Kothari Products Ltd, Kanpur v. ACIT, Kanpur

ITA 711/LKW/2010 | 2003-2004
Pronouncement Date: 09-03-2011

Appeal Details

RSA Number 71123714 RSA 2010
Assessee PAN AAACK5571F
Bench Lucknow
Appeal Number ITA 711/LKW/2010
Duration Of Justice 3 month(s) 8 day(s)
Appellant Kothari Products Ltd, Kanpur
Respondent ACIT, Kanpur
Appeal Type Income Tax Appeal
Pronouncement Date 09-03-2011
Appeal Filed By Assessee
Bench Allotted A
Date Of Final Hearing 07-03-2011
Next Hearing Date 07-03-2011
Assessment Year 2003-2004
Appeal Filed On 01-12-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A LUCKNOW IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A LUCKNOW IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A LUCKNOW IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A LUCKNOW BEFORE HONBLE SHRI H.L. KARWA BEFORE HONBLE SHRI H.L. KARWA BEFORE HONBLE SHRI H.L. KARWA BEFORE HONBLE SHRI H.L. KARWA AND HONBLE SHRI N.K. SAINI AND HONBLE SHRI N.K. SAINI AND HONBLE SHRI N.K. SAINI AND HONBLE SHRI N.K. SAINI ITA NO.711/LKW/2010 ASSESSMENT YEAR:2003-04 KOTHARI PRODUCTS LTD PAN PARAG HOUSE 24/19 THE MALL KANPUR V. ACIT CENTRAL CIRCLE V KANPUR PAN:AAACK5571F (APPELLANT) (RESPONDENT) ITA NO.724/LKW/2010 ASSESSMENT YEAR:2003-04 ACIT CENTRAL CIRCLE V KANPUR V. KOTHARI PRODUCTS LTD PAN PARAG HOUSE 24/19 THE MALL KANPUR (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI AMIT SHUKLA ADVOCATE DEPARTMENT BY: SHRI PRAVIN KUMAR D.R. O OO O R RR R D DD D E EE E R RR R PER PER PER PER H. L. KARWA H. L. KARWA H. L. KARWA H. L. KARWA: :: : THESE TWO APPEALS BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-I KANPUR DATED 27.9.2010 R ELATING TO ASSESSMENT YEAR 2003-04. 2. FIRSTLY WE WILL TAKEN UP THE ASSESSEES APPEAL I.E. ITA NO. 711/LKW/2010 RELATING TO ASSESSMENT YEAR 2003-004. 3. GROUNDS NO.1.1 AND 1.2 READ AS UNDER:- 1.1 BECAUSE THE 'CIT (A)' HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT INTEREST INCOME AS EARNED BY THE APPELLANT WAS LIAB LE TO BE ASSESSED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' AND ON THAT BASIS IN EXCLUDING WHOLE OF THE INTEREST INCOME FROM THE COMPUTATION OF RELIEF UNDE R SECTION 80 HHC. 1.2 BECAUSE INTEREST INCOME HAD ARISEN AND ACCRUED TO THE APPELLANT SOLELY OWING TO SURPLUS THAT GOT GENERATED IN THE BUSINESS ACTIVITIES OF THE APPELLANT AND THE SAME SHOULD HAVE BEEN HELD TO BE AN INTEGRAL PA RT OF OVERALL BUSINESS :-2-: ACTIVITIES OF THE APPELLANT AND ACCORDINGLY SUCH IN COME TO THE EXTENT OF 90% THEREOF SHOULD HAVE BEEN HELD TO BE INCLUDIBLE IN T HE COMPUTATION OF 'PROFITS ELIGIBLE FOR RELIEF UNDER SECTION 80 HHC'. 4. AT THE VERY OUTSET SHRI AMIT SHUKLA LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE OR DER OF THIS BENCH OF THE TRIBUNAL DATED 28.9.2007 PASSED IN ITA NO. 1003/LUC/2006 IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2002-03. IN THE SAID CASE THE ISS UE BEFORE THE TRIBUNAL WAS ABOUT EXCLUSION OF INTEREST ON BANK DEPOSITS AND INVESTME NTS. THE ASSESSEE CLAIMED THAT THEY SHOULD BE TREATED AS PART OF BUSINESS PROFIT AND SH OULD BE INCLUDED FOR DEDUCTION U/S. 80HHC OF THE ACT. THE TRIBUNAL REJECTED THE CLAIM OF THE ASSESSEE OBSERVING AS UNDER:- 18. WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE I S DECIDED AGAINST THE ASSESSEE IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COUR T IN PANDYAN CHEMICALS LTD. VS. CIT (2003) 262 ITR 278 (SC) AND TUTICORIN ALKAL I CHEMICALS AND FERTILIZERS LTD. VS. CIT 227 ITR 172. THE INCOME RECEIVED FRO M BANK BY WAY OF INTEREST CANNOT BE CONSIDERED TO BE DERIVED FROM BUSINESS. ACCORDINGLY THIS ISSUE IS DECIDED AGAINST THE ASSESSEE AND ORDER OF CIT(A) ON THIS ISSUE IS CONFIRMED. 5. SHRI AMIT SHUKLA LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE FACTS IN THE ASSESSMENT YEAR UNDER CONSIDERATION ARE SIMILAR TO THAT OF ASSESSMENT YEAR 2002-03. IN VIEW OF THE ABOVE SUBMISSIONS OF SHRI AMIT SHUKLA LD. COUNSEL FOR THE ASSESSEE WE DECIDE THE ISSUE AGAINST THE ASSESSEE AND DISMISS G ROUNDS NO.1.1 AND 1.2 OF THE APPEAL. 6. GROUNDS NO.2.1 2.2 2.3 AND 2.4 READ AS UNDER:- 2.1 BECAUSE THE 'CIT (A)' HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE 'TURNOVER' AS WELL AS 'PROFIT' OF JORHAT UNIT WERE LIABLE TO BE EXCLUDED FROM THE PROCESS OF COMPUTATION OF RELIEF UNDER SECTION 80 H HC IN VIEW OF THE APPLICABILITY OF THE PROVISIONS OF SECTION 80 IA (9). 2.2 BECAUSE FOR THE PURPOSES OF COMPUTATION OF REL IEF UNDER SECTION 80 HHC OVERALL TRADING RESULTS OF THE 'ASSESSEE' AS A WHOL E ARE LIABLE TO BE CONSIDERED AND THE PROVISIONS CONTAINED IN SECTION 80 IA (9) A RE NOT APPLICABLE. :-3-: 2.3 BECAUSE WHILE DECIDING THE 'ISSUE' THE 'CIT (A )' HAS ERRED IN LAW AND ON FACTS IN IGNORING THE FINDINGS' OF HON'BLE ITAT LUC KNOW BENCH IN ITA NO.385/LUC/2003 IN THE CASE OF- KOTHARI PRODUCTS LT D VS. ACIT CENTRAL CIRCLE KANPUR RELATING TO ASSESSMENT YEAR 2001-02 WHEREIN THE BENCH HAS STATED AS UNDER: 'THUS THE PROVISIONS OF SECTION 80-IA(9) CANNOT BE APPLIED TO SECTION 80HHC. IT IS SETTLED LAW THAT SECTION 80HHC WAS A S ELF CODE. IT PROVIDES FOR COMPUTATION OF TURNOVER THE PROFITS A ND GAINS OF BUSINESS OR PROFESSION OR EXPORT PROFITS. THE BENEFIT OF SEC TION 80HHC CANNOT BE CURTAILED BY OTHER PROVISIONS OF THE ACT UNLESS THE SECTION SUPERSEDES THE OTHER SECTIONS. SECTION 80-IA(9) TH EREFORE DOES NOT SUPERSEDE THE PROVISIONS OF SECTION 80HHC.' 2.4 BECAUSE THE ORDER PASSED BY THE HON'BLE ITAT AS REFERRED TO ABOVE CONSTITUTED A BINDING PRECEDENCE AND THE AUTH ORITIES BELOW WERE OBLIGED UNDER THE LAW TO FOLLOW THE SAME. 7. THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE IN P ARA 11 OF THE ASSESSMENT ORDER. FOR THE SAKE OF CONVENIENCE PARA 11 OF THE ASSESSMENT ORDER IS REPRODUCED BELOW:- 1. COMPUTATION OF DEDUCTION UNDER SECTION 80 HHC: THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION UNDER SE CTION 80 HHC AT RS.3 02 78 276/- AS PER DETAILS FILED WITH THE RETU RN OF INCOME. IT IS SEEN THAT ALL EXPORTS ARE ATTRIBUTABLE TO KANPUR UNIT. IT IS SEEN THAT THE ASSESSEE HAS INCLUDED PROFITS & GAINS OF JORHAT UNIT AT RS.57 23 43 036/- FOR WHICH DEDUCTION UNDER SECTION 80-IB HAS ALSO BEEN CLAIMED IN THE COMPUTAT ION OF TAXABLE INCOME. IT IS THUS SEEN THAT THE ASSESSEE HAS CLAIMED DEDUCTION U NDER SECTION 80-IB MORE THAN IT IS ENTITLED TO IN VIEW OF EXPRESS PROVISIONS OF SECTION 80-IA (9) AND 80-IB(13) OF THE INCOME TAX ACT 1961. THE ASSESSEE WAS REQUIRED DETAILED EXPLANATION VIDE PARA 31 OF NOTICE UNDER SECTION 142(1) DATED 12.02. 2004. SHRI MANIK SETH RELIED ON THE SUBMISSION MADE BEFORE LD. COMMISSIONER OF I NCOME TAX (CENTRAL) KANPUR MADE DURING PROCEEDINGS UNDER SECTION 263 FO R ASSESSMENT YEAR 2001-02 IT HAS FURTHER BEEN ARGUED THAT THERE ARE NO SUCH P ROVISIONS EITHER UNDER SECTION 80-HHC OR 80-IB WHICH EXPLICITLY PROVIDE FOR SUCH H YPOTHETICAL EXCLUSION OF PROFITS :-4-: & GAINS OF INDUSTRIAL UNIT ELIGIBLE FOR DEDUCTION U NDER SECTION 80-IA/ 80-IB. IT IS ALSO ARGUED THAT DEDUCTION UNDER SECTION 80-IA/80-IB AND 80-HHC ARE NOT COUNTER PRODUCTIVE FOR ASSESSEE AND BOTH ARE INCENTIVES FOR ESTABLISHING INDUSTRY IN ELIGIBLE AREA AND FOR EXPORT SEPARATELY. THE SUM TOTAL OF TH ESE DEDUCTION COMES TO RS.60 26 21 312/ - WHICH IS LESS THAN PROFITS AND GAINS OF BUSINESS AT RS.72 56 64 023/-. VIDE REPLY FILED ON 11.05.2004 IT HAS BEEN CLAIMED THAT THE TURNOVER OF JORHAT UNIT MAY ALSO BE EXCLUDED FOR TH E PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80 HHC IF THE PROFIT FROM B USINESS & PROFESSION OF THIS UNIT IS ALSO EXCLUDED. THE ARGUMENTS WERE EXAMINED. IT WOULD BE HIGHLY RELEVANT TO PINPOINT FALLACY OF CLAIM OF DEDUCTION UNDER SEC TION 80-IB AND SECTION 80-HHC IN VIEW OF THE CLAIM OF THE ASSESSEE THAT DEDUCTION UNDER SECTION 80-IB MAY NOT BE EXCLUDED WHILE COMPUTING DEDUCTION UNDER SECTION 80-HHC BY THE MERE FACT THAT IF PROFITS OF JORHAT UNITS ARE NOT DEDUCTED FR OM TAXABLE PROFITS WHILE COMPUTING DEDUCTION UNDER SECTION 80-HHC ASSESSEE WOULD GET DEDUCTION UNDER SECTION 80-HHC AT RS.3 02 78 276/- - BESIDES DEDUCTION UNDE R SECTION 80-IB AT RS:57 23 43 036/- TOTALING RS.60 26 21 312/- WHICH APPARENTLY EXCEEDS PROFIT OF JORHAT UNIT. IT CAN NOT BE THE INTENTION OF STATUTE TO ALLOW DEDUCTION MORE THAN THE PROFITS OF ELIGIBLE UNIT. THE CLAIM OF EXCLUSION OF TURNOVER OF JORHAT UNIT IS NOT SANCTIONED BY LAW AS DEDUCTION U/S. 80HHC HAS TO BE WORKED OUT ON EXPORT TURNOVER IN THE PROPORTION OF TOTAL TURNOVER OF THE COMPANY. 8. ON APPEAL THE LD. CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER AND HENCE THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO P ERUSED THE MATERIALS AVAILABLE ON RECORD. SHRI AMIT SHUKLA LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF ASSOCIATED CAPSULES (P) LTD. V. DY. CIT [2011] 197 TAXMAN 84. SHRI AMIT SHUKLA LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ABOVE DECISION WAS RENDERED AFTE R CONSIDERING THE FOLLOWING DECISIONS WHICH ARE SAID TO BE AGAINST THE ASSESSEE:- 1. ACIT V. HINDUSTAN MINT & AGRO PRODUCTS (P) LTD. [20 09] 119 ITD 107 (DELHI) :-5-: 2. ACIT V. ROGINI GARMETS [2007] 108 ITD 49 (CHENNAI) 3. GREAT EASTERN EXPORTS V. CIT [TAX APPEAL NO.267 OF 2008 DATED 29.11.2010] 4. OLAM EXPORTS (INDIA) LTD. V. CIT [2009] 184 TAXMAN 373 (KER.) 9.1 SHRI AMIT SHUKLA LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THERE IS NO DIRECT DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT A ND THEREFORE IN VIEW OF THE SETTLED LEGAL POSITION A VIEW IN FAVOUR OF THE ASSESSEE SHOULD B E ADOPTED. HE FURTHER SUBMITTED THAT THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN TH E CASE OF ASSOCIATED CAPSULES (P) LTD. V. DY. CIT (SUPRA) IS DIRECT ON THIS ISSUE AND THEREFORE THE ISSUE MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE KEEPING IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES (P) LTD. V. DY. CIT (SUPRA). 9.2 IN THE CASE OF ASSOCIATED CAPSULES (P) LTD. V. DY. CIT (SUPRA) THE ASSESSING OFFICER HAS ADOPTED THE SAME VIEW AS IN THE PRESENT CASE. THE FACTS NOTED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES (P) LTD. V. DY. CIT (SUPRA) AS PER PARA 5 ARE AS UNDER:- 5. THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER P ASSED UNDER SECTION 143(3) THE ACT DISAGREED WITH THE QUANTUM OF DEDUCTION COMPUTE D BY THE ASSESSEE UNDER SECTION 80HHC OF THE ACT. ACCORDING TO THE ASSESSIN G OFFICER WHERE DEDUCTION UNDER SECTION 80-IA IS CLAIMED AND ALLOWED THEN SE CTION 80-IA(9) OF THE ACT REQUIRES THAT THE QUANTUM OF DEDUCTION ALLOWABLE UNDER ANY S ECTION UNDER HEADING 'C' OF CHAPTER VI-A HAS TO BE COMPUTED NOT ON THE TOTAL PR OFITS OF THE BUSINESS BUT ON THE PROFITS OF THE BUSINESS AS REDUCED BY THE PROFITS O F BUSINESS ALLOWED AS DEDUCTION UNDER SECTION 80-IA(1) OF THE ACT. IN OTHER WORDS ACCORDING TO THE ASSESSING OFFICER IF THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECT IONS 80-IA AND 80HHC THEN DEDUCTION UNDER SECTION 80-IA(1) HAS TO BE COMPUTED : AND ALLOWED ON THE PROFITS OF THE BUSINESS AND THE DEDUCTION ALLOWABLE UNDER SECT ION 80HHC HAS TO BE COMPUTED ON THE PROFITS OF THE BUSINESS AS REDUCED BY THE PR OFITS ALLOWED AS DEDUCTION UNDER SECTION 80-IA OF THE ACT. :-6-: 9.3 IN THE CASE OF ASSOCIATED CAPSULES (P) LTD. V. DY. CIT (SUPRA) THE CONTENTION RAISED ON BEHALF OF THE REVENUE READS AS UNDER:- 19. THE DECISION OF THE SPECIAL BENCH IN THE CASE OF HINDUSTAN MINT & AGRO PRODUCTS (P.) LTD (SUPRA) HAS BEEN AFFIRMED BY THE DELHI HIGH COURT IN THE CASE OF GREAT EASTERN EXPORTS V. CIT [TAX APPEAL NO. 267 OF 2008 DECIDED ON 29-11- 2010]. SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE KERA LA HIGH COURT IN THE CASE OF OLAM EXPORTS (INDIA) LTD V. CIT [2009] 184 TAXMAN 3 73. IN THESE CIRCUMSTANCES IT IS SUBMITTED THAT SIMILAR VIEW BE TAKEN IN THE M ATTER SO THAT THERE IS CONSISTENCY OR UNIFORMITY OF DECISION ON THE QUESTION RAISED IN THIS APPEAL. 9.4 IN THE INSTANT CASE ALSO SIMILAR ARGUMENTS WERE RAI SED BY SHRI PRAVIN KUMAR LD. D.R. HE ALSO RELIED ON THE DECISIONS WHICH ARE ME NTIONED IN PARA 19 OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT. 9.5 THE HON'BLE BOMBAY HIGH COURT HAS INTERPRETED THE P ROVISIONS OF SECTION 80IA(9) OF THE ACT AND ALSO SECTION 80HHC OF THE ACT IN THE FOLLOWING MANNER:- 27. THE QUESTION THEREFORE TO BE CONSIDERED IS WHETHER SECTION 80-IA(9) SEEKS TO DISTURB THE MECHANISM OF COMPUTING THE DEDUCTION PROVIDED UNDER SECTION 80HHC(3) OF THE ACT OR SECTION 80-IA(9) COMES INTO OPERATION ONLY AT THE STAGE OF ALLOWING THE DEDUCTION COMPUTED UNDER SECTION 80HHC SO THAT THE COMBINED DEDUCTION UNDER SECTIONS 80-IA AND 80HHC DOES NOT E XCEED THE TOTAL PROFITS OF THE BUSINESS OF THE UNDERTAKING. 28. SECTION 80-IA(9) CONSISTS OF THREE PARTS: 'FIRST PART - WHERE ANY AMOUNT OF PROFITS AND GAINS OF AN UNDERTAKING/ ENTERPRISE IS CLAIMED AND. ALLOWED UNDER SECTION 80 -IA(1) FOR ANY ASSESSMENT YEAR THEN . SECOND PART - DEDUCTION TO THE EXTENT OF PROFITS AN D GAINS ALLOWED UNDER SECTION 80-IA(1) SHALL NOT BE ALLOWED UNDER ANY OTH ER PROVISIONS UNDER HEADING 'C' OF CHAPTER VI-A OF THE ACT; AND THIRD PART - IN NO CASE THE DEDUCTION ALLOWED SHALL EXCEED THE PROFITS AND GAINS OF THE BUSINESS OF THE UNDERTAKING ENTERPRISE .' 29. THE DISPUTE IN THE PRESENT CASE IS WHETHER THE SECOND PART OF SECTION 80- IA(9) SEEKS TO DISTURB THE MECHANISM OF COMPUTING T HE DEDUCTION PROVIDED UNDER :-7-: SECTION 80HHC(3) OF THE ACT? THE SECOND PART OF SEC TION 80-IA(9) PROVIDED THAT THE DEDUCTION TO THE EXTENT OF PROFITS ALLOWED UNDE R SECTION 80-IA(1) SHALL NOT BE ALLOWED UNDER ANY OTHER PROVISIONS. IT OBVIOUSLY ME ANS THAT THE DEDUCTIONS THAT IS ALLOWABLE UNDER OTHER PROVISIONS UNDER HEADING 'C' OF CHAPTER VI-A WOULD BE ALLOWED TO THE EXTENT OF PROFITS AS REDUCED BY THE PROFITS ALLOWED UNDER SECTION 80- IA(1). THE SECOND PART OF SECTION 80-IA(9) DOES NOT EVEN REMOTELY REFER TO THE METHOD OF COMPUTING DEDUCTION UNDER OTHER PROVISION S UNDER HEADING 'C' OF CHAPTER VI-A. THUS SECTION 80-IA(9) SEEKS TO CURTA IL ALLOWANCE OF DEDUCTION AND NOT COMPUTABILITY OF DEDUCTION UNDER ANY OTHER PROV ISIONS UNDER HEADING 'C' OF CHAPTER VI-A OF THE ACT. 30. HOW TO COMPUTE DEDUCTION ALLOWABLE UNDER SECTIO N 80HHC(1) IS SET OUT IN SECTION 80HHC(3). IN THE CASE OF A MANUFACTURER EX PORTER SECTION 80HHC(3)( A) PROVIDES THAT THE DEDUCTION UNDER SECTION 80HHC(1) HAS TO BE COMPUTED AS PER THE FORMULA: EXPORT TURNOVER PROFITS OF THE BUSINESS X --------------------- TOTAL TURNOVER. CLAUSE (BAA) IN SECTION 80HHC DEFINES THE TERM 'PRO FITS OF THE BUSINESS' FOR THE PURPOSES OF SECTION 80HHC TO MEAN THE PROFITS OF TH E BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION' AS REDUCED BY THE AMOUNTS SPECIFIED THEREIN. THEREFORE IN THE CASE O F A MANUFACTURER EXPORTER DEDUCTION UNDER SECTION 80HHC(1) IS STATUTORILY REQ UIRED TO BE COMPUTED ON THE PROFITS OF THE BUSINESS AS REDUCED BY .THE AMOUNTS SPECIFIED IN CLAUSE (BAA) OF SECTION 80HHC. UNLESS IT IS SPECIFICALLY PROVIDED BY THE STATUTE THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF SECTION 80HHC CANNOT BE REDUCED BY ANY AMOUNT SAVE AND EXCEPT THE AMOUNT SPECIFIED IN CLAUSE (BAA ) OF SECTION 80HHC ITSELF. SECTION 80-IA(9) OF THE ACT DOES NOT EXPRESSLY OR I MPLIEDLY PROVIDE THAT THE AMOUNT OF PROFITS ALLOWED AS DEDUCTION UNDER SECTIO N 80-LA(1) SHOULD BE REDUCED FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC OR COMPUTING DEDUCTION UNDER ANY OTHE R PROVISIONS IN HEADING 'C' OF CHAPTER VI-A AND THEREFORE THE CONTENTION OF T HE REVENUE TO THAT EFFECT CANNOT BE ACCEPTED. 31. IN THE CASE OF A TRADER EXPORTER SECTION 80HHC (3)(B) PROVIDES THAT THE :-8-: DEDUCTION UNDER SECTION 80HHC(1) HAS TO BE COMPUTED ON THE EXPORT TURNOVER REDUCED BY THE DIRECT COSTS AND INDIRECT COSTS ATTR IBUTABLE TO THE GOODS OR MERCHANDISE EXPORTED BY THE ASSESSEE. THE ARGUMENT OF THE REVENUE THAT UNDER SECTION 80-IA(9) THE AMOUNT OF PROFITS ALLOWED UNDE R SECTION 80-IA HAS TO BE DEDUCTED FROM THE PROFITS OF BUSINESS WHILE COMPUTI NG DEDUCTION UNDER SECTION 80HHC IS ACCEPTED THEN THE SECTION BECOMES UNWORKA BLE BECAUSE IN THE CASE OF A TRADER EXPORTER THE DEDUCTION UNDER SECTION 8 0HHC IS COMPUTED ON THE EXPORTER TURNOVER AND NOT ON THE PROFITS OF THE BUS INESS. THE WORDS 'EXPORT TURNOVER'- AND 'PROFITS OF BUSINESS' ARE SEPARATELY DEFINED UNDER SECTION 80HHC. THEREFORE IN THE CASE OF A TRADER EXPORTER SECTIO N 80-IA(9) CAN BE APPLIED ONLY AFTER THE DEDUCTION UNDER SECTION 80HHC(3)(B) IS CO MPUTED. SIMILARLY IN THE CASE OF A MANUFACTURER / PROCESSOR EXPORTER SECTION 80- IA(9) WOULD BE APPLICABLE WHILE ALLOWING THE DEDUCTION COMPUTED UNDER SECTION 80HHC (3)(A) OF THE ACT. .32. IF THE WORDS USED IN SECTION 80-IA(9). WERE 'S HALL NOT QUALIFY' THEN PROBABLY IT COULD BE SAID THAT THE LEGISLATURE INTENDED TO AFFE CT THE QUANTUM OF DEDUCTIONS COMPUTABLE UNDER OTHER PROVISIONS UNDER HEADING 'C' OF CHAPTER VI-A BECAUSE THE AMOUNT THAT QUALIFIES FOR DEDUCTION ALONE FORMS THE BASIS FOR COMPUTING THE DEDUCTION. THE WORD 'QUALIFY' IS AN EXPRESSION RELA TABLE TO THE COMPUTATION OF DEDUCTION. THE WORD 'ALLOWED' IS RELATABLE TO ALLOW ING THE DEDUCTION THAT IS COMPUTED. THE WORD 'ALLOWED' CANNOT BE EQUATED WITH THE WORD 'QUALIFY'. SINCE SECTION 80-IA(9) USES THE WORDS 'SHALL NOT BE ALLOW ED' IN OUR OPINION THE SECTION SEEKS TO RESTRICT THE ALLOWANCE OF DEDUCTION AND NO T THE COMPUTATION OF DEDUCTION UNDER ANY OTHER SECTIONS UNDER HEADING 'C' OF CHAPT ER VI-A OF THE ACT. . 33. WHEREVER THE LEGISLATURE INTENDED THAT THE DEDU CTION ALLOWED UNDER ONE SECTION SHOULD AFFECT THE COMPUTATION OF DEDUCTION UNDER OTHER PROVISIONS OF THE ACT THE LEGISLATURE HAS EXPRESSLY USED WORDS TO TH AT EFFECT IT MAY BE NOTED THAT SECTIONS 80HHD(7) AND 80-IA(9A) [PRESENTLY 80-IA(9) ] WERE INTRODUCED BY FINANCE ACT 1998 WITH EFFECT FROM 1-4-1999. SECTION .80HHD (7) PROVIDES THAT THE DEDUCTION ALLOWED UNDER SECTION 80HHD(1) SHALL NOT QUALIFY TO THAT EXTENT FOR DEDUCTION UNDER ANY OTHER PROVISIONS OF CHAPTER VI- A UNDER THE HEADING 'C' WHEREAS SECTION 80-IA(9A) PROVIDES THAT THE DEDUCT ION ALLOWED UNDER SECTION 80- IA(1) SHALL NOT BE ALLOWED UNDER ANY OTHER PROVISIO NS OF CHAPTER VI-A UNDER HEADING 'C'. SIMILARLY IN SECTION 80-IC(S) THE W ORDS USED ARE THAT :-9-: NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PRO VISION OF THE ACT IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE NO DEDUCTION SHAL L BE ALLOWED UNDER ANY OTHER SECTION CONTAINED IN CHAPTER VIA OR SECTION 10A OR SECTION 10B IN RELATION TO THE PROFITS AND GAIN OF THE UNDERTAKING.: THUS THE LEG ISLATURE HAS USED SPECIFIC WORDS WHENEVER IT INTENDED TO AFFECT THE COMPUTATION OF D EDUCTION. AS THE WORDS USED IN SECTION 80-IA(9) RELATE TO ALLOWANCE AND NOT :COMPU TATION OF DEDUCTION IT CANNOT BE INFERRED THAT SECTION 80-IA(9) IS INSERTED WITH A VIEW TO AFFECT COMPUTATION OF DEDUCTION UNDER ANY OTHER PROVISIONS UNDER HEADING 'C' OF CHAPTER VI-A. 34. IT IS WELL ESTABLISHED IN LAW THAT THE LANGUAGE OF THE STATUTE MUST BE READ AS IT IS AND THE STATUTE MUST NOT BE READ BY ADDING OR S UBSTITUTING THE WORDS UNLESS IT IS ABSOLUTELY NECESSARY TO DO SO. SINCE SECTION 80-IA( 9) USES THE WORDS 'SHALL NOT BE ALLOWED' IT IS NOT PERMISSIBLE TO READ SECTION 80-IA(9) BY SUBSTITUTING THE ABOVE WORDS WITH THE WORDS 'SHALL NOT QUALIFY' OR BY ADDI NG THE WORDS 'SHALL NOT BE ALLOWED IN COMPUTING' THE DEDUCTION UNDER ANY OTHER PROVISIONS UNDER HEADING 'C' OF CHAPTER VI-A OF THE ACT' WHEN THE PLAIN AND SIMP LE MEANING OF SECTION 80-IA(9) CAN BE ASCERTAINED FROM THE WORDS USED IN THE SECTI ON IT WOULD NOT BE PROPER TO CONSTRUE THE SECTION BY SUBSTITUTING OR ADDING WORD S AS SUGGESTED BY THE REVENUE. 35. IN THESE CIRCUMSTANCES IN OUR OPINION THE REA SONABLE CONSTRUCTION OF SECTION 80-IA(9) WOULD BE THAT WHERE DEDUCTION IS ALLOWED U NDER SECTION 80-IA(I) THEN THE DEDUCTION COMPUTED UNDER OTHER' PROVISIONS UNDER HE ADING 'C' OF CHAPTER VI-A HAS TO BE' RESTRICTED TO THE PROFITS OF THE BUSINES S THAT REMAINS AFTER EXCLUDING THE PROFITS ALLOWED AS DEDUCTIONS UNDER SECTION 80-LA SO THAT THE TOTAL DEDUCTION ALLOWED UNDER THE HEADING 'C' OF CHAPTER VI-A DOES NOT EXCEED THE PROFITS OF THE BUSINESS. 36. STRONG RELIANCE WAS PLACED BY THE COUNSEL FOR T HE REVENUE ON THE NOTES ON CLAUSES EXPLAINING THE REASONS FOR INSERTING SECTIO N 80-IA(9A) [PRESENTLY 80- 1A(9)] BY FINANCE ACT 1998 WHEREIN IT IS STATED THAT THE PROFITS ALLOWED UNDER SECTION 80-1A(1) SHALL NOT QUALIFY FOR DEDUCTIONS U NDER ANY OTHER PROVISIONS UNDER HEADING 'C' OF CHAPTER VI-A. AS NOTED EARLIER THE WORDS USED IN SECTION 80-IA(9) ARE 'SHALL NOT BE ALLOWED' AND NOT THE WORDS 'SHALL NOT QUALIFY' OR 'SHALL NOT BE ALLOWED ILL COMPUTING DEDUCTION'.THEREFORE READI NG THE SECTION 80-IA(9) IN THE LIGHT OF THE WORDS USED IN THE SECTION WE HAVE NO HESITATION IN HOLDING THAT THE RESTRICTION THEREIN RELATES TO THE ALLOWANCE OF DED UCTION AND NOT COMPUTATION OF :-10-: DEDUCTION. 9.6 THE HON'BLE BOMBAY HIGH COURT DID NOT AGREE WITH TH E VIEW TAKEN BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF GREAT EASTERN EXPOR TS V. CIT (SUPRA) AND ALSO THE VIEW TAKEN BY THE HON'BLE KERALA HIGH COURT IN THE CASE OF OLAM EXPORTS (INDIA) LTD. V. CIT (SUPRA). WHILE DISAGREEING WITH THE VIEW OF THE HO N'BLE DELHI HIGH COURT AND KERALA HIGH COURT (SUPRA) THE HON'BLE BOMBAY HIGH COURT I N THE CASE OF ASSOCIATED CAPSULES (P) LTD. V. DY. CIT (SUPRA) HELD AS UNDER:- 38. WE FIND IT DIFFICULT TO SUBSCRIBE TO THE VIEWS EXPRESSED BY THE DELHI HIGH COURT IN INTERPRETING THE PROVISIONS OF SECTION 80-IA(9). IN THAT CASE IN FACT THE COUNSEL FOR THE REVENUE HAD ARGUED (SEE PARA 38 OF THE JUDG MENT) THAT SECTION 80-IA(9) APPLIES AT THE STAGE OF ALLOWING DEDUCTION AND NOT AT THE STAGE OF COMPUTING DEDUCTION UNDER OTHER PROVISIONS UNDER HEADING 'C' OF CHAPTER VI-A. IT WAS ARGUED THAT IN THE MATTER OF GRANT OF DEDUCTION THE FIRST STAGE IS COMPUTATION OF DEDUCTION AND THE SECOND STAGE IS THE ALLOWANCE OF THE DEDUCT ION. COMPUTATION OF DEDUCTION HAS TO BE MADE AS PROVIDED IN THE RESPECTIVE SECTIO NS AND IT IS ONLY AT THE STAGE OF ALLOWING DEDUCTION UNDER SECTION 80-1A(1) AND ALSO UNDER OTHER PROVISIONS UNDER HEADING 'C' OF CHAPTER VI-A THE PROVISIONS OF SECT ION 80-1A(9) COMES INTO OPERATION. WHILE ACCEPTING THE ARGUMENTS ADVANCED B Y THE COUNSEL FOR THE REVENUE IT APPEARS THAT THE DELHI HIGH COURT FAILE D TO CONSIDER THE IMPORTANT ARGUMENT OF THE REVENUE NOTED IN PARA 38 OF ITS JUD GMENT. MOREOVER; WITHOUT REJECTING THE ARGUMENT OF THE REVENUE THAT SECTION 80-IA(9) APPLIES AT THE STAGE OF ALLOWING THE DEDUCTION AND NOT AT THE STAGE OF COMP UTING THE DEDUCTION THE DELHI HIGH COURT COULD NOT HAVE HELD THAT SECTION 80-IA(9 ) SEEKS TO DISTURB THE METHOD OF COMPUTING THE DEDUCTION PROVIDED UNDER OTHER PRO VISIONS UNDER HEADING 'C OF CHAPTER VI-A OF THE ACT. IN THESE CIRCUMSTANCES W E FIND IT DIFFICULT TO CONCUR WITH THE VIEWS EXPRESSED BY THE DELHI HIGH COURT IN THE CASE OF GREAT EASTERN EXPORTS (SUPRA). FOR THE SAME REASON WE FIND IT DIFFICULT TO SUBSCRIBE TO THE VIEWS EXPRESSED BY THE KERALA HIGH COURT IN THE CASE OF O LAM EXPORTS (INDIA) LTD. (SUPRA). 9.7 IN VIEW OF THE ABOVE WE FIND SUBSTANCE IN THE SUBM ISSIONS OF SHRI AMIT SHUKLA LD. COUNSEL FOR THE ASSESSEE AND THEREFORE WE THINK IT PROPER TO SET ASIDE THE ORDER OF THE LD. :-11-: CIT(A) ON THIS ISSUE AND REMAND THE MATTER TO THE F ILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE AFRESH KEEPING IN VIE W THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES (P) L TD. V. DY. CIT (SUPRA). THE ASSESSING OFFICER SHOULD GIVE AN OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE. ACCORDINGLY GROUNDS NO.2.1 2.2 2.3 AND 2.4 STAND ALLOWED FOR STATISTICAL PURPOSES. 10. GROUND NO.3 OF THE ASSESSEES APPEAL READS AS UNDER :- 3. BECAUSE THE AUTHORITIES BELOW HAVE ERRED IN LAW AND ON FACTS IN HOLDING THAT THE PROFITS OF JORHAT UNIT WERE LIABLE TO BE REDUCE D BY A SUM OF RS.1 22 63 191/- BY WAY OF ADJUSTMENT/ALLOCATION OF THE HEAD OFFICE EXPENSES OVER AND ABOVE THE ALLOCATION THAT HAD ALREADY BEEN MADE BY THE APPELL ANT ITSELF. 11. GROUNDS NO.1 AND 2 OF THE REVENUES APPEAL READ AS UNDER:- 1. CIT(A) ERRED IN RELYING ON THE ORDER OF TRIBUNAL FO R THE ASSESSMENT YEAR 2004-05 IN THE SAME CASE ON THE ISSUE OF COMPUTATIO N OF DEDUCTION OUNS 80IB OF THE ACT AS THE FACTS OF THE CASE ARE DIFFER ENT IN THE YEAR UNDER CONSIDERATION. 2. IN DOING SO THE CIT(A) IGNORED THE FINDING THAT TH E AMOUNT DEBITED UNDER VARIOUS HEADS WAS A COMPOSITE LEDGER ACCOUNT FOR BO TH THE EXEMPTED AND UNEXEMPTED INCOME AND SEGREGATING THE RELATED EXPEN SES UNDER VARIOUS HEADS FOR EXEMPTED INCOME U/S. 80IB OF THE ACT CANN OT BE CALCULATED DIRECTLY. THE CIT(A) ALSO IGNORED THE FINDING OF T HE ASSESSING OFFICER WHICH IS BASED ON CORRECT APPRECIATION OF FACTS. 12. GROUND NO.3 OF THE ASSESSEES APPEAL AND GROUNDS NO .1 AND 2 OF THE REVENUES APPEAL RELATE TO ONE ISSUE AND THEREFORE THEY ARE B EING DISPOSED OF BY A COMMON ORDER IN THE FOLLOWING MANNER. 13. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH THE P ARTIES WE FIND THAT THE ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE ORDER OF B BENCH OF THIS TRIBUNAL DATED 5.1.2011 PASSED IN ASSESSEES OWN CASE IN ITA NO. 6 78/LKW/2010 RELATING TO ASSESSMENT YEAR 2006-07. THE RELEVANT PART OF THE ORDER OF THE TRIBUNAL READS AS UNDER:- 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE AL SO CAREFULLY GONE THROUGH :-12-: THE MATERIALS AVAILABLE ON RECORD. IT IS RELEVANT T O NOTE THAT THE ISSUE OF ALLOCATION OF THE EXPENSES WAS SUBJECT MATTER OF APPEAL IN ASS ESSMENT YEAR 2004-05 AND THE TRIBUNAL LUCKNOW BENCH IN I.T.A.NO.1003(LUC.)/ 2006 VIDE ITS ORDER DATED 28.9.2007 HAS DECIDED THIS ISSUE WHICH HAS BEEN RE PRODUCED BY THE LD. CIT(A) IN PARA 10 OF HIS ORDER. 7.1 WE FIND THAT PURSUANT TO THE DECISION OF THE TR IBUNAL RENDERED FOR ASSESSMENT YEAR 2004-05 DATED 28.9.2007 THE AO HAS PASSED AN ORDER UNDER SECTION 143(3)/251/254 DATED 31 ST DECEMBER 2008 IN THE CASE OF THE ASSESSEE ITSELF WHEREIN THE AO HAS EXAMINED THIS ISSUE AS PE R DIRECTIONS OF THE HON'BLE TRIBUNAL AND PASSED THE ORDER WHICH IS REPRODUCED BY THE LD. CIT(A) IN PARA 11 OF HIS ORDER. 7.2 IT IS OBSERVED THAT THE LD. CIT(A) HAS FOUND TH AT THE CRITERIA APPLIED BY THE AO FOR WORKING OUT THE DEDUCTION UNDER SECTION 80IB FOR THE ASSESSMENT YEAR 2004-05 WAS CORRECT AND THEREFORE HE HAS DIRECTED THE AO TO ADOPT THE SAME CRITERIA FOR THE YEAR UNDER CONSIDERATION WHILE WO RKING OUT DEDUCTION UNDER SECTION 80IB OF THE ACT. WE FIND THAT THE CRITERIA APPLIED BY THE AO FOR WORKING OUT THE DEDUCTION UNDER SECTION 80IB FOR THE ASSESSMENT YEAR 2004-05 HAS BECOME FINAL AND THEREFORE WE DO NOT SEE ANY INFIRMITY IN THE DIRECTIONS OF THE LD.CIT(A) GIVEN TO THE AO TO WORK OUT THE RE-ALLOCATION OF E XPENSES OF THE JORHAT UNIT IN THE SIMILAR MANNER AND ON THE SAME CRITERIA FOR EACH HE AD/SUB-HEAD IN QUESTION AS DONE BY THE AO FOR THE ASSESSMENT YEAR 2004-05. IN VIEW OF THE ABOVE WE DISMISS GROUNDS RAISED BY THE REVENUE AS WELL AS THE ASSESSEE. 14. IN VIEW OF THE ABOVE WE DISMISS GROUND NO.3 OF ASS ESSEES APPEAL AND GROUNDS NO.1 AND 2 OF REVENUES APPEAL. 15. GROUNDS NO.4 AND 5 OF ASSESSEES APPEAL ARE OF GENE RAL IN NATURE AND HENCE NO FINDINGS ARE BEING GIVEN. 16. GROUND NO.6 OF THE ASSESSEES APPEAL READS AS UNDER :- :-13-: 6. BECAUSE THE APPELLANTS CLAIM FOR CREDIT OF TD S AMOUNTING TO RS.2 35 580/- BY WAY OF PREPAID TAXES FOR THE ASSESSMENT YEAR 200 3-04 WAS LIABLE TO BE ALLOWED AND ADJUSTED AGAINST ITS TAX LIABILITY FOR THE YEAR UNDER APPEAL. 17. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH THE P ARTIES WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE CONTENTION OF THE ASSESSEE AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER A FFORDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 18. GROUND NO.3 OF THE REVENUES APPEAL READS AS UNDER: - 3. THAT THE CIT(A) IS ERRONEOUS IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO ALLOW BENEFIT OF SET OFF OF LOSSES OF AM ALGAMATING COMPANIES IGNORING THE FACT THAT THE ASSESSING OFFICER HAS CORRECTLY D ISALLOWED SET OFF OF LOSSES AND COMPUTED THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT IN ACCORDANCE WITH THE LAW AS THE BROUGHT FORWARD LOSS ES OF AMALGAMATING COMPANIES GET SET OFF WITH THE PROFIT OF AMALGAMATE D COMPANY AND AS SUCH NO FURTHER BENEFIT OF SET OFF OF LOSSES CAN BE GIVEN W HILE COMPUTING THE INCOME UNDER THIS HEAD. 19. THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE IN P ARAS 12.5 TO 12.8 OF THE ASSESSMENT ORDER. WHILE COMPUTING THE BOOK PROFIT THE ASSESSING OFFICER DID NOT ALLOW SET OFF OF LOSSES OF AMALGAMATING COMPANIES WHICH A MALGAMATED WITH THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION THOUGH SUCH LOS S WAS DEBITED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT AND SIGNED AND CIRCULATED T O THE SHAREHOLDERS UNDER THE PROVISIONS OF THE COMPANIES ACT THE COMPANY BEING A LISTED COMPANY. 20. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER TH E ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND FOLLOWING SUBMI SSIONS WERE MADE:- 1. THAT AS REGARDS LOSSES OF AMALGAMATING COMPANY WHICH HAVE BEEN TRANSFERRED TO THE AMALGAMATING COMPANY IT IS SUBMI TTED THAT IN TERMS OF SECTION 72A (1). . [(1) WHERE THERE HAS BEEN AN AMALGAMATION OF A COM PANY OWNING AN INDUSTRIAL UNDERTAKING OR A SHIP OR A HOTEL WITH AN OTHER COMPANY OR AN AMALGAMATION OF A BANKING COMPANY REFERRED TO IN CL AUSE (C) OF SECTION 5 OF :-14-: THE BANKING REGULATION ACT 1949 (10 OF 1949) WITH A SPECIFIED BANK THEN NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PRO VISION OF THIS ACT THE ACCUMULATED LOSS AND THE UNABSORBED DEPRECIATION OF THE AMALGAMATING COMPANY SHALL BE DEEMED TO BE THE LOSS OR AS THE C ASE MAY BE ALLOWANCE FOR DEPRECIATION OF THE AMALGAMATED COMPANY FOR THE PREVIOUS YEAR IN WHICH THE AMALGAMATION WAS EFFECTED AND OTHER PROV ISIONS OF THIS ACT RELATING TO SET OFF AND CARRY FORWARD OF LOSS AND A LLOWANCE FOR DEPRECIATION SHALL APPLY ACCORDINGLY. IT MAY BE SUBMITTED THAT SECTION 115JB NOWHERE DEAL S WITH THE PROVISIONS OF AMALGAMATION AND SITUATIONS OF THE AMALGAMATED C OMPANY. SECTION 72A IS A SPECIFIC SECTION WHICH LAYS DOWN THE TREATMENT OF ACCUMULATED LOSSES OF THE AMALGAMATING COMPANIES AND THE SAME HAS TO B E TREATED AS THE LOSS OF THE PREVIOUS YEAR IN WHICH SUCH AMALGAMATION HAS TAKEN PLACE. NOW EVEN COMING TO THE PROVISIONS OF SECTION 115JB IT IS MOST HUMBLY SUBMITTED THAT THE HON'BLE APEX COURT IN THE CASE O F 'APOLLO TYRES VS CIT 255 ITR 273 HAS LAID DOWN THE PRINCIPLE THAT THE LD . AO IS NOT ALLOWED TO MAKE ANY ADJUSTMENTS IN THE ACCOUNTS OF THE ASSESSE E AND MUST ACCEPT THE AUTHENTICITY OF ACCOUNTS CERTIFIED BY THE STATU TORY AUDITORS. THE LD ASSESSING OFFICER HAS ONLY THE POWER TO INCREASE AN D REDUCE THE ITEMS SPECIFICALLY PROVIDED IN THE EXPLANATION AND NOT GO BEYOND IT. IN THE CASE OF THE APPELLANT THE WRITING OF THE DEBIT BALANCE OF P ROFIT AND LOSS ACCOUNT IS IN ACCORDANCE WITH THE COMPANIES ACT THE COMPANY BEING A LISTED COMPANY DULY VERIFIED BY THE MANAGEMENT AUDITORS AND SHARE HOLDERS AND GOING INTO THE FACT WHETHER THE ACCOUNTING TREATMENT IS CORREC T OR NOT ETC. IS BEYOND THE SCOPE OF THE ASSESSING OFFICER. THUS THE BOOK P ROFITS AS SHOWN BY THE APPELLANT ARE TRUE AND CORRECT AND THE ADJUSTMENTS IN THE EXPLANATIONS NOWHERE LAY DOWN THE ADJUSTMENT RELATING TO LOSSES OF THE AMALGAMATING COMPANY. WITHOUT PREJUDICE TO THE ABOVE EVEN IF THE AS-14 IS TAKEN INTO ACCOUNT THE STANDARD IN PARA 16 THE STANDARD STATES THAT THE RE SERVES OF THE :-15-: AMALGAMATING COMPANY SHALL BE TREATED AS RESERVES O F THE AMALGAMATED COMPANY. FROM SCHEDULE 2 OF THE BALANCE SHEET OF TH E APPELLANT IT IS EVIDENT THAT THE RESERVES APPEARING IN THE BALANCE SHEET OF BOTH THE AMALGAMATING COMPANIES HAVE BEEN ADDED TO THE AS RE SERVES APPEARING IN THE BALANCE SHEET OF THE AMALGAMATED COMPANY THEREB Y MAINTAINING THE IDENTITY OF THE RESERVES. AS REGARDS THE PROFIT AND LOSS DEBIT BALANCE AS THERE IS A PROFIT IN THE AMALGAMATED COMPANY THE SA ME HAS TO BE ADJUSTED FROM THE SAME AS DURING AMALGAMATION LIKE ASSETS AN D LIABILITIES ARE TO BE MERGED WITH THE LIKE AND THE NATURE AND IDENTITY OF THE SAME HAS TO BE MAINTAINED. IN VIEW OF THIS THE PROFIT AND LOSS DEB IT BALANCE BEING A DEBIT BALANCE OF THE PROFIT AND LOSS ACCOUNT IN RESPECT O F PAST LOSSES AND DEPRECIATION THE SAME HAS BEEN ROUTED THROUGH THE P ROFIT AND LOSS ACCOUNT AND THE NET SURPLUS AT THE YEAR END HAS BEEN TAKEN TO THE SURPLUS IN THE BALANCE SHEET IN FACT THIS IS THE PRINCIPLE WHICH H AS ALSO BEEN CONSIDERED WHILE DRAFTING THE PROVISIONS OF SECTION 72A OF THE ACT. 20.1 FURTHER THE ASSESSEE STATED BEFORE THE LD. CIT (A) AS UNDER:- 1. THAT DURING THE YEAR UNDER CONSIDERATION THE A PPELLANT COMPANY AMALGAMATED WITH TWO COMPANIES VIZ. M/S KOTHARI POU CHES LIMITED AND M/S KOTHARI BEVERAGES PVT. LIMITED. 2. THAT THE APPELLANT BEING A COMPANY AND THE AMALG AMATION BEING IN THE NATURE OF MERGER ACCOUNTING STANDARD 14 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA WAS APPLICABLE TO IT S CASE AND WAS FOLLOWED WHILE ACCOUNTING FOR THE SAME. 3. THAT PARA 33 OF THE STANDARD READS AS UNDER: 'IN PREPARING THE TRANSFEREE COMPANY'S FINANCIAL ST ATEMENTS THE ASSETS LIABILITIES AND RESERVES (WHETHER CAPITAL OR REVENU E OR ARISING ON REVALUATION) OF THE TRANSFEROR COMPANY SHOULD HE RE CORDED AT THEIR EXISTING CARRYING AMOUNTS AND IN THE SAME FORM AS AT THE DAT E OF THE AMALGAMATION. THE BALANCE OF THE PROFIT AND LOSS ACCOUNT OF THE. TRANSFEROR COMPANY SHOULD BE AGGREGATED WITH THE CORRESPONDING BALANCE OF THE TRANSFEREE COMPANY OR TRANSFERRED TO THE GENERAL RESERVE IF A NY. ' :-16-: 4. THAT AS PER THE ABOVE PARA RESERVES WHICH INCL UDE THE BALANCE OF THE PROFIT & LOSS ACCOUNT SHOULD BE STATED AS SUCH WI THOUT ANY CHANGE IN ITS FORM. AS REGARDS PROFIT AND LOSS ACCOUNT IT TALKS O NLY ABOUT THE CREDIT BALANCE TO BE AGGREGATED TO THE RESERVES. THE DEBIT BALANCE OF PROFIT AND LOSS ACCOUNT IS PART OF MISCELLANEOUS EXPENDITURE A ND JUST LIKE THE SET OFF OF CARRIED FORWARD OF LOSS IS PERMISSIBLE IN TERMS OF SECTION 72A FROM THE INCOME OF THE ASSESSEE FOR THE YEAR THE SAME IS PER MISSIBLE FOR THE LOSS ON ACCOUNTS OF BOOK LOSSES OF THE AMALGAMATING COMP ANY. 5. THEREFORE WHERE THE AMALGAMATING COMPANY HAS A CERTAIN DEBIT BALANCE OUTSTANDING IN ITS BALANCE SHEET PRIOR TO I TS AMALGAMATION THE SAME IS NOT TO BE NETTED OFF AGAINST THE GENERAL RE SERVE IF ANY AVAILABLE IN THE TRANSFEREE COMPANY AND THE SAME HAS TO BE ROUTE D THROUGH THE PROFIT AND LOSS ACCOUNT FOR THE CURRENT YEAR. 6. IT ALSO CANNOT BE THE INTENTION OF THE LEGISLATU RE EVEN OTHERWISE THAT FOR LOSS MAKING COMPANIES A DEDUCTION OF PAST BUSINESS LOSSES BE ALLOWED FOR THE PURPOSE OF COMPUTATION OF INCOME AS PER THE PRO VISIONS OF THE ACT AND NOT WHEN THE INCOME IS BEING COMPUTED AS PER THE PR OVISIONS OF MAT. 7. THAT SUCH ADJUSTMENT IS ALSO NOT REQUIRED TO BE MADE IN TERMS OF SCHEDULE VI TO THE COMPANIES ACT 1956. THE FORMAT OF BALANCE SHEET PRESCRIBED THEREUNDER REQUIRES THE DEBIT BALANCE OF THE PROFIT & LOSS ACCOUNT TO BE SHOWN SEPARATELY ON THE 'ASSETS' SIDE EVEN WHERE THE COMPANY HAS OTHER POSITIVE RESERVES. 8. IT MAY BE MOST HUMBLY SUBMITTED THAT OUR COMPANY IS A LISTED COMPANY AND HAS TO COMPULSORILY COMPLY WITH ALL THE ACCOUNT ING STANDARDS ON WHICH THE AUDITORS HAVE ALSO GIVEN THE REPORT AND THE SHA REHOLDERS HAVE GIVEN THEIR CONSENT. AS THE ACCOUNTS ARE PREPARED IN ACCO RDANCE WITH PART II OF SCHEDULE VI DULY APPROVED AND THE ABOVE DOES NOT FORM PART OF THE ADJUSTMENTS LAID DOWN IN SECTION 115JB THE LD. ASSE SSING OFFICER HAS NO AUTHORITY TO DISTURB THE BOOK RESULTS OF THE APPELL ANT. 9. YOUR HONOUR'S KIND ATTENTION IS MOST HUMBLY DRAW N TOWARDS THE BALANCE SHEETS OF THE TWO TRANSFEROR COMPANIES VIZ. M/S KOT HARI POUCHES LTD. AND :-17-: M/S KOTHARI BEVERAGES PVT. LTD. WHEREAS M/S KOTHARI POUCHES LTD. HAS AN ACCUMULATED BALANCE OF PROFIT OF RS.2409443.64 IN I TS BALANCE SHEET PRIOR TO ITS AMALGAMATION MIS KOTHARI BEVERAGES PVT. LIM ITED CARRIED A DEBIT BALANCE OF RS.15685863.44 IN ITS PROFIT & LOSS ACCO UNT. 10. IN VIEW OF THE ABOVE IT IS MOST HUMBLY PRAYED T HAT THE BOOK PROFITS AS SHOWN BY THE APPELLANT BE ACCEPTED AND NO ADJUSTMEN T BE MADE ON ACCOUNT OF THE ABOVE. 21. THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE OB SERVING AS UNDER:- 17. I HAVE GONE THROUGH THE VARIOUS AVERMENTS MADE BY THE AR AND ALSO THE ORDER OF THE ASSESSING OFFICER AND HOLDING THE VIEW AS DECIDED BY THE HON'BLE SUPREME COURT IN THE CASE OF M/S APOLLO TYR ES (SUPRA) I AM OF THE VIEW THAT ONCE THE ACCOUNTS HAVE BEEN MADE IN ACCOR DANCE WITH THE PROVISIONS OF THE COMPANIES ACT VERIFIED BY THE AU DITORS AND APPROVED BY THE SHAREHOLDERS THE DEPARTMENT HAS THE AUTHORITY TO MAKE ONLY THOSE ADJUSTMENTS THAT HAVE BEEN LAID DOWN UNDER THE PROV ISIONS OF SECTION 11JB(2). THAT IS THE REASON THAT WHENEVER THE LEGI SLATURE INTENDS IN MAKING SOME CLARIFICATIONS OR AMENDMENTS FOR CHARGI NG OF BOOK PROFITS AMENDMENTS HAVE BEEN MADE ACCORDINGLY IN SECTION 11 5JB(2). IN THE CASE OF THE APPELLANT THE ACCOUNTS HAVE BEEN MADE IN AC CORDANCE WITH THE COMPANIES ACT THERE IS NO SPECIFIC ADJUSTMENT IN S ECTION 115JB(2) SECTION 72A SPECIFICALLY ALLOWS SET OFF OF LOSSES IN TERMS OF THE ACT AND THE AMALGAMATING COMPANIES HAD SUCH UNABSORBED LOSSES A ND DEPRECIATION. I THEREFORE HOLD THAT THE ADJUSTMENT MADE BY THE ASSE SSING OFFICER TO THE BOOK PROFITS IS NOT CORRECT VALID AND NOT AS PER L AW AS HE IS NOT PERMITTED TO MAKE ANY ADJUSTMENT TO THE BOOK PROFITS ON THIS SCO RE. 22. SHRI AMIT SHUKLA LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT SECTION 115JB OF THE ACT NOWHERE DEALS WITH THE PROVISIONS OF AMALGAMATI ON AND SITUATIONS OF THE AMALGAMATED COMPANY. HE SUBMITTED THAT SECTION 72A IS A SPECIFIC SECTION WHICH LAYS DOWN TREATMENT OF ACCUMULATED LOSSES OF THE AMALGAM ATING COMPANIES AND THE SAME HAS TO BE TREATED AS THE LOSS OF THE PREVIOUS YEAR IN WHICH SUCH AMALGAMATION HAS TAKEN PLACE. HE FURTHER SUBMITTED THAT IN VIEW OF THE DE CISION OF THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF APOLLO TYRES V. CIT [2002] 25 5 ITR 273 (SC) THE ASSESSING OFFICER :-18-: HAS NO POWER TO MAKE ANY ADJUSTMENT IN THE ACCOUNT OF THE ASSESSEE AND MUST ACCEPT THE AUTHENTICITY OF THE ACCOUNTS CERTIFIED BY THE S TATUTORY AUDITORS. ACCORDING TO SHRI AMIT SHUKLA LD. COUNSEL FOR THE ASSESSEE THE ASSE SSING OFFICER HAS ONLY POWER TO INCREASE AND REDUCE THE ITEMS SPECIFICALLY PROVIDED IN THE EXPLANATION AND CANNOT GO BEYOND IT. IN THE INSTANT CASE WE FIND THAT THE W RITING OF THE DEBIT BALANCE OF PROFIT AND LOSS ACCOUNT IS IN ACCORDANCE WITH THE COMPANIES AC T. FURTHER IT IS SEEN THAT THE COMPANY BEING A LISTED COMPANY DULY VERIFIED BY THE MANAGEMENT AUDITORS AND SHAREHOLDERS AND THEREFORE THE QUESTION WHETHER THE ACCOUNT TREATMENT IS CORRECT OR NOT IS BEYOND THE SCOPE OF THE ASSESSING OFFICER. THUS THE ACTION OF THE ASSESSING OFFICER HAS BEEN CORRECTLY REVERSED BY THE LD. CIT(A). IN VIEW OF THE ABOVE WE DO NOT SEE ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE AND ACCORDINGLY WE UPHOLD HIS VIEW AND DISMISS GROUND NO.3 OF THE APPEAL OF THE DEPART MENT . 23. NO OTHER POINT WAS RAISED OR ARGUED BEFORE US BY BO TH THE PARTIES. 24. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED PA RTLY FOR STATISTICAL PURPOSES AS INDICATED ABOVE WHILE THE APPEAL OF THE REVENUE IS DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 9.3.2011 . SD/- SD/- [ N. K. SAINI] [H. L. KARWA] ACCOUNTANT MEMBER VICE PRESIDENT DATED:9.3.2011 JJ:0703 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR