9911796707
TMI Blog2011 (8) TMI 1310X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2008. For the sake of brevity and clarity, we dispose of both these appeals and cross objections by this consolidated order as issues are common. 2. The first common issue in revenue's appeal in ITA No 1470/K/2009 for Assessment Year 2006-07 and assessee's appeal in ITA No.1275/K/2010 for Assessment Year 2007-08 is as regards to computation of income u/s. 115JB of the Act for both years. For this, assessee as well as revenue have raised following grounds: "Grounds in Assessee's appeal in ITA No 1275/K/2010: 1.0. Confirming the action of Assessing Officer in determining the Book Profit u/s. 115JB of the Act for the year under appeal at ₹ 1823380456 as against Rs. 'Nil' declared in the return on the alleged ground that there was no Brought Forward Business loss & Depreciation as per books of account available for reducing from the net profit as shown in the profit and loss account under clause (iii) of Explanation 1 to Sec. 115JB(1). 1.1. Holding that the adjustment of ₹ 381.55 cr. being the loss incurred by the appellant company in the earlier years, against the Share Premium account/Revaluation Reserve, pursuant to scheme sanctioned by the High Courts is not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucted as adjustment vide explanation to Section 115JB and both the Book profit and the tax payable thereof have been shown at 'NIL'." The Assessing Officer gone through clause (iii) of Explanation 1 to section 115JB of the Act, as amended and effective from 1.4.2001, and noted that audited accounts of assessee reveals that balance brought forward is ₹ 34.90 cr. which is unabsorbed depreciation. According to AO, as per books of account, brought forward unabsorbed depreciation is ₹ 34.90 cr. and brought forward losses are NIL, therefore, as per clause (iii) of Explanation 1 to section 115JB of the Act no amount is required to be reduced for the purpose of computing book profit on this account. The Assessing Officer computed the book profit at ₹ 56,24,31,715/- by giving following finding: "It is apparent from the submission of the assessee that the assessee's claim is to reverse the adjustments of loss with the Revaluation Reserve and share premium A/c made in F Y 1999-2000, for the purpose of computation of Book Profit of the company for this A.Y. 2006-07. But there is no provision in the relevant section 115JB which permits such adjustment for this A.Y.2006-07. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the compromise or arrangement shall, if sanctioned by the Court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may he, and also on the company, or, in the case of a company which is being wound up, on the liquidator and contributories of the company:" The High Court has approved a scheme of compromise arrived at with the creditors and equity shareholders. Article 9 of the scheme has the following sentence. "The debit balance in the Profit and Loss Account as on 30 9 2000 of JKCL shall stand adjusted against the Share Premium Account and/or Revaluation Reserve Account of JKCL" It is in terms of this agreement that the normal accounting of brought forward loss of ₹ 391 crore is given the extra-ordinary treatment of set off against the balance in the Share Premium A/c and Revaluation Reserve Account. 6.3. While giving effect to this debt re-structuring exercise, the auditors reported to the company as follows in the annual report for financial year 1999-2000: "Regarding adjustment of debit balance in Profit and Loss Account, attention is invited to Note 1 - Scheme 20, according to which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 381.55 crores in the Profit & Loss Account for financial year 1999-2000 would not be adjustable against Share Premium and Revaluation Reserve according to the generally accepted accounting practices. It had to be done on account of the overriding effect of the High Court orders. Nevertheless the debit balance according to the principles of the theory of real income, continues to exist as real loss. Its adjustment by the order of the Court is a notional adjustment in the speciality of the situation. The appellant's claims about the reality of the loss adjusted notionally against Revaluation Reserve A/c and Share Premium A/c is not a claim to reverse the adjustment but to acknowledge the continued existence of brought forward loss in accounts in line with generally accepted accounting practices. The argument of the Assessing Officer is that the audited profit and loss account does not refer to brought forward loss. Audited Accounts cannot he tampered with for the purpose of the MAT. This is said on the authority of the Supreme Court judgement in the case of Apollo Tyres (Supra). 6.6 But in my opinion, the general proposition in that judgement is that the Assessing Officer can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certainly say so and have said so. And when they say so, the Assessing Officer must deal with those observations. 7.1. The book profit u/s 115JB is computed in the following manner in A.Y. 2005-06. BOOK PROFIT U/S 115JB 1. Net profit as per P&L A/c (Rs. 256l9886 + ₹ 4263000) 260461886 2. Add: (a) Unascertained Liabilities (Net) Provision for Doubtful debts 31300193 Impairment of assets 6272114 Diminution in value of Investments (35713560) 3. Less: (a) Dividend Income 10870255 (b) Deferred Tax 4263000 (c) Lower of' loss B/F (Rs.2721534810) or Unabsorbed Depreciation (Rs.3314300127) per books of account as certified by statutory Auditors filed vide Annex 13 of letter dt. 7.12.2007 4. Book Profit (1+2-3) _________ (2736668065) (2474347432) 5. Loss C/F (Rs.2721534810 -Rs.256198886) [Assessees claim that C/F works out to ₹ 260601576 nade on Page 3 of letter dt. 7.12.2007 being nor in accordance with I. Tax provisions is rejected]" 2465335924 It will be seen that for the purpose of Explanation 1(iii) to section 115JB, the lower of the loss brought forward (Rs.2,72,15,34,810/-) or unabsorbed depreciation (33,43,00,127/-) is the amount of brought fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 115JB in A.Y 2005- 06 is based on the certificate from the statutory auditors, is not arbitrary or perverse and has considered all relevant material. For A.Y. 2006-07 a different view about the adjustment of brought forward loss in terms of Explanation 1(iii) of section 115JB was not justified. 7.2. The assessing officer was aware that this decision about adjustment of brought forward loss was different from that of his predecessor in identical case and identical circumstances. According to him there is an error in the order of earlier AY. It accepted the claim of the assessee to reverse adjustment of loss with Revaluation, Reserve and Share Premium A/c in F.Y 99-2000 for the purpose 115JB in this year. But the figures of brought forward loss cannot be other than what is reflected in the audited accounts. No authority can modify the audited profit & loss Account on any ground. This is finally settled by the Supreme Court judgment in CIT vs. Apollo Tyres Ltd. (255 ITR 273). 7.3. In my view this is not exactly a çase where this judgment is required to be pressed into service, In that judgment, the Assessing Officer is precluded from rewriting P & L A/c when auditors h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate about brought forward loss given by auditors in A.Y. 2005-06 is in line with their views in the annual report for F.Y. 99-2000. 7.6. In my view the assessment order for AY. 2005-06 is the correct position in computing the book profit u/s 115JB. The departure from this in A.Y. 2006-07 is not supported by the ratio of the Supreme Court judgment in the case of Apollo Tyres. Ground No. 3 is allowed." Aggrieved, now revenue is in appeal before us. 5. This departmental appeal for Assessment Year 2006-07 and assessee's appeal for Assessment Year 2007-08 involves common question to be adjudicated with reference to the provisions of section 115JB of the Act. In assessment year 2006-07, as is seen above, assessee succeeded before CIT(A) and revenue is in appeal, whereas in Assessment Year 2007-08, the claim of the assessee was dismissed by CIT(A) by affirming the action of AO and assessee is in appeal. The CIT(A) while dismissing the appeal of the assessee for AY 2007-08, held as under: "8. I have carefully considered the fact of the case and the submission of the Ld. A.r. There cannot be two opinion that section 391 is a complete code in itself and any scheme sanctioned under this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year ending 31.03.2005 the Auditor has duly reported that as per books of accounts the company does not have accumulated loss. It has been clearly mentioned that what ever loss was there has been already adjusted in Pursuant to the Scheme sanctioned by the Hon"ble High Courts of Orissa and Gujarat. It has been further specified by auditors that, "these adjustment has been carried out as per the Orders of the said High Courts, implementation whereof is binding on Company" . However it appears that the A.O in the assessment order form AY 2005-06 has taken the loss as per books on 30.09.2000 calculated by Lodha & Co Chartered Accountants on request of the Assessee Company. The letter issued dt 03.10.2007 issued by the said partner of the said C.A firm reads as under- TO WHOMSOEVER IT MAY CONCERN We Lodha & Co. Chartered Accountants, the Statutory Auditors of J K Lakshmi Cement Ltd., formerly J K Corp. Ltd. (the Company) have checked up books of accounts and other documents of the Company. Based on our checking we certify chat the Company had debit balance of ₹ 381.55 crores as on 30.09.2000 in Profit and Loss Account of the Company, which Pursuant to the Scheme of Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will not help the assessee to take a ground for further allowance of the loss in the year under consideration. 8.3 Considering above facts and the provisions of the Act it is held that the amount of loss brought forward as per books of the company is Nil and the A.O has rightly calculated the Book Profit under section 115JB. Accordingly the ground no 5 taken by the appellant is dismissed." 6. We have heard rival contentions and gone through facts and circumstances of the case. The facts giving rise to above controversy for two years are that Hon'ble High Courts of Orissa and Gujarat sanctioned a scheme of compromise and/or arrangement between assessee and its lenders, bankers and shareholders and Central Pulp Mills Limited and its shareholders for restructuring of debts of assessee due to its lenders and bankers and for reconstruction of said two companies by transfer of paper undertaking of assessee to Central Pulp Mills Limited. Clause 10 of Part II of the sanctioned scheme provided that debit balance in the Profit and Loss Account as on September 30, 2000 of the assessee shall stand adjusted against Share Premium Account and/or Revaluation Reserve Account and for this releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2736668065) 4. Book Profit (1+2-3) (2474347432) 5. Loss C/F(Rs.2721534810 - ₹ 256198886) [Assessees claim that C/F works out to ₹ 260601576 made on Page 3 of letter dt.7.12.2007 being not in accordance with I. Tax provisions is rejected]" 2465335924 7. The AO while framing assessment u/s. 143(3) of the Act for AY 2005-06 agreed with submissions of assessee that adjustment made on September, 30, 2000 of debit balance in P&L Account against share premium account and revaluation reserve will not be considered while computing book profit and allowed deduction of brought forward losses of ₹ 272.15 crore, which was lower than unabsorbed depreciation. AO considered statutory auditor's certificate dated December 3, 2007, which is to the effect, that without considering adjustment made on September 30, 2000 of debit balance in the Profit and Loss Account against Share Premium Account and Revaluation Reserve, brought forward loss as on March 31, 2004 was ₹ 272.15 crore and unabsorbed depreciation was ₹ 331.43 crore. For assessment year 2006-07 issue involved herein, that assessee persisted with same stand and in its computation of book profit, adjusted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JB of the Act for assessment year 2005-06 and loss/depreciation shown as carried forward therein was not binding upon him. He stated that principle of res judicata will not be applicable to income tax proceedings and observed that remedial measure was being taken for assessment year 2005-06. Similar are observations made by AO in assessment year 2007-08. As observed above, the CIT(A) in AY 2006-07 allowed the claim of the assessee and in AY 2007-08 confirmed the action of AO. 8. Ld. Senior counsel appearing for revenue Shri M. P. Agarwal argued on behalf of revenue, supported orders passed by AO for two years and order of CIT(A) for assessment year 2007-08. He argued that the scheme was sanctioned by Hon'ble High Courts and was binding on all concerned and book profit under section 115JB of the Act could not be computed contrary to orders passed by Hon'ble High Courts as that would amount to contempt of court. He further stated that books of account did not show any brought forward loss and no adjustment in terms of clause (iii) of the Explanation to section 115JB(2) of the Act was called for. He heavily relied on decisions of Hon'ble Supreme Court in the case of Apollo Tyres (sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hri J. P. Khaitan along with Shri R. Salarpuria, on the other hand, argued that the view taken by CIT(A) for assessment year 2006-07 was the correct view. He argued that scheme sanctioned by Hon'ble High Courts was primarily one of compromise between assessee and its lenders and bankers for adjustment or rescheduling of assessee's debts and rationalization of interest on working capital facilities provided by banks. He stated that as part of assessee's debt restructuring exercise, Hon'ble High Courts permitted adjustment of debit in Profit and Loss Account against Share Premium Account and Revaluation Reserve. The statutory auditors of assessee had clearly mentioned in their report to shareholders that the adjustment, though made as per orders of Hon'ble High Courts, was not in accordance with generally accepted accounting practices. He argued that accounting standards did not permit adjustment of debit balance in Profit and Loss Account against Revaluation Reserve or Share Premium Account. For this argument Ld. Counsel drew attention to Guidance Notes issued by Institute of Chartered Accountants of India on treatment of reserve created on revaluation of fixed assets and Accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 115JB(2) of the Act required that any profit as shown in Profit and Loss Account prepared under 115JB (2) shall be reduced by the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Sub-section (2) of section 115JB of the Act required that Profit and Loss Account should be prepared in accordance with provisions of Parts II and III of Schedule VI to the Companies Act, 1956. The books of account adverted to in clause (iii) must be proper books of account in conformity with the law and accounting standards/principles within the meaning of the Companies Act, 1956. Since adjustment in terms of clause (iii) was to be made in respect of losses/depreciation for past period, it was incumbent upon AO to take into consideration accounts for the past period. If any adjustment in the accounts of an earlier year affecting the amount of loss or depreciation had been stated to be not as per generally accepted accounting practices by the statutory auditors, it was incumbent upon AO to determine correct amount of loss/depreciation for the purposes of reduction in terms of clause (iii) of Explanation on the basis of statutory auditors' opinion. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee for the previous year 2006-07 were duly audited and the audited balance sheet and profit and loss account of assessee as on March 31, 2007 were certified by auditors to be in agreement with books of account according to which assessee did not have any accumulated losses and its book profit was ₹ 182.34 crore. He therefore held that no further quantification was required to be made and since there was no brought forward loss as per books, no deduction was to be made. 11. The facts are not in dispute and both parties agreed on facts. The principal questions are as to - (i) Whether, in the given facts and circumstances of the case, assessee is entitled to deduction of brought forward losses for the purpose of computation of book profit u/s. 115JB of the Act in relevant assessment year 2006-07 as adjusted by AO in assessment year 2005-06, even though the losses have been liquidated by adjusting debit balance against share premium and revaluation reserve pursuant to scheme of compromise sanctioned by Hon'ble High Courts of Orissa and Gujarat as on September 30, 2000 in the normal computation of profit as per Profit and Loss Account of assessee. (ii) Whether, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Profit and Loss Account prepared on the basis of books of account which are not proper books of account within the meaning of the Companies Act, 1956 or which is not in compliance with the accounting standards cannot be said to have been prepared in accordance with the provisions of the Companies Act. If such accounts have been commented upon by the statutory auditors and any entry therein is reported to be not in accordance with the accounting standards/principles or not in accordance with the provisions of the Companies Act, the computation of the book profit under section 115JB must take note of it and appropriately adjust book figures. The statutory auditors' report would naturally mention the fact since such accounting would be contrary to generally accepted accounting practices. We are of the view that assessee would be fully within provision of law to take note of auditors' report and adjust book figures so that they are in conformity with the accounting standards and provisions of Companies Act and to determine the correct amount of loss. Even Hon'ble Supreme Court in the case of Apollo Tyres (supra), has laid down the principle that whether books of accounts are certifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground that such qualification was contained in report for the year 1999-2000 and was not repeated in accounts for relevant previous years 2005-06 and 2006-07? In our view, since in terms of clause (iii), AO is required to look at amount of loss brought forward and unabsorbed depreciation as per books of account, he must take into account auditors' qualification even if expressed with reference to accounts of earlier year, where such qualification has a direct and immediate bearing upon the amount of loss brought forward and unabsorbed depreciation reflected or not reflected in books of account for relevant previous years under consideration before AO. Fact that auditors' qualification is not repeated in their reports in respect of accounts for relevant previous years under consideration before the AO cannot be a reason for ignoring it particularly when it reflects upon the correctness of the amount of loss/unabsorbed depreciation appearing in books of account for relevant previous years. No doubt, in the instant case, assessee wants the AO to take into account the auditors' opinion in the earlier year for obtaining a tax advantage for itself. That however cannot make the princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC) held that the adjustment made in the P&L Account was primarily in the nature of contra-adjustment in the P&L Account and not a case of effective credit in the P&L Account. According to Hon'ble Court the amount withdrawn from any reserve must in effect impact the net profit as shown in P&L Account and unless an adjustment has the effect of increasing net profit as shown in P&L Account, that entry cannot be said to be a credit to P&L Account and, therefore, though the amount has been literally credited to P&L Account but in substance there was no credit to P&L Account. Hon'ble Court noted that though profit was not impacted, depreciation as the head of account was impacted and by interplay of Balance Sheet items with P&L Account items, assessee had sought to project the loss as profit. Hence, Hon'ble Court ruled that as the amount of revaluation reserve had not gone to increase the book profit at the time it was created, reduction sought by assessee under clause (i) to Explanation u/s. 115JB(2) of the Act in respect of depreciation had rightly been rejected by AO. Hon'ble Supreme Court in Indo Rama Synthetics (I) Ltd (supra) held as under:- We agree with the Assessing Officer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t share premium and revaluation reserve pursuant to scheme of compromise sanctioned by Hon'ble High Courts of Orissa and Gujarat as on September 30, 2000 in the normal computation of profit of the assessee and now for computation of book profit u/s. 115JB of the Act it has claimed reduction of brought forward losses earlier liquidated by debiting against share premium and revaluation reserve. In view of this fact, we are of the view that for the purpose of computation of book profit for the purpose of adjustment under Explanation (iii) of Section 115JB of the Act, books of account are to be adjusted in view of loss liquidated by adjusting debit balance against share premium and revaluation reserve in accordance with provisions of Part II & III of Schedule VI of Companies Act, 1956. Tribunal in the case of Bombay Diamond Co. Ltd. (Supra) in similar circumstances has held as under: "16. We have considered the rival submissions made by both the sides, perused the orders of the AO and the C1T(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. There is no dispute to the fact that the assessee in the impugned assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned or incurred on account of membership of a partnership firm to the extent not adjusted from any previous provision or reserve. Note : Information in respect of this item should also be given in the balance sheet under the relevant provision or reserve account. (b) Profits or losses in respect of transactions of a kind, not usually undertaken by the company or undertaken in circumstances of an exceptional or non-recurring nature, if material in amount. (c) Miscellaneous income. (xiii) (a)…. (b)…. (xiv) ….. (xv) ….." 18. From a bare reading of the above it is clear that the P&L a/c of a company shall disclose every material feature including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of exceptional nature also. Further the company is also required to set out the various items relating to the income and expenditure of the company arranged under most convenient heads and disclosing profit or loss in respect of transactions of a kind not usually undertaken by the company or undertaken in circumstances of exceptional or non-recurring nature in amount. 19. However, in the instant cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the book loss of ₹ 1,64,49,937 which was confirmed by the Tribunal. On further appeal to the High Court, the Hon'ble High Court had held that under the Companies Act both straight-line method and written down method are recognised, therefore, once the amount of depreciation actually debited to the P&L a/c and was certified by the auditors it was not permissible for the AO to make book adjustments. 23. Thus from the above it is clear that the assessee has debited the depreciation in the P&L a/c as per one of the recognised methods. Further the issue before the Hon'ble High Court was under the provisions of s. 115J of the Act. However, in the instant case the assessee has bypassed the provisions of Part II and Part III of Sch. VI of the Companies Act and directly credited the profit to the reserve account. Therefore, the decision of the jurisdictional High Court is also not applicable to the facts of the present case. Similarly the decision of the Co-ordinate Bench of the Tribunal in the case of Orson Trading (P) Ltd. (supra) is also distinguishable and not applicable to the facts of the present case since it relates to the provisions of s. 115JA and it has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year 2007-08 is as regards to the order of CIT(A) deleting the addition made u/s. 40A(9) of the Act on account of expenditure incurred for running school and other facilities. For this, revenue has raised the following ground no.1 in Assessment Years 2006-07 and 2007-08: "A.Y. 2006-07: 1. That Ld. CIT(A) has erred in deleting addition made u/s. 40A(9) of the Act of ₹ 11,92,645/- on account of expenditure incurred for running school and other facilities. A.Y. 2007-08 1)(i) That, the Ld. CIT(A),C-1, Kol has erred in deleting disallowance of ₹ 12,25,190/- made u/s. 40A(9) when the assessee has failed to specify its business interest by making said donations. ii) That the Ld. CIT(A) has not considered that the assessee intended to diverse its profit by making such donation to school and the schools are run by the same group for making profit." 16. Since facts are identical and grounds are common except variance in amount, we deal the issue by taking the facts in Assessment Year 2006-07. The brief facts leading to the above issue are that assessee made contribution to clubs and also contributed to school funds in running school which was included in employee's wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in assessee's own case, but keeping in view the fact that assessee could not furnish details of expenditure before Assessing Officer and even now before us, are of the view that let this issue be examined by Assessing Officer on facts. The assessee will produce details as required by Assessing Officer and Assessing Officer after considering the details, whether actually the assessee has incurred expenditure on school and club, will consider the claim. This issue of revenue's appeals for both Assessment Years is allowed for statistical purposes. 19. First issue in assessee's C.O. for Assessment Year 2006-07 is as regards to the order of CIT(A) upholding the action of Assessing Officer in adding notional interest. For this, assessee has raised the following ground no.1: "1. On the facts and in the circumstances of the case Ld. CIT(A) erred in upholding Ld. Assessing Officer's unjustified action in adding notional interest of ₹ 3,82,500 and ₹ 5,00,000 and treating it as income of the appellant." 20. We have heard rival contentions and gone through facts and circumstances of the case. We find that Assessing Officer while making addition of notional interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djudication. The case is pending for adjudication. The assessee submitted that the facts of legal cases in respect of above referred two interest bearing Inter Corporate deposits clearly show that it was rightly considered desirable by the management not an account for interest for the 12 months ending on 31.03.2006. Further that this method of accounting is also in line with AS-9 which provides that where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of any receipt, revenue recognition is to be postponed to the extent of uncertainty involved. The case facts clearly demonstrate that in view of legal cases pending it was uncertain whether the interest on the said inter- corporate deposits would ultimately be received or not. Therefore, there is no justification for bringing to the tax the notional interest as an income for the previous year relevant to the Assessment year 2006-07. Since the assessee follows mercantile system of accounts the interest of ₹ 382500/- on ICD of ₹ 15 lacs given to M/s Oswal Food Products Ltd. and ₹ 500000/- on ICD of ₹ 25 lacs given to M/s H.M.G.financial Services Pvt. Ltd. defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or earlier years interest, for the purpose of acquisition of capital assets had been claimed as revenue expenditure which was held as capital expenditure in the assessment order passed u/s 143(3) of the Act. The Hon'ble ITAT also upheld the view of Assessing Officer to treating the same as capital expenditure. No further appeal against the order of Hon'ble ITAT has been preferred by the assessee company. Consequential to such treatment, Assessing Officer has consistently allowed depreciation on such expenditure as per Rules upto Assessment Year 2005-06 in orders passed u/s 143(3) of the Act. However, for AY 2006-07, instead of allowing depreciation on W.D.V as on 31.03.2005 as per assessment order for AY 2005-06, Assessing Officer erred in allowing depreciation as per return which does not factor the above mentioned treatment of interest capitalization. Hence, Ld. Counsel stated that suitable directions may be given to the Assessing Officer to rectify the depreciation amount in assessment order for AY 2006-07. We are of the view that opening WDV for A.Y 2006-07 (i.e. as on 31.03.06) has necessarily to be the closing WDV of the immediately preceding year (i.e. As on 01.04.06) which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termined under section 143(1) of the Act or under section 143(3) of the Act as reduced by the amount of tax deducted or collected at source. Thus, Hon'ble Apex Court held that there is no exclusion of section 115J / 115JA of the Act in the levy of interest under section 234B of the Act of the Act and the expression "assessed tax" is defined to mean the tax assessed on regular assessment which means the tax determined on the application of section 115J / 115JA of the Act in the regular assessment and interest under section 234B of the Act of the Act is payable on failure to pay advance tax in respect of tax payable under section 115JA of the Act. Similar is the view in respect to chargeability of interest u/s. 234C of the Act. Respectfully following the aforesaid decision of Hon'ble Apex Court in the case of Rolta India Ltd. (supra), we do find infirmity in the order of CIT(A) and the same is hereby upheld. Grounds of Appeal and C.O. of assessee are dismissed. 25. The next issue in this CO of assessee is against the order of CIT(A) in not allowing credit available for earlier years u/s. 115JAA of the Act. For this, the assessee has raised following ground no.4: "4. On t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in deleting the additions." Hon'ble Allahabad High Court in the case of Jwala Prasad Radha Krishna vs CIT [198 ITR 415) held as under:- "Held, that the material on record showed that the assessee and the debtorcompanies were sister concerns and that the assessee had stopped charging interest from the debtor-companies with effect from June 30, 1969, for the simple reason that the debtor-companies had run into financial straits and the debtorcompanies had also stopped claiming deduction of interest. Further, the fact that the assessee had been paid interest by the debtor-companies for a few years could not by itself and without anything more justify the inference that there was some agreement between the parties for payment of interest. Hence, the Tribunal was justified in holding that no interest accrued to the assessee in the assessment year 1974-75." Hon'ble Rajasthan High Court in the case of CIT vs. Banswara Fabrics Ltd. [267 ITR 398] confirmed the order of the Tribunal in which C.I.T.(A) found in favour of the assessee that both the parties, in whose names the debit bàlances were shown in the books of account of the assessee, had incurred losses and cases were pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income in which the assessee apart from what is recorded by the A.O. has also mentioned that for recovery of advance, legal and other actions have been taken. It would, therefore; show that there was no question of any hope of recovery of principal amount as well as interest on such loans. Since both the debtor-parties have defaulted in making payment of loans as well as interest to the assessee not only in the assessment year in question but in subsequent assessment year also, therefore, assessee was justified in not declaring interest income in the assessment year in question having regard to principle of real income. Our findings are supported by various decisions referred to above. 8. In this view of the matter, we do not justify action of the authorities below in sustaining the additions in the hands of the assessee. We, accordingly, set aside the orders of authorities below and delete the entire addition on this issue. As a result, ITA No.1759 (Kol)/2007 is allowed." Since the issue is covered by Tribunal's order exactly on same facts, we confirm the order of CIT(A) deleting the addition of notional interest. This issue of revenue's appeal is dismissed. 29. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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