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TMI Blog2003 (8) TMI 177X X X X Extracts X X X X X X X X Extracts X X X X ..... had been furnished for the removal of the defects, if any, were in the nature of securities and the same did not effect the accrual of the contract receipts in favour of the appellant company". 3. That the CIT(A) erred on facts and in law in confirming the action of the AO in allowing depreciation on expenditure of Rs. 5,65,005 at the rate of 10 per cent treating the same as part of furniture and fixtures as against the claim of the appellant for total write off of the expenditure either as current repair or as temporary structures eligible for 100 per cent depreciation. 4. That the CIT(A) erred on facts and in law in confirming disallowance of expenditure of Rs 9,100 on repairs at the residence of employees as non-business expenditure. 5.1 That the CIT(A) erred on facts and in law in confirming the action of the AO in disallowing deduction for interest accrued but not due amounting to Rs. 21,15,615 on sugar development fund loan. 5.2 That the CIT(A) erred on facts and in law in further holding that the amount of interest was even disallowable as per s. 43B(a) of the Act without appreciating that the amount of interest was not due for payment. 5.3 Without prejudice that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h its written submissions, it was stated on behalf of the assessee that the change in the method of valuation is in accordance with the guidelines of the Institute of Chartered Accountants of India that the inventories should be valued at lower historical cost and net realisable value. It was further explained before the AO that in the past levy and free sale sugar have been treated as one item which was not correct either on facts or on law in so far as levy sugar is totally a different item to free sale sugar as recognised not only by the bankers of the assessee-company but also by the excise authorities and separate records had to be kept of two types of sugar. He, accordingly, valued these two types of sugar independently. In support of his contention, the assessee has relied upon some case laws. The AO has noted that upto asst. yr. 1990-91 the assessee had been continuously following a particular method for valuing the closing stock of sugar but suddenly in asst. yr. 1991-92, it changed the method of valuing the closing stock of sugar and this method was followed only upto the next year, i.e., 1992-93 and in the asst. yr. 1993-94, the assessee again reverted back to its old me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear under appeal has not been followed consistently in future. The details in paras 5 and 8 of the assessment order also indicate that the appellant reduced its incidence of tax through the change in the method of valuation. It was held in the case of ITO vs. Food Specialities (sic), that such change was permissible when it was bona fide and not for the purpose of evading tax. I also agree with the AO that the appellant s reliance on the judgments in the cases of Carborandum Universal Ltd. and National Grindlays Bank is misplaced as method adopted by the appellant is not bona fide or restricted for a particular year and not regularly followed in the subsequent years. It was held by Bombay High Court in the case of Hari Nagar Sugar Mills Ltd. vs. CIT (1994) 122 CTR (Bom) 11 : (1994) 207 ITR 901 (Bom), that there could be no splitting up of the stock of sugar and its valuation at different rates. In view of these observations as well as the judgments quoted by the AO in para 10 of her order the contentions of the appellant are rejected and the addition of Rs. 1,68,71,980 is upheld." 4. Aggrieved, the assessee has preferred an appeal before the Tribunal and besides reiterating its e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncidence of tax. This change in method was valued (sic) upto the asst. yr. 1992-93 and again in asst. yr. 1993-94, the assessee reverted back to its old method of valuation of closing stock of sugar. The acts and deeds of the assessee clearly indicate that the change in valuation of closing stock was done by the assessee at its own convenience. The facts of the case categorically lead to a conclusive opinion that change in method of valuation of closing stock is not bona fide but with intent to avoid incidence of tax. As such, it cannot be allowed. Learned Departmental Representative further contended that the contention of the assessee that the method of valuation adopted in the impugned assessment year should be accepted and followed continuously in future and further change in method of valuation adopted in the asst. yr. 1993-94 should be outrightly rejected. The learned Departmental Representative further submitted that it has been repeatedly held that the assessee has a right to change its method of accounting or valuation of closing stock but it should be bona fide and continuously followed in succeeding years. But, in the instant case, the method of valuation of closing stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o falsify these observations of the AO. 7. We have also carefully examined various judgments referred to by the parties and on its careful perusal, legal position has become more clear that the assessee has a right to make a change in the method of accounting including valuation of closing stock but this must be bona fide and be followed regularly in succeeding years. The assessee is not permitted to make the changes in the method of accounting or valuation of stock so frequently at his convenience to defraud the Revenue. In the case of Abad Fisheries vs. CIT their lordships of the Kerala High Court have categorically held that the change must be bona fide and changed method must be followed regularly. Change to mercantile system and change again to cash system in following year cannot be held to be a bona fide change because it was not followed regularly. During the course of hearing, the learned counsel for the assessee could not satisfactorily explain as to why it has reverted back to its old method of valuation in asst. yr. 1993-94 and for what reasons now the assessee is submitting that the method adopted during the asst. yrs. 1991-92 and 1992-93 must be followed in succeedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. 11. We have heard the rival submissions and carefully perused the orders of the authorities below and documents placed on record. The facts in nutshell borne out from the record are that the AO has observed from the tax audit report that Rs. 11,83,210 was shown as capital Revenue expenditure. Out of this, assessee claimed 100 per cent depreciation at Rs. 8,37,373 being the cost of temporary erection. The AO examined the nature of expenditure in detail in his order in para Nos. 11 to 14 and observed that an expenditure of Rs. 2,37,675 is expenditure on purely temporary erection such as wooden structure on which 100 per cent depreciation is allowable. The remaining expenditure of Rs. 5,65,005 (Rs. 1,81,222 + 11,700 + 3,24,783 + 24,000 + 23,300) was incurred on aluminium partition, furniture and fixtures. Since it was not a temporary erection, the AO allowed 10 per cent depreciation thereon. Aggrieved, the assessee preferred an appeal before the CIT(A) with the submission that the aluminium material is very convenient to install and its cost compares favourably with wooden items of similar quality. In support of his contention, he has relied upon the case of Empire Jute Co. vs. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n before the Tribunal is whether anodised aluminium structure and aluminium partition and doors and wall tunnelling can be termed as a temporary erection on which 100 per cent depreciation is allowable. To determine the nature of erection, one has to look into the nature of material used in erection. In the instant case, expenditures were incurred on anodised aluminium structures, aluminium partition, aluminium doors and wall panellings which has longer life than the wooden structure. The learned Departmental Representative has also invited our attention to rr. 1 and 2 of Appendix I with the submission that wooden structures are generally called to be purely temporary erection because of its life span. Again, in sub-r. (2) under the head furniture and fitting, the depreciation is allowable at 10 per cent. The learned Departmental Representative further submitted that whatever the case law was referred by the assessee, they talk about the revenue and capital expenditure whereas in the instant case, the dispute is with regard to the nature of capital expenditure whether it is a temporary erection or falls under the head furniture and fitting. 14. Having considered the rival submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has claimed an expenditure incurred on fixing side units at the residence of the vice president of the company as per bill dt.20th Oct., 1990of Eshwar Interiors as business expenditure but the AO had disallowed the same on the ground that this expenditure was incurred for non-business purposes. The assessee preferred an appeal before the CIT(A) but did not find favour with him. Now, it has carried the matter before the Tribunal with the submission that this expenditure was incurred at the official residence of the vice president of the company. As such, it should be allowed as a business expenditure. 17. During the course of hearing, a specific query was raised from the learned counsel for the assessee whether the residence was provided by the company to its vice president as per the terms of appointment. If yes, whether it was the responsibility of the company to provide furniture and fixtures in that residence and also to make maintenance of the house as per the terms of employment. Nothing was produced during the course of hearing on behalf of the assessee. Since the assessee failed to prove that the expenditures were incurred in terms of employment or in the regular course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans actually paid or incurred according to the method of accounting on the basis of which profits or gains are computed under the head profits and gains of business and profession. Having regard to this definition of 'paid' in s. 43(2) of the Act, deduction has to be allowed in respect of interest accrued even though not due where the mercantile basis of accounting is followed by the assessee. He further contended that provisions of s. 43B(d) of the Act are not attracted since the interest is payable to the Govt. of India, which operates and controls Sugar Development Fund and not to any financial institution. 20. Learned Departmental Representative, on the other hand, has submitted that the Government always operates through its financing agencies and s. 43B sub-s. (d) deals with the payment of interest on any loan or borrowings from any public financial institution or state financial institution or State Industrial Financial Corporation. As such, the payment of interest to the IFCI cannot be called to be a direct payment to the Government of India for taking the case out of the purview of s. 43B of the Act. He further submitted that s. 43B is a non obstante clause starting with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has claimed in its revised computation filed during the course of assessment proceeding that a sum of Rs. 15,54,540 be allowed as interest payable on excess price of levy sugar price realised on the ground that the writ petition filed by the assessee in the High Court challenging the fixation of levy price was dismissed and the assessee was asked to pay half of the amount in monthly instalments by the Hon ble Supreme Court of India on a stay petition of the assessee while staying the outstanding demand. The assessee further contended before the AO that the interest liability of the year, i.e., Rs. 15,54,540 has been claimed as a liability of the year in the revised computation even though no entries in the books of accounts were made by the assessee. In support of his claim, it placed reliance upon the judgment of the Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC). The AO examined the claim of the assessee in the light of various judgments quoted before him and finally held that since the liability is not ascertained and determined in the year, it cannot be allowed as revenue expenditure. Accordingly, he rejected the claim of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability any more. He further submitted that the liability in respect of interest did crystallise in view of the decision of the Allahabad High Court, dismissing the assessee s writ petition and was not contingent upon final order of the Supreme Court. He further placed reliance upon the orders of the Tribunal in the case of India Coffee Tea Distributing Co. Ltd. vs. IAC (1986) 26 TTJ (Bom) 155 : (1986) 18 ITD 120 (Bom) and D. Rajeshkumar Co. vs. ITO (1987) 22 ITD 89 (Hyd). 25. Learned Departmental Representative, on the other hand, has emphatically argued that the liability claimed by the assessee is not a statutory liability which can be claimed on its accrual. It is a contractual liability and whenever the contractual liability is disputed, it can only be claimed on its crystallisation and quantification. In the instant case, the High Court's order was not accepted by the assessee and it preferred an appeal before the Hon ble Supreme Court and Hon ble Supreme Court has stayed the demand with certain conditions. Since the Supreme Court is seized with the matter, the judgment of the Hon ble High Court cannot be called to be a final verdict on the dispute, on the basis of wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the rival submissions and from a careful perusal of record, we find that the AO has estimated the disallowance under s. 37(2A) of the Act at Rs. 14,80,175 against Rs. 12,76,373 surrendered by the assessee. Before the CIT(A), assessee claimed that 35 per cent of the expenses are attributable to the employees participation whereas the AO estimated it at 10 per cent. The assessee has placed reliance upon the judgment of the Delhi High Court in CIT vs. Expo Machinery Ltd. (1992) 107 CTR (Del) 4 : (1991) 190 ITR 576 (Del), in support of his contention that following the aforesaid judgment, the CIT(A) has directed the AO to exclude 35 per cent of such expenditure on account of employees participation from the purview of s. 37(2A). The CIT(A) has also directed the AO to allow Rs. 2,500 as deduction pertaining to Diner s Club which is a fixed sum and paid as charges for the card for this club and in the nature of annual fee. 30. Aggrieved, the assessee has preferred an appeal before the Tribunal with the submission that the entire expenditure should have been allowed because the seminars were conducted for the assessee s employees only, therefore, it cannot be treated as entertainme ..... 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