TMI Blog2014 (10) TMI 658X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that for the purpose of depreciation, the WDV means actual cost of the asset as reduced by the depreciation actually allowed in the past - even though depreciation was claimed by the assessee during the AYs 1986-87 to AYs 1997-98, it was not allowed in view of provision of Section 37 (4) of the I.T. Act - Since no depreciation was actually allowed to the assessee, the WDV for this year has to be enhanced by an amount of depreciation, which was claimed by the assessee in the past but not allowed by the Department – relying upon Smt. Laxmi vs. DCIT [2006 (2) TMI 60 - HIGH COURT, KERALA] – Decided against revenue. Non-inclusion of Excise Duty in the closing stock u/s 145A – Held that:- Statutory auditors have certified that even though provision for Excise Duty has not been made on closing stock, it has no impact on profit for year - assessee also explained before AO that in any case the entire amount of Excise Duty on closing stock was duly paid before due date of filing of return - assessee valued its closing stock as per consistently followed practice of excluding the Excise Duty element of valuation of closing stock, it has no effect on the profit and loss a/c - Besides c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of book profit u/s 115JA, relatable to interest and other expenses shown as non-taxable asset. 6.0 The Ground No. 8 of the Revenue is treated as Ground No. (v) of the Revenue which reads as under:- (v) The ld. CIT(A) has erred in deleting the addition made on account of Long term capital loss of ₹ 73,59,094/- by accepting the additional evidence without giving opportunity to AO as required under Rule 46A of the Income Tax Rules, 1962. 7.0 The Ground No. 9 of the Revenue is treated as Ground No. (vi) of the Revenue which reads as under:- (vi) The ld. CIT(A) has erred in restricting the disallowance made by AO on account of expenses incurred in gifts from ₹ 3,04,225/-to ₹ 1,00,000/- 8.0 The brief facts of the case are that the assessee company is the cement manufacturing industry which involves heavy vehicles movement for supply of raw material as well as clearance of finished goods. The assessee company has WBM Road which requires frequent repairs and patch up due to rains and heavy vehicular use. This caused problems in the operation of the assessee company to make the road more efficient. It was converted into concrete road for which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. 27 ITR 116 (A.P.) (iii) CIT vs. Chemaux Ltd., 74 Taxman 201 (Bom.) (iv) L.H. Sugar Factory Oil Mills (P) Ltd. vs. CIT , 125 ITR 293 (SC) 11. The ld. CIT(A) deleted the addition made by the AO by following observation. ''4.5 I therefore, hold that expenditure incurred on repair of roads by appellant is revenue expenditure and allowable u/s 37. AO is not justified to make disallowance of ₹ 32,08,085/- and disallowance is directed to be deleted. Ground No. 2 is thus allowed.'' 12. Apropos second issue of the Revenue in respect of depreciation on Guest House amounting to ₹ 1,20,522/-. The brief facts of the case are that the assessee in original return claimed depreciation of Guest House. Thereafter the assessee filed a revised return in which the amount of WDV was increased resulting into increased depreciation. The WDV was increased to the extent of refusal of claim of depreciation in earlier years. In short, the assessee claimed depreciation on the WDV which was as per Income-tax record. The AO therefore, held that an amount of ₹ 1,20,522/- claimed in revised return by increasing the WDV of Guest House was disallowed and added ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year under consideration we have not included the Excise Duty amounting to ₹ 68.09 lacs in the value of the closing stock of the Cement as silo as the same was not debited to P L a/c. Finance Act, 1998 inserted a new clause 145 w.e.f. 1-4-1999 the valuation of inventory for the purpose of determining the income chargeable under the heads profits of business and profession included in any tax, duty, cess or fees actually paid incurred by the assessee to the place of its location and condition as on the date of valuation. It was also held by Supreme Court in the case of CIT vs. British Pain 188 ITR 44 that any system of accounting which excludes sparking trade all cost other than cost of raw material in result of destroyed picture of true date of business for the purpose of its chargeable income according to the accounting practice Excise Duty is a manufacturing expenses and it is cost of inventory valuation. In view of above, the case decisions so it clearly shows the assessee has failed to comply with the provision of Section 145A and declared the value of the finished goods less to the tune of ₹ 68.09 lac resulted the income declared less to the same rupee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, AO is not justified to make addition of ₹ 68,09,000/- and same is directed to be deleted. Ground No. 4 is thus allowed.'' 16. Apropos Ground No. (iv) of the Revenue (i.e. Ground No. 6 7 as mentioned by the Department) is in respect of book profit calculation amounting to ₹ 1,37,45,680/-. The brief facts of the case are that the assessee company earned dividend income on shares amounting to ₹ 1,82,700/- which was exempted u/s 10(33) of the Act. Besides the assessee company earned an amount of ₹ 9.00 lacs on tax free bonds. According to the AO, the assessee's investments were made out of the surplus funds. The AO however, rejected the assessee's contentions and disallowed the proportionate expenses on estimate business holding that the same has been incurred for earning exempt income by following observations. ''07.... (a).................. It is clear that the assessee has made the investment to acquire the assets including the assets from which income is exempt to tax. The Finance Act 201 had brought amendment vide Section 14A as which no deduction in respect of exempt income will be made against the taxable income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that investment was made out of profit and not from borrowed funds. c. The total interest free funds constituting share capital plus reserves and surplus amounted to ₹ 385.87 crores as on 31-03- 2000 and ₹ 185.84 crores as on 31-03-1999. Therefore, the own funds of appellant company were far in excess of the investment made of ₹ 4 crores. d. M/s. Karvy Consultants were appointed for consultation on Secretarial matters and no amount was paid to them on account of investment in shares.'' 8.3 Appellant also placed reliance on following judicial decisions. Woolcombers of India Ltd. vs. CIT (1982) 134 ITR 219 (Cal.) CIT vs. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom.) CIT vs. Hotel Savera (1999) 239 ITR 795 (Mad. CIT vs. Hero Cycles Ltd. (2009) 31 DTR 301 (P H) Wipro Information Technology Ltd. vs. DCIT (2004) 88 TTJ 778 (Trib. Bangalore) Shree Digvijay Cement Co. Ltd. vs. CIT (1982) 138 ITR 45 (Guj.)'' The ld. AR also placed following reliance 1. CIT vs. Hotel Savera, 239 ITR 795 (Mad.) 2. R.D. Joshi Co. vs. CIT, 251 ITR 332 (M.P.) 3. Malwa Cotton Spinning Mills vs. ACIT 89 ITR 65 (Chd.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAT Delhi Bench in the case of ACIT vs. Eicher Ltd. (2006) 101 TTJ 369 (Del.) and Hon'ble ITAT Mumbai Bench in the case of DCIT vs. B.S.E.S. Ltd. (2008) 113 TTJ 227 (Mumbai). 8.12 I, therefore, hold that there is no justification for disallowance of interest of ₹ 1,31,24,053/-, administrative expenses of ₹ 4,69,627/- and office expenses of ₹ 1,50,000/- by AO. The disallowance are directed to be deleted. Ground No. 6 is thus allowed.'' 18. By Ground No (v), (i.e. Ground No. 8 as per grounds of appeal of the Department ) the Revenue has agitated the issue that the ld. CIT(A) has accepted the additional evidence without confronting it to the AO . 19. Apropos Ground No. (vi) (i.e. Ground No. 9 as per grounds of appeal of the Department), the brief facts of the case are that the assessee company every claims to have incurred the expenses on gifts on the even of Diwali without bearing the name and logo of the company. These gifts are distributed to promote its business and claimed it to be as business expenditure. The AO was of the view that the gifts distributed to Govt. Department cannot be held to be in relation to the business of the assessee an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court categorically laid down that any expenditure though may be for enduring benefit if incurred for augmenting revenue generating apparatus of the assessee's business is to be allowed as a Revenue expenditure. It is undisputed fact that the assessee's premises is involved with huge and heavy vehicle traffic movement and having the proper road and its maintenance will increase the efficiency of movement of raw materials as well as clearance of finished goods. Therefore, there is no infirmity in the order of the ld. CIT(A) which deserves to be upheld on this issue. 26. Apropos 2nd issue about depreciation on guest house, ld counsel contends that Income Tax Act provides for allowance of depreciation on WDV as per actual claim allowed in the income tax record and not on the basis of book entries. Ld. CIT(A) has allowed the depreciation accordingly which in accordance with law. 27. Apropos 3rd issue about non-inclusion of Excise Duty in the closing stock it is pleaded that assessee valued its closing stock as per consistently followed practice of excluding the Excise Duty element of valuation of closing stock, it has no effect on the profit and loss a/c. Besides closi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efficiently or more profitability, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. We find further merit in the plea that no new asset came into existence in as much as the WBM road was already in existence and a concrete road instead of metal road resulted by this expenditure. Thus the existence of old asset i.e. road continued with better physical properties. Since no new asset came into existence the expenditure becomes one of patently revenue nature. In view of these observations and relying on the catena of other case laws cited by assesse, we see no infirmity in the order of ld CIT(A) which is upheld. Revenues grounds in this behalf are dismissed. 31. Apropos 2nd issue of guest house depreciation, we uphold the order of ld. CIT(A) rightly holding that assesse is entitled to depreciation on WDV which is as per the actual claim allowed in income tax record and not the assesses depreciation chart. This ground of the revenue is dismissed. 32. Apropos 3rd issue about excise duty since the assesee has already paid the requisite excise duty before due date of filing the return, the claim in any case is allowable u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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