9911796707
TMI Blog1988 (3) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.5 per cent which he considered to be excessive. According to the assessee, damage of bricks between the period of moulding and loading was normal, and that this year there were excessive rains causing more damage than the usual. The ITO considered the shortage on this account at 4 per cent to be reasonable and he held that 2 per cent of the bricks amounting to Rs. 2,95,000 was sold outside the books and he made a trading addition of Rs. 51,675 as the value of those bricks calculated @ Rs. 175 per thousand. The ITO also noted that a sum of Rs. 2,000 was debited as expenditure on account of lease rent. The account showed that the lease money was being credited in the account of the landlord from year to year and stood accumulated to Rs. 14,000. He took the view that the expenditure was not genuine and, therefore, made an addition. 2. The ITO also noted that the assessee had debited to the trading account a sum of Rs. 47,164 as the value of the land. This was in respect of earth taken out for preparation of bricks from land belonging to the assessee itself. According to the assessee, the Delhi Development Authority was charging Rs. 4 per 1,000 of bricks prepared in respect of land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds of appeal, ground nos. 1 to 10 relate to the first addition of Rs. 51,675 which, on appeal, has been reduced to Rs. 43,827 by the learned CIT (A). The learned counsel for the assessee contended that in the relevant accounting year there were excessive rains causing extensive damage to the Kuchcha bricks and that reports to this effect had been made by the Brick Kiln Owners Association to the Commissioner of Income-tax. The assessee had placed in the paper book copies of letter addressed by the association to the Commissioner complaining of rains from29th April, 1977to5th May, 1977and then again on the 10th May,.1977. The receipt of these intimations by the Commissioner is not denied. The assessee has also filed a chart of daily rainfall inNew Delhishowing that there were quite heavy rains on some dates in April and May. That is not the rainy season. Everyone knows that in brick kiln business, manufacturing processes are carried on during the non-rainy season. Pathai, i.e., preparation of Kuchcha Bricks starts somewhere in November and continues up to the end of May or the beginning of June. During the non rainy season no one can anticipate a rain so well in advance as to stop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account. In the case of Indian Molasses Co. (P.) Ltd. v. CIT [1959] 37 ITR 66 (SC), it has been observed that an expenditure is what is paid out or away and is something which is gone irretrievably. In this case no payment, whatsoever, has been made to anyone and, therefore, this notional debit of an amount that would have been payable by the assessee if it had taken out the same earth from the land belonging to the DDA, is not an expenditure which can be allowed as a deduction for determining its income. 7. Admittedly, no depreciation is allowable on land, though in some cases its value may suffer a set back because of use in a particular manner or because of the extraction of certain materials out of it. The assessee's contention before the authorities below had also been that the land was the assessee's stock-in-trade and any diminution in its value had to be accounted for. This contention may have been correct if the land had actually been treated as the assessee's stock-in-trade and was shown as such in the trading and profit and loss account. It was not shown to us that the value of the land has ever been shown in the trading account either as opening stock or closing stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne through the proposed order by my learned brother, Judicial Member. I agree with him on the conclusions drawn by him with regard to the issues in appeal except with regard to the sum of Rs. 47,164 which was claimed by the assessee as expenditure by debiting it to the trading account on account of the use of earth dug from the land owned by the assessee for the manufacture of bricks, because the assessee is a brick kiln owner. 2. The assessee had debited to the trading account this sum of Rs. 47,164 as the value of the earth taken from the land owned by the assessee for making bricks to be manufactured and sold in its business. The amount was determined on the basis of Rs. 4 per thousand bricks. This was so because DDA was charging Rs. 4 per thousand bricks for such digging out of the earth from their land. Before the ITO, the assessee's claim was that the earth used in making the bricks became stock-in-trade. The ITO and the ld. CIT (A) rejected this claim. My learned brother has also proposed to uphold their action. But in my humble opinion, the action of the authorities below is not justified either on facts of this case or the law applicable thereto. The assessee is carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing process and debited that amount to the trading account, which was allowed by the Supreme Court with the above observations. In my opinion, the ratio this judgment also supports the earlier view taken by the Tribunal and is against the proposed view of my learned brother. I, therefore, find it difficult to bring myself about in line with his thought. I hold that the amount of Rs. 47,164 is deductible from the total income of the assessee in the manner claimed by the assessee. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961. There is a difference of opinion on the following point between the Members of the Bench. We, therefore, refer the same to the Hon'ble President under section 255(4) for reference of the same to a Third Member. The difference is as under : "Whether, on the facts and in the circumstances of the case, the assessee is entitled to deduction of the amount of Rs. 47,164 as value of the earth used in the business of manufacture of bricks carried on by it ?" THIRD MEMBER ORDER Per Shri K. C. Srivastava, Accountant Member - The two Members having differed, the point of difference has been referred to me as Third Member by the Presiden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier year. 4. The learned Judicial Member pointed out that the land belongs to the assessee and the cost of digging was allowable to the assessee. The assessee was not incurring any expenditure as anything was not going out of the assessee's funds and no depreciation was allowable on land. The assessee's contention before the authorities was that the land was diminishing in value and the assessee must be compensated for that. The Judicial Member was of the view that the land was not being treated as stock-in-trade in the profit and loss account. It is not a case where the land was being shown in the opening stock at one value and the closing stock at another value. As this had not been done and it had not been shown that the value of the land was lower at the end of the year, the dedication could not be allowed to the assessee. 5. I have considered the facts of the case. I have noted that in the earlier years the assessee has been claiming this deduction and the same has been allowed to the assessee from the assessment year 1975-76. When the matter had been considered by the Tribunal in that year the basis of this claim had been upheld and the reasoning given by the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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