R Systems International Ltd., New Delhi V. DCIT, New Delhi

ITA 690/DEL/2013

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6715 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 28-06-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 04-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: AGAINST DATED PASSED
• Keywords: Capital asset; Business income; Rectification of order; Principle of natural justice; Retrospective amendment; Bad and doubtful debts; Capital receipt; Revised return
• Section: 143(3); 234B; 115JB; 28; 154; 11

Judgement Text

1 ITA NO. 690/DEL/2013 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A. NO. 690/DEL/201 3 (A.Y. 2008-09) R.SYSTEMS INTERNATIONAL LTD. B-104 A, GREATER KAILASH-I NEW DELHI PAN : AABCR9541B (APPELLANT) VS. DCIT CIRCLE-15(1) NEW DELHI (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 04.12.2012 PASSED BY CIT(A)-XVIII, NEW DELHI FOR AS SESSMENT YEAR 2008-09. 2. THE GROUNDS OF APPEAL ARE AS UNDER: 1) WHETHER UNDER THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(A)-XVIII, NEW DELHI, WAS JUSTIFIED IN UPHOLDING THE CONTENTION OF THE AO A) DEDUCTION OF EXPENDITURE INCURRED IN INR AND FO REIGN CURRENCY TOWARDS - I) TRAVELLING EXPENSES 76,307, 974 II) COMMUNICATION EXPENSES 27,628,106 OUT OF EXPORT TURNOVER (ET) AS WELL AS TOTAL TURNOV ER (TT) FOR CALCULATION OF DEDUCTION U/S 10A OF THE ACT. B) RE-COMPUTATION OF BOOK PROFIT UNDER THE PROVIS ION OF SEC. 115JB OF THE ACT APPELLANT BY SH. SATYEN SETHI, ADV. SH. SH. A.T.PANDA, ADV. RESPONDENT BY SH. SURENDER PAL, SR. DR DATE OF HEARING 19.09.2019 DATE OF PRONOUNCEMENT 30.10.2019 2 ITA NO. 690/DEL/2013 I) DISALLOWING PROVISION FOR DOUBTFUL DEBTS AND ADVANCES (WRITTEN BACK) 18,243,319 (C R.) II) DISALLOWING PROVISION FOR REVERSAL OF PROVISION FOR DIMINUTION IN VALUE OF OF INVESTMENT(WRITTENBACK) 10,442,237 (CR) CONSEQUENTLY COMPUTING THE BOOK PROFIT AT RS. 32,20 ,96,314/-. C) NOT DETERMINING THE AMOUNT OF MAT CREDIT AVAI LABLE TO THE ASSESSEE COMPANY FOR THE ASSESSMENT YEAR TO BE ADJUSTED AGAI NST FUTURE NORMAL TAX LIABILITY. 2) WHETHER UNDER THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW THE LEARNED CIT(A) WAS JUSTIFIED IN CONFIRMING THE ACTI ON OF THE AO IN CONSIDERING THE FOREIGN EXCHANGE FLUCTUATION- CAPIT AL NATURE (CREDIT) RS. 43,82,892/-, CHARGEABLE TO TAX AS BUSINESS INCOME. 3) WHETHER IN VIEW OF THE FACTS AND UNDER THE CIR CUMSTANCES OF THE CASE, THE CIT(A) WAS JUSTIFIED IN LAW IN UPHOLDING THE AC TION OF AO IN CHARGING OF INTEREST OF RS. 29,16,943/- U/S 234B OF THE ACT; ON THE AMOUNT OF TAX ON BOOK PROFIT OF RS. 32,20,96,314/- RECOMPUTED ON THE BASIS OF RETROSPECTIVE AMENDMENT IN SEC. 115JB OF THE ACT INSERTED BY FINA NCE ACT (NO.2), 2009. 4) THE APPELLANT CRAVES TO BE ALLOWED TO ADD ANY FR ESH/ADDITIONAL GROUNDS OF APPEAL AND/OR WITHDRAW ANY OF THE GROUNDS OF APP EAL EITHER BEFORE OR AT THE TIME OF HEARING OF APPEAL. 3. THE ASSESSEE BEING A LISTED COMPANY ENGAGED IN T HE BUSINESS OF SOFTWARE DEVELOPMENT AND IT ENABLED SERVICES, BEING A 100% EOU AND ELIGIBLE FOR EXEMPTION U/S 10A OF THE ACT. INCOME-T AX RETURN WAS FILED AT BOOK PROFIT OF RS. 26,84,71,987/- WHICH WAS TO BE T AXED UNDER THE PROVISION OF SECTION 115JB OF THE ACT. SUBSEQUENTLY , PURSUANT TO THE RETROSPECTIVE AMENDMENT BY FINANCE ACT (NO.2), 2009 , THE BOOK PROFIT WAS RECOMPUTED AT RS.29,34,10,758/-, DUE ADDITIONAL TAX PAID AND RECTIFIED STATEMENT OF INCOME WAS DULY FILED WITH THE DEPARTM ENT ON 13.04.2010. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT AT T HE BOOK PROFIT UNDER THE DEEMED PROVISION AT RS.32,20,96,314/- AND UNDER THE NORMAL PROVISION AT RS.4,92,50,570/- AFTER ALLOWING DEDUCT ION U/S 10A OF THE ACT. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER THE ASSE SSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE. 3 ITA NO. 690/DEL/2013 5. AS REGARDS GROUND NO. 1 RELATING TO DISALLOWANCE OF RS. 10,39,36,080/- IN COMPUTING DEDUCTION U/S 10A, THE LD. AR SUBMITTED THAT EXPENDITURE ON TELECOMMUNICATION/ISP OF RS.2,76,28, 106/- WERE NOT INCURRED TO DELIVER COMPUTER SOFTWARE OUTSIDE INDIA . OUT OF RS.2,76,28,106/- EXPENDITURE OF RS.2,02,92,476/- WA S ON LOCAL LEASE LINE. EXPENDITURE ON LEASE LINE OUTSIDE INDIA WAS RS.90,4 3,495/-. FURTHER, THE EXPORT INVOICES WERE ONLY FOR THE VALUE OF SOFTWARE / ITE SUPERVISION. EXPORT PROCEEDS BEING FOB VALUE OF SOFTWARE DEVELOPED, THE REFORE, NO DEDUCTION FROM EXPORT PROCEEDS WAS CALLED FOR. THE LD. AR REL IED UPON THE CIRCULAR NO.564 DATED 5.7.1990 [(1990) 184 ITR (ST) 137]. AS REGARDS, TRAVELING EXPENSES IN FOREIGN CURRENCY OF RS.7,63,07,974/-, T HE LD. AR SUBMITTED THAT THE SAME WERE NOT INCURRED TO PROVIDE TECHNICAL SER VICES OUTSIDE INDIA. ONSITE SOFTWARE DEVELOPMENT WAS RENDERED BY DEPUTIN G ASSESSEES EMPLOYEES. OFFSHORE SERVICES WERE RENDERED AT ASSES SEES BUSINESS PREMISES IN INDIA. RELYING UPON CIRCULAR NO.694 DATED 23.11. 1994 [(1995) 211 (ST) 26], THE LD. AR SUBMITTED THAT EXPENDITURE INCURRED FOR DEVELOPMENT OF SOFTWARE AT CLIENTS SITES IS NOT REQUIRED TO BE EX CLUDED FROM THE EXPORT TURNOVER. THE LD. AR SUBMITTED THAT THOUGH THE ASSE SSING OFFICER HAD NOT GIVEN ANY REASON FOR RESTRICTING THE DEDUCTION U/S 10A, HOWEVER, THE CIT(A) ATTRIBUTED CERTAIN REASONS TO HIM AND UPHELD THE DE DUCTION ALLOWED BY HIM. AS PER RECTIFIED ORDER DATED 19.01.2012 PASSED UNDE R SECTION 154 OF THE ACT, THE ASSESSING OFFICER ALLOWED THESE CLAIMS. FU RTHER THE LD. AR WHILE REFERRING TO SECTION 10A(4) SUBMITTED THAT THE SAID SECTION PROVIDES FORMULA FOR COMPUTING DEDUCTION, CIT(A) OBSERVED THAT THOUG H EXPORT TURNOVER - THE NUMERATOR, IN THE FORMULA HAS BEEN DEFINED IN SECT ION 10A, HOWEVER, TOTAL TURNOVER - THE DENOMINATOR HAS NOT BEEN DEFINED. T HE LD. AR SUBMITTED THAT SINCE EXPORT TURNOVER SPECIFICALLY EXCLUDES FR EIGHT, TELECOMM AND INSURANCE, THEREFORE, DIFFERENT MEANING CANNOT BE A SSIGNED TO TOTAL TURNOVER. THE LD. AR RELIED UPON THE DECISION IN CA SE OF CIT V. LAKSHMI MACHINE WORKS [2007] 290 ITR 667 (SC). THE LD. AR S UBMITTED THAT NEITHER THE ASSESSING OFFICER NOR CIT(A) HAS GIVEN ANY ADVE RSE FINDING ON THE SUBMISSIONS MADE. THERE IS NO FINDING THAT ISP CHAR GES WERE FOR DELIVERY OF COMPUTER SOFTWARE AND THE TRAVELLING EXPENSES WERE FOR PROVIDING TECHNICAL 4 ITA NO. 690/DEL/2013 SERVICES OUTSIDE INDIA. THE LD. AR SUBMITTED THAT T HE ISSUE IS NO MORE RES- INTEGRA AND IS COVERED BY THE DECISION OF THE HONB LE SUPREME COURT IN CASE OF CIT V. HCL TECHNOLOGIES LTD. (2018) 404 ITR 719 (SC). THE ASSESSING OFFICER ON ESTIMATE BASIS HAD EXCLUDED 60% OF SOFTW ARE DEVELOPMENT CHARGES FROM EXPORT TURNOVER AS EXPENDITURE ON TECH NICAL SERVICES OUTSIDE INDIA. THOUGH THE CIT(A) OBSERVED THAT THE ASSESSIN G OFFICER HAS NOT BROUGHT ANY EVIDENCE THAT ASSESSEE WAS PROVIDING TE CHNICAL SERVICES OUTSIDE INDIA, STILL 10% OF SOFTWARE DEVELOPMENT CHARGES WE RE TREATED AS INCURRED ON TECHNICAL SERVICES OUTSIDE INDIA. THE ASSESSEES AP PEAL WAS ALLOWED BY TRIBUNAL. THE HONBLE SUPREME COURT UPHOLDING THE O RDER OF THE HONBLE HIGH COURT OBSERVED THAT THE ASSESSING OFFICER COUL D NOT BRING ANY EVIDENCE TO SHOW THAT ASSESSEE WAS ENGAGED IN PROVIDING TECH NICAL SERVICES INDEPENDENT OF SOFTWARE DEVELOPMENT FOR WHICH EXPEN DITURE WAS INCURRED OUTSIDE INDIA IN FOREIGN CURRENCY AND THAT EVEN AFT ER DELIVERY OF SOFTWARE, THERE WOULD BE REQUIREMENT OF TECHNICAL PERSONAL TO VISIT THE CLIENT TO MAKE THE SOFTWARE FULLY FUNCTIONAL. THE LD. AR ALSO RELI ED UPON THE DECISION OF PATNI TELECOM (P) LTD. V. ITO [2009] 308 ITR (AT) 4 14. THE LD. AR FURTHER SUBMITTED THAT EXCEPT FOR AY 2008-09 AND 2009-10, N EITHER IN EARLIER YEARS NOR IN LATER YEARS, SIMILAR DISALLOWANCE WAS MADE B Y THE ASSESSING OFFICER. IN FACT, PAGE 9 OF ORDER OF CIT(A) FOR AY 2009-10, RECORDS THAT FOR AY 2003- 04 TO 2007-08, DEDUCTION WAS ALLOWED. THE LD. AR FU RTHER SUBMITTED THAT NO SECOND APPEAL FOR AY 2010-11 & 2011-12 HAS BEEN FILED BY THE REVENUE. THE LD. AR FURTHER SUBMITTED THAT BY THE ORIGINAL R ETURN FILED ON 24.09.2008, DEDUCTION OF RS. 22,56,55,798/- WAS CLA IMED U/S 10A OF THE ACT. BY REVISED RETURN FILED ON 22.09.2009, DEDUCT ION U/S 10A OF RS. 25,61,48,875/- WAS CLAIMED. DEDUCTION U/S 10A WAS C LAIMED IN RESPECT OF FOUR UNDERTAKING. AGAINST THE CLAIM OF DEDUCTION OF RS. 25,61,48,875/-, THE ASSESSING OFFICER ALLOWED DEDUCTION OF RS.23,95,42, 286/- (DIFFERENCE OF RS. 1,66,06,589) AS UNDER: * PROFIT OF THE BUSINESS WAS TAKEN AT RS. 23,22,45, 490/- * EXPORT TURNOVER AND TOTAL TURNOVER WAS REDUCED BY RS. 3,08,53,780/- AND RS. 7,80,68,057/- ON ACCOUNT OF TELECOMMUNICATI ON EXPENSES AND TRAVEL EXPENSES. 5 ITA NO. 690/DEL/2013 * THOUGH DEDUCTION OF RS. 23,95,42,286/- WAS ALLOW ED IN THE RESPECT OF FOUR UNDERTAKINGS HAVING PROFIT, HOWEVER, BY MISTAK E ONLY THE FIGURES PERTAINING TO NOIDA IT WERE NOTED. 6. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RELEVANT MATERIAL AVAILABLE ON RECORD. FROM THE SUBMISSIONS OF THE WO RKING OF DEDUCTION UNDER SECTION 10A, THE LD. AR ADMITTED THAT THERE I S MISTAKE IN FIGURES PERTAINING TO ONE UNDERTAKING. THE LD. AR SUBMITTED THAT BY REVISED RETURN FILED ON 22.09.2009, DEDUCTION U/S 10A OF RS. 25,61 ,48,875/- WAS CLAIMED. DEDUCTION U/S 10A WAS CLAIMED IN RESPECT OF FOUR UN DERTAKING. AGAINST THE CLAIM OF DEDUCTION OF RS. 25,61,48,875/-, THE ASSES SING OFFICER ALLOWED DEDUCTION OF RS.23,95,42,286/- (DIFFERENCE OF RS. 1 ,66,06,589) AS UNDER: * PROFIT OF THE BUSINESS WAS TAKEN AT RS. 23,22,45, 490/- * EXPORT TURNOVER AND TOTAL TURNOVER WAS REDUCED BY RS. 3,08,53,780/- AND RS. 7,80,68,057/- ON ACCOUNT OF TELECOMMUNICATI ON EXPENSES AND TRAVEL EXPENSES. * THOUGH DEDUCTION OF RS. 23,95,42,286/- WAS ALLOW ED IN THE RESPECT OF FOUR UNDERTAKINGS HAVING PROFIT, HOWEVER, BY MISTAK E ONLY THE FIGURES PERTAINING TO NOIDA IT WERE NOTED. THUS, THESE ASPECTS NEEDS TO BE VERIFIED AND SHOULD BE PUT BEFORE THE ASSESSING OFFICER FOR FRESH ADJUDICATION. IT WILL B E APPROPRIATE TO REMAND BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICE R. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWI NG PRINCIPLES OF NATURAL JUSTICE. THUS, GROUND NO. 1(A) IS PARTLY ALLOWED FO R STATISTICAL PURPOSE. 8. AS REGARDS GROUND NOS. 1(B) AND 1(C) RELATING TO ADJUSTMENT OF RS. 1,04,42,237/- AND RS. 1,82,43,319 U/S. 115JB TOWARD S PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT AND DOUBTFUL DEBT S AS WELL AS ADVANCES WRITTEN BACK. THE LD. AR SUBMITTED THAT IN AY 2007- 08, FOLLOWING PROVISIONS WERE DEBITED TO P&L A/C: 6 ITA NO. 690/DEL/2013 DIMINUTION IN VALUE OF INVESTMENT OF RS. 1,04,42,23 7/- DOUBTFUL DEBTS OF RS. 5,08,06,788/- DOUBTFUL ADVANCES OF RS. 3,39,47,774/- IN THE COMPUTATION FOR AY 2007-08, PROVISIONS FOR R S. 1,04,42,237/, RS.5,08,06,788/- AND RS.3,39,47,774/- WERE ADDED BA CK TO THE INCOME. BY FINANCE (NO.2) ACT, 2009, SECTION 115JB WAS AMENDED W.R.E.F. 1.4.2001 AND THEREBY, NET PROFIT WAS TO BE INCREASED BY THE PROVISION FOR DIMINUTION IN VALUE OF ANY ASSET. THE LD. AR POINTED OUT THAT ASSESSMENT FOR AY 2007- 08 WAS MADE AT THE TOTAL INCOME OF RS.5,65,96,889/- ON WHICH TAX OF RS. 1,67,09,898/- WAS PAYABLE. NET PROFIT AS PER P&L A/ C FOR AY 2007-08 WAS RS. 13,87,67,663 & BOOK PROFIT POST AMENDMENT BY TH E FINANCE (NO.2) ACT, 2009 WAS RS. 11,75,52,668/-, ON WHICH TAX OF RS. 1, 31,89,409 WAS PAYABLE. IN AY 2008-09, PROVISION FOR RS. 1,04,42,2 37/- WAS REVERSED AND WAS CREDITED TO P&L A/C I PAGE 108 R/W 134 NOTE 11( A). SIMILARLY, OUT OF PROVISION OF RS.5,08,06,788/- AND RS.3,39,47,774/-, A SUM OF RS. 1,82,43,319/- WAS REVERSED AND WAS CREDITED TO P&L A/C AS OTHER INCOME. SINCE IN AY 2007-08, PROVISIONS FOR RS. 1,04,42,237 /- AND RS. 1,82,43,319/- CREATED BY DEBITING P&L A/C AND WAS T AKEN INTO ACCOUNT FOR MAT PURPOSES, THOUGH BOOK PROFIT WAS LESS THAN INCO ME UNDER THE NORMAL PROVISIONS. THEREFORE, ON REVERSAL OF PROVISIONS IN AY 2008-09 WERE NOT REQUIRED TO BE ADDED TO NET PROFIT AS PROVIDED BY C LAUSE (I) OF EXPLANATION 1 TO SECTION 115JB(2). THE ASSESSING OFFICER DECLINED TO EXCLUDE PROVISIONS FOR RS. 1,04,42,237/- AND RS. 1,82,43,319/- IN COMP UTING BOOK PROFIT FOR AY 2008-09 FOR THE REASON THAT THE SAID PROVISIONS WERE NOT ADDED WHILE COMPUTING THE BOOK PROFIT FOR AY 2007-08. PROVISO T O CLAUSE (I) OF EXPLANATION 1 TO SECTION 115JB(2) PROVIDES THAT AMO UNT WITHDRAWN FROM THE PROVISION SHALL BE REDUCED FROM NET PROFIT PROV IDED THE BOOK PROFIT FOR THE YEAR IN WHICH THE PROVISION WAS CREATED WAS INC REASED. THIS CONDITION WAS MET BECAUSE BOOK PROFIT FOR AY 2007-08 WAS INCR EASED BY PROVISIONS FOR RS. 1,04,42,237/-, RS.5,08,06,788/- AND RS.3,39 ,47,774/-. THE CIT(A) BY FOLLOWING INDO RAMA SYNTHETICS INDIA LTD. V. CIT 12011 / 330 ITR 363 (SC) UPHELD THE ADJUSTMENT HOLDING THAT IN THE YEAR IN W HICH PROVISIONS WERE CREATED, THE SAME WERE NOT ADDED BACK FOR THE PURPOSES OF MAT 7 ITA NO. 690/DEL/2013 COMPUTATION IN THE RETURN ORIGINALLY FILED. ONLY BY THE REVISED COMPUTATION, PROVISIONS WERE ADDED BACK. THEREFORE, BOOK PROFIT FOR AY 2007-08 HAS NOT BEEN INCREASED BY THE PROVISION OF RS. 1,04,42,237/ - & RS. 1,82,43,319/-. THE LD. AR SUBMITTED THAT THE REASON THAT REVISED C OMPUTATION WAS FILED SUBSEQUENTLY IS OF NO SIGNIFICANCE. RETURN FOR AY 2 007-08 WAS FILED ON 30.10.2007 I.E. MUCH BEFORE THE AMENDMENT BY FINANC E (NO.2) ACT, 2009 (IT WAS NOTIFIED ON 19.8.2009). IMPOSSIBILITY OF COMPLI ANCE DUE TO SUBSEQUENT RETROSPECTIVE AMENDMENT COULD NOT BE THE BASIS FOR ADVERSE FINDING. ASSESSMENT FOR AY 2007-08 WAS MADE U/S 143(3) VIDE ORDER DATED 16.12.2010 I.E. AFTER THE REVISED COMPUTATION OF IN COME U/S 115JB WAS FILED FOR AY 2008-09. SINCE IT IS NOT IN DISPUTE TH AT TAX LIABILITY FOR AY 2007- 08 UNDER NORMAL COMPUTATIONAL PROVISION WAS MORE TH AN THE TAX LIABILITY U/S 115JB, THEREFORE, IT CAN BE SAID THAT PROVISION S FOR RS. 1,04,42,237/- AND RS. 1,82,43,319/- WERE ADDED BACK TO COMPUTE BO OK PROFIT FOR AY 2007-08. RELIANCE IS PLACED ON KOCHI REFINERIES LTD . V. DCIT (2010) 4 ITR (TRIB) 95 (MUM). IN THE CONTEXT OF PRIMA FACIE ADJU STMENTS, THE COURTS HAVE CONSISTENTLY HELD THAT ADJUSTMENTS CANNOT BE MADE O N THE BASIS OF RETROSPECTIVE AMENDMENT. IN MODERN FIBOTEX INDIA LT D. V. DY. CIT (1995) 212 ITR 496 (CALL, RETURN FOR AY 1989-90 WAS FILED ON 29.12.1989, SHOWING CCS AS NON TAXABLE. SUBSEQUENTLY IN 1990, SECTION 2 8 WAS AMENDED W.E.F. 1.4.1967 AND CCS WAS MADE LIABLE TO TAX. ADJUSTMENT MADE BASED ON RETROSPECTIVE AMENDMENT WAS HELD TO BE UNJUSTIFIED. SIMILAR VIEW WAS TAKEN IN CIT V. HINDUSTAN ELECTROGRAPHITE LTD. (199 8) 229 ITR 16 (MP), IT HAS BEEN AFFIRMED IN 243 ITR 48 (SC). JUST AS ADJUS TMENT U/S 143(L)(I) BASED ON RETROSPECTIVE AMENDMENT CANNOT BE MADE, SI MILARLY ADJUSTMENT UNDER PROVISO TO CLAUSE (I) OF EXPLANATION 1 TO SEC TION 115JB(2) COULD NOT HAVE BEEN MADE WHEN RETURN FOR AY 2007-08 WAS FILED BECAUSE IN BOTH THE CASES, CIRCUMSTANCES WERE BEYOND THE CONTROL OF THE ASSESSEE. HAD THE ASSESSMENT FOR AY 2007- OS BEEN MADE UNDER MAT, CON DITION OF PROVISO TO CLAUSE (I) OF EXPLANATION 1 TO SECTION 115JB(2) WOU LD HAVE MET & REVISAL OF PROVISIONS OF RS. 1,04,42,237/- & RS. 1,82,43,319/- WOULD HAVE BEEN ALLOWED DEDUCTION IN COMPUTING BOOK PROFIT FOR AY 2 008-09. IN CASE OF INDO RAMA SYNTHETICS (SUPRA), THE ASSESSEE HAD REVALUED ITS FIXED ASSETS DURING 8 ITA NO. 690/DEL/2013 THE PREVIOUS YEAR ENDING ON 31.3.2000 (ASSESSMENT Y EAR 2000-01). THE RESERVE WAS CREATED BY DEBITING THE FIXED ASSETS A CCOUNT. THUS, THE PROFIT & LOSS ACCOUNT AND THE BOOK PROFIT FOR THE YEAR END ED 31.3.2000 REMAINED UNTOUCHED BY THE AMOUNT OF REVALUATION RESERVE. IN THE ACCOUNTING YEAR ENDED ON 31.3.2001 (ASSESSMENT YEAR 2001-02), THE A SSESSEE WITHDREW AN AMOUNT FROM THE RESERVE WHICH WAS CREDITED TO THE P ROFIT AND LOSS ACCOUNT. ON THESE FACTS, IT WAS HELD THAT THE PROVISO TO CLA USE (I) OF SECTION 115JB WAS APPLICABLE BECAUSE THE BOOK PROFIT OF THE YEAR ENDED 31.3.2000 HAD NOT BEEN INCREASED BY THE AMOUNT OF THE RESERVE CREATED IN THAT YEAR. IT WAS IN THIS BACKGROUND THAT THE HONBLE SUPREME COURT DECI DED THE ISSUE AGAINST THE ASSESSEE HOLDING THAT UNLESS THE ADJUSTMENT HAS THE EFFECT OF INCREASING THE NET PROFIT AS SHOWN IN THE P&L A/C, THE ASSESSE E CANNOT BE ALLOWED REDUCTION OF NET PROFIT UNDER CLAUSE (I) TO THE EXP LANATION TO SECTION 115JB(2). SINCE IN THE PRESENT CASE, NET PROFIT FOR THE YEAR ENDED ON 31.3.2007 WAS INCREASED BY THE AMOUNT OF PROVISION OF RS. 1,04,42,237/- 8S RS. 1,82,43,319/- THEREFORE, CIT(A) WAS NOT JUST IFIED IN UPHOLDING THE ADJUSTMENT. MERELY BECAUSE FOR AY 2007-08, TOTAL IN COME UNDER REGULAR PROVISIONS WAS MORE THAN THE BOOK PROFIT U/S 115JB, IT CANNOT BE SAID THAT BOOK PROFIT FOR AY 2007-08 WAS NOT INCREASED BY THE AMOUNT OF PROVISIONS. UPHOLDING THE ORDER OF CIT(A) WOULD LEAD TO ABSURDI TY. HAD TOTAL INCOME FOR AY 2007-08 BEEN ASSESSED U/S 115JB, THEN BOOK PROFI T OF RS. 11,75,52,668/- BEEN THE TOTAL INCOME AND TAX WOULD HAVE BEEN RS. 1,31,89,409/-, WHEREAS, TAX OF RS. 1,67,09,898/- WA S PAID UNDER NORMAL COMPUTATIONAL PROVISIONS 9. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT I N THE PRESENT CASE, NET PROFIT FOR THE YEAR ENDED ON 31.3.2007 WAS INCREASE D BY THE AMOUNT OF PROVISION OF RS. 1,04,42,237/- AND RS. 1,82,43,319 /- THEREFORE, CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE ADJUSTMENT. MERELY B ECAUSE FOR AY 2007-08, 9 ITA NO. 690/DEL/2013 TOTAL INCOME UNDER REGULAR PROVISIONS WAS MORE THAN THE BOOK PROFIT U/S 115JB, IT CANNOT BE SAID THAT BOOK PROFIT FOR AY 20 07-08 WAS NOT INCREASED BY THE AMOUNT OF PROVISIONS. THE CIT(A) WAS NOT COR RECT IN HOLDING THAT THE BOOK PROFITS OF THE EARLIER EARS HAVE NOT BEEN INCR EASED BY THE SAID RESERVES OR PROVISIONS THEREFORE AS PER PROVISION SECTION 11 5JB THE ADDITION SUSTAINS. IN FACT, THE NET PROFIT FOR THE YEAR ENDE D ON 31.3.2007 WAS INCREASED BY THE AMOUNT OF PROVISION. THUS, GROUND NOS. 1(B) AND 1(C) ARE ALLOWED. 11. AS REGARDS GROUND NO. 2 RELATING TO EXCLUSION OF EXCHANGE FLUCTUATION OF RS. 43,82,892/- IN COMPUTING DEDUCTION U/S 10A. THE LD. AR SUBMITTED THAT ADDITION OF RS. 43,82,892/- ON ACCOUNT OF EXCH ANGE FLUCTUATION GAIN WAS MADE WITHOUT ANY DISCUSSION. DETAILS OF THE GA IN OF RS. 43,82,892/- WERE FILED BY THE ASSESSEE. IN FIRST APPEAL, THE CI T(A) EXAMINING THE ISSUE FROM THE POINT OF VIEW OF EXCLUSION OF FLUCTUATION GAIN FOR THE PURPOSES OF DEDUCTION U/S 10A DIRECTED THE ASSESSING OFFICER TO DISALLOW DEDUCTION U/S 10A ON GAIN ON EXTERNAL COMMERCIAL BORROWING OR REI NSTATEMENT OF ANY CAPITAL ASSET. THE ASSESSEE RAISED ADDITIONAL GROUN D BEFORE THE TRIBUNAL TO THE EFFECT THAT EXCHANGE GAIN OF RS. 43,82,892/- WA S A CAPITAL RECEIPT, BUT THE SAME IS NOT PRESSED AT THIS JUNCTURE. THE LD. A R POINTED OUT THAT OUT OF GAIN OF RS. 43,82,892/-, GAIN OF RS. 32,29,114/- [1 ,13,262 + 39,08, 276 MINUS 5,91,524 & 2,00,900] WAS ON ACCOUNT OF PAYMEN T TO SHAREHOLDERS AND GAIN OF RS. 11,53,778/- [11,53,778 3,69,974 + 3,69,974] WAS ON ACCOUNT OF ADVANCE TO SUBSIDIARIES (PRINCIPAL ACCOU NT). ALL THE TRANSACTIONS RELATE TO FOREIGN OPERATIONS I.E. INVESTMENT IN S UBSIDIARIES. SINCE THE GAIN RELATE TO CAPITAL FIELD BEING INVESTMENT IN SUBSIDI ARIES, THEREFORE, SUCH GAIN WAS CAPITAL IN NATURE. THE LD. AR FURTHER SUBMITTED THAT IN ITA NO. 4247/DEL/2011 FOR AY 2007-08, THIS ASPECT WAS NOT T AKEN INTO ACCOUNT. 12. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 10 ITA NO. 690/DEL/2013 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE SUBMISSION OF THE LD. AR T HAT OUT OF GAIN OF RS. 43,82,892/-, GAIN OF RS. 32,29,114/- [1,13,262 + 39 ,08, 276 MINUS 5,91,524 & 2,00,900] WAS ON ACCOUNT OF PAYMENT TO S HAREHOLDERS AND GAIN OF RS. 11,53,778/- [11,53,778 3,69,974 + 3,69,974 ] WAS ON ACCOUNT OF ADVANCE TO SUBSIDIARIES (PRINCIPAL ACCOUNT). ALL TH E TRANSACTIONS RELATE TO FOREIGN OPERATIONS I.E. INVESTMENT IN SUBSIDIARIE S. SINCE THE GAIN RELATE TO CAPITAL FIELD BEING INVESTMENT IN SUBSIDIARIES, THE REFORE, SUCH GAIN WAS CAPITAL IN NATURE. THESE SUBMISSIONS WERE NOT TAKEN INTO ACCOUNT BY THE ASSESSING OFFICER AS WELL AS BY THE CIT(A). THEREFO RE, IT WILL BE APPROPRIATE TO REMAND BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOL LOWING PRINCIPLES OF NATURAL JUSTICE. THUS, GROUND NO. 2 IS PARTLY ALLOW ED FOR STATISTICAL PURPOSE. 14. AS REGARDS GROUND NO. 3 RELATING TO CHARGING OF INTEREST OF RS. 29,16,943/- U/S 234B OF TAX COMPUTED U/S 115JB. THE LD. AR SUBMITTED THAT PURSUANT TO AMENDMENT OF SECTION 115JB BY THE FINANCE (NO.2) ACT 2009 WITH RETROSPECTIVE EFFECT OF 1.4.2001, THE ASS ESSEE FILED REVISED COMPUTATION OF BOOK PROFIT AND THEREBY, PROVISION F OR BAD DEBTS OF RS. 1,68,37,339/- AND PROVISIONS FOR DOUBTFUL ADVANCES OF RS. 3,67,86,988/- WAS ADDED TO THE BOOK PROFIT. IT LED TO SHORTFALL I N ADVANCE TAX. THE LEGAL POSITION IS SETTLED THAT IN SUCH CASES, INTEREST U/ S 234B CANNOT BE CHARGED. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS: (I) EMAMI LTD. V. CIT [2011] 337 ITR 470 (CAL) (II) CIT VS. JUPITER BIO SCIENCE LTD. [2013] 352 IT R 113 (KARN) (III) CIT V. NATIONAL DIARY DEVELOPMENT BOARD (2017 ) 397 ITR 543 (GUJ) (IV) CIT V. GLENMARK PHARMACEUTICALS LTD. (2017) 398 ITR 439 (BOM) (V) PR. CIT V. NHPC LTD. (2017) 399 ITR 275 (P&H) (VI) CIT VS. KIRLOSKAR SYSTEMS LTD. [2014] 220 TAXM AN 1 (KARN). 11 ITA NO. 690/DEL/2013 15. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). 16. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF THE RECORD IT CAN BE SEEN THAT AS THE AMENDMENT OF SECTION 115JB BY THE FINANCE (NO.2) AC T 2009 OPERATES WITH RETROSPECTIVE EFFECT FROM 1.4.2001, THE ASSESSEE FI LED REVISED COMPUTATION OF BOOK PROFIT AND THEREBY, PROVISION FOR BAD DEBTS OF RS. 1,68,37,339/- AND PROVISIONS FOR DOUBTFUL ADVANCES OF RS. 3,67,86,988 /- WAS ADDED TO THE BOOK PROFIT WHICH LED TO SHORTFALL IN ADVANCE TAX. THUS, ON SUCH INTEREST U/S 234B CANNOT BE CHARGED AS HELD IN VARIOUS DECISIONS. THE LEGAL POSITION IS SETTLED THAT IN SUCH CASES, INTEREST U/S 234B CANNOT BE CHA RGED. THEREFORE, GROUND NO. 3 IS ALLOWED. 17. IN RESULT, APPEAL OF THE ASSESSEE IS PARTLY AL LOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH OCTOBER, 2019 . SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30/10/2019 *BR * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 12 ITA NO. 690/DEL/2013 DATE OF DICTATION 19 .09 .2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 19 .0 9 .2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK