M/s. Gujarat Carbon & Industries Ltd.,, Baroda v. The ACIT.,Circle-1(1),, Baroda

ITA 671/AHD/2008 | 2002-2003
Pronouncement Date: 10-02-2012 | Result: Partly Allowed

Appeal Details

RSA Number 67120514 RSA 2008
Assessee PAN AAACG7273L
Bench Ahmedabad
Appeal Number ITA 671/AHD/2008
Duration Of Justice 3 year(s) 11 month(s) 20 day(s)
Appellant M/s. Gujarat Carbon & Industries Ltd.,, Baroda
Respondent The ACIT.,Circle-1(1),, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 10-02-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 10-02-2012
Date Of Final Hearing 02-02-2012
Next Hearing Date 02-02-2012
Assessment Year 2002-2003
Appeal Filed On 20-02-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD D BENCH BEFORE SHRI G.C.GUPTA VICE-PRESIDENT (AZ) AND SHRI B.P. JAIN ACCOUNTANT MEMBER ITA NO.671/AHD/2008 ASSESSMENT YEAR:2002-03 M/S GUJARAT CARBON & INDUSTRIES LTD. 6 TH FLOOR OFFTEL TOWER BARODA PAN NO.AAACG7273L / V/S . ACIT CIRCLE-1(1) BARODA / APPELLANT .. / RESPONDENT / APPELLANT BY SHRI MILIN MEHTA AR /RESPONDENT BY SHRI B.L. YADAV SR-DR / DATE OF HEARING 02-02-2012 / DATE OF PRONOUNCEMENT 10-02-2012 !' !' !' !' / // / ORDER PER B.P. JAIN ACCOUNTANT MEMBER:- THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER O F LD. COMMISSIONER OF INC-TAX (APPEALS)-I BARODA DATED 0 7-11-2007 FOR THE ASSESSMENT YEAR 2002-03. THE ASSESSEE HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS )-I BARODA [THE CIT(A)] ERRED IN FACT AND IN LAW IN CONFORMING ACT ION OF THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1(1) BARODA [TH E AO ] IN MAKING DISALLOWANCE OF RS.12 00 000/- BEING HIRING CHARGES OF DG SET ON THE ERRONEOUS GROUND THAT THE SAME REPRESENTS BOGUS EXP ENSES. ITA NO.671/AHD/2008 A.Y. 2002-03 M/S GUJARAT CARBON & INDS. LTD. V. ACIT CIR-1(1 ) BRD PA GE 2 2. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN C ONFIRMING ACTION OF THE AO IN MAKING DISALLOWANCE OF MISCELLANEOUS EXPENSES OF RS .77 892/- ON THE ERRONEOUS GROUND THAT THE SAME IS INCURRED FOR NON- BUSINESS PURPOSE. 3. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN C ONFIRMING ACTION OF THE AO IN RE-COMPUTING THE BOOK PROFITS OF THE APPELLANT AND IN NOT ACCEPTING THE CONTENTION OF THE APPELLANT THAT THE BOOK PROFITS U /S.115JB OF THE INCOME TAX ACT 1956 [THE ACT] IS NIL. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING ACTION OF THE AO IN MAKING ADJUSTMENTS TO BOOK PROFIT OF THE APPELLANT DESPITE THE FACT THAT THE PROFIT AND LOS ACCOUNT IS PREPARED BY THE APPELLANT ON THE BASIS OF PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT 1956 AND THE SAME IS APPROVED BY THE COMPANYS BOARD OF DIRECTORS THE A UDITORS THE COMPANY IN GENERAL MEETING AND ALSO THE REGISTRAR OF COMPANIES UNDER THE COMPANIES ACT 1956. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF ORMING ACTION OF THE AO IN CONCLUDING THAT THERE IS NO UNABSORBED DEPRECIATION AVAILABLE FOR SET OFF AND THEREFORE NO SET OFF IS AVAILABLE UNDER CLAUSE (III ) OF EXPLANATIONS TO SECTION 115JB(2) OF THE ACT. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING ACTION OF THE AO IN OBSERVING THAT THE UNABSORBED DEPRECIATION AVAILABL E FOR SET OFF / CARRY FORWARD IS NIL DUE TO ERRONEOUS ADJUSTMENTS OF LOSSES AND D EPRECIATION FOR EARLIER YEARS. 4. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN C ONFIRMING ACTION OF THE AO IN CHARGING INTEREST U/S. 234B 234D OF THE ACT. 5. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN C ONFIRMING ACTION OF THE AO IN WITHDRAWING INTEREST U/S.244A OF THE ACT. 6. THE LEARNED CIT(A) ERRED IN FACTS AND IN LAW IN CONFIRMING ACTION OF THE AO IN INITIATING PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT. 2. IN GROUND NO.1 THE BRIEF FACTS ARE THAT THE ASS ESSING OFFICER OBSEREVED THAT THE ASSESSEE WAS DEBITING RS. 1 LAKH PER MONTH ON ACCOUNT OF DG HIRE CHARGES FROM GUJARAT POWER FIELD PVT. LTD. AHMEDABAD AND THUS RS.12 LAKHS HAD BEEN DECLARED DT O HAVE BEEN PAID DURING THE YEAR. HOWEVER THE ASSESSEE FAILED TO GIVE PAN OF THE DG SUPPLIER OTHER DETAILS OF EXPENSES DATE OF ACT UAL INSTALLATION DATE ITA NO.671/AHD/2008 A.Y. 2002-03 M/S GUJARAT CARBON & INDS. LTD. V. ACIT CIR-1(1 ) BRD PA GE 3 AND MODE OF TRANSPORTATION FROM AHMEDABAD TO DHANOR A. IN THE INVOICE DATED 03-07-2001 IN RESPECT OF THE HIRING CHARGES T HE SUPPLIER COMPANY HAS NOT GIVEN ANY DESCRIPTION OF THE DG SET. FROM T HIS THE AO CONCLUDED THAT IT WAS A BOGUS EXPENDITURE AIMED AT SIPHONING AWAY THE COMPANYS PROFITS AND ACCORDINGLY DISALLOWED THE CL AIM OF RS. 12 LAKHS. 3. BEFORE LD. CIT(A) ASSESSEE FILED LETTER DATED 06 -11-2007 BUT DID NOT MAKE ANY SUBMISSION. THE LD. CIT(A) ACCORDINGLY OBSERVED THAT ASSESSEE HAS NOTHING TO SAY IN THE MATTER AND ACCOR DINGLY HE CONFIRMED THE ACTION OF ASSESSING OFFICER. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. BEFORE US THE LD. AR APPEARING FOR THE ASSESS EE COULD NOT SUBSTANTIATE THE CLAIM OF THE ASSESSEE. THE ASSESSE E HAD FAILED TO GIVE PAN OF THE DG SUPPLIER DETAILS OF EXPENSES DATE O F ACTUAL INSTALLATION DATE MODE OF TRANSPORTATION ETC. IN THE CIRCUMSTAN CES AND FACTS OF THE CASE WE FIND NO ERROR IN THE ORDER OF LD. CIT(A) ON THE ISSUE. THUS GROUND NO.1 OF THE ASSESSEE IS DISMISSED. 