DCIT, Circle-1, Kolkata, Kolkata V. M/S MCNALLY BHARATI ENGINEERING CO.LTD., Kolkata

ITA 532/KOL/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9335 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 21-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 04-04-2012
• Court: TRIBUNAL
• Department Lawyers: VIJAYENDRA KUMAR
• Keywords: Capital asset; Depreciation; Business expenditure; Principle of natural justice; Additional evidence; Bad and doubtful debts; Capital receipt; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 115JB; 37(1); 194C; 28; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM & SHRI WASE EM AHMED, AM] I.T.A NO.100/KOL/2011 ASSESSMENT YEAR : 2006 -07 D.C.I.T-CIRCLE-1, -VS.- M/S. MCNALLY BHARA T ENGINEERING CO.LTD. KOLKATA KOLKATA [PAN : AABCM 9443 R] (APPELLANT) (RESPONDENT) C.O.NO.13/KOL/2011 (A/O I.T.A NO.100/KOL/2011) ASSESSMENT YEAR : 20 06-07 M/S. MCNALLY BHARAT ENGINEERING CO.LTD., -VS- D.C.I.T., CIRCLE-1, KOLKATA KOLKATA [PAN : AABCM 9443 R] (CROSS OBJECTOR) (RESPONDENT) I.T.A NO.532/KOL/2012 ASSESSMENT YEAR : 2007 -08 D.C.I.T-CIRCLE-1, -VS.- M/S. MCNALLY BHARA T ENGINEERING CO.LTD. CIRCLE-1, KOLKATA KOLKATA [PAN : AABCM 9443 R] (APPELLANT) (RESPONDENT) I.T.A NO.217/KOL/2012 ASSESSMENT YEAR : 20 07-08 M/S. MCNALLY BHARAT ENGINEERING CO.LTD., -VS- D.C.I.T., CIRCLE-1, KOLKATA KOLKATA [PAN : AABCM 9443 R] (APPELLANT) (RESPONDENT) I.T.A NO.533/KOL/2012 ASSESSMENT YEAR : 2008-09 D.C.I.T-CIRCLE-1, -VS.- M/S. MCNALLY BHARA T ENGINEERING CO.LTD. KOLKATA KOLKATA [PAN : AABCM 9443 R] (APPELLANT) (RESPONDENT) 2 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 2 I.T.A NO.218/KOL/2012 ASSESSMENT YEAR : 20 08-09 M/S. MCNALLY BHARAT ENGINEERING CO.LTD., -VS- D.C.I.T., CIRCLE-1, KOLKATA KOLKATA [PAN : AABCM 9443 R] (APPELLANT) (RESPONDENT) FOR THE DEPARTMENT : SHRI VIJAYENDRA KUMAR, JC IT FOR THE ASSESSEE : SHRI SOUMEN ADAK, FCA DATE OF HEARING : 21.02.2017. DATE OF PRONOUNCEMENT : 01.03.2017. ORDER PER N.V.VASUDEVAN, JM THESE GROUP OF CROSS APPEALS BY THE REVENUE AND TH E ASSESSEE FOR AY 2006-07 TO 2008-09 WERE HEARD TOGETHER AND INVOLVE COMMON I SSUES. WE DEEM IT CONVENIENT TO PASS A COMMON ORDER. ITA NO.100/KOL/2011(REVENUES APPEAL) & C.O.NO.13/K OL/2011 (ASSESSEES CROSS- OBJECTION) A.Y.2006-07 2. ITA NO.100/KOL/2011 IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 30.09.2010 OF CIT(A)-I, KOLKATA RELATING TO A.Y 20 06-07. THE ASSESSEE HAS FILED A CROSS OBJECTION AGAINST THE VERY SAME ORDER OF CIT( A) WHICH IS C.O. 13/KOL/11. 3. GROUND NO.1 RAISED BY THE REVENUE IN ITS APPEAL AND THE ONLY GROUND OF CROSS OBJECTION RAISED BY THE ASSESSEE IN ITS CROSS OBJEC TION CAN BE CONVENIENTLY DISPOSED OFF TOGETHER. THESE GROUNDS READ AS FOLLOWS :- GROUND OF APPEAL OF THE REVENUE: 3 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 3 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. CIT ( APPEALS) IS NOT JUSTIFIED AND ERRED IN ALLOWING LEAVE ENCASHMENT OF RS.13,82,121/- U/S. 43B OF THE IT ACT. GROUND OF APPEAL IN C.O.NO.13/KOL/2011 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED AND ERRED IN DISALLOWING PROVISION FOR LE AVE ENCASHMENT AMOUNTING TO RS.44,57,282/- U/S 43B OF THE ACT. 4. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF METALLURGICAL MACHINERY, MATERIALS HANDLING AND CON VEYING PLANT/MACHINERY/SPARES AND COAL WASHING PLANT ON A TURNKEY CONTRACT BASIS. FO R A.Y.2006-07 THE ASSESSEE FILED RETURN OF INCOME ON 28.11.2006 DECLARING TOTAL INCO ME OF NIL AS PER THE NORMAL PROVISIONS OF THE ACT AND BOOK PROFITS AS PER THE P ROVISIONS OF SECTION 115JB OF THE INCOME TAX ACT, 1961 (ACT) AT RS.5,71,66,526/-. THE ASSESSEE HAD DEBITED A SUM OF RS.44,57,282/- IN THE PROFIT AND LOSS ACCOUNT ON AC COUNT OF LEAVE ENCASHMENT WHICH WAS OUTSTANDING ON 31.03.2006. UNDER THE PROVISION OF S ECTION 43B(F) OF THE ACT ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER IN LIEU OF A NY LEAVE AT THE CREDIT OF HIS EMPLOYEE SHALL BE ALLOWED AS DEDUCTION IN COMPUTING THE TOTA L INCOME ONLY IN THE YEAR IN WHICH THE SUM IS ACTUALLY PAID BY HIM. IN OTHER WORDS, TH E DEDUCTION ON ACCOUNT OF EXPENDITURE IN THE FORM OF LEAVE ENCASHMENT PAID BY AN EMPLOYER TO THE EMPLOYEE CANNOT BE ALLOWED ON THE BASIS OF THE PROVISION OR ON THE BAS IS OF ACCRUAL UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, MADE IN THE BOOKS OF ACCOUNT AND WILL BE ALLOWED ONLY TO THE EXTENT THE LEAVE ENCASHMENT IS ACTUALLY PAID TO THE EMPLOYEE BY THE EMPLOYER. THE PLEA OF THE ASSESSEE BEFORE THE AO WAS THAT SINCE SECTIO N 43B(F) OF THE ACT WAS DECLARED UNCONSTITUTIONAL BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LIMITED VS UOI 292 ITR 470 (CAL) PROVISION FOR LEAV E ENCASHMENT THUS BASED ON PROPER ESTIMATE IS A CERTAIN LIABILITY AND SHOULD BE ALLOW ED AS DEDUCTION. THE AO HOWEVER AFTER MAKING A REFERENCE TO THE FACT THAT AN APPEAL AGAIN ST THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD. (SUPRA) HAS BEEN PREFERRED 4 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 4 BEFORE THE HONBLE SUPREME COURT BY THE REVENUE WHI CH HAS BEEN ADMITTED FOR ADJUDICATION, AND THE FACT THAT IN SUCH APPEAL, THE OPERATION OF THE HONBLE HIGH COURT OF CALCUTTA HAS BEEN STAYED, WAS OF THE VIEW THAT D EDUCTION ON ACCOUNT OF PROVISION FOR LEAVE ENCASHMENT CANNOT BE ALLOWED AS DEDUCTION. 5. BEFORE CIT(A) THE ASSESSEE, APART FROM REITERAT ING ITS CLAIM FOR DEDUCTION OF THE ENTIRE SUM OF RS.44,57,282/- BASED ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD. (SUPRA) MADE A N ALTERNATIVE SUBMISSION THAT THE ASSESSEE IN ANY EVENT SHOULD BE ALLOWED A DEDUCTION OF RS.13,82,121/- WHICH WAS THE LEAVE ENCASHMENT ACTUALLY PAID BY THE ASSESSEE FROM 01.04.2007 TILL THE DUE DATE FOR FILING THE RETURN OF INCOME U/S 139(1) OF THE ACT. THE CIT(A) ACCEPTED THE ALTERNATIVE ARGUMENT OF THE ASSESEE AND DELETED THE ADDITION MA DE BY AO TO THE EXTENT OF RS.13,82,121/-. AGGRIEVED BY THE ORDER OF CIT(A) AL LOWING DEDUCTION TO THE EXTENT OF RS.13,82,121/- THE REVENUE HAS RAISED GROUND NO.1 B EFORE THE TRIBUNAL. AGGRIEVED BY THE ORDER OF CIT(A) SUSTAINING THE ADDITION OF THE REMAINING SUM WHICH WAS THE PROVISION MADE FOR LEAVE ENCASHMENT THE ASSESSEE HA S FILED THE CROSS OBJECTION. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS FA R AS THE GROUND OF APPEAL OF THE REVENUE IS CONCERNED, WE DO NOT FIND ANY MERITS IN THE GROUNDS OF APPEAL RAISED BY THE REVENUE. THE PROVISO TO SECTION 43B CLEARLY LAYS DO WN THAT NOTHING CONTAINED IN SECTION 43B(F) SHALL APPLY IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURN ISHING THE RETURN OF INCOME UNDER SUB- SECTION (1) OF SECTION 139 OF THE ACT, IN RESPECT O F THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED AS AFORESAID AND THE EVIDENCE OF SUCH PAYMENT IS FURNISHED BY THE ASSESSEE ALONG WITH SUCH RETURN. I T IS NO DOUBT TRUE THAT THE ASSESSEE IN THE PRESENT CASE DID NOT FILE THE EVIDENCE REGARDIN G PAYMENT OF RS.13,82.121/- BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME U/S 139 (1) OF THE ACT BY THE ASSESSEE FOR THE 5 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 5 RELEVANT ASSESSMENT YEAR ALONG WITH THE RETURN OF I NCOME. NEVERTHELESS THE ASSESSEE HAD FILED THE DETAILS OF PAYMENT OF LEAVE ENCASHMENT BE FORE THE DUE DATE OF FILING THE RETURN OF INCOME BEFORE THE DUE DATE AND THE SAME IS PLACE D AT PAGE 29 OF THE ASSESSEES PAPER BOOK AND THE SAME HAS BEEN GIVEN AS ANNEXURE-1 TO THIS ORDER. THE REQUIREMENT OF FURNISHING EVIDENCE OF PAYMENT ALONG WITH THE RETUR N OF INCOME IS ONLY DIRECTORY AND IS NOT MANDATORY. THE LD. DR HOWEVER SUBMITTED THAT TH E EVIDENCE OF ACTUAL PAYMENT AS GIVEN IN PAGE-29 OF THE ASSESSEES PAPER BOOK SHOUL D BE DIRECTED TO BE VERIFIED BY THE AO. WE ARE OF THE VIEW THAT IT WOULD BE JUST AND PR OPER TO UPHOLD THE ORDER OF CIT(A), HOWEVER, WITH A DIRECTION THAT THE PAYMENTS SAID TO HAVE BEEN MADE BY THE ASSESSEE AS GIVEN IN ANNEXURE-1 TO THIS ORDER SHOULD BE VERIFIE D BY THE AO AND IF THE CLAIM IS FOUND TO BE CORRECT THE DEDUCTION TO THAT EXTENT SHOULD B E ALLOWED. WITH THESE OBSERVATIONS GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 7. AS FAR AS THE CROSS OBJECTION FILED BY THE ASSE SSEE IS CONCERNED, IN VIEW OF THE PENDENCY OF THE CONSTITUTIONAL VALIDITY OF SECTION 43B(F) OF THE ACT BEFORE THE HONBLE SUPREME COURT, IT WOULD BE JUST AND PROPER TO DIREC T THE AO TO FOLLOW THE ULTIMATE DECISION THAT MIGHT BE TAKEN IN THE SAID PROCEEDING S AND DECIDE THE GRIEVANCE PROJECTED BY THE ASSESSEE IN THE CROSS OBJECTION. THUS THE CR OSS OBJECTION FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND NO.2 RAISED BY THE REVENUE READS AS FOL LOWS :- 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. CIT (APPEALS) HAS ERRED IN DIRECTING TO DELETE THE ADDITION OF RS.99 ,237/-. 9. THE ASSESSEE AS AN EMPLOYER WITHHELD THE PROVID ENT FUND CONTRIBUTION PAYABLE BY ITS EMPLOYEES FROM THEIR SALARIES PAYABLE, AS THEIR SHA RE OF CONTRIBUTION TO PF. AS PER SECTION 36(1)(VA) OF THE ACT, THE SUM SO WITHHELD A S EMPLOYEES CONTRIBUTION TO PF, IF IT IS NOT PAID ON OR BEFORE THE DUE DATE AS PROVIDED U NDER THE RELEVANT LAW GOVERNING THE 6 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 6 PROVIDENT FUND, WILL NOT BE ALLOWED AS DEDUCTION. I T IS THE PLEA OF THE ASSESSEE THAT THE EMPLOYEES CONTRIBUTION TO PF HAD BEEN PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME FOR THE RELEVANT ASS ESSMENT YEAR U/S 139(1) OF THE ACT AND THEREFORE DEDUCTION CLAIMED SHOULD BE ALLOWED AS PR OVIDED UNDER THE PROVISO TO SECTION 43B OF THE ACT. THE SAID PLEA OF THE ASSESSEE WAS R EJECTED BY THE AO FOR THE REASON THAT THE PROVISO TO SECTION 43B OF THE ACT CANNOT BE REA D INTO THE PROVISION OF SECTION 36(1)(VA) OF THE ACT. 10. ON APPEAL BY THE ASSESSEE, THE CIT(A) DIRECTED THE AO TO ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION AND IN DOING SO, THE CIT(A) FOLLOWED THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS AIMIL LTD. & ORS. 229 CTR 418 (DEL) WHEREIN IT WAS HELD THAT EMPLOYEES CONTRIBUTION TO PF SHOU LD BE ALLOWED AS DEDUCTION WHICH IS PAID ON OR BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME U/S 139 OF THE ACT. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE HAS RA ISED GROUND NO.2 BEFORE THE TRIBUNAL. 11. AT THE TIME OF HEARING IT WAS BROUGHT TO OUR N OTICE THAT THE HONBLE CALCUTTA HIGH COURT HAS ALSO TAKEN THE VIEW THAT EMPLOYEES CONTR IBUTION TO PF PAID ON OR BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME U/S 139(1) OF THE ACT SHOULD BE ALLOWED AS DEDUCTION. IN THIS REGARD THE DECISION OF THE HONB LE CALCUTTA HIGH COURT IN THE CASE OF M/S. AKZO NOBEL INDIA LTD. VS CIT IN ITA 110 OF 201 1 ORDER DATED 14.06.2016 AND IN THE CASE OF CIT VS VIJAYSHREE LTD., OF THE HONBLE CALCUTTA HIGH COURT IN GA NO.2607 OF 2011 ORDER DATED 06.09.2011 WAS FILED BEFORE US. IN THE ORDER IN THE CASE OF VIJAYSHREE LTD., (SUPRA), THE HONBLE CALCUTTA HIGH COURT HELD AS FOLLOWS : THE ONLY ISSUE INVOLVED IN THIS APPEAL IS AS TO WH ETHER THE DELETION OF THE ADDITION BY THE ASSESSING OFFICER ON ACCOUNT OF EMPLOYEESCO NTRIBUTION TO ESI AND PF BY INVOKING THE PROVISION OF SECTION 36(1)(VA) READ WI TH SECTION 2(24)(X) OF THE ACT WAS CORRECT OR NOT. IT APPEARS THAT THE TRIBUNAL BE LOW, IN VIEW OF THE DECISION OF 7 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 7 THE SUPREME COURT IN THE CASE OF COMMISSIONER OF IN COME TAX VS. ALOM EXTRUSION LTD., REPORTED IN 2009 VOL.390 ITR 306, HELD THAT T HE DELETION WAS JUSTIFIED. BEING DISSATISFIED, THE REVENUE HAS COME UP WI TH THE PRESENT APPEAL. AFTER HEARING MR. SINHA, LEARNED ADVOCATE, APPEARIN G ON BEHALF OF THE APPELLANT AND AFTER GOING THROUGH THE DECISION OF THE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ALOM EXTRUSION LTD., WE FIND THAT THE SUPREME COURT IN THE AFORESAID CASE HAS HELD THAT THE AMEND MENT TO THE SECOND PROVISO TO THE SEC. 43(B) OF THE INCOME TAX ACT, AS INTRODUCED BY FINANCE ACT, 2003, WAS CURATIVE IN NAT.URE AND IS REQUIRED TO BE APPLIED R ETROSPECTIVELY WITH EFFECT FROM 1 ST APRIL, 1988. SUCH BEING THE POSITION, THE DELETION OF T HE AMOUNT PAID BY THE EMPLOYEES' CONTRIBUTION BEYOND DUE DATE WAS DEDUCTIBLE BY INVO KING THE AFORESAID AMENDED PROVISIONS OF SECTION 43(B) OF THE ACT. WE, THEREFORE, FIND THAT NO SUBSTANTIAL QU ESTION OF LAW IS INVOLVED IN THIS APPEAL AND CONSEQUENTLY, WE DISMISS THIS APPEAL. 12. IN VIEW OF THE AFORESAID DECISION OF THE HONB LE CALCUTTA HIGH COURT, WE DO NOT FIND ANY MERITS IN GROUND NO.2 RAISED BY THE REVENU E AND ACCORDINGLY THE SAME IS DISMISSED. 13. GROUND NO.3 RAISED BY THE REVENUE READS AS FOL LOWS :- 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. CIT (APPEALS) HAS ERRED IN DIRECTING TO DELETE THE ADDITION OF RS. 1, 34,11,254/-. 14. DURING THE YEAR UNDER CONSIDERATION, THE COMPA NY ISSUED UNSECURED FOREIGN CURRENCY CONVERTIBLE BONDS(FCCB) AMOUNTING TO RS. 3 0 CRORES. AT THE TIME OF ISSUANCE OF FCCB, THE ASSESSEE HAD INCURRED AN EXPE NDITURE OF RS. 1,34,11,254/- IN RELATION TO ABOVE ISSUE. DURING THE COURSE OF ASSES SMENT PROCEEDINGS, THE AO CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY THE SAID EXP ENDITURE SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE. IN RESPONSE TO THE SAID QUERY, THE ASSESSEE FILED DETAILED REPLY VIDE ITS LETTER DATED 08-10-2009 CONTENDING THAT SINCE E XPENDITURE HAS BEEN INCURRED FOR 8 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 8 RAISING DEBTS TO BE UTILIZED FOR THE PURPOSES OF BU SINESS, THE EXPENDITURE HAS TO BE CONSIDERED AS REVENUE IN NATURE AND ALLOWABLE AS DE DUCTIBLE EXPENDITURE IN COMPUTING TOTAL INCOME. 15. DISREGARDING THE ABOVE SUBMISSION, THE AO. IN THE ORDER U/S 143(3) DISALLOWED THE EXPENDITURE INCURRED ON ISSUE OF FCCB ON THE BASIS THAT SINCE THE EXPENSES DOES NOT REPRESENT INTEREST EXPENSES, THE SAME ARE NOT ALLOW ABLE. THE AO FURTHER OBSERVED THAT SINCE FCCBS ARE CONVERTIBLE INTO EQUITY SHARE, EXPE NSES INCURRED FOR SUCH ISSUE IS IN THE NATURE OF CAPITAL EXPENDITURE AND NOT ALLOWABLE AS DEDUCTION IN COMPUTING TOTAL INCOME. 16. BEFORE CIT(A) THE ASSESSEE PRIMARILY PLACED RE LIANCE ON THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS SECURE M ETERS LTD. (2010) 321 ITR 611 (RAJ.) WHEREIN IT WAS HELD THAT DEBENTURES WHEN ISS UED ARE LOANS AND WHETHER IT IS CONVERTIBLE OR NON CONVERTIBLE DOES NOT MILITATE AG AINST THE NATURE OF THE DEBENTURE BEING IN THE NATURE OF THE LOAN AND THEREFORE EXPEN DITURE INCURRED WOULD BE ADMISSIBLE AS REVENUE EXPENDITURE. IT WAS ALSO BROUGHT TO THE NOTICE OF CIT(A) THAT SLP FILED BY THE DEPARTMENT AGAINST THE AFORESAID DECISION OF THE HO NBLE RAJASTHAN HIGH COURT WAS REJECTED. FURTHER RELIANCE WAS PLACED ON THE HONBL E MUMBAI ITAT IN THE CASE OF MAHINDRA & MAHINDRA VS JCIT 36 SOT 348 (MUM) WHEREI N IT WAS HELD THAT THE EXPENDITURE INCURRED ON ACCOUNT OF FOREIGN CURRENCY CONVERTIBLE BONDS (FCCB) WOULD BE ADMISSIBLE AS REVENUE EXPENDITURE. 17. THE CIT(A) ON CONSIDERATION OF THE ABOVE SUBMI SSIONS WAS OF THE VIEW THAT THE EXPENDITURE IN QUESTION HAS TO BE ALLOWED AS DEDUCT ION. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF CIT(A):- I HAVE GONE THROUGH THE CONTENTION OF THE APPELLAN T AND THE A.O. AND READ THROUGH THE JUDGMENTS RELIED UPON BY THE A/R. THE MATTER HA S ALREADY BEEN DECIDED BY THE 9 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 9 RAJASTHAN HIGH COURT WHICH HAS FURTHER BEEN AFFIRME D BY THE APEX COURT. IN THE SAID CASE, IT HAS BEEN CATEGORICALLY HELD THAT THE DEBENTURES WHEN ISSUED IS A LOAN, WHETHER IT IS CONVERTIBLE OR NON-CONVERTIBLE, DOES NOT MILITATE AGAINST THE NATURE OF THE DEBENTURE BEING LOAN. THEREFORE, THE EXPENDITUR E INCURRED WOULD BE ADMISSIBLE AS REVENUE EXPENDITURE IN THE LIGHT OF THE JUDGMENT OF THE APEX COURT IN THE CASE OF INDIA CEMENTS LTD. CONTENTION OF THE A.O, THAT AFOR ESAID JUDGMENTS RELATE TO DEBENTURES AND NOT FCCBS DOES NOT HOLD GOOD AS RELY ING ON THE JUDGMENT OF THE HON'BLE RAJASTHAN HIGH COURT, HON'BLE MUMBAI TRIBUN AL HAS ALREADY HELD THAT FCCB EXPENSES IS AN ALLOWABLE EXPENDITURE. SINCE TH E ISSUE UNDER CONSIDERATION IS DIRECTLY COVERED BY THE AFORESAID JUDGMENTS, THE GR OUND IS ALLOWED IN FAVOUR OF THE APPELLANT. THE A.O. IS DIRECTED TO ALLOW RS. 1,34,1 1,254/- AS REVENUE EXPENDITURE IN COMPUTING TOTAL INCOME. 18. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE H AS RAISED GROUND NO.3 BEFORE THE TRIBUNAL. 19. BEFORE US THE LD. DR RELIED ON THE ORDER OF AO . THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE BEFORE CIT( A). IT WAS ALSO BROUGHT TO OUR NOTICE THAT IN ASSESSEES OWN CASE IN ITA NO.840/KO L/2013 BY ORDER DATED 15.07.2016 THIS TRIBUNAL ALLOWED SIMILAR CLAIM OF THE ASSESSEE . 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE A RE OF THE VIEW THAT THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE DECISIONS REFER RED TO BY THE ASSESSEE BEFORE CIT(A). THE DEBENTURES WHETHER CONVERTIBLE OR NON CONVERTIB LE ARE IN THE NATURE OF LOAN AT THE TIME OF THEIR ISSUANCE AND ANY EXPENDITURE INCURRED ON ISSUE OF SUCH DEBENTURES OR BONDS HAD TO BE REGARDED AS PART OF THE BORROWING C OST AND HAVE TO BE ALLOWED AS A DEDUCTION AND AS A REVENUE EXPENDITURE. THIS EXPEND ITURE CANNOT BE REGARDED AS CAPITAL. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) AND ACCORDINGLY GROUND NO.3 RAISED BY THE REVENUE IS DISMISSED. 21. GROUND NO.4 RAISED BY THE REVENUE READS AS FOL LOWS :- 10 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 10 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. CIT ( APPEALS) HAS ERRED IN DIRECTING TO DELETE THE ADDITION OF RS.2, 15,00,000/-. 22. THE ASSESSEE ENTERED INTO AN AGREEMENT DATED 1 1.08.1999 WITH M/S. HOOGHLY MILLS CO.LTD FOR PURCHASE OF THE PROPERTY OWNED BY M/S. H OOGHLY MILLS CO.LTD AT AT RAJA SANTOSH ROY ROAD, KOLKATA. THE ASSESSEE PAID A SUM OF RS.3 CRORES AS ADVANCE AT THE TIME OF THE AGREEMENT FOR SALE. IT IS THE PLEA OF T HE ASSESSEE THAT THE PROPERTY IN QUESTION WHICH WAS AGREED TO BE PURCHASED BY THE ASSESSEE WA S A LAND ON WHICH THE ASSESSEE WANTED TO CONSTRUCT A BUILDING TO BE USED AS ITS OF FICE PREMISES. HOWEVER DUE TO DISPUTES THE ULTIMATE SALE DID NOT FRUCTIFY. IN FUL L AND FINAL SETTLEMENT, M/S. HOOGHLY MILLS CO.LTD., REFUNDED ONLY A SUM OF RS.85 LACS, BY WAY OF REFUND OF ADVANCE PAID UNDER THE AGREEMENT OF SALE. THE ASSESSEE THUS INCU RRED A LOSS OF RS.2,15,00,000/-. THE CANCELLATION OF THE AGREEMENT AND REPAYMENT OF RS.8 5 LACS WAS IN THE MONTH OF MAY, 2004 AND THEREFORE THE LOSS OF RS.2,15,00,000/- WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT AND CLAIMED AS A DEDUCTION WHILE COMPUTING THE TOTA L INCOME OF THE ASSESSEE. 23. THE AO WAS OF THE VIEW THAT THE LOSS IN QUESTI ON WAS A CAPITAL LOSS AND CANNOT BE ALLOWED AS DEDUCTION AS THE ADVANCES IN QUESTION WA S GIVEN FOR ACQUIRING THE CAPITAL ASSET. THE AO IN THIS REGARD MADE A REFERENCE TO TH E DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF HASHIMARA INDUSTRIES LIMITED 2 30 ITR 927 (SC) WHEREIN IT WAS HELD THAT THE DEPOSIT MADE BY THE ASSESSEE IN CONNE CTION WITH A LEAVE AND LICENSE AGREEMENT TO WORK IN A MILL AND LOSS DUE TO IRRECOV ERABILITY OF SUCH DEPOSIT WAS TO BE REGARDED AS A CAPITAL LOSS AND NOT A BUSINESS LOSS. 24. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT DEDU CTION U/S 28 OR 37(1) OF THE ACT IS ADMISSIBLE FOR LOSS INCIDENTAL TO BUSINESS AND THE ONLY TEST TO BE SATISFIED IS THAT THE LOSS MUST ARISE FROM OR SPRING DIRECTLY FROM CARRYING O N BUSINESS. IN OTHER WORDS, IN ORDER THAT LOSS OCCASIONED FROM NON-REALISATION OF THE AD VANCES SHOULD BE ALLOWED AS BUSINESS 11 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 11 LOSS, THERE MUST BE NEXUS BETWEEN THE BUSINESS AND THE LOSS WHICH HAS BEEN INCURRED BY THE ASSESSEE. THE ASSESSEE POINTED OUT THAT THE PRO PERTY IN QUESTION WAS INTENDED TO BE PURCHASED FOR THE PURPOSE OF CONSTRUCTING OFFICE PR EMISES AND WAS DIRECTLY RELATED TO THE BUSINESS OF THE ASSESSEE AND THEREFORE THE DEDUCTIO N CLAIMED SHOULD BE ALLOWED. THE ASSESSEE ALSO DISTINGUISHED THE DECISION RELIED UPO N BY THE AO IN THE CASE OF HASHIMARA INDUSTRIES LTD. (SUPRA). THE ASSESSEE POINTED OUT THAT IN THE AFORESAID DECISION THE ASSESSEE DEPOSITED RS.20,00,000/- AND THE PROPERTY WAS HANDED OVER TO THE ASSESSEE ON WHICH THE MILLS WERE RUN. THE SELLER WENT INTO LIQU IDATION AND SUBSEQUENTLY THE AMOUNTS WERE WRITTEN OFF AS BAD DEBTS BY THE ASSESSEE ON AC COUNT OF INCAPACITY OF THE SELLER TO PAY THE SAME. THE COURT HELD THAT BY MAKING A DEPOS IT OF RS.20,00,000/- THE ASSESSEE HAD ACQUIRED LICENCE OF THE COTTON MILL DUE TO WHIC H THE ASSESSEE WAS ABLE TO CARRY ON THE COTTON BUSINESS. HENCE THE LOSS SUFFERED WAS ON CAPITAL ACCOUNT AND CANNOT BE DEDUCTED AS A BUSINESS LOSS. IT WAS POINTED OUT THA T IN THE PRESENT CASE THE ASSESSEE DID NOT ACQUIRE ANY CAPITAL ASSET AND MERELY PAID ADVAN CE. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF THE HONBLE RAJASTHAN H IGH COURT IN THE CASE OF CIT VS ANJANI KUMAR CO. LTD. 259 ITR 114 (RAJ.) WHEREIN IT WAS HELD THAT ADVANCES MADE TO AGRICULTURIST FOR PURCHASE OF LAND WHICH WAS NOT RE FUNDED WAS A BUSINESS LOSS AND HAD TO BE ALLOWED AS DEDUCTION. RELIANCE WAS ALSO PLACED O N THE DECISION OF ITAT MUMBAI IN THE CASE OF PIK PEN PVT. LTD. VS ITO IN ITA NO.6847 /MUM/2008 ORDER DATED 28.01.2010 LAYING DOWN THE IDENTICAL PROPOSITION. 25. THE CIT(A) WAS OF THE VIEW THAT THE DECISIONS RELIED UPON BY THE ASSESSEE BEFORE HIM DIRECTLY SUPPORTED THE PLEA OF THE ASSESSEE THA T THE LOSS IN QUESTION WAS A LOSS INCIDENTAL TO THE BUSINESS AND WAS NOT A CAPITAL LO SS. HE THEREFORE HELD THAT THE DISALLOWANCE MADE BY THE AO CANNOT BE SUSTAINED. AG GRIEVED BY THE ORDER OF CIT(A) THE REVENUE HAS RAISED GROUND NO.4 BEFORE THE TRIBU NAL. 12 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 12 26. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, W HO RELIED ON THE ORDER OF AO. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF CIT(A). 27. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. WE ARE OF THE VIEW THAT ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF ANJANI KUMAR CO. LTD. (SUPRA) AND THE DECISION OF ITAT, MUMBAI IN THE CASE OF PIK PEN PVT . LTD. (SUPRA) CLEARLY SUPPORT THE CONCLUSIONS ARRIVED AT BY CIT(A). AS FAR AS THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF HASHIMARA INDUSTRIES CO.LTD. (SUPRA) IS CONCERNED, AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE, IN THE AFORESA ID DECISION THE ASSESSEE ACQUIRED RIGHT TO CARRY ON THE BUSINESS WHICH ITSELF WAS ON CAPITA L ACCOUNT AND THE LOSS SUFFERED ON SUCH CAPITAL ACCOUNT WAS ALSO HELD TO BE A CAPITAL LOSS AND NOT A BUSINESS LOSS. IN THE PRESENT CASE THE ASSESSEE DID NOT ACQUIRE ANY CAPIT AL ASSET AND MERELY PAID ADVANCE FOR ACQUIRING CAPITAL ASSET. WE ARE THEREFORE OF THE V IEW THAT THERE IS NO MERIT IN GROUND NO.4 RAISED BY THE REVENUE AND THE SAME IS DISMISSE D. 28. GROUND NO.5 RAISED BY THE REVENUE READS AS FOL LOWS :- 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. CIT ( APPEALS) HAS ERRED IN DIRECTING TO EXCLUDE RETENTION MONEY OF RS . 28,87,72,022/- IN COMPUTING TOTAL INCOME UNDER NORMAL PROVISION AS WELL AS IN C OMPUTING BOOK PROFIT U/S. 115JB. 29. WE HAVE ALREADY SEEN THAT THE ASSESSEE FILED I TS RETURN OF INCOME DISCLOSING THE TOTAL INCOME AS NIL UNDER THE NORMAL PROVISIONS OF THE ACT BESIDES DECLARING BOOK PROFITS UNDER THE PROVISION OF SECTION 115JB OF THE ACT. IN THE PROCEEDINGS BEFORE CIT(A) THE ASSESSEE FILED AN ADDITIONAL GROUND OF APPEAL WHERE IN THE ASSESSEE CLAIMED THAT A SUM OF RS.28,87,72,022/- WAS RETENTION MONEY OVER WHICH THE ASSESSEE HAS NO RIGHTS AND THEREFORE THE SUM IN QUESTION CANNOT BE CONSIDERED AS INCOME BOTH UNDER THE NORMAL PROVISION OF THE ACT AS WELL AS WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. 13 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 13 THE BREAK UP OF THE RETENTION MONEY OVER WHICH THE ASSESSEE DOES NOT HAVE A TITLE AND THEREFORE CANNOT BE REGARDED AS INCOME IS GIVEN AT PAGE 49 OF THE ASSESSEES PAPER BOOK AND THE SAME IS GIVEN AS ANNEXURE-2 TO THIS ORDER. AS WE HAVE ALREADY SEEN THAT THE ASSESSEE EXECUTES TURNKEY CONTRACTS. UNDER THE TER MS OF CONTRACT A CERTAIN PERCENTAGE OF THE VALUE OF THE CONTRACT IS RETAINED BY THE PERSON S FOR WHOM THE ASSESSEE EXECUTES THE CONTRACT. THIS IS REFERRED TO AS RETENTION MONEY AN D WILL BE GIVEN TO THE ASSESSEE ONLY ON SUCCESSFUL TRIAL RUN OF THE FINAL ACCEPTANCE BY THE CUSTOMER. ACCORDING TO THE ASSESSEE THEREFORE THIS IS AN AIR OF SUSPENSE OVER THE RIGHT OF THE ASSESSEE TO THE MONEY WHICH IT HAD RECEIVED UNLESS AND UNTIL SUCCESSFUL TRIAL RUN AND FINAL SETTLEMENT IS OBTAINED. IT WAS THE PLEA OF THE ASSESSEE THAT TILL SUCH TIME THE RE CEIPT IN QUESTION CANNOT BE REGARDED AS INCOME EVEN THOUGH THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HONBLE CALC UTTA HIGH COURT IN THE CASE OF CIT VS SIMPLEX CONCRETE PILES (INDIA)P.LTD. 179 ITR 8 (CAL ) AND SEVERAL OTHER HIGH COURTS IN SUPPORT OF ITS CLAIM THAT THE SUM IN QUESTION CANNO T BE REGARDED AS INCOME UNDER THE NORMAL PROVISIONS OF THE ACT. 30. WITH REGARD TO THE CLAIM OF THE ASSESSEE THAT THE SAID SUM CANNOT ALSO BE REGARDED AS PART OF THE BOOK PROFITS U/S 115JB OF THE ACT. T HE ASSESSEE RELIED ON THE FOLLOWING DECISIONS :- (I) BANGALORE ITAT IN THE CASE OF SYNDICATE BANK - VS.- ACIT (2006) 7 SOT 51 (BANG) WHERE IT HAS BEEN HELD THAT THE ENTRY BY WAY OF CREDITING THE PROFIT AND LOSS ACCOUNT IN RESPECT OF ZERO COUPON BOND IS OF NOTION AL CREDIT AND NOT IN RESPECT OF INTEREST ACCRUING DURING THE YEAR. HENCE, EVEN THOU GH THE SAME HAS BEEN CREDITED TO PROFIT AND LOSS ACCOUNT, IT NEEDS TO BE EXCLUDED WH ILE COMPUTING THE BOOK PROFIT AS PER SECTION 115JA. IF NOTIONAL INCOME HAS BEEN CRED ITED TO P&L ACCOUNT AND THE SAID INCOME HAS NOT ACCRUED DURING THE YEAR, THE SA ME CANNOT BE CONSIDERED AS 'TO DISCLOSE THE RESULT OF WORKING OF THE COMPANY DURIN G THE FINANCIAL YEAR AS PROVIDED UNDER PART-I AND PART- II OF SCHEDULE VI TO THE CO MPANIES ACT, 1956.' (II) HON'BLE MUMBAI TRIBUNAL IN THE CASE OF HITKAR I FIBRES LTD. -VS.- JCIT (2004) 90 ITD 654 (MUM) AFTER REFERRING TO THE CASE OF BA NGALORE TRIBUNAL, WHEREIN IT 14 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 14 WAS HELD THAT MAT HAS TO BE LEVIED ON THE REAL BOO K PROFITS WHICH HAVE BEEN EARNED BY THE COMPANIES DURING THE RELEVANT ASSESSM ENT YEARS AND NOT ON ARTIFICIAL INCOME WHICH HAS NOT ACCRUED TO THE COMPANIES BUT H AS BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT. (III) HON'BLE MUMBAI TRIBUNAL IN THE CASE OF ITO -V S.- FRIGSALES (INDIA) LTD. (2005) 4 SOT 376 (MUM) WHEREIN IT WAS HELD THAT A RECEIPT WHICH IS NOT IN THE NATURE OF INCOME CANNOT BE TAXED AS INCOME UNDER SECTION 115J A. WHEN THE ACCOUNTS ARE PREPARED IN ACCORDANCE WITH PART-IL AND PART-ILL OF SCH. VI OF THE COMPANIES ACT WHILE MAKING ADJUSTMENTS AS PER THE PROVISIONS OF S .115JA TO COMPUTE BOOK PROFITS, THE AMOUNTS WHICH ARE NOT TAXABLE OR EXEMP T ARE EXCLUDED, BECAUSE SUCH AMOUNTS DO NOT REALLY REFLECT A RECEIPT IN THE NATU RE OF INCOME AND, THEREFORE, SUCH AMOUNTS CANNOT FORM PART OF THE PROFIT REFLECTING R EAL WORKING RESULTS. WHILE RENDERING THE ABOVE DECISIONS, THE HON'BLE TRIBUNAL HAS REFERRED TO THE DECISION OF APEX COURT IN THE CASE OF APOLLO TYRES -VS.- CIT (2 002) 255 ITR 273 (SC) AND HELD THAT THE ABOVE DECISION DOES NOT DEBAR THE ASS ESSEE TO MAKE THE ABOVE ADJUSTMENT IN COMPUTING BOOK PROFIT U/S 115JA/JB. 31. THE CIT(A) AGREED WITH THE CONTENTIONS PUT FOR TH BY THE ASSESSEE. ON THE ADMISSION OF THE ADDITIONAL GROUND, THE CIT(A) WAS OF THE VI EW THAT THE FACTS TO DECIDE THE ADDITIONAL GROUND WERE ALREADY AVAILABLE ON RECORD AND THEREFORE THERE SHOULD NOT BE ANY HINDRANCE IN ENTERTAINING THE ADDITIONAL GROUND . THE CIT(A) PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F JUTE CORPORATION OF INDIA 187 ITR 688 (SC) AND THE DECISION IN THE CASE OF NTPC L TD. 229 ITR 383(SC) TO COME TO THE CONCLUSION THAT WHEN FACTS TO DECIDE AN ADDITIO NAL GROUND OF APPEAL ARE AVAILABLE ON RECORD AND WHEN IT WAS ONLY A QUESTION OF APPLYING THE LAW TO THOSE FACTS FOR CORRECTLY DECIDING THE LIABILITY TO TAX OF AN ASSESSEE IN ACC ORDANCE WITH LAW, THE ADDITIONAL GROUNDS OF APPEAL SHOULD BE PERMITTED TO BE RAISED. 32. AS FAR AS THE QUESTION WHETHER RETENTION MONEY CAN BE REGARDED AS INCOME UNDER THE NORMAL PROVISIONS OF THE ACT IS CONCERNED, THE CIT(A) WAS OF THE VIEW THAT EVEN IN THE MERCANTILE SYSTEM OF ACCOUNTING, INCOME CANNOT BE SAID TO HAVE RESULTED EVEN THOUGH THE ENTRY MIGHT HAVE BEEN MADE IN THE BOOKS OF ACCOUNTS. IN THIS REGARD THE 15 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 15 CIT(A) PLACED RELIANCE ON THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF SHOORJI VALLABHDAS AND CO. 46 ITR 144 (SC). 33. WITH REGARD TO INCLUDING THE RETENTION MONEY I N COMPUTING THE BOOK PROFITS THE CIT(A) HELD AS FOLLOWS :- 11.9 WHETHER THE ABOVE AMOUNT NEEDS TO BE EXCLUDED IN COMPUTING BOOK PROFIT U/S 115JB OR NOT, THE ABOVE ISSUE IS ONLY ACADEMIC AS ONCE IT IS UPHELD THAT THE INCOME HAS NOT ACCRUED TO THE ASSESSEE, THE SAME CA NNOT BE BROUGHT TO TAX UNDER THE SPECIAL PROVISIONS OF SECTION 115JB OF THE ACT. IN A PLETHORA OF DECISIONS IT HAS BEEN HELD THAT MAT CANNOT BE LEVIED ON NOTIONAL INC OME WHICH HAS NOT ACCRUED TO THE ASSESSEE. IT CAN BE LEVIED ONLY ON REAL BOOK PR OFITS WHICH HAVE BEEN EARNED BY THE COMPANY. IF THE NOTIONAL INCOME HAS BEEN CREDIT ED TO P&L ACCOUNT AND THE SAID INCOME HAS NOT ACCRUED DURING THE YEAR, THE SAME CA NNOT BE CONSIDERED AS TO DISCLOSE THE RESULT OF WORKING OF THE COMPANY DURIN G THE FINANCIAL YEAR AS PROVIDED UNDER PART-I AND PART-II OF SCHEDULE VI TO THE COMPANIES ACT, 1956.' THE ABOVE PRINCIPLE HAS BEEN UPHELD BY HON'BLE BANGALOR E TRIBUNAL IN THE CASE OF SYNDICATE BANK (SUPRA) & HON'BLE MUMBAI TRIBUNAL IN THE CASE OF HITKARI FIBRES LTD. (SUPRA) & FRIGSALES (I) LTD. (SUPRA). IT MAY B E NOTED THAT IN RENDERING THE ABOVE DECISIONS, THE HON'BLE TRIBUNAL HAS REFERRED TO THE DECISION OF APEX COURT IN THE CASE OF APOLLO TYRES VS CIT (2002) 255 ITR 273 (SC) AND HELD THAT THE ABOVE DECISION DOES NOT DEBAR THE ASSESSEE TO MAKE THE AB OVE ADJUSTMENT IN COMPUTING BOOK PROFIT U/S 115JA/JB. 11.10 ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE DECISIONS OF THE COURTS REFERRED TO ABOVE INCLUDING THE DECISION OF JURISDICTIONAL CALCUTTA HIGH COURT, THE ABOVE GROUND IS DECIDED IN FAVOUR OF THE APPELLANT AND THE A.O. IS DIRECTED TO EXCLUDE RETENTION MONEY IN COMP UTING TOTAL INCOME AMOUNTING TO RS.28,87,72,022/- BOTH UNDER THE PROVISIONS OF T HE ACT OTHER THAN SECTION 115JB AS WELL AS IN COMPUTING BOOK PROFIT U/S 115JB OF TH E ACT. 34. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE H AS RAISED GROUND NO.5 BEFORE THE TRIBUNAL. 35. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, W HO SUBMITTED THAT THE CIT(A) OUGHT NOT TO HAVE ADMITTED THE ADDITIONAL GROUND FOR ADJU DICATION. IN OUR VIEW THIS IS NOT THE GRIEVANCE PROJECTED BY THE REVENUE IN THE GROUNDS O F APPEAL. APART FROM THE ABOVE WE 16 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 16 ARE OF THE VIEW THAT THE LEGAL QUESTION ARISING OUT OF FACTS ALREADY AVAILABLE ON RECORD CAN BE ENTERTAINED BY CIT(A) IN THE FORM OF AN ADDI TIONAL GROUND. WE THEREFORE REJECT THE ARGUMENTS OF THE LD. DR. 36. THE LD. DR SUBMITTED THAT THE ASSESSEE WAS FOL LOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND THEREFORE HAD TO ACCOUNT FOR ALL REC EIPTS ON ACCRUAL BASIS AND CANNOT SEEK TO EXCLUDE THE RETENTION MONEY ON THE GROUND THAT T HE ASSESSEES IS TITLED OVER THE RETENTION MONEY REMAINS IN SUSPENSE TILL THE CONCLU SION OF ALL THE TERMS OF CONTRACT TO THE SATISFACTION OF THE CUSTOMER. WITH REGARD TO T HE EXCLUDING THE AFORESAID RECEIPTS FROM THE BOOK PROFITS U/S 115JB OF THE ACT IT WAS S UBMITTED BY HIM THAT THE PROVISION OF EXPLANATION TO SECTION 115JB OF THE ACT CLEARLY LAY S DOWN WHAT ARE THE SUMS TO BE EXCLUDED AND INCLUDED TO THE PROFIT AS PER PROFIT A ND LOSS ACCOUNT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT, 1956 AND THE RETENTION MONEY IS ONE OF THE SUMS THAT HAD TO BE EXCLUDED FROM THE BOOK PROFITS AS LAID DOWN IN EXPLANATIN-1 TO SECTION 115JB(2) OF THE ACT. 37. THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERA TING THE PLEA OF THE ASSESSEE AS PUT FORTH BEFORE CIT(A) FURTHER PLACED RELIANCE ON THE DECISIONS OF THE HONBLE ITAT, KOLKATA BENCH IN THE CASE OF DCIT VS BINANI INDUSTR IES LTD. IN ITA NO.144/KOL/2012 FOR A.Y.2009-10 ORDER DATED 02.03.2016 WHEREIN THE ENTIRE CASE LAWS ON THE ISSUE HAS BEEN DISCUSSED. THE TRIBUNAL FINALLY CONCLUDED IN T HE AFORESAID DECISION THAT IF THE RECEIPT IS NOT IN THE NATURE OF INCOME THEN IT CANN OT BE CONSIDERED AS INCOME FOR THE PURPOSE OF BOOK PROFIT U/S 115JB OF THE ACT. ON TH E OTHER HAND IF A RECEIPT IS CONSIDERED AS INCOME BUT IS EXEMPT BY VIRTUE OF ANY SPECIFIC P ROVISION OF THE ACT, THEN THE SAME WOULD BE TREATED S PART OF THE BOOK PROFIT U/S 115J B OF THE ACT. THUS THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THE RETENTION MON EY IN QUESTION WAS NOT IN THE NATURE OF INCOME AT ALL IT SHOULD NOT BE INCLUDED AS PART OF THE BOOK PROFIT U/S 115JB OF THE ACT. 17 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 17 38. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. AS FAR AS THE QUESTION WITH REGARD TO EXCLUDING THE RETENTION MON EY WHILE COMPUTING THE TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT IS CONCERNED , IT IS NOT DISPUTED BY THE REVENUE THAT THE SUM IN QUESTION IS IN THE NATURE OF RETENT ION MONEY. IN SUCH CIRCUMSTANCES WE ARE OF THE VIEW THAT THE RETENTION MONEY CANNOT BE REGARDED AS INCOME OF THE ASSESSEE. THE ISSUE IS NO LONGER RES INTEGRA AND HAS BEEN CON CLUDED BY THE HONBLE CALCUTTA HIGH COURT IN CASE OF CIT VS. SIMPLEX CONCRETE (PILES) I NDIA PVT. LTD. [179 ITR 8]. IN THE AFORESAID DECISION THE HONBLE CALCUTTA HIGH COURT ON IDENTICAL FACTS HELD THAT HAVING REGARD TO THE TERMS AND CONDITIONS OF THE CONTRACT, IT COULD NOT BE HELD THAT EITHER 10 PER CENT. OR 5 PER CENT., AS THE CASE MAY BE, BEING RET ENTION MONEY, BECAME LEGALLY DUE TO THE ASSESSEE ON THE COMPLETION OF THE WORK. ONLY AFTER THE ASSESSEE FULFILLED THE OBLIGATIONS UNDER THE CONTRACT, THE RETENTION MONEY WOULD BE RELEASED AND THE ASSESSEE WOULD ACQUIRE THE RIGHT TO RECEIVE SUCH RETENTION M ONEY. THEREFORE, ON THE DATE WHEN THE BILLS WERE SUBMITTED, HAVING REGARD TO THE NATU RE OF THE CONTRACT, NO ENFORCEABLE LIABILITY ACCRUED OR AROSE AND, ACCORDINGLY, IT COU LD NOT BE SAID THAT THE ASSESSEE HAD ANY RIGHT TO RECEIVE THE ENTIRE AMOUNT ON THE COMPLETIO N OF THE WORK OR ON THE SUBMISSION OF BILLS. THE ASSESSEE HAD NO RIGHT TO CLAIM ANY PART OF THE RETENTION MONEY TILL THE VERIFICATION OF SATISFACTORY EXECUTION OF THE CONTR ACT. THEREFORE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE RETENTION MONEY IN RESPECT OF T HE JOBS COMPLETED BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR SHOULD NOT BE TAK EN INTO ACCOUNT IN COMPUTING THE PROFITS OF THE ASSESSEE FOR THE ASSESSMENT YEAR IN QUESTION. IN VIEW OF THE AFORESAID DECISION OF THE HONBLE CALCUTTA HIGH COURT RENDERE D ON IDENTICAL FACTS AS THAT OF THE ASSESSEES CASE, WE ARE OF THE VIEW THAT THERE IS N O MERIT IN ONE PART OF GR.NO.5 RAISED BY THE REVENUE VIZ., THAT RETENTION MONEY HAS TO BE CONSIDERED AS INCOME FOR COMPUTING TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT AND ACCORDINGLY THE SAME IS DISMISSED. 18 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 18 39. AS FAR AS THE EXCLUDING THE RETENTION MONEY FR OM COMPUTATION OF BOOK PROFIT U/S 115JB OF THE ACT IS CONCERNED, THE PROVISIONS OF SE C.115JB OF THE ACT HAVE TO BE LOOKED AT. SECTION 115JB OF THE ACT AS APPLICABLE FOR AY 2006-07 PROVIDES THAT N OTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROV ISION OF THE ACT, WHERE IN THE CASE OF AN ASSESSEE, BEING A COMPANY, THE INCOME-TAX, PA YABLE ON THE TOTAL INCOME AS COMPUTED UNDER THIS ACT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2001 , IS LESS THAN SEVEN AND ONE HALF PERCENT OF ITS BOOK PROFIT, SUCH BOOK PROFIT SHALL BE DEEMED TO BE THE TOTAL INCOME OF THE ASSESSEE AND THE TAX PAYABLE BY THE ASSESSEE ON SUC H TOTAL INCOME SHALL BE THE AMOUNT OF INCOME-TAX AT THE RATE OF SEVEN AND ONE HALF TEN PER CENT . THE ASSESSEE BEING A COMPANY THE PROVISIONS OF SEC.115JB OF THE ACT WERE APPLICABLE. IT IS ALSO NOT IN DISPUTE THAT THE INCOME TAX PAYABLE ON THE TOTAL IN COME AS COMPUTED UNDER THE ACT IN RESPECT OF THE PREVIOUS YEAR RELEVANT TO AY 2006-07 WAS LESS THAN SEVEN AND ONE HALF PERCENT OF ITS BOOK PROFITS AND THEREFORE BOOK PROF IT SHOULD BE DEEMED TO BE THE TOTAL INCOME OF THE ASSESSEE AND TAX PAYABLE BY THE ASSES SEE ON SUCH TOTAL INCOME SHALL BE SEVEN AND ONE HALF PERCENT OF SUCH TOTAL INCOME. E VERY ASSESSEE, BEING A COMPANY, SHALL, FOR THE PURPOSES OF THIS SECTION, PREPARE IT S PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 (1 OF 1956). IN SO PREPARING I TS BOOK OF ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT, THE COMPANY SHALL ADOPT THE SAME ACCOUNTING POLICIES, ACCOUNTING STAND AND METHOD AND RATES FOR CALCULATING DEPRECIA TION AS IS ADOPTED WHILE PREPARING ITS ACCOUNTS THAT ARE LAID BEFORE THE COMPANY AT ITS AN NUAL GENERAL MEETING IN ACCORDANCE WITH PROVISIONS OF SEC.210 OF THE COMPANIES ACT. E XPLANATION BELOW SEC.115JB OF THE ACT PROVIDES THAT FOR THE PURPOSES OF SECTION 115JB OF THE ACT, 'BOOK PROFIT' MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2), AS INCREASED BY CERTAIN ITE MS DEBITED IN THE PROFIT AND LOSS ACCOUNT IN ARRIVING AT THE NET PROFIT AND AS REDUCE D BY- CERTAIN ITEMS THAT ARE CREDITED IN 19 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 19 THE PROFIT AND LOSS ACCOUNT. IN OTHER WORDS, ALL TH AT ONE HAS TO DO, WHILE COMPUTING BOOK PROFITS IS TO TAKE THE PROFIT AS PER PROFIT AND LOS S ACCOUNT PREPARED IN ACCORDANCE WITH COMPANIES ACT, 1956 AND MAKE ADDITIONS OR SUBTRACTI ON AS IS GIVEN IN THE EXPLANATION TO SEC.115JB(2) OF THE ACT. 40. WE HAVE ALREADY SEEN THAT THE ISSUE WHETHER RE TENTION MONEY IN THE CASE OF CONTRACTS EXECUTED ON A TURKEY BASIS CAN BE REGARDE D AS INCOME AT ALL IS NO LONGER RES INTEGRA AND HAS BEEN CONCLUDED BY THE HONBLE CALCU TTA HIGH COURT IN CASE OF CIT VS. SIMPLEX CONCRETE (PILES) INDIA PVT. LTD. [179 ITR 8 ]. IN THE AFORESAID DECISION THE HONBLE CALCUTTA HIGH COURT ON IDENTICAL FACTS HELD THAT HAVING REGARD TO THE TERMS AND CONDITIONS OF THE CONTRACT, IT COULD NOT BE HELD TH AT EITHER 10 PER CENT. OR 5 PER CENT., AS THE CASE MAY BE, BEING RETENTION MONEY, BECAME LEGA LLY DUE TO THE ASSESSEE ON THE COMPLETION OF THE WORK. ONLY AFTER THE ASSESSEE F ULFILLED THE OBLIGATIONS UNDER THE CONTRACT, THE RETENTION MONEY WOULD BE RELEASED AND THE ASSESSEE WOULD ACQUIRE THE RIGHT TO RECEIVE SUCH RETENTION MONEY. THEREFORE, O N THE DATE WHEN THE BILLS WERE SUBMITTED, HAVING REGARD TO THE NATURE OF THE CONTR ACT, NO ENFORCEABLE LIABILITY ACCRUED OR AROSE AND, ACCORDINGLY, IT COULD NOT BE SAID THA T THE ASSESSEE HAD ANY RIGHT TO RECEIVE THE ENTIRE AMOUNT ON THE COMPLETION OF THE WORK OR ON THE SUBMISSION OF BILLS. THE ASSESSEE HAD NO RIGHT TO CLAIM ANY PART OF THE RETE NTION MONEY TILL THE VERIFICATION OF SATISFACTORY EXECUTION OF THE CONTRACT. THEREFORE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE RETENTION MONEY IN RESPECT OF THE JOBS COMPLETE D BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR SHOULD NOT BE TAKEN INTO ACCOUNT IN C OMPUTING THE PROFITS OF THE ASSESSEE FOR THE ASSESSMENT YEAR IN QUESTION. IN VIEW OF TH E AFORESAID DECISION OF THE HONBLE HIGH COURT RENDERED ON IDENTICAL FACTS AS THAT OF T HE ASSESSEES CASE, THERE CAN BE NO DOUBT THAT RETENTION MONEY DOES NOT HAVE ANY CHARAC TER OF INCOME. 20 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 20 41. WHEN A RECEIPT IS NOT IN THE CHARACTER OF INCO ME, CAN IT FORM PART OF THE BOOK PROFITS FOR THE PURPOSE OF SEC.115JB OF THE ACT, IS THE QUE STION THAT ARISES FOR CONSIDERATION. THE ITAT KOLKATA BENCH IN THE CASE OF BINANI INDUST RIES LTD. ITA NO.144/KOL/2013 ORDER DATED 2.3.2016 REPORTED IN (2016) 178 TTJ 065 8 (KOL) : (2016) 137 DTR 0185 (KOL)(TRIB) HAD TO DEAL WITH A CASE WHERE THE QUES TION WAS AS TO WHETHER RECEIPTS ON ACCOUNT OF FORFEITURE OF SHARE WARRANTS AMOUNTING T O RS. 12,65,75,000/-, BEING A CAPITAL RECEIPT, WOULD BE LIABLE FOR TAXATION U/S 115JB. T HE TRIBUNAL AFTER REFERRING TO SEVERAL DECISIONS ON THE ISSUE VIZ., THE HONBLE APEX COURT IN CASE OF INDO RAMA SYNTHETICS (I) LTD VS CIT 330 ITR 336 (SC), APOLLO TYRES LTD. 255 ITR 273 (SC), SPECIAL BENCH ITAT IN THE CASE OF RAIN COMMODITIES LTD. VS. DCIT (2010) 131 TTJ (HYD)(SB) 514, ITAT LUKNOW BENCH IN THE CASE OF ACIT VS. L.H.SUGAR FACTORY LTD AND VICE VERSA IN ITA NOS. 417 , 418 & 339/LKW/2013 DATED 9.2.2016 AN D DECISION OF MUMBAI ITAT IN THE CASE OF SHIVALIK VENTURE (P) LTD. VS. DCIT (201 5) 173 TTJ (MUMBAI) 238 DATED 19.8.2015, CAME TO THE CONCLUSIONS (I) THE OBJECT OF MINIMUM ALTERNATE TAX (MAT) PROV ISIONS INCORPORATED IN SEC.115JB OF THE ACT WAS TO BRING OUT REAL PROFIT O F COMPANIES AND THE THRUST WAS TO FIND OUT REAL WORKING RESULTS OF COMPANY. (II) INCLUSION OF RECEIPT WHICH ARE NOT IN THE NAT URE OF INCOME IN COMPUTATION OF BOOK PROFITS FOR MAT WOULD DEFEAT TWO FUNDAMENTAL P RINCIPLES, IT WOULD LEVY TAX ON RECEIPT WHICH WAS NOT IN NATURE OF INCOME AT ALL AND SECONDLY IT WOULD NOT RESULT IN ARRIVING AT REAL WORKING RESULTS OF C OMPANY. REAL WORKING RESULT COULD BE ARRIVED AT ONLY AFTER EXCLUDING THIS RECEI PT WHICH HAD BEEN CREDITED TO P&L A/C AND NOT OTHERWISE. (III) THERE WAS A DISCLOSURE OF THE FACTUM OF FORFEITURE OF SHARE WARRANTS AMOUNTING TO RS. 12,65,75,000/- BY THE ASSESSEE IN ITS NOTES ON ACCOUNTS VIDE NOTE NO. 6 TO SCHEDULE 11 OF FINANCIAL STATEMENTS F OR YEAR ENDED 31.3.2009. PROFIT AND LOSS ACCOUNT PREPARED IN ACCORDANCE WITH PART II AND III OF 21 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 21 SCHEDULE VI OF COMPANIES ACT 1956, INCLUDED NOTES O N ACCOUNTS THEREON AND ACCORDINGLY IN ORDER TO DETERMINE REAL PROFIT OF AS SESSEE, ADJUSTMENT NEED TO BE MADE TO DISCLOSURES MADE IN NOTES ON ACCOUNTS FO RMING PART OF PROFIT AND LOSS ACCOUNT OF ASSESSEE. PROFITS ARRIVED AFTER SUC H ADJUSTMENT, SHOULD BE CONSIDERED FOR PURPOSE OF COMPUTATION OF BOOK PROFI TS U/S 115JB OF THE ACT AND THEREAFTER, AO HAD TO MAKE ADJUSTMENTS FOR ADDI TIONS/DELETIONS CONTEMPLATED IN EXPLANATION TO SECTION 115JB OF THE ACT. 42. THE TRIBUNAL IN THE AFORESAID DECISION MADE A REFERENCE TO THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF RAIN COMMO DITIES (SUPRA) WHICH IN TURN WAS BASED ON THE RATIO LAID DOWN IN THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. (SUPRA) AS A CASE IN WHICH THE INCOME IN QUESTION WAS TAXABLE BUT WAS EXEMPT UNDER A SPECIFIC PROVISION O F THE ACT AND BUT FOR THE EXEMPTION, THE INCOME WOULD BE CHARGEABLE TO TAX AN D SUCH ITEMS OF INCOME SHOULD ALSO BE INCLUDED AS PART OF THE BOOK PROFITS. BUT WHERE A RECEIPT IS NOT IN THE NATURE OF INCOME AT ALL IT CANNOT BE INCLUDED IN BOOK PROF ITS THOUGH IT IS CREDITED IN THE PROFIT AND LOSS ACCOUNT. THE BENCH FOLLOWED THE DE CISION OF THE LUCKNOW BENCH IN THE CASE OF L.H.SUGAR FACTORY LTD.(SUPRA), WHERE RE CEIPTS ON ACCOUNT OF CARBON CREDITS WHICH WERE CAPITAL RECEIPTS NOT CHARGEABLE TO TAX AND HENCE NOT IN THE NATURE OF INCOME WERE HELD NOT INCLUDED IN THE BOOK PROFI TS. THE BENCH ALSO REFERRED TO THE DECISION OF THE MUMBAI BENCH OF THE ITAT IN THE CASE OF SHIVALIK VENTURE PVT. LTD. (SUPRA) WHICH WAS A CASE WHERE THE QUESTION WA S WHETHER PROFITS ARISING ON TRANSFER OF A CAPITAL ASSET BY A COMPANY TO ITS WHO LLY OWNED SUBSIDIARY COMPANY WHICH IS NOT TREATED AS INCOME' U/S 2(24) OF THE AC T AND SINCE IT DOES NOT FORM PART OF THE TOTAL INCOME U/S.10 OF THE ACT AND THEREFORE DOES NOT ENTER INTO COMPUTATION PROVISION AT ALL UNDER THE NORMAL PROVISIONS OF THE ACT, THE SAME SHOULD BE CONSIDERED FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. THE MUMBAI BENCH HELD AS FOLLOWS: 22 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 22 26.WE SHALL NOW EXAMINE THE SCHEME OF THE PROVISIO NS OF SEC. 115JB OF THE ACT. IT IS PERTINENT TO NOTE THAT THE PROVISIONS OF SEC. 10 LISTS OUT VARIOUS TYPES OF INCOME, WHICH DO NOT FORM PART OF TOTAL INCOME. ALL THOSE ITEMS OF RECEIPTS SHALL OTHERWISE FALL UNDER THE DEFINITION OF THE TERM 'IN COME' AS DEFINED IN SEC. 2(24) OF THE ACT, BUT THEY ARE NOT INCLUDED IN TOTAL INCO ME IN VIEW OF THE PROVISIONS OF SEC. 10 OF THE ACT. SINCE THEY ARE CONSIDERED AS 'I NCOMES NOT INCLUDED IN TOTAL INCOME' FOR SOME POLICY REASONS, THE LEGISLATURE, I N ITS WISDOM, HAS DECIDED NOT TO SUBJECT THEM TO TAX U/S 115JB OF THE ACT ALSO, E XCEPT OTHERWISE SPECIFICALLY PROVIDED FOR. CLAUSE (II) OF EXPLANATION 1 TO SEC.1 15JB SPECIFICALLY PROVIDES THAT THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIONS OF SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF) IS TO BE REDUCED FROM THE NET PROFIT, IF THEY ARE CREDITED TO THE PROFIT AND LOSS ACCOUNT . THE LOGIC OF THESE PROVISIONS, IN OUR VIEW, IS THAT AN ITEM OF RECEIPT WHICH FALLS UNDER THE DEFINITION OF 'INCOME', ARE EXCLUDED FOR THE PURPOSE OF COMPUTING 'BOOK PROFIT', SINCE THE SAID RECEIPTS ARE EXEMPTED U/S 10 OF THE ACT WHILE COMPUTING TOTAL INCOME. THUS, IT IS SEEN THAT THE LEGISLATURE SEEKS TO MAINTAIN P ARITY BETWEEN THE COMPUTATION OF 'TOTAL INCOME' AND 'BOOK PROFIT', IN RESPECT OF EXE MPTED CATEGORY OF INCOME. IF THE SAID LOGIC IS EXTENDED FURTHER, AN ITEM OF RECE IPT WHICH DOES NOT FALL UNDER THE DEFINITION OF 'INCOME' AT ALL AND HENCE FALLS OUTSI DE THE PURVIEW OF THE COMPUTATION PROVISIONS OF INCOME TAX ACT, CANNOT AL SO BE INCLUDED IN 'BOOK PROFIT' U/S 115JB OF THE ACT. HENCE, WE FIND MERIT IN THE SUBMISSIONS MADE BY THE ASSESSEE ON THIS LEGAL POINT. 43. THE ADMITTED FACTUAL AND LEGAL POSITION IN THE PRESENT CASE IS THAT RETENTION MONEY IS NOT IN THE NATURE OF INCOME TILL SUCH TIME THE CONT RACTUAL OBLIGATIONS ARE FULLY PERFORMED TO THE SATISFACTION OF THE CUSTOMER BY THE ASSESSEE . THEREFORE THE RETENTION MONEY CANNOT BE REGARDED AS INCOME EVEN FOR THE PURPOSE O F BOOK PROFITS U/S.115JB OF THE ACT THOUGH CREDITED IN THE PROFIT AND LOSS ACCOUNT AND HAVE TO BE EXCLUDED FOR ARRIVING AT THE BOOK PROFITS U/S.115JB OF THE ACT. WE HOLD ACCORDI NGLY AND CONFIRM THE ORDER OF THE CIT(A) IN THIS REGARD. IN LIGHT OF THE AFORESAID D ISCUSSION, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN THE OTHER PART OF GROUND NO.5 WITH R EGARD TO EXCLUDING RETENTION MONEY FROM THE BOOK PROFITS FOR THE PURPOSE OF SEC.115JB OF THE ACT, AND CONSEQUENTLY THE SAME IS DISMISSED. 23 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 23 44. IN THE RESULT THE APPEAL BY THE REVENUE IS DIS MISSED AND THE CROSS OBJECTION BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ITA NO.532/KOL/2012(REVENUES APPEAL) & ITA NO.217/ KOL/2012 (ASSESSEES APPEAL) A.Y.2007-08 45. ITA NO.532/KOL/2012 IS AN APPEAL BY THE REVENU E WHILE ITA NO.217/KOL/2012 IS AN APPEAL BY THE ASSESSEE. BOTH THESE APPEALS ARE D IRECTED AGAINST THE ORDER DATED 30.12.2011 OF CIT(A)-I, KOLKATA RELATING TO A.Y.200 7-08. ITA NO.532/KOL/2012 (REVENUES APPEAL): 46. GROUND NO.1 RAISED BY THE REVENUE IN ITS APPEA L AND GROUND NO.1 AND 1.1 RAISED BY THE ASSESSEE IN ITS APPEAL CAN BE CONVENIENTLY DECI DED TOGETHER . THESE GROUNDS ARE AS FOLLOWS :- GROUND OF APPEAL OF THE REVENUE: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. CIT(A) WAS NOT JUSTIFIED AND ERRED IN CONFIRMING THE ADDITION OF A N AMOUNT OF RS.18,41,476/- ON ACCOUNT OF PROVISION FOR LEAVE ENCASHMENT U/S43B OF THE ACT. GROUNDS OF APPEAL OF THE ASSESSEE: 1.0 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED AND ERRED IN DISALLOWING PROVISIO N FOR LEAVE ENCASHMENT AMOUNTING TO RS. 25,29,397/- U/ S 43B OF THE ACT. 1.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(APPEALS) ERRED IN REFERRING THE MATTER RELATING TO THE PAYME NT MADE FOR LEAVE ENCASHMENT BEFORE THE DATE OF FILING THE RETURN BACK TO THE AS SESSING OFFICER INSTEAD OF OUTRIGHT DECIDING THE ISSUE. 24 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 24 47. THE FACTS AND CIRCUMSTANCES UNDER WHICH THESE GROUNDS OF APPEAL ARISE FOR CONSIDERATION ARE IDENTICAL TO GROUND NO.1 RAISED B Y THE REVENUE IN ITA NO.100/KOL/2011 FOR A.Y.2006-07 AND C.O.NO.13/KOL/2 011 FOR A.Y.2006-07. FOR THE REASONS STATED THEREIN GROUND NO.1 RAISED BY THE RE VENUE IS DISMISSED WHILE GROUNDS 1.0 & 1.1 RAISED BY THE ASSESSEE ARE TREATED AS ALLOWE D FOR STATISTICAL PURPOSES. 48. GROUND NO.2 RAISED BY THE REVENUE READS AS FOL LOWS :- 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCE OF TH E CASE THE LD. CIT(A) WAS NOT JUSTIFIED AND ERRED IN ALLOWING THE EXPENDITURE OF RS.1,74,19,164/- UNDER THE HEAD FOREIGN CURRENCY CONVERTIBLE BOND BEING REVENUE IN NATURE ALTHOUGH THE ADDITION WAS RIGHTLY MADE BY THE A.O. BEING THE SAID EXPENDI TURE AS CAPITAL IN NATURE. 49. THIS GROUND OF APPEAL IS IDENTICAL TO GROUND N O.3 RAISED BY THE REVENUE IN A.Y.2006-07 IN ITA NO.100/KOL/2011. FOR THE REASONS STATED WHILE DECIDING THE SAID IDENTICAL GROUND OF APPEAL OF THE REVENUE IN AY 200 6-07, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS GROUND NO.2 RAISED BY THE REVENU E. 50. GROUND NO.3 RAISED BY THE REVENUE IN ITS APPEA L AND GROUND NO.3 RAISED BY THE ASSESSEE IN ITS APPEAL CAN BE CONVENIENTLY DECIDED TOGETHER. THESE GROUNDS OF APPEAL READ AS UNDER :- GROUND OF APPEAL OF THE REVENUE: 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OR T HE CASE LD. CIT(A) WAS NOT JUSTIFIED AND ERRED IN DELETING THE ADDITION OF AN AMOUNT OF RS.57,25,701/- ON ACCOUNT OF INCOME FROM SERVICE CHARGES NOT CREDITED TO PROFIT & LOSS A/C BUT AS APPEARING IN THE TDS CERTIFICATES FILED U/S 194J OF THE ACT. GROUND OF APPEAL OF THE ASSESSEE: 3.0 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED AND ERRED IN REFERRING THE MATTER IN RELATION TO ADDITION OF INCOME FROM SERVICE CHARGES NOT CREDITED TO P&L ACCOUNT AM OUNTING TO RS.57,25,701/- 25 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 25 BACK TO THE ASSESSING OFFICER INSTEAD OF OUTRIGHT D ECIDING THE ISSUE IN SPITE OF HOLDING THAT THE DISALLOWANCE MADE BY THE A.O. IS T OTALLY UNJUSTIFIED. 51. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE A O NOTICED THAT THE ASSESSEE HAD CLAIMED CREDIT FOR TAX DEDUCTED AT SOURCE (TDS) IN RESPECT OF CERTAIN PAYMENTS RECEIVED BY THE ASSESSEE ON WHICH TAX HAD BEEN DEDU CTED AT SOURCE U/S 194J OF THE ACT AMOUNTING TO RS. 3,99,472/-. SEC.194J OF THE ACT IS APPLICABLE WHEN PAYMENT IS MADE BY WAY OF FEES FOR PROFESSIONAL OR TECHNICAL SERVIC ES RENDERED. THE AO CALLED UPON THE ASSESSEE TO SHOW HOW CORRESPONDING INCOME OF RS.71, 20,701 IS SHOWN IN THE PROFIT AND LOSS ACCOUNT AS OR UNDER THE HEAD FEES FOR PROFESSI ONAL OR TECHNICAL SERVICES. IN ITS REPLY TO THE AFORESAID QUERY OF THE AO, THE ASSESSEE FILE D REPLY DATED 08-11-2010 IN WHICH THE ASSESSEE CLAIMED THAT RECEIPTS FROM CONTRACT CREDIT ED IN PROFIT AND LOSS ACCOUNT AMOUNTING TO RS. 4,74,82,22,653/- INCLUDES BOTH INC OME FROM CONTRACTORS AS WELL AS PROFESSIONAL SERVICES. THE A.O., HOWEVER FOUND THAT THERE WAS ONLY A SUM OF RS.13,95,000/- REFLECTED IN THE PROFIT AND LOSS ACC OUNT AS RECEIPTS UNDER THE HEAD SERVICE CHARGES. THE AO WHILE PASSING THE ORDER U/S 143(3) DATED 21-12-2010, CONSIDERED INCOME FROM SERVICE CHARGES AMOUNTING TO RS. 13,95, 000/- AS THE ONLY INCOME RECEIVED FROM PROFESSIONAL SERVICES AND DISALLOWED BALANCE A MOUNT OF RS. 57,25,701/- STATING THAT THERE WAS NOTHING ON RECORD TO PROVE THAT THE DIFFERENTIAL AMOUNT OF RS. 57,25,701/- HAS BEEN DULY ACCOUNTED FOR IN THE ACCOUNTS AS INCO ME. 52. BEFORE CIT(A), THE ASSESSEE SUBMITTED THAT IT IS INVOLVED IN THE BUSINESS OF MANUFACTURE AND SALE OF METALLURGICAL MACHINERY, MA TERIALS HANDLING AND CONVEYING PLANT/MACHINERY/SPARES AND COAL WASHING PLANT ON A TURNKEY CONTRACT BASIS. AFTER THE CONTRACT IS UNDERTAKEN, THE SCOPE OF WORK REQUIRED FOR EXECUTION OF THE CONTRACT INCLUDES DESIGNING, ENGINEERING, MANUFACTURE, CONSTRUCTION, ERECTION ETC. CONTRACT REVENUE RECEIVED FOR CARRYING OUT ALL THE ABOVE ACTIVITIES IS BOOKED UNDER THE HEAD 'CONTRACT SALES' IN THE P&L ACCOUNT. THE ASSESSEE FURTHER POINTED OU T THAT WHILE EXECUTING THE CONTRACT, 26 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 26 SOME OF THE ACTIVITIES LIKE DESIGNING AND ENGINEERI NG INVOLVE TECHNICAL EXPERTISE TO THE PARTY WHICH IS LIABLE TO DEDUCTION OF TDS U/S 194J AND NOT UNDER 194C. HENCE, EVEN THOUGH AMOUNT RECEIVED ON ACCOUNT OF DESIGNING & EN GINEERING IS INCLUDED IN THE CONTRACT SALES, AS THE AMOUNT FORMS PART OF THE TOT AL CONTRACT REVENUE, THE PAYMENT RECEIVED ON ACCOUNT OF ABOVE IS IIABLE FOR DEDUCTIO N OF TDS U/S 194J. THE ASSESSEE POINTED OUT THAT OUT OF THE TOTAL AMOUNT OF RS. 71, 20,701/-, A SUM OF RS. 70,65,601/- PERTAINS TO PROFESSIONAL SERVICES RENDERED TO CESC LTD. WITH RESPECT TO THE CONTRACT UNDERTAKEN FOR COAL WASHERY PROJECT AT SARASTHALI O PEN CAST MINES. FURTHER, A SUM OF RS. 55,100/- WAS RECEIVED FROM EASTMAN CRUSHER CO. PVT. LTD. ON ACCOUNT OF DESIGN AND ENGINEERING CHARGES OF BALL MILL AS PER PURCHASE OR DER ENTERED WITH THE SAID COMPANY. COPIES OF ALL LEDGER ACCOUNT SHOWING THE INCOME ALR EADY BOOKED UNDER THE HEAD 'CONTRACT SALES' WERE ALSO FILED BEFORE THE CIT(A). THE ASSESSEE POINTED OUT THAT THE ABOVE DETAILS WAS NEVER ASKED BY THE A.O. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE SAME COULD NOT BE PRODUCED BEFORE THE A.O. HENC E THE ADDITIONAL EVIDENCE CAN BE CONSIDERED AS ADMISSIBLE UNDER RULE 46A(1) CLAUSE ( D) TO THE INCOME TAX RULES, 1962 (RULES). IT WAS ARGUED THAT SINCE THE INCOME IS AL READY CREDITED TO PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION, THE DISAL LOWANCE AS MADE BY THE A.O. IS GROSSLY UNJUSTIFIED. 53. THE CIT(A) ON PERUSAL OF THE DETAILS/ INFORMAT ION FILED BEFORE HIM AND AFTER CONFRONTING THE SAID DETAILS TO THE AO FOR HIS COMM ENTS AND AFTER RECORDING THE FACT THAT THE AO DID NOT GIVE ANY COMMENTS DESPITE ADEQUATE O PPORTUNITY WAS OF THE VIEW THAT THE EVIDENCE FILED BEFORE HIM NEEDS TO BE TAKEN INT O CONSIDERATION FOR DECIDING THE ISSUE. THE CIT(A) FOUND THAT TDS CERTIFICATE FROM CESC WH ICH REFLECTED THAT THEY HAVE PAID RS.70,65,601 TO THE ASSESSEE AS PROFESSIONAL CHARGE S WAS IN RESPECT OF 300 TPH COAL WASHERY AT SARASTHALI OPEN CAST MINES HAVING A TOTA L CONTRACT VALUE OF RS. 1,40,00,000/-. THE CIT(A) FOUND THAT AS PER THE CON TRACT WITH CESC ACTIVITIES LIKE 27 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 27 DESIGNING AND ENGINEERING INVOLVING TECHNICAL EXPER TISE HAD TO BE CARRIED OUT BY THE ASSESSEE FOR WHICH PAYMENTS TAX DEDUCTION AT SOURCE WAS TO BE MADE IN TERMS OF SECTION 194J AND NOT UNDER 194C OF THE ACT. THE CI T(A) ALSO FOUND THAT EVEN THOUGH THE AMOUNT RECEIVED IS ON ACCOUNT OF DESIGNING & EN GINEERING THE SAME WAS CREDITED UNDER THE HEAD 'CONTRACT SALES' BY THE ASSESSEE AND WAS PART OF THE TOTAL CONTRACT REVENUE REFLECTED IN THE PROFIT AND LOSS ACCOUNT. 54. IN RESPECT OF THE BALANCE INCOME OF RS. 55,100 /-, THE CIT(A) FOUND THAT THE SAME HAS BEEN RECEIVED BY THE ASSESSEE FROM EASTMAN CRUS HER COMPANY (P) LTD. FOR WHICH COPY OF THE INVOICE FILED BY THE ASSESSEE SHOWED TH AT THE SAID RECEIPT WAS ON ACCOUNT OF DESIGN AND ENGINEERING CHARGES OF BALL MILL AGAINST CUSTOMER PURCHASE ORDER NO. 154/VIII: 752V-1:2005:29910. THE CIT(A) ALSO FOUN D THAT THE SAID SUM WAS ALSO DULY REFLECTED AS PART OF THE CONTRACT SALES CREDITED IN THE PROFIT AND LOSS ACCOUNT. 55. THE CIT(A) WAS THEREFORE OF THE VIEW THAT SIN CE THE AMOUNT OF INCOME AS REFLECTED IN THE TDS CERTIFICATE IS ALREADY BOOKED UNDER THE HEAD 'CONTRACT SALE' AND NOT SHOWN SEPARATELY UNDER THE HEAD 'SERVICES CHARGES/ PROFES SIONAL CHARGES', DISALLOWANCE MADE BY THE A.O. WAS TOTALLY UNJUSTIFIED. THE CIT(A) ALSO H ELD THAT BEFORE MAKING THE DISALLOWANCE, NO OPPORTUNITY WAS GIVEN TO THE ASSES SEE TO EXPLAIN THE ABOVE DISCREPANCY BY THE A.O. WHICH WAS AGAINST THE BASIC PRINCIPLE OF NATURAL JUSTICE. THE CIT(A) WAS OF THE VIEW THAT ALTHOUGH THE TDS HAS BE EN DEDUCTED U/S 194J OF THE ACT, IT DOES NOT AUTOMATICALLY IMPLY THAT THE INCOME SHALL BE BOOKED UNDER THAT SPECIFIC HEAD. THE CIT(A) FOUND THAT THE ASSESSEE'S TOTAL REVENUE FOR THE RELEVANT PREVIOUS YEAR FROM CONTRACT WAS RS. 475 CRS WHICH INCLUDED ALL TYPES O F CONTRACTS LIKE SUPPLY CONTRACTS, ERECTION & SERVICE CONTRACT, DESIGN & ENGINEERING C ONTRACT AS WELL AS COMPOSITE CONTRACTS (COMPRISING OF EITHER OR ALL OF ABOVE TYP ES). HE HELD THAT THE AO BEFORE COMING TO A CONCLUSION THAT INCOME AS SHOWN IN TDS CERTIFICATE HAS NOT BEEN CREDITED TO 28 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 28 P&L ACCOUNT, SHOULD HAVE VERIFIED OTHER REVENUES AS BOOKED IN PROFIT & LOSS ACCOUNT ALSO. AS THE AMOUNT OF INCOME FROM THE CONTRACTS HA S BEEN DULY BOOKED UNDER THE HEAD CONTRACT SALES, THE CIT(A) HELD THAT THERE WAS NO R EASON TO DISALLOW THE ABOVE AMOUNT BY THE A.O. HENCE, THE A.O. WAS DIRECTED TO VERIFY THE SAME AND ALLOW IF THE CONTENTION OF THE APPELLANT IS FOUND TO BE CORRECT ON THE BASI S OF RECORDS. 56. AGGRIEVED BY THE ORDER OF CIT(A) OBSERVING THA T THE AMOUNTS REPRESENTED BY TDS CERTIFICATE HAS ALREADY BEEN BOOKED UNDER THE HEAD CONTRACTS AND HIS FURTHER CONCLUSION THAT THE DISALLOWANCE MADE BY AO SEEMS T O BE UNJUSTIFIED, THE REVENUE HAS RAISED GROUND NO.3 BEFORE THE TRIBUNAL. THE ASSESS EE IS AGGRIEVED BY THE DIRECTION OF CIT(A) IN AND BY WHICH THE CIT(A) DIRECTED THE AO T O VERIFY OTHER REVENUES AS BOOKED IN THE PROFIT AND LOSS ACCOUNT TO COME TO A DEFINIT E CONCLUSION THAT THE AMOUNTS REPRESENTED BY TDS CERTIFICATES HAS BEEN BOOKED AS PART OF THE CONTRACT SALE RECEIPTS, THE ASSESSEE HAS RAISED GROUND NO.3 BEFORE THE TRIBUNAL . 57. AT THE TIME OF HEARING IT WAS BROUGHT TO OUR N OTICE THAT THE AO GAVE EFFECT TO THE DIRECTIONS OF CIT(A) IN THE IMPUGNED ORDER AND PASS ED AN ORDER DATED 2.7.2012. IN THE SAID ORDER THE AO HAS ACCEPTED THAT THE DISPUTED IN COME AS SHOWN IN THE TDS CERTIFICATE HAS BEEN INCLUDED IN THE CONTRACT SALES ALREADY DIS CLOSED BY THE ASSESSEE. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE AO IN THIS RE GARD :- IN RESPECT OF CREDIT OF INCOME UNDER SERVICE CHARG ES, THE A/R PRODUCES ALL THE RELEVANT DOCUMENTS WHEREFROM IT IS FOUND THAT THE I NCOME RELATING TO TDS DEDUCTED U/S 194J INCLUDED IN THE TOTAL TURNOVER WH ICH IS ALSO VERIFIED FROM THE TDS CERTIFICATES ISSUED BY CESC. HENCE, THE CLAIM O F THE ASSESSEE MADE BEFORE LD. CIT(A) IS FOUND CORRECT AND ACCORDINGLY THE SAME IS ALLOWED. 58. SINCE THE AO HAS HIMSELF ACCEPTED THE CLAIM OF THE ASSESSEE, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN GROUND NO.3 RAISED BY THE REVE NUE. AS FAR AS GROUND NO.3 RAISED BY 29 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 29 THE ASSESSEE IS CONCERNED, IN VIEW OF THE ORDER DAT ED 2.7.2012 PASSED BY THE AO, THE GROUND RAISED BY THE ASSESSEE BECOMES INFRUCTUOUS A ND HENCE DISMISSED. 59. GROUND NO.4 RAISED BY THE REVENUE IN THIS APPE AL READ AS FOLLOWS :- 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A) WAS NOT JUSTIFIED AND ERRED WHILE DIRECTING THE A.O. TO EXC LUDE THE AMOUNT OF RETENTION MONEY OF RS.46.01,77,049/- IN COMPUTING TOTAL INCOM E AS WELL AS COMPUTING BOOK PROFIT U/S.115JB OF THE I.T. ACT. 60. THIS GROUND OF APPEAL IS IDENTICAL TO GROUND N O.5 RAISED BY THE REVENUE IN ITA NO.100/KOL/2011 FOR A.Y.2006-07. THE DETAILS OF THE RETENTION MONEY IN THIS YEAR ARE GIVEN IN PAGE NO.29 OF THE ASSESSEES PAPER BOOK AN D THE SAME IS GIVEN AS ANNEXURE-3 TO THIS ORDER. ALL THE OTHER FACTS AND CIRCUMSTANC ES ARE IDENTICAL TO THE FACTS AND CIRCUMSTANCES AS IT PREVAILED IN A.Y.2006-07. FOR T HE REASONS STATED THEREIN WE UPHOLD THE ORDER OF CIT(A) DIRECTING THE AO TO EXCLUDE THE AMOUNT OF RETENTION MONEY WHILE COMPUTING THE TOTAL INCOME AS PER THE NORMAL PROVIS IONS OF THE ACT AS WELL AS WHILE COMPUTING THE BOOK PROFIT U/S115JB OF THE ACT. GROU ND NO.4 RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. 61. GROUND NO.5 RAISED BY THE REVENUE READS AS FO LLOWS :- 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE EASE THE LD. CIT(A) WAS NOT JUSTIFIED AND ERRED WHILE GIVING DIRECTION TO THE A .O. TO VERIFY THE ACCOUNT OF' PROVISION MADE FOR EMPLOYEES' BENEFIT IN COMPUTING BOOK PROFIT 115JB OF THE ACT AND GRANT THE RELIEF ACCORDINGLY, IF THE CONTENTIO N OF THE APPELLANT IS FOUND TO BE CORRECT. THE DIRECTION OF THE LD. CIT(A) TENTAMOUNT S TO SET ASIDE THE CASE TO THE FILE OF THE A.O. WHICH IS NOT EMPOWERED TO DO AND THIS I S A QUESTION OF INVOLVEMENT OF LAW. 62. AT THE TIME OF HEARING IT WAS ADMITTED BY THE PARTIES THAT NO SUCH ISSUE ARISES OUT OF THE ORDER OF CIT(A) AND THAT THIS GROUND OF APPEAL HAS BEEN ERRONEOUSLY RAISED IN THE 30 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 30 GROUNDS OF APPEAL. ACCORDINGLY GROUND NO.5 RAISED B Y THE REVENUE IS DISMISSED AS NOT ARISING OUT OF THE ORDER OF CIT(A). 63. GROUND NO.6 RAISED BY THE REVENUE READS AS FOL LOWS :- 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. CIT(A) WAS NOT JUSTIFIED AND ERRED IN DELETING THE ADDITION MADE O F AN AMOUNT OF RS.1,28.35,000/- BY THE A.O ON ACCOUNT OF ADVANCES WRITTEN OFF ON TH E CONTENTION THAT THE SAID ADVANCES ARE NOT INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AND HAS NOT BEEN GIVEN DURING THE NORMAL COURSE OF BUSINESS. 64. DURING THE PREVIOUS YEAR, ADVANCES AMOUNTING T O RS. 1,29,40,600/- WAS WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSSEE, AS THEY COULD NOT BE RECOVERED FROM THE CONCERNED PARTIES. BREAK-UP OF THE SUM SO WRITTEN O FF IS AS FOLLOWS:- PARTICULARS AMOUNT (RS.) INTER-CORPORATE ADVANCES TO MCNAEILL ENGINEERING (LATER CONVERTED TO ODC CARRIERS PVT 1,00,00, 000 LTD AND ODC ENGINEERING & CONSTRUCTIONS PVT. LTD) INTEREST ON INTER-CORPORATE DEPOSITS GIVEN TO MCNAEILL 27,50,000 ENGINEERING ADVANCE FOR PURCHASE OF GOODS, CONSUMABLE STORES AND ELECTRICAL 1,35,000 INSTALLATION TO JHARKHAND STEEL TRADER OLD GOVERNMENT DEPOSITS 55,600 THE ASSESSEE CLAIMED THE SUMS AS ADVANCES WRITTEN O FF AS ALLOWING DEDUCTION WHILE COMPUTING THE TOTAL INCOME AS THESE WERE INCIDENTAL TO THE BUSINESS AND ALLOWABLE AS DEDUCTION IN TERMS OF SEC. 28 R. W.S. 37(1) OF THE ACT. 31 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 31 65. THE AO WAS OF THE VIEW THAT INTER-CORPORATE AD VANCE CANNOT BE ALLOWED AS DEDUCTION BECAUSE THE ASSESSEE WAS NOT ENGAGED IN T HE BUSINESS OF ADVANCING INTER- CORPORATE LOANS AND THE LOSS IN QUESTION DOES NOT S PRING DIRECTLY FROM OR IS NOT INCIDENTAL TO BUSINESS OF THE ASSESSEE. THE AO FURTHER HELD, A S INTEREST ON SUCH ADVANCES WAS NEVER SHOWN TO HAVE BEEN RECEIVABLE OR RECEIVABLE FROM M/ S. ODC CARRIERS PVT. LTD., ADVANCES WRITTEN OFF DUE TO IRRECOVERABILITY CANNOT BE SAID TO BE A BUSINESS LOSS. ADVANCE TO JHARKHAND STEEL TRADERS WAS DISALLOWED F OR THE REASON THAT NO VERIFIABLE DETAILS WERE PRODUCED TO SHOW IMMEDIATE NEXUS WITH BUSINESS. 66. ON APPEAL BY THE ASSESSEE, THE CIT(A) RELYING ON DECISION HONBLE ITAT IN ASSESSEE'S OWN CASE IN A.Y. 2003-04 AND DECISION OF HONBLE HYDERABAD ITAT IN ITW SIGNODE LTD -VS.- DCIT (2007) 110 TTJ 170 (HYD) HEL D THAT ADVANCES WRITTEN OFF IN THE COURSE OF BUSINESS NEEDS TO BE ALLOWED U/S 28 READ WITH SECTION 37(1) OF THE ACT. 67. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE H AS RAISED GROUND NO.6 BEFORE THE TRIBUNAL. 68. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR AN D THE LD. COUNSEL FOR THE ASSESSEE. THE LD. DR RELIED ON THE ORDER OF AO. THE LD. COUNS EL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE BY HONBLE KOLKATA TRIBUNAL IN ASSESSEES OWN CASE IN A.Y.2003-04 VIDE ORDER DATED 11-01-2017 (ITA NO.99/KOL/.2011) WHEREIN IT WAS HELD THAT ADVANCES REPRESENT THE MONEY GIVEN IN RELATION TO BUSINESS CONTRACTS OF THE ASSESSEE AND AS THE NECESSARY DETAILS OF THE PARTIES WERE DULY FURNISHED, THE ORDER OF CIT(A) HOLDING TH AT ADVANCES WRITTEN OFF IN THE COURSE OF BUSINESS IS ALLOWABLE U/ S 28 R.W.S. 37(1) WAS U PHELD. FURTHER RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF BADRIDAS DAGA -VS.- CIT (1958) 34 ITR 10 (SC) HAS HELD THAT :- 32 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 32 WHEN A CLAIM IS MADE FOR A DEDUCTION FOR WHICH THE RE IS NO SPECIFIC PROVISION U/S 10(2), WHETHER IT IS ADMISSIBLE OR NOT WILL DEP END ON WHETHER, HAVING REGARD TO ACCEPTED COMMERCIAL PRACTICE .AND TRADING PRINCI PLES, IT CAN BE SAID TO ARISE OUT OF THE CARRYING ON OF THE BUSINESS AND BE INCIDENTA L TO IT. THE LOSS FOR WHICH A DEDUCTION IS CLAIMED MUST BE ONE THAT SPRINGS DIREC TLY FROM CARRYING ON OF THE BUSINESS AND IS INCIDENTAL TO IT, AND NOT ANY LOSS SUSTAINED BY THE ASSESSEE EVEN IT HAS SOME CONNECTION WITH HIS BUSINESS. IF THAT IS E STABLISHED, THEN THE DEDUCTION MUST BE ALLOWED, PROVIDED THAT THERE IS NO PROVISIO N AGAINST IT, EXPRESSED OR IMPLIED, IN THE ACT.' RELIANCE WAS PLACED ON HON'BLE SUPREME COURT IN THE CASE OF CIT -VS.- ABDULLABHAI ABDULKADAR (1961) 41 ITR 345 (SC) WHEREIN IT HAS BE EN HELD THAT :- IN ORDER THAT A LOSS MIGHT BE DEDUCTIBLE IT MUST B E A LOSS IN THE BUSINESS OF THE ASSESSEE AND NOT A PAYMENT RELATING TO THE BUSINESS OF SOMEBODY ELSE WHICH UNDER THE PROVISIONS OF THE ACT WAS DEEMED TO BE AN D BECAME THE LIABILITY OF THE ASSESSEE. LOSS WAS ALLOWABLE IF IT 'SPRANG DIRECTL Y FROM AND WAS INCIDENTAL TO' THE BUSINESS OF THE ASSESSEE;' RELIANCE WAS FURTHER PLACED ON CIT -VS.- GILLANDERS ARBUTHNOT & CO. LTD. (1992) 195 ITR 331 (CAL) WHEREIN IT WAS HELD THAT WHEN A SUBSI DIARY COMPANY RECEIVES AN ADVANCE FROM ITS HOLDING COMPANY, SUCH ADVANCE COULD BE CLA IMED AS A LOSS IF IT TURNS OUT TO BE BAD FROM THE HOLDING COMPANY'S POINT OF VIEW. 69. IT WAS SUBMITTED THAT NAMES OF THE PARTIES TO WHOM ADVANCES WERE GIVEN ALONG WITH ITS PURPOSE AND OTHER RELEVANT DETAILS PERTAINING T O THE SAME HAD DULY BEEN FURNISHED BEFORE THE A.O VIDE LETTER DATED 20~12-2010. IT WA S SUBMITTED THAT WHEN THE PRINCIPAL AMOUNT IS DOUBTFUL TO BE RECOVERED, INTEREST IS NOT REQUIRED TO BE BOOKED IN THE ACCOUNTS SINCE IT IS NOT PROBABLE THAT INCOME WOULD ARISE TO THE ASSESSEE. HENCE, FOLLOWING THE PRINCIPLE OF PRUDENCY, NO INTEREST WAS BOOKED FROM ODC CARRIERS. WITH REGARD TO THE INTER CORPORATE DEPOSITS/ADVANCES IT WAS SUBMITTED THAT THESE WERE ADVANCES GIVEN IN THE NORMAL COURSE OF BUSINESS. RELIANCE WAS PLACED ON THE DECISION OF ITAT HYDERABAD 33 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 33 BENCH IN THE CASE OF ITW SIGNODE LTD.-VS.-DCIT (200 7) 110 TIJ 170 (HYD) WHEREIN IT WAS HELD THAT: - INTER-CORPORATE DEPOSITS ARE QUITE COMMON AND COR PORATE HOUSES ACCOMMODATE EACH OTHER ON SHORT-TERM BASIS ON GROUNDS OF COMMERCIAL EXPEDIENCY. - PLACING OF ICDS IS IN THE USUAL COURSE OF BUSINES S AND A COMPANY DOING SO NEED NOT BE IN MONEY LENDING BUSINESS. - HENCE THE LOSS ON ACCOUNT OF K'DS HAS TO BE TREAT ED AS ARISING IN THE NORMAL COURSE OF BUSINESS. IT WAS SUBMITTED THAT THE ASSESSEE IS NOT REQUIRED TO BE IN THE MONEY LENDING BUSINESS TO GIVE ADVANCES IN THE NORMAL COURSE OF BUSINESS. AT TENTION WAS INVITED TO THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT -V S.- CRESCENT FILMS (P) LTD. (2001) 248 ITR 670 (MAD) WHEREIN IT WAS HELD THAT IN ANY B USINESS, CREDIT IS AN INDISPENSABLE PART AND ADVANCES OF THE TEMPORARY NATURE WITH OR W ITHOUT INTEREST ARE A COMMON INCIDENT OF BUSINESS. IT IS NOT NECESSARY THAT EVER Y BUSINESS SHOULD REGISTER ITSELF UNDER THE MONEY LENDERS ACT AND MAKE A CLAIM IN RELATION TO ANY ADVANCE MADE BY IT ONLY IN THE CAPACITY OF A PERSON CARRYING ON MONEY LENDING BUSINESS. 70. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. THE FACTUAL DETAILS WITH REGARD TO THE CORPORATE ADVANCES HAVE TO BE NARRATED FOR THE PURPOSE OF DECIDING THE ISSUE RAISED BY THE REVENUE IN GROUND NO.6 IN RESPECT OF INTER CORPORATE DEPOSITS AND INTEREST ON INTERCORPORATE DEPOSITS OF RS.1,27,50,000/-. 71. THE ASSESSEE HAD GIVEN A SUM OF RS.1 CRORE AS ADVANCES TO MACNEILL ENGINEERING LTD.(NEL). IT IS NOT IN DISPUTE THAT THE ADVANCES G IVEN TO MACNEILL ENGINEERING LTD REPRESENTED MONEY GIVEN IN RELATION TO BUSINESS CON TRACTS OF THE ASSESSEE. MEL WAS A COMPANY BELONGING TO WILLAMSON MAGOR GROUP. ODC ENG INEERING AND CONSTRUCTIONS PVT. LTD OWED A SUM OF RS.50,00,000/- TO MEL. MEL R EQUESTED ODC ENGINEERING & 34 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 34 CONSTRUCTIONS PVT. LTD TO PAY THE AFORESAID SUM TO THE ASSESSEE IN DISCHARGE OF THE AMOUNTS DUE BY MEL TO THE ASSESSEE. THIS WAS AGREED TO BY BOTH THE ASSESSEE AND MEL AS WELL AS ODC ENGINEERING & CONSTRUCTION PVT. LTD. 72. SIMILARLY ODC CARRIERS PVT. LTD OWED A SUM OF RS.75.5 LAKHS TO MEL AND MEL REQUESTED ODC CARRIERS PVT. LTD TO PAY THE AFORESAI D SUM DUE TO IT TO THE ASSESSEE IN DISCHARGE OF MELS LIABILITY TO THE ASSESSEE. 73. THE LETTERS EXCHANGED BETWEEN THE PARTIES IN T HIS REGARD ARE PLACED AT PAGE NOS. 69 TO 77 OF THE ASSESSEES PAPER BOOK. AFTER THE AFORE SAID ARRANGEMENT ODC ENGINEERING & CONSTRUCTIONS PVT. LTD AND ODC CARRIERS PVT. LTD., REQUESTED THEIR DUES TO THE ASSESSEE TO BE CONVERTED INTO ODCSS. THE DETAILS OF THE CONV ERSION OF THE AMOUNTS ORIGINALLY GIVEN AS ADVANCES TO MEL AND CONVERSION INTO ODC IS GIVEN BELOW : DATE PARTICULARS AMOUNT 01-04-2000 2000-01 ADVANCE GIVEN TO MCNEIL ENGINEERING LTD. ADD INTEREST ON ABOVE 1,00,00,00 12,17,788 2000-01 INTEREST PAID 1,12,17,788 3,00,000 2001-02 ADD INTEREST ON ABOVE 1,09,17,788 12,73,600 2002-03 ADD INTEREST ON ABOVE 1,21,91,388 16,00,000 (A) 1,37,91,388 2004-05 2004-05 2004-05 ADVANCES CONVERTED TO ODC CARRIERS INSTEAD OF MCNEILL ADVANCES CONVERTED TO ODC ENGINEERING INSTEAD OF MCNEILL LESS INTEREST WRITTEN OFF IN THE BOOKS (B) (A)- (B) 77,50,000 50,00,000 10,41,388 1,27,50,000 31-03-2007 ADVANCES WRITTEN OFF IN THE BOOKS - ODC CARRIERS - ODC ENGINEERING 77,50,000 50,00,000 1,27,50,000 74. IT IS CLEAR FROM THE AFORESAID DETAILS THAT TH E AMOUNT IN QUESTION REPRESENTED THE MONEY GIVEN IN RELATION TO CONTRACTS AND HAD NEXUS WITH THE BUSINESS OF THE ASSESSEE. 35 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 35 THE AMOUNTS DUE FROM THE AFORESAID TWO COMPANIES WE RE IRRECOVERABLE. IT IS EVIDENT FROM THE FACT THAT NEITHER THE INTEREST NOR THE PRI NCIPAL AMOUNT HAD BEEN SETTLED BY THE TWO COMPANIES RIGHT FORM A.Y.2004-05. THE ADVANCES WERE THEREFORE WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THEREFORE THE CO NCLUSIONS OF CIT(A) THAT THE ADVANCES WRITTEN OFF HAVE TO BE ALLOWED AS DEDUCTIO N U/S 28 R.W.S. 37(1) OF THE ACT ARE CORRECT AND DOES NOT CALL FOR ANY INTERFERENCE. 75. AS FAR AS THE REMAINING SUM OF RS.1,35,55,600/ - BEING OLD GOVERNMENT DEPOSITS ARE CONCERNED THE DETAILS OF OLD GOVERNMENT ADVANCES OF F ARE GIVEN AT PAGE-66 OF THE ASSESSEES PAPER BOOK. THE OLD GOVT DEPOSITS WHICH WERE WRITTEN OFF WERE SO WRITTEN OFF OWING TO THE SMALLNESS OF THE AMOUNT AND THE EFFORT S INVOLVED IN RECOVERING THESE DEPOSITS. WE ARE SATISFIED THAT THE CLAIM FOR DEDU CTION ON ACCOUNT OF WRITE OFF OF THESE SUMS HAD TO BE CONSIDERED AS ALLOWABLE EXPENDITURE U/S 28 R.W.S. 37(1) OF THE ACT. 76. AS FAR AS THE ADVANCE WRITTEN OFF OF RS.1,35,0 00/- OF KUMARDHUBI DIVISION IS CONCERNED, THESE ADVANCES WERE GIVEN FOR BUSINESS P URPOSE TO VARIOUS PARTIES FOR PURCHASE OF GOODS , CONSUMABLE STORES AND ELECTRICA L INSTALLATION. THESE ADVANCES HAD NEXUS WITH THE BUSINESS OF THE ASSESSEE AND THEIR W RITE OFF IN THE BOOKS OF ACCOUNTS HAS TO BE CONSIDERED AS ALLOWABLE DEDUCTION U/S 28 R.W. S. 37(1) OF THE ACT. WE THEREFORE ARE OF THE VIEW THAT CIT(A) WAS FULLY JUSTIFIED IN ALLO WING DEDUCITON CLAIMED BY THE ASSESSEE. WE ALSO FIND THAT THE ARGUMENTS ADVANCED BY THE ASSESSEE BEFORE US CLEARLY SUPPORTS THE CONCLUSION ARRIVED AT BY CIT(A). FOR T HE REASONS GIVEN ABOVE WE DISMISS GROUND NO.6 RAISED BY THE REVENUE. 77. IN THE RESULT THE APPEAL BY THE REVENUE IS DIS MISSED. ITA NO.217/KOL/2012 (ASSESSEES APPEAL) 36 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 36 78. GROUND NOS. 1 AND 3 RAISED BY THE ASSESSEE IN ITS APPEAL HAVE ALREADY BEEN DECIDED WHILE DECIDING THE CONNECTED GROUNDS OF APPEAL IN T HE REVENUES APPEAL. GROUND NO.2 RAISED BY THE ASSESSEE READS AS FOLLOWS :- 2.0 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED AND ERRED IN DISALLOWING RS. 85,1 25/- U/ S 36(1 )(VA) READ WITH 2(24)(X) OF THE ACT ON ACCOUNT OF CONTRIBUTION MADE TO PROVIDENT FUND ON THE CONTENTION THAT THE SAME WAS NOT PAID WITHIN DUE DA TE. 79. THIS GROUND OF APPEAL IS IDENTICAL TO GROUND N O.2 RAISED BY THE REVENUE IN ITS APPEAL IN ITA NO.100/KOL/2011 FOR A.Y.2006-07. FOR THE REA SONS STATED THERE IN WHILE DECIDED THE AFORESAID GROUND OF APPEAL WE HOLD THAT THE DED UCTION ON ACCOUNT OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND PAID BY THE ASSESSE E ON OR BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME U/S 139(1) OF THE ACT IS ALLOW ED AS DEDUCTION. GROUND NO.2 RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 80. GROUND NO.4 RAISED BY THE ASSESSEE READS AS FO LLOWS :- 4.0 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED AND ERRED IN DISALLOWING PROVISIO N FOR DOUBTFUL DEBT AMOUNTING TO RS. 8,72,921/- AS DIMINUTION IN THE VALUE OF ASSETS AND NOT CONSIDERING THE SAME AS PROVISION FOR LOSSES IN COMPUTING BOOK PROFIT U/ S 115JB OF THE ACT. 81. DURING THE RELEVANT PREVIOUS YEAR, AN AMOUNT O F RS. 8,72,921/ - WAS DEBITED TO P&L ACCOUNT ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS. SUCH PROVISION WAS DULY REDUCED FROM THE TOTAL DEBTORS AS PER SCHEDULE 9 OF THE BAL ANCE SHEET AND THE NET FIGURE OF DEBTORS AFTER REDUCING SUCH PROVISION WAS SHOWN IN THE ANNUAL ACCOUNTS. IN THE RETURN OF INCOME, PROVISION FOR DOUBTFUL DEBTS AMOUNTING T O RS. 8,72,921/ - WAS NOT ADDED BACK WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE A CT. 82. IN THE ORDER OF ASSESSMENT PASSED U/S 143(3) OF THE ACT, PROVISION FOR DOUBTFUL DEBT WAS ADDED BACK WHILE COMPUTING BOOK PROFIT U/S 115J B OF THE ACT. THE AO DID NOT GIVE ANY REASONS IN THE ORDER OF ASSESSMENT FOR DOI NG SO. 37 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 37 83. ON APPEAL BY THE ASSESSEE, THE CIT(A) HELD THA T PROVISION FOR DOUBTFUL DEBT IS NOTHING BUT DIMINUTION IN THE VALUE OF INVESTMENTS AND AS PER THE AMENDMENT BROUGHT IN SECTION 115JB BY FINANCE ACT, 2009 WITH RETROSPECT IVE EFFECT WHICH WAS APPLICABLE FOR THE RELEVANT AY IN QUEST, DISALLOWANCE MADE BY A.O WAS UPHELD. 84. BEFORE US IT WAS SUBMITTED BY THE LEARNED COUN SEL FOR THE ASSESSEE THAT THE AMOUNT OF RS. 8,72,921/- ALTHOUGH TERMED AS PROVISION, REP RESENTS BAD DEBTS WRITTEN OFF. THE ASSESSEE DEBITED THE AFORESAID AMOUNT IN THE PROFIT AND LOSS ACCOUNT AND ALSO REDUCED THE CORRESPONDING AMOUNT IN SCHEDULE 9 - TO THE BALANCE SHEET, AGAINST 'SUNDRY DEBTORS '. BESIDES DEBITING P&L A/ C AND CREATING A PROVISION FOR BAD AND DOUBTFUL DEBT, ASSESSEE SIMULTANEOUSLY OBLITERATED SAID PROVISION FROM ITS ACCOUNTS BY REDUCING CORRESPONDING AMOUNT FROM DEBTORS ON ASSETS SIDE OF BALANCE SHEET . HENCE, THE AMOUNT PROVIDED REPRESENTS BAD DEBTS WRITTEN OFF. IN THIS CONNECTIO N, HE PLACED RELIANCE ON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF VIJAYA BANK - VS.- CIT (2010) 323 ITR 166 (SQ, WHEREIN IT WAS HELD THAT ONCE AN AMOUNT WAS DEBITED IN THE PROFIT & LOSS ACCOUNT AND CORRESPONDING DEBTS WERE REDUCED, IT WAS NOTHING BU T A WRITE-OFF OF BAD DEBT. SINCE THE AMOUNT DEBITED HAS BEEN REDUCED FROM DEBTORS, IT RE PRESENTS BAD DEBTS AND THEREFORE THE SAME CANNOT BE ADDED IN COMPUTING BOOK PROFIT. HE RELIED ON THE FOLLOWING DECISIONS IN SUPPORT OF HIS CLAIM AS AFORESAID: - CIT-VS.-YOKOGAWA INDIA LTD. (2012) 204 TAXMAN 305 (KAR) - CIT -VS.- KIRLOSKAR SYSTEMS LTD. (2014) 220 TAXMA N 1 (KAR) - FLEX FOODS LTD. -VS.- DCIT (ITA N 0.4800/DEV2011) - MURUGAPPA MORGAN THERMAL CERAMICS LTD. -VS.- ACIT (IT A NO.2208/MDS/2010) - TRENT LTD, MUM -VS.- DEPARTMENT OF INCOME TAX (IT A NO. 1073/MUM/2005) THE LD. DR RELIED ON THE ORDER OF CIT(A). 85. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE OF THE VIEW THAT THE QUESTION BEFORE US IS AS TO WHETHER THE DEBIT IN THE PROFIT AND LOS S ACCOUNT UNDER THE HEAD PROVISION FOR 38 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 38 DOUBTFUL DEBTS IS REALLY A PROVISION FOR DOUBTFUL D EBTS OR WRITE OFF OF DOUBTFUL DEBTS AS BAD DEBTS. THE CIT(A) HAS NOT APPRECIATED THE CONT ENTION OF THE ASSESSEE IN THIS REGARD IN THE LIGHT OF THE ABOVE QUESTION. IT IS CLEAR FRO M A PERUSAL OF THE SCHEDULE-9 TO THE BALANCE SHEET AS WELL AS PROFIT AND LOSS ACCOUNT AN D DEBTORS ON THE ASSET SIDE OF THE BALANCE SHEET THAT THE ASSESSEE HAD IN FACT WRITTEN OFF A SUM OF RS.8,72,921/- AS BAD DEBTS. IN VIEW OF THE ABOVE, THE AMOUNT IN QUESTION CANNOT BE CONSIDERED AS PROVISION FOR DOUBTFUL DEBTS WHICH IS TO BE ADDED TO THE NET PROFIT AS PER THE PROFIT AND LOSS ACCOUNT TO ARRIVE AT THE BOOK PROFIT. IN OTHER WO RDS THE SUM IN QUESTION WAS A BAD DEBT WRITTEN OFF WHICH HAD TO BE REDUCED EVEN WHILE ARRI VING AT THE PROFIT AS PER PROFIT AND LOSS ACCOUNT AND WAS ACCORDINGLY REDUCED. ADDITION OF THE SAID SUM TO THE NET PROFIT AS PER PROFIT AND LOSS ACCOUNT FOR THE PURPOSE OF ARRI VING AT BOOK PROFIT U/S.115JB OF THE ACT WAS THEREFORE NOT WARRANTED. WE THEREFORE ACCE PT THE PLEA OF THE ASSESSEE IN THIS REGARD AND HOLD THAT A SUM OF RS.8,72,921/- BE EXC LUDED FOR THE PURPOSE OF COMPUTING BOOK PROFITS U/S 115JB OF THE ACT. 86. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ITA NO.533/KOL/2012(REVENUES APPEAL) & ITA.NO.218/ KOL/2012 (ASSESSEES APPEAL) A.Y.2008-09 87. ITA NO.533/KOL/2012 IS AN APPEAL BY THE REVENU E WHILE ITA NO..218/KOL/2012 IS AN APPEAL BY THE ASSESSEE. BOTH THE APPEALS ARE DIR ECTED AGAINST THE ORDER DATED 30.12.2011 OF CIT(A)-I, KOLKATA RELATING TO A.Y.200 8-09. 88. GROUND NO.1 RAISED BY THE REVENUE IN ITS APPEA L AND GROUND NO.1 AND 1.1. RAISED BY THE ASSESSEE IN ITS APPEAL CAN BE CONVENIENTLY DEC IDED TOGETHER. THESE GROUNDS OF APPEAL ARE AS FOLLOWS :- 39 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 39 REVENUES APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. CIT(A) WAS NOT JUSTIFIED AND ERRED IN CONFIRMING THE ADDITION OF A N AMOUNT OF RS.10,24,152/- ON ACCOUNT OF PROVISION FOR LEAVE ENCASHMENT USS43B OF THE ACT. ASSESSEES APPEAL 1.0 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED AND ERRED IN DISALLOWING PROVISIO N FOR LEAVE ENCASHMENT AMOUNTING TO RS. 1,15,42,000/- U/ S 43B OF THE ACT . 1.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(APPEALS) ERRED IN REFERRING THE MATTER RELATING TO THE PAYME NT MADE FOR LEAVE ENCASHMENT BEFORE THE DATE OF FILING THE RETURN BACK TO THE AS SESSING OFFICER INSTEAD OF OUTRIGHT DECIDING THE ISSUE. 89. THE FACTS AND CIRCUMSTANCES UNDER WHICH THESE GROUNDS OF APPEAL ARISE FOR CONSIDERATION ARE IDENTICAL TO GROUND NO.1 RAISED B Y THE REVENUE IN ITA NO.100/KOL/2011 FOR A.Y.2006-07 AND C.O.NO.13/KOL/2 011 FOR A.Y.2006-07. FOR THE REASONS STATED THEREIN GROUND NO.1 RAISED BY THE RE VENUE IS DISMISSED WHILE GROUND 1.0 & 1.1 RAISED BY THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 90. GROUND NO.2 RAISED BY THE REVENUE READS AS FOL LOWS :- 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCE OF TH E CASE THE LD. CIT(A) WAS NOT JUSTIFIED AND ERRED IN ALLOWING THE EXPENDITURE OF RS.2,58,997/- UNDER THE HEAD FOREIGN CURRENCY CONVERTIBLE BOND BEING REVENUE IN NATURE ALTHOUGH THE ADDITION WAS RIGHTLY MADE BY THE A.O. BEING THE SAID EXPENDI TURE AS CAPITAL IN NATURE. 91. THIS GROUND OF APPEAL IS IDENTICAL TO GROUND N O.3 RAISED BY THE REVENUE IN A.Y.2006-07 IN ITA NO.100/KOL/2011. FOR THE REASONS STATED THEREIN WE UPHOLD THE ORDER OF CIT(A) AND DISMISS GROUND NO.2 RAISED BY T HE REVENUE. 92. GROUND NO.3 RAISED BY THE REVENUE READS AS FOL LOWS :- 40 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 40 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A) WAS NOT JUSTIFIED AND ERRED WHILE DIRECTING THE A.O. TO EXC LUDE THE AMOUNT OF RETENTION MONEY OF RS.45,45,81,644/- IN COMPUTING TOTAL INCOM E AS WELL AS COMPUTING BOOK PROFIT U/S.115JB OF THE I.T. ACT. 93. THIS GROUND OF APPEAL IS IDENTICAL TO GROUND N O.5 RAISED BY THE REVENUE IN A.Y.2006-07 IN ITA NO.100/KOL/2011. THE DETAILS OF THE RETENTION MONEY IN THIS A.Y. ARE GIVEN AT PAGE NO.29 OF THE ASSESSEES PAPER BOO K AND THE SAME IS GIVEN AS ANNEXURE-4 TO THIS ORDER. ALL THE OTHER FACTS AND CIRCUMSTANC ES ARE IDENTICAL TO THE FACTS AND CIRCUMSTANCES AS IT PREVAILED IN A.Y.2006-07. F OR THE REASONS STATED THEREIN WE UPHOLD THE ORDER OF CIT(A) DIRECTING THE AO TO EXCL UDE THE AMOUNT OF RETENTION MONEY WHILE COMPUTING THE TOTAL INCOME AS PER THE NORMAL PROVISIONS OF THE ACT AS WELL AS WHILE COMPUTING THE BOOK PROFIT U/S115JB OF THE ACT . GROUND NO.3 RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. 94. GROUND NO.4 RAISED BY THE REVENUE IN ITS APPEA L AND GROUND NO.3. RAISED BY THE ASSESSEE IN ITS APPEAL CAN BE CONVENIENTLY DECIDED TOGETHER. THESE GROUNDS OF APPEAL ARE AS FOLLOWS :- REVENUES APPEAL: 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CTT(A) WAS NOT JUSTIFIED AND ERRED WHILE GIVING DIRECTION TO THE A .O. TO VERIFY THE ACCOUNT OF PROVISION MADE FOR EMPLOYEES' BENEFIT IN COMPUTING BOOK PROFIT 115JB OF THE ACT AND GRANT THE RELIEF ACCORDINGLY, IF THE CONTENTION OF THE APPELLANT IS FOUND TO BE CORRECT. THE DIRECTION OF THE LD. CIT(A) TENTAMOUNT S TO SET ASIDE THE CASE TO THE FILE OF THE A.O. WHICH IS NOT EMPOWERED TO DO AND THIS I S A QUESTION OF INVOLVEMENT OF LAW. ASSESSEES APPEAL 3.0 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED AND ERRED IN REFERRING THE MATTER RELATING TO EXCLUSION OF AMOUNT WITHDRAWN FROM GENERAL RESERVE ON ACCOUNT OF REINST ATEMENT OF EMPLOYEES BENEFIT OBLIGATION AMOUNTING TO RS. 1,02,88,421/ - WHILE CO MPUTING BOOK PROFIT U/ S 115JB OF THE ACT BACK TO THE ASSESSING OFFICER INSTEAD OF OUTRIGHT DECIDING THE ISSUE. 41 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 41 95. THE ISSUE INVOLVED IN THE AFORESAID GROUNDS OF APPEAL IS WITH REGARD TO EXCLUSION OF AMOUNT WITHDRAWN FROM GENERAL RESERVE ON REINSTATEM ENT OF EMPLOYEES BENEFITS OBLIGATION WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT OF A SUM OF RS.1,02,88,421/-. DURING THE YEAR UNDER CONSIDERAT ION, ASSESSEE ADJUSTED RS. 1,02,88,421/ - AGAINST GENERAL RESERVE FOR REINSTAT EMENT OF EMPLOYEE BENEFIT OBLIGATION ON ACCOUNT OF ADOPTION OF AS-15 (REVISED 2005) 'EMP LOYEE BENEFITS'. THE SAID AMOUNT WAS CLAIMED UNDER REGULAR PROVISIONS AND WHILE COMP UTING BOOK PROFIT SINCE THE EXPENSES ARE ALLOWABLE EXPENDITURE INCURRED DURING THE NORMAL COURSE OF BUSINESS. THE A.O. DID NOT ALLOW SAID EXCLUSION IN COMPUTATION OF BOOK PROFIT U/S 115JB OF THE ACT STATING THAT SUCH DOWNWARD ADJUSTMENT IS NOT ALLOWE D IN THE EXPLANATION BELOW SEC.115JB(2) OF THE ACT. 96. ON APPEAL BY THE ASSESSEE, THE CIT(A) FOUND TH AT AS PER NOTE 21 OF SCHEDULE 22 TO THE BALANCE SHEET ALL DEFINED BENEFIT PLANS RECOGNI SED IN FINANCIAL STATEMENTS INCLUDING CONTRIBUTION TO EMPLOYEE'S BENEFIT WERE ADJUSTED WI TH GENERAL RESERVE AND WAS MADE AS PER ACTUARIAL VALUATION. THE CIT(A) THEREFORE HELD THAT THE AMOUNT REPRESENTS ASCERTAINED LIABILITY. THE CIT(A) FOLLOWING THE D ECISION OF CIT -VS.- SAIN PROCESSING & WEAVING MILLS P. LTD (2010) 325 ITR 565 (DEL) HEL D THAT SINCE PROVISION FOR CONTRIBUTION TO EMPLOYEE'S BENEFIT IS A NORMAL BUSI NESS EXPENDITURE AND SAME HAS BEEN DISCLOSED IN THE NOTES TO ACCOUNTS, SAID EXPENDITUR E IS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF ARRIVING AT BOOK PROFITS U/S 115JB OF TH E ACT. HE HELD THAT NORMALLY THE PROVISION FOR EMPLOYEES BENEFIT IS REQUIRED TO BE DEBITED TO THE P&L ACCOUNT. HENCE IN ORDER TO ARRIVE AT CORRECT BOOK PROFIT, SAME IS REQ UIRED TO BE REDUCED FROM NET PROFIT. THE ISSUE WAS HOWEVER SET ASIDE TO THE FILE OF A.O. TO VERIFY THE ACCOUNT OF PROVISION MADE FOR EMPLOYEE'S BENEFIT WHILE COMPUTING BOOK PR OFIT AND GRANT RELIEF ACCORDINGLY. 97. AGGRIEVED BY THE ORDER OF THE CIT(A) DIRECTING THE AO TO REDUCE THE AFORESAID SUM FOR ARRIVING AT BOOK PROFIT U/S.115JB OF THE ACT, T HE REVENUE HAS RAISED GROUND NO.4 42 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 42 BEFORE THE TRIBUNAL. AGGRIEVED BY THE ORDER OF TH E CIT(A) DIRECTING THE AO TO VERIFY THE ACCOUNT OF PROVISION MADE FORE EMPLOYEES BENEF IT WHILE COMPUTING BOOK PROFIT AND GRANT RELIEF, THE ASSESSEE HAS RAISED GR.NO.3 IN IT S APPEAL. 98. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LEAR NED DR RELIED ON THE ORDER OF THE AO. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT EXPENSES INCURRED ON CONTRIBUTION TO EMPLOYEES' BENEFIT IS A NORMAL ALLO WABLE BUSINESS EXPENDITURE. IT WAS SUBMITTED THAT AS PER CLAUSE (C) OF EXPLANATION (1) OF SEC. 115JB OF THE ACT ONLY ASCERTAINED LIABILITY IS REQUIRED TO BE ADDED BACK WHILE COMPUTING BOOK PROFIT. SINCE PROVISION ON ACCOUNT OF EMPLOYEES' BENEFIT IS CREAT ED ON THE BASIS OF ACTUARIAL VALUATION, IT IS AN ASCERTAINED LIABILITY WHICH IS NOT REQUIRE D TO BE ADDED BACK WHILE COMPUTING BOOK PROFIT. RELIANCE IN THIS REGARD CAN BE PLACED ON THE DECISION OF CIT - VS.- NATIONAL HYDRO ELECTRIC POWER CORPORATION LTD (2010) 45 DTR 117 (P&H) WHEREIN SIMILAR VIEW WAS UPHELD BY THE HON'BLE HIGH COURT. IT WAS SUBMI TTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HON'BLE PUNE TRIBUNAL IN K.K NAG LTD -VS.- ACIT (2012) 52 SOT 0381 (PUNE TRIB) WHEREIN IT WAS HELD THAT ON A CONJOINT READING OF SUB-SECTIONS (2), (3A) OF SECTION 211 AND PART 11 OF SCHEDULE VI TO THE COMPANIES ACT, 1956 AND THE ACCOUNTING STANDARD - 15, IT WAS IMPERATIVE FOR THE ASSESSEE TO SET OUT THE INCREMENTAL LIABILITY TOWARDS LEAVE ENCASHMENT IN THE ANNUAL AC COUNTS. IF THE SAME IS SET OUT BY WAY OF A DISCLOSURE IN THE NOTES FORMING PART OF THE AN NUAL ACCOUNTS AND NOT BY WAY OF AN ENTRY IN THE P&L ACCOUNT, THE SAME IS SUFFICIENT BE CAUSE THE NET PROFIT AS SHOWN IN THE P&L ACCOUNT FOR THE PURPOSES OF EXPLANATION 1 TO TH E SECOND PROVISO TO SECTION 115JB OF THE ACT IS TO BE UNDERSTOOD WITH REFERENCE TO TH E NOTES TO ACCOUNTS ACCOMPANYING THE ANNUAL ACCOUNTS ALSO. IT WAS HELD THAT USE OF THE E XPRESSION 'NET PROFIT' IN EXPLANATION 1 TO THE SECOND PROVISO TO SECTION 115JB OF THE ACT M AKES IT CLEAR THAT THE IMPUGNED INCREMENTAL LIABILITY TOWARDS LEAVE ENCASHMENT NOT DEBITED TO THE PROFIT & LOSS ACCOUNT BUT OTHERWISE DISCLOSED IN THE NOTES TO ACCOUNTS WI LL HAVE TO BE TAKEN INTO ACCOUNT 43 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 43 WHILE DETERMINING THE 'BOOK PROFITS' UNDER SECTION 115JB OF THE ACT. IT WAS SUBMITTED THAT THE PROVISION MADE ON ACCOUNT OF EMPLOYEES' BE NEFITS IS AN ASCERTAINED LIABILITY WHICH IS TO BE DEDUCTED FROM NET PROFIT AS PER P&L ACCOUNT IN ORDER TO COMPUTE CORRECT BOOK PROFIT U/ S 115JB. RELIANCE IN THIS REGARD IS PLACED ON DECISION OF HON'BLE DELHI HIGH COURT IN CIT -VS.- SAIN PROCESSING & WEAVING M ILLS P. LTD (2010) 325 ITR 565 (DEL) WHEREIN THE QUESTION WAS WHETHER DEPRECIATION NOT DEBITED IN THE PROFIT AND LOSS ACCOUNT OF AN ASSESSEE WHETHER CAN BE REDUCED FROM THE NET PROFIT AS PER PROFIT AND LOSS ACCOUNT FOR THE PURPOSE OF SEC.115JB OF THE ACT. I T WAS HELD THAT CURRENT YEAR DEPRECIATION NOT DEBITED TO P&L ACCOUNT BUT DISCLOS ED IN NOTES TO ACCOUNTS IS ELIGIBLE TO BE DEDUCTED FROM NET PROFIT WHILE COMPUTING BOOK PR OFIT U/ S 115JB AS NOTES TO ACCOUNTS FORM PART OF THE P&L A/ C BY VIRTUE OF SEC. 211(6) OF THE COMPANIES ACT, 1956. 99. AT THE TIME OF HEARING IT WAS BROUGHT TO OUR N OTICE THAT PURSUANT TO THE DIRECTIONS OF CIT(A) IN THE IMPUGNED ORDER AO PASSED AN ORDER DA TED 05.07.2012 GIVING EFFECT TO THE DIRECTIONS OF CIT(A) IN WHICH THE AO HAD NOT AC CEPTED THE CLAIM OF THE ASSESSEE AND MADE THE FOLLOWING OBSERVATIONS :- IN RESPECT OF DISALLOWANCE OF CLAIM OF DOWNWARD AD JUSTMENTS OF RS.1,02,88,421/- IN THE COMPUTATION OF BOOK OF PROFIT, THE DIRECTION OF LD. CIT(A) RELATES TO VERIFICATION ON ACCOUNT OF PROVISION MADE FOR EMPLO YEES BENEFIT WHILE COMPUTING BOOK PROFIT CANNOT BE CARRIED OUT FOR GIVING RELIEF BECAUSE THE AMOUNT OF RS.1,02,88,421/- WAS EXCLUDED BY THE AO IN COMPUTIN G BOOK PROFIT, BUT THERE WAS NO SCOPE TO VERIFICATION OF PROVISION FROM P&L ACCO UNTS, LD. CIT(A) DID NOT GIVE ORDER TO VERIFY FROM WHICH ANGLE THE PROVISION HAS TO BE VERIFIED. HENCE, NO FURTHER RELIEF MAY BE ALLOWED AGAINST THE DISALLOWANCE OF C LAIM. 100. BEFORE US THE LD. DR REITERATED THE STAND OF THE AO AS REFLECTED IN THE ASSESSMENT ORDER AS WELL AS IN THE ORDER GIVING EFFECT TO THE ORDER OF CIT(A). THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE BE FORE CIT(A). THE LD. COUNSEL FOR THE ASSESSEE ALSO ATTEMPTED TO ARGUE THAT THE FINDI NGS OF THE AO IN THE ORDER DATED 05.07.2012 GIVING EFFECT TO THE DIRECTIONS OF CIT(A ) IN THE IMPUGNED ORDER ARE 44 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 44 INCORRECT. THE BENCH HOWEVER POINTED OUT THAT ANY G RIEVANCE AGAINST THE ORDER DATED 05.07.2012 HAS TO BE PROJECTED BY WAY OF AN APPEAL AGAINST THE SAID ORDER AND CANNOT BE THE SUBJECT MATTER FOR CONSIDERATION IN THE PRESENT APPEAL FILED AGAINST THE IMPUGNED ORDER. 101. WE HAVE CONSIDERED THE ORDER OF CIT(A) AND AR E OF THE VIEW THAT THE CONCLUSIONS DRAWN BY CIT(A) ARE CLEARLY SUPPORTED BY THE DECISI ONS REFERRED TO BY CIT(A) AS WELL AS THE DECISIONS REFERRED TO BY THE LD. COUNSEL FOR TH E ASSESSEE BEFORE US. SINCE THE AMOUNT IN QUESTION WAS AN OBLIGATION OF THE ASSESSEE AS AN EMPLOYER THE LIABILITY ARISING ON ACCOUNT OF SUCH OBLIGATION SHOULD ALSO BE CONSIDERE D WHILE ARRIVING AT THE BOOK PROFIT FOR THE PURPOSE OF SEC.115JB OF THE ACT. THUS ON TH E PRINCIPLE LAID DOWN IN THE DECISIONS ON WHICH THE LD. COUNSEL HAS PLACED ON RE LIANCE, WE ARE OF THE VIEW THAT CIT(A) WAS JUSTIFIED IN ACCEPTING THE PLEA OF THE A SSESSES. WITH REGARD TO THE DIRECTIONS OF CIT(A) TO VERIFY WHETHER THE ACCOUNT OF THE PROV ISIONS MADE FOR EMPLOYEE BENEFIT HAS ALREADY BEEN DEBITED IN THE PROFIT AND LOSS AC COUNT, THE DIRECTIONS OF CIT(A) HIS ORDER IS CORRECT AND IS FOR THE ASSESSEE TO EXPLAIN AS TO HOW THE SUM IN QUESTION ARE NOT DEBITED IN THE PROFIT AND LOSS ACCOUNT BUT NEVERTHE LESS NEED TO BE EXCLUDED . WE DO NOT FIND ANY MERITS IN THE GROUNDS RAISED BY THE ASSESS EE ALSO. 102. IN THE RESULT GROUND NO.4 RAISED BY THE REVEN UE AND GROUND NO.3 RAISED BY THE ASSESSEE ARE DISMISSED. 103. IN THE RESULT THE APPEAL BY THE REVENUE IN IT A NO.533/KOL/2012 IS DISMISSED. ITA NO.218/KOL/2012 (ASSESSEES APPEAL ) 104. GROUND NOS 1 AND 3 RAISED BY THE ASSESSEE HAV E ALREADY BEEN DECIDED WHILE DECIDING THE CONNECTED GROUNDS OF APPEAL RAISED BY THE REVENUE IN ITS APPEAL. GROUND 45 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 45 NO.2 RAISED BY THE ASSESSEE IN ITS APPEAL IS IDENTI CAL TO GROUND NO.2 RAISED BY THE REVENUE IN ITA NO.100/KOL/2011 FOR A.Y.2006-07. FOR THE REASONS STATED THEREIN WHILE DECIDING THE AFORESAID GROUNDS OF APPEAL WE HOLD TH AT THE ASSESSEE IS ENTILTED TO DEDUCTION ON ACCOUNT OF EMPLOYEES CONTRIBUTION TO P F PAID ON OR BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME U/S 139(1) OF THE ACT F OR THE RELEVANT ASSESSMENT YEAR. GROUND NO.2 RAISED BY THE ASSESSEE IS ACCORDINGLY A LLOWED. 105. GROUND NO.4 RAISED BY THE ASSESSEE READS AS F OLLOWS :- 4.0 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED AND ERRED IN DISALLOWING PROVISIO N FOR DOUBTFUL DEBT AMOUNTING TO RS. 9,34,523/- AS DIMINUTION IN THE VALUE OF ASSETS AND NOT CONSIDERING THE SAME AS PROVISION FOR LOSSES IN COMPUTING BOOK PROFIT U/ S 115JB OF THE ACT. 106. THE ISSUE THAT ARISES FOR CONSIDERATION IN TH E AFORESAID GROUND OF APPEAL IS WITH REGARD TO DISALLOWANCE OF PROVISION FOR DOUBTFUL DE BTS FOR THE PURPOSE OF ARRIVING AT BOOK PROFIT U/S.115JB OF THE ACT OF RS. 9,34,523/-. DURING THE RELEVANT PREVIOUS YEAR AN AMOUNT OF RS. 9,34,523/ - WAS DEBITED TO P&L ACC OUNT ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS. SUCH PROVISION WAS DULY REDUCED FRO M THE TOTAL DEBTORS AS PER SCHEDULE 8 OF THE BALANCE SHEET AND THE NET FIGURE OF DEBTORS AFTER REDUCING SUCH PROVISION WAS SHOWN IN THE ANNUAL ACCOUNTS. IN THE RETURN OF INCOME, PROVISION FOR DOUBTFUL DEBTS AMOUNTING TO RS. 9,34,523/ - WAS NOT ADDED BACK WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. IN THE ASSESSMENT PA SSED ORDER U/S 143(3), THE AO ADDED BACK THE PROVISION FOR DOUBTFUL DEBT WHILE COMPUTIN G BOOK PROFIT U/S 115JB OF THE ACT. 107. ON APPEAL BY THE ASSESSEE, THE CIT(A) HELD TH AT PROVISION FOR DOUBTFUL DEBT IS NOTHING BUT DIMINUTION IN THE VALUE OF INVESTMENTS AND AS AMENDMENT BROUGHT IN SECTION 115JB BY FINANCE ACT, 2009 IS RETROSPECTIVELY APPLI CABLE, DISALLOWANCE MADE BY A.O WAS UPHELD. 46 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 46 108. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASS ESSEE HAS RAISED GROUND NO.4 BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVAL SUBMI SSIONS. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE OF THE VIEW THAT THE QUESTION TH AT OUGHT TO HAVE BEEN CONSIDERED BY THE CIT(A) WAS AS TO WHETHER THE DEBIT IN THE PROFI T AND LOSS ACCOUNT UNDER THE HEAD PROVISION FOR DOUBTFUL DEBTS IS REALLY A PROVISIO N FOR DOUBTFUL DEBTS OR WRITE OFF OF DOUBTFUL DEBTS AS BAD DEBTS. THE CIT(A) HAS NOT PR OPERLY APPRECIATED THE CONTENTION OF THE ASSESSEE IN THIS REGARD. IT IS CLEAR FROM A PER USAL OF THE SCHEDULE-9 TO THE BALANCE SHEET AS WELL AS PROFIT AND LOSS ACCOUNT AND DEBTOR S ON THE OTHER SIDE OF THE BALANCE SHEET. THE ASSESSEE HAD IN FACT WRITTEN OFF A SUM O F RS.9,34, 523/- AS BAD DEBTS. IN VIEW OF THE ABOVE, THE AMOUNT IN QUESTION CANNOT BE CONS IDERED AS PROVISION FOR DOUBTFUL DEBTS WHICH IS TO BE ADDED TO THE NET PROFIT AS PER THE PROFIT AND LOSS ACCOUNT TO ARRIVE AT THE BOOK PROFIT. WE THEREFORE ACCEPT THE PLEA OF TH E ASSESSEE IN THIS REGARD AND HEDL THAT A SUM OF RS.9,34,523/- BE EXCLUDED FOR THE PURPOSE OF COMPUTING BOOK PROFITS U/S 115JB OF THE ACT. 109. IN THE RESULT THE APPEAL BY THE ASSESSEE IS P ARTLY ALLOWED. 110. IN THE RESULT ALL THE APPEALS BY THE REVENUE ARE DISMISSED, CROSS OBJECTION OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE AND THE OTHER TWO APPEALS BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 01.03.2017. SD/- SD/- [WASEEM AHMED] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 01.03.2017. [RG PS] 47 ITA NO.100/KOL/2011& C.O.NO.13/KOL/2011 532&217,533&218/KOL/2012 M/S. MCNALLY BHARAT ENGG.CO.LTD A.YR.2006-07 47 COPY OF THE ORDER FORWARDED TO: 1. M/S. MCNALLY BHARAT ENGINEERING COMPANY LIMITED, 4, MANGOE LANE, KOLKATA- 700001. 2. D.C.I.T. CIRLE-1, KOLKATA. 3. CIT(A)-I, KOLKATA 4. CIT- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSTT.REGIST RAR, ITAT, KOLKATA BENCHES