DCIT circle 6 (1), v. Magnum Power General Ltd,

ITA 4703/DEL/2007 | 2004-2005
Pronouncement Date: 28-05-2010 | Result: Dismissed

Appeal Details

RSA Number 470320114 RSA 2007
Assessee PAN DELOF2007A
Bench Delhi
Appeal Number ITA 4703/DEL/2007
Duration Of Justice 2 year(s) 5 month(s) 24 day(s)
Appellant DCIT circle 6 (1),
Respondent Magnum Power General Ltd,
Appeal Type Income Tax Appeal
Pronouncement Date 28-05-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 28-05-2010
Date Of Final Hearing 05-05-2010
Next Hearing Date 05-05-2010
Assessment Year 2004-2005
Appeal Filed On 04-12-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `D: NEW DELHI BEFORE SHRI C.L.SETHI JM & SHRI K.D. RANJAN AM I.T. A. NO.4140/DEL OF 2007 ASSESSMENT YEAR: 2004-05 M/S MAGNUM POWER GENERATION LTD. DCIT CIRCLE 6(1 ) 48/12 COMMERCIAL CENTRE VS NEW DELHI. MALCHA MARG CHANKYA PURI NEW DELHI. PAN : AAACM7050R I.T. A. NO.4703/DEL OF 2007 ASSESSMENT YEAR: 2004-05 DCIT CIRCLE 6(1) M/S MAGNUM POWER GENERATION LTD . NEW DELHI. VS 48/12 COMMERCI AL CENTRE MALCHA MARG CHANKYA PURI NEW DELHI. PAN : AAACM7050R APPELLANT RESPONDENT ASSESSEE BY: SHRI ANIL BHALLA CA DEPARTMENT BY: SHRI DEVENDER SINGH SR. DR ORDER PER C.L. SETHI JM: THESE ARE CROSS APPEALS FILED BY ASSESSEE AS WELL B Y REVENUE AGAINST ORDER DATED 5.7.2007 PASSED BY THE CIT(A) PERTAININ G TO THE ASSTT. YEAR 2004-05. ITA NO.4703/DEL/2007: - 2 2. WE SHALL FIRST TAKE THE APPEAL FILED BY THE REVE NUE. 3. THE ONLY GROUND RAISED BY THE REVENUE IS AS UNDE R: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN MAINTAINING THAT DEDUCTION U/S 80IA IS AVAILABLE IN RESPECT DEEMED GENERATION INCOME WITHOUT APPRECIATING THAT THE DEEMED GENERATION INCOME WAS EARNED BY ASSESSEE COMPANY MERELY ON ACCOUNT OF TERMS AND CONDITION OF THE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND ELECTRICITY BOARD WITHOUT GENERATING/SUPPLYING ANY POWER AND THEREFORE THE SAID INCOME CANNOT BE SAID TO BE DERIVED FROM THE INDUSTRIAL UNDERTAKING. 4. THE ASSESSEES CLAIM OF DEDUCTION U/S 80IA IN RE SPECT OF THE INCOME SHOWN ON ACCOUNT OF DEEMED GENERATION OF POWER AS P ER THE AGREEMENT ENTERED INTO WITH HARYANA POWER GENERATIONAL CORPOR ATION LTD. (IN SHORT HPGCL) FOR SUPPLY OF ELECTRICITY HAS BEEN DISALLO WED BY THE AO BY OBSERVING THAT THE INCOME EARNED BY THE ASSESSEE CO MPANY MERELY ON ACCOUNT OF TERMS AND CONDITIONS OF THE AGREEMENT EN TERED INTO BETWEEN THE ASSESSEE AND HPGCL WITHOUT GENERATING OR SUPPLYING ANY POWER CANNOT BE SAID TO BE DERIVED FROM THE UNDERTAKING OR ENTERPRI SE WITHIN THE MEANING OF SECTION 80IA OF THE ACT. HOWEVER ON AN APPEAL TH E LEARNED CIT(A) ALLOWED THE ASSESSEES CLAIM BY GIVING THE REASONS THAT THE PLANT WAS SET UP FOR GENERATING AND SELLING ELECTRICITY THE ELECTRI CITY WAS SOLD TO HPGCL AND 3 IN CASE HPGCL IS NOT IN A POSITION TO BUY THE ELECT RICITY FROM THE ASSESSEE THE GENERATION OF ELECTRICITY HAD TO BE STOPPED AN D THEREFORE IN SUCH A SITUATION HPGCL PAYS CERTAIN CHARGES IN ORDER TO C OMPENSATE FOR THE FIXED COSTS WHICH ARE INCURRED EVEN WHEN THERE IS NO GEN ERATION AND ARE REQUIRED TO BE INCURRED FOR KEEPING THE PLANT IN READY CONDI TION AND THEREFORE THE DEEMED GENERATION INCOME HAS A DIRECT NEXUS WITH TH E BUSINESS OF INDUSTRIAL UNDERTAKING. 5. HENCE THE DEPARTMENT IS IN APPEAL. 6. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PER USED THE ORDERS OF THE AUTHORITIES BELOW. 7. IN THE COURSE OF HEARING OF THIS APPEAL IT WAS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT IDENTICAL ISS UE HAD COME UP FOR CONSIDERATION BEFORE THE ITAT DELHI BENCH E NEW DELHI WHERE THE TRIBUNAL VIDE ORDER DATED 27 TH NOVEMBER 2009 IN ITA NO.2289/DEL/09 HAS UPHELD THE ORDER OF CIT(A) IN ALLOWING THE ASSESSEE S CLAIM OF DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF THE INCOME FROM DEEME D GENERATION OF POWER AND HE THEREFORE SUBMITTED THAT THE CASE IS SQUAR ELY COVERED BY THE DECISION OF COORDINATE BENCH. 8. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE AOS ORDER. 4 9. WE HAVE CAREFULLY GONE THROUGH THE AFORESAID TRI BUNALS ORDER DATED 27 TH NOVEMBER 2009M AND FIND THAT THE IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES FAVOUR IN ASSTT. YEAR 20 05-06 BY OBSERVING AND HOLDING AS UNDER: 3. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. SUB-SECTION (1) OF SECTION 80-IA GRANTS DEDUCTION FROM T HE GROSS TOTAL INCOME OF AN ASSESSEE IN RESPECT OF ANY PROFITS AND GAINS DERIVED BY AN INDUSTRIA L UNDERTAKING FROM THE ELIGIBLE BUSINESS MENTIONED IN SUB-SECTION (4). SUB-CLAUSE (A) OF CLAUSE (IV) OF SUB-SECTION (4) IS IN RESPECT O F AN UNDERTAKING WHICH IS SET UP IN ANY PART OF INDIA FOR THE GENERATION OR GENERATION AND DISTRIBUTION OF POWER IF IT BEGINS TO GENERATE POWER AT ANY TIME DURING THE PERIOD BEGINNING ON 1.4.1993 AND ENDING ON 31.3.2001. FROM THE ASSESSMENT ORDER IT IS SEEN THAT THE SUBMISSI ONS OF THE ASSESSEE WAS THAT THE ASSESSEE COMPANY COMMENCED OPERATIONS FOR POWER GENERATION IN THE YEAR 1998. THUS THE POWER PLANT WAS SET UP IN INDIA AFTER 1.4.1993 AND BEFORE 1.4.2011. THEREFORE THE CONDITION MENTIONED IN SUB-CLAUSE (A) STANDS SATISFIED IN THIS CASE. IN ANY CASE THE AO HAS NOT RAISED ANY DISPUTE I N THIS MATTER. 3.1 COMING TO THE ISSUE OF INCOME FROM DEEMED GENERATION THE SAME ARISES WHEN HPGCL DOES NOT TAKE POWER FROM THE POWER PLANT OF THE ASSESSEE. IN SUCH A SITUATION IT IS OBLIGED TO PAY CHARGES TO THE ASSESSEE TO KEEP THE PLANT IN READY CONDITION. THERE IS STIPULATION TO THAT EFFECT IN THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND 5 HPGCL. THERE IS NO DISPUTE ABOUT THESE FACTS ALSO. THUS THE ONLY QUESTION LEFT IS WHETHER THE AFORESAID INCOME IS ELIGIBLE FOR DEDUCTIO N U/S 80-IA. 3.2 WE HAVE ALREADY MENTIONED THAT WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING SPECIFIED IN SUB-SECTION (4) IT IS ENTITLED TO DEDUCTION UNDER THE PROVISION. THERE IS NO DISPUTE THAT AN UNDERTAKING SET UP IN ANY PAR T OF INDIA FOR GENERATION OR GENERATION AND DISTRIBUTION OF POWER IS AN ELIGIBLE UNDERTAKING FOR THE PURPOSE OF THE AFORESAID DEDUCTION AS PROVIDED IN SUB-SECTION (4)(IV)(A) . THE WORDS USED IN THE AFORESAID SUB-CLAUSE AR E AN UNDERTAKING WHICH IS SET UP IN ANY PA RT OF INDIA FOR GENERATION OR GENERATION AND DISTRIBUTION OF POWER. THERE IS NO DISPUTE THAT THE UNDERTAKING OF THE ASSESSEE IS SET UP FO R GENERATION OF POWER. THE ASSESSEE HAS BEEN SELLING THE POWER TO HPGCL AS PER TERMS AND CONDITIONS OF THE AGREEMENT ENTERED INTO WITH IT. THIS AGREEMENT HAS BEEN ENTERED INTO IN THE COURSE OF BUSINESS WHICH IS PRIMARILY OF GENERATION OF POWER. THE ASSESSEE RECEIVED REVENUE FOR THE POWER ACTUALLY SUPPLIED TO HPGCL. CERTAIN INCOME IS ALSO RECEIVED WHEN POWER IS NOT DRAWN BY HPGCL AND THE REASON FOR THE SAME IS STATED TO BE THAT THE ASSESSEE HAS TO KEEP ITS PLANT IN READINESS AND FOR THIS PURPOSE EXPENSES ARE INCURRED. THEREFORE THE AGREEMENT BETWEEN THE ASSESSEE AND HPGCL IS IN RESPECT OF SALE OF POWER THE GENERATION OF WHICH IS THE MAIN BUSINESS OF THE ASSESSEE. B UT FOR CARRYING ON THE BUSINESS OF GENERATION OF POWER THE ASSESSEE WOULD NOT HAVE EARNED INCOME EITHER BY WAY OF ACTUAL SALE OF POWER OR BY WAY OF DEEMED GENERATION. IN OTHER WORDS THE PPA IS ENTERED BECAUSE THE 6 ASSESSEE HAS SET UP AN UNDERTAKING FOR GENERATION OF POWER. THE INCOME BY WAY OF SALE OF POWER AND THE INCOME BY WAY OF DEEMED GENERATION OF POWER HAVE PROXIMATE NEXUS WITH THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. BOTH THE COMPONENTS OF INCOME ARE INCLUDED IN THE GROSS TOTAL INCOME OF THE ASSESSEE. IT CAN AL SO BE SAID THAT THE AGREEMENT IN RESPECT OF BOT H TYPES OF REVENUES RECEIVED OR RECEIVABLE BY T HE ASSESSEE ARE ON ACCOUNT OF POWER SUPPLIED TO HPGCL REPRESENTING A METHOD TO DETERMINE THE SALE PROCEEDS WHICH HAS A PROXIMATE CONNECTION WITH THE BUSINESS OF THE ASSESSEE. 3.3 COMING TO THE DECISION IN THE CASE OF HINDUSTAN LEAVER LTD. (SUPRA) THE FINDING OF THE COURT WAS THAT THE IMMEDIATE SOURCE OF PROFI T WAS SALE OF GOODS. THE IMPORT OF PALM OIL WAS ON ACCOUNT OF EARLIER EXPORT OF GOODS AT A LOSS. IN THE CHAIN OF SEQUENCE THE EARLIER EXPORT WOULD BE FOUR DEGREES REMOVED FROM THE PURCHASE. THEREFORE IT WAS HELD THAT THE HIGH COURT WAS RIGHT IN HOLDING THAT THE PROFITS OF THE ASSESSEE FROM SALE OF ITS GOODS IN INDIA WAS NOT THE PROFIT DERIVED FROM EXPORT SALES. THE HONBLE COURT MENTIONED THAT AS THE FACTS WOULD SHOW DEDUCTION U/S 2(5)(I) OF FINANCE (NO. 2) ACT 1982 PERMITTED DEDUCTION IN RESPECT OF EXPORT PROFITS AND SUCH EXPORTS ENTITLED THE ASSESSEE TO IMPORT LICENSES FOR IMPORT OF GOODS AT A CHEAPER RATES. THE PROFIT FROM SALE OF SUCH IMPORTED GOODS HAD NO PROXIMATE CONNECTION WITH THE EXPORT OF GOODS MADE EARLIER. THUS THE COURT CAME TO THE CONCLUSION THAT THE DEDUCTION WAS NOT AVAILABLE. THE FACTS OF THI S CASE ARE DISTINGUISHABLE ON THE SIMPLE GROUND THAT THE RECEIPT OF REVENUE FROM BOTH THE STREAMS IN THIS CASE IS IN RESPECT OF ELIGIBLE BUSINESS OF GENERATION OF POWER FOR WHICH THE UNDERTAKING WAS SET UP. BOTH THE STREAMS OF 7 REVENUE ARE DIRECTLY LINKED WITH THE PROCESS O F SALE OF POWER GENERATED BY THE ASSESSEE. 3.4 IN THE CASE OF STERLING FOODS (SUPRA) THE QUESTION WAS WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS JUSTIFIED IN LAW IN HOLDING THAT THE RECEIPT FROM SALE OF IMPORT ENTITLEMENTS COULD NOT BE INCLUDED IN THE INCOME FOR THE PURPOSE OF COMPUTING RELIEF U/S 80HH OF THE INCOME-TAX ACT 1961? THE FINDING OF THE COURT WAS THAT THE SOURCE OF IMPORT ENTITLEMENTS WAS NOT THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. THE SOURCE WAS THE EXPORT PROMOTION SCHEME OF THE CENTRAL GOVERNMENT UNDER WHICH THE EXPORT ENTITLEMENTS BECAME AVAILABLE. IN ORDER TO SAY THAT AN INCOME IS DERIVED FROM A PARTICULAR BUSINESS THERE MUST BE A DIRECT NEXUS BETWEE N PROFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING . THUS IT WAS HELD THAT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION U/S 80HH ON IMPORT ENTITLEMENTS. THE FACTS OF THAT CASE ARE A LSO DISTINGUISHABLE. IN THAT CASE THE CENTRAL GOVERNMENT GRANTED SOME BENEFITS BY WAY OF EXPORT PROMOTION SCHEME. THE HONBLE COURT CAME TO THE CONCLUSION THAT THESE BENEFITS WERE NOT THE INCOME DERIVED FROM THE ELIGIBLE BUSINESS BECAUSE THE SAME HAD NO PROXIMATE CONNECTION WITH THE ELIGIBLE BUSINESS RATHER IT WAS INCENTIVE GRANTED BY THE GOVERNMENT UNDER A SCHEME AND SUCH SCHEME WAS THE SOURCE OF INCOME. IN THE INSTANT CASE THE WHOLE OF POW ER PURCHASE AGREEMENT IS IN RESPECT OF POWER PRODUCED BY THE UNDERTAKING OF THE ASSESSEE BUT FOR WHICH NO SUCH AGREEMENT WOULD HAVE COME INTO EXISTENCE. THERE IS NO THIRD PARTY WHICH IS PAYING ANY MONEY TO THE ASSESSEE FOR GENERATION OF POWER. BOTH STREAMS OF REVENUE ARE DERIVED FROM THE UNDERTAKING AS THE COMMERCIAL AGREEMENT IS ENTERED INTO ON 8 ACCOUNT OF PRODUCTION OF POWER BY THE UNDERTAKING. IN ABSENCE OF PRODUCTION OF POWER THERE WOULD HAVE BEEN NO REVENUE STREAM EITHER ON ACCOUNT OF THE POWER ACTUALLY SUPPLIED OR THE DEEMED GENERATION OF POWER. 3.5 THE MAIN QUESTION IN THE CASE OF ORISSA STATE WAREHOUSING CORPORATION (SUPRA) WAS WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE INTEREST RECEIVED FROM THE BANKS ON FIXED DEPOSITS WAS EXEMPT U/S 10(29 ) OF THE INCOME-TAX ACT? THE HONBLE COURT CAME TO THE CONCLUSION THAT SECTION 10(29) IS SINGULAR LY SINGULAR IN ITS APPLICATION WITH ITS SCOPE RESTRICTIVE AS IS EVIDENCED FROM INTENT OF LEGISLATURE AND AS EVIDENCED FROM LANGUAGE USED THEREIN. THUS IT WAS HELD THAT INTEREST INCOME WAS NOT EXEMPT AS IT WAS NOT THE INCOME BY WAY OF WAREHOUSING CHARGES. THE FACTS OF THIS CASE ARE ALSO DISTINGUISHABLE. TH E CONTENTION IN THAT CASE WAS THAT WAREHOUSING IS A COMPOSITE ACTIVITY AND TWO STREAMS OF INCOME WERE EXEMPT U/S 10(29). HOWEVER THE COURT CAME TO THE CONCLUSION THAT THE LANGUAGE EMPLOYED WAS RESTRICTIVE IN NATURE AND IT DID NOT TAKE WITHIN ITS AMBIT THE INTEREST INCOME RECEIVED FROM BANKS. IN THIS CASE BOTH STREAMS OF REVENUE ARE DIRECTLY LINKED WITH THE ACTIV ITY OF GENERATION OF POWER. IN CASE OF ACTUAL SUPPLY OF POWER THERE IS NO DISPUTE THAT DEDUCTION IS AVAILABLE U/S 80IA. IN ORDER TO KEEP ITS POWER PLANT IN READINESS AGAIN THERE IS NO DISPUTE THAT THE EXPENDITURE HAS TO BE INCURRED. IT IS EVIDENT THAT SUCH INCOME ALSO HAS A PROXIMATE CONNECTION WITH THE BUSINESS O F GENERATION OF POWER AND THE PPA IS IN CONNECTION WITH PURCHASE OF POWER BY HPGCL FROM THE ASSESSEE. THEREFORE NO DISTINCTION CAN BE MADE BETWEEN INCOME FROM ACTUAL SUPPLY 9 OR FROM DEEMED GENERATION OF POWER AS SOURCE OF BOTH THE INCOMES IS THE BUSINESS OF THE ASSESSEE AND SALE OF POWER IN TERMS OF THE PPA. 10. RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF T HE COORDINATE BENCH REFERRED IN ASSESSEES OWN CASE WE ARE INCLINED TO UPHOLD THE ORDER OF CIT(A) IN ALLOWING THE ASSESSEES CLAIM OF DEDUCTIO N U/S 80I IN RESPECT OF THE INCOME FROM DEEMED GENERATION OF POWER. THE OR DER OF CIT(A) IS THUS UPHELD AND THE GROUND RAISED BY THE REVENUE IS REJE CTED. ITA NO.4140/DEL/2007 : 11. NOW WE SHALL COME TO THE APPEAL FILED BY THE A SSESSEE. GROUND NO.1 RAISED BY THE ASSESSEE IS AS UNDER: 1. THE LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF THE LD. AO IN EXCLUDING SALE OF SCRAP (RS.4 17 973/-) AND CREDIT BALANCES WRITTEN BACK (RS.8.\ 03 842/-) AGGREGATING TO RS.12 21 635/- FROM THE PROFITS AND GAINS OF BUSINESS FOR THE PURPOSE OF COMPUTING THE ALLOWABLE DEDUCTION U/S 80IB OF THE INCOME-TAX ACT. 12. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFUL LY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN THIS CASE THE ASSESSEES CLAIM OF DEDUCTION IN RESPECT OF THE RECEIPT BY WAY OF SALE OF SCRAP AND THE CREDIT BALANCES WRITTEN BACK HAS BEEN DISALLOWED BY THE AO BY OBSERVING THAT THIS INCOME CANNOT SAID TO HAVE BEEN DERIVED FROM BUSINE SS OF GENERATION OF 10 POWER. THE AO FURTHER OBSERVED THAT CREDIT BALANCES WRITTEN BACK IS THE AMOUNT OF EXPENSES INCURRED IN SOME EARLIER YEARS WHICH HAVE BEEN SHOWN AS INCOME IN THE YEAR AND IT HAS NO CONNECTION WITH THIS YEARS INCOME. ON AN APPEAL CIT(A) CONFIRMED THE AOS ACTION BY OBSE RVING THAT THE EXPRESSION USED IN SECTION 80IB IS DERIVED FROM I NSTEAD OF ATTRIBUTABLE TO AND THEREFORE THE BALANCES WRITTEN OFF AND T HE INCOME BY WAY OF SALE OF SCRAP CANNOT BE SAID TO BE DERIVED FROM INDUSTRIAL UNDERTAKING. 13. STILL AGGRIEVED THE ASSESSEE IS IN APPEAL BEFO RE US. 14. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFUL LY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. ON PERUSAL OF AO AS WELL AS CIT(A)S ORDER WE FIND THAT EACH AND EVERY ITEM OF CREDIT BALANCES WRITTEN BACK AND THE SALE OF SCRAP HAS NOT BEEN EXAMINED TO ASCERTAIN AS TO W HETHER THESE ITEMS HAVE ANY DIRECT LINK WITH THE BUSINESS OPERATION OF THE ASSESSEES INDUSTRIAL UNDERTAKING. IN THE COURSE OF HEARING THE ASSESSE E HAS SUBMITTED THE DETAILS OF AMOUNT OF CREDIT BALANCE WRITTEN BACK AND ABOUT THE MISCELLANEOUS INCOME. HOWEVER FROM THE DETAILS IT IS NOT CLEAR AS TO WHETHER THESE CREDIT BALANCES SINCE WRITTEN BACK ARE DIRECTLY CONNECTED TO THE BUSINESS ACTIVITY OF THE INDUSTRIAL UNDERTAKING OR WHETHER THESE CREDIT BALANCES WERE CLAIMED AS REVENUE EXPENDITURE AGAINST THE PROFIT OF THE INDUS TRIAL UNDERTAKING WHICH IS ELIGIBLE FOR DEDUCTION U/S 80IA/80IB OF THE ACT. F ROM THE DETAILS IT APPEARS 11 THAT CERTAIN CREDIT BALANCES WERE IN RESPECT OF SOM E CAPITAL INVESTMENT MADE BY THE ASSESSEE. FOR EXAMPLE THE CREDIT BALANCES O F RS.4500/- RS.2195/- RS.37 055/- RS.4 79 390/- RS.18 143/- WERE ON ACC OUNT OF SUPPLY OF MATERIAL FOR EARTHING PURPOSE AND BRICK WORK AROUND TANK AREA CIVIL WORK AT TANK FARM AREA SEPARATOR ROOM WORK BRICKS ETC. S UPPLY OF BOILER AND ITS COMPONENTS FOUNDATION BOLT ETC. AND WORK DONE ON B OILER RESPECTIVELY. IT IS NOT CLEAR WHEN AND ON WHAT ACCOUNT THESE EXPENSES W ERE DEBITED IN THE BOOKS OF ACCOUNTS AND CREDITED TO THE CREDITORS AC COUNT OR THE SAME WERE CLAIMED AND ALLOWED AS REVENUE EXPENDITURE OR NOT. SIMILARLY THERE IS NO EVIDENCE ON RECORD TO SAY THAT THE OTHER ITEMS WHI CH HAS NOW BEEN WRITTEN OFF ARE CONNECTED TO THE ASSESSEES BUSINESS ACTIV ITY OF THE UNDERTAKING ITSELF. WITH REGARD TO THE MISCELLANEOUS INCOME I T IS ALSO NOT CLEAR WHETHER THE SCRAP IS GENERATED FROM THE OPERATIONAL ACTIVIT Y OF THE INDUSTRIAL UNDERTAKING OR WHETHER THEY ARE MERELY INCIDENTAL TO THE ASSESSEES BUSINESS AS A WHOLE. WE THEREFORE RESTORE THIS MATTER BAC K TO THE FILE OF AO FOR HIS FRESH ADJUDICATION AFTER EXAMINING ALL THE DETAILS THEREOF. THE ASSESSEE SHALL BE UNDER OBLIGATION TO PRODUCE AND FURNISH ALL EVID ENCES AND MATERIALS IN SUPPORT OF ASSESSEES CLAIM THAT THE ITEMS CLAIMED UNDER THE HEAD CREDIT BALANCES WRITTEN BACK AND SALE OF SCRAP ARE DIRE CTLY CONNECTED TO THE OPERATIONAL ACTIVITY OF THE BUSINESS OF THE ASSESSE ES UNDERTAKING OR THAT THE 12 CREDIT BALANCES APPEARED IN THE BOOKS WERE EARLIER ALLOWED AS DEDUCTION WHILE COMPUTING THE INCOME FROM THE INDUSTRIAL UNDE RTAKING WHICH IS ELIGIBLE FOR DEDUCTION U/S 80IA/80IB OF THE ACT. I N ABSENCE OF THE RELEVANT OR ADEQUATE EVIDENCES BEING FURNISHED BY THE ASSES SEE THE AO SHALL DECIDE THE MATTER ON THE BASIS OF MATERIAL AVAILABLE ON RE CORD AND AS PER LAW. 15. GROUND NO.2 RAISED BY THE ASSESSEE IS AS UNDER: THE LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF THE LD. AO IN MAKING ADJUSTMENT TO THE DECLARED BOOK PROFIT PM ACCOUNT OF PROVISION FOR BAD DEBTS AMOUNTING TO RS.3 15 56 383/- ALLEGEDLY ON THE GROUND THAT THE SAME REPRESENTS CREATION OF A RESERVE AND THEREFORE FALLS WITHIN THE AMBIT OF CLAUSE (B) OF THE EXPLANATION BELOW 2 ND PROVISO TO SUB-SECTION (2) OF SECTION 115JB OF THE INCOME-TAX ACT 1961. 16. THE QUESTION WHETHER PROVISION OF BAD DEBT DEBI TED IN THE PROFIT & LOSS ACCOUNT IS TO BE ADDED BACK TO THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE PURPOSE OF BOOK PROFIT TO BE C OMPUTED U/S 115JB OF THE ACT IS NO MORE A MATTER OF CONTROVERSY IN THE LIGHT OF THE AMENDMENT MADE BY THE FINANCE NO.2 ACT OF 2009 IN SECTION115JB WHE REBY ITEM (I) READING AS THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FO R DIMINUTION IN THE VALUE OF ANY ASSET HAS BEEN INSERTED IN EXPLANATION 1 TO SECTION 115JB OF THE ACT MEANING THEREBY THAT THE AMOUNT OR AMOUNTS SET ASID E AS PROVISION FOR DIMINUTION IN VALUE OF ASSETS SHALL BE ADDED BACK T O THE NET PROFIT IF THE SAME 13 IS DEBITED TO THE PROFIT AND LOSS ACCOUNT FOR THE PURPOSE OF DETERMINING THE BOOK PROFIT U/S 115JB OF THE ACT. IT IS NOW WELL S ETTLED THAT PROVISION FOR BAD DEBT IS AMOUNTED TO A PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET. THEREFORE THE PROVISION FOR BAD DEBTS DEBITED TO T HE PROFIT & LOSS ACCOUNT IS COVERED BY ITEM (I) OF EXPLANATION 1 TO SECTION 115 JB WHICH HAS BEEN INSERTED BY THE FINANCE (NO.2) ACT 2009 WITH RETR OSPECTIVE EFFECT FROM 1.4.2001 AND THEREFORE THE SAME SHALL BE ADDED B ACK TO THE NET PROFIT FOR DETERMINING BOOK PROFIT. THE ORDER OF THE CIT(A) I N CONFIRMING THE AOS ORDER IN MAKING ADJUSTMENT TO THE NET PROFIT BY ADD ING BACK THE PROVISIONS OF BAD DEBTS DEBITED TO THE PROFIT & LOSS ACCOUNT IS U PHELD. THIS GROUND RAISED BY THE ASSESSEE IS REJECTED. 17. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THAT OF THE ASSESSEE IS PARTLY ALLOWED FOR A STATISTICAL PU RPOSE. 18. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT ON 28 TH MAY 2010 (K.D. RANJAN) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28 TH MAY 2010 VIJAY 14 COPY TO: 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT(A)-IX NEW DELHI 5. DR ASSISTANT REGISTRAR