M/S. APTECH LTD, MUMBAI v. THE DY CIT 8(1), MUMBAI

ITA 7114/MUM/2007 | 2004-2005
Pronouncement Date: 25-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 711419914 RSA 2007
Assessee PAN APRIL2001B
Bench Mumbai
Appeal Number ITA 7114/MUM/2007
Duration Of Justice 3 year(s) 1 month(s) 25 day(s)
Appellant M/S. APTECH LTD, MUMBAI
Respondent THE DY CIT 8(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 25-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted H
Tribunal Order Date 25-01-2011
Date Of Final Hearing 26-10-2010
Next Hearing Date 26-10-2010
Assessment Year 2004-2005
Appeal Filed On 30-11-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI P.M. JAGTAP(AM) AND SMT ASHA VIJAYARAGHAVAN (JM) ITA NO.7114/MUM/2007 (ASSESSMENT YEAR-2004-05) M/S. APTECH LTD. 54-A ELITE AUTO HOUSE SIR M. VASANJI ROAD ANDHERI (E) MUMBAI-400 093 VS. THE DCIT 8(1) AAYAKAR BHAVAN MUMBAI-400 020 (APPELLANT) (RESPONDENT) ITA NO.7316/MUM/2007 (ASSESSMENT YEAR-2004-05) THE DCIT 8(1) AAYAKAR BHAVAN MUMBAI-400 020 VS. M/S. APTECH LTD. 54-A ELITE AUTO HOUSE SIR M. VASANJI ROAD ANDHERI (E) MUMBAI-400 093 PAN-AADCA 0602L (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI S.C. TIWARI RESPONDENT BY: REENA JHEL TRIPATI O R D E R PER ASHA VIJAYARAGHAVAN (JM) THESE ARE CROSS APPEALS ONE FILED BY THE ASSESSEE A ND THE OTHER FILED BY THE REVENUE ARE DIRECTED AGAINST THE ORDER S OF THE LD.CIT(A)-VIII MUMBAI DATED 06.09.2007 FOR THE A.Y. 2004-05. 2. THE FIRST GROUND OF APPEAL ON THE ASSESSEES APP EAL IS AGAINST THE CONFIRMATION OF THE DISALLOWANCE OF BELATED PAYMENT OF EMPLOYEES P.F. M/S. APTECH LTD. 2 AND E.S.I.C. U/S 36 (1)(VA) RS. 4 32 752/- PAID BEF ORE THE DUE DATE FOR FILING OF RETURN U/S 139(1). 3. THE LEARNED DCIT HAS ERRED IN DISALLOWING EMPLOY EES CONTRIBUTION TO EMPLOYEES STATE INSURANCE CORPORATION (ESIC) AND EMPLOYEES PROVIDENT FUND (EPF) AMOUNTING TO RS 4 32 752/- UND ER SECTION 36(1)(VA) READ WITH 2(24). THE DISALLOWANCE WAS CON FIRMED ON APPEAL BY THE CIT(A). 4. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. I T IS THE CONTENTION THE ASSESSEE THAT CIT(A) ERRED IN CONFIRMING THE DI SALLOWANCE WITHOUT APPRECIATING THE FACT THAT THE RIGORS OF PROVISIONS OF SECTION 36(1)(VA) READ WITH SEC 43B WERE RELAXED BY THE AMENDMENT TO FIRST PROVISO TO SECTION 43B BY THE FINANCE ACT 2003 W.E.F. 1.4.2004 PERMITTING DEDUCTION OF SUCH BELATED PAYMENTS IN THE COMPUTATI ON OF BUSINESS INCOME IN CASE SUCH PAYMENTS ARE MADE BY AN ASSESSE E BEFORE THE DUE DATE IN ITS CASE FOR FILING OF RETURN OF INCOME U/ S 139(1). 5. IT IS THE CONTENTION OF THE REVENUE THAT THE REL AXATION BROUGHT IN BY THE FINANCE ACT 2003 TO U/S 43B APPLIES ONLY TO THE EMPLOYERS CONTRIBUTION BUT NOT TO THE EMPLOYEES CONTRIBUTION RECOVERED BY THE ASSESSEE EMPLOYER FROM THE SALARIES OF THE EMPLOYEE S. WITHOUT GOING INTO THE VARIOUS ARGUMENTS WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HIGH COURT OF P &H IN THE CASE OF CIT VS LAKHANI RUBBER WORKS (326 ITR 415) WHEREIN FOL LOWING THE DECISION OF THE APEX COURT IN THE CASE OF CIT VS ALOM EXTRUS IONS LTD (319 ITR 306) THE HIGH COURT HAS HELD THAT BOTH THE EMPLOYE RS AND THE EMPLOYEES CONTRIBUTION AS WELL AS OTHER INCIDENTAL CHARGES CANNOT BE DISALLOWED U/S 43B IF PAID BEFORE THE DUE DATE OF FILING OF THE RETURN U/S 139(1). WE FIND SIMILAR VIEW HAS BEEN TAKEN BY THE DELHI HIGH COURT IN THE CASE OF CIT VS P.M. ELECTRONICS LTD (313 ITR 16 1). RESPECTFULLY FOLLOWING THE ABOVE DECISIONS WE ALLOW THE APPEAL O F THE ASSESSEE WITH THE DIRECTIONS THAT EMPLOYERS/ EMPLOYEES CONTRIBUTI ON TO P.F / ESIC IF M/S. APTECH LTD. 3 PAID WITHIN THE DUE DATE OF FILING OF THE RETURN U/ S 139(1) SHOULD BE ALLOWED AND CANNOT BE DISALLOWED U/S 43B. 6. THE NEXT ISSUE ON APPEAL IS REGARDING TREATMENT OF LOSS OF RS. 1 57 05 866/- ARISING FROM EXCHANGE FLUCTUATION. DU RING THE YEAR THE ASSESSEE HAS CLAIMED FOREIGN CURRENCY EXCHANGE LOSS OF RS 2 92 94 016/- WHICH INCLUDES DIMINUTION IN THE VALUE OF BALANCES AMOUNTING TO RS 1 57 05 866/-. FURTHER FROM THE NOTES TO ACCOUNTS O F THE ASSESSEE IT WAS SEEN THAT THE ASSESSEE HAS CHANGED ITS METHOD OF FO REIGN CURRENCY TRANSACTION. VIDE LETTER DATED 1 12.2006 AO REQUI RED THE ASSESSEE TO GIVE THE REVENUE IMPACT ON THE CHANGE. 7. VIDE LETTER DATED 11.12.2006 AND 19.12.2006 THE ASSESSEE HAS SUBMITTED THE REPLY. IN THE REPLY DATED 11 TH DECEMBER 2006 THE ASSESSEE HAS SUBMITTED THAT ACCOUNTING STANDARD 11 REQUIRES THAT EXCHANGE RATE DIFFERENCE SHOULD BE COMPUTED BY CONS IDERING THE DIFFERENCE BETWEEN TRANSACTION RECORDED IN THE BOOK S AND THE RATE APPLICABLE ON THE DATE OF SETTLEMENT. HAD THE METH OD OF ACCOUNTING BEEN SO THE RESULT IN EXCHANGE DIFFERENCE WOULD HA VE BEEN HIGHER/LOWER WITH LOWER/ HIGHER CORRESPONDING EXPENSES /INCOME . HOWEVER THERE WAS NO EFFECT ON THE PROFIT OF THE YEAR. IN THE REPLY DATED 19 TH DECEMBER 2006 THE ASSESSEE HAS SUBMITTED THAT THE FOREIGN E XCHANGE LOSS INCLUDES THE LOSS ARISING ON ACCOUNT OF REVALUATION OF ASSETS STATED IN FOREIGN CURRENCY WHICH ARE REVALUED IN ORDER TO REF LECT THE NET REALIZABLE VALUE OF THAT ASSETS AS ON THE BALANCE SHEET DATE. HE FURTHER SUBMITTED THAT THIS LOSS IS IN THE ORDINARY COURSE OF BUSINES S AND IS THEREFORE A REVENUE LOSS AND THERE ARE NO LOSSES ON CAPITAL ACC OUNT WHICH ARE CLAIMED AS REVENUE DURING THE YEAR. THE ASSESSEE G AVE THE BREAK UP OF THE LOSS AS UNDER: 1. DIMINUTION IN THE VALUE OF DEBTOR RS 1 36 11 523/- 2. DIMINUTION IN THE VALUE OF BANK BALANCES R S 1 57 05 866/- M/S. APTECH LTD. 4 8. THE AO DID NOT ACCEPT THE ASSESSEES CONTENTION. HE FOUND THAT DURING THE YEAR THE ASSESSEE ISSUED GDR AND OUT OF THE TOTAL ISSUE AN AMOUNT OF RS 33 88 70 646/- IS LYING IN THE ESCROW ACCOUNT. THE ASSESSEE HAS REVALUED THE AMOUNT LYING IN THE ESCRO W ACCOUNT AND AN AMOUNT OF RS 157 05 866/- HAS BEEN CLAIMED AS EXCHA NGE LOSS ON ACCOUNT OF REVALUATION OF AMOUNT OUTSTANDING IN THE BANK. THE AO HELD THAT THE AMOUNT OF RS 33.88 CRORES IS THE CAPITAL O F ASSESSEE AND THE ASSESSEE HAS NOT USED THE MONEY LYING IN THE ESCROW ACCOUNT FOR PURPOSE OF BUSINESS. THE AO OBSERVED THAT THE AMOUN T IN THE ESCROW ACCOUNT IS CAPITAL OF THE ASSESSEE AND THEREFORE T HE INCREASED LIABILITY CONSEQUENT TO THE DEVALUATION ALSO REMAINED THE SAM E IN NATURE AND THEREFORE THE SAME IS NOT A REVENUE EXPENSES. IN T HIS REGARD THE AO RELIED ON THE DECISION OF SUPREME COURT IN THE CASE OF SUTLEJ COTTON MILLS LTD VS CIT REPORTED IN 116 ITR 1 WHEREIN THE SUPREM E COURT HAS GONE INTO ALL ASPECTS OF THE MATTER AND LAID DOWN THE TE ST FOR DETERMINING WHETHER THE LOSS CAUSED ON ACCOUNT OF DEVALUATION I S A REVENUE LOSS OR A CAPITAL LOSS IN THE FOLLOWING WORDS: THE LAW MAY THEREFORE NOW BE TAKEN TO BE WELL SET TLED THAT WHERE PROFIT OR LOSS ARISES TO AN ASSESSEE ON ACCOU NT OF APPRECIATION OR DEPRECIATION IN THE VALUE OF FOREIG N CURRENCY HELD BY IT ON CONVERSION INTO ANOTHER CURRENCY SUCH PRO FIT OR LOSS WOULD ORDINARILY BE TRADING PROFIT OR LOSS IF THE FOREIGN CURRENCY IS HELD BY THE ASSESSEE ON REVENUE ACCOUNT OR AS A TRADING ASS ET OR AS PART OF CIRCULATING CAPITAL EMBARKED IN THE BUSINESS. BU T IF ON THE OTHER HAND THE FOREIGN CURRENCY IS HELD AS A CAPITAL ASSE T OR AS FIXED CAPITAL SUCH PROFIT OR LOSS WOULD BE OF CAPITAL NAT URE. RELYING ON THE RATIO OF THE ABOVE JUDGMENT THE AO HELD THAT DIMINUTION IN THE VALUE OF BANK BALANCES OF RS 157 05 866/- IS TREATED AS CAPITAL EXPENSES AND DISALLOWED THE SAME. 9. AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE TH E LEARNED CIT(A). BEFORE THE FIRST APPELLATE AUTHORITY IT WAS CONTEND ED THAT 15 360 000 EQUITY SHARES OF RS 10/- EACH UNDERLYING 3 840 000 GLOBAL DEPOSITARY RECEIPTS (GDR) OF USD 3.75 EACH WERE ALLOTTED BY TH E APPELLANT COMPANY AT A PREMIUM OF RS 32.53 PER SHARE ON NOV EMBER 6 2003. THE M/S. APTECH LTD. 5 CONSIDERATION FOR THE SAME AGGREGATING TO USD 14 40 0 000 (EQUIVALENT RS 65 32 56 000) WAS RECEIVED IN THE ESCROW ACCOUNT WITH BANCO PORTUGUES DE NOGOCIOS (BPN) AND OUT OF THIS AMOUNT USD 6 929 735 (EQUIVALENT RS 31 43 85 354/-) WAS UTILISED. THE BA LANCE OF UD 7 473 265 (EQUIVALENT RS.33 88 70 646) WAS HELD IN BPN ACCOUNT AND PARTLY IN UNION BANK OF INDIA. OBU ACCOUNT AS ON 3 1.3.2004 FOR UTILIZATION IN THE NEAR FUTURE FOR FOLLOWING BUSIN ESS PURPOSES AS PER THE OFFER DOCUMENT. (A) REPAYMENT OF WORKING CAPITAL LOANS OF THE APPELLANT COMPANY (B) INVESTMENT IN DELHI GOVERNMENT SCHOOL PROJECT WHICH IS A PART OF THE INSTITUTIONAL PROJECT BUSINESS OF THE APPELLANT COMPANY (C) GRANTING ADVANCES TO SUBSIDIARIES (D) INVESTMENT IN SUBSIDIARIES (E) MAKING OF BALANCE PAYMENT TO SSI LTD IN CONSIDERATI ON FOR ACQUISITION OF TRAINING AND EDUCATION DIVISION FROM SSI LTD (F) THE FUNDS TO THE EXTENT OF RS. 1362. 03 L AKHS WAS UTILISED BY APPELLANT FOR SETTING UP APTECH EDUCATION SOCIETY. 10. THE ASSESSEE GAVE VARIOUS PARTICULARS AND EXPLA NATION ABOUT THE MANNER OF UTILIZATION OF THE FUNDS KEPT IN THE ESCR OW ACCOUNT IN THE SUBSEQUENT YEAR. 11. WE FIND THAT THE PARTICULARS OF USAGE OF FUNDS IN THE SUBSEQUENT YEAR WERE NOT BEFORE THE AO. WE ALSO FEEL THAT WHET HER THE LOSS IN VALUE OF MONIES REALISED FROM ISSUE OF SHARES AND KEPT AB ROAD BY THE ASSESSEE ABROAD CAN BE CONSIDERED AS BUSINESS LOSS OF THE AS SESSEE HAS TO BE LOOKED INTO. THERE ARE VARIOUS ASPECTS WHICH REQUIR E FURTHER INVESTIGATION. WE THEREFORE DEEM FIT TO REMIT THE M ATTER TO THE FILES OF THE AO FOR DECIDING THE ISSUE AFRESH IN ACCORDANCE WITH LAW. M/S. APTECH LTD. 6 12. THE NEXT GROUND OF APPEAL IS AGAINST LEVY OF IN TEREST U/S 220(2) ON ENHANCED MAT TAX LIABILITY U/S 115JB. THE AO LEVIED INTEREST U/S 220(2) OF RS 43 600 ON THE ADDITIONS MADE TO MINIMU M ALTERNATE TAX (MAT) U/S 115JB OF THE ACT. 13. ON APPEAL THE LEARNED CIT(A) HELD THAT INTEREST U/S 220(2) IS LEVIED ON THE DEMAND RAISED AND NOTIFIED AS PER SEC TION 156 OF THE IT ACT AN WHICH IS NOT PAID WITHIN THE PERIOD LIMITED UNDE R SUB SECTION (I) OF SECTION 220(1). IN VIEW OF THE EXPRESS PROVISIONS O F THE ACT I DO NOT SEE ANY REASON WHICH CALLS FOR MY INTERVENTION IN THE I MPOSITION OF INTEREST U/S 220(2) OF THE IT ACT. THIS GROUND IS THEREFORE D ECIDED AGAINST THE APPELLANT. 14. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. LEVY OF INTEREST U/S 220(2) IS FOR DEFAULT IN PAYMENT OF TAX DEMANDED WI THIN THE TIME PERMITTED. ONCE THE DEMAND IS MADE WHETHER BE IN R ESPECT OF INCOME DETERMINED UNDER NORMAL COMPUTATION OR BOOK PROFITS AND ASSESSEE FAILS TO PAY THE SAME WITHIN TIME PERMITTED HE IS TREATED AS AN ASSESSEE IN DEFAULT AND INTEREST U/S 220(2) IS LEVIED. INTER EST U/S 220(2) STARTS ONLY AFTER THE DEMAND IS MADE AND THE ASSESSEE DOES NOT PAY THE AMOUNT WITHIN THE PERMITTED TIME. WE THEREFORE FIND NO MERIT IN THE CLAIM OF THE ASSESSEE THAT LEVY OF INTEREST U/S 220 (2) IS NOT CORRECT ON THE TAX ARISING FROM ENHANCEMENT OF THE BOOK PROFITS. T HE APPEAL OF THE ASSESSEE ON THIS ISSUE IS DISMISSED. 15. IN RESULT THE APPEAL OF THE ASSESSEE IS ALLOW ED IN PART FOR STATISTICAL PURPOSES. ITA NO. 7316/MUM/2007 - DEPARTMENTAL APPEAL: 16. THE FIRST GROUND IN THE REVENUES APPEAL IS AGA INST THE DELETION BY THE CIT(A) THE DISALLOWANCE OF RS.3.35 LAKHS CLAIMED U/S 35D BY ALLOWING ASSESSEES ALTERNATE CLAIM U/S 35DD. M/S. APTECH LTD. 7 17. THE ASSESSEE HAD CLAIMED RS 335 605/- UNDER SEC TION 35D OF THE INCOME TAX ACT BEING 1/5 TH OF RS 16 78 025/- WHICH WAS THE EXPENSES INCURRED TOWARDS INCREASE IN AUTHORIZED SHARE CAPIT AL IN CONNECTION WITH SUBSTANTIAL EXPANSION OF ASSESSEES BUSINESS. 18. THE ASSESSING OFFICER FOUND THAT IN THE A.Y 200 3-04 THE AUTHORIZED SHARE CAPITAL OF THE ASSESSEE COMPANY WA S INCREASED AFTER INCORPORATION OF THE COMPANY AND AFTER COMMENCEMENT OF THE BUSINESS OF THE COMPANY. THEREFORE THE EXPENDITURE IS NOT C OVERED U/S 35D (2)(C) OF THE ACT. THE AO ALSO POINTED OUT THAT THE ASSES SEE HAS NOT FILED ANY APPEAL AGAINST THE DISALLOWANCE MADE IN A.Y 2003-04 THEREFORE IMPLYING THAT THE ASSESSEE HAD ACCEPTED THE SAID DI SALLOWANCE. THE A.O FURTHER STATED THAT IN THE YEAR UNDER CONSIDERATION THE FACT REMAINS THAT EXPENDITURE ON INCREASE IN AUTHORIZED SHARE CAPITAL AFTER THE COMMENCEMENT OF THE BUSINESS IS NOT AN ALLOWABLE EX PENDITURE. AO RELIED ON THE RATIO OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BROOKE BOND INDIA LTD 225 ITR 798 WHEREIN I T HAS BEEN HELD THAT ANY EXPENSES INCURRED IN CONNECTION WITH CAPITAL BA SE WOULD NOT BE ALLOWABLE AS REVENUE EXPENDITURE. THEREFORE THE AO DISALLOWED THE DEDUCTION OF RS 335 605/- (BEING 1/5 TH OF RS 16 78 025/- ) TOWARDS PRELIMINARY EXPENSES ON ACCOUNT OF INCREASE IN AUTH ORIZED SHARE CAPITAL 19. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE LEARNED CIT(A). BEFORE THE FIRST APPELLATE AUTHORITY THE A SSESSEE SUBMITTED AS UNDER: (A) THAT THE APPELLANT COMPANY WAS KNOWN BY THE N AME APTECH TRAINING LIMITED DURING THE YEAR ENDED 31.3.2001. IT WAS A SUBSIDIARY OF HEXAWARE TECHNOLOGIES LIMITED (ERSTWH ILE APTECH LIMITED). DURING THE PREVIOUS YEAR 2001-02 THE TRAINING DIVISION OF HEXAWARE WAS TRANSFERRED BY WA Y OF A DEMERGER TO AND VESTED IN THE APPELLANT COMPANY PUR SUANT TO A SCHEME OF ARRANGEMENT AND RECONSTRUCTION WHICH BE CAME EFFECTIVE ON 28.12.2001 FROM THE APPOINTED DATE I.E . 1.4.2001. AND THIS LED TO SUBSTANTIVE EXPANSION OF APPELLANT COMPANY. THE APPELLANT COMPANY HAD INCURRED EXPENSES OF RS 16 78 025 TOWARDS STAMP DUTY AND ROC FILING FEES FO R M/S. APTECH LTD. 8 INCREASE IN AUTHORIZED SHARE CAPITAL IN CONNECTION WITH THE DEMERGER/ TAKEOVER OF TRAINING DIVISION BEING A SUB STANTIVE EXPANSION. (B) THE EXPENSES WERE INCURRED IN RESPECT OF INCREA SE IN AUTHORISED SHARE CAPITAL IN CONNECTION OF TAKEOVER OF TRAINING DIVISION FROM HEXAWARE TECHNOLOGIES LIMITED WHICH I S AN EXTENSION OF ITS INDUSTRIAL UNDERTAKING I.E. AN UND ERTAKING PROVIDING IT EDUCATION AND TRAINING WHICH IS IN ITS ELF A SEPARATE INDUSTRY. THEREFORE THE APPELLANT FIRST C LAIMED DEDUCTION OF RS 335 605 FOR AY 2002-03 BEING 2/5 TH OF STAMP DUTY AND ROC FEES OF RS 16 78 025/- AS PER THE PROV ISIONS OF SECTION 35D OF THE ACT. THE ASSESSMENT YEAR UNDER CONSIDERATION IS THE THIRD YEAR IN WHICH THE APPELL ANT HAS CLAIMED DEDUCTION FOR 1/5 TH OF SUCH EXPENSES. (C) THAT THE FACT OF SUCH EXPENSES BEING CLAIMED WAS DISCLOSED IN THE FOLLOWING DOCUMENTS FILED ALONG WITH THE RET URN OF INCOME FOR AY 2002-03 AY 2003-04 AND AY 2004-05. 20. FURTHER THE ASSESSEE HAS CONTENDED AS UNDER: SECTION 35D PROVIDED FOR DEDUCTION OF SPECIFIED EX PENSES LIKE EXPENSES TOWARDS DRAFTING AND PRINTING OF MEMORAND UM AND ARTICLES OF ASSOCIATION FEES FOR REGISTERING THE CO MPANY UNDER THE COMPANIES ACT 1956 IN CONNECTION WITH PUBLIC ISSU E OF SHARES ETC. INCURRED BY A COMPANY AFTER COMMENCEMENT OF ITS BUS INESS IN CONNECTION WITH EXTENSION OF ITS INDUSTRIAL UNDERTA KING OF AN AMOUNT EQUAL TO 1/5 TH OF SUCH EXPENDITURE FOR FIVE SUCCESSIVE PREVIOUS YEARS. AS EXPLAINED ABOVE THE EXPENSES UNDER QUEST ION WERE INCURRED FOR EXTENSION OF ITS INDUSTRIAL UNDERTAKIN G. THE TRAINING DIVISION WHICH WAS TAKEN OVER FROM HEXAWARE UNDER THE DEMERGER DEFINITELY LED TO THE EXTENSION OF THE APPELLANTS INDUSTRIAL UNDETTAKING I.E AN UNDERTAKING PROVIDING IT EDUCATI ON AND TRAINING THAT IS IN ITSELF A SEPARATE INDUSTRY. THEREFORE T HE SAID EXPENSES HAVE BEEN RIGHTLY CLAIMED U/S 35D OF THE ACT. IN CASE OF BROOK BOND INDIA LTD. (1997) 225 ITR 79 8 (SC) AND PSIDCL V CIT (1997) 225 ITR 792 (SC) THE QUESTION B EFORE THE HONOURABLE SUPREME COURT WAS WHETHER SUCH EXPENSES WERE ALLOWABLE U/S 37 OF THE ACT. THERE WAS NO EXTENSION OF INDUSTRIAL UNDERTAKING IN THAT CASE AND THEREFORE NO QUESTION OF DEDUCTION U/S 35D. IN THAT CASE THE HONOURABLE SUPREME COURT ME RELY HELD THAT EXPENSES INCURRED IN CONNECTION WITH RAISING SHARE CAPITAL WOULD NOT BE ALLOWED AS REVENUE EXPENDITURE SINCE IT IS A CAPITAL EXPENDITURE. HOWEVER EXPENSES ARE ALLOWABLE U/S 3 5D IRRESPECTIVE OF WHETHER THEY ARE OF REVENUE OR CAPITAL NATURE PR OVIDED THEY FULFIL THE CONDITIONS AS SPECIFIED U/S 35D. THEREFORE THE ASSESSEE SUBMITTED THAT RATIO OF THIS JUDGMENT DOES NOT APPL Y TO ITS CASE. M/S. APTECH LTD. 9 THE ASSESSEE THEREFORE SUBMITTED THAT THAT EXPENSE S INCURRED FOR INCREASE IN AUTHORIZED CAPITAL SHOULD BE ALLOWED AS DEDUCTION UNDER THE PROVISIONS OF SEC 35D(2). FURTHER ALTERNATIVELY IT WAS URGED THAT IF THE SAME DOES NOT FALL WITHIN THE LIST OF EXPENS ES SPECIFIED U/S 35D(2) THEN THE SAME WILL DEFINITELY QUALIFY FOR D EDUCTION U/S 35DD AS EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE DEMERGER. 21. THE LEARNED CIT(A) ALLOWED THE ALTERNATE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER: THE ISSUE HAS BEEN CAREFULLY EXAMINED. SECTION 3 5D PROVIDES FOR DEDUCTION IN RESPECT OF SPECIFIED EXPENDITURE (1) I NCURRED BEFORE COMMENCEMENT OF THE BUSINESS (II) AFTER THE COMMENC EMENT OF HIS BUSINESS IN CONNECTION WITH THE EXTENSION OF THE IN DUSTRIAL UNDERTAKING OR IN CONNECTION WITH HIS SETTING UP A NEW INDUSTRIAL UNIT. IN THE CASE OF THE APPELLANT THE AUTHORIZED SHARE CAPITAL OF THE APPELLANT COMPANY WAS INCREASED AFTER INCORPORATION OF THE COMPANY AND AFTER COMMENCEMENT OF THE BUSINESS OF T HE COMPANY. THE TAKEOVER OF THE TRAINING AND EDUCATION BUSINESS OF HEXAWARE LTD CANNOT BE SAID TO BE EXTENSION OF INDUSTRIAL UN DERTAKING OR SETTING UP A NEW INDUSTRIAL UNIT. THEREFORE THE SA ID EXPENDITURE HAVE BEEN RIGHTLY DISALLOWED U/S 35D (2)(C) OF THE ACT. THE APPELLANT HAS CLAIMED THAT ALTERNATIVELY THE SA ID EXPENSES OF RS 16 78 025/- BE ALLOWED U/S 35DD SINCE THE EXPENS ES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF DEMERGER OF TRAINING DIVISION OF HEHAWARE LTD INTO THE APPELLAN T COMPANY. SINCE THESE EXPENSES FOR INCREASE IN AUTHORIZED SHA RE CAPITAL HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF DEMERGER OF TRAINING DIVISION OF HEXAWARE LTD INTO THE APPELLAN T COMPANY THE SAME IN MY VIEW SHOULD BE ALLOWED AS DEDUCTION U/S 35DD. APPELLANT THEREFORE GETS RELIEF AO SHALL RECOMPUTE THE INCOME ACCORDINGLY. 22. AGGRIEVED THE REVENUE IS ON APPEAL BEFORE US. 23. WE HEARD BOTH THE PARTIES. ALLOWABILITY OF REL IEF U/S 35DD HAS BEEN MADE FOR THE FIRST TIME BEFORE THE CIT(A). THE AO HAS NOT BEEN GIVEN AN OPPORTUNITY TO EXAMINE THE MATTER. THE ISSUE IS SET ASIDE TO THE FILES OF THE AO FOR CONSIDERING THE ALTERNATE GROUND OF T HE ASSESSEE FOR M/S. APTECH LTD. 10 DEDUCTION U/S 35DD IN ACCORDANCE WITH LAW. THE APPE AL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 24. THE NEXT GROUND OF APPEAL OF THE REVENUE IS AGA INST LEARNED CIT(A) DELETING THE DISALLOWANCE OF RS 3.76 CRORES CLAIMED U/S 35DD.THE ASSESSEE HAD INCURRED EXPENSES OF RS 376 39 137/- U /S 35DD OF THE INCOME TAX ACT BEING EXPENSES INCURRED WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF DE-MERGER OF THE TRAINING DIVISION OF HE XXAWARE TECHNOLOGIES LIMITED UNDER A SCHEME OF ARRANGEMENT AND RECONSTRU CTION UNDER SEC 391 TO 394 OF THE COMPANIES ACT 1956. 25. THE AO IN THE ASSESSMENT PROCEEDINGS FOUND THA T THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION U/S 35DD OF THE IT AC T BEING 15 TH OF RS 18 81 95 686/- ON ACCOUNT OF EXPENSES INCURRED IN R ESPECT OF DEMERGER/TAKEOVER FOR EXPANSION OF THE ASSESSEE COM PANY. THE AO IN THE ORDER HAS STATED THAT THE ASSESSEE HAS FAILED T O FURNISH EVEN THE BASIC DETAILS I.E THE NATURE OF EXPENSES THE BREAK UP OF THE AMOUNT AND PURPOSE OF SUCH EXPENSES ETC AND FURTHER THAT IT DI D NOT STATE ANYTHING NOR PRODUCED ANY CORROBORATING EVIDENCE IN SUPPORT OF ITS CLAIM OF EXPENSES. IN THE AY 2003-04 THE ASSESSEE WAS NOT A LLOWED THE DEDUCTION U/S 35DD AS THE ASSESSEE HAD FAILED TO FU RNISH THE DETAILS OF THE DE-MERGER EXPENSES AND THE ASSESSEE HAS NOT FIL ED ANY APPEAL AGAINST THE DISALLOWANCES. 26. THE SUBMISSIONS MADE BY THE ASSESSEE ARE SUMMA RIZED AS UNDER: (A) THAT THE APPELLANT COMPANY INCURRED EXPENSES OF RS 18 81 95 686 DURING PREVIOUS YEAR 2001-02 AND RS 140 352/- DURING PREVIOUS YEAR 2002-03 WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE DEMERGER OF THE TRAINING DIVISION OF HEXAWARE PURSUANT TO A SCHEME OF ARRANG EMENT AND RECONSTRUCTION UNDER SEC 391 TO 394 OF THE COMP ANIES ACT 1956 WHICH BECAME EFFECTIVE ON 28.12.2001 FROM THE APPOINTED DATE I.E. 1.4.2001. (B) SECTION 35DD PROVIDES FOR DEDUCTION OF EXPENSES I NCURRED BY A COMPANY WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF M/S. APTECH LTD. 11 DEMERGER OF AN AMOUNT EQUAL TO 1/5 TH OF SUCH EXPENDITURE FOR FIVE SUCCESSIVE PREVIOUS YEARS. (C) THAT THE EXPENSES OF RS 18 81 95 686 DURING PREVIOUS YEAR 2001-02 WERE INCURRED WHOLLY AND EXCLUSIVELY F OR PURPOSE OF THE SAID DEMERGER. THEREFORE THE APPELLA NT CLAIMED DEDUCTION OF RS 376 39 137 U/S 35DD FOR AY 2002-03 BEING 1/5 TH OF THE SAID EXPENSES INCURRED DURING PREVIOUS YEAR 2001-02 THE ASSESSMENT YEAR UNDER CONSIDERATION IS THE THIRD YEAR IN WHICH THE APPELLANT HAS CLAIMED 1/5 TH OF SUCH EXPENSES. (D) THAT THE FACT OF SUCH EXPENSES BEING CLAIMED WAS DISCLOSED IN THE FOLLOWING DOCUMENTS FILED ALONG WI TH THE RETURN OF INCOME FOR AY 2002-03 AY 2003-04 AND AY 2 004- 05. COMPUTATION OF TAXABLE INCOME AS DEDUCTIONS U/S 35 DD 1/5 TH OF AGGREGATE EXPENSES OF RS 18 81 95 686 WHOLLY AN D EXCLUSIVELY IN CONNECTION WITH DEMERGER. IN A STAT EMENT SHOWING COMPUTATION OF DEDUCTION U/S 35DD WAS ANNEXED TO RE TURN OF INCOME. AND THAT DURING THE ASSESSMENT PROCEEDINGS THAT APPELLANT WAS VIDE QUESTIONNAIRE DATED 1.12.2006 CALLED UPON TO EXPLAIN THE DEDUCTION CLAIMED U/S 35DD AND VIDE LETTER DATED 11 .12.2006 ASKED TO FURNISH THE DETAILS AND SUPPORTING IN RESP ECT OF THE DEMERGER EXPENSES IN RESPONSE TO WHICH THE EXPLANAT ION AS GIVEN ABOVE WAS GIVEN TO THE LEARNED ACIT VIDE LETTER DAT ED 19.12.2006. THE APPELLANT HAS ALSO FURNISHED COPIES OF THE ORDE R OF DEMERGER AND OTHER DOCUMENTS. BUT CERTAIN VOUCHERS REGARDING EXPENSES COULD NOT BE FURNISHED AS THEY WERE WASHED AWAY BY FLOODS IN JULY 2005. 27. THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASS ESSEE BY OBSERVING AS UNDER: THE ISSUE HAS BEEN CAREFULLY EXAMINED. SECTION 35DD PROVIDES FOR DEDUCTION OF EXPENSES INC URRED BY A COMPANY WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF D EMERGER OF AN AMOUNT EQUAL TO 1/5 TH OF SUCH EXPENDITURE FOR FIVE SUCCESSIVE PREVIOUS YEARS. IN THE CASE OF THE APPELLANT THE FACT THAT THE DEM ERGER HAD TAKEN PLACE PURSUANT TO SCHEME OF DEMERGER AS PER THE PR OCEDURE LAID DOWN UNDER SEC. 391 TO 394 OF THE COMPANIES ACT 1 956 IS CLEARLY EVIDENT FROM THE COPY OF THE SCHEME OF DEMERGER AS APPROVED BY HONOURABLE BOMBAY HIGH COURT . FURTHER THE FACT IS ALSO MENTIONED M/S. APTECH LTD. 12 IN THE AUDITED FINANCIAL STATEMENTS OF THE APPELLAN T COMPANY FOR FINANCIAL YEAR 2001-02 FURTHER THE APPELLANT HAS PLACED A COPY OF THE BOAR D RESOLUTION AUTHORIZING THE DIRECTORS TO FINALISE THE DETAILED TERMS OF THE SCHEME APPOINTING CONSULTANTS AND ADVOCATES IN THIS CONNEC TION AND APPROVE ALL NECESSARY EXPENSES IN CONNECTION WITH T HE DEMERGER AS PER THE PROVISIONS OF SEC 391 TO 394 OF THE COMPANI ES ACT 1956. IT IS A KNOWN FACT THAT THE PROCEDURE OF DEMERGER I NVOICES HUGE EXPENSES SUCH AS PAYMENT OF FEES TO ADVOCATES AND C ONSULTANTS AT THE INITIAL PLANNING STAGE AND THEN FOR COMPLYING W ITH THE PROVISIONS OF UNDER SEC 391 TO 394 OF THE COMPANIES ACT 1956 GETTING THE SCHEME APPROVED BY THE HIGH COURT AS PER THE REQUIR EMENT OF COMPANIES ACT INCURRING EXPENSES ON ADVERTISEMENTS HOLDING MEETINGS STAMP DUTY AND ROC FEES TRANSFER OF BUSINE SS ALONG WITH ITS ASSETS AND LIABILITIES ETC. SUCH EXPENSES ARE INCURRED IN EVERY SUCH TYPE OF DEMERGER OTHER DOCUMENTS EVIDENCING THE EXPENSES INCURRED L IKE BILLS INVOICES ETC COULD NOT BE SUBMITTED SINCE THE SAME WERE NOT AVAILABLE AS THEY WERE LOST IN THE FLOODS ON ACCOUN T OF UNPRECEDENTED HEAVY RAINS THAT OCCURRED IN MUMBAI ON 26 TH JULY 2005. THE FACT OF THE LOSS IN THE FLOODS IS SUBSTA NTIATED BY THE DOCUMENTS OF INSURANCE CLAIMS MADE TO RECOVER THE L OSS SUFFERED ON ACCOUNT OF THE FLOODS THE INSURANCE CLAIM ACCEPTED AND RECOVERED OF RS 80.50 LAKHS AND THE SUBSEQUENT INTENSIVE RENOVAT ION THAT WAS MADE IN THE BASEMENT AREA OF APTECH HOUSE AS A RES ULT THE APPELLANT COMPANY WAS UNABLE TO PRODUCE THE BILLS I NVOICES VOUCHERS ETC RELATING TO THE DEMERGER EXPENSES CLAI MED AS DEDUCTION U/S 35DD. FROM THE FACTS OF THE CASE IT IS EVIDENT THAT GENUI NE HARDSHIP WAS FACED BY THE APPELLANT COMPANY WHICH WAS PREVENTED BY SUFFICIENT REASON BEYOND ITS CONTROL TO SUBMIT THE BILLS VOUCH ERS RELATING TO THESE DEMERGER EXPENSES AND HENCE THE EXPENSES SHOU LD NOT BE DISALLOWED ON ACCOUNT OF LIABILITY TO FURNISH THE NECESSARY EVIDENCES ON ACCOUNT OF FORCE MAJURE. SINCE THE EX PENDITURE IS CORROBORATED BY CIRCUMSTANTIAL EVIDENCE OF DEMERGER SCHEME APPROVED BY THE HONOURABLE HIGH CCURT. I ACCEPT TH E ARGUMENT OF THE APPELLANT THAT THE DISALLOWANCE OF DEDUCTION U/ S 35DD OF RS 376 39 137/- BEING 15 TH OF THE AGGREGATE EXPENSE O RS 18 81 95 686/- IS NOT WARRANTED. I ACCORDINGLY ALLOW GROUND NO 2 AND DELETE THE ADDI TION OF RS 376 39 137/- TO THE TOTAL INCOME. M/S. APTECH LTD. 13 28. AGGRIEVED THE REVENUE IS ON APPEAL BEFORE US. WE FIND THAT ALL THE PARTICULARS OF EXPENSES REGARDING DEMERGER WERE NOT CONSIDERED BY THE AO. FURTHER THE DEMERGER HAS TAKEN PLACE WITH EFFE CT FROM 1.4.2001. AS PER SEC 35DD 1/5 TH OF THE EXPENSES ARE ALLOWABLE IN THAT YEAR AND 4 SUCCESSIVE ASSESSMENT YEARS. IT IS NOT CLEAR WHETHE R THE EXPENSES WERE CLAIMED IN THE EARLIER YEARS AND IF SO THE RESULT T HEREOF. WE FEEL THE MATTER REQUIRES TO GO BACK TO THE AO FOR FURTHER EX AMINATION AND DECIDE THE MATTER IN ACCORDANCE WITH LAW. 29. THE NEXT GROUND OF APPEAL OF THE REVENUE IS AGA INST CIT(A) ALLOWING HIGHER RATE OF DEPRECIATING @ 50% AS AGAINST NORMAL RATE OF DEPRECIATION @ 20% IN RESPECT OF VEHICLES AND THEREBY DELETING R S 3 47 329/- DISALLOWED BY AO AS EXCESS DEPRECIATION CLAIMED ON SUCH VEHICLES OVER 20%. 30. THE AO IN ASSESSMENT PROCEEDINGS FOUND FROM TH E TAX AUDIT REPORT THAT THE ASSESSEE COMPANY HAD CLAIMED DEPRECIATION ON VEHICLES @ 50%. THE OPENING WDV OF THIS BOOK WAS RS 22 38 444/- AND THE ASSESSEE CLAIMED DEPRECIATION OF RS 11 19 222/-. THE ASSESSE E HAS MOTOR CARS WHICH ARE USED IN ITS BUSINESS BY THE OFFICIALS OF THE COMPANY DEPRECIATION @ 50% IS ALLOWABLE ON NEW COMMERCIAL V EHICLES WHICH ARE ACQUIRED ON OR AFTER THE 1 ST DAY OF APRIL 2002. BUT THE AO FELT THAT THE DEPRECIATION @ 50% IS AVAILABLE ONLY TO THE COMMERC IAL VEHICLES. THE DEPRECIATION @ 50% IS NOT ALLOWABLE ON PASSENGER VE HICLES. THE AO DISALLOWED THE ASSESSEES CLAIM OF DEPRECIATION @ 5 0% ON MOTOR CAR AND RESTRICTED TO 20% ONLY. IN THE AY 2003-04 THE DEPRE CIATION WAS RESTRICTED TO 20% AGAINST 50% DEPRECIATION AS CLAIMED BY THE A SSESSEE AND THE ASSESSEE HAS NOT FILED ANY APPEAL AGAINST THE RESTR ICTION OF DEPRECIATION. ON THE BASIS OF DISALLOWANCE OF DEPRECIATION IN THE AY 2003-04 THE DEPRECIATION MOTORS CAR IS WORKED OUT AT RS 3 47 32 9/- AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE . M/S. APTECH LTD. 14 31. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE LEARNED CIT(A). BEFORE THE LEARNED CIT(A) IT WAS SUBMITTED THAT NEW COMMERCIAL VEHICLES WHICH IS ACQUIRED ON OR AFTER THE 1 ST DAY OF APRIL 2001 BUT BEFORE THE 1 ST DAY OF APRIL 2002 FOR THE PURPOSE OF BUSINESS OR P ROFESSION WERE ENTITLED TO DEPRECIATION AT 50%. COMMERCIAL VEHICLE S FOR THIS PURPOSE WAS DEFINED IN NOTE 6 TO APPENDIX TO IT RULES. SINC E THE MOTOR CARS ACQUIRED BY THE ASSESSEE ARE MOTORS VEHICLE WHICH F ALL WITHIN THE DEFINITION OF LIGHT VEHICLES AS DEFINED UNDER MOTOR VEHICLE ACT 1988 MOTOR CARS ARE SQUARELY COVERED BY THE DEFINITION O F COMMERCIAL VEHICLE AS DEFINED IN NOTE 6 TO APPENDIX 1 TO THE I.T. RULES. THUS SINCE THESE MOTOR CARS ARE COMMERCIAL VEHICLES WITHIN THE DEFIN ITION AS PER NOTE 6 TO THE DEPRECIATION TABLE AND WERE PURCHASED AND PUT T O USE FOR BUSINESS PURPOSE DURING PY 2001-02 AND THE APPELLANT SUBMITS THAT THE DEPRECIATION @ 50% ON SUCH MOTOR CARS HAVE BEEN COR RECTLY CLAIMED. 32. THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASS ESSEE FOR DEPRECIATION AT 50% OBSERVING AS UNDER: I AM OF THE VIEW THAT DEPRECIATION ON MOTOR CARS H AS BEEN RIGHTLY CLAIMED @ 50% AS PER THE PROVISION OF THE DEPRECIAT ION TABLE CONTAINED IN APPENDIX I TO THE I.T RULES 1962 AND T HEREFORE THE SAME SHOULD BE ALLOWED. THUS THIS GROUND OF APPEAL IS ALLOWED TO THE APPELLANT. 33. AGGRIEVED THE REVENUE IS ON APPEAL. THE PROVISI ONS OF THE I.T RULES FOR GRANTING HIGHER DEPRECIATION IN RESPECT OF VEHI CLES ACQUIRED AFTER 1.4.2001 AND PUT TO USE BEFORE 1.4.2002. EVEN THOUG H THE CLASSIFICATION READS AS NEW COMMERCIAL VEHICLES UNDER NOTE 6 TO THE IT RULES IT HAS BEEN CLARIFIED THAT COMMERCIAL VEHICLES WILL INCLUD E LIGHT MOTOR VEHICLES BUT WILL NOT INCLUDE MOTOR CAB/ MAXI CAB. THIS WOUL D SHOW THAT IT IS NOT NECESSARY FOR THE VEHICLE TO BE USED FOR COMMERCIAL PURPOSES FOR CLAIMING HIGHER RATE OF DEPRECIATION. IN FACT CABS HAVE BEEN EXCLUDED FROM THE DEFINITION OF COMMERCIAL VEHICLE AS THEY ARE DEALT WITH SEPARATELY. THE LEARNED CIT(A) WAS THEREFORE CORREC T IN UPHOLDING THE CLAIM OF THE ASSESSEE FOR DEPRECIATION @ 50% IN RES PECT OF MOTOR VEHICLES M/S. APTECH LTD. 15 ACQUIRED AFTER 1.4.2001 AND USED BEFORE 1.4.2002. T HE REVENUES APPEAL ON THIS ISSUE IS DISMISSED. 34. THE NEXT GROUND OF REVENUES APPEAL IS AGAINST THE CIT(A) DELETING THE DISALLOWANCE OF CLAIM OF BAD DEBTS OF RS 1.72 C RORES. 35. THE AO IN ASSESSMENT PROCEEDINGS EXAMINED THE A SSESSEES CLAIM OF AN AMOUNT OF RS. 172 13 127/- ON ACCOUNT OF BAD DEBTS WRITTEN OFF. IT HAS BEEN STATED THAT THE ASSESSEE HAS NOT SUBMITTED THE DETAILS OF BAD DEBTS WRITTEN OFF. FURTHER AS PER THE PROVISIONS OF SEC 36(1)(VI) THE LEGISLATURE HAS MADE ITS INTENTION AMPLY CLEAR. IT HAS STATED THAT THE AMOUNT OF ANY BAD DEBT OR PART THERE OF WHICH HAS B EEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR T HE PREVIOUS YEAR CAN BE CLAIMED. THUS THE LEGISLATURE DID NOT INTEND TO A LLOW ANY DEBT TO BE WRITTEN OFF BUT ONLY THESE DEBTS WHICH HAVE BECOME BAD CAN BE ALLOWED U/S 36(2)(VII) WHETHER THE DEBT HAS BECOME BAD OR O THERWISE IS A DECISION WHICH CAN BE TAKEN BY THE ASSESSEE ALONE. BUT THE INTENTION OF THE ASSESSEE HAS TO BE VERIFIED BEFORE ITS CLAIM OF ANY DEBT AS A BAD DEBT MAY BE ALLOWED. THE AO HAS REFERRED TO THE DECISION OF THE HONOURABLE MADRAS HIGH COURT IN A RECENT JUDGMENT IN THE CASE OF SOUTH INDIA SURGICAL CO. LTD V ACIT REPORTED IN 201 CTR 289 TO SUPPORT HIS VIEW. THE AO HELD THAT THE CLAIM OF THE ASSESSEE REGARDIN G ALLOWANCE OF ENTIRE BAD DEBTS IS NOT MAINTAINABLE THEREFORE AN ADDITION OF RS 1 72 13 127/- WAS MADE TO THE TOTAL INCOME OF THE ASSESSEE COMPAN Y. 36. AGGRIEVED THE ASSESSEE CONTESTED THIS DISALLOWA NCE IN THEIR APPEAL BEFORE THE LEARNED CIT(A). THE FIRST APPELLATE AUTH ORITY ALLOWED THE ASSESSEES CLAIM BY OBSERVING AS UNDER: THE ISSUE HAS BEEN EXAMINED. IT IS INDEED TO BE AC CEPTED THAT THE DECISIONS TAKEN BY THE MADRAS HIGH COURT IN THE CAS E OF CIT VS BRILLIANT TUTORIALS P LTD (2007) 292 ITR 399(MAD) A ND THE DECISION TAKEN BY THE DELHI HIGH COURT IN THE CASE OF CIT VS MORGAN SECURITIES & CREDIT P.LTD (2007) 292 ITR 339(DEL) A ND CIT VS AUTOMETERS LTD (2007) 292 ITR 345(DEL) CLEARLY STAN D BY AND M/S. APTECH LTD. 16 SUPPORT THE DECISION OF THE SPECIAL BENCH OF THE MU MBAI TRIBUNAL IN THE CASE OF DCIT VS OMAN INTERNATIONAL BANK SAOG (S PECTRUM BUSINESS SUPPORT LTD V DCIT 100 ITD 0285 (BOM SPECI AL BENCH). IN FACT IT HAS BEEN RIGHTLY POINTED OUT BY THE LD COUN SEL THAT THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CI T VS BRILLIANT TUTORIALS P LTD (2007) 292 ITR 399 (MAD) HAS IN FAC T CONSIDERED THE EARLIER DECISION OF THE MADRAS HIGH COURT IN THE CA SE OF CIT VS MICROMAX SYSTEMS P.LTD (2005) 277 ITR 409(MAD) AND SOUTH INDIA SURGICAL CO. LTD VS ACIT (2006)287 ITR 62(MAD) TO C OME TO ITS FINDINGS. FURTHER COMING TO THE MERITS OF THE CLAIM OF THE AP PELLANT COMPANY THE DEBTORS WERE OUTSTANDING FOR ALMOST 4.5 YEARS AND THE APPELLANT COMPANY HAD TAKEN REASONABLE STEPS FOR RE COVERING THE DEBTS FROM ITS FRANCHISEE BY FORMING A TASK FORCE A ND HAD EVEN SUCCEEDED IN RECOVERING SUBSTANTIAL AMOUNT OF THE D EBTS FROM THE FRANCHISEE SAVE AND EXCEPT AN AMOUNT OF RS.17 213 127/- THE TASK FORCE COULD NOT RECOVER FROM THESE CENTRES AGGREGAT ING TO DESPITE THEIR BEST EFFORTS. THE ARGUMENTS THAT THE AMOUNT OF DEBTS DUE FROM EACH OF THESE FRANCHISEE WERE TOO SMALL MAJORITY OF THEM WERE BELOW 1 LAKH) TO TAKE ANY LEGAL ACTIONS CONSIDERING THE C OST BENEFIT ANALYSIS ALSO APPEARS REASONABLE. THESE DEBTS IN T HE OPINION OF THE MANAGEMENT WERE NOT RECOVERABLE INSPITE OF THE BEST EFFORTS MADE FOR COLLECTION OF THE SAME.AS A CONSEQUENCE THE SE DEFAULTING CENTRES WERE TERMINATED AND RESULTANTLY IN THE ASST. YEAR 2 004-05 THE OUTSTANDING AMOUNT OF RS 17 213 127/- WERE WRITTEN OF IN THE BOOKS OF ACCOUNTS. HAVING CONSIDERED THE ENTIRE LAW ON THE SUBJECT AS IT IS PRESENT ON THE DAY AS ALSO THE FACTS PRESENT IN THE CASE OF TH E APPELLANT I AM OF THE VIEW OF THAT THE AO ERRED IN DISALLOWING THE C LAIM OF BAD DEBT BY HOLDING THAT THE APPELLANT HAD TO ESTABLISH THAT THE DEBT HAD BECOME BAD. THE DECISIONS OF THE VARIOUS HIGH COURT S AND THE SPECIAL BENCH OF THE MUMBAI TRIBUNAL DO NOT SUPPORT THE VIEW OF THE AO. THE PLEA OF THE APPELLANT IS THEREFORE ACCORDIN GLY ALLOWED. 37. AGGRIEVED THE REVENUE IS ON APPEAL BEFORE US. W E FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISIONS OF THE APEX COURT IN THE CASE OF TRF LTD VS CIT (2010-TIOL-15- SC-IT). RESPECTFULLY FOLLOWING THE DECISION OF THE APEX COURT THAT WE HO LD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF BAD DEBTS WRITTEN OFF WHIC H HAVE BEEN REDUCED FROM THE INDIVIDUAL CLIENTS ACCOUNT. THE REVENUES APPEAL ON THIS ISSUE IS DISMISSED. M/S. APTECH LTD. 17 38. THE NEXT GROUND OF REVENUES APPEAL IS AGAINST CIT(A) DELETING THE DISALLOWANCE OF LOSS OF RS 63.69 LAKHS INCURRED ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIONS. WE FIND THE SAME ISSUE VIZ. LOSS ON ACCOUNT OF EXCHANGE FLUCTUATIONS IN RESPECT OF AMOUNTS KEPT AB ROAD WAS CONSIDERED IN ASSESSEES APPEAL ALSO. WE FOUND THAT PARTICULAR S ABOUT UTILIZATION ETC WERE FURNISHED FIRST TIME BEFORE THE CIT(A) AND THE AO DIDNT HAVE AN OPPORTUNITY TO EXAMINE THE ISSUE. WE THEREFORE DEEM FIT AS WAS DONE IN THE CASE OF ASSESSEES APPEAL TO REMIT THE MATTER TO THE FILES OF THE AO FOR DECIDING THE ISSUE AFRESH IN ACCORDANCE WITH LA W. WE WOULD LIKE TO CLARIFY THAT WE HAVE NOT GIVEN OUR DECISION ON ANY OF THE ASPECTS OF THIS ISSUE AND THE AO WILL DECIDE THE MATTER ON MERITS A FRESH IN ACCORDANCE WITH LAW. 39. THE NEXT GROUND OF APPEAL OF THE REVENUE IS AGA INST THE DELETION BY THE CIT(A) THE DISALLOWANCE OF RS 30 LAKHS OUT OF V ARIOUS EXPENSES. THIS GROUND RELATES TO DISALLOWANCE OF MISC. EXPENSES RE PAIRS AND MAINTENANCE EXPENSES TRAVELLING EXPENSES LEGAL AND PROFESSIONAL EXPENSES EDUCATION TRAINING EXPENSES AND ADVERTISEM ENTS AND PUBLICATION EXPENSE. CENTRE OPERATION EXPENSES AND COURSE EXECUTION EXPENSES TO THE EXTENT OF RS 30 00.000 ON ADHOC BAS IS DUE TO NON AVAILABILITY OF THE NECESSARY SUPPORTING BILLS AND VOUCHERS. THE AO IN THE ORDER STATES THAT FROM THE ACCOUNTS OF THE ASSE SSEE IT WAS SEEN THAT THE ASSESSEE HAD CLAIMED SUBSTANTIAL AMOUNTS OF EXP ENDITURE IN RESPECT OF VARIOUS HEADS OF EXPENDITURE. THE AO ASKED THE ASSESSEE TO FURNISH THE DETAILS OF VARIOUS EXPENSES SUCH AS MISCELLANEO US EXPENSES. REPAIR & MAINTENANCE EXPENSES. TRAVELLING EXPENSE LEGAL AN D PROFESSIONS EXPENSES EDUCATION TRAINING EXPENSES AND ADVERTISIN G AND PUBLICATION EXPENSES CENTRE OPERATION EXPENSES COURSE EXECUTION EXPENSES ETC. HOWEVER NO DETAILS OF ANY EXPENDITURE WERE FILED. A S THE ASSESSEE WAS UNABLE TO FURNISH THE NECESSARY EVIDENCES THEREFORE AN ADHOC DISALLOWANCE OF RS 30 00 000 WAS MADE TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. M/S. APTECH LTD. 18 40. BEFORE THE LEARNED CIT(A) THE ASSESSEE HAS ARGU ED THAT THE FOLLOWING EXPENSES WERE INCURRED DURING THE PREVIOU S YEAR. MISCELLANEOUS EXPENSES RS 297 18 162/- REPAIRS AND MAINTENANCE EXPENSES RS 216 77 311/- TRAVELLING EXPENSES RS 471 18 827/- LEGAL AND PROFESSIONAL EXPENSES RS 27994 122/- EDUCATION TRAINING EXPENSES AND COURSE MATERIAL RS 85 487 561/- ADVERTISEMENT AND PUBLICATION EXPENSES RS 11 45210 CENTRE OPERATION EXPENSES RS 526 247 608/- COURSE EXECUTION EXPENSES RS 175 680 514/- AND CLAIMED THE SAME AS DEDUCTION U/S 37 WHILE COM PUTING INCOME UNDER HEAD PROFITS AND GAINS FROM BUSINESS AND PROF ESSION. IT HAS BEEN FURTHER STATED BY THE APPELLANT IS THAT THE FACT OF SUCH EXPENSES BEING CLAIMED WAS DISCLOSED CLEARLY IN THE AUDITED PROFIT AND LOSS ACCOUNT FOR YEAR ENDED 31.3.2004 FILED ALONG WITH THE RETURN OF INCOME. AND THAT THE APPELLANT VIDE LETTER DATED 19.12.2006 FURNISHED TH E DETAILS OF THE ABOVE EXPENSES INCURRED. IT HAS BEEN PLEADED THAT THE AP PELLANT WAS UNABLE BEYOND CONTROL TO SUBMIT THE DOCUMENT EVIDENCING TH E EXPENSES INCURRED LIKE THE BILLS INVOICES ETC SINCE THE SAME WERE LOST IN THE UNPRECEDENTED FLOODS THAT ACCRUED IN MUMB AI ON 26 TH JULY 2005 MOST OF THE RECORDS OF THE COMPANY WERE PLACED IN THE BA SEMENT ARE OF APTECH HOUSE AND DUE TO THE UNPRECEDENTED FLOORS ALL RECOR DS INCLUDING BILLS VOUCHERS ETC WERE SUBMERGED UNDER WATER AND THE APP ELLANT COMPANY WAS UNABLE TO RETRIEVE ANY OF THOSE BILLS VOUCHERS DOCUMENTS RECORDS AND AS A RESULT THE APPELLANT COMPANY WAS UNABLE TO PRODUCE THE BILLS INVOICES VOUCHERS ETC RELATING TO THE DEMERGER EXPE NSES CLAIMED AS DEDUCTION U/S 35DD. 41. THE APPELLANT SUBMITS THAT IT HAD PLACED THIS SUBMISSION BEFORE THE LEARNED ACIT DURING THE ASSESSMENT PROCEEDINGS THIS WAS A GENUINE HARDSHIP THAT WAS FACED BY THE APPELLANT COMPANY TH E ABOVE FACT OF THE M/S. APTECH LTD. 19 LOSS OF IN THE FLOODS IS SUBSTANTIATED BY THE DOCUM ENTS OF INSURANCE CLAIMS MADE TO RECOVER THE LOSS SUFFERED ON ACCOUNT OF THE FLOODS AND THE SUBSEQUENT INTENSIVE RENOVATION THAT WAS MADE IN TH E BASEMENT AREA OF APTECH HOUSE. HOWEVER THE LEARNED ACIT DISALLOWED R S 30 00 000 ON ADHOC BASIS ON ACCOUNT OF SUCH EXPENSES STATING THA T IF THE ASSESSEE FAILS TO ESTABLISH THE NECESSARY FACTS NECESSARY TO SUPPORT HIS CLAIMS FOR DEDUCTION OF EXPENDITURE THE SAME IS NOT ADMISSIBLE . 42. THE APPELLANT THUS SUBMITS THAT: THESE WERE GENUINE EXPENSES. THE AUTHENTICITY OF TH ESE EXPENSES IS SUPPORTED BY THE FINANCIAL STATEMENTS OF THE APP ELLANT COMPANY FOR FINANCIAL YEAR ENDED 31.3.2004 WHICH HAVE BEEN STA TUTORILY AUDITED BY A CHARTERED ACCOUNTANT AS PER THE COMPANIES ACT WHER EIN THESE EXPENSES ALONG WITH THE RELATED BILLS AND VOUCHERS WERE PROPERLY VOUCHED VERIFIED AND AUDITED. THE APPELLANT COMPAN Y WAS UNABLE BEYOND CONTROL TO SUBMIT THE BILLS/ VOUCHERS RELAT ING TO THESE EXPENSES SINCE AS EXPLAINED HEREINABOVE THE SAME WERE LOST I N THE UNPRECEDENTED FLOODS IN MUMBAI ON 26 TH JULY 2005.IN VIEW OF THE ABOVE THE APPELLANT SUBMITTED THAT THE ABOVE EXPENSES WERE GENUINELY IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE APPELLANT COMPA NIES BUSINESS AND THEREFORE THE SAME SHOULD NOT BE DISALLOWED. 43. THE CIT(A) ALLOWED THE ASSESSEES CLAIM AGAINST THE ADHOC DISALLOWANCE OBSERVING AS UNDER: THE FACT THAT THESE EXPENSES WERE INCURRED DURING THE PREVIOUS YEAR BY THE APPELLANT COMPANY OF THE PURPOSE OF ITS BUSINESS IS SUPPORTED BY THE FINANCIAL STATEMENTS OF THE APPELL ANT COMPANY FOR FINANCIAL YEAR ENDED 31.3.2004 WHICH HAVE BEEN STA TUTORILY AUDITED BY A CHARTERED ACCOUNTANT AS PER THE COMPAN IES ACT WHEREIN THESE EXPENSES ALONG WITH THE RELATED BILLS AND VOUCHERS WERE PROPERLY VOUCHED VERIFIED AND AUDITED. FURTH ER THIS FACT IS ALSO AUTHENTICATED BY THE TAX AUDIT REPORT ISSUED B Y A CHARTERED ACCOUNTANT U/S 44AB IF THE INCOME TAX ACT. M/S. APTECH LTD. 20 OTHER DOCUMENTS EVIDENCING THE EXPENSES INCURRED LI KE BILLS/ INVOICES ETC. COULD NOT BE SUBMITTED SINCE THE SAM E WERE NOT AVAILABLE AS THEY WERE LOST IN THE FLOODS ON ACCOUN T OF UNPRECEDENTED HEAVY RAINS THAT OCCURRED IN MUMBAI O N 26 TH JULY 2005 THE FACT OF WHICH IS SUBSTANTIATED BY THE DOC UMENTS OF INSURANCE CLAIMS MADE TO RECOVER THE LOSS SUFFERED ON ACCOUNT OF THE FLOODS THE INSURANCE CLAIM ACCEPTED AND RECOVERED OF RS. 80.50 LAKHS AND THE SUBSEQUENT INTENSIVE RENOVATION THAT WAS MADE IN THE BASEMENT AREA OF APTECH HOUSE. THE APPELLANT COMPANY WAS PREVENTED BY SUFFICIENT R EASON BEYOND ITS CONTROL TO SUBMIT THE BILLS/ VOUCHERS RELATIN G TO THESE EXPENSES. THE EXPESES SHOULD NOT BE DISALLOWED ON ACCOUNT OF INABILITY TO FURNISH THE NECESSARY EVIDENCES ON ACCOUNT OF FORCE MAJURE. SINCE THE EXPENDITURE IS CORROBORATED BY CIRCUMSTAN TIAL EVIDENCE OF DEMERGER SCHEME APPROVED BY THE HONOURABLE HIGH COU RT I ACCEPT THE PLEA OF THE APPELLANT THAT THE DISALLOWANCE OF THE SAID EXPENSES TO THE EXTENT OF RS. 30 00 000/- ON ADHOC BASIS IS NOT WARRANTED. I ACCORDINGLY ALLOW GROUND NO.7 AND DELETE THE ADDI TION OF RS 30 00 000/- 44. AGGRIEVED THE REVENUE IS ON APPEAL BEFORE US. A S POINTED OUT BY THE LEARNED CIT(A) THE FACT THAT THE EXPENDITURE W ERE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF THE BUSINESS IS NOT DIS PUTED. THE EXPENDITURES WERE ALSO AUDITED. THE ASSESSEE HAD EX PLAINED THE EXTRAORDINARY CIRCUMSTANCES UNDER WHICH THEY WERE N OT ABLE TO FURNISH THE SUPPORTING THE DOCUMENTS. THE SAME IS NOT DOUBT ED. THE ASSESSING OFFICER HAD NOT POINTED OUT THAT ANY OF THE EXPENDI TURE WAS UNREASONABLE OR HIGH. IN THE CIRCUMSTANCES CONSIDERING THE EXTR AORDINARY CIRCUMSTANCES UNDER WHICH THE ASSESSEE WAS PREVENTE D FROM FURNISHING THE SUPPORTING EVIDENCE WE CONCUR WITH THE CIT(A) THAT ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THIS CASE NO ADHOC DISA LLOWANCE IS CALLED FOR FROM THE EXPENSES. WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE REVENUES APPEAL ON THIS ISSUE. 45. THE NEXT GROUND OF APPEAL BY THE REVENUE IS AGA INST CIT(A) DELETING THE ADDITION OF PROVISION FOR DOUBTFUL DEB TS OF RS 595 24 304/- WHILE COMPUTING BOOK PROFIT U/S 115JB. FROM THE ACC OUNTS OF THE M/S. APTECH LTD. 21 ASSESSEE IT WAS SEEN THAT THE ASSESSEE HAD MADE PRO VISIONS OF RS 595 24 304/- ON ACCOUNT OF PROVISIONS FOR DOUBTFUL DEBTS. WHILE THE ASSESSEE ADDED BACK THE PROVISIONS FOR DOUBTFUL DEB TS IN ITS COMPUTATION OF TOTAL INCOME THE SAME WAS NOT ADDED TO THE BOOK PROFIT IN ORDER TO CALCULATE MINIMUM ALTERNATE TAX (MAT) U/S 115JB OR THE IT ACT 1961. BEFORE THE AO THE ASSESSEE SUBMITTED THAT THE PROVI SIONS FOR DOUBTFUL AND ADVANCES DO NOT REPRESENT PROVISION FOR UNASCER TAINED LIABILITIES BUT ARE PROVISIONS MADE ON A CAREFUL ESTIMATE OF THE RE ALIZABLE VALUE OF THE ASSETS. THUS THERE CANNOT BE ANY ADDITION ON ACCOUN T OF PROVISION FOR DOUBTFUL DEBTS AND ADVANCES. 46. THE AO DID NOT ACCEPT THE PLEA OF THE ASSESSEE AND HELD THAT PROVISION FOR BAD DEBT IS IN THE NATURE OF CONTINGE NCY MADE IN THE ACCOUNTS OF THE ASSESSEE. THE AO THUS ADDED TO THE BOOK PROFIT U/S 115JB OF THE ACT THE PROVISION FOR DOUBTFUL DEBT OF RS 5 95 24 304/- 47. ON APPEAL THE CIT(A) ALLOWED THE ASSESSEES CLA IM OBSERVING AS UNDER: IN MY VIEW THE DOUBTFUL DEBTS AND ADVANCES FOR WHI CH THE PROVISIONS HAVE BEEN MADE ARE NOT LIABILITIES OF T HE APPELLANT COMPANY. THEY ARE THE ASSETS OF THE COMPANIES. THES E PROVISIONS FOR DOUBTFUL DEBTS AND ADVANCES ARE MADE ON A REASO NABLE ESTIMATE OF THE REALIZABLE VALUE OF THE ASSETS. THESE PROVIS IONS ARE NOT FOR ANY LIABILITY OF THE APPELLANT COMPANY. THUS THERE IS NO QUESTION OF MAKING ANY ADDITION ON ACCOUNT OF PROVISION FOR DOU BTFUL DEBTS AND ADVANCES TO THE NET PROFITS AS PER PROFIT AND LOSS ACCOUNT WHILE COMPUTING PROFIT UNDER SECTION 115JB. THIS CONTENTI ON OF THE APPELLANT IS SUPPORTED BY THE DECISION IN THE FOLLO WING CASES: 1. USHA MARTIN INDUSTRIES LTD V CIT (2003)81 TTJ 518 ( CAL) 2. N.W.EXPORTS LTD V CIT(2003) SOT 136 (MUM) 3. EICHER MOTOR LTD V CIT (2004) 1 SOT 1 (INDORE) 4. COMMISSIONER OF INCOME TAX V EICHER LTD (2006) 287 ITR 170(DELHI) 5. IBM INDIA LTD. VS CIT (2007) 108 TTJ 531 (BANG) 6. PEERLESS GEN. FIN & INV. CO. LTD V ACIT (2007) 107 TTJ 186 (KOL) THUS I AM OF THE VIEW THAT THE AO HAS ERRED IN ADDI NG PROVISION FOR DOUBTFUL DEBTS OF RS 595 24 304/- TO NET PROFIT AS PER PROFIT AND LOSS ACCOUNT OF THE APPELLANT COMPANY WHILE COMPUTI NG BOOK PROFITS U/S 115JB. THE GROUND IS DECIDED IN FAVOUR OF THE A PPELLANT. M/S. APTECH LTD. 22 48. AGGRIEVED THE REVENUE IS ON APPEAL BEFORE US. W HILE COMPUTING THE BOOK PROFITS U/S 115JB THE ASSESSEE HAS STARTED WI TH THE FIGURE OF RS. 85 907 470/- WHICH IS AFTER APPROPRIATIONS BUT IN ARRIVING AT THAT FIGURE THE PROVISION FOR DOUBTFUL DEBT AND ADVANCES OF RS 595 24 304/- HAS BEEN DEDUCTED AS PART OF ADMINISTRATIVE EXPENSES. T HE AO HAS ADDED BACK THIS FIGURE IN COMPUTING THE BOOK PROFITS U/S 115JB AND THE CIT(A) DELETED THE ADDITION. EVENTHOUGH THE APEX COURT IN THE CASE OF HCL COMNET HAS HELD THIS ISSUE IN FAVOUR OF THE ASSE SSEE PROVISIONS OF SEC 115JB HAVE BEEN AMENDED BY THE FINANCE ( NO 2) ACT 2009 WITH RETROSPECTIVE EFFECT FROM 1.4.2001 WITH AN INTRODUC TION OF EXPLANATION (I) WHICH READS AS UNDER: (I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTIOJN IN VALUE OF ANY ASSET. 49. THE RETROSPECTIVE AMENDMENT HAS NULLIFIED THE D ECISION OF THE APEX COURT IN THE CASE OF HCL COMNET. IN VIEW OF T HE RETROSPECTIVE AMENDMENT TO SEC 115JB WITH INTRODUCTION OF EXPLANA TION(I) W.E.F 1.4.2001 WE ALLOW THE REVENUES APPEAL AND HOLD TH AT IN COMPUTING THE BOOK PROFITS U/S 115JB THE PROVISION FOR DOUBTFUL D EBT AND ADVANCES OF RS 595 24 304/- CANNOT BE EXCLUDED AND IS REQUIRED TO BE ADDED BACK. 50. THE NEXT GROUND OF APPEAL IS AGAINST CIT(A) IN ALLOWING DEDUCTION U/S 80HHC WHILE COMPUTING BOOK PROFIT U/S 115JB WHE N THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 80HHC IN ABSENCE OF POSITIVE GROSS TOTAL INCOME. THE ASSESSEE IN THEIR RETURN OF INCOM E CLAIMED DEDUCTION OF RS 9 18 941/- BEING PROFITS ELIGIBLE FOR DEDUCTI ON U/S 80HHC OF THE ACT WHILE COMPUTING BOOK PROFITS U/S 115JB OF THE ACT. THE AO DID NOT ALLOW THE DEDUCTION AND ON APPEAL THE CIT(A) ALLOWE D THE DEDUCTION. 51. AGGRIEVED THE REVENUE IS ON APPEAL. WE FIND THA T THIS ISSUE OF ALLOWING DEDUCTION FOR EXPORTS WHILE COMPUTING THE BOOK PROFITS SHOULD BE BASED ON THE BOOK PROFITS AND NOT ON THE RELIEF U/S 80HHC COMPUTED M/S. APTECH LTD. 23 UNDER THE NORMAL PROVISIONS OF THE ACT HAS BEEN UPH ELD BY THE APEX COURT IN THE CASE OF AJANTA PHARMA LTD VS CIT 327 I TR 305 (SC). RESPECTFULLY FOLLOWING THE DECISION OF THE APEX COU RT IN THE CASE OF AJANTA PHARMA LTD (SUPRA) WE DISMISS THE REVENUES APPEAL ON THIS ISSUE. 52. THE LAST GROUND IN THE REVENUES APPEAL IS AGAI NST CIT(A) IN ALLOWING DEDUCTION OF PROVISION OF WEALTH TAX WH ILE COMPUTING BOOK PROFIT U/S 115JB. THE ASSESSEE WHILE COMPUTING THE BOOK PROFITS ADDED BACK PROVISION FOR INCOME TAX BUT NOT PROVISION FOR WEALTH TAX RS 81 024/- TO THE NET PROFIT AS PER PROFIT AND LOSS A CCOUNT OF THE APPELLANT WHILE COMPUTING BOOK PROFITS U/S 115JB OF THE ACT. AO ADDED BACK RS 81 024 TO THE BOOK PROFIT U/S 115JB. 53. ON APPEAL THE CIT(A) ALLOWED THE ASSESSEES APP EAL OBSERVING AS UNDER: AS DISCUSSED IN GROUND 9 ABOVE ONLY 13 ITEMS OF AD DITIONS AND DEDUCTIONS AS SPECIFIED IN THE EXPLANATION TO SECTI ON 115JB(2) SHOULD BE ADJUSTED IN BOOK PROFITS U/S 115JB. CLAU SE (A) OF EXPLANATION TO SECTION 115JB (2) PROVIDE THAT THE AMOUNT OF INCOME TAX PAID OR PAYABLE AND THE PROVISION THEREFORE SH OULD BE ADDED BACK TO THE NET PROFIT AS PER PROFIT AND LOSS ACCOU NT TO ARRIVE AT THE BOOK PROFITS. HOWEVER IN MY VIEW WEALTH TAX IS NO T INCOME TAX AND THEREFORE THE APPELLANT CONTENDS THAT THE SAME SHOU LD NOT BE ADDED BACK TO THE NET PROFITS WHILE COMPUTING BOOK PROFIT S U/S 115JB. THIS GROUND IS ALLOWED IN FAVOUR OF THE APPELLA NT. 54. AGGRIEVED THE REVENUE IS ON APPEAL. WE FIND THA T THE JURISDICTIONAL HIGH COURT IN THE CASE OF ESCHJAY FORGINGS LTD ( 25 1 ITR 15) HAS HELD THAT PROVISION FOR WEALTH TAX IS NOT BE ADDED TO TH E BOOK PROFITS WHILE COMPUTING BOOK PROFITS U/S 115J. THE RATIO WILL BE EQUALLY BE APPLICABLE TO SEC 115JB ALSO. RESPECTFULLY FOLLOWING THE DECIS ION OF THE JURISDICTIONAL HIGH COURT WE UPHOLD THE ORDER OF TH E CIT(A) THAT PROVISION FOR WEALTH TAX OF RS. 81 024/- SHOULD NOT BE ADDED BACK WHILE M/S. APTECH LTD. 24 COMPUTING THE BOOK PROFITS U/S 115JB AND DISMISS TH E REVENUES APPEAL ON THIS ISSUE. 55. IN THE RESULT THE REVENUES APPEAL IS PARTLY AL LOWED. ORDER PRONOUNCED ON THIS 25 TH DAY OF JANUARY 2010. SD/- SD/- (P.M. JAGTAP) ( ASHA VIJAYARAGHAVAN) (ACCOUNTANT MEMBER) (JUDICI AL MEMBER) MUMBAI DATED 25 TH JANUARY 2010. RJ COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CENTRAL - I CONCERNED 5. THE DR H BENCH TRUE COPY BY ORDER ASST. REGISTRAR I.T.A.T MUMBAI M/S. APTECH LTD. 25 DATE INITIALS 1 DRAFT DICTATED ON: 3.01..2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 06.01.2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ S R. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE ON WHICH FILE GOES TO AR 10. DATE ON DISPATCH OF ORDER: _________ ______