TMI Blog2013 (7) TMI 1161X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee had incurred an expenditure on Social Forestry at ₹ 85,43,140/-. The assessee has claimed the deduction of the said expenditure. The explanation of the assessee was that since the assessee is manufacturing Pulp Board, therefore, the bamboo and the hardwood are the major raw material required for the manufacturing. However, the AO was not convinced and following the past history of the case, the said expenditure was disallowed. When the matter was carried before the First Appellate Authority, learned CIT(A) has followed an order of the Tribunal and thereafter directed the AO to rework the disallowance in accordance with the directions laid down by the Tribunal. With these brief background, we have been informed that on identical facts ITAT C Bench Ahmedabad for A.Y. 2008-09 in an appeal of the assessee bearing ITA No.2262/Ahd/2011 and Cross Appeal bearing ITA No.2505/Ahd/2011 vide an order dated 24th of May, 2012 has held vide paragraph no.31 at page 9 that the ground in required to be decided against the assessee. Even the learned CIT(A) has followed an earlier order of the Tribunal dated 4.9.2009, wherein the quantification was made as under: Foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was affirmed. Now before us in the absence of any proof that the expenditure in question was crystallized during the year under consideration, we are of the considered opinion that the learned CIT(A) has rightly held that in a situation when an assessee is following mercantile system of accounting then the prior period expenses should not be claimed during the current year. Resultantly, the view taken by learned CIT(A) is hereby affirmed and this ground of the assessee is hereby dismissed. 4. Ground no.3 is reproduced hereinbelow: Upholding an addition of ₹ 1476199 by making reference to Section 145A and in not appreciating that the figure of ₹ 36293787 since represents Excise Duty on closing stock of raw materials the same is not comparable with ₹ 34817588 which represents the closing balance of MODVAT Recoverable and that in view of appellants facts ICWA s guidance note, Sec. 145A has no impact on the profit as shown in the P L A/c. 4.1 The AO has noted that the Excise Duty and the corresponding unutilized MODVAT/CANVAT were no reflected or added in the closing stock of the assessee. The net effect was that a sum of ₹ 14,76,199/- was req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king an addition of ₹ 4,24,00,000/- by wrongly concluding:- (a)That yield of raw-material consumption of the appellant s CPM Unit was lower by 1.47% as compared to the yield of immediately preceding year and in ignoring that the yield had actually improved by 2.04% being 44.14% as compared to 42.10% in the immediately preceding year after taking the production figure of pulp which was transferred to Board production. (b) G.P. ratio of CPM unit is lower by 2% as compared to average G.P. ratio of immediately preceding years. 6.1 A query was raised by the AO about the unit-wise working of Gross Profit. The assessee has furnished a chart disclosing the unit-wise percentage of profit. The assessee has also informed that in the current year the G.P. ratio of paper business was higher in both the units i.e. JKPM unit CPM unit. Further an enquiry was raised in respect of the yield percentage. As per the chart the yield of CPM Unit had gone down from 38.64 (A.Y. 2008-09) to 37.17 (A.Y. 2009-10). But in respect of JKPM Unit the yield had improved to 40.57 (A.Y. 2009-10) from the yield of 39.03 (A.Y. 2008-09). An another working of units have been furnished by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.3 With this brief background, we have noted that for A.Y. 2008-09 the said issue had gone upto the stage of the Tribunal and ITAT C Bench, Ahmedabad vide order dated 24.05.2012 has pronounced the issue in assessee s favour. Order s relevant paragraphs are reproduced below:- In the light of above discussion we are of the considered opinion that in these facts and circumstances of the present case, the action of Ld. CIT(A) for rejecting the book records itself is not justified because his only basis is that there is fall in yield percentage of JKPM unit but even he was also not sure about this objection after various explanations were furnished by the assessee along with auditors certificate and, therefore, he did not make the addition on the basis of fall in yield percentage which was proposed by him earlier to the extent of 139 crores and he finally proceeded to make addition on the basis of fall in GP percentage. For this purpose also, instead of comparing the GP with the immediately preceding year, he has taken average of last live years and on this basis, he made addition of only ₹ 44.95 crores. The basis of Ld. GIT(A) is as noted by him on page 43 of his ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has resorted to any sale outside books. In this situation, the only basis of low yield having impact on G.P. can be that the assessee has reported lesser quantity of closing stock and in that situation, addition can be made by increasing closing stock quantity and value. If such addition is made then in the next year, opening stock has to be increased by the same amount. In the present case, no such direction is given by Ld. CIT(A) to increase opening stock of the next year although he is giving reason for making GP addition that low yield results into lower GP. This allegation that low yield resulted into low GP is not supported by the fact as discussed above and moreover, even if it is a fact, then the effective addition is on account of low yield and in the absence of any allegation regarding bogus purchases or out of books sales, effective addition in that case will be on account of increase in closing stock and as a result, opening stock has to be increased in the next year. No such direction is given by Ld. CIT(A) in this regard. It was also submitted before us in the course of hearing that in the next year also, the assessment is completed by the A.O. u/s 143(3) and no de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of 8% fall in the yield of JKPM unit, fall in GP of this unit as compared to last year GP of this unit is only marginal to the extent of 0.51% and hence, the allegation of Ld. CIT(A) that fall in yield ultimately result into fall in GP is not found to be correct in the facts of the present case. In the light of this and various other reasons noted by us in above paras as per which the order of Ld. CIT(A) on this issue is found to be not sustainable and hence, we delete the addition made by Ld. CIT(A). This ground of the assessee stands allowed. 6.4 The respected Co-ordinate Bench has elaborately examined the book results of the assessee. The Bench has also examined the method of accounting alongwith the business model of the assessee. Thereafter the Tribunal had taken a cautious decision that merely on the basis of fall in yield the impugned addition could not be made. Even for G.P. addition the basis adopted by the Revenue Authority was found incorrect. Therefore, we are of the view that the precedent of 2008-09 has to be followed for the year under consideration. By placing reliance on the reasoning given in the last year by the Tribunal, we hereby direct to delete the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried out for cultivation of land. Further the decision of the Hon'ble ITAT in assessee's case has not been accepted by the Department and appeal U/S.260A of the I.T. Act has already been filed. 2.1 Both the sides agreed that this issue is identical to ground No.l(a) of the revenue in assessment year 2006-07 and 2007-08 in I.T.A.No. 129 and 1856/Ahd/2010 and in the present year also, this issue may be decided on similar lines. In those two years, this issue has been decided by the tribunal as per order dated 11.05.2012 in favour of the assessee as per para 12.2, which is reproduced below: 12.2 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the tribunal decision cited by the Ld. A.R. We find that the decision of Ld. CIT(A) is by following tribunal order in assessee's own case for the assessment year 2002-03, 2003-04 2004-05 and the Ld. D.R. could not show us as to how this tribunal decision is not applicable in the present year by pointing out any difference in facts and hence, under these facts, we do not find any reason to interfere in the order of Ld. CIT(A) on this is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese years that in the books of the assessee, the amount in question is shown as liability and it was not written back by the assessee by way of credit to the P L account. In the light of these facts, when we examine the provisions of Section 41(1) of the Income tax Act, 1961, we find that as per Explanation (1) inserted in Section 41(1) by the Finance (No.2) Act 1996 w.e.f. 01.04.1997, if the assessee has written back the liability then it will amount to remission or cessation of liability for the purpose of invoking Section 41(1). As per the judgment of Hon'ble Apex Court rendered in the case of Sugauli Sugar Works as reported in 236 ITR 518 (S.C.) and in the case of Kesaria Tea Co. Ltd. reported in 254 ITR 434 (S.C.), even a unilateral entry passed by the assessee by writing back the liability will not amount to cessation of liability. However, after the amendment of Section 41(1) by way of insertion of Explanation to this extent, these two judgments of Hon'ble Apex Court will not be applicable where the assessee has written back the liability but where assessee has not written back the liability in the books, Section 41(1) cannot be invoked as per those judgment of Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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