TMI Blog2001 (3) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... one. 2. The assessee-company is in the business of growing, manufacturing and selling tea. During the course of assessment proceedings, assessee's claim of 100 per cent depreciation on 'Vibro Fluid Bed Drier' (hereinafter referred to as VFBD) was restricted to 25 per cent depreciation, as applicable on normal machinery, by the AO in appeal, the assessee submitted that VFBD was an energy saving eligible for 100 per cent depreciation under cl. III 3(iii)A of by Appendix I of the IT Rules, 1962. It was also submitted that the AO had not disputed that installation of VFBD has resulting in energy savings and, therefore, VFBD are entitled to 100 per cent depreciation on specilised boilers and furnaces. The CIT(A), however, was of the opinion that not every energy saving device is entitled to 100 per cent depreciation but only such energy saving devices were entitled to 100 per cent of depreciation which are specialised boilers and furnaces of the nature referred to in III. (3)(iii)A of Appendix I or waste heat recovery equipment referred to in the nature referred to in III(3)(iii) C of Appendix I. Accordingly, the CIT(A) upheld the disallowance of depreciation by the AO, aggrieved by w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was further submitted that cess payment does not form part of the cost of production since the same is not debited to the P L a/c and that allowance of deduction on cess paid does not have any bearing on the issue of its inclusion in the closing stock. Without prejudice to these arguments, it was also submitted that in case cess is to be included in the value of closing stock, a further deduction with respect to the same should be allowed in the relevant previous year in view of the express provisions of s. 43B. Reliance was placed on decisions of the Tribunal in case of ITO vs. Food Specialities Ltd. (1994) 48 TTJ (Del) 621 (SB): (1994) 49 ITD 21 (Del) (SB), Excide Industries Ltd. vs. Dy. CIT (ITA No. 152/Cal/1996) and Dy. CIT vs. Williamson Magor Co. Ltd. (ITA No. 771/Cal/1995), Shri J.G, Mishra, learned Departmental Representative, on the other hand, strongly supported the orders of the authorities below. Reliance was placed on Hon'ble Supreme Court's judgment in the case of CIT vs. British Paints Ltd. (1991) 91 CTR (SC) 108 : (1991) 188 ITR 44 (SC) in support of the proposition that in case method of accounting adopted by the assessee does not disclose true and proper income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has placed great reliance on Hon'ble Supreme Court's judgment, in the case of Chamrup Sampatram, in support of the claim that since cess was not debited to the P L a/c, it should not be taken into account for computing the value of closing stock. 8. It may also be relevant to mention that according to "Accounting Standard 2-Valuation of Inventories" published by the Institute of Chartered Accountants of India, "inventories should be valued at lower of historical cost and net realisable value". (There are, of course, some exceptions to this policy, as listed in para 29.1 to 29.4 of the aforesaid standard, but none of these exceptions deals with situations before us). In para. 6.2 of this accounting standard, historical cost has been defined as an appropriate combination of the (a) cost of purchase; (b) cost of conversion; and (c) other costs incurred in the normal course of business in bringing the inventories upto their present location and condition. In para. 6.3 of the statement 'costs of purchases' is defined to 'consist of the purchase price including duties and taxes, freight inwards and other expenditure directly attributable to acquisition less trade discount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasoning by which the learned Judges arrived at that conclusion seems to us, with all respect, to proceed on a misconception. It is wrong to assume that the valuation of closing stock at market rate has, for its object, bringing into charge any appreciation in the value of the closing stock. The true purpose of crediting the value of unsold stock is to balance the cost of goods sold entered on the other side of the account at the time of their purchase, so that the cancelling out of the entries relating to the same stock from both the sides would only leave the transactions on which there have been actual sales in the course of the year showing the profit and loss actually realised on the year's trading. As pointed in para. 8 of the Committee on Financial Risks attached to the holding of Trading Stocks 1919, "As the entry for stock which appears in a trading account is merely intended to cancel the charge for the goods which have not been sold, it should necessarily represent the cost of the goods. If it is more or less than the cost, then the effect is to state profit on the goods, which have actually been sold, at the incorrect figure ........... From this rigid doctrine, one e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied upon by the learned counsel, which obviously take its colour from the questions involved in the case in which these observations are made, are not relevant to the present context. Hon'ble Supreme Court were deliberating upon the objective of valuation of a stock which, in the opinion of lower authorities, was said to be 'bringing to charge any appreciation in the value of closing stock' and, unlike in the case before us, it was not in dispute that any expenditure associated with purchases has not been actually debited to the P L a/c. We are unable to accept the suggestion that true principle emerging from this judgment is that irrespective of whether or not all the related expenditure have been debited to the P L a/c, only debits to the P L a/c can be taken into account for working out the value of closing stock. The words used by Judges are not to be interpreted, as they are the words used in a statute. These words are not used after weighing pros and cons of all conceivable situations that may arise. These words merely constitute reasoning adopted by Judges in the particular case, tailored to a given set of facts and circumstances. What is made binding is only the ratio deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the correct profits and gains. This means that where accounts are prepared without disclosing the real cost of stock in trade, albeit on sound expert advice in the interest of efficient administration of the company, it is duty of the ITO to determine the taxable income by making such adjustment as he deems fit. 21. Any system of accounting which exclude, for the valuation of stock in trade, all costs other than costs of raw materials for the goods in process and finished products, is likely to result in a distorted picture of the true state of business for the purpose of computing the chargeable income............. The profits of one year is likely to be shifted to another year which is incorrect method of computing profits and gains for the purpose of assessment. Each year being a self-contained unit and the taxes of a particular year being payable with reference to the income of that year, as computed in terms of the Act, the method adopted by the assessee has been found to be such that income cannot be properly deduced therefrom. It is, therefore, not only the right but also duty of the AO to act in exercise of his statutory power ...... for determining what, in his opinion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly accepted" (See observations of Lord Hailsham and Lord Diplock in Broome vs. Cassell. The better wisdom of the Court below must yield to the higher wisdom of the Court above. That is the strength of the hierarchical judicial system." In view of the above observations of Hon'ble Supreme Court and in view of the fact, the order of the Tribunal, in the cases of Food Specialities Ltd. and Indian Communication Network (P) Ltd. was delivered by a Bench larger than this Division Bench, we respectfully follow the aforesaid decisions and allow this ground of appeal of the assessee. 15. In the light of these discussions, we are of the considered view that the addition of Rs. 5,16,493 made by the learned AO, and which has been sustained in appeal by the learned CIT(A), should be deleted; order accordingly. The ground Nos. 3 and 4 of the assessee are, in substance, allowed. 16. Next grievance of the assessee, which is articulated through ground No. 5, is against CIT(A)'s holding that s. 80HHC deduction is to be worked out after apportioning the income under r. 8. However, no specific arguments are advanced in support of this ground. We have noticed that in view of insertion of cl. 4B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee is in appeal before us. 18. Shri Kaushik Mukherjee, learned counsel for the assessee, submitted that in view of the law laid down by Hon'ble Supreme Court in the case of J.B. Boda Co. (P) Ltd. vs. CBDT (1997) 137 CTR (SC) 287 : (1997) 223 ITR 271 (SC), two-way traffic of money is unnecessary and to insist upon a formal inward remittance of the entire sale proceeds and then outward remittance of commission and brokerage will be an empty formality and meaningless ritual. Reliance was also placed on Tribunal's order in the case of Capt. K.C. Saigal vs. ITO (1995) 53 TTJ (Del) 564 : (1995) 54 ITD 488 (Del) which, even prior to Hon'ble Supreme Court's judgment cited above, held that even if money has been deducted from remittance to be made to the foreign principal, having regard to the spirit of the provisions", it has been treated as received in or brought into India in convertible foreign exchange The learned counsel has also placed reliance on CBDT Circular No. 731, dt. 20th Dec, 1995 [(1996) 130 CTR (St) 1 : 217 ITR 5 (St.)] in support of the proposition that making an outward remittance of commission after receiving the entire sales proceeds in convertible forei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of the expression 'received in or brought into India'. The learned Departmental Representative further submitted that the Hon'ble Supreme Court's judgment in J.B. Boda Co. (P) Ltd.'s case was in the context of s. 80-O and, therefore, this has no relevance to the issue before us because when legal provision of s. 80HHC are not in pari materia with the provisions of s. 80-O, ratio of any decision in the context of s. 80-O will not have any application in the context of s. 80HHC. Learned Departmental Representative concluded by saying the interpretation canvassed by the assessee is clearly contrary to the plain and unambiguous provisions of s. 80HHC and even if it is considered just and equitable, it is unsustainable in law. The learned Departmental Representative thus urged us to reject the assessee's appeal on this count also. In accordance with our directions, the learned counsel has also filed a note on objectives, as set out in the "Memorandum explaining the provisions in the Finance Bill, 1990", of amendment in s. 80HHC whereby words 'received in or brought into India' were brought in the definition of 'export turnover' w.e.f. 1st April, 1991. Learned senior Departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture, to be collected from the statute itself, or leads to any manifest absurdity or repugnance, in which case the language may be varied or modified, so as to avoid any such inconvenience, but no further' 'If', said Brett L.J., 'the inconvenience is not only great, but what I may call an absurd inconvenience, by reading an enactment in its ordinary sense, whereas if you read it in a manner in which it is capable, though not in its ordinary sense, there would not be any inconvenience at all, there would be reason why you should not read it according to its ordinary grammatical meaning". 20. Justice G.P. Singh, in his book 'Principles of Statutory Interpretation', has observed that........ "A statute is an edict of the legislature and the conventional way of interpreting or construing a statute is to seek the 'intention' of its maker. A statute is to be construed according 'to the intent of them that make it' and 'the duty of the judicature is to act upon the true intentions of the legislature-the mens or sententia legis." Later in this compendium, learned author has stated that "in all real controversies of construction if it was open to consult the legislature as to its intentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance of deduction, i.e., augmentation of foreign exchange reserves of the country. This amendment was introduced in background of the fact that while some assessees were claiming the deduction under s. 80HHC, the related export proceeds were not brought into India. The mischief that was thus sought to be remedied by this amendment was that those exporters who do not bring in export proceeds into India are not allowed to avail tax benefits, because the very purpose of giving tax benefits to them, i.e. augmentation of foreign exchange reserves of the country, was not served. We may now turn to the ratio decidendi of Hon'ble Supreme Court in J.B. Boda's case. Their Lordships were in seisin of a case of an Indian resident reinsurance broker, operating in India on behalf of principals abroad, who was required to collect the reinsurance premium from ceding insurance companies in India and remit the same to his principal and then entitle himself to a commission in percentage terms and in convertible foreign exchange. Instead of first remitting this reinsurance premium abroad and then making claim for the commission earned, this broker remitted the net amount, i.e., reinsurance premium ..... X X X X Extracts X X X X X X X X Extracts X X X X
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