DUKE OFFSHORE LTD, MUMBAI v. DCIT 10(1), MUMBAI

ITA 5810/MUM/2008 | 2003-2004
Pronouncement Date: 05-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 581019914 RSA 2008
Bench Mumbai
Appeal Number ITA 5810/MUM/2008
Duration Of Justice 2 year(s) 3 month(s) 18 day(s)
Appellant DUKE OFFSHORE LTD, MUMBAI
Respondent DCIT 10(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 05-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 05-01-2011
Date Of Final Hearing 17-03-2010
Next Hearing Date 17-03-2010
Assessment Year 2003-2004
Appeal Filed On 17-09-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI PRAMOD KUMNAR (AM) AND SMT ASHA VIJAYARAGHAVAN (JM) ITA NO. 5810/MUM/2008 (ASSESSMENT YEAR-2003-04) M/S. DUKE OFFSHORE LTD. 403 URVASHI OFF SAYANI ROAD PRABHADEVI MUMBAI-400 025 PAN-AABCD 3165B VS. THE DY. CIT 10(1) AAYAKAR BHAVAN MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VIJAY KOTHARI RESPONDENT BY: SHRI NARESH KUMASR BALODIA O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT(A)-X MUMBAI DATED 22.7.2008 FOR THE A.Y. 20 03-04. 2. THE FIRST GROUND OF APPEAL IS AGAINST THE DECISI ON OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HOLDING THAT T HE BOOK PROFITS FOR THE PURPOSES OF SEC 115JB WERE TO BE TAKEN AT RS. 4 39 53 181/- INSTEAD OF THE NET PROFIT OF RS. 1 08 48 955/- AS PER THE P ROFIT AND LOSS ACCOUNT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PART II OF SCHEDULE VI OF THE COMPANIES ACT 1956. 3. THE ISSUE IS REGARDING WHETHER IN THE COURSE OF SETTLEMENT UNDER OTS WITH A BANK THE REDUCTION OF LIABILITY TO BANK CREDITED TO THE P&L ITA NO. 5810/M/2008 2 ACCOUNT SHOULD BE TAKEN INTO ACCOUNT IN COMPUTING B OOK PROFITS PARTICULARLY WHEN PART OF THE SAME REPRESENTS WAIVE R OF PRINCIPAL PORTION OF LOAN. IN THE PRESENT CASE THE ASSESSEE HAD AN OT S WITH GTBANK AS A RESULT OF WHICH THERE WAS A WAIVER/ REDUCTION OF TH E LIABILITY TO BANK TO THE EXTENT OF RS. 44 513 406. THIS WAS SHOWN AS AN EXTR AORDINARY ITEM `BELOW THE LINE. THE ASSESSEE TOOK THE P&L FIGURE OF RS. 1 08 48 955/- APPEARING BEFORE THE EXTRAORDINARY ITEMS AND OFFERE D IT AS BOOK PROFITS AND CONTENDED THAT THE EXTRAORDINARY ITEM OF RS. 44 513 406/- CANNOT BE ADDED IN COMPUTING THE BOOK PROFITS. THE AO ON THE OTHER HAND TOOK P&L AS RS. 54 168 537/- APPEARING AFTER THE EXTRAORDINA RY ITEMS AND APPROPRIATIONS AS THE STARTING POINT FOR COMPUTATIO N OF BOOK PROFITS U/S 115JB AND HELD THAT THE EXTRAORDINARY ITEM OF RS. 4 4 513 406/- CANNOT BE REDUCED IN COMPUTING THE BOOK PROFITS. 4. BEFORE THE LEARNED CIT(A) THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF SECTIONN115JB DO NOT EMPOWER THE A.O. TO RECAST THE ACCOUNT FOR THE PURPOSES OF DETERMINING THE BOOK P ROFIT AS DETERMINED ON THE BASIS OF PART II AND III OF SCHEDULE VI OF THE COMPANIES ACT 1956. IT WAS FURTHER SUBMITTED THAT AS PER THE COMPANIES ACT THE BOOK PROFIT COMES TO RS 1 08 48 955/- RELIANCE WAS PLACED UPON THE DECISION OF THE SUPREME COURT IN APOLLO TYRES LTD ( 255 ITR 273) A ND CIT VS POESTCIDE INDIA LTD (283 ITR 304) (RAJ.) AND SEVERAL OTHER CA SE LAWS. 5. THE LEARNED CIT(A) DISMISSED THE APPEAL OBSERVIN G AS UNDER: THE AUDITED P & L ACCOUNT FOR THE YEAR ENDING 31.3 .2003 IS AS FOLLOWS: INCOME RS. PROFESSIONAL CHARGES 2 7 500 000 INTEREST RECEIVED ON FD 40 375 TOTAL INCOME 2 7 540 375 ITA NO. 5810/M/2008 3 EXPENDITURE EXPENSES 13 041 723 ASSETS WRITTEN OFF 3 154 372 DEPRECIATION 495 325 TOTAL EXPENDITURE 16 691 420 PROFIT (LOSS )BEFORE TAXATION 10 848 955 GTB LIABILITY SETTLED 44 513 406 PREVIOUS YEARS EXPENSES 1 1 93 824 BALANCE OF PROFIT AND LOSS ACCOUNT 54 168 537 1.4. IN FORM NO. 29B FILED ALONG WITH THE RETUR N THE AUDITORS HAVE STATED THAT THE TAX PAYABLE U/S 115JB TO BE NIL. IN THE ANNEXURE TO THE SAID FORM THE AUDITORS HAD TAKEN THE STARTING POINT FOR COMPUTING BOOK PROFIT U/S 115JB AT RS. 108 48 955/- IT HAS THEN BEEN SUBMITTED IN COLUMN 1 2 THAT RS 1 08 48 955/- IS FULLY REDUCED BY UNABSORBED DEP RECIATION OF PREVIOUS YEARS. THE A.O. ON THE OTHER HAND HAS TAKEN THE STARTING POINT FOR COMPUTING THE BOOK PROFITS AT RS 5 41 68 537/- AND THEN GONE ON TO REDUCE THE UNABSO RBED DEPRECIATION OF THE PREVIOUS YEARS AMOUNTING TO RS 1 02 15 376/- AND THEREBY ARRIVING AT THE BOOK PRO FIT FIGURE OF RS 4 39 53 161/- FOR THE PURPOSES OF 115JB. 1.5. THE QUESTION THAT ARISES IS WHETHER THE ASSE SSEE WAS CORRECT IN STARTING THE COMPUTATION U/S 115JB FROM THE FIGURE OF RS 1 08 48 955/- I FIND THAT A SIMILAR ISSUE CAM E UP BEFORE THE HONBLE HYDERABAD TRIBUNAL IN