Shadi Lal Enterprises Ltd., V. ACIT, Circle-8(1),

ITA 5134/DEL/2004

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3899 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 20-05-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 30-11-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA; M MOHSIN ALAM
• Assessee Lawyers: RUPESH J AIN
• Keywords: Depreciation; Business expenditure; Rule of consistency; Wrong claim; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 271(1)(c); 37(1); 80G; 145; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I DELHI BEFORE SHRI C.L. SETHI & SHRI K.G. BANSAL I.T.A. NO. 5134(DEL)/2004 ASSESSMENT YEAR: 2001-02 SIR SHADI LAL ENTERPRISES LTD., ADDITIONAL COMMISSIONER OF 4-A, HANSALAYA, V S. INCOME-TAX, RANGE-8, 15, BARAKHAMBA ROAD, NEW DELHI. NEW D ELHI. I.T.A. NO. 5694(DEL)/2004 ASSESSMENT YEAR: 2001-02 ADDITIONAL COMMISSIONER OF SIR SHADI LAL ENTERPRISES LTD., INCOME-TAX, RANGE-8, NEW DELHI. VS. 4-A, HANSALAYA, 15, BARAKHAMBA RD., NEW DELHI. I.T.A. NO. 145(DEL)/2007 ASSESSMENT YEAR: 2001-02 SIR SHADI LAL ENTERPRISES LTD., DEPUTY COMMISSIONER OF 4-A, HANSALAYA, V S. INCOME-TAX, CIRCLE 8(1), 15, BARAKHAMBA ROAD, NEW DELHI. NEW D ELHI. I.T.A. NO. 1530(DEL)/2007 ASSESSMENT YEAR: 2001-02 DEPUTY COMMISSIONER OF SI R SHADI LAL ENTERPRISES LTD., INCOME-TAX, CIRCLE 8(1), VS. 4 -A, HANSALAYA, 15, NEW DELHI. BARAKHAMBA RD., NEW DELHI. I.T.A. NO. 4554(DEL)/2005 ASSESSMENT YEAR: 2002-03 SIR SHADI LAL ENTERPRISES LTD., ADDITIONAL COMMISSIONER OF 4-A, HANSALAYA, V S. INCOME-TAX, RANGE-8, 15, BARAKHAMBA ROAD, NEW DELHI. NEW D ELHI. ITA NOS. 5134(DEL)/2004 ETC. 2 I.T.A. NO. 34(DEL)/2006 ASSESSMENT YEAR: 2002-03 ADDITIONAL COMMISSIONER OF SIR SHADI LAL ENTERPRISES LTD., INCOME-TAX, RANGE-8, NEW DELHI. VS. 4-A, HANSALAYA, 15, BARAKHAMBA RD., NEW DELHI. ITA NO. 2916(DEL)/2008 ASSESSMENT YEAR: 2003-04 SIR SHADI LAL ENTERPRISES LTD., DEPUTY COMMISSIONER OF 4-A, HANSALAYA, V S. INCOME-TAX, CIRCLE-8(1), 15, BARAKHAMBA ROAD, NEW DELHI. NEW D ELHI. I.T.A. NO. 3195(DEL)/2008 ASSESSMENT YEAR: 2003-04 DEPUTY COMMISSIONER OF SI R SHADI LAL ENTERPRISES LTD., INCOME-TAX, CIRCLE 8(1), VS. 4 -A, HANSALAYA, 15, NEW DELHI. BARAKHAMBA RD., NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI RUPESH JAIN & ROHIT GARG, CA DEPARTMENT BY: MS. ANUSHA KHURANA, & SHRI M.MOHSIN ALAM, DR ORDER PER BENCH ALL THESE APPEALS OF THE ASSESSEE AND T HE REVENUE WERE ARGUED IN A CONSOLIDATED MANNER BY THE LD. COUN SEL FOR THE ASSESSEE AND THE LD. DR, AS THEY PERTAIN TO ONLY ONE ASSE SSEE, SIR SHADI LAL ITA NOS. 5134(DEL)/2004 ETC. 3 ENTERPRISES LTD. THEREFORE, WE FIND IT CONVE NIENT TO PASS A CONSOLIDATED ORDER. ITA NO. 5134(DEL)/2004-ASSTT. YEAR 2001-02- APPEA L OF THE ASSESSEE. 2. GROUND NO. 1 IS THAT THE LD. CIT(APPEALS) ERRED ON FACTS AND IN LAW IN DISALLOWING THE PROVISION FOR ENCASHMENT OF LEAVE SALARY, MADE IN LINE WITH ACCOUNTING STANDARDS. IN THIS CONN ECTION, RELIANCE IS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS VS. CIT (2000) 245 ITR 428, TO THE EFFECT THAT THE PROVISION MADE ON THE BASIS OF TERMS OF EMPLO YMENT IS AN ASCERTAINED LIABILITY. 2.1 IN THIS CONNECTION, IT IS MENTIONED IN THE I MPUGNED ORDER THAT THE ASSESSEE HAD BEEN CLAIMING DEDUCTION IN RES PECT OF LEAVE SALARY ON PAYMENT BASIS. IN THIS YEAR, THE LIABILITY HAS BEEN PROVIDED ON ACCRUAL BASIS. THE LD. CIT(APPEALS) REFERRED TO THE AMENDMENT IN THIS MATTER, EFFECTIVE FROM ASSESSMENT YEAR 2002-03, THAT EXPENDITURE ON LEAVE ENCASHMENT WILL BE ADMISSIBLE ON PAYMENT BASIS ONLY. THEREFORE, IT HAS BEEN HELD THAT THE CHANGED SYSTEM OF ACCOUNT ING WILL BE APPLICABLE ONLY FOR THIS YEAR. THIS ALSO LEADS TO A CONCLUSION THAT THE CHANGED METHOD HAS NOT BEEN EMPLOYED REGULARLY IN SUBSEQUEN T YEARS. ITA NOS. 5134(DEL)/2004 ETC. 4 ACCORDINGLY, IT HAS BEEN HELD THAT THIS IS O NLY A CASUAL CHANGE, WHICH CANNOT BE TAKEN AS BONA-FIDE. THE LD. CIT(A PPEALS) HAS CONSIDERED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. BRITISH PAINT INDIA LTD., 188 ITR 44, IN WHICH IT WAS HELD THAT THE CHANGE WILL NOT BE ALLOWED IF THE CHANGED METHOD DOES NOT REPRESENT TRUE AND CORRECT STATE OF AFFAIRS OF THE PROFITS OF THE BUSINESS . IN THIS CONNECTION, HE EXTRACTED THE RELEVANT PORTION OF THE JUDGMENT , WHICH IS REPRODUCED BELOW:- VALUATION OF THE STOCK-IN-TRADE AT COST OR MA RKET VALUE, WHICHEVER IS THE LOWER, IS A MATTER ENTIRELY WITHIN THE DISCRETION OF THE ASSESSEE. BUT WHICHEVER METH OD HE ADOPTS, IT SHOULD DISCLOSE A TRUE PICTURE OF HIS PROFITS AND GAINS. IF, ON THE OTHER HAND, HE ADOPTS A SYSTEM WHICH DOES NOT DISCLOSE THE TRUE STATE OF AFFAIRS FOR THE D ETERMINATION OF TAX, EVEN IF IT IS IDEALLY SUITED FOR OTHER PU RPOSES OF HIS BUSINESS, SUCH AS THE CREATION OF RESERVE, D ECLARATION OF DIVIDENDS, PLANNING AND THE LIKE, IT IS THE DUT Y OF THE ASSESSING OFFICER TO ADOPT ANY SUCH COMPUTATION AS HE DEEMS APPROPRIATE FOR THE PROPER DETERMINATIO N OF THE TRUE INCOME OF THE ASSESSEE. THIS IS NOT ONLY A RIGHT BUT A DUTY THAT IS PLACED ON THE OFFICER, IN TERMS OF THE FIRST PROVISO TO SECTION 145, WHICH CONCERNS A CORRE CT AND COMPLETE ACCOUNT BUT WHICH, IN THE OPINION OF THE OFFICER, DOES NOT DISCLOSE THE TRUE AND PROPER INCOM E. 2.2 BEFORE US, THE LD. COUNSEL WOULD ARGUE TH AT THE ASSESSEE HAS MADE A BONA-FIDE CHANGE IN RESPECT OF ACCOUNTI NG FOR OF THE AFORESAID LIABILITY. THIS CHANGED METHOD HAS BEEN FOLLOW ED YEAR AFTER YEAR. IT IS ITA NOS. 5134(DEL)/2004 ETC. 5 ANOTHER MATTER THAT IN COMPUTATION OF INCOME, THE DEDUCTION IS CLAIMED IN SUBSEQUENT YEARS ONLY OF THAT AMOUNT WHICH B ECAME PAYABLE IN THE YEAR. THIS HOWEVER DOES NOT MEAN THAT THE CHA NGED SYSTEM HAS NOT BEEN FOLLOWED REGULARLY. IN THIS CONNECTION, TWO QUESTIONS CAME UP FOR DISCUSSION WITH THE LD. COUNSEL, I.E, WHETHER, (I ) THE CHANGE IS BONA FIDE IN VIEW OF STATUTORY AMENDMENT APPLICABLE FOR A SSESSMENT YEAR 2002-03 AND ONWARD; AND (II) THE ASSESSEE WOULD BE E NTITLED TO DEDUCTION OF INCREMENTAL LIABILITY OR THE WHOLE OF THE LIA BILITY PROVIDED FOR, WHICH INCLUDES LIABILITY IN RESPECT OF EARLIER YEARS ? 2.3 IN THE LIGHT OF AFORESAID QUESTIONS, THE LD . COUNSEL FAIRLY STATES THAT THE LIABILITY HAS BEEN CLAIMED IN ASSESSME NT YEAR 2002-03 AND ONWARD ON CASH BASIS AND, THEREFORE, IRRESPE CTIVE OF THE AFORESAID LEGAL ISSUES, HE WOULD NOT PRESS FOR THIS GROUN D. 2.4 ON THE OTHER HAND, THE LD. DR RELIES ON THE ORDER OF THE LD. CIT(APPEALS). 2.5 WE HAVE CONSIDERED THE FACTS OF THE CAS E AND SUBMISSIONS MADE BY BOTH THE PARTIES. WE FIND THAT THE CHANGED SYSTEM OF ACCOUNTING, ITA NOS. 5134(DEL)/2004 ETC. 6 EVEN IF FOLLOWED IN SUBSEQUENT YEARS IN MAIN TENANCE OF BOOKS OF ACCOUNT, HAS TAX-REPERCUSSION ONLY FOR THIS YEA R. IN SUCH A CIRCUMSTANCE, IT WOULD BE APPROPRIATE TO HOLD THAT THE SYSTE M WHICH HAS BEEN REGULARLY FOLLOWED SHOULD NOT BE DISTURBED IN THIS YEAR AS WE ARE PRIMARILY CONCERNED WITH THE COMPUTATION OF TOTAL INCOME O F THE ASSESSEE ON A FAIR BASIS. IT MAY ALSO BE MENTIONED THAT THERE IS A CONFLICT OF VIEW AMONG VARIOUS BENCHES OF THE TRIBUNAL AS TO WHETHER PROVISION RELATABLE TO EARLIER YEARS IS ADMISSIBLE IN THIS YEAR. WE ARE OF THE VIEW THAT THE AMBIT OF TAXATION IS DECIDED BY SECTIONS 4 A ND 5 AND SECTION 145 IS ONLY A METHOD OF RECORDING THE LIABILITY. THE REFORE, EVEN IN CHANGED SYSTEM, WHICH IS MERCANTILE, THE LIABILITY OF AN EARLIER YEAR CANNOT BE ALLOWED TO BE DEDUCTED IN COMPUTING THE TOTAL I NCOME. NONETHELESS, AS THE LD. COUNSEL HAS NOT PRESSED THIS MATTER FU RTHER, WE DO NOT GO INTO ELABORATE DISCUSSION IN THIS MATTER. 2.6 IN THE RESULT, THIS GROUND IS DISMISSED. 3. GROUND NO. 2 IS THAT THE LD. CIT(APPEALS) E RRED IN HOLDING THAT LOANS AND ADVANCES, THOUGH GIVEN IN THE NORMA L COURSE OF BUSINESS, ARE NOTHING BUT DEBTS, WHICH COULD BE ALLOWED ON LY ON WRITING THEM OFF IN THE BOOKS OF ACCOUNT AND NOT MERELY ON MAKING THE PROVISION. ITA NOS. 5134(DEL)/2004 ETC. 7 3.1 IN THIS CONNECTION, IT HAS BEEN MENTIONED IN THE IMPUGNED ORDER THAT A BAD DEBT CAN BE DEDUCTED U/S 36( 1)(VII) IN COMPUTING THE TOTAL INCOME ONLY WHEN IT HAS BEEN WRITTEN OFF FROM THE BOOKS OF ACCOUNT. THE LOANS AND ADVANCES ARE IN THE NATURE OF D EBTS. IN THIS CONNECTION, RELIANCE HAS BEEN PLACED ON THE DECISION OF H ONBLE MUMBAI HIGH COURT IN THE CASE OF ABB LTD., 258 ITR 407, THE RELEVANT PORTION OF WHICH IS REPRODUCED BELOW:- NOW COMING TO QUESTION NO. 2, THE ASSESSING OF FICER DISALLOWED BAD DEBTS ON THE GROUND THAT THE ASSESSEE HAD MADE ONLY A PROVISION, WHICH WAS NOT EQUIVA LENT TO A WRITE-OFF. BEING AGGRIEVED, THE ASSESSEE WENT IN APPEAL TO THE COMMISSIONER OF INCOME-TAX (APPEALS) WHO TOOK THE VIEW FOLLOWING THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF VITHALDAS H. DHANJIBHAI BARDANWALA VS. CIT [1981] 130 ITR 95, THAT EVEN A PROVISION FOR BAD DE BT COULD BE TREATED AS A WRITE-OFF. THIS VIEW OF THE FIRST APPELLATE AUTHORITY WAS CONFIRMED BY THE TRIBUNAL. BEING AGGRIEVED, THE REVENUE HAS COME IN APPEAL UNDER SECTION 2 60-A OF THE INCOME-TAX ACT, TO THIS COURT. AS STATED ABOVE, IN THIS APPEAL, WE ARE CONC ERNED WITH THE ACCOUNTING YEAR 1987-88 RELEVANT TO THE ASSES SMENT YEAR 1988-89. AT THIS STAGE, IT MAY BE MENTIONED THAT SECTION 36(1)(VII) STOOD AMENDED BY ADDITION OF AN EXP LANATION WITH EFFECT FROM APRIL 1, 1989, WHICH, INTER- ALIA STATES THAT ANY BAD DEBT WRITTEN OFF AS IRRECOVERABLE IN T HE ACCOUNTS OF THE ASSESSEE SHALL NOT INCLUDE ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE ACCOUNTS OF THE AS SESSEE. THIS AMENDMENT CAME INTO FORCE WITH EFFECT FROM A PRIL, 1, 1989 AND, THEREFORE, IT DOES NOT APPLY TO THE FACTS OF THE PRESENT CASE. HOWEVER, THIS AMENDMENT INDICATES THAT BE FORE APRIL 1, 1989, EVEN A PROVISION FOR BAD DEBT IN THE ACCOUNT OF THE ASSESSEE COULD BE TREATED AS A WRITE OFF. ITA NOS. 5134(DEL)/2004 ETC. 8 THUS, THE PROVISION AMOUNTING TO RS. 57,17,743 /- WAS NOT ALLOWED TO BE DEDUCTED IN COMPUTING THE TOTAL INCOME. 3.2 THE LD. COUNSEL WOULD DRAW OUR ATTENTION TOWARDS PAGES 11 TO 17 OF THE PAPER BOOK, WHICH IS A PART OF THE S UBMISSIONS MADE BEFORE THE LD. CIT(APPEALS). THE DETAILS IN RESPECT O F EACH AMOUNT, WHICH HAS BEEN WRITTEN OFF, HAVE BEEN MENTIONED. OUR ATTENTION IS DRAWN TO PAGES 11 TO 15 OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2000-01, WHICH DEAL WITH PROVISION FOR DOUBTFUL DEBTS AND PROVISION FOR DOUBTFUL ADVANCES. IT APPEARS THAT IN MOST OF THE CASES UNDER THE HEAD PROVISION FOR DOUBTFUL ADVANCES, HALF OF THE AMOUNT HAS BEEN WRITTEN OFF IN IMMEDIATELY PRECEDING YEAR AND THE OTHER HALF OF THE AMOUNT HAS BEEN WRITTEN OFF IN THIS YEAR. THE FIND ING OF THE AO IS CONTAINED ON PAGES 14 AND 15, IN WHICH IT HAS BEEN HELD THAT THE EXPLANATION, WITH EFFECT FROM 1.4.1989 IN SECTION 36(1)(VII), UNDER WHICH ANY BAD DEBT WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS S HALL NOT INCLUDE PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE ACCOU NTS. IN VIEW OF THIS AMENDMENT, THE EXISTING CASE LAW WILL NOT BE APPLICABLE, WHICH MEANS THAT WHERE ONLY A PROVISION IS MADE BY REDUC TION IN THE VALUE OF ASSETS BUT NOT BY WAY OF WRITING OFF OF THE AMO UNT FROM THE ACCOUNTS OF ITA NOS. 5134(DEL)/2004 ETC. 9 THE DEBTORS, THE DEDUCTION SHALL NOT BE ADM ISSIBLE. THEREFORE, THE SUM OF RS. 57,70,743/- HAS NOT BEEN ALLOWED TO BE D EDUCTED IN COMPUTING THE TOTAL INCOME. IT IS ARGUED THAT IN THE INTER EST OF CONSISTENCY, AT LEAST THE AMOUNT FOR THIS YEAR IN RESPECT OF PROVISION FOR DOUBTFUL ADVANCES SHOULD BE ALLOWED IN COMPUTING THE INCOME. 3.3 IN REPLY, THE LD. DR DRAWS OUR ATTENTION TOWARDS THE AMENDMENT EFFECTIVE FROM 1.4.1989, UNDER WHICH IT IS O BLIGATORY FOR THE ASSESSEE TO WRITE OFF A DEBT IN THE ACCOUNTS FOR CLAIMING THE DEDUCTION. IN THIS CONTEXT, HE RELIES ON THE ORDER OF THE LD. CIT( APPEALS). 3.4 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT THE ASSESSE E CREATED TWO PROVISIONS OF RS. 52,47,553/- AND RS. 5,23,190/-, AGGREGATING TO RS. 57,70,743/- IN RESPECT OF PROVISION FOR DOUBTFUL DEBTS AND PR OVISION FOR DOUBTFUL ADVANCES RESPECTIVELY. THE ASSETS WERE REDUC ED ACCORDINGLY ON THE ASSET SIDE, BUT INDIVIDUAL ACCOUNTS OF THE DE BTORS WERE NOT WRITTEN OFF. THE LD. COUNSEL DISTINGUISHES BETWEEN PROVISIO N FOR DOUBTFUL DEBTS AND PROVISION FOR DOUBTFUL ADVANCES. ON THE OTHE R HAND, THE CASE OF THE LD. DR IS THAT SINCE ONLY A PROVISION IS MADE AN D THE ACCOUNTS OF ITA NOS. 5134(DEL)/2004 ETC. 10 INDIVIDUAL DEBTORS HAVE NOT BEEN WRITTEN OFF, THE SAME MAY NOT BE DEDUCTED IN COMPUTING THE INCOME. HOWEVER, THE CASE OF THE LD. COUNSEL IS THAT ADVANCES ARE DIFFERENT FROM DEBTS A S THOSE HAVE BEEN MADE FOR PURCHASE OF GOODS. THE AO ALLOWED 50% OF SUCH ADVANCES IN THE IMMEDIATELY PRECEDING YEAR AND THE BALANCE 50% IS CLAIMED IN THIS YEAR. SUCH ADVANCES ARE COVERED U/S 28 AND NOT U /S 36(1)(VII). THEREFORE, FOLLOWING THE PRINCIPLE OF CONSISTENCY, SUCH DOUBTFUL ADVANCES MAY BE ALLOWED. WE ARE UNABLE TO AGREE WITH THE L D. COUNSEL FOR THE SIMPLE REASON THAT DEBTS AND ADVANCES ARE TWO S PECIES OF THE SAME ASSET, I.E., THEY REPRESENT MONEY RECOVERABLE FRO M OTHERS EITHER AS SUNDRY DEBTS OR SUNDRY ADVANCES. SINCE THERE IS A SPECIFIC SECTION DEALING WITH DEBTS, WE CANNOT GO TO A GENERAL PROVIS ION CONTAINED IN SECTION 28 TO DECIDE THE ADMISSIBILITY OR OTHERWISE OF THE DOUBTFUL ADVANCES. WE FIND THAT THE HONBLE SUPREME COURT EXAMINE D THE ISSUE OF WRITE OFF IN THE CASE OF VIJAYA BANK VS. CIT & AN OTHER (2010) 323 ITR 166, IN WHICH IT WAS HELD THAT WHERE A PROVISIO N IS MADE FOR BAD DEBT, IT WOULD BE NECESSARY TO WRITE OFF THE DEBT FRO M THE ACCOUNTS OF THE DEBTORS. HOWEVER, IF THE AMOUNT IS DEBITED TO PROFIT AND LOSS ACCOUNT AS BAD DEBT, THEN REDUCTION IN THE ASSETS BY THE CORRESPONDING AMOUNT WOULD AMOUNT TO WRITE OFF OF THE DEBT AS CONTEM PLATED IN SECTION ITA NOS. 5134(DEL)/2004 ETC. 11 36(1)(VII). FOR THE PURPOSE OF READY REFERENCE , THE DECISION AT PLACITUM 7 AND 8 IS REPRODUCED BELOW:- ONE POINT NEEDS TO BE CLARIFIED. ACCORDING TO SHRI BISHWAJIT BHATTACHARYA, THE LEARNED ADDITIONAL SOLICITOR GENE RAL APPEARING FOR THE DEPARTMENT, THE VIEW EXPRESSED BY THE GUJARAT HIGH. COURT IN THE CASE OF VITHALDAS H. DH ANJIBHAI BARDANWALA [1981] 130 ITR 95 WAS PRIOR TO THE INSER TION OF THE EXPLANATION VIDE THE FINANCE ACT, 2001, WITH EFFECT FROM APRIL 1, 1989, HENCE, THAT LAW IS NO MORE A GOOD LAW. ACC ORDING TO THE LEARNED COUNSEL, IN VIEW OF THE INSERTION OF TH E SAID EXPLANATION IN SECTION 36(1) (VII) WITH EFFECT FRO M APRIL 1, 1989, A MERE DEBIT OF THE IMPUGNED AMOUNT OF BAD DE BT TO THE PROFIT AND LOSS ACCOUNT WOULD NOT AMOUNT TO ACTUAL WRITE OFF. ACCORDING TO HIM, THE EXPLANATION MAKES IT VERY CLE AR THAT THERE IS A DICHOTOMY BETWEEN ACTUAL WRITE OFF ON TH E ONE HAND AND A PROVISION FOR BAD AND DOUBTFUL DEBT ON THE OT HER. HE SUBMITTED THAT A MERE DEBIT TO THE PROFIT AND LOSS ACCOUNT WOULD CONSTITUTE A PROVISION FOR BAD, AND DOUBTFUL DEBT, IT WOULD NOT CONSTITUTE ACTUAL WRITE OFF AND THAT WAS THE VERY REASON WHY THE EXPLANATION STOOD INSERTED. ACCORDIN G TO HIM, PRIOR TO THE FINANCE ACT, 2001, MANY ASSESSEES USED TO TAKE THE BENEFIT OF DEDUCTION UNDER SECTION 36(1)(VII) OF TH E 1961 ACT BY MERELY DEBITING THE IMPUGNED BAD DEBT TO THE PROFIT AND LOSS ACCOUNT AND, THEREFORE, PARLIAMENT STEPPED IN BY WA Y OF EXPLANATION TO SAY THAT MERE REDUCTION OF PROFITS B Y DEBITING THE AMOUNT TO THE PROFIT AND LOSS ACCOUNT PER SE WO ULD NOT CONSTITUTE ACTUAL WRITE OFF. TO THIS EXTENT, WE AGR EE WITH THE CONTENTIONS OF SHRI BHATTACHARYA. HOWEVER, AS STATE D BY THE TRIBUNAL, IN THE PRESENT CASE, BESIDES DEBITING THE PROFIT AND LOSS ACCOUNT AND CREATING A PROVISION FOR BAD AND D OUBTFUL DEBT, THE ASSESSEE-BANK HAD CORRESPONDINGLY/SIMULTA NEOUSLY OBLITERATED THE SAID PROVISION FROM ITS ACCOUNTS BY REDUCING THE CORRESPONDING AMOUNT FROM LOANS AND ADVANCES/DEBTOR S ON THE ASSETS SIDE OF THE BALANCE-SHEET AND, CONSEQUENTLY, AT THE END OF THE YEAR, THE FIGURE IN THE LOANS AND ADVANCES OR T HE DEBTORS ON THE ASSET SIDE OF THE BALANCE-SHEET WAS SHOWN AS NE T OF THE PROVISION 'FOR THE IMPUGNED BAD DEBT'. IN THE JUDGM ENT OF THE GUJARAT HIGH COURT IN THE CASE OF VITHALDAS H. DHAN JIBHAI ITA NOS. 5134(DEL)/2004 ETC. 12 BARDANWALA [1981] 130 ITR 95, A MERE DEBIT TO THE P ROFIT AND LOSS ACCOUNT WAS SUFFICIENT TO CONSTITUTE ACTUA1 WR ITE OFF WHEREAS, AFTER THE EXPLANATION, THE ASSESSEE(S) IS NOW REQUIRED NOT ONLY TO DEBIT THE PROFIT AND LOSS ACCOUNT BUT S IMULTANEOUSLY ALSO REDUCE LOANS AND ADVANCES OR THE DEBTORS FROM THE ASSETS SIDE OF THE BALANCE-SHEET TO THE EXTENT OF THE CORR ESPONDING AMOUNT SO THAT, AT THE END OF THE YEAR, THE AMOUNT OF LOANS AND ADVANCES/DEBTORS IS SHOWN AS NET OF THE PROVISIONS FOR THE IMPUGNED BAD DEBT. THIS ASPECT IS LOST SIGHT OF BY THE HIGH COURT IN ITS IMPUGNED JUDGMENT. IN THE CIRCUMSTANCE S, WE HOLD, ON THE FIRST QUESTION, THAT THE ASSESSEE WAS ENTITL ED TO THE BENEFIT OF DEDUCTION UNDER SECTION 36(1)(VII) OF 1961 ACT A S THERE WAS AN ACTUAL WRITE OFF BY THE ASSESSEE IN ITS BOOKS, A S INDICATED ABOVE. 8. COMING TO THE SECOND QUESTION, WE MAY REITERATE THAT IT IS NOT IN DISPUTE THAT SECTION 36(1)(VII) OF THE 1961 ACT APPLIES BOTH TO BANKING AND NON-BANKING BUSINESSES. THE MAN NER IN WHICH THE WRITE OFF IS TO BE CARRIED OUT HAS BEEN E XPLAINED HEREINABOVE. IT IS IMPORTANT TO NOTE THAT THE ASSES SEE-BANK HAS NOT ONLY BEEN DEBITING THE PROFIT AND LOSS ACCOUNT TO THE EXTENT OF THE IMPUGNED BAD DEBT, IT IS SIMULTANEOUSLY REDU CING THE AMOUNT OF LOANS AND ADVANCES OR THE DEBTORS AT THE YEAR-END, AS STATED HEREINABOVE. IN OTHER WORDS, THE AMOUNT O F LOANS AND ADVANCES OR THE DEBTORS AT THE YEAR-END IN THE BALA NCE-SHEET IS SHOWN AS NET OF THE PROVISIONS FOR THE IMPUGNED DEB T. HOWEVER, WHAT IS BEING INSISTED UPON BY THE ASSESSING OFFICE R IS THAT MERE REDUCTION OF THE AMOUNT OF LOANS AND ADVANCES OR THE DEBTORS AT THE YEAR-END WOULD NOT SUFFICE AND, IN T HE INTEREST OF TRANSPARENCY, IT WOULD BE DESIRABLE FOR THE ASSESSE E-BANK TO CLOSE EACH AND EVERY INDIVIDUAL ACCOUNT OF LOANS AN D ADVANCES OR DEBTORS AS A PRE-CONDITION FOR CLAIMING DEDUCTIO N UNDER SECTION 36(1)(VII) OF THE 1961 ACT. THIS VIEW HAS B EEN TAKEN BY THE ASSESSING OFFICER BECAUSE THE ASSESSING OFFICER APPREHENDED THAT THE ASSESSEE-BANK MIGHT BE TAKING THE BENEFIT OF DEDUCTION UNDER SECTION 36(1) (VII) OF THE 1961 ACT, TWICE OVER. (SEE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) AT PAGES 66, 67 AND 72 OF THE PAPER BOOK, WHICH REF ERS TO THE APPREHENSIONS OF THE ASSESSING OFFICER). IN THIS CO NTEXT, IT MAY BE NOTED THAT THERE IS NO FINDING OF THE ASSESSING OFFICER THAT ITA NOS. 5134(DEL)/2004 ETC. 13 THE ASSESSEE HAD UNAUTHORISEDLY CLAIMED THE BENEFIT OF DEDUCTION UNDER SECTION 36(1)(VII), TWICE OVER. THE ORDER OF THE ASSESSING OFFICER IS BASED ON AN APPREHENSION THAT, IF THE ASSESSEE FAILS TO CLOSE EACH AND EVERY INDIVIDUAL A CCOUNT OF ITS DEBTOR, IT MAY RESULT IN THE ASSESSEE CLAIMING DEDU CTION TWICE OVER. IN THIS CASE, WE ARE CONCERNED WITH THE INTER PRETATION OF SECTION 36(1)(VII) OF THE 1961 ACT. WE CANNOT DECID E THE MATTER ON THE BASIS OF APPREHENSIONS/DESIRABILITY. IT IS A LWAYS OPEN TO THE ASSESSING OFFICER TO CALL FOR DETAILS OF INDIVI DUAL DEBTOR'S ACCOUNT IF THE ASSESSING OFFICER HAS REASONABLE GRO UNDS TO BELIEVE THAT THE ASSESSEE HAS CLAIMED DEDUCTION, TW ICE OVER. IN FACT, THAT EXERCISE HAS BEEN UNDERTAKEN IN SUBSEQUE NT YEARS. THERE IS ALSO A FLIPSIDE TO THE ARGUMENT OF THE DEP ARTMENT. THE ASSESSEE HAS INSTITUTED RECOVERY SUITS IN COURTS AG AINST ITS DEBTORS. IF INDIVIDUAL ACCOUNTS ARE TO BE CLOSED, T HEN THE DEBTOR/DEFENDANT IN EACH OF THOSE SUITS WOULD RE LY UPON THE BANK STATEMENT AND CONTEND THAT NO AMOUNT IS DUE AND PAYABLE IN WHICH EVENT THE SUIT WOULD BE DISMISS ED. 3.5 WE ALSO DO NOT FIND ANY MERIT IN THE ARGUMEN T OF CONSISTENCY FOR THE SIMPLE REASON THAT THE SAME IS AGAINST TH E DECISION OF HONBLE SUPREME COURT, WHICH LAYS DOWN THE LAW OF THE LA ND. OTHERWISE WE DO NOT SEE ANY DIFFERENCE BETWEEN A DEBT AND ADVANCE, AS MENTIONED EARLIER. THEREFORE, IN VIEW OF THE AFORESAID DEC ISION, THIS GROUND IS ALSO DISMISSED. 4. GROUND NO. 3 IS THAT THE LD. CIT(A) ERRED IN D ISALLOWING INTEREST PAYABLE TO IFCI IN RESPECT OF SUGAR DEVELOPMEN T FUND (SDF), BY INVOKING THE PROVISION CONTAINED IN SECTION 43B, AS THE INTEREST IS ITA NOS. 5134(DEL)/2004 ETC. 14 PAYABLE TO THE GOVERNMENT. IT IS THE ADMITT ED POSITION THAT THE ISSUE STANDS DECIDED AGAINST THE ASSESSEE BY THE D ECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF TRIVENI ENGINEERING & INDUSTRIES LTD. VS. CIT (2009) 226 CTR 526. THE RELEVANT PORTION CONTA INED IN PARAGRAPH 5 IS REPRODUCED BELOW:- 5. THE AFORESAID PROVISION MAKES IT MORE THAN ABUND ANTLY CLEAR THAT INTEREST CAN ONLY BE ALLOWABLE WHEN THE SAME I S ACTUALLY PAID AND NOT MERELY BECAUSE THE SAME IS DUE AS PER THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE. ANY OTHER IN TERPRETATION AS SUGGESTED BY THE APPELLANT THAT THE INTEREST SHO ULD BE ALLOWED EVEN WHEN NOT ACTUALLY PAID WILL DEFEAT THE VERY PURPOSE OF SECTION 438. THE CONTENTION OF THE ASSES SEE THAT IT HAS RECEIVED THE LOAN FROM SUGAR DEVELOPMENT FUND ADMINISTERED BY THE MINISTRY OF SUGAR. GOVERNMENT O F INDIA IS LIABLE TO BE REJECTED AT THE THRESHOLD BECAUSE ADMI TTEDLY THE LOAN IS OBTAINED FROM IFCI BY THE ASSESSEE. IT IS T HE IFCI WITH WHOM THE DOCUMENTATION FOR THE LOAN HAS BEEN SIGNED AND TO WHOM THE LOAN ALONG WITH THE INTEREST IS REPAYABLE. MERELY BECAUSE THE SUGAR DEVELOPMENT FUND IS UNDER THE OVE RALL CONTROL AND ADMINISTRATION OF THE MINISTRY OF SUGAR . GOVERNMENT OF INDIA DOES NOT MEAN THAT THE LOAN IS NOT GIVEN BY THE IFCI. THE OTHER CONTENTION RAISED BY THE APP ELLANT RELYING UPON THE JUDGMENT OF THE ANDHRA PRADESH HIG H COURT IN THE CASE SRIKAKOLLU SUBBA RAO & CO. AND ORS. VS. UNION OF INDIA AND OTHER, 173 ITR 708 THAT WHERE THE AMOUNT IS NOT DUE FOR PAYMENT BEFORE THE END OF THE RELEVANT PREVIOUS YEAR SUCH AMOUNT THOUGH HAVING ACCRUED COULD NOT BE DISALLOWE D UNDER SECTION 43B(D) OF THE ACT, CANNOT BE ACCEPTED BY TH IS COURT BECAUSE THE SAME WOULD NEGATE THE INTENTION OF EXIS TENCE OF SECTION 438(D) AND WOULD RENDER OTIOSE THE EXPRESSI ON ACTUALLY PAID OCCURRING IN THE PROVISION. FURTHER WE FEEL THAT IN VIEW OF THE CATEGORICAL LANGUAGE USED IN THE REL EVANT PROVISION, WE NEED NOT REFER TO THE OTHER SUB-SECTI ONS AND EXCEPTIONS OF SECTION 43B. ITA NOS. 5134(DEL)/2004 ETC. 15 4.1 RESPECTFULLY FOLLOWING THE AFORESAID DECI SION, THIS GROUND IS ALSO DISMISSED. 5. GROUND NO. 4 IS THAT THE LD. CIT(APPEALS) E RRED IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING THE CLAIM OF RS. 21,91,222/- ON ACCOUNT OF LOSS ON SALE AND DISPOSAL OF ASSETS, WHICH WER E FOUND TO BE NO MORE USABLE. 5.1 IN THIS CONNECTION, IT IS MENTIONED IN THE IMP UGNED ORDER THAT THE ASSESSEE CLAIMED THE LOSS ON ACCOUNT OF SALE AS WELL AS THE WRITE OFF OF THE STORES. IN ADDITION THERETO, THERE HAS BEEN A WRITE OFF OF EQUIPMENTS ALSO, THE DETAILS OF WHICH ARE A S UNDER:- UNIT LOSS ON SALE WRITE OFF OF TOTAL OF STORE S (RS.) STORES EQUIPMENTS(RS.) (RS.) UPPER DOAB SUGAR MILLS 4,34,080 53,0 44 4,87,124 SHAMLI DISTILLERY 71,198 4,14,698 4,85, 896 PILKHANI DISTILLERY NIL 6,67,412 8,00,285 14,67,696 24,40,716 5.2 THE LD. CIT(APPEALS) COMPARED THE VALUE OF S ALE OF SCRAP REALIZED IN THIS YEAR VIS--VIS THE LAST YEAR AND F OUND THAT THE RECEIPTS IN THIS YEAR ARE RS. 39,57,941/- AGAINST RS. 38,48,593/- IN THE PRECEDING YEAR. SUCH VALUE HAS BEEN STATIC OVER A PERIOD OF TI ME. FURTHER, EQUIPMENT HAS BEEN WRITTEN OFF IN RESPECT OF SUGAR MILL AND THE DISTILLERY OSTENSIBLY ITA NOS. 5134(DEL)/2004 ETC. 16 FOR THE REASON THAT DUE TO UP-GRADATION OF MACH INERY THESE ARE NOT REQUIRED. AFTER ANALYZING VARIOUS FACTS, IT HA S BEEN HELD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION OF RS. 21,91,222/-. 5.3 THE LD. COUNSEL WOULD ARGUE THAT THIS YEAR I S AN EXCEPTIONAL YEAR IN THE SENSE THAT NOT ONLY UNUSABLE SPARES A ND CONSUMABLES HAVE BEEN WRITTEN OFF, BUT DUE TO CHANGE IN THE POLICY O F THE EXCISE DEPARTMENT, THE ASSESSEE HAD TO REMOVE MACHINES FROM WAREHOUSE S. THIS RENDERED THE MACHINERY AND SPARES REDUNDANT. THEREFORE, THE RE IS HIGHER CLAIM UNDER THIS HEAD. HE FILES THE DETAILS OF SALE OF SCRAP FOR ASSESSMENT YEARS 2000-01 TO 2004-05, FROM WHICH IT IS SEEN THA T THE SALE OF SCRAP IN ASSESSMENT YEARS 2002-03 AND 2003-04 IS OF EXCE PTIONALLY HIGH VALUE AT RS. 48,05,049/- AND RS. 40,31,244/-. THIS HIG HER REALIZATION IS STATED TO BE ON ACCOUNT OF REMOVAL OF MACHINERY FROM WARE HOUSES. 5.4 ON THE OTHER HAND, THE LEARNED DR RELIES ON THE ORDERS OF THE AUTHORITIES BELOW. 5.5 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND SUBMISSIONS MADE BEFORE US. ON PERUSAL OF THE ASSESSMENT ORDER, WE FIND THAT IT HAD BEEN ITA NOS. 5134(DEL)/2004 ETC. 17 EXPLAINED THAT EQUIPMENTS AND STORES FOR BOTT LING, POUCHING AND PACKING OF COUNTRY LIQUOR, LOCATED IN WAREHOUSES IN DISTRICTS, HAVE BEEN WRITTEN OFF AS A RESULT OF CHANGE IN THE PO LICY OF THE GOVERNMENT. CONSEQUENTLY, THE WAREHOUSES WERE VACATED AND THE S TORES AND EQUIPMENTS BECAME USELESS. THEREFORE, THEY HAVE BEEN WRITTE N OFF. THUS, THE SUBMISSIONS OF THE LD. COUNSEL ARE BASED UPON FACTS ON RECORD. HOWEVER, AFTER INTRODUCTION OF THE CONCEPT OF BLOCK OF ASSETS, THE SALE VALUE REALIZED ON DISCARDED DEPRECIABLE ASSE TS, IS TO BE REDUCED FROM THE VALUE OF THE BLOCK OF ASSETS TILL SUCH TIME THAT THE BLOCK IS EXHAUSTED. THIS POINT HAS NOT BEEN EXAMINED BY THE LOWER AUTHORITIES. THIS POINT HAS ALSO NOT BEEN ARGUED BEFORE US. THEREFORE, WE RESTORE THIS GROUND TO THE FILE OF THE AO FOR APPROPRIAT E DECISION IN THE LIGHT OF AFORESAID OBSERVATION. 5.6 THE RESULT IS THAT THE GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NO. 5 IS THAT THE LD. CIT(A) ERRED IN ADDING THE AMOUNT OF EXCISE DUTY PAYABLE TO THE VALUE OF CLOSING STOC K IN RESPECT OF UNCLEARED FINISHED GOODS. IN THE ALTERNATIVE, IT IS MENTION ED THAT THE AMOUNT IS REQUIRED TO BE REDUCED BY THE AMOUNT OF EXCISE DUTY PAID IN RESPECT OF ITA NOS. 5134(DEL)/2004 ETC. 18 GOODS ON WHICH THE DUTY WAS PAID UP TO THE DUE DATE OF FILING THE RETURN OF INCOME U/S 139(1). 6.1 IN THE IMPUGNED ORDER, IT IS MENTIONED THAT T HE ASSESSEE HAS NOT FURNISHED ANY EXPLANATION OR RATIONALE OF CHANGE IN METHOD OF ACCOUNTING IN RESPECT OF VALUING THE CLOSING STOCK. IT I S FURTHER MENTIONED THAT AS PER THE PROVISION CONTAINED IN SECTION 145-A, THE ASSESSEE IS REQUIRED TO FOLLOW THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY IT. IN ABSENCE OF ANY EXPLANATION BY THE ASSESSEE, T HE LOSS OCCURRING ON THE CHANGE HAS BEEN DISALLOWED BY THE LD. CIT(APP EALS). 6.2 BEFORE US, THE LD. COUNSEL WOULD CLARIFY T HAT EXCISE DUTY BECOMES PAYABLE ON REMOVAL OF THE GOODS FROM THE BONDED WAREHOUSES. THEREFORE, THE PROVISION CONTAINED IN SECTION 145A WILL C OME INTO FORCE ONLY WHEN THE GOODS HAVE BEEN SO CLEARED. WHEN HIS ATTENT ION WAS DRAWN TO THE FACT THAT THE LIABILITY TO PAY EXCISE DUTY COME S INTO EXISTENCE THE MOMENT PROCESS OF MANUFACTURE HAS BEEN COMPLET ED, HIS SUBMISSION IS THAT SINCE LIABILITY TO PAY ARISES ONLY ON CLEARANCE OF THE GOODS, THE VALUE OF INVENTORY CANNOT BE LOADED WITH T HE LIABILITY OF EXCISE DUTY TILL SUCH TIME THE GOODS ARE CLEARED. HOWEVER , IT IS ALSO SUBMITTED THAT ITA NOS. 5134(DEL)/2004 ETC. 19 THE ASSESSEE CHANGED THE SYSTEM OF ACCOUNTING OF VALUATION OF CLOSING STOCK FROM ASSESSMENT YEAR 2005-06 ON THE LI NES INDICATED BY THE BENCH. IN VIEW THEREOF, THE LD. COUNSEL DO ES NOT PRESS THE GROUND ANY FURTHER. 6.3 IN REPLY, THE LD. DR RELIED ON THE ORDER OF THE LD. CIT(APPEALS). 6.4 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND SUBMISSIONS MADE BEFORE US. IN VIEW OF THE FACT THAT THE LD. COUNSEL DOES NOT PRESS THIS GROUND ANY FURTHER, WE MAY NOT DEBATE THE MA TTER, MORE PARTICULARLY WHEN THE ASSESSEE HAS ITSELF CHANGED THE SY STEM OF ACCOUNTING IN RESPECT OF VALUATION OF CLOSING STOCK ON THE LIN ES INDICATED BY THE BENCH FROM ASSESSMENT YEAR 2005-06. HOWEVER, THE ISS UE MAY BE PUT IN PERSPECTIVE. 6.5 SECTION 145-A REGARDING METHOD OF ACCOUNTIN G IN CERTAIN CASES PROVIDES THAT THE VALUATION OF PURCHASE AND SAL E OF GOODS AND INVENTORY FOR THE PURPOSE OF COMPUTATION OF INCOME UNDER T HE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION SHALL BE IN ACC ORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE; AS FURTHER ADJUSTED TO ITA NOS. 5134(DEL)/2004 ETC. 20 INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FE ES ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE CASE TO THE PLACE OF LOCATION AND CONDITION ON THE DATE OF VALUATION. THE ISSUE IS WHETHER, LIABILITY FOR EXCISE DUTY INCURRED BY THE ASSESSEE ON MANUFAC TURE OF GOODS SHOULD BE INCLUDED IN THE INVENTORY WHEN THE GOODS ARE LYING IN THE BONDED WAREHOUSE? THE CASE OF THE REVENUE, BASED UPO N DECIDED CASE LAWS UNDER RELEVANT ACT, IS THAT THE LIABILITY TO PAY EXCISE DUTY IS INCURRED THE MOMENT GOODS ARE MANUFACTURED. INITIALLY, TH E LD. COUNSEL SEEKS TO ARGUE THAT THE LIABILITY IS INCURRED WHEN THE GOODS ARE CLEARED FROM THE BONDED WAREHOUSES AND NOT BEFORE. HOWEVER, TH IS LINE OF ARGUMENT IS ABANDONED BY POINTING OUT THAT FROM ASSESSM ENT YEAR 2005-06, THE INVENTORIES HAVE BEEN VALUED ON THE FOOTING T HAT THE LIABILITY IS INCURRED WHEN THE GOODS ARE MANUFACTURED. 6.6 BEFORE US, NO DATA OR DETAILS WERE FURNISHE D REGARDING THE PAYMENT MADE BEFORE DUE DATE OF FILING THE RETURN UNDE R SECTION 139(1). THEREFORE, IT IS NOT FEASIBLE TO ADJUDICATE O N THIS PART OF THE GROUND. 6.7 IN VIEW OF THIS POSITION, THIS GROUND IS A LSO DISMISSED. 7. GROUND NO. 6 IS THAT THE LD. CIT(A) ERRED I N HOLDING THAT CUSTOMARY COLLECTION IN DHARMADA ACCOUNT IS A TRADING RECEIPT. IT IS THE COMMON GROUND OF BOTH THE PARTIES THAT THE ISSUE STANDS COVERED AGAINST THE ITA NOS. 5134(DEL)/2004 ETC. 21 ASSESSEE BY THE ORDER OF THE TRIBUNAL IN EARLIER Y EARS AND A CONSOLIDATED ORDER FOR ASSESSMENT YEARS 1990-91 AND 2000-0 1 HAS BEEN PLACED IN THE PAPER BOOK ON PAGES 471 TO 503. FOR THE SA KE OF READY REFERENCE, THE RELEVANT PARAGRAPH 23 IS REPRODUCED BELOW:- 23. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THOUGH THE ASSESSEE IS STATED TO BE COLLECTING RECEIPTS TOW ARDS DHARMADA (CHARITY) FROM THE CUSTOMERS, THE AMOUN T IS SIMPLY ACCUMULATED FROM YEAR TO YEAR AND NOT SPENT FOR HE PURPOSE FOR WHICH IT IS COLLECTED. THUS, IT IS O NLY A NAME GIVEN BUT IT IS NOT SPENT FOR THE INTENDED PUR POSE. IT IS SUBMITTED THAT THE AMOUNT IS BEING ACCUMULATED SO THAT A HUGE PROJECT OF MULTI SPECIALTY HOSPITAL CAN BE TAKEN. ON QUERY FROM THE BENCH, THE LD. COUNSEL FOR THE ASSESSEE CLARIFIED THAT TILL DATE NO SUCH HOSPITAL PRO JECT HAS COME OVER NOR EVEN ANY LAND HAS BEEN IDENTIFIED I N THIS REGARD. IT IS MERELY AN ARGUMENT WITHOUT ANY SUBSTAN CE. THE ASSESSEE HAS NOT DEMONSTRATED THAT ANY STEPS A RE TAKEN TOWARDS THE OBJECT OF SETTING UP SUCH HOSPIT AL. EVEN THE LAND FOR SUCH HOSPITAL HAS NOT BEEN IDENTIFIED LEAVE APART CONSTRUCTION THEREOF. THEREFORE, IT CANNOT BE HELD THAT THE AMOUNT COLLECTED FROM CUSTOMERS WERE REALLY T OWARDS AVOWED OBJECT OF CHARITY. THEREFORE, THE DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF BIJLI COTTON MILLS (SUPRA) WILL NOT APPLY TO THE FACTS OF THE CASE. THE A SSESSEE HAS DEMONSTRATED NOT ONLY COLLECTING DHARMADA REC EIPTS AS A CUSTOMARY PRACTICE BUT ALSO TO SHOW THAT SUCH CU STOMARY PRACTICE IS CARRIED TO ITS LOGIC CONCLUSION, I.E., SPENDING TOWARDS CHARITY OUT OF SUCH ACCOUNT. THE AS SESSEE CANNOT MERELY GO ON COLLECTING RECEIPTS FROM YEAR TO Y EAR AND STILL CLAIM THE SAME AS CHARITY WITHOUT ANY INTEN TION TO SPEND SUCH AMOUNT. WE, THEREFORE, UPHOLD THE A DDITION. AS REGARDS ALTERNATE CLAIM, IF THE ASSESSEE SATISFIES THE CONDITION FOR ALLOWING DEDUCTION UNDER SECTIO N 80G, THE ASSESSEE MAY PRODUCE NECESSARY EVIDENCE BEFORE THE ASSESSING OFFICER TO CLAIM THAT DEDUCTION UNDER SECTION 80G IS ALLOWABLE. ITA NOS. 5134(DEL)/2004 ETC. 22 7.1 RESPECTFULLY FOLLOWING THE ABOVE DECISION, THE GROUND IS DISPOSED OFF ACCORDINGLY. THE AO MAY CONSIDER THE DEDUC TION TO BE ALLOWED, IF ANY, UNDER SECTION 80G. IN RESULT, THE GROUND IS ALSO DISMISSED. 8. GROUND NO. 7 IS THAT THE LD. CIT(A) ERRED IN DISALLOWING EXPENSES OF RS. 6,19,805/-, RS. 5,69,920/- AND RS. 2,60,000/- BY HOLDING THEM TO BE EXPENSES OF CAPITAL NATURE. THE DETAILS OF THE SE EXPENSES HAVE BEEN MENTIONED BY THE LD. CIT(APPEALS) ON PAGE 19 OF THE ORDER. THE DETAILS ARE REPRODUCED BELOW:- VR NO. DATE PARTICULARS PARTY NAME REMARKS AMOUNT (RS.) 3861 30.9.00 HYDRAULIC POWER PACK WITH 20H.P MOTORS HYDRAULIC PROJECTS AND SYSTEMS PVT. LTD. PART OF HYDRAULIC DRIVE OF CAPACITY 320X2 K.W USED FOR REPLACE MENT OF OLD AND UNSERVICEABLE PART 6,19,805 3861 30.9.00 SEAK KIT FOR HYDRAULIC MAIN PUMP & PLANETARY GEAR BOX DIANA AUTOMATION PVT. LTD. PART OF HYDRAULIC DRIVE OF CAPACITY 320X2 K.W USED FOR REPLACEMENT OF OLD AND UNSERVICEABLE PART 5,69,920 ITA NOS. 5134(DEL)/2004 ETC. 23 DO DO HYDRAULIC PUMP & MOTOR HYDRAULIC PROJECTS SYSTEMS PVT. LTD. PART OF HYDRAULIC DRIVE OF CAPACITY 320X2 K.W USED FOR REPLACEMENT OF OLD AND UNSERVICEABLE PART 2,60,000 8.1 THE FINDING OF THE LD. CIT(A) IS THAT ALTHO UGH THE EXPENSES HAVE BEEN CLASSIFIED AS CURRENT REPAIRS, BUT THEY ARE IN THE NATURE OF CAPITAL EXPENSES INCURRED FOR RE-CONDITIONING AND REFU RBISHING EXISTING MACHINES, THEREBY GRANTING THE ASSESSEE A BEN EFIT OF ENDURING NATURE. HOWEVER, HE ALLOWED DEDUCTION OF DEPRECIATION O N THE CAPITALIZED EXPENDITURE @ 12.5% OF THE EXPENDITURE. 8.2 THE LD. COUNSEL DRAWS OUR ATTENTION TOWAR DS PAGES 241 TO 255 OF THE PAPER BOOK, BEING APPELLATE ORDER FOR A SSESSMENT YEAR 2002-03, DEALING WITH SIMILAR EXPENSES, IN WHICH THE LD. CIT(APPEALS) HELD THAT THE DISALLOWANCE MADE BY THE AO IS NOT IN RESP ECT OF ANY ADDITION OR IMPROVEMENT TO THE EXISTING MACHINERY OR PLANT, BUT IS FOR PROPER MAINTENANCE OF THE SAME. THUS, THE ADDITION OF RS. 29,22,092/- WAS DELETED. FURTHER, HE DRAWS OUR ATTENTION TO PAGES 279 TO 287, OF THE PAPER BOOK, WHICH CONTAIN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR ITA NOS. 5134(DEL)/2004 ETC. 24 2003-04 AND THE DETAILS OF EXPENSES IN RESPEC T OF PLANT AND MACHINERY. ON THE BASIS OF THESE DETAILS, IT IS ARGUED T HAT SUCH EXPENSES HAVE BEEN INCURRED NOT ONLY IN THIS YEAR BUT IN SUBSEQUENT YEARS ALSO. THE EXPENSES DO NOT LEAD TO INSTALLATION OF ANY NEW MACHINE RY OR ENHANCING THE CAPACITY OF EXISTING MACHINERY. THE EXPENSES ARE IN RELATION TO REPAIRS OF THE EXISTING MACHINERY AND, THEREFORE, THEY ARE IN THE NATURE OF REVENUE EXPENSES. THE LD. COUNSEL ALSO SUPPLI ES THE FIGURES OF EARLIER YEARS TO SUPPORT HIS CASE. 8.3 IN REPLY, THE LD. DR RELIES ON THE DE CISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. SARAVANA SPINNING MILLS (P) LTD., (2007) 293 ITR 201. THE QUESTION BEFORE THE COURT FO R CONSIDERATION IS, WHETHER THE MODERNIZATION OR CURRENT REPAIR EXPENDITURE IS ALLOWABLE AS REVENUE EXPENDITURE, AS CLAIMED BY THE ASSE SSEE OR THE REPLACEMENT OF CARDS OR BLOW ROOM MACHINERY/COMBING MACHINERY ETC. IS TO BE CONSIDERED AS CAPITAL EXPENDITURE AS CLAIMED BY THE REVENUE?, THE RELEVANT PORTIONS OF WHICH AT PLACITUM 17 AND 1 8 ARE REPRODUCED BELOW:- SOME OF THE DECISIONS CITED ON BEHALF OF THE ASSES SEES ARE NOT BEING DISCUSSED BY US AS THEY DEAL WITH CASES FALLI NG UNDER SECTION 37. THAT SECTION A RESIDUARY SECTION. UNDER SECTION 37, A PARTICULAR ITEM OF EXPENDITURE MAY BE DEDUCTIBLE IF THE EXPENDITURE DOES NOT FALL WITHIN SECTIONS 30 TO 36; THAT IT SHOULD HAVE BEEN INCURRED IN THE ACCOUNTING YEAR; THAT IT SHOULD BE IN ITA NOS. 5134(DEL)/2004 ETC. 25 RESPECT OF A BUSINESS CARRIED ON BY THE ASSESSEE; T HAT IT SHOULD NOT BE ON PERSONAL ACCOUNT OF THE ASSESSEE; THAT IT SHOULD NOT BE IN THE NATURE OF CAPITAL EXPENDITURE AND THAT IT SH OULD BE SPENT WHOLLY AND EXCLUSIVELY FOR BUSINESS. WHETHER EXPEND ITURE IS 'REVENUE' OR 'CAPITAL IN NATURE' WOULD DEPEND UPON SEVERAL FACTORS, NAMELY, NATURE OF THE EXPENDITURE, NATURE OF THE BUSINESS ACTIVITY ETC. FOR EXAMPLE, CONSTRUCTION OF THE BUILDING FAR SELF-USE MAY BE CAPITAL IN NATURE WHEREAS IN TH E HANDS OF THE BUILDER A BUILDING CONSTITUTES HIS STACK-IN-TRA DE AND, THEREFORE, AN THE SALE OF THE BUILDING THE EXPENDIT URE HAS TO BE REVENUE. THEREFORE, THE BUILDER WOULD BE ENTITLED T O DEDUCT SUCH EXPENDITURE FROM THE SALE PROCEEDS/GROSS INCOME. TH EREFORE, WHETHER AN EXPENDITURE IS REVENUE OR CAPITAL IN NAT URE WOULD DEPEND ON THE FACTS OF EACH CASE. WE DO NOT WISH TO EXPRESS ANY OPINION ON THE APPLICABILITY OF SECTION 37(1) IN TH E PRESENT CASE. THERE WERE CERTAIN CIVIL APPEALS WRONGLY TAGGED WIT H THE PRESENT BATCH WHICH WILL BE DECIDED SEPARATELY BY U S AS THEY CONCERN WITH SECTION 37(1). HENCE WE DO NOT WISH TO EXPRESS ANY OPINION ON APPLICABILITY OF SECTION 37(1). BEFORE CONCLUDING, ONE ASPECT NEEDS TO BE DISCUSSED . IT WAS SUBMITTED ON BEHALF OF THE ASSESSEES, IN THE PRESE NT CASE, THAT ALTHOUGH THE ASSESSEES HAD CLAIMED DEDUCTION UNDER SECTION 31(I), THEY SHOULD BE PERMITTED TO CLAIM DEDUCTION UNDER SECTION 37(1) AS ON THE FACTS IT HAS BEEN HELD BY THE COMMI SSIONER OF INCOME-TAX (APPEALS), TRIBUNAL AND THE HIGH COURT T HAT THE EXPENDITURE WAS REVENUE IN NATURE. WE FIND NO MERIT IN THIS CONTENTION. AS STATED ABOVE, EVEN IF THE EXPENDITUR E INCURRED IS REVENUE IN NATURE, STILL IT MAY NOT FALL IN THE CON NOTATION OF THE WORDS CURRENT REPAIRS' UNDER SECTION 31 (I) WHICH TEST HAS NOT KEPT IN MIND. AS HELD BY CHAGLA C. J. IN THE CASE O F NEW SHORROCK SPINNING AND MANUFACTURING CO. LTD. [1956] 30 ITR 338 (BOM) ALL REPAIRS DO NOT ATTRACT SECTION 31(I) EVEN THOUGH THE EXPENDITURE IS REVENUE IN NATURE. THEREFORE, TH E BASIC TEST, WHICH HAD NOT BEEN APPLIED, IN THE PRESENT CASE, BY THE COMMISSIONER OF INCOME-TAX (APPEALS), THE TRIBUNAL AND THE HIGH COURT, IS WHETHER THE EXPENDITURE CAME WITHIN THE EXPRESSION CURRENT REPAIRS'. INSTEAD ALL THE THREE AUTHORITIES PROCEEDED ON THE FOOTING THAT SINCE THE EXPENDITURE WAS REVENUE IT CONSTITUTED CURRENT REPAIRS'. IT IS FOR THIS REASON ITA NOS. 5134(DEL)/2004 ETC. 26 THAT WE HAVE INTERFERED WITH THE CONCURRENT FINDING S GIVEN BY THE COMMISSIONER OF INCOME-TAX (APPEALS), THE TRIBU NAL AND THE HIGH COURT. 8.4 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT THE ASSESSEE SPENT AN AMOUNT OF RS. 6,19,805/- FOR REPLACEMENT OF AN OLD PART OF T HE HYDRAULIC DRIVE. ONE MORE PART WAS REPLACED FOR AN EXPENDITURE OF RS. 5,69,920/-, BEING SEAK KIT FOR THE HYDRAULIC MAIN PUMP. THE HYDRAULIC PUMP AND MOTOR OF THE HYDRAULIC DRIVE WERE REPLACED AT THE CO ST OF RS. 2,60,000/-. THE ASSESSEE HAS DEMONSTRATED THAT SIMILAR EXP ENSES WERE INCURRED IN PAST AND SUBSEQUENT YEARS. SIMILAR CLAIM OF THE ASSESSEE HAS BEEN ALLOWED BY THE AO HIMSELF IN ASSESSMENT YEAR 2 003-04. THE CASE OF THE ASSESSEE IS BASED ON SECTION 37(1) AND NOT ON SECTION 31 (I), AS WAS THE CASE OF SARAVANA SPINNING MILLS (P) LTD. (SUPRA). THERE IS NOTHING ON RECORD TO SHOW THAT THE CAPACITY OF HYDRAULI C DRIVE HAS SIGNIFICANTLY INCREASED. OBVIOUSLY IT IS NOT A CASE WHERE A NEW MACHINE HAS BEEN INSTALLED AS THESE PARTS PERTAIN TO THE HYDR AULIC DRIVE. THUS, AFTER REPAIR THE HYDRAULIC DRIVE REMAINS HYDRAULIC DRIVE OF THE SAME CAPACITY. THEREFORE, IT IS NEITHER A CASE OF BRINGING INTO EXISTENCE A NEW ASSET OR SUBSTANTIALLY ENHANCING THE CAPA CITY OF THE EXISTING HYDRAULIC DRIVE. IT IS ALSO NOT A CASE WHERE ANY EXPENDITURE HAS BEEN ITA NOS. 5134(DEL)/2004 ETC. 27 DONE IN THE CAPITAL FIELD. THEREFORE, LOOKING TO THE HISTORY OF THE CASE, WE ARE OF THE VIEW THAT THE EXPENDITURE IS REV ENUE IN NATURE. CONSEQUENTLY, THE NET ADDITION SUSTAINED BY THE LD. CIT(APPEALS) AFTER DEDUCTION OF DEPRECIATION IS DELETED. 8.5 IN THE RESULT, THIS GROUND IS ALLOWED. 9. GROUND NO. 8 CONTAINS TWO PARTS. THERE IS A CHALLENGE TO DISALLOWANCE OF RS. 16,650/-, BEING LAWYERS CHARG ES PERTAINING TO EARLIER YEARS. FURTHER, THE DISALLOWANCE OF RS. 50,000/- ON ACCOUNT OF PERSONAL USE OF VEHICLES BY THE DIRECTORS OF THE COMPANY HAS BEEN CHALLENGED. IN REGARD TO THE LAWYERS CHARGES, IT IS MENTIONED THAT THE BILL HAS BEEN RECEIVED IN THIS YEAR. IN RESPECT OF DISALLOWA NCE OF RS. 50,000/-, IT IS MENTIONED THAT THE ASSESSEE IS A COMPANY, WHICH IS INCAPABLE OF PERSONAL USE OF THE ASSETS AND PERSONAL USE BY DIREC TORS IS AN EXPENDITURE BY WAY OF PERQUISITE. THIS IS A BUSINESS EXPENDIT URE INCURRED BY THE ASSESSEE-COMPANY. THE LD. DR IS UNABLE TO REB UT ANY OF THE AFORESAID SUBMISSIONS. THEREFORE, IT IS HELD THAT THE LIA BILITY IN RESPECT OF LAWYERS CHARGES CRYSTALLIZED IN THIS YEAR AND AD-HOC APPORTIONMENT OF RS. 50,000/- FROM THE VEHICLE EXPENSES FOR USE O F THE DIRECTORS IS BUSINESS EXPENDITURE IN SO FAR AS THE ASSESSEE COMPANY IS CONCERNED. ITA NOS. 5134(DEL)/2004 ETC. 28 9.1 THUS, THIS GROUND IS ALLOWED. 10. GROUND NO. 9, IN REGARD TO DEDUCTION U/S 8 0G IN RESPECT OF RELIEF TO GUJARAT EARTH QUAKE VICTIMS, HAS NOT BEEN P RESSED BY THE LD. COUNSEL FOR THE REASON THAT REQUISITE RELIEF HAS BEE N GRANTED BY RECTIFICATION OF THE ORDER. THUS, THIS GROUND IS DISMISSED AS NOT PRESSED. 11. GROUND NO. 10 IS AGAINST INCLUSION OF A SU M OF RS. 2,90,84,580/- IN THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING T HE DEDUCTION U/S 80HHC. 11.1 IN THIS CONNECTION, IT IS MENTIONED BY THE AO THAT THE ASSESSEE HAS SHOWN OTHER INCOME OF RS. 2,90,84,580/- IN SCHEDU LE-I OF THE ACCOUNTS. THIS CONSISTS OF INTEREST, RENT, PROFIT ON SALE OF FIXED ASSETS, UNCLAIMED CREDIT BALANCES WRITTEN BACK, SUNDRY RECEIPTS, SCRAP SALE, SALE OF BAGASSE AND PRESS MUD AND REFUND OF SALES-TAX OF EARLIER YEARS. AS THESE ITEMS ARE RELATED WITH THE BUSINESS ACTI VITY, THE AMOUNT IS INCLUDED IN THE TOTAL TURNOVER. THE LD. CIT(APPEALS) CO NFIRMED THE ORDER OF THE AO BY FURTHER MENTIONING THAT THE AFORESAID AM OUNT IS TAKEN AS PART OF THE PROFIT ON WHICH DEDUCTION IS CLAIMED AND, THEREFORE, THE ASSESSEE CANNOT TAKE A PLEA THAT THIS AMOUNT IS NOT PART OF THE TOTAL TURNOVER. ITA NOS. 5134(DEL)/2004 ETC. 29 11.2 IN THE CHART FURNISHED TO US, THE LD. COUNSE L FURNISHES THE BREAK-UP OF THE AMOUNT AS UNDER:- (I) INTEREST RS. 1,02,31,704/- (II) RENT RS. 85,787/- (III) PROFIT ON SALE OF FIXED ASSETS RS. 79,113 /- (IV) UNCLAIMED CREDIT BALANCE WRITTEN BACK RS. 44,951/- (V) SUNDRY RECEIPTS RS. 84,977/- (VI) SALE OF SCRAP RS. 39,57,941/- (VII) SALE OF BAGASSE & PRESS MUD RS. 1,36,72,55 8/- (VIII) REFUND OF SALES-TAX PAID IN EARLIER YEAR RS. 9,27,549/- TOTAL: RS. 2,90,84,58 0/- 11.3 HE SUBMITS THAT INTEREST, RENT AND PROFIT O N SALE OF FIXED ASSETS HAVE BEEN EXCLUDED FROM THE PROFITS OF BUSINESS BY APPLYING THE PROVISION CONTAINED IN CLAUSE (BAA) OF THE EXPL ANATION TO SECTION 80HHC. THEREFORE, IT IS HIS CLAIM THAT CORRESPONDING AMOUNT CANNOT BE INCLUDED IN THE TOTAL TURNOVER. IT IS FURTHER ARGUED THAT SALE OF SCRAP, BAGASSE AND PRESS MUD CANNOT FORM PART OF TUR NOVER AS THE ASSESSEE IS NOT IN THE BUSINESS OF SELLING SCRAP, BAGASSE OR PRESS MUD. ON THE OTHER HAND, THE LD. DR RELIES ON THE ORDERS OF THE AUTHORITIES BELOW. ITA NOS. 5134(DEL)/2004 ETC. 30 11.4 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. ON PERUSAL OF PAGE 298 OF THE PAPER BOOK, BEING ANNEXURE-B OF FORM NO. 10CCAC, IT IS SEEN THAT 90% OF RENT AND INTEREST, AMOUNTING TO RS. 92,85,742/- HAS BEEN EXCLUDED FROM THE PROFITS OF THE BUSINESS UNDER THE AFORESAID CLAUSE (BAA). HOW EVER, NO DEDUCTION HAS BEEN MADE IN RESPECT OF PROFIT ON SALE OF FIXED ASSETS. COMING TO THE OTHER ARGUMENT, IF SALE OF SCRAP AMOUNTS TO PROFITS OF THE BUSINESS, THERE IS NO REASON THAT THIS AMOUNT SHOULD NOT BE INCLUDED IN THE TOTAL TURNOVER. THE SAME LOGIC APPLIES IN RESPECT OF SALE OF BAGASSE AND PRESS MUD. ALL THESE ITEMS ARE AUXILIARY AND VALUA BLE PRODUCTS GENERATED IN THE COURSE OF MAIN BUSINESS OF THE ASSESSEE, WHICH ARE BEING SOLD FROM YEAR TO YEAR. THE REFUND OF SALES-TAX HAS A DIRE CT NEXUS WITH SALES I.E., THE TURNOVER. SUCH IS ALSO THE CASE IN RES PECT OF SUNDRY CREDIT BALANCES WRITTEN BACK, WHICH HAVE A DIRECT NEXUS WITH THE PURCHASES MADE BY THE ASSESSEE. THE DETAILS OF PROFIT ON SALE OF FIXED ASSETS AND SUNDRY RECEIPTS HAVE NOT BEEN FURNISHED AND, T HEREFORE, THEIR NEXUS WITH PURCHASE OR SALE ETC. CANNOT BE FOUND ON A P RIMA FACIE BASIS. HOWEVER, WE FIND MERIT IN THE ARGUMENT OF TH E LD. CIT(APPEALS) THAT IF THESE ITEMS ARE PROFITS OF BUSINESS ON WHICH TH E DEDUCTION HAS BEEN CLAIMED, THERE IS NO REASON FOR EXCLUDING TH EM FROM THE TOTAL TURNOVER. ITA NOS. 5134(DEL)/2004 ETC. 31 THIS LOGIC ALSO APPLIES TO PROFIT ON SALE OF FIXED ASSETS, FOR WHICH THE DETAILS HAVE NOT BEEN FURNISHED. THE RESULT OF THIS DISCUSSION IS THAT INTEREST AND RENT SHALL BE EXCLUDED FROM THE T OTAL TURNOVER WHILE ALL OTHER ITEMS WILL FORM PART OF THE TOTAL TURN OVER FOR COMPUTING DEDUCTION U/S 80HHC. 11.5 THUS, THIS GROUND IS PARTLY ALLOWED. 12. GROUND NO. 11, REGARDING CHARGING OF INTEREST U/S 234-B, IS STATED TO BE CONSEQUENTIAL IN NATURE. THE AO SHALL REV ISE THE COMPUTATION OF THE INTEREST WHILE GIVING EFFECT TO THIS ORD ER. THUS, THIS GROUND IS PARTLY ALLOWED. 13. NO ADDITIONAL GROUND WAS TAKEN UP IN PU RSUANCE OF GROUND NO. 12. THUS, THIS GROUND IS DISMISSED. ITA NO. 5694(DEL)/2004-A.Y. 2001-02- APPEAL OF TH E REVENUE 14. IN THIS CROSS APPEAL, THE REVENUE HAS RA ISED FOLLOWING TWO GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDI TION MADE BY THE ITA NOS. 5134(DEL)/2004 ETC. 32 AO ON ACCOUNT OF MEDICAL REIMBURSEMENT TO EMP LOYEES AMOUNTING TO RS. 2,55,503/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDI TION OF RS. 3,17,619/- MADE ON ACCOUNT OF VALUATION OF STOC K OF DISTILLERIES PRODUCTS AND MOLASSES. 14.1 BEFORE US, THE LD. COUNSEL DREW OUR ATTEN TION TOWARDS PAGES 28 TO 36 OF THE ORDER OF THE LD. CIT(A), WHEREIN THE REASONS FOR CHANGE IN ACCOUNTING PRACTICES IN RESPECT OF MEDICAL EXPE NDITURE ON EMPLOYEES AND VALUATION OF STOCK OF DISTILLERIES PRODUCTS AND MOLASSES WERE CONSIDERED. 14.2 IT HAS BEEN MENTIONED THAT EARLIER THE AS SESSEE WAS REIMBURSING MEDICAL EXPENSES TO ITS EMPLOYEES ON SIX MONTHLY BASIS ON 30 TH JUNE AND 31 ST DECEMBER OF EVERY YEAR. IN THIS YEAR SUCH E XPENSES WERE REIMBURSED ON 30 TH SEPTEMBER AND 31 ST MARCH. THIS PRACTICE HAS BEEN REGULARLY FOLLOWED SUBSEQUENTLY. THE REASON F OR CHANGE IN THE ACCOUNTING PRACTICE IS STATED TO BE TO ALIGN THE ACCOUNTING FOR OF THE EXPENDITURE ON FINANCIAL YEAR BASIS AGAINST C ALENDAR YEAR BASIS DONE EARLIER. THIS IS DONE TO RECKON THE EXPENDI TURE ON FINANCIAL YEAR BASIS AS THE TOTAL INCOME IS TO BE COMPUTED FOR A FIN ANCIAL YEAR. THE LD. CIT(APPEALS) HOLDS THAT THE CHANGE SO MADE IS B ONA FIDE AND IT HAS BEEN ITA NOS. 5134(DEL)/2004 ETC. 33 FOLLOWED CONSISTENTLY IN THE SUBSEQUENT YEARS. THE REFORE, THE CORRESPONDING ADDITION MADE BY THE AO HAS BEEN DELETED. 14.3 IN RESPECT OF THE STOCK OF DISTILLERIES PRODUCTS AND MOLASSES, THE VALUATION EARLIER WAS BEING MADE ON NET REA LIZABLE VALUE, WHILE ALL OTHER STOCKS WERE BEING VALUED ON COST OR REALIZABLE VALUE, WHICHEVER IS LESS. THE LATTER METHOD IS CONSISTENT WITH A CCOUNTING STANDARD-2(AS-2), WHICH READS AS UNDER:- FINISHED STOCKS ARE VALUED AT LOWER OF COS T OR REALIZABLE VALUE EXCEPT THAT DISTILLERY PRODUCT S AND MOLASSES (BY PRODUCT) ARE VALUED AT NET REALI ZABLE VALUE AS PER PAST PRACTICE. THESE STOCKS ARE VALUED AT NET REALIZABLE VALUE AS AGAINST THE SUGGESTED ME THOD OF LOWER OF COST OR NET REALIZABLE VALUE IN ACCOUN TING STANDARD-2 ISSUED BY INSTITUTE OF CHARTERED ACCOUN TANT OF INDIA. THE EFFECT TO THE EXTENT OF NOT FOLLOWI NG AS-2 IS NOT DETERMINED. THE FEASIBILITY OF VALUING DISTRILLE RY PRODUCTS AND BY PRODUCT I.E., MOLASSES ON LOWER OF COST O R NET REALIZABLE VALUE AS SUGGESTED IN ACCOUNTING ST ANDARD-2 IS BEING EXAMINED FOR ADOPTION IN FUTURE. 14.4 THE LD. CIT(APPEALS) MENTIONS THAT THE ACC OUNTING PRACTICE MAY BE ALLOWED TO BE CHANGED IF- (I) SUCH CHANGE IS BONA-FIDE AND (II) THE CHANGED METHOD IS CONSISTENTLY FOLLOWED THEREAF TER. SINCE THE CHANGE IS BONA FIDE, BASED ON AS-2, AND IT HAS BEEN FOL LOWED CONSISTENTLY ITA NOS. 5134(DEL)/2004 ETC. 34 THEREAFTER, THE LD. CIT(A) HAS ACCEPTED THE CHANG E IN THE ACCOUNTING SYSTEM. THUS, BOTH THE ADDITIONS WERE DELETE D FROM ASSESSMENT. 14.5 BEFORE US, THESE VERY SUBMISSIONS HAVE B EEN MADE BY THE LD. COUNSEL. IN REPLY, THE LD. DR RELIES ON THE OR DER OF THE AO. 14.6 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND SUBMISSIONS MADE BEFORE US. THE CHANGE IN THE ACCOUNTING PRACT ICE FOR ACCOUNTING FOR OF THE MEDICAL EXPENDITURE HAS BEEN MADE SO THAT LIABILITY OF A YEAR IS RECOGNIZED IN THE SAME YEAR. THIS CHANGE IS I N LINE WITH THE ACCOUNTING FOR OF ALL OTHER EXPENSES. THIS CHANGE HAS BEEN FOLLOWED CONSISTENTLY THEREAFTER. IT IS NO DOUBT TRUE THAT IN THE ASSESSMENT OF THIS YEAR THE LIABILITY WILL GET ALLOWED FOR 15 MONTHS IF TH E CHANGE IS ACCEPTED, BUT, SUCH A PAIN HAS TO BE SUFFERED IN CASE THE CHA NGE IS BONA-FIDE AND IT IS FOLLOWED CONSISTENTLY IN SUBSEQUENT YEARS. WE ARE OF THE VIEW THAT IT IS PREFERABLE TO ACCOUNT FOR ALL THE LIABILITIES OF A YEAR IN THAT VERY YEAR SO AS TO DEPICT THE CORRECT PICTURE OF PROFIT. TH E CHANGE ADOPTED BY THE ASSESSEE WILL REFLECT CORRECT PROFIT IN SUBS EQUENT YEARS NOTWITHSTANDING SOME ABERRATION IN THIS YEAR. HOWEVER, SUC H AN ABERRATION CANNOT BE THE REASON FOR FOLLOWING A WRONG PRACTICE. IN OTHER WORDS, THE CHANGE ITA NOS. 5134(DEL)/2004 ETC. 35 MADE BY THE ASSESSEE IS BONA FIDE. IT HAS ALSO BEEN FOLLOWED CONSISTENTLY. THEREFORE, WE ARE OF THE VIEW THAT THE LD. CIT(A) IS RIGHT IN ACCEPTING THIS CHANGE. 14.7 SUCH IS ALSO THE CASE WITH THE VALUATION OF DISTILLERIES PRODUCTS AND MOLASSES. COST OR REALIZABLE VALUE, WHICHE VER IS LESS, IS THE ACCEPTED METHOD OF VALUATION. IT HAS ALSO BEEN RECOGNIZED AS SUCH UNDER AS-2. THE ASSESSEE HAS BEEN VALUING ALL OTHER STOCKS ON THIS BASIS. THEREFORE, THE CHANGE IS CONSISTENT WITH THE A CCOUNTING PRACTICE FOLLOWED FOR VALUING OTHER STOCKS. IT HAS AL SO BEEN FOLLOWED IN SUBSEQUENT YEARS. THUS, WE ARE OF THE VIEW THAT THIS CHANGE IS ALSO BONA FIDE. 14.8 THE RESULT IS THAT THESE GROUNDS ARE DISMI SSED. ITA NO. 145(DEL)/2007-ASSTT. YEAR 2001-02- APPEAL OF THE ASSESSEE. 15. THIS IS AN APPEAL AGAINST LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. THE AO LEVIED PENALTY IN RESPECT OF ADDITION OR DISALLOWANCE, AS THE CASE MAY BE, OF THE FOLLOWING AMOUNTS:- (I) PROVISION FOR DOUBTFUL DEBTS RS. 52,47,553/- (II) PROVISION FOR DOUBTFUL ADVANCES RS. 5,23,190/- (III) LOSS ON SALE OR WRITE OFF OF OTHER ASSETS RS. 21,91,222/- ITA NOS. 5134(DEL)/2004 ETC. 36 16. IN REGARD TO PROVISION FOR DOUBTFUL DEBTS, IT IS MENTIONED THAT THE PROVISION CONTAINED IN SECTION 36(1)(VII) HAS NO T BEEN SATISFIED AND THE DECISION OF HONBLE MUMBAI HIGH COURT IN THE CASE OF ABB LTD., 258 ITR 407, SUPPORTS THE VIEW THAT SUCH PROVISIO N IS NOT DEDUCTIBLE IN COMPUTING THE INCOME. SIMILAR FINDING WAS MAD E IN RESPECT OF PROVISION FOR DOUBTFUL ADVANCES. IN REGARD TO LOSS ON S ALE OR WRITE OFF OF OTHER ASSETS, IT HAS BEEN MENTIONED THAT THE CASE OF T HE ASSESSEE IS THAT THE ITEMS HAVE BECOME OBSOLETE. THE EXPENDITURE OF RS. 8, 00,285/- AND RS. 58,251/- IS IN RESPECT OF WRITING OFF OF THE EQU IPMENT IN PILKHANI UNIT AND SHAMLI UNIT RESPECTIVELY. SUCH A WRITE OFF O F THE CAPITAL GOODS IS NOT ALLOWED. IN VIEW OF THE AFORESAID FINDINGS, PENALTY OF RS. 31,48,957/-, BEING THE MINIMUM PENALTY LEVIABLE, HAS BEEN DI RECTED TO BE PAID. 16.1 IN THE IMPUGNED ORDER, IT HAS BEEN HELD THA T THE ASSESSEE CLAIMED DEDUCTION IN RESPECT OF PROVISION FOR DOUBTFUL DEBTS AND DOUBTFUL ADVANCES ON THE BASIS OF AN OLD DECISION OF GU JARAT HIGH COURT. HOWEVER, THE DECISION IN THE CASE OF ABB L TD. (SUPRA) IS IN FAVOUR OF THE REVENUE. THE CONDITIONS MENTIONED IN THE EX PLANATION TO SECTION 36(1)(VII) SUPPORTS THE VIEW OF THE ASSESSING O FFICER. THEREFORE, PENALTY IN RESPECT OF THESE TWO AMOUNTS HAS BEEN CONF IRMED. ITA NOS. 5134(DEL)/2004 ETC. 37 16.2 IN REGARD TO LOSS ON SALE OR WRITING OFF OF OTHER ASSETS, IT HAS BEEN MENTIONED THAT THE CLAIM OF THE ASSESSEE IS SIMI LAR TO CLAIM MADE IN EARLIER YEARS. IN ASSESSMENT YEAR 2002-03, TH E AO MADE ADDITION OF RS. 6,12,341/-, BUT THE SAME HAS BEEN ALLOWED BY T HE CIT(A). THEREFORE, IT HAS BEEN HELD THAT THE ISSUE IS DEBATABLE AND IN VIEW THEREOF, PENALTY CANNOT BE IMPOSED. 16.3 THUS, THE APPEAL OF THE ASSESSEE HAS BEEN PARTLY ALLOWED. 16.4 THE LD. COUNSEL SUBMITS THAT FULL PART ICULARS IN RESPECT OF PROVISION FOR DOUBTFUL DEBTS AND DOUBTFUL ADVA NCES WERE MENTIONED IN THE RETURN OF INCOME OR ITS ACCOMPANIMENTS, WHEN THE CLAIM WAS MADE. IN FACT, 50% OF PROVISION FOR DOUBTFUL ADVANCES HAS BEEN ALLOWED IN THE PROCEEDINGS FOR ASSESSMENT YEAR 2000-01. IN S UCH A CIRCUMSTANCE, THE LEVY OF PENALTY IS NOT JUSTIFIED. 16.5 IN ORDER TO SUPPORT THIS CONTENTION, RELIA NCE IS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS (P) LTD., (2010) 322 ITR 158. WH ILE DECIDING THIS CASE, THE HONBLE COURT INTER-ALIA CONSIDERED THE DECISION IN THE CASE OF ITA NOS. 5134(DEL)/2004 ETC. 38 DILIP N. SHROFF VS. JOINT CIT (2007) 291 ITR 519 (SC) AND UNION OF INDIA VS. DHARMENDRA TEXTILE PROCESSORS (2008) 306 ITR 277 (SC). IT IS MENTIONED THAT FOR LEVY OF PENALTY, THE CIR CUMSTANCES MENTIONED IN SECTION 271(1)(C) AND THE EXPLANATIONS APPEND ED THERETO MUST EXIST. IT HAS BEEN FURTHER HELD THAT FURNISHING INACCURATE PARTICULARS OF INCOME MEAN FURNISHING PARTICULARS WHICH ARE NOT AC CURATE, EXACT, CORRECT, NOT ACCORDING TO TRUTH, ERRONEOUS, AN INACCURATE ST ATEMENT, COPY OR TRANSCRIPT. IT HAS ALSO BEEN HELD THAT THE PARTICULARS ME AN THAT THE DETAILS FILED IN SUPPORT OF THE CLAIM IN THE RETURN OF INCOME. IN VIEW OF THE AFORESAID, IT HAS BEEN HELD THAT THE AFORESAID EXPRESSION M EANS NOT MERELY MAKING A WRONG CLAIM OR A CLAIM WHICH MAY SUBSEQUENTLY TURN OUT TO BE INADMISSIBLE, BUT TO FURNISH THE DETAILS WHICH ARE FALSE IN SUPPORT OF THE CLAIM. SEEN IN THIS CONTEXT, IT IS CLEAR THAT T HE CLAIMS WERE DULY DISCLOSED IN THE ACCOUNTS, IN THE PROFIT AND LOSS AND BALA NCE-SHEET. THERE HAS BEEN CONSIDERABLE CONFUSION AS TO WHAT WOULD AMOUNT TO WRITING OFF A DEBT IN THE BOOKS OF ACCOUNT. THERE DID EXIST CAS E LAW TO THE EFFECT THAT WHEN A PROVISION IS MADE AND THE CORRESPONDING AMOUNT IS DEDUCTED FROM THE ASSETS, THE SAME AMOUNTS TO WRITING O FF OF THE DEBT. THIS CONFUSION WAS SOUGHT TO BE CLEARED BY INSERTIO N OF THE EXPLANATION IN SECTION 36(1)(VII), RETROSPECTIVELY WITH EFFEC T FROM 1.4.1989. IT APPEARS ITA NOS. 5134(DEL)/2004 ETC. 39 THAT THE ASSESSEE DID NOT COMPREHEND THE IMP ORT OF THIS EXPLANATION FULLY AT THE TIME OF FILING OF THE RETURN OF INCO ME. THE CONTROVERSY HAS BEEN SET AT REST BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK(SUPRA), IN WHICH IT HAS BEEN H ELD THAT THE PROVISION IS APPLICABLE NOT ONLY IN CASE OF A BANKING COMPA NY BUT IN CASE OF ANY ASSESSEE. THIS DECISION HAS BEEN RENDERED O N 15.4.2010, MUCH AFTER THE DATE OF FILING THE RETURN OF INCOME. IT IS ALSO TRUE THAT THE DECISION IN THE CASE OF ABB LTD., RELIED UPON BY THE REVENUE, HAD BEEN RENDERED PRIOR TO FILING THE RETURN OF INCOME, BUT THAT IS NOT THE DECISION OF JURISDICTIONAL HIGH COURT. OTHERWISE, THE PART ICULARS HAVE BEEN FULLY DISCLOSED IN THE RETURN OF INCOME. IN THIS VIEW OF THE MATTER, WE HOLD THAT THE ASSESSEE DID NOT FURNISH INACCURATE PARTI CULARS OF INCOME WHEN SUCH A CLAIM WAS MADE IN THE RETURN FILED PRIOR TO RENDERING THE DECISION IN THE CASE OF VIJAYA BANK (SUPRA). ITA NO. 1530(DEL)/2007-ASSTT. YEAR 2001-02- APPEA L OF THE REVENUE. 17. THIS IS THE CROSS APPEAL OF THE REVENUE AGA INST THE PENALTY ORDER OF THE LD. CIT(A). THE ONLY GROUND TAKEN IS TO THE EFFECT THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(APPEALS) ERRED IN DIRECTING THE AO NOT TO COMPUTE PENALTY U/S ITA NOS. 5134(DEL)/2004 ETC. 40 271(1)(C) IN RESPECT OF ADDITION OF RS. 21,91 ,222/-, MADE ON ACCOUNT OF SALE OR WRITE OFF OF OTHER ASSETS. 17.1 THE BACKGROUND FACTS IN RESPECT OF ADDIT ION ON THIS AMOUNT HAVE BEEN MENTIONED IN ITA NO. 145(DEL)/2007 (SUPRA). THE ORDER OF THE LD. CIT(A), CONTAINED IN PARAGRAPH 7, IS REPRODUCED B ELOW:- 7. I HAVE CAREFULLY CONSIDERED THE SUBMI SSION MADE ON BEHALF OF THE APPELLANT. I HAVE GONE THROUGH THE RELEVANT PART OF THE QUANTUM APPEAL ORDER IN THE CASE OF APPELLANT FOR A.Y. 2002-03. IT IS FOUND THAT SUM OF RS. 6,1 2,341/- CLAIMED BY THE ASSESSEE IN RESPECT OF SUCH WRITE OFF WAS DISALLOWED BY THE AO BUT THE SAME HAS BEEN DELETED BY CIT(A). SINCE THE BASIS OF CLAIM AND NATURE OF ITEMS IN THI S YEAR IS QUITE SIMILAR, I AM OF THE OPINION THIS ISSUE WAS DEBATABLE AND ADDITION CANNOT BE MADE SUBJECT MATTER OF PENAL TY U/S 271(1)(C). ACCORDINGLY THE AO IS DIRECTED TO RE-COMPUTE THE PENALTY CONSIDERING ONLY THE FIRST TWO ADDITIO NS I.E., PROVISION FOR DOUBTFUL DEBTS AND PROVISIONS FOR DOUBTFUL ADVANCES AS THE INCOME IN RESPECT OF WHICH INAC CURATE PARTICULARS HAVE BEEN FURNISHED. THE APPELLANT, THEREFORE, GETS PARTIAL RELIEF AS THE PENALTY IS REDUCED. 17.2 WE HAVE RESTORED THIS MATTER TO THE FILE OF THE AO FOR FRESH DECISION IN ITA NO. 5134(DEL)/2004 (SUPRA) WITH T HE FOLLOWING REMARKS:- WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. ON PERUSAL OF THE ASSESSMENT ORDER, WE FIND THAT IT HAD BEEN EXPLAINED THAT EQUIPMENTS AND STORES FOR BOTTLING, POUCHING AND PACKING OF COUNTRY LIQUOR, LOCATED IN BONDED WAREHOUSES IN DISTRICTS, HAVE BEEN W RITTEN OFF AS A RESULT OF CHANGE IN THE POLICY OF THE GOV ERNMENT. CONSEQUENTLY, THE WAREHOUSES WERE VACATED AND THE STORES ITA NOS. 5134(DEL)/2004 ETC. 41 AND EQUIPMENTS BECAME USELESS. THEREFORE, THE Y HAVE BEEN WRITTEN OFF. THEREFORE, THE SUBMISSIONS OF THE L D. COUNSEL ARE BASED UPON FACTS ON RECORD. HOWEVER, AFTER INTRODUCTION OF THE CONCEPT OF BLOCK OF ASSETS, THE SALE VALUE REALIZED ON DISCARDED DEPRECIABLE ASSETS, IS TO BE RE DUCED FROM THE VALUE OF THE BLOCK OF ASSETS TILL SUCH TIME THAT THE BLOCK IS EXHAUSTED. THIS POINT HAS NOT BEEN EXAMINED BY THE LOWER AUTHORITIES. THEREFORE, WE RESTORE THIS GROUND TO THE FILE OF THE AO FOR APPROPRIATE DECISION IN THE LIGHT OF AFORESAID OBSERVATION. THE RESULT IS THAT THE GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 17.3 THE RESULT OF THIS FINDING IS THAT THE PENAL TY HAS NO LEG TO STAND UPON AND, THEREFORE, IT REQUIRES TO BE DELETED WITHOUT PREJUDICE TO THE RIGHT OF THE AO TO INITIATE PENALTY AGAIN IN T HE COURSE OF DECIDING THIS ISSUE, IF IT IS FOUND FIT TO DO SO. ITA NO. 4554(DEL)/2005-ASSTT. YEAR 2002-03- APPEA L OF THE ASSESSEE. 18. GROUND NO. 1 IS TO THE EFFECT THAT THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 24,59,760/-, REPRESENTING INTEREST PAYABLE IN RESPECT OF SDF ON THE GRO UND THAT THE SAME IS CAUGHT WITHIN THE MISCHIEF OF SECTION 43B. TH IS ISSUE STANDS COVERED BY OUR ORDER IN ITA NO. 5134(DEL)/2004 (SUPRA), IN PARAGRAPH 4 AND 4.1, IN WHICH THE ISSUE WAS DECIDED IN FAVOUR OF TH E REVENUE AND AGAINST THE ASSESSEE. FOLLOWING THAT ORDER, THIS GROUN D IS DISMISSED. ITA NOS. 5134(DEL)/2004 ETC. 42 19. GROUND NO. 2 IS TO THE EFFECT THAT THE LD. CIT(APPEALS) ERRED IN SUSTAINING ADDITION OF RS. 35,700/- OUT OF FINE S AND PENALTIES. 19.1 IN THIS CONNECTION, IT IS MENTIONED IN THE IMPUGNED ORDER THAT THE ASSESSEE DEBITED IN THE ACCOUNTS A SUM OF RS. 65,500/- TOWARDS FINES AND PENALTIES. THE AMOUNT HAS BEEN ADDED IN THE TOT AL INCOME SUBJECT TO THE RIGHT OF THE ASSESSEE THAT SUCH ADDITION M AY BE CONTESTED IN ASSESSMENT PROCEEDINGS. THE DETAILS OF THE EX PENDITURE ARE AS UNDER:- PARTICULARS AM OUNT (RS.) PAGE NO. OF PAPER B OOK AMOUNT OF TRAFFIC FINE 100/- 175-176 COMPOUNDING FEE FOR LOW RECOVERY OF ALCOHOL/SPIRIT 35,000 182-194 199-218 COMPOUNDING FEE FOR WRONGLY FIXING THE HOLOGRAM ON VARIOUS SIZE POUCHES 5, 000 195-198 COMPOUNDING CHARGES OF WEIGHT & MEASUREMENT DEPARTMENT 1,000 219-220 COMPOUNDING CHARGES LEVIED BY UP EXCISE DEPARTMENT TOWARDS NON-FULFILLMENT OF CERTAIN FORMALITIES IN RESPECT OF RECORDS TO BE MAINTAINED AT DISTILLERY DEPOTS 4,500 221-226 COMPOUNDING CHARGES ON DELAYED PAYMENT ITA NOS. 5134(DEL)/2004 ETC. 43 OF ENTRY TAX FOR PURCHASE OF MACHINERY PARTS FROM OUT OF THE STATE 19,900 177-181 19.2 BEFORE THE LD. CIT(APPEALS), THE ASSESSEE DID NOT PRESS FOR RELIEF IN RESPECT OF TRAFFIC FINE OF RS. 100/- AND COM POUNDING CHARGES FOR DELAYED PAYMENT OF ENTRY-TAX AMOUNTING TO RS. 19, 900/-. THE LEARNED CIT(A) IS OF THE VIEW THAT OTHER ITEMS ARE IN THE NATURE OF COMPENSATORY PAYMENTS, WHICH REPRESENT EXPENDITURE INCURRE D IN THE COURSE OF BUSINESS. THEREFORE, THE ADDITION OF RS. 35,7 00/- HAS BEEN CONFIRMED. 19.3 BEFORE US, THE LEARNED COUNSEL MENTIONS THAT IN EARLIER YEARS, THIS MATTER WAS RESTORED TO THE FILE OF THE AO BY T HE TRIBUNAL. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER OF THE LD . CIT(APPEALS). 19.4 WE HAVE CONSIDERED THE FACTS OF THE CAS E AND RIVAL SUBMISSIONS. WE FIND THAT THE ASSESSEE DID NOT PRESS FOR DEDUCTION OF TWO AMOUNTS AGGREGATING TO RS. 20,000/-. THE LD. CIT(A) HAS GIVEN A FINDING THAT OTHER AMOUNTS, THOUGH DESCRIBED AS COMPOUNDING CHAR GES, ARE NORMAL BUSINESS EXPENSES. THEREFORE, THE ADDITION OF ONLY RS. 20,000/- COULD HAVE BEEN SUSTAINED. ACCORDINGLY, THE AO IS DIRE CTED TO RESTRICT THE DISALLOWANCE TO RS. 20,000/-. 19.5 IN THE RESULT, THIS GROUND IS PARTLY ALL OWED. ITA NOS. 5134(DEL)/2004 ETC. 44 20. GROUND NO. 3 IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 50,000/- MADE BY THE AO ON ACCOUNT OF CONTRIBUTION TO EMPLOYEES WELFARE SCHEME BY INVOKING THE PROVISION CONTAINED IN SECTION 40A(9) WITHOUT APPRECIATING THE SUBMISSI ONS OF THE ASSESSEE. 20.1 IN THIS CONNECTION, IT HAS BEEN MENTIONED THA T THE AUDIT REPORT SPECIFICALLY STATES THAT CONTRIBUTION OF RS. 50, 000/- IS NOT ALLOWABLE U/S 40A(9) OF THE ACT. A SIMILAR DISALLOWANCE MAD E IN ASSESSMENT YEAR 2001-02 HAS NOT BEEN PRESSED BY THE ASSESSEE-C OMPANY. THEREFORE, THE LD. CIT(A) SUSTAINED THE DISALLOWANCE MADE BY T HE AO. 20.2 BEFORE US, THE LD. COUNSEL FAIRLY SUBM ITS THAT THIS ISSUE STANDS COVERED AGAINST THE ASSESSEE BY VARIOUS ORDERS OF THE TRIBUNAL FOR ASSESSMENT YEARS 1988-89, 1992-93, 1994-95 AND 2000-01. THE LD. DR RELIES ON THE ORDER OF THE LD. CIT(APPEALS). 20.3 IN VIEW OF THE FACT THAT THE COORDINATE BEN CHES OF THE TRIBUNAL HAVE ALREADY DECIDED THE MATTER AGAINST THE ASSES SEE, THERE IS NO REASON FOR US TO DIFFER FROM THOSE DECISIONS. FOLLOWING THOSE DECISIONS, THIS GROUND IS ALSO DISMISSED. ITA NOS. 5134(DEL)/2004 ETC. 45 21. GROUND NO. 4 IS THAT THE LD. CIT(APPEALS) E RRED IN CONFIRMING THE DISALLOWANCE OF RS. 50,000/- FROM CAR EXPENSES. THIS ISSUE IS COVERED BY OUR ORDER IN ITA NO. 5134(DEL)/2004 (SUPRA), I N PARAGRAPH 9. FOLLOWING THAT DECISION, THIS GROUND IS ALLOW ED. 22. GROUND NO. 5 IS THAT THE LD. CIT(A) ERRED I N ADDING DHARMADA COLLECTIONS OF RS. 13,13,318/- TO THE INCOME OF TH E ASSESSEE AND FURTHER DISALLOWING RS. 2,02,590/-, REPRESENTING INTERE ST PAID ON THIS ACCOUNT. THIS ISSUE ALSO STANDS COVERED BY OUR ORDER IN ITA NO. 5134(DEL)/2004 (SUPRA), IN PARAGRAPH 7 AND 7.1. FOLLOWING THAT DECISION, THE GROUND IS DISMISSED WITH THE DIRECTION TO THE AO TO CONSIDER THE DEDUCTION U/S 80G TO BE ALLOWED, IF ANY. 23. GROUND NO. 6 IS THAT THE LD. CIT(APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS. 1,79,14,560/- ON ACCOUNT OF EXCI SE DUTY PAYABLE ON THE STOCK OF FINISHED GOODS. THIS MATTER ALSO STAN DS COVERED BY OUR ORDER IN ITA NO. 5134(DEL)/2004, IN PARAGRAPH 6 TO 6 .5. FOLLOWING THAT ORDER, IT IS HELD THAT THE LD. CIT(APPEALS) IS RIG HT IN ADDING THE AFORESAID AMOUNT TO THE VALUE OF FINISHED GOODS. HOWEVER , IT MAY BE MENTIONED ITA NOS. 5134(DEL)/2004 ETC. 46 THAT THE OPENING STOCK OF THIS YEAR SHALL STAN D ENHANCED BY THE AMOUNT BY WHICH CLOSING STOCK OF THE IMMEDIATELY PRECED ING YEAR WAS ENHANCED. 23.1 SUBJECT TO THIS REMARK, THIS GROUND IS ALSO DISMISSED. 24. GROUND NO. 7 IS THAT THE LD. CIT(APPEALS) ER RED IN HOLDING THAT THE AO WAS JUSTIFIED IN NOT AMENDING DEPRECIATION CHART SO AS TO ENHANCE THE WDV IN RESPECT OF AMOUNTS CAPITALIZED IN T HE PRECEDING YEAR FROM THE EXPENDITURE INCURRED ON REPAIRS AND MAINT ENANCE OF MACHINERY AND PLANT. THE ISSUE OF CAPITALIZATION OF REPAIR E XPENSES STANDS COVERED IN FAVOUR OF THE ASSESSEE IN ITA NO. 5134(DEL)/2004 (SUPRA), IN PARAGRAPH 8 TO 8.5. THUS, THE ISSUE OF CAPITALIZATION OF SUCH EXPENSES DOES NOT SURVIVE. ACCORDINGLY, THIS GROUND IS DISMISSED . 24.1 NO ADDITIONAL GROUND WAS TAKEN IN PUR SUANCE OF RESIDUARY GROUND NO. 8. ITA NO. 34(DEL)/2006-A.Y. 2002-03- APPEAL OF THE REVENUE. 25. IN THIS CROSS APPEAL, GROUND NO. 1 IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRE D IN DELETING THE ITA NOS. 5134(DEL)/2004 ETC. 47 ADDITION OF RS. 2,08,488/-, MADE BY THE AO IN R ESPECT OF CLAIM OF LOSS ON SALE OF OBSOLETE ITEMS. THIS ISSUE IS ST ATED TO BE COVERED BY OUR ORDER IN ITA NO. 5134(DEL)/2004 (SUPRA), IN PARA GRAPH 5 TO 5.6. IT HAS BEEN MENTIONED THAT THE LOWER AUTHORITIES HAVE N OT CONSIDERED THE REDUCTION OF THE REALIZABLE VALUE FROM THE BLOC K OF ASSETS AND, THEREFORE, THE MATTER HAS BEEN RESTORED TO THE FILE OF THE AO FOR FRESH DECISION IN THE MATTER. FOLLOWING THAT ORDER, THIS GROUND IS RESTORED TO THE FILE OF THE AO FOR FRESH DECISION TO BE TAKEN AFTER HEARIN G THE ASSESSEE. 25.1 ACCORDINGLY, THE GROUND IS TREATED AS ALLO WED FOR STATISTICAL PURPOSES. 26. GROUND NO. 2 IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 3,90,607/-, MADE BY THE AO IN RESPECT O F CLAIM OF UNUSED PACKING STORES DESTROYED BY THE ASSESSEE. 26.1 IN THE IMPUGNED ORDER, IT IS MENTIONED THAT THE LOSS IN PILKHANI DISTILLERY AMOUNTED TO RS. 1910/- AND IN SHAMLI DI STILLERY TO RS. 3,88,597/-, AGGREGATING TO RS. 3,90,507/-. IT IS FURTHER ME NTIONED THAT THE AFORESAID ITEM MAINLY CONSIST OF LABELS OF LIQUOR BRAN DS SOLD BY THE ASSESSEE. IT ITA NOS. 5134(DEL)/2004 ETC. 48 IS ALSO MENTIONED THAT THE CANTEEN STORES DEPAR TMENT (CSD) DISCONTINUED PURCHASES FROM THE ASSESSEE AND, THEREFORE, THE LABELS BECAME USELESS. THEREFORE, THE LOSS WAS DISALL OWED. 26.2 WHILE THE LD. COUNSEL RELIES ON THE ORDER O F THE LD. CIT(APPEALS), THE LD. DR RELIES ON THE ORDER OF THE AO. FRO M THE IMPUGNED ORDER, IT IS SEEN THAT LABELS BECAME USELESS AS CSD STOP PED MAKING PURCHASES FROM THE ASSESSEE. SUCH LABELS HAVE NO REALIZ ABLE VALUE. THEREFORE, THE LOSS HAS BEEN INCURRED IN THE COURSE OF BUSINESS. THEREFORE, IT IS HELD THAT THE LD. CIT(APPEALS) IS RIGHT IN ALLOWING THIS EXPENDITURE. 26.3 IN THE RESULT, THIS GROUND IS DISMISSED. 27. GROUND NO. 3 IS THAT THE LD. CIT(APPEALS) ERR ED IN DELETING THE ADDITION OF RS. 13,247/-, MADE BY THE AO IN RESP ECT OF EXPENSES WRITTEN OFF. THE FACTS IN REGARD TO THIS ITEM ARE SIMILAR TO THE FACTS IN RESPECT OF PACKING STORES OF RS. 3,90,607/-, DEALT WIT H IN GROUND NO. 2 (SUPRA). FOLLOWING OUR ORDER IN RESPECT OF THAT GROUN D, THIS GROUND IS ALSO DISMISSED. ITA NOS. 5134(DEL)/2004 ETC. 49 28. GROUND NO. 4 IS THAT THE LD. CIT(APPEALS) ERRED IN HOLDING THAT THE EXPENDITURE OF RS.29,27,042/- ON ACCOUNT OF REPAIRS IS REVENUE EXPENDITURE. IT IS THE COMMON CASE OF BOTH THE PARTIES THAT THE ISSUE STANDS COVERED IN GROUND NO. 7 OF ITA NO. 5134( DEL)/2004 (SUPRA). IN THAT ORDER, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE, IN PARAGRAPH 8 TO 8.5. FOLLOWING THAT ORDER, THIS GROUND IS ALSO DISMISSED. ITA NO. 2916(DEL)/2008-A.Y. 2003-04-APPEAL OF THE ASSESSEE 29. GROUND NO. 1 IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS. 1,30,27,442/- MADE ON ACCOUNT OF DEEMED EXCISE DUTY. THIS ISSUE STANDS COVERED BY OUR ORDER IN ITA NO. 5 134(DEL)/2004, IN PARAGRAPH 6 TO 6.5. FOLLOWING THAT ORDER, THIS GROUND IS DISMISSED SUBJECT TO THE OBSERVATION THAT CLOSING STOCK OF LAST YEAR AS DETERMINED ON GIVING EFFECT TO ORDER OF TRIBUNAL SHALL BE TAKEN AS OPENING STOCK FOR THIS YEAR. 30. GROUND NO. 2 IS THAT THE LD. CIT(A) ERRED IN DISALLOWING A SUM OF RS. 24,59,760/-, BEING INTEREST PAYABLE ON SDF BY INVOKING THE ITA NOS. 5134(DEL)/2004 ETC. 50 PROVISION CONTAINED IN SECTION 43B. THIS ISS UE STANDS CONCLUDED BY OUR AFORESAID ORDER IN PARAGRAPH 4 AND 4.1. FOLLOWING THAT ORDER, THIS GROUND IS DISMISSED. 31. GROUND NO. 3 IS THAT THE LD. CIT(APPEALS) ER RED IN CONFIRMING THE ADDITION OF RS. 18,36,068/- COLLECTED AS DHARMADA AND DISALLOWING INTEREST OF RS. 2,67,812/- IN RESPECT OF THIS AC COUNT. THIS ISSUE ALSO STANDS COVERED BY OUR AFORESAID ORDER IN PARAGR APH 6 AND 7.1. FOLLOWING THAT ORDER, THIS GROUND IS DISMISSED. 32. GROUND NO. 4 IS THAT THE LD. CIT(A) ERRED IN DISALLOWING RS. 50,000/-, BEING CONTRIBUTION TO EMPLOYEES WELFARE SCHEME, BY INVOKING THE PROVISION CONTAINED IN SECTION 40A(9). THIS ISSUE STANDS COVERED BY OUR ORDER IN ITA NO. 4554(DEL)/2005 (SUPRA) I N PARAGRAPH 20 TO 20.3. FOLLOWING THAT ORDER, THIS GROUND IS DISMISSED. 33. GROUND NO. 5 IS THAT THE LD. CIT(APPEALS) E RRED IN DISALLOWING A SUM OF RS. 50,000/- FROM CAR EXPENSES. THIS I SSUE ALSO STANDS COVERED BY THE AFORESAID IN PARAGRAPH 21. FOLLOWING THAT ORDER, THIS GROUND IS ALLOWED. ITA NOS. 5134(DEL)/2004 ETC. 51 ITA NO. 3195(DEL)/2008- A.Y. 2003-04- APPEAL OF TH E REVENUE 34. GROUND NOS. 1(I) AND 1(II) ARE THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) ERRED IN ALLOWING RS. 1,35,269/- IN RESPECT OF LABELS WR ITTEN-OFF AND RS. 22,892/- IN RESPECT OF SMALL ITEMS WRITTEN OFF FROM THE ACCOUNTS. THESE ISSUES STAND COVERED IN OUR ORDER IN ITA NO. 34(DEL)/ 2006 (SUPRA) IN PARAGRAPHS 26 AND 27. FOLLOWING THAT ORDER, THES E GROUNDS ARE DISMISSED. 35. GROUND NO. 1(III) IS THAT THE LD. CIT(A) ER RED IN ALLOWING THE LOSS CLAIMED AT COST OF RS. 13,82,523/- IN RESPECT O F HOLOGRAMS DESTROYED BY THE ASSESSEE. THE AO MADE THE FOLLOWING REMARK S IN THIS REGARD ON PAGE 6 OF THE ORDER:- (B) HOLOGRAMS AMOUNT SHAMLI DISTILLERY 7,51,791/- PILKHANI DISTILLERY 6,30,732/- TOTAL: 13,82, 523/- IT HAS BEEN EXPLAINED BY THE ASSESSEE THAT AS P ER EXCISE RULES, HOLOGRAMS PRINTED AND ISSUED FOR A P ARTICULAR FINANCIAL YEAR CAN ONLY BE CONSUMED IN THAT PARTICULAR FINANCIAL YEAR AND AFTER EXPIRY OF THAT SPECIF IC FINANCIAL YEAR, THE DISTILLERIES ARE REQUIRED TO DESTROY THES E UN- USED/DAMAGED HOLOGRAMS AS PER THE GUIDELINES A ND RULES FRAMED BY THE EXCISE COMMISSIONER, U.P, ALLAHABAD. SUCH HOLOGRAMS ARE TO BE DESTROYED IN THE PRESENCE OF HOLOGRAM COMMITTEE CONSTITUTED BY THE EXCISE COMMISSIONE R, U.P, ALLAHABAD FOR SPECIFIC ZONES. THE ASSESSEE H AS FURNISHED ITA NOS. 5134(DEL)/2004 ETC. 52 CERTIFICATE ISSUED BY THE EXCISE AUTHORITIES, C ONFIRMING THE QUANTITY OF HOLOGRAMS DESTROYED IN THEIR PRESENC E AND HAVE CLAIMED THAT THE HOLOGRAMS CANNOT BE SOLD O F AS SCRAP AND HAVE TO BE DESTROYED AS PER THE EXCISE RULES AND GUIDELINES. FROM THE COPY OF CERTIFICATE OF T HE COMMITTEE CONSTITUTED UNDER THE EXCISE GUIDELINES ATTA CHED WITH THE DETAILS, IT IS SEEN THAT THE HOLOGRAMS WERE DESTROYED IN NOVEMBER, 2003, JUNE, 2004 AND AUGUST, 2004 WHI CH DO NOT PERTAIN TO THE ASSESSMENT YEAR UNDER REFERENCE . THEY HAVE BEEN WRITTEN OFF AFTER THE CLOSE OF THE FINANCIA L YEAR RELEVANT TO CURRENT ASSESSMENT AND, THEREFORE, WILL BE ALLOWABLE IN THE YEAR OF ACTUAL DESTRUCTION. A DISALLOWANC E OF RS. 13,82,523/- IS, THEREFORE, MADE ON ACCOUNT OF WR ITING OFF HOLOGRAMS. 35.1 THE LD. CIT(A) ALLOWED THE DEDUCTION BY MENTIONING THAT HOLOGRAMS WERE RENDERED UN-USABLE AT THE END OF THIS YEAR AND, THEREFORE, THE DEDUCTION IS TO BE ALLOWED IN TH IS YEAR. 35.2 THE CASE OF THE LD. COUNSEL IS BASED UPON THE ARGUMENTS IN RESPECT OF OTHER UN-USABLE STORES ETC., THE DEDUCTION FOR WHICH HAS BEEN ALLOWED BY US ALSO. HOWEVER, THE QUESTION I N THIS CASE IS ABOUT THE ASCERTAINMENT OF THE DATE OF LOSS, WHICH FALLS IN THE IMMEDIATELY SUCCEEDING YEAR. THEREFORE, WE ARE OF THE VIEW THAT THE LD. CIT(APPEALS) ERRED IN ALLOWING THE LOSS IN THIS YEAR. THE ASSESSEE MAY TAKE UP THE MATTER IN THE APPEAL OF THE SUBSEQUENT YEAR. 35.3 WITH THESE REMARKS, THIS GROUND IS ALLOWE D. ITA NOS. 5134(DEL)/2004 ETC. 53 36. GROUND NO. 2 IS REGARDING CAPITALIZATION OF TWO AMOUNTS OF RS. 6,64,255/- AND RS. 3,50,000/-, MADE BY THE AO IN RESPECT OF REPAIRS OF HYDRAULIC POWER PACK AND HYDRAULIC MILL RESPE CTIVELY. IT HAS BEEN HELD THAT THESE EXPENSES ARE CAPITAL IN NATURE. I T IS THE COMMON CASE OF BOTH THE PARTIES THAT THE FACTS AND ARGUMENTS ARE SAME AS IN EARLIER YEARS. IN ITA NO. 5134(DEL)/2004, IN PARAGRAPH 8 TO 8. 5, WE HAVE CONSIDERED SUCH EXPENSES AS REVENUE EXPENSES INCURRED FO R REPAIRING OF MACHINERY OR PLANT. FOLLOWING THAT ORDER, THIS GROUND IS ALSO DISMISSED. 37. IN THE RESULT:- (I) ITA NO. 5134(DEL)/2004 IS PARTLY ALLOWED FO R STATISTICAL PURPOSES; (II) ITA NO. 5694(DEL)/2004 IS DISMISSED; (III) ITA NO. 145(DEL)/2007 IS ALLOWED; (IV) ITA NO. 1530(DEL)/2007 IS DISMISSED; (V) ITA NO. 4554(DEL)/2005 IS PARTLY ALLOWED; (VI) ITA NO. 34(DEL)/2006 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES; (VII) ITA NO. 2916(DEL)/2008 IS PARTLY ALLOWED; (VIII) ITA NO. 3195(DEL)/2008 IS PARTLY ALLOWED ; THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 4 TH OF JUNE, 2010 SD/- SD/- (C.L. SETHI) (K.G.BANSA L) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 4TH JUNE, 2010. SP SATIA ITA NOS. 5134(DEL)/2004 ETC. 54 COPY OF THE ORDER FORWARDED TO:- 1. SIR SHADI LAL ENTERPRISES LTD., NEW DELHI. 2. DY.CIT, CIRCLE 8(1)/ADDL. CIT,RANGE-8, NEW DELHI . 3. CIT(A) 4. CIT 5. THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.