Raymon Patel Gelatine Pvt.Ltd., Baroda V. The ACIT.,Circle-4, Baroda

ITA 2620/AHD/2012

AI Insights

The case involves Raymon Patel Gelatine Pvt. Ltd., the appellant, contesting various disallowances made by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) for the assessment years 2005-06 and 2006-07. The primary issues revolved around the treatment of interest expenses related to capital work-in-progress, disallowance of prior period expenses, and ad hoc disallowances on vehicle maintenance and travel expenses. The Tribunal examined the precedents and the financial practices of the assessee, particularly focusing on the principles of tax neutrality and the consistent application of accounting practices over the years.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131462 (ITAT-AHMEDABAD)
• Duration Of Justice: 10 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 23-01-2023
• Assessment Year: 2006-2007
• Appeal Filed On: 18-11-2012
• Other Referred Cases: CIT Vs Raghuvir Synthetics Ltd, CIT Vs Reliance Utilities & Power Ltd, PCIT v. Adani Enterprises Ltd., Dishman Pharmaceuticals & Chemicals Ltd. vs. CIT, Exxon Mobil Lubricants (P.) Ltd. vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation
• Section: 250

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH Before: Ms. Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Ray mo n Patel Gelatin e P. Ltd .61, Haribhakti Ex tension, Old Padra Ro ad, Baroda-39000 7 PAN: AACCR4454 R (Appellant) Vs The ACIT, Circle-4, Baroda (Resp ondent) Asses see b y : Shri M ehul K. Patel, A. R. Revenue by : Shri Atul Pandey , S r. D. R. Date of hearing : 24-01 -2 023 Date of pronouncement : 03-03 -2 023 आदेश /ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- These two appeals filed by the assessee are against the order of the ld. Commissioner of Income Tax (Appeals)-III, Baroda, in proceeding u/s. 250 vide order dated 28/08/2012 & 29/08/202012 passed for the assessment year 2005-06 & 2006-07. ITA Nos. 2619 & 2620/Ahd/2012 Assessment Years 2005-06 & 2006-07 I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 2 2. The assessee has raised the following grounds of appeals: Assessment year 2005-06 “1. That on facts, and in law, the learned CIT(A) has grievously erred in confirming the addition of Rs. 6,01,250/- being share issue expenses, treating the same as capital in nature. 2. That on facts and in law, the learned CITIA) has grievously erred in confirming the disallowance of interest expense of Rs. 59, 82, 299/- on the erroneous premises that the same pertains to capital work-in- progress. 3. That on facts and in law, the learned CIT(A) has grievously erred in confirming the disallowance of Rs. 3,16,834/- considering the same as prior period expenses. 4. The learned CIT(A) has grievously erred in law and on facts in confirming the disallowance Rs. 38, 15, 681/-. 5. That on facts and in law, the learned CIT(A) has grievously erred in confirming disallowance to the extent of 5% out of travelling expenses of Rs.14,94,784/- 6. That on facts and in law, the learned CIT(A) has grievously erred ion confirming the disallowance of Rs.50,000/- made out of vehicle and maintenance expense. 7. The appellant craves leave to add, alter, amend any ground of appeal.” Assessment year 2006-07 “1. That on Facts and in law, the learned CIT(A) has grievously erred in confirming the disallowance of interest expense of 3,91,90,224/- on the erroneous premises that the same pertains to capital work-in-progess I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 3 2. The appellant craves leave to add, alter, Send any grain of appeal.” 3. Since common issues are involved in both the appeals and the consideration, our observations for assessment year 2005-06 shall also apply to assessment year 2006-07. 4. We shall first take up the assessee’s appeal of the assessee for assessment year 2005-06. Grounds Number 1: addition of 6,01,250/- being share issue expenses by treating the same as capital in nature 5. At the outset, the counsel for the assessee submitted that he shall not be pressing for ground number 1. Accordingly ground number 1 of the assessee’s appeal is dismissed as being not pressed. Grounds Number 2: disallowance of interest expense of 59,82,299/ - on the ground that the same pertains to capital work in progress 6. The brief facts of this ground of appeal are that during the course of assessment, the AO observed that the Capital WIP (CWIP) of the assessee was enhanced by 45,99,889/- and the total CWIP as on 31-03-2005 was at 12,31,83,837 /-. The assessee had claimed interest expense of 28,826,833/- but had not reduced the interest on the said CWIP. The AO observed that the assessee had own funds of 106,465,947/- as on 31-03- 2005. The assessee had borrowed fund of 486,763,989/- as on 31-03-2005 and the assessee had investment in CWIP of 123,183,837/- as on 31-03- I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 4 2005. Therefore, the AO held that investment in CWIP is partly out of interest-bearing funds and partly out of interest free funds since the assessee had not filed separate accounts for investment in CWIP and application of borrowed money for other business purposes. Accordingly, the AO worked out the expenditure on account of interest relatable to CWIP on pro-rata basis i.e. proportionately on the basis of interest-bearing fund and interest free funds and made disallowance of 5,982,299/- and added the same to the total income of the assessee. 7. In appeal, Ld. CIT(Appeals) dismissed the appeal of the assessee by relying upon the order passed by his predecessor for assessment year 2004- 05. While dismissing the appeal of the assessee, Ld. CIT(Appeals) observed as under: “6.2 I have given considered the facts of the case, arguments advanced by the AR as also the observation of the AO. Similar disallowance made by the AO for the AY 2004-05 was upheld by my predecessor vide his order in appeal No.CAB/III-344/06-07 dated 18- 11-2008 by stating as follows: "I have considered the submissions of the counsel and facts of the case. It is not in dispute that the appellant was having substantial capital work in progress as on 31.03.2004 i.e. Rs. 11.98 crores. AS per the amended provisions of section 36(l)(iii) interest on capital borrowed for the purpose of capital assets is to be capitalized till the asset is put to use. Admittedly the CWIP closing balance of Rs. 11.98 crores have not been put to use during the year and as such, claim of I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 5 interest on borrowed funds relating to such CWIP is not allowable and the same has to be capitalized. The appellant submitted that no amounts were borrowed during this year and only Rs. 39.85 lacs were added to the CWIP during the year and as such there was no major addition in the current year in the value of CWIP. These arguments are not correct and relevant to the issue. As far as claim of interest is concerned, the same is not for only capital borrowed during the year but also on outstanding balance during the year. Similarly, the increase or no increase in CWIP during the year is not relevant as far as capitalization of interest on outstanding borrowing are concerned. In is not in dispute that the appellant has borrowed huge funds to the extent of more than Rs. 55 crores which is invested in fixed assets as well as current assets. The appellant's funds are fixed and from and from the common funds investment are made in CWIP as well as inventory and debtors etc. Total interest paid was Rs. 2,20,24,107/- on unsecured loan and Rs. 40,65,595/- on unsecured loan. The Assessing Officer considered interest on secured loan as business expense and allowed the same. He considered Rs. 40,65,595/- interest paid on unsecured loan as deployed on capital work in progress. Since appellant has not maintained any record or details for use of borrowed funds, it cannot be said that borrowed funds were not used for CWIP. Out of total interest of more than Rs. 2.06 crores the Assessing Officer considered Rs. 40.65 lacs as interest on capital borrowed for the purpose of CWIP. Further this interest is treated as part of CWIP on which appellant will be eligible for depreciation from the year in which the CWIP will become business I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 6 assets and will be used for the purpose of business. The disallowance of interest cannot be restricted to current year's borrowing or current year's CWIP since interest is paid on the funds borrowed earlier and utilized as CWIP. I, therefore hold that the interest to the extent of Rs. 40.65 lacs were relating to CWIP and hence as per newly introduced provision to section 36(l)(iii), the same is disallowable. The addition made by the Assessing officer is confirmed." 6.3 The other submissions Made by the appellant is that in the AY 2004-05 no such addition on account of interest paid on secured loan had been made whereas in the current year the AO has considered interest paid on secured loan also for such disallowance. It was submitted that the AO should be directed to restrict the disallowance only to the proportionate amount of interest paid on unsecured loan and not on secured loan. The appellant's submissions are not acceptable. It is a settled principal that principle of Res Judicata does not apply to income-tax assessments. Just because the AO in the earlier year erred in not making disallowance of interest paid on secured loans, does not mean that in the current year the AO is precluded from making such addition. This is owing to the fact that the basis on which the addition on account of interest paid on unsecured loan was confirmed by my predecessor, is also applicable to the interest paid on secured loans. 6.4 Hence addition made by the A.O. is upheld and this ground of appeal is dismissed.” I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 7 8. The assessee is in appeal before us the against the aforesaid addition made by Ld. CIT(Appeals). Before us, the counsel for the assessee submitted that primarily, Ld. CIT(Appeals) has relied upon the order of his predecessor for assessment year 2004-05. However, the ITAT deleted the addition in the assessee’s own case for assessment year 2004-05 in ITA number 278/Ahd/2009 vide order dated 29-01-2019 on this issue. Besides the above, the counsel for the assessee submitted that during the year, addition to CWIP was to the tune of 34,00,524/- only, whereas interest free funds available with the assessee were to the tune of 29,72,49,635/ -. In response, DR primarily relied upon the observations made by Ld. CIT(Appeals) in the appellate order. 9. We have heard the rival contentions and perused the material on record. We observe that the ITAT on similar issue in the assessee’s own case for assessment year 2004-05 has allowed the appeal of the assessee on the ground that once the assessee establishes that the interest free funds available with the assessee are far in excess of investments in CWIP, the presumption has to be that the investments are made out of interest free funds. The ITAT observed as below, while allowing the appeal of the assessee: “7. We find that the impugned disallowance is based on the presumption, and without any cogent material to support such presumption, that all the unsecured loans are raised for the purpose of making investments in the capital work in progress. This I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 8 presumption clearly contradicts with CIT(A)'s own finding, as reproduced above, to the effect that "the appellant's funds are mixed and from the common funds investments are made in CWIP as well as inventory and debtors etc". If the funds are mixed funds, as is the finding of the CIT(A), there cannot be any basis for the conclusion, as has been eventually adopted by him, that entire unsecured loans are used for the purpose of investment in CWIP (i.e. capital work in progress). It is also not in dispute, and the financial statements filed by the assessee clearly re-establish that, that the investments in CWIP are far in excess of the interest free funds available to the assessee. In such circumstances, in the light of Hon'ble jurisdictional High Court's judgment in the case of CIT Vs Raghuvir Synthetics Ltd (354 ITR 222) and Hon'ble Bombay High Court's judgment in the case of CIT Vs Reliance Utilities & Power Ltd (313 ITR 340), the presumption has to be that the investments are made out of interest free funds. That is the approach consistently taken by various coordinate benches of this Tribunal. Clearly therefore, whichever way one looks at it, there is no legally sustainable foundation for the presumption that borrowed funds were used in the capital work in progress. The CIT(A) himself admits that the funds are mixed and that the only basis is the nature of loan i.e. secured loan vs unsecured loan. In view of these discussions, as also bearing in mind entirety of the case, we uphold the plea of the assessee and delete the impugned disallowance of Rs40,65,595 on the admitted presumption that the secured loans were used in the capital work in progress. The assessee succeeds on this point. I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 9 Ground no. 1 is thus allowed.” 9.1 In the instant case, we observe that while the addition to CWIP was tune of 34,00,524/- but the assessee had own interest free of 29,72,49,635/- and hence the interest-free funds available with the assessee are far in excess of addition to CWIP. Respectfully following the decision of ITAT in the assessee’s own case for assessment year 2004-05, we hereby allow the appeal of the assessee with respect to ground number 2. 10. In the result, ground number 2 of the assessee’s appeal is allowed. Ground number 3: CIT(Appeals) erred in confirming disallowance of 3,16,834/- considering the same as prior period expenses 11. The brief facts in relation to this ground of appeal are that the AO during the course of assessment added a sum of 3,16,834/- to the income of the assessee on the ground that the assessee had incorrectly claimed prior period expenses in the profit and loss account. The assessee filed appeal before CIT(Appeals) against the aforesaid additions made by the AO. The assessee submitted that though these expenses are pertaining to the previous periods, but the same were not claimed by the assessee as deduction in any of the earlier years and further it is evident from the nature of expenses that the same were incurred for the