ADDL CIT 2(1), MUMBAI V. GTL LTD, MUMBAI

ITA 5419/MUM/2010

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0454 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2017
• Appeal Filed By: Department
• Bench Allotted: G
• Next Hearing Date: 22-02-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 02-07-2010
• Court: TRIBUNAL
• Assessee Lawyers: DR K SHIVARAM; NEELAM JAHDAV
• Keywords: Depreciation; Business expenditure; Search and seizure; Rule of consistency; Retrospective amendment; Additional evidence; Question of law; Commercial expediency; Capital expenditure
• Section: 143(3); 115JB; 10B; 132

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, G MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NOS.5245 & 5419/MUM/2010 ASSESSMENT YEARS: 2005-06 AND 2006-07 DCIT - 2(1), R. NO.575, 5 TH FLOOR, M.K. ROAD, MUMBAI-400020 / VS. M/S GTL LTD. GLOBAL VISION ELECTRONIC SADAN-II, MID TTC INDUSTRIAL AREA, MAHAPE, MUMBAI-400001 ( / REVENUE) ( !'# $ /ASSESSEE) P.A. NO. AAACG3742L !'# $ / ASSESSEE BY DR. K. SHIVARAM & MISS NEELAM JAHDAV / REVENUE BY MISS VIDISHA KALRA CIT-DR ) * $ + / DATE OF HEARIN G : 16/03/2017 * $ + / DATE OF ORDER: 31/05/2017 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THESE TWO APPEALS ARE BY THE REVENUE FOR ASSESSMEN T YEAR 2005-06 AND 2006-07 AGAINST THE IMPUGNED ORDER S BOTH M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 2 DATED 23/04/2010 OF THE LD. FIRST APPELLATE AUTHORI TY, MUMBAI. FIRST, WE SHALL TAKE UP APPEAL OF THE REVEN UE FOR ASSESSMENT YEAR 2005-06 (ITA NO.5245/MUM/2010), WHEREIN, THE COMPOSITE GROUND RAISED PERTAINS TO HO LDING THAT NO EXPENSES OUT OF CORPORATE EXPENSES WAS INCU RRED BY THE ASSESSEE IN RELATION TO STP UNITS CLAIMING DEDU CTION U/S 10B OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE AC T). 2. DURING HEARING, THE MISS. VIDISHA KALRA, CIT-DR , PURSUANT TO THE DIRECTION OF THE HON'BLE HIGH COURT , PRODUCED THE ORIGINAL RECORD BEFORE THIS TRIBUNAL, WHICH HAS BEEN PERUSED/CONSIDERED AND KEPT ON RECORD. THE LD. CIT-DR CLAIMED THAT SEPARATE BOOKS OF ACCOUNTS HAVE TO BE MAINTAINED BY THE ASSESSEE AS THE BENEFIT OF SECTIO N 10B IS FOR EXPORT UNIT ONLY. IT WAS CONTENDED THAT THE AS SESSING OFFICER HAS POWER TO REDRAW THE ACCOUNTS WHERE THE ASSESSEE HAS CLAIMED DEDUCTION U/S 10B OF THE ACT. PLEA WAS ALSO RAISED THAT CORPORATE OFFICE EXPENSES HAS TO BE DIV IDED. 2.1. ON THE OTHER HAND, THE LD. SR. ADVOCATE, DR. K. SHIVARAM, ALONG WITH MISS NEELAM JAHDAV, LD. COUNS EL FOR THE ASSESSEE, STRONGLY DEFENDED THE ORDER OF THE LD . COMMISSIONER OF INCOME TAX (APPEAL) BY CLAIMING THA T FOR ASSESSMENT YEAR 2005-06, THE TRIBUNAL DECIDED THE I SSUE IN FAVOUR OF THE ASSESSEE AGAINST WHICH THE DEPARTMENT , CHALLENGED THE SAME BEFORE THE HON'BLE HIGH COURT. IT WAS CONTENDED THAT THERE ARE VARIOUS BRANCHES AND THERE IS A SEPARATE STAFF FOR THE 10B UNIT, SEPARATE DIRECTOR AND ONLY M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 3 AFTER CONSIDERING THE FACTUAL MATRIX, THE LD. COMMI SSIONER OF INCOME TAX (APPEAL) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. IT WAS PLEADED THAT THERE IS NO TRANSFER OF ANY MAN POWER OR EXPENSES OF ONE UNIT TO ANOTHER UNIT, THER EFORE, THE PROVISION IS NOT APPLICABLE TO THE FACTS OF THE PRE SENT APPEAL. RELIANCE WAS PLACED UPON THE DECISION IN THE CASE O F MALAY N. SANGHAVI VS INCOME TAX OFFICER (ITA NO.1342 OF 2014 ) ORDER DATED 31/01/2017 FROM HON'BLE JURISDICTIONAL HIGH C OURT. THE LD. COUNSEL ASSERTED THAT FOR ASSESSMENT YEARS 2002-03 AND 2003-04, WHILE FRAMING THE ASSESSMENT U/S 143(1 ) OF THE ACT, DEPARTMENT ACCEPTED THE CLAIM OF THE ASSESSEE. SO FAR AS, REOPENING OF THOSE YEARS IS CONCERNED, IT WAS C ONTENDED THAT THE TRIBUNAL DECIDED IN FAVOUR OF THE ASSESSEE FOR WHICH OUR ATTENTION WAS INVITED TO PAGES 270 TO 278 OF TH E PAPER BOOK (ITA NO.6416 AND 6971/MUM/2010 AND ITA NO.1246/MUM/2012) ORDER DATED 02/01/2015. PLEA WAS RAISED THAT FOR LATER YEAR, THE ASSESSEE WENT TO SE TTLEMENT COMMISSION, WHERE THE CLAIM OF THE ASSESSEE WAS ACC EPTED. OUR ATTENTION WAS INVITED TO PAGE 364 TO 369 OF THE PAPER BOOK FOR ASSESSMENT YEAR 2007-08 TO 2009-10. IT WAS CONTENDED THAT RULE OF CONSISTENCY HAS TO BE FOLLOW ED, FOR WHICH, RELIANCE WAS PLACED UPON THE DECISION FROM H ON'BLE APEX COURT IN CIT VS EXCEL INDUSTRIES LTD. 358 ITR 295 (SC), ORDER DATED 08/10/2013 AND CIT VS TRANSLAM LTD. 231 TAXMAN 901 (ALL.). THE CRUX OF THE ARGUMENT IS THA T THE ASSESSEE MAINTAINS SEPARATE BOOKS OF ACCOUNTS FOR E ACH UNIT. M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 4 2.2. BEFORE ADVERTING FURTHER, WE FIND THAT THE HO N'BLE HIGH COURT, VIDE ORDER DATED 04/12/2014 (ITA NO.167 5 OF 2012) HELD AS UNDER:- THIS APPEAL BY THE REVENUE CHALLENGES THE ORDER DA TED 6 JUNE 2012 IN INCOME TAX APPEAL NO.5245/MUM/2010. 2. UPON PERUSAL OF THE TRIBUNAL'S ORDER AND WITH TH E ASSISTANCE OF BOTH SIDES, WE FIND THAT REAL QUESTION BEFORE US IS THE MANNER IN WHICH THE TRIBUNAL PROCEEDED AND DISPOSED OF THE APPEAL FILED BY THE REVENUE. THE ASSESSMENT YEAR IS 2005-06. THE APPEAL IS ADMIT TED ON THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW: (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE ITAT WAS JUSTIFIED IN SUMMARILY IGNORING THE OB JECTION OF THE DEPARTMENTAL REPRESENTATIVE AND THE CONTENTION OF T HE REVENUE AND SIMPLY ACCEPTING THE CATEGORICAL OBSERVATION AND FINDING OF THE CIT(A) WITHOUT GOING INTO THE DETAILS AND APPRECIATING THA T THERE WAS NO BASIS FOR MAKING SUCH CATEGORICAL OBSERVATION? (II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ITAT, WHICH IS THE HIGHEST FACT FINDING AUTHORI TY, WAS JUSTIFIED IN SIMPLY ACCEPTING THE FINDING OF FACT OF THE CIT(A) AND DISMISSING THE APPEAL OF THE REVENUE WHEN THE REVENUE IS IN APPEAL AGAINST THE SAID ORDER? 3. THE TRIBUNAL HAD BEFORE IT THE APPEAL OF THE REV ENUE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S)-4 MUMBAI DATED 23 APRIL 2010. THE GROUNDS OF APPEAL BEFORE THE TRI BUNAL AND URGED BY THE REVENUE WERE WHETHER ON THE FACTS AND CIRCUMSTA NCES OF THE CASE AND IN LAW THE COMMISSIONER ERRED IN HOLDING THAT N O EXPENSES OUT OF THE CORPORATE EXPENSE WAS INCURRED IN RELATION TO STP UNITS WHILE CLAIMING DEDUCTION UNDER SECTION 10B OF THE INCOME TAX ACT, 1961. ACCORDING TO THE REVENUE, THE COMMISSIONER ERRED IN NOT APPRECIATING THE FACT THAT THE PART OF CORPORATE EXPENSES WAS IN CURRED IN RELATION TO CORPORATE OFFICE AND ADMINISTRATIVE OFFICE OF THE A SSESSEE COMPANY MANAGING OVERALL BUSINESS OF THE ASSESSEE COMPANY I NCLUDING THAT OF STP UNITS. 4. HOWEVER, WHEN THE APPEAL OF THE REVENUE WAS PLAC ED BEFORE THE TRIBUNAL, THE MATTER TOOK ALTOGETHER DIFFERENT TURN . IT APPEARS THAT THE DEPARTMENTAL REPRESENTATIVE SUBMITTED BEFORE THE TR IBUNAL THAT THE ASSESSEE FILED SOME FRESH EVIDENCE WITH REGARD TO L OCATION-WISE DETAILS, WHICH WERE NOT AVAILABLE BEFORE THE ASSESSING OFFIC ER AND THAT AMOUNTS TO ADMISSION OF ADDITIONAL EVIDENCE WHICH IS NOT PE RMISSIBLE IN LAW. 5. THE TRIBUNAL NOTED IN PARAS 7 & 8 OF THE ORDER U NDER CHALLENGE THAT A PAPER BOOK WAS FILED BY THE ASSESSEE AND WHICH WAS CERTIFIED. THAT INDICATED THAT ALL THOSE DOCUMENTS WHICH WERE BEFOR E THE ASSESSING OFFICER ALONE WERE CONSIDERED BY THE COMMISSIONER A ND NO ADDITIONAL M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 5 MATERIAL WAS FILED BEFORE THE COMMISSIONER NOR WAS ANY EVIDENCE PRODUCED. 6. THE TRIBUNAL, IN OUR OPINION, UNNECESSARY WASTED ITS PRECIOUS JUDICIAL TIME IN FINDING OUT AS TO WHETHER THERE WAS INDEED AN ADDITIONAL EVIDENCE BEFORE THE COMMISSIONER AND WHETHER THE DE PARTMENTAL REPRESENTATIVE WAS JUSTIFIED IN MAKING COMPLAINT OF THE ABOVE NATURE. THE MANNER IN WHICH THE DEPARTMENTAL REPRESENTATIVE CONDUCTED HIMSELF MAY HAVE OFFENDED THE TRIBUNAL, BUT IT WAS ITS DUTY AS A LAST FACT FINDING AUTHORITY TO DECIDE THE MATTER JUDICIOUSLY AND ON MERITS. THE APPROACH OF THE DEPARTMENTAL REPRESENTATIVE AND RES TING ON THE PRODUCTION OF THE ADDITIONAL EVIDENCE BY THE ASSESS EE, SO ALSO NOT ALLOWING THE TRIBUNAL TO TAKE INTO CONSIDERATION TH E PAPER BOOK FILED BY THE ASSESSEE, SHOULD NOT HAVE RESULTED IN REFUSAL B Y THE TRIBUNAL TO DECIDE THE GROUNDS RAISED BY THE REVENUE ON MERITS. THE APPEAL HAS NOT BEEN DECIDED ON MERITS AT ALL. SINCE THE LAST F ACT FINDING AUTHORITY HAS NOT GONE INTO MERITS OF THE GROUNDS RAISED BY THE R EVENUE IN THIS APPEAL, WE PUT IT TO MR.CHHOTARAY, LEARNED COUNSEL APPEARING ON BEHALF OF THE REVENUE, AS TO WHETHER ON THE AVAILABLE MATE RIAL NAMELY BEFORE THE ASSESSING OFFICER AND THE COMMISSIONER AND THE PAPER BOOK COMPILED BY THE ASSESSEE AND TENDERED BEFORE THE TR IBUNAL IS THE REVENUE WILLING TO HAVE THE MATTER RECONSIDERED BY THE TRIBUNAL ON MERITS. 