ACIT, FARIDABAD vs. M/S K.K. KOHLI & BROTHERS PVT. LTD.,, FARIDABAD

stock to Rs. 30 lakh. A perusal of the assessment order also shows that although the Assessing Officer has proceeded on best judgment assessment u/s 144 of the Act on the ground that books of accounts were not produced, the Ld. CIT (A) has given a finding that in view of the books of accounts having been produced, the Assessing Officer was not justified in invoking the provisions of section 144 of the Act.

However, the Ld. CIT (A) has not specifically addressed the issue of rejection of books of accounts. A perusal of the assessment order also shows that although the Assessing Officer has not accepted the GP loss rate at 31.71%, he has not given any reasoning for adopting the loss rate at 20%. The entire case of the Assessing Officer seems to be based on the allegation that books of accounts were not produced before him. Ld. AR has filed copy of the entire order sheet and has submitted that the order sheet does not mention that the books of accounts were not produced. It has been submitted by the Ld. AR that in view of not mentioning the specific non-production of books of accounts, it goes out in assessee’s favour to prove that the 13 ITA 3883/D/12 & CO 427/D/12 Assessment Year 2007-08 books of accounts were duly produced. The Ld. AR has also contended that the details of valuation of closing stock were filed which had not been contradicted by the Assessing Officer.

6.1 On due consideration of the entire factual matrix on this issue, we do feel that irrespective of the fact as to whether the books of accounts were duly produced or not produced before the Assessing Officer, the fact remains that the valuation of closing stock has been made without categorising it in terms of specific quality or brand.

The Ld. CIT (A) has also noted that although manufacture, purchases and sales details were filed before the Assessing Officer in respect of trading of fabric, the assessee had not filed quantitative details and as such, the stock of trading goods, included in the closing stock was not ascertainable. The Ld. CIT (A) has also noted that the assessee had not been able to establish that the valuation of stock as on 31.03.2007 was based on sale rate prevailing on that day. Ld. CIT (A) has also noted that the average rate of fabric was Rs. 52.51 per metre at a stock of 623830 metres on 31.03.2006 whereas the average rate of valuation as on 31.03.2007 worked out to Rs. 11.96 per metre on a stock of 557971 metres and thus, there was a drastic fall in the rate of valuation even when the major 14 ITA 3883/D/12 & CO 427/D/12 Assessment Year 2007-08 portion of the stock was out of opening stock. Given the circumstances, we feel that the Ld. CIT (A) had no option but to make a reasonable estimate, specially when individual details in terms of quality as well as quantity were not available. During the course of hearing before us, the department could not suggest any other alternate method of valuation which could have reasonably been adopted by the Ld. CIT (A) except arguing that there was no basis for such estimation.

6.2 In ground no. 1 of the C.O., assessee has challenged the sustenance of addition of Rs. 30 lakh and the Ld. AR has submitted that the closing stock of the assessee included two types of stock i.e. i) which had been sold up to the date of signing of audit report measuring 305287 metres and; ii) which was still unsold measuring 252864 metres. It has been contended by the Ld. AR that the Ld. CIT (A) applied the differential rate in valuation @Rs. 5/- per metre on the entire stock instead of the stock remaining unsold i.e. 2526784 metres. This contention of the assessee appears logical to us and we are of the considered opinion that the assessee should be allowed benefit of the same. Therefore, while rejecting the department’s grounds, we partly allow ground no. 1 of the assessee’s 15 ITA 3883/D/12 & CO 427/D/12 Assessment Year 2007-08 C.O. by restricting the addition to Rs. 15,26,435/- (305287 mtrs. x Rs. 5/-). Thus, ground no. 1 of the department’s appeal stands dismissed whereas ground no. 1 of the assessee’s C.O. stands allowed.

6.3 Coming to ground no. 2 of the department’s appeal and ground no. 2 of the assessee’s C.O., the Hon'ble Apex Court in the case of TRF Limited vs CIT reported in 322 ITR 3497 (S.C.) has held that after 1st April, 1989 it is not necessary for the assessee to establish that the debt incurred has become irrecoverable and that it is enough if the bad debt has been written off as irrecoverable in the books of accounts of the assessee. CBDT Circular no. 12/2016 dated 30th May 2016 also supports the case of the assessee.

Therefore, we find no reason to interfere in the finding of the Ld. CIT (A) in deleting the disallowance of Rs. 1,25,54,427/- made on account of bad debts written off.

6.4 As far as the assessee’s C.O. challenging the sustenance of Rs.18,18,058/- on account of interest receivable is concerned, we find that the amounts have been shown as interest income receivable during earlier assessment years and as such, the assessee has already paid tax on the same. Therefore, for the 16 ITA 3883/D/12 & CO 427/D/12 Assessment Year 2007-08 purposes of section 36(2), the conditions laid down therein have duly been met by the assessee. Therefore, there is no reason as to why these amounts should not be allowed as bad debt. We accordingly set aside the order of the Ld. CIT(A) on this issue and direct the Assessing Officer to delete this addition of Rs. 18,18,058/- also. In the result, ground no.2 of the department’s appeal is dismissed and whereas ground no. 2 in assessee’s C.O. is allowed.

6.5 As far as ground no. 3 of the department’s appeal is concerned, it is seen that boiler falls under item no. 8(ix) under the head ‘energy saving devices’ in the chart prescribing the rates of depreciation under the Income Tax Rules. Devices under this head are eligible for depreciation @80% under the head ‘plant & machinery’.

Therefore, although the assessee had not claimed depreciation at the correct rate initially, the action of the Ld. CIT (A) in allowing depreciation to the assessee at the correct rate cannot be faulted with. The auditor has certified that the Boiler comprised of Fluidized Bed Combustion Boiler with stream turbine purchased from M/s Industrial Boilers Ltd., New Delhi who had confirmed the supply to the assessee by giving the invoice nos. dated 7.4.2004, 24.09.2004 and 29.03.2005. The Ld. CIT (A) has noted that it is an 17 ITA 3883/D/12 & CO 427/D/12 Assessment Year 2007-08 admitted fact that as per Certificate dated 8.12.2009 issued by supplier of the boiler and submitted before the Assessing Officer along with letter filed on 22.12.2009, the assessee had purchased Fluidized Bed Combustion Boiler which is specifically covered under item (ix) – Energy Saving Devices of the depreciation schedule under the heading (A)(a) as Ignifluid/Fluidised Bed Boilers eligible for depreciation @80%. In the proceedings before us, the department could not negate the fact that the boilers were in fact eligible for depreciation @80% and the only cause of grievance was that the assessee did not file a revised return. Considering the overall factual matrix, we are of the considered opinion that the Ld. CIT (A) has not committed any error in allowing depreciation at the correct rate even though the assessee had claimed depreciation at a lesser rate in the return filed. Therefore, we find no reason to interfere on this issue and we dismiss ground no. 3 of the department’s appeal.

6.6 As far as ground no.4 of the department’s appeal challenging the deletion of disallowance of Rs. 1,48,76,639/- on account of short term capital loss is concerned, it is seen that the Ld. CIT(A) has discussed the issue in Para 6.6 of the impugned order and the same is being reproduced below for ready reference:- 18 ITA 3883/D/12 & CO 427/D/12 Assessment Year 2007-08 “6.6. Ground No. 8 of appeal relates to disallowance of short term capital loss of Rs. 1,48,76,639/- on sale of plant and machinery. The appellant has claimed short term capital loss of Rs.67,43,584/- and Rs.8,75,249/- on sale of building and furniture, respectively, which is not in dispute. On the blocks of Computer, Boiler and Motor cars, the appellant has claimed depreciation as these blocks did not cease to exist despite smaller sales in the block of motor car and computer. The remaining plant and machinery have been sold for a consideration of Rs. 1,49,70,400/- against the aggregate opening WDV of Rs. 3,05,68,863/- (i.e. Rs.2,79,96,488/- plus Rs.l 1,57,791/- plus Rs. 14,14,585/-). The AO has held that the block of plant and machinery did not cease to exist on the ground that the boiler and motor cars fell in the same block of plant and machinery eligible for 15% depreciation. The entire sale consideration of Rs. 1,49,70,400/- has, therefore, been allocated against the WDVs of Rs.2,79,96,488/-, Rs. 11,57,791/- and Rs.14,14,585/-, proportionately. The short term capital loss of Rs.7,21,825/- has, however, been allowed against the WDV of Rs. 14,14,585/- as the machineries in this block were eligible for 50% rate of depreciation, being machineries purchased under TUFF scheme. As a result, the short term capital loss of Rs. 1,48,76,639/- has been disallowed out of total loss of Rs. 1,55,98,464/- on sale of machineries with consequential allowance of further depreciation of Rs.13,22,785/-. The appellant has contended that u/s 2(11) of the Act read with relevant entry in Heading III, depreciation on Car was admissible @ 20% and on Machinery @ 25% upto A.Y. 2006- 07 and the blocks of assets of motor car and machinery were separate. However, the rate of depreciation on machinery was reduced from 25% to 15% and on car from 20% to 15% from A.Y.2007-08. Therefore, even the rate of depreciation for Plant and Machinery and Car was 15%, the block of assets as per depreciation chart were separate. As per the decision in para 6.3 above, I have already allowed depreciation on boiler @80% and the motor cars fall under different block of assets, although rate of depreciation is 15% as applicable to machinery and plant other than those covered by sub items 19 ITA 3883/D/12 & CO 427/D/12 Assessment Year 2007-08

(2), (3) and 8 below the table and sub item (2) being motor cars, other than those used in business of running them on hire. Consequently, the disallowance of short term capital loss of Rs. 1,48,76,639/- made by the AO is deleted as the block of plant and machineries other than motor car, computer and boiler ceased to exist. The AO is directed to withdraw depreciation of Rs. 13,22,785/- allowed in the order. Ground No. 8 of appeal is allowed.

6.7 In view of the categorical finding by the Ld. CIT (A), which could not be negated before us, we find no reason to interfere on this issue and we uphold the same. We accordingly reject ground no. 4 of the department’s appeal.

Order pronounced in the open court on 05.04.2017