ACIT CIR. 7(1), MUMBAI v. M/s. NATIONAL ORGANIC CHEMICAL INDUSTRIES LTD., MUMBAI

ITA 4774/MUM/2005 | 2001-2002
Pronouncement Date: 17-02-2012 | Result: Dismissed

Appeal Details

RSA Number 477419914 RSA 2005
Assessee PAN AAACN4412E
Bench Mumbai
Appeal Number ITA 4774/MUM/2005
Duration Of Justice 6 year(s) 7 month(s) 16 day(s)
Appellant ACIT CIR. 7(1), MUMBAI
Respondent M/s. NATIONAL ORGANIC CHEMICAL INDUSTRIES LTD., MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 17-02-2012
Appeal Filed By Department
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 17-02-2012
Date Of Final Hearing 22-11-2011
Next Hearing Date 22-11-2011
Assessment Year 2001-2002
Appeal Filed On 01-07-2005
Judgment Text
1 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI F BENCH MUMBAI BENCHES MUMBAI BEFORE SHRI N.V. VASUDEVAN J.M. AND SHRI R.K. PAN DA A.M. ITA NO. 2131/MUM/2005 (ASST YEAR 2000-01) NATIONAL ORGANIC CHEMICAL INDUSTRIES LIMITED MAFATLAL HOUSE 3 RD FLOOR BACKBAY RECLAMATION MUMBAI 400 020. VS ASST. COMMISSIONER OF INCOME-TAX CIRCLE 7(1) AAYAKAR BHAWAN M.K. ROAD MUMBAI. 20 (APPELLANT) (RESPONDENT) PAN NO. AAACN4412E ITA NO. 2147/MUM/2005 (ASST YEAR 2000-01) ASST. COMMISSIONER OF INCOME- TAX CIRCLE 7(1) AAYAKAR BHAWAN M.K. ROAD MUMBAI. 20 VS NATIONAL ORGANIC CHEMICAL INDUSTRIES LIMITED MAFATLAL HOUSE 3 RD FLOOR BACKBAY RECLAMATION MUMBAI 400 020. (APPELLANT) (RESPONDENT) PAN NO. AAACN4412E ITA NO. 6104/MUM/2005 (ASST YEAR 2001-02) NATIONAL ORGANIC CHEMICAL INDUSTRIES LIMITED MAFATLAL HOUSE 3 RD FLOOR BACKBAY RECLAMATION MUMBAI 400 020. VS ASST. COMMISSIONER OF INCOME-TAX CIRCLE 7(1) AAYAKAR BHAWAN M.K. ROAD MUMBAI. 20 (APPELLANT) (RESPONDENT) PAN NO. AAACN4412E ITA NO. 4774/MUM/2005 (ASST YEAR 2001-02) ASST. COMMISSIONER OF INCOME- TAX CIRCLE 7(1) AAYAKAR BHAWAN M.K. ROAD MUMBAI. 20 VS NATIONAL ORGANIC CHEMICAL INDUSTRIES LIMITED MAFATLAL HOUSE 3 RD FLOOR BACKBAY RECLAMATION MUMBAI 400 020. (APPELLANT) (RESPONDENT) PAN NO. AAACN4412E 2 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. ASSESSEE BY SHRI DINESH VYAS DEPARTMENT BY SHRI SUBACHAN RAM DATE OF HEARING 16.1.2012 DATE OF PRONOUNCEMENT 17.2.2012 ORDER PER R K PANDA AM THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST TH E SEPARATE ORDERS DATED 14.01.2005 & 18.03.2005 OF THE LD. CIT(A) XIX MUMBAI RELATING TO A.Y. 2000-01 & 2001-02 RESPECTIVELY. SINCE COMMON G ROUNDS ARE INVOLVED IN BOTH THESE CROSS APPEALS THEREFORE THESE WERE HEA RD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. ITA 2131/MUM/2005 FOR A.Y. 2000-01 (BY ASSESSEE) 2. IN GROUNDS OF APPEAL NO. 1 THE ASSESSEE HAS CHAL LENGED THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF THE A.O. IN NOT ALLOWING DEDUCTION OF RS. 17 92 470/- BEING PRO-RATA PREMIUM ON LEASEH OLD LAND. 2.1 THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT THIS GROUND IS COVERED AGAINST THE ASSESSEE BY THE DECIS ION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 1989-90 TO 1997-98. C OPIES OF THESE ORDERS ARE ALREADY ON RECORD. IN VIEW OF THE SUBMISSION OF TH E LD. COUNSEL FOR THE ASSESSEE AND RESPECTFULLY FOLLOWING THE ORDER OF TH E TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS WE UPHOLD THE ORDER OF THE LD. CIT(A) IN DISALLOWING THE DEDUCTION OF RS. 17 92 470/-. THE G ROUND OF APPEAL NO. 1 BY THE ASSESSEE IS ACCORDINGLY DISMISSED. 3 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. 3. GROUND OF APPEAL NO. 2 IS AN ALTERNATE GROUND TO GROUND OF APPEAL NO. 1 CONSIDERED ABOVE WHEREIN THE ARGUMENT OF THE ASSE SSEE IS THAT THE ENTIRE PREMIUM NEEDS TO BE CONSIDERED AS COST OF BUILDING AND PLANT SO AS TO ALLOW DEPRECIATION THEREON. SINCE THE ISSUE IS CONSIDERE D AGAINST THE ASSESSEE IN GROUND NO.1 ACCORDINGLY THIS GROUND IS ALSO DISMI SSED. 4. GROUNDS OF APPEAL NO. 3 4 & 5 BY THE ASSESSEE RE AD AS UNDER:- GROUND NO. 3:- THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING THE ENHANCEMENT IN THE VALUE OF CLOSING STOCK BY AN AMOUNT OF RS.2 76 54 645 IN RESPECT OF MODVAT CREDI T. GROUND NO. 4. THE LEARNED COMMISSIONER (APPEALS) OU GHT TO HAVE APPRECIATED THAT AS REQUIRED BY THE PROVISIONS OF S ECTION 145A THE APPELLANT HAD INCREASED THE VALUE OF CLOSING STOCK BY THE MODVAT AMOUNT RELATING THERETO AND THEREFORE THE VALUE OF THE CLOSING STOCK SHOULD NOT HAVE BEEN FURTHER INCREASED. GROUND NO. 5: WITHOUT PREJUDICE THE LEARNED COMMIS SIONER (APPEALS) OUGHT TO HAVE DIRECTED THE DEPUTY COMMISS IONER TO INCREASE THE VALUE OF PURCHASES BY THE AMOUNT OF RS .2 76 54 645 BEING THE AMOUNT OF MODVAT CREDIT BY WHICH VALUE OF CLOSING STOCK IS INCREASED. 4.1 BOTH THE PARTIES FAIRLY AGREED THAT THE ISSUE S HOULD GO BACK TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION IN THE LIGHT OF THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 5296/MUM/2003 ORD ER DT. 29.4.2011 FOR A.Y. 1999-2000. ACCORDINGLY WE RESTORE THIS ISSUE TO THE FILE OF THE A.O. WITH THE DIRECTION TO DECIDE THE ISSUE AFRESH AND IN ACC ORDANCE WITH LAW IN THE LIGHT OF THE DIRECTION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR A.Y 1999- 2000. WE HOLD AND DIRECT ACCORDINGLY. THE ABOVE G ROUNDS ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 4 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. 5. GROUND OF APPEAL NO. 6 BY THE ASSESSEE READS AS UNDER:- THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIR MING THE ACTION OF THE ASSISTANT COMMISSIONER IN NOT ALLOWING DEDUC TION FOR THE FULL SUM OF RS. 9 16 62 445/ CLAIMED BY THE APPELLANT TO WARDS COST OF CATALYST ISSUES ACCORDING TO THE CHANGED METHOD OF ACCOUNTING FOLLOWED BY THE APPELLANT CONSISTENTLY SINCE 1983. 