUCH TAXABLE INCOME , TAX PAYABLE IS WORKED OUT. SUCH TAX PAYABLE ON PRODUCTION OF CHALL AN IS REIMBURSED BY THE POWER PURCHASERS AND, THEREFORE, CANNOT BE TREA TED AS INCOME AND CHARGEABLE TO TAX AGAIN. HE FURTHER SUBMITS THAT A S INCOME-TAX IS NOT AN ALLOWABLE DEDUCTION UNDER THE PROVISIONS OF THE ACT , ANY BENEFIT OR REIMBURSEMENT OF THE TAX LIABILITY BY THE POWER PUR CHASERS IS NOT AN INCOME IN THE HANDS OF THE ASSESSEE COMPANY. HE FUR THER SUBMITS THAT IN THE EVENT, NO TAX IS PAID BY THE ASSESSEE COMPANY, NO REIMBURSEMENT WILL BE MADE BY THE POWER PURCHASERS, THEREFORE, IT IS REIMBURSEMENT OF WHAT IS PAID. WHEN PAYMENT IS NOT CLAIMED AS DEDUCT ION, ITS REIMBURSEMENT SHOULD ALSO BE NOT CONSIDERED AS INCO ME. HE FURTHER SUBMITS THAT THE ASSESSEE COMPANY HAS NOT CLAIMED E XPENSES IN RELATION ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 10 TO PAYMENT OF TAX. FURTHER THE REIMBURSEMENT RECEIV ABLE IS REQUIRED TO BE OFFSET AGAINST TAX PAYABLE BY THE COMPANY, THERE FORE NO AMOUNT OF TAX RECOVERABLE CAN BE ADDED BACK TO INCOME OF THE YEAR UNDER APPEAL. 14 . THE LD. SR. COUNSEL FOR THE ASSESSEE FOR THE PROPOS ITION THAT REIMBURSEMENT IS NOT AN INCOME ALSO PLACED RELIANCE IN CIT VS. SIEMENS AKTIONGESELLSCHAFT (2009) 310 ITR 320 (BOM) WHEREI N IT HAS BEEN HELD THAT AT PLACITUM 57 PAGE 340 THAT REIMBURSEMENT OF EXPENSES CAN, UNDER NO CIRCUMSTANCES, BE REGARDED AS A REVENUE RECEIPT AND IN THE PRESENT CASE THE TRIBUNAL HAD FOUND THAT THE ASSESSEE RECEI VED NO SUMS IN EXCESS OF EXPENSES INCURRED. HE FURTHER SUBMITS TH AT SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) VS. KRUPP UDHE GMBH (2010) 38 DTR (BOM) 251 WHEREIN IT HAS BEEN HELD TH AT REIMBURSEMENT OF EXPENSES IS NOT CHARGEABLE TO TAX. HE FURTHER S UBMITS THAT IN MAHINDRA & MAHINDRA LTD. DCIT, (2009) 30 SOT 374 (M UM)[SB] IT HAS BEEN HELD THAT AT PLACITUM D PAGE 403 THAT REIMB URSEMENT OF EXPENSES DOES NOT HAVE THE INCOME ELEMENT AND, HENC E, CANNOT ASSUME THE CHARACTER OF INCOME DEEMED TO ACCRUE OR ARISE I N INDIA. THE LD. SR. COUNSEL FOR THE ASSESSEE AFTER REFERRING TO THE PRO VISIONS OF SECTION 44BB OF THE ACT SUBMITS THAT IN THE CASE OF DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) AND ANOTHER VS. SCHLUMBERG ER ASIA SERVICES LTD. (2009) 317 ITR 156 (UTTARKHAND) IT HAS BEEN HELD TH AT REIMBURSEMENT ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 11 TOWARDS THE CUSTOMS DUTY PAID BY THE ASSESSEE, BEIN G STATUTORY IN NATURE, COULD NOT FORM PART OF AMOUNT FOR THE PURPO SES OF DEEMED PROFITS, UNLIKE THE OTHER AMOUNTS RECEIVED TOWARDS REIMBURSEMENT. HE FURTHER SUBMITS THAT SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN DDIT VS. MITCHELL DRILLING INTERNATIONAL PTY. LTD. IN ITA NO. 698/DEL./2012 FOR A.Y. 2008-09 ORDER DTD. 31-8-2012 HOLDING THAT SERVICE TAX IS NOT PART OF THE GROSS RECEIPT FOR TH E PURPOSE OF TAXATION U/S 44BB OF THE ACT. THE RELIANCE WAS ALSO PLACED IN TH E CASE OF ACIT VS. LOUIS BERGER INTERNATIONAL INC. (2010) 40 SOT 370 ( HYD.) WHEREIN IT HAS BEEN HELD AT PLACITUM A PAGE 397 THAT REIMBURSEMENT OF SERVICE TAX CANNOT FORM PART OF THE TOTAL INCOME OF THE ASSESSE E. HE FURTHER SUBMITS THAT SIMILAR VIEW WAS TAKEN IN CASE OF ISLAMIC REPU BLIC OF IRAN SHIPPING VS. DY. COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) IN ITA NO. 8845/MUM/2010 FOR A.Y. 2007-08 ORDER DTD. 20-4-2011 AND IN THE CASE OF VEOLIA EAU-COMPAGNIE VS. THE ADDL DIRECTOR OF GE NERALE DES EAUX INCOME-TAX IN ITA NO. 2131/MDS/2010 FOR A.Y. 2004-0 5 ORDER DTD. 23-6- 2011. RELIANCE WAS ALSO PLACED IN THE CASE OF CIT V S. SUDARSHAN CHEMICALS INDUSTRIES LTD. (2000) 245 ITR 769 (BOM) WHEREIN IT HAS BEEN HELD THAT EXCISE DUTY AND SALES TAX ARE NOT INCLUDI BLE IN TOTAL TURNOVER. 15. IN THE LIGHT OF THE ABOVE DECISIONS, HE SUBMITS THAT REIMBURSEMENT OF INCOME-TAX IS REVENUE NEUTRAL. THERE IS NO ELEME NT OF PROFIT. THERE IS NO INCOME AND, HENCE, IT SHOULD BE EXCLUDED FROM TH E INCOME OF THE ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 12 ASSESSEE. HE FURTHER SUBMITS THAT SINCE THE INCOME -TAX IS NOT THE INCOME, THEREFORE, THE SAME IS NOT INCLUDIBLE IN TH E RECEIPT AND, HENCE, DEDUCTION OF THE SAME DOES NOT ARISE. HE, THEREFOR E, SUBMITS THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF THE A.O. IN TREATING THE PROVISION FOR THE INCOME-TAX RECOVERABLE AS INCOME OF THE ASSESSEE AND THE SAME BE DELETED. 16. ON THE OTHER HAND, THE LD. D.R. WHILE RELYING O N THE ORDER OF THE A.O. AND THE LD. CIT(A), AT THE OUTSET, SUBMITS THA T RECEIPT OF INCOME-TAX IS A PART OF THE TARIFF REALIZED BY THE ASSESSEE FR OM THE COMPANY, THEREFORE, IT IS A PART OF RECEIPT LIABLE TO TAX AS INCOME OF THE ASSESSEE. HE FURTHER SUBMITS THAT UNDER THE PROVISIONS OF THE ACT THE PROVISION FOR INCOME-TAX MADE BY THE ASSESSEE IS NOT ALLOWABLE I. E. IN OTHER WORDS IT IS NOT DEDUCTIBLE EXPENDITURE AND, HENCE, IT WAS RIGHT LY TREATED BY THE A.O. AS INCOME. HE FURTHER SUBMITS THAT IN THE CASE OF L OUIS BERGER INTERNATIONAL INC.(SUPRA) RELIED ON BY THE LD. SR. COUNSEL FOR THE ASSESSEE IT HAS BEEN OBSERVED BY THE TRIBUNAL AT PAGE 396 TH AT THERE IS A LOT OF DIFFERENCE BETWEEN PAYMENT OF SERVICE TAX AND INCOM E-TAX, THEREFORE, THE DECISION RELIED ON BY THE LD. SR. COUNSEL FOR THE A SSESSEE IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. HE FURTHER SUBMITS THAT ALL OTHER DECISIONS RELIED ON BY THE LD. SR. COUNSEL FOR THE ASSESSEE ARE IN RESPECT OF REIMBURSEMENT OF EXPENSES, CUSTOM DUTY AND SERVICE TAX AND ARE NOT IN RESPECT OF REIM BURSEMENT INCOME- ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 13 TAX, THEREFORE, ALL THE DECISIONS RELIED ON BY THE LD. SR. COUNSEL FOR THE ASSESSEE ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. HE, THEREFORE, SUBMITS THAT THE ADDI TION MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) BE UPHELD. 17. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUT E THAT THE ASSESSE HAS SHOWN BELOW THE LINE THE P&L ACCOUNT RS. 11.07 CROR ES AS PROVISION FOR TAX RECOVERABLE AND HAS NOT INCLUDED THE SAID AMOUN T IN THE TOTAL INCOME COMPUTED BY THE ASSESSEE. THE CASE OF THE ASSESSEE IS THAT THE SAID AMOUNT REFLECTS THE INCOME-TAX PAYABLE BY THE ASSES SEE WHICH IS REIMBURSED BY THE GUJARAT ELECTRICITY BOARD (GEB) A ND THE SAME IS IN THE NATURE OF REIMBURSEMENT OF EXPENSES AND, HENCE, NOT LIABLE TO BE INCLUDED IN THE INCOME OF THE ASSESSEE. PER CONTRA THE STAND OF THE REVENUE IS THAT IT IS A PART OF THE TARIFF PAYABLE BY THE COMPANIES, THEREFORE, IT IS AN INCOME/RECEIPT IN THE HANDS OF THE ASSESSEE AND NOT IN THE NATURE OF REIMBURSEMENT OF EXPENSES AND, AS SUC H, THE SAME IS NOT DEDUCTIBLE AS AN EXPENDITURE AND, HENCE, LIABLE TO TAX. 18. HERE IT IS NECESSARY TO CONSIDER THE RELEVANT P ROVISIONS OF THE ACT WHICH ARE AS UNDER:- ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 14 19 . AMOUNTS NOT DEDUCTIBLE. 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SEC TIONS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION': (A) IN THE CASE OF ANY ASSESSEE (II) ANY SUM PAID ON ACCOUNT OF ANY RATE OR TAX LEV IED 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; 20. THIS CLAUSE PROVIDES THAT NOTWITHSTANDING ANYTH ING TO THE CONTRARY IN SECTIONS 30 TO 38, IN THE CASE OF ANY ASSESSEE (I) ANY SUM PAID ON ACCOUNT OF ANY RATE OR TAX (II) LEVIED ON THE PROFI TS OR GAINS OF ANY BUSINESS OR PROFESSION, OR (III) ASSESSED AT A PROP ORTION OF, OR OTHERWISE ON THE BASIS OF, ANY SUCH PROFITS OR GAINS SHALL NO T BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PRO FITS AND GAINS OF BUSINESS OR PROFESSION. 21. TAX DEDUCTED IS INCOME RECEIVED 198. ALL SUMS DEDUCTED IN ACCORDANCE WITH THE FOREG OING PROVISIONS OF THIS CHAPTER SHALL, FOR THE PURPOSE O F COMPUTING THE INCOME OF AN ASSESSEE, BE DEEMED TO BE INCOME RECEI VED : PROVIDED THAT THE SUM BEING THE TAX PAID, UNDER SUB -SECTION (1A) OF SECTION 192 FOR THE PURPOSE OF COMPUTING THE INCOME OF AN ASSESSEE, SHALL NOT BE DEEMED TO BE INCOME RECEIVED. 22. THIS SECTION PROVIDES THAT THE AMOUNT OF TAX DE DUCTED AT SOURCE UNDER THE PROVISIONS OF SECTIONS 192 TO 196D IS, SO FAR AS AFFECTED PERSON IS CONCERNED, TO BE TREATED AS INCOME RECEIVED BY H IM. FOR THE PURPOSE OF COMPUTATION OF HIS TOTAL INCOME, GROSS SALARY, G ROSS DIVIDEND OR GROSS ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 15 INTEREST, ETC. I.E. THE AMOUNT ACTUALLY RECEIVED PL US THE AMOUNT OF TAX DEDUCTED AT SOURCE, WILL HAVE TO BE CONSIDERED. 23. WE FURTHER FIND FROM THE COPY OF AGREEMENT DTD. 30-5-1996 BETWEEN GUJARAT ELECTRICITY BOARD (GEB) AND ESSAR P OWER LIMITED (ASSESSEE) THAT IN CL. 7.1 OF THE ANNEXURE IV OF S CHEDULE OF THE AGREEMENT APPEARING AT PAGE 3 TO 87 AT PAGE 81 THAT THE TARIFF HAS BEEN DETERMINED AS FOLLOWS:- TARIFF THE TARIFF SHALL BE DETERMINED AS FOLLOWS (A) ANNUAL FIXED CHARGES TO BE DETERMINED IN TERMS OF SECTION 7.1.1. (B) VARIABLE CHARGES TO BE DETERMINED IN TERMS OF S ECTION 7.2 (C) INCENTIVE PAYMENT TO BE DETERMINED IN TERMS OF SECTION 7.3 7.1.1.ANNUAL FIXED CHARGES: COMPUTATION AND PAYMENT . THE ANNUAL FIXED CHARGE SHALL BE COMPUTED ON THE FO LLOWING BASIS: (A) INTEREST ON DEBT: .. (B) ACCOUNTING YEAR: .. (C) DEPRECIATION : . (D) TAX ON INCOME: TAX ON INCOME SHALL BE DETERMINED IN ACCORDANCE WIT H THE PROVISIONS OF THE INCOME TAX ACT, 1961 EVERY YEAR A S UNDER:- TAX PAYABLE BY THE COMPANY X RETURN ON EQUITY PLUS TOTAL TAXABLE INCOME INCENTIVE PAYMENT FOR THE PURPOSES OF DETERMINATION OF THE ANNUAL FIX ED CHARGES, THE TAX ON INCOME SHALL BE COMPUTED ON AN ESTIMATED BASIS. ANY UNDER OR OVER RECOVERY OF TAX ON INCOME SHALL BE AD JUSTED EVERY YEAR ON THE BASIS OF CERTIFICATE OF DOCUMENTATION O F TAX PAID AND ASSESSMENT BY THE INCOME TAX OFFICER CONCERNED. ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 16 E) RETURN ON EQUITY (ROE): .. F) INTEREST ON WORKING CAPITAL. G) BASE FOREIGN DEBT REPAYMENT ADJUSTMENT MOUNT:.. 24. FROM THE FAIR READING OF THE ABOVE, THE AMOUNT OF INCOME-TAX CALCULATED AND PAID BY GEB IS PART OF THE TARIFF CH ARGED BY THE ASSESSEE ON THE SALE OF ELECTRICITY AND NOT REIMBURSEMENT OF EXPENSES, THEREFORE IT IS PART OF THE RECEIPTS IN THE HANDS OF THE ASSESSE E. 25. IN CHOWRINGHEE SALES BUREAU P. LTD. CIT, (1977) 110 ITR 385 (CAL.) IT HAS BEEN HELD (HEADNOTE):- HELD, THAT THE AMOUNTS COLLECTED BY THE ASSESSEE A S SALES TAX FORMED PART OF ITS TRADING RECEIPTS. HOWEVER, THE L IABILITY TO PAY SALES TAX ARISES THE MOMENT A SALE OR PURCHASE IS E FFECTED AND AN ASSESSEE WHO MAINTAINS ACCOUNTS ON THE MERCANTILE S YSTEM IS ENTITLED TO DEDUCTION OF HIS ESTIMATED LIABILITY TO SALES TAX, EVEN THOUGH THEY HAD NOT BEEN PAID TO THE SALES TAX AUTH ORITIES. 26. IN SINCLAIR MURRAY AND CO. P. LTD. VS. CIT (197 4) 97 ITR 615 (SC) IT HAS BEEN HELD (HEADNOTE) : (II) THAT THE AMOUNT COLLECTED BY THE APPELLANT AS SALES TAX CONSTITUTED ITS TRADING RECEIPT AND HAD TO BE INCLU DED IN ITS TOTAL INCOME; 27. IN CHOWRINGHEE SALES BUREAU P. LTD. CIT, (1973 87 ITR 542 (SC) IT HAS BEEN HELD (HEADNOTE):- HELD, (I) THAT THE SUM OF RS. 32,986 REALISED AS S ALES TAX BY THE APPELLANT IN ITS CHARACTER AS AN AUCTIONEER FORMED PART OF ITS TRADING OR BUSINESS RECEIPTS; (II) THAT THE FACT THAT THE APPELLANT CREDITED THE AMOUNT RECEIVED AS SALES TAX UNDER THE HEAD 'SALES TAX COLLECTION ACCO UNT' DID NOT MAKE ANY MATERIAL DIFFERENCE. ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 17 IT IS THE TRUE NATURE AND QUALITY OF THE RECEIPT AN D NOT THE HEAD UNDER WHICH IT IS ENTERED IN THE ACCOUNT BOOKS AS W OULD PROVE DECISIVE. IF A RECEIPT IS A TRADING RECEIPT, THE FA CT THAT IT IS NOT SO SHOWN IN THE ACCOUNT BOOKS OF THE ASSESSEE WOULD NO T PREVENT THE ASSESSING AUTHORITY FROM TREATING IT AS TRADING REC EIPT. 28. IN EMIL WEBBER VS. CIT (1993) 200 ITR 483 (SC) IT HAS BEEN OBSERVED AND HELD AT PAGE 486-487 AS UNDER:- THE DEFINITION OF 'INCOME' IN CLAUSE (24) OF SECTI ON 2 OF THE ACT IS AN INCLUSIVE DEFINITION. IT ADDS SEVERAL ARTIFICIAL CATEGORIES TO THE CONCEPT OF INCOME BUT ON THAT ACCOUNT THE EXPRESS ION 'INCOME' DOES NOT LOSE ITS NATURAL CONNOTATION. INDEED, IT IS REPEATEDLY SAID THAT IT IS DIFFICULT TO DEFINE THE EXPRESSION 'INCO ME' IN PRECISE TERMS. ANYTHING WHICH CAN PROPERLY BE DESCRIBED AS INCOME IS TAXABLE UNDER THE ACT UNLESS, OF COURSE, IT IS EXE MPTED UNDER ONE OR THE OTHER PROVISIONS OF THE ACT. IT IS FROM THE SAID ANGLE THAT WE HAVE TO EXAMINE WHETHER THE AMOUNT PAID BY BALLA RPUR BY WAY OF TAX ON THE SALARY AMOUNT RECEIVED BY THE ASSESSE E CAN BE TREATED AS THE INCOME OF THE ASSESSEE. IT CANNOT BE OVERLOOKED THAT THE SAID AMOUNT IS NOTHING BUT A TAX UPON THE SALAR Y RECEIVED BY THE ASSESSEE. BY VIRTUE OF THE OBLIGATION UNDERTAKE N BY BALLARPUR TO PAY TAX ON THE SALARY RECEIVED BY THE ASSESSEE AMONG OTHERS, IT PAID THE SAID TAX. THE SAID PAYMENT IS, THEREFORE, FOR AND ON BEHALF OF THE ASSESSEE. IT IS NOT A GRATUITOUS PAYMENT. BU T FOR THE SAID AGREEMENT, AND BUT FOR THE SAID PAYMENT, THE SAID T AX AMOUNT WOULD HAVE BEEN LIABLE TO BE PAID BY THE ASSESSEE H IMSELF. HE COULD NOT HAVE RECEIVED THE SALARY WHICH HE DID BUT FOR THE SAID PAYMENT OF TAX. THE OBLIGATION PLACED UPON BAL LARPUR BY VIRTUE OF SECTION 195 OF THE INCOME-TAX ACT CANNOT ALSO BE IGNORED IN THIS CONTEXT. IT WOULD BE UNREALISTIC TO SAY THA T THE SAID PAYMENT HAD NO INTEGRAL CONNECTION WITH THE SALARY RECEIVED BY THE ASSESSEE. WE ARE, THEREFORE, OF THE OPINION TH AT THE HIGH COURT AND THE AUTHORITIES TINDER THE ACT WERE RIGHT IN HO LDING THAT THE SAID TAX AMOUNT IS LIABLE TO BE INCLUDED IN THE INC OME OF THE ASSESSEE DURING THE SAID TWO ASSESSMENT YEARS. 29. BHARAT COMMERCE AND INDUSTRIES LTD. VS. CIT (19 98) 230 ITR 733 (SC) IT HAS BEEN OBSERVED AND HELD AS UNDER (PAGE 7 38-739):- LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED UPON A DECISION OF THIS COURT IN MAHALAKSHMI SUGAR MILLS CO. V. CIT [1 980] 123 ITR 429. THE ASSESSEE IN THAT CASE HAD CLAIMED DEDUCTIO N OF INTEREST PAID ON ARREARS OF SUGARCANE CESS. THIS WAS HELD BY THIS COURT AS A ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 18 PART OF THE ASSESSEES LIABILITY TO PAY CESS AND WA S HELD TO BE DEDUCTIBLE. THE RATIO OF THIS JUDGMENT ALSO CAN HAV E NO APPLICATION HERE. THE PAYMENT OF SUGARCANE CESS IS VERY MUCH A PART OF THE ASSESSEES BUSINESS EXPENSE. ANY INTEREST ON ARREAR S OF CESS WOULD, THEREFORE, TAKE COLOUR FROM THE CESS WHICH I S PAYABLE. IT IS AN INDIRECT TAX WHICH HAS TO BE PAID IN THE COURSE OF CARRYING ON BUSINESS. IT IS REQUIRED TO BE DEDUCTED IN ORDER TO ARRIVE AT THE NET PROFITS OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR. WE ARE HERE NOT CONCERNED WITH THE PAYMENT OF ANY INDIRECT TAX WHICH THE ASSESSEE MAY HAVE TO PAY IN THE COURSE OF HIS BUSIN ESS. WE ARE CONCERNED WITH THE TAX WHICH WAS REQUIRED TO BE PAI D AFTER THE ASCERTAINMENT OF THE NET INCOME OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR. INTEREST WHICH IS PAID FOR DELAYED PAYMENT OF ADVANCE TAX ON SUCH INCOME CANNOT BE CONSIDERED AS EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. UNDER THE INCOME-TAX ACT, THE PAYMENT OF SUCH INTEREST IS INE XTRICABLY CONNECTED WITH THE ASSESSEES TAX LIABILITY. IF INC OME-TAX ITSELF IS NOT A PERMISSIBLE DEDUCTION UNDER SECTION 37, ANY I NTEREST PAYABLE FOR DEFAULT COMMITTED BY THE ASSESSEE IN DISCHARGIN G HIS STATUTORY OBLIGATION UNDER THE INCOME TAX ACT, WHICH IS CALCU LATED WITH REFERENCE TO THE TAX ON INCOME CANNOT BE ALLOWED AS A DEDUCTION. 