Yamazaki Mazak Singapore Pte. Ltd., Pune V. DCIT Cir.-10, Pune

ITA 346/PUN/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7656 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2002-2003
• Appeal Filed On: 19-03-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: HARESHWAR SHARMA ABHAY DAMLE
• Assessee Lawyers: AMDEKAR
• Keywords: Opportunity of being heard; Revenue expenditure
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE SHRI I.C. SUDHIR AND SHRI D. KARUNAKARA RAO ITA NO. 346, 347 & 1199/ PN/09 A.Y : 2002-03,2004-05 & 2006-07 YAMAZAKI MAZAK SINGAPORE PVT. LTD. ELPRO COMPOUND, CHINCHWAD GAON, PUNE 411 033 PAN NO. AAACY0807C .... APPELLANT VS. DCIT CIRCLE-10, PUNE . RESPONDENT ASSESSEE BY : SHRI S.H. AMDEKAR DEPARTMENT BY : SHRI HARESHWAR SHARMA / ABHAY DAMLE ORDER PER D. KARUNAKARA RAO AM THESE THREE APPEALS FILED BY THE ASSESSEE ARE AGAINS T THE ORDER OF CIT(A)- III, PUNE DATED 18-12-2008 & 14-07-2009 FOR THE ASSE SSMENT YEAR 2002-03, 2004-05 & 2006-07. APPEAL WISE ADJUDICATION IS TAKEN UP IN THE PRECEDIN G PARAGRAPHS. ITA NO. 346/PN/09 (A.Y 2002-03) 2. GROUNDS RAISED IN THIS APPEAL ARE AS FOLLOWS:- 1. THE LEARNED C.I.T(A) ERRED IN DISALLOWING THE D EVALUATION OF STOCK OF MACHINERY OF RS. 1,40,69,324/-. EVEN HE HA S ACCEPTED PRINCIPLE OF ACCOUNTING THE VALUE OF STOCK CAN BE DETERMINED AT COST PRICE OR MARKET VALUE, WHICHEVER IS LOWER. THE PRINCIPLE IS RECOGNIZED UNDER THE PROVIS ION OF INCOME TAX LAW ALSO. 2. THE LEARNED C.I.T(A) ERRED IS DISALLOWING THE DE VALUATION OF TOOLS OF RS. 19,37,179/-. EVEN HE HAS ACCEPTED PRIN CIPLE OF ACCOUNTANCY THE VALUE, WHICHEVER IS LOWER. THE PRIN CIPLE IS RECOGNIZED UNDER THE PROVISION OF INCOME TAX LAW AL SO. 3. THE LEARNED CIT(A) ERRED IS DISALLOWING OF WARRA NTY PROVISIONS OF RS. 1,57,386/-. TA NO. 346,347 & 1199/PN/09 A.Y: 2005-06 PAGE 2 OF 8 3. BRIEFLY STATED, RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN IMPORTING OF MACHINERY AND SELLING THE SAME TO THE SISTER CONCERNS. ON FINDING THAT THE ASSESSEE HAS DEVALUED THE MACHINERY AS WELL AS THE TOOLS IN CLOSING STOCK, THE A.O DISALLOWED THE DEVALUATION CLAIMS OF THE ASSESSEE, AS THERE IS NO BASIS FOR DEVALUATION AND THE FIGURES ARE MERE ESTIMA TES. FURTHER, REGARDING THE WARRANTY PROVISION, THE A.O IS OF THE OPINION THAT THE PROVISIONS CREATED IN THIS REGARD IS A MERE AN UNASCERTAINED LIABILITY AND THEREFORE , A.O MADE ADDITIONS ACCORDINGLY. DURING THE FIRST APPELLATE PROCEEDINGS OF THE ISSUES RELATING TO DEVOLUTION OF STOCK AS WELL AS TOOLS AS WELL AS THE WARRANTY PROVISION ASSESSEE MADE VARIOUS SUBMISSIONS BEFORE THE FIRST APPELLATE AU THORITY IN FAVOUR OF THE CLAIMS, BUT THE CIT(A) DID NOT APPROVE THE SAME. AC CORDINGLY, THE MATTER TRAVELED TO THE TRIBUNAL FOR ADJUDICATION AND THE GROUN D WISE DISCUSSION IS AS FOLLOWS- GROUND NO. 1 RELATES TO DEVALUATION OF STOCK OF MACHINERY TO THE TUNE OF RS. 1,40,69,324/-. RELEVANT FACTS ARE GIVEN IN PARA 3.1 A ND 3.2 OF THE IMPUGNED ORDER WHICH ARE AS UNDER:- 3.1 DURING ASSESSMENT PROCEEDINGS, THE ASSESSING O FFICER FOUND THAT THE VALUE OF FOUR MACHINERIES WAS SHOWN BY THE ASSE SSEE IN THE OPENING STOCK AT RS. 4,51,74,000/- AND THE SAME WAS ACCOUNT ED FORE IN THE CLOSING STOCK AT RS. 3,11,04,677/- SHOWING THAT STOCK OF MA CHINERY WAS DEVALUED BY THE ASSESSEE COMPANY BY AN AMOUNT OF RS. 1,40,69 ,324/-. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE AMOUNT OF RS. 1,40,69,324/- WAS EQUIVALENT TO THE AMOUNT OF CUSTOM DUTY AND OCT ROI PAID BY THE COMPANY ON PURCHASE OF THESE MACHINES. ON BEING REQ UIRED BY THE ASSESSING OFFICER, IT WAS EXPLAINED BY THE ASSESSEE THAT DURING THE YEAR UNDER CONSIDERATION, THE MANAGEMENT THOUGHT IT FIT TO DEVALUATE THE FOUR MACHINES WHICH WERE PURCHASED IN 1998-99 BUT STILL REMAINED UNSOLD AND WERE FORMING PART OF THE CLOSING STOCK. CONSIDERING DEVELOPMENT IN TECHNICAL AND ENGINEERING SECTOR, IT WAS FELT NECES SARY TO DEVALUATE THE MACHINERY VALUE. IT WAS SUBMITTED BY THE ASSESSEE T HAT AS PER SEC. 145 OF THE I.T. ACT, THE ASSESSEE HAD THE RIGHT TO VALUE I TS STOCK AT COST PRICE OR MARKET PRICE WHICHEVER IS LESS AND THE MANAGEMENT O F THE COMPANY HAD FOLLOWED THIS METHOD. 3.2 THE CONTENTION SO MADE WAS NOT ACCEPTED BY THE ASSESSING OFFICE. HE OBSERVED THAT THE ASSESSEE DID NOT PUT FORTH ANY INCIDENCE HAPPENING IN THE MARKET WHICH PROMPTED IT TO DEVALUE THE CLOS ING STOCK. IN THE EYE OF THE ASSESSING OFFICER, IT WAS TRUE THAT THE ASS ESSEE WAS ENTITLED TO VALUE THE CLOSING STOCK EITHER AT COST PRICE OR MAR KET PRICE WHICHEVER IS LOWER BUT THE ASSESSEE FAILED TO EXPLAIN THAT THE M ARKET PRICE OF THE CLOSING STOCK WAS SUBSTANTIALLY LESS THAN THE COST PRICE. HE FURTHER OBSERVED THAT ONE OUT OF THESE FOUR MACHINERY WAS S OLD AFTER SEVEN MONTHS AT RS. 98,35,714/- WHICH WAS LESS ONLY BY RS . 3,30,245/- THAN THE COST PRICE OF RS. 1,01,65,960/- WHEREAS THE ASSESSE E COMPANY DEVALUED THESE MACHINERY AT RS. 69,87,015/- WHICH WAS LESS B Y RS. 31,78,945/- THAN ITS COST PRICE. THESE FACTS GOADED THE ASSESSI NG OFFICER TO CONCLUDE THAT THE ASSESSEE COMPANY HAD NOT CONSIDERED THE ACT UAL MARKET PRICE TA NO. 346,347 & 1199/PN/09 A.Y: 2005-06 PAGE 3 OF 8 WHILE DEVALUING THE CLOSING STOCK AS ON 31.3.2002. THE ASSESSING OFFICER ALSO FAILED TO FIND ANY RELEVANCE IN THE ACTION OF THE ASSESSEE IN EXCLUDING THE AMOUNT OF CUSTOM DUTY AND OCTROI FROM THE TOTAL COST PRICE FOR THE PURPOSE OF ARRIVING AT THE MARKET VALUE OF THE CLOS ING STOCK. THE ASSESSING OFFICER FURTHER OBSERVED THAT ON ACCOUNT OF THE AGR EEMENT BETWEEN THE ASSESSEE COMPANY AND ITS PARENT COMPANY REGARDING B EARING OF LOSS BY THE PARENT COMPANY IN CASE ANY SALE WAS MADE BY THE ASSESSEE COMPANY WAS MADE BY THE ASSESSEE COMPANY AT THE PRICE LOWER THAN THE COST PRICE, THERE WAS NO NECESSITY TO MAKE ANY BOOK ADJUSTMENT OF DEVALUATION OF CLOSING STOCK BY RS. 1,40,69,324/- WHICH RESULTED I NTO DISCLOSURE OF LESS TAXABLE INCOME BY AN EQUIVALENT AMOUNT. 4. ASSESSEES SUBMISSIONS ARE DESCRIBED IN PARA 3.3. THE IMPORTANT SUBMISSION OF ASSESSEE IS THAT THE DEVALUATED FIGURE OF THE MACHINERY IS DIFFERING WITH THE ACTUAL SELLING PRICE TO THE TUNE OF 11%. IN OTHER WORDS, ORIGINAL COST OF THE IMPUGNED MACHINERY IS RS. 4,42,88,234/- AND THE DEVALUED FIGURE IS RS. 3,11,06,675/- AND THE SELLING PRICE OF THE SAME IS R S. 3,46,81,701/-. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE THE CIT(A ) DENIED IN GIVING RELIEF TO THE ASSESSEE FOR THE REASONS MENTIONED IN PARA 3.4 AND 3.5 OF THE IMPUGNED ORDER. DURING THE PROCEEDINGS BEFORE US LD. COUNSEL FOR T HE ASSESSEE ESSENTIALLY RELIED ON THE SUBMISSIONS GIVEN BY THE ASSESSEE TO T HE EARLIER AUTHORITIES. COPY OF WHICH IS PLACED BEFORE US. ON THE OTHER HAND LD. D R FOR THE REVENUE ARGUED STATING THAT DEVOLUTION IS MERE ESTIMATES. IT DOES N OT REFLECT THE MARKET VALUE OF THE PLANT AND MACHINERY. IT IS EVIDENT FROM THE FACT THAT THE ASSESSEE SOLD THE IMPUGNED MACHINERY TO RS. 3,46,81,701/- AGAINST THE DEVALUED FIGURE OF RS. 3,11,06,675/-. IN THE PROCESS THE CIT, DR IS OF THE VIEW THAT THE ASSESSEE FAILED TO PROVIDE ANY BASIS FOR DEVALUATION EITHER BEFORE THE LOWER AUTHORITIES OF BEFORE THE TRIBUNAL, IN SUCH CIRCUMSTANCES THE SAME CANNOT B E ALLOWED AS A BUSINESS LOSS. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE IN GENERAL PARA 3.3 & 3.4 OF THE IMPUGNED ORDER. FOR THE S AKE OF COMPLETENESS PARA 3.4 AND 3.5 ARE REPRODUCED AS UNDER:- 3.4 THE SUBMISSION HAS BEEN CONSIDERED AND IS FOUN D TO BE DEVOID OF ANY MERIT. AS PER ACCEPTED PRINCIPLE OF ACCOUNTANCY , THE VALUE OF STOCK CAN BE DETERMINED AT COST PRICE OR MARKET VALUE, WH ICHEVER IS LOWER. THIS PRINCIPLE IS RECOGNIZED UNDER THE PROVISIONS OF INC OME-TAX LAW ALSO. THEREFORE, THE ASSESSEE HAS THE OPTION EITHER TO VAL UE THE STOCK AT COST PRICE OR AT MARKET VALUE. ALTHOUGH THE ASSESSEE HAS CLAIMED THAT THE STOCK HAS BEEN VALUED AT MARKET VALUE, IT HAS TOTALLY FAI LED IN SUBSTANTIATING ITS CLAIM. AS HAS RIGHTLY BEEN POINTED OUT BY THE ASSES SING OFFICER, IN FACT, THE MACHINERY HAS BEEN SOLD AT A PRICE MUCH HIGHER THAN THE AMOUNT IT W AS VALUED AT BY THE ASSESSEE. ALTHOUGH THE APPELLANT H AS TRIED TO MEET THE OBJECTION OF THE ASSESSING OFFICER BY SUBMITTING TH AT THE AMOUNT FOR WHICH THE MACHINERY WAS SOLD WAS INCLUSIVE OF SALES TAX, IT HAS NOT CLEARLY TA NO. 346,347 & 1199/PN/09 A.Y: 2005-06 PAGE 4 OF 8 MENTIONED THE AMOUNT OF SALES TAX SO THAT ITS CONTE NTION COULD BE APPRECIATED. I ALSO SEE NO LOGIC IN DETERMINING THE MARKET VALUE SIMPLY BY THE EXCLUDING THE AMOUNT OF CUSTOM DUTY AND OCTROI FROM THE TOTAL COST PRICE OF THE MACHINERY. THE FACTS OF THE CASE CLEAR LY SHOW THAT THE MACHINERY HAS BEEN VALUED NEITHER AT COST NOR AT MA RKET VALUE AND THEREFORE, THE ACTION OF THE ASSESSEE IN VALUING TH E STOCK CANNOT BE SAID TO BE IN ACCORDANCE WITH THE PROVISIONS OF LAW. 3.5 IN VIEW OF THE AFORESAID. I FIND NO INFIRMITY I N THE ACTION OF THE ASSESSING OFFICER IN REJECTING ASSESSEES CLAIM OF DEDUCTION IN RESPECT OF DEVALUATION OF STOCK. ACCORDINGLY, THE ADDITION OF RS. 1,40,69,324/- IS CONFIRMED. 6. FROM THE ABOVE IT IS EVIDENT THAT THE ASSESSEE WH O MADE A CLAIM OF DEDUCTION AND THE ONUS IS ON HIM TO DEMONSTRATE THAT THE VALUE ADOPTED BY HIM IS RELIABLE AND HAS A BASIS. MERE REDUCTION OF OCTROI AND CUSTOMS DUTY IS NO BASIS OF ARRIVING AT THE DEVALUED FIGURE OF IMPUGNED MACHINE RY. IN SUCH CIRCUMSTANCES WE ARE OF THE OPINION THAT THE ORDER OF THE CIT(A) DO ES NOT CALL FOR ANY INTERFERENCE. GROUND NO. 1 IS DISMISSED. 7. GROUND NO. 2 RELATES TO DEVALUATION OF TOOLS TO THE EXTENT OF RS . 19,37,179/- RELEVANT FACTS ARE GIVEN IN PARA 4 OF THE IMPUGNED ORDER. THE RELEVANT PARA 4 & 4.1 ARE REPRODUCED AS UNDER:- 4. GROUND NO. 2 PERTAINS TO THE ADDITION OF RS. 19 ,37,179/- BEING DEVALUATION OF TOOLS MADE BY THE ASSESSEE WHICH WER E IN THE STOCK. 4.1 THE ASSESSING OFFICER FOUND THAT THE ASSESSEE C OMPANY HAD DEBITED P & L ACCOUNT BY AN AMOUNT OF RS. 19,37,179 /- AS CONSUMPTION OF TOOLS. IT WAS EXPLAINED BY THE ASSESSEE THAT FROM T HE CURRENT YEAR, THE BENCH HAS DECIDED TO WRITE OFF TOOLS OVER A PERIOD OF 5 YEARS SINCE THE TOOLS ARE SLOW MOVING ITEMS AND ACCORDINGLY, THE IN VENTORIES BY RS. 19,37,179/-. THE ASSESSING OFFICER FOUND NO MERIT I N THE CLAIM OF THE ASSESSEE ON ACCOUNT OF THE FACT THAT THE TOOLS WERE TRADING TOOLS AND DID NOT CONSTITUTE A DEPRECIABLE ASSET. HE ALSO OBSERVE D THAT THE ASSESSEE COMPANY FAILED TO EXPLAIN AS TO HOW MARKET VALUE OF THIS TRADING ITEM HAD GONE DOWN BY 20% OF ITS PURCHASED COST. AS THE ASSE SSEE HAS UNDERVALUED THE STOCK OF TOOLS BY RS. 19,37,179/- T HE SAME WAS ADDED TO THE INCOME OF THE ASSESSEE BY THE ASSESSING OFFICER . 8. BEFORE THE FIRST APPELLATE AUTHORITY ASSESSEE SUBMI TTED THAT THE MANAGEMENT HAS SCIENTIFIC AND MATHEMATICAL BASIS OF WRITING OF THE TOOLS BY 20% IN RESPECT OF THE SLOW-MOVING ITEMS. IN THE PROCESS T HEY RELIED ON THE CHENNAI BENCH DECISION IN THE CASE OF SOUTH INDIA CORPORATION (AGENCIES) LTD. 293 ITR 237 (CHENNAI). AFTER CONSIDERING THE ASSESSEES SUBMI SSIONS ON FINDING THAT ASSESSEE FAILED TO PRODUCE ANY SUCH SCIENTIFIC AND MATHEMATICAL BASIS FOR SUPPORTING THE DEVALUATION OF VALUE OF THE TOOLS IN CLOSING STOCK, THE CIT(A) CONFIRMED THE ADDITION MADE BY THE A.O. DURING THE P ROCEEDINGS LD. COUNSEL FOR TA NO. 346,347 & 1199/PN/09 A.Y: 2005-06 PAGE 5 OF 8 THE ASSESSEE MERELY RELIED UPON THE SUBMISSIONS MAD E BY THE ASSESSEE BEFORE THE REVENUE AUTHORITIES. ON THE OTHER HAND LD. DR FOR THE REVENUE ARGUED VEHEMENTLY STATING THAT ASSESSEE HAS FAILED MISERABL Y TO SUPPORT ANY BASIS LEAVING APART THE SCIENTIFIC AND MATHEMATICAL BASIS TO SUPPORT THE DEVALUED FIGURES. IN SUCH CIRCUMSNTACES ASSESSEE FAILED TO DI SCHARGE THE ONUS CASED UPON HIM BUT HAS MADE A CLAIM OF DEDUCTION. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AS WELL AS THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE REVENUE AUTHORITIES. DURING THE PROCEEDINGS BEFORE US THE BENCH HAS ENQUIRED INTO THE EXISTENCE OF ANY SCIENTIFIC AND MATHEMATICAL BASIS FOR RESORTING TO 20% DEDUCTION OF THE VALUE OF THE IMPUGNED TOOLS OF THE CLOSING STOCK. LD. COU NSEL HAS FAIRLY SUBMITTED THE ABSENCE OF ANY SUCH BASIS, HOWEVER HE RELIED ON THE S UBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES. IN SUCH CIRCUMSTANCES WE ARE OF THE OPINION THAT THE DEVALUATION AT THE RATE OF 20% IS MERELY AN ESTIMATE AND WITHOUT ANY BASIS. THEREFORE FOR THE REASON OF FAILURE TO DISCHARGE ONUS BY THE ASSESSEE WE ARE OF THE OPINION, ORDER OF THE CIT(A) DOES NOT CALL FOR AN Y INTERFERENCE. ACCORDINGLY, GROUND NO. 2 IS DISMISSED. 10. GROUND NO. 3 RELATES TO DISALLOWING OF THE WARRANTY PROVISION. RELE VANT FACTS ARE GIVEN IN PARA 5.1 OF THE IMPUGNED ORDER WHIC H READS AS UNDER:- 5.1 THE COMPANY HAD DEBITED THE P & L ACCOUNT BY A N AMOUNT OF RS. 4,70,055/- ON ACCOUNT OF WARRANTY EXPENSES. ON VERI FICATION, THE ASSESSING OFFICER FOUND THAT THE AMOUNT OF RS. 4,70 ,055/- INCLUDED ACTUAL WARRANTY EXPENSES OF RS. 3,12,669/- ONLY AND THE BA LANCE AMOUNT OF RS. 1,57,386/- REPRESENTED WARRANTY PROVISION. SINCE IN THE OPINION OF THE ASSESSING OFFICER, ONLY THE ACTUAL EXPENSES INCURRE D FOR THE YEAR WERE ALLOWABLE, THE AMOUNT OF WARRANTY PROVISION OF RS. 1,57,386/- WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 11. ASSESSEE MADE A SUBMISSIONS WHICH ARE REPRODUCED I N PARA 5.2. AFTER CONSIDERING THE SAID SUBMISSIONS AS HELD IN PARA 5.3, THE COMMISSIONER DID NOT ALLOW CLAIM OF THE ASSESSEE AS THE ASSESSEE FAILED TO SPELL OUT THE BASIS EVEN DURING THE PROCEEDINGS BEFORE US, DESPITE THE QUARRIES RA ISED BY THE BENCH. ASSESSEE HAS FAILED TO COME OUT WITH ANY BASIS FOR C REATING THE PROVISION FOR WARRANTY. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORD ERS OF THE REVENUE AUTHORITIES AND THE PARAS REFERRED ABOVE. IT IS A FACT T HAT ALL PROVISIONS ARE NOT ALLOWABLE DEDUCTIONS BUT THE PROVISIONS WAS ARRIVED AT PASSING ON SOME BASIS AS TA NO. 346,347 & 1199/PN/09 A.Y: 2005-06 PAGE 6 OF 8 HELD BY THE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS 245 ITR 428 RELEVANT PORTION FROM THE SAID JUDGEMENT READS AS UNDER: - BUSINESS LIABILITY ARISING IN THE ACCOUNTING YEAR, T HE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANT IFIED AND DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCUR RING OF THE LIABILITY. IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH THE REASONABLE CERTAINTY WITHOUT ACTUAL QUANTIFICATION. TILL THESE REQUIREM ENTS ARE SATISFIED THE LIABILITY IS NOT A CONTINGENT ONE. THE LIABILITY I S ONE PRESENTI THOUGH IT WILL BE DISCHARGED AT A FUTURE DATE. IT DOES NOT MAKE A NY DIFFERENCE IF THE DATE OF LIABILITY HAS TO BE DISCHARGED IT IS NOT CE RTAIN . WHERE AS IN THE INSTANT CASE THE ASSESSEE DOES NOT C OME OUT WITH ANY EVIDENCES OR BASIS FOR ARRIVING AT THE QUANTUM CLAIMED BY THE ASS ESSEE. IN SUCH CIRCUMSTANCES THE ABOVE JUDGMENT OF THE SUPREME COURT IS NOT COMPLIED WITH THEREFORE WE ARE OF THE OPINION ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND 3 IS DISMISSED. ITA NO. 347/PN/09 (A.Y 2004-05) 13. GROUNDS RAISED IN THIS APPEAL ARE AS UNDER:- 1. THE LEARNED CIT(A) ERRED IS DISALLOWING OF WARRA NTY PROVISIONS OF RS. 1,11,712/- 2. THE LEARNED CIT(A) ERRED IS DISALLOWING OF RS. 3 5,000/- ADVANCE TO M/S. VINTAMA INTERNATIONAL TOWARDS AIR T ICKET. 3. THE LEARNED CIT(A) ERRED IS DISALLOWING OF CLOSI NG STOCK VALUATION OF RS. 3,41,734/-. 4. THE LEARNED CIT(A) ERRED IS DISALLOWING THE DEVA LUATION OF TOOLS OF RS. 37,43,327/-. EVEN HE HAS ACCEPTED PRIN CIPLE OF ACCOUNTANCY THE VALUE OF STOCK CAN BE DETERMINED AT COST PRICE OR MARKET VALUE, WHICHEVER IS LOWER. THE PRIN CIPLE IS RECOGNIZED UNDER THE PROVISION OF INCOME TAX LAW AL SO. 14. GROUND NO. 1 RELATES TO WARRANTY PROVISIONS AND FACTS AND SUBMISSI ONS ARE IDENTICAL TO THE ONES DISCUSSED IN ADJUDICATING GROUND 3 OF THE APPEAL ITA NO. 346/PN/09, WHERE WE HELD THAT PROVISION IS NOT AL LOWABLE IN THIS CASE FOR THE REASONS MENTIONED ABOVE. THE DECISION IS EQUALLY APP LICABLE TO THIS GROUND AS WELL. ACCORDINGLY, GROUND NO.1 IS DISMISSED . 15. GROUND 3 AND 4 ARE TO ADJUDICATE IN ACCORDANCE WITH OUR DECISION GIV EN IN PARAS ABOVE WHILE DEALING WITH ITA NO. 346/PN/09, ACCORDINGLY, GROUND 3 AND 4 ARE DISMISSED. 16. GROUND NO. 2 RELATES TO DISALLOWING AN AMOUNT OF RS. 35,000/- A DVANCE TO VINTAMA INTERNATIONAL. RELEVANT FACTS ARE AVAILABL E IN PARA 4 TO 4.3. AS PER THE A.O THE SAID AMOUNT WAS CAPITAL IN NATURE WHICH IS N OT A ALLOWABLE DEDUCTION. ON TA NO. 346,347 & 1199/PN/09 A.Y: 2005-06 PAGE 7 OF 8 THE OTHER HAND AS PER THE ASSESSEE THE SAID AMOUNT WA S A BOOKING ADVANCE TOWARDS AIR TICKETS AND FOR WHICH ACCOUNTING ENTRY REMA INED TO BE PASSED. CIT(A) CONFIRMED ADDITION BY LOOKING INTO THE FACTS AND ASSESSEE FAILED TO PROVE ANY DOCUMENTARY EVIDENCES THAT THE SAID AMOUNT IS BU SINESS AND REVENUE EXPENDITURE. BOTH THE PARTIES HAVE RELIED UPON IN RESPE CT OF THE PORTIONS OF THE REVENUES ORDER. 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE AVA ILABLE MATERIAL BEFORE US. AS SEEN FROM THE ABOVE EXTRACTIONS, THERE IS NO B ASIC FACTS ON AS TO WHETHER THESE AMOUNTS ARE PAID TOWARDS BUSINESS PURPOSES OR PERS ONAL PURPOSES. IF IT IS FOR BUSINESS PURPOSE AND THE SAID ADVANCE CAN BE TREAT ED AS BUSINESS ADVANCE, THERE IS A PAUCITY OF BASIC FACTS, IN OUR OPINION, WE NEED TO DIRECT THE A.O TO BRING SOME MORE FACTS TO DECIDE WHETHER THE AMOUNT OF RS. 35,000/- IS AN AMOUNT GIVEN BY THE ASSESSEE TOWARDS BUSINESS EXPEND ITURE OR OTHERWISE. ACCORDINGLY, THIS GROUND 2 IS SET ASIDE. ITA NO. 1199/PN/09 (A.Y 2006-07) 18. GROUNDS RAISED IN THIS APPEAL ARE AS UNDER:- 1. THE LEARNED CIT(A) ERRED IS DISALLOWING OF LEAS EHOLD IMPROVEMENT OF RS. 7,02,632/- 2. THE LEARNED CIT(A) ERRED IS DISALLOWING THE DEVA LUATION OF TOOLS OF RS. 13,98,872/-. EVEN HE HAS ACCEPTED PRIN CIPLE OF ACCOUNTANCY THE VALUE OF STOCK CAN BE DETERMINED AT COST PRICE OR MARKET VALUE, WHICHEVER IS LOWER. THE PRIN CIPLE IS RECOGNIZED UNDER THE PROVISION OF INCOME TAX LAW AL SO. 19. IT IS SUBMITTED THAT THERE ARE A COUPLE OF ISSUE S IN THIS APPEAL. ISSUE RELATING TO DEVALUATION TO TOOLS IS COVERED BY OUR ADJ UDICATION WHILE DEALING WITH APPEAL NO. 346/PN/09. WE DIRECT THE A.O TO APPLY THE SAME RATIO TO THIS GROUND AS WELL. ACCORDINGLY, GROUND 2 IS DISMISSED. 20. GROUND NO.1 RELATED TO DISALLOWANCE OF SUCH LEASEHOLD IMPROVEME NT OF RS. 7,02,632/- RELEVANT FACTS ARE MENTIONED IN PARA 4 , 4.1 AND 4.2. DURING THE PROCEEDINGS BOTH THE PARTIES HAVE MENTIONED THAT THE LOWER AUTHORITIES DID NOT HAVE OCCASION TO DECIDE THE ISSUE IN ACCORDANCE WITH SUPREME COURT JUDGEMENT IN THE CASE OF SARAVANA SPINNING MILLS P LTD . TA NO. 346,347 & 1199/PN/09 A.Y: 2005-06 PAGE 8 OF 8 21. AFTER HEARING THE PARTIES, WE ARE OF THE OPINION TH AT THIS ISSUE MUST BE SET ASIDE TO THE FILES OF THE A.O FOR RE-ADJUDICATION AFT ER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND AFTER CONSIDERING THE ABOVE REFERRED SUPREME COURT DECISION. THERE IS NEED FOR BASIC F ACTS ON WHICH THE IMPROVEMENTS IN QUESTION ARE CURRENT REPAIRS OR OTHERWISE. ACCORDINGLY, GROUND NO.1 IS SET ASIDE. 22. IN THE RESULT, ITA NO. 346/PN/09 IS DISMISSED AND OTHER TWO APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DAY OF JANUARY, 2011 SD/- SD/- (I.C. SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED THE 19 TH JANUARY, 2011 R COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE 2. DCIT, CIRCLE-10, PUNE 3. CIT(A)-III, PUNE 4. CIT-V, PUNE 5. D.R. ITAT A BENCH BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE