Gujarat Alkalies & Chemicals Ltd.,, Baroda v. The ACIT.,Circle-1,, Baroda

ITA 4461/AHD/2007 | 2003-2004
Pronouncement Date: 09-04-2010 | Result: Partly Allowed

Appeal Details

RSA Number 446120514 RSA 2007
Assessee PAN AIRSC1178H
Bench Ahmedabad
Appeal Number ITA 4461/AHD/2007
Duration Of Justice 2 year(s) 3 month(s) 20 day(s)
Appellant Gujarat Alkalies & Chemicals Ltd.,, Baroda
Respondent The ACIT.,Circle-1,, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 09-04-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 09-04-2010
Date Of Final Hearing 01-04-2010
Next Hearing Date 01-04-2010
Assessment Year 2003-2004
Appeal Filed On 19-12-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' [BEFORE SHRI MAHAVIR SINGH JM AND SHRI A N PAHUJA A M] ITA NO.4461/AHD/2007 (ASSESSMENT YEAR:-2003-04) GUJARAT ALKALIES AND CHEMICALS LIMITED P O PETROCHEMICALS DIST. VADODARA -391346 [PAN:AAACG8896M] V/S ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-1(1) VADODARA [APPELLANT] [RESPONDENT] ITA NO.4555/AHD/2007 (ASSESSMENT YEAR:-2003-04) ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-1(1) VADODARA V/S GUJARAT ALKALIES AND CHEMICALS LIMITED P O PETROCHEMICALS DIST. VADODARA [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI J P SHAH AR DEPARTMENT BY:- SHRI S R MALIK DR O R D E R A N PAHUJA: THESE CROSS APPEALS DIRECTED AGAINST AN ORDER DATE D 16-09-2007 OF THE LD. CIT(APPEALS)-I BARODA RAISE THE FOLLOWING GROUNDS: ITA NO.4461/AHD/2007[ ASSESSEE] : 1. THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) IS BAD IN LAW CONTRARY TO LEGAL PRONOUNC EMENTS AND SAME BE QUASHED. THE ADDITIONS/DISALLOWANCES CONFIRMED BY H IM ARE UNWARRANTED AND SAME BE DELETED NOW. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.3 36 224/- BEING AMOR TIZATION OF LEASE RENT PAID FOR LAND TREATING THE SAME AS OF CAPITAL NATUR E. IT IS SUBMITTED THAT DISALLOWANCE MADE IS UNWARRANTED AND UNJUSTIFIED AN D SAME BE DELETED NOW. ITA NO.4461& 4555/AHD/2007 2 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.1 59 50 000/- BEING C ONTRIBUTION TO 'GACL EMPLOYEES WELFARE TRUST FUND'. IT IS SUBMITTED THAT CONTRIBUTION SO MADE IS AN' ALLOWABLE REVENUE EXPENDITURE U/S 37(1) OF T HE ACT. IT BE HELD NOW AND DISALLOWANCE MADE BE DELETED. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.3 18 340/- BEING CONT RIBUTION TO GACL EMPLOYEES BENEVOLENT FUND. IT IS SUBMITTED THAT CON TRIBUTION SO MADE IS AN ALLOWABLE REVENUE EXPENDITURE U/S 37(1) OF THE A CT. IT BE HELD NOW AND DISALLOWANCE MADE BE DELETED. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING EXPENDITURE OF RS.14 18 62 240/- INCURRE D FOR REPLACEMENT OF MEMBRANE CELL AS OF CAPITAL NATURE ON THE GROUND TH AT EXPENDITURE INCURRED BRING ENDURING BENEFIT AND TREATED THE SAM E IN THE NATURE OF CAPITAL EXPENDITURE. YOUR APPELLANT SUBMITS THAT EX PENSES INCURRED BEING OF REVENUE NATURE CIT (A) IS NOT JUSTIFIED IN TREA TING THE SAME OF CAPITAL EXPENDITURE. IT BE HELD NOW AND THE ASSESSING OFFIC ER BE DIRECTED TO ALLOW THE SAME AS CLAIMED. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.97 043/- (20% OF RS. 4 85 216/-) BY INVOKING PROVISIONS OF SECTION 40A(3) OF THE ACT. Y OUR APPELLANT SUBMITS THAT PROVISIONS OF SECTION 40A(3) ARE NOT APPLICA BLE TO THE ITEMS OF TRANSACTIONS IN CASH. IT BE HELD SO NOW AND DISALLO WANCE MADE BY THE AO BE DELETED. YOUR APPELLANT CRAVES FOR LEAVE TO ALTER/AMEND/WITH DRAW/MODIFY ANY OF THE ABOVE GROUNDS BEFORE HEARING ITA NO.4555/AHD/2007[REVENUE] 1.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ID. CIT(A) ERRED IN ALLOWING DEDUCTION OF RS.9 61 12 49 4/- WHICH WAS CLAIMED AS PART OF LEASE RENT OF RS.15 43 66 589/- DISREGARDING THE FACT THAT IN SUBSTANCE THE AMOUNT REPRESENTED REP AYMENT OF LOAN (BALANCE BEING INTEREST) AND THE DISALLOWANCE OF TH E COMPONENT OF REPAYMENT OF LOAN WAS IN CONFORMITY WITH THE ACCEPT ED ACCOUNTING PRACTICE FORMALIZED IN ACCOUNTING STANDARD-19 (AS-1 9) AS WELL AS INTERNATIONAL ACCOUNTING STANDARD-17 AND ALSO IN CO NFORMITY WITH THE ENTRIES IN THE BOOKS OF ACCOUNT OF THE ASSESSEE TREATING THE RELEVANT TRANSACTION AS A FINANCE TRANSACTION AND N OT A LEASE TRANSACTION AND DEBITING ONLY INTEREST COMPONENT IN THE ACCOUNTS. (B) THE ID CIT(A) HAS WRONGLY ASSUMED THAT THE AS SESSEE HAD FOLLOWED AS-19 WHEN THE FACT IS THAT THE ASSESSEE HAD CONTRA VENED AS-19 IN CLAIMING THE DEDUCTION IN THE COMPUTATION OF INCOME FOR INCOME-TAX ITA NO.4461& 4555/AHD/2007 3 PURPOSES WHILE WORKING OUT PROFITS IN THE AUDITED A CCOUNTS IN ACCORDANCE WITH AS-19. (C) THE ID CIT(A) FAILED TO APPRECIATE THAT THE REL EVANT MACHINERY WAS IMPORTED BY THE ASSESSEE FOR ITS OWN USE AND THE SO -CALLED LESSOR M/S GUJARAT LEASE FINANCING LTD. WAS ONLY A FINANC IER FINANCING THE COST OF THE MACHINERY ON ITS SECURITY AND THE L IEN OF THE FINANCIER OVER THE MACHINERY WAS CONFINED TO ENSURING RECOVER Y OF REPAYMENT OF LOAN ALONG WITH INTEREST BUT IN THE DOCUMENTS T HE TRANSACTION WAS GIVEN THE COLOUR OF 'FINANCE LEASE' SHOWING THE FI NANCIER AS THE OWNER WHEN AS-19 AS WELL AS INTERNATIONAL ACCOUNTI NG STANDARD- 17 TREAT FINANCE LEASE AS A FINANCE TRANSACTION AND NOT A LEASE TRANSACTION AND RIGHTLY SO IN VIEW OF THE SUBSTANCE OF THE TRANSACTION BEING FINANCE AND NOT LEASE. (D) THE ID. CIT(A) ERRED IN OVERLOOKING THE RATIO O F SUNDARAM FINANCE LTD. VS. STATE OF KERALA 1966 AIR SC 1178 HOLDING T HAT IT IS THE TRUE EFFECT OF THE TRANSACTION AS DETERMINED FROM THE TE RMS OF THE AGREEMENT CONSIDERED IN THE LIGHT OF THE SURROUNDIN G CIRCUMSTANCES AND NOT MERE THE RECITALS IN THE DOCUMENTS THAT DET ERMINES ITS CHARACTER AND THE TRANSACTION OF FINANCE COULD NOT BE CONVERTED INTO A TRANSACTION OF HIRING MERELY BY MAKING DOCUMENTS TO GIVE IT THE COLOUR OF HIRING AND ALSO OVERLOOKING THE LAW SETT LED IN CIT VS DURGA PRASAD MORE 82 ITR 540 (SC) JUGGILAL KAMLAPA L VS CIT 73 ITR 702 (SC) AND MCDOWELL & CO LTD VS CTO 154 ITR 1 71 (SC) ON SUBSTANCE VERSUS FORM IN TAX PROCEEDINGS. (E) THE CIT(A) FAILED TO APPRECIATE THAT THE PROFIT HAD TO BE DETERMINED ACCORDING TO THE ACCEPTED ACCOUNTING PRACTICE AS HE LD IN THE CASE OF P.M. MOHAMMED MEERAKHAN VS CIT 73 ITR 735 (SC) AND A DEPARTURE CAN BE MADE FROM SUCH ACCOUNTING PRACTICE ONLY WHERE THERE IS A CONFLICT WITH THE PRINCIPLES OF LAW AS H ELD IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. C IT 227 ITR 172 AND SINCE THE TREATMENT OF THIS TRANSACTION IN THE BOOKS OF THE ASSESSEE WAS IN CONFORMITY WITH THE ACCEPTED ACCOUN TING PRACTICE AS ALSO THE SUBSTANCE OF THE TRANSACTION WHICH ONL Y IS RELEVANT FOR INCOME-TAX PROCEEDINGS THE CIT(A) WAS NOT JUSTIFIE D IN GOING AGAINST THE ENTRIES IN THE ASSESSEE'S OWN BOOKS OF ACCOUNT WHICH WERE IN CONFORMITY WITH THE ACCEPTED ACCOUNTING PRA CTICE AS WELL AS THE PRINCIPLES OF LAW. 2.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ID CIT(A) ERRED IN NEGATING THE ADJUSTMENT OF PROVISIO N FOR BAD DEBTS OF RS.1 17 06 905/- IN THE COMPUTATION OF BOOK PROF IT U/S 115JB ON THE GROUND THAT IT WAS NOT A LIABILITY FOR EXPENSES BUT A LIABILITY RELATING TO ASSETS WITHOUT APPRECIATING THAT THE W ORD 'LIABILITY' IN CLAUSE (C) OF THE EXPLANATION BELOW SECTION 115JB(2 ) DOES NOT ITA NO.4461& 4555/AHD/2007 4 DISTINGUISH BETWEEN A LIABILITY TOWARDS EXPENSES AN D A LIABILITY RELATING TO ASSETS BOTH OF WHICH ARE A CHARGE ON TH E PROFITS. (B) WITHOUT PREJUDICE THE ID CIT(A) FAILED TO APPR ECIATE THAT IF THE AMOUNT DID NOT CONSTITUTE LIABILITY IT WAS A RESER VE 'BY WHATEVER NAME CALLED' WITHIN THE MEANING OF CLAUSE (B) OF TH E EXPLANATION BELOW SECTION 115JB (2) IN VIEW OF NOT BEING ACTUAL AMOUNT OF DEBTS WRITTEN OFF BUT ONLY AN ARBITRARY PROVISION AT AN E STIMATED FRACTION OF TOTAL DEBTS WHICH IS TREATED AS RESERVE EVEN UNDER RULE 7(2) OF SCHEDULE VI OF THE COMPANIES ACT. 3.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ID CIT(A) ERRED IN NEGATING THE ADJUSTMENT OF DIMINUTI ON OF RS.1 35 13 671/- IN THE VALUE OF INVESTMENTS IN THE COMPUTATION OF BOOK PROFIT U/S 115JB ON THE GROUND THAT IT WAS NOT A LIABILITY FOR EXPENSES BUT A LIABILITY RELATING TO ASSETS WITHOU T APPRECIATING THAT THE WORD 'LIABILITY' IN CLAUSE (C) OF THE EXPLANATI ON BELOW SECTION 115JB(2) DOES NOT DISTINGUISH BETWEEN A LIABILITY T OWARDS EXPENSES AND A LIABILITY RELATING TO ASSETS BOTH OF WHICH AR E A CHARGE ON THE PROFITS. (B) WITHOUT PREJUDICE THE ID. CIT(A) FAILED TO APP RECIATE THAT IF THE AMOUNT DID NOT CONSTITUTE LIABILITY IT WAS A RESER VE 'BY WHATEVER NAME CALLED' WITHIN THE MEANING OF CLAUSE (B) OF TH E EXPLANATION BELOW SECTION 115JB (2) IN VIEW OF NOT BEING ACTUAL DIMINUTION IN THE VALUE OF INVESTMENTS BUT AN ARBITRARY PROVISION TO MEET THE DIMINUTION IN FUTURE AT THE TIME OF ACTUAL DISPOSAL OF THE INVESTMENTS WHICH IS TREATED AS RESERVE EVEN UNDER RULE 7(2) OF SCHEDULE VI OF THE COMPANIES ACT. 4.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ID. CIT(A) ERRED IN DIRECTING TO ADJUST DEDUCTION U/S 8 0HHC AS PER BOOK PROFIT AND NOT AS COMPUTED UNDER THE PROVISIONS OF SECTION 80HHC(3) IN THE COMPUTATION OF DEEMED TOTAL INCOME UNDER SECTION 115JB BY IGNORING THE LANGUAGE OF CLAUSE (IV) OF T HE EXPLANATION BELOW SECTION 115JB(2) REFERRING TO AMOUNT OF PROFI TS ELIGIBLE FOR DEDUCTION U/S 80HHC AS COMPUTED UNDER SECTION 80HHC (3) SUBJECT TO THE CONDITIONS SPECIFIED IN SECTION 80HHC WHICH INCLUDES THE CONDITION LAID DOWN IN EXPLANATION (BAA) BELOW SECT ION 80HHC. (B) THE CIT(A) ERRED IN PLACING AN INTERPRETATION W HICH IS DISCRIMINATORY BETWEEN AN ASSESSEE PAYING TAX ON THE NORMAL TOTAL INCOME AND AN ASSESSEE PAYING TAX ON THE DEEMED TOTAL INCOME UNDE R SECTION 115JB MAKING ONLY THE LATTER ENTITLED TO BENEFIT U NINTENDED IN THE LETTER AS WELL AS THE SCHEME OF THE ACT. ITA NO.4461& 4555/AHD/2007 5 5.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ID. CIT(A) ERRED IN CANCELLING THE INTEREST CHARGED U/S 234B AND 234C ON THE BASIS OF DEEMED TOTAL INCOME UNDER SECTION 1 15JB TOTALLY DISREGARDING SUB-SECTION (5) OF SECTION 115JB CLEA RLY PROVIDING THAT ALL OTHER PROVISIONS OF THE ACT SHALL APPLY TO A CO MPANY COVERED BY THIS PROVISION THUS REMOVING THE SCOPE OF DISPUTE IN THIS REGARD THAT AROSE IN RELATION TO SECTION 115J WHICH WAS N OT HAVING SUCH ENABLING PROVISION. (B) THE ID CIT(A) ERRED IN GOING BY SOME DECISIONS OF THE ITAT IN CONTRAVENTION OF THE LAW LAID DOWN BY THE AUTHORITA TIVE PRONOUNCEMENTS IN THE FOLLOWING HIGH COURTS DECISIO NS: I. CIT VS. KOTAK MAHINDRA FINANCE LTD. 265ITR 119 ( BOM) II. CIT VS. GEETHA RAMKRISHANA MILLS PVT. LTD. 288 ITR 489 (MAD) III. CIT VS. UPPER INDIA STEEL MFG. & ENG. CO. 279 ITR 123 (P&H); WHEN THERE IS NO AUTHORITATIVE PRONOUNCEMENT HOLDIN G TO THE CONTRARY IN RELATION TO SECTION 115JB CONTAINING SP ECIFIC PROVISION OF SUB-SECTION (5) TO MEET THE SITUATION. 6. THE APPELLANT CRAVES LEAVE TO ADD TO AMEND OR ALTER THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY ITA NO.4555/AHD/2007[REVENUE] 2 ADVERTING FIRST TO GROUND NO.1 RELATING TO DEDU CTION OF LEASE RENT IN THE APPEAL OF THE REVENUE FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING NIL INCOM E UNDER THE NORMAL PROVISIONS AND BOOK PROFITS OF RS.52 81 75 051/- IN TERMS OF PROVISIONS OF SEC. 115JB OF THE INCOME-TAX ACT 1961 [HEREINAFTER REFERRED TO AS THE ACT] FILED ON 21.10.2003 BY TH E ASSESSEE MANUFACTURING CAUSTIC SODA SODA ASH AND OTHER CHEM ICALS BESIDES GENERATING POWER FOR CAPTIVE CONSUMPTION AFTER BEI NG PROCESSED ON 10.3.2004 U/S 143(1) OF THE ACT WAS TAKEN FOR SCRU TINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 6.10.2004.DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE CLAIMED LEASE RENT OF RS.15 43 66 589/- ON CAPITAL ASSETS TREATING THE TRANSACTIONS OF FINANCE LEASE AS FINANCE TRANSACTION. TO A QUERY BY THE AO AS TO WHY ONLY I NTEREST BE NOT ITA NO.4461& 4555/AHD/2007 6 ALLOWED INSTEAD OF ENTIRE LEASE RENT THE ASSESSEE REPLIED THAT THEY WERE NOT THE OWNER OF THE LEASED ASSETS AND HAD NOT CLAIMED DEPRECIATION THEREON. FOLLOWING THE ACCOUNTING STAN DARD- 19 THE ASSESSEE CAPITALIZED THE ASSETS AND CHARGED DEPRECI ATION ACCORDINGLY. THE ASSESSEE FURTHER EXPLAINED THAT IT HAD BIFURCATED THE LEASE RENT; INTEREST WAS CHARGED TO P & L ACCOU NT AND THE PRINCIPAL HAD BEEN REDUCED FROM THE LIABILITY OF LE SSOR IN THE FINAL ACCOUNTS. HOWEVER IN THE COMPUTATION OF INCOME IN TEREST CHARGED TO P & L ACCOUNT HAD BEEN ADDED BACK TO THE INCOME AND THE ENTIRE LEASE RENT PAID WAS CLAIMED AS DEDUCTION. IT WAS AR GUED THAT IF LEASE RENT WAS NOT ALLOWED THEN DEPRECIATION MAY BE ALLO WED ON THE LEASE ASSETS. HOWEVER THE AO DID NOT ACCEPT THE SUBMISSI ONS OF THE ASSESSEE AND TREATING THE LEASE IN THE NATURE OF F INANCIAL LEASE ALLOWED ONLY INTEREST OF RS.5 82 54 095/- AND ADDED THE PRINCIPAL AMOUNT OF RS.9 61 12 494/- TO THE TOTAL I NCOME BESIDES OBSERVING THAT IN PRINCIPLE THE ASSESSEE WAS ENTIT LED TO DEPRECIATION OF RS.2 40.28 123/- THE OWNERSHIP OF THE ASSETS BE ING WITH THE ASSESSEE. 3 ON APPEAL THE LD. CIT(A) ALLOWED THE CLAIM FOR D EDUCTION OF RS.9 61 12 494/- FOLLOWING THE ORDER DATED 15-11-20 00 OF THE LD. CIT(A) FOR THE AY 1991-92 UPHELD BY THE ITAT VIDE THEIR ORDER DATED 24-5-2006 IN ITA NO.745/AHD/2001. 4 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST TH E AFORESAID FINDINGS OF THE LD. CIT(A). BEFORE US BOTH THE PAR TIES AGREED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION DATED 24- 05-2006 OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR AY 1991-92 IN ITA NO.745/AHD/2001. THE LD. AR ALSO POINTED OUT THAT T HE REVENUE HAVE ACCEPTED THE DECISION OF THE LD. CIT(A) DELETI NG A SIMILAR DISALLOWANCE IN THE AY 2004-05.THE LD. DR DID NOT DISPUTE THIS SUBMISSION ON BEHALF OF THE ASSESSEE. ITA NO.4461& 4555/AHD/2007 7 5 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISION RELIED UPON. UNDISPUTEDLY A CO-ORDINATE BENCH IN THE ASSESSEES OWN CASE FOR A Y 1991-92 IN ITA NO.745/AHD/2001 UPHELD THE FINDINGS OF THE LD. CIT(A) DELETING A SIMILAR DISALLOWANCE WHILE THE REVENUE HAVE ACCEPTE D THE FINDINGS THE LD. CIT(A) DELETING A SIMILAR DISALLOWANCE IN T HE AY 2004-05. IN THESE CIRCUMSTANCES ESPECIALLY WHEN THE FACTS IN THE YEAR UNDER CONSIDERATION ARE STATED TO BE UNDISPUTEDLY SIMILAR TO THE FACTS OBTAINING IN THE AY 1991-92 & AY 2004-05 WE HAVE NO ALTERNATIVE BUT TO UPHOLD T HE FINDINGS OF THE LD. CIT(A). THEREFORE GROUND NO.1 IN THE APPEAL OF THE REVENU E IS DISMISSED. 6. GROUND NOS.2 & 3 RELATE TO ADJUSTMENTS OF PRO VISION FOR BAD DEBTS OF RS. 1 17 06 905/- AND DIMINUTION OF RS. 1 35 13 671/- IN VALUE OF INVESTMENTS WHILE DETERMINING BOOK PROFITS IN TERMS OF PROVISIONS OF SEC. 115JB OF THE ACT. THE AO NOTICED THAT THOUGH THE ASSESSEE DEBITED PROVISION FOR DOUBTFUL DEBTS-RS.1 17 06 905/- AND PROVISION FOR DIMINUTION OF INVESTMENTS- RS.1 35 13 671/- THESE WERE NOT ADDED BACK WHILE CALCULATING BOOK PROFITS U/S. 115JB OF THE ACT. TO A QUERY BY THE AO THE ASSESSEE SUBMITTED T HAT THE EXPLANATION TO PROVISO TO SECTION 115JB(2) OF THE A CT CATEGORICALLY MENTIONED THAT PROFIT AND LOSS ACCOUNT OF A COMPANY WAS TO BE PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO COMPANIES ACT 1956. THE PROVISION FO R DOUBTFUL DEBTS/ADVANCES AND DIMINUTION OF INVESTMENTS WERE THEREFORE REQUIRED TO BE MADE IN THE ACCOUNTS TO COMPLY WITH THE REQUIREMENTS OF ACCOUNTING STANDARDS. RELYING UPON THE DECISIONS IN THE CASE OF N W EXPORTS LTD. VS CIT (2003) SOT 136 (MUM ) USHA MA RTIN INDUSTRIES LTD VS CIT (2003) 81 TTJ (KOL) 518 IOL L TD VS CIT (2003) 81 TTJ (CAL) 525 CIT VS ECHJAY FORGINGS P LTD (200 1) 116 TAXMAN 322 (BOM) AND APOLLO TYRES LTD VS CIT (2002) 255 IT R 273 174 CTR 521 (SC) THE ASSESSEE CONTENDED THAT THE AO DI D NOT HAVE THE ITA NO.4461& 4555/AHD/2007 8 JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN P ROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN EXPLANATIO N TO SECTION 115JB OF THE ACT. HOWEVER THE AO DID NOT ACCEPT TH E CONTENTIONS OF THE ASSESSEE AND ADDED BOTH THE AFORESAID AMOUNTS ON THE GROUND THAT THE PROVISION FOR BAD DEBTS AND DIMINUTION IN VALUE OF INVESTMENTS WERE NOT ASCERTAINED LIABILITIES AND TH E LATTER WAS OF CAPITAL IN NATURE. 7. ON APPEAL THE LD. CIT(A) DELETED THE ADDITION S ON THE GROUND THAT THE PROVISION MADE FOR DOUBTFUL DEBTS AND DIM INUTION IN INVESTMENTS CAN IN NO WAY BE SAID TO BE IN RESPECT OF A LIABILITY. 8. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). BOTH THE PARTIES AGREED THAT ISSUE IS SQUAREL COVERED BY THE DECISION OF HONBLE SUPREME COURT IN CIT VS. HCL COMET 305 ITR 409(SC). 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THRO UGH THE FACTS OF THE CASE AS ALSO THE DECISION RELIED UPON. WE FIND THAT HONBL E SUPREME COURT IN THEIR DECISION DATED SEPTEMBER 23 2008 IN THE CASE OF C IT V. HCL COMNET SYSTEMS & SERVICE LTD. CIVIL APPEAL NO.. 5800 OF 2008 ON THE ISSUE OF ADDITION OF PROVISION FOR BAD AND DOUBTFUL DEBTS WHILE DETER MINING BOOK PROFITS HELD AS UNDER: AS STATED ABOVE THE SAID EXPLANATION HAS PROVIDED SIX ITEMS I.E. ITEM NOS.(A) TO (F) WHICH IF DEBITED TO THE PROFIT AND LOSS ACCO UNT CAN BE ADDED BACK TO THE NET PROFIT FOR COMPUTING THE BOOK PROFIT. IN THIS CASE WE ARE CONCERNED WITH ITEM NO. (C) WHICH REFERS TO THE PROVISION FOR BAD AND DOUBT FUL DEBT. THE PROVISION FOR BAD AND DOUBTFUL DEBT CAN BE ADDED BACK TO THE NET PROF IT ONLY IF ITEM (C) STANDS ATTRACTED. ITEM (C) DEALS WITH AMOUNT(S) SET ASIDE AS PROVISION MADE FOR MEETING LIABILITIES OTHER THAN ASCERTAINED LIABILITIES. TH E ASSESSEE'S CASE WOULD THEREFORE FALL WITHIN THE AMBIT OF ITEM (C) ONLY IF THE AMOUN T IS SET ASIDE AS PROVISION; THE PROVISION IS MADE FOR MEETING A LIABILITY; AND THE PROVISION SHOULD BE FOR OTHER THAN ASCERTAINED LIABILITY I.E. IT SHOULD BE FOR AN UNASCERTAINED LIABILITY. IN OTHER WORDS ALL THE INGREDIENTS SHOULD BE SATISFIED TO A TTRACT ITEM (C) OF THE EXPLANATION TO SECTION 115JA. IN OUR VIEW ITEM (C) IS NOT ATTR ACTED. THERE ARE TWO TYPES OF 'DEBT'. A DEBT PAYABLE BY THE ASSESSEE IS DIFFERENT FROM A DEBT RECEIVABLE BY THE ASSESSEE. A DEBT IS PAYABLE BY THE ASSESSEE WHERE T HE ASSESSEE HAS TO PAY THE ITA NO.4461& 4555/AHD/2007 9 AMOUNT TO OTHERS WHEREAS THE DEBT RECEIVABLE BY THE ASSESSEE IS AN AMOUNT WHICH THE ASSESSEE HAS TO RECEIVE FROM OTHERS. IN T HE PRESENT CASE 'DEBT' UNDER CONSIDERATION IS 'DEBT RECEIVABLE' BY THE ASSESSEE. THE PROVISION FOR BAD AND DOUBTFUL DEBT THEREFORE IS MADE TO COVER UP THE P ROBABLE DIMINUTION IN THE VALUE OF ASSET I.E. DEBT WHICH IS AN AMOUNT RECEIVABLE BY THE ASSESSEE. THEREFORE SUCH A PROVISION CANNOT BE SAID TO BE A PROVISION F OR LIABILITY BECAUSE EVEN IF A DEBT IS NOT RECOVERABLE NO LIABILITY COULD BE FASTE NED UPON THE ASSESSEE. IN THE PRESENT CASE THE DEBT IS THE AMOUNT RECEIVABLE BY THE ASSESSEE AND NOT ANY LIABILITY PAYABLE BY THE ASSESSEE AND THEREFORE A NY PROVISION MADE TOWARDS IRRECOVERABILITY OF THE DEBT CANNOT BE SAID TO BE A PROVISION FOR LIABILITY. THEREFORE IN OUR VIEW ITEM (C) OF THE EXPLANATION IS NOT ATTR ACTED TO THE FACTS OF THE PRESENT CASE. IN THE CIRCUMSTANCES THE AO WAS NOT JUSTIFIE D IN ADDING BACK THE PROVISION FOR DOUBTFUL DEBTS OF RS.92 15 187/- UNDER CLAUSE ( C) OF THE EXPLANATION TO SECTION 115JA OF THE 1961 ACT. 9.1 PRIOR TO THE AFORESAID DECISION THE IT AT KOLKATA SPECIAL BENCH OF ITAT IN THE CASE OF JT. CIT V. USHA MARTINE INDUSTRIES L TD. [2007] 104 ITD 249 HELD THAT THE PROVISION FOR BAD AND DOUBTFUL DEBT IS NOT A PR OVISION FOR LIABILITY BUT IT IS A PROVISION FOR DIMINUTION IN THE VALUE OF THE ASSETS . ONCE THE PROVISION IS NOT FOR ANY LIABILITY THE QUESTION WHETHER THE LIABILITY I S ASCERTAINED OR UNASCERTAINED DOES NOT ARISE. THEREFORE CLAUSE (C) OF THE EXPLA NATION TO SECTION 115JA WOULD NOT BE APPLICABLE. IN THE CASE UNDER CONSIDERATION ADMITTEDLY PROVISION OF RS. 1 35 13 671 HAS BEEN MADE ON ACCOUNT OF DIMINUTION IN VALUE OF INVESTMENTS. THE REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL SUGGESTING THAT THIS PROVISION IS FOR MEETING ANY LIABILITY WHETHER ASC ERTAINED OR NOT. EVEN THE ASSESSING OFFICER HAS ALSO NOT GIVEN ANY FINDING TH AT THE PROVISION MADE BY THE ASSESSEE FOR DIMINUTION IN THE VALUE OF INVESTMENTS IS UNREASONABLE OR INCORRECT. AT THE TIME OF HEARING BEFORE US ALSO THE REVENUE HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO PROVE THAT THE PROVISION MADE BY THE AS SESSEE FOR DIMINUTION IN THE VALUE OF INVESTMENTS IS UNREASONABLE OR EXCESSIVE. 9.2 IN VIEW OF THE FOREGOING WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) HOLDING THAT THE PROVI SION MADE FOR DOUBTFUL DEBTS AND DIMINUTION IN INVESTMENTS CAN IN NO WAY B E SAID TO BE IN RESPECT OF A LIABILITY . THEREFORE WE DO NOT FIND ANY MERIT IN THE GROUND NOS. 2& 3 RAISED BY THE REVENUE AND ACCORDINGLY THESE G ROUNDS ARE DISMISSED. ITA NO.4461& 4555/AHD/2007 10 10. GROUND NO. 4 IN THE APPEAL OF THE REVEN UE RELATES TO DEDUCTION U/S 80HHC OF THE ACT WHILE DETERMINING BOOK PROFITS U/S 115JB OF THE ACT. THE AO NOTICED THAT THE ASSESSEE CLAIMED DEDUCTION OF RS.4 6 05 652 U/S. 80HHC WHILE COMPUTING BOOK PROFITS U/S.115JB OF THE ACT. SINCE THE INCOME DETERMINED UNDER THE NORMAL PROVISIONS OF A CT RESULTED IN LOSS APPARENTLY THE ASSESSEE WAS NOT ENTITLED TO A NY DEDUCTION U/S. 80HHC OF THE ACT. TO A QUERY BY THE AO THE ASSESSE E WHILE REFERRING TO THE RELEVANT PROVISIONS AND DECISION I N CASE OF CIT VS GIN TEXTILES LTD 248 ITR 372 (KER) SUBMITTED THAT THOUGH LOSS WAS COMPUTED UNDER NORMAL PROVISIONS MAT PROFIT HAS T O BE CONSIDERED WHILE CALCULATING DEDUCTION U/S 80HHC OF THE ACT. H OWEVER THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE ON T HE GROUND THAT THE PROFIT OF THE BUSINESS BEING NIL DEDUCTION U/S . 80HHC CANNOT BE COMPUTED AND CONSEQUENTLY THE ASSESSEE WAS NOT ENT ITLED TO ANY DEDUCTION U/S. 80HHC WHILE DETERMINING BOOK PROFITS U/S. 115JB OF THE ACT. 11. ON APPEAL THE ASSESSEE REITERATED THEIR SU BMISSIONS BEFORE THE AO AND RELIED UPON THE DECISION OF THE BOMBAY ITAT IN THE CASE OF DCIT VS. SYNCOME FORMULATIONS (I) LTD. 106 ITD 193( MUM) (SB). FOLLOWING THE SAID DECISION THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. 12. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR POINTED OUT THAT DECISION OF THE SPECIAL BENCH IN THE CASE OF SYNCOME FORMULATIO NS (I) LTD.(SUPRA) FOLLOWED BY THE LD. CIT(A) HAS SINCE B EEN REVERSED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V S. AJANTA PHARMA LTD. 223 CTR(BOM.)441. ON THE OTHER HAND TH E LD. AR CONTENDED THAT THE DECISION OF SPECIAL BENCH HAS NO T BEEN TOTALLY REVERSED AS HELD IN THE CASE OF DCIT VS. GLENMARK L ABORATORIES LTD. 127TTJ(MUMBAI)719. ITA NO.4461& 4555/AHD/2007 11 13. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON. WE FIND THAT WHILE ADJUDICATING A CLAIM FOR DEDUCTION U/S 80HHC OF THE ACT FROM THE BOOK PROFITS DETERMINED U/S 115JB OF THE ACT THE M UMBAI SPECIAL BENCH OF ITAT IN THE CASE OF SYNCOME FORMULATIONS (I) LTD.(SUPRA) HELD AS UNDER: 66. THE DEDUCTION UNDER SECTION 80HHC IN A MAT SCH EME IS FROM THE TAXABLE INCOME WHICH IS OTHERWISE THE ADJUSTED BOOK PROFIT . IF NO DEDUCTION IS AVAILABLE TO AN ASSESSEE THE GROSS TOTAL INCOME ITSELF IS THE T AXABLE INCOME OF THE ASSESSEE. MAT SCHEME DOES NOT PROVIDE FOR DEDUCTIONS. THEREFO RE THE INTERPRETATION IS THAT THE ADJUSTED BOOK PROFIT OF A COMPANY ITSELF IS THE GROSS TOTAL INCOME OF THAT ASSESSEE-COMPANY. THE DEDUCTION UNDER SECTION 80HHC IS IN THAT WAY GIVEN OUT OF GROSS TOTAL INCOME IN A CASE FALLING UNDER MAT. THIS IN TURN MEANS THAT DEDUCTION UNDER SECTION 80HHC SHOULD BE COMPUTED ON THE ADJUSTED BOOK PROFIT. SECTIONS 115J 115JA AND 115JB COME INTO OPERATION AS THE REGULAR PROFITS HAS BEEN SUBSTITUTED BY THE BOOK PROFIT. ONCE THE SUBST ITUTION IS OVER THERE IS NO WAY TO GO BACK TO THE NORMAL COMPUTATION PROCESS OF STA TUTORY PROFIT WHICH HAS ALREADY BEEN OVERWHELMED BY SECTIONS 115J 115JA AN D 115JB. THIS RECONCILES THE ALLEGED INCOMPATIBILITY POINTED OUT BY THE REVE NUE THAT THE DEDUCTION AVAILABLE TO AN ASSESSEE UNDER CHAPTER VI-A IS SUBJ ECT TO SECTION 80AB. THEREFORE WE FIND THAT THE DEDUCTION UNDER SECTION 80HHC IN A CASE OF MAT ASSESSMENT IS TO BE WORKED OUT ON THE BASIS OF THE ADJUSTED BOOK PROFIT AND NOT ON THE BASIS OF THE PROFIT COMPUTED UNDER THE REGUL AR PROVISIONS OF LAW APPLICABLE TO THE COMPUTATION OF PROFIT AND GAINS OF BUSINESS OR PROFESSION . 13.1 HOWEVER SUBSEQUENTLY HONBLE BOMBAY HIGH COURT IN THEIR AFORESAID DECISION IN AJANTA PHARMA LTD.(SUPRA) OVERRULED THE DECISION IN THE CASE OF SYNCOME FORMULATIONS (I) LTD.(SUPRA) HOLDING AS UN DER: 23. UNTIL S. 115JB WAS INTRODUCED THE WHOLE OF THE PROFITS COMPUTED UNDER S. 80HHC WERE ELIGIBLE FOR REDUCTION FOR COMPUTING THE BOOK PROFITS. PURSUANT TO SUB-S. (1B) OF S. 80HHC THE DEDUCTION AVAILABLE TO THE EXTENT PROVIDED IN S. (1B) AND AFTER 1ST APRIL 2005 THE DEDUCTION OF EXPORT P ROFITS IS DISCONTINUED. THE ASSESSEE'S ARGUMENT IS THAT ONLY IN CASE OF COMPANI ES NOT COVERED BY S. 115JB TO THEN SUB-S. (1B) OF S. 80HHC WOULD APPLY. INSOFA R AS MAT COMPANIES ARE CONCERNED THE PROFITS ELIGIBLE FOR DEDUCTION ARE A S COMPUTED UNDER SUB-S. (3) OR (3A) OF S. 80HHC WITHOUT APPLYING SUB-S. (1B). THIS ARGUMENT IS BASED ON THE EXPRESSION 'COMPUTED UNDER SUB-S. (3) OR SUB-S. (3A ) AS THE CASE MAY BE'. ITA NO.4461& 4555/AHD/2007 12 24. FOR THAT PURPOSE WE WILL HAVE TO EXAMINE THE T RUE SCOPE AND EFFECT OF S. 80HHC. IN S. 80HHC THE RELEVANT PROVISIONS TO WHIC H WE HAVE EARLIER REPRODUCED IS SUB-S. (1) WHICH PROVIDES THAT IN C OMPUTING THE TOTAL INCOME OF THE ASSESSEE A DEDUCTION IS TO BE MADE TO THE EXTENT O F PROFITS REFERRED TO IN SUB-S. (1B) DERIVED BY THE ASSESSEE FROM THE EXPORT OF SUC H GOODS. THE SECTION AS AMENDED HAS BROUGHT IN THE WORDS 'DEDUCTION TO THE EXTENT OF PROFITS' REFERRED TO IN SUB-S. (1B) BY FINANCE ACT 2000 W.E.F. 1ST APRI L 2001. IF THE CONSTRUCTION SOUGHT TO BE GIVEN BY COUNSEL FOR ASSESSEE IS ACCEP TED IT WOULD MAKE SUB-S. (1B) IRRELEVANT FOR THE PURPOSE OF S. 115JB. SUB-S. (1B) PROVIDES FOR DEDUCTION IN TERMS SET OUT THEREIN. SUB-S. (3) SETS OUT THE METHOD OF COMPUTATION OF PROFITS. THE COMPUTATION OF PROFITS IS THEREFORE FOR THE PURPO SE OF WORKING OUT THE DEDUCTION OF PROFITS AVAILABLE UNDER S. 80HHC(1B). EARLIER IT WAS IN TERMS OF SUB-S. (1). NOW S. 80HHC(1) IN TERM REFERS TO SUB-S. (1B). ALL THE PROVISIONS ARE INTER-RELATED AND CANNOT BE READ DE HORS ONE AND OTHER. IF SUB-S. (1B ) IS NOT READ IN SUB-S. (1) THEN THE EXPRESSION 'NO DEDUCTION SHALL BE ALLOWED IN RE SPECT OF THE ASSESSMENT BEGINNING ON THE 1ST DAY OF APRIL 2005 AND ANY SUB SEQUENT YEAR' SHALL BE RENDERED OTIOSE. 25. INSOFAR AS S. 115JB(2) EXPLN. 1(IV) IS CONCERN ED IN COMPUTING THE BOOK PROFITS THE EXPORT PROFITS UNDER S. 80HHC HAD TO BE REDUCED. THE OBJECT OF S. 115JB WAS TO IMPOSE TAX ON COMPANIES WHICH ARE KNOW N AS ZERO TAX COMPANIES. THESE COMPANIES THOUGH MAKING HUGE PROFITS AND PAYI NG HANDSOME DIVIDENDS WERE NOT PAYING ANY TAX. THE OBJECT OF THE SECTION WAS THEREFORE THAT THEY PAY TAX NOT IN A MANNER OF TOTAL INCOME COMPUTED BY OTH ER COMPANIES BUT ON THE BOOK PROFITS WHICH HAD TO BE CALCULATED IN TERMS OF S. 115JB(2). THE ASSESSEE'S DO NOT DISPUTE THIS. THEIR ARGUMENT IS THAT REDUCTI ON MUST BE OF THE WHOLE OF THE BOOK PROFITS COMPUTED UNDER SUB-S. (3) OR (3A) OF S . 80HHC. THE OBJECT OF S. 80HHC AS ORIGINALLY INTRODUCED WAS TO EXEMPT THE WH OLE OF THE EXPORT PROFITS. BY VIRTUE OF SUB-S. (1B) INTRODUCED W.E.F. 1ST APRIL 2001 THE DEDUCTION IS ONLY A PERCENTAGE OF THE EXPORT PROFITS AS ALLOWED THEREIN AND NO REDUCTION AFTER 1ST APRIL 2005. THIS BENEFIT OF REDUCTION WAS INITIALL Y NOT MADE AVAILABLE TO MAT COMPANIES BUT THE BENEFIT WAS EXTENDED FROM 1ST AP RIL 1989. 26. IT IS THEN SOUGHT TO BE CONTENDED THAT THE EXPR ESSION 'CONDITIONS' IN CL. (IV) OF EXPLN. 1 OF S. 115JB CANNOT BE REFERABLE TO SUB-S. (1B) OF S. 80HHC AS SUB-S. (1B) IS NOT A CONDITION BUT IN THE NATURE OF COMPUT ATION. WE HAVE REFERRED TO THE DICTIONARY MEANING OF THE WORD 'CONDITIONS'. EVEN I F WE ACCEPT THAT SUB-S. (1B) OF S. 80HHC IS NOT A CONDITION AND PROCEED ON THAT FOO TING NEVERTHELESS IT IS IMPOSSIBLE OF READING S. 80HHC(3) OR (3A) INDEPENDE NT OF S. 80HHC(1B). TO OUR MIND THE LANGUAGE IS CLEAR. THE LITERAL MEANING DO ES NOT IN ANY WAY DEFEAT THE OBJECT OF THE SECTION AND/OR LEAD TO AN ABSURDITY. THE OBJECT OF S. 115JB IS TO ALLOW EVEN MAT COMPANIES TO AVAIL OF THE BENEFIT OF DEDUCTION. IF WE CONSIDER THE ASSESSEE'S ARGUMENTS THAT MAT COMPANIES ARE ENTITLE D TO FULL DEDUCTION OF EXPORT PROFITS IT WILL LEAD TO ANOMALY WHEREBY THE COMPAN IES WHICH ARE PAYING TAX ON TOTAL INCOME UNDER THE NORMAL RULES FOR THEM THE D EDUCTION OF EXPORT PROFITS WILL BE LESSER THAN WHAT MAT COMPANIES ARE ENTITLED TO. IS THIS A POSSIBLE VIEW? WHEN S. 115J WAS ORIGINALLY INTRODUCED MAT COMPANI ES WERE NOT ENTITLED TO DEDUCTION OF PROFITS UNDER S. 80HHC WHILE WORKING O UT THE BOOK PROFITS. THAT ITA NO.4461& 4555/AHD/2007 13 CAME TO BE INTRODUCED BY DIRECT TAX LAWS (AMENDMENT ) ACT 1989 W.E.F. 1ST APRIL 1989 A YEAR LATER. PARLIAMENT THEREFORE IN ITIALLY HAD EVEN DENIED TO MAT COMPANIES DEDUCTION UNDER S. 115J. WHEN S. 115JA WA S INTRODUCED W.E.F. 1ST APRIL 1997 S. 80HHC BENEFITS WERE ONCE AGAIN NOT AVAILABLE FOR MAT COMPANIES. THE AMENDMENT BY FINANCE ACT 1997 TO GI VE THE BENEFIT WAS W.E.F. 1ST APRIL 1998. CAN IT NOW BE ARGUED THAT MAT COMP ANIES CONSIDERING S. 115JB(2) EXPLN. 1 (IV) ARE ENTITLED TO BE PLACED IN A BETTER POSITION THAN THE OTHER COMPANIES ENTITLED TO THE EXPORT DEDUCTION UNDER S. 80HHC THOUGH EARLIER THEY CONSTITUTED ONE CLASS? NO RULE OF CONSTRUCTION NOR THE LANGUAGE OF THE S. 80HHC R/W S. 115JB IN OUR OPINION WILL PERMIT SUCH CONS TRUCTION. IF SUCH CONSTRUCTION IS NOT POSSIBLE THEN BOTH THE CLASSES OF COMPANIES WIL L BE ENTITLED TO THE SAME DEDUCTION. THIS WOULD CONTEMPLATE THAT BOTH WOULD B E ENTITLED TO DEDUCTIONS OF PROFITS IN TERMS OF S. 80HHC(1B). SO READ IT WOULD BE A HARMONIOUS CONSTRUCTION. A CLASS OF COMPANIES COVERED BY S. 80HHC CANNOT BE SUB-CLASSIFIED INTO TWO CLASSES WHEN MORE SO FOR INTERMITTENT PERIODS PAR LIAMENT HAD EVEN DENIED THE BENEFIT OF S. 80HHC TO MAT COMPANIES. IF THE ARGUME NT OF THE ASSESSEE IS TO BE ACCEPTED WHAT THEN IS THE MISCHIEF THAT S. 115JB SOUGHT TO AVOID? WHAT S. 115JB DID WAS TO CONTINUE THE DEDUCTIONS ALSO TO TH E MAT COMPANIES. THE ONLY DIFFERENCE WAS THAT INSTEAD OF CALCULATING TAX AT 3 0 PER CENT OF THE BOOK PROFITS AS IN THE CASE OF SS. 115J 115JA IT WAS MADE 7.5 PER CENT AND FROM 1ST APRIL 2007 IT IS 10 PER CENT. THE LANGUAGE USED IN CL. (III) T O EXPLN. 1 TO SUB-S. (2) OF S. 115J OR CL. (VII) TO EXPLN. 1 OF S. 115JA(2) OR CL. (IV) OF EXPLN. 1 OF S. 115JB(2) IS 'ELIGIBLE FOR DEDUCTION'. 27. THE ARGUMENT OF THE ASSESSEE IS BASICALLY BASED ON THE MEMORANDUM OF UNDERSTANDING IN THE FINANCE BILL 2000 WHICH WE HA VE EARLIER REPRODUCED. IT ONLY SAYS THAT EXPORT PROFITS UNDER S. 80HHC AND OTHERS ARE KEPT OUT OF THE PURVIEW OF THE PROVISION DURING THE PERIOD OF PHASING OUT OF D EDUCTIONS AVAILABLE UNDER THE PROVISIONS. AT THE SAME TIME IN THE NOTES OF CLAUS ES IT IS CLEARLY STATED THAT THE PROFITS WILL BE AS REDUCED BY THE CERTAIN ADJUSTMEN TS WHICH ARE ELIGIBLE FOR DEDUCTION UNDER S. 80HHC. THE PROFITS ELIGIBLE FOR DEDUCTION ARE EXPORT PROFITS IN TERMS OF S. 80HHC(1B). THERE IS NOTHING IN THE FINA NCE MINISTER'S SPEECH OF 29TH FEB. 2000 [(2000) 159 CTR (ST) 1 : (2000) 242 ITR (ST) 1 ] TO HOLD OTHERWISE. WE HAVE EARLIER REFERRED TO RULES OF CONSTRUCTION AS S ET OUT IN THE JUDGMENTS EARLIER QUOTED. THE NOTES OF OBJECTS AND REASONS IS ONLY AN AID TO CONSTRUCTION. THAT AID TO CONSTRUCTION IS ONLY WHEN THE LITERAL READIN G LEADS TO AMBIGUOUS RESULT OR ABSURDITY. TO OUR MIND CONSIDERING THE LITERAL LANG UAGE THERE IS NO ABSURDITY OR AMBIGUITY BEING CAUSED OR ANY MISCHIEF SOUGHT TO BE REMEDIED. THE LANGUAGE USED IN S. 115JB IS DEDUCTION AVAILABLE UNDER S. 80 HHC. IT IS DIFFICULT TO CONCEIVE OF ANY RATIONAL REASON AS TO WHY THE LEGISLATURE SH OULD HAVE THOUGHT TO GIVE MAT COMPANIES ADDITIONAL BENEFITS THAN THE OTHER COMPAN IES WHO ARE PAYING TAX ON TOTAL INCOME AND NOT THE TAX BASED ON BOOK PROFIT A S CALCULATED UNDER S. 115JB. IS IT POSSIBLE TO CONCEIVE OF ANY DEGREE OF FAIRNESS A ND/OR JUSTICE THAT MAT COMPANIES WHO FOR SOME PERIODS WERE DENIED THE BEN EFIT OF S. 80HHC BECAUSE OF THE INTRODUCTION OF S. 115JB EXPLN. 1(IV) ARE EN TITLED TO HAVE THEIR ENTIRE EXPORT PROFITS REDUCED? THE OBJECT OF S. 115JB OR FOR THAT MATTER S. 115J OR S. 115JA WAS TO IMPOSE TAX ON THOSE COMPANIES WHICH OTHERWISE CO NSIDERING VARIOUS EXEMPTIONS OR DEDUCTIONS AVAILABLE UNDER THE ACT T HOUGH MAKING HUGE PROFITS ITA NO.4461& 4555/AHD/2007 14 AND PAYING LARGE DIVIDENDS WERE NOT PAYING ANY TAX. IT IS THEREFORE NOT POSSIBLE TO ACCEPT THE CONSTRUCTION AS SOUGHT TO BE ADVANCED ON BEHALF OF THE ASSESSEE THAT THEY SHOULD BE TREATED ON A DIFFERENT FOOTING IN CO MPUTING EXPORT PROFITS UNDER S. 80HHC FOR THE PURPOSE OF S. 115JB. 28. WE HAVE HAD THE BENEFIT OF GOING THROUGH REASON ING AND THE ORDERS OF TRIBUNAL IN SYNCOME AS ALSO IN THE CASE OF DY. CIT VS. GOVIND RUBBER (P) LTD. IT IS NOT POSSIBLE TO AGREE WITH THE VIEW TAKEN BY THE BENCHES. THOSE DECISIONS IN VIEW OF THIS JUDGMENT STAND OVERRULED. 29. OUR ATTENTION WAS ALSO INVITED TO THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF CIT VS. GTN TEXTILES LTD. IN THE FIRST INST ANCE THE KERALA HIGH COURT WAS CONSIDERING THE PROVISIONS OF S. 115J. SEC. 115JB W AS NOT UNDER CONSIDERATION. THE HIGH COURT NOTED THAT ORIGINAL S. 115J OF THE A CT DID NOT CONTAIN EXEMPTION UNDER S. 80HHC. THAT SECTION AS WE HAVE NOTED DID NOT ORIGINALLY INCLUDE EXEMPTION ALLOWED TO EXPORTERS UNDER S. 80HHC. BY T HE VIRTUE OF THE EXPLANATION AND CL. (III) THERETO WHICH CAME INTO EFFECT FROM 1ST APRIL 1989 THE REDUCTION UNDER S. 80HHC BECAME AVAILABLE. THE ISSUE BEFORE T HE KERALA HIGH COURT WAS WHAT IS PROFIT THAT SHOULD BE TAKEN INTO CONSIDERAT ION CONSIDERING THE ACCOUNTING SYSTEM THAT HAVE TO BE FOLLOWED WHILE WORKING OUT T HE BOOK PROFITS. THEREFORE THE JUDGMENT WOULD BE OF NO ASSISTANCE IN CONSIDERING T HE QUESTION FRAMED FOR CONSIDERATION. 30. IT WAS ALSO SOUGHT TO BE THEN CONTENDED THAT IF TWO VIEWS ARE POSSIBLE THEN THE CONSTRUCTION OF S. 115JB EXPLN. 1(IV) CONSIDER ING THE DECIDED LAW THE VIEW IN FAVOUR OF THE ASSESSEE SHOULD BE ACCEPTED. THE QUES TION IS WHETHER THERE ARE TWO VIEWS POSSIBLE. IN OUR OPINION NO TWO VIEWS AR E POSSIBLE. THE ONLY VIEW AS EXPLAINED EARLIER IS THAT THE MAT COMPANIES ARE ENT ITLED TO THE SAME DEDUCTION OF EXPORT PROFITS UNDER S. 80HHC AS ANY OTHER COMPANY INVOLVED IN EXPORT IN TERMS OF S. 80HHC(1B). ONCE THAT BE THE CASE THIS ARGUME NT IS ALSO DEVOID OF MERIT. 13.2 THE LD. AR WHILE REFERRING THE DECISIO N IN THE CASE OF GLENMARK LABORATORIES LTD.(SUPRA) CONTENDED THAT DECISION O F SPECIAL BENCH HAS NOT BEEN FULLY OVERRULED BY THE HONBLE BOMBAY HIGH COURT. SINCE THE LD. CIT(A) DID NOT HAVE THE BENEFIT OF THE VIEWS IN THE AFORECITED DEC ISIONS AND THUS COULD NOT RECORD ANY FINDINGS ON THE PLEAS NOW RAISED ON BEHA LF OF THE ASSESSEE BEFORE US ON THEIR CLAIM FOR DEDUCTION U/S 80HHC OF THE ACT W HILE DETERMINING BOOK PROFITS U/S 115JB OF THE ACT WE CONSIDER IT FAIR AND APPR OPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO HIS FILE F OR DECIDING THE ISSUE OF CLAIM FOR DEDUCTION U/S 80HHC OF THE ACT IN TERMS OF CLAUSE (IV) OF THE EXPLANATION TO SEC. 115JB OF THE ACT IN ACCORDANCE WITH LAW IN THE LIGH T OF VARIOUS JUDICIAL PRONOUNCEMENTS INCLUDING THE AFORECITED DECISIONS AFTER ALLOWING SUFFICIENT ITA NO.4461& 4555/AHD/2007 15 OPPORTUNITY TO BOTH THE PARTIES . NEEDLESS TO SAY T HAT WHILE REDECIDING THE APPEAL THE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER KEE PING IN MIND INTER ALIA THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT AND ENSURING THAT THE CONDITIONS OF SECTION 80HHC ARE SATISFIED IN THE INSTANT CASE WHILE COMPUTING THE DEDUCTION ALLOWABLE TO THE ASSESSEE .WITH THESE DIRECTIONS G ROUND NO. 4 IN THE APPEAL FILED BY THE REVENUE IS DISPOSED OF. 14. NEXT GROUND NO.5 IN THE APPEAL RELATES TO LEVY OF INTEREST U/S 234B & 234C OF THE ACT ON TAX DETERMINED ON BOOK PROFITS IN TERMS OF PROVISIONS OF SEC. 115JB OF THE ACT. THE AO LEVI ED INTEREST U/S 234B & 234C OF THE ACT WHILE DETERMINING BOOK PROFI TS IN TERMS OF PROVISIONS OF SEC. 115JB OF THE ACT.ON APPEAL THE LD. CIT(A) CONCLUDED AS UNDER: AS REGARDS GROUND NO.