FORBES & COMPANY LTD ( FORMERLY KNOWN AS FORBES GOKAK LTD), MUMBAI V. DCIT 1(1), MUMBAI

ITA 8073/MUM/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2255 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 31-03-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 01-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KADAMBARI DAVE; GRISH DAVE
• Assessee Lawyers: PRATAP SINGH
• Keywords: Depreciation; Opportunity of being heard; Earning of tax free income; Reason to believe
• Section: 143(3); 14A; 115JB; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN , JUDICIAL MEMBER ITA NO. 8073/MUM/2011 (ASSESSMENT YEAR: 2004-05) M/S. FORBES & COMPANY LTD. VS. D C I T 1(1) (FORMERLY FORBES GOKAK LTD.) GR. FLOOR, FORBES BUILDING CHARANJIT RAI MARG, FORT MUMBAI 400001 ROOM NO. 579 /533 AAYAKAR BHAVAN M.K. ROAD, MUMBAI 400020 PAN AAACF1765A APPELLANT RESPONDENT ITA NO. 3643/MUM/2011 (ASSESSMENT YEAR: 2004-05) D C I T 1(1) VS. M/S. FORBES & COMPANY LTD. ROOM NO. 5 79 /533 AAYAKAR BHAVAN M.K. ROAD, MUMBAI 400020 (FORMERLY FORBES GOKAK LTD.) GR. FLOOR, FORBES BUILDING CHARANJIT RAI MARG, FORT MUMBAI 400001 PAN AAACF1765A APPELLANT RESPONDENT REVENUE BY: SHRI GRISH DAVE & MS. KADAMBARI DAVE ASSESSEE BY: SHRI PRATAP SINGH & SHRI V.K. BORA DATE OF HEARING: 29.09.2016 DATE OF PRONOUNCEMENT: 26.10.2016 O R D E R PER JASON P. BOAZ, A.M. THESE ARE CROSS APPEALS, BY BOTH REVENUE AND THE AS SESSEE, DIRECTED AGAINST THE ORDER OF THE CIT(A)-1, MUMBAI DATED 15. 12.2010 FOR A.Y. 2004-05. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER: - 2.1 THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF YARN, ENGINEERING GOODS, SHIPPING AND A HOST OF OTHER BUSINESS, FILED ITS RETURN OF INCOME FOR A.Y. 2004-05 ON 27.10.2004 DEC LARING NIL INCOME, ITA NOS. 8073 & 3643/MUM/2011 M/S. FORBES & COMPANY LTD. 2 AFTER CLAIMING SETTING OFF OF BROUGHT FORWARD UNABS ORBED DEPRECIATION. BOOK PROFITS UNDER SECTION 115JB OF THE INCOME TA X ACT, 1961 (IN SHORT, THE ACT) WAS DECLARED AT RS.4,74,77,483/-. THE CA SE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT COMPLETED UNDER SECTION 143(3) OF THE ACT, VIDE ORDER DATED 29.12.2006 WHEREIN THE ASSESSEES INCOME UNDER NORMAL PROVISIONS OF THE ACT WAS DETERMINED AT RS.11,35,58 ,715/- AND BOOK PROFITS UNDER SECTION 115JB WERE COMPUTED AT RS.10 ,94,92,680/-. ON APPEAL, THE CIT(A), MUMBAI VIDE ORDER DATED 24.12.2 008 ALLOWED THE ASSESSEE PARTIAL RELIEF. 2.2.1 SUBSEQUENTLY, THE ASSESSING OFFICER (AO) INIT IATED PROCEEDINGS UNDER SECTION 147 OF THE ACT AS HE WAS OF THE VIEW THAT T HERE WAS REASON TO BELIEVE THAT INCOME OF THE ASSESSEE, EXIGIBLE TO TA X IN THE PERIOD RELEVANT TO A.Y. 2004-05, HAD ESCAPED ASSESSMENT AND AFTER RECO RDING REASONS FOR THE SAME, ISSUED NOTICE UNDER SECTION 148 OF THE ACT. I N RESPONSE, THE ASSESSEE SUBMITTED THAT THE ORIGINAL RETURN OF INCOME FOR A. Y. 2004-05 FILED ON 27.10.2004 BE TREATED AS FILED IN RESPONSE TO THE N OTICE UNDER SECTION 148 OF THE ACT. THE RE-ASSESSMENT PROCEEDINGS WERE COMP LETED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT VIDE ORDER DATED 30.11 .2009 WHEREIN THE INCOME OF THE ASSESSEE UNDER NORMAL PROVISIONS WAS COMPUTED AT RS.11,87,35,567/- IN VIEW OF THE FOLLOWING ADDITION S/DISALLOWANCES: - (I) DISALLOWANCE U/S. 14A R.W. RULE 8D RS.25,70,121 /- (II) NON COMPETE FEE RS.17,58,598/- (III) PROVISION OF GRATUITY RS.6,49,135/- (IV) SHARE ISSUE EXPENSES RS.1,99,000/- BOOK PROFITS UNDER SECTION 115JB WERE COMPUTED AS UNDER: - (I) DISALLOWANCE U/S. 14A RS.1,03,08,885/- (II) CONTINGENT LIABILITIES RS.80,00,000/- (III) INTEREST ON UTI-64 RS.6,16,561/- 2.2.2 ON APPEAL, THE CIT(A)-1, MUMBAI VIDE THE IMPU GNED ORDER DATED 15.12.2010 ALLOWED THE ASSESSEE PARTIAL RELIEF. 2.3 SUBSEQUENTLY, THE CROSS APPEALS OF REVENUE AND THE ASSESSEE PREFERRED BEFORE THE TRIBUNAL IN RESPECT OF THE ORD ER OF THE CIT(A)-1, ITA NOS. 8073 & 3643/MUM/2011 M/S. FORBES & COMPANY LTD. 3 MUMBAI DATED 24.12.2008 ON THE ORIGINAL ORDER OF AS SESSMENT FOR A.Y. 2004-05 DATED 29.12.2006, WAS DISPOSED OFF BY THE C OORDINATE BENCH IN ITA NO. 1382 & 1573/MUM/2009 DATED 07.10.2016 ALLOW ING BOTH REVENUE AND THE ASSESSEE PARTIAL RELIEF. 3. AGGRIEVED BY THE ORDER OF THE CIT(A)-1, MUMBAI DATE D 15.12.2010 FOR A.Y. 2004-05 IN RESPECT OF THE RE-ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT VIDE ORDER DATED 30.11 .2009, BOTH REVENUE AND ASSESSEE HAVE PREFERRED CROSS APPEALS WHICH ARE BEING DISPOSED OFF HEREUNDER. ASSESSEES APPEAL IN ITA NO. 8073/MUM/2011 4. IN THIS APPEAL, THE ASSESSEE HAS PREFERRED THE FOLL OWING GROUNDS: - GROUND I: DISALLOWANCE OF INTEREST AND ADMINISTRATI VE EXPENSES UNDER SECTION 14A 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-1, ['T HE CIT(A)'] ERRED IN NOT DELETING THE DISALLOWANCE OF THE INTER EST OF RS.77,67,700 AND ADMINISTRATIVE EXPENSES OF RS.25,7 0,121 UNDER SECTION 14A OF THE INCOME ACT, 1961 ('THE ACT '), WHILE COMPUTING TOTAL INCOME UNDER NORMAL PROVISIONS OF T HE ACT. 2. WITHOUT PREJUDICE, THE LEARNED CIT(A) ERRED IN NOT CONSIDERING THE DISALLOWANCE UNDER SECTION 14A AT RS.25,41,154 AS A GAINST RS.25,70,121 AS CONSIDERED BY THE ASSESSING OFFICER . 3. THE CIT(A) ERRED IN REFERRING THE MATTER TO THE DEP UTY COMMISSIONER OF THE INCOME TAX - 1(1), MUMBAI ('THE AO') FOR RECOMPUTING THE DISALLOWANCE IN RELATION TO EXEMPT INCOME UNDER SECTION 14A OF THE ACT. GROUND II: DISALLOWANCE OF NON-COMPETE FEES AMOUNTI NG TO RS.17,58,598 4. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO OF DISALLOWING NON- COMPETE FEES PAID TO THE EX-DIRECTORS OF THE APPELL ANT ON THE ALLEGED GROUND THAT SUCH EXPENDITURE IS CAPITAL IN NATURE. 5. WITHOUT PREJUDICE TO THE ABOVE, IF THE EXPENDITURE IS TREATED AS CAPITAL IN NATURE INSTEAD OF REVENUE, THEN THE APPE LLANT HUMBLY SUBMITS THAT DEPRECIATION ON THE IMPUGNED EXPENDITU RE SHOULD BE ALLOWED TO THE APPELLANT. GROUND III: ADDITION OF RS.80,00,000 TO THE BOOK PR OFIT AS WELL AS UNDER NORMAL PROVISIONS 6. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE ITA NOS. 8073 & 3643/MUM/2011 M/S. FORBES & COMPANY LTD. 4 CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO OF ADDING AN AMOUNT OF RS.80,00,000 TO THE BOOK PROFIT COMPUTED UNDER SECTION 115JB AS WELL AS UNDER NORMAL PROVISIONS OF THE ACT, ON THE ALLEGED GROUND THAT THE PROVISION IS MADE TOWAR DS UNASCERTAINED LIABILITY. 7. THE CIT(A) OUGHT TO HAVE HELD THAT BASED ON THE FAC TS AND CIRCUMSTANCES OF THE CASE, THE PROVISION IS MADE TO WARDS KNOWN/ASCERTAINED LIABILITY OF THE APPELLANT. GROUND NO. IV: ADDITION FOR DISALLOWANCE UNDER SECT ION 14A TO THE BOOK PROFIT 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT(A) ERRED IN CONFIRMING THE ACTION OF AO WITH RESPECT T O THE DISALLOWANCE UNDER SECTION 14A OF RS. 1,03,08,885, WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF TH E ACT. IV: VALIDITY OF REOPENING THE ASSESSMENT UNDER SECT ION 147 OF THE ACT JND NO. 9. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF AO IN REOPENING THE ASSESS MENT UNDER SECTION 147 OF THE INCOME-TAX ACT ('THE ACT') 10. THE CIT(A) OUGHT TO HAVE HELD THAT BASED ON THE FAC TS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE REOPENING WAS UNJUSTIFIED, UNWARRANTED AND BAD IN LAW. GENERAL 11. EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHOUT PREJUDICE TO THE OTHER. 12. THE APPELLANT RESERVES THE RIGHT TO ADD, ALTER OF A MEND TO THE GROUNDS OF APPEAL. 5. GROUND NO. I (1 TO 3) AND IV (8): DISALLOWANCE UNDE R SECTION 14A R.W. RULE 8D 5.1 IN THESE GROUNDS (SUPRA), THE ASSESSEE AT GROU ND NO. I CONTENDS THAT THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO RE- COMPUTE THE DISALLOWANCE UNDER SECTION 14A OF THE ACT IN RELATION TO EXEMPT INCOME BY THE ASSESSEE UNDER THE NORMAL PROVISIONS OF THE ACT. IN RESPECT OF GROUND NO. IV, THE ASSESSEE CONTENDS THAT THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO WITH RESPECT OF THE DISALLOWANCE UNDER SECTI ON 14A OF THE ACT WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE ACT. AT THE OUTSET, THE LEARNED AR SUBMITTED BEFORE US THAT THE COORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.6720/MUM/2007 DATED 12.06.2013 FOR A.Y. 2002-03 HAD RESTRICTED THE DISALLOWANCE UN DER SECTION 14A OF THE ITA NOS. 8073 & 3643/MUM/2011 M/S. FORBES & COMPANY LTD. 5 ACT TO RS.7,61,476/- AND COMPLETE RELIEF WAS GRANTE D TO THE ASSESSEE BY ANOTHER COORDINATE BENCH IN THE ASSESSEES OWN CASE FOR A.Y. 2003-04 IN ITA NO. 6721/MUM/2007 DATED 10.08.2016. THE LEARNED A.R., HOWEVER, FAIRLY SUBMITTED THAT SINCE RULE 8D OF THE I.T. RUL ES, 1962 (IN SHORT THE RULES) WAS NOT APPLICABLE FOR THE YEAR UNDER CONSI DERATION, I.E. A.Y. 2004- 05, THE MATTER MAY BE RESTORED TO THE FILE OF THE A O FOR RECOMPUTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE LEAR NED D.R. DID NOT OPPOSE THIS PROPOSITION OF THE LEARNED A.R. 5.2 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED. AS CONTENDED BY THE ASSESSEE, IT IS SETTLED POSITION OF LAW THAT THE PROVISIONS OF RULE 8D OF THE RULES ARE APPLICABLE P ROSPECTIVELY, FOR AND FROM A.Y. 2008-09, AND WOULD NOT OPERATE RETROSPECT IVELY FOR THE ASSESSMENT YEARS PRIOR THERETO. IN THE COORDINATE B ENCH ORDER IN ITA NO. 1382/MUM/2009 DATED 07.10.2016 IN THE ASSESSEES OW N CASE FOR A.Y. 2004-05 IN RESPECT OF THE ORIGINAL ASSESSMENT PROCE EDINGS AT PARA 5.2 THEREOF, WE HAVE ALREADY SET ASIDE THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D MADE BY THE AO AND RESTORED THE MATTER OF C OMPUTATION OF THE DISALLOWANCE UNDER SECTION 14A OF THE ACT TO THE FI LE OF THE AO FOR FRESH COMPUTATION, BOTH UNDER NORMAL PROVISIONS AND UNDER CLAUSE (F) TO EXPLANATION 1 OF SECTION 115JB OF THE ACT, IN ACCOR DANCE WITH LAW PREVALENT FOR THE YEAR UNDER CONSIDERATION, AFTER A FFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND TO FILE DET AILS/SUBMISSIONS REQUIRED IN THIS REGARD. THE SAME WOULD HOLD GOOD I N THIS APPEAL TOO AND WE HOLD AND DIRECT ACCORDINGLY IN THIS APPEAL TOO. CONSEQUENTLY, GROUNDS I AND IV OF THE ASSESSEES APPEAL ARE TREATED AS ALLO WED FOR STATISTICAL PURPOSES. 6. GROUND NO. II (4 & 5): DISALLOWANCE OF NON-COMPETE FEE PAID TO EX-DIRECTORS 6.1 IN THIS GROUND, THE ASSESSEE CHALLENGES THE AC TION OF THE LEARNED CIT(A) IN CONFIRMING THE AOS ACTION IN DISALLOWING NON-COMPETE FEE PAID TO EX-DIRECTORS. ITA NOS. 8073 & 3643/MUM/2011 M/S. FORBES & COMPANY LTD. 6 6.2 WE HAVE HEARD BOTH PARTIES IN THE MATTER. THIS ISSUE HAS ALREADY BEEN CONSIDERED AND DECIDED AGAINST THE ASSESSEE IN THE ORDER OF THE COORDINATE BENCH IN THE ASSESSEES OWN CASE IN ITA NO. 1382/MUM/2009 DATED 07.10.2016 FOR A.Y. 2004-05 IN RESPECT OF ORI GINAL ASSESSMENT PROCEEDINGS, AT PARA 6.2 THEREOF. IN THIS VIEW OF T HE MATTER, GROUND NO. II OF THE ASSESSEES APPEAL IS DISMISSED. 7. GROUND NO. III (6 & 7): CONTINGENT LIABILITY RS.8 0,00,000/- - COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB 7.1 IN THIS GROUND, THE ASSESSEE ASSAILS THE DECIS ION OF THE LEARNED CIT(A) AS ERRONEOUS IN CONFIRMING THE ACTION OF THE AO IN ADDING AN AMOUNT OF RS.80 LAKHS IN THE COMPUTATION OF BOOK PR OFITS UNDER SECTION 115JB OF THE ACT ON THE GROUND THAT THE PROVISION M ADE TOWARDS AN UNASCERTAINED LIABILITY WAS NOT SATISFACTORILY DONE AND WAS INSERTED ONLY TO DECLARE REDUCED PROFIT EXIGIBLE TO TAX. THE LEARNED A.R. FOR THE ASSESSEE REITERATED THE SUBMISSIONS PUT FORTH BEFORE THE LEA RNED CIT(A) THAT THE SAID PROVISION OF RS.80 LAKHS WAS MADE FOR ASCERTAINED L IABILITY IN RESPECT OF SALARIES, WAGES AND OTHER RELATED COSTS OF THE EMPL OYEES IN ONE OF THE DIVISIONS OF THE ASSESSEE COMPANY. IT IS SUBMITTED THAT PAYMENTS WERE MADE TO ITS EMPLOYEES OUT OF THE TOTAL PROVISIONS A ND THE BALANCE WAS WRITTEN BACK AND OFFERED TO TAX UNDER THE HEAD MIS CELLANEOUS INCOME IN THE PERIOD RELEVANT TO A.Y. 2007-08. IT IS PRAYED T HAT THE LIABILITY BEING AN ASCERTAINED ONE, NO ADDITION TO BOOK PROFITS UNDE R SECTION 115JB OF THE ACT IS CALLED FOR. IT WAS ALTERNATIVELY PRAYED THAT IF THE SAID PROVISION IS TREATED AS AN UNASCERTAINED LIABILITY AND INCLUDED IN THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT, THEN THE AO BE DIRE CTED TO EXCLUDE THE SAID PROVISION IN COMPUTING BOOK PROFITS UNDER SE CTION 115JB FOR A.Y. 2007-08, BEING THE YEAR IN WHICH THE PROVISION WAS REVERSED AND OFFERED TO TAX BY THE ASSESSEE. 7.2 PER CONTRA, THE LEARNED D.R. SUPPORTED THE IMPU GNED ORDER OF THE LEARNED CIT(A) ON THIS ISSUE. 7.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. ACCORDING TO THE ASSESSEE, ITS CLAIM IS ITA NOS. 8073 & 3643/MUM/2011 M/S. FORBES & COMPANY LTD. 7 THAT THIS PROVISION WAS MADE FOR AN ASCERTAINED LIA BILITY IN RESPECT OF SALARIES, WAGES AND OTHER RELATED COST OF EMPLOYEES OF ONE OF ITS DIVISIONS IN RESPECT OF WHICH PAYMENTS WERE MADE AND THE BALA NCE WRITTEN BACK AND OFFERED TO TAX IN SUBSEQUENT YEAR. ON EXAMINATION O F THE DETAILS THEREOF, THE AO/CIT(A) WERE OF THE VIEW THAT THE ASSESSEE HA D ITSELF CLAIMED THIS AMOUNT AS A CONTINGENT LIABILITY AND WAS NOT ABLE T O SATISFACTORILY EXPLAIN HOW THIS PROVISION WAS AN ASCERTAINED LIABILITY. TH E BREAK UP FURNISHED BY THE ASSESSEE INDICATES THAT THERE WAS NO SCIENTIFIC METHOD ADOPTED TO CREATE THE PROVISION, BUT RATHER IT WAS JUST LUMPSU M PROVISIONING THAT WAS DONE IN TWO YEARS AND THE RELEVANT HEADS WERE NOT A SCERTAINABLE AT THAT POINT OF TIME. CONSEQUENTLY, THE DISALLOWANCE WAS W ARRANTED BY THE PROVISIONS OF EXPLANATION (C) TO SECTION 115JB OF T HE ACT WHILE COMPUTING THE BOOK PROFITS AS IT WAS A CONTINGENT LIABILITY . 7.3.2 IN THE IMPUGNED ORDER AT PARAS 8.1 AND 8.2 TH EREOF, THE LEARNED CIT(A), AFTER CONSIDERING THE ASSESSEES SUBMISSION S, HAS DECIDED THE ISSUE AS UNDER: - 8.1 DURING THE APPELLATE PROCEEDINGS, THE APPELLA NT AR FILED WRITTEN SUBMISSION IN SUPPORT OF HIS CONTENTION. THE RELEVA NT PORTION OF THE APPELLANT AR'S SUBMISSION IS EXTRACTED HEREIN BELOW :- '1. IN THE ASSESSMENT ORDER THE AO HAS ADDED A SUM OF RS.80,00,000 IN COMPUTING BOOK PROFIT UNDER SEC. I1 5JB OF THE ACT. 2. IT WAS SUBMITTED BEFORE THE AO THAT THE SAID PROVIS ION WAS MADE FOR ASCERTAINED LIABILITY IN RESPECT OF SA LARIES, WAGES AND OTHER RELATED COST OF EMPLOYEES OF THE ONE OF T HE DIVISION OF THE APPELLANT. THE NOMENCLATURE PROVISION FOR CONTI NGENCY USED BY THE APPELLANT WAS BUSINESS DECISION AND MANAGEME NT OF THE APPELLANT DID NOT WANT TO MAKE THE WORKERS AWARE TH AT THE ADDITIONAL BENEFIT WOULD FLOW. A COPY OF THE LETTER DT. 28.10.2009 ADDRESSED TO THE AO IN THIS REGARD IS SU BMITTED WITH YOU. PLEASE REFER PARA 6 THEREOF. 3. WE MAY ALSO MENTION THAT THE PAYMENTS WERE MADE TO EMPLOYEES OUT OF THE TOTAL PROVISION MADE IN THIS R ESPECT AND THE BALANCE WRITTEN BACK WAS OFFERED FOR TAX IN THE YEAR OF REVERSAL AS UNDER:- ITA NOS. 8073 & 3643/MUM/2011 M/S. FORBES & COMPANY LTD. 8 RS. PROVISION MADE FOR THE YEAR ENDED 31.3.2003 81,00,000 31.3.2004 I.E. YEAR UNDER APPEAL 80,00,000 BALANCE AS ON 31.3.2004 1,61,00,000 PAID AS UNDER: 31.3.2005 19,91,538 31.3.2006 31,90,106 31.3.2007 (WRITTEN BACK TO MISCELLANEOUS INCOME) 1,09,18,356 1,61,00,000 THE ABOVE POSITION AND THE FACT THAT A PORTION OF T OTAL PROVISION WAS REVERSED ON FINAL SETTLEMENT SHOWS THAT THE PRO VISION WAS MADE FOR KNOWN LIABILITY. 4. IT IS SUBMITTED THAT ENTRIES IN THE HOOKS OF ACCOUN T ARE NOT DETERMINATIVE OF THE TAXABILITY THEREOF AND WHETHER THE APPELLANT IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPEND ON THE SUBSTANCE OF THE TRANSACTION. FOR THIS PROPO SITION RELIANCE IS PLACED ON THE DECISION OF THE SUPREME C OURT IN CASE OF .KEDARNATH JUTE MFG. CO. LTD VS. CIT (82 ITR 363 ). 5. IT IS THEREFORE PRAYED THAT NO ADDITION TO BOOK PRO FIT UNDER SEC. 115JB BE MADE IN THIS RESPECT. 6. IN THE EVENT IT IS HELD THAT THE SAID PROVISION SHO ULD BE INCLUDED IN COMPUTING BOOK PROFIT UNDER SEC. 115JB OF THE ACT THEN THE AO BE DIRECTED TO EXCLUDE THE SAID PROVISI ON IN COMPUTING BOOK PROFITS UNDER SEC. 115JB FOR THE ASS ESSMENT YEAR 2007-08 BEING THE YEAR IN WHICH THE PROVISION WAS REVERSED AND OFFERED FOR TAX' 8.2 I HAVE CONSIDERED THE AO'S ORDER AS WELL AS AP PELLANT AR'S SUBMISSION. HAVING CONSIDERED BOTH, I FIND THAT THE AO WAS COMPLETELY JUSTIFIED IN HIS ACTION AS THE SAID SUM WAS CONTING ENT IN NATURE. THE APPELLANT'S SUBMISSION AS DEPICTED ABOVE CLEARLY DE NOTES TO THIS FACT THAT THE APPELLANT COMPANY HAS MADE THE PROVISION O F RS.80,00,000 AS ON 31.03.2004 GROSSLY AS CONTINGENT AND IT WAS NOWH ERE ASCERTAINED AND ALSO THE SAME WAS NOT DONE BY ANY SCIENTIFIC MA NNER. THIS FACT COMPLETELY ESTABLISHES WITH THE FACT THAT THE APPEL LANT COMPANY HAD MADE PROVISION OF RS.81 LAKHS AND RS.60 LAKHS UNDER THIS HEAD IN TWO DIFFERENT FINANCIAL YEARS AS ON 31.3.2003 AND 31.3. 2004 AS PER THE SUBMISSION GIVEN BY THE APPELLANT IN PARA 3. WHEREA S AGAINST THE PROVISIONS MADE OF RS.80 LAKHS AS ON 31.3.2004 THE APPELLANT COMPANY HAS MADE THE PAYMENT AT THE END OF THE FINANCIAL YE AR I.E. 31.3.2006 ITA NOS. 8073 & 3643/MUM/2011 M/S. FORBES & COMPANY LTD. 9 AFTER TWO YEARS AND THAT'S TOO A SUM OF RS.31,90,10 6/- ONLY. THUS, THE APPELLANT COMPANY EVEN MADE THE PROVISIONS OF ANOTH ER EXCESS AMOUNT OF RS.48.09 LAKHS IN EXCESS THAN WHAT WAS NEEDED AN D EVEN THE SAID PROVISION WAS ALSO NOT WARRANTED TO BE MADE AS ON 3 1.03.2004 AS THE PAYMENT HAS BEEN MADE BY THE APPELLANT COMPANY NEA RLY AFTER TWO YEARS THUS, CHARGING OF SUM OF RS.80 LAKHS TO THE I NCOME OF THE APPELLANT REDUCING THE BOOK PROFIT WAS COMPLETELY U NWARRANTED AND UNJUSTIFIED ON THE PART OF THE APPELLANT COMPANY. E VEN I FIND THAT THE APPELLANT COMPANY HAS MADE PROVISION IN EXCESS AS O N 31.3.2003 ALSO OF RS.81 LAKHS AGAINST THE MERE PAYMENT OF RS.19,91 ,538/- SUBSEQUENTLY AND THATS TOO AFTER NEARLY TWO YEARS I.E. 31.03.2005. THUS, THE APPELLANTS OWN SUBMISSION SUGGESTS THAT THE PROVISION WAS COMPLETELY UNASCERTAINED AND CONTINGENT IN NATURE. HENCE, ACTION OF THE AO IS COMPLETELY JUSTIFIED. EVEN I FIND THAT THE SA ID DISALLOWANCE WAS WARRANTED AS PER EXPLANATION I, SUB CLAUSE (C) OF S ECTION 115JB OF THE I.T. ACT. ACCORDINGLY, THE ADDITION MADE BY THE AO IS CONFIRMED. 7.3.3 IN THE FACTUAL MATRIX OF THE CASE AS EMANATE FROM THE ORDERS OF THE AUTHORITIES BELOW AND THE MATERIAL ON RECORD, IT IS SEEN THAT THE ASSESSEE ITSELF HAD MADE THE PROVISION FOR CONTINGENT CLAIMS AMOUNTING TO RS.80 LAKHS. IT IS ON BEING QUERIED IN THIS REGARD THAT T HE ASSESSEE PUT FORWARD THE CLAIM THAT THIS PROVISION FOR CONTINGENT CLAIMS WAS ACTUALLY AN ASCERTAINED LIABILITY MADE IN RESPECT OF SALARIES, WAGES AND OTHER RELATED COSTS OF EMPLOYEES OF ONE OF ITS DIVISIONS. FROM TH E DETAILED BREAK UP OF THESE PROVISIONS SUBMITTED BY THE ASSESSEE ITSELF W HICH IS EXTRACTED FROM PARA 8.1 OF THE CIT(A) ORDER (SUPRA), IT WOULD APPE AR TO US THAT THE OBSERVATIONS OF THE AUTHORITIES BELOW, THAT HUGE LU MP SUMS HAVE BEEN PROVIDED FOR IN A COUPLE OF YEARS AND MEAGRE PAYMEN TS HAVE BEEN MADE OUT OF THOSE PROVISIONS IN SUBSEQUENT YEARS, TO HEA DS THAT ARE NOT ASCERTAINABLE, ESTABLISH THAT NO SCIENTIFIC METHOD HAS BEEN ADOPTED; ARE RELEVANT AND BELIE THE ASSESSEES CLAIM THAT THIS I S A PROVISION CREATED FOR AN ASCERTAINED LIABILITY; BUT COULD IN FACT BE A CO NTINGENT LIABILITY. PROVISIONS FOR ASCERTAINED LIABILITIES ARE MADE BAS ED ON ACTUARIAL CERTIFICATES ISSUED TO THE COMPANY CONCERNED. IN TH E CASE ON HAND, IT APPEARS THAT THIS BASIC FACT HAS NEITHER BEEN EXAMI NED BY THE AUTHORITIES BELOW NOR PUT FORTH BY THE ASSESSEE SUO MOTO. IT IS ALSO SEEN THAT NO FINDING HAS BEEN RENDERED BY THE LEARNED CIT(A) ON THE ASSESSEES ALTERNATE ARGUMENT/CLAIM PUT FORTH, THAT IF IT IS HELD THAT T HE SAID PROVISION FOR CONTINGENT CLAIMS IS INCLUDED IN COMPUTING THE BOO K PROFITS UNDER SECTION ITA NOS. 8073 & 3643/MUM/2011 M/S. FORBES & COMPANY LTD. 10 115JB, THEN THE AO BE DIRECTED TO EXCLUDE THE SAID PROVISION IN COMPUTING BOOK PROFITS UNDER SECTION 115JB FOR A.Y. 2007-08 ; BEING THE YEAR IN WHICH THE PROVISION WAS WRITTEN BACK. IN THESE CIRC UMSTANCES, WE ARE OF THE OPINION THAT THE INTERESTS OF EQUITY AND JUSTIC E WOULD BE SERVED IF THIS ISSUE, IN RESPECT OF WHETHER THE PROVISION FOR CONT INGENT CLAIMS PUT FORTH BY THE ASSESSEE IS TO BE ADDED BACK WHILE COMPUTING THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT IN VIEW OF EXPLANATI ON 1(C) THERETO, IS RESTORED TO THE FILE OF THE AO FOR FRESH CONSIDERAT ION AND ADJUDICATION IN THE LIGHT OF OUR OBSERVATIONS ABOVE AND IN ACCORDAN CE WITH LAW, AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEIN G HEARD IN THE MATTER AND TO FILE SUBMISSIONS/DETAILS REQUIRED. WE HOLD A ND DIRECT ACCORDINGLY. CONSEQUENTLY GROUND III (6 & 7) OF THE ASSESSEES A PPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND NO. V (9 & 10): VALIDITY OF REOPENING THE AS SESSMENT UNDER SECTION 147 OF THE ACT 8.1 IN THIS GROUND, THE ASSESSEE ASSAILS THE IMPUGN ED ORDER OF THE LEARNED CIT(A) IN CONFIRMING THE ACTION OF THE AO I N REOPENING THE ASSESSMENT UNDER SECTION 147 OF THE ACT INSTEAD OF HOLDING THAT THE REOPENING WAS UNJUSTIFIED, UNWARRANTED AND BAD IN L AW. 8.2 WE HAVE PERUSED THE IMPUGNED ORDER OF THE LEARN ED CIT(A) AND OBSERVE THAT THE GROUND RAISED IS FACTUALLY INCORRE CT, AS NOWHERE THEREIN HAS THE LEARNED CIT(A) UPHELD THE ACTION OF THE AO IN REOPENING THE ASSESSMENT UNDER SECTION 147 OF THE ACT; FOR THE SI MPLE REASON THAT HE WAS NOT CALLED UPON TO ADJUDICATE ON THIS ISSUE AS IT W AS NEVER BEFORE HIM. THIS GROUND BEING FACTUALLY INCORRECT, IT IS NOT MAINTAI NABLE AND IS ACCORDINGLY DISMISSED. 9. GENERAL (11 & 12) 9.1 THE GENERAL GROUNDS 11 AND 12 BEING GENERAL IN NATURE, NO ADJUDICATION IS CALLED FOR THEREON. 10. IN THE RESULT, THE ASSESSEES APPEAL FOR A.Y. 2004- 05 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NOS. 8073 & 3643/MUM/2011 M/S. FORBES & COMPANY LTD. 11 REVENUES APPEAL IN ITA NO. 3463/MUM/2011 11. IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GRO UNDS: - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE CIT(A) IS JUSTIFIED IN REJECTING THE A.O.'S WORKING OF EXPENSES U/S. 14A AS PER RULE 8D BY OBSERVING THAT JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. HAS DECIDED THIS ISSUE THAT RULE SD WILL BE APPLICABLE ONLY FROM A.Y. 2008-09 ONWARD S. 1.1 THE DECISION OF THE HON'BLE COURT IN THE CASE OF GODREJ & BOYCE HAS NOT BEEN ACCEPTED & SLP HAS BEEN FILED AGAINST THE SAID DECISION. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS . 17,29,632/- ON ACCOUNT OF ADMINISTRATION EXPENSES IN RESPECT OF GE NERAL AND ADMINISTRATIVE EXPENSES ALLOCATED TOWARD EARNING OF DIVIDEND INCOME. 11.1 THE GROUNDS 1 & 2 RAISED IN REVENUES APPEAL (SUPRA) ARE ON THE ISSUE OF DISALLOWANCE UNDER SECTION 14A OF THE ACT IN THE YEAR UNDER CONSIDERATION. THIS ISSUE HAS BEEN ADDRESSED BY US WHILE DISPOSING OFF GROUNDS I & IV OF THE ASSESSEES APPEAL AT PARA 5.2 OF THIS ORDER (SUPRA) RESTORING THE MATTER TO THE FILE OF THE AO FOR FRES H COMPUTATION IN ACCORDANCE WITH LAW, AFTER AFFORDING THE ASSESSEE A DEQUATE OPPORTUNITY OF BEING HEARD IN THE MATTER. ACCORDINGLY, REVENUES G ROUNDS ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT, REVENUES APPEAL FOR A.Y. 2004-05 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 13. TO SUM UP, THE ASSESSEES APPEAL FOR A.Y. 2004-05 I S TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND REVENUE S CROSS APPEAL OS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH OCTOBER, 2016. SD/ - SD/ - (SANDEEP GOSAIN) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 26 TH OCTOBER, 2016 ITA NOS. 8073 & 3643/MUM/2011 M/S. FORBES & COMPANY LTD. 12 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -1, MUMBAI 4. THE CIT 1, MUMBAI 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.