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2005 (7) TMI 299 - ITAT DELHI-EValuation Of Closing Stock - disallowance of provision for non-moving stock - public sector undertakings - Power generating equipments and other heavy industrial items - maintain books of accounts - HELD THAT:- On a careful consideration of the matter, we are of the view that having regard to the procedure followed by the assessee, the genuineness or the bona fides of the claim cannot be doubted. The note extracted above indicates that only when all the efforts to dispose of the material fails, the committee recommends the write off in the books of account. No defect in the procedure, adopted by the assessee has been pointed out. As rightly pointed out on behalf of the assessee, the accounts are subject to scrutiny not only by the statutory auditors but also by the C&AG. In these circumstances, the bona fides of the procedure or genuineness of the claim cannot be doubted. Even on merits, when the stock of materials is actually found to be dead stock from which nothing can be realised because of the total absence of any demand therefor, its value falls drastically. This has been taken note of by the committee formed for recommending whether any item represents dead stock. We are, therefore, of the view that the assessee's claim requires to be accepted. Accordingly, we direct the AO to allow deduction in respect of provision of Rs. 211.24 lakhs. The disallowance of the balance of the claim is upheld and the ground is partly allowed. Expenditure on the clubs maintained by the company for the employees - We have no doubt in holding the expenditure in question is allowable u/s 37(1) of the IT Act. It seems to us that the expenditure has been rightly characterised as staff welfare expenses. Promoting sports and games in which the employees of the assessee-company exclusively participate is certainly in the interests of the assessee's business. It keeps the morale of the employees high. That in turn helps in the smooth functioning of the company and also improves the efficiency of the employees. All this is ultimately for the benefit of the assessee-company. It should also be kept in mind that such facilities are needed to be provided by the company also in view of the fact that the employees live in townships which are away from the main town/cities and if the employees are to engage themselves in such recreational activities, they may have to incur considerable expenditure and trouble in addition to time. All this is avoided. The expenditure in question, in our opinion, falls to be considered in the light of the judgment of the Supreme Court in CIT vs. Malayalam Plantations Ltd.[1964 (4) TMI 9 - SUPREME COURT]. Accordingly, we direct the AO to allow the expenditure as deduction. The ground is allowed. Payment made to the Central Schools (Kendriya Vidyala) - There is no dispute about the fact that the expenditure was incurred by the assessee for the purpose of running the schools, established for the children of its employees. It is common ground that no fund as such has been created by the assessee into which the contributions are made on a regular basis. It is clear that the amount spent by the assessee on various schools were spent with the basic idea of subsiding the cost of education of the children of the employees of the assessee. The assessee was interested in the children of the employees getting proper education and training in standard schools. It is thus purely a staff welfare measure. The case before us, is however different. The assessee has no control over any fund. These are expenditure incurred in running the schools for the purpose of enabling them to provide educational facilities to the children of the employees at a subsided cost. We are, therefore, of the view that the payments do not fall within s. 40A(9) of the Act. The AO is directed to allow the amount as deduction u/s. 37(1) of the Act. Liability on account of exchange rate fluctuations - A perusal of the order of the CIT(A) shows that so far as the amount of Rs. 268.16 crores is concerned, there is reference in the assessment order, attached to the statement of taxable income that the loans were taken for the purpose of making payment for import of raw materials/components. Actually, out of the total liability of Rs. 274.29 crores, part of which was on account of devaluation of Indian rupee in July, 1991 and part on account of convertibility of the rupee w.e.f. February, 1992, a sum of Rs. 6.13 crores represented liability on account of capital items. The balance of Rs. 268.16 crores represents purchase of raw materials. With regard to the claim of Rs. 145.85 crores what we find from p. 28 of the assessment order is that only Rs. 126.06 crores represents purchase of raw material and components. Therefore, the assessee's claim is allowed only to the extent of Rs. 126.06 crores out of Rs. 145.85 crores. As regards Rs. 268.16 crores, the entire amount is allowable since it represents additional liability in respect of loans taken for purchase of raw material and components. The ground is thus allowed partly.
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