JSW STEEL LTD, V. ASST CIT CIR 11(5),

ITA 923/BANG/2009

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9024 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2004-2005
• Appeal Filed On: 14-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALOK JOHRI
• Keywords: Capital asset; Depreciation; Deemed to accrue or arise in india; Question of law; Cost of acquisition; Capital receipt; Unabsorbed depreciation; Capital expenditure
• Section: 43B; 143(3); 244A; 234B; 115JB; 10B; 145; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.923/BANG/2009 ASSESSMENT YEAR: 2004-05 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) JINDAL MANSION, 5A, DR. G. DESHMUKH MARG, MUMBAI 400 026 PAN: AAACJ4323N VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 11(5), BANGALORE (APPELLANT) (RESPONDENT) ITA NO.930/BANG/2009 ASSESSMENT YEAR: 2004-05 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(5), NO.14/3, 5 TH FLOOR, NRUPATHUNGA ROAD, BANGALORE-560001 VS. M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) JINDAL MANSION, 5A, DR. G. DESHMUKH MARG, MUMBAI 400 026 PAN: AAACJ4323N (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY: S/SHRI KANCHAN KAUSHAL & HIRALI DESAI, A.R . REVENUE BY: SHRI ALOK JOHRI, CIT D .R. DATE OF HEARING : 21.10.2016 DATE OF PRONOUNCEMENT : 13.01.2017 O R D E R PER: AMIT SHUKLA, JUDICIAL MEMBER : THE AFORESAID CROSS APPEALS HAVE BEEN FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE AGAINST IMPUGNED ORDER DATED 09.07.2009, PASSED BY LD.CIT (APPEALS)-1, BANGALORE FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 2004-05. ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 2 2. WE WILL FIRST TAKE UP ASSESSEES APPEAL, BEING ITA NO.923/BANG/2009, WHEREIN THE ASSESSEE HAS RAISED FO LLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [CIT (A)'] HAS LEGALLY ERRED IN CONFIRMING THE ACTION OF THE L EARNED ASSESSING OFFICER ('AO') IN NOT REDUCING THE NET PR OFIT BY AN AMOUNT OF RS. 390,76,03,999 BEING WAIVER OF DUES WH ILE COMPUTING THE BOOK PROFITS UNDER SECTION 115JB OF T HE INCOME TAX ACT, 1961 ('THE ACT'). IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO RED UCE THE NET PROFIT BY AN AMOUNT OF RS390,76,03,999 BEING WA IVER OF DUES WHILE COMPUTING THE BOOK PROFITS UNDER 'SEC TION 115JB OF THE ACT. 2. WITHOUT PREJUDICE TO GROUND 1 ABOVE , THE LEARNED CIT(A) ERRED IN REJECTING THE CONTENTION OF THE APP ELLANT THAT UNDER NO CIRCUMSTANCES THE AMOUNT OF RS.228,46,76,3 28 BEING THE PRINCIPAL PORTION OF THE WAIVED LOAN WHIL E COMPUTING THE BOOK PROFITS UNDER SECTION 115JB OF T HE ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) HAS LEGALLY ERRED IN DIRECTING THE L EARNED AO TO LEVY INTEREST UNDER SECTION 234B AND 234C OF THE ACT. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO DEL ETE THE INTEREST UNDER SECTION 234B AND 234C OF THE ACT. 3. BESIDES THIS, THE ASSESSEE VIDE PETITION DATED, 06.04 .10 HAS FILED ADDITIONAL GROUNDS WHEREIN THE AMOUNT CHALLE NGED OF RS.390.76 CRORES HAS BEEN SUBSTITUTED WITHRS.314.48 C RORES. THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE READ AS UNDER: 4. WITHOUT PREJUDICE TO GROUND 1 ABOVE, THE LD. COMMISSIONER OF INCOME TAX (APPEAL) [THE CIT (A)] HAS ERRED ON FACTS AND IN LAW IN NOT REDUCING WAIVER OF THE PRINCIPAL AMOUNT OF LOAN AND WAIVER OF INTEREST PAY ABLE TO UTI (WHICH SUCH INTEREST WAS NOT CLAIMED AS AN EXPE NDITURE AT ALL) IN AGGREGATE AMOUNTING TO RS.314.48 CRORES, FROM THE NET PROFIT, WHILE COMPUTING BOOK PROFIT U/S 115JB O F THE ACT. ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 3 5. ON THE FACTS, IN LAW AND IN THE PARTICULAR CIRCUMSTANCES OF THE PRESENT CASE, KEEPING IN VIEW THE AMENDMENT TO SECTION 115JB REGARDING ADJUSTMENT OF DEFERRED TAX ASSET/LIABILITY BROUGHT ABOUT BY THE F INANCE ACT, 2009, THE LEARNED CIT(A) OUGHT TO HAVE ALLOWED THE APPELLANT THE SET OFF OF LOSS FOR THE PREVIOUS YEAR OF RS. 438.63 CRORES INSTEAD OF RS 172.36 CRORES, WHILE CO MPUTING BOOK PROFIT U/S 115JB OF THE ACT, OTHERWISE, THE COMPUTATION MECHANISM OF BOOK PROFIT FOR MAT IN THE CURRENT YEAR LEADS TO DOUBLE TAXATION AS UPHELD BY THE CALCUTTA HIGH COURT IN BALRAMPUR CHINI MILLS LTD. A ND JAIPUR TRIBUNAL IN THE CASE OF MAHARAJA SHREE UMAID MILLS LTD. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED AO HAS LEGALLY ERRED IN NOT GRANTING FULL A ND COMPLETE INTEREST AS CONTEMPLATED UNDER SECTION 244 A OF THE ACT. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO GRA NT PROPER INTEREST UNDER SECTION 244A OF THE ACT. 4. THE FACTS IN BRIEF QUA THE ISSUE RAISED IN THE AF ORESAID GROUNDS ARE THAT, ASSESSEE IS A PUBLIC LIMITED COMPAN Y ENGAGED IN THE BUSINESS OF MANUFACTURING OF HOT ROLLED STEEL SHEETS AND STEEL PLATES. FOR THE ASSESSMENT YEAR 2004-05 ASSESSE E HAD FILED ITS ORIGINAL RETURN OF INCOME U/S 139(1) ON 30.10.04, DECLARING LOSS OF (-)RS.262,53,15,582/-. LATER ON THE SAID RETUR N WAS REVISED ON 17.02.05 WHEREBY NIL INCOME WAS DECLAR ED UNDER THE NORMAL PROVISION OF THE ACT AND THE TAX LIABILITY UNDER MAT PROVISION OF SECTION115JB WAS SHOWN AT RS.22,33,03,13 9/- ON A BOOK PROFIT OF RS.297,73,75,188/-. IN THE COURSE OF TH E ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THA T ASSESSEE COMPANY HAD SHOWN EXTRAORDINARY ITEM OF INCO ME AMOUNTING TO RS.390,76,03,999/- ON ACCOUNT OF WAIVER OF LOAN, WHICH WAS OBTAINED BY THE ASSESSEE IN THE EARLIER YEAR S. THE BREAKUP OF THIS WAIVER AMOUNT WAS AS UNDER:- ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 4 PARTICULARS AMOUNT (RS.) WAIVER OF PRINCIPAL LOANS 228,46,76,328 WAIVER OF INTEREST PAYABLE TO UTI 86,01,30,698 WAIVER OF INTEREST, GUARANTEE & COMMITMENT FEES 76,27,96,973 TOTAL 390,76,03,999 IN THE COMPUTATION OF INCOME ASSESSEE ADDED BACK ONLY THE AMOUNT OF RS.76,27,96,981/- ON THE GROUND THAT IT WAS C LAIMED AS DEDUCTION IN THE EARLIER YEARS. REGARDING WAIVER OF PRINCIPAL LOAN AMOUNT AND INTEREST PAYABLE TO UTI, IT WAS SUBMITTE D THAT IT WAS NOT CLAIMED AS ALLOWANCE OR DEDUCTION IN THE EARL IER YEARS. THEREFORE, IT DOES NOT CONSTITUTE INCOME UNDER SECTION 41(1) OF THE ACT. HOWEVER, THE ASSESSING OFFICER VIDE HIS ORDE R DATED 29.12.06 PASSED U/S 143(3) DETERMINED THE INCOME UND ER THE NORMAL PROVISIONS OF THE ACT AT RS.152,58,98,970/- AND BOOK PROFIT WAS COMPUTED AT RS.529,36,24,104/- UNDER SECTIO N 115JB AFTER DISALLOWING THE FOLLOWING EXPENSES/DEDUCTIONS CLAIMED BY THE ASSESSEE IN THE NORMAL COMPUTATION OF INCOME AND AL SO MAKING OTHER ADJUSTMENTS WHILE COMPUTING THE BOOK PROFI TS: ADDITION OF RS.109,41,00,000/-, BEING THE AMOUNT OF DEPRECIATION ATTRIBUTABLE TO THE CAPITAL ASSETS PURCHASED O UT OF LOANS TAKEN FROM FINANCIAL INSTITUTIONS BUT SUBSEQUENTL Y WAIVED, LIABLE TO BE TAXED U/S. 41(1) OF THE ACT. NON REDUCTION OF RS.314,48,07,026/-, BEING WAIVER OF LOANS, WHILE DETERMINING NET PROFIT FOR THE PURPOSE OF COMPUTI NG BOOK PROFITS U/S. 115JB. 5. THE BACKGROUND OF THE WAIVER OF THE LOAN IS THAT, ASSESSEE HAD AVAILED RUPEE TERM LOANS AND FOREIGN CURRENC Y LOANS FROM VARIOUS INDIAN AND FOREIGN FINANCIAL INSTITUTIONS AN D BANKS FOR ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 5 SETTING UP OF INTEGRATED STEEL PLANTS. THE FOREIGN LEND ERS HAD SANCTIONED FOREIGN CURRENCY LOANS OF ABOUT RS.1000 CRORES AS BUYER'S CREDIT FOR PURCHASE OF VARIOUS EQUIPMENT, PLA NT AND MACHINERY ETC. THE ASSESSEE HAD UTILIZED THE ABOVE LOA NS TO PAY THE PURCHASE PRICE OF THE IMPORTED PLANT AND MACHINERY FOR SETTING UP OF THE STEEL PLANTS. THE LOANS WERE REPAYABL E OVER VARIOUS MATURITY DATES UP TO 2010. AFTER SETTING UP THE S TEEL PLANTS, THE ASSESSEE HAD INCURRED HUGE LOSS DUE TO EC ONOMIC RECESSION IN GENERAL AND STEEL INDUSTRY IN PARTICULAR AND WAS UNDER SEVERE FINANCIAL CRISIS. HENCE, THE ASSESSEE W AS UNABLE TO MEET ITS FINANCIAL COMMITMENTS IN RESPECT OF THE ABOVE LO ANS. ACCORDINGLY, THE ASSESSEE ENTERED INTO A FINANCIAL R ESTRUCTURING PACKAGE, I.E., CORPORATE DEBT RESTRUCTURING PACKAGE (CDR) IN RESPECT OF LOANS TAKEN FROM VARIOUS INDIAN AND FOREIG N FINANCIAL INSTITUTIONS. AFTER NEGOTIATIONS WITH THE FOREIGN LENDE RS, THE ASSESSEE ENTERED INTO AGREEMENTS TO SETTLE THE DUES, PURS UANT TO WHICH THE PRINCIPAL AND INTEREST PAYABLE WERE REWORKE D AND PART OF THE PRINCIPAL AND INTEREST AMOUNTS AGGREGATING TORS.390,76,03,999/-WERE WAIVED. ACCORDINGLY, THE ENTI RE SUM OF RS. 390,76,03,999/- WAS CREDITED TO THE PROFIT AND LOS S ACCOUNT AS AN EXCEPTIONAL ITEM ON ACCOUNT OF WAIVER OF THE PRI NCIPAL AND INTEREST PAYABLE THEREON WITH A SPECIFIC NOTE IN NOTES TO ACCOUNT THAT THE EXCEPTIONAL ITEM REPRESENTS WAIVER OF DUES ON SE TTLEMENT WITH CERTAIN LENDERS AND SINCE THE PRINCIPAL AMOUNT OF THE BORROWING OF RS.228.46 CRORES WAS UTILIZED TO PAY THE PURCHASE PRICE OF THE IMPORTED PLANT AND MACHINERY FOR SETTING UP THE STEEL PLANTS, THEREFORE, IT AMOUNTS TO CAPITAL SURPLUS AND NO T TRADING ABILITY. ASSESSEE THUS CONTENDED THAT, SINCE THE WAIVER OF PRINCIPAL AMOUNT OF BORROWING WAS UTILIZED ON CAPITAL ACCOUNT, THEREFORE, IT IS A CAPITAL RECEIPT NOT TAXABLE WHILE COMP UTING THE INCOME OF THE ASSESSEE. AS REGARDS THE INTEREST PAYABL E TO UTI ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 6 AMOUNTING TO RS.86,01,30,698/-, IT WAS CONTENDED THAT TH E SAME WAS NEVER CLAIMED AS DEDUCTION IN THE EARLIER YEARS D UE TO PROVISION OF SECTION 43B AND HENCE THE AMOUNT WAIVED H AS NOT BEEN OFFERED TO TAX AS PER SECTION 41(1). HOWEVER A VI TAL FACT TO BE NOTED IN THE PRESENT CASE IS THAT, THE ASSESSEE WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB IN THE REVISED COMP UTATION OF INCOME HAS INCLUDED THE AMOUNT OF RS.314.14 CRORES (I.E. RS.228.46 + RS.86.01) WHICH REPRESENTED THE EXCEPTION AL ITEMS OF RECEIPTS ON ACCOUNT OF WAIVER OF LOAN AND SAME WAS NO T TAKEN TO CAPITAL RESERVE OR EXCLUDED BY THE ASSESSEE FROM THE NET PROFIT AS PER PROFIT & LOSS ACCOUNT. INSTEAD, IN THE COMPUTATION OF INCOME THE ASSESSEE BY WAY OF A NOTE GAVE A CAVEAT THAT THE AMOU NT OF RS.314.14 CRORES WHICH REPRESENTS CAPITAL RECEIPT IS N OT IN THE NATURE OF PROFIT AND GAINS OF BUSINESS AND THEREFORE, IS NOT INCLUDABLE IN THE BOOK PROFIT UNDER SECTION 115JB. TH IS NOTE HAS GIVEN IN THE PARA 10.1 OF THE REVISED COMPUTATION WHIC H READS AS UNDER: THE COMPANY SUBMITS THAT THE ABOVE ITEM IS NOT IN THE NATURE OF PROFITS AND GAINS OF BUSINESS AND ACCORDI NGLY, IS NOT INCLUDIBLE WITHIN THE BOOK PROFITS UNDER SECTIO N 115JB. IN ANY EVENT, THE PRINCIPAL AMOUNT WAIVED AND WRITT EN BACK CANNOT BE CONSIDERED AS INCOME AND THE SAME SHOULD NOT BE INCLUDED IN THE BOOK PROFIT. WHILE THE COMPANY HAS, OUT OF ABUNDANT CAUTION, INCLUDED THE ABOVE ITEM IN THE COMPUTATION OF BOOK PROFITS TO THE EXTENT OF RS.3,907,603,999, THE COMPANY RESERVES ITS RIGHT TO EXCLUDE SUCH SUM FROM BOOK PROFITS DURING THE COURS E OF ASSESSMENT/APPELLANT PROCEEDINGS. FOR THIS PURPOSE, THE ASSESSEE RELIES ON THE FOLLOW ING DECISIONS OF THE INCOME-TAX APPELLATE TRIBUNAL. SUTLEJ COTTON MILLS LTD. V ACIT (1993) 45 ITD 22 (C AL) (SB) SIPANI AUTOMOBILES LTD. V DCIT (1993) 46 ITD 280 (BANG) NCL INDUSTRIES LTD. V JCIT (2004) 88 ITD 150 (HYD) ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 7 EVEN WHILE FILING THE AUDITORS REPORT IN FORM NO. 29B IN ACCORDANCE WITH SECTION 115JB(4) ALONG WITH RETURN OF INCOME, THE ASSESSEE COMPANY AGAIN MENTIONED THAT EXCEPTIONAL ITE M REPRESENTING WAIVER OF LOAN WAS CAPITAL RECEIPT AND HE NCE COULD NOT BE CONSIDERED TO BE PART OF BOOK PROFITS FOR THE PU RPOSE OF SECTION 115JB. THE ASSESSING OFFICER, HOWEVER, WHIL E COMPUTING THE BOOK PROFIT IN THE ASSESSMENT ORDER CONSIDERED THE F IGURE AS GIVEN IN THE PROFIT & LOSS ACCOUNT AND DID NOT AGREE TO REDUCE THE AFORESAID WAIVER OF DUES AS STATED BY THE ASSESSEE IN THE NOTES AS WELL AS IN THE ACCOUNTANTS REPORT THAT IT SHOULD NOT B E INCLUDED IN THE PROFIT & LOSS ACCOUNT. 6. THE ASSESSEES SUBMISSIONS IN THE FIRST APPELLATE PROCEEDINGS HAVE BEEN SUMMARIZED BY THE LD. CIT(A) IN THE FOLLOWING MANNER:- THE AO HAD ERRED IN INCLUDING THE AFORESAID DUES WAIVED WHILE COMPUTING THE BOOK PROFITS U/S 115JB O F THE ACT, IN VIEW OF THE FOLLOWING: I) FIRSTLY, THE PRINCIPAL AMOUNT WAIVED AND WRITT EN BACK BEING AN 'EXCEPTIONAL ITEM' CANNOT BE CONSIDERED AS INCOME FOR THE PURPOSES OF DETERMINING 'BOOK PROFITS' U /S 11 5JB. II) SECONDLY, THE PRINCIPAL AMOUNT WAIVED AND WRITTEN BACK WOULD BE CHARGEABLE TO TAX ONLY BY THE PROVISI ONS OF SECTION 41(1) BY DEEMING IT TO BE THE INCOME OF THE PREVIOUS YEAR; III) THIRDLY, IF THE CONDITIONS PRESCRIBED IN SEC TION 41(1) ARE NOT SATISFIED, SUCH DEEMING WOULD NOT APPLY AND THE WAIVER OF DUES WOULD NOT BE CHARGEABLE TO TAX; AND IV) LASTLY, IN SUPPORT OF THE ABOVE CONTENTION, TH E APPELLANT PLACED RELIANCE ON THE FOLLOWING JUDICIAL ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 8 PRECEDENTS IN THE CASES OF: (A) NCL INDUSTRIES LTD. VS JCIT - 88 ITD 150 (ITAT, HYDERABAD BENCH). (B)SUTLEJ COTTON MILLS LTD. VS ACIT - 45 ITD 22 (KOL) (SB). TO SUM UP, AS THE PRINCIPAL AMOUNT WAIVED AND WRITT EN BACK WOULD NOT SATISFY THE CONDITIONS PRESCRIBED IN SECTION 41(1), THE SAME WOULD NOT BE DEEMED AS INCO ME CHARGEABLE TO TAX. EVEN OTHERWISE, ASSUMING WITHOUT ADMITTING, THAT SUCH WAIVER OF DUES ARE CHARGEABLE TO TAX DUE TO DEEMING PROVISIONS OF SECTION 41(1), IT WAS SUBMITTED THAT SUCH DEEMED INCOME CANNOT BE INCLUDE D FOR THE PURPOSES OF COMPUTING BOOK PROFITS U/S 115J B OF THE ACT AS HELD BY THE ITAT, HYDERABAD BENCH IN THE CASE OF NCL INDUSTRIES (SUPRA). 7. THE LD. CIT(A) REJECTED THE ASSESSEES CONTENTION O N THE GROUND THAT ASSESSEE IS REQUIRED TO PREPARE ITS PROFIT & LOSS ACCOUNT IN ACCORDANCE WITH PART II & III OF VI TH SCHEDULE OF THE COMPANIES ACT,1956 AND THE BOOK PROFIT SO ARRIVED IS TO BE TAKEN AT THE BASIS FOR MAT CALCULATION SUBJECT TO CERTAIN SPEC IFIC ADJUSTMENTS OF AMOUNT/DATA PRESCRIBED IN THE EXPLANATION-1 THERETO. THE ASSESSEE IN ITS COMPUTATION OF BOOK PROFIT O NCE HAS ADOPTED THE SAID AMOUNT AS THE PART OF THE BOOK PROFIT THEN THE SAME HAS TO BE ACCEPTED AS SUCH. HE REJECTED THE ASSE SSEES CONTENTION THAT NOTES GIVEN IN THE STATEMENT OF ACCOUNTS THAT IT IS NOT INCLUDABLE WITHIN BOOK PROFIT CANNOT BE CONSIDERED . HE DISTINGUISHED THE JUDGMENTS RELIED UPON BY THE ASSESSE E AND FINALLY HE UPHELD THE ACTION OF THE ASSESSING OFFICER FOR INCLUDING THE WAIVED AMOUNT FOR THE PURPOSE OF ARRIVING THE BOOK PROFIT. 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE, MR. K ANCHAN KAUSHAL SUBMITTED THAT THE AMOUNT OF WAIVER OF LOANS NE EDS TO BE REDUCED FROM THE NET PROFIT FOR THE PURPOSE OF COMP UTING THE BOOK PROFIT U/S 115JB TO THE EXTENT OF RS.314.14 CRORES ON THE ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 9 GROUND THAT FIRSTLY, THE EXCLUSION OF CAPITAL RECEIPT THOUGH CREDITED TO THE PROFIT & LOSS ACCOUNT IS IN ACCORDANCE W ITH PART II & III OF VI TH SCHEDULE OF THE COMPANIES ACT, 1956 AS ONLY THE WORKING RESULTS OF THE COMPANY IS REQUIRED TO BE CON SIDERED FOR THE PURPOSE OF COMPUTING THE BOOK PROFIT UNDER THE PRO VISIONS OF SECTION 115JB; AND SECONDLY, THE WAIVER OF LOAN IS A CAPITAL RECEIPT BECAUSE IT WAS TAKEN FOR THE PURCHASE OF CAP ITAL ASSETS AND HENCE IT DOES NOT FALL WITHIN THE DEFINITION OF I NCOME UNDER THE PROVISIONS OF THE INCOME TAX ACT, THEREFORE IT IS N EITHER A PROFIT NOR REVENUE NOR INCOME NOR GAIN WHICH CAN BE SAID TO BE CHARGEABLE TO TAX UNDER THE INCOME TAX ACT. ONCE THE PA RTICULAR RECEIPT IS NOT RECOGNIZED AS INCOME AT ALL UNDER THE C HARGING PROVISIONS OF SECTIONS 4 & 5, THERE IS NO QUESTION OF TAXING THE SAME UNDER ANY OTHER PROVISIONS OF THE ACT. FOR THE F IRST PROPOSITION, AFTER REFERRING TO THE PROVISIONS OF SE CTION 115JB READ WITH EXPLANATION-1, HE SUBMITTED THAT THE BOOK PROFIT HAS BEEN DEFINED AS NET PROFIT SHOWN IN THE PROFIT & LOS S ACCOUNT AND SUCH A PROFIT & LOSS ACCOUNT IS TO BE PREPARED IN A CCORDANCE WITH THE PROVISIONS OF PART II & III OF 6 TH SCHEDULE OF THE COMPANIES ACT. THE SURPLUS ARISING ON WAIVER OF LOAN IS THOUGH REQUIRED TO BE CREDITED TO THE PROFIT & LOSS ACCOUNT AS PROVIDED UN DER SECTION 211(2) OF THE COMPANIES ACT, HOWEVER HE POINTED OUT THA T SECTION 211(3A) AS WELL AS SUB SECTION (2) OF SECTION 115JB E NVISAGES THAT SUCH PROFIT & LOSS ACCOUNT IS TO BE PREPARED IN ACCORD ANCE WITH THE ACCOUNTING STANDARDS. AFTER REFERRING TO THEAS-5 AN D AS-9, HE SUBMITTED THAT SUCH WAIVER OF A LOAN AMOUNTS TO GAIN RESU LTING FROM DISCHARGE OF AN OBLIGATION WHICH IS NOT CONSIDE RED AS REVENUE, THEREFORE, SUCH A WAIVER OF LOAN AMOUNT CANN OT BE TREATED AS REVENUE AS PER ACCOUNTING STANDARDS. MERE DISCLOSURE OF AN EXTRAORDINARY ITEM IN THE PROFIT & LOSS ACCOUNT DO ES NOT MEAN THAT THE ITEM REPRESENTS THE WORKING RESULT OF THE ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 10 COMPANY. HE SUBMITTED THAT EVEN THE PART II OF VI TH SCHEDULE PROVIDES THAT PROFIT &LOSS ACCOUNT SHALL BE SO MADE WHI CH CLEARLY DISCLOSES THE RESULT OF THE WORKING OF THE COMPANY DURI NG THE PERIOD COVERED BY THE ACCOUNT AND SHALL DISCLOSE EVER Y MATERIAL AFTER INCLUDING THE CREDITS OR RECEIPTS AND DEBITS OR E XPENSES IN RESPECT OF NON-RECURRING TRANSACTION OR TRANSACTION OF EXCEPTIONAL NATURE. THE WAIVER OF LOAN CAN NO WAY BE RECKONED AS WORKING RESULT OF THE COMPANY FOR THE PERIOD. HE REFERRED TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF INDO RAMA SYNTHETICS (I) LTD. VS. CIT, (2011) 330 ITR 363 (SC) WHEREIN IT HAS BEEN HELD THAT OBJECT OF THE MAT PROVISION IS TO BRING OUT THE REAL PROFITS OF THE COMPANIES AND THE MAIN THRUST IS TO FI ND OUT THE WORKING RESULT OF THE COMPANY. THE REAL WORKING RESU LT OF A COMPANY CAN BE ARRIVED ONLY AFTER EXCLUDING THE CAPIT AL RECEIPT AND NOT OTHERWISE. ON THE ISSUE THAT ASSESSEE ITSELF HA S INCLUDED THE WAIVER OF AMOUNT IN ITS PROFIT & LOSS ACCOUNT, MR. KAUSHAL SUBMITTED THAT THE SAID WORKING HAS TO BE READ WITH THE CA VEAT GIVEN IN NOTES TO THE ACCOUNT WHICH HAS TO BE READ ALONG WITH THE BALANCE SHEET OF THE PROFIT & LOSS ACCOUNT. THE ASSESS EE HAS VERY CATEGORICALLY STATED THAT THE WAIVER AMOUNT IS NOT INCLUDAB LE IN THE WORKING OF THE BOOK PROFIT AND IT HAS BEEN SHOWN O UT OF ABUNDANT PRECAUTION TO AVOID ANY AMOUNT OF INTEREST OR PE NALTY. IN SUPPORT OF HIS CONTENTION, HE RELIED UPON THE DECIS ION OF HONBLE DELHI HIGH COURT IN THE CASE OF SAIN PROCESSING & WEAVING MILLS (P) LTD (2010) 325 ITR 565 (DEL). IN THE CASE BEFORE THE HON'BLE DELHI HIGH COURT, THE ASSESSEE DID NOT CHARGE DEPRECIATION TO THE PROFIT & LOSS ACCOUNT, BUT DISCLOS ED THE SAME IN THE NOTES FORMING PART OF ACCOUNTS. HOWEVER, WHILE COMPUTING BOOK PROFIT U/S 115J OF THE ACT, IT CLAIMED THE AMOUNT OF DEPRECIATION AS DEDUCTION FROM THE NET PROFIT DISCLOSED IN THE ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 11 PROFIT AND LOSS ACCOUNT. THE RELEVANT OBSERVATION OF TH E HONBLE HIGH COURT IN RESPECT OF THE SAID CONTROVERSY WAS AS UNDER: THE ANSWER TO THIS POSER IS FOUND IN SUB-SECTION ( 6) OF SECTION 211 OF THE COMPANIES ACT, WHICH PROVIDES TH AT EXCEPT WHERE THE CONTEXT OTHERWISE REQUIRES ANY REF ERENCE TO A BALANCE SHEET OR PROFIT AND LOSS ACCOUNT SHALL INCLUDE THE NOTES THEREON OR DOCUMENTS ANNEXED THERETO, GIV ING INFORMATION REQUIRED TO BE GIVEN AND/OR ALLOWED TO BE GIVEN IN THE FORM OF NOTES OR DOCUMENTS BY THE COMPANIES ACT. AS ALREADY NOTED IT IS OBLIGATORY UNDER CLAUSE 3OF PAR T II TO SCHEDULE VI TO THE COMPANIES ACT TO GIVE INFORMATIO N WITH REGARD TO DEPRECIATION, WHICH HAS NOT BEEN PROVIDED FOR ALONG WITH THE QUANTUM OF ARREARS. ACCORDING TO US, ONCE THIS INFORMATION IS DISCLOSED IN THE NOTES TO THE A CCOUNTS IT WOULD CLEARLY FALL WITHIN THE AMBIT OF THE EXPLANAT ION TO SECTION 115 J OF THE ACT WHICH DEFINES 'BOOK PROFIT ' TO MEAN 'NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT ASSESSMENT YEAR. TO OUR MINDS, AS LONG AS THE DEPRECIATION WHICH IS NOT CHARGED TO THE PROFIT AND LOSS ACCOUNT BUT IS OTHER WISE DISCLOSED IN THE NOTES OF THE ACCOUNTS, IT WOULD CO ME WITHIN THE AMBIT OF THE EXPRESSION 'SHOWN' IN THE PROFIT A ND LOSS ACCOUNT, AS NOTES TO ACCOUNTS FORM PART OF THE PROF IT AND LOSS ACCOUNT BY VIRTUE OF SUBSECTION (6) OF SECTION 211 OF THE COMPANIES ACT, 1956. THIS IS QUITE EVIDENT IF THE PROVISIONS OF SUB-SECTION (6) OF SECTION 211 OF THE COMPANIES ACT, ARE READ IN CONJUNCTION WITH SUB SECTION (1A) AS WELL A S THE EXPLANATION TO SECTION 115JOF THE ACT. (EMPHASIS A DDED) 9. ON THE SECOND PROPOSITION THAT THE RECEIPT WHICH IS N OT CHARGEABLE TO TAX UNDER SECTION 4 CANNOT BE BROUGHT TO TAX UNDER SECTION 115JB, MR. KAUSHAL SUBMITTED THAT THE FIRST AND FOREMOST CONDITION FOR TAXING AN INCOME IS THAT SUCH A RECEIPT S HOULD BE FIRST HELD AS AN INCOME UNDER THE CHARGING SECTIONS AN D IF IT IS NOT AN INCOME THEN SAME CANNOT BE BROUGHT TO TAX UNDER TH E MAT PROVISION ALSO. THE WAIVER/REMISSION OF A LOAN TAKEN FOR THE PURCHASE OF A CAPITAL ASSET IS A CAPITAL RECEIPT WHICH IS NOT CHARGEABLE TO TAX AND THEREFORE, WAIVER OF A LOAN BEI NG A CAPITAL RECEIPT CANNOT BE INDIRECTLY BROUGHT TO TAX UNDER SECTION 115JB AS IT WOULD DEFEAT THE ENTIRE PURPOSE OF THE LEGISLATIV E INTEND ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 12 BEHIND INTRODUCING THE PROVISIONS OF MAT IN SECTION 115J/115JA/115JB. HE ALSO RELIED UPON THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF KARIMTHARUVI TEA ESTATES LTD. AND ANOTHER VS. DCIR AND OTHERS (247 ITR 22), WHEREIN THE HONBLE KERALA HIGH COURT AFTER EXAMINING THE OBJECT O F SECTION 115JB OBSERVED AND HELD AS UNDER: THE OBJECT OF INSERTION OF SECTION 115J OF THE INCO ME TAX ACT, 1961, WAS TO ENSURE LEVY OF MINIMUM TAX ON WHA T ARE KNOWN AS 'PROSPEROUS ZERO-TAX COMPANIES'. UNDER THE SCHEME OF THE SECTION, WHERE THE TOTAL INCOME OF CO MPANIES AS COMPUTED UNDER THE PROVISIONS OF THE ACT, IN RES PECT OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR, IS LESS THAN 30 PER CENT OF THEIR BOOK PROFITS, THE TOTAL I NCOME OF SUCH COMPANIES CHARGEABLE TO INCOME-TAX FOR THE REL EVANT PREVIOUS YEAR IS TREATED AS INCOME EQUAL TO 30 PER CENT OF SUCH BOOK PROFITS AND IS TAXED ACCORDINGLY. IT ALSO PROVIDES FOR CERTAIN ADJUSTMENTS BY WAY OF ADDING AMOUNTS AN D GRANTING DEDUCTIONS FOR COMPUTING THE CHARGEABLE IN COME UNDER SECTION 115J (1). SUB-SECTION (2) PROVIDES TH AT DETERMINATION OF THE AMOUNTS IN RELATION TO THE REL EVANT PREVIOUS YEAR TO BE CARRIED FORWARD TO THE SUBSEQUE NT YEAR OR YEARS WILL HAVE TO BE MADE UNAFFECTED BY THE PRO VISIONS IN SUB-SECTION (1) OF SECTION 115J. THE VERY OBJECT OF THE PROVISIONS OF SECTION 115J IS TO TAX SUCH COMPANIES WHICH ARE MAKING HUGE PROFITS AND ALSO DECLARING SUBSTANT IAL DIVIDENDS BUT ARE MANAGING THEIR AFFAIRS IN SUCH A WAY AS TO AVOID PAYMENT OF INCOME-TAX, AS A RESULT OF VARI OUS TAX CONCESSIONS AND INCENTIVES AND FOR THAT PURPOSE, TH E TAXABLE INCOME IS DETERMINED UNDER SUB-SECTION (1) OF SECTION 115 J. AN ASSESSEE IS ENABLED TO CLAIM CARR Y- FORWARD AND SET-OFF OF LOSSES, UNABSORBED ALLOWANCE , IN VIEW OF THE SPECIFIC PROVISIONS OF THE ACT ENABLING AN ASSESSEE TO CLAIM. BUT BECAUSE OF THIS PROVISION A COMPANY WILL HAVE TO PAY TAX ON AT LEAST 30 PER CENT OF ITS BOOK PROFITS. THEREFORE, WHAT IS TAXED IS NOT FICTIONAL OR HYPOTHETICAL INCOME. UNDER THE LAW THOUGH IT IS PER MISSIBLE TO BRING TO TAX HYPOTHETICAL INCOME, WHAT IS REALLY DONE UNDER SECTION115 J IS NOT EXACTLY BRINGING TO TAX HYPOTHETICAL INCOME. WHAT IS REALLY DONE IS TO LIMI T OR RESTRICT OR CURTAIL DEDUCTION, CARRY-FORWARD AND SE T-OFF OF LOSSES, UNABSORBED DEPRECIATION, UNABSORBED ALLOWAN CE, ETC. ORDINARILY THESE DEDUCTIONS ARE PERMISSIBLE IN VIEW OF THE PROVISIONS INTRODUCED IN THE STATUTE BY THE PAR LIAMENT ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 13 AND THE PARLIAMENT IS EQUALLY COMPETENT TO TAKE AWA Y OR RESTRICT OR LIMIT SUCH ALLOWANCES FOR A DEFINITE PU RPOSE. THUS, HE SUBMITTED THAT THE LEGISLATURE NEVER INTENDED TO BRING TAX IN SUCH EVENTS WHICH OTHERWISE ARE NOT TAXABLE AT AL L UNDER THE PROVISIONS OF THE ACT AND SUCH A PROVISION CANNOT B E SO INTERPRETED SO AS TO TAX ANY CAPITAL RECEIPT. HE ALSO S TRONGLY REFERRED AND RELIED UPON THE DECISION OF A SPECIAL B ENCH IN THE CASE OF SUTLEJ COTTON MILLS VS. ACIT (SPL. BENCH), (1993) 4 5 ITD 22, WHEREIN IT WAS HELD THAT PARTICULAR RECEIPT WHICH IS ADMITTEDLY NOT AN INCOME CANNOT BE BROUGHT TO TAX UNDER THE DEEMING PROVISION OF SECTION 115J AS IT DEFIES THE BA SIC INTENTION BEHIND INTRODUCTION OF PROVISION OF SECTION 115J. BY W AY OF ILLUSTRATION, HE POINTED OUT THAT CLAUSE (F) OF EXPLANATION-1 AND CLAUSE (2) ITSELF SHOWS THAT ANY INCOME TO WHICH PROVIS ION OF SECTION 10, 10A, 10B OR SECTION 11 APPLIES, THEN IT REQ UIRES EXCLUSION OF SUCH INCOME FROM THE BOOK PROFIT WHICH H AS SO CREDITED TO THE PROFIT & LOSS ACCOUNT LIKEWISE IF A CAP ITAL RECEIPT WHICH IS NOT TAXABLE UNDER THE ACT IS CREDITED TO THE PROF IT & LOSS ACCOUNT IT DOES NOT IPSO FACTO REACHED TO A CONCLUSION THAT IT IS TO BE TREATED AS PART OF BOOK PROFIT. HE ALSO RELIED UP ON FOLLOWING CASE LAWS WHEREIN ON SIMILAR ISSUES; THE MATTER WAS D ECIDED IN FAVOUR OF THE ASSESSEE BY THE VARIOUS TRIBUNALS:- I. SHIVALIK VENTURE (P) LTD. VS. DCIT (2015) 173 TTJ (MUM) 238. II. ACIT VS. SHREE CEMENT LTD. (ITA NOS.614, 615 & 635/JP/2010). III. ACIT VS. L.H. SUGAR FACTORY LTD. AND VICE VERSA IN ITA NOS.417, 418& 339/LKW/2013 DATED 9 FEBRUARY 2016. IV. DCIT VS. BINANI INDUSTRIES LTD. IN ITA NO.144/KOL/2013 DATED 15 FEBRUARY 2016. V. DCIT VS. M/S. GARWARE POLYESTER LTD. (ITA NO.5996/MUM/2013 ). ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 14 10. ON THE OTHER HAND, THE LD. CIT D.R. SUBMITTED THAT ON CE THE ASSESSEE ITSELF HAS CREDITED THE WAIVER AMOUNT TO TH E PROFIT & LOSS ACCOUNT, THEN NEITHER THE ASSESSING OFFICER NOR THE ASSESSEE CAN TINKER WITH SUCH PROFIT & LOSS ACCOUNT. IN SUPPORT OF IT, HE STRONGLY RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF APOLLO TIRES LTD. VS. ACIT, REPORTED IN 255 ITR 273 . THE ASSESSEE IS REQUIRED TO PREPARE ITS PROFIT &LOSS ACCOUNT AS PER PART II & III OF VI TH SCHEDULE OF THE COMPANIES ACT AND HERE IN THIS CASE ASSESSEE DID PREPARED ITS PROFIT &LOSS ACCOU NT AS PER THE REQUIREMENT OF THE COMPANIES ACT AND THEREFORE, SAID PROFIT &LOSS ACCOUNT CANNOT BE DISTURBED WHILE COMPUTING THE BO OK PROFIT UNDER SECTION 115JB WHICH ARE THE NON OBSTANTE PROVISIONS AND CODE BY ITSELF. ONCE THE ASSESSEE ITSE LF HAS OFFERED THE AMOUNT AS INCOME UNDER SECTION 115JB WHICH HAS BEE N ACCEPTED BY THE ASSESSING OFFICER AS SUCH THEN HOW TH E ASSESSEE CAN CLAIM THAT THE SAME SHOULD BE REDUCED FROM THE BOO K PROFIT. THE NOTES APPENDED TO THE PROFIT & LOSS ACCOUNT CANNOT B E READ INTO BECAUSE ULTIMATELY THE RESULTS SHOWN BY THE ASSES SEE ARE TO BE RECKONED AND CONSIDERED FOR THE PROFIT & LOSS ACCO UNT DISCLOSED IN THE BOOKS. IN ALL THE JUDGMENTS RELIED UPON BY THE LD. COUNSEL, THE ASSESSEE HAD MADE A CLAIM FOR DEDUC TION FROM THE BOOK PROFIT IN THE COMPUTATION OF BOOK PROFIT ITSELF A ND NOT WHEN ASSESSEE HIMSELF HAS SHOWN AS A PART OF PROFIT & LOSS ACCOUNT AND OFFERED IT AS A BOOK PROFIT. THEREFORE, ON FACTS ALL THESE JUDGMENTS RELIED UPON BY THE ASSESSEE ARE NOT APP LICABLE AT ALL. THE ASSESSEE HEREIN THE PRESENT CASE HAS MADE A CLAIM BEFORE THE ASSESSING OFFICER BY WAY OF SIMPLE NOTE WH ICH CANNOT BE ACCEPTED IN VIEW OF THE DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF GOETZ (INDIA) LTD. VS. CIT (2006) 284 ITR 323, WHICH CLEARLY ENVISAGES THAT A CLAIM CAN ONLY BE MADE THROUGH REVISED INCOME OF RETURN. ON MERITS, HE SUBMITTED THAT THE ISSUE ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 15 IS COVERED IN FAVOUR OF THE DEPARTMENT IN VIEW OF THE F OLLOWING DECISIONS: I) CIT VS. VEEKAYLAL INVESTMENT CO. (P) LTD. (2001) 249 ITR 597 (BOM) II) KOPRAN PHARMACEUTICALS LTD. VS. DCIT (2009) 121 TTJ 77(MUM) III) HINDUSTAN SHIPYARD LTD. VS. DCIT (2010) 130 TT J 213 (VIZAG) IV) DUKE OFFSHORE LTD. VS. DCIT (2011) 45 SOT 399 (MUM) V) B & B INFOTECH LTD. VS. ITO (ITA NO.726/BANG/2 014) HIS STRONG CONTENTION WAS THAT ONCE THE AMOUNT OF WAIVER OF LOAN IS PART OF PROFIT & LOSS ACCOUNT DULY CREDITED TO THE P& L ACCOUNT AND ALSO CLARIFIED BY THE AUDITOR, THEN NEITHER THE ASS ESSING OFFICER NOR THE ASSESSEE CAN TINKER WITH SUCH PROFIT & LOSS ACCOUNT WHILE COMPUTING THE BOOK PROFIT. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE REPRESENTATIVES, PERUSED THE RELEVANT MATERIAL REFERRED TO BEFORE US AND THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORD ER. THE MAIN ISSUE INVOLVED HERE IN THIS APPEAL IS, WHETHER TH E AMOUNT OF RS.314,48,07,026/- BEING WAIVER OF LOAN AMOUNT CAN B E REDUCED WHILE DETERMINING THE NET PROFIT FOR THE PURPOSE OF CO MPUTING THE BOOK PROFITS UNDER SECTION 115JB. THE WAIVER OF THE LOAN AMOUNT HAS ARISEN ON ACCOUNT OF THE FACT THAT ASSESSEE HA D AVAILED RUPEE TERM LOAN AND FOREIGN CURRENCY LOAN F ROM VARIOUS INSTITUTIONS IN INDIA AND FOREIGN FINANCIAL INSTITUTIO NS FOR SETTING UP OF INTEGRATED STEEL PLANTS. IT IS AN UNDISPUTED FACT TH AT LOAN TAKEN AND UTILIZED WAS FOR THE PURCHASE OF PLANT AND MA CHINERY FOR SETTING UP OF STEEL PLANT, I.E., FOR ACQUISITION O F CAPITAL ASSETS. THE ASSESSEE DUE TO HEAVY LOSSES AND ITS INABILITY T O MEET ITS ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 16 FINANCIAL COMMITMENT, ENTERED INTO A CORPORATE DEBT RESTRUCTURING PACKAGE IN RESPECT OF THE LOAN TAKEN FRO M VARIOUS INDIAN AND FOREIGN FINANCIAL INSTITUTIONS. AFTER NEG OTIATIONS THE PRINCIPAL AND INTEREST AMOUNT WHICH WAS WAIVED BY THE INSTITUTIONS WERE CALCULATED AT RS.390,76,03,999/- WHIC H CONSISTS OF FOLLOWING AMOUNTS:- PARTICULARS AMOUNT (RS.) WAIVER OF PRINCIPAL LOANS 228,46,76,328 WAIVER OF INTEREST PAYABLE TO UTI 86,01,30,698 WAIVER OF INTEREST, GUARANTEE &COMMITMENT FEES 76,27,96,973 TOTAL 390,76,03,999 OUT OF THE SAID AMOUNT IT IS AN ADMITTED FACT THAT SUM OF RS.76,27,96,973/- HAS BEEN ADDED BACK BY THE ASSESS EE IN ITS COMPUTATION OF INCOME AND HAS BEEN OFFERED TO TAX AS IT WAS CLAIMED IN THE EARLIER YEARS. THE BALANCE AMOUNT AGG REGATING TO RS. 314.4 CRORES WHICH WAS THOUGH IN THE NATURE OF EXC EPTIONAL ITEM REPRESENTING THE WAIVER OF LOAN AMOUNT AS AFORESA ID WAS NOT EXCLUDED BY THE ASSESSEE FROM THE NET PROFIT AS PER THE PROFIT & LOSS ACCOUNT WHILE COMPUTING THE BOOK PROFIT, INSTEAD ASSESSEE MADE A CAVEAT BY WAY OF NOTES IN THE COMPUTATION ITSELF THAT THE SAID AMOUNT REPRESENTS CAPITAL RECEIPT, HENCE WAS NOT I N THE NATURE OF PROFIT AND GAINS OF BUSINESS AND ACCORDINGL Y, WAS NOT INCLUDABLE IN THE BOOK PROFIT UNDER SECTION 115JB. IN THE NOTES TO THE COMPUTATION OF INCOME WHICH HAS BEEN REPRODUCED AB OVE, THE ASSESSEE CATEGORICALLY MENTIONED THAT SUCH CAPITAL R ECEIPT IS NOT IN THE NATURE OF INCOME AND HENCE IT IS NOT INCLUD ABLE IN THE BOOK PROFIT, BUT SAME HAS BEEN INCLUDED ONLY OUT OF A BUNDANT PORTION IN ORDER TO AVOID ANY INTEREST AND PENALTY EXP OSURE. ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 17 12. BEFORE WE DWELL UPON THE CONTROVERSY INVOLVED, IT NEEDS TO BE FIRST DETERMINED, WHETHER THE AMOUNT OF WAIVER OF LO AN IS TAXABLE UNDER THE NORMAL PROVISIONS OF THE INCOME TAX ACT, 1961 OR NOT. IT IS AXIOMATIC THAT UNDER THE INCOME TAX ACT ON LY THOSE RECEIPTS WHICH ARE IN THE NATURE OF INCOME CAN ALONE B E SUBJECT TO TAX AND SUCH A NATURE OF INCOME SHOULD FALL WITHIN THE CHARGING SECTION AS PROVIDED UNDER THE ACT. ALL THE RECEIPTS BY AN ASSESSEE WOULD NOT NECESSARILY BE DEEMED TO BE IN COME OF THE ASSESSEE FOR THE PURPOSE OF INCOME TAX AND THE QUESTIO N WHETHER THE PARTICULAR RECEIPT IS INCOME OR NOT WILL DEPEND UPO N THE NATURE OF THE RECEIPT AS WELL AS THE SCOPE AND EFFECT OF THE RELEVANT TAXING PROVISION. THE HONBLE SUPREME COURT I N THE CASE OF PARIMISETTI SEETHARAMAMMA VS. CIT (57 ITR 532) HAS OBSERVED AS UNDER: BY SECTIONS 3 AND 4, THE INDIAN INCOME-TAX ACT, 19 22, IMPOSES A GENERAL LIABILITY TO TAX UPON ALL INCOME. BUT THE ACT DOES NOT PROVIDE THAT WHATEVER IS RECEIVED BY A PERSON MUST BE REGARDED AS INCOME LIABLE TO TAX. IN ALL CA SES IN WHICH A RECEIPT IS SOUGHT TO BE TAXED AS INCOME, TH E BURDEN LIES UPON THE DEPARTMENT TO PROVE THAT IT IS WITHIN THE TAXING PROVISION. WHERE, HOWEVER, A RECEIPT IS OF THE NATU RE OF INCOME, THE BURDEN OF PROVING THAT IT IS NOT TAXABL E BECAUSE IT FALLS WITHIN AN EXEMPTION PROVIDED BY THE ACT, L IES UPON THE ASSESSEE. WHERE THE CASE OF THE ASSESSEE IS THAT A RECEIPT DI D NOT FALL WITHIN THE TAXING PROVISION, THE SOURCE OF THE RECE IPT IS DISCLOSED BY THE ASSESSEE AND THERE IS NO DISPUTE A BOUT THE TRUTH OF THAT DISCLOSURE, THE INCOME-TAX AUTHORITIE S ARE NOT ENTITLED TO RAISE AN INFERENCE THAT THE RECEIPT IS ASSESSABLE TO INCOME-TAX ON THE GROUND THAT THE ASSESSEE HAS F AILED TO LEAD ALL THE EVIDENCE IN SUPPORT OF HIS CONTENTION THAT IT IS NOT WITHIN THE TAXING PROVISION. GENERALLY THE WAIVER OF REMISSION OF A LIABILITY CA NNOT BE REGARDED AS INCOME IN THE HANDS OF THE ASSESSEE UNLESS IT IS A TRADING LIABILITY AND IF THE WAIVER OF A LOAN IS ON CAPITAL A CCOUNT THEN CERTAINLY IT CANNOT BE RECKONED AS INCOME OR REVENUE, WHICH IS ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 18 CLEARLY EVIDENT FROM THE RELEVANT PROVISIONS OF SECTION 41(1) WHICH READS AS UNDER: '(1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDI TURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINA FTER REFERRED TO AS THE FIRST-MENTIONED PERSON) AND SUBS EQUENTLY DURING ANY PREVIOUS YEAR,- (A) THE FIRST-MENTIONED PERSON HAS OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSI ON OR CESSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERS ON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEME D TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACC ORDINGLY CHARGEABLE TO INCOME- TAX AS THE INCOME OF THAT PRE VIOUS YEAR, WHETHER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXIS TENCE IN THAT YEAR OR NOT;' FROM THE PLAIN READING OF ABOVE SECTION IT IS QUITE OST ENSIBLE THAT BEFORE THIS SECTION CAN BE INVOKED IT IS SINE-QUA-NON THAT ASSESSEE SHOULD ESTABLISH THAT FIRST OF ALL AN ALLOWANCE OR D EDUCTION HAS BEEN GRANTED DURING THE COURSE OF ASSESSMENT FOR ANY Y EAR IN RESPECT OF, (I) LOSS; (II) EXPENDITURE; OR (III)TRADIN G LIABILITY, WHICH IS INCURRED BY THE ASSESSEE; AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR THE ASSESSEE OBTAINS, WHETHER IN CASH OR IN ANY O THER MANNER, WHATSOEVER; (I) ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE, OR (II) SOME BENEFIT IN RESPECT OF SUCH TR ADING LIABILITY BY WAY OF REMISSION OR CESSATION OF SUCH L IABILITY. THUS, A REMISSION OR CESSATION OF LIABILITY WHICH CAN BE DEE MED TO BE AS AN INCOME MUST BE A TRADING LIABILITY FOR WHICH AN AL LOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR AN EARLI ER YEAR. A COMPANIES LIABILITY ON ACCOUNT OF THE PRINCIPAL AMOUN T OF LOAN BORROWED BY IT ON A CAPITAL ACCOUNT, I.E., FOR ACQUISI TION OF A CAPITAL ASSET CANNOT BE RECKONED AS A NATURE OF TRADING LIABILITY AS ENVISAGED IN SECTION 41(1), THEREFORE, ITS REMISSI ON CANNOT BE ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 19 DEEMED AS INCOME UNDER THE SAID PROVISION. WHEN A RE MISSION OF A PARTICULAR LIABILITY CANNOT EVEN BE DEEMED AS INCO ME PURSUANT TO A PROVISION WHICH HAS BEEN ENACTED SPECIFICALLY F OR THE PURPOSE OF TREATING IT AS A DEEMING INCOME, THEN HOW CAN IT BE TREATED AS INCOME FOR THE PURPOSE ANY OTHER PROVISIONS OF THE ACT, UNLESS SPECIALLY PROVIDED TO BE TAXED UNDER ANY PROVISION. H ERE, IN THIS CASE ADMITTEDLY THE PRE-REQUISITE CONDITION FOR INVOKI NG THE PROVISION OF SECTION 41(1) HAS NOT BEEN SATISFIED/FUL FILLED AT ALL FOR THE REASON THAT THE PRE-COMPONENT OF THE BORROWING FOR ACQUISITION OF CAPITAL ASSET HAS NEITHER BEEN ALLOWED AS ALLOWANCE NOR AS DEDUCTION IN THE EARLIER YEARS AND BEING FOR TH E PURPOSE OF ACQUISITION OF A CAPITAL ASSET ANY WAIVER THEREOF WILL NOT CONSTITUTE INCOME UNDER SECTION 41(1). 13. THE AFORESAID PROPOSITION IS ALSO WELL SUPPOR TED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA VS. CIT, REPORTED IN 261 ITR 501. SIMILARLY, IN A LATER JUDGMENT HONBLE COURT IN THE CASE OF CIT VS. SOFTWORKS COMPUTERS PVT. LTD., REPORTED IN 354 ITR 16, AFTER CONSIDERING THE SAID JUDGMENT AND ALSO THE JUDGMENT OF SOLID CONTAINERS LTD., REPORTED IN 308 ITR 417, OBSERVED AND HELD AS UNDER:- 7. WE FIND THAT THE DECISION OF THIS COURT IN THE MATTER OF SOLID CONTAINERS LTD. (SUPRA) HAS ALSO CONSIDERE D THE EARLIER DECISION IN THE MATTER OF MAHINDRA AND MAHI NDRA LTD. (SUPRA) AND DISTINGUISHED THE SAME BY HOLDING THAT IN THAT CASE THE LOAN WAS GIVEN FOR PURCHASE OF CAPITA L ASSETS UNLIKE IN THE CASE OF SOLID CONTAINERS LTD. (SUPRA) WHERE WAIVER WAS OF A LOAN TAKEN FOR TRADING ACTIVITY AND THUS CONSIDERED TO BE OF A REVENUE NATURE. IN THE PRESEN T CASE, THE AMOUNT WHICH WAS ADVANCED AS A LOAN TO THE RESPONDENT-ASSESSEE WAS FOR THE PURPOSES OF RELOCAT ING ITS OFFICE PREMISES. THE LOAN TAKEN WAS UTILIZED FOR TH E PURPOSES OF ACQUIRING A OFFICE AT GODREJ SOAP COMPL EX, VIKROLI, MUMBAI. THEREFORE, THE LOAN IN THE PRESENT FACT WAS TAKEN FOR ACQUISITION OF CAPITAL ASSET AND NOT FOR THE ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 20 PURPOSES OF TRADING ACTIVITY AS IN THE CASE OF SOLI D CONTAINERS LTD. (SUPRA). THE PRESENT CASE IS, THERE FORE, COVERED IN FAVOUR OF THE RESPONDENT-ASSESSEE BY THE DECISION OF THIS COURT IN THE MATTER OF MAHINDRA AN D MAHINDRA LTD. (SUPRA). THUS, WAIVER OF LOAN TAKEN FOR ACQUISITION OF A CAPITA L ASSET AND ON CAPITAL ACCOUNT CANNOT BE TAXED U/S 41(1), AS IT IS NEITHER ON REVENUE ACCOUNT NOR A REMISSION OF A TRADING LIABILIT Y SO AS TO ATTRACT TAX IN THE YEAR OF REMISSION. 14. NOW WE COME TO THE CORE ISSUE, WHETHER THE AMOUNT O F WAIVER AMOUNT WOULD AT ALL FORM PART OF THE BOOK PRO FIT OF THE COMPANY FOR THE PURPOSE OF LEVY OF MAT UNDER SECTION 115JB. RELEVANT PORTION OF SECTION 115JB AS IT STOOD AT THE RELE VANT PERIOD READS AS UNDER: 115JB. (1) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, WHERE IN THE CASE OF A N ASSESSEE, BEING A COMPANY, THE INCOME-TAX, PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THIS ACT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMME NCING ON OR AFTER THE 1ST DAY OF APRIL, 2001, IS LESS THA N SEVEN AND ONE-HALF PER CENT OF ITS BOOK PROFIT, [SUCH BOO K PROFIT SHALL BE DEEMED TO BE THE TOTAL INCOME OF THE ASSES SEE AND THE TAX PAYABLE BY THE ASSESSEE ON SUCH TOTAL INCOM E SHALL BE THE AMOUNT OF INCOME-TAX AT THE RATE OF SEVEN AN D ONE- HALF PER CENT]. (2) EVERY ASSESSEE, BEING A COMPANY, SHALL, FOR THE PURPOSES OF THIS SECTION, PREPARE ITS PROFIT AND LO SS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH T HE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO TH E COMPANIES ACT, 1956 (1 OF 1956) : PROVIDED THAT WHILE PREPARING THE ANNUAL ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT, (I) THE ACCOUNTING POLICIES; (II) THE ACCOUNTING STANDARDS ADOPTED FOR PREPA RING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; (III) THE METHOD AND RATES ADOPTED FOR CALCULAT ING THE DEPRECIATION, ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 21 SHALL BE THE SAME AS HAVE BEEN ADOPTED FOR THE PURP OSE OF PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOS S ACCOUNT AND LAID BEFORE THE COMPANY AT ITS ANNUAL G ENERAL MEETING IN ACCORDANCE WITH THE PROVISIONS OF SECTIO N 210 OF THE COMPANIES ACT, 1956 (1 OF 1956) : PROVIDED FURTHER THAT WHERE THE COMPANY HAS ADOPTED OR ADOPTS THE FINANCIAL YEAR UNDER THE COMPANIES ACT, 1956 (1 OF 1956), WHICH IS DIFFERENT FROM THE PREVIOUS Y EAR UNDER THIS ACT, (I)THE ACCOUNTING POLICIES; (II) THE ACCOUNTING STANDARDS ADOPTED FOR PREPAR ING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; (III) THE METHOD AND RATES ADOPTED FOR CALCULATIN G THE DEPRECIATION, SHALL CORRESPOND TO THE ACCOUNTING POLICIES, ACCOUN TING STANDARDS AND THE METHOD AND RATES FOR CALCULATING THE DEPRECIATION WHICH HAVE BEEN ADOPTED FOR PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT FOR SUCH FINANCIAL YEAR OR PART OF SUCH FINANCIAL YEAR FALLING WITHIN THE RELEVANT PREVIOUS YEAR. EXPLANATION. FOR THE PURPOSES OF THIS SECTION, 'BOOK PROFIT' MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOS S ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UND ER SUB-SECTION (2), AS INCREASED BY (A) ------ TO (F) -------- IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (F) IS DEBITED TO THE PROFIT AND LOSS ACCOUNT, AND AS REDUCED BY (I) ------- TO (VIII) --------. FROM THE READING OF THE ABOVE PROVISION IT CAN BE SEEN THAT; FIRSTLY, IT IS A NON-OBSTANTE PROVISION WHICH PROVIDES THAT IF THE INCOME TAX PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THIS ACT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSE SSMENT YEAR IS LESS THAN 7% OF ITS BOOK PROFIT, THEN SUCH BOOK PROFIT SHALL BE DEEMED TO BE THE TOTAL INCOME OF THE ASSESSEE A ND ASSESSEE SHALL PAY TAX ON THE BOOK PROFIT AT THE RATE OF 7%.; ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 22 SECONDLY, THE ASSESSEE COMPANY IS REQUIRED TO PREPARE ITS PROF IT & LOSS ACCOUNT IN ACCORDANCE WITH THE PROVISION OF PAR T II & III OF VI TH SCHEDULE OF THE COMPANIES ACT, 1956 AND WHILE PREPA RING THE ANNUAL ACCOUNTS INCLUDING PROFIT & LOSS ACCOUNT, AC COUNTING POLICIES, ACCOUNTING STANDARDS SHALL BE THE SAME WHIC H HAS BEEN ADOPTED FOR THE PURPOSE OF ANNUAL GENERAL MEETING IN A CCORDANCE WITH PROVISION OF SECTION 210 OF THE COMPANIES ACT AND ; LASTLY, BOOK PROFIT HAS BEEN DEFINED TO MEAN NET PROFIT AS SH OWN IN THE PROFIT &LOSS ACCOUNT FOR A PARTICULAR YEAR PREP ARED UNDER SUB SECTION (2) OF THIS SECTION, AS INCREASED BY THE I TEMS IN CLAUSE (A) TO (F) (IF THESE ITEMS ARE DEBITED TO THE P & L AC COUNT) AND IS TO BE REDUCED BY THE ITEMS MENTIONED IN CLAUSE (I) TO (V III) AS LISTED IN THE EXPLANATION-1 . THE PURPOSE AND LEGISLATIVE INTENT BEHIND INTRODUCTION OF PROVISIONS OF SECTION 115J/115JA/115JB WAS TO TAKE CAR E OF THE PHENOMENON OF PROSPEROUS ZERO TAX COMPANIES WHICH HA D CONTINUED BUT WERE PAYING NO INCOME TAX EVEN THOUGH THEY HAD PROFITS AND WERE DECLARING DIVIDENDS. IT WAS THEREFOR E, SOUGHT THAT MINIMUM CORPORATE TAX SHOULD BE PAID BY THESE PROSP EROUS COMPANIES AND ACCORDINGLY, MAT WAS INTRODUCED. THE H ONBLE KERALA HIGH COURT IN CASE OF KARIMTHARUVI TEA ESTATE L TD. AND ANOTHER VS. DCIT (SUPRA) AS REPRODUCED ABOVE EXPLAI NS THE MAIN PURPOSE AND INTENT BEHIND THESE SECTIONS. IT WAS NEVER THE INTENTION OF THE LEGISLATURE THAT ANY RECEIPTS WHICH IS NOT TAXABLE PER SE WITHIN THE INCOME TAX PROVISION OR NOT RECKONED AS PA RT OF NET PROFIT AS PER THE PROFIT & LOSS ACCOUNT AS PER COMP ANIES ACT CAN BE BROUGHT TO TAX AS A BOOK PROFIT. THIS HAS BEEN HELD SO BY SPL. BENCH IN CASE OF SUTLEJ COTTON MILLS LTD. VS. ACIT (SUPRA) AND BY COCHIN BENCH OF ITAT IN THE CASE OF ACIT VS. NILGIRI TEA ESTATE LTD., REPORTED IN (2014) 65 SOT 14, WHEREIN THE ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 23 TRIBUNAL HELD THAT, AN ITEM OF INCOME WHICH DOES NOT CO ME WITHIN THE PURVIEW OF THE INCOME TAX CANNOT BE SUBJ ECTED TO TAX UNDER ANY OTHER PROVISION OF THE ACT. 15. NOW WHETHER THE SURPLUS ARISING ON ACCOUNT OF WAI VER OF THE PRINCIPAL AMOUNT OF LOAN IS REQUIRED TO BE CREDITED TO THE PROFIT & LOSS ACCOUNT IN TERMS OF PROVISIONS OF PART II & III OF VI TH SCHEDULE OF THE COMPANIES ACT NEEDS TO BE SEEN. THE S TARTING POINT FOR COMPUTATION OF BOOK PROFIT UNDER SECTION 115 JB IS THE NET PROFIT AS PER THE PROFIT & LOSS ACCOUNT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT. TH E PRIMARY PURPOSE OF PREPARING PROFIT & LOSS ACCOUNT U NDER THE COMPANIES ACT IS TO FIND OUT THE RESULT OF THE WORKING OF THE COMPANY DURING THE PERIOD COVERED BY THE PROFIT & LO SS ACCOUNT WHICH HAS BEEN ENSHRINED IN PART II OF THE COMPANIES ACT . THE RELEVANT PORTION OF PART II READS AS UNDER:- 1. THE PROVISIONS OF THIS PART SHALL APPLY TO THE INCOME AND EXPENDITURE ACCOUNT REFERRED TO IN SUB-SECTION (2) OF SECTION 210 OF THE ACT, IN LIKE MANNER AS THEY APPL Y TO A PROFIT AND LOSS ACCOUNT, BUT SUBJECT TO THE MODIFIC ATION OF REFERENCES AS SPECIFIED IN THAT SUB-SECTION. 2. THE PROFIT AND LOSS ACCOUNT (A) SHALL BE SO MADE OUT AS CLEARLY TO DISCLOSE THE RES ULT OF THE WORKING OF THE COMPANY DURING THE PERIOD COVERE D BY THE ACCOUNT, AND (B) SHALL DISCLOSE EVERY MATERIAL FEATURE, INCLUDING CREDITS OR RECEIPTS AND DEBITS OR EXPENSES IN RESPE CT OF NON-RECURRING TRANSACTIONS OR TRANSACTIONS OF AN EXCEPTIONAL NATURE. 3. THE PROFIT AND LOSS ACCOUNT SHALL SET OUT THE V ARIOUS ITEMS RELATING TO THE INCOME AND EXPENDITURE OF THE COMPANY ARRANGED UNDER THE MOST CONVENIENT HEADS; A ND IN PARTICULAR, SHALL DISCLOSE THE FOLLOWING INFORMA TION IN ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 24 RESPECT OF THE PERIOD COVERED BY THE ACCOUNT- . . (XII) (A) .......... (B) PROFITS OR LOSSES IN RESPECT OF TRANSACTIONS OF A KIND, NOT USUALLY UNDERTAKEN BY THE COMPANY OR UNDERTAKEN IN CIRCUMSTANCES OF AN EXCEPTIONAL OR NON-RECURRING NATURE, IF MATERIAL IN AMOUNT. FURTHER, SECTION 211(2) OF THE COMPANIES ACT PROVIDES FOR THE FORM AND CONTENTS OF PROFIT & LOSS ACCOUNT IN THE FOLL OWING MANNER: (2) EVERY PROFIT AND LOSS ACCOUNT OF A COMPANY SHA LL GIVE A TRUE AND FAIR VIEW OF THE PROFIT AND LOSS ACCOUNT O F THE COMPANY FOR THE FINANCIAL YEAR AND SHALL, SUBJECT A S AFORESAID, COMPLY WITH THE REQUIREMENTS OF PART II TO SCHEDULE VI, SO FAR AS THEY ARE APPLICABLE THERETO: FURTHER, SUB-SECTION (3A) PROVIDES THAT, EVERY PROFIT AND LOSS ACCOUNT AND BALANCE SHEET OF THE COMPANY SHALL COMPLY WITH THE ACCOUNTING STANDARDS . FROM THE HARMONIOUS READING OF THE ABOVE PROVISIONS OF THE COMPANIES ACT, IT CAN BE GATHERED THAT FIRSTLY, THE PROFIT & LOSS ACCOUNT MUST DISCLOSE THE RESULT OF THE WORKING OF THE C OMPANY DURING THE PERIOD COVERED BY THE ACCOUNT; SECONDLY , IT SHOULD DISCLOSE EVERY MATERIAL FEATURE INCLUDING CREDITS OR RECEIPTS AND DEBITS OR EXPENSES IN RESPECT OF NON-RECURRING TRANSAC TION OR TRANSACTION OF AN EXCEPTIONAL NATURE; THIRDLY, THE PROFIT AND LOSS ACCOUNT SHOULD SET OUT THE VARIOUS ITEMS RELATING T O THE INCOME AND EXPENDITURE OF THE COMPANY ARRANGED UNDER THE M OST CONVENIENT HEADS AND DISCLOSE ALL SUCH INFORMATION AS SET OUT THEREIN ; FOURTHLY, PROFITS OR LOSSES IN RESPECT OF TRANSACTIONS OF A KIND, NOT USUALLY UNDERTAKEN BY THE COMPANY OR UNDERTAK EN IN CIRCUMSTANCES OF AN EXCEPTIONAL OR NON-RECURRING NAT URE, SHOULD ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 25 ALSO BE DISCLOSED; AND LASTLY, PROFIT & LOSS ACCOUNT SHOULD GIVE THE FAIR VIEW OF THE WORKING RESULT AND ACCOUNTING STA NDARDS SHOULD BE COMPLIED WITH. A CLEAR CUT DISTINCTION HAS BEEN MADE FOR DISCLOSING THE TRUE WORKING RESULT OF THE COMPANY AND A DISCLOSURE OF NON-TRANSACTION OR TRANSACTION OF AN EXC EPTIONAL NATURE. ONE HAS TO KEEP IN MIND THAT THE AFORESAID PROVI SIONS MAINLY REQUIRES A BROAD DISCLOSURE OF THE EXCEPTIONAL ITEMS OR NON-RECURRING TRANSACTIONS REFERRED TO THEREIN AND IF FOR SOME REASON OR THE OTHER THEY HAVE BEEN ACCOUNTED FOR IN TH E PROFIT & LOSS ACCOUNT THEN THOSE PROVISIONS DO NOT REQUIRE THAT THOSE ITEMS MUST NECESSARILY BE ACCOUNTED AS A PART OF THE PRO FIT & LOSS ACCOUNT. SEPARATE DISCLOSURE IS INTENDED TO ENSURE THA T THE READER OF THE PROFIT & LOSS ACCOUNT GETS A FAIR AND CLE AR PICTURE OF THE RESULT OF THE WORKING OF THE COMPANY DURING THE PER IOD COVERED BY THE PROFIT & LOSS ACCOUNT. THE AFORESAID PR OVISION CANNOT BE SO READ SO AS TO REQUIRE THAT EVERY NON-RECU RRING TRANSACTION OR TRANSACTION OF AN EXCEPTIONAL NATURE TO B E DEBITED/CREDITED TO THE PROFIT & LOSS ACCOUNT. ACCOUNT ING STANDARD-5 PRESCRIBES THE CLASSIFICATION AND DISCLOSU RE REQUIREMENTS OF CERTAIN ITEMS IN THE STATEMENT OF PROFIT & LOSS ACCOUNT, WHEREAS THE ACCOUNTING STANDARD-9 GIVES THE ILLUSTRATION OF REVENUE RECOGNITION. AS-5 DEFINES PR OFIT OR LOSS FOR THE PERIOD IN THE FOLLOWING MANNER: ALL ITEMS OF INCOME AND EXPENSE WHICH ARE RECOGNISED IN A PERIOD SHALL BE INCLUDED IN THE DETERMINATION OF THE NET PROFIT OR LOSS FOR THE PERIOD UNLESS AN ACCOUNTING STANDARD REQUIRES OR PERMITS OTHERWISE. THUS, WHAT IS CONTEMPLATED IS THAT, ALL ITEMS OF INCOME AND EXPENSES WHICH ARE RECOGNISED IN A PERIOD ALONE ARE RECKONED AS NET PROFIT OR LOSS. THE RECOGNITION CRITERIA OF REVENUE BY A COMPANY IN THE PROFIT & LOSS ACCOUNT IS HOWEVER DETERM INED AS ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 26 PER ACCOUNTING STANDARD-9. CLAUSE 3 OF AS-9 GIVES ILL USTRATION OF THE ITEMS WHICH ARE SPECIFICALLY NOT TO BE INCLUDED W ITHIN THE DEFINITION OF REVENUE, THE SAME READS AS UNDER:- 3. EXAMPLES OF ITEMS NOT INCLUDED WITHIN THE DEFIN ITION OF REVENUE FOR THE PURPOSES OF THIS STATEMENT ARE: (I) REALISED GAINS FROM THE DISPOSAL OF, AND UNREALISED GAINS RESULTING FROM THE HOLDING OF, NON-CURRENT AS SETS E.G. APPRECIATION IN THE VALUE AFFIXED ASSETS; (II) UNREALISED HOLDING GAINS RESULTING FROM THE CHANGE IN VALUE OF CURRENT ASSETS, AND THE NATURAL INCREASES IN HERDS AND AGRICULTURAL AND FOREST PROD UCTS; (III) REALISED OR UNREALIZED GAINS RESULTING FROM CHANGES IN FOREIGN EXCHANGE RATES AND ADJUSTMENTS ARISING O N THE TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENT S; (IV) REALISED GAINS RESULTING FROM THE DISCHARGE OF AN OBLIGATION AT LESS THAN ITS CARRYING AMOUNT; (V) UNREALISED GAINS RESULTING FROM THE RESTATEMENT OF THE CARRYING AMOUNT OF AN OBLIGATION.' AS CAN BE SEEN, CLAUSE (IV) CLEARLY EXCLUDES THE CASES OF REMISSION OF LIABILITY, BECAUSE IT IS NOTHING BUT GAINS REALISE D FROM DISCHARGE OF AN OBLIGATION AT LESS THAN CARRYING AMOUN T, WHICH HEREIN THIS CASE IS GAIN ON ACCOUNT OF WAIVER OF PART OF OBLIGATION TO REPAY THE LOAN. FURTHER, ACCOUNTING STANDARD - 5 ALS O STATES THAT, EXTRA-ORDINARY ITEMS SHOULD BE DISCLOSED SEPARATE LY IN THE PROFIT AND LOSS ACCOUNT. THE OBJECTIVE OF AS-5 IS TO P RESCRIBE THE CLASSIFICATION AND DISCLOSURE REQUIREMENTS. THE RELE VANT TEXT OF THE STANDARD 5 READS AS UNDER: '8. EXTRAORDINARY ITEMS SHOULD BE DISCLOSED IN THE STATEMENT OF PROFIT AND LOSS AS A PART OF NET PROFI T OR LOSS FOR THE PERIOD. THE NATURE AND THE AMOUNT OF EACH EXTRA- ORDINARY ITEM SHOULD BE SEPARATELY DISCLOSED IN THE STATEMENT OF PROFIT AND LOSS IN A MANNER THAT ITS I MPACT ON CURRENT PROFIT OR LOSS CAN BE PERCEIVED. ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 27 A CON-JOINT READING OF THE ABOVE ACCOUNTING STANDARDS SUGGESTS THAT, THERE ARE TWO TYPES OF COMPULSIONS WHILE PREPARI NG ANNUAL ACCOUNTS, ONE ARE ACCOUNTING COMPULSIONS AND SECOND ARE DISCLOSURE COMPULSIONS. THE ACCOUNTING COMPULSION CO MES INTO PLAY SINCE THERE IS A DOUBLE ENTRY SYSTEM OF ACCOUNTING , FOR INSTANCE, WHEN A LOAN AMOUNT IS WAIVED, A DEBIT GOES TO THE LIABILITY ACCOUNT AND A CREDIT HAS TO GO TO ANY OF THE L IABILITY/ RESERVE ACCOUNT, WHICH IN THE PRESENT CASE HAS BEEN TAKEN TO THE PROFIT AND LOSS ACCOUNT. THE DISCLOSURE COMPULSIONS M ERELY REQUIRE THE ASSESSEE TO DISCLOSE THE MATERIAL ITEMS IN THE PROFIT & LOSS ACCOUNT. A MERE DISCLOSURE OF AN EXTRAORDINARY I TEM IN THE PROFIT & LOSS ACCOUNT STATEMENT DOES NOT MEAN THAT THE SAID ITEM REPRESENTS THE WORKING RESULT OF THE COMPANY, WHEN TH E ACCOUNTING STANDARD, ESPECIALLY AS-9 CLEARLY PROVIDE S THAT REMISSION OF A LIABILITY IS NOT TO BE RECOGNIZED AS REVENUE, THEN IT HAS TO BE RECKONED THAT IT CANNOT BE TREATED AS REVENUE FOR THE PURPOSE OF EITHER NET PROFIT OR CONSEQUENTLY BOOK PROFI T. THE PRIMARY PURPOSE OF PREPARING THE PROFIT &LOSS ACCOUNT IN PART II OF THE COMPANIES ACT IS TO FIND OUT THE RESULT OF THE CO MPANY, DURING THE PERIOD COVERED BY THE PROFIT & LOSS ACCOUN T AND THE EXCEPTIONAL NATURE ITEMS ARE REQUIRED TO BE DISCLOSED S EPARATELY SO AS TO ASSESS THE CORRECT IMPACT ON THE PROFIT & LOSS ACCOUNT OF THE COMPANY. WHAT IS REQUIRED UNDER CLAUSE (3) OF PAR T II OF SCHEDULE VI OF THE COMPANIES ACT, IS THAT, A PROFIT & LO SS ACCOUNT SHOULD SET OUT VARIOUS ITEMS RELATING TO THE INCOME AND EXPENDITURE OF THE COMPANY ARRANGED UNDER THE MOST CONV ENIENT HEADS AND THEN IT PROVIDES TO LIST OUT THE VARIOUS INFORM ATION WHICH NEEDS TO BE DISCLOSED IN THE PROFIT & LOSS ACCO UNT. THE PROFIT & LOSS ACCOUNT CONTAINS INCOME AND EXPENDITURE O F A COMPANY IN RESPECT OF THE PERIOD COVERED BY THE ACCOUN T AND THEREFORE, THERE CANNOT BE ANY QUESTION FOR INCLUDING A CAPITAL ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 28 SURPLUS IN THAT ACCOUNT WHICH CANNOT BE RECKONED AS I NCOME. CLAUSE (3)(XII)(B) OF PART II OF SCHEDULE ALSO SHOWS THAT WHAT IS TO BE INCLUDED IN THE PROFIT & LOSS ACCOUNT IS IN RESPECT OF TRANSACTIONS OF AN ACCOUNT, NOT USUALLY UNDERTAKEN BY THE COMPANY OR UNDERTAKEN IN CIRCUMSTANCES OF AN EXCEPTIO NAL OR NON-RECURRING NATURE, IF MATERIAL IN AMOUNT. THIS CLE ARLY INDICATES THAT ONLY THOSE ITEMS CAN BE REGARDED AS PART O F THE PROFIT & LOSS ACCOUNT WHICH IS IN RESPECT OF SIMILAR T YPE OF TRANSACTION AND NOT WHICH ARE EXCEPTIONAL IN NATURE. WA IVER OF A LOAN CERTAINLY CANNOT BE RECKONED AS TRANSACTION OF A K IND USUALLY TAKEN BUT IT IS AN ITEM OF EXCEPTIONAL AND NON-R ECURRING NATURE. A CAPITAL SURPLUS ON ACCOUNT OF WAIVER OF LOA N IN NO WAY CAN BE RECORDED AS OPERATIONAL PROFIT OR PROFIT WHICH IS TO BE INCLUDED IN THE PROFIT & LOSS ACCOUNT. THERE CAN BE A BSOLUTELY NO QUESTION FOR ACCOUNTING IN THE PROFIT AND LOSS ACCOUNT SOMETHING WHICH CANNOT BE REGARDED AS INCOME, PROFIT OR GAIN. T HIS VIEW IS FURTHER REITERATED BY THE INTERPRETATION CLAUSE 7 APPEAR ING IN PART III OF SCHEDULE VI OF THE COMPANIES ACT WHICH READS A S UNDER: 7(1) FOR THE PURPOSE OF PARTS I AND II OF THIS SCH EDULE, UNLESS THE CONTEXT OTHERWISE REQUIRES._ (A) . (B) . (C) THE EXPRESSION CAPITAL RESERVE SHALL NOT INCLUDE ANY AMOUNT REGARDED AS FREE FOR DISTRIBUTION THROUGH TH E PROFIT AND LOSS ACCOUNT; AND THE EXPRESSION REVENUE RESER VE SHALL MEAN ANY RESERVE OTHER THAN A CAPITAL RESERVE ; . A CAPITAL SURPLUS THUS, IN RESPECT OF WAIVER OF LOAN AMOUNT CANNOT BE REGARDED AS BEING AMOUNT AVAILABLE FOR DISTR IBUTION THROUGH THE PROFIT & LOSS ACCOUNT. THIS FOLLOWS FROM TH E VERY DEFINITION OF EXPRESSION CAPITAL RESERVE THAT IT MUST BE ACCOUNTED DIRECTLY TO THE CREDIT OF THE CAPITAL RESERVE ACCOUNT INS TEAD OF ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 29 BEING CREDITED TO THE PROFIT & LOSS ACCOUNT SO AS TO EN SURE THAT IT IS NOT LEFT FOR BEING DISTRIBUTED THROUGH THE PROFIT & LOS S ACCOUNT. 16. FROM OUR ABOVE ANALYSIS AND DISCUSSION OF THE VA RIOUS PROVISIONS OF THE COMPANIES ACT AS WELL AS ACCOUNTING STANDARDS IT CAN BE OSTENSIBLY DEDUCED THAT AN ITEM OF CAPITAL SUR PLUS CAN NEVER BE A PART OF PROFIT & LOSS ACCOUNT ALBEIT IT IS A PART OF A CAPITAL RESERVE AS THE WAIVER OF A LOAN TAKEN FOR ACQU ISITION OF A CAPITAL ASSET IS A CAPITAL RECEIPT FALLING WITHIN THE CA TEGORY OF CAPITAL SURPLUS WHICH IS NON-RECURRING AND EXCEPTIONA L ITEM WHICH TO BE DISCLOSED AS PER THE REQUIREMENT OF THE CO MPANIES ACT. FURTHER IT IS QUITE PERTINENT TO NOTE THAT, CLAUSE (II) OF EXPLANATION -1 OF SECTION 115JB IS ALSO AN INDICATOR OF THE INTENTION OF THE LEGISLATURE AND ALSO THE SCHEME OF THE SECTION THAT THE INCOMES WHICH ARE TREATED AS EXEMPT UNDER THE I NCOME TAX ACT ARE TO BE EXCLUDED FROM THE PROFIT & LOSS ACCOU NT. THE SAID CLAUSE EXCLUDES; (II) THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVI SION 0F SECTION 10 OR SECTION 11 OR SECTION 12 APPLY, IF ANY SUCH A MOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT; WHEN THE SAID CLAUSE REQUIRES EXCLUSION FROM THE BOOK PROFIT ALL THAT AMOUNT OF INCOME WHICH ARE EXEMPT AND ARE NOT IN TH E NATURE OF INCOME, IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT & LOSS ACCOUNT, THEN ON SAME LOGIC IT WOULD BE INCONCEI VABLE THAT THIS PROVISION INTENDS THAT BOOK PROFIT SHOULD INCLU DE SOMETHING WHICH IS IN THE NATURE OF A CAPITAL SURPLUS ON ACCOUNT OF WAIVER OF A LOAN. EVEN IF A COMPANY HAS CREDITED THE AMOUNT OF REMISSION TO ITS PROFIT & LOSS ACCOUNT, THEN SUCH A PROF IT &LOSS ACCOUNT NEEDS TO BE ADJUSTED WITH THE AMOUNT OF REMISSIO N SO AS TO ARRIVE AT THE NET PROFIT AS PER THE PROFIT & LOSS ACCOU NT PREPARED IN ACCORDANCE WITH PROVISIONS OF PART II & I II OF VI TH ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 30 SCHEDULE OF THE COMPANIES ACT AND THIS IS WHAT HAS BEE N ENVISAGED IN THE OPERATING LINES OF EXPLANATION-1 TO SECTION 115JB, THAT, BOOK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEA R. NET PROFIT AS PER PROFIT AND LOSS ACCOUNT CAN NEVER MEANT TO INCLU DE CAPITAL RESERVE OR CAPITAL RECEIPTS. THE OBJECT OF ENACTING OF SECTION 115J, 115JA & 115JB WAS NEVER TO FASTEN ANY TAX LIABILITY I N RESPECT OF SOMETHING WHICH IS NOT AN INCOME AT ALL OR EVEN IF IT W AS INCOME BUT IS NOT TAXABLE UNDER THE NORMAL PROVISIONS OF THE AC T. THE PROVISIONS OF SECTION 115JB CANNOT BE SO INTERPRETED S O AS TO REQUIRE ACCOUNTING OF WHAT IN SUBSTANCE IS CAPITAL IN NATURE TO THE CREDIT OF THE PROFIT & LOSS ACCOUNT AND GET INDIRECTLY TAXED UNDER BOOK PROFIT. THE SPECIAL BENCH OF ITAT, KOLKATA IN THE CASE OF SUTLEJ COTTON MILLS LTD. V ACIT (SUPRA) OBSERVED AN D HELD AS UNDER: THE PATTERN OF THE INCOME-TAX ACT IS THAT CERTAIN R ECEIPTS ARE NOT TO BE TAKEN AS INCOME AT ALL WHILE, IN RESP ECT OF CERTAIN RECEIPTS, THERE IS AN EXEMPTION FROM TAX ON FULFILLING CERTAIN CONDITIONS AND, IN RESPECT OF CERTAIN OTHER INCOMES, CERTAIN CONCESSIONS OR DEDUCTIONS ARE GIVEN. THERE IS A BASIC DICHOTOMY BETWEEN RECEIPTS WHICH ARE NOT TAXA BLE AT ALL AND RECEIPTS WHICH ARE TAXABLE BUT SUBJECT TO E XEMPTION ON FULFILLING CERTAIN CONDITIONS. IN THE CASE OF CA PITAL GAINS, IT IS A RECEIPT WHICH IS NOT TAXABLE AT ALL BUT FOR A DEEMING PROVISION. EVEN THE DEEMING PROVISION IS SUBJECT TO EXCLUSION IN RESPECT OF CERTAIN RECEIPTS WHICH FULFILL CERTAI N CONDITIONS SUCH AS REINVESTMENT. SECTION 115J HAS RECOGNIZED T HIS AND HAS PROVIDED IN EXPLANATION, CLAUSE (F), ITEM (II), THAT THE AMOUNTS FALLING UNDER CHAPTER III ARE TO BE EXCLUDE D. WHEN AN AMOUNT WHICH FORMS PART OF THE BOOK PROFIT ITSELF CANNOT BE TAXED UNDER SECTION 115J WHEN IT DOES NOT HAVE THE INCOME CHARACTER, IT HAS TO BE ACCEPTED THAT, W HEN WHAT IS ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT AND C ARRIED TO RE-.SERVE IS OF A CAPITAL NATURE AND DOES NOT HAVE AN INCOME CHARACTER, IT CANNOT BE ADDED BACK TO THE BOOK PROF ITS MERELY BECAUSE OF THE ENABLING PROVISION IN THE EXPLANATION TO SECTION 115J FOR THE PURPOSE OF IMPO SING A TAX THEREON. APART FROM THE FACT THAT CAPITAL GAINS IS DEEMED ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 31 TO BE INCOME UNDER SECTION 45, IT HAS TO BE KEPT IN MIND THAT EVEN SECTION 115J DEEMS 30 PER CENT OF THE BOOK PRO FIT TO BE TOTAL INCOME CHARGEABLE TO TAX. THE LEGISLATIVE HIS TORY SHOWS THAT THE TAX UNDER SECTION 115J WAS WITH REFE RENCE TO THE BUSINESS PROFIT AS IT WAS IN REPLACEMENT OF SECTION 80VVA WHICH SOUGHT TO REDUCE THE DEDUCTIONS AVAILAB LE IN COMPUTING THE INCOME FROM BUSINESS. WHEN SECTION 80 VVA WAS INTRODUCED IN 1983-84, THE INTENTION WAS TO RES TRICT THE VARIOUS TAX INCENTIVES AND CONCESSIONS AVAILABLE IN COMPUTING THE INCOME FROM BUSINESS TO 70 PER CENT T HEREOF. SIGNIFICANTLY, THE DEDUCTION UNDER SECTION 80T IN R ESPECT OF CAPITAL GAINS WAS NOT ONE OF THE ITEMS OF CONCESSIO N OR TAX REBATE WHICH WAS TO BE RESTRICTED UNDER THAT SECTIO N. THIS SHOWS THAT EXEMPTION OF CAPITAL GAINS WAS NOT INTEN DED TO BE RESTRICTED. SUBSEQUENTLY ALSO WHEN THAT SECTION WAS REPLACED BY SECTION 115J, THE OBJECT WAS TO INTRODU CE THE PROVISION WHEREBY EVERY COMPANY WILL HAVE TO PAY A MINIMUM CORPORATE TAX ON THE PROFITS DECLARED BY IT IN ITS OWN ACCOUNTS. THESE PROFITS CAN ONLY BE THOSE WHICH ARE ASSESSABLE AS INCOME UNDER THE ACT. IT IS NOW WELL- SETTLED THAT, IN THE INTERPRETATION OF STATUTES, ONE HAS TO ADOPT SUCH A CONSTRUCTION AS WILL PROMOTE THE GENERAL LEGISLAT IVE PURPOSE UNDERLYING THE PROVISION. IN THE PRESENT CA SE, AS CAN BE SEEN FROM THE FINANCE MINISTER'S SPEECH AND THE MEMORANDUM EXPLAINING THE PROVISIONS, THE INTENTION WAS TO MAKE THE COMPANY PAY TAX ON INCOME WHICH WOULD OTHERWISE BE REDUCED BY REASON OF CERTAIN DEDUCTION S AVAILABLE UNDER THE ACT. EVEN THE ADJUSTMENTS SPECI FIED IN SECTION 115J REFER ONLY TO APPROPRIATION FROM THE P ROFITS OF THE BUSINESS. THE MANDATE GIVEN BY SECTION ACCORDAN CE WITH THE PROVISIONS OF PART-II AND PART -III OF THE SIXTH SCHEDULE TO THE COMPANIES ACT' AND THE 'NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT'. THESE TWO EXPRESSIONS CONVEY AN IDEA OF AN IMPLIED MANDATE GI VEN TO THE ASSESSING OFFICER TO VERIFY AND SATISFY HIMSELF THAT THE NET PROFIT WAS AS SHOWN IN THE PROFIT AND LOSS ACCO UNT AND THE PROFIT AND LOSS ACCOUNT WAS PREPARED IN ACCORDA NCE WITH PART II AND PART ILL OF THE SIXTH SCHEDULE TO THE INCOME- TAX ACT. A REFERENCE TO THE REQUIREMENTS OF THE COM PANIES ACT SHOWS THAT IT IS CONCERNED WITH THE RESULT OF T HE WORKING OF THE COMPANY. CONSEQUENTLY, IT CANNOT BE DIRECTLY CONCERNED WITH CHANGES IN THE CAPITAL STRU CTURE. IN PARTICULAR, THE PROFIT AND LOSS ACCOUNT IS CONCERNE D WITH ITEMS OF INCOME AND EXPENDITURE AND, THEREFORE, ANY PROFIT DERIVED BY REALIZATION OF A CAPITAL ASSET WOULD NOT BE AN ITEM OF INCOME. IN A CASE WHERE THE PROFIT AND LOSS ACCOUNT ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 32 WAS PREPARED IN ACCORDANCE WITH THE PROVISIONS OF P ART II AND PART ILL OF SIXTH SCHEDULE TO THE COMPANIES ACT , THE ASSESSING OFFICER WILL HAVE NO POWER TO DISTURB THE BOOK PROFIT EXCEPT AS STATED IN SECTION 115J. THE ASSESS ING OFFICER IS BOUND TO PROCEED WITH THE COMPUTATION ON LY ON THE BASIS OF THE BOOK PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT UNLESS IT IS DISCOVERED THAT THE PROFIT AND LOSS ACCOUNT IS NOT DRAWN UP IN ACCORDANCE WITH THE PROV ISIONS OF THE COMPANIES ACT. AS FAR AS FIXED ASSETS AND INVESTMENTS ARE CONCERNED, THE VALUATION OF SUCH AS SETS IS NOT A NECESSARY PART OF THE PROCESS OF DETERMINING THE TRADING RESULT SINCE THEY DO NOT FORM PART OF THE S TOCK-IN- TRADE. ANY REVALUATION OF FIXED ASSETS OR INVESTMEN TS DOES NOT INDICATE THE ACCRUAL OF ANY PROFIT BECAUSE PROF IT OR LOSS WILL ARISE ONLY ON SALE OR DISPOSAL AND NOT ON REVA LUATION AND SUCH UNREALIZED PROFIT ON REVALUATION CANNOT BE BROUGHT TO TAX. HOWEVER, IT IS WELL RECOGNIZED THAT , IN CASE OF UNREALIZED APPRECIATION OF FIXED ASSETS, THEY AR E WRITTEN UP ON REVALUATION ON THE ASSETS SIDE OF THE BALANCE -SHEET TO GIVE A TRUE AND FAIR VIEW OF THE COMPANY'S AFFAIRS ON A PARTICULAR DATE, I.E. BALANCE SHEET DATE AND THE NE T SURPLUS IS SHOWN AS A CAPITAL RESERVE. THIS IS NOT A REGULAR ANNUAL FEATURE BUT AN EXERCISE UNDERTAKEN AT APPROP RIATE JUNCTIONS IN THE CAREER OF A COMPANY. IN CONTRAST, IN THE CASE OF STOCK-IN-TRADE, IF THE ASSESSEE HAD BEEN FOLLOWI NG THE METHOD OF VALUING AT COST AND CHANGES TO THE METHOD OF VALUATION AT MARKET VALUE, SUCH A VALUATION HAS TO BE MADE THEREAFTER EVERY YEAR AT MARKET VALUE ON THE VALUAT ION DATE. BUT, IN THE CASE OF FIXED ASSETS, IF THE INVESTMENT S HAVE BEEN SHOWN AT COST FOR SOME YEARS AND THE VALUE IS WRITTEN UP OR WRITTEN DOWN ON REVALUATION AT MARKET RATE ON A PARTICULAR DATE, THERE IS NO CHANGE IN THE METHOD O F ACCOUNTING SO AS TO REQUIRE THE COMPANY TO AGAIN RE VALUE THE INVESTMENTS AT MARKET RATE ON SUBSEQUENT ANNUAL VALUATION DATES. WHAT WILL BE SHOWN IN THE SUBSEQUE NT YEARS WILL BE ONLY THE REVISED BOOK VALUE. THE METH OD OF ACCOUNTING IS AN ESSENTIAL AND INTEGRAL PROCESS TO ASCERTAIN THE INCOME OR LOSS AFTER THE END OF THE PREVIOUS YE AR WITHIN THE MEANING OF SECTION 145 AND IT DOES NOT A PPLY TO REVALUATION OF FIXED ASSETS OR INVESTMENTS. THE PRO CEEDS BY WAY OF SALE OF AN INVESTMENT NOT BEING INCOME, THEY ARE NOT LIABLE TO TAX UNDER SECTION 115J UNLESS THERE IS A CLEAR INTENDMENT. IT IS WELL RECOGNIZED THAT THERE CANNOT BE A CHARGE BY IMPLICATION. THE NON OBSTANTE CLAUSE WITH WHICH THIS SECTION BEGINS COULD ONLY MEAN THAT THE OTHER SECTIONS WHICH IMPOSE TAX ON BOOK PROFIT ALONE ARE TO BE IGN ORED AND ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 33 NOT THAT THE SECTION WHICH DEEMS A CAPITAL RECEIPT AS INCOME SHOULD BE TAKEN AS PART OF THE BOOK PROFIT F OR THE PURPOSE OF THE SECTION, MORE SO WHEN SECTION 45 DEC LARES THAT IT CANNOT BE TAKEN AS INCOME IF SECTION 54E IS ATTRACTED. HENCE A CAPITAL GAIN WHICH IS NOT CHARGEABLE EVEN A S DEEMED INCOME BECAUSE OF SECTION 54E, CANNOT BE BRO UGHT TO TAX AS PART OF THE BOOK PROFIT UNDER THE EXPLANA TION TO SECTION 11 5J........................... 17. FROM THE ABOVE DISCUSSION WE ARE OF THE OPIN ION THAT SURPLUS RESULTING IN THE BOOKS OF THE ASSESSEE COMPA NY CONSEQUENT UPON WAIVER OF LOAN AMOUNT IS NOT REQUIRED TO BE CREDITED TO THE PROFIT & LOSS ACCOUNT FOR THE YEAR IN WHI CH WAIVER IS GRANTED AND IN ANY CASE IT CANNOT BE RECKONED AS WO RKING RESULT OF THE COMPANY DURING THE PERIOD COVERED BY TH E ACCOUNT, SO AS TO BE TREATED AS PART OF BOOK PROFIT OF THE COMPAN Y FOR THAT YEAR UNDER THE COMPANIES ACT. 18. BEFORE US THE LD. CIT D.R. HAS STRONGLY CONTENDED THAT THE WHEN THE ASSESSEE ITSELF HAS SHOWN THE WAIVER OF L OAN AS PART OF THE BOOK PROFIT THEREFORE, IT IS PRECLUDED FROM CLA IMING THE DEDUCTION FROM THE BOOK PROFIT, BECAUSE ONCE IT HAS BE EN SHOWN AND DECLARED AS PART OF BOOK PROFIT THEN NEITHER THE ASS ESSING OFFICER NOR THE ASSESSEE CAN TINKER WITH SUCH A RESUL T AND ANY ADJUSTMENT IF AT ALL CAN ONLY BE MADE AS PROVIDED IN EXPLANATION- 1 TO SUB SECTION (2) OF SECTION 115JB. FIRST OF ALL, FR OM THE PERUSAL OF THE PROFIT &LOSS ACCOUNT FOR THE YEAR ENDI NG 31.03.2004 IT IS SEEN THAT ASSESSEE HAD SHOWN PROFIT BE FORE EXCEPTIONAL ITEM AT RS.571.84 CRORES. THEREAFTER, IT H AS DISCLOSED EXCEPTIONAL ITEM OF RS.390.76 CRORES WHICH IS ON ACCO UNT OF WAIVER OF DUES. HOWEVER, WHILE COMPUTING THE BOOK PR OFIT AND TAX PAYABLE UNDER SECTION 115JB THE ASSESSEE INCLUDED THE SAID AMOUNT FOR CALCULATING THE TAX UNDER MAT. ALONG WITH THE SAID COMPUTATION, THE ASSESSEE HAS GIVEN THE FOLLOWING NOTE WHICH ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 34 READS AS UNDER: THE COMPANY HAS CREDITED AN AMOUNT OF RS. 390,76,03,999 AS AN EXCEPTIONAL ITEM IN ITS PROFIT AND LOSS ACCOUNT. THIS INCLUDES WRITE-BACK OF CERTAIN PRINCIPAL AMOUNTS AND CERTAIN INTEREST DUES, AS A P ART OF A RESTRUCTURING PACKAGE WITH ITS LENDERS OUT OF THESE AMOUNTS, THE COMPANY HAS NOT CONSIDERED THE WRITE- BACK OF PRINCIPAL AMOUNTS (AMOUNTING TO RS 228,46,76,328) AS A TAXABLE INCOME SINCE THE SAME I S IN THE NATURE OF CAPITAL RECEIPT IN THE HANDS OF THE COMPANY. FURTHER, THESE AMOUNTS DO NOT REPRESENT THE REVERSAL OF ANY AMOUNT ALLOWED AS A DEDUCTION I N ANY EARLIER YEAR. HENCE THE PROVISIONS, OF SECTION 41(1) DO NOT APPLY IN RESPECT OF THIS WRITE-BACK. AS REGARDS THE WRITE-BACK OF THE BALANCE AMOUNT RELATING TO WAIVER OF INTEREST DUES, THE COMPANY HA S OFFERED FOR TAX THOSE AMOUNTS WHICH HAD BEEN CLAIME D AS A DEDUCTION IN EARLIER YEARS ON PROVISION BASIS AMOUNTING TO RS. 76,27,96,973 (REFER CLAUSE A(1) OF ANNEXURE 8 OF TAR). THE BALANCE AMOUNT OF RS. 86,01,30,698 HAD NOT BEEN ALLOWED AS A DEDUCTION IN EARLIER YEARS DUE TO THE PROVISIONS OF SECTION 43B OF THE ACT AND CONSEQUENTLY, THE WRITE-BACK OF THIS AMOUNT IS NOT CONSIDERED AS A TAXABLE INCOME IN THIS YEAR ACCORDINGLY, THE LOSS COMPUTED HAS BEEN INCREASED T O THE EXTENT OF THE PROVISION WRITTEN-BACK. IN CONNECTION WITH THE ABOVE CONTENTIONS, THE COMPA NY RELIES ON THE FOLLOWING DECISIONS - TIRUNELVELI MOTOR BUS SERVICE CO. P LTD. V. CIT 78 ITR 55(SC) CIT V. CHETAN CHEMICALS (P) LTD. 188 CTR572(GUJ MAHINDRA & MAHINDRA LTD V CIT 261 ITR 501(BOM) CIT V. USHA RANJAN BHADRA 126 ITR 44 (GAUHATI) THEN AGAIN IN NOTE NO.10.1 (THE RELEVANT PORTION OF WH ICH HAS ALREADY BEEN INCORPORATED ABOVE) THE ASSESSEE SPECIFI CALLY GAVE A CAVEAT THAT THIS AMOUNT ON ACCOUNT OF WAIVER OF LOAN IS N OT ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 35 INCLUDABLE IN THE BOOK PROFIT AND SAME HAS BEEN I NCLUDED ONLY OUT OF ABUNDANT PRECAUTION AS THE ASSESSEE COMPANY RES ERVES THE RIGHT TO EXCLUDE SUCH SUM AND CONTEST DURING THE CO URSE OF ASSESSMENT PROCEEDINGS. THUS, AT THE VERY INITIAL STAGE ITSELF THE ASSESSEE HAD DISCLOSED ALL THE PARTICULARS AND HAD AL SO GIVEN A DETAILED NOTE AS TO WHY THE SAID AMOUNT WILL NOT FORM P ART OF THE BOOK PROFIT. ONCE THAT IS SO, THEN SUCH NOTES QUALIF YING THE COMPUTATION OF BOOK PROFIT HAS TO BE READ INTO IT, THAT IS, NOTES ACCOMPANYING COMPUTATION OF INCOME CANNOT BE SEGREGATE D OR COMPLETELY IGNORED. IT IS NOT THE CASE OF THE ASSESSEE THAT AN ADJUSTMENT SHOULD BE DONE WHILE ARRIVING AT THE BOOK P ROFIT AS PROVIDED IN EXPLANATION-1, ALBEIT ITS CLAIM IS THAT CORRECT AMOUNT OF NET PROFIT AS PER THE PROFIT & LOSS ACCOUNT SHOULD BE TAKEN AS BOOK PROFIT WHICH IS THE STARTING POINT OF COMPUTATION UNDER SECTION 115JB. AS DISCUSSED IN DETAIL IN OUR EARLIER PART OF THE ORDER THAT, A RECEIPT WHICH COULD NEVER ENTER THE STREAM OF TAXATION EITHER UNDER THE NORMAL PROVISIONS OF THE ACT OR UNDER THE MAT PROVISIONS UNDER SECTION 115JB, THEN THE SAID R ECEIPT NEITHER CONSTITUTES PROFIT NOR REVENUE NOR INCOME NOR A NY KIND OF GAIN WHICH NEEDS TO BE INCLUDED IN THE NET PROFIT. IT I S A EQUALLY A TRITE PROPOSITION OF LAW THAT AN INCOME CANNOT BE TAXED BY AN ACQUIESCENCE OR CONSENT OF THE ASSESSEE BUT AS PER THE MANDATE OF THE STATUTORY PROVISION AND IF ASSESSEE SHOWS THAT A PARTICULAR INCOME IS NOT TAXABLE THEN HE CAN ALWAYS DEMONSTRATE A ND SATISFY TO THE AUTHORITIES THAT A PARTICULAR INCOME WAS NOT TAXABLE IN HIS HAND AND IT WAS RETURNED UNDER AN ERRONEOUS I MPRESSION OF LAW. THERE CANNOT BE IMPOSITION OF TAX WITHOUT THE A UTHORITY OF LAW. ONE HAS TO LOOK WHAT IS ENVISAGED UNDER THE ACT TO BE TAXED AND THERE IS NO ROOM FOR INTENDMENT OR TAX AUTHORITIES CA N CAPITALIZE ON ACQUIESCENCE BY ASSESSEE SANS ANY AUTH ORITY BY LAW. THE COURT AND TAXING AUTHORITIES HAVE BOUNDEN DUTY TO ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 36 DECIDE AS TO WHETHER A PARTICULAR CATEGORY OF ASSESSEE IS TO PAY A PARTICULAR TAX OR NOT. EVEN IF WE AGREE THAT ASSESSING O FFICER COULD NOT HAVE ENTERTAINED SUCH A FRESH CLAIM BUT IN V IEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GOETZ INDIA LTD. VS. CIT (SUPRA) AS HEAVILY RELIED UPON BY THE LD. C IT D.R., HOWEVER, IT DOES NOT IMPINGE UPON THE POWERS OF THE AP PELLATE AUTHORITIES INCLUDING LD. CIT(A) AND TRIBUNAL. THIS HAS BEEN CLARIFIED BY THE HONBLE SUPREME COURT ITSELF IN THE CO NCLUDING PART OF THE SAID JUDGMENT. THERE IS NO SUCH BAR OR STATU TORY RESTRAIN ON THE APPELLATE AUTHORITIES TO PERMIT/ENTERTAI N SUCH ADDITIONAL CLAIMS WHICH HAS BEEN RAISED BY THE ASSESS EE BEFORE THEM. THIS PROPOSITION IS STRONGLY SUPPORTED BY THE DEC ISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PRUTHVI BROKERS AND SHAREHOLDERS PVT. LTD., (2012) 349 ITR 336 (BOM.). IT IS ALSO EQUALLY A SALUTARY PRINCIPLE OF TAX LAWS THAT ENTRIES IN THE BOOKS OF ACCOUNT OR IN THE PROFIT & LOSS ACCOUNT IS NOT A DETERMINATIVE FACTOR FOR TAXING THE INCOME BECAUS E INCOME CAN BE TAXED ONLY BY THE EXPRESS PROVISIONS OF LAW. WE HAVE ALREADY DISCUSSED IN DETAIL IN OUR EARLIER PART OF THE ORDER THAT WAIVER OF A LOAN IS A CAPITAL RECEIPT WHICH IS PART OF THE CAPITAL RESERVE AND CANNOT BE RECKONED AS WORKING RESULT OF TH E COMPANY AND THEREFORE, IT DOES NOT FORM PART OF THE NET PROFIT AS PER THE PROFIT & LOSS ACCOUNT. THUS, SUCH A CAPITAL REC EIPT CANNOT BE TAXED AS BOOK PROFIT AS ENVISAGED IN TERMS OF SE CTION 115JB. 19. AS REGARD THE DECISION OF THE HONBLE APEX CO URT IN THE CASE OF APOLLO TYRES (SUPRA), AS RELIED UPON THE LD. CIT D.R., WE DO NOT FIND THAT THIS JUDGMENT IN ANY WAY ENVISAGES THAT A RECEIPT WHICH IS NOT TAXABLE AS BOOK PROFIT NOR RECKONE D AS PART OF NET PROFIT AS PER PROFIT & LOSS ACCOUNT SHOULD BE TAX ED UNDER U/S 115JB, JUST BECAUSE IT HAS BEEN CREDITED TO PROFIT & LOSS ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 37 ACCOUNT WHICH TOO HAS BEEN QUALIFIED BY A NOTE GIVING A CAVEAT FOR NON-INCLUSION IN THE BOOK PROFIT. ASSESSING OFFICER O R TAXING AUTHORITIES CAN TINKER WITH THE NET PROFIT AS SHOWN BY THE ASSESSEE IF THE ACCOUNTS ARE NOT PREPARED AS PER PART I I & III OF SCHEDULE VI OF THE COMPANIES ACT WHICH IS A CONDITION PRECEDENT FOR DETERMINATION OF NET PROFIT IN TERMS OF SECTION 115 JB(2). WHAT THE HONBLE APEX COURT LAID DOWN THAT WHEN ASSESSEE CO MPANY PREPARES ITS PROFIT & LOSS ACCOUNT AS PER THE COMPANIES ACT AND THE ACCOUNTS IS PLACED BEFORE THE COMPANY IN ITS ANNUAL GENERAL MEETING IN ACCORDANCE WITH THE PROVISIONS OF SECTION 21 0 OF THE COMPANIES ACT, 1956, AO CANNOT TINKER WITH SUCH ACCOUN TS EXCEPT FOR PROVIDED UNDER EXPLAINATION1. THIS JUDGMENT IN NO WAY IMPINGE UPON THE REQUIREMENT TO COMPLY WITH THE STATUTORY REQUIREMENT OF PREPARING THE ACCOUNTS IN ACCORDANCE W ITH THE ACCOUNTING STANDARDS ADOPTED FOR PREPARING THE PROFIT & LOSS ACCOUNT AND IN ACCORDANCE WITH THE PART II & III OF SCH EDULE VI OF THE COMPANIES ACT. ONLY WHEN ACCOUNTS ARE DRAWN AS PR OVIDED IN SECTION 115JB, THEN THE PROPOSITION LAID DOWN BY TH E HONBLE APEX COURT WILL APPLY. IN OUR HUMBLE OPINION THE JUDG MENT AND LAW AS ENVISAGED BY THE HONBLE APEX COURT WILL NOT A PPLY HERE BECAUSE, AS WE HAVE HELD ABOVE THAT WAIVER AMOUNT IS A CAPITAL RESERVE WHICH CANNOT BE INCLUDED IN THE NET PROFIT AS S HOWN IN THE PROFIT & LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR AND CONSEQUENTLY CANNOT BE TAXED AS BOOK PROFIT. 20. SO FAR AS NON-INCLUSION OF INTEREST AMOUNT PA YABLE TO UTI IN THE NET PROFIT OR WORKING RESULT OF THE COMPANY, OUR FINDING GIVEN ABOVE WILL NOT ONLY APPLY TO WAIVER OF PRINCIP AL LOAN BUT ALSO TO THE WAIVER OF INTEREST PAYABLE TO UTI FOR THE R EASON THAT, IT IS NOT TAXABLE AS PER THE PROVISION OF SECTION 41(1), BECAUSE, ADMITTEDLY THE ASSESSEE HAS NOT CLAIMED THE SAID AMOUNT A S ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 38 DEDUCTION IN THE EARLIER YEARS IN VIEW OF THE PROVISI ONS OF SECTION 43B. ONCE IT HAS NOT BEEN CLAIMED AS DEDUCTION THEN THE RE IS NO QUESTION TO BE OFFERED FOR TAX UNDER SECTION 41(1). T HUS IT CANNOT BE REGARDED AS INCOME IN THE HANDS OF THE ASSESSEE. THE LEGAL PROPOSITION AS DISCUSSED ABOVE WOULD APPLY IN THE CA SE OF WAIVER OF INTEREST PAYABLE TO UTI, BECAUSE FIRSTLY, IT IS NOT A REMISSION OF TRADING LIABILITY OR HAS BEEN ALLOWED AS EXPENDITURE IN ANY OF THE EARLIER ASSESSMENT YEAR SO AS TO BE DEEMED AS TAXABLE UNDER SECTION 41(1); AND SECONDLY, IT IS PART OF CAPITAL SURPLUS ARISING OUT OF WAIVER OF DUES AND HENCE IT FORMS PART OF THE C APITAL RESERVE WHICH CANNOT BE ROPED IN AS A PART OF NET PRO FIT WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB. EVEN OTHERWISE ALSO THE PROVISION OF SECTION 41(1) IS A DEEMING PROV ISION AND THE FICTION CANNOT BE EXTENDED EITHER TO THE PROVISIONS OF S ECTION 115JB OR TO THE PROVISIONS OF THE COMPANIES ACT, BECA USE THE WAIVER OF A LIABILITY FOR INTEREST ON LOAN IS NOT REQU IRED TO BE CREDITED TO THE PROFIT & LOSS ACCOUNT OF THE YEAR OF THE WAIVER. THUS, THE WAIVER OF INTEREST PAYABLE TO UTI WILL ALSO N OT BE INCLUDABLE IN THE BOOK PROFIT AND THE SAME HAS TO BE D EDUCTED. 21. VARIOUS DECISIONS HAVE BEEN CITED AND RELIED UPO N BY BOTH THE PARTIES IN SUPPORT OF THEIR CONTENTIONS WHICH HAVE B EEN LISTED ABOVE. FIRST OF ALL OUR CONCLUSION AS GIVEN ABOVE I S BASED ON OUR INTERPRETATION OF VARIOUS PROVISIONS OF THE COMPANIES ACT AS WELL AS PROVISION OF SECTION 115JB, HOWEVER, WE WOULD DIS CUSS IN BRIEF FIRSTLY THE DECISIONS AS RELIED UPON BY THE LD. CIT D .R.:- A) CIT VS. VEEKAYLAL INVESTMENT CO. (P) LTD. (2001) 24 9 ITR 597 (BOM) THE RELEVANT FACTS OF THE CASE WERE THAT, DURING THE REL EVANT PREVIOUS YEAR, THE ASSESSEE EARNED CAPITAL GAINS ARIS ING ON SALE OF ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 39 LAND WHICH WERE CREDITED TO THE PROFIT AND LOSS ACCOUN T. HOWEVER, THE ASSESSEE DID NOT INCLUDE THE SAID CAPITAL GAINS FOR THE PURPOSE OF COMPUTING PROFITS U/S. 115J ON THE PREMISE THAT, SECTION 115J TAXES ONLY COMMERCIAL PROFITS. THE ASSESS ING OFFICER INCLUDED SUCH CAPITAL GAINS (TAXABLE UNDER THE ACT) FOR THE PURPOSE OF COMPUTING BOOK PROFITS U/S. 115J. ON THIS BACKGROUND HONBLE COURT HELD AS UNDER:- 'THE IMPORTANT THING TO BE NOTED IS THAT WHILE CALC ULATING THE TOTAL INCOME UNDER THE IT ACT, THE ASSESSEE IS REQUIRED TO TAKE INTO ACCOUNT INCOME BY WAY OF CAPITAL GAINS UNDER SECTION45OF THE IT ACT. IN THE CIRCUMSTANCES, ONE F AILS TO UNDERSTAND AS TO HOW IN COMPUTING THE BOOKS PROFITS UNDER THE COMPANIES ACT, THE ASSESSEE COMPANY CANNOT CONSIDER CAPITAL GAINS FOR THE PURPOSES OF COMPUTING BOOK PROFITS UNDER SECTION115J OF THE ACT . FURTHER, UNDER CL. (2) OF PART II OF SCH. VI TO THE COMPANIES ACT WHERE A COMPANY RECEIVES THE AMOUNT ON ACCOUNT OF SURRENDER OF LEASEHOLD RIGHTS, THE COMPANY IS BOUND TO DISCLOSE IN THE P&L A/C THE SAID AMOUNT AS NON-RECU RRING TRANSACTION OR A TRANSACTION OF AN EXCEPTIONAL NATU RE IRRESPECTIVE OF ITS NATURE I.E. WHETHER CAPITAL OR REVENUE. THAT, IT WOULD BE INAPPROPRIATE TO DIRECTL Y TRANSFER SUCH AMOUNT TO CAPITAL RESERVE [SEE COMPAN IES ACT BY A. RAMAIYA, P. 1669 (FOURTEENTH EDN.]. SUCH RECEIPTS ARE ALSO COVERED BY CL. 2(B) OF PART II OF SCH. VI OF THE COMPANIES ACT WHICH, INTER ALIA, STATES THAT P&L A/ C SHALL DISCLOSE EVERY MATERIAL FEATURE, INCLUDING CR EDITS OR RECEIPTS AND DEBITS OR EXPENSES IN RESPECT OF NON-R ECURRING TRANSACTIONS OR TRANSACTIONS OF AN EXCEPTIONAL NATU RE. LASTLY, EVEN UNDER CL. 3(XII)(B) PROFITS OR LOSSES IN RESPECT OF TRANSACTIONS NOT USUALLY UNDERTAKEN BY THE COMPANY OR UNDERTAKEN IN CIRCUMSTANCES OF EXCEPTIONAL OR NON-RECURRING NATURE SHOWS CLEARLY T HAT CAPITAL GAINS SHOULD BE INCLUDED FOR THE PURPOSES O F COMPUTING BOOK PROFITS. THAT, CAPITAL GAINS WOULD C ERTAINLY BE ONE OF THE VARIOUS ITEMS WHOSE INFORMATION IS RE QUIRED TO BE GIVEN TO THE SHAREHOLDERS UNDER THE SAID CL. 3(XII)(B). SO ALSO, THE DISCLOSURE IS REQUIRED TO BE MADE IN R ESPECT OF INVESTMENT IN THE CAPITAL OF A PARTNERSHIP FIRM IF THE COMPANY IS A PARTNER ON THE DATE OF THE BALANCE SHE ET (SEE PG. 1651 OF THE COMPANIES ACT BY A. RAMAIYA [FOURTEENTH EDN.]. SIMILARLY, PROFITS OR LOSSES ON SUCH ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 40 INVESTMENTS ARE ALSO REQUIRED TO BE DISCLOSED. [SEE CL. 3(XII)(A) OF PART II OF SCH. VI OF THE COMPANIES AC T].' (I) FIRST OF ALL, IT IS PERTINENT TO NOTE HERE THAT, THE TR ANSACTION UNDER CONSIDERATION IN THE AFORESAID DECISION WAS CH ARGEABLE TO TAX UNDER THE HEAD 'CAPITAL GAINS' AND THEREAFTER, ITS ASSESSIBILITY UNDER MAT PROVISIONS WAS DETERMINED. IN THE CASE OF THE ASSESSEE, THE TRANSACTION UNDER CONSIDERATIO N IS A PURE CAPITAL RECEIPT NOT CHARGEABLE UNDER ANY OF THE PRO VISIONS OF THE ACT AT ALL. THE QUESTION OF LAW BEFORE THE HON'BLE H IGH COURT WAS , 'WHETHER THE INCOME FROM CAPITAL GAINS SHOULD BE INCLUDED FOR THE PURPOSE OF COMPUTING BOOK PROFITS UNDER SECTION 115J OF THE INCOME-TAX ACT?. IT WAS NEVER A QUESTION BEFORE THE HON'BLE HIGH COURT THAT A RECEIPT WHICH IS NOT TAXABLE AT A LL UNDER THE PROVISIONS OF THE ACT SHOULD BE INCLUDED FOR THE PURPOSE OF COMPUTING BOOK PROFITS OR NOT. ACCORDINGLY, THE DECI SION PER SE DOES NOT APPLY TO THE FACT OF THE APPELLANT. (II) SECONDLY, THE HON'BLE HIGH COURT PROCEEDED ON THE PREMISE THAT WHILE CALCULATING THE TOTAL INCOME UND ER THE NORMAL PROVISIONS OF THE ACT, THE ASSESSEE IS REQUIRED TO TAKE INTO ACCOUNT THE AFORESAID CAPITAL GAINS AND IF THAT IS SO, THEN CAPITAL GAINS ARE ALSO REQUIRED TO BE CONSIDERED WHILE COMP UTING BOOK PROFITS U/S. 115J. IF WE APPLY THE SAME PRINCIPLE OR ANALOGY ON THE PRESENT FACTS, THEN THE CAPITAL RECEIPT PER SE WHICH IS NOT AN INCOME CHARGEABLE TO TAX, THEREFORE, SHOULD NOT BE TAKEN INTO ACCOUNT FOR COMPUTING TOTAL INCOME UNDER THE ACT AN D CONSEQUENTLY FOR THE PURPOSE OF MAT. ONCE IT IS NOT TAKEN INTO ACCOUNT FOR THE PURPOSE OF COMPUTING TOTAL INCOME THEN I T SHOULD ALSO NOT BE CONSIDERED FOR COMPUTING BOOK PROFIT FOR 115JB. B) KOPRAN PHARMACEUTICALS LTD. VS. DCIT (2009) 121 TTJ 77 (MUM):- ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 41 FACTS IN BRIEF WERE THAT DURING THE RELEVANT PREVIO US YEAR, THE ASSESSEE EARNED CAPITAL GAINS ARISING ON SALE OF FA CTORY PREMISES. THE EXCESS OF NET SALE CONSIDERATION OVER THE ORIGINAL COST PRICE OF THE PROPERTY WAS TRANSFERRED TO THE C APITAL RESERVE ACCOUNT. FURTHER, THE DIFFERENCE BETWEEN THE ORIGIN AL COST AND THE WRITTEN DOWN VALUE WAS TREATED AS PROFIT ON SAL E OF FACTORY AND SAID CAPITAL GAIN WAS CREDITED TO THE PROFIT AN D LOSS ACCOUNT AS OTHER INCOME. THE ASSESSING HELD THAT TH E SAID AMOUNT SHOULD FORM A PART OF THE ASSESSEE AND ACCOR DINGLY, ADDED BACK THE SAME FOR THE PURPOSE OF ASSESSMENT U /S. 115JB. IN THIS BACKGROUND IT WAS HELD AS UNDER:- 'NOW THE QUESTION IS, IN SUCH CIRCUMSTANCES, WHERE THE ASSESSEE HAS OPTION TO ACCOUNT THE SURPLUS PROFIT I N TWO DIFFERENT METHODS, ONE BY INCLUDING IN THE PROFITS AND THE OTHER WITHOUT INCLUDING IN THE PROFITS, WHAT SHOULD BE THE IMPLICATION FOR THE PURPOSE OF COMPUT ING TAXABLE INCOME UNDER A SCHEME OF MAT. 11. IN THIS CONTEXT, PARTICULARLY IN THE MATTER OF INCOME BY WAY OF CAPITAL GAINS, THE BOMBAY HIGH COURT HAS HELD IN THE CASE OF VEEKAYLAL INVESTMENT CO. (P.) LTD. ( SUPRA) THAT CLAUSE 3 (XII)( B) OF PART II OF SCHEDULE VI TO THE COMPANIES ACT, REQUIRES DISCLOSURE OF PROFITS OR LO SSES FROM TRANSACTIONS OF AN EXCEPTIONAL NATURE. IN THE LIGHT OF THE SAID DISCLOSURE AND ACCOUNTING REQUIREMENT MANDATED BY SCHEDULE VI TO THE COMPANIES ACT, THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT THE CAPITAL GAINS ARISING TO A COMPANY SHOULD FORM PART OF THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115J. AS FAR AS T HIS ISSUE IS CONCERNED, THERE IS NO FUNCTIONAL DISTINCT ION BETWEEN SECTION 115J AND SECTION 115JB. THEREFORE, WE FIND THAT THE SPECIFIC ISSUE OF CAPITAL GAINS, VIS- A-VIS, MAT PROFIT HAS BEEN DECIDED BY THE JURISDICTIONAL HIGH COURT IN THE ABOVE JUDGMENT AND WE ARE BOUND TO FOLLOW THE A BOVE JUDGMENT. IF SO, THE LOWER AUTHORITIES HAVE RIGHTLY HELD THAT THE AMOUNT OF RS. 27,01,6 70 SHOULD BE INCLUDED IN THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB. 12. IT IS TRUE THAT THE HON'BLE SUPREME COURT HAS H ELD IN THE CASE OF APOLLO TYRES LTD. (SUPRA) THAT THE ASSE SSING ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 42 AUTHORITY DOES NOT HAVE THE JURISDICTION TO MAKE ADJUSTMENTS IN THE BOOK PROFITS CERTIFIED BY THE STATUTORY AUDITORS OF THE COMPANY OTHER THAN THE ADJUSTMENT PROVIDED UNDER THE EXPLANATION THERETO. BUT THAT IS A GENERAL PROPOSITION OF LAW DECLARED BY TH E HON'BLE SUPREME COURT. ON THE OTHER HAND, THE BOMBA Y HIGH COURT IN THE CASE HAS SPECIFICALLY DEALT WITH THE QUESTION OF CAPITAL GAINS. THEREFORE, WE HAVE TO CO NSIDER THE JUDICIAL DISTINCTION MADE BETWEEN THE SPECIFIC ISSUE AND THE GENERAL PROPOSITION OF LAW. THEREFORE, WE F IND THAT THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF VEEKAYLAL INVESTMENT CO. (P.) LTD. ( SUPRA) IS MORE APPLICABLE TO THE PRESENT CASE. IN SUCH CIRCUMSTANCES, WE HOLD THAT THIS APPEAL FILED BY TH E ASSESSEE IS LIABLE TO BE DISMISSED.' I. FIRSTLY, HERE AGAIN THE TRANSACTION UNDER CONSIDE RATION IN THE AFORESAID DECISION WAS CHARGEABLE TO TAX UNDER THE HEA D 'CAPITAL GAINS' AND THEREAFTER, ITS ASSESSIBILITY UNDER MAT P ROVISIONS WAS DETERMINED. IN THE CASE OF THE ASSESSEE THE TRANSACTION UNDER CONSIDERATION IS A PURE CAPITAL RECEIPT NOT CHARGEABLE UNDER THE PROVISIONS OF THE ACT AT ALL. II. SECONDLY, THE AFORESAID CAPITAL GAINS ARE TAXAB LE UNDER THE NORMAL PROVISIONS OF THE ACT. ONCE IT TAKEN INTO ACCOUNT FOR THE PURPOSE OF COMPUTING 'TOTAL INCOME', IT MAY ALSO BE CO NSIDERED FOR COMPUTING BOOK PROFIT U/S. 115JB. III. THIRDLY, IN THE SAID CASE, THE NET PROFIT AS PE R THE 'PROFIT AND LOSS ACCOUNT' IS DIFFERENT THAN WHAT WAS ULTIMATELY COMPU TED BY THE ASSESSING OFFICER. IN OTHER WORDS, THE HON'BLE MUM BAI TRIBUNAL AFTER CONSIDERING HON'BLE SUPREME COURT DECI SION IN THE CASE OF APOLLO TYRES LTD. HAS ALLOWED TINKERING TO THE 'NET PROFIT' WHICH IS THE STARTING POINT FOR COMPUTING 'BOOK PROFIT' U/S. 115JB. IV. LASTLY, IN THE CASE OF THE ASSESSEE ALSO, IT IS NOT THE CASE OF ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 43 ASSESSEE THAT AN ADJUSTMENT SHOULD BE DONE WHILE ARRIVI NG AT THE 'BOOK PROFIT' AS PROVIDED UNDER THE ACT IN EXPLANATION 1 TO SUB-SECTION (2) TO SECTION 115JB. WHAT THE ASSESSEES C ASE IS, FIRST DETERMINE THE CORRECT AMOUNT OF 'NET PROFIT' AS PE R PROFIT AND LOSS ACCOUNT WHICH IS THE STARTING POINT FOR COMPUTA TION U/S. 115JB AND THEN TAX THE BOOK PROFIT. WHENCE AS PER OUR DISCUSSION ABOVE THE RECEIPTS IN QUESTION ITSELF IS NO T PART OF NET PROFIT, THEN THERE IS NO QUESTION OF BRINGING IT TO TAX U NDER MAT. C) HINDUSTAN SHIPYARD LTD. VS. DCIT (2010) 130 TTJ 213 (VIZAG): RELEVANT FACTS WERE THAT, DURING THE YEAR UNDER CONSIDER ATION, THE GOVERNMENT OF INDIA HAD WAIVED LOAN (A PORTION BY WAY OF CONVERSION OF LOAN INTO EQUITY) AND INTEREST THEREON DUE FROM THE ASSESSEE. THE ASSESSEE DID NOT CREDIT, BOTH, THE PRIN CIPAL AND INTEREST WAIVER IN THE PROFIT AND LOSS ACCOUNT THOUGH THE DETAILS OF WAIVER DISCLOSED IN NOTES TO ACCOUNTS. SUCH ACCOUNTI NG TREATMENT WAS QUALIFIED BY AUDITOR. THE ASSESSING OFFI CER ACCEPTED THAT WAIVER OF PRINCIPAL AMOUNT OF LOAN NOT TAX ABLE. HOWEVER, ACCORDING TO HIM, SINCE INTEREST AMOUNT WAS LIABLE TO TAX U/S. 41(1) AND THEREFORE, ACCOUNTS PREPARED COULD BE MODIFIED TO TAX SUCH INTEREST U/S. 115JB. IN THIS BACKGR OUND IT WAS HELD AS UNDER:- ' 8.6.2 WE NOTICE THAT THE HYDERABAD TRIBUNAL IN THE CASE OF NCL INDUSTRIES (SUPRA) FOLLOWED THE ANALOGY OF THE DECISION OF THE SPECIAL BENCH OF TRIBUNAL IN TH E CASE OF SUTLEJ COTTON MILLS LTD. VS. ASSTT. CIT (1993) 111 CTR (CAL)(TRIB) 321 (1993) 46 7TJ (CAL) 310 TO COME TO THE CONCLUSION THAT THE INCOME TAXABLE UNDER S. 41(1) C ANNOT BE INCLUDED FOR THE PURPOSE OF COMPUTING BOOK PROFI T UNDER S.115J OF THE ACT. THE SPECIAL BENCH IN THE C ASE OF SUTLEJ COTTON MILLS LTD. (SUPRA), HAS HELD THAT THE CAPITAL GAINS CHARGEABLE UNDER S. 45, AS DEEMED INCOME, CANNOT BE BROUGHT TO TAX FOR THE PURPOSES OF DETERMINING THE BOOK PROFITS UNDER S. 115J. HOWEVER, THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF VEEKAYLAL INVESTMENT CO. (P) ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 44 LTD. (SUPRA), HAS HELD THAT THE CAPITAL GAIN IS INC LUDIBLE IN THE COMPUTATION OF THE BOOK PROFIT. ACCORDING TO TH E LEGAL HIERARCHY, A LOWER COURT SHOULD BOW TO THE WISDOM O F THE HIGHER COURT. HENCE THE DECISION RENDERED BY A HIGH COURT PREVAILS OVER THE DECISION OF THE TRIBUNAL. B EFORE US, THE ASSESSEE DID NOT PLACE ANY OTHER CONTRARY DECISION OF A HIGH COURT. IN THESE CIRCUMSTANCES, I N VIEW OF THE DECISION OF THE BOMBAY HIGH COURT REFERRED S UPRA, WE ARE UNABLE TO AGREE WITH THE ARGUMENT OF THE ASSESSEE THAT THE INCOME TAXABLE UNDER S. 41(1) CAN NOT BE INCLUDED IN THE COMPUTATION OF 'BOOK PROFIT' UND ER S. 115JA OF THE ACT.' I. IN THIS CASE, GOVERNMENT OF INDIA ACCORDED THE FOLL OWING BENEFITS TO THE ASSESSEE I) WAIVER OF LOAN II) CONV ERSION OF LOAN INTO EQUITY AND III) WAIVER OF INTEREST. THE SAID W AIVER OF PRINCIPAL AND INTEREST WAS NOT INCORPORATED IN THE BOOKS OF ACCOUNT, THOUGH THE DETAILS OF THE WAIVER WERE DISCLOSE D IN THE ANNUAL REPORT PLACED THE SHAREHOLDERS. II. THE ONLY ISSUE THAT WAS RAISED IN THE ASSESSMENT WA S IN RELATION TO WAIVER OF INTEREST. THE ASSESSING OFFICER H IMSELF HAS ACCEPTED THAT WAIVER OF PRINCIPAL AMOUNT OF LOAN AND CONVERSION OF LOAN IS NOT A RECEIPT TO BE CONSIDERED FOR THE PU RPOSE OF SECTION 115JB. III. FURTHER, THE ASSESSING OFFICER HELD THE WAIVER OF INTEREST TO BE TAXABLE U/S. 115JBAS THE SAME WAS TAXABLE U/S . 41(1) OF THE ACT. IN THE CASE OF THE APPELLANT, NEITHER T HE WAIVER OF PRINCIPAL AMOUNT OF LOAN (BEING A CAPITAL RECEIPT) N OR THE INTEREST (NOT CLAIMED AS A DEDUCTION IN EARLIER YEARS) IS TAXABLE UNDER ANY PROVISIONS OF THE ACT. IV. IN THIS CASE ALSO, THE ASSESSING OFFICER HAS AD JUSTED THE NET PROFIT AS PER PROFIT AND LOSS ACCOUNT WHICH IS THE STARTING POINT OF CALCULATION UNDER SECTION 115JB, I.E., BEF ORE ONE ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 45 ENTERS THE COMPUTATION OF 'BOOK PROFIT' UNDER THE EXPLANATION TO SUB-SECTION (2) OF SECTION 115JB. IN OTHER WORDS , THE HON'BLE TRIBUNAL AFTER CONSIDERING THE HON'BLE SUPR EME COURT DECISION IN THE CASE OF APOLLO TYRES LTD. HAS ALLOW ED TINKERING TO THE 'NET PROFIT' WHICH IS THE STARTING POINT FOR COMPUTING 'BOOK PROFIT' U/S. 115JB. D) DUKE OFFSHORE LTD. VS. DCIT (2011) 45 SOT 399 (MUM):- IN THIS CASE, THE ASSESSEE HAD A SETTLEMENT WITH TH E BANK AS A RESULT OF WHICH THERE WAS A WAIVER/REDUCTION OF LOA N. THE ASSESSEE HAD SHOWN THE SAME AMOUNT AS EXTRAORDINARY ITEM IN THE PROFIT AND LOSS ACCOUNT. WHILE COMPUTING BOO K PROFITS FOR THE PURPOSE OF SECTION 115JB, THE ASSESSEE DID NOT CONSIDER THE SAID WAIVER. HOWEVER, THE ASSESSING OF FICER INCLUDED SUCH WAIVER OF LOAN AND INTEREST THEREON F OR THE PURPOSE OF COMPUTING BOOK PROFITS U/S. 115JB. THE T RIBUNAL IN THIS BACKGROUND HELD AS UNDER:- 15. THE JURISDICTIONAL HIGH COURT IN THE CASE OF C IT VEEKAYLAL INVESTMENT CO P LTD (249 ITR 597) HAS HEL D THAT CAPITAL GAINS CREDITED TO PROFIT AND LOSS ACCO UNT SHOULD BE TAKE INTO ACCOUNT IN COMPUTING BOOK PROFI TS. 16. THE DELHI HIGH COURT IN THE CASE OF CIT V GOYAL M.G. GASES 2010- TIOL-91HC-DEL HAS HELD AS UNDER: 'IN THE PRESENT CASE, THE ASSESSEE DID NOT CLAIM NOR WAS ALLOWED ANY DEDUCTION OR BENEFIT OF ALLOWANCE BY WAY OF ALLOWABLE EXPENDITURE AND TRADING LIABILITY, AND THE SAME BEING CREDITED TO THE PROFIT AND LOSS ACCOUNT HAD BEEN SUBJECTED TO TAX AS PART OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT. WE ARE, THEREFORE, OF THE OPINION THAT TH E CONCLUSIONS OF THE TRIBUNAL ARE BASED ON A CORRECT APPRECIATION OF LAW AND, THEREFORE, DO NOT WARRANT ANY INTERFERENCE BY THIS COURT.' ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 46 THE HIGH COURT HAS APPROVED THE FACT THAT WRITE BACK OF LOANS, THOUGH IS NOT TAXABLE UNDER THE NORMAL PROVISIONS OF THE ACT ARE INCLUDIBLE FOR THE PURPOSE OF COMPUTING BOOK PROFITS. 17. THE SPECIAL BENCH OF THE HYDERABAD TRIBUNAL IN THE CASE OF RAIN COMMODITIES LTD V DCIT - (2010-TIOL-35 5- ITAT-HYD-SB) = (131 TTJ 514) HAS HELD THAT PROFIT O N SALE OF CAPITAL ASSETS CREDITED TO THE PROFIT AND L OSS ACCOUNT IS INCLUDIBLE IN COMPUTING BOOK PROFITS, NOTWITHSTANDING THE FACT THAT THE SAME IS EXEMPTED UNDER THE NORMAL PROVISIONS OF THE INCOME TAX ACT O N ACCOUNT OF THE INVESTMENT OF CAPITAL GAINS IN AN AP PROVED MODE. 18. IN THE CIRCUMSTANCES WE ARE OF THE OPINION THAT THE CIT(A) WAS CORRECT IN HOLDING THAT STARTING POINT F OR DETERMINING THE BOOK PROFIT UNDER SECTION 115JB IS RS.54168537/- AND IN COMPUTING THE BOOK PROFITS UND ER SECTION 115JB NO PART OF THE LIABILITY OF RS.445134 06/- THAT HAS CEASED ON ACCOUNT OF SETTLEMENT OF LOAN LI ABILITY OF GLOBAL TRUST BANK CAN BE EXCLUDED EVEN THOUGH PART OF THE LIABILITY MAY REPRESENT WAIVER OF PRINCIPAL AMO UNT OF LOAN.' I. IN THIS CASE THE TRIBUNAL HAS ESSENTIALLY RELIED ON THE FOLLOWING DECISIONS: (A) DECISION OF THE HYDERABAD TRIBUNAL IN THE CASE OF GUL F OIL CORPORATION LTD. VS. ACIT (2008) 111 ITD 124 (B) CIT VS. VEEKAYLAL INVESTMENT CO. (P.) LTD. (SUPRA) (C) RAIN COMMODITIES LTD. VS. CIT (2010) 41 DTR 449 (HYD. ) (SB). II. IN THE CASE OF GULF OIL, (HYDERABAD ITAT DECIS ION), IT IS NOTICED THAT, THE ISSUE UNDER CONSIDERATION WAS WHE THER ADVISORY FEE DEBITED AS AN EXTRA-ORDINARY ITEM IN THE PROFIT AND LOSS ACCOUNT WAS TO BE CONSIDERED WHILE COMPUTING BOO K PROFITS U/S. 115JB. THE PREMISE ON WHICH ADJUSTMENT WAS SOU GHT WAS THAT THE ITEM UNDER CONSIDERATION WAS 'REVENUE I N NATURE' PER SE. HOWEVER, IN THE CASE OF DUKE OFFSHORE LTD. (S UPRA), THE TRIBUNAL WAS DEALING WITH AN ITEM OF RECEIPT WHICH IS CAPITAL IN ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 47 NATURE AND NOT 'INCOME' PER SE. FURTHER, FROM THE PERUS AL OF THE DECISIONS OF THE HON'BLE BOMBAY HIGH COURT AND HYDERA BAD SPECIAL BENCH STATED AT POINT NO. (B) & (C) ABOVE, IT I S SEEN THAT BOTH THE DECISIONS DEAL WITH THE ISSUE OF TAXABILITY O F CAPITAL GAINS IN COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. THESE CAPITAL GAINS WERE OTHERWISE INCOME U/S. 2(24) OF THE ACT AND EXCLUSION WAS CLAIMED BY THE ASSESSEE WHILE COMPUTIN G BOOK PROFIT U/S. 115JB ON THE GROUND THAT THE SAID CAPITAL GAINS WERE EXEMPT EITHER U/S. 47(IV) OR NOT CONSTITUTE COMMERCIAL P ROFITS. HOWEVER, IN THE CASE OF DUKE SHORE BEFORE THE TRIBUNA L, THE WAIVER WAS NOT CAPITAL GAINS BUT PURE CAPITAL RECEIPTS W HICH DOES NOT EVEN HAVE ANY 'INCOME', 'PROFITS', 'GAINS' EMBEDD ED THEREIN. ACCORDINGLY, ALL THE ABOVE DECISIONS RELIED UPON BY THE HON'BLE MUMBAI TRIBUNAL WERE DIFFERENT ON FACTS AS COMPARED TO THE FACTS UNDER CONSIDERATION. THOUGH THIS DECISION IS AGAINST THE ASSESSEE, HOWEVER WE FIND THAT IN SUBSEQUENT DECISIONS ON SIMILAR FACTS AND ISSUES THIS MATTER HAS BEEN DECIDED B Y THE MUMBAI TRIBUNAL AND OTHER TRIBUNALS IN FAVOUR OF THE ASSESSEE. THESE DECISIONS SHALL BE DISCUSSED HEREIN AFTER. E) B &B INFOTECH LTD. VS. ITO [ITA NO. 726/BANG/2014 DATED 08.09.2015:- IN THIS CASE, THE ASSESSEE ENTERED INTO A ONE-TIME SETTLE MENT WITH A BANK AS A RESULT OF WHICH THERE WAS A WAIVER O F PRINCIPAL AMOUNT OF LOAN. THE ASSESSEE PREPARED ITS PROFIT AND LOSS ACCOUNT BY INCLUDING THE SAID AMOUNT AS INCOME. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THA T THE REMISSION OF LIABILITY WAS ON ACCOUNT OF PRINCIPAL AMOUNT OF LOAN AND THEREFORE, THE SAME WAS NOT IN THE NATURE OF INCOME WHICH COULD BE CONSIDERED AS PART OF THE BOOK PROFI TS U/S. 115JBOF THE ACT. THE ASSESSING OFFICER REJECTED THE O BJECTIONS ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 48 OF THE ASSESSEE AND ADDED THE AID AMOUNT WHILE COMPUTIN G BOOK PROFITS U/S. 115JB OF THE ACT. THE TRIBUNAL HEL D AS UNDER:- ' IN THE CASE IN HAND, THE ASSESSEE GOT REMISSION OF LIABILITY OF RS.43LAKHS UNDER ONE TIME SETTLEMENT BY THE ING VYSYA BANK WHICH HAS BEEN DISCLOSED BY THE ASSESSEE IN THE P&L A/C. THIS DISCLOSURE IN THE P&L A/C IS STRI CTLY AS PER THE REQUIREMENT OF SCHEDULE VI OF THE COMPANIES ACT AND FURTHER IN CONFORMITY WITH THE MANDATORY ACCOUNTING STANDARD AS-5 . THEREFORE, THE TREATMENT OF THE AMOUNT IN THE BOOKS OF ACCOUNT AND PARTICULARLY IN THE P&L A/C, IS AS PER THE PROVISIONS OF SCHEDULE VI OF THE COMPANIES ACT AS WELL AS ACCOUNTING STANDARD AS 5 . HENCE, ANY DISCLOSURE IN THE NOTES TO ACCOUNTS WOULD NOT REQUIRE ANY CHAN GE IN THE P&L A/C ALREADY PREPARED AS PER SCHEDULE VI OF THE COMPANIES ACT. THE DECISIONS RELIED UPON BY THE ASS ESSEE ARE APPLICABLE ON THE FACTS AND CIRCUMSTANCES WHERE IF AN ITEM OF INCOME OR EXPENDITURE WHICH IS REQUIRED TO BE DISCLOSED IN THE P&L A/C PREPARED AS PER PROVISIONS OF SCHEDULE VI OF THE COMPANIES ACT BUT INSTEAD OF DISCLOSING THE SAID ITEM IN THE P&L A/C, IT WAS DIS CLOSED IN THE NOTES TO THE ACCOUNTS, THEN SUCH ITEM OF INC OME OR EXPENDITURE WILL BE TREATED AS PART OF THE P&L A/C FOR THE PURPOSE OF COMPUTING BOOK PROFITS U/S 115JB. ONCE P &L A/C IS ADMITTEDLY PREPARED AS PER SCHEDULE VI OF TH E COMPANIES ACT, THEN NEITHER THE AO HAS ANY POWER TO TINKER WITH IT NOR THE ASSESSEE IS PERMITTED TO CLA IM EXCLUSION OR INCLUSION OF ANY ITEM OF INCOME OR EXP ENDITURE AS THE CASE MAY BE, FOR THE PURPOSE OF COMPUTING BO OK PROFITS U/S 115JB EXCEPT THE PERMISSIBLE ADJUSTMENT PROVIDED UNDER THE EXPLANATION TO SEC.115JB OF THE ACT ITSELF. IT IS NOT DISPUTED THAT THIS AMOUNT DOES NO T FALL IN THE AMBIT OF ANY OF THE CLAUSES OF EXPLANATION TO 1 15JB. THEREFORE, ONCE THIS AMOUNT HAS BEEN DISCLOSED IN T HE P&L A/C PREPARED STRICTLY AS PER PROVISIONS OF SCHEDULE VI OF THE COMPANIES ACT, THE SAME CANNOT BE EXCLUDED FOR THE PURPOSE OF COMPUTING BOOK PROFITS U/S 115JB. WE FIN D THAT THE CIT(A) HAS REJECTED THE CLAIM OF THE ASSESSEE B Y FOLLOWING THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. (SUPRA) AS WELL AS THE HO N'BLE SUPREME COURT IN THE CASE OF CIT V. HCL COMNET SYST EMS & SERVICES LTD. [2008] 305 ITR 4091174 TAXMAN 118 ( SC). ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS ABOVE DISCUSSION, WE DO NOT FIND ANY ERROR OR ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 49 ILLEGALITY IN THE IMPUGNED ORDER OF THE CIT (A).' THIS DECISION IS AGAIN AGAINST THE ASSESSEE, HOWEVER AT THE OUTSET, IT IS SEEN THAT THE TRIBUNAL HAS NOT AT ALL ADJUD ICATED ON THE CONTENTION OF THE ASSESSEE THAT REMISSION BEING CAPITA L RECEIPT, CANNOT BE CONSIDERED AS INCOME EVEN FOR THE P URPOSE OF SECTION 115JB OF THE ACT. THE TRIBUNAL HAS SUMMARILY RELIED ON THE SUPREME COURT DECISION IN THE CASE OF APOLLO TYRES (SUPRA) TO REJECT THE CONTENTIONS OF THE ASSESSEE. SECONDLY, THE TRI BUNAL HAS DISTINGUISHED THE CASE LAWS RELIED UPON BY THE ASSES SEE ON THE BASIS THAT, THE RATIO OF DECISIONS RELIED UPON BY THE ASSESSEE IS BASED ON THE PREMISE THAT IF AN ITEM OF INCOME OR EXPEN DITURE IS REQUIRED AS PER PART II OF SCHEDULE VI OF THE COMPANI ES ACT TO BE A PART OF THE P/L ACCOUNT, BUT THE SAME WAS NOT DISCLOSE D IN THE P/L A/C AND HAS BEEN DISCLOSED IN THE NOTES FORMING PART OF THE ACCOUNTS, THEN THE SAID DISCLOSURE IN THE NOTES TO THE ACC OUNTS WOULD BE TREATED AS DISCLOSURE OF THAT PARTICULAR ITEM O R EXPENDITURE AS THE CASE MAY BE, IN THE P/LA/C FOR THE P URPOSE OF BOOK PROFITS U/S. 115JB. LASTLY, THE DECISION HAS BEEN RENDERED ESSENTIALLY ON THE PREMISE THAT THE ASSESSEE CANNOT SEEK ANY ADJUSTMENTS EXCEPT FOR THE PERMISSIBLE ADJUSTMENT PROVIDE D UNDER THE EXPLANATION TO SECTION 115JB ITSELF. HERE IT IS NOT THE CASE OF THE ASSESSEE THAT AN ADJUSTMENT SHOULD BE DONE WHILE ARRIVING AT THE 'BOOK PROFIT' AS PROVIDED UNDER THE ACT IN EXPLANATION 1 TO SUB-SECTION (2) TO SECTION 115JB. THE FUNDAMENTAL ASPECT IS TO FIRST DETERMINE THE CORRECT AMO UNT OF 'NET PROFIT' AS PER PROFIT AND LOSS ACCOUNT WHICH IS THE STARTING POINT FOR COMPUTATION U/S. 115JB. IF ANY RECEIPT IS NO T PART OF THE WORKING RESULT OR PART OF THE NET PROFIT THEN IT CANNOT BE ROPED IN MAT TAXABILITY. 22. AS REGARDS THE DECISIONS RELIED UPON BY THE LD. COUNSEL THE SAME ARE DISCUSSED IN BRIEF HEREUNDER:- A) SHIVALIK VENTURE (P) LTD. VS. DCIT (2015) 173 TT J (MUM) 238: ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 50 28. IN VIEW OF THE FOREGOING DISCUSSIONS, WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT THE PROFIT ARISING ON TRANSFER OF CAPITAL ASSET TO ITS WHOLLY OWNED INDIAN SUBSIDIARY COMPANY IS LIABLE TO BE EXCLUDED FROM THE NET PROFIT., I.E., T HE NET PROFIT DISCLOSED IN THE PROFIT AND LOSS ACCOUNT SHOULD BE REDUCED BY THE AMOUNT OF PROFIT ARISING ON TRANSFER OF CAPITAL ASS ET AND THE AMOUNT SO ARRIVED AT SHALL BE TAKEN AS 'NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT' FOR THE PURPOSE OF COMPUTA TION OF BOOK PROFIT UNDER EXPLANATION 1 TO SEC. 115JB OF THE ACT . ALTERNATIVELY, SINCE THE SAID PROFIT DOES NOT FALL UNDER THE DEFIN ITION OF 'INCOME' AT ALL AND SINCE IT DOES NOT ENTER INTO THE COMPUTA TION PROVISIONS AT ALL, THERE IS NO QUESTION OF INCLUDING THE SAME IN THE BOOK PROFIT AS PER THE SCHEME OF THE PROVISIONS OF SEC. 115JB O F THE ACT. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD CI T(A) ON THIS ISSUE AND DIRECT THE AO TO EXCLUDE THE ABOVE SAID P ROFIT FROM THE COMPUTATION OF 'BOOK PROFIT' FOR THE REASONS DISCUS SED ABOVE. B) ACIT VS. SHREE CEMENT LTD. (ITA NOS.614, 615 & 635/JP/2010) FOLLOWING SHREE CEMENT LTD. VS. ACIT (20 15) 152 ITD 561 (JAIPUR) WHEREIN IT WAS HELD THAT: '13.4. FROM PERUSAL OF THE DECISIONS OF RAIN COMMOD ITIES (SUPRA) AND GROWTH AVENUES (SUPRA), WE NOTICE THAT BOTH THE DECISION DEALT WITH THE ISSUE OF TAXABILITY OF CAPITAL GAINS IN COMPUTING BOOK PROFIT U/S 115JB OF THE ACT . THESE CAPITAL GAINS WERE OTHERWISE INCOME U/S 2(24) OF TH E ACT AND EXCLUSION WAS CLAIMED IN COMPUTING BOOK PROFIT U/S 115JB ON THE GROUND THAT THE SAID CAPITAL GAINS WAS EXEMPT EITHER U/S 47(IV) OR U/S 54EC OF THE ACT, WH ICH THE TRIBUNAL DID NOT AGREE. IN THE PRESENT CASE, HOWEVE R, WE ARE DEALING NOT WITH CAPITAL GAINS BUT WITH PURE CA PITAL RECEIPT, WHICH DOES NOT EVEN HAVE ANTI 'INCOME', 'P ROFITS OR, GAINS' EMBEDDED THEREIN. THE IMPUGNED INCENTIVE GRA NTED TO THE ASSESSEE IS PURE AND SIMPLE CAPITAL RECEIPT, IN TERMS OF OUR DECISION ON GROUND NO. I AT PARA 10 HEREINAB OVE, WHICH IN TURN IS SUPPORTED BY THE PRINCIPLES LAID D OWN BY THE APEX COURT, VARIOUS HIGH COURTS & SPECIAL BENCH OF THE TRIBUNAL. THAT BEING THE CASE, IT DOES NOT HAVE ANY INCOME OR PROFIT ELEMENT EMBEDDED IN IT, SINCE THE INCENTI VE WAS GRANTED TO ENCOURAGE INDUSTRIAL GROWTH OF INDUSTRIA LLY NON DEVELOPED AREA. NO ONE CAN MAKE PROFIT OUT OF THE S UBSIDY OR INCENTIVE GRANTED TO IT. HENCE, IT IS NOT CHARGE ABLE TO TAX UNDER THE INCOME TAX ACT AS HELD BY THE APEX COURT IN THE CASE OF PADMARAJE (SUPRA) AND IN THE LIGHT OF OUR F ACT ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 51 FINDING AS ABOVE, CLEARLY NOT INCLUDIBLE IN P&L ACC OUNT PREPARED UNDER PART II & PART III OF SCHEDULE VI TO THE COMPANIES ACT. ' IT HAS BEEN INFORMED BY THE LD. COUNSEL THAT IN FACT, THE TRIBUNAL ORDER IN FAVOUR OF THE AFORESAID ASSESSEE IN ITS OWN CASE FOR THE EARLIER ASSESSMENT YEAR IN ITA NO. 942/J P/O8 HAD BEEN APPEALED BEFORE THE HON'BLE JURISDICTIONAL RAJAS THAN AND HON'BLE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 0 1-10-2010 HAS ADMITTED ONLY ONE GROUND WHICH IS REPRODUCED BELO W: WHETHER ON THE FACTS & CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE SALES TA X SUBSIDY RECEIVED BY THE ASSESSEE OF RS. 18,48,85,50 6 IN THE FORM OF SALES TAX EXEMPTION WAS A CAPITAL RECEI PT & NOT A REVENUE RECEIPT, IGNORING THE BASIC PURPOSE FOR W HICH THE SAME WAS GIVEN WHICH ITSELF PROVIDES THAT THE SUBSI DY WAS GIVEN TO THE ASSESSEE TO ENHANCE THE PRODUCTION, EMPLOYMENT & SALES IN THE STATE OF RAJASTHAN, WHICH ARE ALL POST OPERATIONAL ACTIVITIES' FROM THIS IT WAS ARGUED THAT HON'BLE HIGH COURT ADMITTED ONLY THE GROUND AS TO WHETHER THE IMPUGNED SUBSIDY WAS A CAP ITAL RECEIPT OR A REVENUE RECEIPT. HON'BLE HIGH COURT HAS N OT ADMITTED THE GROUND OF THE REVENUE AGAINST RELIEF GRANTE D BY TRIBUNAL UNDER SECTION 115JB OF THE ACT ON ABOVE CAPITA L RECEIPT AND TO THAT EXTENT, THE ORDER OF THE TRIBUNAL STAND S AFFIRMED. C) ACIT VS. L. H. SUGAR FACTORY LTD . IN ITA NOS. 417, 418 & 339/ LKW/ 2013 DATED 9 FEBRUARY 2016. WHEREIN TRIBUN AL HELD THAT:- 'FROM THE ABOVE PARAS, WE FIND THAT THE TRIBUNAL HA S DULY CONSIDERED THE JUDGMENT OF THE HON'BLE APEX COURT RENDERED IN THE CASE OF APOLLO TYRES LTD. ((SUPRA) AND THEREAFTER, IT WAS NOTED BY THE TRIBUNAL IN THIS CA SE THAT AS PER THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL R ENDERED IN THE CASE OF RAIN COMMODITIES LTD. VS. DCIT, 41 D TR 449, IF PROFIT AND LOSS ACCOUNT IS NOT IN ACCORDANCE WIT H PART II & PART III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 BECAUSE ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 52 IT IS PREREQUISITE FOR SECTION 115JB OF THE ACT. TH E TRIBUNAL IN THIS CASE ALSO CONSIDERED TWO ANOTHER TRIBUNAL'S ORDERS RENDERED IN THE CASE OF DCIT VS. BOMBAY DIAMOND COMPANY LTD-33 DTR 59 AND SYNDICATE BANK VS. ACIT, 7 SOT 51 BANGALORE WHERE IT WAS HELD BY THE TRIBUNAL AFTER CONSIDERING THE DECISION OF HON'BLE APEX COURT REND ERED IN THE CASE OF APOLLO TYRES LTD. (SUPRA), AND AFTER 28 EXPLAINING THE SAME THAT ADJUSTMENT TO PROFIT AND L OSS ACCOUNT IS POSSIBLE TO MAKE IT COMPLIANT WITH SCHED ULE VI PART II AND PART III OF THE COMPANIES ACT, 1956 WHI CH IS PREREQUISITE OF SECTION 115JB OF THE ACT. ON THIS B ASIS, THE TRIBUNAL IN THE CASE OF SHREE CEMENT LTD. (SUPRA) D ECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND IT WAS HEL D THAT CAPITAL RECEIPT IN THE FORM OF SALES TAX SUBSIDY NE EDS TO BE EXCLUDED FROM PROFIT AS PER P&L ACCOUNT FOR THE PUR POSE OF COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. BY RESP ECTFULLY FOLLOWING THESE TRIBUNAL'S ORDERS, WE HOLD THAT IN THE PRESENT CASE ALSO, THE RECEIPT ON ACCOUNT OF TRANSF ER OF CARBON CREDIT WHICH IS HELD TO BE A CAPITAL RECEIPT NEEDS TO BE EXCLUDED FROM PROFIT AS PER P&L ACCOUNT FOR THE PRESENT YEAR WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF T HE ACT. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND ACCORDINGLY GROUND NOS.1 TO 5 ARE ALLOWED. THE ASSE SSEE GETS RELIEF OF RS.27,70,880/- AND CONSEQUENT INTERE ST BEING 10% OF AMOUNT RECEIVED BY THE ASSESSEE ON SALE OF C ARBON CREDIT OF RS.27,70,8,800/-. D) KOLKATA TRIBUNAL IN THE CASE CIT VS. BINANI IND USTRIES LTD. IN ITA NO.144/KOL/2013, DATED 15 FEBRUARY 2016, WHE REIN FOLLOWING THE ALL ABOVE DECISIONS, IT WAS HELD THAT: '... RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE MUMBAI TRIBUNAL, THE PROFIT AND LOSS ACCOUNT PREPARED IN A CCORDANCE WITH PART IT AND III OF SCHEDULE VI OF COMPANIES ACT 195 6, INCLUDES NOTES ON ACCOUNTS THEREON AND ACCORDINGLY IN ORDER TO DETERMINE THE REAL PRO FIT OF THE ASSESSEE AS LAID DOWN BY TH E HON'BLE APEX COURT IN THE CASE OF INDO RAMA SYNTHETICS (I) LTD V S CIT REPORTED IN (2011) 30 ITR (SC), ADJUSTMENT NEED TO BE MADE T O THE DISCLOSURES MADE IN THE NOTES ON ACCOUNTS FORMING P ART OF THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE AND THE PROFITS ARRIVED ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 53 AFTER SUCH ADJUSTMENT, SHOULD BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT AN D THEREAFTER, THE LEARNED AO HAS TO MAKE ADJUSTMENTS FOR ADDITION S / DELETIONS CONTEMPLATED IN EXPLANATION TO SECTION 11 5JB OF THE ACT.' IN THIS CASE TRIBUNAL HAS DISCUSSED THE ENTIRE ISSUE I N DETAIL MANNER ON SIMILAR SET OF FACTS AND RELIED UPON VARIOU S DECISIONS TO COME TO THE AFORESAID CONCLUSION. E) DCIT VS. M/S. GARWARE POLYESTER LTD. (ITA NO . 5996/ MUM/ 2013), WHEREIN A SIMILAR TRANSACTION WAS INVOLVED AND THE MUMBAI TRIBUNAL HELD THAT, PRINCIPAL AMOUNT OF LOAN TAK EN BY THE ASSESSEE FOR CAPITAL EXPENDITURE, SUBSEQUENTLY WAIV ED BY THE BANK, WOULD NOT BE EXIGIBLE TO TAX U/S.115JB. THE ONLY DIFFERENCE BETWEEN THE AFORESAID CASE AND THE CASE OF THE ASSESS EE IS THAT THE PRINCIPAL AMOUNT OF LOAN WAIVED WAS DIRECTLY ROUTED THROUGH THE BALANCE SHEET AND CREDITED TO THE GENERAL RESERVE ACCOUNT WHEREAS IN THE CASE OF THE APPELLANT, THE WAIVER OF LOA N HAS BEEN ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT AND CREDITED AS AN EXCEPTIONAL ITEM. 23. FROM THE PERUSAL OF AFORESAID DECISIONS, AT THE OUTSET, IT MAY APPEAR THAT ON SIMILAR NATURE OF ISSUES THERE ARE D IVERGENT VIEWS OF VARIOUS BENCHES OF THE TRIBUNAL, HOWEVER, O NE COMMON POINT/RATIO PERMEATING THROUGH ALL THE DECISIONS, WHICH CAN BE DEDUCED BY US IS THAT, IF AN ASSESSEE COMPANY IS IN RECEIPT OF A CAPITAL RECEIPT WHICH IS NOT CHARGEABLE TO TAX AT ALL, THAT IS, IT DOES NOT FALL WITHIN ANY OF THE CHARGING SECTION OR CAN BE CLASSIFIED UNDER ANY HEADS OF INCOME UNDER THE INCOM E TAX ACT, THEN SAME CANNOT BE TREATED AS PART OF NET PROFIT AS PER PROFIT & LOSS ACCOUNT OR RECKONED AS WORKING RESULT OF THE C OMPANY OF ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 54 THE RELEVANT PREVIOUS YEAR AND CONSEQUENTLY, CANNOT BE HELD TO BE TAXABLE AS BOOK PROFIT UNDER MAT IN TERMS OF SECTI ON 115JB. ACCORDINGLY, OUR CONCLUSION REMAINS THE SAME THAT, THE CAPITAL SURPLUS ON ACCOUNT OF WAIVER OF DUES NEITHER IS NETHER TAXABLE NOR CAN BE INCLUDED IN COMPUTATION OF BOOK PROFIT U/S 115JB. 24. OTHER GROUNDS RAISED BY THE ASSESSEE ON CHA RGEABILITY OF INTEREST HAVE NOT BEEN ARGUED BEFORE US AND MOREOVER TH EY ARE CONSEQUENTIAL IN NATURE, THEREFORE, THEY ARE TREATED AS DISMISSED. 25. ACCORDINGLY, ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED. 26. NOW WE WILL TAKE UP REVENUES APPEAL WHEREIN FOL LOWING GROUNDS HAVE BEEN RAISED: 1. THE ORDER OF THE LEARNED CIT (APPEALS) IS OPPOS ED TO LAW AND FACTS OF THE CASE. 2. THE CIT (APPEALS) WAS NOT JUSTIFIED IN DELETING THE ADDITION MODE BY THE ASSESSING OFFICER U/S. 41(1) AMOUNTING TO RS.109,41,00,000/- ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION DIRECTLY ATTRIBUTABLE TO THE CAPITAL ASSETS ACQUIRED OUT OF LOANS/BORROWING FROM BANKING COMPANIES/FINANCIAL INSTITUTIONS. 3. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE WAIVER OF LOAN IS RESPECT OF THE LOAN AVAILED DIREC TLY RELATABLE TO THE PURCHASE OF THE CAPITAL ASSETS AND THE ACTUAL COST OF SUCH ASSETS TO THE ASSESSEE, ON WHIC H THE CLAIM OF DEPRECIATION HAS BEEN MADE BY THE ASSESSEE . 4. THE CIT (APPEALS) FAILED TO APPRECIATE THE PROVI SIONS OF SECTION 43(1) OF THE I.T. ACT, 1961 AS PER WHICH ' ACTUAL COST' MEANS THE ACTUAL COST OF THE ASSETS TO THE AS SESSEE, AS REDUCED BY THAT PORTION OF THE COST THEREOF,, IF ANY, AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PE RSON OR AUTHORITY. ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 55 5. THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE L OANS WAIVED BY 'THE BANKING/ FINANCIAL INSTITUTIONS ON T HE ASSETS PURCHASED, DIRECTLY RESULTED IN THE DECREASE IN THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE. 6. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) BE CANCELL ED AND THAT THE ORDER OF THE ASSESSING OFFICER BE REST ORED. 7. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AMEND OR TO DELETE ANY OF THE GROUNDS THAT MAY BE U RGED AT THE TIME OF HEARING OF THE APPEAL. BESIDES THIS, THE REVENUE HAS ALSO RAISED FOLLOWING ADDITIONAL GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) HAS FAILED TO APPRECIATE THA T THE LOANS TAKEN FOR BUSINESS WERE IN THE NATURE OF TRAD ING LIABILITIES AS THE SAME AROSE FROM THE BUSINESS ACT IVITY OF THE ASSESSEE AND AS SUCH LOANS WRITTEN BACK ON ACCO UNT OF WAIVER OF THE SAME IS LIABLE TO BE TAXED U/S. 41 (1) OF THE INCOME TAX ACT, 1961 AS HELD BY THE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD. (308 ITR 417) 27. AS DISCUSSED IN THE ASSESSEES APPEAL, ASSESSEE HAS CREDITED SUM OF RS.390.76 CRORES TO THE PROFIT & LOSS ACCOUNT ON ACCOUNT OF WAIVER OF PRINCIPAL AMOUNT AND INTEREST PAYA BLE THEREON. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE WAIVER OF THE LOAN WENT TO REDUCE THE COST OF THE ASSET PURCHASED OUT OF SUCH LOSSES AND THEREFORE, EXCESS DEPRECIATION ALREAD Y ALLOWED IN THE PREVIOUS YEAR AMOUNTING TO RS.109.41 CRORES WAS H ELD TO BE TAXABLE UNDER SECTION 41(1). WHILE DOING SO, THE ASS ESSING OFFICER RELIED UPON THE DECISION OF HONBLE BOMBAY H IGH COURT IN THE CASE OF M/S. NECTAR BEVERAGES PVT. LTD. VS. DCIT REPORTED IN 267 ITR 385 . IN SUM AND SUBSTANCE THE ASSESSING OFFICERS CONCLUSION WAS AS UNDER: ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 56 (I) DEPRECIATION IS IN THE NATURE OF EXPENDITURE A ND DEDUCTIBLE FROM TAX LIABILITY AND THEREFORE, ANY SUBSEQUENT RECOVERY OF ANY AMOUNT WHICH CAN BE LINK ED TO THE DEPRECIATION CLAIM IS TAXABLE. (II) WAIVER OF LOAN TAKEN FOR PURCHASE OF PLANT & MACHINERY WAS TANTAMOUNT TO DERIVING BENEFIT FROM T HE ARTICLES THAT HAD ENJOYED DEPRECIATION AND HENCE WA S HELD TO BE FALLING WITHIN THE PURVIEW OF SECTION 41 (1). 28. THE LD. CIT(A), AFTER NOTING DOWN THE VARIOUS DE CISIONS, OBSERVED THAT THE DECISION OF HONBLE BOMBAY HIGH COUR T HAS BEEN REVERSED BY THE HONBLE SUPREME COURT, SINCE REP ORTED AS NECTAR BEVERAGES PVT. LTD. VS. DCIT (2009) 314 ITR 314 AND HELD AS UNDER: ON A CAREFUL CONSIDERATION OF THE FACTS BROUGHT BE FORE ME, THE BASIS OF THE AO'S DECISION, AND THE ARGUMEN TS ADDUCED BY THE APPELLANT AS WELL AS THE PLETHORA OF JUDICIAL PRONOUNCEMENTS ON THE SUBJECT, IT IS QUITE EVIDENT THAT THE RATIO OF THE DECISIONS ENUMERATED ABOVE AND WHICH, I MIGHT ADD, ARE SQUARELY ON THE POINT A T ISSUE, WEIGH HEAVILY IN FAVOUR OF THE APPELLANT, IN BRIEF, IT IS QUITE EVIDENT FROM THESE PRONOUNCEMENTS, THAT DEPRECIATION CANNOT BE CATEGORIZED AS A LOSS OR EXPENDITURE (IN THE CASE OF PANDYAN INSURANCE CO. C ITED SUPRA). IN THE VERY SAME CASE OF NECTAR BEVERAGES R ELIED UPON BY THE AO (THE DECISION OF THE MUMBAI HIGH COURT), THE HON'BLE SUPREME COURT HAS CLEARLY HELD THAT DEPRECIATION CANNOT BE CONSIDERED A LOSS, AN EXPENDITURE, OR A TRADING LIABILITY AND CONSEQUENTL Y, THE ACTION OF THE AO IN BRINGING TO TAX, DEPRECIATION E ARLIER CLAIMED U/S 41(L) IS QUITE CLEARLY INCORRECT. THE S UPREME COURT HAS ALSO QUITE CLEARLY HELD THAT IF THE INTEN TION OF PARLIAMENT WAS TO BRING DEPRECIATION WITHIN THE FOL D OF S.41 (1), IT WOULD NOT HAVE CONSIDERED IT NECESSARY TO BRING IN A SEPARATE CLAUSE TO DEAL WITH IT, NAMELY, S. 41(2). IT IS EQUALLY EVIDENT THAT THE WAIVER OBTAIN ED BY THE APPELLANT DOES NOT CONSTITUTE REMISSION OF A TRADIN G LIABILITY AS THE LIABILITY ON ACCOUNT OF THE LOANS WAS CLEARLY ON CAPITAL ACCOUNT. IN THE CASE OF CIT VS T ATA IRON & STEEL CO. CITED SUPRA, THE HON'BLE SUPREME COURT HAS CLEARLY LAID DOWN CERTAIN PRINCIPLES WHEREIN IT HAS HELD THAT A FINANCING TRANSACTION AND THE ACQUISITION OF A CA PITAL ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 57 ASSET FROM THE FINANCE SO RAISED ARE TWO DISTINCT & INDEPENDENT TRANSACTIONS AND CANNOT BE MIXED UP. IT HAS ALSO BEEN EXPLICITLY HELD IN THE SAID CASE THAT THE MANNER AND MODE OF REPAYMENT OF THE LOAN HAVE NO BEARING ON AND CANNOT GO TOWARDS ALTERING THE COST OF THE ASSET. A LOGICAL IMPLICATION OF THESE PRINCIPLES IS THAT EVEN IF THE QUANTUM OF LOAN OBTAINED FOR PURPOSES OF ACQUISITION OF THE CAPITAL ASSETS IS REDUCED BY WAI VER OR OTHERWISE, SINCE THIS HAS NO BEARING ON THE COST OF THE ASSET ITSELF AND, CONSEQUENTLY, THERE IS NO QUESTIO N OF BRINGING TO TAX, DEPRECIATION THAT HAS ALREADY BEEN ALLOWED BASED ON THE ORIGINAL COST OF ACQUISITION OF THE CA PITAL ASSET. IN THESE CIRCUMSTANCES, I AM OF THE VIEW THAT THE A O WAS IN ERROR IN BRINGING TO TAX THE AMOUNT IN QUESTION. THE ADDITION ON THIS COUNT IS THEREFORE DIRECTED TO BE DELETED. 29. WE HAVE HEARD THE RIVAL SUBMISSIONS MADE BY THE PARTIES AND ALSO CONSIDERED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS. FIRST OF ALL IT IS SEEN THAT ASSESSING OFFICER S CASE IS THAT PROVISIONS OF SECTION 41(1) ARE APPLICABLE BECAUSE TH E ASSESSEE HAS CLAIMED DEPRECIATION IN THE EARLIER YEARS ON THE LOAN TAKEN FOR ACQUISITION OR CAPITAL ASSET AND FOR COMING TO THI S CONCLUSION HE HAS HEAVILY RELIED UPON THE DECISION OF HONBLE B OMBAY HIGH COURT IN THE CASE OF NECTAR BEVERAGES VS. DCIT (SUPRA) . THIS OBSERVATION AND FINDING OF THE ASSESSING OFFICER NOW STANDS NEGATED BY THE JUDGMENT OF HONBLE SUPREME COURT IN TH E CASE OF NECTAR BEVERAGES VS. DCIT (SUPRA) WHEREIN THE APEX CO URT HAS REVERSED THE SAID DECISION OF THE HONBLE BOMBAY HIG H COURT AND OBSERVED THAT DEPRECIATION IS NEITHER A TRADING LIABILIT Y AS REFERRED TO IN SECTION 41(1) NOR THE PRINCIPAL COMPONENT OF THE BORROWINGS FOR ACQUISITION OF A CAPITAL ASSET HAS NOT BEEN ALLOWE D AS AN ALLOWANCE OR DEDUCTION IN THE EARLIER YEARS AND HENC E, ANY WAIVER THEREOF, DOES NOT CONSTITUTE INCOME UNDER SECTION 41(1). IN ANY EVENT AN ALLOWANCE OF DEPRECIATION CAN IN NO WAY BE R ELATED TO WAIVER OF A LOAN TAKEN TO PURCHASE OF THE ASSET IN QUES TION, SINCE THE TRANSACTION OF BORROWING OF MONEY FOR PURCHASE OF A CAPITAL ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 58 ASSET AND THE TRANSACTION OF PURCHASE OF CAPITAL ASSET A RE THEMSELVES TWO INDEPENDENT TRANSACTIONS. THIS HAS BEEN HELD SO BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. TATA IRON AND STEEL COMPANY LTD. (1998) 231 ITR 285 WHEREIN IT HAS BEEN OBSERVED THAT COST OF AN ASSET AND COST OF RAISING MONEY FOR PURCHASE OF THE ASSET ARE TWO DIFFERENT AND INDEPENDEN T TRANSACTIONS. THE RELEVANT OBSERVATION AS APPEARING IN THE JUDGMENT READS AS UNDER: IT IS DIFFICULT TO FOLLOW HOW THE MANNER OF REPAYM ENT OF LOAN CAN AFFECT THE COST OF THE ASSETS ACQUIRED BY THE ASSESSEE. WHAT IS THE ACTUAL COST MUST DEPEND ON TH E AMOUNT PAID BY THE ASSESSEE TO ACQUIRE THE ASSET. T HE AMOUNT MAY HAVE BEEN BORROWED BY THE ASSESSEE, BUT EVEN IF THE ASSESSEE DID NOT REPAY THE LOAN IT WILL NOT ALTER THE COST OF THE ASSET. IF THE BORROWER DEFAULTS IN REPAYMENT OF A PART OF THE LOAN, THE COST OF THE AS SET WILL NOT CHANGE. WHAT HAS TO BE BORNE IN MIND IS THAT TH E COST OF AN ASSET AND THE COST OF RAISING MONEY FOR PURCH ASE OF THE ASSET ARE TWO DIFFERENT AND INDEPENDENT TRANSAC TIONS. EVEN IF AN ASSET IS PURCHASED WITH NON-REPAYABLE SU BSIDY RECEIVED FROM THE GOVERNMENT, THE COST OF THE ASSET WILL BE THE PRICE PAID BY THE ASSESSEE FOR ACQUIRING THE ASSET.. THE ASSESSEE MAY HAVE RAISED THE FUNDS TO PURCHASE THE ASSET BY BORROWING BUT WHAT THE ASSESS EE HAS PAID FOR IT, IS THE PRICE OF THE ASSET. THAT PR ICE CANNOT CHANGE BY ANY EVENT SUBSEQUENT TO THE ACQUISITION O F THE ASSET. THE MANNER OR MODE OF REPAYMENT OF THE LOAN HAS NOTHING TO DO WITH THE COST OF ASSET ACQUIRED BY TH E ASSESSEE FOR THE PURPOSE OF HIS BUSINESS.' EXPLANATION 10 TO SECTION 43(1) WILL ALSO NOT APPLY H ERE AS PLEADED BY THE LD. CIT D.R. BEFORE US, BECAUSE IT IS APPLICABLE ONLY WHERE THERE IS A SUBSIDY OR GRANT OF REIMBURSEM ENT WHICH IS NOT THE CASE HERE. EVEN OTHERWISE ALSO SECTION 43(1) I S APPLICABLE ONLY IN THE YEAR OF PURCHASE OF MACHINERY AND IN THE PRESENT CASE THE PURCHASE OF CAPITAL ASSET WAS NOT IN THE ASSESSMENT YEAR ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 59 2004-05. THUS, WE HOLD THAT FIRSTLY , SECTION 41(1) DOES NOT APPLY TO THE FACTS OF THE PRESENT CASE AS DEPRECIATION IS NEITH ER A LOSS NOR AN EXPENDITURE AS HELD BY THE HONBLE SUPREME CO URT IN THE CASE OF NECTAR BEVERAGES PVT. LTD. (SUPRA); AND SECONDLY, LIABILITY INCURRED BY THE ASSESSEE WAS UTILIZED FOR THE PURCHASE OF CAPITAL ASSET AND THEREFORE, UNDER NO CIRCUMSTANCES IT CAN BE H ELD TO BE A TRADING LIABILITY. DEPRECIATION ALLOWANCE HAS NO CO NNECTION WITH WAIVER OF THE CAPITAL LOANS IN QUESTION AND HENCE WOUL D NOT ATTRACT SECTION 41(1). BY WAY OF ADDITIONAL GROUNDS THE LD. D.R. HAS SOUGHT TO CONTEND THAT IN VIEW OF THE DECISION OF HO NBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD. 308 ITR 407 THE WAIVER OF A LOAN IS TO BE RECKONED AS IN THE N ATURE OF TRADING LIABILITIES AND THEREFORE, IT IS TAXABLE UNDE R SECTION 41(1). AS DISCUSSED IN DETAIL IN THE EARLIER PART OF THE ORDER , HERE IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE PRINCIPAL AMOUNT OF LOAN TAKEN BY THE ASSESSEE WAS FOR ANY TRADING ACCOUN T, ALBEIT IT WAS FOR THE PURCHASE OF A CAPITAL ASSET WHICH HAS NEVE R BEEN ALLOWED AS A DEDUCTION. THE LOAN TAKEN FOR AN ACQUIS ITION OF A CAPITAL ASSET DOES NOT CONSTITUTE TRADING LIABILITIES WHIC H HAS BEEN ALLOWED AS A DEDUCTION IN EARLIER YEARS AND ANY KIND OF WAIVER THEREOF WOULD FALL WITHIN THE DEEMING FICTION OF SECTION 41(1). WE HAVE ALREADY CLARIFIED THAT THE AMOUNT WHICH CAN BE SUBJECTED TO TAX UNDER SECTION 41(1) CAN ONLY BE THOSE AMOUNTS OR RECEIPTS WHICH HAVE BEEN ALLOWED AS DEDUCTION IN TH E COMPUTATION OF INCOME IN THE EARLIER YEARS AND IF THIS PRIMARY CONDITION IS NOT SATISFIED, THEN THERE CANNOT BE ANY ADD ITION UNDER THIS SECTION. IN THE CASE OF HONBLE BOMBAY HIGH COURT IN SOLID CONTAINERS (SUPRA) THE WAIVER OF LOAN WAS TAKEN FOR TRADING ACTIVITY AND THE ASSESSEE HAS CREDITED SUCH A WAIVER TO THE PROFIT & LOSS ACCOUNT AND CLAIMED IT TO BE A CAPITAL RECEIPT. EVEN IN THE CASE OF HONBLE SUPREME COURT TO WHICH HONBLE BOMBAY HIGH ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 60 COURT HAS RELIED UPON IN THE CASE OF CIT VS. TVS IYE NGAR & SONS LTD, REPORTED IN 222 ITR 344, IT WAS FOUND THAT THE LOA N/ADVANCE CONSTITUTED A TRADING LIABILITY OR WAS TAKEN UNDER TRAD ING ACCOUNT THEREFORE, THE RATIO OF THE SAID DECISIONS WOULD NOT BE APPLICABLE ON THE LOAN TRANSACTION WHICH HAS BEEN TAKEN ON CAPITAL ACCOUNT, EVEN IF IT IS FOR THE BUSINESS PURPOSE. THE HONBLE BOMBAY HIGH COURT IN A SUBSEQUENT DECISION IN THE CASE OF CIT VS. SOFTWORKS COMPUTERS PVT. LTD. REPORTED IN 354 ITR 16, HAS HELD THAT LOAN TAKEN FOR ACQUIRING A CAPITAL ASSET WHEN SUBSEQU ENTLY WAIVED IS NOT CHARGEABLE TO TAX. THE RELEVANT OBSERVATI ON OF THE HONBLE HIGH COURT WHEREIN THEY HAD DISCUSSED THE RATIO OF SOLID CONTAINER LTD. (SUPRA) AND THE EARLIER DECISION OF TH E HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA IS REPRODUCED AS UNDER: 7. WE FIND THAT THE DECISION OF THIS COURT IN THE MATTER OF SOLID CONTAINERS LTD. (SUPRA) HAS ALSO CONSIDERE D THE EARLIER DECISION IN THE MATTER OF MAHINDRA AND MAHI NDRA LTD. (SUPRA) AND DISTINGUISHED THE SAME BY HOLDING THAT IN THAT CASE THE LOAN WAS GIVEN FOR PURCHASE OF CAPITA L ASSETS UNLIKE IN THE CASE OF SOLID CONTAINERS LTD. (SUPRA) WHERE WAIVER WAS OF A LOAN TAKEN FOR TRADING ACTIVITY AND THUS CONSIDERED TO BE OF A REVENUE NATURE. IN THE PRESEN T CASE, THE AMOUNT WHICH WAS ADVANCED AS A LOAN TO THE RESPONDE NT- ASSESSEE WAS FOR THE PURPOSES OF RELOCATING ITS OFF ICE PREMISES. THE LOAN TAKEN WAS UTILIZED FOR THE PURPO SES OF ACQUIRING AN OFFICE AT GODREJ SOAP COMPLEX, VIKROLI , MUMBAI. THEREFORE, THE LOAN IN THE PRESENT FACT WAS TAKEN F OR ACQUISITION OF CAPITAL ASSET AND NOT FOR THE PURPOS ES OF TRADING ACTIVITY AS IN THE CASE OF SOLID CONTAINERS LTD. (SUPRA). THE PRESENT CASE IS, THEREFORE, COVER ED IN FAVOUR OF THE RESPONDENT-ASSESSEE BY THE DECISION OF THIS COURT IN THE MATTER OF MAHINDRA AND MAHINDRA LTD. (SUPRA). THEREFORE THE PLEA RAISED BY THE REVENUE THROUGH ADDITI ONAL GROUND CANNOT BE UPHELD AND SAME IS REJECTED. 30. BEFORE US ONE MORE ARGUMENT WAS TAKEN BY THE LD. CIT D.R. THAT PROVISION OF SECTION 28(IV) WOULD GET ATTRACTED BECAUSE ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 61 THE WAIVER OF LOAN AMOUNTS TO VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUS INESS. FIRST OF ALL IT IS SEEN THAT IT IS NEITHER THE CASE OF THE ASSESSING OFFICER NOR THE CASE OF THE LD. CIT(A) THAT THE AMOUNT OF WAIVER OF LOAN IS TO BE TAXED UNDER SECTION 28(IV). THE HONBL E BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA VS. CI T 260 ITR 180 501 HELD THAT A LOAN WHICH IS ORIGINALLY TAKEN FOR CAPITAL EXPENDITURE, IF WAIVED, WILL NOT GIVE RISE TO TAXABLE I NCOME EITHER UNDER SECTION 41(1) OR UNDER SECTION 28(IV). THE RELE VANT OBSERVATION AND FINDING OF THE HONBLE BOMBAY HIGH CO URT READS AS UNDER: THE INCOME WHICH CAN BE TAXED UNDER SECTION 28(IV) MUST NOT ONLY BE REFERABLE TO A BENEFIT OR PERQUISI TE, BUT IT MUST BE ARISING FROM BUSINESS. SECONDLY, SEC TION 28(IV) DOES NOT APPLY TO BENEFITS IN CASH OR MONEY. SECONDLY, IN THIS CASE WE ARE CONCERNED WITH THE PURCHASE CONSIDERATION RELATING TO CAPITAL ASSET. T HE TOOLINGS WERE IN THE NATURE OF DIES. THE ASSESSEE W AS A MANUFACTURER OF HEAVY VEHICLES AND JEEPS. IT REQUIR ED THESE DIES FOR EXPANSION. THEREFORE, THE IMPORT WAS THAT OF PLANT AND MACHINERY. THE CONSIDERATION PAID WAS FOR SUCH IMPORT. IN THE CIRCUMSTANCES, SECTION 28(IV) I S NOT ATTRACTED. IN OUR CASE, THE MOST FUNDAMENTAL FACT W HICH IS REQUIRED TO BE BORNE IN MIND IS THAT THERE WAS NO DEDUCTION GIVEN TO THE ASSESSEE IN EARLIER YEARS AN D, THEREFORE, RS.57,74,064 COULD NOT BE INCLUDED AS IN COME UNDER SECTION 41(1) OF THE ACT. LASTLY, IT IS IMPOR TANT TO BEAR IN MIND THAT THE TOOLING CONSTITUTED CAPITAL A SSET AND NOT STOCK-IN-TRADE. THEREFORE, TAKING INTO ACCO UNT ALL THE ABOVE FACTS, SECTION 41(1) OF THE ACT IS NOT AP PLICABLE. SIMILAR VIEW HAS BEEN TAKEN BY THE OTHER COURTS LIKE HO NBLE MADRAS HIGH COURT IN THE CASE OF ISKRAECO REGENT LTD. VS. CIT (2011) 237 CTR 239 (MAD) AND HONBLE DELHI HIGH COU RT IN THE CASE OF CIT VS. TOSHA INTERNATIONAL LTD., (2009) 176 TAXMAN 187 (DEL). THUS, THE PLEA TAKEN BY THE LD. CIT D.R. AS WEL L AS IN THE GROUNDS RAISED BY THE REVENUE IS REJECTED. ITA NO.923/BANG/2009 & ITA NO.930/BANG/2009 M/S. JSW STEEL LIMITED, (FORMERLY KNOWN AS JINDAL VIJAYNAGAR STEEL LIMITED) 62 31. ACCORDINGLY, THE APPEAL OF THE REVENUE IS DISMISS ED. 32. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLOWED WHEREAS REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.01.2017. SD/- SD/- (ASHWANI TANEJA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 13.01.2017. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.