Income Tax Appellate Tribunal - Mumbai
Bennet, Coleman & Co. Ltd. vs Deputy Commissioner Of Income-Tax on 3 December, 1999
ORDER
T. V. Rajagopala Rao, President
1. These are two assessee's appeals for the assessment years 1985-86 and 1986-87 and they arise out of the order dated 30-3-1990 passed by the CIT, Bombay City VI for assessment year 1985-86 and dated 14-3-1991 by the same CIT for the assessment year 1986-87, invoking the revisionary jurisdiction and passing orders under section 263 of the Income-tax Act.
2. In the revisionary order for the assessment year 1985-86, the learned CIT held that in view of several discrepancies pointed out in the earlier paras of the order, the assessment was not done after proper verification and proper application of mine. Even after the assessee's explanation on several issues, much is left to be verified by the Assessing Officer. Therefore, he considered the entire assessment as erroneous and prejudicial to the interests of revenue. He accordingly set aside the assessment in entirety with directions to the Assessing Officer to reframe the assessment after proper verification and application of mind, after giving proper and sufficient opportunity to the assessee of being heard to present their case as well as all the records in support of their claims.
3. First of all, it is contended that the learned Commissioner erred in setting aside the assessment in its entirety, in view of the fact that the CIT(A) VIII, Mumbai had already passed an order on 13-1-1989 adjudicating various issues in the appeal filed by the assessee against the assessment order for 1985-86 and the appellate order passed by the CIT(A) stood merged with the assessment order for the assessment year 1985-86 on those matters which were decided by the CIT(A) and therefore, the learned CIT's order setting aside the assessment in its entirety is without jurisdiction, bad in law and should be cancelled. The learned counsel for the assessee invited our attention to paras 19 and 20 of the impugned order. We have gone through those paras of the CIT's order and are quite satisfied that whole of the assessment has been set aside and direction was given to the Assessing Officer to redo the assessment afresh. The learned counsel also invited our attention to the order of the CIT(A)-VIII, Mumbai dated 13-1-1989, a copy of which was furnished to us at pages 40 to 47 of the paper compilation. He has also drawn our attention to the show-cause notice issued by the CIT proposing to revise the assessment order which is dated 6-3-1990 and revisionary order itself after hearing the assessee's counsel passed on 30-3-1990. Section 263(1), Explanation (c) which is felt relevant for appreciation is in the following terms :
"263(1) : The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation :-
(c) Where any order referred to in this sub-section and passed by the Assessing Officer had been the subject-matter of any appeal (filed on or before or after the 1st day of June, 1988), the powers of the Commissioner under this sub-section shall extend (and shall be deemed always to have extended) to such matters as had not been considered and decided in such appeal."
4. Therefore, the section is clear that when an assessment order is challenged in appeal, revisionary powers cannot be exercised on such of the grounds which were decided by the appellate authority. But, however, the revisionary powers of the Commissioner extend to all matters as had not been considered and decided in any such appeal. Our attention is drawn to the decision of the Punjab & Haryana High Court in CIT v. Jagadhri Electric Supply & Industrial Co. [1983] 140 ITR 490/[1981] 7 Taxman 56 in which it was held, as per the Head Note at page 491 as follows :
"The Commissioner had the exclusive jurisdiction under section 263(1) of the Act to revise the order of the ITO. The order of the Commissioner passed under section 263(1) will contain the grounds for holding the order of the ITO to be erroneous, as contemplated by that section. In the appeal against an order under section 263(1) the assessee is to attack the order of the Commissioner and to challenge the grounds of decision given by him in his order. If the assessee can satisfy the Tribunal that the grounds for the decision given in the order by the Commissioner are wrong on facts or are not tenable in law, the Tribunal has no option, but to accept the appeal and to set aside the order of the Commissioner. The Tribunal cannot uphold the order of the Commissioner on any other ground which, in its opinion, was available to the Commissioner as well. If the Tribunal is allowed to find out the ground available to the Commissioner to pass an order under section 263(1), then it will amount to a sharing of the exclusive jurisdiction vested in the Commissioner which is not warranted under the Act. It is all the more so, because the Revenue has not been given any right of appeal under the Act against an order of the Commissioner under section 263(1). The appeal filed by the assessee under section 253(1)(c) cannot be treated on the same footing as an appeal against the order of the AAC where both the parties have been given the right of appeal. If the grounds which were available to the Commissioner at the time of the passing of the order do not find mention in his order appeal against, then it will be deemed that he rejected those grounds for the purpose of any action under section 263(1). In this situation, the Tribunal, while hearing an appeal filed by the assessee, cannot substitute the grounds which the Commissioner himself did not think proper to form the basis of his order."
5. The learned counsel next relied on the decision of the Karnataka High Court in CIT v. L. F. D'Silva [1991] 192 ITR 547/[1992] 62 Taxman 161. The Karnataka High Court had considered the powers of the Tribunal from the CIT's order of revision and in that connection, held the following, as per the Head Note at page 547 :
"The jurisdiction vested in the Commissioner under section 263(1) of the Income-tax Act, 1961, is of a special nature or, in other words, the Commissioner has the exclusive jurisdiction under the Act to revise the order passed by the ITO if he considers that any order passed by him was erroneous in so far as it was prejudicial to the interests of the Revenue. In the memorandum of appeal, the assessee is supposed to attack the order of the Commissioner and to challenge the grounds for decision given by him in his order. At the time of the hearing, if the assessee can satisfy the Tribunal that the grounds for decision given in the order by the Commissioner are wrong on facts or are not tenable in law, the Tribunal has no option but to accept the appeal and to set aside the order of the Commissioner. The Tribunal cannot uphold the order of the Commissioner on any other ground which, in its opinion, was available to the Commissioner as well."
6. In CIT v. Chandrika Educational Trust [1994] 207 ITR 108/77 Taxman 137 (Ker.) the decision of the Punjab & Haryana High Court in Jagadhri Electric Supply & Industrial Co.'s case (supra) was followed and it was held that where the Commissioner has chosen to set aside the order of the Assessing Officer only in a particular ground, the Tribunal is not entitled to go beyond and sustain the order of the Commissioner on grounds different from that relied on by the CIT himself. In view of the clear provisions of law under section 263(1) read with Explanation already extracted above, we hold that whole of the assessment cannot be set aside by the CIT and such of the grounds which do not form part of appeal before the CIT(A) can only be revised by the CIT under section 263 of the Act.
7. Ground No. 4(a) deals with an amount of Rs. 1,13,344 which comprises of two items which are as follows :
(i) spent on films in educating the staff Rs. 48,677 (ii) cost of film slides, blocks etc. Rs. 64,667
8. It is contended by Shri S. E. Dastur, learned counsel for the assessee that para 5 of the CIT(A)'s order deals with this item. Our attention is drawn to page 41 of the paper compilation filed before us. It deals with an amount of Rs. 13,09,095 cost of blocks etc. as advertisement expenses under section 37(3A). However, the assessee was not able to show break up of Rs. 13,09,095 and there is no plausible evidence produced to show that the above two amounts totalling to Rs. 1,13,344 formed part of Rs. 13,09,095 which formed subject-matter of the grounds before the CIT(A). Therefore, we are unable to agree with the learned counsel for the assessee that this ground was already covered by para 5 of the CIT(A)'s impugned order at page 41 of the paper book. Further, assuming without admitting that the amount of Rs. 1,13,344 is only part of Rs. 13,09,095 which formed subject-matter of appeal before the CIT(A), the learned CIT(A) held as follows :
"The expenditure relates to the wooden dies and moulds/zinc plates for the purpose of making blocks for advertisement. Again blocks are part of advertisement operations undertaken by the appellant for giving publicity to its activities and hence can only be described as advertisement expenses. The appellant's submissions in this regard are rejected."
9. At para No. 5 in the CIT's revisionary order (impugned order), it can be seen that the Commissioner dropped the revisionary proceedings as regards Rs. 48,677 but as regards Rs. 64,667 as well as Rs. 15,033 spent, on hire changes for hoardings etc. the CIT revised the order of the Assessing Officer rejecting the contention of the assessee that they do not form part of advertisement expenses.
10. In ground No. 4(b), it is sought to be contended that Rs. 15,033 spent on hire charges for hoarding is in the nature of rent and not advertisement expenses and does not fall under section 37(3A). While dealing with this ground, the learned counsel for the assessee drew our attention to ground No. 7 before the CIT(A). While deciding that ground, the CIT(A) was dealing with a consolidated figure of Rs. 12,67,607 which was said to have been spent on hire charges on various sites and hoardings which was dealt with under section 37(3A). The contention of the assessee before the CIT(A) was that it was not advertisement and it does not fall under section 37(3A) and that the expenses are always in the nature of rent. If that is so, and if according to the learned counsel Rs. 15,033 which formed subject-matter of ground No. 4(b) in the appeal before us formed part of Rs. 12,67,607, there is no reason why objection that this amount was already considered by the CIT(A) in the appeal filed before him was not raised before the CIT when the assessee was given opportunity to represent against the revisionary order, especially because the CIT(A) disposed of the appeal on 13-1-1989 whereas the show-cause notice under section 263 was given on 6-3-1990 and the order under section 263 itself was passed on 30-3-1990. Further, while dealing with ground No. 7, the learned CIT(A), rejected the contention put forward on behalf of the assessee. The facts, contentions and the conclusion of the learned CIT(A) are found at page 41 of the paper compilation and are as follows :
"The appellant has contested the inclusion of hire charges of Rs. 12,67,607 on various sites and hoardings as advertisement expenses for the purposes of section 37(3A). It is submitted that rent is paid on these hoardings and is separately allowable under a different section and cannot be included in the advertisement expenses. I am afraid I do not follow the logic of the appellant's submissions. The reference to rent elsewhere is in the context of hire of premises for the purpose of business. Putting up hoardings and hire charges payable in that connection are a composite expenditure on advertisement and hence has rightly been described as such. The appellant's submissions being totally unmaintainable are rejected."
11. Therefore, since no objection was raised that this amount of Rs. 15,033 was already dealt with by the learned CIT(A) revision cannot be taken up by the CIT, we confirm the CIT's order and his power of revision regarding Rs. 15,033.
12. Ground No. 4(c) is with regard to the gratuity. It is stated that in the printed account itself gratuity figures are reflected and the actual payment of gratuity made are mentioned to the Assessing Officer. The CIT in para 7 of his orders dealt with this item and held that the figures of gratuity liability is shown in the balance sheet of earlier year and this year and debited to profit and loss account itself and discrepancies were found in figures. It is stated by the assessee that the same is due to the fact that there was actual payment of gratuity to the retiring personnel and hence the difference. On that the CIT found that the Assessing officer had not made any enquiries regarding the issue and therefore, he directed to get the complete particulars from the assessee and effect the correct allowance in this respect. He was also directed to keep in mind the applicability of section 43B. In this connection, the Delhi High Court decision in Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 is relevant in which it is held the following at page 376 of the Head Note :
"It is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the ITO. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the ITO should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the ITO is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The ITO is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the ITO to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word 'erroneous' in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct."
13. Exactly in the case before us enquiry is sought to be conducted by the CIT and he expected the Assessing Officer to verify the correctness of the payment of gratuity to the retiring officials and also wanted him to verify whether the payments are allowable under section 43B. In view of the Delhi High Court decision (supra), we cannot find fault with the direction given by the CIT and we do not agree with the contention that exercise of the jurisdiction by the CIT is wrong.
14. Ground No. 5 is about the deduction of Rs. 1.50 crores. The claim of the assessee was that it had contributed this sum to the corpus fund of the Times Research Foundation as research expenditure under section 35(1)(iii) of the Act. By a notice issued to the assessee on 18-12-1987, the IAC, Asstt. Range VI(B) in a letter addressed to the Principal Officer of the assessee company, at para No. 17 called upon the assessee to furnish elaborate details regarding the research expenditure of Rs. 1.50 crores. The letter dated 18-12-1987 is now furnished at page 1-3 of the paper book. In answer to question No. 17, the assessee furnished the following in their reply dated 10-3-1988 :
"The research expenditure of Rs. 1,50,00,000 represents contribution made to The Times Research Foundation, an institution covered under section 35(1)(iii) of the Income-tax Act, 1961. We have already filed the necessary notification issued by the Government of India, Ministry of Finance (Department of Revenue) approving the above institution under section 35(1)(iii)."
15. Before the CIT, the assessee's counsel took the view that although the amount of Rs. 1.50 crores was utilised for the corpus of the trust and not for the promotion of the Research of Social Science, the assessee has contended that once the Institute is approved by the Government, the Assessing Officer is not supposed to question whether that Institute has complied with the conditions. Further it was stated that it is for the prescribed authority which is to satisfy itself that the Institute has complied with the conditions. As stated and admitted by the assessee, the Institution is recognised under section 35(1)(iii) and that recognition is subject to the following three conditions :
(a) The fund collected under the exemption shall be utilised exclusively for promotion of research in social science,
(b) The institution shall maintain separate account of the fund collected by the Institution under the exemption, and
(c) The institution shall send to the prescribed authority the annual report and audited statement of accounts regularly showing the funds collected and the manner in which the funds are utilised.
16. The learned CIT found that the primary condition is that the funds collected should be exclusively utilised for the purpose of promotion of research in social science. It is clear that the assessee is fully aware of the conditions laid down for approval of the Research Institute; even so the assessee has stipulated a condition that the amount should be utilised for the corpus of the Institute. This is evident from the receipt No. 667 dated 29-3-1984 of the Times Research Foundation, New Delhi, wherein it has been specifically mentioned that the contribution is towards corpus. The learned CIT further held that from the record it is clear that the Assessing Officer has not made any enquiry while allowing the assessee's claim. Therefore, he directed the Assessing Officer to make necessary enquiries while making fresh assessment in this regard.
17. Copy of the Board Resolution dated 14-3-1984 is furnished at page 58 of the paper compilation. The said Resolution No. 91 is as follows :
"The Board considered letter dated 10-3-1984 from The Times Research Foundation requesting for payment of Rs. 1.50 crores to enable them to carry on their research work. The Board considered the matter and decided that the sum of Rs. 1.50 crores be paid to the Corpus Fund of The Times Research Foundation as research expenditure under section 35(1)(iii) of the Income-tax Act."
18. Notification under section 35(1)(iii) dated 31-10-1981 issued by the Government of India, Ministry of Finance (Department of Revenue), New Delhi, is provided at page 59 of the paper compilation which is as follows :
"Notification/Income-tax No. 42.11 (F.No. 203/138/81-ITA.II) : In continuation of this Department's Notification No. 2773 (F.No. 203/27/79-ITA.II), dated the 24-4-1979, it is hereby notified for information that the Institution mentioned below has been approved by the Indian Council of Social Science Research, the prescribed authority for the purposes of clause (iii) of sub-section (1) of section 35 of the Income-tax Act, 1961, subject to the following conditions :
(i) That such funds collected by the foundation under this exemption shall be utilised exclusively for promotion of research in Social Sciences.
(ii) That the Foundation shall maintain separate accounts of the funds collected by them under this exemption.
(iii) That the Foundation shall send to the Council Annual Report and audited statement of accounts regularly showing the funds collected under this exemption and the manner in which these funds are utilised.
INSTITUTION The Times Research Foundation, Bombay.
This notification is effective from 1st April, 1981 to 31st March, 1984.
Sd/-
(M. C. C. Goyal) Under Secretary to the Government of India."
19. Copy of the Receipt passed by The Times Research Foundation to the assessee on 29-3-1984 is as follows :
"Received with thanks from M/s. Bennett, Coleman & Co. Ltd. Rs. One crore & Fifty lacs only by cheque/draft No. 05129 dated 29-3-1984 for contribution towards corpus.
For The Times Research Foundation Sd/- Trustee Authorised Signatory"
20. After having gone through the records, we are thoroughly satisfied that the Assessing Officer had not made any enquiry whatsoever while allowing the assessee's claim and, therefore, the learned CIT was perfectly justified in directing the Assessing Officer to make necessary enquiry while making fresh assessment in this regard. To buttress the case of the assessee, on behalf of the assessee, Shri Dastur relied on the following decisions :
(i) Gestetner Duplicators (P.) Ltd. v. CIT [1979] 117 ITR 1 (SC),
(ii) CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom.).
21. In Gestetner Duplicators (P.) Ltd.'s case (supra), their Lordships of the Hon'ble Supreme Court were considering the recognition of provident fund under Rule 4(c) of Part A of Schedule IV. At pages 14 & 15 of the Reported decision, it was held as follows :
"The facts in the present case that need be stressed in this behalf are that it was as far back as 1937 that the CIT had granted recognition to the provident fund maintained by the assessee under the relevant Rules under the 1922 Act, that such recognition had been granted after the true nature of the commission payable by the assessee to its salesman under their contracts of employment had been brought to the notice of the Commissioner and that the said recognition had continued to remain in operation during the relevant assessment years in question, the last fact in particular clearly implied that the provident fund of the assessee did satisfy all the conditions laid down in r. 4 of Part A of the Fourth Schedule to the Act even during the relevant assessment years. In that situation we do not think that it was open to the taxing authorities to question the recognition in any of the relevant years on the ground that the assessee's provident fund did not satisfy any particular condition mentioned in r. 4. It would be conducive to judicial discipline and the maintaining of certainty and uniformity in administering the law that the taxing authorities should proceed on the basis that the recognition granted and available for any particular assessment year implies that the provident fund satisfies all the conditions under r. 4 of Part A of the Fourth Schedule to the Act and not sit in judgment over it. There is ample power conferred upon the Commissioner under r. 3 of Part A of the Fourth Schedule to withdraw at any time the recognition already granted if, in his opinion, the provident fund contravenes any of the conditions required to be satisfied for its recognition and if during the assessment proceedings for any particular assessment year the taxing authority finds that the provident fund maintained by an assessee has contravened any of the conditions of recognition, he may refer the question of withdrawal of recognition to the Commissioner but until the Commissioner acting under the powers reserved to him withdraws such recognition the taxing authority must proceed on the basis that the provident fund has satisfied all the requisite conditions for its recognition for that year; any other course is bound to result in chaos and uncertainty which has to be avoided."
22. Firstly, the recognition is for a provident fund and no pre-conditions were imposed while recognising the provident fund unlike in the present case before us. In our case, constant monitoring of how the contributed funds to the Foundation were being spent is required to be made and therefore, rules contained in Rule 4 of Part A of Fourth Schedule are not similar to the provisions of section 35(1)(iii) of the Income-tax Act and therefore, Gestetner Duplicators (P.) Ltd.'s case (supra) does not apply.
23. The next decision cited was Gabriel India Ltd.'s case (supra). In that case, a particular expenditure was allowed by the ITO as being revenue in nature. The CIT reopened the matter under section 263 and directed the ITO to re-hear the matter, especially when he had disagreed with the conclusion arrived at by the ITO. It is significant that reaching to a conclusion after full-scale enquiry is one thing and absence of conducting any enquiry whatsoever is quite a different thing. The decision in 203 ITR 108 applies to the first category of cases, but certainly not to the second category in which case before us falls and therefore, Gabriel India Ltd.'s case (supra) cannot be of any help to the assessee. There is a clear finding given by the CIT in his impugned orders that no enquiry was made by the Assessing Officer while allowing the assessee's claim. However, nothing is shown before us as to what enquiries were done by the Assessing Officer while allowing Rs. 1.50 crores under section 35(1)(iii).
24. Ground No. 6 in the assessee's appeal is that the CIT erred in holding that the assessee's system of valuation of closing stock on the basis of 'LIFO' method was accepted by the Assessing Officer without making proper enquiries. It is contended that LIFO method of valuation of closing stock has been accepted by the department for the last several years and there is no error committed by the Assessing Officer. The learned CIT, however, found in his impugned orders that during the recent visit of the Assessing Officer on 1-3-1990 it was seen that the assessee is not following the system of LIFO method in a bona fide manner, therefore, he felt that this is a case where the ratio of Ministry of National Revenue v. Anaconda American Brass Ltd. [1955] 30 ITR 84 applied. In that case, the facts are that the assessee company carried on the business of purchasing metals, manufacturing them into sheets, rods and tubes and selling the manufactured products. It was constantly purchasing metals to replace those which were being used, but did not keep records from which the actual metals used during the year could be identified or the amounts paid for those metals determined. It did keep records of the quantities of metals (a) in its inventory at the beginning of the year, (b) purchased during the year and (c) in its inventory at the end of the year. It also kept records of the prices paid for the metals purchased from time to time. The company did not know, however, and could not ascertain either in respect of all the metals which it used during the year what price had been paid for them or in respect of all the metals which it had at the end of the year what price had been paid for them. The Hon'ble Privy Council had to determine what is the profit and gain earned for the year 1947 and it had held the following at page 85 of the Head Note :
"Held, that the FIFO and not the LIFO method must be adopted in the present case. Since the decision in Whimster & Co. v. Inland Revenue Commissioners (1925) 12 Tax Cas. 813, what was to be valued at the beginning and end of the accounting period had for tax purposes been taken to be the actual stock so far as it could be ascertained. Here there was a large quantity of metal in the 1947 closing inventory to which 1936 cost had been ascribed by the company. The profit of a trade or business was the surplus by which the receipts exceeded the expenditure necessary for the purpose of earning those receipts. (Russell v. Town and County Bank (1888) 13 App. Cas. 418, 424; 4 T.L.R. 500), and no assumption need be made unless the facts could not be ascertained. There was no room for theories as to flow of costs; nor was it legitimate to regard the closing inventory as an unabsorbed residue of cost rather than as a concrete stock of metals awaiting the day of process. It was the failure to observe, or the deliberate disregard of, facts which could be ascertained and must have their proper weight ascribed to them which vitiated the application of the LIFO method in the present case.
New theories of accountancy, though accepted for business purposes, might not necessarily determine income for tax purposes : Lucas v. Kansas City Structural Steel Co. [1930] 281 U.S. 264, 268; Patrick v. Broadstone Mills Ltd. [1954] 1 WLR 158 :(1954) 1 All ER 163; 25 ITR 377."
25. In view of the above decision of the Privy Council, the learned CIT felt that the Assessing Officer did not conduct necessary enquiries and therefore, revised the order of the Assessing Officer. Therefore, it was the failure to observe, or the deliberate disregard of facts which could be ascertained and must have their proper weight ascribed to them which vitiated the application of LIFO method in the present case. Therefore, it is not a question whether LIFO method is correct method or FIFO method is correct method. It is a question of verification of facts whether LIFO method is consistently followed or not and for the sake of enquiry into it, the revisionary order of the CIT is justified.
26. The next ground is with regard to the disallowance of section 40A(5) in respect of the following items :
(i) perquisite on sale of cars to employees, below the market price, and
(ii) payment of accrued privilege leave.
27. The learned CIT in his impugned orders at paras 10.1 and 10.2 accepted the arguments of the assessee and cancelled the revision of these two points and therefore, CIT had already granted relief on this ground in favour of the assessee and hence, it does not warrant any interference from us.
28. The next item is with regard to the capital expenditure of Rs. 1100 on issue of equity shares remained to be disallowed. This point of revision is cancelled in view of the Bombay High Court decision in Bombay Burmah Trading Corpn.'s case (supra), and therefore, the CIT himself held that this is not a worthy point of revision.
29. Let us now come to ground No. viii which is as follows :
"Although the company is following the mercantile system of accounting, some expenditure of the previous year were allowed this year. Similarly interest payments were not allocated properly and it appears that the interest pertaining to earlier year was allowed this year. No attempt was made by the Assessing Officer to verify whether the deduction claimed were in conformity with the method of accounting adopted."
30. The learned CIT dealt with this point at para 12 of his impugned orders. He specifically found that the assessee was not able to give specific data with regard to these matters. He also specifically found that the assessee had offered no comments. The learned CIT observed that when the assessee is following mercantile system, it is surprising as to how the earlier years' expenditure as well as interest payments were claimed in the current assessment year. Since the Assessing Officer had not applied his mind in this respect he directed the Assessing Officer to make necessary enquiries and disallow any expenditure/interest pertaining to the earlier years. In view of absence of explanation from the assessee, we are unable to find that the direction by the CIT to the Assessing Officer is in any way not called for. It is thus confirmed.
31. Now let us come to ground No. ix. In the profit and loss account, Schedule T, following deductions were found to have been claimed :
(a) Loss on fixed assets/sold, discarded Rs. 18,105 (b) Obsolete non-running material written off Rs. 12,05,535 (c) Insurance claim written off Rs. 27,643 (d) Fixed assets written off Rs. 26,838
32. This matter was discussed in para 14 of the CIT's order. The CIT had dropped revision in respect of Rs. 44,943 comprising of items (a) and (d) mentioned in the above table (Rs. 18,105 and Rs. 26,838) and he identified them as point not worthy to be revised. The other two items were considered for revision. He held that the above expenses were allowed without any enquiry as to whether the relevant conditions laid down in sections 32(1)(iii), 32A(5) and 41(2) of the Act were satisfied or not. Even at the time of enquiry with regard to Rs. 12,05,535 the assessee stated that it is their practice to write off non-moving machinery which remain idle for a period of 3 years and retained the same in the books at the value of Re. 1. It is the claim of the assessee that the Assessing Officer had verified this fact at the time of assessment. However, this position had not been reflected in the assessment order and hence the Assessing Officer was directed to verify this item and re-do the assessment. We are unable to find any error of fact or law in the direction given by the CIT. With regard to Rs. 27,646, the assessee could not offer any comment on the ground that the person looking after this work has since resigned. The CIT therefore directed the Assessing Officer to verify this item also. We are unable to find any impropriety or illegality in this direction.
33. In ground No. xi, it is stated that salary and perquisites paid to the Chairman and Managing Director for the period 1-5-1981 to 30-4-1983 was without the approval of the Central Government and this should have been disallowed. However, in para 16 of the CIT's impugned order, he had cancelled this ground as not worthy of revision and hence decided the issue in favour of the assessee. Hence this issue does not survive.
34. In para xii it is alleged that investment allowance and depreciation were allowed without verification of details of the assets. The assessee did not offer any comments whatsoever on this ground sought to be taken for revision. Therefore, the CIT directed the Assessing Officer to make complete verification of the assets before allowance of depreciation and investment allowance while re-doing the assessment. There is nothing illegal about the direction given by the CIT. In our humble opinion, therefore, the revision on this point cannot be found fault with.
35. Ground No. 13 is about the gratuitous payment of Rs. 1439 being ex-gratia payment. According to the CIT, it is required to be disallowed. However, during the conduct of enquiry under section 263, at para 18, the CIT had accepted that the ex-gratia payment is made in accordance with the Tribunal decision in the assessee's own case and hence accepting the explanation of the assessee, he held that revision is not called for on this issue.
36. In the result, ITA No. 4771/Bom/90 for the assessment year 1985-86 is partly allowed.
37. In ITA No. 3471/Bom/91 for the assessment year 1986-87, the only ground against the revisionary order passed is the following :
"In the event of the assessee not succeeding against the action taken by the department under section 263 for the assessment year 1985-86 and, action under section 148 taken for the assessment year 1984-85, with regard to valuation of newsprint stock on LIFO method, then, the newsprint stock would be valued on FIFO method. Consistently the opening and closing stock of newsprint for assessment year 1986-87 ought then to be valued on FIFO method. (The assessee has been consistently following LIFO method). In such a case, assessee has to get a relief of about Rs. 16.26 lacs in Assessment year 1986-87. The assessee submits that in such an event the Assessing Officer ought to be directed by the Tribunal to give that relief to the assessee."
38. We have upheld the direction of the learned CIT to the Assessing Officer to verify whether LIFO method was bona fide followed by the assessee or not. We expect that this verification would be done and opening stock as well as closing stock values would be properly modified according to the view taken by the Assessing Officer while re-doing the assessment for the assessment years 1985-86 and 1986-87 and necessary relief, if any, due to the assessee should be granted. Therefore, the appeal for the assessment year 1986-87 should be held to have been allowed for statistical purposes.