business of the assessee as the expenses related to freight, insurance, foreign exchange fluctuation loss and adjustment of difference of audit fees. Further, the assessee submitted that the assessee had, during the year under consideration, offered a sum of 4,75,896/- as prior period income and also deducted a sum of 3,16,834/- I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 10 as prior period expenses, however the AO has on one hand disallowed prior period expenses of 3,16,834/ - on the ground that the same relate to prior years but has taxed the sum of 4,75,896/- even though the said income pertains to prior years. Therefore, if the AO has disallowed prior period expenses on the basis that they do not pertain to the year under consideration, then the prior period income should also not be subject to tax during the year under consideration. However, CIT Appeals dismissed this ground of appeal of the assessee on the basis that the assessee failed to establish that these expenses crystallised during the year under consideration. The Ld. CIT(Appeals) made the following observation while disallowing this ground of appeal of the assessee: “8.2 I have given my careful consideration to the facts of the case, arguments advanced by the AR as also the observation of the AO. The appellant has failed to establish that these expenses crystallized during the previous year 2004-05. Thus, it failed to prove that the expenses had accrued during this year. The reliance placed by the AR on the decision in the case of Saurashtra Cement and Chemical Industries Ltd. v. CIT (1995) 213 ITR 523(Guj), is misplaced as he has failed to point out the complete ratio laid down by this decision. In this case Hon'ble High Court has held as follows: "Merely because an expense relates to a transaction of an earlier year it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question on the basis of maintaining accounts on the mercantile basis. I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 11 In each case where the accounts are maintained on mercantile basis, it has to be found in respect of any claim whether such liability was crystallized and quantified during the previous year as required to be adjusted in the books of account of that previous year. If any liability, though relating to the earlier year, depends upon making a demand and its acceptance by the assessee and such liability has been actually claimed and paid in the later previous years, it cannot be disallowed as deduction merely on the basis that accounts are maintained on mercantile basis and that it relates to a transaction of the previous year. The true profit and gain of a previous year are required to be computed for the purpose of determining tax liability. The basis of taxing income is accrual of income as well as actual receipt. If for want of necessary material crystallizing the expenditure is not in existence in respect of which such income or expenses relates, the mercantile system does not call for an adjustment in the books of account on estimate basis. It is actually known income or expenses, right to receive or liability to pay which has come to be crystallized is to be taken into account under mercantile system of maintaining books of account. An estimated income or liability,, which is yet to be crystallized, can only be adjusted as contingency item but not as an accrued income or liability of that year." Thus, as per this decision, the appellant has to show that these particular expenditures had crystallized during this year, which it has failed to do. I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 12 8.3 Hence the AO's action is upheld and this ground of appeal is dismissed.” 12. The assessee is in appeal before us against the aforesaid additions made by Ld. CIT(Appeals). Before us, the counsel for the assessee reiterated the submissions made before CIT Appeals and submitted that the assessee is a limited company and has been taxed at uniform rates in all the years. This is a consistent practice which has been adopted by the assessee for several years and is a tax neutral exercise and no prejudice is caused to the Revenue on this count. Further, the counsel for the assessee submitted that the assessee has also offered prior period income of 4,75,896/- during the year under consideration which has been accepted by the Department. The assessee placed reliance on the case of Hon'ble High Court of Gujarat in the case of PCIT v. Adani Enterprises Ltd. in appeal number 566 of 2016 dated 20-07-2016 in support of his contention. In response, DR relied upon the observations made by Ld. CIT(Appeals) in the appellate order at page 23. 13. We have heard the rival contentions and perused the material on record. In our considered view, we are in agreement with the assessee that assessee has been following a consistent practice of offering both prior period income as well as claiming deduction of prior period expenses, which is a tax neutral exercise. Further, looking at the nature of expenses, the same are revenue in nature and incurred for the purpose of business of the assessee. In the case of Principal Commissioner of Income Tax-I vs. Adani Enterprises Ltd [Tax Appeal No.566 of 2016 decided on 20th July I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 13 2016] made the following observations while allowing appeal of the assessee on similar issue: “ “(A) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in deleting the disallowance of Prior Period expenditure of Rs.67,88,591/-?” ....... “2. Main question is sum of Rs.67.88 lacs(rounded off) which the Assessing Officer and CIT(Appeals) disallowed treating the expenditure as a prior period expenditure. The Tribunal reversed the findings of the Revenue authorities primarily on two grounds. Firstly, that the assessee being a company was charged uniformly for all years and would therefore, have no revenue implication of whether the expenditure was recognised in this assessment year or earlier year. The second ground was that in any case, the Revenue had recognised the prior period income. If that be so, according to the Tribunal, it would be unfair not to recognise the expenditure also of the prior period. 3. Having heard learned counsel for the parties and having perused the documents on record, we see no reason to interfere. Firstly, the expenditure of Rs.67.88 lacs is a fraction of the total income of the assessee company declared at Rs.105.88 crores. Further, even the Revenue does not dispute that the company would be taxed at the same rate in the present assessment year or during earlier year. It is also not disputed that prior period I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 14 income was declared by the assessee during the current year which is also accepted by the Revenue. No question of law therefore, arises.” 13.1 Again the Gujarat High Court in the case of Dishman Pharmaceuticals & Chemicals Ltd. [2019] 112 taxmann.com 91 (Gujarat) held that once prior period income was held to be taxable, prior period expenditure should also be allowed to be set off and assessee was not obliged in law to indicate any direct or indirect nexus between prior period income and prior period expenditure. 13.2 The Delhi High Court in the case of Exxon Mobil Lubricants (P.) Ltd. [2010] 8 taxmann.com 249 (Delhi) held as under while allowing the appeal of the assessee: The assessee's liability under the agreement had arisen and accrued in August, 2002, when the agreement was executed and, therefore, its liability to pay for period January, 2002 to March, 2002 arose and crystallized in August, 2002. It is pertinent to mention that the Commissioner (Appeals) had observed that the assessee had shown prior period expense of Rs. 1.34 crores against which the prior period income was shown as Rs. 83.21 lakhs and the net amount of Rs. 51.13 lakhs had been shown as expenditure in the account. The Commissioner (Appeals) held that if the assessee had shown prior period income and the Assessing Officer had not excluded it while working out the relevant current year's taxable I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 15 income then there was no reason on the part of the Assessing Officer to disallow only one part of the prior period adjustments, i.e., the prior period expenditure. 13.3 Accordingly, in view of the above discussion and in light of the judicial precedents cited above, ground number 3 of the assessee’s appeal is allowed. Ground number 4: disallowance of depreciation of 38,15,681/- 14. The brief facts relating to this ground of appeal are that during the course of assessment the AO noted that the assessee had purchased machineries from 1994 to 2005 and had put the same to use from 2 nd October 2004. However, as per the AO, the assessee failed to prove the utilisation of the machineries during the year under consideration. Accordingly, the AO disallowed the depreciation on the said machineries amounting to 3,815,681/-. 15. In appeal before Ld. CIT(Appeals), the assessee submitted that it had submitted the documentary evidences certifying that the said machineries were purchased from 1994 to 2005, and the installation certificate from the general manager of the factory, certifying the installation and usage of the same was also furnished before the AO. Further, the assessee submitted installation certificate from an independent party was also produced before Ld. CIT(Appeals), which certified that the machines were installed and put to use during the relevant year. Though the said certificate from independent I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 16 party was not produced before the AO during the course of present assessment, but the same was filed by the AO in the assessment of subsequent assessment years. The Ld. CIT(Appeals) however, dismissed this ground of appeal of the assessee with the following observations: “9.3 Thus, in spite of being given sufficient opportunity of being heard, the appellant failed to produce the relevant documents/details asked for by the AO during the course of assessment proceedings. Nothing has been submitted during the appellate proceedings to show the reason for such failure. Under such circumstances, the submissions made by the appellant during the appellate proceedings are not admissible. Hence the action of the AO is upheld and this ground of appeal is dismissed.” 16. The assessee is in appeal before us against the aforesaid order passed by CIT on this issue. Before us the counsel for the assessee submitted that the aforesaid plant and machineries were purchased during 1994 to 2005 and were put to use in the current year. Besides the installation certificate by the general manager of the company, the assessee also filed an additional evidence before Ld. CIT(Appeals) in the form of installation certificate of 3 rd independent party certifying that the machinery were put to use during this year. These certificates were also filed by the assessee before the AO in subsequent years assessments and were also accepted by the Department. However, Ld. CIT(Appeals) did not admit the additional evidence and confirmed the addition. Ld. CIT(Appeals) did not give any specific reason as to why the additional evidence in the form of certificate from 3 rd I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 17 independent party certifying the installation of the aforesaid machineries during the year under consideration was not admitted by him. Counsel for the assessee relied on the decision of Southern Petrochemical Industries Corporation Ltd 311 ITR 202 (Madras) and submitted that it is a settled principle of law that depreciation is allowable even on passive user of plant and machinery. In response, the DR placed reliance upon the observations made by the assessing Officer and Ld. CIT(Appeals) in their respective orders. 17. We have heard the rival contentions and perused the material on record. In the case of Southern Petrochemical Industries Corporation Ltd 311 ITR 202 (Madras) the High Court held that stand-by assets not put to use during year will be entitled to depreciation. In the impugned year under consideration, the assessee had furnished certificate from the General Manager of the company and another certificate from an independent party to the effect that plant and machinery had been installed and put to use during the year under consideration. However, Ld. CIT(Appeals) did not accept the additional evidence placed before him during the course of appellate proceedings and dismissed this ground of appeal of the assessee. The evidence furnished by the assessee with regard to certificate issued by an independent party has also been accepted by the Department in the assessment of the assessee for subsequent years and depreciation on such plant and machinery was allowed accordingly. Looking into the instant facts, we are of the considered view that the assessee is eligible to claim depreciation on such plant and machinery installed and put to use during the year under consideration. I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 18 18. In the result, ground number 4 of the assessee’s appeal is allowed. Ground number 5: disallowance of 5% of travelling expenses of 1,494,780/- 19. The brief facts in relation to this ground of appeal are that during the course of assessment, the AO noted that the assessee had claimed travelling and conveyance expenses of 14,94,780/-, which is almost double as compared to the preceding assessment year. The AO asked the assessee to justify the increase in the expenses. During the assessment, the assessee furnished certain details and the AO noted that most of the expenses were incurred in cash. The AO held that since the assessee failed to furnish any concrete evidence in the form of bills, vouchers etc. he disallowed 149,478/- being 10% of these expenses and added the same to the total income of the assessee. 20. In appeal, Ld. CIT(Appeals) observed that AO is correct in holding that these expenses were mostly incurred in cash and were supported by self- made vouchers and hence most of the expenses are not verifiable. However, to meet the ends of justice, Ld. CIT(Appeals) restricted the disallowance to 5% of such expenses. 21. The assessee is in appeal before us against the aforesaid additions on account of travelling expenses confirmed by Ld. CIT(Appeals) to the extent of 5% of such expenses. In the case of Indian Metals and Ferro Alloys I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 19 Ltd.[2022] 142 taxmann.com 541 (SC), the Hon'ble Supreme Court dismissed SLP of the assessee filed against High Court order that where assessee-company claimed expenditure towards foreign travel of its directors, since assessee had not furnished any details that such foreign travel expenses were incurred wholly and exclusively for business purposes, Assessing Officer was justified in disallowing 20 per cent of such expenditure claimed by assessee. In the case of Vardhman Shipping (P.) Ltd.[2022] 142 taxmann.com 547 (Ahmedabad - Trib.), the Assessee debited certain amount of travel ticket expenses and travelling expense. The Assessing Officer disallowed 1/5th of said expenses. It was noted that assessee had submitted statement substantiating payment towards said expenses before Commissioner (Appeals), however, it had not been clarified as to how said expenditure was being incurred for business purpose. The ITAT held that impugned disallowance made by Assessing Officer was rightly confirmed by Commissioner (Appeals). In the case of Kohinoor Indian (P.) Ltd.[2021] 129 taxmann.com 396 (Amritsar - Trib.), where assessee claimed foreign travel expenses, however, some vouchers for expenditure incurred by assessee were missing, order of lower authorities restricting expenditure to 5 per cent, in absence of supporting document was reasonable. In the present case, Ld. CIT(Appeals) observed that most of the expenses have been incurred in cash and the supporting vouchers were also self-made by the assessee. According, most of the expenses could not be verified. Accordingly, in our considered view, the Ld. CIT(Appeals) has been reasonable in restricting the disallowance to 5% of such expenses. I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 20 22. Accordingly, ground number 5 of the appeal of the assessee is dismissed. Ground number 6: disallowance of 50,000 out of the vehicle and maintenance expenses 23. The brief facts in relation to this ground of appeal are that the AO made ad hoc disallowance of 50,000 out of the upkeep and maintenance expenses. The AO noted that the assessee had claimed the vehicle upkeep and maintenance expenses of 1,235,413/ -. On perusal of the details, the AO further noted that a part of these expenses were incurred in cash and were supported by self-made vouchers only. Therefore, the AO disallowed 50,000/- out of these expenses and added the same to the total income of the assessee. 24. In appeal, Ld. CIT(Appeals) dismissed the appeal of the assessee on this ground of appeal on the ground that disallowance made out of vehicle upkeep and maintenance expenses is already less than 5% of such expenses. Hence, the disallowance of 50,000/- by the AO is upheld. 25. Before us, the counsel for the assessee submitted that similar disallowance was deleted by the ITAT in assessee’s own case for assessment year 2004-05 in ITA number 278/Ahd/2009 vide order dated 29-01-2009. The ITAT order was produced before us for our perusal. I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 21 25.1 In our considered view, looking into the facts of the instant case and the fact that disallowance has been made on a totally ad hoc basis and in light of the ITAT order in assessee’s own case for assessment year 2004-05 in ITA number 278/Ahd/2009, we are hereby allowing ground number 6 of the assessee’s appeal. 26. In the result, ground number 6 of the assessee’s appeal is allowed. 27. The other grounds of appeal raised by the assessee are general in nature and do not require any specific adjudication. 28. In the result, the appeal of the assessee is partly allowed for assessment year 2005-06. Assessment year 2006-07 Ground number 1: disallowance of interest expense of 51,90,224/- 29. Ground number 1 of the assessee’s appeal is identical to ground number 2 of the assessee’s appeal for assessment year 2005-06. The Ld. CIT(Appeals) for assessment year 2006-07 also dismissed the appeal of the assessee on the ground that on similar grounds, the appeal of the assessee was also dismissed for assessment year 2005-06. Since we have already decided this issue in favour of the assessee for assessment year 2005-06, ground number 1 of the appeal of the assessee is allowed. I.T.A Nos. 2619 & 2620/Ahd/2012 A.Y. 2005-06 & 2006-07 Page No. Raymon Patel Gelatine Pvt. Ltd. vs. ACIT 22 30. In the result, ground number 1 of the assessee’s appeal is allowed. Ground number 2 of the assessee’s appeal is general in nature and does not require any specific adjudication. 31. In the combined result, appeal of the assessee is partly allowed for assessment year 2005-06 and appeal of the assessee is allowed for assessment year 2006-07. Order pronounced in the open court on 03-03-2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 03/03/2023 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद