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DCIT, Ci rcle-12, 3, Govt. Place (West) , Kolkata Versus M/s BOC India Ltd. and BOC India Ltd. Versus ACIT, Ci rcle-12, Kolkata, (West) , Kolkata

2016 (5) TMI 1010 - ITAT KOLKATA

Addition made on account of holding the security deposit written off as capital loss - Held that:- The AO cannot step into the shoes of the assessee for defining the best possible ways of the business. Accordingly we opined that the assessee has written off the security deposits in the interest of the business organization. Therefore the question of recovery or irrecovery does not arise under the present conditions and situations. The AO in the present case has not doubted the genuineness of the .....

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uphold the order of 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 ins .....

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mined 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) in deletin .....

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on. 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 [1994 (10) TMI 30 - GUJARAT High Court] where 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 .....

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d crystallized in the year under consideration so it should be allowed as deduction under section 37 of the Act. We also find that the liability towards the labour expenses was on the revenue account so holding it on capital account is not appropriate. Moreover, the decision of the Hon'ble Supreme Court K. Ravindranathan Nayeras (2000 (11) TMI 3 - SUPREME Court) is entirely applicable to the facts of the assessee as the instant case also relates to the labour dispute. The learned DR also failed .....

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y 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 ye .....

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ction 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 deleted. Hence this ground of appeal of the assessee is allowed. - ITA No.1071 & 669/Kol /2008 - Dated:- 19-4-2016 - Shri Mahavir Singh, Judicial Member and Shri Waseem Ahmed, Accountant Member For The Appellant Shri Sallong Yad .....

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1.03.2006 for assessment year 2003-04. Therefore we heard both the appeals together and deem it appropriate to dispose them by way of this common order. First we take up Revenue s appeal in ITA No.1071/Kol/2008 AY 03-04. 2. Revenue has raised grounds, which are reproduced below:- 1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in allowing the assessee of ₹ 22,69,471/- towards security deposits which were written off by the assessee company and cla .....

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since the liability as on date does not stand as it has not been crystallized in view of the decision of the appellant Authorities by way of remand orders to the lower Authorities which became time-barred 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 p .....

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o 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 this appeal is that ld. CIT(A) erred in deleting the addition made by the AO for an amount of ₹ 22,59,471/- on account of .....

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e by the assessee with the electricity board, telephone department, hospitals and EMD (earnest money deposits) for obtaining commercial contracts. However the AO treated the same as capital loss therefore not allowable deduction as business expenditure while computing the income under the business head. The AO also observed during the assessment proceedings that the assessee failed to furnish the reasons for treating the amount of security deposit as irrecoverable. Accordingly the AO has disallo .....

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to the business is allowable under section 28 of the Income Tax Act. The assessee also relied in the case of Satluj Cotton Mills Ltd. Vs. CIT 116 ITR 1 wherein it was held that the loss on account of trading assets was allowable deduction and the loss on account of capital asset was not allowable deduction. In the instant case the security deposits were classified as current assets i.e. trading assets as these were made in the normal course and for the effective running of business. Accordingly .....

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its 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 un .....

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s current assets in the books of accounts of the assessee. The business expenditure which is not specifically provided in sections 30 to 36 of the Act can be allowed under section 37 of the Act. 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. But expenditures in the nature of capital expenditures or personal expenses of the assessee are not admissible under the said section. However, .....

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o reason to interfere on the same. Accordingly both the grounds of the revenue are hereby rejected and dismissed. In addition to the above we also find numerous judgments of various courts where such losses were allowed as deduction while determining the profit under the business head. Some of them are detailed as under for the purpose of the reference. In the case of Ramchandar Shivnarayan vs. CIT (1978) 111 ITR 263 (SC) the Apex Court affirming the order of the Hon ble High Court of Madras has .....

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peration and the loss. Further, the Hon ble Madras High Court in the case of CIT vs. Textool Co. Ltd. 135 ITR 200 (Mad) has held as follows:- where the assessee claims a business loss, the main question to be considered is, whether the loss is incidental to the business……. The tribunal found that the assessee had to import 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 asses .....

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ase 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 busi .....

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e interest of the business organization. Therefore the question of recovery or irrecovery does not arise under the present conditions and situations. The AO in the present case has not doubted the genuineness of the loss claimed by the assessee but the loss was merely disallowed by holding them as capital loss. As the loss was arising from the writing of the trading assets which was classified as current assets in the books of accounts and also relying in the aforesaid decisions we uphold the or .....

