Income Tax Appellate Tribunal - Delhi
Shadi Lal Enterprises Ltd.,, vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "I" DELHI
BEFORE SHRI C.L. SETHI & SHRI K.G. BANSAL
I.T.A. No. 5134(Del)/2004
Assessment year: 2001-02
Sir Shadi Lal Enterprises Ltd., Additional Commissioner of
4-A, Hansalaya, Vs. Income-tax, Range-8,
15, Barakhamba Road, New Delhi. New Delhi.
I.T.A. No. 5694(Del)/2004
Assessment year: 2001-02
Additional Commissioner of Sir Shadi Lal Enterprises Ltd.,
Income-tax, Range-8, New Delhi. Vs. 4-A, Hansalaya, 15,
Barakhamba Rd., New Delhi.
I.T.A. No. 145(Del)/2007
Assessment year: 2001-02
Sir Shadi Lal Enterprises Ltd., Deputy Commissioner of
4-A, Hansalaya, Vs. Income-tax, Circle 8(1),
15, Barakhamba Road, New Delhi. New Delhi.
I.T.A. No. 1530(Del)/2007
Assessment year: 2001-02
Deputy Commissioner of Sir Shadi Lal Enterprises Ltd.,
Income-tax, Circle 8(1), Vs. 4-A, Hansalaya, 15,
New Delhi. Barakhamba Rd., New Delhi.
I.T.A. No. 4554(Del)/2005
Assessment year: 2002-03
Sir Shadi Lal Enterprises Ltd., Additional Commissioner of
4-A, Hansalaya, Vs. Income-tax, Range-8,
15, Barakhamba Road, New Delhi. New Delhi.
2 ITA Nos. 5134(Del)/2004 etc.
I.T.A. No. 34(Del)/2006
Assessment year: 2002-03
Additional Commissioner of Sir Shadi Lal Enterprises Ltd.,
Income-tax, Range-8, New Delhi. Vs. 4-A, Hansalaya, 15,
Barakhamba Rd., New Delhi.
ITA No. 2916(Del)/2008
Assessment year: 2003-04
Sir Shadi Lal Enterprises Ltd., Deputy Commissioner of
4-A, Hansalaya, Vs. Income-tax, Circle-8(1),
15, Barakhamba Road, New Delhi. New Delhi.
I.T.A. No. 3195(Del)/2008
Assessment year: 2003-04
Deputy Commissioner of Sir Shadi Lal Enterprises Ltd.,
Income-tax, Circle 8(1), Vs. 4-A, Hansalaya, 15,
New Delhi. Barakhamba Rd., New Delhi.
(Appellant) (Respondent)
Assessee by : S/Shri Rupesh Jain & Rohit Garg, CA
Department by: Ms. Anusha Khurana, &
Shri M.Mohsin Alam, DR
ORDER
PER BENCH All these appeals of the assessee and the revenue were argued in a consolidated manner by the ld. counsel for the assessee and the ld. DR, as they pertain to only one assessee, Sir Shadi Lal 3 ITA Nos. 5134(Del)/2004 etc. Enterprises Ltd. Therefore, we find it convenient to pass a consolidated order.
ITA No. 5134(Del)/2004-Asstt. Year 2001-02- Appeal of the assessee.
2. Ground no. 1 is that the ld. CIT(Appeals) erred on facts and in law in disallowing the provision for encashment of leave salary, made in line with accounting standards. In this connection, reliance is placed on the decision of Hon'ble Supreme Court in the case of Bharat Earth Movers Vs. CIT (2000) 245 ITR 428, to the effect that the provision made on the basis of terms of employment is an ascertained liability.
2.1 In this connection, it is mentioned in the impugned order that the assessee had been claiming deduction in respect of leave salary on payment basis. In this year, the liability has been provided on accrual basis. The ld. CIT(Appeals) referred to the amendment in this matter, effective from assessment year 2002-03, that expenditure on leave encashment will be admissible on payment basis only. Therefore, it has been held that the changed system of accounting will be applicable only for this year. This also leads to a conclusion that the changed method has not been employed regularly in subsequent years. 4 ITA Nos. 5134(Del)/2004 etc. Accordingly, it has been held that this is only a casual change, which cannot be taken as bona-fide. The ld. CIT(Appeals) has considered the decision of Hon'ble Supreme Court in the case of CIT Vs. British Paint India Ltd., 188 ITR 44, in which it was held that the change will not be allowed if the changed method does not represent true and correct state of affairs of the profits of the business. In this connection, he extracted the relevant portion of the judgment, which is reproduced below:-
"Valuation of the stock-in-trade at cost or market value, whichever is the lower, is a matter entirely within the discretion of the assessee. But whichever method he adopts, it should disclose a true picture of his profits and gains. If, on the other hand, he adopts a system which does not disclose the true state of affairs for the determination of tax, even if it is ideally suited for other purposes of his business, such as the creation of reserve, declaration of dividends, planning and the like, it is the duty of the Assessing Officer to adopt any such computation as he deems appropriate for the proper determination of the true income of the assessee. This is not only a right but a duty that is placed on the officer, in terms of the first proviso to section 145, which concerns a correct and complete account but which, in the opinion of the officer, does not disclose the true and proper income."
2.2 Before us, the ld. counsel would argue that the assessee has made a bona-fide change in respect of accounting for of the aforesaid liability. This changed method has been followed year after year. It is 5 ITA Nos. 5134(Del)/2004 etc. another matter that in computation of income, the deduction is claimed in subsequent years only of that amount which became payable in the year. This however does not mean that the changed system has not been followed regularly. In this connection, two questions came up for discussion with the ld. counsel, i.e, whether, (i) the change is bona fide in view of statutory amendment applicable for assessment year 2002-03 and onward; and (ii) the assessee would be entitled to deduction of incremental liability or the whole of the liability provided for, which includes liability in respect of earlier years?
2.3 In the light of aforesaid questions, the ld. counsel fairly states that the liability has been claimed in assessment year 2002-03 and onward on cash basis and, therefore, irrespective of the aforesaid legal issues, he would not press for this ground.
2.4 On the other hand, the ld. DR relies on the order of the ld. CIT(Appeals).
2.5 We have considered the facts of the case and submissions made by both the parties. We find that the changed system of accounting, 6 ITA Nos. 5134(Del)/2004 etc. even if followed in subsequent years in maintenance of books of account, has tax-repercussion only for this year. In such a circumstance, it would be appropriate to hold that the system which has been regularly followed should not be disturbed in this year as we are primarily concerned with the computation of total income of the assessee on a fair basis. It may also be mentioned that there is a conflict of view among various benches of the Tribunal as to whether provision relatable to earlier years is admissible in this year. We are of the view that the ambit of taxation is decided by sections 4 and 5 and section 145 is only a method of recording the liability. Therefore, even in changed system, which is mercantile, the liability of an earlier year cannot be allowed to be deducted in computing the total income. Nonetheless, as the ld. counsel has not pressed this matter further, we do not go into elaborate discussion in this matter.
2.6 In the result, this ground is dismissed.
3. Ground No. 2 is that the ld. CIT(Appeals) erred in holding that loans and advances, though given in the normal course of business, are nothing but debts, which could be allowed only on writing them off in the books of account and not merely on making the provision. 7 ITA Nos. 5134(Del)/2004 etc. 3.1 In this connection, it has been mentioned in the impugned order that a bad debt can be deducted u/s 36(1)(vii) in computing the total income only when it has been written off from the books of account. The loans and advances are in the nature of debts. In this connection, reliance has been placed on the decision of Hon'ble Mumbai High Court in the case of ABB Ltd., 258 ITR 407, the relevant portion of which is reproduced below:-
"Now coming to question no. 2, the Assessing Officer disallowed bad debts on the ground that the assessee had made only a provision, which was not equivalent to a write-off. Being aggrieved, the assessee went in appeal to the Commissioner of Income-tax (Appeals) who took the view following the judgment of the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala Vs. CIT [1981] 130 ITR 95, that even a provision for bad debt could be treated as a write-off. This view of the first appellate authority was confirmed by the Tribunal. Being aggrieved, the Revenue has come in appeal under section 260-A of the Income-tax Act, to this court.
As stated above, in this appeal, we are concerned with the accounting year 1987-88 relevant to the assessment year 1988-89. At this stage, it may be mentioned that section 36(1)(vii) stood amended by addition of an Explanation with effect from April 1, 1989, which, inter-alia states that any bad debt written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee. This amendment came into force with effect from April, 1, 1989 and, therefore, it does not apply to the facts of the present case. However, this amendment indicates that before April 1, 1989, even a provision for bad debt in the account of the assessee could be treated as a write off."8 ITA Nos. 5134(Del)/2004 etc.
Thus, the provision amounting to Rs. 57,17,743/- was not allowed to be deducted in computing the total income.
3.2 The ld. counsel would draw our attention towards pages 11 to 17 of the paper book, which is a part of the submissions made before the ld. CIT(Appeals). The details in respect of each amount, which has been written off, have been mentioned. Our attention is drawn to pages 11 to 15 of the assessment order for assessment year 2000-01, which deal with "provision for doubtful debts" and "provision for doubtful advances". It appears that in most of the cases under the head "provision for doubtful advances", half of the amount has been written off in immediately preceding year and the other half of the amount has been written off in this year. The finding of the AO is contained on pages 14 and 15, in which it has been held that the Explanation, with effect from 1.4.1989 in section 36(1)(vii), under which any bad debt written off as irrecoverable in the accounts shall not include provision for bad and doubtful debts made in the accounts. In view of this amendment, the existing case law will not be applicable, which means that where only a provision is made by reduction in the value of assets but not by way of writing off of the amount from the accounts of 9 ITA Nos. 5134(Del)/2004 etc. the debtors, the deduction shall not be admissible. Therefore, the sum of Rs. 57,70,743/- has not been allowed to be deducted in computing the total income. It is argued that in the interest of consistency, at least the amount for this year in respect of "provision for doubtful advances"
should be allowed in computing the income.
3.3 In reply, the ld. DR draws our attention towards the amendment effective from 1.4.1989, under which it is obligatory for the assessee to write off a debt in the accounts for claiming the deduction. In this context, he relies on the order of the ld. CIT(Appeals).
3.4 We have considered the facts of the case and submissions made before us. The facts are that the assessee created two provisions of Rs. 52,47,553/- and Rs. 5,23,190/-, aggregating to Rs. 57,70,743/- in respect of provision for doubtful debts and provision for doubtful advances respectively. The assets were reduced accordingly on the asset side, but individual accounts of the debtors were not written off.
The ld. counsel distinguishes between provision for doubtful debts and provision for doubtful advances. On the other hand, the case of the ld.
DR is that since only a provision is made and the accounts of 10 ITA Nos. 5134(Del)/2004 etc. individual debtors have not been written off, the same may not be deducted in computing the income. However, the case of the ld. counsel is that advances are different from debts as those have been made for purchase of goods. The AO allowed 50% of such advances in the immediately preceding year and the balance 50% is claimed in this year.
Such advances are covered u/s 28 and not u/s 36(1)(vii). Therefore, following the principle of consistency, such doubtful advances may be allowed. We are unable to agree with the ld. counsel for the simple reason that debts and advances are two species of the same asset, i.e., they represent money recoverable from others either as sundry debts or sundry advances. Since there is a specific section dealing with debts, we cannot go to a general provision contained in section 28 to decide the admissibility or otherwise of the doubtful advances.
We find that the Hon'ble Supreme Court examined the issue of write off in the case of Vijaya Bank Vs. CIT & Another (2010) 323 ITR 166, in which it was held that where a provision is made for bad debt, it would be necessary to write off the debt from the accounts of the debtors. However, if the amount is debited to profit and loss account as bad debt, then reduction in the assets by the corresponding amount would amount to write off of the debt as contemplated in section 11 ITA Nos. 5134(Del)/2004 etc. 36(1)(vii). For the purpose of ready reference, the decision at placitum 7 and 8 is reproduced below:-
"One point needs to be clarified. According to Shri Bishwajit Bhattacharya, the learned Additional Solicitor General appearing for the Department, the view expressed by the Gujarat High. Court in the case of Vithaldas H. Dhanjibhai Bardanwala [1981] 130 ITR 95 was prior to the insertion of the Explanation vide the Finance Act, 2001, with effect from April 1, 1989, hence, that law is no more a good law. According to the learned counsel, in view of the insertion of the said Explanation in section 36(1) (vii) with effect from April 1, 1989, a mere debit of the impugned amount of bad debt to the profit and loss account would not amount to actual write off. According to him, the Explanation makes it very clear that there is a dichotomy between actual write off on the one hand and a provision for bad and doubtful debt on the other. He submitted that a mere debit to the profit and loss account would constitute a provision for bad, and doubtful debt, it would not constitute actual write off and that was the very reason why the Explanation stood inserted. According to him, prior to the Finance Act, 2001, many assessees used to take the benefit of deduction under section 36(1)(vii) of the 1961 Act by merely debiting the impugned bad debt to the profit and loss account and, therefore, Parliament stepped in by way of Explanation to say that mere reduction of profits by debiting the amount to the profit and loss account per se would not constitute actual write off. To this extent, we agree with the contentions of Shri Bhattacharya. However, as stated by the Tribunal, in the present case, besides debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee-bank had correspondingly/simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance-sheet and, consequently, at the end of the year, the figure in the loans and advances or the debtors on the asset side of the balance-sheet was shown as net of the provision "for the impugned bad debt". In the judgment of the Gujarat High Court in the case of Vithaldas H. Dhanjibhai 12 ITA Nos. 5134(Del)/2004 etc. Bardanwala [1981] 130 ITR 95, a mere debit to the profit and loss account was sufficient to constitute actua1 write off whereas, after the Explanation, the assessee(s) is now required not only to debit the profit and loss account but simultaneously also reduce loans and advances or the debtors from the assets side of the balance-sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of the provisions for the impugned bad debt. This aspect is lost sight of by the High Court in its impugned judgment. In the circumstances, we hold, on the first question, that the assessee was entitled to the benefit of deduction under section 36(1)(vii) of 1961 Act as there was an actual write off by the assessee in its books, as indicated above.
8. Coming to the second question, we may reiterate that it is not in dispute that section 36(1)(vii) of the 1961 Act applies both to banking and non-banking businesses. The manner in which the write off is to be carried out has been explained hereinabove. It is important to note that the assessee-bank has not only been debiting the profit and loss account to the extent of the impugned bad debt, it is simultaneously reducing the amount of loans and advances or the debtors at the year-end, as stated hereinabove. In other words, the amount of loans and advances or the debtors at the year-end in the balance-sheet is shown as net of the provisions for the impugned debt. However, what is being insisted upon by the Assessing Officer is that mere reduction of the amount of loans and advances or the debtors at the year-end would not suffice and, in the interest of transparency, it would be desirable for the assessee-bank to close each and every individual account of loans and advances or debtors as a pre-condition for claiming deduction under section 36(1)(vii) of the 1961 Act. This view has been taken by the Assessing Officer because the Assessing Officer apprehended that the assessee-bank might be taking the benefit of deduction under section 36(1) (vii) of the 1961 Act, twice over. (See order of the Commissioner of Income-tax (Appeals) at pages 66, 67 and 72 of the paper book, which refers to the apprehensions of the Assessing Officer). In this context, it may be noted that there is no finding of the Assessing Officer that 13 ITA Nos. 5134(Del)/2004 etc. the assessee had unauthorisedly claimed the benefit of deduction under section 36(1)(vii), twice over. The order of the Assessing Officer is based on an apprehension that, if the assessee fails to close each and every individual account of its debtor, it may result in the assessee claiming deduction twice over. In this case, we are concerned with the interpretation of section 36(1)(vii) of the 1961 Act. We cannot decide the matter on the basis of apprehensions/desirability. It is always open to the Assessing Officer to call for details of individual debtor's account if the Assessing Officer has reasonable grounds to believe that the assessee has claimed deduction, twice over. In fact, that exercise has been undertaken in subsequent years. There is also a flipside to the argument of the Department. The assessee has instituted recovery suits in courts against its debtors. If individual accounts are to be closed, then the debtor/defendant in each of those suits would rely upon the bank statement and contend that no amount is due and payable in which event the suit would be dismissed."
3.5 We also do not find any merit in the argument of consistency for the simple reason that the same is against the decision of Hon'ble Supreme Court, which lays down the law of the land. Otherwise we do not see any difference between a debt and advance, as mentioned earlier. Therefore, in view of the aforesaid decision, this ground is also dismissed.
4. Ground no. 3 is that the ld. CIT(A) erred in disallowing interest payable to IFCI in respect of Sugar Development Fund (SDF), by invoking the provision contained in section 43B, as the interest is 14 ITA Nos. 5134(Del)/2004 etc. payable to the Government. It is the admitted position that the issue stands decided against the assessee by the decision of Hon'ble Delhi High Court in the case of Triveni Engineering & Industries Ltd. Vs. CIT (2009) 226 CTR 526. The relevant portion contained in paragraph 5 is reproduced below:-
5. The aforesaid provision makes it more than abundantly clear that interest can only be allowable when the same is actually paid and not merely because the same is due as per the method of accounting adopted by the assessee. Any other interpretation as suggested by the appellant that the interest should be allowed even when not actually paid will defeat the very purpose of Section 438. The contention of the assessee that it has received the loan from Sugar Development Fund administered by the Ministry of Sugar. Government of India is liable to be rejected at the threshold because admittedly the loan is obtained from IFCI by the assessee. It is the IFCI with whom the documentation for the loan has been signed and to whom the loan along with the interest is repayable. Merely because the Sugar Development Fund is under the overall control and administration of the Ministry of Sugar. Government of India does not mean that the loan is not given by the IFCI. The other contention raised by the appellant relying upon the judgment of the Andhra Pradesh High Court in the case Srikakollu Subba Rao & Co. and Ors. Vs. Union of India and Other, 173 ITR 708 that where the amount is not due for payment before the end of the relevant previous year such amount though having accrued could not be disallowed under Section 43B(d) of the Act, cannot be accepted by this Court because the same would negate the intention of existence of Section 438(d) and would render otiose the expression "actually paid" occurring in the provision. Further we feel that in view of the categorical language used in the relevant provision, we need not refer to the other sub-sections and exceptions of Section 43B.
15 ITA Nos. 5134(Del)/2004 etc.4.1 Respectfully following the aforesaid decision, this ground is also dismissed.
5. Ground no. 4 is that the ld. CIT(Appeals) erred in confirming the action of the AO in disallowing the claim of Rs. 21,91,222/- on account of loss on sale and disposal of assets, which were found to be no more usable.
5.1 In this connection, it is mentioned in the impugned order that the assessee claimed the loss on account of sale as well as the write off of the stores. In addition thereto, there has been a write off of equipments also, the details of which are as under:-
Unit Loss on sale Write off of Total
Of stores (Rs.) Stores Equipments(Rs.) (Rs.)
Upper Doab Sugar Mills 4,34,080 53,044 4,87,124
Shamli Distillery 71,198 4,14,698 4,85,896
Pilkhani Distillery Nil 6,67,412 8,00,285 14,67,696
24,40,716
5.2 The ld. CIT(Appeals) compared the value of sale of scrap realized
in this year vis-à-vis the last year and found that the receipts in this
year are Rs. 39,57,941/- against Rs. 38,48,593/- in the preceding year. Such value has been static over a period of time. Further, equipment has been written off in respect of sugar mill and the distillery ostensibly 16 ITA Nos. 5134(Del)/2004 etc. for the reason that due to up-gradation of machinery these are not required. After analyzing various facts, it has been held that the assessee is not entitled to deduction of Rs. 21,91,222/-. 5.3 The ld. counsel would argue that this year is an exceptional year in the sense that not only unusable spares and consumables have been written off, but due to change in the policy of the Excise Department, the assessee had to remove machines from warehouses. This rendered the machinery and spares redundant. Therefore, there is higher claim under this head. He files the details of sale of scrap for assessment years 2000-01 to 2004-05, from which it is seen that the sale of scrap in assessment years 2002-03 and 2003-04 is of exceptionally high value at Rs. 48,05,049/- and Rs. 40,31,244/-. This higher realization is stated to be on account of removal of machinery from warehouses. 5.4 On the other hand, the learned DR relies on the orders of the authorities below.
5.5 We have considered the facts of the case and submissions made before us. On perusal of the assessment order, we find that it had been 17 ITA Nos. 5134(Del)/2004 etc. explained that equipments and stores for bottling, pouching and packing of country liquor, located in warehouses in districts, have been written off as a result of change in the policy of the Government. Consequently, the warehouses were vacated and the stores and equipments became useless. Therefore, they have been written off. Thus, the submissions of the ld. counsel are based upon facts on record. However, after introduction of the concept of block of assets, the sale value realized on discarded depreciable assets, is to be reduced from the value of the block of assets till such time that the block is exhausted. This point has not been examined by the lower authorities. This point has also not been argued before us. Therefore, we restore this ground to the file of the AO for appropriate decision in the light of aforesaid observation.
5.6 The result is that the ground is treated as allowed for statistical purposes.
6. Ground no. 5 is that the ld. CIT(A) erred in adding the amount of excise duty payable to the value of closing stock in respect of uncleared finished goods. In the alternative, it is mentioned that the amount is required to be reduced by the amount of excise duty paid in respect of 18 ITA Nos. 5134(Del)/2004 etc. goods on which the duty was paid up to the due date of filing the return of income u/s 139(1).
6.1 In the impugned order, it is mentioned that the assessee has not furnished any explanation or rationale of change in method of accounting in respect of valuing the closing stock. It is further mentioned that as per the provision contained in section 145-A, the assessee is required to follow the method of accounting regularly employed by it. In absence of any explanation by the assessee, the loss occurring on the change has been disallowed by the ld. CIT(Appeals). 6.2 Before us, the ld. counsel would clarify that excise duty becomes payable on removal of the goods from the bonded warehouses. Therefore, the provision contained in section 145A will come into force only when the goods have been so cleared. When his attention was drawn to the fact that the liability to pay excise duty comes into existence the moment process of manufacture has been completed, his submission is that since liability to pay arises only on clearance of the goods, the value of inventory cannot be loaded with the liability of excise duty till such time the goods are cleared. However, it is also submitted that 19 ITA Nos. 5134(Del)/2004 etc. the assessee changed the system of accounting of valuation of closing stock from assessment year 2005-06 on the lines indicated by the bench. In view thereof, the ld. counsel does not press the ground any further.
6.3 In reply, the ld. DR relied on the order of the ld. CIT(Appeals). 6.4 We have considered the facts of the case and submissions made before us. In view of the fact that the ld. counsel does not press this ground any further, we may not debate the matter, more particularly when the assessee has itself changed the system of accounting in respect of valuation of closing stock on the lines indicated by the bench from assessment year 2005-06. However, the issue may be put in perspective.
6.5 Section 145-A regarding "method of accounting in certain cases"
provides that the valuation of purchase and sale of goods and inventory for the purpose of computation of income under the head "profits and gains of business or profession" shall be in accordance with the method of accounting regularly employed by the assessee; as further adjusted to 20 ITA Nos. 5134(Del)/2004 etc. include the amount of any tax, duty, cess or fees actually paid or incurred by the assessee to bring the case to the place of location and condition on the date of valuation. The issue is whether, liability for excise duty incurred by the assessee on manufacture of goods should be included in the inventory when the goods are lying in the bonded warehouse? The case of the revenue, based upon decided case laws under relevant Act, is that the liability to pay excise duty is incurred the moment goods are manufactured. Initially, the ld. counsel seeks to argue that the liability is incurred when the goods are cleared from the bonded warehouses and not before. However, this line of argument is abandoned by pointing out that from assessment year 2005-06, the inventories have been valued on the footing that the liability is incurred when the goods are manufactured.
6.6 Before us, no data or details were furnished regarding the payment made before due date of filing the return under section 139(1).
Therefore, it is not feasible to adjudicate on this part of the ground.
6.7 In view of this position, this ground is also dismissed.
7. Ground no. 6 is that the ld. CIT(A) erred in holding that customary collection in Dharmada account is a trading receipt. It is the common ground of both the parties that the issue stands covered against the 21 ITA Nos. 5134(Del)/2004 etc. assessee by the order of the Tribunal in earlier years and a consolidated order for assessment years 1990-91 and 2000-01 has been placed in the paper book on pages 471 to 503. For the sake of ready reference, the relevant paragraph 23 is reproduced below:-
"23. We have considered the rival submissions. Though the assessee is stated to be collecting receipts towards Dharmada (charity) from the customers, the amount is simply accumulated from year to year and not spent for he purpose for which it is collected. Thus, it is only a name given but it is not spent for the intended purpose. It is submitted that the amount is being accumulated so that a huge project of multi specialty hospital can be taken. On query from the Bench, the ld. counsel for the assessee clarified that till date no such hospital project has come over nor even any land has been identified in this regard. It is merely an argument without any substance. The assessee has not demonstrated that any steps are taken towards the object of setting up such hospital. Even the land for such hospital has not been identified leave apart construction thereof. Therefore, it cannot be held that the amount collected from customers were really towards avowed object of charity. Therefore, the decision of Hon'ble Supreme Court in the case of Bijli Cotton Mills (supra) will not apply to the facts of the case. The assessee has demonstrated not only collecting Dharmada receipts as a customary practice but also to show that such customary practice is carried to its logic conclusion, i.e., spending towards charity out of such account. The assessee cannot merely go on collecting receipts from year to year and still claim the same as charity without any intention to spend such amount. We, therefore, uphold the addition. As regards alternate claim, if the assessee satisfies the condition for allowing deduction under section 80G, the assessee may produce necessary evidence before the Assessing Officer to claim that deduction under section 80G is allowable."22 ITA Nos. 5134(Del)/2004 etc.
7.1 Respectfully following the above decision, the ground is disposed off accordingly. The AO may consider the deduction to be allowed, if any, under section 80G. In result, the ground is also dismissed.
8. Ground no. 7 is that the ld. CIT(A) erred in disallowing expenses of Rs. 6,19,805/-, Rs. 5,69,920/- and Rs. 2,60,000/- by holding them to be expenses of capital nature. The details of these expenses have been mentioned by the ld. CIT(Appeals) on page 19 of the order. The details are reproduced below:-
VR Date Particulars Party Name Remarks Amount
No. (Rs.)
3861 30.9.00 Hydraulic Hydraulic Part of 6,19,805
power packProjects hydraulic drive
with 20H.P and of capacity
Motors Systems 320X2 K.W
Pvt. Ltd. used for
replacement of
old and
unserviceable
part
3861 30.9.00 Seak kit for Diana Part of 5,69,920
Hydraulic Automation hydraulic drive
Main Pump & Pvt. Ltd. of capacity
planetary gear 320X2 K.W
box used for
replacement of
old and
unserviceable
part
23 ITA Nos. 5134(Del)/2004 etc.
Do Do Hydraulic Hydraulic Part of 2,60,000
Pump & Projects hydraulic drive
Motor Systems of capacity
Pvt. Ltd. 320X2 K.W
used for
replacement of
old and
unserviceable
part
8.1 The finding of the ld. CIT(A) is that although the expenses have been classified as "current repairs", but they are in the nature of capital expenses incurred for re-conditioning and refurbishing existing machines, thereby granting the assessee a benefit of enduring nature. However, he allowed deduction of depreciation on the capitalized expenditure @ 12.5% of the expenditure.
8.2 The ld. counsel draws our attention towards pages 241 to 255 of the paper book, being appellate order for assessment year 2002-03, dealing with similar expenses, in which the ld. CIT(Appeals) held that the disallowance made by the AO is not in respect of any addition or improvement to the existing machinery or plant, but is for proper maintenance of the same. Thus, the addition of Rs. 29,22,092/- was deleted. Further, he draws our attention to pages 279 to 287, of the paper book, which contain the assessment order for assessment year 24 ITA Nos. 5134(Del)/2004 etc. 2003-04 and the details of expenses in respect of plant and machinery. On the basis of these details, it is argued that such expenses have been incurred not only in this year but in subsequent years also. The expenses do not lead to installation of any new machinery or enhancing the capacity of existing machinery. The expenses are in relation to repairs of the existing machinery and, therefore, they are in the nature of revenue expenses. The ld. counsel also supplies the figures of earlier years to support his case.
8.3 In reply, the ld. DR relies on the decision of Hon'ble Supreme Court in the case of CIT Vs. Saravana Spinning Mills (P) Ltd., (2007) 293 ITR 201. The question before the court for consideration is, whether the modernization or current repair expenditure is allowable as revenue expenditure, as claimed by the assessee or the replacement of cards or blow room machinery/combing machinery etc. is to be considered as capital expenditure as claimed by the revenue?, the relevant portions of which at placitum 17 and 18 are reproduced below:-
"Some of the decisions cited on behalf of the assessees are not being discussed by us as they deal with cases falling under section 37. That section a residuary section. Under section 37, a particular item of expenditure may be deductible if the expenditure does not fall within sections 30 to 36; that it should have been incurred in the accounting year; that it should be in 25 ITA Nos. 5134(Del)/2004 etc. respect of a business carried on by the assessee; that it should not be on personal account of the assessee; that it should not be in the nature of capital expenditure and that it should be spent wholly and exclusively for business. Whether expenditure is "revenue" or "capital in nature" would depend upon several factors, namely, nature of the expenditure, nature of the business activity etc. For example, construction of the building far self-use may be capital in nature whereas in the hands of the builder a building constitutes his stack-in-trade and, therefore, an the sale of the building the expenditure has to be revenue. Therefore, the builder would be entitled to deduct such expenditure from the sale proceeds/gross income. Therefore, whether an expenditure is revenue or capital in nature would depend on the facts of each case. We do not wish to express any opinion on the applicability of section 37(1) in the present case. There were certain civil appeals wrongly tagged with the present batch which will be decided separately by us as they concern with section 37(1). Hence we do not wish to express any opinion on applicability of section 37(1).
Before concluding, one aspect needs to be discussed. It was submitted on behalf of the assessees, in the present case, that although the assessees had claimed deduction under section 31(i), they should be permitted to claim deduction under section 37(1) as on the facts it has been held by the Commissioner of Income-tax (Appeals), Tribunal and the High Court that the expenditure was revenue in nature. We find no merit in this contention. As stated above, even if the expenditure incurred is revenue in nature, still it may not fall in the connotation of the words "current repairs" under section 31 (i) which test has not kept in mind. As held by Chagla C. J. in the case of New Shorrock Spinning and Manufacturing Co. Ltd. [1956] 30 ITR 338 (Bom) all repairs do not attract section 31(i) even though the expenditure is revenue in nature. Therefore, the basic test, which had not been applied, in the present case, by the Commissioner of Income-tax (Appeals), the Tribunal and the High Court, is whether the expenditure came within the expression "current repairs". Instead all the three authorities proceeded on the footing that since the expenditure was revenue it constituted "current repairs". It is for this reason 26 ITA Nos. 5134(Del)/2004 etc. that we have interfered with the concurrent findings given by the Commissioner of Income-tax (Appeals), the Tribunal and the High Court."
8.4 We have considered the facts of the case and submissions made before us. The facts are that the assessee spent an amount of Rs. 6,19,805/- for replacement of an old part of the hydraulic drive. One more part was replaced for an expenditure of Rs. 5,69,920/-, being seak kit for the hydraulic main pump. The hydraulic pump and motor of the hydraulic drive were replaced at the cost of Rs. 2,60,000/-. The assessee has demonstrated that similar expenses were incurred in past and subsequent years. Similar claim of the assessee has been allowed by the AO himself in assessment year 2003-04. The case of the assessee is based on section 37(1) and not on section 31 (i), as was the case of Saravana Spinning Mills (P) Ltd. (supra). There is nothing on record to show that the capacity of hydraulic drive has significantly increased. Obviously it is not a case where a new machine has been installed as these parts pertain to the hydraulic drive. Thus, after repair the hydraulic drive remains hydraulic drive of the same capacity. Therefore, it is neither a case of bringing into existence a new asset or substantially enhancing the capacity of the existing hydraulic drive. It is also not a case where any expenditure has been 27 ITA Nos. 5134(Del)/2004 etc. done in the capital field. Therefore, looking to the history of the case, we are of the view that the expenditure is revenue in nature. Consequently, the net addition sustained by the ld. CIT(Appeals) after deduction of depreciation is deleted.
8.5 In the result, this ground is allowed.
9. Ground no. 8 contains two parts. There is a challenge to disallowance of Rs. 16,650/-, being lawyer's charges pertaining to earlier years. Further, the disallowance of Rs. 50,000/-on account of personal use of vehicles by the directors of the company has been challenged. In regard to the lawyer's charges, it is mentioned that the bill has been received in this year. In respect of disallowance of Rs. 50,000/-, it is mentioned that the assessee is a company, which is incapable of personal use of the assets and personal use by directors is an expenditure by way of perquisite. This is a business expenditure incurred by the assessee-company. The ld. DR is unable to rebut any of the aforesaid submissions. Therefore, it is held that the liability in respect of lawyer's charges crystallized in this year and ad-hoc apportionment of Rs. 50,000/- from the vehicle expenses for use of the directors is business expenditure in so far as the assessee company is concerned. 28 ITA Nos. 5134(Del)/2004 etc. 9.1 Thus, this ground is allowed.
10. Ground no. 9, in regard to deduction u/s 80G in respect of relief to Gujarat Earth Quake Victims, has not been pressed by the ld. counsel for the reason that requisite relief has been granted by rectification of the order. Thus, this ground is dismissed as not pressed.
11. Ground no. 10 is against inclusion of a sum of Rs. 2,90,84,580/- in the total turnover for the purpose of computing the deduction u/s 80HHC. 11.1 In this connection, it is mentioned by the AO that the assessee has shown other income of Rs. 2,90,84,580/- in Schedule-I of the accounts. This consists of interest, rent, profit on sale of fixed assets, unclaimed credit balances written back, sundry receipts, scrap sale, sale of bagasse and press mud and refund of sales-tax of earlier years. As these items are related with the business activity, the amount is included in the total turnover. The ld. CIT(Appeals) confirmed the order of the AO by further mentioning that the aforesaid amount is taken as part of the profit on which deduction is claimed and, therefore, the assessee cannot take a plea that this amount is not part of the total turnover. 29 ITA Nos. 5134(Del)/2004 etc. 11.2 In the chart furnished to us, the ld. counsel furnishes the break-up of the amount as under:-
(i) Interest Rs. 1,02,31,704/-
(ii) Rent Rs. 85,787/-
(iii) Profit on sale of fixed assets Rs. 79,113/-
(iv) Unclaimed credit balance written Rs. 44,951/-
back
(v) Sundry receipts Rs. 84,977/-
(vi) Sale of scrap Rs. 39,57,941/-
(vii) Sale of Bagasse & Press mud Rs. 1,36,72,558/-
(viii) Refund of sales-tax paid in earlier Rs. 9,27,549/-
year
Total: Rs. 2,90,84,580/-
11.3 He submits that interest, rent and profit on sale of fixed assets
have been excluded from the profits of business by applying the
provision contained in clause (baa) of the Explanation to section 80HHC. Therefore, it is his claim that corresponding amount cannot be included in the total turnover. It is further argued that sale of scrap, bagasse and press mud cannot form part of turnover as the assessee is not in the business of selling scrap, bagasse or press mud. On the other hand, the ld. DR relies on the orders of the authorities below. 30 ITA Nos. 5134(Del)/2004 etc. 11.4 We have considered the facts of the case and submissions made before us. On perusal of page 298 of the paper book, being annexure-B of form no. 10CCAC, it is seen that 90% of rent and interest, amounting to Rs. 92,85,742/- has been excluded from the profits of the business under the aforesaid clause (baa). However, no deduction has been made in respect of profit on sale of fixed assets. Coming to the other argument, if sale of scrap amounts to profits of the business, there is no reason that this amount should not be included in the total turnover. The same logic applies in respect of sale of bagasse and press mud. All these items are auxiliary and valuable products generated in the course of main business of the assessee, which are being sold from year to year. The refund of sales-tax has a direct nexus with sales i.e., the turnover. Such is also the case in respect of sundry credit balances written back, which have a direct nexus with the purchases made by the assessee. The details of profit on sale of fixed assets and sundry receipts have not been furnished and, therefore, their nexus with purchase or sale etc. cannot be found on a prima facie basis. However, we find merit in the argument of the ld. CIT(Appeals) that if these items are profits of business on which the deduction has been claimed, there is no reason for excluding them from the total turnover. 31 ITA Nos. 5134(Del)/2004 etc. This logic also applies to profit on sale of fixed assets, for which the details have not been furnished. The result of this discussion is that interest and rent shall be excluded from the total turnover while all other items will form part of the total turnover for computing deduction u/s 80HHC.
11.5 Thus, this ground is partly allowed.
12. Ground no. 11, regarding charging of interest u/s 234-B, is stated to be consequential in nature. The AO shall revise the computation of the interest while giving effect to this order. Thus, this ground is partly allowed.
13. No additional ground was taken up in pursuance of ground no. 12. Thus, this ground is dismissed.
ITA No. 5694(Del)/2004-A.Y. 2001-02- Appeal of the Revenue
14. In this cross appeal, the revenue has raised following two grounds:-
"1. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the addition made by the 32 ITA Nos. 5134(Del)/2004 etc. AO on account of medical reimbursement to employees amounting to Rs. 2,55,503/-.
2. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the addition of Rs. 3,17,619/- made on account of valuation of stock of distilleries products and molasses."
14.1 Before us, the ld. counsel drew our attention towards pages 28 to 36 of the order of the ld. CIT(A), wherein the reasons for change in accounting practices in respect of medical expenditure on employees and valuation of stock of distilleries products and molasses were considered. 14.2 It has been mentioned that earlier the assessee was reimbursing medical expenses to its employees on six monthly basis on 30th June and 31st December of every year. In this year such expenses were reimbursed on 30th September and 31st March. This practice has been regularly followed subsequently. The reason for change in the accounting practice is stated to be to align the accounting for of the expenditure on financial year basis against calendar year basis done earlier. This is done to reckon the expenditure on financial year basis as the total income is to be computed for a financial year. The ld. CIT(Appeals) holds that the change so made is bona fide and it has been 33 ITA Nos. 5134(Del)/2004 etc. followed consistently in the subsequent years. Therefore, the corresponding addition made by the AO has been deleted.
14.3 In respect of the stock of distilleries products and molasses, the valuation earlier was being made on net realizable value, while all other stocks were being valued on cost or realizable value, whichever is less. The latter method is consistent with Accounting Standard-2(AS-2), which reads as under:-
"Finished Stocks are valued at "Lower of cost or realizable value" except that distillery products and molasses (By product) are valued at "Net realizable value"
as per past practice. These stocks are valued at "Net realizable value" as against the suggested method of "Lower of Cost or Net realizable value" in Accounting Standard-2 issued by Institute of Chartered Accountant of India. The effect to the extent of not following AS-2 is not determined. The feasibility of valuing Distrillery Products and By Product i.e., Molasses on "Lower of Cost or net realizable value" as suggested in Accounting Standard-2 is being examined for adoption in future."
14.4 The ld. CIT(Appeals) mentions that the accounting practice may be allowed to be changed if- (i) such change is bona-fide and (ii) the changed method is consistently followed thereafter. Since the change is bona fide, based on AS-2, and it has been followed consistently 34 ITA Nos. 5134(Del)/2004 etc. thereafter, the ld. CIT(A) has accepted the change in the accounting system. Thus, both the additions were deleted from assessment. 14.5 Before us, these very submissions have been made by the ld. counsel. In reply, the ld. DR relies on the order of the AO. 14.6 We have considered the facts of the case and submissions made before us. The change in the accounting practice for accounting for of the medical expenditure has been made so that liability of a year is recognized in the same year. This change is in line with the accounting for of all other expenses. This change has been followed consistently thereafter. It is no doubt true that in the assessment of this year the liability will get allowed for 15 months if the change is accepted, but, such a pain has to be suffered in case the change is bona-fide and it is followed consistently in subsequent years. We are of the view that it is preferable to account for all the liabilities of a year in that very year so as to depict the correct picture of profit. The change adopted by the assessee will reflect correct profit in subsequent years notwithstanding some aberration in this year. However, such an aberration cannot be the reason for following a wrong practice. In other words, the change 35 ITA Nos. 5134(Del)/2004 etc. made by the assessee is bona fide. It has also been followed consistently. Therefore, we are of the view that the ld. CIT(A) is right in accepting this change.
14.7 Such is also the case with the valuation of distilleries products and molasses. Cost or realizable value, whichever is less, is the accepted method of valuation. It has also been recognized as such under AS-2. The assessee has been valuing all other stocks on this basis. Therefore, the change is consistent with the accounting practice followed for valuing other stocks. It has also been followed in subsequent years. Thus, we are of the view that this change is also bona fide.
14.8 The result is that these grounds are dismissed. ITA No. 145(Del)/2007-Asstt. Year 2001-02- Appeal of the assessee.
15. This is an appeal against levy of penalty u/s 271(1)(c) of the Act. The AO levied penalty in respect of addition or disallowance, as the case may be, of the following amounts:-
(i) Provision for doubtful debts Rs. 52,47,553/-
(ii) Provision for doubtful advances Rs. 5,23,190/-
(iii) Loss on sale or write off of other assets Rs. 21,91,222/-36 ITA Nos. 5134(Del)/2004 etc.
16. In regard to provision for doubtful debts, it is mentioned that the provision contained in section 36(1)(vii) has not been satisfied and the decision of Hon'ble Mumbai High Court in the case of ABB Ltd., 258 ITR 407, supports the view that such provision is not deductible in computing the income. Similar finding was made in respect of provision for doubtful advances. In regard to loss on sale or write off of other assets, it has been mentioned that the case of the assessee is that the items have become obsolete. The expenditure of Rs. 8,00,285/- and Rs. 58,251/- is in respect of writing off of the equipment in Pilkhani unit and Shamli unit respectively. Such a write off of the capital goods is not allowed. In view of the aforesaid findings, penalty of Rs. 31,48,957/-, being the minimum penalty leviable, has been directed to be paid. 16.1 In the impugned order, it has been held that the assessee claimed deduction in respect of provision for doubtful debts and doubtful advances on the basis of an old decision of Gujarat High Court. However, the decision in the case of ABB Ltd. (supra) is in favour of the revenue. The conditions mentioned in the Explanation to section 36(1)(vii) supports the view of the assessing officer. Therefore, penalty in respect of these two amounts has been confirmed. 37 ITA Nos. 5134(Del)/2004 etc. 16.2 In regard to loss on sale or writing off of other assets, it has been mentioned that the claim of the assessee is similar to claim made in earlier years. In assessment year 2002-03, the AO made addition of Rs. 6,12,341/-, but the same has been allowed by the CIT(A). Therefore, it has been held that the issue is debatable and in view thereof, penalty cannot be imposed.
16.3 Thus, the appeal of the assessee has been partly allowed. 16.4 The ld. counsel submits that full particulars in respect of provision for doubtful debts and doubtful advances were mentioned in the return of income or its accompaniments, when the claim was made. In fact, 50% of provision for doubtful advances has been allowed in the proceedings for assessment year 2000-01. In such a circumstance, the levy of penalty is not justified.
16.5 In order to support this contention, reliance is placed on the decision of Hon'ble Supreme Court in the case of CIT Vs. Reliance Petroproducts (P) Ltd., (2010) 322 ITR 158. While deciding this case, the Hon'ble Court inter-alia considered the decision in the case of 38 ITA Nos. 5134(Del)/2004 etc. Dilip N. Shroff Vs. Joint CIT (2007) 291 ITR 519 (SC) and Union of India Vs. Dharmendra Textile Processors (2008) 306 ITR 277 (SC). It is mentioned that for levy of penalty, the circumstances mentioned in section 271(1)(c) and the Explanations appended thereto must exist. It has been further held that "furnishing inaccurate particulars of income"
mean furnishing particulars which are not accurate, exact, correct, not according to truth, erroneous, an inaccurate statement, copy or transcript.
It has also been held that the "particulars" mean that the details filed in support of the claim in the return of income. In view of the aforesaid, it has been held that the aforesaid expression means not merely making a wrong claim or a claim which may subsequently turn out to be inadmissible, but to furnish the details which are false in support of the claim. Seen in this context, it is clear that the claims were duly disclosed in the accounts, in the profit and loss and balance-sheet. There has been considerable confusion as to what would amount to "writing off a debt"
in the books of account. There did exist case law to the effect that when a provision is made and the corresponding amount is deducted from the assets, the same amounts to writing off of the debt. This confusion was sought to be cleared by insertion of the Explanation in section 36(1)(vii), retrospectively with effect from 1.4.1989. It appears 39 ITA Nos. 5134(Del)/2004 etc. that the assessee did not comprehend the import of this explanation fully at the time of filing of the return of income. The controversy has been set at rest by the decision of Hon'ble Supreme Court in the case of Vijaya Bank(supra), in which it has been held that the provision is applicable not only in case of a banking company but in case of any assessee. This decision has been rendered on 15.4.2010, much after the date of filing the return of income. It is also true that the decision in the case of ABB Ltd., relied upon by the revenue, had been rendered prior to filing the return of income, but that is not the decision of jurisdictional High Court. Otherwise, the particulars have been fully disclosed in the return of income. In this view of the matter, we hold that the assessee did not furnish inaccurate particulars of income when such a claim was made in the return filed prior to rendering the decision in the case of Vijaya Bank (supra).
ITA No. 1530(Del)/2007-Asstt. Year 2001-02- Appeal of the Revenue.
17. This is the cross appeal of the revenue against the penalty order of the ld. CIT(A). The only ground taken is to the effect that on the facts and in the circumstances of the case and in law, the ld. CIT(Appeals) erred in directing the AO not to compute penalty u/s 40 ITA Nos. 5134(Del)/2004 etc. 271(1)(c) in respect of addition of Rs. 21,91,222/-, made on account of sale or write off of other assets.
17.1 The background facts in respect of addition on this amount have been mentioned in ITA No. 145(Del)/2007 (supra). The order of the ld. CIT(A), contained in paragraph 7, is reproduced below:-
"7. I have carefully considered the submission made on behalf of the appellant. I have gone through the relevant part of the quantum appeal order in the case of appellant for A.Y. 2002-03. It is found that sum of Rs. 6,12,341/- claimed by the assessee in respect of such write off was disallowed by the AO but the same has been deleted by CIT(A). Since the basis of claim and nature of items in this year is quite similar, I am of the opinion this issue was debatable and addition cannot be made subject matter of penalty u/s 271(1)(c). Accordingly the AO is directed to re-compute the penalty considering only the first two additions i.e., provision for doubtful debts and provisions for doubtful advances as the income in respect of which inaccurate particulars have been furnished. The appellant, therefore, gets partial relief as the penalty is reduced."
17.2 We have restored this matter to the file of the AO for fresh decision in ITA No. 5134(Del)/2004 (supra) with the following remarks:-
"We have considered the facts of the case and submissions made before us. On perusal of the assessment order, we find that it had been explained that equipments and stores for bottling, pouching and packing of country liquor, located in bonded warehouses in districts, have been written off as a result of change in the policy of the Government. Consequently, the warehouses were vacated and the stores 41 ITA Nos. 5134(Del)/2004 etc. and equipments became useless. Therefore, they have been written off. Therefore, the submissions of the ld. counsel are based upon facts on record. However, after introduction of the concept of block of assets, the sale value realized on discarded depreciable assets, is to be reduced from the value of the block of assets till such time that the block is exhausted. This point has not been examined by the lower authorities. Therefore, we restore this ground to the file of the AO for appropriate decision in the light of aforesaid observation.
The result is that the ground is treated as allowed for statistical purposes."
17.3 The result of this finding is that the penalty has no leg to stand upon and, therefore, it requires to be deleted without prejudice to the right of the AO to initiate penalty again in the course of deciding this issue, if it is found fit to do so.
ITA No. 4554(Del)/2005-Asstt. Year 2002-03- Appeal of the assessee.
18. Ground no. 1 is to the effect that the ld. CIT(A) erred on facts and in law in confirming the disallowance of Rs. 24,59,760/-, representing interest payable in respect of SDF on the ground that the same is caught within the mischief of section 43B. This issue stands covered by our order in ITA No. 5134(Del)/2004 (supra), in paragraph 4 and 4.1, in which the issue was decided in favour of the revenue and against the assessee. Following that order, this ground is dismissed. 42 ITA Nos. 5134(Del)/2004 etc.
19. Ground no. 2 is to the effect that the ld. CIT(Appeals) erred in sustaining addition of Rs. 35,700/- out of fines and penalties. 19.1 In this connection, it is mentioned in the impugned order that the assessee debited in the accounts a sum of Rs. 65,500/- towards fines and penalties. The amount has been added in the total income subject to the right of the assessee that such addition may be contested in assessment proceedings. The details of the expenditure are as under:-
Particulars Amount (Rs.) Page no. of
Paper book
Amount of traffic fine 100/- 175-176
Compounding fee for low recovery
of alcohol/spirit 35,000 182-194
199-218
Compounding fee for wrongly fixing
the Hologram on various size pouches 5,000 195-198
Compounding charges of Weight &
Measurement Department 1,000 219-220
Compounding charges levied by UP Excise
Department towards non-fulfillment of
certain formalities in respect of records
to be maintained at distillery depots 4,500 221-226
Compounding charges on delayed payment
43 ITA Nos. 5134(Del)/2004 etc.
of Entry Tax for purchase of machinery parts
from out of the State 19,900 177-181
19.2 Before the ld. CIT(Appeals), the assessee did not press for relief in respect of traffic fine of Rs. 100/- and compounding charges for delayed payment of entry-tax amounting to Rs. 19,900/-. The learned CIT(A) is of the view that other items are in the nature of compensatory payments, which represent expenditure incurred in the course of business. Therefore, the addition of Rs. 35,700/- has been confirmed. 19.3 Before us, the learned counsel mentions that in earlier years, this matter was restored to the file of the AO by the Tribunal. On the other hand, the ld. DR supports the order of the ld. CIT(Appeals). 19.4 We have considered the facts of the case and rival submissions. We find that the assessee did not press for deduction of two amounts aggregating to Rs. 20,000/-. The ld. CIT(A) has given a finding that other amounts, though described as compounding charges, are normal business expenses. Therefore, the addition of only Rs. 20,000/- could have been sustained. Accordingly, the AO is directed to restrict the disallowance to Rs. 20,000/-.
19.5 In the result, this ground is partly allowed.
44 ITA Nos. 5134(Del)/2004 etc.
20. Ground no. 3 is that the ld. CIT(A) erred in confirming the disallowance of Rs. 50,000/- made by the AO on account of contribution to Employees Welfare Scheme by invoking the provision contained in section 40A(9) without appreciating the submissions of the assessee. 20.1 In this connection, it has been mentioned that the audit report specifically states that contribution of Rs. 50,000/- is not allowable u/s 40A(9) of the Act. A similar disallowance made in assessment year 2001-02 has not been pressed by the assessee-company. Therefore, the ld. CIT(A) sustained the disallowance made by the AO. 20.2 Before us, the ld. counsel fairly submits that this issue stands covered against the assessee by various orders of the Tribunal for assessment years 1988-89, 1992-93, 1994-95 and 2000-01. The ld. DR relies on the order of the ld. CIT(Appeals).
20.3 In view of the fact that the coordinate benches of the Tribunal have already decided the matter against the assessee, there is no reason for us to differ from those decisions. Following those decisions, this ground is also dismissed.
45 ITA Nos. 5134(Del)/2004 etc.
21. Ground no. 4 is that the ld. CIT(Appeals) erred in confirming the disallowance of Rs. 50,000/- from car expenses. This issue is covered by our order in ITA No. 5134(Del)/2004 (supra), in paragraph 9. Following that decision, this ground is allowed.
22. Ground no. 5 is that the ld. CIT(A) erred in adding Dharmada collections of Rs. 13,13,318/- to the income of the assessee and further disallowing Rs. 2,02,590/-, representing interest paid on this account. This issue also stands covered by our order in ITA No. 5134(del)/2004 (supra), in paragraph 7 and 7.1. Following that decision, the ground is dismissed with the direction to the AO to consider the deduction u/s 80G to be allowed, if any.
23. Ground no. 6 is that the ld. CIT(Appeals) erred in confirming the addition of Rs. 1,79,14,560/- on account of excise duty payable on the stock of finished goods. This matter also stands covered by our order in ITA No. 5134(Del)/2004, in paragraph 6 to 6.5. Following that order, it is held that the ld. CIT(Appeals) is right in adding the aforesaid amount to the value of finished goods. However, it may be mentioned 46 ITA Nos. 5134(Del)/2004 etc. that the opening stock of this year shall stand enhanced by the amount by which closing stock of the immediately preceding year was enhanced. 23.1 Subject to this remark, this ground is also dismissed.
24. Ground no. 7 is that the ld. CIT(Appeals) erred in holding that the AO was justified in not amending depreciation chart so as to enhance the WDV in respect of amounts capitalized in the preceding year from the expenditure incurred on repairs and maintenance of machinery and plant. The issue of capitalization of repair expenses stands covered in favour of the assessee in ITA No. 5134(Del)/2004 (supra), in paragraph 8 to 8.5. Thus, the issue of capitalization of such expenses does not survive. Accordingly, this ground is dismissed.
24.1 No additional ground was taken in pursuance of residuary ground no. 8.
ITA No. 34(Del)/2006-A.Y. 2002-03- Appeal of the revenue.
25. In this cross appeal, ground no. 1 is that on the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the 47 ITA Nos. 5134(Del)/2004 etc. addition of Rs. 2,08,488/-, made by the AO in respect of claim of loss on sale of obsolete items. This issue is stated to be covered by our order in ITA No. 5134(Del)/2004 (supra), in paragraph 5 to 5.6. It has been mentioned that the lower authorities have not considered the reduction of the realizable value from the block of assets and, therefore, the matter has been restored to the file of the AO for fresh decision in the matter. Following that order, this ground is restored to the file of the AO for fresh decision to be taken after hearing the assessee. 25.1 Accordingly, the ground is treated as allowed for statistical purposes.
26. Ground no. 2 is that the ld. CIT(A) erred in deleting the addition of Rs. 3,90,607/-, made by the AO in respect of claim of unused packing stores destroyed by the assessee.
26.1 In the impugned order, it is mentioned that the loss in Pilkhani distillery amounted to Rs. 1910/- and in Shamli distillery to Rs. 3,88,597/-, aggregating to Rs. 3,90,507/-. It is further mentioned that the aforesaid item mainly consist of labels of liquor brands sold by the assessee. It 48 ITA Nos. 5134(Del)/2004 etc. is also mentioned that the Canteen Stores Department (CSD) discontinued purchases from the assessee and, therefore, the labels became useless. Therefore, the loss was disallowed. 26.2 While the ld. counsel relies on the order of the ld. CIT(Appeals), the ld. DR relies on the order of the AO. From the impugned order, it is seen that labels became useless as CSD stopped making purchases from the assessee. Such labels have no realizable value. Therefore, the loss has been incurred in the course of business. Therefore, it is held that the ld. CIT(Appeals) is right in allowing this expenditure. 26.3 In the result, this ground is dismissed.
27. Ground no. 3 is that the ld. CIT(Appeals) erred in deleting the addition of Rs. 13,247/-, made by the AO in respect of expenses written off. The facts in regard to this item are similar to the facts in respect of packing stores of Rs. 3,90,607/-, dealt with in ground no. 2 (supra). Following our order in respect of that ground, this ground is also dismissed.
49 ITA Nos. 5134(Del)/2004 etc.
28. Ground no. 4 is that the ld. CIT(Appeals) erred in holding that the expenditure of Rs.29,27,042/- on account of repairs is revenue expenditure. It is the common case of both the parties that the issue stands covered in ground no. 7 of ITA No. 5134(Del)/2004 (supra). In that order, the issue was decided in favour of the assessee and against the revenue, in paragraph 8 to 8.5. Following that order, this ground is also dismissed.
ITA No. 2916(Del)/2008-A.Y. 2003-04-Appeal of the assessee
29. Ground no. 1 is that on the facts and in the circumstances of the case and in law, the ld. CIT(Appeals) erred in confirming the addition of Rs. 1,30,27,442/- made on account of deemed excise duty. This issue stands covered by our order in ITA No. 5134(Del)/2004, in paragraph 6 to 6.5. Following that order, this ground is dismissed subject to the observation that closing stock of last year as determined on giving effect to order of Tribunal shall be taken as opening stock for this year.
30. Ground no. 2 is that the ld. CIT(A) erred in disallowing a sum of Rs. 24,59,760/-, being interest payable on SDF by invoking the 50 ITA Nos. 5134(Del)/2004 etc. provision contained in section 43B. This issue stands concluded by our aforesaid order in paragraph 4 and 4.1. Following that order, this ground is dismissed.
31. Ground no. 3 is that the ld. CIT(Appeals) erred in confirming the addition of Rs. 18,36,068/- collected as Dharmada and disallowing interest of Rs. 2,67,812/- in respect of this account. This issue also stands covered by our aforesaid order in paragraph 6 and 7.1. Following that order, this ground is dismissed.
32. Ground no. 4 is that the ld. CIT(A) erred in disallowing Rs. 50,000/-, being contribution to Employees Welfare Scheme, by invoking the provision contained in section 40A(9). This issue stands covered by our order in ITA No. 4554(Del)/2005 (supra) in paragraph 20 to 20.3. Following that order, this ground is dismissed.
33. Ground no. 5 is that the ld. CIT(Appeals) erred in disallowing a sum of Rs. 50,000/- from car expenses. This issue also stands covered by the aforesaid in paragraph 21. Following that order, this ground is allowed.
51 ITA Nos. 5134(Del)/2004 etc.ITA No. 3195(Del)/2008- A.Y. 2003-04- Appeal of the revenue
34. Ground nos. 1(i) and 1(ii) are that on the facts and in the circumstances of the case and in law, the ld. CIT(Appeals) erred in allowing Rs. 1,35,269/- in respect of labels written-off and Rs. 22,892/- in respect of small items written off from the accounts. These issues stand covered in our order in ITA No. 34(Del)/2006 (supra) in paragraphs 26 and 27. Following that order, these grounds are dismissed.
35. Ground no. 1(iii) is that the ld. CIT(A) erred in allowing the loss claimed at cost of Rs. 13,82,523/- in respect of holograms destroyed by the assessee. The AO made the following remarks in this regard on page 6 of the order:-
"(b) Holograms Amount Shamli Distillery 7,51,791/-
Pilkhani Distillery 6,30,732/-
Total: 13,82,523/-
It has been explained by the assessee that as per Excise Rules, holograms printed and issued for a particular financial year can only be consumed in that particular financial year and after expiry of that specific financial year, the Distilleries are required to destroy these un-
used/damaged holograms as per the guidelines and rules framed by the Excise Commissioner, U.P, Allahabad. Such holograms are to be destroyed in the presence of hologram Committee constituted by the Excise Commissioner, U.P, Allahabad for specific zones. The assessee has furnished 52 ITA Nos. 5134(Del)/2004 etc. certificate issued by the Excise Authorities, confirming the quantity of holograms destroyed in their presence and have claimed that the holograms cannot be sold of as scrap and have to be destroyed as per the Excise Rules and guidelines. From the copy of certificate of the committee constituted under the Excise guidelines attached with the details, it is seen that the holograms were destroyed in November, 2003, June, 2004 and August, 2004 which do not pertain to the assessment year under reference. They have been written off after the close of the financial year relevant to current assessment and, therefore, will be allowable in the year of actual destruction. A disallowance of Rs. 13,82,523/- is, therefore, made on account of writing off holograms."
35.1 The ld. CIT(A) allowed the deduction by mentioning that holograms were rendered un-usable at the end of this year and, therefore, the deduction is to be allowed in this year. 35.2 The case of the ld. counsel is based upon the arguments in respect of other un-usable stores etc., the deduction for which has been allowed by us also. However, the question in this case is about the ascertainment of the date of loss, which falls in the immediately succeeding year. Therefore, we are of the view that the ld. CIT(Appeals) erred in allowing the loss in this year. The assessee may take up the matter in the appeal of the subsequent year.
35.3 With these remarks, this ground is allowed.
53 ITA Nos. 5134(Del)/2004 etc.
36. Ground no. 2 is regarding capitalization of two amounts of Rs. 6,64,255/- and Rs. 3,50,000/-, made by the AO in respect of repairs of hydraulic power pack and hydraulic mill respectively. It has been held that these expenses are capital in nature. It is the common case of both the parties that the facts and arguments are same as in earlier years. In ITA No. 5134(Del)/2004, in paragraph 8 to 8.5, we have considered such expenses as revenue expenses incurred for repairing of machinery or plant. Following that order, this ground is also dismissed.
37. In the result:-
(i) ITA No. 5134(Del)/2004 is partly allowed for statistical purposes;
(ii) ITA No. 5694(Del)/2004 is dismissed;
(iii) ITA No. 145(Del)/2007 is allowed;
(iv) ITA No. 1530(Del)/2007 is dismissed;
(v) ITA No. 4554(Del)/2005 is partly allowed;
(vi) ITA No. 34(Del)/2006 is partly allowed for statistical purposes;
(vii) ITA No. 2916(Del)/2008 is partly allowed;
(viii) ITA No. 3195(Del)/2008 is partly allowed;
The order was pronounced in the open court on 4th of June, 2010 Sd/- sd/-
(C.L. Sethi) (K.G.Bansal) Judicial Member Accountant Member Date of order: 4th June, 2010.
SP Satia 54 ITA Nos. 5134(Del)/2004 etc. Copy of the order forwarded to:-
1. Sir Shadi Lal Enterprises Ltd., New Delhi.
2. Dy.CIT, Circle 8(1)/Addl. CIT,Range-8, New Delhi.
3. CIT(A)
4. CIT
5. The DR, ITAT, New Delhi. Assistant Registrar.