Gujarat JHM Hotels Ltd., Surat V. The Dy.CIT.,Circle-1, Surat

ITA 1023/AHD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60468 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 30-04-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 05-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B K
• Assessee Lawyers: R N VEPURI
• Keywords: Reopening of assessment; Depreciation; Audit objection; Wrong claim; Difference of opinion; Assessment record; Unabsorbed depreciation; Change of opinion
• Section: 143(3); 234B; 115JB; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT , JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 1023/AHD/2010 ASSESSMENT YEAR :2004-05 GUJARAT JHM HOTELS LTD., HOTEL GATEWAY, NEAR BHARTI PARK, AMBICA NIKETAN, ATHWALINES, SURAT. V/S . THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, SURAT PAN NO. AAACG8562E (APPELLANT) .. (RESPONDENT) BY APPELLANT SHRI R. N. VEPURI, A.R. /BY RESPONDENT SHRI B.K.S. PANDYA, SR. D.R. /DATE OF HEARING 30.04.2012 /DATE OF PRONOUNCEMENT 31.05.2012 O R D E R PER : T.R.MEENA, ACCOUNTANT MEMBER THIS IS AN APPEAL ARISING OUT OF ORDER OF CIT(A)-I , SURAT, ORDER DATED 10.03.2010 FOR ASSESSMENT YEAR 2004-05. THE APPELL ANT HAD MADE FOLLOWING GROUNDS OF APPEAL:- ITA NO. 1023/AHD/2010 A.Y.2004-05 PAGE 2 (I) REOPENING OF ASSESSMENT:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS P ER LAW THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE HELD THAT REOPENING WAS BAD IN LAW. (II) DISALLOWANCE OF RS.56,30,816/- THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN CONFIRMING ADDITION / DISALLOWANCE OF RS.56,30,816/ - WHEN THE ABOVE AMOUNT WAS CLAIMED AS DEDUCTION ON THE BASIS OF BONAFIDE CHANGE IN THE METHOD OF ACCOUNTING AS PRESCRIBED AN D, THEREFORE, THE APPELLANT SUBMITS THAT ON THE FACTS AND CIRCUMS TANCES OF THE CASE, AND AS PER LAW THE LEARNED COMMISSIONER OF IN COME-TAX (APPEALS) WAS NOT JUSTIFIED IN CONFIRMING THE AFORE SAID DISALLOWANCE. (III) DISALLOWANCE OF DEPRECIATION ON RESIDENTIAL U NIT:- ON THE FACTS AND CIRCUMSTANCES AND AS PER LAW THE L EARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFI RMING DISALLOWANCE OF DEPRECIATION OF RS. 1,29,548/- (IV) CALCULATION OF BOOK PROFIT U/S. 115JB OF THE A CT:_ ON THE FACTS AND CIRCUMSTANCES AND AS PER LAW THE L EARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN SETTI NG ASIDE THE MATTER TO THE ASSESSING OFFICER INSTEAD OF ALLOWING THE APPEAL ON THIS POINT. (V) MISCELLANEOUS:- ITA NO. 1023/AHD/2010 A.Y.2004-05 PAGE 3 (1) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) OUGHT TO HAVE DELETED INTEREST CHARGED U/S. 234B OF THE ACT. (2) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR VAR Y ANY OF THE GROUNDS OF APPEAL. 2. THE FIRST GROUND OF APPEAL IS AGAINST RE-OPENING THE CASE UNDER SECTION 147 OF THE I.T. ACT. THE A.O. OBSERVED THAT IN THI S CASE SCRUTINY ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE I.T. ACT ON 26.12.2006 ON A TOTAL LOSS OF RS. 3,27,08,030/- AND BOOK PROFIT AT RS. 2, 67,11,809/-. IT IS FOUND BY THE A.O. FROM AUDIT CERTIFICATE IN FORM NO. 3CD THA T THE ASSESSEE COMPANY HAD CHANGED THE METHOD OF ACCOUNTING FOR INVENTORY OF VARIOUS SUB-STORES. CONSEQUENTLY A SUM OF RS. 50,14,587/- RELATING TO O PENING STOCK OF INVENTORIES AND INVENTORY RELATED TO THE CURRENT YEAR OF RS. 6, 15,959/- HAD BEEN WRITTEN OFF BY THE COMPANY. THIS RESULTED DECREASE OF INCOME O F THE COMPANY BY RS. 56,30,816/-. THE ASSESSEES INCORRECT ADJUSTMENT O F BOOK PROFIT / UNABSORBED DEPRECIATION IN COMPUTATION OF INCOME UNDER SECTION 115JB OF THE I.T. ACT AND WRONG CLAIM OF DEPRECIATION @ 10% ON THE RESIDENTIA L BUILDING INSTEAD OF 5% WAS ALLOWED. THE APPELLANT ARGUED BEFORE THE A.O. THAT THE FIRST POINT HAS ARISEN BECAUSE OF AUDIT OBJECTION AND THERE IS NO N EW INFORMATION HAS BEEN GATHERED BY THE A.O. AS PER THE DECISION OF HONBL E GUJARAT HIGH COURT IN CASE OF RAJESH JHAVERI STOCKBROKERS PVT. LTD. (196-CTR-105) , AUDIT OBJECTION IS NOT A VALID GROUND FOR RE-OPENING THE ASSESSMENT. FURTHER RE- OPENING WAS MADE ON ACCOUNT OF CHANGE OF OPINION AS AN INFORMATION REGARDING INVENTORY WAS AVAILABLE IN THE AUDIT REPO RT. THE ORIGINAL ASSESSMENT ITA NO. 1023/AHD/2010 A.Y.2004-05 PAGE 4 WAS COMPLETED UNDER SECTION 143(3) OF THE I.T. ACT. THE COMPANY HAD CHANGED THE METHOD OF ACCOUNTING FOR INVENTORY BY T HE DECISION OF THE DIRECTOR. THE COPY AND RESOLUTION OF THE BOARD OF DIRECTORS PASSED IN THE MEETING HELD AS ON 31.05.2004 IN RESPECT OF INVENT ORY WRITTEN OFF HAS BEEN MADE A PART OF PAPER BOOK AT PAGE NO. 52, THE GIST OF THE RESOLUTION IS AS UNDER:- RESOLVED THAT IN VIEW OF THE FACT THAT THE ISSUES TO THE VARIOUS USER OUTLETS IS AS SUCH THE CONSUMPTION AND NOT THE INVE NTORY, THE SAME BE WRITTEN OFF IN THE CURRENT ACCOUNTING YEAR AND THE ACCOUNTING POLICY FROM THE FINANCIAL YEAR BE ADOPTED TO REFLECT THE TRUE A ND FAIR PICTURE OF THE PROFIT AND LOSS ACCOUNT AND ALSO BE IN LINE WITH TH E NORMAL INDUSTRY PRACTICE AND THAT THE BOARD HEREBY APPROVED THE WRI TING OFF RS. 50,14,587/- BEING THE ISSUES MADE TO USER DEPARTMEN TS OVER A PERIOD OF TIME AND RS. 6,15,939/- DURING THE CURRENT FINANCIA L YEAR BE WRITTEN OFF IN THE CURRENT FINANCIAL YEAR AND AUDITORS BE GIVEN A COPY OF THIS RESOLUTION AND NECESSARY ACCOUNTING ENTRIES BE MADE IN BOOKS O F ACCOUNT TO REFLECT THE TRUE AND FAIR PROFIT OF THE COMPANY. A NOTE TO THE ACCOUNTS BE PREPARED TO REFLECT THE ABOVE IN COMPLIANCE WITH AC COUNTING PRACTICES AS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE LD. A.O. ALSO FOUND THAT WHILE COMPUTING THE BO OK PROFIT UNDER SECTION 115JB, THE A.O. HAD WRONGLY ALLOWED THE SET OFF OF UNABSORBED BUSINESS LOSS OF RS.64,16,141/- AND DEPRECIATION ON THE RESIDENTI AL BUILDING WAS ALLOWED @ 10% INSTEAD OF 5%. THE A.O. ISSUED A NOTICE U/S. 1 48 I.T. ACT ON 27.02.2009. THE OBJECTION OF THE ASSESSEE WAS CONSIDERED BY THE A.O. VIDE ORDER DATED 28.10.2009. 3. THE CIT(A) IN PARA NO.2.2 DISMISSED THE APPEAL O F THE ASSESSEE WHICH IS REPRODUCED AS UNDER:- I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPEL LANT AND THE OBSERVATION OF THE A.O. ADMITTEDLY, WRONG DEPRECIA TION WAS GIVEN @ 10% INSTEAD OF 5% ON THE RESIDENTIAL BUILDING OF EM PLOYEES. NOWHERE ITA NO. 1023/AHD/2010 A.Y.2004-05 PAGE 5 IN THE ASSESSMENT ORDER IT SEEN THAT THE REOPENING OF ASSESSMENT WAS ON THE BASIS OF AUDIT OBJECTION AND HENCE THE RELIA NCE MADE BY THE APPELLANT IN THE DECISION OF THE HONBLE GUJARAT HI GH COURT IN THE CASE OF RAJESH JHAVERI STOCKBROKERS PVT. LTD. (SUPRA) IS NOT CORRECT. THERE IS NO QUESTION OF CHANGE OF OPINION AS EVEN ONE GROUND IS MORE THAN ENOUGH FOR REOPENING. IF THE ASSESSMENT IS REOPENE D ON ONE GROUND THEN IT IS REOPENING TOTALLY. IN THIS CASE IS THAT THE ASSESSEE HAD BEEN GIVEN WRONG DEPRECIATION AT HIGHER RATE @10% INSTEA D OF 5%. FURTHER, THERE WAS A MISTAKE IN THE COMPUTATION OF BOOK PROF IT AND HENCE THE REOPENING OF ASSESSMENT IS RIGHT AND THIS GROUND OF APPEAL IS DISMISSED. 4. NOW, THE ASSESSEE HAS CHALLENGED THE ORDER OF LD . CIT(A) BEFORE US. THE A.R. RELIED UPON VARIOUS CASE LAW FILED IN PAPE R BOOK ON CHANGE OF METHOD OF ACCOUNTING FROM MERCANTILE TO CASH VIS-- VIS HYBRID SYSTEM OF ACCOUNTING, VALUATION OF STOCK, CHANGE IN ACCOUNTIN G METHOD IN ACCORDANCE WITH THE GUIDELINES OF THE ICAI, HELD BONAFIDE. HE FURTHER RELIED IN THE CASE OF GLAXOSMITHKLINE PHARMACEUTICALS LTD. VS. ITO(MUMBAI )F BENCH IN ITA NOS. 2898 & 2899/MUM/2006, A.Y. 1998-99 & 1999-2000 ON NOTICE AFTER EXPIRY OF FOUR YEARS AND RE-OPENING THE CASE UNDER SECTION 147 OF THE I.T.ACT. HE ALSO FILED VARIOUS CASE LAW ON CHANGE OF OPINION AS UNDER:- HYNOUP FOOD & OIL INDUSTRIES LTD. 307-ITR-115 GUJARAT A RELEVANT MATERIAL ON RECORD AND CONSIDERED VODAFONE ESSAR GUJARAT LTD. 37-DTR-259 GUJARAT B RELEVANT MATERIAL ON RECORD. ISSUE CONSIDERED BY A.O. AFTER ORDER OF CIT(A). MIHIR TEXTILES LTD. 43-DTR-LL GUJARAT C RELEVANT MATERIAL ON RECORD FORAMER FRANCE 264-ITR-566 S.C. D RELEVANT MATERIAL ON RECORD ITA NO. 1023/AHD/2010 A.Y.2004-05 PAGE 6 NO CHANGE OF LAW AFTER AMENDMENT KELVINATOR OFJNDIA LTD. 256-ITR-L DELHI E RELEVANT MATERIAL ON RECORD (F.B.) CHAMUNDESWARI 290-ITR-583 MADRAS F RELEVANT MATERIAL ON RECORD K.K. PALANISAMY 321-ITR-474 MADRAS G RELEVANT MATERIAL ON RECORD ASHOKA BUILDERS P. LTD. 311-ITR-386 DELHI H RELEVANT MATERIAL ON RECORD LEGATO SYSTEMS (INDIA) (F) LTD. 231-CTR-526 DELHI I RELEVANT MATERIAL ON RECORD AND CONSIDERED 34-DTR-1 54 ASTEROIDS TRADING & INVESTMENT P. LTD. 308-ITR-190 BOMBAY J RELEVANT MATERIAL ON RECORD ASIAN PAINTS LTD. 308-ITR-195 BOMBAY K RELEVANT MATERIAL ON RECORD CARTINI INDIA LTD. 314-LTR-275 BOMBAY L RELEVANT MATERIAL ON RECORD AND CONSIDERED (WITHIN FOUR YEARS) A.Y.2002-03 148 ON 30-3-07 CHAKIAT AGENCIES P. LTD. 224-CTR-286 MADRAS M RELEVANT MATERIAL ON RECORD CARLTOY OVERSEAS (P) LTD. 229-ITR-439 DELHI N RELEVANT MATERIAL ON RECORD GLAXOSMITHKLINE FHARMACEUTICALS LTD. 27-DTR-124 MUMBAI O RELEVANT MATERIAL ON RECORD SATNAM OVERSEAS LTD. 33-DTR-81 DELHI P RELEVANT MATERIAL ON RECORD MANAK SHOES CO. (P) LTD. 36-DTR-164 DELHI Q RELEVANT MATERIAL ON RECORD CRAY RESEARCH INDIA LTD. 42-DTR-560 DELHI R RELEVANT MATERIAL ON RECORD RITU INVESTMENT (P) LTD. 51-DTR-162 DELHI S RELEVANT MATERIAL ON RECORD ITA NO. 1023/AHD/2010 A.Y.2004-05 PAGE 7 TECHSPAN INDIA P. LTD. 283-ITR-212 DELHI T RELEVANT MATERIAL ON RECORD AND EXAMINED AFTER INQUIRY YASHODA DAIRY P. LTD. 153-TAXMAN-410 M.P. U RELEVANT MATERIAL ON RECORD I.P. BAIPAI (HUF) 140-TAXRNAN-34 ALLAHABAD V RELEVANT MATERIAL ON RECORD STATE BANK OF INDORE 200-CTR-380 M.P. W RELEVANT MATERIAL ON RECORD SUNFLAG FILAMENTS LTD. 129-TTJ-71 MUMBAI X RELEVANT MATERIAL ON RECORD INDIA STEAMSHIP CO. LTD. 275-ITR-155 CALCUTTA Y RELEVANT MATERIAL ON RECORD AGRICULTURAL PRODUCE MARKET COMMITTEE 63-DTR-7 GUJARAT Z RELEVANT MATERIAL ON RECORD GOVIND CHHAPABHAI FATEL 240-ITR-628 GUJARAT AA RELEVANT MATERIAL ON RECORD TINDAL PHOTO FILM LTD. 234-ITR-170 DELHI BB RELEVANT MATERIAL ON RECORD APOLLO HOSPITALS ENTERPRISE LTD. 157-TAXMAN-289 MADRAS CC RELEVANT MATERIAL ON RECORD MAERSK GLOBAL SERVICES CENTRE (INDIA) (P.) LTD. 133-ITD-543 MUMBAI DD RELEVANT MATERIAL ON RECORD GERMAN REMEDIES LTD. 285-ITR-26 BOMBAY EE RELEVANT MATERIAL ON RECORD SIEMENS INFORMATION SYSTEM LTD., 295-ITR-333 BOMBAY FF RELEVANT MATERIAL ON RECORD VIRENDRA KUMAR AGRAWAL 59-DTR-221 MUMBAI GG RELEVANT MATERIAL ON RECORD MOTOR & GENERAL FINANCE LTD. 184-TAXMAN-465 DELHI HH RELEVANT MATERIAL ON RECORD A.O. TO DRAW INFERENCE ITA NO. 1023/AHD/2010 A.Y.2004-05 PAGE 8 GANESH HOUSING CORPORATION LTD ; 66-DTR-106 GUJARAT II H.K. BUILDCON LTD. 339-ITR-535 GUJARAT JJ TULSI DEVELOPERS 59-DTR-351 GUJARAT KK 5. THE ANOTHER SIDE, LD. D.R. VEHEMENTLY ARGUED THA T THE CASE WAS RE- OPENED WITHIN FOUR YEARS FROM THE END OF ASSESSMENT YEAR WHICH CAN BE RE- OPENED AFTER RECORDING THE PROPER REASON. THUS, HI S ARGUMENT IS TO CONFIRM THE ORDER OF LD. CIT(A). 6. WE HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW AND SUBMISSION MADE BY BOTH SIDE. THIS IS ASSESSMENT YEAR 2004-05 AND SCRUTINY ASSESSMENT WAS COMPLETED ON 30.11.2009. THE NOTICE UNDER SECTION 148 WAS ISSUED ON 27.04.2009 WHICH IS WITHIN FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR. THE REASONS HAD BEEN RECORDED BY THE A.O. AND GIVEN TO THE ASSESSEE. IN ASSESSMENT ORDER, THERE IS NO MENTION ABOUT ANY AUD IT OBJECTION AND ALSO FROM THE REASONS RECORDED FOR RE-OPENING THE ASSESS MENT DATED 27.02.2009. THE CASE LAW MENTIONED BY THE APPELLANT WAS FOR A.Y . 1998-99 AND NOTICE BY THE A.O. ISSUED UNDER SECTION 148 AFTER FOUR YEARS FROM THE END OF ASSESSMENT YEAR. ANOTHER CASE LAW CITED BY THE ASS ESSEE, WHERE THERE WAS NO REASON FOR RE-OPENING ASSESSMENT RECORDED BY THE A.O. THEREFORE, THE A.O. HAS RIGHTLY RE-OPENED THE CASE AFTER ISSUING N OTICE U/S 148. THUS, THIS GROUND OF APPEAL IS DISMISSED. 7. THE SECOND GROUND OF APPEAL IS AGAINST NOT ALLOW ING INVENTORY OF RS. 56,30,816/- AS DEDUCTION ON ACCOUNT OF CHANGE OF AC COUNTING METHOD FOR INVENTORIES. THE LD. A.O. HAS OBSERVED BY EXAMININ G THE AUDIT REPORT IN FORM ITA NO. 1023/AHD/2010 A.Y.2004-05 PAGE 9 NO. 3CD THAT THE ASSESSEE HAD CHANGED THE METHOD OF ACCOUNTING IN RESPECT OF INVENTORIES AND THE ASSESSEE CLAIMED STORE OF IN VENTORY OF RS. 56,30,816/- IN THE YEAR UNDER CONSIDERATION AS EXPENSES. THE A SSESSEE IN HOTEL BUSINESS AND HAVING VARIOUS SUB-STORE, HAVELI & HOUSE KEEPIN G DEPARTMENT. THE ASSESSEE HAD BEEN ISSUING THIS INVENTORY TO THE OUT LET OVER THE YEAR. THE ASSESSEE CLAIMED THAT THIS INVENTORY WAS BECOME EXP ENSES WHEN ISSUED AND HAD SHOWN WRONGLY IN INVENTORY. THE ASSESSEE HAD W RITTEN OFF THIS INVENTORY BY CHANGING THE ACCOUNTING POLICY FOR THESE ITEMS A ND CLAIMED THAT THIS WAS PRACTICE IN THE LINE OF HOTEL BUSINESS. THE BOARD OF DIRECTORS ALSO PASSED A RESOLUTION ON 31 ST MAY, 2004 THAT THE ISSUES TO THE VARIOUS USER OUTL ETS IS AS SUCH THE CONSUMPTION AND NOT THE INVENTORY, THE SAM E BE WRITTEN OFF IN THE CURRENT ACCOUNTING YEAR AND THE ACCOUNTING POLICY F ROM THE FINANCIAL YEAR BE ADOPTED TO REFLECT THE TRUE AND FAIR PICTURE OF THE PROFIT AND LOSS ACCOUNT (PAPER BOOK PAGE NO.52 REPRODUCED ABOVE). THE A.O. HAD GIVEN DETAIL REASONING ON PAGE 3 OF THE ASSESSMENT ORDER BUT HE DID NOT FIND THE CHANGE OF ACCOUNTING POLICY AS BONAFIDE. HE MADE AN ADDITION OF RS. 56,30,816/-. 8. BEING AGGRIEVED BY THE ORDER OF A.O., THE ASSESS EE FILED FIRST APPEAL BEFORE THE LD. CIT(A)-I, AHMEDABAD, WHO CONFIRMED T HE ADDITION BY OBSERVING IN PARA 3.3 IS AS UNDER:- 3.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND THE OBSERVATION OF THE A.O. THE APPELLANT HAS BEEN RUNN ING THE HOTEL FOR A LARGE NUMBER OF YEARS. THE APPELLANT HAS NOW STATED THAT THE INVENTORY OF CROCKERY, LINEN ETC. WAS WRONGLY SHOWN BECAUSE THESE ITEMS WERE NOT PHYSICALLY VERIFIABLE BUT STILL IT W AS SHOWING. DOES THIS MEAN THAT IN ALL THE YEARS TILL DATE THE APPEL LANT HAD SHOWN THE CLOSING STOCK WRONGLY EVEN THOUGH IT WAS NOT VERIFI ED? THIS POSITION IS UNACCEPTABLE. THE APPELLANT HAS BEEN S HOWING CLOSING ITA NO. 1023/AHD/2010 A.Y.2004-05 PAGE 10 STOCK OF STORES CONSISTING OF THESE ITEMS ON PHYSIC AL VERIFICATION. THIS MEANS THAT IF SUCH ITEMS WERE NOT AVAILABLE TH EY WOULD NOT FIND PLACE IN THE CLOSING STOCK OF THESE STORES AND HENCE BEING ALREADY INCLUDED IN THE OPENING STOCK THEY WOULD GE T DEBITED TO THE PROFIT & LOSS ACCOUNT AUTOMATICALLY. THIS ARGUM ENT OF THE APPELLANT THAT SUCH ITEMS ARE NOT PHYSICALLY AVAILA BLE IS, THEREFORE, TOTALLY WRONG AND CANNOT BE ACCEPTABLE. NO OTHER SU BSTANTIAL REASON HAS BEEN GIVEN BY THE APPELLANT FOR CHANGE O F METHOD OF ACCOUNTING HENCE CHANGE OF METHOD OF ACCOUNTING IN THIS CASE CANNOT BE STATED TO BE IN A BONAFIDE REASON. AS STATED ABOVE, IF AN ITEM IS INCLUDED IN THE OPENING STOCK BUT IF IT IS LOST OR BROKEN IT WILL NOT FIND PLACE IN THE CLOSING STOCK AT THE TIME OF PHYS ICAL VERIFICATION AT THE END OF THE YEAR AND HENCE IT GETS AUTOMATICALLY DEB ITED TO THE PROFIT & LOSS ACCOUNT. THIS IS WRONG TO SAY THAT SUCH COSTLY ITEMS LIKE CROCKERY, LINEN ETC., WHICH IS MADE OF STEEL SHOULD BE TREATE D AS CONSUMABLES. IN VIEW OF THIS REASON, I AGREE WITH THE A.O. THAT CHA NGE OF METHOD OF ACCOUNTING IN THE PRESENT CASE IS NOT BONAFIDE. THE ADDITION MADE BY THE A.O. IS, THEREFORE, CONFIRMED AND THIS GROUND O F APPEAL IS DISMISSED. 