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2016 (2) TMI 31 - AT - Income TaxAddition on account of disallowance of provision for write off of spares - CIT(A) deleted the addition - Held that:- Physical inspection is conduced both departmentally as also by external agencies. During the year under consideration M/s. Bandyopadhyay & Associates, Cost Accountants, carried out the valuation of spares at Nagaon and Cachar Paper Mills and identified items of obsolete and damaged stores and spares and furnished report on valuation of stores and spares. Based on the valuation report that assessee written off ₹ 656.36 lacs in its profit and loss account for the year ended 31.03.2007. However, in respect of the very same items assessee had created provision in the earlier years to the extent of ₹ 646.36 lacs and therefore adjusting such provisions, the net additional sum of ₹ 10 lacs only was debited in the profit and loss account. We futher find that similar write off were also made by the assessee in the financial year 2003-04 and 2005-06. The disallowance made by the AO in AY 2004-05, was deleted by the CIT(A) and thereafter COD refused permission to file appeal against the said appellate order. In AY 2006-07 also the assessee had written off ₹ 184. 07 lacs. In the regular assessment u/s. 143(3) for A. Y. 2006-07 the same AO after due consideration of the explanation and the CIT(A)'s order for AY 2004-05, had refrained from making any disallowance. In view of the facts and circumstances of the present case, We are of the view that the claim of assessee, writing off in its Profit & Loss Account, the value of obsolete stores and spares, is a genuine claim and CIT(A) has rightly allowed the same. - Decided in favour of assessee. Disallowance 14A read with Rule 8D - Held that:- We are of the view that the AO was unjustified in making the disallowance of ₹ 98.23 lacs merely by adopting an arithmetical formula prescribed in Rule 8D(2)(iii) of the Rules. We are of the view that disallowance u/s 14A of the Act can be made only if the facts of the case prove that at least some expenditure was actually incurred by the assessee for earning exempt income. If, however, the facts on record and the assessee's accounts for the relevant year establish that in fact no expenditure was incurred in relation to earning tax free income then no disallowance is permissible under the substantive provisions of Sec 14A of the Act. We, therefore are of the view that CIT(A) has rightly deleted the disallowance of ₹ 98.23 lacs, arbitrary made by the AO without bring on record any material which even suggested that same expenditure was in fact incurred by the assessee for earning dividend from its wholly owned subsidiary Accordingly, we confirm the order of CIT(A) and this issue of revenue's appeal is dismissed.- Decided in favour of assessee. Addition of prior period adjustment - Held that:- The assessee being a government undertaking whose plants are situated in Assam and registered office at Calcutta besides administrative office at Delhi and its several office and depots in different part of the country. The accounting procedure prescribed by C&AG has institutionalized system of checks and balances and accordingly certain expenses required clearances from different authorities located at different locations and cities. This type of major expenditure debited under the head CENVAT credit wrongly claimed in earlier years, in which excess CENVAT credit was claimed on production of paper. During the year under consideration, on inspection of excise record by Central Excise Officials, certain procedural irregularities were detected while claiming CENVAT credit. On detection of irregularities the assessee was directed to pay basic excise duty of ₹ 1,31,10,849/-, education cess of ₹ 83,298/- and statutory interest of ₹ 66,08,110/-. The assessee provided liability of CENVAT of ₹ 198.09 cr. for the year ended 31.03.2007. This statutory liability was discharged during FY 2006-07 relevant to this AY 2007-08 and according to us, the same was allowable u/s. 43B of the Act. Accordingly, we are of the view that this liability is allowable liability and we direct accordingly.- Decided in favour of assessee. Disallowance of claim of write off of loose tools - Held that:- The method adopted by the assessee and accepted by the department in all the past assessment years by the same AO. In the immediately three preceding years, while completing regular assessment the AO had allowed the regular deduction for the write off of loose tools on amortization basis. In view of the above, we are of the view that the CIT(A) has erred in not allowing the deduction. We reverse the order of CIT(A) and allow the claim of deduction of write off of loose tools. - Decided in favour of assessee.
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