7. MR.CHHOTARAY, IN ALL FAIRNESS, AGREED AND STATED THAT SO LONG AS THE GROUNDS AND ISSUES ARE DECIDED ON MERITS, THE REVEN UE WILL HAVE NO GRIEVANCE OR COMPLAINT. HOWEVER, RECORDS BEFORE THE ASSESSING OFFICER AND THE COMMISSIONER SHOULD BE SUMMONED BY THE TRIB UNAL SO AS TO COMPLETELY ADJUDICATE THE CONTROVERSY. 8. DR.SHIVRAM, LEARNED SR.COUNSEL APPERING ON BEHAL F OF THE ASSESSEE, SUBMITS THAT THE ASSESSEE WOULD NOT HAVE ANY GRIEVA NCE IF THE MATTER IS SENT BACK TO THE TRIBUNAL FOR DECIDING ON MERITS, B UT THIS COURT SHOULD NOT EXPRESS ANY OPINION ON THE RIVAL CONTENTIONS AND PA RTICULARLY THAT THE COMMISSIONER PROCEEDED TO PLACE HIS STAMP OF APPROV AL ONLY ON THE MATERIAL PRODUCED BY THE ASSESSEE AND DID NOT APPLY HIS MIND INDEPENDENTLY. 9. AFTER PERUSAL OF THE TRIBUNAL'S ORDER, WE ARE OF THE VIEW THAT IT IS NOT NECESSARY TO KEEP THE APPEAL PENDING IN THIS COURT. IT IS EQUALLY UNNECESSARY TO EXPRESS ANY OPINION EITHER WAY ON TH E MERITS OF THE CONTROVERSY. THE TRIBUNAL WOULD BE WELL ADVISED IN SUCH CASES TO DECIDE THE MATTER ON MERITS AND BY SATISFYING ITSELF AS TO WHETHER THE RECORDS BEFORE THE LOWER AUTHORITIES ARE ADEQUATE AND SUFFI CIENT TO DEAL WITH THE GROUNDS OR ANYTHING MORE IS CALLED FOR. IN THAT EVE NT, THE LAW PERMITS THE TRIBUNAL AND EQUALLY THE PARTIES TO MAKE APPROPRIAT E APPLICATIONS AND FILE WITH THE LEAVE OF THE TRIBUNAL ANY ADDITIONAL EVIDE NCE OR DOCUMENTS. THE TIME OF THE TRIBUNAL SHOULD NOT BE WASTED IN SUCH T ECHNICAL ISSUE AND RATHER THE TRIBUNAL MUST ENDEAVOUR TO RENDER SUBSTA NTIAL JUSTICE. 10. AS A RESULT OF THE ABOVE DISCUSSION AND THE APP EAL BEING NOT DECIDED SATISFACTORILY BY THE TRIBUNAL, WE QUASH AN D SET ASIDE THE IMPUGNED ORDER AND RESTORE THE APPEAL OF THE REVENU E TO THE FILE OF THE TRIBUNAL FOR DECISION ON MERITS AND IN ACCORDANCE W ITH LAW. M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 6 11. THE TRIBUNAL SHALL PROCEED ON THE FOOTING THAT THE ASSESSEE DID NOT FILE ANY ADDITIONAL EVIDENCE BEFORE THE COMMISSIONE R, BUT ONLY PROCEEDED ON THE AVAILABLE RECORDS AND BEFORE THE A SSESSING OFFICER. THE TRIBUNAL SHOULD THEN DECIDE THE QUESTIONS AND I SSUES/GROUNDS BY SATISFYING ITSELF AS TO WHETHER THE COMMISSIONER WA S RIGHT IN UPHOLDING THE STAND OF THE ASSESSEE. WE CLARIFY THAT THE ASSE SSEE WOULD BE ENTITLED TO PLACE ON RECORD THE COMPILATION OF 81 P AGES AND ALL THE DOCUMENTS PRODUCED BEFORE THE ASSESSING OFFICER AND THE COMMISSIONER. ADDITIONALLY ORIGINAL RECORDS MAY BE SUMMONED BY THE TRIBUNAL. HOWEVER, THE TRIBUNAL MUST DEAL WITH THE GROUNDS RAISED BY THE REVENUE ON THEIR OWN MERITS AND IN ACCORDANCE WITH LAW. ALL CONTENTIONS IN RELATION THERETO AND OF BOTH SIDES ARE KEPT OPEN . WE CLARIFY THAT WE HAVE NOT EXPRESSED ANY OPINION THEREON. 12. THE APPEAL IS DISPOSED OF ACCORDINGLY. 2.3. IN THE AFORESAID ORDER, THE HON'BLE JURISDICT IONAL HIGH COURT OBSERVED/DIRECTED THE TRIBUNAL TO PROCEE D ON THE FOOTING THAT ASSESSEE DID NOT FILE ANY ADDITIONAL E VIDENCE AND DECIDE THE MERITS OF THE CASE, GONE INTO BY THE COM MISSIONER AND SHALL DEAL WITH THE GROUNDS ON THEIR OWN MERITS AND IN ACCORDANCE WITH LAW. ALL CONTENTIONS IN RELATION TH ERETO AND OF BOTH SIDES WERE KEPT OPEN. IT WAS ALSO OBSERVED THAT NO OPINION WAS EXPRESSED BY THE HON'BLE HIGH COURT. I N THE AFORESAID BACKGROUND/DIRECTION, NOW WE SHALL DEAL W ITH THE APPEALS OF THE REVENUE ON MERIT, UNINFLUENCED BY AN Y OBSERVATION. 2.4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS A COMPANY, IN WHICH PUBLIC IS SUBSTANTIALLY INTERESTED, ENGAGED IN BUSINESS OF PR OVIDING INFORMATION ENABLED TECHNOLOGY SERVICES (HEREINAFTE R IN SHORT ITES) AND NETWORK ENGINEERING SERVICES (HEREINAFTER IN SHORT NES). THE ASSESSEE PROVIDES A WIDE RANGE OF IT AND TELECOM SERVICES TO ITS CUSTOMERS, WHICH INCLUDES DATE CENT ERS, M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 7 DEDICATED DATE NETWORKS, NETWORK MANAGEMENT, WEBSIT E HOSTING AND DESIGN, COMMERCE SERVICE PROVIDER, ONLI NE SERVICE PROVIDER, CALL CENTERS, SYSTEM INTEGRATION, SOFTWAR E APPLICATION, INFRASTRUCTURE SOLUTIONS, ETC. THE AS SESSEE OPERATES IT AND TELECOM SERVICES UNDER TWO DIFFEREN T GROUPS WHICH ARE SUMMARIZED AS UNDER (I) THE IT ENABLED (ITES) GROUP INCLUDES VARIOUS SEGMENTS I.E. (A) ENTERPRISE SOLUTIONS (B) CUSTOMER MANAGEMENT SOLUTIONS GROUP (CALL CENTE R), (C) MANAGED SERVICES, (E) SOFTWARE AND OTHER SERVICES, (F) ERP SERVICES II. THE NETWORK ENGINEERING (NE) GROUP INCLUDES A) DESIGNS, B) ENGINEERS AND COMMISSIONS BASIC CELLULAR, C) SATCOM, WIRED/WIRELESS NETWORK. 2.5. THE ASSESSEE ALSO PROVIDED LOCATION-WISE DETA ILS OF EOU AND NON-EOU UNITS, WHICH ARE SUMMARIZED AS UNDE R:- (A) EOU UNIT (I) ELECTRONICS SADAN NO.II(3 RD FLOOR,) (II) ELECTRONIC SADAN NO.IV MIDC TIC, INDUSTRIAL ARE MAHEP, NAVI MUMBAI. (III) SERIAL NO.61, 2/7, PLOT NO. OPPOSITE OXFORD VILLAGE , SALUNKE VIHAR ROAD, WANOWARI, PUNE (B) LOCATION-WISE DETAILS OF NON-EOU UNITS (A) KOLKATA (B) JAMSHEDPUR (C) BHUVNEWSHWAR (D) DELHI (E) JAIPUR (F) LUCKHNOW (G) GURGAON (H) CHAND IGARH (I) HIMACHAL PRADESH (J) PUNJAB (K) CHHATISHGARH (L) BAN GALORE (M) HYDERABAD (N) PONDICHERY (P) COCHIN (Q) AHMADAB AD (R) M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 8 BHOPAL (S) GOA (T) INDORE (U) NAGPUR (V) PUNE PRABH AT ROAD (W) BALLARD ESTATE, MASJID, MUMBAI (X) MAHAPE ES II (OTHER THAN STP) 2.6. THE ASSESSEE DECLARED LOSS OF RS.1,62,00,326/ - AND BOOK PROFIT OF RS.44,22,80,077/- IN ITS RETURN FILE D ON 26/10/2005. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) DETE RMINING THE TOTAL INCOME AT NIL. THE LD. ASSESSING OFFI CER WHILE FRAMING THE ASSESSMENT RESTRICTED THE CLAIMED DEDUC TION U/S 10B FROM RS.70,84,76,103/- TO RS.55,61,01,739/-. W HILE DOING SO THE LD. ASSESSING OFFICER BIFURCATED THE V ARIOUS UNITS OF THE ASSESSEE COMPANY INTO STP AND NON-STP UNITS BY HOLDING THAT THE EXPENSES OF CORPORATE DIVISION WERE NOT APPORTIONED PROPERLY AS THE SAME WERE LOADED TO NON -STP UNIT TO INFLATE THE INCOME OF STP UNIT, CONSEQUENTL Y, THE LD. ASSESSING OFFICER REAPPORTIONED THE COSTS OF CORPOR ATE OFFICE OVER 100% EO UNIT ON THE BASIS OF PERCENTAGE OF TUR NOVER, RESULTANTLY, THE CLAIMED DEDUCTION U/S 10B OF THE A CT WAS REDUCED. THE LD. ASSESSING OFFICER WHILE FRAMING T HE ASSESSMENT REFERRED TO CORPORATE EXPENSES OF RS.45,63,48,404/-, WHEREAS, THE ASSESSEE PROVIDED T HE DETAILS INCOME AND EXPENSES OF INDIVIDUAL UNITS OF THE COMPANY VIDE LETTER DATED 20/12/2008, WHICH ARE SUMMARIZED AS UNDER:- M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 9 2.7. THE LD. ASSESSING OFFICER FROM THE AFORESAID INFORMATION, PROVIDED BY THE ASSESSEE, INFERRED THA T THE ASSESSEE HAS A UNIT CALLED CORPORATE OFFICE, MANA GING ALL AFFAIRS OF THE ASSESSEE COMPANY BUT WITHOUT ANY BUS INESS CARRIED ITS OWN. THE CORPORATE OFFICE WAS BURDENED WITH ALLOCATION OF HEAVY EXPENSES FOR THE ADVANTAGE OF O THER UNITS AND SPECIALLY THE EXPORT ORIENTED UNIT RESULTING IN TO HUGE LOSS OF RS.30,20,52,482/-. THIS INFERENCE OF THE LD . ASSESSING OFFICER TO ALLOCATE EXPENSES OF RS.13,30, 25,559/- TO THE STP UNITS OUT OF THE TOTAL EXPENSES OF RS.45,63,48,404/- SHOWN UNDER THE HEAD CORPORATE ON THE BASIS THAT STP UNITS CONTRIBUTE ABOUT 29.15% OF THE TURNOVER/TOTAL SALES OF THE ASSESSEE COMPANY AND CA LCULATED THE PROFIT OF STP UNITS AT RS.55,61,01,739/- AS AGA INST THE CLAIM OF RS.70,84,76,103/-. BROADLY, WE ARE IN AGRE EMENT WITH THE OBSERVATION MADE BY THE LD. FIRST APPELLAT E AUTHORITY THAT THE LD. ASSESSING OFFICER MISDIRECTE D HIMSELF WITHOUT COMPREHENDING THE NATURE OF EXPENSES SHOWN BY THE ASSESSEE. M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 10 2.8. WE FIND THAT THE ASSESSEE IS HAVING BRANCH OF FICE ACROSS INDIA AND THE EXPENSES OF RS.45,63,48,404/-, INCLUSIVE OF DEPRECIATION, WERE BOOKED UNDER THE SEGMENT CALL ED