9. BEFORE US, LD. A.R. CONTENDED BY SUBMITTING THE PAPER BOOK THAT THE ACCOUNTING POLICY WAS CHANGED FOR INVENTORY ISSUE IS BONAFIDE. THE BOARD OF DIRECTORS HAD PASSED THE RESOLUTION FOR CHANGE OF A CCOUNTING METHOD FROM THIS ASSESSMENT YEAR. THE LD. A.R. HAS ALSO DRAWN OUR A TTENTION THE TECHNICAL GUIDE ON AUDIT OF HOTEL INDUSTRY ISSUED BY INSTITUT E OF CHARTERED ACCOUNTANT OF INDIA, PARTICULARLY, ON PART-3 I.E. AUDIT APPROACH AND PROCEDURE IN CIRCULATION INVENTORY PARA 3.66 WHICH IS REPRODUCED AS UNDER:- AS EXPLAINED ELSEWHERE, INCIRCULATION INVENTORY OF LINEN, CGS ETC. SHOULD BE AUDITED TO ENSURE THAT ALL THOSE ITEMS W HICH ARE ISSUED FROM STORES HAVE BEEN ACCOUNTED AS CONSUMPTION. THERE A RE RISKS OF SOME HOTELS TAKING SOME STOCK AS TO BE RETURNED AND US E SOME CGS ITEMS FOR SOME FUNCTIONS AND RETURN. SUCH PRACTICES SHOU LD BE PROHIBITED AND CONSUMPTION SHOULD BE ACCOUNTED ONCE IT IS ISSUED F ROM STORES. 10. ANOTHER SIDE, LD. D.R. OBJECTED THE CHANGING OF ACCOUNTING METHOD AND PLACED RELIANCE ON ORDER OF THE AUTHORITIES BELOW A ND CLAIMED THAT THERE WAS NO DETAIL OF INVENTORIES OF RS. 56,30,816/- . ITA NO. 1023/AHD/2010 A.Y.2004-05 PAGE 11 11. WE HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW AND SUBMISSION OF THE ASSESSEE. THE HOTEL IS IN OPERATION SINCE A.Y. 199 4-95 AND ALL THE INVENTORIES CROCKERY, LINEN AND PERISHABLE GOODS HAD BEEN DEBIT ED IN THE P&L ACCOUNT USUALLY IN PAST. THE LIST OF OPENING INVENTORY AS WELL AS CURRENT YEAR INVENTORY HAVE NOT BEEN SUBMITTED EITHER BEFORE A.O. OR LD. C IT(A) AND BEFORE US ALSO. THE BOARD OF DIRECTOR PASSED THE RESOLUTION ON 31 ST MAY, 2004 AND DECIDED TO CHANGE THE ACCOUNTING POLICY FROM THE FINANCIAL YEA R. IT APPEARS THAT THIS CHANGE WAS RELEVANT TO ASSESSMENT YEAR 2005-06 WHER EAS THE ASSESSEE HAS CLAIMED THESE CHANGE IN A.Y. 2004-05 WHICH IS TOTAL LY CONTRARY TO THE RESOLUTION PASSED BY THE BOARD OF DIRECTORS. THE G UIDELINES FOR AUDITING THE HOTEL BUSINESS THE RELEVANT PARA REPRODUCED AS ABOV E SHOWS THAT INCIRCULATION INVENTORY OF LENIENT GROCERY, GRAIN, SILVER WARE (C GS) ETC. SHOULD BE ACCOUNTED ON ISSUE OF THESE ITEMS FROM THE STORE FOR CONSUMPT ION. THE ASSESSEE HIMSELF ADMITTED THAT WHEN ISSUES ARE MADE TO THE SUB-STORE AND IT HAD BECOME EXPENSES HOWEVER THE ASSESSEE HAD SHOWN AS INVENTOR Y AND IT WAS REALIZED THAT THESE ISSUES ARE NOT PHYSICALLY TRACEABLE AT T HE END OF THE YEAR AND ARE REQUIRED TO BE WRITTEN OFF, IS CONTRADICTORY BECAUS E ONE SIDE IT IS ADMITTED THAT INVENTORY IS NOT VERIFIABLE, ANOTHER SIDE, IT IS CL AIMED AS SHOWN IN CLOSING STOCK. THE APPELLANT HAS NOT PRODUCED ANY EVIDENCE OF ANY ITEM SHOWN IN THE BALANCE SHEET IN CLOSING STOCK DURING THE COURSE OF ARGUMENT BEFORE US. CONTRARY TO ABOVE FINDING, IF THESE INVENTORIES HAV E MADE PART OF THE CLOSING STOCK AUTOMATICALLY IT HAS BEEN DEBITED IN P&L ACCO UNT IN OPENING ACCOUNT OF EVERY YEAR. ITA NO. 1023/AHD/2010 A.Y.2004-05 PAGE 12 12. WE HAVE GONE THROUGH THE CASE LAW CITED BY LD. A.R. BUT NO CASE IS DIRECTLY APPLICABLE ON THE ASSESSEE. THE CHANGE OF ACCOUNTING POLICY IS PERMISSIBLE WHEN IT IS BONAFIDE. THE DECISION FOR CHANGE OF ACCOUNTING POLICY IS TAKEN BY THE ASSESSEE FOR THE REASONS ARE NOT BO NAFIDE. THERE IS NO LIST OF ITEMS AND PAST HISTORY OF THE CASE, THE EVIDENCE SH OWS THE TREATMENT OF THESE ITEMS IN BOOK OF ACCOUNT IS CONTRADICTORY. THUS, THIS GROUND OF APPEAL IS DISMISSED. 13. THE THIRD GROUND OF APPEAL IS AGAINST NOT ALLOW ING THE DEPRECIATION @ 10% OF RESIDENTIAL BUILDING. THE A.O. OBSERVED THA T THE DEPRECIATION ON RESIDENTIAL BUILDING IS ALLOWABLE @ 5% WHEREAS DEPR ECIATION ON HOTEL BUILDING IS ALLOWABLE @ 10%. HE MADE THE ADDITION OF RS. 1, 29,548/-. 14. BEING AGGRIEVED BY THIS ORDER, THE ASSESSEE WAS BEFORE THE LD. CIT(A) WHO HAS CONFIRMED THE ADDITION WHICH IS REPRODUCED AS UNDER:- I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPEL LANT AND THE OBSERVATION OF THE A.O. THE HOTEL BUILDING IS DEFIN ITELY ALLOWED DEPRECIATION AT 10%. THE ONLY DISPUTE IS REGARDING RESIDENTIAL FLATS OF EMPLOYEES. THE RESIDENTIAL FLAT OF EMPLOYEES CANNO T BE TREATED TO BE AT PART WITH HOTEL BUILDING AND THESE ARE PURELY A RES IDENTIAL MADE ONLY FOR THE RESIDENTIAL PURPOSES OF THE EMPLOYEES AND HENCE DEPRECIATION IS ALLOWABLE ONLY AT 5%. THE ACTION OF THE A.O. IS, T HEREFORE, CONFIRMED AND THIS GROUND OF APPEAL IS DISMISSED. 15. LD. COUNSEL FOR ASSESSEE FILED A COPY OF REPLY TO PRODUCE BEFORE THE LD. CIT(A), WHICH IS REPRODUCED AS UNDER:- THE NEXT ISSUE IN APPEAL RELATES TO DEPRECIATION @ 5% ON RESIDENTIAL PREMISES. THE DEPRECIATION HAS BEEN WORKED OUT COR RECTLY. IN THIS REGARD, YOU ARE REFERENCED PARA D(III) OF MY SUBMIS SION VIDE LETTER NO. TR-744 OF OCTOBER 5,2009 (PAGE 31 TO 35). THE RELE VANT EXTRACT OF THE RULE IS APPENDED HEREWITH (PAGE 37 TO 45). CONSIDE RING THIS, IT IS REQUESTED TO ALLOW APPEAL ON THIS SCORE. ITA NO. 1023/AHD/2010 A.Y.2004-05 PAGE 13 THE A.R. ALSO FILED A COPY OF THE INCOME TAX RULE F OR DEPRECIATION AND FOR RATE PURPOSES. 16. ANOTHER SIDE, LD. D.R. VEHEMENTLY RELIED ON THE ORDER OF THE LD. CIT(A) AND SUGGESTED TO CONFIRM THE ORDER OF THE A.O. 17. WE HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW AND GONE THROUGH THE PAPER BOOK PAGE NOS. 53 TO 61, WHICH SHOWS BUILDING UNDER HEAD. (1) BUILDINGS WHICH ARE USED MAINLY FOR RESIDENTIAL PUR POSES EXCEPT HOTELS AND BOARDING HOUSES DEPRECIATION @ 5% (2)BUILDINGS OTHE R THAN THOSE USED MAINLY FOR RESIDENTIAL PURPOSES AND NOT COVERED BY SUB-ITEMS (1) ABOVE AND (3) BELOW RATE OF DEPRECIATION 10%. IT APPEARS THA T TWO RATES OF DEPRECIATION HAVE BEEN CLASSIFIED IN RULE IV. THE DEPRECIATION RATE ON BUILDING FOR RESIDENTIAL PURPOSES HAVE DIFFERENT RATE OF DEPRECI ATION, PRIMA FACIE THE ASSESSEES CLAIM COMES UNDER ITEM NO.2 AND HE RIGHT LY CLAIMED DEPRECIATION @ 10%. THUS, THE APPEAL OF THE ASSESSEE ON THIS GR OUND IS ALLOWED. 16. GROUND NO.4 IS AGAINST CALCULATION OF BOOK PROF IT UNDER SECTION 115JB OF THE I.T.ACT. THE LD. CIT(A) OBSERVED IN PARAGRAPH 5.3 WHICH IS REPRODUCED AS UNDER:- I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPEL LANT AND THE OBSERVATION OF THE A.O. THERE IS NO DISPUTE THAT LO WER OF UNABSORBED BOOK LOSS OR BOOK PROFIT AND, THEREFORE, THE CORREC T DEPRECIATION IS REQUIRED TO BE ALLOWED. IN THE SUBMISSION MADE BY THE APPELLANT AS ABOVE, THE APPELLANT HAS STATED THAT UNABSORBED BOO K LOSS OF RS. 64,16,141/- AVAILABLE WHEREAS THE A.O. STATED THAT IT HAS NOT ALLOWABLE. THIS IS A MATTER OF VERIFICATION. IN ANY CASE, NEI THER THE A.O. NOR THE APPELLANT HAS STATED THAT THE UNABSORBED DEPRECIATI ON IS ALLOWABLE OR NOT. IT IS IMPORTANT TO REMEMBER THAT THE LOWER OF THE TWO AMOUNTS ARE ALLOWABLE. IF THE UNABSORBED DEPRECIATION IS ZERO THEN THE UNABSORBED LOSS CANNOT BE ALLOWED. IF THE UNABSORBED BOOK LOS S HAS ALREADY BEEN USED AND FOUND ZERO AND AGAIN NOTHING CAN BE ALLOWE D. THE A.O. IS, ITA NO. 1023/AHD/2010 A.Y.2004-05 PAGE 14 THEREFORE, DIRECTED TO VERIFY THE RETURNS OF A.Y. 2 002-03 AND A.Y. 2003- 04 AND AGAIN COMPUTE THE UNABSORBED DEPRECIATION AV AILABLE FOR A.Y. 2004-05 AND UNABSORBED BOOK LOSS AVAILABLE FOR A.Y. 2004-05 AND ALLOW THE LOWER OF TWO. THIS GROUND OF APPEAL IS, THEREFORE, DISMISSED WITH THIS DIRECTION. 18. LD. A.R. AGAIN ARGUED IN THIS ISSUE, IN HIS REP LY SUBMITTED BEFORE THE LD. CIT (A), WHICH IS REPRODUCED AS UNDER:- (5)(A) AS FAR AS GROUND NO (IV) IS CONCERNED, IT RE LATES TO INTERPRETATION OF SECTION 115JB IN RELATION TO EXPLANATION (III) T O SECTION 115JB(2). ASSESSEE, DURING THE RELEVANT YEAR, HAD PROFIT OF R S.3,31,27,950/-. THE RELEVANT PORTION OF THE COMPUTATION IS REPRODUCED B ELOW: C OMPUTATION OF INCOME UNDER CHAPTER V=XII-B: BOOK PROFIT AS PER PART-II AND PART-ILL OF SCHEDULE VI TO THE COMPANIES ACT, 1956 (I.E. U/S. 115JB) NET PROFIT AS PER PROFIT & LOSS ACCOUNT 33,127,950 LESS: DEDUCTION AS PER PROVISO TO SECTION115JB(2)(III): 1) UNABSORBED BOOK LOSS }AS PER BOOKS 2) UNABSORBED DEPRECIATION} (APPLICABLE WHICHEVER IS LESS) 6,416,141 49,336.594 BOOK PROFIT 6,416,141 26,711,809 YOU SHALL NOTICE THAT ASSESSEE BEING ENTITLED TO LO WER OF UNABSORBED BOOK LOSS AND UNABSORBED DEPRECIATION IN TERMS OF SECTION 115(B(2) OF EXPLANATION 111, HAD CORRECTLY CLAIMED THE DEDUCTION. (B) HOWEVER, BEFORE DISCUSSING THE MERITS, IT MAY BE PE RTINENT TO NOTE THE FATE OF THE ISSUE. THIS PARTICULAR DISALLOWANCE HAD ALREADY BEEN MADE EARLIER IN THIS VERY YEAR BY THE A.O. VIDE ORD ER DATED 26-12-2006 U/S. 143(3) (PAGE 1 TO 4). THIS WAS CONTESTED BY TH E APPELLANT AT THAT POINT, AND BEING SATISFIED WITH THE CONTENTIONS OF THE APPELLANT, THE CJT(A) VIDE HIS ORDER DATED 26-02- 2007 DIRECTED THE A.O. TO VERIFY THE SAID UNABSORBED BOOK LOSS AN D UNABSORBED DEPRECIATION (PAGE NO. 46 TO 49). AFTER VERIFYING T HE UNABSORBED ITA NO. 1023/AHD/2010 A.Y.2004-05 PAGE 15 BUSINESS LOSS AND UNABSORBED DEPRECIATION AS PER TH E BOOKS, THE A.O. HAD PASSED ORDER DATED 22.3.2007 GIVING EFFECT TO T HE ORDER OF THE CIT(A). (PAGE 50). THIS WAS AFTER ACCEPTING THE WOR KING GIVEN BY THE APPELLANT THEN. NOW, THE APPELLANT HAS BEEN DRAGGED INTO THE LITIGA TION ON THE SAME ISSUE, HENCE, THIS APPEAL. IN PARA 5(I), THE A .O. NOW STATES THAT THE A.O. WHO HAD ALLOWED THE CLAIM EARLIER AS PER T HE DIRECTIONS OF THE C1T(A), HAD NOT VERIFIED THE CASE RECORDS; HENCE, H E HAS NOW REAPPRAISED THE CASE RECORDS AND ACCORDING TO HIM, THE DEDUCTION UNDER EXPLANATION (III) TO SECTION 115JB(2) IS NOT ALLOWA BLE. IS THIS ACT OF THE A.O. WARRANTED TO READJUDICATE T HE MATTER ALREADY DECIDED BY THE CIT(A)? OR CAN HE YET REAPPRAISE, WH AT IS SETTLED? I BELIEVE THAT ON THIS SCORE ITSELF, THE APPEAL MAY B E ALLOWED. ON THIS ASPECT, ATTENTION IS DRAWN TO THE DECISION OF CHENN AI TRIBUNAL IN CASE OF T. T. NARASIMHAN (DECEASED) - (280-1TR-65 )(PAGE 62 TO 67). (C) EVEN OTHERWISE, FROM RECORDS, THE MATTER IS SO VERY CLEAR THAT SHOULD NOT HAVE REQUIRED ANY INTERFERENCE. THE SAME IS CON TENDED HEREWITH. I MAY STATE THAT THE APPELLANT HAS BEEN CONSPICUOUSLY DISCLOSING THE WORKING U/S. 115JB BY WAY OF NOTE, WHICH WAS ALWAYS APPENDED WITH THE RETURN OF INCOME. WITH THAT, APPELLANT WAS GIVI NG COMPLETE PARTICULARS OF TRACE OF WHAT WENT TO CONTRIBUTE TOW ARDS UNABSORBED BOOK LOSS AND WHAT WENT TO CONTRIBUTE TOWARDS UNABSO RBED DEPRECIATION. THERE WAS COMPLETE DISCLOSURE, AND EVEN OTHERWISE, THE ACTION OF THE ASSESSING OFFICER NOW MADE U/S. 147 WAS UNCALLED F OR {REFER PAGES 52-55). BESIDES, EXPLANATION (III) TO SECTION 115JB(2) IS R EPRODUCED BELOW FOR EASY REFERENCE. '(III) THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DE PRECIATION, WHICHEVER IS LESS AS PER BOOKS OF ACCOUNT. EXPLANATION,_ FOR THE PURPOSES OF THIS CLAUSE,_ (A) THE LOSS SHALL NOT INCLUDE DEPRECIATION, (B) THE PROVISIONS OF THIS CLAUSE SHALL NOT APPLY I F THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION IS NIL; OR' FROM THE ABOVE, YOU SHALL NOTICE THAT AN ASSESSEE I S ENTITLED TO DEDUCTION OF LOWER OF UNABSORBED BOOK LOSS AND UNAB SORBED BOOK DEPRECIATION. FOR THAT, ONE IS REQUIRED TO MAKE YEA R-WISE PROFILE OF WHAT WENT TO CONTRIBUTE TOWARDS UNABSORBED BOOK LOSS AND WHAT WENT LO CONTRIBUTE TOWARDS UNABSORBED DEPRECIATION. ITA NO. 1023/AHD/2010 A.Y.2004-05 PAGE 16 THIS IS PRECISELY WHAT HAS BEEN DONE BY THE APPELLA NT. PLEASE FIND FIND ATTACHED THE RELEVANT WORKING (ANNEXURE-A) WIT H REFERENCES TO VARIOUS AUDITED FINANCIAL STATEMENTS (PAGE NO. 1 TO 23 OF ANNEXURE-A) SHOWING MAKING OF UNABSORBED BOOK DEPRECIATION OR U NABSORBED BOOK LOSS. IF YOU SHALL KINDLY SEE PAGE NO. 51, YOU WILL OBSERVE THAT DURING THE RELEVANT YEAR, APPELLANT HAD A SUM OF RS.64,16, 141/- AVAILABLE AS UNABSORBED BOOK LOSS, AS WELL AS RS.4,93,36,594/- A S UNABSORBED BOOK DEPRECIATION. (D) YOU SHALL ALSO NOTICE THAT RS.64,16,141/- UNABS ORBED BOOK LOSS HAS NOWHERE IN THE PAST BEEN UTILIZED AGAINST THE BOOK PROFITS. A.O. IN PARA 5(II) OF THE ORDER CONTENDS THAT THE APPELLANT HAS ALREADY UTILIZED THE SAID UNABSORBED BOOK LOSS IN A.Y.2002-03 AND A.Y.20 03-04. I AM ATTACHING THE COMPUTATION STATEMENT SUBMITTED AT THE LIME OF FILING OF RETURN OF INCOME FOR A.Y.2002-03 AND A.Y. 2003-04 (PAGE NOS.52 TO53). YOU SHALL NOTICE THAT THE APPELLANT H AS NOT UTILIZED THE UNABSORBED BOOK LOSS AT ANY POINT EXCEPT FOR A.Y.20 03-04 TO THE EXTENT OF RS.2,364,566/-, WHICH HAS BEEN DULY REDUCED BY T HE APPELLANT FROM RS.3,00,60,707/- TO ARRIVE AT AVAILABLE UNABSORBED BOOK LOSS OF RS.64,16,141/- FOR A.Y.2004-05 {P. 53). AND, THIS I S PRECISELY CLAIMED BY THE APPELLANT. HOWEVER, THE ASSESSING OFFICER HAS O PTED NOT TO ALLOW THIS. THE APPELLANT ALSO FILED A COPY OF THE ORDER GIVING EFFECT TO THE ORDER OF LD. CIT(A) DATED 22.03.2007 THAT UNABSORBED BOOK LOSS I S LESS THAN UNABSORBED DEPRECIATION WHICH HAS BEEN ALLOWED UNDER BOOK PROF IT BY THE A.O. AND CALCULATED THE TAX @ 7.5% OF BOOK PROFIT UNDER SECT ION 115JB. 19. WE HAVE PERUSED THE SUBMISSION OF ASSESSEE WHIC H WAS MADE BEFORE THE LD. CIT (A) AND ORDER OF THE AUTHORITIES BELOW. THE ASSESSEE HAD CLAIMED UNABSORBED BOOK LOSS AT RS. 2,36,44,566/- WHEREAS T HE A.O. HAD CALCULATED UNABSORBED BOOK LOSS OF RS. 64,15,141/- IN APPEAL E FFECT ORDER. THEREFORE, THE A.O. IS DIRECTED TO VERIFY THE UNABSORBED BOOK LOSS FROM THE PAST RECORD. AFTER GIVING THE REASONABLE OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE AND CALCULATE THE BOOK PROFIT AS PER LAW. THE ASSESSEE ALSO DIRECTED TO COOPERATE ITA NO. 1023/AHD/2010 A.Y.2004-05 PAGE 17 TO THE A.O. AND SUBMIT REQUIRED DETAIL FOR CALCULAT ION OF MAT INCOME. THUS, THIS GROUND OF APPEAL IS SET ASIDE TO THE A.O. FOR DE NOVO. 20. GROUND NO.5 IS AGAINST CHARGING OF INTEREST U/S 234B OF THE I.T.ACT. LD. CIT(A) HAD DISMISSED THE APPEAL BY CONSIDERING THE APPEAL HONBLE SUPREME COURTS DECISION IN THE CASE OF ANJUM M.H. GHASWALA (252 ITR 01). 21. WE HAVE GONE THROUGH THE ORDER OF AUTHORITIES B ELOW AND CASE LAW REFERRED BY LD. CIT(A), CHARGING OF INTEREST U/S 23 4B IS MANDATORY AS HELD IN THE CASE OF ANJUM M.H. GHASWALA (SUPRA). THEREFORE , THE A.O. IS DIRECTED TO CALCULATE THE INTEREST UNDER SECTION 234B AS PER LA W. 22. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE. SD/- SD/- ( MUKUL KR. SHRAWAT) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA ! ! ! ! '! '! '! '! / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '(' ) * / CONCERNED CIT 4. *- / CIT (A) 5. !./ ), ) , 12( / DR, ITAT, AHMEDABAD 6. /45 67 / GUARD FILE. BY ORDER/ , 8/ 1 ': ) , 12( ; ITA NO. 1023/AHD/2010 A.Y.2004-05 PAGE 18 STRENGTHEN PREPARATION & DELIVERY OF ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 24.05.2012 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE XXXX 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 28.05.2012 4) DATE OF CORRECTION 28.05.2012 5) DATE OF FURTHER CORRECTION 28.05.2012 6) DATE OF INITIAL SIGN BY MEMBERS 31.05.2012 7) ORDER UPLOADED ON 8) ORIGINAL DICTATION PAD HAS BEEN ENCLOSED IN THIS FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON