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Deputy Commissioner of Income-Tax, Circle-5, Kolkata Versus M/s Hindusthan Paper Corpn. Ltd. And Vica-Versa

Addition 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 rep .....

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ance 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 .....

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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 l .....

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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 .....

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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 asse .....

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: Shri D S Damle, FCA ORDER Per Shri Mahavir Singh, JM This appeal of revenue and cross objection by assessee are arising out of order of CIT(A)-VI, Kolkata in Appeal No. 840/CIT(A)-VI/09-10/Cir-5/Kol dated 30.06.2010. Assessment was framed by ACIT, Circle-5, Kolkata u/s. 143(3) & 115WE(3) of the Income-tax Act, 1961 (hereinafter referred to as the "Act") for AY 2007-08 vide order dated 04.12.2009. 2. First we take up ITA No. 1692/Kol/2010 (Revenue's appeal). The first issue i .....

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ed a sum of ₹ 10 lac under the head loss on account of diminution in value of stores and spares. The AO required the assessee to explain the same. The assessee explained vide reply dated 26.10.2009 but the AO has not accepted the reply of the assessee and hence, he disallowed the provision for write off of stores and spares as not allowable expenditure. Aggrieved, assessee preferred appeal before CIT(A), who allowed the claim of the assessee by relying on the order of AY 2004-05 and also o .....

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business. I agree with the decision of CIT(A)-V, in ITA No. 262 in the appellant's own case for the AY 2004-05, based on which the AO has not made any addition on the same issue for the AY 2006-07. Since facts and circumstances of the present appeal are the same, AO is directed to allow the sum of ₹ 10,00,000. This ground is allowed." Aggrieved, revenue is now in appeal before us. 4. We have heard rival submissions and gone through facts and circumstances of the case. We find that .....

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inaccessible areas of Assam and hence these plants carry substantial inventory of raw material stores and spares. Due to heavy rains as also substantial use of water and chemicals in manufacturing process, there is high incidence of corrosion and damage. From the records, we find that the assessee regularly carries out physical inspection of materials, stores and ascertain the diminution in value of stores and also damaged and obsolete stock. It is also a fact that physical inspection is conduc .....

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y 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 o .....

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s rightly allowed the same. 5. The next issue in this appeal of revenue is against the order of CIT(A) deleting the disallowance made by AO by invoking the provisions of section 14A read with Rule 8D of the I. T. Rules, 1962 (hereinafter referred to as the "Rules"). For this, revenue has raised following ground no.2: "2. That Ld. CIT(A)-VI, Kolkata has erred in law as well as on facts, in deleting the entire addition u/s. 14A and not restricting it to certain amount applying the p .....

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nked to earning of exempt income u/s. 14A of the Act read with Rule 8D of the Rules. Aggrieved, assessee preferred appeal before CIT(A), who deleted the disallowance only on the premise that the assessee has received dividend from a wholly owned subsidiary viz. Hinduthan Newsprint Ltd. and no new investment has been made after 1983. According to assessee, this dividend declared by subsidiary but had not actually paid though adjusted in view of the book entries passed in the accounts of the subsi .....

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AO has made addition of ₹ 98.23 lacs u/s 14A of the Act which is at 0.5% of ₹ 1,96,46,30,000 being investment in shares of its wholly owned subsidiary Hindustan Newsprints Ltd. (HNL) from whom assessee had received dividend of ₹ 907.94 lacs. The facts are that in 1970s the assessee had set up a newsprint mill in Kerala and after the Newsprint Division started manufacturing, Government of India decided to corporatise the Newsprint Paper Division and accordingly directed the asse .....

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sbursed. The accounting entry of dividend declaration is passed only once, annually. Except for passing of the Journal Entry in the books, of both companies, no expenditure is incurred for the purpose of collection of the dividend. We fimnd that the AO in the impugned order has made the disallowance by invoking Rule 8D(2)(iii) of the Rules. Rule 8D(l) of the Rules provides that where an AO, having regard to the accounts of the assessee for the previous year is not satisfied with the claim made b .....

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penditure was actually incurred by the assessee. The AO without dealing with or without having regard to assessee's accounts for the FY 2006-07, arbitrarily proceeded to make disallowance under Rule 8D(2)(iii) Rules. Having regard to the aforesaid facts, 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 ca .....

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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. 8. The next issue in this appeal of revenue is against the order of CIT(A) directing the AO to allow rebate u/s. 88E of the Act while computing book profit u/s. 115JB of the Act. For this, reven .....

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he same is dismissed as infructuous. 10. Now, we are coming to Assessee's CO No. 19/Kol.2011. At the outset, it is noticed that the CO of the assessee is barred by limitation for 164 days but assessee has filed one condonation petition along with affidavit stating the reason that this appeal was not filed on the advice of the counsel that the revenue's appeal is liable to be dismissed as not maintainable as revenue's appeal was filed for obtaining approval of COD at that time the sam .....

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. 5. The Respondent company was advised that a Cross Objection can be filed only where an appeal was validly filed and therefore no useful purpose would be served since the appeal filed without obtaining COD approval was liable to be dismissed. 6. Based on the advice received from the Counsel at the relevant time the Cross Objections for the AY 2007-08 was not filed on or before 03.10.2010. 7. In first week of March 2011 the company's counsel informed the Respondent company about the judgmen .....

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l. 9. Immediately on receipt of the advice from the counsel the Respondent Company took immediate steps for filing of cross objections and the same was filed on 16.03.2011." 11. In view of the above reasons, the bench required the Ld. Sr. DR as to why the delay be not condoned. The Ld. Sr. DR although objected for condonation of delay but he also conceded that the cause is reasonable. We find that the causes shown by the assessee are reasonable, hence, we condone the delay and admit the ass .....

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e that the amount disallowed inter alia included CENVAT actually paid during the relevant year amounting to ₹ 198.09 lacs, for which deduction was permissible u/s. 43B. 3. For that on the facts and in the circumstances of the case, the authorities below be directed to allow deduction for ₹ 172.05 lacs debited under the head Prior period adjustments as the liability to pay the expenditure had crystallized during the year under consideration." 13. Briefly stated facts are that the .....

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only the item such as rebate and discount, salary and wages and other miscellaneous expenditure after verification but has not allowed basic of excise duty, education cess, statutory interest etc. Aggrieved, assessee is in appeal before us. 14. We have heard rival submissions and gone through facts and circumstances of the case. At the outset, Ld. Counsel for the assessee drew our attention to the details of prior period adjustment, given at assessee's paper book page 32, which reads as unde .....

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ls 0.65 Other Misc 6.81 CREDIT R & Maintenance Plant 15.41 R & Maintenance Vehicles 0.69 Freight & Handling 0.43 1.04 Insurance 11.42 Service Tax 67.48 VAT Credit 2.20 TOTAL 204.25 11.85 18.71 83.58 47.76 3.24 NET BALANCE Debit 270.72 LAKH CREDIT 98.67 LAKH NET 172.05 LAKH It also produced details of payment made to Excise Department i.e. basic excise duty and education cess as well as interest on education cess and interest on basic excise duty and these details are available at ass .....

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NTEREST ON BASIC EXCISE DUTY INTEREST ON EDUCATION CESS TOTAL 24.03.2007 65,84,647.00 23,463.00 66,08,110.00 GRAND TOTAL 1,98,01,357.00 In view of the above facts of the case, we find that the assessee debited these amounts under the nomenclature prior period adjustment and not under prior period expenses. For taxation purposes expenditure can be considered to be prior period expenditure if and only if the liability to pay the expenditure was incurred or crystalised during the earlier accounting .....

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rt 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 Offi .....

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u/s. 43B of the Act. Accordingly, we are of the view that this liability is allowable liability and we direct accordingly. 15. The next issue in this Cross Objection of the assessee is against the order of CIT(A) in disallowing the claim of write off of loose tools. For this, assessee has raised following ground nos. 4 and 5: "4. For that on the facts and in the circumstances of the case, the CIT(A) was unjustified in disallowing the claim for write off of loose tools amounting to ₹ 2 .....

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3 lacs. The AO required the assessee to explain as to why this write off of loose tools be not disallowed. The assessee explained that loose tools are used for maintenance of plant and machinery and these are depreciable items and accordingly diminution in the value of such items is charged to the P&L Account of the assessee and depreciated value of the loose tools are shown in the Balance Sheet. Accordingly, it was claimed as deduction. The AO was not convinced and he disallowed the claim o .....

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