(9) THE APPELLANT HAS ARGUED THAT INTEREST U/S. 234B & 234C CANNOT BE CHARGED SINCE T HE FINAL INCOME HAS BEEN DETERMINED UNDER MAT U/S. 115JB AND HAS SUBMITTED THAT THE ITAT AHMEDABAD IN THE APPELLANT' S OWN CASE HAS HELD THAT INTEREST U/S. 234B & 234C CANNOT BE LEVIED ON THE DEEMED INCOME ASSESSED U/S. 115J. A COPY OF THE I.T.A.T. ORDER DATED 30-12-2005 FOR A.Y. 2003-04 HA S BEEN PLACED ON RECORD. IN THIS ORDER THE ITAT HAVE DECI DED THE ISSUE IN FAVOUR OF THE APPELLANT AT PARA 5 OF THE O RDER WHERE IT HAS ALSO MENTIONED THAT A SIMILAR VIEW HAS BEEN TAK EN BY IT IN ASSESSEE'S OWN CASE FOR THE PRECEDING ASSESSMENT YE ARS. UNDER THE CIRCUMSTANCES IT IS HELD THAT SINCE THE ISSUE IN THE APPELLANT'S OWN CASE HAS BEEN DECIDED BY THE ITAT THE INTEREST CHARGED BY THE ASSESSING OFFICER U/S. 234B & 234C ON THE INCOME ASSESSED UNDER MAT S CANCELLED. 15. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). BOTH THE PARTIES AGREED THAT ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT SPECIAL BENCH IN TH E CASE OF ADDITIONAL CIT VS. ASHIMA SYNTEX LTD. 310 ITR (AT)1 AS ALSO DECISION OF THE THIRD MEMBER IN THE CASE OF M/S. KANEL OIL AND EXPORT INDUSTRIES LIMITE D VS. JCIT 2009-TIOL-646 ITAT- AHD-TM. ITA NO.4461& 4555/AHD/2007 16 16. WE HAVE HEARD BOTH THE PARTIES AND GONE THRO UGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON . IN THE CASE OF AS HIMA SYNTAX LTD.(SUPRA) IN THE CONTEXT OF LEVY OF INTEREST U/S 234C OF THE ACT WHI LE DETERMINING BOOK PROFITS U/S 115JA OF THE ACT THE SPECIAL BENCH ANALYSED THE PROVISIONS OF ADVANCE TAX AND PROVISIONS OF SEC. 115J & 115JA OF THE ACT IN D ETAIL AS ALSO THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF KWA LITY BISCUITS LTD. [2000] 243 ITR 519 IN THE CONTEXT OF PROVISIONS OF SEC. 115J OF THE ACT LATER AFFIRMED BY THE HONBLE SUPREME COURT IN CIT V. KWALITY BISCUITS LT D. 284 ITR 434 (SC) AND CONCLUDED THAT INTEREST U/S 234B & 234C OF THE ACT IS LEVIABLE WHILE COMPUTING INCOME IN TERMS OF PROVISIONS OF SEC. 115JA OF THE ACT. A SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF .M/S. KANEL OIL AND EXPORT IND USTRIES LIMITED (SUPRA) AS ALSO IN A RECENT DECISION BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. BRINDAVAN BEVERAGES LTD. 321 ITR 197(KAR.). EARLIER ALSO HONBLE KARNATAKA HIGH COURT IN THE CASE OF JINDAL THERMAL POWER COMP ANY LTD. VS. DCIT & ANOTHER 286 ITR 182(KAR) AFTER CONSIDERING THEIR OW N DECISION IN THE CASE OF KWALITY BISCUITS LTD. V. CIT [2000] 243 ITR 519 HELD IN THE CONTEXT OF LEVY OF INTEREST U/S 234B & 234C OF THE ACT WHILE COMPUTING INCOME IN TERMS OF PROVISIONS OF SEC. 115JB OF THE ACT THAT THE CENTRAL BOARD OF DIRECT TAXES CIRCULAR NO. 13/ 2001 WAS ISSUED ON 18 NOVEMBER 9 2001 REGARDING THE LIABILITY FOR PAYME NT OF ADVANCE TAX UNDER THE NEW MAT PROVISIONS OF SECTION 115JB OF THE ACT AND IT I S ABUNDANTLY MADE CLEAR IN THE SAID CIRCULAR THAT THE NEW PROVISION OF THE SECTION 115JB AS INTRODUCED BY THE FINANCE ACT 2000 IS A SELF-CONTAINED CODE. SUB-SECTION (1) LAYS DOWN THE MANNER IN WHICH INCOME-TAX PAYABLE IS TO BE COMPUTED. SUB-SECTION ( 2) PROVIDES FOR COMPUTATION OF 'BOOK PROFIT'. SUB-SECTION (5) SPECIFIES THAT SAVE AS OTHERWISE PROVIDED IN THIS SECTION ALL OTHER PROVISIONS OF THIS ACT SHALL APPLY TO EVE RY ASSESSEE BEING A COMPANY MENTIONED IN THAT SECTION. IN OTHER WORDS EXCEPT F OR SUBSTITUTION OF TAX PAYABLE UNDER THE PROVISION AND THE MANNER OF COMPUTATION OF BOOK PROFITS ALL THE PROVISIONS OF THE TAX INCLUDING THE PROVISION RELATING TO CHARGE DEF INITIONS RECOVERIES PAYMENT ASSESSMENT ETC. WOULD APPLY IN RESPECT OF THE PRO VISIONS OF THIS SECTION AND IN VIEW OF THE SCHEME OF THE INCOME-TAX ACT. SECTION 4 OF T HE ACT CHARGES TO TAX THE INCOME AT ANY RATE OR RATES WHICH MAY BE PRESCRIBED BY THE FINANCE ACT EVERY YEAR AND SECTION 207 DEALS WITH LIABILITY FOR PAYMENT OF ADV ANCE TAX AND SECTION 209 DEALS WITH ITS COMPUTATION BASED ON THE RATES IN FORCE FOR THE FINANCIAL YEAR AS ARE CONTAINED IN THE FINANCE ACT AND THE FIRST PROVISO TO SECTION 2( 8) OF THE FINANCE ACT 2001 PROVIDES THAT THE TAX PAYABLE BY WAY OF ADVANCE TAX IN RESPECT OF INCOME CHARGEABLE UNDER SECTION 115JB AS INTRODUCED BY THE FINANCE AC T 2000 AND CONSEQUENTLY THE PROVISIONS OF SECTIONS 234B AND 234C FOR INTEREST O N DEFAULTS IN PAYMENT OF ADVANCE ITA NO.4461& 4555/AHD/2007 17 TAX AND DEFERMENT OF ADVANCE TAX WOULD ALSO BE APPL ICABLE WHERE THE FACTS OF THE CASE WARRANT. 16.1 IN CIT VS. GEETHA RAMAKRISHNA MILLS P .LTD. 288 ITR 489(MAD). HONBLE MADRAS HIGH COURT INTER ALIA OBSERVED THAT THAT APART IN VIEW OF THE INTRODUCTION OF SECTION S 115JA AND 115JB OF THE ACT WITH EFFECT FROM APRIL 1 1997 BY THE FINANCE (NO.2 ) ACT 1996 THE QUESTION WHETHER A COMPANY WHICH IS LIABLE TO PAY TAX UNDER EITHER OF THE PROVISIONS SHOULD PAY ADVANCE TAX DOES NOT ASSUME MUCH IMPORTA NCE AS SPECIFIC PROVISIONS HAVE BEEN MADE IN THE SECTION PROVIDING THAT ALL PR OVISIONS OF THE ACT SHALL APPLY TO THE ASSESSEE BEING A COMPANY MENTIONED IN THE SA ID SECTION AND THEREFORE SECTION 115J OF THE ACT IS NO MORE AVAILABLE FOR TH E ASSESSEE FOR DELAYING THE PAYMENT OF ADVANCE TAX IN VIEW OF THE INSERTION OF SECTIONS 115JA AND 115JB OF THE ACT. 16.2 IN LIGHT OF THE VIEW TAKEN IN THE AFORESAID DECISIONS WE HOLD THAT THE TOTAL INCOME COMPUTED UNDER THE PROVISIONS OF SEC. 115JB OF THE ACT IS LIABLE TO ADVANCE TAX AND IN THE EVENT OF DEFAULT IN RELEVANT PROVISIONS OF PAYMENT OF ADVANCE TAX LEVY OF INTEREST U/S 234B & 234C OF T HE ACT IS MANDATORY. IN THIS VIEW OF THE MATTER THE FINDINGS OF LD. CIT(A) ARE REVERSED AND THE ORDER OF THE AO IS RESTORED. THEREFORE GROUND NO.5 IN THE AP PEAL OF THE REVENUE IS ALLOWED. ITA NO.4461/AHD/2007[ ASSESSEE] : 17 GROUND NO.1 IN THE APPEAL OF THE ASSESSEE BEING GENERAL IN NATURE DOES NOT REQUIRE ANY SEPARATE ADJUDICATION AND IS THEREFORE DISMISSED. 18. GROUND NO.2 RELATES TO DISALLOWANCE OF CLAI M FOR AMORTIZATION OF LEASE HOLD LAND EXPENSES OF RS.3 36 224/-.THE AO NOTICED THAT THE ASSESSEE CLAIMED AN AMOUNT OF RS.3 36 224/-TOWA RDS AMOUNT AMORTISED IN THE BOOKS FOR LAND TAKEN ON LEASE FROM GIDC FOR 99 YEARS. SINCE THE PAYMENT WAS MADE FOR SECURING RIGH T OF POSSESSION AND PEACEFUL ENJOYMENT OF THE LAND FOR 99 YEARS TH E AO CONCLUDED THAT PAYMENT BEING FOR A RIGHT PROVIDING ENDURING BENEFIT WAS CAPITAL IN NATURE. ITA NO.4461& 4555/AHD/2007 18 19. ON APPEAL IT WAS ADMITTED ON BEHALF OF TH E ASSESSEE THAT A SIMILAR ISSUE HAD BEEN DECIDED AGAINST THE ASSESSEE IN AN EARLIER YEARS. ACCORDINGLY THE LD. CIT(A) UPHELD THE DISA LLOWANCE. 20. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR CONTENDED T HAT ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE AY 19 91-92 WHILE THE LD. DR POINTED OUT TO THE ADMISSION OF THE ASSESSEE BEFORE THE LD. CIT(A) THAT ISSUE HAD BEEN DECIDED AGAINST THE ASSE SSEE IN AN EARLIER YEAR. 21. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. UNDISPUTEDLY THE ASSESSEE ADMITTED BEFOR E THE LD. CIT(A) THAT THE ISSUE OF CLAIM FOR DEDUCTION OF AMORTISED EXPENSES HAD BEEN DECIDED AGAINST THEM IN AN EARLIER YEAR AND CO NSEQUENTLY THE LD. CIT(A) DISMISSED THE APPEAL ON THE ISSUE. THE D ECISION OF THE ITAT FOR THE AY 1991-92 REFERRED TO BEFORE US DOES NOT REVEAL ANY SUCH ISSUE HAVING BEEN DECIDED IN PARA 3 TO 9 OF TH E SAID ITAT ORDER. IN THESE CIRCUMSTANCES ESPECIALLY WHEN THER E IS NO MATERIAL BEFORE US TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) WE HAVE NO ALTERNATIVE BUT TO REJECT THE GROUND NO.2 IN THE AP PEAL OF THE ASSESSEE. 22. GROUND NOS.3 AND 4 IN THE APPEAL OF THE ASSESS EE RELATE TO CONFIRMATION OF DISALLOWANCE OF RS.1 59 50 000/- B EING CONTRIBUTION TO GACL EMPLOYEES WELFARE TRUST FUND AND RS.3 18 340/- BEING CONTRIBUTION TO GACL EMPLOYEES BENEVOLENT FUND. D URING THE COURSE OF ASSESSMENT PROCEEDINGS TO A QUERY BY THE AO SEEKING DISALLOWANCE OF THE AFORESAID TWO AMOUNTS IN TERMS OF PROVISIONS OF SEC 40A(9) OF THE ACT THE ASSESSEE SUBMITTED THAT THE CONTRIBUTION TO GACL EMPLOYEES WELFARE TRUST WAS MADE ONLY TO ME ET THE ITA NO.4461& 4555/AHD/2007 19 EMPLOYEES WELFARE ACTIVITIES AND A SIMILAR CLAIM HA S BEEN ALLOWED IN EARLIER YEARS BY THE CIT(A) IN ASSESSEES OWN CASE. INTER ALIA THE ASSESSEE PLACED RELIANCE ON THE DECISION IN THE CA SE OF CHARAN ENGG. CORPORATION LTD. VS. CIT 148 CTR 597. HOWEVER THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE ON THE G ROUND THAT SUCH CONTRIBUTIONS TO ANY FUND TRUST OR BODY OF INDIVID UALS SOCIETY ETC. WERE EXPRESSLY PROHIBITED U/S 40A(9) OF THE ACT EXC EPT WHERE SUCH AMOUNTS WERE COVERED UNDER CLAUSE (IV) OR (V) OF SE CTION 36(1). RELYING ON THE DECISION DATED 25.8.2000 OF THE ITAT IN ITA NOS.3216/AHD./1997 FOR THE AY 1994-95 & ITA NO.1553 /AHD./1999 FOR THE AY 1995-96 THE AO DISALLOWED THE CLAIM OF THE ASSESSEE. 23. ON APPEAL THE LD. CIT(A) UPHELD THE DISALLOW ANCE IN THE FOLLOWING TERMS:- 10. AS REGARDS GROUND NO.(4) & (5) THE ASSESSING OFFICER DISALLOWED THE CONTRIBUTION OF RS.1 59 50 000/- AND RS.3 18 340/-M ADE BY THE COMPANY TO GACL EMPLOYEES WELFARE TRUST AND THE BENEVOLENT FUN D RESPECTIVELY STATING THAT U/S.40A(9) SUCH DEDUCTIONS ARE EXPRESS LY PROHIBITED AND ALSO THAT THE ITAT IN ITS ORDER FOR A.Y. 94-95 & 95-96 H AD UPHELD THE DISALLOWANCE. BEFORE ME THE APPELLANT HAS FAIRLY ADMITTED THAT T HE ISSUE STANDS DECIDED AGAINST IT IN EARLIER YEARS. 11. I HAVE CONSIDERED THE SUBMISSIONS. IN VIEW OF T HE ORDERS OF THE ITAT ON THE ISSUE AGAINST THE APPELLANT FOR A.Y. 94-95 & 95-96 DATED 25-8-2000 THE DISALLOWANCE IS CONFIRMED . 24. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LD. CIT(A).BOTH THE PARTI ES AGREED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION DATED 25- 09-2009 OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR AY 1999-200 0 & 2000-01 IN ITA NOS.569&570/AHD/2004.. 25. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE AS ALSO THE AFORESAID ORDER OF TH E TRIBUNAL IN THE ITA NO.4461& 4555/AHD/2007 20 ASSESSEES OWN CASE IN ITA NOS. 569&570/AHD/2004 WH ERE IT WAS HELD:- 14 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON. WE FIND THA T THE LD. CIT(A) UPHELD THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE NE ITHER SUBMITTED ANY FACTUAL DETAILS OF THE AFORESAID WELFARE TRUST AND BENEVOLENT FUND NOR MADE ANY SUBMISSIONS ON THE APPLICABILITY OR OTHERWISE O F PROVISIONS OF SECTION 40A(9) AND 40A(10) OF THE ACT. EVEN BEFORE US THE SITUATION IS NO BETTER NOR THE LD. AR PLACED BEFORE US ANY MATERIAL CONTR OVERTING THE AFORESAID FINDINGS OF THE LD. CIT(A). THE RELIANCE BY THE LD. AR ON THE DECISIONS OF THE ITAT IN THE CASE OF OTHER ASSESSEES IS TOTALLY MISP LACED ESPECIALLY WHEN THE ASSESSEE DID NOT SUBMIT THE REQUISITE DETAILS B EFORE THE AO OR THE LD. CIT(A) AND EVEN BEFORE US WHILE SIMILAR DISALLOWANC E HAS BEEN UPHELD BY THE ITAT IN THE AYS 1989-90 1995-96 AND 1996-97. I N VIEW OF THE FOREGOING ESPECIALLY WHEN THERE IS NO MATERIAL BEF ORE US TO TAKE A DIFFERENT VIEW IN THE MATTER WE HAVE NO ALTERNATIVE BUT TO U PHOLD THE FINDINGS OF THE LD. CIT(A) IN THESE TWO ASSESSMENT YEARS. THEREFORE GROUND NO.5 IN THE APPEAL FOR THE AY 1999-2000 AND GROUND NO.4 IN THE AY 2000-01 ARE DISMISSED. 26. SINCE THE FACTS AND ISSUES INVOLVED IN THE ASS ESSMENT YEAR UNDER CONSIDERATION ARE SIMILAR AS WERE OBTAIN ING IN THE AYS.1999-2000 & 2000-01 FOLLOWING THE AFORESAID O RDER DATED 25.9.2009 OF THE ITAT WE HAVE NO OPTION BUT TO UPH OLD THE CONCLUSION OF THE LD. CIT(A) AND CONSEQUENTLY GROUN D NOS.3 AND 4 IN THE APPEAL OF THE ASSESSEE ARE DISMISSED. 27. NEXT GROUND NO.5 IN THE APPEAL OF THE ASSESSE E RELATES TO DISALLOWANCE OF RS.14 18 62 240/-ON ACCOUNT OF REPL ACEMENT OF MEMBRANE CELLS. THE AO NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE CLAIMED DEPRECIATION OF RS.100 97 47 590/- VIDE THEIR SUBMISSION DATED 24-1 2-2005 WHILE IN THE RETURN CLAIM OF DEPRECIATION WAS MADE ONLY TO THE EXTENT OF RS.91 13 90 804/-.TO A QUERY BY THE AO THE ASSESSE E EXPLAINED THAT REPLACEMENT OF MEMBRANE CELLS WAS A CONTINUOU S PROCESS TO KEEP THE PLANT OPERATIONAL SINCE MEMBRANES WERE THE ESSENTIA L COMPOSITION OF THE PROCESS SYSTEM AND THESE HAD A SPECIFIED LIFE REQUIRING REP LACEMENT AT PERIODICAL ITA NO.4461& 4555/AHD/2007 21 INTERVALS. THE ASSESSEE POINTED OUT THAT THE EXPEN DITURE BEING SUBSTANTIAL WAS TREATED AS DEFERRED REVENUE EXPENDITURE IN THE BOOK S OF ACCOUNT AND AMORTIZED OVER A PERIOD ACCORDINGLY WHILE THE AO HAD ALLOWED SIMILAR EXPENDITURE ON REMEMBRANING AS REVENUE EXPENDITURE IN THE AY 1993- 94 AND 1995-96 . HOWEVER THE AO REJECTED THE CONTENTIONS OF THE ASS ESSEE ON THE GROUND THAT THE COMPANY EARNED AN ADVANTAGE OF ENDURING BENEFIT FRO M THE SAME AND THEREFORE EXPENDITURE WAS CAPITAL IN NATURE. A CCORDINGLY DEPRECIATION WAS ALLOWED. 28. ON APPEAL THE LD. CIT(A) DEALT WITH THE ISSUE AS UNDER:- 12..BEFORE ME THE APPELLANT HAS FAIRLY ADMIT TED THAT THE ISSUE STANDS DECIDED AGAINST IT BY THE ORDER OF THE ITAT. HOWEVER IT HAS ARGUED THAT IT PLACES STRONG RELIANCE ON THE DECISION IN T HE CASE OF CIT V. SARAVANA SPG. MILLS P. LTD. (2007) 163 TAXMAN 196 (SC). 13. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN VIEW OF THE FACT THAT THE ISSUE STANDS DECIDED AGAINST THE APPELLANT BY THE I TAT ON THE BASIS OF THE PECULIAR FACTS AND CIRCUMSTANCES EXISTING IN THE AP PELLANT'S OWN CASE. IT IS ALSO OBSERVED THAT THE RATIO OF THE CIT V. SARAVANA SPG. MILLS P. LTD. (SUPRA) CANNOT BE APPLIED DUE TO THE EXISTENCE OF P ECULIAR AND DIFFERENT FACTS IN THE APPELLANT'S CASE. UNDER THE CIRCUMSTAN CES THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS. 14 18 62 240/- IS CONFIRMED. 29. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION DATED 25.9.2009 OF THE IT AT IN THE ASSESSEES OWN CASE FOR AY 1999-2000 AND 2000-01 IN ITA NOS.569 AND 570/AHD/2004. ON THE OTHER HAND THE LD. DR SU PPORTED THE FINDINGS OF THE LD. CIT(A). 30. WE HAVE HEARD BOTH THE PARTIES AND GON E THROUGH THE FACTS OF THE CASE AS ALSO THE DECISION RELIED UPON. WE FI ND THAT A CO- ORDINATE BENCH IN THEIR DECISION DATED 25.9.2009 IN THE ASSESSEES OWN CASE FOR AY 1999-2000 AND 2000-01 IN ITA NOS.56 9& 570/AHD/2004 CONCLUDED ON A SIMILAR ISSUE AS UNDER: ITA NO.4461& 4555/AHD/2007 22 11. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. WE FIND THAT THE AO HIMSELF HAS TREATED THE EXPENDI TURE INCURRED BY THE ASSESSEE IN THE A.Y.1993-94 ON INSTALLATION/REPLACEMENT OF RE-MEMBRAINING IN MEMBRANE CELL PLANT REVENUE IN NATURE. THOUGH THE LD. CIT(A ) OBSERVED IN THE IMPUGNED ORDER THAT A SIMILAR CLAIM HAS BEEN ACCEPTED BY THE AO IN THE AY 1993-94 & 1995-96 NO REASONS HAVE BEEN GIVEN AS TO HOW THE FACTS RELATING TO THE CLAIM IN THE YEAR UNDER CONSIDERATION ARE DIFFERENT FROM THE AY 1993-94 OR AY 1995-96 SO AS TO TAKE A DIFFERENT VIEW IN THE MATTER. IN THESE CIRCUMSTANCES WE FIND MERIT IN THE UNDISPUTED CONTENTIONS OF THE LD. AR T HAT PRINCIPLES OF CONSISTENCY SHOULD HAVE BEEN ADHERED TO . IN THIS CONNECTION H ONBLE JURISDICTIONAL HIGH COURT IN THEIR DECISION IN THE CASE OF TARABEN RAM ANBHAI PATEL & ANOTHER (SUPRA) IN THE CONTEXT OF LEVY OF PENALTY U/S 271(1 )OBSERVED AS UNDER: IT IS NO DOUBT TRUE THAT THE STRICT RULE OF THE DOCTRINE OF RES JUDICATA DOES NOT APPLY TO PROCEEDINGS UNDER THE INCOME-TAX ACT. AT T HE SAME TIME IT IS EQUALLY TRUE THAT UNLESS THERE IS A CHANGE OF CIRCUMSTANCES THE AUTHORITIES WILL NOT DEPART FROM PREVIOUS DECISIONS AT THEIR SWEET WILL IN THE ABSENCE OF MATERIAL CIRCUMSTANCES OR REASONS FOR SUCH DEPARTURE : JOINT FAMILY OF UDAYA CHINUBHAI V. CIT [1967] 63 ITR 416 (SC) AIR 1967 SC 762 ; RADHASOAMI SATSANG V. CIT [1992] 193 ITR 321 (SC) ; AIR 1992 SC 377 ; H. A. SHAH AND CO. V. CIT /EPT [1956] 30 ITR 618 (BOM). IN THE LAST MENTIONED CASE IT WAS OBSERVED THAT IF THE QUESTION WAS NOT CONSIDERED IN DETAIL IN EARLIER PROCEEDINGS IT IS OPEN TO THE AUTHORITIES TO CONSIDER THOSE DOCUMENTS AND TO COME TO A DIFFERENT CONCLUSI ON. BUT IF THE QUESTION IS ALREADY DECIDED ON THE BASIS OF THE FACTS AND THERE IS NO CHANGE IN THAT FACTUAL POSITION IT CANNOT BE REOPENED. IN THE INSTANT CAS E AS OBSERVED BY US HEREINABOVE THE FACT WAS BROUGHT TO THE NOTICE OF THE RESPONDENT AUTHORITY BY THE PETITIONERS THAT LITIGATION WAS GOING ON BETWEEN TH E PARTIES AND THE RECEIVER WAS APPOINTED BY THE HIGH COURT OF BOMBAY. THAT FACT WA S ALSO ACCEPTED BY THE DEPARTMENT FOR THE ASSESSMENT YEAR 1978-79 AND EVEN FOR THE YEAR 1982-83 IN RESPECT OF A NUMBER OF APPEALS FILED BY OTHER CO-OW NERS AS ALSO BY SOME OF THE PETITIONERS. IN OUR OPINION THERE WAS NO GOOD AND JUSTIFIABLE CAUSE TO TAKE A DIFFERENT VIEW WHEN SOME APPEALS CAME BEFORE A DIFF ERENT OFFICER WITHOUT THERE BEING ANY CHANGE IN THE FACTUAL POSITION AND WHEN T HE EARLIER DECISION WAS NOT CHALLENGED BY THE DEPARTMENT. 11.1 THE AFORESAID DECISION HAS BEEN FOLLOWED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THEIR SUBSEQUENT DECISION IN LALLUDAS CHILDREN TRUST VS CIT 251 ITR 50(GUJ) .SIMILAR VIEW HAS BEEN TAKEN IN THE OTH ER DECISIONS RELIED UPON ON BEHALF OF THE ASSESSEE AS ALSO IN SEVERAL CASES INC LUDING IN ARIHANT BUILDERS DEVELOPERS & INVESTORS (P.) LTD V. ITAT [2005] 277 ITR 239 (MP) ASSTT. CIT V. GENDALAL HAZARILAL & CO. [2003] 263 ITR 679 (MP) CIT V. NEO POLY PACK (P.) LTD [2000] 245 ITR 492 (DELHI) 4. DHANSIRAM AGARWALLA V. CIT [1996] 217 ITR 4 (GAUHATI). CIT V. SHIV SAGAR ESTATE [2002] 257 ITR 59 (SC) UNION OF INDIA V. SATISH PANNALAL SHAH [2001] 249 ITR 221 (SC).IN THE CASE OF CWT V. M.K. GUPTA [1990] 185 ITR 393 (DELHI) . SINCE IN THE CASE UNDER CONSIDERATION T HE ITA NO.4461& 4555/AHD/2007 23 AO HIMSELF HAS ALLOWED THE CLAIM IN THE AY 1993-94 TREATING THE EXPENDITURE REVENUE IN NATURE WHILE NO CHANGE OF FACTS AND CI RCUMSTANCES HAVE BEEN POINTED OUT ON BEHALF OF THE REVENUE IN THE YEARS UNDER CONSIDERATION WE ARE OF THE OPINION THAT THE AO IS NOT JUSTIFIED IN DEPA RTING FROM HIS PREVIOUS DECISION IN THE AY 1993-94 IN THE ABSENCE OF MATERIAL CIRCU MSTANCES OR REASONS FOR SUCH DEPARTURE. THEREFORE GROUND NO.4 IN THE APPEAL FOR THE AY 1999-2000 & GROUND NO.2 IN THE AY 2000-01 ARE ALLOWED. 30.1 IN THE LIGHT OF VIEW TAKEN IN THE AFORESAI D DECISION ESPECIALLY WHEN IN THE ASSESSMENTS YEARS 1993-94 & 1995-96 THE AO HIMSELF ALLOWED THE CLAIM OF THE ASSESSEE AS REV ENUE EXPENDITURE AND THEREBEING NO VARIATION IN FACTS I N THE YEAR UNDER CONSIDERATION VIS--VIS AY 1999-2000 & 2000-01 NOR THE REVENUE HAVING PLACED BEFORE US ANY MATERIAL OR EVEN THE O RDER OF THE ITAT REFERRED TO BY THE LD. CIT(A) IN PARA 13 OF HIS OR DER SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER WE HAVE NO HESITATION IN ALLOWING GROUND NO.5 IN THIS APPEAL OF THE ASSESSEE . 31. GROUND NO.6 IN THE APPEAL ASSESSEES RELATES TO DISALLOWANCE OF RS.97 043/- (20% OF RS.4 85 216/-) U/S 40A(3) OF THE ACT. THE AO FOUND ON GOING THROUGH THE AUDIT REPORT THAT THERE WERE PAYMENTS AMOUNTING TO RS.4 85 216/- COVERED U/S 40A (3)OF THE ACT. HOWEVER 20% OF THIS AMOUNT I.E. RS.97 043/- HAD NO T BEEN ADDED BACK BY THE ASSESSEE IN THE COMPUTATION OF INCOME. TO A QUERY BY THE AO THE ASSESSEE SUBMITTED THAT THESE AMOUNTS W ERE TOWARDS ADVANCE GIVEN TO THE EMPLOYEES FOR MEDICAL/GIFTS AN D WERE NOT DEBITED TO P&L ACCOUNT THEREFORE NO DISALLOWANCE C AN BE MADE. HOWEVER THE AO DID NOT ACCEPT THE SUBMISSIONS OF T HE ASSESSEE AND IN VIEW OF THE SPECIFIC REPORT GIVEN BY THE AU DITORS DISALLOWED 20% OF THE AMOUNT OF RS.4 85 216/- I.E. RS.97 043/- . 32. ON APPEAL THE CIT(A) CONCLUDED AS UNDER: BEFORE ME THE APPELLANT HAS REITERATED ITS SUBMIS SIONS MADE BEFORE THE AO. HOWEVER NO DETAILS IN THIS REGARD HAVE BEEN FU RNISHED TO SHOW THAT THESE HAVE NOT BEEN DEBITED TO THE P&L ACCOUNT. ITA NO.4461& 4555/AHD/2007 24 15. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS OBSERVED THAT THE AUDITORS HAVE POINTED OUT THE EXPENDITURE INCURRED IN CASH AND SHOWN THE SAME IN THE AUDIT REPORT U/S. 40A(3). THE AUDITORS APPEAR NOT TO HAVE QUALIFIED THIS BY SAYING THAT THE PAYMENTS IN QUEST ION HAS BEEN IN THE NATURE OF ADVANCE. THE APPELLANT HAS ALSO NOT LED A NY EVIDENCE TO SHOW THAT THESE ARE IN THE NATURE OF ADVANCES AND HAVE B EEN RECOUPED SUBSEQUENTLY. UNDER THE CIRCUMSTANCES THE DISALLOW ANCE MADE IS CONFIRMED. 33. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSESSEE REITERATED THEIR SUBMISSIONS BEFORE THE LO WER AUTHORITIES WHILE THE LD. DR SUPPORTED THE FINDINGS OF THE LD. CIT(A) 34. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE. WE FIND THAT THE LD. CIT(A) UPHE LD THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE DID N OT PLACE ANY EVIDENCE BEFORE HIM THAT THE AMOUNT WAS IN THE NATU RE OF ADVANCE AND HAD NOT BEEN DEBITED TO THE PROFIT AND LOSS ACC OUNT. EVEN BEFORE US SITUATION IS NO BETTER . DESPITE SUFFICIENT OPPO RTUNITY ALLOWED BY THE AO AND THE LD. CIT(A) THE ASSESSEE DID NOT AD DUCE ANY EVIDENCE THAT THE AMOUNT WAS IN THE NATURE OF ADVAN CE AND THAT THE OBSERVATIONS OF THEIR OWN AUDITORS WERE INCORRECT. IN THESE CIRCUMSTANCES ESPECIALLY WHEN THERE IS NO MATERIAL BEFORE US SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A).THEREFORE GROUND NO 6 IN THE APPEAL IS DISMISSED. 35. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TE RMS OF THE RESIDUARY GROUND IN THE APPEAL OF THE ASSESSEE OR I N TERMS OF GROUND NO. 6 IN THE APPEAL OF THE REVENUE BOTH THESE GROU NDS ARE DISMISSED. ITA NO.4461& 4555/AHD/2007 25 36. IN THE RESULT APPEAL OF THE REVENUE IS PARTLY ALLOWED BUT FOR STATISTICAL PURPOSES WHILE THAT OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 9 -04-2 010 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 9-04-2010 COPY OF THE ORDER FORWARDED TO : 1. GUJARAT ALKALIES AND CHEMICALS LIMITED P O. PETROCHEMICALS DIST. VADODARA 2. THE ACIT CIRCLE-1(1) VADODARA 3. CIT CONCERNED 4. CIT(A)-I BARODA 5. THE DR ITAT D BENCH AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD