DCIT, Cochin V. Appolo Tyres Ltd, Cochin

ITA 539/COCH/2005

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 7590 (ITAT-COCHIN)
• Duration Of Justice: 5 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2010
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 27-07-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 09-05-2005
• Court: TRIBUNAL
• Department Lawyers: S C SONKAR
• Assessee Lawyers: T N CHOPRA
• Keywords: Reopening of assessment; Business income; Depreciation; Business expenditure; Rectification of order; Diversion of income; Source of fund; Retrospective amendment; Advance ruling; Question of law; Tangible material; Bad and doubtful debts; Difference of opinion; Assessment record; Revised return; Reason to believe; Change of opinion
• Section: 43B; 143(3); 80HHC; 115JB; 80IB; 37(1); 147; 148; 263; 63; 154; 139

Judgement Text

IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BENC H, COCHIN BEFORE S/SHRI T.R.SOOD, AM AND N.VIJAYAKUM ARAN, JM I.T.A. NO.297/COCH/2009, 233/COCH/2006 & 274/COCH/ 2005 ASSESSMENT YEAR :2001-02 APOLLO TYRES LTD., SHANMUGHAM ROAD, KOCHI-31. [PAN:AAACA 6990Q] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), RANGE-1, ERNAKULAM THE ASSISTANT COMMISSIONER OF INCOME-TAX,CIRCLE-1(1), ERNAKULAM (ASSESSEE -APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI T.N. CHOPRA, ADVOCATE REVENUE BY SHRI S.C.SONKAR, CIT-DR I.T.A. NOS. 376/COCH/2009, 252/COCH/2007 & 539/COCH/2005 ASSESSMENT YEAR : 2001-02 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1), ERNAKULAM. THE ASSISTANT COMMISSIONER OF INCOME-TAX,CIRCLE-1(1), ERNAKULAM VS. APOLLO TYRES LTD., SHANMUGHAM ROAD, KOCHI-31. [PAN:AAACA 6990Q] (REVENUE -APPELLANT) (ASSESSEE - RESPONDENT) 2 REVENUE BY SHRI S.C.SONKAR, CIT-DR ASSESSEE BY SHRI T.N.CHOPRA, ADVOCATE O R D E R PER T.R.SOOD, AM: I.T.A. NOS. 297/COCH/2009 & I.T.A. 376/COCH/2009 : THE ISSUES RAISED IN THESE APPEALS ARE RELATED TO COMMON ISSUES, THEREFORE, THESE WERE HEARD TOGETHER AND AR E BEING DISPOSED OF BY A COMMON ORDER. 2. THE GROUNDS RAISED IN ITA NO. 297/COCH/2009 ARE AS FOLLOWS:- 1)THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT THE REASSESSMENT OR DER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3 ) R.W.S. 147OF IT ACT IS VALID AND IN ORDER. 2) THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN HOLDING THAT THE REOPENING OF ASSESSMENT O RDER PASSED BY THE ASSESSING OFFICER WAS NOT BASED ON CHANGE OF OPINION ON SAME SET OF FACTS ALREADY EXIS TING ON RECORD. 3) THAT THE LEARNED COMMISSIONER OF INCOME- TAX(APPEALS)ERRED IN CONCLUDING THAT THE HONBLE SUPREME COURT IN THE CASE OF GKN DRIVESHAFTS (INDIA ) 3 LTD. VS. I.T.O. (2003) 259 ITR 19 (SC) HAS NOT HELD THAT THE NOTICE UNDER SECTION 147/148 OR ASSESSMENT ORDE R WOULD BE BAD IN LAW IF OBJECTIONS FILED BY THE ASSE SSEE ARE NOT DISPOSED OFF BY THE ASSESSING OFFICER. THE APPELLANT RESERVES THE RIGHT TO ADD, ALTER, AME ND OR MODIFY ANY OF THE GROUNDS OR RAISE ANY FURTHER GROUND DURI NG THE COURSE OF HEARING OF THE APPEAL. FOR THESE AND OTHER GROUNDS OF APPEAL THAT MAY BE F URTHER ADDUCED AT THE TIME OF HEARING, THE ORDER OF THE LE ARNED COMMISSIONER OF INCOME TAX [APPEALS} REQUIRES TO BE MODIFIED ACCORDINGLY. 3. THE LD. COUNSEL FOR THE ASSESSEE AT THE BEGINNIN G HAD SUBMITTED THAT HE DOES NOT WANT TO PRESS GROUND NO. 3 AND HE ALSO FILED A COPY OF SYNOPSIS RELATING TO ALL THE APPEALS OF ASSESSEE AS WELL AS DEPARTMENTAL APPEALS. 4. THE LD. CIT-DR RAISED TWO PRELIMINARY OBJECTIONS WHICH ARE AS UNDER:- HE SUBMITTED THAT IF GROUND NO. 3 WAS NOT PRESSED, THEN NATURALLY THE ASSESSEE WOULD NOT BE ENTITLED TO ANY RELIEF BECAUSE THE RELIEF SOUGHT BY THE ASSESSEE IS ULTIMA TELY CONTAINED IN GROUND NO. 3 ONLY. 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT THERE IS NO PRACTICE IN THE TRIBUNAL TO SEPARA TELY STATE THE RELIEFS 4 SOUGHT BY THE ASSESSEE AND HE WAS NOT PRESSING GROU ND NO. 3 TO MAKE THE MATTER EASY. 6. WE HAVE CONSIDERED THE PRELIMINARY OBJECTION RAI SED BY THE CIT- DR, BUT WE ARE NOT IMPRESSED BY HIS ARGUMENT. PERHA PS LD. CIT DR WAS REFERRING TO LAST LINE OF LAST PARA BELOW GROUN D 3 WHICH READS THE ORDER OF LD. COMMISSIONER OF INCOME TAX [APPEALS] R EQUIRES TO BE MODIFIED. 7. IT IS NOW ACCEPTED POSITION THAT RULES OF CIVIL PROCEDURE CODE AS WELL THE EVIDENCE ACT AND OTHER RELEVANT RULES STRIC TLY SPEAKING ARE NOT APPLICABLE TO THE PROCEEDINGS BEFORE THE TRIBUNAL B ECAUSE THE TRIBUNAL WAS EMPOWERED TO FRAME ITS OWN RULES IN PURSUANCE T O WHICH THE TRIBUNAL HAS ALREADY FRAMED RULES NAMELY INCOME TAX (APPELLATE TRIBUNAL RULES OF 1963). IN THESE RULES, VARIOUS PROCEDURES RELATING TO FILING OF APPEALS, GROUNDS TO BE TAKEN, ADJOURNM ENTS, BENCH CONSTITUTION, EVEN THE DRESS CODE, ETC. HAVE BEEN C LEARLY PROVIDED. RULE 11 DEALS WITH THE GROUNDS OF APPEAL WHICH IS AS UND ER:- 11. THE APPELLANT SHALL NOT EXCEPT BY LEAVE OF THE TRIBUNAL, URGE OR BE HEARD IN SUPPORT OF ANY GROUND NOT SET F ORTH IN THE MEMORANDUM OF APPEAL, BUT THE TRIBUNAL IN DECIDING THE APPEAL, SHALL NOT BE CONFINED TO THE GROUNDS SET FORTH IN T HE MEMORANDUM OF APPEAL OR TAKEN BY LEAVE OF THE TRIBU NAL UNDER THIS RULE. 8. THE ABOVE CLEARLY SHOWS THAT NO PARTICULAR FORM HAS BEEN GIVEN FOR THE GROUNDS TO BE RAISED. BY CONVENTION GENERAL LY, THE DISPUTES ARE 5 PROJECTED IN THE GROUNDS AND IT IS NOT MANDATORY TO STATE THE RELIEFS SOUGHT BY THE ASSESSEE, WHEREAS UNDER THE CIVIL PRO CEDURE CODE, UNDER ORDER VII RULE 1 WHICH DEALS WITH THE PLEADIN GS PRESCRIBES WHAT ALL IS REQUIRED TO BE INCLUDED IN A PLAINT. IN THI S REGARD, SECTION 50 OF THE CIVIL PROCEDURE CODE READS AS UNDER:- 1 S.50 PARA 1) THE PLAINT SHALL CONTAIN THE FOLLO WING PARTICULARS:- (A) THE NAME OF THE COURT IN WHICH THE SUIT IS BRO UGHT; (B) THE NAME, DESCRIPTION AND PLACE OF RESIDENCE O F THE PLAINTIFF. (C) THE NAME, DESCRIPTION AND PLACE OF RESIDENCE O F THE DEFENDANT, SO FAR AS THEY CAN BE ASCERTAINED; (D) WHERE THE PLAINTIFF OR THE DEFENDANT IS A MINO R OR A PERSON OF UNSOUND MIND, A STATEMENT TO THAT EFFECT; (E) THE FACTS CONSTITUTING THE CAUSE OF ACTION AND WHEN IT AROSE; (F) THE FACTS SHOWING THAT THE COURT HAS JURISDIC TION; (G) THE RELIEF WHICH THE PLAINTIFF CLAIMS; (H) WHERE THE PLAINTIFF HAS ALLOWED A SET-OFF OR RELINQUISHED A PORTION OF HIS CLAIM, THE AMOUNT SO ALLOWED OR RE LINQUISHED; AND (I) A STATEMENT OF THE VALUE OF THE SUBJECT-MATTER OF THE SUIT FOR THE PURPOSES OF JURISDICTION AND OF COURT-FEES, SO FAR AS THE CASE ADMITS. 9. THE PROVISION STARTS WITH WORD SHALL WHICH CLE ARLY SHOWS THAT THE REQUIREMENTS ARE MANDATORY. THE PROVISION CLEAR LY SHOWS THAT IN THE CIVIL MATTERS, THERE IS A SPECIFIC REQUIREMENT AT CLAUSE (G) OF THE ABOVE SECTION BECAUSE OF WHICH RELIEF SOUGHT BY THE PLAINTIFF IS REQUIRED TO BE MENTIONED. 6 10. IN RESPECT OF THIS REQUIREMENT, THE PLEADINGS W OULD ALSO CONTAIN RELIEF SOUGHT WHICH IS ALSO KNOWN AS THE PRAYER CL AUSE, WHEREAS NO SUCH REQUIREMENT IS THERE BEFORE THE TRIBUNAL AND T HEREFORE, EVEN IF GROUND NO. 3 IS WITHDRAWN BY THE ASSESSEE, THE TRIB UNAL CAN STILL ADJUDICATE THE OTHER TWO GROUNDS. IN VIEW OF THIS DISCUSSION, WE REJECT THE FIRST PRELIMINARY OBJECTION OF THE REVENUE. 11. THE SECOND PRELIMINARY OBJECTION RAISED BY THE LD. CIT-DR WAS IN RESPECT OF FILING OF SYNOPSIS. 12. THE LD. CIT-DR SUBMITTED THAT SYNOPSIS IS ALSO TO BE CONSTRUED AS PAPER BOOK AND THEREFORE, ACCORDINGLY, SHOULD HA VE BEEN FILED MUCH BEFORE THE DATE OF HEARING SO HAT THE LD. REPRESENT ATIVES OF THE DEPARTMENT ALSO HAS THE TIME TO GO THROUGH THE SAME . 13. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT SYNOPSIS IS BASICALLY A GIST OF THE MATTER RAI SED IN THE CONCERNED APPEALS AND CONTAINS SOME CASE LAWS. HE CONTENDED T HAT AS A MATTER OF PRACTICE AND CONVENTION, SUCH SYNOPSIS IS SUBMIT TED ONLY ON THE DATE OF HEARING AND ALL THE BENCHES OF THE TRIBUNAL ARE ACCEPTING THE SAME ON DATES OF HEARING. HOWEVER, HE FURTHER SUBMITTED THAT IF THE DEPARTMENT HAS MADE A BIG ISSUE OUT OF THIS, THEN H E WILL NOT EVEN PRESS FOR ACCEPTING THE SYNOPSIS. 14. WE HAVE CONSIDERED THIS PRELIMINARY OBJECTION RAISE D BY THE LD.CIT-DR AND AGAIN FIND NO FORCE IN THE SUBMISSION S OF THE LD. CIT- DR. THE MEANING OF SYNOPSIS IS GIVEN IN LAW LEXICO N BY P.RAMANATHA AIYAR AS UNDER:- 7 SYNOPSIS. A VIEW OF THE WHOLE TOGETHER; A GENERAL VIEW OF A SINGLE SUBJECT. SYNOPSIS SYNOPSIS MEANS TO CUT SHORT, DIMINISH, REDUCE; A BRIEF OR PARTIAL STATEMENT, LES THAN THE WHOLE; AN EPITOME 15. THE ABOVE CLEARLY SHOWS THAT SYNOPSIS IS BASICA LLY A SHORT SUMMARY OF THE MATTER BEING PROJECTED BEFORE THE TR IBUNAL IN COMPLICATED ISSUES. SUCH SYNOPSES ARE REGULARLY BE ING FILED BY BOTH THE SIDES BEFORE VARIOUS BENCHES. SINCE THE SYNOPSE S ARE QUITE HELPFUL TO THE MEMBERS OF THE TRIBUNAL WHILE DICTATING THE ORDERS AND THEY ARE BEING ACCEPTED. THE SYNOPSIS DOES NOT INCLUDE ANY DOCUMENT OR MATERIAL FOR WHICH THE DEPARTMENT HAS TO SPECIFICAL LY OBJECT. THE SYNOPSIS GENERALLY ALSO INCLUDES CASE LAWS WHICH AR E QUITE HELPFUL FOR DICTATING ORDERS BECAUSE NOTING THE CITATIONS SOMET IMES LEADS TO NOTING OF WRONG CITATIONS BECAUSE OF VARIOUS REASONS LIKE PRONUNCIATION, OMISSION TO QUOTE A PARTICULAR ORDER, ETC. AND AT T HE TIME OF DICTATING SOMETIMES MEMBERS ARE NOT IN A POSITION TO FIND THO SE JUDGMENTS WHICH ARE RELIED ON BY THE PARTIES. THEREFORE, GEN ERALLY, THEY ARE WELCOME BECAUSE THEY ARE QUITE HELPFUL. IN THE SYN OPSIS PRESENTED BEFORE US, NO DOCUMENT OR ANY MATERIAL HAS BEEN REL IED FOR WHICH THE LD. REPRESENTATIVES OF THE DEPARTMENT WAS REQUIRED TO PREPARE OR OPPOSE AND THEREFORE, WE HAVE TAKEN ON RECORD THE S YNOPSIS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE AND REJECT THIS PRELIMINARY OBJECTION ALSO. 8 16. WE WOULD LIKE TO MAKE A NOTE THAT COPY OF THE S YNOPSIS WAS DULY SERVED TO LD. CIT-DR. THE SYNOPSIS CONTAINED 12 PAGES AND THE LD. CIT-DR COULD HAVE SCANNED THE SAME BY THE TIME THE OTHER APPEAL WAS ARGUED INSTEAD OF RAISING THESE OBJECTIONS. IN ANY CASE, THIS IS A TRIVIAL MATTER AND WE DO NOT WANT TO GO INTO FURTHE R DETAILS. 17. COMING TO THE ISSUE RAISED BY THE ASSESSEE IN G ROUND NO. 3, SINCE GROUND NO. 3 WAS NOT PRESSED, THE SAME IS DIS MISSED AS NOT PRESSED. AS FAR AS GROUND NOS. 1 & 2 ARE CONCERNED , THESE ARE TWO SEPARATE GROUNDS BUT THE DISPUTE INVOLVED IS ONE WH ICH IS REGARDING OPENING OF THE ASSESSMENT. 18. THE AO HAS RECORDED THE FOLLOWING REASONS FOR R EOPENING OF THE ASSESSMENT. YOU HAVE CLAIMED DEDUCTION UNDER SECTION 80IA FOR THE ASSESSMENT YEARS 2001-02, 2002-03, 2003-04 AND 2005 -06 WHICH WAS ALLOWED TO THE ASSESSEE IN THE RESPECTIVE ASSESSMENT YEARS. YOU HAVE CLAIMED DEDUCTION UNDER SECTION 80I A ON THE PROFIT SAID TO BE DERIVED FROM THE DG POWER GENERAT ION UNITS I & II WHICH WERE ALREADY OPERATIONAL SINCE ASSESSMEN T YEAR 1999-2000. ANNEXURE TO THE DIRECTORS REPORT FOR 199 9-2000 MENTIONED IN INSTALLATION OF DG SET ONLY AS AN ENER GY CONSERVATION MEASURE IMPLEMENTED AT ITS VADODARA PL ANT. NOWHERE IT WAS MENTIONED THAT A NEW UNDERTAKING TO GENERATE ELECTRICITY HAS BEEN LAUNCHED BY YOU. THE ASSESSEE, A PUBLIC LIMITED COMPANY, ENGAGED IN THE MANUFACTURING OF TYRES AND TUBES AND DEALING FLAPS, HAS NEVER MENTIONED 9 MANUFACTURE/PRODUCTION OF ELECTRICITY AS A PRIME OB JECT OF THE COMPANY. WITHOUT THE EXISTENCE OF AN UNDERTAKING, P ROFIT FROM THE UNDERTAKING CANNOT MATERIALIZE AND IT IS ONLY T HE PROFIT OF THE UNDERTAKING THAT QUALIFIES FOR DEDUCTION UNDER SECT ION 80IA. A PERUSAL OF THE DOCUMENTS SHOWS THAT YOU HAVE NEVER CONSIDERED THE \DG SET UNIT AS A SEPARATE UNDERTAKING. WHILE DESCRIBING ITS BRANCHES, IT NEVER SPEAKS ABOUT DG SET UNIT A S SEPARATE UNIT. THE ANNUAL REPORT, COST AUDIT REPORT OR EVEN THE AUDIT REPORT UNDER SECTION 44AB DOES NOT MAKE A MENTION O F THIS UNIT AS A SEPARATE UNDERTAKING. EVERYWHERE THE BUSINESS O F THE ASSESSEE IS MANUFACTURER OF TYRES, TUBES AND DEALIN G IN FLAPS. GENERATION OF ELECTRICITY IS NOWHERE AUTHORIZED OR CHARACTERIZED AS THE BUSINESS OF THE ASSESSEE. EVEN THE OBJECT OF THE ASSESSEE WAS GIVEN IN THE MEMORANDUM AND ART ICLE OF ASSOCIATION DO NOT DESCRIBE GENERATION OF ELECTRICI TY AS AN OBJECT OF THE BUSINESS. THEREFORE, THERE IS NO UND ERTAKING WHICH QUALIFIED FOR DEDUCTION UNDER SECTION 80IA AN D ASSESSEE IS NOT AT ALL ELIGIBLE FOR DEDUCTION UNDER SECTION 80I A. THUS YOU HAVE BEEN WRONGLY GRANTED DEDUCTION UNDER SECTION 8 0IA FOR A.YS. 2001-02, 2002-03, 2003-04 AND 2004-05. THERE FORE, I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TA X HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 14 7 OF THE INCOME TAX ACT, 1961 FOR THE ABOVE YEARS. 19. THE ACTION REGARDING REOPENING OF THE ASSESSMEN T WAS CHALLENGED BEFORE THE LD. CIT(A). IT WAS MAINLY ARG UED BEFORE THE LD. CIT(A) THAT THE ORIGINAL ASSESSMENT WAS COMPLETED U NDER SECTION 143(3) AND DEDUCTION UNDER SECTION 801A IN RESPECT OF DG POWER 10 GENERATION UNIT WAS ALLOWED IN LAST FOUR ASSESSMENT YEARS AFTER DUE APPLICATION OF MIND AND CONSIDERATION OF THE RELEVA NT MATERIAL ON RECORD. THE ASSESSEE COMPANY HAD GIVEN FULL DISCLO SURE OF THE FACTS WHICH WAS NECESSARY FOR MAKING THE CLAIM UNDER SECT ION 801A. NOW THE DEPARTMENT CANNOT TAKE A U TURN BY CHANGING ITS OPINION AND REOPEN THE ASSESSMENT. RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS:- A) SEIMENS INFORMATION SYSTEMS LTD. VS. ACIT, 295 ITR 333 (BOM.). B) CIT VS. EICHER LTD, 294 ITR 310 (DELHI). C) GODREJ AGROVET LTD. VS.ACIT 290 ITR 252 (BOM.) 20. THE LD. CIT(A) EXAMINED THE SUBMISSIONS AND OBS ERVED THAT THE ISSUE REGARDING EXISTENCE OF THE UNDERTAKING WAS NO T EXAMINED EARLIER, THAT IS WHY THE RE-OPENINGS HAVE BEEN DONE AFTER RE CORDING THE REASONS. THEN HE REFERRED TO THE DECISION OF THE H ONBLE GUJARAT HIGH COURT IN THE CASE OF PRAFUL CHUNNILAL PATEL VS. ACI T, 236 ITR 832 AND OBSERVED THAT THE ISSUE RAISED WAS COVERED BY THE D ECISION AND ACCORDINGLY UPHELD THE ACTION OF THE AO REGARDING R EOPENING OF THE ASSESSMENT. 21. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 80IA ON THE DG POWER GENERATING UNDERTAKING WHICH HAS BEEN ALLOWED BY TH E DEPARTMENT BY PASSING ORDER UNDER SECTION 143(3) ON 23.3.2004. L ATER ON, A NOTICE UNDER SECTION 148 FOR RE-OPENING OF THE ASSESSMENT UNDER SECTION 147 WAS ISSUED ON 25.3.2008. THIS NOTICE WAS GIVEN MAI NLY BECAUSE THE LATER AO FROM THE ANNUAL REPORT AND THE COST AUDIT REPORT FOR FINANCIAL 11 YEAR 1999-2000 OBSERVED THAT DG SET WAS INSTALLED A S A ENERGY CONSERVATION MEASURE AT THE VADODARA PLANT. SINCE NOWHERE IT WAS MENTIONED THAT IT WAS A SEPARATE UNDERTAKING, THE A O WAS OF THE VIEW THAT DEDUCTION UNDER SECTION 80IA WAS NOT APPLICABL E, THAT IS WHY THE ASSESSMENT WAS SOUGHT TO BE REOPENED BY THIS NOTICE ON 25.3.2008. 22. HE SUBMITTED THAT THE ACTION OF THE AO WAS MAIN LY CONFIRMED BY THE CIT(A) ON THE BASIS OF THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF PRAFUL CHUNNILAL PATEL VS. ACI T (SUPRA). HE ARGUED THAT IN THIS CASE, THE ASSESSMENT WAS SOUGHT TO BE REOPENED WITHIN 4 YEARS WHICH DOES NOT COME UNDER THE PROVISO TO SECT ION 147. IN ANY CASE, THE DECISION OF THE HONBLE GUJARAT HIGH COUR T WAS DISSENTED FROM BY THE HONBLE DELHI HIGH COURT IN FULL BENCH DECISION OF CIT VS. KELVINATOR INDIA LTD., 256 ITR 1. HE FURTHER POINT ED OUT THAT THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. KELVINATOR OF INDIA LTD. (SUPRA) HAS ALREADY BEEN C ONFIRMED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KELVIN ATOR OF INDIA LTD., 320 ITR 561 WHICH MEANS THAT THE DECISION RENDERED BY THE GUJARAT HIGH COURT IN THE CASE OF PRAFUL CHUNNILAL PATEL (S UPRA) IS NO MORE A GOOD LAW. 23. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO TH E PROVISO TO SECTION 147 AND SUBMITTED THAT WHERE THE ORIGINAL A SSESSMENT HAS BEEN COMPLETED UNDER SECTION 143(3), THEN THE SAME COULD NOT BE REOPENED AFTER A LAPSE OF FOUR YEARS, UNLESS AND UN TIL THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO FULLY AND TRULY DISC LOSE ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. IN THE CASE BEFORE U S, THE ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 23 .3.2004 AND 12 NOTICE WAS ISSUED BEYOND FOUR YEARS. ALL THE NECES SARY FACTS WERE DISCLOSED TO THE DEPARTMENT AND THAT IS WHY DEDUCTI ON UNDER SECTION 80IA WAS ALLOWED AFTER CONSIDERING THOSE FACTS. IN FACT THE DEDUCTION WAS RESTRICTED AND WAS NOT FULLY ALLOWED AS CLAIMED BY THE ASSESSEE. THIS CLEARLY SHOWS THAT ALL NECESSARY FACTS WERE FU LLY AND TRULY DISCLOSED TO THE DEPARTMENT. IN THIS REGARD, HE REFERRED TO PGS 91 TO 102 OF THE PAPER BOOK WHICH IS A COPY OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 1999-2000 AND INVITED OUR ATTENTION TO PARA 13 WHEREIN FOR FIRST TIME THE ISSUE REGARDING THE DEDUCTION UNDER SECTIO N 80IA OF DG POWER GENERATION UNIT WAS DISCUSSED AND IT WAS CLEARLY NO TED THAT ALL CONDITIONS PRESCRIBED WERE COMPLETE FOR SUCH DEDUCT ION. IN THE PRESENT ASSESSMENT YEAR ALSO CALCULATIONS OF DEDUCT ION UNDER SECTION 80IA WERE PLACED BEFORE AO AND COPY OF THE SAME ARE PLACED AT PGS. 11 TO 20 OF THE PAPER BOOK AND, THEREFORE, NOTICE U NDER SECTION 148 WHICH HAS BEEN ISSUED AFTER FOUR YEARS IS BEYOND TH E TIME PRESCRIBED UNDER THE ACT. IN THIS REGARD, HE FURTHER REFERRED TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. FORAME R FRANCE, 264 ITR 566. IN FACT THIS IS A VERY SHORT JUDGMENT, WHEREB Y THE APPEAL OF THE REVENUE WAS DISMISSED BY THE HONBLE SUPREME COURT AND FOR UNDERSTANDING THE SIGNIFICANCE OF THIS DECISION, RE FERENCE WAS MADE TO THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF FORAMER VS. CIT, 247 ITR 436 WHEREIN IT WAS CLEARLY OBSERVED TH AT A NEW PROVISION UNDER SECTION 147 HAD TO BE APPLIED AND IF THERE WA S NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE THE FACTS TRULY A ND FULLY, THEN SUCH NOTICE WOULD BE BARRED BY LIMITATION. HE ALSO REFE RRED TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CALCUT TA DISCOUNT CO. LTD., 41 ITR 191 WHEREIN THE HONBLE SUPREME COURT CLEARLY OBSERVED THAT ONCE THE PRIMARY FACTS WERE DISCLOSED BEFORE T HE ASSESSING 13 AUTHORITY, THEN NO FURTHER ASSISTANCE WAS REQUIRED TO BE PROVIDED BY THE ASSESSEE BY WAY OF DISCLOSURES. 24. HE FURTHER CONTENDED THAT SINCE ALREADY FULL AN D TRUE DISCLOSURE WAS MADE AND THE DEPARTMENT HAS TAKEN A PARTICULAR VIEW AND THEN LATER ON THE DEPARTMENT AGAIN RE-OPENED THE ASSESSM ENT MERELY ON THE BASIS OF A CHANGED OPINION AND THERE HAS BEEN N O CHANGE IN LAW OR NO NEW MATERIAL HAS COME IN THE POSSESSION OF THE D EPARTMENT AND IT WAS MERELY A CASE OF CHANGE OF OPINION. REFERENCE W AS MADE ONLY TO THE ANNUAL REPORT AND COST AUDIT REPORT OF FINANCIA L YEAR 1999-2000 WHICH RELATES TO THE PREVIOUS YEAR AND IN ANY CASE WAS AVAILABLE WITH THE DEPARTMENT. HE ALSO REFERRED TO THE LATEST DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. (SUPRA) WHEREIN IT WAS CLEARLY HELD THAT UNLESS AND UNTIL T HERE IS A TANGIBLE MATERIAL FOR FORMATION OF BELIEF, THE ASSESSMENT CO ULD NOT BE RE-OPENED MERELY ON THE BASIS OF CHANGE OF OPINION. 25. HE FURTHER SUBMITTED THAT IN ANY CASE ONCE THE DEDUCTION HAS BEEN ALLOWED, THE SAME COULD NOT HAVE BEEN WITHDRAW N IN THE LATER YEARS AND FOR THIS CASE, HE RELIED ON THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES LTD. VS.CIT, 123 ITR 669. EVEN THE BOMBAY HIGH COURT HAS TAKEN A SIMILAR VIEW IN THE CASE OF CIT VS. PAUL BROTHERS, 216 ITR 548. WHILE CONCLUDING, HE SUBMITTED THAT HE PLACED RELIANCE ON THE DECISIONS CITED BEFORE THE LD. CIT(A). 26. ON THE OTHER HAND, THE LD. CIT-DR SUBMITTED THA T IF THE PUBLIC AUTHORITY HAS COMMITTED A MISTAKE, THEN SUCH PUBLIC AUTHORITY HAS THE 14 POWER TO RECTIFY SUCH MISTAKE. THEN HE REFERRED TO THE PROVISION OF SECTION 80IA (4)(IV) AND POINTED OUT THAT THAT DEDU CTION IN RESPECT OF GENERATION AND DISTRIBUTION OF POWER WAS TO BE ALLO WED TO THE PERSONS WHO WERE EXCLUSIVELY IN THE BUSINESS OF SUCH GENERA TION AND DISTRIBUTION OF POWER. THE ASSESSEE IS BASICALLY A MANUFACTURER OF TYRES AND THEREFORE, THE ASSESSEE CANNOT BE SAID TO BE IN THE BUSINESS OF GENERATION AND DISTRIBUTION OF POWER. MOREOVER, SUCH POWER HAS NEVER BEEN SOLD TO THE OUTSIDERS AND HAS BEEN CONSU MED IN-HOUSE AND THEREFORE, THE ASSESSEE IS NOT ENTITLED TO DEDUCTIO N UNDER SECTION 80IA. HE ALSO POINTED OUT THAT THIS DG POWER GENERATION U NIT WAS STARTED IN BARODA PLANT ONLY AND THERE WAS NO SEPARATE LAND AC QUIRED FOR THE PURPOSE OF STARTING THIS PROJECT AND THEREFORE, IT WAS PART OF THE EXISTING PROJECT. NOTHING WAS PRODUCED BEFORE THE LOWER AUTHORITIES TO SHOW THAT IT WAS A NEW UNIT. HE ALSO SUBMITTED THA T WHILE RE-OPENING THE ASSESSMENT, WHAT IS REQUIRED IS ONLY PRIMA FACI E MATERIAL AND NOT A CONCLUSIVE MATERIAL. RELIANCE WAS PLACED BY THE AO ON THE DIRECTORS ANNUAL REPORT AND THE COST AUDIT REPORT IS A MATERI AL WITH PRIMA FACIE SOURCE THAT IT IS NOT A NEW UNDERTAKING AND THEREFO RE, THE ASSESSMENT WAS CORRECTLY RE-OPENED. 27. IN A REJOINDER, THE LD. COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE AO HAS NEVER MADE A CASE THAT IT WAS A SPLITTIN G UP OF THE EARLIER UNIT AND THEREFORE, TO THAT EXTENT, THERE IS NO MER IT IN THE ARGUMENTS OF THE LD. CIT-DR. IN ANY CASE, ONCE THE FACTS WERE DI SCLOSED IN THE ORIGINAL ASSESSMENT, AND IF THERE WAS ANY FAILURE T O DRAW A PARTICULAR INFERENCE OF OVERSIGHT, THEN LATER ON THE DEPARTMEN T CANNOT ELABORATE ON THE SAME FACTS AND RE-OPEN THE ASSESSMENT AND IN THIS REGARD HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF 15 GEMINI LEATHER STORES VS. ITO, 100 ITR 1. AS FAR AS ARGUMENT THAT IF A PUBLIC AUTHORITY COMMITS A MISTAKE THEN SUCH AUTHOR ITY WOULD HAVE POWER TO RECTIFY THE SAME, HE SUBMITTED THAT UNDER THE ACT THE POWER IS AVAILABLE U/S.154 TO RECTIFY THE MISTAKE AND FOR RECTIFYING MISTAKE SECTION 147 CANNOT BE APPLIED. 28. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FI ND THAT THE ISSUE REGARDING DEDUCTION UNDER SECTION 80IA FOR PO WER GENERATION UNIT CAME BEFORE THE ASSESSING AUTHORITY FOR THE FIRST T IME IN THE ASSESSMENT YEAR 1999-2000 AND THE SAME WAS ADJUDICA TED VIDE PARA 13 OF THE ASSESSMENT ORDER AND THE RELEVANT PORTION IS REPRODUCED BELOW:- DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMEN T YEAR 1999-2000, THE COMPANY STARTED A NEW INDUSTRIAL UNDERTAKING FOR THE GENERATION OF POWER FOR ITS FACTORY AT BARODA. ACCORDING TO T HE PROVISIONS OF SECTION 80-IA AS WAS AMENDED W.E.F. 1.4.2000, HUNDR ED PERCENT OF THE PROFIT AND GAINS DERIVED FROM THE UNDERTAKING IS EL IGIBLE FOR DEDUCTION FROM A.Y. 2000-01 ONWARDS UNDER SUB SECTION (1) SU BJECT TO THE PROVISION OF SUB SECTION (3) AND (4) OF SECTION 80- IA. IT IS FOUND THAT ALL THE CONDITIONS PRESCRIBED ARE COMPLIED WITH AND AS SUCH THE DEDUCTION IS ADMISSIBLE. THE METHOD FOR COMPUTING THE PROFIT IS ALSO FOUND TO BE CORRECT. SUBJECT TO THE ADJUSTMENTS TO BE MADE AS DISCUSSED IN THE FOLLOWING SUB-PARAS, PROFIT OF THI S UNDERTAKING COMPUTED AS PER RETURN IS ALLOWED AS DEDUCTION. EV EN THOUGH THE DEDUCTION IS FOR THE FIRST YEAR, THIS IS THE SECOND YEAR OF OPERATION OF THIS UNIT. IN REGARD TO THE LIMDA BIAS PLANT AT BA RODA WHICH WAS STARTED DURING THE PREVIOUS YEAR RELEVANT TO ASSESS MENT YEAR 1992-93, A SUM OF RS. 10,31,65,896/- HAS BEEN CLAIMED AS DED UCTION U/S. 80IB 16 (OLD PROVISION OF 80IA. FOR THE PURPOSE OF COMPUTI NG THE ABOVE DEDUCTION, THE PROFITS OF THE ELIGIBLE BUSINESS WAS ARRIVED AT R. 34,38,86,321/-. IN ARRIVING AT THE ABOVE PROFIT, T HE CONSOLIDATED PROFIT AS PER P&L ACCOUNT OF RS. 94.07 CRORES (BEFORE IT P ROVISION) WAS FIRST ALLOCATED AMONG THE VARIOUS UNITS. 29. THUS, FROM THE ABOVE IT IS CLEAR THAT DEDUCTION UNDER SECTION 80IA WAS ALLOWED FOR DG POWER UNIT IN THE ASSESSMEN T YEAR 1999- 2000, THOUGH THE SAME WAS RESTRICTED BECAUSE OF OTH ER ISSUES LIKE EXCLUSION OF OTHER INCOME. FURTHER, IN THIS YEAR A LSO, DETAILS REGARDING COMPUTATION OF DEDUCTION HAS BEEN FILED BEFORE THE LOWER AUTHORITIES, COPIES OF WHICH ARE AVAILABLE AT PG. 11 TO 20 OF TH E PAPER BOOK. FROM THE ABOVE, IT BECOMES CLEAR THAT THERE IS NO FAILUR E ON THE PART OF THE ASSESSEE TO DISCLOSE FULL AND TRUE PARTICULARS WHIC H WERE NECESSARY FOR CLAIMING THIS DEDUCTION. THIS DEDUCTION HAS ALSO B EEN ALLOWED BY THE AO FOR THE SAME DG POWER UNIT FOR THE ASSESSMENT YE AR 1999-2000. IN FACT BEFORE US, THE LD. CIT-DR COULD NOT POINT O UT ANY MATERIAL FACT WHICH WAS NOT DISCLOSED TO THE DEPARTMENT. ONCE DE DUCTION HAS BEEN ALLOWED, THE SAME CANNOT BE WITHDRAWN IN THE LATER YEARS BY REOPENING OF THE ASSESSMENT. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES LTD. (SUP RA) HAS CLEARLY HELD THAT AUTHORITIES WERE NOT JUSTIFIED IN REFUSIN G THE CLAIM OF TAX HOLIDAY FOR LATER YEARS ONCE DEDUCTION WAS GRANTED IN THE INITIAL YEAR. FOLLOWING THIS DECISION, THE HONBLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS. PAUL BROTHERS, 216 ITR 548 HAS HELD AS UNDE R:- UNLESS DEDUCTIONS ALLOWED FOR THE ASSESSMENT YEAR 1980-81 ON THE SAME GROUND WERE WITHDRAWN, THEY COULD NOT BE DENIE D IN THE 17 SUBSEQUENT YEARS. EITHER IN SECTION 80HH OR IN SECTI ON 80J THERE IS NO PROVISION FOR WITHDRAWAL OF THE SAID DEDUCTION FOR BREACH OF THE CERTAIN CONDITIONS. 30. NOW LET US EXAMINE THE ISSUE PURELY FROM RE-OPE NING ANGLE. THE PROVISO TO SECTION 147 READS AS UNDER:- PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB SECT ION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER T HE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH A SSESSMENT YEAR BY REASON OF THE FAILURE ON THE PART OF THE ASSESSE E TO MAKE A RETURN U/S. 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SU B-SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, FOR THAT ASSESS MENT YEAR . 31. THE PLAIN READING OF THE ABOVE PROVISION MAKES IT VERY CLEAR, PARTICULARLY THE HIGHLIGHTED PORTION THAT AN ASSESS MENT WHICH HAS BEEN COMPLETED UNDER SECTION 143(3), THEN THE SAME CANNO T BE RE-OPENED AFTER FOUR YEARS UNLESS AND UNTIL THERE IS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ANY MATERIAL FACT RELEVANT TO THE ASSESSMENT. AS WE HAVE OBSERVED ABOVE, THE MATERIAL FACTS WERE ALR EADY DISCLOSED AND THE ASSESSMENT HAS BEEN REOPENED MERELY ON THE BASI S OF ANNUAL REPORT AND COST AUDIT REPORT WHEREIN IT WAS STATED THAT THIS NEW DG POWER UNIT WAS MERELY INSTALLED AS AN ENERGY CONSER VATION MEASURE AND THE MATERIAL WAS ALREADY THERE WITH THE AUTHORI TIES FOR THE EARLIER YEARS AND DESPITE OF THAT, DEDUCTION WAS ALLOWED FO R THE ASSESSMENT YEAR 1999-2000 ITSELF WHICH IS CLEAR FROM PARA 13 O F THE ASSESSMENT 18 ORDER QUOTED ABOVE. EVEN DURING THIS YEAR, THE ASSE SSEE HAS FILED ALL THE NECESSARY PARTICULARS BEFORE THE AO. 32. WE FIND THAT IN THE CASE OF GEMINI LEATHER STOR ES VS. I.T.O. (SUPRA) THE ASSESSEE DID NOT DISCLOSE FACTS RELATIN G TO THE TRANSACTION EVIDENCED BY CERTAIN DRAFTS. FURTHER, THE OFFICER HIMSELF DISCOVERED THE FACTS RELEVANT THERETO BUT BY OVERSIGHT DID NOT BRI NG THE AMOUNTS REPRESENTED BY THE DRAFTS TO TAX AS INCOME OF THE A SSESSEE. SUBSEQUENTLY, NOTICE FOR THE REOPENING OF THE ASSES SMENT WAS ISSUED AND WHEN THIS MATTER TRAVELLED TO THE HONBLE SUPRE ME COURT, IT WAS HELD AS UNDER:- HELD, REVERSING THE DECISION OF THE HIGH COURT, T HAT AFTER DISCOVERY OF THE PRIMARY FACTS RELATING TO THE TRANSACTIONS EVID ENCED BY THE DRAFTS IT WAS FOR THE OFFICER TO MAKE THE NECESSARY ENQUIRIES AND DRAW PROPER INFERENCE AS TO WHETHER THE AMOUNTS REPRESENTED BY THE DRAFTS COULD BE TREATED AS PART OF THE TOTAL INCOME OF THE APPEL LANT. THIS THE OFFICER DID NOT DO. IT WAS PLAINLY A CASE OF OVERSIGHT AND IT COULD NOT BE SAID THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMEN T BY REASON OF THE OMISSION OR FAILURE ON THE PART OF THE APPELLAN T TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. HE COULD NOT, THEREAFTER , TAKE RECOURSE TO SECTION 147(A) TO REMEDY THE ERROR RESULTING FROM H IS OWN OVERSIGHT. 33 . THUS, IT IS CLEAR THAT WHERE PRIMARY FACTS WERE NOT ED BY THE AUTHORITIES THEMSELVES, EVEN THEN IT CANNOT BE SAI D THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE PAR TICULAR FACTS TRULY AND FULLY AND IN THIS CASE, DEDUCTION HAS ALREADY BEEN ALLOWED FOR A.Y. 1999-2000 AND FOR CURRENT YEAR, ALL THE RELEVANT FA CTS HAVE BEEN GIVEN, 19 AND EVEN DEDUCTION WAS ALLOWED BUT IN A TRUNCATED F ASHION AND THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE HAD NOT DISCLOSED THE RELEVANT FACTS TRULY AND FULLY. 34. NOW LET US EXAMINE HOW THE VARIOUS COURTS HAVE DEALT WITH THE ISSUE. THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF FORAMER VS. CIT, 247 ITR 436 (ALL.) WHILE DEALING WITH THE ISSU E OF NOTICE U/S. 148 UNDER THE AMENDED PROVISION HELD AS UNDER:- THAT THE LAW PREVAILING ON THE DATE OF ISSUE OF TH E NOTICE U/S. 148, I.E, NOVEMBER 20, 1998, HAD TO BE TAKEN INTO A CCOUNT AND BY THAT DATE THE NEW SECTION 147 HAD COME INTO FORCE. THERE WAS ADMITTEDLY NO FAILURE ON THE PART OF THE ASSESS EE TO MAKE A RETURN OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. HENCE, THE PROVISO TO THE NEW SECTION 147 APPLIED AND THE NOTICES WERE BARRED BY LIMITATION. SECTION 153 WHICH REMOVES THE BAR OF LIMITATION WAS NOT APPLICA BLE TO A NOTICE U/S. 148. MOREOVER, THE CASE OF AN EXPATRIAT E EMPLOYEE WAS TO BE DECIDED ON THE BASIS OF THE PROVISIONS OF ARTICLE XIV OF THE TREATY, WHEREAS CORPORATE INCOME WAS TO BE DECI DED ON THE BASIS OF EITHER ARTICLE III OR ARTICLE XIV OF THE T REATY OR SECTION 44BB. HENCE, THE OBSERVATIONS OF THE TRIBUNAL IN BO UDIER CHRISTIANS CASE WAS NOT A DIRECTION NECESSARY FOR THE DISPOSAL OF THE APPEAL RELATING TO THE PETITIONER. THE EXIGIBI LITY OF INCOME OF THE PETITIONER FROM MANNING AND MANAGEMENT CONTRACT S WAS NEVER AN ISSUE DIRECTLY OR INDIRECTLY INVOLVED IN T HE CASE OF BOUDIER CHRISTIAN. MOREOVER, THE TRIBUNAL IN THE A PPEAL RELATING TO THE ASSESSMENT OF THE PETITIONER OWN CASE HAD C ONSIDERED 20 THE DECISION OF THE TRIBUNAL IN BOUDIER CHRISTIANS CASE. IT IS SETTLED LAW THAT AN APPEAL IS A CONTINUATION OF THE ORIGINAL PROCEEDINGS AND HENCE WHEN THE TRIBUNAL IN THE APPE AL RELATING TO THE PETITIONER HAD CONSIDERED THE DECISION OF TH E TRIBUNAL IN BOUDIER CHRISTIANS CASE THE NOTICE U/S. 147/148 WO ULD OBVIOUSLY BE ON THE BASIS OF A MERE CHANGE OF OPINION BY THE INCOME TAX AUTHORITIES, WHICH WOULD NOT BE VALID. EVEN IF IT W ERE ASSUMED THAT THE LAW PRIOR TO THE INSERTION OF THE NEW SECT ION 147 WOULD APPLY, IT WOULD MAKE NO DIFFERENCE SINCE EVEN UNDER THE ORIGINAL 147 NOTICE FOR REASSESSMENT COULD NOT BE GIVEN ON A MERE CHANGE OF OPINION. HENCE, THE NOTICE U/S. 147/148 W AS ILLEGAL. 35. THIS DECISION OF THE HONBLE HIGH COURT WAS CON FIRMED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. FORAME R FRANCE, 264 ITR 566 (SC). 36. THE LD. CIT(A) HAS MAINLY RELIED ON THE DECISIO N OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF PRAFUL CHUNNILAL PATEL VS. ACIT (SUPRA). HE HAS EXTRACTED THE FOLLOWING OBSERVATION S OF THE COURT:- THE POWER TO MAKE ASSESSMENT OR REASSESSMENT WITHI N FOUR YEARS OF THE END OF THE RELEVANT ASSESSMENT YEAR WO ULD BE ATTRACTED EVEN IN CASES WHERE THERE HAS BEEN A COMP LETE DISCLOSURE OF ALL RELEVANT FACTS UPON WHICH A CORRE CT ASSESSMENT MIGHT HAVE BEEN BASED IN THE FIRST INSTANCE, AND WH ETHER IT IS AN ERROR OF FACT OR LAW THAT HAS BEEN DISCOVERED OR FOUND OUT JUSTIFYING THE BELIEF REQUIRED TO INITIATE THE PROCEEDINGS. THE WORDS ESCAPED ASSESSMENT WHERE THE RETURN IS FIL ED, COVER THE 21 CASE OF DISCOVERY OF A MISTAKE IN THE ASSESSMENT CA USED BY EITHER AN ERRONEOUS CONSTRUCTION OF THE TRANSACTION OR DUE TO ITS NON-CONSIDERATION, OR CAUSED BY A MISTAKE OF LAW AP PLICABLE TO SUCH TRANSFER OR TRANSACTION EVEN WHERE THERE HAS B EEN A COMPLETE DISCLOSURE OF ALL RELEVANT FACTS UPON WHIC H A CORRECT ASSESSMENT COULD HAVE BEEN BASED.IN CASES WHERE TH E ASSESSING OFFICER HAD OVER-LOOKED SOMETHING AT THE FIRST ASSESSMENT, THERE CAN BE NO QUESTION OF ANY CHANGE OF OPINION WHEN THE INCOME WHICH WAS CHARGEABLE TO TAX IS ACTU ALLY TAXED AS IT OUGHT TO HAVE BEEN UNDER THE LAW, BUT WAS NO T, DUE TO AN ERROR COMMITTED AT THE FIRST ASSESSMENT. THE WOR D REASON IN THE PHRASE REASON TO BELIEVE WOULD MEAN CAUSE OR JUSTIFICATION. IF THE ASSESSING OFFICER HAS A CAUSE OR JUSTIFICATION TO THINK OR SUPPOSE THAT INCOME HAD ESCAPED ASSESSM ENT. THE WORDS REASON TO BELIEVE CANNOT MEAN THAT THE ASSE SSING OFFICER SHOULD HAVE FINALLY ASCERTAINED THE FACTS B Y LEGAL EVIDENCE. UNLESS THE GROUND OR THE MATERIAL ON WHIC H HIS BELIEF IS BASED, IS FOUND TO BE SO IRRATIONAL AS NOT TO BE WORTHY OF BEING CALLED A REASON BY ANY HONEST MAN, HI CONCLUS ION THAT IT CONSTITUTES A SUFFICIENT REASON, CANNOT BE OVERRIDD EN. IF THE ASSESSING OFFICER HONESTLY COMES TO A CONCLUSION TH AT A MISTAKE HAS BEEN MADE, IT MATTERS NOTHING SO FAR AS HIS JUR ISDICTION TO INITIATE THE PROCEEDINGS U/S. 147 IS CONCERNED, THA T HE MAY HAVE COME TO A CONCLUSION WHETHER ON LAW OR ON CONSTITUT ION, EXAMINE THE SUFFICIENCY OF THE REASON WHICH LED THE ASSESSING OFFICER TO BELIEVE THAT THE INCOME HAS ESCAPED ASSE SSMENT. 22 37 . BUT AS POINTED OUT BY THE LD. COUNSEL OF THE ASSESS EE, THIS POSITION WAS CONSIDERED BY THE FULL BENCH OF THE HO NBLE DELHI HIGH COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LT D., 256 ITR 1. BEFORE DISCUSSING ITS DECISION, THE HONBLE DELHI HIGH COU RT HAS EXTRACTED THE FOLLOWING OBSERVATIONS OF HONBLE SUPREME COURT IN THE CASE OF CALCUTTA DISCOUNT CO. LTD., 41 ITR 191(SC) WHICH IS AS UNDER:- IT IS FOR HIM TO DECIDE WHAT INFERENCES OF FACTS C AN BE REASONABLY DRAWN AND WHAT LEGAL INFERENCES HAVE ULTIMATELY TO BE DRAWN. IT IS NOT FOR SOMEBODY ELSE FAR LESS THE ASSESSEE TO TELL THE ASSESSING AUTHORITY WHAT INFERENCES, WHETHER OF FACTS OR LAW, SHOULD BE DRAWN FROM GIVEN FACT , IT WILL BE MEANINGLESS TO DEMAND THAT THE ASSESSEE MUST DISCLOSE WHAT INFERENCES WHETHER OF FACTS OR LAW HE WOULD DRAW FROM THE PRIMARY FACTS. THE SCHEME OF THE LAW CLEARLY IS THAT WHERE THE IN COME-TAX OFFICER HAS REASON TO BELIEVE THAT AN UNDERASSESSME NT HAS RESULTED FROM NON-DISCLOSURE HE SHALL HAVE JURISDIC TION TO START PROCEEDINGS FOR REASSESSMENT WITHIN A PERIOD OF EIG HT YEARS; AND WHERE HE HAS REASON TO BELIEVE THAT AN UNDERASS ESSMENT HAS RESULTED FROM OTHER CAUSES HE SHALL HAVE JURISD ICTION TO START PROCEEDINGS FOR REASSESSMENT WITHIN FOUR YEARS. BO TH THE CONDITIONS, (I) THE INCOME-TAX OFFICER HAVING REASO N TO BELIEVE THAT THERE HAS BEEN UNDERSTATEMENT AND (II) HIS HAV ING REASON TO BELIEVE THAT SUCH UNDERASSESSMENT HAS RESULTED FROM NON- 23 DISCLOSURE OF MATERIAL FACTS, MUST CO-EXIST BEFORE THE INCOME-TAX OFFICER HAS JURISDICTION TO START PROCEEDINGS AFTER THE EXPIRY OF FOUR YEARS. THE ARGUMENT THAT THE COURT OUGHT NOT T O INVESTIGATE THE EXISTENCE OF ONE OF THESE CONDITIONS, VIZ., THA T THE INCOME- TAX OFFICER HAS REASON TO BELIEVE THAT UNDERASSESSM ENT HAS RESULTED FROM NON-DISCLOSURE OF MATERIAL FACTS, CAN NOT THEREFORE BE ACCEPTED. 38. WHILE DEALING WITH THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF PRAFUL CHUNNILAL PATEL (SUPRA ), IT WAS OBSERVED AT PG. 15 OF THE DECISION OF FULL BENCH OF THE HONBLE DELHI HIGH COURT IN THE CASE OF KELVINATOR OF INDIA LTD. 256 ITR 1 AS U NDER:- WE ARE, WITH RESPECT, UNABLE TO SUBSCRIBE TO THE ABOVEMENTIONED VIEW. IF THE CONTENTION OF THE REVE NUE IS ACCEPTED, THE SAME, IN OUR OPINION, WOULD CONFER AN ARBITRARY POWER UPON THE ASSESSING OFFICER. THE ASSESSING OF FICER WHO HAD PASSED THE ORDER OF ASSESSMENT OR EVEN HIS SUCC ESSOR OFFICER ONLY ON THE SLIGHTEST PRETEXT OR OTHERWISE WOULD BE ENTITLED TO REOPEN THE PROCEEDING. ASSESSMENT PROC EEDINGS MAY BE FURTHERMORE REOPENED MORE THAN ONCE. IT IS NOW TRITE THAT WHERE TWO INTERPRETATIONS ARE POSSIBLE, THAT W HICH FULFILS THE PURPOSE AND OBJECT OF THE ACT SHOULD BE PREFERRED. 39. FURTHER, THIS DECISION HAS BEEN RECENTLY CONFIR MED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KELVIN ATOR OF INDIA LTD., 320 ITR 561 (SC).. THE HEAD-NOTE OF THE DECISION I S AS UNDER:- 24 THE CONCEPT OF CHANGE OF OPINION ON THE PART OF THE ASSESSING OFFICER TO REOPEN AN ASSESSMENT DOES NOT STAND OBLITERATED AFTER THE SUBSTITUTION OF SECTION 147 O F THE INCOME- TAX ACT, 1961, BY THE DIRECT TAX LAWS (AMENDMENT) A CTS, 1987 AND 1989. AFTER THE AMENDMENT, THE ASSESSING OFFICE R HAS TO HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSE SSMENT, BUT THIS DOES NOT IMPLY THAT THE ASSESSING OFFICER CAN REOPEN AN ASSESSMENT ON MERE CHANGE OF OPINION. THE CONCEPT OF CHANGE OF OPINION MUST BE TREATED AS AN IN-BUILT TEST TO CHECK THE ABUSE OF POWER. HENCE AFTER APRIL 1,1989, THE ASSESSING OFFICER HAS POWER TO REOPEN AN ASSESSMENT, PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASON MUST HAVE A LINK WITH THE FORMATION OF BELIEF. THUS, IT IS CLEAR THAT THE DECISION OF HONOURABLE G UJARAT HIGH COURT IN THE CASE OF PRAFUL CHEMICAL STANDS OVER RULED. 40. THOUGH THERE ARE VARIOUS AUTHORITIES AVAILABLE FROM VARIOUS HIGH COURTS LIKE CIT VS. ANNAMALAI FINANCE LTD., 275 ITR 451, CIT VS. EICHER LTD. 294 ITR 310, SEIMENS INFORMATION SYSTEM LTD. V S.ACIT, 295 ITR 332 BUT WE ARE OF THE VIEW THAT THERE IS NO NEED TO DISCUSS THEM IN DETAIL. THE SIMPLE FACT REMAINS THAT THE ASSESSMEN T WAS RE-OPENED MAINLY ON THE BASIS OF CHANGE OF OPINION. PARTICULA RLY AFTER FOUR YEARS AND THAT TOO WHEN THERE IS NO FAILURE ON THE PART O F THE ASSESSEE TO DISCLOSE THE RELEVANT FACTS FULLY AND TRULY. SINCE IN THIS CASE, THE ASSESSMENT HAS BEEN RE-OPENED AFTER FOUR YEARS, AND NO MATERIAL HAS BEEN BROUGHT TO OUR KNOWLEDGE SHOWING THAT THERE WA S FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE THE FACTS FULLY AN D TRULY, WE ANNUL THE 25 RE-OPENING PROCEEDINGS. IN THIS REGARD, WE SET ASID E THE ORDER OF THE CIT(A) . IN THE RESULT, THE ASSESSEE APPEAL IS ALLOWED. I.T.A NO. 376/COCH/2009: 41. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN HOLDING THAT DG POWER GENERATION UNITS I & II CONST ITUTED AN UNDERTAKING IN TERMS OF SUB-SECTION 4(IV) OF SECT ION 80IA OF THE INCOME TAX ACT. HE OUGHT TO HAVE HELD THAT NO UNDERTAKING ELIGIBLE FOR DEDUCTION U/S. 80IA WAS IN EXISTENCE. 42 . AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE OR IGINALLY DEDUCTION WAS ALLOWED U/S. 80IA IN RESPECT OF DG PO WER UNIT BUT LATER ON THE SAME WAS DISALLOWED BY REOPENING THE ASSESSM ENTS. 43. AFTER HEARING BOTH THE PARTIES, WE FIND THAT IT WAS NOTED BY THE AO THAT DURING THE ASSESSMENT YEAR, 2005-06, WHERE IT WAS OBSERVED BY GOING THROUGH THE ANNUAL REPORT AND COST AUDIT R EPORT THAT THE NEW POWER GENERATION UNIT I & II WAS NEVER SHOWN AS A U NIT OF APOLLO TYRES. IN FACT IN THE ANNEXURES TO THE DIRECTORS RE PORT FOR 1999-2000, IT WAS MENTIONED THAT THE DG SET WAS INSTALLED ONLY AS AN ENERGY CONSERVATION MEASURE IMPLEMENTED AT ITS VADODARA PL ANT. ON ENQUIRY IT WAS FOUND THAT NOWHERE IT HAS BEEN MENTIONED THA T A NEW UNDERTAKING TO GENERATE ELECTRICITY HAS BEEN LAUNCH ED BY THE ASSESSEE. 26 ACCORDINGLY, THE AO HELD THAT THE PROFIT FROM THE UNDERTAKING CANNOT MATERIALISE AND THE SAME WOULD NOT QUALIFY FOR DEDUCTION UNDER SECTION 80IA. WHEN THE ASSESSEE WAS ASKED TO EXPL AIN WHY DEDUCTIONS UNDER SECTION 80IA SHOULD NOT BE DENIED, IN RESPONSE IT WAS SUBMITTED THAT THE DG SETS WERE INSTALLED WITH THE INTENTION OF GENERATING POWER FOR CAPTIVE CONSUMPTION FOR THE EX ISTING TYRE MANUFACTURING PLANT AT BARODA. POWER GENERATED FROM SUCH DG SETS WAS NOT SOLD /TRANSFERRED TO ANY OTHER PERSONS. H ENCE, IT SHOULD BE TREATED AS A SEPARATE INDUSTRIAL UNDERTAKING. THE DG SETS INSTALLED ARE NEW AND NO PLANT AND MACHINERY HAS BEEN TRANSFERRED FROM THE EXISTING UNIT TO THE NEW UNDERTAKING. IT WAS SUBMI TTED THAT THE UNDERTAKING HAS STARTED GENERATION OF ELECTRICITY W ITH THE APPROVAL OF THE CONCERNED AUTHORITIES. IT WAS POINTED OUT THAT THESE UNITS ARE GENERATING POWER WITH SEPARATE PHYSICAL EXISTENCE D ISTINCT AND SEPARATE FROM THE EXISTING UNDERTAKING WHICH IS ONL Y FOR TYRE MANUFACTURE. THE DG SETS WERE INSTALLED IN A SEPAR ATE BUILDING IN THE SAME COMPOUND. THE DG SETS WERE CAPABLE OF GENERATI NG POWER REQUIRED FOR THE ENTIRE TYRE MANUFACTURING FACILITY . THE DEPARTMENT WAS FULLY SATISFIED WITH THE PLANTS AS THEY HAVE CO MPLIED WITH THE CONDITIONS SPECIFIED IN THE ACT AND THAT IS WHY DED UCTION WAS GRANTED IN THE PRIOR YEARS. REFERENCE WAS ALSO MADE TO CIRC ULAR ISSUED BY CENTRAL BOARD OF DIRECT TAXES (CBDT) TO INDIAN MERC HANTS CHAMBER IN WHICH IT WAS EMPHASISED THAT IN THE CASE OF A CAPTI VE POWER UNIT, THE PROVISION OF LAW REGARDING DEDUCTION UNDER SECTION 80IA WAS THE SAME. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD. V S. CIT, 107 ITR 195 (SC) WHEREIN THE COURT CONSIDERED THE QUESTION WHET HER THE UNIT SET UP TO MANUFACTURE MATERIALS FOR CONSUMPTION IN THE EXISTING UNIT IS 27 ELIGIBLE FOR DEDUCTION UNDER SECTION 15C OF THE INC OME TAX ACT, 1922. IT WAS ALSO HELD IN THIS CASE THAT THE PRODUCTS MAY BE CONSUMED BY THE ASSESSEE IN HIS OLD BUSINESS OR MAY BE SOLD IN THE OPEN MARKET, BUT STILL DEDUCTION WAS ALLOWABLE. IT WAS FURTHER POIN TED OUT THAT THESE DECISIONS HAVE BEEN FOLLOWED BY VARIOUS HIGH COURTS WHICH ARE AS UNDER:- I. CIT VS. MADRAS RUBBER FACTORY, 149 ITR 405 (MAD.). NEW UNIT WAS SET UP ESSENTIALLY TO GIVE MASTICATED RUBBER TO THE TYRE MANUFACTURING FACTORY WHICH WAS BEING PURCHASED FRO M OUTSIDERS EARLIER. EXEMPTION UNDER SECTION 80J WAS H ELD TO BE ALLOWABLE. II. CIT VS. SAHNEY STEEL & PRESS WORKS LTD., 177 ITR 35 4 (BOM.). A NEW UNDERTAKING PRODUCING ARTICLES FOR USE IN EXIST ING INDUSTRY HELD ALLOWABLE FOR DEDUCTION UNDER SECTION 80J. 44. IT WAS ALSO POINTED OUT THAT THERE WAS A SEPARA TE LEDGER ACCOUNTS FOR THESE DG SETS AND SEPARATE FINANCIAL S TATEMENTS WERE DRAWN UP WHICH WAS DULY AUDITED BY THE CHARTERED AC COUNTANTS. THE AO WAS NOT SATISFIED AND AFTER FURTHER ENQUIRY, A L ETTER WAS ISSUED ON 26.12.2007. THROUGH THIS LETTER, IT WAS COMMUNICAT ED TO THE ASSESSEE THAT THE ASSESSEE WAS NOT HAVING A SEPARATE INDUSTR IAL UNDERTAKING AND THE SO CALLED DG POWER GENERATING UNIT I AND UNIT I I WERE ONLY TWO PLANTS INSTALLED IN YOUR LIMDA UNIT. SINCE THE PERM ISSION OF THE GUJARAT ELECTRICITY BOARD WAS GIVEN ONLY FOR INSTALLING A CA PTIVE POWER PLANT, IT COULD NOT BE TREATED AS A SEPARATE INDUSTRIAL UNDER TAKING. THE ELECTRICITY HAS NOT BEEN TREATED AS THE END PRODUCT . AGAIN, IN RESPONSE 28 TO THIS LETTER, EARLIER SUBMISSIONS WERE REITERATED AND IT WAS EMPHASIZED THAT SUBSTANTIAL CAPITAL OUTLAY HAD BEEN INCURRED FOR SETTING UP THESE DG UNITS AND ALL THE PLANT AND MAC HINERY FOR THE DG UNITS WERE NEW AND WERE NOT FORMED BY SPLITTING UP OR REORGANIZING THE EXISTING FACTORY. OUTPUT OF THIS UNDERTAKING I S DIFFERENT FROM THE TYRES MANUFACTURED BY THE ASSESSEE AND THEREFORE, T HERE IS NO MIX UP OF THE FACILITIES AND ULTIMATELY, IT WAS EMPHASIZED THAT IT WAS A SEPARATE UNDERTAKING ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IA. 45. THE AO AFTER CONSIDERING ALL THE SUBMISSIONS OB SERVED THAT IN VIEW OF THE ANNUAL REPORT COMMENTS, THIS COULD NOT BE TREATED AS A SEPARATE UNDERTAKING. THE CONSENT LETTER FROM THE GUJARAT ELECTRICITY BOARD WAS ALSO SHOWING THAT PERMISSION WAS GRANTED ONLY FOR INSTALLATION OF CAPTIVE POWER PLANT IN YOUR TYRE MA NUFACTURING PLANT AT LIMDA AT BARODA AND IT WAS CLEAR THIS WAS A PART OF THE EXISTING UNDERTAKING. IN THIS BACKGROUND, DEDUCTION UNDER S ECTION 80IA WAS DENIED. 46. ON APPEAL, THE LD. CIT(A) ALLOWED THE DEDUCTION UNDER SECTION 80IA FOLLOWING THE ORDER FOR THE ASSESSMENT YEAR, 2 005-06 IN I.T.A. NO. 59/R-I/E/CIT-II/07-08 DATED 26.3.2008. 47. BEFORE US THE LD. CIT-DR SUBMITTED THAT SINCE T HE POWER GENERATED THROUGH THESE DG UNITS WAS CONSUMED BY TH E ASSESSEE IN ITS TYRE PLANT, AND THEREFORE, THESE DG UNITS COULD NOT BE REGARDED AS INDEPENDENT INDUSTRIAL UNDERTAKING. HE ARGUED THAT THE DG SETS WERE INSTALLED IN THE SAME PREMISES OF LIMDA UNIT WHICH WAS MANUFACTURING TYRES. NO SEPARATE LAND WAS PURCHASED FOR THESE DG UNITS. THUS IT 29 SHOWS THAT IT WAS A CASE OF RECONSTRUCTION. HE ALS O STRONGLY SUPPORTED THE ORDER OF THE AO AND RELIED ON THE OBSERVATIONS MADE IN THAT ORDER. 48. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE ASSESSEE COMPANY HAD THE POWER TO CARRY ON THE BUSINESS OF ELECTRICITY GENERATION AND IN THIS REGARD HE REFERR ED TO PG.90 OF THE PAPER BOOK, WHICH IS THE COPY OF MEMORANDUM AND ART ICLES OF ASSOCIATION OF THE COMPANY. HE BROUGHT TO OUR ATTE NTION, CLAUSE 12 OF THE OTHER OBJECTS CLAUSE WHICH IS GIVEN AT PAGE 7 A ND READS AS UNDER:- TO CARRY ON BUSINESS OF AN ELECTRIC POWER, LIGHT, AND SUPPLY COMPANY IN ALL ITS BRANCHES IN ACCORDANCE WITH THE LAW IN FORCE FOR THE TIME BEING 49. THEREFORE, IT IS VERY CLEAR THAT THE ASSESSEE C OMPANYS ONE OF THE OBJECT IS POWER GENERATION. HE ARGUED THAT THO UGH UNDERTAKING IS NOT DEFINED IN THE ACT, BUT THIS CONCEPT HAS BEE N INTERPRETED BY VARIOUS COURTS AND IN REFERENCE TO SOME OF THE SAME , IT HAS TO BE UNDERSTOOD AS A SEPARATE SET UP OF BUSINESS. KEEPIN G THIS CONCEPT IN MIND, THE SETTING UP OF THE DG SETS HAS TO BE TREAT ED AS AN UNDERTAKING BECAUSE THIS IS DEFINITELY A SEPARATE S ET UP FOR WHICH A SEPARATE BUILDING WAS CONSTRUCTED AND NEW MACHINERY WAS PURCHASED. THOUGH SUCH BUILDING WAS CONSTRUCTED IN THE VACANT LAND ALREADY THERE IN THE BARODA PLANT BUT SINCE NO OLD MACHINERY IN T HE EXISTING PLANT HAS BEEN USED, THEREFORE, IT CANNOT BE CALLED AS A FORM ATION OF A NEW UNIT BY REORGANIZING THE EXISTING ACTIVITIES. PERMISSION FROM THE GUJARAT GOVERNMENT WAS TAKEN FOR STARTING THESE DG UNITS AN D COPY OF THE PERMISSION WAS SUBMITTED BEFORE THE LOWER AUTHORITI ES. HE THEN 30 REFERRED TO THE JUDGMENT OF THE HONBLE SUPREME COU RT IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD. VS. CIT (SUPRA) WHEREIN IT WAS CLEARLY OBSERVED THAT THE CONCEPT OF RECONSTRUCTION OF BUSINESS WOULD NOT BE ATTRACTED WHEN A COMPANY WHICH IS ALREADY RU NNING ONE INDUSTRIAL UNIT, SETS UP ANOTHER INDUSTRIAL UNIT. THE NEW INDUSTRIAL UNIT WOULD NOT LOSE ITS SEPARATE AND INDEPENDENT IDENTIT Y EVEN THOUGH IT HAS BEEN SET UP BY A COMPANY WHICH IS ALREADY RUNNI NG AN INDUSTRIAL UNIT BEFORE SETTING UP OF A NEW UNIT. 50. HE FURTHER SUBMITTED THAT DEDUCTION HAS BEEN MA INLY DENIED BY THE DEPARTMENT BECAUSE POWER GENERATION FROM THESE UNITS WAS BEING CONSUMED BY THE ASSESSEE IN ITS OWN TYRE MANUFACTUR ING FACILITY BUT EVEN IF SUCH POWER IS CONSUMED ON CAPTIVE BASIS, EV EN THEN THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80I A. THE BOARD HAS ALREADY CLARIFIED THE SITUATION IN THE CIRCULAR ISS UED TO THE INDIAN MERCHANTS CHAMBERS ON 3 RD OCTOBER, 2001, COPY OF WHICH IS PLACED AT PGS. 17 AND 18 OF THE PAPER BOOK. WHILE CONCLUDING HIS ARGUMENT, HE SUBMITTED THAT THE ISSUE IN THE APPEAL BY THE REVEN UE HAS ALREADY BEEN ANSWERED IN FAVOUR OF THE ASSESSEE BY THE MUMB AI BENCH OF THE TRIBUNAL IN THE CASE OF WEST COAST PAPER MILLS VS. ACIT, 103 ITD 19 WHEREIN THE ASSESSEE HAD INSTALLED FOUR DG UNITS FO R GENERATION OF POWER WHICH WAS USED TO MEET THE REQUIREMENTS OF PO WER IN ITS UNIT OF PAPER MILLS AND DEDUCTION UNDER SECTION 80IA WAS DE NIED TO THE POWER UNITS. THE TRIBUNAL HELD THAT SUCH POWER UNITS WER E ENTITLED TO DEDUCTION UNDER SECTION 80IA. 51. IN A REJOINDER, THE CIT-DR SUBMITTED THAT BAROD A UNIT WAS ALREADY AN EXISTING UNIT AND THEREFORE, IT CANNOT B E SAID THAT A NEW UNIT HAS BEEN SET UP BY THE ASSESSEE. THEN HE REFERRED T O PG. 12 OF THE 31 PAPER BOOK IN I.T.A. NO. 274/COCH/2005 WHICH IS A C OPY OF THE STATEMENT SHOWING ESTIMATE OF TRANSFER PRICE FOR A RRIVING AT THE NOTIONAL INCOME AND ARGUED THAT THE HEADING OF THE STATEMENT ITSELF SHOWS THAT IT WAS A CASE OF NOTIONAL SALES AND THER EFORE, SUCH UNDERTAKING COULD NOT BE SAID TO HAVE GENERATED ANY PROFITS AS POWER WAS BEING USED IN THE ASSESSEES OWN TYRE MANUFACTU RING UNIT AS CAPTIVE CONSUMPTION. HE ALSO REFERRED TO THE BOARD S CIRCULAR AND POINTED OUT THAT NO SEPARATE DEDUCTION HAS BEEN ALL OWED BY THE BOARD IN THE CASE OF CAPTIVE POWER PLANTS AND THEREFORE, THE CIRCULAR WAS NOT OF MUCH USE TO THE ASSESSEE. 52. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL ON RECORD INCLUDING THE DECISIONS CITED BY THE PARTIES. WE FIND THAT THERE IS SEPARATE UNDERTAKING AND THE POWER IS BEING CONSUMED BY THE ASSESSEE COMPANY ON A CAPTIVE BASIS IN ITS O WN TYRE MANUFACTURING UNIT. THE LD. CIT DR HAS EMPHASISED T HAT NO SEPARATE UNDERTAKING HAS BEEN STARTED BUT IT HAS NOT BEEN DE NIED THAT NEW DG SETS WERE PURCHASED BY THE ASSESSEE COMPANY AND THE SAME WAS INSTALLED AFTER OBTAINING THE APPROVAL OF THE STATE ELECTRICITY BOARD. THUS THE DG SETS WERE PUT UP IN A SEPARATE BUILDING . THEREFORE, THE SAME CANNOT BE CALLED AS A RECONSTRUCTION OF THE OL D UNIT. THE HONBLE SUPREME COURT IN THE CASE OF TEXTILE MACHINERY CORP ORATION LTD. VS. CIT (SUPRA), WHILE DEALING WITH THE ISSUE OF RECONS TRUCTION, HAS OBSERVED AS UNDER:- RECONSTRUCTION OF BUSINESS INVOLVES THE IDEA OF SU BSTANTIALLY THE SAME PERSONS CARRYING ON SUBSTANTIALLY THE SAME BUS INESS. IT IS STATED ON BEHALF OF THE REVENUE THAT THE SAME COMPA NY IN THE 32 INSTANT CASE CONTINUES TO DO THE SAME BUSINESS OF H EAVY ENGINEERING NO MATTER CERTAIN SPARE PARTS NECESSA RY AS COMPONENTS TO COMPLETION OF THE END PRODUCT ARE NOW MANUFACTURED IN THE BUSINESS ITSELF. THE FACT THAT THE ASSESSEE IS CARRYING ON THE GENERAL BUSINESS OF HEAVY ENGINE ERING WILL NOT PREVENT HIM FROM SETTING UP NEW INDUSTRIAL UNDERTAK INGS AND FROM CLAIMING BENEFIT U/S. 15C IF THAT SECTION IS O THERWISE APPLICABLE. HOWEVER, IN ORDER TO BE ENTITLED TO TH E BENEFIT U/S.15C THE FOLLOWING FACTS HAVE TO BE ESTABLISHED BY THE ASSESSEE, SUBJECT ALWAYS TO TIME-SCHEDULE IN THE SE CTION. 1) INVESTMENT OF SUBSTANTIAL FRESH CAPITAL IN THE INDU STRIAL UNDERTAKING SET UP, 2) EMPLOYMENT OF REQUISITE LABOUR THEREIN, 3) MANUFACTURE OR PRODUCTION OF ARTICLES IN THE SAID U NDERTAKING, 4) EARNING OF PROFITS CLEARLY ATTRIBUTABLE TO THE SAID NEW UNDERTAKING, AND, 5) ABOVE ALL, A SEPARATE AND DISTINCT IDENTITY OF THE INDUSTRIAL UNIT SE UP. WE MAY ADD THAT THERE IS NO BAR TO AN ASSESSEE CARR YING ON A PARTICULAR BUSINESS TO SET UP A NEW INDUSTRIAL UNDE RTAKING ON ACCOUNT OF WHICH EXEMPTION OF TAX U/S. 15C MAY BE C LAIMED. IT HAS BEEN CLEARLY OBSERVED THAT EVEN IF THE COMMO DITIES PRODUCED BY THE NEW UNITS WERE CONSUMED BY THE OLD UNITS, EVEN THEN DEDUCTION UNDER SECTION 15C OF THE OLD ACT WERE ALLOWABLE. T HEREFORE, IN VIEW OF THE ABOVE OBSERVATION, THE ASSESSEES DG UNITS CANN OT BE CALLED RECONSTRUCTION OF THE OLD UNIT AND THEY ARE DEFINIT ELY NEW UNITS. 33 53. THE SECOND ASPECT WHICH HAS BEEN EMPHASIZED BY THE REVENUE IS THAT THERE IS NO SALE OF POWER TO ANY OUTSIDER. IN THIS REGARD, WE WOULD LIKE TO REFER TO THE BOARDS CIRCULAR WHICH W AS ISSUED TO INDIAN MERCHANTS CHAMBERS WHICH IS AS UNDER:- MOST IMMEDIATE BY SPEED POST F.NO. 178/28/2001-I.T.A.1 GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES NEW DELHI, THE 3 RD OCTOBER, 2001 TO, THE SECRETARY-GENERAL, INDIAN MERCHANTS CHAMBER, LNM IMV BUILDING, P.B. NO. 11211, CHURCHGATE, MUMBAI-400 020. SUBJECT: SECTION 80IAOF THE INCOME-TAX ACT, 1961- INDUSTRIAL UNDERTAKINGS ENGAGED IN THE BUSINESS OF GENERATION OF CAPTIVE POWER. SIR, I AM DIRECTED TO REFER TO YOUR LETTER NO. 36 2 DATED 23 RD MAY, 2001 ON THE ABOVE MENTIONED SUBJECT. 2. I AM DIRECTED TO SAY THAT BOARD EXAMINED THE ABOVE MATTER AND ARE OF THE VIEW THAT IF AN UNDERTAKING, WHICH IS S ET UP IN ANY PART OF INDIA FOR THE GENERATION OR GENERATION AND DISTRIB UTION OF POWER, BEGINS TO GENERATE POWER AT ANY TIME DURING THE PER IOD BEGINNING ON THE 1 ST DAY OF APRIL 1993 AND ENDING ON THE 31 ST DAY OF MARCH, 2006 WILL 34 BE ELIGIBLE FOR THE BENEFIT OF DEDUCTION U/S. 80-IA . IN CASE OF A CAPTIVE POWER UNIT, THE PROVISION OF LAW IS ALSO THE SAME. 3. THERE MAY BE A CASE WHERE A CAPTIVE POWER PLANT IS SET UP BY AN UNDERTAKING WHICH IS DIFFERENT FROM THE UNDERTAKING MAKING USE OF THE POWER GENERATED. AS LONG AS THE TWO UNDERTAKINGS AR E DISTINCT AND SEPARATE AND THERE IS AN ELEMENT OF COMMERCIAL PROF IT AND GAINS BY THE POWER GENERATING UNDERTAKING FROM THE INDUSTRIAL US ER, THE PROVISIONS OF THE ACT WITH REFERENCE TO THE BENEFIT OF DEDUCTI ON U/S. 80-IA TO SUCH UNDERTAKING, WOULD BE AVAILABLE, WITHIN THE FRAMEWO RK OF LAW AND SUBJECT TO THE FOLLOWING:- (I) THE TAX HOLIDAY PROVISIONS U/S. 80-IA COME INT O EFFECT FROM THE DATE SUCH AN UNDERTAKING BEGINS TO GENERATE POWER. IN A CAPTIVE POWER PLANT, THE DATE OF GENERATION MAY REQUIRE DET ERMINATION BY THE ASSESSING OFFICER WITH REFERENCE TO THE INITIAL DATE ON WHICH SUCH CAPTIVE POWER PLANT STARTS GENERATION. (II) WHERE A CAPTIVE POWER PLANT IS MERELY HIVED OF F AS A SEPARATE ENTITY AND NOT SOLD TO A THIRD PARTY, OWING TO THE CLOSE C ONNECTION BETWEEN THE POWER GENERATING UNDERTAKING AND ITS IN DUSTRIAL USER UNDERTAKING, THE TRANSACTIONS WOULD REQUIRE EXAMINA TION AT THE LEVEL OF ASSESSING OFFICER TO ENSURE THAT THEY ARE ARMS LENGTH AND THAT THE PROVISIONS OF SUB-SECTION (8) OF SECTION 8 0-IA ARE NOT ATTRACTED ADVERSELY. 35 (III) ANY GRANT OF DEDUCTION U/S. 80IA OF THE INCOM E-TAX ACT, 1961 SHOULD NOT BE TAKEN TO LEGITIMIZE SOMETHING NOT PER MISSIBLE UNDER THE PROVISIONS OF THE ELECTRICITY SUPPLY ACT AND REL ATED LAWS OF VARIOUS STATES AND THE UNION. - (IV) WHERE AN UNDERTAKING GENERATING CAPTIVE POWER FOR THE EXCLUSIVE USE OF ANOTHER INDUSTRIAL UNDERTAKING CLAIMS THE BE NEFIT OF DEDUCTION U/S. 80IA, THE INDUSTRIAL USER UNDERTAKIN G WILL NOT BE ELIGIBLE FOR CLAIMING SIMILAR DEDUCTION IN RESPECT OF THE AFORESAID POWER GENERATING PLANT. FURTHER, THE USER UNDERTAKI NG SHOULD ALSO NOT DEBIT THE EXPENDITURE INCURRED BY THE CAPTIVE P OWER GENERATING UNDERTAKING IN ITS OWN PROFIT AND LOSS A/C. SD/- UNDER SECRETARY TO THE GOVT. OF INDIA 54 . THE ABOVE VERY CLEARLY SHOWS PARTICULARLY PARA-3 TH AT EVEN IN THE CASE OF CAPTIVE POWER CONSUMPTION AS LONG AS IT IS A SEPARATE UNIT, DEDUCTION HAS TO BE ALLOWED. IN FACT THIS PRINCIPL E WAS LAID DOWN IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD. VS. CIT (SUPRA) BY THE HONBLE SUPREME COURT ITSELF LONG BACK. IN ANY CAS E, AN IDENTICAL ISSUE REGARDING DEDUCTION UNDER SECTION 80IA IN RESPECT O F FOUR POWER UNITS WHEREIN POWER WAS USED IN THE ASSESSEES OWN UNITS FOR MANUFACTURING OF PAPER, CAME UP FOR CONSIDERATION OF THE MUMBAI B ENCH OF THE TRIBUNAL IN THE CASE OF WEST COAST PAPER MILLS LTD. VS. ACIT (SUPRA). IN THAT CASE, IT WAS HELD BY PARA-6 AS UNDER:- WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE RECORDS, INCLUDING THE VOLUMINOUS PAPER BOOK 36 FILED BY THE ASSESSEE. THE ASSESSEE, ALTHOUGH ENGA GED IN THE MANUFACTURE AND SALE OF PAPER AND PAPER BOARDS, MUL TI-LAYER BOARDS, ETC., WAS ALSO INTO THE BUSINESS OF POWER G ENERATION RIGHT FROM THE ASSESSMENT YEAR 1996-97. THE FINDIN GS IN THE IMPUGNED ORDER ARE CLEARLY UNASSAILABLE. THE ASSESS EE HAS FROM TIME TO TIME RIGHT FROM THE ASSESSMENT YEAR 1996-97 SET UP FOUR SUCH UNITS TO FACILITATE ITS POWER REQUIREMENT IN T HE PAPER PLANT AT DANDELI IN KARNATAKA STATE. THE ASSESSEE, AS THE RECORDS SHOW, MADE SUBSTANTIAL CAPITAL OUTLAYS FOR THIS PUR POSE. THIS ONLY CONFIRMS THAT ASSESSEE WAS IN THE BUSINESS OF GENERATION OF POWER. NOW THE QUESTION IS WHETHER THE ASSESSEES C LAIM FOR DEDUCTION U/S. 80IA OF THE ACT COULD BE DENIED MERE LY ON THE GROUND THAT THESE D.G. UNITS WERE CATERING TO THE C APTIVE POWER REQUIREMENT. AS THE ASSESSING OFFICER PUTS IT, IF T HE ASSESSEE HAS NOT REALIZED ANY REVENUE BY SELLING THE POWER TO OU TSIDERS, CAN THE ASSESSEE BE HELD TO BE ENTITLED FOR DEDUCTION U/S. 80-IA OF THE ACT? THE ASSESSING OFFICER WAS OF THE VIEW THAT IT IS ONLY AN INTER-DIVISION TRANSFER AND THERE WAS NO REVENUE RE ALIZED BY IT AND CONSEQUENTLY THERE WAS NO DERIVATION OF PROFIT OR INCOME IN THE BUSINESS OF INDUSTRIAL UNDERTAKING. THE QUES TION RAISED BY THE ASSESSING OFFICER HAS ALL BEEN ANSWERED BY THE SUPREME COURT IN THE CASE OF ORIENT PAPER MILLS LTD. (SUPRA ). THIS DECISION OF THE SUPREME COURT DOES NOT BRING OUT THE FACTS. IT HAS ONLY AFFIRMED THE DECISION OF THE CALCUTTA HIGH COURT IN CIT VS. ORIENT PAPER MILLS LTD. (1974) 94 ITR 73. THE FACTS COULD ONLY BE FOUND IN THIS JUDGMENT OF THE CALCUTTA HIG H COURT. THE ASSESSEE IN THAT CASE OWNED A PAPER MILL. IT SET U P A PLANT FOR THE MANUFACTURE OF CAUSTIC SODA, AN ESSENTIAL CHEMI CAL FOR USE 37 IN THE PROCESS OF MANUFACTURE OF PAPER. THE ASSES SEE OBTAINED A SEPARATE LICENCE FOR THE MANUFACTURE OF CAUSTIC S ODA AND THE PLANT WAS HOUSED IN A SEPARATE BUILDING. THE INCOME -TAX OFFICER IN THAT CASE HELD THAT THE CAUSTIC SODA PLANT WAS A NCILLARY TO THE MAIN MANUFACTURING UNIT AND NO PART OF CAUSTIC SODA WAS SOLD TO ANY OUTSIDER AND THEREFORE NO RELIEF COULD BE CLAIM ED BY THE ASSESSEE U/S. 15C OF THE 1922 ACT. THE MATERIAL PRO DUCED IN THE PLANT WAS USED FOR CAPTIVE CONSUMPTION. BEFORE THE TRIBUNAL IT WAS CONTENDED BY THE REVENUE THAT THE LANGUAGE USED IN SECTION 15C WAS PROFIT AND GAIN DERIVED FROM AN I NDUSTRIAL UNDERTAKING. UNLESS THE PROFITS AROSE BY THE SALE OF THE PRODUCT OF THE NEW PLANT, NO PROFIT COULD BE SAID TO HAVE B EEN DERIVED. THE ARGUMENT WAS THAT PROFIT SHOULD BE DIRECTLY DER IVED AND NOT INDIRECTLY OR DEEMED TO BE DERIVED. THE TRIBUNAL DI D NOT ACCEPT THESE SUBMISSIONS OF THE REVENUE AND PROCEEDED TO G RANT THE RELIEF. THE HONBLE CALCUTTA HIGH COURT CONFIRMED THE ORDER OF THE TRIBUNAL AND THE APEX COURT HAS DISMISSED THE A PPEAL OF THE REVENUE BY TAKING SUPPORT FROM ITS OWN DECISION IN TEXTILE MACHINERY CORPORATION LTD.S CASE (SUPRA) AND CIT V S. INDIAN ALUMINIUM CO.LTD. (1977) 108 ITR 367 (SC). THEREFOR E, THE STAND OF THE ASSESSING OFFICER CANNOT BE ACCEPTED. AGAIN THE CALCUTTA HIGH COURT WAS FACED WITH THE SAME SET OF FACTS IN THE CASE OF HINDUSTHAN MOTORS LTD. (SUPRA). THE ASS ESSEE IN THAT CASE WAS ENGAGED IN THE MANUFACTURE OF MOTOR C ARS. IT ESTABLISHED CERTAIN ANCILLARY UNITS. THE ASSESSING OFFICER REPEATED HIS FINDINGS ON THE SAME LINE AS HE DID IN THE CASE OF ORIENT PAPER MILLS LTD. (SUPRA) AND DENIED THE RELI EF U/S. 80E OF THE 1961 ACT. THE CALCUTTA HIGH COURT HELD THAT AS SESSEE IS 38 ENTITLED TO SUCH RELIEF IRRESPECTIVE OF WHETHER THE ANCILLARIES MANUFACTURED WERE SOLD BY THE ASSESSEE TO OUTSIDERS OR WERE USED BY IT FOR ITS OWN MANUFACTURE OF CARS. SIMILAR LY, THE BOMBAY HIGH COURT IN SAHNEY STEEL AND PRESS WORK LT D.S CASE (SUPRA), THE ASSESSING OFFICER DENIED A SIMILAR CLA IM U/S. 80J OF THE ACT ON THE GROUND THAT THE NEW UNIT WAS MANUFAC TURING ARTICLES TO BE USED AS RAW MATERIAL FOR THE EXISTIN G BUSINESS OF THE ASSESSEE. THE BOMBAY HIGH COURT HELD THAT THE FACT THAT NEW UNIT MANUFACTURED ARTICLES USED IN THE EXISTING BUSINESS OF THE ASSESSEE WAS NOT RELEVANT AND THE ASSESSEE WAS HELD TO BE ENTITLED FOR RELIEF U/S. 80J OF THE ACT. IN THE LIG HT OF THESE DECISIONS, WE ARE OF THE OPINION THAT THE CLAIM OF THE ASSESSEE CANNOT BE DENIED ONLY ON THE GROUND THAT THE DG SET S MANUFACTURED THE POWER ONLY FOR THE CAPTIVE CONSUM PTION OF THE ASSESSEE. IT MAY BE STATED THAT THE TRIBUNAL IN THE ASSESSMENT YEARS 1997-98 AND 1998-99 HAS ALREADY GR ANTED RELIEF IN RESPECT OF UNIT NOS. I AND II WHICH WERE ESTABLISHED FOR THE PURPOSE OF CAPTIVE CONSUMPTION. MOREOVER, THE P ROVISION OF SECTION 80I-A(8) ITSELF SAYS THAT WHERE ANY GOODS OR SERVICE OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE AND THE CONSIDERATION I F ANY, FOR SUCH TRANSFER IS RECORDED IN THE ACCOUNTS OF THE EL IGIBLE BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOO DS OR SERVICES AS ON THE DATE OF TRANSFER, THEN FOR THE P URPOSE OF DEDUCTION UNDER THAT SECTION, THE PROFIT AND GAIN F OR SUCH TRANSFERRED BUSINESS SHALL BE COMPUTED AS IF THE TR ANSFER HAS BEEN MADE AT MARKET VALUE AS ON THAT DATE. IN OTHE R WORDS, THE PROVISIONS OF SECTION 80IA THEMSELVES PROVIDE A N ANSWER 39 AND GIVE A SOLUTION WHERE THERE IS A CAPTIVE CONSUM PTION OF THE FINISHED GOODS OF THE ELIGIBLE UNITS. IN THE LIGHT OF THESE DISCUSSION, THE ORDER OF THE CIT(A) GRANTING 80IA R ELIEF IN RESPECT OF DG UNITS I,II, III & IV CANNOT BE FOUND FAULT WITH. THE OTHER CONSIDERATION THAT THE ASSESSEE HAS NOT O PERATED THESE UNITS BY ITSELF BUT GOT THEM OPERATED THROUGH OUTSIDERS AND THEREFORE THE ASSESSEE IS NOT ENTITLED TO 80IA RELIEF, IN OUR VIEW, IS NOT A RIGHT APPROACH. SUCH CONSIDERATION, IN OUR OPINION, IS NOT A RELEVANT CONSIDERATION. KEEPING IN VIEW, T HE PURPOSE AND INTENT OF THE RELIEF UNDER SECTION 80IA, SUCH C ONSIDERATION, IN OUR OPINION, IS NOT GERMANE FROM THE PROVISIONS OF SECTION 80IA OF THE ACT. 55. THE FACTS BEFORE US ARE ALMOST IDENTICAL IN THE SENSE THAT IN THE CASE BEFORE US ALSO POWER GENERATED FROM THE DG UNI TS HAS BEEN USED BY THE ASSESSEE COMPANY FOR THE PURPOSE OF TYRE MAN UFACTURING UNITS ON A CAPTIVE BASIS. RESPECTFULLY FOLLOWING THE ABO VE DECISION, WE ARE OF THE VIEW THAT THE ASSESSEE COMPANY IS ENTITLED T O DEDUCTION UNDER SECTION 80IA IN RESPECT OF THE NEW DG POWER UNITS. UNDER THE CIRCUMSTANCES, WE FIND NOTHING WRONG WITH THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SAME. 56. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D.. I.T.A. 539/COCH/2005: 57. IN THIS APPEAL THE REVENUE HAS RAISED FOLLOWING GROUND:- 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN DIRECTING THE ASSESSING OFFICER TO DECIDE THE ISSUE S OF (1) 40 DEPRECIATION OF INTEREST AND PROCESSING CHARGES,(2) DISALLOWANCE OUT OF GENERAL EXPENSES AND (3) RENTAL INCOME AFTER VERIFYING THE DETAILS AND CONSIDERING THE RELEVANT PROVISIONS OF THE LAW. HE OUGHT TO HAVE NOTICED THAT THIS TANTAMOUTNS TO SETTING ASIDE OF THE CASE, FOR WHICH HE HAS NO POWER. HE OUGHT TO HAVE DECIDED THE MATTER AFTER VERIFYING THE DETAILS OR GETTING IT VERIFIED THROUGH A REMAND ORDER. 58. THE LD. CIT-DR REFERRED TO PG. 27 OF THE APPELL ATE ORDER AND POINTED OUT THAT A READING OF PARA 27(III) WOULD SH OW THAT EFFECTIVELY THE CIT HAS SET ASIDE THE MATTER TO THE FILE OF THE AO AND THEN HE BROUGHT TO OUR ATTENTION THE AMENDMENT MADE U/S. 25 1 WHICH DEALS WITH THE POWERS OF THE COMMISSIONER, WHEREIN WORDS OR HE MAY SET ASIDE HAS BEEN OMITTED BY THE FINANCE ACT, 2001 WI TH EFFECT FROM 1.6.2001. HE SUBMITTED THAT THUS IT IS CLEAR THAT T HE FIRST APPELLATE AUTHORITY, I.E., THE COMMISSIONER OF INCOME-TAX(APP EALS) NO MORE HAS THE POWER TO SET ASIDE THE ORDER OF THE AO ON ANY O F THE ISSUES. SINCE THE APPELLATE ORDER WAS PASSED ON 31.12.2004, THERE FORE, HE HAD NO POWERS TO SET ASIDE. 59. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE, SHRI CHOPRA TRIED TO ARGUE THAT THE POWERS OF THE CIT(A) ARE CO -TERMINUS WITH THAT OF THE AO AND THEREFORE, POWERS TO SET ASIDE SHOULD NOT HAVE BEEN WITHDRAWN AND IN THIS CONNECTION, HE REFERRED TO SO ME CASE LAWS ALSO. HOWEVER, IN THE END, HE AGREED THAT HE WOULD HAVE N O OBJECTION IF THE MATTER IS SET ASIDE TO THE FILE OF THE CIT(A) WITH A DIRECTION TO ADJUDICATE THE SAME AFRESH AFTER OBTAINING THE REM AND REPORT FROM THE ASSESSING OFFICER. 41 60. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT SECTION 251(1)(A) DEALS WITH THE POWERS OF THE CIT( A) AND READS AS UNDER:- (A) IN AN APPEAL AGAINST AN ORDER OF ASSESSMENT, H E MAY CONFIRM, REDUCE, ENHANCE OR ANNUL THE ASSESSMENT. 61. WE FURTHER FIND THAT THE WORDS OR HE MAY SET A SIDE HAVE BEEN OMITTED BY THE FINANCE ACT 2001 WITH EFFECT FROM 1. 6.2001. THEREFORE, ON THE DATE OF THE APPELLATE ORDER, I.E., 31.12.200 4, THE LD. CIT(A) DID NOT HAVE THE POWERS TO SET ASIDE ANY ISSUE. THE CI T(A) HAD ONLY THE POWER TO ADJUDICATE ANY ISSUE AND WHEREVER MORE INF ORMATION IS REQUIRED, HE COULD ALWAYS DIRECT THE AO TO EXAMINE THE ISSUE AND SEND A REMAND REPORT. THEREFORE, IN THE INTEREST OF JUST ICE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THE ISSUE RAISED BY THE REVENUE IN THE GROUND AND REMIT THE SAME BACK TO HIS FILE WITH A D IRECTION TO ADJUDICATE THE SAME AND IF NEED BE HE MAY OBTAIN A REMAND REPORT AND THEN DECIDE THE ISSUE IN ACCORDANCE WITH LAW. 62. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. I.T.A.NO. 233/COCH/2006 : 63. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOL LOWING GROUNDS:- 2 THE LD. COMMISSIONER OF INCOME TAX ERRED IN REVI SING THE ORDER DATED 23.3.2004 PASSED BY THE ASSISTANT COMMI SSIONER OF 42 INCOME TAX, CIRCLE-1(1), ERNAKULAM, U/S. 143(3) OF T HE INCOME TAX ACT, 1961, BY TREATING THE SAME AS BEING ERRONE OUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. U/S. 2 63 OF THE ACT. 3. THE LD. COMMISSIONER OF INCOME TAX ERRED IN LEVY ING INTEREST U/S. 234-D OF THE INCOME TAX ACT, 1961, FOR THE PER IOD PRIOR TO 1.6.2003. THE PROVISIONS RELATING TO LEVY OF INTERE ST U/S. 234-D WERE INTRODUCED IN THE ACT W.E.F. 1.6.2003 AND HENC E DID NOT APPLY TO REFUNDS GRANTED PRIOR TO 1.6.2003. 64.. THE BRIEF FACTS OF THE CASE ARE THAT UPON EXAM INATION OF THE ASSESSMENT RECORDS, THE LD. COMMISSIONER NOTED THAT INTEREST U/S. 234D WAS UNDER CHARGED. ACCORDING TO HIM, THOUGH T HIS INTEREST WAS LEVIED FROM 1.6.2003, BUT SINCE REFUNDS WERE ISSUED ON 31.1.2002 AND 19.8.2002 AS PER THE PROVISIONS OF SECTION 234D, TH E INTEREST WAS CHARGEABLE FROM THESE DATES. A SHOW CAUSE NOTICE, A CCORDINGLY, WAS ISSUED AND IN RESPONSE TO THE SAME, ON BEHALF OF TH E ASSESSEE, IT WAS SUBMITTED THAT NO SUCH INTEREST COULD BE CHARGED BE FORE 1.6.2003 AND RELIANCE WAS PLACED ON THE DECISION OF THE DELHI BE NCH OF THE TRIBUNAL IN THE CASE OF GLAXO SMITHKLINE ASIA (P) LTD. VS. A CIT, 97 TTJ 108 (DELHI). HOWEVER, THE CCIT(OSD) DID NOT AGREE WITH THIS STATEMENT AND DECIDED THE ISSUE AS UNDER:- I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND HA VE ALSO PERUSED THE RECORDS. SECTION 234D WAS INSERTED IN THE STATUTE BY THE FINANCE ACT, 2003 WITH EFFECT FROM 1.6.2003. THE PROVISION IS APPLICABLE TO ALL REFUNDS ISSUED AFTER 1.6.2003 BUT THE INTEREST WILL BE CHARGEABLE FROM THE DATES OF I SSUE OF EXCESS 43 REFUND. THE RATIO OF THE DECISION OF THE ITAT, DELH I RELIED ON BY THE ASSESSEE DOES NOT APPEAR TO HAVE BEEN ACCEPTED BY THE DEPARTMENT. ACCORDINGLY, IN THE CASE OF THE ASSESSEE INTEREST U/S.234DWAS CHARGEABLE W.E.F. 31.1.2002/19.8.2002 I N PROPORTION TO THE AMOUNT OF INTEREST ISSUED ON EACH DATE. AS A CONSEQUENCE, THE ORDER PASSED U/S. 143(3) DATED 23. 3.2004 HAS BECOME ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE AND THE SAME IS REVISED TO THE EXTENT THAT INTEREST U/S. 234D IS CHARGED FROM THE DATES OF ISSUE OF THE REFU ND. THE ASSESSING OFFICER WILL GIVE EFFECT ACCORDINGLY . 65. AGGRIEVED BY THE ABOVE ORDER, THE ASSESSEE COMP ANY HAS FILED THE APPEAL BEFORE THIS TRIBUNAL CHALLENGING THE IMP UGNED ORDER PASSED U/S. 263. BEFORE US, THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE SPECIAL BENCH DECISION OF THE DELHI TRIBUNAL IN THE CASE OF ITO VS. EKTA PROMOTERS P.LTD., 305 ITR (AT) 1 (DELHI) (SB) H AS ALREADY HELD THAT PROVISIONS OF SECTION 234D WERE APPLICABLE ONL Y FROM THE ASSESSMENT YEAR 2004-05. HE SUBMITTED THAT SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. KERALA CHEMICALS AND PROTEINS LTD., 323 ITR 584 (KER.). O N THE OTHER HAND, THE LD. CIT-DR STRONGLY RELIED ON THE GROUNDS OF TH E REVENUE APPEAL AND SUPPORTED THE ORDER PASSED U/S. 263. 66. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFUL LY, WE FIND THAT THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS . KERALA CHEMICALS AND PROTEINS LTD., (SUPRA) HAS OBSERVED THAT SECTIO N 234D WAS INTRODUCED WITH EFFECT FROM 1.6.2003 AND THEREFORE, INTEREST ON EXCESS 44 REFUND WAS PAYABLE ONLY FROM THE PERIOD STARTING 1. 6.2003. IN FACT, THE HONBLE COURT HELD AS UNDER:- HELD, THAT EVEN THOUGH REFUND WAS GRANTED WHILE SE NDING INTIMATION U/S. 143(1) ON JUNE 28, 2000 AND REGULAR ASSESSMENT U/S. 143(3) WAS COMPLETED CONVERTING THE REFUND TO DEMAND OF TAX ON JANUARY 22, 2004, INTEREST COULD B E DEMANDED ONLY FOR THE PERIOD FROM JUNE 1, 2003 TILL JANUARY 22, 2004. RESPECTIVELY FOLLOWING THE ABOVE DECISION, WE ARE O F THE VIEW THAT NO INTEREST U/S. 234D CAN BE CHARGED PRIOR TO THE PERI OD 1.6.2003. THEREFORE, WE FIND THAT THE ASSESSMENT ORDER CANNOT BE CALLED ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. ACCORDINGLY, WE QUASH THE REVISION ORDER PASSED U/S. 263 BY THE LD. COMMISSIONER. 67. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWE D. I.T.A. 252/COCH/2007 : 68. IN THIS APPEAL, THE REVENUE HAS TAKEN THE FOLLO WING GROUNDS. 2. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN DELETING THE ADDITION OF RS. 4,66,20,000/-, BEING T HE AMOUNT WITHDRAWN FROM INVESTMENTS FLUCTUATION RESERVE FO R WRITING OFF PROVISION FOR REDUCTION IN THE VALUE OF GPEL BY DEBI T TO P&L ACCOUNT FOR COMPUTING BOOK PROFIT U/S. 115JB OF THE INCOME TAX ACT. 45 3. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) OUGHT TO HAVE HELD THAT THE PROVISION MADE WAS IN THE NATURE OF A LIABILITY, AS ENVISAGED IN CLAUSE (C) OF THE EXPLANA TION BELOW SECTION 115JB(2). 69. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE WAS LIABLE TO PAY TAX UNDER SECTION 115JB OF THE ACT WHICH WAS NO T CONSIDERED DURING THE ASSESSMENT PROCEEDINGS AND ACCORDINGLY, RECTIFICATION NOTICE U/S. 154 WAS ISSUED. ULTIMATELY, AN AMOUNT OF RS. 4,66,20,000/- BEING THE AMOUNT WITHDRAWN FROM THE INVESTMENT FLUCTUATIO N RESERVE WHICH WAS EARLIER DEDUCTED FROM THE PROFITS AS PER P&L AC COUNT WAS ADDED TO THE PROFITS BY PASSING ORDER U/S. 154. 70. BEFORE THE CIT(A), IT WAS ARGUED THAT THIS AMOU NT OF INVESTMENT FLUCTUATION RESERVE WAS TOWARDS PROVISION FOR REDUC TION IN VALUE OF INVESTMENTS IN GPEL WHICH WAS CREDITED EARLIER AND N OW HAS BEEN WITHDRAWN, IS BASICALLY TOWARDS REDUCTION IN VALUE OF INVESTMENTS, I.E. TO SHOW REDUCTION OF ASSETS AND THEREFORE, THE SAME COULD NOT HAVE BEEN ADDED TO THE BOOK PROFIT IN TERMS OF CLAUSE (C ) TO EXPLANATION 1. 71. THE LD. CIT(A) AGREED THAT THIS PROVISION WAS M ADE TOWARDS REDUCTION IN THE VALUE OF INVESTMENTS AND WAS NOT T OWARDS LIABILITY. HE ALSO OBSERVED THAT SUCH ADJUSTMENT SHOULD NOT HAVE BEEN DONE U/S. 154 IN THE LIGHT OF THE DECISION OF COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF CATHOLIC SYRIAN BANK LTD. IN I.T.A. NO. 989 & 1152/COCH/2004 AND ALLOWED RELIEF TO THE ASSESSEE COMPANY. 46 72. BEFORE US THE LD. CIT-DR STRONGLY ARGUED THAT NOW CLAUSE (I) HAS BEEN BROUGHT IN THE STATUTE BY FINANCE ACT, 200 9 WITH RETROSPECTIVE EFFECT FROM 1.4.2001. THE CLAUSE SPE CIFICALLY STATED THAT ANY AMOUNT SET ASIDE AS PROVISION FOR DIMINUTION IN VALUE OF ANY ASSET IS TO BE ADDED TO THE BOOK PROFIT. THIS AMENDMENT WAS SPECIFICALLY PERHAPS DONE TO OVERRULE THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF CIT VS. HCL COMNET SYSTEMS AND SERVICES LTD ., 305 ITR 409 (SC). HE SUBMITTED THAT ONCE, THE CHANGED LAW WAS AVAILABLE, ATLEAST ON THE DATE WHEN THE APPELLATE ORDER WAS PASSED, TH E LD. CIT(A) SHOULD HAVE FOLLOWED THE AMENDED LAW. THE TRIBUNAL SHALL LOOK AT AMENDED LAW AND THEN DECIDE THE ISSUE ACCORDINGLY. HE FURTHER ARGUED THAT EVEN ON THE DATE OF ORIGINAL ASSESSMENT ORDER, IT WAS MERELY A CONTINGENT LIABILITY BECAUSE IT WAS TITLED AS INVESTMENT FLUCTUATION RESERVE AND THEREFORE, IN ANY CASE, THE SAME WOULD BE COVERED BY CLAUSE (C) TO EXPLANATION 1 TO SECTION 11 5JB. 73. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE ASSESSEE COMPANY HAD MADE AN INVESTMENT OF RS. 5.18 CRORES IN THE EQUITY SHARE CAPITAL OF GUJARAT PERSTORP ELEC TRONICS LIMITED (GPEL) WHICH ULTIMATELY, BECAME A SICK INDUSTRIAL CO MPANY AND WAS REFERRED TO BIFR. THE ASSESSEE COMPANY HAD FURTHER GRANTED A SUM OF RS. 5 CRORES TO GPEL FOR MEETING WORKING CAPITAL REQ UIREMENTS. THE ISSUE REGARDING BIFR WAS TAKEN TO HONBLE GUJARAT H IGH COURT AND ULTIMATELY THE ASSESSEE COMPANY WAS DIRECTED TO GIV E CERTAIN FUNDS FOR REHABILITATION AND REVIVAL OF GPEL. ACCORDINGLY, TH E ASSESSEE COMPANY HAS SUITABLY ADJUSTED THE VALUE OF INVESTMENT. HE ARGUED THAT CLAUSE (C) TO EXPLANATION 1 DEALS WITH THE AMOUNT SET ASIDE AS PROVISION FOR MEETING THE LIABILITIES OTHER THAN ASCERTAINED LIAB ILITIES WHEREAS THIS 47 PROVISION WAS MADE FOR DIMINUTION OF VALUE IN THE I NVESTMENT. HE POINTED OUT THAT IN AN IDENTICAL SITUATION, THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. HCL COMNET SYSTEMS AND SERVICES PVT. LTD. (SUPRA) WHILE DEALING WITH THE ISSUE OF PROVISION FOR BAD D EBTS HELD THAT THE SAME WAS A DIMINUTION OF ASSET AND THEREFORE, ITEM (C) OF EXPLANATION 1 TO SECTION 115JB WHICH REFERS TO THE PROVISION MA DE FOR MEETING THE LIABILITIES COULD NOT BE APPLIED IN RESPECT OF PROV ISION FOR BAD AND DOUBTFUL DEBTS. THEREFORE, THE INVESTMENT FLUCTUATI ON RESERVE WHICH WAS MADE TO REDUCE THE VALUE OF INVESTMENT STANDS O N THE SAME FOOTING AND COULD NOT POSSIBLY BE COVERED BY CLAUSE (C) AND ACCORDINGLY, THE SAME WAS RIGHTLY NOT ADDED TO THE BOOK PROFIT. IN FACT, ON THIS ISSUE, THERE WERE OTHER DECISIONS IN FAVOUR OF THE ASSESSEE INCLUDING THE DECISION OF THE SPECIAL BENCH ITAT (K OLKATA) IN THE CASE OF USHA MARTIN INDUSTRIES LTD., 104 ITD 249 (KOL.) (SB). HE ALSO REFERRED TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ECHJAY FORGINGS (PVT.) LTD., 251 ITR 15 ( BOM.) WHEREIN IT WAS CLEARLY HELD THAT PROVISION FOR BAD AND DOUBTFU L DEBTS MADE BY THE ASSESSEE CANNOT BE IN RESPECT OF AN UNASCERTAINED L IABILITY AND THEREFORE, THE SAME COULD NOT BE INCLUDED IN CLAUS E (C) OF EXPLANATION 1 TO SECTION 115JB AND THEREFORE, CANNOT BE ADDED T O THE BOOK PROFIT OF THE ASSESSEE COMPANY. THEREFORE, ON THE DATE OF PA SSING OF THE ASSESSMENT ORDER, THERE WAS NO MISTAKE APPARENT FRO M THE RECORDS. 74.. COMING TO THE AMENDMENTS MADE THROUGH INSERTIO N OF CLAUSE (I) TO EXPLANATION 1 TO SECTION 115JB BY FINANCE ACT, 20 09 WITH RETROSPECTIVE EFFECT FROM 1.4.2001, HE ARGUED THAT THE SAME CANNOT BE APPLIED TO THIS CASE BECAUSE THE LAW WHICH IS TO BE LOOKED AT IS ON THE DATE OF THE ASSESSMENT ORDER AND NOT THE LATER AMEN DMENT EVEN IF IT IS 48 RETROSPECTIVE AMENDMENT. IN ANY CASE, EVEN THIS RE TROSPECTIVE AMENDMENT WAS NOT AVAILABLE ON THE DATE OF PASSING OF THE RECTIFICATION ORDER ON 10.7.2002 BECAUSE THE FINANC E ACT RECEIVED THE ASSENT OF THE PRESIDENT OF INDIA ON 19.8.2009. IN THIS REGARD, HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MAX INDIA LTD., 295 ITR 282 (SC). HE FURTHER SUBMITTED THAT BY THE SAME ANALOGY IN THE PRESENT CASE, LAW WHICH IS TO BE LOO KED AT IS THE LAW WHICH WAS AVAILABLE ON THE DATE OF PASSING OF RECTI FICATION ORDER AND AT THAT TIME, THERE WERE TWO VIEWS POSSIBLE AND THEREF ORE, THE ISSUE WAS DEBATABLE AND COULD NOT BE SUBJECTED TO RECTIFICATI ON. HE ALSO RELIED ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. GENERAL ELECTRIC CO. OF INDIA LTD, 112 ITR 246 (CAL. ). WHILE CONCLUDING HIS ARGUMENTS, HE BROUGHT TO OUR ATTENTION THE DECI SION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ASSISTANT COMM ISSIONER OF INCOME TAX(OSD) VS. M/S. GTL LTD. 2010- TIOL-316-ITAT-MUM . (COPY OF THE DECISION HAS BEEN FILED AT PB PAGE 30 AND 31) WHERE IN WHILE ADJUDICATING AN IDENTICAL ISSUE, THE TRIBUNAL HAD H ELD THAT LATER AMENDMENT CANNOT BE MADE BASED ON THE RECTIFICATION OF THE EARLIER ORDER. 75. WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY I N THE LIGHT OF THE MATERIAL ON RECORD AS WELL AS THE DECISIONS CITED B Y THE PARTIES. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. MAX IN DIA LTD.(SUPRA) WHILE DEALING WITH THE ORDER PASSED U/S. 263 HAS CL EARLY HELD THAT THE RELEVANT LAW WHICH IS TO BE TAKEN INTO CONSIDERATIO N IS THE LAW AVAILABLE ON THE DATE OF PASSING OF THE ORDER BY THE COMMISSI ONER AND IF ON THAT DATE TWO VIEWS WERE POSSIBLE, THEN SUCH ORDER COULD NOT BE HELD TO BE ERRONEOUS. THIS CLEARLY MEANS THAT THE RELEVANT LA W WHICH NEEDS TO BE 49 LOOKED INTO IS THE LAW WHICH WAS AVAILABLE AT THE T IME OF ORIGINAL OR RECTIFICATION ORDER WAS PASSED. IN THE CASE BEFORE US, THE ASSESSMENT ORDER U/S. 143(1) WAS PASSED ON 10.1.2002 AND THE R ECTIFICATION ORDER WAS PASSED ON 10.7.2002. EVEN THE APPELLATE ORDER W AS PASSED ON 14.12.2006 WHEREAS THE AMENDMENT BY WAY OF INSERTIO N OF CLAUSE (I) WAS BROUGHT ON THE STATUTE BY FINANCE ACT, 2009 WIT H RETROSPECTIVE EFFECT FROM 1.4.2001. THE CLAUSE (C) TO EXPLANATION 1 READS AS UNDER:- (C) THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILI TIES. THE AO HAS RECTIFIED THE ORDER BY INVOKING THIS CLA USE. THIS CLAUSE WAS INTERPRETED BY THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. ECHJAY FORGINGS (PVT.) LTD., 251 ITR 15 (BOM.) WHERE IN IT WAS HELD THAT PROVISION FOR DOUBTFUL DEBTS MADE BY THE ASSESSEE COULD NOT BE ADDED TO BOOK PROFITS AS THE PROVISION ON ACCOUNT OF ANY UNASCERTAINED LIABILITY. EVEN THE SPECIAL BENCH OF THE TRIBUNAL I N THE CASE OF USHA MARTIN INDUSTRIES LTD., 104 ITD 249 (KOL.) INTERPRE TED THIS CLAUSE AND HELD THAT PROVISION FOR DOUBTFUL DEBTS WAS IN RESPE CT OF PROVISION FOR DIMINUTION IN THE VALUE OF ASSETS AND THEREFORE CLA USE (C) WAS NOT ATTRACTED BY ADDING THE PROVISION OF DOUBTFUL DEBTS TO THE BOOK PROFIT. ULTIMATELY, THIS POSITION WAS SETTLED BY THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. HCL COMNET SYS TEMS AND SERVICES LTD., 305 ITR 409 (SC) HELD AS UNDER:- ITEM (C) OF THE EXPLANATION TO SECTION 115JA IS NOT ATTRACTED TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS. THE PROVI SION FOR BAD AND DOUBTFUL DEBTS IS MADE TO COVER UP PROBABLE DIM INUTION IN 50 THE VALUE OF THE ASSETS, I.E., A DEBT WHICH IS AN A MOUNT RECEIVABLE BY THE ASSESSEE. SUCH A PROVISION CANNOT BE SAID TO BE A PROVISION FOR A LIABILITY, BECAUSE EVEN IF THE DEBT IS NOT RECOVERABLE NO LIABILITY CAN BE FASTENED ON THE ASS ESSEE. ANY PROVISION MADE TOWARDS IRRECOVERABILITY OF A DEBT C ANNOT BE SAID TO BE A PROVISION FOR LIABILITY. 76. . THUS, IT IS CLEAR FROM THE DECISION OF THE HONBL E SUPREME COURT THAT ANY PROVISION WHICH IS CREATED FOR THE DIMINUT ION OF ASSET, CANNOT BE ADDED TO BOOK PROFITS UNDER CLAUSE (C). IN THE CASE BEFORE US ALSO, THE PROVISION MADE BY THE ASSESSEE WAS FOR INVESTME NT FLUCTUATION RESERVE AGAINST THE INVESTMENTS MADE BY THE ASSESSE E COMPANY IN GEPL. THEREFORE, THE DECISION OF THE HONBLE SUPREM E COURT IN THE CASE OF HCL COMNET SYSTEMS AND SERVICES LTD. (SUPRA ) IS CLEARLY APPLICABLE. 77. FURTHER, WE FIND THAT THE GOVERNMENT OF INDIA T O CLARIFY THIS POSITION, AND PERHAPS TO OVERRULE THE DECISION OF S UPREME COURT IN CASE OF CIT VS. HCL COMNET SYSTEMS AND SERVICES LTD . (SUPRA), BROUGHT AN AMENDMENT BY WAY OF CLAUSE (I) TO EXPLANA TION 1 OF SECTION 115JB. THE CLAUSE READS AS UNDER:- (I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION F OR DIMINUTION IN THE VALUE OF ANY ASSET. THIS AMENDMENT WAS BROUGHT BY FINANCE ACT, 2009 WIT H RETROSPECTIVE EFFECT FROM 1.4.2001 BY THE FINANCE ACT, 2009 RECEI VING THE ASSENT OF PRESIDENT OF INDIA ON 19.8.2009. 51 78. NOW THE QUESTION IS WHETHER THIS LATER AMENDME NT WHICH IS OF RETROSPECTIVE EFFECT CAN BE APPLIED TO THE ASSESSEE S CASE. FOR THIS ALSO, THE ANSWER IS AVAILABLE FROM THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAX INDIA LTD. (SUPRA) WHEREIN THE COURT WHILE DEALING WITH THE ORDER PASSED U/S. 263 CLEARLY HELD THAT THE RELEVANT LAW WHICH IS TO BE LOOKED INTO IS THE LAW WHICH WAS AVAILABLE AT THE TIME OF PASSING OF THE ORDER BY THE COMMISSIONER. IN THIS CASE, THERE WAS AN AMENDMENT U/S. 80HHC(3) BY THE FINANCE ACT , 2005 WHICH HAD RETROSPECTIVE EFFECT. THE COURT REJECTED THE A RGUMENT BY HOLDING THAT THE AMENDMENT WAS CLEARLY OF CLARIFICATORY NAT URE AND HAD RETROSPECTIVE NATURE AND IT WAS CLEARLY MADE EFFECT IVE WITH RETROSPECTIVE EFFECT. THE HONBLE COURT WAS OF THE VIEW THAT ON THE RELEVANT DATE, I.E, WHEN THE REVISIONARY ORDER WAS PASSED, THERE WERE CLEARLY TWO VIEWS AND LATER AMENDMENT EVEN OF RETRO SPECT NATURE WILL NOT CHANGE THE SITUATION ON THAT DATE. THOUGH THIS DECISION WAS TAKEN WHILE DEALING WITH THE ORDER PASSED UNDER SECTION 2 63, BUT THE PRINCIPLE LAID DOWN BY THE HONBLE COURT IS CLEARLY APPLICABLE IN THE CASE BEFORE US. FOR PASSING ANY RECTIFICATION ORDER U/S . 154, THERE HAS TO BE A CLEAR CUT MISTAKE APPARENT FROM THE RECORD. THE O RDER WHICH IS THE SUBJECT MATTER OF THE RECTIFICATION AND IF THE ISSU E INVOLVED IN THAT ORDER IS OF DEBATABLE NATURE OR WHERE TWO VIEWS ARE POSS IBLE, THEN SUCH ORDER IS NOT AVAILABLE FOR RECTIFICATION AND SINCE ON THE DATE OF PASSING OF THE RECTIFICATION ORDER AS WELL AS THE APPELLATE ORDER, THE AMENDED PROVISION WAS NOT AVAILABLE BECAUSE THE RECTIFICATI ON ORDER WAS PASSED ON 10.7.2002 AND THE APPELLATE ORDER WAS PASSED ON 14.12.2006 AND THEREFORE, THE LATER AMENDMENT COULD NOT HAVE BEEN NOTICED EVEN BY THE AUTHORITIES. IN FACT, ONLY THE VIEW TAKEN BY T HE LOWER AUTHORITIES IN THE ORIGINAL ASSESSMENT, AS WELL AS THE RECTIFICATI ON ORDER STANDS 52 CONFIRMED BY THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF CIT VS. HCL COMNET SYSTEMS AND SERVICES LTD.(SUPRA) . THEREFORE, THE RECTIFICATION ORDER IS CLEARLY NOT TENABLE BECAUSE BY THE TIME THE RECTIFICATION ORDER WAS PASSED BY RESORTING TO CLAU SE (C), A CLEAR CUT INTERPRETATION WAS AVAILABLE FROM THE VARIOUS AUTHO RITIES IS THAT CLAUSE (C) CANNOT BE ATTRACTED TO THE PROVISION TOWARDS D IMINUTION OF VALUE IN ASSETS, SINCE ON THE DATE OF PASSING OF THE RECTIFI CATION ORDER THE RETROSPECTIVE AMENDMENT WAS NOT AVAILABLE AND NOW R ELIANCE CANNOT BE PLACED ON THE AMENDED PROVISION. AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF MAX INDIA LTD. (SUPRA). 79. IN ANY CASE, AN IDENTICAL ISSUE CAME UP BEFORE THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF GTL LIMITED, S UPRA, WHEREIN BY WAY OF RECTIFICATION PROVISION TO DOUBTFUL DEBTS WA S ADDED TO THE BOOK PROFIT BY RECTIFICATION ORDER PASSED U/S. 154 ON 30 .12.2004. THE CIT(A) SET ASIDE THE RECTIFICATION ORDER AND ON APPEAL BY THE REVENUE BEFORE THE TRIBUNAL, THE ISSUE WAS DECIDED IN IT FAVOUR OF ASSESSEE VIDE PARA 4 OF THE ORDER WHICH IS PG. 31 OF THE ASSESSEES PAPE R BOOK. THE RELEVANT PARA READS AS UNDER:- HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERE D THEIR RIVAL SUBMISSIONS, WE FIND THAT THE TRIBUNALS ORDER IS D ATED 17 TH MARCH 2009 WHEREAS THE RETROSPECTIVE AMENDMENT OF T HE ACT HAS RECEIVED THE ASSENT OF THE PRESIDENT OF INDIA O N 19.8.2009 I.E., AFTER THE ORDER OF THE TRIBUNAL WAS PASSED. SIMILAR WERE THE FACTS OF THE CASE BEFORE THE HONBLE BOMBAY HIG H COURT IN THE CASE OF CIT VS. SUDHIR S.MEHTA, 265 ITR 548 (BO M.) WHEREIN THE TRIBUNALS ORDER WAS DATED 26.6.1996 WHEREAS TH E LAW WAS 53 AMENDED RETROSPECTIVELY W.E.F. 1.4.1989 AND THE AME NDMENT WAS ASSENTED BY THE PRESIDENT OF INDIA ON SEPTEMBER , 28, 1996, I.E., AFTER THE ORDER OF THE TRIBUNAL WAS PASSED. AFTER TAKING THESE FACTS INTO CONSIDERATION THE HONBLE BOMBAY H IGH COURT HELD THAT THE PROCEEDINGS GOT CONCLUDED BEFORE THE TRIBUNAL UNDER THE THEN EXISTING LAW AND, THEREFORE, THERE W AS NO MISTAKE APPARENT FROM RECORD IN THE ORDER OF THE TR IBUNAL DATED 26.2.1996. AS THIS IS A DECISION OF THE JURISDICTI ONAL HIGH COURT, THIS TRIBUNAL IS BOUND BY THE SAME. OTHERWISE ALSO THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF M.SRINIV ASULU VS. UOI, 239 ITR 282 (KAR.), RELIED UPON BY THE LD. DR IS DISTINGUISHABLE ON FACTS AS SUBMITTED BY THE LD. CO UNSEL FOR THE ASSESSEE. IN VIEW OF THE SAME, WE AGREE WITH THE A SSESSEE THAT THERE IS NO MISTAKE APPARENT FROM RECORD IN THE ORD ER OF THE TRIBUNAL. IN VIEW OF THE SAME, REVENUES MISCELLAN EOUS APPLICATION IS ACCORDINGLY DISMISSED. 80. IN VIEW OF THE ABOVE DISCUSSION WE ARE OF THE V IEW THAT THERE IS NOTHING WRONG WITH THE ORDER OF THE LD. CIT(A) AND THEREFORE, THE SAME IS CONFIRMED. IN THE RESULT THE REVENUES APP EAL IS DISMISSED. I.T.A 274/COCH/2005 : 81. IN THIS APPEAL, THE ASSESSEE COMPANY HAS RAISE D VARIOUS GROUNDS OUT OF WHICH GROUND NOS. 1,9,10,12,18,22 & 23 WERE NOT PRESSED BEFORE US AND THEREFORE, THE SAME ARE DISMI SSED AS NOT PRESSED. 54 82. IN ADDITION TO NORMAL GROUNDS, THE ASSESSEE HAS RAISED ONE ADDITIONAL GROUND WHICH IS AS UNDER:- THAT THE LEARNED COMMISSIONER OF INCOME-TAX ERRED IN DIRECTING THE ASSESSING OFFICER TO CHARGE INTEREST U/S. 234D OF THE INCOME-TAX ACT, 1961, FROM THE DATE OF GRANT OF REF UND, WHEREAS THE PROVISIONS OF SECTION 234D WERE INTRODU CED BY FINANCE ACT 2003 W.E.F. 1.6.2003 AND AS SUCH WERE A PPLICABLE ONLY TO ASSESSMENT YEAR 2004-05 AND SUBSEQUENT ASSE SSMENT YEARS AND WERE NOT APPLICABLE TO THE YEAR UNDER ASS ESSMENT I.E, ASSESSMENT YEAR 2001-02 83. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS IS A PURELY LEGAL ISSUE AND ALL THE FACTS ARE ALREADY ON RECORD , AND THEREFORE, THIS GROUND SHOULD BE ADMITTED. FURTHER, HE SUBMITTED TH AT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF TRIBUNAL IN THE CASE OF ITO VS. EKT A PROMOTERS P.LTD., 305 ITR (AT) 1 (DELHI) (SB) AND KERALA CHEMICALS A ND PROTEINS LTD., 323 ITR 584 (KER.). 84. ON THE OTHER HAND, THE CIT-DR SUPPORTED THE ORD ERS OF THE AUTHORITIES BELOW. 85. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. WE FIND THAT HONBLE SUPREME COURT HAS CLEARLY HELD IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT, 229 ITR 383 (SC) TH AT WHEN ALL THE FACTS ARE ALREADY ON RECORD, THEN THE TRIBUNAL HAS THE POWER TO ADMIT 55 THE ADDITIONAL GROUNDS TO ADJUDICATE THAT ISSUE. TH E RELEVANT OBSERVATION OF THE HONBLE SUPREME COURT IS AS FOLL OWS:- UNDOUBTEDLY, THE TRIBUNAL HAS THE DISCRETION TO AL LOW OR NOT TO ALLOW A NEW GROUND TO BE RAISED. BUT WHERE THE TRI BUNAL IS ONLY REQUIRED TO CONSIDER THE QUESTION OF LAW ARISING F ROM FACTS WHICH ARE ON RECORD IN THE ASSESSMENT PROCEEDINGS, THERE IS NO REASON WHY SUCH A QUESTION SHOULD NOT BE ALLOWED TO BE RAI SED WHEN IT IS NECESSARY CONSIDER THAT QUESTION IN ORDER TO COR RECTLY ASSESS THE TAX LIABILITY OF AN ASSESSEE. 86. SINCE THE ISSUE RAISED IS PURELY LEGAL IN NATURE, T HEREFORE, WE ADMIT THIS GROUND. ON MERITS, THIS ISSUE IS SQUARE LY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF EKTA PROMOTERS (P ) LTD. (SUPRA) AS WELL AS THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF KERALA CHEMICALS AND PROTEINS LTD. (SUPRA) WHERE IN THE COURT HAS CLEARLY HELD THAT INTEREST U/S. 234D CANNOT BE CHAR GED PRIOR TO PERIOD 1.6.2003. RESPECTFULLY, FOLLOWING THE ABOVE DECISI ON, WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 87. THE OTHER GROUNDS ARE AS UNDER:- 1. NOT PRESSED. 2. THE LD. CIT(A) ERRED IN REDUCING THE PROFIT ALLOWED ON DEDUCTION UNDER SECTIONS 80IA AND 80IB OF THE INCOM E TAX ACT WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC. THE DEDUCTION UNDER SECTION 80HHC IS ALLOWABLE ON T HE PROFIT OF THE APPELLANT COMPUTED IN THE RATIO OF EXPORT TU RNOVER TO THE TOTAL TURNOVER. IT IS NOT CORRECT TO REDUCE THE PROFITS 56 ALLOWED AS DEDUCTION UNDER SECTIONS 80IA AND 80IB O F THE INCOME TAX ACT. 3. THE LD. CIT(A) HAS ERRED IN ASSESSING OTHER IN COME OF RS. 2.38 CRORES AND INTEREST INCOME OF RS. 3.09 CRORES NETTED OFF AGAINST INTEREST PAID AS INCOME FROM OTHER SOURCES AND NOT AS INCOME FROM BUSINESS AS CLAIMED BY THE APPELLANT IN ITS RETURN OF INCOME. 4. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLO WANCE OF THE EXPENDITURE OF RS. 3,61,691/- OUT OF PAYMENTS MADE TO CLUBS FOR SUBSCRIPTION, COST OF OTHER SERVICES AND FACILITIES INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE COMPANY BY TREATING THE SAME AS EXPENSES OF PERSONAL NATURE. 5. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLO WANCE OF RS. 1,48,750/- PAID TO SALES TAX DEPARTMENT FOR NOT ATT ACHING FORM NO. 38 WHILE DESPATCHING GOODS AS PENAL IN NATURE. 6. THE LD. CIT(A) ERRED IN DISALLOWING THE CONTRIBU TION OF RS. 37,350/- MADE TO APOLLO TYRES EMPLOYEE WELFARE TRUST . SUCH PAYMENT IS ALLOWABLE UNDER SECTION 37(1) THROUGH TH E SAME WAS PAID THROUGH A TRUST. 7. THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF RS. 8,60,359/- BEING PF/ESI PAID DURING THE PREVIOUS YEAR WHICH IS BEYOND THE DUE DATE PRESCRIBED UNDER THE RELEVANT S TATUTE. SINCE THESE AMOUNTS HAVE BEEN PAID DURING THE YEAR, THE DEDUCTION OUGHT TO HAVE BEEN ALLOWED. IN ANY CASE, SINCE THE RELEVANT PROVISO HAVING BEEN DELETED AS PER THE FINANCE ACT, 2003, THE SAME HAS RETROSPECTI VE EFFECT. 8. THE LD. CIT(A) ERRED IN DISALLOWING RS. 32,49,02 0/- BEING EXPENSES ON REPAIRS AND DEPRECIATION ON BUILDING LE T OUT TO M/S. APOLLO INTERNATIONAL LTD. AND DEBITED TO PROFIT AND LOSS ACCOUNTS RELATABLE TO THE LET OUT PORTION. SINCE NO SUCH AMO UNT WAS ACTUALLY BEING DEBITED TO THE PROFITS AND LOSS ACCO UNT, NO DISALLOWANCE OUGHT TO HAVE BEEN MADE. 9. NOT PRESSED. 57 10. NOT PRESSED. 11. THE LD. CIT(A) ERRED IN DISALLOWING RS. 6,00,00 0/- ON ESTIMATED BASIS OUT OF THE RENT PAID IN RESPECT OF ALLAHABAD BANK BUILDING FROM WHERE THE CHARIMAN AND MANAGING DIRECTOR OF THE COMPANY SHRI RAUNAQ SINGH IS FUNCTIONING BY HOLDING THAT SHRI RAUNAQ SINGH IS DIRECTOR IN OTHER COMPANIES AN D THIS OFFICE IS USED FOR HIS VARIOUS ACTIVITIES. 12. NOT PRESSED. 13. THE LD. CIT(A) ERRED IN DISALLOWING RS. 25 LAK HS AS BAD DEBTS WRITTEN OFF DURING THE YEAR. THE CONDITIONS REQUIRED TO BE COMPLIED WITH UNDER THE IT ACT HAVE IN FACT BEEN CO MPLIED WITH AND HENCE THE DISALLOWANCE HAS TO BE DELETED. 14. THE LD. CIT(A) IN EXCLUDING OTHER INCOME OF RS . 266,71,050/- RELATING TO BARODA UNIT WHILE COMPUTIN G THE REDUCTION UNDER SECTION 80IA OF THE INCOME-TAX ACT. SINCE THE INCOME HAS BEEN EARNED OUT OF THE INDUSTRIAL UNIT, DEDUCTION UNDER SECTION 80IA IS ELIGIBLE ON THE SAME. 15. THE LD. CIT(A) ERRED IN ALLOCATING THE FOLLOWI NG EXPENSES TO THE ELIGIBLE INDUSTRIAL UNDERTAKING I) INCOME FROM HOUSE PROPERTY RS. 64, 18,900/- (NETTED OFF AGAINST RENT PAID) II) PREMIUM PAYABLE ON DEBENTURES RS. 13,10,850/- III) DEPRECIATION RS. 9,93,74,480/- THE APPELLANT HAD CORRECTLY COMPUTED THE PROFIT OF THE BARODA PLANT AND IT IS NOT CORRECT TO ESTIMATE THE EXPENDI TURE OF ASSETS LOCATED AT HO AND AT VARIOUS BRANCHES WHILE COMPUTI NG THE PROFIT OF THE BARODA PLANT. WHILE THE AO HAS REDUC ED AND EXCLUDED THE INCOME EARNED AT HO, BRANCHES AND OTHE R UNITS, IT IS NOT CORRECT TO RELATE EXPENDITURE INCURRED AT SU CH PLACES. 16. THE LD. CIT(A) ERRED IN HOLDING THAT DEDUCTIO N ELIGIBLE UNDER SECTION 80IB ON THE POWER GENERATION UNIT HAS TO BE RESTRICTED TO THE TOTAL PROFIT EARNED BY THE BARODA UNIT SINCE THE POWER GENERATION UNIT IS SUPPLYING ONLY T O THE BARODA TYRE UNIT. IN BARODA THE APPELLANT HAS TWO UNITS AN D TO COMPUTE 58 THE DEDUCTION, THE PROFITS OF THE TWO UNDERTAKINGS HAVE TO BE COMPUTED SEPARATELY AS IF SUCH UNIT IS THE ONLY UNI T OF THE APPELLANT AND IT IS NOT IN ORDER TO AGGREGATE THE P ROFIT OF BOTH UNITS WHICH IS BEYOND THE PROVISIONS OF THE INCOME TAX ACT. 17. THE LD. CIT(A) ERRED IN NOT ALLOWING DEDUCTION UNDER SECTION 10(33) OF THE INCOME-TAX ACT ON THE DIVIDEN D EARNED FROM IL & FS MUTUAL FUND OF RS. 99,00,102/- 18. NOT PRESSED. 19. THE LD. CIT(A) ERRED IN NOT ALLOWING SALES T AX PAID DURING THE YEAR AMOUNTING TO RS. 3,08,05,951/- AT KALAMASS ERY UNIT UNDER THE SALES TAX DEFERRED SCHEME. THE AO HAD DI SALLOWED THE SALE TAX IN THE YEAR IN WHICH IT IS DEFERRED ON THE GROUND THAT THE APPELLANT HAD NOT ACTUALLY MADE THE PAYMEN T DURING THE PREVIOUS YEAR. THE APPELLANT HAVING ACTUALLY P AID THE SALES TAX THE SAME OUGHT TO HAVE BEEN ALLOWED. 20. THE LD. CIT(A) ERRED IN NOT ALLOWING DIVIDEND S EARNED FROM IL&FS MUTUAL FUND WHICH IS UNDER SECTION 10(33) OF THE INCOME-TAX ACT IN COMPUTING THE INCOME UNDER SECTIO N 1115JB OF THE INCOME-TAX ACT. 21. THE LD. CIT(A) ERRED IN NOT ALLOWING AMOUNTS W ITHDRAWN FROM INVESTMENT FLUCTUATION RESERVE OF RS. 4,66,20, 000/- AND FIXED ASSETS REVALUATION RESERVE OF RS. 87,09,109/- . THESE ARE ALLOWABLE AS PER THE COMPUTATION PRESCRIBED UNDER T HE PROVISIONS OF THE INCOME-TAX ACT AND HENCE OUGHT TO HAVE BEEN ALLOWED. 22. NOT PRESSED. 23. NOT PRESSED. 88. GROUND NO. 1 WAS NOT PRESSED. 89.. REGARDING GROUND NO. 2, THE BRIEF FACTS ARE TH AT DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASS ESSEE HAS CLAIMED DEDUCTION U/S. 80HHC, 80IA AND 80IB OF RS. 13,59, 88,548/-. THE AO FURTHER NOTICED THAT DEDUCTION U/S. 80IA HAS TO BE RESTRICTED AS 59 PER SUB SECTION 9 OF SECTION 80IA AND 80IB HAS TO B E RESTRICTED AS PER SUB SECTION 13, AND THEREFORE, WORKED OUT THE DEDUC TION U/S. 80HHC AFTER REDUCING THE DEDUCTION UNDER SECTION 80IA AND 80IB. ON APPEAL, THE ACTION OF THE AO WAS CONFIRMED BY THE CIT(A) IN VIEW OF THE RESTRICTED PROVISION OF 80IA(9) AND 80IA(13). 90. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE HAD FAIRLY ADMITTED THAT BASICALLY THIS ISSUE IS COVERED AGAINST THE AS SESSEE BY THE DECISION OF THE FIVE MEMBER SPECIAL BENCH OF THE DELHI TRIBU NAL IN THE CASE OF HINDUSTAN MINT AND AGRO PRODUCTS P. LTD. 315 ITR (A T) 401 DELHI (SB). HOWEVER, HE ARGUED THAT THERE WERE FURTHER TWO ASPE CTS WHICH NEEDED TO BE EXAMINED. FIRSTLY, HE ARGUED THAT REGARDING DG POWER GENERATION UNIT AT BARODA, DEDUCTION U/S. 80IA IS T O BE ALLOWED AND WOULD NOT AFFECT THE COMPUTATION OF DEDUCTION U/S. 80HHC OF EXPORT PROFITS BECAUSE TYRES ARE EXPORTED FROM VARIOUS UNI TS AND THE TURNOVER HAS BEEN ALLOCATED ON THE BASIS OF PRODUCTS, AND TH EREFORE, DEDUCTION U/S. 80HHC COULD BE EFFECTED ONLY IN RESPECT OF THE BIAS UNIT AT BARODA. HE EMPHASISED THAT VARIOUS DEDUCTIONS HAVE TO BE WORKED OUT ON THE BASIS OF VARIOUS UNITS SEPARATELY. THE OTHER ASPECT OF THE GROUND IS THAT DEDUCTIONS 80HHC, IN THESE CIRCUMSTA NCES, FOR COMPUTING BOOK PROFIT U/S. 115JA, HAS TO BE WORKED OUT ON THE BASIS OF BOOK PROFIT ONLY AND IN THIS REGARD, HE RELIED ON T HE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. GT N TEXTILE LTD. 248 ITR 372 (KER.), THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF .RAAJANI KANT SHENELDER & ASSOCIATES, 302 I TR 22(MAD.) AS WELL AS THE DECISION OF THE SPECIAL BENCH OF THE M UMBAI TRIBUNAL IN THE CASE OF DCIT VS. SYNCOME FORMULATIONS (I) LTD., 292 ITR (AT) 144 (MUM.). 60 91. ON THE OTHER HAND, THE LD. CIT-DR SUBMITTED THA T THE PRINCIPAL ISSUE RAISED BY IN THE GROUND IS COVERED AGAINST TH E ASSESSEE IN VIEW OF THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF OLAM EXPORTS (INDIA) LTD. VS. CIT, 229 CTR 206 (KER.). H E FURTHER SUBMITTED THAT DEDUCTION HAS TO BE GIVEN ON THE OVERALL BASIS IN TERMS OF SECTION 80AB. 92. WE HAVE HEARD THE RIVAL SUBMISSIONS AND FIND TH AT PRINCIPALLY THE DEDUCTION U/S. 80HHC COULD ONLY BE ALLOWED AFTER RE DUCING DEDUCTION UNDER SECTION 80IA(9) AND U/S. 80IB(13) AND THIS P OSITION HAS BEEN APPROVED BY THE FIVE MEMBER SPECIAL BENCH OF THE TR IBUNAL IN THE CASE OF. HINDUSTAN MINT & AGRO PRODUCTS (P) LTD., 315 IT R 401 (SB) (DELHI). WE FIND THAT THE HONBLE KERALA HIGH COURT IN THE C ASE OF OLAM EXPORTS (INDIA) LTD., SUPRA HAS ALSO DEALT WITH THIS ISSUE AND IT WAS HELD AS UNDER:- BY VIRTUE OF SECTION 80IB(13) R/W SECTION 80IA(9) THE ASSESSEE WILL NOT BE ENTITLED TO CLAIM DEDUCTIONS BOTH U/S. 80IB AND U/S. 80HHC. EVEN THOUGH COUNSEL APPEARING FOR THE ASSESSE E CONTENDED THAT DEDUCTION U/S. 80HHC IS A FULL COD E IN ITSELF AND NO EXCLUSION WOULD BE MADE WHILE COMPUTING ELIGIBLE DEDUCTION, IT IS NOTICED THAT SECTION 80IB AND SECTION 80HHC C OME UNDER CHAPTER VI-A AND BY VIRTUE OF SPECIFIC EXCLUSION U/ S.80IB(13) THE ASSESSEE IS NOT ENTITLED TO SIMULTANEOUS DEDUCTION OF BOTH. IN OTHER WORDS, WHILE COMPUTING DEDUCTION U/S.80HHC DE DUCTION GRANTED U/S. 80IB CANNOT BE RECKONED OR HAS TO BE E XCLUDED 61 93. THEREFORE, PRINCIPALLY THE LOWER AUTHORITIES AR E RIGHT IN REDUCING THE DEDUCTION U/S. 80IA(9) AND 80IB(13) WHILE COMPU TING THE DEDUCTION U/S. 80HHC. HOWEVER, AT THE SAME TIME, WE FIND FORCE IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT DEDUCTION HAS TO BE WORKED OUT ON THE BASIS OF EACH ELIGIBLE UNIT. TH IS IS SO BECAUSE IF THERE IS A PROFIT IN ONE UNIT WHICH IS NOT ELIGIBLE , THE DEPARTMENT WILL NOT ALLOW ANY DEDUCTION. RESTRICTION PROVIDED U/S. 80AB ONLY LAYS DOWN THAT DEDUCTION CAN BE GIVEN IN RESPECT OF A UNIT OR AN UNDERTAKING IF THE INCOME OF THAT NATURE HAS BEEN INCLUDED IN THE GROSS TOTAL INCOME. THIS WOULD MEAN THAT AS LONG AS THERE IS PROFIT IN AN ELIGIBLE UNIT, THEN DEDUCTION IS TO BE ALLOWED ACCORDINGLY. THIS CANNO T BE INTERPRETED TO MEAN THAT DEDUCTION HAS TO BE ALLOWED ON THE BASIS OF THE ASSESSEES ALL SOURCES OF INCOME, I.E., TOTAL INCOME. IN FACT THE HONBLE BOMBAY HIGH COURT HAD AN OCCASION TO ANALYSE AND DISCUSS T HIS ASPECT OF THE MATTER IN THE CASE OF GODREJ AGROVET LTD. VS. ACIT 290 ITR 252 WHICH WAS A MULTI UNIT AND MULTI PRODUCT COMPANY. IN THA T CASE, ONE OF THE UNIT AT VIJAYAWADA AND SACHIN PLANT-II WERE ELIGIB LE FOR DEDUCTION U/S. 80IB AND ANOTHER UNIT AT PLANT I OF SACHIN UNIT AT PANVEL, WERE ENTITLED FOR DEDUCTION U/S. 80HHC. THE PRODUCTS IN RESPECT O F WHICH DEDUCTION U/S. 80IB WAS CLAIMED AND THE DEDUCTION U/S. 80HHC WAS CLAIMED WERE DIFFERENT. THIS MEANS THAT IF EXPORT OF GOODS FOR WHICH SECTION 80HHC WAS CLAIMED WAS DIFFERENT, THEN THE PRODUCTS FOR WHICH DEDUCTION U/S. 80IB WAS CLAIMED IN THE ORIGINAL ASSESSMENT, THE S AME WAS ALLOWED BUT LATER ON THE DEPARTMENT WANTED TO APPLY RESTRIC TIONS OF SECTIONS 80IA (9) AND 80IB(13). THE HONBLE BOMBAY HIGH COU RT IN THIS CASE HAS OBSERVED AS UNDER:- 62 THE NEXT CONTENTION OF THE REVENUE IS THAT IN THE REGULAR ASSESSMENT, THE ASSESSING OFFICER HAS NOT DISCUSSED THE PROVISION OF SECTION 80IB(13) READ WITH SECTION 80I A(9) OF THE ACT AND IF THOSE PROVISIONS WERE TAKEN INTO CONSIDE RATION, THERE WOULD BE NEGATIVE PROFIT AND CONSEQUENTLY DEDUCTION U/S. 80HHC COULD NOT BE GRANTED. THIS ARGUMENT IS ALSO WITHOUT ANY MERIT BECAUSE, IN THE AFFIDAVIT IN REPLY FILED ON B EHALF OF THE REVENUE IT IS ADMITTED THAT THE ASSESSEE HAD NOT MADE EXPORTS OF THE GOODS MANUFACTURED IN THE INDUSTRIAL UNITS E LIGIBLE FOR DEDUCTION U/S. 80IB, IF THE GOODS MANUFACTURED IN T HE UNITS AVAILING OF DEDUCTION U/S. 80IB WERE NOT EXPORTED, THEN OBVIOUSLY THE GOODS MANUFACTURED IN THOSE UNITS WOU LD NOT BE TAKEN INTO ACCOUNT FOR COMPUTATION OF DEDUCTION U/S . 80HHC. IN THAT EVENT, THE QUESTION OF APPLYING THE PRINCIPLES LAID DOWN IN SECTION 80IA(9) WHILE COMPUTING THE DEDUCTION U/S. 80HHC DOES NOT ARISE AT ALL. 94. FROM THE ABOVE DECISION GIVEN BY THE HONBLE BOMBAY HIGH COURT, IT IS CLEAR THAT TO INVOKE THE RESTRICTION O F SECTION 80IA(9) FOR THE PURPOSE OF ALLOWING DEDUCTION UNDER SECTION 80HHC, IT HAS TO BE IN RESPECT OF THE SAME UNDERTAKINGS, THAT IS TO SAY, V ARIOUS DEDUCTIONS HAVE TO BE WORKED OUT ON THE BASIS OF EACH ELIGIBLE UNIT AND/OR UNDERTAKING. THEREFORE, TO THIS EXTENT, WE SET ASI DE THE ORDER OF THE LD. CIT(A) AND REMIT THIS MATTER BACK TO THE FILE O F THE AO TO EXAMINE THE DEDUCTION OF EACH UNIT AND THEN WORK OUT THE SA ME. FURTHER, HOWEVER, HE HAS TO RESTRICT THE SAME IN TERMS OF SE CTION 80IA(9) AS WELL AS SECTION 80IB(13) IN VIEW OF THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF OLAM EXPORTS (INDIA) LTD., SUPRA. 63 95. AS FAR AS THE SECOND ASPECT IS CONCERNED, HERE ALSO WE AGREE WITH THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASS ESSEE THAT WHILE WORKING OUT THE PROFITS U/S. 115JB, DEDUCTION U/S. 80HHC HAS TO BE ON THE BASIS OF BOOK PROFIT AS HELD BY HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. GTN TEXTILES LTD. [SUPRA] AND THE S PECIAL BENCH OF THE MUMBAI TRIBUNAL IN THE CASE OF DCIT VS. SYNCOME FO RMULATIONS (I) LTD, SUPRA AS WELL AS THE DECISION OF THE HONBLE M ADRAS HIGH COURT IN THE CASE OF .RAAJANI KANT SHENELDER & ASSOCIATES, 3 02 ITR 22(MAD.). THEREFORE, TO THIS EXTENT ALSO, WE SET ASIDE THE OR DER OF THE CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO FOR FUR THER DEDUCTION IN THE LIGHT OF THE ABOVE DECISIONS. WE ALLOW THE ASSESSE ES APPEAL ON THIS ISSUE FOR STATISTICAL PURPOSES 96. COMING TO GROUND NO. 3, THE BRIEF FACTS ARE TH AT DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASS ESSEE HAS RECEIVED INTEREST FROM SBI BONDS AND INTEREST ON G E COUNTRYWIDE FINANCIAL SERVICES AMOUNTING TO RS. 2,35,80,711/- AND THEREFORE, THE INCOME AGGREGATING TO RS.2,38,35,711/- HAS BEEN DEC LARED AS INCOME FROM BUSINESS. ACCORDING TO THE AO, THIS INCOME WA S FROM THE LONG TERM INVESTMENTS AND THEREFORE, THE SAME WAS REQUI RED TO BE ASSESSED AS INCOME FROM OTHER SOURCES ON THE BASIS OF FOLLOWING DECISIONS:- A) CIT VS. COCHIN REFINERIES LTD (KER.).154 ITR 345 B) NANJI TOPANBHAI AND CO. VS. ACIT (KER.) 243 ITR 19 2 C) COLLIS LINE PVT. LTD. VS ITO (KER.) 135 ITR 390 D) ABAD ENTERPRISES VS. CIT (KER.) 253 ITR 319 (KER.) 64 E) TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS . CIT, 227 ITR 172.(SC) 97. THE AO FURTHER NOTED THAT INTEREST INCOME OF RS . 3.09 CRORES INCLUDING INTEREST OF RS. 1,95,36,954/- ON ACCOUNT OF INTEREST ON INCOME TAX REFUND, RS. 27,72,740/- AS INTEREST ON DEPOSITS FROM ABN AMRO BANK AND RS. 69,19,110/- FROM BNP PARIBAS HAS BEEN NETTED OFF AGAINST THE INTEREST PAID BY THE ASSESSEE COMPANY. HE OBSERVED THAT NO INTEREST HAS BEEN PAID TO EARN INTEREST INCOME A ND THEREFORE, INTEREST PAID COULD NOT BE REDUCED FROM INTEREST EA RNED IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F DR. V.P. GOPINATHAN VS. CIT, 248 ITR 449 AND THE DECISION BY THE HONBLE KERALA HIGH COURT IN THE CASE OF K.NANDA KUMAR VS. ITO, 204 ITR 856 AND ACCORDINGLY, THIS NETTING OFF WAS DENIED. THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO PARTICULARLY BY PLACING RELIAN CE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS.DR. V.P.GOPIANTHAN, SUPRA. 98. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE LOWER AUTHORITIES HAVE DENIED THIS NETTING OFF WITH OUT EXAMINING THE FACTS PROPERLY. HE POINTED OUT THAT THE ASSESSEE C OMPANY WAS MAINTAINING THE BOOKS OF ACCOUNTS SEPARATELY FOR EA CH OF THE UNITS AS WELL AS THE HEAD OFFICE. THE SALES OF TYRES WERE B OOKED IN THE HEAD OFFICE AND IN TURN, WERE BEING ALLOCATED TO VARIOUS UNITS IN PROPORTION TO THE PRODUCTION ACHIEVED AT RESPECTIVE UNITS. SIM ILARLY, DIRECT EXPENSES WERE BEING BOOKED IN THE RESPECTIVE UNITS. HOWEVER, TO ASCERTAIN THE CORRECT PROFITS FROM INDIVIDUAL UNITS , THE HEAD OFFICE EXPENSES AS WELL AS MARKETING DIVISION EXPENSES WER E BEING ALLOCATED ON A PROPORTIONATE BASIS. SOMETIMES, THIS WOULD LE AD TO A SITUATION 65 WHERE A UNIT WHICH IS ELIGIBLE FOR DEDUCTION MAY HA VE TO BEAR THE EXPENSES WHICH HAVE NO NEXUS TO SUCH UNITS AND HE I N THIS REGARD, REFERRED TO PGS. 25 & 26 OF THE ASSESSEES PAPER BO OK SHOWING THE ALLOCATIONS. HE AGAIN BROUGHT TO OUR ATTENTION TO PG. 26, WHEREIN BUSINESS EXPENSES HAVE BEEN ALLOCATED. HE ARGUED T HAT WHILE ALLOWING DEDUCTIONS, SUCH ALLOCATION WHICH IS MEANT FOR MANA GEMENT CONTROL CANNOT BE CONSIDERED AND ONLY THAT ALLOCATION WHICH ACTUALLY BELONGS TO THE UNIT CAN ONLY BE CONSIDERED. IN THIS REGARD, H E ALSO PLACED RELIANCE ON THE DECISION OF AUTHORITY ON ADVANCE RULINGS IN THE CASE OF NATIONAL FERTILIZERS LTD., 142 TAXMAN 5(AAR) WHEREIN IT HAS BEEN HELD THAT EXPENSES WHICH ARE NOT RELATED TO THE UNIT SHOULD N OT BE DEDUCTED FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 80IA. THEN HE TRIED TO JUSTIFY THE CLAIM OF DEDUCTION WITH REFERENCE TO VA RIOUS PAPERS. 99. ON THE OTHER HAND, THE LD. CIT-DR SUBMITTED THA T THE ASSESSEE WAS A COMPANY ENGAGED IN THE BUSINESS OF PRODUCTION OF TYRES AND EACH AND EVERY LOAN OBTAINED BY IT HAS BEEN USED FO R THE PURPOSE OF CONSTRUCTING FACTORIES, I.E., FIXED ASSETS OR WORKI NG CAPITAL AND THEREFORE, IT HAS NO CONNECTION WITH THE INTEREST G ENERATED OUT OF THE SURPLUS FUNDS. HE POINTED OUT THAT THE HONBLE SUP REME COURT HAS CLEARLY HELD IN THE CASE OF CIT VS. DR. V.P. GOPINA THAN, SUPRA THAT DEDUCTION FOR INTEREST EXPENDED CAN BE CLAIMED ONLY IF IT IS AN ELIGIBLE UNIT. IN VIEW OF THIS, DENIAL OF NETTING OFF IS QU ITE JUSTIFIED. 100. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY AND FIND THAT PRINCIPALLY THE LD. CIT-DR IS CORRECT IN ARGUING TH AT IF NO EXPENDITURE IN THE FORM OF INTEREST HAS BEEN INCURRED ON EARNING I NTEREST, THEN SUCH INTEREST CANNOT BE NETTED OFF. HOWEVER, AT THE SAME TIME, WHILE 66 WORKING OUT THE DEDUCTION, WE ARE IN AGREEMENT WITH THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT PROFITS O F INDIVIDUAL UNITS HAVE TO BE EXAMINED IN DETAIL AND EXPENDITURE, IF ANY, W HICH HAS BEEN THOUGH ALLOCATED BY THE MANAGEMENT FOR CONTROL PURP OSES, BUT IF THE SAME DOES NOT BELONG TO THAT UNIT, THEN THE SAME SH OULD NOT BE REDUCED FROM THE PROFITS FOR DEDUCTION AS HELD BY T HE AUTHORITY ON ADVANCE RULINGS IN THE CASE OF NATIONAL FERTILIZERS LTD., (SUPRA). THEREFORE, WE SET ASIDE THE ORDER OF THE CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO TO EXAMINE THIS ISSUE AF RESH IN THE LIGHT OF WORKINGS SUBMITTED BY THE ASSESSEE COMPANY AS WELL AS THE DECISION BY THE AUTHORITY ON ADVANCE RULINGS, (SUPRA). IN V IEW OF THIS, THIS GROUND IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 101. REGARDING GROUND NO. 4, AFTER HEARING BOTH TH E PARTIES, WE FIND THAT THE AO DURING THE ASSESSMENT PROCEEDINGS NOTIC ED THAT THE ASSESSEE HAS INCURRED TOTAL EXPENSES ON CLUBS AMOU NTING TO RS.11,11,154/- OUT OF WHICH A SUM OF RS. 9,49,463/- WAS TOWARDS ENTRANCE FEE AND SUBSCRIPTION. ON ENQUIRY, HOW THI S IS A BUSINESS EXPENDITURE, IT WAS SUBMITTED THAT SUCH EXPENSES WE RE INCURRED FOR BUSINESS PURPOSES ONLY AND WERE NOT PERSONAL EXPENS ES OF THE EXECUTIVE STAFF. RELIANCE WAS PLACED ON THE DECISI ON OF THE COCHIN BENCH OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 1998- 99. AFTER CONSIDERING THE SUBMISSIONS, THE AO NOTED THAT SUBS CRIPTIONS HAVE BEEN PAID FOR MORE THAN ONE YEAR. THEREFORE, HE DI SALLOWED A SUM OF RS. 2 LAKHS OUT OF THE SUBSCRIPTIONS AND A SUM OF R S. 1,61,691/- OUT OF THE COST OF SERVICES WHICH WAS TREATED AS PERSONAL EXPENSES. ON APPEAL, THE ADDITION HAS BEEN CONFIRMED BY THE LD. CIT(A). 67 102. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN I.T.A. NO. 43/COCH/2001 AND 21 TO 24/COCH/2005 V IDE PARA 23 OF THE ORDER. 103. ON THE OTHER HAND, THE LD. CIT-DR STRONGLY SUP PORTED THE ORDER OF THE CIT(A). 104. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FI ND THAT IDENTICAL ISSUE CAME UP BEFORE THE TRIBUNAL AND SAME WAS ADJU DICATED IN FAVOUR OF THE ASSESSEE VIDE PARA 23 OF THE ORDER FOLLOWIN G THE EARLIER ORDER OF THE TRIBUNAL IN I.T.A. 301/COCH/1991. IT HAS BEEN RECORDED BY THE TRIBUNAL THAT THE DEPARTMENT HAS NOT FILED ANY APPE AL BEFORE THE HONBLE JURISDICTIONAL HIGH COURT AGAINST THE ORDER . THEREFORE, IN OUR HUMBLE OPINION, THE ISSUE HAS NOW BEEN SETTLED AS T HE DEPARTMENT HAS NOT FILED ANY APPEAL AS NOTED IN THE EARLIER ORDER OF THE TRIBUNAL. THE RELEVANT PARA 23 IS AS UNDER:- THE SECOND ISSUE IS REGARDING DISALLOWANCE OF RS. 1,68,857/- AS DEDUCTION BEING PAYMENTS MADE TO THE CLUBS IN THE I NTEREST OF FURTHERING THE BUSINESS OF THE ASSESSEE . ACCORDING TO THE ASSESSING OFFICER AN AMOUNT OF RS. 15,12,898/- WAS SHOWN AS EXPENSES TOWARDS CLUBS. THESE EXPENSES WERE NOT TRE ATED AS BUSINESS EXPENSES AND HENCE WERE ADDED BACK. HOWEVE R, THE ASSESSEE CLAIMED THAT SUCH EXPENSES WERE ADMISSIBLE AS THEY WERE INCURRED IN THE REGULAR COURSE OF BUSINESS AND ARE ALLOWABLE U/S. 37(1) OF THE ACT. IT WAS ALSO SUBMI TTED THAT FOR THE ASSESSMENT YEAR 1996-97, THE CIT(A) HAS SET ASI DE A SIMILAR 68 DISALLOWANCE TO EXAMINE WHETHER SUCH EXPENSES WERE OF A PERSONAL NATURE OR WERE IN THE NATURE OF DONATION O R ANY OTHER CONTRIBUTION BY THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ASSESSING OFFICER AFTER VERIFICA TION HAD ALLOWED THE FULL AMOUNT FOR THE ASSESSMENT YEAR 199 6-97. ON APPEAL, THE CIT(A) FOUND THAT THE BREAK UP OF EXPE NSES FILED BY THE ASSESSEE WAS IDENTICAL IN NATURE TO THE EXP ENSE INCURRED IN THE ASSESSMENT YEAR 1996-97. THE CIT(A) FURTHER FOUND THAT AS PER THE BREAK UP OF THE CLUB EXPENSES FILED BY T HE ASSESSEE, AN AMOUNT OF RS. 1,68,857/-REPRESENTED EXPENSES INC URRED BY THE OFFICERS AND STAFF IN THE CLUB AND REIMBURSED T O THEM. ACCORDING TO THE CIT(A), SUCH EXPENSES CAN ONLY BE TERMED AS PERSONAL EXPENSES OF THE OFFICERS AND STAFF AND CAN NOT BE CONSIDERED AS EXPENDITURE FOR THE PURPOSE OF BUSINE SS. THEREFORE, HE DIRECTED THE ASSESSING OFFICER TO DIS ALLOW ONLY AN AMOUNT OF RS. 1,68,857/- AND ALLOW THE BALANCE AMOU NT TAKING INTO ACCOUNT THE FACTS STATED ALREADY. HOWEVER, THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THIS ISSUE HAS BEE N DECIDED IN FAVOUR OF THE AS COMPANY BY THE ITAT, COCHIN BENCH, IN ASSESSEES OWN CASE IN I.T.A. NO. 301/COCH/1991 FOR ASSESSMENT YEAR 1988-89, VIDE ITS ORDER DATED 29.7 .1992. HE FURTHER SUBMITTED THAT THE DEPARTMENT HAS NOT PREFE RRED AN APPEAL BEFORE THE HONBLE HIGH AGAINST THE SAID ITA T ORDER. FOLLOWING THE ABOVE ORDER, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 105. AS REGARDS GROUND NO. 5, AFTER HEARING BOTH TH E PARTIES, WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTE D FROM THE TAX 69 AUDIT REPORT THAT A SUM OF RS. 1,58,750/- HAS BEEN PAID TO SALES TAX DEPARTMENT AS PENALTY. THIS AMOUNT WAS PAID AS PEN ALTY BY THE SALES TAX DEPARTMENT FOR DESPATCH OF GOODS WITHOUT FORM 3 8. ACCORDING TO THE ASSESSEE, IT WAS MERELY A TECHNICAL DEFAULT BEC AUSE FORMS WERE NOT ATTACHED BY MISTAKE AND THIS CANNOT BE TAKEN AS INF RACTION OF LAW AS THERE WAS NO ATTEMPT TO SAVE THE SALES TAX. HOWEVE R, THE AO WAS NOT SATISFIED WITH THE EXPLANATION AND HE APPLIED THE EX PLANATION TO SECTION 37(1) AND DISALLOWED THE SAME. ON APPEAL, THE OR DER OF THE AO HAS BEEN CONFIRMED BY THE LD. CIT(A). 106. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE RE ITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. HE VEHEMENTLY ARGUED THAT IF SOME PARTICULAR FORM WAS NOT ATTACHED WITH THE DELIVERY CHALLANS WHILE DESPATCHING THE GOODS, THE SAME CANNOT BE TRE ATED AS INFRACTION OF LAW AND THIS SHOULD NOT BE CONSIDERED AS PAYMENT OF PENALTY AND THUS, THE SAME SHOULD BE ALLOWED. 107. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORT ED THE ORDER OF THE LOWER AUTHORITIES AND SUBMITTED THAT NON ATTACH MENT OF FORM 38 ALONG WITH THE PRESCRIBED DOCUMENTS HAS BEEN TREATE D AS AN OFFENCE IN THE SALES TAX ACT AND THEREFORE, THIS WOULD AMOUNT TO LEVY OF PENALTY. 108. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY AND FIND THAT IT IS SETTLED LAW THAT IF SOME AMOUNT HAS BEEN PAID AS AN INFRACTION OF LAW BY TAKING SOME UNDUE ADVANTAGE, THEN THE SAME W OULD AMOUNT TO PENALTY AND SUCH EXPENDITURE IS NOT ALLOWABLE AGAIN ST LAWFUL BUSINESS OF THE ASSESSEE. HOWEVER, IF THE SAME HAS BEEN PAI D ONLY AS COMPENSATORY AMOUNT OR ON ACCOUNT OF TECHNICAL DEFA ULT, THEN SUCH 70 EXPENDITURE WOULD NOT AMOUNT TO INFRACTION OF LAW A ND CANNOT BE TREATED AS PENALTY. THE HONBLE SUPREME COURT IN T HE CASE OF PRAKASH COTTON MILLS P. LTD. VS. CIT, 201 ITR 684 (SC) TOOK A SIMILAR VIEW AND IT WAS HELD THAT AN AMOUNT PAID AS COMPENSATORY CANNOT BE DISALLOWED. IN THIS DECISION, THE ISSUE WAS PAYMENT OF PENALTY AGAINST THE NON PAYMENT OF SALES TAX AND IT WAS HELD AS UNDER:- WHENEVER ANY STATUTORY IMPOST PAID BY AN ASSESSEE BY WAY OF DAMAGES OR PENALTY OR INTEREST IS CLAIMED AS AN ALL OWABLE EXPENDITURE U/S. 37(1) OF THE INCOME-TAX ACT, 1961, THE ASSESSING AUTHORITY IS REQUIRED TO EXAMINE THE SCHEME OF THE PROVISIONS OF THE RELEVANT STATUTE PROVIDING FOR PAYMENT OF SUCH IMPOST NOTWITHSTANDING THE NOMENCLATURE OF THE IMPO ST AS GIVEN BY THE STATUTE, TO FIND WHETHER IT IS COMPENSATORY OR PENAL IN NATURE. THE AUTHORITY HAS TO ALLOW DEDUCTION U/S. 3 7(1) WHEREVER SUCH EXAMINATION REVEALS THE CONCERNED IMP OST TO BE PURELY COMPENSATORY IN NATURE. WHEREVER SUCH IMPOS T IS FOUND TO BE OF A COMPOSITE NATURE, THE AUTHORITIES HAVE T O BIFURCATE THE TWO COMPONENTS OF THE IMPOST AND GIVE DEDUCTION OF THAT COMPONENT WHICH IS COMPENSATORY IN NATURE AND REFUS E TO GIVE DEDUCTION OF THAT COMPONENT WHICH IS PENAL IN NATUR E . 109. WHILE DEALING WITH THE SIMILAR ISSUE REGARDI NG STATUTORY PAYMENT OF PENALTY FOR FAILURE TO PAY SALES TAX WIT HIN TIME, IT WAS HELD TO BE OF COMPENSATORY NATURE IN THE CASE OF STAND ARD BATTERIES LTD VS. CIT, 211 ITR 444 (SC) AND IN THIS REGARD IT WAS HELD AS UNDER:- 71 THE LEVY AUTHORISED BY SECTION 36(3) OF THE BOMBAY SALES TAX ACT, 1959, FOR DELAYED PAYMENT OF SALES TAX UNDER T HAT ACT, IS COMPOSITE IN NATURE BEING PARTLY COMPENSATORY AND P ARTLY PENAL IN CHARACTER. THE PROPORTION BETWEEN THE TWO HAS TO BE DETERMINED AND THE PART WHICH IS COMPENSATORY IN CH ARACTER ALONE HAS TO BE DEDUCTED AS BUSINESS EXPENDITURE FROM THE ABOVE DECISIONS, IT BECOMES CLEAR THAT EVE RY PENALTY CANNOT BE TERMED IN THE STRICT SENSE OF THE WORD AS INFRAC TION OF LAW. APPARENTLY, NON ATTACHMENT OF FORM 38 DOES NOT SEEM TO BE WITH THE INTENTION OF SAVING SALES TAX AND IT COULD BE A CAS E OF SIMPLE MISTAKE. HOWEVER, NONE OF THE PARTIES BEFORE US HAS REFERRED TO THE SALES TAX PROVISIONS AS WELL AS SALES TAX ASSESSMENT AND/OR P ENALTY ORDER. THEREFORE, IN THE ABSENCE OF THIS, WE SET ASIDE THE ORDER OF THE CIT(A) AND REMIT THIS MATTER BACK TO THE FILE OF THE AO WI TH A DIRECTION TO EXAMINE THE PENALTY ORDER AND THEN DETERMINE WHETHE R IT WAS AGAINST THE INFRACTION OF LAW OR IT WAS A CASE OF SIMPLE MI STAKE FOR WHICH THE ASSESSEE HAS PAID THE COMPENSATORY AMOUNT AND THEN DECIDE THE ISSUE IN THE LIGHT OF THE ABOVE QUOTED TWO DECISION S. 110. REGARDING GROUND NO. 6, AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE AO HAS DISALLOWED A SUM OF RS. 37,350/- BE ING CONTRIBUTION TO THE EMPLOYEES WELFARE TRUST BECAUSE THE SAME, ACCORD ING TO THE AO, WAS COVERED BY SECTION 40A(9). ON APPEAL, THE ORDE R OF THE AO WAS CONFIRMED BY THE LD. CIT(A) BY FOLLOWING THE EARLIE R YEARS ORDER. 111. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT THIS ISSUE WAS COVERED BY EARLIER YEARS ORDER IN I.T.A. 43/COCH/2001 AND 21 TO 24/COCH/2005 VIDE PARA 10 OF THE ORDER. 72 112. ON THE OTHER HAND, THE LD. CIT-DR RELIED ON TH E ORDERS OF THE LOWER AUTHORITIES. 113. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FI ND THAT THIS ISSUE HAS BEEN DISCUSSED BY THE TRIBUNAL AT PARAS 10 AND 11 OF THE ORDER WHICH READS AS UNDER:- 10. THE FOURTH ISSUE IS REGARDING THE CONTRIBUTION TO EMPLOYEE WELFARE TRUST. THE ASSESSEE CONTRIBUTED A SUM OF RS. 22,66,580/- TO THE EMPLOYEE WELFARE TRUST AND CO-OP ERATIVE SOCIETIES RUN FOR THE WELFARE OF ITS EMPLOYEES. THESE CHARGES RELATE TO TRANSPORTATION CHARGES PAID BY THE COMPAN Y FOR TRANSPORTING ITS EMPLOYEES FROM THEIR PLACE OF RESI DENCE TO THE PLACE OF WORK AND BACK AT THE PERAMBARA PLANT. THE ASSESSEE CLAIMED DEDUCTION U/S. 37(1) OF THE ACT. THE ASSES SING OFFICER DISALLOWED THE SAME U/S.40A(9) OF THE ACT AS THE EMP LOYEES WELFARE TRUST WAS SET UP BY THE COMPANY. THE ASSES SING OFFICER POINTED OUT THAT THERE IS A SPECIFIC SECTIO N I.E. SECTION 40A(9) DEALING WITH SUCH CONTRIBUTIONS, THE ASSESSE E CANNOT TAKE RECOURSE TO THE GENERAL PROVISIONS OF SECTION 37 OF THE IT ACT. ON APPEAL, THE CIT(A) FOUND THAT PROVISIONS O F SECTION 40A(9)OF THE ACT ARE APPLICABLE IN THE CASE. THEREF ORE, THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSES SING OFFICER UNDER THIS HEAD. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND T HAT THIS SECTION 40A(9) RESTRICTION IS NOT APPLICABLE IN THE PRESENT SET OF 73 FACTS. IT IS NOT DISPUTED BEFORE US THAT IT IS AN APPROVED TRUST. FURTHER, IT IS AN ACTUAL EXPENDITURE ON TRANSPORTAT ION OF EMPLOYEES AND THERE IS NO DIVERSION OF INCOME AS DO UBTED BY THE DEPARTMENT. IT IS THE BASIC PRINCIPLE THAT ANY EXPENDITURE EXPENDED IS FOR THE PURPOSE OF BUSINESS AND IT IS N OT AFFECTED BY ANY RESTRICTIONS OR EXPLANATIONS AS FOUND IN SECTIO N 37 OF THE INCOME TAX ACT. THEREFORE, THIS DISALLOWANCE IS NOT JUSTIFIED. THEREFORE, THE RIGOUR OF SECTION 40A(9) IS NOT ATTR ACTED AS IN THIS CASE THE TRUST IS AN APPROVED TRUST AND THIS EXPEND ITURE RELATES TO TRANSPORTATION OF THE EMPLOYEES. UNDER THE ABOVE CIRCUMSTANCES, WE ALLOW THE CLAIM OF THE ASSESSEE. HENCE, THIS GROUND OF THE ASSESSEE IS ALLOWED. 114. FR O M THE ABOVE, IT IS CLEAR THAT IDENTICAL DISALLOWANC E ITEM OF EXPENDITURE WAS DELETED BY THE TRIBUNAL BY HOLDING THAT THE EXPENDITURE WAS FOR THE BUSINESS PURPOSE AND RIGOUR OF SECTION 40A(9) IS NOT ATTRACTED. FOLLOWING THE ABOVE ORDER, WE DE CIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 115. REGARDING GROUND NO. 7 AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTI CED THAT EMPLOYEES AS WELL AS EMPLOYERS PROVIDENT FUND CON TRIBUTIONS WERE PAID ON 21.10.2000 WHEREAS THE DUE DATE FOR PAYMENT INCLUDING GRACE PERIOD WAS 20.10.2000. ACCORDINGLY, HE DISALLOWED THE SAME. THE ACTION OF THE AO HAS BEEN CONFIRMED BY THE LD. CIT( A). 116. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT THIS ISSUE IS NOW SETTLED BY THE DECISION OF THE HONBL E SUPREME COURT IN 74 THE CASE OF CIT VS. ALOM EXTRUSIONS LTD., 319 ITR 30 6 (SC) WHERE IN IT HAS BEEN HELD THAT PAYMENT MADE BEFORE THE DUE DATE OF FILING OF RETURN IS AN ALLOWABLE EXPENDITURE. 117. ON THE OTHER HAND, THE LD. CIT-DR STRONGLY SUP PORTED THE ORDERS OF THE LOWER AUTHORITIES. 118. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE F IND THAT RECENTLY THIS ISSUE HAS BEEN CONSIDERED BY THE HONBLE SUPREME CO URT IN THE CASE OF CIT VS. ALOM EXTRUSIONS, (SUPRA) WHEREIN IT WAS OBSE RVED THAT OMISSION OF SECOND PROVISO TO SECTION 43B OPERATED RETROSPEC TIVELY AND ACCORDINGLY, THE OUTSTANDING PROVIDENT FUND DUES WH ICH WERE PAID BEFORE THE DUE DATE OF FILING OF INCOME TAX RETURNS , WERE AN ALLOWABLE EXPENDITURE. RESPECTFULLY FOLLOWING THIS DECISION, WE SET ASIDE THE ORDER OF THE CIT(A) AND DELETE THIS ADDITION. 119. REGARDING GROUND NO. 8, THE BRIEF FACTS ARE T HAT THE ASSESSEE IS HAVING A PART OF ITS CORPORATE OFFICE BUILDING AT G URGAON, HARYANA MEASURING ABOUT 1,32,000 SQ. FT INCLUDING GROUND FLOOR OUT OF WHICH AN AREA OF 16500 SQ. FT WAS LET OUT TO ITS SISTER CONCERN, APOLLO INTERNATIONAL LTD. THE INCOME FROM LET OUT PORTION WAS OFFERED AS INCOME FROM HOUSE PROPERTY AS PER RETURN.. .HOWEVE R, EXPENSES SUCH AS MUNICIPAL TAX, REPAIRS AND MAINTENANCE AND DEPRE CIATION ALLOWANCE ATTRIBUTABLE TO THE LET OUT PART OF THE BUILDING WE RE NOT DISALLOWED IN COMPUTING THE BUSINESS INCOME. ACCORDINGLY, THE AO WORKED OUT THE PROPORTIONATE COST AND TOTAL DEPRECIATION AND REPAI R EXPENSES OF THE LET OUT PART OF THE CORPORATE HQRS. BUILDING AND ULTIMA TELY DISALLOWED THE PROPORTIONATE AMOUNT AND THUS, ADDITION OF RS. 32,4 9,020/- WAS MADE. 75 120. ON APPEAL, THE LD. CIT(A) OBSERVED THAT THE PO RTION LET OUT CANNOT BE SAID TO HAVE BEEN USED FOR BUSINESS PURPO SE AND ACCORDINGLY, DEPRECIATION AND REPAIRS CANNOT NOT BE ALLOWED FOR THE SAME. 121. BEFORE US, THE LD. COUNSEL FOR THE ASSESSE E SUBMITTED THAT APOLLO INTERNATIONAL LTD. WAS ENGAGED IN THE BUSINE SS OF EXPORTING OF TYRES AND THEREFORE, THE ASSESSEE HAS SOME BUSINE SS CONNECTIONS BECAUSE THE ASSESSEE COMPANY WAS SUPPLYING TYRES T O APOLLO INTERNATIONAL LTD. IN THAT SENSE, THE PREMISES LET OUT TO APOLLO INTERNATIONAL LTD. WERE BEING USED FOR BUSINESS PUR POSE ONLY AND THEREFORE, DEPRECIATION, REPAIRS ETC. OF THIS PORTI ON ARE ALSO TO BE ALLOWED. 122. ON THE OTHER HAND, THE LD. CIT-DR SUBMITTED TH AT ONCE INCOME FROM LET OUT PORTION WAS RETURNED AND ASSESSED AS I NCOME FROM HOUSE PROPERTY, THEN ONLY DEDUCTIONS AGAINST THE INCOME F ROM HOUSE PROPERTY WOULD BE ALLOWED IN RESPECT OF LET OUT PORTION. 123. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY. WE FIND FORCE IN THE SUBMISSIONS OF THE LD. CIT-DR. ONCE A PARTICULAR PORTION HAS BEEN LET OUT AND INCOME IS BEING RETURNED AS WE LL AS ASSESSED FROM LET OUT PORTION AS INCOME FROM HOUSE PROPERTY, THEN ONLY DEDUCTIONS ALLOWABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY WOULD BE ALLOWED AGAINST SUCH INCOME. THE SUPREME COURT IN THE CASE OF DR. V.P. GOPINATHAN, (SUPRA) HELD THAT DEDUCTION UNDER A PARTICULAR HEAD COULD BE ALLOWED ONLY IN RESPECT OF DEDUCTIONS PERM ITTED UNDER THAT PARTICULAR HEAD. WE, FURTHER, FIND THAT THE HONBL E DELHI HIGH COURT IN 76 THE CASE OF CIT VS. H.G. GUPTA & SONS, 149 ITR 253 (DEL.) WAS CONCERNED WITH THE SIMILAR ISSUE. IN THAT CASE, TH E ASSESSEE COMPANY HAD LEASED OUT A PARTICULAR PROPERTY ON LEASE AND L EASE DEED INTER ALIA PROVIDED THAT STAMP DUTY AND REGISTRATION CHARGES O F THE LEASE DEED WERE TO BE BORNE BY THE ASSESSEE, I.E., LESSOR. TH E QUESTION AROSE WHETHER SUCH STAMP DUTY CHARGE WERE ALLOWABLE EXPEN DITURE, THE HONBLE DELHI HIGH COURT OBSERVED AS UNDER:- THE LEGISLATURE HAS USED THE WORD NAMELY IN SECT ION 24 OF THE I.T.ACT, 1961, AND THIS SHOWS THAT THE HEADS OF EXP ENDITURE WHEREOF DEDUCTION CAN BE CLAIMED IN THE COMPUTATION OF INCOME FROM HOUSE PROPERTY ARE EXHAUSTIVE. IF A PARTICULA R TYPE OF EXPENDITURE IS NOT SPECIFICALLY PROVIDED TO BE DEDU CTIBLE, DEDUCTION THEREOF CANNOT BE CLAIMED FROM OUT OF THE ANNUAL VA LUE. NEITHER SECTION 23 NOR SECTION 24 PROVIDES FOR THE DEDUCTIO N OF THE EXPENSES INCURRED TOWARDS STAMP DUTY OR REGISTRATIO N IN RESPECT OF THE LEASE OF THE HOUSE PROPERTY FOR A PERIOD OF FIV E YEARS, IN COMPILING ITS INCOME FROM THE HOUSE PROPERTY . ON THE BASIS OF THE ABOVE OBSERVATION, IT WAS HELD AS UNDER:- HELD ACCORDINGLY, THAT THE ASSESSEE-FIRM WAS NOT E NTITLED TO DEDUCTION OF A HALF SHARE OF THE STAMP DUTY AND REG ISTRATION CHARGES BORNE BY IT IN RESPECT OF A LEASE OF ITS HO USE PROPERTY FOR A PERIOD OF FIVE YEARS, IN COMPUTING ITS INCOME FROM THE HOUSE PROPERTY . 124. THUS FROM THE ABOVE DECISION, IT IS CLEAR THAT IN RESPECT OF INCOME FROM HOUSE PROPERTY, ONLY THOSE EXPENDITURE CAN BE ALLOWED WHICH ARE SPECIFICALLY BROUGHT U/S. 24. THE ASSESSE E COMPANY IS ALREADY GETTING STATUTORY REDUCTION OF 30% FOR REPA IRS ETC. NO SEPARATE DEDUCTION IS MENTIONED IN RESPECT OF REPAIRS OR DEP RECIATION. THEREFORE, THESE AMOUNTS HAVE BEEN CORRECTLY DISALLOWED BY THE LOWER AUTHORITIES. 77 THEREFORE, WE FIND NOTHING WRONG WITH THE ORDER OF THE CIT(A). AND CONFIRM THE SAME. 125. GROUND NOS. 9 AND 10 WERE NOT PRESSED. 126. REGARDING GROUND NO. 11, AFTER HEARING BOTH TH E PARTIES, WE FIND THAT THE ASSESSEE HAD CLAIMED A SUM OF RS. 24, 06,540/- FOR THE CHAIRMANS OFFICE. IT WAS OBSERVED THAT THE CHAIRM AN WAS COMMON TO THE GROUP COMPANIES IN SHRI RAUNAQ SINGH GROUP AND THEREFORE, THE ENTIRE SUM PAID FOR THE CHAIRMANS OFFICE NEED NOT BE TREATED AS INCURRED FOR BUSINESS PURPOSE. THE AO ESTIMATED TH E SUM OF RS. 6 LAKHS WHICH WAS NOT ALLOWABLE IN THIS RESPECT AND A CCORDINGLY, MADE AN ADDITION OF RS. 6 LAKHS. 127. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ADDITI ON ON THE BASIS OF EARLIER YEARS APPELLATE ORDER. 128. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE FA IRLY CONCEDED THIS ISSUE WAS COVERED AGAINST THE ASSESSEE BY THE TRIBU NAL IN I.T.A. 43/COCH/2001 AND 21 TO 24/COCH/2005. 129. ON THE OTHER HAND, THE LD. CIT-DR STRONGLY SUP PORTED THE ORDER OF THE LOWER AUTHORITIES. 130. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY AND FIND THAT AN IDENTICAL ISSUE CAME UP FOR CONSIDERATION OF THE TRIBUNAL IN THE EARLIER ORDER IN I.T.A. NO. 43/COCH/2001 AND 21 TO 24/COCH/2005 AND THE DISALLOWANCE MADE BY THE AO WAS CONFIRMED VIDE PARA 12 OF THE 78 EARLIER ORDER. FOLLOWING THE ABOVE ORDER WE CONFIR M THE ORDER OF THE CIT(A). PARA 12 THE FIFTH ISSUE IS ON THE DISALLOWANCE OF 50% OF THE EXPENDITURE IN RESPECT OF RENT PAID FOR THE OFFICE OF CHAIRMAN AND MANAGING DIRECTOR, RS. 7,57,710/-. THE ASSESSE E COMPANY HAD DURING THE ASSESSMENT YEAR UNDER APPEAL, INCURR ED AN EXPENDITURE OF RS. 15,15,420/- TOWARDS RENT PAID FO R THE OFFICE OF THE CHAIRMAN AND MANAGING DIRECTOR AT ALLAHABAD BANK BUILDING, PARLIAMENT STREET, NEW DELHI. THE ASSESS ING OFFICER DISALLOWED THE ENTIRE EXPENDITURE AS NOT BEING BUSI NESS EXPENDITURE OF THE ASSESSEE COMPANY SINCE THE ASSES SEES OFFICE HAD BEEN SHIFTED TO A NEW PREMISES AND THE CMD WAS FUNCTIONING AND CONTINUES TO FUNCTION FROM THE SAID OFFICE. ON APPEAL, THE CIT(A) ALLOWED 50% OF THE EXPENDITURE AND THE ASSESSEE IS IN APPEAL FOR THE BALANCE 50% OF THE E XPENDITURE. A SIMILAR ISSUE IN ASSESSEE'S OWN CASE BEFORE ITAT, COCHIN BENCH FOR ASSESSMENT YEARS 1994-95 AND 1995-96 HAS BEEN DECIDED AGAINST THE ASSESSEE COMPANY VIDE ORDERS DA TED 28.3.2008 AND 22.8.2008 RESPECTIVELY WHEREIN 50% DISALLOWANCE IN RESPECT OF THE RENT PAID FOR THE OF FICE OF CMD WAS UPHELD. FOLLOWING THE ABOVE, WE CONFIRM THE ORDER OF THE CI T(A) . 131. GROUND NO. 12 WAS NOT PRESSED. 132. REGARDING GROUND NO. 13, AFTER HEARING BOTH T HE PARTIES, WE FIND THAT BAD DEBTS OF RS. 25 LAKHS HAVE BEEN DISAL LOWED BY THE AO 79 BECAUSE SUCH DEBTS WERE NOT TAKEN INTO CONSIDERATIO N WHILE COMPUTING THE BUSINESS INCOME. 133. ON APPEAL, THE ADDITION WAS CONFIRMED BY THE L D.CIT(A) BY OBSERVING THAT NO DETAILS OR EVIDENCE WERE FILED TO PROVE THAT REQUIREMENTS OF SECTION 36(1)(VII) HAVE BEEN COMPLI ED 134. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT ALL THE DETAILS WERE FILED BEFORE THE LOWER AUTHORITIES WHICH ARE ALSO PLACED IN THE PAPER BOOK FROM PG. 38 TO 43, BUT THE SAME W ERE IGNORED BY THE AO AS WELL THE CIT(A). IT WAS SUBMITTED THAT THERE WERE TWO LISTS, ONE CONSISTING. OF LITTLE LARGER DEBTS WHICH WERE MAINL Y FROM GOVERNMENT ROADWAYS CORPORATIONS AND SUCH AMOUNTS WERE NOT BEI NG GIVEN BECAUSE OF CERTAIN DISPUTES. THE SECOND LIST CONTA INED SMALL SUMS FROM VARIOUS DEALERS WHICH ARE LESS THAN RS. 5000/- . IT WAS POINTED OUT THAT A SUM OF RS. 1,25,000/- FROM SUCH PARTIES WHICH WAS WRITTEN OFF IN EARLIER YEARS WAS RECEIVED AND HAS BEEN TAK EN INTO CREDIT. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE LATEST DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD. VS . CIT, 323 ITR 397 (SC) AS WELL AS VIJAYA BANK VS. CIT, 323 ITR 166 (S C). 135. ON THE OTHER HAND, THE LD. CIT-DR STRONGLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED VEHEM ENTLY THAT SUCH DEBTS CANNOT BE ALLOWED IN THE ABSENCE OF DETAILS A ND NO DETAILS HAVE BEEN FILED BEFORE THE LOWER AUTHORITIES. 136. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAR EFULLY AND FIND THAT DISALLOWANCE OF DEBTS HAVE BEEN MADE BY THE AO IN A SUMMARY FASHION BY PARA 16(B) OF HIS ORDER WHICH IS AS UNDE R:- . 80 BAD DEBTS WRITTEN OFF FOR RS. 25,00,000/- WHICH WA S CLAIMED AS DEDUCTION, IS NOT ADMISSIBLE U/S. 36(1)(VII) R.W.S 36(2) AS SUCH DEBT IS NOT TAKEN INTO ACCOUNT IN COMPUTING THE INC OME. A DEBT IS ALSO NOT MONEY LENT IN THE COURSE OF MONEY LENDI NG BUSINESS OF THE ASSESSEE. THE DEBT WRITTEN OFF OF RS.25,00,0 00/- IS DISALLOWED. 137. THE ABOVE CLEARLY SHOWS THAT ADDITION HAS BEEN MADE BY THE AO WITHOUT ANY APPLICATION OF MIND AND WITHOUT CONSIDE RING THE DETAILS FILED BY THE ASSESSEE. THE DETAILS FILED AT PGS. 3 8 TO 43 OF THE PAPER BOOK GIVES ALL THE DETAILS OF BAD DEBTS. THE PAPER BOOK HAS BEEN CERTIFIED AND IT IS CLEARLY MENTIONED THAT ALL THES E PAPERS WERE PLACED BEFORE THE AO AS WELL AS THE CIT(A) AND IT HAS NOT BEEN DENIED BY THE REVENUE BEFORE US THAT THIS IS NOT A CORRECT STATEM ENT. THE DETAILS AT PG. 39 SHOW THAT THE DEBTS DUE ARE FROM VARIOUS GOV ERNMENT ROADWAYS CORPORATIONS AND FEW OTHER LARGE CUSTOMERS . THERE IS ANOTHER LIST OF SMALL CUSTOMERS CONSISTING OF 221 P ARTIES FROM WHOM SUMS OF LESS THAN RS. 5000/- WERE OUTSTANDING WHICH HAVE BEEN WRITTEN OFF. THE LIST AT PG. 39 ALSO SHOWS THAT A S UM OF RS. 1,25,000/- WHICH WAS EARLIER CLAIMED AS DEDUCTIONS AND NOW REC EIVED, HAS BEEN REDUCED FROM THE AMOUNT WRITTEN OFF DURING THE YEAR . ALL THESE DETAILS ARE CLEARLY AVAILABLE. FURTHER, THE AMOUNTS FROM R OADWAYS CORPORATIONS WOULD NATURALLY BE OUTSTANDING ONLY ON ACCOUNT OF SUPPLY OF TYRES. SIMILARLY THE AMOUNTS FROM SMALL CUSTOMER S WILL ALSO BE OUTSTANDING ON ACCOUNT OF TYRES ONLY. RECENTLY, TH E HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD. VS. CIT, 323 ITR 3 97 (SC) HAD AN OCCASION TO CONSIDER THE AMENDMENT OF LAW WITH EFFE CT FROM 1.4.1989 81 IN RESPECT OF DEBTS AND AFTER DETAILED DISCUSSION, IT WAS HELD AS UNDER:- . AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE I NCOME TAX ACT, 1961, WITH EFFECT FROM APRIL 1, 1989, IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECES SARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS B ECOME IRRECOVERABLE: IT IS ENOUGH IF THE BAD DEBT IS WRIT TEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. THE SUPREME COURT ACCORDINGLY REMANDED THE MATTER TO THE ASSESS ING OFFICER TO EXAMINE SOLELY TO THE EXTENT OF WRITE OFF, WHETH ER THE DEBT OR PART THEREOF WAS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE . 138. FROM THE ABOVE, IT IS CLEAR THAT AFTER 1.4.198 9, THERE IS NO NEED FOR THE ASSESSEE TO PROVE THAT THE DEBT HAS REALLY BECOME BAD. MERELY WRITING OFF DEBTS WOULD BE SUFFICIENT COMPLIANCE IN TERMS OF SECTION 36(1)(VII) FOR CLAIMING THE BENEFITS. RESPECTFULLY FOLLOWING THIS DECISION, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DELETE THE ADDITION MADE ON ACCOUNT OF BAD DEBTS. 139. REGARDING GROUND NO. 14, AFTER HEARING BOTH T HE PARTIES, WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTI CED THAT THE ASSESSEE COMPANY HAD EARNED SOME INTEREST IN SBI BO NDS AND CERTAIN DEBENTURES AS WELL AS FROM CERTAIN ADVANCES. IT WA S FURTHER NOTED THAT THE ASSESSEE HAS SET OFF SOME OF THE INTEREST PAID AGAINST THE INTEREST INCOME. THE AO, THEREFORE, WAS OF THE VIEW THAT TH E INTEREST INCOME WAS TO BE CONSIDERED AS INCOME FROM OTHER SOURCES A ND ACCORDINGLY REDUCED THESE PROFITS FROM BUSINESS PROFITS AND FOR THE PURPOSE OF VARIOUS DEDUCTIONS U/S. 80IA. THE ACTION OF THE AO HAS BEEN CONFIRMED BY THE LD. CIT(A). 82 140. BOTH THE PARTIES BEFORE US MADE SIMILAR ARGUME NTS IN RESPECT OF THIS ISSUE AS WERE MADE IN GROUND NO. 3 WHICH HAS B EEN ADJUDICATED BY US IN PARA-100 IN VIEW OF THE IDENTICAL NATUR E OF THE ISSUE AND ARGUMENTS, WE DECIDE THE ISSUE SIMILARLY AS DECIDED IN GROUND NO. 3 AND SET ASIDE THE ORDER OF THE CIT(A) AND REMIT THE ISSUE BACK TO THE FILE OF THE AO TO RE-EXAMINE THE ISSUE AS PER OBSER VATIONS AND DIRECTIONS MADE IN PARA-100. THIS GROUND OF APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. . 141 GROUND NO. 15 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE ISSUES RAISED IN THIS GROUND HAVE BEEN DISCUSSE D BY THE AO FROM PGS. 14 TO 19. THE AO HAS BASICALLY EXCLUDED THE I NCOME FROM INTEREST ETC. FROM BUSINESS PROFITS FOR THE PURPOSE OF COMPU TATION OF DEDUCTION U/S. 80IA& IB. HE HAS ALLOCATED CERTAIN EXPENSES LI KE SHARE PREMIUM EXPENSES WHICH ACCORDING TO HIM PERHAPS WILL RELATE TO THIS UNIT ALSO. HE PARTICULARLY ALLOCATED DEPRECIATION AND PROFITS AND ALLOCATED DEPRECIATION OF HEAD OFFICE ASSETS TO THE BIAS PLAN T AND DG POWER UNIT. ADMITTEDLY HE HAS CONSIDERED THE PROFITS OF B OTH THE UNITS TOGETHER AND THEN AFTER DEDUCTING CERTAIN EXPENSES AND DEPRECIATION ETC., HE HAS ALLOWED DEDUCTION ACCORDINGLY. THIS AC TION OF THE ASSESSING OFFICER HAS BEEN CONFIRMED BY THE LD. CIT(A). 142. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SU BMITTED THAT FIRST OF ALL THESE EXPENSES CAN BE ALLOCATED TO THE UNITS IN WHICH SUCH EXPENSES HAVE BEEN ACTUALLY INCURRED AND IN THIS RE GARD HE RELIED ON THE DECISION OF THE AAR IN THE CASE OF NATIONAL FER TILISERS (SUPRA). HE FURTHER SUBMITTED THAT IN NO CASE, THE DEDUCTIONS F OR TWO UNITS CAN BE CLUBBED TOGETHER THAT TOO UNDER TWO DIFFERENT PROVI SIONS SECTION 80IA 83 AND 80IB BECAUSE EVEN DIFFERENT RATES OF DEDUCTIONS ARE PRESCRIBED UNDER SECTIONS 80IA AND 80IB. U/S. 80IA, IT IS 100% WHEREAS U/S. 80IB, IT IS 30%. DEDUCTIONS UNDER VARIOUS PROVISIO NS OF CHAPTER VA HAVE TO BE COMPUTED SEPARATELY FOR EACH OF THE UNIT . 143. ON THE OTHER HAND, LD. CIT-DR JUSTIFIED THE AC TION OF THE ASSESSING OFFICER BY CONTENDING THAT INTEREST INCOM E ETC. CANNOT BE CALLED TO BE PROFITS DERIVED FROM THE INDUSTRIAL UN DERTAKING. THE HEAD OFFICE EXPENSES HAVE TO BE RESPECTIVELY ALLOCATED T O VARIOUS UNITS WHILE WORKING OUT THE DEDUCTIONS AND ACCORDINGLY, THE LOW ER AUTHORITIES WERE JUSTIFIED IN RESTRICTING THE DEDUCTIONS. 144. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY AND FIND THAT THE ASSESSING OFFICER IS RIGHT TO THE EXTENT THAT I NTEREST INCOME CANNOT BE SAID TO HAVE BEEN DERIVED FROM THE INDUSTRIAL UN DERTAKING, HOWEVER, AT THE SAME TIME, ONLY THAT PORTION OF THE EXPENDIT URE CAN BE ALLOCATED WHILE ALLOWING DEDUCTION U/S. 80IA WHICH PERTAINS T O A PARTICULAR UNIT AS OBSERVED BY THE AUTHORITY OF ADVANCE RULING IN T HE CASE OF NATIONAL FERTILZERS (SUPRA). SIMILARLY DEPRECIATION ETC. HA VE TO BE ALLOCATED ON THE BASIS OF WHATEVER PERTAINS TO THAT PARTICULAR U NIT BUT IN NO CASE PROFITS OF THE TWO UNITS CAN BE COMBINED WHEREBY TH E ASSESSEE HAS CLAIMED DEDUCTIONS UNDER TWO DIFFERENT PROVISIONS, I.E., U/S. 80IA AND 80IB. FURTHER, DEDUCTIONS HAVE TO BE WORKED OUT ST RICTLY FOR EACH OF THE UNIT BY ALLOCATING EXPENSES WHICH PERTAINS TO A PARTICULAR UNIT. THIS POSITION WAS CONSIDERED BY THE HONBLE ANDHRA PRADE SH HIGH COURT IN THE CASE OF CIT VS. VISAKHA INDUSTRIES LTD., 251 IT R 471(A.P.). IN THAT CASE THERE WERE TWO SEPARATE UNITS ASBESTOS CEMENT DIVISION AND SPINNING DIVISION. THERE WAS A PROFIT OF RS. 1,38,2 1,748/- FROM THE 84 ASBESTOS CEMENT DIVISION WHEREAS THERE WAS A LOSS O F RS. 89,90,222/- IN THE CASE OF SPINNING DIVISION. THE NET INCOME OF BOTH THE DIVISIONS WAS SHOWN AS RS. 48,31,526/- AND DEDUCTIONS WERE CL AIMED U/S. UNDER 80HH AND 80I IN RESPECT OF ASBESTOS CEMENT DIVISION AMOUNTING TO RS. 27,64,350/- AND 34,55,437/- RESPECTIVELY. THE TOTAL DEDUCTIONS AMOUNTED TO RS. 62,19,787/- HOWEVER, THE SAME WAS RESTRICTED BY THE ASSESSEE TO R. 48,31,526/- AS TOTAL INCOME OF THE T WO DIVISIONS. THE ASSESSING OFFICER DID NOT AGREE WITH THIS POSITION AND HE HELD THAT THE FIRST LOSS FROM THE SPINNING DIVISION HAS TO BE SET OFF AGAINST THE ASBESTOS CEMENT DIVISION PROFITS AND THEN DEDUCTION HAS TO BE ALLOWED. ACCORDINGLY, THE NET INCOME AFTER SET OFF OF LOSS WAS TAKEN AT RS. 31,91,108/- AND THEREAFTER, DEDUCTION U/S. 80HH AND 80I WAS AT 6,38,222/- AND RS. 7,07,777/- RESPECTIVELY. FOR TH IS, THE ASSESSING OFFICER RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF MOTILAL PESTICIDES (INDIA) PVT. LTD., 207 I TR 636(DEL.). THE HONBLE COURT AFTER ANALYZING THE VARIOUS CASE LAWS AND THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. CA NARA WORKSHOP P. LTD., 161 ITR 320 (SC) OBSERVED THAT DEDUCTION HAS TO BE COMPUTED AND ALLOWED IN RESPECT OF EACH UNIT INDEPENDENTLY. IF THE INCOME FROM A PARTICULAR UNIT IS NOT ELIGIBLE FOR DEDUCTION, TH EN NO DEDUCTION CAN BE ALLOWED AGAINST THAT INCOME. SIMILARLY, THE LOSS F ROM NON ELIGIBLE UNIT CANNOT BE INCLUDED IN THE INCOME OF THE HEAL OFFICE . THE RELEVANT PORTION OF THE HEADNOTE READS AS UNDER:- A PERUSAL OF SECTIONS 80AB, 80B, 80HH AND 80J OF THE INCOME- TAX ACT, 1961 SHOWS THAT SECTION 80B REFERS TO PROF ITS IN RESPECT OF WHICH DEDUCTIONS ARE AVAILABLE UNDER VARIOUS PRO VISIONS REFERRED TO IN CHAPTER IV-A OF THE ACT. ACCORDING T O THE SAID 85 SECTION, FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER THE SPECIFIED SECTION, THE AMOUNT OF INCOME, WHICH WAS INCLUDED IN THE GROSS TOTAL INCOME AS COMPUTED IN ACCORDANCE WI TH THE PROVISIONS OF THE ACT BEFORE MAKING ANY DEDUCTION U NDER CHAPTER IVA SHALL ALONE BE CONSIDERED. TO THE SAM E EFFECT IS THE DEFINITION OF GROSS TOTAL INCOME REFERRED TO U/ S. 80B(5) OF THE ACT. SIMILARLY, IF WE LOOK INTO THE PROVISIONS OF SECTION 80HH AND 80I OF THE ACT, THE BENEFIT OF DEDUCTION IS REF ERABLE ONLY TO THE GROSS PROFITS AND GAINS DERIVED FROM AN INDUSTR IAL UNDERTAKING COMPUTED IN ACCORDANCE WITH THE PROVISI ONS OF THE ACT, WHICH WAS INCLUDED IN THE GROSS TOTAL INCOME O F THE ASSESSEE. THE DEDUCTION IS NOT REFERABLE TO THE GRO SS TOTAL INCOME OF THE ASSESSEE BUT IS ONLY WITH REFERENCE T O THE INCOME OF THAT PARTICULAR INDUSTRIAL UNDERTAKING ALONE. TH E DEDUCTION IS REFERABLE TO SUCH PROFITS AND GAINS INCLUDED IN THE GROSS TOTAL INCOME OF THE ASSESSEE. TO BE MORE EXPLICIT, THE DE DUCTION IS TO BE GIVEN ONLY IN RESPECT OF THE PROFITS AND GAINS O F AN INDUSTRIAL UNDERTAKING INCLUDED IN THE GROSS TOTAL INCOME OF T HE ASSESSEE AND NOT FROM THE GROSS TOTAL INCOME OF THE ASSESSEE . THE INTENTION OF THE LEGISLATURE IS TO PROVIDE THE BENE FIT OF DEDUCTION FROM THE PROFITS AND GAINS OF AN INDUSTRIAL UNDERTA KING, WHICH FULFILS THE CONDITIONS SPECIFIED IN THE RESPECTIVE PROVISIONS OF THE ACT. THE SAID BENEFIT IS AN INCENTIVE INTENDED TO BOOST INDUSTRIAL ACTIVITY. HENCE, THE PROPER INTERPRETATION IS THAT THE DEDUCTION SHALL BE IN RESPECT OF THE PROFITS AND GAINS OF AN INDUSTRIAL UNDERTAKING, SPECIFIED IN THE PROVISIONS OF THE ACT AND NOT WITH REFERENCE TO THE TOTAL PROFITS OF THE ASSESSEE 86 145 . IN VIEW OF THE ABOVE AND DECISION OF THE HONBLE BO MBAY HIGH COURT IN THE CASE OF GODREJ AGROVET LTD. VS. ACIT [ SUPRA], WHICH WE HAVE DISCUSSED EARLIER IN PARA-93, IT IS CLEAR THAT DEDUCTION HAS TO BE COMPUTED FOR EACH UNIT SEPARATELY. THE ONLY RESTRIC TION PROVIDED UNDER THE ACT IS U/S.80A AND 80AB. UNDER SEC.80A THERE IS A RESTRICTION THAT THE AGGREGATE AMOUNT OF THE DEDUCTIONS UNDER THIS C HAPTER SHALL NOT, IN ANY CASE, EXCEED THE GROSS TOTAL INCOME OF THE A SSESSEE. UNDER SEC.80AB DEDUCTION IS PERMISSIBLE ONLY FOR THOSE IN COMES WHICH HAVE ENTERED INTO THE COMPONENT OF GROSS TOTAL INCOME AN D ARE OF THE NATURE SPECIFIED IN THAT SECTION. IN THE CASE BEFOR E US, BOTH THE UNITS ARE ELIGIBLE FOR DEDUCTION UNDER DIFFERENT SECTIONS I.E. 80IA AND 80IB. THEREFORE, PROFIT OF THESE UNITS CANNOT BE COMBINED AND THEN EXPENSES AND DEPRECIATION ETC. OF ONE UNIT IS ALLOCATED TO A NOTHER UNIT. THE AO HAS COMBINED THE PROFITS OF BIAS PLANT FOR WHICH DE DUCTION U/S.80IB WAS CLAIMED WITH THE PROFITS OF DG UNIT FOR WHICH D EDUCTION U/S.80IA WAS CLAIMED WHICH IS NOT CORRECT. THEREFORE, WE SET ASIDE THE ORDER OF THE LD.CIT[A] AND REMIT THE MATTER BACK TO THE AO W ITH A DIRECTION TO RECOMPUTE THE DEDUCTION FOR EACH UNIT SEPARATELY AF TER ALLOCATING THE EXPENSES AND DEPRECIATION ETC., AS OBSERVED BY US I N EARLIER PARAS. THIS SHOULD BE SUBJECTED TO FURTHER RESTRICTION OF SECTI ONS 80A & 80AB. THEREFORE, THIS GROUND IS ALLOWED FOR STATISTICAL P URPOSES. 146. GROUND NO. 16. AFTER HEARING BOTH THE PARTIES , WE FIND THAT THE ASSESSING OFFICER HAS OBSERVED THAT DG POWER UNIT A ND THE BIAS PLANT AT BARODA ARE INTER-CONNECTED. HE NOTICED THAT THE ASSESSEE HAS ONLY DEDUCTED THE PROFIT OF DG POWER UNIT AT RS. 13,18,0 4,744/- BY APPLYING THE PROVISIONS OF SUB-SECTION 8 OF 80IA. SINCE THE ASSESSEE WAS NOT SELLING POWER AND IT WAS MAINLY BEING USED FOR BIAS PLANT, THEREFORE, 87 DEDUCTION HAD TO BE RESTRICTED TO THE TOTAL PROFITS OF THESE TWO UNITS. SINCE THE AGGREGATE PROFIT OF BOTH THE ACTIVITIES A T BARODA UNIT WAS ONLY RS. 3.52 CORES, HE RESTRICTED THE ADDITION ACCORDIN GLY. THE ACTION OF THE ASSESSING OFFICER HAS BEEN CONFIRMED BY THE CIT (A) ON APPEAL. 147. BEFORE US, BOTH THE PARTIES MADE SIMILAR ARGUM ENTS AS PER GROUND NO. 15. 148. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY. WE FIND WHILE ADJUDICATING GROUND NO. 15, AND RELYING ON TH E DECISION OF THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CI T VS. VISAKHA INDUSTRIES LTD., (SUPRA), THE DEDUCTIONS HAVE TO BE COMPUTED SEPARATELY FOR EACH OF THE UNIT. WE HAVE DISCUSSED THIS ISSUE IN DETAIL IN THE ABOVE NOTED PARAS. RESPECTFULLY FOLLOWING T HE ABOVE DECISION, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO RE-WORK THE DEDUCTIONS OF EACH OF THE UNIT SEPARATELY. SINCE T HE ASSESSEE IS ENTITLED TO DEDUCTION U/S. 80IA FOR THE DG POWER UN IT, NATURALLY THE PROFIT HAS TO BE WORKED ON THE BASIS OF NET PROFIT OF THE DG POWER PLANT AND THEREFORE, AO SHOULD WORK THE SAME ACCORDINGLY. IN THE RESULT, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 149. GROUND NO. 17 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE ASSESSEE COMPANY HAS RECEIVED DIVIDEND AMOUNT ING TO RS. 99,00,102/- FROM IL&FS MUTUAL FUND AND THE SAME WA S CLAIMED AS EXEMPT U/S. 10(33). IT WAS NOTED BY THE AO THAT TH E DIVIDEND FROM THE MUTUAL FUND WOULD BE EXEMPT ONLY IF THE SAME AR E SPECIFIED U/S. 10(23D) HOWEVER, SINCE INFORMATION REGARDING APPROV AL OF IL&FS 88 MUTUAL FUND AS SPECIFIED IN RESPECT OF NOTIFICATION WAS NOT FURNISHED, INCOME FROM DIVIDEND WAS TREATED AS INCOME FROM OTH ER SOURCES. 150. ON APPEAL, THE LD. CIT(A) NOTED THAT NO EVIDEN CE WAS FILED IN RESPECT OF NOTIFICATION OF IL&FS MUTUAL FUND, THE M UTUAL FUND BEING A SPECIFIED FUND AND THEREFORE, DEDUCTION WAS DENIED. 151. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SU BMITTED THAT IL&FS MUTUAL FUND HAS ALREADY GOT MERGED WITH UTI M UTUAL FUND AND IT WAS VERY DIFFICULT TO OBTAIN SUCH DETAILS. FURT HER, THE FUND WAS DULY APPROVED AND IF THE DEPARTMENT WANTS, THEY CAN OBTA IN CONFIRMATIONS DIRECTLY FROM THE IL&FS MUTUAL FUND. 152. ON THE OTHER HAND, THE LD. CIT-DR SUBMITTED TH AT THE ASSESSEE IS DUTY BOUND TO FURNISH DETAILS ASKED BY THE LOWER AUTHORITIES IF IT WANTS TO CLAIM INCOME AS EXEMPT AND ACCORDINGLY, LO WER AUTHORITIES WERE JUSTIFIED IN TREATING THE INCOME AS INCOME FRO M OTHER SOURCES. 153. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY. SINCE THE ASSESSEE COMPANY HAD DIFFICULTY IN OBTAINING THE RE LEVANT EVIDENCE REGARDING IL&FS MUTUAL FUND, BEING A SPECIFIED FUND , WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE SAME BACK TO THE FILE OF THE AO SO THAT THE ASSESSEE CAN NOW FILE THE RELEVANT EVIDEN CE REGARDING THE APPROVAL. HOWEVER, IF THERE IS ANY DIFFICULTY, THE ASSESSEE MAY REQUEST THE AO WITH A SPECIFIC REQUEST TO SOMEONE FROM IL&F S MUTUAL FUND AND/OR UTI MUTUAL FUND WITH WHOM THE IL&FS MUTUAL F UND WAS STATED TO BE MERGED TO OBTAIN SUCH INFORMATION FROM THOSE FUNDS DIRECTLY. NEEDLESS TO SAY THE ASSESSEE SHOULD BE GIVEN PROPER OPPORTUNITY TO PUT 89 UP ITS CASE AND THE AO SHOULD DECIDE THE ISSUE AFTE R OBTAINING THE EVIDENCE FROM THE ASSESSEE AND/OR DIRECTLY FROM THE IL&FS MUTUAL FUND. THIS GROUND IS ALLOWED FOR STATISTICAL PURPO SES. 154. GROUND NO. 18: NOT PRESSED. 155. REGARDING GROUND NO. 19, AFTER HEARING BOTH TH E PARTIES, WE FIND THAT SALES TAX WHICH WAS DEFERRED IN EARLIER Y EARS WERE DISALLOWED. 156. ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALL OWANCE ON THE BASIS OF EARLIER YEARS APPELLATE ORDER. 157. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUB MITTED THAT DETAILS OF BIFURCATION OF SALES TAX DEFERRED AND PAYMENTS W ERE MADE, WERE FURNISHED BEFORE THE AO AND A COPY OF THE DETAILS I S PLACED AT PG. 96 OF THE PAPER BOOK. HE ARGUED THAT AT LEAST THE CLAIM SHOULD HAVE BEEN ALLOWED ON THE PAYMENT BASIS AND IN THIS REGARD, HE REFERRED TO THE PROVISION OF SECTION 43B 158 . ON THE OTHER HAND, THE LD. CIT-DR SUBMITTED THA T DETAILS OF BIFURCATION OF SALES TAX DEFERRED AND PAYMENTS WERE MADE, WERE SUBMITTED BEFORE THE AO AND NO SUCH DISALLOWANCE HA S BEEN MADE BY THE AO AND THEREFORE, THIS CLAIM COULD NOT HAVE BEE N MADE AFRESH BEFORE THE LD. CIT(A) PARTICULARLY IN VIEW OF THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD., 2 84 ITR 323. 159. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY. WE FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF GOETZ E (INDIA) LTD., 90 (SUPRA) HAS HELD THAT NO CLAIM CAN BE ENTERTAINED B Y THE AO UNLESS AND UNTIL REVISED RETURN IS FILED BEFORE HIM. HOWE VER, AT THE SAME TIME, THE HONBLE SUPREME COURT MADE IT CLEAR THAT THE RESTRICTION WOULD NOT APPLY TO THE APPELLATE AUTHORITY IN FACT LAST PARA OF THE JUDGMENT READS AS UNDER:- THE DECISION IN QUESTION IS THAT THE POWER OF THE TRIBUNAL U/S. 254 OF THE INCOME-TAX ACT, 1961, IS TO ENTERTAIN FO R THE FIRST TIME A POINT OF LAW PROVIDED THE FACT ON THE BASIS OF WHICH THE ISSUE OF LAW CAN BE RAISED BEFORE THE TRIBUNAL. TH E DECISION DOES NOT IN ANY WAY RELATE TO TH E POWER OF THE ASSESSING OFFICER TO ENTERTAIN A CLAIM FOR DEDUCTION OTHERWISE THAN B Y FILING A REVISED RETURN. IN THE CIRCUMSTANCES OF THE CASE, W E DISMISS THE CIVIL APPEAL. HOWEVER, WE MAKE IT CLEAR THAT THE I SSUE IN THIS CASE IS LIMITED TO THE POWER OF THE ASSESSING AUTHO RITY AND DOES NOT IMPINGE ON THE POWER OF THE INCOME-TAX APPELLAT E TRIBUNAL UNDER SECTION 254 OF THE INCOME-TAX ACT, 1961 . 160. THE HIGHLIGHTED PORTION SHOWS THAT THE ABOVE R ESTRICTION WOULD NOT APPLY TO APPELLATE AUTHORITIES. WE FURTHER FIND THAT THE ISSUE WAS TAKEN UP BEFORE THE LD. CIT(A) VIDE GROUND NO. 20 W HICH READS AS UNDER:- 20. THE ACIT HAS NOT ALLOWED SALES TAX PAID DURING THE YEAR AMOUNTING TO RS. 3,08,05,951/- AT THE KALAMASSERY U NIT UNDER THE SALES TAX DEFERRED SCHEME. 161. WE FURTHER FIND THAT SECTION 43B READS AS UNDE R 91 43B NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHE R PROVISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RESPECT OF (A) (B) (C) (D) (E) SHALL BE ALLOWED (IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSES SEE ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMP LOYED BY HIM) ONLY IN COMPUTING THE INCOME REFERRED TO IN SE CTION 28 OF THAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PA ID BY HIM. 162. A PLAIN READING OF THE ABOVE PROVISION SHOWS T HAT PAYMENT OF SALES TAX IS TO BE ALLOWED ONLY ON PAYMENT BASIS. I T IS CLEARLY MENTIONED THAT APPLICATION OF THE PROVISION WAS ON THE BASIS OF PAYMENT IRRESPECTIVE OF THE FACT THAT LIABILITY MAY BE INCURRED IN SOME OTHER YEAR THAN THE YEAR OF PAYMENT ON THE BASIS OF METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. THIS WOULD ME AN THAT ONLY IF THE LIABILITY HAS BEEN INCURRED AND BOOKED BY THE SYSTE M OF ACCOUNTING FOLLOWED FOR EARLIER YEARS BUT THE PAYMENTS HAVE BE EN MADE IN THE RELEVANT CURRENT YEAR, THEN THAT SUM IS TO BE ALLOW ED. THEREFORE, WE ARE OF THE VIEW THAT PAYMENT OF SALES TAX FOR THIS YEAR IS TO BE ALLOWED IN THE YEAR OF PAYMENT. HOWEVER, SINCE THE PROOF OF PAYMENT IS NOT FURNISHED BEFORE US AND ONLY BIFURCATION OF DEFERRE D SALES TAX HAS BEEN GIVEN, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER 92 BACK TO THE FILE OF THE AO WITH A DIRECTION TO ALLO W DEDUCTION U/S. 43B FOR PAYMENT OF DEFERRED SALE TAX IF THE SAME HAS BE EN ACTUALLY PAID DURING THE YEAR. 161. REGARDING GROUND NO. 20, AFTER HEARING BOTH TH E PARTIES, WE FIND THAT SINCE INCOME FROM IL&FS MUTUAL FUND, A MOUNTING TO RS. 99,00,102/- WAS TREATED AS INCOME FROM OTHER SOURC ES AS DISCUSSED BY US WHILE ADJUDICATING GROUND NO. 17, THE SAME WAS ADDED TO THE BOOK PROFIT U/S. 115JB. 163. SIMILAR ARGUMENTS WERE MADE IN RESPECT OF GROU ND NO. 17 AND FOLLOWING THAT DECISION WHEREIN WE HAVE SET ASIDE T HE MATTER BACK TO THE FILE OF THE AO FOR ALLOWING FRESH OPPORTUNITY T O THE ASSESSEE TO FILE THE EVIDENCE REGARDING IL&FS MUTUAL FUND, BEING A S PECIFIED ENTITY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) WITH A DIRECT ION TO DECIDE THE SAME AFTER ALLOWING OPPORTUNITY TO THE ASSESSEE TO PRODUCE THE EVIDENCE REGARDING APPROVAL OF IL&FS MUTUAL FUND, B EING A SPECIFIED MUTUAL FUND 164. GROUND NO. 21: AFTER HEARING BOTH THE PARTIES , WE FIND THAT IN THIS GROUND, THE ASSESSEE HAS RAISED TWO ISSUES, I. E. REGARDING ADDITION OF RS. 4662000/- ON ACCOUNT OF INVESTMENT FLUCTUATI ON RESERVE AND ADDITION OF RS. 87,09,109/- ON ACCOUNT OF FIXED ASS ETS REVALUATION RESERVE. THE AMOUNTS WERE DISALLOWED BY THE AO BEC AUSE OF THE FOLLOWING REASONS:-. I) THE AMOUNT WITHDRAWN IS NOT ACTUALLY CREDITED TO P&L. II) THE RESERVE IN QUESTION WERE CREATED BEFORE 1 .4.1997. 93 III) THE BOOK PROFIT OF THE YEAR OF CREATION OF SU CH RESERVES WERE NOT INCREASED BY THE DEBIT FOR RESERVE UNDER S ECTION 115JA OR 115JB. IV) PROVISIONS FOR REDUCTION IN THE VALUE OF INVES TMENT IN GEPL IS AN UNASCERTAINED LIABILITY AS ON 31.3.2001 W HICH IS NOT ADMISSIBLE UNDER EXPLANATION (C) BELOW SECTIO N 115JB(2) AS WAS HELD IN THE ORDER U/S. 154 DATED 10.7.2002. FURTHER, THE SCHEME OF REHABILITATION WA S APPROVED BY THE COURT AFTER THE END OF THE PREVIOUS YEAR. 165. ON APPEAL, THE ORDER OF THE AO WAS CONFIRMED B Y THE LD. CIT(A). 166. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE R EITERATED THE SUBMISSIONS MADE IN RESPECT OF THE ITEM REGARDING I NVESTMENT FLUCTUATION RESERVE AMOUNTING TO RS. 4,66,20,000/- WHICH WERE MADE WHILE ADJUDICATING THE APPEAL IN I.T.A. NO. 252/CO CH/2007. 167. AS FAR AS THE AMOUNT OF FIXED ASSETS REVALUATI ON RESERVE IS CONCERNED, IT WAS SUBMITTED THAT THE AO IS NOT CORR ECT IN OBSERVING THAT THE AMOUNT WAS NOT CREDITED TO THE P&L ACCOUNT . HE REFERRED TO THE ASSESSMENT ORDER FOR EARLIER YEAR WHICH IS PLAC ED IN PAPER BOOK, PGS. 46 TO 57 AND INVITED OUR ATTENTION TO PG. 57 O F THE PAPER BOOK IN WHICH THIS AMOUNT WHICH WAS WITHDRAWN FROM THE RELE VANT RESERVE WAS ALREADY REDUCED FROM THE BOOK PROFITS AND THEREFORE , THIS AMOUNT SHOULD NOT HAVE BEEN ADDED TO THE BOOK PROFITS OF T HIS YEAR. 168. ON THE OTHER HAND, LD. CIT-DR STRONGLY SUPPORT ED THE ORDER OF THE LOWER AUTHORITIES. 94 169. WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. AS FAR AS THE AMOUNT OF RS. 4,66,20,000/- IS CONCERNED, FOLLOWIN G THE DECISION IN I.T.A. 252/COCH/2007 VIDE PARA 75 TO 79 WHEREIN WE HELD THAT INVESTMENT FLUCTUATION RESERVE WAS AGAINST DIMINUTI ON OF ASSETS AND THEREFORE, THE SAME COULD NOT BE ADDED BACK TO THE BOOK PROFITS UNDER CLAUSE (B) TO EXPLANATION 1 TO SECTION 115JA IN VIE W OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. HC L COMNET SYSTEMS AND SERVICES PVT. LTD. (SUPRA). RESPECTFULLY, FOLL OWING THIS DECISION, WE HOLD THAT THIS AMOUNT CANNOT BE ADDED BACK TO THE B OOK PROFITS. AS FAR AS SUM OF RS. 87,09,109/- WHICH IS FIXED ASSET REV ALUATION RESERVE IS CONCERNED, WE FIND THAT IN THE EARLIER YEAR, THE SA ME WAS REDUCED BY THE AO HIMSELF WHICH IS CLEAR FROM PG. 12 OF THE AS SESSMENT ORDER WHICH IS AT PAGE 57 OF THE PAPER BOOK. WE SET ASID E THE ORDER OF THE CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO TO RE-EXAMINE THE ISSUE IN THE LIGHT OF THE EARLIER YEARS ASSESS MENT ORDER. NEEDLESS TO SAY, THE ASSESSEE SHOULD BE PROVIDED REASONABLE OPPORTUNITY TO PUT UP ITS CASE BEFORE THE ASSESSING OFFICER. 170. IN THE RESULT (1) REVENUES APPEALS IN I.T.A.NO .376/COCH/2009 IS DISMISSED, IN I.T.A.NO.252 DISMISSED AND IN I.T. A.NO.539/COCH/2005 IS ALLOWED FOR STATISTICAL PURPOSES AND ASSESSEES APPEALS IN 95 I.T.A.NO.297/COCH/2009 IS ALLOWED, IN I.T.A.NO.233/ COCH/2006/ IS ALLOWED AND IN I.T.A.NO.274/COCH/2005 IS PARTLY ALL OWED. SD/- SD/- (N.VIJAYAKUMARAN) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTA NT MEMBER PLACE: ERNAKULAM DATED : 5TH OCTOBER 2010 P/-* COPY TO: 1. M/S. APOLLO TYRES, CHERUPUSHPAM BUILDING, 6TH FL OOR, SHANMUGHAM ROAD, KOCHI-682031. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCL E-1(1), ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-V, KOCH I 4.THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1(1 ), RANGE-1, ERNAKULAM 5. THE COMMISSIONER OF INCOME-TAX, KOCHI 6. D.R./I.T.A.T., COCHIN BENCH, COCHIN. 7. GUARD FILE. SR.NO. PARTICULARS DATE INITIALS 1 DRAFT DICTATED ON 6-9-10 P 2 DRAFT PLACED BEFORE AUTHOR 17-9-10 P 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5 APPROVED DRAFT COMES TO SR.PS/PS 6 ORDER KEPT FOR PRONOUNCEMENT 7 FILE SENT TO BENCH CLERK 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER 96