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

per section 32 of the Act. Rs. 40,78,10,250/- pertains only to those assets which

have been put to use by the assessee and does not include in accelerated

depreciation. Effectively accelerated depreciation of Rs. 19,23,421/- was offered

to tax by assessee on account of disallowance of entire amount of book

23 ITA No. 5536 & 5540 Mum 2011-Forbes & Co. Ltd. depreciation and disallowance by Assessing Officer resulted in disallowing the

accelerated depreciation twice. On the disallowance of advance to vendor for

ERP software of Rs. 15,53,840/-, the ld. AR submits that during the period the

assessee was in process of implementation of ERP system for Patvolk (Shipping

Division). The ERP system did not metalized as per expectation and therefore, the

implementation of ERP system was scrapped. The advance is given to various

vendors for supply of software, after considerable effort for recover, were written

off. The ld. AR submits that the written off with regard to advance paid to

vendors is a business loss and is allowable deduction. In support of his

submission, the ld. AR of the assessee relied upon the decision of Hon’ble

Bombay High Court in CIT vs. Raychem RPG Ltd. [2012] 21 taxmann.com 507

(Bom), decision of Tribunal in DCIT vs. M/s Edelweiss Capital Ltd. in ITA No.

3971/Mum/2009 and ACIT vs. Sanghvi Savla Stock Brokers Ltd. [2014] 43

taxmann.com 323.

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

per the decision of Hon’ble Supreme Court CIT Vs Vegetable Products Ltd. [88

ITR 192(SC)].

24 ITA No. 5536 & 5540 Mum 2011-Forbes & Co. Ltd. 30. We have considered the submission of both the parties and have gone

through the orders of authorities below. The Assessing Officer made the

disallowance of capital advance for ERP software of Rs. 15,53,840/- holding that

software is a capital asset. For accelerated depreciation was disallowed by taking

view that asset was put to use and not on the basis of estimates and that assessee

has not furnished evidence of put to use. The ld. CIT(A) confirmed the action of

Assessing Officer on similar lines.

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

25 ITA No. 5536 & 5540 Mum 2011-Forbes & Co. Ltd. accelerated depreciation of Rs. 19,23,421/- was offered to tax by assessee on

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.

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

26 ITA No. 5536 & 5540 Mum 2011-Forbes & Co. Ltd. Bombay High Court in CIT vs. Nagri Mills Co. Ltd. 933 ITR 681), Delhi High

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.

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.

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

27 ITA No. 5536 & 5540 Mum 2011-Forbes & Co. Ltd. are computed. Considering the decision of jurisdictional High Court, we are of

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.

calculation of books profit. The ld. AR of the assessee submits that he is not

pressing provision of doubtful debts and advances of Rs. 25,15,054/-, provision

for doubtful debts advances (schedule-10) of Rs. 4,85,06,535/- and provision for

diminution of value of investment of Rs. 13,63,841/-. The ld. AR submits that he

is pressing only remaining two items i.e. provisions for contingencies for Rs.

59,45,570/- and provision for recoveries 8,18,62,437/- . The ld. AR submits that

for provisions of contingencies the assessee explained to the Assessing Officer

that the addition on account of provisions for contingencies have already been

considered by assessee in the return of income. However, due to inadvertence in

computing “book profit” the amount of provisions for contingencies was taken at

Rs. 26,64,467/- instead of amount as per Profit & Loss Account at Rs. 59,45,570/-

. This typographical error was brought to the notice of Assessing Officer vide

letter dated 27.11.2009. The Assessing Officer ignored this fact and added the

amount. For provisions of recovery of Rs. 8,18,62,437/-, the ld. AR submits that

during the year under consideration, the assessee has debited to the Profit & Loss

28 ITA No. 5536 & 5540 Mum 2011-Forbes & Co. Ltd. Account net amount of Rs. 3,32,42,437/- as an exceptional item. The said net

amount of exceptional item were arrived at Rs. 8,18,62,437/- (-) Rs. 4,86,20,000/-

. This exceptional item has been explained in Notes to the account at .29(c). The

ld. AR prayed to delete the provisions of contingencies and provision of

recoveries. In support of his submission, the ld. AR relied upon the decision of

Chd. Trib. in JCIT (OSD), vs. Shreyans Industries Ltd. (22 taxmann.com 409).

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.

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

29 ITA No. 5536 & 5540 Mum 2011-Forbes & Co. Ltd. authority has not examined the explanation furnished by assessee. Therefore, both

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.

The ld. AR of the assessee submits that during the year under consideration, the

assessee had sold three immovable properties. These immovable properties

comprise of sale of land and building. The valuation considered by the assessee

on transfer of land is same as considered by Stamp Valuation Authority for the

purpose of computation of Capital Gains and thus the sale consideration offered

by the assessee was not lower as compared to the stamp due value. The ld. AR

submits that Assessing Officer may verify the stamp valuation as the assessee

adopted the same value as per the rate fixed by stamp duty authority.

also be resorted to the file of Assessing Officer to verify the fact and ascertained

the valuation adopted by assessee.

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

30 ITA No. 5536 & 5540 Mum 2011-Forbes & Co. Ltd. recorded, if any explanation was furnished by assessee or not. The Assessing

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.

revenue is dismissed.

Order pronounced in the open court on this day of 25/07/2019.

Sd/- Sd/- (G S PANNU) (PAWAN SINGH) VICE PRESIDENT JUDICIAL MEMBER Mumbai, Dated :25th July, 2019. SK Copy of the Order forwarded to :

31 ITA No. 5536 & 5540 Mum 2011-Forbes & Co. Ltd.

//True Copy// (Assistant Registrar/ Sr. PS) Income Tax Appellate Tribunal, Mumbai