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he higher authorities but there was no progress so these appeals became time barred. Therefore the assessee has written off the payments made to the Sales Tax Department under protest. However, the AO opined that writing off contingencies for an amount of ₹ 34,03,526/- is in the nature of an extra ordinary item therefore the same cannot be allowed as trading loss incurred in the ordinary course of business. 9. Aggrieved assessee preferred an appeal to Ld. CIT(A) where the assessee submitte .....

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ard 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 .....

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refore we disagree with the view taken by the AO. Relying in the case of Mysore Sugar Company Limited 46 ITR 649 (SC), the Hon ble Supreme Court held as under:- To find out whether expenditure is on the capital account or on revenue, one must consider the expenditure in relation to the business. Since all payments reduce capital in the ultimate analysis one is apt to consider a loss as amounting to a loss of capital. But this is not true of all losses, because losses in the running of the busine .....

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rs the character of current expenses. Further reliance can also be placed on the decision of jurisdictional High Court in the case of CIT vs. Gillanders Arbuthnot & Co. Ltd. 138 ITR 763 (Cal), wherein the Hon ble High Court held the followings:- Even if the amount cannot be treated as a bad debt in the sense that it was not an advance in the course of money-lending business, it can certainly be allowed as a trading loss incurred by the assessee in the course of its business. Taking a consist .....

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deration assessee has sold its factory located in Delhi, comprising of land and building. The AO sought the clarification from the assessee regarding the bifurcation of sale proceeds between the land and the building. In response to the notice the assessee submitted that the higher of the following amounts had been considered as received towards building. 1. The market value of the building near to the date of the sale which is ₹ 51,09,800.00 as per the valuer s report dated 8.12.2000. AND .....

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e 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 th .....

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ent cost of construction to be the sale consideration without considering the impact of depreciation into account, the building sold being of very old construction. The AO should have taken the valuer s report into consideration. The AO has not stated in the order why the valuer s report is not acceptable and it is not that the AO got the buildings revalued by departmental valuer. In the circumstances, AO is directed to delete the addition of ₹ 17,98,092/-. Being aggrieved by this order of .....

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ever, the AO rejected the working of the assessee and taken sale consideration the value of the current cost of construction of the building which is ₹ 2,32,65,950/-. The AO accordingly reduced the WDV of the building by the amount of current cost of construction i.e. ₹ 2,32,65,950/-. As a result of change in the WDV excess depreciation claimed by the assessee was worked out by the AO for an amount of ₹ 17,98,092/- which was disallowed and added to the income of the assessee. 1 .....

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. 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 .....

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lenged 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 is that the Ld.CIT(A) erred in deleting the addition made by the AO for ₹ 9,38,852/- on account of electricity expenses pertaining to the earlier year s. 17. The assessee has made the payment of arrears of electricity dues in respect of the property loc .....

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owing the mercantile system of accounting. So the expenses pertaining to earlier years should have been accounted for in the respective financial years also. The expenses of the earlier years cannot be claimed as deduction in the year under consideration. Accordingly the AO disallowed the electricity expenses and added to the total income of the assessee. 18. Aggrieved, assessee preferred an appeal to Ld. CIT(A) who has deleted the addition made by the AO. Being aggrieved by this order of the Ld .....

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counts on the ground of non-receipt of electricity bills although the assessee was following mercantile system of accounting. The assessee claimed all the bills of electricity dues in the year under consideration as deduction on the ground that these dues came to its notice in this year only and same were settled accordingly. However the AO disagreed with the view of the assessee and held these expenses as prior period expenses so he disallowed. But at the appellate stage Ld CIT(A) reversed the .....

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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 ap .....

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has relied in the decision of Hon ble Supreme Court in the case of K. Ravindranathan Nair Vs. CIT 247 ITR 178 (SC) wherein it was held that the expenditure incurred in connection with the settlement of labour disputes was allowed for deduction as business expenditure. However the AO disregarded the claim of the assessee by holding that the facts of the above case were different from the instant case. In the present case the factory was closed down on account of pollution problems and not on acc .....

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the addition made by the AO holding that the decision of Hon ble Supreme Court in the case of K. Ravindranathan Nair (Supra) is entirely applicable to the case of the assessee. Being aggrieved by this order of the Ld.CIT(A) Revenue is in appeal before us. 23. Before us Ld. DR vehemently supported the order of AO and on the other hand the ld. AR relied on the order of the learned CIT(A). We have heard the contentions of both the parties and perused the materials available on record. From the afo .....

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Hon'ble Supreme Court K. Ravindranathan Nayeras (supra) is entirely applicable to the facts of the assessee as the instant case also relates to the labour dispute. The learned DR also failed to bring anything 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 appe .....

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e 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 facts and circumstances of the case, the CIT(Appeals) erred in not adjudicating ground nos. 3(g) and 3 (h) of the grounds of .....

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acts and circumstances of the case, the CIT(Appeals)erred in not adjudicating and thereby upholding the action of the Assessing Officer in rejecting the Valuer s Report for considering the fair market value of land as on 01/04/1981 at Delhi and inserted arbitrarily taking the fair market value of land at 2/3rd of the value determined by the valuer while computing the long term capital gains arising from the sale of Delhi land. 2(e) That on the facts & circumstances of the case, the CIT(Appea .....

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al is that ld. CIT(A) erred in confirming the order of AO by disallowing port charges written off for an amount of ₹ 9,49,461/- against deposits lying with Calcutta Port Trust. 27. The assessee had been importing raw materials, stores and spares parts through Calcutta Port Trust (CPT for short). The CPT did not raise the bills to the assessee for the services rendered in connection with the above import. However the assessee deposited the money time to time with CPT in connection with the .....

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s 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 .....

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her current assets in the balance-sheet without adjustment on account of actual port charges payable. Since the appellant has itself admitted that the said deposit was entered with the books under the head other current assets, it gives credence to the AO s belief that the said amount was of the capital nature. As such the write up of such asset cannot be termed as revenue expense. In the circumstances, disallowance of ₹ 9,49,461 is upheld. Being aggrieved by this order of the ld. CIT(A) t .....

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authorities. 29.1 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 imported the goods in the earlier years which were booked as expenditure in the year of import but the assessee did not book the port expenses incurred in connection with the import as the bills for port charges were not provided by CPT. However the assessee was depositing the money with the CPT in connection with the impor .....

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e been claimed as deduction in the year of import of the goods. However in the instant case, the facts revealed that the assessee failed to claim the expenses due to non-availability of the bills from the CPT but the assessee kept paying the money to the CPT in the form of deposits. The bills were determined and crystallized in the year under consideration 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 .....

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d 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 place .....

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year when the same had not accrued. It is now well settled that even under mercantile system of accounting the liability is allowable in the year of accrual even if it relates to an earlier year. Further in the case of United bank of India vs. DCIT (1999) 68 ITD 332 (Cal) it has been held that 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 earli .....

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e 2002. As a result of sale the assessee declared long term capital gain from the sale of land for an amount of ₹ 7,30,15,457.00. While working out the capital gain the assessee has claimed the following deductions : 1. Prepayment discount ₹ 47,50,000.00 2. Expenses for vacating property ₹ 11,88,098.00 3. Other connected expenses ₹ 3,45,777.00 4. Valuation as on 1.4.1981 ₹ 1,46,20,000.00 Prepayment discount The factory was sold to M/s Lohia Developers private Limite .....

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ng 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 observ .....

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erefore the plea of the assessee was disregarded by the AO. Other connected expenses At the time of assessment proceedings the assessee failed to furnish the details of the above said expenses therefore these expenses were disallowed by the AO. Valuation as on 1.4.1981 The assessee has taken a valuation report of the land as on 1.4.1981 which was valued at ₹ 146.20 Lacs. The valuer while valuing the property has solely relied on a book with the title Guide to House Tax in Delhi 2001-02 wri .....

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rder of Ld. CIT(A) assessee came in second appeal before us. 33. At the outset, we observed that the Ld CIT(A) has not adjudicated the claim of the assessee regarding the expenses incurred for getting the property vacated for ₹ 11,88,098/-, other expenses for ₹ 3,45,777/- and the valuation of the property as stood on 01.04.1981. In this view of the matter and for natural justice we restore back the matter to the file of Ld. CIT(A) for fresh adjudication as per law. Needless to mentio .....

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