Cit v. Federal-Logul Goetze (India) Ltd

SANJIV KHANNA, J.; For detailed order see ITA 1179/2010, The Commissioner of Income Tax (Central-II) Vs. Goetze (India) Limited pronounced today. DECEMBER 9'^ 2013 NA -^-7/ L (SANJIV KHANNA) JUDGE (SANJEEV SACHDEVA) JUDGE '•V-v-9^ * • IN THE HIGH COtl|?-T OF DELHI AT NEW DELHI + TNCOMETAX APPEAL No. 1179/2010 Reserved on; 22"'^October, 2013 Date of decision: December, 2013 i (AssessmentYear2000-01) THE COMMISSIONEROF INCOMETAX (CENTRAL-Q) Appellant ThroughMr. RohitMadan,Advocate. versus GOETZK(INDIA)LIMITED Respondent Through Mr. S. Ganesh, Sr. Advocate with Ms. Geetanjali Mohan and Ms. Mansi Gautam, Advocates. IT A No. 1366/2010 (AssessmentYear2000-01) • THE COMMISSIONEROF INCOMETAX (CENTRAL-II) ' Appellant ThroughMr. RohitMadan. Advocate. versus FFDFRAL-MOGUI,GOETZE(INDIA)LIMITED Respondent Through Mr. S. Ganesh, Sr. Advocate with Ms. Geetanjali Mohan and Ms. Mansi Gautam, Advocates. i . INCOMETAX AP'PEAT,No. 1979/2010 (AssessmentYear2001-02) THE COMMISSIONEROF INCOMETAX (CF,N'I-RAL4I) •^ Appellant ThroughMr. RohitMadan,Advocate. ITA Nos. 1179/2010,1j66.'7.010, 1979/2010&2106/2010 ' versus Gautam,Advocates. 2001-02) •thecommissionerofincometax ^ppjjUant (CENTRAL-II) Advocate. • versus Respondent Gautam,Advocates. • cORAM: SANJIVKHANNA SS MR.Sc«SANWVSACroEVA SATWVKHAfflAilil T Ti1366/2010 . oAHAofthe • xhesetwo appealsby .heReve..eunae.SecUon ^ , ,,..ActI96I(Act,fo.s.on)t.e.atetoAssess™e"tYeat.000 IncomeTaxAct, Qoetze (India) Limited 0, we note that the name of the assessee-Goe . and ,s now-knownas Federal-MogulGoetze underwentaname changean A bv orderdated , vtaNos 1179/2010and 1366/2U1U > •(India)Um.ted. InlTANos.11 16".May.2012,the followingsubstantialquestion ^ Page2oi '10 ^ i-^cnnlQ iq79/2010&.2106/2010 • n-ANos.1179/2010,1-^66/2010-1 Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961?"

¶2The rcspondent-assesseefor the assessmentyear 2000-01 had filed return of income oil 31'' November, 2000 declaring loss of Rs.3,05,26,654/-under normal provisionsand positivebook profit of R&.2,86,09,379/-under Section 115JA of the Act. This return was subsequentlyrevisedon 28"' March, 2002 and the positivebookprofit declared under Section 115JA was reduced to Rs.1,92,73,285/-. By assessment order dated 28^'^ February, 2003, income declared under Section115JAwas acceptedbut some additionswere made on income computed under the normal provisions and it was enhanced to Rs.2,45,57,950/-.

¶3. Commissionerof Income Tax, thereafterpassed an order under Section263 of the Act observingthat incomecomputed'under Section 115JA by the AssessingOfficerwas erroneousand prejudicialto the interestof the Revenueon two accounts;(a) the Assessingofficerhad wrongly allowed deduction of Rs.1.53 crores made in the revised return and excludedthis figure from the book profits; (b) expenditure of Rs.183.63 lacs was incurredfor earning of exempt dividend income under Section 14A of the Act but this expenditurewas not disallowed though the respondent-assesseehad earned dividend income of. Rs.157.85lacs, whichwas exemptunderSection10(33)of theAct. i ITANos. 1179/2010, 1366/2010,1979/2010&2106/2010 Page3oF40

¶4Consequently, the Assessing Officer vide order dated S"' ,Januai7,2005passedan order givingeffectto the orderpassedby the Commissionerunder Secion 263 of the Act. Tiie respondent-assessee preferredan appeal beforethe CommissionerofIncometax (Appeals) againstthe said order but the same was rejectedon the two issues in questionvide order dated 29"^ November,2006 read with order dated 23''' .Tune,2008 under Section154 of the Act.

¶5The respondent-assesseeprefen-ed further appeal before the tribunal being ITA No. 409/Del/2007and also preferred an appeal againstthe order of Commissionerof IncomeTax under Section263, which was registeredas ITA No. 208/Del/2005.The said appealshave been allowed, with the order under section 263 being quashed/set aside.

¶6The first questionraised is whetherthe orderunder Section263 of the Act is Justified and in accordancewith law. Section 263 has been elucidatedand explainedin CommissionerofIncome Tax versus Nagesh KnitwearsPrivateLimited, (2012) 345 ITR 135 (Delhi). In thesaiddecision,referencewas made to Malabar Industrial Company Limitedversus CIT;(2000) 243 ITR 83 (SC) and decisionsof Delhi •High Court in Nabha InvestmentsPrivateLimitedversus Union of India, (2000) 246 ITR 41 (Delhi) and ITO versus DG Housing ProjectsLimited,(2012)343 ITR 329 (Delhi). It has been observedin ITANos. 1179/2010, 1366/2010,1979/2010&2106/2010 Page4or40 Nagesh KnitwearsFrivaU Limited(Supra) "10. Revenuedoes not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. Section 263 has beein enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be eiToneous and secondly, it should be prejudicial to the interest of the Revenue. The expression 'prejudicial to the interest of the Revenue' is of wide import and is not.confined to merely loss of tax. The term 'erroneous' means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an .order unsustainable in law.

¶11Thq Assessing Officer is both an investigatorand an adjudicator.If the Assessing Officer as an adjudicatordecides a question or aspect and makes a wrong assessment which is unsustainablein law, it can be corrected by the Commissionerin exerciseof revisionarypower. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required' to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word 'erroneous' includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or^verificationhas not been made and not because a wrong order has been passed on merits. |

¶12Delhi High Court in Gee Vee Enterprises v. Additional Commission of Income~Tax, Delhi-1, (1975) 99 ITR 375, has observed as under:- ITANos. 1179/2010, 1366/2010,1979/2010&2106/2010 Page5of40 "The reason is obvious. The position and function of the Incomp-tax Officer is very , different from that of a civil court^ The statementsmade in a pleading proved by the minimumamountof evidencemay be accepted bv a civil court in the absenceof any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidencewhich comes before it. The Income-tax Officer is not only an adjudicatorbut also an investigator.He cannotremainpassivemthe face ofareturnwhichis apparentlyin orderbut calls for forther inquiry. It is his ^irty o ascertain the truth of the facts stated mfte return when the circumstancesof the case are such as to provokean inquiry.The meamngto be givento the word"erroneous"msection^63 emerges out of this context. It is because it is incumbenton the Income-taxOfficerto forther investigatethe facts stated in the return when circumstances would make such^^an inqmry prudent that the word "erroneous msection 263 includes the failure to make such an inquiry.The order becomes eiToneousbecause such an inquiry has not been made and not becausethere is anythingwrongwith the order if all the facts statedthereinare assumedto be correct." 7, Referencewas also made to decisionsofthe SupremeCourt m Ran.pyanDenSaraogi CIT, (1968)67 ITR 84 (SC) and Tara DevlAggar^al(Smt) versusCIT, (1973)88 ITR 323 (SC) whereinit has been observedthat where the AssessingOfficer had accepteda .particularcontentionor issue without inquiry whatsoever,the order was erroneousand prejudicialto the interestof Revenue. These two decisionswere explamedin the case ofDG HousingProjectLimUed ITA Nos, 1179/201.0.1366/2010J1979/2010&2106/2010 (supra)-in the followingwords;- "These two decisions show that it is not necessaryfor thp Commissionerto makefurther inquiriesbefor|cancellingthe assessmentorder of the IncomltaxOfficer. The Commissioner can regardth^'orderas erroneouson the ground that in the /circumstances of the case the Income-taxOfficer should have made further inquiriesbejlDre acceptingthe statementsmade by the asse5j|eein his retLirn. 14 The aforesaid observations have to be understoodMn the factual background and matrixinvolvedin the saidtwo casesbeforethe SupremeCourt.In the said cases,the Assessing Officer had not conducted any enquiry oi examinedevidencewhatsoever.Therewas total absenceoi enquiry or verification.These cases have to be distinguishedfrom other cases (i) where thire is enquiry but the findings are incorrect/en-oneous;and (ii) where there is failure to make proper or full verificationor enquiry."

¶8In NagesitKnitwearsPrivateLtd. (supra),referencewas madeto CIT Vs. SunbeamAuto Ltd. (2011) 332 ITR•167.\vith the foUowing quotefrom the laterdecision;- "15 In the case of CIT v. SunbeamAuto Ltd

(2011) 332 ITR 167 (Delhi), the Delhi High Courtwas consideringthe aspect,whenthere is no properor full verificationand it was held as under(page 179) "We have consideredthe rival,submissions of the counsel on the other side and have gone through the records. The first issue that arises for our considerationis about the exercise of power by the Commissioner of Income-tax ITANos.1179/2010/1366/2010,1979/2010&2106/2010 rdge7of40 under section 263 of the Income-tax Act. As noted above, the submissionof learnedcounsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditurein questionwas revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditureas revenue expenditure.However, that by itselfwouldnot be indicativeofthe fact that the AssessingOfficerhad not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item ofdeduction,etc. Therefore,one has to see from the record as to whether there was application of mind before allowing the expenditurein questionas revenueexpenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequateinquiiy".If there was any inquiry, even inadequatethat would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a differentopinionin the matter. It is only in cases of "lack of inquiry" that such a course of action would be open. In GabrielIndia Ltd. [1993] 203 ITRT08 (Bom), law on this aspect was discussed in the following manner (page 113): .... From a rendingof sub-section(1) of section. 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examinationof the records of any proceedingsunder this Act, he considers that any order passed therein by the Income-tax Officer is 'erroneous in so far as it is prejudicial to the interests of the Revenue'. If is not an arbitrary or unchartered power, it can be !TA Nos. 1179/2010.1366/2010.1979/2010&2106/2010 f'age 8or^O exercised only on folfilment of the requirementslaid down in sub-section(1). Fhe consideration of the Commissioner as to whether an order is erroneousin so far as it is prejudicialto the interestsofthe Revenue,must, be based on materials on the record of the proceedingscalled for by him. If there are no materialson recordon the basis ofwhich it can be said that the Commissioner acting in a ^ reasonablemanner could have come to such a G' conclusion,the very initiationof proceedings by him will be .illegaland withoutjurisdiction. The Commissionercannot initiateproceedings with a view to starting fishing and roving enquiriesin mattersor orderswhich are already concluded.Such actionwill be againstthe well-accepted policy of law that there must be a point of finality in all legal proceedings,that stale issues shouldnot be reactivatedbeyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicialcontroversiesas it must in other spheres of human activity. (SeeParashurain Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) at page 10) ... From the aforesaid definitionsit is clear, that an order,cannot be termed as erroneous unless it is not^ in accordancewith law. If an Income-taxOfficer acting in accordancewith law makes a certain assessment, the same cannot be bianded as eiToneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This sectiondoes not visualisea case of substitution ofthejudgmentofthe Commissionerfor that of the Income-taxOfficer, who passed the order unless the decision is held to be erroneous. Cases may be visualisedwhere the Income^ax Officer while making an assessmentexamines the accounts,malces enquiries,applieshis mind to the facts and circumstancesof the case and determinesthe income either by acceptingthe accounts or by making some estimatehimself ITANos. 1179/2010,1366/2010,1979/2010&2106/2010 I>age9ol40, The Commissioner, on perusal of the records. may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one.determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion ... There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete intei-pretationa lesser tax than what was just has been imposed ..."

¶9Thereafter, it was observed and elucidated in Nagesh Knitwears Private Limited (Supra), when and how power under Section.263 can be exercised where there was no proper or full verification and when the twin pre-conditions are satisfied:- "Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate ITANos. 1179/2010, 1366/2010, 1979/2010& 2106/2010 Page 10oF40 enquiry but not lack of enquiiy,again the CIT must give and record a finding that tlie order/inquiry made is erroneous. This can happen if an enquiry and verification is conductedby the CIT and he is ableto establish and show the error or mistake made by the. Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on recordper se justified and mandated further enquiry or investigationbut the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguousand not debatable. The matter carmot be. remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction . under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officerwould imply and mean the CIT has not 'examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. This distinction must be kept in mind by the CIT while exercisingjurisdictionunder Section 263 of the Act and in the absence of the finding that the order is erroneous'and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of' alleged "inadequate investigation",it will be difficultto hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry.The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsiderationon this ground but only when the order is ITANos. 1!79/2()1().1360/2010,1979/2010&2106/2010 eiToneous.An order of remit cannotbe passed by the CIT to ask the Assessing Officer to decidewhetherthe orderwas erroneous.This is not permissible. An order is not erroneous, unlessthe CIT hold and recordsreasonswhy it is eiToneous. An order will not become erroneous because on remit, the Assessing Officermay decidethat the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The iurisdictionalpreconditionstipulatedis that the CIT must cometo the conclusionthat the ordei is eiToneous and is unsustainablein law. We may noticethat the materialwhichthe CIT can relY includesnot only the record as it stands at the time when the order in questionwas passed by the AssessingOfficerbut also the record as it stands at the time ofexaminationby the Lii fsee CITv Shree Manjunathesware Packing. Products: 2?>\ ITR

(SC)] Nothing bars/prohibits the CIT from collectog and relying upon new/additionalmaterial/evidence to show and state that the order of the AssessingOfficeris erroneous. It is in this context that the Supreme Court in MolabarIndustrialCo. Ltd v. Cornmissiomr of Income Tax, (2000) 243 ITR 83 (SC), had obsei-ved that the phrase 'prejudicial to the interest of Revenue' has to be read in conjunctionwith an erroneousorder passed by the AssessingOfficer.Every loss ofRevenueas a consequence of an order of the Assessing Officer cannot be treated as prejudicialto the interestof Revenue.Thus, when the Assessing Officer had adopted one of the courses permissibleand availableto him, and this has resultedin loss to Revenue;or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree, the said orders cannot be treated as an erroneous order prejudicial to the interest ol Revenue unless the view taken by the rrANos. 1179/2010, 1366/2010,1979/2010&2106/2010 '12ot40 Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue." Id. In the facts of the present case, as we examine the factual position, the Commissioner in her. order under Section has recorded specific findings as to why and for what reason she felt that the order passed by the Assessing Officer on two accounts was erroneous and prejudicial to the interest of Revenue. For the reasons set out in the order, which we need not at this stage elaborate as this is a question of merits, we reject the contention of the respondent-assessee and also the findings and reasoning of the tribunal that the Commissioner could not have invoked power and jurisdiction under Section 263 of the Act, because the Assessing Officer had taken a probable view, which may be debatable and not acceptable to the Revenue. When an Assessing Officer takes a view but the said view is not coiTect, erroneous as per the findings recorded by the Commissioner, along with the finding that the order passed by the Assessing Officer was prejudicial to the interest of the Revenue, then the order of the Commissioner cannot be set aside on the ground that the two views were possible or probable. In such cases, the order under Section 263 of the Act can be set aside if the findings accorded ITANos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 by the Commissionertalcingthe particularview, whether on facts or in law, is wrong or incorrector the orderof the AssessingOfficerwas not •prejudicialto the interestofthe Revenue. The first aspectis essentially a questionof merits and not a questionrelatingto whetheror not two views were possible. Commissionercan examinethe issue on merits even when the same issue was examined by the assessing officer. •Principles of change of opinion do not apply. If an order of the assessingofficeris held to be erroneousand prejudicialto the interest of the revenue, it can be revised. The contentionof the assessee and the reasoning of the tribunal in this regard is clearly fallacious as Revenue does not have any right to appeal against the order of the AssessingOfficer. It is in these circumstancesthat power of revision has been conferred on the Commissioner under Section 263 of the Act to correct erroneousorders which are also prejudicialto the interestof Revenue. Observations of the Supreme Court in the case of Malabar Industrial Company Limited (supra) have to be understood in the context in which they were made. An order will not be erroneous,if the Commissioner does not decide whether the order of the assessing officer is erroneous but observes that two views are possible and yet remits the issue for fresh decision by the Assessing Officer. However, it would be incorrectto state as a broadpropositionthat an orderof the Assessing officer cannot be erroneous, if the Assessing Officer has rrANos. 1179/2010, 1366/2010,1979/2010&2106/2010 ''age Mof'lO taken one of the two views possible. In such cases the order of the assessing officer is erroneous provided the Commissioner holds and is able to demonstrate that the view taken by the Assessing Officer was not plausible, being legally unsustainable and incorrect. But the said finding must be recorded. This would satisfy the statutory requirement that the order passed and made subject matter of revision was erroneous, subject to the second condition that the order under review should also be prejudicial to the interest of the Revenue.

¶11This brings us to the question of computation under Section 115JA of the Act and the order passed by the Commissioner on merits directing that Rs.1.53 crores should be added to the book profits on account of transfer from the -revaluation reserve. The question is whether the Commissioner was right in holding that the order of the assessing officer on the said aspect was erroneous on merit? The following facts may be noticed:

(i) Respondent-assessee had passed entries in the books of accounts on 30^'^ June, 1986 debiting Rs.40.84 crores to the asset revaluation account and crediting the same to capital reserve. This entry was not routed through the profit and loss account. Thus, the profit and loss account did not reflect this entry.

(ii) The respondent-assessee had claimed depreciation on the enhancedvalue of the assets, which stood enhancedw.e.f 30"^ June, ITANos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 1986 by Rs.40.84 crores.

(iii) In the year in question, Rs.1.53 crores was withdrawn from this reserve and was credited to the depreciation account. Thus reducing the enhanced value of the assets and increasing the book profits.

(iv) As per the annual report and audit report filed with the Registrar of Companies by the respondent-assessee, Rs.1.53 crores was credited to the profit and loss ,account and this enhanced the profits by this figure. The book profits calculated and audited in accordance with the provisions of Companies Act included this amount of Rs.l .53 crores.

(v) In the return filed on 30"^ November,2000, Rs.1.53 crores was included in the computation sheet' declaring the book profits as per Section 115JA of the Act.

(vi) In the revised return filed on 28"^ March, 2002, book profits were recalculated for the purpose of the income tax return, and not for the purpose of the return or statements filed before Registrar of 'Companies, by reducing this amount of Rs.1.53 crores from the book •profits on which tax under section 115JA was payable. , 12. Before the Commissioner, , the respondent-assessee had submittedthat the reservewas createdprior to 1^' day of April, 1997 and, therefore, withdrawal from the reserve was required to be reduced •from the profit and loss account in terms of clause (i) of proviso of Explanationto Section 115JA. The said Explanationwas amendedby !TANos. 1179/2010, 1366/2010,1979/2010& 2106/2010 Page 16of'lO r FinanceAct, 2000 with effectfrom 1®' April, 2001 to excludereserves createdon or after 1^' day of April, 1997 but endingbeforethe 1^' day of April, 2001, othei-wise than by debit to the profit and loss account. Reliance was placed upon the decision of the tribunal in the case of SRFLimited versus ACIT, reported in (1993) 47 ITD 504.

¶13The Commissioner rejected the said contentions observing that clause (i) was applicable only when the amounts were withdrawn from any reserve which had been credited to profit and loss account. Once sub-clause (i) was not applicable, book profits calculated in accordance with the provisions of the Companies Act cannot be disturbed or recalculated in terms of the judgment of the Supreme Court in Apollo Tyres Limited versus Commissioner of Income Tax, (2002) 255 ITR

(SC). It was observed that the respondent had claimed depreciation on enhanced value and as per accounting standards, withdrawal from the capital reserve was to be debited to the depreciation account and credited to the profit and loss account. Withdrawals from the reserve were required to be credited to profit and loss account, as at the time of creation of reserve it was not routed through the profit and loss account. Judgment of the tribunal in the case of SRF Limited (supra) was not applicable as it was not in •consonance with the law declared by the Supreme Court in Apollo Tyres Limited (supra). ITANos. 1179/2010, 1366/2010. 1979/2010& 2106/2010 Page Uof'IO

¶14Tribunalin tlieimpugnedorderon meritsdid not agreewith tlie Commissionerand l«s observedthat clause (i) permits reductionof amountwithdrawnfrom any reserve if such amountwas creditedto profitand lossaccount Theproviso,whichincorporatesan exception, was inapplicableas the provision/reservewas not createdduringthe period1" April,1997till30"March,2001. Thus,bookadjustmentfor tlreseyearswas permissibleandnotbarreduirdertheproviso.

¶15In orderto appreciatethe controversyon merits,we would like to reproducethe relevantportion of Section 115JA. which reads as under> "115JA. Beemed income relatingto certain co».pames.-(l) Notwithstanding anythm^ , contLedin any other provisionsof this Act where in the case of an ' company,the total income,as computedunder this Actin respectof any previous to the assessmentyear commencingon o af^ the 1st day of April. 1997 2but before the 1st day of April, 2001 (hereaftermthis section referredto as the relevantprevious ^ than thirtyper cent, of its book ^ income of such assesseechargeableto tax tor , the relevantpreviousyear shall be be an amountequal to thirty per cent, of such book profit.

(2) Every assessee,beingacompany,shall,for the purposes of this sectionprepare its profit . :;d losTaccoumfor the relevantP-v.onsyear , in accordancewith the provisionsof Parts 1 ; and mof ScheduleVI to the CompaniesAct, 1956 (1 of 1956); Piige 18 of '10 ITA Nos. 1179/2010. 1366/2010.1979./2010&2106/2010 Provided that while preparingprofit and loss account,the depreciationshallbe calculatedon the same method and rates which have been adoptedfor calculatingthe depreciationfor the pui-poseofpreparingthe profitand loss account laid before the company at its annual pnera meeting in accordancewith flte provsionsof section210 of the CompamesAct, 1956 (1 ol 1956): Provided further that where a company has adopted or adopts the financialyear under the Companies Act, 1956 (1 of 1956), which is differentfrom the previousyear underthe Act the method and rates for calculation o depreciationshallcon'espondto the me hod and rates which have been adopted for calculating the depreciationfor such financialyear or part of such financial year falling withm the relevant previous year. Explanation.--Forthe purposes of this section, "book profit" means the net profit as shown m the profit and loss account for the relevan previous year preparedunder sub-section(-), as increased by--

(a) the amount of income-taxpaid or payable, and the provisiontherefor; or

(b) the amounts canied to any reserves by whatever name called; or

(c) the amount or amounts set _aside to provisions made for meeting liabilities other than ascertainedliabilities,oi

(d) the amountby way of provisionfor losses of subsidiarycompanies; or

(e) the amountor amountsofdividendspaid or proposed;or Page 19oi 40 ITANos. 1179/2010, 1366/2010,1979/2010&2106/2010

(f) the amount or amounts of expenditure relatable to any income to which any of the provisionsofChapterIII apphes; if any amountreferredto in clauses(a) to (f) is debited to the profit and loss account, and as reduced by,--

(i) the amountwithdrawnfrom any reservesor provisionsif any such amountis creditedto the profit and loss account: Provided that, where this section is applicable to an assesseein any previousyear (including the relevant previous year), the amount .withdrawn from reserves created or provisions made in a previous year relevant to the assessmentyear commencingonor afterthe 1st day of April, 1997, but ending before the 1st day of April, 2001 shall not be reduced from the book profit unless the book profit of such year has been increasedby those reserves or provisions(out of which the said amount was withdrawn)underthis Explanation;or

(ii) the amount of income to which any of the provisionsof Chapter III applies, if any such amount is credited to the profit and loss account; or

(iii) the amount of loss brought forward or unabsorbeddepreciation,whichever is less as per books of account."

¶16Sub-section(1) begins with a non-obstanteexpression,which gives overriding effect to the provisions of Section 115JA. Sub-Section2 statesthat the assesseebeing a companyshall prepareprotit and loss accounts for the previous year in accordance with the provisionsof Parts II and III of ScheduleVI of the CompaniesAct, ITANos. 1179/2010,1366/2010,1979/2010&2106/2010 Page20 of40 . /J o 1956. First and the second proviso to Section 115JA need not be examinedas they are not relevant. Explanationin the first part refers to increaseof the book profits by the amounts specifiedin sub-paras

(a) to (g). Thereafter,the Explanationstates that, it shall be reduced under clauses(i) to (iii). Clause (i) statesthat the book profitshall be reducedby the amountwithdrawnfrom the reserveor provisionif any such amountwas creditedto the profit and loss account. The proviso to the said clause states that such reduction shall not be made if the amount was withdrawn from the reserves or provisions during the period l'' April, 1997 and 31'' March, 2001, unless the book profitof such year was increasedby the reserve or provisionout ofwhich the said amount was withdrawn. The core dispute and issue relates to clause(i) and the provisoappendedto it.

¶17The contention of the respondent-assesseeis simple that the amount withdrawn from the reserve or provision must be reduced once the said amountwas creditedto the profitand loss account. It is stated that Rs.1.53 crores was withdrawn from the reserve and credited to the profit and loss account and, therefore,this reductionis mandatedand required and we need not go into the question whether such reduction is justified and equitable or even the reason/purpose behind the provision. As the language of the statue is clear, the proviso is not applicableas the reserve was not created during the period 1'^ April, ITANos. 1179/2010, 1366/2010, 1979/2010 & 2106/2010 1997 and 3T' March,2001 but was createdearUeron 30"' June, 1986.

¶18The said contention though attractive and appealing has been specifically rejected by this Court in CIT versus SRF Limited, ITR No. 164/1995 decided on 4"' August, 2011. We note that the High Court reversed the decision of the tribunal in the case of SRF Limited (supra) on the said aspect. In the impugned order in the present case, tribunal followed their decision in the case of SRF Limited. The reasoning given by the Division Bench in the case of SRF Limited, which dealt with Sections 115J and 115IB is as under:- "20. As would be evident on a bare perusal of both section 115JB and Section 115J the explanation defines as to the manner in which book profit for the purposes of levy of MAT is to be calculated. Broadly, in both Sections, book profit means net profit as shown in the profit and loss account which is to be increased and reduced in terms of provisions contained therein. Book profits are required to be calculated bearing in mind the provisions part II and III of Schedule VI of the Companies Act, 1956.

¶21Before we proceed further we may notice the relevant distinction in clause

(i) of the Explanation appended to Sections 115JB and 115J, respectively. In clause

(i) of the explanation in Section 115JB, in the bracketed portion, the followingwords appear "excluding a reserve created before the 1st day of April, . 1997, otherwise than by way of a debit to the profit and loss accounf. There is no such mention in clause

(i) to the explanation contained in Section 115J. Furthermore, in the ITANos. 1179/2010, 1366/2010,1979/2010&2106/2010 Page 22 of40 proviso appended to clause

(i) to the explanation in Section 115JB, there is a reference to the effect that where the section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisionsmade in the previousyear relevant to the assessment year commencing on or after 1st April, 1997, shall not be reducedfrom the book profit unless the book profit of such year has been increased by the reserves of provisions. As against this in the proviso to,clause (i) of the explanation contained in. Section 115J, the wording is identical save and to the, extent date mentioned in the proviso is: "on or after 1st day of April, 1998".A conjointreading of clause'(i) to the explanation appended to Section 115JB, read with, the proviso gives a clear clue that it covers period both prior to 01.04.1997as well as that which commences ' on or after

01.04.1997. As indicated above, the bracketed portion, which appears in clause (i) to the explanation appearing in Section 115JB, does not find mention in Section 115J.

21.1 This is in so far as the distinction in the two Sections goes. The issue, therefore is, whether the assessee ought to be allowed to deduct the amount withdrawn from the revaluation reserves by invoking the provisions of clause (i) of the explanation given in Section 115J. It is not disputed that when the revaluation reserves were first created in 1983 and 1986, the increase in the value of the assets was reflected by debiting the asset account and , crediting the revaluation reserve account. The profit and loss account by this methodology was kept undisturbed. In these circumstances, can it be said that when the amount is withdrawn from the reserves it reflects the difference in the depreciation calculated on the revalued or the enhanced value of the assets and lhat which is calculated on the historical cost. In other words can the assessee be permitted to ITANos. 1179/2010, 1366/2010,1979/2010&2106/2010 l'age23of'10 reduce the amount withdrawn from the revaluation reserve if in the first instance was created not by crediting any amount to the profit and loss account but to the revaluation resei-ve account.

¶22Mr Ganesh has argued that clause (i) appended to the explanation appearing in Section 115J would have to be given its full play. As noticed above, it was his contention y thatthe only situationin which such a reduction - is not permissiblewherereservesare createdby an assessee on or after 01.04.1988. Therefore, his contention is, that since, the revaluation reserves were created in 1983 and 1986 the assesseeoughtto be alloweda reductionof the •amounts drawn from the revaluation reserve. In I, our view at first blush this argument appears to be both plausible and attractive as well. However, a closer scrutiny would show that clause

(i) appended to the explanation appearingin Section 115J would get triggered only if amount is withdrawn from reserves or provisions, if such reserve or provision was created by crediting the amount to the profit and loss account. Admittedly, such is not the situation in the instant case. The intention of the legislaturein inserting clause (i) appended to the explanationto Section 115J is to counter a situation where credit is made to the profit and loss account in the first instance at the time of ; creation of the reserve. When such a situation arises the book profit would stand increased and thus consequently,any withdrawalfrom the revaluation reserve would stand squared off by reducing the amount from the book profit. Since such a situation did not arise in the instant case, the assessee in our view cannot be allowed reduction in the amount. To that extent the AssessingOfficeris right in his conclusion. We are fortified in our view by the observations made in this regard by the SupremeCourt. The SupremeCourt has consideredthe matter from various angles. One such angle from which the ITANos. 1179/2010,1366/2010.1979/2010&2106/2010 Page24or40 /C^ matter has been considered and the resultant view and the observationsmade by the supreme court completely negate, in our opinion, the submissionsmade by Mr Ganeshbeforeus. We can do no betterthan extractthe observationof the SupremeCourtin thatregard; "The matter could be examined fi:om another angle. To recapitulatethe facts, the fixed assets of the assessee were revalued in the earlier \ assessment year 2000-01 (i.e., ^nandal ending March 31, 2011),(sic March 29, 2000) and amount of enhancementin valuationwas 288,58,19,000 which was credited to the revaluationreserve.In otherwords, at the time of revaluationof assets, the said figure of Rs 288,58,19,000was added to the historicalcost of assets on the assets side ofthe balancesheet and in order to equalize both sides of the balance sheet the revaluationreserve to that extentwas createdon the liabilitiesside. Thus, the figure of profitremaineduntouchedso far as the revaluationof assets to the tune of Rs 288,58,19,000is concerned. The profits were not increasedby the said amountwhenthe asset was revalued. During the assessmentyear m question,i.e., the assessmentyear 2001-02, an amount of Rs 26,11,74,000, being the differentialdepreciation,was transferredout ol the said revaluation reserve of Rs 288,58,19,000 and credited to the prolit and loss account which the Assessing Officer disallowedby placingrelianceon the provisoto clause (i) of the Explanation to Section 115JB(2). Consequently,the Assessingofficer addedbackthe said amountofRs 26,11,74,000 to the net profits.We agi-ee with the Assessing Officer. Under the provisions, as •they then existedcertainadjustmentswere requiredto be madeto the net profitas shownin the profitand loss account. One such adjustment stipulated' that the net profit shall be reduced by the amount(s)withdrawnfrom any reserves,ifan> ITA Nos. 1179/2010.136W?,0K).1979/2010&2106/2010 such amount is credited to the profit and loss account. Thus, if the reserves created had gone to increase the book profits in any year when the provisions of Section 115JB were applicable, the assessee became entitled to reduce the amount withdrawn from such reserves if such withdrawal iscredited to the profit and loss account. Now, from the above facts, it is clear that neither the said amount of Rs 288,58,19,000 nor Rs 26,11,74,000 had ever gone to increase the book profits in the said year endingmarch 31, 2000 (beingthe financial year). Thus, when such amount(s) has not gone to increase the book value at the time of creation of resei-ve(s),there is no question of reducing the amount transferred from such revaluation reserves to the profit and loss account. Thus, the proviso to clause (i) of the Explanationto section 115JB(2) comes in the way of the claim for reduction made by the assessee. In our view, the reduction under clause (i) to the Explanationcould have been availed of only if such revaluation reserve had goneto increasethe book profits." (emphasis is ours)

¶23Mr Ganesh had tried to take advantage of the fact that in the observations extracted hereinabove there is a reference to the proviso appended to clause (i) of the explanation to Section 115JB. A closer scrutiny of the observations made by the Supreme Court would show that the main burden of the rationale supplied by the Supreme Court is not pivoted on the proviso. As noticed by us hereinabove clause (i) of the explanation appearing in Section 115JB read with the proviso covers the period both before and after 01.04.1997.Even though this is not specifically mentioned in clause(i) to the explanationto Section115J, the plainreadingofthesaidclausewould show that it only appliesinthosesituationswherecreditis made to the profit and loss account at the time of creation of the reserve or the provision. ITA Ni)S. 1179/2010,i366/2010.1979/2010&2106/2010 I'age26 of-'10

¶24If there was any doubt it stands clarifiedby havingregardto the "MemorandumExplaining the Provisions in the Finance Bill, 1989" (in short the memorandum). The memorandum, according'to us, clearly indicates that the proviso wa^ inserted to clause (i) of the explanationappended to Section 115J to deal with a situation where some delinquent companieswere taking advantageof clause (i) ofthe explanationappendedto Section115J by reducing their net profit by the amount withdrawn from the reserve created or provisionmade in the same year itself, though the reserve when created was not added to the book profit. It was to clarifythis positionthat the memorandum stated that clause (i) to the explanation contained in Section 115J would apply to amounts withdrawnfrom the resei-ves or provisiononly if reserveshad been created before

01.04.1988 or where reserves or provisions have been made after 01.04.1988 and have gone to increasethebook profits in any yearwhentheprovisionsofSection115Jof the Income-Tax Act were applicable.

¶25A close readingof the memorandumto the amendment would show that the initial object of allowing reduction under clause (i) to the explanationcontainedin Section 115J was not .'diluted. In other words the reduction of the amount withdrawn from the reserves created or provisionsmade was only availableif such an amount in the first instance have been credited to the profit and loss account. This is clear if one adverts to the following extract from the memorandum: "....Under the existing provisions certain adjustmentsare made to the net profitas shown in the profit and loss account. One such adjustmentstipulatesthatthe net profitsis to be reduced by the amount withdrawn from ITANos. 1179/2010,1366/2010,1979/2010&2106/2010• Page 27 of40 i reserves or provisions, if any, such amount is i credited to the profit and loss account " i (emphasis is ours)

¶26Therefore, the submission of Mi" Ganesh that it is only when the proviso is attracted that the assessee would be disabled from seeking reduction in terms of clause

(i) to the explanation appended to Section 115J even '4^ though the reserveswhen created or provision made did not get reflected in the profit and loss • account, is a submission, according to us, that cannot be accepted."

¶19Learned counsel appearing for the respondent-assessee tried to distinguish the said judgment on two grounds. It was submitted that book profits computed in the case of SRF Limited filed under Section 115J showed loss of Rs. 10.50 crores, but the Assessing Officer had calculated the book profits at a positive figure of Rs.2.15 crores. Thus, substantial addition was made to the book profits. Secondly, the Assessing Officer had observed that transfer from the valuation reserve . was essentially an equalisation device meant to ensure that the depreciation continued in the books at the original cost, prior to such valuation and that the accounts presented a true and coiTectpicture of net profits. The amount withdrawn from the valuation reserve was, therefore, not covered under clause (i) of the Explanation. It was also highlighted that in the case of Indo Rama Synthetics India Limited versus Commissioner of Income Tax, (2011) 330 ITR 363 (SC) the reserve was created in the Assessment Year 2000-01, i.e., financial ITANos. 1179/2010, 1366/2010, 1979/2010& 2106/2010 • year ending 31'' March, 2000 (wrongly mentioned as fmancial year ending31''March,2011). The assessmentyearinvolvedin the case of Indo Rama SyntheticsIndia Limited(supra) was AssessmentYear 2001-02 and differential amount of Rs.26,11,74,000/-being the differentialdepreciationwas transferredout of the revaluationreserve and credited to the profit and loss account.

¶20In SRFLimited(supra)the attemptto distinguishdecisionofthe Supreme Court in the case of Indo Rama SyntheticsIndia Limited (supra)was as the reservewas createdduringthe fmancialyear ending •31'^ March, 2000 and in the next year amount of Rs.26,11,74,000/- being differential depreciation was transferred out of revaluation .reserve and taken to the profit and loss account, was specifically rejected. The Supreme Court it was observed had held that under clause(i) to Explanationthe said amountshallnot be reducedfrom the profit and loss account. This could be only reduced when reserves were created by increasingbook profits in any year when the MAf provisionswere applicable. Rs.26,11,74,000/-had never reflectedin increaseof the book profits in the year ending 31'' March, 2000 and, therefore,there was no questionof reducingthe said amount and the provisoto clause(i) ofthe Explanationwas fully applicable. The said judgmentas held in SRFLtd. (supra)indicates,explainsand elucidate the reason why the Legislaturehas carved out exceptionin respectof ITANos. 1179/2()iU,1366/2010,1979/2010&2106/2010 Page29ol'10 reserves or provisions in the proviso. The proviso is appUcable not only when the reserve or provisionwas createdduring this period on 1'' April, 1997 to ST' March, 2001, but whenever reserve/provision was created unless the book profits had been increased by those reserves or provisions at the time of creation and out of the said '4 increase,the amounthas beenwithdrawn.

¶21Literalinterpretationinthe mannersuggestedbythe appellantof clause (i) to Explanation115JA and speciallyits proviso will lead to absurditiesand incongruities. Minimum alternationtaxation on book profits became a part of the Act, i.e., Income Tax Act, 1961, by Finance Act, 1987 with effect from 1"''April,1988 with insertionof Section 115J. The said Sectionbecameapplicablewith effectfrom 1^^ April, 1989 and was applicabletill 1®' April, 1991. Clause (i) of the Explanationand the provisothereto,whichwas introducedby Finance Act, 1989 with retrospectiveeffectfrom April, 1988 were as under:; "i) the amount withdrawn from reserves (other than the reserves specified in •section. 80HHD) or provisions, if any such amount is credited to the profit and loss account; Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencingon or after,the 1^' day of April, 1988 shall not be reduced from the book profit unless the book profit of such year has been increased by ITANos. 1179/2010, 1366/2010,1979/2010&2106/2010 Page.300^40 r\ those reservesor provisions(out of which the said amount was withdrawn) under this Explanation; or'' •22. Readingofthe provisoto Section 115J elucidatesthat reference to the date 1'^ April, 1988 is not with referenceto the date on which reserve or provision was created but with reference to the date on ^ which an amount was withdrawnfrom reserves created or provision '-0- .made. Thus, amountwithdrawnfrom the reservescreatedor provision made after day of April, 1988 as per the proviso to clause (i) of Explanation could be adjusted only if the book profit had been •increased at the time of creationofthose reserves or provisionmade and not otherwise. Section115JA was insertedby Finance(No,2)Act, 1996 with effect from 1^^ April, 1997. The words "f' day of April, 1997" in the proviso to clause (i) of the Explanation is not with .referenceto the date on which resei-ve was created or provisionwas made but with referenceto the amount withdrawn from the reserve created or provision made. The proviso specificallystipulatesthat reductionunder clause (i) would not be allowableunless book piofits .were increased by the reserves or provisions made at the time of increase. The increasemay relateto any periodand even can be before 1'' day of April, 1997. The words-"butendingbeforethe 1'' day of April, 2001" are the cause of confusionbut these words were inserted by Finance Act, 2000 with effect from f April, 2001 and would H./^iNos.1179/2010, 1366/2010,1979/2010&2106/2010 Page31or40 accordinglybe applicableto the AssessmentYear 2001-02and not the assessment year in question. These words were introduced as the Legislaturehad inserteda new provisionfor minimum alternativetax by inserting Section 115JB with effect from 1^ April, 2001. Ihe originalclause(i) to Explanation1to Section115JBwas as under;- "(i) the amountwithdrawnfrom any reserves or provisions,ifany such amountis creditedto the profit and loss account; Providedthat, wherethis sectionis applicableto an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencingon or after the 1^' day of April, 2001 shall not be reduced from the book profit unless the book profit of such year has been increased by those reservesor provisions(out of which the saia amount was withdrawn) under this Explanation; or" ZJ. As there was possibilityofambiguityand doubt,the said clause

(i) and the provisowas substitutedby FinanceAct, 2002 but with retrospectiveeffectfrom T'' April,2001 as under:- "(i) the amountwithdrawnfrom any reserve or provision (excluding a resei-ve created before the l" day of April, 1997 otherwise than by way of a debitto theprofitand loss account),if any such amount is creditedto the profit and loss account: Provided that where this section is applicableto an assessee in any previous year, the amount withdrawnfrom reserves created or provisions made in a previous ITA Nos. 1179/2010,1366/2010,1979/2010&2106/2010 ''age32 ol -'tO -1 year relevant to the assessment year commencingon or afterthe 1®' day ofApril, 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 Explanationbelow the second proviso to Section 115JA, as the case may be; or"

¶24In view of the aforesaiddiscussion,it is crystalclearthat under proviso to clause (i) ofthe Explanationto Section 115JA reserve or provisionmade may relate to any period and not during the period between 1'' April, 1997 and 31'' March, 2001. These two dates are relevantas Section 115JA is appHcableduring this.period. Clause (i) operateswhen an amountis withdrawnfrom provisionmade or reserve createdbut as perthe provisoadjustmentcan be made onlywhenat the time ofcreationofreserveorthe provision,\he amountinquestionwas duly accountedfor by increasingthe bookprofitsby the saidreseiveor provision.

¶25Thus, the respondent-assesseeis clearly misreading the said proviso and the purportand the purposebehindthe proviso of clause

(i) to the explanationofSection115JA.

¶26The distinctionand facts pointed out, as far as case of SRF Limited(Supra)is concerned,are not the basis or the foundationofthe ratio inthe saiddecision. The exactfigureon accountofrevaluationof assets withdrawn from the reserve was not indicated or mentioned. ITANos. 1179/2010,1366/2010,1979/2010&2106/2010 Page33 of40 . ' The contentionthat the AssessingOfficerhad given afindingthat the transferfrom the reservewas essentiallyan equalisationdevice,i.e., to ensurethat depreciationto be providedin the books at the originalcost prior to revaluationand, therefore,the amountwithdrawnshouldnot be coveredunder clause (i) of the Explanationcannotbe acceptedas the basis or the foundationofthe decisioninSRFcase. The Assessing Officer in the said case had recorded that transfer from revaluation reserveeithershouldhave been creditedto the profitand loss account or reducedfrom the depreciationprovidedin the books.

¶27In the facts ofthe presentcase,it is apparentthatthe respondent-assesseehad creditedthe same amountto the depreciationaccountand also the profitand loss accountin theyearin question. On bemgasked why both the heads were duly credited, learned counsel for the respondent-assesseecouldnot give any explanationor answer. It could not be also answered why the revaluation or reduction of Rs.1.53 croreswas made to the revaluationreserve. Commissionermher order .has specificallyrecorded that enhanced depreciation on re-valued reservewas claimedintheearlierassessmentyeais.

¶28Commissionerin her order under Section 263 on the second aspecthas recordedthat the AssessingOfficerhad failed to disallow expenditurein respectofexemptincomeas per the mandateofSection 14A of the Act. Commissionerheld that the said provision was rrA Nos. 1179/21)11).1366/2010.1979/2010&2106/2010 34 of-10 applicable and the Assessing Officer had erred and had passed an eiToneous order prejudicial to the interest of the Revenue as the respondent-assesseehad earned gross exempt dividend income of Rs.1.34 crores and Rs.23.43 lacs, but no disallowanceunder Section 14A was made. She worked out and calculatedthe disallowanceof expenditureunderSection14Ato be Rs.183.63lacs.

¶29It is accepted and admittedthat the AssessingOfficerhad not applied Section 14A and no deduction under the said Section was made. In respectofthe presentassessmentyear, i.e.. AssessmentYear 2000-01,the contentionof the respondent-assesseeis that in view of the proviso to Section 14A, the said provisioncould not have been invokedin arevision. It is not possibleto acceptthe said contention. Section14A was introducedby FinanceAct, 2001,whichwas tabledin the Parliament on 28^'^ February, 2001. The said provision was introducedwith retrospectiveeffectfrom 1'' April, 1962 and reads as under;- "14-A. Expenditure incurred in relation to income not includible in total income.-Forthe ' purposes of computingthe total income under this Chapter, no deductionshall be allowed in respectof expenditureincurredby the Assessee in relationto income which does not fomi part of the total income under this Act; Providedthat nothing contained in this section shall empower the Assessing Officer either to •itANos.1179/2010,1366/2010,.1979/2010&2106/2010 Page3DoM0 reassess under SectionHZor pass an order enhancingthe assessmentor reducingare&nd already made or otherwise mcreasmg the liabilityof the Assesseeunder sectionm f any assessmentyear beginmngon or beforethe 1st day ofApril,2001."

¶30Interpretingthe said provisionin Bond.Siel Po.e.Products Limitedversus Deputy CommissionerofIncome Tax and Anotha,

(2012)340 ITR 53 (Delhi),it has beenheld as under;- "8 The Petitionerhas reliedupon the provisoto Section14Aofthe Act. The provisoaccordingto ut not applicablein view ofthe factualmatrix rfAe presentcase and does not protector come to the aid of the Petitioner.In the presert eas after return of income for the 2000-01 was filed on November30, 2000, th •case was takenup in scrutiny.Assessmentorder , under Section143(3)of the Act was °n March 7, 2003. The pfoyso reassessment/rectification and not origr assessr^l on the basis of the retrospective amendment.The proviso does not stipulate^nj statethatSection14Aofthe Act cannotbe lehed uponduringthecourseoftheorigin^ proceedings. The Assessing Officer was therefore,requiredto disallowexpensesmc^ for earningexemptor tax free income,r^'h.eo" the part of the Assessing Officer to apply Section14Awhen he passed the assessment order under Section143(3)of the ^ited March 7, 2003 has prima facie resulted m escapement of income. The proviso is no intended to apply to the cases of the present Mature. The objectand purposeof the proviso is to ensurethatthe retrospectiveamendmentis not made as atool to reopen past cases, which have attained finality. ' Page36ol 40 • iTANos. 1179/2010,1366/2010,1979/2010&2106/2010

¶31'In view of the aforesaid legal position, we hold that ,tl .Commissionei-wasjustifiedin invokingSection263 offee Act as the order of tire AssessingOfficerwas enroneousand prejudicial j O interest of the Revenue. The assessmentorder was ma eon . , February.2003. which is after Section14A of the Act was enacted. The AssessingOfficer should have been applied the said Section. Failureto invoiceSection14Ahad resultedin an orderbothen-oneous and prejudicialto tireinterestofthe Revenue.

32.' On the question of quantum of deductionto be made under Section 14A. the tribunal has not gone into the said question of quantum. The deductionor quanmm has to be decided-in light of Limitedversus CommissionerofIncome Tax, (2012) 347 ITR 272 (Delhi)and othercases. •

¶33In view ofthe aforesaidposition,the substantialquestionoflaw •is decided in favour of the Revenue and it is held that the Commissionerhad rightlyinvoicedSection263 ofthe Act as the order of the AssessingOfficerwas erroneousand prejudicialto the interest ofthe Revenueto the extentthat adjustmentofRs.1.35 croresshould nothavebeenallowedunderclause(i)to Explanationto Section115JA and deductionshouldhave been also made towards expenditureto earn dividend income, which did not form part of taxable income under Page 37of40 iTANos. 1179/2010.1366/2010-1979/2010&2106/2010 / Section 14A of the Act. However, on tite questionof quantum of deductionto be madeunderSection14A.thematteris remandedto the tribunal. IXA

7.106/2010andl979Z2MQ •34. Theseappealsby theRevenuerelatesto AssessmentYear2001-

02.. The respondent-assessee,as noticed above, namely, Federal-Mogul Goetze (India) Limited, had filed return of income on 3l" October,2001 declaring'nil' incomeaftersettingfor broughtforward losses and depreciation. Tax payableunder Section U5JB was also corr>putedat 'nir. Thereturnwastalcenupforscrutinyassessrrrentand ' assessmentorder under Section 143(3) dated 29'" March, 2004 was passed. Totalincomeimderthe normalprovisionsmspiteofvarious +A Q+ 'nil' hut income taxable undei disallowancesetc. was computed at ml but moo SectionU5JBwas computedatRs.90,40,4,412/-.

¶35In this year, i.e., the AssessmentYear 2001-02,the Assessing Officerhad noticedthattherewaswithdrawalofRs.1,49,55,335/-from the valuationreserve,but the amounthad not been addedto the profit •and loss accountsfiled withthe incometax returnfor computingbook profits under Section 115JB. The assesseehad placed rehance on clause (i) ofExplanationbelow Section115JB (2) but the Assessing Officerrejectedthe said contention. The assesseedid not succeedm ' the first appeal and the tribupalhasobservedthatrelianceplacedon Page 38of40 ITANos. 1179/2010,1366/2010,1979/2010&2106/2010 ' ,,eorde.ofthetnbuna,fo.theAssess.entYea.2000-01inITANo. 208/De./2005was distinguishableas itrelatedto thejurisdictionofthe ConnuissionerunderSection263 ofthe Act. In otherwords,tribunal / did not acceptthe pleaofthe respondent-assessee.

36.. .By order dated 16'^ May, 2012, the following substanUal questionsoflawwerefranaedinthepresentappeals:- "Ci") Whether the Income Tax Tribunal was right in holding tot whUe computingbookprofitunderSecttonU ^^ Sectron U5JB) - . disallowanceunder Section be made?

(ii) Whetherthe Income Tax ^^^^^^"2340 was rightin deleting" m'^r Section ofthe IncomeTaxAct, 1961. Lear-nedcounselfor the respondents-assessee,duringthe course of hearing, has fairly conceded that the first question has to be specificprovisionsintheExplanation1belowSectionU5JB(2)clause (0 The AssessingOfficer it is stated had made an addrtron of 88 292/- to the boolcprofitstowards expenditrrreincurredhavmg oftheappellant-Revenueandagainsttherespondent-assessee. Page39 of40 n-ANos,.179/2010,1366®,0,.979/20,OJ.2106/20.0 -/ I '•i

¶38QuestionNo. (ii)'isrequiredto be answeredin favour of the appellant-Revenueand against the respondent-assesseein view of Explanation2to Section234D. which was insertedby FinanceAc, 2012withretrospectiveeffectto assessmentsmade on or after June, ' 2003 We clarifythatwe arenotrequiredto examinetheconstitutibnal .aiidityofti>e saidamendmentwithretrospectiveeffectin the present appeals. (]• , , .—1=. — (SANJEEVSACHDEVA) JUDGE Page40of40 .ITANos.mOTOlO,1366/2010,1979/2010&2106/2010 ' ' I

i * IN THE HIGH COURT OF DELHI AT NEW DELHI ITA No. 1366/2010 Reserved on: 22"''October, 2013 Date of decision: P'** December,2013 (Assessment Year 2000-01) THE COMMISSIONER OF INCOME TAX (CENTRAL-II) Appellant Through Mr. Rohit Madan, Advocate. versus FEDERAL-MOGUL GOETZE (INDIA) LIMITED Respondent Through Mr. S. Ganesh, Sr. Advocate with Ms. Geetanjali Mohan and Ms. Mansi Gautam, Advocates. + INCOME TAX APPEAL No. 1979/2010 (Assessment Year 2001-02) THE COMMISSIONER OF INCOME TAX (CENTRAL-II) Appellant Through Mr. Rohit Madan, Advocate. versus FEDERAL MOGUL GOETZE (INDIA) LIMITED Respondent Through Mr. S. Ganesh, Sr. Advocate with Ms. Geetanjali Mohan and Ms. Mansi Gautam, Advocates. ITA No. 2106/2010 (Assessment Year 2001-02) THE COMMISSIONER OF INCOME TAX (CENTRAL-II) Appellant Through Mr. Rohit Madan, Advocate. versus MOGUL GOETZE (INDIA) LIMITED Respondent Through Mr. S. Ganesh, Sr. Advocate with Ms. Geetanjali Mohan and Ms. Mansi Gautam, Advocates. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE SANJEEV SACHDEVA