5. AS REGARDS GROUND NO.2 THE SAME IS NOT PRESSED AND THEREFORE GROUND NO.2 OF THE ASSESSEE IS DISMISSED AS NOT PRE SSED. 6. AS REGARDS GROUND NO.3 THE BRIEF FACTS ARE THAT THE ASSESSING OFFICER OBSERVED FROM THE ASSESSEES RECORD THAT IT HAD NOT COMPUTED ITS BOOK PROFITS CORRECTLY AS PROVIDED U/S.115JB OF THE ACT. THE MAIN REASON FOR THE DIFFERENCE IN THE AO'S WORKING AND THE ASSE SSEES WORKING WAS ITA NO.671/AHD/2008 A.Y. 2002-03 M/S GUJARAT CARBON & INDS. LTD. V. ACIT CIR-1(1 ) BRD PA GE 4 ON ACCOUNT OF THE TRANSFER OF AMOUNTS FROM RE-VALUA TION RESERVE ACCOUNT TO THE PROFIT AND LOSS ACCOUNT DURING FINANCIAL YEA RS 1993-94 AND 1998- 99. IN ADDITION TO THIS THE ASSESSEE-COMPANY HAD A LSO TRANSFERRED AMOUNT FROM RE-VALUATION RESERVE TO NEUTRALIZE THE EFFECT OF INCREASED DEPRECIATION ON ACCOUNT OF RE-VALUATION OF ASSETS. THE ASSESSEE CONTENDED THAT FOR THE PURPOSE OF COMPUTATION OF BO OK PROFIT ANY AMOUNT DRAWN FROM A RESERVE AND CREDITED TO THE PRO FIT AND LOSS ACCOUNT WAS TO BE REDUCED BY WAY OF ADJUSTMENT AS PROVIDED IN CLAUSE (I) OF EXPLANATION TO SECTION 115JB(2) OF THE ACT. HOWEVER THE AO DISMISSED THE ASSESSEES ARGUMENT BY STATING THAT BEFORE GOIN G INTO APPLICABILITY OF CLAUSE (I) OF EXPLANATION TO SECTION 115JB(2) OF TH E ACT IT WOULD BE USEFUL TO GO BEHIND THE SPIRIT IN WHICH MAT WAS INT RODUCED. IT WAS FOUND THAT ASSESSEE-COMPANY HAD SHOWN SUBSTANTIAL BOOK PR OFIT AND HAD PAID DIVIDENDS BUT AT THE SAME TIME PAID ZERO TAX TO THE EXCHEQUER. IN THE INSTANT CASE THE ASSESSEE-COMPANY ADMITTEDLY REVAL UED ITS ASSETS ON TWO OCCASIONS AND CREATED RE-VALUATION RESERVE. THI S EXERCISE HAS NOT INCREASED THE BOOK PROFIT OF THE RELEVANT YEARS WHE N REVALUATION RESERVES WERE CREATED. THEREAFTER THE ASSESSEE-COMPANY IN OR DER TO WIPE OUT THE BROUGHT FORWARD LOSSES / UNABSORBED DEPRECIATION OR TO NEUTRALIZE ADDITIONAL DEPRECIATION TRANSFERRED AMOUNTS FROM RE -VALUATION RESERVES IN ITS BOOKS OF ACCOUNT AND PRESENTED A HEALTHY BALANC E-SHEET BEFORE THE INVESTOR. THE AO RELIED UPON THE FOLLOWING DECISION S WHERE IT WAS HELD THAT IN THE CASES OF RE-VALUATION RESERVES THE AMO UNT TRANSFERRED TO PROFIT AND LOSS ACCOUNT IS NOT REQUIRED TO BE EXCLU DED UNDER CLAUSE (I) OF EXPLANATION TO SECTION 115JB(2) OF THE ACT:- I) DCIT V. STERLING STEELS & WIRE LTD. (2004) 91 IT D 564 (AMS) II) DCIT V. DCW LTD. (2000) 72 TTJ 151 (MUM) III) SOUTHERN PETRO CHEMICAL INDUSTRY V. DCIT (200 4) 93 TTJ 161 (CHEN) ITA NO.671/AHD/2008 A.Y. 2002-03 M/S GUJARAT CARBON & INDS. LTD. V. ACIT CIR-1(1 ) BRD PA GE 5 THUS THE AO CONCLUDED THAT ALL SUCH RESERVES WHICH WERE CREATED OTHERWISE THAN BY WAY OF APPROPRIATION OF PROFITS W ERE NOT ELIGIBLE FOR BENEFIT OF EXCLUSION. ACCORDINGLY AO RE-WORKED THE BROUGHT FORWARD LOSES / UNABSORBED DEPRECIATION FOR VARIOUS YEARS A ND HELD THE SAME TO BE IN ACCORDANCE WHICH THE PROVISIONS OF MAT. APPLY ING THE SAME PRINCIPLE AO HELD THAT DUE TO TRANSFER FROM REVALU ATION RESERVE TO PROFIT AND LOSS ACCOUNT THERE REMAINS NO UNABSORBED DEPRE CIATION AND THE BROUGHT FORWARD BUSINESS LOSS WHICH COMES TO RS.710 .11 LAKH. AS PROVISIONS OF CLAUSE (III) OF EXPLANATION TO SECTIO N 115JB(2) THE AMOUNT OF BROUGHT FORWARD LOSS OR UNABSORBED DEPRECIATION WHICHEVER IS LESS AS PER BOOKS IS TO BE REDUCED FROM THE CURRENT YEARS BOOK PROFIT. THUS AO WORKED OUT A NIL AMOUNT AS AGAINST THE CLAIM OF B ROUGHT FORWARD LOSSES OF RS.534.08 LAKH BY THE ASSESSEE UNDER THIS CLAUSE . 7. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSES SING OFFICER. 8. THE LD. AR ARGUED AND SUBMITTED THE WRITTEN SUBM ISSIONS WHICH ARE REPRODUCED AS UNDER:- 01. THE PRESENT APPEAL IS APPEAL BY THE ASSESSEE A GAINST THE ORDER OF THE CIT(A) PASSED IN CONSEQUENCE OF APPEAL FILED AGAINST ORDER U/S. 1443(3) OF THE INCOME TAX ACT 1961 PASS ED BY THE ASSESSING OFFICER. 02: THE ASSESSEE HAD EARNED BOOK PROFIT OF RS.206.7 2 LACS DURING THE YEAR. AGAINST THE SAID BOOK PROFITS THE ASSESS EE CLAIMED DEDUCTION OF RS.96.37 LACS ON ACCOUNT OF AMOUNT WIT HDRAWN FROM RESERVES DURING THE YEAR AND BALANCE RS.110.35 LAC S WAS CLAIMED AS DEDUCTION ON ACCOUNT OF PAST LOSS OR DEPRECIATIO N WHICHEVER IS LOWER BY VIRTUE OF PROVISIONS OF CLAUSE (III) OF EX PLANATION (1) TO SECTION 115JB(2). COMPUTATION OF THE CALCULATION DO NE BY THE ASSESSEE IS ON PAGE 5 OF THE PAPER BOOK. FURTHER A MOUNT WITHDRAWN FROM THE RESERVES CAN BE SEEN ON PAGE 26 OF THE PAPER ITA NO.671/AHD/2008 A.Y. 2002-03 M/S GUJARAT CARBON & INDS. LTD. V. ACIT CIR-1(1 ) BRD PA GE 6 BOOK. YOU MAY ALSO MAKE REFERENCE TO NOTE NUMBER 2( B) ON PAGE 39 OF THE PAPER BOOK DEALING WITH THE WITHDRAWAL O F RESERVES FROM REVALUATION RESERVE. THE AO DID NOT ALLOW BOTH THE ADJUSTMENTS ON THE GROUND THAT AS PER HIS COMPUTATION THERE WAS NO CARRIED FORWARD LOSS OR DEPRECIATION. FURTHER THE CURRENT YEARS WITHDRAWAL FROM THE RESERVES CANNOT BE ALLOWED AS REDUCTION AS AT THE TIME OF CREATION OF THE RESERVE THE AMOUNT WAS NOT INCLUDE D AS PART OF THE BOOK PROFIT U/S. 115JB OF THE ACT. 03: IT IS SUBMITTED THAT ADJUSTMENT MADE OF RS.96.3 7 LACS FOR THE YEAR IS ON ACCOUNT OF WITHDRAWAL OF REVALUATION RES ERVE CREATED ON 31 ST MARCH 1999. IN VIEW OF THE AMENDMENT TO CLAUSE (I ) OF EXPLANATION 1 TO SECTION 115JB(2) OF THE ACT W.R.E. F. 1 ST APRIL 2001 THE SAID ADJUSTMENT CANNOT BE MADE BY THE ASSESSEE AS CLAIMED IN THE RETURN OF INCOME. IT IS THEREFORE MOST RESPE CTFULLY SUBMITTED THAT THE ASSESSEE DOES NOT PRESS THE SAID ADJUSTMEN T ON ACCOUNT OF THE AMENDMENT MADE IN THE BOOK PROFITS. ACCORDIN GLY BOOK PROFITS OF THE ASSESSEE FOR THE YEAR [BEFORE SET OF F OF PAST LOSSES / DEPRECIATION] WOULD BE RS.206.72 LACS. 04: THIS THEREFORE BRINGS US TO THE COMPUTATION OF THE AVAILABLE SET OFF DUE TO THE AMOUNT OF LOSS BROUGHT FORWARD OR UN ABSORBED DEPRECIATION WHICHEVER IS LESS. IT IS MOST RESPECTF ULLY SUBMITTED THAT THE ONLY REASON WHY THE DIFFERENCES HAVE ARISE N BETWEEN THE ASSESSEE AND THE AO ON ACCOUNT OF AVAILABLE SET OFF IS DUE TO TREATMENT OF REVALUATION RESERVE CREATED FOR THE EA RLIER YEAR. ATTENTION IS INVITED TO ANNEXURE 1 TO THIS SUBMISSI ON WHEREIN THE DIFFERENCES HAVE BEEN HIGHLIGHTED. IT IS SUBMITTED THAT DURING THE PAST YEARS THE ASSESSEE MADE REVALUATIONS TWICE I. E. ON 30 TH SEPTEMBER 1993 AND SECOND REVALUATION ON 31SST MAR CH 1999 THE TREATMENT OF WHICH HAS COME UP FOR CONSIDERATIO N HEREIN. 05: THE ASSESSEE MAKES THE FOLLOWING CONTENTIONS IN THIS REGARD: I) THE AO APPEARS TO HAVE TAKEN RECOURSE TO CLAUSE (I) OF EXPLANATION 1 TO SECTION 115JB FOR MAKING THE ADJUS TMENT TO THE PAST PROFITS OF THE COMPANY ON ACCOUNT OF REVAL UATION. IT IS SUBMITTED THAT THE SAID CLAUSE APPLIES ONLY AMOUNTS WITHDRAWN FROM THE RESERVES AND CREDITED TO THE PROFIT AND LO SS ACCOUNT IF THE SAID AMOUNT IS SOUGHT TO BE REDUCED FROM THE BO OK PROFITS. THIS DOES NOT APPLY TO THE DETERMINATION OF BROUGHT FORWARD LOSSES OR UNABSORBED DEPRECIATION. IN FACT THERE I S NO PROVISION UNDER THE ACT WHICH PERMIT THE ADJUSTMEN T SOUGHT TO ITA NO.671/AHD/2008 A.Y. 2002-03 M/S GUJARAT CARBON & INDS. LTD. V. ACIT CIR-1(1 ) BRD PA GE 7 BE MADE BY THE AO. FURTHER THE FOLLOWING FURTHER A CTS ARE ALSO REQUIRED TO BE NOTED IN THIS CASE: A) THE FIRST REVALUATION WAS MADE ON 30 TH SEPTEMBER 1993. THIS THEREFORE PERTAINS TO A.Y 1994-95. AT THIS TIM E THE PROVISIONS OF SECTION 115J/115JA/115JB WERE NOT APPLICABLE. SECTION 115J WAS INTRODUCED W.E.F.1.4.1 988 BUT WAS WITHDRAWN WITH EFFECT FROM 1.4.1991. 115JA WAS INTRODUCED W.E.F. 1.4.1997. IT IS SUBMITTED THAT TH E PROVISIONS OF NONE OF THE SECTIONS DEALING WITH THE TAX ON BOOK PROFITS OR DETERMINING THE BOOK PROFITS WERE A PPLICABLE AND THEREFORE IT WOULD BE INCORRECT TO REDUCE THE R EVALUATION RESERVE CREATED DURING THIS PERIOD FROM THE BOOK PR OFITS. B) SINCE PROVISIONS OF SECTION 115JB IS A DEEMING FICT ION THE INTERPRETATION OF THE PROVISIONS ARE REQUIRED TO BE DONE IN A VERY RESTRICTED MANNER AND NO EXTENDED MEANING SHOU LD BE GIVEN TO ANY PROVISION. IN THIS CONNECTION IT IS SU BMITTED THAT THE MAIN REASON FOR INTRODUCTION OF MAT WAS TO TAX THE COMPANIES WHICH DECLARE HUGE PROFITS FOR DECLARATIO N OF DIVIDENDS BUT DO NOT PAY THE TAX. IN THIS CONNECTIO N IT IS SUBMITTED THAT IN ANY CASE THE REVALUATION RESERVE IS NOT AVAILABLE FOR ANY SORT OF DIVIDEND DISTRIBUTION AND THEREFORE IT WOULD BE INCORRECT TO ENHANCE LIABILITY TO PAY THE MAT ON ACCOUNT OF REVALUATION RESERVE. C) THE INTERPRETATION SOUGHT TO BE ADVOCATED BY THE AO WOULD MEAN THAT IF THE ASSESSEE DOES A REVALUATION IN A Y EAR BY DIRECTLY CREDITING THE REVALUATION RESERVE THEN TH E ASSESSEE SHOULD PAY MAT ON THE AMOUNT ADDED TO RESERVE. THIS INTERPRETATION WOULD GO MUCH BEYOND THE INTENDED PU RPOSE AND ALSO GO MUCH BEYOND THE PROVISIONS OF SECTION 1 15JB. NOWHERE IN HE LANGUAGE IT IS PROVIDED THAT SUCH TAX IS PAYABLE. THE FOLLOWING ILLUSTRATION MAY BE CONDUCTE D: A. AN ASSESSEE EARNS BOOK PROFITS OF RS.10.00 CRORE S IN A YEAR. B. DURING THE SAID YEAR THE ASSESSEE ALSO REVALUED ITS ASSETS AND CREATED A REVALUATION RESERVE OF RS.30.0 0 CRORES. C. THE ASSESSEE CONTENDS THAT IT SHOULD BE LIABLE T O PAY TAX ONLY ON RS.10.00 CRORE OF BOOK PROFITS. THE AO HOWE VER ITA NO.671/AHD/2008 A.Y. 2002-03 M/S GUJARAT CARBON & INDS. LTD. V. ACIT CIR-1(1 ) BRD PA GE 8 WISHES TO SAY HAT THE ASSESSEE SHOULD PAY TAX ON RS.40.00 CRORES. D. IT IS SUBMITTED THAT IN SUCH A SITUATION THE VIE W OF THE AO IS COMPLETELY WRONG. E. IN CASE OF THE ASSESSEE ALSO THE AO WISHES TO I NCREASE THE MAT OF THE ASSESSEE ON ACCOUNT OF REVALUATIONS DONE IN THE PAST. F. SINCE REVALUATIONS OF THE ASSET IS MERELY A BOOK ENTRY THE SAME SHOULD NOT AFFECT THE MAT LIABILITY IN ANY CAS E [EITHER POSITIVELY OR NEGATIVELY]. D) PROVISIONS OF SECTION 115JB HAS BEEN MADE NEUTRA L TO THE REVALUATION RESERVES CREATED OR WITHDRAWAL FROM THE RESERVES. THIS IS APPARENT FROM READING THE PROVISI ONS OF CLAUSE (I) OF EXPLANATION 1 TO SECTION 115JB (2) B Y NOT ALLOWING ANY REDUCTION F PROFITS FROM THE RESERVES IF SUCH RESERVES ARE NOT CREATED BY DEBIT TO THE PROFIT AND LOSS ACCOUNT AT THE TIME OF CREATION. THEREFORE THE BOO K PROFITS WOULD NOT BE REDUCED OR INCREASED ON ACCOUNT OF SUC H BOOK ENTRIES NOT ROUTED THROUGH THE PROFIT AND LOSS ACCO UNT. THE ASSESSING OFFICER'S STAND WOULD THEREFORE MEAN THAT EVEN WHERE CREATION OF RESERVES IS NOT ROUTED THROUGH PR OFIT AND LOSS ACCOUNT THERE WOULD STILL BE HIGHER LIABILITY OF MAT. 06: WITHOUT PREJUDICE TO THE CONTENTIONS RAISED ABO VE THE ASSESSEE HAS GIVEN TWO CUMULATIVE ALTERNATIVE GROUN DS. THE FIRST GROUND BEING THAT THE AO HAS ERRONEOUSLY ADJUSTED THE REVALUATION RESERVE AGAINST THE DEPRECIATION. IN FA CT THE ADJUSTMENT SHOULD BE FIRST MADE AGAINST THE LOSSES AND THEREAFTER THE PROFIT AND LOSS ACCOUNT. THERE IS NO PROVISION UNDER THE LAW [IN THE YEAR IN WHICH THE PROVISIONS OF THE 115JB / 115 JA ARE NOT APPLICABLE TO ADJUST THE RESERVES. THEREFORE OPTIO N SHOULD BE ALLOWED TO THE ASSESSEE TO ADJUST THE REVALUATION R ESERVE AGAINST THE LOSS OR DEPRECIATION AS PER ITS CHOICE. IT IS S UBMITTED THAT IF SUCH A COMPUTATION IS CARRIED OUT THEN YOU WOULD NO TICE THAT THE COMPUTATION WOULD BE AS PER ALTERNATIVE WORKED OUT IN THE ENCLOSED COMPUTATION. YOU WOULD KINDLY NOTE THAT TH E IN THE SAID COMPUTATION ALL THE REVALUATIONS RESERVE WHENEVER CREATED HAS BEEN REDUCED FROM THE LOSS OR DE. YOU WOULD NOTICE THAT THE BALANCE AMOUNT OF LOSS OR DEPRECIATION WHICHEVER IS LESS WORKS OUT TO BE RS.337.77 LACS. SINCE THE SAID AMOUNT IS HIGH ER THAN THE ITA NO.671/AHD/2008 A.Y. 2002-03 M/S GUJARAT CARBON & INDS. LTD. V. ACIT CIR-1(1 ) BRD PA GE 9 PROFITS OF THE YEAR THERE WOULD NOT BE ANY LIABILI TY FOR MAT FOR THE YEAR UNDER CONSIDERATION. 07: THE ASSESSEE FURTHER CONTENDS THAT IN ANY CASES THE REVALUATION RESERVE CREATED ON OR BEFORE 1 ST APRIL 1997 I.E. THE PERIOD PRIOR TO THE PERIOD DURING WHICH NEITHER PRO VISIONS OF SECTION 115JA NOR PROVISIONS OF SECTION 115JB APPLY SHOULD BE ADJUSTED. ACCORDINGLY THE REVALUATION RESERVE CREATED ON 30 TH SEPTEMBER 1993 IS REQUIRED TO BE IGNORED FOR COMPUTATION. IT IS SUBMITTED THAT IF THE REVALUATION FOR 30 TH SEPTEMBER 1993 IS IGNORED THEN THE TOTAL AVAILABLE LOSS / DEPRECIATION WHICHEVER IS LESS WO RKS OUT TO BE RS.13.00 CRORES. THE COMPUTATION THEREOF IS GIVEN I N THE ENCLOSED COMPUTATION UNDER THE HEADING ALTERNATIVE 2. IT IS SUBMITTED THAT IF THE MAIN CONTENTION OF THE APPELLANT IS ACCEPTED OR WHERE ALTERNATIVE ARGUMENT IS ACCEPTED THERE WOULD NOT B E ANY AMOUNT PAYABLE AS TAX ON THE BOOK PROFITS AND IT MAY ACCOR DINGLY BE SO HELD. 9. LD. SR-DR ON THE OTHER HAND RELIED UPON THE ORDE RS OF BOTH THE AUTHORITIES BELOW. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. BEFORE DECIDING THE ISSUE BY THE ASSESSING OF FICER HE HAD CALLED FOR THE DETAILS OF EARLIER YEARS AND ACCORDINGLY OB SERVED THAT THE ASSESSEE HAD EXCLUDED THE AMOUNT SO TRANSFERRED TO PROFIT AND LOSS ACCOUNT. THE AO HAS RE-WORKED THE BROUGHT FORWARD L OSSES AND UNABSORBED DEPRECIATION FROM ASSESSMENT YEAR 1991-9 2 ONWARDS TO HAVE THE FIGURE FOR THE ASSESSMENT YEAR 1994-95 SI NCE THE REVALUATION WAS DONE ON 30-09-1993. SIMILAR EXERCISE WAS CARRIE D OUT FURTHER SINCE THE REVALUATION WAS DONE ON 31-03-1999. THE CUMULAT IVE EFFECT OF THIS WORKING WAS BROUGHT FORWARD FOR ADJUSTMENTS IN THE IMPUGNED ASSESSMENT YEAR. ITA NO.671/AHD/2008 A.Y. 2002-03 M/S GUJARAT CARBON & INDS. LTD. V. ACIT CIR-1(1 ) BRD PA GE 10 11. AS REGARDS THE BOOK PROFITS OF RS.206.72 LACS THERE IS NO DISPUTE BY EITHER OF PARTIES. THE DISPUTE BEFORE US AS ARGU ED BY LD. AR AND ALSO SUBMITTED IN HIS WRITTEN SUBMISSION HEREINABOVE IS ON ACCOUNT OF AVAILABLE SET OFF DUE TO TREATMENT OF REVALUATION R ESERVE CREATED FOR EARLIER YEAR. WHILE DECIDING THE PRESENT ISSUE THE ASSESSING OFFICER HAS APPLIED CLAUSE (I) OF EXPLANATION 1 TO SECTION115JB FOR MAKING ADJUSTMENT TO THE PAST PROFITS ON ACCOUNT OF REVALU ATION. THE AO HAS NOT EXAMINED THE ISSUE WHETHER THE SAID CLAUSE APPLIES TO DETERMINATION OF BROUGHT FORWARD LOSSES OR UNABSORBED DEPRECIATION O N ONE SIDE OR APPLIES ONLY TO THE AMOUNTS WITHDRAWN FROM RESERVES AND CREDITED TO PROFIT AND LOSS ACCOUNT IF THE SAID AMOUNT IS SOUG HT TO BE REDUCED FROM BOOK PROFITS. THE AO DID NOT EXAMINE WHETHER THE RE LEVANT PROVISIONS DEALING WITH TAX ON BOOK PROFITS WERE APPLICABLE WI TH SPECIFIC REFERENCE TO WHEN THE REVALUATION WAS MADE ON 30-09-1993 PERTAIN ING TO A.Y 1994- 95 AND SECTION 115J WAS INTRODUCED WITH EFFECT FROM 1-4-1991 AND 115JA WAS INTRODUCED W.E.F. 1-4-1997. IT REMAINS TO BE FURTHER EXAMINED BY THE AO ESPECIALLY FOR THE YEAR WHEN PROVISIONS O F SECTION 115JA AND 115JB WERE NOT APPLICABLE FOR ADJUSTMENT OF RESERVE S THEN WHAT SHOULD BE THE COURSE TO ADJUST THE REVALUATION RESERVE AGA INST THE LOSSES / DEPRECIATION. AN OPPORTUNITY SHOULD HAVE BEEN PROVI DED TO ASSESSEE WHICH HAS NOT BEEN DONE. IN THE CIRCUMSTANCES AND F ACTS OF THE CASE AND IN THE INTEREST OF NATURAL JUSTICE THE MATTER IS RESTORED TO THE FILE OF AO WHO WILL EXAMINE THE MATTER DE NOVO KEEPING IN VIEW THE DIRECTIONS HEREINABOVE BUT BY PROVIDING ADEQUATE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. THUS GROUND NO.3 OF THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. ITA NO.671/AHD/2008 A.Y. 2002-03 M/S GUJARAT CARBON & INDS. LTD. V. ACIT CIR-1(1 ) BRD PA GE 11 12. AS REGARDS GROUND NO.4 AND 5 OF THE ASSESSEE TH E SAME ARE MANDATORY AND CONSEQUENTIAL IN NATURE THEREFORE DO NOT REQUIRE ANY ADJUDICATION. 13. GROUND NO.6 IS WITH REGARD TO INITIATION OF PEN ALTY PROCEEDINGS DOES NOT ARISE FROM THE ORDER OF THE LD. CIT(A) AND THEREFORE THE SAME IS DISMISSED. 14. GROUND NO.7 IS GENERAL IN NATURE AND THEREFORE DOES NOT REQUIRE ANY ADJUDICATION. 15. IN THE RESULT APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. # !' $!%& 10 / 02 /201 2 * + - THIS ORDER PRONOUNCED IN OPEN COURT ON 10/02/ 201 2. SD/- SD/- ( G.C.GUPTA ) ( B.P. JAIN ) (VICE PRESIDENT) (ACCOUNTANT MEMBER) $!%&- 10/02/2012 /!! - DKP* !' !' !' !' 001 001 001 001 21 21 21 21 / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. %%05 6 / CONCERNED CIT 4. 6- / CIT (A) 5. 19 0005 05 /!! / DR ITAT AHMEDABAD 6. <= ># / GUARD FILE. BY ORDER/ !' /TRUE COPY/ ?// %@ 05 /!! -