COMMON EXPENSES IN VARIOUS LOCATIONS IN ALL OVER INDIA, WHICH WERE REFLECTED AS CORPORATE OFFICE EXPENSES I N THE PROFIT AND LOSS ACCOUNT, WHICH WAS SUBMITTED BEFORE THE AS SESSING OFFICER. SINCE, THE EXPENSES WERE INCURRED AT VARI OUS LOCATIONS, ALL OVER INDIA, HAVE NO CONNECTION WITH STP UNITS WHICH ARE LOCATED AT MAHAPE (ES-4), NAVI MUMBAI AND PUNE OFFICES ONLY. THE LOCATION-WISE DETAILS OF THE SAID CORPORATE EXPENSES OF RS.45,63,48,404/- ARE SUMMARIZED AS UND ER:- LOCATION COST OF SALES MISC EXP. WRITTEN OFF PERSONNEL COSTS SELLING AND MARKETING EXP ADMIN AND OTHER EXPENSES DEPRECIATION TOTAL (RS) KOLKATTA 5,98,271 13,253 5,93,999 2,11,994 14,17,517 DELHI 12,94,368 85,584 1,31,48,603 4,89,181 1,50,17,736 JAIPUR 2,33,375 - - - 2,33,375 LUCKNOW 2,32,125 - 9,342 - 2,41,467 BANGALORE 3,91,288 - 34,016 1,92,915 6,18,219 CHENNAI 4,21,387 5,400 11,34,444 1,92,856 17,54,087 HYDERABAD 2,19,199 5,280 3,74,658 93,083 6,92,220 PONDECHERY 72,940 33,588 1,06,528 A HMEDABAD 2,75,301 4,08,162 1,46,33,698 1,53,17,161 NAGPUR 2,22,116 1,89,109 23,761 4,34,986 PUNE OTHER THAN STP 9,00,842 58,33,680 9,444 67,43,966 MAHAPE ESII 7,75,000 7,62,26,733 17,43,642 6,79,42,606 5,19,77,783 19,86,65,764 TALOJA 1,87,475 - - 8,74,200 10,61,675 TALOJA INFRA - 10,049 38,07,349 1,05,04,222 1,43,21,620 BALLARD ESTATE MUMBAI 1,41, 94,404 11,05,93,521 47,27,792 6,54,22,091 47,84,277 19,97,22,085 (MASJID, WADALA) TOTAL 7,75,000 14,194,404 191,796,000 65,91,000 15,89,71,000 8,40,21,001 45,63,48,404 M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 11 2.9. IF THE AFORESAID BREAK UP OF EXPENSES IS ANAL YZED, IT IS CLEAR THAT EXPENSES WERE INCURRED AT BRANCH LEVE L AND WERE BOOKED UNDER COMMON SEGMENT NAMELY COMMON EXPENSES AND WERE REFLECTED IN THE PROFIT AND LOSS ACCOUNT A S CORPORATE EXPENSES. THE ASSESSEE FILED THE EXPENSES UNDER FIV E HEADS NAMELY COST OF SALES, SELLING AND MARKETING, ADMINI STRATIVE AND OTHER EXPENSES, DEPRECIATION AND PERSONAL COST. IT IS NOTED THAT THESE EXPENSES PERTAINS TO NON-STP BRANC HES AND THE EXPENSES PERTAINING TO STP BRANCHES UNDER THE S AME HAS ALREADY BEEN INCLUDED IN THE COMPUTATION OF PROFIT IN THE RESPECTIVE STP UNIT. THE ASSESSEE PROVIDED LOCATION WISE DETAILS OF EXPENSES, WHERE FROM IT IS EVIDENTLY CLE AR THAT THE SAID EXPENSES DOES NOT PERTAINS TO COMMON INFRASTRUCTURE/SERVICES USED BY STP UNITS BUT ONLY RELATE TO EXPENSES INCURRED BY AND FOR THE NON-STP UNITS/BRAN CHES. IT SEEMS THAT THE LD. ASSESSING OFFICER PROCEEDED ON A WRONG PRESUMPTION THAT THE EXPENSES WERE FROM COMMON INFRASTRUCTURE ACCOUNT I.E. COMMON EXPENSES. THE L D. ASSESSING OFFICER, IT IS OBSERVED, MADE DISALLOWANC E U/S 10B(5) R.W.S. 80IA(10) OF THE ACT. SECTION 80IA(10 ) DEALS WITH A SITUATION, WHERE OWING TO CLOSE CONNECTION BETWEE N THE ASSESSEE, CARRYING ON, ELIGIBLE BUSINESS AND ANY OT HER PERSON, THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES MORE PROF IT WHICH MIGHT BE EXPECTED TO AROSE FROM SUCH ELIGIBLE BUSINESS. IT IS AN ADMITTED FACT THAT IT IS NOT THE CASE OF T HE DEPARTMENT THAT THERE WAS CLOSE CONNECTION BETWEEN THE ASSESSE E AND THE PARTIES TO WHOM SUCH EXPENSES WERE PAID, HOWEVER, T HE ISSUE M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 12 PERTAINS TO WHETHER THE EXPENSES REFERRED TO BY THE LD. ASSESSING OFFICER WERE ALLOCABLE TO STP UNITS OR WH ETHER THE SAID EXPENSES WERE INCURRED FOR NON-STP UNITS, AS C LAIMED BY THE ASSESSEE. WHILE CLAIMING THE CLAIMED DEDUCTION U/S 10B OF THE ACT, THE TOTALITY OF FACTS CLEARLY INDICATES THAT THE EXPENSES PERTAINS ONLY TO NON-STP UNIT AND HAS NO R ELATION TO STP UNITS, CONSEQUENTLY, THE SAID EXPENSES WERE NOT ALLOCABLE TO STP UNIT. IN VIEW OF THIS FACTUAL MATR IX THE EXPENSES OF RS.45,63,48,404/- WERE INCURRED AT VARI OUS BRANCHES OF THE ASSESSEE COMPANY AT NATIONAL LEVEL HAVE NO CONNECTION WITH THE STP UNITS, LOCATED AT MAHAPE, N AVI MUMBAI AND PUNE, THEREFORE, THE OBSERVATION OF THE LD. ASSESSING OFFICER THAT EXPENSES WERE MIXED UP BY TH E ASSESSEE IS FACTUALLY INCORRECT, THEREFORE, WE FIND MERIT IN THE CONCLUSION OF THE LD. COMMISSIONER OF INCOME TAX (A PPEAL) THAT NO EXPENSES OUT OF CORPORATE EXPENSES WERE INC URRED IN RELATION TO STP UNITS FOR WHICH CLAIMED DEDUCTION U /S 10B OF THE ACT WAS MADE BY THE ASSESSEE. THE REVENUE HAS N OT BROUGHT ON RECORD ANY EVIDENCE IN SUPPORT OF ITS CL AIM. EVEN DURING HEARING THE BENCH DIRECTED THE ASSESSEE TO F URNISH THE STATEMENT OF UNIT-WISE PROFITABILITY CLAIMED U/S 10 B FOR YEAR ENDING 31/03/2005, WHICH WAS SUBMITTED BY THE ASSES SEE AND THE SAME WAS EXAMINED BY US. THE LD. DR DID NOT PIN POINT ANY DEFECT IN THE SAME. THE UNIT-WISE COMPARA TIVE PROFITABILITY STATEMENT (ASSESSMENT YEAR-2005-06) H AS BEEN GIVEN AS FOLLOWS:- M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 13 BASIS OF ALLOCATION STP RELATED UNITS CALL CENTRE SOFTWARE AND ERP TOTAL PARTICULARS I II INCOME SALES AND SERVICES EXPORT ACTUAL SALES DOMESTIC ACTUAL SALES. 1,34,96,72,892 28,76,08,831 16,37,28,17,23 OTHER INCOME NET OF FINANCE COSTS 79,72,938 79,72,938 TOTAL INCOME 1,35,76,75,830 28,76,08,831 1,64,52,54,661 EXPENDITURE COST OF SALES AND SERVICES ACTUAL 3,45,46,000 3,45,46,000 CONNECTIVITY CHARGES ACTUAL 6,34,95,000 18,31,317 6,53,26,317 PERSONAL COSTS ACTUAL 49,31,46,000 2,50,55,825 51,82,01,825 SELLING AND MARKETING EXPENSES ACTUAL 2,43,78,000 1,22,44,184 3,66,22,184 ADMINISTRATION AND OTHER EXPENSES ACTUAL 13,54,65,000 1,94,74,692 15,49,39,692 DEPRECIATION ACTUAL 14,64,89,931 14,64,89,931 MISC. EXPD. WRITTEN OFF TOTAL EXPENDITURE 89,75,19,931 5,86,06,019 95,61,2 5,950 PROFIT BEFORE TAX 46,01,25,899 22,90,02,813 68,91,28,711 LESS: PROVISION FOR TAX PROFIT AFTER TAX 46,01,25,899 22,90,02,813 68,91,28,711 EXTRA ORDINARY AND PRIOR PERIOD ITEMS PROFIT AFTER EXTRA ORDINARY ITEMS 46,01,25,899 22,90,02,813 68,91,28,711 UNIT WISE COMPARATIVE PROFITABILITY STATEMENT OF NO N-STP RELATED UNITS. M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 14 NON-STP UNITS TOTAL FOR THE COMPANY NETWORK ENGG. SOFTWARE AND ERP CORPORATE TOTAL I II III INCOME SALES AND SERVICES EXPORT 93607252 93607252 93607252 DOMESTIC 2407595220 1306734394 3714329614 37143296 14 OTHER INCOME NET OF FINANCE COSTS (543528261) 154295922 99937661 107910599 TOTAL INCOME 2446844211 1306734 154295922 39078745 27 5553129188 EXPENDITURE COST OF SALES AND SERVICES 1,06,95,91,317 47,10,18,000 7,75,000 1,54,13,84,317 1,57,59,30,317 CONNECTIVITY CHARGES 8,36,50,008 8,36,50,008 PERSONAL COSTS 320737967 92254449 191796000 604788, 416 1122990241 SELLING AND MARKETING EXPENSES 42007287 43648300 6591000 92246587 128868771 ADMINISTRATION AND OTHER EXPENSES 199910516 91682538 158971000 450564053 605503745 DISCRETION 18,39,66,816 49,27,65,000 8,40,21,000 7 6,07,52,816 90,72,42,747 MISC. EXPD. WRITTEN OFF 1,41,94,404 1,41,94,404 1,41,94,404 TOTAL EXPENDITURE 1,81,62,13,902 12,7,50,18,295 45,63,48,404 3,54,75,80,660 4,503,7,06,550 PROFIT BEFORE TAX 63,06,30,309 3,17,16,099 (30,20,52,482) 36,02,93,92 6 1,04,94,22,638 LESS: PROVISION FOR TAX PROFIT BEFORE TAX 63,06,30,309 3,17,16,099 (30,20,52,482) 36,02,93,92 6 1,04,94,22,638 EXTRA ORDINARY AND PRIOR PERIOD ITEMS PROFIT AFTER EXTRA ORDINARY ITEMS 63,06,30,309 3,17,16,099 (30,20,52,482) 36,02,93,92 6 1,04,94,22,638 M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 15 2.10. IN THE AFORESAID STATEMENT, THE ASSESSEE HAS DULY FURNISHED THE COMPARATIVE PROFITABILITY STATEMENT F OR FINANCIAL YEAR 2004-05 FOR ALL THE DIVISIONS AND SE PARATELY FOR THE STP DIVISION. IN THE AFORESAID STATEMENT, SEPAR ATE AMOUNTS/PROFITABILITY OF NON-STP UNIT HAS BEEN MAIN TAINED; THEREFORE, THE CONTENTION OF THE LD. ASSESSING OFFI CER IS NOT SUBSTANTIATED. THERE IS UNCONTROVERTED FINDING IN T HE IMPUGNED ORDER THAT FROM THE BREAK UP OF EXPENSES, INCURRED AT THE VARIOUS BRANCHES OF THE COMPANY, THERE IS NO CONNECTION WITH STP UNITS. THE RELEVANT FINDING AS CONTAINED IN PARA-15 AND 16 OF THE IMPUGNED ORDER IS REPRODUC ED HEREUNDER:- 15. FROM THE AFORESAID HREAKU1) OF EXPENSES, IT IS ABUNDANTLY CLEAR THAT EXPENSES OF RS. 45,63,48,404/-, WHICH ARE INCU RRED AT VARIOUS BRANCHES OF THE COMPANY ALL OVER INDIA, HAVE NO CON NECTION WITH THE STP UNITS LOCATED AT MAHAPE, NAVI MUMBAI AND PUNE. THER EFORE, IT WAS WRONG ON THE PART OF THE AO TO RE-LOCATE IT PART OF THESE EXPENSES TO THE STP UNITS OF THE COMPANY ON THE BASIS OF PERCENTAGE OF THE TURNOVER OF THE COMPANY VIS-A-VIS THE TURNOVER OF THE STP UNITS , IT IS FURTHER SUBMITTED THAT THE, EXPENSES OF RS, 4 5,63,48,404/- ALSO INCLUDE (DEPRECIATION AMOUNTING TO RS 8,40,21,000/- . IT IS SUBMITTED THAT THE DEPRECIATION COSTS WAS FOR THE ASSETS LYING IN COMMON DIVISIONS AT VARIOUS ABOVE MENTIONED LOCATIONS, THE SAID DEPRECI ATION CAN BE APPORTIONED OVER NON STP UNITS AND NOT ON THE STP U NITS AS THESE ASSETS DID NOT FORM PART OF THE FIXED ASSETS OF THE STP UN ITS. THE ACTION OF THE AO IN APPORTIONING EVEN THE DEPRECATION COST OVER T HE STP UNITS IS THEREFORE ABSOLUTELY UNWARRANTED. IN THE LIGHT OF THE ABOVE, IT IS APPARENT THAT APPO RTIONING THE CORPORATE OFFICE EXPENSES ON 100% EOU UNITS WAS NOT AT ALL RE QUIRED, SINCE THE APPELLANT WAS RUNNING ALL THE UNITS SEPARATELY WITH SEPARATE PERSONNEL COSTS AND WITH SEPARATE BOOKS OF ACCOUNT. THE DEDUC TION U/S 10B CLAIMED BY THE COMPANY WAS BASED ON THE CERTIFICATE ISSUED BY THE AUDITORS OF THE COMPANY. THE AO HAS TAKEN A THOROUGHLY SUBJECTIVE A ND PREJUDICIAL VIEW, DRAWN WRONG INFERENCES AND REDUCED APPELLANT'S CLAI M OF DEDUCTION U/S. 10B. THE AO ERRED IN NOT GRANTING THE DEDUCTION U/S 10B AS CLAIMED BY THE APPELLANT. IT IS OUR HUMBLE REQUEST BEFORE YOUR HONOR TO DIRECT THE AO M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 16 TO ALLOW ENTIRE CLAIM OF DEDUCTION U/S 10B AS CLAIM ED BY THE APPELLANT IN THE RETURN OF INCOME AND RE-COMPUTE ITS TOTAL INCOM E ACCORDINGLY. 16. I HAVE CAREFULLY CONSIDERED THE CONTENTION OF T HE ASSESSING OFFICER, APPELLANTS SUBMISSIONS, THE STP UNITS OF THE APPEL LANT ARE LOCATED AT MAHAPE, NAVI MUMBAI AND PUNE. NON STP UNITS ARE LOC ATED ALL OVER THE COUNTRY. OBVIOUSLY, THE EXPENSES OF RS.463,48,404/- WHICH HAS BEEN INCURRED AT VARIOUS BRANCHES OF THE COMPANY ALL OVE R INDIA HAVE NO CONNECTION WITH STP UNITS WHICH MC LOCATED IN MAHAP O, NAVI MUNBAI AND PUNE, THE AO HAS DRAWN INCORRECT CONCLUSION AND WRONGLY ALLOCATED PART OF THE EXPENSES TO THE EOU UNITS ON THE BASIS OF THE PERCENTAGE TURNOVER. THE DISALLOWANCE MADE BY THE AO, IS THERE FORE HOLD AS UNJUSTIFIED AND HENCE DELETED. THE GROUND OF APPEAL IS, THEREFORE, ALLOWED. 2.11. IN THE AFORESAID UNCONTROVERTED FACTUAL FINDING, IT HAS BEEN OBSERVED THAT THE ASSESSEE WAS RUNNING ALL THE UNITS SEPARATELY BY MAINTAINING SEPARATE BOOKS OF A CCOUNTS AND THUS THE APPORTIONING OF CORPORATE OFFICE EXPEN SES OF 100% EOU UNITS WAS EVEN NOT AT ALL REQUIRED AND THE CLAIMED DEDUCTION U/S 10B OF THE ACT WAS BASED UPON THE CER TIFICATE ISSUED BY THE AUDITORS OF THE ASSESSEE COMPANY AND THE OBSERVATION OF THE ASSESSING OFFICER IS MERELY SUBJ ECTIVE AND PREJUDICIAL/UNJUSTIFIED. THERE IS A FURTHER MENTIO N THAT THE IMPUGNED EXPENSES WERE INCURRED AT VARIOUS BRANCHES OF THE ASSESSEE HAD NO CONNECTION WITH STP UNITS LOCATED A T NAVI MUMBAI AND PUNE, THUS, FROM THIS ANGLE ALSO, WE FIN D NO INFIRMITY IN THE CONCLUSION OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL). THE RATIO LAID DOWN BY HON'BLE ALLAH ABAD HIGH COURT IN THE CASE OF CIT VS TRANSLAM LTD. (2014) 52 TAXMAN.COM 357(ALL.); (2015) 231 TAXMAN 901(ALL.), WHERE THE ASSESSEE MAINTAINED SEPARATE ACCOUNTS FOR EACH UNIT , IT WAS HELD THAT THE ASSESSEE WOULD BE ENTITLED FOR DEDUCT ION U/S 80IA OF THE ACT. THE OBSERVATION MADE IN THE AFORES AID ORDER M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 17 BY THE HON'BLE HIGH COURT IS REPRODUCED HEREUNDER F OR READY REFERENCE AND ANALYSIS:- 1. BOTH THE APPEALS HAVE BEEN FILED BY THE DEPARTM ENT AGAINST THE CONSOLIDATED ORDER DATED 26.08.2004, PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, NEW DELHI IN I.T.A. NO.1769 & 1770/DEL/20 01 FOR THE ASSESSMENT YEARS 1996-97 & 1997-98. 2. ON 26.08.2009, BOTH THE APPEALS WERE ADMITTED BY A COORDINATE BENCH ON THE FOLLOWING SUBSTANTIAL QUESTION OF LAW:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE INCOME TAX APPELLATE TRIBUNAL HAVE ERRED IN LAW IN HOLDING THA T SUB SECTION (10) OF SECTION 80-1A WAS NOT APPLICABLE TO THE CASE RELYIN G ON THE RATIO OF LAW LAID DOWN BY THE APEX COURT IN THE CASE OF BAJAJ TEMPO L TD. VS. CIT (1992) 62 TAXMAN 480 IGNORING THE RATIO OF LAW LAID DOWN BY T HE APEX COURT IN THE CASE OF CIT VS. STERLING FOODS LTD. REPORTED IN 237 ITR 479 AND CIT VS. N.C. BUDDHIRAJA & CO. (1993) 204 ITR PAGE 142? 3. THE BRIEF FACTS OF THE CASES ARE THAT, DURING TH E ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY SET UP A NEW UN IT AT SANSARPUR TERRACE, DISTRICT-KANGRA, (HIMACHAL PRADESH), FOR M ANUFACTURE AND SALE OF LAMINATION TORDIALS CORES AND TRANSFORMERS ETC. IT WAS CLAIMED BY THE ASSESSEE THAT SAID UNIT IS LOCATED IN INDUSTRIALLY BACKWARD AREA THEREFORE THE PROFITS AND GAINS OF THE SAID UNIT ARE ELIGIBLE FOR 100% DEDUCTION UNDER SECTION-80IA OF THE INCOME TAX ACT. FOR THE PURPOSE , THE COMPONENT OF INCOME INCLUDES THE INTEREST INCOME EARNED BY THE A SSESSEE COMPANY ON ACCOUNT OF CHARGE OF OVERDUE INTEREST FROM CUSTOMER S TO WHOM SALES WERE EXECUTED FROM HIMACHAL UNIT ON ACCOUNT OF LATE PAYM ENT OF THEIR DUES AND ALSO TOWARDS BANK INTEREST. THE TOTAL CLAIM FOR THE DEDUCTION UNDER SECTION- 80 IA WAS AT RS. 65,24,023/-, BUT THE A.O. HAS ALLO WED PARTIAL DEDUCTION OF RS. 25,93,772/-. THE REMAINING AMOUNT WAS DISALLOWE D BY THE A.O. AND THE SAME WAS UPHELD BY THE FIRST APPELLATE AUTHORITY. H OWEVER, THE TRIBUNAL HAS ALLOWED ENTIRE CLAIM OF THE ASSESSEE. BEING AGGRIEV ED, THE DEPARTMENT HAS FILED THE PRESENT APPEAL. 4. WITH THIS BACKGROUND, HEARD SRI R.K. UPADHYAY, L EARNED COUNSEL FOR THE DEPARTMENT, WHO HAS JUSTIFIED THE ORDER PASSED BY THE A.O. HE SUBMITTED THAT IN THE CASE OF CIT VS. STERLING FOODS (1999) 237 ITR 579 , IT WAS HELD THAT:- THE ASSESSEE WAS ENGAGED IN PROCESSING PRAWNS AND OTHER SEA FOOD, WHICH IT EXPORTED. IT ALSO EARNED SOME IMPORT ENTIT LEMENTS GRANTED BY THE CENTRAL GOVERNMENT UNDER AN EXPORT PROMOTION SC HEME. THE ASSESSEE WAS ENTITLED TO USE THE IMPORT ENTITLEMENT S ITSELF OR SELL THE SAME TO OTHERS. IT SOLD THE IMPORT ENTITLEMENTS THA T IT HAD EARNED TO OTHERS. IT WAS ALSO HELD THAT:- THERE MUST BE, FOR THE APPLICATION OF THE WORDS D ERIVED FROM, A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS AND THE INDUSTR IAL UNDERTAKING. IN M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 18 THE INSTANT CASE, THE NEXUS WAS NOT DIRECT BUT ONLY INCIDENTAL. THE INDUSTRIAL UNDERTAKING EXPORTED PROCESSED SEA FOODS . BY REASON OF SUCH EXPORT, THE EXPORT PROMOTION SCHEME APPLIED. THEREU NDER, THE ASSESSEE WAS ENTITLED TO IMPORT ENTITLEMENTS, WHICH IT COULD SELL. THE SALE CONSIDERATION THEREFROM COULD NOT BE HELD TO CONSTI TUTE A PROFIT AND GAIN DERIVED FROM THE ASSESSEE'S INDUSTRIAL UNDERTAKING. THE RECEIPTS FROM THE SALE OF IMPORT ENTITLEMENTS COULD NOT BE INCLUD ED IN THE INCOME OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING THE RELIE F UNDER SECTION 80HH OF THE INCOME-TAX ACT, 1961. 5. HE ALSO SUBMITTED THAT THE INTEREST INCOME CANNO T BE ALLOWED UNDER SECTION-80 IA AS IT HAS NOTHING TO DO WITH THE BACK WARDNESS OF THE AREA. IT HAS ALSO BEEN SUBMITTED BY THE LEARNED COUNSEL F OR THE DEPARTMENT THAT ALL THE UNITS OF THE ASSESSEE COMPANY ARE INTE RMIXED AND THE EXPENSES ON ACCOUNT OF INTEREST, ADVERTISEMENT AND PUBLICITY, PACKING AND FORWARDING MISCELLANEOUS EXPENSES ETC. WERE MOS TLY DEBITED IN HEAD OFFICE ACCOUNT THOUGH THEY WERE PERTAINING TO THE SANSARPUR UNIT ALSO. THE A.O. FURTHER APPLIED GLOBAL METHOD OF COM PUTATION UNDER SECTION-80 IA AS PROVIDED UNDER CLAUSE (10) OF SECT ION- 80 IA. HE READOUT THE PROVISION OF SECTION-80 IA (10) AS UNDE R:- WHERE IT APPEARS TO THE ASSESSING OFFICER THAT, OW ING TO THE CLOSE CONNECTION BETWEENT HE ASSESSEE CARRYING ON THE ELI GIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON, OR FOR ANY OTHER REASON, THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MO RE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE I N SUCH ELIGIBLE BUSINESS, THE ASSESSING OFFICER SHALL, IN COMPUTING THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSE OF THE DE DUCTION UNDER THIS SECTION, TAKE THE AMOUNT OF PROFITS AS MAY BE REASO NABLY DEEMED TO HAVE BEEN DERIVED THEREFROM: 6. LASTLY, HE SUBMITS THAT THE A.O. HAS JUSTIFIED I N RESTRICTING THE DEDUCTION TO A PARTICULAR AMOUNT, SO HE MADE A REQU EST TO SET-ASIDE THE ORDER PASSED BY THE TRIBUNAL. 7. ON THE OTHER HAND, SRI SUYASH AGRAWAL, LEARNED C OUNSEL FOR THE ASSESSEE HAD JUSTIFIED THE IMPUGNED ORDER PASSED BY THE TRIBUNAL. HE SUBMITTED THAT THE HIMACHAL UNITS WAS ESTABLISHED W ITH THE FUNDS WHICH CAME OUT FROM THE HEAD OFFICE. THE EXPENSES WERE DE BITED WITH THE HEAD OFFICE ACCOUNT AND THE HIMACHAL UNIT IS NOT CO MMENSURATE WITH THE COMPARATIVE FIGURES WITH THE SALES EFFECTED AT THE HEAD OFFICE AND AT THE ELIGIBLE UNIT. HE ALSO SUBMITTED THAT THE ASSESSEE MAINTAINED THE SEPARATE ACCOUNT BOOKS FOR THE ELIGIBLE UNITS THERE FORE; THE A.O. HAS MADE OUT A CASE PURELY ON PRESUMPTION AND SURMISES. ACCORDING TO LEARNED COUNSEL FOR THE ASSESSEE, SECTION-80 IA(10) IS NOT APPLICABLE IN THE INSTANT CASE AS THE A.O. HAS NOT BROUGHT ANY EV IDENCE ON RECORD TO PROVE ANY MATERIAL AGAINST THE ASSESSEE, SO THE A.O . HAS WRONGLY APPLIED THE SAID PROVISION. 8. WE HAVE HEARD BOTH THE PARTIES AT LENGTH AND GON E THROUGH THE MATERIALS AVAILABLE ON RECORD. FROM THE RECORD IT A PPEARS THAT, THE ASSESSEE HAS CLAIMED THE DEDUCTION UNDER SECTION-80 IA. AS PER THE RATIO LAID DOWN IN THE CASE OF CIT VS. DELHI PRESS PATRA PRAKASHAN LTD. (2013) 355 ITR 1 (DELHI) , IT WAS OBSERVED THAT:- M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 19 THE COMMISSIONER (APPEALS) HELD THAT THE ASSESSING OFFICER HAD NOT POINTED OUT ANY INSTANCE OF THE ASSESSEE INFLATING THE PROFITS EITHER BY CHARGING HIGHER RATES OR SUPPRESSING THE EXPENDITUR E AND IN THE ABSENCE OF ANY SUCH INSTANCE OF MANIPULATION, THE ASSESSING OFFICER WAS NOT CORRECT IN RECOMPUTING THE PROFITS ON THE BASIS OF ESTIMATION. THE TRIBUNAL HELD THAT THE NATURE OF BUSINESS OF THE FI RST UNIT AND THE FOURTH UNIT OF THE ASSESSEE WERE ENTIRELY DIFFERENT AND TH ERE WAS NO JUSTIFIABLE REASON FOR THE ASSESSING OFFICER TO COMPARE THE PRO FIT MARGIN OF THE TWO UNITS. THE ASSESSEE HAD MAINTAINED SEPARATE BOOKS I N RESPECT OF THE FOURTH UNIT AND NO MATERIAL OR SPECIFIC DEFECTS HAD BEEN POINTED OUT BY THE ASSESSING OFFICER IN THE BOOKS WHICH WERE PRODU CED BEFORE HIM FOR VERIFICATION DURING THE COURSE OF THE ASSESSMENT PR OCEEDINGS. 9. ON THE SIMILAR ANALOGY, THE HON'BLE APEX COURT I N THE CASE OF ARISUDANA SPINING MILLS LTD. VS. CIT (2012) 348 IT 385 (SC) HELD THAT BENEFIT UNDER SECTION-80 IA IS NOT APPLICABLE WHEN THE ASSESSEE HAD NOT MAINTAINED THE ACCOUNTS FOR MANUFACTURE OF YARN ACTUALLY PRODUCED AS A PART OF THE INDUSTRIAL UNDERTAKING. 10. IN THE INSTANT CASE, THE ASSESSEE WAS MAINTAINI NG THE SEPARATE ACCOUNTS FOR EACH UNIT AS MENTIONED BY THE TRIBUNAL , SO, THE ASSESSEE IS ENTITLED FOR THE BENEFIT UNDER SECTION-80 IA AND SP ECIALLY WHEN THE NECESSARY CONDITION OF SECTION-80 IA (!0) HAS NOT B EEN FULFILLED BY THE A.O. TO PROVE THAT THE BUSINESS BETWEEN THE ELIGIBL E UNITS AND OTHER UNITS ARE SO ARRANGED THAT THE BUSINESS TRANSACTION BETWEEN THEM PRODUCES MORE PROFIT TO THE ELIGIBLE BUSINESS. THE A.O. HAS NOT GIVEN ANY ADVERSE FINDING ON THE BASIS OF BOOKS OF ACCOUN T PRODUCED BY THE ASSESSEE. THE A.O. HAS ALSO NOT POINTED OUT ANY SPE CIFIC ITEM OF THE ELIGIBLE UNIT WHICH IS DEBITED BY THE HEAD OFFICE. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT ASSESSEE IS ENTITLED FOR BE NEFIT OF SECTION-80 IA. WHILE COMING TO THE AFORESAID CONCLUSION, THE HON'B LE COURT DULY CONSIDERED THE DECISION FROM HON'BLE APE X COURT IN THE CASE OF ARISUDANA SPINNING MILLS VS ACIT (20 12) 348 ITR 385 AND ANOTHER DECISION FROM HON'BLE DELHI HIG H COURT IN CIT VS DELHI PRESS PATRA PRAKASHAN LTD. (2013) 3 55 ITR 14 (DEL.). THUS, THERE IS MERIT IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE, FROM THIS ANGLE, WE AF FIRM THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL S). 2.12. DURING HEARING, THE LD. COUNSEL FOR THE ASSE SSEE CLAIMED THAT A SEARCH AND SEIZURE OPERATION U/S 132 WAS CONDUCTED ON THE GROUP ON 21/09/2010, WHEREIN, THE ASSESSEE COMPANY FILED SETTLEMENT PETITION BEFORE T HE INCOME M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 20 TAX SETTLEMENT COMMISSION, WHEREIN, SIMILAR CLAIM U /S 10B OF THE ACT IN THE CASE OF THE ASSESSEE WAS ACCEPTED FOR ASSESSMENT YEAR 2007-08 TO 2009-10, FOR WHICH, OUR ATTENTION WAS INVITED TO PAGES 280 TO 307 OF THE PA PER BOOK CONTAINING APPLICATION MADE U/S 245C OF THE ACT AND RULE 44C DATED 12/03/2013, ORDER PASSED U/S 245D(1) DATE D 20/03/2013 (PAGES 308 TO 318), ORDER PASSED U/S 245 D(4) DATED 27/11/2013 (PAGES 319 TO 353), ORIGINAL COMPU TATION OF TOTAL INCOME FOR ASSESSMENT YEAR 2007-08 (PAGE 3 54 TO 357), ORIGINAL COMPUTATION OF TOTAL INCOME FOR ASSE SSMENT YEAR 2008-09 (PAGE 358 TO 360) ORIGINAL COMPUTATION OF TOTAL INCOME FOR ASSESSMENT YEAR 2009-10 (PAGE 361-363) COMPUTATION FILED BEFORE THE SETTLEMENT COMMISSION FOR ASSESSMENT YEAR 2007-08 (PAGE 364 TO 365). SINCE, T HE CLAIM OF THE ASSESSEE WAS ACCEPTED, IT WAS CONTENDED THAT ON THE RULE OF CONSISTENCY, THE CLAIM OF THE ASSESSEE HAS TO BE ACCEPTED. THE LD. DR DID NOT CONTROVERT THE ASSERTI ON OF THE ASSESSEE THAT FOR THE AFOREMENTIONED YEARS THE CLAI M OF THE ASSESSEE WAS ACCEPTED BY THE INCOME TAX SETTLEMENT COMMISSION. 2.13. THUS, ON THE ISSUE OF CONSISTENCY, IN PRINCI PLE, WE ARE IN AGREEMENT WITH THE CONTENTION OF THE ASSESSE E THAT UNLESS AND UNTIL CONTRARY FACTS ARE BROUGHT ON RECO RD, THE RULE OF CONSISTENCY, HAS TO BE ACCEPTED. WE NOTE TH AT, AS CLAIMED BY THE ASSESSEE AND NOT CONTROVERTED BY THE REVENUE, AS DISCUSSED IN PARA-2.9 (SUPRA), THE INCOME TAX SE TTLEMENT COMMISSION ACCEPTED THE CLAIM OF THE ASSESSEE, THER EFORE, IN M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 21 THE ABSENCE OF CONTRARY FACTS, NO U-TURN IS PERMISS IBLE. THE LEARNED ASSESSING OFFICER IS BOUND BY RULE OF CONSI STENCY. THE FOLLOWING CASES SUPPORT THE CASE OF THE ASSESSE E: I. PARSHURAM POTTERY WORKS LTD. VS ITO 106 ITR 1 (SC) II. SECURITY PRINTERS 264 ITR 276(DEL.) III. CIT VS NEO POLYPACK PVT. LTD. 245 ITR 492 (DEL.) IV. CWT VS ALLIED FINANCE PVT. LTD. 289 ITR 318 (DEL.) V. BERGER PAINTS INDIA LTD. VS CIT 266 ITR 99 (SC) VI. DCIT VS UNITED VANASPATI (275 ITR 124) (AT)(CHANDIG ARH ITAT) VII. UNION OF INDIA VS KUMUDINI N. DALAL 249 ITR 219 (SC ) VIII. UNION OF INDIA VS SATISH PANNALAL SHAH 249 ITR 221 IX. B.F.VARGHESE VS STATE OF KERALA 72 ITR 726 (KER.) X. CIT VS NARENDRA DOSHI 254 ITR 606 (SC) XI. CIT VS SHIVSAGAR ESTATE 257 ITR 59 (SC) XII. PRADIP RAMANLAL SETH VS UOI 204 ITR 866 (GUJ.) XIII. RADHASWAMY SATSANG VS CIT 193 ITR 321 (SC) XIV. AGGARWAL WAREHOUSING & LEASING LTD. 257 ITR 235 (MP ) THE SUM AND SUBSTANCE OF THE AFORESAID JUDICIAL PRONOUNCEMENTS IS THAT ON THE BASIS OF PRINCIPLE OF JUDICIAL DISCIPLINE, CONSISTENCY HAS TO BE FOLLOWED AND ONCE IN A PARTICULAR YEAR, IF ANY VIEW IS TAKEN, IN THE ABSEN CE OF ANY CONTRARY MATERIAL, NO CONTRARY VIEW IS TO BE TAKEN AS FINALITY TO THE LITIGATION IS ALSO A PRINCIPLE WHICH HAS TO BE FOLLOWED. BEFORE US, NO CONTRARY FACTS OR ANY ADVERSE MATERIA L WAS BROUGHT ON RECORD BY THE REVENUE. 2.14. SO FAR AS, ADMINISTRATIVE EXPENSES FOR MANAG ING OVERALL BUSINESS OF THE ASSESSEE COMPANY INCLUDING THE BUSINESS OF STP UNITS IS CONCERNED, ON THE BASIS OF FOREGOING M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 22 DISCUSSION, WE FIND NO INFIRMITY IN THE CONCLUSION OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL). EVEN OTHERWISE , IT IS THE ASSESSEE, WHO IS TO SAFEGUARD HIS BUSINESS INTE REST AND UNLESS AND UNTIL SOME UNJUSTIFIABILITY IS POINTED, THE REVENUE IS NOT EXPECTED TO GUIDE/DIRECT THE ASSESSEE AS TO HOW TO RUN THE BUSINESS. THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL), IS THEREFORE, AFFIRMED. 3. NOW, WE SHALL TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2006-07. SO FAR AS, GROUND NO. 1 AND 2 (A), (B) IS CONCERNED, DURING HEARING, THE BENCH AL SO ASKED THE LD. COUNSEL FOR THE ASSESSEE TO FILE THE STATEM ENT OF UNIT- WISE PROFITABILITY, CLAIMED U/S 10B OF THE ACT FOR THE YEAR ENDING 31/03/2006. THE ASSESSEE FILED THE DETAILS (PAGES 370 TO 372 OF THE PAPER BOOK-III), WHICH ARE REPROD UCED HEREUNDER FOR READY REFERENCE AND ANALYSIS:- M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 23 FINANCIAL YEAR-2005-06 ASSESSMENT YEAR 2006-07 UNIT WISE PROFITABILITY STATEMENT AS PER SECTION 10 B NOTES:- 1. THERE IS A SEPARATE BANK ACCOUNT OF STP DIVISION 2. IT HAS SEPARATE SET BOOKS OF ACCOUNT 3. THE DIVISION HAS ITS OWN STRENGTH OF EMPLOYEES EXCL USIVELY DOING STP ACTIVITIES. FINANCIAL YEAR-2005-06 ASSESSMENT YEAR 2006-07 UNIT WISE PROFITABILITY STATEMENT AS PER SECTION 10 B M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 24 3.1. IN THE AFORESAID FORM 56G REPORT U/S 10B OF T HE ACT WAS ALSO MADE AVAILABLE BEFORE THE LD. ASSESSIN G OFFICER AS WELL AS BEFORE THE FIRST APPELLATE AUTHORITY, WH ICH CONTAINS STATEMENT OF PROFIT U/S 10B FOR THE YEAR ENDING 31/ 03/2006 AND UNIT WISE PROFITABILITY STATEMENT AS PER SECTIO N 10B FOR FINANCIAL YEAR 2005-06 (ASSESSMENT YEAR 2006-07). T HE ASSESSEE HAS DULY DEPICTED THE ALLOCATION AND ITS B ASIS FOR EOU RELATED UNITS AND NON-EOU UNITS ALONG WITH THE CORPORATE DIVISION (NON-EOU). IN THE NOTES ATTACHED TO THE AFORESAID STATEMENT, IT HAS BEEN CLEARLY MENTIONED THAT THERE IS A SEPARATE BOOKS OF ACCOUNTS OF STP DIVISION AND IT HAS OWN STRENGTH OF EMPLOYEES EXCLUSIVELY DOING STP ACT IVITIES. SO, WE FIND NO INFIRMITY IN THE CONCLUSION OF THE L D. COMMISSIONER OF INCOME TAX (APPEAL) AS NECESSARY DE TAILS WERE FILED BY THE ASSESSEE AND THE SAME WERE DULY E XAMINED BY THE FIRST APPELLATE AUTHORITY. THUS, GROUND NO.1 AND 2 (A) (B) ARE DISMISSED. 4. IN GROUND NO.3A, B, C, D, THE REVENUE HAS CHALLENGED THE ORDER OF THE FIRST APPELLATE AUTHORI TY, HOLDING THAT THE AMOUNT OF RS.3 CRORES, DEBITED IN PROFIT & LOSS ACCOUNT UNDER THE HEAD DIMINUTION IN VALUE OF INV ESTMENT WAS NOT WRITTEN BACK BY THE ASSESSEE, WHILE COMPUTI NG INCOME CHARGEABLE TO TAX UNDER THE NORMAL PROVISION S OF THE IT ACT AND FURTHER IN HOLDING THAT THE ASSESSEE WRI TTEN BACK THE AMOUNT OF RS.2,88,29,361/- BEING DIMINUTION IN VALUE OF INVESTMENT, UNDER NORMAL PROVISION AND UNDER THE PR OVISIONS OF SECTION 115JB OF THE ACT. M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 25 4.1. THE CRUX OF ARGUMENT ADVANCED BY LD. CIT-DR, IS THAT ONUS IS UPON THE ASSESSEE TO PROVE AS TO WHY T HE VALUE HAS GONE DOWN, THEREFORE, THE ASSESSING OFFICER RIG HTLY ADDED BACK. OUR ATTENTION WAS INVITED TO PAGE-12 OF THE ASSESSMENT ORDER. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ASSESSEE HAS NOT CLAIMED ANY DED UCTION, THEREFORE, THE CONCLUSION ARRIVED AT IN THE IMPUGNE D ORDER WAS DEFENDED. RELIANCE WAS PLACED UPON THE DECISION FROM HON'BLE JURISDICTIONAL HIGH COURT IN 251 ITR 15(BOM .) AND HON'BLE APEX COURT IN 255 ITR 273 (SC). 4.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF ARE THAT THE ASSESSEE COMPANY MADE INVESTMENT IN TH E SHARES OF M/S INDIAN AGRI BUSINESS SYSTEM PVT. LTD. AND THE SAME WERE SHOWN AS AT COST. THE ASSESSEE FOLLOWS V ALUING THE INVESTMENT AT COST IN ITS ACCOUNTING POLICY LES S PROVISION FOR DIMINUTION IN THE VALUE OF SUCH INVESTMENT AMOU NTING TO RS.3 CRORE ON ACCOUNT OF REDUCTION IN THE VALUE OF SHARES OF M/S INDIAN AGRI BUSINESS SYSTEM PVT. LTD. THE SAME WAS REDUCED ACCORDINGLY AND NETTED OFF FROM PROFIT AND LOSS ACCOUNT. SINCE, THERE WAS PERMANENT REDUCTION, IT W AS CLAIMED AS ALLOWABLE EXPENDITURE. THE ASSESSEE COMP ANY PREPARED THE ACCOUNTS AS PER THE PROVISIONS OF COMP ANIES ACT, 1956. THIS FACTUAL MATRIX WAS DISCLOSED IN THE ACCOUNTING POLICY BY THE ASSESSEE BY WAY OF NOTE. DURING HEARING, THE LD. COUNSEL INVITED OUR ATTENTION TO A CCOUNTING M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 26 STANDARD-13(AS-13) ON ACCOUNTING FOR INVESTMENT. THE PARA- 7 READS AS UNDER:- LONG TERM INVESTMENTS ARE USUALLY CARRIED AT COST. HOWEVER, WHEN THERE IS A DECLINE, OTHER THAN TEMPORARY, IN T HE VALUE OF A LONG TERM INVESTMENT, THE CARRYING AMOUNT IS REDUCE D TO RECOGNIZE THE DECLINE. INVESTMENTS CLASSIFIED AS LONG TERM INVESTMENTS SH OULD BE CARRIED OUT IN THE FINANCIAL STATEMENTS AT COST. HO WEVER, PROVISION FOR DIMINUTION SHALL BE MADE TO RECOGNIZE A DECLINE, OTHER THAN TEMPORARY, IN THE VALUE OF THE INVESTMEN TS, SUCH REDUCTION BEING DETERMINED AND MADE FOR EACH INVEST MENT INDIVIDUALLY. IN THE AFORESAID FACTUAL MATRIX, IT IS APPARENT TH AT THE ASSESSEE HAS MADE PROVISION IN THE BOOKS OF ACCOUNT S FOR PERMANENT DIMINUTION IN THE VALUE OF INVESTMENT AND AS SUCH THE DIMINUTION IS NOT TEMPORARY. IT IS ALSO NOTED THAT TO A QUESTION WHETHER THE PROVISION FOR DIMINUTION IN TH E VALUE OF INVESTMENT SHOULD BE MADE BY WAY OF CHARGE TO THE P ROFIT AND LOSS ACCOUNT WAS ALSO AS PER PARA-33 OF AS-13, WHIC H IS AS UNDER:- ANY REDUCTION IN THE CARRYING ACCOUNT AND ANY REVE RSAL OF SUCH REDUCTIONS SHOULD BE CHARGED OR CREDITED TO TH E PROFIT AND LOSS STATEMENT. THE AFORESAID FACTUAL MATRIX AND AS-13, CLEARLY IND ICATES THAT THE ASSESSEE HAS CORRECTLY MADE THE PROVISION FOR THE DIMINUTION IN THE VALUE OF INVESTMENTS IN ITS ACCOU NTS. THIS EXACTLY HAS BEEN OBSERVED BY THE LD. COMMISSIONER O F INCOME TAX (APPEAL) ALSO. BEFORE THE LD. COMMISSIONER OF I NCOME TAX (APPEAL) AS WELL AS BEFORE THIS TRIBUNAL, IT HAS BE EN CLAIMED BY THE ASSESSEE THAT ASSESSEE-COMPANY HAS NOT REDUC ED THE M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 27 DIMINUTION IN THE VALUE OF INVESTMENT, WHILE CALCUL ATING THE TAXABLE INCOME, THEREFORE, THERE WAS NO QUESTION OF ADDING BACK. THE FACTS INDICATES THAT THE LD. ASSESSING OF FICER, THUS WRONGLY DISALLOWED THE SAME WITHOUT APPRECIATING TH AT THE ASSESSEE ADDED BACK THE AMOUNT OF DIMINUTION IN THE COMPUTATION OF INCOME. THE BRAKE UP OF THE INCOME, SHOWN BY THE ASSESSEE, IS REPRODUCED HEREUNDER:- SL. NO. PARTICULARS AMOUNT 1 PROFIT ON SALE OF INVESTMENT-CR (26,411,015) 2 LOSS ON SALE OF INVESTMENT-DR 768409 3 DIMINUTION IN VALUE OF INVESTMENT- UNQUOTED 28,829,361 4 DIMINUTION IN VALUE OF INVESTMENT-EQ SHARES (309,414) 5 DR 2,877,341 THE AFORESAID ANALYSIS INDICATES THAT THE AMOUNT OF RS.28,77,341/- HAS ALREADY BEEN ADDED BACK, THEREFO RE, NO FURTHER ACTION WAS REQUIRED BY THE ASSESSING OFFICE R AS THE SAME AMOUNTS TO DOUBLE DISALLOWANCE, THEREFORE, WE AFFIRM THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (AP PEAL), RESULTING INTO DISMISSAL OF IMPUGNED GROUND RAISED BEFORE US. 4.3. HOWEVER, WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT, THE ASSESSEE HAS NOT ADDED BACK T HE PROVISION IN DIMINUTION IN THE VALUE OF INVESTMENT. CLAUSE (I) OF EXPLANATION-1 TO SECTION 115JB OF THE ACT, INSER TED BY THE FINANCE (NO.2) ACT, 2009, WITH RETROSPECTIVE EFFECT FROM 01/04/2001, REQUIRES THE PROFIT TO BE INCREASED BY THE AMOUNT/AMOUNTS SET-ASIDE AS PROVISION FOR DIMINUTIO N IN M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 28 VALUE OF ANY ASSET, THEREFORE, THE LD. ASSESSING OF FICER IS DIRECTED TO RE-COMPUTE THE BOOK PROFIT AFTER ADDITI ON OF NET PROVISION OF DIMINUTION IN VALUE OF INVESTMENT OF RS.2,85,19,947/-, CONSEQUENTLY, THIS GROUND OF THE DEPARTMENT IS PARTLY ALLOWED. 5. GROUNDS NO.4A, B, C, D AND E, PERTAINS TO WRIT ING OFF OF THE INVENTORY AND STOCK OF RS.135.69 CRORES WAS CLAIMED TO BE AUTHORIZED BY THE HON'BLE JURISDICTIO NAL HIGH COURT. HOWEVER, THE LD. CIT-DR CONTENDED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL) WHILE COMING TO THE PARTICULAR CONCLUSION COULD NOT APPRECIATE THAT PAR T OF THE STOCK WAS WRITTEN OFF WITHIN A SHORT SPAN OF TIME A ND THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE IN SUPPORT OF WRITING OFF OF THE INVENTORY AND STOCK. THUS, THERE WAS NO JUSTIFICATION FOR CARRYING SUCH INVENTORY YEAR AFTE R YEAR WHEN THE ASSESSEE IS FOLLOWING FIFO METHOD OF ACCOUNTING THE STOCK. 5.1. ON THE OTHER HAND, THE LD. COUNSEL FOR THE AS SESSEE ASSERTED/EXPLAINED THAT SOFTWARE INVENTORIES, DUE T O ADVANCEMENT IN TECHNOLOGY, BECAME OUTDATED, THEREFO RE, AS PER THE ORDER OF THE HON'BLE HIGH COURT, THE ASSESS EE WROTE IT OFF AND CLAIMED, IN COMPUTATION, AS DEDUCTION. BEFO RE DOING SO, THE ASSESSEE TOOK THE OPINION OF THE EXPERT NAM ELY DELLOITE. OUR ATTENTION WAS INVITED TO PAGES 78 TO 82 OF THE PAPER BOOK CONTAINING THE OPINION OF THE EXPERT. TH E DETAILS OF WRITING OFF ARE AVAILABLE AT PAGE -74 TO 75 OF T HE PAPER BOOK. THE CRUX OF ARGUMENT IS THAT IT WAS WRITTEN OFF AS PER M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 29 THE ORDER OF THE HON'BLE HIGH COURT. IT WAS ALSO CO NTENDED THAT THE VALUATION WAS DONE BY THE MANAGEMENT AND T HERE IS NO ADVERSE QUALIFICATION BY THE AUDITOR. 5.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THERE WAS SCHEME OF ARRANGEMENT AND RECONS TRUCTION BETWEEN THE ASSESSEE AND ITS ASSOCIATE CONCERN NAME LY GTL INFRASTRUCTURE LTD. AND GTL TECHNOLOGY INVESTMENT, WHICH WAS APPROVED BY HON'BLE JURISDICTIONAL HIGH COURT, VIDE ORDER DATED 28/04/2006. AS PER THIS ORDER, THE ASSESSEE W AS REQUIRED TO ADJUST ANY DIMINUTION IN THE VALUE OF A SSETS AGAINST THE SECURITIES PREMIUM ACCOUNT INSTEAD OF PROFIT & LOSS ACCOUNT. THE SCHEME OF DEMERGER IS AVAILABLE A T PAGES 109-140 AND THE ORDER OF THE APPROVAL FROM HON'BLE BOMBAY HIGH COURT (DATED 28/04/2006) IS AVAILABLE AT PAGES 141 TO 186. THE RELEVANT OBSERVATION/FINDING IS AVAILABLE AT PAGE- 176 OF THE ORDER WHICH IS REPRODUCED HEREUNDER:- 26. (A) THE BALANCE STANDING IN THE SECURITIES PREM IUM ACCOUNT OF GTL ON THE APPOINTED DATE (CALLED SHARE PREMIUM AC COUNT IN THE BOOKS OF GTL) (THE SECURITIES PREMIUM ACCOUNT) WI LL BE ADJUSTED AND REDUCED AS IT IS UNREPRESENTED BY AVAILABLE ASSETS OF GTL. IN VIEW OF THE DIMINUTION IN THE VALUE OF THE ASSETS OF GTL SU CH AS PLANT AND EQUIPMENT (INCLUDING SOFTWARE RIGHTS AND TEST AND R EPAIR EQUIPMENT), NETWORK, INVENTORIES, ELECTRICAL FITTINGS, OFFICE E QUIPMENT, FURNITURE AND FIXTURES, MISCELLANEOUS EXPENDITURE (TO THE EXTENT NOT WRITTEN OFF) AND OTHER SUCH ASSETS WHICH HAVE DIMINISHED IN VALUE. M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 30 5.3. IN THE LIGHT OF THE ORDER OF THE HON'BLE HIGH COURT, THE ASSESSEE WRITE OFF THE STOCK AMOUNTING TO RS.13 5.69 CRORES IN RESPECT OF OBSOLETE OR NON-MOVING INVENTO RY ON THE BASIS OF TECHNICAL EVALUATION, AGEING ANALYSIS, ON THE BASIS OF COMMERCIAL EXPEDIENCY. THE ASSESSEE ADJUSTED THE SA ID WRITE OFF AGAINST SECURITY PREMIUM ACCOUNT. HOWEVER, FOR THE PURPOSE OF COMPUTING ITS TOTAL INCOME, THE ASSESSEE CLAIMED WRITE OFF AS DEDUCTION. THE ASSESSEE FILED A LETTER DATED 12/11/2009 BEFORE THE ASSESSING OFFICER (PAGE-63 TO 69 OF THE PAPER BOOK) (RELEVANT PAGE-65) AND LETTER DATED 17/11/2009 TO THE ASSESSING OFFICER (PAGE 70 TO 73 OF THE PAPER BOOK), THE DETAILS OF STOCK OF WRITTEN OFF AR E AVAILABLE AT PAGE 74 AND 75 AND OPINION FROM THE DELOITTE IS AVA ILABLE AT PAGE-78 TO 82 OF THE PAPER BOOK. VIDE LETTER DATED 10/12/2009, ADDRESS TO THE ASSESSING OFFICER (PAGE- 100 TO 106 OF THE PAPER BOOK), THE DETAILS OF STOCK WRITTE N OFF (PAGE- 107 AND 108), BILLS OF SOFTWARE (PAGE 183 TO 217) W ERE MADE AVAILABLE TO THE ASSESSING OFFICER. THE LD. ASSESSI NG OFFICER DISALLOWED THE CLAIMED DEDUCTION OF WRITE OFF ON TH E PREMISE THAT (I) WRITE OFF IS NOT DEBITED TO PROFIT AND LOSS ACC OUNT BUT ADJUSTED AGAINST SECURITIES PREMIUM ACCOUNT, (II) THE EXPENDITURE IS CAPITAL IN NATURE (III) THE ASSESSEE DID NOT PROVIDE ANY EVIDENCE TO JUSTIF Y THE WRITE OFF. M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 31 HOWEVER, THE LD. COMMISSIONER OF INCOME TAX (APPEAL ) CONSIDERED THE FACTUAL MATRIX AND ALLOWED THE CLAIM OF THE ASSESSEE. THE CONTENTION OF THE LD. ASSESSING OFFIC ER AS WELL AS THE ARGUMENT OF LD. DR IS THAT SOME OF THE ITEMS , CONSIDERED FOR WRITE OFF, WERE ACQUIRED SHORTLY, BE FORE ACTUAL WRITE OFF. THE LD. COMMISSIONER OF INCOME TAX (APPE AL) GRANTED RELIEF TO THE ASSESSEE BY HOLDING THAT: (I) THAT THE TREATMENT IN ACCOUNTS WAS NOT CONCLUSIVE OF THE NATURE OF TRANSACTION, THEREFORE, DISALLOWAN CE CANNOT BE REJECTED MERELY BECAUSE IT WAS NOT ROUTED THROUGH PROFIT AND LOSS ACCOUNT, AND (II) THAT THE EXPENDITURE CANNOT BE TREATED AS CAPITAL IN NATURE MERELY ON THE BASIS OF QUANTUM WHEN THE WRITE OFF PERTAINED TO STOCK. WE NOTE THAT THE LD. DR, BEFORE US, HEAVILY RELIED UPON THE POINTS RAISED BY THE ASSESSING OFFICER BY CONTE NDING THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL) HAS NOT APPRECIATED THE FACTS PROPERLY. ON THE OTHER HAND, THE CRUX OF ARGUMENT ON BEHALF OF THE ASSESSEE IS THAT IT IS A SETTLED LAW THAT WHETHER THE ASSESSEE IS ENTITLED TO A PART ICULAR DEDUCTION OR NOT WILL DEPEND UPON THE POSITION OF L AW, RELATING THERETO, AND NOT ON THE VIEW WHICH THE ASS ESSEE MIGHT TAKE OF HIS RIGHTS NOR CAN THE EXISTENCE OR A BSENCE OF ENTRIES IN THE BOOKS OF ACCOUNT CAN BE DECISIVE OR CONCLUSIVE. RELIANCE WAS PLACED UPON THE DECISION FROM HON'BLE APEX COURT IN KEDARNATH JUTE MFG. LTD. VS CIT (1971) 82 ITR 363 M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 32 (SC). IT WAS ARGUED THAT MERELY THE QUANTUM AND PE RIODICITY OF THE EXPENDITURE IS NOT A RELEVANT FACTOR TO DECI DE THE NATURE OF EXPENDITURE FOR WHICH RELIANCE WAS PLACED IN M.K. BROTHERS (P.) LTD. VS CIT (1972) 86 ITR 38 (SC) AND TRAVANCORE SUGAR & CHEMICALS LTD. VS CIT (1966) 62 ITR 566 (SC). IT WAS EXPLAINED THAT VALUATION OF ENTRIES I S A REGULAR PRACTICE AND THE ASSESSEE IS IN EARLIER AND SUBSEQU ENT YEARS, WRITTEN OFF INVENTORIES, WHICH WERE ALLOWED. ADMIT TEDLY, THE ASSESSEE PROVIDED THE COMPLETE DETAILS OF INVENTORI ES, WRITTEN OFF, WHICH WERE NOT MENTIONED IN THE ASSESSMENT ORD ER. IT WAS ALSO PLEADED THAT THERE WAS NO ADVERSE QUALIFIC ATION IN THE AUDIT REPORT FOR WHICH RELIANCE WAS PLACED IN A LFA LAVAL INDIA LTD. VS DCIT (266 ITR 418)(BOM.) AND AVAYA GL OBAL CONNECT LTD. VS ACIT (122 TTJ 300)(BOM.). THE BENCH RAISED A QUERY TO THE LD. COUNSEL TO THE OBSERVATION OF TH E LD. DR THAT SOME OF THE ITEMS WERE WRITTEN OFF, SHORTLY AF TER THEIR PURCHASE, IT WAS EXPLAINED THAT THE ORDERS WERE PLA CED MUCH EARLIER AND PART OF THE STOCK WAS RECEIVED EARLIER AND THESE ITEMS WERE PURCHASED ON ACCOUNT OF EARLIER COMMITME NT TO THE VENDORS BY THE ASSESSEE. WE FIND THAT SUCH WRITE OFF WAS PURSUANT TO THE ORD ER FROM HON'BLE HIGH COURT BOMBAY. THE WRITE OFF IS OF CLOSING STOCK IN TRADE AND NOT ASSET OR INVESTMENT, HENCE, IT CANNOT BE TREATED AS CAPITAL EXPENDITURE. SO FAR AS, THE CONTENTION OF THE LD. DR, THAT ENTRY IN BOOKS OF ACCOUNT IS NOT C ONCLUSIVE, RELIANCE CAN BE PLACED UPON THE DECISION FROM HON'B LE APEX COURT IN TUTICORIN ALKALI CHMICALS & FERTILZERS LTD . (2055) M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 33 227 ITR 172 (SC) AND KEDARNATH JUTE MG. CO. LTD. CI T (1971) 82 ITR 363 (SC) (PAGE-367), WHERE, THE HON'BLE COUR T OBSERVED AS UNDER:- WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPEND ON THE PROVISIONS OF L AW & NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE NOR CAN THE EXISTENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACC OUNTS BE DECISIVE OR CONCLUSIVE IN THE MATTER. 5.4. THE EXPENDITURE WHICH HAS BEEN CLAIMED IS NOTHING BUT WRITE OFF FOR STOCK IN TRADE, THEREFORE , IT IS A REVENUE BUSINESS EXPENDITURE. THE LD. ASSESSING OFF ICER DISALLOWED THE CLAIM OF THE ASSESSEE CONSIDERING TH E MAGNITUDE OF EXPENSES. WE ARE OF THE VIEW THAT IT DEPENDS UPON THE NATURE/VOLUME OF BUSINESS, THEREFORE, QUAN TUM EXPENDITURE CANNOT BE THE GROUND TO DISALLOW THE RE VENUE EXPENDITURE. EVEN OTHERWISE, THE ASSESSEE FOLLOWING ACCOUNTING STANDARD-2 (AS-2), VALUATION OF INVENTOR IES, AS PER WHICH INVENTORIES HAVE TO BE VALUED AT LOWER OF THE COST OR NET MARKET VALUE IN CONFORMITY WITH THE COMMERCIAL ACCO UNTING UNLESS SUCH PRINCIPLE STANDS SUPERSEDED OR MODIFIED BY A LEGISLATIVE ENACTMENT. THIS PRINCIPLE HAS BEEN ACCE PTED IN VARIOUS JUDICIAL PRONOUNCEMENTS. THE DETAILS OF INV ENTORIES, WRITTEN OFF, WERE MADE AVAILABLE BY THE ASSESSEE BE FORE THE AUTHORITIES AND THE LD. ASSESSING OFFICER HAS NOT A DDUCED ANY FINDING AS TO HOW THE VALUATION OF STOCK OF WRITTEN OFF WAS INCORRECT. IT IS THE DECISION OF THE MANAGEMENT AND THE ASSESSEE COMPANY IS SUBJECT TO INTERNAL AS WELL AS STATUTORY AUDIT AND NO ADVERSE QUALIFICATION HAS BEEN GIVEN B Y THE AUDITORS. THE DECISION FROM HON'BLE JURISDICTIONAL HIGH COURT M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 34 IN THE CASE OF ALFA LAVAL INDIA LTD. VS DCIT (2004) 266 ITR 418 (BOM.), WHEREIN AT PARA-8, THE HON'BLE HIGH COU RT OBSERVED/HELD AS UNDER:- 8. IN THE PRESENT CASE, THERE IS NO DISPUTE THAT T HE DULY CERTIFIED AUDITOR'S REPORT PLACED BEFORE THE AO CLEARLY JUSTIFIED VALUA TION OF OBSOLETE ITEMS AT 10 PER CENT OF COST. THERE IS NO DISPUTE THAT THE ASSE SSEE IS ENTITLED TO VALUE THE CLOSING STOCK AT MARKET VALUE OR AT COST WHICHEVER IS LOWER. IT IS ALSO NOT IN DISPUTE THAT THE VALUE OF THE CLOSING STOCK HAS BEE N TAKEN AS THE VALUE OF THE OPENING STOCK IN THE SUBSEQUENT YEAR. MOREOVER, IT IS ALSO NOT DISPUTED THAT THE OBSOLETE ITEMS WERE IN FACT SOLD IN THE SUBSEQU ENT YEAR AT A PRICE LESS THAN 10 PER CENT OF THE COST. UNDER THE CIRCUMSTANC ES, IT COULD NOT BE SAID THAT THE VALUATION OF THE OBSOLETE ITEMS DONE BY TH E ASSESSEE AND CERTIFIED BY THE AUDITORS WAS NOT PROPER OR ARBITRARY. THE AO IN FACT HAS ARBITRARILY VALUED THE ITEMS IN QUESTION AT 50 PER CENT OF THE COST WITHOUT DISCLOSING THE BASIS OF SUCH VALUATION. THE AO HAD NOT DOUBTED THE CORRECTNESS OF THE CERTIFICATE OF THE AUDITORS REGARDING THE VALUATION OF OBSOLETE ITEMS. THE SUMMARY OF THE OBSOLETE ITEMS WERE BEFORE THE AO. THERE IS NOTHING ON RECORD TO SHOW THAT THE ASSESSEE WAS CALLED UPON TO FURNISH THE LIST OF OBSOLETE ITEMS OR THAT TH E ASSESSEE WAS CALLED UPON TO ESTABLISH THAT THE ITEMS WERE NOT MOVIN G FOR 3 YEARS. UNDER THESE CIRCUMSTANCES, IT COULD NOT BE SAID THAT THE ASSESSEE HAS FAILED TO FURNISH LIST OF OBSOLETE ITEMS AN D FAILED TO ESTABLISH THAT THE SAID ITEMS WERE NOT MOVING. IN THE ABS ENCE OF ANY BASIS FOR VALUING THE OBSOLETE ITEMS AT 50 PER CENT OF THE COST, THE TRIBUNAL COULD NOT HAVE UPHELD THE FINDINGS OF THE A O ON THE GROUND THAT THE LIST OF OBSOLETE ITEMS WERE NOT PRODUC ED BY THE ASSESSEE. ACCORDINGLY, WE ANSWER THE QUESTION NO. 1 IN T HE NEGATIVE, THAT IS, IN FAVOUR OF THE ASSESSEE AND AGAINS T THE REVENUE. 5.5. IT IS NOTEWORTHY THAT THE AFORESAID DECISION OF HON'BLE BOMBAY HIGH COURT WAS CONFIRMED BY HON'BLE APEX COURT IN (2007) 295 ITR 451 (SC). IN ANOTHER CASE, THE M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 35 HON'BLE APEX COURT IN CIT VS BRITISH PAINTS INDIA L TD. (1991) 188 ITR 44 (RELEVANT PAGE-51) HELD AS UNDER:- WHERE THE MARKET VALUE HAS FALLEN BEFORE THE DATE O F VALUATION AND, ON THAT DATE, THE MARKET VALUE OF THE ARTICLE IS LESS THAN ITS ACTUAL COST, THE ASSESSEE IS ENTITLED TO VALUE THE ARTICLES AT MARKE T VALUE AND THUS ANTICIPATE THE LOSS WHICH HE WILL PROBABLY INCUR AT THE TIME OF THE SALE OF THE GOODS. VALUATION OF THE STOCK-IN-TRADE AT COST OR MARKET VALUE, WHICHEVER IS THE LOWER, IS A MATTER ENTIRELY WITHIN THE DISCRETION OF THE ASSESSEE. BUT WHICHEVER METHOD HE ADOPTS, IT SHOULD DISCLOSE A TRUE PICTURE OF HIS PROFITS AND GAINS. IF, ON THE OTHER HAND, HE ADOPTS A SYSTEM WHICH DOES NOT DISCLOSE THE TRUE STATE OF AFFAIRS F OR THE DETERMINATION OF TAX, EVEN IF IT IS IDEALLY SUITED FOR OTHER PURPOSE S OF HIS BUSINESS, SUCH AS THE CREATION OF A RESERVE, DECLARATION OF DIVIDENDS , PLANNING AND THE LIKE, IT IS THE DUTY OF THE ASSESSING OFFICER TO ADOPT ANY S UCH COMPUTATION AS HE DEEMS APPROPRIATE FOR THE PROPER DETERMINATION OF T HE TRUE INCOME OF THE ASSESSEE. THIS IS NOT ONLY A RIGHT BUT A DUTY THAT IS PLACED ON THE OFFICER, IN TERMS OF THE FIRST PROVISO TO S. 145, WHICH CONCERN S A CORRECT AND COMPLETE ACCOUNT BUT WHICH, IN THE OPINION OF THE OFFICER, D OES NOT DISCLOSE THE TRUE AND PROPER INCOME. THE CORRECT PRINCIPLE OF ACCOUNT ING IS TO ENTER THE STOCK IN THE BOOKS OF ACCOUNT AT COST UNLESS THE VA LUE IS REQUIRED TO BE REDUCED BY REASON OF THE FALL IN THE MARKET VALUE O F THOSE GOODS BELOW THEIR ORIGINAL COST. ORDINARILY, THEREFORE, THE GOO DS SHOULD NOT BE WRITTEN DOWN BELOW THE COST PRICE EXCEPT WHERE THERE IS AN ACTUAL OR ANTICIPATED LOSS. ON THE OTHER HAND, IF THE FALL IN THE PRICE I S ONLY SUCH AS IT WOULD REDUCE MERELY THE PROSPECTIVE PROFIT, THERE WOULD B E NO JUSTIFICATION TO DISCARD THE INITIAL VALUATION AT COST. (PARAS 10 & 11) IT IS NOT ONLY THE RIGHT, BUT THE DUTY OF THE ASSES SING OFFICER TO CONSIDER WHETHER OR NOT THE BOOKS DISCLOSE THE TRUE STATE OF ACCOUNTS AND THE CORRECT INCOME CAN BE DEDUCED THEREFROM. IT IS INCO RRECT TO SAY, AS CONTENDED ON BEHALF OF THE ASSESSEE, THAT THE OFFIC ER IS BOUND TO ACCEPT THE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE, THE CORRECTNESS OF WHICH HAD NOT BEEN QUESTIONED IN THE PAST. THERE IS NO ESTOPPEL IN THESE MATTERS, AND THE OFFICER IS NOT B OUND BY THE METHOD FOLLOWED IN THE EARLIER YEARS. ANY SYSTEM OF ACCOUN TING WHICH EXCLUDES, FOR THE VALUATION OF THE STOCK-IN-TRADE, ALL COSTS OTHER THAN THE COST OF RAW MATERIAL FOR THE GOODS IN PROCESS AND FINISHED PROD UCTS, IS LIKELY TO RESULT IN A DISTORTED PICTURE OF THE TRUE STATE OF THE BUS INESS FOR THE PURPOSE OF COMPUTING THE CHARGEABLE INCOME. SUCH A SYSTEM MAY PRODUCE A COMPARATIVELY LOWER VALUATION OF THE OPENING STOCK AND THE CLOSING STOCK, THUS, SHOWING A COMPARATIVELY LOW DIFFERENCE BETWEE N THE TWO. IN A PERIOD OF RISING TURNOVER AND RISING PRICES, THE SYSTEM AD OPTED BY THE ASSESSEE, AS FOUND BY THE TRIBUNAL, IS APT TO DIMINISH THE AS SESSMENT OF THE TAXABLE PROFIT OF A YEAR. THE PROFIT OF ONE YEAR IS LIKELY TO BE SHIFTED TO ANOTHER YEAR WHICH IS AN INCORRECT METHOD OF COMPUTING PROFITS A ND GAINS FOR THE PURPOSE OF ASSESSMENT. EACH YEAR BEING A SELF-CONTA INED UNIT, AND THE TAXES OF A PARTICULAR YEAR BEING PAYABLE WITH REFER ENCE TO THE INCOME OF THAT YEAR, AS COMPUTED IN TERMS OF THE ACT, THE MET HOD ADOPTED BY THE M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 36 ASSESSEE HAS BEEN FOUND TO BE SUCH THAT INCOME CANN OT PROPERLY BE DEDUCED THEREFROM. IT IS, THEREFORE, NOT ONLY THE R IGHT BUT THE DUTY OF THE ASSESSING OFFICER TO ACT IN EXERCISE OF HIS STATUTO RY POWER, AND REJECT THE ACCOUNTING SYSTEM ADOPTED BY THE ASSESSEE, AS HE HA S DONE IN THE INSTANT CASE, FOR DETERMINING WHAT, IN HIS OPINION, IS THE CORRECT TAXABLE INCOME.BRITISH PAINTS INDIA LTD. VS. CIT (1978) 11 1 ITR 53 (CAL) : TC2R. 12 2 REVERSED ; B.S.C. FOOTWEAR LTD. VS. RIDGWAY (INSPECTOR OF TAXES) (1971) 2 WLR 1313 (HL) CIT VS. SARANGPUR COT TON MANUFACTURING CO. LTD . (1938) 6 ITR 36 (PC) : TC1R.109, CIT VS. A. KRISHNASWAMI MUDALIAR & ORS. (1964) 53 ITR 12 2 (SC) : (1964) TAX 18(3) 88 : TC1R.131, S.N. NAMASIVAYAM CHETTAIR VS. CIT (1960) 38 ITR 579 (SC) : (1960) TAX 13(3) -105 : TC1R.532, IRC VS. COCK, RUS ELL AND CO. LTD. (1949) 29 TAX CASES 387, WHIMSTER AND CO. VS. IRC ( 1917-26) 12 TAX CASES 813 AND CHAINRUP SAMPATRAM VS. CIT (1953) 24 ITR 481 (SC) : TC2R. 12 4 RELIED ON. XXXXXXXXXXXXXXXXXXXXXXXXXX 5.6. BROADLY, IN THE AFORESAID CASE, THE HON'BLE C OURT HAS HELD THAT WHERE THE MARKET VALUE HAS FALLEN BEFORE THE DATE OF VALUATION AND, ON THAT DATE, THE MARKET VAL UE OF THE ARTICLE IS LESS THAN ITS ACTUAL COST, THE ASSESSEE IS ENTITLED TO VALUE THE ARTICLES AT MARKET VALUE AND THUS ANTICIP ATE THE LOSS WHICH HE WILL PROBABLY INCUR AT THE TIME OF THE SAL E OF THE GOODS. VALUATION OF THE STOCK-IN-TRADE AT COST OR MARKET VALUE, WHICHEVER IS THE LOWER, IS A MATTER ENTIRELY WITHIN THE DISCRETION OF THE ASSESSEE . THERE CAN BE NO DOUBT THAT THE LOSS, WHICH HAS CRYSTALLIZED DURING THE YEAR AN D CLAIMED BY THE ASSESSEE, THE ASSESSEE IS ENTITLED TO CLAIM THE SAME. IN PRINCIPLE, WE ARE IN AGREEMENT WITH THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE, SO FAR AS PRINCIPLE IS CO NCERNED. 5.7. HOWEVER, WE FIND THAT THE ASSESSEE AT THE THRE SHOLD MUST SUBSTANTIATE THE HEAVY DECREASE IN VALUE OF STOCK, WRITTEN OFF, SHORT AFTER THEIR PURCHASE , BY PROVIDING QUANTITATIVE DETAILS VIS--VIS MARKET PRICE. THEREFORE, THE MATTER IS RE STORED BACK TO THE FILE OF LD. ASSESSING OFFICER TO VERIFY THE CLAIM OF THE M/S GTL LTD. ITA NOS.5245 & 5419/MUM/2010 37 ASSESSEE IN THIS REGARD AND THE ASSESSEE IN-TURN IS DIRECTED TO SUBSTANTIATE HIS CLAIM BY PROVIDING NECESSARY DETAI LS. THE GROUND STANDS ALLOWED FOR STATISTICAL PURPOSES. FINALLY, THE APPEALS OF THE REVENUE, FOR ASSESS MENT YEAR 2005-06 IS DISMISSED AND FOR ASSESSMENT YEAR 2006-0 7 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/05/2017. SD/- SD/- ( MANOJ KUMAR AGGARWAL ) (JOGINDER SINGH) ' # / ACCOUNTANT MEMBER $ # / JUDICIAL MEMBER MUMBAI; - DATED :31/05/2017 F{X~{T? P.S / . !%$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. /01 / THE APPELLANT 2. 2301 / THE RESPONDENT. 3. 4 4 5$ ( / ) / THE CIT, MUMBAI. 4. 4 4 5$ / CIT(A)- , MUMBAI 5. 672$! , 4 /+! 8 , / DR, ITAT, MUMBAI 6. 9': / GUARD FILE. ! / BY ORDER, 36/$2$ //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI,