THE ACIT 6(2), MUMBAI V. M/S. CROMPTON GREAVES LTD, MUMBAI

ITA 5754/MUM/2007

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62295 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 28-03-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 05-09-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KUSUM INGALE
• Keywords: Capital asset; Business income; Depreciation; Rectification of order; Earning of tax free income; Deemed to accrue or arise in india; Bad and doubtful debts; Scheme of amalgamation; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 43B; 80IB; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J MUMBAI BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER & SHRI VIJAY PAL RAO, JUDICIAL MEMBER. S.NO. I.T.A.NO. A.Y APPELLANT RESPONDENT 1 2652-M-07 2002-03 CROMPTON GREAVES LTD., C.G.HOUSE, DR.ANNIE BESANT RD., 6 TH FLOOR, MUMBAI 400 030. PAN: AAACC 3840 K DY. CIT, CIR. 6(2) MUMBAI. 2 5472-M-07 2004-05 CROMPTON GREAVES LTD., MUMBAI. ITO 6(2)(2), MUMBAI. 3 3353-M-08 2005-06 CROMPTON GREAVES LTD., MUMBAI. ITO 6(2)(2), MUMBAI 4 6557-M-10 2006-07 CROMPTON GREAVES LTD., MUMBAI. ADDL. CIT 6(2) MUMBAI. 5 6466-M-11 2007-08 CROMPTON GREAVES LTD., MUMBAI. DY. CIT, CIR. 6(2) MUMBAI 6 5873-M-11 2007-08 CROMPTON GREAVES LTD., MUMBAI. DY. CIT, CIR. 6(2) MUMBAI AND S.NO. I.T.A.NO. A.Y APPELLANT RESPONDENT 1 2742-M-07 2002-03 ADDL. CIT 6(2) MUMBAI. CROMPTON GREAVES LTD., MUMBAI. 2 5754-M-07 2004-05 ASST. CIT 6(2), MUMBAI. CROMPTON GREAVES LTD., MUMBAI. 3 4093-M-08 2005-06 DY.CIT 6(2), MUMBAI. CROMPTON GREAVES LTD., MUMBAI. 4 6690-M-10 2006-07 ACIT 6(2), MUMBAI. CROMPTON GREAVES LTD., MUMBAI. ASSESSEE BY : SHRI PRADIP KAPASI. REVENUE BY : SMT. KUSUM INGALE, CIT DR DATE OF HEARING: 28-03-2012. DATE OF PRONOUNCEMENT: O R D E R PER BENCH: THESE ARE CROSS APPEALS BY THE ASSESSEE AS WELL AS REVENUE AND SOME OF THE ISSUES RAISED ARE COMMON. THEREFORE, TH E SAME ARE BEING DISPOSED OF BY THIS COMMON ORDER. CROMPTON GREAVES LTD. 2 2. I.T.A.NO.2652/M/07 : THE FIRST ISSUE RAISED IN A.Y 2002-03 IS REGARDING CONFIRMATION OF DISALLOWANCE U/S.14A INVO LVING TWO ASPECTS, VIZ., [1] ADDITION U/S.115JB OF THE AMOUNT DISALLOW ED U/S.14A AND [2] NOT ALLOWING DEDUCTION U/S.80HHC WHILE COMPUTING PR OFITS U/S.115JB. THE LD. COUNSEL OF THE ASSESSEE POINTED OUT THAT SI NCE THE DISALLOWANCE U/S.14A ITSELF HAS BEEN SET ASIDE BY T HE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A.NO.4672/MUM/2003 & ORS . IN THE EARLIER YEARS, THEREFORE, THE ISSUE REGARDING DISALLOWANCE OF THE SAME U/S.115JB NEEDS ALSO TO GO BACK TO THE FILE OF THE AO. ON THE OTHER HAND, LD. DR HAD NO SERIOUS OBJECTION IF THE ISSUE IS RESTORED BACK. 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT THE ISSUE REGARDING DISALLOWANCE U/S.14A WAS RESTORED BY THE TRIBUNAL IN EARLIER YEARS IN I.T.A.NO.4672/MUM/2003 & ORS. VIDE PARA-3. SINCE DISALLOWANCE U/S.14A ITSELF IS GONE BACK TO THE AO WHICH WE HAVE DONE WHILE ADJUDICATING THE REVENUES AND ASSESSEES APP EAL, THEREFORE, THE ISSUE REGARDING ADJUSTMENT OF AMOUNTS UNDER BOOK PR OFITS WOULD DEPEND UPON FINAL DETERMINATION OF THE DISALLOWANCE . ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER TO THE FILE OF THE AO TO CONSIDER THE ISSUE REGARDING THE DISALLOW ANCE OF THE AMOUNT U/S.14A WHILE COMPUTING THE BOOK PROFITS U/S.155JB AFRESH. 4. THE SECOND ASPECT OF THE ISSUE IS THAT THE AO HA D NOT ALLOWED DEDUCTION U/S.80HHC WHILE COMPUTING THE BOOK PROFIT S U/S.155JB BECAUSE THE DEDUCTION ITSELF WAS NOT ALLOWED AS THE RE WERE BROUGHT FORWARD LOSSES. THE LD. COUNSEL OF THE ASSESSEE SUB MITTED THAT THE HON'BLE SUPREME COURT IN THE CASE OF AJANTA PHARMA LTD. VS. CIT [327 CROMPTON GREAVES LTD. 3 ITR 305] HAS CLEARLY HELD THAT SINCE SEC.115JB ITSE LF IS SELF CONTAINED CODE, THEREFORE, DEDUCTION HAS TO BE COMPUTED AS PE R MAT PROVISION. 5. ON THE OTHER HAND, LD. DR SUBMITTED THAT NO DEDU CTION IS POSSIBLE ONCE THERE WERE BROUGHT FORWARD LOSSES U/S .80HHC IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF IPCA LABORATORIES LTD. VS. CIT [266 ITR 521] AND SYNCO I NDS. LTD. VS. ASSESSING OFFICER & ANR. [299 ITR 444]. THEREFORE, ACCORDINGLY NO DEDUCTION IS POSSIBLE WHILE COMPUTING THE BOOK PROF ITS U/S.115JB. SHE FURTHER SUBMITTED THAT IN THE CASE OF AJANTA PHARMA LTD. VS. CIT [SUPRA] THE APEX COURT WAS CONCERNED WITH THE CONDI TIONS CONTAINED IN SEC.80HHC(1B) WHICH IS A SUNSET CLAUSE. BY THIS CLA USE THE PARLIAMENT HAS PHASED OUT THE DEDUCTION U/S.80HHC. HOWEVER, TH E ISSUE BEFORE US IS REGARDING THE ALLOWABILITY OF DEDUCTION. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT AO HAS NOT ALLOWED DEDUCTION U/S.80HHC WHILE COMPUT ING THE BOOK PROFITS U/S.115JB WITHOUT ANY DISCUSSION. THEREFORE , IN OUR OPINION, THIS MATTER HAS TO BE EXAMINED AFRESH AND ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK T O THE FILE OF THE AO FOR RECONSIDERATION OF THE ISSUE WITH A SPEAKING OR DER AFTER PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSEE IN THE LIGHT O F THE DECISIONS RELIED ON BY BOTH THE PARTIES. 7. THROUGH GROUND NO.2 ASSESSEE HAS RAISED THE ISS UE REGARDING CONFIRMATION OF DISALLOWANCE OF CAPITAL LOSS UNDER THE HEAD CAPITAL GAINS AMOUNTING TO RS.34,52,77,992/-. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS AO N OTICED THAT CROMPTON GREAVES LTD. 4 ASSESSEE HAS WRITTEN OFF ADVANCES GIVEN TO BHARAT S TAR INDUSTRIES LTD. (FOR SHORT BSI LTD.) AND JCT LTD. AMOUNTING TO RS.3 4,52,77,992/- AS PER THE FOLLOWING DETAILS: NAME OF COMPANY NO. OF SHARES SOLD SALE VALUE ACTUAL COST BOOK PROFIT/ LOSS YEAR OF PURCHASE INDEX FACTOR INDEX COST IT CAPITAL GAIN/ LOSS ADVANCE W/OFF OF BSI LTD. 6000000 178731508 [172731508] 1997-98 172731508 ADVANCE W/OFF OF JCT LTD. 172546484 [172546484] 1996-97 172546484 6000000 351277992 345277992 351277992 A NOTE IN THIS RESPECT WAS ALSO FILED WHICH READS A S UNDER: THE CLAIM FOR LONG TERM CAPITAL LOSS IS ON ACCOUNT OF TRANSFER OF CAPITAL ASSET BEING THE DEPOSIT WITH BSIL OF RS. 17 8731508 AND JCT LTD. OF RS.172546484 IN ACCORDANCE WITH THE SCH EME OF ARRANGEMENT SANCTIONED BY THE HIGH COURT OF GUJARAT & PUNJAB & HARYANA RESPECTIVELY AS PER THE COMPANIES ACT, 19 56. THE SAID LOSS UNDER THE HEAD CAPITAL GAINS BEING SEPARA TELY TREATED AND NOT ABSORBED AGAINST AGAINST-THE INCOME UNDER A NY OTHER HEAD FOR THE YEAR AS PER THE PROVISIONS OF SECTION 71 OF THE INCOME TAX ACT 1961, THE SAME MAY BE PERMITTED TO B E CARRY FORWARD TO THE NEXT YEAR FOR SET OFF. THE AO CONSIDERED THE SUBMISSIONS OF THE ASSESSEE A ND OBSERVED THAT FOR ALLOWING A CAPITAL LOSS THERE HAS TO BE A CAPIT AL ASSET AND THE SAME MUST BE TRANSFERRED. AFTER REPRODUCING THE DEFINITI ON OF THE CAPITAL ASSET AND TRANSFER AS GIVEN IN SEC.2[14] AND SEC.2[ 47] OF THE ACT RESPECTIVELY, AO OBSERVED THAT ADVANCES GIVEN TO BS I LTD. AND JCT LTD. WERE NOT CAPITAL ASSETS AND FURTHER THERE WAS NO TR ANSFER OF THE ASSET BECAUSE THERE WAS NO SALE, EXCHANGE, RELINQUISHMENT OR EXTINGUISHMENT OR COMPULSORY ACQUISITION. ACCORDING LY, THE CLAIM OF THE ASSESSEE FOR CAPITAL LOSS WAS REJECTED. CROMPTON GREAVES LTD. 5 8. ON APPEAL, THE SUBMISSIONS MADE BEFORE THE AO WE RE REITERATED. IT WAS FURTHER SUBMITTED THAT THERE WAS NO POSSIBILITY OF RECOVERY OF THE LOANS AND HENCE SAME WERE WRITTEN O FF. IT WAS FURTHER POINTED OUT THAT THE SUM OF RS.34,52,77,992/- FURTH ER CONSISTED OF INTEREST AMOUNTING TO RS.7,25,46,484/- FROM JCT LTD . AND RS.5,87,31,507/- FROM BSI LTD. SINCE INTEREST HAS A LREADY BEEN OFFERED FOR TAX ON ACCRUAL BASIS, THEREFORE, ATLEAST THESE AMOUNTS SHOULD BE ALLOWED. THE LD. CIT(A) AFTER EXAMINING THE SUBMISS IONS OBSERVED THAT THE LOANS AMOUNTING TO RS.17,27,31,508/- AND RS.17, 25,46,484/- WERE GIVEN TO BSI LTD. AND JCT LTD. RESPECTIVELY, WHICH ARE SISTER CONCERNS OF THE ASSESSEE AS PER THE RECORDS. NO BUSINESS NEE D OF ADVANCING THESE AMOUNTS TO THE SISTER CONCERNS WAS SUBSTANTIA TED. FURTHER, NO DETAILS IN RESPECT OF REASONS WHICH PROMPTED THE CO MPANY TO GIVE SUCH ADVANCES WERE PRODUCED BEFORE HIM SO AS TO EVIDENCE THAT THE SAME WERE GIVEN IN THE COURSE OF BUSINESS. HE OBSERVED T HAT THE LOSS HAS BEEN RIGHTLY DENIED BECAUSE SUCH LOANS CANNOT BE CO NSTRUED AS CAPITAL ASSET U/S.2[14] AND IN ANY CASE THE WRITE OFF OF SU CH LOANS DOES NOT AMOUNT TO TRANSFER U/S.2[47]. HOWEVER, HE FURTHER O BSERVED THAT AS FAR AS INTEREST PORTION OF THESE LOANS WAS CONCERNED, S AME HAD ALREADY BEEN OFFERED FOR TAXATION IN EARLIER YEAR AND NOW T HE SAME HAS NOT BEEN RECEIVED. THEREFORE, LOSS ON ACCOUNT OF INTERE ST WAS ALLOWABLE AND ACCORDINGLY HE DIRECTED THE AO TO ALLOW ONLY TH E INTEREST PORTION OF THESE LOANS. 9. BEFORE US, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT INTER CORPORATE DEPOSIT [FOR SHORT ICD] OF RS.10 CRORES W AS GIVEN TO JCT LTD. CROMPTON GREAVES LTD. 6 IN THE YEAR 1996-97 AND FURTHER AMOUNT OF INTEREST OF RS.7.25 CRORES WAS DUE ON ACCOUNT OF INTEREST. M/S. JCT LTD. FAILE D TO PAY THE SAID AMOUNT OF ICD AND JCT LTD. WENT UNDER RECONSTRUCTIO N AND THE HON'BLE PUNJAB & HARYANA HIGH COURT ALLOWED THE TRANSFER OF BUSINESS OF THE COMPANY TO APOLLO FIBERS LTD. THE COURT FURTHER EXT INGUISHED THE RIGHTS OF THE ASSESSEE TO RECEIVE AND REALISE THIS AMOUNT OF RS.17.25 CRORES. SIMILARLY, IN CASE OF BSI LTD. AN ICD OF RS.12 CROR ES WAS GIVEN IN 1997- 98 ON WHICH INTEREST ACCRUED WAS RS.5.08 CRORES. TH AT COMPANY ALSO FAILED TO PAY THE AMOUNT AND WENT UNDER RECONSTRUCT ION AND THE BUSINESS WAS TRANSFERRED TO M/S ENGLISH CLAY INDIA LTD. THROUGH ORDER OF HON'BLE GUJARAT HIGH COURT DATED 8-2-2002. IN TH IS CASE ALSO RIGHT TO RECOVER THE AMOUNT WAS EXTINGUISHED BY THE COURT. F URTHER M/S ENGLISH CLAY INDIA LTD. HAD GIVEN IN EXCHANGE 1,20,000 SHAR ES OF RS.10/- EACH AT A PREMIUM OF RS.40 AGGREGATING TO RS.60,00,000/- . THEREFORE, IN BOTH THE CASES ICDS WERE A CAPITAL ASSET IN THE HAN DS OF THE ASSESSEE. HE CONTENDED THAT THE DEFINITION OF THE TERM CAPIT AL ASSET U/S.2[14] WAS OF WIDE IMPORT AND WOULD INCLUDE SUCH ICDS ALSO IN THE AMBIT OF THE CAPITAL ASSET. HE RELIED ON THE FOLLOWING DECIS IONS FOR THIS PROPOSITION: A) HINDUSTAN WELFARE TRUST [111 CTR 284] (KOLK.) WHERE FIXED DEPOSITS IN THE BANK WERE HELD TO BE CAPITAL ASSET. B) INDIAN ALUMINIUM CABLES LTD. VS. DCIT [73 ITD 109] WHERE SECURITY DEPOSIT WAS HELD TO BE CAPITAL ASSET. C) CIT VS. MINOR BABABHAI ALIAS LAVKUMAR KANTILAL [128 ITR 199] WHERE PROMISORY NOTE WAS HELD TO BE CAPITAL ASSET. D) MRS. PERVIZ WANG CHUK BASI VS. JCIT [102 ITD 123] W HERE REDEMPTION OF BONDS WERE HELD TO BE CAPITAL ASSET. CROMPTON GREAVES LTD. 7 E) IN DCIT VS. THIRUMBADI RUBBER CO. LTD. [83 ITD 420] WHERE EVEN LOAN TO A DEBTOR WAS HELD TO BE A CAPITAL ASSE T. F) EVEN THROUGH BOARDS CIRCULAR NO.883 DATED 24-9-197 5 AND CIRCULAR NO.02 DATED 15-5-2002 DEEP DISCOUNT BONDS AND DEPOSITS WERE DIRECTED TO BE TREATED AS CAPITAL ASS ET. 10. THE LD. COUNSEL OF THE ASSESSEE FURTHER CONTEND ED THAT IN CASE OF BSI LTD. TRANSFER TOOK PLACE BY WAY OF EXCHANGE OF ICD FOR THE SHARES OF M/S ENGLISH CLAY INDIA LTD., THEREFORE TH EY WERE DIRECTLY COVERED BY CL.[I] OF SEC.2[47] AND THAT TOO UNDER T HE ORDER OF THE COURT. AN EXCHANGE HAS BEEN HELD TO BE TRANSFER IN THE CAS E OF RASIKLAL MANEKLAL HUF [177 ITR 198] SINCE ICD OF THE COMPANY WAS EXCHANGED FOR THE SHARES THEREFORE IT IS COVERED UNDER THE TE RM EXCHANGE AND NEEDS TO BE CONSTRUED AS TRANSFER. IN CASE OF JCT L TD. RIGHTS OF ASSESSEE IN RESPECT OF ICD WERE ABANDONED UNDER THE COURTS ORDER. THEREFORE, SAME HAS TO BE TREATED AS TRANSFER. HE S UBMITTED THAT EXTINGUISHMENT OF AN ASSET WOULD AMOUNT TO TRANSFER AND IN THIS REGARD HE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. GRACE COLLIS & ORS. [248 ITR 323]. HE ALSO RELI ED ON THE DECISION IN THE CASE OF CIT VS. G. NARSIMHAN (DECD) AND ORS. [2 36 ITR 325] AND HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. VI JAY FLEXIBLE CONTAINERS [186 ITR 693], WHERE GIVING UP THE RIGHT TO OBTAIN CONVEYANCE OF AN IMMOVABLE PROPERTY WAS HELD TO BE TRANSFER. ON A QUERY BY THE BENCH HE ADMITTED THAT THE AMOUNTS WER E NOT ADVANCED IN THE ORDINARY COURSE OF BUSINESS AND ASSESSEE IS NOT CLAIMING THIS WRITE OFF AS BAD DEBTS. HOWEVER, HE CONTENDED THAT ALTERNATIVELY THE LOSS MAY BE ALLOWED AS BUSINESS LOSS U/S.28. HE CON CLUDED HIS CROMPTON GREAVES LTD. 8 ARGUMENTS BY SUBMITTING THAT EXTINGUISHMENT OF ICD WOULD AMOUNT TO TRANSFER OF CAPITAL ASSET AND ACCORDINGLY CAPITAL L OSS WAS ALLOWABLE. 11. ON THE OTHER HAND, LD. DR WHILE STRONGLY SUPPOR TING THE ORDERS OF THE AO AND CIT(A) SUBMITTED THAT NO EVIDENCE HAS BEEN FILED TO SHOW THAT IT WAS AN ICD AND IT SEEMS TO BE A SIMPLE CASE OF LOAN WHICH WAS GIVEN TO SISTER CONCERNS AND HAS BEEN WRITTEN O FF. THEREFORE, SAME CANNOT BE TREATED AS CAPITAL ASSET U/S.2[14]. IN AN Y CASE NO TRANSFER IS INVOLVED BECAUSE A DEBT IS NOT AN IMMOVABLE PROPERT Y. THE SAID LOAN IS NOT COVERED BY THE PROVISIONS OF SALE OF GOODS ACT OR NEGOTIABLE INSTRUMENT ACT. IN FACT, THE ARGUMENT THAT IT WAS A N ACTIONABLE CLAIM AND THE SAME HAS BEEN TRANSFERRED IS NOT CORRECT BE CAUSE A MERE RIGHT TO SUE CANNOT BE TRANSFERRED AS PER CL.[E] OF SEC.6 OF TRANSFER OF PROPERTY ACT. AS FAR AS THE ARGUMENT THAT SHARES WE RE EXCHANGED IN CASE OF BSI LTD. THE SAME IS ONLY TO THE EXTENT OF RS.60 LACS AND REST OF THE LOAN HAS BEEN SIMPLY WAIVED. SHE REFERRED TO VA RIOUS CASE LAWS RELIED ON BY THE LD. COUNSEL OF THE ASSESSEE AND SU BMITTED THAT THE SAME ARE DISTINGUISHABLE ON THEIR OWN FACTS AND AS FAR AS THE DECISION IN DCIT VS. THIRUMBADI RUBBER CO. LTD. [SUPRA] IS C ONCERNED, IN THAT CASE THE WRITING OFF OF LOAN WAS HELD TO BE NOT A C ASE OF TRANSFER AND NOT ALLOWABLE. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY IN THE LIGHT OF THE MATERIAL ON RECORD AND THE DECISIONS CITED B Y BOTH THE PARTIES. ADMITTEDLY, LOANS WERE NOT GIVEN IN THE ORDINARY CO URSE OF BUSINESS AND IN FACT NO CLAIM UNDER THE HEAD BAD DEBTS HAS BEEN MADE. THE CLAIM OF THE ASSESSEE IS THAT THE LOAN WAS IN THE F ORM OF AN ICD WHICH CROMPTON GREAVES LTD. 9 IS A CASE OF CAPITAL ASSET WHICH HAS BEEN TRANSFERR ED. FIRST OF ALL, THERE IS NO EVIDENCE TO SHOW THAT IT IS A CASE OF AN ICD BECAUSE BEFORE THE AO IT WAS CLAIMED THAT THE LOSS WAS ON ACCOUNT OF W RITING OFF OF ADVANCES GIVEN TO BSI LTD. AND JCT LTD. THE DETAILS SUBMITTED ARE AS UNDER: NAME OF COMPANY NO. OF SHARES SOLD SALE VALUE ACTUAL COST BOOK PROFIT/ LOSS YEAR OF PURCHASE INDEX FACTOR INDEX COST IT CAPITAL GAIN/ LOSS ADVANCE W/OFF OF BSI LTD. 6000000 178731508 [172731508] 1997-98 172731508 ADVANCE W/OFF OF JCT LTD. 172546484 [172546484] 1996-97 172546484 6000000 351277992 345277992 351277992 FROM THE ABOVE IT IS SEEN THAT IT IS CLEARLY MENTIO NED THAT THE ADVANCES ARE WRITTEN OFF. THEREFORE, THERE IS NO MATERIAL TO SHOW THAT IT WAS A CASE OF ICD AND IN TURN THE LOANS COULD BE CONSTRUE D AS CAPITAL ASSETS. IN THE CASE OF CIT VS. MINOR BABABHAI ALIAS LAVKUMA R KANTILAL [SUPRA], THE ASSET IN QUESTION WAS A PROMISSORY NOTE, WHICH IS TOTALLY DIFFERENT FROM A LOAN. IN THE CASE OF INDIAN ALUMINIUM CABLES LTD. VS. DCIT [SUPRA], THE ISSUE WAS REGARDING FORFEITURE OF SECU RITY DEPOSIT WHICH WAS GIVEN AGAINST THE ALLOTMENT OF A PLOT BY THE GU JARAT DEVELOPMENT INDUSTRIAL CORPORATION LTD. THE SECURITY GOT FORFEI TED BECAUSE ASSESSEE DID NOT FOUND ANY USE FOR THE PLOT. SUCH SECURITY W AS HELD TO BE CAPITAL ASSET ON THE REASONING THAT RIGHT TO PURCHASE PROPE RTY IS ALSO A CAPITAL ASSET ON THE BASIS OF THE DECISION OF THE HON'BLE B OMBAY HIGH COURT IN THE CASE OF CIT VS. TATA SERVICES LTD. [122 ITR 594 ]. THEREFORE, THIS CASE IS OF NO HELP TO THE ASSESSEE. IN THE CASE OF MRS. PERVIZ WANG CROMPTON GREAVES LTD. 10 CHUK BASI VS. JCIT [SUPRA] THE ISSUE WAS REGARDING REDEMPTION OF CAPITAL INVESTMENT BONDS AFTER MATURITY. CLEARLY SU CH BONDS WILL BE TOTALLY DIFFERENT FROM LOAN GIVEN BY THE ASSESSEE. AS FAR AS THE DECISION IN DCIT VS. THIRUMBADI RUBBER CO. LTD. [SUPRA] IS C ONCERNED, THOUGH LD. COUNSEL OF THE ASSESSEE HAD RELIED ON THE SAME, BUT THIS DECISION IS TOTALLY AGAINST THE ASSESSEE ON PRINCIPLE BECAUSE U LTIMATELY IT WAS HELD THAT SIMPLY BECAUSE A DEBT IS WRITTEN OFF IN THE BO OKS OF THE ASSESSEE, IT DOES NOT FOLLOW THAT ASSESSEE HAS NO RIGHT TO RE COVER IT AND THE CONCERNED DEBTOR HAD NO LIABILITY TO PAY IT. MERE W RITE OFF OF A DEBT IN THE BOOKS OF ACCOUNTS DOES NOT AMOUNT TO TRANSFER. 13. FOR ARGUMENTS SAKE LET US ASSUME FOR A MOMENT T HAT THE LOANS GIVEN BY THE ASSESSEE TO BSI LTD. AND JCT LTD. WERE IN THE FORM OF ICDS AND SAME WERE CAPITAL ASSETS. EVEN THEN THE SE COND INGREDIENT FOR INVOKING PROVISIONS OF SEC.45 IS THAT THERE SHO ULD BE A TRANSFER. THE LD. COUNSEL OF THE ASSESSEE HAS RELIED ON THE DECIS ION IN THE CASE OF RASIKLAL MANEKLAL HUF [SUPRA] BY ARGUING THAT IN CA SE OF BSI LTD. EVEN SHARES HAVE BEEN ISSUED AGAINST ICD AMOUNTING TO RS .60 LACS. IN CASE OF RASIKLAL MANEKLAL HUF [SUPRA] ASSESSEE WAS A SHA REHOLDER OF 90 SHARES IN ONE S COMPANY OF THE FACE VALUE OF RS.100 . PURSUANT TO A SCHEME OF AMALGAMATION SANCTIONED BY THE HIGH COURT HOLDERS OF SHARES OF S COMPANY WERE TO BE ALLOTTED SHARES IN N S COMPANY. ONE SHARE OF RS.125 WAS TO BE ISSUED AGAINST TWO SHARES OF THAT COMPANY AND S COMPANY WAS TO BE DISSOLVED. THE ASSESSEE WAS ALLOTTED 45 SHARES OF S COMPANY WHICH WERE LATER ON SOLD. THE I TO WANTED TO TAX THE SAME, BUT ASSESSEE OBJECTED TO THE SAME THAT CO ST OF ACQUISITION CROMPTON GREAVES LTD. 11 CANNOT BE DETERMINED. THE ISSUE WAS ANSWERED BY THE HON'BLE HIGH COURT IN FAVOUR OF THE ASSESSEE. HOWEVER, HON'BLE S UPREME COURT REVERSED THE SAID DECISION AND EXPLAINED THE MEANIN G OF EXCHANGE. THE APEX COURT HELD THAT EXCHANGE INVOLVED TRANSFER OF PROPERTY BY ONE PERSON TO ANOTHER AND RECIPROCALLY THE TRANSFER OF PROPERTY BY THAT OTHER TO THE FIRST PERSON. THERE MUST BE MUTUAL TRA NSFER OF OWNERSHIP OF ONE THING FOR THE OWNERSHIP OF ANOTHER AND BOTH THE PARTIES SHOULD CONTINUE TO BE IN EXISTENCE. HOWEVER, IN CASE BEFOR E US WRITING OFF OF THE LOAN EXCEPT FOR THE SUM OF RS.60 LACS HAS CEASE D TO EXIST AND IT CANNOT BE CALLED A CASE OF EXCHANGE. THIS FACTUAL A SPECT WILL BE DISCUSSED LITTLE LATER. BUT ON LEGAL PRINCIPLE IT I S CLEAR THAT THIS IS NOT A CASE OF EXCHANGE IN CASE OF ICD OF JCT LTD. THE NEX T CASE RELIED ON IS THAT OF CIT VS. GRACE COLLIS & ORS. [SUPRA]. IN THA T CASE IT WAS HELD THAT EXTINGUISHMENT OF ANY RIGHT IN PROPERTY WOULD AMOUN T TO TRANSFER. THERE CANNOT BE ANY QUARREL WITH THIS PROPOSITION. BUT THERE IS NO EXTINGUISHMENT IN CASE BEFORE US AS ORDERED BY THE COURT. HERE ALSO THE FACTUAL ASPECT WILL BE DEAL WITH LITTLE LATER. THE NEXT CASE IS CIT VS. G. NARSIMHAN (DECD) AND ORS. [SUPRA]. IN TH AT CASE THE SHARE CAPITAL OF THE COMPANY WAS REDUCED IN TERMS OF THE REDUCTION APPROVED BY THE COURT. THE ASSESSEE WAS A SHAREHOLDER IN THE SAID COMPANY AND RECEIVED CERTAIN PROPERTIES. HIS DEBIT BALANCES WER E ALSO WRITTEN OFF IN EXCHANGE FOR REDUCTION OF SHARE CAPITAL THIS CASE I S DISTINGUISHABLE ON FACTS ITSELF THAT THE VALUE OF THE SHARES WAS REDUC ED IN EXCHANGE OF PROPERTY GIVEN TO THE ASSESSEE. IN THE CASE BEFORE US NOTHING HAS BEEN GIVEN TO THE ASSESSEE IN EXCHANGE OF WRITING OFF OF THE LOANS. THE CASE CROMPTON GREAVES LTD. 12 OF CIT VS. VIJAY FLEXIBLE CONTAINERS [SUPRA], IS AL SO DISTINGUISHABLE BECAUSE IN THAT CASE ASSESSEE ENTERED INTO AN AGREE MENT FOR PURCHASE OF AN IMMOVABLE PROPERTY AND EARNEST MONEY WAS PAID . LATER ON ASSESSEE FILED A SUIT FOR SPECIFIC PERFORMANCE. ULT IMATELY A COMPROMISE WAS REACHED AND THE SUIT WAS DECREED IN TERMS OF SA NCTIONED TERMS AND ASSESSEE ACCEPTED A SUM OF RS.1,17,500/-. A QUE STION AROSE WHETHER THE RECEIPT OF RS.1,17,500/- IS TAXABLE. TH E AO HELD THE SAME TO BE TAXABLE ON ACCOUNT OF TRANSFER OF RIGHT TO RE CEIVE THE PROPERTY THROUGH SPECIFIC PERFORMANCE. TRIBUNAL HOWEVER TOOK THE VIEW THAT THIS AMOUNT WAS NOT TAXABLE AS CAPITAL GAINS. THE HON'BL E HIGH COURT REVERSED THE DECISION AND HELD THAT RIGHT TO RECEIV E THE PROPERTY UNDER SPECIFIC PERFORMANCE ACT IS A CAPITAL ASSET WHICH H AS BEEN SURRENDERED BY RECEIVING A CONSIDERATION. THUS, RIGHT TO RECEIV E THE PROPERTY GOT EXTINGUISHMENT AGAINST CONSIDERATION AND THE SAME W AS HELD TO BE A TRANSFER. THE FACTS IN THE CASE BEFORE US ARE TOTAL LY DIFFERENT. 14. COMING BACK TO THE FACTS IT WAS MAINLY ARGUED B Y THE LD. COUNSEL OF THE ASSESSEE THAT ICD WHICH IS A CAPITAL ASSET GOT EXTINGUISHMENT ON THE BASIS OF THE COURTS ORDER. H OWEVER, NO REFERENCE WAS MADE TO ANY PARTICULAR DOCUMENT WHICH SHOWED THAT THE COURT HAD MADE AN ORDER THAT ASSESSEE IS REQUIRED T O FOREGO THE MONEY DEPOSITED BY IT. A PASSING REFERENCE WAS MADE TO PA GE NOS.301 & 302. WE HAVE CAREFULLY PERUSED THE DOCUMENTS FILED IN TH E PAPER BOOK AND FIND THAT IN BOTH CASES, I.E. BSI LTD. AS WELL AS J CT LTD., THESE COMPANIES HAD GONE IN FOR REARRANGEMENT/AMALGAMATIO N ON THE BASIS OF THE SCHEME FURNISHED BY THEM BEFORE THE HON'BLE HIGH COURTS. IT IS CROMPTON GREAVES LTD. 13 PERTINENT TO NOTE THAT THE COURT WOULD PASS AN ORDE R U/S.391 TO 394 OF THE COMPANIES ACT, 1956 ON THE BASIS OF THE SCHEME FURNISHED BY THE PETITIONER AFTER CONSIDERING THE OBJECTIONS FROM VA RIOUS PARTIES INCLUDING THE CREDITOR. IN CASE OF BSI LTD. WE NOTE THAT ONLY ONE PARTY I.E. PAHARAPUR COOLING TOWERS LTD., HAD FILED OBJEC TION WHICH IS CLEAR FROM THE ORDER OF THE HON'BLE GUJARAT HIGH COURT, C OPY OF WHICH IS PLACED AT PAGES 276 TO 280 OF THE PAPER BOOK. PARAS 5 & 6 OF THE SAID ORDER READ AS UNDER: 5. PURSUANT THERE TO ONLY ONE OBJECTION HAS BEEN F ILED BEFORE THIS COURT BY PAHARPUR COOLING TOWERS LTD. T HE SAID PAHARPUR COOLING TOWERS LTD. STATED THAT IT IS A CR EDITOR OF THE PETITIONERCOMPANY FOR AN AMOUNT OF RS.14,37,760/. IT IS FURTHER STATED THAT THE SAID CREDITOR DOES NOT FEEL THAT THE TRANSFER OF THE RESPECTIVE UNDERTAKING AS A GOING CONCERN IS GOING TO BENEFIT THE UNSECURED CREDITORS LIKE THEM ANY BETTER MANNER. 6. I HAVE CONSIDERED THE OBJECTION RAISED BY THE S AID CREDITOR AND ALSO HEARD MR HASHIT DAVE, LEARNED ADV OCATE APPEARING FOR THE SAID CREDITOR. IT APPEARS THAT TH E SAID CREDITOR HAS EXECUTED AND COMMISSIONED THE COOLING TOWER PLA NT AND CERTAIN AMOUNTS ARE ALLEGED TO HAVE BEEN DUE AND PA YABLE BY THE PETITIONER O THE SAID CREDITOR. ON A PERUSAL A OF THE SCHEME, IT TRANSPIRES THAT FROM THE FIRST AND SECOND APPOI NTED DATE, RESPECTIVE UNDERTAKINGS WOULD BE TRANSFERRED TO THE FIRST AND SECOND TRANSFEREE COMPANIES OF GOING CONCERN AND TH E LIABILITIES TO THE EXTENT SPECIFIED IN THE SCHEME SHALL BE PAID BY THE RESPECTIVE TRANSFEREE COMPANIES SINCE THE ASSETS AL ONG WITH THE LIABILITIES ARE BEING TRANSFERRED TO THE RESPECTIVE TRANSFEREE COMPANIES, AS A GOING CONCERN, 1 DO NOT FIND THAT A NY PREJUDICE WOULD BE CAUSED TO THE OBJECTING CREDITOR. FURTHER, IN VIEW OF THE FACT THAT SECURED/UNSECURED CREDITORS CONSISTIN G OF 98.03% OF THE SECURED/UNSECURED CREDITORS EXTENT IN PERSON OR BY PROXY OR ANY BALLOT AND 99.27% OF THE AMOUNTS OWING BY TH ESE SECURED/UNSECURED CREDITORS HAVE VOTED IN FAVOUR OF THE SCHEME, I DO NOT SEE ANY REASON TO ENTERTAIN THE OB JECTION RAISED BY THE CREDITOR. THE ABOVE CLEARLY SHOWS THAT ASSESSEE NEVER RAISED ANY OBJECTION AND IN ANY CASE THROUGH PARA-6 ABOVE ALL ASSETS AND LIA BILITIES WERE CROMPTON GREAVES LTD. 14 TRANSFERRED TO THE AMALGAMATED COMPANY. FURTHER, TH E RESPECTIVE SHAREHOLDERS OF THE BSI LTD. WHICH GOT AMALGAMATED WITH M/S ENGLISH CLAY INDIA LTD. IN THEIR MEETING HAD FINALISED THE SCHEME, COPY OF WHICH IS AVAILABLE AT PAGES 298 TO 304 OF THE PAPER BOOK. THE ISSUES REGARDING THE LIABILITIES AND ISSUE OF SHARES BY BS I LTD. HAS BEEN DEALT WITH AT PARAS 8, 9 & 10 WHICH READ AS UNDER: 8. WITH EFFECT FROM THE 2ND APPOINTED DATE, ALL DEB TS, DUTIES, LIABILITIES (INCLUDING CONTINGENT LIABILITIES) AND OBLIGATIONS OF THE TRANSFEROR COMPANY PERTAINING TO AND/OR ARISING OUT OF THE SAID RESIDUARY UNDERTAKINGS ON THE -2 ND APPOINTED DATE WHETHER DISCLOSED OR UNDISCLOSED SHALL ALSO BECOME THE DEBTS, LIABILI TIES AND OBLIGATIONS OF THE 2ND TRANSFEREE COMPANY AND EXCEPT AS STATED IN PARAGRAPH 9 BELOW, THE 2ND TRANSFEREE COMPANY UNDERTAKES TO MEE T, DISCHARGE AND SATISFY THE SAME. 9. AS ON THE 2ND APPOINTED DATE, THE TRANSFEROR COM PANYS LIABILITIES INCLUDE A SUM OF RS 60.00,000 ( RUPEES SIXTY LACS) DUE TO A GROUP COMPANY OF PROMOTERS-OF THE TRANSFEROR COMPAN Y - -M/S CRORMPTON GREAVES LIMITED (CGL), A COMPANY INCORPOR ATED UNDER THE ACT HAVING ITS REGISTERED OFFICE AT 6TH FLOOR. C G HOUSE, DR. ANNIE BESANT ROAD, PRABHADEVI, MUMBAI 400 025, A DEPOSIT RECEIVED FROM THEM, PURSUANT TO SETTLEMENT REACHED WITH THE TRANS FEROR COMPANY HAS ALREADY WRITTEN BACK A SUM OF RS.1L40 CR. IN THE PR EVIOUS YEAR AND UPON THE SCHEME BECOMING EFFECTIVE, THE 2ND TRANSFE REE COMPANY WILT ISSUE 1,20,000 EQUITY SHARES- OF RS 10/- EACH FULLY PAID UP AT A PREMIUM OF RS40/:-PER SHARE TO CGL IN FULL AND FINA L SETTLEMENT OF THEIR LIABILITY TAKEN-OVER BY IT. 10. ALL LOANS RAISED AFTER THE 2ND APPOINTED DATE B UT BEFORE THE EFFECTIVE DATE, AND USED AND LIABILITIES INCURRED B Y THE TRANSFEROR COMPANY AFTER THE 2ND APPOINTED DATE BUT-BEFORE-THE - EFFECTIVE-DATE FOR-OPERATIONS -OF THE RESIDUARY. UNDERTAKINGS SHAL L BE DISCHARGED BY THE 2ND TRANSFEREE COMPANY. THE ABOVE CLEARLY SOWS THAT THE WHOLE LIABILITY WAS NOT ADJUSTED AGAINST THE ISSUE OF SHARES BECAUSE IT TALKS OF ONL Y A SUM OF RS.60 LACS WHICH WAS DUE TO CROMPTON GREAVES LTD., I.E. THE AS SESSEE COMPANY WHICH HAS BEEN ADJUSTED BY ISSUE OF 1,20,000 SHARES OF FACE VALUE OF RS.10/- FULLY PAID AT A PREMIUM OF RS.40/-. IT IS C LEARLY MENTIONED THAT CROMPTON GREAVES LTD. 15 PURSUANT TO SETTLEMENT REACHED WITH CGL THE TRANSF EROR COMPANY HAS ALREADY WRITTEN BACK A SUM OF RS.11.40 CRORES IN TH E PREVIOUS YEAR. THUS, IT IS CLEAR THAT IT WAS AN INTERNAL ARRANGEME NT BETWEEN THE SISTER CONCERNS AND NOT BECAUSE OF THE ORDER OF THE COURTS . AT PAGES 304 TO 305 OF THE PAPER BOOK IS A COPY OF THE SCHEME WHERE THROUGH PARAS 8, 9 & 10 THE ABOVE POSITION HAS BEEN REPEATED. SAME I S THE POSITION IN REGARD TO THE SCHEME OF JCT LTD. IN THE COURTS ORD ER, COPY OF WHICH IS AVAILABLE AT PAGES 350 ONWARDS, IT IS CLEARLY STATE D VIDE PARAS 2 & 3 AS UNDER: 2. THAT THE LIABILITIES AND DUTIES OF THE JCT LIMI TED PERTAINING TO THE BUSINESS UNDERTAKING OF FIBER UNIT AND SPECIFIED IN THE SCHEME OF ARRANGEMENT BE TRANSFERRED TO WITHOUT FURTHER ACT OR DEED TO THE APPOLL0 FIBRES LIMITED AND ACCORDINGLY THE .THE SA ME SHALL, PURSUANT TO SECTION 394(2) OF THE COMPANIES ACT, 19 56 BE TRANSFERRED TO AND BECOME THE LIABILITIES AND DUTIE S OF THE APPOLL0 FIBRES LIMITED ; AND 3. THAT THE JCT LIMITED AND APPOLL0 FIBRES LIMITED DO WITHIN 30 DAYS AFTER THE DATE OF THIS ORDER-CAUSE_A CERTIFIED COPY OF THIS ORDER TO BE DELIVERED TO THE REGISTRAR OR COMP ANIES FOR REGISTRATION AND ON SUCH CERTIFIED COPY BEING SO D ELIVERED THE REGISTRAR OF COMPANIES SHALL PLACE ALL DOCUMENTS O N RECORD OF THE TWO COMPANIES. THUS, IT IS CLEAR THAT LIABILITIES OF JCT LTD. WERE TRANSFERRED TO APPOLLO FIBERS LTD. I.E. THE AMALGAMATED COMPANY AND THERE IS NO ORDER BY THE COURT TO EXTINGUISH THESE LIABILITIES. THEREFORE, A T BEST IT CAN BE SAID THAT ASSESSEE COMPANY HAS SIMPLY WAIVED ITS RIGHT T O RECOVER THE MONEY FROM ITS SISTER CONCERNS WHICH WAS GIVEN BY I T AS LOANS OR IN THE FORM OF ICDS AND WAIVER OF SUCH RIGHT CANNOT BE TRE ATED AS EXTINGUISHMENT. THIS MEANS NO TRANSFER HAS TAKEN PL ACE. IN ANY CASE AS POINTED OUT BY THE LD. DR, THE ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE DECISION OF COCHIN BENCH OF THE TRI BUNAL IN THE CASE OF CROMPTON GREAVES LTD. 16 DCIT VS. THIRUMBADI RUBBER CO. LTD. [SUPRA] WHEREIN THE HEAD-NOTE READS AS UNDER: SECTION 2(47) OF THE INCOME-TAX ACT, 1961 - CAPITAL GAINS TRANSFER - ASSESSMENT YEAR 1990-91 - ALLOWABLE ONLY WHEN THERE IS TRANSFER OF CAPITAL ASSET - HELD, YES - WHETHER A MERE WRITE O FF OF A DEBT IN BOOK ASSESSEE DOES NOT AMOUNT TO A TRANSFER - HELD, YES WHETHER SIMPLY BECAUSE A DEBT IS WRITTEN OFF IN BOOKS, IT DOES NOT FOLLOW THAT ASSESSEE HAS NO RIGHT TO RECOVER IT OR THAT CONCERNED DEBTOR HAS NO LIABILITY TO PAY IT - HELD, YES - WHETHER A MERE WRITE OFF OF A DEBT IN BOOK ASSESSEE DOES NOT AMOUNT TO A TRANSFER - HELD, YES IN ALMOST SIMILAR CIRCUMSTANCES THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. R. CHIDAMBARNATHA MUDLIAR [240 ITR 552] WAS CONCERNED WITH THE CASE WHERE ASSESSEE HAD MADE A D EPOSIT OF RS.20,000/- IN A COMPANY WHICH WAS WOUND UP AND ASS ESSEE WAS UNABLE TO CLAIM THE AMOUNT. THE SAME WAS CLAIMED AS CAPITAL LOSS AND IT WAS HELD AS UNDER: HELD, (I) THAT THERE WAS NO TRANSFER OF CAPITAL ASS ETS AS CONTEMPLATED IN SECTION 2(47) OF THE INCOME-TAX ACT, 1961, AND WHEN THERE WAS NO TRANSFER, THE LOSS COULD NOT BE SAID TO HAVE ARISEN BY THE TRANSFER OF A CAPITAL ASSET WITHIN THE MEANING OF SECTION 45 OF T HE INCOME-TAX ACT. SAME IS THE VIEW TAKEN BY THE HON'BLE DELHI HIGH CO URT IN THE CASE OF CIT VS. R.G.SCIENTIFIC ENTERPRISES PVT. LTD. [311 I TR 401]. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE OPINION, THAT T HE CLAIM OF THE ASSESSEE REGARDING CAPITAL LOSS HAS BEEN RIGHTLY RE JECTED BY THE LOWER AUTHORITIES BECAUSE AT BEST IT IS A CASE OF LOSS OF CAPITAL. ACCORDINGLY, WE DECIDE THIS GROUND AGAINST THE ASSESSEE. 15. THE THIRD ISSUE IS REGARDING DISALLOWANCE MADE BY THE AO IN RESPECT OF INTEREST EXPENDITURE AND OTHER EXPENSES @ 2% U/S.14A BECAUSE ASSESSEE HAS SOME EXEMPT INCOME IN THE FORM OF DIVIDENDS. THE LD. CIT(A) HAD GIVEN PARTIAL RELIEF IN RESPECT OF DISALLOWANCE ON CROMPTON GREAVES LTD. 17 ACCOUNT OF INTEREST EXPENDITURE U/S.14A AND HE HAS CONFIRMED THE DISALLOWANCE ON ACCOUNT OF EXPENDITURE. THE ASSESSE E HAS DISPUTED THE DISALLOWANCE WHEREAS THE REVENUE HAS DISPUTED THE R ELIEF GIVEN BY THE FIRST APPELLATE AUTHORITY. 16. BOTH THE PARTIES WERE HEARD. 17. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND FOL LOWING THE EARLIER YEARS ORDER IN I.T.A.NO.4762/MUM/2003 & ORS. WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO FOR FRESH EXAMINATION PARTICULARLY IN THE LIGHT OF GUID ELINES GIVEN BY THE HON'BLE BOMBAY HIGH COURT OF IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD. VS. DCIT [328 ITR 81] 18. THE NEXT ISSUE IS REGARDING NON INCLUSION OF MO DVAT CREDIT IN THE CLOSING STOCK. THE LD. COUNSEL OF THE ASSESSEE SUBM ITTED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. MAHAVIR ALUMINIUM LTD. [297 ITR 77]. THIS DECISION WAS LATER ON FOLLOWED BY EVEN THE HON'BLE BOMBAY HI GH COURT IN THE CASE OF CIT VS. MAHALAXMI GLASS WORKS PVT. LTD. [31 8 ITR 116]. IN BOTH THESE DECISIONS IT WAS CLEARLY HELD THAT IF TH E CLOSING STOCK VALUE WAS TO BE ENHANCED BECAUSE OF THE MODVAT CREDIT THE N OPENING STOCK VALUE HAS ALSO TO BE ADJUSTED. 19. ON THE OTHER HAND, LD. DR SIMPLY RELIED ON THE ORDER OF THE AO AND THE CIT(A). 20. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. MAHAVIR ALU MINIUM LTD. [SUPRA] HAS CLEARLY HELD THAT SEC.145A STARTS WITH NON OBST ANTE CLAUSE, CROMPTON GREAVES LTD. 18 THEREFORE, ADJUSTMENT HAS TO BE MADE UNDER THE CLOS ING STOCK. BUT ONCE THERE WAS ADJUSTMENT IN THE CLOSING STOCK THEN OPENING STOCK HAS ALSO TO BE ADJUSTED IN THE SAME MANNER TO ASCERTAIN THE CORRECT PROFIT AND LOSS OF THE BUSINESS. THIS POSITION WAS ADMITTE D BY THE DEPARTMENT BEFORE THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. MAHALAXMI GLASS WORKS PVT. LTD. [SUPRA]. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK T O THE FILE OF THE AO WITH A DIRECTION THAT IN THE YEAR WHERE ONLY CLOSIN G STOCK HAS BEEN ENHANCED THE CORRESPONDING ENHANCEMENT SHALL BE MAD E IN THE OPENING STOCK ALSO. HOWEVER, WHEREVER THE OPENING S TOCK HAS ALREADY BEEN ADOPTED ON THE ADJUSTED VALUE OF THE CLOSING S TOCK OF THE PREVIOUS YEAR, THEN THERE IS NO NEED TO ENHANCE THE OPENING STOCK. NEEDLESS TO SAY THAT ASSESSEE SHOULD BE PROVIDED AD EQUATE OPPORTUNITY. 21. THE NEXT ISSUE REGARDING CONFIRMATION OF DISALL OWANCE ON ACCOUNT OF LOSS ON FOREIGN EXCHANGE WAS NOT PRESSED BEFORE US AND, THEREFORE, SAME IS DISMISSED AS NOT PRESSED. 22. THE NEXT ISSUE IS REGARDING CONFIRMATION OF THE ACTION OF THE AO IN DENYING THE DEDUCTIONS U/S.80G, U/S.80HHC, 80IA, 80IG AND 80-O. THESE DEDUCTIONS HAVE BEEN DENIED BY THE AO BECAUSE THERE WERE BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION AND AFTER SETTING OFF THE SAME THERE WOULD BE NO PROFIT. 23. THE LD. COUNSEL OF THE ASSESSEE FAIRLY CONCEDED THAT THIS ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE DEC ISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SYNCO INDUS. LTD. VS. ASSESSING OFFICER & CROMPTON GREAVES LTD. 19 ANR. [299 ITR 444]. ON THE OTHER HAND, LD. DR SIMPL Y SUPPORTED THE ORDER OF THE AO. 24. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFUL LY, WE FIND THAT THE HON'BLE APEX COURT HAS CLEARLY HELD IN VARIOUS DECISIONS THAT UNABSORED LOSS AND DEPRECIATION HAVE TO BE SET OFF IN VIEW OF THE DEFINITION OF TOTAL INCOME IN CL.(V) OF SEC.80B. AL L THESE DECISIONS HAVE CULMINATED IN SYNCO INDUS. LTD. VS. ASSESSING OFFIC ER & ANR. [SUPRA]. THEREFORE, IN VIEW OF THIS DECISION AS WELL AS THE CONCESSION OF LD. COUNSEL WE HOLD THAT VARIOUS DEDUCTIONS CLAIMED UND ER VARIOUS PROVISIONS OF CHAPTER-VIA ARE NOT ALLOWABLE IN VIEW OF THIS DECISION. IN SOME YEARS ASSESSEE HAS RAISED A SEPARATE GROUND AG AINST CONFIRMATION OF DISALLOWANCE OF DEDUCTION BUT THAT WOULD ALSO BE COVERED BY THE AFORESAID DECISION OF HON'BLE SUPREM E COURT IN THE CASE OF SYNCO INDUS. LTD. VS. ASSESSING OFFICER & ANR. [ SUPRA] AND ALSO BY ANOTHER DECISION OF HON'BLE SUPREME COURT IN THE CA SE OF IPCA LABORATORIES VS. DCIT [266 ITR 521]. ACCORDINGLY, W E CONFIRM THE ORDER OF THE LD. CIT(A). 25. THE NEXT ISSUE IS REGARDING LEVY OF INTEREST U/ S.234B AND 234D WHICH IS OF CONSEQUENTIAL NATURE AND ACCORDINGLY AO IS DIRECTED TO CHARGE INTEREST AS PER LAW. 26. IN THE RESULT, ASSESSEES APPEAL IN I.T.A.NO.26 52/M/97 FOR A.Y 2002-03 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 27. I.T.A.NO.2742/M/07 A.Y 2002-03 [REVENUES APP EAL ]: THE FIRST ISSUE RAISED BY THE REVENUE IS REGARDING RELIEF GIV EN BY THE LD. CIT(A) ON ACCOUNT OF DISALLOWANCES MADE BY THE AO U/S.14A. THESE ISSUES CROMPTON GREAVES LTD. 20 HAVE BEEN SET ASIDE BY US WHILE ADJUDICATING THE AS SESSEES APPEAL IN THE ABOVE NOTED PARAS AND ACCORDINGLY, THE ISSUES R AISED BY THE REVENUE ARE ALSO SET ASIDE TO THE FILE OF THE AO FO R STATISTICAL PURPOSES. 28. THE SECOND ISSUE RAISED BY THE REVENUE IS REGAR DING DISALLOWANCE ON ACCOUNT OF CLUB EXPENSES AND IT WAS POINTED OUT THAT THIS ISSUE IS COVERED AGAINST THE REVENUE BY THE DE CISION OF THE TRIBUNAL IN I.T.A.NO.4762/MUM/2003 & ORS. VIDE PARA S 15 & 58. FOLLOWING THAT ORDER, WE UPHOLD THE IMPUGNED ORDER AND DISMISS THIS GROUND OF APPEAL. 29. THE THIRD GROUND IS REGARDING DELETION ON ACCOU NT OF BAD DEBTS. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS WRITTEN OF F DEBIT BALANCES OF VARIOUS PARTIES AND ASSESSEE WAS ASKED TO GIVE DOCU MENTARY EVIDENCE SHOWING THE NATURE OF DEBTS AND EFFORTS MADE FOR IT S RECOVERY. IT WAS MAINLY STATED THAT AFTER THE AMENDMENT IN LAW W.E.F . 1-04-1989 IN SEC.36[1][VII] IT IS NO MORE NECESSARY TO PROVE THA T A DEBT HAS REALLY BECOME BAD AND IT WAS SUFFICIENT IF THE DEBT WAS WR ITTEN OFF. HOWEVER, AO DID NOT AGREE WITH THE SUBMISSIONS AND DISCUSSED VARIOUS CASE LAWS. HE ALSO NOTED THAT SOME OF THE DEBTS WRITTEN OFF BELONGED TO THE CURRENT YEAR ALSO. ACCORDINGLY, HE REJECTED THE CLA IM OF BAD DEBTS. 30. ON APPEAL, LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE ON THE BASIS OF THE DECISION OF THE TRIBUNAL IN THE CASE OF DCIT VS. OMAN INTERNATIONAL BANK BY HOLDING THAT IT WAS SUFFICIEN T IF THE DEBT WAS WRITTEN OFF. CROMPTON GREAVES LTD. 21 31. BEFORE US, LD. DR SUBMITTED THAT THOUGH IT MAY NOT BE NECESSARY THAT ASSESSEE SHOULD FURNISH THE EVIDENCE THAT A DEBT HAS REALLY BECOME BAD, BUT ATLEAST SOME DETAILS SHOULD BE AVAILABLE TO SHOW THAT ASSESSEE HAS EXERCISED HONEST JUDGMENT IN WRITING OFF SUCH BAD DEBTS AND IN THIS REGARD SHE RELIED ON THE DECI SION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF DIT VS. OMAN INTER NATIONAL BANK [313 ITR 128]. 32. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF TH E HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT [323 ITR 397] . 33. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND AGREE THAT ONCE A DEBT IS WRITTEN OFF SAME IS ALLOWABLE I N VIEW OF THE AMENDMENT IN THE ACT AND THIS POSITION STANDS CONFI RMED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F TRF LTD. VS. CIT [SUPRA]. HOWEVER, AT THE SAME TIME ASSESSEE CAN WRI TE OFF ONLY A BAD DEBT AND EVERY DEBT OUTSTANDING CANNOT BE TERMED AS BAD. IN THIS REGARD HON'BLE BOMBAY HIGH COURT HAS MADE THE FOLLO WING OBSERVATIONS IN THE CASE OF DIT VS. OMAN INTERNATIO NAL BANK [SUPRA]: LET US REFER TO SOME DICTIONARY MEANINGS OF THE WOR DS BAD DEBT' . CHAMBERS 20TH CENTURY DICTIONARY REFERS TO BAD DEBT AS A DEBT THAT CANNOT BE RECOVERED' . MITRA`S LEGAL AND COMMERCIAL DICTIONARY REFERS TO BAD DEBT AS ' A DEBT BECOMES BAD DEBT WHEN THE CREDITOR HAS NO REASONABLE CHANCE OF RECOVERING IT FROM THE DEBTO R AS HELD IN DEONITI PRASAD V. CIT AIR 1953 PAT 360. THE LAW LEXICON R EFERS TO BAD DEBT AS ' DEBT WHICH CAN- NOT REASONABLY BE COLLECTED. A DEBT ABOUT WHICH THERE IS NO REASONABLE EXPECTATION OF RECOVERY ; A DEBT BELIEVED TO BE UNRECOVERABLE.' REFERENCE MAY ALSO BE MADE TO PA GE 878 OF THE LAW AND PRACTICE OF INCOME TAX LAW BY KANGA, PALKHIWA LA AND VYAS, 9TH EDITION, WHERE THE LEARNED JURIST OPINED AS UNDER : ' UNDER THE AMENDED CLAUSE, THE REQUIREMENT OF ` E STABLISHING` THAT THE DEBT HAS BECOME BAD IN THE RELEVANT ACCOUNTING YEAR IS DISPENSED CROMPTON GREAVES LTD. 22 WITH ; ALL THAT THE ASSESSEE HAS TO SHOW IS THAT TH E BAD DEBT HAS BEEN WRITTEN OFF AS IRRECOVERABLE. BUT THE SUBJECT-MATTE R OF THE CLAUSE IS STILL ` ANY BAD DEBT` AND ` NOT ANY DEBT` . THE CONSEQUE NCES OF THE AMENDMENT ARE MAINLY THREE : (I) THE ASSESSEE CANNOT ARBITRARILY, IRRATIONALLY O R MALA FIDE TREAT A GOOD DEBT AS BAD AND WRITE IT OFF IN HIS ACCOUNTS. (II) WHERE THE ASSESSEE HAS ACTED BONA FIDE AND REA SONABLY, THE ASSESSING OFFICER CANNOT SUBSTITUTE HIS OWN SUBJECT IVE JUDGMENT, BUT MUST ACCEPT THE ASSESSEE` S DECISION, AS TO THE QUA LITY OF THE DEBT. (III) THE ASSESSEE IS NOT OBLIGED TO WRITE OFF AND CLAIM THE DEBT IN THE VERY YEAR IN WHICH IT BECOMES BAD. HE CAN WRITE IT OFF AND CLAIM IT IN A SUBSEQUENT YEAR IN WHICH THE DEBT CONTINUES TO RE MAIN BAD.' ALL THIS WOULD INDICATE THAT WHEN THE ASSESSEE TRE ATS THE DEBT AS A BAD DEBT IN HIS BOOKS THE DECISION WHICH HAS TO BE A BU SINESS OR COMMERCIAL DECISION AND NOT WHIMSICAL OR FANCIFUL . THE DECISION MUST BE BASED ON MATERIAL THAT THE DEBT IS NOT RE COVERABLE. THE DECISION MUST BE BONA FIDE. THE DIFFERENCE BETWEE N THE POSITION, PRE- AMENDMENT AND POST-AMEND- MENT WOULD BE THAT THE B URDEN IS NO LONGER ON THE ASSESSEE AND CAN BE CLAIMED IN THE YEAR IT IS WRITTEN OFF IN THE BOOKS OF ACCOUNT AS IRRECOVERABLE. THE ASS ESSING OFFICER IF HE IS TO DISALLOW THE DEBT AS A BAD DEBT MUST ARRIVE AT A CONCLUSION THAT THE DECISION WAS NOT BONA FIDE. THE ASSESSING OFFIC ER ONLY IN THOSE CIRCUMSTANCES AND TO THAT EXTENT MAY INTERFERE. ALL THAT THE ASSESSEE MUST DO IS TO BE PRIMA FACIE SATISFIED BASED ON THE INFORMATION AVAILABLE THAT THE DEBT IS BAD AND THAT WOULD BE SU FFICIENT REQUIREMENT OF THE AMENDED PROVISIONS. (I) THE ASSESSEE CANNOT ARBITRARILY, IRRATIONALLY O R MALA FIDE TREAT A GOOD DEBT AS BAD AND WRITE IT OFF IN HIS ACCOUNTS. (II) WHERE THE ASSESSEE HAS ACTED BONA FIDE AND REA SONABLY, THE ASSESSING OFFICER CANNOT SUBSTITUTE HIS OWN SUBJECT IVE JUDGMENT, BUT MUST ACCEPT THE ASSESSEE` S DECISION, AS TO THE QUA LITY OF THE DEBT. (III) THE ASSESSEE IS NOT OBLIGED TO WRITE OFF AND CLAIM THE DEBT IN THE VERY YEAR IN WHICH IT BECOMES BAD. HE CAN WRITE IT OFF AND CLAIM IT IN A SUBSEQUENT YEAR IN WHICH THE DEBT CONTINUES TO RE MAIN BAD.' ALL THIS WOULD INDICATE THAT WHEN THE ASSESSEE TREA TS THE DEBT AS A BAD DEBT IN HIS BOOKS THE DECISION WHICH HAS TO BE A BU SINESS OR COMMERCIAL DECISION AND NOT WHIMSICAL OR FANCIFUL . THE DECISION MUST BE BASED ON MATERIAL THAT THE DEBT IS NOT RE COVERABLE. THE DECISION MUST BE BONA FIDE. THE DIFFERENCE BETWEE N THE POSITION, PRE- AMENDMENT AND POST-AMENDMENT WOULD BE THAT THE BURD EN IS NO LONGER ON THE ASSESSEE AND CAN BE CLAIMED IN THE YEAR IT IS WRITTEN OFF IN THE BOOKS OF ACCOUNT AS IRRECOVERABLE. THE ASSESSING OFFICER IF HE IS TO DISALLOW THE DEBT AS A BAD DEBT MUST ARRIVE AT A CONCLUSION THAT THE DECISION WAS NOT BONA FIDE. THE ASSESSING OFFICER ONLY IN THOSE CIRCUMSTANCES AND TO THAT EXTENT MAY INTERFERE. ALL THAT THE ASSESSEE MUST DO IS TO BE PRIMA FACIE SATISFIED BASED ON THE INFORMATION AVAILABLE THAT THE DEBT IS BAD AND THAT WOULD BE SU FFICIENT REQUIREMENT OF THE AMENDED PROVISIONS. CROMPTON GREAVES LTD. 23 THUS, IT IS CLEAR THAT AO HAS RIGHT TO EXAMINE THE DETAILS TO DETERMINE WHETHER AN HONEST DECISION HAS BEEN MADE FOR WRITIN G OFF SUCH BAD DEBT. FOLLOWING THIS DECISION, WE SET ASIDE THE ORD ER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO WIT H A DIRECTION TO RE- EXAMINE THE ISSUE AFTER PROVIDING ADEQUATE OPPORTUN ITY TO THE ASSESSEE. WE MAY CAUTION THE AO THAT HE SHOULD NOT INSIST ON PRODUCTION OF EVIDENCE TO PROVE THAT THE DEBT HAS R EALLY BECOME BAD. IN THE RESULT, REVENUES APPEAL IN I.T.A.NO.2742/M/ 07 FOR A.Y 2002-03 IS PARTLY ALLOWED. 34. I.T.A.NO.5472/M/07 A.Y 04-05 ASSESSEES APP EAL : THE FIRST GROUND OF APPEAL REGARDING DEDUCTION OF RS.71,31,94 ,953/- BEING THE LOWER OF UNABSORBED DEPRECIATION OR BOOKS LOSS FROM PROFITS U/S.115JB WAS NOT PRESSED BEFORE US AND, THEREFORE, SAME IS D ISMISSED AS NOT PRESSED. 35. THE SECOND GROUND OF APPEAL IS REGARDING ASSESS MENT OF INCOME FROM BUSINESS SERVICE CENTER AMOUNTING TO RS.4,49,2 6,224/- AS INCOME FROM HOUSE PROPERTY AT RS.5,12,49,102/-. 36. AFTER HEARING BOTH THE PARTIES WE FIND THAT DUR ING THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS DECLARED INCOME AMOUNTING TO RS.6.85 CRORES BEING INCOME FROM BUSIN ESS SERVICE CENTER UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND P ROFESSION. IN RESPONSE TO A QUERY IT WAS EXPLAINED THAT ASSESSEE WAS RUNNING A BUSINESS SERVICE CENTER FROM ITS C.G.HOUSE, WORLI, MUMBAI. THE BUSINESS CONSISTED OF PROVIDING EXCLUSIVE FACILITIE S TO CUSTOMERS TO ENABLE THEM TO CARRY ON THEIR BUSINESS BY RENDERING CERTAIN ESSENTIAL CROMPTON GREAVES LTD. 24 BUSINESS SERVICES LIKE, COMMUNICATION INCLUDING TEL EX, TELEPHONE, FAX, SUPPLIES LIKE GENERATING SETS, ELECTRICITY, WATER, AIR CONDITIONING, MAINTENANCE OF SERVICE CENTER AND EQUIPMENTS, REPAI RS AND PLUMBING, AND FORWARDING AND DISPATCHING AND CLEARING SERVICE S. THE AO AFTER EXAMINING THESE SUBMISSIONS, DID NOT AGREE WITH THE SAME BY OBSERVING THAT ASSESSEE HAS LET OUT ITS OFFICE PREM ISES WHICH WAS LYING WITH THEM AND COULD NOT BE USED FOR ITS OWN BUSINES S PURPOSES. THE SERVICES WHICH ASSESSEE WAS CLAIMING TO HAVE PROVID ED WERE NOTHING BUT REGULAR MAINTENANCE AND UP KEEP OF THE PREMISES . EVEN PERUSAL OF THE MAIN OBJECTS DID NOT SHOW THAT ASSESSEE WAS ENG AGED IN THE BUSINESS OR RUNNING A BUSINESS CENTER. ACCORDINGLY, HE HELD INCOME TO BE ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PRO PERTY. 37. ON APPEAL, THE SUBMISSIONS MADE BEFORE THE AO W ERE REITERATED AND RELIANCE WAS PLACED ON VARIOUS CASE LAWS. THE L D. CIT(A) DID NOT FIND FORCE IN THESE SUBMISSIONS AND DECIDED THE ISS UE AGAINST THE ASSESSEE VIDE PARA 4.3 OF HIS ORDER WHICH IS AS UND ER: 4.3. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE APPELLANT. I DO NOT AGREE WITH THE VIEWS OF THE AR THAT INCOME FROM RUNNING OF THE SERVICE CENTER IS BUSINESS INCO ME. THE ASSESSEE HAS PROVIDED ONLY THOSE SERVICES WHICH ARE REQUIRED TO FACILITATE THE HOUSE PROPERTY WORTH LIVING I.E. REP AIRS AND MAINTENANCE, ELECTRICITY AND WATER SUPPLY AND OTHER RELATED SERVICES. IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, IT CANNOT BE SAID THAT THE ASSESSEE IS RUNNING A BUSINESS OF SERVICE CENTER. THESE SERVICES ARE ESSENTIAL FOR LETTING TH E HOUSE PROPERTY ON RENT. HENCE, THE INCOME IS TO BE ASSESS ED AS INCOME FROM HOUSE PROPERTY ONLY. THE FACT THAT IN T HE PAST THIS INCOME WAS ASSESSED AS BUSINESS INCOME WOULD NOT HE LP THE ASSESSEE AS RESJUDICATE DO NOT APPLY TO THE INCOME TAX PROCEEDINGS. THE CASE LAWS CITED BY THE APPELLANT A RE DISTINGUISHABLE ON FACTS AND HENCE NOT APPLICABLE T O THE FACTS OF THIS CASE. HENCE, THIS GROUND OF APPEAL IS DISMISSE D. THAT IN THE PAST THIS INCOME WAS ASSESSED AS BUSINESS INCOME WO ULD NOT CROMPTON GREAVES LTD. 25 HELP THE ASSESSEE AS RESJUDICATE DO NOT APPLY TO TH E INCOME TAX PROCEEDINGS. THE CASE LAWS CITED BY THE APPELLANT A RE DISTINGUISHABLE ON FACTS AND HENCE NOT APPLICABLE T O THE FACTS OF THIS CASE. HENCE, THIS GROUND OF APPEAL IS DISMISSE D. 38. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE PREMISES IN WORLI WERE INITIALLY PURCHASED BY THE A SSESSEE FOR ITS OWN USE BUT BECAUSE OF CERTAIN REASONS SAME COULD NOT B E USED AND IT WAS DECIDED TO RUN A BUSINESS CENTER. THE PREMISES ARE GIVEN TO VARIOUS PARTIES WHO ARE NOT RELATED TO THE ASSESSEE AT ALL. VARIOUS SERVICES LIKE, COMMUNICATION, COURIERS, PROVISION OF ELECTRICITY, AIR CONDITIONING AND EVEN DC SETS WERE PROVIDED. IT WAS POINTED OUT THAT SEPARATE CHARGES WERE AGREED TO BE PAID AS PER THE AGREEMENT, COPY O F WHICH IS PLACED AT PAGES 256 TO 258 OF THE PAPER BOOK. ACCORDINGLY SEPARATE BILLS WERE RAISED FOR RECOVERY OF SUCH CHARGES AND, THEREFORE IT WAS A CAE OF RUNNING OF A BUSINESS CENTER AND THE INCOME WAS RIG HTLY RETURNED UNDER THE HEAD BUSINESS INCOME. IN ANY CASE THE E XPENSES INCURRED BY THE ASSESSEE COMPANY ON PROVISION OF SERVICES SH OULD HAVE BEEN ALLOWED. IN THE WRITTEN SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE THE FOLLOWING DETAILS HAVE BEEN FILED IN RESPECT OF RECEIPTS AND EXPENDITURES ON SERVICES: A.Y.2004-05 RECEIPTS PROPORTIONATE EXPENSES ELECTRICITY UPKEEP, SECURITY, HOUSEKEEPING TOTAL AMOUNT 37,61,304 42,78,241 80,39,545 37,61,304 42,78,231 80,39,545 A.Y.2005-06 RECEIPTS PRO PORTIONATE EXPENSES CROMPTON GREAVES LTD. 26 ELECTRICITY UPKEEP, SECURITY, HOUSEKEEPING TOTAL AMOUNT 36,10,614 37,22,334 73,32,948 36,10,614 37,22,334 73,32,948 A.Y.2006-07 RECEIPTS P ROPORTIONATE EXPENSES ELECTRICITY UPKEEP, SECURITY, HOUSEKEEPING TOTAL AMOUNT 54,05,073 52,37,475 1,06,42,548 54,05,073 52,37,475 1,06,42,548 39. ON THE OTHER HAND, LD. DR STRONGLY SUPPORTED TH E ORDER OF THE AO AND THE CIT(A) AND POINTED OUT THAT THE SO CALLE D PROVISION OF SERVICES WAS BASICALLY NORMAL MAINTENANCE AND UPKEE P OF THE BUSINESS PREMISES. SHE STRONGLY RELIED ON THE DECISION OF TH E HON'BLE SUPREME COURT IN THE CASE OF SHAMBHU INVESTMENTS PVT. LTD. VS. 263 ITR 143 WHEREIN THE HON'BLE APEX COURT HAS CONFIRMED THE DE CISION OF THE CALCUTTA HIGH COURT REPORTED AT 249 ITR 47. IN THAT CASE THE ASSESSEE HAD PROVIDED TABLE SPACE ALONG WITH FURNITURE AND F IXTURES AND LIGHTS AND AIR CONDITIONS. THE ASSESSEE HAS FURTHER PROVID ED SERVICES LIKE WATCH AND WARD STAFF, ELECTRICITY AND WATER AND OTH ER COMMON AMENITIES, EVEN THEN THE INCOME WAS HELD TO BE ASSE SSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 40. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND IN OUR OPINION, IT SEEMS TO BE A SIMPLE CASE OF LETTING OU T OF THE PROPERTY. THIS FACT BECOMES CLEAR FROM THE FOLLOWING CHART WH EREIN DETAILS OF RECEIPTS ON ACCOUNT OF SERVICES AND DETAILS OF EXPE NDITURES HAVE BEEN FURNISHED: A.Y.2004-05 RECEIPTS PROPORTIONATE EXPENSES CROMPTON GREAVES LTD. 27 ELECTRICITY UPKEEP, SECURITY, HOUSEKEEPING TOTAL AMOUNT 37,61,304 42,78,241 80,39,545 37,61,304 42,78,231 80,39,545 A.Y.2005-06 RECEIPTS PRO PORTIONATE EXPENSES ELECTRICITY UPKEEP, SECURITY, HOUSEKEEPING TOTAL AMOUNT 36,10,614 37,22,334 73,32,948 36,10,614 37,22,334 73,32,948 A.Y.2006-07 RECEIPTS P ROPORTIONATE EXPENSES ELECTRICITY UPKEEP, SECURITY, HOUSEKEEPING TOTAL AMOUNT 54,05,073 52,37,475 1,06,42,548 54,05,073 52,37,475 1,06,42,548 THE ABOVE CLEARLY SHOWS THAT EXPENDITURE ON THE SO CALLED SERVICES MATCHES TO THE LAST PAISA WITH THE RECEIPTS. IF ASS ESSEE COMPANY WAS PROVIDING SERVICES SPECIFICALLY THEN THERE WOULD HA VE BEEN EITHER SOME PROFIT OR SOME LOSS ON SUCH SERVICES. IT SEEMS THAT ASSESSEE HAS COLLECTED THE AMOUNT OF ELECTRICITY EXPENDITURE SEP ARATELY AND PAID THE BILLS BECAUSE UNDER THIS HEAD THE RECEIPTS AND EXPE NDITURE TOTALLY MATCHES. THE OTHER ITEM IS UPKEEP, SECURITY AND HOU SEKEEPING. HERE ALSO IN ALL THE THREE YEARS THE RECEIPTS AND EXPEND ITURES MATCH EXACTLY TO THE LAST PAISA. IT WAS ARGUED THAT ASSESSEE IS P ROVIDING, FOR EXAMPLE, TELECOMMUNICATION SERVICES SAY IF ASSESSEE WAS CHAR GING ONE RUPEE FOR ONE FAX COPY AND IF THE WHOLE RECEIPT FOR THE YEAR WAS RS.1,00,000/-, IT IS NOT POSSIBLE THAT ASSESSEE WOULD GOT THE BILL OF RS.1 LAKHS ON ITS FAX MACHINE. THEREFORE, IN VIEW OF THIS FACT WE ARE OF THE OPINION THAT ASSESSEE HAS SIMPLY LET OUT THE PROPERTY AND THE IN COME HAS RIGHTLY CROMPTON GREAVES LTD. 28 BEEN ASSESSED AS INCOME FROM HOUSE PROPERTY. HOWEVE R, AT THE SAME TIME THERE IS A DISTINCTIVE FEATURE IN THE CASE OF THE ASSESSEE IN COMPARISON TO THE DECISION OF THE HON'BLE SUPREME C OURT IN THE CASE OF CIT VS. SHAMBHUNATH INVESTMENT PVT. LTD. [SUPRA] HA D ENTERED INTO AN AGREEMENT TO RECEIVE THE PAYMENT ON ACCOUNT OF CERT AIN SERVICE CHARGES SEPARATELY, WHEREAS IN THE CASE OF CIT VS. SHAMBHUNATH INVESTMENT PVT. LTD. [SUPRA], THERE WAS NO SEPARATE AGREEMENT. THEREFORE, WE ARE OF THE OPINION THAT IT IS A CASE WHERE INCOME FROM LEASE OF THE PREMISES HAS TO BE SEGREGATED FROM THE INCOME FROM SERVICES AND ONLY INCOME FROM LEASE SHOULD BE ASSES SED AS INCOME FROM HOUSE PROPERTY AGAINST WHICH ONLY STANDARD ALL OWANCE OF 30% SHOULD BE ALLOWED. THE OTHER RECEIPTS SHOULD BE ASS ESSED AS INCOME FROM OTHER SOURCES AND EXPENDITURE INCURRED ON PROV ISION OF SUCH SERVICES SHOULD BE ALLOWED AS PER SEC.57 AFTER VERI FICATION. THIS PROPOSAL WAS ACCEPTED EVEN BY THE LD. COUNSEL OF TH E ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A ) AND REMIT THE MATTER TO THE FILE OF THE AO TO RE-EXAMINE THE ISSU E IN THE LIGHT OF THE OBSERVATIONS MADE BY US I.E. THESE INCOMES SHOULD B E ASSESSED SEPARATE AS INCOME FROM HOUSE PROPERTY AND SERVICE CHARGES COLLECTED TO BE ASSESSED SEPARATELY AS INCOME FROM BUSINESS A ND PROFESSION AFTER ALLOWING EXPENDITURE INCURRED AGAINST PROVISI ON OF SUCH SERVICES AFTER VERIFICATION OF THE SAME. ACCORDINGLY THIS GR OUND IS PARTLY ALLOWED. 41. GROUND NO.3 RELATES TO CONFIRMATION OF DISALLOW ANCE OF LONG TERM CAPITAL LOSS ON SALE OF UNITS OF UTI UNITS-64 SCHEME. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS AO CROMPTON GREAVES LTD. 29 NOTICED THAT ASSESSEE HAD COMPUTED THE CAPITAL LOSS OF RS.45,76,160/- BEING LOSS IN RESPECT OF CONVERSION OF UTI UNITS-64 INTO TAX FREE BONDS. THE SAID LOSS WAS SET OFF AGAINST CAPITAL GAINS. AO MADE THE ENQUIRIES AND ISSUED A SHOW CAUSE NOTICE THAT WHY THE LOSS FR OM CONVERSION OF UTI UNITS-64 INTO TAX FREE BONDS SHOULD NOT BE IGNO RED AS PER THE PROVISIONS OF SEC.10[33]. IN RESPONSE IT WAS STATED ON BEHALF OF THE ASSESSEE THAT THE ASSESSEE COMPANY HAD PURCHASED 17 ,19,836/- UNITS OF UTI UNITS-64 SCHEME 1964 FOR A SUM OF RS.1,71,98 ,360/- AT VARIOUS POINTS OF TIME. DURING THE YEAR THE UNITS WERE TRAN SFERRED BY THE UTI AND THE ASSESSEE WAS ALLOTTED TAX FREE BONDS WHICH RESULTED IN LOSS OF RS.45,76,160/- SINCE AS PER SEC.45 ANY PROFIT OR LO SS ARISING ON TRANSFER OF CAPITAL ASSETS AND ACCORDINGLY SAME WAS TO BE CO MPUTED U/S.48. IT WAS FURTHER STATED THAT SEC.10[33] WOULD NOT BE APP LICABLE BECAUSE OF THE FOLLOWING REASONS: 1) SIGNIFICANTLY, NO PROFIT EVER WAS LIKELY TO BE MADE ON SUCH EXCHANGE IN AS MUCH AS THE COST OF UNITS UNDER BOTH THE SCHEMES WAS RS. 10 ONLY. ACCORDINGLY, THE EXEMPTION WAS ILLUSORY AND DID NOT IN EFFECT GRANT ANY BENEFIT TO THE TAXPAYERS HOLDING SUCH UNITS. 2) THERE IS NO DOUBTING THE FACT THAT THE TRANSACTI ONS INVOLVED THE CASE OF TRANSFER AND THEREFORE THE LOSS ARISING ON SUCH TRANSFER WAS REAL AND WAS ELIGIBLE FOR SET-OFF. 3) THERE IS NO EXPRESS OR IMPLICIT PROHIBITION TO P REVENT A PERSON SUFFERING FROM LOSSES FROM CLAIMING A SET-OFF. 4) THE LANGUAGE OF S. 10(33) IS VERY CLEAR IN AS MU CH AS IT CONFERS AN EXEMPTION ON INCOME ALONG AND DOES NOT TAKE WITHIN ITS SWEEP ANY LOSSES AND THEREFORE S. 10(33) SHALL NOT BE RESORTED TO PROHIBIT THE CLAIM OF THE COMPANY. 5) SINCE THERE WAS A LOSS ON THE CONVERSION OF THE UNITS OF US 1964 SCHEME, WE HAVE NOT CLAIMED ANY EXEMPTION U/S. 10(33) IN RESPECT OF THE SAME. AFTER EXAMINING THE SUBMISSIONS AO OBSERVED THAT AS SESSEE HAS ACCEPTED THE CONVERSION OF UTI UNITS-64 INTO TAX FR EE BONDS AS A CROMPTON GREAVES LTD. 30 TRANSFER AND SINCE GAINS FROM SUCH TRANSFER OF UNIT S WERE EXEMPT U/S.10[33], THEREFORE, LOSS ARISING IS ALSO TO BE T REATED AS EXEMPT. IN THIS CONNECTION AO ALSO RELIED ON THE DECISION OF T HE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. HARPRASAD AND CO. P. L TD. [99 ITR 118]. ACCORDINGLY THE LOSS ON CONVERSION OF UNITS INTO TA X FREE BONDS WAS IGNORED. 42. ON APPEAL, THE SUBMISSIONS MADE BEFORE THE AO W ERE REITERATED. HOWEVER, LD. CIT(A) AFTER EXAMINING THE SUBMISSIONS DID NOT AGREE WITH THEM AND IN VIEW OF SEC.10[33] CONFI RMED THE DISALLOWANCE OF CAPITAL LOSS. 43. BEFORE US LD. COUNSEL OF THE ASSESSEE REITERATE D THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND E MPHASISED THAT ONCE THE CONVERSION OF UTI UNITS-64 INTO TAX FREE B ONDS WAS DONE, WHICH WAS DONE BY UTI ITSELF, THEN SUCH LOSS HAS TO BE ALLOWED IN TERMS OF SEC.45. THE LD. COUNSEL FURTHER SUBMITTED THAT THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF ROYAL CALCUTTA T URF CLUB [144 ITR 709] HAD CONSIDERED THE ISSUE WHEREIN THE LOSS IN R ESPECT OF AN ITEM OF INCOME, WHICH WAS EXEMPT, WAS ALLOWED TO BE SET OFF AGAINST OTHER INCOME. IN VIEW OF THIS JUDGMENT THE ASSESSEE HAS A WRITE TO CARRY FORWARD THE LOSS EVEN IF THE SAME IS GENERATED ON A CCOUNT OF AN ITEM, INCOME FROM WHICH IS EXEMPT. 44. ON THE OTHER HAND, LD. DR STRONGLY SUPPORTED TH E ORDER OF THE LD. CIT(A). 45. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT AO HAS TREATED THE CONVERSION OF UTI UNITS-64 INTO TAX FREE BONDS AS CROMPTON GREAVES LTD. 31 TRANSFER WITH WHICH WE DO NOT AGREE AND SHALL DIS CUSS IT LITTLE LATER. BUT ONCE IT IS TREATED AS TRANSFER THEN ASSESSING O FFICER HAS RIGHTLY DECLINED TO ALLOW THE LOSS BECAUSE IF A PARTICULAR INCOME IS EXEMPT FROM TAX U/S.10 THEN THE CORRESPONDING LOSS IS ALSO TO B E TREATED AS EXEMPT I.E. TO BE IGNORED. SINCE SEC.10[33] SPECIFICALLY P ROVIDES THAT PROFIT FROM TRANSFER OF UNITS OF UTI UNITS-64 IS EXEMPT U/ S.10[33] THEREFORE THE LOSS HAS TO BE IGNORED. WE HAVE ALSO VERY CAREF ULLY PERUSED THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF ROYAL CALCUTTA TURN CLUB LTD. VS. CIT [SUPRA]. IN THAT CA SE THE HON'BLE COURT MADE THE FOLLOWING OBSERVATIONS: UNDER THE I.T. ACT, 1961, THERE ARE CERTAIN INCOMES WHICH DO NOT ENTER INTO THE COMPUTATION OF THE TOTAL INCOME AT ALL. IN COMPUTING THE TOTAL INCOME OF A RESIDENT ASSESSEE, CERTAIN INCOMES ARE NOT INCLUDED UNDER S. 10 OF THE ACT. IT DEPENDS ON THE PARTICULAR CASE ; WHERE THE ACT IS MADE INAPPLICABLE TO INCOME FROM A CERTAIN SOURCE U NDER THE SCHEME OF THE ACT, THE PROFIT AND LOSS RESULTING FROM SUCH A SOURCE WILL NOT ENTER INTO THE COMPUTATION AT ALL. BUT THERE ARE OTHER SO URCES WHICH, FOR CERTAIN ECONOMIC REASONS, ARE NOT INCLUDED OR EXCLU DED BY THE WILL OF THE LEGISLATURE. IN SUCH A CASE, ONE MUST LOOK TO T HE SPECIFIC EXCLUSION THAT HAS BEEN MADE. THE ASSESSEE, THE ROYAL CALCUTTA TURF CLUB, CLAIMED THAT THE LOSSES INCURRED BY IT IN THE BROODMARES ACCOUNT AND IN PIG ACCOUNT SHOULD BE SET OFF AGAINST ITS INCOME FROM OTHER SOURCES UNDER THE HEAD 'BUSINESS'. THE ITO DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE INCOME DERIVED FROM THESE TWO HEADS WERE EXEMPT UND ER S. 10(27) OF THE ACT. THE AAC AND, ON FURTHER APPEAL, THE TRIBUN AL, AFFIRMED THE ORDER OF THE ITO. AFTER THE ABOVE OBSERVATIONS, IT WAS HELD AS UNDER: HELD, THAT CL. (27) OF S. 10 EXCLUDES IN EXPRESS T ERMS ONLY 'ANY INCOME DERIVED FROM A BUSINESS OF LIVE STOCK BREEDING OR P OULTRY OR DAIRY FARMING'. IT DOES NOT EXCLUDE THE BUSINESS OF LIVES TOCK BREEDING OR POULTRY OR DAIRY FARMING FROM THE OPERATION OF THE ACT. THEREFORE, THE LOSSES SUFFERED BY THE ASSESSEE IN THE BROODMARES A CCOUNT AND IN THE PIG ACCOUNT WERE ADMISSIBLE DEDUCTIONS IN COMPUTING ITS TOTAL INCOME. A CAREFUL READING OF THIS JUDGMENT SHOWS THAT BECAU SE OF THE UNIQUE CIRCUMSTANCES OF THE CASE THE LOSS WAS HELD TO BE A LLOWABLE AND COURT CROMPTON GREAVES LTD. 32 HAS VERY CLEARLY OBSERVED THAT IT DEPENDS UPON A P ARTICULAR CASE. IT WAS FOUND BY THE HON'BLE COURT THAT CL.[27] OF SEC. 10 EXCLUDED THE INCOME FROM 'ANY INCOME DERIVED FROM A BUSINESS OF LIVE STOCK BREEDING OR POULTRY OR DAIRY FARMING'. THIS INCOME WAS EXEMPT ONLY IN RESPECT OF THESE SOURCES. IT WAS HELD THAT THIS DOE S NOT MEAN THAT LOSS ON ACCOUNT OF BROODMARES AND PIG ACCOUNT WAS NOT AL LOWABLE BECAUSE THESE ITEMS WERE NOT COVERED BY THESE ITEMS. THEREF ORE, WHAT HAS BEEN ULTIMATELY HELD WAS THAT EXEMPTED INCOME DID N OT INCLUDE AN ITEM AGAINST WHICH ASSESSEE HAS MADE THE CLAIM FOR LOSS AND THAT IS WHY THE CLAIM FOR LOSS WAS HELD TO BE ALLOWABLE. IN OUR OPINION, THEREFORE, THIS CASE IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEE WHERE INCOME FROM UNITS IS SPECIFICALLY EXEMPT U/S.10[33] AND, THEREFORE, LOSS, IF ANY, AGAINST SUCH UNITS HAS TO BE IGNORED. 46. HOWEVER, WE WOULD LIKE TO OBSERVE THAT THE CORR ECT POSITION OF LAW IS THAT THE CONVERSION OF UNITS OF UTI UNITS-64 SCHEME INTO TAX FREE BONDS CANNOT BE TREATED AS TRANSFER AT ALL. THE UNI T TRUST OF INDIA WAS ISSUING UTI UNITS-64 UNITS WHICH WERE READILY TRADA BLE IN THE MARKET. THE PROCEEDS OF SUCH UNITS WERE BEING INVESTED BY U TI IN SHARES AND DEBENTURES AND OTHER SECURITIES OF VARIOUS LISTED C OMPANIES. IN THE YEAR 2002-03, UNIT TRUST OF INDIA FACED SEVERE FINA NCIAL CRUNCH AND NET ASSET VALUE [NAV] OF THE US-64 UNITS PERHAPS WENT B ELOW THE FACE VALUE I.E. RS.10/- PER UNIT. THE GOVERNMENT OF INDI A TO HELP VARIOUS UNIT HOLDERS OF US-64 DECIDED TO CLOSE THE VARIOUS SCHEMES FORMULATED BY UNIT TRUST OF INDIA AND IT WAS DECIDED TO GIVE T WO OPTIONS TO THE VARIOUS INVESTORS I.E. [I] EITHER TO SURRENDER THE UNITS AND TAKE CASH OR CROMPTON GREAVES LTD. 33 [II] GET THE UNITS CONVERTED INTO 6.75% TAX FREE BO NDS GUARANTEED BY THE GOVERNMENT OF INDIA. THE PRICE FOR EXCHANGE WAS FIXED AT RS.12 FOR THE FIRST 5000 UNITS AND RS.10/- FOR UNITS BEYOND T HE LIMIT OF 5000. THE HIGHER PRICE WAS GIVEN TO THE SMALL INVESTORS. THIS CLEARLY SHOWS THAT IT WAS A CLEAR CASE OF CONVERSION WHERE ANY PERSON WHO CHOOSES TO SURRENDER ITS UTI UNITS-64 UNITS AND GET THE NEW TA X FREE BONDS WAS REPLACING ONE TYPE OF SECURITY WITH ANOTHER TYPE OF SECURITY. NOW FOR APPLICATION OF SEC.45, IT IS NECESSARY THAT THERE H AS TO BE A TRANSFER OF THE CAPITAL ASSET. SEC.2[47] DEFINES TRANSFER AS UN DER: SEC.2(47) : TRANSFER, IN RELATION TO A CAPITAL ASSET, INCLUDE S, ( I ) THE SALE , EXCHANGE OR RELINQUISHMENT OF THE AS SET ; OR ( II ) THE EXTINGUISHMENT OF ANY RIGHTS THEREIN ; OR (III) .. .. .. (IV) .. .. .. FROM THE ABOVE IT IS CLEAR THAT ASSESSEE CAN COVER ITS CASE ONLY UNDER THE TERM EXCHANGE AND ASSESSEE HAD ADMITTEDLY ARG UED BEFORE THE AO AS WELL AS THE CIT(A) THAT IT WAS A CASE OF EXC HANGE. ACCORDING TO THE ASSESSEE, IT HAS SURRENDERED UTI UNITS-64 UNITS AND IN EXCHANGE HAS GOT TAX FREE BONDS. IN OUR OPINION, THIS ONLY A MOUNTS TO SUBSTITUTION OF ONE TYPE OF AN ASSET WITH ANOTHER T YPE OF ASSET. IN CASE OF EXCHANGE THE PROPERTY TRANSFERRED BY ONE PARTY R EMAINS IN EXISTENCE WITH THE OTHER PARTY, BUT IN THE CASE BEFORE US THE UNITS SURRENDERED BY THE ASSESSEE WOULD CEASED TO EXIST AND FRESH TAX FR EE BONDS WERE ISSUED. THE HON'BLE SUPREME COURT IN THE CASE OF CI T VS. RASIKLAL MANEKLAL [HUF] 177 ITR 198, HAS EXPLAINED THIS POSI TION. IN THAT CASE ASSESSEE WAS HOLDING 90 SHARES IN ONE S. COMPANY OF FACE VALUE OF CROMPTON GREAVES LTD. 34 RS.100/- EACH. PURSUANT TO THE SCHEME OF AMALGAMATI ON SANCTIONED BY THE HIGH COURT, THE HOLDERS OF THE SHARES IN S. COM PANY WERE TO BE ALLOTTED ONE SHARE OF RS.125/- EACH OF NS COMPANY F OR TWO SHARES IN S. COMPANY. THE S. COMPANY WAS THEN DISSOLVED. THE ASS ESSEE IN THAT CASE WAS ALLOTTED 45 SHARES IN N.S COMPANY. A QUEST ION AROSE, WHETHER THIS WOULD AMOUNT TO TRANSFER AND THE HON'BLE SUPRE ME COURT HELD THAT THERE WAS NEITHER AN EXCHANGE NOR A RELINQUISHME NT IN THIS TRANSACTION. THE HON'BLE SUPREME COURT OBSERVED AS UNDER: AN EXCHANGE INVOLVES THE TRANSFER OF PROPERTY BY ONE PERSON TO ANOTHER AND RECIPROCALLY THE TRANSFER OF PROPERTY B Y THAT OTHER TO THE FIRST PERSON. THERE MUST BE A MUTUAL TRANSFER OF OW NERSHIP OF ONE THING FOR THE OWNERSHIP OF ANOTHER. A RELINQUISHMENT TAKES PLACE WHEN THE OWNER WITHD RAWS HIMSELF FROM THE PROPERTY AND ABANDONS HIS RIGHTS THERETO. IT PRESUMES THAT THE PROPERTY CONTINUES TO EXIST AFTER THE RELINQUIS HMENT. WHERE, UPON AMALGAMATION, THE COMPANY IN WHICH THE ASSESSEE HOLDS SHARES STAND DISSOLVED, THERE IS NO RELINQUISHMENT BY THE ASSESSEE . THE APEX COURT HAD CLEARLY OBSERVED THAT IN CASE OF EXCHANGE THAT ONE PERSON TRANSFERS A PROPERTY TO ANOTHER PERSON IN EX CHANGE OF ANOTHER PROPERTY OF SUCH ANOTHER PERSON AND THE PROPERTY CO NTINUES TO BE IN EXISTENCE. IN THAT CASE, SHARES OF S. COMPANY HAD C EASED TO BE IN EXISTENCE AND THEREFORE THE TRANSACTION DID NOT INV OLVE ANY TRANSFER. SIMILARLY, IN THE CASE BEFORE US, THE UNITS OF US-6 4 OF UNIT TRUST OF INDIA CEASED TO BE IN EXISTENCE AFTER THE ASSESSEE OPTED FOR CONVERSION OF THE UNITS INTO TAX FREE BONDS AND THEREFORE NO E XCHANGE HAS TAKEN PLACE. CONSEQUENTLY NO TRANSFER CAN BE SAID TO HAVE TAKEN PLACE AND IT IS ONLY SUBSTITUTION OF ONE TYPE OF SECURITY WITH O THER. THEREFORE, BECAUSE OF NO TRANSFER HAVING TAKEN PLACE, NO LOSS CAN BE DETERMINED CROMPTON GREAVES LTD. 35 U/S.45. ACCORDINGLY, WE CONFIRM THE DISALLOWANCE OF CAPITAL LOSS CONFIRMED BY THE LD. CIT(A) ON A DIFFERENT FOOTING. 47. GROUND NO.4 IS REGARDING DISALLOWANCE OF INTERE ST ON BORROWED CAPITAL AMOUNTING TO RS.27,12,928/-. AFTER CONSIDER ING THE RIVAL SUBMISSIONS WE FIND THAT THIS ISSUE IS SQUARELY COV ERED BY PARA-44 OF TRIBUNALS DECISION IN ASSESSEES OWN CASE IN I.T.A .NO.4762/MUM/2003 & ORS. FOLLOWING THAT ORDER, WE DECIDE THIS ISSUE I N FAVOUR OF THE ASSESSEE. 48. GROUND NO.5 IS REGARDING DISALLOWANCE U/S.14A. THIS DISALLOWANCE COMPRISES OF INTEREST AND ADMINISTRATI VE EXPENSES. 49. AFTER CONSIDERING THE RIVAL SUBMISSIONS, AS DEC IDED BY US IN PARA 17, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RE MIT THE MATTER BACK TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS AS CO NTAINED IN PARA-17. 50. GROUND NO.6 IS REGARDING DISALLOWANCE ON ACCOUN T SOFTWARE EXPENSES WHICH HAVE BEEN TREATED AS CAPITAL EXPENDI TURE. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT MOST OF THE EXPENSES ARE RELATING TO MAINTENANCE OF SOFTWARE AND, THEREFORE, SAME CANNOT BE TREATED AS CAPITAL EXPENDITURE. 51. ON THE OTHER HAND, LD. DR SUBMITTED THAT AFTER THE AMENDMENT IN INCOME TAX RULES, ASSESSEE IS ENTITLED TO ONLY 6 0% DEPRECIATION. 52. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. IN OUR OPINION, FIRST OF ALL SOFTWARE EXPENSES HAVE TO BE SEGREGATED. IF THEY ARE OF CAPITAL NATURE THEN ASSESSEE IS ENTITLED TO 60% DEPRECIATION, BUT IF THE EXPENDITURE RELATES ONLY TO THE MAINTENANCE THEN SAME IS TO BE TREATED AS REVENUE EXPENDITURE. IN THIS REGARD THE SPECIAL BENCH OF THE CROMPTON GREAVES LTD. 36 TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES VS. DCIT [111 ITD 112] HAS LAID DOWN CERTAIN GUIDELINES. THEREFORE, I N THE INTERESTS OF JUSTICE WE SET ASIDE THE ORDER OF THE LD. CIT(A) AN D REMIT THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO RE-EXAMINE T HE SAME IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH CITED SUPRA. W HATEVER EXPENDITURE IS TREATED AS REVENUE HAS TO BE ALLOWED FULLY AND O N THE PORTION OF SOFTWARE WHICH HAS TO BE TREATED AS CAPITAL EXPENDI TURE DEPRECIATION MAY BE ALLOWED AS PER THE RULES. 53. IN GROUND NO.7 THE DISPUTE IS IN RESPECT OF UNU TILISED MODVAT CREDIT ADDITION HAS BEEN RAISED. THIS ISSUE HAS BEE N ADJUDICATED BY US VIDE PARA-20 AND FOLLOWING THE SAME WE SET ASIDE TH E ORDER OF THE LD. CIT(A) AND REMIT THE ISSUE BACK TO THE FILE OF THE AO TO BE DECIDED ON THE BASIS OF THE DIRECTIONS GIVEN BY US IN PARA-20. 54. THROUGH GROUND NO.8 ASSESSEE HAS CHALLENGED CON FIRMATION OF ADDITION ON ACCOUNT OF WRITE OFF OF SALES TAX DEFER RED PAYMENT. 55. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DU RING THE ASSESSEE HAD GENERATED SURPLUS OF RS.19.12 CRORES ARISING OU T OF PREPAYMENT OF SALES TAX DEFERRED LIABILITY. THE SAME WAS TREATED AS CAPITAL RESERVE. ON ENQUIRY IT WAS MAINLY SUBMITTED THAT PREPAYMENT OF SALES TAX DEFERRED LIABILITY WAS MADE IN ACCORDANCE WITH THE SCHEME NO TIFIED BY THE GOVERNMENT OF MAHARASHTRA AND THE SAME CANNOT BE TR EATED AS BENEFIT U/S.41[1]. HOWEVER, AO DID NOT AGREE WITH THE SAME AND TREATED IT AS BENEFIT U/S.41[1]. THIS WAS ALSO ADDED TO THE BOOK PROFITS OF THE ASSESSEE. CROMPTON GREAVES LTD. 37 56. ON APPEAL, LD. CIT(A) CONFIRMED THE ADDITION BY OBSERVING THAT PREPAYMENT OF DEFERRED SALES TAX LIABILITY AT NET P RESENT VALUE WOULD BE COVERED U/S.41[1]. HOWEVER, THE ADDITION TO BOOK PR OFIT WAS DELETED BY THE LD. CIT(A) BY HOLDING THAT IN VIEW OF THE DECIS ION OF THE HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES VS. CIT [ 255 ITR 273] AO HAS NO POWER TO TINKER WITH THE ACCOUNTS OF THE ASS ESSEE AND ACCORDINGLY ADDITION TO BOOK PROFIT WAS DELETED. 57. BEFORE US, LD. COUNSEL OF THE ASSESSEE SUBMITTE D THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF JCIT VS. SULZER INDIA LTD. 6 ITR (TR IB) 604. 58. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDER O F THE AO. 59. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF JCIT VS. SULZE R INDIA LTD. [SUPRA] HAS HELD THAT PAYMENT OF NET PRESENT VALUE OF DEFER RED SALES TAX BENEFIT WOULD NOT AMOUNT TO BENEFIT U/S.41[1]. THE HEAD-NOTE READS AS UNDER: BUSINESS INCOMEDEEMED INCOMEREMISSION OR CESSATI ON OF TRADING LIABILITYCONDITIONS PRECEDENT FOR BRING ING SUM TO TAX AS DEEMED INCOMEDEFERRED SALES TAX LIAB ILITY TREATED AS LOAN BY STATE GOVERNMENT AND DEDUCTION ALLOWED IN TERMS OF CIRCULAR UNDER SECTION 43B ON DEEMED BASISLIABILITY SETTLED ON PAYMENT OF NET PR ESENT VALUE COMPUTED IN ACCORDANCE WITH FORMULA PRESCRIBE D IN STATE SALES TAX LAWNOT A CASE OF WAIVER OR ACCEPTA NCE OF LESSER SUM BY GOVERNMENTNO REMISSION OR CESSATI ON OF LIABILITYDIFFERENCE BETWEEN NET PRESENT VALUE A ND FUTURE LIABILITY CANNOT BE TAXED AS DEEMED INCOME INCOME-TAX ACT, 1961, SS. 41(1), 43BCIRCULAR NO. 4 96 DATED SEPTEMBER 25, 19871_CIRCULAR NO. 674 DATED DECEMBER 29, 1993 . THEREFORE, FOLLOWING THE ABOVE ORDER, WE HOLD THAT PREPAYMENT OF DEFERRED SALES TAX LIABILITY WILL NOT AMOUNT TO BEN EFIT U/S.41[1] AND CROMPTON GREAVES LTD. 38 ACCORDINGLY ADDITION MADE TO THE NORMAL INCOME IS D ELETED. ONCE IT IS HELD THAT IT IS NOT A PART OF THE NORMAL INCOME U/S .41[1], THEN THERE IS NO QUESTION OF MAKING ADDITION EVEN IN THE BOOK PRO FITS WHILE COMPUTING THE INCOME UNDER MAT PROVISION AND ACCORD INGLY THE ORDER OF THE LD. CIT(A) IN THIS RESPECT IS UPHELD. 60. GROUND NO.9 WAS NOT PRESSED BEFORE US, THEREFOR E, SAME IS DISMISSED AS NOT PRESSED. 61. THROUGH GROUND NO.10 ASSESSEE HAS RAISED THE IS SUE REGARDING DISALLOWANCE OF THE DEDUCTIONS U/S.80G,80HHC, 80IB AND 80-O. THE DEDUCTION WAS DENIED BECAUSE THERE WAS NO POSITIVE INCOME. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT THI S ISSUE HAS BEEN ADJUDICATED BY US VIDE PARA-24 AND FOLLOWING THAT O RDER WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 62. IN THE RESULT, ASSESSEES APPEAL IN I.T.A.NO.56 72/M/07 FOR A.Y 2004-05 IS PARTLY ALLOWED. 63. I.T.A.NO.5754/M/07 A.Y 2004-05 [REVENUES APP EAL ] : THROUGH GROUND NO.1 REVENUE HAS RAISED THE ISSUE REGARDING DELETION OF ADDITION ON ACCOUNT OF BENEFIT U/S.41[1] IN THE BOO K PROFIT COMPUTED U/S.115JB. THIS ISSUE HAS BEEN ADJUDICATED BY US VI DE PARA-59 AND FOLLOWING THAT ORDER WE DECIDE THIS ISSUE AGAINST T HE REVENUE. 64. THROUGH GROUND NO.2 REVENUE HAS RAISED THE ISSU E REGARDING THE DELETION OF ADDITION ON ACCOUNT OF BAD DEBTS WR ITTEN OFF. THIS ISSUE HAS BEEN ADJUDICATED BY US VIDE PARA-33 AND FOLLOWI NG THAT ORDER WE REMIT THE ISSUE BACK TO THE FILE OF THE AO WITH SIM ILAR DIRECTIONS. CROMPTON GREAVES LTD. 39 65. THROUGH GROUND NO.3 REVENUE HAS RAISED THE ISSU E REGARDING DELETION OF ADDITION ON ACCOUNT OF GUEST HOUSE EXPE NSES AND DEPRECIATION. THIS ISSUE IS COVERED AGAINST THE REV ENUE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A.NO.476 2/MUM/2003 & ORS. VIDE PARAS 50 & 51 AND FOLLOWING THAT ORDER WE DECI DE THIS ISSUE AGAINST THE REVENUE. 66. THROUGH GROUND NO.4 REVENUE HAS RAISED THE ISSU E REGARDING DISALLOWANCE U/S.14A. THIS ISSUE HAS BEEN DECIDED B Y US VIDE PARA-17 AND FOLLOWING THAT ORDER, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH SI MILAR DIRECTIONS. 67. THROUGH GROUND NO.5 THE ISSUE REGARDING LEVY OF INTEREST U/S.234D IS OF CONSEQUENTIAL NATURE AND AO IS DIREC TED TO LEVY THE INTEREST IN ACCORDANCE WITH THE LAW. 68. IN THE RESULT, REVENUES APPEAL IN I.T.A.NO.575 4/M/07 FOR A.Y 2004-05 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 69. I.T.A.NO.3353/M/08 A.Y 2005-06 [ASSESSEES APPE AL ]: IN THIS APPEAL ASSESSEE THROUGH GROUND NO.1 HAS RAISED THE ISSUE REGARDING ASSESSMENT OF INCOME FROM BUSINESS CENTER UNDER THE HEAD INCOME FROM HOUSE PROPERTY INSTEAD OF AS DECLARED BY THE ASSESSEE UNDER THE HEAD BUSINESS INCOME. THIS ISSUE HAS BEEN ADJUDIC ATED BY US VIDE PARA-40 AND FOLLOWING THAT ORDER WE SET ASIDE THE O RDER OF THE LD. CIT(A) AND REMIT THE ISSUE BACK TO THE FILE OF THE WITH SIMILAR DIRECTIONS. ACCORDINGLY THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 70. THROUGH GROUND NO.2 ASSESSEE HAS CHALLENGED DIS ALLOWANCE OF INTEREST EXPENSES. AFTER CONSIDERING THE RIVAL SUBM ISSIONS WE FIND THAT CROMPTON GREAVES LTD. 40 THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN I.T.A.NO.4672/M/03 & ORS. VIDE PARA-44 AND FOLLOWING THAT ORDER WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DELETE THE ADDITION. 71. THROUGH GROUND NO.3 ASSESSEE HAS RAISED THE ISS UE REGARDING DISALLOWANCE OF EXPENSES U/S.14A. THIS ISSUE HAS BE EN DECIDED BY US VIDE PARA-17 AND FOLLOWING THAT ORDER, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS 72. THROUGH GROUND NO.4 ASSESSEE HAS RAISED THE ISS UE REGARDING DISALLOWANCE OF SOFTWARE EXPENDITURE BY TREATING TH E SAME AS CAPITAL EXPENDITURE. THIS ISSUE HAS BEEN ADJUDICATED BY US VIDE PARA-52 AND FOLLOWING THAT ORDER WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE ISSUE TO THE FILE OF THE AO WITH IDENTICAL DIRE CTIONS. 73. THROUGH GROUND NO.5 ASSESSEE HAS RAISED THE ISS UE REGARDING UNUTILISED MODVAT CREDIT. THIS ISSUE HAS BEEN ADJUD ICATED BY US VIDE PARA-20 AND FOLLOWING THE SAME WE SET ASIDE THE ORD ER OF THE LD. CIT(A) AND REMIT THE ISSUE BACK TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS. 74. THROUGH GROUND NO.6 ASSESSEE HAS CHALLENGED THE ISSUE REGARDING ALLOWABILITY OF DEDUCTIONS U/S.80G AND 80 -IB. THE SAME HAS BEEN DENIED BECAUSE THERE WAS NO POSITIVE INCOME. T HIS ISSUE HAS BEEN ADJUDICATED BY US VIDE PARA-24 AND FOLLOWING T HAT ORDER WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 75. IN THE RESULT, ASSESSEES APPEAL IN I.T.A.NO.33 53/M/08 FOR A.Y 2005-06 IS PARTLY ALLOWED. CROMPTON GREAVES LTD. 41 76. I.T.A.NO.4093/M/08 A.Y 2005-06 [REVENUES APPEA L]: IN THIS APPEAL THROUGH GROUND NO.1 REVENUE HAS RAISED THE I SSUE REGARDING DISALLOWANCE U/S.14A. THIS ISSUE HAS BEEN DECIDED B Y US VIDE PARA-17 AND FOLLOWING THAT ORDER, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH SI MILAR DIRECTIONS . 77. THROUGH GROUND NO.2 REVENUE HAS RAISED THE ISSU E REGARDING THE DELETION OF ADDITION ON ACCOUNT OF BAD DEBTS WR ITTEN OFF. THIS ISSUE HAS BEEN ADJUDICATED BY US VIDE PARA-33 AND FOLLOWI NG THAT ORDER WE REMIT THE ISSUE BACK TO THE FILE OF THE AO WITH SIM ILAR DIRECTIONS. 78. THROUGH GROUND NO.3 REVENUE HAS RAISED THE ISSU E REGARDING DELETION OF ADDITION ON ACCOUNT OF GUEST HOUSE EXPE NSES. THIS ISSUE HAS BEEN DECIDED BY US VIDE PARA-65 AGAINST THE REV ENUE AND FOLLOWING THAT ORDER WE DECIDE THIS ISSUE AGAINST THE REVENUE . 79. IN THE RESULT, REVENUES APPEAL IN I.T.A.NO.409 3/M/08 IS PARTLY ALLOWED. 80. I.T.A.NO.6557/M/10 A.Y 2006-07 [ASSESSEES APPE AL ]: IN THIS APPEAL ASSESSEE THROUGH GROUND NO.1 HAS RAISED THE ISSUE REGARDING ASSESSMENT OF INCOME FROM BUSINESS CENTER UNDER THE HEAD INCOME FROM HOUSE PROPERTY INSTEAD OF AS DECLARED BY THE ASSESSEE UNDER THE HEAD BUSINESS INCOME. THIS ISSUE HAS BEEN ADJUDIC ATED BY US VIDE PARA-40 AND FOLLOWING THAT ORDER WE SET ASIDE THE O RDER OF THE LD. CIT(A) AND REMIT THE ISSUE BACK TO THE FILE OF THE WITH SIMILAR DIRECTIONS. ACCORDINGLY THIS GROUND IS PARTLY ALLOW ED. 81. THROUGH GROUND NO.2 ASSESSEE HAS RAISED THE ISS UE REGARDING DISALLOWANCE ON ACCOUNT OF DEATH BENEVOLENT FUND. T HIS DISALLOWANCE CROMPTON GREAVES LTD. 42 WAS MADE BY THE AO BECAUSE SAME IS COVERED U/S.40A[ 9] OF THE ACT. ON APPEAL THE DISALLOWANCE HAS BEEN CONFIRMED BY TH E LD. CIT(A). 82. THE LD. COUNSEL OF THE ASSESSEE POINTED OUT THA T THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF T HE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A.NO.4762/MUM/2003 & ORS . ON THE OTHER HAND, LD. DR SUPPORTED THE ORDER OF THE CIT(A). 83. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE TRIBUNAL WHILE ADJUDICATING THIS ISSUE FOR A.Y 1999-2000 IN I.T.A.NO.4672/MUM/2003 & ORS. HAS RESTORED THE MATT ER TO THE FILE OF THE AO WITH A DIRECTION TO ALLOW THE DEDUCTION ON A CTUAL PAYMENT BASIS AND NOT ON PROVISION MADE BASIS. FOLLOWING THAT ORD ER WE ALSO SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MAT TER BACK TO THE FILE OF THE AO WITH A DIRECTION TO ALLOW THE DEDUCTION O NLY ON THE BASIS OF ACTUAL PAYMENT AND NOT ON THE BASIS OF PROVISION MA DE. 84. THROUGH GROUND NO.3 ASSESSEE HAS RAISED THE ISS UE REGARDING DISALLOWANCE OF SOFTWARE EXPENDITURE BY TREATING TH E SAME AS CAPITAL EXPENDITURE. THIS ISSUE HAS BEEN ADJUDICATED BY US VIDE PARA-52 AND FOLLOWING THAT ORDER WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER TO THE FILE OF THE AO AS PER OUR DIRECT IONS GIVEN IN PARA-----. 85. THROUGH GROUND NO.4 THE DISPUTE IN RESPECT OF UNUTILISED MODVAT CREDIT ADDITION HAS BEEN RAISED. THIS ISSUE HAS BEEN ADJUDICATED BY US VIDE PARA-20 AND FOLLOWING THE SA ME WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE ISSUE BAC K TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS. CROMPTON GREAVES LTD. 43 86. THROUGH GROUND NO.5 REVENUE HAS RAISED THE ISSU E REGARDING DISALLOWANCE U/S.14A. THIS ISSUE HAS BEEN DECIDED B Y US VIDE PARA-17 AND FOLLOWING THAT ORDER, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH SI MILAR DIRECTIONS. 87. GROUND NO.6 IS REGARDING LEAVE ENCASHMENT. AFTE R HEARING BOTH THE PARTIES, WE FIND THAT DURING THE ASSESSMENT PRO CEEDINGS AO NOTICED THAT ASSESSEE HAD CLAIMED DEDUCTION ON ACCO UNT OF LEAVE ENCASHMENT IN RESPECT OF EARLIER YEARS AMOUNTING TO RS.2,31,58,274/-. IN ANNEXURES TO TAX AUDIT REPORT THE PROVISION AGAI NST THE LEAVE ENCASHMENT HAS BEEN SHOWN AT RS.3,21,42,575/- AND A GAINST THIS PROVISION DEDUCTION OF RS.1,20,52,003/- WAS CLAIMED AS DEDUCTION. IT WAS FURTHER NOTICED FROM THE LAST ASSESSMENT ORDER THAT AN AMOUNT OF RS.2,82,78,290/- WAS ALLOWED ON ACCOUNT OF EXCESS D EDUCTION U/S.43B. AO FURTHER OBSERVED PARA PARAS 11.2 TO 11.3 AS UNDE R: 11.2. IT AN BE SEEN FROM THE WORKING OF THE LAT AS SESSMENT ORDER THAT OUT OF TOTAL PAYMENT OF FULL AMOUNTS ADJ USTED AGAINST THE OPENING LIABILITY LEAVE ENCASHMENT OF RS 3,01,7 3,202, AS ON 01 04 2004 AND THE BALANCE LIABILITY PROVISION OF RA 18,94,912 WAS EARNED FORWARD TO THE FY 2005-06 FURTHER DURING THE FY 2004-OS A PROVISION OF RA 4,66,34,007 WAS MADE THUS THE TOTAL OUTSTANDING BALANCE AS 31.03.2005 WAS RS.4,85,28,9 19. 11.3 THE TOTAL PAYMENT MADE BY THE ASSESSEE DURING THE FY 2005-06 AMOUNTED TO RS.3,52,10,275/- THE SAME AS AD JUSTED AGAINST THE OPENING BALANCE OUTSTANDING AS ON 01.04 .2005 OF RS.4,85,28,919. THUS, THE ASSESSEE COMPANYS CLAIM FOR DEDUCTION U/S.43B OF RS 3,52,10,275/- IS HEREBY DIS ALLOWED AND THE SAME IS ADDED TO TOTAL INCOME. 88. ON APPEAL, THE LD. CIT(A) ADJUDICATED THIS ISSU E VIDE PARA 10.3 WHICH IS AS UNDER: 10.3 I HA1VE CONSIDERED THE SUBMISSIONS THE CIT(A ) HAS ALLOWED THE CLAIM OF THE APPELLANT IN HIS ORDER FOR A Y 2004-05, 05-06 THE CIT(A) HAS HELD THAT LEAVE; ENCASHMENT EX PENSES TO CROMPTON GREAVES LTD. 44 THE EXTENT ACTUALLY PAID SHOULD BE ALLOWED AS A DED UCT4N U/S 43B THE DEDUCTION HAS BEEN DENIED ON THE GROUND THA T THE TOTAL PAYMENT MADE BY THE APPELLANT DURING THE F V 2005-0 6 HAD BEEN ADJUSTED AGAINST THE PROVISION OUTSTANDING AS ON 1/4/2005 OF RS 485,28,91/- IN PRINCIPLE THE AMOUNT PAID BY WAY OF LEAVE ENCASHMENT IS ALLOWED AS A DEDUCTION U/S 43B IN THE CASE OF THE APPELLANT HOWEVER, THERE WAS A PROVISION CREATED, T HE .BALANCE OF WHICH EXCEEDED THE ACTUAL EXPENDITURE DURING THE YEAR IF THE ASSESSEE HAD BEEN ALLOWED THE PROVISION AS DEDUCTIO N IN EARLIER YEARS WHEN IT WAS CREATED, THE AMOUNT ACTUALLY PAID DURING THE YEAR CANNOT BE AGAIN ALLOWED DEDUCTION U/S 43B THE A 0 IS THEREFORE, DIRECTED TO ASCERTAIN WHETHER PROVISION FOR LEAVE ENCASHMENT MADE IN EARLIER YEARS HAD BEEN ALLOWED A S A DEDUCTION IN FULL OR IN PART IN ANY OF TIE EARLIER YEARS IF NOT, DEDUCTION U/S 43B SHOULD BE ALLOWED ON ACTUAL PAYME NT TOWARDS LEAVE ENCASHMENT LIABILITY TO THE EXTENT DEDUCTION FOR PROVISION WAS DECIDED. 89. BEFORE US, LD. COUNSEL OF THE ASSESSEE SUBMITTE D THAT AO HAS NOT ALLOWED THE DEDUCTION EVEN ON PAYMENT BASIS, TH EREFORE, DIRECTIONS MAY BE ISSUED THAT DEDUCTION SHOULD BE ALLOWED ATLE AST ON PAYMENT BASIS. 90. ON THE OTHER HAND, LD. DR SUBMITTED THAT CIT(A) HAS ALREADY ISSUED THE DIRECTION TO ALLOW THE DEDUCTION ON PAYM ENT BASIS. SHE INVITED OUR ATTENTION TO PARA 10. OF THE ORDER OF T HE LD. CIT(A) AND POINTED OUT HE HAS CLEARLY HELD THAT IN PRINCIPLE D EDUCTION IS TO BE ALLOWED U/S.43B. 91. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE AGR EE WITH THE SUBMISSIONS OF THE LD. DR THAT THE LD. CIT(A) HAS A LREADY GIVEN DIRECTIONS TO ALLOW THE DEDUCTION OF PAYMENT ON PAY MENT BASIS. THEREFORE, WE REITERATE THAT DEDUCTION IS TO BE ALL OWED AT LEAST ON PAYMENT BASIS U/S.43B AND AO SHOULD EXAMINE THE ISS UE WITH REFERENCE TO EARLIER YEARS ORDER AND ALLOW THE DEDU CTION WHICH HAS CROMPTON GREAVES LTD. 45 BEEN DENIED ON PROVISION BASIS, AT LEAST ON PAYMENT BASIS. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 92. THROUGH GROUND NO.7 ASSESSEE HAS RAISED THE ISS UE REGARDING SET OFF OF BROUGHT FORWARD LOSSES AND DEPRECIATION. THE LD. CIT(A) HAS ADJUDICATED THIS ISSUE VIDE PARA 14.1. 93. BOTH THE PARTIES WERE HEARD. SINCE THE ISSUE HA S NOT BEEN DISCUSSED BY THE AO, THEREFORE, IN THE INTERESTS OF JUSTICE, WE ARE OF THE OPINION THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO WITH A DIRECTION TO RE-EXAMINE THIS ISSUE AFTER PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSEE. 94. GROUND NO.8 WAS NOT PRESSED BEFORE US THEREFORE SAME IS DISMISSED AS NOT PRESSED. 95. GROUND NO.9 REGARDING LEVY OF INTEREST UNDER SE CTIONS 234B, 234C AND 234D IS OF CONSEQUENTIAL NATURE AND AO IS DIRECTED TO GIVE LEVY INTEREST IN ACCORDANCE WITH THE LAW. 96. IN THE RESULT, ASSESSEES APPEAL IN I.T.A.NO.66 57/M/10 FOR A.Y 2006-07 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 97. I.T.A.NO.6690/M/10 A.Y 2006-07 [REVENUES APP EAL ]: IN THIS APPEAL THROUGH FIRST GROUND REVENUE HAS RAISED THE ISSUE REGARDING DELETION OF POOJA EXPENSES. 98. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DU RING THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS MADE A CLAIM OF POOJA EXPENSES AMOUNTING TO RS.10,63,876/-. THE AO DISALLOWED THE SAME FOLLOWING THE DECISION OF THE HON'BLE BOMBAY H IGH COURT IN THE CROMPTON GREAVES LTD. 46 CASE OF KOLHAPUR SUGAR MILLS LTD. VS. CIT [119 ITR 387]. ON APPEAL, LD. CIT(A) DELETED THE ADDITION BY FOLLOWING THE ORDER OF THE TRIBUNAL. 99. BEFORE US, LD. DR SUBMITTED THAT THE HON'BLE BO MBAY HIGH COURT IN THE CASE OF KOLHAPUR SUGAR MILLS LTD. VS. CIT [SUPRA] HAS CLEARLY DECIDED THE ISSUE AGAINST THE ASSESSEE AND, THEREFORE, DIFFERENT VIEW SHOULD NOT BE TAKEN. 100. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT POOJA EXPENSES WERE REQUIRED TO BE INCURRED IN VIEW OF THE AGREEMENT WITH THE WORKERS UNION AND THEREFORE THE DECISION O F THE HON'BLE BOMBAY HIGH COURT HAS RIGHTLY BEEN DISTINGUISHED BY THE TRIBUNAL BY CONSIDERING THE FACTS AND ACCORDINGLY THIS ISSUE IS COVERED VIDE PARA-3 OF THE TRIBUNALS ORDER IN ASSESSEES OWN CASE IN I.T.A.NO.4762/MUM/2003 & ORS.. 101. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FI ND THAT THE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A.NO.4762/MUM/2003 & ORS. VIDE PARA-3 HAS ALREADY DELETED THE ADDITION ON ACCOUNT OF POOJ A EXPENSES. THEREFORE, FOLLOWING THAT ORDER WE DECIDE THIS ISSU E AGAINST THE REVENUE. 102. THROUGH GROUND NO.2 REVENUE HAS RAISED THE ISS UE REGARDING DELETION OF ADDITION ON ACCOUNT OF GUEST HOUSE EXPE NSES AND DEPRECIATION. THIS ISSUE IS COVERED AGAINST THE REV ENUE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A.NO.476 2/MUM/2003 & ORS. VIDE PARAS 50 & 51 AND FOLLOWING THAT ORDER WE DECI DE THIS ISSUE AGAINST THE REVENUE. CROMPTON GREAVES LTD. 47 103. IN THE RESULT, REVENUES APPEAL IN I.T.A.NO.66 90/M/10 FOR A.Y 2006-07 IS DISMISSED. 104. I.T.A.NO.5873/M/11 A.Y 2007-08 [ASSESSEES APP EAL ]: IN THIS APPEAL ASSESSEE THROUGH GROUND NO.1 HAS RAISED THE ISSUE REGARDING ASSESSMENT OF INCOME FROM BUSINESS CENTER UNDER THE HEAD INCOME FROM HOUSE PROPERTY INSTEAD OF AS DECLARED BY THE ASSESSEE UNDER THE HEAD BUSINESS INCOME. THIS ISSUE HAS BEEN ADJUDIC ATED BY US VIDE PARA-40 AND FOLLOWING THAT ORDER WE SET ASIDE THE O RDER OF THE LD. CIT(A) AND REMIT THE ISSUE BACK TO THE FILE OF THE WITH SIMILAR DIRECTIONS. ACCORDINGLY THIS GROUND IS PARTLY ALLOW ED. 105. THROUGH GROUND NO.2 ASSESSEE HAS RAISED THE IS SUE REGARDING DISALLOWANCE U/S.14A. THIS ISSUE HAS BEEN DECIDED B Y US VIDE PARA-17 AND FOLLOWING THAT ORDER, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH SI MILAR DIRECTIONS. 106. THROUGH GROUND NO.3 ASSESSEE HAS RAISED THE IS SUE REGARDING DISALLOWANCE OF SOFTWARE EXPENDITURE BY TREATING TH E SAME AS CAPITAL EXPENDITURE. THIS ISSUE HAS BEEN ADJUDICATED BY US VIDE PARA-52 AND FOLLOWING THAT ORDER WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO BE FILE OF THE AO TO DECIDE T HE ISSUE AS PER OUR DIRECTIONS GIVEN IN PARA-52 ABOVE. 107. IN GROUND NO.4 THE DISPUTE IS IN RESPECT OF UN UTILISED MODVAT CREDIT ADDITION HAS BEEN RAISED. THIS ISSUE HAS BEE N ADJUDICATED BY US VIDE PARA-20 AND FOLLOWING THE SAME WE SET ASIDE TH E ORDER OF THE LD. CIT(A) AND REMIT THE ISSUE BACK TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS. CROMPTON GREAVES LTD. 48 108. THROUGH GROUND NO.5 ASSESSEE HAS RAISED THE IS SUE REGARDING DISALLOWANCE OF COMMISSION. DURING THE ASSESSMENT P ROCEEDINGS AO NOTICED THAT THE DDIT (INV.) UNIT 8(1) HAD FOUND TH AT ASSESSEE HAS TAKEN HAWALA ENTRY FOR RS.14,00,755/- FROM NOVA COR PN. SERVICES PVT. LTD. IN RESPONSE TO A QUERY ASSESSEE FILED A COPY O F THE BILL AND OTHER DETAILS. THE AO OBSERVED THAT ASSESSEE HAS MERELY F ILED THE COPY OF THE BILL AND THE PAYMENT ADVISE AND HAS NOT PROVED THE NATURE OF SERVICES. THEREFORE, SAME WAS NOT ALLOWED. ON APPEA L, THE ADDITION WAS CONFIRMED BY THE LD. CIT(A). 109. BEFORE US, LD. COUNSEL OF THE ASSESSEE SUBMITT ED THAT ASSESSEE WAS A VERY LARGE BUSINESS COMPANY LISTED IN STOCK E XCHANGE AND THERE WAS NO QUESTION OF TAKING HAWALA ENTRY. VARIOUS DOC UMENTS WERE FILED DURING THE ASSESSMENT PROCEEDINGS BUT THE SAME HAVE NOT BEEN PROPERLY EXAMINED AND, THEREFORE, ONE MORE OPPORTUN ITY SHOULD BE GIVEN TO EXPLAIN THE NATURE OF SERVICES PROVIDED BY NOVA CORPN. PVT. LTD. ON THE OTHER HAND, LD. DR HAD NO SERIOUS OBJEC TION IF THE MATTER WAS RESTORED TO THE FILE OF THE AO. 110. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FI ND THAT THIS ISSUE HAS NOT BEEN PROPERLY EXAMINED BY THE AO. THEREFORE , IN THE INTERESTS OF JUSTICE WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER TO THE FILE OF THE AO FOR RE-EXAMINATION OF THE ISS UE. NEEDLESS TO SAY THAT ASSESSEE SHOULD BE GIVEN PROPER OPPORTUNITY AN D ASSESSEE IS ALSO DIRECTED TO PROVE TO THE SATISFACTION OF THE AO THE NATURE OF SERVICES OBTAINED FROM NOVA CORPN. PVT. LTD. CROMPTON GREAVES LTD. 49 111. THROUGH GROUND NO.6 ASSESSEE HAS RAISED THE IS SUE REGARDING DISALLOWANCE ON ACCOUNT OF LEAVE ENCASHMENT. THIS I SSUE HAS BEEN ADJUDICATED BY US VIDE PARA-91 AND FOLLOWING THAT O RDER WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER TO THE FILE OF THE AO FOR RE-EXAMINATION WITH SIMILAR DIRECTIONS. 112. THROUGH GROUND NO.7 ASSESSEE HAS RAISED THE IS SUE REGARDING SET OFF OF BROUGHT FORWARD LOSSES. THIS ISSUE HAS B EEN ADJUDICATED BY US VIDE PARA-93 AND FOLLOWING THAT ORDER WE SET ASI DE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER TO THE FILE OF THE AO FOR RE-EXAMINATION WITH SIMILAR DIRECTIONS. 113. THROUGH GROUND NO.8 ASSESSEE HAS RAISED THE IS SUE REGARDING DENIAL OF CREDIT ON ACCOUNT OF TDS CERTIFICATES. AF TER HEARING BOTH THE PARTIES WE FIND THAT AO HAS NOT DISCUSSED THIS ISSU E AT ALL. ON APPEAL, LD. CIT(A) ADJUDICATED THE ISSUE VIDE FOLLOWING PAR AGRAPH: ON CONSIDERATION OF THE ISSUE, I FIND THAT THE AC S ORDER IS SILENT REGARDING THIS ISSUE. THEREFORE IT IS NOT POSSIBLE TO ADJUDICATE ON AN ISSUE WHEREIN IT IS NOT CLEAR AS TO WHY THE TDS AMOUNT CLAIMED BY THE APPELLANT AS PER HIS STATEMENT MADE ABOVE HAS NOT BEEN ALLOWED. AT BEST THIS IS MATTER THAT CAN B E RECTIFIED UNDER SECTION 154 OF THE INCOME TAX ACT BY THE ASSE SSING OFFICER. THE APPELLANT MAY MOVE AN APPLICATION FOR RECTIFICA TION TO THE AC IF SO DESIRED AND THE AC THEREAFTER MAY LOOK INT O THE ISSUE AND IF THERE IS A MISTAKE APPARENT FROM RECORD IN R ESPECT OF CREDIT TO BE GIVEN REGARDING THE CLAIM OF TDS THE S AME MAY BE RECTIFIED BY WAY OF SPEAKING ORDER. THIS GROUND OF APPEAL IS THEREFORE DISPOSED OFF ACCORDINGLY. 114. BEFORE US, LD. COUNSEL OF THE ASSESSEE SUBMITT ED THAT ASSESSEE SHOULD BE GIVEN AN OPPORTUNITY TO FILE WHATEVER TDS CERTIFICATES ARE AVAILABLE WITH IT. ON THE OTHER HAND, LD. DR SUPPOR TED THE ORDER OF THE AO. CROMPTON GREAVES LTD. 50 115. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE AG REE WITH THE LD. COUNSEL OF THE ASSESSEE THAT IF ASSESSEE COMPANY IS ABLE TO OBTAIN FURTHER TDS CERTIFICATES, ASSESSEE SHOULD BE ALLOWE D TO FURNISH THE SAME AND THEN CREDIT SHOULD BE GIVEN AGAINST SUCH T DS CERTIFICATES AFTER VERIFICATION. THEREFORE, THIS GROUND IS ALLOW ED FOR STATISTICAL PURPOSES. 116. GROUND NO.9 REGARDING LEVY OF INTEREST U/S.234 D IS OF CONSEQUENTIAL NATURE AND AO IS DIRECTED TO GIVE REL IEF IN ACCORDANCE WITH THE LAW. 117. THROUGH GROUND NO.10 ASSESSEE HAS RAISED THE I SSUE REGARDING WITHDRAWAL OF MAT CREDIT. AFTER HEARING BOTH THE PA RTIES, WE FIND THAT AO HAS NOT DISCUSSED THIS ISSUE. BEFORE THE LD. CIT (A) IT WAS SUBMITTED AS UNDER: THE COMPANY PAID TAX UNDER MINIMUM ALTERNATE TAX F OR THE ASSESSMENT YEAR 2006-07 OF RS. 16, 14,06,703/-. THE COMPANY CLAIMED THE CREDIT OF RS.16,14,06,703/- IN RESPECT OF THE SAME IN COMPUTATION OF TAX LIABILITY UNDER THE NORMAL PROVI SIONS OF THE INCOME TAX ACT, AS PER THE PROVISIONS OF SECTION 11 5JAA OF THE INCOME TAX ACT, 1961. AS PER THE ASSESSMENT ORDER O F THE COMPANY FOR AY2006-07, THE TAX WAS PAYABLE UNDER TH E NORMAL PROVISIONS OF THE INCOME TAX ACT., 1961. IN THIS CA SE IT IS SUBMITTED THAT, THE COMPANY HAS PREFERRED APPEAL BE FORE HONOURABLE INCOME TAX APPELLATE TRIBUNAL IN RESPECT OF VARIOUS DISALLOWANCES MADE DURING THE ASSESSMENTS AND ON TH E DISPOSAL OF THE APPEALS BY THE HONOURABLE ITAT, THE COMPANY RESERVES ITS RIGHT TO REINSTATE ITS ENTITLEMENT TO GET MAT C REDIT U/S 115JAA OF THE INCOME TAX ACT, 1961 IN A.Y.2006-07. IN THE EVENTUALITY OF YOUR APPELLANT BEING LIABLE T AX FOR: AY 2006-07 AS PER MAT PROVISION, CREDIT FOR THE SAME I N TERMS OF S.115JAA OF INCOME TAX ACT, 1961 BE ALLOWED IN AY 2 007-08. THE LD. CIT(A) DECIDED THE ISSUE VIDE PARA-19 WHICH IS AS UNDER: 19.1. AFTER CONSIDERING THE ISSUE RAISE, I FIND TH AT THE GROUNDS OF APPEAL IS PREMATURE AND DOES NOT REQUIRE ANY ADJ UDICATION OR DISCUSSION AT THIS STAGE. THE GROUND OF APPEAL IS T HEREFORE BEING CROMPTON GREAVES LTD. 51 DISMISSED AS BEING INFRUCTUOUS AND PREMATURE AT THI S STAGE. 118. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTE D THAT THIS ISSUE IS OF CONSEQUENTIAL NATURE THEREFORE SUITABLE DIREC TIONS MAY BE GIVEN. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDER OF TH E CIT(A). 119. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FI ND THAT THE ISSUE REGARDING ALLOWANCE OF CREDIT OF MAT TAX PAID IN EA RLIER YEAR WOULD DEPEND ON DETERMINATION OF THE INCOME AFTER GIVING EFFECT TO OUR ORDER. THEREFORE, IN THE INTERESTS OF JUSTICE WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER TO THE FILE OF THE AO W ITH A DIRECTION TO ALLOW CREDIT OF NET AFTER DETERMINING THE INCOME FO R EARLIER YEAR IN ACCORDANCE WITH THE PROVISIONS OF THE LAW. 120. GROUND NO.11 WAS NOT PRESSED BEFORE US. THEREF ORE SAME IS DISMISSED AS NOT PRESSED. 121. IN THE RESULT, ASSESSEES APPEAL IN I.T.A.NO.5 873/M/11 FOR A.Y 2007-08 IS PARTLY ALLOWED. 122. I.T.A.NO.6466/M/11 A.Y 2007-08 [ASSESSEES A PPEAL ]: IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED BUT AT THE TIME OF HEARING LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ONLY DIS PUTE IS REGARDING LEVY OF SURCHARGE AND EDUCATION CESS BY PASSING A R ECTIFICATION ORDER. 123. AFTER HEARING BOTH THE PARTIES WE FIND THAT A RECTIFICATION ORDER DATED 12-11-2008 WAS PASSED THROUGH WHICH INCOME WA S COMPUTED AT RS.208,75,20,970/-. LATER ON IT WAS NOTED THAT MAT CREDIT OF RS.16,14,06,703/- WAS SET OFF AGAINST GROSS INCOME TAX LIABILITY WITHOUT CONSIDERING THE SURCHARGE AND EDUCATION CESS RESULT ING IN EXCESS REFUND TO THE ASSESSEE. ACCORDINGLY, NOTICE U/S.154 WAS ISSUED. THE CROMPTON GREAVES LTD. 52 ASSESSEES REPRESENTATIVE SHRI JAGDISH AMBEDKAR, MA NAGER TAXATION, APPEARED AND AGREED FOR THE PROPOSED RECTIFICATION. IN THE MEAN TIME CREDIT WAS NOT GIVEN FOR TDS CERTIFICATES AMOUNTING TO RS.4,14,14,328/- AS ORIGINAL CERTIFICATES WERE NOT FILED ON RECORD. DURING THE SAME PROCEEDINGS ASSESSEE ALSO REQUESTED FOR SETTING OFF OF MAT CREDIT FROM BASIC TAX BEFORE CHARGING SURCHARGE AND EDUCATIONAL CESS. THE REQUEST OF THE ASSESSEE WAS DECLINED IN VIEW OF PROVISIONS OF SEC.115JAA. 124. ON APPEAL, IT WAS MAINLY SUBMITTED THAT MAT CR EDIT IS TO BE ALLOWED BEFORE CHARGING SURCHARGE AND EDUCATIONAL C ESS. IN THIS REGARD RELIANCE WAS PLACED ON RETURN FORM NO.6. THE LD. CI T(A) AFTER EXAMINING THE SUBMISSIONS DECIDED THE ISSUE AGAINST THE ASSESSEE VIDE PARAS 4 AND 5 WHICH ARE AS UNDER: 4. I HAVE CAREFULLY CONSIDERED THE ORDER OF THE A SSESSING OFFICER AND THE SUBMISSION OF THE APPELLANT AND I F IND THAT THE CONTENTION OF THE APPELLANT CANNOT BE ACCEPTED. MAT CREDIT CANNOT BE CLAIMED BEFORE SURCHARGE AND EDUCATION CE SS BECAUSE MAT CREDIT IS ALLOWABLE ONLY FROM THE TAX LIABILITY . TAX INCLUDES SURCHARGE AS PER SUPREME COURT DECISION REPORTED IN 83 ITR 346. ACCORDINGLY, SURCHARGE AND EDUCATION CESS ARE TO BE CHARGED FIRST AND THEN MAT CREDIT WILL FOLLOW. IT H AS TO BE KEPT IN MIND THAT MAT IS NOT A REBATE AND IT IS LIKE ANY OT HER TAX SUCH AS ADVANCE TAX AND SELF ASSESSMENT TAX. THE APPELLA NT IS BOUND TO PAY INCOME TAX & SURCHARGE FIRST AND THEREAFTER, HE IS ENTITLED TO THE CREDIT OF MAT. RELIANCE IS PLACED ON THE OBS ERVATION OF THE HONBLE ITAT C-BENCH, MUMBAI IN THEIR ORDER D ATED 23RD JULY, 2010 IN THE CASE OF M/S. CLASSIC SHARES & STO CK BROKING SERVICES LTD. VS. ACIT WHEREIN, ON A SIMILAR ISSUE THE HONBLE TRIBUNAL HAD HELD AS UNDER: THE WORDS USED ARE TAX CREDIT IN RESPECT OF TAX PA ID ON DEEMED INCOME RELATING TO CERTAIN COMPANIES. THE TAX AND T HE SURCHARGE THERE FORE, HAS TO BE CALCULATED FIRST AND THEREAFT ER TAX PAID SUCH AS ADVANCE TAX SELF-ASSESSMENT TAX AND TAX PAID UND ER MAT HAVE TO BE DEDUCTED. 5. PLACING RELIANCE ON THE ABOVE MENTIONED JUDGMENT AND RESPECTFULLY FOLLOWING IT, IT IS, THEREFORE, HELD T HAT THERE IS NO INFIRMITY IN THE ORDER OF THE ASSESSING OFFICER WHE REIN, HE HAS REJECTED THE REQUEST OF THE APPELLANT FILED UNDER S ECTION 154 OF CROMPTON GREAVES LTD. 53 THE INCOME-TAX ACT, 1961. THE ORDER PASSED U/S. 154 BY THE ASSESSING OFFICER IS, THEREFORE, CONFIRMED AND THE APPEAL OF THE APPELLANT DISMISSED. 125. BEFORE US LD. COUNSEL OF THE ASSESSEE AGAIN RE FERRED TO THE RETURN FORM AND SUBMITTED THAT IT CLEARLY SHOWS THA T MAT CREDIT HAS TO BE REDUCED FROM THE BASIC TAX AND SURCHARGE CAN BE LEVIED ONLY AFTER SUCH DEDUCTION. IN ANY CASE, IT WAS A DEBATABLE ISS UE AND COULD NOT HAVE BEEN DECIDED BY WAY OF RECTIFICATION ORDER U/S .154. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDER OF THE CIT(A). SHE ALSO RELIED ON THE PROVISIONS OF SEC.115JAA(2). SHE FURTHER ARGUED THA T THE WORD TAX USED IN SEC.115JAA(2) HAS TO BE INTERPRETED AS PER THE DEFINITION GIVEN IN THE ACT IN SEC.2(43). 126. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY. FIRST OF ALL IT HAS TO BE NOTED THAT AO HAS PASSED THE RECTIFICATIO N ORDER ON THE BASIS OF CONCESSION MADE ON BEHALF OF THE ASSESSEE. THE R ELEVANT PARA OF THE RECTIFICATION ORDER DATED 5-2-2009 READS AS UNDER: IN THIS REFERENCE, THE ASSESSEES REPRESENTATIVE S HRI JAGDJSH AMBEDEKAR, MANAGER TAXATION WAS GIVEN AN OPPORTUNIT Y OF BEING HEARD VIDE ORDER SHEET ENTRY DATED 3/2/2009. HE HAS AGREED TO THE PROPOSED RECTIFICATION. THE ABOVE CLEARLY SHOWS THAT ASSESSEE HAD AGREED TO THE RECTIFICATION. IT IS SETTLED POSITION OF LAW THAT ONCE ASSESSEE HA S AGREED FOR A PARTICULAR ADDITION OR GIVEN A CONCESSION, THEN ASS ESSEE CANNOT BE THE AGGRIEVED PARTY AND THE ISSUE CONCEDED CANNOT BE AG ITATED IN APPEAL PROCEEDINGS. REFERENCE MAY BE MADE TO THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF RAMESHCHANDRA AND CO. VS. CIT [168 ITR 375]. WE FURTHER FIND THAT THE LD. CIT(A) HAS DECIDED THE CROMPTON GREAVES LTD. 54 ISSUE ON THE BASIS OF THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S.CLASSIC SHARES & STOCK BROKING SERVICES LTD. VS . ACIT WHICH HAS BEEN REFERRED BY HIM IN PARA-4 OF HIS ORDER REPRODU CED ABOVE. THEREFORE, THE ISSUE IS SQUARELY COVERED AGAINST TH E ASSESSEE BY THE DECISION OF THE TRIBUNAL AND ACCORDINGLY WE DECLINE TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). 127. IN THE RESULT, ASSESSEES APPEAL IN I.T.A.NO.6 466/M/11 FOR A.Y 2007-08 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 13/4/2012. SD/- SD/- (VIJAY PAL RAO) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 13/4/2012. P/-*