TMI Blog2014 (6) TMI 773X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the consumption of surgical instruments in AY 04-05 has been followed by the Assessee in all subsequent years and has also been accepted by the Revenue in all the scrutiny assessments - the method of accounting followed by the Assessee in AY 04-05 has been followed consistently and has also been accepted by the Department and no discrepancy being pointed out in the accounting system followed in AY 04-05 and subsequent years which has also been upheld in AY 04-05 hereinabove, we are of the view that the method followed by the Assessee in A.Y. 04-05 be followed for the purpose of valuation of surgical instruments in AY 03-04 also – thus, the matter is remitted back to the AO to work out the consumption of surgical instruments on the basis of the accounting treatment followed in AY 04-05 and subsequent years and thereafter decide the issue – Decided in favour of Revenue. Restriction of disallowance on account of repairs to building – Held that:- Most of the expenses which the Assessee has claimed as revenue expenses were small and were incurred of preserving and maintaining the building - out of the total expenses the aggregate of small expenses were to the tune of Rs. 4,42,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the appeal of Assessee. Aggrieved by the order of CIT(A), the Revenue is now in appeal before us and has raised the following effective ground:- 1. The Ld. CIT(A)-VI, Ahmedabad erred in law and on facts in deleting the disallowance of Rs. 44,04,642/- made by the Assessing Officer on account of the value of surgical instruments. 4. During the course of assessment proceedings, on perusing the notes to accounts, A.O noticed that till earlier year, surgical instruments were valued at cost on the basis of physical verification but for the year under consideration, Assessee changed the method of valuing surgical instruments by treating the same as consumed in the year of purchase which had resulted in profit for the year being reduced by Rs. 44,05,642/-. Assessee was asked to justify the change in method to which Assessee submitted that surgical instruments mainly consists of knife, scissors, blades, gloves whose life is very short and due to obsolesce their utility is for a short period. It was further submitted that the change in method was for bonafide purposes. The submissions of Assessee were not found acceptable to A.O and he accordingly disallowed the claim of higher los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... changed the method. He further submitted that the method of accounting followed by the Assessee in A.Y. 04-05 though was different from the method followed in A.Y. 03-04 but the accounting method followed in A.Y. 04-05 has been consistently followed by the Assessee in all subsequent assessment years and has also been accepted by the Revenue in the scrutiny assessments. He also placed on record, the copies of the assessment orders passed for A.Y. 05-06 to A.Y. 09-10. He further submitted that the Assessee had no malafide intention in changing the method of accounting because even after change in method the final result is loss and the loss has also been assessed by A.O. 8. We have heard the rival submissions and perused the material on record. It is a fact that during the year the Assessee had changed the method of accounting of surgical instruments but at the same time it is also a fact that the changed method has been followed by Assessee in all subsequent years and has also been accepted by Revenue in all scrutiny assessments. Before us, Revenue has not brought any material to contradict the findings of CIT(A). In view of the aforesaid facts, we find no reason to interfere wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, assessment order and appellant's submission. Appellant changed the method of valuing surgical instruments during the year from 25% flat taken as consumption to stock available on physical verification at the year end. Considering the nature of items and very short life of these items, it does not make any difference if the same is claimed as expense in the year of issue on the basis of physical verification: The method followed by the appellant during the year is accepted by the assessing officer in all subsequent years in scrutiny assessments which means method followed by the appellant is bona fide and does not require any change on the part of assessing officer. Appellant also relied upon the decision of jurisdictional High Court in which it is held that method of accounting regularly followed by the appellant cannot be disturbed by the Department in the first year of change. Considering the nature of items, life of these instruments, consistency followed by the appellant and assessing officer's acceptance of changed method in subsequent years, the addition made by the assessing officer cannot survive in this year. The addition is therefore deleted. 12. Aggrieve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seen that in assessment year 02-03 i.e. the assessment year preceding the assessment year under review, the Assessee was valuing the consumption of surgical instruments at the flat rate of 25% of the total cost on the basis of estimated useful life. For A.Y. 03-04 i.e. the year under consideration, the Assessee changed the method and pursuant to the change, the surgical instrument were valued at cost on the basis of physical verification at the year end and the balance amount was transferred to the Profit and Loss account as consumption. For A.Y. 04-05 i.e. the year subsequent to the year under appeal, it is seen that the Assessee again changed the method of accounting wherein the surgical instruments were charged to the Profit and Loss account in the year in which it was purchased. Further, the accounting treatment followed for accounting the consumption of surgical instruments in A.Y. 04-05 has been followed by the Assessee in all subsequent years and has also been accepted by the Revenue in all the scrutiny assessments Considering the fact that the method of accounting followed by the Assessee in A.Y. 04-05 has been followed consistently and has also been accepted by the Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellant were also referred. Those expenses which are incurred to maintain and preserve the asset are current repairs however expenses which have been incurred to bring in new advantages is not current repairs and hence not allowable. In the light of these tests, the expenses claimed by the appellant are referred. Appellant submitted that the expenses are required to suit the requirements of the individual doctors without changing the basic structure of building. This means expenses incurred for creating partition or creating modification as required by the doctors without changing the basic structure. It is to be noted that appellant purchased building during the year only and it required certain expenses on modification etc. On going through the Ledger account of repairs and maintenance of building, it is seen that most of the expenses are small and might be incurred for preserving and maintaining the building. However on 31st of March 2003, appellant passed the journal entry for RS 25,84,619. This journal entry was passed from the account building work in progress. Since appellant purchased hospital building during the year and incurred expenses for making it suitable fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on account of repairing of Cath Lab. 18. During the course of assessment proceedings, A.O noticed that Assessee has claimed Cath Lab repairing expenses of Rs. 29,52,713/-. A.O was of the view that the expenditure was not in the nature of repairs but was of capital in nature. He accordingly disallowed the claim of Assessee as revenue expenditure but however allowed the depreciation and accordingly disallowed the balance claim to the extent of Rs. 15,36,386/-. Aggrieved by the order of A.O, Assessee carried the matter before CIT(A). CIT(A) deleted the addition by holding as under:- 5.3 I have considered the facts of the case, assessment order and appellant's submission. It is not in dispute that appellant had Cath-lab running since earlier years. The cath lab is very costly medical System which has Wear and tear of its parts and requires replacement to maintain and preserve its existing use. During the year, it's Cath Lab developed some snags for which it's supplier replaced certain parts and made the system operational again. Therefore the bills for purchase of parts from Cath lab supplier is for replacing the worn out parts. The appellant submitted copy of ser ..... X X X X Extracts X X X X X X X X Extracts X X X X
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