ACIT 1(1), MUMBAI vs. FORBES & CO.LTD, MUMBAI

On the other hand, the ld. DR for the revenue supported the order of lower authorities. The ld. DR submits that ERP software was enduring in nature. The ld. DR relied upon the decision of Hon’ble Karnataka High Court in CIT vs. Southern Gas Ltd. (91 taxmann.com 296 (Kar.). In the rejoinder submission, the ld. AR of the assessee submits that if there are two divergent views of two different High Courts, the view favourable to the assessee should be adopted as

As noted above this ground of appeal consist of two component i.e. capital advances made for purchase of ERP software of Rs. 15,53,840/-. The ld. AR of the assessee vehemently submitted that ERP system was under process of implementation and could not materialized as per the expectation and was scraped. The assessee made advances to various vendors and after considerable effort the amount was write off in the Profit & Loss Account. We have noted that the lower authorities have not given any finding on the explanation furnished by assessee about the submission of assessee that implementation was ERP software was not materialized and was scrapped. The lower authorities simply concluded that the advances paid for ERP software was capital in nature. In our considered view, it is settled legal position that the expenses incurred by assessee on software are revenue in nature. Moreover, the implementation of software was not materialized. Thus, it is purely a business loss and is allowable expenses. So far as disallowance on account of depreciation on accelerated basis of Rs. 19,23,421/- is concerned. The ld. AR of the assessee vehemently submitted that account of disallowance of entire amount of book depreciation and disallowance by Assessing Officer resulted in disallowing the accelerated depreciation twice and it should be deleted. We have noted that the lower authority has not examined the clam related to the factual explanation furnished by assessee on depreciation on accelerated basis. Therefore, this part of disallowance is restored to the Assessing Officer to verify the fact as explained by assessee before ld. CIT(A) as well as before us and grant relief to the assessee in accordance with law.

32. Ground No. VII relates to disallowance of prior period expenditure of Rs. 1,31,75,381/-. The ld. AR of the assessee submits that prior period expenses pertain to raw-material consumed in respect of textile division. The textile division of company was implementing a new ERP system in process of switching over the erstwhile to the new ERP system certain purchases of raw- material, which had been consumed, had been inadvertently not incorporated in the books of account of the assessee. As per the information available with the assessee, the expenditure on raw-material consumption pertains to F.Y. 2004-05 & 2005-06. Soon after noticing the aforesaid omission, the assessee passed accounting entry in its books of account to incorporate the consumption. The ld. AR submits that expenditure on raw-material consumption is an allowable deduction and should be allowed as deduction in computing the taxable income irrespective of the year in which expenditure accrues. In support of his submission, the ld. AR of the assessee relied upon the decision of Hon’ble Court in CIT vs. Vishnu Industrial Gases P. Ltd. (ITR No. 229/1998, Cuttack Tribunal in National Aluminium Co. Ltd. vs. DCIT (153 Taxman 18) (Cuttack Trib.). In alternative, the ld. AR submits that the expenditure may be allowed in the year to which it pertains.

On the other hand, the ld. DR for the revenue submits that this ground of appeal may be restored to the file of Assessing Officer for verification of facts and with the direction to the Assessing Officer to take the decision afresh.

We have considered the submission of both the parties and gone through the orders of lower authorities. The Assessing Officer disallowed the claim of assessee on the ground that assessee followed the mercantile system of accounting, these items should have been claimed as and when expenditure accrued. The ld. CIT(A) confirmed the action of Assessing Officer on similar line holding that the action of Assessing Officer is completely justified. The Hon’ble Bombay High Court in CIT vs. Nagri Mills Co. Ltd. (supra) while considering the question of law “Whether having regard to the provisions of section 10(2) read with section 10(5) of the Income-tax Act, the assessee company is entitled to a deduction of Rs. 1,80,000 on account of bonus for the year 1951 in computing the business profits for the assessment year 1952-53”, it was held that actual payment is not necessary for purpose of deduction and it is sufficient if liability to bonus is incurred according to method of accounting upon basis of which profits or gains the view that the assessee is entitled for claiming prior period expenses. However, the lower authority has not examined the expenses. Therefore, we restore this issue to the file of Assessing Officer to verify fact and expenses and allow the same in the year to which is pertains. In the result, this ground of appeal is allowed for statistical purpose.

On the other hand, the ld. DR for the revenue submits that this issue may be restored to the file of Assessing Officer for verification of facts and with the direction to the Assessing Officer to take the decision afresh.

We have considered the submission of both the parties and gone through the orders of lower authorities. The Assessing Officer disallowed the provisions of contingencies and recoveries by taking view that amendment made in section 115JA and 115JB brought by budgetary provision of 2009-10 and applicable from 01.04.1998 and 01.04.2001 respectively. The ld. CIT(A) confirmed the action of Assessing Officer without discussing the written explanation furnished by assessee. As we have noted above the assessee is now pressing only provisions for contingencies and provisions of recoveries. For provisions of contingencies, the ld. AR of assessee vehemently submitted that due inadvertence in computing book profit and a wrong figure due to typographical mistake was taken. We have noted that despite bringing the fact in the notice of ld. CIT(A), the ld. CIT(A) not examined furnished by assessee. Similarly for provisions of recoveries, the lower the components of this issue are restored to the Assessing Officer to verify the fact as per the contention/explanation furnished by ld. AR of the assessee before ld. CIT(A) as well as before the Tribunal and to pass the order afresh. In the result, this ground of appeal is allowed for statistical purpose.

On the other hand, the ld. DR for the revenue summits that this issue may also be resorted to the file of Assessing Officer to verify the fact and ascertained the valuation adopted by assessee.

We have considered the submission of both the parties and gone through the orders of authorities below. We have noted that during the assessment, the Assessing Officer asked the assessee to provide the values of immovable properties, sold by the assessee during the year. The Assessing Officer has not Officer invoked the provision of section 50C by taking view that the sale consideration adopted by the assessee was lower than the stamp duty value and increased the sale consideration by 10%, which resulted in difference in the capital gain. Before the ld. CIT(A), the assessee furnished detail submission and specifically stated that valuation considered by assessee on transfer of land, is the same as that considered by stamp duty authority. The ld. CIT(A) instead of giving any finding over the explanation/submission furnished by assessee confirmed the action of Assessing Officer. Therefore, considering the submission of ld. AR of the assessee, this ground of appeal is also restored the file of Assessing Officer to verify the fact, if the assessee adopted same value as considered by stamp duty authority for the purpose of computation of capital gain and pass the order afresh in accordance with law. In this result, this ground of appeal is allowed for statistical purpose.

In the result, appeal of the assessee is partly allowed and the appeal of revenue is dismissed.