TMI Blog2010 (5) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... - ITA NO. 3850 (DELHI) OF 2009 - - - Dated:- 4-5-2010 - SHRI R.P. TOLANI, AND SHRI K.G. BANSAL, JJ. Respondent by: Shri R.S. Singhvi and Shri Jitender Kumar for the Appellant. Shri Manish Gupta for the Respondent. ORDER R. P. Tolani, Judicial Member - This appeal is filed by the assessee against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2006-07. The following grounds are raised : "1. That the learned Commissioner of Income-tax (Appeals) erred in law and on facts in confirming the Assessing Officer's action of disallowing Rs. 1,62,86,000 out of the claimed amount of Rs. 2,03,57,000 from deferred revenue expenditure ignoring the fact that the same was claimed as per the AS-26 issued by the ICAI, New Delhi. 2. That the learned Commissioner of Income-tax (Appeals) erred in law and on facts in confirming the Assessing Officer's action of disallowing write off of inventory of non/slow moving items of Rs.21,09,977 ignoring the fact that the write off of inventory was as per the accepted accounting policy followed from year to year and that the inventory written off had no market value on account of becoming old and obsolet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all in sale realisation of Rs. 4,07,14,000 was treated as deferred revenue expenditure to be written off during the repayment period of the loan. Accordingly, Rs. 40,71,400 has been written off and charged to profit and loss account each year starting from 2000-01. During the current year the company changed its accounting policy and thereby the balance amount of Rs. 203.57 lakhs is claimed as miscellaneous expenses in the assessee's balance sheet and is written off. 5. The Assessing Officer observed that the sale price of SPV pumps as per the sale agreement of IREDA is Rs. 4,56,000 per pump. The subsidy element as per the agreement of IREDA is Rs. 2,25,000 per pump. In addition to the above, an amount of Rs. 81,000 per pump is paid by PEDA (end user) to the company as one-time payment. Hence, the company has realised Rs. 3,06,000 per pump. The short fall of Rs. 1,50,000 per pump is compensated by IREDA in the form of soft loan of Rs. 2,07,900 per pump at the subsidised rate of interest of 2.5 per cent. per annum on reducing basis to meet the cost of pump. This amount of soft loan is repayable by the company in 10 yearly equal instalments along with interest. The short fall on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of board of directors to adopt the accounts as was being done in earlier years. In view of the discussion above, I find that there was no justification for change of accounting policy with regard to loss on sale of SPV water pumps. Hence, the appellant's claim for the amount of Rs.2,03,57,000 is not acceptable. However, in view of the decisions of earlier years, relief is allowed on deferred basis for an amount of Rs.40,71,000." 7. Aggrieved the assessee is before us. Learned counsel for the assessee contends that the assessee is a public sector undertaking and there is no personal interest of board of directors of the company in accounting policies. The accounting policies are adopted by a regime of internal checks and balances of accounting policies. The change in method adopted for writing off of balance deferred expenditure was in consonance with AS-26, ICAI and, therefore, the balance amount was written off as board of directors refused to adopt the account with the proposed qualification of the statutory auditors. The assessee was entitled to change its method of accounting and what the Assessing Officer should have looked into was whether the change is bona fide or not. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsal, Accountant Member - I agree with my learned brother that the case has to be restored to the file of the Assessing Officer in respect of ground No. 1 of the appeal for the Revenue. In fact, the learned Departmental representative and learned counsel agreed that this ground may be restored to the file of the Assessing Officer. However, the background in respect of the aforesaid agreed view is stated hereunder. 14. The facts of the case have been mentioned in paragraph 4 on page 2 of the order of my learned brother. 15. Paragraph 7 of the Accounting Standard-26 (AS-26), relied upon by learned counsel has been reproduced on page 5 of the order of the learned Commissioner of Income-tax (Appeals), which reads as under : "Enterprises frequently expend resources, or incur liabilities, on the acquisition, development, maintenance or enhancement of intangible resources such as scientific or technical knowledge, design and implementation of new processes or systems, licences, intellectual property, market knowledge and trademarks (including brand names and publishing titles). Common examples of items encompassed by these broad headings are computer software, patents, copyrights, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery, while AS-10 deals with such spares and machinery, which is the operating asset of the assessee, used in the process of manufacture. Under AS-10, the asset has to be written off over its useful life. The assessee earlier considered the useful life of tools to be three years. Nothing is shown to us to reach to a conclusion as to how this life has now become one year. In the absence thereof, it is held that the learned Commissioner of Income-tax (Appeals) was right in upholding the order of the Assessing Officer. Thus, this ground is dismissed." 19. Further, he relies on the decision of the hon'ble Delhi High Court in the case of Triveni Engg. Industries Ltd. v. CIT [2010] 320 ITR 430. At placitum 3, the court has held as under (page 432) : "As regards the issue raised with regard to rejecting the method in the change of valuation of closing stock, we find that the finding arrived at by the three authorities below that the change in the valuation of closing stock was not bona fide is a pure finding of fact and no question of law arises much less a substantial question of law. We also agree that the change in the method of valuation of the closing stock was not bona fide bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company's liability to pay the remuneration of the managing agents accrued. The position here is not that the liability had arisen earlier and its quantification only depended on the approval of the Central Government. It is true that the liability became effective from April 1, 1956, a date anterior to the relevant previous year, but that is because the Central Government chose to give its approval retrospective operation. The liability in these circumstances cannot be said to have arisen from any date prior to September 2, 1957, when the approval was given as section 326 contains an absolute prohibition against the appointment or reappointment of a managing agent before the approval of the Central Government was obtained. In our opinion, the position is quite clear from the terms of section 326 and we do not consider it necessary to refer to the authorities cited by learned counsel for either side." 21. It has been mentioned earlier that the matter requires to go back to the file of the Assessing Officer for deciding the issue afresh after giving the assessee a reasonable opportunity of being heard. While framing the fresh assessment, he shall consider the accounts of this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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