2013 (10) TMI 422 - AT - Income Tax

Addition made towards variation in the valuation of closing stock Held that - Reliance has been placed on the judgment in the case of Loknete Balasaheb Desai SSK Ltd., 2011 (6) TMI 48 - BOMBAY HIGH COURT - In respect of excisable goods manufacture and lying in stock, the excise duty liability will get crystallized on the date of clearance of goods and not on the date of manufacture - The liability for excise duty did not crystallize, the provisions of section 145A are not applicable to assessee s case Decided against the Revenue. Writing off of stores Revenue expenditure or capital expense Held that - Assessee had written off the stores on the basis of recommendation of expert committee. The stores being day to day consumable materials, write of the same is nothing but revenue expenditure which has to be allowed as revenue expenditure Decided against the Revenue.

Summary

Issues:
1. Valuation of closing stock - Sec. 145A of IT Act, 1963
2. Claim of depreciation on Sub-Merged Arc Furnace
3. Write-off of stores in excess

Valuation of Closing Stock:
The first issue revolves around the CIT(A) granting relief to the assessee despite the addition made towards the variation in the valuation of closing stock. The Tribunal referred to a previous case where it was established that excise duty liability only crystallizes upon the clearance of goods, not at the date of manufacture. As the excise duty liability did not crystallize in the current case, the provisions of section 145A were deemed inapplicable. Consequently, the Tribunal confirmed the order of the CIT(A) and dismissed the revenue's grounds.

Claim of Depreciation on Sub-Merged Arc Furnace:
The second issue concerns the disallowance of depreciation on a Sub-Merged Arc Furnace (SAF) due to non-usage for business purposes. The Tribunal, based on a previous case, concluded that the SAF plant was not integral to the main plant and lacked evidence of readiness for use. As various parts were removed and no intention for future production existed, the Tribunal upheld the disallowance of depreciation. Thus, the Tribunal allowed the revenue's ground on this issue.

Write-off of Stores in Excess:
The final issue involves the allowance of the claim for write-off of stores in excess by the CIT(A). The assessee had written off stores based on an expert committee's recommendation, asserting that the items were revenue in nature. The CIT(A) found no justification for the AO's disallowance, as the write-off was bona fide and supported by the committee's report. The Tribunal agreed that the write-off constituted revenue expenditure and upheld the CIT(A)'s decision, rejecting the revenue's ground.

In conclusion, the Tribunal partly allowed both appeals of the Revenue, confirming the CIT(A)'s orders on the valuation of closing stock and the write-off of stores, while siding with the Revenue on the claim of depreciation on the Sub-Merged Arc Furnace.