Shree Rama Multi-Tech Ltd., Ahmedabad V. The ACIT(OSD) Circle-8, Ahmedabad

ITA 1345/AHD/2015

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 9625 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 14-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AHD
• Keywords: Capital asset; Business income; Depreciation; Question of law; Bad and doubtful debts; Valuation report; Reassessment proceedings; Set aside
• Section: 32; 147; 148; 271(1)(c); 43B; 143(3); 133A; 80IA; 41(2); 143(2); 113; 13

Judgement Text

आयकर अपीलीय अिधकरण, अहमदाबाद ᭠यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’C’’BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD) BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER Sr. No. ITA/IT(SS)A Asstt. Year Name of Appellant Name of Respondent 1. ITA No.722/Ahd/2014 2000-01 Shree Rama Multi Tech Ltd. 603, Shikhar Building, Navrangpura, Ahmedabad-380009 PAN:AAJCS1563N DCIT Circle-8, Ahmedabad 2. ITA No. 218/Ahd/2014 2007-08 Shree Rama Multi Tech Ltd. 603, Shikhar Building, Navrangpura, Ahmedabad-380009 PAN:AAJCS1563N DCIT(OSD), Circle-8, Ahmedabad 3. ITA No. 1306/Ahd/2014 2008-09 Shree Rama Multi Tech Ltd. 603, Shikhar Building, Navrangpura, Ahmedabad-380009 PAN:AAJCS1563N ACIT(OSD), Circle-8, Ahmedabad 4. ITA No. 1345/Ahd/2015 2009-10 Shree Rama Multi Tech Ltd. 603, Shikhar Building, Navrangpura, Ahmedabad-380009 PAN:AAJCS1563N DCIT-4(1)(1), (Erstwhile DCIT, Circle-8), Ahmedabad (Applicant) (Responent) Assessee by : Shri S.N. Soparkar, Sr. Advocate with Shri Parin Shah, A.R and Shri Himansu Shah, A.R. Revenue by : Shri Mukesh Kumar Sharma, Sr. DR सुनवाई कᳱ तारीख/Date of Hearing : 21/12/2021 घोषणा कᳱ तारीख /Da te of Pronouncement: 28/01/2022 ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 2 आदेश/O R D E R PER WASEEM AHMED, AM: In this bunch of appeals all appeals have been filed by the same Assessee for A.Ys. 2000-01, 2007-08 to 2009-10 which are arising from the separate orders of the Ld. CIT(A)-XIV, Ahmedabad, Ld. CIT(A)-XVI, Ahmedabad, CIT(A)-XIV, Ahmedabad, & Ld. CIT(A)-8, Ahmedabad dated 04.12.2013, 21.11.2013, 21.02.2014, 23.02.2015, in the assessment proceedings under Section 143 r.w.s. 254, 143(3) of the Income Tax Act, 1961 (in short “the Act”). First we take up ITA No. 722/Ahd/2014 an appeal by assessee for AY 2000-01:- 2. The assessee has raised the following grounds of appeal: “1 Ld. CIT (A) erred in law and on facts in confirming action of AO in not considering addition of Rs. 82,54,455/- made on account of disallowance of custom duty paid set aside for verification to the file of AO. Ld. CIT (A) erred in not appreciating that appellant in compliance with the direction submitted complete evidence of payment of custom duty in the relevant previous year along with bills of entries that were set aside for verification. Ld. CIT (A) ought to have adjudicated and deleted disallowance of custom duty paid. It be so held now. 2 Ld. CIT (A) erred in law and on facts in confirming rejection of claim of netting of interest by AO while computing deduction u/s 80IA of the Act. Both the lower authorities failed to appreciate detailed submissions made by appellant establishing nexus between interest income and expenditure to justify the claim that only net 'interest income' to be taken out from the calculation of profits of the business for computing deduction u/s 80IA of the Act as per the ratio of the latest judgment of the Hon'ble Apex Court. Ld. CIT (A) ought to have granted netting off interest computed by the appellant while granting deduction u/s 80IA of the Act. It be so held now. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.” 3. The first issue raised by the assessee is that the Ld. CIT-A erred in not allowing the deduction of Rs. 82,54,455/- representing the custom duty on payment basis as provided under the provisions of Section 43B of the Act. ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 3 4. In the present case, the proceedings were initiated under Section 147 of the Act by issuing a notice under Section 148 of the Act dated 11 th October 2004 for the assessment of the income which escaped assessment. The assessee in response to such notice filed return of income dated 18 th February 2005 by claiming the deduction of Rs. 82,54,455/- representing the custom duty on payment basis under the provisions of Section 43B of the Act. 5. However, the AO in his order dated 21 st March 2006 denied the deduction claimed by the assessee on the reasoning that the amount of custom duty has to be included in the closing stock in pursuance to the provisions of Section 145A of the Act. 6. Aggrieved assessee preferred an appeal to the Ld. CIT-A, who observed that the ITAT in the own case of the assessee for the assessment year under consideration in the proceedings under Section 143(3) of the Act in ITA No. 1481/Ahd/2004 vide order dated 3 rd December 2004 has admitted the impugned claim of the assessee and set aside the issue to the file of the AO for verification in the light of the principles laid down in the judgment of Hon’ble Supreme Court in the case of Berger Paints India Ltd. vs CIT reported in 135 taxman 586. Accordingly, the Ld. CIT-A in his order dated 5 th of January 2007 directed the AO to allow the deduction to the assessee subject to the verification whether the custom duty has been paid during the year. 7. The assessee for all other issues carried the matter to the ITAT bearing ITA No. 1039/AHD/2007 except the issue of allowability of custom duty paid by it under the provisions of Section 145A of the Act. ITAT has given its finding dated 21 st October 2011. The assessee did not prefer the appeal for the reason that it was not aggrieved. Likewise, the Revenue has also not preferred any appeal against the order of the ld. CIT-A. ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 4 8. However, the AO in the giving effect order to the direction of the ITAT has not given the benefit of the deduction for the custom duty as provided by the Ld. CIT-A in his order dated 5 th January 2007. As such, the AO in his order dated 31 st December 2012 under the provisions of Section 143(3) r.w.s. 254 of the Act has not given any benefit of deduction as directed by the Ld. CIT-A in the order dated 5 th January 2007. 9. The assessee against the order of the AO preferred an appeal to the Ld. CIT-A who denied the benefit to the assessee in his order dated 4 th December 2013 by observing that there was no such direction arising from the order of the ITAT dated 21 st October 2011 for allowing the benefit of the deduction of the custom duty paid by the assessee during the relevant year. 10. Being aggrieved by the order of the Ld. CIT-A, the assessee is in appeal before us. 11. The Ld. AR before us filed a Paper Book running from pages 1 to 113 and filed the chronological events as detailed under: Sr. No. Date Particulars 1 28-11-00 Return of income filed 2 31-03-03 Assessment order u/s. 143(3) of I.T. Act 3 05-03-04 Order passed by Hon’ble CIT(A) 4 03-12-04 Order passed by Hon’ble ITAT 5 29-12-04 Assessment order u/s. 143(3) r.w.s. 254 of I.T. Act 6 19-01-06 Order passed by Hon’ble CIT(A) 7 21-03-06 Assessment order 143(3) r.w.s. 147 of I.T. Act 8 05-01-07 Order passed by Hon’ble CIT(A) 9 21-10-11 Order passed by Hon’ble ITAT 10 31-12-12 Assessment order u/s. 143(3) r.w.s. 254 of I.T. Act 11 04-12-13 Order passed by Hon’ble CIT(A) 12. The Ld. AR before us submitted that claim of the assessee for the deduction of the custom duty was duly admitted and allowed by the ITAT in its order dated 3 rd December 2004 in ITA No. 1481/Ahd/2004 in the proceedings ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 5 under Section 143(3) of the Act by setting aside the issue to file of the AO for fresh adjudication after considering the judgment of Hon’ble Supreme Court in case of Berger Paints India Ltd. vs. CIT reported in 135 taxman 586. 13. However, AO in the effect giving order has not given any effect to the direction of the ITAT in his order dated 29 th December 2004. 14. However, when the appeal was sub-judice before the ITAT, the proceedings under Section 147 were initiated. As such the proceedings under Section 147 were initiated vide notice dated 11 th October 2004 under Section 148 of the Act whereas the ITAT passed the order dated 3 rd December 2004. As such, once the proceeding for initiated under Section 147 of the Act, the assessee has made the additional claim in 147 proceedings for claiming the deduction of Rs. 82,54,455/- on account of the custom duty paid in the year under consideration which was included in the closing stock. But the AO did not allow the claim of the assessee in his order dated 21 st March 2006 whereas the Ld. CIT-A in his order dated 5 th January 2007 directed the AO to allow the claim of the assessee. 15. In view of the above, the Ld. AR contended that the Ld. CIT-A in the proceedings under Section 143(3) r.w.s 147 of the Act has allowed the claim of the assessee subject to verification of the payment of custom duty made during the year under consideration. But AO failed to provide the benefit in effect giving order. Accordingly, the learned AR before us prayed to allow the claim of the assessee subject to the verification about the fact of the payment made by the assessee for the custom duty in the year under consideration. 16. On the contrary, the Ld. DR vehemently supported the order of the authorities below. 17. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, originally the proceedings initiated ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 6 against the assessee under the provisions of Section 143(2) of the Act which raised up to the ITAT. The assessee for the first time before ITAT claimed the deduction on account of custom duty for Rs. 82,54,455/- by making additional claim. The ITAT in ITA No. 1481/Ahd/2004 vide order dated 3 rd of December 2004 was pleased to admit the claim and allow the deduction to the assessee subject to the verification. The relevant finding of the order of the ITAT reads as under: “...in the additional ground raised the assessee wants relief on account of applicability of section 43B. In the facts and circumstances of the case, we are of the considered opinion that in view of the decision in Berger Paints (supra) the entire amount of excise duty/custom duty paid by the assessee in particular accounting year is allowable under section 43B of the Act, as deduction in respect of that year, irrespective of the amount of excise duty/custom duty included in value of assessee’s closing stock at the end of accounting year as related thereto. So in the interest of justice we restore this issue to the file of AO for deciding the same as per law available at relevant point of time on the issue relevant to the AY under consideration after providing reasonable opportunity of hearing to the assessee.” 18. In pursuance to the direction of the ITAT, the assessment order was framed under Section 143(3) r.w.s. 254 of the Act dated 29 th December 2004. However, the AO in giving effect order has not given any finding for the deduction for the custom duty paid by the assessee for 82,54,455/-. 19. However, the Ld. AR before us has not brought anything on record suggesting that what happened after the effect giving order of the AO dated 29 th December 2004. On this count, nothing was brought to our notice. 20. Be that as it may be, now the assessee has made the similar claim in the return filed under Section 148 of the Act which was not allowed by the AO on the reasoning that the amount of custom duty has to be included the closing stock under the provisions of Section 145A of the Act. However, the Ld. CIT-A vide order dated 5 th January 2007 was pleased to allow the claim of the assessee by observing as under: ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 7 “7.2 I have considered the facts and submissions of the appellant and I am inclined to agree with the view of the appellant. In view of the order of ITAT, the appellant is entitled to get deduction u/s. 43B for customs duty actually paid during the year. The AO has not observed anything whether this customs duty was actually paid in the previous year or not and he has disallowed this claim by only relying upon the legal issues that after introduction of Sec. 145(91) of the IT Act, the assessee is not entitled for deduction. The AO is directed to allow this claim of the appellant after verifying the facts as to whether this customs duty was actually paid by the appellant during the previous year.” 21. This order of the Ld. CIT-A was not challenged before the ITAT, meaning thereby, the finding of the Ld. CIT-A in his order dated 5 th January 2007 has reached to the finality. However, the assessee carried the matter before the ITAT for some other items of dispute in ITA No. 1039/Ahd/2007 except the amount of custom duty as discussed above. For other disputes, the ITAT has passed the order dated 21 st October 2011. 22. Accordingly, the AO passed order giving effect dated 31 st December 2012 without giving the benefit of the custom duty as claimed by the assessee. On appeal the Ld. CIT-A has also denied the benefit of the claim of the assessee in his order dated 4 th December 2013. 23. Before the adjudicating the issue raised by the assessee before us whether the claim of the assessee for the deduction of the custom duty is admissible in the given facts and circumstances, we take a note of the fact that the assessee has claimed the deduction for the custom duty in the proceedings under Section 143(3) of the Act first time before the ITAT which was admitted and allowed subject to the verification by order dated 3 rd December 2004. Thus, the question arises, the claim which have been made by the assessee in the proceedings under Section 143(3) of the Act, can the assessee made a similar claim in the income escapement proceedings. 24. Reassessment proceedings under Section 147 of the Act are for the benefit of the revenue and not for the assessee as held by the Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 (SC)/64 Taxman ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 8 442. It is not for the taxpayer to convert the reassessment proceedings in to a regular assessment proceeding and agitate issues which were concluded in the original assessment proceedings. The Income tax liability cannot be reduced to a figure less than that determined in the original assessment. The relevant finding of the Hon’ble Supreme Court reads as under: “whether the assessee could claim set off, not granted in the original assessment proceedings, by raising that plea once again in the reassessment proceedings under section 147, the assessing officer has been vested with the power to 'assess or reassess' the escaped income of an assessee. The use of the expression 'assess or reassess such income or recompute the loss or depreciation allowance' in section 147 after the conditions for reassessment are satisfied, is only relatable to the preceding expression in clauses (a) and (b) viz., 'escaped assessment'. The term 'escaped assessment' includes both 'non- assessment' as well as 'under assessment'. Income is said to have 'escaped assessment' within the meaning of this section when it has not been charged in the hands of an assessee in the relevant year of assessment. The expression 'assess' refers to a situation where the assessment of the assessee for a particular year is, for the first time, made by resorting to the provisions of section 147 because the assessment had not been made in the regular manner under the Act.” 25. In view of the above, we hold that the claim of the assessee for the custom duty is not applicable in the given facts and circumstances for the reason that the present proceedings before us are under Section 147 of the Act which cannot extend any benefit to the assessee. Accordingly, before going into the intricacies whether the assessee is eligible for the custom duty paid by it as deduction or not is not within the provisions of law. Once, a claim is not admissible, we refrain ourselves from adjudicating the issue raised by the assessee on the admissibility of custom duty paid by it. Hence, the ground of appeal of the assessee is dismissed. 26. The issue raised by the assessee in the 2 nd ground of appeal is that the learned CIT-A erred in not allowing the benefit of netting of interest income while computing the deduction under section 80IA of the Act. 27. The proceedings were initiated against the assessee under the provisions of section 147 of the Act. The assessee in response to the notice issued under section 148 of the Act by the AO filed return of income dated 18-02-2005. The AO ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 9 found that the assessee while calculating the deduction under section 80IA of the Act has taken certain other income under consideration as detailed below: (i)Interest income Rs.5,91,30,485/- (ii)Dividend income Rs.15,726/- (iii)Other income (a)Exchange rate difference Rs.13,37,569/- (b)Excise credit Rs.2,61,759/- (c)Kasar/Vatav Rs.5,687/- (d)Excess provision of written back of bonus Rs.2,85,809/- Rs.18,90,824/- Rs.74,50,143/- (iv)Export Incentives (DEPB) Rs.2,09,507/- (v)sundry balances Total Rs.6,86,96,685/- 28. However, the AO in his order dated 21-03-2006 has excluded the aforesaid income while computing the deduction available to the assessee under section 80IA of the Act. 29. Aggrieved assessee preferred an appeal to the learned CIT-A, who vide order dated 05-01-2007 confirmed the order of the AO. 30. Being aggrieved by the order of the learned CIT-A, the assessee preferred an appeal to the ITAT bearing ITA No. 1039/Ahd/2007 which was disposed of vide order dated 21-10-2011 by allowing the claim of the assessee in part by observing as under: 13. Ground 8 & 9 is in respect of disallowance od deduction u/s.80IA on other income. The details of other income pointed out by Ld.AR is as under: (i)Interest income Rs.5,91,30,485/- (ii)Dividend income Rs.15,726/- (iii)Other income (a)Exchange rate difference Rs.13,37,569/- (b)Excise credit Rs.2,61,759/- (c)Kasar/Vatav Rs.5,687/- (d)Excess provision of written back of bonus Rs.2,85,809/- Rs.18,90,824/- Rs.74,50,143/- (iv)Export Incentives (DEPB) Rs.2,09,507/- (v)sundry balances Total Rs.6,86,96,685/- ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 10 Ld. AR has no! pressed for dividend income of Rs.15,726/'-. Export incentive DEPB of Rs.74,50,143/- and sundry balance o) Rs.2,09.507/- for want of detailed. Since Ld. AR has not pressed these items, therefore same are dismissed as not pressed. As regards to interest income, the claim of assesses is only in respect of netting. 14. Alter hearing Ld.DR we sent back this issue regarding of interest Income to the file of AO with direction to verify the nexus and decide the issue after considering latest available decision on this issue. As regards to exchange rate fluctuation excess credit Public issue and excess provisions of written back bonus are related to profit and loss account. In other wards, the income is derived from industrial' undertakings and business income we therefore allow the deduction u/s,80HHC of the Act on these items. AO is directed accordingly. 31. Now the limited issue before the AO was with respect to the netting of interest income shown by the assessee while calculating the deduction under section 80IA of the Act in pursuance to the direction of the ITAT vide order dated 21-10-2011 as discussed above. 31.1 The assessee before the AO in the set-aside proceedings in pursuance to the direction of the ITAT, submitted that interest income to it is arising from 2 sources. The 1 st source is the money deposited with the bank in the form of FD and the 2 nd source is from the advance given to the sister concern to procure the machineries. As per the assessee, the impugned interest income was made out of the borrowed fund. Likewise, the money advanced to the sister concern represents the working capital of the assessee which is out of the borrowed fund. Thus the assessee, contended that there is a direct nexuses between the interest income and the expenses. The assessee in support of his contention also filed the copy of the annexure bearing number 4A and 4B. 32. However, the AO disregarded the contention of the assessee by observing that the issue for the allowability of netting of interest was set aside by the ITAT to verify the issue in the light of the latest available Judgments. But the assessee failed to file the latest judgments on this issue as directed by the ITAT. Thus the ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 11 AO excluded the gross amount of interest amounting to Rs. 5,91,30,485/- for calculating the deduction under section 80IA of the Act. 33. The assessee carried the matter before the learned CIT-A, who has also confirmed the order of the AO by observing as under: The appellant failed to establish any nexus of borrowed capital with bank FOR interest and interest on advances. The appellant simply taken the contention that matter is 12 years old hence such nexus cannot be established hence no logical reasoning was given except the contention only. In my view, no prudent business person will invest the borrowed fund into investment in bank FDR to earn interest less than the interest required to be paid. Neither in earlier years nor in impugned previous year, the appellant has reflected the interest from FDR under the head "Income from other sources" and claimed deduction u/s 57 (Hi) of the Act for interest expenditure. The appellant is a listed company and in none of its Annual Report or tax audit report it is disclosed that appellant borrowed huge funds for investment in Bank FDRs and these investment were long term investment i.e. FDRs for more than 2 years. This reflect other aspect that such interest as credited by appellant is not incidental i.e. surplus fund invested temporarily but there is long term investment. There is no such resolution produced or submitted by appellant company to substantiate the contention for making long term investment with borrowed funds. It is therefore, I am inclined with the contention of A.O. that appellant failed to - establish the nexus between interest income and interest expenditure. Further the appellant failed to substantiate its contention that borrowed funds were utilized for earning such interest. The verification part as discussed above and as directed by Hon'ble ITAT also reflects that there is no nexus between borrowed fund and investment so made. As per the latest available decision of Hon'ble ITAT Ahmedabad in the case of ABM Steels Pvt. Ltd. (supra) as relied on by appellant also, it is only the expenditure which has nexus with the earning of such income only will be reduced from total income for netting purpose. But, in the case of appellant no such nexus is there. The A.O. is fully justified in disallowing interest income of Rs. 5,91,30,485/- from the claim of deduction u/s 80IA of the Act resulting into reduction of claim u/s 80IA of the Act at Rs. 17,68,251/-. This ground is therefore dismissed. 34. Being aggrieved by the order of learned CIT-A, the assessee is in appeal before us. 35. The learned AR before us contended that the net interest income should only be excluded from the profit eligible for deduction under section 80-IA of the Act. 36. On the other hand the learned DR vehemently supported the order of the authorities below. ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 12 37. We have heard the rival contention of both the parties and perused the materials available on record. It is the 2 nd round of litigation before us on the issue whether interest income should be excluded while computing the deduction under section 80 IA of the Act after netting of the expenses. Admittedly, the ITAT in the original proceedings under section 147 of the Act in ITA No. 1039/Ahd/2007 vide order dated 21-10-2011, has directed to the AO to allow the claim of the assessee after verifying the nexuses between the interest income with the interest expenses. If the nexuses is found then the AO was to allow such interest expenses against the interest income to work out the net interest income so as to exclude the same from the computation of the deduction under section 80IA of the Act. The relevant finding of the ITAT in ITA No. 1039/Ahd/2007 has already been reproduced in the preceding paragraph. 38. Thus, the remains no ambiguity the fact that it was the onus upon the assessee to establish based on the documentary evidence that the assessee has incurred interest expenses against the interest income. But the assessee failed to do so. Likewise The learned CIT-A, also found that the assessee failed to establish the direct nexuses between the interest income and the interest expenses. 39. Even before us, the learned AR appeared on behalf of the assessee has just made a request to allow the netting of interest income while calculating the deduction under section 80 IA of the Act. Such submission of the assessee was not based on any documentary evidence. Thus it appears that the assessee failed to discharge the onus cast upon it. 40. Be that as it may be, before the adjudicating the issue raised by the assessee before us whether the claim of the assessee for the deduction of net interest income for computing the deduction under section 80-IA of the Act is admissible in the given facts and circumstances, we take a note of the fact that in ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 13 original assessment proceeding under section 143(3) of the Act claim of the assessee for deduction on other income under section 80IA was disallowed by the AO vide order dated 31-03-2003. The mater reached to this tribunal in ITA No. 1481/Ahd/2004 and the coordinate bench vide order dated 03-12-2004 confirmed the stand of the AO that other income should be excluded from the calculation of the deduction under section 80IA of the Act. Thus, the question arises, the claim which have been made by the assessee in the proceedings under Section 143(3) of the Act, whether the assessee can made a similar claim in the income escapement proceedings. 41. We are of the view that reassessment proceedings under Section 147 of the Act are for the benefit of the revenue and not for the assessee as held by the Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 (SC)/64 Taxman 442. It is not for the taxpayer to convert the reassessment proceedings in to a regular assessment proceeding and agitate issues which were concluded in the original assessment proceedings. The Income tax liability cannot be reduced to a figure less than that determined in the original assessment. The relevant finding of the Hon’ble Supreme Court reads as under: “whether the assessee could claim set off, not granted in the original assessment proceedings, by raising that plea once again in the reassessment proceedings under section 147, the assessing officer has been vested with the power to 'assess or reassess' the escaped income of an assessee. The use of the expression 'assess or reassess such income or recompute the loss or depreciation allowance' in section 147 after the conditions for reassessment are satisfied, is only relatable to the preceding expression in clauses (a) and (b) viz., 'escaped assessment'. The term 'escaped assessment' includes both 'non- assessment' as well as 'under assessment'. Income is said to have 'escaped assessment' within the meaning of this section when it has not been charged in the hands of an assessee in the relevant year of assessment. The expression 'assess' refers to a situation where the assessment of the assessee for a particular year is, for the first time, made by resorting to the provisions of section 147 because the assessment had not been made in the regular manner under the Act.” 42. In view of the above, we hold that the claim of the assessee for the netting of interest income while computing the deduction under section 80-IA of the Act is not maintainable in the given facts and circumstances for the reason that the present proceedings before us are under Section 147 of the Act which cannot ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 14 extend any benefit to the assessee. Accordingly, without going into the intricacies whether the assessee is eligible for the netting of interest for computing the deduction under section 80-IA of the Act, we hold that the claim of the assessee is not maintainable. Even on merit we note that the ITAT on the previous occasion has set aside the issue to the file of the AO in ITA No. 1309/AHD/2007 vide order dated 21-10-2011 with the direction to establish the nexuses between the interest income viz a viz the interest expenses. However, we note that assessee has not establish such nexuses based on the documentary evidence. Thus it appears to us, the assessee even on merit, fails. Hence, the ground of appeal of the assessee is dismissed. 43. In the result appeal of the assessee is dismissed. Coming to ITA No. 218/Ahd/2014 an appeal by the assessee for A.Y. 2007-08 44. The assessee has raised the following grounds of appeal: “1 Ld. CIT (A) erred in law and on facts in confirming disallowance by AO of Rs. 82,20, 059/- depreciation claimed on interest capitalized on machine. Ld. CIT (A) failed to appreciate submissions, evidences and documents on record to substantiate claim of depreciation on interest converted into loan amount. Ld. CIT (A) ought to have deleted disallowance. It be so held now. 2 Ld. CIT (A) erred in law and on facts in confirming disallowance by AO of Rs.3,59, 653/- claimed as prior period expenses. Ld. CIT (A) ought to have deleted disallowance made by AO. It be so held now. 3 Ld. CIT (A) erred in law and on facts in confirming addition made by AO of Rs. 80,000/- payment outstanding u/s 41(1) of the Act. Ld. CIT (A) ought to have deleted addition appreciating submissions that section 41(1) has no application to non payment of disputed amount. It be so held now. 4 Ld. CIT (A) erred in law and on facts in confirming disallowance made by AO of Rs. 1,14,999/- depreciation claimed with respect to closed unit. Ld. CIT (A) ought to have deleted disallowance of depreciation claimed of unit forming part of block of assets not permanently closed. It be so held now. 5 Ld. CIT (A) erred in law and on facts in confirming addition made by AO of Rs. 1,53,28,000/- to closing stock of value written off of raw material, spares, work in process and finished goods determined by internal auditors. Ld. CIT (A) failed to appreciate ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 15 submissions that addition of obsolete stock written off at lower of cost or net relizable value as per policy of the company deserved to be deleted. It be so held now. 6 Alternatively and without prejudice to the above ground ld. CIT (A) ought to have allowed amount written off as business/trading loss appreciating that stock lying for a period of about 5 years became unsalable & obsolete. It be so held now. 7 Ld. CIT (A) erred in law and on facts in confirming addition made by AO of Rs.44,573/- on account of non payment of PF & ESI amount within mandatory period. Ld. CIT (A) ought to have deleted addition. 8 Confirming levy of interest u/s 234A/234B/234C & 234D is not justified. 9 Initiation of penalty u/s 271(1)(c) of the Act is not justified. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.” 45. The assessee vide letter dated 31-03-2020 has raised the additional ground of appeal as reproduced hereunder: “1. Ld. CIT(A) erred in law and on facts in confirming disallowance of depreciation of Rs. 2,51,50,281/- out of depreciation disallowed by AO of Rs. 2,74,83,963/-. Appellant craves leave to add, amend, alter, change, delete and edit the above ground of appeal before or at the time of hearing of the appeal.” 46. The first issue raised by the assessee is that the Ld. CIT-A erred in confirming the order of the AO by sustaining the disallowance of the depreciation of Rs. 82,20,059/- on the amount of interest capitalized on machine. 47. The facts in brief are that the assessee in the present case is a limited company and engaged in the business of Manufacturing of multilayer tubes, printed products such as stickers and labeling and other packaging & plastic product. The assessee has acquired the machine namely ER_WE_PA Extrusion Coating Machine on the amount borrowed from the ICICI bank. On such bank borrowing the assessee has incurred interest cost of Rs.1,09,60,784/- which was added to the cost of the machinery. The assessee has not made the payment of the interest amount to the ICICI bank. As such the amount of loan borrowed by the assessee from the ICICI bank was taken over by Assets Reconstruction ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 16 Company of India Ltd (ARCIL) along with the interest thereon. In other words the amount of loan and interest due on the assessee to the ICICI bank was closed and new account from ARCII was taken by the assessee. 48. The AO during the assessment proceedings found that there was no payment of the interest to the ICICI bank by the assessee. The amount of interest was converted into the principal amount of loan from ARCIL. Accordingly, the AO was of the view that the impugned amount of interest expenses cannot be capitalized on the machines and therefore on such amount being interest of Rs. 1,09,60,784/- cannot be subject to depreciation. Accordingly, the AO computed the amount of depreciation attributable to such amount of interest at ₹ 8,22,059/- and disallowed the same. 49. Aggrieved assessee preferred an appeal to the Ld. CIT-A, who confirmed the order of the AO by observing as under: “5.2 I have carefully considered the submissions made by the appellant and the argument taken by the assessing officer in the light of material available on records. Perusal of the submissions of the appellant indicate that no submission has been made / evidence produce to indicate as to how the addition made by the A O was erroneous. In the absence of any defence of the appellant, it is held that there is no requirement to interfere with the order of the ld A O. Consequently, the addition made by the A O of Rs. 82,20,059/- is confirmed and the ground of appeal No. 3 raised is dismissed.” 50. Being aggrieved by the order of the Ld. CIT-A the assessee is in appeal before us. 51. The AR before us submitted that the amount of interest was paid to ICICI bank by taking the fresh loan from ARCIL. The learned AR for us reiterated the contentions made before the authorities below. 52. On the contrary learned DR vehemently supported the order of the authorities below. ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 17 53. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the amount of depreciation claimed by the assessee on the amount of interest capitalised in the year under consideration was denied by the AO on the reasoning that there was no payment of interest by the assessee. As such the amount of interest was converted into the principal amount of loan which was taken over by ARCIL and thus there was no interest payment made by the assessee. 54. Admittedly, the machines were purchased by the assessee on the money borrowed from the ICICI bank. The assessee on such loan has also incurred the interest expenses. Undeniably, the assessee was under the obligation to make the payment to the ICICI bank for the interest amount. But the assessee instead of making the payment of the loan has shifted the entire amount of interest along with the principal amount of loan from the ICICI bank to ARCIL. It was the decision of the assessee to continue with the loan from the ICICI bank or shift the same to ARCIL. Therefore, there cannot be any question on shifting the loan from ICICI Bank to the ARCIL. The shifting of the loan from one bank to another is normal practice in the industry. 55. There were two options available with the assessee for shifting the loan from the ICICI Bank to ARCIL. Under the first option, the assessee could have taken the loan from ARCII in its bank account and thereafter could have made the payment of the loan along with the interest of ICICI bank. This transaction under option one would have been routed through the banking channel of the assessee. Likewise, the assessee under the second option instead of borrowing the money from ARCIL for the payment of the loan along with the interest to the ICICI Bank, has made the arrangement that ARCIL will directly make the payment to the ICICI Bank along with the interest. Accordingly, the assessee would make accounting adjustment in its books of accounts. Under the second option, there will not be any transaction in the bank account of the assessee for receiving the loan from ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 18 ARCIL for the repayment of the loan along with interest to the ICICI Bank except making the accounting adjustment in the books of accounts. It appears that the assessee in the given facts has adopted second option. However, in either of the case, there is no dispute to the fact that the payment was made by the assessee towards interest after converting the same as fresh loan from ARCIL. In other words, the payment of interest to the ICICI Bank by way of acquiring the fresh loan is a valid mode of payment. Indeed, such fresh loan shall be treated as principal amount and the repayment of the same will be made over a period of time of the loan. However, the accounting adjustments the books of accounts for the interest expenses and repayment of the loan along with interest would have been made the regular course. There is no allegation by the revenue that such accounting adjustments have not been made in the books of accounts. Thus, in view of the above we hold that the assessee has made the payment of interest expenses on the loan borrowed from ICICI bank by converting the same into of fresh loan from ARCIL. Accordingly we hold that, the assessee cannot be denied the depreciation allowance on the amount of interest capitalised on the machines. Consequently, set aside the finding of the learned CIT-A, and direct the AO delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 56. The second issue raised by the assessee is that the learned CIT-A erred in confirming the addition made by the AO for Rs.3,59,653/- representing the prior period expenses. 57. The assessee in the year under consideration has effectively claimed an expense of Rs.3,59,653/- as prior period expenses after making the adjustment of the prior period income. The AO during the assessment proceedings sought an explanation from the assessee further such prior period expenses were crystallized in the year under consideration. But there was no explanation furnished by the assessee. Accordingly, the AO observed that the assessee should have claimed such expenses in the year to which it pertains as per the mercantile system of ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 19 accounting. Accordingly, the AO disallowed the same and added to the total income of the assessee. 58. Aggrieved assessee preferred an appeal to the Ld. CIT-A, who confirmed the order of the AO by observing as under: “7.2 I have carefully considered the submissions made by the appellant and the argument taken by the assessing officer in the light of material available on records. Perusal of the submissions of the appellant indicate that no submission has been made / evidence produced to indicate as to how the audition made by the A O was erroneous. In the absence of any defence of the appellant, it is held that there is no requirement to interfere with the order of the ld A O. Consequently, the addition made by the A O of Rs. 3,59,653 is confirmed and the ground of appeal No. 4 raised is dismissed.” 59. Being aggrieved by the order of the Ld. CIT-A, the assessee is in appeal before us. 60. The Ld. AR before us contended that the genuineness of the expenses pertaining to the earlier year but claimed in the year under consideration was not doubted. As per the learned AR, such claim of the assessee is eligible for deduction. 61. On the contrary, the Ld. DR vehemently supported the order of the authorities below. 62. We have heard the rival contentions of both the parties and perused the materials available on record. The genuineness of the expenses have nowhere been doubted by the authorities below. Thus it is transpired that the expenses claimed by the assessee were incurred for the purpose of the business in the earlier year and the same were eligible for deduction in that particular assessment year in which such expenses were incurred. Now the question arises the expenses genuinely incurred by the assessee in the earlier year could be disallowed in the year under consideration when such expenses were claimed. The answer stands in ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 20 affirmative. It is for the reason that the expenses there is no loss to the revenue as there is no change in the rate of tax. In holding so we draw support and guidance from the judgment of Hon’ble Bombay High Court in case of CIT vs. Nagri Mills Co. Ltd. reported in 33 ITR 681 where the Hon’ble court held as under: “We have often wondered why the Income-tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the Income-tax Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 1953-54, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of the character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other.” 63. In view of the above, we find difficult to convince ourselves with the finding of the authorities below. Accordingly, we set aside the decision of the Ld. CIT-A, and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed. 64. The issue raised by the assessee in ground No. 3 is that the Ld. CIT-A erred in confirming the addition made by the AO for Rs.80,000/- on account of non- payment of outstanding dues under the provisions of Section 41(1) of the Act. 65. The AO during the assessment proceedings found that there was the outstanding amount payable by the assessee for Rs.80,000/- against the purchase of old car which was due since the long-time. Furthermore, the assessee has claimed depreciation on such car. Accordingly, the AO concluded that the impugned outstanding amount has ceased to exist and therefore the same is liable to tax under the provisions of Section 41(1) of the Act. Hence, the AO concluded ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 21 that the liability has ceased to exist under the provisions of Section 41(1) of the Act and added the same to the total income of the assessee. 66. The aggrieved assessee preferred an appeal to the Ld. CIT-A. 67. The assessee before Ld. CIT-A submitted that outstanding amount relates to purchase of motor car. Therefore, the provision of Section 41(1) will not apply as the same is capital in nature. Further, the provision of Section 41(1) are not applicable to the amount in dispute even the same is revenue in nature. 68. However, the Ld. CIT-A confirmed the order of the AO by observing as under:- “10.2 I have carefully considered the submissions made by the appellant and the argument taken by the assessing officer in the light of material available on records. It is the case of the appellant, as evident from an additional submission filed, that it had explained to the AO that the said amount of credit to the party was on account of sale of old scrap and the same being capital asset beyond the purview of section 41(1). In another submission dt 15-11-2013, the appellant has reiterated the stand taken before A O that the impugned amount was payable amount for purchase of old motor car. Thus it is clear that the appellant is taking shifting stand at one stage it says the amount is towards car whereas on the other the amount is reported to be towards scrap sales. The principle argument is that it is an item of capital nature. The AO has clearly brought out that the amount pertains to a car on which depreciation was claimed thus the item assumes character of a revenue nature. Assuming that appellants theory of scrap sale is correct, even then scrap is generated from stock and hence the item becomes a revenue item. Consequently, in view of absence of any cogent evidence, the addition made by the ld A O of Rs. 80,000/- is confirmed and the ground of appeal raised is dismissed.” 69. Being aggrieved by the order of the Ld. CIT-A, the assessee is in appeal before us. 70. The Ld. AR before us contended that loan liability was representing against the fixed assets being capital in nature. Therefore, the provisions of section 41(1) of the Act are not applicable in the given facts and circumstances. 71. On the contrary, the Ld. DR vehemently supported the order of the authorities below. ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 22 72. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the revenue has found that there was a liability the books of the assessee which was outstanding since many years. The amount of liability was of Rs. 80,000/- only. As such the assessee in the preceding years has acquired a car on credit. Impugned liability was representing against the car. Admittedly, the assessee has claimed depreciation on such car in the books of accounts. However, the liability against such car was not paid by the assessee to the tune of Rs.80,000/- and therefore the AO treated the same as cessation/remission of the liability of the assessee under the provisions of section 41(1) of the Act. Accordingly, the AO made the addition of Rs.80,000/- to the total income of the assessee which was subsequently confirmed by the Ld. CIT-A. 73. Undeniably, impugned liability was representing against the car which is a capital asset and the assessee has claimed the depreciation on such capital asset being car. Admittedly, the depreciation is an allowance on capital assets used in the business. Thus, the assessee against liability claimed the deduction against the business income by way of depreciation in the books of accounts. 74. Now, we proceed to see whether the loan liability outstanding since many years against the capital asset being car can be covered under the provisions of Section 41(1) of the Act. For this purpose, refer the provisions of Section 41(1) of the Act which reads as under: “41. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,— (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 23 be profits and gains of business or profession and accordingly chargeable to income- tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year.” 75. A plain reading of the above provisions reveals that it is applicable with regard to an allowance or deduction in respect of loss, expenditure or trading liability incurred by the assessee. But the depreciation claimed by the assessee, though it is an allowance, but it is not in respect of loss, expenditure or trading liability as envisaged under the provisions of Section 41(1) of the Act. Accordingly, we are of the view that such outstanding liability against the car cannot be treated as trading liability and therefore the same is outside the purview of the provisions of Section 41(1) of the Act. In holding so, we draw support and guidance from the judgement of Hon’ble Supreme Court in the case of Nectar Beverages (P.) Ltd. reported in 182 Taxman 319, wherein it was held as under: “Where any allowance or deduction had earlier been made in respect of any loss, expenditure or trading liability and, subsequently, the assessee has obtained or realized any amount towards such loss, expenditure or trading liability, section 41(1) deems such realization/recoupment as the assessee's income for the year in which it is realized. Section 41(2), as it stood at the material time, stated that if in respect of any plant and machinery, any depreciation had been allowed and, subsequently, such plant and machinery was sold, discarded or destroyed, the assessee might have got some value either as a result of sale or insurance or from salvage or compensation thereabout. The necessity to keep section 41(2) as a provision in addition to section 41(1) arose from the fact that, in its very nature, depreciation is neither a loss, nor an expenditure nor a trading liability referred to in section 41(1). The depreciation recovered on sale of the capital asset was includible in the total income as balancing charge only under section 41(2). That concept was foreign to the scheme of section 41(1). The balancing charge under section 41(2) arose only where any depreciable asset (building, machinery, plant or furniture) was sold.” ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 24 76. Once a transaction, representing loan against the capital assets, is not a trading liability as envisaged under the provisions of Section 41(1) of the Act. The same cannot be charged to tax on the reasoning that it has ceased to exist in the books of accounts. Accordingly we are not convinced with the finding of the authorities below. Thus, we set aside the finding of the Ld. CIT-A, and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. 77. The issue raised by the assessee in ground No. 4 is that the Ld. CIT-A erred in confirming the disallowance of depreciation made by the AO for Rs. 1,14,999/- in respect of unit 1 on the reasoning that it was not in operation. 78. The assessee in the year under consideration has claimed the depreciation with respect to unit No. 1 amounting to Rs. 1,14,999/-. The unit 1 was not in operation. The assessee contended that unit No. 1 has not been closed down permanently. As such, it was possible restart working in such unit in future. Furthermore, the assets deployed in unit No. 1 have lost their individual identity once these assets have become part of the block of assets. Thus the assessee entitled for claiming depreciation for the assets of unit No. 1 based on the concept of block of assets. It was also contended that though unit No. 1 is not in operation but still the assessee is incurring normal wear and tear on such assets. 79. However, the AO disregarded the contention of the assessee by observing that machines/fixed assets used in unit No. 1 have not been used for the purpose of the business. As per the AO, the use of the fix assets was 1 of the precondition for claiming the depreciation on these assets. Accordingly, the AO disallowed the depreciation claimed by the assessee and added total income of the assessee. 80. Aggrieved assessee preferred an appeal to the Ld. CIT-A, and reiterated its submission made during assessment proceeding. ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 25 81. However, the Ld. CIT-A after considering the fact in totality confirmed the order of the AO by observing as under: “11.2 I have carefully considered the submissions made by the appellant and the argument taken by the assessing officer in the light of material available on records. The appellant has reiterated the arguments taken before the A O it is an admitted fact of the case that the appellant has not undertaken any manufacturing activity from Unit-1 in respect of which depreciation was claimed. Section 32 of the Act prescribes allowance of depreciation provided the asset is used for the purpose of business. In the instant case as asset was not exploited, no depreciation can be allowed. Consequently the addition made by the A O of Rs.1,14,999/- is confirmed and the ground of appeal No,. 10 is dismissed.” 82. Being aggrieved by the order of the Ld. CIT-A the assessee is in appeal before us. 83. The Ld. AR before us submitted that the fixed assets of unit No. 1 have lost their individual identity once merged with the block of assets which were used in the earlier year. Therefore, the depreciation cannot be denied on the reasoning that the assets were not used in the year under consideration. 84. On the contrary, the Ld. DR before us vehemently supported the order of the authorities below. 85. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the claim of the assessee for the depreciation was denied by the authorities below on the reasoning that the assets with respect to Unit-1 were not used for the purpose of the business as Unit-1 was closed. On perusal of the provisions of Section 32 of the Act, it is one of the precondition for claiming the depreciation on a particular asset that it should be used for the purpose of the business. However, the Hon’ble courts have interpreted the word ‘used’ by holding that assets which are ready to use shall be considered as used for the purpose of the business. In other words, the assets which are not actively used but used passively are also eligible for depreciation under the provisions of section 32 of the Act. In holding so we draw support and ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 26 guidance from the Judgment of Hon’ble Delhi High Court in the case of Oawal Agro Mills Ltd. reported in 341 ITR 467, wherein it was held as under: “By catena of judgments, it stands settled that the assessee should have used the asset for the whole of assessment year in question to claim full depreciation. Passive user of the asset is also recognized as 'user for purpose of business'. This passive user is interpreted to mean that the asset is kept ready for use. If this condition is satisfied, even when it is not used for certain reason in the concerned assessment year, the assessee would not be denied the depreciation. [Para 12]” 86. The assets deployed in the unit No. 1, though not in operation during the year, but assets were previously used and ready to use for the purpose of the business. Thus, it can be said that there was passive use of these assets. 87. It is also not out of the place to mention that assets used unit No. 1 became the part of the block of assets and lost their individual identity. Accordingly, the assets deployed in unit No. 1 cannot be segregated for the purpose of the depreciation. These assets will remain part of the block of assets and therefore would be entitle for depreciation even in a situation that assets were not used for a particular year for the purpose of the business. Accordingly, we set aside the finding of the Ld. CIT-A, and direct the AO to delete the disallowance made by him. Hence, the ground of appeal of the assessee is allowed. 88. The issue raised by the assessee in ground No. 5 and 6 is that the Ld. CIT- A erred in confirming the addition made by the AO for Rs. 1,53,28,000/- representing the closing value of raw materials, spares, WIP and finished goods written off on account of obsolescence. 89. The assessee during the assessment proceedings claimed that there were certain forms of raw materials, stores and spares, work in progress and finished goods which were not serviceable and became obsolete. To this effect, a report was prepared by the chartered accountant being internal auditor and stock auditor of those items which were non-moving. Accordingly, the assessee has recorded ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 27 these items either at nil value or the realisable value. Thus, the assessee has written off the value of such items by Rs.1,53,28,000/-. 90. However, the AO disregarded the contention of the assessee by observing that there was no report furnished by the assessee of an expert suggesting that the impugned raw materials, stores and spares, working progress etc. either have nil value or negligible value. As per the AO, the internal auditor does not possess any expertise to value the non-moving items. Thus the AO disallowed the same and added to the total income of the assessee. 91. Aggrieved assessee preferred an appeal to the Ld. CIT-A. 92. The assessee before Ld. CIT-A submitted that it has been in the business of manufacturing Lama Tubes, printed Stickers and logo etc. for last 13 years. In these period non-moving stocks including material rejected by customer piled-up. The stock rejected by the customers have no value as such material contain the detail of particular customer and produced as per specification of that customer. In view of cleaning up the books the management deployed a qualified chartered account and on the basis of report prepared by the accountant it reduces the stock. The assessee in support also submitted the copy of the CA report. 93. However, the Ld. CIT-A rejected the submission of the assessee and confirmed the action the AO by observing as under: “13.3 I have carefully considered the submissions made by the appellant and the argument taken by the assessing officer in the light of material available on records. It is an undisputed and admitted fact of the case that the valuation of the stock was done by none other than companies own internal auditors which indicates that the valuation was biased done with the premeditated objective of avoiding the true incidence of taxation. The argument of the appellant for re-valuation of the stock has been found to be floating from one end to another without any consistency. Thus on one hand, it is submitted that the stock was old and absolute on the other it has been argued that the stock comprises defective or rejected material. Assuming without conceding that the stock was defective or rejected, the appellant has not been able to produce any evidence in support of its submissions. Without prejudice. assuming that the stock was old absolute and hence unsalable then also the appellant has failed to support his reasoning with any cogent evidence. The argument of the appellant that the revaluation is justified in view of its ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 28 consistent valuation of stock on the principle of cost or market price whichever is lower is actually self contradictory. The very fact that stock was revalued then its original value itself proves that the principle of cost or market price whichever is lower was not applied. Consequently as the appellant has failed in providing a satisfactory explanation with any evidence, the addition made by the ld A O of Rs. 1,53,28,000/- is confirmed and the ground of appeal No. 12 is dismissed. The impugned amount of Rs. 1,53.28,000/does not falls in the category of business or trading loss as it was not a loss which had occurred naturally but was self created. It is a settled principle of law that only those business losses can be allowed which occur naturally in course of an activity and are not self created. Consequently, the same cannot be allowed as a business or trading loss. Therefore alternative ground of appeal No.,13 is also dismissed.” 94. Being aggrieved by the order of the Ld. CIT-A the assessee is in appeal before us. 95. The Ld. AR before us submitted that the items which were non-moving and unusable have been written off in the profit and loss account which are eligible for deduction. These items were written off based on the report of the chartered accountant/internal auditor. 96. On the contrary Ld. DR before us vehemently supported the order of the authorities below. 97. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case the Assessee has reduced value of the closing stock as on 31 st March 2006 with respect to raw materials, WIP finished goods by Rs. 1,53,28,000/-. As per the assessee is engaged in the manufacturing activity for past several years and in the process several item of Raw material WIPs and finished including goods return from customer were pilled which were non salable/non-moving. Thus the new management in order to clean up the inventory and financial statement appointed internal auditor/ stock auditor to identify non-moving items and as per report furnished by the chartered accountant the management of the assessee company has in consultation with departmental head such production and stores decided to value of these items at the realisable value or nil value as the case may be. However, the AO, disagreed ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 29 with the claim of the assessee on the reasoning that there was no proof furnished whether the impugned items were representing non saleable/non-moving. Likewise, the internal auditor/stock auditor is not an expert to value such stocks. The view taken by the AO was subsequently confirmed by the Ld. CIT-A on the reasoning that the assessee has failed to prove on the basis of cogent material either stock become obsolete and unsellable or stock rejected and become defective. Further stock were revalued by the internal auditor which is not independent thus its report cannot relied upon as the same is not free from biasness. 98. Before we touch the issue whether these items were known salable/non- moving, it is pertinent to note that if the deduction in the closing stock is denied which will certainly enhance the profit of the assessee. But, the same closing stock will become the opening stock in the subsequent year and the profit of the subsequent year will reduce by the amount of such claim of the assessee. Thus, we note that there will not be any impact on the income of the assessee if we see from the overall position. The year under dispute, the income of the assessee will get enhance and the income of the assessee by the same amount will get the decrease in the next year. Thus, overall there will not be any impact on the taxable income of the assessee on account of such adjustment in the value of the closing stock. We also note that the Hon’ble Supreme Court in the case of Mahindra Mills Ltd vs. PB Desai Appellate Assistant Commissioner reported in 99 ITR 135 has held that the closing stock of the year will become the opening stock of the next year hence the same telescoped. The relevant observation of the Hon’ble Supreme court reads as under: Since the closingstock of one assessment year furnished the figure of the opening stock for the succeeding year, it followed that the record showing the closingstock of assessment year 1959-60 formed a part of the evidence relevant to the assessment for the assessment year 1960-61. Thus, to the extent of ascertaining the closing and opening stock positions, the two assessments telescoped into each other. ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 30 99. On this reasoning, as discussed above, in our view no addition representing the adjustment in the value of closing stock is warranted. 100. Without prejudice to the above, we also note that it is a prevailing practice in a manufacturing industry that the items such as raw materials, stores and spares, finished goods with the passage of time become obsolete, sometime some item becomes defective due to normal wear and tear. Therefore, in such a situation the management writes off such items from its financial statements to make its balance sheet more fair and true. Such practice cannot be doubted by the authorities below without any material on record. In the given case, there was the report of the internal auditor/stock auditor specifying the non- moving/unsaleable items. This report of the auditor was also certified by the production head/store head etcetera. This fact can be ascertain from the submissions made by the assessee before the learned CIT-A which is reproduced as under: “(c) (i) It is not merely relying on auditors report but auditors had discussed in details regarding age factor, quality, shelf life, vatability factors of each item and the value taken is also certified by the HoDs of different departments like production, stores etc. The proof of expert opinions in the form of departmental heads is in the form of their certification by signing the said non-moving stock statements along with certification by auditors which runs in to hundred of pages 350 pages. (ii) The stock statement certified by Auditors and production heads being an expert product properties and qualities have been taken into consideration for the items like Aluminium Foil papers for printing labels. BOPP Film, self adhesive film, plastic cups, stamping foil etc. which due to the passage of time results into oxidization and deteriorates in vatability. (ii) Board had decided to cleanse the Balance sheet and the assignment was given to internal Auditors by Board of Directors. It is pertinent to note here that Board consisted of three other Nominee Directors of financial institutions like IDBI, Arcil, UTI Bank Ltd. which are renowned and independent agencies who will not allow write off without proper investigation as writing off the value of closing stock would result in impairment of the balance sheet which will eventually jeopardize their recovery once the debt is labeled as bad. (iii) Approval by nominee directors to write off the value of closing stock in question is it self third party evidence. ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 31 (iv) Auditors certificate on stock valuation and verification was already produced before Ld. A.O. as mentioned in our reply dated 24.12.2009 quoted pars 12, but the same is overlooked.” 101. But none of the authority below has pointed out any defect in the submission of the assessee. It was also contended by the assessee that there was the change in the management of the company and therefore the new management has taken a decision. Thus, it is transpired that, the stock has been written off from the books accounts in systematic manner by the approval of the Board of Directors. Therefore, all these details cannot be brushed aside. 102. We note that in the similar and identical facts and circumstances, the Hon’ble Gujarat High Court in the case of Pr. CIT vs. Zydes Wellness Ltd. reported in 81 taxmann.com 159 has held as under: “Considering the aforesaid facts and circumstances of the case, more particularly, it was found that the assessee has followed due procedure, maintained the list of packaging material contains clear description of the goods that were considered to be not usable and also the list for damaged stock clearly show the material, quantity and description of the various items which were lying at different godowns across the country which were considered to be damaged and accordingly the statement for provision for damage was prepared and on that basis the goods have actually been reduced from the closing stock of finished goods, it cannot be said that the Commissioner (Appeals) as well as the Tribunal has committed any error in deleting the disallowance of claim of Rs. 5.18 lakhs from stock of packing material and Rs. 27.17 lakhs from stock of finished goods. [Para 5.1]” 103. In view of the above, and considering the fact in totality we hold that the assessee cannot be denied the deduction in the value of closing stock on account of non-moving/unsaleable items. Thus we set aside the order of the Ld. CIT-A, and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed. 104. The issue raised by the assessee in ground No. 7 is that Ld. CIT-A erred in confirming the addition made by the AO for Rs.44,573/- on account of non- ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 32 payment of employees contribution towards the Employees Provident fund and ESI which was paid within the grace period. 105. The AO during the assessment proceedings found that the assessee has failed to make the payment of the amount recovered from the employees towards the EPF and ESI within the time provided under the respective Act. Thus, the AO treated the same as income of the assessee under the provisions of Section 2(24)(x) r.w.s. 36(1)(va) of the Act for Rs. 44,573/- and added to the total income of the assessee. 106. Aggrieved assessee preferred an appeal to the Ld. CIT-A, who confirmed the order of the AO by observing as under: “14.2 I have carefully considered the submissions made by the appellant and the argument taken by the assessing officer in the light of material available on records. Perusal of the submissions of the appellant indicate that no submission has been made / evidence produced to indicate as to how the addition made by the A O was erroneous. In the absence of any defence of the appellant, it is held that there is no requirement to interfere with the order of the ld. A O. Consequently, the addition made by the A O of Rs. 44,573/- is confirmed and the ground of appeal No. 14 raised is dismissed.” 107. The Ld. AR for the assessee before us submitted that out of total amount of Rs. 44,573/-, a sum of Rs.29,698/- was paid within the grace period of 5 days. Therefore the same should be allowed as deduction. The learned AR in support of his contention relied on the judgment of Hon’ble Gujarat High Court in the case of Amoli Organics (P.) Ltd reported in 221 taxman 116. 108. On the other hand, the Ld. DR vehemently supported the order of the authorities below. 109. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the assessee is required deposit the employee’s contribution towards the PF/ESI within the time specified under the respective Act. If it is not done so, the same is treated as income of the assessee under the provisions of Section 2(24)(x) read with Section 36 (1)(va) of the Act. ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 33 Under the provision of PF and ESI Act, the period for making the payment has been specified within 15 days from the end of the month in which salary of the assessee became due. However, there has been given the grace period of 5 days under the relevant Act for making the payment of employee’s contribution towards the PF/ESI. Therefore the assessee is liable to deposit the employee’s contribution on or before 20 th day of the month from the close of the month in which the salary was due for payment. Therefore in our considered view grace period of 5 days should also be allowed to the assessee as provided under the respective Act. In holding so we draw support and guidance from the judgment of Hon’ble Jurisdictional High Court in case of CIT vs. Amoli Organics Pvt. Ltd 41 taxman.com 149 where it was held as under: “Under particular Act or law, in the present case under the Provident Fund Act, if the assessee was entitled to make payment within the grace period and if within that grace period, its employer contributions have been deposited by the assessee, it cannot be said that the assessee has not deposited the amount with the department within the due date as prescribed under the Provident Fund Act. Under such circumstances, as such no error and/or illegality has been committed by the Tribunal in granting deduction to the assessee with respect to the amount deposited with the provident fund department within the extended period/grace period. Under the circumstances, no other issues are required to be considered. No question of law muchless any substantial question of law arises in the present appeal. [Para 8]” 110. In view of the above we set-aside the finding of the Ld. CIT (A), and direct the AO to delete the addition to the extent of amount of PF/ESI deposited within grace period. Hence the ground of appeal of the Assessee is allowed in part. 111. The issue raised by the assessee in the additional ground of appeal is that the Ld. CIT-A erred in confirming the disallowance of the depreciation for Rs. 2,51,50,281/- instead of deleting the entire disallowances of Rs. 2,74,83,963/-. 112. The assessee in the year under consideration has claimed depreciation for an amount of Rs. 2,74,83,963/- on the written down value of the fixed assets. The assessee has purchased certain fixed assets along with the software in the assessment year 2002-03. However, in that assessment year, depreciation on such ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 34 fixed asset purchased along with the software was disallowed by the AO on the reasoning that the additions of the assets were bogus in nature. Nevertheless, the assessee was claiming depreciation on such fixed assets year after year including the year under consideration. However, the AO following the order of the earlier years has also disallowed the depreciation on such fixed assets at Rs. 2,74,83,963/- and added to the total income of the assessee. 113. Aggrieved assessee preferred an appeal to the Ld. CIT-A, who partly confirmed the order of the AO by observing as under: “4.3 I have carefully considered the submissions made by the appellant and the argument taken by the assessing officer in the light of material available on records. The impugned matter of disallowance of depreciation has now been more or less settled in view of order of Hon'ble jurisdictional Tribunal. The order of AO u/s. 143(3) / 254 for A Y 2005-06 dt 15-3-2013 indicates that though the disallowance of depreciation remains in principle, its quantum gets modified in view of order of the Hon'ble Tribunal. As indicated above, according to appellant as against total original disallowance of Rs. 2,74,83,963 the disallowance now comes to Rs. 2,51,50,281/-. The A O is however directed to re-verify the calculations prepared by the appellant in the light of his own calculations done vide order dt 15-3-2013 supra. In case the amount of depreciation to be disallowed exceeds Rs. 2,51,50,281/- then disallowance to the extent of such excess amount shall stand confirmed. Consequently in view of above directions, the addition made by the A O is restricted to the extent of Rs. 2,51,50,281/- and the ground of appeal No.2 is partly allowed subject to recalculation at the end of A O.” 114. Being aggrieved by the order of the Ld. CIT-A, the assessee is in appeal before us. 115. The Ld. AR before us submitted that the ITAT in the own case of the assessee for the Assessment Year 2002-03 to 2005-06 was pleased to allow the depreciation on the additions made in the fixed assets along with the software in the Assessment Year 2002-03. Accordingly, the Ld. AR contended that the depreciation in the year under consideration should also be allowed on the opening written down value. 116. On the other hand, the Ld. AR vehemently supported the order of the authorities below. ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 35 117. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that impugned dispute for the depreciation on the written down value was emanating from the assessment year 2002-03 and onwards. Admittedly, the ITAT for the assessment year 2002-03 to 2005-06 was pleased to allow depreciation on the addition of the fixed assets which were in dispute. The relevant finding of the ITAT in ITA No. 1140,1342 to 1344/Ahd/2015 reads as under: “8. We have gone through the relevant record and impugned order. Now question before us is that whether on the basis of survey conducted by the Income Tax Department claim of the assessee for depreciation should be allowed or not. After detailed deliberations and both the parties we heard in detail in support of its contention, Ld. A.R. submitted all the details with regard to purchase of machines. On the other hand, revenue contention was that machines were not purchased on the given date and payment was made through journal entry. When we specifically asked about the payment made in order to purchase machinery. Ld. A.R. shown us the payment detail and they were made through banking channels and relevant details of the said payment were shown to us and list of suppliers with invoices of machinery purchased were also submitted before the lower authorities. And ledger account of M/s. Vimpsan Precision Pvt. Ltd. was also submitted before the lower authorities. Apart from that reconciliation chart of plant and machinery with Dalal Mott Macdonald report were also submitted to the effect that machines were very much there and inspection was duly carried out by the surveyor. And Valuation Report certificate dated 26.05.2003 wherein before granting loan IDBI Bank carried out inspection and Valuation Report was duly prepared wherein details of all the machines were given. 9. The assessee requested Assessing Officer on 4th May, 2015 and on 12.08.2012 and on 19.09.2012 requesting the Assessing Officer to carry out the physical inspection of the machines. But ld. A.O. did not bother to inspect the same for the reason that ITAT did not give him direction to physically inspect the machines wherein in department appeal filed before the ITAT directed the ld. A.O. that he shall pass reasoned order by giving reasonable sufficient opportunity to the assessee considering the valuation report of Dalal Mott Macdonald and the evidences produced by the assessee for purchase of tangible assets. As we can see, ld. A.O. did not bother to carry out the physical inspection and valuation report of Dalal Mott Macdonald and did not consider evidences such as photograph of the plant and machinery submitted before the ld. A.O. in pursuant to the ITAT direction. 10.We draw support from the case of Hon’ble Supreme Court in the matter of CIT vs. S. Khader Khan Son (2013) 352 ITR 480 (SC) wherein Hon’ble Supreme Court has held that only on the basis of statement recorded during the survey proceeding u/s. 133A cannot be basis of addition. There has to be corroborative evidence in support of the contention of the ld. A.O.. In our considered opinion, assessee has complied with all the direction given by the ITAT and submitted all the proof/documentary evidence as per the direction of the Co-ordinate Bench and since it is a second chance before the ITAT and we cannot make more miserable condition of the assessee in the hands of the revenue. ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 36 11. In the result, all four appeals with regard to depreciation of the assessee are allowed.” 118. Once the ITAT has allowed the depreciation on the addition of the fixed assets in the initial assessment year, the question of making the disallowance of the depreciation on the same set of assets the subsequent year does not arise. Hence we set aside the finding of the Ld. CIT-A, and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed. 119. In the result, appeal of the assessee is partly allowed. Coming to ITA No. 1306/Ahd/2014 an appeal by the assessee for A.Y. 2008-09 120. The assessee has raised following grounds of appeal: “1 Ld. CIT (A) erred in law and on facts in confirming disallowance made by AO of depreciation on Plant & Machinery to extent of Rs. 1,74,17,074/-. Without prejudice to allowance of depreciation of Rs.37,24,607/-reworked following direction of Hon'ble Tribunal ld. CIT (A) ought to have allowed depreciation of Rs.2,21,86,421/- claimed by the appellant. It be so held now. 2 Ld. CIT (A) erred in law and on facts in confirming disallowance made by AO of depreciation to the extent of Rs. 6,07,062/- on Plant & Machinery related to Unit-II relying on appellate order for AY 2003/04. Ld. CIT(A) ought to have deleted total disallowance. It be so held now. 3 Ld. CIT (A) erred in law and on facts in confirming disallowance by AO of Rs. 5,90,392/- claimed as prior period expenses relying upon appellate order of immediately earlier year. Ld. CIT(A) ought to have granted set off prior period expenses with prior period income. It be so held now. 4 Ld. CIT (A) erred in law and on facts in confirming disallowance by AO of Rs. 99,800/- depreciation claim with respect to closed Unit I. Ld. CIT(A) ought to have deleted disallowance of depreciation claimed on assets forming block of assets of unit not permanently closed. It be so held now. 5 Confirming levy of interest u/s 234A/234B/234C & 234D is not justified. 6 Initiation of penalty u/s 271(1)(c) of the Act is not justified. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any other grounds of appeal at the time of or before the hearing of the appeal.” ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 37 121. The first issue raised by the assessee in the ground no. 1 and 2 of appeal is that the Ld. CIT-A erred in confirming the disallowance of the depreciation for Rs.1,74,17,074/- and Rs. 6,07,062/- on opening WDV. 122. At the outset we note that the issues raised by the assessee in its ground of appeal for the AY 2008-09 is identical to the issues raised by the assessee vide additional ground in ITA No. 218/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 218/AHD/2014 shall also be applicable for the year under consideration i.e. AY 2008-09. The appeal of the assessee for the assessment 2007-08 has been decided by us vide paragraph No. 117 to 118 of this order in favour of the assessee. The Ld. AR and the DR also agreed that whatever will be the findings for the Assessment Year 2007-08 shall also be applied for the year under consideration i.e. AY 2008-09. Hence, the grounds of appeal filed by the assessee is allowed. 123. The issue raised by the assessee in ground no. 3 is that the Ld. CIT-A erred in confirming the addition made by the AO for Rs. 5,90,392/- representing the prior period expenses. 124. At the outset we note that the issues raised by the assessee in its ground of appeal for the AY 2008-09 is identical to the issues raised by the assessee vide groundno-2 in ITA No. 218/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 218/AHD/2014 shall also be applicable for the year under consideration i.e. AY 2008-09. The appeal of the assessee for the assessment 2007-08 has been decided by us vide paragraph No. 62 to 63 of this order in favour of the assessee. The Ld. AR and the DR also agreed that whatever will be the findings for the Assessment Year 2007-08 shall also be applied for the year under consideration i.e. AY 2008-09. Hence, the grounds of appeal filed by the assessee is allowed. ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 38 125. The issue raised by the assessee in ground No. 4 is that the Ld. CIT-A erred in confirming the disallowance of depreciation made by the AO for Rs. 99,800/- in respect of unit-1 on the reasoning that it was not in operation. 126. At the outset we note that the issues raised by the assessee in its ground of appeal for the AY 2008-09 is identical to the issues raised by the assessee vide groundno-4 in ITA No. 218/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 218/AHD/2014 shall also be applicable for the year under consideration i.e. AY 2008-09. The appeal of the assessee for the assessment 2007-08 has been decided by us vide paragraph No. 85 to 87 of this order in favour of the assessee. The Ld. AR and the DR also agreed that whatever will be the findings for the Assessment Year 2007-08 shall also be applied for the year under consideration i.e. AY 2008-09. Hence, the grounds of appeal filed by the assessee is allowed. 127. The issue raised by the assessee in ground no. 5 and 6 are either incidental or premature to decide. Hence the same is dismissed being infructuous. 128. In the result, appeal of the assessee is partly allowed. Coming to ITA No. 1345/Ahd/2014 an appeal by the assessee for A.Y. 2009-10 129. The assessee has raised following grounds of appeal: “1 Ld. CIT (A) erred in law and on facts in confirming action of AO in disallowing depreciation of Rs.1,80,63,211/- on tangible assets. Ld. CIT (A) ought to have deleted disallowance made by AO appreciating submissions & documentary evidence placed on record. 2 Ld. CIT (A) erred in law and on facts in confirming disallowance made by AO without verification of purchase bills of assets or payment to suppliers for assets recorded in asset register corroborated by report of Dalai Mott Macdonald. Ld. CIT (A) ought not to have confirmed disallowance simply on the basis of survey report. ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 39 3 Ld. CIT (A) erred in law and on facts in not considering further valuation done from Shri Mukesh M Shah by holding it to be self-serving document. Ld. CIT(A) ought to have taken cognizance of valuation corroborating existence of the assets. Ld. CIT(A) ought not to have relied on finding of the survey report that only assets installed in 2001 & 2002 be considered as real addition. 4 Ld. CIT (A) erred in law and on facts in confirming disallowance by AO without granting opportunity to the appellant to cross examination of the statements recorded during survey. Ld. CIT(A) ought to have directed AO to evaluate claim of depreciation. 5 Ld. CIT (A) erred in law and on facts in confirming action, of AO in disallowing Prior Period Expenses of Rs. 18,27,854/- ignoring fact that same is crystalized during the year under consideration. Ld. CIT (A) ought to have allowed claim of prior period expenses after considering submission of the appellant. It be so held now. 6 Ld. CIT (A) erred in law and on facts in confirming action of AO in disallowing provision of doubtful debt of Rs. 15,40,000/- ignoring submission that amount actually written off in profit & loss account buy appellant however under wrong nomenclature. Ld. CIT(A) ought to have considered that wrong nomenclature does not affect right of the appellant to claim legally allowable expenses. It be so held now. 7 Ld. CIT (A) erred in law and on facts in confirming action of AO in disallowing depreciation of Rs. 86,673/- of Kadi Unit ignoring facts that plant and machinery are in working condition only due to temporary lull period same is not used for the purpose of business. Ld. CIT (A) ought to have allowed depreciation on the basis of submission of the appellant that machineries at Kadi Unit are in working condition. It be so held now. 8 Levy of interest u/s 234A/234B/234C & 234D of the Act is not justified. 9 Initiation of penalty u/s 271 (1)(c) of the Act is not justified. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.” 130. The first issue raised by the assessee in the ground no. 1 to 4 of its appeal is that the Ld. CIT-A erred in confirming the disallowance of the depreciation for Rs. 1,80,63,211/- on opening WDV. 131. At the outset we note that the issues raised by the assessee in its ground of appeal for the AY 2009-10 is identical to the issues raised by the assessee vide additional ground in ITA No. 218/AHD/2014 for the Assessment Year 2007-08. Therefore, the findings given in ITA No. 218/AHD/2014 shall also be applicable for the year under consideration i.e. AY 2009-10. The appeal of the assessee for the assessment 2007-08 has been decided by us vide paragraph No. 117 to 118 of this order in favour of the assessee. The Ld. AR and the DR also agreed that whatever will be the findings for the Assessment Year 2007-08 shall also be ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 40 applied for the year under consideration i.e. AY 2009-10. Hence, the grounds of appeal filed by the assessee is allowed. 132. The issue raised by the assessee in ground no. 5 is that the Ld. CIT-A erred in confirming the addition made by the AO for Rs.18,27,854/- representing the prior period expenses. 133. At the outset we note that the issues raised by the assessee in its ground of appeal for the AY 2009-10 is identical to the issues raised by the assessee vide groundno-2 in ITA No. 218/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 218/AHD/2014 shall also be applicable for the year under consideration i.e. AY 2009-10. The appeal of the assessee for the assessment 2007-08 has been decided by us vide paragraph No. 62 to 63 of this order in favour of the assessee. The Ld. AR and the DR also agreed that whatever will be the findings for the Assessment Year 2007-08 shall also be applied for the year under consideration i.e. AY 2009-10. Hence, the grounds of appeal filed by the assessee is allowed. 134. The issue raised by the assessee in ground no. 6 is that the Ld. CIT-A erred in confirming the addition of Rs. 15,40,000/- on account of disallowances of provision for bad and doubtful debts. 135. The assessee during the year made provision for bad and doubtful debt for an amount of Rs. 15.4 Lacs. The AO required the assessee to establish that the same were credited in the profit & loss account on earlier occasion. In response assessee vide letter dated 1 st August 2011 submitted that bad and doubtful debt were not credited in P & L account. Thus, the AO in view of submission of the assessee disallowed the same and added to the total income of the assessee. 136. Aggrieved assessee preferred to appeal before Ld. CIT-A. Who confirmed the order of the AO by observing as under: ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 41 “4. Ground number 4 relate to disallowance of provision of doubtful debt at Rs. 1540000. The appellant submitted that nomenclature is wrong and actually this is bad debt only. The appellant also relied upon Supreme Court decision in the case of TRF Ltd vs. CIT 323 ITR 397(SC). 4.2. The submissions are considered. The assessing officer was clearly noted that the assessee was asked to furnish the evidences showing that bad and doubtful debts were earlier credited in the profit and loss account and in response the assessee stated vide letter dated 01/08/2011 that bad and doubtful debts were not credited to the profit and loss account. On verification of the case records, it is found that the appellant made this statement in para (G) of letter dated 01/08/2011 furnished on 02/08/2011. In view of this is the conditions laid down in section 36(2) are not fulfilled, the claim of the appellant is disallowed. The ground number 4 race dismissed.” 137. Being aggrieved by the order of the Ld. CIT-A the assessee is in appeal before us. 138. The Ld. AR before us contended that the bad debts has actually been written off by the assessee in the books of accounts. Therefore, the same cannot be disallowed or treated as provision for the doubtful bad debts based on the nomenclatural. 139. On the contrary, the Ld. DR vehemently supported the order of the authorities below. 140. We have heard the rival contentions of both the parties and perused the materials available on record. For claiming the deduction as bad debts under the provisions of section 36(1)(vii) of the Act, it is prerequisite that amount of bad debts has been offered to tax as provided under subsection (2) of section 36 of the Act. The relevant extract of the provisions of section 36(2) of the Act reads as under: (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply— (i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money- lending which is carried on by the assessee; ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 42 141. At the time of hearing, the learned AR appearing on behalf of the assessee has not brought anything on record in order to comply the provisions as discussed above. Accordingly, the mere fact that bad debts has been written off in the books of accounts shall not extend any help to the assessee in the given facts and circumstances. Thus, we hold that there is no infirmity in the order of the authorities below. Accordingly, we confirm the same. Hence the ground of appeal of the assessee is hereby dismissed. 142. The issue raised by the assessee in ground No. 7 is that the Ld. CIT-A erred in confirming the disallowance of depreciation made by the AO for Rs. 86,673/- in respect of Kadi unit on the reasoning that it was not in operation. 143. At the outset we note that the issues raised by the assessee in its ground of appeal for the AY 2009-10 is identical to the issues raised by the assessee vide groundno-4 in ITA No. 218/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 218/AHD/2014 shall also be applicable for the year under consideration i.e. AY 2009-10. The appeal of the assessee for the assessment 2007-08 has been decided by us vide paragraph Nos. 85 to 87 of this order in favour of the assessee. The Ld. AR and the DR also agreed that whatever will be the findings for the Assessment Year 2007-08 shall also be applied for the year under consideration i.e. AY 2009-10. Hence, the grounds of appeal filed by the assessee is allowed. 144. The issue raised by the assessee in ground no. 8 and 9 are either incidental or premature to decide. Hence, the same is dismissed being infructuous. 145. In the result, appeal of the assessee is partly allowed. 146. In the combined result, i) ITA No. 722/Ahd/2014- Assessee’s Appeal is dismissed ii) ITA No. 218/Ahd/2014- Assessee’s Appeal is partly allowed. ITA Nos.722,218&1306/Ahd/2014 & ITA No. 1345/Ahd/2015 A.Ys. 2000-01&2007-08 to 2009-10 43 iii) ITA No. 1306/Ahd/2014- Assessee’s Appeal is partly allowed. iv) ITA No. 1345/Ahd/2015- Assessee’s Appeal is partly allowed. Order pronounced in the Court on 28/01/2022. Sd/- Sd/- (RAJPAL YADAV) VICE PRESIDENT (WASEEM AHMED) ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 28/01/2022 Tanmay TRUE COPY