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2015 (7) TMI 1023 - ITAT MUMBAI

2015 (7) TMI 1023 - ITAT MUMBAI - TMI - Provision for bad and doubtful debts in computing book profit u/s.115JB - computing the income under the MAT provisions - Held that:- In the facts of the case of Echjay Forgings (2001 (2) TMI 56 - BOMBAY High Court) were that in computing the book profits of the assesseecompany under section 115JB of the Act,the AO had disallowed the deductions claimed by the assessee on account of payment of wealth-tax,provisions for doubtful debts, gratuity, bonus and am .....

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- Held that:- Addition of Provision for discretionary terminal benefits in the form of additional gratuity in computing Book Profit u/s 115J had been deleted by the Tribunal in assessee's own case in AY. 1990-91 as relied upon the cases of National Hydro Electric Power Corporation(2010 (7) TMI 969 - PUNJAB AND HARYANA HIGH COURT),Hewlett Packard India (P.) Ltd.(2008 (3) TMI 23 - HIGH COURT OF DELHI ),Bechtel India (P) Ltd.(2007 (11) TMI 2 - HIGH COURT , DELHI)and Dresser Valve India (P) Ltd.(200 .....

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ssessee.

Addition made in respect of Capital Expenditure debited to P&L account in computing book profit u/s 115JB - CIT(A) deleted addition - Held that:- Expenditure had been disclosed in Clause 17(a) of the tax Audit Report and same were added to total income while computing income under the normal provisions of the Act.The AO made the addition of the above items under the MAT provisions.The FAA deleted the addition relying on the decision of the Apex Court in Apollo Tyres Ltd. (200 .....

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s not disputed by the AO,that the addition made by him was not tenable in view of the decision of the Apex Court in the case of Apollo Tyres Ltd.(2002 (5) TMI 5 - SUPREME Court).- Decided in favour of assessee.

Allowance of expenditure on temporary structures at customer’s site - FAA held that the expenditure had been incurred for setting up temporary arrangement for providing RMC to the contractors at their location,that it was s revenue in nature and was incurred wholly and exclusiv .....

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ich provided for disallowance of employer's contribution to any fund for the welfwere of employees if not paid before the due date specified in Sec.36(1)(va)was deleted by the Finance Ac, 2003,that the issue was favorably covered by the decision of Hon'ble Apex Court delivered in the case of Alom Extrusions Ltd.(2009 (11) TMI 27 - SUPREME COURT )wherein it was held that omission of second proviso and the corresponding amendment of first proviso by Finance Act, 2003,were curative in nature and we .....

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A had relied upon various case laws and decided the issue without examining the whole scheme.On a query by the Bench the AR informed that the matter of Reliance Industries Ltd. [2003 (10) TMI 255 - ITAT BOMBAY-J ] was sent back by the Hon’ble Supreme Court to the Hon’ble Bombay High Court to decide afresh after considering the provisions of the scheme.In our opinion,any scheme in itself cannot be treated revenue or capital in nature-to arrive at a definite conclusion one has to consider the sche .....

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order.So,confirming his order ground raised by the AO is rejected. - Decided in favour of assessee.

Disallowance of discarded capital assets and Cost of dismantling - CIT(A) deleted addition - Held that:- The identical claim for earlier years in Assessee’s own case had been allowed by ITAT in AY.s.1991-92 to 92-93,96-97,97-98 & 99-00 had not been challenged before the Hon’ble High Court.- Decided in favour of assessee.

Deletion of interest levied u/s.234D -s consequential i .....

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ld that the compensation received for restraining the assessee from carrying on competitive business was a capital receipt.is well settled that a liability cannot be created retrospectively. In the present case, compensation received under the noncompetition agreement became taxable as a capital receipt and not as a revenue receipt by specific legislative mandate vide section 28(va) and that too with effect from April 1, 2003. Hence, the said section 28(va) is amendatory and not clarificatory. .....

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e of hearing before us,the AR fairly conceded that the issue was covered against it due to insertion of clause (i) to Expl.1to Sec.115 JB vide Finance Act, 2009 w.r.e.f.01-04-2001.- Decided in favour of revenue.

Profit on sale of fixed assets in computation of book profit u/s 115JB - assessee had claimed exclusion of Profit on sale of Fixed Assets(Net)in computing Book Profit - Held that:- In the absence of any provision for exclusion of capital gains exempted in the computation of bo .....

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e.

Claim of additional gratuity on provision basis - Held that:- The issue was decided in favour of the assessee in the earlier AY.s - Decided against revenue.

Interest u/s.234B on short payment of advance tax over assessed tax - CIT(A) deleted addition - Held that:- AR correctly relied upon the case of Jupiter Bio-Science Ltd.(2011 (8) TMI 268 - KARNATAKA HIGH COURT ) and argued that the amendment with retrospective effect became part of the Act after the assessee had file .....

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had definitely arisen in the accounting year and was capable of being estimated with reasonable certainty, the deduction should be allowed although the liability may have to be quantified and discharged at a future date.- Decided against revenue.

Deduction u/s 35DDA - Held that:- There is no doubt that the assessee was entitled to the deduction and it had not claimed the same in the return.It is also a fact that before the FAA it lodged its claim. FAA had rightly allowed the claim ra .....

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ome was ultra vires the Board's powers and that the AO was not bound by the same.AO was to assess the correct tax liability in accordance with law and even that if there was wrong admission of income by the assessee,it would not binding on the assessee - Decided against revenue.

Unutilised MODVAT credit added to the closing stock without making similar addition in opening stock - FAA deleted addition - Held that:- We are unable to understand the logic behind filing the appeal by the A .....

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e AO and the CIT had stopped,the unwanted and frivolous litigation would have not taken place.- Decided against revenue.

Non exclusion of profit on sale of investments in computing Book Profit u/s.115JB - Held that:- The Tribunal decided the issue against the assessee while adjudicating the appeals for the AY.s.1998-99,99-2000,2001-01.We find that the Hon’ble Bombay High Court has dealt the issue of non exclusion of profit on sale of investments in computing Book Profit u/s.115JB of t .....

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s should be included for the purposes of computing book profits - Decided against assessee.

Written off insurance and railways claims - Held that:- The matteR is covered in favour of the assessee by the judgment of Morgan Securities & Creditors(P.)Ltd. [2006 (12) TMI 106 - DELHI High Court] . Assessee was entitled to the deduction on account of bad debts in the previous year in which it had been written off in the books. Identical issue had been sent back to the file of the AO by the .....

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of the CIT(A)-I,Mumbai,the Assessing Officer(AO) and the assessee have filed cross appeals for AY.2002-03,raising various Grounds of Appeal/ Additional ground of appeal: ITA No.3787/Mum/2009(02-03) Revenue sAppeal: On the facts and the circumstances of the case and in law, the CIT(A) erred in deleting only the addition of ₹ 8,88,04,704/to closing stock on account of unutilised Modvat credit without considering the fact that similar addition was made in opening stock also and in the assess .....

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ade in respect of provision for Director's Retirement Benefit at ₹ 2,84,53,850/in computation of book profit u/s 115JB of the Act. 3.On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made in respect of Excess expenditure on Voluntary Retirement of ₹ 2,96,00,000/in computation of book profit u/s 115JB of the I TAct;" 4.On the facts and in the circumstances of the case and law, the Ld. CIT(A) erred in deleting the addit .....

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deleting the addition made in respect of Revenue generated from trial run production at ₹ 73,48,69,876/in computation of book profit u/s 115JB of the I T Act. 7) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance made in respect of revenue expenditure on temporary structures at customer's site of ₹ 49,94,501/. 8) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowa .....

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case and in law, the Ld. CIT(A) erred in deleting the disallowance of discarded capital assets and cost of dismantling at ₹ 1,33,95,494/. 12) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the interest levied u] s 234D of the Act at ₹ 52,74,381/. 13) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made in respect of noncompete fees of ₹ 75,00,000/and compensation for term .....

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on of book profit u/s 115JB of the Act." 16)On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee's claim of additional gratuity amounting to ₹ 1,93,13,467/." 17)On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the levied u/s 234B of the I TAct. I8) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition on account of provisio .....

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ances of the case and in law, the Ld. CIT(A) erred in allowing the assessee's claim of the deduction u/s 35DDA to the assessee amounting to ₹ 1,53,00,536/; The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the A.O. be restored. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. ADDITIONAL GROUNDS OF APPEAL 1. "On the facts and in the circumstances of the case and in view of the Supreme Court .....

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3. "On the facts and in the circumstances of the case the Ld. CIT(A) ought not to have granted the relief on the basis of the decision in the case of Reliance Industries Ltd. as the facts of the appellant case is different from that of the facts of the case relied on by the Ld. CIT(A) as the case : of Reliance Industries relates to State of Maharashtra, whereas in the assessee's case the schemes relating to other states were different where the income is Revenue in nature." 4. &qu .....

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o.4241/Mum/2007(02-03) Assessee s Appeal: 1. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) erred in confirming the addition of Deferred Tax Liability of ₹ 20,50,00,000/ in computing Book Profit u/ s 115JB of the Act. 2. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) grossly erred in not excluding profit on sale of investments of ₹ 9,12,95,418/in computation of Book Profit u/ s 115JB. 3. That on the facts and in the circum .....

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onfirming disallowance of Railways / Insurance claims written off in the Profit & Loss account of ₹ 50,01,000/in computing total income under normal provisions of the Act. 6. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) erred in confirming allowance of depreciation allowed on the written down value of block of assets as on 01042001 as per the department's record without considering the fact that the appellant had disclaimed depreciation in earlier y .....

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o add, to amend, modify, rescind, supplement or alter any of the Grounds stated hereinabove, either before or at the time of hearing of this appeal. Assessee-company,engaged in the business of manufacturing and sale of cement,filed its return of income on 31.10.2002,declaring its income at Rs.(-)99.48Crores.The Assessing Officer (AO) finalised the assessment on u/s.143(3)of the Act on determining its income at Rs.(-)8,11,61,032/- under the normal provisions and at ₹ 2,95,81,62,995/-under t .....

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employees incentives, mount carried to General, Amortization and Debenture Redemption Reserve and the amount of dividend provided while calculating the income for the year under appeal. On perusal of the computation of income u/s. 115JB of the Act,he found that it had not added back the following incomes/expenditure to the book profit.The AO observed that the following item were either not ascertained or they did not pertain to the period under consideration,that same needed to be added to the .....

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addition of ₹ 11,91,81,266/- to the its total income,while computing the income under the MAT provisions. 2.1.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authortiy(FAA).After considering the assessment order and the submissions of the assessee,the FAA held that provision for bad and doubtful debt was diminution in the value of assets and not liability,that addition made in computing total income under normal provisions of the Act was not re .....

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.We find that in the facts of the case of Echjay Forgings(supra)were that in computing the book profits of the assesseecompany under section 115J of the Act,the AO had disallowed the deductions claimed by the assessee on account of payment of wealth-tax,provisions for doubtful debts, gratuity, bonus and amounts debited to the profit and loss account in respect of foreign exchange rate difference, on the ground that the above items were to be added back to the net profit as shown in the profit an .....

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g Officer that the provision for doubtful debts made by the assessee was in respect of an unascertained liability,nor had the Department disputed the assessee s claim that it was an ascertained liability. The amount could not be included in the net profits. (iii) That since the provision for gratuity was made on the basis of actuarial calculations, it was an ascertained liability and the said amounts could not be added to the net profits. (iv) That the provision for payment of bonus to the emplo .....

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unt under the Companies Act. While applying section115J, the Assessing Officer had to go by the computation of book profits as permitted under the Companies Act. Book profits were the net profits as shown in the profit and loss account prepared in accordance with Schedule VI to the Companies Actsubject to certain adjustments. Since the amount on account of foreign exchange fluctuations had been debited to the profit and loss account in accordance with the Companies Act, the same could not be add .....

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115J had been deleted by the Tribunal in assessee's own case in AY. 1990-91(ITA No. 2361/Mum./95).He further relied upon the cases of National Hydro Electric Power Corporation(45DTR 117),Hewlett Packard India (P.) Ltd.(314 ITR 55l),Bechtel India (P) Ltd.(2 DTR 145)and Dresser Valve India (P) Ltd.(30 SOT 495) We have perused the material and following our order for Ground no.1 we uphold the order of the FAA who had decided the issue in pursuance of the judgment of the jurisdictional high Cour .....

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normal computation,the addition was also made by the AO while computing the Book Profit. Relying on the decision of the Apex Court,delivered in the case of Apollo Tyres Ltd.(255 ITR 273),the FAA deleted the addition made by the AO. 4.1.Before us,the AR relied upon the case that find place in the earlier paragraphs of our order.He also referred to the matters of Usha Martin Industries Ltd. (104 ITD 249) and Nicholas Piramal India Ltd.(147 ITD 675). We find that the order of the FAA is based on th .....

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sessee had debited l/5th of the expenditure on VRS AY.s. 1998-99 to 2000-01and had added the same in computing total income under normal provisions.Since it was added in normal computation,the addition was also made in computing Book Profit. As the facts with regarding the ground are similar to the earlier ground,so,following it we decide ground no.4 against the AO. 6.Next ground pertains to deletion of addition made in respect of Capital Expenditure debited to P&L account in computing book .....

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Report and same were added to total income while computing income under the normal provisions of the Act.The AO made the addition of the above items under the MAT provisions.The FAA deleted the addition relying on the decision of the Apex Court in Apollo Tyres Ltd. (supra). Following our orders for the earlier grounds,we dismiss this ground also,as it also deals with computation of income u/s.115JB of the Act. 7.Deletion of addition made in respect of Revenue generated from trial run production .....

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that the treatment in the books of accounts was is as per guidance note issued by the Institute of Chartered Accountants of India,that same was not disputed by the AO,that the addition made by him was not tenable in view of the decision of the Apex Court in the case of Apollo Tyres Ltd. (supra). We find that the addition made by the AO does not fall under any of the clauses specified under the Explanation to section 115JB of the Act.Therefore, in view of the decision of the Apollo Tyres Ltd.(sup .....

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he amount debited was claimed as allowable expenditure.He held that the expenditure of RMC plants represented capital expense and was eligible for depreciation. 8.1.In the appellate proceedings the FAA held that the expenditure had been incurred for setting up temporary arrangement for providing RMC to the contractors at their location,that it was s revenue in nature and was incurred wholly and exclusively for the purpose of business. 8.2.Before us,the DR supported the order of the AO.The AR con .....

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for the AY.2000-01in following manner: 18.The third dispute is regarding allowability of claim of expenditure in respect of temporary structures amounting to ₹ 52,07,469/. The assessee had incurred expenditure on setting up of temporary structures at client sites for manufacture of ready mix concrete (RMC). The assessee had claimed expenditure as revenue is nature. The AO however held that temporary structures were in existence for more than 12 months and were of the nature of plant and m .....

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ound pertains to disallowance of expenditure on temporary structure at customer site. We note that capital cost of RMC plant has been duly capitalized in the books and the temporary structures on site, which is not owned by the assessee has no relevance once the job at the site is over/completed. Identical view was taken for Assessment Year 200001, thus, in the absence of any contrary facts we find no infirmity in the conclusion drawn by the ld. CIT(A). Respectfully,following the above we decide .....

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d on 09-06-2001.Considering these facts the made a disallowance of the disputed sum on the ground that there had been delay in payment of the amount by the assessee. 9.1.In the appellate proceedings,the FAA deleted the disallowance of Employer's Contribution to Pension fund of ₹ 5,00,790/ - in view of See. 43B.However, disallowance on account of delay in Employee's Contribution to ESIC was confirmed. 9.2.Before us,the DR supported the order of the AO.The AR contended that the secon .....

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e and were effective retrospectively w.e.f. 1st April, 1988, that the contribution of ₹ 5, 00, 790/- had been deposited before the due date of filling of Return of income u/ s 139(1), deduction should be allowed in computing taxable income.He referred to the cases of Vinay cement Ltd.(213CTR268),B.D.P.S Softwwere Ltd.(340 ITR 375),Devidayal (Sales) Pvt. Ltd. (3 SOT 814). After hearing the rival sides we are of the opinion that the issue is squarely covered against the AO by the cases cited .....

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a taxable receipt. 10.1.Aggrieved by the order of the AO,the assessee preferred an appeal before the FAA.During the course of the appellate proceedings,the assessee argued that the aforesaid subsidy is in the nature of capital receipts in its hands,being granted under 'West Bengal Incentive Scheme, 1993' for the purpose of setting up of industries,that the issue in dispute was covered in its favour by the decision of the Hon'ble Apex Court in the case of P.I.Chemicals Ltd.(210ITR830) .....

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273 - Mum.SB) wherein it has been held that the object for which the subsidy is given is decisive.The assessee also referred to the case of M/s Ambuja Cement Eastern Ltd.(ITA No.2293/Kol/2005). After considering the submissions of the assessee and the assessment order,the FAA held that the subsidy so received was on capital account and was an incentive for industrialisation. The said contention is also supported by the decision in the case of P.I. Chemicals Ltd. (Sura) Reliance Industries Ltd. ( .....

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for the AY.2001-02(ITA No.4562/M/07).He also relied upon the order of the Kolkata ITAT delivered in the case of Ankit India Limited [ITA/ 330/Kol/2010)wherein sales tax remission granted under the same scheme of state of West Bengal had been held to be capital in nature,that the Hon ble Kolkata High Court had dismissed the appeal of the Revenue and had held that incentive of sales tax remission granted under the scheme is capital in nature.AR relied upon the Circular No. 142 dated 01-08- 1974 is .....

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atter of Reliance Industries Ltd.was sent back by the Hon ble Supreme Court to the Hon ble Bombay High Court to decide afresh after considering the provisions of the scheme.In our opinion,any scheme in itself cannot be treated revenue or capital in nature-to arrive at a definite conclusion one has to consider the scheme in entirety.We feel that the issue needs further investigation.Therefore,in the interest of justice,the issue is restored back to the file of the AO who would decide the matter a .....

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f double disallowance, the FAA deleted the addition of provision for deferred tax. 11.1.The AR left the issue to the discretion of the Bench.The AR stated that as per the Annexure - 10 of the Tax Audit Report aggregate disallowance u/s 40(a) of ₹ 35,82,33,019/- [Rs.36,04,35,860/- Less ₹ 22,02,841/-] was arrived after including provision for Deferred Tax Liability of ₹ 20,50,00,000/-,that in computation of total income the assessee had added back the entire disallowance u/s.40(a .....

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he assessee had offered the receipts from scraped old and unserviceable assets to tax and had claimed the expenditure incurred to facilitate such earnings.He disallowed the expenditure claimed by the assessee.Following the order of earlier years, FAA deleted the additions made by the AO. 12.1.Before us,representatives of both the sides agreed that the identical claim for earlier years in Assessee s own case had been allowed by ITAT in AY.s.1991-92-(ITA/1105/Mum/97),1992- 93-(ITA/3961/Mum/97),199 .....

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erest u/s.234D of the Act.In the appellate proceedings the FAA,following the decision of West Cost Paper Mills Ltd.(ITA No.275/Mum/05)deleted the of interest levied u/s.234D of the Act. The DR left the issue to the discretion of the Bench and the AR supported the order of the FAA.We find that the issue is consequential in nature and hence needs no interference from our side. 14.No Compete fees(Rs.75,lakhs)and compensation for termination of contract(Rs.2,30,00, 000/-) received on sale of shweres .....

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nd the assessment order,he held that consideration received is on account of transfer of right to carryon any business was taxable,under Section 55(2)(a) and Section 28(va) w.e.f. 01-04-2003,i.e. from AY 2003-04 onwards,that provisions of the said sections were not applicable for the assessment year under consideration. 14.2.Before us,the DR supported the order of the AO.The DR relied upon the cases of GufficChem(P)Ltd.(332ITR602),WintacLtd(360ITR614),NwerendraD.Desai(214CTR190),Real Image Pvt. .....

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Payment received as noncompetition fee under a negative covenant was always treated as a capital receipt till the assessment year 200304. It is only vide the Finance Act, 2002 with effect from April 1, 2003 that the said capital receipt is now made taxable (See section 28(va)). The Finance Act, 2002 itself indicates that during the relevant assessment year compensation received by the assessee under noncompetition agreement was a capital receipt, not taxable under the 1961 Act. It became taxabl .....

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t the AO. Now,we would take up the issue of Compensation for termination of the contract.Before us, the AR stated that the compensation for termination of contract was akin to consideration received for transfer of right to carry on the business,that right to carry on any business was taxable as capital gain w.e.f A.Y. 2003-04,that the above receipt should be treated as capital receipt.He relied upon the cases of H.L.Taneja (7SOT387),T.S.Manocha(5SOT277),N. Sandeep Reddy(95ITD 33).We find that t .....

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-2001. Considering the above,we decide ground no.14 in favour of the AO. 16.Ground no.15 is about profit on sale of fixed assets in computation of book profit u/s 115JB of the Act of ₹ 2,74,14,074/-.Before the AO,the assessee had claimed exclusion of Profit on sale of Fixed Assets(Net)in computing Book Profit.While completing the assessment.However, the FAA allowed the appeal of the assessee. 16.1.The DR supported the order of the AO.The AR referred to the judgments of Northern India Theat .....

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ribunal (supra)and same reads as under: 18. We have considered the rival submissions and perused the materials available on record and the case laws relied upon by both the parties. We have taken into consideration the ratio decidendi of all the decisions relied upon by the rival parties. The omission of reference to some of the cases in the order is either due to their irrelevance or to relieve the order from the repetitive nature of the decisions. Under minimum alternate tax (MAT) provisions, .....

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is discovered that P&L a/c is not drawn up in accordance with Part II and Part III of Sch. VI of the Companies Act. However, the AO cannot disturb the net profit as shown by the assessee where there are no such allegations, fraud or misrepresentation but only a difference of opinion as to whether a particular amount should be properly shown in the P&L a/c or in the balance sheet, (2) If accounting policies, Accounting Standards are not adopted for preparing such accounts and method, rat .....

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Act, 1956 which is different from the financial year under IT Act, 1961. These companies generally prepare two sets of accounts'one for Companies Act and another for IT Act. The reason being different accounting policies, standards, depreciation methods and rates are adopted in two sets of account so that higher profit is reported to shareholders and lower profit for the IT authorities. To curb the above practice only this recalculation of net profit under MAT was incorporated so that there .....

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o the Companies Act or not ? xxxxxxx 22. The issue whether capital gains had to be included in book profits arose before the Bombay High Court in the case of Veekaylal Investment (supra). In that case, the Court held that if for computing the total income under the normal provisions, the capital gain computed under s. 45 of the Act has to be taken into account, it was not understood how in computing the book profits under s. 115J of the Act, the assessee could exclude capital gain. The assessee .....

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uded for the purposes of computing book profits. In the case of Apollo Tyres (supra) the apex Court held that the words "in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act" were made for the purpose of empowering the assessing authority to rely upon the authentic statements of accounts of the company. It was held that while doing so, looking into the accounts of the company, the AO has to accept the authenticity of the accounts with reference to the p .....

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rocedures were complied with, it was not open to the AO to rescrutinize this account and satisfy himself that these accounts have been maintained in accordance with the provisions of the Companies Act. The same view was reiterated in the case of Malayala Manorama Co. Ltd. vs. CIT (2008) 216 CTR (SC) 102: (2008) 6 DTR (SC) 1: (2008) 300 ITR 251(SC) by the apex Court. xxxxxxxxxxxx 24. It is undisputed fact that the longterm capital gain earned by the assessee is included in the net profit determin .....

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ting Standards referred to in subs. (3C) of s. 211 of the Companies Act, and further reported that the balance sheet and P&L a/c read together with the notes thereon, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted. As per audited P&L a/c, the assessee has included longterm capital gain. In the Notes on accounts, it is nowhere mentioned and claimed that though .....

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f longterm capital gain which is exempt under s. 47(iv) of the Act. It is due to fact that the assessee claimed deduction of longterm capital gain from book profit by virtue of being exempted income in the normal provisions of the Act and not because of the reason that the same was not includible in P&L a/c prepared under Part II and Part III of Sch. VI to the Companies Act. In the circumstances, when the assessees themselves have included the capital gains arising from sale of subsidiary in .....

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accounts including P&L a/c and laid before the company at its annual general meeting. Therefore whatever accounting policy adopted for the purpose of preparing the P&L a/c laid before the company should be adopted for computing book profits under s. 115JB. Capital gains on sale of shares were included in computing the profits presented before the shareholders and the same should also be included in computing book profits under s. 115JB. The Kerala High Court in the case of N.J. Jose &am .....

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o the Companies Act, 1956 and to treat the net profit shown therein as book profit. The permissible adjustments in the form of additions and deductions are provided under Explanation to s. 115J(1A) of the Act. No more deductions, rebates or allowances other than what is stated in the said Explanation are available for the computation of book profit. In fact, it is very clear from the non obstante clause in s. 115J(1) that the assessment under s. 115J overrides other provisions of the Act. In fac .....

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e provisions of the Act is less than 30 per cent of the book profit, he has to give up normal assessment and proceed to make assessment. The AO has to opt for the assessment under s. 115J which does not provide for any deduction in terms of s. 54E of the Act. The assessee has no case that the longterm capital gain is not profit includible in the P&L a/c prepared in terms of Sch. VI of the Companies Act. Since there is no provision in Chapter XIIB for deduction of capital gains in the computa .....

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the Act, we do not think this distinction makes any difference because so long as longterm capital gains is part of profit included in the P&L a/c prepared under Chapter VI of the Companies Act, it cannot be excluded unless so provided under Explanation to s. 115J(1A) of the Act. In the absence of any provision for exclusion of capital gains in computation of book profit under the above provision, assessee is not entitled to the exclusion claimed. In other words, s. 54E has no application i .....

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his information is disclosed in the notes to the accounts, it would clearly fall within the ambit of the Explanation to s. 115J'Notes to the accounts form part of the P&L a/c by virtue of subs. (6) of s. 211 of the Companies Act and thus the depreciation which is not charged to P&L a/c but is disclosed in the notes to the accounts would come within the ambit of the expression 'show in the P&L a/c' occurring in Explanation to s. 115J'Further, the net profit of a compan .....

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r is less'If unabsorbed depreciation can be reduced from the net profit to arrive at book profit, there is no reason why current year's depreciation which is not charged to the P&L a/c cannot be deducted from the net profit in determining book profit." xxxxxxx 25. It is to be noted that the assessee has not made any claim of deduction of longterm capital gain from the book profit, which goes to show that capital gain as such is not deductible from the net profit prepared in acco .....

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ned in Parts II and III of Sch. VI to the Companies Act, it cannot be excluded from the net profit unless so provided under Explanation to s. 115JB of the Act for the purpose of computing book profit under s. 115JB of the Act. In the absence of any provision for exclusion of capital gains in the computation of book profit under the above provision, the assessee is not entitled to the exclusion claimed. In other words, s. 47(iv) of the Act has no application in the computation of book profit unde .....

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e learned counsel for the assessee strongly contended that the provisions contained in subs. (5) of s. 115JB of the Act to contend that since all other provisions of this Act shall also apply to every assessee, being a company, mentioned in the s. 115JB of the Act, the assessee is entitled to reduce the longterm capital gain exempted under s. 47(iv) of the Act. For this proposition the assessee relies on the decision of the Mumbai Tribunal in the case of Frigsales (supra). In that case, it is no .....

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ew that all other provisions of the Act would continue to operate and, therefore, the exempt income under s. 50 would remain exempted as per the provisions of subs. (4) of s. 115JA. The Tribunal further observed that in s. 115JA, a new subs. (4) has been brought on the statute, which was not there in s. 115J, and subs. (4) has been introduced first time in s. 115JA. The Tribunal, therefore, had taken a view that the operation of non obstante clause is now limited only to determine book profits a .....

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n, a reference to the decision of Hon'ble Bombay High Court in the case of CIT vs. Veekaylal Investment Co. (P) Ltd. (supra) was made but the same was not discussed or deliberated upon or relied upon by the Tribunal by observing that this decision was rendered as per the provisions of s. 115J, which is a selfcontained code, though a new subs. (4) has been inserted first time in s. 115JA of the Act. We have carefully gone through the aforesaid decision of the Tribunal in the case of ITO vs. F .....

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f s. 115JA reads as "save as otherwise provided in this section, all other provisions of the Act shall apply". It is, thus, clear that all other provisions of the Act shall apply but subject to the provisions otherwise provided in s. 115JA of the Act. In other words, the provisions specifically provided in s. 115JA shall have overriding effect over all other provisions of the Act. The provision for computing book profit by increasing or reducing the net profit as shown in the P&L a .....

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s of computation of book profit as provided in Explanation appended thereto are concerned. The Tribunal in the case of ITO vs. Frigsales (India) Ltd. (supra) has not applied the ratio of decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) and Hon'ble Bombay High Court in the case of CIT vs. Veekaylal Investment Co. (P) Ltd. (supra) for the reason that these decisions were rendered in the context of provisions of s. 115J of the Act, but the fact remains that the pro .....

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". Having regard to expression "save as otherwise provided in this section" used in this subs. (5) of s. 115JB of the Act, we are of the considered opinion that the expression "save as otherwise provided in this s. 115JB" clearly means that what is provided in s. 115JB should be religiously followed and anything over and above the matter provided in s. 115JB will be subject to other provisions of the Act. The provisions of s. 115JB have an overriding effect upon other pr .....

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sions and manner of computation of book profits, all the provisions of the tax including the provision relating to charge, definitions, recoveries, payment, assessment, etc., would apply in respect of the provisions of this section and in view of the scheme of the IT Act. 27. It is not the intension of the legislature to substitute the other provisions of the Act in place of what is specifically made available in s. 115JB insofar as the computation of book profit under s. 115JB of the Act is con .....

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ection itself. So, the computation of book profit is to be done strictly as per the Explanation to s. 115JB of the Act and hence, no assistance from any other section of the Act can be taken for that purpose. The case law relied upon by learned Departmental Representative in the cases of Apollo Tyres Ltd. (supra) and HCL Comnet Systems & Services Ltd. (supra) had clearly laid down a law that the AO has only limited power of making increases and reductions to the net profit shown in the P& .....

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ided for in the Explanation to s. 115J of the Act. The capital gain in question is exempt under s. 47(iv) of the Act but the same is not covered by any of the cls. (i) to (vii) of Expln. (1) to s. 115JB of the Act. xxxxxxxxxxxxx 29. The next issue for consideration is the character of exemption granted under ss. 47(iv), 47(v) and 50. These are not total exemptions but in the nature of deferment of tax. The exemption granted under s. 47(iv)/47(v), in respect of transfer from/to holding company to .....

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ng company and the subsidiary, gets included in the capital gains arising from the sale of the asset by the transferee. There can be no such adjustments in computing book profits. Further the capital gains exempt under ss. 47(iv)/47(v) is computed by taking cost of acquisition (and in some cases notional market value as on 1st April, 1984) as indexed. But in the case of book profits, the profits are the simple difference between the sale price and cost of acquisition. Hence the capital gains exc .....

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ration reduces the WDV of those assets also, resulting in a lower depreciation and higher profits. Thus taxation of the profits deferred and exempted. Further the rate of depreciation and consequently the WDV of the asset sold will be different under the IT Act from that in the books. Then the profits on sale of assets as per books will not be the same as capital gains computed under s. 50. We therefore do not find any force in the argument; profits exempt under s. 50 should be excluded in compu .....

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lso the same is specifically provided. Deductions under ss. 80HHC, 80HHD, 80HHE,80HHF and deductions under ss. 80IA, 80IB were specifically excluded from the computation of book profits at various times. Considering the totality of the facts and circumstances of the case as discussed above and in view of the above reasons, we upheld the order of learned CIT in holding that the longterm capital gain is to be included in the net profit prepared under the Companies Act and the same is not deductibl .....

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s. 47(iv) of the Act has no application in the computation of book profit under s. 115JB of the Act. Thus from a reading of the s. 115JB as well as the analyses of various High Courts and Supreme Court decisions, the inescapable conclusion is that the book profits have to be calculated on the net profits computed as per Parts II and III of Sch. VI to the Companies Act, 1956 and as adjusted by the amounts mentioned in the Explanation. No further rebates or deductions after such adjustments, notw .....

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Government felt that companies availing of various deductions permitted under the IT Act showed a low income for the purpose of incometax but was able to show healthy profits as per books on the basis of which dividends were distributed and to tax these type of companies that tax on book profits were introduced. By again importing deductions allowed under the normal provisions of incometax into computation of book profits, we will be negating the very purpose for which these sections were introd .....

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Explanation to s. 115JB of the Act, the assessee is not entitled to the exclusion thereof as claimed. Respectfully,following the above,we decide the ground no.15 in favour of the AO. 17.Next ground is about claim of additional gratuity on provision basis amounting to ₹ 1, 93,13,467/-.In the return,following the stand adopted by the AO in earlier years,the assessee offered provision for additional gratuity for employees retired during the year.But, it made a claim before the FAA,considering .....

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ITA/3783/M/00,AY.97-8/ITA/3298/ /0l,AY.1998-99,ITA/6289/M/03,AY.99-00-ITA/7594/M/04,AY.00-01-ITA/9613/M/04).It is also found that the decisions of the ITAT in AYs 90-91 to 93-94, AYs 96-97,AY.1998- 99,AY.1999-00 & AY.2000-01were not challenged before the High Court and hence same attained fainalty.Considering the above,we decide ground no.16 against the AO. 18.Ground no.17 is deals with deletion of interest levied u/s 234B of the Act.The AO had levied interest u/s.234B on short payment of ad .....

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al issue has been dealt and decided by the Karnataka High Court in the case of Jupitor Bio Science in following manner: The Supreme Court has laid down that the payment of interest for delayed payment of tax is compensatory in nature. Though such a liability could be created retrospectively, when such a liability is retrospectively created, the assessee cannot be accused of committing default and he cannot be charged interest for such default. Section 115JB of the Incometax Act, 1961, was introd .....

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od. However, it was not liable to pay interest on the amount due under the amended provision. If it had not paid the advance tax in accordance with the provision existing prior to the amendment, it was liable to pay interest on the amount. It had no liability to pay interest on the difference in the tax paid. Respectfully,following the above judgment,we decide ground no.17 against the AO. 19.Deletion of addition in respect of provision for Director's Retirement Benefit in comput -ing income .....

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owed the claim that was not before the AO. The DR contended that provision made for Director's Retirement Benefit was made on the basis of actuarial valuation,that it represented a liability in praesenti that was to be discharged at future date.He referred to the case of Bharat Earth Movers(245ITR428).He also stated that similar claim was allowed by the Tribunal while deciding the appeal for the AY.1990-91. 19.2.We find that the issue of a certain business liability was deliberated upon and .....

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the AO. 20.Next ground of appeal about Sales Tax Subsidy in computation of book profit u/s 115JB as well as in computing total income under normal provisions of the Act and the amount involved is ₹ 84,73,17,391/-. During the assessment proceedings,the AO found that the following units of the assessee had received various incentives: Sl No. Unit State Incentive Policy Amount (Rs.) 1. Tikaria Uttar Pradesh 15,29,63,561 2. Sindri Bihar /Jharkhand 11,04,03,555 3. Kymore Madhya Pradesh 1,66,33 .....

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.1.Before us,the DR made the same arguments that were made for the ground no.9.The AR relied upon the cases of Reliance Industries Ltd.(supra),Everest Industries Ltd.(supra), Indo Rama Textiles Ltd.(53SOT515-Del),Indo Rama Synthetics(I)Ltd.(33CCH 526 Del.), Ponni Sugars & Chemicals Ltd.(supra),Rasoi Ltd.(supra),Shree Balaji Alloys(333ITR225) Siya Ram Garg HUF(49DTR126),Kirloskar Oil Engines Ltd.(364 ITR88),Chaphalkar Brothers(351 ITR 309). 20.2.We have heard the rival submissions.As far as a .....

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ter to the file of the AO for fresh adjudication,who would decide the issue after affording a reasonable opportunity of hearing to the assessee.Ground no.19 is decided in favour of the AO,in part. 21.Last ground of appeal deals with claim of the deduction u/s 35DDA to the assessee amounting to ₹ 1,53,00,536/-.While filing the return of income the assessee had not made a claim about 1/5th deduction of the amount incurred on account of VRS.The assessee raised an additional ground before the .....

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ubt that the assessee was entitled to the deduction and it had not claimed the same in the return.It is also a fact that before the FAA it lodged its claim.The Hon ble jurisdictional High Court in the case of Pruthivi Brokers and Shareholders P.Ltd.(349ITR336)has held as under: An assessee is entitled to raise not merely additional legal submissions before the appellate authorities but is also entitled to raise additional claims before them. The appellate authorities have the discretion to permi .....

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above decision,we are of the opinion that the FAA had rightly allowed the claim raised by the assessee.Ground no.20 is decided against the AO. 22.Additional ground no.1,raised by the AO,is about the directions given by the FAA in light of the decision of the judgment of Goetze India Ltd.(284ITR 323)that had resulted in reducing the total income to less than returned income. 22.1.During the course of hearing before us,the DR contended that because of the directio -ns given by the FAA total incom .....

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the decision of Tribunal delivered in the case of Everest Industries Ltd. (MA No.473/Mum/2009),wherein it was held that the AO was to assess the correct tax liability in accordance with law and even that if there was wrong admission of income by the assessee,it would not binding on the assessee.He relied upon the judgment of Honble Gujarat High Court in the case of Gujarat Gas Co.Ltd.(245ITR84),wherein it had been held that CBDT Circular No. 549 dated 31st Oct,1989 providing that the assessed in .....

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iled its return showing taxable income of ₹ 5,13,86,320. The return was processed under section 143(1)(a) of the Act after making some prima facie adjustment on 07.10.1997. Thereafter, notices under sections 143(1) and 142(2) of the Act came to be issued and the petitioner came to be assessed under section 143(3) of the Act by order dated 31.03.1999. The AO by his order held that though the total income of the assessee was ₹ 2,11,81,620, the assessee was liable to pay tax on the tota .....

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43(3) of the Act, the income can neither be assessed at a figure lower than the returned income nor the loss assessed at a figure higher than the loss nor further refund given except what was due on the basis of the returned income. Thus, by issuance of the circular, the quasijudicial officer is directed to assess cases of particular nature in a particular manner. The Assessing Officer being bound by it had abdicated his function and did not act independently and, therefore, there was no questio .....

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eping in mind the Central Board of Direct Taxes circular dated October 31, 1989. Respectfully,following the above decisions,we decide additional ground no.1 against the AO. 23.Additional ground 2 pertains to sales tax subsidy in computing group profit u/s.115JB of the Act,amounting to ₹ 84,73,00,000/- while deciding ground no.19 filed by the AO. We have upheld the order of the FAA.Following the judgment of Apollo Tyres (supra),we hold that the AO cannot disturb the working made by the asse .....

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₹ 50 crores. 25.1.During the course of hearing before us,representatives of both the sides agreed that identical issue had been decided in favour of the assessee,by the Tribunal while adjudicati -ng the appeals for AY.s.1997-98(ITA/3298/Mum/01),1998-99(ITA/639/M/03),1999-00 (ITA/7594/Mum/04),2000-01(ITA/9570/Mum/04). We find that the decision of the Tribunal for AY.1998-99 for exclusion debenture redemption reserved had not been challenged by the department before the Hon ble High Court an .....

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dded back the MODVAT credit attributeable to the closing stock of ₹ 8, 88,04,704/-by applying the provisions of section 145A of the Act.He also increased the opening stock by ₹ 9,34,67,023/-.In the appellate proceedings,the FAA directed the AO to delete the addition of closing MODVAT of ₹ 8.88 Crores.In appeal against the said order,the department did not challenge the direction given by the FAA to the AO,while filing appeal before the Tribunal.the AO did not grant relief to th .....

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e AO should have deleted the addition of MODVAT and that the department had not challenged the issue of MODVAT before the Tribunal while filing the original appeal for the year under consideration.The AR referred to the original order of the FAA,that order of the AO giving appeal effect to the order of the FAA,the second order of the FAA and the grounds of appeal filed by the AO before the Tribunal in the first round of appeal. 26.2.We have perused the material before us.We are unable to underst .....

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tock should be deleted.At that stage also if the AO and the CIT had stopped,the unwanted and frivolous litigation would have not taken place. In our opinion,it is a serious lapse on part of the AO and his supervisory authorities.The FAA being very senior officer of the Department is also performing quasi judicial functions.The AO being his subordinate is duty bound to follow his instruction.The AO has all the rights to challenge the order of the FAA before the appropriate judicial forum, but he .....

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med deduction of agricultural income from its total income by valuing the sugarcane grown in its own farms at market value and deducting therefrom the agricultural expenses. In its order in appeal the Appellate Tribunal directed the AO to ascertain the average transport charges per maund from the purchasing centres to the assessee's factory and to add it to the rate of ₹ 1-4-6 per maund in order to ascertain the market value and give any relief that may be due to the assessee. An appli .....

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e applied to the Judicial Commissioner of Bhopal for the issue of a writ to compel the officer to carry out the directions of the Appellate Tribunal. The Judicial Commissioner found that the officer had acted arbitrarily and in clear violation of the directions given by the Tribunal, but proceeded to consider the correctness of the Tribunal's order and held that there was no manifest injustice done to the assessee. On appeal to the Supreme Court held as under: …by his letter dated Mar .....

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e of a basic principle of justice,(emphasis by us)a writ of mandamus should issue ex debito justitiae to compel him to carry out the directions given by the Appellate Tribunal. In the matter of Union of India v. Kamlakshi Finance Corporation Ltd., AIR 1992 SC 711, the Supreme Court held amongst other as follows (page 712) : The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collec .....

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ompetent court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws. In the case of Nicco Corporation Ltd.(251ITR791),the Hon ble Calcutta High Court has held as follow: The principles of judicial discipline require that the orders of the higher appellate authorities be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not acceptable to the Departmenin it .....

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but he cannot refuse to/follow the directions.Considering the above facts,we are of the opinion that the appeal filed by the AO is devoid of any merit and he has taken undue advantage of the judicial process. We are also of the opinion that there was utter failure on the part of the supervisory authorities in whole episode.Registry is directed to forward a copy of the order to the Principle Chief Commissioner of Income tax,Mumbai,so that the directions of the FAA are given due respect by the off .....

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t raised an additional ground before the FAA,who dismissed the appeal of the assessee. 27.1.Before us,the AR fairly conceded that the Tribunal decided the issue against the assessee while adjudicating the appeals for the AY.s.1998-99,99-2000,2001-01.We find that the Hon ble Bombay High Court has dealt the issue of non exclusion of profit on sale of investments in computing Book Profit u/s.115JB of the Act,in the case of Veekaylal Investment Co. P. Ltd. (249ITR597)as under: …according to s .....

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Act. In the circumstances, while computing the book profits under the Companies Act, the assessee has to include capital gains for computing the book profits under section 115J . Even under clause 3(xii)(b) of Part II of Schedule VI to the Companies Act, 1956,profits or losses in respect of transactions or transactions of an exceptional or nonrecurring nature are to be disclosed. This shows clearly that capital gains should be included for the purposes of computing book profits. Respectfully,fo .....

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