THE MATTER OF GUL F OIL CORPORATION LTD. VS ACIT (111 ITD 124) THE FACTS I N THAT CASE WERE THAT THE ASSESSEE COMPANY WAS MANUFACTURING DETONATORS INDUSTRIAL EXPLOSIVES AND ITS ACCESSORI ES. IT RETURNED TOTAL LOSS OF RS 34 17 39 176 FOR THE YEAR UNDER CONSIDERATION SINCE THE PROVISIONS OF SECTION 115J B WERE ATTRACTED. IT WORKED OUT THE BOOK PROFITS AT RS 98 995042 BY STARTING WITH NET PROFIT OF RS 97855461 WHICH WAS THE PROFIT BEFORE TAXATION AS SHOWN IN THE P & L ACCOUNT. THE PROFIT WAS ARRIVED AT AFTER CREDITING RS 3.06 LAKHS AS ADDITIO NAL ADVISORY FEE FOR SALE OF INVESTMENTS WHICH WERE CLASSIFIED AS EXTRAORDINARY ITEMS IN THE P & L ACCOUNT. THE PROFI T BEFORE EXTRAORDINARY ITEMS WAS RS 1085.45 LAKHS. THE A.O. WAS OF THE VIEW THAT THE ASSESSEE SHOULD HAVE TAKEN RS 108 5.45 LAKHS AS THE BASE FIGURE FOR COMPUTATION OF BOOK PR OFITS I.E THE EXTRAORDINARY ITEMS SHOULD HAVE BEEN IGNORED. THE ITA NO. 5810/M/2008 4 EXPLANATION OF THE ASSESSEE THAT RS. 109.96 LAKHS W AS ITS EXPENDITURE AND HENCE THE BOOK PROFITS HAD TO BE D ETERMINED AFTER REDUCING ALL THE EXPENDITURE. HOWEVER THE A. O. DID NOT AGREE WITH THE ASSESSEES CONTENTION AND HELD THAT THE ASSESSEE WAS NOT ENTITLED TO REDUCE RS 109.96 LAKHS . CONSIDERING THE ABOVE FACTS THE TRIBUNAL HELD: SUB SECTION (2) OF SECTION 115JB PROVIDES THAT EVERY ASSESSEE COMPANY SHALL PREPARE ITS PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH THE PROVISIONS OF PART II AND PART III OF SCHEDULE VI TO THE COMPANIES ACT 1956. THE SAID SCHEDULE VI DOES NOT MAKE ANY DISTINCTION BETWEEN PROFIT AND LOSS ACCOUNT AND PROFIT AND LOSS APPROPRIATION ACCOUNT. IN FACT THE SCHEDULE DOES NOT SPEAK OF THE APPROPRIATION ACCOUNT AT ALL. IT IS ONLY AS A MATTE R OF PRESENTATION THAT MOST OF THE COMPANIES SEGREGATE TO REFLECT AS TO WHAT HAS BEEN APPROPRIATED WHERE OUT OF THE PROFITS EARNED BY THEM. OTHERWISE SUB CLAUSES (A) AND (B) OF CLAUSE (VIII) OF NOTE II IN PARA 3 OF PART II OF SCHEDULE VI SPECIFICALLY PROVIDE THAT THE AGGREGATE AMOUNTS SET ASIDE OR PROPOSED TO BE SET ASIDE TO RESERVES SHOULD BE DISTINCTLY SHOWN IN THE PROFIT AND LOSS ACCOUNT. SIMILARLY SUB CLAUSE (B) AND SUB CLAUSES (A) AND (B) OF CLAUSES (XII) AND (XIII) RESPECTIVELY IN NOT E II OF PART II OF SCHEDULE VI PROVIDE THAT PROFITS O R LOSSES IN RESPECT OF TRANSACTIONS NOT USUALLY UNDERTAKEN OR UNDERTAKEN IN EXCEPTIONAL CIRCUMSTANCES OR WHICH ARE OF NON RECURRING NATURE SHOULD BE SHOWN IN THE PROFIT AND LOSS ACCOUNT. THE AGGREGATE AMOUNT OF DIVIDENDS PAID AND PROPOSED ARE ALSO TO BE SHOWN IN THE PROFIT AND LOSS ACCOUNT.. THE POINT WE ARE TRYING TO DRIVE HOME IS THAT ALL THE ITEMS WHICH ARE GENERALLY CLASSIFIED IN THE APPROPRIATION ACCOUNT ARE IN FACT TO BE INCLUDED IN THE PROFIT AND LOSS ACCOUNT PREPARED AS PARTS II AND III OF SCHEDULE VI. THEREFORE WE ARE IN AGREEMENT WITH THE ARGUMENT OF THE LEARNED COUNSEL THAT THE STARTING POINT FOR COMPUTATION OF BOOK PROFITS FOR THE PURPOSES OF SECTION 115JB SHOULD BE RS. 660.81 LAKHS WHICH IS THE FINAL BALANCE IN THE PROFIT AND LOSS ACCOUNT CARRIED TO BALANCE SHEET. IT MAY ALSO BE NOTED FROM THE ABOVE DISCUSSION THAT EVEN EXTRAORDINARY ITA NO. 5810/M/2008 5 ITEMS HAVE TO BE DEBITED TO THE PROFIT AND LOSS ACCOUNT. HAVING ADOPTED THE FIGURE OF RS.660.81 LAKHS AS THE STARTING POINT THE SAME HAS TOBE INCREASED BY THE ITEMS SPECIFIED IN CLAUSES (A) TO (F) AND HAS TO BE REDUCED BY THE ITEMS SPECIFIED IN CALUSES (I) TO (VII) GIVEN IN THE EXPLANATION. NO OTHER ADJUSTMENT IS PERMITTED BY LAW AND ALSO LAID DOWN BY THE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. NONE OF THE CLAUSES GIVEN IN THE EXPLANATION PROVIDE FOR THE INCREASE OR DECREASE OF THE BOOK PROFIT BY EXTRAORDINARY ITEM. THE REFERENCE TO AS-V BY THE LD.DEPARTMENTAL REPRESENTATIVE DOES NOT IN ANY MANNER ADVANCE THE CASE OF THE OF THE REVENUE. IT MERELY SAYS THAT PRIOR PERIOD AND EXTRAORDINARY ITEMS SHOULD BE SEPARATELY DISCLOSED ALONG WITH THE NATURE SO THAT THE IMPACT ON THE OPERATING RESULT CAN BE PERCEIVED. IT DOES NOT SAY THAT THEY ARE NOT PART OF THE PROFIT AND LOSS ACCOUNT. SIMILARLY THE GUIDANCE NOTE ISSUED BY THE ICAI ALSO DOES NOT HELP THE REVENUE AS IT MERELY SAYS THAT SOME TIME APPROPRIATION ACCOUNT IS INCLUDED AS A SEPARATE SECTION OF THE PROFIT AND LOSS ACCOUNT. BUT AS WE HAVE SEEN EARLIER PARTS-II AND III OF SCHEDULE VI TO THE COMPANIES ACT DO NOT SPEAK OF APPROPRIATE ACCOUNT AT ALL. IN THE LIGHT OF THE DISCUSSION WE ARE CONVINCED THAT IT WAS IN ACCORDANCE WITH LAW FOR THE ASSESSEE TO HAVE TAKEN RS.978.55 LAKHS AS THE BASE FIGURE TO COMPUTE THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JE. 1.6 KEEPING IN VIEW THE RATIO OF THE ABOVE DECISION I FIND THAT THE ASSESSING OFFICER HAS RIGHTLY TAKEN STARTI NG POINT FOR COMPUTING THE BOOK PROFITS U/S.115JB AT RS.5 41 68 537/-. HENCE I FIND NO REASON TO INTERFERE WITH THE ORDER OF THE A.O ON THIS GROUND. 6. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. I N OUR OPINION THE ISSUE REGARDING COMPUTATION OF BOOK PROFITS CONSIST S OF TWO PART (A) WHETHER U/S 115JB THE STARTING POINT IN COMPUTING THE BOOK PROFITS SHOULD BE THE PROFITS AS COMPUTED `ABOVE THE LINE BEFORE EXTRAORDINARY ITEMS AND APPROPRIATIONS OR `BELOW THE LINE AFTER THE EXTRAORDINARY ITEMS ITA NO. 5810/M/2008 6 AND APPROPRIATIONS. IN THIS CASE WHETHER IN COMPUTI NG BOOK PROFIT THE STARTING POINT IS THE FIGURE OF RS.10848955/- BEING NET PROFIT FIGURE (ABOVE THE LINE) OR SHOULD IT START WITH THE FINAL FIGURE IN THE PROFIT AND LOSS ACCOUNT OF RS.54168537/- AFTER THE APPROPRIATION AN D (B) ASSUMING THE STARTING POINT FOR COMPUTATION OF PROFIT IS FINAL F IGURE OF RS.54168537/- WHETHER THE SUM OF PRINCIPAL LOAN WAIVED INCLUDED I N THE SUM OF RS. 44 513 406/- CREDITED TO THE PROFIT AND LOSS ACCOUN T SHOULD BE EXCLUDED ON THE GROUND THAT THEY CONSTITUTE CAPITAL BENEFIT ACCRUING TO THE ASSESSEE. 7. AS REGARDS THE FIRST ISSUE AS WHAT IS TO THE STA RTING POINT OF THE PROFIT UNDER SCHEDULE VI IT WILL BE WORTHWHILE TO R EPRODUCE THE SECTION 115JB WHICH READS AS UNDER:- 115JB (1) NOTWITHSTANDING ANYTHING CONTAINED IN AN Y OTHER PROVISION OF THIS ACT WHERE IN THE CASE OF AN ASSE SSEE BEING A COMPANY THE INCOME TAX PAYABLE ON THE TOTAL INCOM E AS COMPUTED UNDER THIS ACT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AF TER (THE 1 ST DAY OF APRIL (2010) IS LESS THAN (FIFTEEN PER CEN T) OF ITS BOOK PROFIT SUCH BOOK PROFIT SHALL BE DEEMED TO BE THE TOTAL INCOME OF THE ASSESSEE AND THE TAX PAYABLE BY THE A SSESSEE ON SUCH TOTAL INCOME SHALL BE THE AMOUNT OF INCOME TAX AT THE RATE OF (FIFTEEN PER CENT) (2) EVERY ASSESSEE BEING A COMPANY SHALL FOR TH E PURPOSES OF THIS SECTION PREPARE ITS PROFIT AND LOSS ACCOUN T FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVI SIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES AC T 1956 (1 OF 1956): (I) THE ACCOUNTING POLICIES; (II) THE ACCOUNTING STANDARD ADOPTED FOR PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; (III) THE METHOD AND RATES ADOPTED FOR CALCULATING THE DEPRECIATION SHALL BE THE SAME AS HAVE BEEN ADOPTED FOR THE PURP OSE OF PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS A CCOUNT AND LAID ITA NO. 5810/M/2008 7 BEFORE THE COMPANY AT ITS ANNUAL GENERAL MEETING IN ACCORDANCE WITH THE PROVISIONS OF SECTION 210 OF THE COMPANIES ACT 1956 (1 OF 1956): PROVIDED FURTHER THAT WHERE THE COMPANY HAS ADOPTED OR ADOPTS THE FINANCIAL YEAR UNDER THE COMPANIES ACT 1956 (1 OF 1956) WHICH IS DIFFERENT FROM THE PREVIOUS YEAR UNDER THIS ACT - (I) THE ACCOUNTING POLICIES (II) THE ACCOUNTING STANDARDS ADOPTED FOR PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT; (III) THE METHOD AND RATES ADOPTED FOR CALCULATING THE DE PRECIATION SHALL CORRESPOND TO THE ACCOUNTING POLICIES ACCOUN TING STANDARDS AND THE METHOD AND RATES FOR CALCULATING THE DEPRECIATION WHICH HAVE BEEN ADOPTED FOR PREPARING SUCH ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT FOR SUCH FINANCIAL YEAR OR PART OF SUCH FINANCIAL YEAR FALLING WITHIN THE R ELEVANT PREVIOUS YEAR. EXPLANATION (1) FOR THE PURPOSE OF THIS SECTION BO OK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2) AS INC REASED BY (A) THE AMOUNT OF INCOME TAX PAID OR PAYABLE AND THE PR OVISIONS THEREFOR; OR (B) THE AMOUNT CARRIED TO ANY RESERVES BY WHATEVER NAME CALLED (OTHER THAN A RESERVE SPECIFIED UNDER SECTION 33AC) ; OR (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 SUBSID IARY COMPANIES; OR (E) THE AMOUNT OR AMOUNTS OF DIVIDENDS PAID OR PROPOSED ; OR (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO A NY INCOME TO WHICH (SECTION 10 (OTHER THAN THE PROVISIONS CON TAINED IN CLAUSE (38) THEREOF) OR (SECTION 11 OR SECTION 12 A PPLY; OR) (G) THE AMOUNT OF DEPRECIATION] (H) THE AMOUNT O DEFERRED TAX AND THE PROVISIONS THEREF ORE (I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISIONS FOR D IMUNITION IN THE VALUE OF ANY ASSET. IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (I) IS DEBITED TO THE PROFIT AND LOSS ACCOUNT AND AS REDUCED BY ITA NO. 5810/M/2008 8 (I) THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PROVISION (EXCLUDING A RESERVE CREATED BEFORE THE 1 ST DAY OF APRIL 1997 OTHERWISE THAN BY WAY OF A DEBIT TO THE PROFIT AND LOSS ACCOUNT) IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT; PROVIDED THAT WHERE THIS SECTION IS APPLICABLE TO A N ASSESSEE IN ANY PREVIOUS YEAR THE AMOUNT WITHDRAWN FORM RES ERVES CREATED OR PROVISIONS MADE IN A PREVIOUS YEAR RELEVANT TO T HE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL 1997 SHALL 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 THIS EXPLANATION O R EXPLANATION BELOW THE SECOND PROVISO TO SECTION 115JA AS THE C ASE MAY BE ; OR ] (II) THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIONS OF (SECTION 10 OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF) OR SECTION 11 OR SECTION 12 APPLY IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT ; OR (IIA) THE AMOUNT OF DEPRECIATION DEBITED TO THE PRO FIT AND LOSS ACCOUNT (EXCLUDING THE DEPRECIATION ON ACCOUNT OF R EVALUATION OF ASSETS); OR (IIB) THE AMOUNT WITHDRAWN FROM REVALUATION RESERVE AND CREDITED TO THE PROFIT AND LOSS ACCOUNT TO THE EXTENT IT DO ES NOT EXCEED THE AMOUNT OF DEPRECIATION ON ACCOUNT OF REVALUATIO N OF ASSETS REFERRED TO IN CLAUSE (III) THE AMOUNT OF LOSS BROU GHT FORWARD OR UNABSORBED DEPRECIATION WHICHEVER IS LESS AS PER BOOKS OF ACCOUNT. EXPLANATION FOR THE PURPOSES OF THIS CLAUSE ;- (A) THE LOSS SHALL NOT INCLUDE DEPRECIATION; (B) THE PROVISION OF THIS CLAUSE SHALL NOT APPLY IF THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION IS NIL; OR (IV) THE AMOUNT OF PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE ( C) OF SUB- SECTION (3) OR SUB-SECTION (3A) AS THE CASE MAY BE ; OF THAT SECTION AND SUBJECT TO THE CONDITIONS SPECIFIED IN THAT SECTION; OR (V) THE AMOUNT OF PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHE COMPUTED UNDER THE SUB-SECTION (3) OR SUB-SECTION ( 3A) AS THE CASE MAY BE OF THAT SECTION AND SUBJECT TO THE COND ITIONS SPECIFIED IN THAT SECTION; OR (VI) THE AMOUNT OF PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC COMPUTED UNDER THE SUB-SECTION (3) OF THAT SECTION AND SUBJECT TO THE CONDITIONS SPECIFIED IN THAT SECTION ; OR ITA NO. 5810/M/2008 9 (VII) THE AMOUNT OF PROFITS OF SICK INDUSTRIAL COMPANY FO R THE ASSESSMENT YEAR COMMENCING ON AND FROM THE ASSESMEN T YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SAID COM PANY HAS BECOME A SICK IDNSUTRIAL COAMPNY UNDER SUB-SECTION (1) OF SECTION 17 OF THE SICK INDUSTRIAL COMPANIES (SPECIA L PROVISONS) ACT 1985 (1 OF 1986) AND ENDING WITH THE ASSESSMEN T YEAR DURING WHICH THE ENTIRE NET WORTH OF SUCH COMPANY B ECOMES EQUAL TO OR EXCEEDS THE ACCUMULATED LOSSES. EXPLANATION FOR THE PURPOSES OF THIS CLAUSE NET WORTH SHALL HAVE THE MEANING ASSIGNED TO IT IN THE CLAUSE (GA) OF SU B-SECTION (1) OF SECTION 3 OF THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT 1985 (1 OF 1986); OR (VIII) THE AMOUNT OF DEFERRED TAX IF ANY SUCH AMOUNT IS C REDITED TO THE PROFIT AND LOSS ACCOUNT} [EXPLANATION 2 FOR THE PURPOSES OF CLAUSE (A) OF EXPLANATION 1 THE AMOUNT OF INCOMETAX SHALL INCLUDE (I) ANY TAX ON DISTRIBUTED PROFITS UNDER SECTION 115-O OR ON DISTRIBUTED INCOME UNDER SECTION 115R (II) ANY INTEREST CHARGED UNDER THIS ACT; (III) SURCHARGE IF ANY AS LEVIED BY THE CENTRAL ACTS FRO M TIME TO TIME (IV) EDUCATION CESS ON INCOMETAX IF ANY AS LEVIED BY TH E CENTRAL ACTS FROM TIME TO TIME; AND (V) SECONDARY AND HIGHER EDUCATION CESS ON INCOME-TAX IF ANY AS LEVIED BY THE CENTRAL ACTS FROM TIME TO TIM E]. 8. FROM A READING OF THE SECTION IT IS APPARENT TH AT THE NET PROFIT TAKEN FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT IS TO BE INCREASED BY ITEMS LIKE INCOME TAX PAYABLE AMOUNTS CARRIED TO A NY RESERVE AMOUNT SET ASIDE FOR PROVISIONS FOR MEETING ANY UNASCERTAI NED LIABILITY THE AMOUNT BY WAY OF LOSSES OF SUBSIDIARY AMOUNT OF DI VIDEND PAID OR PROPOSED ETC. FURTHER THE PROFITS ARE TO BE REDUCED BY ANY AMOUNT WITHDRAWN FROM THE RESERVE IF IT WAS CREATED PRIOR TO APRIL 1997 OR WHICH WAS ADDED IN COMPUTING THE BOOK PROFIT IN THE YEAR IN WHICH IT WAS MADE SHOULD BE EXCLUDED IN COMPUTING THE BOOK PROFITS. F ROM THE ABOVE IT IS VERY CLEAR THAT THE NET PROFIT FIGURE TO BE TAKEN I S ONLY AFTER THE APPROPRIATION IE. BELOW THE LINE. OTHERWISE ADDI NG TO / REDUCING FROM ITA NO. 5810/M/2008 10 THE BOOK PROFITS THE APPROPRIATIONS LIKE AMOUNT CAR RIED TO RESERVE AMOUNT WITHDRAWN FORM THE RESERVE THE PROVISIONS M ADE FOR DIMINUTION IN VALUE OF ASSETS PROVISIONS FOR MEETING LIABILIT Y ETC. AS PER THE EXPLANATIONS BECOME UNWORKABLE. THEREFORE THE LANG UAGE OF SECTION 115JB IS VERY CLEAR TO INDICATE THAT STARTING POINT OF THE PROFIT AND LOSS SHOULD BE THE FIGURE AFTER THE APPROPRIATION AS WEL L AS ANY EXTRAORDINARY ITEM MADE OR PRIOR YEAR EXPENSES WHICH THE COMPANY MAY FOR THE PURPOSE PRESENTATION SHOW `BELOW THE LINE. THEREFO RE AMOUNTS CREDITED OR DEBITED TO THE P&L ACCOUNT BELOW LINE CANNOT BE IGNORED. THIS VIEW IS SUPPORTED BY THE DECISION OF THE HYDERABAD TRIBUNAL IN THE CASE OF GULF OIL CORPORATION LTD. VS ACIT (111 ITD 124). 9. IN THE CASE OF APOLLO TYRES LTD THE ISSUE WAS WHETHER IN THE YEAR THE COMPANY CHANGES THE METHOD OF PROVIDING DEPRECI ATION FROM STRAIGHT LINE METHOD TO WDV METHOD AND THE COMPANY PROVIDED FOR THE ADDITIONAL DEPRECIATION WHICH THEY WOULD HAVE PROVIDED IN THE EARLIER YEARS IF THEY HAD ADOPTED THE WDV METHOD FROM THE BEGINNING AND D ISPLAYED THE ADDITIONAL DEPRECIATION `BELOW THE LINE THE SAME CAN BE DEDUCTED IN COMPUTING THE BOOK PROFITS FOR THE YEAR. THUS THE DEPRECIATION PERTAINING TO THE EARLIER YEARS WERE DEBITED TO THE PROFIT AND LOSS ACCOUNT BELOW THE LINE DURING THE YEAR IN APPEAL AND THE TRIBUNAL (44 TTJ 534) HELD THAT DEBITING THE AMOUNT BELOW THE LINE WOULD NOT MAKE A NY DIFFERENCE IN COMPUTING BOOK PROFITS AND OBSERVED AS UNDER:- EVEN IF IT IS HELD THAT ARREARS OF DEPRECIATION I S NOT A LEGITIMATE CHARGE AGAINST THE PROFITS OF THE YEAR B UT SHOULD BE VIEWED ONLY AS AN APPROPRIATION OF PROFIT STILL TH E SAME CANNOT BE ADDED BACK TO ARRIVE AT THE BOOK PROFIT FOR PURPOSE S OF SEC 115J. THE EXPLANATION TO SEC 115J DEALS WITH CERTAIN SPEC IFIC ADJUSTMENTS. SOME OF THE ITEMS MENTIONED THEREIN CAN BE VIEWED AS FORMING PART OF THE INCOME OR THE EXPENDITURE OF THE YEAR U NDER REVIEW AS FOR EXAMPLE THE ADJUSTMENT MENTIONED IN CL. (F) A N (F)(II) WHICH DEAL WITH INCOME AND THE EXPENDITURE WHICH ARE NOT SUBJECTED TO CENTRAL INCOME TAX THOUGH THE SAME ARE FOUND IN THE PROFIT AND LOSS ACCOUNT BEFORE THE ASCERTAINMENT OF PROFIT. PAST LO SSES TO THE EXTENT ITA NO. 5810/M/2008 11 OF DEPRECIATION PROVIDED IN THE ACCOUNTS IN THE EAR LIER YEARS FOR WHICH ADJUSTMENT IS STIPULATED IN CL (F)(III) OF T HE EXPLANATION WILL NOT FIGURE ANYWHERE IN THE PROFITS AND LOSS ACCOUNT OF THE RELEVANT PREVIOUS YEARS. THERE ARE ALSO ADJUSTMENTS ENVISAG ED IN SEC 115J FOR CERTAIN ITEMS WHICH CAN BE VIEWED ONLY AS APPRO PRIATION OF PROFITS AND SUCH ITEMS ARE SPECIFICALLY MENTIONED IN CLS. (A) TO (E) OF THE EXPLANATION CITED SUPRA. IN ADDITION THERE I S AN ITEM OF ADJUSTMENT AS PROVIDED IN CL. (F) (I) WHICH DEALS W ITH WITHDRAWAL OF RESERVES REPRESENTING PROFITS TAKEN TO THE RESERVES IN THE EARLIER YEARS. SO ALSO ADJUSTMENT IS PROVIDED FOR IN RESPE CT OF EXCESS PROVISION WRITTEN BACK INTO THE PROFIT AND LOSS ACC OUNT IN CL. (F)(I) OF THE EXPLANATION. BUT NOWHERE IS THERE ANY MENTION FOR ADJUSTMENT OF PRIOR PERIOD EXPENSES SUCH AS ARREARS OF DEPRECI ATION NO MATTER WHETHER IT IS LOOKED UPON AS A CHARGE AGAINST THE P ROFIT OR AS AN APPROPRIATION OF PROFIT. THE LEGISLATURE WHICH HAS REFERRED TO PART II AND III OF SCHEDULE VI TO THE COMPANIES ACT MUST BE CREDITED WITH THE KNOWLEDGE OF SEVERAL ITEMS THAT APPEAR IN THE P ROFIT AND LOSS ACCOUNT INCLUDING THE APPROPRIATIONS FOUND THEREIN. THEREFORE ANY ITEM WHICH IS NOT EARMARKED FOR ADJUSTMENT IN THE EXPLANATION CANNOT BE BROUGHT WITHIN THE MISCHIEF OF THE EXPLA NATION TO SEC 115J. IN OTHER WORDS THE ASSESSING AUTHORITY HAS N O JURISDICTION TO MAKE ADDITIONS OR SUBTRACTIONS AS HE LIKES CONTRARY TO WHAT IS SPECIFICALLY PROVIDED FOR IN SECTION 115J. 10. THIS DECISION OF THE TRIBUNAL HAS BEEN APPROVED BY THE APEX COURT IN THEIR DECISION IN THE CASE OF APPOLLO TYRES LTD REPORTED IN 255 ITR 273. THUS FROM THE READING OF SECTION AS WELL AS THE ABO VE DECISION IT IS VERY CLEAR THAT WHAT IS TO BE THE STARTING POINT OF THE PROFIT AND LOSS IS THAT AFTER APPROPRIATION AND EXTRA ORDINARY ITEM INCLUDI NG THE PRIOR YEAR EXPENSES.. 11. IN THE CIRCUMSTANCES WE HOLD THAT STARTING POI NT FOR COMPUTING THE BOOK PROFIT IS THE FIGURE OF RS 54 168 537/- APPEAR ING AFTER APPROPRIATION AND EXTRA ORDINARY ITEM AND NOT RS.10898948 BEING T HE PROFIT FIGURE ARRIVED AT `ABOVE LINE. 12. THE SECOND ISSUE IS THE TREATMENT OF THE CESSAT ION OF LIABILITY ON ACCOUNT OF SETTLEMENT LOAN LIABILITY WITH GLOBAL TR UST BANK FOR THE PURPOSE OF BOOK PROFITS. AS A RESULT OF SETTLEMENT WITH TH E BANK THE LIABILITY OF THE ITA NO. 5810/M/2008 12 ASSESSEE TO THE BANK TO THE EXTENT OF RS.44513406/- CEASED AND THE ASSESSEE HAS CREDITED THIS AMOUNT TO THE PROFIT AND LOSS ACCOUNT AS BEING THE LIABILITY NO LONGER REQUIRED. NO DOUBT PART OF THIS REPRESENT PRINCIPAL VALUE OF THE LOAN WHICH HAS BEEN WAIVED AND IT IS T HE ASSESEES CONTENTION SUCH WAIVER OF PRINCIPAL LOAN WOULD CONSTITUTE CAPI TAL RECEIPT AND THEREFORE CANNOT BE INCLUDED IN THE COMPUTATION OF BOOK PROFI T. 13. WE ARE NOT ABLE TO SUBSCRIBE THIS VIEW OF THE A SSESSEE. COMPUTATION OF BOOK PROFIT IS A SEPARATE CODE ITSEL F AND DETERMINATION HAS TO BE MADE ON THE BASIS OF PROFIT COMPUTED IN THE C OMPANIES ACT AND IN ACCORDANCE WITH THE VARIOUS ACCOUNTING STANDARD AND GUIDELINE ISSUED IN THIS REGARD. WHAT IS CAPITAL OR REVENUE FOR THE PUR POSE OF COMPUTATION OF TAXABLE INCOME UNDER THE NORMAL PROVISIONS MAY NOT BE THE CAPITAL OR REVENUE WHILE COMPUTING BOOK PROFIT. IN FACT THERE APPEARS TO BE NO DISTINCTION BETWEEN THE CAPITAL PROFIT AND REVENUE PROFIT WHILE COMPUTING THE BOOK PROFIT AS PER THE PROVISIONS OF SCHEDULE V I OF THE COMPANIES ACT. PROFIT ON SALE OF CAPITAL ASSETS AS WELL AS PROFIT ON SALE OF STOCK IN TRADE FORM PART OF SAME PROFIT AND LOSS AND TAKEN INTO AC COUNT WHILE DETERMINING THE BOOK PROFIT. THE SUPREME COURT IN T HE CASES OF APOLLO TYRES LTD (255 ITR 273) AND HCL COMNET SYSTEMS & S ERVICES LTD (305 ITR 409) HAS CLEARLY LAID DOWN THAT THE ASSESSING OFFICER HAS NO RIGHT TO TINKER THE AUDITED ACCOUNT PRESENTED BEFORE THE SHA REHOLDERS AND SUBMITTED BEFORE THE ROC. IT IS NOT THE CASE OF TH E ASSESSEE THAT THE PROFIT AND LOSS ACCOUNT PREPARED BY THEM IS NOT IN ACCORDANCE WITH SCHEDULE VI OF THE COMPANIES ACT. AS POINTED OUT EA RLIER ANY RECEIPT EVEN IF IT IS A CAPITAL RECEIPT WHICH MAY OR MAY N OT BE TAXABLE UNDER THE NORMAL PROVISIONS OF THE INCOME TAX ACT IF IT IS C REDITED TO THE PROFIT AND LOSS ACCOUNT CANNOT BE EXCLUDED IN COMPUTING THE BO OK PROFIT UNLESS IT IS SPECIFICALLY EXCLUDED UNDER ANY OF THE EXPLANATIONS FOUND IN THAT SECTION. 14. THE BOMBAY HIGH COURT IN THE CASE OF CIT V ESCH JAY FORGINGS LTD REPORTED IN 251 ITR 15 HAS HELD THAT ADDITIONAL LI ABILITY ON ACCOUNT OF ITA NO. 5810/M/2008 13 EXCHANGE FLUCTUATION CONNECTED WITH PURCHASE OF PLA NT AND MACHINERY EVEN THOUGH TREATED AS CAPITAL UNDER SECTION 43A OF THE INCOME TAX ACT SHOULD BE ALLOWED AS REVENUE EXPENDITURE WHILE COMP UTING BOOK PROFITS BECAUSE THE ASSESSEE HAS DEBITED THE EXCHANGE DIFFE RENCE IN ITS PROFIT AND LOSS ACCOUNT. THE JURISDICTIONAL HIGH COURT HAS HEL D THAT TREATMENT IN THE INCOME TAX ACT HAS NO RELEVANCE IN COMPUTING THE BO OK PROFIT. IN THE SAME DECISION THE BOMBAY HIGH COURT HAS HELD THAT P ROVISIONS MADE IN WEALTH TAX IS AN ALLOWABLE DEDUCTION IN COMPUTING T HE BOOK PROFIT WHILE THE SAME IS NOT ALLOWABLE WHILE COMPUTING THE PROFI T UNDER THE NORMAL PROVISIONS OF THE ACT. 15. THE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VEEKAYLAL INVESTMENT CO P LTD (249 ITR 597 ) HAS HELD THAT CAPITAL GAINS CREDITED TO PROFIT AND LOSS ACCOUNT SHOULD BE TAKE INTO ACCO UNT IN COMPUTING BOOK PROFITS. 16. THE DELHI HIGH COURT IN THE CASE OF CIT V GOYA L M.G. GASES (2010- TIOL-91-HC-DEL-IT) HAS HELD AS UNDER: IN THE PRESENT CASE THE ASSESSEE DID NOT CLAIM NO R WAS ALLOWED ANY DEDUCTION OR BENEFIT OF ALLOWANCE BY WA Y OF ALLOWABLE EXPENDITURE AND TRADING LIABILITY AND THE SAME BEI NG CREDITED TO THE PROFIT AND LOSS ACCOUNT HAD BEEN SUBJECTED TO TAX A S PART OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT. WE ARE THER EFORE OF THE OPINION THAT THE CONCLUSIONS OF THE TRIBUNAL ARE BA SED ON A CORRECT APPRECIATION OF LAW AND THEREFORE DO NOT WARRANT ANY INTERFERENCE BY THIS COURT. 17. THE HIGH COURT HAS APPROVED THE FACT THAT WRITE BACK OF LOANS THOUGH IS NOT TAXABLE UNDER THE NORMAL PROVISIONS O F THE ACT ARE INCLUDIBLE FOR THE PURPOSE OF COMPUTING BOOK PROFITS. 18. THE SPECIAL BENCH OF THE HYDERBAD TRIBUNAL IN T HE CASE OF RAIN COMMODITIES LTD V DCIT (131 TTJ 514) HAS HELD THAT PROFIT ON SALE OF CAPITAL ASSETS CREDITED TO THE PROFIT AND LOSS ACCO UNT IS INCLUDIBLE IN ITA NO. 5810/M/2008 14 COMPUTING BOOK PROFITS NOTWITHSTANDING THE FACT TH AT THE SAME IS EXEMPTED UNDER THE NORMAL PROVISIONS OF THE INCOME TAX ACT ON ACCOUNT OF THE INVESTMENT OF CAPITAL GAINS IN AN APPROVED M ODE. 19. IN THE CIRCUMSTANCES WE ARE OF THE OPINION THAT THE CIT(A) WAS CORRECT IN HOLDING THAT STARTING POINT FOR DETERMIN ING THE BOOK PROFIT UNDER SECTION 115JB IS RS.54168537/- AND IN COMPUTING THE BOOK PROFITS UNDER SECTION 115JB NO PART OF THE LIABILITY OF RS.445134 06/- THAT HAS CEASED ON ACCOUNT OF SETTLEMENT OF LOAN LIABILITY OF GLOBAL T RUST BANK CAN BE EXCLUDED EVEN THOUGH PART OF THE LIABILITY MAY REPRESENT WAI VER OF PRINCIPAL AMOUNT OF LOAN. 20. THE ASSESSEE APPEAL ON THIS ISSUE IS DISMISSED . 21. THE NEXT GROUND OF APPEAL IS AGAINST THE CONFIR MATION BY THE COMMISSIONER OF INCOME TAX (APPEALS) OF DISALLOWANC E OF RS. 11 93 824/- AS PRIOR PERIOD EXPENSES. THE A.O. HAS DISALLOWED A SUM OF RS. 11 93 824/- BEING PREVIOUS YEAR EXPENSES ON THE GRO UNDS THAT THEY DO NOT RELATE TO THE PREVIOUS YEAR RELEVANT TO THE AS SESSMENT YEAR BEFORE THE CIT(A) THE ASSESSEE FURNISHED DETAILS OF THE EX PENSES CLAIMED AND SUBMITTED THAT THE LIABILITY ACCRUED DURING THE YEA R UNDER APPEAL. 22. THE CIT(A) DISMISSED THE APPEAL AS UNDER : FROM THE ABOVE FACTS I AM UNABLE TO COME TO ANY C ONCLUSION AS TO THE PREVIOUS YEAR DURING WHICH THESE EXPENSES HAVE ACCRUED. IN COLUMN 22(B) OF THE TAX AUDIT REPORT IT HAS BEEN MENTIONED THAT DEBIT OF RS 11 93 824/- IS ON ACCOUNT OF PRIOR PERIOD EXPENSES. I AM THEREFORE LEFT WITH NO OPTION BUT TO AGREE WI TH THE AO THAT THESE EXPENSES HAVE NOT ACCRUED DURING THE PREVIOUS YEAR. THIS GROUND OF APPEAL IS DISMISSED. 23. IN OUR OPINION AS THE ASSESSEE HAD FURNISHED AL L THE DETAILS THE CIT(A) OUGHT TO HAVE EXAMINED THE ACCRUAL OF LIABIL ITY. WE THEREFORE FEEL ITA NO. 5810/M/2008 15 THAT IT REQUIRES FURTHER INVESTIGATION WHETHER THE EXPENDITURE CAN BE SAID TO HAVE ACCRUED DURING THE YEAR AND THEREFORE ALLOW ABLE. UNDER THE CIRCUMSTANCES WE SET ASIDE THE ISSUE TO THE FILE OF THE CIT(A) FOR DECIDING THE SAME IN ACCORDANCE WITH LAW. 24. THE NEXT GROUND OF APPEAL IS AGAINST THE CONFIR MATION BY COMMISSIONER OF INCOME TAX (APPEALS) OF DISALLOWANC E OF RS. 4 01 128/- OUT OF CASH EXPENSES INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF APPELLANTS BUSINESS MERELY FOR THE REASON THAT THE SAID EXPENSES WERE EVIDENCED BY SELF MADE VOUCHERS AND WERE NOT SUPPOR TED BY THIRD PARTY BILLS. THE AO HAS MADE AN ADDITION OF RS. 4 01 128/ - AFTER VERIFICATION OF THE IMPOUNDED BOOKS OF ACCOUNT CONTAINING CASH VOUC HERS AS HE FOUND THAT SOME OF THESE VOUCHERS WERE SELF MADE AND NOT SUPPORTED BY THIRD PARTY BILLS. 25. THE CIT(A) DISMISSED THE APPEAL BY THE ASSESSEE HOLDING AS UNDER: THE APPELLANT HAS NOT BEEN ABLE TO CONTRADICT THE FACT THAT SELF MADE VOUCHERS HAVE BEEN DEBITED IN THE BOOKS O F ACCOUNT. IN THE CIRCUMSTANCES I FIND NO REASON TO INTERFERE WI TH THE FINDINGS OF THE A.O. THIS GROUND OF APPEAL IS DISMISSED. 26. ALL OF THE EXPENSES CANNOT BE SUPPORTED BY 3 RD PARTY BILLS. FOR EXAMPLE CONVEYANCE. EXPENSES CANNOT BE REJECTED OR DISALLOWED MERELY ON THE GROUND THAT THEY ARE NOT SUPPORTED BY THIRD PARTY VOUCHERS. TYPE OF EXPENSES AND CIRCUMSTANCES TO INDICATE THAT SUCH EXPENSES WOULD HAVE BEEN INCURRED AND REASONABLENESS OF THE EXPENDITURE WOULD HAVE TO BE CONSIDERED BEFORE DISALLOWING ANY EXPENDITURE. WE T HEREFORE REMIT THE MATTER BACK TO THE CIT(A) TO CONSIDER THE ALLOWABIL ITY OF THESE EXPENSES IN ACCORDANCE WITH LAW. ITA NO. 5810/M/2008 16 27. THE NEXT GROUND OF APPEAL OF THE ASSESSEE IS AG AINST THE CONFIRMATION OF COMMISSIONER OF INCOME TAX (APPEALS ) OF DISALLOWANCE RS 25 802/- BY INVOKING PROVISIONS OF SEC 40A(3). 28. AT THE TIME OF HEARING THIS GROUND WAS NOT PRES SED BY THE LEARNED AR OF THE ASSESSEE AND HENCE THIS GROUND IS DISMISS ED AS NOT PRESSED. 29. THE NEXT GROUND OF APPEAL IS AGAINST THE REFUSA L OF THE COMMISSIONER OF INCOME TAX (APPEALS) TO ADMIT THE F OLLOWING ADDITIONAL GROUNDS OF APPEAL FILED DURING THE COURSE OF APPELL ATE PROCEEDINGS. (THE APPELLANT CRAVES LEAVE TO THE FOLLOWING ADDIT IONAL GROUNDS OF APPEAL. IT IS SUBMITTED THAT THE ADDITIONAL GROU NDS RAISED ARE STRICTLY ON LEGAL ISSUES AND DO NOT REQUIRE ANY ADD ITIONAL INVESTIGATION OF FACTS. THE ADDITIONAL GROUNDS ARI SE FROM THE ORDERS PASSED BY THE AO. AND ARE INTERRELATED TO TH E GROUNDS OF APPEAL RAISED IN THE ORIGINAL MEMORANDUM OF APPEAL FILED BY THE APPELLANT. IT IS SUBMITTED THAT THE APPELLANT DUE TO LACK OF KNOWLEDGE AND PROPER ADVICE DID NOT RAISE THE ADDIT IONAL GROUNDS OF APPEAL IN THE ORIGINAL MEMORANDUM OF APPEAL FILE D. IN VIEW OF THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF JUTE CORPORATION OF INDIA LTD (187 ITR 688) AND NATIONAL THERMAL POWER CORPN. LTD ( 229 ITR 383) IT IS PRAYED THAT T HE ADDITIONAL GROUNDS OF APPEAL BE ADMITTED). A. THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX ERRE D IN INCLUDING THE ENTIRE AMOUNT OF BENEFIT OF RS 4 45 1 3 405/- ARISING ON SETTLEMENT WITH GLOBAL TRUST BANK LTD. IN THE GROSS TOTAL INCOME OF THE APPELLANT AND WHILE DOING SO HE AMONGST OTHERS FAILED TO APPRECIATE THAT THE SAID AMOUNT WA S NOT ENTIRELY ASSESSABLE U/S 41(1) AS DEEMED INCOME OF T HE APPELLANT FOR THE ASST. YEAR 2003-04. 30. ADDITIONAL GROUNDS: THIS GROUND OF APPEAL READS AS FOLLOWS: THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX ERR ED IN INCLUDING THE ENTIRE AMOUNT OF BENEFIT OF RS 4 45 1 3 405/- ARISING ON SETTLEMENT WITH GLOBAL TRUST BANK LTD. IN THE G ROSS TOTAL ITA NO. 5810/M/2008 17 INCOME OF THE APPELLANT AND WHILE DOING SO HE AMONG ST OTHERS FAILED TO APPRECIATE THAT THE SAID AMOUNT WAS NOT E NTIRELY ASSESSABLE U/S 41(1) AS DEEMED INCOME OF THE APPELL ANT FOR THE AY 2003-04. 31. IN ITS SUBMISSIONS DATED 17.7.2008 THE APPELL ANT HAS STATED THAT LOAN WRITTEN BACK AMOUNTING TO RS 4 05 94 522/- AN D CREDITED TO THE P & L ACCOUNT IS NOT TAXABLE U/S 41(1). THE APPELLANT H AS GIVEN DETAILS OF THE LOAN AMOUNT AS WELL AS THE INTEREST ACCRUED WHICH H AS BEEN WRITTEN BACK IN THE P & L ACCOUNT. IT HAS BEEN SUBMITTED THAT TH E PRINCIPLE AMOUNT OF LOAN HAS NOT BEEN CLAIMED AS DEDUCTION AND HENCE T HE SAME CANNOT BE ADDED TO THE TOTAL INCOME U/S 41(1). THE CIT(A) DIS MISSED THE GROUND OBSERVING AS UNDER: I HAVE PERUSED THE FACTS IN THIS CASE. THE AO HA S NOT MADE ANY ADDITION U/S 41(1) IN THE ASSESSMENT ORDER . THE AO HAS STARTED THE COMPUTATION OF INCOME FROM THE F IGURE OF GROSS TOTAL INCOME AS PER RETURN AMOUNTING TO R S 577 70 710/- THIS FIGURE IS THE SAME AS THE COMPUTA TION OF THE ASSESSEE FILED IN THE RETURN OF INCOME. IT IS A DIFFERENT MATTER THAT THE ASSESSEE HIMSELF HAS OFFERED FOR TA XATION THE AMOUNT WRITTEN BACK AMOUNTING TO RS. 405 94 52 2/- THE APPELLANT NOW WANTS TO GET RELIEF ON THIS AMOUN T WHICH IT HAS ITSELF OFFERED FOR TAXATION. THE TIME AVAILABLE FOR RECTIFYING THE RETURN U/S 139(5) IS LONG OVER. THIS IS NOT A QUESTION OF LAW WHICH CAN BE CONSIDERED AT THE AP PELLATE STAGE. THE FACT WHETHER THE AMOUNT WRITTEN BACK IS TAXABLE OR NOT IS QUESTION OF FACT. THE APPELLANT HAS HIMS ELF OFFERED THIS FOR TAXATION. THEREFORE AT THIS STAG E OF APPEAL THAT TOO THROUGH AN ADDITIONAL GROUND THE APPELLANT CANNOT AGITATE THIS GROUND. HENCE THIS GROUND OF APPEAL IS DISMISSED. 32. THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS REGARDING THE TAXABILITY OF THE LOAN WAIVED UNDER A SETTLEMENT. T HE AMOUNT WAIVED WAS 445 13 405/-. WHETHER AMOUNT OF PRINCIPAL LOAN AMOU NT WAIVED IS TAXABLE OR NOT IS A LEGAL ISSUE AND ALL THE FACTS WERE BEFO RE THE LOWER AUTHORITIES. IN FACT THE ASSESSEE HAD RAISED THE ISSUE WHETHER T HE WAIVED AMOUNT SHOULD BE INCLUDED WHILE COMPUTING BOOK PROFITS AND THE ADDITIONAL ITA NO. 5810/M/2008 18 GROUND IS ONLY ANOTHER ASPECT OF THE SAME VIZ. WHE THER THE AMOUNT IS TAXABLE UNDER THE NORMAL PROVISIONS OF THE ACT. WE FIND THAT CIT(A) OUGHT TO HAVE ADMITTED THIS ADDITIONAL GROUND AND D ECIDED THE SAME ON MERITS. CONSEQUENTLY THIS ISSUE IS ALSO SET ASIDE T O THE FILE OF THE CIT(A) FOR CONSIDER THE ADDITIONAL GROUND RAISED BY THE AS SESSEE ON MERITS AND IN ACCORDANCE WITH LAW. 33. THE NEXT GROUND IS AGAINST THE COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING THE INTEREST CHARGED U/S 23 4A 234B 234C AND 234D OF THE INCOME TAX ACT 1961. 34. AS REGARDS 234D WE FIND THAT SPECIAL BENCH OF THE DELHI TRIBUNAL IN THE CASE OF EKTA PROMOTERS REPORTED IN 313 ITR 170 HAS HELD THAT INTEREST UNDER SECTION 234D CAN BE LEVIED ONLY FROM THE ASSE SSMENT YEAR 2004-05 AND HENCE LEVY OF INTEREST UNDER SECTION 234D CANNO T BE MADE IN THE YEAR OF APPEAL AND HENCE ALLOW THE ASSESSEES APPEA L. 35. AS REGARDS SECTION 234A 234B AND 234C WE SET A SIDE THE MATTER TO THE FILE OF THE CIT(A) TO DETERMINE THE SAME AFTER DECIDING THE OTHER ISSUE AND ALSO INTEREST UNDER SECTION 234B CAN BE LEVIED WHILE THE TOTAL INCOME IS COMPUTED UNDER SECTION 115JB. 36. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 5 TH DAY OF JANUARY 2011. SD/- SD/- PRAMOD KUMAR ASHA VIJAYARAGHAVAN (ACCOUNTANT MEMBER) (JUDICI AL MEMBER) MUMBAI DATED 5 TH JANUARY 2011. RJ ITA NO. 5810/M/2008 19 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CENTRAL - I CONCERNED 5. THE DR D BENCH TRUE COPY BY ORDER ASST. REGISTRAR I.T.A.T MUMBAI DATE INITIALS 1 DRAFT DICTATED ON: 3.01..2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 4.01.2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ S R. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______ 10. DATE ON WHICH FILE GOES TO AR