SHREE RAMA MULTI-TECH LTD.,,AHMEDABAD vs. THE ACIT(OSD) CIRCLE-8, AHMEDABAD

In the present case, the proceedings were initiated under Section 147 of the Act by issuing a notice under Section 148 of the Act dated 11th October 2004 for the assessment of the income which escaped assessment. The assessee in response to such notice filed return of income dated 18th February 2005 by claiming the deduction of Rs. 82,54,455/- representing the custom duty on payment basis under the provisions of Section 43B of the Act.

However, the AO in his order dated 21st March 2006 denied the deduction claimed by the assessee on the reasoning that the amount of custom duty has to be included in the closing stock in pursuance to the provisions of Section 145A of the Act.

Aggrieved assessee preferred an appeal to the Ld. CIT-A, who observed that the ITAT in the own case of the assessee for the assessment year under consideration in the proceedings under Section 143(3) of the Act in ITA No. 1481/Ahd/2004 vide order dated 3rd December 2004 has admitted the impugned claim of the assessee and set aside the issue to the file of the AO for verification in the light of the principles laid down in the judgment of Hon’ble Supreme Court in the case of Berger Paints India Ltd. vs CIT reported in 135 taxman 586. Accordingly, the Ld. CIT-A in his order dated 5th of January 2007 directed the AO to allow the deduction to the assessee subject to the verification whether the custom duty has been paid during the year.

The assessee for all other issues carried the matter to the ITAT bearing ITA No. 1039/AHD/2007 except the issue of allowability of custom duty paid by it under the provisions of Section 145A of the Act. ITAT has given its finding dated 21st October 2011. The assessee did not prefer the appeal for the reason that it was not aggrieved. Likewise, the Revenue has also not preferred any appeal against the order of the ld. CIT-A.

However, the AO in the giving effect order to the direction of the ITAT has not given the benefit of the deduction for the custom duty as provided by the Ld. CIT-A in his order dated 5th January 2007. As such, the AO in his order dated 31st December 2012 under the provisions of Section 143(3) r.w.s. 254 of the Act has not given any benefit of deduction as directed by the Ld. CIT-A in the order dated 5th January 2007.

The assessee against the order of the AO preferred an appeal to the Ld. CIT-A who denied the benefit to the assessee in his order dated 4th December 2013 by observing that there was no such direction arising from the order of the ITAT dated 21st October 2011 for allowing the benefit of the deduction of the custom duty paid by the assessee during the relevant year.

Being aggrieved by the order of the Ld. CIT-A, the assessee is in appeal before us.

The Ld. AR before us filed a Paper Book running from pages 1 to 113 and filed the chronological events as detailed under:

The Ld. AR before us submitted that claim of the assessee for the deduction of the custom duty was duly admitted and allowed by the ITAT in its order dated 3rd December 2004 in ITA No. 1481/Ahd/2004 in the proceedings

However, AO in the effect giving order has not given any effect to the direction of the ITAT in his order dated 29th December 2004.

However, when the appeal was sub-judice before the ITAT, the proceedings under Section 147 were initiated. As such the proceedings under Section 147 were initiated vide notice dated 11th October 2004 under Section 148 of the Act whereas the ITAT passed the order dated 3rd December 2004. As such, once the proceeding for initiated under Section 147 of the Act, the assessee has made the additional claim in 147 proceedings for claiming the deduction of Rs. 82,54,455/- on account of the custom duty paid in the year under consideration which was included in the closing stock. But the AO did not allow the claim of the assessee in his order dated 21st March 2006 whereas the Ld. CIT-A in his order dated 5th January 2007 directed the AO to allow the claim of the assessee.

In view of the above, the Ld. AR contended that the Ld. CIT-A in the proceedings under Section 143(3) r.w.s 147 of the Act has allowed the claim of the assessee subject to verification of the payment of custom duty made during the year under consideration. But AO failed to provide the benefit in effect giving order. Accordingly, the learned AR before us prayed to allow the claim of the assessee subject to the verification about the fact of the payment made by the assessee for the custom duty in the year under consideration.

On the contrary, the Ld. DR vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, originally the proceedings initiated

In pursuance to the direction of the ITAT, the assessment order was framed under Section 143(3) r.w.s. 254 of the Act dated 29th December 2004. However, the AO in giving effect order has not given any finding for the deduction for the custom duty paid by the assessee for 82,54,455/-.

However, the Ld. AR before us has not brought anything on record suggesting that what happened after the effect giving order of the AO dated 29th December 2004. On this count, nothing was brought to our notice.

Be that as it may be, now the assessee has made the similar claim in the return filed under Section 148 of the Act which was not allowed by the AO on the reasoning that the amount of custom duty has to be included the closing stock under the provisions of Section 145A of the Act. However, the Ld. CIT-A vide order dated 5th January 2007 was pleased to allow the claim of the assessee by observing as under:

This order of the Ld. CIT-A was not challenged before the ITAT, meaning thereby, the finding of the Ld. CIT-A in his order dated 5th January 2007 has reached to the finality. However, the assessee carried the matter before the ITAT for some other items of dispute in ITA No. 1039/Ahd/2007 except the amount of custom duty as discussed above. For other disputes, the ITAT has passed the order dated 21st October 2011.

Accordingly, the AO passed order giving effect dated 31st December 2012 without giving the benefit of the custom duty as claimed by the assessee. On appeal the Ld. CIT-A has also denied the benefit of the claim of the assessee in his order dated 4th December 2013.

Before the adjudicating the issue raised by the assessee before us whether the claim of the assessee for the deduction of the custom duty is admissible in the given facts and circumstances, we take a note of the fact that the assessee has claimed the deduction for the custom duty in the proceedings under Section 143(3) of the Act first time before the ITAT which was admitted and allowed subject to the verification by order dated 3rd December 2004. Thus, the question arises, the claim which have been made by the assessee in the proceedings under Section 143(3) of the Act, can the assessee made a similar claim in the income escapement proceedings.

Reassessment proceedings under Section 147 of the Act are for the benefit of the revenue and not for the assessee as held by the Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 (SC)/64 Taxman

It is not for the taxpayer to convert the reassessment proceedings in to a regular assessment proceeding and agitate issues which were concluded in the original assessment proceedings. The Income tax liability cannot be reduced to a figure less than that determined in the original assessment. The relevant finding of the Hon’ble Supreme Court reads as under:

The issue raised by the assessee in the 2nd ground of appeal is that the learned CIT-A erred in not allowing the benefit of netting of interest income while computing the deduction under section 80IA of the Act.

The proceedings were initiated against the assessee under the provisions of section 147 of the Act. The assessee in response to the notice issued under section 148 of the Act by the AO filed return of income dated 18-02-2005. The AO

However, the AO in his order dated 21-03-2006 has excluded the aforesaid income while computing the deduction available to the assessee under section 80IA of the Act.

Aggrieved assessee preferred an appeal to the learned CIT-A, who vide order dated 05-01-2007 confirmed the order of the AO.

Being aggrieved by the order of the learned CIT-A, the assessee preferred an appeal to the ITAT bearing ITA No. 1039/Ahd/2007 which was disposed of vide order dated 21-10-2011 by allowing the claim of the assessee in part by observing as under:

Now the limited issue before the AO was with respect to the netting of interest income shown by the assessee while calculating the deduction under section 80IA of the Act in pursuance to the direction of the ITAT vide order dated 21-10-2011 as discussed above.

However, the AO disregarded the contention of the assessee by observing that the issue for the allowability of netting of interest was set aside by the ITAT to verify the issue in the light of the latest available Judgments. But the assessee failed to file the latest judgments on this issue as directed by the ITAT. Thus the

The assessee carried the matter before the learned CIT-A, who has also confirmed the order of the AO by observing as under: The appellant failed to establish any nexus of borrowed capital with bank FOR interest and interest on advances. The appellant simply taken the contention that matter is 12 years old hence such nexus cannot be established hence no logical reasoning was given except the contention only. In my view, no prudent business person will invest the borrowed fund into investment in bank FDR to earn interest less than the interest required to be paid. Neither in earlier years nor in impugned previous year, the appellant has reflected the interest from FDR under the head "Income from other sources" and claimed deduction u/s 57 (Hi) of the Act for interest expenditure. The appellant is a listed company and in none of its Annual Report or tax audit report it is disclosed that appellant borrowed huge funds for investment in Bank FDRs and these investment were long term investment i.e. FDRs for more than 2 years. This reflect other aspect that such interest as credited by appellant is not incidental i.e. surplus fund invested temporarily but there is long term investment. There is no such resolution produced or submitted by appellant company to substantiate the contention for making long term investment with borrowed funds. It is therefore, I am inclined with the contention of A.O. that appellant failed to - establish the nexus between interest income and interest expenditure. Further the appellant failed to substantiate its contention that borrowed funds were utilized for earning such interest. The verification part as discussed above and as directed by Hon'ble ITAT also reflects that there is no nexus between borrowed fund and investment so made. As per the latest available decision of Hon'ble ITAT Ahmedabad in the case of ABM Steels Pvt. Ltd. (supra) as relied on by appellant also, it is only the expenditure which has nexus with the earning of such income only will be reduced from total income for netting purpose. But, in the case of appellant no such nexus is there. The A.O. is fully justified in disallowing interest income of Rs. 5,91,30,485/- from the claim of deduction u/s 80IA of the Act resulting into reduction of claim u/s 80IA of the Act at Rs. 17,68,251/-. This ground is therefore dismissed.

Being aggrieved by the order of learned CIT-A, the assessee is in appeal before us.

The learned AR before us contended that the net interest income should only be excluded from the profit eligible for deduction under section 80-IA of the Act.

On the other hand the learned DR vehemently supported the order of the authorities below.

We have heard the rival contention of both the parties and perused the materials available on record. It is the 2nd round of litigation before us on the issue whether interest income should be excluded while computing the deduction under section 80 IA of the Act after netting of the expenses. Admittedly, the ITAT in the original proceedings under section 147 of the Act in ITA No. 1039/Ahd/2007 vide order dated 21-10-2011, has directed to the AO to allow the claim of the assessee after verifying the nexuses between the interest income with the interest expenses. If the nexuses is found then the AO was to allow such interest expenses against the interest income to work out the net interest income so as to exclude the same from the computation of the deduction under section 80IA of the Act. The relevant finding of the ITAT in ITA No. 1039/Ahd/2007 has already been reproduced in the preceding paragraph.

Thus, the remains no ambiguity the fact that it was the onus upon the assessee to establish based on the documentary evidence that the assessee has incurred interest expenses against the interest income. But the assessee failed to do so. Likewise The learned CIT-A, also found that the assessee failed to establish the direct nexuses between the interest income and the interest expenses.

Even before us, the learned AR appeared on behalf of the assessee has just made a request to allow the netting of interest income while calculating the deduction under section 80 IA of the Act. Such submission of the assessee was not based on any documentary evidence. Thus it appears that the assessee failed to discharge the onus cast upon it.

Be that as it may be, before the adjudicating the issue raised by the assessee before us whether the claim of the assessee for the deduction of net interest income for computing the deduction under section 80-IA of the Act is admissible in the given facts and circumstances, we take a note of the fact that in

We are of the view that reassessment proceedings under Section 147 of the Act are for the benefit of the revenue and not for the assessee as held by the Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 (SC)/64 Taxman 442. It is not for the taxpayer to convert the reassessment proceedings in to a regular assessment proceeding and agitate issues which were concluded in the original assessment proceedings. The Income tax liability cannot be reduced to a figure less than that determined in the original assessment. The relevant finding of the Hon’ble Supreme Court reads as under: “whether the assessee could claim set off, not granted in the original assessment proceedings, by raising that plea once again in the reassessment proceedings under section 147, the assessing officer has been vested with the power to 'assess or reassess' the escaped income of an assessee. The use of the expression 'assess or reassess such income or recompute the loss or depreciation allowance' in section 147 after the conditions for reassessment are satisfied, is only relatable to the preceding expression in clauses (a) and (b) viz., 'escaped assessment'. The term 'escaped assessment' includes both 'non- assessment' as well as 'under assessment'. Income is said to have 'escaped assessment' within the meaning of this section when it has not been charged in the hands of an assessee in the relevant year of assessment. The expression 'assess' refers to a situation where the assessment of the assessee for a particular year is, for the first time, made by resorting to the provisions of section 147 because the assessment had not been made in the regular manner under the Act.” 42. In view of the above, we hold that the claim of the assessee for the netting of interest income while computing the deduction under section 80-IA of the Act is not maintainable in the given facts and circumstances for the reason that the present proceedings before us are under Section 147 of the Act which cannot

In the result appeal of the assessee is dismissed. Coming to ITA No. 218/Ahd/2014 an appeal by the assessee for A.Y. 2007-08

The assessee has raised the following grounds of appeal:

The assessee vide letter dated 31-03-2020 has raised the additional ground of appeal as reproduced hereunder:

The first issue raised by the assessee is that the Ld. CIT-A erred in confirming the order of the AO by sustaining the disallowance of the depreciation of Rs. 82,20,059/- on the amount of interest capitalized on machine.

The facts in brief are that the assessee in the present case is a limited company and engaged in the business of Manufacturing of multilayer tubes, printed products such as stickers and labeling and other packaging & plastic product. The assessee has acquired the machine namely ER_WE_PA Extrusion Coating Machine on the amount borrowed from the ICICI bank. On such bank borrowing the assessee has incurred interest cost of Rs.1,09,60,784/- which was added to the cost of the machinery. The assessee has not made the payment of the interest amount to the ICICI bank. As such the amount of loan borrowed by the assessee from the ICICI bank was taken over by Assets Reconstruction

The AO during the assessment proceedings found that there was no payment of the interest to the ICICI bank by the assessee. The amount of interest was converted into the principal amount of loan from ARCIL. Accordingly, the AO was of the view that the impugned amount of interest expenses cannot be capitalized on the machines and therefore on such amount being interest of Rs. 1,09,60,784/- cannot be subject to depreciation. Accordingly, the AO computed the amount of depreciation attributable to such amount of interest at ₹ 8,22,059/- and disallowed the same.

Aggrieved assessee preferred an appeal to the Ld. CIT-A, who confirmed the order of the AO by observing as under:

Being aggrieved by the order of the Ld. CIT-A the assessee is in appeal before us.

The AR before us submitted that the amount of interest was paid to ICICI bank by taking the fresh loan from ARCIL. The learned AR for us reiterated the contentions made before the authorities below.

On the contrary learned DR vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the amount of depreciation claimed by the assessee on the amount of interest capitalised in the year under consideration was denied by the AO on the reasoning that there was no payment of interest by the assessee. As such the amount of interest was converted into the principal amount of loan which was taken over by ARCIL and thus there was no interest payment made by the assessee.

Admittedly, the machines were purchased by the assessee on the money borrowed from the ICICI bank. The assessee on such loan has also incurred the interest expenses. Undeniably, the assessee was under the obligation to make the payment to the ICICI bank for the interest amount. But the assessee instead of making the payment of the loan has shifted the entire amount of interest along with the principal amount of loan from the ICICI bank to ARCIL. It was the decision of the assessee to continue with the loan from the ICICI bank or shift the same to ARCIL. Therefore, there cannot be any question on shifting the loan from ICICI Bank to the ARCIL. The shifting of the loan from one bank to another is normal practice in the industry.

There were two options available with the assessee for shifting the loan from the ICICI Bank to ARCIL. Under the first option, the assessee could have taken the loan from ARCII in its bank account and thereafter could have made the payment of the loan along with the interest of ICICI bank. This transaction under option one would have been routed through the banking channel of the assessee. Likewise, the assessee under the second option instead of borrowing the money from ARCIL for the payment of the loan along with the interest to the ICICI Bank, has made the arrangement that ARCIL will directly make the payment to the ICICI Bank along with the interest. Accordingly, the assessee would make accounting adjustment in its books of accounts. Under the second option, there will not be any transaction in the bank account of the assessee for receiving the loan from

The second issue raised by the assessee is that the learned CIT-A erred in confirming the addition made by the AO for Rs.3,59,653/- representing the prior period expenses.

The assessee in the year under consideration has effectively claimed an expense of Rs.3,59,653/- as prior period expenses after making the adjustment of the prior period income. The AO during the assessment proceedings sought an explanation from the assessee further such prior period expenses were crystallized in the year under consideration. But there was no explanation furnished by the assessee. Accordingly, the AO observed that the assessee should have claimed such expenses in the year to which it pertains as per the mercantile system of

Aggrieved assessee preferred an appeal to the Ld. CIT-A, who confirmed the order of the AO by observing as under:

Being aggrieved by the order of the Ld. CIT-A, the assessee is in appeal before us.

The Ld. AR before us contended that the genuineness of the expenses pertaining to the earlier year but claimed in the year under consideration was not doubted. As per the learned AR, such claim of the assessee is eligible for deduction.

On the contrary, the Ld. DR vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. The genuineness of the expenses have nowhere been doubted by the authorities below. Thus it is transpired that the expenses claimed by the assessee were incurred for the purpose of the business in the earlier year and the same were eligible for deduction in that particular assessment year in which such expenses were incurred. Now the question arises the expenses genuinely incurred by the assessee in the earlier year could be disallowed in the year under consideration when such expenses were claimed. The answer stands in

The issue raised by the assessee in ground No. 3 is that the Ld. CIT-A erred in confirming the addition made by the AO for Rs.80,000/- on account of non- payment of outstanding dues under the provisions of Section 41(1) of the Act.

The AO during the assessment proceedings found that there was the outstanding amount payable by the assessee for Rs.80,000/- against the purchase of old car which was due since the long-time. Furthermore, the assessee has claimed depreciation on such car. Accordingly, the AO concluded that the impugned outstanding amount has ceased to exist and therefore the same is liable to tax under the provisions of Section 41(1) of the Act. Hence, the AO concluded

The aggrieved assessee preferred an appeal to the Ld. CIT-A.

The assessee before Ld. CIT-A submitted that outstanding amount relates to purchase of motor car. Therefore, the provision of Section 41(1) will not apply as the same is capital in nature. Further, the provision of Section 41(1) are not applicable to the amount in dispute even the same is revenue in nature.

However, the Ld. CIT-A confirmed the order of the AO by observing as under:-

Being aggrieved by the order of the Ld. CIT-A, the assessee is in appeal before us.

The Ld. AR before us contended that loan liability was representing against the fixed assets being capital in nature. Therefore, the provisions of section 41(1) of the Act are not applicable in the given facts and circumstances.

On the contrary, the Ld. DR vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the revenue has found that there was a liability the books of the assessee which was outstanding since many years. The amount of liability was of Rs. 80,000/- only. As such the assessee in the preceding years has acquired a car on credit. Impugned liability was representing against the car. Admittedly, the assessee has claimed depreciation on such car in the books of accounts. However, the liability against such car was not paid by the assessee to the tune of Rs.80,000/- and therefore the AO treated the same as cessation/remission of the liability of the assessee under the provisions of section 41(1) of the Act. Accordingly, the AO made the addition of Rs.80,000/- to the total income of the assessee which was subsequently confirmed by the Ld. CIT-A.

Undeniably, impugned liability was representing against the car which is a capital asset and the assessee has claimed the depreciation on such capital asset being car. Admittedly, the depreciation is an allowance on capital assets used in the business. Thus, the assessee against liability claimed the deduction against the business income by way of depreciation in the books of accounts.

Now, we proceed to see whether the loan liability outstanding since many years against the capital asset being car can be covered under the provisions of Section 41(1) of the Act. For this purpose, refer the provisions of Section 41(1) of the Act which reads as under:

A plain reading of the above provisions reveals that it is applicable with regard to an allowance or deduction in respect of loss, expenditure or trading liability incurred by the assessee. But the depreciation claimed by the assessee, though it is an allowance, but it is not in respect of loss, expenditure or trading liability as envisaged under the provisions of Section 41(1) of the Act. Accordingly, we are of the view that such outstanding liability against the car cannot be treated as trading liability and therefore the same is outside the purview of the provisions of Section 41(1) of the Act. In holding so, we draw support and guidance from the judgement of Hon’ble Supreme Court in the case of Nectar Beverages (P.) Ltd. reported in 182 Taxman 319, wherein it was held as under:

Once a transaction, representing loan against the capital assets, is not a trading liability as envisaged under the provisions of Section 41(1) of the Act. The same cannot be charged to tax on the reasoning that it has ceased to exist in the books of accounts. Accordingly we are not convinced with the finding of the authorities below. Thus, we set aside the finding of the Ld. CIT-A, and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.

The issue raised by the assessee in ground No. 4 is that the Ld. CIT-A erred in confirming the disallowance of depreciation made by the AO for Rs. 1,14,999/- in respect of unit 1 on the reasoning that it was not in operation.

The assessee in the year under consideration has claimed the depreciation with respect to unit No. 1 amounting to Rs. 1,14,999/-. The unit 1 was not in operation. The assessee contended that unit No. 1 has not been closed down permanently. As such, it was possible restart working in such unit in future. Furthermore, the assets deployed in unit No. 1 have lost their individual identity once these assets have become part of the block of assets. Thus the assessee entitled for claiming depreciation for the assets of unit No. 1 based on the concept of block of assets. It was also contended that though unit No. 1 is not in operation but still the assessee is incurring normal wear and tear on such assets.

However, the AO disregarded the contention of the assessee by observing that machines/fixed assets used in unit No. 1 have not been used for the purpose of the business. As per the AO, the use of the fix assets was 1 of the precondition for claiming the depreciation on these assets. Accordingly, the AO disallowed the depreciation claimed by the assessee and added total income of the assessee.

Aggrieved assessee preferred an appeal to the Ld. CIT-A, and reiterated its submission made during assessment proceeding.

However, the Ld. CIT-A after considering the fact in totality confirmed the order of the AO by observing as under:

The Ld. AR before us submitted that the fixed assets of unit No. 1 have lost their individual identity once merged with the block of assets which were used in the earlier year. Therefore, the depreciation cannot be denied on the reasoning that the assets were not used in the year under consideration.

On the contrary, the Ld. DR before us vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the claim of the assessee for the depreciation was denied by the authorities below on the reasoning that the assets with respect to Unit-1 were not used for the purpose of the business as Unit-1 was closed. On perusal of the provisions of Section 32 of the Act, it is one of the precondition for claiming the depreciation on a particular asset that it should be used for the purpose of the business. However, the Hon’ble courts have interpreted the word ‘used’ by holding that assets which are ready to use shall be considered as used for the purpose of the business. In other words, the assets which are not actively used but used passively are also eligible for depreciation under the provisions of section 32 of the Act. In holding so we draw support and

It is also not out of the place to mention that assets used unit No. 1 became the part of the block of assets and lost their individual identity. Accordingly, the assets deployed in unit No. 1 cannot be segregated for the purpose of the depreciation. These assets will remain part of the block of assets and therefore would be entitle for depreciation even in a situation that assets were not used for a particular year for the purpose of the business. Accordingly, we set aside the finding of the Ld. CIT-A, and direct the AO to delete the disallowance made by him. Hence, the ground of appeal of the assessee is allowed.

The issue raised by the assessee in ground No. 5 and 6 is that the Ld. CIT- A erred in confirming the addition made by the AO for Rs. 1,53,28,000/- representing the closing value of raw materials, spares, WIP and finished goods written off on account of obsolescence.

The assessee during the assessment proceedings claimed that there were certain forms of raw materials, stores and spares, work in progress and finished goods which were not serviceable and became obsolete. To this effect, a report was prepared by the chartered accountant being internal auditor and stock auditor of those items which were non-moving. Accordingly, the assessee has recorded

However, the AO disregarded the contention of the assessee by observing that there was no report furnished by the assessee of an expert suggesting that the impugned raw materials, stores and spares, working progress etc. either have nil value or negligible value. As per the AO, the internal auditor does not possess any expertise to value the non-moving items. Thus the AO disallowed the same and added to the total income of the assessee.

