DCIT CEN CIR-2, MUMBAI v. RAMA NEWSPRINT & PAPAERS LTD, MUMBAI

ITA 5135/MUM/2009 | 2006-2007
Pronouncement Date: 21-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 513519914 RSA 2009
Assessee PAN AAACR2499H
Bench Mumbai
Appeal Number ITA 5135/MUM/2009
Duration Of Justice 1 year(s) 4 month(s) 12 day(s)
Appellant DCIT CEN CIR-2, MUMBAI
Respondent RAMA NEWSPRINT & PAPAERS LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 21-01-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 21-01-2011
Date Of Final Hearing 29-06-2010
Next Hearing Date 29-06-2010
Assessment Year 2006-2007
Appeal Filed On 08-09-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI N.V.VASUDEVAN JUDICIAL MEMBER & SHRI T.R.SOOD ACCOUNTANT MEMBER I.T.A.NOS.1120 & 5135/MUM/2009 A.YRS.2005-06 & 2006-07 DY. COMMISSIONER OF I.T. CENTRAL CIRCLE 2 MUMBAI. VS. M/S RAMA NEWSPRINT & PAPERS LTD. 181 MAKER TOWER E CUFFE PARADE MUMBAI 400 005. PAN: AAACR 2499 H (APPELLANT) (RESPONDENT) APPELLANT BY : DR. SENTHIL KUMAR. RESPONDENT BY : SHRI R. MURLIDHAR. O R D E R PER T.R.SOOD AM: THE APPEALS OF THE REVENUE ARE HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER. 2. I.T.A.NO.1120/M/09 A.Y 2005-06 : IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.2 66 52 763/- ON ACCOUNT OF ESTIMATION OF G.P @ 15% ON ACCOUNT OF REJECTION OF BOOKS OF ACCOUNT U/S.145(3) OF THE I.T.ACT. II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(A) ERRED IN HOLDING THAT THE AO IS NOT JUSTIFIE D IN WITHDRAWING THE DEPRECIATION OF RS.5 71 23 234/- ON ACCOUNT OF WRIT E OFF OF PRINCIPAL LOAN. III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN HOLDING THAT THE FIGURES IN REC ONCILIATION U/S.145A ARE STATISTICAL DETAILS ON WHICH NO ADVERSE INFEREN CE CAN BE DRAWN THEREBY IGNORING THE FACT THAT THIS PROVISION WAS S PECIFICALLY BROUGHT IN BY AMENDMENT WITH EFFECT FROM 01-04.1999 IN THE ACT TO CURB THE TENDENCY TO UNDERSTATE THE CLOSING STOCK AND ALSO T HE FACT THAT THE ASSESSEE HAD FAILED TO FURNISH THE DETAILS AS TO HO W THESE FIGURES WERE ARRIVED AT. IV) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT AS PER C OST AUDIT REPORT THE 2 ASSESSEE HAD UNDERVALUED THE CLOSING AT RS.57 98 64 6/- WHICH WAS A MATERIAL FACT FOR REJECTION OF ACCOUNTS. V) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE ASSESSEE WAS SELLING NEWSPRINT AT BELOW THE COST PRICE AS PER THE COST A UDIT REPORT WHICH REMAINED UNEXPLAINED AND WHICH WAS A MATERIAL FACT FOR REJECTION OF ACCOUNTS. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE INCOME ACCR UED ON FIXED DEPOSITS WAS OFFERED LESS TO THE EXTENT OF RS.2 53 768/- BY THE ASSESSEE. 3. AT THE TIME OF HEARING LD.DR SUBMITTED THAT GRO UNDS NO.(I) & (V) RELATE TO SAME ISSUE I.E. ESTIMATION OF G.P. HE CARRIED US THROUGH ASSESSMENT ORDER AND POINTED OUT VARIOUS DEFECTS PO INTED OUT BY THE AO FOR REJECTION OF BOOKS AND ESTIMATION OF G.P AND JUSTIFICATION OF THE SAME. 4. ON THE OTHER HAND LD.COUNSEL OF THE ASSESSEE SU PPORTED THE ORDER OF THE CIT(A) AND SUBMITTED THAT IN A.Y 2004- 05 WHEN G.P DECLARED WAS ONLY 0.07% AND THE SAME WAS ESTIMATED AT 9.75% AND WAS UPHELD BY THE TRIBUNAL WHEREAS IN THIS YEAR IF DEPRECIATION WAS EXCLUDED THEN G.P WOULD COME TO 14.10% WHICH IS MU CH HIGHER THAN A.Y 2004-05. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT ISSUE REGARDING ESTIMATION OF G.P CAME UP BEFORE TH E TRIBUNAL FOR A.Y 2004-05 IN I.T.A.NO.1778/MUM/2008 [COPY OF THE ORDE R IS FILED ON RECORD]. IN THAT ORDER VIDE PARA-3 IT WAS HELD AS U NDER: 3. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESEN TATIVE AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS N O APPEARANCE FROM THE SIDE OF THE ASSESSEE. IT IS SEEN FROM THE IMPUG NED ORDER IN WHICH THE REMAND REPORT HAS BEEN DULY CONSIDERED THAT TH E DIFFERENCE IN THE BALANCES WITH THE PARTIES WAS MORE OR LESS RECONCIL ED. A DETAILED DISCUSSION HAS BEEN MADE IN THE IMPUGNED ORDER WHI CH COULD NOT BE CONTRADICTED BY THE LEARNED D.R. INSOFAR AS THE LOW GROSS PROFIT RATE IS CONCERNED WHICH WAS DISCLOSED AT 0.07% IT IS NOTE D THAT THE SAID GROSS 3 PROFIT RATE WAS COMPUTED AFTER CONSIDERING THE DEPR ECIATION AMOUNTING TO RS.2545.97 LAKHS. IF THE AMOUNT OF DEPRECIATION IS EXCLUDED THEN THE GROSS PROFIT COMES TO 9.95%. EVENT HE ASSESSING OFF ICER ADMITTED THAT IF THE EFFECT OF DEPRECIATION WAS NOT CONSIDERED TH E G.P RATE WOULD COME AT 9.75%. IT IS CLEAR THAT THE DEPRECIATION CA NNOT BE TAKEN INTO CONSIDERATION FOR COMPUTING THE GROSS PROFIT. THERE CANNOT BE ANY DISPUTE THAT EVEN IF THE BOOKS OF ACCOUNT ARE REJEC TED BY THE AO HE CANNOT MAKE ARBITRARY ADDITIONS. HIS DECISION HAS T O BE BASED ON SOME RATIONAL BASIS. THE AO IS CONSIDERING THE G.P RATE OF 5% AS REASONABLE IN THIS CASE. ON THE OTHER HAND THE ACTUAL AND COR RECT GROSS PROFIT RATE IN THE PRESENT CASE IS 9.75% WHICH IS CERTAINLY HI GHER THAN 5%. WE THEREFORE APPROVE THE VIEW TAKEN BY THE LEARNED CI T(A) AND HOLD THAT NO ADDITION IS CALLED FOR. IN THE ABOVE YEAR G.P AFTER EXCLUDING THE DEPRECIAT ION WAS HELD TO BE JUSTIFIED AT 9.75% WHEREAS IN THE PRESENT YEAR G.P WITHOUT DEPRECIATION HAS BEEN DECLARED AT 14.10% THEREFORE G.P BEING MUCH HIGHER IS HELD TO BE JUSTIFIED IN THE IN THE LIGHT OF THE ABOVE ORDER AND ACCORDINGLY WE CONFIRM THE ORDER OF THE LD. CIT(A) . 6. GROUND NO.(II) : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS AO NOTICED THAT IN TH E LAST COUPLE OF YEARS THE COMPANY HAS BEEN TAKEN OVER BY BANGUR GRO UP FROM RAM SINGHANI GROUP. IN THE LIGHT OF THIS TAKE OVER THE WHOLE OPERATIONS WERE RESTRUCTURED AND EVEN CORPORATE DEBT WAS ALSO RESTRUCTURED AS PER THE APPROVAL OF CDR. THROUGH THIS CORPORATE RES TRUCTURING THERE WAS REMISSION OF LIABILITY TO THE EXTENT OF RS.3172 .57 LAKHS ON ACCOUNT OF PRINCIPAL LOAN AND REMISSION ON ACCOUNT OF INTE REST WAS RS.2142.30 LAKHS. AS FAR AS INTEREST PORTION IS CONCERNED ASS ESSEE HAD ITSELF DISALLOWED THE SAME U/S.43B HOWEVER NO ADJUSTMENT WAS MADE ON ACCOUNT OF PRINCIPAL LOAN. ON ENQUIRY IT WAS MAINL Y SUBMITTED THAT REMISSION OF PRINCIPAL OF LOAN WOULD NOT AMOUNT TO ANY REMISSION OF LIABILITY FOR BENEFIT U/S.41[1] IN VIEW OF THE DECI SION OF THE HONBLE 4 BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDR A LTD. VS. CIT 251 ITR 501. THE AO MADE FURTHER ENQUIRY AND FOUND THAT MOST OF THE LOANS TAKEN BY THE ASSESSEE WERE UTILIZED FOR PURCH ASE OF ASSETS AND IN THAT SENSE WHEN THE LIABILITY FOR LOAN ITSELF HAS B EEN REDUCED THEN THE VALUE OF ASSET SHOULD ALSO BE REDUCED ACCORDINGLY. THEREFORE ON THIS BASIS THE DEPRECIATION HAS TO BE REDUCED AND THE SA ME WAS WORKED OUT VIDE PARA 5.3 OF THE ASSESSMENT ORDER WHICH IS AS U NDER: 5.3 THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AS ON 31-03-2005 FOR A LAND IS KRS.2 01 81 956/- FOR BUILDING RS.43 78 01 720/- [RESIDENTIAL RS.6 21 72 094 + OTHER BUILDING RS.37 56 29 626/-] AND PLANT AND MACHINERY RS.59 70 95 945/-. THE TOTAL OF SUCH BLOCK ASSETS COMES TO RLS.1 05 50 79 621/-. AS THE WRITING OFF O F THE PRINCIPAL LOAN AMOUNTS SUBSIDIZES THE COST OF THESE ASSETS TO THE EXTENT OF WRITE OFF. THE WRITTEN DOWN COST FOR THE PURPOSE OF DEPRECIATI ON SHOULD ALSO BE REDUCED FOR THE PURPOSE OF COMPUTATION OF DEPRECIAT ION. AS THERE IS NO DEPRECIATION ON LAND THE PRO RATA WRITE OFF IN RES PECT OF LAND IS TO BE IGNORED. THE PRO RATA WRITE OFF AMOUNTS WITH REFERE NCE TO BUILDING COMES TO RS.13 16 61 665/- [DEPRECIATION AT THE RAT E OF 5% ON RS.1 86 95 955/- + DEPRECIATION AT THE RATE OF 10% ON RS.11 29 65 700/-]. THE PRO RATA WRITE OFF WITH REF ERENCE TO PLANT AND MACHINERY COMES TO RLKS.17 95 67 462/- AND DEPRECIA TION AT THE RATE OF 25% IS TO BE WITHDRAWN. ACCORDINGLY THE DISALLOWAN CE OF DEPRECIATION IS WORKED OUT AS BELOW: ASSETS DEPRECIATION WITHDRAWN LAND NIL BUILDING I) RESIDENTIAL RS. 9 34 798 II) OTHERS RS.1 12 96 570 PLANT AND MACHINERY RS.4 48 91 866 THEREFORE THE TOTAL DEPRECIATION WITHDRAWN COMES TO RS.5 71 23 234/-. HENCE THE ADDITION ON ACCOUNT OF WITHDRAWAL OF DEP RECIATION ON ACCOUNT OF WRITE OFF OF PRINCIPAL LOAN AMOUNT APPLI ED FOR ACQUISITION OF ASSETS IS COMPUTED AT RS.5 71 23 234/-. 7. BEFORE THE CIT(A) DETAILED SUBMISSIONS WERE MADE AND HE ULTIMATELY DELETED THE ADDITION VIDE PARA 7 OF HIS ORDER WHICH IS AS UNDER: 5 7. I HAVE CAREFULLY CONSIDERED THE REASONING OF TH E AO AS WELL AS SUBMISSION OF THE APPELLANT COMPANY. AFTER GOING TH ROUGH THE FACTUAL ASPECTS AS INVOLVED IN THE PRESENT GROUND OF APPEAL I AM OF THE CONSIDERED VIEW THAT AO IS NOT AT ALL JUSTIFIED TO CONSIDER THE WITHDRAWAL OF THE DEPRECIATION JUST BECAUSE THE APP ELLANT COMPANY HAS BEEN WAIVED PAYMENT OF LOAN UNDER THE CDR SCHEME BU T AS A MATTER OF FACT THE PRINCIPAL AMOUNT IS NOT WAIVED FULLY BUT I T HAS BEEN RESTRUCTURED AND UNDER WHICH THE APPELLANT COMPANY HAD TO PAY IN A PHASED MANNER. THE APPELLANT IN ITS SUBMISSION HAS RELIED ON THE DECISION OF HONBLE HONBLE SUPREME COURT IN THE CA SE OF CIT VS. TATA IRON AND STEEL CO. LTD. REPORTED IN 231 ITR 28 5 (S.C) WHEREIN THE HONBLE SUPREME COURT HAD HELD THAT THE MANNER OF R EPAYMENT OF LOAN AMOUNT WOULD NOT EFFECT THE COST OF THE ASSET AS RE QUIRED BY THE ASSESSEE. THE HONBLE COURT FURTHER OBSERVED THAT T HE AMOUNT MAY HAVE BEEN BORROWED BY THE ASSESSEE BUT EVEN IF THE ASSESSEE DID NOT REPAY THE LOAN APPELLANT IT WILL NOT ALTER THE COST OF THE ASSET. IF BORROWER DEFAULTS ANY REPAYMENT OF THE PART OF THE LOAN EVEN THEN COST OF THE ASSET WILL NOT CHANGE. IN THE AFORESAID SCHE ME UNDER THE CDR AS MENTIONED BY THE AO IN THE ASSESSMENT ORDER THE APP ELLANT UNDER THE SCHEME OF RESTRUCTURING HAS TO MAKE PAYMENT OF OUTS TANDING LOANS IN INSTALMENTS ENDING ON 15-8-2012 WHICH WOULD MEAN TH AT THE APPELLANT IS REQUIRED TO MAKE THE PAYMENT BUT HAS BEEN GIVEN EASY INSTALMENT WITH CERTAIN CONDITION AND CERTAIN CONCESSIONS UNDE R THE SCHEME WHICH HAVE BEEN FORMULATED BY THE CDR CELL AND ONCE THE C OMPANY MAKES DEFAULT IN REMISSION OF PAYMENTS THEN WHATEVER CONC ESSIONS AS GIVEN TO IT UNDER THE CDR SCHEME STANDS REVOKED RETROSPECTIV ELY. THE APPELLANT HAS ALSO RELIED ON THE DECISION OF HONBLE JUTISDIC TIONAL HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA VS. CIT [261 ITR 50 1] AND IN THAT CASE THE LOAN WHICH WAS GRANTED TO THE COMPANY WAS WAIVED BY THE BANK WITH REGARD TO PRINCIPAL LOAN AMOUNT AND THE A O TOOK A STAND TO TAX THE SAME AS INCOME BUT THE JURISDICTIONAL HONB LE HIGH COURT HAS HELD THAT THE WAIVER LOAN AMOUNT IS NOT TAXABLE EIT HER U/S.28(IV) OR SEC.41(1) OF ACT. THEREFORE AFTER CONSIDERING THE S UBMISSION OF THE APPELLANT COMPANY AND THE CASE LAWS RELIED ON IN TH E SUBMISSION I AM OF THE CONSIDERED VIEW THAT THE WAIVER OF THE LOAN AMOUNT IN ANY CASE CANNOT BE TAKEN AS INCOME OF THE APPELLANT AND ALTE RNATIVELY THE ACTION OF THE AO CANNOT BE HELD TO BE JUSTIFIED TO THE EXT ENT THE WAIVER OF THE LOAN HAS THE EFFECT IN REDUCING THE COST OF THE ASS ET. THEREFORE THE ADDITION AS MADE BY THE AO IS HEREBY DELETED. THE A PPELLANT GETS RELIEF ON THIS GROUND OF APPEAL. 8. BEFORE US LD.DR SUBMITTED THAT THE AO WAS CORRE CT IN REDUCING THE DEPRECIATION BECAUSE LOANS WHICH WERE RAISED WE RE DIRECTLY USED FOR PURCHASE OF PLANT AND MACHINERY AND WHEN SUCH L OANS ITSELF HAVE BEEN WAIVED THEN NATURALLY THE PRICE OF THAT ASSE T HAS TO BE REDUCED AND ASSESSEE HAS GOT BENEFIT IN THE SENSE OF HIGHER DEPRECIATION WHICH 6 HAS TO BE WITHDRAWN. HE ALSO ARGUED THAT THE DECISI ON IN THE CASE OF CIT VS. TATA IRON AND STEEL CO. LTD. 231 ITR 285 W AS DISTINGUISHABLE BECAUSE IN THAT CASE REJECTION OF LIABILITY WAS ON ACCOUNT OF FOREIGN EXCHANGE. 9. ON THE OTHER HAND LD.COUNSEL OF THE ASSESSEE ST RONGLY SUPPORTED THE ORDER OF THE CIT(A) AND ALSO RELIED O N THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TATA IRON AND STEEL CO. LTD. [SUPRA] IN WHICH IN THE HEAD-NOTE ONE OF THE OBSERV ATION IS THAT EVEN IF HE ASSESSEE DID NOT REPAID THE LOAN IT WILL NOT AL TER COST OF THE ASSET. IN ANY CASE SE.41[1] PROVIDES FOR ANY BENEFIT RECE IVED BY THE ASSESSEE BY WAY OF ALLOWANCE OF EXPENDITURE ETC. WHICH MEANS SUCH BENEFIT HAS TO BE IN THE REVENUE FIELD. THE BENEFIT RECEIVED UN DER REVENUE FIELD WAS ONLY INTEREST PORTION AND IT HAS BEEN DISALLOWE D BY THE ASSESSEE ITSELF. REMISSION ON ACCOUNT OF PRINCIPAL AMOUNT CA NNOT BE CONSTRUE AS BENEFIT AS CONTEMPLATED U/S.41[1]. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT IN THE CASE OF CIT VS. TATA IRON AND STEEL CO. LTD. [SUPRA] THE HONBLE SUPREME COURT OBSERVED AS UNDER: THE MANNER OF REPAYMENT OF LOAN CAN AFFECT THE COS T OF THE ASSETS ACQUIRED BY THE ASSESSEE. WHAT IS THE ACTUAL COST M UST DEPEND ON THE AMOUNT PAID BY THE ASSESSEE TO ACQUIRE THE ASSET. T HE AMOUNT MAY HAVE BEEN BORROWED BY THE ASSESSEE BUT EVEN IF THE ASSE SSEE DID NOT REPAY THE LOAN IT WILL NOT ALTER THE COST OF THE ASSET. I F THE BORROWER DEFAULTS IN REPAYMENT OF A PART OF THE LOAN THE COST OF THE AS SET WILL NOT CHANGE. WHAT HAS TO BE BORNE IN MIND IS THAT THE COST OF AN ASSET AND THE COST OF RAISING MONEY FOR PURCHASE OF THE ASSET ARE TWO DIF FERENT AND INDEPENDENT TRANSACTIONS. EVEN IF AN ASSET IS PURCH ASED WITH NON- REPAYABLE SUBSIDY RECEIVED FROM THE GOVERNMENT THE COST OF THE ASSET WILL BE THE PRICE PAID BY THE ASSESSEE FOR ACQUIRIN G THE ASSET. 7 THE ABOVE OBSERVATIONS MAKE IT CLEAR THAT EVEN WHEN THE LOAN HAS NOT BEEN REPAID THEN ALSO THE COST OF ASSET WILL NOT BE ALTERED. IN VIEW OF THIS OBSERVATION THE LD. CIT(A) HAS CORRECTLY DELE TED THE ADDITION ON ACCOUNT OF WITHDRAWAL OF DEPRECIATION AND ACCORDING LY WE CONFIRM HIS ORDER. 11. GROUND NOS. (III) & (IV) RELATE TO THE ISSUE OF VALUATION OF CLOSING STOCK. DURING ASSESSMENT PROCEEDINGS AO NOTICED THA T IN THE TAX AUDIT REPORT THE FOLLOWING DEVIATIONS WERE GIVEN FROM THE METHOD OF VALUATION PRESCRIBED U/S.145A AND THE EFFECT OF THE SAME ON PROFIT & LOSS ACCOUNT AS UNDER: S.NO. PARTICULARS INCREASE IN PROFIT (RS.) DECREASE IN PROFIT (RS.) 1 INCREASE IN COST OF OPENING STOCK OF CHEMICALS/STORES AND SPARES ON INCLUSION OF EXCISE DUTY ON WHICH MODVAT CREDIT IS AVAILED 14 851 241 2 INCREASE IN COST OF PURCHASE OF CHEMICALS/STORES AND SPARES ON INCLUSION OF EXCISE DUTY ON WHICH MODVAT CREDIT IS AVAILED 61 7-9 535 3 INCREASE IN COST OF CONSUMPTION OF CHEMICALS/STORES AND SPARES ON INCLUSION OF EXCISE DUTY ON WHICH MODVAT CREDIT IS AVAILED 55 910 890 4 INCREASE IN COST OF CLOSING STOCK OF CHEMICALS/STORES AND SPARES ON INCLUSION OF EXCISE DUTY ON WHICH MODVAT CREDIT IS AVAILED 20 649 886 TOTAL 76 560 776 76 560 776 AO OBSERVED THAT DETAILS WERE PRODUCED IN RESPECT O F SR. NOS.1 2 AND 4 WHEREAS IT WAS SUBMITTED THAT ITEM IN S.NO.3 WAS A BALANCING FIGURE. AO FURTHER OBSERVED THAT ASSESSEE SHOULD HAVE JUSTI FIED THIS FIGURE 8 OTHERWISE THE ONLY CONCLUSION IS THAT CLOSING STOCK HAS NOT BEEN PROPERLY ACCOUNTED FOR. SINCE THE ASSESSEE COULD NO T JUSTIFY THIS FIGURE THE AO OBSERVED AS UNDER: THIS SHOWS THE MATHEMATICAL JUGGLERY TO TALLY THE ACCOUNT AS PER SECTION 145A TO NULLIFY THE EFFECT OF SUCH ACCOUNTI NG RECONCILIATION. THIS DEFEATS THE VERY PURPOSE OF INTRODUCTION OF SE CTION 145A WHEREBY THE VALUATION OF STOCK WAS INCLUSIVE OF VARIOUS DUT IES AND CESS. THIS FURTHER SHOWS THAT THE ACCOUNT OF THE ASSESSEE COMP ANY ARE NOT RELIABLE TO GIVE A TRUE AND CORRECT PICTURE OF THE PROFITS. THE DETAILS OF MODVAT CREDIT ON THE OPENING AND CLOSING STOCK WERE CALLED FOR AND WERE SUBMITTED BY THE AR DURING THE COURSE OF HEARING. I T IS SEEN THAT THE MODVAT AS ON 1-4-2004 IS RS.1 48 51 241/- AND MODVA T ON CLOSING STOCK AS ON 31-3-2005 IS RS.2 06 49 887/-. CONSIDER ING THIS DIFFERENTIAL BETWEEN THE MODVAT CREDIT ON THE OPENING AND CLOSIN G STOCK THE NET VALUE OF THE STOCK IS UNDERVALUED TO THE EXTENT OF RS.57 98 646/-. ACCORDINGLY ADDITION OF RS.57 98 646/- IS MADE TO THE INCOME OF THE ASSESSEE COMPANY ON ACCOUNT OF UNDERVALUATION OF TH E STOCK DUE TO NON CONSIDERATION OF THE MODVAT CREDIT. 12. ON APPEAL THE LD. CIT(A) DELETED THE ADDITION. 13. BEFORE US LD.DR SUBMITTED THAT AFTER INSERTION OF SEC.145A IT WAS MANDATORY TO ADD OF GOVERNMENT LEVIES TO THE PU RCHASES AS WELL AS CLOSING STOCKS AND IF ASSESSEE HAS MADE ANY DEVI ATION FROM THAT ASSESSEE WAS REQUIRED TO JUSTIFY THE SAME. SINCE ON E OF THE FIGURES COULD NOT BE JUSTIFIED THE AO WAS CORRECT IN MAKIN G THE ADDITION. 14. ON THE OTHER HAND LD.COUNSEL OF THE ASSESSEE S TRONGLY SUPPORTED THE ORDER OF THE CIT[A]. HOWEVER ON A QU ERY BY THE BENCH HE COULD NOT EXPLAIN THE BASIS OF WORKING OF THE FI GURE AT S.NO.4 BUT AT THE SAME TIME HE SUBMITTED THAT HE WOULD ASK THE AS SESSEE TO GIVE THE WORKING IF THE MATTER IS REMANDED TO THE FILE OF TH E AO. 15. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND IN THE LIGHT OF THE SUBMISSIONS OF THE LD.COUNSEL OF THE ASSESSEE WE S ET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A 9 DIRECTION THAT THE ASSESSEE SHOULD BE GIVEN ONE MOR E OPPORTUNITY TO EXPLAIN THE WORKING OF FIGURE GIVEN AT S.NO.4 OF TH E CHART WHICH WE HAVE REPRODUCED ABOVE. 16. GROUND NO.(VI): AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS AFTER RECONCILING TDS CERTIFICATES AND PROFIT & LOSS ACCOUNT IT WAS SEEN THAT INTEREST IN COME FROM FDR FROM BANK OF INDIA WAS OF RS.11 83 207/- WHEREAS ASSESS EE HAS DECLARED THE SAME AT RS.9 29 439/-. ON QUERY IT WAS SUBMITTE D THAT THIS INCOME HAD ACCRUED FOR BUT NOT BECOME DUE. HOWEVER AO DID NOT FIND ANY FORCE IN THIS SUBMISSION AND IT WAS OBSERVED THAT I F THIS INTERPRETATION WAS ACCEPTED THEN INTEREST ON NSC AND KVS WILL BEC OME DUE ONLY WHEN SUCH INSTRUMENTS BECOME DUE FOR PAYMENT WHICH IS NOT POSSIBLE. ACCORDINGLY THE DIFFERENCE FOR INTEREST AMOUNTING TO RS.2 53 758/- WAS ADDED TO THE INCOME. 17. BEFORE THE CIT(A) IT WAS MAINLY SUBMITTED THAT INCOME BECOMES DUE AS PER MERCANTILE SYSTEM OF ACCOUNTING ONLY WHE N THE SAME BECOMES DUE AND RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MORVI INDS. LTD. VS. C IT 82 ITR 835. THE LD. CIT(A) ACCEPTED THE SUBMISSIONS AND DELETED THE ADDITION. 18. BEFORE US LD. DR SUBMITTED THAT IN CASE OF FDRS INTEREST WILL BECOME DUE AT THE END OF THE F.Y IF THE ASSESSEE WA S FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. MOREOVER EVEN BAN KS HAVE ISSUED THE TDS CERTIFICATES. HE STRONGLY SUPPORTED THE ORD ER OF THE AO. 19. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE CIT[A] AND SUBMITTED TH AT ASSESSEE HAS 10 BEEN FOLLOWING SIMILAR SYSTEM OF ACCOUNTING FOR MAN Y YEARS AND INTEREST WHICH HAD NOT BECOME DUE AND HAD BECOME DU E LATER ON HAD ALREADY BEEN RECEIVED FOR TAXATION IN THE NEXT YEAR . 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. THE AO HAS VERY CLEARLY MENTIONED THAT AFTER VERIFICATION OF T DS CERTIFICATES AND PROFIT & LOSS ACCOUNT IF THE INTEREST HAS BEEN SHO WN AT ` `` ` .11 83 207/- EVEN IN THE TDS CERTIFICATES THEN THE SUBMISSIONS OF THE ASSESSEE ARE NOT CORRECT BECAUSE ASSESSEE MUST HAVE CLAIMED EVEN TDS WHICH IS NOT POSSIBLE UNLESS AND UNTIL THE INCOME REFLECTED IN THE TDS CERTIFICATES IS OFFERED FOR TAXATION IN TERMS OF SE C.199 OF THE ACT. HOWEVER THIS POSITION IS NOT VERY CLEAR FROM THE O RDER OF THE AO OR CIT[A] AND THEREFORE IN THE INTEREST OF JUSTICE WE SET ASIDE THE ORDER OF THE LD. CIT[A] AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE PARTICULARLY THE TDS CERTIFI CATES AND WHETHER SUCH INCOME HAS BEEN SHOWN IN THE TDS CERTIFICATES ACCOUNT. AO MAY DECIDE THE ISSUE AS PER LAW AFTER EXAMINING THESE F ACTS. 21. I.T.A.NO.5135/MUM/09 A.Y 2006-07: IN THIS APP EAL REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN HOLDING THAT THE AO IS NOT JUSTIFIED IN WITHDRAWING THE DEPRECIATION OF RS.3 15 37 167/- ON ACCOUNT OF REDUCTION IN THE VALUE OF FIXED ASSETS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN ALLOWING THE CARRIED FO RWARD UNABSORBED DEPRECIATION OF RS.67 25 44 700/- WITHOU T CONSIDERING THE LIMITATION OF THE PERIOD UPTO WHICH SUCH ALLOWANCE CAN BE CARRIED FORWARD. 22. BOTH THE PARTIES MADE SIMILAR ARGUMENTS AS WERE MADE WHILE ARGUMENT I.T.A.NO.1120/M/09 FOR A.Y 2005-06. 11 23. GROUND NO. 1: AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT WE HAVE ALREADY DECIDED THIS ISSUE IN I.T.A.NO .1120/M/09 FOR A.Y 2005-06 AND FOLLOWING THAT WE CONFIRM THE ORDER OF THE LD. CIT(A). 24. GROUND NO.2 : AS FAR AS GROUND NO.2 IS CONCERNED LD. COUNSEL OF THE ASSESSEE FAIRLY CONCEDED THAT THE ISSUE IS C OVERED AGAINST THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF TH E TRIBUNAL IN THE CASE OF DY. C.I.T. VS. TIMES GUARANTY LTD. [2010] 4 0 SOT 14 (MUM) (S.B). 25. ON THE OTHER HAND LD. DR SUPPORTED THE ORDER O F THE AO. 26. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DY. C.I.T. VS. TIMES GUARANTY LTD. [SUPRA] HAS HELD AS UNDER: SECTION 32 OF THE INCOME-TAX ACT 1961 DEPRECIATI ON UNABSORBED DEPRECIATION ASSESSMENT YEARS 2003-04 AND 2004-05 ASSESSEE- COMPANY WAS DERIVING INCOME FROM BUSINESS OF MERCHA NT BANKING ASSESSEE FILED ITS RETURN FOR ASSESSMENT YEARS 2003 -04 AND 2004-05 WHEREIN IT SOUGHT TO SET OFF UNABSORBED DEPRECIATIO N DETERMINED IN ASSESSMENT YEARS 1997-98 TO 1999-2000 AGAINST INCOM E UNDER HEAD INCOME FROM OTHER SOURCES ASSESSING OFFICER RE JECTED ASSESSEES CLAIM WHETHER UNABSORBED DEPRECIATION RELATING TO ASSESSMENT YEARS 1997-98 TO 1999-2000 WAS TO BE DEALT WITH IN ACCORD ANCE WITH PROVISIONS OF SECTION 32(2) AS APPLICABLE FOR ASSES SMENT YEARS 1997-98 TO 1999-2000 HELD YES WHETHER IN VIEW OF PROVIS IONS OF SECTION 32(2) AS APPLICABLE TO ASSESSMENT YEARS 1997-98 TO 1999-2000 ASSESSEE COULD SET OFF UNABSORBED DEPRECIATION ONLY AGAINST INCOME UNDER HEAD PROFITS AND GAINS OF BUSINESS OR PROFES SION HELD YES WHETHER THEREFORE ASSESSING OFFICER WAS JUSTIFIE D IN REJECTING ASSESSEES CLAIM HELD YES. 12 FOLLOWING THE ABOVE ORDER WE DECIDE THIS ISSUE IN FAVOUR OF THE REVENUE. 27. IN THE RESULT REVENUES APPEAL IN I.T.A.NO.112 0/M/09 FOR A.Y 2005-06 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE A ND IN I.T.A.NO.5135/M/09 FOR A.Y 2006-07 IS PARTLY ALLOWE D. ORDER PRONOUNCED ON THIS 21 ST DAY OF JANUARY 2011 SD/- SD/- (N.V.VASDEVAN) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 21 ST JANUARY 2011. P/-*