ITO, Ward - 12(4), Kolkata V. M/s. Haldia Petrochemicals Ltd., Kolkata

ITA 587/KOL/2009

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5005 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-04-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 17-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT SUBHRA BISWAS
• Assessee Lawyers: HARAKAMAL CHAKRABORTY GM FIN; ACC
• Keywords: Capital asset; Depreciation; Retrospective amendment; Fair market value; Bad and doubtful debts; Corroborative evidences; Revised return; Unabsorbed depreciation; Revenue expenditure
• Section: 143(3); 234B; 14A; 115JB; 133(6); 37(1); 32; 145; 37; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI N.V.VASUSDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 581 & 587 / KOL / 2009 ASSESSMENT YEAR :2005-06 HALDIA PETROCHEMICALS LTD., 1, AUCKLAND PLACE, KOLKATA-700017 [ PAN NO.AAACH 7360R ] ITO,WARD-12(4), 3, GOVT PLACE(WEST), KOLKATA- 70001 V/S . V/S . JCIT RANGE-12, 3, GOVT. PLACE (WEST) KOLKATA-700001 M/S HALDIA PETROCHEMICALS LTD. 1, AUCKLAND PLACE, KOLKATA-700017 /APPELLANT .. / RESPONDENT /BY ASSESSEE SHRI HARAKAMAL CHAKRABORTY, GM (FIN. & ACC.) /BY REVENUE SHRI RAJAT SUBHRA BISWAS, CIT-DR /DATE OF HEARING 10-02-2016 ! /DATE OF PRONOUNCEMENT 13-04-2016 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THESE ARE CROSS-APPEALS BY ASSESSEE AND REVENUE AG AINST COMMON ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-XXXII , KOLKATA DATED 28.01.2009. ASSESSMENT WAS FRAMED BY JCIT, RANGE-12 , KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED T O AS THE ACT) VIDE HIS ORDER DATED 28.12.2007 FOR ASSESSMENT YEAR 2005-06. ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 2 SHRI HARAKAMAL CHAKRABORTY, LD. AUTHORIZED REPRESEN TATIVE APPEARING ON BEHALF OF ASSESSEE AND SHRI RAJAT SUBHRA BISWAS, LD . DEPARTMENTAL REPRESENTATIVE APPEARING ON BEHALF OF REVENUE. 2. BOTH THE APPEALS ARE HEARD TOGETHER AND ARE BEIN G DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. FIRST WE TAKE UP ASSESSEES APPEAL ITA NO.581/KOL/2 009 AY 05-06. 3. GROUNDS RAISED BY ASSESSEE TOGETHER WITH ADDITIO NAL GROUNDS ARE REPRODUCED BELOW:- A ON ASSESSMENT U/S 115JB 1. FOR THAT THE CIT(A) ERRED IN DISMISSING THE ADDI TIONAL GROUND OF APPEAL NO. 3 OF THE APPELLANT THAT IT WAS NOT LIABLE TO PAY AN Y TAX UNDER SECTION 115JB. 2. FOR THAT THE CIT(A) ERRED IN REJECTING THE GROUN D OF APPEAL NO. 16 OF THE APPELLANT HAT IN THE EVENT THE PROVISION FOR DEFERR ED TAX WAS NOT ALLOWED AS A DEDUCTION FOR DETERMINING THE BOOK PROFIT, THEN T HE AMOUNT OF DEFERRED TAX ASSETS THAT WAS INCLUDED IN THE BROUGHT FORWARD LOSS BE ALSO EXCLUDED FOR DETERMINING THE BROUGHT FORWARD LOSS FOR THE PU RPOSE OF CLAUSE (III) OF THE EXPLANATION TO SUB-SECTION (2) OF SECTION 115JB . 3. FOR THAT WHILE GRANTING RELIEF IN RESPECT OF GRO UND OF APPEAL NO. 17 THE CIT(A) ERRED IN DIRECTING THE AO TO REDUCE THE DIVI DEND INCOME OF RS.18,81,89,000/- BY THE EXPENDITURE DIRECTED TO BE DISALLOWED UNDER SECTION 14A RED WITH RULE 8D. 4. FOR THAT THE PROVISIONS OF SECTION 234B AND 234C HAVE NO APPLICATION IN CASE OF COMPUTATION OF INCOME UNDER SECTION 115JB. B. ON ASSESSMENT UNDER THE NORMAL PROVISIONS OF THE INCOME-TAX ACT. 5. FOR THAT THE CIT(A) ERRED IN HOLDING THAT DEFERR ED REVENUE EXPENSES AMOUNTING TO RS.154.64 MILLION WERE NOT DEDUCTIBLE IN COMPUTING INCOME UNDER THE INCOME-TAX ACT. 6. FOR THAT THE CIT(A) ERRED IN DISMISSED THE ALTER NATIVE GROUND THAT THE DEFERRED REVENUE EXPENSES AMOUNTING TO RS.154.64 MI LLION WERE REQUIRED TO BE INCLUDED IN THE ACTUAL COST OF THE ASSETS FOR AL LOWING DEPRECIATION UNDER SECTION 32 OF THE INCOME-TAX ACT. 7. FOR THAT THE CIT(A) ERRED IN UPHOLDING THE DISAL LOWANCE OF THE PAYMENT OF RS.90.36 MILLION MADE TO WBIDC AS UNSUBSTANTIATED. 8. FOR THAT THE CIT(A) ERRED IN HOLDING THAT THE PR OVISIONS OF SECTION 14A AND RULE 8D WERE APPLICABLE IN RESPECT OF THE DIVIDEND OF RS.18,91,89,000/- AND IN DIRECTING THE AO TO CALCULATE THE DISALLOWANCE UNDE R SECTION 14A AS PER RULE 8D. ADDITIONAL GROUNDS OF APPEAL ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 3 1. FOR THAT IN ANY EVENT THE PROVISIONS OF SECTION 234B AND 234C ARE NOT ATTRACTED IN A CASE WHERE THERE WAS NO LIABILITY TO PAY ANY ADVANCE TAX UNDER SECTION 208 ON ANY OF THE DUE DATES FOR PAYME NT OF THE ADVANCE TAX INSTALLMENTS AND THAT THERE IS RETROSPECTIVE AMENDM ENT OF THE LOW LONG AFTER THE CLOSE OF THE FINANCIAL YEAR IMPOSING LIAB ILITY FOR TAX. 4. DURING THE COURSE OF HEARING BEFORE US, LD. AR O F ASSESSEE DID NOT PRESS FOR GROUNDS NO. 1 AND 4 AND SAME STAND DISMIS SED AS NOT PRESSED. 5. THE FIRST ISSUE RAISED IN GROUND NO. 2 BY THE AS SESSEE IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO BY ADDING T HE DEFERRED TAX LIABILITY OF RS. 243.670 LACS IN BOOK PROFIT BUT NOT EXCLUDING T HE AMOUNT OF DEFERRED TAX ASSETS INCLUDED BROUGHT FORWARD LOSS. 5.1 DURING THE YEAR UNDER CONSIDERATION, AO WHILE C OMPUTING THE BOOK PROFIT UNDER THE MAT PROVISIONS OF THE ACT, HAS ADD ED THE DEFERRED TAX LIABILITY ON ACCOUNT OF FOLLOWING REASONS : 5.2 THE AO TREATED THE DEFERRED TAX LIABILITY AS UN ASCERTAINED LIABILITIES. THE AO ALSO OBSERVED THAT DEFERRED TAX IS NOTHING BUT I NCOME TAX WHICH ARISES DUE TO TIMING DIFFERENCE. IT IS THE DIFFERENCE BETWEEN THE TAXABLE INCOME AND ACCOUNTING INCOME THAT ORIGINATE IN ONE PERIOD IN T HE FORM OF DEFERRED TAX ASSETS OR DEFERRED TAX LIABILITY BUT THE SAME CAN B E REVERSED IN ONE OR MORE SUBSEQUENT PERIODS. 5.3 THE DEFERRED TAX IS NOTHING BUT INCOME TAX. TH E ACT DOES NOT DIFFERENTIATE BETWEEN CURRENT INCOME TAX AND DEFERR ED INCOME TAX. THEREFORE THE SAME WAS ADDED FOR THE WORKING OF BOOK PROFIT. 5.4 THE CLAIM OF THE ASSESSEE FOR EXCLUDING THE DEF ERRED TAX ASSETS EMBODIED IN THE BROUGHT FORWARD LOSS WHILE WORKING OUT THE MAT LIABILITY WAS ALSO DISREGARDED ON THE GROUND THAT THE MATTER IS SUB JUDICE WITH THE HIGHER AUTHORITIES OF THE SAME ASSESSEE FOR THE OTHER ASSE SSMENT YEAR. SO THE PLEA OF THE ASSESSEE CANNOT BE ACCEPTED. ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 4 6. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHO DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING T HAT THE AMOUNT OF DEFERRED TAX LIABILITY IS TO BE ADDED BACK IN TERMS OF CLAUSE (H) OF EXPLANATION 1 TO SEC. 115 JB OF THE ACT WHICH STATES THAT THE AMOUNT OF DEFERRED TAX AND PROVISION THEREFOR . THE LD CIT(A) ALSO HELD THAT THE DEFERRED TAX LI ABILITY IS NOTHING BUT UNASCERTAINED LIABILITY. THE RELEVANT E XTRACT OF HIS ORDER REPRODUCED AS UNDER:- THE A.O IN ITS ORDER HAS VERY CLEARLY BROUGHT OUT THE RELEVANT EXTRACT OF THE OBSERVATION OF HON'BLE APEX COURT IN THIS JUDGM ENT IN J.K. INDUSTRIES LTD. VS. UOI WHICH IS REPRODUCED HEREUNDER:- TO SUM UP DEFERRED TAX IS NOTHING BUT ACCRUAL OF T AX OUT OF DIVERGENCE BETWEEN ACCOUNT PROFIT AND TAX AUDIT. TH IS DIFFERENCE ARISES ON TO COUNTS NAMELY, DIFFERENT TREATMENT OF ITEMS OF REVENUE / EXPENSES AS PER PROFIT AND LOSS ACCOUNT A ND AS PER TAX LIABILITY. IT ALSO ARISES DIFFERENCE BETWEEN REVENU E/EXPENSE AS PER P & L A/C AND THE CORRESPONDING AMOUNT CONSIDERED F OR TAX PURPOSE E.G. DEPRECIATION. HON'BLE APEX COURT IN ITS SAID JUDGMENT HAS DEFINIT ELY HELD THAT THE (AS- 22) REQUIRES IN THE SAME JUDGMENT THE HON'BLE APEX COURT HAS HELD THAT IS NOTHING BUT ACCRUAL OF TAX OUT OF DIVERGENCE BET WEEN ACCOUNTING PROFIT AND TAX PROFIT AND AS SUCH THE SAME CANNOT BE HELD AS AN ALLOWABLE ADJUSTMENT AS PER PROVISION OF SEC. 115JB. EVEN OTH ERWISE AN AMENDMENT HAS BEEN BROUGHT IN SEC. 115JB BY FINANCE ACT 2008 W.R.E.F 01.08.2001. VIDE THIS AMENDMENT, A NEW CLAU SE(F) IS INTRODUCED IN EXPLANATION 1 TO SECTION 115JB BY WHICH THE AMOUNT OF DEFERRED TAX AND THE PROVISION THEREFORE; IF DEBITED TO THE PROF ITS AND LOSS ACCOUNT, THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCO UNT SHOULD BE INCREASED BY THAT AMOUNT FOR THE PURPOSES OF DETERM INING BOOK PROFITS UNDER THAT SECTION. HENCE, THE ACTION OF THE AO IN THIS REGARD IS CONFIRMED. THE ASSESSEES OTHER CONTENTION RAISED I N GROUND NO. 15 DOES NOT HAVE ANY LOCUS STANDI IN THE EYES OF LAW SINCE THE FACT REMAINS THAT THE AMOUNT OF DEFERRED TAX IS ON ACCOUNT OF DI VERGENCE BETWEEN ACCOUNT PROFIT AND TAX PROFIT AND AS SUCH NOT AN IT EM FOR WHICH ADJUSTMENT IS ALLOWED AS PER THE PROVISIONS OF SECT ION 115B IRRESPECTIVE OF ITS CERTAINTY/UNCERTAINTY OF ACCRUAL. HENCE THIS GROUND OF ASSESSEE STANDS DISMISSED. THE PLEA OF THE ASSESSEE THAT THE AMOUNT OF DEFERRE D TAX ASSETS EMBODIED IN THE BROUGHT FORWARD LOSS SHOULD BE EXCLUDED WHILE W ORKING OUT THE MAT ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 5 LIABILITY WAS REJECTED BY THE LD. CIT(A) ON THE GRO UND THAT THE PROVISIONS OF THE ACT ARE VERY CLEAR AS MENTIONED IN SUB-CLAUSE (III) OF EXPLANATION TO SECTION 115JB. IT STATES THAT LOSS BROGHT FORWARD OR UNABS ORBED DEPRECIATION WHICHEVER IS LESS AS PER BOOKS. SO BR OUGHT FORWARD LOSS MEANS LOSS AS REFLECTED IN THE PROFIT/ LOSS ACCOUNT. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 7. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US LD. AR HAS FILED A PAPER BOOK WHI CH IS RUNNING IN PAGES FROM 1 TO 286 AND ALSO SUPPLEMENTARY PAPER RUNNING IN PAGES 1 TO 33 ALONG WITH THE CASE COMPILATION BOOK OF VARIOUS COURTS FR OM PAGES 1 TO 196 RESPECTIVELY. LD. AR STATED THAT SEC. 115JB OF THE ACT STIPULATES THAT C/F LOSS OR UNABSORBED DEPRECIATION WHICHEVER IS LESS IS DED UCTIBLE FROM THE CURRENT YEARS BOOK PROFITS, FOR THE FINANCIAL YEAR 2004-05 (AY 2005-06), THE ASSESSEE REDUCED RS.212.80 CRORES FROM THE BOOK PROFIT OF TH AT YEAR BEING THE C/F LOSS AS ON 31.03.2004 WHICH WAS LOWER THAN THE C/F UNABS ORBED DEPRECIATION OF RS.386.76 CRORES. HOWEVER, THE SAID LOSS OF 212.80 CRORES WAS COMPUTED AFTER TAKING INTO ACCOUNT CREDIT OF RS.333.20 CRORE S ON ACCOUNT OF DEFERRED TAX ASSETS AS IT WAS THE UNDERSTANDING OF THE ASSESSEE THAT DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES FORMED PART OF THE BOO K PROFITS. THE ASSESSEE HAD ALSO INFORMED THE ASSESSING OFFICER VIDE LETTER DAT ED 27.12.2007 AS TO HOW THE SAID AMOUNT OF RS.212.80 CRORES WAS DETERMINED. ON THE OTHER HAND, LD. DR VEHEMENTLY RELIED ON THE ORDERS OF AUTHORITIES BELO W. 7.1 FROM THE AFORESAID DISCUSSION, WE FIND THAT THE AO HAS DISALLOWED THE DEFERRED TAX LIABILITY WHILE WORKING OUT THE PROFIT UNDER THE PROVISIONS OF MAT. THE AO TREATED THE LIABILITY AS UNASCERTAINED LIABI LITY. THE AO ALSO HELD THAT DEFERRED TAX IS NOTHING BUT THE INCOME TAX ONLY THE REFORE THE SAME WAS DISALLOWED AND ADDED IN THE WORKING OF MAT UNDER SE CTION 115JB OF THE ACT. ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 6 THE ASSESSEE HAS TAKEN THE ALTERNATE PLEA BEFORE TH E AO AND LD. CIT(A) THAT THE BROUGHT FORWARD LOSS CONTAINS THE AMOUNT OF DEF ERRED TAX ASSETS AND WHICH SHOULD BE EXCLUDED WHILE WORKING OUT THE MAT LIABIL ITY. BUT THE AO DISREGARDED THE PLEA OF THE ASSESSEE ON THE GROUND THAT THE MATTER IS SUB JUDICE WITH THE HIGHER AUTHORITIES OF THE SAME ASSESSEE F OR THE OTHER ASSESSMENT YEAR. THE SAME PLEA OF THE ASSESSEE WAS ALSO REJECTED BY THE LD. CIT(A) ON THE GROUND THAT THE PROVISIONS OF THE ACT ARE VERY CLEAR AS MENTIONED IN SUB-CLAUSE (III) OF EXPLANATION TO SEC TION 115JB WHICH STATES THAT LOSS BROGHT FORWARD OR UNABSORBED DEPRECIATION WHICHEVER IS LESS AS PER BOOKS. SO BROUGHT FORWARD LOSS MEANS LOSS AS REFLECTED IN THE PROFIT/LOSS ACCOUNT. WE FI ND FROM THE PROVISIONS OF THE ACT AND VARIOUS JUDICIAL PRONOUNCEMENT THAT FOR THE LEVY OF THE TAX UNDER THE PROVISIONS OF MAT THE ASSESSEE HAS TO WORK OUT THE PROFIT IN THE MANNER AS PRESCRIBED IN EXPLANATION 1 TO SECTION 115JB(2) OF THE ACT. AS PER THE PROVISIONS OF THE ACT THE MANNER FOR WORKING OUT TH E PROFIT CANNOT BE ALTERED AS PER THE REQUIREMENT OF THE ASSESSEE. THE RELEVANT P ROVISION OF THE LAW IS REPRODUCED BELOW : 115JB.(1) (2) EXPLANATION [1].- FOR THE PURPOSES OF THIS SECTION, , BOOK RECEIPT PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCO UNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2), AS INCREASED B Y- (A)--- (B)--- ----------- (H) THE AMOUNT OF DEFERRED TAX AND THE PROVISION TH EREFOR, ------- IF ANY AMOUNT REFERRED TO IN CLAUSE (A) TO (I) IS D EBITED TO THE PROFIT AND LOSS ACCOUNT OR IF ANY AMOUNT REFERRED TO IN CLAUSE (J) IS NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT, AND AS A REDUCED BY,-]]] ---- [(III) THE AMOUNT OF LOSS BROUGHT FORWARD OR NOT SO THE DEPRECIATION WHICHEVER IS LESS AS PER BOOKS OF ACCOUNT. FROM THE PLAIN READING OF THE PROVISIONS OF THIS SE CTION 115JB OF THE ACT, IT IS CLEAR THAT THE AMOUNT OF LOSS BROUGHT FORWARD OR UN ABSORBED DEPRECIATION ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 7 WHICHEVER IS LESS AS PER BOOKS WILL BE REDUCED FROM THE AMOUNT OF BOOK PROFIT. SO IN THE INSTANT CASE THE PLEA OF THE ASSESSEE THA T THE AMOUNT OF THE DEFERRED TAX ASSETS INCLUDED IN THE BROUGHT FORWARD LOSS SHO ULD BE EXCLUDED FROM THE SAID AMOUNT IS NOT TENABLE. WE ARE ALSO RELYING IN THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. AND KINETIC MOTOR CO. LTD. V. DCIT [2002] 262 ITR 330 (BOM) HELD THAT THE AO DOES NOT HAVE THE JURISDICTION TO GO BEYOND THE NET PROFIT SHOWN IN T HE AUDITED PROFIT AND LOSS ACCOUNT WHICH WAS ACCEPTED BY SHAREHOLDERS AND FILE D WITH REGISTRAR OF COMPANIES, EXCEPT TO THE EXTENT PROVIDED IN EXPLANA TION TO SEC. 115JB OF THE ACT. THE ACCOUNTS OF THE TAXPAYER WERE DULY CERTIFI ED BY THE AUDITORS AND THE SAME WAS ACCEPTED BY SHAREHOLDERS IN THE ANNUAL GEN ERAL MEETING WHICH WAS FILED WITH REGISTRAR OF COMPANIES AND AS PER TH E DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. (SUPRA) AND HON'BLE BOMBAY HIGH COURT IN THE CASE OF KINETIC MOTOR CO. LTD. TH E AO CANNOT MAKE ANY ADJUSTMENTS TO THE BOOK PROFITS OF THE TAXPAYER ONC E IT WAS CERTIFIED BY THE AUDITORS. ACCORDINGLY, IN OUR CONSIDERED VIEW, WE F IND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A), HENCE THIS GROUND OF APPEAL OF T HE ASSESSEE IS DISMISSED 8. NEXT ISSUE RAISED BY ASSESSEE BY WAY OF GROUND N O. 3 IS THAT LD. CIT(A) ERRED IN NOT ALLOWING THE EXPENDITURE DISALLOWED U/ S 14A OF THE ACT WHILE REDUCING THE DIVIDEND INCOME FOR THE MAT. 8.1 THE AO HAS NOT ALLOWED THE DEDUCTION OF THE DIV IDEND INCOME WHILE WORKING OUT THE LIABILITY UNDER THE MAT BUT THE LD. CIT(A) REVERSED THE ORDER OF THE AO. HOWEVER, LD. CIT(A) DIRECTED THE AO TO REDU CE THE EXPENDITURE FROM THE DIVIDEND INCOME WHICH HAVE BEEN DISALLOWED UNDE R SECTION 14A OF THE ACT. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 8 9. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US LD. AR SUBMITTED THAT THE AFORESA ID DIRECTION IS ULTRA VIRES OF THE ACT. AS PER SEC. 14A(1), IT APPLIES TO TOTAL IN COME COMPUTED UNDER CHAPTER IV OF THE INCOME TAX ACT WHEREAS INCOME UND ER SECTION 115JB IS COMPUTED UNDER CHAPTER XIIB OF THE INCOME TAX ACT. CONSEQUENTLY RULE 8D WHICH IS NOTIFIED UNDER SECTION 14A IS ALSO INAPPLI CABLE TO INCOME DETERMINED UNDER SECTION 115JB. IN ANY CASE, RULE 8D OF THE IN COME-TAX RULES CAME INTO FORCE FROM 24.03.2008 AND HENCE WAS NOT IN FORCE DU RING THE RELEVANT ASSESSMENT YEAR. RULE 8D WILL TAKE EFFECT FROM ASSE SSMENT YEAR 2008-09. THIS HAS BEEN DECIDED BY THE BOMBAY HIGH COURT IN T HE CASE OF GODREJ & BOYCE MFG. CO. LTD. MUMBAI VS DCIT (2010) 328 ITR 81 (BOM).ON THE OTHER HAND THE LD. DR VEHEMENTLY RELIED ON THE ORDERS OF AUTHORITIES BELOW. WE FIND IN TERMS OF CLAUSE (F) TO EXPLANATION 1 OF SECTION 115JB OF THE ACT THAT ANY EXPENDITURE INCURRED IN RELATION TO THE INCOME TO WHICH THE PROVISIONS OF SECTION 10 APPLIES THEN THE BOOK PROFIT WILL ACCORD INGLY BE REDUCED BY THE SAID EXPENDITURE. THE RELEVANT EXTRACT OF THE PROVISION IS REPRODUCED BELOW. 115JB.(1) (2) EXPLANATION [1].- FOR THE PURPOSES OF THIS SECTION, , BOOK RECEIPT PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCO UNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2), AS INCREASED B Y- (A)--- (B)--- ----------- (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE TO ANY INC OME TO WHICH SECTION 10 (OTHER THAN-------------APPLY ---------- (H) THE AMOUNT OF DEFERRED TAX AND THE PROVISION TH EREFOR, ------- FROM THE PLAIN READING OF THE PROVISIONS OF THIS SE CTION 115JB OF THE ACT, IT IS CLEAR THAT THE EXPENDITURE INCURRED IN RELATION TO DIVIDEND INCOME THEN THE BOOK PROFIT AS PER SECTION 115JB WILL STAND INCREAS ED BY THAT AMOUNT. HOWEVER THE ASSESSEE SUBMITTED THAT THE RULE 8D OF THE IT R ULES, 1962 CAME IN FORCE FROM 24.03.2008 SO DISALLOWANCE UNDER SECTION 14A I S NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION. HOWEVER WE DISAGREE WITH THE VIEW OF LD. AR IN ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 9 TERMS OF THE PROVISIONS OF SECTION 115JB OF THE ACT WHICH ARE SELF EXPLANATORY. ACCORDINGLY IN OUR CONSIDERED VIEW WE FIND NO INFIR MITY IN THE DECISION OF THE LD. CIT(A), HENCE THIS GROUND OF APPEAL OF THE ASSE SSEE IS DISMISSED. 10. NEXT ISSUE RAISED BY ASSESSEE BY WAY OF ADDITIO NAL GROUND NO. 1 IS THAT PROVISIONS OF SECTION 234B AND 234C OF THE ACT HAVE NO APPLICATION IN CASE THERE WAS NO LIABILITY TO PAY ANY ADVANCE TAX UNDER SECTION 208 BUT THE LIABILITY AROSE AS A RESULT OF THE RETROSPECTIVE AMENDMENT OF THE LAW. 11. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION W AS LIABLE TO PAY TAX UNDER THE PROVISIONS OF MAT UNDER SECTION 115JB OF THE ACT. THE BOOK PROFIT AS SPECIFIED UNDER SECTION 115JB OF THE ACT WAS INC REASED DUE TO THE RETROSPECTIVE AMENDMENT UNDER THE STATUTE I.E. CLAU SE (H) & (I) TO EXPLANATION 1 OF SECTION 115JB(2) OF THE ACT BY THE FINANCE ACT 2008 W.R.E.F. 1-4-2001 AND BY THE FINANCE ACT 2009 W.R.E.F. 1-4-2001 TOWAR DS THE AMOUNT OF DEFERRED TAX AND THE PROVISION THEREFORE AND PROVISIONS FOR DIMINUTION IN THE VALUE OF ASSETS RESPECTIVELY. AS A RESULT THE INTE REST UNDER SECTION 234B AND 234C OF THE ACT WAS LEVIED FOR THE SHORT PAYMENT OF ADVANCE TAX. 12. AT THE OUTSET, WE FIND THAT THE ISSUE IS SQUARE LY COVERED IN FAVOUR OF THE ASSESSEE IN TERMS OF HONBLE JURISDICTIONAL HIGH CO URT IN THE CASE OF EMAMI LTD. VS. CIT (2011) 337 ITR 470 (CAL). THE HEAD NOTE OF THE ORD ER READS AS UNDER : INTEREST UNDER SS. 234B AND 234C CHARGEABILITY RETROSPECTIVE AMENDMENT OF LAW- THERE WAS NO LIABILITY OF THE ASS ESSEE TO MAKE PAYMENT OF THE ADVANCE TAX ON THE LAST DAY OF THE FINANCIAL YE AR I.E. 31 ST MARCH, 2001 WHEN ITS BOOK PROFIT WAS NIL ACCORDING TO S. 115JB PROVISION OF S. 115JB HAVING BEEN AMENDED BY THE FINANCE ACT, 2002, WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL, 2001, THE ASSESSEE CANNOT BE HELD DEFAULTER OF PAYMENT OF ADVANCE TAX WHERE ON THE LAST DATE OF THE FINANCIAL YEAR PRECEDING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE HAD NO LIABILITY TO A SSESSMENT YEAR ADVANCE TAX, HE CANNOT BE ASKED TO PAY INTEREST IN TERM OF S. 234B AND S. 234C FOR DEFAULT IN MAKING PAYMENT OF TAX IN ADVANCE WHICH W AS PHYSICALLY IMPOSSIBLE. ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 10 AS THE ISSUE IS ALREADY COVERED BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN FAVOUR OF ASSESSEE, WE ACCORDINGLY DIRECT THE AO NOT TO CHARGE ANY INTEREST UNDER SECTION 234B & 234C OF THE ACT ON AC COUNT OF RETROSPECTIVE AMENDMENT IN CLAUSE (H) & (I) TO EXPLANATION 1 OF S ECTION 115JB OF THE ACT. HENCE WE ALLOW THIS GROUND OF APPEAL OF THE ASSESSE E. 13. THE NEXT ISSUE RAISED IN GROUND NO 5 & 6 BY TH E ASSESSEE IN THIS APPEAL IS THAT LD. CIT(A) HAS ERRED IN CONFIRMING THE ORDE R OF A.O BY DISALLOWING THE DEFERRED REVENUE EXPENSES FOR RS. 15.46 CRORES. 14. BEFORE COMING TO THE SPECIFIC ISSUE LET US UNDE RSTAND THE BACKGROUND OF THE CASE. THE ASSESSEE HAS INCURRED SEVERAL EXPENSE S PRIOR TO THE COMMENCEMENT OF COMMERCIAL PRODUCTION FROM THE ASSE SSMENT YEAR 1985-86 TO 2001-02. THE COMMERCIAL PRODUCTION STARTED W.E.F . 01/08/2001. EXPENSES INCURRED PRIOR TO THE COMMENCEMENT OF BUSINESS ARE RS.805.65 MILLION. AS PER THE POLICY FOLLOWED BY THE ASSESSEE THESE EXPENSES WERE TO BE WRITTEN OFF OVER A PERIOD OF FIVE YEARS BEGINNING FROM THE ASSE SSMENT YEAR 2002-03 AND ENDING IN THE ASSESSMENT YEAR 2007-08. ACCORDINGLY THE DEFERRED REVENUE EXPENSES WERE CLAIMED IN THE FOLLOWING MANNER: S.NO ASSESSMENT YEAR AMOUNT 1. 2002-03 10,30,83,570/- 2. 2003-04 15,46,25,355/- 3. 2004-05 15,46,25,355/- 4. 2005-06 15,46,25,355/- 5. 2006-07 15,46,25,355/- 6. 2007-08 5,15,41,785/- FROM THE ABOVE FACTS, WE FIND THAT ASSESSEE HAS CLA IMED DEFERRED REVENUE EXPENSES IN EARLIER YEARS AS WELL BUT THE SAME WAS NOT DISPUTED BY THE REVENUE. HOWEVER, FOR THE YEAR UNDER CONSIDERATION THE A.O. HAS DISALLOWED THE DEFERRED REVENUE EXPENDITURE FOR AN AMOUNT OF R S. 15.46 CRORES. ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 11 THE ASSESSEE DURING THE YEAR HAS CLAIMED DEFERRED R EVENUE EXPENDITURE FOR AN AMOUNT OF RS. 15.46 CRORES UNDER SECTION 37 OF T HE ACT. THE AO DURING THE ASSESSMENT PROCEEDINGS SOUGHT THE CLARIFICATION AS TO WHY THIS EXPENSE SHOULD BE ALLOWED. ON BEING QUESTIONED BY THE AO AB OUT THE ALLOWABILITY OF DEFERRED REVENUE EXPENDITURE, THE ASSESSEE SUBMITTE D THAT THE DEFERRED REVENUE EXPENDITURES ARE ON ACCOUNT OF AMORTIZATION OF MISCELLANEOUS EXPENSES THAT WERE INCURRED PRIOR TO THE START OF T HE COMMERCIAL PRODUCTION. THE ASSESSEE SUBMITTED THAT THE DEFERRED REVENUE EX PENDITURES WERE CLAIMED IN TERMS OF GUIDANCE NOTES ISSUED BY THE ICAI. AS P ER THE GUIDANCE NOTE THE GOOD CORPORATE PRACTICE RECOGNIZES THE NEED TO WRIT E OFF THESE EXPENSES TO PROFIT & LOSS ACCOUNT WITHIN A PERIOD OF 3-5 YEARS AFTER THE COMMENCEMENT OF COMMERCIAL PRODUCTION. IN CONSONANCE WITH THE ABOVE ACCOUNTING PRACTICE, THE ASSESSEE HAS BEEN AMORTIZING THE SAID PRELIMINARY C OST OVER FIVE YEARS. THE ASSESSEE ALSO RELIED ON THE DECISION OF THE SUPREME COURT IN CIT VS UP STATE INDUSTRIAL INVESTMENT CORPORATION (1997) 225 ITR 703 AND CHALLAPALLI SUGAR LIMITED VS CIT (1975) 98 ITR 167.THE ASSESSEE ALSO SUBMITTED THAT THESE DEFERRED REVENUE EXPENDITURE PERTAINS TO THE ASSESS MENT YEARS STARTING FROM AY 1985-86 TO 2001-02. HOWEVER, THE AO HAS DISREGAR DED THE CLAIM OF THE ASSESSEE BY CONSIDERING THAT THE AMOUNT OF AMORTIZE D EXPENSES AND ITS ALLOWABILITY NEEDS TO BE DETERMINED AS PER THE PROV ISIONS OF THE ACT. THERE IS NO PROVISION UNDER THE ACT FOR CLAIMING THE DEFERRE D REVENUE EXPENDITURE. ALL THE DEFERRED REVENUE EXPENDITURES ARE REVENUE IN NA TURE AND SHOULD HAVE BEEN CLAIMED IN THE YEAR OF ITS INCURRENCE. ACCORDI NGLY, THE A.O. HAS DISALLOWED THE DEFERRED REVENUE EXPENDITURE AND ADD ED TO THE TOTAL INCOME OF THE ASSESSEE. 15. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). BEFORE LD. CIT(A) ASSESSEE HAS CLAIMED THE DEFERRED REVENU E EXPENDITURE AS PER THE GUIDANCE NOTE ISSUED BY ICAI ON EXPENDITURE INCURRE D DURING CONSTRUCTION PERIOD. THE ASSESSEE HAS AMORTIZED THIS DEFERRED RE VENUE EXPENDITURE AMOUNTING TO RS. 805.65 MILLION FOR A PERIOD OVER F IVE YEARS AFTER THE ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 12 COMMENCEMENT OF COMMERCIAL PRODUCTION ON 01.08.2001 . THE SAME HAS BEEN ALLOWED BY THE A.O. IN EARLIER YEARS. LD. AR CLAIME D THAT IF THIS DEFERRED REVENUE EXPENSES CANNOT BE CLAIMED AS AN EXPENSE U/ S 37 THEN ASSESSEE SHOULD BE ALLOWED TO CAPITALIZE THIS EXPENSE AND SA ME IS DEDUCTIBLE U/S 32. HOWEVER, LD. CIT(A) OBSERVED THAT THE ASSESSEE ITSE LF ACCEPTS THAT THESE ARE THE EXPENSES NOT PERTAINING TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THESE EXPENSES HAVE BEEN INCURRED IN EARLIER YEARS. AS PER THE INCOME TAX PROVISION, THERE IS NO CONCEPT AS DEFERRED REVENUE EXPENDITURE. ANY EXPENSE CAN EITHER BE REVENUE OR CAPITAL IN NATURE. CONTENT ION OF ASSESSEE THAT EXPENSES SHOULD BE ALLOWED U/S 32 IS ALSO NOT TENAB LE AS NO CAPITAL ASSET HAS COME INTO EXISTENCE. BEING AGGRIEVED BY THIS ORDER OF LD CIT(A) ASSESSEE IS IN SECOND APPEAL BEFORE US. 16. THE LD. AR BEFORE US SUBMITTED THAT THERE WERE INDIRECT EXPENSES INCURRED PRIOR TO THE COMMENCEMENT OF COMMERCIAL PR ODUCTION OF THE ASSESSEE FACTORY ON 01.08.2001 AND AS PER THE GUIDA NCE NOTE OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ON TREATMENT OF E XPENSES DURING THE CONSTRUCTION PERIOD, THE SAME WERE TREATED AS DEFER RED REVENUE EXPENSES AND CHARGED TO PROFIT AND LOSS ACCOUNT @ 1/5 P.A. OVER FIVE YEARS. THE LEARNED AR ALSO RELIED ON THE DECISION OF HONBLE SUPREME COUR T IN CASE OF CIT VS. UP STATE INDUSTRIAL INVESTMENT CORPORATION (1997) 225 ITR 703 AND CHALLAPALI SUGAR LIMITED V. CIT (1975) 98 ITR 167 THE ACCOUNTING PRINCIPLES ARE TO BE FOLLOWED FOR DETERMINATION OF INCOME UNDER THE INCO ME TAX ACT AND HENCE THE AMOUNT OF DEFERRED REVENUE EXPENSES CHARGED IN THE PROFIT AND LOSS ACCOUNT IS ALLOWABLE U/S 37 OF THE ACT. BOTH AO AND THE CIT (A) HAVE REJECTED THE SAME IN ALL THE THREE ASSESSMENT YEARS ON THE GROUND THA T IT ACT RECOGNIZES ONLY CAPITAL AND REVENUE EXPENSES AND NOT DEFERRED REVEN UE EXPENSES. BUT THEY HAVE NOT SUBSTANTIATED THE SAME WITH REFERENCE TO A NY PROVISIONS IN THE ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 13 INCOME TAX ACT OR ANY JUDGMENT. LD. AR HAS RELIED O N THE CITATION OF THE TRIBUNAL DECISION IN CASE OF VIRTUAL SOFT SYSTEMS VS. ACIT [2010] 38 SOT 412(DELHI) WHERE IT WAS HELD THAT GUIDANCE NOTES IS SUED IS BINDING AND REVENUE CANNOT REJECT IT EASILY. HE FURTHER RELIED ON THE JURISDICTIONAL HIGH COURT IN CASE OF INDIA STEAMSHIP CO. LTD. VS. JOINT COMMISSIONER OF INCOME TAX & ORS. (2005)194 CTR (CAL) 386 ; EQ: (2005) 275 ITR 155 (CAL) HAS DENIED THE CLAIM OF THE REVENUE THAT THERE IS NO CO NCEPT OF DEFERRED REVENUE EXPENDITURE IN THE ACT AND ASSESSEE CAN CLAIM THE D EDUCTION OF THE AMOUNT INCURRED BEFORE THE COMMENCEMENT OF COMMERCIAL PROD UCTION OVER A NUMBER OF YEARS. HONBLE SUPREME COURT IN CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LIMITED VS. CIT [1997] 225 ITR 802 (SC) HAS ALSO UPHELD THE PRINCIPLE OF DEFERRED REVENUE EXPENSES. THE LD. AR ALSO PLEADED THAT THE DEFERRED REVENUE EXPENSES CAN ALSO BE ALLOWED TO BE CAPITALIZED UNDER SECTION 32 OF THE ACT. 17. FROM THE AFORESAID DISCUSSION, WE FIND THAT THE ASSESSEE HAS INCURRED EXPENSES PRIOR TO THE COMMENCEMENT OF BUSINESS AND CLASSIFIED AS DEFERRED REVENUE EXPENDITURE. THE ASSESSEE STARTED CLAIMING THOSE EXPENSES AFTER THE COMMENCEMENT OF BUSINESS 1/5 TH OVER THE PERIOD OF 5 YEARS. HOWEVER, THE LOWER AUTHORITIES DISALLOWED THE SAME ON THE GROUND THAT THERE IS NO PROVISION UNDER THE ACT TO CLAIM THE DEFERRED REVENUE EXPENSE S. FROM THE FACTS OF THE CASE WE OBSERVE THAT THE AO IS NOT SKEPTICAL ABOUT THE GENUINENESS OF THE EXPENSES INCURRED. THE WHOLE AMOUNT OF RS. 154.64 M ILLION HAS BEEN INCURRED IN CONNECTION OF BUSINESS PRIOR TO THE COMMENCEMENT OF COMMERCIAL PRODUCTION. ANY EXPENSE INCURRED IN CONNECTION TO T HE BUSINESS IS AN ALLOWABLE EXPENDITURE. FROM THE ABOVE EXPLAINED CIT ATIONS OF THE CASES DENYING THE NON EXISTENCE OF DEFERRED REVENUE EXPEN DITURE TERM IN THE ACT IS NOT REASONABLE AND TENABLE. IN OUR CONSIDERED VIEW, ALL THE EXPENSES INCURRED PRIOR TO THE COMMENCEMENT OF PRODUCTION SHOULD BE C APITALIZED WITH THE FIXED ASSETS OF THE ASSESSEE AND DEPRECIATION SHOULD BE A LLOWED THEREON ACCORDINGLY AS PER LAW. IN THIS CONNECTION, WE ARE RELYING IN THE DECISION OF ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 14 HON'BLE SUPREME COURT IN THE CASE OF CHALLAPALLI SUGARS LTD V. CIT (1975) 98 ITR 167 (SC) WHERE THE HEAD NOTES IS AS REPRODUCED: - AS THE EXPRESSION ACTUAL COST HAS NOT BEEN DEFINED, IT SHOULD BE CONSTRUED IN THE SENSE WHICH NO COMMERCIAL MAN WOULD MISUNDER STAND. FOR THIS PURPOSE IT WOULD BE NECESSARY TO ASCERTAIN THE CONN OTATION OF THE EXPRESSION IN ACCORDANCE WITH THE NORMAL RULES OF ACCOUNTANCY PREVAILING IN COMMERCE AND INDUSTRY. THE ACCEPTED ACCOUNTANCY RULE FOR DET ERMINING COST OF FIXED ASSETS IS TO INCLUDE ALL EXPENDITURE NECESSARY TO B RING SUCH ASSETS INTO EXISTENCE AND TO PUT THEM IN WORKING CONDITION. IN CASE MONEY IS BORROWED BY A NEWLY STARTED COMPANY WHICH IS IN THE PROCESS OF CONSTRUCTING AND ERECTING ITS PLAN, THE INTEREST INCURRED BEFORE THE COMMENCE MENT OF PRODUCTION ON SUCH BORROWED MONEY CAN BE CAPITALIZED AND ADDED TO THE COST OF THE FIXED ASSETS CREATED AS A RESULT OF SUCH EXPENDITURE. WE ARE ALSO RELYING IN THE GUIDANCE NOTE ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA ON TREATMENT OF EXPENDITURE DUR ING CONSTRUCTION PERIOD WHERE IT WAS RECOMMENDED THAT THE INDIRECT EXPENDIT URE INCURRED DURING THE CONSTRUCTION PERIOD SHOULD BE CAPITALIZED AS PART O F INDIRECT CONSTRUCTION COST TO THE EXTENT TO WHICH THE EXPENDITURE IS INDIRECTL Y RELATED TO CONSTRUCTION OR IF INCIDENTAL THERETO. AN ILLUSTRATIVE LIST OF SUCH PO SSIBLE ITEMS OF EXPENDITURE WHICH WOULD QUALIFY FOR INCLUSION FOR THE PURPOSE O F CAPITALIZATION HAS BEEN PROVIDED INCLUDING THE FOLLOWING:- (A) EXPENDITURE ON EMPLOYEES WHO ARE EITHER ASSIGN ED TO CONSTRUCTION WORK OR TO SUPERVISION OVER CONSTRUCTION WORK INCLUDING SALARIES, PROVIDENT FUND AND OTHER BENEFITS, STAFF WELFARE EXPENSES, ETC. (B) EXPENDITURE ON TECHNICAL AND OTHER CONSULTANTS. GENERAL ADMINISTRATIVE AND OFFICE EXPENDITURE WHI CH IS INDIRECTLY RELATED OR INCIDENTAL TO CONSTRUCTION, INCLUDING, AS MAY BE AP PROPRIATE, STATIONERY AND PRINTING, RENT, RATES AND TAXES, POSTAGE AND TELEGR AMS, TRAVEL AND CONVEYANCE ETC. (D) APPROPRIATE INSURANCE CHARGES. (E) APPROPRIATE EXPENDITURES ON MAINTENANCE AND OPE RATION OF VEHICLES. (F) APPROPRIATE EXPENDITURES IN CONNECTION WITH TEM PORARY STRUCTURES AND SERVICE FACILITIES BUILT OR ACQUIRED SPECIALLY FOR THE PURPOSE OF CONSTRUCTION (SEE PARAGRAPHS 9.4 AND 9.5 OF THIS NOTE). (G) PRELIMINARY PROJECT EXPENDITURE TO THE EXTENT T O WHICH IT IS CAPITALIZED AS PART OF THE CONSTRUCTION COST (SEE PARAGRAPH 3 OF T HIS NOTE). ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 15 (H) FINANCIAL EXPENSES INCLUDING INTEREST AND OTHER SIMILAR CHARGES (SEE PARAGRAPH 4 OF THE NOTE). (I) DEPRECIATION ON FIXED ASSETS AS WELL AS ON TEMP ORARY STRUCTURE AND OTHER FACILITIES USED DURING THE PERIOD OF CONSTRUC TION (SEE PARAGRAPH 9.4 AND 9.5 OF THIS NOTE). (J) EXPENSES ON TEST RUNS (SEE PARAGRAPH 11 OF THIS NOTE). (K) EXPENSES ON LAND GRADING AND LEVELING (SEE PARA GRAPH 96 OF THIS NOTE). TAKING A CONSISTENT VIEW BY THE DECISION OF HONBLE SUPREME COURT AND RELIANCE IN THE AFORESAID GUIDANCE NOTE WE REVERSE THE ORDERS OF AUTHORITIES BELOW. HENCE, THIS GROUND OF THE ASSESSEE IS ALLOWE D. 18. NEXT ISSUE RAISED BY THE ASSESSEE BY WAY OF ADD ITIONAL GROUND NO. 7 IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER O F AO BY DISALLOWING THE PAYMENT OF RS.90.36 MILLION TO WBIDC ON ACCOUNT OF CONSULTANCY EXPENSES. 19. THE ASSESSEE HAS CLAIMED AN EXPENDITURE FOR A N AMOUNT OF RS. 9037.60 LACS WHICH WAS PAID TO WBIDC ON ACCOUNT OF CONSULTI NG SERVICES BEING PROVIDED IN RELATION TO FINANCIAL MATTERS LIKE FINA NCIAL RESTRUCTURING UNDERTAKEN, INITIAL PUBLIC OFFER FROM OCTOBER 2004. THE AO DURI NG THE ASSESSMENT PROCEEDINGS OBSERVED THAT WBIDC IS A PERSON SPECIFI ED U/S 40A(2)(B) I.E. PERSON HAVING SUBSTANTIAL INTEREST IN THE ASSESSEE COMPANY. ACCORDINGLY THE AO ASKED THE ASSESSEE TO FURNISH THE COMPLETE DETAI LS OF THE PAYMENT LIKE SERVICES RENDERED, BASIS OF PAYMENTS, COPY OF THE A GREEMENT, SUPPORTING DOCUMENTS ETC. THE ASSESSEE COULD NOT SUBSTANTIATE THE EXPENDITURE EXCEPT THE MEMO OF CHARGE AS AN EVIDENCE OF THE TRANSACTIO N. HENCE THE AO MADE THE ADDITION TO THE TOTAL INCOME OF THE ASSESSEE. 20 AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. C IT(A) WHERE THE ASSESSEE SUBMITTED THAT AS PER THE PROVISIONS OF SE CTION OF SECTION 40A(2)(A) IF THE AO IS NOT SATISFIED HE CAN DISALLOW THE EXPENDI TURE TO THE TUNE OF THE AMOUNT IN EXCESS OF THE FAIR MARKET VALUE OF THAT GOODS OR SERVICES PROVIDED ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 16 BY THE PARTY HAVING SUBSTANTIAL INTEREST IN THE ASS ESSEE. FURTHER THE PAYMENT CAN ALSO BE DISALLOWED BY THE AO IF IT IS NOT MADE IN CONNECTION OF THE BUSINESS OR PROFESSION OF THE ASSESSEE. BUT HERE TH E AO HAS NOT DISPUTED ON THE REASONABLENESS OF AMOUNT OF THE PAYMENT OR REGA RDING THE INCURRENCE OF EXPENSE WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OR PROFESSION. IT MEANS THAT THE AO IS SATISFIED THAT THIS AMOUNT OF EXPENSE IS EXCLUSIVELY FOR THE BUSINESS AND PROFESSION THEN, IT SHOULD BE ALLOWED U/S 37(1) OF THE ACT. THE LD. CIT(A) HAS OBSERVED THAT SECTION 40 A(2)(B) OF THE ACT BEC OMES APPLICABLE ONLY WHEN THE REASONABLENESS, RELEVANCE AND REASON OF SUCH EX PENDITURE INCURRED FOR THE BUSINESS IS PROVED BY THE ASSESSEE. HERE ASSES SEE WAS NOT ABLE TO PRODUCE ANY SUCH EVIDENCE IN SUPPORT OF ITS CLAIM O F THIS EXPENDITURE AS WELL AS FOR THE GENUINENESS OF THIS PAYMENT. FAILURE TO PRODUCE THE DOCUMENTS REQUIRED BY THE AO INVOKED HIM TO ADD THIS EXPENDIT URE TO THE INCOME OF THE ASSESSEE. IN THE NUMEROUS DECISIONS I.E. DEYS MEDICAL STORES MFG. (P) LTD. V CIT (1986)162 ITR 630 (CAL) AND CIT V TRANSPORT CORPORATION OF INDIA LTD (2002) 256 ITR 701 (AP) THE COURTS HAVE HELD THAT MERE PAYMENT BY ITSELF WI LL NOT ENTITLE THE ASSESSEE TO DEDUCT THIS EXPENDITURE UNLESS THE SAME IS PROVED TO BE PAID FOR COMMERCIAL CONSIDERATIONS. THE BURDE N OF PROOF IS ALWAYS UPON THE ASSESSEE. THE LD. CIT(A) HAS ALSO RELIED IN THE FOLLOWING DECISIONS : 1. RAMANAND SAGAR VS. DEPUTY CIT (2002) 256 ITR 134 THE HONBLE COURT HELD THAT JUST DEBITING WILL NOT MAKE THAT EX PENSE ALLOWABLE. ASSESSEE FURNISHED XEROX COPIES OF BILLS AND VOUCHE RS. IN THIS CASE AO WAS NOT SATISFIED WITH THE JUSTIFICATION OF THE ASS ESSEE AND HENCE DISALLOWED THIS EXPENSE. IT WAS HELD BY THE HIGH CO URT THAT DISALLOWANCE MADE BY THE AO. WAS HELD TO BE ORDER. 2. MALAYALA MANORAMA CO. LTD VS. CIT (2006) 284 ITR 69 IT WAS HELD THAT WHILE COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFIT AND GAINS FROM BUSINESS AND PROFESSION ONLY THOSE EXPEN DITURE WHICH ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND PROFESSION ALONE SHALL BE ALLOWED. ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 17 IN VIEW OF ABOVE, LD. CIT(A) HELD THAT ASSESSEE COU LD NOT PROVIDE ANY SUPPORTING DOCUMENTS IN SUPPORT OF THIS CLAIM REGAR DING THE GENUINENESS AND THE QUANTUM OF EXPENDITURE. ACCORDINGLY THE LD. CIT (A) UPHELD THE ACTION OF AO. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 21. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US LD. AR ARGUED THAT THERE IS NO AN Y AMBIGUITY REGARDING THE AMOUNT EXPENSED OF AS WELL AS SAME HAS BEEN EXPENSE D OFF WHOLLY AND EXCLUSIVELY FOR BUSINESS OR PROFESSION HENCE IT SHO ULD BE ALLOWED AS AN EXPENSE. FROM THE AFORESAID DISCUSSION WE UNDERSTAN D THAT THE CONSULTANCY CHARGES PAID BY THE ASSESSEE WAS DISALLOWED BY THE AO ON THE GROUND THAT ASSESSEE FAILED TO FURNISH SUPPORTING EVIDENCE. BES IDES THE AO ALSO OBSERVED THAT THE PAYMENT WAS MADE TO THE SPECIFIED PERSON I N TERMS OF SECTION 40A(2)(A) OF THE ACT. THE LEARNED CIT(A) ALSO CONFI RMED THE ORDER OF AO BY OBSERVING THAT IT WAS THE DUTY OF THE ASSESSEE TO M AKE AVAILABLE THE SUPPORTING EVIDENCE AT THE TIME OF ASSESSMENT. HOWE VER FROM THE RECORDS WE FIND THAT WBIDC IS A STATE LEVEL FINANCIAL INSTITUT ION AND ENGAGED IN PROVIDING EQUITY CAPITAL AND PROJECT FINANCING TO INDUSTRIAL UNITS BEING SET UP IN THE STATE OF WEST BENGAL. WE FURTHER FIND THAT THE PAYMENT HA S BEEN MADE TO THE GOVERNMENT ORGANIZATION AND THE AO HAS NOT EXERCISE D HIS POWER UNDER SECTION 133(6) OF THE ACT FOR THE CLARIFICATION BY ISSUING SHOW CAUSE NOTICE TO THE PARTY BEFORE MAKING THE DISALLOWANCE. WE ALSO F IND THAT THE ORDER OF THE AO IS SILENT ABOUT THE DEDUCTION OF TDS FROM THE PA YMENT OF THE CONSULTANCY CHARGES TO THE PARTY. ACCORDINGLY IN THE INTEREST O F JUSTICE AND FAIR PLAY WERE INCLINED TO THE RESTORE THIS FILE TO THE AO FOR FRE SH ADJUDICATION AS PER LAW AFTER GIVING OPPORTUNITY TO THE ASSESSEE. WE ALSO DIRECT THE AO TO ISSUE SHOW CAUSE NOTICE TO WBIDC UNDER SECTION 133(6) OF THE ACT FOR THE NECESSARY DETAILS AND ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 18 CLARIFICATION AS REQUIRED UNDER THE PROVISIONS OF L AW. IN VIEW OF THE ABOVE THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STA TISTICAL PURPOSE. 22. THE NEXT ISSUE RAISED BY THE ASSESSEE IS REGARD ING THE DISALLOWANCE MADE BY THE AO UNDER SECTION 14A AS PER RULE 8D. 23. DURING THE YEAR THE ASSESSEE HAS EARNED DIVIDEN D INCOME AMOUNTING TO RS. 18,91,89,000/- FROM THE INVESTMENT MADE IN HPL COGENERATION LTD. WHICH HAS BEEN CLAIMED AS EXEMPTED INCOME UNDER SEC 10(34 ). AO OBSERVED THAT THE ASSESSEE HAS NOT ADDED BACK THE RELEVANT EXPEND ITURE FOR EARNING THIS EXEMPTED INCOME. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS AS TO WHY THE PROPORTIONATE MANAGEMENT EXPENDITURE SHOULD NOT BE ADDED BACK TO THE INCOME OF THE ASSESSEE. LD. AR SUBMITTED THAT AS P ER SEC. 14A OF THE ACT ALL THOSE EXPENSES ARE DISALLOWED WHICH ARE DIRECTLY AT TRIBUTABLE TO EARN THIS DIVIDEND INCOME. NO MANAGEMENT EXPENSE IS DIRECTLY INCURRED BY THE ASSESSEE TO EARN THIS DIVIDEND INCOME. ASSESSEE STA KE IN THAT COMPANY IS VERY LESS IN THE COMPANY AND IT IS JUST AN INVESTOR IN THAT COMPANY. HOWEVER THE AO OUTRIGHTLY REJECTED THE SUBMISSION OF THE AS SESSEE ON THE REASONING THAT CERTAIN AMOUNT OF EXPENDITURE MUST HAVE BEEN I NCURRED LIKE ADMINISTRATION EXPENSES, ESTABLISHMENT EXPENSE ETC. TO EARN THIS EXEMPTED INCOME AND SO DISALLOWED @ 5% OF TOTAL DIVIDEND INC OME I.E. RS.94,59,450/-. 24. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A). BEFORE LD. CIT(A) LD. AR HAS GIVEN EXPLAINED SEC 14A THAT AS P ER THIS SECTION ONLY THOSE EXPENSES ARE DISALLOWED WHICH ARE DIRECTLY IDENTIFI ABLE TO BE INCURRED TO EARN THAT EXEMPTED INCOME. HERE ASSESSEE IS HOLDING ONLY A MINOR STAKE THAT TOO ONLY IN ONE COMPANY. THE ASSESSEE ALSO SUBMITTED TH AT IT WAS HELD IN ITAT MUMBAI BENCH IN ITA NO.8057/MUM/03, ITA NO. 1372/DE L/2005, ITA NO.183/DEL/2005 AND ITA NO.2048/DEL/2005 THAT RULE 8D READ WITH SECTION 14A OF THE ACT WILL BE APPLICABLE IN CASE OF ALL PE NDING PROCEEDINGS AS ON ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 19 24.03.2008 INCLUDING APPEALS. HOWEVER THE LD. CIT(A ) DISREGARDED THE CLAIM OF THE ASSESSEE AND UPHELD THE ORDER OF THE AO. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 25. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US LD. AR SUBMITTED THAT UNDER SECTI ON 14A(1) DISALLOWANCE CAN BE MADE ONLY IN RESPECT OF EXPENDITURE INCURRED . HERE THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE IN RELATION TO DIV IDEND INCOME. HENCE PROVISION OF SECTION 14A DO NOT APPLY AT ALL. ASSES SEE HAS RELIED ON CITATION OF THE FOLLOWING CASES: 1.CIT VS. HERO CYCLES LTD [ 323 ITR 518]- P&H HIGH COURT 2. MAXOPP INVESTMENT LIMITED VS. CIT [(2012)347 ITR 272 (DELHI HIGH COURT)] 3. CIT VS. TORRENT POWER LTD. [2014] 363 ITR 474 (G UJARAT HIGH COURT) IT WAS HELD THAT RULE 8D WAS NOT APPLICABLE IN THE AY 2005-06 TO 2007- 08.RULE 8D CAME INTO EXISTENCE FROM 24.03.2008 AND HENCE IT WAS NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERAT ION. IN THIS SUPPORT LD.AR HAS RELIED ON THE JUDGEMENT OF BOMBAY HIGH COURT IN CASE OF GODREJ & BOYCE MFG. CO. LTD.MUMBAI VS. DCIT [(2010) 328 ITR 81 (BOM)] ON THE OTHER HAND, LD. DR VEHEMENTLY RELIED ON THE ORDERS OF AUTHORITIES BELOW. ON PERUSAL OF APPELLATE ORDER, WE FIND THAT DIRECTION HAS BEEN ISSUED TO ASSESSING OFFICER FOR MAKING DISALLOWANCE IN TERMS OF PROVISION OF SEC. 14A R.W.S. 8D OF THE IT RULES, 1962. HOWEVER WE UNDERST AND THAT THE RULE 8D OF THE IT RULES CAME INTO EFFECT FROM 24.03.2008 AND T HE INSTANT CASE BEFORE US IS FOR AY 2005-06. THEREFORE, THE PROVISIONS OF RUL E 8D OF THE IT RULES IS NOT APPLICABLE IN ASSESSEES PRESENT CASE. WE FURTHER F IND THAT PRIOR TO INSERTION OF RULE 8D OF THE IT RULES VARIOUS COURTS HAVE HELD TH AT THE DISALLOWANCE IN TERMS OF PROVISION OF SEC. 14A OF THE ACT SHOULD BE RESTRICTED @ 1% OF DIVIDEND INCOME. ON THE OTHER HAND THE LD. DR VEHEM ENTLY SUPPORTED THE ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 20 ORDER OF AUTHORITIES BELOW. HOWEVER WE DISAGREE WIT H THE ORDER OF THE LOWER AUTHORITIES AND PUT OUR RELIANCE IN GA NO. 3019 OF 2012 IN ITAT NO. 243 OF 2012 OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT V. M/S R.R.SEN & BROTHERS (P) LTD., WHERE THE HON'BLE COURT HAS HELD: THE ASSESSEE DID NOT SHOW ANY EXPENDITURE INCURRED BY HIM FOR THE PURPOSE OF EARNING THE MONEY WHICH IS EXEMPTED UNDER THE IN COME TAX. THE TRIBUNAL HAS COMPUTED EXPENDITURE AT 1 PER CENT OF SUCH DIVI DEND INCOME WHICH, ACCORDING TO THEM, IS THE THUMB RULE APPLIED CONSIS TENTLY. WE FIND NO REASON TO INTERFERE. THE APPEAL IS DISMISSED. IN THIS VIEW OF THE MATTER, WE REVERSE THE ORDERS O F AUTHORITIES BELOW AND DIRECTED THE ASSESSING OFFICER TO MAKE DISALLOWANCE @ 1% OF DIVIDEND INCOME. ACCORDINGLY, THIS GROUND OF ASSESSEES APPE AL IS ALLOWED IN PART. 26. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSE. COMING TO REVENUES APPEAL IN ITA NO. 587/KOL/2009 AY 05-06. 27. GROUNDS RAISED BY REVENUE ARE AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,20,90,000/- ARISEN AS A RESULT OF REVALUATION OF SUNDRY CREDITORS WHICH IS NOTIONAL LOSS AND CONTING ENT IN NATURE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE AMOUNT OF RS.13,55,80,000 ON A/C OF EX PENSES CLAIMED ON FREIGHT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE,, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1240 MILLION ACCEPTING THE CHANGE OF ACCOUNTING METHOD AS BONAFIDE. 4.ON THE FACTS AND CIRCUMSTANCES OF THE CASE,, LD. CIT(A) WAS NOT JUSTIFIED IN ACCEPTING REVISED RETURN, THE ACCOUNTS OF WHICH WAS NOT LAID BEFORE THE AGM OF THE ASSESSEE COMPANY. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.21.619 MILLION MADE IN THE COMPUTATION OF BOOK PROFIT ON A/C OF DOUBTFUL ADVANCES AND DOUBTFU L DEBTS. 28. THE ISSUE RAISED BY REVENUE IN GROUND NUMBER 1 IN THIS APPEAL IS THAT LEARNED CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS.1,20,90,000/- ON ACCOUNT OF YEAR END ADJUSTMENT IN LOSS ON FOREIGN EXCHANGE ACCOUNT DUE TO REVALUATION OF SUNDRY CREDI TORS AND SBI MMD ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 21 ACCOUNT. THE ASSESSEE HAS DEBITED THE PROFIT AND LO SS ACCOUNT BY AN AMOUNT OF RS.1,20,90,000/- ON ACCOUNT OF DIFFERENCE ARISIN G FROM THE FOREIGN EXCHANGE IN THE VALUE OF SUNDRY CREDITORS ACCOUNT AND MMD SB I ACCOUNT. THE ABOVE SAID DIFFERENCE WAS RECORDED ON THE LAST DAY OF THE FINANCIAL YEAR WHILE PREPARING THE FINANCIAL STATEMENTS. THE AO OBSERVED THAT IT IS A NOTIONAL LOSS AND REPRESENTS CONTINGENT LIABILITIES WHICH HAVE NO T BEEN ACTUALLY INCURRED BY THE ASSESSEE. THEREFORE THE SAME WAS DISALLOWED BY THE AO AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 29. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LEAR NED CIT(A) WHERE IT WAS SUBMITTED THAT THE ASSESSEE IS FOLLOWING MERCAN TILE SYSTEM OF ACCOUNTING. THE DIFFERENCE ON ACCOUNT OF FOREIGN EXCHANGE IN TH E VALUE OF SUNDRY CREDITORS AND SBI MMD ACCOUNT AT THE END OF FINANCIAL YEAR WA S RECORDED IN THE PROFIT AND LOSS ACCOUNT IN TERMS OF ACCOUNTING STANDARD 11 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE ASSESSEE HAS AL SO RELIED IN THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SHRI SAJJAN KUMAR MILLS LIMITED VERSUS COMMISSIONER OF INCOME TAX WHERE IT WAS HELD THAT THE PROVISIONS IN THE ACCOUNTS ON ACCOUNT OF DIFFERENCE IN FOREIGN EX CHANGE SHOULD BE MADE BY THE COMPANY FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG WHICH ARE HAVING EFFECT ON LIABILITIES AND AS A RESULT ON THE QUANTU M OF PROFITS. IT IS WELL SETTLED THAT PRE-EXISTING LIABILITIES SHOULD BE ADJUSTED IN THE LIGHT OF FOREIGN EXCHANGE UNDER MERCANTILE SYSTEM OF ACCOUNTING. THE CLAIM OF THE ASSESSEE CANNOT BE DENIED MERELY ON THE GROUND THAT IT IS JUST A PROVI SION AND NO AMOUNT HAS BEEN PAID. ACCORDINGLY THE LEARNED CIT(A) HAS DELET ED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER:- THE APPELLANTS CONTENTION IN THIS REGARD IS FOUND TO BE ACCEPTABLE, SINCE THE AR OF THE ASSESSEE VIDE HIS LETTER DT. 15 .01.2009 HAS CONFIRMED THAT THE SUNDRY CREDITORS UNDER THIS ACCO UNT WERE ON REVENUE ACCOUNT AND NOT ON CAPITAL ACCOUNT. SINCE, IT IS SU BMITTED THAT SUCH EXCHANGE FLUCTUATION HAS ARISEN ON ACCOUNT OF NORMA L BUSINESS TRANSACTIONS OF MATERIAL PROCUREMENT ETC., IT IS AN ALLOWABLE DEDUCTION U/S. 37(1). I AGREE WITH THE CONTENTION OF THE APPE LLANT AND HENCE THIS GROUND IS ALLOWED. ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 22 BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 30. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US LD. DR VEHEMENTLY SUPPORTED THE O RDER OF AO AND ON THE OTHER HAND THE LEARNED AR RELIED ON THE ORDER OF LD CIT(A) AND FILED A PAPER BOOK WHICH RUNNING FROM PAGES 1 TO 97. FROM THE AFO RESAID DISCUSSION, WE FIND THAT THE AO TREATED THE DIFFERENCE ARISING ON ACCOUNT OF FOREIGN EXCHANGE IN THE VALUE OF SUNDRY CREDITORS AS NOTIONAL LOSS A ND CONTINGENT LIABILITY WHICH THE ASSESSEE HAS NOT INCURRED SO IT WAS DISALLOWED. HOWEVER WE STRONGLY DISAGREE WITH THE VIEW OF THE AO ON THE GROUND THAT THIS YEAR AND ADJUSTMENT WAS MADE BY THE ASSESSEE IN TERMS OF AS 11 ISSUED B Y ICAI AND IN PURSUANCE OF MERCANTILE SYSTEM OF ACCOUNTING AS NOTIFIED U/S 145 OF THE ACT. THE RELEVANT EXTRACT OF ACCOUNTING STANDARD 11 IS REPRODUCED BEL OW:- 3.6 THE ACCOUNTING STANDARDS (A) 11, THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES (REVISED 2003), ISSUED BY THE COUNCI L OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, COMES INTO EFFECT I N RESPECT OF ACCOUNTING PERIODS COMMENCING ON OR AFTER 1-4-2004. RELEVANT E XTRACT OF THE ACCOUNTING STANDARD IS REPRODUCED AS FOLLOWS:- 9. A FOREIGN CURRENCY TRANSACTIONS SHOULD BE RECOR DED ON INITIAL RECOGNITION IN THE REPORTING CURRENCY, BY APPLYING TO THE FOREIGN CURRENCY AMOUNT THE EXCHANGE RATE BETWEEN THE REPOR TING CURRENCY AND THE FOREIGN CURRENCY AT THE DATE OF THE TRANSAC TIONS. 10 11 (A) AT EACH BALANCE SHEET DATE FOREIGN CURRENCY MONETARY ITEMS SHOULD BE REPORTED USING THE CLOSING RATE. HOWEVER, IN CERTAIN CIRCUMSTANCES, THE CLOSING RATE MAY NOT REFLECT WIT H REASONABLE ACCURACY THE AMOUNT IN REPORTING CURRENCY THAT IS L IKELY TO BE REALIZED FROM, OR REQUIRED TO DISBURSE, A FOREIGN CURRENCY M ONETARY ITEM AT THE BALANCE SHEET DATE, E.G. WHERE THERE ARE RESTRICTIO NS ON REMITTANCES OR WHERE THE CLOSING RATE IS UNREALISTIC AND IT IS NOT POSSIBLE TO EFFECT AN EXCHANGE OF CURRENCIES AT THAT RATE AT THE BALANCE SHEET DATE. IN SUCH CIRCUMSTANCES, THE RELEVANT MONETARY ITEM SHOULD B REPORTED IN THE REPORTING CURRENCY AT THE AMOUNT WHICH IS LIKELY TO BE REALIZED FROM, OR REQUIRED TO DISBURSE, SUCH ITEM AT THE BALANCE SHEE T DATE: 11(B). 11(C) 12. CASH RECEIVABLES AND PAYABLES ARE EXAMPLES OF M ONETARY ITEMS. ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 23 13. EXCHANGE DIFFERENCES ARISING ON THE SETTLEMENT OF MONETARY ITEMS OR ON REPORTING AN ENTERPRISES MONETARY ITEMS AT R ATES DIFFERENT FROM THOSE AT WHICH THEY WERE INITIALLY RECORDED DURING THE PERIOD, OR REPORTED IN PREVIOUS FINANCIAL STATEMENTS, SHOULD B E RECOGNIZED AS INCOME OR AS EXPENSES IN THE PERIOD IN WHICH THEY A RISE AT THIS JUNCTURE WE ALSO WISH TO REPRODUCE THE PROV ISIONS OF SECTION 145 OF THE ACT WHICH READS AS UNDER:- 3.4 AS PER SECTION 145 OF THE ACT, (1) INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCES SHALL, SUBJECT TO THE PROVISIONS OF SUB-SE CTION (2), BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WH ERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUNTIN G STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGUL ARLY FOLLOWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSM ENT IN THE MANNER PROVIDED IN SECTION 144. 31. WE ALSO FIND SUPPORT FROM THE DECISION OF HONB LE DELHI HIGH COURT IN THE CASE OF CIT VS WOODWARD GOVERNOR INDIA PRIVATE LIMITED [2007] 294 ITR 451 (DEL) WHERE IT WAS HELD THAT:- WE AFFIRM THE DECISION OF THE INCOME-TAX APPELLATE TRIBUNAL IN OIL AND NATURAL GAS CORPORATION LTD. V. DEPUTY CIT (ASSTT.) [2003] 261 ITR (AT) 1 (DELHI) WHICH RIGHTLY FOLLOWS THE SETTLED POSITIO N AS EXPLAINED IN THE JUDGMENT OF THE HON'BLE SUPREME COURT WHICH WE HAVE REFERRED TO. WE, THEREFORE, REJECT THE SUBMISSION OF THE APPELLANT I N THESE APPEALS THAT THE INCREASE IN LIABILITY ON ACCOUNT OF THE FLUCTUA TION IN THE RATE OF FOREIGN EXCHANGE REMAINING ON THE LAST DAY OF THE FINANCIAL YEAR IS NOTIONAL OR CONTINGENT AND, THEREFORE, CANNOT BE ALLOWED AS A D EDUCTION. FROM THE AFORESAID DISCUSSION WE FIND NO REASON TO INTERFERE IN THE ORDER OF LD CIT(A) AND ACCORDINGLY WE UPHOLD. HENCE THIS GROUND OF REVENUES APPEAL IS DISMISSED. ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 24 32. THE 2 ND ISSUE RAISED BY REVENUE IN GROUND NUMBER 2 IN THIS APPEAL IS THAT LEARNED CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS.13,55,80,000/- ON ACCOUNT OF FREIGHT EXPENSES. 33. DURING THE YEAR ASSESSEE HAS CLAIMED NET FREIGH T EXPENSES INCURRED IN CONNECTION WITH DOMESTIC, EXPORT OF THE GOODS AND F REIGHT ON STOCK TRANSFER. THE ASSESSEE HAS ALSO RECOVERED PART OF THE FREIGHT CHARGES FROM THE CUSTOMERS INCURRED IN CONNECTION WITH THE SALES. HO WEVER THE AO OBSERVED THAT EXPENSES INCURRED ON FREIGHT WAS MORE THAN THE RECOVERY MADE BY THE ASSESSEE FROM THE CUSTOMERS. THE AO ALSO FOUND THAT THE CLAIM OF THE ASSESSEE TOWARDS SUCH FREIGHT EXPENSES WAS ALSO DIS ALLOWED IN THE AYS 2003-04 AND 2004-05, SO THE AO ACCORDINGLY DISALLOW ED THE CLAIM OF THE ASSESSEE FOR FREIGHT EXPENSES AND ADDED TO THE TOTA L INCOME OF THE ASSESSEE. 34. AGGRIEVED, ASSESSEE IS IN APPEAL PREFERRED AN A PPEAL TO LD CIT(A) WHERE IT WAS DEMONSTRATED THAT WHEN THE GOODS ARE S OLD TO CUSTOMERS ON DELIVERY BASIS THEN THE ASSESSEE RECOVERS FREIGHT C HARGES FROM THE CUSTOMERS AS PER THE AGREEMENT BUT IN SOME OF THE CASES THE F REIGHT CHARGES ARE NOT RECOVERED IN FULL DUE TO THE COMPETITION IN THE MAR KET. BESIDES, ASSESSEE RECOVERED THE FREIGHT CHARGES FROM THE CUSTOMERS AS PER THE AGREED AMOUNT BUT ON MANY OCCASIONS THE ASSESSEE HAD BORNE MORE A MOUNT OF FREIGHT CHARGES OVER AND ABOVE THE AMOUNT AGREED DUE TO DAM AGES/DETENTION CHARGES, PRICE INCREASED DUE TO INCREASE IN FUEL CO ST. MOREOVER, THE FREIGHT CHARGES ON THE STOCK TRANSFER FROM FACTORIES TO DEP OTS ARE TO BE INCURRED BY THE ASSESSEE ALONE. THE ASSESSEE SUBMITTED THAT FOR THE EARLIER AYS 200304 AND 200405 THE FREIGHT CHARGES WERE SHOWN AS RECEI VABLE IN THE BALANCE SHEET OF THE RESPECTIVE YEARS SO THE QUESTION OF DI SALLOWANCE OF FREIGHT EXPENSES DOES NOT ARISE. HOWEVER, IN THE INSTANT CA SE THE FREIGHT EXPENSES HAVE BEEN DEBITED IN THE PROFIT AND LOSS ACCOUNT AN D NOTHING HAS BEEN SHOWN IN THE BALANCE SHEET AS RECEIVABLE. FINALLY, ASSESS EE PRAYED THAT THESE EXPENSES ARE INCURRED IN CONNECTION WITH THE BUSINE SS ONLY AND ARE ELIGIBLE FOR ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 25 DEDUCTION WHILE COMPUTING THE INCOME UNDER THE HEAD OF BUSINESS. ACCORDINGLY THE LEARNED CIT(A) HAS DELETED THE ADDI TION MADE BY THE AO BY OBSERVING AS UNDER:- THIS GROUND OF THE APPELLANT IS AGAINST DISALLOWANC E OF EXPENSES OF FREIGHT OF RS.13,55,80,000/-. THE APPELLANT DURING THE RELEVAN T PREVIOUS YEAR HAS DEBITED TO THE P & L A/C RS.135.58 MILLION UNDER TH E HEADING FREIGHT CHARGES. OUT OF THE SAID AMOUNT 46.99 MILLION REPRESENTS THE ELEMENT OF FREIGHT COST IN EXCESS OF RECOVERY AND 86.59 MILLION REPRESENTING F REIGHT CHARGES ON STOCK TRANSFER WHICH IS NOT FOR ANY RECOVERY OR OTHERWIS E. THE AO HAS DISALLOWED THE FREIGHT EXPENSES ON THE GROUND THAT THE FREIGHT CHARGES IS RECEIVABLES OF THE APPELLANT AND IN THE NATURE OF BALANCE SHEET IT EM AND HENCE THE SAID DISALLOWANCE WAS MADE. THE AO HAS NOT DISPUTED THAT THESE EXPENSES WERE INCURRED BY THE APPELLANT. THE FREIGHT CHARGES SHOR T RECEIVED FROM CUSTOMERS CAN BE FOR VARIOUS REASONS AND THE AO WAS NOT JUSTI FIED IN DISALLOWING THE SAME ONLY FOR THE REASON THAT THEY WERE RECOVERABLE FROM THE CUSTOMERS. SUCH EXPENDITURE SINCE HAS BEEN INCURRED FOR THE PU RPOSES OF ASSESSEES BUSINESS IS CLEARLY AN ALLOWABLE ITEM AND AS FAR AS FREIGHT CHARGES ON STOCK TRANSFER IS CONCERNED THIS IS DEFINITELY EXPENDITUR E INCURRED FOR BUSINESS IRRESPECTIVE OF THE ACT THAT THE SAME IS RECOVERABL E OR NOT FROM THE CUSTOMERS, I FIND FORCE IN ASSESSEES CONTENTIONS IN THIS REGA RD, HENCE, THIS GROUND OF THE APPELLANT IS ALLOWED. BEING AGGRIEVED BY THIS ORDER OF THE LEARNED CIT(A) REVENUE IS IN APPEAL BEFORE US. 35. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US LD. DR VEHEMENTLY SUPPORTED THE O RDER OF AO AND LEFT THE ISSUE TO THE DISCRETION OF THE BENCH WHEREAS LD AR RELIED THE ORDER OF LD CIT(A). FROM THE AFORESAID RIVAL MATERIALS, WE FIND THAT THE AO HAS DISALLOWED THE FREIGHT EXPENSES ON THE GROUND THAT ASSESSEE HA S MADE SHORT RECOVERY FROM THE CUSTOMERS AND SIMILAR ADDITION WAS MADE IN THE EARLIER ASSESSMENT YEAR. HOWEVER, THE AO HAS NOT DISPUTED THE QUANTUM OF EXPENSES INCURRED BY THE ASSESSEE ON FREIGHT. FROM THE SUBMISSION OF LD. AR WE FIND THAT OUT OF THE TOTAL DISALLOWANCE MADE BY THE AO TOWARDS FREIGHT E XPENSES, A SUM OF RS. 86,59,000/- WAS INCURRED ON THE STOCK TRANSFER BY T HE ASSESSEE FROM THE FACTORY TO THE DEPOTS. IN OUR VIEW, THE QUESTION OF DISALLOWANCE OF FREIGHT EXPENSES IN CONNECTION WITH THE STOCK TRANSFER DOES NOT ARISE. THIS FREIGHT EXPENSE HAS DIRECT CONNECTION WITH THE BUSINESS OF THE ASSESSEE. FOR OTHER ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 26 FREIGHT EXPENSES, THE REASON GIVEN BY THE AO FOR TH E DISALLOWANCE IS NOT TENABLE AS THE AO HAS NOT POINTED OUT ANY REASONABL E REASONS FOR THE SAME. THERE IS NO DOUBT THAT THE ASSESSEE HAD MADE SHORT RECOVERY FROM THE CUSTOMERS BUT THE REASONS FOR THE SAME WERE DULY EX PLAINED BY THE ASSESSEE. ACCORDINGLY THE LD. CIT(A) HAS GIVEN THE RELIEF TO THE ASSESSEE AND ON THIS POINT OF VIEW LD. DR HAS NOT BROUGHT ANYTHING ON RE CORD CONTRARY TO THE FINDINGS OF THE LD CIT(A). IN VIEW OF ABOVE, WE FIN D NO INFIRMITY IN THE ORDER OF LD CIT(A) AND WE UPHOLD THE SAME. HENCE, THIS GROUN D OF REVENUES APPEAL IS DISMISSED. 36. THE THIRD ISSUE RAISED BY REVENUE IN GROUND NUM BER 3 IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE A O FOR RS.124 CRORES ON ACCOUNT OF CLAIMANT IN ACCOUNTING METHOD. 37. THE ASSESSEE WAS ENTITLED FOR CUSTOM DUTY BENEF IT UNDER THE TARGET PLUS SCHEME ON THE BASIS OF EXPORT TURNOVER IN ACCORDANC E WITH PARAGRAPH 3.7 OF THE FOREIGN TRADE POLICY. THE ASSESSEE IN THE EARLI ER YEARS WAS USED TO RECOGNIZED CUSTOM DUTY BENEFIT UNDER THE TARGET PLU S SCHEME IN THE BOOKS OF ACCOUNTS ON THE BASIS OF COMPLETION OF EXPORT. HOWE VER, THE ASSESSEE FROM THE YEAR UNDER CONSIDERATION CHANGED ITS ACCOUNTING POLICY TO RECOGNIZE THE CUSTOM DUTY BENEFIT UNDER THE TARGET PLUS SCHEME ON THE BASIS OF RECEIPT OF LICENSE FROM THE DIRECTOR GENERAL OF FOREIGN TRADE. AS A RESULT OF CHANGE THE PROFIT OF THE ASSESSEE CAME DOWN BY THE ABOVE STATE D AMOUNT FOR THE YEAR UNDER CONSIDERATION BUT THE SAME WAS SHOWN IN THE S UBSEQUENT YEAR. HOWEVER THE AO DISREGARDED THE CHANGE IN THE ACCOUN TING POLICY ON THE GROUND THAT THE BENEFIT UNDER TARGET PLUS SCHEME IS A AVAILABLE TO THE ASSESSEE ON THE BASIS OF INCREMENTAL GROWTH OF THE EXPORT. FOR THE YEAR UNDER CONSIDERATION, THERE WAS AN INCREMENTAL GROWTH IN T HE EXPORTS OF THE ASSESSEE THEREFORE THE ASSESSEE WAS ENTITLED FOR THE BENEFIT OF CUSTOM DUTY. ACCORDINGLY THE AO HELD THAT THE INCOME ON ACCOUNT OF CUSTOM DU TY IS AVAILABLE IMMEDIATELY WHEN THE ASSESSEE ACHIEVES THE INCREMEN TAL GROWTH IN THE EXPORT ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 27 BUSINESS. THEREFORE, THE AO DISALLOWED THE CLAIM OF THE ASSESSEE AND ADDED THE CUSTOM DUTY BENEFIT TO THE TOTAL INCOME OF THE ASSESSEE. 38. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD C IT(A). BEFORE LD. CIT(A) ASSESSEE SUBMITTED THAT IT IS WELL SETTLED L AW THAT THE ACCOUNTING POLICY FOR GENUINE CAUSE AND BASED ON BONA FIDE PURPOSE CAN BE CHANGED IF FOLLOWED ON YEAR TO YEAR BASIS. THE ASSESSEE IN THE SUBMISSI ON RELIED ON VARIOUS JUDICIAL DECISIONS AND AS 9 ISSUED BY THE INSTITUTE OF CHARTERED CCCOUNTANTS OF INDIA. ACCORDINGLY, LD CIT(A) DELETED THE ADDITION MADE BY THE AO. BEING AGGRIEVED BY THIS ORDER OF LD CIT(A) REVENUE IS IN APPEAL BEFORE US. 39. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US LD. DR VEHEMENTLY SUPPORTED THE O RDER OF AO WHEREAS LD AR DREW OUR ATTENTION ON PAGE NO. 79 OF THE PAPER B OOK WHERE THE NOTIFICATION FOR THE CUSTOM BENEFIT UNDER TARGET PLUS SCHEME IS PLACED. THE RELEVANT NOTIFICATION READS AS UNDER:- EXEMPTION ON GOODS IMPORTED INTO INDIA AGAINST A D UTY CREDIT CERTIFICATE ISSUED UNDER THE TARGET PLUS SCHEME. IN EXERCISE OF THE POWERS CONFERRED BY SUB-SECTION (1) OF SECTION 25 OF THE CUSTOMS ACT , 1962 (52 OF 1962), THE CENTRAL GOVERNMENT, BEING SATISFIED THAT IT IS NECE SSARY IN THE PUBLIC INTEREST SO TO DO, HEREBY EXEMPTS GOODS WHEN IMPORTED INTO I NDIA AGAINST A DUTY CREDIT CERTIFICATE ISSUED UNDER THE TARGET PLUS SCH EME IN ACCORDANCE WITH PARAGRAPH 3.7 OF THE FOREIGN TRADE POLICY (HEREINAF TER REFERRED TO AS THE SAID CERTIFICATE) FROM, - (A) THE WHOLE OF THE DUTY OF CUSTOMS LEVIABLE THERE ON UNDER THE FIRST SCHEDULE TO THE CUSTOMS TARIFF ACT 1975 (51 OF 1975 ); AND (B) THE WHOLE OF THE ADDITIONAL DUTY LEVIABLE THERE ON UNDER SECTION 3 OF THE SAID CUSTOMS TARIFF ACT,- SUBJECT TO THE FOLLOWING CONDITIONS, NAMELY:- (1) THAT THE BENEFIT UNDER THIS NOTIFICATION SHALL BE AVAILABLE ONLY IN RESPECT OF DUTY CREDIT CERTIFICATE ISSUED UNDER THE SAID SCHEM E TO A STAR EXPORT HOUSE ON THE BASIS OF INCREMENTAL GROWTH IN FOB VAL UE OF EXPORTS MADE DURING THE FINANCIAL YEAR 2003-04; (2) THAT THE SAID CERTIFICATE HAS BEEN ISSUED TO A STAR EXPORT HOUSE BY THE LICENSING AUTHORITY AND IT IS PRODUCED BEFORE THE P ROPER OFFICER OF CUSTOMS AT THE TIME OF CLEARANCE FOR DEBIT OF THE DUTIES LE VIABLE ON THE GOODS, BUT FOR THIS EXEMPTION: ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 28 PROVIDED THAT EXEMPTION FROM DU9TY SHALL NOT BE ADMISSIBLE IF THEE IS INSUFFICIENT CREDIT IN THE SAID CERTIFICATE FOR DEB ITING THE DUTIES LEVIABLE ON THE GOODS, BUT FOR THIS EXEMPTION; (3) THAT THE SAID CERTIFICATE AND GOODS IMPORTED AG AINST IT SHALL NOT BE TRANSFERRED OR SOLD; FROM THE AFORESAID, IT IS AMPLY CLEAR THAT THE DUTY BENEFIT UNDER THE SCHEME WAS AVAILABLE TO THE ASSESSEE ONLY ON RECEIPT OF TH IS CERTIFICATE ISSUED BY THE DIRECTOR-GENERAL OF FOREIGN TRADE. PRIOR TO THE YEA R, ASSESSEE WAS RECOGNIZING THE INCOME ON THE COMPLETION OF EXPORT BUT THAT REA LLY DOES NOT ENTITLE THE ASSESSEE FOR THE DUTY EXEMPTION UNLESS THE CERTIFIC ATE IS RECEIVED BY THE ASSESSEE. IN VIEW OF ABOVE, WE FIND NO INFIRMITY IN THE ORDER OF LD CIT(A). HENCE THIS GROUND OF APPEAL OF THE REVENUE IS DISMI SSED. 40. THE 4 TH ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN ACCEPTING THE REVISED RETURN IN SPITE OF THE FACT K NOWN TO HIM THAT THE ACCOUNTS HAVE NOT BEEN APPROVED IN THE AGM OF THE COMPANY. 41. AT THE OUTSET THE LD. AR DREW OUR ATTENTION ON PAGE NUMBER 14 OF THE SUPPLEMENTARY PAPER BOOK WHERE NECESSARY PAPERS WER E PLACED REGARDING THE ADOPTION OF FINANCIAL STATEMENTS SUBMITTED WITH THE REVISED INCOME TAX RETURN. PROOF OF FILING THE AUDITED FINANCIAL STATE MENTS WITH THE MINISTRY OF CORPORATE AFFAIRS WERE ALSO PLACED ON PAGE NUMBER 1 TO 13 OF THE SUPPLEMENTARY PAPER BOOK. THE FINANCIAL STATEMENTS DULY AUDITED ALONG WITH AUDIT REPORT BY THE AUDITOR OF THE COMPANY WERE PLA CED FROM PAGE 16 TO 24 OF THE SUPPLEMENTARY PAPER BOOK. IN VIEW OF ABOVE WE D O NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LEARNED CIT(A). HENCE THI S GROUND OF APPEAL OF REVENUE IS DISMISSED 42. 5 TH ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO FOR RS. 2 1.619 MILLION IN THE COMPUTATION OF BOOK PROFIT ON ACCOUNT OF DOUBTFUL A DVANCES AND DEBTS. ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 29 43. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS SESSEE HAS DEBITED ITS PROFIT AND LOSS ACCOUNT BY CREATING THE PROVISION F OR DOUBTFUL ADVANCE AND DOUBTFUL DEBTS FOR THE ABOVE STATED AMOUNT IN THE B OOKS OF ACCOUNTS. THE ASSESSEE FOR COMPUTING ITS BOOK PROFIT U/S 115JB HA S NOT ADDED BACK THE ABOVE SAID PROVISION CREATED FOR DOUBTFUL ADVANCE A ND DOUBTFUL DEBTS ON THE GROUND THAT THE SAME IS NOT IN THE NATURE OF PROVIS ION FOR UNASCERTAINED LIABILITIES. HOWEVER, THE AO DISREGARDED THE CLAIM OF THE ASSESSEE BY STATING THAT PROVISIONS HAS BEEN PROVIDED ON ACCOUNT OF UNS EEN BUT ANTICIPATED LOSS OF THE COMPANY AND IS THEREFORE CLEARLY IS IN THE N ATURE OF UN-ASCERTAIN LIABILITY. THE AO ACCORDINGLY HELD THAT THE PROVISION FOR DOUB TFUL ADVANCES AND DEBTS SHOULD BE ADDED IN THE BOOK PROFIT FOR THE PURPOSE OF MAT. 44. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD C IT (A) WHO HAS DELETED THE ADDITION MADE BY THE AO BY OBSERVING THAT PROVI SION OF DOUBTFUL DEBTS AND DOUBTFUL ADVANCES STANDS ON DIFFERENT FOOTINGS FROM OTHER PROVISIONS. IN THE INSTANT CASE, THE PROVISION AS STATED ABOVE DOES NO T THE PRESENT ANY LIABILITY. ACCORDINGLY LD. CIT(A) DELETED THE ADDITION. BEING AGGRIEVED BY THIS ORDER OF LD CIT(A) IS IN AP PEAL BEFORE US. 45. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US LD. DR SUPPORTED THE ORDER OF AO WHEREAS LD AR SUPPORTED THE ORDER OF LEARNED CIT(A). FROM THE AFO RESAID DISCUSSION, WE FIND THAT AO HAS TREATED THE PROVISION CREATED AGAINST T HE DOUBTFUL DEBTS AND ADVANCES AS THE PROVISION FOR UNASCERTAINED LIABILI TY. THEREFORE FOR COMPUTING THE BOOK PROFIT UNDER THE PROVISIONS OF MAT DEDUCTI ON FOR SUCH PROVISIONS WAS DISALLOWED AND ADDED TO THE BOOK PROFIT. HOWEVER IN OUR CONSIDERED VIEW THE PROVISION FOR SEC. 115JB SPEAKS FOR THE PROVISIONS CREATED FOR UNASCERTAINED LIABILITIES THEREFORE WE DISAGREE WITH THE VIEW OF THE AO. IN THIS CONNECTION, WE ARE PUTTING OUR RELIANCE IN THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. HCL COMNET SYSTEMS AND SERVICES LTD (2007) 305 ITR 409 WHERE IT WAS HELD AS UNDER:- ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 30 AS STATED ABOVE, THE SAID EXPLANATION HAS PROVIDE SIX ITEMS, I.E., ITEM NOS (A) TO (F) WHICH IF DEBITED TO THE PROFIT AND LOSS ACCOUNT CAN BE ADDED BACK TO THE NET PROFIT FOR COMPUTING THE BOOK PROFIT. IN TH IS CASE, WE ARE CONCERNED WITH ITEM NO. (C) WHICH REFERS TO THE PROVISION FOR BAD AND DOUBTFUL DEBT. THE PROVISION FOR BAD AND DOUBTFUL DEBT CAN BE ADDED BA CK TO THE NET PROFIT ONLY IF ITEM (C) STANDS ATTRACTED. ITEM (C) DEALS WITH AMOU NT(S) SET ASIDE AS PROVISION MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAIN LIABILITIES. THE ASSESSEES CASE WOULD, THEREFORE, FALL WITHIN THE AMBIT OF ITE M (C) ONLY IF THE AMOUNT IS SET ASIDE AS PROVISION; THE PROVISION IS MADE FOR MEETI NG A LIABILITY; AND THE PROVISION SHOULD BE FOR OTHER THAN ASCERTAINED LIAB ILITY, I.E., IT SHOULD BE FOR AN UNASCERTAINED LIABILITY. IN OTHER WORDS, ALL THE IN GREDIENTS SHOULD BE SATISFIED TO ATTRACT ITEM (C) OF THE EXPLANATION TO SEC. 115JA. IN OUR VIEW, ITEM (C) IS NOT ATTRACTED. THERE ARE TWO TYPES OF DEBT . A DEBT IS PAYABLE BY THE ASSESSEE IS WHERE THE ASSESSEE HAS TO PAY THE AMOUNT TO OTHERS WHEREAS THE DEBT RECEIVABLE BY THE ASSESSEE IS AN AMOUNT WHICH THE A SSESSEE HAS TO RECEIVE FROM OTHERS. IN THE PRESENT CASE DEBT UNDER CONSIDERATION IS DEBT RECEIVABLE BY THE ASSESSEE. THE PROVISION FOR BAD AND DOUBTFUL DEBT, THEREFORE, IS MADE TO COVER UP THE PROBABLE DIMINUT ION IN THE VALUE OF ASSET, I.E., DEBT WHICH IS AN AMOUNT RECEIVABLE BY THE ASS ESSEE. THEREFORE, SUCH A PROVISION CANNOT BE SAID TO BE A PROVISION FOR LIAB ILITY, BECAUSE EVEN IF A DEBT IS NOT RECOVERABLE NO LIABILITY COULD BE FASTENED U PON THE ASSESSEE. IN THE RESENT CASE, THE DEBT IS THE AMOUNT RECEIVABLE BY T HE ASSESSEE AND NOT ANY LIABILITY PAYABLE BY THE ASSESSEE AND, THEREFORE, A NY PROVISION MADE TOWARDS IRRECOVERABILITY OF THE DEBT CANNOT BE SAID TO BE A A PROVISION FOR LIABILITY. THEREFORE, IN OUR VIEW ITEM (C) OF THE EXPLANATION IS NOT ATTRACTED TO THE FACTS OF THE PRESENT CASE. IN THE CIRCUMSTANCES, THE AO W AS NOT JUSTIFIED IN ADDING BACK THE PROVISION FOR DOUBTFUL DEBTS OF RS.92,5,18 7/- UNDER CLAUSE (C) OF THE EXPLANATION TO SECTION 115JA OF THE 1961 ACT. IN VIEW OF ABOVE, WE HAVE NO HESITATION TO UPHOLD T HE ORDER OF LD CIT(A). HENCE THIS GROUND OF APPEAL OF THE REVENUE IS DISMI SSED. 46. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 47. IN COMBINED RESULT, ASSESSEES APPEAL IS PARTLY ALL OWED FOR STATISTICAL PURPOSE AND THAT OF REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 13 /04/2016 SD/- SD/- (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP '#$- 13 / 04 /201 6 ITA NO.581 & 587/KOL/2009 A.Y. 2 005-06 HALDIA PETROCHEMICALS LTD. V. JCIT, RNG-12 KOL. PAGE 31 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-M/S HALDIA PETROCHEMICALS LTD., 1, AUCKLA ND PLACE, KOLKATA-17 2. /REVENUE-JCIT, RANGE-12, 3, GOVT. PLACE (WEST), KOL KATA-700 001 3.#,#-. / / CONCERNED CIT KOLKATA 4. /- / CIT (A) KOLKATA 5.2 3455-., -.!, / DR, ITAT, KOLKATA 6.489:; / GUARD FILE. BY ORDER/ , /TRUE COPY/ /# -.!,