Shree Rajasthan Syntex Ltd., UDAIPUR V. ACIT, UDAIPUR

ITA 159/JODH/2006

• Counselvise Citation: 15923314 RSA 2006
• Duration Of Justice: 5 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 30-11-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 21-03-2006
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Depreciation; Share purchase agreement; Notional interest; Revenue expenditure
• Section: 43B; 50C; 244A; 234B; 6

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR (BEFORE SHRI R.K. GUPTA AND SHRI .N.L. KALR A ) ITA NO.159/JU/2006 ASSESSMENT YEAR : 2002-03 PAN: AACCS 8784 L M/S. SHREE RAJASTHAN SYNTEX LTD. VS THE ACIT SRSL HOUSE, PULLA, BHUWANA ROAD CIRCLE- 2 N.H.8, UDAIPUR UDAIPUR (APPELLANT) (RESPONDENT) ITA NO.203/JU/2006 ASSESSMENT YEAR : 2002-03 PAN: AACCS 8784 L THE ACIT VS. M/S. SHREE RAJASTHAN SYNTEX LTD CIRCLE- 2 SRSL HOUSE, PULLA, BHUWANA ROAD UDAIPUR N.H.8, UDAIPUR (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AMIT KOTHARI DEPARTMENT BY: SHRI SUNIL MATHUR DATE OF HEARING: 30-11-2011 DATE OF PRONOUNCEMENT: 09-12-2011 ORDER PER N.L. KALRA, AM:- THE ASSESSEE AS WELL AS REVENUE HAVE FILED APPEALS AGAINST THE ORDER OF THE LD.CIT(A), UAIPUR DATED 04-0-2006 FOR THE ASSESSME NT YEAR 2002-03. 2.0 FIRST OF ALL, WE TAKE UP THE APPEAL OF THE REVE NUE. 2.1 THE FIRST GROUND OF REVENUE IS THAT THE LD. CI T(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,88,50,685/- ON ACCOUNT OF NON-INC LUSION OF EXCISE DUTY IN CLOSING STOCK AS PER SECTION 145A OF THE ACT. 2 2.2 THE LD.CIT(A) AT PAGES 2 TO 5 OF HIS ORDER HAS MENTIONED THE CASE OF THE REVENUE, SUBMISSIONS OF THE ASSESSEE AND THE DECISI ON OF THE LD.CIT(A). IN ORDER TO UNDERSTAND THE ISSUE, IT WILL BE USEFUL TO REPRO DUCE THE ABOVE FROM THE ORDER OF THE LD.CIT(A). IN THE ORDER THE AO HAS OBSERVED THAT AS PER SC HEDULE - 6 OF THE BALANCE SHEET, THE COST OF FINISHED GOODS REMAINED IN STOCK WAS SHOWN AT RS.12,37,54,906/- AND THE EXCISE DUTY LEVIABLE ON I T AT RS.1,88,50,685/-. THE ASSESSEE VALUED THE FINISHED GOODS AND WASTE WE RE AT COST OR NET REALIZABLE VALUE AND THE LIABILITY FOR EXCISE DUTY IN RESPECTOF FINISHED GOODS LYING IN FACTORY PREMISES WAS ACCOUNTED FOR A S AND WHEN THE GOODS WERE SOLD/CLEARED. IN VIEW OF THE HONBLE SUPREME COURT JUDGMENT IN THE CASE OF CITS BRITISH PAINT INDIA LTD 188 ITR44 (19 90), THE ASSESSEE SHOULD HAVE INCREASED THE VALUE OF CLOSING STOCK BY THE EXCISE DUTY LEVIABLE. BUT THE ASSESSEE FAILED TO DO SO THE AO ASKED THE ASSESSEE TO EXPLAIN WHY THE VALUE OR CLOSING STOCK SHOULD NOT B E INCREASED BY THE EXCISE DUTY ELEMENT. IN RESPONSE THE ASSESSEE SUBM ITTED THAT DETAILS OF EXCISE DUTY ON CLOSING STOCK, DETAILS OF STOCK CLEA RANCE, DETAILS OF PAYMENT OF EXCISE DUTY ON CLOSING STOCK, AMOUNTS PAID, PERI OD OF PAYMENT, DETAILS OF DUTY REMOVALS AS PER RT12 WERE FILED. AS PER SECTION 43B SUCH EXCISE DUTY PAID BEFORE DUE DATE OF FILING RETURN W AS ALLOWABLE. HENCE IN CASE DUTY IN RESPECT OF CLOSING STOCK WAS INCREASED THEN CORRESPONDING DEDUCTION TOWARDS PAYMENT OF EXCISE DUTY LIABILITY BE ALLOWED. THE ASSESSEE FURTHER STATED THAT THE EXCISE DUTY ON CLO SING STOCK OF FINISHED GOODS WORKS OUT TO RS.1,88,50,685/- AS ON 31.03.20 02 AND THE ASSESSEE PAID A SUM OF RS.4,27,67,455/- BETWEEN 1.04.2002 T O 31.06.2002. THE AO CONSIDERED THE FACTS AND SUBMISSIONS OF THE ASS ESSEE AND HELD THAT THE HONBLE SC IN THE CASE OF CIT VS. BRITISH PAINTS INDIA LTD 188 ITR 44 (1990) HELD THAT ANY SYSTEM OF ACCOUNTING WHICH EXC LUDES FOR VALUATION OF STOCK IN TRADE, ALL COSTS OTHER THAN THE COST OF RA W MATERIAL IS LIKE TO RESULT 3 IN A DISTORTED PICTURE OF THE TRUE STATE OF THE BUS INESS FOR THE PURPOSE OF COMPUTING THE CHARGEABLE INCOME. IT WAS FURTHER ST ATED THT CENTRAL EXCISE DUTY, IF ANY, PAYABLE BY THE MANUFACTURER/TRADER SH OULD GO INTO COMPUTATION OF PRODUCTION COST AND SHOULD BE INCLUD ED IN THE VALUE OF CLOSING STOCK. THE LEVY OF EXCISE DUTY IS ATTRACT ED ON THE FINISHED GOODS. IN VALUE OF THE ABOVE AO REJECTED THE SUBMISSION O F THE ASSESSEE. AS REGARDS ENTITLEMENT OF DEDUCTION U/S 43B IT HAS BE EN OBSERVED BY THE AO THAT SECTION 43B DEALS WITH OUTSTANDING LIABILITY AS AT THE CLOSE OF THE ACCOUNTING YEAR WHICH WAS PAID BEFORE THE DUE DATE IN THE NEXT YEAR. IN THE INSTANT CASE, THE ASSESSEE HAD NOT PROVIDED ANY LIABILITY IN ITS BOOKS REGARDING THE EXCISE DUTY LEVIABLE ON FINISHED GOOD S IN THE CLOSING STOCK AND THEREFORE, THE EXCISE DUTY PAYMENT MADE IN THE NEXT ACCOUNTING YEAR WAS NOT COVERED BY SECTION 43B. FURTHER THE EXCIS E DUTY PAID DURING THAT YEAR HAS BEEN CLAIMED IN THE P & L ACOCUNT AS DEDU CTION IN THAT YEAR ITSELF AND IT DEDUCTION OF THE SAME IS ALLOWED U/S 43B FO R THE YEAR UNDER ASSESSMENT I.E. ASSESSMENT YEAR 2002-03, IT WILL TA NTAMOUNT TO DOUBLE DEDUCTION, THEREFORE, THIS PLEA WAS ALSO REJECTED. IN VIEW OF THE ABOVE THE AO INCREASED THE VALUE OF CLOSING STOCK BY ADDING T HE EXCISE DUTY ELEMENT OF RS.1,88,50,685/- AND MADE RESULTANT ADDITION. 2.2 APPELLANTS CASE : DURING THE COURSE OF APPELLATE PROCEEDINGS, THE L D. A/R CONTENDED THAT COMPLETE DETAILS OF EXCISE DUTY ON C LOSING STOCK, DETAILS OF STOCK CLEARANCE ETC. WERE FURNISHED BEFORE THE AO. HE FURTHER STATED THAT IT IS NOT IN DISPUTE AT ALL THAT DUTY ON CLOSING ST OCK ON YEAR END HAS BEEN PAID IN APRIL, MAY, JUNE 2002 WHICH IS MUCH BEFORE THE DUE DATE PRESCRIBED UNDER SECTION 43B. THE PROOF THE SAME IN FORM OF EXCISE RECORDS RT12 ERE FURNISHED BEFORE THE A.O. SIMILA RLY AS AGAINST 1000112 KGS OF CLOSING STOCK OF UNCLEARED FINISHED GOODS STOCK, QUANTITY, TOTAL FINISHED GOODS OF 3701582 KGS WERE CLEARED ON 30.06.2002 COVERING THE CLOSING STOCK ALSO. HENCE IT IS CLEAR THAT BOT H QUANTITY AND AMOUNT OF 4 EXCISE DUTY ON CLOSING STOCK STANDS CLEARED UPTO 30 .06.2002 WHICH IS MUCH BEFORE THE DUE DATE U/S 43B. THEREFORE, TH E DISALLOWANCE OF RS.1,88,50,685/- DESERVES TO BE DELETED. HE FURTHE R STATED THAT THE STAND OF THE AO THAT LIABILITY FOR EXCISE DUTY WAS NOT CREA TED IN THE BOOKS OF ACCOUNT CALLS FOR NO ADDITION BECAUSE THE APPELLANT COMPANY HAS NOT CLAIMED THE SAME IN THE RETURN. THE LD. AR FURTH ER CONTENDED THAT ONCE SUCH SUM IS ADDED TO THE INCOME BY THE AO, THEN WH ILE GRANTING DEDUCTING U/S 43B, THE AO CAN NOT SAY THAT ON LIAB ILITY IS CREATED IN THE BOOKS. IN SUPPORT OF THIS CONTENTION, THE LD. A/R PLACED RELIANCE IN THE CASE OF CIT VS. HIRABIE MITTAL & SONS 86 ITR 463. IT HAS ALSO BEEN STATED THAT THE SUPREME COURT IN THE CASE OF CALCU TTA COMPANY LTD VS CIT 37 ITR1 HAS HELD THAT THE LIABILITY IS TO BE A LLOWED AS DEDUCTION THOUGH THE ASSESSEE HAS NOT PASSED ENTRIES IN THE BOOKS OF ACOCUNT. IN VIEW OF THE ABOVE, THE LD. A/R CONTENDED THAT THE A O WAS NOT JUSTIFIED IN NOT ALLOWING DEDUCTION U/S 43B OF THE ACT. 2.3 DECISION: I HAVE CONSIDERED THE OBSERVATIONS OF THE AO AND THE CONTENTIONS OF THE APPELLANT. DURING THE YEAR WHI LE VALUING THE CLOSING STOCK OF FINISHED GOODS THE APPELLANT HAD NOT INCL DUED THE EXCISE DUTY OF RS.12,77,003/- ON THE CLOSING STOCK OF FINISHED GOO DS. IT HAS BEEN STATED BY THE APPELLANTS REPRESENTATIVE THAT THE EXCISE D UTY IS PAYABLE ON REMOVAL OF THE GOODS AND IT DOES NOT FORM PART OF THE PRODUCTION OVERHEAD. THEREFORE, THE SAME IS NOT TO BE CONSIDE RED FOR VALUING THE CLOSING STOCK. IN THE CASE OF CIT VS. BRITISH PAINTS INDIA LTD, REPORTED IN 188 ITR 44, THE HONBLE SUPREME COURT HAS HELD THAT ANY SYSTEM OF ACCOUNTING WHICH EXCLUDED FOR THE VALUATION OF THE STOCK IN TRADE ALL COSTS OTHER THAN THE COST OF RAW MATERIAL FOR THE G OODS-IN-PROCESS AND FINISHED PRODUCTS IS LIKELY TO RESULT IN A DISTOR TED PICTURE OF THE TRUE STATE OF THE BUSIENSS FOR THE PURPOSE OF COMPUTING THE CH ARGEABLE INCOME. THEREFORE, THE EXCISE DUTY PAYABLE ON THE CLOSING S TOCK OF FINISHED GOODS 5 AT THE END OF THE PREVIOUS YEAR SHOULD HAVE BEEN A DDED TO THE VALUE OF CLOSING STOCK. THIS WAS NOT DONE BY THE APPELLANT. IN THE CASE OF S.K. PATTANAIK VS STATE OF ORISSA (2000) AIR SCW 41, THE HONBLE SUPREME COURT HAS HELD THAT THE EXPRESSION LEVY M AY INCLUDE BOTH THE PROCESS OF TAXATION AS WELL AS THE DETERMINATION O F AMOUNT, WHILE THE EXPRESSION COLLECTION REFERS TO THE ACTUAL COLLEC TION OF THE PAYABLE DUTY OR TAX. SINCE THE TAXABLE EVEN FOR ATTRACTING EX CISE DUTY OR COUNTERVAILING DUTY IS THE MANUFACTURE OR IMPORT OF EXCISABLE GOO DS INTO THE STATE, CHARGE OF INCIDENCE OF DUTY STANDS ATTRACTED AS SOO N AS THE TAXABLE EVEN TAKES PLACE AND THE FACILITY OF POSTPONEMENT OF COL LECTION OF DUTY UNDER THE ACT OR RULES FRAMED THERE UNDER CAN IN NO WAY AFFEC T THE INCIDENCE OF DUTY. THEREFORE THE EXCISE DUTY IS ATTRACTED, AS SOON AS THE FINISHED GOODS ARE MANUFACTURED. THEREFORE, THE APPELLANT SHOULD HAVE INCLDUED THE EXCISE DUTY PAYABLE OF RS.1,88,50,685/- IN THE VALU E OF CLOSING STOCK OF FINISHED GOODS. IT HAS BEEN SUBMITTED BY THE APPE LLANTS REPRESENTATIVE THAT THE APPELLANT AHS PAID EXCISE DUTY DURING THE PERIOD 1.04.2002 TO 30.06.2002 OF RS.4,27,67,455/- THEREFORE, THE APPEL LANT IS ENTITLED FOR DEDUCTING OF RS.1,88,50,685/- U/S 43B OF THE I.T. ACT, 1961. IN EVIDENCE THEREFORE THE APPELLANTS REPRESENTATIVE HAS SUBMIT TED A COPY OF THE CAS CERTIFICATE. SINCE THE APPELLANT HAS PAID THE EXCIS E DUTY OF MORE THAN RS.1,88,50,685/- BEFORE THE DUE DATE OF FILING OF T HE RETURN, THEREFORE, THE AMOUNT OF RS.12,77,003/- IS ALLOWABLE AS A DEDUCTIO N U/S 43B OF THE I.T. ACT, 1961. THEREFORE, A.O WAS NOT JUSTIFIED IN MAK ING THE ADDITION OF RS.1,88,50,685/- ON ACCOUNT OF INCLUSION OF EXCISE DUTY IN THE VALUE OF CLOSING STOCK. ACCORIDNGLY THE ADDITION MADE OF RS . 1,88,50,685/- IS DELETED. 2.3 DURING THE COURSE OF PROCEEDINGS BEFORE US, THE LD. AR SUBMITTED THAT EXCISE DUTY STANDS DEBITED IN THE PROFIT AND LOSS ACCOUNT AND THEREFORE, THE SAME SHOULD HAVE BEE INCLUDE IN THE VALUATION OF CLOSING STOCK. THE DEDUCTION U/S 43B IS ALSO NOT ALLOWABLE 6 BECAUSE THE DEDUCTION STANDS ALREADY CLAIMED IN THE PROFIT AND LOSS ACCOUNT. THIS FACTUAL ASPECT WAS CONTROVERTED BY THE LD. LD. AR. 2.4 THE ABOVE REFERRED ISSUE HAS BEEN CONSIDERED IN DETAIL BY HON'BLE GUJARAT HIGH COURT IN THE CASE OF ACIT VS NARMADA CHEMATUR PETR OCHEMICALS LTD. 327 ITR 369. THE HON'BLE GUJARAT HIGH COURT HAS OBSERVED THAT ASSESS EE UNDER THE EXCISE DUTY ACT IS NOT REQUIRED TO DISCHARGE THE LIABILITY TO PAY DUTY LEV IED UPON THE MANUFACTURE OF EXCISABLE GOODS TILL SUCH GOODS ARE REMOVED FROM THE FACTORY PREMISES OR A BONDED WAREHOUSE. MERE PRODUCTION OR MANUFACTURE BY ITSELF WOULD NOT BE SUFFICIENT. THERE MAY BE LEVY U/S 3 OF THE EXCISE ACT, YET NEITHER THE RATE NOR THE V ALUE WOULD BE DETERMINABLE TILL THE POINT OF TIME OF REMOVAL OF THE EXCISABLE GOODS FROM THE FACTORY PREMISES. THE SCHEME ITSELF INDICATES THAT SO FAR AS AN ASSESSEE IS CONCERNED , HE INCURS LIABILITY TO PAY EXCISE DUTY ONLY UPON BOTH THE EVENTS TAKING PLACE, NAMELY, MAN UFACTURE OF EXCISABLE GOODS AND REMOVAL OF EXCISABLE GOODS. FOR THE PURPOSE OF INCO ME TAX ACT, THE POSITION OF LAW CANNOT BE DIFFERENT. HENCE, ON THE CLOSING STOCK, E XCISE DUTY IS NEITHER PAID NOR PAYABLE UNDER THE LAW AND THEREFORE, SECTION 145A IS NOT AT TRACTED. 2.5 THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS LOKNETE BALASAHEB DESAI SSK LTD. , 243 CTR 181 HELD THAT EXPRESSION INCUR RED IN SECTION 145A(B) MUST BE CONSTRUED TO MEAN THE LIABILITY ACTUALLY INCURRED B Y THE ASSESSEE. IN THE CASE OF EXCISE ON GOODS MANUFACTURED AND LYING IN STOCK, EXCISE DUTY LIABILITY CRYSTALLIZES ON THE DATE OF CLEARANCE OF GOODS AND NOT ON THE DATE OF MANUFACTU RE. IT WAS THEREFORE, HELD THAT ASSESSEE CANNOT BE SAID TO HAVE INCURRED THE EXCISE DUTY LIABILITY IN RESPECT OF EXCISABLE GOODS LYING IN STOCK TILL THE DATE OF CLEARANCE OF SUCH GOODS. HENCE, THE ADDITION OF RS. 1,88,50,685/- COULD NOT HAVE BEEN MADE U/S 145A OF THE ACT AS THE GOODS WERE LYING IN 7 STOCK AND LIABILITY OF EXCISE DUTY HAS NOT BEEN IN CURRED. WE ALSO AGREE WITH THE ALTERNATIVE CONTENTION OF THE LD. AR THAT THE AMOUN T IF REQUIRED IS TO BE ADDED U/S 145A IN RESPECT OF EXCISE DUTY AND WILL BE ALLOWABLE U/ S 43B OF THE ACT. 2.6 WE HAVE HEARD BOTH THE PARTIES. THE LD.CIT(A) I N HIS ORDER HAS MENTIONED THAT LIABILITY STANDS PAID FROM 1-04-022 TO 30-06-02 AND HENCE, THE AMOUNT ADDED IF ANY IS REQUIRED TO BE DEDUCTION U/S 43B OF THE ACT. HENCE, ON THIS ISSUE WE CONFIRM THE ORDER OF THE LD.CIT(A). 2.7 THE SECOND GROUND OF REVENUE IS THAT THE LD. C IT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION ON LEASE ASSETS TO THE TUNE OF RS. 85,55,303/-HOLDING THE TRANSACTION AS FINANCE LEASE. 2.8 THE LD.CIT(A) HAS DELETED THE DISALLOWANCE ON T HE BASIS OF APPELLATE ORDER IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1998-9 9 AND 2001-02. AGAINST THE ORDER OF THE LD.CIT(A) FOR THE ASSESSMENT YEAR 1998-99 AND 2 000-01, THE REVENUE FILED AN APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL VIDE ITS ORDER DATED 13-07-2006 CONFIRMED THE FINDINGS OF THE LD.CIT(A). WHILE CONFIRMING SUCH FI NDINGS, THE TRIBUNAL HAS REFERRED THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESS EE BY THE TRIBUNAL IN EARLIER YEARS. FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1998-99 AND 2000-01, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF DEPRECIATION ON LEASE ASSETS. 3.1 THE THIRD GROUND OF REVENUE IS THAT THE LD. CI T(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE OUT OF INTEREST PAYMENT TO RS. 2,80,41 0/- AS AGAINST THAT OF RS. 13,85,024/- MADE BY THE AO ON ACCOUNT OF LOWER INTEREST BEARING ADVANCES GIVEN BY THE ASSESSEE. 8 3.2 THE ASSESSEE VIDE GROUND OF APPEAL NO. 3 IS AGG RIEVED AGAINST CONFIRMATION OF ADDITION TOWARDS INTEREST TO THE EXTENT OF RS.2,80, 490/-. 3.3 THE LD.CIT(A) HAS MENTIONED THE FACTS ON WHICH AO HAS MADE ADDITION, CASE OF THE ASSESSEE BEFORE HIM AND THEREAFTER HE HAS GIVEN HIS DECISION. IT WILL BE USEFUL TO REPRODUCE THE FOLLOWING PARA FROM THE ORDER OF THE LD.CIT(A). 1 AOS CASES . IN THE ASSESSMENT ORDER THE AO HAS OBSERVED THAT ON PERUSAL OF DETAILS OF INTEREST RECEIVED ON LOAN FORM EMPLOYEE S AND OTHERS SHOWED THAT THE ASSESSEE HAD GIVEN LOANS TO SRTL, MUMBAI A ND SRSL EMPLOYEES WELFARE TRUST AT LOWER RATE OF INTEREST. THE OPENI NG BALANCE AS ON 1.04.2011 AGAISNT SRSL WAS RS.3,14,00,000/- AND THE INTEREST CHARGED WAS 10% UPTO 16.10.2001 AND 13% FOR THE BALANCE OF RS. 2 CRORES. IN THE CASE OF SRSL EMPLOYEES WELFARE TRUST, THE OPE NING BALANCE WAS RS.1,45,35,000/- AND THE RATE OF INTEREST CHARGED W AS 6%. THE AO ASKED THE ASSESSEE TO EXPLAIN THE REASONS FOR PROVIDING L OANS TO THESE INSTITUTIONS AT LOWER RATE OF INTEREST BECAUSE THE INTEREST PAID BY THE ASSESSEE ON LOAN TAKEN BY IT WAS AT HIGHER RATES. IN COMPLIANCE TH E ASSESSEE HAS STATED THAT THE COMPANY HAS SETTLED THE TRUST FOR THE WELFARE OF EMPLOYEES OF THE COMPANY IN THE YEAR 1991-92. THE COMPANY HAS GIV EN LOAN TO TRUST @ 6% WHICH WAS THE RESULTANT COST TO THE COMPANY BECA USE THE COMPANY WAS GETTING FINANCE IN FOREIGN CURRENCY AT LIBOR + 7.5%. THE RESULTANT PRICE ON FOREIGN CURRENCY AVAILMENT WAS 2-3 % AT T HE TIME AND THE COMPANY WAS CHARGING INTEREST AT 6% FROM THE TRUST. THE AO CONSIDERED THE FACTS OF THE CASE AND EXPLANATION AND HELD THAT NO DETAILS OR EVIDENCE HAVE BEEN FILED IN RESPECT OF THE CLAIM REGARDING F INANCE IN FOREIGN CURRENCY AT LOWER RATE OF INTEREST. THE INTEREST O N BANK LOANS THIS YEAR WAS STATED TO 13%. HE FURTHER STATED THAT AS PE R THE BALANCE SHEET INVESTMENTS WERE OF THE ORDER OF RS.1,42,02,000/- A ND LOANS TAKEN BY THE 9 TRUST WERE TO THE EXTENT OF RS.1,07,85,000/-. THE AO ALSO CAME TO THE CONCLUSION THAT THE SRSL WELFARE TRUST HAS NOT DONE ANY WELFARE ACTIVITIES FOR THE EMPLOYEES DURING THIS YEAR FURTHER THAT IT HAS NOT EARNED ANY INCOME ON THE ABOVE HUGE INVESTMENT BUT IN FACT USE D FOR THE WELFARE OF THE ASSESSEE COMPANY AND NOT FOR ITS EMPLOYEES. HE FURTHER STATED THAT APPARENTLY THE SRSL TRUST WAS SUFFERING LOSSES EVER Y YEAR AT THE INSTANCE OF THE ASSESSEE COMPANY. FROM THE ABOVE THE AO CAM E TO THE CONCLUSION THAT THE LOAN GIVEN TO THE TRUST AT 6% INTEREST WAS NOT FOR THE WELFARE BENEFIT OF THE EMPLOYEES BUT WITH THE SOLE OBJECT O F UITILSING THE MONEY AT THE CONVENIENCE OF THE ASSESSEE BECAUSE THE TOTAL C APITAL OF THE TRUST HAS BEEN USED FOR INVESTMENT IN SHARES OF THE COMPANY W ITHOUT ANY RETURN WHATSOEVER. HE THEREFORE HOLDS THAT THE LOAN GIVEN TO THE ABOVE TRUST AT REDUCED INTEREST RATE WAS NOT FOR ANY BUSINESS EXPE DIENCY. ACCORDINGLY, THE AO DISALLOWED THE INTEREST PAYMENT TO THE EXTEN T RELATABLE TO THE LOAN TO SRSL TRUST @ 7% (13%-6%) I.E. RS. 9,78,268/-WAS DISALLOWED AND ADDED TO THE TOTAL INCOME. IN THE CASE OF SHREE RAJASTHAN TEXCHEM LTD, MUMBAI THE INTEREST WAS CHARGED @10% FOR THE PERIOD 1.04.2001 TO16.10.2 001 AND FOR THE BALANCE PERIOD @ 13%. THE AO FURTHER STATED THAT HERE ALSO IT CANNOT BE SAID THAT THE LOAN TO THIS COMPANY AT CONCESSIONAL RATE OF INTEREST WAS PROVIDED ON ACCOUNT OF ANY BUSINESS EXPEDIENCY. AC CORDINGLY, THE AO DISALLOWED THE CLAIM RELATABLE TO THE UNDER CHARGE OF INTEREST ON LOAN TO SRTL AMOUNTING TO RS.4,06,756/- AND ADDED TO THE T OTAL INCOME. 4.2 APPELLANTS CASE : DURING THE COURSE OF APPELLATE PROCEEDINGS THE LD. A/R CONTENDED THAT THE APPELLANT COMPANY HAD ALREADY CHARGED INTE REST @ 10% P.A. UPTO1.10.2001 AND @ 13%P.A. FROM SRTL BUT THE AO HAS WRONGLY ASSUMED FURTHER INTEREST @ 17% AND COMPUTED THE DIF FERENCE AT RS.4,06,756/-. SIMILARLY THE APPELLANT COMPANY HAD ALREADY CHARGED INTEREST FROM SRSL WELFARE TRUST @ 6% P.A BUT THE AO HAS WRONGLY 10 ASSUMED INTEREST@ 13% ADDING 7% INTEREST AMOUNTING TO RS.9,78,268/- TO THE TOTAL INCOME. THE LD. FURTHER STATED THAT TH E AO HAS BASED THE ADDITION MAINLY ON THE GROUND THAT SRSL TRUST IS S UFFERING LOSSES EVERY YEAR AT THE INSTANCE OF APPELLANT COMPANY AND THE M ONEY WAS NOT UTILIZED FOR THE WELFARE OF THE EMPLOYEES BUT IT WAS USED FO R THE BENEFIT OF APPELLANT COMPANY BECAUSE THE TOTAL CAPITAL WAS INV ESTED IN SHARES OF THE APPELLANT COMPANY WITHOUT ANY RETURN AND THE INTER EST RATE FROM BANK WAS @ 13% HENCE 6% CHARGED WAS LESS. HE FURTHER STAT ED THAT POINTS RAISED BY THE AO GO TO SAY THAT THE TRUST IS SUFFERING LO SSES AT THE HANDS OF APPELLANT COMPANY AND NOT THE COMPANY AND IN SPITE OF THAT THE COMPANY CHARTED 6% P.A. FROM THE TRUST. THEREFORE, ON TH IS GROUND ALONE IN THE HANDS OF COMPANY NO DISALLOWANCE OF INTEREST CAN B E MADE BY ASSUMING NOTIONAL INTEREST BECAUSE IT IS THE COMPANY WHO GAI NED. HE FURTHER CONTENDED THAT THE LOAN TO TRUST WAS INVESTED IN SH ARES OF COMPANY AGAIN THERE WAS NO QUESTION OF SUFFERING BY THE APPELLANT COMPANY IN TOTALITY BECAUSE IT RECEIVED ITS LOAN BACK BY WAY OF SHARE C APITAL WITH NO BINDING OF PAYMENT OF DIVIDEND AND IT ALSO RECEIVED 6% P.A. FROM THE TRUST. THE LD. A/R FURTHER STATED THAT THE COMPANY HAD TOTAL CAPIT AL AND RESERVES AMOUNTING TO RS.51.22 CRORES ON 31.03.2002 AND RS. 51.31 CRORE ON 31.03.2001 AS AGAINST WHICH THE COMPANY GRANTED LO AN OF RS.1.07 CRORES ONLY TO THE TRUST. IT IS ALSO NOT THE CASE THAT IN TEREST BEARING FUNDS HAVE BEEN USED FOR INTEREST FREE PURPOSES. THE LOANS TA KEN BY THE COMPANY ARE UTILIZED ONLY FOR PURPOSE FOR WHICH THEY HAVE BEEN TAKEN UNDER SUPERVISION OF FINANCIAL INSTITUTIONS, BANKS AND LE NDERS. HENCE ON THIS GROUND ALSO THE ADDITIONAL/DISALLOWANCE IS UNWARRAN TED. THE OBJECTS OF THE COMPANY INCLUDE THE WELFARE OF THE EMPLOYEES AN D THE LOAN WAS INTENDED WITH THIS OBJECT BUT THE TRUST DID NOT REC EIVE DIVIDENDS IN THIS ASSESSMENT YEAR, AS THE SHAREHOLDERS DID NOT DECLAR E THE SAME. THE LD. A/R FURTHER STATED THAT THE APPELLANT COMPA NY PROMOTED THE COMPANY SRTL FOR WHICH THE PUBLIC ISSUE OPENED ON 30.10.1995. 11 THE PROMOTION OF SRTL BY SRSL WAS BENEFICIAL TO TH E APPELLANT AS THE UNIT OF SRTL WAS PUT UP IN THE SAME AREA AT DUNGAR PUR AND MAINLY FOR MANUFACTURING OF YARN. BOTH COMPANIES TOGETHER COU LD HAVE BETTER COMMAND OVER THE MARKET AND BETTER TERMS IN THE MAT TER OF SUPPLIES OF FINISHED GOODS AND PURCHASE OF RAW MATERIAL AND OTH ER BUSINESS BENEFITS. IT WAS LONG BACK IN1995 THAT SRSL WHILE PROMOTING THE COMPANY SRTL AGREED TO GRANT UNSECURED LOAN OF RS.314 LACS @ 10 % P.A. UPTO THE YEAR 2002. THE COMPANY SRSL WAS BOUND BY ITS COMMITMEN T OF CHARGING INTEREST ON LOAN @ 10% P.A. ACCORDINGLY THE COMPAN Y HAS ABIDED BY THE BUSINESS COMMITMENTS, WHICH IS EVIDENT FROM THE TE RMS AFTER OCT. 2002 THAT INTEREST RATE HAS BEEN RAISED TO 13%. IN VIEW OF THE ABOVE THE LD. A/R STATED THAT THE AO WAS WRONG IN DISALLOWING IN TEREST THAT TOO ASSUMING A HIGHER RATE OF 17% P.A. AS PER THE FOLL OWING - A. INTEREST& FINANCIAL EXPENSES 50058285 B. LOAN SECURED & UNSECURED 581664212 C. AVERAGE INTEREST RATE (COST) (PERCENTAGE) A/B X 100 8.60 % THUS THE OPENING INTEREST COST IN 2001-2002 BASED ON PRECEDING YEARS COST WAS ONLY 8.60% P.A. WHEREAS THE AO HAS WRONGLY APPLIED A HIGHER RATE OF 17% P.A. WITHOUT ANY BASIS. THE LD. A/R FURTHER STATED THAT THE SRSL WELFARE TRUST RECEIVED DIVIDEND OF RS.36,33,425/- FROM F.Y. 1993- 94 TO 2 004-05. FURTHER IT IS NOT THE CASE OF AO THAT THE BORROWING TRANSACTION S WERE ILLUSORY OR COLOURABLE AND THAT THE BORROWINGS BY THE APPELLAN T COMPANY WERE NOT FOR THE PURPOSE OF BUSINESS. IT HAS BEEN ACCEPTED BY THE AO THAT ALL BORROWINGS BY THE APPELLANT WERE FOR THE PURPOSE OF BUSINESS. IT IS WELL SETTLED THAT ONCE BORROWING TRANSACTIONS ARE GENUIN E AND FOR THE PURPOSE OF BUSINESS AND INTEREST HAS BEEN PAID THEN THERE IS N O SCOPE AFFORDED IN SECTION 36(1)(III) TO REDUCE THE QUANTUM PAID ON S UBJECTIVE OR OBJECTIVE STANDARD. IN SUPPORT OF THIS CONTENTION, THE LD. A/R PLACED RELIANCE ON 12 RAM KRISHNA OIL MILLS VS CIT (1995) 56 ITR 186 (MP), BANSIDHAR ONKARMAL VS CIT (1965) 58 ITR 462 (ORI) BIRLA GWA LIOR PVT. LTD VS CIT (1962) 44 ITR 847 AND EAST INDIA INDUSTRIES (MADRESS LTD ) VS. CIT 31 ITR 803. ON APPLICATION OF RATIO OF ABOVE DECISION THE ENTIRE AMOUNT CONTRIBUTED BY SRSL TO TRUST IS REVENUE EXPE NDITURE BUT THE AO IS UNJUST IN CHARGING FURTHER NOTIONAL INTEREST ON ADV ANCE MADE BY THE COMPANY TO THE TRUST INSPITE OF THE FACT THAT THE A PPELLANT COMPANY HAD ALREADY CHARGED INTEREST @ 6%. IN VIEW OF THE ABOV E FACTS, THE LD. A/R CONTENDED THAT THE AO WAS NOT JUSTIFIED IN MAKING D ISALLOWANCE AND CONSEQUENTIAL ADDITIONS TO THE TOTAL INCOME AND THE ADDITION SO MADE DESERVE TO BE DELETED. 5.3 I HAVE CONSIDERED THE OBSERVATIONS OF THE A O AND THE FACTS OF THE CASE. I HAVE ALSO CONSIDERED THE CONTENTIONS O F THE LD. A/R OF THE APPELLANT AND FOUND THAT THE APPELLANT COMPANY HAD GIVEN LOAN TO SHREE RAJASTHAN TEXCHEM LTD (SRTL), MUMBAI. THE OPENI NG BALANCE AS ON 1.04.2001 WAS 314 LACS AND THE INTEREST CHARGED U PTO 16.10.2001 ON RS. 114 LACS WAS 10% AND ON BALANCE RS. 2 CRORES THE I NTEREST CHARGED WAS 13%. THE APPELLANT DURING THE COURSE OF ASSESSMEN T PROCEEDINGS CLAIMED TO HAVE GOT THE FINANCE IN FOREIGN CURRENCY. THE RE SULTANT PRICE WAS 2 3 %. THE AO DID NOT ACCEPT THE APPELLANTS CONTENTI ON IN ABSENCE OF DETAILS OR EVIDENCE IN RESPECT OF EVIDENCE IN FOREIGN CURR ENCY. THE INTEREST ON BANK LOANS THIS YEAR WAS STATED TO 13% P.A. THE APPELLANT COMPANY HAS RECOVERED INTEREST @ 18 24% FROM THE CUSTOMERS B UT ONLY AT 10% FROM SRTL. THE AO HAS THUS DISALLOWED THE DIFFERENCE O F 7% AMOUNTING TO RS.4,06,756/-.AS PER THE SUBMISSION OF THE LD. A/ R OF THE APPELLANT IT IS SEEN THAT THE APPELLANT COMPANY PROMOTED THE COMPAN Y SRTL FOR WHICH PUBLIC ISSUE OPENED ON 30.10.1995. IT WAS LONG BAC K IN 1995 THAT THE APPELLANT COMPANY WHILE PROMOTING THE COMPANY SRTL AGREED TO GRANT UNSECURED LOAN OF RS. 314 LACS @ 10% P.A. UPTO THE YEAR 2002. THE PROSPECTUS WAS APPROVED BY ALL STATUTORY REGULATORY AUTHORITIES AND FINANCIAL INSTITUTIONS, THE APPELLANT COMPANY WAS BOUND BY ITS 13 COMMITMENTS OF CHARGING INTEREST ON LOAN @ 10% P.A. ACCORDINGLY, THE COMPANY HAD ABIDED BY THE BUSINESS COMMITMENTS. FU RTHER IT IS EVIDENT THAT AS PER TERMS AFTER OCTOBER 2002, INTEREST RAT E HAS BEEN RAISED TO 13% P.A. THE A/R HAS FURTHER GIVEN THE WORKING OF AVE RAGE RATE AS UNDER - A. INTEREST& FINANCIAL EXPENSES 50058285 B. LOAN SECURED & UNSECURED 581664212 C. AVERAGE INTEREST RATE (COST) (PERCENTAGE) A/B X 100 8.60% THUS THE INTEREST COST TO THE APPELLANT IS ONLY 8.6 0% WHEREAS THE AO HAS WRONGLY APPLIED HIGHER RATE OF 17%. THUS IT IS S EEN THAT THE APPELLANT COMPANY WAS BOUND BY ITS TERMS AND CONDITIONS AS A PROMOTER OF SRTL AND GIVING LOAN AT 10% INTEREST RATE WHICH WAS IN CREASED TO 13% P.A. THUS ACTUALLY THERE IS A DIFFERENCE OF 1.4O% ONLY , WHICH HAS BEEN EXCESS CHARTED BY THE APPELLANT AND NOT LESS CHARGED AS ME NTIONED BY THE AO IN THE ASSESSMENT ORDER. THEREFORE THE DISALLOWANCE I S DELETED AND THE APPELLANT GETS A RELIEF OF RS.4,06,756/- ON THIS A CCOUNT. REGARDING THE INTEREST RATE IN CASE OF SRSL EMPL OYEES WELFARE TRUST @ 6%, THE FACTS ARE ALTOGETHER DIFFERENT. THE APPELLANT COMPANY HAS GIVEN LOAN TO THE EMPLOYEES WELFARE TRUST AND T HE SAME AMOUNT HAS REINVESTED BY THE TRUST IN EQUITY SHARES OF THE APP ELLANT COMPANY. DURING THE YEAR THE SRSL EMPLOYEES WELFARE TRUST HAS NOT R ECEIVED ANY DIVIDEND OR ANY OTHER BENEFIT WHAT SO EVER. ON GO ING THROUGH THE A/RS SUBMISSION IN THIS REGARD IT IS SEEN THAT THE COMP ANY HAD TOTAL CAPITAL AND RESERVES AMOUNTING TO RS. 51.22 CRORES AS ON 31.03. 2002 AGAINST WHICH THE COMPANY GRANTED LOAN OF RS.1.07 CRORES ONLY TO THE TRUST. THE INTEREST BEARING FUNDS HAVE ALSO NOT BEEN SUED FOR INTEREST FREE PURPOSE. THE LOANS TAKEN BY THE COMPANY ARE UTILIZED ONLY FOR THE PURP OSES FOR WHICH THEY HAVE BEEN TAKEN UNDER SUPERVISION OF FINANCIAL INST ITUTIONS, BANKS AND LENDERS. IT IS FURTHER SEEN THAT THE SRSL EMPLOY EES WELFARE TRUST RECEIVED DIVIDEND OF RS. 36,33,425/- FROM FINANCIAL YEAR 1993 94 TO 14 2004- 05 BUT IT IS ALSO A FACT THAT DURING THE YEAR UNDER CONSIDERATION THE EMPLOYEES WELFARE TRUST HAS NOT RECEIVED ANY DIVIDE ND. AS DISCUSSED ABOVE THE INTEREST COST TO THE APPELLANT COMPANY HA S BEEN 8.60% AS AGAINST THAT THE APPELLANT HAS GIVEN LOAN TO THE EM PLOYEES WELFARE TRUST @ 6% ONLY. THUS THERE IS A DIFFERENCE OF 2.60% LES S CHARGED. THIS WORKS OUT TO RS.2,80,410/- (1,07,85,000 X 2,60/100). THUS THE DISALLOWANCE IS RESTRICTED TO RS.2,80,410/- IN PLACE OF RS.9,78,26 8/- AND THE APPELLANT GETS A RELIEF OF RS.6,97,858/- ON THIS ACCOUNT. 3.4 WE HAVE HEARD BOTH THE PARTIES. BEFORE US, BOTH THE PARTIES HAVE MADE THE SUBMISSIONS WHICH HAVE BEEN CONSIDERED. THE FACT IS THAT THE AMOUNT RECEIVED BACK AS SHARE CAPITAL CANNOT BE A GROUND FOR CHARGING LESSE R INTEREST FROM THE PARTIES TO WHOM THE AMOUNT HAS BEEN PAID BECAUSE THE PARTY BECOMES THE OWNERS OF THE SHARES AND APPRECIATION IN SHARE AND DIVIDEND WILL BELONG TO T HAT PARTY. BOTH THE TRANSACTIONS ARE SEPARATE AND DISTINCT AND CHARGING OF LOWER RATE OF INTEREST CANNOT BE JUSTIFIED. WE ARE ALSO NOT AWARE THAT SUCH SHARE CAPITAL WAS RAISED DURING THE YEAR OR THE PARTY PURCHASED THE SHARES FROM OTHER PARTIES. THE LD.CIT(A) HAS CO NSIDERED THE COST OF BORROWINGS AND NOTICED THAT INTEREST RATE OF BORROWINGS IN THE HAN DS OF THE ASSESSEE IS 8.60% . WE THEREFORE, FEEL THAT THE LD.CIT(A) WAS JUSTIFIED IN RESTRICTING THE ADDITION TO RS. 2,80,410/-. HENCE, ON THIS ISSUE THE GROUNDS OF APPEAL OF THE R EVENUE AND ASSESSEE ARE DISMISSED. 4.1 THE FOURTH GROUND OF REVENUE IS THAT THE LD. C IT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 27,21,000/- MADE ON ACCOUNT OF VALU ATION OF CLOSING STOCK. THIS ISSUE HAS BEEN DISCUSSED BY THE LD.CIT(A) VID E PARA 7.1 TO 7.3 OF HIS ORDER WHICH IS REPRODUCED AS UNDER:- 7.1 AO'S CASE 15 IN THE ORDER IT HAS BEEN STATED BY THE AO THAT AS P ER SCHEDULE 13 NOTES ON ACCOUNTS THE AUDITORS HAD REMARKED AS UNDE R:- AS REGARDS VALUATION OF INVENTORIES, SINCE THE COMP ANY IS MANUFACTURING AND SELLING ALSO IN RETAIL TRADE NUMB ER OF QUANTITIES AND SHADES WHICH ARE REPEATEDLY CHANGING AS PER MARKET REQUIREMENTS, IT IS NOT PRACTICAL TO WORK OUT COST OF EACH SHADES AND QUALI TY WITH REASONABLE ACCURACY. HENCE AS PER PAST PRACTICE, THE COMPANY I S VALUING WORK IN PROGRESS AND FINISHED GOODS AS PER METHOD DISCLOSED IN NOTE NO.1(III)(C) (D) OF ACCOUNTING POLICIES. BECAUSE OF THIS METHOD ADOPTED, PROFIT FOR THE YEAR IS LOWER BY RS.27.21 LACS (PREVIOUS YEAR RS.29 .38 LACS). THE AO ASKED THE ASSESSEE TO EXPLAIN IN THE CASE. I N COMPLIANCE THE ASSESSEE HAS STATED THAT PARA-6(A) IS SELF EXP LANATORY. IT IS CONSISTENTLY FOLLOWED AS BEST POSSIBLE METHOD. FURTHER, THE CLOS ING STOCK ADOPTED AS PER THIS METHOD IS ONLY CARRIED FORWARD IN NEXT YEAR. THE AO CONSIDERED THE FACTS OF THE CASE AND EXPLANA TION OF THE ASSESSEE AND STATED THAT IN SPITE OF SPECIFIC REQUE ST, THE ASSESSEE HAS NOT EXPLAINED THE EXACT BASIS OR REASON FOR TAKING A LE SSER VALUE SO AS TO LOWER THE PROFIT BY RS.27.21 LACS. AS PER NOTE NO.1(III)( C) & (D) OF THE ACCOUNTING POLICIES WAS THAT WORK IN PROGRESS WAS VALUED AT ES TIMATED COST AND FINISHED GOODS AND WASTE WERE VALUED AT NET RELIASA BLE VALUE. THE ASSESSEE HAS NOT BEEN ABLE TO EXPLAIN RATHER NO ATTEMPT HAS BEEN MADE TO EXPLAIN AND PROVE THAT THE VALUE TAKEN WAS THE NET REALIZAB LE VALUE IN RESPECT OF FINISHED GOODS AND WASTE. IT HAS FURTHER BEEN STATE D THAT PRODUCTION VALUE OF WIP SHOWN AT RS.4,02,56,057/- BUT ITS VALUE FOR THE PURPOSE OF VALUATION OF INVENTORIES HAS BEEN TAKEN AT RS.3,61, 74,446/- ONLY. THE REASON FOR TAKING A LESSER VALUE THAN THE COST OF V ALUATION OF INVENTORY WAS NOT ASCERTAINABLE FROM THE RETURN OR THE DOCUMENTS ACCOMPANYING THE SAME NOR HAS IT BEEN EXPLAINED DURING THE ASSESSMEN T PROCEEDINGS. IN VIEW OF THE ABOVE DISCUSSION THE AO INCREASED THE VALUE OF INVENTORIES BY RS.27,21,000/- AND MADE SIMILAR ADDITION TO THE TOT AL INCOME. 7.2 APPELLANT'S CASE. DURING THE COURSE OF APPELLATE PROCEEDINGS THE LD. A/R CONTENDED THAT THE METHOD OF VALUATION OF STOCK IS ADOPTED CO NSISTENTLY IN PAST AND AS PER ACCEPTED PRINCIPLES OF COMMERCIAL METHODS. THER E HAS BEEN NO CHANGE IN METHOD OF VALUATION OF INVENTORIES DURING THE YE AR AS IS ALSO CLEAR FROM THE NOTE OF AUDITOR REFERRED BY THE AO. THE REASON FOR ADOPTING THIS METHOD VALUATION IS ALREADY MENTIONED IN AUDITOR'S NOTE IN PARA 6(A) OF SCHEDULE 13. THE REASON IS THAT THE COMPANY IS ALSO SELLING NUMBER OF QUANTITIES AND SHADES IN RETAIL TRADE WHICH ARE REP EATEDLY CHANGING AS PER MARKET REQUIREMENTS AND VALUATION OF WIP IS AVERAGE OF RAW MATERIAL AND NET REALIZABLE VALUE FOR YARN AT PREPARATORY STAGE AND AT NET REALIZABLE 16 VALUE OF WIP AT YARN STAGE. THE DIFFERENCE COMPUTED BY THE AO IS MAINLY DUE TO NON AVERAGING BY WIP AT VARIOUS STAGES AND O N ADHOC BASIS. THE VARIATION ON ACCOUNT OF ADOPTING THIS METHOD IS ALR EADY WORKED OUT BY THE AUDITOR AT 27.21 LACS AS COMPARED TO OTHER METHODS. BUT IT IS PERTINENT TO MENTION THAT THIS METHOD IS CONSISTENTLY FOLLOWED B Y THE APPELLANT AND BEING AT NET REALIZABLE VALUE IT GIVES A MORE CORRE CT VALUE OF STOCKS IN THE APPELLANT'S CIRCUMSTANCES. HE FURTHER STATED THAT T HE AO'S ASSUMPTION IS ACCEPTED THEN IF THE ADDITION OF RS.27.21 LACS IS M ADE TO INVENTORIES THEN THE SAME IS ALLOWABLE IN NEXT YEAR BY WAY OF OPENIN G STOCK. HE FURTHER CONTENDED THAT THE AO HAS WORKED OUT THE AMOUNT OF ADDITION IN VALUE OF INVENTORIES WITHOUT ANY BASIS AND DESERVES TO BE DE LETED. IN SUPPORT OF HIS CONTENTIONS THE LD. A/R PLACED RELIANCE IN THE CASE OF CHOUTHMAL GOPALCHAND 6 ITR 733, 743, RAMSWAROOP BENGALIMAL VS CIT 251 ITR 17, RAM LAXMAN SUGAR MILLS VS.CIT 63 ITR 51, STEEL BARREL CO. LTD VS OSBORNE 30 TC 73 IN WHICH HAS BEEN HELD THAT IT IS OBVIOUS THAT A CLOSING STOCK OF A YEAR IS THE OPENING STOCK OF THE NEXT YE AR AND THE VALUATION PLACED BY THE UPON CLOSING STOCK SHOULD BE ADOPTED AS THE VALUATION OF THE OPENING STOCK OF NEXT YEAR. IN VIEW OF THE ABOVE, T HE LD. A/R CONTENDED THAT THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITIO N AND THE SAME DESERVES TO BE DELETED. 7.3 DECISION : I HAVE CONSIDERED THE OBSERVATIONS OF THE AO AND TH E CONTENTIONS OF THE APPELLANT AND FOUND THAT THE AO HAS INCREASE D THE PROFIT BY RS.21,21,000/- ON THE GROUND THAT THE APPELLANT DID NOT EXPLAIN AND PROVE THAT THE VALUE IN RESPECT OF FINISHED GOODS AND WAS TE IS TAKEN AT NET REALIZABLE VALUE. ON GOING THROUGH THE SUBMISSION O F THE LD. A/R OF THE APPELLANT IT IS SEEN THAT THE METHOD OF VALUATION O F CLOSING STOCK IS ADOPTED CONSISTENTLY IN PAST ALSO AND AS PER ACCEPTED PRINC IPLES OF COMMERCIAL METHODS. THERE HAS BEEN NO CHANGE IN METHOD OF VALU ATION OF INVENTORIES DURING THE YEAR AS IS CLEAR FROM THE NOTE OF AUDITO R. REASON FOR ADOPTING THIS METHOD OF VALUATION, IT IS MENTIONED IN AUDITO R'S NOTE IN PARA 6A, SCHE. 13. THE COMPANY IS SELLING NUMBER OF QUANTITI ES AND SHADES IN RETAIL TRADE WHICH ARE REPEATEDLY CHANGING AS PER MARKET R EQUIREMENTS. HENCE, THE METHOD OF VALUATION OF FINISHED GOODS AND WASTE IS NOT REALIZABLE VALUE AND VALUATION OF WIP IS AVERAGE OF RAW MATERIAL AND NOT REALIZABLE VALUE OF YARN AT PREPARATORY STAGE AND AT NET REASONABLE VALUE FOR WIP AT YARN STAGE. THE DIFFERENCE COMPUTED BY THE AO IS MAINLY DUE TO NET AVERAGING BY WIP AT VARIOUS STAGES ON ADHOC BASIS. FURTHER, E VEN IF THE AO'S PRESUMPTION IS ACCEPTABLE THEN ADDITION OF RS.27.21 LACS IS ALLOWABLE IN NEXT YEAR BY WAY OF OPENING STOCK. THUS IT IS FOUND THAT THERE HAS BEEN NO CHANGE IN M ETHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE APPELLANT. MOR EOVER IF ADDITION IS SUSTAINED THE APPEAL WOULD GET THE BENEFIT OF THE S AME AMOUNT IN THE 17 SUBSEQUENT YEAR AS OPENING STOCK. THE ADDITION IS, THEREFORE, DELETED. THE APPEAL IS ALLOWED ON THIS POINT. 4.2 BEFORE US, THE LD. DR HAS REFERRED TO NOTES ON ACCOUNTS APPEARING IN SCHEDULE 13 AS MENTIONED BY THE AO IN HIS ORDER. THE AUDITOR IN HIS STATEMENTS IN NOTES ON ACCOUNT STATED THAT THE INVENTORIES HAVE BEEN VALUED AS PER METHODS DISCLOSED IN THE ACCOUNTING POLICY AND HAS NOT BEEN VALUED AT COST. DUE TO THIS METHOD ADOPTED, THE PROFIT FOR THE YEAR IS LOWER BY RS. 27.21 LACS. 4.3 ON THE OTHER HAND, THE LD. AR SUBMITTED THAT DU E TO VALUATION MADE BY THE ASSESSEE AS PER THE METHOD DISCLOSED RESULTED INTO PROFIT OF RS. 29.38 LACS IN THE PREVIOUS YEAR. IN CASE THE REVENUE HAS CHANGED THE METHOD ON VALUATION IN RESPECT OF CLOSING STOCK THEN THE OPENING STOCK SHOULD BE FOLLOWED ON THE SAME METHOD. THE PRIVY COUNCIL IN THE CASE OF CIT V. AHMEDABAD NEW COTTON MILLS CO . LTD., AIR 1930 PC 56 HAS OPINED AS UNDER:- : 'IF THE METHOD OF ALTERING BOTH VALUATIONS IS NOT A DOPTED IT IS PERFECTLY PLAIN THAT THE PROFIT WHICH IS BROUGHT FORWARD IS NOT THE REAL ONE. IT MAY BE MORE OR IT MAY BE LESS, BUT IT HAS NO RELATION TO THE TRUE PROFIT IF THE STOCK IS VALUED ON ONE BASIS WHEN IT GOES OUT WITHOUT CONSIDERING THE VALUE OF THE STOCK WHEN IT COMES IN. WHEN, THEREFORE, THERE IS UNDER VALUATION AT ONE END, THE EFFECT IS TO CAUSE BOTH A SMALLER DEBIT IN RESPECT OF THE STOCK INTROD UCED INTO THE NEXT ACCOUNT AND A LARGER SUM FOR PROFITS REALISED BY TH E SALE, CHANGE IN MARKET VALUES BEING IMMEDIATELY REFLECTED IN THE PR ICE OBTAINED FOR THE GOODS THAT ARE SOLD ; IN THESE CIRCUMSTANCES TO CONTEND THAT THERE SHOULD BE UNDER VALUATION AT ONE END AND NOT AT THE OTHER IS TO RAISE AN ARGUMENT WHICH THEIR LORDSHIPS CANNOT ACCE PT.' THE OPINION OF THE PRIVY COUNCIL WAS THAT WHENEVER THERE IS A CHANGE IN THE VALUATION AT ONE END (THAT IS ON MARCH 31, 1999 AS IN THE PRESENT CASE) THEN THERE MUST NECESSARILY BE A CORRESPONDING CHANGE AT THE OTHER END (THAT IS ON A PRIL 1, 1998 AS IN THE PRESENT CASE) OTHERWISE THE TRUE PROFIT WOUL D NOT BE REFLECTED . 18 4.4 IT IS AN ACCEPTED PROPOSITION OF LAW THAT IN CA SE THE METHOD OF VALUATION IS CHANGED BY THE ASSESSEE THEN NO ADJUSTMENT IS REQUI RED TO BE MADE IN RESPECT OF OPENING STOCK. HOWEVER, IF THE REVENUE FEELS THAT THE METHO D OF VALUATION ADOPTED BY THE ASSESSEE IS INCORRECT AND ADJUSTMENT IS REQUIRED TO BE MADE THEN ADJUSTMENT IS TO BE TAKEN AFTER CHANGING THE VALUATION OF OPENING STOCK AS WELL AS CLOSING STOCK AS PER THE METHOD TO BE FOLLOWED. IN CASE THE OPENING STOCK IS ALSO TO BE C ONSIDERED FOR ADJUSTMENT THEN INCOME WILL STAND REDUCED AS EARLIER YEARS ADJUSTMENT TO B E MADE IS MORE AS COMPARED TO THE YEAR UNDER CONSIDERATION .. WE THEREFORE, FEEL THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 27.21 LACS. 5.1 THE FIFTH GROUND OF REVENUE IS THAT THE LD. CI T(A) HAS ERRED IN REDUCING THE DISALLOWANCE OF LONG TERM CAPITAL GAIN ON SHARES FR OM RS. 5,91,995/- TO RS. 76,610/-. 5.2 THE ASSESSEE VIDE GROUND NO. 2 IS ALSO AGGRIEVE D AGAINST CONFIRMING THE DISALLOWANCE OF LONG TERM CAPITAL GAIN TO THE EXTEN T OF RS. 75,610/- ON SALE OF SHARES OF SHREE RAJASTHAN TEXCHEM LTD. 5.3 THIS ISSUE HAS BEEN CONSIDERED BY THE LD.CIT(A) VIDE PARA 8.1 TO 8.3 OF HIS ORDER WHICH IS REPRODUCED AS UNDER:- 8.1 AO'S CASE IN THE ORDER THE AO HAS OBSERVED THAT THE ASSESSEE HAS CLAIMED LONG TERM CAPITAL LOSS OF RS.5,91,995/- ON THE BASI S OF INDEXED COST. SINCE THE CLAIM WAS NOT SUPPORTED BY ANY DOCUMENTARY EVID ENCE, THE ASSESSEE WAS ASKED TO EXPLAIN THE SAME. IN COMPLIANCE TO WHI CH THE ASSESSEE HAS STATED THAT THAT ASSESSEE WAS HOLDING 20000 EQUITY SHARES OF M/S C.C. KUCHAL FINANCIAL SERVICES. SINCE THE SHARES WERE NO T QUOTED IN THE MARKET HENCE THE SHARES DISPOSED OFF TO THE PROMOTER OF TH E COMPANY BECAUSE COMPANY WAS NOT PAYING ANY RETURN. SIMILARLY THE AS SESSEE WAS HOLDING 45000 SHARES OF M/S SWAN INDUSTRIES LTD. OF RS. 10 EACH. AT THE CLOSE OF THE YEAR QUOTED PRICE WAS NOT AVAILABLE AND IT WAS WORTH TO SALE THE HOLDING AT PAR HENCE COMPANY HAS SOLD THE SHARES. 9 000 SHARES OF SHREE RAJASTHAN TEXCHEM LTD PURCHASED IN JANUARY, 2000 WE RE SOLD IN JANUARY AND MARCH, 2002. THE DIRECT AND SPECIFIC PURCHASE P RICE OF THESE SHARES LOT 19 WORKS TO RS.17.034 PER SHARE. 156250 SHARES WERE PU RCHASED FROM RIICO LTD UNDER BUY BACK AGREEMENT FOR RS.26,61,638/-. TH E ASSESSEE ALSO FURNISHED THE DETAILS OF PAYMENT, PURCHASE/SALE TRA NSFER FORMS. THE AO CONSIDERED THE EXPLANATION AND HELD THAT THE MARKET RATES OF THESE SHARES WERE NOT KNOWN. NO SALE INSTANCE OR COPY OF THE ALL EGED BUY BACK AGREEMENT HAS BEEN FILED. THE SHARES HAVE BEEN SOLD AT THE COST PRICE AND LOSS HAS BEEN OCCURRED ON ACCOUNT OF INDEXING. THER EFORE, THE AO DISALLOWED THE CLAIM OF LOSS AND NOT ALLOWED TO BE CARRIED FORWARDED. 8.2 APPELLANT'S CASE: DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. A/R CONTENDED THAT THE AO HAS WRONGLY DISALLOWED THE LOSS ON SALE OF SHARES ON WRONG PRESUMPTION. IN THE REPLY DATED 25-02-2005 REFERRED AND RELIED BY THE AO IT IS CLEAR THAT ALL PROOFS OF COST OF SHARES, DIST INCTIVE NOS. PURPOSE PRICE, SHARE TRANSFER FORMS ETC. WERE GIVEN. HE FURTHER ST ATED THAT IT IS NOT DISPUTED BY THE AO THAT THE SAME WERE WRONG. THE FA CTS ABOUT COST OF SHARES, SHARE TRANSFER FORMS ARE NOT IN DISPUTE. HE FURTHER STATED THAT THE MARKET VALUE COULD NOT BE GIVEN IN CASE OF UNQUOTED SHARES WHEREAS ALL OTHER DETAILS REGARDING PURCHASES/SALE/PAYMENTS WER E FURNISHED BEFORE THE AO. HE FURTHER STATED THAT COMPLETE DETAILS HAVE BE EN FURNISHED BEFORE THE AO, THEREFORE HE WAS NOT JUSTIFIED IN DISALLOWING T HE CLAIM OF THE APPELLANT AND THE CLAIM DESERVES TO BE ALLOWED. 8.3 DECISION: I HAVE CONSIDERED THE OBSERVATIONS OF THE AO AND TH E CONTENTIONS OF THE APPELLANT AND FOUND THAT THE AO DISALLOWED T HE LOSS ON THE GROUND THAT THE APPELLANT DID NOT FURNISHED THE DOCUMENTAR Y EVIDENCE IN RESPECT OF SALE PRICE AND BUY BACK AGREEMENT. THE A/R HAS SUBM ITTED IN THIS REGARD THAT THE DETAILS OF PAYMENT, PHOTO COPIES OF SHARE CERTIFICATES OF SRTL WERE GIVEN. AS THESE SHARES WERE NOT QUOTED THE MAR KET PRICE COULD NOT BE GIVEN TO THE AO. THE A/R HAS FURTHER SUBMITTED THAT ONLY LOSS OF RS.75610/- OF SRTL SHARE WAS CLAIMED (TO WHICH ONLY BUY BACK AGREEMENT PERTAINED) BUT THE ENTIRE LOSS OF RS.5,91 ,995/- HAS BEEN DISALLOWED. IT IS SEEN THAT THE A/R HAS SUBMITTED ALL THE DETAI LS IN RESPECT OF PURCHASE AND SALE OF SHARES BUT THE BUY BACK AGREEM ENT HAS NOT YET BEEN FURNISHED. THEREFORE, LOSS IN RESPECT OF SALE OF SH ARES OF SHREE RAJASTHAN TEXCHEM LTD IS NOT ALLOWED. THE LOSS IN RESPECT OF OTHER TWO SHARES, M/S SWAN INDIA LTD AND M/S S.C. KUCHHAL FINANCE CO. LTD IS ALLOWED. THE APPEAL IS PARTLY ALLOWED ON THIS POINT. 20 5.4 WE HAVE HEARD BOTH THE PARTIES. THE GRIEVANCE O F THE REVENUE IS THAT THE ASSESSEE HAS SOLD THE SHARES AT COST PRICE AND AFTER ADOPTIN G COST AS PER INDEXATION, THE ASSESSEE HAS CLAIMED LOSS. THE ASSESSEE HAS GIVEN THE NAMES OF T HE PARTIES TO WHOM THE SHARES HAVE BEEN SOLD. IT IS NOT THE CASE OF THE REVENUE THAT T HE ASSESSEE HAS RECEIVED CONSIDERATION OVER AND ABOVE THE SALE PRICE. FOR ADOPTING CAPITAL GAIN, ONE HAS TO CONSIDER THE FULL VALUE OF THE CONSIDERATION. IN RESPECT OF IMMOVABLE PROP ERTY, SECTION 50C HAS BEEN INTRODUCED. ONE CANNOT FORCE THE ASSESSEE TO EARN PROFIT. THE T RANSACTION HAS NOT BEEN CONSIDERED AS SHAM OR NON-GENUINE. THE HON'BLE APEX COURT IN THE CASE OF K. P. VARGHESE. VS ITO, 131 ITR 597 HAS HELD THAT ASSESSEE MUST BE SHOWN TO HAVE RECEIVED MORE THAN WHAT IS DISCLOSED OR DECLARED BY HIM AS CONSIDERATION. WE T HEREFORE, FEEL THAT THERE WAS NO CASE OF DISALLOWING THE LOSS. HENCE, THE GROUND NO. 5 OF THE REVENUE IS DISMISSED WHILE GROUND NO. 2 OF THE ASSESSEE IS ALLOWED. 6.1 THE SIXTH GROUND OF REVENUE IS THAT THE LD. C IT(A) HAS ERRED IN DIRECTING THE AO TO ALLOW DEDUCTION U/S 80IA ON MILL NO. 2 AND 3 AS CLAIMED BY THE ASSESSEE. 6.2 WE HAVE HEARD BOTH THE PARTIES. IT IS NOTICED T HAT IN CASE THE ADDITION OF RS. 1.88 CRORES MADE U/S 145A IS DELETED THEN THERE WILL BE RESULTANT BUSINESS LOSS. HENCE, THE ISSUE OF ALLOWING DEDUCTION U/S 80IA IS ONLY ACADEM IC. THIS ISSUE WILL ARISE IN THE YEAR WHERE DEDUCTION U/S 80IA IS ALLOWABLE. 7.0 NOW WE TAKE UP THE APPEAL OF THE ASSESSEE IN IT A NO. 159/JU/06. 7.1 THE FIRST GROUND OF ASSESSEE IS THAT THE LD. CI T(A) HAS ERRED IN DISALLOWING CLAIM TOWARDS REPLACEMENT OF PLANT AND MACHINERY TO THE T UNE OF RS. 5,98,640/-. 7.2 THIS ISSUE HAS BEEN CONSIDERED BY THE LD.CIT(A) PARA 6.1 TO 6.3 OF HIS ORDER WHICH IS REPRODUCED AS UNDER:- 21 6.1 AOS CASE . IN THE ORDER THE AO HAS STATED THAT VIDE LETTER D ATED 2.06.2004 CLAIMED 100% DEPRECIATION ON PLANT & MACHINERY REPLACED DUR ING THE YEAR. THE AO ASKED THE ASSESSEE TO FILE EVIDENCE AND FURTHER SUP PORTING IN RESPECT OF THIS CLAIM. IN RESPONSE TO WHICH THE ASSESSEE FILED INVOICE NO .. MD 11100812 DATED 31.12.2001ISSEUD BY LAKSHMI MACHINE WORKS LTD, CO IMBATORE IN RESPECT OF DRAW FRAME MACHINE. IN THE ORDER THE AO REPRODU CED THE RELEVANT PORTION OF UNDER SECTION 37(1). THE AO FURTHER STATED THAT THE ALLEGED REPLACEMENTS HAVE BEEN EFFECTED IN TUF THE TERMS OF WHICH HAVE NOT B EEN EXPLAIEND. BESIDES, THE MEANING OF TERMS REPLACEMENT AS UNDERSTOOD BY TH E ASSESSEE SO AS TO CLAIM 100% DEPRECIATION AHS NOT BEEN SPELT OUT. HE FURTH ER STATED THAT WITH THE INTRODUCTION OF BLOCK SYSTEM FOR THE PURPOSE OF CL AIM OF DEPRECIATION UNDER THE I.T. ACT, THE COST OF NEW PURCHASES/ADDITION TO A P ARTICULAR BLOCK IS ADDED TO THE OPENING WDV AND AFTER DEDUCTING THE VALUE OF SALE , IF ANY, THE NET FIGURE IS TAKEN AS THE ELIGIBLE VALUE FOR CLAIM OF DEPRECIAT ION. THE ASSESSEE HAS ALSO CLAIMED THE DEPRECIATION ON THE SAME FORMULA. THE DRAW FRAME MACHINE REFERRED TO BY THE ASSESSEE DOESNT APPEAR IN THE DEPRECIATI ON CHART FIELD ALONG WITH THE RETURN MEANING THEREBY THAT IT IS PART AND PARCEL O F BLOCK OF ASSETS COMPRISED IN THE PLANT AND MACHINERY. THE AO CONSIDERED THE F ACTS OF THE CASE AND HELD THAT IN VIEW OF THE NOTE GIVEN ON ACCOUNTS THAT THE ASSE SSEE HAS ALREADY CHARTED DEPRECIATION AS PER THE TECHNOLOGY UPGRADATION FUND , THOUGH IT WAS NOT CLEARLY VERIFIABLE. IN VIEW OF THE DETAILED DISCUSSIONS, THE AO DISALLOWED THE CLAIM FOR 100% DEPRECIATION. 6.2 APPELLANTS CASE. DURING THE COURSE OF APPELLATE PROCEEDINGS IT HAS B EEN STATED THAT THE DRAW FRAMES HAVE NO INDEPENDENT EXISTENCE OR UTILITY UNL ESS WORKED TOGETHER WITH OTHER MACHINES, THAT ITS FUNCTION IS ANCILLARY, THAT IT I S ONLY A SUPPORTIVE MACHINE USED FOR DRAWING THE ROUGH YARN AND THAT THEY ARE NOT MA CHINES CAPABLE OF INDEPENDENT FUNCTION, AND THEREFORE THE COST INCURRED ON SUCH DRAW FRAMES IS NOT DISSIMILAR IN NATURE AND CHARACTER SAY TO THE REPLACEMENTS OF A R ADIATOR OR A CARBURETOR IN A MOTOR ENGINE. THE DRAW FRAME REPLACED WERE IN PLAC E OF ABOUT A DECADE OLD 22 FRAMES WHICH HAD BECOME UNAVOIDABLE, THE ONLY GAIN TO THE APPELLANT IS EFFICIENT FUNCTIONING WITHOUT BREAKDOWN. IN THIS RESPECT TH E LD. A/R PLACED RELIANCE IN THE CASE OF S.N. ZUBIN GEORGE VS CIT (2004) 6 82 (KER) AND THE MADRAS HIGH COURT IN THE CASE OF CIT VS SAK THAI TEXTILES LTD (2001) 250 ITR 449 (MAD) IN WHICH IT HAS BEEN HELD THAT REPLACEMENT OF WORN OUT SPEED FRAMES DID NOT FAIL WITHIN THE CAPITAL FIELD BUT WAS AN EXPENDITUR E WHICH HAD TO BE ALLOWED AS REVENUE EXPENDITURE. HE FURTHER STATED THAT EVEN I N NEW CONCEPT, BLOCK OF ASSETS AS PER 196 CTR 551 (MAD) HELD THAT REPLACEMENT OF MACHINE IN TEXTILE MILLS IS REVENUE EXPENDITURE. FURTHER THE LOAN GIVEN BY THE FINANCIAL INSTITUTIONS UNDER TUF DOES NOT CHANGE THE NATURE OF TRANSACTION OR T HE EXPENSES FROM REVENUE TO CAPITAL AS HAS BEEN WRONGLY HELD BY THE A.O. IN V IEW OF THE ABOVE, THE LD. A/R CONTENDED THAT THE AO WAS NOT JUSTIFIED IN REJECTIN G THE CLAIM OF THE APPELLANT AND THE SAME DESERVES TO THE ALLOWED. 6.3 DECISIONS : I HAVE CONSIDERED THE OBSERVATIONS OF THE AO AND TH E CONTENTIONS OF THE LD. A/R OF THE APPELLANT AND FOUND THAT THE APPELLA NT CLAIMED TOTAL AMOUNT OF EXPENDITURE OF RS.6,84,160/- ON PLANT & MACHINERY U/S 37 OF THE ACT. THE AO DID NOT ACCEPT IT AND INSTEAD OF ALLOWED DEPRECIATI ON @ 25%. THE AO HAS SUBMITTED IN THIS REGARD THAT ONE DRAW FRAME MACHIN E FOR RS.6,84,160/- WAS PURCHASED VIDE BILL DATED 31.12.2001 FORM LAKSHMI MACHINE WORKS FOR REPLACEMENT OF AN OLD HIGH SPEED DRAW FRAME PURCHAS ED IN 1983. IT IS FURTHER SUBMITTED THAT THIS MACHINE DOES NOT HAVE INDEPENDE NT EXISTENCE OR UTILITY UNLESS WORKED TOGETHER WITH THE OTHER MACHINES. THE A/R HAS ALSO PLACED RELIANCE OF THE DECISION OF THE KERELA HIGH COURT IN THE CASE O F S.N. ZUBIN GEORGE VS CIT (2004) 682 AND MADRAS HIGH COURT IN THE CASE OF CI T VS SAK THAI TEXTILES LTD (2001) 250 ITR 449 WHEREIN IT HAS BEEN HELD T HAT REPLACEMENT OF WORN OUT SPEED FRAME DID NOT FALL WITHIN THE CAPITAL FIELD B UT WAS AN EXPENDITURE WHICH HAD TO BE ALLOWED AS REVENUE. IT IS CLEAR FROM THE A/R'S SUBMISSION ITSELF THAT T HE MACHINERY OF 10 YEARS OLD HAS BEEN REPLACED BY NEW ONE. IT MEANS THAT THE MACHINE DOES HAVE THE ENDURING NATURE BENEFIT OR MO RE OVER THE APPELLANT WOULD GET THE BENEFIT OF 100% DURING FOUR YEARS IN CASE T HE DEPRECIATION @ 25% IS 23 ALLOWED RATHER ALLOWING IT AS A REVENUE EXPENDITURE . THIS ASSET WOULD DEFINITELY FALL UNDER THE BLOCK OF ASSETS AND ENTITLED TO CLAI M DEPRECIATION. UNDER NO STRETCH OF IMAGINATION, THIS CAN BE TREATED AS REVENUE EXPE NDITURE U/S 37 OF THE ACT. THEREFORE, THE DISALLOWANCE IS CONFIRMED. THE APPEA L IS DISMISSED ON THIS POINT . 7.3 WE HAVE HEARD BOTH THE PARTIES. THE EXPRESSION CURRENT REPAIRS HAS BEEN CONSIDERED BY THE HON'BLE APEX COURT IN THE CASE OF CIT VS SARVANA SPINNING MILLS (P) LTD. 293 ITR 201. THE CURRENT REPAIR IS AN EXPENDIT URE TO BE PRESERVED AND MAINTAINED IN ALREADY EXISTING ASSETS. THERE ARE SEVERAL MACHINES IN EACH DEPARTMENT / DIVISION IN TEXTILE MILL AND EACH DEPARTMENT / DIVISION PRODUCES A DIFF ERENT OUTPUT WHICH IS CARRIED FORWARD TO THE NEXT DEPARTMENT / DIVISION HAVING DIFFERENT MACHINES THEREIN. IT CANNOT BE SAID THAT THE TEXTILE MILL CONSTITUTE ONE PLANT. IT CANNOT BE SAID THAT MANUFACTURING PROCESS IN TRHE TEXTILE MILL IS ONE CONTINUOUS INTEGRATED PROCESS. THE HON'BLE APEX COURT HELD THAT RING FRAME IS AN INDEPENDENT AND SEPARATE MACHINE AND TH EREFORE, EXPENDITURE INCURRED IN REPLACEMENT OF RING FRAME BY THE ASSESSEE CANNOT C OME WITHIN THE MEANING OF THE WORD CURRENT REPAIRS IN SECTION 31 (I). THE HON'BLE APE X COURT OBSERVED THAT REPLACEMENT GENERALLY MAY NOT FALL UNDER THE EXPRESSION CURRE NT REPAIRS BUT IN CERTAIN CASES WHERE OLD PARTS WERE NOT AVAILABLE IN THE MARKET OR WHER E THE OLD PARTS HAD WORKED FOR 50 TO 60 YEARS THEN THE IN SUCH CASES OF EXPENDITURE FALL WI THIN THE EXPRESSION CURRENT REPAIRS. APPLYING THE TEST LAID DOWN BY THE HON'BLE APEX COU RT, WE HOLD THAT THE LD.CIT(A) WAS JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 5,98,64 0/- 8.1 THE FOURTH GROUND OF THE ASSESSEE IS CHARGING O F INTEREST U/S 234B AND 234D AND WITHDRAWING THE INTEREST U/S 244A OF THE ACT. 8.2 WE HAVE HEARD BOTH THE PARTIES. THE CHARGING OF INTEREST IS MANDATORY AND CONSEQUENTIAL IN NATURE. 24 9.1 DURING THE COURSE OF HEARING, THE LD. AR HAS NO T PRESSED THE GROUND NO. 5. HENCE, THE SAME IS DISMISSED BEING NOT PRESSED. 10 IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND THAT OF THE ASSESSEE IS PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 09-12 -2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JODHPUR DATED: 09/12/2011 MISHRA COPY TO: 1. M/S. SHREE RAJASTHAN SYNTEX LTD. , UDAIPUR 2. THE ACIT, CIRCLE- 2, UDAIPUR 3.THE LD. CIT (A) BY ORDER 4.THE CIT 5.THE D/R 6.THE GUARD FILE (ITA NO. 159 & 203/JU/06) A.R.. ITAT: JODHPUR