Gujarat State Financial Corporation,, v. The JT. CIT., Spl. Range-7,,

IN THE INCOME TAX APPELLATE TRIBUNAL : A BENCH : A HMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA J.M. & HON'BLE SH RI A.N. PAHUJA A.M.) I.T.A. NO. 1606/AHD./2004 ASSESSMENT YEAR : 1997-1998 G.S.F.C. GANDHINAGAR -VS .- JOINT COMMISSIONER OF INCOME TAX SPECIAL RANGE-7 AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P.F. JAIN C.A. RESPONDENT BY : SHRI GOVIND SINGHAL S R. D.R. O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 16.02.2004 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-IX AHMEDABAD F OR THE ASSESSMENT YEAR 1997-98. 2. THE VARIOUS GROUND RAISED BY THE ASSESSEE IN ITS APPEAL ARE AS UNDER :_ 1) THAT THE ORDER PASSED BY THE LD. COMMISSI ONER OF INCOME TAX (APPEALS)-IX AHMEDABAD IS BAD AND AGAINST THE FACT S OF THE CASE. 2) THAT THE LD. CIT (APPEALS)- IX HAS ERRED IN CONFIRMING THE ADDITIONAL TAX LEVIED U/S.143(1)(A) OF RS.7 01 134/- AND REJEC TING DIE GROUNDS WITHOUT CONSIDERING THE FACTS AS NARRATED IN THE STATEMENT OF FACTS. 3) THAT THE LD CLT (APPEALS) IX HAS FAILED TO APPRECIATE THAT AFTER ISSUANCE OF NOTICE U/S.143(2) ON 29/6/1998 THE LD. ITO HAS WRONGLY PROCESSED RETURN U/S. 143(L)(A) ON 9/10/1998 AND CH ARGED ADDITIONAL TAX AND THUS HAS FAILED TO FOLLOW THE INSTRUCTIONS CONTAINE D IN THE CIRCULAR NO.549 DATED 31/10/1989 AND HAS ALSO ERRED IN NOT FOLLOWIN G THE DECISION OF GUJARAT HIGH COURT IN THE MATTER OF GUJARAT POLY-AVX ELECTR ONICS LTD. (222 1TR 140). 4) THAT THE LD. CIT (APPEALS) IX HAS ERRED I N CONFIRMING THE DISALLOWANCE MADE BY LD. ITO IN RESPECT OF THE PROV ISION MADE U/S.36(1)(VII)(A) MADE FOR BAD AND DOUBTFUL DEBTS O F RS.81 53 711/- HOLDING THAT THE APPELLANT CORPN. HAD CLAIMED DOUBLE DEDUCT ION U/S. 36(L)(VII)(A) OF RS.81 59 711/- AND U/S. 36(1)(VII) FOR BAD DEBTS WR ITTEN OFF OF RS.6 67 99 322/-. 5) THAT THE LD. CIT (APPEALS) IX HAS ERRED I N APPLYING WRONGLY THE PROVISO TO SECTION 36(1)(VII)(A) AND RESTRICTING TH E DEDUCTION FOR BAD DEBTS 2 ITA NO. 1606/AHD/2004 CLAIMED TO THE EXTENT RESERVE FOR BAD AND DOUBTFUL DEBTS CREATED AT THE END OF THE YEAR. THE LD. CIT (APPEALS) IX HAS FAILED TO APPRECIATE T HAT BAD DEBTS OF RS 6 67 99 322/- WERE WRITTEN OFF DURING THE ACCOUNTIN G YEAR ENDING 31/3/1997 WHEREAS RESERVE FOR BAD DEBTS WAS CREATED AT THE EN D OF THE YEAR ON 31/3/1997 AFTER DETERMINING PROFIT AT 5% OF THE TOTAL INCOME AND THUS HAS FURTHER FAILED TO APPRECIATE THAT THERE IS NO RESERVE FOR BED & DO UBTFUL DEBTS AVAILABLE FOR SET OFF AT THE BEGINNING OF THE YEAR. 6) THAT THE LD CIT (APPEALS) IX HAS FAILED TO APPRECIATE THAT BOTH CLAUSES I.E. U/S. 36(L)(VII) AND (II) 36(1)(VII)(A) ARE SEPARATE AND DISTINCTIVE AND ARE NOT RESTRICTIVE WITH EACH OTHER. 7) THAT THE LD. CIT (APPEALS) IX HAS FURTHER ERRED IN APPRECIATING THE FACT THAT DEDUCTION U/S.36(1)(VII)(A) HAD NEVER BEE N ALLOWED TO THE APPELLANT CORPN. UPTO THE PREVIOUS YEAR 31/3/1996 IN COMPUTIN G THE TOTAL INCOME THOUGH IT WAS CREATED IN THE BOOKS OF ACCOUNTS HENCE THER E WAS NO RESERVE AVAILABLE AT THE BEGINNING OF THE YEAR. 8) THAT THE LD. CIT (APPEALS) IX THOUGH HAS REFERRED TO THE ORDER OF THE LD. CIT (APPEALS) GANDHINAGAR DATED 9/9/2002 FOR T HE SAID ASST. YEAR PASSED AGAINST THE ORDER U/S.L43(1)(A) BUT FAILED TO APPRE CIATE THE FINDING OF THE CIT (APPEALS) GANDHINAGAR'S ORDER AND THUS HAS ERRED IN CONFIRMING THE ADDITION OF RS.81 59 711/- 9) THAT THE LD. CIT (APPEALS) IX HAS FURTHER ERRED IN UPHOLDING THE DISALLOWANCE OF THE CLAIM FOR INTEREST OF RS. 7 74 43 000/- DUE TO SWITCHING OVER TO EQUATED QUARTERLY INSTALLMENT SYSTEM (EQIS) FOR LOANS UPTO RS.15 LAKHS FROM TERM LOAN SYSTEM 10) THAT THE LD JT. CIT (SR-7) HAS DISALLOWED INTEREST CLAIM ON THE GROUNDS THAT - (A) THE AMOUNT OF INTEREST WAS NOT DEBITED IN P&L A /C AND WAS DEBITED IN P&L APPROPRIATION A/C. (B) INTEREST CLAIM HAD NOT BEEN ACTUALLY REPAID. (C) INTEREST CLAIM WAS NOT PERTAINING TO ME YEAR UN DER CONSIDERATION AND IT WAS PERTAINING TO THE EARLIER YEAR. THE LD. CIT (APPEALS) IX HAS FURTHER ERRED IN CONFI RMING THE VIEWS OF THE LD. JT.CIT(SR-7) AND THUS HAS FAILED TO APPRECIATE THE FACTS AS NARRATED BY HIM IN PARA 7.3 OF HIS ORDER AND NOT CONSIDERING THE SUBMI SSION MADE VIDE APPELLANTS LETTER DATED 12/4/3001. 11). THAT THE LD. CIT (APPEALS) IX HAS FAILED TO AP PRECIATE THE FACT THAT METHOD OF CHARGING INTEREST AND RECOVERY OF PRINCIP AL FROM REDUCING BALANCE METHOD TO EQIS DURING THE YEAR ENDED 31/3/1997 IS N OT A CHANGED IN 3 ITA NO. 1606/AHD/2004 ACCOUNTING SYSTEM AND THUS HAS ERRED IN NOT FOLLOWI NG GUJARAT HIGH COURT DECISION IN THE MATTER OF GANGA CHARITABLE TRUST FU ND (162 ITR 612). HE HAS ALSO FAILED TO APPRECIATE THAT THE APPELLANT CORPN. HAD RIGHT TO ALTER THE METHOD OF ACCOUNTING IF IT IS BONAFIDE. 12) THAT THE LD CIT (APPEALS) IX HAS FURTHER WRONGL Y HELD THAT LIABILITY OF INTEREST WAS NOT CRYSTALLIZED ON 31/3/1997 AND THUS HAS FAILED TO APPRECIATE THAT LIABILITY OF INTEREST DUE TO CHANGING OVER SYS TEM FROM REDUCING BALANCE METHOD TO EQIS WAS ALREADY EXISTED ON 31.03.1997 B UT QUANTUM OF INTEREST WAS WORKED OUT LATER ON. THE LD. CIT(APPEALS) IX HA S FURTHER FAILED IN NOT FOLLOWING THE REQUIREMENTS OF ACCOUNTING STANDARD - 4 (AS-4) AS SUGGESTED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA WHI CH IS MANDATORY TO FOLLOW U/S.211(3C) OF THE COMPANIES ACT. 1956 13) THAT THE LD. CIT (APPEALS) IX HAS FAILED TO APP RECIATE THAT ON ACCOUNT OF CHANGE IN SYSTEM FROM REDUCING BALANCE TO EQIS THE BORROWER UNITS WERE REQUIRED TO GIVE REFUND OF THE EXCESS INTEREST CHAR GED AND WHICH WERE REQUIRED TO BE ADJUSTED AGAINST THE PRINCIPAL OUTST ANDING WHICH THE APPELLANT CORPN. HAD DONE BY PASSING ENTRIES IN THE BOOKS OF ACCOUNT AND THUS EXPENDITURE OF INTEREST IS ALLOWABLE EXPENDITURE. 14) THAT THE LEARNED C.IT. (APPEALS) HAS FURTH ER FAILED TO APPRECIATE THAT IN EQIS SYSTEM THE INSTALLMENTS RECOVERED AFTER 31.03 .1997 ARE INCLUSIVE OF INTEREST AND THAT INTEREST HAS BEEN OFFERED FOR TAX ATION AND IF THE INTEREST OF RS.7 74 43 000/- IS NOT ALLOCATED AS A DEDUCTION T AXING OF THE SAID INTEREST INCOME IN SUBSEQUENT PERIOD WOULD AMOUNT TO DOUBLE TAXATION 15) ANY OTHER GROUNDS THAT MAY BE RAISED AT T HE TIME OF HEARING. 3. GROUND NO. 1 OF THIS APPEAL IS GENERAL IN NATURE AND THEREFORE NEEDS NO ADJUDICATION. 4. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THE GROUNDS NO. 2 & 3 OF THE APPEAL ARE THAT FOR THE ASSESSMENT YEAR UNDER APPEAL THE ASSE SSEE FILED THE RETURN OF INCOME ON 31.12.1997 SHOWING INCOME OF RS.15 50 34 510/- ALONGWITH THE A UDIT REPORT. THE RETURN WAS PROCESSED UNDER SECTION 143(1)(A) BY MAKING PRIMA FACIE ADJUSTMENT OF RS.6 67 99 322/- ON 09.10.1998 ON ACCOUNT OF CLAIM OF DEBTS AS THE ASSESSEE WAS GETTI NG DOUBLE DEDUCTION BY WAY OF CLAIMING RESERVE AND BY WAY OF CLAIMING BAD DEBTS. HOWEVER THE SAME WAS RECTIFIED VIDE ORDER PASSED UNDER SECTION 154 OF THE ACT ON 27.01.1999. IN THIS RECTIFICATION ORDER PRIMA FACIE ADJUSTMENT UNDER SECTION 143(1)(A) OF THE ACT WAS RESTRICTED T O RS.81 59 711/- AND ADDITIONAL TAX OF RS.7 01 734/- WAS LEVIED. SUBSEQUENTLY THE ASSESSIN G OFFICER FRAMED THE ASSESSMENT UNDER SECTION 143(3) ON 16.03.2000 WHEREIN THE LEARNED C OMMISSIONER OF INCOME TAX(APPEALS) 4 ITA NO. 1606/AHD/2004 RETAINED THE ADDITIONAL TAX LEVIED UNDER SECTION 14 3(1)(A) FOR THE DETAILED REASONS GIVEN IN PARA 3 & 4 WHICH ARE AS UNDER :- 3. THE RETURN WAS PROCESSED U/S. 143(1)(A) BY MAKI NG PRIMA FACIE ADJUSTMENT OF RS.6 67 99 322/- ON 09.10.1998 ON ACC OUNT OF CLAIM OF BAD DEBTS RESTRICTED TO THE EXTENT RESERVE CREATED FOR BAD DEBTS AS THE ASSESSEE WAS GETTING DOUBLE DEDUCTION BY WAY OF CLA IMING RESERVE AND BY WAY OF CLAIMING BAD DEBTS. HOWEVER THE SAME WAS RECTIFIED VIDE ORDER PASSED U/S. 154 OF THE ACT DATED 27.01.1999. THE ASSESSEE POINTED OUT THAT ENTIRE RESERVE APPEARING IN BOOKS AT THE S TART OF THE YEAR WAS DISALLOWED IN THE EARLIER YEAR AND THE ONLY CREDIT BALANCE LEFT IN RESERVE ACCOUNT CREATED U/S. 36(1)(VII) IS THE RESERVE CREA TED DURING THE YEAR OF RS.81 59 711/-. ACCORDINGLY RECTIFICATION ORDER WAS PASSED AND PRIMA FACIE ADJUSTMENT U/S. 143(1)(A) OF THE ACT WAS REST RICTED TO RS.81 59 711/- AND ADDITIONAL TAX OF RS.7 01 734/- WAS LEVIED. 4. THE PRIMA FACIE ADJUSTMENT MADE U/S. 143(1)(A) O F THE ACT AND ADDITIONAL TAX LEVIED ARE RETAINED IN THIS ORDER PA SSED U/S. 143(3) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS I T WAS CLAIMED BY THE ASSESSEE THAT RESERVE U/S. 36(1)(VII)(A) WAS CREATE D ONLY ON 31.03.1997 AND THE AMOUNT WRITTEN OFF AS BAD DEBTS WERE WRITTE N OFF DURING THE YEAR AND THEREFORE THE CLAIM OF THE BAD DEBTS CANNOT B E RESTRICTED BY THE AMOUNT OF RESERVE CREATED U/S. 36(1)(VII)(A) OF THE ACT. 5. ON APPEAL IN THE IMPUGNED ORDER THE LEARNED CO MMISSIONER OF INCOME TAX(APPEALS) UPHELD THE ACTION OF ASSESSING OFFICER REGARDING LE VY OF ADDITIONAL TAX UNDER SECTION 143(1)(A) AMOUNTING TO RS.7 01 134/- FOR THE DETAILED REASONS GIVEN IN PARA 3 OF THE IMPUGNED ORDER. THE APPELLANT OBJECTS TO PASSING OF ORDER U/S. 143 (1)(A) AND 143(3) AND THEREIN CONFIRMING THE ADDITIONAL TAX LEVIED UN DER SECTION 143(1)(A) OF RS.7 01 134/-. NO SPECIFIC ARGUMENTS H AVE BEEN ADVANCED. IT IS SEEN THAT C.I.T.(A) GANDHINAGAR VIDE ORDER D ATED 9.9.02 HAS ALREADY ADJUDICATED ON THIS MATTER. FURTHER SINCE EACH ADDITION MADE U/S. 143(3) WOULD BE DISCUSSED SEPARATELY AND ADJUD ICATED UPON HENCE THIS GROUND OF APPEAL IS BEING REJECTED. 6. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER O F INCOME TAX(APPEALS) THE ASSESSEE IS IN APPEAL BEFORE US. 5 ITA NO. 1606/AHD/2004 7. AT THE TIME OF HEARING BEFORE US ON BEHALF OF A SSESSEE SHRI P.F. JAIN C.A. APPEARED AND CONTENDED THAT LEVY OF ADDITIONAL TAX IS CONTRARY T O LAW AS LAID DOWN BY THE HON'BLE SUPREME COURT AND THE HON'BLE GUJARAT HIGH COURT IN THE FOL LOWING CASES :- (I) GUJARAT POLY-AVX ELECTRONICS LTD. (GUJ. H.C.) 2 22 ITR 140 (APPROVED BY SUPREME COURT 260 ITR 84); (II) GUJARAT ELECTRICITY BOARD [260 ITR 84] (SC). THE LD. COUNSEL OF THE ASSESSEE FURTHER DREW OUR AT TENTION TO THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) GANDHINAGAR DATED 09.09.200 2 [IN APPEAL AGAINST INTIMATION UNDER SECTION 143(1)(A)] WHEREIN THE LEARNED COMMISSIONE R OF INCOME TAX(APPEALS) SET ASIDE THE ADDITION OF RS.66 99 322/- WHICH WAS MADE THROUGH PRIMA FACIE ADJUSTMENT UNDER SECTION 143(1)(A) TO THE FILE OF ASSESSING OFFICER WITH THE DIRECTION TO RECALCULATE THE DISALLOWANCE IF ANY IN ACCORDANCE WITH THE DIRECTION GIVEN IN PARA 2.3 OF HIS ORDER DATED 09.09.2002. ON THIS BASIS THE LD. COUNSEL OF THE ASSESSEE SUBMITTED TH AT SINCE VIRTUALLY ADDITIONAL TAX IS LEVIED IN THE ASSESSMENT ORDER UNDER SECTION 143(3) DATED 16.03.2 000 THEREFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS NOT JUSTIFIED IN NOT ADJU DICATING THE GROUND RELATING TO ADDITIONAL TAX LEVIED UNDER SECTION 143(1A) ON THE GROUND THAT IT WOULD BE SEPARATELY ADJUDICATED UPON IN APPEAL IN ORDER DATED 09.09.2002. THE LD. COUNSEL O F THE ASSESSEE ACCORDINGLY CONTENDED THAT ADDITIONAL TAX OF RS.7 01 134/- LEVIED UNDER SECTIO N 143(1A) BE CANCELLED. 8. ON THE OTHER HAND SHRI GOVIND SINGHAL SR. D.R. APPEARING ON BEHALF OF REVENUE SUPPORTED THE ORDER OF LEARNED COMMISSIONER OF INCO ME TAX(APPEALS). HE POINTED OUT THAT IN THE RELEVANT ASSESSMENT YEAR INTIMATION UNDER SECT ION 143(1)(A) IS SEPARATELY APPEALABLE. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) GANDHI NAGAR IN HIS ORDER DATED 09.09.2002 [IN APPEAL AGAINST INTIMATION UNDER SECTION 143(1)(A)] RESTORED THE ISSUE REGARDING CALCULATION OF DISALLOWANCE AND CONSEQUENTIAL LEVY OF ADDITIONAL T AX UNDER SECTION 143(1)(A) TO THE FILE OF ASSESSING OFFICER. IN CASE THE ASSESSEE WAS AGGRIE VED BY THAT ORDER IN THAT EVENT THE ASSESSEE OUGHT TO HAVE FILED AN APPEAL AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) GANDHINAGAR AHMEDABAD DATED 09.09.20 02. THE LEVY OF ADDITIONAL TAX UNDER SECTION 143(1A) IN INTIMATION UNDER SECTION 143(1)( A) CANNOT BE CHALLENGED IN APPEAL AGAINST ASSESSMENT FRAMED UNDER SECTION 143(3) THEREFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) RIGHTLY REJECTED THIS GROUND OF APPEAL . 6 ITA NO. 1606/AHD/2004 9. AFTER HEARING BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THE IMPUGNED ORDER IN PARA 3 ON PAGE 1 T HE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS STATED THAT THE LEARNED COMMISSION ER OF INCOME TAX(APPEALS) GANDHINAGAR VIDE ORDER DATED 09.09.2002 HAS ALREADY ADJUDICATED THE ISSUE REGARDING ADDITIONAL TAX LEVIED UNDER SECTION 143(1A). WE HAVE CAREFULLY GONE THROU GH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DATED 09.09.2002. IN THAT ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) NOWHERE ADJUDICATED THE ISSUE REGARDIN G ADDITIONAL TAX LEVIED UNDER SECTION 143(1A) AMOUNTING TO RS.7 01 134/-. WE THEREFORE SET ASIDE THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ON THIS ISSUE A ND DIRECT HIM TO RE-DECIDE THIS ISSUE AFTER HEARING BOTH THE SIDES IN ACCORDANCE WITH LAW INCLU DING THE VARIOUS CASE LAWS WHICH WERE CITED BEFORE US DURING THE COURSE OF HEARING. 10. LD. COUNSEL OF THE ASSESSEE DID NOT PRESS THE G ROUNDS NO. 4 TO 8 THEREFORE THESE GROUNDS ARE DISMISSED BEING NOT PRESSED. 11. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN GROUNDS NO. 9 TO 14 ARE THAT THE ASSESSEE IS A STATE FINANCIAL CORPORATION CLAIMED TO BE SET UP WITH THE OBJECT OF PROVIDING LONG AND MEDIUM TERM FINANCE AND FOR ESTABLISHING NEW INDUSTRIES IN THE STATE OF GUJARAT. BEFORE THE ASSESSING OFFICER IT WAS EXPLAINED THAT THE CORPORATION WAS UNABLE TO RECOVER ENTIRE DUES OF LOANS IN A HEALTHY MANNER BECAUSE AS PER EARLIER SYSTEM OF PAY MENT ADOPTED SINCE THE BEGINNING THE INSTALMENTS WERE FIRST RECOVERED TOWARDS INTEREST A ND ONLY A VERY SMALL PORTION WAS SET OFF AGAINST PRINCIPAL SUM TO BE RECOVERED. THIS ACCORD ING TO THE PAST EXPERIENCE LED TO A LOT OF LOANS GOING BAD AND THERE BEING SUBSTANTIAL DUES ON ACCOU NT OF OVER DUE PAYMENT OF INTEREST LEVY OF PENALTY AND INTEREST ON DUE DUES ALL RESULTING IN THE LOAN TURNING DOUBTFUL OR BAD. THEREFORE THE ASSESSEE CORPORATION DECIDED TO SWITCH OVER TO EQUA TED QUARTERLY INSTALMENTS SCHEME WHERE EARLIER PAYMENT WAS SET OFF LOSS TOWARDS INTEREST A ND MORE TOWARDS THE PRINCIPAL SO THAT THE LOANEES WOULD KNOW BEFORE HAND THE EXACT QUANTUM T O BE PAID AND THAT WHICH WOULD BE OFF SET AGAINST PRINCIPAL AND INTEREST. THEREFORE THE ASSE SSEE CORPORATION FOUND RECOVERIES OF INTEREST IN EARLIER YEARS TO BE MORE THAN NECESSARY UNDER THE E QUATED QUARTERLY INSTALMENT SCHEME AND HENCE TO BE PAID BACK TO THE OLD DEBTORS. AT THE SAME TIM E THE AMOUNT OF PRINCIPAL TO BE RECOVERED IN EARLIER YEARS WAS MORE. IN THE ASSESSMENT YEAR UNDE R APPEAL THE ASSESSEE MADE THESE TWO CONTRY ENTRIES IN THE INDIVIDUAL LOAN ACCOUNTS AND CLAIMED THAT A NET DEBIT OF RS.7 74 43 000/- IS TO BE 7 ITA NO. 1606/AHD/2004 MADE IN THE INTEREST ACCOUNT ON ACCOUNT OF PAYMENT OF INTEREST TO BE REFUNDED TO THE INDIVIDUAL DEBTORS. THIS AMOUNT HAS BEEN CLAIMED IN THE COMPUT ATION OF INCOME AND HAS BEEN SO REFLECTED IN THE PROFIT AND LOSS APPROPRIATION ACCOUNT. IN THE A SSESSMENT ORDER THE ASSESSING OFFICER DISALLOWED THE SAME. 12. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) THE ASSESSEE MADE VARIOUS SUBMISSIONS WHICH ARE SUMMARIZED BY THE LE ARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNED ORDER WHICH ARE CONTA INED IN PARA 7.3 ON PAGES 5-8 WHICH IS AS UNDER :- 7 3I N THIS RESPECT WE WOULD LIKE TO SUBMIT THAT AN APPE LLANT IS ENTITLED TO CLAIM A DEDUCTION EVEN THOUGH EXPENDITURE IS NOT ACTUALLY EXPENDED. II IS ENOUGH IF THE LIABILITY FOR SUCH EXPENDITURE ACCRUE S. IF IN LAW THE LIABILITY ACCRUES ITS ACCRUAL WILL NOT BE DEFEATED OR FAIL BY REASON OF THE APPELLANT NOT MAKING THE RELEVANT ENTRIES IN HIS BOOKS OF ACCOUNTS LEAVE A SIDE GIVING ANY NOMENCLATURE. THE ABOVE VIEW IN SUPPORT BY VARIOUS DECISION OF SU PREME COURT AND HIGH COURTS. THE SUPREME COURT IN CASE OF KEDRNATH JUTE MFG. CO. LTD. VS.- CIT 82 ITR 363 (SC) BOMBAY HIGH COURT IN THE CASE OF CIT VS.- CENTRAL PROVINCES MANGANESE ORE CO. LTD. GUJARAT HIGH COURT IN THE CASE OF INDUSTRIAL MACHIN ERY MANUFACTURERS (P) LTD. VS.- CIT 203 ITR 442 (GUJ.) CIT VS.- POONAM CHAND TRILOK CHAND (1996) 105 ITR 618 (ALL.) MOTILAL PADAMOPAT SUGAR MILLS VS.- CIT (1977) 106 ITR 988 (ALL.); CIT VS.- CENTRAL PROVINCES MANGANESE ORE CO. LTD. (1978) 112 ITR 734 (BOM.) NAGRI MILLS CO. LTD. VS. CIT (1981) 131 ITR 257 (G UJ.); CIT VS.- HIRALAL MITTAL & SONS (1972) 86 ITR 463 ( ALL.) CIT VS.- ROBERTS MCLEAN & CO. LTD. (1978) 111 ITR 489 (CAL.) CIT VS.- GUJARAT MINERAL DEVELOPMENT CORPORATION ( 1981) 132 ITR 377 (GUJ.) ADDL. CIT VS.- BUCKAU WOLF NEW INDIA ENGG. WORKS L TD. (1986) 157 ITR 751 (BOM.) CIT VS.- SHREE KRISHNA GYANODAY SUGAR LTD. (1990) 186 ITR 541 545 (CAL.) BUXA DILARS TEA CO. (INDIA) LTD. VS.- CIT (1991) 1 88 ITR 218 222 (CAL.) CIT VS.- PADMAVATI RAJE COTTON MILLS LTD. (1993) 2 03 ITR 375 381 (CAL.) CIT VS.- O.E.N. INDIA LTD. (1995) 213 ITR 718 720 (KER.). NECESSARY REQUIRED TRANSACTION OF PAYMENT AND RECEI PT WERE CONCLUDED THROUGH APPROPRIATE HANK ENTRIES. THIS METHOD IS QUIET COMM ON AND ACCEPTED IN COMMERCIAL WORLD. IF PARTIES TO THE TRANSACTIONS AGREE TO ACHI EVE THE MONETARY EFFECTS THROUGH A APPROPRIATE ACCEPTABLE MECHANISM IT AVOIDS ROTATIO N OF FUNDS AND COSTS AS WELL AS INCIDENTAL RISKS. THIS IS WHAT IN FACT THE APPELLAN T HAS DONE AND IN FACT THERE HAS BEEN CONSTRUCTIVE PAYMENT AND CONSTRUCTIVE RECEIPTS BY T HE APPELLANT AND LOANEES. IN THIS RESPECT IT MAY ALSO BE NOTED THAT THE LD. J CIT WHILE DISALLOWING THE AMOUNT OF LIABILITY/ INTEREST HAS ACCEPTED THE LIABILITY/ BUS INESS OUTGO OF THE APPELLANT BUT ONLY ECAUSE OF THREE REASONS MENTIONED BY HIM IN HIS ORD ER HAD MADE DISALLOWANCE FOR THE SAME. 8 ITA NO. 1606/AHD/2004 AS PER THE PROVISION OF SECTION 28 AND DECIDED CASE S OF HIGH COURT / SUPREME COURT ANY LIABILITY OR EXPENDITURE SHALL BE AVAILABLE AS DEDUCTION BY WAY OF BUSINESS LOSS WHILE COMPUTING FATAL INCOME IF IT FULFILLS FOLLOWI NG REQUIREMENTS: (A) IT SHOULD BE A REAL LOSS NOT NOTIONAL O R FICTITIOUS; (B) IT SHOULD BE A LOSS ON REVENUE ACCOUNT AN D NOT ON CAPITAL ACCOUNT; (C) IT MUST HAVE ACTUALLY ARISEN AND BEEN IN CURRED NOT MERELY ANTICIPATED AS CERTAIN TO OCCUR IN FUTURE; (D) IT SHOULD BE ONE THAT IS INCIDENTAL TO T HE CARRYING ON OF THE BUSINESS AND MUST ARISE OR SPRING DIRECTLY FROM OR BE INCIDENTAL TO T HE CARRYING OUT OF AN OPERATION OF THE BUSINESS. (E) THERE SHOULD BE NO PROHIBITION IN THE ACT EXPRESS OR IMPLIED AGAINST THE DEDUCTIBILITY THEREOF. FURTHER DETAILED SUBMISSION HAD BEEN MADE ON 2.4.20 01 11.6.2001 24.3.2003 22.11.2003 AND 13.2.2004. PHOTO COPIES OF RELEVANT MINUTES RELATING TO THE DECISION TAKEN FOR CHANGE FROM EARLIER SYSTEM OF INTEREST AN D PRINCIPAL RECOVERY TO THE EQUATED QUARTERLY INSTALMENTS SCHEME HAVE ALSO BEEN GIVEN. IF RELEVANT NECESSARY SUBMISSION ARE BEING GIVEN HEREUNDER IN ORDER TO HI GHLIGHT THE CONTENTIONS OF THE APPELLANT ' EQI INTRODUCED BY NBFC AND BANKS WAS BECOMING MORE AND MORE POPULAR DUE TO ITS INHERENT ADVANTAGE OF EQUAL SPRE AD THROUGHOUT THE PERIOD OF LOAN AND LIABILITY IS KNOWN BEFORE HAND TO LOANEE THE CORPORATION WAS ALSO FORCED TO SWITCH OVER TO EQI SO AS TO WITHSTAND THE COMPETITION AND ALSO TO ACHIEVE THE OBJECT FOR WHICH THE CORPORATION HAS BE EN ESTABLISHED. THE OTHER REASON FOR SWITCHING OVER TO EQI FROM RED UCING BALANCE METHOD IS THAT IN THIS SYSTEM AS PER THE POLICY OF THE CORPORATIONS I N CASES WERE THE LOANEES ARE NOT REGULAR IN MAKING PAYMENTS OF QUARTERLY INTEREST AN D/OR PRINCIPAL AS PER SCHEDULE OF REPAYMENT PENAL INTEREST AND INTEREST ON INTERST I S BEING CHARGED AND PAYMENT IF ANY MADE BY THE LOANEE AFTER DEFAULT IS COMMITTED FOR FIRST TIME IS APPROPRIATE TOWARDS PENAL INTEREST AND/OR OVERDUE INTEREST AND CONSEQUENTLY PRINCIPAL AMOUNT ALWAYS REMAINS OUTSTANDING WHICH LEADS OF ACCOUNTS BECOMING STICKY AND NON- RECOVERABLE. SUBSEQUENTLY WHEN LOANEE APPROACHES C ORPORATION FOR RELIEF/ SETTLEMENT THAN AS PER THE POWERS GIVEN TO VARIOUS OFFICERS/ BOARD SETTLEMENT TAKES PLACE WHICH AMOUNTS TO DISCRIMINATION AMONGST THE L OANEE AND LEADS TO SITUATION WHEREBY THE LOANEE WHO IS REGULAR IN MAKING PAYMENT IS BEING PENALIZED COMPARED TO LOANEE WHO IS IRREGULAR AND/OR HAS DEFAULTED. TH IS HAS RESULTED INTO A SITUATION WHEREBY THERE HAS BEEN GROWING DISSATISFACTION AMON GST THE LOANEE. ALSO IT MAY BE NOTED THAT DIE TO CHANGE IN SYSTEM T O EQI THE LOANEES A/C. WHICH WERE BECOMING STICKY AND NON-RECOVERABLE HAS GOT R ELIEF ON ACCOUNT OF WAIVER OF PENAL INTEREST/ INTEREST ON INTEREST/ OVERDUE INTER EST WHICH HAS RESULTED INTO INCENTIVE TO THOSE LOANEE TO MAKE PAYMENTS OF OUTST ANDING AS PER NEW SYSTEM WHICH HAS RESULTED INTO RECOVERY OF OLD OUTSTANDING AND C LOSURE OF VARIOUS SMALL ACCOUNTS (BELOW RS.15 LACS) DOE TO WHICH MANPOWER COST AND A DMINISTRATIVE COST OF THE CORPORATION HAS BEEN REDUCED SUBSTANTIALLY. THEREAFTER UPTO THE REPAYMENT OF ENTIRE AMOUNT OF T HE LOAN SANCTIONED UNDER THE EXISTING SYSTEM OF TERM LOANS & EQUATED QUARTERLY S YSTEM IS ENCLOSED HEREWITH. YOUR HONOUR WILL OBSERVE THAT INTEREST RECOVERY IS HIGHE R IN EQI SYSTEM AFTER 1.4.1997 WHICH THE CORPORATION HAS ALREADY OFFERED FOR TAX. 9 ITA NO. 1606/AHD/2004 THE CORPORATION HAS GIVEN EFFECT OF THE CHANGED SYS TEM OF EQI IN MAJORITY OF THE LOANEES A/C. OF LOAN SANCTIONED BELOW RS.15 LACS AN D OUTSTANDING AS ON 1.4.1997. THE CORPORATION HAS RECOVERED INTEREST AND PRINCIPA L AFTER 1.4.1997 AS PER EQI SYSTEM. THERE WERE AROUND 10 000 TO 150000 LOANEES A/C. WHERE THESE EFFECT ARE GIVEN THROUGH COMPUTER. THEREFORE IT IS NOT POSSIB LE TO WORK OUT THE INTEREST AND PRINCIPLE RECOVERY AFTER .1.4.1997 ON ALL SUCH LOAN EES A/C. UNDER THE EXISTING SYSTEM OF TERM LOAN. THE APPELLANT CORPORATION HAS SWITCHED OVER TO EQUA TED QUARTERLY INSTALMENT SYSTEM FOR THE TERM LOAN SANCTIONED UPTO RS.15 LAKHS UPTO 31.3.1997. THIS METHOD OF CHARGING INTEREST AND RECOVERY OF PRINCIPAL FROM RE DUCING BALANCE METHOD TO EQUATED QUARTERLY INSTALMENT SYSTEM DURING THE PREV IOUS YEAR ENDED ON 31.3.1997 IS NOT A CHANGE IN ACCOUNTING SYSTEM. THE ACCOUNTING S YSTEM HAS REMAINED THE SAME AS FOLLOWED IN THE PREVIOUS YEAR I.E. CASH ACCOUNT ING SYSTEM. THE ACCOUNTING SYSTEM IS NOT CHANGED FROM MERCANTILE TO CASH OR FROM CASH TO MERCANTILE SYSTEM. IT IS SUBMITTED THAT THERE IS NOTHING IN THE ACT WH ICH PRECLUDES THE ASSESSEE WHO BONAFIDE DESIROUS TO SWITCH OVER TO ANOTHER SYSTEM OF ACCOUNTING. THERE IS NO FINDING OF FACT THAT SWITCH OVER TO EQUATED QUARTER LY INSTALLMENT SYSTEM FOR TERM LOAN WAS NOT BONAFIDE. GUJARAT HIGH COURT IN THE CASE OF GANGA CHARITABLE TRUST FUND (162 ITR 612) HAVE FURTHER HELD THAT IT WAS NOT SHOWN BY REVENUE THAT THIS CHANGE LACK DURABILITY OR REGULARITY AND OR MERELY A STOP GAP ARRANGEMENTS TO AVOID PAYMENT OF TAX. THE APPELLANT CORPORATION WAS ENTITLED TO SWITCH OVER T O THE CASH METHOD ACCOUNTING FROM MERCANTILE ACCOUNTING SYSTEM. IN THE CASE ITO VS.- RAJASTHAN INVESTMENT CO. LTD. (113 ITR 294) CALCUTTA HIGH COURT HAVE ALSO A LLOWED THE CHANGE IN METHOD OF ACOUNTING. CALCUTTA HIGH COURT IN THE CASE OF REFOR M FLOUR MILLS VS.- ITO (114 ITR 227) HAVE HELD THAT IT IS OPTION TO A PAYERS TO ADJUST ITS OWN AFFAIRS IN SUCH A WAY THAT HIS TAX LIABILITY MAY BE REDUCED PROVIDED MEANS EMPLOYED ARE LAWFUL. IT HAS FURTHER HELD THAT SECTION 145(1) OF THE ACT DOE S NOT PLACE ANY EMBARGO ON THE ASSESSEE RIGHTS TO ALTER METHOD OF ACCOUNTING AND T HE ASSESSEE WAS ENTITLED TO CHANGE HIS METHOD OF ACCOUNTING UNILATERALLY. THE ACCOUNTING STANDARD 4 (AS-4) REQUIRES THE ASSES SEE TO MAKE ADJUSTMENTS IN THE ASETS AND LIABILITIES P&L ACCOUNT FOR THE EVENTS WH ICH HAS OCCURRED BETWEEN THE BALANCE SHEET DATE AND THE DATE ON WHICH THE FINANC IAL STATEMENTS ARE APPROVED. THE CORPORATION BEING THE COMPANY IS FURTHER REQUIRED T O OBSERVE AND FOLLOW ACCOUNTING STANDARDS WHICH ARE MANDATORY UNDER SECTION 211(3 )(C). UNDER THESE CIRCUMSTANCES THE APPELLANT SUBMIT THAT BY PROVIDI NG LIABILITY OF RS.7.74 CRORES OF INTEREST THOUGH DETERMINED AFTER END OF THE YEAR BU T WAS CRYSTALLIZED ON 31.3.1997 IS CORRECT PROVISION FOR LIABILITY AND ALLOWABLE DEDUC TION IN COMPUTING TOTAL INCOME. 13. AFTER CONSIDERING THE AFORESAID SUBMISSIONS I N THE IMPUGNED ORDER THE CT(A) UPHELD THE ACTION OF ASSESSING OFFICER FOR THE DETAILED RE ASONS GIVEN IN PARAS 8 & 9 ON PAGES 8 & 9 WHICH READS AS UNDER :- 10 ITA NO. 1606/AHD/2004 8. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS MADE. IT IS AN UNDISPUTED FACT THAT THE INTEREST DEBIT MA DE IN THE P&L ACCOUNT AND CLAIMED IN THE COMPUTATION OF INCOME RELATES TO THE PERIOD OF SEVERAL ACCOUNTING YEARS FROM 1.4.1985 TO 31.3.1997 EARLIER INTEREST W HICH WAS RECEIVED AT A HIGHER AMOUNT HAD BEEN DECLARED IN THE ACCOUNTS MAINTAINED FOR THOSE YEARS AND ACCORDINGLY DECLARED FOR TAX PURPOSES. THERE IS NO ATTEMPT BY THE APPELLANT TO CHANGE THE DECLARED INCOME OF THOSE YEARS. WHAT IS BEING CLAIMED IS THAT THE SO CALLED EXTRA INCOME DECLARED IN THE EARLIER YEARS B E OFF SET BY SINGLE ENTRY DEBIT OUT OF THE INCOME FROM THE CURRENT YEAR IT IS BEING CL AIMED THAT THIS IS A STATUTORY LIABILITY THAT CONSTRUCTIVE PAYMENT HAS ALREADY BE EN MADE BY VIRTUE OF CREDIT TO INDIVIDUAL BORROWERS ACCOUNTS ON ACCOUNT OF INTERES T AND DEBIT MADE IN THOSE VARY ACCOUNTS FOR EXTRA PRINCIPAL RECEIVABLE THAT IT IS A BONAFIDE CHANGE IN METHOD OF ACCOUNTING WHICH IS PERMISSIBLE AS PER LAW THAT CA SH METHOD OF ACCOUNTING IS FOLLOWED AND THAT BY THIS METHOD THE LIABILITY AS C RYSTALISED IN THE CURRENT YEAR. IT IS ALSO ARGUED THAT THE A.O. HAS ACCEPTED THE LIABILIT Y BUT IS NOT ALLOWING IT FOR THE UNACCEPTABLE AND INCORRECT REASONS RECORDED IN THE ASSESSMENT ORDER. 9. HAVING CAREFULLY CONSIDERED THE FACTS OF MATTER AND SUBMISSIONS MADE. I FIND THAT THE MAJORITY OF THESE ABOVE CLAIMS ARE NO T ACCEPTABLE UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. EVEN THOUGH ASSESSEE HAD MADE CONSTRUCTIVE PAYMENT BY WAY OF CREDIT TO THE INDIVIDUAL ACCOUNTS BUT TH E ASSESSEE IS ACTUALLY FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. THIS IS SO REC ORDED IN THE ASSESSMENT ORDER ON PAGE 1 AND ASSESSEE HAS NOT AGITATED THIS NOTING IN THE ASSESSMENT ORDER. SINCE THE MERCANTILE SYSTEM OF ACCOUNTING IS FOLLOWED IT IS NOT ACCEPTABLE THAT EXTRA INTEREST BROUGHT TO TAX IN THE EARLIER YEAR OR YEARS SHOULD BE ALLOWED AS A DEDUCTION IN A SINGLE YEAR THAT IS THE PRESENT ASSESSMENT YEAR. AS REGARDS THE CLAIM THAT THIS LIABILITY HAS CRYSTALIZED IN THE CURRENT YEAR I FIN D IT TO BE NOT SO FROM THE UNCONTROVERTED EVIDENCE IN THE FORM OF RECORDED MI NUTES OF VARIOUS MEETINGS WHICH SHOW THAT MUCH BEYOND THE CLOSING OF THE ACCO UNTING YEAR THE ADOPTION OF THIS SYSTEM IT MILL TO BE AGREED TO BY THE SENIOR M ANAGEMENT WHO WERE TO TAKE DECISION IN THE MATTER. THEREFORE DESPITE APPELLAN TS CLAIM THAT THE ACCOUNTING SYSTEM PERMITS THAT CHANGES MADE UPTO COMPLETING OF AUDITING OF THE BOOKS OF ACCOUNT BE EFFECT I DO NOT FIND AS A FACT THAT T HE LIABILITY FOR THIS DEBIT HAS AT ALL CRYSTALIZED UPTO 31.3.1997 WHICH IS THE RELEVANT AC COUNTING YEAR FOR THIS ASSESSMENT YEAR. THE LIABILITY IS MOREOVER NOT A ST ATUTORY LIABILITY IN AS MUCH AS THE TERMS OF THE LOANS GRANTED WERE NOT SUCH IN THE YEA RS GONE BY RIGHT FROM 1.4.1985. THEREFORE CHANGE IN THE METHOD ADOPTED SUBSEQUENTL Y THOUGH BONAFIDE CANNOT BE PERMITTED TO AFFECT THE DECLARED INCOME. COMING THE APPELLANTS RIGHT TO OFF SET PAST INCOMES DECLARED (PERHAPS AT MORE THAN NECESSARY) I N THIS YEAR THE ARGUMENT THAT SINCE AFTER 1.4.1997 RECOVERY FROM INTEREST WILL BE MORE AN WILL BE BROUGHT TO TAX AND THEREFORE LEAD TO DOUBLE TAXATION IF DEDUCTION FOR PAST YEARS IS NOT ALLOWED IS NOT ACCEPTABLE FOR THE REASON THAT PAST YEARS INCOM E VIS--VIS FUTURES YEARS INCOME CANNOT BE OFF SET IN THE CURRENT YEAR WITHOUT SUCH CHANGE OVER HAVING EVEN CRYSTALLIZED WITHIN THE SAID ACCOUNTING YEAR. THE A CCOUNTING ENTRIES MADE BY THE APPELLANT FOR EXTRA INTEREST TAKEN IN EARLIER YEARS AN FOR LESS PRINCIPAL TAKEN IN EARLIER YEARS IS MERELY ACCOUNTING ENTRIES THAT WOU LD MEAN PERHAPS LOWER INCOMES FOR TAXATION PURPOSES IN THE PAST SEVERAL YEARS AND HIGHER INTEREST INCOMES IN THE FUTURE YEARS BUT THAT SHOULD NOT LEAD TO ANY DIFFE RENCE IN THE INCOME RELATED TO THE CURRENT YEAR. 11 ITA NO. 1606/AHD/2004 14. AGGRIEVED BY THIS ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THE ASSESSEE IS IN APPEAL BEFORE US. 15. AT THE TIME OF HEARING BEFORE US ON BEHALF OF ASSESSEE SHRI P.F. JAIN C.A. APPEARED AND FILED A PAPER BOOK CONTAINING 58 PAGES WHICH INTER ALIA INCLUDES SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW I.E. EXPLANATORY STATEMENT EXPLA INING EQUATED QTLY. INST. SYSTEM WITH EXAMPLE AND EFFECT GIVEN TO THE ACCOUNT OF LOANEE AND SAMPL E COPIES OF LIST GIVING DETAILS OF INDIVIDUAL ACCOUNT UNDER IMPACT OF EQI SYSTEM. THE LD. COUNSEL OF THE ASSESSEE EXPLAINED THAT THE ASSESSEE- CORPORATION HAS MERELY SWITCHED OVER TO EQUATED QUA RTERLY INSTALMENT SYSTEM FOR THE TERM LOAN SANCTIONED UPTO RS.15 LAKHS UPTO 31.03.1997. THIS M ETHOD OF CHARGING INTEREST AND RECOVERY OF PRINCIPAL FROM REDUCING BALANCE METHOD TO EQUATED Q UARTERLY INSTALMENT SYSTEM DURING THE PREVIOUS YEAR ENDED ON 31.03.1997 IS NOT A CHANGE I N ACCOUNTING SYSTEM. THE ACCOUNTING SYSTEM HAS REMAINED THE SAME AS FOLLOWED IN THE PREVIOUS Y EAR I.E. CASH ACCOUNTING SYSTEM. HE THEREFORE SUBMITTED THAT THE ACCOUNTING SYSTEM IS NOT CHARGED FROM MERCANTILE SYSTEM TO CASH OR FROM CASH TO MERCANTILE SYSTEM. 16. ON THE OTHER HAND SHRI GOVIND SINGHAL SR. D.R . APPEARING ON BEHALF OF THE REVENUE CONTENDED THAT THE ASSESSING OFFICER IN THE ASSESSM ENT ORDER CLEARLY MENTIONED THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THERE FORE THE VIEW TAKEN BY THE ASSESSING OFFICER AND LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN RESPECT OF THIS GROUND BE UPHELD. 17. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN CASE THE ASSESSEE HAS NOT CHANGED THE ME THOD OF ACCOUNTING BUT MERELY HAS GIVEN EFFECT OF THE CHANGED SYSTEM OF EQI AND AFTER 1.4.1 997 HAS RECOVERED INTEREST AND PRINCIPAL AS PER EQI SYSTEM IN THAT EVENT IN OUR OPINION THE ASSESSING OFFICER OUGHT TO HAVE ALLOWED THE CLAIM OF DEBIT OF RS.7 74 43 000/- FROM THE INCOME OF THE CURRENT YEAR AS CLAIMED BY THE ASSESSEE. WHETHER IN THE EARLIER YEAR THE ASSESSEE WAS FOLLOWING CASH SYSTEM OF ACCOUNTING IN OUR OPINION NEEDS VERIFICATION AT THE END OF ASSES SING OFFICER. WE THEREFORE SET ASIDE THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ON T HIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF ASSESSING OFFICER WHO WILL EXAMINE THE METHOD OF ACCOUNTING FOLLOWED BY THE 12 ITA NO. 1606/AHD/2004 ASSESSEE IN EARLIER YEAR AND RE-ADJUDICATE THE ADDI TION OF RS.7 74 43 000/- AFRESH AFTER HEARING THE ASSESSEE. 18. IN THE RESULT FOR STATISTICAL PURPOSES THE AP PEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 14.05.201 0 SD/- SD/- (A.N. PAHUJA) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 14 / 05 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD LAHA/SR.P.S.