1992 (8) TMI 126 - AT - Income Tax

Issues Involved:
1. Over-invoicing of machinery.
2. Expenditure on foreign technicians.
3. Non-capitalization of certain pre-production expenses.
4. Deduction 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 standby equipment.
10. Change in the method of valuation of closing stock.

Detailed Analysis:

1. Over-invoicing of Machinery:
The Assessing Officer (AO) reduced the cost of plant and machinery by Rs. 1,27,78,332, including Rs. 61,58,000 for over-invoicing. The Special Director of Enforcement had acquitted the assessee of over-invoicing charges. The CIT(A) held that the evidence did not justify the finding of over-invoicing. The Tribunal agreed, noting that the AO did not provide adequate reasons to disregard the findings of the Special Director. The Tribunal confirmed the CIT(A)'s order, stating that the cost of machinery disclosed by the assessee was supported by evidence.

2. Expenditure on Foreign Technicians:
The AO capitalized Rs. 76,29,401.91 for foreign technicians' expenses but allowed only Rs. 32,15,400 as permitted by the Government. The CIT(A) directed the AO to limit the disallowance to the amount of non-permitted remittance. The Tribunal found no infirmity in the CIT(A)'s order and declined to interfere.

3. Non-capitalization of Certain Pre-production Expenses:
The AO disallowed Rs. 22,05,832 for non-capitalization of pre-production expenses. The CIT(A) allowed capitalization of Rs. 17,60,661 based on the Supreme Court's decision in Challapalli Sugars Ltd. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were entitled to be capitalized for determining the cost of plant and machinery.

4. Deduction of Excise Duty:
The CIT(A) allowed a deduction of Rs. 17,19,527 for excise duty, relying on the Supreme Court's decision in Kedarnath Jute Mfg. Co. Ltd. The Tribunal upheld this decision, stating that the demand, though created after the end of the previous year, related to the year under appeal.

5. Admission of Additional Grounds by CIT(A):
The Revenue contended that Rule 46A was contravened. The Tribunal noted that the CIT(A) had given the AO an opportunity to comment on the additional grounds and found no fault in the CIT(A)'s decision to admit them.

6. Development Rebate on Railway Siding and Engine:
The CIT(A) directed the AO to allow development rebate on railway siding and engine. The Tribunal confirmed this decision, referencing the Orissa High Court's ruling in Kalinga Tubes Ltd. v. CIT.

7. Initial Depreciation on Plant and Machinery:
The CIT(A) directed the AO to allow initial depreciation on plant and machinery installed after the relevant dates. The Tribunal found no infirmity in this direction, noting that the claim was an enlargement of the existing claim for depreciation.

8. Depreciation on Wooden Shells or Rolls:
The CIT(A) allowed 100% depreciation on wooden shells used for winding raw material. The Tribunal upheld this decision, noting that the nature and use of these shells were explained to the AO during the assessment proceedings.

9. Depreciation on Insurance Spares and Standby Equipment:
The CIT(A) allowed depreciation on insurance spares, considering them part of plant and machinery. The Tribunal agreed, noting that these spares were necessary to ensure the plant did not come to a standstill.

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 decision, noting that the method was one of the recommended methods by the Institute of Chartered Accountants of India and would not result in a loss to the Revenue if consistently followed.

Conclusion:
The appeal of the Revenue and the cross-objection by the assessee were both dismissed. The Tribunal upheld the CIT(A)'s decisions on all the issues, confirming the reliefs and directions provided to the assessee.

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