ACIT, Meerut V. M/s. Vishal Transformers & Switchgears (P) Ltd., Meerut

ITA 4499/DEL/2010

• Counselvise Citation: 449920114 RSA 2010
• Duration Of Justice: 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 09-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 11-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Rule of consistency; Additional evidence; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 133(6); 145; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H NEW DELHI) BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI B.K. HALDAR, ACCOUNTANT MEMBER I.T.A. NO.4499 & 5866/DEL/2010 ASSESSMENT YEAR : 2007-08 A.C.I.T., VS. M/S VISHAL TRANSFORMERS & RANGE-2, SWITCHGERS (P) LTD., RITHANI, MEERUT DELHI ROAD, MEERUT (UP) PAN NO.AAACV 6330 P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SALIL MISHRA, SR. DR RESPONDENT BY : SHRI SANJAY MALIK, ADVOCATE ORDER PER B.K. HALDAR, AM: THESE ARE TWO APPEALS FILED BY THE REVENUE A GAINST RESPECTIVE ORDERS OF LEARNED CIT(A)-MEERUT DATED 21 .07.2010 AND 05.10.2010 FOR ASSESSMENT YEAR 2007-08. FOR TH E SAKE OF CONVENIENCE, BOTH THESE APPEALS ARE DISPOSED OFF BY THIS COMMON ORDER. I.T.A. NO.4499/D/2010 THIS APPEAL ARISES OUT OF THE ORDER OF LEARNED CIT(A)-MEERUT DATED 21.07.2010 FOR ASSESSMENT YEAR 2007- 08 ON AN ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE ACT. 2 1.1 THE REVENUE HAS TAKEN THE SOLITARY GROUNDS OF APPEAL:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF `1,86,515/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF MOULDS & DIES BY TREATING THE SAME AS REVENUE EXPENDITURE WHEREAS THESE ITEMS RELATE TO PLANT AND MACHINERY AND EXPENDITURE INCURRED IS OF CAPITAL NATURE? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF `54,975/- MADE BY THE ASSESSING OFFICER ON A/C OF EPF AND ESI ON THE GROUND THAT DEPOSIT OF THESE AMOUNTS BEFORE THE DATE OF FILING OF RETURN IS ALLOWABLE U/S 43B WHEREAS SECTION 43B IS APPLICABLE ONLY IN RESPECT OF EMPLOYERS SHARE OF PF AND ESI AND EMPLOYEES SHARE IS REQUIRED TO BE PAID BY THE DATED SPECIFIED IN THE RESPECTIVE ACTS? 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF `16,42,838/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF INTEREST WITHOUT APPRECIATING THE FACT THE ASSESSEE COULD NOT PROVIDE THE EVIDENCE OF ACTUAL PAYMENT OF INTEREST? 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF `1,63,53,539/- MADE BY THE ASSESSING 3 OFFICER ON ACCOUNT OF SUNDRY CREDITORS WITHOUT APPRECIATING THE FACTS THAT /THE ASSESSEE COULD NOT FILE ANY EVIDENCE BEFORE THE ASSESSING OFFICER REGARDING THE ACTUAL EXISTENCE OF THESE LIABILITIES? 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF `7,18,967/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BAD DEBTS WRITTEN OFF WITHOUT APPRECIATING THE FINDING OF THE ASSESSING OFFICER THAT THE ASSESSEE COULD NOT PROVE THAT BAD DEBTS WRITTEN OFF HAD BEEN ACTUALLY BAD AND IRRECOVERABLE? THE ADDITION HAS RIGHTLY BEEN MADE IN THE LIGHT OF FOLLOWING JUDGMENTS- CIT VS. COATES OF INDIA LTD. (CAL) 232 ITR 324: CITY FINANCIAL RELAIL SERVICES INDIA LTD. VS. ACIT 2008-TIOL-05-ITAT-MAD. 2. DURING THE ASSESSMENT PROCEEDING, IT WAS NOTED BY THE ASSESSING OFFICER THAT `2,19,430/- WAS DEBIT ED TO PROFIT AND LOSS ACCOUNT UNDER THE HEAD MOULDS & DIE S. THE ASSESSING OFFICER, THEREFORE, REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY EXPENDITURE INCURRED ON MOULDS AND DIES SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE. IN R EPLY, THE ASSESSEE RELIED ON VARIOUS CASE LAWS AND CLAIMED TH AT THE SAID EXPENDITURE WAS ALLOWABLE AS REVENUE EXPENDITU RE. THE 4 ASSESSING OFFICER, HOWEVER, HELD THAT NONE OF THE C ASE LAWS CITED BY THE ASSESSEE WAS APPLICABLE TO THE FACTS O F THE CASE. IT WAS HELD BY HIM THAT MOULDS AND DIES PROVIDE END URING BENEFIT AND ARE ESSENTIALLY OF THE NATURE OF PLANT AND MACHINERY. HE, THEREFORE, ALLOWED DEPRECIATION AT 15% ON THE SAME AND DISALLOWED 85% OF THE EXPENDITURE AMOU NTING TO `1,86,515/-. 2.1 THE ASSESSING OFFICER ALSO NOTED THAT AS PER T HE AUDIT REPORT FILED U/S 44AB OF THE ACT, FOLLOWING S UMS RECEIVED FROM EMPLOYEES TOWARDS CONTRIBUTION TO EP F AND ESI WERE PAID LATE:- EPF ESI DUE DATE FOR PAYMENT ACTUAL DATE OF PAYMENT 49,376 5,599 15.06.2006 25.06.2006 IN VIEW OF THE PROVISION OF SECTION 36(1)( VA) READ WITH SECTION 2(24)(X),THE ASSESSING OFFICER DISALLO WED THE SAID AMOUNT OF `54,975/-. 2.2 THE ASSESSEE DEBITED `22,50,888/- IN THE P&L ACCOUNT ON ACCOUNT OF INTEREST TO THE BANK. THE AS SESSING OFFICER ASKED THE ASSESSEE TO FURNISH EVIDENCE OF P AYMENT OF 5 INTEREST TO THE VARIOUS BANKS FAILING WHICH HE SOUG HT TO DISALLOW SUCH EXPENSES U/S 43B OF THE ACT. THE ASS ESSEE COULD FURNISH EVIDENCE OF PAYMENT WITH REFERENCE TO TOTAL AMOUNT OF `6,08,050/-. THE ASSESSING OFFICER, THER EFORE, DISALLOWED THE BALANCE AMOUNT OF `16,42,838/- U/S 4 3B OF THE ACT. 2.3 AS PER THE BALANCE SHEET, SUNDRY CREDITORS WER E SHOWN AT `1,75,16,947/-. THE ASSESSEE WAS REQUIRED BY THE ASSESSING OFFICER TO PROVE THAT SUCH LIABILITIES EX ISTED BY SUBMISSION OF CONFIRMATIONS FROM THE PARTIES. THE A SSESSEE COULD PRODUCE/FURNISH CONFIRMATIONS FOR A TOTAL AMO UNT OF `11,63,408/-. THE ASSESSING OFFICER, THEREFORE, DI SALLOWED THE BALANCE AMOUNT OF `1,63,53,539/-. 2.4 IN THE P&L ACCOUNT AN AMOUNT OF `7,18,967/- WA S DEBITED ON ACCOUNT OF TRADE BAD DEBTS WRITTEN OFF. WHEN ASKED TO FURNISH EVIDENCE IN SUPPORT OF THE ABOVE C LAIM, THE ASSESSEE ONLY RELIED ON CERTAIN CASE LAWS. THE ASS ESSING OFFICER OPINED THAT MOST OF THE CASE LAWS CITED BY THE ASSESSEE WERE NOT APPLICABLE TO THE FACTS OF ASSESS EES CASE. QUOTING FROM ASSESSEES OWN REPLY, THE ASSESSING OF FICER 6 OBSERVED THAT THE CASE OF CIT VS. GIRISH 256 ITR 77 2 APPLIES TO THE FACTS OF THIS CASE. HE, THEREFORE, HELD THA T THE ASSESSEE WAS LIABLE TO PROVE THAT THE DEBTS WRITTEN OFF WERE INDEED BAD. AS NO EVIDENCE IN THIS REGARD WAS FURNI SHED, THE ASSESSING OFFICER DID NOT ALLOW WRITE OFF OF DEBTS AMOUNTING TO `7,18,967/-. 2.5 THE ASSESSEE VALUED CLOSING STOCK WITHOUT INCLUDING EXCISE DUTY THEREON. ASSESSING OFFICER, THEREFORE, REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE S AME SHOULD NOT BE REVALUED IN TERMS OF SECTION 145A OF THE ACT BY INCLUDING THE AMOUNT OF EXCISE DUTY ACTUALLY PAID O R INCURRED TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION. IN REPLY, THE ASSESSE E RELIED ON VARIOUS CASE LAWS IN SUPPORT OF VALUING THE CLOSING STOCK WITHOUT INCLUDING EXCISE DUTY. THE ASSESSING OFFIC ER, HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSES SEE AND WORKED OUT THE AMOUNT OF EXCISE DUTY ON THE CLOSING STOCK ON PROPORTIONATE BASIS, WITH REFERENCE TO EXCISE DU TY CHARGED IN THE PROFIT AND LOSS ACCOUNT AND THE SALE DISCLOSED 7 BY THE ASSESSEE. THUS, HE MADE AN ADDITION OF `12, 19,430/- ON THIS ACCOUNT. 2.6 AGGRIEVED BY THE ABOVE, ASSESSEE FILED APPEAL BEFORE THE LEARNED CIT(A). 3. BEFORE THE LEARNED CIT(A), WITH REFERENCE TO THE DISALLOWANCE OF `1,86,515/- RELATING TO MOULDS AND DIES, IT WAS SUBMITTED THAT MOULDS AND DIES CONSTITUTE CONSU MABLE RAW MATERIAL AND WERE NOT IN THE NATURE OF CAPITAL ASSET. THE ASSESSEE WAS MANUFACTURING PRODUCTS AS PER VARYING SPECIFICATIONS OF THE BUYERS. THE MOULDS AND DIES HAD TO BE MADE IN ACCORDANCE WITH THE SPECIFICATIONS OF SUCH PRODUCTS. THUS, IT WAS CONTENDED THAT THE SAME SHOULD BE ALLO WED AS REVENUE EXPENDITURE. THE CASE LAWS CITED BY THE AS SESSEE BEFORE THE ASSESSING OFFICER WERE RELIED ON AND SPE CIAL MENTION WAS MADE OF THE DECISION OF HONBLE KARNATA KA HIGH COURT IN THE CASE OF CIT VS. MYSORE SPUN CONCRETE P IPE (P) LTD. (1992) 194 ITR 159 (KAR). 3.1 TAKING INTO CONSIDERATION THE FACTS AND CIRCUMSTANCES OBTAINED IN THE CASE, SPECIALLY THE F ACT THAT MOULDS AND DIES IN QUESTION WERE PERIODICALLY BOUGH T BY THE 8 ASSESSEE SINCE THE SAME GOT CONSUMED WITHIN THE SAM E YEAR DURING THE MANUFACTURING PROCESS, THE LEARNED CIT(A ) DELETED THE IMPUGNED ADDITION. 4. AS REGARDS THE ADDITION OF `54,975/- ON ACCOUNT OF DELAYED PAYMENT OF EMPLOYEES CONTRIBUTION TOWARDS EPF AND ESI, IT WAS SUBMITTED BY THE ASSESSEE THAT THER E WAS A DELAY OF ONLY 5 DAYS ON ACCOUNT OF COMMUNAL DISTURB ANCE DURING THE PERIOD WHICH WAS BEYOND THE CONTROL OF T HE ASSESSEE COMPANY AND, THEREFORE, SUCH DELAY MAY KIN DLY BE CONDONED. IT WAS FURTHER SUBMITTED THAT THE IMPUGN ED AMOUNT WAS ALLOWABLE IF PAID BEFORE DUE DATE OF FIL ING OF RETURN AS HELD IN THE FOLLOWING CASE LAWS:- I) CIT VS. GEORGE WILLIAMSON (ASSAM) LTD. (2006) 284 ITR 619 (GAUHATI); II) DISMISSAL OF SLP (C) NO.4619 OF 2007 BY THE HONBLE SUPREME COURT; AND III) CIT VS. KOVILPATTI LAKSHMI ROLLER FLOUR MILLS LTD. (2010) 322 ITR 517 (MAD). 9 4.1 TAKING INTO CONSIDERATION THE FACTS AND CASE L AWS RELIED ON BY THE ASSESSEE, THE CIT(A) DELETED THE I MPUGNED ADDITION. 5. WITH REFERENCE TO DISALLOWANCE OF INTEREST OF `16,42,838/- AS PER THE PROVISION OF SECTION 43B OF THE ACT, THE ASSESSEE FURNISHED COPY OF BANK ACCOUNT AS PER BOOKS OF ACCOUNTS OF THE ASSESSEE WHICH TALLIED WITH THE ACC OUNT STATEMENT AS PER THE BANK RECORD. THE BANK ACCOUNT SHOWED THAT INTEREST WAS CHARGED BY THE BANK PERIOD ICALLY BY MAKING DEBIT ENTRIES IN THE ACCOUNT. SUCH DEBIT ENTRIES MADE BY THE BANK CONSTITUTE ACTUAL PAYMENT RESULTIN G IN REDUCTION OF CREDIT BALANCE ON PARTICULAR DATE. TH IS BEING THE CASE, IT WAS CONTENDED THAT THE IMPUGNED DISALLOWAN CE BE DELETED. 5.1 IN THE ABOVE FACTS, THE LEARNED CIT(A) OPINED THAT CHARGING OF INTEREST BY THE BANK PERIODICALLY BY MA KING DEBIT ENTRIES TO THE ASSESSEES BANK ACCOUNT WOULD AMOUNT TO ACTUAL PAYMENT OF SUCH INTEREST. HE, THEREFORE, DE LETED THE IMPUGNED AMOUNT. 10 6. WITH REFERENCE TO ADDITION OF `1,63,53,539/- RELATING TO SUNDRY CREDITORS, IT WAS SUBMITTED BY T HE LEARNED COUNSEL FOR THE ASSESSEE BEFORE THE LEARNED CIT(A) THAT ONLY TWO DAYS TIME WAS GIVEN BY THE ASSESSING OFFICER T O FILE CONFIRMATION LETTERS. EVEN OTHERWISE THE CREDITS WE RE ON ACCOUNT OF PURCHASES. GENUINENESS OF PURCHASES IS NOT IN DISPUTE. THEREFORE, CREDIT BALANCE REPRESENTING UN PAID PURCHASE PRICE AS REFLECTED IN THE BALANCE SHEET CO ULD NOT BE DISPUTED AND THE SAME COULD NOT BE TREATED AS INCOM E OF THE ASSESSEE. THE ASSESSEE ALSO PRODUCED RESPECTIVE LE DGER ACCOUNTS AND PURCHASE INVOICES FOR VERIFICATION. SUBSEQUENTLY, CONFIRMATIONS FROM VARIOUS TRADE CRED ITORS WERE ALSO FILED BEFORE THE ASSESSING OFFICER IN REM AND PROCEEDINGS. THESE WERE ALSO FURNISHED BEFORE THE L EARNED CIT(A). THE ASSESSEE, THEREFORE, CLAIMED THAT THE AMOUNT OF ADDITION BE DELETED. 6.1 AS PER THE FINAL REMAND REPORT OF THE ASSESSIN G OFFICER THE POSITION OF SUNDRY CREDITORS WHOSE BALA NCES WERE DISPUTED WERE SEGREGATED IN THE FOLLOWING CATEGORIE S:- 11 CONSTITUENTS IN WHOSE ACCOUNT, THE BALANCE REFLECTE D IN THE BOOKS OF ACCOUNT TALLIED/NOT TALLIED WITH CORRESPON DING BALANCE IN THE ACCOUNTS OF CONSTITUENTS: TALLIED : 16,43,327/- NOT TALLIED : 52,42,690/- 68,86,017/- CASES WHERE NOTICES U/S 133(6) NOT SERVED UPON THE CONSTITUENTS AND LETTERS HAVE BEEN RECEIVED BACK UN -SERVED: 8,42,707/- CONSTITUENTS WHO DID NOT REPLY TO NOTICES U/S 133(6 ) AND THE POSTAL ENVELOPE HAD NOT BEEN RECEIVED BACK. 86,24,814/- TOTAL: TOTAL: TOTAL: TOTAL: 1,63,53,538/ 1,63,53,538/ 1,63,53,538/ 1,63,53,538/- -- - THUS, IT WAS CONTENDED THAT WITH REFERENCE TO `16,43,327/-, NO ADDITION IS CALLED FOR. THE CREDI TORS, WHOSE BALANCES AGGREGATED TO `52,42,690/-, IN RESPE CT OF WHOM THE AMOUNTS SHOWN IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE DID NOT TALLY WITH THE CONFIRMATION S OF THE CREDITORS, WAS ON ACCOUNT OF THE FACT THAT CHEQ UES ISSUED ON 31.03.2007 BY THE ASSESSEE WERE ACCOUNTED FOR BY IT WHEREAS THE SAME WAS NOT ACCOUNTED FOR BY THE CREDITORS. THUS, THIS DIFFERENCE ALSO STOOD EXPLAINED. WITH REFERENCE TO THE CASES WHERE 133(6 ) NOTICES COULD NOT BE SERVED ON THE CREDITORS AND SU CH LETTERS CAME BACK UNSERVED, THE ASSESSEE FURNISHED CONFIRMATIONS. IT WAS, THEREFORE, CONTENDED THAT T HERE WAS NO WARRANT TO TREAT THE CREDIT BALANCE OF `8,42,707/- AS INCOME. THERE WERE CREDITORS WHOSE 12 CREDIT BALANCES AMOUNTED TO `86,24,814/- WHERE THE NOTICES ISSUED U/S 133(6) DID NOT COME BACK. IN TH ESE CASES, IT WAS CONTENDED BY THE ASSESSEE THAT NO ADVERSE INFERENCE COULD BE DRAWN. IT WAS THE BURDE N OF THE ASSESSING OFFICER TO PROVE THAT THE APPARENT WA S NOT REAL. AS THE ASSESSING OFFICER HAD FAILED TO DISCHARGE THIS BURDEN, IT WAS CONTENDED THAT NO ADVERSE INFERENCE WAS CALLED FOR. 6.2 THE LEARNED CIT(A), CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, HELD THAT SECTION 41(1) WAS NOT APPLICABLE WITH REFERENCE TO THE TRADE CREDITORS. RELIANCE WAS PLACED ON THE DECISION OF HONBLE MUMBAI ITAT I N ACIT VS. KNP SECURITIES (P) LIMITED (2010-TIOL-232-ITAT- MUM). EVEN IF THE DEBTS BECOME TIME BARRED, THE SAME COUL D NOT BE TREATED AS INCOME U/S 41(1) OF THE ACT. RELIANC E WAS PLACED ON HONBLE DELHI HIGH COURTS JUDGMENT IN TH E CASE OF CIT VS. DALMIYA FINANCE LIMITED (2010-521-HC-DEL-IT ). EVEN OTHERWISE THE ASSESSEE HAD FURNISHED CONFIRMAT ION FROM MOST OF THE CREDITORS AND THE SAME MORE OR LES S TALLIED WITH THE BALANCES AS PER THE BOOKS OF ACCOUNT OF TH E 13 ASSESSEE. WHEREEVER THERE WERE SOME DIFFERENCES TH E SAME TOO WERE RECONCILED. THE CASES WHERE THE CREDITORS DID NOT RESPOND TO THE NOTICE ISSUED BY THE ASSESSING OFFIC ER U/S 133(6) OF THE ACT, THE ASSESSING OFFICER DID NOT TA KE ANY FURTHER ACTION IN THIS REGARD. IN THIS VIEW OF THE MATTER, THE LEARNED CIT(A) DELETED THE IMPUGNED ADDITION. 7. WITH REGARD TO THE ADDITION OF `7,18,967/- TOWAR DS BAD DEBTS WRITTEN OFF, IT WAS SUBMITTED BY THE ASSESSEE THAT THERE WERE SHORT RECOVERIES FROM VARIOUS PARTIES, M OSTLY FROM GOVERNMENT DEPARTMENTS, AMOUNTING TO `7,18,968 /-. SOME AMOUNT WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT AND WAS REFLECTED IN THE ADMINISTRATION AND MARKETING EXPENSES IN SCHEDULE-1 OF THE BALANCE SHEET. THUS, IT WAS C ONTENDED THAT SHORT RECOVERY WAS WRITTEN OFF IS PROVED BY TH E BOOK ENTRY RECORDED IN THE BOOKS OF ACCOUNT. IT WAS CON TENDED THAT EVEN OTHERWISE THE SAME AMOUNT WAS ALLOWABLE A S BUSINESS LOSS. THE ASSESSING OFFICER HAD DISALLOWED THE CLAIM MERELY ON THE GROUND THAT NO EVIDENCE WAS FURNISHED TO SHOW THAT THE AMOUNT HAS BECOME BAD. IT WAS CONTEN DED THAT IF THE AMOUNTS HAVE BEEN WRITTEN OFF AS BAD DE BT, THE 14 ASSESSEE WAS NOT REQUIRED TO PROVE THAT THE DEBT HA S BECOME BAD. RELIANCE WAS PLACED ON THE FOLLOWING C ASE LAWS:- I) CIT VS. GIRISH BHAGWAT PRASAD 256 ITR 772 (BHOOJ)(GUJARAT); AND II) TRF LTD. VS. CIT 230 CTR (SUPREME COURT) 14. 7.1 TAKING INTO CONSIDERATION THE ABOVE, THE LEARN ED CIT(A) HELD THAT AS THE ASSESSEE HAD WRITTEN OFF TH E BAD DEBT AS PER THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT, THE SAME WAS ALLOWABLE AS PER THE CASE LAWS CITED BY TH E ASSESSEE. HE, THEREFORE, DELETED THE IMPUGNED ADDI TION. 8. AGGRIEVED, THE REVENUE HAS FILED APPEAL BEFORE THE TRIBUNAL. 9. BEFORE US, THE LEARNED DR CONTENDED THAT THE CA SE LAW RELIED ON BY THE ASSESSEE FOR CLAIMING THE EXPE NSES INCURRED TOWARDS MOULDS AND DIES REFERRED TO REPLAC EMENT OF DAMAGED MOULDS AND DIES. IN THE PRESENT CASE, THE ASSESSEE HAS NOT SHOWN THAT THAT WAS THE CASE. IT WAS, THEREFORE, CONTENDED BY HIM THAT THE DISALLOWANCE W AS RIGHTLY MADE BY THE ASSESSING OFFICER. 15 9.1 THE LEARNED AR FOR THE ASSESSEE ON THE OTHER H AND RELIED ON THE ORDER OF THE LEARNED CIT(A). IT WAS CLARIFIED BY HIM THAT IN ALL EARLIER YEARS SUCH EXPENSES WERE AL LOWED BY THE REVENUE. 9.2 WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE LEARNED CIT(A) HAS ACCEPTED THE CONTEN TION OF THE ASSESSEE THAT THE MOULDS AND DIES USED BY THE A SSESSEE WERE FOR SPECIFIC PRODUCTS AND THE SAME WERE CONSUM ED DURING THE PRODUCTION OF THE GOODS IN THE SAME YEAR . FROM THE DETAILS FILED, WE FIND THAT THE LAST PURCHASE O F SUCH MOULDS AND DIES WAS MADE IN DECEMBER, 2006. THE RE VENUE HAS ALSO ALLOWED SUCH EXPENSES TO THE ASSESSEE IN E ARLIER YEARS. IN VIEW OF THE ABOVE FACT AND CIRCUMSTANCES OF THE CASE AND AS THE REVENUE HAS NOT BROUGHT ON RECORD A NY EVIDENCE TO CONTROVERT THE FINDING OF FACT BY THE L EARNED CIT(A), WE REJECT THIS GROUND TAKEN BY THE REVENUE. 10. AS REGARDS EMPLOYEES CONTRIBUTION TOWARDS EPF AND ESI, WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. SECTION 43B ONLY COVERS CONTRIBUTION MADE BY THE EM PLOYER TO SUCH FUNDS. THE EMPLOYEES CONTRIBUTION TO THES E FUNDS 16 ARE NOT COVERED BY SECTION 43B. ALLOWABILITY OF EM PLOYEES CONTRIBUTION TO THESE FUNDS ARE GOVERNED BY SECTION 36(1)(VA) READ WITH SECTION 2(24)(X) OF THE ACT. I T HAS BEEN SO HELD BY THE ITAT CALCUTTA SPECIAL BENCH IN THE C ASE OF JCIT VS. ITC LIMITED 112 ITD 57. IN THE PRESENT CASE, I T IS ALSO NOT DISPUTED THAT THE IMPUGNED PAYMENTS WERE MADE AFTER THE EXPIRY OF GRACE PERIOD. IN THIS VIEW OF THE MATER, WE HOLD THAT THE AMOUNT OF `54,975/- WAS NOT ALLOWABLE. TH US, WE REVERSE THE FINDING OF LEARNED CIT(A) ON THIS ISSUE AND RESTORE THAT OF THE ASSESSING OFFICER. THIS GROUND OF APPEAL TAKEN BY THE REVENUE IS ALLOWED. 11. GROUND NO.3 WITH REFERENCE TO DISALLOWANCE OF BANK INTEREST AMOUNTING TO `16,42,838/-, IT WAS CON TENDED BY THE LEARNED DR THAT THE ENTREES MADE IN THE ACCO UNT OF BANK IN ASSESSEES OWN BOOK CANNOT BE CONSIDERED AS VALID PROOF FOR THE CLAIM OF THE ASSESSEE THAT SUCH INTER EST CHARGED BY THE BANK WAS PAID BY THE ASSESSEE IN TER MS OF SECTION 43B OF THE ACT. REFERRING TO THE CONFIRMAT IONS OF BANKS WHICH ARE DATED 07.01.2010 ,IT WAS CONTENDED BY HIM THAT THE SAME DO NOT MENTION THE DATE ON WHICH THE 17 PAYMENTS WERE MADE. THUS, IT WAS CONTENDED BY HIM THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN DELETING TH E IMPUGNED ADDITION. THE LEARNED AR FOR THE ASSESSEE ON THE O THER HAND RELIED ON THE ORDER OF THE LEARNED CIT(A). 11.1 WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE LEARNED CIT(A) IN HIS ORDER HAS MENTIO NED THAT IT IS CLEAR THAT INTEREST WAS CHARGED BY THE BANK PERI ODICALLY BY DEBIT ENTRIES TO THE ACCOUNTS. WHEN SUCH DEBIT ENT RY WAS MADE IN THE ACCOUNT OF THE ASSESSEE, THE SAME WOULD CONSTITUTE ACTUAL PAYMENT. HOWEVER, THE ABOVE CONC LUSION OF THE LEARNED CIT(A) COULD ONLY BE CORRECT WHEN TH E ASSESSEE HAD CREDIT BALANCE IN ITS ACCOUNT. IF THE ACCOUNT SHOWS A DEBIT BALANCE, THE ABOVE CONCLUSION WOULD N OT BE CORRECT. WE ALSO FIND FORCE IN THE SUBMISSION OF L EARNED DR THAT THE BANK CERTIFICATES FURNISHED BY THE ASSESSE E AS ADDITIONAL EVIDENCE DO NOT SHOW THE DATE OF PAYMENT OF THE IMPUGNED INTEREST. IN THIS VIEW OF THE MATTER, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE A ND REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICE R WITH THE DIRECTION THAT THE ISSUE BE DECIDED AS PER LAW AFTE R GIVING 18 THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD. THUS, THIS GROUND TAKEN BY THE REVENUE IS ALLOWED FOR STA TISTICAL PURPOSES. 11.2 GROUND NO.4 TAKEN BY THE REVENUE IS WITH REFERENCE TO DELETION OF ADDITION OF `.1,63,53,539/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SUNDRY CREDITOR S. THE GRIEVANCE OF THE REVENUE IN THE GROUND TAKEN IS THA T THE ASSESSEE DID NOT FILE ANY EVIDENCE BEFORE THE ASSES SING OFFICER REGARDING THE ACTUAL EXISTENCE OF THESE LIA BILITIES. BEFORE US, THE LD DR RELIED ON THE ORDER OF THE ASS ESSING OFFICER AND CONTENDED THAT THE ASSESSEE DID NOT BRI NG ON RECORD ANY EVIDENCE TO SHOW THAT THE LIABILITY IS E XISTED. THE LD AR FOR THE ASSESSEE, ON THE OTHER HAND, RELIED O N THE ORDER OF THE LD CIT(A). IT WAS FURTHER CONTENDED BY HIM THAT THE ASSESSEE HAD TRANSACTIONS WITH THE SAME PARTIES IN THE SUBSEQUENT YEARS AND THE REVENUE HAS NOT DISPUTED T HEIR CREDITS IN ASSESSMENT YEAR 2008-09. THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 200809 DATED 27.12.2010 FOR ASSESSMENT YEAR 2008-09 PLACED IN ASSESSEES PAPER BOOK PAGES 53-54 AND A LIST OF CREDITOR FOR THE SAID YEA R PLACED ON ASSESSEES PAPER BOOK PAGES 45-47 WERE REFERRED TO BY HIM TO SUBSTANTIATE HIS CLAIM. 19 12. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. IN VIEW OF THE PROCEEDINGS BEFORE THE LD CI T(A) AS NARRATED BY US IN THE EARLIER PART OF THIS ORDER AN D IN VIEW OF THE FACT THAT EXISTENCE OF SUCH CREDITS HAVE NOT BE EN DISPUTED BY THE REVENUE IN ASSESSMENT YEAR 2008-09, WE DO NOT FIND ANY MERIT IN THIS GROUND RAISED BY THE REV ENUE AND REJECT THE SAME. 13. GROUND NO.5 OF THE REVENUE RELATES TO DELETION OF ADDITION OF `.7,18,967/- MADE BY THE ASSESSING OFFI CER ON ACCOUNT OF BAD DEBTS WRITTEN OFF. THE LD DR IN ADDI TION TO RELYING ON THE ORDER OF THE ASSESSING OFFICER CONTE NDED THAT THESE WERE MERELY SHORT RECOVERIES. THE ASSESSEE HA S NOT SHOWN THAT THE AMOUNTS WERE SHOWN AS INCOME IN THE EARLIER YEAR THAT THE SAME HAD BECOME BAD AND WERE ACTUALLY WRITTEN OFF. IT WAS, THEREFORE, CONTENDED THAT THE ORDER OF THE ASSESSING OFFICER MAY PLEASE BE CONFIRMED. THE LD AR FOR THE ASSESSEE, ON THE OTHER HAND, IN ADDITION TO REL YING ON THE ORDER OF THE LD CIT(A) SUBMITTED THAT THESE AMOUNTS WERE ACTUALLY WRITTEN OFF AS IS EVIDENCED FROM ASSESSEE S PAPER BOOK PAGES 55-57. ONCE SUCH AMOUNTS ARE WRITTEN OF F IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, THE SAME WAS ALL OWABLE AS DEDUCTION U/S 346(1)(VII) OF THE ACT. IN SUPPOR T OF THE ABOVE PROPOSITION, RELIANCE WAS PLACED AMONG OTHERS ON FOLLOWING CASE LAWS:- 20 1. TRF LTD. V. CIT 223 ITR 397 (SC). 2. CIT V. NORTHERN SECURITIES & CREDITS PVT. LTD., 292 ITR 339 (DEL.). 3. CIT V. MODI TELECOMMUNICATION LTD. 325 ITR 2 91 (DEL.). 14. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSING OFFICER HAS DISALLOWED THE IM PUGNED AMOUNT ON THE GROUND THAT THE ASSESSEE FAILED TO PR OVE THAT THESE AMOUNTS HAVE BECOME BAD. HOWEVER, IN VIEW OF THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT AND THE H ON'BLE SUPREME COURT CITED ABOVE, WE ARE OF THE CONSIDERED OPINION THAT LD CIT(A) WAS JUSTIFIED IN DELETING THE IMPUGN ED ADDITION. WE, THEREFORE, REJECT THIS GROUND OF THE REVENUE. 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED IN PART. I.T.A. NO.5866/DEL/2010: I.T.A. NO.5866/DEL/2010: I.T.A. NO.5866/DEL/2010: I.T.A. NO.5866/DEL/2010: 16. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD CIT(A), MEERUT DATED 5.10.2010 PASSED U /S 154 OF THE ACT FOR ASSESSMENT YEAR 2007-08. THE REVENUE H AS TAKEN FOLLOWING GROUNDS OF APPEALS:- 1. WHETHER THE LD CIT(A) HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION MADE ON ACCOUNT OF VALUATION OF 21 STOCK BY DELETING THE COMPONENTS OF EXCISE DUTY TO THE EXTENT OF `.12,60,055/- IGNORING THE PROVISIONS OF SECTION 145A OF THE INCOME TAX ACT, 1961. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORD ER OF THE CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSI NG OFFICER RESTORED. 17. IN THE QUANTUM APPEAL IN APPEAL NO.190/09-10 DATED 21.7.2010 FOR ASSESSMENT YEAR 2007-08, THE LD CIT(A) REJECTED THE GROUND TAKEN BY THE ASSESSEE ON THE IN CLUSION OF EXCISE DUTY AMOUNTING TO `.12,60,055/- IN TERMS OF SECTION 145 OF THE ACT. SUBSEQUENTLY, THE ASSESSEE MOVED A PETITION U/S 154 OF THE ACT BEFORE THE LD CIT(A). IT WAS CL AIMED THAT THERE WAS A MISTAKE APPARENT FROM RECORD IN THE APP ELLATE ORDER WITH REFERENCE TO THE OBSERVATION IN PARA 6.6 . TO THE FOLLOWING EFFECT:- EXCISE DUTY IS LEVIABLE ON PRODUCTION AND NOT ON S ALE AND RULE OF CONSISTENCY CITED BY THE ASSESSEE HAS NOT MERITS IN VIEW OF CLEAR POSITION OF LAW IN THIS REG ARD. 18. THE MAIN CONTENTION OF THE ASSESSEE BEFORE THE LD CIT(A) WAS THAT EXCISE DUTY IS CHARGEABLE AT THE T IME OF SALE. IN SUPPORT OF THE CONTENTION THAT SUCH EXCISE DUTY IS CHARGEABLE FROM THE CUSTOMERS AT THE TIME OF SALE D OES NOT 22 FORM PART OF TURNOVER. THE ASSESSEE RELIED ON THE FOLLOWING CASE LAWS:- 1. CIT V. LAKSHMI MACHINE WORKS 290 ITR 667 (SC). 2. CIT V. SUNDARAM CLAYTON LTD. 321 ITR 69 (MAD.). 19. CONSIDERING THE SUBMISSION OF THE ASSESSEE, LD CIT(A) MODIFIED THE APPELLATE ORDER WITH REFERENCE TO THE IMPUGNED ADDITION AS UNDER:- I HAVE CONSIDERED THE ASSESSING OFFICERS ORDER, H IS REMAND REPORT AND THE ARS SUBMISSIONS CAREFULLY. EXCISE DUTY IS CHARGED AT THE TIME OF SALE AND NOT ON PRODUCTION. THUS THE VALUATION OF CLOSING STOCK WIT HOUT TAKING INTO CONSIDERATION THE ELEMENT OF EXCISE DUT Y WAS CORRECT AND IN CONFORMITY WITH THE MODE OF VALUATION ADOPTED IN THE PRECEDING ASSESSMENT YEARS . BY FOLLOWING WITH RESPECT THE RATIO OF THE DECISION S OF HON'BLE SUPREME COURT IN CIT V. LAKSHMI MACHINE WORKS 290 ITR 667 (SC) AND OF HON'BLE MADRAS HIGH COURT IN CIT V. SUNDARAM CLAYTON LTD. 321 ITR 69 (MAD.), IT IS HELD THAT THE VALUATION OF CLOSING ST OCK WITHOUT INCLUSION OF EXCISE DUTY WAS CORRECTLY MADE NOT WARRANTING ANY ADDITION. ACCORDINGLY, THE ADDITION OF `.12,60,055/- STANDS DELETED. 23 20. AGGRIEVED THE REVENUE HAS FILED APPEAL BEFORE THE TRIBUNAL. 21. BEFORE US, LD DR SUBMITTED THAT IN THE ORIGINA L APPEAL ORDER, THE LD CIT(A) ELABORATELY DEALT WITH THIS ISSUE AND REJECTED THE GROUND RAISED BY THE ASSESSEE WITH REFERENCE TO THE IMPUGNED ADDITION. THERE IS AN EX PRESS PROVISION IN THE ACT NAMELY SECTION 145A WHICH MAKE S IT OBLIGATORY TO INCLUDE EXCISE DUTY IN VALUATION OF C LOSING STOCK. REFERRING TO THE CASE LAWS ON THE BASIS OF W HICH THE LD CIT(A) PASSED THE IMPUGNED 154 ORDER, IT WAS CONTEN DED BY THE LD DR THAT THE SAME WAS NOT DIRECTLY ON THE ISS UE. IT WAS THUS SUBMITTED BY HIM THAT THE LD CIT(A) WAS NOT JU STIFIED IN APPLYING HE PROVISION OF SECTION 154 OF THE ACT IN THIS CASE. 22. THE LD AR FOR THE ASSESSEE, ON THE OTHER HAND, IN ADDITION TO RELYING ON THE ORDER OF THE LD CIT(A) S UBMITTED THAT INCURRING OF LIABILITY FOR EXCISE DUTY OCCURS ONLY WHEN GATE PASSES ISSUED. HE REFERRED TO ASSESSEES PAPER BOOK PAGE 65 WHICH SHOWS THE POSITION OF EXCISE DUTY REC EIVED ON PURCHASES AND EXCISE DUTY PAID ON SALES AS WELL AS THE CLOSING BALANCE OF THE SAME FOR THE RELEVANT PERIOD . IT WAS CONTENDED BY HIM THAT THE LD CIT(A) WAS JUSTIFIED I N PASSING THE IMPUGNED ORDER U/.S 154 OF THE ACT. 24 23. IN THE REJOINDER, THE LD DR RELYING ON ASSESSE ES PAPER BOOK PAGE 65 SUBMITTED THAT WHEN THE EXCISE W AS INCLUDED IN THE PURCHSES AND MOD VAT WAS CLAIMED BY THE ASSESSEE, THE CLOSING STOCK OF GOODS AT LEAST SHOUL D INCLUDE THE EXCISE DUTY COMPONENTS OF THE PURCHASES MADE. 24. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THIS IS NOT THE FIRST YEAR WHEN THE AMENDED SECTION 145A WAS APPLICABLE. AS SUCH IT WAS BROUGHT ON STAT UE W.E.F. 1.4.1999. THERE COULD BE A DISPUTE AS TO HOW THE EXPRESSION ACTUALLY PAID OR INCURRED BY THE ASSES SEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CO NDITION AS ON THE DATE OF VALUATION. THUS AT THE MOST THE IS SUE INVOLVED COULD BE SAID TO BE DEBATABLE. THE CASE LA WS ON THE BASIS OF WHICH, THE LD CIT(A) PASSED THE IMPUGNED O RDER U/S 154 ARE ALSO NOT DIRECTLY ON THE ISSUE. THE PROPOS ITION ACCEPTED BY HIM THAT EXCISE DUTY IS PAYABLE ONLY ON SALE IS ALSO NOT TRUE. IN THIS VIEW OF THE MATTER, WE ARE OF THE CONSIDERED OPINION THAT THE LD CIT(A) WAS NOT JUSTI FIED IN PASSING THE IMPUGNED 154 ORDER. WE, THEREFORE, QUAS H THE SAME. 25. IN THE RESULT, THE APPEAL OF THE REVENUE IN I. T.A. NO.4499DEL/2010 IS ALLOWED IN PART AND THE APPEAL IN I.T.A. NO. 5866/DEL/2010 IS DISMISSED. 25 26. ORDER PRONOUNCED IN OPEN COURT ON 19 TH 8.2011. SD/- SD/- ( SMT. DIVA ) ( B.K. HALDAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 19.08.2011 NS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. BY ORDER (ITAT, NEW DELHI).