M/s Hope Textiles Ltd, v. The ACIT 5 (1),

ITA 71/IND/2009 | 2005-2006
Pronouncement Date: 29-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 7122714 RSA 2009
Assessee PAN AAACH7574B
Bench Indore
Appeal Number ITA 71/IND/2009
Duration Of Justice 2 year(s) 1 month(s) 9 day(s)
Appellant M/s Hope Textiles Ltd,
Respondent The ACIT 5 (1),
Appeal Type Income Tax Appeal
Pronouncement Date 29-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 29-03-2011
Date Of Final Hearing 27-01-2011
Next Hearing Date 27-01-2011
Assessment Year 2005-2006
Appeal Filed On 19-02-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI R.C.SHARMA ACCOUNTANT MEMBER PAN NO. : AAACH7574B I.T.A.NO.70 71 72/IND/2009 400 & 401/IND/2010 A.YS.: 2003-04 2005-06 2004-05 2006-07 & 2007-08 HOPE TEXTILES LIMITED ACIT INDORE. VS 5(1) INDORE. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SATISH BAGADIA SR. ADVOCATE RESPONDENT BY : SHRI KESHAVE SAXENA SR. DR O R D E R PER R. C. SHARMA A.M. THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) FOR THE ASSESSMENT YEARS 2003-04 TO 2007-08 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INC OME-TAX ACT 1961. -: 2: - 2 2. AS MOST OF THE GROUNDS ARE COMMON IN ALL THE APPEAL S THEY WERE HEARD TOGETHER AND ARE NOW BEING DECIDED BY THIS CONSOLIDATED ORDER. 3. GROUNDS WHICH ARE COMMON ARE NARRATED AND WE ARE REPRODUCING HEREBELOW THE GROUNDS TAKEN BY THE ASSE SSEE IN THE ASSESSMENT YEAR 2003-04 WHICH READS AS UNDER : - 1. ADDITION OF INTEREST WAVIED RS. 8 94 72 985/- A) THAT THE LEARNED COMMISSIONER OF INCOME TAX (CIT) (APPEALS) ERRED IN UPHOLDING ADDITION OF RS. 8 94 72 985/- MADE BY THE ASSESSING OFFICER REPRESENTING REMISSION OF LIABILITY OF INTEREST WAI VED BY BANK FINANCIAL INSTITUTIONS AND OTHERS . B) THAT THE LEARNED CIT (APPEALS) ERRED IN INTERPR ETING THE SCHEMES SANCTIONED BY HON'BLE BIFR FOR REHABILITAT ION ACCORDING TO WHICH THE APPELLANT IS EXEMPT FROM SEC TION 41 (1) OF THE INCOME TAX ACT 1961. C) THAT THE LEARNED CIT (APPEALS) HAS FAILED IN CORR ECTLY INTERPRETING THE HON' BLE CBDT INSTRUCTION NO . F.NO.225/91/99-IT(A) II DT.16.2.2000 ACCORDING TO -: 3: - 3 WHICH THE APPELLANT IS ELIGIBLE TO ALL THE RELIEFS/CONCESSIONS AS PER SANCTIONED SCHEME OF HON'BLE BIFR. D) THAT THE LEARNED CIT (APPEALS) ERRED IN HOLDING TH AT THE RELIEFS AND CONCESSIONS CAN ONLY BE GIVEN TO TH E ASSESSEE TO THE EXTENT INDICATED IN LETTER DT. 24.4 .2006 ADDRESSED BY THE ADDL. DIRECTOR OF DIRECTORATE OF INCOME TAX (RECOVERY). IN THIS CONNECTION IT IS SUBMITTED THAT THE FINDING OF CIT (APPEALS) IS CONT RARY TO HON'BLE CBDT'S INSTRUCTION NO. F.NO.225/91199- IT(A) IL DATED 16.2.2000. AS PER THIS INSTRUCTION THE RELIEFS AND CONCESSIONS TO THE ASSESSEE ARE TO BE ALLOWED IF THE SAME IS PROVIDED IN THE SANCTIONED SCHEME AND THE SANCTIONED SCHEME HAS BEEN FINALISED AFTER GIVING A CHANCE TO THE INCOME TAX DEPARTMENT TO SUBMIT ITS VIEWS. IN THE INSTANT CASE THE DEPARTMENT WAS GIVEN A FULL OPPORTUNITY TO SUBM IT ITS VIEWS. THE INCOME TAX DEPARTMENT DID NOT SUBMIT ANY OBJECTION TO THE RELIEFS PROPOSED IN THE DRAFT -: 4: - 4 SCHEME. AFTER THIS THE SCHEME WAS SANCTIONED ON 28.3.2005. IN THE LIGHT OF THE SANCTIONED SCHEME BEING IMPLEMENTED AND THE BIFR PROCEEDINGS CLOSED ON 4.10.2005 BY DISCHARGING THE ASSESSEE FROM THE PURVIEW OF SICA THE LETTER DATED 24.4.2006 OF THE ADDITIONAL DIRECTOR INCOME TAX (RECOVERY) MENTION ED BY HON'BLE CIT (APPEALS) WHICH WAS SENT LONG AFTER ALL THE PROCEEDINGS WERE ALREADY OVER IS OF NO CONSEQUENCE WHATSOEVER. IT WAS ADDRESSED AFTER THE SCHEME WAS SANCTIONED AND BEING IMPLEMENTED AND NOT WHEN THE VIEWS OF THE DEPARTMENT WERE ASKED. 2. ADDITION FOR REDUCTION IN RESERVES RS.94 74 775/- A) THAT THE LEARNED CIT (A) HAS FAILED IN NOT CLEARLY STATING IN HIS ORDER THAT TRANSFER OF CAPITAL RESER VE RS. 94 74 775/- ON CONVERSION OF LAND INTO STOCK-IN - TRADE IS NOT A BUSINESS INCOME AND TO BE DELETED FR OM ADDITION MADE IN BUSINESS INCOME. -: 5: - 5 B) THAT THE SAID CAPITAL RESERVE WHICH IS A LONG TERM CAPITAL GAIN READ WITH HAS BEEN UPHELD BY CIT (A) IS EXEMPT FROM TAX AS PER SCHEME SANCTIONED BY HON'BLE BIFR. C) THAT AS PER THE SCHEME SANCTIONED BY HON'BLE BIFR AND HON'BLE CBDT INSTRUCTION NO. F.NO.225/91/99- IT(A) IL DATED.L6.2.2000 THE APPELLANT IS EXEMPT F ROM LONG TERM AND SHORT TERM CAPITAL GAINS._ 3. DISALLOWANCE OF INSURANCE CHARGES RS. 27 67 479/- A) THAT THE LEARNED CIT (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE OF INSURANCE CHARGES OF RS. 27 67 479/ - LIABILITY FOR WHICH CRYSTALLIZED DURING THE PREVIOU S YEAR RELEVANT TO THE ASSESSMENT YEAR. B) THAT THE APPELLANT IS MAINTAINING ITS BOOKS O F ACCOUNTS ON MERCANTILE SYSTEM OF ACCOUNTING AND PROVIDED AND CLAIMED RS. 27 67 479/- (RS. 41 LACS ( -) RS.13.33 LACS ALREADY PROVIDED IN EARLIER YEAR). TH E -: 6: - 6 LEARNED CIT (APPEALS) ERRED IN REJECTING APPELLANT' S CLAIM ON THE GROUND THAT ENTIRE RS. 41 LACS SHOULD HAVE BEEN CLAIMED IN THE YEAR UNDER CONSIDERATION.. 4. DISALLOWANCE OF WAGES RS.17 86 589 /- THAT THE LEARNED CIT (APPEALS) ERRED IN UPHOLDING THE ADDITION OF WAGES RS. L7 86 589/-PAID TO PERMANENT WORKERS FOR PLANT SHIFTING AND MAINTENANCE ON THE GROUND THAT NO MANUFACTURING ACTIVITIES WERE CARRIED OUT IN THE RELEVANT YEAR AN D THAT THE EXPENDITURE IS OF CAPITAL NATURE. 4. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. 5. DURING THE COURSE OF ASSESSMENT FOR ASSESSMENT YEAR 2003-04 THE FACTS OF THE CASE AS HAS BEEN SUMMARIZ ED BY THE ASSESSEE IN HIS LETTER DATED 15.10.07 SUBMITTED BEF ORE LOWER AUTHORITIES IS HEREBY SUMMARIZED BELOW : (I) THE ASSESSEE COMPANY BECAME A SICK -: 7: - 7 INDUSTRIAL UNDERTAKING WITHIN THE MEANING OF SECTION 3(1)(0) OF SICK INDUSTRIAL COMPANIES ACT (SICA) VIDE BIFR ORDER DATED 10.3.1988. (II) ONE EMPLOYEE OF TH E COMPANY MR. SIREMAL AND 20 OTHERS FILED A PETITION IN THE YEAR 1986 BEFORE THE HON'BLE SUPREME COURT OF INDIA FOR PAYMENT OF WORKER'S DUES BY THE COMPANY WHICH WAS PENDING AT THE TIME OF ORDER DATED 10.3.1998 OF THE BLFR. (III) THE BIFR OBSERVED IN THE PROCEEDINGS DATED 7.9.1989 THERE WAS NO POSSIBILITY OF REHABILITATION OF THE MILL COMPANY AND ACCORDINGLY A PUBLIC NOTICE U/S 20 OF SICA TO WIND UP THE COMPANY WAS ISSUED/PUBLISHED. (IV) AGGRIEVED BY THE AFORESAID NOTICE OF WINDING UP THE COMPANY APPROACHED HON'BLE SUPREME COURT OF INDIA IN THE PENDING PETITION FILED BY SIREMAL AND OTHERS FOR STAY OF -: 8: - 8 WINDING UP OF PROCEEDINGS AROSE DUE TO NOTICE U/S 20 OF SICA. THE SUPREME COURT OF INDIA IN THE HEARING HELD 1989 STAYED THE WINDING UP PROCEEDINGS INITIATED BY THE BIFR. (V) CONSEQUENT TO STAY GRANTED BY THE SUPREME COURT OF INDIA THE BIFR HELD ON 3.11.1989 RESERVED ITS ORDER FOR PASSING SUITABLE ORDER ON VACATION OR MODIFICATION OF THE STAY ORDER OF THE HON'BLE HON'BLE SUPREME COURT OF INDIA. (VI) THE SUPREME COURT OF INDIA VIDE ORDER DATED 18.8.1989 VACATED THE STAY ORDER ON 9.11.1989 AND ORDERED THAT PARTIES MAY APPROACH TO HIGH COURT OR BIFR FOR ANY RELIEF TO WHICH THEY ARE ENTITLED UNDER THE LAW. (VII) THE BIFR IN ITS HEARING ON 17.11.1995 DROPPED THE WINDING UP PROCEEDINGS AND VIDE ITS ORDER DATED 28.11.1996 SANCTIONED THE SCHEME FOR -: 9: - 9 REHABILITATION GRANTING CERTAIN CONCESSION. THE SANCTIONED COULD HOWEVER NOT BE IMPLEMENTED AS SCHEDULED ON ACCOUNT OF DELAY IN PERMISSION FOR SALE/SUB LEASE OF LAND BY THE STATE GOVERNMENT. CONSEQUENT TO DELAY IN IMPLEMENTATION OF REHABILITATION SCHEME THE BIFR ISSUED AN ORDER DATED 3.5.2001 HOLDING THAT THE SCHEME DATED 28.11.1996 HAS FAILED AND FORMED THE PRIMA FACIE OPINION TO WIND UP THE COMPANY. (VIII) SUBSEQUENT TO THE ORDER DATED 3.5.2001 OF THE BIFR IN ITS HEARING HELD ON 5.11.2004 THE BENCH DIRECTED THAT THEIR FINAL OPINION AS TO WINDING UP OF M/S HOPE TEXTILES LTD TOGETHER WITH THE COPIES OF ALL EARLIER PROCEEDINGS /ORDERS BE FORWARDED TO THE CONCERNED HIGH COURT FOR FURTHER NECESSARY ACTION. (IX) AGGRIEVED BY THE ABOVE ORDER DATED -: 10: - 10 5.11 2004 OF THE BIFR THE APPELLANT COMPANY PREFERRED AN APPEAL BEFORE THE APPELLATE AUTHORITY FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION (AAIFR) WHO FINALLY CIRCULATED A DRAFT MODIFIED REHABILITATION SCHEME SANCTIONED TO ALL CONCERNED AND SANCTIONED THE MODIFIED DRAFT REHABILITATION SCHEME IN HEARING HELD ON 18.3.2005 OF WHICH THE ORDER WAS PASSED ON 28.3.2005. (X) THE RETURN FOR THE A.Y. 2003-04 WAS FILED BY THE APPELLANT ON 29.11.2003 DECLARING NIL INCOME WHICH WAS REVISED ON 3.12.2004 IN WHICH INCOME AMOUNTING TO RS.2 05 49 400/- WAS DECLARED. (XI) THE APPELLANT FILED A REVISED RETURN OF INCOME ON 3.12.2004 WHICH WAS AS PER THE NOTE 1 TO -: 11: - 11 THE REVISED RETURN OF INCOME DUE TO THE DEDUCTION FROM PROFIT WAS MADE FROM CAPITAL GAINS RS. 2 05 50 000/- INSTEAD OF RS. 3 89 98 981/- BEING PROFIT ON TRANSFER OF BUILDABLE RIGHTS. (XII) THE APPELLANT GAVE THE FOLLOWING NOTE ON PAGE 3 OF THE COMPUTATION OF INCOME. NOTES : 1. THE AFORESAID COMPUTATION IS BASED ON THE MODIFIED REHABILITATION SCHEME ACCORDING TO WHICH THE COMPANY CONTINUES ENJOY THE TAX EXEMPTION AS IN THE REHABILITATION SCHEME SANCTIONED BY HON'BLE BIFR ON 28.11.1996 I.E. THE COMPANY IS ENTITLED TO THE FOLLOWING EXEMPTIONS : (IX) TO CARRY FORWARD LOSSES FOR A PERIOD OF 8 YEARS SUCCEEDING THE ASSESSMENT YEAR IN WHICH THE SCHEME IS SANCTIONED. -: 12: - 12 II. EXEMPTION FROM SECTION 41(1) OF THE INCOME- TAX ACT 1961 . III. EXEMPTION FROM SECTION 112 OF THE INCOME- TAX ACT 1961 . IV. EXEMPTION FROM MINIMUM ALTERNATE TAX ( MAT) U/S 115J OF THE INCOME-TAX ACT 1961. 2. THE COMPUTATION TAKES INTO ACCOUNT MODIFIED SCHEME OF REHABILITATION PREPARED UNDER DIRECTION OF HON'BLE BIFR PENDING FOR THEIR APPROVAL. AFTER THE FINAL APPROVAL CHANGES IF ANY NECESSARY SHALL BE MADE WILL FILE REVISED COMPUTATION AND RETURN. 3. THIS RETURN IS SUBMITTED AS PER TAX AUDIT REPORT. HOWEVER IT IS THE SUBMISSION OF THE ASSESSEE IT I S ENTITLED TO CARRY FORWARD OF UNABSORBED LOSSES AS PER ANNEXURE I TO EXHIBIT 1 TO THESE NOTES. THE APPELLANT COMPANY ACCORDINGLY CLAIMED THAT I. THE INTEREST AMOUNTING TO RS. 8 94 72 985/-WAIVED BY THE BANK/FINANCIAL INSTITUTIONS WAS NOT LIABLE TO TAX; -: 13: - 13 II. LONG TERM CAPITAL GAINS AMOUNTING TO RS. 2 52 OOO/- IS NOT TAXABLE.; III. LOSSES CARRIED OVER FROM LAST SEVERAL YEARS (WITHOUT THE LIMIT OF 8 YEARS PROVIDED IN THE IT ACT ) ARE ADJUSTABLE AGAINST THE INCOME OF THE SUBJECT YEAR AND SUBSEQUENT YEARS. 6. THE AO EXAMINED THE VARIOUS CLAIMS MADE BY THE ASSESSEE COMPANY IN THE LIGHT OF CBDT CIRCULAR NO.6 83 DATED 8.6.1994 WHICH IS AS UNDER :- ' WITHDRAWAL OF CIRULARS NOS.523 AND 576 - NEW PROCE DURE FOR REPRESENTATION BEFORE BOARD FOR LNDUSTRIAL AND FINANCIAL RECONSTRUCTION AND THE APPELLATE AUTHORITY FOR INDU STRIAL AND FINANCIAL RECONSTRUCTION. THE BOARD HAD ISSUED TWO CIRCULARS CIRCULAR NO.523 DATED OCTOBER 5 1988 AND CIRCULAR NO.576. DATED AUGUST 31 1990. IN CONNECTION WITH THE PROCEDU RE FOL LOWED IN RESPECT OF GRANT OF 'CONSENT' BY THE CENTRAL GOVERNMENT IN CASES INVOLVING FINANCIAL -: 14: - 14 ASSISTANCE TO BE GIVEN UNDER THE DIRECT TAX LAWS FO R REHABILITATING SICK INDUSTRIES UNDER THE SICK INDUS TRIAL COMPANIES (SPECIAL PROVISIONS) ACT 1985 (SICA) 2. WHILE ISSUING THE TWO CIRCULARS THE PROVISIONS OF SECTION 19(2) OF THE SICA WERE NOT CONSIDERED. AC CORDING TO SECTION 19(2) ALL PARTIES CONCERNED WITH GIVING 'FINANCIAL ASSISTANCE' FOR THE REHABILITATION SCHEM E SHOULD GIVE THEIR 'CONSENT'. 3 . THE BOARD HAD WITHDRAWN WITH IMMEDIATE EFFEC T THE ABOVE CIRCULARS NO.523 AND 576 VIDE ITS LETTER OF EVEN NUMBER DATED 30.12.1993. THE SAID LETTER TO AAIFR AND BIFR CLARIFIED THAT EACH CASE OF FISCAL CONCESSION OR 'FINANCIAL ASSISTANCE' UNDER THE DIRE CT TAX LAWS WILL NOW BE CONSIDERED IN EACH INDIVIDUAL CASE ON THE MERITS OF THE PURPOSE OF CONSENT AS CONTEMPLATED IN SECTION 19(2) OF THE SICA 1985 AN D CONSENT OR DENIAL OF CONSENT WILL BE CONVEYED TO BI FR BY THE CENTRAL GOVERNMENT. THE NODAL AGENCY FOR CO- -: 15: - 15 ORDINATION BETWEEN THE BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION (BIFR ) AND THE CENTRAL BOARD OF DIRECT TAXES AND APPELLATE AUTHORITY FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION (AAIFR) AND T THE CENTRAL BOARD OF DIRECT TAXES WILL BE DIRECTOR GENERAL OF INCOME TAX (ADMN.) 7 TH FLOOR MAYUR BHAWAN NEW DELHI 110 001 . CASES ALREADY DECIDED IN ACCORDANCE WITH CIRCULARS NO. 523 AND 576 WERE HOWEVER NOT REQUIR ED TO BE REOPENED. 4. THE CONTENTS OF THE CIRCULAR MAY BE BROUGHT TO T HE NOTICE OF ALL OFFICERS WORKING UNDER YOU. 2.3 THE APPELLANT FILED A NOTE ON CLAIM FOR CONCESSIONS UNDER SCHEME SANCTIONED BY BIFR/AAIFR. THE APPELLANT REFERRED TO SECTION 32(1} OF SICA WHICH SPECIFIES THAT THE PROVISIONS OF THIS ACT HAVE AN OVER-RIDING EFFECT ON THE OTHER CLAUSE EXCEPT THE PROVISIONS OF FERA 1973 AND THE URBAN -: 16: - 16 LAND (CEILING AND REGULATION) ACT 1976 OR IN THE MEMORANDUM OR ARTICLES OF ASSOCIATION OF AN INDUSTRIAL COMPANY. THE APPELLANT THEREFORE CLAIMED THAT IN VIEW OF THE PROVISION OF SECTION 32(1) OF SICA THE SCHEME SANCTIONED BY BIFR GRANTING CONCESSIONS IN DIRECT TAX HAS AN OVER-RIDING EFFECT ON INCOME-TAX ACT 1961 AND HENCE THE CONCESSIONS CLAIMED IN INCOME-TAX ACT 1961 ARE IN ORDER AND THE ASSESSEE IS ELIGIBLE FOR SUCH CONCESSIONS. 2.4 THE SUBMISSIONS MADE BY THE ASSESSEE WAS NOT FOUND TENABLE BY THE ASSESSING OFFICER BASICALLY ON THE GROUND THAT THE INCOME TAX DEPARTMENT HAS NOT ACCORDED ITS CONSENT FOR SUCH CONCESSIONS AND HENCE IN VIEW OF CIRCULAR NO. 683 DATED 8.6.1994 THE BENEFITS ENUMERATED IN THE SCHEME CANNOT BE ALLOWED TILL THE CONSENT IS ACCORDED BY THE INCOME TAX DEPARTMENT. THE AO THEREFORE -: 17: - 17 DISALLOWED VARIOUS CLAIMS MADE BY THE APPELLANT ON THE BASIS OF BIFR SCHEME APPROVED IN 1996 WHICH IS CHALLENGED BY THE APPELLANT BEFORE CIT(A) RELEVANT EXTRACT S FROM THE ORDER OF THE AO IS REPRODUCED BELOW: 'THE ARGUMENTS PUT FORTH BY THE ASSESSEE ARE NOT ACCEPTABLE. THE CIRCULAR NO.683 DATED 8.6.1994 IS VERY CLEAR SPECIFYING THAT THE CBDT HAS WITHDRAWN THE CIRCULAR NO. 523 DATED 5.10.1988 AND CIRCULAR NO.576 DATED 21.8.1990. THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE THAT THE INCOME TAX DEPARTMEN T HAS ACCORDED CONSENT FOR SUCH CONCESSIONS. SO FAR A S APPLICABILITY OF CIRCULAR NOS. 523 AND 576 IS CONCE RNED THE SAME ARE NOW NON-OPERATIVE AS THE SAME STAND WITHDRAWN VIDE CIRCULAR NO. 683 DATED 8.6.1994. AS FAR AS OBLIGATION ON THE PART OF CBDT TO CONVEY THE CON SENT IS CONCERNED THE MATTER HAS NOT YET BEEN DECIDED B Y THE CBDT IN FAVOUR OF THE ASSESSEE. THUS THE BENEF ITS ENUMERATED IN THE SCHEME CANNOT BE ALLOWED TILL THE -: 18: - 18 CONSENT IS ACCORDED BY THE INCOME TAX DEPARTMENT. THE ASSESSEE HAS CONTENDED THAT IN ITS CASE THE CONSENT IS THERE AS IS CLEAR IN PARA 1.3 OF THE SANCTIONED SCHEME. IN THIS REGARD THE RELEVANT PAR T OF THE SCHEME IS REPRODUCED BELOW : THE DRAFT SCHEME WAS CONSIDERED AT THE HEARING HELD ON 28.11.1996. ON A CONSIDERATION OF THE SUBMISSION MADE BEFORE THE BENCH AND THE MATERIAL O N RECORD THE BENCH WAS SATISFIED THAT ALL THE PART CONCERNED HAD GIVEN THEIR CONSENT U/S 19(2) OF THE SICK INDUSTRIAL COMPANIES ACT TO THE VARIOUS PROVISIONS OF THE DRAFT SCHEME. IN EXERCISE OF THE POWER CONFERRED IN SECTION 18(4) OF THE SICA READ WITH SECTION 19(3) O F THE ACT WE HAVE SANCTIONED THE FOLLOWING SCHEME FOR TH E REVIVAL/REHABILITATION OF HTL 7. IN VIEW OF THE ABOVE THE INTEREST WAIVED BY THE FINANCIAL INSTITUTION AND THE CAPITAL GAIN ARISING ON SALE OF LAND -: 19: - 19 WAS INCLUDED BY THE ASSESSING OFFICER IN THE TOTAL INCOME OF THE ASSESSEE. 8. BY THE IMPUGNED ORDER THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO AFTER HAVING THE FOLLOWING OBSERVA TIONS : 2.6 THE ISSUE IS CONSIDERED IN THE LIGHT OF THE OBSERVATIONS MADE BY THE AO IN HIS ORDER AND THE WRITTEN SUBMISSIONS MADE BY THE APPELLANT DURING THE COURSE OF APPELLATE PROCEEDING THE MAIN EMPHASIS OF THE APPELLANT IS THAT THE DIRECTIONS GIVEN BY THE BIFR WITH REFERENCE TO A SCHEME IS BINDING INTER ALIA ON THE INCOME TAX DEPARTMENT. ON THE OTHER THE AO DID NOT ALLOW THE RELEVANT RELIEF CLAIMED BY THE APPELLANT RELYING ON THE CBDT CIRCULAR NO. 683 DATED 8.6.1994 WHICH HAS BEEN REPRODUCED ABOVE ALSO IN WHICH IT IS STATED THAT EACH CASE OF FISCAL CONCESSION OR FINANCIAL ASSISTANCE UNDER DIRECT TAX LAWS WILL NOW BE CONSIDERED IN EACH INDIVIDUAL CASE ON MERITS FOR PURPOSE OF CONSENT AS CONTEMPLATED IN SECTION 19(2) OF SICA 1985 AND CONSENT OR DENIAL OF -: 20: - 20 CONSENT WILL BE CONVEYED TO BIFR BY THE CENTRAL GOVERNMENT. THE AO THEREFORE DENIED THE VARIOUS EXEMPTIONS CLAIMED ON THE BASIS OF THE SCHEME APPROVED BY THE B1FR IN 1986 ON THE GROUND THAT NO CONSENT WAS CONVEYED BY THE CBDT TO THAT SCHEME WITH REFERENCE TO THE VARIOUS CONCESSIONS/EXEMPTIONS SPECIFIED IN THAT SCHEME. DURING THE COURSE OF APPELLATE PROCEEDINGS THE APPELLANT FURTHER PLACED RELIANCE ON THE INSTRUCTION NO.528A OF THE CBDT ISSUED FROM F.NO.225/91/99-IT II DATED 16.2.2000 WHICH READS AS UNDER: THE CENTRAL BOARD OF DIRECT TAXES IN EXERCISE OF I TS POWERS UNDER SECTION 119(2)(A) OF THE INCOME TAX ACT 1961 DATED 22.4.1991 (F.NO. 22591/99/ITA-II) HAD DIRECTED THAT EFFECT TO ALL ORDERS PASSED BY THE BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION (BIFR) IN AN APPROVED SCHEME OF RECONSTRUCTION/REHABILITATION BE GIVEN DURING THE C OURSE OF AN ASSESSMENT AFTER GRANTING ALL THE RELIEFS UNDER THE INCOME TAX -: 21: - 21 ACT 1961 INCLUDING THOSE RELIEFS WHERE THE BIFR HA D RECOMMENDED CONSIDERATION OF SUCH RELIEFS UNDER THE INCOME-TAX ACT 1961 BY THE CENTRAL GOVERNMENT. IN SUPPRESSIO N OF THIS ORDER THE CENTRAL BOARD OF DIRECT TAXES NOW DIREC TS THAT WHEREVER THE ORDER OF THE BIFR IN AN APPROVED SCHEM E OF RECONSTRUCTION/REHABILITATION. (I) DIRECTS THAT THE RELIEFS TO BE ALLOWED UNDER THE INCOME TAX ACT 1961 THE EFFECT TO SUCH ORDERS BE GIVEN IMMEDIATELY. II. RECOMMENDS THAT THE RELIEFS UNDER THE INCOME TAX ACT 1961 MAY BE CONSIDERED BY THE CENTRAL GOVERNMENT THE RELIEF IS TO BE ALLOWED TO THE ASSESSEE IF DURING THE COURSE OF THE PROCEEDINGS BEFORE THE BIFR THE VIEWS OF THE INCOME TAX DEPARTMENT HAVE BEEN CONSIDERED BY THE BIFR. HOWEVER IF THE ORDERS OF -: 22: - 22 THE BIFR HAVE BEEN PASSED WITHOUT MAKING THE INCOME TAX DEPARTMENT A PARTY OR WITHOUT GIVING A CHANCE TO THE INCOME TAX DEPARTMENT TO SUBMIT ITS VIEWS THE EFFECT OF THE BIFR RECOMMENDATIONS IS TO BE GIVEN ONLY AFTER SUCH RECOMMENDATIONS OF THE BIFR ARE CONSIDERED BY THE CENTRAL BOARD OF DIRECT TAXES. ORDER: F.NO.225/91/99 -IT(A-LL) DATED 16.2.2000.' 2.7 IN THE ORIGINAL SCHEME DATED 28.11.1996 SANCTIONED BY THE BIFR THE FOLLOWING CONCESSION UNDER INCOME TAX ACT WAS SPECIFIED IN THAT SCHEME :- I. TO ALLOW HTL TO CARRY FORWARD LOSSES FOR A PERIOD OF 8 YEARS SUCCEEDING -: 23: - 23 THE A.Y. IN WHICH THE SCHEME IS SANCTIONED II. TO CONSIDER RELIEF AND CONCESSIONS EXEMPTING THE COMPANY FROM SECTION 41(1) 71 AND 112 OF HE INCOME TAX ACT . III. TO GRANT EXEMPTING THE COMPANY FROM MAT. 11. AS DISCUSSED ABOVE THE BIFR ISSUED AN ORDER DATED 3.5.2001 CONSEQUENT TO DELAY IN IMPLEMENTATION OF REHABILITATION SCHEME HOLDING THAT THE SCHEME DATED 28.11.1996 HAS FAILED AND FORMED THE PRIMA FACIE OPINION TO WIND UP THE COMPANY AND FINALLY IN ITS HEARING ON 5.11.2004 DIRECTED THEIR FINAL OPINION AS TO WINDING UP OF THE COMPANY WHICH WAS CHALLENGED BY THE -: 24: - 24 APPELLANT COMPANY BEFORE THE AAIFR WHO FINALLY CIRCULATED A DRAFT MODIFIED RE- HABILITATION SCHEME FOR SANCTION TO ALL CONCERNED IN ITS HEARING HELD ON 18.3.2005 AND INCOME-TAX ACT 1961 IS HEREBY REPRODUCED BELOW :- CLAUSE 8D(2) TO INSERT THE FOLLOWING IN THE BEGINNING OF PARA 8D(2): TO CONSIDER GRANTING AND ALLOWING FOLLOWING RELIEFS AND CONCESSION DURING THE CURRENCY OF REHABILITATION SC HEME I.E. TILL 31.3.2011 CLAUSE 8D(2)(I) TO MODIFY THE SAID SUB-CLAUSE TO READ AS BELOW: 'TO ALLOW THE COMPANY TO CARRY FORWARD AND SET OFF AL L THE LOSSES INCURRED BY THE COMPANY (EVEN IF THE SAME HA VE LAPSED TILL THE END OF THE REHABILITATION PERIOD I. E. TILL THE F.Y. 2010-11 IRRESPECTIVE OF THE LIMITATION PROVIDE D UNDER -: 25: - 25 THE PROVISIONS OF SECTION 72(3) OF THE INCOME TAX A CT 1961'. THE SAID MODIFICATION IS BEING PROPOSED TO BRING CL ARITY AND TO AVOID CONFUSION AT ANY LATER STAGE. CLAUSE 8D(2)(III) TO MODIFY THE SAID SUB CLAUSE TO READ AS BELOW: 'TO EXEMPT THE COMPANY FROM SECTION 115JB I.E. ; MAT OF THE IT ACT'. THE SAID MODIFICATION IS BEING PROP OSED AS NOW THE PROVISIONS RELATING TO MAT ARE PROVIDED IN SECTION 115JB OF THE INCOME-TAX ACT 1961. CLAUSE 8D(V) TO DELETE THE SAID SUB CLAUSE THE SAID DELETION IS BEING PROPOSED AS THE COMPANY PROPOSES TO APPROACH THE IT DEPARTMENT FOR GRANT OF EXEMPTION FROM THE PROVISIONS OF SECTION 45 OF THE I.T. ACT. IN CASE THE SAID CLAUSE IS ALLOWED TO REMAIN IN TH E SCHEME. THE SAME WILL BE IN CONTRADICTION WITH PROVISIONS OF PARA 8D(2)(II) OF THE DRS WHICH REQU IRES -: 26: - 26 IT DEPARTMENT TO CONSIDER EXEMPTING THE COMPANY FROM THE APPLICABILITY OF CAPITAL GAINS. CLAUSE 8D(6)(I) AND (II) TO DELETE THE SAID SUB CLAUSES 2.8 AS DISCUSSED ABOVE THAT THE CBDT VIDE CIRCULAR NO.683 DATED 8.6.1994 CLARIFIED THAT EACH CASE OF FISCAL CONCESSION UNDER THE DIRECT TAX LAWS WILL NOW BE CONSIDERED IN EACH INDIVIDUAL CASE ON THE MERITS FOR THE PURPOSE OF CONSENT AS CONTEMPLATED IN SECTION 19(2) OF SICA 1985 985ICA AND CONSENT OR DENIAL OF CONSENT WILL BE CONVEYED TO THE BIFR BY THE CENTRAL GOVERNMENT. SIMILAR VIEW HAS BEEN EXPRESSED BY THE CBDT IN ITS INSTRUCTION NO. 528A DATED 16.2.2000 WHICH IS HEAVILY RELIED UPON BY THE APPELLANT. AT THE OUTSET THE CIRCULAR NO. 683 HAS NOT BEEN SUPERSEDED BY THIS INSTRUCTION SINCE THE SAME HAS NOT BEEN REFERRED TO. IN ANY CASE -: 27: - 27 VIDE THIS INSTRUCTION THE CBDT DIRECTS THAT WHEREVER THE ORDER OF THE BIFR IN AN APPROVED SCHEME OF RECONSTRUCTION/REHABILITA- TION. I. DIRECTS THAT THE RELIEF TO BE ALLOWED UNDER THE INCOME TAX ACT 1961 THE EFFECT TO SUCH ORDER BE GIVEN IMMEDIATELY ; II. RECOMMENDS THAT THE RELIEF UNDER THE INCOME TAX ACT 1961 MAY BE 1961 MAY BE CONSIDERED BY THE CENTRAL GOVERNMENT. THE RELIEF IS TO BE ALLOWED TO THE ASSESSEE IF DURING THE COURSE OF PROCEEDINGS BEFORE THE BFIR THE VIEWS OF THE INCOME TAX DEPARTMENT A PARTY OR WITHOUT GIVING A CHANCE TO THE INCOME TAX DEPARTMENT TO SUBMIT ITS VIEWS THE FACT OF THE BIFR RECOMMENDATIONS IS TO BE GIVEN ONLY AFTER -: 28: - 28 SUCH RECOMMENDATIONS OF THE BIFR ARE CONSIDERED BY THE CBDT. (EMPHASIS SUPPLIED). 2. 9 IT IS CLEAR FROM THE ABOVE INSTRUCTIONS THAT THE RELIEF RECOMMENDS UNDER THE INCOME TAX ACT IN A APPROVED SCHEME OF BIFR THE SAME IS TO BE ALLOWED I F THE VIEWS OF THE INCOME TAX DEPT IS CONSIDERED BY THE BIFR AND IF THE SAME HAS NOT BEEN CONSIDERED THE FACT OF THE BIFR RECOMMENDATIONS IS TO BE GIVEN ONLY AFTER SUCH RECOMMENDATIONS OF THE BIFR ARE CONSIDERED BY THE CBDT. 2.10 AS DISCUSSED ABOVE THAT THE AAIFR CIRCULATED THE REVISED SCHEME ON 18.3.2005. THE ASST. DIRECTOR OF I. T. (RECOVERY) IN THE DIRECTORATE OF INCOME TAX (RECOVERY) NEW DELHI ISSUED A LETTER ON -: 29: - 29 3.2.2005 TO THE MANAGING DIRECTOR OF THE APPELLANT COMPANY CALLING FOR CERTAIN DETAILS WHICH WAS SUBMITTED BY THE APPELLANT COMPANY VIDE ITS LETTER DATED 28.2.2005. ADDL. DIRECTOR OF I. T. (RECOVERY) IN THE DIRECTORATE OF I. T. (RECOVERY) NEW DELHI INFORMED VIDE HIS LETTER DATED 16.3.2005 TO THE UNDER SECRETARY (LEGAL) AAIFR NEW DELHI THAT THE REPLY OF THE COMPANY VIDE ITS LETTERS DATED 28.2.2005 AND 4.3.2005 FILED IN RESPONSE TO THIS DIRECTORATES LETTER NO. 3283 DATED 3.2.2005 IS UNDER CONSIDERATION OF THE DEPT. AND APPROPRIATE DECISION WILL BE COMMUNICATED SHORTLY. 2.11. THE ADDL. DIRECTOR OF I. T. IN THE DIRECTORATE OF INCOME TAX (RECOVERY) NEW DELHI SUBMITTED A LETTER DATED 24.4.2006 TO THE BRANCH OFFICER-II BOARD OF INDUSTRIAL AND -: 30: - 30 FINANCIAL RECONSTRUCTION (BIFR) NEW DELHI CLARIFYING THE DECISION OF THE DEPARTMENT WITH REFERENCE TO THE EXEMPTIONS/ CONCESSIONS RECOMMENDED BY THE BIFR ORDER DATED 28.11.1996 AND AAIFR ORDER DATED 28.3.2005. THE SAME IS REPRODUCED BELOW: THE COPY OF THIS LETTER WAS ALSO MARKED TO ACIT CIRCLE 5 (1) INDORE WITH THE DIRECTION THAT THE DECISION OF THE CBDT GIVEN ABOVE SHOULD BE KEPT IN VIEW IN FRAMING THE ASSESSMENT OF THE COMPANIES. APPARENTLY THE DECISION OF THE CBDT COMMUNICATED THROUGH ITS DIRECTORATE OF RECOVERY VIDE LETTER DATED 24.4.2006 WAS NOT CONSIDERED BY THE BIFR AND AAIFR SINCE NO FURTHER ORDER WAS DONE BY THESE AUTHORITIES AFTER THE ORDER DATED 28.3.2005. IN VIEW OF THE INSTRUCTION NO. 528A DATED 16.2.2000 WHICH IS HEAVILY RELIED BY THE APPELLANT COMPANY THE RECOMMENDATIONS MADE IN THE ORDER BY THE BIFR / AAIFR AS -: 31: - 31 REFERRED TO ABOVE IS THEREFORE ALLOWABLE ONLY UPTO THE EXTENT OF AGREED TO BY THE DEPARTMENT VIDE THEIR LETTER DATED 24.4.2006. THE PLEA OF THE APPELLANT THAT IN VIEW OF THE INSTRUCTION NO. 528A THE ENTIRE CONCESSIONS/EXEMPTIONS RECOMMENDED BY THE BIFR/AAIFR IS ALLOWABLE IN ITS CASE IS THEREFORE NOT TENABLE. 2.12 IN VIEW OF THE FACTUAL AND LEGAL POSITION DISCUSSED ABOVE THE AO IS DIRECTED TO ALLOW THE VARIOUS RELIEF AS HAS BEEN AGREED TO BY THE CBDT THROUGH LETTER OF DIT (RECOVERY) DATED 24.4.2006. THE AO IS FURTHER DIRECTED TO ALLOW THE RELIEF CLAIMED BY THE APPELLANT SUBJECT TO CONSENT OF THE DEPARTMENT AS REFERRED TO ABOVE AND CLAIMED BY THE APPELLANT EITHER IN THE RETURN OF INCOME OR IN THE REVISED RETURN OF INCOME ONLY AS HAS BEEN HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF GOETZE INDIA LIMITED VS. CIT (2006) 284 ITR 323 ( S. C.). -: 32: - 32 THIS GROUND OF APPEAL IS ACCORDINGLY DECIDED. THE CLAIM OF THE APPELLANT THAT INTEREST WAIVED BY THE BANKS ARE NOT TENABLE IS NOT TENABLE/ALLOWABLE AND HENCE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT IS CONFIRMED. 9. DURING THE COURSE OF ASSESSMENT FOR ASSESSMENT YEAR 2003-04 THE AO OBSERVED THAT THE ASSESSEE HAS CRED ITED RS. 6 71 57 666/- IN THE PROFIT AND LOSS ACCOUNT ON ACC OUNT OF SALE PROCEED OF LAND APPEARING IN THE BOOKS AS STOCK IN TRADE IN ADDITION TO SALE PROCEED OF RS. 3 89 98 901/- ON A CCOUNT OF SALE OF LAND STANDING IN THE BOOKS AS BUSINESS ASSE T. THE LAND IN QUESTION WAS REVALUED IN THE YEAR ENDING MARCH 1996 AND REVALUATION RESERVE WAS CREATED WHICH STOOD AT RS. 4 59 16 581/- IN THE BEGINNING OF THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2003-04. A PART OF THE SAID RESERVE RELATE TO THE LAND SOLD DURING THE YEAR. THE ASSESSEE HAS TRA NSFERRED A SUM OF RS. 94 74 775/- FROM THIS RESERVE ATTRIBUTA BLE TO THE LAND SOLD TO THE GENERAL RESERVE ROUTING IT THROUGH THE PROFIT AND LOSS APPROPRIATION ACCOUNT I.E. BELOW THE LINE. TO MAKE IT -: 33: - 33 CLEAR THE PROFIT ARISING CONSEQUENT TO THE REDUCTI ON OF REVALUATION RESERVE HAS THOUGH BEEN CREDITED TO PRO FIT AND LOSS ACCOUNT BUT THE SAME HAS NOT BEEN TAKEN INTO CONSID ERATION WHILE COMPUTING TOTAL INCOME COMPUTED IN ACCORDANCE WITH CHAPTER IV D AS ALSO UNDER SECTION 115JB. IT IS FUR THER CLARIFIED THAT THE ASSESSEE HAS GIVEN A WORKING OF INCREASE/DECREASE IN STOCK IN RESPECT OF SALE OF ST OCK IN TRADE AS ALSO THE COST OF ACQUISITION IN THE CASE OF CAPI TAL GAIN. IN THIS WORKING THE COST OF THE LAND HAS BEEN TAKEN A S THE FIGURE AT WHICH THE LAND WAS REVALUED AND NOT THE ORIGINAL COST. OBVIOUSLY THE ASSESSEE HAS NOT ACCOUNTED FOR THE I NCOME TO THE EXTENT OF RS. 94 74 775/-. THE SAME IS ACCORDIN GLY ADDED TO THE ASSESSEES TOTAL INCOME. 10. BY THE IMPUGNED ORDER THE LD. CIT(A) OBSERVED THA T A S PER THE PROVISIONS OF SECTION 2(47) OF THE ACT CONVERSION OF INVESTMENT INTO STOCK IN TRADE IS TRE ATED AS TRANSFER IN THE YEAR IN WHICH THE CAPITAL ASSETS IS CONVERTED INTO STOCK IN TRADE AND ACCORDINGLY THE DIFFERENCE BETWEEN THE COST OF ASSETS AND THE VALUE AT -: 34: - 34 WHICH THE SAME WAS TRANSFERRED AS STOCK IN TRADE IS TO BE CHARGED TO CAPITAL GAIN LONG TERM/SHORT TERM DEPENDING ON THE PERIOD OF HOLDING OF THE ASSET FRO M THE DATE OF ACQUISITION TO THE DATE OF TRANSFER. FU RTHER ON ACTUAL SALE OF THE STOCK IN TRADE THE PROFIT GENERATED WILL BE CHARGED AS INCOME FROM PROFITS AN D GAINS OF BUSINESS AS PER SECTION 45(2) OF THE ACT. THE AO IS ACCORDINGLY DIRECTED TO WORK OUT THE CHARGEAB ILITY OF THE PROFITS EARNED BY THE APPELLANT COMPANY AS T HE CAPITAL GAIN AND INCOME FROM BUSINESS. ' 11. THE AO HAS ALSO DISALLOWED INSURANCE CHARGES OF RS. 27 67 479/- AFTER HAVING THE FOLLOWING OBSERVATIONS :- 'ON GOING THROUGH THE BOOKS OF ACCOUNT IT HAS BEEN OBSERVED THAT THE ASSESSEE HAS DEBITED A SUM O F RS. 27 67 479/- UNDER THE HEAD INSURANCE AND OTHER CHARGES IN ADDITION TO INSURANCE EXPENSE AMOUNTING TO RS.97 244/- SEPARATELY CHARGED TO PROFIT AND LOSS ACCOUNT. THE ASSESSEE WAS ASKED TO EXPLAIN THE TWO -: 35: - 35 ENTRIES ALONGWITH ADMISSIBILITY THEREOF. IN RESPON SE WRITTEN SUBMISSION EN MADE STATING THAT: RS.27. 67 LAKHS HAS BEEN CHARGED TO P&L ACCOUNT REPRESENTING INSURANCE CHARGES AND OTHER CHARGES PA YABLE TO THE BANK AND FINANCIAL INSTITUTIONS. THE TOTAL L IABILITY IN RESPECT OF INSURANCE AND OTHER CHARGES WAS RS. 41 L AKHS LAKHS AS AGAINST WHICH RS.13.33 LAKHS WAS ALREADY CHARGED IN EARLIER YEARS AND BALANCE RS.2L.67 LAKHS HAS BEEN PROVIDED IN THE ACCOUNTS FOR THE YEAR ENDED 31.3.2003. THE INSURANCE AND OTHER CHARGES PAYABLE TO THE BANK AND FIS ARE BUSINESS EXPENDITURE ALLOWABLE U/S 36. THIS IS NOT !HE TYPE OF EXPENDITURE WHICH FALLS U/S 43(B) AND SINCE NECESSARY REIMBURSEMENT TO THE FIS AND BONK HAS BEE MADE IN THE YEAR THE SAME HAS BEEN PROVIDED IN THE YEAR UNDER REFERENCE. IT IS CLEAR FROM THE ABOVE REPLY THAT THE EXPENDITURE IN QUESTION DOES NOT RELATE TO THE SUBJECT YEAR BUT THE SAME PERTAIN TO EARLIER YEARS. THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. THEREFORE ONLY TH E -: 36: - 36 EXPENSES ATTRIBUTABLE TO THE SUBJECT YEAR ARE ADMIS SIBLE. AS SUCH THE ABOVE EXPENSES ARE DISALLOWED. 12. BY THE IMPUGNED ORDER THE LD. CIT(A) CONFIRMED THE DISALLOWANCE AFTER HAVING THE FOLLOWING OBSERVATION S :- 4.3 THE ISSUE IS CONSIDERED. THE APPELLANT CLAIMED INSURANCE CHARGES AMOUNTING TO RS. 27 67 479/-. IT IS SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE INSURANCE CHARGES WAS PAYABLE TO THE BANK AND FINANCIAL INSTITUTIONS AND THE TOTA L LIABILITY WAS RS. 41 LAKHS AS AGAINST WHICH RS. 13.33 LAKHS WAS ALREADY CHARGED IN EARLIER YEARS AND BALANCE RS. 27.67 LAKHS HAS BEEN PROVIDED IN THE ACCOUNTS FOR THE YEAR UNDER CONSIDERATION. THE AO DISALLOWED THE EXPENDITURE CLAIMED DURING THE YEAR ON THE GROUND THAT THE SAME WAS NOT PERTAINED TO THE YEAR UNDER CONSIDERATION AND HENCE IS NOT ALLOWABLE BEING THE APPELLANT FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. THE APPELLANT IN THE WRITTEN SUBMISSIONS HOWEVER SUBMITTED THAT -: 37: - 37 THE LIABILITY OF INSURANCE WAS CRYSTALLIZED IN THE ASSESSMENT YEAR 2003-04 THROUGH THE MODIFIED REHABILITATION SCHEME AND AS SUCH CANNOT BE CALLED EARLIER YEAR EXPENSES. THE PLEA FOR THE APPELLANT I S NOT TENABLE IN VIEW OF THE FACT THAT THE ENTIRE LIA BILITY OF RS. 41 LAKHS ON THIS ACCOUNT SHOULD HAVE BEEN CLAIMED IN THE YEAR UNDER CONSIDERATION INSTEAD OF CLAIMING RS. 13.33 LAKHS IN THE EARLIER YEARS. FURTHER NO DOCUMENTS IN SUPPORT OF HIS CLAIM OF CRYSTALLIZATION OF THIS LIABILITY IN THE YEAR UNDER CONSIDERATION HAS BEEN BROUGHT ON RECORD. IN VIEW OF THIS FACT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE AO IN THIS REGARD AND DISALLOWANCE MADE BY HIM IS HEREBY CONFIRMED. 13. DURING THE YEAR UNDER CONSIDERATION THE AO HAS ALS O DISALLOWED WAGES OF RS. 17 86 589/- AFTER HAVING F OLLOWING OBSERVATIONS : -: 38: - 38 14. THE ASSESSEE HAS DEBITED RS.23 13 087/-LAKHS UNDER THE HEAD WAGES. ON SPECIFIC QUERY ON THIS POINT IT HAS BEEN SUBMITTED THAT : 'THE COMPANY HAS CLAIMED RS. 23.13 LAKHS AS WAGES TO THE WORKERS. MAJOR PORTION OF THE WORKERS WAS INVOLVED IN SHIFTING OF THE PLANT AND MACHINERY FROM RBKB MILLS (UNIT NO.2) SITE TO N.B. MILLS ( UNIT NO.1) SITE AND WAGES PAID ON THIS ACCOUNT AMOUNTED TO RS. 17.86 LAKHS. I T HAS BEEN A PRECONDITION OF THE B1FR SCHEME AS WELL AS THE AGREEMENT WITH THE LABOUR TO RESTART THE TEXTILE UNIT AND AS SUCH THE EXPENDITURE INCURRED ON SHIFTING OF THE MACHINERY IS A BUSINESS EXPENDITURE AND NOT A CAPITAL EXPENDITURE AS IT DOES NOT INCREASE THE EFFICIENCY OR PRODUCTIVITY OF THE MACHINERY. YOU WILL FURTHER NOTICE THAT THE -: 39: - 39 WAGES PAID TO THE WORKERS AND CHARGED TO SHIFTING OF MACHINERY INCLUDES WAGES PAID FOR CLEARING AND MAINTENANCE OF THE PLANT WHICH ALSO IS A BUSINESS EXPENDITURE. THE ASSESSEE HAS NOT CARRIED OUT ANY MANUFACTURING ACTIVITY DURING THE SUBJECT YEAR. THE WAGES TO THE TUNE OF RS. 17 86 589/- HAVE BEEN FOUND TO BE RELATING TO SHIFTING OF MACHINERY WHICH IS NOT PERTAINING TO THE BUSINESS OF THE CURRENT YEAR ACCORDINGLY DISALLOWANCE OF RS. 17 86 589/- IS MADE UNDER THIS HEAD 14. BY THE IMPUGNED ORDER THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OF WAGES PAID TO THE WORKERS AFTER HAV ING FOLLOWING OBSERVATIONS :- 5.3 THE ISSUE IS CONSIDERED. THE APPELLANT CLAIMED A SUM OF RS. 17 86 589/- ON ACCOUNT OF WAGES PAID TO -: 40: - 40 WORKERS. DURING THE COURSE OF ASSESSMENT PROCEEDING S THE APPELLANT SUBMITTED THAT MAJOR PORTION OF THE WORKERS WAS INVOLVED IN SHIFTING OF THE PLANT AND MACHINERY FROM RBKB MILLS ( UNIT NO.2) SITE TO MB M ILLS (UNIT NO.1) SITE TO BRING THE LAND INTO SALEABLE CO NDITION SINCE WITHOUT SHIFTING OF PLANT AND MACHINERY IT W AS NOT POSSIBLE TO BRING THE LAND INTO SALEABLE CONDITIONS . THE APPELLANT CLAIMED THAT THIS WAS A PRE CONDITION OF THE BIFR SCHEME AND AS A RESULT THE EXPENDITURE INCURRE D ON SHIFTING OF THE MACHINERY IS A BUSINESS EXPENDITURE AND NOT A CAPITAL EXPENDITURE AS IT DOES NOT INCREASE THE EFFICIENCY OR PRODUCTIVITY OF THE MACHINERY. 5.4 AT THE OUTSET IT IS NOTED THAT THE APPELLANT HAS NOT REBUTTED THE FINDINGS OF THE AO MADE FOR DISALLOWING THIS EXPENDITURE THAT NO MANUFACTURING ACTIVITY WAS CARRIED OUT IN THE RELEVANT YEAR AND HENCE THE WAGES CLAIMED CANNOT BE SAID REVENUE/BUSINESS EXPENDITURE. FURTHER IN VIEW OF THE NATURE OF THE EXPENDITURE THAT THE WAGES WAS PAID FOR SHIFTING THE -: 41: - 41 MACHINERY TO MAKE THE LAND SALEABLE THE EXPENDITURE IS APPARENTLY OF CAPITAL NATURE AND SHOULD HAVE BEEN ADDED TO THE COST OF THE ASSET I.E. LAND AND AS SUCH IS NOT ALLOWABLE AS REVENUE EXPENDITURE. IN VIEW OF THIS FACT THE DISALLOWANCE MADE BY THE AO ON THIS ACCOUNT IS HEREBY CONFIRMED. 15. WE HAVE CONSIDERED THE RIVAL CONTENTIONS CAREFULLY GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. D URING THE COURSE OF HEARING IT WAS ARGUED BY THE LD. SENIOR COUNSEL OF THE ASSESSEE THAT THE ASSESSEE COMPANY IS A SICK IN DUSTRIAL UNDERTAKING AND HAS APPLIED TO BIFR WHICH HAS GRAN TED ITS APPROVAL VIDE ORDER DATED 10 TH MARCH 1998. A SCHEME OF FINANCIAL RECONSTRUCTION WAS APPROVED VIDE ORDER DA TED 28.3.2005. AS PER LD. AUTHORIZED REPRESENTATIVE VAR IOUS CONCESSIONS AND RELAXATIONS WERE ALLOWED IN INCOME TAX MATTERS. HOWEVER DURING THE COURSE OF ASSESSMENT THE AO DECLINED TO GRANT THE EXEMPTIONS/RELAXATIONS ENVISA GED IN ORDER DATED 28.3.2005. WITH REGARD TO AOS ACTION F OR TAXING -: 42: - 42 THE INTEREST WAIVED BY THE FINANCIAL INSTITUTION AM OUNTING TO RS. 8 94 72 985/- WHICH WAS BROUGHT TO TAX BY AO U /S 41(1) OUR ATTENTION WAS DRAWN TO THE C.B.D.T. INSTRUCTION S NO. 528A DATED 16.2.2000 REGARDING ORDER OF BIFR IN APPROVED SCHEME OF RECONSTRUCTION/REHABILITATION AS CONTAINED AT PA GE 125 OF THE PAPER BOOK WHICH READS AS UNDER :- (II) RECOMMENDS THAT THE RELIEFS UNDER THE INCOME- TAX ACT 1961 MAY BE CONSIDERED BY THE CENTRAL GOVERNMENT THE RELIEF IS TO BE ALLOWED TO THE ASSESSEE IF DURING THE COURSE OF THE PROCEEDINGS BEFORE THE BIFR THE VIEW OF THE IT DEPARTMENT HAVE BEEN CONSIDERED BY THE BIFR. HOWEVER IF THE ORDERS OF THE BIFR HAVE BEEN PASSED WITHOUT MAKING THE INCOME TAX DEPARTMENT A PARTY OR WITHOUT GIVING A CHANCE TO THE INCOME-TAX DEPARTMENT TO SUBMIT ITS VIEWS THE EFFECT OF THE BIFR RECOMMENDATIONS IS TO BE GIVEN ONLY AFTER SUCH RECOMMENDATIONS OF THE BIFR ARE CONSIDERED BY THE CENTRAL BOARD OF DIRECT TAXES. ORDER : F.NO.225/91/99-IT(A-II) DATED 16-2-2000. -: 43: - 43 16. OUR ATTENTION WAS ALSO DRAWN TO THE LETTER WRITTEN BY ADDITIONAL DIRECTOR F DATED 16 TH MARCH 2005 WHEREIN THE DEPARTMENT HAS REFERRED TO THE NOTICE DATED 27.12.2 004 FIXING THE CASE OF HEARING ON 18 TH MARCH 2005. THIS LETTER OF THE DEPARTMENT WAS ADDRESSED TO UNDER SECRETARY ( LEGAL ) AAIFR NEW DELHI WHICH READS AS UNDER :- SIR SUB ; APPEAL NO.239/04 M/S. HOPE TEXTILES LIMITED REG. KINDLY REFER TO YOUR NOTICE DATED 27.12.2004 IN TH E ABOVE CASE FIXING THE HEARING ON 18.3.2005. IN THIS REGARD IT IS SUBMITTED THAT THE REPLY OF T HE COMPANY VIDE ITS LETTERS DATED 28.2.2005 AND 4.3.20 05 FILED IN RESPONSE TO THIS DIRECTORATES LETTER NO.3 283 DATED 3.2.2005 IS UNDER CONSIDERATION OF THE DEPARTMENT AND APPROPRIATE DECISION WILL BE COMMUNICATED SHORTLY. YOURS FAITHFULLY SD/- (SHSHIR JHA) ADDL. DIT ( R ) 17. OUR ATTENTION WAS ALSO DRAWN TO THE RELEVANT PORTIO N OF ORDER DATED 10 TH MARCH 1998 WITH REGARD TO INCOME TAX -: 44: - 44 MATTER THE RELEVANT PORTION OF WHICH READS AS UNDE R WHICH ARE CONTAINED AT PAGE NOS. 119 & 120 OF THE PAPER B OOK :- TO CONSIDER GRANTING AND ALLOWING FOLLOWING RELIEFS AND CONCESSIONS DURING THE CURRENCY OF REHABILITATION SCHEME I.E. TILL 31.03.2011. (I) TO ALLOW THE COMPANY TO CARRY FORWARD & SET-OFF ALL THE LOSSES INCURRED BY THE COMPANY ( EVEN IF THE SAME HAVE LAPSED ) TILL THE END OF THE REHABILITATION PERIOD . (II) TILL THE FINANCIAL YEAR 2010-11 IRRESPECTIVE OF THE LIMITATION PROVIDED UNDER THE PROVISIONS OF SECTION 72(3) OF THE INCOME-TAX ACT 1961. (III) TO EXEMPT THE COMPANY FROM SECTIONS 41(1) 72 AND 112 READ WITH SECTION 45 AND 50 OF THE INCOME-TAX ACT. 18. THE LD. AUTHORIZED REPRESENTATIVE FURTHER SUBMITTED THAT AS PER THE PROVISIONS OF SECTION 32(1) OF S.I. C.A. THE PROVISIONS OF THIS ACT AND RULES ARE HAVING OVER-RI DING EFFECT OVER THE PROVISIONS OF INCOME TAX LAW ACCORDINGLY THE DEPARTMENT WAS NOT JUSTIFIED IN GIVING EFFECT TO TH E ORDER OF THE -: 45: - 45 SICA WHEREIN VARIOUS INCENTIVES AND PRIVILEGES WER E ALLOWED TO THE ASSESSEE COMPANY. 19. ON THE OTHER HAND IT WAS CONTENDED BY THE LD. CIT DR THAT CIRCULAR NO. 523 DATED 5 TH OCTOBER 1988 AND CIRCULAR NO.576 DATED 31 ST AUGUST 1990 HAD BEEN WITHDRAWN BY THE C. B. D. T. VIDE CIRCULAR NO.683 DATED 8 TH JUNE 1994 AND IN TERMS OF CIRCULAR NO.683 THE CASE OF SICK INDUSTRI AL UNDERTAKING IS TO BE DECIDED ON ITS INDIVIDUAL MERI T FOR THE PURPOSE OF GRANT OF FINANCIAL ASSISTANCE OR FISCAL CONCESSION UNDER THE DIRECT TAX LAWS. ACCORDINGLY IT WAS ARGU ED THAT AFTER INSERTION OF CIRCULAR NO. 683 DATED 8 TH JUNE 1994 EACH INDIVIDUAL CASE IS TO BE DECIDED ON ITS OWN MERIT F OR GRANTING CONSENT AS CONTEMPLATED IN SECTION 19(2) OF SICA 19 85 AND THE CONSENT OR DENIAL OF CONSENT WILL BE CONVEYED T O BIFR BY THE CENTRAL GOVERNMENT. HE FURTHER EMPHASIZED THE U SE OF WORD CONSENT WHICH IS TO BE GIVEN AFTER PROPER A PPLICATION OF MIND. SINCE IN THE INSTANT CASE NO SUCH CONSENT HA S BEEN GIVEN BY THE INCOME TAX DEPARTMENT THERE IS NO REA SON TO ALLOW THE ASSESSEE THE BENEFITS MENTIONED IN THE OR DER OF SICA DATED 28.3.2005. -: 46: - 46 20. WE HAVE CONSIDERED THE RIVAL CONTENTIONS CAREFULL Y GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FOUND FROM RECORD THAT THE ASSESSEE COMPANY HAD BECOME SI CK INDUSTRIAL UNDERTAKING LONG BACK THUS A PROPOSAL WA S SUBMITTED TO THE HON'BLE BENCH OF BOARD FOR INDUSTR IAL AND FINANCIAL RECONSTRUCTION ALONGWITH REVIVAL SCHEME E NVISAGING VARIOUS RELAXATION AND GRANTS. THE RELIEF AND CONC ESSIONS GRANTED BY THE HON'BLE BIFR AND SUBSEQUENTLY APPELL ATE AUTHORITY FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTI ON RELATING TO THE INCOME TAX MATTERS WERE CLAIMED IN THE RETURN O F INCOME. THE ASSESSEE COMPANY IN ITS RETURN OF INCOME FOR AS SESSMENT YEAR 2003-04 ON THE STRENGTH OF THE ABOVE RULING O F HON'BLE BIFR CLAIMED THAT (I) THE INTEREST AMOUNTING TO RS. 8.94 72 985/- WAIVED BY THE BANK/FINANCIAL INSTITUTIONS WAS NOT LIABLE TO TAX. (II) LONG TERM CAPITAL GAIN AMOUNTING TO RS. 2 50 000/- IS NOT TAXABLE. (III) LOSSES CARRIED OVER FROM FOR LAST SEVERAL YEARS (WITHOUT THE LIMIT OF EIGHT YEARS PROVIDED IN THE -: 47: - 47 INCOME-TAX ACT 1961 ) ARE ADJUSTABLE AGAINST THE INCOME OF THE SUBJECT YEAR AND SUBSEQUENT YEARS. 21. CONTENTION OF THE ASSESSEE WAS THAT CIRCULAR NOS . 523 AND 576 PROVIDED FOR INSTRUCTIONS REGARDING ORD ERS OF BIFR IN APPROVED SCHEME OF RECONSTRUCTION/REHABILIT ATION. IN THESE CIRCULARS C.B. D. T HAS DIRECTED THAT EFFECT TO ALL ORDERS PASSED BY THE BOARD OF INDUSTRIAL AND FINANCIAL RECONSTRUCTION (BIFR) IN AN APPROVED SCHEME OF RECONSTRUCTION/REHABILITATION BE GIVEN DURING THE C OURSE OF ASSESSMENT AFTER GRANTING OF THE RELIEFS UNDER THE INCOME-TAX ACT 1961 INCLUDING THOSE RELIEFS WHERE BIFR HAD RECOMMENDED THE CONSIDERATION OF SUCH RELIEFS UNDER THE INCOME-TAX ACT 1961 BY THE CENTRAL GOVERNMENT. HO WEVER BOTH THESE CIRCULARS WERE WITHDRAWN BY THE C.B.D.T. BY EXERCISING THEIR POWERS U/S 119(2)(A) VIDE CIRCULAR NO. 683 DATED 8.6.1994. IN SUPPRESSION OF THIS ORDER C.B. D.T. NOW DIRECTED THAT WHEREVER ORDER OF THE BIFR IN AN APPR OVED SCHEME OF RECONSTRUCTION/REHABILITATION -: 48: - 48 (I) DIRECTS THAT THE RELIEFS TO BE ALLOWED UNDER THE INCOME-TAX ACT 1961 THE EFFECT TO SUCH ORDERS BE GIVEN IMMEDIATELY. (II) RECOMMENDS THAT THE RELIEFS UNDER THE INCOME-TAX ACT 1961 MAY BE CONSIDERED BY THE CENTRAL GOVERNMENT THE RELIEF IS TO BE ALLOWED TO THE ASSESSEE IF DURING THE COURSE OF THE PROCEEDINGS BEFORE THE BIFR THE VIEW OF THE IT DEPARTMENT HAVE BEEN CONSIDERED BY THE BIFR. HOWEVER IF THE ORDERS OF THE BIFR HAVE BEEN PASSED WITHOUT MAKING THE INCOME TAX DEPARTMENT A PARTY OR WITHOUT GIVING A CHANCE TO THE INCOME-TAX DEPARTMENT TO SUBMIT ITS VIEWS THE EFFECT OF THE BIFR RECOMMENDATIONS IS TO BE GIVEN ONLY AFTER SUCH RECOMMENDATIONS OF THE BIFR ARE CONSIDERED BY THE CENTRAL BOARD OF DIRECT TAXES. -: 49: - 49 ORDER : F.NO.225/91/99-IT(A-II) DATED 16-2-2000. IN VIEW OF THE ABOVE ORDER OF C.B.D.T. WHERE BIFR RECOMMENDS RELIEFS UNDER THE INCOME-TAX ACT THE SA ME MAY BE CONSIDERED BY THE CENTRAL GOVERNMENT. THE USE OF WORDS MAY CLEARLY INDICATE APPLICATION OF MIND AND THEN GRANT OF RELIEF. 22. NOW COMING TO THE ORDER OF AAIF DATED 28 TH MARCH 2005 FOLLOWING CONCESSION WAS ALLOWED TO THE ASSES SEE COMPANY IN RESPECT OF INCOME TAX MATTERS. TO CONSIDER GRANTING AND ALLOWING FOLLOWING RELIEFS AND CONCESSIONS DURING THE CURRENCY OF REHABILITATION SCHEME I.E. TILL 31.03.2011. (I) TO ALLOW THE COMPANY TO CARRY FORWARD & SET-OFF ALL THE LOSSES INCURRED BY THE COMPANY ( EVEN IF THE SAME HAVE LAPSED ) TILL THE END OF THE REHABILITATION PERIOD . (II) TILL THE FINANCIAL YEAR 2010-11 IRRESPECTIVE OF THE LIMITATION PROVIDED UNDER THE PROVISIONS OF SECTION 72(3) OF THE INCOME-TAX ACT 1961. -: 50: - 50 (III) TO EXEMPT THE COMPANY FROM SECTIONS 41(1) 72 AND 112 READ WITH SECTION 45 AND 50 OF THE INCOME-TAX ACT. 23. IT IS CLEAR FROM THE ABOVE ORDER OF APPELLATE AUTHO RITY FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION THAT T HEY HAVE NOT DIRECTED THE INCOME TAX DEPARTMENT FOR GRANTING OF ABOVE RELIEFS HOWEVER ON THE CONTRARY THEY HAVE CLEARL Y STATED TO CONSIDER GRANTING AND ALLOWING FOLLOWING RELIEFS A ND CONCESSIONS. THUS THE INCOME TAX DEPARTMENT WAS T O CONSIDER THE RELIEFS AS MENTIONED IN THE SAID ORDER . THE C. B. D. T. VIDE ITS ORDER DATED 24.4.2006 DULY AGREED FO R CERTAIN RELIEFS AND CONCESSIONS AS PER OUR CONSIDERED VIEW THE ASSESSEE IS ONLY ELIGIBLE FOR THE RELIEFS MENTIONED IN THE LETTER TO C. B. D. T. DATED 24.4.2006. 24. THERE IS NO DISPUTE TO THE PROPOSITION THAT IN TERM S OF PROVISIONS OF SECTION 32(1) OF SICA IT OVERRIDES T HE PROVISIONS OF INCOME-TAX ACT 1961. THUS WHATEVER SICA HAS PR OVIDED IN ITS ORDER IS TO BE OBEYED BY THE INCOME TAX DEPARTM ENT. IN THE INSTANT CASE VIDE ITS ORDER DATED 28 TH MARCH 2005 THE INCOME -: 51: - 51 TAX DEPARTMENT WAS DIRECTED TO CONSIDER GRANTING A ND ALLOWING SOME RELIEFS WHICH HAVE BEEN DULY CONSIDE RED BY THE DEPARTMENT IN TERMS OF C.B.D.T. INSTRUCTIONS NO.528 A ORDER F.NO.225/91/9911 ITA (A-II) DATED 16.2.2000. AS PER THIS INSTRUCTION RELIEFS UNDER THE INCOME-TAX ACT 1961 MAY BE CONSIDERED BY THE CENTRAL GOVERNMENT THE RELIEF IS TO BE ALLOWED TO THE ASSESSEE IF DURING THE COURSE OF PRO CEEDINGS BEFORE BIFR THE VIEWS OF THE INCOME-TAX AUTHORITIE S HAVE BEEN CONSIDERED BY THE BIFR IT FURTHER PROVIDED TH AT IF THE ORDERS OF THE BIFR HAVE BEEN PASSED WITHOUT MAKING THE INCOME TAX DEPARTMENT A PARTY OR WITHOUT GIVING A C HANCE TO THE INCOME TAX DEPARTMENT TO SUBMIT ITS VIEWS THE EFFECT OF BIFR RECOMMENDATIONS IS TO BE GIVEN ONLY AFTER SUCH RECOMMENDATIONS OF BIFR ARE CONSIDERED BY THE CBDT. AT THIS JUNCTURE THE OBJECTION OF THE LD. AUTHORIZED REPRE SENTATIVE TO THE EFFECT THAT SINCE EVEN AFTER GIVING THE OPPORTU NITY THE DEPARTMENT DID NOT APPEAR IN THE MEETING NOR SEND H IS COMMENTS TILL THE ORDER WAS PASSED ON 28 TH MARCH 2005 THEREFORE THE DEPARTMENT WAS BOUND TO IMPLEMENT TH E SCHEME IS OF NO SUBSTANCE IN SO FAR AS IN THE SCHE ME OF BIFR -: 52: - 52 ITSELF DATED 23.3.2005 THE INCOME TAX DEPARTMENT H AS BEEN GIVEN THE LIBERTY TO CONSIDER GRANTING AND ALLOWING VARIOUS RELIEFS. NO WHERE IN THE ORDER DATED 28 TH MARCH 2005 THE BOARD HAVE DIRECTED THE INCOME TAX DEPARTMENT TO AL LOW ALL THE CONCESSIONS AND RELIEFS MENTIONED THEREIN RATHE R THE INCOME TAX DEPARTMENT WAS REQUIRED CONSIDER GRANTIN G OF THESE RELIEFS AND CONCESSIONS DURING THE CURRENT YE AR OF THE REHABILITATION SCHEME I.E. 21 ST MARCH 2011. 25. IN VIEW OF THE ABOVE DISCUSSION WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITIES FOR ALLOWING RELIEFS AND CONCESSIONS AS PER THE ORDER OF C.B.D.T . DATED 24 TH APRIL 2006 WHEREIN THEY HAVE CONSIDERED THE RELIE F RECOMMENDED BY BIFR. EVEN ON THE MERITS WE FOUND T HAT C.B.D.T. IN ITS ORDER DATED 24 TH APRIL 2006 HAVE DEALT WITH ALL THE ISSUES WITH REGARD TO CARRY FORWARD OF LOSSES TAXING OF INCOME U/S 41(1) AND CAPITAL GAINS U/S 112 OF THE I NCOME-TAX ACT 1961. NO INFIRMITY WAS POINTED OUT BY THE LD. SENIOR A.R. IN THIS ORDER OF C.B.D.T. DATED 24 TH APRIL 2006. ACCORDINGLY WE CONFIRM THE ACTION OF THE LOWER AUTHORITIES FOR ASSESSEES CLAIM OF CARRY FORWARD AND SET OFF OF LOSSES EXEMP TING THE -: 53: - 53 COMPANY FROM PROVISIONS OF SECTION 41(1) 72 112 R EAD WITH SECTION 45 AND 50 OF THE INCOME-TAX ACT 1961. AS T HE TAXABLE INCOME OF THE COMPANY WAS MORE THEREFORE IT WAS H ELD BY CBDT IN ITS ORDER DATED 24.4.2006 THAT PROVISIONS OF SECTION 115JB WAS NOT APPLICABLE. 26. NEXT ISSUE WHICH FALLS FOR OUR CONSIDERATION IS TAXABILITY OF RS. 94 74 775/- ON TRANSFER OF CAPITA L RESERVE ON CONVERSION OF LAND INTO STOCK IN TRADE. 27. WE FOUND THAT THE ASSESSEE COMPANY HAS REVALUED ITS LAND IN THE YEAR 1995-96 AND REVALUATION RESERVE WA S CREATED AT RS.4 59 16 581/-. HOWEVER THE ASSESSEE TRANSFER RED A SUM OF RS. 94 74 775/- FROM THIS RESERVE ATTRIBUTABLE T O THE LAND SOLD TO THE GENERAL RESERVE AND ROUTED IT THROUGH PROFIT AND LOSS APPROPRIATION ACCOUNT. THUS THE AMOUNT SO TRA NSFERRED FROM RE-VALUATION RESERVE HAS NOT BROUGHT TO TAX NE T. AS PER THE PROVISIONS OF SECTION 2(47) CONVERSION OF INVES TMENT INTO STOCK IN TRADE IS TREATED AS TRANSFER IN WHICH CAPI TAL ASSET IS CONVERTED INTO STOCK IN TRADE. ACCORDINGLY THE DIF FERENCE BETWEEN THE COST OF ASSETS AND THE VALUE AT WHICH T HE SAME WAS TRANSFERRED AS STOCK IN TRADE IS CHARGEABLE TO CAPITAL GAIN -: 54: - 54 TAX EITHER LONG TERM OR SHORT TERM DEPENDING ON TH E PERIOD OF HOLDING OF THE ASSETS FROM THE DATE OF ACQUISITION TO DATE OF TRANSFER. ACCORDINGLY PROFIT ARISING OUT OF SALE O F SUCH STOCK IN TRADE AFTER CONVERSION IS CHARGEABLE AS BUSINESS IN COME U/S 45(2) WHERE AS DIFFERENCE IN COST OF ASSETS AND TH E VALUE AT WHICH IT WAS TRANSFERRED AS STOCK IN TRADE IS CHARG EABLE UNDER THE HEAD CAPITAL GAINS. WE DO NOT FIND ANY INFIRMI TY IN THE ORDER OF CIT(A) FOR TAXING THE AMOUNT OF RS. 94 74 775/- AS CAPITAL GAINS. 28. NEXT ISSUE RELATES TO DISALLOWANCE OF INSURANCE CHA RGES OF RS. 27 67 479/-. 29. THE AO HAS DISALLOWED THE CLAIM ON THE PLEA THAT EXPENSES WERE RELATING TO THE EARLIER YEARS AND THE CIT(A) HAS CONFIRMED THE SAME. WE FOUND THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE AMOUNT OF I NSURANCE CHARGES OF RS. 27 67 479/- PAYABLE TO THE BANK AND FINANCIAL INSTITUTION WAS CRYSTALLIZED DURING THE RELEVANT AS SESSMENT YEAR UNDER CONSIDERATION THEREFORE THERE IS NO RE ASON TO DISALLOW THE SAME UNDER MERCANTILE SYSTEM OF ACCOUN TING. ACCORDINGLY WE REVERSE THE ORDERS OF BOTH THE LOWE R -: 55: - 55 AUTHORITIES ON THIS GROUND AND DIRECT THE AO TO ALL OW INSURANCE CHARGES OF RS. 27 67 479/- CRYSTALLIZED D URING THE YEAR UNDER CONSIDERATION. 30. NEXT GROUND OF THE ASSESSEE RELATES TO DISALLOWANCE OF WAGES OF RS. 17.86 LAKHS WHICH WAS INCURRED FOR SH IFTING OF PLANT AND MACHINERY FROM UNIT NO.2 TO UNIT NO.1. TH E AO DISALLOWED THE SAME ON THE PLEA THAT THERE WAS NO MANUFACTURING DURING THE YEAR. THE LD. CIT(A) CONFI RMED THE DISALLOWANCE BY OBSERVING THAT BY INCURRING THE EXP ENDITURE OF RS. 17 86 579/- THE LAND OF UNIT NO.2 WAS BROUGHT U NDER SALEABLE CONDITION. THUS IT WAS A CAPITAL EXPENDIT URE AND NOT REVENUE. 31. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT GENUINENESS OF EXPENDITURE HAVING BEEN I NCURRED WAS NOT DOUBTED BY THE ASSESSING OFFICER. WE ALSO F OUND THAT BY INCURRING THESE EXPENDITURE THE PLANT AND MACHI NERY OF UNIT NO.2 WAS SHIFTED TO UNIT NO.1. AS PER THE FIND ING RECORDED BY THE LD. CIT(A) SUCH TRANSFER BROUGHT THE LAND O F UNIT NO.II WITH SALEABLE CONDITION SINCE WITHOUT SHIFTING OF PLANT AND MACHINERY IT WAS NOT POSSIBLE TO BRING THE LAND UN DER -: 56: - 56 SALEABLE CONDITION. KEEPING INTO VIEW THE CIT(A)S OBSERVATION THE EXPENDITURE SO INCURRED IS ELIGIBLE FOR ADDITIO N IN THE VALUE OF LAND AND IS TO BE ALLOWED WHILE COMPUTING CAPITA L GAINS ARISING OUT OF SALE OF SUCH LAND. WE THUS MODIFY THE ORDER OF THE CIT(A) AND DIRECT THE AO TO ALLOW THIS EXPENDIT URE WHILE COMPUTING CAPITAL GAINS ON SALE OF LAND OF UNIT NO. 2. WE DIRECT ACCORDINGLY. A.Y.2004-05 : 32. GROUNDS RAISED WITH REGARD TO DISALLOWANCE U/S 41(1 ) CAPITAL GAINS ADJUSTMENT OF BOOK PROFIT U/S 115JB IS COVERED BY THE ORDER OF 2003-04 DISCUSSED HEREINABOVE. ACCO RDINGLY THE AO IS DIRECTED TO APPLY THE PROPOSITION LAID DO WN IN THE ASSESSMENT YEAR 2003-04 WITH REGARD TO THE GROUNDS RAISED BY THE ASSESSEE. 33. DISALLOWANCE OF WAGES OF RS. 17.86 LAKHS IS ALSO SIMILAR TO GROUND NO. 4 IN THE ASSESSMENT YEAR 2003 -04 WHEREIN WE HAVE DIRECTED THE AO TO ALLOW SUCH EXPEN DITURE WHILE COMPUTING CAPITAL GAINS ON SALE OF LAND. ACCO RDINGLY THE AO IS TO FOLLOW OUR DECISION AS GIVEN IN THE ASSESS MENT YEAR 2003-04. -: 57: - 57 34. GROUNDS RAISED IN THE ASSESSMENT YEARS 2005-06 2006-07 AND 2007-08 ARE ALSO COVERED BY OUR DECISIO N TAKEN IN THE ASSESSMENT YEAR 2003-04. WE DIRECT THE AO TO APPLY THE PROPOSITIONS LAID DOWN BY US HEREINABOVE WHILE DECI DING THE APPEAL FOR ASSESSMENT YEAR 2003-04. WE DIRECT ACCOR DINGLY. 35. IN THE RESULT THE APPEALS OF THE ASSESSEE ARE ALLO WED IN PART IN TERMS INDICATED HEREINABOVE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 29 TH MARCH 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 29 TH MARCH 2011. CPU* 242.1.29