The Singareni Colleries Co., Ltd.,, Secunderabad v. ACIT, Khammam

ITA 491/HYD/2007 | 2003-2004
Pronouncement Date: 31-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 49122514 RSA 2007
Assessee PAN ITACT1961W
Bench Hyderabad
Appeal Number ITA 491/HYD/2007
Duration Of Justice 3 year(s) 11 month(s) 17 day(s)
Appellant The Singareni Colleries Co., Ltd.,, Secunderabad
Respondent ACIT, Khammam
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 31-03-2011
Date Of Final Hearing 03-03-2011
Next Hearing Date 03-03-2011
Assessment Year 2003-2004
Appeal Filed On 13-04-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH HYDERABAD BEFORE SHRI G.C. GUPTA VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.490/H/2007 : ASSESSMENT YEAR 2000-01 ITA NO.491/H/2005 : ASSESSMENT YEAR 2003-04 ITA NO.465/H/2005 : ASSESSMENT YEAR 2000-01 ITA NO.1261/H/2003 : ASSESSMENT YEAR 2000-01 ITA NO.446/H/2006 : ASSESSMENT YEAR 2001-02 ITA NO.447/H/2006 : ASSESSMENT YEAR 2002-03 ITA NO.464/H/2005 : ASSESSMENT YEAR 1997-98 ITA NO.243/H/2008 : ASSESSMENT YEAR 2004-05 THE SINGARENI COLLIERIES COMPANY LTD. KOTHAGUDAM PAN AACT 8873F /T 101) VS. THE ASSISTANT CIT CIRCLE 1 KHAMMAM. APPELLANT RESPONDENT ITA NO.249/H/2008 ASSESSMENT YEAR 2004-05 THE ASSISTANT CIT CIRCLE 1 KHAMMAM. VS. THE SINGARENI COLLIERIES COMPANY LTD. KOTHAGUDAM (PAN AACT 8873F /T 101) APPELLANT RESPONDENT APPELLANT BY: SHRI SADASHIVA & SHRI M.V. ANIL KUMAR RESPONDENT BY: SHRI V. SRINIVAS ORDER PER CHANDRA POOJARI ACCOUNTANT MEMBER: THESE APPEALS PREFERRED BY THE ASSESSEE AS WELL AS BY REVENUE ARE DIRECTED AGAINST THE DIFFERENT ORDE R PASSED BY THE CIT(A) VIJAYAWADA AND PERTAINS TO THE ASSESSM ENT YEARS 1997-98 2000-01 2001-02 2002-03 2003-04 2004-0 5. 2. THE FIRST COMMON GROUND IN ASSESSEES APPEAL I N ITA NO.1261/H/2003 446/H/2006 447/H/2006 AND 491/H/2 007 ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 2 IS WITH REGARD TO DISALLOWANCE OF CLAIM FOR REDUCTI ON OF PROFITS EARNED DURING SICK PERIOD WHILE COMPUTING BOOK PROF IT U/S 115JA(2)(VII) OF THE IT ACT 1961 WHICH IS RELEVANT TO ASSESSMENT YEARS 2000-01 2001-02 2002-03 AND 2003-04. IN TH ESE ASSESSMENT YEARS THE ASSESSEE HAS CLAIMED THAT THE AMOUNT OF PROFIT IS TO BE DEDUCTED FOR THE CALCULATION OF BOO K PROFIT BECAUSE THE ASSESSEE IS A SICK INDUSTRIAL COMPANY. BUT THE ASSESSING OFFICER IS OF THE OPINION THAT THE ASSESSEE COMPANY BECAME SICK UNIT DURING THE ASSESSMENT YEAR 1992-93 AND THE E NTIRE NET WORTH OF THE ASSESSEE COMPANY EXCEEDED CUMULATIVE L OSSES DURING THE ASSESSMENT YEARS 1994-95 ITSELF. SO T HE DEDUCTION OF IMPUGNED PROFIT WAS NOT ALLOWABLE AS DEDUCTION I N THIS ASSESSMENT YEARS BECAUSE THE RELEVANT YEAR IN WHICH THE ASSESSEES NET WORTH EXCEEDED THE CUMULATIVE LOSSES IN THESE ASSESSMENT YEAR 1994-95 AND NOT THESE ASSESSMENT YEARS VIZ. 2000-01 2001-02 2002-03 AND 2003-04. AGAIN ST THIS THE ASSESSEE IS IN APPEAL BEFORE US. 3. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY IS A P UBLIC SECTOR UNDERTAKING JOINTLY OWNED BY THE AP STATE GOVT. AND THE CENTRAL GOVT. THE AP STATE GOVT. OWNS MAJORITY OF THE SHA RES IN THIS UNDERTAKING. THE COMPANY SUFFERED LOSES FOR A NUMB ER OF YEARS IN THE PAST AND WAS DECLARED A SICK INDUSTRIAL COMP ANY AS DEFINED UNDER THE SICK INDUSTRIES COMPANIES (SPECIA L PROVISIONS) ACT 1985. IN THE ASSESSMENT YEAR 2000-01 WHILE C OMPUTING THE BOOK PROFITS AS DEFINED IN EXPLANATION TO SECTI ON 115JA(2) OF THE IT ACT 1961 THE COMPANY REDUCED A SUM OF RS.3 75 30 28 000 BEING THE PROFITS EARNED BY THE COMPANY DURING THE PERIOD OF SICKNESS IN ASSESSMENT YEARS 1 992-93 AND 1993-94. ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 3 4. HE SUBMITTED THAT THE COMPANY EARNED A PROFIT OF RS.3 75 30 28 000/- DURING THE PERIOD OF SICKNESS I N ASSESSMENT YEAR 1992-93 AND 1993-94. THE FACTS RELATING TO TH IS CLAIM ARE NOT DISPUTED AND HE DREW OUR ATTENTION TO THE PROVI SIONS OF S.115JA OF THE IT ACT 1961 WHICH READS AS FOLLOWS: 1. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT WHERE IN THE CASE OF AN ASSESSEE BEING A COMPANY THE TOTAL INCOME AS COMPUTED UNDER THIS ACT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL 1997 (BEFORE THE 1 ST DAY OF APRIL 2001) (HEREAFTER IN THIS SECTION REFERRED TO AS THE RELEVANT PREVIOUS YEAR) IS LESS THAN THIRTY PER CENT OF ITS BOOK PROFIT THE TOTAL INCOME OF SUCH ASSESS EE CHARGEABLE TO TAX FOR THE RELEVANT PREVIOUS YEAR SH ALL BE DEEMED TO BE AN AMOUNT EQUAL TO THIRTY PERCENT O F SUCH BOOK PROFIT. 2. EVERY ASSESSEE BEING A COMPANY SHALL FOR THE PURPOSES OF THIS SECTION PREPARE ITS PROFIT AND LOS S ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANC E WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT 1956 (1 OF 1956). PROVIDED THAT WHILE PREPARING PROFIT AND LOSS ACCOUNT THE DEPRECIATION SHALL BE CALCULATED ON TH E SAME METHOD AND RATES WHICH HAVE BEEN ADOPTED FOR CALCULATING THE DEPRECIATION FOR THE PURPOSE OF PRE PARING THE PROFIT AND LOSS ACCOUNT LAID BEFORE THE COMPANY AT ITS ANNUAL GENERAL MEETING IN ACCORDANCE WITH THE PROVISIONS OF SECTION 210 OF THE COMPANIES ACT 1956 (1 OF 1956) WHICH IS DIFFERENT FROM THE PREVIOUS YEAR UN DER THE ACT THE METHOD AND RATES FOR CALCULATION OF DEPRECIATION SHALL CORRESPOND TO THE METHOD AND RAT ES WHICH HAVE BEEN ADOPTED FOR CALCULATING THE DEPRECI ATION FOR SUCH FINANCIAL YEAR OR PART OF SUCH FINANCIAL Y EAR FALLING WITHIN THE RELEVANT PREVIOUS YEAR. EXPLANATION: FOR THE PURPOSE OF THIS SECTION BOOK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOS S ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UND ER SUB SECTION (2) AS INCREASED BY: A) THE AMOUNT OF INCOME TAX PAID OR PAYABLE AND THE PROVISION THEREFORE OR B) THE AMOUNTS CARRIED TO ANY RESERVES BY WHATEVER NAME CALLED OR ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 4 C) THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MADE FOR MEETING LIABILITIES OTHER THAN ASCERTAINED LIABILITIES OR D) THE AMOUNT BY WAY OF PROVISION FOR LOSSES OF SUBSIDIARY COMPANIES OR E) THE AMOUNT OR AMOUNTS OF DIVIDENDS PAID OR PROPOSED OR F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH ANY OF THE PROVISIONS OF CHAPTER IIII APPLIES G) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET. H) IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (G) IS DEBITED TO THE PROFIT AND LOSS ACCOUNT AND AS REDUCED BY I) THE AMOUNT WITHDRAWN FROM ANY RESERVES OR PROVISIONS IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT. PROVIDED THAT WHERE THIS SECTION IS APPLICABLE T O AN ASSESSEE IN ANY PREVIOUS YEAR INCLUDING THE RELE VANT PREVIOUS YEAR THE AMOUNT WITHDRAWN FROM RESERVES CREATED OR PROVISIONS MADE IN A PREVIOUS YEAR RELEV ANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL 1997 BUT ENDING BEFORE THE 1 ST DAY OF APRIL 2001 SHALL NOT BE REDUCED FROM THE BOOK PROFIT UNLESS TH E BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RE SERVES OR PROVISIONS (OUT OF WHICH THE SAID AMOUNT WAS WITHDRAWN) UNDER THIS EXPLANATION: OR II) THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVIS IONS OF CHAPTER III APPLIES IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT ; OR III) THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORB ED DEPRECIATION WHICHEVER IS LESS AS PER BOOKS OF ACC OUNT EXPLANATION: FOR THE PURPOSES OF THIS CLAUSE : - A) THE LOSS SHALL NOT INCLUDE DEPRECIATION B) THE PROVISIONS OF THIS CLAUSE SHALL NOT APPLY IF TH E AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION IS NIL: OR IV) THE AMOUNT OF PROFITS DERIVED BY AN INDUSTRIAL UNDERTAKING FROM THE BUSINESS OF GENERATION OR GENERATION AND DISTRIBUTION OF POWER; OR ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 5 V) THE AMOUNT OF PROFITS DERIVED BY AN INDUSTRIAL UNDERTAKING LOCATED IN AN INDUSTRIALLY BACKWARD STA TE OR DISTRICT AS REFERRED TO IN SUB SECTION (4) AND SUB SECTION (5) OF SECTION 80IB FOR THE ASSESSMENT YEARS SUCH INDUSTRIAL UNDERTAKING IS ELIGIBLE TO CLAIM A DEDUC TION OF HUNDRED PERCENT OF THE PROFITS AND GAINS UNDER SUB SECTION (4) OF SUB SECTION (5) OF SECTION 80IB OR VI) THE AMOUNT OF PROFITS DERIVED BY AN INDUSTRIAL UNDERTAKING FROM THE BUSINESS OF DEVELOPING MAINTAINING AND OPERATING ANY INFRASTRUCTURE FACILI TY AS DEFINED IN THE EXPLANATION TO SUB SECTION (4) OF SE CTION 80IA AND SUBJECT TO FULFILLING THE CONDITIONS LAID DOWN IN THAT SUB SECTION: OR VII) THE AMOUNT OF PROFITS OF SICK INDUSTRIAL COMPA NY FOR THE ASSESSMENT YEAR COMMENCING FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SAI D COMPANY HAS BECOME A SICK INDUSTRIAL COMPANY UNDER SUB SECTION (1) OF SECTION 17 OF THE SICK INDUSTRIA L COMPANIES (SPECIAL PROVISIONS) ACT 1985 (1 OF 1986 ) AND ENDING WITH THE ASSESSMENT YEAR DURING WHICH THE EN TIRE NET WORTH OF SUCH COMPANY BECOMES EQUAL TO OR EXCEE DS THE ACCUMULATED LOSSES. EXPLANATION : FOR THE PURPOSES OF THIS CLAUSE NE T WORTH SHALL HAVE THE MEANING ASSIGNED TO IT IN CLAUSE (GA ) OF SUB SECTION (1) OF SECTION 3 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT 1985 (1 OF 1986 ) OR VIII) THE AMOUNT OF PROFITS ELIGIBLE FOR DEDUCTION U/S 80HHC COMPUTED UNDER CLAUSE (A) (B) OR (C ) OF S/S (3) OR SUBSECTION (3A) AS THE CASE MAY BE OF THAT SECTION AND SUBJECT TO THE CONDITIONS SPECIFIED IN SUB SECTIONS (4) AND (4A) OF THAT SECTION; THE AMOUNT OF PROFITS ELIGIBLE FOR DEDUCTION UNDE R SECTION 80HHE COMPUTED UNDER SUB SECTION (3) OF TH AT SECTION. 5. FURTHER HE SUBMITTED THAT THE COMPUTATIONS OF BOOK PROFITS INVOLVE THE REDUCTION OF CLAUSES (I) T O (IX) OF EXPLANATION TO S.115JA (2) AND IN PARTICULAR TO CL AUSE (VII) THEREOF OF WHICH THE PRESENT APPEAL RELATES TO. IT MAY BE NOTED AT THE OUTSET THAT THE ASSESSEE IS NOT CLAIMING EXEMP TION FROM THE APPLICABILITY OF PROVISIONS OF S.115JA OF THE INCOM E TAX ACT 1961. THE RELEVANT PROVISIONS ALSO DO NOT PROVIDE F OR EXEMPTION OF ANY COMPANY FROM THE RIGOURS OF BOOK PROFIT TAXA TION. IN THIS ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 6 CONNECTION HE DREW OUR ATTENTION OF TO THE PROVIS IONS OF SUB SECTION (1) OF S.115J OF THE INCOME TAX ACT 1961 W HICH EARLIER RELATED TO THE CHARGE OF BOOK PROFITS TAX AND WHI CH WAS SUCCEEDED BY S115JA OF THE INCOME TAX ACT 1961 S. 115J (1) READY AS UNDER: 115J.(1) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT WHERE IN THE CASE OF A N ASSESSEE BEING A COMPANY [(OTHER THAN A COMPANY ENGAGED IN THE BUSINESS OF GENERATION OR DISTRIBUTI ON OF ELECTRICITY)] THE TOTAL INCOME AS COMPUTED UNDER THIS ACT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL 1988 [BUT BEFORE THE 1 ST DAY OF APRIL 1991] (HEREAFTER IN THIS SECTION REFERRED TO AS THE RELEV ANT PREVIOUS YEAR) IS LESS THAN THIRTY PERCENT OF ITS BOOK PROFIT THE TOTAL INCOME OF SUCH ASSESSEE CHARGEABL E TO TAX FOR THE RELEVANT PREVIOUS YEAR SHALL BE DEEMED TO BE AN AMOUNT EQUAL TO THIRTY PERCENT OF SUCH BOOK PROF IT. 6. HE SUBMITTED THAT WHERE EXEMPTION IS GRANTED THE LEGISLATURE IS CATEGORICAL IN THE CHARGING SECT ION ITSELF AS IN THE CASE OF POWER GENERATING COMPANIES WHICH WERE E XEMPT U/S 115J OF THE INCOME TAX ACT 1961. THIS COMPARISON I S MADE ONLY TO ESTABLISH THAT THE CLAIM OF THE ASSESSEE IS NOT FOR EXEMPTION FROM LEVY OF BOOK PROFIT TAX U/S 115JA OF THE INCOM E TAX ACT 1961. CONSEQUENTLY THE OBVIOUS CONCLUSIONS ARE THAT THE CLAIM OF THE ASSESSEE IN THE PRESENT CASE IS NOT LIMITED TO THE COMPUTATION OF BOOK PROFITS IN THE YEAR OF SICKNESS . IT IS REITERATED THAT THE CLAIM IS FOR REDUCTION OF THE I MPUGNED PROFIT I.E. AMOUNT OF PROFITS EARNED DURING THE ASSESSMENT YEAR COMMENCING FROM THE ASST. YEAR RELEVANT TO THE PRE VIOUS YEAR IN WHICH THE SAID COMPANY HAS BECOME A SICK INDUSTRIAL COMPANY UNDER SUB SECTION (1) OF SECTION 17 OF THE SICK IND USTRIAL COMPANIES (SPECIAL PROVISIONS) ACT 1985 (1 OF 1986 ) AND ENDING WITH THE ASSESSMENT YEAR DURING WHICH THE ENTIRE NE T WORTH OF SUCH COMPANY BECOMES EQUAL TO OR EXCEEDS THE ACCUMU LATED LOSSES AS PROVIDED IN CLAUSE VII OF EXPLANATION TO S.115JA (2) OF ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 7 THE IT ACT 1961 FROM THE BOOK PROFIT OF THE ASSESS MENT YEAR UNDER CONSIDERATION. 7. ACCORDING TO THE AR THE BOOK PROFIT MEAN S THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR WHICH IN THE INSTANT CASE I S THE PROFIT OF THE ASST. YEAR 2000-01 THE REDUCTION FROM SUCH BOO K PROFITS IS ALWAYS CONSTANTLY THE AMOUNT OF PROFITS OF SICK IND USTRIAL COMPANY FOR THE ASSESSMENT YEAR COMMENCING FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE SAID COMPANY HAS BECOME A SICK INDUSTRIAL COMPANY UNDER SUB SECTION (1) OF SECTION 17 OF SICK INDUSTRIAL COMPAN IES (SPECIAL PROVISIONS) ACT 1985 (1 OF 1986) AND ENDING WITH T HE ASSESSMENT YEAR DURING WHICH THE ENTIRE NET WORTH O F SUCH COMPANY BECOMES EQUAL TO OR EXCEEDS THE ACCUMULATED LOSSES WHICH IN THE INSTANT CASE IS RS. 375 30 28 000 BEIN G PROFITS EARNED IN THE EARLIER ASST. YEARS DURING THE PERIOD OF SICKNESS. THE YEAR OF ASSESSMENT AND THE YEARS OF SICKNESS NE ED NOT BE ONE AND THE SAME. 8. HE DREW OUR ATTENTION TO THE 3 RD PARA IN PAGE NO.14 OF ORDER OF THE CIT (A) WHERE HE HAS OBSERVED THAT: THAT THE PERIOD HAS BEEN PRESCRIBED IN THE ACT ITS ELF AND THAT PERIOD IS THE TIME FRAME OF THE PREVIOUS YEAR IN WHICH THE COMPANY HAS BECOME A SICK INDUSTRIAL UNDERTAKING TO THE END OF THE ASST. YEAR IN WHICH T HE COMPANY RECOVERS FROM SICKNESS OR IN OTHER WORDS T HE NET WORTH OF SUCH COMPANY BECOMES EQUAL TO OR EXCEE DS THE ACCUMULATED LOSSES. THIS IS AN UNAMBIGUOUS AND CLEAR TIME FRAME DURING WHICH WHATEVER PROFITS EARN ED BY THE COMPANY SHALL BE DEDUCTED IF AT ALL THERE IS A NY PROFIT DURING SOME PERIOD OR SOME MONTHS OR DUE TO SOME OTHER UNITS OF THE SAME COMPANY THEN FOR CALCULATION OF BOOK PROFITS U/S 115JA SUCH PROFITS OF THE SICK PERIOD OF SUCH UNIT AND SUCH MONTHS OR YEAR SH ALL BE DEDUCTED. SIMILAR WORDINGS HAS BEEN GIVEN IN THE INCOME TAX A CT ENACTMENT WITH REGARD TO S2 (47)(XII) OF THE INCOME TAX ACT. THAT SECTION DEALS WITH TRANSFER OF LAND BY A SICK ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 8 INDUSTRIAL COMPANY MANAGED BY WORKERS COOPERATIVE AND WITH EFFECT FROM 1.4.1998 THIS NEWLY INSERTED SECTION 47(XII) STATES THAT ANY TRANSFER OF CAPITAL ASSET BEING A LAND OF SICK INDUSTRIAL COMPANY MADE UNDER A SCHEME PREPARED AND SANCTIONED U/S 68 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT 1995 (1 OF 1996) IS NOT TO BE REGARDED FOR AND FROM THE ASSESS MENT YEAR 1998-99 AS TRANSFER FOR THE PURPOSES OF CAPITA L GAINS TAX LEVY IF SUCH TRANSFER MADE DURING THE PERIOD: COMMENCING FROM THE PREVIOUS YEAR IN WHICH THE SAID COMPANY HAS BECOME SICK INDUSTRIAL COMPANY U/S 17(1 ) OF THAT ACT AND ENDING WITH THE PREVIOUS YEAR DURIN G WHICH THE ENTIRE NET WORTH OF SUCH COMPANY BECOMES EQUAL TO OR EXCEEDS THE ACCUMULATED LOSSES. IN THAT SECTION IT MAY BE SEEN THAT THE WORDINGS A RE SIMILAR AND THE PERIODS ARE SIMILAR AND THE NET WO RTH HAS ALSO BEEN DEFINED IN A SIMILAR WAY. THE TIME F RAME GIVEN IN THAT SECTION IS FROM THE PREVIOUS YEAR IN WHICH THE COMPANY BECAME SICK TO THE END OF THE PREVIOUS YEAR WHEN THE NET WORTH OF THE COMPANY BECOMES EQUAL OR TO EXCEED THE ACCUMULATED LOSSES. IN SUCH VIEW OF THE MATTER IT IS QUITE APPARENT THAT IN SECTION 115JA BY VIRTUE OF SIMILAR WORDINGS AND SIMILAR USE OF PHRAS ES AND DEFINITIONS THE LEGISLATURE HAS INTENDED TO HAVE S IMILAR EFFECT WHILE ACTING ON THE PROVISIONS OF THE ACT. IN SUCH A VIEW OF THE MATTER I FIND IN SECTION 47 WHEN THER E IS NO AMBIGUITY REGARDING THE INTERPRETATION WHY AN AMBI GUITY IS UNNECESSARILY CREATED FOR INTERPRETATION OF SECT ION 115JA. WHERE A TRANSFER IN CERTAIN CIRCUMSTANCES STATED THEREIN SHOULD NOT BE REGARDED AS TRANSFER FOR THE PURPOS E OF CAPITAL GAINS TAX. HE THEREFORE GOES ON TO STATE TH AT IN VIEW OF SUCH MATTER IT IS QUITE APPARENT THAT IN S EC. 115JA BY VIRTUE OF SIMILAR WORDINGS AND SIMILAR USE OF PHRASES AND DEFINITION THE LEGISLATURE HAS INTENDE D TO HAVE SIMILAR EFFECT WHILE ACTING ON THE PROVISIONS OF THE ACT. IN SUCH VIEW OF THE MATTER I FIND IN SEC 47 WHEN THERE IS NO AMBIGUITY REGARDING THE INTERPRETATION WHY AN AMBIGUITY IS UNNECESSARILY CREATED FOR THE INTERPRETATION OF SEC. 115JA. 9. ACCORDING TO THE AR THE ABOVE REASONS GIVEN BY LD. CIT (A) IS NOT VERY CLEAR. HE STATED THAT TH E CIT(A) BEGINS BY STATING THAT THE PROFITS EARNED BY THE COM PANY SHALL BE ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 9 DEDUCTED ACCORDING TO THE EXPLANATION S.115JA (2) (VII) BUT DOES NOT SAY FROM WHAT. DEDUCTION OR THE WORD REDUCTION USED IN THE STATUTE MEANS THAT THE SAME HAS TO BE REDUCED O R DEDUCTED FROM A LARGER AMOUNT. HE DREW OUR ATTENTION TO THE MEANING OF REDUCE AS GIVEN IN AIYARS JUDICIAL DICTIONARY 11 TH EDITION WHICH READS AS FOLLOWS: REDUCE TO LESSEN IN ANY WAY IN SIZE WEIGHT AMOUNT VALUE PRICE ETC. TO DIMINISH TO LOWER AS IN RANK OR POSITION TO DECREASE. 10. ACCORDING TO AR THE WORD REDUCE IS WIDE ENO UGH TO INCLUDE PUNISHMENT OR STOPPAGE OF INCREMENTS IN THE FUTURE. [LONGMAL V SUPTDT. OF POLICE AIR 1967 RAJ 214: LLR (1996) 16 RAJ 861]. IF REDUCTION OR DEDUCTION AS USED BY THE LD. CIT (A) ARE TAKEN AS SYNONYMS THEN OBVIOUSLY THE REDUCTION FROM THE NET PROFIT OF THE YEAR AS SHOWN IN THE PROFIT AND L OSS ACCOUNT PREPARED ACCORDING TO THE PROVISION OF S.115JA (2) OF THE INCOME TAX ACT 1961. COMING TO THE QUESTION OF SIMILAR WO RDING USED IN S.47(XII) OF THE INCOME TAX ACT 1961 IT IS SUBM ITTED BY THE AR THAT THE CONTEXT IN WHICH THEY ARE USED ARE ENTIREL Y DIFFERENT. WHILE S.47(XII) IS WITH REFERENCE TO DEFINITION OF TRANSFER UNDER CAPITAL GAINS TAX DURING THE PERIOD OF SICKNESS OF THE UNIT AND IS A POSITIVE ACT OF ALIENATION OF PROPERTY COMMITTED IN THAT TIME FRAME UNDER EXPLANATION TO S.115JA (2)(VII) THE C ONTEXT IS WITH REFERENCE TO REDUCTION OF PROFITS DURING THE PERI OD OF SICKNESS FROM THE PROFITS AS SHOWN IN PROFIT AND LOSS ACCOUN T. IT IS AN ACCUMULATION OF RESULTS OF THE COMPANY DURING THE P ERIOD OF SICKNESS. IN BOTH CASES THE OBVIOUS LEGISLATIVE IN TENT IS TO PROVIDE SICK COMPANIES WITH RELIEF FROM CERTAIN RIG OURS OF INCOME TAX. HE RELIED ON THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS VENKETESHWARA HATCHERIES (P) LTD. 23 7 ITR 174 (SC) WHEREIN THE HONBLE SUPREME COURT IN PARA 13 A ND 14 OF ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 10 THE SAID JUDGEMENT REFER TO A SALUTARY PRINCIPLE OF LAW STATED BY MAXWELL WHICH IS AS FOLLOWS: BUT THE PRESUMPTION IS NOT OF MUCH WEIGHT. THE SAM E WORDS MAY BE USED IN DIFFERENT SENSES IN THE SAME STATUTE AND EVEN IN THE SAME SECTION. THE SAME WO RD IF READ IN THE CONTEXT OF ONE PROVISION OF THE ACT MA Y MEAN OR CONVEY ONE MEANING AND ANOTHER IN A DIFFERENT CONTEXT. THE LEGISLATURE IN ITS WISDOM HAS CHOSEN T O PLACE PROCESSED SEEDS AND FISH UNDER THE HEADING ARTICLES OR THINGS IN THE FIFTH SCHEDULE AS LEGISLA TURE IS COMPETENT TO GIVE ARTIFICIAL MEANING TO ANY WORD. W E ARE THEREFORE OF THE OPINION THAT THE MEANING ASSIGNED TO WORDS ARTICLES OR THINGS IN THE FIFTH SCHEDULE CA NNOT BE ASSIGNED TO THE WORDS ARTICLES OR THINGS USED IN SS.32A AND 80J OF THE ACT. THUS THE COMPARISONS DRAWN BY C IT (A) ARE MISPLACED. 11. HE SUBMITTED THAT THE CIT (A) HAS HIS SECOND OBJECTION TO THE GRANT OF THE REDUCTION FROM THE PR OFITS STATES THAT IF THE INTENTION OF THE LEGISLATURE WAS TO EXT END THE PERIOD INDEFINITELY THEY WOULD HAVE USED THE TERM ACCUMUL ATED PROFITS OR CARRY FORWARD PROFITS INSTEAD OF THE TERM AMO UNT OF PROFITS. IN HIS VIEW THIS DISTINCTION IS NECESSARY AND WORKA BLE BECAUSE IN CASE OF A COMPANY GOING SICK FOR LARGE NUMBER OF YE ARS LIKE 50- 100 YEARS IF PRESUMED TO HAVE ALLOWANCE OF SUCH PR OFITS BY CARRYING IT FORWARD THEN A SITUATION MAY ARISE WHEN A COMPANY DOES NOT PAY ANY TAX FOR ANOTHER 50-100 YEARS AND T HIS WOULD MAKE THE ENACTMENT IMPRACTICABLE PARTICULARLY WHEN 115JA NEEDS IMMEDIATE TAX EVEN FROM LOSS MAKING COMPANIES OR ZERO TAX COMPANIES. 12. ACCORDING TO THE AR THE OBJECTION OF THE CIT (A) IS MANY ROLLED INTO A SINGLE OBJECTION. FIRSTLY THE CI T (A) HAS STATED AS OBJECTION CERTAIN WORDS HAVE BEEN DESIGNEDLY OMI TTED. HE SAYS THAT IF THE STATUTE PERMITTED THE PERIOD INDEF INITELY THEY WOULD HAVE USED THE WORD ACCUMULATED PROFITS OR CARRY FORWARD PROFITS. IT IS SUBMITTED THAT THE OBJECTIO N OF THE CIT (A) ON THE WORDS DESIGNEDLY OMITTED AS STATED BY HIM AR E CREATION OF ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 11 HIS OWN IMAGINATION. THE TERM ACCUMULATED PROFITS IS THE SAME AS AMOUNT OF PROFITS FOR THE PERIOD COVERED BY SICK NESS. THE TERM CARRY FORWARD PROFITS IS A TERM UNKNOWN TO STATUT ES AND DEFINITELY IS NOT ANALOGOUS TO CARRY FORWARD OF LO SSES. HE DREW OUR ATTENTION TO THE 7 TH EDITION OF CRAISES ON STATUTE LAW PAGE 107 WHEREIN IT WAS STATED THAT SOMETIMES IF THE MEANING OF AN ENACTMENT IS NOT PLAIN LIGHT MAY BE THROWN UPON IT BY ASSUMING THAT CERTAIN WORDS HAVE BEEN ANNULLED. A CCORDING TO THE AR HEREIN THE MEANING OF THE ENACTMENT IS VERY PLAIN AND HENCE RESORT TO WORDS DESIGNEDLY OMITTED IS NOT W ARRANTED. 13. HE SUBMITTED THAT ACCORDING TO THE CIT(A) INTERPRETATION PLACED BY THE ASSESSEE IS ALSO TO BE REJECTED AND HE HAS GIVEN THE REASONS THAT IF A COMPANY IS SICK FOR A LARGE NUMBER OF YEARS A COMPANY MAYBE NOT BE PAYING TAX F OR LARGE NUMBER OF YEARS AS ACCORDING TO CIT (A) IN CASE OF A COMPANY GOING SICK FOR A LARGE NUMBER OF YEARS LIKE 50-100 YEARS IF PRESUMED TO HAVE ALLOWANCE OF SUCH PROFITS BY CARRY ING IT FORWARD THEN A SITUATION MAY ARISE WHEN A COMPANY D OES NOT PAY ANY TAX FOR ANOTHER 50-100 YEARS AND THIS WOULD MAKE THE ENACTMENT IMPRACTICABLE PARTICULARLY WHEN 115JA NEE DS IMMEDIATE TAX EVEN FROM LOSS MAKING COMPANIES OR ZE RO TAX COMPANIES. 14. HE SUBMITTED THAT THE CIT (A) HAS WRONGLY INFERRED THAT (A) THE LEGISLATIVE INTENT IS TO COLLECT TAX F ROM LOSS MAKING COMPANIES AND (B) IF NOT AN ENACTMENT LIKE S.115JA WOULD BECOME IMPRACTICABLE. IT IS SUBMITTED THAT THE CIT (A) HAS GRIEVOUSLY ERRED IN INFERRING THAT LEGISLATIVE INTE NT IS COLLECT TAX FROM LOSS MAKING COMPANIES. THE AR MADE REFERENCE T O DEPARTMENTAL CIRCULAR NO. 496 DATED 22 SEPTEMBER 1987 EXPLANATORY NOTES ON THE PROVISIONS OF THE FINANC E ACT 1987 ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 12 EXPLAINING THE INTRODUCTION OF SECTION 115J AT PARA 36.1 TO 36.6 36.1 WHICH READS AS UNDER: ( 36.1) IT IS AN ACCEPTED CANON OF TAXATION TO LEVY T AX ON THE BASIS OF ABILITY TO PAY. HOWEVER AS A RESULT O F VARIOUS TAX CONCESSIONS AND INCENTIVES CERTAIN COMPANIES MAKING HUGE PROFITS AND ALSO DECLARING SUBSTANTIAL DIVIDENDS HAVE BEEN MANAGING THEIR AFFAIRS IN SUCH A WAY SO AS TO AVOID PAYMENT OF INCOME TAX. 15. HE SUBMITTED THAT THE ABOVE EXPLANATORY NOTES CLEARLY SHOWS THAT THE OBJECT OF THE LEGISLATION IS NOT TO TAX LOSS/ZERO TAX COMPANIES BUT COMPANIES WHICH DECLARE SUBSTANTIAL DIVIDENDS AND MAKE HUGE PROFITS BUT DUE TO INCENTIVES UNDER THE INCOME TAX ACT 1961 DO NOT PA Y TAXES. HENCE THE LEGISLATIVE INTENT AS STATED BY THE CIT ( A) IS WRONG AND ERRONEOUS AND NOT BORNE OUT OF FACTS. SECONDLY HER E WE ARE CONCERNED WITH LEGISLATIVE INTENTION IN THE ENACTME NT OF S.115JA (2)(VII) GIVING RELIEF FOR REDUCING OF PROFITS BY AMOUNT OF PROFITS OF AN UNDERTAKING DURING THE PERIOD OF SICKNESS. IF THE INTERPRETATION PLACED BY THE LD. CIT (A) IN RESPECT OF ENACTMENT OF S115JA IS ACCEPTED THERE IS NO SCOPE FOR ANY RED UCTION OR DEDUCTION AS STATED IN EXPLANATION TO S.115JA (2) A ND THEY HAVE TO BE IGNORED. THE STATUTORY RULE IN INFERRING LEGI SLATIVE INTENTION IS STATED SUCCINCTLY IN CRAISES ON STATUTE LAW SEVE NTH EDITION IN PAGE 65 AS WHERE THE LANGUAGE OF AN ACT IS CLEAR A ND EXPLICIT WE MUST GIVE EFFECT TO IT WHATEVER MAY BE THE CONS EQUENCES FOR IN THAT CASE THE WORDS OF THE STATUTE SPEAK THE INT ENTION OF THE LEGISLATURE. HE SUBMITTED THAT THE LANGUAGE OF THE ACT IS VERY CLEAR AS FAR AS THE REDUCTION UNDER EXPLANATION TO S.115JA (2)(VII) IS CONCERNED. THE AMOUNT OF PROFITS OF S ICK INDUSTRIAL COMPANY FOR THE ASSESSMENT YEAR COMMENCING FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE SAID COMPANY HAS BECOME A SICK INDUSTRIAL COMPANY UNDER SUB SECTION (1) OF SECTION 17 OF THE SICK INDUSTRIAL CO MPANIES (SPECIAL PROVISIONS) ACT 1985 (1 OF 1986) AND ENDIN G WITH THE ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 13 ASSESSMENT YEAR DURING WHICH THE ENTIRE NET WORTH O F SUCH COMPANY BECOMES EQUAL TO OR EXCEEDS THE ACCUMULATED LOSSES. 16. ACCORDING TO THE AR THIS REDUCTION/DEDUCTION AS STATED IN THE ENACTMENT SHOULD BE TAKEN AS THE LEGI SLATIVE INTENT. IN THIS CONNECTION HE DREW OUR ATTENTION TO THE JUD GEMENT OF SUPREME COURT IN THE CASE OF CIT VS SODRADEVI 32 IT R 615. THE LOGIC IS NOT DIFFICULT TO PERCEIVE. THE LEGISLATURE IN ITS WISDOM HAS EXCLUDED THE PROFITS EARNED BY A SICK INDUSTRIAL CO MPANY DURING THE PERIOD OF SICKNESS FROM THE RIGOUR OF S.115JA O F THE INCOME TAX ACT 1961 AS SUCCOUR TO SUCH COMPANIES BY TREAT ING SUCH PROFITS AS CAPITAL AND NOT REVENUE NATURE. 17. HE SUBMITTED THAT THE CIT (A) STATED THAT THE BENEFIT OF DOUBT IS TO BE GIVEN TO THE TAX PAYER WHEN THERE IS A DOUBT IN THE INTERPRETATION OF A STATUTE. ACCORDING TO CIT ( A) THERE IS NO AMBIGUITY BECAUSE S.115JA NEVER STATES THAT ALL THE PROFITS OF ALL THE YEARS DURING THE SICKNESS PERIOD SHALL BE ADJUS TED AGAINST THE PROFITS OF A FUTURE YEAR FOR DETERMINATION OF B OOK PROFITS UNDER SECTION 115JA. ACCORDING TO THE AR THE REL IANCE PLACED BY THE CIT(A) IN THE JUDGEMENT OF HONBLE SUPREME C OURT IN THE CASE OF CED VS ALLADI KUPPUSWAMY (108 ITR 439 (SC) AND IN THE CASE OF CIT VS RAVI TALKIES 137 ITR 176 (ORISSA)) IS MISPLACED. THE PRINCIPLES ENUNCIATED IN THESE CASES ARE UNEXCE PTIONABLE AND THE APPELLANT DOES NOT DISPUTE THE RATIO OF THO SE JUDGMENTS. HE CONTENDED THAT IN FACT THE RATIONALE OF THOSE JU DGMENTS SUPPORT THE APPELLANTS CASE BECAUSE THE PLAIN LANGU AGE OF THE ENACTMENT STATES THAT WHILE COMPUTING THE BOOK PROF ITS THE FOLLOWING STEPS ARE TO BE TAKEN UNDER S.115JA (2) R EAD WITH THE EXPLANATION: (1) FIRSTLY THE NET PROFIT SHOWN IN THE PROFIT AND LOS S ACCOUNT HAS TO BE TAKEN AND ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 14 (2) INCREASED BY THE AMOUNTS SHOWN IN CLAUSES (A) TO (G ) IF ANY OF SUCH AMOUNTS ARE DEBITED TO THE PROFIT AND LOSS ACCOUNT AND (3) REDUCED BY THE AMOUNTS STATED IN CLAUSES (I) TO (IX ) (HERE WE ARE CONCERNED WITH CLAUSE (VII) 18. HE SUBMITTED THAT IT IS UNDISPUTED FACT THAT THE REDUCTION OF RS. 3 75 30 28 000 IS THE AMOUNT OF PR OFITS AS COMPUTED UNDER CLAUSE (VII). 19. HE SUBMITTED THAT IN FACT THERE IS NO INDICAT ION IN THE LANGUAGE OF THE STATUTE THAT THE NET PROFIT OF THE RELEVANT PREVIOUS YEAR SHOULD BE THE SAME AS THE ASSESSMENT YEAR COMMENCING FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SAID COMPANY HAS BECOME A SICK IN DUSTRIAL COMPANY UNDER SUB SECTION (1) OF SECTION 17 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT 1985 (1 OF 1986) AND ENDING WITH THE ASSESSMENT YEAR DURING WHICH TH E ENTIRE NET WORTH OF SUCH COMPANY BECOMES EQUAL TO OR EXCEE DS THE ACCUMULATED LOSSES. THE CIT (A) HAS STATED THAT THE RULE OF REASONABLE CONSTRUCTION SHOULD BE APPLIED. LIBERAL CONSTRUCTION SHOULD BE AVOIDED AS IT DEFEATS THE MANIFEST OBJECT AND PURPOSE OF THE ACT. ONCE HE ALSO SAYS THAT THERE IS NO ROOM FOR INTENDMENT OR EQUITY IN MATTER OF LEVY OF TAX. THES E PRINCIPLES AS STATED BY CIT (A) ARE UNEXCEPTIONABLE AND THE APPEL LANT HAS NO QUARREL WITH THESE TIME ESTABLISHED PRINCIPLES OF I NTERPRETATION. BUT THEY DO NOT GIVE RISE TO CONCLUSIONS WHICH THE CIT (A) DREW IN HIS ORDER. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER SUBMITTED THAT THE PLAIN LANGUAGE OF S.115JA IS NOT WHAT THE CIT (A) CLAIMS IN HIS ORDER. IN FACT S .115JA DOES NOT STATE THE YEAR IN WHICH THE COMPANY SUFFERS SIC KNESS IS THE APPROPRIATE YEAR FOR CLAIMING EXEMPTION OF SUCH PRO FITS EARNED DURING THE PERIOD OF SICKNESS. ACCORDING TO THE AR THE ASSESSEE IS ENTITLED TO CLAIM THE AMOUNT COMPUTED UNDER EXPL ANATION TO S.115JA (2)(VII) AS CLAIMED BY IT. ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 15 20. THE LEARNED DR SUBMITTED THAT AS PER THE LANG UAGE OF THE PROVISION THAT THE DEDUCTION IS WITH REFEREN CE TO YEAR OF COMMENCEMENT OF SICKNESS AND CANNOT GO BEYOND THE Y EAR WHEN THE COMPANY CEASES TO BE SICK. THIS IS APPLICABLE TO A COMPANY WHICH IS ON THE ROAD TO RECOVERY WHEN OPERATING PRO FITS ARE REPORTED FOR THE YEAR ON A STAND ALONE BASIS. BUT NET WORTH CONTINUES TO REMAIN NEGATIVE ON ACCOUNT OF ACCUMULA TED LOSSES. SUCH AMOUNTS ARE NOT TO BE CLAIMED YEAR AFTER YEAR AS INTERPRETED BY THE ASSESSEE. THIS PROVISION IS MEA NT NOT TO ENCOURAGE SICKNESS BUT TO ENSURE THAT OPERATING PRO FITS OF A COMPANY DURING ITS PERIOD OF SICKNESS ARE NOT TO BE TAXED AS A MEASURE OF RELIEF. ACCORDING TO DR THERE IS NOTHI NG IN SUB CLAUSE (VII) OF EXPLANATION 1 TO SECTION 115JB(2) T O SUGGEST THAT: A) THE YEAR(S) TO WHICH THE AMOUNT BELONGS AND THE YEA R IN WHICH IT IS CLAIMED NEED NOT BE THE SAME AND B) THE SAME AMOUNT CAN BE CLAIMED FOR MORE THAN ONE YE AR 21. HE SUBMITTED THAT THE SITUATION VIDE (A) ABOV E WOULD MILITATE AGAINST THE SCHEME OF COMPUTATION OF INCOM E IN THE ACT. THE SITUATION VIDE (B) ABOVE WOULD AMOUNT TO A DOUB LE/MULTIPLE DEDUCTION. IT HAS BEEN HELD BY THE SUPREME COURT I N THE CASE OF ESCORTS LTD. VS UNION OF INDIA 199 ITR 43 THAT A MU LTIPLE DEDUCTION HAS TO BE EXPRESSLY PROVIDED AND CAN NEVE R BE A MATTER OF INFERENCE. 22. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO CAREFUL LY GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. FOR BE TTER UNDERSTANDING WE WILL REPRODUCE HEREIN THE STATEMEN T OF PROFIT AVAILABLE FOR SET OFF UNABSORBED BUSINESS LOSS AND UNABSORBED DEPRECIATION FOR THE PURPOSE OF SECTION 115JA/JB OF I.T. ACT 1961. WE TAKE RELEVANT FIGURES FOR THE ACCOUNTING YEAR 1990-91 TO 2001-02. ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 16 STATEMENT OF UNABSORBED BUSINESS LOSSES AND UNABSOR BED BUSINESS LOSSES AND UNABSORBED DEPRECIATION FOR THE PURPOSE OF SECTION 115JA/115JB OF INCOME-TAX A CT 1961 ACCOUNTING YEAR PROFIT OR LOSS BEFORE DEPRECIATION (AS PER BOOKS) DEPRECIATION AS PER BOOKS OF ACCOUNT PROFIT OR LOSS AFTER DEPRECIATION (2-3) PROFITS AVAILABLE FOR SET OFF UNABSORBED DEPRECIATION UNABSORBED BUSINESS LOSS UNABSORBED DEPRECIATION UNABSORBED BUSINESS LOSS PROFIT/ LOSS CUMULATIVE (A-B) 1990-91 -1098289892 639940409 -1738230301 0 6399404 09 -1098289892 1545978598 -2534142310 -4080120908 1991-92 -1326383092 829702000 -2156085092 0 8297020 00 -1326383092 2375680598 -3860525402 -6236206000 1992-93 -540129000 953096000 -1493225000 0 95309600 0 -540129000 3328776598 -4400654402 -7729431000 1993-94 4913171000 1160143000 3753028000 3753028000 0 0 0 -3976403000 -3976403000 1994-95 1285794000 1417714000 -131920000 0 13192000 0 0 131920000 -3976403000 -4108323000 1995-96 -2327255000 1815343000 -4142598000 0 181534 3000 -2327255000 1947263000 -6303658000 -8250921000 1996-97 -1901694000 2042223000 -3943917000 0 204222 3000 -1901694000 3989486000 -8205352000 -1219483800 0 1997-98 3160680000 2146382000 1014298000 1014298000 0 0 2975188000 -8205352000 -11180540000 1998-99 3290317000 2158986000 1131331000 1131331000 0 0 1843857000 -8205352000 -10049209000 1999-00 5943468000 2371864000 3571604000 3571604000 0 0 0 -6477605000 -6477605000 2000-01 3035483000 2217242000 818241000 818241000 0 0 0 -5659364000 -5659364000 2001-02 5343305071 2291607268 3051697803 3051697803 0 0 0 -2607666197 -2607666197 ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 17 23. NOW THE CONTENTION OF THE ASSESSEES COUNSEL IS THAT THE PROFIT AVAILABLE FOR SET OFF IN THE ACCOUNTING YEAR 1993-94 RELEVANT ASSESSMENT YEAR 1994-95 AT RS. 375 30 28 0 00 BEING THE PROFIT EARNED IN THE EARLIER ASSESSMENT YEAR DU RING THE PERIOD OF SICKNESS IS TO BE DEDUCTED FROM THE BOOK PROFIT OF ASSESSMENT YEAR 2000-01 I.E. PRESENT ASSESSMENT YE AR AND ACCORDING TO HIM THE YEAR OF ASSESSMENT AND THE YEA RS OF SICKNESS NEED NOT BE ONE AND THE SAME IN VIEW OF TH E PROVISIONS OF SECTION 115JA/JB(2)(VII). THIS PLEA OF THE ASSE SSEE IS DEVOID OF MERIT. THE BOOK PROFIT OF THE ASSESSEE IS TO BE CO MPUTED WITH REFERENCE TO EACH ASSESSMENT YEAR AND THE PROVISION S OF SECTION 115JA(2)(VII) CANNOT BE APPLIED FOR ASSESSMENT YEAR 2000-01 AFTER THE ASSESSEE WENT OUT OF THE SICKNESS. THE B OOK PROFIT EARNED BY THE ASSESSEE IN THE ASSESSMENT YEAR 1994- 95 AT RS. 375 30 28 000 HAS NO RELEVANCE TO THE ASSESSMENT YE AR 2000-01 SO AS TO DETERMINE THE DEDUCTION U/S 115JA(2)(VII). THE YEAR OF ASSESSMENT AND THE YEAR OF SICKNESS ARE TO BE ONE A ND SAME. AS PER THE PROVISIONS OF SECTION 115JA/JB(2)(VII) WHIL E COMPUTING THE BOOK PROFIT IN ANY ASSESSMENT YEAR DURING THE P ERIOD OF SICKNESS IF THERE IS ANY BOOK PROFIT IN THAT ASSES SMENT YEAR THAT BOOK PROFIT INTER-ALIA HAS TO BE DEDUCTED FROM THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSE E. IN OUR OPINION THE FINDINGS OF THE CIT(A) IS JUSTIFIED . IT IS VERY MUCH CLEAR THAT THE PERIOD HAS BEEN PRESCRIBED IN THE ACT ITSELF AN D THAT PERIOD IS THE TIME FRAME OF THE PREVIOUS YEAR IN WHICH THE COMPANY HAS BECOME A SICK INDUSTRIAL UNDERTAKING TO THE END OF THE ASST. YEAR IN WHICH THE COMPANY RECOVERS FROM S ICKNESS OR IN OTHER WORDS THE NET WORTH OF SUCH COMPANY BECOMES EQUAL TO OR EXCEEDS THE ACCUMULATED LOSSES. THIS IS AN UNAMBIG UOUS AND CLEAR TIME FRAME DURING WHICH WHATEVER PROFITS EARN ED BY THE COMPANY SHALL BE DEDUCTED IF AT ALL THERE IS ANY P ROFIT DURING SOME PERIOD OR SOME MONTHS OR DUE TO SOME OTHER UNI TS OF THE ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 18 SAME COMPANY THEN FOR CALCULATION OF BOOK PROFITS U/S 115JA SUCH PROFITS OF THE SICK PERIOD OF SUCH UNIT AND SU CH MONTHS OR YEAR SHALL BE DEDUCTED. THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE IS HEREIN IS VERY ATTRACTIVE BUT THE INFERENCE DOES NOT LOGICALLY FOLLOW. THE PURPOSE OF INTRODUCTION OF SECTION 115JA/JB IS TO BRING CERTAIN ZERO TAX PAYMENT COMPA NIES INTO TAX NET. THE LEGISLATIVE EXPEDIENCE ADOPTED TO ACH IEVE THIS OBJECT REQUIRES TO BE GIVEN EFFECT ON ITS OWN LANGUAGE. THE SECTION 115JA/JB OPENS WITH THE NON OBSTANTE CLAUSE AND DIR ECTS THAT WHEN THE TOTAL INCOME OF THE ASSESSEE COMPUTED UNDE R THE ACT IN ANY PREVIOUS YEAR IS LESS THAN THE 30% OF ITS BO OK PROFIT THE TOTAL INCOME OF SUCH ASSESSEE CHARGEABLE TO TAX FOR THE RELEVANT PREVIOUS YEAR SHALL BE DEEMED TO BE AMOUNT REQUIRED TO 30% OF SUCH BOOK PROFIT. FURTHER THE PROVISIONS OF SECT ION PROVIDE TO MAKE CERTAIN ADJUSTMENTS. THE ONE OF THE ADJUSTMEN T PRESCRIBED UNDER THIS PROVISION IS UNDER SECTION 11 5JA(2)(VII)/JB (2)(VII). THIS PROVISION IS VERY CLEAR AND UNAMBIGU OUS. AS LONG AS THERE IS NO AMBIGUITY IN THE STATUTORY LANGUAGE RESORT TO ANY INTERPRETATIVE PROCESS TO UNFOLD THE LEGISLATIVE IN TENT BECOMES IMPERMISSIBLE. THE SUPPOSED INTENTION OF THE LEGIS LATURE CANNOT THEN BE APPEALED TO WHITTLE DOWN THE STATUTORY LANG UAGE WHICH IS OTHERWISE UNAMBIGUOUS. IF THE INTENDMENT IS NOT IN THE WORDS USED IT IS NOWHERE ELSE. THE NEED FOR INTERPRETAT ION ARISES WHEN THE WORDS USED IN THE STATUTE ARE ON THEIR OWN TER MS AMBIVALENT (UNSURE) AND DO NOT MANIFEST THE INTENTI ON OF THE LEGISLATURE. THE WORDS IN THE STATUTE MUST PRIMA FACIE BE GIVEN THEIR ORDINARY MEANINGS. WHERE THE GRAMMATICAL CON STRUCTION IS CLEAR MANIFEST AND WITHOUT DOUBT THAT CONSTRUCTIO N OUGHT TO PREVAIL UNLESS THERE ARE SOME STRONG AND OBVIOUS RE ASONS TO THE CONTRARY. IT HAS TO BE REITERATED THAT THE OBJECT OF INTERPRETATION OF A STATUTE IS TO DISCOVER THE INTENTION OF PARLIA MENT AS EXPRESSED IN THE ACT. THE DOMINANT PURPOSE IN CONS TRUCTING A ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 19 STATUTE IS TO ASCERTAIN THE INTENTION OF THE LEGISL ATURE AS EXPRESSED IN THE STATUTE CONSIDERING IT AS A WHOLE AND IN ITS CONTEXT. THAT INTENTION AND THEREFORE THE MEANI NG OF THE STATUTE IS PRIMARILY TO BE SOUGHT IN THE WORDS USE D IN THE STATUTE ITSELF WHICH MUST IF THEY ARE PLAIN AND U NAMBIGUOUS BE APPLIED AS THEY STAND. ARTIFICIAL AND UNDULY LATIT UDINARIAN (LIBERAL/BROAD) RULES OF CONSTRUCTION WHICH WITH T HEIR GENERAL TENDENCY TO GIVE THE TAXPAYER THE BREAKS ARE OUT OF PLACE WHERE THE LEGISLATION HAS A FISCAL MISSION. INDEED TAXA TION HAS CEASED TO BE REGARDED AS AN IMPERTINENT INTRUSION INTO TH E SACRED RIGHTS OF PRIVATE PROPERTY AND IT IS NOW INCREASINGLY REG ARDED AS A POTENT FISCAL TOOL OF STATE POLICY TO STRIKE THE RE QUIRED BALANCE REQUIRED IN THE CONTEXT OF THE FELT NEEDS OF THE TI ME BETWEEN THE CITIZENS CLAIM TO ENJOYMENT OF HIS PROPERTY ON THE ONE HAND AND THE NEED FOR AN EQUITABLE DISTRIBUTION OF THE BURDE NS OF THE COMMUNITY TO SUSTAIN SPECIAL SERVICES AND PURPOSES ON THE OTHER. ARTIFICIAL RULES OF CONSTRUCTION HAVE PROBA BLY FOUND MORE FAVOUR WITH COURTS THAN THEY HAVE EVER DESERVED. T HEIR APPLICATION IN LEGAL CONTROVERSIES HAS OFTEN TIME H AS BEEN PUSHED TO AN EXTREME WHICH HAS DEFEATED THE PLAIN A ND MANIFEST PURPOSE IN ENACTING THE LAWS. PENAL LAWS HAVE SOME TIMES HAD ALL THEIR MEANING CONSTRUED AWAY AND IN REMEDIAL LA WS REMEDIES HAVE BEEN FOUND WHICH THE LEGISLATURE NEVER INTENDE D TO GIVE. SOMETHING AKIN TO THIS HAS BEFALLEN THE REVENUE LAW S. THERE ARE INDEED STRONG AND COMPELLING CONSIDERATIONS AGAINS T THE ADOPTION OF THE TEST SUGGESTED BY LEARNED AR. IN TERPRETING THE MEANING OF THE SECTION 115JA (2)(VII)/115JB (2) (VI I) AS SUPPOSED BY THE AR WOULD PERHAPS LEAD TO A POSITIONS AND RE SULTS THE DIMENSIONS AND IMPLICATIONS OF WHICH ARE NOT TO SAY THE LEAST FULLY EXPLORED. IN OUR OPINION IN THIS CASE LIBER AL INTERPRETATION IS NOT POSSIBLE AND INTERPRETATION HAS TO BE AS PER THE WORDING OF THIS SECTION. IF THE WORDINGS OF THE SECTIONS ARE CLEAR THEN ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 20 BENEFITS WHICH ARE NOT AVAILABLE UNDER THE SECTION CANNOT BE CONFERRED BY IGNORING OR MISINTERPRETING WORDING IN THAT SECTION. AS NOTED EARLIER THE SICK COMPANY WILL NOT LIABLE FOR MAT TILL SUCH TIME NET WORTH TURNS POSITIVE. THE DEDUCTION CANNOT GO BEYOND THE YEAR IF THE COMPANY CEASES TO BE SICK UN IT. THE DEDUCTION CANNOT BE CLAIMED YEAR AFTER YEAR AS INTE RPRETED BY THE ASSESSEE EVEN AFTER ASSESSEE RECOVERED FROM THE SICKNESS. IN OUR OPINION THERE IS NO MERIT IN THE ARGUMENT OF T HE ASSESSEES COUNSEL AND THE SAME IS TO BE DISMISSED AS DEVOID O F MERIT IN THE ASSESSEES APPEALS IN ITA NO.1261/H/2003 446/H/20 06 447/H/2006 AND 491/H/2007. 24. THE NEXT ISSUE IS WITH REGARD TO EXCLUSION OF PRIOR PERIOD EXPENDITURE FROM THE NET PROFIT WHILE COMPUT ING BOTH UNDER NORMAL COMPUTATION AND UNDER SECTION 115JA & 115JB. THIS ISSUE IS COMMON IN ITA NOS.465/H/2005 447/H/0 6 491/H/2007 AND 243/H/2008 WHICH IS RELEVANT TO ASS ESSMENT YEARS 2001-02 2002-03 2003-04 AND 2004-05 RESPECT IVELY. 25. THE LEARNED AR FOR THE ASSESSEE SUBMITTED TH AT THE CIT VIJAYWADA IN HIS ORDER DATED 9.2.2005 PASSED U/ S 263 FOR THE ASST. YEAR 1997-98 HAS VERIFIED THE ENTIRE PRIO R PERIOD EXPENSES AND ALLOWED THE SAME AND PARTICULARLY HE DREW OUR ATTENTION TO THE PARA 3.3 & 3.4 OF THE SAID ORDER WHICH IS READ AS UNDER: THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE FURTHER SUBMITTED THAT FINANCE CODE WISE AREA WISE DETAILED EXPENDITURE INCURRED IN THE ASSESSMENT YEA R 1997-98 PERTAINING TO EARLIER YEARS. FOR 14 AREAS AND 22 FINANCIAL CODE WISE DETAILS WERE FURNISHED ON VARI OUS HEADS. THE VARIOUS HEADS ARE SALARIES CONSUMPTION OF STORES AND SPARES COAL TRANSPORT DEPRECIATION PERTAINING TO EARLIER YEARS POWER AND FUEL RATES AND TAXES MAINTENANCE CHARGES ON RAILWAYS SIDINGS. P RIOR PERIOD COAL SALES ADJUSTMENTS WELFARE EXPENSES IN TEREST EXPENDITURE ON REMOVAL OF OVERBURDEN ETC. THE ASSE SSEE HAS FURNISHED IN FOUR VOLUMES THE DETAILS OF VOUCH ERS ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 21 HEAD WISE AREA WISE FINANCIAL CODE WISE. IT WAS FOUND THAT FOR A VAST COMPANY HAVING GIGANTIC OPERATION SUCH TYPE OF PRIOR PERIOD EXPENDITURE ARE NORMAL. IT IS TO BE SEEN WHETHER THE ENTIRE EXPENDITURE OF RS.19.25 CRO RES CRYSTALLIZED OR NOT. NOT ONLY FOR THE BALANCE OF R S.6.21 CRORES BUT FOR THE FULL AMOUNT OF RS.19.25 CRORES. PRIOR PERIOD EXPENDITURE DETAILS WERE ANALYSED IN D EPTH. IT HAS BEEN FOUND THAT SUCH EXPENDITURE AS CLAIMED ACTUALLY CRYSTALLISED DURING THE ASSESSMENT YEAR 19 97-98 PERTAINING TO PRIOR PERIOD EXPENDITURE. IN VIEW OF THIS THE CLAIM OF THE ASSESSEE FOR PRIOR PERIOD EXPENDIT URE OF RS.19 25 91 355/- WAS RIGHTLY TO BE ALLOWED. 26. THE AR SUBMITTED THAT ALL THE DETAILS OF THE P RIOR PERIOD EXPENSES FINANCIAL CODE WISE WAS SUBMITTED B OTH BEFORE THE ASSESSING OFFICER AND CIT (A). HE DREW OUR ATTE NTION TO THE DETAILS OF THE PRIOR PERIOD ENCLOSED WITH THE WRITT EN SUBMISSIONS MADE BEFORE THE CIT (A) AND ALSO BEFORE THE ASSESSI NG OFFICER FOR THE AY 2004-05. IN VIEW OF THE ABOVE THE SAME SHOU LD BE ALLOWED AS DEDUCTION IN THE COMPUTATION OF INCOME U NDER NORMAL PROVISIONS. COMING TO THE ISSUE OF ADJUSTME NT OF PRIOR PERIOD EXPENSES WHILE COMPUTING BOOK PROFIT UNDER S ECTION 115JA/JB HE SUBMITTED THAT THE ASSESSING OFFICER WA S NOT EMPOWERED TO MAKE ANY ADJUSTMENT WHICH IS NOT SPECI FICALLY MENTIONED IN THE SAID SECTION IN VIEW OF THE HONB LE SUPREME COURTS DECISION IN THE CASE OF APOLLO TYRES LTD. 2 55 ITR 273 (SC). HE PRAYED TO DELETE THE ADJUSTMENTS OF PRIOR PERIOD EXPENSES. 27. THE LEARNED DR SUBMITTED THE CIT(A) HAS RIGHT LY UPHELD THE DISALLOWANCE ON ACCOUNT OF PRIOR PERIOD EXPENSES BECAUSE IT IS NOT ONE OF THE PRESCRIBED ADJUSTMENTS TO BOOK PROFIT AS PER SECTION 115JB. THE PROVISIONS OF THE SECTION AND THE LAW AS LAID DOWN BY THE APEX COURT IN THE CASE OF APOLLO TYRES LTD. VS. CIT 255 ITR 273 (SC) ARE VERY CLEAR THAT BOOK PROFIT SHOULD BE STRICTLY CONSTRUED AS THAT WHICH I S COMPUTED IN TERMS OF SCHEDULE VI OF THE COMPANIES ACT. HE PLAC ED RELIANCE ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 22 ON THE ORDER OF THE TRIBUNAL ALLAHABAD BENCH IN TH E CASE OF JK COTTON SPINNING & WEAVING MILLS CO. LTD. VS ACIT ( 60 ITD 99) WHEREIN HELD THAT EXPENSES RELATING TO EARLIER YEAR S COULD BE ADDED BACK WHILE COMPUTING BOOK PROFITS. HE ALSO PL ACED RELIANCE ON THE JUDGEMENT IN THE CASE OF CIT VS. K RISHNA OIL EXTRACTION LTD. 232 ITR 928 (MP) AND ITO VS. KANCH AN GANGA ESTATES P LTD. 63 TTJ 553 (MUM). 28. WE HAVE HEAD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ABOVE ISSUE I N ASSESSMENT YEAR 2000-01 IS TAKEN UP BY THE CIT BY INVOKING THE PROVISIONS OF S.263. IN OTHER ASSESSMENT YEARS IT WAS DISALLO WED WHILE COMPUTING THE ASSESSMENT U/S 143(3). THIS PRIOR PE RIOD ADJUSTMENT IS DISALLOWED WHILE COMPUTING THE INCOME U/S 115JB IN THE ASSESSMENT YEAR 2000-01 AND 2002-03 AND UNDE R NORMAL PROVISION IN THE ASSESSMENT YEAR 2003-04 AND 2004-0 5. IN OUR OPINION EARLIER EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE YEARS UNDER CONSIDERATION THE DEDUCTION OF SUCH EXPENSES EITHER FROM THE BOOK PROFIT OR FROM NORMAL COMPUTATION OF INCOME CANNOT BE ALLOWED. THE INCOMES OF THE PR EVIOUS YEAR UNDER CONSIDERATION ALONE HAVE TO BE COMPUTED BOTH UNDER NORMAL COMPUTATION AND U/S 115JA/JB. WE FIND FORCE IN THE ARGUMENT OF THE DEPARTMENTAL REPRESENTATIVE AND REL IANCE PLACED BY HIM IS WELL FOUNDED AND THE SAME IS TO BE UPHELD . THIS GROUND OF THE ASSESSEE IN ALL THE APPEALS IS DISMIS SED. 29. THE NEXT GROUND IS WITH REGARD TO ADDITION OF PROVISION FOR BAD AND DOUBTFUL DEBTS AND OTHER PROV ISIONS DEBITED TO THE PROFIT AND LOSS ACCOUNT WHILE COMPUT ING BOOK PROFIT. THIS ISSUE IS COMMON IN ITA NO.465/H/05 . 446/H/2006 447/H/2006 AND 491/H/07 RELATING TO ASSESSMENT YEARS 2000-01 2001-02 2002-03 & 2003- 04 RESPECTIVELY ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 23 30. THE AR SUBMITTED THAT THERE IS A RETROSPECTIV E AMENDMENT BY FINANCE ACT 2009 WHEREIN THERE IS AN INSERTION OF A NEW CLAUSE TO SEC. 115JA/JB VIZ. CLAUSE (G ) AND (I) WHICH READ AS FOLLOWS: THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION OF VALUE OF ANY ASSET. 31. HE SUBMITTED AS FOLLOWS: I) FOR THE ASSESSMENT YEAR 2000-01 AT THE TIME OF PASSING OF THE ORDER U/S 263 THE ASSESSMENT ORDER W AS NOT ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE WITH REGARD TO BAD AND DOUB TFUL DEBTS AS THESE WERE ALLOWABLE WHILE COMPUTING BOOK PROFITS. THEREFORE ORDER U/S 263 MAY BE SQUASHED. II) FOR THE ASSESSMENT YEAR YEAR 2001-02 THE ASSESS ING OFFICER ISSUED NOTICE U/S 147 AT THE TIME OF ISSU E OF NOTICE THERE IS NO INCOME ESCAPED ASSESSMENT AS BAD AND DOUBTFUL DEBTS CANNOT BE ADJUSTED WHILE COMPUTING BOOK PROFITS. III) FOR THE ASSESSMENT YEAR 2002-03 2003-04 AND 2004-05 AT THE POINT OF PASSING THE ASSESSMENT ORDE R THE ASSESSING OFFICER WAS NOT EMPOWERED TO MAKE ADJUSTMENT WHILE COMPUTING THE BOOK PROFITS. THE A R SUBMITTED THAT ACCORDING TO THE PART 3 TO THE SCHED ULE VI OF THE COMPANIES ACT 1956 PROVISION IS BY ITSE LF AN ESTIMATED ASCERTAINED LIABILITY; THEREFORE THE SAME MAY NOT BE ADJUSTED WHILE COMPUTING THE BOOK PROFITS. IV) THE AR RELIED ON THE SUPREME COURT JUDGEMENT IN THE CASE OF CIT VS. HCL COMNET SYSTEMS AND SERVICES LTD. (305 ITR 409). ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 24 32 THE LEARNED DR SUBMITTED THAT THE CIT(A) WAS RIGHT IN UPHOLDING THE ADDITION MADE ON ACCOUNT OF PROVIS ION FOR DOUBTFUL DEBTS. HE RELIED ON THE JUDGEMENT OF M ADRAS HIGH COURT IN THE CASE OF DCIT VS BEARDSELL LTD. (244 IT R 256) WHEREIN IT WAS HELD AS FOLLOWS: IF A DEBT HAD BECOME IRRECOVERABLE THE SAME COULD BE WRITTEN OFF AND DEDUCTED FROM THE PROFIT OF THE BUSINESS. A DEBT THE RECOVERY OF WHICH WAS DOUBTF UL COULD NOT BE TERMED TO BE AN ASCERTAINED LIABILITY AS MENTIONED U/S 115J OF THE ACT AND COULD NOT BE EXCLUDED FROM THE BOOK PROFITS. ACCORDINGLY THE CONCLUSION OF THE TRIBUNAL IN DIRECTING THE ASSESSI NG OFFICER TO RECTIFY THE ALLEGED MISTAKE OF INCLUSION OF THE UNASCERTAINED LIABILITY IN THE BOOK PROFIT COUL D NOT BE UPHELD. 33 HE SUBMITTED THAT SUBSEQUENT CASE LAW IN THIS REGARD IS PERTINENT AND MORE RELEVANT TO THE FACTS OF THIS CASE. HE RELIED ON THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF CIT VS. HCL COMNET SYSTEMS AND SERVICES LTD. (2008) (305 ITR 409). 34 HE SUBMITTED THAT THE FINANCE ACT 2009 INTRODUCED SUB CLAUSE (1) TO EXPLANATION 1 TO SECTI ON 115JB (2) WITH RETROSPECTIVE EFFECT FROM 1.4.2001 TO THE EFFE CT THAT ANY AMOUNT SET ASIDE AS A PROVISION FOR DIMINUTION IN T HE VALUE OF ANY ASSET IS A PRESCRIBED ADJUSTMENT FOR COMPUTING INCOME UNDER MAT PROVISIONS. SINCE THIS AMENDMENT IS RETR OSPECTIVE IN OPERATION EFFECT HAS TO BE GIVEN TO IT IN THE ASSE SSMENT PROCEEDINGS THAT ARE PENDING BEFORE THE TRIBUNAL I N THE PRESENT CASE. HE PLACED RELIANCE ON THE SPECIAL BENCH DECI SION OF THE ITAT (DELHI) IN THE CASE OF AQUARIUS TRAVELS P LTD. VS. ITO (111 ITD 53). EXPLAINING THE SCOPE AND APPLICABILITY OF RETROSPECTIVE AMENDMENTS AND RELYING ON THE PROPOSITION OF LAW LA ID DOWN BY THE SUPREME COURT IN CIT VS. STRAW PRODUCTS LTD. (6 0 ITR 156) ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 25 IT WAS HELD THAT THE AMENDED LAW HAS TO BE GIVEN EF FECT BY ASSESSEE APPELLATE AUTHORITIES AND COURTS IF THE MA TTER IS PENDING BEFORE THEM. FOR THIS REASON ALSO THE ADD ITION MADE TO BOOK PROFITS BY THE ASSESSING OFFICER ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS DESERVES TO BE UPHELD. 35 WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. IN OUR OPINION THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE JUDGEMENT OF SUPREME COURT IN THE CASE OF CIT VS. HCL COMNET SYSTEMS AND SERVICES LTD. (2008) (305 ITR 409) WHER EIN IT WAS HELD THAT ANY PROVISION MADE TOWARDS IR-RECOVERABIL ITY OF A DEBT CANNOT BE SAID TO BE A PROVISION FOR LIABILITY. TH EREFORE ANY PROVISION FOR BAD AND DOUBTFUL DEBT IS IN FACT A PR OVISION MADE FOR A PROBABLE DIMINUTION OF THE VALUE OF AN ASSET. ACCORDINGLY WE INCLINED TO DISMISS THE ABOVE GROUND TAKEN BY TH E ASSESSEE. 36 THE NEXT GROUND IS WITH REGARD TO CHARGEABILIT Y OF INTEREST U/S 234B AND 234C WHILE COMPUTING INCOME U /S 115JA/JB. THIS ISSUE IS COMMON IN ITA NOS. 1261/H/ 2003 446/H/2006 AND 447/H/2006 RELEVANT TO THE ASSESSM ENT YEARS 2000-01 2001-02 AND 2002-03 RESPECTIVELY. 37 THE AR SUBMITTED THAT WHEN INCOME IS COMPUTED UNDER THE PROVISIONS OF SECTION 115JA FOR ASSESSMEN T YEAR 2000- 01 AND U/S 115JB FOR THE ASSESSMENT YEAR 2001-02 AN D 2002- 03 INTEREST U/S 234B AND 234C IS NOT CHARGEABLE. T HE AR RELIED ON THE JUDGEMENT IN THE CASE OF KWALITY BISCUITS LT D. VS. CIT 243 ITR 519 (KAR.). THE DR RELIED ON THE ORDER OF T HE CIT(A). 38 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN OUR OPINION THIS ISSUE IS SQUARELY COVERED BY THE RECENT JUDGEMENT OF SUPREME COURT IN THE CASE OF JCIT VS. ROLTA INDIA LTD. (196 TAXMAN 5 94) (SC) ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 26 WHEREIN IT WAS HELD THAT INTEREST IS CHARGEABLE U/ S 234B & 234C ON FAILURE TO PAY ADVANCE TAX IN RESPECT OF TA X PAYABLE U/S 115JA/JB. ACCORDINGLY WE UPHELD THE ORDER OF THE CIT(A) ON THIS ISSUE. 39. THE NEXT GROUND IN ITA NO.491/H/2007 IS WITH REGARD TO NON GRANTING OF MAT CREDIT U/S 115JA REL ATING TO INCREASED MAT PAID FOR ASSESSMENT YEAR 2000-01. 40 THIS ISSUE IS INVOLVED IN THE ASSESSMENT YEARS 2003- 04. THE ASSESSEES COUNSEL SUBMITTED THAT MAT TAX PAID IN THE EARLIER YEARS HAS TO BE CONSIDERED AS ADVANCE TAX P AID AND INTEREST U/S 234B AND C HAVE TO BE CALCULATED ONLY AFTER GIVING CREDIT FOR THE MAT TAX U/S 115JA. 41. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. IN OUR OPINION THE INTEREST U/S 234B IS TO BE CHARGED AFTER ALLOWING ADJUSTMENT OF MAT CREDIT U/S 115JA/JB. WE PLACE RELIANCE ON THE JUDGEMENT O F MADRAS HIGH COURT IN THE CASE OF CIT VS. CHEMPLAST SANMAR LTD. & OTHER (314 ITR 231). THIS GROUND TAKEN BY THE ASSE SSEE IS ALLOWED. 42. NOW WE WILL TAKE UP THE APPEAL IN ITA NO.464/H/2005 RELATING TO ASSESSMENT YEAR 1997-98 . 43. THE FIRST GROUND HEREIN IS WITH REGARD TO INV OKING THE PROVISIONS OF SECTION 263 OF THE IT ACT AND OTH ER GROUNDS BY THE ASSESSEE IS WITH REGARD TO ALLOWABILITY OF CLAI M U/S 35E OF THE IT ACT. 44. THE AR SUBMITTED THAT THE CIT(A) VIJAYAWADA P ASSED U/S 263 DIRECTING THE ASSESSING OFFICER TO ALLOW EN TIRE PRIOR PERIOD EXPENSES AND DISALLOW THE DEDUCTION U/S 35E IN ABSENCE ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 27 OF PROFITS TO DEDUCT THE SAME. THE AR FURTHER SUBM ITTED THAT THE ASSESSMENT ORDER IS NOT ERRONEOUS IN SO FAR AS PREJ UDICIAL TO THE INTEREST OF THE REVENUE. THE ENTIRE PRIOR PERIOD E XPENSES WERE ALLOWABLE AS THE LIABILITY HAD CRYSTALLISED DURING THE RELEVANT PREVIOUS YEAR. THE ISSUE OF NOT ALLOWING THE CLAIM FOR DEDUCTION U/S 35E ON ACCOUNT OF PROSPECTING EXPENDITURE THAT EVEN IF ALLOWED THE TOTAL LOSS INCLUDING THE S.35E EXPENDI TURE WAS CARRIED FORWARD FOR SET OFF AS PER SECTION 72. THE CIT IGNORING THIS FACT GAVE A DIRECTION DISALLOWING THE EXPENDIT URE U/S 35E. THE AR SUBMITTED THAT AS PER SECTION 35(4) THE UNAB SORBED EXPENSES ARE TO BE CARRIED FORWARD FOR 10 YEARS TO BE SET OFF IN THE SUBSEQUENT ASSESSMENT YEARS. HE DREW OUR ATTE NTION TO THE PROVISIONS OF SECTION 35 SUB SECTIONS 4 WHICH READS AS UNDER: (4) THE DEDUCTION TO BE ALLOWED U/S.S. (1) FOR ANY RELE VANT PREVIOUS EAR SHALL BE A) AN AMOUNT EQUAL TO ONE TENTH OF THE EXPENDITURE SPECIFIED IN S.S. (2) SUCH ONE TENTH BEING HEREAFTE R IN THIS SUB SECTION REFERRED TO AS THE INSTALMENT OR B) SUCH AMOUNT AS IS SUFFICIENT TO REDUCE TO NIL THE I NCOME AS COMPUTED BEFORE MAKING THE DEDUCTION UNDER THIS SECTION OF THAT PREVIOUS YEAR ARISING FROM THE COMM ERCIAL EXPLOITATION WHETHER OR NOT SUCH COMMERCIAL EXPLOITATIO0N IS A AS A RESULT OF THE PREVIOUS YEAR OR DEVELOPMENT REFERRED TO IN SUB SECTION (2) OF ANY M INE OR OTHER NATURAL DEPOSIT OF THE MINERAL OR ANY ONE OR MORE OF THE MINERALS IN A GROUP OF ASSOCIATED MINERALS A S AFORESAID IN RESPECT OF WHICH THE EXPENDITURE WAS INCURRED WHICHEVER AMOUNT IS LESS: C) PROVIDED THAT THE AMOUNT OF THE INSTALMENT RELATING TO ANY RELEVANT PREVIOUS YEAR TO THE EXTENT TO WHICH IT REMAINS UN-ALLOWED SHALL BE CARRIED FORWARD AND AD DED TO THE INSTALMENT RELATING TO THE PREVIOUS YEAR NEX T FOLLOWING AND DEEMED TO BE PART OF THAT INSTALMENT AND SO ON FOR SUCCEEDING PREVIOUS YEARS SO HOWEVER THAT NO PART OF ANY INSTALMENT SHALL BE CARRIED FORWARD BEY OND THE TENTH PREVIOUS YEAR AS RECKONED FROM THE YEAR O F COMMERCIAL PRODUCTION. 45. THE DR SUBMITTED THAT THE ASSESSMENT ORDER DA TED 28.2.2005 WAS REVISED BY AN ORDER U/S 263 DATED 9.2 .2005 WHEREBY THE ASSESSEES CLAIM FOR DEDUCTION U/S 35E AMOUNTING TO RS.5 18 10 535/- WAS DIRECTED FOR DISALLOWANCE. HE SUBMITTED ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 28 THAT CONTRARY TO THE ASSESSEES GROUND NO.2 THAT TH E ASSESSING OFFICER ALLOWED THE CLAIM AFTER DUE CONSIDERATION O F ITS ALLOWABILITY THERE IS NOTHING IN THE WRITTEN SUBMI SSION BEFORE THE CIT OR IN THE STATEMENT OF FACTS NOW FURNISHED THAT A CONSCIOUS DECISION TO THIS EFFECT WAS TAKEN BY THE ASSESSING OFFICER. THE CIT ON AN EXAMINATION OF THE RECORDS FOUND THAT THE CLAIM OF THE ASSESSEE WAS CONTRADICTED BY CLAUS E (V) OF SECTION 35E. IT STANDS TO REASON THAT SUCH CLAIMS ARE NOT ROUTINE AND THAT THEY WERE AVAILABLE FOR AN EXAMINA TION BY THE ASSESSING OFFICER. WHEN THE FACTS DEMAND AN ENQUIR Y INTO A VERACITY OF THE CLAIM AND THE ASSESSMENT HAS BEEN C ONCLUDED WITHOUT SUCH AN ENQUIRY THIS COULD AMOUNT TO AN ER ROR WHICH IS PREJUDICIAL TO THE INTERESTS OF REVENUE WITHIN THE MEANING OF SECTION 263 OF THE IT ACT. 46. HE PLACED RELIANCE ON THE FOLLOWING JUDGEMENT S: 1. ASHOK LEYLAND VS. CIT (260 ITR 599 (MAD.) 2. COLOCRACT KASHMIRA CERAMIC COMPOUND VS. ITO (105 ITD 599) (MUM) 3. TEJINDER SINGH MAKKER VS ACIT ETC. 61 ITD 57(M UM- TM) 47. HE SUBMITTED THAT THE ALTERNATIVE GROUND OF T HE ASSESSEE IS THAT THE EXPENDITURE IS REVENUE IN NATU RE AND HENCE QUALIFIES FOR ALLOWANCE U/S 37 IS NOT ACCEPTABLE. THIS IS BECAUSE PROSPECTING EXPENDITURE IN THE MINING SECTOR IS SPE CIFICALLY PROVIDED FOR U/S 35E. THIS BEING SO IT IS SPECIFI CALLY EXCLUDED BY THE OPENING WORDS OF SEC.37 WHICH SPECIFICALLY E XCLUDES ANY EXPENDITURE THAT IS PROVIDED FOR FROM SECTION 30 TO 36. THE UNADJUSTED COMPONENT OF THE INSTALMENT SPECIFIED IN SECTION 35E HAS TO BE CARRIED FORWARD IN ACCORDANCE WITH SECTIO N 35E ALONE. THIS IS DISTINGUISHABLE FROM A LOSS THAT IS CARRIED FORWARD AND SET OFF U/S 70 TO 72. ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 29 48. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. SECTION 35(IV) IS READS AS FOLLOWS: A) AN AMOUNT EQUAL TO ONE TECH OF THE EXPENDITURE SPECIFIED IN SUB SECTION (2) (SUCH ONE TENTH BEING HEREAFTER IN THE SUB SECTION REFERRED TO AS THE INSTALMENT); OR B) SUCH AMOUNT AS IS SUFFICIENT TO REDUCE TO NIL T HE INCOME (AS COMPUTED BEFORE MAKING THE DEDUCTION UND ER THIS SECTION) OF THAT PREVIOUS YEAR ARISING FROM TH E COMMERCIAL EXPLOITATION (WHETHER OR NOT SUCH COMMER CIAL EXPLOITATION IS AS A RESULT OF THE OPERATIONS OR DEVELOPMENT REFERRED TO IN SUB SECTION (2) OF ANY M INE OR OTHER NATURAL DEPOSIT OF THE MINERAL OR ANY ONE OR MORE OF THE MINERALS IN A GROUP OF ASSOCIATED MINERALS A S AFORESAID IN RESPECT OF WHICH THE EXPENDITURE WAS INCURRED WHICHEVER IS LESS PROVIDED THAT THE AMOUNT OF THE INSTALMENT RELATING TO ANY RELEVANT PREVIOUS YEAR TO THE EXTENT TO WHICH IT REMAINS UNALLOWED SHALL BE CARRIED FORWARD AND ADD ED TO THE INSTALMENT RELATING TO THE PREVIOUS YEAR NEX T FOLLOWING AND DEEMED TO BE PART OF THAT INSTALMENT AND SO ON FOR SUCCEEDING PREVIOUS YEARS SO HOWEVER T HAT NO PART OF ANY INSTALMENT SHALL BE CARRIED FORWARD BEY OND THE TENTH PREVIOUS YEAR AS RECKONED FROM THE YEAR O F COMMERCIAL PRODUCTS. 49. FROM THE ABOVE IT IS CLEAR THAT OF THERE IS INCOME FROM COMMERCIAL EXPLOITATION THE EXPENDITURE WILL BE ALLOWED TO THE EXTENT OF IT BECOMES NIL. IN THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE HAS INCURRED NET LOSS O F RS.366.35 CRORES HENCE THE ASSESSEE IS NOT ENTITLED FOR ANY DEDUCTION U/S 35E . THE ASSESSING OFFICER HAS COMPLETED THE ASSE SSMENT IN A MECHANICAL MANNER WITHOUT EXAMINING THE FACTS OF TH E CASE. THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS BEC AUSE THE ASSESSING OFFICER HAS NOT CARRIED ON THE REQUIRED E NQUIRY AND HE HAS PASSED THE ORDER IN A ROUTINE MANNER. THE ISSU E REQUIRES ENQUIRY ON THE PART OF ASSESSING OFFICER WHICH HE F AILED TO DO SO ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 30 AND THE LACK OF ENQUIRY ON THE PART OF THE ASSESSIN G OFFICER WHICH HAS RESULTED IN PASSING OF ERRONEOUS ORDER AND THAT ORDER IS PREJUDICIAL TO THE INTEREST OF REVENUE WHICH IS TH E REASON FOR INVOKING THE PROVISIONS OF S.263 BY THE ASSESSING O FFICER. WE ARE PLACING RELIANCE ON THE JUDGEMENT OF THE MADRAS HIGH COURT IN THE CASE OF ASHOK LAYLAND VS. CIT (260 ITR 599) AND ALSO THE ORDER OF MUMBAI BENCH IN THE CASE COLOCRAFT KASHMIR A CERAMIC COMPOUND VS. ITO (105 ITD 599) MUM. 50. THE ASSESSEE HAS MADE ALTERNATIVE CLAIM THAT IT IS A REVENUE EXPENDITURE AND TO BE ALLOWABLE U/S 37. TH IS IS NOT ACCEPTABLE BECAUSE PROSPECTING EXPENDITURE IN THE MINING SECTOR IS SPECIFICALLY PROVIDED U/S 35E. THIS BEIN G SO IT IS SPECIFICALLY EXCLUDED BY OPENING WORDS OF SECTION 3 7 WHICH IS SPECIFICALLY EXCLUDE ANY EXPENDITURE THAT IS PROVID ED FOR FROM SECTION 32 TO 36. 51. THE ASSESSEES COUNSEL HAS ALSO MADE A PLEA B EFORE US THAT EVEN IF ALLOWED THE TOTAL LOSS INCLUDING TH E EXPENDITURE U/S 35E WAS CARRIED FORWARD SET OFF AS PER SECTION 72. ACCORDING TO AR THE CIT IGNORED THESE FACTS AND GAVE A DIREC TION DISALLOWING THE EXPENDITURE U/S 35E. THIS ARGUMENT OF AR IS MISPLACED. THE UNADJUSTED COMPONENT OF THE EXPENDI TURE U/S 35E HAS TO BE CARRIED FORWARD IN ACCORDANCE WITH TH E SECTION 35E ALONE. THIS IS DISTINGUISHABLE FROM A LOSS THA T IS CARRIED FORWARD AND SET OFF U/S 70 TO 72. IN OUR OPINION I NVOKING OF PROVISIONS OF SECTION 263 BY CIT IS JUSTIFIED AND T HE GROUNDS OF ASSESEE IN ITS APPEAL ARE DISMISSED. THE APPEAL OF THE ASSESSEE IN ITA NO.464/H/2005 IS DISMISSED. 52. THE ISSUES IN ASSESSEES APPEAL 490/HYD/07 AR E SIMILAR TO THE ISSUES IN APPEAL NO. 465/HYD/05 AND THE APPEAL ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 31 OF THE ASSESSEE IN 490/HYD/07 IS DISMISSED ON THE S AME REASON AS STATED IN THIS ORDER WITH REFERENCE TO I.T.A. NO . 465/HYD/05. 53. COMING TO THE DEPARTMENTAL APPEAL IN I.T.A. N O. 249/HYD/08 THE FIRST GROUND IS WITH REGARD TO TREA TING THE EXPENDITURE OF RS. 119.46 LAKHS ON PLANTATIONS PERT AINING TO EARLIER ASSESSMENT YEAR 2003-04 AND DEBITED IT TO T HE P & L A/C. FOR THE INSTANT ASSESSMENT YEAR AS DEDUCTIBLE EXPEN DITURE FOR THIS YEAR. 54. BRIEF FACTS OF THE ISSUE ARE THAT THE ACTIVITIE S OF THE ASSESSEE ARE SPREAD OVER TO FOUR DISTRICTS OF ANDHR A PRADESH. IN THE TAX AUDIT REPORT THE AUDITOR HAS COMMENTED THA T THE COMPANY HAS TREATED THE EXPENDITURE ON PLANTATION A S CURRENT ASSET. DURING THE YEAR IT HAS DECIDED TO TREAT TH E EXPENDITURE INCURRED ON PLANTATION AS REVENUE EXPENDITURE AND A CCORDINGLY THE VALUE OF PLANTATION AT THE BEGINNING OF THE YEA R AMOUNTING TO RS. 119.46 LAKHS IS CHARGED TO REVENUE ALONG WITH T HE EXPENDITURE OF RS. 98.48 LAKHS INCURRED DURING THE YEAR. THE ASSESSEE HAS SUBMITTED DURING THE ASSESSMENT PROCEE DINGS THAT DURING THE YEAR IT HAS CHANGED THE ACCOUNTING POLIC Y IN RESPECT OF EXPENDITURE INCURRED ON PLANTATION AND ACCORDING LY SAME HAS BEEN CHARGED TO P & L A/C. THE EXPENDITURE INCURRE D IN EARLIER YEARS ON PLANTATION AMOUNTING TO RS. 119.46 LAKHS A ND TREATED THAT AS CURRENT ASSET THAT HAS NOW BEEN TREATED AS REVENUE EXPENDITURE. THE ASSESSEE HAS ALSO SUBMITTED THAT IN THE EARLIER YEARS THE VALUATION OF PLANTATION WAS BEING DONE O N THE PRINCIPLE APPLICABLE TO CURRENT ASSETS I.E. AT COS T OR REALISABLE VALUE WHICH EVER WAS LOWER. DUE TO HOSTILE TERRAIN AND LOW SURVIVAL RATE OF PLANTATIONS THE REALISABLE VALUE OF PLANTATIONS HAS BECOME NEGLIGIBLE AND THE ASSESSEE THEREFORE H AS ADOPTED THE REALISABLE VALUE OF PLANTATION AT NIL AND IT HAS WRITTEN OFF THE ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 32 ENTIRE OPENING BALANCE OF PLANTATIONS OF RS. 196.46 LAKHS AS UNREALISABLE. THE AO ALLOWED THE CURRENT YEAR EXPE NDITURE OF RS. 98.48 LAKHS ON PLANTATION. IN REGARD TO EXPEND ITURE OF RS. 119.4 LAKHS INCURRED IN EARLIER YEARS THE AO HAS H ELD THAT THE DEDUCTION CAN BE PERMITTED IN RESPECT OF THOSE EXPE NSES AND LOSSES WHICH ARE INCURRED IN THE RELEVANT ACCOUNTIN G YEAR. THE LOSSES AND EXPENSES INCURRED BEFORE THE COMMENCEMEN T OF THAT YEAR CANNOT BE THE SUBJECT OF ANY ALLOWANCE. IRRES PECTIVE OF THE NATURE OF SUCH EXPENDITURE IT IS TO BE DISALLOWED. THEREFORE THE ENTIRE EXPENDITURE OF RS. 119.4 LAKHS EXPENDED ON P LANTATION DURING THE PREVIOUS YEAR RELEVANT TO AY 2003-04 HAS BEEN HELD NOT RELATING TO ASSESSMENT YEAR UNDER CONSIDERATION . 55. THE CIT(A) HELD THAT THIS IS NOT THE EXPENDITUR E INCURRED ON EARLIER YEARS BUT THE CURRENT ASSET WHICH CAME INTO EXISTENCE IN EARLIER YEAR HAS BEEN VALUED AT MARKET PRICE INS TEAD OF COST AS ADOPTED IN EARLIER YEAR. THERE IS A CHANGE IN METH OD OF VALUATION OF CURRENT ASSET. THE MARKET VALUE OF TH E PLANTATION WAS VALUED AT NIL DUE TO HOSTILE TERRAIN. 56. WE HAVE HEARD BOTH THE PARTIES AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE MAIN CONTENTION O F THE REVENUE IS THAT THE EXPENDITURE ON PLANTATION DOES NOT CREATE ANY TRADING ASSET. THE ASSESSING OFFICER NOT CONSI DERED THE ISSUE WHETHER THE EXPENDITURE ON PLANTATION HAS RES ULTED IN THE CREATION OF CURRENT ASSET OR NOT. ON THE OTHER HAN D THE CONTENTION OF THE ASSESSEES COUNSEL IS THAT IN EAR LIER YEAR THE PLANTATION EXPENDITURE WAS TREATED AS CURRENT ASSET AND THE SAME WAS REFLECTED IN BALANCE SHEET. DURING THIS A SSESSMENT YEAR ASSESSEE CHANGED THE ACCOUNTING POLICY WITH RE GARD TO THIS EXPENDITURE BECAUSE OF WHICH EXPENDITURE INCURRED I N THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2003- 04 CONSIDERED AS A REVENUE EXPENDITURE. THE ARGUMENT OF THE ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 33 LEARNED AR IS CONTRADICTING EACH OTHER. ONCE HE SU BMITS THAT IT IS A CURRENT ASSET AND ON THE OTHER HAND ASSESSEE C HANGED THE ACCOUNTING POLICY WITH REGARD TO THIS EXPENDITURE. IN OUR OPINION THE ASSESSEE CANNOT CHANGE THE ACCOUNTING P OLICY AND THEREBY CANNOT CLAIM EARLIER EXPENDITURE WHICH IS C APITAL IN NATURE AS REVENUE EXPENDITURE IN THE PRESENT YEAR. HOWEVER IF THE ASSESSEE TREATED THE PLANTATION EXPENDITURE AS A CURRENT ASSET IN THE EARLIER YEAR AND THE SAME WAS VALUED A T COST OR MARKET PRICE WHICHEVER IS LOWER AND SAME METHOD TO BE FOLLOWED IN THE ASSESSMENT YEAR UNDER CONSIDERATION ALSO. B UT THERE SHOULD BE BASIS FOR SUCH VALUATION OF THE ASSET. TH E ASSESSEE HAS TO EXPLAIN HOW THE ENTIRE PLANTATION HAS BECOME VAL UE LESS. WE FIND NO EVIDENCE OR BASIS FOR VALUATION OF THE PLAN TATION. THE ASSESSING OFFICER NOT EXAMINED THE ISSUE WHETHER TH E EXPENDITURE RESULTED IN CREATION OF CURRENT ASSET/T RADING ASSET AND BASIS FOR VALUATION OF SUCH ASSET. HENCE WE SE T ASIDE THIS ISSUE AND REMAND BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO CONSIDER THE BASIS OF VALUATION OF THE P LANTATION AND WE MAKE IT CLEAR THAT THE SAME SHOULD BE VALUED AT COST OR MARKET PRICE WHICHEVER LOWER IF THE ASSESSEE HAS TR EATED THE PLANTATION AS CURRENT ASSET IN THE EARLIER YEAR. T HIS GROUND OF THE REVENUE IS PARTLY ALLOWED. 57. THE NEXT GROUND IS WITH REGARD TO ADJUSTMENT O F MAT CREDIT FOR THE PURPOSE OF CHARGING INTEREST U/S. 23 4B. WE HAVE ALREADY CONSIDERED THIS ISSUE IN ASSESSEES APPEAL IN I.T.A. NO. 491/HYD/2007 FOR THE ASSESSMENT YEAR 2003-04 AND WE HAVE PLACED RELIANCE ON THE JUDGEMENT OF MADRAS HIGH COU RT IN THE CASE OF CIT VS. CHEMPLAST SANMAR LTD. & ORS. (314 I TR 231) AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. APPLY ING THE SAME RATIO WE HOLD THAT THE CIT(A) IS JUSTIFIED IN GIVIN G SET OFF TO THE MAT CREDIT AT PAR WITH TDS AND ADVANCE TAX BEFORE C HARGING ITA NO. 490/H/2007 ETC. M/S. SINGARENI COLLIERIES ================== 34 INTEREST U/S. 234B AND 234C. THIS GROUND OF THE RE VENUE IS DISMISSED. THE REVENUE APPEAL IN I.T.A. NO. 249/HY D/08 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 58. IN THE RESULT ASSESSEES APPEALS 464/H/04 126 1/H/03 465/H/05 490/H/07 446/H/06 447/H/06 243/H/08 AR E DISMISSED AND 491/H/07 PARTLY ALLOWED. REVENUE APP EAL IN 249/HYD/08 IS PARTLY ALLOWED FOR STATISTICAL PURPOS ES. ORDER PRONOUNCED IN THE OPEN COURT ON: 31.3. 2011 SD/- SD/- G.C. GUPTA CHANDRA POOJA RI VICE PRESIDENT ACCOUNTANT MEMBE R DATED THE 31 ST MARCH 2011 COPY FORWARDED TO: 1. C/O M. ANANDAM & CO. CAS 7A SURYA TOWERS SP ROA D SECUNDERABAD-500003 2. THE DCIT CIRCLE-1 KHAMMAM 3. THE ACIT CIRCLE 1 KHAMMAM 4. THE CIT(A) VIJAYAWADA 5. THE CIT VIJAYAWADA 6. THE DR HYDERABAD NP/TPRAO