30. NOW LET US CONSIDER THE DECISIONS RELIED ON BY THE LD. SR. COUNSEL FOR THE ASSESSEE. 31. IN SIEMENS AKTIONGESELLSCHAFT (SUPRA) IT HAS BE EN INTER ALIA OBSERVED AND HELD AT PLACITUM 57 TO 59 AT PAGE 340- 341 AS UNDER:- THAT LEAVES US WITH THE LAST CONTENTION AS TO WHET HER THE AMOUNTS BY WAY OF REIMBURSEMENT ARE LIABLE TO TAX. TO ANSWER THAT ISSUE, WE MAY GAINFULLY REFER TO THE JUDGMENT OF A DIVISION BENCH OF THE DELHI HIGH COURT IN CIT V. INDUSTRIAL ENGINEERING PROJECTS P. LTD. [1993] 202 ITR 1014. THE LEARNED DIVISION BENCH OF THE DELHI HIGH COURT WAS PLEASED TO HOLD THAT R EIMBURSEMENT OF EXPENSES CAN, UNDER NO CIRCUMSTANCES, BE REGARDE D AS A REVENUE RECEIPT AND IN THE PRESENT CASE THE TRIBUNA L HAD FOUND THAT THE ASSESSEE RECEIVED NO SUMS IN EXCESS OF EX PENSES INCURRED. A SIMILAR ISSUE HAD ALSO COME UP FOR CON SIDERATION BEFORE THE DIVISION BENCH OF THE CALCUTTA HIGH COUR T IN CIT V. DUNLOP RUBBER CO. LTD. [1983] 142 ITR 493 (CAL). T HE LEARNED DIVISION BENCH WAS ANSWERING THE FOLLOWING QUESTION : ' WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AMOUNTS RECEIVED BY THE ASSESSEE (ENGLISH COMPANY) FROM M/S. ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 19 DUNLOP RUBBER CO. (INDIA) LTD. (INDIAN COMPANY) AS PER AGREEMENT DATED JULY 29, 1957, CONSTITUTED INCOME ASSESSABLE TO TAX ?' ON CONSIDERING THE ISSUE THE LEARNED BENCH NOTED TH AT THE TRIBUNAL WAS OF THE VIEW THAT WHAT WAS RECOUPED BY THE ENGLISH COMPANY WAS PART OF THE EXPENSES INCURRED BY IT. T HE LEARNED COURT UPHELD THE SAID FINDING. THE LEARNED BENCH W AS PLEASED TO HOLD THAT SHARING OF EXPENSES OF THE RESEARCH UTIL ISED BY THE SUBSIDIARIES AS WELL AS THE HEAD OFFICE ORGANISATIO N WOULD NOT BE INCOME WHICH WOULD BE ASSESSABLE TO TAX. A SIMILAR VIEW WAS TAKEN IN CIT V. STEWARDS AND LLOYDS OF INDIA LTD. [ 1987] 165 ITR 416. WE ARE IN RESPECTFUL AGREEMENT WITH THE VIEW EXPRES SED BY THE DELHI AND CALCUTTA HIGH COURTS. 32. IN KRUPP UDHE GMBH (SUPRA) IT HAS BEEN HELD AS UNDER (PARA 6): 6. THE QUESTION AS TO WHETHER A REIMBURSEMENT FOR EXPENSES WOULD FORM PART OF THE TAXABLE INCOME IS NOT RES-IN TEGRA IN SO FAR AS THIS COURT IS CONCERNED. IN COMMISSIONER OF INCO ME TAX V/S. SIEMENS AKTIONGESELLSCHAFT5, A DIVISION BENCH OF TH IS COURT HELD THAT IT WAS IN AGREEMENT WITH THE VIEW TAKEN BY THE CALCUTTA HIGH COURT IN DUNLOP RUBBER COMPANY LIMITED (SUPRA) AND BY THE DELHI HIGH COURT IN COMMISSIONER OF INCOME TAX V/S. INDUSTRIAL ENGINEERING PROJECTS (P) LTD. (1993) 109 CTR (DEL) 73 : (1993) 202 ITR 1014 (DEL). THE OBSERVATIONS OF THIS COURT IN SIEMENS (SUPRA) ARE AS FOLLOWS : '33. THAT LEAVES US WITH THE LAST CONTENTION AS TO WHETHER THE AMOUNTS BY WAY OF REIMBURSEMENT ARE LIABLE TO T AX. TO ANSWER THAT ISSUE, WE MAY GAINFULLY REFER TO THE JU DGMENT OF A DIVISION BENCH OF THE DELHI HIGH COURT IN CIT V . INDUSTRIAL ENGINEERING PRODUCTS (P) LTD., (SUPRA). THE LEARNED DIVISION BENCH OF THE DELHI HIGH COURT WAS PLEASED TO HOLD THAT REIMBURSEMENT OF EXPENSES CAN, UNDER N O CIRCUMSTANCES, BE REGARDED AS A REVENUE RECEIPT AND IN THE PRESENT CASE THE TRIBUNAL HAD FOUND THAT THE ASSESS EE ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 20 RECEIVED NO SUMS IN EXCESS OF EXPENSES INCURRED. A SIMILAR ISSUE HAD ALSO COME UP FOR CONSIDERATION BEFORE THE DIVISION BENCH OF THE CALCUTTA HIGH COURT IN CIT V. DUNLOP RUBBER CO. LIMITED (SUPRA). THE LEARNED DIVISION BE NCH WAS ANSWERING THE FOLLOWING QUESTION : WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AMOUNTS RECEIVED BY THE ASSESSEE (ENGLISH COMPANY) FROM M/S. DUNLOP RUBBER CO. (INDIA) LTD., (INDIAN COMPANY) AS PER AGREEMENT DT. 29TH JAN., 19 57 CONSTITUTED INCOME ASSESSABLE TO TAX ? ON CONSIDERING THE ISSUE THE LEARNED BENCH NOTED TH AT THE TRIBUNAL WAS OF THE VIEW THAT WHAT WAS RECOUPED BY THE ENGLISH COMPANY WAS PART OF THE EXPENSES INCURRED B Y IT. THE LEARNED COURT UPHELD THE SAID FINDING. THE LEAR NED BENCH WAS PLEASED TO HOLD THAT SHARING OF EXPENSES OF THE RESEARCH UTILISED BY THE SUBSIDIARIES AS WELL AS TH E HEAD OFFICE ORGANISATION WOULD NOT BE INCOME WHICH WOULD BE ASSESSABLE TO TAX. A SIMILAR VIEW WAS TAKEN IN CIT V. STEWARTS & LLOYDS OF INDIA LTD., (SUPRA). CONSEQUENTLY, IN VIEW OF THE JUDGMENT IN SIEMENS, T HE FIRST AND SECOND ISSUE WOULD NOT RAISE ANY SUBSTANTIAL QU ESTION OF LAW SINCE THEY ARE COVERED AGAINST THE REVENUE. 33 IN MAHINDRA & MAHINDRA LTD. (SUPRA) IT HAS BEEN OBSERVED AND HELD AT PLACITUM D AT PAGE 403 AS UNDER:- REIMBURSEMENT OF EXPENSES DOES NOT HAVE THE IN COME ELEMENT AND, HENCE, CANNOT ASSUME THE CHARACTER OF INCOME D EEMED TO ACCRUE OR ARISE IN INDIA. 34. IN SCHLUMBERGER ASIA SERVICES LTD. (SUPRA) IT H AS BEEN HELD (HEADNOTE): ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 21 HELD, DISMISSING THE APPEAL, THAT REIMBURSEMENT TO WARDS THE CUSTOMS DUTY PAID BY THE ASSESSEE, BEING STATUTORY IN NATURE, COULD NOT FORM PART OF AMOUNT FOR THE PURPOSES OF DEEMED PROF ITS, UNLIKE THE OTHER AMOUNTS RECEIVED TOWARDS REIMBURSEMENT. THEREFORE, THERE WAS NO REASON TO INTERFERE WITH THE ORDERS PASSED BY THE T RIBUNAL AFFIRMING THE VIEW TAKEN BY THE COMMISSIONER (APPEALS). 35. IN MITCHELL DRILLING INTERNATIONAL PTY. LTD (SU PRA) IT HAS BEEN HELD THAT SERVICE TAX IS NOT PART OF THE GROSS RECEIPTS THAT IS TO BE COMPUTED FOR THE PURPOSES OF TAXATION U/S 44BB OF THE I.T. A CT. 36. IN LOUIS BERGER INTERNATIONAL INC. (SUPRA) IT H AS BEEN HELD THAT THE THE REIMBURSEMENT OF SERVICE TAX CANNOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE. 37. IN ISLAMIC REPUBLIC OF IRAN SHIPPING (SUPRA) IT HAS BEEN HELD AS UNDER:- THEREFORE, WE ARE OF THE VIEW, THAT SERVICE TAX WH ICH IS A STATUTORY LIABILITY, WOULD NOT INVOLVE ANY ELEMENT OF PROFITS AND A SERVICE PROVIDER IS COLLECTING THE SAME FROM ITS CUSTOMERS ON BEHALF OF THE GOVERNMENT AND, ACCORDINGLY, SAME CANNOT BE INCLUDE D IN THE TOTAL RECEIPTS FOR DETERMINING THE PRESUMPTIVE INCOME. TH EREFORE, WE SET ASIDE THE ORDER OF THE DRP IN THIS REGARD AND DIREC T THE ASSESSING OFFICER NOT TO INCLUDE THE AMOUNT OF SERVICE TAX IN THE TOTAL RECEIPTS FOR DETERMINING THE INCOME U/S.44B. 38. IN VEOLIA EAU-COMPAGNIE (SUPRA) IT HAS BEEN HEL D THAT .. HENCE REIMBURSEMENT OF SERVICE TAX CANNOT FORM PART OF TH E TAXABLE INCOME OF THE ASSESSE. ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 22 39. IN SUDARSHAN CHEMICALS INDUSTRIES LTD. (SUPRA) IT HAS BEEN HELD THAT (HEADNOTE) : UNDER SECTION 80HHC(1) OF THE INCOME-TAX ACT, 1961 , IT IS, INTER ALIA, PROVIDED THAT WHERE AN ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT OF ANY GOODS, THERE SHALL BE ALLOWED IN COMP UTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF THE PROFITS DERIVED BY THE ASSESSEE FROM THE EXPORT OF SUCH GOODS. IN OTHER WO RDS, IN COMPUTING THE TOTAL INCOME OF SUCH AN ASSESSEE, PRO FITS DERIVED BY THE ASSESSEE FROM THE EXPORTS ARE DEDUCTIBLE. THE A BOVE EXPRESSION, NAMELY, PROFITS DERIVED FROM EXPORTS ALSO FINDS PLACE IN SECTION 80HHC(3)(A). IT SAYS THAT WHERE THE EXPO RT IS OF GOODS, THE PROFITS DERIVED FROM SUCH EXPORT SHALL BE THE A MOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS, THE SAME PROP ORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH GOODS BEARS TO T HE TOTAL TURNOVER OF THE BUSINESS. IN FACT, THE EARLIER SECT ION 80HHC(3) CONSISTED OF TWO PARTS, NAMELY, WHERE THE ASSESSEE CARRIED ON A BUSINESS AS 100 PER CENT. EXPORTER AND SECONDLY WHE RE THE ASSESSEE CARRIED ON A COMPOSITE BUSINESS. IN THE LA TTER CASE, IT WAS PROVIDED THAT THE PROFITS DERIVED FROM EXPORTS SHAL L BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS AS COMPU TED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS, THE SAME PROP ORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER. THE EM PHASIS IS ON THE WORDS PROFITS DERIVED FROM THE EXPORTS. THERE FORE, WEIGHTAGE MUST BE GIVEN TO SUCH PROFITS. SUCH PROFITS CANNOT BE REDUCED ARTIFICIALLY BY INCLUDING STATUTORY LEVIES IN THE D ENOMINATOR, NAMELY, TOTAL TURNOVER. THEREFORE, THE TURNOVER SHO ULD BE RESTRICTED TO SUCH RECEIPTS WHICH HAVE AN ELEMENT O F PROFIT IN IT. IT IS ONLY THE ACTUAL SALE PRICE WHICH IS RELEVANT. AN YTHING CHARGED BY THE ASSESSEE BY WAY OF EXCISE DUTY AND SALES TAX CANNOT BE TAKEN INTO ACCOUNT AS THEY DO NOT HAVE ANY ELEMENT OF PROFIT. EVEN, ACCORDING TO ACCOUNTING PRINCIPLES, SUCH LEVI ES DO NOT FORM PART OF THE PROFIT AND LOSS ACCOUNT. IN FACT, THEY ARE SHOWN AS LIABILITY IN THE BALANCE-SHEET. IN THE CIRCUMSTANCE S, THE ABOVE TWO ITEMS CANNOT BE INCLUDED IN THE TOTAL TURNOVER. SEC TION 80HHC IS A SEPARATE CODE BY ITSELF. HENCE, THE GENERAL DEFINIT ION OF THE WORD TURNOVER OR THE CASE LAW DEALING WITH THE SAID DEFI NITION UNDER THE SALES TAX ACT WHICH IS A STATE LEVY, CANNOT BE IMPO RTED INTO SECTION 80HHC OF THE ACT. 40. THERE IS NO QUARREL WITH THE PRINCIPLE ENUNCIAT ED IN THE AFORESAID DECISIONS RELIED ON BY THE LD. SR. COUNSEL FOR THE ASSESSEE. HOWEVER, THE FACTS OF THE PRESENT CASE ARE ENTIRELY DIFFERENT. WE ARE HERE NOT ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 23 CONCERNED WITH THE REIMBURSEMENT OF ANY EXPENSES AL LOWABLE UNDER THE ACT OR PAYMENT OF ANY INDIRECT TAX WHICH THE ASSESS EE MAY HAVE TO PAY IN THE COURSE OF HIS BUSINESS. IN FACT, WE ARE CONCER NED WITH THE TAX WHICH WAS REQUIRED TO BE PAID AFTER ASCERTAINMENT OF THE NET INCOME OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR, NOT DEDU CTIBLE UNDER THE PROVISIONS OF THE ACT. THEREFORE, ALL THE DECISIONS RELIED ON BY THE LD. SR. COUNSEL FOR THE ASSESSEE ARE DISTINGUISHABLE AND NO T APPLICABLE TO THE FACTS OF THE PRESENT CASE. 41. UNDER THE ACT, THE DEFINITION OF INCOME IN CLAU SE (24) OF SECTION 2 IS AN INCLUSIVE DEFINITION. ANYTHING WHICH CAN PROP ERLY BE DESCRIBED AS INCOME IS TAXABLE UNLESS, OF COURSE, IT IS EXEMPTED UNDER ONE OR THE OTHER PROVISIONS OF THE ACT. IT IS FROM THE SAID ANGLE W E ARE OF THE OPINION THAT THE AMOUNT PAID BY THE POWER PURCHASERS BY WAY OF T AX ON THE AMOUNT OF TARIFF CHARGES RECEIVED BY THE ASSESSEE CAN BE T REATED AS THE INCOME OF THE ASSESSEE. IT CANNOT BE OVERLOOKED THAT THE SAI D AMOUNT IS NOTHING BUT A TAX UPON THE PAYMENTS RECEIVED BY THE ASSESSE E. BY VIRTUE OF THE OBLIGATION UNDERTAKEN BY THE POWER PURCHASERS TO RE IMBURSE THE TAX TO THE ASSESSEE DOES NOT MEAN THAT IT IS NOT THE INCOM E IN THE HANDS OF THE ASSESSEE. UNDER THESE CIRCUMSTANCES AND KEEPING IN VIEW THE RATIO OF THE DECISIONS REFERRED IN PARA 25 TO 29 OF THIS ORDER, WE HOLD THAT THE PAYMENT OF TAX RECEIVED BY THE ASSESSEE IS A PAR T OF TARIFF CHARGES AS PER AGREEMENTS (SUPRA) AND, HENCE, IT IS AN INC OME IN THE HANDS OF THE ASSESSEE AND, THEREFORE, THE SAID AMOUNT WITHOUT ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 24 ALLOWING ANY DEDUCTION IS LIABLE TO BE INCLUDED IN THE INCOME OF THE ASSESSEE. ACCORDINGLY, THE LD. CIT(A) WAS FULLY JU STIFIED IN UPHOLDING THE ORDER OF THE A.O. IN TREATING THE SAME AS INCOME. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, REJECTED. 42. THE FOLLOWING ADDITIONAL GROUND HAS BEEN TAKEN BY THE ASSESSEE:- THE LEARNED ASSESSING OFFICER ERRED IN LEVYING INTE REST U/S 234B AND SECTION 234C ON TAX PAYABLE ON BOOK PROFIT COMP UTED U/S 115JB OF THE INCOME-TAX ACT TO THE EXTENT BOOK PROF IT INCLUDES PROVISION FOR DOUBTFUL DEBTS. 43. SINCE IT IS A LEGAL GROUND, WE KEEPING IN VIEW OF T HE LAW LAID DOWN IN NATIONAL THERMAL POWER CORPORATION VS. CIT (1998 )229 ITR 383 (SC), ADMIT THE ADDITIONAL GROUND TAKEN BY THE ASSESSEE. 44. THERE IS NO DISPUTE THAT THE ABOVE ADDITIONAL G ROUND HAS BEEN TAKEN BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE TRIBUNAL. THE HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT VS. TO LLARAM HASSOMAL (2008) 298 ITR 22 (M.P.) HAS HELD AS UNDER:- HELD, THAT THE TRIBUNAL HAVING PERMITTED THE ASSES SEE TO RAISE FOUR ADDITIONAL GROUNDS TREATING THEM TO BE LEGAL G ROUNDS IN APPEAL FOR THE FIRST TIME, SHOULD HAVE SET ASIDE TH E ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AND REMANDED T HE CASE TO THE COMMISSIONER OF INCOME-TAX (APPEALS) FOR DECIDI NG THE APPEAL AFRESH ON ALL THE ISSUES INCLUDING ON THOSE FOUR GR OUNDS RAISED BY THE ASSESSEE IN THE APPEAL BEFORE THE TRIBUNAL RATH ER THAN TO DECIDE THE ADDITIONAL GROUNDS ON THE MERITS FOR THE FIRST TIME BY ITSELF. 45. RESPECTFULLY FOLLOWING THE RATIO OF THE ABOVE D ECISION, WE ARE OF THE VIEW THAT, IN THE INTEREST OF JUSTICE, THE MATTER S HOULD GO BACK TO THE FILE OF THE A.O. AND ACCORDINGLY WE SEND BACK THE MATTER TO THE FILE OF THE ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 25 A.O. TO DECIDE THE SAME AFRESH IN THE LIGHT OF THE DECISION RELIED ON BY THE LD. SR. COUNSEL FOR THE ASSESSEE IN THE CASE OF EMA MI LTD. VS. CIT (2011) 337 ITR 470 (CAL.) AND OTHER CASES AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE AD DITIONAL GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED FOR S TATISTICAL PURPOSE. ITA NO. 5725/MUM/2007 (BY REVENUE) 46. GROUND NO. 1 READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND AS PER LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION O F RS. 1,02,17,687/- MADE ON ACCOUNT OF INTEREST INCOME EA RNED UNDER VARIOUS HEADS WHICH WERE TREATED AS INCOME FROM OTH ER SOURCES AS AGAINST INCOME FROM BUSINESS AND PROFESSION. 47. AT THE TIME OF HEARING BOTH THE PARTIES HAVE AG REED THAT THE FACTS OF THE ABOVE GROUND ARE SIMILAR TO GROUND NO. 1 OF ASS ESSEES APPEAL, THEREFORE, THE PLEA TAKEN BY THEM MAY BE CONSIDERED WHILE DECIDING THE ABOVE GROUND TAKEN BY THE REVENUE. 48. AFTER HEARING THE RIVAL PARTIES AND PERUSING TH E MATERIAL AVAILABLE ON RECORD WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUTE THAT THE IMPUGNED ISSUE IS COVERED I N FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL DTD. 11-8-200 8 (SUPRA) WHEREIN VIDE PARA 13 OF THE ORDER, IT HAS BEEN HELD AS UNDE R:- AFTER CONSIDERING THE FACTS OF THE CASE AS DISCUSSE D ABOVE, WE ARE OF THE OPINION THAT THE CIT(A) HAS RIGHTLY HELD THA T INTEREST FROM THE MARGIN MONEY KEPT WITH THE BANK AS WELL THE INT EREST ON THE LOANS TO THE EMPLOYEES IS TO BE ASSESSED AS THE BUS INESS INCOME. WE MADE IT CLEAR, AS SUBMITTED BY THE LD. COUNSEL, THAT FOR LIMITED PURPOSE OF DETERMINING THE HEAD OF INCOME AND THIS ISSUE IS NOT DECIDED ON THE ISSUE THAT WHETHER FOR CLAIMING DEDU CTION U/S 80IA/80IB THIS INCOME SHOULD BE TREATED AS PROFITS DERIVED FROM ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 26 THE INDUSTRIAL UNDERTAKING. GROUND NO. 1 TAKEN BY THE REVENUE IS DISMISSED. 49. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BR OUGHT ON RECORD BY THE REVENUE, WE RESPECTFULLY FOLLOWING THE ABOVE OR DER, DECLINE TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A) O N THIS ACCOUNT AND ACCORDINGLY THE GROUND TAKEN BY THE REVENUE IS REJE CTED. 50. GROUND NO. 2 READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW, THE LD. CIT(A) ERRED IN ALLOWING THE INTEREST PAID AMOUNTING TO RS.97,63,398/- AFTER OBTAINING THE STATEMENT OF AVE RAGE COST OF FUNDS AND WORKING OF PROPORTIONATE INTEREST BASED O N THE AVERAGE COST WORKED OUT TO 10.19%. 51. ON THIS ISSUE THE LD. CIT(A) AFTER CONSIDERING THE ALTERNATIVE CLAIM OF THE ASSESSEE OBSERVED AND HELD IN PARA 1.5 AND 1 .6 OF HIS ORDER AS UNDER:- 1.5 AS AN ALTERNATIVE CLAIM APPELLANT COMPANY HAS S UBMITTED THAT COMPANY HAS BORROWED FUNDS IN ADDITION TO ITS OWN FUNDS, THEREFORE, PROPORTIONATE INTEREST PAID BY THE COMPA NY WORKED OUT BASED ON THE AVERAGE COST OF FUNDS AGAINST THE INTE REST INCOME NEEDS TO BE ALLOWED. 1.6 THE ABOVE ISSUE WAS DEALT BY MY PREDECESSORS AP PELLATE COMMISSIONER IN THE ORDER REFERRED TO IN EARLIER PA RAGRAPH, WHEREIN IT HAS BEEN HELD THAT PROPORTIONATE INTERES T BASED ON THE AVERAGE COST OF FUNDS BE ALLOWED AS DEDUCTION AGAIN ST THE INTEREST INCOME EARNED BY THE APPELLANT COMPANY. APPELLANT COMPANY HAS SUBMITTED BEFORE ME THE STATEMENT OF AVERAGE COST O F FUNDS AND WORKING OF PROPORTIONATE INTEREST PAID BASED ON THE AFORESAID AVERAGE RATE. AS PER THE SAID STATEMENT, AVERAGE R ATE OF INTEREST WORKS OUT TO 10.19% AND BASED ON THE SAME PROPORTIO NATE INTEREST PAID WORKS OUT TO RS. 97,63,398/-. IN LINE WITH MY PREDECESSORS ORDER, THE A.O. IS DIRECTED TO ALLOW T HE INTEREST PAID AMOUNTING TO RS. 97,63,398/- BASE DON THE AVERAGE C OST OF FUNDS AFTER VERIFICATION. 52. AT THE TIME OF HEARING, BOTH THE PARTIES HAVE A GREED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER O F THE TRIBUNAL IN ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 27 ASSESSEES OWN CASE FOR THE A.Y. 2000-01 AND 2001-0 2 (SUPRA), THEREFORE, THE ISSUE MAY BE DECIDED ACCORDINGLY. 53. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND MERIT IN THE PLEA OF THE PARTIES THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL (SUPRA) WHEREIN IT HAS BEEN H ELD VIDE PARA 14 & 15 OF THE ORDER DTD. 11-8-2008 AS UNDER:- 14. GROUND NO. 2 TAKEN BY THE REVENUE READS AS UNDE R:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW PROPORTIONATE INTEREST CALCULATED ON AVERAGE RATE O N 11.69% ON THE AMOUNT BORROWED FOR THE PURPOSE OF LENDING FROM THE INTEREST INCOME EARNED OF RS. 9,87,24,470/- ON SUCH INVESTME NT IGNORING THE DETAILED REASONING GIVEN BY THE ASSESSING OFFIC ER IN HIS ORDER. 15. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED IN FAVOU R OF THE ASSESSEE BY THE CIT(A) FOLLOWING HIS EARLIER ORDERS FOR AYS 1998-99 AND 1999-2000 AND BOTH THOSE ORDERS WERE SUBJECT MA TTER OF APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL HAS DEC IDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE LD. COUNSEL ALSO FI LED COPY OF THE ORDER OF THE TRIBUNAL IN ITA NO. 5411 & 5412/MUM/20 03 AND 5496 & 5497/MUM/2003 DATED 22.02.2008. ON PERUSAL OF THE ORDER, IT IS SEEN THAT THIS ISSUE IS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE UPHOLDING THE ORDER THE CIT(A) WHO HAS FOLLOWED THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AYS 1996- 97 AND 1997-98. RESPECTFULLY FOLLOWING THE ORDER O F THE TRIBUNAL FOR AY 1998-99 AND 1999-2000 WE DISMISS GROUND NO. 2 TAKEN BY THE REVENUE. 54. RESPECTFULLY FOLLOWING THE ABOVE DECISION AND T HE CONSISTENT VIEW OF THE TRIBUNAL, WE ARE INCLINED TO UPHOLD THE ORDER P ASSED BY THE LD. CIT(A) ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 28 ON THIS ACCOUNT. THE GROUND TAKEN BY THE REVENUE I S, THEREFORE, REJECTED. 55. GROUND NO. 3 READS AS UNDER:- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND AS PER LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION O F RS.25,84,069/- WHILE COMPUTING THE BOOK PROFIT U/S. 115JB OF THE A CT WITHOUT APPRECIATING THE FACT THAT IT WAS AN UNASCERTAINED LIABILITY AND IS COVERED UNDER THE CLAUSE (C) OF EXPLANATION TO SECT ION 115JB OF THE I.T. ACT. 56. AT THE TIME OF HEARING, IT HAS BEEN AGREED BY T HE PARTIES THAT THE ABOVE GROUND HAS BEEN TAKEN PRIOR TO THE AMENDMENT MADE BY THE FINANCE (NO. 2) ACT, 2009 W.R.E.F. 1-4-2001, THEREF ORE, THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE A.O. 57. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE F IND MERIT IN THE PLEA OF THE PARTIES THAT THIS ISSUE REQUIRES A FRESH CON SIDERATION IN VIEW OF THE RETROSPECTIVE AMENDMENT MADE BY FINANCE (NO. 2) ACT , 2009 W.E.F. 1-4- 2001 WHEREIN UNDER EXPLANATION [1] OF SECTION 115 J B IT HAS BEEN SUBSTITUTED UNDER SUB-CLAUSE (I) THE AMOUNT OR AMO UNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET . IN THE ABSENCE OF ANY MODIFIED GROUND TAKEN BY THE REVENUE IN THE LIGHT O F THE ABOVE AMENDMENT, WE, IN THE INTEREST OF JUSTICE, CONSIDER IT FAIR AND REASONABLE THAT THE MATTER SHOULD GO BACK TO THE FILE OF THE A .O. AND ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY THE REVENUE ON THIS A CCOUNT AND SEND ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 29 BACK THE MATTER TO THE FILE OF THE A.O. TO DECIDE T HE SAME AFRESH IN THE LIGHT OF THE AFORESAID AMENDED PROVISIONS OF THE AC T AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEA RD TO THE ASSESSEE. THE GROUND TAKEN BY THE REVENUE IS, THEREFORE, PART LY ALLOWED FOR STATISTICAL PURPOSE. 58. GROUND NO. 4 READS AS UNDER:- 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND AS PER LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 11.07 CRORES FOR COMPUTING INCOME U/S. 115JB OF THE I.T. ACT WITHOUT APPRECIATING THE METHOD PROVIDED AT PART-IL & PART- ILL OF SCHEDULE- 6 OF THE COMPANIES ACT 1956. 59. BRIEF FACTS OF THE ABOVE ISSUE HAVE ALREADY BEE N MENTIONED IN PARA 12 OF THIS ORDER. ON APPEAL, THE LD. CIT(A) DIRECT ED THE A.O. TO DELETE THE ABOVE ADDITION OF RS. 11.07 CRORES MADE BY HIM WHIL E COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT VIDE HIS FINDING R ECORDED IN PARA 3.6 OF HIS ORDER WHICH IS REPRODUCED AS UNDER:- . 3.6 AS REGARDS ADDITION OF PROVISION OF TAX RECOV ERABLE FOR THE PURPOSE OF SECTION 115JB, I AGREE THAT WHAT IS TAXA BLE AS BOOK PROFIT UNDER SECTION 115 JB IS THE BOOK PROFIT OF T HE YEAR WHICH IS SUBJECT TO CERTAIN ADDITIONS MENTIONED UNDER THE EX PLANATION TO SECTION 115JB AS ALSO CERTAIN REDUCTIONS MENTIONED UNDER THE SAID EXPLANATION. BUT ONLY WHAT IS SPECIFIED IN THE SAID EXPLANATION CAN BE ADJUSTED FOR COMPUTING THE BOOK PROFIT THAT CAN BE CHARGED TO TAX. NOTHING MORE AND NOTHING LES S CAN BE ADDED OR REDUCED U/S 115JB. TAX RECOVERABLE DOES NO T FALL INTO ANY OF THESE CATEGORIES, THEREFORE THE SAME CAN NOT BE ADDED BACK WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE IN COME TAX ACT. FURTHER THE APPELLANT COMPANY HAS WORKED OUT THE BO OK PROFIT BASED ON PROFIT AND LOSS ACCOUNT DRAWN IN ACCORDANC E WITH PART II ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 30 OF SCHEDULE VI OF THE COMPANIES ACT. THE ACCOUNTS O F THE COMPANY ARE AUDITED BY THE AUDITORS OF THE COMPANY. IN SUCH A SITUATION THE RATIO LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD (255 ITR 273) IS ALSO APPLICABLE. THE A.O . HAS NO JURISDICTION TO DISTURB THE PROFIT & LOSS ACCOUNT O F THE COMPANY EXCEPT IN THE MANNER PROVIDED IN EXPLANATION TO SEC TION 115JB. IN CONTRAST THE A.O. HAS CONSIDERED THIS INCOME AND RECOMPUTED THE BOOK PROFIT WHICH IS AGAINST THE PROVISIONS OF EXPLANATION TO SECTION 11 5JB AS WELL AS AGAINST THE RATIO LAID DO WN BY SUPREME COURT IN THE CASE OF APOLLO TYRES. SECTION 115JB IS A SPECIAL COMPUTATION PROVISION AND HAS TO BE INTERPRETED STR ICTLY. RECAST OF BOOK PROFIT CANNOT BE DONE UNLESS WITHIN THE RATIO LAID DOWN BY THE ABOVE DECISION OF HONBLE SUPREME COURT. THE BO OK PROFIT CAN BE INCREASED ONLY UNDER THE CLAUSES (A) TO (F) OF E XPLANATION TO SECTION 115JB. THE RECOVERY OF INCOME TAX DOES NOT FALL UNDER THESE CLAUSES. IN VIEW OF THIS, I HOLD THAT TAX REC OVERABLE OF RS.11.07 CRORES CAN NOT BE ADDED BACK WHILE COMPUTI NG THE BOOK PROFIT U/S 115JB OF THE INCOME TAX ACT. THEREFORE A .O. IS DIRECTED TO DELETE THE ABOVE ADDITION OF RS.11.07 CRORES MAD E BY HIM WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE APPELLAN T COMPANY. 60. AT THE TIME OF HEARING, THE LD. D.R. SUPPORTS T HE ORDER OF THE A.O. 61. ON THE OTHER HAND, THE LD. SR. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE LD. CIT(A). 62. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT UNDER CLAUSE (I) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT THERE IS A RETROSPECTIVE AMENDMENT MADE BY FINANCE (2) ACT, 20 09 W.E.F. 1-4-2001, THEREFORE, THE BOOK PROFIT HAS TO BE RECOMPUTED IN ACCORDANCE WITH THE ABOVE CLAUSE (I) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT. IN THIS VIEW OF THE MATTER AND KEEPING IN VIEW OF OUR FINDING RE CORDED IN PARA 58 OF ITA NO. 5318/MUM/2007 & ITA NO. 5725/MUM/2007 31 THIS ORDER, WE ARE OF THE VIEW THAT IN THE INTEREST OF JUSTICE THE MATTER SHOULD GO BACK TO THE FILE OF THE A.O. AND ACCORDIN GLY WE SET ASIDE THE ORDER PASSED BY THE REVENUE AUTHORITIES ON THIS ACC OUNT AND SEND BACK THE MATTER TO THE FILE OF THE A.O. TO DECIDE THE SA ME AFRESH IN THE LIGHT OF OUR OBSERVATION HEREINABOVE AND ACCORDING TO LAW IN CLUDING THE DECISION OF HONBLE APEX COURT IN APOLLO TYRES LTD. (SUPRA) AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. THE GROUND TAKEN BY THE REVENUE IS, THEREFORE, PARTLY ALLOWED FOR ST ATISTICAL PURPOSE. 63. IN THE RESULT, APPEALS FILED BY THE ASSESSEE AN D REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 09-11-2012 SD/- (N.K. BILLAIYA) ACCOUNTANT MEMBER SD/- (DINESH KUMAR AGARWAL) JUDICIAL MEMBER MUMBAI, DATED : 09-11-2012 RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- 10, MUMBA I 4. COMMISSIONER OF INCOME TAX CITY 4, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH I, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI