2011 (12) TMI 578 - AT - Income Tax

2013 (10) TMI 770 - AT

Issues Involved:
1. Deletion of addition on account of non-inclusion of Excise Duty in closing stock.
2. Disallowance of depreciation on lease assets.
3. Disallowance of interest payment on lower interest-bearing advances.
4. Addition on account of valuation of closing stock.
5. Disallowance of long-term capital gain on shares.
6. Deduction under Section 80IA.
7. Disallowance of claim towards replacement of plant and machinery.
8. Charging of interest under Sections 234B and 234D and withdrawal of interest under Section 244A.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Non-Inclusion of Excise Duty in Closing Stock:
The Revenue appealed against the deletion of an addition of Rs. 1,88,50,685/- for non-inclusion of excise duty in the closing stock as per Section 145A. The CIT(A) had deleted the addition, stating that the excise duty payable on the closing stock should be added to the value of closing stock. However, since the excise duty was paid before the due date for filing the return, the CIT(A) allowed the deduction under Section 43B. The Tribunal upheld the CIT(A)'s decision, referencing the Hon'ble Gujarat High Court's ruling in ACIT vs. Narmada Chematur Petrochemicals Ltd., which stated that excise duty is not payable until goods are removed from the factory premises.

2. Disallowance of Depreciation on Lease Assets:
The Revenue challenged the CIT(A)'s deletion of the disallowance of depreciation on lease assets amounting to Rs. 85,55,303/-. The CIT(A) had based its decision on appellate orders from previous assessment years, which were confirmed by the Tribunal. The Tribunal upheld the CIT(A)'s decision, following its earlier rulings in favor of the assessee.

3. Disallowance of Interest Payment on Lower Interest-Bearing Advances:
The Revenue contested the CIT(A)'s decision to restrict the disallowance of interest payment to Rs. 2,80,410/- from Rs. 13,85,024/-. The CIT(A) found that the loans were given at lower rates due to business commitments and the average interest cost to the assessee was only 8.60%. The Tribunal upheld the CIT(A)'s decision, agreeing that the lower rate of interest was justified and the addition should be restricted.

4. Addition on Account of Valuation of Closing Stock:
The Revenue appealed against the deletion of an addition of Rs. 27,21,000/- on account of valuation of closing stock. The CIT(A) found that the method of valuation had been consistently followed by the assessee and any addition would result in a corresponding adjustment in the next year's opening stock. The Tribunal upheld the CIT(A)'s decision, agreeing that the consistent method of valuation should not be disturbed.

5. Disallowance of Long-Term Capital Gain on Shares:
The Revenue challenged the CIT(A)'s reduction of the disallowance of long-term capital gain on shares from Rs. 5,91,995/- to Rs. 76,610/-. The CIT(A) allowed the loss on sale of shares of M/s Swan India Ltd and M/s S.C. Kuchhal Finance Co. Ltd but disallowed the loss on shares of Shree Rajasthan Texchem Ltd due to lack of documentary evidence. The Tribunal upheld the CIT(A)'s decision, stating that the transactions were genuine and the loss should be allowed.

6. Deduction under Section 80IA:
The Revenue's appeal on the deduction under Section 80IA was deemed academic as the deletion of the addition of Rs. 1.88 crores under Section 145A resulted in a business loss. The Tribunal noted that the issue would arise in the year where the deduction under Section 80IA is allowable.

7. Disallowance of Claim Towards Replacement of Plant and Machinery:
The assessee's appeal against the disallowance of a claim towards replacement of plant and machinery amounting to Rs. 5,98,640/- was considered. The CIT(A) found that the replacement of machinery provided an enduring benefit and should be treated as a capital expenditure. The Tribunal upheld the CIT(A)'s decision, referencing the Hon'ble Apex Court's ruling in CIT vs. Sarvana Spinning Mills (P) Ltd., which stated that replacement generally does not fall under "current repairs."

8. Charging of Interest under Sections 234B and 234D and Withdrawal of Interest under Section 244A:
The Tribunal noted that the charging of interest under Sections 234B and 234D and the withdrawal of interest under Section 244A are mandatory and consequential in nature.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, confirming the decisions of the CIT(A) on all issues. The order was pronounced in the open Court on 09-12-2011.

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