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2014 (4) TMI 740 - AT - Income TaxAddition on account of closing stock Held that - CIT(A) ought not to have rejected the book results as the books of the assessee are subjected to audit by various departments - the action of the CIT(A) rejecting the book of accounts is set aside, but there was no infirmity in the order of the CIT(A) in rejecting the alternate claim of the assessee that the closing stock for the AY 2007-08 be treated as opening stock of the AY 2008-09 - the CIT(A) has given liberty to the assessee to approach to the AO Decided partly in favour of Assessee. Disallowance of depreciation on fixed assets Intangible right of way and permissions Held that - The assessee has placed documents, such as proof of payment made to various authorities, nd letter of Secon Private Ltd. dated 10/04/2007 along with land compensation award No.01/Nadiad - CNG PL/2007 in support of its contention on the issue the record of certain documents were not before the AO thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for fresh adjudication Decided in favour of Revenue. Disallowance of additional depreciation @ 20% on plant and machinery Held that - The decision in Income Tax Officer vs. Arihant Tiles & Marbles (P) Ltd. 2009 (12) TMI 1 - SUPREME COURT followed - the authorities below were not justified in rejecting the claim of the assessee for additional depreciation Decided in favour of Assessee. Disallowance of prior paid expenses Held that - The assessee has not placed anything on record suggesting that the bills and vouchers were received during the year under consideration except a statement is made that these expenses were crystallized and incurred during the year - It is not demonstrated that as to how these expenditure were crystallized during the year Relying upon CIT vs. Jagatjit Industries Ltd. 2010 (9) TMI 58 - DELHI HIGH COURT the matter is remitted back to the AO for fresh adjudication Decided in favour of Assessee. Disallowance of interest on share application money Held that - The share application money which was used in purchases of asset - The interest was capitalized by adding the sum to the cost of the asset on which depreciation was claimed - The lower authorities were not justified in disallowing the claim of depreciation as the interest expenses incurred became the cost of the asset acquired thus, the assessee is entitled for depreciation - the balance interest was not claimed as deduction by the assessee as submitted by the assessee thus, the order of the lower authorities and the addition is set aside Decided in favour of Assessee. Addition on account of liquidated damages Held that - The assessee has received liquidated damages on account of delay in supply of machinery. the decision in CIT vs. Sauarashtra Cement Ltd. 2010 (7) TMI 11 - SUPREME COURT followed - Compensation paid for the delay in procurement of capital asset amounted to sterilization of the capital asset of the assessee as supplier had failed to supply the plant the amount received by the assessee towards compensation for sterilization of the profit earning source, not in the ordinary course of their business, was a capital receipt in the hands of the assessee Decided in favour of Assessee.
Issues Involved:
1. Addition of Rs.6,39,93,408/- on account of closing stock due to change in accounting policy. 2. Levy of interest under Section 234B & 234D and recovery of interest under Section 244A. 3. Disallowance of depreciation on intangibles (Right of Way and Permissions). 4. Addition of Rs.56,82,092/- on account of closing stock for trading of natural gas. 5. Disallowance of additional depreciation claimed on plant & machinery (CNG stations). 6. Disallowance of prior period expenses. 7. Disallowance of interest on share application money. 8. Addition on account of liquidated damages. 9. Initiation of penalty proceedings under Section 271(1)(c). Detailed Analysis: 1. Addition of Rs.6,39,93,408/- on Account of Closing Stock: The Assessee argued that the stock of petrol and diesel taken over due to the demerged business was already accounted for in FY 2006-07. The change in accounting policy for "Line Pack Gas" in FY 2007-08 meant that the stock of Natural Gas as Line Pack would remain as inventory. The CIT(A) confirmed the addition, rejecting the book results. The Tribunal found that the CIT(A) should not have rejected the book results and set aside the action of the CIT(A), allowing the issue to be approached afresh by the AO. 2. Levy of Interest Under Section 234B & 234D and Recovery of Interest Under Section 244A: The CIT(A) upheld the decision to levy interest under Sections 234B & 234D and recover interest under Section 244A. The Tribunal dismissed the Assessee's grounds on this issue as they were consequential in nature. 3. Disallowance of Depreciation on Intangibles (Right of Way and Permissions): The CIT(A) deleted the addition made on account of disallowance of depreciation claimed on fixed assets under the head "Intangibles-Right of Way (ROW) and Permissions". The Tribunal found that the CIT(A) had not given the AO an opportunity to verify the change of terminology from ROU to ROW and remitted the issue back to the AO for fresh decision. 4. Addition of Rs.56,82,092/- on Account of Closing Stock for Trading of Natural Gas: The Assessee contended that the AO made the addition on an arbitrary basis without asking for quantitative details. The CIT(A) upheld the AO's method of incorporating the increase in stock. The Tribunal set aside the order of the CIT(A) and remitted the issue back to the AO for fresh decision, directing the AO to verify the quantitative details. 5. Disallowance of Additional Depreciation Claimed on Plant & Machinery (CNG Stations): The CIT(A) confirmed the disallowance, stating that the process of compression of natural gas does not amount to manufacture. The Tribunal, citing the Supreme Court's decision in the case of Income Tax Officer vs. Arihant Tiles & Marbles (P) Ltd., held that the authorities below were not justified in rejecting the claim for additional depreciation and allowed the Assessee's appeal on this ground. 6. Disallowance of Prior Period Expenses: The CIT(A) upheld the AO's disallowance of prior period expenses, stating that the expenses accrued in earlier years. The Tribunal restored the issue back to the AO to decide afresh, directing the Assessee to produce evidence that the expenses were crystallized during the year under consideration. 7. Disallowance of Interest on Share Application Money: The CIT(A) disallowed the capitalized interest on share application money, considering it as an investment. The Tribunal found that the lower authorities were not justified in disallowing the claim of depreciation on capitalized interest and deleted the addition of Rs.2,34,58,723/-. 8. Addition on Account of Liquidated Damages: The CIT(A) treated liquidated damages as revenue receipt. The Tribunal, following the Supreme Court's decision in the case of CIT vs. Saurashtra Cement Ltd., held that the liquidated damages received for delay in supply of machinery were capital receipts and directed the AO to delete the addition. 9. Initiation of Penalty Proceedings Under Section 271(1)(c): The CIT(A) did not entertain the issue, stating that the initiation of penalty proceedings was premature. The Tribunal dismissed this ground as premature. Conclusion: - The Assessee's appeals were partly allowed, with some issues remitted back to the AO for fresh consideration. - The Revenue's appeals were allowed for statistical purposes, with certain issues remitted back to the AO.
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