Income Tax Appellate Tribunal - Ahmedabad
Riddhi Siddhi Gluco Biols Ltd.,, ... vs Assessee on 28 March, 2003
IN THE INCOME TAX APPELLATE TRIBUNAL AT
AHMEDABAD
AHMEDABAD "B"BENCH
Before Shri G.D. Agarwal, Vice-President (AZ) and
Shri Mahavir Singh, Judicial Member
IT A No.913/ Ahd/2004 &783/ Ahd/2006
[Asstt.Year: 2001-02]
Riddhi Siddhi Gluco Biols Ltd. -vs- ACIT, Circle-5,
Mehta Lodha & Co. Chartered Ahmedabad
Accountants, 105, Sakar-I,
Ashram Road, Ahmedabad
P AN No. AABCR3417Q
ACIT, Circle-5, -vs- Riddhi Siddhi Gluco Biols Ltd.
Ahm edabad 701, Sakar-I, Opp.Gandhigram
Rly. Station, Ahmedabad
IT A No.2482/ Ahd/2005
[Asstt. Year:2002-03]
A.C.I.T., Circel-5, -vs- Riddhi Siddhi Gluco Biols Ltd.
Ahm edabad 701, Sakar-I, Opp. Gandhigram
Railway Station, Ahm edabad
(Appellant) (Respondent)
Revenue by : Shri Alok Johri, DR
Shri K. Madhusudan, SR-DR
Assessee by: Shri S.N.Soparkar, SR-AR &
Smt.Urvashi Shodhan, AR
ORDER
PER Mahavir Singh, Judicial Member:-
Out of these three appeals - one by assessee and two by Revenue are arising out of the order of Commissioner of Income-tax (Appeals)-XI/53, 138-139/2003-04/2005-06 by different dates i.e. 11-11-2003, 09-01-2006 & 29-09-2005. The assessments were framed by ACIT, Circle-5, Ahmedabad ITA No.913/A/04,783/A/06 & 2482/A/05 A.Ys 01-02 & 02-03 Riddhi Siddhi Gluco Biols Ltd. v. ACIT Cir-3, A'bd Page 2 u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') vide his orders of different dates 28-03-2003 and 18-03-2005 for the assessment years 2001-02 and 2002-03 respectively. The penalty u/s 271(1)(c) of the Act was levied by ACIT, Circle-3, Ahmedabad vide his order dated 28-03-2003.
First we will take up assessee's appeal in ITA No.913/Ahd/2004.
2. The first issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of depreciation.
3. At the outset Ld. SR-Counsel for the assessee, Shri S.N.Soparkar stated that he has instructions from the assessee not to press this issue and accordingly he is not pressing the same. As this issue is not pressed by the assessee, the same is dismissed as not pressed.
4. The next issue in this appeal of assessee is against the order of CIT(A) in making adjustments in the book profit determined u/s.115JB of the Act on the basis of Form No.29B of the I.T. Rules, 1962. For this, assessee has raised the following ground No.2:-
"2. That the learned AO has erred din law and facts by making adjustment in the Book profit determined u/s.115JB of the AO. It should be correctly determined on the basis OF Form No.29B of the Income Tax Rules, 1962."
5. The brief facts leading to the above issue are that the Assessing Officer during the course of assessment proceedings noted that the assessee-company has worked out book profit at Rs.91,85,102/- u/s.115JB of the Act, after claiming additional depreciation of Rs.162.35 lakhs. According to AO, the assessee has shown less book profits by this amount of additional depreciation Rs.1,62,75,755/- and reduced the value of assets. The AO rejected the claim of the assessee and CIT(A) also confirmed the action of AO in view of the provision of Section 115JB Explanation (1)(i), as introduced by the Finance Act, 2002 w.r.e.f 1-4-2001. We find that with the ITA No.913/A/04,783/A/06 & 2482/A/05 A.Ys 01-02 & 02-03 Riddhi Siddhi Gluco Biols Ltd. v. ACIT Cir-3, A'bd Page 3 substitution of clause(1) to Explanation (1) by Finance Act, 2002 w.r.e.f. 1- 4-2001, there is change in the position of law to the effect that for the purpose of computation of "book profit" the net profit as shown in the profit and loss account for the relevant previous year prepared under sub- Section-(2) as increased by the amount mentioned in Clause(a) to (i) and if any amount referred to in clause (a) to (i) is debited to profit and loss account and as reduced by the amount withdrawn from reserve or provision, if any such amount is credited to the profit and loss account. It also provides that the amounts withdrawn from reserves in the nature of revaluation reserves, if credited to the profit and loss account, shall not be reduced from the book profit. It also provides that any amount withdrawn from a reserve or provision created on or after 1st day of April, 1997, and the profit and loss account shall not reduced from the book profit, unless the book profit in the year of creation of such reserves or provisions were increased by the amount transferred to such reserves or provisions at that time. The relevant sub-clause (i) to Explanation-I of Section 115JB reads as under:-
[(i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amounts credited to the profit and loss account:
Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation or Explanation below the second proviso to Section 115JA, as the case may be; or] In view of the above clear provision, we are of the view that the reserve was credited after 1-4-1997 and book profit was not increased for the year of creation, so the amount cannot be reduced from the book profit in the year under consideration. Hence, both the lower authorities have rightly made ITA No.913/A/04,783/A/06 & 2482/A/05 A.Ys 01-02 & 02-03 Riddhi Siddhi Gluco Biols Ltd. v. ACIT Cir-3, A'bd Page 4 addition of additional depreciation claimed by the assessee in the book profit for computation of income u/s. 115JB of the Act. Accordingly, this issue of the assessee's appeal is dismissed.
6. The next issue in this appeal of assessee is against the order of CIT(A) in not allowing the set off of carry forward loss/depreciation of M/s.K.G. Gluco Boils Ltd. For this, assessee has raised the following ground No.3:-
"3. That set off of carried forward loss/depreciation of M/s.K.G. Gluco Biols Limited and of the appellant company shall given."
7. At the outset Ld. Counsel for the assessee stated that this issue is covered by the Tribunal's decision in assessee's own case for assessment year 1997-98 in ITA No.404/Ahd/2002, wherein the Tribunal vide para-63 at page-22 has set aside the issue to the file of Assessing Officer, with the direction reproduced as under:-
"63. In paragraph 13 of this order, we have uphold the impugned order of the learned CIT(A) that the Rs.620 lakhs of addition to plant and machinery are the nature of self generated assets. For allowance of depreciation on the segregated assets, assessee is required to fulfill the conditions laid down and section 32 of the I.T. Act. One of the conditions is that the asset should be us for the purpose of business or profession. We accordingly restore this issue to the file of AO with the direction that the AO will examine the same keeping in view provisions contained in section 32 of the IT Act and allow the depreciation in accordance with the law."
The Ld. DR has not objected the setting aside of this issue. In view of the Tribunal's decision in assessee's own cases (supra), we find that even the CIT(A) has set aside this issue to the file of Assessing Officer vide para-6.1 of his appellate order as under:-
"6.1 Having considered the facts of the case and submission of the A.R., the assessing officer is directed to verify from the case records and allow correct set off of unabsorbed carry forward losses/depreciation as per provisions of the I.T. Act, while giving effect to this order."ITA No.913/A/04,783/A/06 & 2482/A/05 A.Ys 01-02 & 02-03
Riddhi Siddhi Gluco Biols Ltd. v. ACIT Cir-3, A'bd Page 5 We further direct the Assessing Officer to decide this issue in terms of Tribunal's decision as referred to above in assessee's own case. Accordingly, this issue of the assessee's appeal is set aside to the file of Assessing Officer and allowed for statistical purposes.
8. The next issue in this appeal of assessee is against the order of CIT(A) in confirming the charging of interest u/s.234B and 234C on the book profit computed u/s.115JB of the Act. For this, assessee has raised the following ground No.4:-
"4. That there is taxation on the book profit u/s.115JB of the Act and therefore interest under section 234B and 234C shall not levied and it should be deleted in full."
9. At the outset Ld. counsel for the assessee fairly conceded that this issue is covered in favour of Revenue and against the assessee in assessee's own case in ITA No.440/Ahd/2002 in para-15 as under:-
"15. It is pertinent to note that the issue whether short payment of advance tax when income is computed tax under section 115JA of the I.T. Act is liable for payment of interest under u/s.234B and 234C is subject-matter of conflicting interpretations by various High courts. Though the judgment of Hon'ble Gujarat High Court in favour of assessee is available when income is computed under section 115J of the Income-tax Act, but no decision of Gujarat High Court is available when income is computed u/s.115JA of the I.T. Act. Hon'ble Bombay High Court recently in the case of Snowchem India Ltd. Vs. DCIT (2009) 221 CTR (Bom) 591 took the view that interest u/s.234B and C is not leviable when income is computed under Section 115JA of the I.T. Act. 1961. ITAT Pune Bench In the case of Asstt. CIT Vs. Aaurangabad Holiday Resorts (P) after considering judgment of Honable Bombay high court in the case of Godavari Devi Saraf's 113 ITR 589 (Bom) and Thana Electricity Co. Ltd's 206 ITR 727 (Bom) in para 14 on page 6 of the Report observed that one cannot be oblivious to the fact that an interpretation is indeed possible to the effect that even non-jurisdictional high court judgment is binding on Tribunal. The non-jurisdictional high court judgment in favour of the assessee should be followed following the Supreme Court judgment in the case of case of CIT Vs. Vegetable Products Ltd. 88 ITR 192, when two interpretation was possible, one in favour of the assessee must be adopted. Be that as it may, recently in the case of M/s Kenel Oil & Exports Ind. Ltd in ITA No.2667/A/2002 for the assessment ITA No.913/A/04,783/A/06 & 2482/A/05 A.Ys 01-02 & 02-03 Riddhi Siddhi Gluco Biols Ltd. v. ACIT Cir-3, A'bd Page 6 year 1998-99 on account of difference of opinion amongst us regarding levy of interest when income is computed under Section 234B and 234C when income is computed under Section 115JA of the Act, the matter is referred under Section 255(4) of the I.T. Act to Hon'ble President and the opinion of 3rd Member is awaited. Therefore, in order, avoid multiplicity of the proceedings, we set aside the impugned order of the learned CIT(A) deleting the interest and restore this issue to the interest and restore this issue to the file of the Assessing Officer to decide the same afresh after the decision/opinion of 3rd Member in the above referred case or the judgment of Hon'ble jurisdictional High Court, if any, available at the relevant time. Accordingly, this ground is allowed for statistical purpose only."
As the issue is squarely covered in favour of Revenue and against the assessee, we dismiss this issue of assessee's appeal.
Coming to Revenue's appeal in ITA No.783/Ahd/2006.
10. The only issue in this appeal of Revenue is against the order of CIT(A) in deleting the penalty levied by Assessing Officer u/s.271(1)(c) of the Act. For this, Revenue has raised the effective ground No.1:-
"1. The Ld. Commissioner of Income-tax (Appeals)-XI, Ahmedabad has erred in law and on facts in deleting the penalty of Rs.62,50,765/- levied u/s.271(1)© of the I.T. Act."
11. As the facts are already mentioned in quantum appeal in ITA No.913/Ahd/2004, the facts in brief are again narrated for the sake of clarity. The Assessing Officer during the course of assessment proceedings noted that the assessee-company has worked out book profit at Rs.91,85,102/- u/s.115JB of the Act, after claiming additional depreciation of Rs.162.35 lakhs. According to AO, the assessee has shown less book profits by this amount of additional depreciation Rs.1,62,75,755/- and reduced the value of assets. The AO rejected the claim of the assessee and CIT(A) also confirmed the action of AO in view of the provision of Section 115JB Explanation (1)(i), as introduced by the Finance Act, 2002 w.r.e.f 1- 4-2001.The Assessing Officer on the disallowance of Rs.1,62,35,755/- on account of amount withdrawn by the assessee from general reserve for ITA No.913/A/04,783/A/06 & 2482/A/05 A.Ys 01-02 & 02-03 Riddhi Siddhi Gluco Biols Ltd. v. ACIT Cir-3, A'bd Page 7 arriving at book profit, levied penalty u/s.271(1)©. The AO levied the penalty and assessee contended before CIT(A) that adjustment made in the book profit is not concealment of income as the book profit has been determined on the basis of Form No.29B issued by Chartered Accountant (CA in short) and on that basis the assessee-company has paid MAT tax. According to assessee, it is a bona fide mistake, which does not attract penalty u/s.271(1)(c) of the Act. According to assessee, there is no concealment of any particulars of income and the issue under consideration is debatable one, for which no penalty u/s.271(1)(c) of the Act is to be levied. The CIT(A) deleted the penalty that assessee has filed full particulars regarding reduction of general reserve at Rs.1,62,35,755/- and there is no intention on the part of assessee to withhold any information or to conceal the particulars of income. According to CIT(A), assessee has disclosed all the necessary facts for the assessment in the return of income, which is supported by the Audited Accounts. Accordingly, he deleted the penalty. Aggrieved, Revenue came in appeal before Tribunal.
12. We have heard the rival contentions and gone through the facts and circumstances of the case, we find that Assessing Officer has levied the penalty on the reduction of book profit by the amount of general reserve for arriving at reduce book profit by the amount of Rs.1,62,35,755/-. Ld. SR-DR stated that there is no question of any mens rea in the levy of penalty as held by CIT(A). We find from the order of CIT(A) that the penalty is deleted first on the basis that the adjustment made in the book profit is not a concealment of income as the book profit has been determined on the basis of a report from CA in Form No.29B which contains details. The assessee has disclosed complete particulars and not paying MAT tax on the reserve amount withdrawn by assessee is on the basis of certificate issued by the CA for MAT computation u/s.115JB of the Act. We find that the explanation of the assessee is a bona fide explanation as the assessee was acting on the advise of CA and moreover, assessee has filed complete details for ITA No.913/A/04,783/A/06 & 2482/A/05 A.Ys 01-02 & 02-03 Riddhi Siddhi Gluco Biols Ltd. v. ACIT Cir-3, A'bd Page 8 computation of its book profit in Form No.29B. Ld. counsel for assessee placed reliance on the case law of Hon'ble apex court in the case of CIT v. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 174 (SC), wherein the Hon'ble apex court has held :-
"We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as:
"not accurate, not exact or correct ; not according to truth ' erroneous ' as an inaccurate statement, copy or transcript."
We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars."
13. We find from the above facts that the assessee has filed computation of income on the basis of Auditor's certificate in Form No.29B under IT Rules, 1962 computing 'Book Profit' under section 115JB of the Act. Before us, the Revenue could not show that the mistake by the CA was not bona fide and mere fact that certificate issued by the CA was not in accordance with Form No.29B of the IT Rules, 62, which is not enough to hold that the mistake was not bona fide. In our view, as far as the assessee's concerned, no mala fide can be attributed to treat and claim of deduction of additional depreciation was based on certificated issued by CA with whom no collusion of the assessee was established. Accordingly, the finding recorded by CIT(A) did not lack bona fides and his order canceling the penalty was clearly justified. Accordingly, we confirm the order of CIT(A) deleting the penalty and this issue of Revenue's appeal is dismissed.
ITA No.913/A/04,783/A/06 & 2482/A/05 A.Ys 01-02 & 02-03Riddhi Siddhi Gluco Biols Ltd. v. ACIT Cir-3, A'bd Page 9 Coming to Revenue's appeal in ITA No.2482/Ahd/2005.
14. The issue No.1 and 2 in this appeal of Revenue is against the order of CIT(A) in deleting the additions made on account of pre-operative interest treated as capital in nature. For this, Revenue has raised the following ground No.1 and 2:-
"1. The Ld. Commissioner of Income-tax (Appeals)-XI, Ahmedabad has erred in law and on facts in deleting the addition of made by the A.O of Rs.3,21,34,149/- on pre-op interest being treated as capital expenditure.
2. The Ld. Commissioner of Income-tax (Appeals)-XI, Ahmedabad has erred in law and on facts in deleting, the addition of Rs.1,68,72,943/- on account of pre-op expenses being treated as capital expenses and directed the A.O to allow the same as revenue expenses."
15. The brief facts leading to the above two issues are that the assessee has claimed expenses at Rs.3,21,34,149/- and a sum of Rs.1,68,72,943/- as pre-operative expenses as under:-
i) Traveling expenses
ii) Bank Charges
iii) Administrative expenses
iv) Inauguration expenses
v) Erection & commissioning
vi) Inspection charges
vii) Postages
viii) Up front fees
ix) Insurance
x) Legal & Professional charges
xi) Stores & Consumables
xii) Design charges
xiii) Transportation charges
16 The Assessing Officer has made above additions relying on the earlier years order for and from assessment years 1997-98 to 2000-01 as the Ld. Counsel for the assessee before us stated that on both issues, Tribunal in ITA No.440/Ahd/2002 for assessment year 1997-98 has allowed the claim of assessee vide para No.7 & 8 as under:-
"7. Briefly stated the fact are that assessee had claimed in the statement of income, expenditure of Rs.7679481/- which was treated ITA No.913/A/04,783/A/06 & 2482/A/05 A.Ys 01-02 & 02-03 Riddhi Siddhi Gluco Biols Ltd. v. ACIT Cir-3, A'bd Page 10 as capital expenditure and added in the cost of assets by the assessee itself. The details of the following revenue expenditure claimed in the statement of income were submitted by the assessee vide its submission dated 8.2.2000 as under:
Consumables stores and spares 696442
Salary and wages 1023339
Traveling expenses 84332
Telephone and postage 140056
Interest 5507312
Professional fees 228000
7679481
The assessee claimed the interest expenditure to be revenue in nature under section 36(1)(iii) of the Act, whereas the AO treated the same to be of credit expenditure and accordingly addition of Rs.7679481. On appeal, in the impugned order, the learned CIT(A) relying on the decision of Hon'ble Gujarat High court in the case of CIT v. Core Health Care Limited [251 ITR 61 (Guj)] (affirmed by Honble Supreme Court reported in 298 ITR 194 (SC)] held the pre- operative interest is allowable as revenue expenditure under section 36(1)(iii) of the Act. Further relying on the decision of ITAT, Ahmedabad the case of United Phosphorous Limited Vs JCIT reported in 73 TTJ (Ahmedabad) 404 (2001), held that that traveling and salary & wages expenses pertaining new units/projects were allowed as revenue expenditure. Accordingly, the learned CIT(A) held that interest expense of Rs.5507312, salary and wage expenses of Rs.1023339 and traveling expenses of Rs.84332 are allowable revenue expenditure and accordingly he directed the Assessing Officer to allow Rs.6614983 as revenue expenditure. The balance amount of Rs.1148830/- relating to expenditure on consumable stores and spares, telephone & postage and professional fees was treated as capital and action of Assessing Officer for the disallowance made for the balance was confirmed. The AO was also directed to withdraw any depreciation allowed on Rs.6614983 and calculate and allow depreciation on Rs.1148830, if not allowed.
8. Having heard both sides, we are full agreement with the view taken by the learned CIT(A) in this regard by following the judicial pronouncements as referred to in the appellate order. Therefore, we do not find any infirmity in the impugned order of the learned CIT(A) in allowing the expenditures on interest, salary and wages, traveling and as such, we uphold the same and dismiss ground Nos. II and III of the Revenue."ITA No.913/A/04,783/A/06 & 2482/A/05 A.Ys 01-02 & 02-03
Riddhi Siddhi Gluco Biols Ltd. v. ACIT Cir-3, A'bd Page 11
17. And as regards interest the Tribunal has allowed the issue in para-54 as under:-
"54. Heard both parties and perused the record. There is no dispute of the fact that the assessee company had debited pre-operative interest expenses of Rs.80,00,000/- for expansion of business for the year and It had been treated as revenue expenses in the account specifically prepared for Sec. 115JA of the Act. It is pertinent to note that we have already decided similar issue in paragraphs 7 and 8 of this order in favour of the assessee following the decision of Hon'ble Gujarat High Court in the case of CIT v. Core Health Care Limited [251 ITR 61 (Guj)] [(affirmed by Hon'ble Supreme Court reported in 298 ITR 194 (SC)] held that pre-operative interest is allowable as revenue expenditure under section 36(1)(iii) of the Act. We, therefore, uphold the impugned order of the learned CIT(A) and dismiss Ground No.1 of the Revenue."
Ld. CIT-DR referred to the decision of Hon'ble apex court in the case of CIT v. Sri Mangayarkarasi Mills P. Ltd. (2009) 315 ITR 114 (SC) and particularly referred to the findings of Hon'ble apex court in page-124 as under:-
"It is clear on record that the assessee has sought to treat the said expenditure differently for the purposes of computing its profit and for the purpose of payment of income-tax. The said expenditure has been treated as and to the existing assets in the former and as revenue expenditure in the latter. Though accounting practices may not be the best guide in determining the nature of expenditure, in this case they are indicative of what the assessee itself thought of the expenditure it made on replacement of machinery and that the claim for deduction under the Act was made merely to diminish the tax burden, and not under the belief that it was actually revenue expenditure."
Ld. CIT-DR further stated that Assessing Officer has rightly disallowed the pre-operative expenses on account of various items including interest. On the other hand, Ld. counsel for assessee, Shri Soparkar stated that the issue has been deliberately considered by Hon'ble Supreme Court in the case of DCIT v. Core Health Care Ltd. (2008) 298 ITR 194 (SC) wherein it is held as under:-
"Interest on moneys borrowed for the purposes of business is a necessary item of expenditure in a business. For allowance of a claim for deduction of interest under the said section, all that is necessary is that, firstly, the money, i.e., capital, must have been borrowed by the assessee ; secondly, ITA No.913/A/04,783/A/06 & 2482/A/05 A.Ys 01-02 & 02-03 Riddhi Siddhi Gluco Biols Ltd. v. ACIT Cir-3, A'bd Page 12 it must have been borrowed for the purpose of business ; and, thirdly, the assessee must have paid interest on the borrowed amount (see Calico Dyeing and Printing Works v. CIT [1958] 34 ITR 265 (Bom). All that is germane is : whether the borrowing was, or was not, for the purpose of business. The expression "for the purpose of business" occurring in section 36(1)(iii) indicates that once the test of "for the purpose of business" is satisfied in respect of the capital borrowed, the assessee would be entitled to deduction under section 36(1)(iii) of the Act. This provision makes no distinction between money borrowed to acquire a capital asset or a revenue asset. All that the section requires is that the assessee must borrow capital and the purpose of the borrowing must be for business which is carried on by the assessee in the year of account. What clause (iii) emphasizes is the user of the capital and not the user of the asset which comes into existence as a result of the borrowed capital unlike section 37 which expressly excludes an expense of a capital nature. The Legislature has, there4fore, made no distinction in section 36(1)(iii) between "capital borrowed for a revenue purpose" and "capital borrowed for a capital purpose". An assessee is entitled to claim interest paid on borrowed capital provided that capital is used for business purpose irrespective of what may be the result of using the capital which the assessee has borrowed. Further, the words "actual cost" do not find place in section 36(1)(iii) of the 1961 Act which otherwise find place in sections 32, 32A, etc., of the 1961 Act. The expression "actual cost" is defined in section 43(1) of the 1961 Act which is essentially a definition section which is subject to the context to the contrary.
18. And he also referred to the case laws in the case of Tuticorin Alkali Chemicals And Fertilizers Ltd. v. CIT (1997) 227 ITR 172 (SC); in the case of CIT v. Alembic Glass Industries Ltd. (1976) 103 ITR 715 (Guj),wherein Hon'ble jurisdictional High Court has held as under:-
"Section 36(1)(iii) of the Income-tax Act, 1961, has to be read on its own terms; it is a code by itself. It makes no distinction between money borrowed to acquire a capital asset or a revenue asset. All that the section requires is that the assessee must borrow capital and the purpose of the borrowing must be for business which is carried on by the assessee in the year of account. Unlike section 37 which expressly excludes an expense of a capital nature, section 36(1)(iii) emphasizes the user of the capital and not the user of the asset which comes into existence as a result of the borrowed capital. The Legislature has, therefore, made no distinction in section 36(1)((iii) between "capital borrowed for a revenue purpose" and "capital borrowed for a capital purpose":. An assessee is entitled to claim interest paid on borrowed capital provided that the capital is used for business purpose irrespective of what may be the result of using the capital which the assessee has borrowed. "Actual cost" of an asset has no relevancy in relation to section 36(1)(iii).ITA No.913/A/04,783/A/06 & 2482/A/05 A.Ys 01-02 & 02-03
Riddhi Siddhi Gluco Biols Ltd. v. ACIT Cir-3, A'bd Page 13 The proviso inserted in section 36(1)(iiii) by the Finance Act, 2003, with effect from April 1,2004, will operate prospectively."
19. We find that this issue of pre-operative expenses on account of interest and other expenses is fully covered by the Hon'ble apex court's judgment and also in assessee's own case by Tribunal's order in assessee's earlier years cited (supra) As the issue is covered by the Hon'ble Apex Court's decision in the case of Core Health Care Ltd. (supra). Respectfully following the judgment of Hon'ble Apex Court, we uphold the order of CIT(A) and this issue of the Revenue's appeal is dismissed.
20. The next issue in this appeal of Revenue is against the order of CIT(A) in directing the Assessing Officer not to include the pre-operative expenses of book profit u/s.115JB of the Act. For this, Revenue has raised the following ground No.3:-
"3. The Ld. CIT(A) A'bad has erred in law and on facts in directing the A.O not to include the above said pre-op expenses while re- computing the book profit u/s.155JB of the Act."
21. At the outset Ld. Counsel for the assessee stated that this issue is squarely covered by the decision of Hon'ble apex court in the case of Apollo Tyres Ltd. v CIT (2002) 255 ITR 273 (SC) and further stated that the CIT(A) allowed the claim of assessee in earlier years by giving following findings in para-7.1 of his appellate order:-
"7.1 I have perused the submissions and the decision relied upon by the A.R. of the appellant carefully. I have also gone through the decision of my predecessor in the appellant's own case for earlier years and the observation of the assessing officer in the assessment order. Having considered the facts of the case and respectfully following the ratio of the decision of Supreme Court, relied upon by the A.R and the orders of my predecessor in the appellant's own case for A.Ys 1998-99, 1999-2000 and 2000-01, the assessing officer is directed not to include the above said additions while re-computing the Book Profit u/s.115JB of the Act."
22. We find that the judgment of Hon'ble apex court in the case of Apollo Tyres Ltd. (supra) is applicable, wherein it is held that for computation of ITA No.913/A/04,783/A/06 & 2482/A/05 A.Ys 01-02 & 02-03 Riddhi Siddhi Gluco Biols Ltd. v. ACIT Cir-3, A'bd Page 14 income u/s.115JB, the profit and loss account prepared by assessee- company as approved in the Annual General Meeting and certified by Auditor in accordance with the requirement of part-II and III of Schedule-IV of the Companies Act, cannot be examined by the Assessing Officer. Further for the purpose of income in view of the term "book profit", as per Section 115JB of the Act, only those adjustments, which are specified in the Explanation to Section 115JB can be made from the "book profits" and depreciation not being one of them and further the accounts of the assessee-company having been prepared in accordance with Schedule-VI to the Companies Act, 1956. The Assessing Officer was in error in disallowing the depreciation as claimed by the assessee-company. In view of the above, we confirm the order or CIT(A) and this issue of Revenue's appeal is dismissed.
23. The next issue in this appeal of Revenue is against the order of CIT(A) allowing the claim of the assessee not to levy interest u/s.234B and 234C of the Act while computing income u/s.115JB of the Act.
24. This issue we have already dealt with in assessee's appeal in ITA No.913/Ahd/2004 in this very order in para-8 & 9, wherein we have dismissed the assessee's ground and this issue is decided in favour of Revenue. Respectfully following the same, we allow the claim of Revenue.
25. In the result, assessee's appeal in ITA No.913/Ahd/2004 and that or Revenue's appeal in ITA No.2482/Ahd/2006 are partly allowed and Revenue's appeal in ITA No.783/Ahd/2006 is dismissed.
Order pronounced on this day of 1st Oct,2010
Sd/- Sd/-
(G.D.Agarwal) (Mahavir Singh)
(Vice President) (Judicial Member)
Ahmedabad,
Dated : 01/10/2010
ITA No.913/A/04,783/A/06 & 2482/A/05 A.Ys 01-02 & 02-03
Riddhi Siddhi Gluco Biols Ltd. v. ACIT Cir-3, A'bd Page 15
*Dkp
Copy of the Order forwarded to:-
1. The Assessee.
2. The Revenue.
3. The CIT(Appeals)-
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
/True copy/
Deputy/Asstt.Registrar
ITAT, Ahmedabad