TMI Blog2016 (5) TMI 1010X X X X Extracts X X X X X X X X Extracts X X X X ..... f Ld. CIT(A) in delting the addition and dismiss this ground of appeal of the Revenue. - Decided against revenue Addition made on account of excess depreciation claimed by the assessee - Held that:- here was no maintenance of the building as the factory was closed down. We also find from the valuer’s report dated 8th December 2000 issued by M. Chaudhry and associates that the market value of the building near to the date of sale was at ₹ 51,09,800/-. In the instant case, assessee has declared the sale consideration higher than the market value which is ₹ 52,85,030/- being book value of the building as per accounting records. We further observed that the AO has not doubted the market value of the assessee building as per valuer’s report. The learned DR has also not brought anything on record contrary to the finding of the learned CIT(A). In view of above and considering the facts of the case, we find that the market value of the building as determined by the valuer is the correct value of the sale consideration of the building. Since the building in question is very old so there is no reason to take the current cost of construction of building as sale consideration fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court and we have no hesitation in upholding the order of Ld CIT(A)n deleting the addition.- Decided against revenue Addition of port charges written off against deposits lying with Calcutta Port Trust - Held that:- Any liability, though pertaining to earlier year, depends upon making a demand and its acceptance by the assessee. If such liability has actually been claimed during subsequent year, it cannot be disallowed merely on the ground that the accounts are maintained on mercantile basis and it relates to transactions pertaining to an earlier year. Further reliance is also placed on the decision of ITAT Delhi Bench in the case of Kumar Aerosoles (P) Ltd. Vs. ACIT (1995 (9) TMI 107 - ITAT DELHI-A ) wherein expenses relating to electricity, telex, typewriter rent and telephone though relating to earlier years, are allowable in the year in which the demand is raised. Any liability which may be considered to have been arisen only in a subsequent year has to be allowed as deduction even if the same may be attributable to the business conducted by the assessee in an earlier year. In view of the above we reverse the orders of the lower authorities and ground of appeal raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arred subsequently. 3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in allowing the amount of ₹ 17,98,092/- being excess depreciation on building when the current cost of construction should be taken as the sales consideration of the building for the purpose of reducing it from the WDV. 4. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in allowing the amount of ₹ 9,38,852/- on account of earlier period electricity expenses when the assessment itself failed to collect the bills from the electricity office in due time after the closure of the factory. 5. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in allowing the amount of ₹ 16,05,000/- being paid to labourers when the assessee failed to furnish the details of disputed labour cases before the A.O. Shri K.R. Vasudevan, Shri Basant Gadhyan and Shri Hardik Lakhani, Ld. Authorized Representatives are appearing on behalf of assessee and Shri Sallong Yaden, Ld. Departmental Representatives appearing on behalf of Revenue. 3. The issue raised by Revenue in ground no. 1 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contentions of both the parties and perused the materials available on record. The AR has filed a paper book which is running from pages 1 to 76. From the aforesaid discussion we find that the assessee has written off certain security deposits during the year which were made with the telephone department, electricity department, hospitals and also as EMD etc. The reason for writing off these security deposits was explained as these were irrecoverable. However the same was disallowed by the AO on the ground that there is no provision under the Act to claim the loss by way of writing off capital assets. However, Ld. CIT(A) treated the aforesaid loss on account of trading assets and allowed the deduction while computing the income under the business head. Now the question before us whether the above loss is allowable as deduction while computing the income under the business head or not. 6.1 From the facts we find that the loss claimed by the assessee by way of writing off the security deposits was on the revenue accounts. These security deposits were made by the assessee in the normal course of business. By making the security deposit no fixed assets has come into existence. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mport from abroad certain component parts necessary for its manufacturing business. The assessee had to be abide by the scheme of import licences under which the assessee had to pay premiums to the Federation in advance covering the entire import entitlement. Owing to business exigencies, the assessee could not fully utilize the import entitlement, resulting in a forfeiture of part of the advance deposit with the Federation. The Tribunal therefore felt no difficulty in finding that the deduction claimed by the assessee in writing off the amounts so forfeited was in the course of and incidental to the assessee s business . Similarly, the Bombay High Court in case of I.B.M. World Trade Corporation vs. CIT 186 ITR 412(Bom) has held as follows:- As the acquisition of premises on lease would not ordinarily be in the capital field, there is no hesitation in holding that the moneys advanced by the assessee in pursuance of the agreements to the landlord for the purposes of and in connection with the acquisition of the premises on lease were for the purpose of business. Naturally, therefore when such advances are lost to the assessee the loss would be a business loss and not a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the discretion of the Bench whereas Ld. AR supported the order of the Ld CIT(A). 10.1 We have heard the contentions of both the parties and perused the materials available on record. From the aforesaid discussion we find that the assessee has written off the payments made to the Sales Tax Department Under Protest. The AO treated the same as extraordinary item and disallowed by holding that this does not represent the trade loss arising in the ordinary course of the business. However, in our considered view, the payment made by the assessee under protest to the Sales Tax Department is very much in connection with the business although such kind of loss does not arise in the normal course. But at the same time we cannot ignore the business connection with the aforesaid loss. The business expenditure which is not specifically provided in sections 30 to 36 of the Act can be allowed u/s 37 of the Act. The only test is that such expenditures before qualifying for deduction are required to be laid out or expended wholly and exclusively for the purpose of the business and profession. Therefore we disagree with the view taken by the AO. Relying in the case of Mysore Sugar Company Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r s report dated 8.12.2000. AND/ OR 2. The book value of the building reflecting in the books of accounts which is ₹ 52,85,030.00. However, the AO disregarded the working of the assessee with regard to the sale consideration of the building. The AO held that the sale consideration/fair market value of the building should be the current cost of the construction without giving the effect of the depreciation. Accordingly the AO has taken the current cost of construction of the building from the valuation report filed by the assessee for an amount of ₹ 2,32,65,950/-. So the AO has reduced the WDV of the building by the ₹ 2,32,65,950.00 and worked out the excess depreciation claimed by the assessee for an amount of ₹ 17,98,092.00. The excess depreciation claimed by the assessee was disallowed by the AO and added to the total income of the assessee. 13. Aggrieved, assessee preferred an appeal to Ld CIT(A) where it was submitted that the building in question was very old and it was constructed in the year 1950. Subsequently the additions were made in the building by the assessee from time to time up to the year 1977. There was no maintenance of the buildin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of the building near to the date of sale was at ₹ 51,09,800/-. In the instant case, assessee has declared the sale consideration higher than the market value which is ₹ 52,85,030/- being book value of the building as per accounting records. We further observed that the AO has not doubted the market value of the assessee building as per valuer s report. The learned DR has also not brought anything on record contrary to the finding of the learned CIT(A). In view of above and considering the facts of the case, we find that the market value of the building as determined by the valuer is the correct value of the sale consideration of the building. Since the building in question is very old so there is no reason to take the current cost of construction of building as sale consideration for the computation of long term capital gain. The value given in the valuation report is correct value of the building as the same has not been challenged by the AO. Accordingly in our considered view, we have no hesitation in upholding the order of learned CIT(A). Hence this ground of appeal of the revenue is dismissed. 16. Fourth issue raised by Revenue ground number 4 in this appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bills as the Delhi factory was closed in November 1996. We find force in the argument of the Ld. AR that these expenses were made known to the assessee and accordingly settled in the year under consideration. Therefore in our considered view these expenses were exclusively incurred in connection with the business only and eligible for deduction under section 37 of the Act. In holding, so we relied in the case of Saurashtra Cements and Chemicals Industries 213 ITR 523 where Hon ble Gujarat High Court held that the expenses pertaining to the transactions of earlier years do not become liability payable in earlier year unless it can be said that liability was determined and crystallized in the year on the basis of maintaining account of mercantile basis. In view of above, we have no hesitation in upholding the order of learned CIT(A). Hence this ground of appeal of revenue is dismissed. 21. Fifth issue raised by Revenue in ground no. 5 in this appeal is that learned CIT(A) erred in deleting the addition made by AO for ₹ 16.05 lacs on account of failure on the part of the assessee to furnish details of disputed Labour cases. The assessee had paid a sum of ₹ 16.05 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record to controvert the finding of the Ld CIT(A). Therefore taking a consistent view in the judgment of Hon'ble Supreme Court and we have no hesitation in upholding the order of Ld CIT(A). Hence this ground of appeal of the revenue is dismissed. 24. In the result, Revenue s appeal is dismissed. Coming to assessee s appeal in ITA No. 669/Kol/08 AY 03-04. 25. Grounds raised by assessee are as under:- 1(a) That on the facts and in the circumstances of the case, the CIT(Appeals)erred in upholding the action of the Assessing Officer in disallowing ₹ 9,49,461/-, being amount written off in the Profit Loss Account during the year under appeal on account of adjustment of Port charges against deposits lying with Calcutta Port Trust. 1(b). That on the facts and in the circumstances of the case, the CIT(Appeals) erred in holding that the write off of ₹ 949,461/- is capital in nature. 2(a) That on the facts and circumstances of the case, the CIT(Appeals)erred in not adjudicating entire issues, as raised by the appellant, relating to the computation of long term capital gain attributable to sale of Delhi property. 2(b). That on the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the port charges and claimed such expenses under section 37 of the Act. However the AO disregarded the claim of the assessee by holding that the goods were imported in earlier years which have already been accounted for. Therefore the expenses pertaining to port charges should have been recorded in the year of import as the assessee is following mercantile system of accounting. Accordingly the AO disallowed the port charges for an amount of ₹ 9,49,461/- and added to the total income of the assessee. 28. Aggrieved, assessee preferred an appeal to Ld CIT(A) who has upheld the order of the AO by observing as under:- 6. Regarding second ground of ₹ 9,49,461 it is pleaded that the appellant was required to keep a deposit with port authorities towards port charges leviable towards clearance of the reported materials. As and when the materials were acquired the company received a statement from the Port Trust and on receipt of such statement, the appellant used to adjust trading charges against the deposit amount. The appellant claimed the said sum as an allowable business expenditure u/s.37(1). The appellant has also submitted that before the Assessing Officer that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration so in our considered view these expenses are very much in connection with the business and entitled for deduction under section 37 of the Act. In holding so we are putting our reliance in Hon'ble Gujarat Hon'ble High Court in the case of Saurashtra Cement Chemical Industries Ltd. Vs. CIT 23 ITR 523 (Guj), wherein the Hon'ble Gujarat High Court at page 531 has observed such items without investigation in to the facts about the crystallization of such dues could not be disallowed merely on the ground that they related to transactions pertaining to an earlier accounting year In this context it is also submitted that merely because an expense relates to an earlier year, it does not become the liability payable in that particular year. Any liability, though pertaining to earlier year, depends upon making a demand and its acceptance by the assessee. If such liability has actually been claimed during subsequent year, it cannot be disallowed merely on the ground that the accounts are maintained on mercantile basis and it relates to transactions pertaining to an earlier year. Further reliance is also placed on the decision of ITAT Delhi Bench in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .50 lacs on account of prepayment. However the AO disregarded the claim of the assessee by holding that the reduction in the sale consideration on account of prepayment of the amount by M/s LDPL is purely cash discount and the same cannot be reduced from the sale consideration for the purpose of computing the capital gain under section 45 read with section 48 of the Act. Expenses for vacating property The assessee at the time of assessment submitted that for getting the property vacated certain expenses were incurred. These expenses relate to the payment made by the company to certain persons as detailed below : 1. Laxman Singh Rawat ₹ 5.80 lacs paid on 21.01.2002 2. Sardarilal Sharma ₹ 5 lacs paid on 07.02.2002 3. Kamal Sharma Rs.3.25 lacs paid on 07.02.2002 However, the AO observed that the difference in the expenses claimed in the return of income by the assessee and in the submission of the assessee. in the return the expenses were claimed for ₹ 11,88,098.00 but in the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From the aforesaid discussion we find that the AO and ld. CIT(A) has treated the cash discount given by the assessee as the income of the assessee. However we find that the discount was given by the assessee on account of prepayment made by the party. In our considered view the discount given by the assessee should be reduced from the sale consideration to work out the actual income of the assessee. In this connection we are having reliance in the case of Shakuntala Kantilal [1991] 190 ITR 56 where the Hon'ble Bombay High Court has held that the expression full value of consideration contemplates both additions to, as well as deductions from, the apparent value. What it means is the real and effective consideration. Further in the case of Dr. Fareed Jamshid Italia (2011) 203 taxman 241 where it has been observed by the Hon'ble Madras High Court that full value of consideration as defined under section 48 of the Act cannot be said to mean apparent consideration as envisages in Chapter XXC of the Act. In view of the above we hold that the cash discount given by the assessee cannot be treated as income. Accordingly the addition made by the lower authorities stands delet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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