1992 (8) TMI 124 - AT - Income Tax

Account Books Accounting Year Assessable Value Assessing Officer Assessment Proceedings Business Expenditure Change In Method Closing Stock Excise Duty Foreign Exchange Foreign Technician Higher Rate Plant And Machinery Previous Year Supreme Court

Issues Involved:
1. Over-invoicing of machinery costs.
2. Expenditure on foreign technicians.
3. Non-capitalization of certain pre-production expenses.
4. Deduction on account of excise duty.
5. Admission of additional grounds by CIT(A).
6. Development rebate on railway siding and engine.
7. Initial depreciation on plant and machinery.
8. Depreciation on wooden shells or rolls.
9. Depreciation on insurance spares and stand-by equipment.
10. Change in the method of valuation of closing stock.

Detailed Analysis:

1. Over-invoicing of Machinery Costs:
The Assessing Officer (AO) reduced the cost of plant and machinery by Rs. 1,27,78,332, which included Rs. 61,58,000 for over-invoicing. This was based on allegations from a family dispute and documents provided to the Directorate of Enforcement. The Special Director of Enforcement found no substance in these allegations. The CIT(A) concluded that the over-invoicing claim was not based on valid material. The tribunal agreed, stating that the AO was not justified in ignoring the findings of the Special Director without substantial reasons.

2. Expenditure on Foreign Technicians:
The AO disallowed expenses on foreign technicians exceeding Rs. 32,15,400, which was the initially permitted amount. However, the CIT(A) accepted the assessee's claim that the total remittance permitted by the Government of India was Rs. 66,70,386. The tribunal upheld the CIT(A)'s direction to limit the disallowance to the amount of non-permitted remittance.

3. Non-capitalization of Certain Pre-production Expenses:
The AO disallowed Rs. 22,05,832 of pre-production expenses, including ceremonial expenses, general charges, business promotion expenses, commitment charges, rent, advertisement expenses, ex-gratia allowance, and erection bonus. The CIT(A) allowed capitalization of most of these expenses based on relevant case law, including the Supreme Court's decision in Challapalli Sugars Ltd. The tribunal confirmed the CIT(A)'s decision, except for a totalling mistake corrected to Rs. 18,16,661.

4. Deduction on Account of Excise Duty:
The CIT(A) allowed a deduction of Rs. 17,19,527 for excise duty based on the Supreme Court's decision in Kedarnath Jute Mfg. Co. Ltd. The tribunal upheld this, noting that the demand, though disputed and stayed by the Supreme Court, related to the year under appeal and thus was deductible.

5. Admission of Additional Grounds by CIT(A):
The revenue argued that the CIT(A) violated Rule 46A and the Supreme Court's decision in Gurjargravures (P.) Ltd. The tribunal found that the CIT(A) had appropriately exercised discretion, considering the Supreme Court's decision in Jute Corpn. of India Ltd., which allows for additional grounds if justified.

6. Development Rebate on Railway Siding and Engine:
The CIT(A) allowed development rebate on the cost of railway siding, which was part of the plant and machinery. The tribunal confirmed this, referencing relevant High Court decisions that supported such claims.

7. Initial Depreciation on Plant and Machinery:
The CIT(A) directed the AO to allow initial depreciation on plant and machinery installed after May 31, 1974, and up to March 31, 1976. The tribunal upheld this, noting that the claim was an enlargement of the existing depreciation claim and supported by available records.

8. Depreciation on Wooden Shells or Rolls:
The CIT(A) allowed 100% depreciation on wooden shells used for winding raw materials, considering them part of the plant and machinery. The tribunal agreed, noting that the nature and use of these shells justified the claim.

9. Depreciation on Insurance Spares and Stand-by Equipment:
The CIT(A) allowed depreciation on insurance spares, considering them part of the plant and machinery. The tribunal upheld this, noting that these spares were necessary to prevent plant stoppage and were integral to the machinery.

10. Change in the Method of Valuation of Closing Stock:
The CIT(A) allowed the change in the method of valuation of closing stock to the direct cost method. The tribunal confirmed this, noting that the method was consistent with accounting standards and would not result in revenue loss if consistently applied in subsequent years.

Conclusion:
The tribunal dismissed both the revenue's appeal and the assessee's cross-objection, confirming the CIT(A)'s decisions on all issues.

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