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TMI Blog2017 (2) TMI 1290X X X X Extracts X X X X X X X X Extracts X X X X ..... (1990) in spite of the fact the A.O has provided for indexation in his order. 3. On the facts and in the circumstances of the case, Ld.CIT(A) erred in deleting the addition of Rs. 48,35,989/- on account of valuation of closing stock in spite of the fact that the accounting standard-2 issued by ICAI itself provides for adjustment in valuation of inventory on the basis of change in method of accounting; and that the assessee is not consistently following any single method of accounting. 4. On the facts and in the circumstances of the case, Ld.CIT(A) erred in deleting the addition of Rs. 53,500/- out of interest paid by the assessee to bank as the assessee has provided interest free fund to its subsidiary company and on the other hand taken interest bearing loan from banks through commercial papers, for its business requirement. 5. On the facts and in the circumstances of the case, Ld.CIT(A) erred in deleting the disallowance of Rs. 20,13,907/- made on account of ESI & P.F contribution as explanation to Sec 36(1) (VA) provided for 'due date' to be the due date of fund. 6. On the facts and in the circumstances of the case, Ld.CIT(A) erred in deleting the disallowance for warran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred in earning such income under the provisions of Section 14A of the Act. The assessee also claimed Long Term Capital Loss of Rs. 75,995/- in the return of income on sale of units of UTI etc. However, Assessing Officer computed Rs. 2,08,210/- in respect of sale of the said units. The assessee company comprised of different divisions and has manufacturing units at Fridabad, Pondichery and Pune. The assessee was following weighted average cost method which is an acceptable method of valuation of stocks in all the units except in Capital GNF Division, Pune. The aforesaid method of valuation of inventories was accepted by the Revenue throughout. During the previous year under consideration for GNF Unit the method of valuation of closing stock were changed to weighted average cost method in lying with other units so that the principal of consistency could be followed amount of the units. The tax auditors under Annexure iii of the tax audit report reported that as a result of such changes in the method of valuation of closing stock profit for the year has been under stated by Rs. 48,35,989/-. The Assessing Officer made the addition of Rs. 48,35,989/- on account of change in method o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contentions and held that the dividend was received from an investment in units of UTI and the assessee has received two cheques for the amounts of dividend. It does not seem probable that a company would be required to incur an expenditure of Rs. 1,00,000/- for this nominal activity. The disallowance was held purely arbitrary and the CIT(A) followed the decisions of the ITAT Delhi Bench and the Delhi High Court, the same was deleted and the assessee got a relief of Rs. 1,00,000/-. 6. The Ld. DR submitted that the CIT(A) erred in deleting the addition made on account of disallowance of 1 lac pertaining to the expenditure incurred in earning the dividend income which is exempt from tax. The Ld. DR submitted that the Assessing Officer's observation that the assessee company in its own submissions stated that some expenditure on conveyance was attributable to deposit the dividend warrants in the banks. There would have been incurring some expenditure on record keeping of dividend i.e expenditure under the head proving/stationary and part salary of at least one employee who would be keeping track of dividend warrants, record their realization and further prospects of the investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer was directed to grant relief, while giving effect of the CIT(A)'s order, after verifying the computation of capital gains by the CIT(A). Consequently, the CIT(A) directed the A.O. that the addition of Rs. 48,35,989/- made on account of valuation of closing stock be deleted. Thus, the assessee got relief of Rs. 48,35,989/-. 10. The Ld. DR in respect of Ground No. 2 and 3 submitted that the CIT(A) erred in directing the Assessing Officer to grant leave relief to the assessee after verifying the computation of capital gain of Rs. 2,08,210/- in respect of sale of unit of capital VECUS & ii (1990) in spite of fact that the Assessing Officer has provided for indexation in his order. The Ld. DR further submitted that the assessee has switched off to weighted average cost method for valuation of stock from first in first out method, which was being followed earlier. By this change in method, the assessee company has artificially reduced its trading profit thereby increasing its returned loss. The change has brought about a onetime reduction. Since next year's profits have been worked out and the change in method of accounting of stock i.e. both opening and closing stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -. 14. The Ld. DR submitted that the loan of Rs. 5.35 lacs cannot be said to be advance for business purposes. The assessee company has advanced an interest free loan to its 100% subsidiary. However, it is for its business purpose, the assessee has borrowed funds from banks through commercial purpose. The rate of which varies from 9.55 % to 12.25%. Had the assessee company utilized this sum for business purposes it would have reduced its interest liability to such extent. Adopting an average rate of 10% interest on the sum of Rs. 535 lacs come to Rs. 53,500/- which was rightly disallowed by the Assessing Officer. 15. The Ld. AR relied upon the order of the CIT(A). 16. We have heard both the parties. This amount was paid by the assessee to its subsidiary company Kelbex International Ltd, which was no longer an operating company being under liquidation, to meet its statutory expenses such as filing fee and audit fee, etc. The assessee had enough funds of its own to advance this money in the year when it was paid. The A.O nowhere suggested that the assessee used any interest bearing loan funds to make this payment. Thus, the CIT(A) rightly agreed with the assessee's contentions and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any is also booking the cost actual incurred by the company on warranty repairs and replacing and the expenses on optional service contract actually incurred during the year. Thus, the provision on warranty and optional service contract based on a certificate is being added back as per detail furnished by the assessee. The sum of incriminating provision booked as result of water and optional service contract comes to Rs. 372.03 lacs. Thus, the Assessing Officer rightly disallowed the same. 23. The Ld. AR relied upon the order of the CIT(A). 24. We have heard both the parties. The Assessing Officer observation that the provision on the basis of acturual valuation certificate could not be allowed due to over statement of book loss on account of change in the method of accounting for the year under consideration. The decisions cited provides the proposition that provision for warranty was for a definite and ascertain liability and the same could not be disallowed as contingent liability. In-fact in the immediate preceding year i.e. Assessment Year 2000-01 similar disallowance made by the Assessing Officer was deleted in appeal by the CIT(A) and in A.Y. 1993-94 by the ITAT. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & T Finance and that a lease agreement was entered into is not disputed by the A.O. The assessee clearly stated this transaction to be a means of arranging fiancé at a relatively lower cost. If the entire transaction were to be ignored, then the taxable income of the assessee for both Assessment Year 2000-01 and 2001-02 would be significantly lower than what has been returned in these two years. Thus, CIT(A) disagreed with the A.O's contention that the lease charges had to be restricted to the WDV of the assets as at 31/3/2000. The A.O did not take into account the accounting of the sale proceeds in the year ended 31/3/2000 and also the interest factor for the period of 51 months. Lease financing through sale cum lease back transactions have been in practice for quite some time and if it is only when the existence of assets itself is in doubt or when an asset subject matter of transfer actually from a physical part of another larger asset or such sham transaction takes place that the revenue can rightly object to the arrangements. in the present case, there was no doubt about existence of the assets, the sale proceeds and consequent short term capital gains were duly assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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