Aggrieved assessee preferred an appeal to the Ld. CIT-A.

The assessee before Ld. CIT-A submitted that it has been in the business of manufacturing Lama Tubes, printed Stickers and logo etc. for last 13 years. In these period non-moving stocks including material rejected by customer piled-up. The stock rejected by the customers have no value as such material contain the detail of particular customer and produced as per specification of that customer. In view of cleaning up the books the management deployed a qualified chartered account and on the basis of report prepared by the accountant it reduces the stock. The assessee in support also submitted the copy of the CA report.

However, the Ld. CIT-A rejected the submission of the assessee and confirmed the action the AO by observing as under:

Being aggrieved by the order of the Ld. CIT-A the assessee is in appeal before us.

The Ld. AR before us submitted that the items which were non-moving and unusable have been written off in the profit and loss account which are eligible for deduction. These items were written off based on the report of the chartered accountant/internal auditor.

On the contrary Ld. DR before us vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. In the present case the Assessee has reduced value of the closing stock as on 31st March 2006 with respect to raw materials, WIP finished goods by Rs. 1,53,28,000/-. As per the assessee is engaged in the manufacturing activity for past several years and in the process several item of Raw material WIPs and finished including goods return from customer were pilled which were non salable/non-moving. Thus the new management in order to clean up the inventory and financial statement appointed internal auditor/ stock auditor to identify non-moving items and as per report furnished by the chartered accountant the management of the assessee company has in consultation with departmental head such production and stores decided to value of these items at the realisable value or nil value as the case may be. However, the AO, disagreed

Before we touch the issue whether these items were known salable/non- moving, it is pertinent to note that if the deduction in the closing stock is denied which will certainly enhance the profit of the assessee. But, the same closing stock will become the opening stock in the subsequent year and the profit of the subsequent year will reduce by the amount of such claim of the assessee. Thus, we note that there will not be any impact on the income of the assessee if we see from the overall position. The year under dispute, the income of the assessee will get enhance and the income of the assessee by the same amount will get the decrease in the next year. Thus, overall there will not be any impact on the taxable income of the assessee on account of such adjustment in the value of the closing stock. We also note that the Hon’ble Supreme Court in the case of Mahindra Mills Ltd vs. PB Desai Appellate Assistant Commissioner reported in 99 ITR 135 has held that the closing stock of the year will become the opening stock of the next year hence the same telescoped. The relevant observation of the Hon’ble Supreme court reads as under: Since the closingstock of one assessment year furnished the figure of the opening stock for the succeeding year, it followed that the record showing the closingstock of assessment year 1959-60 formed a part of the evidence relevant to the assessment for the assessment year 1960-61. Thus, to the extent of ascertaining the closing and opening stock positions, the two assessments telescoped into each other.

On this reasoning, as discussed above, in our view no addition representing the adjustment in the value of closing stock is warranted.

Without prejudice to the above, we also note that it is a prevailing practice in a manufacturing industry that the items such as raw materials, stores and spares, finished goods with the passage of time become obsolete, sometime some item becomes defective due to normal wear and tear. Therefore, in such a situation the management writes off such items from its financial statements to make its balance sheet more fair and true. Such practice cannot be doubted by the authorities below without any material on record. In the given case, there was the report of the internal auditor/stock auditor specifying the non- moving/unsaleable items. This report of the auditor was also certified by the production head/store head etcetera. This fact can be ascertain from the submissions made by the assessee before the learned CIT-A which is reproduced as under:

But none of the authority below has pointed out any defect in the submission of the assessee. It was also contended by the assessee that there was the change in the management of the company and therefore the new management has taken a decision. Thus, it is transpired that, the stock has been written off from the books accounts in systematic manner by the approval of the Board of Directors. Therefore, all these details cannot be brushed aside.

We note that in the similar and identical facts and circumstances, the Hon’ble Gujarat High Court in the case of Pr. CIT vs. Zydes Wellness Ltd. reported in 81 taxmann.com 159 has held as under:

The issue raised by the assessee in ground No. 7 is that Ld. CIT-A erred in confirming the addition made by the AO for Rs.44,573/- on account of non-

The AO during the assessment proceedings found that the assessee has failed to make the payment of the amount recovered from the employees towards the EPF and ESI within the time provided under the respective Act. Thus, the AO treated the same as income of the assessee under the provisions of Section 2(24)(x) r.w.s. 36(1)(va) of the Act for Rs. 44,573/- and added to the total income of the assessee.

Aggrieved assessee preferred an appeal to the Ld. CIT-A, who confirmed the order of the AO by observing as under: “14.2 I have carefully considered the submissions made by the appellant and the argument taken by the assessing officer in the light of material available on records. Perusal of the submissions of the appellant indicate that no submission has been made / evidence produced to indicate as to how the addition made by the A O was erroneous. In the absence of any defence of the appellant, it is held that there is no requirement to interfere with the order of the ld. A O. Consequently, the addition made by the A O of Rs. 44,573/- is confirmed and the ground of appeal No. 14 raised is dismissed.”

The Ld. AR for the assessee before us submitted that out of total amount of Rs. 44,573/-, a sum of Rs.29,698/- was paid within the grace period of 5 days. Therefore the same should be allowed as deduction. The learned AR in support of his contention relied on the judgment of Hon’ble Gujarat High Court in the case of Amoli Organics (P.) Ltd reported in 221 taxman 116.

On the other hand, the Ld. DR vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the assessee is required deposit the employee’s contribution towards the PF/ESI within the time specified under the respective Act. If it is not done so, the same is treated as income of the assessee under the provisions of Section 2(24)(x) read with Section 36 (1)(va) of the Act.

The issue raised by the assessee in the additional ground of appeal is that the Ld. CIT-A erred in confirming the disallowance of the depreciation for Rs. 2,51,50,281/- instead of deleting the entire disallowances of Rs. 2,74,83,963/-.

The assessee in the year under consideration has claimed depreciation for an amount of Rs. 2,74,83,963/- on the written down value of the fixed assets. The assessee has purchased certain fixed assets along with the software in the assessment year 2002-03. However, in that assessment year, depreciation on such

Aggrieved assessee preferred an appeal to the Ld. CIT-A, who partly confirmed the order of the AO by observing as under:

Being aggrieved by the order of the Ld. CIT-A, the assessee is in appeal before us.

The Ld. AR before us submitted that the ITAT in the own case of the assessee for the Assessment Year 2002-03 to 2005-06 was pleased to allow the depreciation on the additions made in the fixed assets along with the software in the Assessment Year 2002-03. Accordingly, the Ld. AR contended that the depreciation in the year under consideration should also be allowed on the opening written down value.

On the other hand, the Ld. AR vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that impugned dispute for the depreciation on the written down value was emanating from the assessment year 2002-03 and onwards. Admittedly, the ITAT for the assessment year 2002-03 to 2005-06 was pleased to allow depreciation on the addition of the fixed assets which were in dispute. The relevant finding of the ITAT in ITA No. 1140,1342 to 1344/Ahd/2015 reads as under:

Once the ITAT has allowed the depreciation on the addition of the fixed assets in the initial assessment year, the question of making the disallowance of the depreciation on the same set of assets the subsequent year does not arise. Hence we set aside the finding of the Ld. CIT-A, and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed.

In the result, appeal of the assessee is partly allowed.

The assessee has raised following grounds of appeal:

The first issue raised by the assessee in the ground no. 1 and 2 of appeal is that the Ld. CIT-A erred in confirming the disallowance of the depreciation for Rs.1,74,17,074/- and Rs. 6,07,062/- on opening WDV.

At the outset we note that the issues raised by the assessee in its ground of appeal for the AY 2008-09 is identical to the issues raised by the assessee vide additional ground in ITA No. 218/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 218/AHD/2014 shall also be applicable for the year under consideration i.e. AY 2008-09. The appeal of the assessee for the assessment 2007-08 has been decided by us vide paragraph No. 117 to 118 of this order in favour of the assessee. The Ld. AR and the DR also agreed that whatever will be the findings for the Assessment Year 2007-08 shall also be applied for the year under consideration i.e. AY 2008-09. Hence, the grounds of appeal filed by the assessee is allowed.

The issue raised by the assessee in ground no. 3 is that the Ld. CIT-A erred in confirming the addition made by the AO for Rs. 5,90,392/- representing the prior period expenses.

At the outset we note that the issues raised by the assessee in its ground of appeal for the AY 2008-09 is identical to the issues raised by the assessee vide groundno-2 in ITA No. 218/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 218/AHD/2014 shall also be applicable for the year under consideration i.e. AY 2008-09. The appeal of the assessee for the assessment 2007-08 has been decided by us vide paragraph No. 62 to 63 of this order in favour of the assessee. The Ld. AR and the DR also agreed that whatever will be the findings for the Assessment Year 2007-08 shall also be applied for the year under consideration i.e. AY 2008-09. Hence, the grounds of appeal filed by the assessee is allowed.

The issue raised by the assessee in ground No. 4 is that the Ld. CIT-A erred in confirming the disallowance of depreciation made by the AO for Rs. 99,800/- in respect of unit-1 on the reasoning that it was not in operation.

At the outset we note that the issues raised by the assessee in its ground of appeal for the AY 2008-09 is identical to the issues raised by the assessee vide groundno-4 in ITA No. 218/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 218/AHD/2014 shall also be applicable for the year under consideration i.e. AY 2008-09. The appeal of the assessee for the assessment 2007-08 has been decided by us vide paragraph No. 85 to 87 of this order in favour of the assessee. The Ld. AR and the DR also agreed that whatever will be the findings for the Assessment Year 2007-08 shall also be applied for the year under consideration i.e. AY 2008-09. Hence, the grounds of appeal filed by the assessee is allowed.

The issue raised by the assessee in ground no. 5 and 6 are either incidental or premature to decide. Hence the same is dismissed being infructuous.

In the result, appeal of the assessee is partly allowed.

The assessee has raised following grounds of appeal:

At the outset we note that the issues raised by the assessee in its ground of appeal for the AY 2009-10 is identical to the issues raised by the assessee vide additional ground in ITA No. 218/AHD/2014 for the Assessment Year 2007-08. Therefore, the findings given in ITA No. 218/AHD/2014 shall also be applicable for the year under consideration i.e. AY 2009-10. The appeal of the assessee for the assessment 2007-08 has been decided by us vide paragraph No. 117 to 118 of this order in favour of the assessee. The Ld. AR and the DR also agreed that whatever will be the findings for the Assessment Year 2007-08 shall also be

The issue raised by the assessee in ground no. 5 is that the Ld. CIT-A erred in confirming the addition made by the AO for Rs.18,27,854/- representing the prior period expenses.

At the outset we note that the issues raised by the assessee in its ground of appeal for the AY 2009-10 is identical to the issues raised by the assessee vide groundno-2 in ITA No. 218/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 218/AHD/2014 shall also be applicable for the year under consideration i.e. AY 2009-10. The appeal of the assessee for the assessment 2007-08 has been decided by us vide paragraph No. 62 to 63 of this order in favour of the assessee. The Ld. AR and the DR also agreed that whatever will be the findings for the Assessment Year 2007-08 shall also be applied for the year under consideration i.e. AY 2009-10. Hence, the grounds of appeal filed by the assessee is allowed.

The issue raised by the assessee in ground no. 6 is that the Ld. CIT-A erred in confirming the addition of Rs. 15,40,000/- on account of disallowances of provision for bad and doubtful debts.

The assessee during the year made provision for bad and doubtful debt for an amount of Rs. 15.4 Lacs. The AO required the assessee to establish that the same were credited in the profit & loss account on earlier occasion. In response assessee vide letter dated 1st August 2011 submitted that bad and doubtful debt were not credited in P & L account. Thus, the AO in view of submission of the assessee disallowed the same and added to the total income of the assessee.

Aggrieved assessee preferred to appeal before Ld. CIT-A. Who confirmed the order of the AO by observing as under:

Being aggrieved by the order of the Ld. CIT-A the assessee is in appeal before us.

The Ld. AR before us contended that the bad debts has actually been written off by the assessee in the books of accounts. Therefore, the same cannot be disallowed or treated as provision for the doubtful bad debts based on the nomenclatural.

On the contrary, the Ld. DR vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. For claiming the deduction as bad debts under the provisions of section 36(1)(vii) of the Act, it is prerequisite that amount of bad debts has been offered to tax as provided under subsection (2) of section 36 of the Act. The relevant extract of the provisions of section 36(2) of the Act reads as under: (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply— (i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money- lending which is carried on by the assessee;

At the time of hearing, the learned AR appearing on behalf of the assessee has not brought anything on record in order to comply the provisions as discussed above. Accordingly, the mere fact that bad debts has been written off in the books of accounts shall not extend any help to the assessee in the given facts and circumstances. Thus, we hold that there is no infirmity in the order of the authorities below. Accordingly, we confirm the same. Hence the ground of appeal of the assessee is hereby dismissed.

The issue raised by the assessee in ground No. 7 is that the Ld. CIT-A erred in confirming the disallowance of depreciation made by the AO for Rs. 86,673/- in respect of Kadi unit on the reasoning that it was not in operation.

At the outset we note that the issues raised by the assessee in its ground of appeal for the AY 2009-10 is identical to the issues raised by the assessee vide groundno-4 in ITA No. 218/AHD/2014 for the assessment year 2007-08. Therefore, the findings given in ITA No. 218/AHD/2014 shall also be applicable for the year under consideration i.e. AY 2009-10. The appeal of the assessee for the assessment 2007-08 has been decided by us vide paragraph Nos. 85 to 87 of this order in favour of the assessee. The Ld. AR and the DR also agreed that whatever will be the findings for the Assessment Year 2007-08 shall also be applied for the year under consideration i.e. AY 2009-10. Hence, the grounds of appeal filed by the assessee is allowed.

The issue raised by the assessee in ground no. 8 and 9 are either incidental or premature to decide. Hence, the same is dismissed being infructuous.

In the result, appeal of the assessee is partly allowed.

In the combined result, i) ITA No. 722/Ahd/2014- Assessee’s Appeal is dismissed ii) ITA No. 218/Ahd/2014- Assessee’s Appeal is partly allowed.