TMI Blog2011 (6) TMI 954X X X X Extracts X X X X X X X X Extracts X X X X ..... :- We are also of the view that for preparing the accounts on commercial principles Section 21 of the Companies Act requires that the assessee has to follow the Accounting Standards. AS-1 deals with concept of prudence and AS-9 deals with the concept of Revenue Recognition. These accounting standards categorically provided that income should not be recognized unless there is a reasonable certainty of its recoverability. It is settled law that real income is to be taxed. No notional or hypothetical income can be brought to tax Even if any assessee following mercantile system makes an entry for hypothetical interest income, the same cannot be included in the total income where such income has neither been accrued nor received. Considering these material facts of the issue, we are of the view that the lower authorities were not justified in making and upholding the disallowances of ₹ 220.8 lacs claimed on account of accrued interest on economic rent and interest on service charges by not accepting the change in the system of accounting of such income. We thus while setting aside the orders of the lower authorities in this regard, direct the AO to accept the above claim of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is created with the object of providing a safety net for the workers likely to be affected by restructuring in the State Public Enterprises. We are thus of the view that contribution made to the said fund is solely for the purpose of welfare and benefit of the employees. The Rajasthan High Court in case of CIT Vs. Rajasthan Spinning and Weaving Mills Ltd., 274 ITR 465 has been observed that if is for the assessee to decide whether any expenditure should be incurred in course of business. The expenditure can be incurred voluntarily and without necessity. Any contribution made by the assessee to a public welfare fund which is connected or related with his business is an allowable deduction u/s 37. Again the Court in the case of CIT Vs. Shri Rajashan Syntex Ltd. , 221 CTR 410 (Raj.) held that where assessee gave contribution to the employee s welfare fund, the same is allowable as business expenditure. The case relied by AO of CIT Vs. Jodhpur Cooperative Marketing Society 275 ITR 372 (Raj.) is distinguishable as in this case the amount was set apart for the shareholders of the society whereas in the present case amount was provided for the benefit of the employees. In view of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of non-valuation of land measuring 383.26 acre be not added to income. The assessee vide reply dated 12lth Nov. 2009 stated that such lands are not in the possession of the assessee company since long time. Accordingly as per prudence, such land has been valued at Zero value which is in conformity of generally accounting principles. Without prejudice to above, it was further submitted that on similar issue addition of ₹ 1042.85 lacs has already been considered while completing assessment of assessment year 2006-07. Therefore, adverse view, if any, is taken in respect of differential amount of ₹ 145.33 lacs. The AO after considering the reply of the assessee vide letter dated 12th Nov. 2009, made the addition of ₹ 145.33 lacs after observing as under:- I have gone through the qualification made by the auditors and reply of the assessee, The reply of the assessee is not found satisfactory as assessee could no explain any reason as to why in this year the assessee has decided not to value the land under litigation/ encroachment. It is observed that up-till the assessment year 2005-06, the assessee corporation is valueing the aforesaid land as its cost p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is concerned because of which all of a sudden the realizable value has been considered at nil. Further the assessee Corporation is set up by the enactment of State Govt. and the legal right as well as enforceability of the legal rights over the ownership of the land is backed up by the authority not power of the State Govt. Under these circumstances, in my considered view like earlier years, the valuation of the said land has to be at cost and therefore, the net addition made by the AO on account of under valuation of closing stock by ₹ 145.33 lacs is hereby confirmed by rejecting relevant ground of appeal. 5.5 We have heard both the parties. The ld. AR has filed the written submissions alongwith paper book containing 60 pages. The paper book does not contain letter dated 12th Nov. 2009 filed before the AO. Before deciding the issue, one has to consider the following aspects. 1. Whether change in method of valuation of stock in respect of encroachment of land or under litigation is bonafide or not. 2. If answer to the first aspect is Yes then one has to consider as to whether the decrease in valuation can be considered for assessment year under reference 5.6 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket value whichever is less. The notional loss, if any, can be claimed in the year when unsold stock has a lesser value as compared to the stock price. However, notional profit cannot be added in case market value is more than the cost. Hence, valuation of the stock is to be based on the same method for both opening and closing stock. The AO has simply not allowed deduction of ₹ 145.33 lacs on the ground of not accepting the change in method of valuation. However, the AO has not considered the aspects as to whether events in respect of reduction in valuation of stock have occurred during previous year relevant to assessment year under consideration. We are not having full facts in respect of the stock which have been valued at nil to ascertain the nature of litigation or encroachment and the period when such lands were acquired and when the assessee became aware of encroachment or litigation. Hence, the issue of addition of ₹ 145.33 lacs is restored back on the file of the AO. We do feel that litigation and encroachment will affect the valuation of the stock and such stock cannot be valued at cost price. With this observation, the matter is restored back on the file o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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