5.1 AFTER HEARING BOTH THE SIDES WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 1998-99. WE FIND THE TRIBUNAL FOLLOWING THE ORDER OF THE TRIBUNAL IN AS SESSEES OWN CASE IN EARLIER ASSESSMENT YEARS RESTORED THE ISSUE BACK TO THE FI LE OF THE A.O. WITH THE DIRECTION TO RECOMPUTE THE PROFITS IN ACCORDANCE WI TH THE OLD METHOD FOLLOWED BY THE ASSESSEE. THE RELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 12 OF THE ORDER READS AS UNDER:- 12. BEFORE US IT WAS ARGUED THAT ON SIMILAR ISSU E IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1987-87 TO 1997-9 8 THE MATTER HAS BEEN RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTIONS TO RE-COMPUTE THE PROFITS IN ACCORDANCE WITH THE OLD METHOD FOLLOWED BY THE ASSESSEE. SINCE THERE IS N O CHANGE IN THE FACTS IN THE CURRENT YEAR RESPECTFULLY FOLLOWING T HE ORDERS OF THE TRIBUNAL; WE ALSO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE SAME DIRECTIONS AS WERE GIVEN BY T HE TRIBUNAL IN THE YEARS CITED BEFORE US. 5.2 RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGH T TO OUR NOTICE BY THE LD. D.R. WE RESTORE THIS ISSUE TO THE FILE OF THE A.O. WITH THE SAME DIRECTIONS AS WERE GIVEN BY THE TRIBUNAL IN THE PRECEDING ASSESSM ENT YEARS. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR S TATISTICAL PURPOSE. 5 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. 6. GROUND OF APPEAL NO. 7 8 9 & 10 BY THE ASSESSE E READ AS UNDER:- 7. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONF IRMING THE DISALLOWANCE OF AN AMOUNT OF RS. 12 47 173 BEING PR IOR YEAR EXPENDITURE. 8. WITHOUT PREJUDICE THE LEARNED COMMISSIONER (AP PEALS) ERRED IN NOT DIRECTING THE ASSISTANT COMMISSIONER TO SET OFF PRIOR PERIOD EXPENSES AGAINST THE PRIOR PERIOD INCOME AND DISALL OW ONLY NET PRIOR PERIOD EXPENSES. 9. WITHOUT PREJUDICE THE LEARNED COMMISSIONER (AP PEALS) ERRED IN HOLDING THAT THE ASSISTANT COMMISSIONER HAS DISA LLOWED THE PRIOR PERIOD EXPENSES NET OF PRIOR PERIOD INCOME. T HE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE APPRECIATED TH AT THE ASSISTANT COMMISSIONER HAS DISALLOWED PRIOR PERIOD EXPENSES OF RS. 12 47 173 WITHOUT SETTING IT OF AGAINST THE PRI OR INCOME OF RS.6 1O 815. 10. WITHOUT PREJUDICE THE LEARNED COMMISSIONER (AP PEALS) ERRED IN NOT DIRECTING THE ASSISTANT COMMISSIONER TO ALLO W DEDUCTION FOR THE AFORESAID EXPENDITURE IN THE YEAR TO WHICH IT R ELATES. 6.1 AFTER HEARING BOTH THE SIDES WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE DURING A .Y. 1998-99. WE FIND THE TRIBUNAL FOLLOWING THE ORDER OF THE TRIBUNAL IN AS SESSEES OWN CASE IN EARLIER ASSESSMENT YEARS DECIDED THE ISSUE IN FAVOUR OF TH E ASSESSEE BY HOLDING AS UNDER:- 15. WE FIND THAT SIMILAR ISSUE HAD COME UP FOR CON SIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1991-92 1996-97 AND 1997-98 WHEREIN THE SAME HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBU NAL. SINCE IN THE YEAR UNDER CONSIDERATION THERE IS NO CHANGE OF FACTS RESPECTFULLY FOLLOWING THE EARLIER ORDERS OF THE TR IBUNAL WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE WITH THE DIRECT ION TO THE 6 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. ASSESSING OFFICER TO ENSURE THAT NO DOUBLE DEDUCTIO N IS ALLOWED. SUBJECT TO THIS REMARK GROUND NO.5 & 6 IS ALLOWED . 6.2 RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS AND IN ABSENCE OF ANY DISTINGUISHABLE FEATURES BROUGHT BEFORE US BY THE LD. D.R. WE DIRE CT THE A.O. TO ALLOW THE CLAIM OF THE ASSESSEE. AT THE SAME TIME WE DIRECT THE A.O. TO ENSURE THAT NO DOUBLE DEDUCTION IS ALLOWED. ACCORDINGLY GROUND O F APPEAL NO. 7 IS ALLOWED. GROUNDS OF APPEAL NO. 8 9 & 10 BEING ALTERNATE GRO UNDS BECOME INFRUCTUOUS. ACCORDINGLY GROUNDS OF APPEAL NO. 8 9 & 10 ARE DISMISSED. 7. GROUNDS OF APPEAL NO. 11 12 13 & 14 BY THE ASS ESSEE READ AS UNDER:- 11. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CO NFIRMING THE ACTION OF THE ASSISTANT COMMISSIONER IN NOT ALLOWING DEDUCTION FO R THE FOLLOWING LOANS AND ADVANCES AGGREGATING TO RS. 3 96 85 000 WRITTEN OFF DURING THE YEAR: RUPEES (I) INTEREST DUE FROM MAFATLAL FINANCE LTD IN RESPECT OF EARLIER YEARS: RS. 3 88 92 000 (II) EXCESS AMOUNT OF EXCISE PAID IN F.Y. 1997-98 AND 1998-99: RS. 50 000 (III) MISC. ADVANCES WRITTEN OFF RS. 7 4 3 000 RS. 3 96 85 000 12. THE LEARNED COMMISSIONER (APPEALS) ERRED IN HOL DING THAT THE AFORESAID LOANS AND ADVANCES WRITTEN OFF ARE NOT ELIGIBLE FOR DEDUCTION AS BAD DEBTS UNDER SECTION 36(1)(VII) READ WITH SECTION 36(2). 7 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. 13. WITHOUT PREJUDICE TO THE ABOVE THE LEARNED COM MISSIONER (APPEALS) ERRED IN NOT DIRECTING THE ASSISTANT COMMISSIONER TO ALLO WING DEDUCTION FOR LOANS AND ADVANCES WRITTEN OFF OF RS.3 96 85 000 AS TRADI NG LOSS UNDER SECTION 27/28 OR AS BUSINESS EXPENDITURE UNDER SECTION 37(1 ). 14. WITHOUT PREJUDICE TO THE ABOVE THE LEARNED COM MISSIONER (APPEALS) OUGHT TO HAVE DIRECTED THE ASSISTANT COMMISSIONER T O SET OFF THE CREDIT BALANCES FOR MORE THAN 3 YEARS WRITTEN BACK OF RS. 1 96 000 AGAINST THE ABOVE DISALLOWANCE OF RS. 3 96 85 000. 7.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSE E HAS WRITTEN OFF LOANS AND ADVANCES TO THE EXTENT OF RS. 3 94 89 000/-. T HE DETAILS OF THE SAME WERE CALLED FOR BY THE A.O. AND ACCORDINGLY THE ASS ESSEE FILED THE DETAILS AS FOLLOWS:- PLASTIC PRODUCTS DIVISION. (RS.IN LAKHS) I. INTEREST DUE FROM MAFATLAL FINANCE LTD. IN RESPECT OF EARLIER YEARS WRITTEN OFF. : 388.92 RUBBER CHEMICALS DIVISION: I. EXCESS AMOUNT OF EXCISE PAID IN F.Y. 97-98 AND 98-99 WRITTEN OFF : 0.50 PETROCHEMICALS & POLYMER DIVISION: I. MISC. ADVANCES WRITTEN OFF : 7.43 396.85 THE A.O. ASKED THE ASSESSEE TO FURNISH DETAILS OF T HE SAID DEBTS ALONG WITH EXPLANATION AS TO HOW THE SAME HAS BEEN CLAIMED SIN CE IT PRIMA FACIE DOES NOT APPEAR TO BE A TRADE DEBT. IN ABSENCE OF ANY S ATISFACTORY EXPLANATION FURNISHED BY THE ASSESSEE THE A.O. WAS OF THE OPIN ION THAT THE NATURE OF LOANS AND ADVANCES CANNOT BE TREATED AS DEBT FOR TH E PURPOSE OF WRITE OFF 8 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. UNDER SECTION 36(1)(VIII) OF THE ACT. RELYING ON A COUPLE OF DECISIONS THE A.O. DISALLOWED THE AMOUNT OF RS. 396.85 LAKHS AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. IN APPEAL THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 7.2 THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT INTEREST INCOME WAS OFFERED TO TAX IN THE PAST. THE ASSESSE E INADVERTENTLY FILED A WRITTEN SUBMISSION BEFORE THE A.O. THAT IT WAS WRIT E OFF OF LOANS AND ADVANCES DUE FROM MAFATLAL FINANCE LTD. HE SUBMITT ED THAT IN THE INTEREST OF JUSTICE THE MATTER MAY BE RESTORED TO THE FILE O F THE A.O. WITH A DIRECTION TO GIVE AN OPPORTUNITY TO THE ASSESEE TO EXPLAIN TH E ALLOWABILITY OF THE SAME UNDER THE PROVISIONS OF SECTION 36(1)(VII)) R.W.S. 36(2) OF THE ACT. SO FAR AS THE EXCESS AMOUNT OF EXCISE PAID IN FINANCIAL YEAR 1997-98 AND 1998-99 CLAIMED DURING THE YEAR AMOUNTING TO RS. 50 000/- A ND MISCELLANEOUS ADVANCES WRITTEN OFF AMOUNTING TO RS. 7 43 000/- T HE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS THE ABOVE TWO AMOUNTS DUE TO SMALLNESS OF THE SAME. 7.3 THE LD. D.R. ON THE OTHER HAND WHILE SUPPORTI NG THE ORDER OF THE LD. CIT(A) SUBMITTED THAT HE HAS NO OBJECTION IF THE MA TTER IS RESTORED TO THE FILE OF THE A.O. WITH A DIRECTION TO VERIFY THE ALLOWABI LITY OF THE CLAIM OF DEDUCTION OF INTEREST DUE FROM MAFATLAL FINANCE LTD . IN THE LIGHT OF PROVISIONS OF SECTION 36(1)(VII) R.W.S. 36(2) OF TH E ACT. 7.4 THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSES SEE THAT IN THE INTEREST OF JUSTICE THE MATTER MAY BE RESTORED TO THE FILE O F THE A.O. TO VERIFY THE ALLOWABILITY OF RS. 3 88 92000/- IN OUR OPINION I S ACCEPTABLE. WE 9 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. THEREFORE DEEM IT PROPER TO RESTORE THE ISSUE TO T HE FILE OF THE A.O. WITH A DIRECTION TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE WITH EVIDENCE TO HIS SATISFACTION THAT THE ASSESSEE FULF ILS THE CONDITION PRESCRIBED UNDER SECTION 36(1)(VII) R.W.S. 36(2) FOR THE ALLOW ABILITY OF THE AMOUNT OF RS. 3 88 92 000/-. SO FAR AS THE OTHER TWO AMOUNTS ARE CONCERNED IN VIEW OF THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT HE IS NOT PRESSING FOR THE ABOVE TWO AMOUNTS DUE TO SMALLNESS OF THE AMOUN T THE CLAIM OF THE ASSESSEE IS DISMISSED. GROUNDS OF APPEAL NO. 11 TO 14 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND OF APPEAL NO. 15 READS AS UNDER:- THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSISTANT COMMISSIONER IN NOT ALLOWIN G DEDUCTION FOR RS. 1 77 25 542 BEING CONSULTANCY AND ADVISORY FEES PAID FOR MODERNISATION. 8.1 AFTER HEARING BOTH THE SIDES WE FIND THE A.O. D ISALLOWED AN AMOUNT OF RS. 1 77 25 542/- ON ACCOUNT OF CONSULTANCY FEES S ALARIES ETC. RELATING TO MODERNISATION OF THE PROJECT ON THE GROUND THAT IN THE ACTUAL COMPUTATION NO SUCH DEDUCTION WAS CLAIMED. IN APPEAL THE LD. C IT(A) FOLLOWING THE ORDER OF HIS PREDECESSOR CONFIRMED THE ACTION OF THE A.O. 8.2 WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND THE TRIBU NAL HAS ALLOWED THE CLAIM OF THE ASSESSEE. SINCE THE LD. CIT(A) HAS ME RELY FOLLOWED THE ORDER OF HIS PREDECESSOR WHICH HAS BEEN REVERSED BY THE TRIB UNAL THEREFORE 10 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL WE ALLOW THE CLAIM OF THE ASSESSEE. THIS GROUND IS ACCORDING ALLOWED. 9. GROUND OF APPEAL NO. 16 READS AS UNDER:- THE LEARNED COMMISSIONER (APPEALS) ERRED IN NOT DI RECTING THE ASSISTANT COMMISSIONER TO ALLOW DEDUCTION FOR RS.36 51 034 BEING PROPORTIONATE EXPENDITURE ON SUBSTANTIAL EXPANSION. 9.1 AFTER HEARING BOTH THE SIDES WE FIND THE ASSESS EE BEFORE THE LD. CIT(A) CONTENDED THAT THE A.O. DID NOT ALLOW THE DEDUCTION OF RS. 36 51 034/- BEING PROPORTIONATE EXPENDITURE ON SUBSTANTIAL EXPA NSION. THE LD. CIT(A) NOTED THAT NO SUCH CLAIM WAS MADE BY THE ASSESSEE W HILE COMPUTING THE TOTAL INCOME. SINCE THE A.O. HAS NOT DEALT WITH TH E ISSUE AND NO ADDITION HAS BEEN MADE ON THIS GROUND THE LD. CIT(A) DISMIS SED THE GROUND AS INFRUCTUOUS. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 9.2 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE NOTES FORMING PART OF RETURN OF INCOME THE ASSESSEE AT CL. NO. 15 HAS MENTIONED AS UNDER:- THE SUBSTANTIAL EXPANSION REFERRED TO AS THE NOCIL MODERNISATION PROJECT IS THE RESPONSIBILITY OF SOME OFFICERS/EXEC UTIVES WHO HAVE BEEN IN CONTINUOUS EMPLOYMENT WITH THE COMPANY. THE Y COMPRISE OF PERSONS FROM ENGINEERING OPERATIONS TECHNOLOGY AND OTHER DEPARTMENTS AND THEIR RESPONSIBILITY FOR THE EXPANS ION IS IN ADDITION TO THEIR ONGOING RESPONSIBILITIES. IN VIE W OF THE ABOVE FACTS THAT THESE PERSONS ARE DISCHARGING THEIR PRESENT OB LIGATIONS ALONG WITH THEIR OBLIGATIONS FOR THE EXPANSION THE COMPA NY HAS ESTIMATED THE TIME SPENT ON THE ACTIVITIES FOR THE COMPANIES EXISTING OPERATIONS AND FOR THE EXPANSION AND THEREFORE THE PROPORTIONATE EXPENDITURE AMOUNTING TO RS. 36 51 034/- COMPRISING OF SALARIES TRAVELLING AND OTHER MISCELLANEOUS EXPENSES IS ESTI MATED AS HAVING BEEN INCURRED FOR THE COMPANIES EXPANSION. THIS AM OUNT HAS NOT BEEN CLAIMED AS A DEDUCTION IN THE COMPUTATION OF I NCOME. THIS IS WITHOUT PREJUDICE TO OUR CLAIM THAT THE AMOUNT BE A LLOWABLE AS A DEDUCTION. 11 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. REFERRING TO THE ORDER OF THE TRIBUNAL FOR A.Y. 199 8-99 AND 1999-2000 HE SUBMITTED THAT SIMILAR ISSUE HAS BEEN DECIDED BY TH E TRIBUNAL IN FAVOUR OF THE ASSESSEE. HE ACCORDINGLY SUBMITTED THAT THE MA TTER MAY BE RESTORED TO THE FILE OF THE A.O. WITH A DIRECTION TO VERIFY THE CLAIM OF THE ASSESSEE AND PASS APPROPRIATE ORDER. THE LD. D.R. WHILE SUPPORT ING THE ORDER OF THE LD. CIT(A) FAIRLY AGREED THAT HE HAS NO OBJECTION IF TH E MATTER IS RESTORED TO THE FILE OF THE A.O. 9.3 AFTER HEARING BOTH THE SIDES WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE A.O. WITH A DIRECTION TO VERIFY THE CLAIM OF THE ASSESSEE IN THE COMPUTATION OF TOTAL INCOME AND DECIDE THE ISSUE AF RESH IN THE LIGHT OF THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN THE PRECEDING ASSESSMENT YEAR AND IN ACCORDANCE WITH LAW. NEEDLESS TO SAY T HE A.O. SHALL GIVE DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY AL LOWED FOR STATISTICAL PURPOSE. 10. GROUNDS OF APPEAL NO. 17 18 19 20 & 22 WERE NOT PRESSED BY THE LD. COUNSEL FOR THE ASSESEE FOR WHICH THE LD. D.R. HAS NO OBJECTION. ACCORDINGLY THESE GROUNDS ARE DISMISSED AS NOT PRESSED. GROUNDS OF APPEAL NO. 23 24 & 25 BEING GENERAL IN NATURE ARE DISMISSED. 11. GROUND OF APPEAL NO. 21 READS AS UNDER:- THE LEARNED COMMISSIONER (APPEALS) ERRED IN NOT SP ECIFICALLY DIRECTING THE LEARNED ASSISTANT COMMISSIONER TO ALLOW TO BE CARRI ED FORWARD THE FOLLOWING CAPITAL LOSSES TO SUBSEQUENT ASSESSMENT Y EARS: 12 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. ASSESSMENT YEAR AMOUNT(RS.) 1996-97 14 02 71 877 1997-98 7 65 575 1999-00 1 22 943 11.1 AFTER HEARING BOTH THE SIDES WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE A.O. WITH A DIRECTION TO VERIFY THE RECORDS AND ALLOW THE CLAIM OF CAPITAL LOSS IN ACCORDANCE WITH LAW. THIS GROUN D OF THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 2147/MUM/2005 FOR A.Y. 2000-01 (BY REVENUE) 12. GROUND OF APPEAL NO. 1 READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD.CIT(A) ERRED IN DIRECTING THE AO TO DELETE THE D ISALLOWANCE OF RS.97 67 200/- BEING INTEREST ON LOANS AND ADVANCES MADE TO ORBIT FINANCE LTD. 12.1 AFTER HEARING BOTH THE SIDES WE FIND THE A.O. FOLLOWING THE ORDER OF HIS PREDECESSOR FOR EARLIER ASSESSMENT YEARS DISALLOWED AN AMOUNT OF RS. 97 67 200/- ON THE GROUND THAT SUCH ADVANCES WERE N OT INCIDENTAL TO THE PURPOSE OF THE ASSESSEES BUSINESS AND THEREFORE IN TEREST ATTRIBUTABLE TO THE ADVANCES HAS TO BE DISALLOWED. IN APPEAL THEN LD. CIT(A) FOLLOWING THE ORDER OF HIS PREDECESSOR DECIDED THE ISSUE IN FAVOUR OF T HE ASSESSEE. WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 1998-99 AND 1999-2000 AND THE TRIBUNAL VIDE OR DER DTD. 29.4.2011 AT PARA NO. 31 & 80 OF THE ORDER HAS DISMISSED THE APP EAL FILED BY THE REVENUE 13 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. FOR A.Y. 1998-99 & 1999-2000 RESPECTIVELY. RESPECTF ULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AND IN ABSEN CE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE BY THE LD. D.R. WE U PHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. THE GROUND RAISED BY THE REVE NUE IS ACCORDINGLY DISMISSED. 13. GROUND OF APPEAL NO. 2 BY THE REVENUE READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 30 96 41 023/- IN RESPECT OF INTEREST ON CAPITAL WORK-IN-PROGRESS. 13.1 AFTER HEARING BOTH THE SIDES WE FIND THE ASSES SEE HAD CAPITALISED INTEREST TO THE EXTENT OF RS. 30 96 41 023/- AND AD DED THE SAME TO THE COST OF CAPITAL WORK IN PROGRESS. THE ASSESSEE HOWEVER CLAIMED THE SAME AS DEDUCTION WHILE COMPUTING THE TOTAL INCOME ON THE G ROUND THAT THE INTEREST PERTAINS TO THE EXISTING BUSINESS OF THE ASSESSEE C OMPANY. THE A.O. DISALLOWED THE CLAIM FOLLOWING THE DECISION OF THE CALCUTTA ITAT IN THE CASE OF JCT MILLS REPORTED IN 65 ITD 169. THE LD. CIT(A ) FOLLOWING THE ORDERS OF HIS PREDECESSOR FOR A.Y. 1998-99 AND 1999-2000 ALLO WED THE CLAIM OF THE ASSESSEE. WE FIND THE TRIBUNAL FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 1992-93 TO 1997-98 HAS ALLOWED THE CLAIM OF THE ASSESSEE AND DISMISSED THE APPEAL FILED BY THE REVENUE FOR THE A.Y. 1998-99 AND 1999-2000 AT PARA 34 AND 83 OF THE ORDE R DTD. 29.4.2011. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE IS UPHELD. THE GROUND RAI SED BY THE REVENUE IS ACCORDINGLY DISMISSED. 14 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. 14. GROUND OF APPEAL NO. 3(A) BY THE REVENUE READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.LO 7 2 32 435/- IN RESPECT OF EXPENDITURE INCURRED UNDER THE VOLUNTARY RETIREMENT SCHEME HELD BY ASSESSING OFFICER AS CAPITAL NATURE. 14.1 AFTER HEARING BOTH THE SIDES WE FIND THE ASSES SEE IN ITS COMPUTATION OF TOTAL INCOME HAS CLAIMED DEDUCTION OF RS. 10 72 32 435/- WHICH WAS PAID DURING THE YEAR ON ACCOUNT OF VRS. THE A.O. TREATE D THE EXPENDITURE AS CAPITAL IN NATURE ON THE GROUND THAT THE SAME BRING S INTO EXISTENCE A BENEFIT OF AN ENDURING NATURE. IN APPEAL THE LD. CIT(A) FO LLOWING THE ORDER OF HIS PREDECESSOR FOR A.Y. 1998-99 AND 1999-2000 ALLOWED THE CLAIM OF THE ASSESSEE. WE FIND WHEN THE MATTER FOR A.Y. 1998-99 AND 1999-2000 CAME UP BEFORE THE TRIBUNAL THE TRIBUNAL VIDE ITA NO. 5 176/MUM/2003 FOR A.Y. 1999-2000 DISMISSED THE APPEAL FILED BY THE REVENUE ON THIS ISSUE BY HOLDING THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BHOR INDUS TRIES LTD. REPORTED IN 264 ITR 180. RESPECTFULLY FOLLOWING THE DECISION O F THE TRIBUNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE. ACCORDINGLY THE GROUND RAISED BY THE REVENUE IS DISMISSED. ITA 6104/MUM/2005 FOR A.Y. 2001-02 (BY ASSESSEE) 15. GROUND OF APPEAL NO. 1 RELATES TO THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.17 92 467/- BEING PRO-RATA PREMIUM ON LEASEHOLD LAND. 15 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. 15.1 AFTER HEARING BOTH THE SIDES WE FIND THIS GROU ND IS IDENTICAL TO GROUND OF APPEAL NO. 1 IN ITA NO. 2131/MUM/2005 FOR A.Y. 2 000-01 WHEREIN THE ABOVE GROUND IS DECIDED AGAINST THE ASSESSEE. FOLL OWING THE SAME RATIO THIS GROUND FILED BY THE ASSESSEE IS DISMISSED. 16. GROUND OF APPEAL NO. 2 IS AN ALTERNATE GROUND A ND IS IDENTICAL TO GROUND OF APPEAL NO. 2 IN ITA NO. 2131/MUM/2005 WHI CH HAS ALREADY BEEN DECIDED AND DISMISSED. FOLLOWING THE SAME RATIO TH IS GROUND BY THE ASSESSEE IS DISMISSED. 17. GROUNDS OF APPEAL NO. 3 4 5 & 6 RELATE TO THE ORDER OF THE LD. CIT(A) IN ENHANCING THE VALUE OF CLOSING STOCK BY AN AMOUN T OF RS. 2 47 45 208/- IN RESPECT OF UNUTILISED MODVAT CREDIT. 17.1 AFTER HEARING BOTH THE SIDES WE FIND THESE GRO UNDS ARE IDENTICAL TO THE GROUNDS OF APPEAL NO. 3 TO 5 IN ITA NO. 2131/MUM/20 05 FOR A.Y. 2000-01. WE HAVE ALREADY DECIDED THESE GROUNDS AND RESTORED THE ISSUE BACK TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION. FOLLOWING THE SAME RATIO WE RESTORE THE ABOVE GROUNDS TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION IN THE LIGHT OF THE DIRECTIONS GIVEN THEREIN. THE ABOVE GROUNDS AR E ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 18. GROUNDS OF APPEAL NO. 7 & 8 RELATE TO DISALLOWA NCE OF PRIOR YEAR EXPENDITURE OF RS. 6 83 029/-. 18.1 AFTER HEARING BOTH THE SIDES WE FIND THE ABOVE GROUNDS ARE IDENTICAL TO GROUNDS OF APPEAL NO. 7 TO 10 IN ITA NO. 2131/MUM/2 005 FOR A.Y. 2000-01. 16 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. WE HAVE ALREADY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. FOLLOWING THE SAME RATIO THE ABOVE GROUNDS ARE ALLOWED. 19. IN GROUNDS OF APPEAL NO. 9 & 10 THE ASSESSEE H AS CHALLENGED THE ORDER OF THE LD. CIT(A) IN DIRECTING THE A.O. TO AL LOW THE ENTIRE EXPENDITURE OF RS. 2 94 74 310/- AS REVENUE EXPENDITURE. 19.1 AFTER HEARING BOTH THE SIDES WE FIND THE ASSES SEE CLAIMED AN AMOUNT OF RS. 4 83 17 739/- OUT OF WHICH AN AMOUNT OF RS. 1 88 43 429/- WAS INCURRED FOR THE EMPLOYEES WHO OPTED VRS DURING THE YEAR AND THE BALANCE AMOUNT OF RS. 2 94 74 310/- WAS PAID AS FINAL INSTA LMENT TO THE EMPLOYEES WHO HAD TAKEN VRS IN FINANCIAL YEAR 1998-99. ACCOR DING TO THE A.O. ONLY AN AMOUNT OF RS. 1 88 43 429/- WHICH IS INCURRED DU RING A.Y. 2001-02 QUALIFIES FOR DEDUCTION U/S 35DDA. THE BALANCE AMOU NT OF RS. 2 94 74 310/- IS NOT COVERED BY THE PROVISIONS OF S ECTION 35DDA. HE THEREFORE ALLOWED ONLY AN AMOUNT OF RS.37 68 686/- BEING 1/5 TH OF RS. 1 88 43 429/- AS AGAINST RS. 96 63 548/- CLAIMED BY THE ASSESSEE U/S 35DDA. THE A.O. FURTHER NOTED THAT DURING A.Y. 199 9-2000 AND 2000-01 THE VRS EXPENDITURE WAS TREATED AS CAPITAL IN NATUR E AND WAS DISALLOWED. HE THEREFORE DISALLOWED AN AMOUNT OF RS. 2 94 74 31 0-/- HOLDING THE SAME TO BE CAPITAL IN NATURE. IN APPEAL THE LD. CIT(A) D IRECTED THE A.O. TO ALLOW THE DEDUCTION @ 1/5 TH ON THE AMOUNT OF RS. 2 94 74 310/-BY HOLDING AS UN DER:- I HAVE CONSIDERED THE MATTER. THE PAYMENT IS NOT D ISPUTED. THE APPELLANT HAS CLAIMED DEDUCTION ONLY 1/5 TH OF IT. IT IS ALSO NOT DOUBTED THAT THE INSTALMENT HAD BECOME DUE DURING T HE PREVIOUS YEAR UNDER CONSIDERATION. REGARDING THE ISSUE OF ACCRUAL THE DECISION OF A.P. HIGH COURT IN THE CASE OF Y.S.C. B ABU VS. CHAIRMAN AND MANAGING DIRECTOR SYNDICATE BANK (2002) 253 IT R 1 IS RELEVANT. IN THE SAID DECISION THE HONBLE COURT INTERALIA HAS HELD 17 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. THAT THE ACCRUAL AS WELL AS PAYMENT OF SALARY SHOUL D CO-EXIST IN ORDER TO ATTRACT THE PROVISIONS OF SECTION 192. TH E SUPREME COURT IN THE CASE OF K. RAVINDRANATHAN NAIR VS. CIT (2001) 2 47 ITR 178 HAS HELD THAT WHERE THE ASSESSEE HAD 10 CASHEW NUT PROC ESSING UNITS AND PAID COMPENSATION FOR THE EMPLOYEES FOR FOUR UN ITS ALL FORMING PART OF THE SAME BUSINESS THE DISALLOWANCE COULD N OT BE WARRANTED. FURTHER SECTION 35DDA ALSO SPEAKS ABOU T INCURRING ANY EXPENDITURE IN ANY PREVIOUS YEAR BY WAY OF PAYM ENT OF ANY SUM TO AN EMPLOYEE. CONSIDERING THE FACT THAT THE COURTS HAVE HELD SUCH PAYMENTS AS REVENUE IN NATURE AND ALSO CONSIDE RING THE FACT THAT THE ASSESSEE HAD CLAIMED DEDUCTION IN TERMS OF SECTION 35 DDA THAT IS 1/5 TH OF THE AMOUNT THE DISALLOWANCE MADE BY THE AO IS NOT JUSTIFIED IN MY CONSIDERED OPINION. THE AO IS DIRECTED TO ALLOW THE DEDUCTION @ 1/5 TH ON THE AFORESAID AMOUNT OF RS. 2 94 74 310/-. IT IS NOT DOUBTED THAT THE PAYMENT WAS APPROVED BY THE CONCERNED AUTHORITIES ALSO. THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF BHOR INDUSTRIES LTD. V. ACIT 264 ITR 180 IS ALSO IN FAVOUR OF THE APPELLANT. IN VIEW OF THE DI SCUSSION MADE ABOVE GROUNDS OF APPEAL NO. 26 TO 31 ARE ALLOWED. 19.2 AFTER HEARING BOTH THE SIDES WE FIND NO INFIRM ITY IN THE ORDER OF THE LD. CIT(A) WHO HAS ALLOWED 1/5 TH OF THE VRS EXPENDITURE OF RS. 2 94 74 310/- AS PER THE PROVISIONS OF SECTION 35DDA. THE LD. CO UNSEL FOR THE ASSESSEE ALSO DID NOT SERIOUSLY PRESS FOR THE DEDUCTION OF T HE WHOLE AMOUNT DURING THE IMPUGNED YEAR. WE ALSO DO NOT FIND ANY MERIT IN THE SUBMISSION OF THE LD. D.R. THAT SINCE THE EXPENDITURE OF EARLIER YEAR HAS BEEN DEBITED DURING THE YEAR THEREFORE NOTHING SHOULD BE ALLOWED. WE FIND THE PROVISIONS OF SECTION 35DDA WHICH RELATES TO AMORTISATION OF EXPE NDITURE INCURRED UNDER VRS WAS BROUGHT TO THE STATUTE BOOK BY THE FINANCE ACT 2001 W.E.F. 1.4.2001. SINCE THE ASSESSMENT IN THE IMPUGNED CASE RELATES TO A.Y. 2001- 02 THEREFORE WE FIND THE LD. CIT(A) IS JUSTIFIED IN ALLOWING 1/5 TH OF THE EXPENDITURE OF RS. 2 94 74 310/-. THE SAME IS ACCO RDINGLY UPHELD. GROUNDS OF APPEAL NO. 9 & 10 BY THE ASSESSEE ARE DI SMISSED. 18 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. 20. IN GROUNDS OF APPEAL NO. 11 THE ASSESSEE HAS CH ALLENGED THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE ORDER OF THE A.O. IN NOT ALLOWING DEDUCTION FOR RS. 38 89 424/- BEING CONSULTANCY AND ADVISORY FEES PAID FOR MODERNISATION. 20.1 AFTER HEARING BOTH SIDES WE FIND THE ABOVE ISS UE IS IDENTICAL TO GROUND OF APPEAL NO. 15 IN ITA NO. 2131/M/2005. WE HAVE A LREADY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. FOLLOWING THE SAM E RATIO THIS GROUND BY THE ASSESSEE IS ALLOWED. 21. GROUND OF APPEAL NO. 12 RELATES TO THE ORDER OF THE LD. CIT(A) IN NOT DIRECTING THE A.O. TO ALLOW DEDUCTION OF RS. 70 30 995/- BEING PROPORTIONATE EXPENDITURE ON SALARIES TRAVELLING AND OTHER EXPEN SES. 21.1 AFTER HEARING BOTH THE SIDES WE FIND THIS GRO UND IS IDENTICAL TO GROUND OF APPEAL NO. 16 IN ITA NO. 2131/MUM/2005. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISED BY THE ASSESSEE HAS BEE N ALLOWED. FOLLOWING THE SAME RATIO THIS GROUND BY THE ASSESSEE IS ALLOW ED. 22. GROUNDS OF APPEAL NO. 13 14 15 16 19 & 20 W ERE NOT PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE FOR WHICH THE LD. D.R. HAS NO OBJECTION. ACCORDINGLY THESE GROUNDS ARE DISMISSED AS NOT PRES SED. GROUNDS OF APPEAL NO. 22 23 24 & 25 BEING GENERAL IN NATURE ARE DIS MISSED. 23. IN GROUND OF APPEAL NO. 17 THE ASSESSEE HAS CHA LLENGED THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS . 14 91 452/- U/S 40(A)(I) 19 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. BEING THE AMOUNT PAID TO FOREIGN SUPPLIERS FOR CRED IT ALLOWED ON PURCHASE MADE FROM THEM. 23.1 THE LD. COUNSEL FOR THE ASSESSEE FAIRLY CONCED ED THAT THE ABOVE GROUND IS DECIDED AGAINST THE ASSESSEE. ACCORDINGLY THIS GROUND IS DECIDED AGAINST THE ASSESSEE. 24. GROUND OF APPEAL NO. 18 RELATES TO THE COMPUTAT ION OF BOOK PROFIT U/S 115JB OF THE ACT AS AGAINST BOOK LOSS DETERMINED BY THE ASSESSEE. THIS GROUND IS CONNECTED TO GROUND OF APPEAL NO. 5 BY TH E REVENUE THEREFORE THE SAME IS DISCUSSED ALONG WITH GROUND OF APPEAL N O. 5 BY THE REVENUE. 25. IN GROUND OF APPEAL NO. 21 THE ASSESSEE HAS CHA LLENGED THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE LEVY OF INTEREST U /S 234B OF THE ACT. 25.1 AFTER HEARING BOTH THE SIDES WE FIND THE ISSUE RELATES TO CHARGING OF INTEREST U/S 234B WHILE COMPUTING BOOK PROFIT U/S 1 15JB OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISS UE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONB LE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. NATURAL GEMS LTD. (BOM) REPORTED IN 327 ITR 269 WHEREIN IT HAS BEEN HELD THAT WHILE COMPUTING INCOM E U/S 115J INTEREST CANNOT BE LEVIED U/S 234B AND 234C OF THE INCOME TA X ACT 1961. REFERRING TO THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S SCHREIBER DYNAMIX DAIRIES LTD. V. DCIT REPORTED IN ITA NO. 5132 & 5133/MUM/20 09 ORDER DTD. 10.12.2010 FOR A.Y. 2006-07 & 2007-08 HE SUBMITTED THAT THE TRIBUNAL FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HI GH COURT IN THE CASE OF 20 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. NATURAL GEMS LTD. (SUPRA) DIRECTED THE A.O. TO DEL ETE THE INTEREST CHARGED U/S 234B AND 234C OF THE ACT. 25.2 THE LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF THE LD. CIT(A). 25.3 AFTER HEARING BOTH THE SIDES WE FIND THE CO-OR DINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S SCHREIBER DYNAMIX DAIRI ES LTD. (SUPRA) BY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HI GH COURT IN THE CASE OF NATURAL GEMS LTD. (SUPRA) HAS DIRECTED THE A.O. TO DELETE THE INTEREST CHARGED U/S 234B & 234C OF THE ACT WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE I.T. ACT 1961. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL WE DIRECT THE A.O. TO DELETE THE INTEREST CHARGED U/S 234B WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. TH IS GROUND BY THE ASSESSEE IS ACCORDINGLY ALLOWED. ITA NO. 4774/MUM/2005 FOR A.Y. 2001-02 (BY REVENUE) 26. GROUND OF APPEAL NO. 1 BY THE REVENUE READS AS UNDER:- ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 89 77 678/- BEING INTEREST ON LOANS & ADVANCES MADE TO ORBIT FI NANCE LTD. FOR CONSTRUCTION OF A HOUSING PROJECT AT THANE. 26.1 AFTER HEARING BOTH THE SIDES WE FIND THIS GROU ND IS IDENTICAL TO GROUND OF APPEAL NO. 1 IN ITA NO. 2147/MUM/2005 FOR A.Y. 2 000-01. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISED BY THE REVENUE HAS BEEN DISMISSED. FOLLOWING THE SAME RATIO THIS GROUND BY THE REVENUE IS DISMISSED. 21 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. 27. GROUND OF APPEAL NO. 2 BY THE REVENUE READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS .30 74 66 000/- IN RESPECT OF INTEREST ATTRIBUTABLE TO CAPITAL WORK -IN-PROGRESS. 27.1 AFTER HEARING BOTH THE SIDES WE FIND THIS GROU ND IS IDENTICAL TO GROUND OF APPEAL NO. 2 IN ITA NO. 2147/MUM/2005 FOR A.Y. 2 000-01. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISED BY THE REVENUE HAS BEEN DISMISSED. FOLLOWING THE SAME RATIO THIS GROUND BY THE REVENUE IS DISMISSED. 28. GROUNDS OF APPEAL NO. 3(A) & 3(B) BY THE REVENU E READ AS UNDER:- 3(A) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS. 58 94 862/- MADE BY THE AO WHO HELD THAT THE EXPENDITURE INCURRED UNDER THE VOLUNTARY RETIREMENT SCHEME OF THE COMPANY FOR ITS EMPLOYEES WAS OF CAPITAL IN NATURE AND WAS NOT ALLOWABLE. 3(B) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING THE AO TO ALLOW THE D EDUCTION @ 1/5TH ON THE AMOUNT OF RS.2 94 74 310/- WHEN EVEN AS PER THE ASSESSEE THE PROVISIONS OF SECTION 35DDA WERE NOT APPLICABLE . 28.1 AFTER HEARING BOTH THE SIDES WE FIND THESE GRO UNDS ARE IDENTICAL TO GROUNDS OF APPEAL NO. 9 & 10 OF THE ASSESSEES APPE AL IN ITA NO. 6104/MUM/2005 FOR A.Y. 2001-02 WHEREIN IT HAS BEEN HELD THAT PROVISIONS OF SECTION 35DDA WHICH RELATES TO AMORTISATION OF E XPENDITURE INCURRED UNDER VRS WAS BROUGHT TO THE STATUTE BOOK BY THE FI NANCE ACT 2001 W.E.F. 1.4.2001 AND THEREFORE THE ASSESSEE IS ENTITLED TO CLAIM 1/5 TH OF THE EXPENDITURE INCURRED ON VRS. THEREFORE THE ORDER OF THE LD. CIT(A) ALLOWING 1/5 TH OF THE EXPENDITURE BEING IN ORDER IS UPHELD. ACCOR DINGLY GROUNDS OF APPEAL NO. 3(A) & 3(B) BY THE REVENUE IS DISMISSED. 22 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. 29. GROUND OF APPEAL NO. 4 BY THE REVENUE READS AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.5 48 731/- BEING WR ITTEN OFF LOANS AND ADVANCES GIVEN TO THE EMPLOYEES. 29.1. AFTER HEARING BOTH THE SIDES WE FIND THE ASSE SSEE CLAIMED WRITE OFF OF ADVANCES TO STAFF AMOUNTING TO RS. 5 48 731/- AS AN ALLOWABLE EXPENDITURE. ON BEING QUESTIONED BY THE A.O. TO JUSTIFY THE CLAI M IT WAS SUBMITTED THAT THE LOANS WERE GIVEN TO THE EMPLOYEES AS PER THE TE RMS AND CONDITIONS OF THE SERVICE AND WERE GIVEN IN THE NORMAL COURSE OF BUSI NESS. IT WAS SUBMITTED THAT THE LOAN IS INCIDENTAL TO BUSINESS THEREFORE WRITE OFF OF THE SAME SHOULD BE ALLOWED AS DEDUCTION. HOWEVER THE A.O. WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE OBSERVED THAT LOANS AND ADVANCES WRITTEN OFF BY THE ASSESSEE CANNOT BE ALLO WED SINCE IT IS NOT IN THE BUSINESS OF MONEY LENDING. RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF AMARCHAND SOBHACHAND REPORTED IN 82 ITR 591 HE DISALLOWED THE CLAIM ON THE GROUND THAT IT IS NOT I N THE NATURE OF DEBT AND THE BUSINESS ACTIVITY OF THE ASSESSEE IS NOT THAT O F MONEY LENDING. IN APPEAL THE LD. CIT(A) FOLLOWING THE DECISION OF HIS PREDEC ESSOR DELETED THE DISALLOWANCE. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 29.2 AFTER HEARING BOTH THE SIDES WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 1999-2000. WE FIND THE TRIBUNAL UPHELD THE ORDER OF THE LD. CIT(A) BY HOLD ING AS UNDER:- (PARA 93 OF THE ORDER). 23 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERU SED THE MATERIAL ON RECORD WE SEE NO REASONS TO INTERFERE IN THE CONCL USIONS ARRIVED AT BY THE CIT(A) ON THIS ISSUE EITHER. LEARNED DEPARTMENTAL R EPRESENTATIVE COULD NOT POINT OUT A SINGLE INSTANCE WHERE THE ADVANCES WRIT TEN OFF WERE NOT MADE DURING THE COURSE OF AND AS INCIDENTAL TO BUSINE SS OF THE ASSESSEE. AS LONG AS AMOUNTS WRITTEN OFF HAVE BEEN IN THE COURSE OF AND AS INCIDENTAL TO ASSESSEES BUSINESS ACTIVITIES THE LOSS SO INCURRE D IS ADMISSIBLE AS BUSINESS LOSS. THE CIT(A) WAS THEREFORE QUITE JUSTIFIED IN HIS CONCLUSIONS AND THE SAME DO NOT CALL FOR ANY INTERFERENCE FROM US. WE DECLIN E TO INTERFERE IN THE MATTER. 29.3 RESPECTFULLY FOLLOWING THE DECISION OF THE TRI BUNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGH T TO OUR NOTICE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE IS UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 30. GROUND OF APPEAL NO. 5 BY THE REVENUE READS AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) ERRED IN DELETING THE ADJUSTMENTS MADE BY THE AO ON THE F OLLOWING AMOUNTS FOR THE PURPOSE OF COMPUTATION OF TOTAL INCOME U/S. 115 JB. I) RS. 30 70 484/- BEING PROVISIONS FOR W.T. II) RS. 35 45 507/- ON ACCOUNT OF PROVISION OF GRATUITY III) RS.123 79 10 422/- AMOUNT TRANSFERRED TO P & L ACCO UNT FROM THE CONTINGENCY RESERVE. 30.1 FACTS OF THE CASE IN BRIEF ARE THAT THE A.O. D URING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAS NOT PAID TAX U/S 115JB OF THE ACT. ACCORDING TO THE ASSESSEE THE BO OK PROFIT IS (-) RS. 1 11 98 79 644/-. THE A.O. OBSERVED FROM THE P&L A CCOUNT THAT THE ASSESSEE HAD - A) FAILED TO ADD BACK THE PROVISION FOR WEALTH TAX OF RS. 40 LACS ALTHOUGH IT IS IN THE NATURE OF AN UNASCERTAINED LI ABILITY SINCE IT IS A PROVISION. 24 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. B) FAILED TO ADD BACK THE PROVISION FOR GRATUITY OF RS. 35 45 507/- ALTHOUGH IT IS IN THE NATURE OF AN UNASCERTAINED LI ABILITY SINCE IT IS A PROVISION. C) EXCLUDED THE AMOUNT OF RS. 1 23 79 10 422/- WHIC H WAS THE AMOUNT TRANSFERRED TO THE PROFIT AND LOSS ACCOUNT F ROM THE CONTINGENCY RESERVE. HE THEREFORE ASKED THE ASSESSE TO EXPLAIN AS TO W HY THE ABOVE MENTIONED ADJUSTMENTS SHOULD NOT BE DONE TO THE BOOK PROFIT F OR THE PURPOSE OF SEC. 115JB. 30.2 IT WAS EXPLAINED BY THE ASSESSEE THAT THE CONT INGENCY RESERVE HAD BEEN CREATED IN THE EARLIER YEARS WITHOUT DEBITING THE SAME TO THE PROFIT & LOSS ACCOUNT AND HENCE THE SAME IS NOT REQUIRED TO BE ADDED TO THE BOOK PROFITS OF THE EARLIER YEARS. IT WAS ALSO SUBMITTE D THAT THE PROVISION FOR GRATUITY IS AN ASCERTAINED LIABILITY IN ACCORDANCE WITH THE DECISION OF THE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS LT D. 30.3 HOWEVER THE A.O. WAS NOT SATISFIED WITH THE EX PLANATION GIVEN BY THE ASSESSEE. HE OBSERVED THAT THE PROVISION FOR GRATUI TY AND PROVISION FOR WEALTH TAX ARE IN THE NATURE OF UNASCERTAINED LIABI LITY. AFTER ANALYSING THE EXPLANATION TO SECTION 115JB HE OBSERVED THAT CREDI T TO THE P&L ACCOUNT FROM THE CONTINGENCY RESERVE CAN BE REDUCED ONLY IF THE BOOK PROFIT OF THE YEAR IN WHICH THE RESERVE WAS CREATED HAS BEEN INCR EASED TO THAT EXTENT. HE THEREFORE REJECTED THE EXPLANATION OF THE ASSESSEE THAT THE CONTINGENCY RESERVE HAS BEEN CREATED WITHOUT ANY DEBIT TO THE P &L ACCOUNT. ACCORDING TO HIM THERE IS NO SUCH EXCEPTION PROVIDED IN THE EXP LANATION. FURTHER HE OBSERVED THAT THE BOOK PROFIT OF THE EARLIER YEARS HAVE NOT BEEN INCREASED 25 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. AND HENCE THE EXPLANATION TO SEC. 115JB WOULD NOT B E APPLICABLE TO THE AMOUNT WITHDRAWN FROM THE CONTINGENCY RESERVE OF RS . 1 23 79 10 422/-. HE THEREFORE ADDED THE SAME TO THE BOOK PROFIT AN D DID NOT ALLOW THE SAME TO BE REDUCED AS CLAIMED BY THE ASSESSEE. THE A.O. FURTHER ADDED AN AMOUNT OF RS. 40 LACS TOWARDS PROVISION FOR WEALTH TAX AND RS. 35 45 507/- BEING PROVISION FOR GRATUITY FOR DETERMINING THE BO OK PROFIT U/S 115JB OF THE ACT. 30.4 IN APPEAL THE LD. CIT(A) DIRECTED THE A.O. NOT TO INCREASE THE BOOK PROFIT BY THE SAID AMOUNT OF RS. 123 79 10 422 BEIN G TRANSFERRED TO THE P&L ACCOUNT FROM THE CONTINGENCY RESERVE FOR THE PURPOS E OF CALCULATING BOOK PROFIT U/S 115JB OF THE ACT. THE RELEVANT OBSERVAT ION OF THE LD. CIT(A) READS AS UNDER: 15.1.1. I HAVE CAREFULLY CONSIDERED THE MATTER. IT IS SEEN FROM THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 3 1/3/20 01 RELEVANT FOR AY 2001-02 THAT TOTAL RECEIPTS/INCOME ARE OF RS. 1 033.61 CRORES. TOTAL EXPENSES ARE OF RS. 1143.99 CRORES. THUS THE RE IS DEFICIT OF RS. 110.98 CRORES. THIS DEFICIT IS REDUCED BY WITHD RAWING AN AMOUNT OF RS. 123.79 CRORES FROM THE CONTINGENCY RE SERVE. AS A RESULT OF THIS ADJUSTMENT PROFIT IS SHOWN AT RS. 1 3.1 1 CRORES. IN THE ACTUAL WORKING NO PROFIT HAS BEEN EARNED BY THE COM PANY DURING THE YEAR. SECONDLY THE COPY OF THE PROFIT AND LOSS ACCOUNT AND THE BALANCE SHEETS FOR THE YEARS ENDED 3 1/3/1999 AND 3 1/3/2000 SHOW THAT CONTINGENCY RESERVES WERE CREATED OF RS. 100 CRORES AND 50CRORES RESPECTIVELY OUT OF THE EXISTING SURPLUS I N PROFIT AND LOSS ACCOUNT. THE RESERVES WERE NOT CREATED BEFORE FIRST DAY OF APRIL 1997. THE SAID RESERVES WERE ALSO NOT CREATED BY WA Y OF A DEBIT TO THE PROFITS AND LOSS ACCOUNTS PERTAINING TO PREVIOU S YEARS 1998-99 AND 1999-2000. THE SAME WERE CREATED BY WAY OF APPR OPRIATIONS FROM THE PROFITS OF THE EARLIER YEARS. IN PREVIOUS YEAR 1998-99 PROFITS WERE ONLY OF RS. 13.63 CRORES. NO SUCH PROV ISION THEREFORE COULD HAVE BEEN CREATED BY WAY OF DEBITING TO THE P ROFIT AND LOSS ACCOUNT. SIMILARLY IN THE PREVIOUS YEAR 1999-2000 T HE PROFITS WERE ONLY OF RS. 1.39 CRORE AND THERE WAS NO SCOPE TO CR EATE ANY RESERVE BY WAY OF A DEBIT TO THE PROFIT AND LOSS ACCOUNT. F URTHER IT IS SEEN 26 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. THAT THE ASSESSEE COULD NOT HAVE INCREASED THE BOOK PROFIT OF THE PREVIOUS YEARS 1998-99 AND 1999- 2000 BY THE SAID R ESERVES FOR THE REASON THAT THE SAID AMOUNTS OF RESERVES WERE N OT WITHDRAWN OUT OF THE BOOK PROFIT OF SUCH PREVIOUS YEARS. IT I S NOT THE CASE THAT BECAUSE OF THE CREATION OF THE CONTINGENCY RESERVES THE APPELLANT ASSESSEE HAD REDUCED ITS BOOK PROFITS FOR THE PREVI OUS YEARS 1998- 99 AND 1999-2000. IN SUCH CIRCUMSTANCES THE STIPUL ATION MADE IN THE PROVISO TO CLAUSE (I) TO THE EFFECT THAT THE AM OUNT WITHDRAWN FROM RESERVES CREATED OR PROVISIONS MADE IN THE PRE VIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1997-98 OR AFTER SH ALL NOT BE REDUCED FROM THE BOOK PROFIT UNLESS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RESERVES OR PROVISIONS OUT OF WHICH THE SAID AMOUNT WAS WITHDRAWN UNDER THE EXPLANATION IS NOT APPLICABLE IN THE CASE OF THE APPELLANT.. 30.5 SO FAR AS THE ISSUE RELATING TO PROVISION FOR GRATUITY OF RS. 35 45 507/- IS CONCERNED HE DIRECTED THE A.O. NOT TO INCREASE THE BOOK PROFIT BY THAT AMOUNT BY HOLDING AS UNDER:- 15.3.1. I HAVE CONSIDERED THE ISSUE. IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT AS RELIED UPON BY THE APPELLA NTS COUNSEL IT CANNOT BE SAID THAT THE LIABILITY FOR GRATUITY WAS NOT AN ASCERTAINED LIABILITY. IT IS NOT THE CASE OF THE AO THAT THE PR OVISION WAS MADE ON ADHOC BASIS OR IT WAS NOT MADE ON THE BASIS OF AN A CTUARIAL VALUATION. THE HONBLE BOMBAY HIGH COURT IN THE CAS E CITED SUPRA HAS HELD THAT SINCE THE PROVISION FOR GRATUITY WAS MADE ON ACTUARIAL CALCULATION IT WAS AN ASCERTAINED LIABIL ITY AND THE SAID AMOUNTS COULD NOT BE ADDED TO THE NET PROFITS. CONS IDERING THESE DECISIONS THE AO IS DIRECTED TO NOT TO INCREASE PR OFIT BY THE AMOUNT OF RS. 35 45 507/-. 30.6 HOWEVER AS REGARDS THE ADDITION OF RS. 40 LACS ON ACCOUNT OF PROVISION OF WEALTH TAX HE GAVE PARTIAL RELIEF TO THE ASSESSE E BY HOLDING AS UNDER:- 15.2.1. I HAVE CONSIDERED THE ISSUE. THE APPELLANT HAD NOT INCREASED THE BOOK PROFIT BY THE AMOUNT OF RS. 40 L AKHS PROVIDED FOR WEALTH TAX. ACCORDING TO THE APPELLANT NEITHER CLAUSE (A) NOR CLAUSE (C) TO THE EXPLANATION WAS APPLICABLE. SO FA R AS CLAUSE (A) IS CONCERNED THE RELIANCE PLACED BY THE COUNSEL ON TH E DECISION OF BOMBAY HIGH COURT IS WELL PLACED. THE COURT HAS HEL D THAT SINCE 27 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. CLAUSE (A) OF THE EXPLANATION DOES NOT CONTEMPLATE WEALTH TAX THE NET PROFITS COULD NOT BE INCREASED BY THE AMOUNT OF WEALTH TAX PAID BY THE ASSESSEE. IN CLAUSE (C) IT IS LAID DOWN THAT THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MADE FOR MEETING UN ASCERTAINED LIABILITIES GO IN INCREASE THE BOOK PROFIT. IT IS A DMITTED THAT THE WEALTH TAX IS A LIABILITY. THE DISPUTE IS WHETHER I T IS AN ASCERTAINED LIABILITY OR AN UNASCERTAINED LIABILITY. THE VERY F ACT THAT THE APPELLANT HAS ASSETS CHARGEABLE TO WEALTH TAX IT CA NNOT BE SAID THAT WEALTH TAX LIABILITY WAS IN THE NATURE OF AN U NASCERTAINED LIABILITY. THAT THE LIABILITY WAS ASCERTAINED IS AL SO PROVED BY THE FACT THAT THE ASSESSEE HAD PAID WEALTH TAX TO THE E XTENT OF RS. 30 70 484/- ON THE BASIS OF THE RETURN OF NET WEALT H FURNISHED BY IT IN OCTOBER 2001. IN VIEW OF THIS FACT THE BOOK PRO FIT CAN BE INCREASED BY AN AMOUNT OF RS. 9 25 516/- (RS. 40 00 000 RS. 30 70 484). THE AO IS DIRECTED TO INCREASE THE BOOK PROFIT ACCORDINGLY. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) THE REV ENUE IS IN APPEAL BEFORE US. 30.7 WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE B Y BOTH THE SIDES PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. SO FAR AS THE ISSUE REL ATING TO THE ADDITION OF WEALTH TAX IS CONCERNED WE FIND THE SAME STANDS DEC IDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE BOMBAY HIGH COU RT IN THE CASE OF ECHJAY FORGINGS P. LTD. REPORTED IN 251 ITR15 WHERE IN IT HAS BEEN HELD THAT SINCE THE CLAUSE (A) OF THE EXPLANATION DOES NOT CO NTEMPLATE WEALTH TAX THE NET PROFITS COULD NOT BE INCREASED BY THE AMOUNT OF WEALTH TAX PAID BY THE ASSESSEE. THE LD. CIT(A) HAS GIVEN A FACTUAL FINDIN G THAT THE ASSESSEE HAD PAID WEALTH TAX AMOUNTING TO RS. 30 70 484/- WHICH COULD NOT BE CONTROVERTED BY THE LD. D.R. THEREFORE WE DO NOT F IND ANY INFIRMITY IN THE 28 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. ORDER OF THE LD. CIT(A) IN DIRECTING THE A.O. TO DE LETE THE ADDITION TO THE TUNE OF RS. 30 70 484/- FROM THE BOOK PROFIT. ACCORDINGL Y THE SAME IS UPHELD. 30.8 SO FAR AS THE PROVISION FOR GRATUITY AMOUNTING TO RS. 35 45 507/- IS CONCERNED WE FIND THE SAME IS ALSO COVERED BY THE D ECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ECHJAY FORGINGS PV T. LTD. (SUPRA) WHEREIN IT HAS BEEN HELD THAT WHEN THE PROVISION FOR CREDIT WAS MADE ON THE BASIS OF ACTUARIAL CALCULATIONS IT WAS AN ASCERTAINED LIABIL ITY AND THE SAID AMOUNT COULD NOT BE ADDED TO THE NET PROFIT. SINCE THE OR DER OF THE LD. CIT(A) IS IN CONSONANCE WITH THE DECISION OF THE HONBLE JURISD ICTIONAL HIGH COURT THEREFORE WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE LD. CIT(A) IN DIRECTING THE A.O. NOT TO INCREASE THE BOOK PROFIT BY THE AMOUNT OF RS. 35 45 507/-. ACCORDINGLY THE SAME IS UPHELD. 30.9 NOW COMING TO THE ORDER OF THE LD. CIT(A) IN D IRECTING THE A.O. NOT TO INCREASE THE BOOK PROFIT AMOUNTING TO RS. 123.79 CR ORES FOR THE PURPOSE OF SECTION 115JB WE FIND THE LD. CIT(A) HAS GIVEN A F ACTUAL FINDING THAT IN ACTUAL WORKING NO PROFIT HAS BEEN EARNED BY THE COM PANY DURING THE YEAR. FURTHER HE HAS GIVEN A FINDING THAT THE BALANCE SHE ET FOR THE YEAR ENDED 31 ST MARCH 1999 AND 31 ST MARCH 2000 SHOW THAT CONTINGENCY RESERVES WERE CREATED OF RS. 100 CRORES AND RS. 50 CRORES RESPECT IVELY OUT OF THE EXISTING SURPLUS IN PROFIT AND LOSS ACCOUNT AND THE RESERVES WERE NOT CREATED BEFORE FIRST DAY OF APRIL 1997. THE SAID RESERVES WERE A LSO NOT CREATED BY WAY OF A DEBIT TO THE PROFITS AND LOSS ACCOUNTS PERTAINING T O PREVIOUS YEARS 1998-99 AND 1999-2000. THE LD. D.R. COULD NOT CONTROVERT T HE ABOVE FACTUAL FINDING GIVEN BY THE LD. CIT(A). SINCE THE LD. CIT(A) HAS ELABORATELY DISCUSSED THE 29 ITA NO. 2131/M/05 2147/M/05 6104/M/05 & 477 4/M/05 M/S NATI ONAL ORGANIC CHEMICAL IND. LTD. ISSUE AND THE LD. D.R. COULD NOT POINT OUT ANY ERRO R OR CONTROVERT THE FACTUAL FINDING OF THE LD. CIT(A) THEREFORE WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). THE GROUND RAISED BY THE REVENU E IS DISMISSED. 31. IN THE RESULT APPEALS FILED BY THE ASSESSEE AR E PARTLY ALLOWED FOR STATISTICAL PURPOSES AND APPEALS FILED BY THE REVEN UE ARE DISMISSED. ORDER PRONOUNCED ON 17.02.2012. SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER SD/- ( R K PANDA ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED: 17.02.2012 RK COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT CONCERNED MUMBAI 4 CIT(A) CONCERNED MUMBAI 5 DR BENCH F 6 MASTER FILE /TRUE COPY/ BY ORDER DY /AR ITAT MUMBAI